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**SECURITIES AND EXCHANGE COMMISSION**Washington, D.C. 20549**FORM 20-F**

  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THESECURITIES EXCHANGE ACT OF 1934

OR

  ANNUAL REPORT PURSUANTTO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934**For the fiscal year ended December 31, 2004**

OR

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934For the transition period from __________ to __________Commission file number 1-13240

**EMPRESA NACIONAL DE ELECTRICIDAD S.A.**(Exact name of Registrant as specified in its charter)

| **NATIONAL ELECTRICITY     COMPANY OF CHILE, INC.**                                 |                                                                                                   | **CHILE**                                       |
|-------------------------------------------------------------------------------------|--------------------------------------------------------------------------------------------------------|-------------------------------------------------|
| (Translation    of Registrant’s name into English)                            |                                                                                                   | (Jurisdiction of incorporation or organization) |
|                                                                                | **Santa Rosa 76, Santiago, ChileTelephone No. (562) 630-9000**(Address of principal executive offices) |                                            |
| **Securities registered or to be registered pursuant to Section 12(b) of the Act:** |

| **Title of Each Class**    |   | **Name of each exchange   on which registered** |
|----------------------------|--------|-------------------------------------------------|
|                            |   |                                                 |
| American Depositary Shares |   | New York Stock Exchange                         |
| Shares                     |   | 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:**

| U.S.$ 150,000,000 | 7.200 | % |   | Notes due 2006 |
|-------------------|-------|---|--------|----------------|
| U.S.$ 230,000,000 | 7.875 | % |   | Notes due 2027 |
| U.S.$ 220,000,000 | 7.325 | % |   | Notes due 2037 |
| U.S.$ 200,000,000 | 8.125 | % |   | Notes due 2097 |
| U.S.$ 400,000,000 | 7.750 | % |   | Notes due 2008 |
| U.S.$ 400,000,000 | 8.502 | % |   | Notes due 2009 |
| U.S.$ 400,000,000 | 8.350 | % |   | Notes due 2013 |
| U.S.$ 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             NO   

Indicate by check mark which financial statements item the registrant has elected to follow:

ITEM 17       ITEM 18    

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**Table of Contents**

Page

| INTRODUCTION | 1                                |
|--------------|----------------------------------|
|         | Financial Information            | 1 |
|         | Technical Terms                  | 2 |
|         | Calculation of Economic Interest | 2 |
|         | Forward-Looking Statements       | 2 |
| Part I       |                             | 4 |
|         | Item 1.                          | Identity of Directors, Senior Management and        Advisers | 4 |
|         | Item 2.                          | Offer Statistics and Expected Timetable | 4 |
|         | Item 3.                          | Key Information | 4 |
|         | Item 4.                          | Information on the Company | 18 |
|         | Item 5.                          | Operating and Financial Review and Prospects | 77 |
|         | Item 6.                          | Directors, Senior Management and Employees | 104 |
|         | Item 7.                          | Major Shareholders and Related Party Transactions | 111 |
|         | Item 8.                          | Financial Information | 112 |
|         | Item 9.                          | The Offer and Listing | 121 |
|         | Item 10.                         | Additional Information | 123 |
|         | Item 11.                         | Quantitative and Qualitative Disclosures About        Market Risk | 137 |
|         | Item 12.                         | Description of Securities Other than Equity        Securities | 142 |
| Part II      |                             | 142 |
|         | Item 13.                         | Defaults, Dividend Arrearages and Delinquencies | 142 |
|         | Item 14.                         | Material Modifications to the Rights of Security        Holders and Use of Proceeds | 142 |
|         | Item 15.                         | Controls and Procedures | 142 |
|         | Item 16.                         | [Reserved] | 143 |
| Part III     |                             | 145 |
|         | Item 17.                         | Financial Statements. | 145 |
|         | Item 18.                         | Financial Statements. | 145 |
|         | Item 19.                         | Exhibits. | 145 |

 

 

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**INTRODUCTION**

     *As used in this annual report on Form 20-F, first person personal pronouns such as “we,” “us” or “our” refer 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, 2004.*

**Financial Information**

     In this annual report on Form 20-F, unless otherwise specified, references to “dollars,” “U.S. dollars,” “$” or “U.S.$ ” 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 Perú, 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, 2004, 1 UF was equivalent to Ch$ 17,317.05. The U.S. dollar equivalent of 1 UF was U.S.$ 31.07 for December 31, 2004, using the Observed Exchange Rate reported by the Banco Central de Chile (the “Chilean Central Bank” or the “Central Bank”) for December 31, 2004 of Ch$ 557.4 per U.S.$ 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, 2004 are expressed in constant Chilean pesos as of December 31,2004.  See Note 2(b) to the audited consolidated financial statements included herein.  For Chilean accounting purposes, inflation adjustments are calculated based on 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 2004 calendar year is the percentage change between the November 2003 Chilean CPI and the November 2004 Chilean CPI which was 2.5%.  Chilean GAAP as applied to the Company differs in certain important respects from accounting principlesgenerally accepted in the United States (“US GAAP”).  See Note 33 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” under 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”) inPerú.  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” at    December 31, 2004. 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–SelectedFinancial 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 within power plants.

     Technical transmission losses are calculated by:

|  | • | subtracting the number of GWh of energy sold from the amount of energy purchased and generated (which already excludes own energy consumption and losses of the power plant), 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 Perú, 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; |
|--|--------|---------------------------------|

|  |   |                                                                 |
|--|--------|----------------------------------------------------------------------|
|  | • | 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; |

|  |   |                                                                                                                                                                                                                                                                                    |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | 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. |

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     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.

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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 in this annual report.    The audited consolidated financial statements are prepared in accordance    with Chilean GAAP and the rules of the Superintendency of Securities and    Insurance (“SVS”), which together differ in certain important respects    from US GAAP. Note 33 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, 2004 in the following table have been    restated in constant Chilean pesos as of December 31, 2004.

     All data, except ratios and operating data, are in millions.  For the convenience of the reader, all data presented in U.S. dollars in the following summary, as of and for the year ended December 31, 2004 are translated at the Observed Exchange Rate for December 31, 2004 of Ch$ 557.4 per U.S.$ 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.

     Our principal operating subsidiaries were consolidated prior to 1998.  All companies have been consolidated according to Chilean GAAP.

     On December 17, 2004, our Colombian subsidiary, Endesa de Colombia S.A., owner of an 8.91% interest in Central Hidroeléctrica Betania S.A., was liquidated. As a result of this, Endesa-Chile (the parent company) and Compañía Eléctrica Cono Sur S.A., a company holding shares in Endesa de Colombia S.A., now have direct ownership interests in Central Hidroeléctrica Betania S.A.

     The information detailed in the following table includes the effect of certain accounting changes for the five years ended and as of December 31, 2004, which affect the comparability presented below. For further information on changes in accounting policies see Notes 3 and 33 to our consolidated financial statements.

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|                                                                                      |        |        | **As of or for the year ended December 31,** |        |
|-------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------|--------|
|                                                                                      |        |        | **2000**                                     |        |  | **2001** |  |  | **2002** |  |  | **2003** |  |  | **2004** |  |  | **2004** |  |
|                                                                                      |   |   |                                              |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                                                      |        |        |                                         |        |  |   |  |  |   |  |  |   |  |  |   |  |  | **(millions of US$) (1)** |  |
|                                                                                      |        |        | **MCh$**                                     |        |  | **MCh$** |  |  | **MCh$** |  |  | **MCh$** |  |  | **MCh$** |  |  | **MUS$** |  |
| Consolidated Income Statement Data                                                        |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chilean GAAP:                                                                             |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues form operations                                                                  |   |   | 970,703                                      |   |   | 1,082,126 |   |   | 971,167 |   |   | 943,288 |   |   | 1,032,662 |   |   | 1,853 |   |
| Cost of operations                                                                        |   |   | (659,761                                     | )      |   | (685,965 | ) |   | (575,171 | ) |   | (564,208 | ) |   | (629,191 | ) |   | (1,129 | ) |
| Administrative and selling expenses                                                       |   |   | (34,603                                      | )      |   | (35,919 | ) |   | (37,568 | ) |   | (32,107 | ) |   | (34,445 | ) |   | (62 | ) |
| Operating income                                                                          |   |   | 276,339                                      |   |   | 360,242 |   |   | 358,428 |   |   | 346,973 |   |   | 369,026 |   |   | 662 |   |
| Equity in income (losses) of related companies, net                                       |   |   | 702                                          |   |   | (10,297 | ) |   | 8,872 |   |   | 17,804 |   |   | 19,203 |   |   | 33 |   |
| Goodwill amortization                                                                     |   |   | (7,500                                       | )      |   | (8,561 | ) |   | (112,389 | ) |   | (1,582 | ) |   | (1,464 | ) |   | 3 |   |
| Interest (expense) income, net                                                            |   |   | (245,855                                     | )      |   | (224,371 | ) |   | (210,052 | ) |   | 193,596 |   |   | (177,646 | ) |   | (320 | ) |
| Price-level restatement and foreign currency translation, net                             |   |   | (3,861                                       | )      |   | (10,526 | ) |   | 3,681 |   |   | 9,769 |   |   | 22,842 |   |   | 40 |   |
| Other non-operating income (expense), net                                                 |   |   | 219,168                                      |   |   | (2,779 | ) |   | (14,586 | ) |   | (15,876 | ) |   | (28,045 | ) |   | (51 | ) |
| Income before income taxes, minority interest and negative goodwill amortization          |   |   | 238,993                                      |   |   | 103,708 |   |   | 33,954 |   |   | 163,492 |   |   | 203,916 |   |   | 367 |   |
| Income taxes                                                                              |   |   | (91,603                                      | )      |   | (41,319 | ) |   | (73,118 | ) |   | (28,062 | ) |   | (93,427 | ) |   | (168 | ) |
| Extraordinary loss                                                                        |   |   | —                                       |   |   | — |   |   | (11,315 | ) |   | — |   |   | — |   |   | — |   |
| Minority interest                                                                         |   |   | (70,999                                      | )      |   | (35,215 | ) |   | (48,117 | ) |   | (71,326 | ) |   | (42,802 | ) |   | (78 | ) |
| Amortization of negative goodwill                                                         |   |   | 42,587                                       |   |   | 47,529 |   |   | 88,948 |   |   | 15,980 |   |   | 16,102 |   |   | 29 |   |
| Net income (loss)                                                                         |   |   | 118,978                                      |   |   | 74,703 |   |   | (9,648 | ) |   | 80,084 |   |   | 83,789 |   |   | 150 |   |
| Net income (loss) per share in Ch$/US$                                                    |   |   | 14.51                                        |   |   | 9.11 |   |   | (1.18 | ) |   | 9.76 |   |   | 10.22 |   |   | 0.02 |   |
| Net income (loss) per ADS in Ch$/US$ (2)                                                  |   |   | 435.18                                       |   |   | 273.24 |   |   | (35.29 | ) |   | 292.92 |   |   | 306.47 |   |   | 0.55 |   |
| **US GAAP (6):**                                                                          |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Revenues from operations                                                                  |   |   | 994,971                                      |   |   | 1,087,853 |   |   | 950,643 |   |   | 943,817 |   |   | 1,032,662 |   |   | 1,853 |   |
| Operating income                                                                          |   |   | 339,872                                      |   |   | 375,191 |   |   | 196,354 |   |   | 160,380 |   |   | 374,755 |   |   | 672 |   |
| Equity in income of related companies                                                     |   |   | 852                                          |   |   | (16,539 | ) |   | 30,469 |   |   | 46,323 |   |   | 19,204 |   |   | 34 |   |
| Income taxes                                                                              |   |   | (114,426                                     | )      |   | (59,456 | ) |   | (87,592 | ) |   | 25,080 |   |   | (152,273 | ) |   | (273 | ) |
| Net income (loss) from continuing operations                                              |   |   | 100,271                                      |   |   | (1,932 | ) |   | (77,795 | ) |   | 74,559 |   |   | 63,543 |   |   | 114 |   |
| Cumulative effect of changes in accounting principles, net of taxes and minority interest |   |   | —                                       |   |   | 33,470 |   |   | — |   |   | (124 | ) |   | 1,207 |   |   | 2 |   |
| Income (loss) from discontinued operations net of tax and minority interest               |   |   | 448                                          |   |   | 491 |   |   | 285 |   |   | 118 |   |   | — |   |   | — |   |
| Net income (loss)                                                                         |   |   | 100,719                                      |   |   | 32,029 |   |   | (77,510 | ) |   | 74,553 |   |   | 64,750 |   |   | 116 |   |
| Net income (loss) on continuing operations per share in Ch$/US$                           |   |   | 12.23                                        |   |   | 3.84 |   |   | (9.48 | ) |   | 9.08 |   |   | 7.89 |   |   | 0.01 |   |
| Net income (loss) on discontinued operations per share in Ch$/US$                         |   |   | 0.05                                         |   |   | 0.06 |   |   | 0.03 |   |   | 0.01 |   |   | — |   |   | — |   |
| Net income (loss) per share in Ch$/US$                                                    |   |   | 12.18                                        |   |   | 2.78 |   |   | (9.45 | ) |   | 9.09 |   |   | 7.89 |   |   | 0.01 |   |
| Net income (loss)on continuing operations per ADS in Ch$/US$                              |   |   | 357.90                                       |   |   | 112.54 |   |   | (277.61 | ) |   | 265.62 |   |   | 236.70 |   |   | 0.42 |   |
| Net income (loss) on discontinued operations per ADS in Ch$/US$                           |   |   | 1.50                                         |   |   | 1.80 |   |   | 0.90 |   |   | 0.30 |   |   | — |   |   | — |   |
| Net income (loss) per ADS in Ch$/US$ (4)                                                  |   |   | 368.39                                       |   |   | 117.16 |   |   | (283.52 | ) |   | 272.45 |   |   | 236.70 |   |   | 0.42 |   |
| Consolidated Balance Sheet Data                                                           |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chilean GAAP:                                                                             |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                              |   |   | 6,228,652                                    |   |   | 6,585,817 |   |   | 6,754,179 |   |   | 5,601,969 |   |   | 5,317,659 |   |   | 9,540 |   |
| Long-term liabilities                                                                     |   |   | 2,854,774                                    |   |   | 2,901,907 |   |   | 2,547,886 |   |   | 2,346,876 |   |   | 2,191,610 |   |   | 3,932 |   |
| Minority interest                                                                         |   |   | 1,352,384                                    |   |   | 1,483,079 |   |   | 1,551,043 |   |   | 1,248,187 |   |   | 1,127,391 |   |   | 2,023 |   |
| Total Shareholders’ equity                                                          |   |   | 1,425,433                                    |   |   | 1,497,539 |   |   | 1,481,065 |   |   | 1,529,986 |   |   | 1,568,898 |   |   | 2,815 |   |
| Capital stock                                                                             |   |   | 1,076,449                                    |   |   | 1,076,449 |   |   | 1,076,449 |   |   | 1,076,449 |   |   | 1,076,449 |   |   | 1,931 |   |
| U.S. GAAP                                                                                 |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total assets                                                                              |   |   | 6,164,839                                    |   |   | 6,141,929 |   |   | 6,478,567 |   |   | 5,283,625 |   |   | 4,993,507 |   |   | 8,959 |   |
| Long-term liabilities                                                                     |   |   | 3,076,374                                    |   |   | 2,751,982 |   |   | 2,766,177 |   |   | 2,424,030 |   |   | 2,309,342 |   |   | 4,143 |   |
| Minority interest                                                                         |   |   | 1,318,015                                    |   |   | 1,512,867 |   |   | 1,578,668 |   |   | 1,207,642 |   |   | 1,039,968 |   |   | 1,866 |   |
| Total Shareholders’ equity                                                          |   |   | 1,145,687                                    |   |   | 1,165,996 |   |   | 1,091,357 |   |   | 1,151,491 |   |   | 1,192,849 |   |   | 2,140 |   |
| Capital stock                                                                             |   |   | 1,076,449                                    |   |   | 1,076,449 |   |   | 1,076,449 |   |   | 1,076,449 |   |   | 1,076,499 |   |   | 1,931 |   |
|                                                                                      |   |   |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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|                                                   |        |        | **As            of or for the year ended December 31,** |        |
|--------------------------------------------------------|--------|--------|---------------------------------------------------------|--------|
|                                                   |        |        | **2000**                                                |        |  | **2001** |  |  | **2002** |  |  | **2003** |  |  | **2004** |  |  | **2004** |  |
|                                                   |   |   |                                                         |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                                   |        |        |                                                    |        |  |   |  |  |   |  |  |   |  |  |   |  |  | **(millions            of US$) (1)** |  |
|                                                   |        |        | **MCh$**                                                |        |  | **MCh$** |  |  | **MCh$** |  |  | **MCh$** |  |  | **MCh$** |  |  | **MUS$** |  |
| Other Consolidated Financial Data                      |   |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chilean          GAAP:                                 |   |   |                                                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Capital          expenditures (5)                      |   |   | 92,824                                                  |   |   | 54,840 |   |   | 139,612 |   |   | 134,419 |   |   | 96,136 |   |   | 172 |   |
| Depreciation          and amortization                 |   |   | 175,530                                                 |   |   | 158,189 |   |   | 229,524 |   |   | 171,258 |   |   | 157,554 |   |   | 283 |   |
| Cash          dividends per share in Ch$/US$ (3)       |   |   | 1.05                                                    |   |   | 1.01 |   |   | — |   |   | 2.30 |   |   | 4.13 |   |   | 0.01 |   |
| Cash          dividends per ADS in US$ (2)(3)(4)       |   |   | 0.04                                                    |   |   | 0.04 |   |   | — |   |   | 0.11 |   |   | 0.22 |   |   | 0.22 |   |
| Weighted          average shares outstanding (million) |   |   | 8,202                                                   |   |   | 8,202 |   |   | 8,202 |   |   | 8,202 |   |   | 8,202 |   |   | 8,202 |   |
| Number          of ADS (million)                       |   |   | 26                                                      |   |   | 28 |   |   | 16 |   |   | 14 |   |   | 13 |   |   | 13 |   |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |
| (1)    | Solely for the convenience of the reader, Chileanpeso amounts have been translated into dollars at the rate of Ch$ 557.4 per U.S.dollar the Observed Exchange Rate as of December 31, 2004. You should not construethe translation of currency amounts in this annual report to be representationthat the Chilean peso amounts actually represent current U.S. dollar amountsor thatyoucouldconvert Chilean peso amounts into U.S. dollars at the rate indicated or at anyother 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. 2004 dividend was paid on April 18, 2005. |

|   |                                                                                                                                     |
|--------|------------------------------------------------------------------------------------------------------------------------------------------|
| (4)    | US dollar amounts are calculated by applying the US dollarexchange rate on the dividend payment date to the nominal Chilean peso amount. |

|   |                                                                                                                             |
|--------|----------------------------------------------------------------------------------------------------------------------------------|
| (5)    | Capital expenditures does not include investments in equityinvestees and capital expenditures in development stage subsidiaries. |

|   |                                                                                                                                                                                                                |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6)    | For reconciliation from Chilean GAAP to US GAAP, see Note 33, “Differencesbetween Chilean and United States Generally Accepted Accounting Principles”, of our Audited Consolidated FinancialStatements. |

**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”), 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 price of the Company’s American Depositary Shares (“ADSs”).  Such fluctuationswill 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. 18,840 (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 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 acuerdo* or 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’stransactions in the Formal Exchange Market.

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     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, 2004, the Informal Exchange Rate was Ch$ 556.00, or 0.25% less than the published Observed Exchange Rate of Ch$ 557.40 Per U.S.$1.00.

     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 U.S.$ )** |   |
|----------|--------|--------|-----------------------------------------------|--------|
|     |   |        |                                               |        |  |  |  |  |  |  |  |  |   |
| **Year** |   |   | **Low(2)**                                    |   |   | **High(2)** |   |   | **Average(3)** |   |   | **Period-end** |   |
|     |   |        |                                               |   |  |  |   |  |  |   |  |  |   |
| 2000     |   |   | 501.04                                        |   |   | 580.37 |   |   | 542.08 |   |   | 573.65 |   |
| 2001     |   |   | 557.13                                        |   |   | 716.62 |   |   | 637.57 |   |   | 654.79 |   |
| 2002     |   |   | 641.75                                        |   |   | 756.56 |   |   | 692.32 |   |   | 718.61 |   |
| 2003     |   |   | 593.10                                        |   |   | 758.21 |   |   | 691.53 |   |   | 593.80 |   |
| 2004     |   |   | 557.40                                        |   |   | 649.45 |   |   | 611.11 |   |   | 557.40 |   |

|                |   |   | **Observed Exchange Rate (1)(Ch$ per U.S.$ )** |   |
|---------------------|--------|--------|------------------------------------------------|--------|
|                |   |        |                                                |        |  |  |  |  |  |  |  |  |   |
| **Last six months** |   |   | **Low (2)**                                    |   |   | **High (2)** |   |   | **Average** |   |   | **Period-end** |   |
|                |   |        |                                                |   |  |  |   |  |  |   |  |  |   |
|                |        |        |                                                |        |  |  |  |  |  |  |  |  |  |
| 2004                |   |   |                                           |   |   |   |   |   |   |   |   |   |   |
| December            |   |   | 557.40                                         |   |   | 597.27 |   |   | N.A. |   |   | 557.40 |   |
| 2005                |   |   |                                           |   |   |   |   |   |   |   |   |   |   |
| January             |   |   | 560.30                                         |   |   | 586.18 |   |   | N.A. |   |   | 585.40 |   |
| February            |   |   | 563.22                                         |   |   | 583.84 |   |   | N.A. |   |   | 573.55 |   |
| March               |   |   | 578.60                                         |   |   | 591.69 |   |   | N.A. |   |   | 585.93 |   |
| April               |   |   | 572.75                                         |   |   | 588.95 |   |   | N.A. |   |   | 582.73 |   |
| May                 |   |   | 570.83                                         |   |   | 583.59 |   |   | N.A. |   |   | 583.00 |   |

|                               |   |
|------------------------------------|--------|
| **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. |

**B.**      **Capitalization and indebtedness.**

     Not applicable.

**C.**      **Reasons for the offer and use of proceeds.**

     Not applicable.

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**D.**      **Risk Factors**

**Risks Relating to Our Operations**

|   | ***Since our business depends heavily on hydrological conditions, drought conditions may hurt our profitability.*** |
|--------|---------------------------------------------------------------------------------------------------------------------|

     Approximately 69% of our consolidated installed capacity in Chile, Argentina, Brazil, Colombia and Perú is hydroelectric, and accordingly adverse hydrological conditions may negatively affect our business and results of operations.

     During periods of drought, thermal plants, including those that use natural gas, fuel oil or coal as a fuel, are dispatched more frequently. Our operating expenses increase during these periods and, depending on the size of our commitments, we may have to buy electricity from other parties in order to meet our contractual supply obligations. The cost of these electricity purchases in the spot market may exceed the price at which we sell contracted electricity, thus producing losses in that region.

     In 2000, we and our generation subsidiaries established a commercial and risk policy in order to mitigate the potential impact of interruptions to our ability to supply electricity, including those caused by droughts, cuts in gas supplies and prolonged stoppages of plants in the electricity grid.  Pursuant to this policy, a volume of contracts is determined for each generation company that reduces the risks to acceptable levels, assured by a degree of statistical reliability of 95%. Any contracts for volumes that exceed this 95% level are required to include clauses transferring the risk of interruptions to the customers.  However, the ability of statistical models to predict weather and political events (such as gasinterruptions) is limited and there can be no assurance that this policy will shield us from the potential negative consequences of long periods of drought.

|   | ***The Chilean regulatory authorities may impose fines on us and our Chilean generation subsidiaries due to operational failures which affect the electricity system.*** |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

     The current Chilean law grants powers to the Superintendency of Electricity and Fuels (SEF) to investigate and fine those responsible for failures on the electricity grid.  As of December 31, 2004, such fines may range from 1 Unidad Tributaria Mensual (“UTM”), equivalent to approximately U.S. $ 54 to 10,000 Unidades Tributarias Anuales (“UTA”), equivalent to approximately U.S.$ 6.5 million.  The company and its Chilean generating subsidiaries may be fined as a result of failures on the electricity grid even if they have not been involved in the causes of the full or partial cut in supply, as the Superintendency of Electricity and Fuels (SEF) has the authority to assign them a degree ofresponsibility as members of the Load Dispatch Center (CDEC), the entity responsible for coordinating the operation of the electricity system. Any electricity company supervised by the SEF may be exposed to fines when the electricity system is affected by operating failures, even when it is not within such company’s power to react to prevent a collapse in the system.

     On August 14, 2003, the SEF imposed fines on us and our Chilean generation subsidiaries in an aggregate amount of 3,500 UTA, equivalent to approximately U.S.$ 2.3 million, due to a failure in the transmission of energy in the Metropolitan Region of Chile on September 23, 2002.  On April 27 and May 3, 2004, the SEF imposed fines of 2,030 UTA, equivalent to approximately U.S.$ 1.3 million, on Endesa-Chile due to a black out that occurred in the Metropolitan Region on January 13, 2003.  Our subsidiaries are currently appealing these fines, but these appeals may not be successful.

|   | ***Governmental regulations may impose additional operating costs and may reduce our profits.*** |
|--------|--------------------------------------------------------------------------------------------------|

     We are subject to extensive regulation of tariffs and other aspects of our business in the countries in which we operate, and these regulations at times may affect our profitability adversely.  In addition, changes in the regulatory framework, including changes that if adopted would significantly affect our operations, are frequently submitted to the legislators and administrative authorities in the countries in which we operate, and could have a material adverse impact on our business.  

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     *Electricity Rationing in Chile*.  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 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 offailure” 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 deficit.  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 volume we failed to provide at the “rationed end-consumer price.”  If rationing policies are imposed by regulatory authorities in Chile, our business, financial condition and results of operations may be affected adversely in a material way.

     *Resolution 88*. In May 2001, the Ministry of Economy issued Resolution 88, under which electricity generators such as Endesa-Chile and its Chilean subsidiaries are required to provide electricity to distribution companies that are not able to freely contract adequate supply to deliver to their customers. Under the terms of Resolution 88, each generator must supply energy to the distributors with deficit positions in proportion to the firm energy of each generator at a price equal to the node price.  Firm energy is the estimated amount of energy that can be reliably delivered to an interconnected system during a given year by all generating units in that system, under certain assumptions. If Endesa-Chile and itsChilean subsidiaries cannot generate sufficient energy to supply their share of distribution companies’ needs, they will be required to purchase energy on the spot market, at prices that may be significantly higher than the price at which they would be required to sell to distributors, and accordingly they may incur losses.  In addition, the requirement to sell to distributors limits Endesa-Chile’s ability to expand sales to non-regulated customers, who may be more profitable for us.  For a more complete discussion of this topic, see “Item 4. Information on the Company–Electricity Industry Regulatory Framework”. 

     *Water Rights*.  Approximately 76% of the installed capacity of our Chilean generation subsidiaries is hydroelectric.  These generation companies own unlimited duration unconditional and absolute property water rights granted by the Chilean Water Authority.  However, in March 2005, Chilean Congress approved a modification to the current laws governing unused water rights.  Under the amended law, beginning on January 1, 2006, Chilean generation companies will have to pay an annual license for unused water rights.  By the end of 2005, we will have to determine which water rights are likely to be eventually utilized for a hydroelectric project and which will not.  If we determine that some water rights will not beused for a future project, we will abandon such water rights in order to avoid liability for license payments.  We estimate that in the event that we do not abandon any water rights in the SIC, we will have to pay license fees aggregating no more than U.S.$ 4.0 million per year. When any future project commences operations, license fees paid for the corresponding water rights will be recovered retroactively through a tax credit, for a term of up to eight years before the start up of the project that utilizes the water rights.

     In the case of water rights located in the extreme south of Chile (in particular, the eleventh and twelfth regions, outside the area comprised by the SIC), the license payments will be paid starting as of January 1, 2013, using the same tax refund regime mentioned above for the SIC.

|   | ***The Argentine natural gas crisis has increased the vulnerability of the electricity sector in Chile.*** |
|--------|------------------------------------------------------------------------------------------------------------|

     In Argentina, the low price imposed by regulators on natural gas has directly affected production and investment in natural gas fields, which has in turn impacted the short and medium-term availability of this fuel in Chile.  A natural gas shortage may force electricity generation companies, including ours, to use more expensive fuel oil, thus substantially increasing production costs.  Strong demand for electricity in Chile’s central region, which increased by 7.9% in 2004 and is expected to continue to increase significantly in the foreseeable future, combined with a low level of investment in the electricity sector, makes the Chilean electricity sector particularly exposed to the adverse effects of theArgentine natural gas crisis. 

     In Chile’s central region, our thermal plants San Isidro and Taltal use natural gas for thermal generation and have take-or-pay gas contracts with Argentine suppliers.  On March 26, 2004, the Argentine government announced a resolution allowing governmental authorities to partially suspend natural gas exports and giving the President of Argentina the power to temporarily suspend the long-term supply contracts of Argentine exporters.  Since that date, Argentina has significantly curtailed its natural gas exports to Chile.  As a result, the Chilean electricity sector is more vulnerable than in the past.

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|   | ***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 our obligations will be partially dependent on the receipt of distributions from our subsidiaries.  The ability of our subsidiaries to pay dividends, make loan payments, and other distributions to Endesa-Chile is subject to legal constraints  such as dividend restrictions, fiduciary duties, contractual limitations, and 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 have generally 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 restrictions.

     Our future results from operations outside Chile may continue to be subject to greater economic and political uncertainties than 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 our debt.

     *Dividend Limits and Other Legal Restrictions*.  We and our Chilean subsidiaries are subject to customary legal restrictions limiting the amount of dividend distributions.  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 upstreaming cash to us.

     *Contractual Constraints*.  Upstreaming restrictions in our subsidiaries’ contractual agreements include:

|  | • | prohibitions against dividend distributions by** Pangue,our Chilean generation subsidiary, if it is not in compliance with certain debtto equity ratios and debt coverage ratios (each as defined in Pangue’scredit 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 of intercompany debt unless it raises additional funds from the sale of assets or capital reductions of Emgesa, and against payments of interest on intercompany debt if any scheduled payment of Betania’s syndicated loan is due and not paid; and |

|  |   |                                                                                                                                                                                   |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | 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 subsidiary exceed its available cash, that subsidiary will not be able to make cash available to us.

     *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.

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|   | ***We are subject to financial covenants under our existing indebtedness.*** |
|--------|------------------------------------------------------------------------------|

     We are subject to certain fairly standard financial covenants related to maximum ratios of indebtedness to adjusted cash flow, indebtedness to EBITDA, debt to equity and minimum ratio of adjusted cash flow to interest expense.  In addition, substantially all of our indebtedness contains cross-default provisions, generally triggered by default on other indebtedness in amounts exceeding U.S.$ 30 million on an individual basis.  In the event that any of our cross-default provisions are triggered and our existing creditors demand immediate repayment, substantially all of our indebtedness will become due and we would be unable to pay such debt.

     For more information on these credit facilities, see “Item 5 – Results from Operations for the years ended December 31, 2003 and 2004 – Liquidity and Capital Resources”.

|   | ***We and our subsidiaries may be subject to refinancing risk.*** |
|--------|-------------------------------------------------------------------|

     As of December 31, 2004, on a consolidated basis, Endesa-Chile had financial indebtedness of U.S.$ 414 million maturing in 2005, U.S.$ 620 million in 2006, U.S.$ 1.465 million in 2007 through 2009 and U.S.$ 1,624 million indebtedness maturing thereafter. 

     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 obtaining the best price for such assets.  Furthermore, assets may not be sold quickly enough, or for amounts sufficient to enable us to make the payments due on our indebtedness.

|   | ***Foreign exchange risks may affect our results of operations and financial condition adversely.*** |
|--------|------------------------------------------------------------------------------------------------------|

     The Chilean peso and the other South American currencies in which our we and 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 in part to U.S. dollars, we generally have been and continue to be materially exposed to fluctuations in our local currencies against the dollar because of time lags 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 a devaluation of approximately 71% 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 on the risks associated with foreign exchange rates, see “Item 11.  Quantitative and Qualitative Disclosures about Market Risk–Foreign CurrencyRisk.”

     As of December 31, 2004, Endesa-Chile had total consolidated financial indebtedness of U.S.$ 4,124 million, of which U.S.$ 2,922 million, or 71%, was denominated in U.S. dollars.  For the twelve-month period ended December 31, 2004, our revenues amounted to U.S.$ 1,853 million of which U.S.$ 400 million were denominated in U.S. dollars, and U.S.$ 772 million were linked in some way to the U.S. dollar.  In the aggregate, 63% 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 U.S.$ 78 million were revenues in pesos, which represents 4.2% of our 2004 consolidated revenues.  We believe that we remain exposed torisk 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, 2004, our foreign-currency denominated consolidated indebtedness included the equivalent of U.S.$ 13 million in Brazilian reais, U.S.$ 471 million in Colombian pesos, U.S.$ 110 million in Peruvian soles, and U.S.$ 21 million in Argentine pesos, for an aggregate of U.S.$ 615 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, 2004, included the equivalent of U.S.$ 71 million in Brazilian reais, U.S.$ 249 million in Colombian pesos, U.S.$ 208 million in Argentine pesos, and U.S.$ 75 million in Peruvian soles, for an aggregateof U.S.$ 603 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 most material case is that of Argentina, where most of our debt is denominated in U.S. dollars while our revenues are mostly in Argentine pesos, as discussed above.

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|   | ***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 may increase our costs of operations.*** |
|--------|------------------------------------------------------------------------------------------------------------|

     We are subject to environmental regulations, which, among other things, require us to carry out environmental impact studies for future projects and obtain permits from both local and national regulators.  Approval of these environmental impact studies may be withheld by governmental authorities, public opposition may result in delays or modifications to any proposed project and laws or regulations may change or be interpreted in a manner that could adversely affect our operations or our plans for companies in which we hold investments. See “Item 4. Information on the Company–D. Property, plants and equipment–Environmental Issues”.

|   | ***We are currently involved in various litigation proceedings, which could result in unfavorable decisions or financial penalties for us, and we will continue to be subject to future litigation proceedings, 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 60.0% 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 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 South 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 ofEndesa-Spain’s other businesses in any jurisdiction in South America, Endesa-Spain may 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”.

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|   | ***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 prices of certain commodities as a result of the long-term energy sales contracts we have entered into. Our subsidiaries have material obligations under long-term fixed-price electricity sales contracts, the values of which fluctuate with the market price of electricity. In addition, our generation subsidiaries have material obligations as selling parties under 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 inthe market price of these commodities and in the 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, our income statement does not reflect fluctuations of the fair value of our long-term energy contracts, although we are required to do so under U.S. GAAP. Our policy is to not enter into supply contracts for amounts exceeding our firm capacity under adverse hydrological conditions.  For further discussion, please refer to“Item 11.  Quantitative and Qualitative Disclosures About Market Risk–Commodity Price Risk” in this annual report.

**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 2004, the Chilean economy grew by 6.1% compared to a 3.7% increase in 2003.  The Central Bank recently reclassified its criteria for growth measurements.  The latest Chilean Central bank forecasts for GDP growth are between 5.25% and 6.25% for 2005 and greater than 5.0% for 2006 (Central Bank “Informe Política Monetaria”, January 2005).  There is no assurance that such growth will be achieved, that the growth trend will continue in the future, or that future developments in theChilean 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.

|   | ***Increased inflation in Chile may affect our results from operations adversely.*** |
|--------|--------------------------------------------------------------------------------------|

     Although Chilean inflation has been low in recent years, Chile has experienced high levels of inflation in the past. High levels of inflation in Chile could affect the Chilean economy adversely and, indirectly, the value of shares of Enersis’ common stock and ADSs.  The Chilean Consumer Price Index, or Chilean CPI, for the 12 months ended December 31, 2004, was 2.4%, and government officials expect Chilean CPI to be approximately 2.0% and 3.0% for 2005 and 2006 respectively. Historically, a substantial part of our expenses has been denominated in Chilean pesos, and future increases in Chilean inflation could cause our expenses to rise significantly. As a result, the level of Chilean inflation may affect ourfinancial condition and results from 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, and the value of securities issued by us, may be affected adversely if inflation levels were to rise significantly.

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|   | ***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 or Chilean courts, judgments obtained in United States courts based on the civil liability provisions of the federal securities laws of the United States.  In addition, thereis 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.

|   | ***Foreign exchange risks may affect the US dollar amount of dividends payable to holders of Endesa-Chile’s ADSs adversely.*** |
|--------|--------------------------------------------------------------------------------------------------------------------------------------|

     Chilean trading in the shares of common stock underlying the ADSs is conducted in pesos.  Endesa-Chile’s depositary will receive cash distributions that we make with respect to the shares underlying the ADSs in pesos.  The depositary will convert such pesos to US dollars at the then-prevailing exchange rate to make dividend and other distribution payments in respect of ADSs.  If the Chilean peso appreciates against the US dollar, the value of the ADSs and any distributions ADS holders receive from the depositary may decrease.

|   | ***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 we and our 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 our capital investments program and may increase the cost of the projects.

|   | ***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 South 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.

**Risk Factors Relating to the Rest of South America.**

|   | ***South American economic fluctuations are likely to affect our results from operations.*** |
|--------|----------------------------------------------------------------------------------------------|

     All    of our operations are located in South America. Although we originally operated    only in Chile, we have, through strategic acquisitions and investments, expanded    our operations throughout South America. In 2004, we generated 55% of our    consolidated operating revenues and 59% of our consolidated operating income    outside Chile. Accordingly, our consolidated revenues are sensitive to the    performance of the South American economies as a whole. If local, regional    or worldwide economic trends adversely affect the economy of any of the countries    in which we have investments or operations, our financial condition and resultsfrom operations could be affected adversely.

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     The South 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 affected adversely by events elsewhere, especially in other emerging markets, and such effects may affect the value of or the interest rate yields in the secondary markets for our debt securities. Moreover, Endesa-Chile has significant investments in relatively risky non-Chilean countries such as Argentina, Brazil,Colombia and Peru. Generation and upstreaming of cash from subsidiaries in these countries have proven to be volatile.

|   | ***Certain South American economies have been characterized by frequent and occasionally drastic intervention by governmental authorities, which may affect our business adversely.*** |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

     Governmental authorities have often changed monetary, credit, tariff and other policies to influence the course of the economy of Argentina, Brazil, Colombia and Peru.  These governments’ actions to control inflation and effects of 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 affect our business and financial results adversely, as could inflation, devaluation, social instability and other political, economic or diplomaticdevelopments, including the response by governments in the region to such circumstances. If governmental authorities intervene in any of the countries in which we operate, it could cause our business to be less profitable, and our results from operations may be affected adversely.

**Risk Factors Relating to Argentina**

|   | ***The 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.*** |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

     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 ourArgentine subsidiaries and their results of operations and may continue to impair their ability to make distributions to us.

     As of the date of this report, Argentina had nearly completed the restructuring of a substantial portion of its bond indebtedness, but such restructuring continued to be subject to litigation.  In addition, an agreement with the IMF had not been reached. The failure to do so could block Argentina’s further access to international financing, affecting the new government’s ability to implement reforms required to restore stability, economic growth and public confidence.

     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 any such modifications would haveon the financial condition and results of operations of our Argentine operations.

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|   | ***The Argentine electricity            sector shortfalls could impact the interconnection business between            Argentina and Brazil.*** |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------|

     As a result of the strong increase in domestic demand for natural gas and electricity in Argentina, coupled with the lack of investment in natural gas production and generation, the Argentine electricity generation business is operating in very tight conditions and may be unable to meet its internal demand, and have further difficulties in exporting electricity to Brazil. The Argentine government has adopted measures with the intention of assuring domestic supply. Our generation subsidiary, Costanera, is not currently allowed to export electricity produced with natural gas, nor is it allowed to purchase electricity in the wholesale market in order to satisfy its export contracts. For these reasons, the electricitycapacity and energy contracts that link Argentine generation companies, including Costanera, to CIEN, our affiliated transmission company with an electricity interconnection business between Argentina and Brazil, could be affected adversely. If hydrological conditions in southern Brazil do not improve, or if the Argentine authorities do not relax certain recent restrictions to export electricity to Brazil, CIEN and Costanera may encounter non-performance risk, which could lead to an adverse effect on our companies.  (See Item 4, “*Operations in Argentina*” and “*Operations in Brazil*”).

|   | ***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 (including payments of dividends, principal and interest on debt), 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 transfer of funds abroad in order to make payments of principal and/or interest, were gradually relaxed from January to May 2003.

     Currently, funds may be transferred abroad without the prior 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.

     If the Central Bank of Argentina reimposes restrictions on the transfer of funds outside of Argentina which prevent our Argentine subsidiaries from paying principal and/or interest on certain of their external debt, and if new financing is not available to our Argentine subsidiaries at all or on commercially reasonable terms, or if 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 would be able to obtain new financing or that they would be able to renegotiate or obtain waivers with respect toindebtedness subject to foreign exchange restrictions.  In addition, such restrictions may impede the making of cash distributions by Costanera and El Chocón to us.

     As of December 31, 2004, the third party financial debt of our Argentine subsidiaries amounted to approximately U.S.$ 239.2 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 2004, we rolled over U.S.$ 182 million in financial debt, paid U.S.$ 78 million in principal and extended the maturity of this debt by 18 to 30 months.  Our international creditors have understood the extraordinarycircumstances 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**

|   | ***Brazilian Energy Sector Reform could have an adverse effect on our business and operations in Brazil.*** |
|--------|-------------------------------------------------------------------------------------------------------------|

     Following the electricity supply crisis in 2001, due to low rainfalls, the electricity committee of the Brazilian federal government announced various measures for revitalizing the energy sector and ensuring a high level of competition, attracting new investments and increasing the transparency of the rules governing these services.

     In March 2004, Federal Laws No 10,847 and 10,848 were enacted in order to establish a new model for the Brazilian Electricity Sector.  These laws were subsequently implemented by decrees and resolutions enacted by MME (Ministry of Mines and Energy) and ANEEL (the Brazilian National Agency of Electric Energy).  Additionally, these resolutions will, among other things, determine how the inherent risks will be distributed among the different market participants (i.e. hydrological risk, market fluctuations and accounts receivable) and prohibit the participation of distribution companies in related activities like generation.

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     The new Brazilian model for the electricity sector creates a regulatory framework based on the principle of stability and low tariffs for consumers.  It also seeks to guarantee the expansion of installed capacity to satisfy demand growth.  Pursuant to this model, 100% of distributors’ forecasted energy demand must be satisfied through long-term contracts.  Accordingly, several bidding processes have been and will be called by ANEEL and the Chamber of Energy Sales in advance of the expiration of current contracts in the regulated environment.  Therefore, distribution companies may end up bidding for either more or less than actual demand.  For additional information, please refer to “Item 4. BusinessOverview. Operations in Brazil – Structure of the new Electricity Sector”.

**Risk Factors Relating to Colombia**

|   | ***Formation of an electronic contract system could affect our business in Colombia.*** |
|--------|-----------------------------------------------------------------------------------------|

     The Commission for the Regulation of Energy and Gas (CREG) is promoting the creation of an electronic electricity exchange similar to a financial market. This would serve to increase the levels of competition and transparency in energy transactions between the different market players.  However, according to preliminary documentation, the contracting parties would not be able to evaluate the creditworthiness of their counterparts.  If, in the future, we are forced to conduct transactions through an electronic electricity exchange which does not allow us to assess counterparty credit risk, we will be exposed to a greater risk of payment default, which may adversely affect our revenues.

|   | ***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 peacenegotiations 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 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.

     During 2002, our Colombian companies paid an anti-terrorism tax which affected our net income.  Although we believe such a tax was non-recurrent, future guerilla or terrorist actions in Colombia may result in similar actions by the Colombian tax authorities.

**Risk Factors Relating to Peru**

|   | ***We may suffer losses as a result of differences between the node price and the marginal cost of electricity.*** |
|--------|--------------------------------------------------------------------------------------------------------------------|

     In 2004, generators in Peru agreed to meet the demand of the regulated market at the node price through 2007.  Each generator will supply energy in proportion to its share of installed capacity.  This agreement exposes the company to possible losses as a result of differences between the node price and the marginal cost of electricity because the company may be required to purchase electricity at higher prices in the spot market and resell it at fixed node prices.

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     Law 28,447 of December 2004 made changes in the form of calculating the node price, which will now be set annually instead of semi-annually, and modified the study period for calculation of the node price. This period is of 12 months prior to the price setting, and 24 months of projected future demand and supply of energy.  It is still not possible to foresee the impacts of this new calculation mechanism.  

|   | ***Future regulatory reforms may adversely affect our business.*** |
|--------|--------------------------------------------------------------------|

     Governmental authorities are currently in discussions with electricity companies to explore a future reform of the Peruvian electricity sector regulatory framework.  Due to the early stage of conversations, we cannot estimate whether this reform will take place or not, or what its scope could be.

**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 registeredin Santiago with the SVS under Registration No. 0114. The Company is commerciallyreferred to as Endesa and/or Endesa-Chile.

     The Company’s contact information in Chile is:

| Main office:     | Santa Rosa 76, Santiago, Chile         |   |
|------------------|----------------------------------------|--------|
| Mailing Address: | Casilla 1392, Correo Central, Santiago |   |
| Telephone:       | (562) 630 9000                         |   |
| Fax:             | (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, Delaware |   |
|------------------|-------------------------------------------------|--------|
| Mailing Address: | P.O. Box 885, Newark, Delaware, 19711           |   |
| Telephone:       | (302) 738-6680                                  |   |
| Fax:             | (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; |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                           |
|--|--------|----------------------------------------------------------------|
|  | • | with the acquisition of Edegel in Perú in October 1995; |

|  |   |                                                                                                                                |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------|
|  | • | with the acquisition of Betania in December 1996 and Engesa in association with Endesa-Spain in October 1997, both in Colombia; and |

|  |   |                                                                   |
|--|--------|------------------------------------------------------------------------|
|  | • | with the acquisition of Cachoeira Dourada in Brazil in September 1997. |

     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 Perú, 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 on the    Santiago Stock Exchange and the NYSE. There have been no material changes    in the ownership structure of the company since then. As of the date of this    report, Endesa-Spain owns, directly and indirectly, a 60.6% beneficial interestin Enersis.

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     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 U.S.$ 187.7 million in 2002, U.S.$ 220.8 million in 2003, in historical dollars, and U.S.$ 162.1 million in 2004.  Our capital expenditures and investments during 2004 included investments of U.S.$ 89.5 million in Chile related to Central Hidroeléctrica Ralco (the “Ralco Project”) and capital expenditure maintenance of U.S.$ 70.5 million in all our operating subsidiaries. At present, we expect to make capital expenditures of approximately U.S.$ 743.7 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 itwill depend on the financial market conditions at the time the cash flows are needed.

     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. On August 16, 2004 the Chilean environmental authority approved the environmental impact study of the plant, which has a total expected investment cost of U.S.$ 220 million.  This project will be fully owned by Endesa Chile and is currently awaiting determination of the availability of liquified natural gas for Chile.    The financing for the San Isidro II project 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 2004 and expected capital expenditures for the period 2005-2009:

**CAPITAL EXPENDITURES OF ENDESA-CHILE AND ITS SUBSIDIARIES**

|                                                                                                                    |   |   | **Capital Expenditures**       |   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------|--------|
|                                                                                                                    |   |   |                                |   |
|                                                                                                                    |   |   | **(millions of U.S. dollars)** |   |
|                                                                                                                    |   |   | **2004**                       |        |  | **2005-2009(1)** |   |
|                                                                                                                    |   |        |                                |   |  |  |   |
| Chile                                                                                                                   |   | $      | 119.9                          |   | $ | 421.5 |   |
| Argentina                                                                                                               |   |   | 22.3                           |   |   | 117.3 |   |
| Brazil                                                                                                                  |   |   | 2.8                            |   |   | 20.8 |   |
| Colombia                                                                                                                |   |   | 6.7                            |   |   | 98.1 |   |
| Perú                                                                                    |   |   | 10.4                           |   |   | 86.0 |   |
|                                                                                                                    |   |        |                                |   |  |  |   |
|                                                                                                                    |   |   |                           |   |   |   |   |
| Total                                                                                                                   |   | $      | 162.1                          |   | $ | 743.7 |   |
|                                                                                                                    |   |        |                                |   |  |  |   |
|                                                                                                                         |   |   |                           |   |   |   |   |
| (1) Chilean peso projections translated to U.S. dollars at the December 31, 2004Chilean peso U.S. dollar exchange rate. |

     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 U.S.$ 1.08 billion, 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.

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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 0U.S.$ 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 by Celta, a subsidiary of Endesa-Chile, of 285 kilometers of 220 kV line circuits for approximately U.S.$ 32 million, at the exchange rate as of the date of the transaction, and a sale of 673 kilometers of 220 kV line circuits for approximately U.S.$ 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*., a subsidiary of the Spanish company *Obrascón Huarte Lain S.A.,* for a total amount of UF 2,305,507, approximately U.S.$ 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$ 24.8 million pesos, approximately U.S.$ 41,700 at the exchange rate as of December 31, 2003,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 U.S.$ 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; and |

|  |   |                                                                                                                                                                                                                                                                                 |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | on December 17, 2004, Endesa-Chile dissolved the subsidiary Endesa Colombia, which had investments in Central Hidroelectrica Betania S.A., leaving Endesa-Chile and Compañía Electrica Conosur S.A. with a direct participation in Central Hidroelectrica Betania S.A. |

|   |                  |
|--------|-----------------------|
| **B.** | **Business Overview** |

     Endesa-Chile is a public electric generation company with operations in Chile, Argentina, Brazil, Colombia and Perú. 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, 2004, is 12,333 MW, 69% hydroelectric capacity and 31% thermal electric generation capacity. Total installed capacity defined as the maximum MW capacity of generation units, under specific technical conditions and characteristics.

     Endesa-Chile owns and operates twenty-two generation facilities in Chile with an aggregate installed capacity, as of December 31, 2004, of 4,477 MW (compared to 3,763 MW as of December 31, 2003).  Endesa-Chile accounted for approximately 38% of Chile’s total generation capacity as of December 31, 2004 measured against the maximum capacity considered by CDEC-SIC in the calculation of firm capacity. Hydroelectric installed capacity in Chile represents 76% of Endesa-Chile’s total installed capacity in Chile.  The total installed capacity of Endesa-Chile was increased by 690 MW with the Ralco hydroelectric power plant, which began commercial operations in September 2004, and 23 MW with one unit of Diego deAlmagro, which we have rented from Codelco.

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     As of December 31, 2004, Endesa-Chile also had interests in twenty-four generation facilities outside Chile with an aggregate installed capacity of 7,856 MW.  The total installed capacity of Endesa-Chile outside Chile was increased by approximately 19 MW with the Tequendama minor plant in Colombia, which started operations in April 2004.  Hydroelectric installed capacity outside Chile represents 65% of Endesa-Chile’s total installed capacity outside Chile.  Based on 2004 figures, the Company’s installed generation capacity in Argentina, Brazil, Colombia and Perú represent approximately 15%, 1%, 19% and 22% of total capacity in each country, respectively.

     The following table sets out information relating to Endesa-Chile’s electricity generation:

**ENDESA-CHILE’S CONSOLIDATED HYDRO/THERMAL GENERATION  (GWh)(1)**

|                     | **Year ended December 31,** |        |
|--------------------------|-----------------------------|--------|
|                          |                             |        |  |  |  |  |  |  |  |  |  |   |
|                          | **2002**                    |        | **2003** |  | **2004** |  |
|                          |                             |        |  |   |  |  |  |   |  |  |  |   |
|                          | **(GWh)**                   |        | **%** |  | **(GWh)** |  | **%** |  | **(GWh)** |  | **%** |  |
|                          |                             |   |  |   |  |   |  |   |  |   |  |   |
| Hydroelectric Generation | 34,304                      |   | 84 |   | 35,035 |   | 82 |   | 34,858 |   | 74 |   |
| Thermal Generation       | 6,456                       |   | 16 |   | 7,591 |   | 18 |   | 12,508 |   | 26 |   |
| Total Generation         | 40,760                      |   | 100 |   | 42,626 |   | 100 |   | 47,366 |   | 100 |   |

|     |
|-----|
| (1) | Generation minus power plant own    consumption and technical losses. |

     The Company’s consolidated electricity production reached 47,366 GWh in 2004, 11.1% higher than the 42,626 GWh produced in 2003.  The Company’s total generation in 2002 was 40,760 GWh.  It is common in the electricity generation industry to segment the business into hydroelectric and thermoelectric generation.  This is done because each method of generation has different variable costs of generating electricity.  Thermoelectric generation requires the purchase of fuel rather than the use of water from reservoirs or rivers, consequently increasing the economic variable costs of generation for the Company.

     Endesa-Chile’s consolidated physical energy sales for 2004 were 53,443 GWh, 6% higher than physical energy sales in 2003. When compared to the level of physical sales for 2002, figures for 2004 represent a 10% increase, mainly because of higher physical sales in Argentina, as is illustrated in the following table:

**ENDESA-CHILE PHYSICAL DATA PER COUNTRY**

|                    |                      |   | **As of December 31, each year** |        |
|-------------------------|-------------------------------------|--------|----------------------------------|--------|
|                    |                                |   |                                  |        |  |  |  |  |  |   |
|                    |                      |   | **2002**                         |        |  | **2003** |  |  | **2004** |  |
|                    |                                |   |                                  |   |   |  |   |   |  |   |
| Argentina     |                                |   |                             |   |   |   |   |   |   |
|                    | Number of generating facilities (1) |   | 5                                |   |   | 5 |   |   | 5 |   |
|                    | Installed capacity (MW) (2)         |   | 3,622                            |   |   | 3,622 |   |   | 3,623 |   |
|                    | Energy generated (GWh) (3)          |   | 7,167                            |   |   | 7,997 |   |   | 11,290 |   |
|                    | Energy sales (GWh)                  |   | 7,897                            |   |   | 9,259 |   |   | 11,604 |   |
| Brazil        |                                |   |                             |   |   |   |   |   |   |
|                    | Number of generating facilities (1) |   | 1                                |   |   | 1 |   |   | 1 |   |
|                    | Installed capacity (MW) (2)         |   | 658                              |   |   | 658 |   |   | 658 |   |
|                    | Energy generated (GWh) (3)          |   | 2,467                            |   |   | 3,024 |   |   | 3,262 |   |
|                    | Energy sales (GWh)                  |   | 3,591                            |   |   | 3,770 |   |   | 3,902 |   |
| Chile         |                                |   |                             |   |   |   |   |   |   |
|                    | Number of generating facilities (1) |   | 22                               |   |   | 21 |   |   | 22 |   |
|                    | Installed capacity (MW) (2)         |   | 3,935                            |   |   | 3,763 |   |   | 4,477 |   |
|                    | Energy generated (GWh) (3)          |   | 16,286                           |   |   | 16,524 |   |   | 16,797 |   |
|                    | Energy sales (GWh)                  |   | 18,344                           |   |   | 18,681 |   |   | 18,462 |   |
| Colombia      |                                |   |                             |   |   |   |   |   |   |
|                    | Number of generating facilities (1) |   | 8                                |   |   | 9 |   |   | 10 |   |
|                    | Installed capacity (MW) (2)         |   | 2,735                            |   |   | 2,589 |   |   | 2,609 |   |
|                    | Energy generated (GWh) (3)          |   | 10,699                           |   |   | 10,794 |   |   | 11,881 |   |
|                    | Energy sales (GWh)                  |   | 14,639                           |   |   | 14,481 |   |   | 15,148 |   |
| Perú   |                                |   |                             |   |   |   |   |   |   |
|                    | Number of generating facilities (1) |   | 8                                |   |   | 8 |   |   | 8 |   |
|                    | Installed capacity (MW) (2)         |   | 1,003                            |   |   | 967 |   |   | 967 |   |
|                    | Energy generated (GWh) (3)          |   | 4,141                            |   |   | 4,287 |   |   | 4,136 |   |
|                    | Energy sales (GWh)                  |   | 4,158                            |   |   | 4,443 |   |   | 4,328 |   |

|   |                                                                                            |
|--------|-------------------------------------------------------------------------------------------------|
|        |
| (1)    | For details on generation facilities, see Item 4. D. “Property Plant and Equipment” |

|   |                                                                                                                                      |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Total installed capacity defined as the maximum MW capacity of generation units, under specific technical conditions and characteristics. |
|   |                                                                                                                                      |
| (3)    | Energy generated      defined as total generation minus own power plant consumption and technical    losses.                              |
|   |                                                                                                                                      |

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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 weoperate 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 (GWH)**

|                          |   |   | **Year ended December 31** |        |
|-------------------------------|--------|--------|----------------------------|--------|
|                          |   |   |                            |   |
|                          |   |   | **2002**                   |        |  | **2003** |  |  | **2004** |  |
|                          |   |   |                            |   |   |  |   |   |  |   |
|                          |   |   | **Sales  (GWh)**           |        |  | **% of Sales Volume** |  |  | **Sales (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |
|                          |   |   |                            |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Regulated Customers           |   |   | 20,322                     |   |   | 41.8 |   |   | 21,463 |   |   | 42.4 |   |   | 21,623 |   |   | 40.5 |   |
| Non-Regulated Customers       |   |   | 11,047                     |   |   | 22.7 |   |   | 11,309 |   |   | 22.3 |   |   | 11,979 |   |   | 22.4 |   |
| Electricity Pool Market Sales |   |   | 17,260                     |   |   | 35.5 |   |   | 17,862 |   |   | 35.3 |   |   | 19,841 |   |   | 37.1 |   |
| Total    Electricity sales    |   |   | 48,629                     |   |   | 100.0 |   |   | 50,634 |   |   | 100.0 |   |   | 53,443 |   |   | 100.0 |   |

     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, suchcustomers 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 the 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 also often determine which customers can purchase energy in electricity pool markets.

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     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:

|                    |   |   | **Year ended December 31** |        |
|-------------------------|--------|--------|----------------------------|--------|
|                    |   |   |                            |   |
|                    |   |   | **2002**                   |        |  | **2003** |  |  | **2004** |  |
|                    |   |   |                            |   |   |  |   |   |  |   |
|                    |   |   | **Sales  (GWh)**           |        |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |
|                    |   |   |                            |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Contracted Sales        |   |   | 31,369                     |   |   | 64.5 |   |   | 32,772 |   |   | 64.7 |   |   | 33,602 |   |   | 62.9 |   |
| Non-Contracted Sales    |   |   | 17,260                     |   |   | 35.5 |   |   | 17,862 |   |   | 35.3 |   |   | 19,841 |   |   | 37.1 |   |
| Total Electricity Sales |   |   | 48,629                     |   |   | 100.0 |   |   | 50,634 |   |   | 100.0 |   |   | 53,443 |   |   | 100.0 |   |

     The Company’s different accounting information systems allow the consolidation of monetary sales per country, but do not currently allow the consolidation of monetary 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 relatively low rainfall 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 strategiessuch 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:

|                   |   |   | **Year ended December 31** |        |
|------------------------|--------|--------|----------------------------|--------|
|                   |   |   |                            |   |
|                   |   |   | **2002**                   |        |  | **2003** |  |  | **2004** |  |
|                   |   |   |                            |   |   |  |   |   |  |   |
|                   |   |   | **Sales  (GWh)**           |        |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |
|                   |   |   |                            |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Electricity Production |   |   | 40,760                     |   |   | 83.0 |   |   | 42,626 |   |   | 83.5 |   |   | 47,366 |   |   | 88.0 |   |
| Electricity Purchases  |   |   | 8,321                      |   |   | 17.0 |   |   | 8,397 |   |   | 16.5 |   |   | 6,474 |   |   | 12.0 |   |
| Total(1)               |   |   | 49,081                     |   |   | 100.0 |   |   | 51,023 |   |   | 100.0 |   |   | 53,840 |   |   | 100.0 |   |

|   |                                                                                                                                                                                                                                          |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |
| (1)    | Total GWh production plus purchases differs from GWh sales due to technical transmission losses in Chile and Perú, as the production figure has already deducted power plant consumption and technical losses in all generation units. |
|   |                                                                                                                                                                                                                                          |

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     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 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 thatperformed through another associated company, *Companhia de InterconexãoEnergética 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 theoperation of the transmission interconnection lines between Argentina and Brazil.Endesa-Chile also has minority interests in electricity trading and transmissionin Argentina through its 45% ownership of *Comercializadora de Energíadel Mercosur S.A.,*or CEMSA and *Compañía de Transmisióndel Mercosur S.A.*, or CTM.  See “–Organizational Structure” fordetails on related companies. As of December 31, 2004, Endesa-Chile had consolidatedassets of Ch$ 5,318 billion (U.S.$ 9.5 billion) compared to Ch$ 5,602 billionor U.S.$ 10.1 billion as of December 31, 2003, consolidated operating revenuesof Ch$ 1,032 billion (U.S.$ 1.9 billion) compared to Ch$ 943 billion or U.S.$1.7 billion as of December 31, 2003, and a net income of Ch$ 83.8 billion (U.S.$150 million) compared to a net income of Ch$ 80.1 billion or U.S.$ 143.8 millionas of December 31, 2003. All U.S. dollar amounts were translated using the observedExchange Rate for December 31, 2004 of Ch$ 557.4 per U.S.$ 1.00. See “Item3. Key Information – Selected financial data.”

**Operations in Chile**

     Operating income from the Company’s business in Chile represented 49%, 46%,  and 41% for years , 2002, 2003 and 2004 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,**                               |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------------------------------------------------------|--------|
|                                                                                                                                             |   |   |                                                           |   |
|                                                                                                                                             |   |   | **2002**                                                  |        |  | **2003** |  |  | **2004** |  |
|                                                                                                                                             |   |   |                                                           |        |  |  |  |  |  |  |
|                                                                                                                                             |   |   | **(in millions of constant Ch$ as of December 31, 2003)** |   |
| Operating revenues                                                                                                                               |   |   | 459,927                                                   |   |   | 469,324 |   |   | 467,583 |   |
| Operating expenses                                                                                                                               |   |   | 283,114                                                   |   |   | 310,182 |   |   | 317,865 |   |
|                                                                                                                                             |   |   |                                                           |   |   |  |   |   |  |   |
| Operating income                                                                                                                                 |   |   | 176,813                                                   |   |   | 159,142 |   |   | 149,718 |   |
|                                                                                                                                             |   |   |                                                           |   |   |  |   |   |  |   |
|                                                                                                                                             |   |   |                                                      |   |   |   |   |   |   |   |
|                                                                                                                                                  |
| 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, owns and operates a total of twenty-two generation plants in Chile. Fourteen of these plants are hydroelectric plants with a total installed capacity of approximately 3,416 MW.  This represents 76% of Endesa-Chile’s total installed capacity in Chile.  The remaining eight plants are gas-, coal- or oil-fired thermal plants with a total installed capacity of approximately 1,061 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.

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     The following table sets forth the installed generation capacity for each of the Company’s Chilean subsidiaries:

**INSTALLED CAPACITY PER SUBSIDIARY IN CHILE (MW)**

|       |        |        | **2002** |        |        | **2003** |        |        | **2004** |        |
|------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
|       |   |   |          |   |   |          |   |   |          |   |
| Endesa     |   |   | 2,212    |   |   | 2,040    |   |   | 2,754    |   |
| Pehuenche  |   |   | 695      |   |   | 695      |   |   | 695      |   |
| Pangue     |   |   | 467      |   |   | 467      |   |   | 467      |   |
| San Isidro |   |   | 379      |   |   | 379      |   |   | 379      |   |
| Celta      |   |   | 182      |   |   | 182      |   |   | 182      |   |
|       |   |   |          |   |   |          |   |   |          |   |
| Total      |   |   | 3,935    |   |   | 3,763    |   |   | 4,477    |   |

     Capacity increase in 2004 is explained by the Ralco hydroelectric plant (690 MW) which started commercial operations in September 2004 and additionally the inclusion of one unit of Diego de Almagro (23 MW), which Endesa-Chile has rented from Codelco.

     The Company’s total electricity generation in Chile reached 16,797 GWh in 2004, 1.7 % higher than in 2003, and accounted for approximately 35% of total electricity production in Chile.  The Company’s Chilean generation market share in Chile for 2003 and 2002 were 37% and 38%, respectively.

     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,** |        |
|------------|--------|--------|-----------------------------|--------|
|       |        |        |                             |        |
|       |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|       |        |        |                             |        |  |  |  |  |  |  |
| Endesa     |   |   | 8,154                       |   |   | 8,466 |   |   | 8,633 |   |
| Pehuenche  |   |   | 3,963                       |   |   | 3,679 |   |   | 3,464 |   |
| Pangue     |   |   | 1,977                       |   |   | 1,681 |   |   | 1,671 |   |
| San Isidro |   |   | 1,590                       |   |   | 2,264 |   |   | 2,622 |   |
| Celta      |   |   | 602                         |   |   | 434 |   |   | 407 |   |
|       |        |        |                             |        |  |  |  |  |  |  |
| Total      |   |   | 16,286                      |   |   | 16,524 |   |   | 16,797 |   |

|   |
|--------|
|        |
| (1)    | The Ralco hydroelectric plant (690 MW) started operations in September 2004. |

     Low cost hydroelectric generation accounted for 74% of the Company’s total electricity generation in 2004, as shown in the following table:

**ENDESA-CHILE HYDRO/THERMAL GENERATION IN CHILE (GWh)**

|                     |        | **Year ended December 31,** |        |
|--------------------------|--------|-----------------------------|--------|
|                     |   |                             |   |
|                     |        | **2002**                    |        | **2003** |  | **2004** |  |
|                     |   |                             |   |  |   |  |   |
|                     |        | **Gener.   (GWh)**          |        | **%** |  | **Gener.   (GWh)** |  | **%** |  | **Gener.   (GWh)** |  | **%** |  |
|                     |   |                             |   |  |   |  |   |  |   |  |   |  |   |
| Hydroelectric Generation |   | 13,567                      |   | 83.3 |   | 13,085 |   | 79.2 |   | 12,462 |   | 74.2 |   |
| Thermal Generation       |   | 2,719                       |   | 16.7 |   | 3,439 |   | 20.8 |   | 4,335 |   | 25.8 |   |
|                     |   |                             |   |  |   |  |   |  |   |  |   |  |   |
| Total Generation         |   | 16,286                      |   | 100.0 |   | 16,524 |   | 100.0 |   | 16,797 |   | 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.

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     Physical    energy sales in Chile reached, 18,344 GWh in 2002, 18,681 in 2003, and 18,462    in 2004 which represent a 46% , 44% and 40% market share, respectively. Endesa-Chile’s    physical generation in Chile has increased since 2002 and the percentage    of the energy purchases to meet contractual obligations to third parties**** has    declined from 13% in 2002 to 10% in 2004, 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 2000 and 2001. See “–Business    Overview–Electricity Generation in Chile–Industry Structureand Regulatory Framework.”  Endesa-Chile attempts to minimize the effectof poor hydrological conditions on its operations, in any year, primarily bylimiting contractual commitments to an amount below the estimated productionin a dry year. Government regulations have had the direct effect of increasingcontract failure costs, which is the cost that the Company pays when it is notable to satisfy its contractual commitments, and the indirect effect of discouraginginvestment in generation assets. Given the effects of the government regulations,energy supply has not increased at the same rate as energy demand, increasingthe spot price in the electricity pool market and making it a relatively moreattractive commercial alternative.

     The following table sets forth our electricity purchases and production in Chile:

**PHYSICAL PRODUCTION AND PURCHASES IN CHILE (GWh)**

|                   |        |        | **Year ended December 31,** |        |
|------------------------|--------|--------|-----------------------------|--------|
|                   |   |   |                             |   |
|                   |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                   |   |   |                             |   |   |  |   |   |  |   |
|                   |        |        | **(GWh)**                   |        |  | **%     of Volume** |  |  | **Sales     (GWh)** |  |  | **%     of Volume** |  |  | **Sales     (GWh)** |  |  | **%    of Volume** |  |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Electricity Production |   |   | 16,286                      |   |   | 87.4 |   |   | 16,524 |   |   | 87.3 |   |   | 16,797 |   |   | 89.8 |   |
| Electricity Purchases  |   |   | 2,358                       |   |   | 12.6 |   |   | 2,409 |   |   | 12.7 |   |   | 1,914 |   |   | 10.2 |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total(1)               |   |   | 18,644                      |   |   | 100.0 |   |   | 18,933 |   |   | 100.0 |   |   | 18,711 |   |   | 100.0 |   |

|   |                                                                                                                                                                       |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |
| (1)    | Total GWh production plus purchases      differs from GWh sales due to transmission losses, as power plant consumption    and technical losses have already been deducted. |

     We and our Chilean generation subsidiaries supply electricity to the major regulated electricity distribution companies, large unregulated industrial firms (primarily in the mining, pulp and steel sectors) and the market pool. Commercial relationships with customers are normally governed by formal contracts.  Supply contracts with distribution companies must be adjudicated in a bidding process, have a price fixed by governmental authorities, are generally standardized and have an average term of ten years.  Supply contracts with unregulated customers (large industrial customers) are specific to the needs of each client and all the conditions are agreed upon between both parties and reflect competitive marketconditions.  

     In 2002, 2003 and 2004, Endesa-Chile had 67, 60 and 56 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.

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     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 SEGMENTIN CHILE (GWh)**

|                          |        |        | **Year ended December 31,** |        |
|-------------------------------|--------|--------|-----------------------------|--------|
|                          |   |   |                             |   |
|                          |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                          |   |   |                             |   |   |  |   |   |  |   |
|                          |        |        | **Sales     (GWh)**         |        |  | **% of Sales Volume** |  |  | **Sales    (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales    (GWh)** |  |  | **% of Sales Volume** |  |
|                          |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Regulated Customers           |   |   | 9,297                       |   |   | 50.7 |   |   | 9,994 |   |   | 53.5 |   |   | 10,387 |   |   | 56.3 |   |
| Non-Regulated Customers       |   |   | 5,778                       |   |   | 31.5 |   |   | 5,767 |   |   | 30.9 |   |   | 4,884 |   |   | 26.5 |   |
| Electricity Pool Market Sales |   |   | 3,269                       |   |   | 17.8 |   |   | 2,920 |   |   | 15.6 |   |   | 3,192 |   |   | 17.3 |   |
| Total electricity sales       |   |   | 18,344                      |   |   | 100.0 |   |   | 18,681 |   |   | 100.0 |   |   | 18,462 |   |   | 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 contract with Chilectra expires in 2010 and contract with CGE expires in 2009. Upon expiration, a new bidding process will be conducted as required by the regulation.

     Customarily, Endesa-Chile’s contracts with unregulated customers for the sale of electricity in Chile are long-term, generally ranging from five to fifteen 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 following the market price and some of them include a price adjustment mechanism in the case of high marginal costs, which also reduces the hydrological risk.  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 theprovision 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 (GWh)**

|                                               |   | **Year ended December 31,** |        |
|----------------------------------------------------|--------|-----------------------------|--------|
|                                               |   |                             |        |
|                                               |   | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                                               |   |                             |        |  |  |  |  |  |  |
|                                               |   | **Sales     (GWh)**         |        |  | **% of     Sales** |  |  | **Sales    (GWh)** |  |  | **% of     Sales** |  |  | **Sales     (GWh)** |  |  | **% of     Sales** |  |
|                                               |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Distribution companies:                            |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Chilectra                                          |   | 4,274                       |   |   | 23.3 |   |   | 4,699 |   |   | 25.2 |   |   | 4,747 |   |   | 25.7 |   |
| CGE                                                |   | 3,358                       |   |   | 22.3 |   |   | 3,628 |   |   | 19.4 |   |   | 3,877 |   |   | 21.0 |   |
| Sociedad Austral de Electricidad S.A.(1)           |   | 371                         |   |   | 2 |   |   | 314 |   |   | 1.7 |   |   | 332 |   |   | 1.8 |   |
| Empresa Eléctrica de la Frontera S.A.       |   | 529                         |   |   | 2.9 |   |   | 557 |   |   | 3 |   |   | 611 |   |   | 3.3 |   |
| Empresa Eléctrica de Atacama S.A.           |   | 449                         |   |   | 2.4 |   |   | 536 |   |   | 2.9 |   |   | 580 |   |   | 3.1 |   |
| Total sales to five largest distribution companies |   | 8,981                       |   |   | 49 |   |   | 9,734 |   |   | 52.1 |   |   | 10,147 |   |   | 55.0 |   |
|                                               |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                    |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                               |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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Unregulated customers:

|                                                     |   | **Year            ended December 31,** |        |
|----------------------------------------------------------|--------|----------------------------------------|--------|
|                                                     |   |                                        |        |
|                                                     |   | **2002**                               |        |  | **2003** |  |  | **2004** |  |
|                                                     |   |                                        |        |  |  |  |  |  |  |
|                                                     |   | **Sales         (GWh)**                |        |  | **%            of         Sales** |  |  | **Sales        (GWh)** |  |  | **%            of         Sales** |  |  | **Sales         (GWh)** |  |  | **%            of         Sales** |  |
|                                                     |   |                                        |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Codelco División El Teniente        (2)             |   | 734                                    |   |   | 4 |   |   | 728 |   |   | 3.9 |   |   | 711 |   |   | 3.9 |   |
| Industrias Forestales S.A (3)                            |   | 661                                    |   |   | 3.6 |   |   | 676 |   |   | 3.6 |   |   | 779 |   |   | 4.2 |   |
| Cía. Minera Los Pelambres                         |   | 619                                    |   |   | 3.4 |   |   | 648 |   |   | 3.5 |   |   | 672 |   |   | 3.6 |   |
| Cía. Minera Collahuasi                            |   | 734                                    |   |   | 4 |   |   | 730 |   |   | 4.9 |   |   | 801 |   |   | 4.3 |   |
| Cía. Acero del Pacífico        -Huachipato |   | 506                                    |   |   | 2.8 |   |   | 522 |   |   | 3.9 |   |   | 557 |   |   | 3.0 |   |
| Total sales to five largest        unregulated customers |   | 3,254                                  |   |   | 17.8 |   |   | 3,304 |   |   | 17.7 |   |   | 3,521 |   |   | 19.1 |   |
|                                                     |   |                                   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|     |
|-----|
| (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. |

|   |                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------|
| (2)    | In 2004, Endesa provided        the energy to Codelco, División El Teniente, and Codelco, División        Salvador |

|   |                                                                                                                                |
|--------|-------------------------------------------------------------------------------------------------------------------------------------|
| (3)    | INFORSA is part of the CMPC        Group. Since January 1, 2004 the contract with CMPC merges the total        contracts with CMPC. |

     Endesa-Chile competes in the SIC primarily with two other electricity generation companies, *AES Gener S.A.* (“AESGener”) and *Colbun S.A.* (“Colbún”) (formerly known as Empresa Eléctrica Colbún Machicura S.A.).  According to the maximum power considered by CDEC-SIC in the calculation of firm power in 2004,  AESGener and subsidiaries in the SIC had an installed capacity of 1498 MW, of which 82% was thermal electric, and Colbún had an installed capacity of 1,651 MW, of which 52% was thermal electric. Colbún increased its capacity during 2004 with the steam turbine of Nehuenco II.  ****In addition to these two large competitors, there are a numberof smaller entities that generate electricity in the SIC.

     Our    main competitors in the SING are *Electroandina* (formerly *Corporación    Nacional del Cobre División Tocopilla*), *Empresa Eléctrica    del Norte Grande S.A.* (“Edelnor”), AES Gener and *Norgener    S.A*., which  have 992, 719, 643 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 781 MW     of installed capacity, Endesa-Chile’s market position increases significantly     to26%.**** See “–Organizational Structure” for details on relatedcompanies.

     Electricity generation companiescompete largely on the basis of technical experience and reliability and, in thecase of unregulated customers, on price. In addition, as 76% ofEndesa-Chile’s installed capacity derives from hydroelectric power plants,Endesa-Chile generally has lower production costs than companies generatingelectricity in the SIC from thermal plants. During periods of extended droughts,however, Endesa-Chile is often forced to buy more expensive electricity fromthermoelectric generators at spot prices in order to satisfy its contractualobligations.

     The    main sources of Endesa-Chile’s non-operating income are (i) 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 has    a gas-fired combined cycle plant with a total installed capacity of approximately    781 MW in Mejillones, and (ii) 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 unregulatedcustomers.

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     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 SEF and the Ministry of Economy acting through the CNE supervise the generation, transmission and distribution of electricity.  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, *Aysén* and *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.

     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 electricitygenerated by hydroelectric facilities because the price/value of the water in reservoirs is relatively higher due to drought weather conditions. There are no significant hydroelectric generating facilities in the SING, but central dispatch of generation follows the same least marginal cost rule.

     As of December 31, 2004, Endesa-Chile had a total of twenty-two generation facilities in Chile.   Twenty of the generation facilities owned and operated by Endesa-Chile in Chile were connected to the SIC, with the remaining generation facilities located in the SING.  The facilities in the SING provide 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 2004 was 8,290 MW, 61% of which is hydroelectric and 39% thermal.  Peak demand on the SIC in 2004 was 5,430 MW and annual physical sales were 34,627 GWh.  Electricity sales to the SIC grew by 7.9 % from 2003 to 2004. 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 twenty generation facilities connected to the SIC, 14 hydro plants and 6 thermal plants, representing 51% of the total installed capacity and 50% of the physical energy sales of this system in 2004.

     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 2004 of 3,596MW, 99% of which is thermal.  Hourly peak gross generation in the SING in 2004 was 1,645 MW and annual physical sales were 11,240 GWh.  Consumption grew by 7.3 % during 2004 compared to 2003.

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     Endesa-Chile, through its subsidiary Celta, has a two-turbine 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 26.8% of the SING’s total installed capacity in 2004.  The following table sets out information relating to Endesa-Chile’s electricity generation capacity in Chile:

|  **POWER PLANTS IN CHILE (MW)(1)** |
|-----------------------------------------|

|                             |   |   |                                        |   |   |       |   |   |                                  |   |
|----------------------------------|--------|--------|---------------------------------------------|--------|--------|------------|--------|--------|---------------------------------------|--------|
|                             |   |   | **Type(4)**                                 |   |   | **System** |   |   | **Installed Capacity   (MW) (2) (3)** |   |
|                             |   |   |                                             |   |   |            |   |   |                                       |   |
| **Hydroelectric**                |   |   |                                        |   |   |       |   |   |                                  |   |
| Rapel                            |   |   | Reservoir                                   |   |   | SIC        |   |   | 377                                   |   |
| Ralco                            |   |   | Reservoir                                   |   |   | SIC        |   |   | 690                                   |   |
| Cipreses                         |   |   | Reservoir                                   |   |   | SIC        |   |   | 106                                   |   |
| El Toro                          |   |   | Reservoir                                   |   |   | SIC        |   |   | 450                                   |   |
| Pehuenche                        |   |   | Reservoir                                   |   |   | SIC        |   |   | 566                                   |   |
| Pangue                           |   |   | Reservoir                                   |   |   | SIC        |   |   | 467                                   |   |
| Los Molles                       |   |   | Pass Through                                |   |   | SIC        |   |   | 18                                    |   |
| Sauzal                           |   |   | Pass Through                                |   |   | SIC        |   |   | 77                                    |   |
| Sauzalito                        |   |   | Pass Through                                |   |   | SIC        |   |   | 12                                    |   |
| Isla                             |   |   | Pass Through                                |   |   | SIC        |   |   | 68                                    |   |
| Antuco                           |   |   | Pass Through                                |   |   | SIC        |   |   | 320                                   |   |
| Abanico                          |   |   | Pass Through                                |   |   | SIC        |   |   | 136                                   |   |
| Curillinque                      |   |   | Pass Through                                |   |   | SIC        |   |   | 89                                    |   |
| Loma Alta                        |   |   | Pass Through                                |   |   | SIC        |   |   | 40                                    |   |
| **Total Hydroelectric  Thermal** |   |   |                                             |   |   |       |   |   | 3,416                                 |   |
| Huasco TV                        |   |   | Steam Turbine/Coal                          |   |   | SIC        |   |   | 16                                    |   |
| Bocamina                         |   |   | Steam Turbine/Coal                          |   |   | SIC        |   |   | 128                                   |   |
| Tarapacá tg               |   |   | Steam Turbine                               |   |   | SING       |   |   | 24                                    |   |
| Tarapacá carbón      |   |   | Coal                                        |   |   | SING       |   |   | 158                                   |   |
| Diego de Almagro                 |   |   | Gas Turbine/Diesel Oil                      |   |   | SIC        |   |   | 47                                    |   |
| Huasco  TG                       |   |   | Gas Turbine/IFO 180 Oil                     |   |   | SIC        |   |   | 64                                    |   |
| San Isidro                       |   |   | Combined Cycle/Natural Gas & Diesel Oil |   |   | SIC        |   |   | 379                                   |   |
| Tal Tal                          |   |   | Gas Turbine/Natural Gas                     |   |   | SIC        |   |   | 245                                   |   |
| **Total Thermal**                |   |   |                                        |   |   |       |   |   | 1,061                                 |   |
| **Total Capacity**               |   |   |                                        |   |   |       |   |   | 4,477                                 |   |

|        |
|--------|
| (1)    | Total installed        capacity defined as the maximum MW capacity of generation units, under    specific technical conditions and characteristics. |
|   |   |

| (2) | Includes Ralco hydroelectric plant (690 MW) which started commercial operations in September 2004. |
|-----|----------------------------------------------------------------------------------------------------|

|   |                                                                                                  |
|--------|-------------------------------------------------------------------------------------------------------|
| (3)    | Includes one unit of Diego de Almagro (23 MW), which Endesa-Chile has rented from Codelco since 2001. |

|   |                                                                                                                                                |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------|
| (4)    | Reservoir and pass-through refer to ahydroelectric 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 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 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 haveprimary 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.

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     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 installedcapacity 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.

     *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 2 MW, however, consumers with maximum consumption capacity between 0.5 and 2 MW can choose whether to be regulated customers  (as defined the Short Law approved in March – see below).  Distribution companies pay two node prices: node prices for capacity and node pricesfor 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, during the succeeding 48 months in the SIC and 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 a 10 year period.  This model includes the following factors: projected growth in demand; reservoir levels (which are important indetermining 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 unregulatedcustomers 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.

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     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.

     *Firm Capacity*.  Firm Capacity is the total probable capacity of all generating units in the 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 peak demand for capacity at peak hours on the system.  The amount by which the system-wide probable capacity exceeds the maximum 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 companyexceeds 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 to be dispatched by such company.  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 2000 kW and consumers with a connected capacity between 500 and 2000 kW who may choose to be either regulated or unregulated customers (as defined in the 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 calculatedaccording 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 an expert panel 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 overlap between peak capacity demand for the customer and for the system as a whole.  The sub-transmission surcharge reflectsthe 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.

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     *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 U.S.$ 54 to a maximum of the equivalent of approximately U.S.$ 6.5 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” equal to the amount that must be paid by deficit generators that cannot meet their contractual commitments to the surplus generators to deliver electricity during periods when a rationing decree is in effect. |

     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 distribution companies which are not able to renew its electricity 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.

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|   | *The “Short Law”* |
|--------|-------------------------------|

     The Short Law was approved by Chilean Congress in 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%; and |

|  |   |                                                                                                                                                                                                                                                                   |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | modifying the definition of unregulated customer, defined as a final customers with a connected capacity equal to or greater than 2000 kW and consumers with a connected capacity between 500 and 2000 kW who choose to be unregulated  consumers (effective in 2006). |

     On May 4, 2005, additional modifications to Law DFL N° 1 and Law 18,410 of the SEF were promulgated in order to encourage investment in generation.  Of the modifications that were introduced, the following are the most relevant for us:

|  | • | the introduction of a long-term node price, as well as a stable price signal, meant to encourage investment in generation; and |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                                                        |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | the notion that sales to distribution companies that are not made pursuant to contractual agreements already in existence be carried out until December 2008 at the marginal cost of energy and not at the node price. |

     We and our generation subsidiaries have interpreted these price signals in a positive way because they pave the way for potentially undertaking long-term investments in alternative fuels at a time in which it has become evident that Chile cannot rely on Argentine natural gas.  Because of these recent regulatory developments, Endesa-Chile, among others, is in the initial phase of bidding on a liquefied natural gas (LNG) project that would eventually grant such fuel to a power plant to be built next to San Isidro, which was originally planned to burn Argentine natural gas.  For more information, please see the risk factor entitled, “the Argentine natural gas crisis has increased the vulnerability of theelectricity sector in Chile”.

|   | ***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 *Law No 18,902 de la Superintendencia de Servicios Sanitarios 27/01/1990*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 ofwater for human consumption.  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.  TheChilean 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.

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|   | ***Water Rights*** |
|--------|--------------------|

     Endesa-Chile owns unlimited duration unconditional and absolute property water rights granted by the Chilean Water Authority.  However, in March 2005, Chilean Congress approved a modification to the current laws governing unused water rights.  Under the amended law, beginning on January 1, 2006, Chilean generation companies will have to pay an annual license for such unused water rights.  By the end of 2005, we will have to determine which water rights are likely to be eventually utilized for a hydroelectric project and which will not.  If we determine that some water rights will not be used for a future project, we will abandon such water rights in order to avoid liability for license payments.  We estimate that inthe event that we do not abandon any water rights in the SIC, we will have to pay license fees aggregating no more than U.S.$ 4.0 million per year. When any future project commences operations, license fees paid for the corresponding water rights will be recovered retroactively through a tax credit, for a term of up to eight years before the start up of the project that utilizes the water rights.

     In the case of water rights located in the extreme south of Chile (in particular, the eleventh and twelfth regions, outside the area comprised by the SIC), the license payments will be paid starting as of January 1, 2013, using the same tax refund regime mentioned above for the SIC.

|   | ***Operations in Argentina*** |
|--------|-------------------------------|

     Operating income from the Company’s business in Argentina represented 4%, 10%, and 9% for years 2002, 2003 and 2004 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,**          |        |
|--------------------|--------|--------|--------------------------------------|--------|
|               |   |   |                                      |   |
|               |   |   | **2002**                             |        |  | **2003** |  |  | **2004** |  |
|               |   |   |                                      |   |   |  |   |   |  |   |
|               |   |   | ***(in millions of constant Ch$ )*** |        |
| Operating Revenues |   |   | 101,615                              |   |   | 114,061 |   |   | 148,230 |   |
| Operating Expenses |   |   | 88,572                               |   |   | 80,939 |   |   | 113,921 |   |
|               |   |   |                                      |   |   |  |   |   |  |   |
| Operating Income   |   |   | 13,043                               |   |   | 33,122 |   |   | 34,379 |   |
|               |   |   |                                      |   |   |  |   |   |  |   |

     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 2,303 MW.  In 2004, Endesa-Chile’s hydro and thermal generation plants in Argentina represented 15% of the country’s total electricity generation capacity, in accordance with the *Compañía Administradora del Mercado Mayorista Eléctrico S.A.,* or CAMMESA..

     Endesa-Chile also participates in the 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 accountedfor 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, 2004. 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.

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     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, 2004.  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 moderatedby 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:

**INSTALLED CAPACITY PER SUBSIDIARY IN ARGENTINA  (MW)(1)**

|                                                        |   |   | **As of December 31,** |        |
|-------------------------------------------------------------|--------|--------|------------------------|--------|
|                                                        |   |   |                        |        |
|                                                        |   |   | **2002**               |        |  | **2003** |  |  | **2004** |  |
|                                                        |   |   |                        |   |   |  |   |   |  |   |
| **Central Costanera S.A.**                                  |   |   |                   |   |   |   |   |   |   |   |
| Costanera Steam Turbine                                     |   |   | 1,131                  |   |   | 1,131 |   |   | 1,131 |   |
| Costanera Combined Cycle II                                 |   |   | 851                    |   |   | 851 |   |   | 852 |   |
| Central Termoélectrica Buenos Aires Combined Cycle I |   |   | 320                    |   |   | 320 |   |   | 320 |   |
| **Hidroélectrica El Chócon S.A.**               |   |   |                   |   |   |   |   |   |   |   |
| El Chócon Hydroelectric                                |   |   | 1,200                  |   |   | 1,200 |   |   | 1,200 |   |
| Arroyito Hydroelectric                                      |   |   | 120                    |   |   | 120 |   |   | 120 |   |
|                                                        |   |   |                        |   |   |  |   |   |  |   |
| **Total**                                                   |   |   | 3,622                  |   |   | 3,622 |   |   | 3,623 |   |
|                                                        |   |   |                        |   |   |  |   |   |  |   |

|   |                                                                                                                                    |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------|
|        |
| (1)    | Total installed capacity defined as the maximum MW capacity ofgeneration units, under specific technical conditions and characteristics |

     Endesa-Chile’s total electricity generation in Argentina reached 11,290 GWh in 2004, 41% higher than the 7,997 GWh in 2003, and 58% higher than the 7,167 GWh registered in 2002.  Endesa-Chile’s generation market share was approximately 13% of total electricity production in Argentina for 2004, approximately 10% for 2003 and 10% for 2002.

     The following table sets forth the electricity generation of Endesa-Chile’s Argentine subsidiaries:

**ELECTRICITY GENERATION PER SUBSIDIARY IN ARGENTINA (GWh)**

|                               |        |        | **Year Ended December 31,** |        |
|------------------------------------|--------|--------|-----------------------------|--------|
|                               |   |   |                             |   |
|                               |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                               |   |   |                             |   |   |  |   |   |  |   |
| Central Costanera S.A.             |   |   | 3,486                       |   |   | 3,958 |   |   | 7,859 |   |
| Hidroelectrica El Chocón S.A. |   |   | 3,682                       |   |   | 4,038 |   |   | 3,431 |   |
|                               |   |   |                             |   |   |  |   |   |  |   |
| Total                              |   |   | 7,167                       |   |   | 7,997 |   |   | 11,290 |   |
|                               |   |   |                             |   |   |  |   |   |  |   |
|                               |   |   |                        |   |   |   |   |   |   |   |

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     Low cost hydroelectric generation accounted for nearly 30% of total generation in 2004, less than in 2003 because of a  relatively dry year when compared to 2003.  The percentage of hydroelectric generation in 2002 reached 51%, as shown in the following table:

**ENDESA-CHILE HYDRO/THERMAL GENERATION IN ARGENTINA (GWh)(1)**

|                     |        |        | **Year ended December 31,** |        |
|--------------------------|--------|--------|-----------------------------|--------|
|                     |   |   |                             |   |
|                     |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                     |   |   |                             |   |   |  |   |   |  |   |
|                     |        |        | (GWh)                       |        |  | % |  |  | (GWh) |  |  | % |  |  |  |  |  |  |  |
| Hydroelectric Generation |   |   | 3,682                       |   |   | 51.4 |   |   | 4,038 |   |   | 50.5 |   |   | 3,431 |   |   | 30.4 |   |
| Thermal Generation       |   |   | 3,486                       |   |   | 48.6 |   |   | 3,958 |   |   | 49.5 |   |   | 7,859 |   |   | 69.6 |   |
|                     |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total Generation         |   |   | 7,167                       |   |   | 100.0 |   |   | 7,997 |   |   | 100.0 |   |   | 11,290 |   |   | 100.0 |   |
|                     |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |

|   |                                                               |
|--------|--------------------------------------------------------------------|
|        |
| (1)    | Generation minus power plant own consumption and technical losses. |

     Endesa-Chile’s    physical energy sales in Argentina reached 12,988 GWh in 2001, 7,897 GWh    in 2002, 9,259 in 2003 and 11,604 in 2004. The increase in sales of year    2004 compared to 2003 responds to the increase in the generation of Endesa-Chile’sfacilities.

     The portion of physical sales supplied by the Company’s own generation of energy reached 97% of total sales in 2004 while sales supplied by energy purchased from other generators represented 3% of total sales in 2004, as set forth in the following table:

**PHYSICAL PRODUCTION AND PURCHASES IN ARGENTINA (GWh)**

|                   |        |        | **2002**  |        |        | **2003** |        |        | **2004**  |        |
|------------------------|--------|--------|-----------|--------|--------|----------|--------|--------|-----------|--------|
|                   |   |   |           |   |   |          |   |   |           |   |
|                   |        |        | **(GWh)** |        |        | **%**    |        |        | **(GWh)** |        |  | **%** |  |  | **(GWh)** |  |  | **%** |  |
|                   |   |   |           |   |   |          |   |   |           |   |   |  |   |   |  |   |   |  |   |
| Electricity Production |   |   | 7,167.4   |   |   | 90.5     |   |   | 7,996.5   |   |   | 86.4 |   |   | 11,289.7 |   |   | 97.3 |   |
| Electricity Purchases  |   |   | 750.0     |   |   | 9.5      |   |   | 1,264.0   |   |   | 13.6 |   |   | 312.6 |   |   | 2.7 |   |
|                   |   |   |           |   |   |          |   |   |           |   |   |  |   |   |  |   |   |  |   |
| Total(1)               |   |   | 7,917.4   |   |   | 100.0    |   |   | 9,260.5   |   |   | 100.0 |   |   | 11,602.3 |   |   | 100.0 |   |
|                   |   |   |           |   |   |          |   |   |           |   |   |  |   |   |  |   |   |  |   |
|                        |

| (1) | Energy production plus energy purchases differs from electricity sales in 2002due to 20 GWh of energy not billed in that year, given that own power plant consumption and technical losses havealready been deducted. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

     The company’s physical sales market share decreased from 18% in 2001 to 10% in 2002 but it increased to 12% in 2003 and to 14% in 2004. Contracted sales decreased after 2001 due to dispatch of the exportation to Brazil. In 2001 the dispatch was 44%, however since February 2002 the dispatch is null.  The increase in contracted sales in 2004 compared to contracted sales in 2003 responds to the operating conditions of the Wholesale Electricity Market (“WEM”). Endesa-Chile has adjusted its commercial strategy to reduce its exposure to the spot market.  The Argentine Government’s intervention in the energy sector since 2002 has led to a WEM payment deficit and to the natural gas crisis that thecountry is currently experiencing.  Governmental authorities in Argentina have operated under special conditions; that is, they have limited the spot price to reflect the variable cost of generating electricity with natural gas, without considering the hydrological conditions of rivers and reservoirs or the use of more expensive liquid oil.

     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 7,973 GWh in 2004, compared to 4,583 GWh in 2003; 4,178 in 2002 and 8,395 in 2001. The increase in 2004 reflects the increase in Costanera ́s generation, which can operate with natural gas and fuel oil.  Contracted sales in 2004 represented 11% of total physical sales and pool market sales accounted for the remaining 89%.

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     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 (GWh)**

|                    |        |        | **Year ended December 31,** |        |
|-------------------------|--------|--------|-----------------------------|--------|
|                    |   |   |                             |   |
|                    |        |        | **2002**                    |        |  | **2003(1)** |  |  | **2004** |  |
|                    |   |   |                             |   |   |  |   |   |  |   |
|                    |        |        | **(GWh)**                   |        |  | **% of Sales Volume** |  |  | **(GWh)** |  |  | **% of Sales Volume** |  |  | **(GWh)** |  |  | **% of Sales Volume** |  |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Contracted Sales        |   |   | 1,520                       |   |   | 23.8 |   |   | 1,117 |   |   | 12.1 |   |   | 1,855 |   |   | 16.0 |   |
| Non-Contracted          |   |   | 6,377                       |   |   | 76.2 |   |   | 8,142 |   |   | 87.9 |   |   | 9,749 |   |   | 84.0 |   |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total Electricity Sales |   |   | 7,897                       |   |   | 100 |   |   | 9,259 |   |   | 100 |   |   | 11,604 |   |   | 100 |   |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |

|   |                                                                          |
|--------|-------------------------------------------------------------------------------|
|        |
| (1)    | Sales    in the anticipated spot market are included as non-contracted sales. |

     In 1996 and 1997, the governments of Argentina and Brazil subscribed several protocols and memoranda of understanding related to energy integration and interconnection between the two countries.  Subsequent to such governmental agreements, and in that cross-country energy integration framework, Costanera contracted to sell 500 MW of electricity capacity to CIEN, a Brazilian company in which Endesa-Chile has a 45% interest, until 2020.  An additional 462 MW of Costanera’s capacity is committed through a contractual agreement to CEMSA, a 45%-owned Argentine affiliate of Endesa-Chile.  Costanera has received payments for having take-or-pay capacity available for Brazil.  During 2004, Costanera’s electricitygeneration was affected by the natural gas crisis in the Argentine economy.  Costanera has the ability to operate its steam turbine power plant with either natural gas or fuel oil.  Accordingly, the Argentine electricity system’s need to generate electricity with alternative liquid fuel has increased the dispatch of Costanera’s plants.

     Because of the very tight electricity and natural gas conditions currently prevailing in Argentina, local authorities have not recently allowed generation companies, including Costanera, to export electricity produced with natural gas.  In addition, Argentine Resolutions 426/04 and 949/04 only permit export contracts to be satisfied with generation units that were previously identified for such purpose, and do not allow the purchase of any deficits in the wholesale market, as it is contemplated in the Interconnection protocol between Argentina and Brazil, incorporated in the contracts.  For this reason, on April 27, 2005, Costanera, alluding to the precarious state of the wholesale electricity market in Argentina,and to completely involuntary reasons, invoked *force majeure* clauses in its export agreements with CIEN and CEMSA in order to explain that is was able to only partially comply with the terms under such export contracts.  As of the date of this annual report, it is uncertain whether Costanera will be able to continue fully servicing its export contracts.

     Physical sales of El Chocón were 3,630 GWh in 2004, 22%  less than the 4,676 GWh sold in 2003, and also less than the 3,719 GWh sold in 2002. The relative dry conditions in 2004 and the special operation of the electricity system defined by the authority explain this reduction.  Contracted sales declined from 582 GWh in 2002 to 482 GWh in 2003, but increased to 989 GWh in 2004. Contracted sales to the mining firm *Minera Alumbrera* represented 49% of total contracted sales in 2004, *Profertil* represented 21%, *ENSI*14% and *Petroken* 9%.  The remaining 2,642 GWh in 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 resultingfrom 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*Piedra    del Aguila* (hydro 1,400 MW) and *Central Puerto* (thermal 2,100    MW) owned by *Totalfina,* the plants owned by the AES Group: (San Nicolas    (thermal 650 MW), Paraná (thermal 845MW) and Alicura (hydro 1,020    MW)) and *Petrobras Energía S.A.* which competes with Endesa-Chile    through two power plants, *Genelba* (thermal 660 MW) and *Pichi Picún    Leufú* (hydro 255 MW).  Other significant power plants are *Piedra    del Aguila* (hydro 1,400 MW) and *Central Puerto* (thermal 2,100    MW) owned by*Totalfina* and *TermoAndes* (thermal 600 MW) owned by Gener S.A. butnot connected to the SIN.

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|   | ***Electricity Generation in Argentina – Industry Structure and Regulatory Framework*** |
|--------|----------------------------------------------------------------------------------------------|

     *Ley Nacional* No. 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 distributingelectricity.  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 peakdemand ranging between 0.03 MW and 0.1 MW.  GUMEs and GUPAs are not required to have 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 |

|  |   |                                                               |
|--|--------|--------------------------------------------------------------------|
|  | • | 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.  Distribution companies, power traders and large users that have entered into supply contracts with generation companies pay the contractual price.  Large users who contract directly with generation companies must also pay their distribution companies a toll for the use of their distribution networks.  The seasonal 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 seasonal price is maintained for at least 90 days.  Thereafter, CAMMESA updatesassumptions 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.  The hourly spot price paid for energy reflects the marginal cost of generation.

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     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. 23,896* of 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 canbe 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 thedam or any death or injury caused by such dams or related structures.  ORSEP also handles the 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.

|   | *Regulatory Changes during 2002, 2003 and 2004* |
|--------|-------------------------------------------------|

     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.

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     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; |
|--|--------|--------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                             |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------|
|  | • | 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. |
|  |   |                                                                                                           |

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     By means of Resolution No. 82/2003 and  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 pricesthat vary on an hourly basis and the seasonal prices that are passed through to the end users by the distributors) is now depleted.

     On August 14, 2003 the Secretary of Energy took further measures pursuant 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 hourlyimport 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.

     Additionally, 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 generators priority only in collecting the part of their remuneration which reflects their operational and transmission costs.

|   | ***Government Resolutions adopted during 2004*** |
|--------|--------------------------------------------------|

     *The Argentina Gas Crisis*: 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 of natural gas contracts and the freezing of the price of natural gas in Argentina since the beginning of 2002.  The resulting artificially low price wouldhave encouraged consumers to replace more expensive oil derivative energy with natural gas, leading to an explosive growth in demand.  At the same time, the fixed, low price of natural gas discouraged producers from investing in natural gas exploration and increasing their extraction and transportation capacity.  Consequently, current supply is not able to satisfy internal demand and export commitments.  Strong demand for electricity in Chile’s central region, which increased by 7.9% in 2004 and is expected to continue to increase significantly in the foreseeable future, combined with the low level of investment in the electricity sector, makes the Chilean electricity sector particularly vulnerable to the adverse effects of the Argentine natural gas crisis.  In Chile’s centralregion, Endesa-Chile’s thermal plants San Isidro and Taltal use natural gas for thermal generation and have take-or-pay gas contracts with Argentine suppliers.  On March 26, 2004, the Argentine government, in order to reduce the risk of domestic residential shortages, announced a resolution allowing governmental authorities to partially suspend natural gas exports and giving the President of Argentina the power to temporarily suspend the long-term supply contracts of Argentine exporters.  Since that date, Argentina has significantly curtailed its natural gas exports to Chile.  As a result, Endesa-Chile’s thermal plants have at times been forced to, and may in the future continue to be forced to, shift to more expensive fuel oil.

     For the “Natural Gas Crisis”, the Secretary of Energy, through resolution 208/2004 of April 2004, approved an agreement with natural gas producers to reestablish the gas price. Under this agreement the natural gas price rises to U.S.$ 1.00/MMBTU in July 2005, an increase of more than 100%.

     Within    the framework of public social, economic, financial and exchange emergency    and due to a severe lack of financing in the electric power sector arising    from a governmental policy that does not allow for increases in the utilities    fees, new investments from private power generators aimed at satisfying the    growing demand of electric power were not foreseen in the short term. Accordingly,    the Secretary of Energy, through Resolution No. 712/2004, created a fund(“FONINVEMEM”) to allow for the financing and management of all investmentaimed at increasing the electric power supply within the Wholesale Energy Market(WEM).

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     In order to organize FONINVEMEM, the Secretary of Energy passed Resolution No. 1427/04 on December 6, 2004, under which all privateGenerator Agents of the WEM were called upon to take part in the organization of FONINVEMEM by investing certain amounts of money to be accrued during the period from January 1, 2004 to December 31, 2006, pursuant to Resolution No. 406 passed by the Secretary of Energy.

     Resolution No. 1427/04 provides that those Private Generator Agents  who participate in the organization of FONINVEMEM will be permitted to take part in all necessary projects for the WEM restructuring.  For that purpose, the general guidelines upon which the generation supply enlargement shall be managed were determined.

     The basic guidelines consist of various commitments from the Private Agents and the Secretary of Energy, including the following:

     A. Commitments from the Secretary of Energy:

     (i)      To pass seasonable prices that can be transferred to large and medium demand rates in such a way that as from July 1, 2005, these prices may cover, to a minimal degree, the total monomial costs of the WEM arising from enforcement of the Resolution No. 240/03 passed by the Secretary of Energy.

     (ii)      To pass seasonable prices that can be transferred to the rates, with the exception of the social rate, in order to reach, at November 1, 2006, values capable of covering at least the total monomial costs of the WEM, that result from enforcing the provisions of Resolution No. 240, passed by the Secretary of Energy on August 14, 2003 and complementary resolutions thereof.

     (iii)      To pass, no later than the first seasonal scheduling after the commercial operation commencement of the investment projects to be carried out within this framework, seasonal prices that allow the guarantee of payment to the WEM ́s generators through rate collection.

     (iv)      From the time of commencement of commercial operation of the new equipment built with the FONINVEMEM resources, to compensate the power readily made available by hourly compensation equivalent to PESOS ($) of the amount that was paid prior the Law Number 25,561 and to compensate the energy supplied to the system, determining as a computation base, the Production Variable Costs, being the highest Production Variable Cost to be accepted equal to the Reference Price plus 15%.

     (v)      Once the Market readjusts from the commercial operation commencement of the new equipment built with the FONINVEMEM ́s resources, to leave without effect Resolution No. 240  and to compensate the generators with the System Marginal Price, in a free Spot Market, taking into account the cost of the energy that was not supplied and with a water value that represents the thermal replacing value.

     (vi)      To foster the necessary regulatory changes so that, after the WEM restructuring:

     Medium and large demands are bound to retain at least 75% of their electric power consumption.

|  | • | The supply of the growing demand that is not authorized to manage its own supply (Distributors demand) may be gradually and subsequently called for bids, through contracts with new Generation, for a minimum term which initially may be of FOUR (4) years. |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Bids for the energy hiring to be produced from the Project or Projects that are to be carried out with FONINVEMEM funds are called in order to facilitate their possible financing. |

     (vii)      To create the regulatory instruments that allow for Natural Gas firm transportation hiring and Natural Gas purchase, in addition to the currently retained transportation, aimed at generating Electric Power, trying to adapt the Natural Gas supply to the requirements of the power plants.

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     (viii)      Once the WEM has been restructured, electric power export contracts authorized therein, have the same possibilities of purchasing the shortage amounts of electric power in the Spot Market than domestic demand, at the rates to be determined pursuant to paragraph (iv).

     (ix)      To abide by the contracts currently in force in the WEM.

     B. Commitments undertaken by the Private Agents:

     (i)      To contribute as a guarantee of performance of all necessary projects aimed at restructuring the WEM, between a minimum of 65% and the total amount of certain funds, pursuant to Resolution No. 406, passed by the Secretary of Energy.

     (ii)      To take all the steps to manage the necessary projects to restructure the WEM, undertaking the commitment to carry out the pertinent Projects and works so they can be ready to commercially operate as from 2007.

     (iii)      To obtain the necessary financing to carry out the projects and the necessary works for the WEM restructuring on the committed deadlines.

     Both Costanera and El Chocón decided to participate in the organization of the FONINVEMEM Fund by investing certain amounts of money pursuant to the provisions of the Resolution No. 406, passed by the Secretary of Energy, which sums amounted in 2004  to around U.S.$ 1.3 million and U.S.$ 16 million respectively. The development throughout the remaining period will depend, among other factors, on CAMMESA ́s dispatch of the generation units of both power plants

|   | ***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 dollardenominated obligations into Argentine pesos at a rate of AR$ 1 per U.S.$ 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 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.

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**Operations in Perú**

     Operating Income from the company’s business in Perú represented 20%, 18%, and 14% of Endesa-Chile’s total operating income for the years 2002, 2003 and 2004 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,**          |        |
|--------------------|--------|--------|--------------------------------------|--------|
|                    |        |        |                                      |        |
|               |        |        | **2002**                             |        |  | **2003** |  |  | **2004** |  |
|                    |        |        |                                      |        |  |  |  |  |  |  |
|               |        |        | ***(in millions of constant Ch$ )*** |        |
| Operating Revenues |   |   | 121,714                              |   |   | 114,532 |   |   | 123,375 |   |
| Operating Expenses |   |   | 48,752                               |   |   | 51,703 |   |   | 71,217 |   |
|                    |        |        |                                      |        |  |  |  |  |  |  |
| Operating Income   |   |   | 72,962                               |   |   | 62,829 |   |   | 52,158 |   |
|               |   |   |                                      |   |   |  |   |   |  |   |

     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 Perú,with a total installed capacity5 as of December 2004 of 967 MW.  Edegel owns seven hydroelectric power plants, with a total installed capacity of approximately 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 227 MW of total installed capacity.

     Edegel’s installed capacity did not change in 2004.  Endesa-Chile’s hydroelectric and thermal generation plants in Perú represent 22% of the country’s total electricity generation capacity according to the information reported in October 2004 by the Osinerg for the calculation of the busbar (*i.e.*, node) prices.

|   |                                                                                                                                                                                                                                                                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                        |
|        |
| 5      | 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, consistent with installed      capacity defined as the maximum MW capacity of generation units, under    specific technical conditions and characteristics. |

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     The following chart sets forth the installed capacity of Edegel, our Peruvian subsidiary:

**INSTALLED CAPACITY PER SUBSIDIARY IN PERU (MW) (1)**

|                        |        |        | **(MW)** |        |        |     |        |
|-----------------------------|--------|--------|----------|--------|--------|----------|--------|
|                        |        |        | **2002** |        |        | **2003** |        |  | **2004** |  |
|                        |        |        |          |        |        |          |        |  |  |  |
| **Edegel S.A.**             |   |   |     |   |   |     |   |   |   |   |
| Huinco (Hydroelectric)      |   |   | 247      |   |   | 247      |   |   | 247 |   |
| Matucana (Hydroelectric)    |   |   | 129      |   |   | 129      |   |   | 129 |   |
| Callahuanca (Hydroelectric) |   |   | 75       |   |   | 75       |   |   | 75 |   |
| Moyopampa (Hydroelectric)   |   |   | 65       |   |   | 65       |   |   | 65 |   |
| Huampani (Hydroelectric)    |   |   | 30       |   |   | 30       |   |   | 30 |   |
| Yanango (Hydroelectric)     |   |   | 43       |   |   | 43       |   |   | 43 |   |
| Chimay (Hydroelectric)      |   |   | 151      |   |   | 151      |   |   | 151 |   |
| Santa Rosa (Thermal)        |   |   | 264      |   |   | 228      |   |   | 227 |   |
|                        |        |        |          |        |        |          |        |  |  |  |
| **Total**                   |   |   | 1,003    |   |   | 967      |   |   | 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, Perú, consistent with installed capacity defined as the maximum MW capacity of generation units, under specific technical conditions and characteristics. |

     Endesa-Chile’s total electricity generation in Perú reached 4,136 GWh in 2004, 4% less than the electricity generation of 4,287 GWh in 2003, and almost the same as the 4,141****GWh in 2002. Endesa-Chile’s generation market share was approximately 20% of total electricity production in Perú in 2004, approximately 22% for 2003, and 22% for 2002.****

**ELECTRICITY GENERATION PER SUBSIDIARY IN PERU (GWh)(1)**

|        |        |        | **(GWh)** |        |        |     |        |
|-------------|--------|--------|-----------|--------|--------|----------|--------|
|             |        |        | **2002**  |        |        | **2003** |        |  | **2004** |  |
|             |        |        |           |        |        |          |        |  |  |  |
| Edegel S.A. |   |   | 4,141     |   |   | 4,287    |   |   | 4,136 |   |
|             |        |        |           |        |        |          |        |  |  |  |
| Total       |   |   | 4,141     |   |   | 4,287    |   |   | 4,136 |   |
|             |        |        |           |        |        |          |        |  |  |  |
|        |   |   |      |   |   |     |   |   |   |   |

|     |
|-----|
| (1) | Generation minus power plant own    consumption and technical losses. |

     Hydrological generation represented 94.1% of Edegel’s total production in 2004.  Edegel’s hydroelectric generation has accounted for more than 99% of its total generation since 2001, except in the last year.  The portion of electricity supplied by Edegel’s own generation was 94.5% 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 market levels determine price at that time.

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     The following table sets forth the electricity generation and purchases for Edegel over the past three years:

**PHYSICAL PRODUCTION AND PURCHASES IN PERU (GWh)**

|                   |        |        | **Year ended December 31,** |        |
|------------------------|--------|--------|-----------------------------|--------|
|                   |   |   |                             |   |
|                   |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                   |   |   |                             |   |   |  |   |   |  |   |
|                   |        |        | **(GWh)**                   |        |  | **%** |  |  | **(GWh)** |  |  | **%** |  |  | **(GWh)** |  |  | **%** |  |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Electricity Production |   |   | 4,141                       |   |   | 98.5 |   |   | 4,287 |   |   | 95.8 |   |   | 4,136 |   |   | 94.5 |   |
| Electricity Purchases  |   |   | 65                          |   |   | 1.5 |   |   | 189 |   |   | 4.2 |   |   | 239 |   |   | 5.5 |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total(1)               |   |   | 4,206                       |   |   | 100.0 |   |   | 4,476 |   |   | 100.0 |   |   | 4,375 |   |   | 100.0 |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                   |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|     |
|-----|
| (1) | Total GWh production plus purchases differs from GWh sales due to transmission losses, given that own power plant consumption and technical losses have already been deducted. |

     In Perú there is only one interconnected system, *Sistema Electrico Interconectado Nacional*, or the SEIN.  Electricity generation in the SEIN increased 5.9% during 2004 when compared to 2003, reaching a total yearly generation of 21,903 GWh.  Increased demand in Perú 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 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 Perú.

     Edegel’s physical sales in 2004 decreased nearly 3% compared to sales in  2003.  Sales in the spot market decreased nearly 25%. The percentage of contracted sales increased in 2004 as compared to 2003 and 2002, due to an increase in sales to unregulated industrial customers.  Sales to regulated customers remained at 47% of contract sales in 2004 and 2003, and decreased the percentage compared with 50% in 2002.  Edegel ́s clients in 2004 were eleven, two regulated and nine non-regulated.  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 (GWh)**

|                    |   |   | **Year ended December 31,** |        |
|-------------------------|--------|--------|-----------------------------|--------|
|                    |   |   |                             |   |
|                    |   |   | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                    |   |   |                             |   |   |  |   |   |  |   |
|                    |   |   | **Sales   (GWh)**           |        |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Contracted sales        |   |   | 2,829                       |   |   | 68.0 |   |   | 3,134 |   |   | 70.5 |   |   | 3,344 |   |   | 77.3 |   |
| Non-Contracted sales    |   |   | 1,329                       |   |   | 32.0 |   |   | 1,309 |   |   | 29.5 |   |   | 984 |   |   | 22.7 |   |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total Electricity sales |   |   | 4,158                       |   |   | 100.0 |   |   | 4,443 |   |   | 100.0 |   |   | 4,328 |   |   | 100.0 |   |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                    |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

     Because SEIN is the only interconnected transmission system in Perú, all generation companies connected thereto may be considered competitors.  However, Endesa-Chile’s most important competitors in Perú are the hydroelectric generators, Electroperú and Egenor, whose capacity is approximately 869 MW and 542 MW, respectively

**Electricity Generation in Perú– Industry Structure and Regulatory Framework**

     The regulatory framework for the electricity industry in Perú 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 enEnergía*, 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).

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     Some of the most important characteristics of the regulatory framework of the electricity industry in Perú 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 Perú consists of one main interconnected system, SEIN.  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 Perú, 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 activities.  InSeptember 2001, the *Comisión de Tarifas de Energía*, or CTE, was absorbed by OSINERG.  As a consequence, OSINERG’s *Gerencia Adjunta de Regulación Tarifaria* performs CTE’s functions, which include publishing the regulated tariffs.  The *Comité de Operación Económica del Sistema*, or COES, coordinates the dispatch of electricity of Perú’s SEIN 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, Perú’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 Perú are virtually identical to the dispatch methodology and pricing in Chile, except that “node” prices are referred to as “busbar” prices in Perú and unregulated customers in Perú are those with demand greater than 1 MW, whereas in Chile unregulated customers are those with demand greater than 0.5 MW.  Supplies for capacity demand lower than 1 MW are considered a public service suppliance.  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 eachplant.

|   | ***Transmission*** |
|--------|--------------------|

     At the transmission level in Perú, 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 an annual fixed income (RAG, remuneración annual garantizada) regulated by OSINERG, and also 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.

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|   | ***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.  Historically, 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;  but since 2005, this publication will be annual (only in April) according with the last modification of the law (see below). 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 U.S.$.  Other conditions ofdistribution 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 for an unlimited period of time although its termination is subject to the same considerations and requirements as the termination of a concession under the procedures set forth in the Law of Electrical Concessions and its regulations and amendments.

|   | ***Changes to the regulatory framework during 2004*** |
|--------|-------------------------------------------------------|

     In December 2004, important changes were incorporated to the Law of Electricity Concessions. These changes include:

|  | • | Busbar tariffs will be fixed annually by the authority in May and must consider two periods: energy demand and investment plan forecast for the next 24 months, including foreign demand and supply; and energy demand and historic investments. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                                    |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Suspension until December 31, 2007 of the application of a provision regarding concession revocation when distribution companies do not assure, by contract, electricity supply for at least 24 months. |

|  |   |                                                                                                                                                                 |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Lack of payment by distribution companies to generation companies for electricity used for public service will now trigger a concession revocation by the authority. |

|  |   |                                                                                                                                                                                                                                                                                                  |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Ministerio de Energía y Minas and OSINERG will create a special commission to study and implement efficient methods for electricity generation development. Such commission will work closely with different sectors of the economy and present a proposal to Congress in the next six months. |

     In addition, an emergency decree was adopted to solve the problem of the distributors without contracts.  In the last two years, the Busbar prices were lower than the marginal cost, so generators avoided contracting new energy with distributors.  This situation resulted in distributors not having enough energy contracted in 2004 to supply their demand.  As a consequence, the generators have agreed to supply distribution companies without contracts at the busbar price.

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     Also in December 2004 Congress enacted the Electricity Import and Export Regulation, which includes the following provisions:

|  | • | Regulates electricity import and export transactions between SEIN and the electric systems of the Community of Andean Nations |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                          |
|--|--------|---------------------------------------------------------------|
|  | • | Creates two agents: Market Administrator and System Operator. |

|  |   |                                                             |
|--|--------|------------------------------------------------------------------|
|  | • | Authorizes certain agents to perform international transactions. |

|  |   |                                        |
|--|--------|---------------------------------------------|
|  | • | For electricity international transactions: |

|  |   |   |                                     |
|--|--------|--------|------------------------------------------|
|  |   | • | COES will perform an energy supply curve |

|  |   |   |                           |
|--|--------|--------|--------------------------------|
|  |   | • | Prices will be in U.S. dollars |

|  |   |   |                                                                                                                  |
|--|--------|--------|-----------------------------------------------------------------------------------------------------------------------|
|  |   | • | Electricity export is performed only when a warranty or bond representing payment for one day operation is presented. |

|  |   |   |                                                                                                                                                   |
|--|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------|
|  |   | • | Distribution of transmission revenues will be agreed between Ministerio de Energía y Minas and the equivalent authority in the foreign country. |

**Operations in Colombia**

     Operating Income from the Company’s business in Colombia represented 22%, 25% and 32% for 2002, 2003 and 2004 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,**          |        |
|--------------------|--------|--------|--------------------------------------|--------|
|               |        |        |                                      |        |
|               |        |        | **2002**                             |        |  | **2003** |  |  | **2004** |  |
|               |        |        |                                      |        |  |  |  |  |  |  |
|               |   |   | ***(in millions of constant Ch$ )*** |   |
| Operating Revenues |   |   | 234,695                              |   |   | 213,810 |   |   | 251,398 |   |
| Operating Expenses |   |   | 156,663                              |   |   | 125,676 |   |   | 132,942 |   |
|               |        |        |                                      |        |  |  |  |  |  |  |
| Operating Income   |   |   | 78,032                               |   |   | 88,134 |   |   | 118,456 |   |
|               |   |   |                                      |   |   |  |   |   |  |   |

     For details on the variations of yearly monetary figures, please see “Item 5. Operating and Financial Review and Prospects.”

     Endesa-Chile controls two electricity generation companies in Colombia, Betania and Emgesa. Endesa-Chile has an 85.6% ownership interest in Betania, and a 22.4% economic interest in Emgesa.  Betania is the operator of Emgesa, although it receives no compensation in return.

     As of December 31, 2004 Endesa-Chile, through both subsidiaries, operated a total of ten generation plants in Colombia, with a total installed capacity of 2,609 MW as of December 2004, of which 91.5% is hydroelectric.  Betania has one 540 MW hydroelectric facility located in Huila.  Emgesa had a total installed capacity of 2,069 MW as of December 31, 2004, 89.2% of which was hydroelectric. Emgesa’s main facilities are located in the Cundinamarca region of Colombia.  In April 2004, Emgesa added a new power plant along the Bogota River called Tequendama, with  an installed capacity of 19 MW.

     Endesa-Chile’s hydroelectric and thermal generation plants in Colombia represent approximately 19% of the country’s total electricity generation capacity, according to the country’s December 2004 official statistics.  This 2004 market share is lower than Endesa-Chile’s installed capacity market share of 2002 and 2003, which was approximately 20% 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 E.P.M. and Isagen S.A., our main competitors in Colombia.

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     The following table sets forth the installed generation capacity of Endesa-Chile’s Colombian subsidiaries at December 31, 2004:

**INSTALLED CAPACITY PER SUBSIDIARY IN COLOMBIA (MW)(1)**

|                            |        |        | **(MW)** |        |
|---------------------------------|--------|--------|----------|--------|
|                            |   |   |          |   |
|                            |        |        | **2002** |        |  | **2003** |  |  | **2004** |  |
|                            |   |   |          |   |   |  |   |   |  |   |
| **Emgesa**                      |        |        |     |        |  |   |  |  |   |  |
| Guavio (Hydroelectric)          |   |   | 1,150    |   |   | 1,150 |   |   | 1,150 |   |
| Cadena Vieja (Hydroelectric)    |   |   | 241      |   |   | 0 |   |   | 0 |   |
| Cadena Nueva (Hydroelectric)(2) |   |   | 580      |   |   | 600 |   |   | 600 |   |
| Termozipa (Thermal)             |   |   | 223      |   |   | 223 |   |   | 223 |   |
| Minor Plants (Hydroelectric)(3) |   |   | 0        |   |   | 76 |   |   | 96 |   |
| **Betania**                     |   |   |     |   |   |   |   |   |   |   |
| Betania (Hydroelectric)         |   |   | 540      |   |   | 540 |   |   | 540 |   |
|                            |   |   |          |   |   |  |   |   |  |   |
| **Total**                       |   |   | 2,734    |   |   | 2,589 |   |   | 2,609 |   |
|                            |   |   |          |   |   |  |   |   |  |   |

|     |
|-----|
| (1) | Total installed capacity defined as the maximum MW capacity ofgeneration units, under specific technical conditions and characteristics |

|   |                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)    | Is          known as *Cadena Nueva* or *Cadena Pagua* and is an hydroelectrical    chain composed by Paraíso and La Guaca plants                                                                                                                                                            |
|   |                                                                                                                                                                                                                                                                                               |
| (3)    | At December 31, 2004 Emgesa owned and operated five minorplants:   *Charquito, El Limonar, La Tinta, San Antonio*and*Tequendama*. On January 1, 2005,the minor plant *La Junca* was incorporated in the SIN, but it is not included here, because the chartshows information at December 31, 2004. |

     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 11,881 GWh in 2004 compared to 10,794 in 2003 and 10,699 GWh in 2002.  Endesa-Chile’s generation market share in Colombia in 2004 was approximately 25% according to ISA.  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 theirelectricity every day at the price that they determine convenient, as opposed to being forced by a centralized operating entity to generate according to the minimum marginal costs of the system.  Betania and Emgesa sold approximately 64% of their electricity under contract in 2004, with the remainder sold in the spot market.

     The following table sets forth the energy generation for each of Endesa-Chile’s Colombian subsidiaries:

**ENERGY GENERATION PER SUBSIDIARY IN COLOMBIA (GWh)(1)**

|    |        |        | **(GWh)** |        |
|---------|--------|--------|-----------|--------|
|    |   |   |           |   |
|    |        |        | **2002**  |        |  | **2003** |  |  | **2004** |  |
|    |        |        |           |        |  |  |  |  |  |  |
| Emgesa  |   |   | 8,870     |   |   | 9,205 |   |   | 10,028 |   |
| Betania |   |   | 1,829     |   |   | 1,589 |   |   | 1,853 |   |
|    |        |        |           |        |  |  |  |  |  |  |
| Total   |   |   | 10,699    |   |   | 10,794 |   |   | 11,881 |   |
|    |   |   |           |   |   |  |   |   |  |   |

|   |                                                              |
|--------|-------------------------------------------------------------------|
|        |
| (1)    | Generation minus power plant own consumption and technical losses |

     Hydrological conditions in 2004 translated into higher generation for 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 2003.  Considering that thermal generation is not significant, accounting for only 8.5% of Endesa-Chile’s total installed capacity in Colombia at December 2004 and less than 1% of total generation in Colombia during 2004, maintaining long-term contracts with coal suppliers to assure coal supply is not critical and these contracts are therefore negotiated annually.  In 2004, hydroelectric generation comprised over 99% of Endesa-Chile’s total generation inColombia.

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     The following table sets forth the levels of electricity production and purchases for Endesa-Chile’s Colombian subsidiaries for the past three years:

**PHYSICAL PRODUCTION AND PURCHASES IN COLOMBIA (GWh)**

|                   |        |        | **Year ended December 31,** |        |
|------------------------|--------|--------|-----------------------------|--------|
|                   |   |   |                             |   |
|                   |        |        | **2002**                    |        |  | **2003(1)** |  |  | **2004** |  |
|                   |   |   |                             |   |   |  |   |   |  |   |
|                   |   |   | **(GWh)**                   |   |   | **%** |   |   | **(GWh)** |   |   | **%** |   |   | **(GWh)** |   |   | **%** |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Electricity Production |   |   | 10,699                      |   |   | 72.7 |   |   | 10,794 |   |   | 74.0 |   |   | 11,881 |   |   | 77.9 |   |
| Electricity Purchases  |   |   | 4,023                       |   |   | 27.3 |   |   | 3,790 |   |   | 26.0 |   |   | 3,368 |   |   | 22.1 |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total(1)               |   |   | 14,722                      |   |   | 100.0 |   |   | 14,584 |   |   | 100.0 |   |   | 15,249 |   |   | 100.0 |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                   |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|     |
|-----|
| (1) | Energy production plus energy purchases exceed electricity sales due to power plant pump consumption. |

     The sole interconnected electricity system in Colombia is the Colombian National Interconnected System, or the Colombian SIN.  Electricity demand in the Colombian SIN, excluding the generation of the 39 MW OXI cogenerator unit, increased 2.7% during 2004.  The electricity consumption the Colombian SIN was 44,811 in 2002, 45,711 in 2003 and 47,020 GWh in 2004.  Endesa-Chile’s physical sales increased in 2004 as compared to 2003, due to an increase in the generation.

     The demand in Colombia’s electricity market has also been affected by the interconnection with the electricity system of Ecuador, which began operations in March 2003, referred to as International Transactions of Energy (“TIE”).  During 2004 physical sales to Ecuador reached 1,681 GWh.  During 2005 an interconnection line between Ecuador and Perú is expected to be operational.  Both interconnections with transmission lines represent a potential for greater competition, because generators in Ecuador 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 electricityto Ecuador.

     During 2004, Emgesa served an average of 839 non regulated customers and 11 distribution companies, and Betania served a total of 5 distribution companies. Endesa-Chile’s sales to the distribution company Codensa accounted for 45% of its total contract sales in 2004.  Physical sales to the six largest non-regulated customers reached 4.1% 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 (GWh)**

|                    |        |        | **Year ended December 31,** |        |
|-------------------------|--------|--------|-----------------------------|--------|
|                    |   |   |                             |   |
|                    |        |        | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                    |   |   |                             |   |   |  |   |   |  |   |
|                    |        |        | **Sales  (GWh)**            |        |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales  (GWh)** |  |  | **% of Sales Volume** |  |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Contracted sales        |   |   | 8,373                       |   |   | 57.2 |   |   | 9,333 |   |   | 64.4 |   |   | 9,736 |   |   | 64.3 |   |
| Non-Contracted sales    |   |   | 6,266                       |   |   | 42.8 |   |   | 5,148 |   |   | 35.6 |   |   | 5,412 |   |   | 35.7 |   |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total Electricity sales |   |   | 14,639                      |   |   | 100 |   |   | 14,481 |   |   | 100 |   |   | 15,148 |   |   | 100 |   |
|                    |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                    |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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     The following table sets forth Endesa-Chile’s sales by volume to its five largest distribution customers in Colombia for each of the periods indicated:

**MAIN CUSTOMERS IN COLOMBIA (GWh)**

|                                               |   | **Year ended December 31,** |   |
|----------------------------------------------------|--------|-----------------------------|--------|
|                                               |   |                             |   |
|                                               |        | **2002**                    |        | **2003** |  | **2004** |  |
|                                               |   |                             |   |  |   |  |   |
|                                               |   | **Sales   (GWh)**           |   | **% of Sales** |   | **Sales  (GWh)** |   | **% of Sales** |   | **Sales   (GWh)** |   | **% of Sales** |   |
|                                               |   |                             |   |  |   |  |   |  |   |  |   |  |   |
| Distribution companies:                            |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Codensa                                            |   | 4,195                       |   | 50 |   | 4,860 |   | 52 |   | 4,413 |   | 45 |   |
| Cens                                               |   |                        |   |   |   | 273 |   | 3 |   | 527 |   | 5 |   |
| Electricaribe                                      |   |                        |   |   |   | 267 |   | 3 |   | 510 |   | 5 |   |
| Essa                                               |   |                        |   |   |   |   |   |   |   | 501 |   | 5 |   |
| Electrocosta                                       |   | 286                         |   | 3 |   | 213 |   | 2 |   | 253 |   | 3 |   |
| Dicel                                              |   | 531                         |   | 6 |   | 279 |   | 3 |   |   |   |   |   |
| Pereira                                            |   | 352                         |   | 4 |   |   |   |   |   |   |   |   |   |
| Flores                                             |   | 153                         |   | 2 |   |   |   |   |   |   |   |   |   |
|                                               |   |                             |   |  |   |  |   |  |   |  |   |  |   |
| Total sales to five largest distribution companies |   | 5,517                       |   | 66 |   | 5,892 |   | 63 |   | 6,205 |   | 64 |   |
|                                               |   |                             |   |  |   |  |   |  |   |  |   |  |   |
|                                               |   |                        |   |   |   |   |   |   |   |   |   |   |   |

     Endesa-Chile’s most important competitors in Colombia include the following state-owned companies: Empresas Públicas de Medellín, whose total installed capacity was 2,580MW in December 2004, Isagen, whose total installed capacity was 2,241 MW in December 2004, and Corelca, whose installed capacity was 1,339 MW in December 2004.  Endesa-Chile also competes with the following publicly owned companies in Colombia: EPSA, whose total installed capacity was 1,078 MW in December 2004 and Chivor, which is owned by AES, whose total installed capacity was 1,000 MW in December 2004.

**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 142* of 1994 (“Law 142”) provides the broad regulatory framework for the provision of residential public services, including electricity, and *Ley Número 143* of 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 theappropriate 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 andefficiency; (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.

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     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 Actbut must maintain separate accounting records for each Activity.

     Effective as of January 1, 2002, the market share of generators, traders and distributors have 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 1999, 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 MWof 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 CREG 042-1999 resolution also includes rules to determine the participation of a company and its investors in the generation, distribution and trading businesses.

     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 ColombianNational 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, througharbitration, when the dispute involves the interpretation of operational or commercial rules.

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     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 thewholesale 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, Resolutions 77, 111,081, 078 and 090 of 2000, Resolution 001 of 2001 and Resolution 074 of 2002.  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 beenexchanged 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 regulated market and, although this requirement has gradually been reduced, they have still tended to secure contracts for a large proportion of their regulated 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 operated 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 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 ResolutionCREG 004 and some other amending resolutions, 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 average of the market price and their offer prices; and out-of-merit generators (those whose real generation is greater than optimal dispatch) are credited with the difference, also appraised according to regulated prices (CREG 034-2001 and others) 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 byguerrillas 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 average 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 thegenerators, who consider that the recognized prices do not cover the costs associated with these restrictions.

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     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, 111, 081, 078 and 090 of 2000, Resolution 001 of 2001 and Resolution 074 of 2002.  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 generatorsfor 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 24 month period of hypothetical drought assuming each month the minimum hydrological conditions that prevailed during different “El Niño  phenomenons that occurred during history.  A new proposal for the calculation of the Capacity Charge for generation companies is currently being discussed.

      In March 2003, the Colombian pool market started the TIE with Equador and exported 1,129 GWh and imported 67 GWh.  During 2004, Colombia exported 1,681 GWh and imported 35 GWh.  Please refer to the section titled “Operations in Colombia” for more information.

|   | ***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 itsclients.

     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. CREG has enacted subsequent resolutions which modify and replace CREG 051 of 1998 by improving the plan of expansion of STN but conserving thesame conceptual framework.

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|   | ***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. By means of resolution 082 from 2002 the CREG fixed the new distribution charges methodology replacing the contained in Resolution 99 of 1997. The distribution charges are calculated 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 CREG.  The parties freely agree upon trading prices for deregulated users.  Trading to regulated users is subject to a “regulated freedom regime” under which the tariffs are set by each trader using tariff options based on a formula established by CREG in Resolution 31 (1997).  This formula will remain in effect until CREG finalizes a new methodology, which it is currently in the process of developing.  Tariffs are determined pursuant to a combination of:

|  | • | general cost formulas given by CREG; and |
|--|--------|------------------------------------------|

|  |   |                                                       |
|--|--------|------------------------------------------------------------|
|  | • | individual trading costs approved by CREG for each trader. |

     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 2004.  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 during 2005.

     It is expected that certain elements in retail trading regulation which grant artificial competitive advantages to independent traders will be corrected by the new retail trading scheme. The bulk of National Development Plan regulation regarding the electric retail business is published in decree 3734, published by the Ministry of Mines in December 2003. Under this decree, independent traders are forced to have the same market composition, in terms of average energy consumption per customer, as the established trading and distribution company.  This decree also imposes an obligation to recognize costs associated with being the last resort supplier. At a U.S. wholesale level, the new long-term energy supply scheme-SEC- is expected to become fully operative in 2005.

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|   | ***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 energysector.  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, which 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.

|   | ***Inspection and Control*** |
|--------|------------------------------|

     According to the National Constitution and the Public Utilities Law, the Superintendency of Public Utilities exercises supervision of public services companies involved in the aforementioned electricity activities. In 2003, the Superintendency of Public Utilities implemented a central information system in order to consolidate all the information of public utilities for both control and information purposes.

**Operations in Brazil**

     Operating Income from the Company’s business in Brazil represented 5%, 1%, and 4% for 2002 and 2003 and 2004 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,**          |        |
|--------------------|--------|--------|--------------------------------------|--------|
|               |   |   |                                      |   |
|               |        |        | **2002**                             |        |  | **2003** |  |  | **2004** |  |
|               |   |   |                                      |   |   |  |   |   |  |   |
|               |        |        | ***(in millions of constant Ch$ )*** |        |
| Operating Revenues |   |   | 53,216                               |   |   | 31,562 |   |   | 42,006 |   |
| Operating Expenses |   |   | 35,636                               |   |   | 27,813 |   |   | 27,692 |   |
|               |   |   |                                      |   |   |  |   |   |  |   |
| Operating Income   |   |   | 17,580                               |   |   | 3,749 |   |   | 14,314 |   |
|               |   |   |                                      |   |   |  |   |   |  |   |
|               |   |   |                                 |   |   |   |   |   |   |   |

     For details on the variations of yearly monetary figures, please see “Item 5. Operating and Financial Review and Prospects.”

     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.  Cachoeira Dourada operates a 658 MW pass-through hydroelectric facility in the State of Goias, south of Brasilia, which represents approximately 0.7% of the total installed capacity of Brazil according to ANEEL.

     The installed capacity of the Company has remained stable at 658 MW for the past four  years, although the country’s installed capacity expanded by 7,000 MW in 2002, 4,200 MW in 2003 and 3,500MW in 2004.

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**INSTALLED GENERATION CAPACITY IN BRAZIL (MW)(1)**

|              |   |   | **(MW)** |        |
|-------------------|--------|--------|----------|--------|
|              |   |   |          |   |
|              |   |   | **2002** |        |  | **2003** |  |  | **2004** |  |
|              |   |   |          |   |   |  |   |   |  |   |
| Cachoeira Dourada |   |   | 658      |   |   | 658 |   |   | 658 |   |
|              |   |   |          |   |   |  |   |   |  |   |
| Total             |   |   | 658      |   |   | 658 |   |   | 658 |   |
|              |   |   |          |   |   |  |   |   |  |   |

|     |
|-----|
| (1) | Total installed capacity defined    as the maximum MW capacity of generation units, under specific technical    conditions and characteristics |

     The Company’s total physical generation in 2004 was 3,262 GWh, representing a 7.9% increase as compared to 2003.  Physical generation was: 2,467 GWh in 2002, 3,024 GWh in 2003 and 3,262 GWh in 2004.  Cachoeira Dourada’s generation depends on rainfall in the region in which it operates. Hydrological conditions were favorable to Cachoeira Dourada’s electricity generation during 2004, increasing the plant’s average percentage of total installed capacity used from approximately 53% in 2003 to 56% in 2004.

     The following table sets forth the physical energy production and purchases of Cachoeira Dourada:

**PHYSICAL PRODUCTION AND PURCHASES IN BRAZIL (GWh)**

|                   |   |   | **Year ended December 31,** |   |
|------------------------|--------|--------|-----------------------------|--------|
|                   |   |   |                             |   |
|                   |   |   | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                   |   |   |                             |        |  |  |  |  |  |  |
|                   |   |   | **(GWh)**                   |        |  | **%** |  |  | **(GWh)** |  |  | **%** |  |  | **(GWh)** |  |  | **%** |  |
|                   |   |   |                             |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Electricity Production |   |   | 2,467.0                     |   |   | 68.7 |   |   | 3,024.3 |   |   | 80.2 |   |   | 3,262.2 |   |   | 83.6 |   |
| Electricity Purchases  |   |   | 1,125.0                     |   |   | 31.3 |   |   | 745.3 |   |   | 19.8 |   |   | 639.8 |   |   | 16.4 |   |
|                   |   |   |                             |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total(1)               |   |   | 3,592.0                     |   |   | 100.0 |   |   | 3,769.6 |   |   | 100.0 |   |   | 3,902.0 |   |   | 100.0 |   |
|                   |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |

|     |
|-----|
| (1) | Energy production  plus energy    purchases may differ from electricity sales due to transmission losses. |

     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 (“CDSA”) with *Companhia Elétrica de Estado de Goiás S.A.* (“CELG”), a regional state-owned distribution company.  The contract has a term of 15 years.  During the first five years, CELG purchased all of the contracted capacity of Cachoeira Dourada (415 MW).  That amount was reduced by 10% (42MW) per year beginning in September of the sixth year. As a result, physical sales to CELG declined 11% in 2004 as compared to 2003.  The electricity generated monthly in excess of Cachoeira Dourada’s contractual commitment toCELG is sold to third parties, including the pool market.

     Electricity demand in Brazil increased 5.0% during 2004, 5.3% 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:

**ENDESA-CHILE PHYSICAL SALES PER CUSTOMER SEGMENT IN BRAZIL (GWh)**

|                 |   |   | **Year ended December 31,** |        |
|----------------------|--------|--------|-----------------------------|--------|
|                 |   |   |                             |   |
|                 |   |   | **2002**                    |        |  | **2003** |  |  | **2004** |  |
|                 |   |   |                             |   |   |  |   |   |  |   |
|                 |   |   | **Sales   (GWh)**           |        |  | **% of Sales Volume** |  |  | **Sales   (GWh)** |  |  | **% of Sales Volume** |  |  | **Sales   (GWh)** |  |  | **% of Sales Volume** |  |
|                 |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Contracted sales     |   |   | 3,572                       |   |   | 99.5 |   |   | 3,428 |   |   | 90.9 |   |   | 3,398 |   |   | 87.1 |   |
| Non-Contracted sales |   |   | 19                          |   |   | 0.5 |   |   | 342 |   |   | 9.1 |   |   | 504 |   |   | 12.9 |   |
|                 |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
| Total                |   |   | 3,591                       |   |   | 100 |   |   | 3,770 |   |   | 100 |   |   | 3,902 |   |   | 100.0 |   |
|                 |   |   |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                 |   |   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

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     The decreases in contractual sales in 2003 and 2004 were due to a contractual dispute with Cachoeira Dourada’s most important customer, CELG.  Cachoeira Dourada’s contractual agreement with CELG had 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 started making payments, but they were 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.  Finally, in August 2004 , CELG and CDSA reached a new agreement. The main points were:

|  | • | CELG recognized a total debt of 170 MMR$ to CDSA; |
|--|--------|---------------------------------------------------|

|  |   |                                                                       |
|--|--------|----------------------------------------------------------------------------|
|  | • | 135 MMR$ would be paid by CELG through a BNDES financing over three years; |

|  |   |                                                                             |
|--|--------|----------------------------------------------------------------------------------|
|  | • | 35 MMR$ would be paid monthly by an upper contract price (130% of the original); |

|  |   |                                          |
|--|--------|-----------------------------------------------|
|  | • | new indexed formula based only on IGPM index; |

|  |   |                                                              |
|--|--------|-------------------------------------------------------------------|
|  | • | all judgment disputes, in relation to the PPA would be cancelled. |

     In addition to its ownership of Cachoeira Dourada, Endesa-Chile operates in Brazil through its related company, CIEN, of which Endesa-Chile has a 45% ownership interest, in the trading 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 line between Argentina and Brazil.  CIEN has received two twenty-year authorizations from ANEEL (which expire in 2020 and 2022) 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.

     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 real-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 Braziliancustomers, CIEN maintains contracts with Argentine generators, including Endesa-Chile’s subsidiary in Argentina, Costanera.

     Due to generation constraints in Argentina, and after conducting certain tests for actual generation availability and guaranteed energy, on March 31, 2005 certain resolutions by the ANEEL and the MME (Ministry of Mines and Energy) reduced CIEN’s “guaranteed energy” (a theoretical regulatory concept related to the capacity that is recognized for purposes of contracts between energy producers and their clients) from approximately 1,700 MW to 400 MW, although such restriction is subject to review by the ANEEL in the event that CIEN can restore its electricity imports from Argentina.

     If Argentine generators continue to be unable to fulfill their contracts with CIEN and the mentioned resolutions are not relaxed by ANEEL, CIEN may be forced to renegotiate its contracts with its suppliers and its clients.  CIEN may also be subject to liabilities or penalties if it is found to be in breach of its contracts with Brazilian clients or in violation of norms issued by the Brazilian regulatory authorities.  As of the date of this annual report, some of CIEN’s clients under the first interconnection line have until now rejected *force majeure* claims made by our transmission related company.

**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 other parts of the northern regions of Brazil, and several other small, isolated systems.

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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, or MME, which has exclusive authority over the electricity sector through its concessionaire and regulatory powers.  Regulatory policy for the sector is implemented by the National Agency of Electric Energy, or ANEEL, established pursuant to Law No. 9.427/96.  ANEEL is responsible on behalf of União for, among other things:

|  | • | 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; |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                   |
|--|--------|--------------------------------------------------------|
|  | • | supervising and auditing the concessionaire companies; |

|  |   |                                            |
|--|--------|-------------------------------------------------|
|  | • | issuing regulations for the electricity sector; |

|  |   |                                                                                                                                                                        |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | granting decisions in order to solve, as an administrative matter, the differences among concessionaires, independent producers, consumers and other industry participants; |

|  |   |                                                        |
|--|--------|-------------------------------------------------------------|
|  | • | establishing the criteria to calculate transmission prices; |

|  |   |                                           |
|--|--------|------------------------------------------------|
|  | • | imposing contractual and regulatory penalties; |

|  |   |                                                                                             |
|--|--------|--------------------------------------------------------------------------------------------------|
|  | • | implementing public policies (such as low-income program) pointed out by the Federal Government; |

|  |   |   |                                        |
|--|--------|--------|---------------------------------------------|
|  |   | • | establishing the tariff rate for consumers; |

|  |   |   |                                         |
|--|--------|--------|----------------------------------------------|
|  |   | • | managing the process of  tariff adjustments; |

|  |   |   |                                                      |
|--|--------|--------|-----------------------------------------------------------|
|  |   | • | managing the bidding process for the wholesale of energy; |

|  |   |                                   |
|--|--------|----------------------------------------|
|  | • | managing the concession contracts; and |

|  |   |                                                                                            |
|--|--------|-------------------------------------------------------------------------------------------------|
|  | • | 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 planning and coordination of the operations and dispatch of electricity in order to optimize the electricity produced in the interconnected systems; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                      |
|--|--------|-------------------------------------------------------------------------------------------|
|  | • | the supervision and coordination of the operation centers of the electricity systems; and |

|  |   |                                                                                  |
|--|--------|---------------------------------------------------------------------------------------|
|  | • | the definition of rules for the transmission of energy in the interconnected systems. |
|  |   |                                                                                  |

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     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 Concessions 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 these laws with respect to the electricity sector 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 financialdifficulties, and the laying of the groundwork for privatizations in the sector.

     ***Independent Power Producers and Self-Producers***

     The Power Sector Law also introduced the concept of the independent power producers, or IPP, as a further factor in opening up the electricity sector to private investment.  The Power Sector Law 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:

|  | • | contribute or exchange energy with other self-producers within a consortium; |
|--|--------|------------------------------------------------------------------------------|

|  |   |                                                            |
|--|--------|-----------------------------------------------------------------|
|  | • | sell excess energy to the local distribution concessionaire; or |

|  |   |                                                                                                                                                                                            |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | exchange energy with the local distribution concessionaire to allow for consumption by industrial plants owned by the self-producer and 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 such 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 thereunder have terms of 35 and 30 years, respectively, with the possibility of extensions forperiods 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.

     The power industry was reviewed by the Cardoso administration and was subject to additional significant changes, including, but not limited to, restructuring and privatization of assets owned by the Federal Government of Brazil in addition to those which were already privatized (mostly in distribution area).  Such changes attempt to result in the creation of a more competitive electricity industry.

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     The former 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. 9,648/98 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 for energy contracts is determined according to market conditions, and therefore the spot price derived from the operation of the market system is independent of the contractual relationships of the agents.  According to this model, the purchase and sale of electricity was going to benegotiated freely.  However, in order to facilitate the transition to this competitive model, the contracts already in effect at the time of the creation of the Wholesale Energy Market called “Initial Contracts” were to remain in effect until 2002 and afterward be reduced annually at the rate of 25%.   The first bundle of energy was liberalized in January 1, 2003, previously having been auctioned among generation companies 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 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 rationingperiod.

     Former President Cardoso announced a significant restructuring of the Brazilian power industry.  Pursuant to Law No 10,433, dated 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. The new Law (No 10,848/04) of the electricity sector has maintained this restructuring. Nevertheless, this law hasrevoked Law N. 10,433/02 and replaced the Wholesale of Energy Market (MAE) with the Chamber of Commercialization of Energy – CCEE, which is now responsible for the activities of MAE. According to the new model, ANEEL continues to be responsible for setting governance rules for CCEE (ex-MAE).

     On April 26, 2002, former President Cardoso issued another relevant rule to the sector (Law No. 10,438), with the objective of recovering revenues lost due to the rationing decree which occurred between June 2001 and February 2002, expanding the emergency energy supply and 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.

     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 Energia* or 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.

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     *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**10,438* will 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.

     During its first year in office, the government of President Luiz Inácio Lula da Silva recognized that Cardoso’s regulatory regime had not been successful in stimulating growth in the electricity generation industry or with respect to the maintenance of low tariffs.  As a result, in February 2003, the Ministry of Mines and Energy created a committee to work on institutional reform.  The committee published a “Proposal of an Institutional Model for the Electricity Sector.”  The basic guidelines or goals of this proposal, which were approved by the CNPE (Resolution No. 5, July 21, 2003), consist of:

|  | • | maintaining the public service concept for the production and distribution of the electricity to consumers within our concession area; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                               |
|--|--------|------------------------------------|
|  | • | restructuring the system planning; |

|  |   |                                                                 |
|--|--------|----------------------------------------------------------------------|
|  | • | transparency in the auction and bidding process for public projects; |

|  |   |                           |
|--|--------|--------------------------------|
|  | • | mitigating the systemic risks; |

|  |   |                                                                               |
|--|--------|------------------------------------------------------------------------------------|
|  | • | maintaining centralized and coordinated operations of the Brazilian energy system; |

|  |   |                                                                             |
|--|--------|----------------------------------------------------------------------------------|
|  | • | granting universal use and access to electricity services throughout Brazil; and |

|  |   |                                                      |
|--|--------|-----------------------------------------------------------|
|  | • | modify the bidding process of public service concessions. |

|   |                  |
|--------|-----------------------|
|   | *Contract Level Rule* |

     Following the enactment of Law N° 10,848/04 in 2004, the demand from distribution companies must now be contracted completely.  Previously, only 95% of the energy sold by the MAE participants had to be guaranteed from generation facilities.

|   | *Intercompany Contracts Approval* |
|--------|-----------------------------------|

     ANEEL approval is required for related company contracts.  The contracts between companies of the Enersis Group, Cerj-CIEN and Coelce-CIEN were approved by ANEEL.

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     ***Structure of the New Electricity Sector***

     As expected, the power industry was reviewed by Luiz Inácio Lula da Silva ́s administration and it was subject to significant changes.  The federal Laws No 10,847 and 10,848 of March 2004 established a new model for the Brazilian electricity sector.   The new model seeks to provide cheaper tariffs for consumers and guarantee the expansion of the system, with the EPE (Power Research Company), a governmental body, responsible for the planning of generation and transmission activities.  This new model has defined two contracting environments: the free contracting and the regulated environment.

     In the free contracting environment, the conditions for purchasing energy are negotiable between suppliers and their customers, maintaining essentially the same characteristics as the old model. In relation to the regulated environment, where energy distributors operate, the new model has introduced significant changes. Whereas the old model allowed self-dealing and allowed distributors to conduct their own auctions for their energy purchases, under the new model the purchase of energy in the regulated environment must be executed pursuant to the bidding process coordinated by ANEEL.

     The bidding process coordinated by ANEEL is divided in two parts: one part relates to existing energy and the other part relates to energy to be generated in the future.  The contracts resulting from the bidding process for existing energy have a term of five to fifteen years.  There was an auction under this model on December 7, 2004 in relation to contracts beginning in 2005-2007, and another auction in March 2005 for contracts which will begin in 2008-2009.

     The bidding process for the new energy is scheduled to occur within five years and will occur three years prior to the beginning of the contract.  Such contracts will have a term of fifteen to thirty years.  The new energy will be contracted according to estimated demand.

     Another change imposed on the electricity sector is the separation of the bidding process for “existing 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 power project”. ****Cachoeira Dourada and CIEN have been considered existing powers.  The government believes that existing power plants are able to provide power at lower 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 is in the form of more favorable contractualterms.  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.  Brazil has an excess supply of energy, and therefore existent power generators are adversely affected by the priority given to the new project power.

     Additionally, the new model forces 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 inthe energy supply industry**.**

     Moreover, the new model has established****the separation of the sector activities by forbidding distribution companies to participate in generation and transmission activities and in other companies.

     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.

***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.

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     On July 16, 2004 Cachoeira Dourada obtained its necessary environmental permit (licença de operação no 401/2004), valid for four years, when it must be renewed.

     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%. On November 8, 2004 the Federal Receipt issued the Normative Instruction No. 468 which clarifies the concept of pre-determined price in long-term agreements executed before October 31,2003. This new concept interpretation changes the previous scenario and CIEN revenues arising from long-term agreements executed before October 31, 2003 will now be impacted by this new legal framework.  Cachoeira Dourada is not affected by this new taxregime, since Cachoeira Dourada is subject to the presumed profit regime.

     Another relevant change in tax legislation was Law No. 10.865/04 (conversion of 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).   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. Wecannot determine at this time whether CIEN will be affected by “Imports PIS/COFINS”, since CIEN ́s import activity is very specific and unique.  A group of electricity import companies intends to propose changes to the legislation in order to clarify the applicability of Law No. 10.865/04 to import operations such as those conducted by CIEN.

**C.**      **Organizational structure**

     The following information sets out a brief description of Endesa-Chile’s significant subsidiaries as of December 31, 2004.

**Central Costanera S.A. (Costanera)**

     Costanera is an electricity generation company publicly traded in Argentina with 2,303 MW total installed capacity in Buenos Aires including two turbines with an aggregate 1,451 MW capacity oil and gas-fired generation facility and a 852-MW capacity natural gas combined-cycle facility 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, directly and through its subsidiary Endesa Argentina, of 64.26%. Costanera is incorporated inArgentina.

**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., 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 indirectownership of 47.44% and a 65.19% voting share in El Chocón.

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**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 Endesa-Chile’s Peruvian affiliate, Edegel, with its 18.06% interest, was awarded 79.36% of the share capital of Cachoeira Dourada in a 30-year concession. Between 1997 and 2003, Endesa-Chile increased its a total indirect ownership in Cachoeira Dourada to 92.51%, and its voting share to 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 655 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, 2004.  Pehuenche is incorporated in Chile.

**Empresa Eléctrica Pangue S.A. (Pangue)**

     Pangue was incorporated to build and operate the 462 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 94.98% of the share capital of Pangue as of December 31, 2004.  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 181.8 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.  Entergy holds the remaining shares.

**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.  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 2004, Emgesa has a total installed generating capacity of 2,068.6 MW. Both Endesa-Chile and Compañía Electrica Conosur has an additional 0.05% of Capital de Energia S.A. As of December 31, 2004, Endesa-Chile’s indirect ownership in Emgesa was 22.4%. Emgesa was incorporated in Colombia.

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**Central Hidroeléctrica De Betania S.A. E.S.P. (Betania)**

Betania is a hydroelectric generation facility with installed capacity of 540 MW, 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. Following a capital increase in 1999, in which Corfivalle did not participate, Endesa-Chile’s economic interest increased to 85.6% of Betania.  As of December 31, 2004, Endesa-Chile had an economic interest of 85.62% of Betania.

**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 966.6 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, 2004, Endesa-Chile had a 37.90% indirect ownership share in this subsidiary.  Endesa-Chile has a 63.56% voting share in Edegel through *Generandes Perú S.A*. Edegel is incorporated in Perú.

**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 thissubsidiary 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 highwayworks.  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.

**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 isincorporated in Brazil.

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**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 formed 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, as and changed again in December 2003 to Gasatacama Generación S.A.  Endesa-Chile has a 50% indirect ownership share in this company.

     

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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**

| **SUBSIDIARIES**                                    |
|-----------------------------------------------------|
|                                                     |  |  |  |  |  |  |  |  |  |  |  |  |
| **GENERATION**                                      |   | **ENGINEERINGSERVICES** |   | **INFRA-STRUCTURE (1)** |
|                                                     |   |  |   |  |
| **Argentina**                                       |   | **Brazil** |   | **Chile** |   | **Colombia** |   | **Perú** |   | **Chile** |   | **Chile** |
|                                                     |   |  |   |  |   |  |   |  |   |  |   |  |
| Central Costanera    64.26%                         |   | Cachoeira 92.51% |   | Pehuenche 92.65% |   | Emgesa 22.42% |   | 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)**    |
|                                                     |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                |   |   |   | GasAtacama Generación    50% |   |   |   |   |   |   |   |   |
| CEMSA 45%                                           |   | CIEN 45% |   | Electrogas 42.5% |   |   |   |   |   |   |   |   |
| CTM 45%                                             |   |   |   | Gasoducto Atacama    Chile 50% |   |   |   |   |   |   |
| TESA 45%                                            |   |   |   | Gasoducto Atacama    Argentina 50% |   |   |   |   |   |   |
|                                                |   |   |   | Gasoducto Taltal    Ltda. 50% |   |   |   |   |   |   |   |   |
|                                                |   |   |   | Transquillota    37.5% |   |   |   |   |   |   |   |   |
|                                                |   |   |   |   |   |   |   |   |   |   |   |   |

|     |
|-----|
| (1) | On June 23, 2003, Endesa-Chile closed the sale ofInfraestructura Dos Mil with the Spanish company OHL Concesiones, S.L., subsidiary of the Spanishcompany 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 SociedadConcesionaria Autopista Los Libertadores. |

|   |                                                                                      |
|--------|-------------------------------------------------------------------------------------------|
| (2)    | Endesa Internacional S.A., subsidiary ofEndesa-Spain, has a 5.01% shareholding in Pangue. |

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     The following table shows Endesa-Chile’s direct and indirect interests in each and every company in and outside of Chile:

     We continually evaluate potential asset reorganizations with the purpose of optimizing operating, financing and tax considerations.  We are currently expecting to undertake two such transactions; namely, a reorganization of our interests in Brazil and in Peru.  

     The objectives of the Brazilian project, approved by Endesa-Chile’s Board of Directors on May 31, 2005 and by our parent company, Enersis, on May 24, 2005, are to simplify the shareholding structure of assets by having all of them become subsidiaries of a new  Brazilian holding company, Endesa-Brasil S.A. (“Endesa Brasil”), and also to enhance access to third-party financings (including the domestic capital markets), improve positioning for potential growth opportunities, achieve greater stability for cash flows, as well as generate operating synergies.

     The total participation Endesa-Chile holds in Centrais Electrica Cachoeira Dourada S.A (“CDSA”) and inCompanhia de Interconexao Energética S.A (“CIEN”) will be transferred to this new entity, translating into a voting interest of approximately 33.6% for Endesa-Chile in Endesa Brasil.  The voting interests of Endesa Internacional and Chilectra would be 23.7% and 19.2%, respectively.  Enersis, on a stand-alone basis,  would have a 23.5% interest.  Because of Enersis’ interests in both Endesa Chile and Chilectra, Enersis would hold majority control over Endesa Brasil, and would consolidate such company.   The aggregate book value at December 31, 2004 of the shares expected to becontributed to Endesa-Brasil was R$3,575 million (or US$1.4 billion at year-end exchange rates).  Completion of the Brazilian reorganization is subject to receipt of regulatory approvals in Brazil.

     An investment agreement is to regulate the manner in which the capital contributions are scheduled to take place, as well as the rights and obligations of each of the Contributing Shareholders, which consist of us, Enersis (our parent company), Endesa Internacional (Enersis’parent company) and Chilectra.  

     The goal of the Peruvian project is to achieve generation synergies through the merger of Edegel and Empresa de Generación Termoeléctrica Ventanilla S.A. (“Etevensa”), a 500 MW thermoelectric generation company 60%-owned by Endesa-Spain.  Both of these projects are under analysis, and as of the date of this annual report no agreements or decisions have been taken as to their development.  

     There can be no assurance that either of these projects will be undertaken or that they will ultimately achieve the intended goals that have been described above.

 

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**D.**      **Property, Plant and Equipment**

**Description of Property and Insurance**

     Endesa-Chile’s main properties in Chile are its 22 electricity generation facilities detailed below in addition to its 27,793 square meter headquarters buildings in Santiago.

     Over 95%, of Endesa-Chile’s revenues are 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 independentappraiser.  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.  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 anylosses.

     Endesa-Chile also has investments in generating companies in Argentina, Brazil, Colombia and Perú, which involve a total of 24 generation facilities detailed below. 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 in order to obtain what it believes to be the most commercially reasonable 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(5)**               |   | **2002** |   | **2003** |   | **2004** |   |
|--------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------|--------|----------|--------|----------|--------|----------|--------|
|                                            |   |                                             |   |                                       |   |          |   |          |   |          |   |
|                                       |   |                                        |   |                                  |   |     |   | MW(1)    |   |     |   |
| **Argentina**                              |   |                                        |   |                                  |   |     |   |     |   |     |   |
| Central Costanera S.A.                     |   | Total                                       |   |                                  |   | 2,302    |   | 2,302    |   | 2,303    |   |
|                                       |   | Costanera Steam Turbine                     |   | Steam Turbine/ Natural Gas+ Fuel Oil  |   | 1,131    |   | 1,131    |   | 1,131    |   |
|                                       |   | Costanera Combined Cycle II                 |   | Combined Cycle/Natural Gas+Diesel Oil |   | 851      |   | 851      |   | 852      |   |
|                                       |   | Central Buenos Aires (CBA) Combined Cycle I |   | Combined Cycle/Natural Gas            |   | 320      |   | 320      |   | 320      |   |
|                                       |   |                                        |   |                                  |   |     |   |     |   |     |   |
| Hidroelectrica El Chocón S.A.         |   | Total                                       |   |                                  |   | 1,320    |   | 1,320    |   | 1,320    |   |
|                                       |   | Chocón                                 |   | Reservoir                             |   | 1,200    |   | 1,200    |   | 1,200    |   |
|                                       |   | Arroyito                                    |   | Pass Through                          |   | 120      |   | 120      |   | 120      |   |
|                                       |   |                                        |   |                                  |   |          |   |          |   |          |   |
| Total Capacity in Argentina                |   |                                        |   |                                  |   | 3,622    |   | 3,622    |   | 3,623    |   |
|                                       |   |                                        |   |                                  |   |     |   |     |   |     |   |
| **Brazil**                                 |   |                                        |   |                                  |   |     |   |     |   |     |   |
| Centrais Electricas Cachoeira Dourada S.A. |   | Cachoeira Dourada                           |   | Pass Through                          |   | 658      |   | 658      |   | 658      |   |
|                                       |   |                                        |   |                                  |   |          |   |          |   |          |   |
| Total Capacity in Brazil                   |   |                                        |   |                                  |   | 658      |   | 658      |   | 658      |   |

 

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| **Country/Company**                           |   | **Power Plant Name** |   | **Power Plant Type(5)**                |   | **2002**   |   | **2003**   |   | **2004**   |   |
|-----------------------------------------------|--------|----------------------|--------|----------------------------------------|--------|------------|--------|------------|--------|------------|--------|
|                                               |   |                      |   |                                        |   |            |   |            |   |            |   |
|                                          |   |                 |   |                                   |   |       |   | MW(1)      |   |       |   |
| **Chile (2)**                                 |   |                 |   |                                   |   |       |   |       |   |       |   |
| Endesa-Chile S.A.                             |   | Total                |   |                                   |   | 2,212      |   | 2,040      |   | 2,754      |   |
|                                          |   | Hydroelectric        |   |                                   |   | 1,737      |   | 1,565      |   | 2,254      |   |
|                                          |   | Canutillar           |   | Reservoir                              |   | 172        |   | —     |   | —     |   |
|                                          |   | Rapel                |   | Reservoir                              |   | 377        |   | 377        |   | 377        |   |
|                                          |   | Cipreses             |   | Reservoir                              |   | 106        |   | 106        |   | 106        |   |
|                                          |   | El Toro              |   | Reservoir                              |   | 450        |   | 450        |   | 450        |   |
|                                          |   | Los Molles           |   | Pass Through                           |   | 18         |   | 18         |   | 18         |   |
|                                          |   | Sauzal (6)           |   | Pass Through                           |   | 90         |   | 90         |   | 77         |   |
|                                          |   | Sauzalito            |   | Pass Through                           |   |       |   |       |   | 12         |   |
|                                          |   | Isla                 |   | Pass Through                           |   | 68         |   | 68         |   | 68         |   |
|                                          |   | Antuco               |   | Pass Through                           |   | 320        |   | 320        |   | 320        |   |
|                                          |   | Abanico              |   | Pass Through                           |   | 136        |   | 136        |   | 136        |   |
|                                          |   | Ralco                |   | Reservoir                              |   | —     |   | —     |   | 690        |   |
|                                          |   | Thermal              |   |                                   |   | 475        |   | 475        |   | 500        |   |
|                                          |   | Huasco               |   | Steam Turbine/Coal                     |   | 16         |   | 16         |   | 16         |   |
|                                          |   | Bocamina             |   | Steam Turbine/Coal                     |   | 128        |   | 128        |   | 128        |   |
|                                          |   | Diego de Almagro(7)  |   | Gas Turbine/Diesel Oil                 |   | 24         |   | 24         |   | 47         |   |
|                                          |   | Huasco               |   | Gas Turbine/IFO 180 Oil                |   | 64         |   | 64         |   | 64         |   |
|                                          |   | Taltal               |   | Gas Turbine/Natural Gas                |   | 243        |   | 243        |   | 245        |   |
| Empresa Electrica Pehuenche S.A.              |   | Total                |   |                                   |   | 695        |   | 695        |   | 695        |   |
|                                          |   | Pehuenche            |   | Reservoir                              |   | 566        |   | 566        |   | 566        |   |
|                                          |   | Curillinque          |   | Pass Through                           |   | 89         |   | 89         |   | 89         |   |
|                                          |   | Loma Alta            |   | Pass Through                           |   | 40         |   | 40         |   | 40         |   |
| Empresa Electrica Pangue S.A.                 |   | Pangue               |   | Reservoir                              |   | 467        |   | 467        |   | 467        |   |
| Compania Electrica San Isidro S.A.            |   | San Isidro           |   | Combined Cycle /Natural Gas+Diesel Oil |   | 379        |   | 379        |   | 379        |   |
| Compania Electrica Tarapaca S.A.              |   | Total                |   |                                   |   | 182        |   | 182        |   | 182        |   |
|                                          |   | Tarapacá      |   | Steam Turbine/Coal                     |   | 158        |   | 158        |   | 158        |   |
|                                          |   | Tarapacá      |   | Gas Turbine/Diesel Oil                 |   | 24         |   | 24         |   | 24         |   |
| Total Capacity in Chile                       |   |                 |   |                                   |   | 3,935      |   | 3,763      |   | 4,477      |   |
|                                          |   |                 |   |                                   |   |       |   |       |   |       |   |
| **Colombia (3)**                              |   |                 |   |                                   |   |       |   |       |   |       |   |
| Emgesa S.A. E.S.P.                            |   | Total                |   |                                   |   | 2,194      |   | 2,049      |   | 2,069      |   |
|                                          |   | Guavio               |   | Reservoir                              |   | 1,150      |   | 1,150      |   | 1,150      |   |
|                                          |   | Cadena Vieja         |   | Pass Through                           |   | 241        |   |       |   |       |   |
|                                          |   | Paraíso(8)    |   | Reservoir                              |   | 580        |   | 600        |   | 276        |   |
|                                          |   | La Guaca             |   | Pass Through (9)                       |   |       |   |       |   | 324        |   |
|                                          |   | Termozipa            |   | Steam Turbine/Coal                     |   | 223        |   | 223        |   | 223        |   |
|                                          |   | Minor plants         |   | Pass Through                           |   | —     |   | 76         |   | 96         |   |
| Central Hidroelectrica de Betania S.A. E.S.P. |   | Betania              |   | Reservoir                              |   | 540        |   | 540        |   | 540        |   |
|                                          |   |                 |   |                                   |   |            |   |            |   |            |   |
| Total Capacity in Colombia                    |   |                 |   |                                   |   | 2,734      |   | 2,589      |   | 2,609      |   |
|                                          |   |                 |   |                                   |   |       |   |       |   |       |   |
| **Perú (4)**                           |   |                 |   |                                   |   |       |   |       |   |       |   |
| Edegel S.A.                                   |   | Total                |   |                                   |   | 1,003      |   | 967        |   | 967        |   |
|                                          |   | Huinco               |   | Pass Through                           |   | 247        |   | 247        |   | 247        |   |
|                                          |   | Matucana             |   | Pass Through                           |   | 129        |   | 129        |   | 129        |   |
|                                          |   | Callahuanca          |   | Pass Through                           |   | 75         |   | 75         |   | 75         |   |
|                                          |   | Moyopampa            |   | Pass Through                           |   | 65         |   | 65         |   | 65         |   |
|                                          |   | Huampani             |   | Pass Through                           |   | 30         |   | 30         |   | 30         |   |
|                                          |   | Yanango              |   | Pass Through                           |   | 43         |   | 43         |   | 43         |   |
|                                          |   | Chimay               |   | Pass Through                           |   | 151        |   | 151        |   | 151        |   |
|                                          |   | Santa Rosa           |   | Gas Turbine/Diesel Oil                 |   | 264        |   | 228        |   | 227        |   |
| Total Capacity in Perú                 |   |                 |   |                                   |   | 1,003      |   | 967        |   | 967        |   |
| Total Endesa-Chile                            |   |                 |   |                                   |   | **11,952** |   | **11,599** |   | **12,333** |   |
|                                          |   |                 |   |                                   |   |            |   |            |   |            |   |
|                                               |   |                 |   |                                   |   |       |   |       |   |       |   |

| (1) | Total installed capacity defined as the maximum MW capacity of generation units, under specific technical conditions and characteristics. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | Canutillar power plant was sold in April, 2003. |
|-----|-------------------------------------------------|

| (3) | 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.  Five minor plants were registered with a total capacity of 96 MW. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (4) | On July 31, 2003, 35.9 MW of the Santa Rosa plant were suspended, leaving a capacity of 227 MW. |
|-----|-------------------------------------------------------------------------------------------------|

| (5) | 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. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|   |                                                                                                                                                                                        |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | 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. |

|   |                                                                |
|--------|---------------------------------------------------------------------|
| (6)    | Sauzalito MW’s are included in Sauzal figure in 2002 and 2003 |

|   |                                                                                                                        |
|--------|-----------------------------------------------------------------------------------------------------------------------------|
| (7)    | Includes one additional unit of Diego de Almagro (23 MW), as of 2004 which Endesa-Chile has rented from Codelco since 2001. |

|   |                                                                 |
|--------|----------------------------------------------------------------------|
| (8)    | La Guaca MW’s are included in Paraiso figures in 2002 and 2003 |

|   |                            |
|--------|---------------------------------|
| (9)    | Operates in series with Paraiso |
|   |                            |

     In addition to generation power plants, Endesa owns other assets whose amount is not significant, such as transmission assets in Perú and Tunnel El Melon  en Chile. These assets altogether represent less than 1% of the value of Endesa-Chile’s total consolidated assets.

**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.

     During 2000, Endesa-Chile defined, within its environmental strategy, specific goals in terms of certification of its generation assets under the international standard ISO 14.001.  By December 2003, the Company had received certification of slightly over 60% of its installed capacity in Latin America.

     During 2004, Endesa-Chile continued advancing in the achievement of this objective, certifying eight power plant installations in Perú, six in Chile and two in Colombia, receiving certifications in respect of over 86% of total generation assets, representing 35 of its 46 generation facilities, which produced 68% of the Company’s total annual electricity generation in 2004.

     For year 2005, the Company plans to certify seven additional plants located in Brazil, Chile and consequently expects to reach 95% of total asset generation certification.

**Investment Projects**

     Two new plant projects were completed and began operations in 2004:

|  | i) | Ralco Power Plant |
|--|----|-------------------|

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | The two units were synchronized with Chile’s Central Interconnected System (SIC) in August, and began their commercial operations in September 2004.  Tests conducted verified that the power plant could generate 690 MW in lieu of the 570 MW considered prior to the testing. On December 9, 2004 the National Environmental Agency (CONAMA) approved Endesa’s request to operate the plant at 690 MW. This increase in capacity does not represent a significant increase in the amount of power generated in comparison to the 3,100 GWh set forth under the original project are concerned. |

|  |   |                   |
|--|--------|------------------------|
|  | ii)    | Tequendama Power Plant |

|   |   |                                                                                                                                                                                                                                                                     |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | In April, the subsidiary Emgesa commissioned the Tequendama 19.4-MW hydroelectric power plant, which supplies its production to the Colombian National Interconnected System. This power plant is considered to be a minor plant in the Colombian electric power system. |

 

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     **Projects under Development**

|  | i) | Reconditioning Callahuanca Power Plant |
|--|----|----------------------------------------|

|   |   |                                                                                                                                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | In 2004, we entered into contracts for the reconditioning of Edegel’s Callahuanca power plant in Perú. This project entails the renovation of control equipment and systems, and an estimated 7.5-MW capacity increase.  Completion of the project is expected for 2006. |

|  |   |                 |
|--|--------|----------------------|
|  | ii)    | La Junca Power Plant |

|   |   |                                                                                                                                                                                                                                                              |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | On January 1, 2005, Emgesa commissioned the 19.4-MW La Junca hydroelectric power plant, which supplies its production to the Colombian National Interconnected System. This power plant is considered to be a minor plant in the Colombian electric power system. |

|   |   |                                                         |
|--------|--------|--------------------------------------------------------------|
|        | iii)   | Converting Edegel’s Westinghouse Unit into Natural Gas |

|   |   |                                                                                                                                                                                                                                |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | This involves adapting the largest of the gas turbines at Edegel’s Santa Rosa power plant to run on natural gas. This 121-MW unit currently burns on diesel fuel. Completion of the transformation is estimated for mid-2005. |

|   |   |                    |
|--------|--------|-------------------------|
|        | iv)    | Combined Cycle in Chile |

|   |   |                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | On August 16, 2004, the Region V Regional Environmental Agency (COREMA) approved the Environmental Impact Study for the installation of a 370-MW combined cycle unit neighboring the existing combined cycle owned by San Isidro S.A.  This project will be fully owned by Endesa Chile and is currently awaiting determination of the availability of liquified natural gas for Chile. |

|   |   |                                              |
|--------|--------|---------------------------------------------------|
|        | v)     | Endesa’s Palmucho Hydroelectric Power Plant |

|   |   |                                                                                                                                                                                                                                                                                                                                     |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   | In November 2004, the Environmental Impact Statement for construction of the Palmucho Hydroelectric power plant was submitted to CONAMA.  This project entails the installation of a 32-MW unit at the base of the Ralco reservoir. This unit will use the ecological flow that must run immediately downstream from the reservoir wall. |

     Endesa-Chile continually studies growth opportunities in the different countries in which it operates, with the objective of enabling the Company to expand its worth.

**Major Encumbrances**

     *Costanera S.A.*’s debt with Mitsubishi  Corporation was used to finance the purchase of equipment.  As of December 31, 2004, the value of the assets pledged as a guarantee of this debt was Ch$ 20.6 billion.  Additionally, Costanera has executed liens in favor of J.P.Morgan and ING in order to guarantee a syndicated loan in the amount of Ch$ 29 billion as of December 31, 2004.

     *Pangue S.A.*executed the following liens and mortgages: (1) first mortgage on the water rights and real estate on which the power plant is located; (2) lien on the electricity lines, machinery and equipment of the power plant; and (3) prohibition to sell, transfer or encumber such assets, including the definitive concession to establish the Pangue power plant.  The value of the pledged assets was Ch$ 88.4 billion at December 31, 2004.  These encumbrances and prohibitions guarantee the obligations of *Pangue S.A.*with the project lenders: Skandinaviska Enskilda Banken, Export Development Corporation and Kreditanstalt für Wiederaufbau.

     *San Isidro* executed a lien in connection with equipment provided by Mitsubishi Corporation. As of December 31, 2004, the value of the equipment was Ch$ 84.1 billion.

 

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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 differs in some important respects from U.S. GAAP.  See Note 33 to our audited consolidated financial statements, included in Item 18 herein.*

**1.**      **Discussion of Main Factors Affecting Operating Results and Financial Condition of the Company**

     Endesa-Chile owns and operates electricity generation companies in Chile, Argentina, Brazil, Colombia and Peru.  Revenues and cash flow mainly come from the electricity generation business of Endesa-Chile itself and of our subsidiaries and related companies, which operate in these five countries. For the years ended December 31, 2002, 2003 and 2004, non-generation revenues represented 4%, 3% and 3%, respectively, of total consolidated revenues.

     Factors such as hydrological conditions, regulatory developments, extraordinary actions adopted by government authorities and economic conditions, including growth rate, inflation and exchange rates in each country in which we operate are important in determining our financial results. Also, our reported results of operations and financial position are significantly affected by Chilean GAAP’s Technical Bulletin No. 64, “Accounting for Permanent Foreign Investments” which relates to the consolidation of the results of our companies outside of Chile–as well as other critical accounting policies. 

     The portfolio strategy of Endesa-Chile, with operations in different countries within Latin America, allows the impact of significant changes in one country to be offset by opposing changes in other countries, leading to non-material impacts on consolidated figures. The impact of these factors on Endesa-Chile, for the years covered by this report, is discussed below.

**a.**      **Hydrological Conditions**

     In terms of installed capacity, from 2002 to 2004, approximately 70% of Endesa-Chile ́s total installed capacity has been hydroelectric. Consolidated hydro electric capacity was 8,127 MW  by year ended December 2002, and  7,810 MW by year ended December 2003, the reduction being explained by the sale of Canutillar power plant in Chile in 2003 (See Item 4. History of the Company for details on sale of Canutillar), and 8,518 MW by year end 2004 due to the start of operations at Ralco (See Item 4. Investment Projects for details on start up of Ralco) in Chile, which did not become fully operational until the end of September. Consequently, at December 31, 2004, 69% of our generation capacity is dependent upon thehydrological conditions prevailing in the countries in which we operate, although only extreme hydrological conditions significantly affect the Company’s operating results and financial condition. Hydrological conditions for the period from 2002 to 2004, have not led to material changes in the financial condition and results of operations of Endesa-Chile. 

     Hydroelectric generation was 34,304 GWh in 2002, 35,035 GWh in 2003 and 34,858 GWh in 2004. Total operating income was Ch$358.4 billion in 2002, Ch$347.0 billion in 2003 and Ch$369.0 billion in 2004.  The decline in operating income in 2003 was not due to hydrology but due to the sale of Infraestructura Dos Mil (See Item 4. History and Development of the Company for details) which represented Ch$8.5 billion of operating margin in 2002, and the effect of the appreciation of the Chilean peso U.S. dollar exchange rate.

     In Endesa-Chile, we may compensate for the effect on physical and monetary sales of low hydrology (reservoir levels, rainfall, and snow), in the geographical areas where our power plants are located, with thermal generation and electricity purchases.  The thermal capacity owned by the company and the ability to purchase electricity from other generators, given the regulatory framework of the industry in the countries in which we operate, enables Endesa-Chile to increase thermal generation and/or purchase electricity from other industry players in order to maintain the level of physical sales, when hydro conditions lead to a reduction in hydroelectric generation.  Additionally, when hydrology is low, given theindustry structure and the percentage of hydro generation capacity in the countries in which we operate, the market price of electricity generally reacts by increasing.  Low hydrology may therefore lead to greater revenues (depending on the weight of all the effects).

 

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     In terms of expenses, operational costs of thermal generation and energy purchases are always greater than the Company’s corresponding economic cost of hydroelectric generation.  The cost of thermal generation does not directly depend on the level of hydrology, but the cost of electricity purchases in the spot market does depend on the level of hydrology in the countries in which we operate, due to the importance of hydro generation capacity in those countries. 

     Consequently, the impact of low hydrology on operating results depends on the sensitivity or reaction of the Company’s price of electricity sales in the market, the severity of the impact of hydro conditions on the Company’s hydro generation, the Company’s cost of thermal generation, and the need for energy purchases. The effect on market prices may either partially or completely compensate (depending on the conditions of all relevant market factors) for the higher cost of sales, leading to a non significant impact on operating results. Thermal generation was 6,456 GWh in 2002, 7,591 GWh in 2003 and 12,508 GWh in 2004. Total fuel expenses reached Ch$45.7 billion in 2002, Ch$49.5 billion in 2003 andCh$119.2 billion in 2004. Energy purchases reached 8,321 GWh in 2002, 8,397 GWh in 2003 and 6,474 GWh in 2004.  The cost of energy purchases was Ch$84.6 billion in 2002, Ch$97.7 in 2003 and Ch$102.3 in 2004.

     An extreme drought in southeastern Brazil in 2001 significantly affected Cachoeira Dourada’s operating results for 2002, although it did not substantially affect Endesa-Chile’s operating results, given the percentage share of Cachoeira’s operations in Endesa-Chile’s total consolidated operations. Physical generation at Cachoeira reached 2,467 GWh in 2002 compared to 3,024 GWh in 2003 and 3,262 GWh in 2004. Energy purchases reached 1,125 GWh in 2002 compared to 745 in 2003 and 640 in 2004, partially compensating for lower generation. Cachoeira Dourada’s operating income decreased by 39.2%, due to lower sales volume as a result of lower generation and government restrictions oncustomers’ energy consumption, and also due to higher energy purchases associated with the recovery of reservoirs after a prolonged drought.  

**b.**      **Regulatory Developments**

     The regulatory structure governing the electricity industry in the countries in which we have operations, including the tariff-setting models for regulated customers, is a significant factor that may have a material effect on our operating results.  From 2002 to 2004, approximately 40% of Endesa-Chile’s total sales volume  has been delivered to regulated customers. 

     Regulators in the countries in which we operate calculate tariffs primarily by taking into consideration the cost of fuel, level of reservoirs, exchange rate, future investments in installed capacity and growth in demand, all of which are intended to reflect investment and operating costs incurred by generation companies and are meant to allow such companies to earn a reasonable return on their investments in order to maintain the generation capacity necessary to satisfy consumer demand.

     The electricity markets in which we operate, with the exception of Argentina, incorporated the new reality of the international and local fuel scenario, incorporated the increased energy demand and the electricity supply conditions into energy prices in 2003 and 2004.

     Significant regulatory changes that have occurred during the period covered by this report include:

     In Chile, during the first quarter of 2004, the approval of the Short law (see Item 4.B Electricity Generation in Chile – Industry Structure and Regulatory Framework for more details on the Short Law) modified the regulatory framework as follows:

|  | • | Reducing the regulated node price band from 10% of non-regulated contract prices to 5% of non-regulated contract prices.  Considering the material changes in the natural gas scenario in Chile, as well as international fuel prices, the regulatory structure governing tariffs would have translated into greater node price increases during 2004 in Chile, given that non-regulated contracts with free customers are long –term and do not react to changes in the short term.  Sales to regulated customers in Chile, which in 2002,2003 and 2004, represented 51%, 53%, and 56% of the Company’s total physical sales, respectively.; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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|  |   |                                                                                                                                                                                                                                                                                                                                                                         |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Changing the tarification methodology as it relates to the transmission toll expenses in the electricity industry, increasing the percentage of the cost assumed by final customers and reducing the percentage paid by generators.  The authority is currently evaluating the means by which to apply the changes approved, but to date has not made a final determination; |

|  |   |                                                                                                                                                                                                                                                                                                                                          |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | Reducing the limit of electricity consumption by  non-regulated customers, thereby potentially increasing the number of non-regulated customers. Although this modification was approved, it will be effective as of 2006 and therefore has had no impact on the financial condition of the Company during the period covered by this report. |

     During the month of June 2004, the Ministry of Economy made Public Resolution 35, which increased the number of hours considered as hours of charge loss used to determine each power company’s capacity to supply energy in peak hours.  This change implied booking a Ch$2.5 billion expense provision in 2004, affecting operating results, and also accounting for a Ch$14.5 billion provision of non-operating expenses related to the resettlement of expenses for the years from 2000 to 2003. On January 21, 2005, Endesa-Chile announced that the Company would make the payments resulting from the resettlements, although the Company did not imply that it approved of them, and reserves the right  to take legal action tocontest this resolution.

     In Brazil, a new regulatory framework was defined during 2004. In July 2004,  Decree 5163-2004 defined a new regulatory framework for the electricity sector, especially affecting the commercialization of electricity and the concessions process for the entry of new power generation plants. The new framework separates the forms of free and regulated market contracting, establishing that distributors make purchases through concessions organized by state entities. The supply of electricity generation for these concessions was divided into existing and new energy (power plants that supply starting in the year 2009). These bids are the only way to sell energy to distribution companies. The first old energy bid was held onDecember 9, and allocated 17,008 average MW to distributors for the period from 2005 to 2008. The average sales prices was R$57.5 per MWh for sales between 2005 and 2006, R$67.3 per MWh for the period 2006-2007 and R$75.5 per MWh for 2007-2008. The conditions of Cachoeira Dourada’s contract with its main customer CELG have not been affected by this regulatory change.  Cachoeira Dourada ́s operating results for the period covered by this report have not been affected by this regulatory change.  

     In Brazil, as a consequence of a severe drought during 2001 and the first quarter of 2002, the government imposed restrictions limiting the consumption of electricity in certain provinces where the subsidiary Cachoeira Dourada operates.  As a result of these restrictions,  the potential compensation of revenues from electricity purchases was limited and Cachoeira Dourada experienced a reduction in its revenues, although this did not significantly affect Endesa-Chile’s operating results, given the relative size of Cachoeira Dourada within the consolidated figures.

     In Peru, in December 2004, Congress approved a bill (Law 28447) that modifies some clauses of the Electrical Concessions Law. Under the new bill, the calculation horizon of the electricity generation tariff has been modified from four to three years (24 months forward and the 12 months prior to the calculation date). The bar tariffs will be set by Osinerg annually, rather than semi-annually.  This regulatory change did not have a material impact on Edegel’s results from 2002 to 2004.

     As a consequence of the energy environment in 2004, which featured relatively low hydrology and high international fuel prices, during the first semester of 2004, the government required private generators to supply electricity to distributors without contracts at the regulated bar tariff, which was significantly lower than the alternative spot market price. The Company’s total electricity sales to regulated customers in Peru have remained stable at roughly one-third of total sales. Spot market prices from May 2004 until September 2004 reached 5 times the regulated tariff.  In December 2004, generators in Perú agreed to once again supply electricity to distributors without contracts at the regulatedtariff set in November 2004. 

     In Argentina, the Electricity Act Law 24,065 (see Item 4.B Electricity Generation in Argentina – Industry Structure and Regulatory Framework for more details)  has not been formally repealed, but since January 2002, governmental authorities have adopted resolutions which we consider to be extraordinary actions that have materially affected the operating results of the Endesa-Chile.  

 

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|  | • | In January 2002, the Economic Emergency Law was passed. The Argentine peso was devalued against the U.S. dollar from Ar$1.00 per U.S.$1.00 to Ar$3.37 per U.S.$1.00. Prior to 2002, the Argentine peso had been pegged to the U.S. dollar at a rate of 1 Argentine peso to 1 U.S. dollar. Electricity tariffs historically were expressed in U.S. dollars at an exchange of Ar$1 to U.S.$1.  After the devaluation, the Argentine government converted electricity tariffs to Argentine pesos at the old exchange rate of Ar$1 to U.S.$1.  As a result of this devaluation and the tariff conversion rate dictated by the Argentine government, the U.S. dollar equivalent of the Company’s Argentine revenues declined significantly. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | The government has continued to adopt resolutions to interfere with the market-driven reactions of the industry (See Item 4. Information on the Company-Electricity Generation in Argentina for details).  These resolutions have affected the behavior of the industry as a whole by affecting spot prices, contract conditions, fuel supply and prices, accounts receivables, etc.  In 2001, prior to the adoption of these resolutions, the Company’s revenues in Argentina were Ch$235.8 billion.  Following their adoption, revenues reached Ch$101.6 billion in 2002, Ch$114.1 billion in 2003 and Ch$148.3 billion in 2004. In 2004, the Authority began the process of adjusting the price of natural gas in its local market and has incorporated these adjustments into thecalculation of the wholesale price of electricity, but has not set the tariff free to adjust according to the regulatory frameworks tariff model. |

**c.**      **Economic Conditions**

     Macroeconomic conditions in the countries in which we operate may have a significant effect on our operating results.  The most significant economic variables include economic growth, mainly due to its impact on electricity demand, and the local currency exchange rate against the U.S. dollar, which affects revenues and expenses, as well as assets and liabilities, depending on the percentage denominated in US dollars.

|  | • | **Economic Growth and Electricity Demand** |
|--|--------|--------------------------------------------|

     The economies of each of the countries in which we operate continued to improve in 2004, which has positively affected the Company’s operating results through an increase in electricity demand.  GDP growth in 2003, and GDP growth in 2004 were 5.5% and 8.3% in Argentina;  0.1% and 5.0% in Brazil; 3.7% and 6.1% in Chile; 3.2% and 3.5% in Colombia and 4.0 and 5.1% in Perú. The electricity demand growth rate per country in 2003 and 2004 reached 8% and 6.8% in Argentina; 6.6% and 5.4% in Brazil; 6.6% and 8.0% in Chile; 3.2% and 2.7% in Colombia and 5.6% and 5.9% in Perú.  This greater demand has allowed company sales to increase from 48,629 GWh in 2002 to 50,634 in 2003 and 53,443 in 2004, increasing4.1% in 2003 and 5.5% in 2004.

     In 2002, economic growth measured by GDP was minus 10.9% in Argentina; 1.9% in Brazil, 2.1%, in Chile; 1.5% in Colombia and 5.2% in Perú. The economic instability during 2002 in Argentina, leading to an 11% reduction in the country’s GDP, also translated into a reduction of 1.8% in the demand for electricity. This lower electricity demand materially affected physical electricity sales of our subsidiaries in Argentina declining from 12,988 GWh in 2001 to 7,897 in 2002. 

|      |   |   | **2002**   |   |   | **2003**                   |   |   | **2004**   |   |
|-----------|--------|--------|------------|--------|--------|----------------------------|--------|--------|------------|--------|
|      |   |   |            |   |   |                            |   |   |            |   |
|      |   |   | **GDP(%)** |   |   | **Electricity  Demand(%)** |   |   | **GDP(%)** |   |   | **Electricity Demand(%)** |   |   | **GDP(%)** |   |   | **Electricity Demand(%)** |   |
|      |   |   |            |   |   |                            |   |   |            |   |   |  |   |   |  |   |   |  |   |
| Chile     |   |   | 2.1        |   |   | 4.0                        |   |   | 3.7        |   |   | 6.6 |   |   | 6.1 |   |   | 8.0 |   |
| Argentina |   |   | (10.9      | )      |   | (1.8                       | )      |   | 5.5        |   |   | 8.0 |   |   | 9.0 |   |   | 6.8 |   |
| Colombia  |   |   | 1.5        |   |   | 3.3                        |   |   | 3.2        |   |   | 3.2 |   |   | 3.8 |   |   | 2.7 |   |
| Brazil    |   |   | 1.9        |   |   | 5.2                        |   |   | 0.1        |   |   | 6.6 |   |   | 5.2 |   |   | 5.4 |   |
| Peru      |   |   | 5.2        |   |   | 6.5                        |   |   | 4.0        |   |   | 5.6 |   |   | 5.1 |   |   | 5.9 |   |

 

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     **•**      **Local Currency Exchange Rate**

     The value of the local currency in the countries in which we operate may have a significant impact on our operating results and overall financial position, depending on the percentage of dollar-denominated assets, liabilities, revenues and expenses, including depreciation and interest expenses.  A devaluation or depreciation of local currencies against the dollar affects our operating margins by increasing the value of sales denominated in dollars and the value of operating expenses, such as fuel priced in dollars, and depreciation of assets valued in dollars. Financial interest expenses fixed in dollars also increase, as does the value of dollar-denominated debt on the balance sheet.  Conversely, the revaluation orappreciation of local currencies against the U.S. dollar affects operating margins reduces revenues denominated in dollars when expressed in local currencies, and reduces the value of operating expenses denominated in dollars.  Financial expenses of dollar-denominated debt also decline. 

     As of December 31, 2004, Endesa-Chile had total consolidated indebtedness of U.S.$4,124 million, of which U.S.$2,922 million, or 71%, was denominated in U.S. dollars, and U.S.$586 million was denominated in Chilean pesos. In addition to the U.S. dollar and the Chilean peso, and as of December 31, 2004, our foreign-currency denominated consolidated indebtedness included the equivalent of U.S.$13 million in Brazilian reais, U.S.$471 million in Colombian pesos, U.S.$110 million in Peruvian soles, and U.S.$21 million in Argentine pesos.  

     For the twelve-month period ended December 31, 2004, our revenues amounted to U.S.$1,853 million of which 22% were denominated in U.S. dollars, and 42% were linked in some way to the U.S. dollar.  On the other hand, the equivalent of U.S.$78 million were revenues in pesos, the equivalent of U.S.$71 million in Brazilian reais, U.S.$249 million in Colombian pesos, U.S.$208 million in Argentine pesos, and U.S.$75 million in Peruvian soles.

     The year-end exchange rates of local currencies against the US dollar for 2002, 2003 and 2004 in every country in which we operate translated into an appreciation for 2003 and 2004, respectively, of 12% and 1% in Argentina; 18% and 8% in Brazil; 17% and 6% in Chile; 4% and 14% in Colombia; and 1% and 5% in Perú.  The impact of the local currency US-dollar exchange rate may be reversed with the application of Technical Bulletin 64 when translating subsidiaries’ financial statements from local currencies to Chilean pesos for consolidation purposes.

**d.**      **Technical Bulletin No. 64 and Other Critical Accounting Policies**

|   | ***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, which are prepared in local GAAP and denominated in local currency, into the financial results of its Chilean parent company, which are prepared in Chilean GAAP and denominated in Chilean pesos.  The implementation of Technical Bulletin No. 64 affects the reporting of our operating results. In particular, exchange rate variations, if significant, can materially affect the amounts of operating revenues and expenses reported in the Company’s consolidated financial statements in Chilean GAAP, aswell as generate material non-operating gains and losses.  

     *Technical Bulletin No. 64–Conversion Effect.*  Technical Bulletin No. 64 requires Endesa-Chile to convert the financial statements of its non-Chilean subsidiaries from local currency to U.S. dollars and to restate these financial statements into Chilean GAAP after this conversion, including converting such U.S. dollar amounts into Chilean pesos.  The gain or loss resulting from this balance sheet conversion is referred to 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 equityinterests 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 reportingperiod.  Technical Bulletin No. 64 may have the effect of excluding from our reported financial position 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.

 

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     The accounting income included in results of operations as a consequence of the devaluation of the Argentine peso when so remeasured into U.S. dollars was approximately U.S.$ 2.5 million  net of minority interest for the year ended December 31, 2002 expressed in the dollar value at December 31, 2002. The effect of remeasuring the Argentine peso into U.S. dollars resulted in a net loss of U.S.$ 0.1 million for the year ended December 31, 2003, and a net income of U.S.$ 0.01 million for the year ended December 31, 2004. At the date of issuance of the audited consolidated financial statements of the year 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 3.37 Argentine pesos to the U.S. dollar as of December 31, 2002. This accounting estimate required us to make assumptions about future events that were highly uncertain at the time, 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 12.49%,12.77%, and 11.81% of total assets as of December 31, 2002, 2003, and 2004 and 10.46%, 12.09%, and 14.36% of total revenues and 3.64%, 9.55%, and 9.32% of total operating income for the years ended December 31, 2002, 2003, and 2004  respectively.

     Additionally, during 2002, the significant 53% devaluation of the Brazilean real, which went from R$2.31 per U.S.$1 as of December 31, 2001 to R$3.53 per U.S.$1 as of December 31, 2002, negatively affected the operating results of Cachoeira Dourada, given the Technical Bulletin 64 impact on figures from foreign subsidiaries. 

     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. 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, whereasan 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 referred 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.  See Note 33 to our audited Consolidated Financial Statements for a description of the principal differences between Chilean GAAP and U.S. GAAP, as well as the 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 effects on goodwill and negative goodwill from the application of fair value purchase accounting, (ii) the effects of accounting for derivatives at fair value, (iii) the effects of adjustments to US GAAP in equity method investments, (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 elimination of complementary accounts in deferred taxes as well as the tax impact of purchase accounting.

 

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     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, 2004)** |   |
|                                              |   |   |                                                          |   |
| Net income (loss) for the year ended December 31: |   |   |                                                     |   |   |          |   |
| 2002                                              |   |   | (9,648                                                   | )      |   | (77,510       | )      |
| 2003                                              |   |   | 80,084                                                   |   |   | 74,553        |   |
| 2004                                              |   |   | 83,789                                                   |   |   | 64,750        |   |
|                                              |   |   |                                                     |   |   |          |   |
| Shareholders’ equity as of December 31:     |   |   |                                                     |   |   |          |   |
| 2002                                              |   |   | 1,481,065                                                |   |   | 1,091,357     |   |
| 2003                                              |   |   | 1,529,986                                                |   |   | 1,151,491     |   |
| 2004                                              |   |   | 1,568,898                                                |   |   | 1,192,849     |   |

|   |                                                           |
|--------|----------------------------------------------------------------|
|   | ***Critical Accounting Policies Affecting Operating Results*** |

     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 alsoareas 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.

|   | *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 its non-core businesses, such as engineering and inspection services and highway tolls, at the time the related services are provided.

|   | ***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 inwhich we do business.  These conditions 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. 

 

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|   | ***Impairment of Goodwill*** |
|--------|------------------------------|

     We assess the impairment of goodwill in a manner similar to that used for 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 Companyrecorded a net charge of Ch$62.8 billion, in pesos as of December 2004, 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.  As of December, 31 2003 and 2004, the Company assessed the impairment of goodwill and determined that there had been no indication of a potential loss on the recoverable value of investments.

|   | ***Income and Deferred Taxes*** |
|--------|---------------------------------|

     In accordance with Chilean law, the Company and each of its subsidiaries compute and pay taxes on a separate basis. We estimate our actual current tax exposure while 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 periodscorresponding 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 and plant repair andmaintenance. 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$33.9 billion, and Ch$71.6 billion as of December 31, 2003 and 2004, 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 options 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 alsoadjusts fair value of certain commodity derivatives to reflect risks related to the performance of counterparties.

 

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     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 Argentine 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 theCompany does not have concessions to sell the Argentine generated energy in the Brazilian spot or forward markets 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 33 (w) of the Consolidated Financial Statements.  The Company has assumed, therefore, that the Argentine 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 undercertain 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’ Equity** |   |
|---------------------|--------|--------|-----------------------------------|--------|--------|--------------------------------|--------|
|                |   |   |                                   |   |   |                                |   |
|                |   |   | **2003**                          |   |   | **2004**                       |   |   | **2003** |   |   | **2004** |   |
|                |   |   |                                   |   |   |                                |   |   |  |   |   |  |   |
|                |   |   | **(in millions of constant Ch$)** |   |
| Increase (decrease) |   |   | 61,165                            |   |   | 1,304                          |   |   | (18,885 | ) |   | (17,120 | ) |

     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 dollar 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 significantimpact on the estimate of fair values disclosed. The net asset (liability) recorded under US GAAP related to financial derivative instruments was Ch$570.5 billion and Ch$ (10.9) billion as of December 31, 2003 and 2004, respectively. 

     The Company’s accounting policy for derivative instruments is discussed in Notes 2(t) and 33 of our Audited Consolidated Financial Statements.

|   | ***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 for example discount rates.  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 recorded under US GAAP was, Ch$25.3 billion, and Ch$25.5 as of December 31, 2003 and 2004, respectively.

 

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     The following table shows the effect of a 1% change in discount rate on our projected benefit obligation for the periods indicated.

|                         |   | **Year ended December 31,**       |   |
|------------------------------|--------|-----------------------------------|--------|
|                         |   |                                   |   |
|                         |   | **2003**                          |   |   | **2004** |   |
|                         |   |                                   |   |   |  |   |
|                         |   | **(increase in millions of Ch$)** |   |
| Projected benefit obligation |   | 1,890                             |   |   | 1,806 |   |

     The following table shows the effect of a 1% change in discount rate on our accumulated post-retirement benefit obligation for the periods indicated.

|                                           |   |   | **Year ended December 31,**       |   |
|------------------------------------------------|--------|--------|-----------------------------------|--------|
|                                           |   |   |                                   |   |
|                                           |   |   | **2003**                          |   |   | **2004** |   |
|                                           |   |   |                                   |   |   |  |   |
|                                           |   |   | **(increase in millions of Ch$)** |   |
| Accumulated post-retirement benefit obligation |   |   | 111                               |   |   | 601 |   |

**2.**      **Overview of Yearly Results**

**a.**      **Consolidated Comparative For the Period 2002-2004**

     Total revenues in 2004 increased to Ch$ 1,032.7 billion, 9.5% greater than in 2003 after declining 2.9 % in 2003 as compared to 2002.  Consolidated physical sales increased by 5.5% in 2004  and 4.1% in 2003.  The effect on revenues of greater physical sales in 2003 was offset by the net impact of exchange differences and the significant effect of the 17% appreciation of the Chilean peso with respect to the U.S. dollar in 2003 on foreign revenues, in addition to a legal dispute with Cachoeira Dourada’s main customer in Brazil, CELG, and the divestiture of Infraestructura 2000.  In 2004, the net impact of the exchange difference was weaker, as the appreciation of the Chilean peso to U.S. dollar exchange rate was6%, partly offset by the 9% average appreciation of the Colombian peso, which favored results.  In addition, the legal differences with CELG were resolved and the price of electricity in every country, with the exception of Argentina,  reacted to the international fuel scenario and the natural gas crisis in Argentina, allowing greater physical sales to translate into greater revenues.

     Operating expenses increased 11.5% in 2004 after declining 1.9% in 2003 as compared to 2002.  Electricity generation increased by 11.1% in 2004 and 4.6% in 2003.  Thermal generation increased by 64.8%, or 4,917 GWh, in 2004 and 17.6%, equivalent to 1,135 GWh, in 2003.  Higher expenses related to greater thermal generation in 2003 were offset by the effect of exchange differences, including the significant appreciation of the Chilean peso in 2003 on the dollar denominated expenses in Chile.  In 2004, the increase in thermal generation, accentuated by the natural gas crisis in Argentina and the international price of alternative fuel, although allowing lower physical electricity purchases, translated into an increasein the variable costs of generation, as there was a weaker exchange difference effect than in 2003.

     Operating income increased to Ch$ 369.0 billion in 2004, compared to Ch$ 347.0 in 2003 and Ch$ 358.4 billion in 2002. The impact of greater electricity demand, the Company’s generation capacity which allowed it to translate greater demand into greater volume sales, the congruent (but lagging) reaction of electricity prices to market conditions, the Company’s commercial strategy determining the level of contracted versus spot market sales which, from 2002 to 2004 has gradually reduced the need to make energy purchases, the complicated fuel scenario in 2004 along with the hydro conditions in the countries in which we operate, and the exchange differences, together resulted in a 3.2% reduction in operatingincome in 2003 and a 6.4% increase in 2004.

     The Company’s consolidated net income after taxes and minority interests in 2004 reached Ch$ 83.8 billion compared to Ch$ 80.1 billion in 2003 and a net loss of Ch$ 9.6 billion in 2002. Income before taxes and minority interest of Endesa-Chile for 2004 rose by 25% over 2003 to Ch$ 203.9 billion, U.S.$40.2 billion higher than the prior year. The non-operating result positively affected net income for 2004 as a result of a U.S.$16.7 billion reduction in financial expenses. Income tax to December 31, 2004 amounted to Ch$ 93.4 billion compared to Ch$ 28.1 billion at December 31, 2003, a difference produced mainly by an increase in deferred taxes as a result of the effects of the tax losses caused by the devaluationof the Argentine peso in 2002.  The net loss in 2002 was mainly explained by the economic condition in Argentina and Brazil affecting the value of Endesa-Chile’s investments in Argentina and Brazil leading to a write-off of goodwill in 2002 of Ch$110.8 billion related to our investments in Argentina and Brazil, which did not occur again in 2003.

 

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**2.**      **Country by Country Comparative Analysis of Operating Results and Details of Non Operating Figures 2004 vs. 2003**

|   | ***Revenues from operations*** |
|--------|--------------------------------|

     Revenues from sales in Chile accounted for 45.3% and 49.8% of our consolidated revenues in 2004 and 2003, respectively.  Revenues from sales of electricity in Argentina accounted for 14.4% of our consolidated revenues in 2004 as compared to 12.1% in 2003.  Revenues from sales of electricity in Colombia accounted for 24.3% in 2004 as compared to 22.6% in 2003 and revenues from sales of electricity in Brazil accounted for 4.1% in 2003 as compared to 3.3% in 2003.  In addition, revenues from sales of electricity in Perú accounted for 11.9% in 2004 as compared to 12.1% in 2003.  Other, non core business revenues accounted for less than 5% of total consolidated revenues in both 2003 and 2004.

     The tables below sets forth the breakdown by country of Endesa-Chile’s total revenues from operations and volume of GWh sales for 2003 and 2004, and the percentage change from year to year:

|                 |   |   | **Year ended December 31,**                                |   |
|----------------------|--------|--------|------------------------------------------------------------|--------|
|                 |   |   |                                                            |   |
|                 |   |   | **2003**                                                   |   |   | **2004** |   |   | **%Change** |   |
|                 |   |   |                                                            |   |   |  |   |   |  |   |
|                 |   |   | **(in millions of constant Ch$ as of December 31, 2004,)** |   |
| Revenues Chile       |   |   | 469,324                                                    |   |   | 467,583 |   |   | (0.4 | ) |
| Revenues Argentina   |   |   | 114,061                                                    |   |   | 148,300 |   |   | 30.0 |   |
| Revenues Colombia    |   |   | 213,810                                                    |   |   | 251,398 |   |   | 17.6 |   |
| Revenues Brazil      |   |   | 31,562                                                     |   |   | 42,006 |   |   | 33.1 |   |
| Revenues Perú |   |   | 114,532                                                    |   |   | 123,375 |   |   | 7.7 |   |
|                 |   |        |                                                            |   |  |  |   |   |   |   |
| Total Revenues       |   |   | 943,288                                                    |   |   | 1,032,662 |   |   | 9.5 |   |
|                 |   |        |                                                            |   |  |  |   |  |  |   |

|                       |   |   | **Year ended December 31,**                                |   |
|----------------------------|--------|--------|------------------------------------------------------------|--------|
|                       |   |   |                                                            |   |
|                       |   |   | **2003**                                                   |   |   | **2004** |   |   | **%Change** |   |
|                       |   |   |                                                            |   |   |  |   |   |  |   |
|                       |   |   | **(in millions of constant Ch$ as of December 31, 2004,)** |   |
|                       |   |   | (GWh)                                                      |   |   | (GWh) |   |   |   |   |
| Energy Sales (Chile)       |   |   | 18,681                                                     |   |   | 18,462 |   |   | (1.2 | ) |
| Energy Sales (Argentina)   |   |   | 9,259                                                      |   |   | 11,603 |   |   | 25.3 |   |
| Energy Sales (Colombia)    |   |   | 14,481                                                     |   |   | 15,148 |   |   | 4.6 |   |
| Energy Sales (Brazil)      |   |   | 3,770                                                      |   |   | 3,902 |   |   | 3.5 |   |
| Energy Sales (Perú) |   |   | 4,443                                                      |   |   | 4,328 |   |   | (2.6 | ) |
|                       |   |        |                                                            |   |  |  |   |   |   |   |
| Total                      |   |   | 50,634                                                     |   |   | 53,443 |   |   | 5.5 |   |
|                       |   |        |                                                            |   |  |  |   |  |  |   |

     Total revenues in Chile decreased 0.4% in 2004 due lower sales of non generation businesses mainly at Ingendesa, our engineering services subsidiary in Chile. Revenues from sales of electricity increased by 0.2% to Ch$440.7 billion in 2004 from Ch$439.9 billion in 2003. The increase in electricity sales reflected a 1.3% increase in the average sales price, from Ch$23.6 per kWh in 2003 to Ch$23.9 per kWh in 2004, affected by the increase in the regulated node price and the average spot market price.  The price increase effect was offset by the reduced volume of electricity sales, which declined 1.2% in 2004.  The lower level of volume sales was a consequence of the level of contractual commitments and hydrology.  Thelower hydro generation due to the level of hydrology in reservoirs and rivers was partly offset by thermal generation and  the successful start up of the 690 MW Ralco power plant, which began operations in September 2004 and supplied nearly 1,300 GWh at December 31, 2004. Spot market GWh sales increased 9.3% from 2,920 GWh in 2003 to 3,192 GWh in 2004 while sales to contracted customers declined 3.1%.

     Revenues in Argentina increased by 30.0%, from Ch$  114.1 billion in 2003 to Ch$  148.3 billion in 2004.  The increase in revenues was primarily due to 25.3% increase in the volume of electricity sales. The main drivers of this increase were greater demand for electricity in the Argentine market and Costanera’s ability to generate electricity with liquid fuels as an alternative to natural gas when the natural gas supply in Argentina is in crisis.  Volume sales at our Chocón plant in 2004 were 22.4% lower than in 2003 due to less favorable water levels.  The Company’s average sales price in Argentina expressed in Chilean pesos according to the convention of Technical Bulletin 64 increased 4%, fromCh$12.3 per kWh in 2003 to Ch$ 12.8 in 2004.  However, when expressed in Argentine local currency, the nominal average sales price increased 13% in 2004 due to an increase in the wholesale market spot price.

 

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     Revenues in Colombia increased by 17.6%, from Ch$ 213.8 billion in 2003 to Ch$ 251.4 billion in 2004. Physical electricity sales increased 4.6% due to higher sales at Emgesa which were driven by market demand and hydrology.  Both spot market and contracted energy sales increased in both 2004 and 2003, representing 36% and 64%, respectively, of our total sales in Colombia.  The average sales price increased 12.2%, from Ch$ 14.8 per kWh in 2003 to Ch$ 16.6 per kWh in 2004, expressed in Chilean pesos according to the convention of Technical Bulletin 64.  When expressed in local currency, the average sales price increase was 7.8% in 2004.

     Revenues from our Brazilian subsidiary, Cachoeira Dourada, increased by 33.1% from Ch$  31.6 billion in 2003 to Ch$  42.0 billion in 2004.  This revenue increase is due to a 3.5% increase in physical sales, which reached 3,902 GWh in 2004, and higher electricity prices.  Volume increased due to greater demand and favorable hydroelectric conditions in the southeast. Sales prices were higher in both the spot market and the contracted market.  Revenues from Cachoeira Dourada’s main customer, Celg, increased according to the terms of their contractual agreement and also as a result of 14 million reales recognized in June 2004 following the conclusion of a legal dispute regarding revenues not billed during thesecond semester of 2003.  See Item 8. “Legal Proceedings”.  The Company’s overall average sales price increased 20.4% from Ch$ 8.4 per kWh in 2003 to Ch$ 10.1 per kWh in 2004, expressed in Chilean pesos according to the convention of Technical Bulletin 64 (after adjusting for income in arrears from 2003).  In Brazilian local currency, the Company’s average sales price increased by 26.2% during 2004.

     Revenues from sales of our Peruvian electricity generation company, Edegel, increased by 7.7%, from Ch$  114.5 billion in 2003 to Ch$ 123.4 billion in 2004.  The volume of electricity sales declined due to lower hydro generation as a consequence of poor hydrology in the region, mainly during the first semester of 2004. The average sales price increased from Ch$ 25.6 per kWh in 2003 to Ch$ 28.3 per kWh in 2004, equivalent to a 10.4% increase, expressed in Chilean pesos according to the convention of Technical Bulletin 64. The average sales price increase in local currency was 18.2% in 2004

|   | ***Cost of operations*** |
|--------|--------------------------|

     The table below sets forth the breakdown by country of costs of operations for 2003 and 2004 and the percentage change from year to year:

|                             |   |   | **Year ended December 31,**                                                    |   |
|----------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|
|                             |   |   |                                                                                |   |
|                             |   |   | **2003**                                                                       |   |   | **2004** |   |   | **% Change** |   |
|                             |   |   |                                                                                |   |   |  |   |   |  |   |
| Cost of Operations (1)           |   |   | **(in millions of constant Ch$ as of December 31, 2004,  except percentages)** |   |
| Cost of operations (Chile)       |   |   | 292,396                                                                        |   |   | 298,927 |   |   | 2.2 |   |
| Cost of operations (Argentina)   |   |   | 78,962                                                                         |   |   | 111,352 |   |   | 41.0 |   |
| Cost of operations (Colombia)    |   |   | 122,892                                                                        |   |   | 129,183 |   |   | 5.1 |   |
| Cost of operations (Brazil)      |   |   | 25,846                                                                         |   |   | 25,951 |   |   | 0.4 |   |
| Cost of operations (Perú) |   |   | 44,113                                                                         |   |   | 63,779 |   |   | 44.6 |   |
|                             |   |   |                                                                                |   |   |  |   |   |   |   |
| Total                            |   |   | 564,208                                                                        |   |   | 629,191 |   |   | 11.5 |   |
|                             |   |   |                                                                                |   |   |  |   |   |   |   |

|     |
|-----|
| (1) | excludes SG&A expenses |

     The 2.2% increase in operating costs in Chile during 2004 when compared to 2003 is due to greater thermal generation fuel expenses and electricity purchases.  Weaker hydro conditions during the first semester of 2004 led to a 26% increase in thermal generation, resulting in an average variable cost of generation, excluding electricity purchases, of Ch$8.9 per kWh in 2004, compared to Ch$8.5 per kWh in 2003. Electricity purchases, both energy and capacity, increased from Ch$ 49.7 billion in 2003 to Ch$ 53.1 billion in 2004.  Physical GWh purchases declined, but the higher average price, which went from Ch$20.6 in 2003 to Ch$27.7 in 2004, implied increasing the total cost. These greater costs  were partially offset bya 7% reduction in asset depreciation, from Ch$70.7 in 2003 to Ch$65.7 in 2004. 

 

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     Costs of operations in Argentina increased by 41.0% to Ch$ 111.4 billion in 2004.  Total physical generation increased by 41%. Thermal generation increased 99% and  hydro generation declined 15%,. As a result of the natural gas shortage in Argentina, Costanera increased its use of liquid fuel in thermal generation, which is relatively more expensive than natural gas. As a result of the increase in volume and price, fuel costs increased by _237.6% to Ch$ 38.8 billion  in 2004. The average variable cost of generation, excluding the cost of electricity purchases, increased from Ch$ 3.1 per kWh in 2003 to Ch$ 5.7 per kWh in 2004 due to the higher cost of fuel. Physical electricity purchases declined in 2004, reducingpurchase expenses from Ch$ 9.6 billion in 2003 to Ch$ 5.9 billion in 2004. The cost of asset depreciation increased 7.3%. The appreciation of the Chilean peso in terms of the US dollar reduced total operating expenses in 2004 when compared to 2003 by Ch$ 6.8 billion.

     Costs of operations in Colombia increased by 5.1% to Ch$129.1 billion in 2004 from Ch$122.9 billion in 2003.  Physical generation was 10.1% greater in 2004 than 2003 as a consequence of favorable hydrology, which, although leading to higher tolls and energy transportation costs, implied reducing electricity purchases. The variable cost per kWh generated in 2004, excluding the cost of energy purchases, was Ch$3.6 compared to Ch$4.3 in 2003. The volume of electricity purchases declined 11% and the cost of purchases expressed in Chilean pesos declined 1% affected by the 8% appreciation of the yearly average Colombian peso US dollar exchange rate. Asset depreciation declined 8.4%. The appreciation of the Chilean peso interms of the US dollar reduced total operating expenses by Ch$ 11.1 billion in 2004 when compared to 2003.

     Costs of operations in Brazil remained stable, reaching Ch$26.0 billion in 2004 as compared to Ch$25.8 billion in 2003.  Physical generation was 8.4% greater in 2004 than 2003 as a consequence of favorable hydrology, which increased transportation costs, but implied reducing the volume electricity purchases. The volume of electricity purchases declined 14.1%, but the cost of purchases increased due to the increase in the price of purchases. The average variable cost per kWh generated in 2004, excluding the cost of energy purchases, was Ch$1.8 in 2004 and Ch$1.9 in 2003.  The higher costs incurred were offset by lower asset depreciation. The appreciation of the Chilean peso in terms of the US dollar reduced totaloperating expenses in 2004 when compared to 2003 by Ch$ 2.2 billion.

     Costs of operations in Perú increased by 44.6% to Ch$63.8 billion in 2004 from Ch$44.1 billion in 2003, mainly due to an increase of Ch$14.0 billion in fuel expenses and a Ch$4.2 billion increase in energy purchases. The increase in these expenses was due to the lack of rainfall, mainly during the first semester of 2004, which caused total thermal generation in 2004 to be 15 times greater than 2003 and also required an increase in physical energy purchases of 26.6%. The variable cost of generation per kWh, excluding electricity purchases, was Ch$7.6 in 2004 compared to Ch$3.5 in 2003. The cost of asset depreciation declined 4.6%. The appreciation of the Chilean peso in terms of the US dollar reduced totaloperating expenses by Ch$ 3.7 billion in 2004 when compared to 2003.

|   | ***Administrative and selling expenses*** |
|--------|-------------------------------------------|

     Administrative and selling expenses increased by 7.3% to Ch$34.4 billion in 2004 from Ch$32.1 billion in 2003, although the percentage of total operating expenses declined from 5.7% in 2003 to 5.5% in 2004. The most relevant factors in the increase in the level of expenses are an increase in the cost of personnel in Argentina and Chile, in Argentina related to the 41% increase in electricity generation and in Chile related to higher provisions for retirement benefits, and the increase in insurance expenses and personnel costs in Colombian subsidiaries.

 

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     The table below sets forth the breakdown of selling and administrative expenses for 2003 and 2004 and the percentage change from year to year:

|                                     |   |   | **Year ended December 31,**                                                    |   |
|------------------------------------------|--------|--------|--------------------------------------------------------------------------------|--------|
|                                     |   |   |                                                                                |   |
|                                     |   |   | **2003**                                                                       |   |   | **2004** |   |   | **%Change** |   |
|                                     |   |   |                                                                                |   |   |  |   |   |  |   |
| Administrative and Selling Expenses      |   |   | **(in millions of constant Ch$ as of December 31, 2004,  except percentages)** |   |
| In Chile                                 |   |   | 17,787                                                                         |   |   | 18,938 |   |   | 6.5 |   |
| In Argentina                             |   |   | 1,977                                                                          |   |   | 2,569 |   |   | 29.9 |   |
| In Colombia                              |   |   | 2,785                                                                          |   |   | 3,759 |   |   | 35.0 |   |
| In Brazil                                |   |   | 1,968                                                                          |   |   | 1,741 |   |   | (11.5 | ) |
| In Perú                           |   |   | 7,590                                                                          |   |   | 7,438 |   |   | (2.0 | ) |
|                                     |   |   |                                                                                |   |   |  |   |   |   |   |
| Total Selling and Administrative Expense |   |   | 32,107                                                                         |   |   | 34,445 |   |   | 7.3 |   |
|                                     |   |   |                                                                                |   |   |  |   |   |  |   |

|   | ***Operating Margin and Operating Income*** |
|--------|---------------------------------------------|

     Our operating margin, that is, operating income as a percentage of revenues, declined from 36.8% in 2008 to 35.7% in 2004. This reduction is explained by a lower operating margin in Chile, Argentina and Perú. 

|                              |   |   | **Year ended December 31,**                                                      |   |
|-----------------------------------|--------|--------|----------------------------------------------------------------------------------|--------|
|                              |   |   |                                                                                  |   |
|                              |   |   | **2003**                                                                         |   |   | **2004** |   |   |
|                              |   |   |                                                                                  |   |   |  |   |   |
|                              |   |   | **(based on figures in Chilean Gaap in millions of Ch$as of December 31, 2004)** |   |   |
| Operating Margin (Chile)          |   |   | 33.9                                                                             | %      |   | 32.0 | % |   |
| Operating Margin (Argentina)      |   |   | 29.0                                                                             | %      |   | 23.2 | % |   |
| Operating Margin (Colombia)       |   |   | 41.2                                                                             | %      |   | 47.1 | % |   |
| Operating Margin (Brazil)         |   |   | 11.9                                                                             | %      |   | 34.1 | % |   |
| Operating Margin (Perú)    |   |   | 54.9                                                                             | %      |   | 42.3 | % |   |
|                              |   |   |                                                                                  |   |   |  |   |   |
| **Consolidated Operating Margin** |   |   | **36.8**                                                                         | **%**  |   | **35.7** | **%** |   |
|                              |   |   |                                                                                  |   |   |  |   |   |

     Endesa-Chile’s consolidated operating income, the result of subtracting total operating expenses, including selling and administrative expenses (SG&A), from operation revenues, reached Ch$369.0 billion for 2004 compared to Ch$347.0 billion for 2003. The following table breaks down operating income by country for the years ended December 31, 2003 and 2004:

|                           |   |   | **Year ended December 31,**                       |   |
|--------------------------------|--------|--------|---------------------------------------------------|--------|
|                           |   |   |                                                   |   |
|                           |   |   | **2003**                                          |   |   | **2004** |   |   | **% Change** |   |
|                           |   |   |                                                   |   |   |  |   |   |  |   |
|                           |   |   | **(in millions of Ch$ as of December 31, 2004,)** |   |
| Operating Income (Chile)       |   |   | 159,141                                           |   |   | 149,718 |   |   | (5.9 | ) |
| Operating Income (Argentina)   |   |   | 33,121                                            |   |   | 34,379 |   |   | 3.8 |   |
| Operating Income (Colombia)    |   |   | 88,134                                            |   |   | 118,456 |   |   | 34.4 |   |
| Operating Income (Brazil)      |   |   | 3,749                                             |   |   | 14,314 |   |   | 281.8 |   |
| Operating Income (Perú) |   |   | 62,829                                            |   |   | 52,158 |   |   | (17.0 | ) |
|                           |   |        |                                                   |   |  |  |   |   |   |   |
| **Total**                      |   |   | **346,974**                                       |   |   | **369,025** |   |   | **6.4** |   |
|                           |   |        |                                                   |   |  |  |   |  |  |   |

     In Chile, operating margin and income declined due to relatively lower hydro conditions, mainly in the first semester of 2004, in addition to the natural gas crisis in Argentina, which increased fuel costs and energy purchase costs. Although electricity spot sales prices reacted, node prices and free customer contract prices react with a lag.  

     With regard to foreign subsidiaries, the effect of the appreciation of the Chilean peso on revenues negatively affected margins because revenues from foreign subsidiaries were translated into Chilean pesos, according to Technical Bulletin 64, at a lower year end exchange rate in 2004 than in 2003. Additionally, the positive effect of this appreciation on fuel prices was offset by the stronger impact on prices of the gas crisis in Argentina and the level of international fuel prices, which are denominated in dollars. 

     Operating margins in Argentina declined as a consequence of the governments intervention on the sales price, although operating income increases due to the strong impact of volume sales. The operating margin from Argentina declined as a consequence of the limited reaction of the electricity market prices to market conditions.  Market prices were unable to adjust to demand conditions and the actual cost of fuel because resolutions of the Argentine government controlled the sales price in the wholesale market. Operating income from Costanera increased Ch$0.9 billion to Ch$28.5 billion and operating income from Chocon increased Ch$0.3 billion to Ch$5.9 billion in 2004. Operating margin and operating income in Brazilincreased as a consequence of greater demand, the agreement reached with the Company’s main customer, Celg which included billing electricity delivered and not billed in 2003, hydrology conditions, and simultaneously better prices on the spot market. 

 

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     In Colombia, operating margins and operating income increased, due to greater demand and hydrology, increasing volume sales, and hydro generation and simultaneously better market sales prices. Operating income from Emgesa increased Ch$18.3 billion to Ch$100.9 billion and operating income from Betania increased Ch$12.0 billion to Ch$17.6 billion in 2004. 

     Edegel, in Perú, registered lower operating margins and operating income. This was caused by the low level of hydrology, mainly during the first semester of the 2004, which led to greater thermal generation, at relatively high international prices, and greater electricity purchases at very high spot prices.  Another contributing factor was the reaction of the government, which required private generators to supply energy to distributors without contractual agreements, at the regulated tariff, which at times was one fifth of the alternative spot market price, consequently preventing the company from offsetting greater costs by increasing the average sales price.

|   | ***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,**                                |   |
|-----------------------------------------------|--------|--------|------------------------------------------------------------|--------|
|                                          |   |   | **2003**                                                   |   |   | **2004** |   |   | **%Change** |   |
|                                          |   |   |                                                            |   |   |  |   |   |  |   |
|                                          |   |   | **(in millions of constant Ch$ as of December 31, 2004,)** |   |
| **Non-operating income:**                     |   |   |                                                       |   |   |   |   |   |   |   |
| Interest earned                               |   |   | 15,644                                                     |   |   | 14,912 |   |   | (4.7 | ) |
| Equity  income of non-consolidated affiliates |   |   | 17,804                                                     |   |   | 19,203 |   |   | 7.9 |   |
| Other non-operating income                    |   |   | 45,688                                                     |   |   | 51,242 |   |   | 12.2 |   |
|                                          |   |   |                                                       |   |   |   |   |   |   |   |
| **Non-operating expenses:**                   |   |   |                                                       |   |   |   |   |   |   |   |
| Interest expense                              |   |   | (209,240                                                   | )      |   | (192,558 | ) |   | 8.0 |   |
| Goodwill amortization                         |   |   | (1,582                                                     | )      |   | (1,464 | ) |   | 7.5 |   |
| Other non-operating expenses                  |   |   | (61,564                                                    | )      |   | (79,286 | ) |   | (28.8 | ) |
|                                          |   |   |                                                       |   |   |   |   |   |   |   |
| **Monetary correction:**                      |   |   |                                                       |   |   |   |   |   |   |   |
| Price level restatement                       |   |   | 589                                                        |   |   | 2,211 |   |   | 275.2 |   |
| Foreign Exchange translation                  |   |   | 9,180                                                      |   |   | 20,630 |   |   | 124.7 |   |
|                                          |   |   |                                                            |   |   |  |   |   |   |   |
| **Non-operating results**                     |   |   | (183,480                                                   | )      |   | (165,109 | ) |   | 10.0 |   |
|                                          |   |   |                                                            |   |   |  |   |   |   |   |

     Non-operating results amounted to a loss of Ch$165.1 billion in 2004 in comparison to a loss of Ch$183.5 billion in 2003, an Ch$18.4 billion reduction in losses.  The most important factors leading to this reduction include:

|  | • | lower interest expenses of Ch$16.7 billion mainly due to the appreciation of the Chilean peso against the U.S. dollar, considering that, as of December 31, 2004, 69% of the Company’s financial debt (net of currency hedging instruments) was denominated in U.S. dollars; |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                       |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | greater income due to foreign exchange translation of Ch$11.4 billion mainly due to the 6.1% appreciation of  the Chilean peso during 2004 compared to the 17.4% appreciation in 2003; and |

|  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | other non-operating expenses increased by Ch$17.7 billion mainly explained by the provisions made as a consequence of the resettlements of capacity power payments among the generation companies connected to the main interconnected electricity system in Chile, SIC, from years 2000 to 2003 resulting from Resolution 35 adopted by the Ministry of Economy in December 2004. (See Item 8.7 Legal Proceedings-Divergence of Firm Capacity) |

 

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|   |             |
|--------|------------------|
|   | ***Net income*** |

     The following table sets forth our net income for the periods indicated:

|                                                                              |   |   | **Year ended December 31,**                                                     |   |
|-----------------------------------------------------------------------------------|--------|--------|---------------------------------------------------------------------------------|--------|
|                                                                              |   |        |                                                                                 |        |  |  |  |  |  |   |
|                                                                              |   |   | **2003**                                                                        |   |   | **2004** |   |   | **% Change** |   |
|                                                                              |   |        |                                                                                 |   |  |  |   |  |  |   |
|                                                                              |   |   | **(in millions of constant Ch$ as of December 31, 2004,   except percentages)** |   |
| Operating income                                                                  |   |   | 346,974                                                                         |   |   | 369,025 |   |   | 6.4 |   |
| Non-operating income                                                              |   |   | (183,480                                                                        | )      |   | (165,109 | ) |   | 10.0 |   |
|                                                                              |   |   |                                                                                 |   |   |  |   |   |   |   |
| **Net income before taxes, minority interest and negative goodwill amortization** |   |   | **163,494**                                                                     |   |   | **203,916** |   |   | **24.7** |   |
|                                                                              |   |   |                                                                                 |   |   |  |   |   |   |   |
| Income tax                                                                        |   |   | (51,339                                                                         | )      |   | (52,778 | ) |   | (2.8 | ) |
| Deferred taxes                                                                    |   |   | 23,276                                                                          |   |   | (40,649 | ) |   | n.a. |   |
|                                                                              |   |   |                                                                                 |   |   |  |   |   |   |   |
| **Total income taxes**                                                            |   |   | **(28,063**                                                                     | **)**  |   | **(93,427** | **)** |   | **232.9** |   |
|                                                                              |   |   |                                                                                 |   |   |  |   |   |   |   |
| Minority interest                                                                 |   |   | (71,326                                                                         | )      |   | (42,802 | ) |   | 40.0 |   |
| Amortization of negative goodwill                                                 |   |   | 15,979                                                                          |   |   | 16,102 |   |   | 0.8 |   |
| Extraordinary items                                                               |   |   | 0                                                                               |   |   | 0 |   |   | n.a. |   |
|                                                                              |   |   |                                                                                 |   |   |  |   |   |   |   |
| **Net income**                                                                    |   |   | **80,084**                                                                      |   |   | **83,789** |   |   | **4.6** |   |
|                                                                              |   |   |                                                                                 |   |   |  |   |   |   |   |

     *Income Taxes.* The higher figure for income tax is explained by the higher level of taxable income from operations in Colombia.

     The higher charge for deferred taxes, which are non cash items, increased Ch$63.9 billion compared to 2003, mainly explained by the Ch$48.0 increase at our subsidiaries in Argentina.  During 2003, Costanera and El Chocón registered important tax losses as a result of the significant devaluation of the Argentine peso.  However, as a result of the recovery of the Argentine exchange rate and improved results of the companies, the balance of these losses was reduced in 2004.  Also, to a lesser extent, certain of our other companies registered an increase in deferred taxes: Endesa Chile itself with Ch$8.4 billion, and Edegel with Ch$5.4 billion.

     *Minority Interest.*  Minority interest expenses declined Ch$28,524 billion in 2003, due to the lower net income from San Isidro in Chile, Edegel in Perú, and Chocon and Costanera in Argentina, the latter due solely to an increase in tax expenses related to the appreciation of the Argentine peso, (as Costanera’s income before taxes was 45% greater than in 2003). 

**3.**      **Country by Country Comparative Analysis of Operating Results and Details of Non Operating Figures 2003 vs. 2002 ( figures expressed in constant Ch$ of December 31, 2004)**

|   | ***Revenues from operations*** |
|--------|--------------------------------|

     Revenues from Chile represented 49.8% and 47.4% of the Company’s 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.

 

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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)     |   |   | 418,959                                                                      |   |   | 439,878 |   |   | 5.0 |   |
| Sales of electricity (Argentina) |   |   | 101,615                                                                      |   |   | 114,061 |   |   | 12.2 |   |
| Sales of electricity (Colombia)  |   |   | 233,227                                                                      |   |   | 213,583 |   |   | (8.4 | ) |
| Sales of electricity (Brazil)    |   |   | 53,215                                                                       |   |   | 31,562 |   |   | (40.7 | ) |
| Sales of electricity (Peru)      |   |   | 120,982                                                                      |   |   | 113,685 |   |   | (6.0 | ) |
| Other                            |   |   | 43,169                                                                       |   |   | 30,520 |   |   | (29.3 | ) |
|                             |   |   |                                                                              |   |   |  |   |   |   |   |
| Total                            |   |   | 971,167                                                                      |   |   | 943,289 |   |   | (2.9 | ) |
|                             |   |   |                                                                              |   |   |  |   |   |   |   |

|                     |   |   | **Year ended December 31,** |   |
|--------------------------|--------|--------|-----------------------------|--------|
|                     |   |   |                             |   |
|                     |   |   | **2002**                    |   |   | **2003** |   |   | **%Change** |   |
|                     |   |   |                             |   |   |  |   |   |  |   |
|                     |   |   | (GWh)                       |   |   | (GWh) |   |   |   |   |
|                     |   |   |                        |   |   |   |   |   |   |   |
| Energy Sales (Chile)     |   |   | 18,344                      |   |   | 18,681 |   |   | 1.8 |   |
| Energy Sales (Argentina) |   |   | 7,897                       |   |   | 9,259 |   |   | 17.2 |   |
| Energy Sales (Colombia)  |   |   | 14,639                      |   |   | 14,481 |   |   | (1.1 | ) |
| Energy Sales (Brazil)    |   |   | 3,591                       |   |   | 3,770 |   |   | 5.0 |   |
| Energy Sales (Peru)      |   |   | 4,158                       |   |   | 4,443 |   |   | 6.9 |   |
|                     |   |   |                             |   |   |  |   |   |  |   |
| Total                    |   |   | 48,629                      |   |   | 50,634 |   |   | 4.1 |   |
|                     |   |   |                             |   |   |  |   |   |  |   |

     Revenues from sales of electricity in Chile increased by 5.0% to Ch$439.9 billion in 2003 from Ch$419.0 billion in 2002. This increase was mainly due to an increase in the average sales price of 3.1% to Ch$23.6 per kWh in 2003 from Ch$22.9 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$114.1 billion in 2003, from Ch$101.6 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$14.0 billion increase in revenues, as well as a 9.7% increase in physical energy sales at Costanera, which resulted in a Ch$16.9 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, whichcaused a decrease in revenues of Ch$18.5 billion.

     Revenues from sales of electricity in Colombia decreased by 8.4% to Ch$213.6 billion in 2003 from Ch$233.2 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$42.6 billion. This decrease was offset in part by an increase of 1.8% in physical energy sales, which resulted in a Ch$21.7 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$31.6 billion in 2003 from Ch$53.2 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$12.0 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$9.6 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$113.7 billion in 2003 from Ch$121.0 billion in 2002, due to the appreciation of the Chilean peso against the U.S. dollar, which caused a decrease of Ch$22.1 billion, partially offset by an increase of revenues by Ch$15.0 billion mainly due to a 6.9% increase in physical sales. 

 

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     Other revenues decreased by 29.3% to Ch$30.5 billion in 2003 from Ch$43.2 billion in 2002, mainly due to the sale of Infraestructura Dos Mil in June 2003. Infraestructura Dos Mil revenues in 2002 amounted to Ch$20.9 billion. 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$6.2 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)     |   |   | 265,386                                                                      |   |   | 292,396 |   |   | 10.2 |   |
| Cost of operations (Argentina) |   |   | 86,717                                                                       |   |   | 78,962 |   |   | (8.9 | ) |
| Cost of operations (Colombia)  |   |   | 148,916                                                                      |   |   | 122,891 |   |   | (17.5 | ) |
| Cost of operations (Brazil)    |   |   | 33,724                                                                       |   |   | 25,845 |   |   | (23.4 | ) |
| Cost of operations (Peru)      |   |   | 40,427                                                                       |   |   | 44,113 |   |   | 9.1 |   |
|                           |   |   |                                                                              |   |   |  |   |   |   |   |
| Total                          |   |   | 575,170                                                                      |   |   | 564,207 |   |   | (1.9 | ) |
|                           |   |   |                                                                              |   |   |  |   |   |  |   |

     Chilean operating costs increased 10.2% to Ch$292.4 billion in 2003 from Ch$265.4 billion in 2002.  Weaker hydrological conditions caused a 17.4% increase in variable costs (Ch$28.1 billion) resulting from:  (i) a 26.5% increase in thermoelectric generation, producing a Ch$5.0 billion increase in fuel costs and Ch$2.9 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$20.6 per KWh during 2003, 60% higher than during 2002, which increased costs by Ch$19.3 billion.

     Costs of operations in Argentina decreased by 8.9% to Ch$79.0 billion in 2003 from Ch$86.7 billion in 2002, mainly due to a Ch$15.8 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$4.3 billion in fuel costs, energy and power purchases at Costanera due to 13.3% higher thermoelectric generation and Ch$2.9 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$122.9 billion in 2003 from Ch$148.9 billion in 2002, principally reflecting a Ch$27.1 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$25.8 billion in 2003 from Ch$33.7 billion in 2002, principally reflecting a Ch$6.2 billion decrease in expenses due to the appreciation of the Chilean peso against the U.S. dollar and Ch$4.5 billion decrease due to a 71.1% decrease in the average price of purchased energy, offset in part by a Ch$2.7 billion increase in other variable costs.

     Costs of operations in Peru increased by 9.1% to Ch$44.1 billion in 2003 from Ch$40.4 billion in 2002, mainly due to an increase of Ch$7.3 billion in energy purchases and tolls and transport costs due to lack of rainfall and an increase of Ch$4.4 billion in depreciation because of higher fixed assets. These increases were offset in part by a Ch$7.4 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$32.1 billion in 2003 from Ch$37.6 billion in 2002. This is due to a decrease of Ch$3.6 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.

 

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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 December 31, 2003, except percentages)** |   |   |   |   |
| Operating Income (Chile)     |   |   | 176,813                                                              |   |   | 159,142 |   |   | (10.0 | ) |
| Operating Income (Argentina) |   |   | 13,043                                                               |   |   | 33,121 |   |   | 153.9 |   |
| Operating Income (Colombia)  |   |   | 78,032                                                               |   |   | 88,134 |   |   | 12.9 |   |
| Operating Income (Brazil)    |   |   | 17,580                                                               |   |   | 3,748 |   |   | (78.7 | ) |
| Operating Income (Peru)      |   |   | 72,962                                                               |   |   | 62,829 |   |   | (13.9 | ) |
|                         |   |   |                                                                      |   |   |  |   |   |   |   |
| **Total**                    |   |   | 358,430                                                              |   |   | 346,974 |   |   | (3.2 | ) |
|                         |   |   |                                                                      |   |   |  |   |  |  |   |

     Operating income in Chile for 2003 decreased 10.0% to Ch$159.1 billion from Ch$176.8 billion in 2002.  This decrease is mainly explained by Ch$27.1 billion increase in total expenses, partially offset by a Ch$9.4 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 ofnon-GAAP measures to Chilean GAAP” below.

     Operating income in Argentina increased 153.9% to Ch$33.1 billion in 2003 from Ch$13.0 billion in 2002.  This increase is mainly explained by an increase of Ch$11.6 billion in El Chocón’s operating income and an increase of Ch$10.9 billion in Costanera’s operating income, in both cases, in local currency terms.  El Chocón’s revenues increased Ch$14.0 billion and operating expenses decreased Ch$2.3 billion compared to 2002 due to better hydrology.  Costanera’s revenues increased Ch$16.9 billion and operating expenses decreased Ch$5.7 billion compared to 2002.  Costanera’s revenues increased in part due to a 9.7% increase in physical energy sales from the second interconnectionline 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$2.4 billion.

     In Brazil, the operating income of Cachoeira Dourada decreased 78.7% to Ch$3.7 billion in 2003 from Ch$17.6 billion in 2002.  This decrease is mainly explained by a decrease of Ch$10.7 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$3.2 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.

 

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     Operating income in Colombia for 2003 increased 12.9% to Ch$88.1 billion from Ch$78.0 billion in 2002.  This increase is mainly explained by an increase in operating income in local currency terms amounting to Ch$24.3 billion, partially offset by a negative effect amounting to Ch$14.1 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$21.7 billion in higher revenues, a decrease of Ch$3.6 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$62.8 billion in 2003 from Ch$73.0 billion in 2002.  This decrease is mainly explained by a negative effect amounting to Ch$13.2 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$15.0 billion and operating expenses decreased by Ch$11.1 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                                 |   |   | 15,784                                                                             |   |   | 15,644 |   |   | (0.9 | ) |
| Equity in income of non-consolidated affiliates |   |   | 8,872                                                                              |   |   | 17,804 |   |   | 100.7 |   |
| Other non-operating income                      |   |   | 106,097                                                                            |   |   | 45,687 |   |   | (56.9 | ) |
|                                            |   |   | —                                                                             |   |   | — |   |   |   |   |
| **Non-operating expenses:**                     |   |   | —                                                                             |   |   | — |   |   |   |   |
| Interest expense                                |   |   | (225,837                                                                           | )      |   | (209,239 | ) |   | (7.3 | ) |
| Goodwill amortization                           |   |   | (112,388                                                                           | )      |   | (1,582 | ) |   | (98.6 | ) |
| Other non-operating expenses                    |   |   | (120,682                                                                           | )      |   | (61,564 | ) |   | (49.0 | ) |
|                                            |   |   | —                                                                             |   |   | — |   |   |   |   |
| **Monetary correction:**                        |   |   | —                                                                             |   |   | — |   |   |   |   |
| Price level restatement                         |   |   | 4,137                                                                              |   |   | 589 |   |   | (85.8 | ) |
| Foreign Exchange translation                    |   |   | (456                                                                               | )      |   | 9,180 |   |   | 2,112.6 |   |
|                                            |   |   |                                                                                    |   |   |  |   |   |   |   |
| **Non-operating results**                       |   |   | (324,474                                                                           | )      |   | (183,480 | ) |   | (43.5 | ) |
|                                            |   |   |                                                                                    |   |   |  |   |   |  |   |

     Non-operating results amounted to a loss of Ch$183.5 billion in 2003 in comparison to a loss of Ch$324.5 billion in 2002.  This reduction in losses in 2003 resulted from a write-off of goodwill in 2002 of Ch$110.8 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$15.6 billion in 2003 from Ch$15.8 billion in 2002. This decrease was primarily attributable to lower cash balances in Chile during 2003.

     *Equity income from non-consolidated affiliates.* The Ch$8.9 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$11.4 billion for December 31, 2003 compared to a net profit of Ch$7.5 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$60.4 billion in the results of other non-operating income to Ch$45.7 billion in 2003 from Ch$106.1 billion in 2002 is explained principally by a negative effect amounting to Ch$64.0 billion resulting from the appreciation of the Chilean peso against the U.S. dollar in the periods under comparison.

 

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     *Interest expense.* The Ch$16.5 billion decrease is explained principally by a reduction of U.S.$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$59.1 billion decrease in other non-operating expenses is explained mainly by a decrease of Ch$45.9 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$8.7 billion and a decrease of Ch$5.8 billion in contingency and litigation expenses.  

     *Goodwill amortization.*  The decrease of Ch$110.8 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.”

     *Foreign exchange translation.*  During 2003 we had a Ch$9.2 billion gain in contrast to a Ch$456.1 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$4.2 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                                                                  |   |   | 358,429                                                                      |   |   | 346,973 |   |   | (3.2 | ) |
| Non-operating income                                                              |   |   | (324,474                                                                     | )      |   | (183,479 | ) |   | (43.5 | ) |
|                                                                              |   |   |                                                                              |   |   |  |   |   |   |   |
| **Net income before taxes, minority interest and negative goodwill amortization** |   |   | 33,955                                                                       |   |   | 163,493 |   |   | 381.5 |   |
|                                                                              |   |   |                                                                              |   |   |  |   |   |   |   |
| Income tax                                                                        |   |   | (36,401                                                                      | )      |   | (53,077 | ) |   | 45.8 |   |
| Deferred taxes                                                                    |   |   | (36,717                                                                      | )      |   | 25,014 |   |   | n.a. |   |
|                                                                              |   |   |                                                                              |   |   |  |   |   |   |   |
| **Total income taxes**                                                            |   |   | (73,118                                                                      | )      |   | (28,062 | ) |   | 61.6 |   |
|                                                                              |   |   |                                                                              |   |   |  |   |   |   |   |
| Minority interest                                                                 |   |   | (48,117                                                                      | )      |   | (71,326 | ) |   | (48.2 | ) |
| Amortization of negative goodwill                                                 |   |   | 88,947                                                                       |   |   | 15,979 |   |   | (82.0 | ) |
| Extraordinary items                                                               |   |   | (11,315                                                                      | )      |   | — |   |   | n.a. |   |
|                                                                              |   |   |                                                                              |   |   |  |   |   |   |   |
| **Net income**                                                                    |   |   | (9,648                                                                       | )      |   | 80,084 |   |   | n.a. |   |

     *Income Taxes and Extraordinary Items.*  The lower total income tax of Ch$45.1 billion during 2003 is due mainly to a decrease of Ch$61.7 billion in deferred tax net liabilities, offset by increases in income tax due to higher revenues in the period.  The extraordinary item of Ch$11.3 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$71.6 billion in 2003, compared to Ch$48.1 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$16.0 billion in 2003, compared to Ch$88.9 billion for 2002.  This decrease resulted primarily from accelerated depreciation of the negative goodwill related to investments in Brazil and Argentina during 2002 which did not occur again in 2003.  See note 13 to our audited consolidated financial statements.

 

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     *Netincome.*  Net income reached Ch$80.1 billion in the year ended December 31, 2003, compared to a Ch$9.6 billion loss in 2002. The loss was due to a Ch$58.1 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$11.0 billion in higher operating expenses due to higher energy purchases resulting from poor hydrological conditions. |

**B.**      **Liquidity and capital resources.**

     Endesa-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 33 to our Audited Consolidated Financial Statements for reclassification differences between U.S. GAAP and Chilean GAAP.

     For the twelve month period ended December 31, 2004, our principal sources of funds were:

|  | • | Ch$ 565.7 billion from results from operations, before taxes and interest expenses; |
|--|--------|-------------------------------------------------------------------------------------|

|  |   |                                                               |
|--|--------|--------------------------------------------------------------------|
|  | • | Ch$ 438.6 billion from short- and long-term credit facilities; and |

|  |   |                                   |
|--|--------|----------------------------------------|
|  | • | Ch$ 13.4 billion from sales of assets. |

     For the twelve month period ended December 31, 2004, our principal uses of funds were:

|  | • | Ch$ 497.7 billion in debt amortizations of short- and long-term credit facilities; |
|--|--------|------------------------------------------------------------------------------------|

|  |   |                                              |
|--|--------|---------------------------------------------------|
|  | • | Ch$ 192.6 billion primarily in interest expenses; |

|  |   |                             |
|--|--------|----------------------------------|
|  | • | Ch$ 96.1 billion in investments; |

|  |   |                               |
|--|--------|------------------------------------|
|  | • | Ch$ 120.9 billion in tax payments; |

|  |   |                                   |
|--|--------|----------------------------------------|
|  | • | Ch$ 73.8 billion in dividend payments; |

|  |   |                                        |
|--|--------|---------------------------------------------|
|  | • | Ch$ 10.0 billion of capital reductions; and |

|  |   |                            |
|--|--------|---------------------------------|
|  | • | Ch$ 44.6 billion in other uses. |

We had a net cash generation during 2004 of Ch$ 62.1 billion.

     For the twelve month period ended December 31, 2003, our principal sources of funds were:

|  | • | Ch$ 599.2 billion from results from operations, before taxes and interest expenses; |
|--|--------|-------------------------------------------------------------------------------------|

|  |   |                                                               |
|--|--------|--------------------------------------------------------------------|
|  | • | Ch$ 865.6 billion from short- and long-term credit facilities; and |

|  |   |                                    |
|--|--------|-----------------------------------------|
|  | • | Ch$ 156.7 billion from sales of assets. |

 

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     For the twelve-month period ended December 31, 2003, our principal uses of funds were:

|  | • | Ch$ 1043.8 billion in debt amortizations of short- and long-term credit facilities; |
|--|--------|-------------------------------------------------------------------------------------|

|  |   |                                              |
|--|--------|---------------------------------------------------|
|  | • | Ch$ 209.2 billion primarily in interest expenses; |

|  |   |                              |
|--|--------|-----------------------------------|
|  | • | Ch$ 134.4 billion in investments; |

|  |   |                               |
|--|--------|------------------------------------|
|  | • | Ch$ 102.9 billion in tax payments; |

|  |   |                                   |
|--|--------|----------------------------------------|
|  | • | Ch$ 37.3 billion in dividend payments; |

|  |   |                                        |
|--|--------|---------------------------------------------|
|  | • | Ch$ 13.0 billion in capital reductions; and |

|  |   |                           |
|--|--------|--------------------------------|
|  | • | Ch$ 8.3 billion in other uses. |

We had a net cash generation during 2003 of Ch$ 40.5 billion.

     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 Endesa-Chile itself issued Yankee Bonds in 1996 to 2003, of which U.S.$ 2.20 billion 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.  In July 2000 Endesa-Chile issued  €400 million in 3-year floating rate notes, which have been paid, under our EMTN Program.

     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 U.S.$ 2.20 billion is currently outstanding, is 8.04%.

| **Issuer**                |   |   | **Maturity**     |   |   | **Coupon**            |   |   | **Aggregate Principal  Amount Issued** |   |
|---------------------------|--------|--------|------------------|--------|--------|-----------------------|--------|--------|----------------------------------------|--------|
|                           |   |   |                  |   |   |                       |   |   |                                        |   |
|                      |   |   |             |   |   | **(as a percentage)** |   |   | **(in U.S. millions)**                 |   |
| Endesa-Chile Overseas Co. |   |   | April 1, 2006    |   |   | 7.200                 |   |   | 150                                    |   |
| Endesa-Chile              |   |   | July 15, 2008    |   |   | 7.750                 |   |   | 400                                    |   |
| Endesa-Chile              |   |   | April 1, 2009    |   |   | 8.500                 |   |   | 400                                    |   |
| Endesa-Chile              |   |   | August 1, 2013   |   |   | 8.350                 |   |   | 400                                    |   |
| Endesa-Chile              |   |   | August 1, 2015   |   |   | 8.625                 |   |   | 200                                    |   |
| Endesa-Chile              |   |   | February 1, 2027 |   |   | 7.875                 |   |   | 230                                    |   |
| Endesa-Chile(1)           |   |   | February 1, 2037 |   |   | 7.325                 |   |   | 220                                    |   |
| Endesa-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.  For detailed information about local bonds issued by Endesa-Chile, see Note 15 to our Audited Consolidated Financial Statements.

 

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     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.  On May 15, 2003, Endesa-Chile merged its outstanding syndicated and bilateral credit agreements, which would have otherwise matured in 2003 and 2004, into a credit agreement for approximately U.S.$ 743 million, refinancing most of the existing bank indebtedness of the Company.  This facility eliminated a mandatory 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.

     On February 4, 2004, Endesa-Chile entered into an agreement with a syndicate of banks to provide a new U.S.$ 250 million senior unsecured term loan facility through Endesa-Chile’s Cayman Islands branch.  Endesa-Chile borrowed the full amount under this facility to repay the outstanding balance of the U.S.$ 743 million credit facility dated May 15, 2003.

     On November 5, 2004, Endesa-Chile, through Endesa-Chile’s Cayman Islands branch, entered into a new credit agreement pursuant to which a syndicate of banks agreed to provide a new U.S.$ 250 million senior unsecured revolving loan facility (the “Endesa-Chile Facility”), the proceeds of which were used to repay all amounts outstanding under the February 4, 2004 credit facility.

     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 on November 10, 2010.  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 9.40:1 in 2004 to 7.50:1 in 2010), indebtedness to EBITDA (ranging from 6.30:1 in 2004 to 4.20:1 in 2010), debt to equity (ranging from 112.5% in 2004 to 100.0% in 2010) and minimum ratio of adjusted cash flow to interest expense (ranging from 1.50:1 in 2004 to 2.0:1 in 2010).

     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 ofEndesa-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 November 10, 2010.

     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 30 basis points for an A- or higher rating to 87.5 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 37.5 basis points.  For detailed information about weighted average interest rates applicable to our bank loans, see Note 14 to our Audited Consolidated Statements.

     On December 11, 2002, Standard & Poor’s lowered its 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.  This rating was maintained in the January 2005 review.

 

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     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 U.S.$ 30 million outstanding (on an individual basis) could give rise to a cross default under the Endesa-Chile Facility.  Endesa-Chile’s relevant subsidiaries which have indebtedness in excess of U.S.$ 30 million as of March 31, 2005 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 U.S.$ 30 million, an event of default would be triggered under the Endesa-ChileYankee Bonds.  Endesa-Chile’s subsidiaries which have indebtedness in excess of U.S.$ 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 U.S.$ 30 million (U.S.$ 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 beenaccelerated 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.

     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 wheresuch 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 depend in part on payments from our subsidiaries 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 U.S.$150 million of the debt that expires in the twelve months following the date of this annual report. 

 

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     The following are the transactions that most significantly affected our liquidity in 2004:

|  | • | on November 9, 2004, our Chilean subsidiary Celta completed the sale of the Laguna-Collahuasi transmission line to Compañía Minera Doña Ines de Collahuasi, for U.S.$ 20.5 million; and |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                                                                               |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | on November 10, 2004, our Colombian subsidiary Betania successfully issued Col$ 300 billion aggregate principal amount of bonds in the local market. The proceeds from the sale of these bonds were used in full to prepay other outstanding 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 U.S.$ 110 million pursuant to the terms of this agreement.  The transaction included the disposal of 285 kilometers of 220 kV line circuits for approximately U.S.$ 32 million, corresponding to the assets of the Tarapacá plant, and the transfer of 673 kilometers of 220 kV line circuits for approximately U.S.$ 78 million, corresponding to GasAtacama Generación Limitada, of which Endesa owns 50%; |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   | • | 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 U.S.$ 174 million;                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | on May 1, 2003, Endesa-Chile repaid the U.S.$ 170 million Yankee Bond of its 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 U.S.$ 55 million and deconsolidated debt of U.S.$ 220 million since January 1, 2003 that Infraestructura Dos Mil owed to third parties;                                                                                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | on July 23, 2003, Endesa-Chile successfully issued U.S.$ 600 million aggregate principal amount of bonds in the U.S. market. The transaction was structured in two tranches; the first, for an amount of U.S.$ 400 million of unsecured 10 year bonds at an interest rate of 8.35%, and the second for a total of U.S.$ 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 U.S.$ 743 million syndicated loan disclosed above; |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | on July 24, 2003, Endesa-Chile repaid the €400 million euro bond of Endesa-Chile International; and                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   | • | on October 24, 2003, Endesa-Chile successfully placed in the local market UF8,000,000 (approximately U.S.$ 214 million) in two equal tranches with maturities of 7 and 25 years at rates of 5.65% and 6.74% respectively.                                                                                                                                                                                                                                                                                                    |

**C.**      **Research and development, patents and licenses, etc.**

     Although Endesa does not have a formal organizational structure that centralizes R&D activities, certain activities aimed at developing new management improvement procedures can be identified within the different areas of the Company (for example, the development of medium- and long-term mathematical dispatch models for economic studies; hydrological behavior prediction models; and various studies intended to optimize production activities).  These activities are generally carried out by Endesa employees, and there are currently no accounting records that would allow us to determine the associated costs separately.

     As part of its ongoing search for growth opportunities, Endesa commissions engineering studies intended to determine the technical viability of power plant projects. In 2004, total disbursements amounted to approximately U.S.$ 650,000. From an accounting perspective, the established policy is as follows: 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, while studies related to specific construction projects are capitalized.

     Finally, Endesa contributes resources to the Fundación Huinay, which carries out its activities at the San Ignacio del Huinay farm, located in the Hualaihué District, Region X. The Foundation’s corporate goal and mission are: to assess, design, develop, and execute an environmental project based on the concept of sustainable development or eco-development, that could serve as an operational model for other projects nationwide; to promote or conduct scientific research and experiments in keeping with the aforementioned goal; to manage educational establishments and teaching programs in addition to providing educational or occupational training; and to provide material support or otherwise providesocial assistance programs that benefit the neediest citizens, to communities or residents living in or nearby the areas in which the project is executed.

 

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**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, increasingcompetition 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.”

**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, 2004:

**Payment obligations due by period (in U.S.$  million)ENDESA-CHILE on a consolidated basis**

| **As of December 31, 2004**               |   |   | **TOTAL**  |   |   | **Jan 2005 -  Dec 2005** |   |   | **Jan 2006 -  Dec 2006** |   |   | **Jan 2007 -  Dec 2007** |   |   | **After  Dec 2007** |   |
|-------------------------------------------|--------|--------|------------|--------|--------|--------------------------|--------|--------|--------------------------|--------|--------|--------------------------|--------|--------|---------------------|--------|
|                                           |   |   |            |   |   |                          |   |   |                          |   |   |                          |   |   |                     |   |
| Bank debt (1)                             |   |   | 779        |   |   | 327                      |   |   | 73                       |   |   | 54                       |   |   | 324                 |   |
| Other bonds                               |   |   | 1,084      |   |   | 76                       |   |   | 352                      |   |   | 65                       |   |   | 590                 |   |
| Yankee bonds                              |   |   | 2,078      |   |   | 61                       |   |   | 150                      |   |   | 25                       |   |   | 1,841               |   |
| Intercompany debt                         |   |   | 3          |   |   | 3                        |   |   | 0                        |   |   | 0                        |   |   | 0                   |   |
| Other debt                                |   |   | 212        |   |   | 44                       |   |   | 45                       |   |   | 41                       |   |   | 83                  |   |
| Financial expenses                        |   |   | 2,541      |   |   | 301                      |   |   | 265                      |   |   | 232                      |   |   | 1,742               |   |
| Pension and postretirement obligations(2) |   |   | 74         |   |   | 6                        |   |   | 6                        |   |   | 6                        |   |   | 56                  |   |
| Contractual Operational obligations (3)   |   |   |       |   |   |                     |   |   |                     |   |   |                     |   |   |                |   |
| Operational Leases (4)                    |   |   | **—** |   |   | **—**               |   |   | **—**               |   |   | **—**               |   |   | **—**          |   |
| Purchase obligations (5)                  |   |   | 670        |   |   | 171                      |   |   | 173                      |   |   | 164                      |   |   | 162                 |   |
|                                      |   |   |            |   |   |                          |   |   |                          |   |   |                          |   |   |                     |   |
| **Total**                                 |   |   | **7,438**  |   |   | **989**                  |   |   | **1,064**                |   |   | **587**                  |   |   | **4,798**           |   |
|                                      |   |   |            |   |   |                          |   |   |                          |   |   |                          |   |   |                     |   |

|        |
|--------|
| (1)    | Includes Endesa-Chile capital lease obligations for a total of U.S.$  43 million. |
|   |   |
| (2)    | All of our pension and postretirement plans are unfunded.  Cash flows estimated in the table are based on future undiscounted payments necessary to meet all of our pension and post-retirement obligations. |
|   |   |
| (3)    | In addition to the contractual obligations set forth above, we expect to make capital expenditures of U.S.$ 126 million in 2005, U.S.$ 145 million in 2006, U.S.$ 139 million in 2007 and $ 203 million in 2008. |
|   |   |
| (4)    | We do not have any material operating lease obligations. |
|   |   |
| (5)    | Comprised mainly of energy purchase contracts, operating and maintenance contracts. |

 

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**G.**      **Safe Harbor**

     The information in this Item 5. Management Discussion and Analysis, contains statements that  may constitute forward looking statements.  See Forward Looking Statements in the Introduction of this report on page 2, for safe harbor provisions.

**Item 6.  Directors, Senior Management and Employees**

**A.**      **Directors and senior management.**

     Endesa-Chile’s current directors and executive officers are as follows:

| **Name**                                  |   |   | **Position**                     |   |   | **Current Position  Held Since** |   |   | **Expiration of  Current Term** |   |
|-------------------------------------------|--------|--------|----------------------------------|--------|--------|----------------------------------|--------|--------|---------------------------------|--------|
|                                           |   |   |                                  |   |   |                                  |   |   |                                 |   |
| **Directors**                             |   |   |                             |   |   |                             |   |   |                            |   |
| Luis Rivera Novo (1) (3) (4)              |   |   | Chairman                         |   |   | 2002                             |   |   | 2007                            |   |
| Antonio Pareja Molina (1) (4)             |   |   | Vice Chairman                    |   |   | 2000                             |   |   | 2007                            |   |
| Ignacio Blanco Fernández (1) (4)   |   |   | Director                         |   |   | 2002                             |   |   | 2007                            |   |
| Leonidas Vial Echeverría (2)       |   |   | Director                         |   |   | 1995                             |   |   | 2007                            |   |
| Jaime Bauzá Bauzá (2) (3)   |   |   | Director                         |   |   | 1999                             |   |   | 2007                            |   |
| Carlos Torres Vila (1)(4)                 |   |   | Director                         |   |   | 2003                             |   |   | 2007                            |   |
| Andrés Regué Godall (1) (4) |   |   | Director                         |   |   | 1999                             |   |   | 2007                            |   |
| Antonio Tuset Jorratt (2) (3)             |   |   | Director                         |   |   | 1999                             |   |   | 2007                            |   |
| Enrique García Alvarez (1)         |   |   | Director                         |   |   | 2003                             |   |   | 2007                            |   |
|                                      |   |   |                             |   |   |                             |   |   |                            |   |
| **Executive Officers**                    |   |   |                             |   |   |                             |   |   |                            |   |
| Hector López Vilaseco                |   |   | Chief Executive Officer          |   |   | 2000                             |   |   | N/A                             |   |
| Alejandro González Dale            |   |   | Chief Financial Officer          |   |   | 2003                             |   |   | N/A                             |   |
| Julio Valbuena Sánchez             |   |   | Planning and Control Manager     |   |   | 2002                             |   |   | N/A                             |   |
| Rafael Mateo Alcalá                |   |   | Production and Transport Manager |   |   | 1999                             |   |   | N/A                             |   |
| Carlos Martín Vergara              |   |   | General Counsel                  |   |   | 1996                             |   |   | N/A                             |   |
| Juan Carlos Mundaca                       |   |   | Human Resources Manager          |   |   | 2000                             |   |   | N/A                             |   |
| José Venegas Maluenda              |   |   | Trading and Marketing Manager    |   |   | 2001                             |   |   | N/A                             |   |
| Rafael Errázuriz Ruiz Tagle        |   |   | Energy Planning                  |   |   | 2001                             |   |   | N/A                             |   |
| Renato Fernández Baeza             |   |   | External Affairs Manager         |   |   | 2003                             |   |   | N/A                             |   |
| Claudio 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 Novo* became 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-Chile.  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 Molina*became Vice-Chairman of the board of directors in August 2000.  Since 1986, Mr. Pareja has occupied various positions at Endesa-Spain including the position of Corporate Planning Director (held since 1998), Planning and Control Manager and Director of Control.  At present, Mr. Pareja is Services Corporate Director and 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.

 

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     *Leonidas Vial Echeverría*became 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 Bauzá*became 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 Godall* became 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 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 Jorrat*became 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 Vila*became 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 Fernández* became a director in March 2003.  Mr. Blanco has been the CEO of the distribution company Edelnor in Perú 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 Chairmanof *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 Alvarez* became a director in September 2003.  From January 1999 to September 2003, he was part of the Board of Directors of *Distrilec Inversora*and*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 Vilaseco*became 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.

 

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     *Alejandro González Dale*became 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 Sánchez*is 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 Alcalá* became 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 Vergara*became 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).

     *Juan Carlos Mundaca Alvarez* has 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 Maluenda* became 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 Tagle* has 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 Baeza* has 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 Guillard* has 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 U.F. 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 U.F. per month and a fee of 54 U.F. for attending    meetings of the board. The chairman will receive a fixed salary of 110 U.F.    per month and a fee of 72 U.F. for attending meetings of the board. In 2004,    the total compensation paid to each director in millions of Chilean pesos,    was as follows:

 

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|                              |   |   | **Year ended December 31, 2004  (In thousands of Ch$ )** |   |
|-----------------------------------|--------|--------|----------------------------------------------------------|--------|
|                              |   |   |                                                          |   |
| **Director**                      |   |   | **Board CompensationFrom  Endesa-Chile**                 |   |   | **Board Compensation From Subsidiaries** |   |   | **Director Committee** |   |   | **Participation** |   |   | **Total** |   |
|                                   |   |   |                                                          |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                              |   |   |                                                     |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Luis Rivera Novo                  |   |   | 37,806                                                   |   |   |   |   |   | 6,855 |   |   | — |   |   | 44,661 |   |
| Antonio Pareja Molina             |   |   | 27,421                                                   |   |   |   |   |   |   |   |   | — |   |   | 27,421 |   |
| Jaime Bauzá Bauzá   |   |   | 19,525                                                   |   |   |   |   |   | 7,478 |   |   | — |   |   | 27,003 |   |
| Andrés Regué Godall |   |   | 17,656                                                   |   |   | 6,689 |   |   |   |   |   | — |   |   | 24,345 |   |
| Antonio Tuset Jorratt             |   |   | 19,525                                                   |   |   |   |   |   | 7,478 |   |   | — |   |   | 27,003 |   |
| Leonidas Vial Echeverría   |   |   | 18,279                                                   |   |   |   |   |   |   |   |   | — |   |   | 18,279 |   |
| Ignacio Blanco Fernández   |   |   | 19,525                                                   |   |   | 3,942 |   |   |   |   |   | — |   |   | 23,467 |   |
| Carlos Torres Vila                |   |   | 18,280                                                   |   |   |   |   |   |   |   |   | — |   |   | 18,280 |   |
| Enrique García Alvarez     |   |   | 19,525                                                   |   |   |   |   |   |   |   |   | — |   |   | 19,525 |   |

----

     We do not disclose, to our shareholders or otherwise, information on individual executive officers’ compensation.  For the year ended December 31, 2004, the aggregate compensation (including performance-based bonuses) of the executive officers of Endesa-Chile paid or accrued, was Ch$ 2,001,522,396.  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 numberof gross monthly salaries.  The total variable compensation paid in April 2004 was Ch$ 279,733,230, and is included in the aggregate compensation.

     The amounts set aside or accrued by the Company in 2004 to provide pension, retirement or similar benefits  totaled Ch$ 160,412,678.  No severance indemnities were paid in 2004 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. In addition, the vacancy will trigger an election for every seat on the board of directors 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 *estatutos* and 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.

 

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     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.

|   | *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 Directores* composed 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 Directores* to be composed of a majority or even a unanimity of controlled directors, if there are not sufficientnon-control directors on the board to serve on the committee.  Currently, our *Comité de Directores* is composed by a majority of non-control directors.

     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 Directores* is 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                                                                                                       |

 

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|  | • | any other function mandated to the committee by the *estatutos*, the board of directors or the shareholders of the company. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------|

     The members of this Committee are Luis Rivera Novo, Jaime Bauzá Bauzá, and Antonio Tuset Jorrat.

**D.**      **Employees**

     As of December 31, 2004, the personnel of Endesa-Chile and its subsidiaries was as follows:

| **Company**                                       |   |   | **2002** |   |   | **2003** |   |   | **2004** |   |
|---------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
|                                                   |   |   |          |   |   |          |   |   |          |   |
| **In Argentina**                                  |   |   |     |   |   |     |   |   |     |   |
| Central Costanera S.A.                            |   |   | 234      |   |   | 233      |   |   | 262      |   |
| Hidroeléctrica El Chocón S.A.         |   |   | 50       |   |   | 50       |   |   | 49       |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| Total Personnel in Argentina                      |   |   | 284      |   |   | 283      |   |   | 311      |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| **In Brazil**                                     |   |   |     |   |   |     |   |   |     |   |
| Centrais Elétricas Cachoeira Dourada S.A.  |   |   | 52       |   |   | 53       |   |   | 53       |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| Total Personnel in Brazil                         |   |   | 52       |   |   | 53       |   |   | 53       |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| **In Chile** (1)                                  |   |   |     |   |   |     |   |   |     |   |
| Endesa-Chile                                      |   |   | 465      |   |   | 466      |   |   | 473      |   |
| Pehuenche                                         |   |   | 3        |   |   | 3        |   |   | 3        |   |
| Pangue                                            |   |   | 2        |   |   | 0        |   |   | 0        |   |
| San Isidro                                        |   |   | 2        |   |   | 2        |   |   | 2        |   |
| Celta                                             |   |   | 1        |   |   | 1        |   |   | 1        |   |
| Ingendesa                                         |   |   | 168      |   |   | 211      |   |   | 221      |   |
| Infraestructura Dos Mil S.A.                      |   |   | 19       |   |   |     |   |   |     |   |
| Túnel El Melón                        |   |   | 23       |   |   | 25       |   |   | 25       |   |
| Sociedad Concesionaria Autopista del Sol S.A.     |   |   | 88       |   |   |     |   |   |     |   |
| Sociedad Concesionaria Autopista Los Libertadores |   |   | 47       |   |   |     |   |   |     |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| Total Personnel in Chile                          |   |   | 818      |   |   | 708      |   |   | 725      |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| **In Colombia**                                   |   |   |     |   |   |     |   |   |     |   |
| Emgesa                                            |   |   | 315      |   |   | 285      |   |   | 285      |   |
| Betania                                           |   |   | 34       |   |   | 34       |   |   | 34       |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| Total Personnel in Colombia                       |   |   | 349      |   |   | 319      |   |   | 319      |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| **In Perú**                                |   |   |     |   |   |     |   |   |     |   |
| Edegel                                            |   |   | 154      |   |   | 152      |   |   | 154      |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| Total Personnel in Perú                    |   |   | 154      |   |   | 152      |   |   | 154      |   |
|                                              |   |   |          |   |   |          |   |   |          |   |
| Total Personnel of Endesa-Chile and Subsidiaries  |   |   | 1,657    |   |   | 1,515    |   |   | 1,562    |   |
|                                              |   |   |          |   |   |          |   |   |          |   |

|     |
|-----|
| (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. |

 

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     As of December 31, 2004, the personnel of Endesa-Chile and its subsidiaries considered temporary employees was as follows:

| **Company**                                                |   |   | **2002** |   |   | **2003** |   |   | **2004** |   |
|------------------------------------------------------------|--------|--------|----------|--------|--------|----------|--------|--------|----------|--------|
|                                                            |   |   |          |   |   |          |   |   |          |   |
| **In Argentina**                                           |   |   |     |   |   |     |   |   |     |   |
| Central Costanera S.A.                                     |   |   | 0        |   |   | 0        |   |   | 0        |   |
| Hidroeléctrica El Chocón S.A.                  |   |   | 0        |   |   | 0        |   |   | 0        |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| Total Temporary Personnel in Argentina                     |   |   | **0**    |   |   | **0**    |   |   | **0**    |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| **In Brasil**                                              |   |   |     |   |   |     |   |   |     |   |
| Centrais Elétricas Cachoeira Dourada S.A.           |   |   | 0        |   |   | 0        |   |   | 0        |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| Total Temporary Personnel in Brazil                        |   |   | **0**    |   |   | **0**    |   |   | **0**    |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| **In Chile** (1)                                           |   |   |     |   |   |     |   |   |     |   |
| Endesa-Chile                                               |   |   | 5        |   |   | 2        |   |   | 9        |   |
| Pehuenche                                                  |   |   | 0        |   |   | 0        |   |   | 0        |   |
| Pangue                                                     |   |   | 0        |   |   | 0        |   |   | 0        |   |
| San Isidro                                                 |   |   | 0        |   |   | 0        |   |   | 0        |   |
| Celta                                                      |   |   | 0        |   |   | 0        |   |   | 0        |   |
| Ingendesa                                                  |   |   | 280      |   |   | 294      |   |   | 133      |   |
| Infraestructura Dos Mil S.A.                               |   |   | 1        |   |   |     |   |   |     |   |
| Túnel El Melón                                 |   |   | 0        |   |   | 0        |   |   | 0        |   |
| Sociedad Concesionaria Autopista del Sol S.A.              |   |   | 1        |   |   |     |   |   |     |   |
| Sociedad Concesionaria Autopista Los Libertadores          |   |   | 0        |   |   |     |   |   |     |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| Total Temporary Personnel in Chile                         |   |   | **287**  |   |   | **296**  |   |   | **142**  |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| **In Colombia**                                            |   |   |     |   |   |     |   |   |     |   |
| Emgesa                                                     |   |   | 10       |   |   | 1        |   |   | 0        |   |
| Betania                                                    |   |   | 1        |   |   | 0        |   |   | 0        |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| Total Temporary Personnel in Colombia                      |   |   | **11**   |   |   | **1**    |   |   | **0**    |   |
|                                                       |   |   |     |   |   |     |   |   |     |   |
| **In Perú**                                         |   |   |     |   |   |     |   |   |     |   |
| Edegel                                                     |   |   | 0        |   |   | 1        |   |   | 3        |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| Total Temporary Personnel in Perú                   |   |   | **0**    |   |   | **1**    |   |   | **3**    |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |
| Total Temporary Personnel in Endesa-Chile and subsidiaries |   |   | **298**  |   |   | **298**  |   |   | **145**  |   |
|                                                       |   |   |          |   |   |          |   |   |          |   |

|     |
|-----|
| (1) | Ingendesa has temporary personnel hired for projects, giventhe nature of its business. |

     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 allcovered 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 June 2004, the Company reached a four-year collective bargaining agreement with the electro-mechanical, technical and administrative personnel.

     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:

     *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.

 

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**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 or officers has any stock options, which are not permitted under current Chilean securities laws and regulations.  It is not possible to confirm whether any of our officers or directors has 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, 2004, according to Endesa-Chile’s shareholder records, 25,169 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, 2004:

|                                             |   |   | **As of December 31, 2004** |   |
|--------------------------------------------------|--------|--------|----------------------------------|--------|
|                                             |   |   |                                  |   |
|                                             |   |   | **Shares Beneficially Owned**    |   |   | **Percentage of  Total Shares Outstanding** |   |
|                                             |   |   |                                  |   |   |  |   |
| Enersis(1)                                       |   |   | 4,919,488,794                    |   |   | 59.98 | % |
| Citibank, N.A.(2)                                |   |   | 389,605,620                      |   |   | 4.75 | % |
| Directors and executive officers (17 persons)(3) |   |   | 500,403                          |   |   | 0.01 | % |

|        |
|--------|
| (1)    | Endesa-Spain, as of December 31, 2004, 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 August 3, 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 Perú, beneficially owned as of December 31, 2004, 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 resolution to increase the maximumpercentage 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 onlywhen 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.

 

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     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 subsidiary 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. Thesetransactions are priced at TIP (variable Chilean interest rate) + 0.05% per month.

     In other countries in the region 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, 2004, the outstanding net balance for such loans was U.S.$ 444 million, the largest amount outstanding during 2004.  Additionally, Endesa-Chile lent money to its foreign subsidiaries in order to finance foreign investments, in an amount of U.S.$ 343 million as of December 31, 2004.  The largest amount outstanding during 2004 for such loans to its foreign subsidiaries was U.S.$ 481 million.

     The interest rates on these intercompany loans to Endesa-Chile’s subsidiaries range from 2.2% to 6.5% in Chile, with a weighted average interest rate of approximately 3.6%. The interest rates on these intercompany loans to Endesa-Chile’s foreign subsidiaries range from 6.6% to 9.0%, with a weighted average interest rate of approximately 7.7%.

**C.**      **Interests of experts and counsel.**

     Not applicable.

**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 theelectricity 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.”

 

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     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 thosetransactions carried out in the electricity pool market between generation companies in those node locations and during the hours when the energy supplied was not sufficient 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.

     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 U.S.$ 6.5 million per breach resulting from inadequate supply to the electricity system.  In respect of the third rationing decree period Endesa-Chile paid U.S.$ 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 amendmentcould 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.  Such conflict was resolved by the execution of Supreme Decree N° 158, which established that Endesa-Chile should only pay for the days rationing effectively took place. The Chilean courts are currently reviewing this case.  Even if an unfavorable decision is reached, we anticipate that it will not have material adverse consequences on Endesa-Chile.

     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.

|   | ***Ralco Insurance Agreement*** |
|--------|---------------------------------|

     In January 2002, AGF/Allianz Chile Compañïa de Seguros Generales S.A. (“AGF/Allianz”) 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 hydroelectricfacility resulting from floods in May 2001.  The claim requests that AGF/Allianz compensate Endesa-Chile approximately U.S.$ 11.4 million for the damages resulting from the floods.  This U.S.$ 11.4 million amount is based on the opinion rendered by Endesa-Chile’s loss adjuster.  This arbitration proceeding ended by ruling on September 30, 2004 that AGF/Allianz must pay the sum of U.S.$ 6,230,499 plus interest. AFG/Allianz paid the full amount on December 23, 2004.

|   | ***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 U.S.$ 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.

 

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     Endesa-Chile maintains 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 underTranselec.  The discussion period of the trial is over and the Court of Arbitration is currently in the analysis stage.

     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.  Following this ruling, HQI presented an annulment suit before the Supreme Court, which has not yet been resolved.

|   | ***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 a ruling was made which was unfavorable for Endesa-Chile.  The Company has contested suchruling 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 maritimeconcessions, 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 PatacheS.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 U.S.$ 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.

 

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|   | ***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 linebetween 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 its activities. Subsequently, in the year 2002 the purchase was formalized, for a purchase price of U.S.$  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 majeure* and 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 U.S.$ 22.8 million for costs it may incur to repair the line. It also claims that Endesa-Chile should compensate them approximately U.S.$ 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.  This conflict was settled by an agreement executed by and between Minera Los Pelambres, Endesa-Chile and San Isidro dated 18 June 2004.

|   | ***Divergence of Firm Capacity*** |
|--------|-----------------------------------|

     In December 2004 Endesa-Chile and its subsidiaries Pehuenche and Pangue filed a public law annulment suit against Ministry Resolution No. 35 of the Ministry of Economy.  The Ministry of Economy resolved a disagreement among the companies of the CDEC-SIC in relation to the sums of the firm capacity in 2000-2003 and instructed the CDEC-SIC to redefine the hours of greatest probability of charge in the system.  This instruction created a series of conflicts in the CDEC-SIC which were resolved by the creation of the “*Panel de Expertos*” (Experts Panel) in September and December 2004, which resulted in payments on behalf of Pehuenche to other generation companies in the sum of approximately Ch$23billion.  In a consolidated level the effect of firm capacity recalculations of 2000-2003 implied a cost to the Company of approximately Ch$14.5 billion.  See note 31 to our consolidated financial statements for additional information.

**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 Rentas* in 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 Rentas*which 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 *Provincia* to determine the tax and apply the sanctions.  On November8, 2001 the *Dirección Provincial de Rentas*notified 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 Rentas* is still pending as of the date of this annual report. 

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**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.  Prior to 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 toimport goods and equipment still required to complete the project.

     In addition to requesting the denial of the extension of the Drawback, the Department of Operations of Exterior Commerce (DECEX) also presented an administrative demand, which is currently pending, requesting the annulment of the Drawback. The Ministry of Development has decided to join these two demands since they refer to the same topic. In addition to the administrative demands, there was a judicial demand, which was resolved in November 2003.

     Although we have not yet received a final administrative decision with regard to the Drawback dispute, CIEN was unexpectedly notified on December 16, 2004 by the Brazilian’s Federal Receipt of a tax obligation in an amount of U.S.$ 624,497.96, corresponding to the Import Duty (II) and Tax on Manufactured Products (IPI) relating to certain goods imported in Drawback regime. This amount comprises the relevant tax principal amount (U.S.$ 237,870.59), interest accrued (U.S.$ 208,706.06) and penalties (U.S.$ 178,402.94).

     In January 14, 2005 CIEN appealed against this notification, requesting that it be annulled since DECEX has not reached a final decision regarding the Drawback and for that reason the imports made by CIEN under the Drawback regime should have the import taxes suspended until a resolution is obtained.

     A final decision against the interests of CIEN could represent a contingency for CIEN of approximately U.S.$ 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).

     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 (U.S.$ 35,897,435.90) is being paid in 120 monthly installments which began in January 2004.

|   | ***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 U.S.$  107 million in annual revenues for CIEN, could be nullified. However, an early termination of this contract would allow us tore-contract this energy.

 

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     In October 2004 CIEN presented its defense and in November 23, 2004 CIEN was informed that the term for the presentation of the defense of COPEL and Paraná State had expired.

     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 presented its defense in July 2003. On September 28, 2004 the federal tax authorities issued a resolution partially accepting CIEN ́s arguments, and therefore CIEN appealed on the part that the tax authority did not accept. This appeal was presented in October 27, 2004. 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 decision adverse to CIEN would imply a contingency of approximately U.S.$ 7 million.

|   | ***Legal Proceeding by CELG*** |
|--------|--------------------------------|

     The legal proceeding by CELG disclosed in our annual report on Form 20-F for the fiscal year ended December 31, 2003 was settled on August 11, 2004.  For details on the settlement, see Item.4.B. “Operations in Brazil”.

|   | ***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 thermalgeneration.

     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.

 

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     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.  Subsequently, both companies demanded the capacity charge liquidation in a monthly manner. The Supreme Court of Antioquia has not yet 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 U.S.$ 1.1 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.  Inaddition, there is a separate claim seeking the decontamination of the Muña Reservoir, which may present an additional liability of U.S.$ 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.

     On August 30, 2004, Emgesa was notified that the first instance court had agreed with the proposals of certain parties, including Emgesa, in the *“Pacto de Cumplimiento”*, a document which sets forth the obligations of the parties in the event the trial ends due to agreement of the parties.  The court set forth the sources and responsibilities for financial issues, in particular those in charge of public authorities.  The resolution of the first instance court established that Emgesa is not charged with contamination.

     On November 5th, 2004, a Committee of Monitoring was appointed to verify the fulfillment of the conditions imposed by the court. The Committee will meet every month on the third working day (last meeting: January 28, 2005), with the purpose to present to the judge a report on the advance to the “*Pacto de Cumplimiento*”.

**Perú**

     ***SUNAT Income Tax Assessment***

     As a result of a tax audit, the Peruvian Tax Administration Superintendent (“SUNAT”) initially assessed a U.S.$ 86 million income tax claim against Edegel relating to the 1996 spin-off in which Edegel was formed.  This income tax claim corresponds primarily to, among other things, 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 (Tax Court) 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 valid. Additionally, SUNAT objected to the market value attributed to the fixed assets Edegel acquired from Talleres Moyopampa.  The Peruvian tax Authority claimed a tax liability for the fiscal years 1996, 1997, 1998 and 1999 in the amount of Peruvian soles 555 million (approximately U.S.$ 159 million) inconnection with, among other things, the 1996 spin-off that created Edegel.

 

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     On August 1, 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 the Tribunal Fiscal in order to reinforce its legal and economic position.

     On November 14, 2003 Edegel accepted some of SUNAT ́s claims and paid approximately U.S.$ 15 million. However, the most significant claims remained in controversy (these included 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).

     A hearing took place on December 10th, 2003, where Edegel made an oral presentation of its arguments, and on September 10, 2004, by Resolution RTF N° 06686-4-2004, the Tribunal Fiscal (Tax Court) resolved the controversy and determined that Rule VIII in the Preliminary Title of the Ordered Unique Text of the Tax Code was not applicable to Edegel  ́s spin off and that SUNAT ́s claim on this matter was void.  Accordingly, it ordered SUNAT to make a new examination of the market value of acquired fixed assets in 1996.

     Edegel believes that the valuation of the assets acquired in 1996 from Talleres Moyopampa was technically correct and performed under the applicable regulations. However, given that  SUNAT ́s new examination has not started yet, SUNAT ́s position regarding this issue is unknown.

     If Edegel does not agree with SUNAT ́s revised evaluation of the market value of the fixed assets acquired from Talleres Moyopampa, Edegel can appeal to *Tribunal Fiscal* (Tax Court). In such a scenario, the appeal process can last up to nine months.

|   | **SUNAT Sales Tax Assessment** |
|--------|--------------------------------|

     On December 27, 2004 SUNAT assessed a new tax claim on Edegel for an aggregate amount of U.S.$ 8.2 million, including tax, fines and interest (U.S.$ 7.9 million for sales tax and U.S.$ 0.3 million for income tax).  The main reason for this tax assessment is the fact that SUNAT does not acknowledge a transaction between Edegel and Generandes Perú S.A. (owner of 63.55% of Edegel ́s outstanding stocks) that took place in 2000.

     This transaction consists of a technical assistance contract entered into between Edegel and Generandes Perú S.A. under which the latter performed an assistance service to the former for the administration and development of Yanango and Chimay Projects. To carry out its obligations under this agreement, Generandes Perú S.A. contracted its shareholders Entergy Power Perú S.A. (currently Southern Cone Power Perú S.A.) and Compañía Eléctrica Cono Sur S.A. (“Subcontractors”). Subcontractors performed several obligations on behalf of Generandes Perú S.A., which compensated them for their services.

     SUNAT’s position is that: (i) Generandes Perú S.A. and the subcontractors are “holding companies” and cannot afford to perform the contracted services; (ii) Edegel did not exhibit documents showing that Endesa-Chile and Entergy Co., shareholders of Subcontractors, were hired by them and therefore, SUNAT does not accept the documents showed by Edegel and issued by Endesa-Chile and Entergy Co.; and (iii) administration and development of the Yanango and Chimay Projects were performed by Edegel and not by third parties.

     SUNAT contends that (i) Edegel received assistance services from its executives and directors and from Endesa-Chile and Entergy Co. for free, and (ii) Edegel paid Generandes Perú S.A. for a service the latter did not perform. Even though SUNAT admits the projects took place, it concludes that there is no connection between payment made to Generandes Perú S.A. and Edegel ́s taxable income.

     Edegel [has filed] an objection to SUNAT ́s tax assessment and plans to refute SUNAT ́s arguments and present new evidence to the case. Edegel ́s legal advisors believe the Tribunal Fiscal (Tax Court) should dismiss SUNAT ́s arguments and make a new examination.

 

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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 thefinal 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 netincome for 2003 was approved.

     At its February 28, 2005 ordinary meeting, the Company’s board of directors agreed to modify the dividend policy which had been presented at the Company’s last ordinary shareholders’ meeting on March 26, 2004.  At the April 8, 2005 annual ordinary shareholders’ meeting, the board proposed, and the shareholders approved, a change in the dividend policy to provide for the payment of a dividend equivalent to 50% of the annual net income of the fiscal year ended December 31, 2004.  This modification implies a 20% increase in the proportion of earnings distributed, from 30% to 50%.  A dividend in the amount of Ch$ 4.13 per share was paid on April 18, 2005.  The dividend was paid to those who havepurchased Chilean stocks on or prior to April 12, 2005 and to those who have purchased ADR’s on or prior to April 12, 2005.

     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.  Shareholder 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 shareholder 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 suchsubsidiaries.  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 is prohibited under its November 5, 2004 credit agreement from paying dividends if a default or event of default exists or would exist after giving effect to such payment; its subsidiary Pangue may not pay dividends unless it complies with certain financial covenants relating to leverage and debt service coverage ratios; Edegel may not pay dividends in the case of default of certain loans; Costanera is prohibited from (i) paying dividends and inter-company interest, (ii) undertaking capital reductions, and (iii)repaying debt while certain debt is outstanding; and Betania is prohibited from (i) paying dividends in the case of default of certain loans, (ii) repaying inter-company debt unless it raises additional funds from the sale of assets or the capital reduction of its subsidiary Emgesa, and (iii) 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 years indicated, the per share amounts of dividends distributed by the Company and the amount of dividends distributed per 30 Shares (one ADS represents 30 Shares) in U.S. dollars.  See “Item 10.D. Additional Information–Exchange Controls.”

 

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|     |   |   | **Dividends Distributed (1)** |   |
|----------|--------|--------|-------------------------------|--------|
|     |   |   |                               |   |
| **Year** |   |   | **Ch$  per Share (2)**        |   |   | **Ch$  per Share (3)** |   |   | **U.S.$  per 30 Shares (ADS) (4)** |   |
|          |   |   |                               |   |   |  |   |   |  |   |
| 1997     |   |   | 11.74800                      |   |   | 14.60356 |   |   | 0.786 |   |
| 1998     |   |   | 2.06200                       |   |   | 2.41377 |   |   | 0.129 |   |
| 1999     |   |   | —                        |   |   | — |   |   | 0 |   |
| 2000     |   |   | 0.96000                       |   |   | 1.04823 |   |   | 0.056 |   |
| 2001     |   |   | 0.94000                       |   |   | 1.01821 |   |   | 0.055 |   |
| 2002     |   |   | 0                             |   |   | 0 |   |   | 0 |   |
| 2003     |   |   | 2.30000                       |   |   | 2.36000 |   |   | 0.127 |   |
| 2004 (5) |   |   | 4.13000                       |   |   | 4.13000 |   |   | 0.220 |   |

|     |
|-----|
| (1) | This chart details dividends payable in any given year, not necessarily paid that same year, and do not reflect reduction for any applicable Chilean withholding taxes |

| (2) | Amounts shown are in historical Chilean pesos. |
|-----|------------------------------------------------|

| (3) | Amounts shown are expressed in constant Chilean pesos as of December 31, 2004. |
|-----|--------------------------------------------------------------------------------|

| (4) | The U.S. dollar per ADS amount has been calculated by applying the exchange rate of Ch$ 557.4 = U.S.$ 1.00, the Observed Exchange Rate prevailing on December 31, 2004, to the constant Chilean peso amount. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (5) | Paid on April 18, 2005, as approved by stockholders meeting on April 8, 2005. |
|-----|-----------------------------------------------------------------------------------------|

**B.**      **Significant Changes.**

     None.

**Item 9.      The Offer and Listing**

**A.**      **Offer and listing details.**

**Market Price and Volume Information**

     Endesa-Chile has a total of 8,201,754,580 shares that are traded in Chile, the United States and Spain. Transactions in Chile take place on three exchanges: 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 amongEndesa-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.

     During 2004, volume traded on the Santiago stock exchange ascended to 859,476,150 shares, equivalent to Ch$ 245.16 billion .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. As of December 31, 2004, ADRs evidencing 12,986,854 shares were outstanding (equivalent to 389,605,620 shares or 4.75% 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 U.S.$ 18.84 on the last dayof trading in the New York Stock Exchange in 2004.

 

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|                       |   |   | **Santiago Stock Exchange (1)(2)** |   |   | **NYSE (1)**         |   |
|----------------------------|--------|--------|------------------------------------|--------|--------|----------------------|--------|
|                       |   |   |                                    |   |   |                      |   |
|                       |   |   | ***Ch$ per Share***                |   |   | ***U.S.$  per ADS*** |   |
| **Most Recent Six Months** |   |   | **High**                           |   |   | **Low**              |   |   | **High** |   |   | **Low** |   |
|                            |   |   |                                    |   |   |                      |   |   |  |   |   |  |   |
| May 2005                   |   |   | 452.00                             |   |   | 428.00               |   |   | 23.79 |   |   | 22.35 |   |
| April 2005                 |   |   | 480.00                             |   |   | 384.89               |   |   | 25.03 |   |   | 19.50 |   |
| March 2005                 |   |   | 393.00                             |   |   | 352.00               |   |   | 20.29 |   |   | 17.82 |   |
| February 2005              |   |   | 366.00                             |   |   | 331.00               |   |   | 19.27 |   |   | 16.93 |   |
| January 2005               |   |   | 340.01                             |   |   | 313.50               |   |   | 18.23 |   |   | 16.16 |   |
| December 2004              |   |   | 347.50                             |   |   | 325.99               |   |   | 18.66 |   |   | 16.50 |   |
|                       |   |   |                               |   |   |                 |   |   |   |   |   |   |   |
| *2004 Annual*              |   |   | 347.50                             |   |   | 225.00               |   |   | 18.66 |   |   | 11.50 |   |
| 1st Quarter                |   |   | 268.01                             |   |   | 225.00               |   |   | 13.80 |   |   | 11.52 |   |
| 2nd Quarter                |   |   | 279.00                             |   |   | 248.00               |   |   | 13.71 |   |   | 11.50 |   |
| 3rd Quarter                |   |   | 328.00                             |   |   | 259.00               |   |   | 16.33 |   |   | 12.20 |   |
| 4th Quarter                |   |   | 347.50                             |   |   | 311.00               |   |   | 18.66 |   |   | 15.27 |   |
|                       |   |   |                               |   |   |                 |   |   |   |   |   |   |   |
| *2003 Annual*              |   |   | 253.00                             |   |   | 172.00               |   |   | 12.02 |   |   | 7.02 |   |
| 1st Quarter                |   |   | 189.01                             |   |   | 172.00               |   |   | 8.10 |   |   | 7.02 |   |
| 2nd Quarter                |   |   | 224.50                             |   |   | 172.00               |   |   | 9.54 |   |   | 7.10 |   |
| 3rd Quarter                |   |   | 238.00                             |   |   | 208.50               |   |   | 10.80 |   |   | 8.90 |   |
| 4th Quarter                |   |   | 253.00                             |   |   | 222.00               |   |   | 12.02 |   |   | 10.63 |   |
|                       |   |   |                               |   |   |                 |   |   |   |   |   |   |   |
| *2002 Annual*              |   |   | 236.00                             |   |   | 152.50               |   |   | 10.73 |   |   | 6.05 |   |
|                       |   |   |                               |   |   |                 |   |   |   |   |   |   |   |
| *2001 Annual*              |   |   | 254.00                             |   |   | 190.99               |   |   | 12.22 |   |   | 7.96 |   |
|                       |   |   |                               |   |   |                 |   |   |   |   |   |   |   |
| *2000 Annual*              |   |   | 254.70                             |   |   | 180.00               |   |   | 14.37 |   |   | 9.75 |   |

|     |
|-----|
| (1) | Sources:  Santiago Stock Exchange, Official Quotation Bulletin, NYSE. |

| (2) | Chilean pesos per Share reflected nominal price at trade date. |
|-----|----------------------------------------------------------------|

**Item 9.C.      Markets.**

     In Chile, the Company’s stock is traded on three exchanges.  The largest exchange in the country, 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.  For the year ended 2004, the Santiago Stock Exchange accounted for 75% of Endesa-Chile’s total equity traded in Chile.  In addition, approximately 22% of Endesa-Chile’s equity trading was conducted on the Electronic Exchange, an electronic trading market that was created by banks and non-member brokerage houses, and 3% was traded on theValparaíso Exchange.

     Equities, closed-end funds, fixed-income securities, short-term and money market securities, gold and U.S.$  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 systemcalled *Telepregón*, which operates continuously for high volumes from 9:30 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 160 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, 2004, Endesa-Chile was included in the IPSA.

     In Spain, 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 2004 amounted to 1,207,275 units, which in turn was the equivalent of €25.67million.  The stock closed at €13.30 on the last day of trading in Latibex in 2004.

 

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**D.**      **Selling shareholders.**

     Not applicable.

**E.**      **Dilution.**

     Not applicable.

**F.**      **Expense of the issue.**

     Not applicable.

**Item 10.      Additional Information**

**A.**      **Share capital.**

     Included below in Section B of this item.

**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 *Ley de Sociedades Anónimas N° 18.046*or 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 ofthe 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 companieswhile 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 numberof their shareholders.  Endesa-Chile is a publicly held limited liability company.

 

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**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 and the Chilean stock exchanges.  Since the ADSs 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.  The following transactions must be reported:

|  | • | any direct or indirect acquisition or sale of shares made by a holder  that owns directly or indirectly, 10% or more of a publicly held limited liability company’s subscribed  capital; |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  |   |                                                                                                                                                                                                                                                                                     |
|--|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | any direct or indirect acquisition or sale of shares made by a holder that, due to an acquisition of shares of such publicly held company, results in the holder 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 in any amount, made by a director, receiver, principal executive, general manager or manager of a publicly held company. |

     In addition, persons who enter into the above-mentioned transactions must inform to the SVS and the Chilean stock exchanges if such transactions are entered into with the intention of obtaining control of the Company.

     Under Article 54 of the Securities Market Law and *Norma de Carácter General* No. 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  Title 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.

     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.

 

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**Certain Powers of the Board of Directors**

     Our by-laws do not contain provisions relating to:

|  | • | the directors’ 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 thecompany’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 mayexceed 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$ 1,076,448,692 (this sum corresponds to the subscribed and paid capital on December 31, 2004)  through 8,201,754,580 shares.

 

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**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.

     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.  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, 28 bis, 32bis, 34bis, 35bis and 36bis 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 scheduledmeeting.  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 iscalled 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 in kind and assessment of assets that do not consist of 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; |

 

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|  |   |                                                                                                                                                                                                  |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | 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 |

|  |   |                                                             |
|--|--------|------------------------------------------------------------------|
|  | • | 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 a 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 at least 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 establishedfor 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 byshareholders 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 theADRs.  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 and evidenced by such 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 ADRs inaccordance 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  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.

 

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**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.

     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 thefinancial 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 General* No. 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.

 

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     “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, within the 30 days following the shareholders’ meeting..  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 shareholders’ meeting giving rise to the withdrawal right, and (ii) themarket 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 abierta* governed 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 any business plan which contemplates the disposition of assets for an amount greater than such percentage; |

|  |   |                                                                                                                                                                                                  |
|--|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | 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. |

**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.

 

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**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 ofForeign 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 U.S.$  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 ofADRs (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 U.S. dollars (and to remit such dollars outside of Chile), including amounts received as:

|  | • | cash dividends; |
|--|--------|-----------------|

|  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | 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.

 

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     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 U.S.$ , 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 bedeposited 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 oneyear before being repatriated was eliminated.

     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*encaje* deposit requirement was reduced to 0%, and on April 19, 2001, the *encaje* was eliminated.  Despite this elimination, the Central Bank may at any time reinstate the *encaje*.

 

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**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%). |

**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 taxconsequences of the ownership of shares or ADSs.

     The summary that follows is based on Chilean law, 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.

 

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     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, an entity that is not organized under the laws of Chile, unless the shares or ADSs 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, theChilean corporate tax  rate, was 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%.  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                                             |   |   | 100.0 |   |
|--------------------------------------------------------------------|--------|--------|-------|--------|
| Chilean corporate income tax (17% of Ch$ 100)                      |   |   | (17   | )      |
| Net distributable income                                           |   |   | 83    |   |
| Dividend distributed (50% of net distributable income)             |   |   | 41.5  |   |
| 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                     |   |   | 8.5   |   |
| Net withholding tax                                                |   |   | (9    | )      |
| Net dividend received                                              |   |   | 32.5  |   |
| Effective 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) |                                                                   |

     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.

     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.  

 

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|   | *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 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 17% Chilean 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 musthave been acquired on 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.

|   | *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 proposedregulations, 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.

 

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     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; |

|  |   |                                                                                            |
|--|--------|-------------------------------------------------------------------------------------------------|
|  | • | partnerships or other entities classified as partnerships for U.S. federal income tax purposes; |

|  |   |                                                                                                                                          |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|
|  | • | a person who will hold our ADSs or shares as part of a straddle, hedging transaction, conversion transaction or other integrated 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.

     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 described below applicableto 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, each described below could be affected by actions taken by parties to whom ADSs are pre-released.

|   | *Taxation of Distributions* |
|--------|-----------------------------|

     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, other than certain pro rata distributions    of common 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. Subject to applicable limitations and the discussion    above regarding concerns expressed by the U.S. Treasury, dividends paid to    non-corporate U.S. Holders in taxable years beginning before January 1, 2009,    will be taxable at a maximum rate of 15%. U.S. Holders should consult their    own tax advisors regarding the implications of this new legislation in their    particular circumstances. The amount of any distribution of property other    than cash will be the fair market value of the property on the date of distribution.

 

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     Dividends paid in Chilean pesos in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date you (or in the case of ADSs, the depositary) actually or constructively received such dividends, regardless of whether the pesos are in fact converted into U.S. dollars at that time.  If you hold shares, dividends 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. dollars 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 maybe) 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, that may vary depending upon your circumstances and subject to the discussion above regarding concerns expressed by the U.S. Treasury, 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.  The limitation on foreign taxes eligible for credit is calculated separately for specific classes of income.  The rules governing foreign tax credits are complex and, therefore, you are urged to consult your tax advisor to determine the extent to which you are entitled to foreign tax credits with respect to dividendspaid on our ADSs or shares.

|   | *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 generallyapplicable 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.

 

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     If we were treated as a PFIC for any taxable year during your holding period, certain adverse consequences could apply to you, including the imposition of higher amounts of tax than would otherwise apply and additional tax form filing requirements.  You are urged to consult your tax advisors regarding the consequences to you if we were considered to be a PFIC, as well as the availability and advisability of making an election to avoid the adverse United States federal income tax consequences of PFIC status should we be classified as a PFIC for any taxable year.

|   | *Backup withholding and other reporting requirements* |
|--------|-------------------------------------------------------|

     Payment of dividends and sales proceeds that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information reporting and to backup withholding unless (i) you are a corporation or other exempt recipient or (ii) in the case of backup withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.  Backup withholding is not an additional tax.  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 RevenueService.

**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 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 beinspected 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.

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**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, 2004 and 2003 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, 2004 and 2003 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, 2004 and 2003 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, 2004 and 2003 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 pricingmodels 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.

|                                 | **As of December 31, 2004** |   |
|--------------------------------------|-----------------------------|--------|
|                                 |                             |   |
|                                 | **2005**                    |   |   | **2006** |   |   | **2007** |   |   | **2008** |   |   | **2009** |   |   | **Thereafter** |   |   | **Total** |   |   | **Fair value** |   |
|                                 |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                 | **in MMU.S.$**              |   |
| **Chile Endesa-Chile**:              |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase of electricity in GWh       | 720                         |   |   | 720 |   |   | 720 |   |   |   |   |   | — |   |   | — |   |   | 2,160 |   |   | (14.28 | ) |
| Weighted average price in U.S.$ /MWh | 25.2                        |   |   | 25.2 |   |   | 34.1 |   |   |   |   |   | — |   |   | — |   |   | — |   |   | — |   |
|                                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Colombia Emgesa and Betania**:     |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale of electricity in GWh           | 232                         |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 232 |   |   | 0.96 |   |
| Weighted average price in U.S.$ /MWh | 32.4                        |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Purchase of electricity in GWh       | —                      |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Weighted average price in U.S.$ /MWh | —                      |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
|                                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Brazil CIEN**:                     |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale of electricity in GWh           | 7,469                       |   |   | 8,943 |   |   | 9,256 |   |   | 10,620 |   |   | 10,591 |   |   | 87,003 |   |   | 133,882 |   |   | 291.16 |   |
| Weighted average price in U.S.$ /MWh | 30.1                        |   |   | 26.7 |   |   | 26.5 |   |   | 25.3 |   |   | 25.4 |   |   | 25.8 |   |   | — |   |   | — |   |
| Purchase of electricity in GWh       | 2,505                       |   |   | 5,004 |   |   | 5,535 |   |   | 7,819 |   |   | 7,798 |   |   | 62,693 |   |   | 91,354 |   |   | (301.40 | ) |
| Weighted average price in U.S.$      | 16.2                        |   |   | 17.3 |   |   | 17.3 |   |   | 17.4 |   |   | 17.5 |   |   | 17.8 |   |   | — |   |   | — |   |
|                                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Argentina CEMSA**:                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale of electricity in GWh           | 1,767                       |   |   | 3,529 |   |   | 3,903 |   |   | 5,514 |   |   | 5,499 |   |   | 42,151 |   |   | 62,361 |   |   | 318.02 |   |
| Weighted average price in U.S.$ /MWh | 16.5                        |   |   | 18.0 |   |   | 18.1 |   |   | 18.2 |   |   | 18.3 |   |   | 19.0 |   |   | — |   |   | — |   |
| Purchase of electricity in GWh       | 2,003                       |   |   | 4,001 |   |   | 4,425 |   |   | 6,252 |   |   | 6,235 |   |   | 47,920 |   |   | 70,836 |   |   | (220.73 | ) |
| Weighted average price in U.S.$      | 15.3                        |   |   | 17.7 |   |   | 17.9 |   |   | 18.2 |   |   | 18.3 |   |   | 19.1 |   |   | — |   |   | — |   |
|                                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Argentina COSTANERA – CBA**   |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale of electricity in GWh           | 1,421                       |   |   | 2,839 |   |   | 3,140 |   |   | 4,436 |   |   | 4,424 |   |   | 39,274 |   |   | 55,534 |   |   | 14.61 |   |
| Weighted average price in U.S.$ /MWh | 15.4                        |   |   | 16.2 |   |   | 16.2 |   |   | 16.3 |   |   | 16.3 |   |   | 16.7 |   |   | — |   |   | — |   |

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|                                    | **As of December 31, 2003** |   |
|-----------------------------------------|-----------------------------|--------|
|                                    |                             |   |
|                                    | **2004**                    |   |   | **2005** |   |   | **2006** |   |   | **2007** |   |   | **2008** |   |   | **Thereafter** |   |   | **Total** |   |   | **Fair value** |   |
|                                    |                             |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                    | **in MMU.S.$**              |   |
| **Chile Endesa-Chile**:                 |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Purchase of electricity in GWh          | 720                         |   |   | 720 |   |   | 720 |   |   | 720 |   |   | — |   |   | — |   |   | 2,880 |   |   | (10.03 | ) |
| Weighted average price in U.S.$ /MWh    | 24                          |   |   | 23.2 |   |   | 23.3 |   |   | 23.6 |   |   | — |   |   | — |   |   | — |   |   | — |   |
|                                    |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Colombia Emgesa and Betania**:        |                        |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Sale of electricity in GWh              | 4,850                       |   |   | 232 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 5,082 |   |   | 12.65 |   |
| Weighted average price in U.S.$ /MWh    | 27.8                        |   |   | 24.9 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Purchase of electricity in GWh          | 102                         |   |   | — |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 102 |   |   | 0.08 |   |
| Weighted average price in U.S.$ /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 |   |   | 440.22 |   |
| Weighted average price in U.S.$ /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 U.S.$         | 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 |   |   | 298.51 |   |
| Weighted average price in U.S.$ /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 U.S.$         | 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 U.S.$ /MWh    | 15.0                        |   |   | 15.0 |   |   | 15.1 |   |   | 15.3 |   |   | 15.4 |   |   | 15.5 |   |   | — |   |   | — |   |

|     |
|-----|
| (1) | During 2003 some of the Company’s long-term contracts relatedto the electricity interconnection business between Argentina and Brazil were amended.Such amendments were primarily made to reduce the quantity of electricity that was soldin the Brazilian market and purchased on Argentine market. |

**Interest Rate Risk**

     At December 31, 2003 and 2004, 22.6% and 10.0%, 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.

 

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     As of December 31, 2004 the recorded values for financial accounting purposes and the corresponding fair values of the significant financial instruments (include hedging instruments) which expose the Company to interest rate risk are as follows:

|                               | **As of December 31, 2004**        |   |
|------------------------------------|------------------------------------|--------|
|                               |                                    |   |
|                               | **2005**                           |   |   | **2006** |   |   | **2007** |   |   | **2008** |   |   | **2009** |   |   | **Thereafter** |   |   | **Total** |   |   | **Fair value** |   |
|                               |                                    |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                               | **(in millions of constant Ch$ )** |   |
| **Debt:**                          |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fixed rate:**                    |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ch$ – and UF-denominated      | 4,312                              |   |   | 144,445 |   |   | 3,677 |   |   | 3,602 |   |   | 3,811 |   |   | 166,989 |   |   | 326,836 |   |   | 342,450 |   |
| Weighted average interest rate     | 7.76                               | %      |   | 8.04 | % |   | 8.02 | % |   | 8.01 | % |   | 8.00 | % |   | — |   |   | 7.95 | % |   |   |   |
| U.S.$  denominated                 | 80,825                             |   |   | 136,999 |   |   | 80,834 |   |   | 246,889 |   |   | 365,740 |   |   | 660,563 |   |   | 1,571,850 |   |   | 1,714,607 |   |
| Weighted average interest rate     | 7.28                               | %      |   | 7.27 | % |   | 7.23 | % |   | 7.12 | % |   | 6.45 | % |   | — |   |   | 7.14 | % |   |   |   |
| Other currencies                   | 18,752                             |   |   | 58,724 |   |   | 1,768 |   |   | 10,258 |   |   | 7,346 |   |   | 72,626 |   |   | 169,474 |   |   | 174,288 |   |
| Weighted average interest rate     | 10.50                              | %      |   | 11.17 | % |   | 11.35 | % |   | 12.03 | % |   | 11.80 | % |   | — |   |   | 11.25 | % |   |   |   |
|                               |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Variable rate**                  |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ch$ – and UF-denominated      |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average interest rate     |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated (1)             | 61,405                             |   |   | -17,932 |   |   | 809 |   |   | 809 |   |   | 6,383 |   |   | 5,310 |   |   | 56,785 |   |   | 56,913 |   |
| Weighted average interest rate (1) | -0.43                              | %      |   | 4.74 | % |   | 5.01 | % |   | 5.61 | % |   | 5.10 | % |   | — |   |   | 3.34 | % |   |   |   |
| Other currencies                   | 65,235                             |   |   | 23,607 |   |   | 16,171 |   |   | 1,025 |   |   | 67,601 |   |   |   |   |   | 173,639 |   |   | 175,892 |   |
| Weighted average interest rate     | 13.44                              | %      |   | 13.45 | % |   | 13.06 | % |   | 13.00 | % |   | — |   |   | — |   |   | 13.19 | % |   |   |   |
| **Total**                          | 230,530                            |   |   | 345,844 |   |   | 103,259 |   |   | 262,583 |   |   | 450,880 |   |   | 905,488 |   |   | 2,298,584 |   |   | 2,464,149 |   |

|     |
|-----|
| (1) | During 2005 the negative average interest rate is due to the lower interest rate of the assets portion of the swap. The negative maturity of  2006 is explain by the same assets portion of the swap. |

     By comparison, 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 were as follows: 

|                           | **As of December 31, 2003**        |   |
|--------------------------------|------------------------------------|--------|
|                           |                                    |   |
|                           | **2004**                           |   |   | **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 |   |   | 245,656 |   |
| Weighted average interest rate | 5.5                                | %      |   | 5.4 | % |   | 5.7 | % |   | 5.7 | % |   | 5.7 | % |   | — |   |   | 5.6 | % |   |   |   |
| U.S.$  denominated             | 89,464                             |   |   | 78,838 |   |   | 141,759 |   |   | 84,102 |   |   | 261,070 |   |   | 910,231 |   |   | 1,565,464 |   |   | 1,676,327 |   |
| Weighted average interest rate | 7.9                                | %      |   | 7.9 | % |   | 8.0 | % |   | 8.0 | % |   | 8.2 | % |   | — |   |   | 8.0 | % |   |   |   |
| Other currencies               | 9,289                              |   |   | 18,941 |   |   | 56,358 |   |   | 1,798 |   |   | 1,798 |   |   | 9,316 |   |   | 97,500 |   |   | 100,971 |   |
| Weighted average interest rate | 8.7                                | %      |   | 9.6 | % |   | 8.3 | % |   | 9.4 | % |   | 10.9 | % |   | — |   |   | 9.3 | % |   |   |   |
|                           |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Variable rate**              |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ch$ – and UF-denominated  |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Weighted average interest rate |                               |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated             | 97,437                             |   |   | 20,926 |   |   | 35,273 |   |   | 103,987 |   |   | 82,385 |   |   | 9,854 |   |   | 349,862 |   |   | 351,495 |   |
| Weighted average interest rate | 4.5                                | %      |   | 6.0 | % |   | 7.2 | % |   | 7.7 | % |   | 6.8 | % |   | — |   |   | 6.2 | % |   |   |   |
| Other currencies               | 95,201                             |   |   | 15,618 |   |   | 21,827 |   |   | 15,074 |   |   | 1,157 |   |   | 61,946 |   |   | 210,823 |   |   | 211,474 |   |
| Weighted average interest rate | 13.2                               | %      |   | 13.4 | % |   | 13.4 | % |   | 13.1 | % |   | 13.0 | % |   | — |   |   | 13.3 | % |   |   |   |
| **Total**                      | 301,484                            |   |   | 138,536 |   |   | 329,965 |   |   | 208,554 |   |   | 349,929 |   |   | 1,158,231 |   |   | 2,486,699 |   |   | 2,585,923 |   |

**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 by the fact that a substantial portion of the Company’s revenues is linked to the U.S. dollar either directly or indirectly.  As of December 31, 2004, Endesa-Chile had total consolidated financial indebtedness of U.S.$ 4.124 billion, of which U.S.$ 2.844 billion (net of currency hedging instruments), or 69.0%, was denominated in U.S. dollars. For the twelve-month period ended December 31, 2004, our revenues amounted to U.S.$ 1.853 billion, of which U.S.$ 400 million, or 21.6%, were denominated in U.S. dollars, and U.S.$ 772 million, or 42%, were linked in some way to the U.S. dollar.In the aggregate, 63% 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 U.S.$ 78 million were revenues in Chilean pesos, which represents 4.2% of our 2004 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. dollar and the Chilean peso due to the application of Technical Bulletin No. 64.  Under Chilean accounting standards, the effect of re-measuring 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.

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     Foreign currency gains and losses are included in the results of operations for the period together with price-level restatement.

     As of December 31, 2004 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, 2004**           |   |
|-----------------------------------------------|---------------------------------------|--------|
|                                          |                                       |   |
|                                          | **2005**                              |   |   | **2006** |   |   | **2007** |   |   | **2008** |   |   | **2009** |   |   | **Thereafter** |   |   | **Total** |   |   | **Fair value(3)** |   |
|                                          |                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                          | **(in millions of constant Ch$ )(1)** |   |
| **Debt**:                                     |                                  |   |   |   |   |
| **Fixed rate:**                               |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated                            | 80,825                                |   |   | 136,999 |   |   | 80,834 |   |   | 246,889 |   |   | 365,740 |   |   | 660,563 |   |   | 1,571,850 |   |   | 1,714,607 |   |
| Other currencies                              | 23,064                                |   |   | 203,169 |   |   | 5,445 |   |   | 13,859 |   |   | 11,157 |   |   | 239,615 |   |   | 496,310 |   |   | 516,738 |   |
| **Variable rate**                             |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated                            | 61,405                                |   |   | -17,932 |   |   | 809 |   |   | 809 |   |   | 6,383 |   |   | 5,310 |   |   | 56,785 |   |   | 56,913 |   |
| Other currencies                              | 65,235                                |   |   | 23,607 |   |   | 16,171 |   |   | 1,025 |   |   | 67,601 |   |   | 0 |   |   | 173,639 |   |   | 175,892 |   |
| **–Other Instruments(2)**                |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated                            | 220,294                               |   |   | 3,510 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 223,804 |   |   | 223,804 |   |
| Other currencies                              | 212,097                               |   |   | 26,782 |   |   | 1,418 |   |   | 793 |   |   | 432 |   |   | 308 |   |   | 241,830 |   |   | 241,830 |   |
|                                          |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Forward contracts(receive U.S.$ /pay Ch$ -UF) | 43,477                                |   |   | 180,040 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 223,517 |   |   | 223,517 |   |
| Other foreign currency derivatives            | (70                                   | )      |   | (10,831 | ) |   | — |   |   | — |   |   | — |   |   | — |   |   | (10,901 | ) |   | (10,901 | ) |

|     |
|-----|
| (1) | Calculated based on the Observed Exchange Rate as of December31, 2004, which was Ch$ 557.40 = U.S.$ 1.00. |

| (2) | “Other instruments” include cash, time deposits andshort-term accounts receivables |
|-----|------------------------------------------------------------------------------------------------|

| (3) | Fair values were calculated based on the discounted value of future cash flows expected to paid (or received), considering current discount rates that reflect the different risks involved. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

     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, 2003**           |   |
|-------------------------------------------------|---------------------------------------|--------|
|                                            |                                       |   |
|                                            | **2004**                              |   |   | **2005** |   |   | **2006** |   |   | **2007** |   |   | **2008** |   |   | **Thereafter** |   |   | **Total** |   |   | **Fair value(3)** |   |
|                                            |                                       |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |   |  |   |
|                                            | **(in millions of constant Ch$ )(1)** |   |
| **Debt**:                                       |                                  |   |   |   |   |
| **Fixed rate:**                                 |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated                              | 91,701                                |   |   | 80,809 |   |   | 145,303 |   |   | 86,205 |   |   | 267,597 |   |   | 932,987 |   |   | 1,604,602 |   |   | 1,718,235 |   |
| Other currencies                                | 9,521                                 |   |   | 19,415 |   |   | 57,767 |   |   | 1,843 |   |   | 1,843 |   |   | 9,549 |   |   | 99,938 |   |   | 103,495 |   |
|                                            |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Variable rate**                               |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated                              | 99,873                                |   |   | 21,449 |   |   | 36,155 |   |   | 106,587 |   |   | 84,445 |   |   | 10,100 |   |   | 358,609 |   |   | 360,282 |   |
| Other currencies                                | 97,581                                |   |   | 16,008 |   |   | 22,373 |   |   | 15,451 |   |   | 1,186 |   |   | 63,495 |   |   | 216,094 |   |   | 216,761 |   |
|                                            |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Other instruments (2)**                       |                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| U.S.$  denominated                              | 144,770                               |   |   | 135,937 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 280,707 |   |   | 280,707 |   |
| Other currencies                                | 133,437                               |   |   | 8,564 |   |   | — |   |   | — |   |   | — |   |   | — |   |   | 142,001 |   |   | 142,001 |   |
| Forward contracts  (receive U.S.$ /pay Ch$ -UF) | 49,300                                |   |   | —— |   |   | —— |   |   | —— |   |   | —— |   |   | —— |   |   | 49,300 |   |   | (1,640 | ) |
| Other foreign currency derivatives              | ——                          |   |   | —— |   |   | 87,949 |   |   | —— |   |   | —— |   |   | —— |   |   | 87,949 |   |   | 9,379 |   |

|     |
|-----|
| (1) | Calculated based on the Observed Exchange Rate as of December 31, 2004, which was Ch$ 557.4 = U.S.$ 1.00. |
| (2) | “Other instruments” include cash, time deposits and short-term accounts receivables |
| (3) | Fair values were calculated based on the discounted value of future cash flows expected to paid (or received), considering current discount rates that reflect the different risks involved. |

 

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**D.**      **Safe Harbor**

     The information in this Item 11. Quantitative and Qualitative Disclosures About Market Risk, contains statements that  may constitute forward looking statements.  See Forward Looking Statements on page 2 of this report for safe harbor provisions.

**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.

**E.**      **Use of proceeds.**

     Not applicable.

**Item 15.      Controls and Procedures**

     In order to meet the requirements of the Sarbanes Oxley Act, in 2003 Endesa-Chile began to implement a system of controls within the parameters of Sections 404 and 302.  The critical areas in which the standards of control required improvement were detected in the first stage of this project, which was completed in 2003.  In the second stage, which the Company started in 2004 and will complete in 2005, the Company will implement the recommendations made in the first stage.

     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, 2004.

     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.

 

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     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.

**Item 16.**

**Item 16A.      Audit Committee Financial Expert**

     Our Board of Directors has determined that Antonio Pareja Molina is an audit committee financial expert as defined under Item 16A of Form 20-F.

**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 Markets and the Charter Governing Executives are accessible via Endesa-Chile’s corporate website at www.endesa.cl (the information found at this website is not incorporated by reference into this report.)  A copy of these documents is also available upon request, free of charge, by writing or telephoning us at:

Empresa Nacional de Electricidad S.A.Attention: Investor Relations DepartmentSanta Rosa 76Santiago, ChileRepublic of Chile(562) 630 9000

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**Item 16C.     Principal Accountant Fees and Services**

     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 theproposal 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.

     The following table provides information on the aggregate fees billed by the principal accountant of Endesa-Chile, Ernst & Young, by type of service rendered for the periods indicated:

| **Services Rendered**  |   | **2003**                 |   | **2004** |   |
|------------------------|--------|--------------------------|--------|----------|--------|
|                        |   |                          |   |          |   |
|                   |   | **(millions of U.S.$ )** |   |
| Audit Fees (1)         |   | 0.0                      |   | 0.59     |   |
| Audit-Related Fees (2) |   | 0.0                      |   | 0.08     |   |
| Tax Fees (3)           |   | —                   |   | 0.03     |   |
| All Other Fees         |   | —                   |   | —   |   |
|                   |   |                          |   |          |   |
| Total                  |   | 0.5                      |   | 0.70     |   |
|                   |   |                          |   |          |   |

|     |
|-----|
| (1) | Provides aggregate fees billed for each of the last two fiscal years for professional services rendered by Ernst & Young for the audit of Endesa-Chile |

| (2) | These fees mainly reflect the implementation of an internal control project, originated by the Sarbanes-Oxley Act. |
|-----|--------------------------------------------------------------------------------------------------------------------|

| (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. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

     Our Board of Directors approves all audit, audit-related, tax and other services provided by our independent auditors Ernst & Young Limitada.  Any services provided by Ernst & Young Limitada that are not specifically included within the scope of the audit must be pre-approved by the Board of Directors prior to any engagement.

**Item 16D.     Exemptions from Listing Requirements for Audit Committees**

Not Required.

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

**ISSUER PURCHASES OF EQUITY SECURITIES**

| **Period**                                               | **(a) Total Numberof Shares(or Units)Purchased** | **(b) Average PricePaid per Share(or Units)** | **(c) Total Numberof Shares (or Units)Purchased as Part ofPublicly AnnouncedPlans or Programs** | **() Maximum Number(or ApproximateDollar Value) of Shares(or Units) that May Yet BePurchased Underthe Plans or Programs** |
|----------------------------------------------------------|--------------------------------------------------|-----------------------------------------------|-------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------|
| April 2005    April 7, 2005          | 13,250,000 Ordinary Shares                       | U.S.$ 1.21                                    | Not applicable                                                                                  | Not applicable                                                                                                            |
| March 2005    March 4th, 2005        | 66,645,000 Ordinary Shares                       | U.S.$ 1.24                                    | Not applicable                                                                                  | Not applicable                                                                                                            |
| February 2005                                            | Not applicable                                   | Not applicable                                | Not applicable                                                                                  | Not applicable                                                                                                            |
| January 2005    January 5th, 2005    | 24,379,296 Ordinary Shares                       | U.S.$ 1.20409546                              | Not applicable                                                                                  | Not applicable                                                                                                            |
| December 2004    December 30th, 2004 | 67,054,484 Ordinary Shares                       | U.S.$ 1.20409546                              | Not applicable                                                                                  | Not applicable                                                                                                            |
| November 2004                                            | Not applicable                                   | Not applicable                                | Not applicable                                                                                  | Not applicable                                                                                                            |

 

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**Part III**

**Item 17.     Financial Statements.**

     None.

**Item 18.     Financial Statements.**

|                                                                                                                                                                                         |   |   | **Page** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|----------|--------|
|                                                                                                                                                                                              |        |        |          |        |
| **Report of Independent Auditors:**                                                                                                                                                          |   |   |     |   |
| Report of Independent Registered Accounting Firm – Empresa Nacional de Electricidad S.A. (Endesa-Chile) 2003 and 2004                                                                   |   |   | F-1      |   |
| Report of Independent Registered Accounting Firm – Endesa Argentina S.A. 2003 and 2004                                                                                                  |   |   | F-2      |   |
| Report of Independent Registered Accounting Firm – Central Hidroeléctrica de Betania S.A. 2003 and 2004                                                                          |   |   | F-3      |   |
| Report of Independent Registered Accounting Firm – Endesa Colombia S.A. 2002 and 2003                                                                                                   |   |   | F-4      |   |
| Report of Independent Registered Accounting Firm – Centrais Elétricas Cachoeira Dourada S.A. 2003                                                                                |   |   | F-5      |   |
| Report of Independent Registered Accounting Firm –Compañía de InterconexaoEnergética S.A. – CIEN 2003                                                         |   |   | F-6      |   |
|                                                                                                                                                                                         |   |   |     |   |
| **Audited Consolidated Financial Statements of Endesa-Chile:**                                                                                                                               |   |   |     |   |
| Consolidated Balance Sheets as of December 31, 2003 and 2004                                                                                                                                 |   |   | F-7      |   |
| Consolidated Statements of Income for the years endedDecember 31, 2002, 2003 and 2004                                                                                                        |   |   | F-9      |   |
| Consolidated Statements of Shareholders’ Equity for the years ended December 31, 2002, 2003 and 2004                                                                                   |   |   | F-10     |   |
| Consolidated Statements of Cash Flows for the years endedDecember 31, 2002, 2003 and 2004                                                                                                    |   |   | F-11     |   |
| Notes to the Consolidated Financial Statements                                                                                                                                               |   |   | F-13     |   |
| Schedule I – Condensed financial information of Empresa Nacional de Electricidad S.A. (Endesa-Chile)                                                                                    |   |   | G-1      |   |
| **Consolidated Financial Statements ofCompañía de Interconexao Energética S.A. (CIEN) and Comercializadora de Energía del Mercosur S.A.(CEMSA) (See note 33 p)** |   |   | H-1      |   |

**Item 19.     Exhibits.**

| **Exhibit** |   |   | **Description**                                                                                                         |   |
|-------------|--------|--------|-------------------------------------------------------------------------------------------------------------------------|--------|
| 1.1         |   |   | 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 Subsidiaries.                                                                                                   |   |
| 12.1        |   |   | 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 Nacional 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.

 

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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 amendment to the annual report on its behalf.

|   | **EMPRESA NACIONAL DE ELECTRICIDAD S.A.** |
|--------|-------------------------------------------|
|   |                                      |   |
|   |                                      |   |
|   | By:                                       | /s/ Alejandro González Dale |
|   |                                      |  |
|   |                                      | Name: | Alejandro González Dale |
|   |                                      | Title: | Chief Financial Officer |

Date:  June 10, 2005

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**Endesa-Chile and Subsidiaries**

**Audited Consolidated Financial Statements as of December 31, 2002, 2003 and 2004 and for each of the three years in the period ended December 31, 2004 together with Report of Independent Registered Public Accounting Firm**

 

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**Endesa-Chile and Subsidiaries**

**Index to the Audited Consolidated Financial Statements**

| **Reports of Independent Auditors:**                                                                                                                                          |   |        |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|
| Report      of Independent Registered Public Accounting Firm – Empresa Nacional    de Electricidad S.A. (Endesa-Chile) 2002, 2003 and 2004                               |   | F – 1  |
| Report      of Independent Registered Public Accounting Firm – Endesa Argentina    S.A. 2002, 2003 and 2004                                                              |   | F – 2  |
| Report      of Independent Registered Public Accounting Firm – Central Hidroeléctrica    de Betania S.A. E.S.P. 2003 and 2004                                     |   | F – 3  |
| Report      of Independent Registered Public Accounting Firm – Endesa Colombia    S.A. 2002 and 2003                                                                     |   | F – 4  |
| Report      of Independent Registered Public Accounting Firm – Centrais Elétricas    Cachoeira Dourada S.A. 2002 and 2003                                         |   | F – 5  |
| Report      of Independent Registered Public Accounting Firm – CIEN – Companhia    de Interconexao Energética 2002 and 2003                                  |   | F – 6  |
|                                                                                                                                                                          |   |        |
| **Consolidated Financial Statements:**                                                                                                                                        |   |        |
| Consolidated    Balance Sheets as of December 31, 2003 and 2004                                                                                                               |   | F – 7  |
| Consolidated    Statements of Income for the years ended December 31, 2002, 2003 and 2004                                                                                     |   | F – 9  |
| Consolidated      Statements of Shareholders’ Equity for the years ended December 31,    2002, 2003 and 2004                                                            |   | F – 10 |
| Consolidated      Statements of Cash Flows for the years ended December 31, 2002, 2003 and    2004                                                                            |   | F – 11 |
| Notes    to the Consolidated Financial Statements                                                                                                                             |   | F – 13 |
| Schedule      I – Condensed financial information of Empresa Nacional de Electricidad    S.A. (Endesa-Chile)                                                             |   | G – 1  |
| Consolidated      Financial Statements of CIEN – Companhia de Interconexao Energética    and Comercializadora de Energía del Mercosur S.A. (See Note 33 p) |   | H – 1  |

| Ch$  -   |   | Chilean pesos                                                                                                                                                           |
|---------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| US$  -   |   | United States dollars                                                                                                                                                   |
| UF  -    |   | The UF is a Chilean inflation-indexed, peso-denominated monetary unit that is set daily in advance based on the previous month’s inflation rate (see Note 2 (b)). |
| ThCh$  - |   | Thousands of Chilean pesos                                                                                                                                              |
| ThUS$  - |   | 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, 2004 purchasing power.

 

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|        |        | Huérfanos        770, 5° Piso    Santiago, Chile |        | Teléfono      :        (56-2) 676 1000    Fax              : (56-2) 676 1010     Casilla     : 2823 |
|--------|--------|--------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                         |   |                                                                                                                                                         |

To the Board of Directors    and Shareholders ofEmpresa 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, 2003 and 2004,      and the related consolidated statements of income, changes in shareholders’  equity and cash flows for each of the three years in the period ended December      31, 2004. 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 did not audit the consolidated financial      statements of certain subsidiaries, which statements reflect total assets      representing 49.61 percent and 38.87 percent as of December 31, 2003 and      2004, respectively,      and total revenues representing of 31.93 percent, 39.38 percent and 38.78      percent for each of the three years in the period ended December 31, 2002,      2003 and      2004, respectively. We also did not audit the financial statements of certain      investments accounted for under the equity method, which value represented      1.07 percent and 0.18 percent of total consolidated assets as of December      31, 2003 and 2004, respectively, and equity in their net results represented      (61.49)      percent, 14.87 percent and 0.74 percent of the consolidated net income      for each of the years in the period ended December 31, 2002, 2003 and 2004,      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 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. We were not engaged      to perform an audit of the Company’s internal control over financial reporting.      Our audit included consideration of internal control over financial reporting      as a basis for designing audit procedures that are appropriate in the circumstances,      but not for the purpose of expressing an opinion on the effectiveness of      the Company’s internal control over financial reporting. Accordingly, we      express      no such opinion. An audit also includes examining, on a test basis, evidence      supporting the amounts and disclosures in the financial statements, assessing      the accounting principles used and significant estimates made by management,      and evaluating the overall financial statement presentation. We believe          that our audits and the reports of other auditors provide a reasonable          basis forour 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, 2003 and 2004, and the results of their operations and their        cash flows        for each of the three years in the period ended December 31, 2004 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 33 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 LIMITADA |  |
|----------------------------|--|

 Santiago,      Chile  January 21, 2005  (except for Notes 31 and 33 for which the date is May 31, 2005)

Firma miembro de Ernst & Young Global

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|   | Deloitte & Co.            S.R.L.           Florida 234 5°           Capital Federal           C1005AAF                      Argentina

Tel: 54 (11) 4320-2700 /         4326-4046          Fax: 54 (11) 4325-8081 www.deloitte.com.ar |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  (English translationof the report originally issued in Spanish)**

To the President and Board of Directors of**Endesa  Argentina S.A.**

We have audited the consolidated balance sheets    of Endesa Argentina S.A. and Subsidiaries (the “Company”) as of    December 31, 2003 and 2004 and the consolidated statements of operations    and cash flows for each of the three      years in the period ended December 31, 2004 (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 statementsbased 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. The        Company is        not required to have, nor were we engaged to perform, an audit of its    internal control over financial reporting. Our audits included consideration    of        internal control over financial reporting as a basis for designing audit        procedures        that are appropriate in the circumstances, but not for the purpose of    expressing an opinion on the effectiveness of the Company’s internal control    over        financial reporting. Accordingly, we express no such opinion. An audit        also includes        examining, on a test basis, evidence supporting the amounts and disclosures        in the financial statements, assessing the accounting principles used    and significant estimates made by management, as well as evaluating the overall        financial statement        presentation. We believe that our audits provide a reasonable basis for        our opinion.

In our opinion, such financial statements present fairly, in all material        respects, the consolidated financial position of Endesa Argentina S.A.        and subsidiaries        as of December 31, 2003 and 2004, and the results of their operations and        their cash flows for each of the three years in the period ended December        31, 2004      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. The application of the latter would have affected          the determination          of net income for each of the three years in the period ended December          31, 2004 and the determination of stockholders’ equity at December          31, 2003 and        2004, to the extent summarized in Note 39.

Buenos Aires, January 20, 2005, except for Note    39 for which the date is May 2, 2005.

| **DELOITTE & Co.            S.R.L.****Carlos A. Lloveras**  (Partner) |  

  |
|---------------------------------------------------------------------------|----------------|

*Deloitte refers to      one or more of Deloitte Touche Tohmatsu, a Swiss Verein, its member firms,      and their respective subsidiaries and        affiliates. As                a Swiss Verein (association), neither Deloitte Touche Tohmatsu        nor any of its                member                firms has any liability for each other’s acts or omissions.                Each of the member firms is a separate and independent legal                entity        operating under                the names “Deloitte,” “Deloitte & Touche,” “Deloitte                Touche Tohmatsu,” or other related names. Services are provided                by the member firms or their subsidiaries or affiliates and not                by the Deloitte                ToucheTohmatsu Verein.*

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|   | Deloitte & Touche            Ltda.           Cra. 7 N° 74 - 09A.A. 075874Nit. 860.005.813-4 Bogotá D.C.Colombia

Tel. +57(1) 5461810            - 5461815          Fax: +57(1) 2178088 www.deloitte.com.co |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Report of Independent Registered Public Accounting Firm  (Translation of a reportoriginally issued in Spanish)**

To the Boardof Directors and Shareholders of

Central Hidroeléctrica    de Betania S.A. E.S.P. and Subsidiaries:

We have audited    the consolidated balance sheets of Central Hidroeléctrica de Betania    S.A. E.S.P. and Subsidiaries (the “Company”) as of December        31, 2004 and 2003 and the related consolidated statements of income and    cash flows for the years 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    expressan opinion on these financial statements based on our audit.

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.          The Company is          not required to have, nor were we engaged to perform, an audit of its          internal control over financial reporting. Our audits included consideration          of          internal control over financial reporting as a basis for designing          audit procedures          that are appropriate in the circumstances, but not for the purpose          of expressing an opinion on the effectiveness of the Company’s internal          control over          financial reporting. Accordingly, we express no such opinion. An audit          also includes          examining, on a test basis, evidence supporting the amounts and disclosures          in the financial statements, 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 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, 2004 and 2003, and the results of their operations          and their cash          flows for the years then ended in conformity with accounting principlesgenerally 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. The application of the latter would have affected            the determination            of net income for each of the two years in the period ended December            31, 2004 and the determination of stockholders’ equity and financial            position            at December  31, 2004 and 2003, to the extent summarized in Note 27.

|                                                                                                                                  |                                    |
|----------------------------------------------------------------------------------------------------------------------------------|------------------------------------|
| Carlos        Eduardo Tovar        Bogotá,Colombia, January 14, 2005,except for Note 27 for which the date is May 2, 2005 | DELOITTE & TOUCHE        LTDA. |

|                                         |                                             |
|----------------------------------------------|--------------------------------------------------|
|                                         |                                             |
| **Audit.Tax.Consulting.Financial Advisory.** | Una firma miembro de**Deloitte Touche Tohmatsu** |

 

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|   | Deloitte & Touche            Ltda.           Cra. 7 N° 74 - 09          A.A. 075874          Nit. 860.005.813-4           Bogotá D.C.          Colombia

Tel. +57(1) 5461810            - 5461815           Fax: +57(1) 2178088 www.deloitte.com.co |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

**Reportof Independent Registered Public Accounting Firm****(Translationof a report originally issued in Spanish)**

To the Board    of Directors and Shareholders of 

Endesa de Colombia      S.A.

We have audited    the consolidated balance sheet of Endesa de Colombia S.A. and subsidiaries (the “Company”)    as of December 31, 2003, and the related statements of income and    cash flows for the years ended December 31, 2003 and 2002, 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 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,    such financial statements present fairly,    in all material respects, the consolidated financial position of Endesa de    Colombia S.A. and subsidiaries as of December 31, 2003 and the results of their operations    and their cash flows for the years ended December 31, 2003 and 2002 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. The application  of the latter would have affected the determination of net income for the years  ended December 31, 2003 and 2002 and the determination of  stockholders' equity at December 31, 2003, to  the extent summarized in Note 18. 

|                                                                                                                                          |                                        |
|------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------|
| Carlos        Eduardo Tovar      Bogotá, Colombia, January 15, 2004,      except for Note 18 for which the date is April 30, 2004 | DELOITTE & TOUCHE            LTDA. |

|                                         |                                                        |
|----------------------------------------------|-------------------------------------------------------------|
|                                         |                                                        |
| **Audit.Tax.Consulting.Financial Advisory.** | Una firma miembro            de**Deloitte Touche Tohmatsu** |

 

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|   | Deloitte Touche Tohmatsu          Av. Pres. Wilson, 23122° e 25° andares20030-905 - 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    sheet of Centrais Elétricas Cachoeira Dourada S.A. as of December 31, 2003,    and the related statements of operations        and cash      flows for the years ended December 31, 2003 and 2002, all expressed in          United States dollars (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.

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 the results of          its operations and          its cash flows for the years ended December 31, 2003 and 2002, 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. The application of the latter would have affected          the determination          of net income (loss) for the years ended December 31, 2003 and 2002,          and the determination of shareholders' equity as of December 31, 2003,          to the          extent  summarized in Note 21 to the financial statements.

  January 17, 2004

 

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|   | Deloitte Touche            Tohmatsu          Av. Pres. Wilson, 231          22° e 25° andares        20030-905 - Rio de Janeiro - RJ Brasil

Tel.: +55 (21)            3981-0500          Fax: +55 (21) 3981-0600 www.deloitte.com.br |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors    and Shareholders of  CIEN –  Companhia de Interconexão Energética Rio de Janeiro – RJ, Brazil

| 1.     | We have audited        the accompanying balance sheets of CIEN – Companhia de Interconexão        Energética 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 2.     | 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. The Company is        not required to have, nor were we engaged to perform, an audit of its        internal control over financial reporting. Our audit included consideration        of internal control over financial reporting as a basis for designing        audit procedures that are appropriate in the circumstances, but not for        the purpose of expressing an opinion on the effectiveness of the Company's        internal control over financial reporting. Accordingly, we express no        such opinion. 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. |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 3.     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 4.     | 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 5.     | As discussed in Note    24, the accompanying financial statements have been restated.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

  January 17, 2004 (except for the restatements mentioned in paragraph 5, forwhich the date is May 2, 2005)

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**Endesa-Chile and Subsidiaries****Audited Consolidated Balance Sheets****Translation of financial statements originally issued in Spanish-See Note 2 (a)****(Restated for general price-level changes and expressed in thousands of constant****Chilean pesos as of December 31, 2004, except as stated)**

|                                   |                                                                                                                                 |   |          |               |                        |        |
|----------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------------|------------------------|--------|
|                                   |                                                                                                                                 |   |          |               | **As of December 31,** |        |
|                                   |                                                                                                                                 |   |          |               |                        |        |
|                                   |                                                                                                                                 |   | **Note** |          | **2003**               |   |   | **2004** |   |   | **2004** |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
| **Assets**                             |                                                                                                                                 |   |     | ThCh$         |                   |   | ThCh$ |   |   | ThUS$ |   |
|                                   |                                                                                                                                 |   |     |          |                   |   |   |   |   |   | (Note 2 (b)) |   |
| **Current assets:**                    |                                                                                                                                 |   |     |          |                   |   |   |   |   |   |   |
|                                   | Cash                                                                                                        |   |     |          | 5,646,196              |   |   | 29,638,256 |   |   | 53,172 |   |
|                                   | Time deposits                                                                                               |   | 4        |          | 159,077,625            |   |   | 186,650,610 |   |   | 334,860 |   |
|                                   | Accounts receivable, net                                                                                    |   | 5        |          | 102,017,051            |   |   | 105,455,382 |   |   | 189,192 |   |
|                                   | Notes receivable, net                                                                                       |   | 5        |          | 1,149,448              |   |   | 207,558 |   |   | 372 |   |
|                                   | Other accounts receivable, net                                                                              |   | 5        |          | 52,223,326             |   |   | 36,005,534 |   |   | 64,596 |   |
|                                   | Accounts receivable from related companies                                                                  |   | 6a       |          | 47,353,837             |   |   | 147,058,317 |   |   | 263,829 |   |
|                                   | Inventories, net                                                                                            |   |     |          | 10,084,516             |   |   | 13,691,357 |   |   | 24,563 |   |
|                                   | Recoverable taxes                                                                                           |   | 7a       |          | 14,614,184             |   |   | 4,932,671 |   |   | 8,849 |   |
|                                   | Prepaid expenses                                                                                            |   |     |          | 2,757,198              |   |   | 3,216,161 |   |   | 5,770 |   |
|                                   | Deferred income taxes, net                                                                                  |   | 7b       |          | 1,270,995              |   |   | 2,921,008 |   |   | 5,240 |   |
|                                   | Other current assets                                                                                        |   | 8        |          | 6,489,233              |   |   | 14,949,441 |   |   | 26,820 |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
|                                   |           Total current assets                            |   |     |          | 402,683,609            |   |   | 544,726,295 |   |   | 977,263 |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
|                                   |                                                                                                                                 |   |     |          |                   |   |   |   |   |   |   |   |
| **Property, plant and equipment, net** |                                                                                                                                 | 9      |     | 4,784,640,348 |                   |   | 4,474,564,659 |   |   | 8,027,565 |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
| **Other assets:**                      |                                                                                                                                 |   |     |          |                   |   |   |   |   |   |   |
|                                   | Investments in related companies                                                                            |   | 10a      |          | 169,641,483            |   |   | 167,051,230 |   |   | 299,698 |   |
|                                   | Investments in other companies                                                                              |   | 11       |          | 70,816,686             |   |   | 22,697,997 |   |   | 40,721 |   |
|                                   | Long-term receivables, net                                                                                  |   | 5        |          | 17,093,000             |   |   | 35,027,855 |   |   | 62,842 |   |
|                                   | Goodwill, net                                                                                               |   | 12a      |          | 22,707,090             |   |   | 19,608,987 |   |   | 35,179 |   |
|                                   | Negative goodwill, net                                                                                      |   | 12b      |          | (79,364,912            | )      |   | (55,940,234 | ) |   | (100,359 | ) |
|                                   | Accounts receivable from related companies                                                                  |   | 6a       |          | 131,998,628            |   |   | 334,466 |   |   | 600 |   |
|                                   | Other intangibles                                                                                           |   | 13       |          | 28,965,664             |   |   | 28,076,325 |   |   | 50,370 |   |
|                                   | Accumulated amortization                                                                                    |   | 13       |          | (7,504,176             | )      |   | (8,368,635 | ) |   | (15,014 | ) |
|                                   | Other assets                                                                                                |   | 14       |          | 60,291,818             |   |   | 89,880,421 |   |   | 161,249 |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
|                                   |           Total other assets                              |   |     |          | 414,645,281            |   |   | 298,368,412 |   |   | 535,286 |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
|                                   |                Total assets      |   |     |          | 5,601,969,238          |   |   | 5,317,659,366 |   |   | 9,540,114 |   |
|                                   |                                                                                                                                 |   |     |          |                        |   |   |  |   |   |  |   |
|                                   |                                                                                                                                 |   |     |          |                   |   |   |   |   |   |   |   |

The accompanying notes are an integral part of these consolidated financial statements.

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**Endesa-Chile and Subsidiaries****Audited Consolidated Balance Sheets****Translation of financial statements originally issued in Spanish-See Note 2 (a)****(Restated for general price-level changes and expressed in thousands of constant****Chilean pesos as of December 31, 2004, except as stated)**

|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |
|------------------------------------------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------|---------------|------------------------------------------------------------|--------|
|                                           |                                                                                                                                                                     |   |     |          | **As of December 31,**       |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |
|                                           |                                                                                                                                                                     |   | **Note** |          | **2003**                                                   |   |   | **2004** |   |   | **2004** |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |        |
| **Liabilities and Shareholders’ equity** |                                                                                                                                                                     |   |     | ThCh$         |                                                       |   | ThCh$ |   |   | ThUS$ |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                       |   |   |   |   |   | (Note 2 (b)) |   |
| **Current liabilities:**                       |                                                                                                                                                                     |   |     |          |                                                       |   |   |   |   |   |   |
|                                           | Short-term debt due to banks and financial institutions                                                                                                                  |   | 15a      |          | 55,910,508                                                 |   |   | 95,976,001 |   |   | 172,184 |   |
|                                           | Current portion of long-term debt due to banks and         financial institutions                                                                                        |   | 15b      |          | 99,635,250                                                 |   |   | 86,191,205 |   |   | 154,631 |   |
|                                           | Current portion of bonds payable                                                                                                                                         |   | 16a      |          | 58,998,392                                                 |   |   | 76,662,624 |   |   | 137,536 |   |
|                                           | Current portion of long-term notes payable                                                                                                                               |   | 16e      |          | 21,969,710                                                 |   |   | 24,741,061 |   |   | 44,387 |   |
|                                           | Dividends payable                                                                                                                                                        |   |     |          | 958,578                                                    |   |   | 177,697 |   |   | 319 |   |
|                                           | Accounts payable                                                                                                                                                         |   |     |          | 60,022,460                                                 |   |   | 81,045,724 |   |   | 145,399 |   |
|                                           | Miscellaneous payables                                                                                                                                                   |   |     |          | 13,391,488                                                 |   |   | 17,342,755 |   |   | 31,114 |   |
|                                           | Accounts payable to related companies                                                                                                           |   | 6b       |          | 126,665,371                                                |   |   | 6,383,444 |   |   | 11,452 |   |
|                                           | ****Accrued expenses                                                                                                                                                     |   | 17       |          | 22,408,395                                                 |   |   | 15,225,372 |   |   | 27,315 |   |
|                                           | ****Withholdings                                                                                                                                                         |   |     |          | 7,578,480                                                  |   |   | 10,836,968 |   |   | 19,442 |   |
|                                           | Income taxes payable                                                                                                                                                     |   | 7a       |          | 6,732,025                                                  |   |   | 13,539,180 |   |   | 24,290 |   |
|                                           | Deferred income                                                                                                                                 |   |     |          | 301,025                                                    |   |   | 218,239 |   |   | 392 |   |
|                                           | Other current liabilities                                                                                                                       |   |     |          | 2,349,560                                                  |   |   | 1,419,586 |   |   | 2,547 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
|                                           |           Total current liabilities                                                           |   |     |          | 476,921,242                                                |   |   | 429,759,856 |   |   | 771,008 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
| **Long-term liabilities:**                     |                                                                                                                                                                     |   |     |          |                                                       |   |   |   |   |   |   |
|                                           | Long-term debt due to banks and financial institutions                                                                                          |   | 15c      |          | 392,497,332                                                |   |   | 251,814,204 |   |   | 451,766 |   |
|                                           | Bonds payable                                                                                                                                   |   | 16b      |          | 1,730,576,969                                              |   |   | 1,685,733,702 |   |   | 3,024,281 |   |
|                                           | Long-term notes payable.                                                                                                                        |   | 16e      |          | 123,545,346                                                |   |   | 93,693,050 |   |   | 168,089 |   |
|                                           | Miscellaneous payables                                                                                                                                                   |   |     |          | 15,384,754                                                 |   |   | 38,012,151 |   |   | 68,195 |   |
|                                           | Accunts payable to related companies                                                                                                            |   | 6b       |          | 86,428                                                     |   |   | 51,139 |   |   | 92 |   |
|                                           | Accrued expenses                                                                                                                                |   | 17a      |          | 38,986,166                                                 |   |   | 37,663,510 |   |   | 67,570 |   |
|                                           | Deferred income taxes                                                                                                                           |   | 7b       |          | 35,160,170                                                 |   |   | 74,556,669 |   |   | 133,758 |   |
|                                           | Other long-term liabilities                                                                                                                     |   |     |          | 10,638,480                                                 |   |   | 10,085,803 |   |   | 18,094 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
|                                           |           Total long-term liabilities                                                         |   |     |          | 2,346,875,645                                              |   |   | 2,191,610,228 |   |   | 3,931,845 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
| **Commitments and contingencies**              |                                                                                                                                                                     | 27     |     |          |                                                       |   |   |   |   |   |   |
| **Minority interest**                          |                                                                                                                                                                     | 18a    |     | 1,248,186,585 |                                                       |   | 1,127,391,301 |   |   | 2,022,589 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
| **Shareholders’ equity:**                |                                                                                                                                                                     | 19     |     |          |                                                       |   |   |   |   |   |   |
|                                           | ****Paid-in capital, no par value                                                                                                                                        |   |     |          | 1,076,448,692                                              |   |   | 1,076,448,692 |   |   | 1,931,196 |   |
|                                           | Additional paid-in capital – share premium                                                                                                 |   |     |          | 211,158,771                                                |   |   | 211,158,771 |   |   | 378,828 |   |
|                                           | Other reserves                                                                                                                                  |   | 19d      |          | 50,414,032                                                 |   |   | 23,237,060 |   |   | 41,688 |   |
|                                           | Retained earnings                                                                                                                               |   |     |          | 111,880,086                                                |   |   | 174,264,702 |   |   | 312,639 |   |
|                                           | Net income                                                                                                                                      |   |     |          | 80,084,185                                                 |   |   | 83,788,756 |   |   | 150,321 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
|                                           |           Total Shareholders’ equity                                                    |   |     |          | 1,529,985,766                                              |   |   | 1,568,897,981 |   |   | 2,814,672 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
|                                           |                Total liabilities and Shareholders’ equity      |   |     |          | 5,601,969,238                                              |   |   | 5,317,659,366 |   |   | 9,540,114 |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                            |   |   |  |   |   |  |   |
|                                           |                                                                                                                                                                     |   |     |          |                                                       |   |   |   |   |   |   |   |

The accompanying notes are an integral part of these consolidated financial statements.

F-8

----

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**Endesa-Chile and Subsidiaries****Audited Consolidated Statements of Income****Translation of financial statements originally issued in Spanish-See Note 2 (a)****(Restated for general price-level changes and expressed in thousands of constant****Chilean pesos as of December 31, 2004, except as stated)**

|   |                                                        |   |          |        |                        |        |
|--------|-------------------------------------------------------------|--------|----------|--------|------------------------|--------|
|   |                                                        |   |          |        | **As of December 31,** |        |
|   |                                                        |   |          |        |                        |        |
|   |                                                        |   | **Note** |        | **2002**               |        |  | **2003** |  |  | **2004** |  |  | **2004** |  |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   |                                                        |   |     |   | ThCh$                  |   |   | ThCh$ |   |   | ThCh$ |   |   | ThUS$ |   |
|   |                                                        |   |     |   |                   |   |   |   |   |   |   |   |   | (Note 2 (b)) |   |
|   | **Operating income:**                                       |   |     |   |                   |   |   |   |   |   |   |   |   |   |   |
|   | Sales                                                       |   |     |   | 971,167,147            |   |   | 943,288,433 |   |   | 1,032,662,084 |   |   | 1,852,642 |   |
|   | Cost of sales                                               |   |     |   | (575,170,296           | )      |   | (564,207,863 | ) |   | (629,191,426 | ) |   | (1,128,797 | ) |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | Gross profit                                                |   |     |   | 395,996,851            |   |   | 379,080,570 |   |   | 403,470,658 |   |   | 723,845 |   |
|   | Administrative and selling expenses                         |   |     |   | (37,567,947            | )      |   | (32,106,900 | ) |   | (34,445,488 | ) |   | (61,797 | ) |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | Operating    income                                         |   |     |   | 358,428,904            |   |   | 346,973,670 |   |   | 369,025,170 |   |   | 662,048 |   |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   |                                                        |   |     |   |                   |   |   |   |   |   |   |   |   |   |   |
|   | **Non-operating income and expense:**                       |   |     |   |                   |   |   |   |   |   |   |   |   |   |   |
|   | Interest income                                             |   |     |   | 15,784,176             |   |   | 15,644,040 |   |   | 14,912,116 |   |   | 26,753 |   |
|   | Equity participation in income of related companies         |   | 10a      |   | 15,551,209             |   |   | 18,186,463 |   |   | 19,289,364 |   |   | 34,606 |   |
|   | Other non-operating income                                  |   | 20a      |   | 106,097,020            |   |   | 45,687,637 |   |   | 51,241,842 |   |   | 91,930 |   |
|   | Equity participation in losses of related companies         |   | 10a      |   | (6,678,602             | )      |   | (382,508 | ) |   | (86,341 | ) |   | (155 | ) |
|   | Goodwill amortization                                       |   | 12a      |   | (112,388,501           | )      |   | (1,581,682 | ) |   | (1,463,507 | ) |   | (2,626 | ) |
|   | Interest expense                                            |   |     |   | (225,836,804           | )      |   | (209,239,574 | ) |   | (192,558,105 | ) |   | (345,458 | ) |
|   | Other non-operating expenses                                |   | 20b      |   | (120,682,442           | )      |   | (61,563,677 | ) |   | (79,285,937 | ) |   | (142,242 | ) |
|   | Price-level restatement, net                                |   | 21       |   | 4,137,358              |   |   | 589,303 |   |   | 2,211,342 |   |   | 3,967 |   |
|   | Foreign currency translation, net                           |   | 22       |   | (456,561               | )      |   | 9,179,863 |   |   | 20,630,308 |   |   | 37,012 |   |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | Non-operating    loss                                       |   |     |   | (324,473,147           | )      |   | (183,480,135 | ) |   | (165,108,918 | ) |   | (296,213 | ) |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   |                                                        |   |     |   |                   |   |   |   |   |   |   |   |   |   |   |
|   | Income before income taxes and extraordinary loss           |   |     |   | 33,955,757             |   |   | 163,493,535 |   |   | 203,916,252 |   |   | 365,835 |   |
|   | Income taxes                                                |   | 7c       |   | (73,118,049            | )      |   | (28,062,535 | ) |   | (93,426,794 | ) |   | (167,612 | ) |
|   | Extraordinary loss                                          |   | 23       |   | (11,315,378            | )      |   | — |   |   | — |   |   | — |   |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | (Loss) income before minority interest                      |   |     |   | (50,477,670            | )      |   | 135,431,000 |   |   | 110,489,458 |   |   | 198,223 |   |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | Minority interest                                           |   | 18b      |   | (48,116,654            | )      |   | (71,326,105 | ) |   | (42,802,276 | ) |   | (76,789 | ) |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | (Loss)      income before amortization of negative goodwill |   |     |   | (98,594,324            | )      |   | 64,104,895 |   |   | 67,687,182 |   |   | 121,434 |   |
|   | Amortization of negative goodwill                           |   | 12b      |   | 88,946,770             |   |   | 15,979,290 |   |   | 16,101,574 |   |   | 28,887 |   |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   | Net    (loss) income               |   |     |   | (9,647,554             | )      |   | 80,084,185 |   |   | 83,788,756 |   |   | 150,321 |   |
|   |                                                        |   |     |   |                        |   |   |  |   |   |  |   |   |  |   |
|   |                                                        |   |     |   |                   |   |   |   |   |   |   |   |   |   |   |

The accompanying notes are an integral part of these consolidated financial statements.

F-9

----

Back to Contents

**Endesa-Chile and Subsidiaries****AuditedConsolidated Statements of Shareholders’ Equity****Translation of financial statements originally issued in Spanish-See Note 2 (a)****(Restated for general price-level changes and expressed in thousands of constant****Chilean pesos as of December 31, 2004, except as stated)**

|                                                             |        |        | **Number  of shares** |        |        | **Paid-in capital** |        |        | **Additional paid-in capital** |        |        | **Other reserves** |        |        | **Retained earnings** |        |        | **Net income (loss)** |        |        | **Total**     |        |
|------------------------------------------------------------------|--------|--------|-----------------------|--------|--------|---------------------|--------|--------|--------------------------------|--------|--------|--------------------|--------|--------|-----------------------|--------|--------|-----------------------|--------|--------|---------------|--------|
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
|                                                             |   |   | (In thousands)        |   |   | ThCh$               |   |   | ThCh$                          |   |   | ThCh$              |   |   | ThCh$                 |   |   | ThCh$                 |   |   | ThCh$         |   |
| As of January 1, 2002                                            |   |   | 8,201,755             |   |   | 1,009,510,570       |   |   | 198,028,027                    |   |   | 67,945,775         |   |   | 58,874,284            |   |   | 70,058,270            |   |   | 1,404,416,926 |   |
| Reclassification of prior year net income                        |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | 70,058,270            |   |   | (70,058,270           | )      |   | —        |   |
| Price-level restatement of capital                               |   |   | —                |   |   | 30,285,317          |   |   | 5,940,841                      |   |   | 2,038,374          |   |   | 3,636,686             |   |   | —                |   |   | 41,901,218    |   |
| Loss from subsidiaries in the development stage                  |   |   | —                |   |   | —              |   |   | —                         |   |   | (7,968,156         | )      |   | —                |   |   | —                |   |   | (7,968,156    | )      |
| Cumulative translation adjustment                                |   |   | —                |   |   | —              |   |   | —                         |   |   | 9,314,037          |   |   | —                |   |   | —                |   |   | 9,314,037     |   |
| Dividends                                                   |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | (7,709,649            | )      |   | —                |   |   | (7,709,649    | )      |
| Net loss                                                         |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | —                |   |   | (9,319,056            | )      |   | (9,319,056    | )      |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
| As of December 31, 2002                                          |   |   | 8,201,755             |   |   | 1,039,795,887       |   |   | 203,968,868                    |   |   | 71,330,030         |   |   | 124,859,591           |   |   | (9,319,056            | )      |   | 1,430,635,320 |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
| As of December 31, 2002 (1)                                      |   |   | —                |   |   | 1,076,448,692       |   |   | 211,158,771                    |   |   | 73,844,413         |   |   | 129,260,892           |   |   | (9,647,554            | )      |   | 1,481,065,214 |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
|                                                             |   |   |                  |   |   |                |   |   |                           |   |   |               |   |   |                  |   |   |                  |   |   |          |   |
| As of    January 1, 2003                                         |   |   | 8,201,755             |   |   | 1,039,795,887       |   |   | 203,968,868                    |   |   | 71,330,030         |   |   | 124,859,591           |   |   | (9,319,056            | )      |   | 1,430,635,320 |   |
| Reclassification    of prior year net loss                       |   |   | —                |   |   | —              |   |   | —                         |   |   | 7,469,939          |   |   | (16,788,995           | )      |   | 9,319,056             |   |   | —        |   |
| Price-level    restatement of capital                            |   |   | —                |   |   | 10,397,959          |   |   | 2,039,689                      |   |   | 788,000            |   |   | 1,080,707             |   |   | —                |   |   | 14,306,355    |   |
| Income      from subsidiaries in the development stage           |   |   | —                |   |   | —              |   |   | —                         |   |   | 75,847             |   |   | —                |   |   | —                |   |   | 75,847        |   |
| Cumulative    translation adjustment                             |   |   | —                |   |   | —              |   |   | —                         |   |   | (30,479,394        | )      |   | —                |   |   | —                |   |   | (30,479,394   | )      |
| Net    income                                                    |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | —                |   |   | 78,130,912            |   |   | 78,130,912    |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
| As of    December 31, 2003                                       |   |   | 8,201,755             |   |   | 1,050,193,846       |   |   | 206,008,557                    |   |   | 49,184,422         |   |   | 109,151,303           |   |   | 78,130,912            |   |   | 1,492,669,040 |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
| As of    December 31, 2003 (1)                                   |   |   | —                |   |   | 1,076,448,692       |   |   | 211,158,771                    |   |   | 50,414,032         |   |   | 111,880,086           |   |   | 80,084,185            |   |   | 1,529,985,766 |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
|                                                             |   |   |                  |   |   |                |   |   |                           |   |   |               |   |   |                  |   |   |                  |   |   |          |   |
| As of    January 1, 2004                                         |   |   | 8,201,755             |   |   | 1,050,193,846       |   |   | 206,008,557                    |   |   | 49,184,422         |   |   | 109,151,303           |   |   | 78,130,912            |   |   | 1,492,669,040 |   |
| Reclassification of prior year net income                        |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | 78,130,912            |   |   | (78,130,912           | )      |   | —        |   |
| Price-level    restatement of capital                            |   |   | —                |   |   | 26,254,846          |   |   | 5,150,214                      |   |   | 1,187,406          |   |   | 4,158,338             |   |   | —                |   |   | 36,750,804    |   |
| Dividends                                                        |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | (18,864,036           | )      |   | —                |   |   | (18,864,036   | )      |
| Accumulated    income from subsidiaries in the development stage |   |   | —                |   |   | —              |   |   | —                         |   |   | (1,688,185         | )      |   | 1,688,185             |   |   | —                |   |   | —        |   |
| Cumulative translation adjustment                                |   |   | —                |   |   | —              |   |   | —                         |   |   | (25,446,583        | )      |   | —                |   |   | —                |   |   | (25,446,583   | )      |
| Net    income                                                    |   |   | —                |   |   | —              |   |   | —                         |   |   | —             |   |   | —                |   |   | 83,788,756            |   |   | 83,788,756    |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
| As of December 31, 2004                                          |   |   | 8,201,755             |   |   | 1,076,448,692       |   |   | 211,158,771                    |   |   | 23,237,060         |   |   | 174,264,702           |   |   | 83,788,756            |   |   | 1,568,897,981 |   |
|                                                             |   |   |                       |   |   |                     |   |   |                                |   |   |                    |   |   |                       |   |   |                       |   |   |               |   |
|                                                             |   |   |                  |   |   |                |   |   |                           |   |   |               |   |   |                  |   |   |                  |   |   |          |   |

(1) Restated in thousands of constant Chilean pesos as of December 31, 2004.

The accompanying notes are an integral part of these consolidated financial statements.

F-10

Back to Contents

**Endesa-Chile and Subsidiaries****Audited Consolidated Statements of Cash Flows****Translation of financial statements originally issued in Spanish-See Note 2 (a)****(Restated for general price-level changes and expressed in thousands of constant****Chilean pesos as of December 31, 2004, except as stated)**

|                                                               |                                                                                            |        |        |                                 |        |
|--------------------------------------------------------------------|--------------------------------------------------------------------------------------------|--------|--------|---------------------------------|--------|
|                                                               |                                                                                       |   |   | **Years Ended December    31,** |   |
|                                                               |                                                                                            |        |        |                                 |        |
|                                                               |                                                                                            |   |   | **2002**                        |   |   | **2003** |   |   | **2004** |   |   | **2004** |   |
|                                                               |                                                                                            |        |        |                                 |        |  |  |  |  |  |  |  |  |   |
|                                                               |                                                                                       |   |   | ThCh$                           |   |   | ThCh$ |   |   | ThCh$ |   |   | ThUS$ |   |
|                                                               |                                                                                       |   |   |                            |   |   |   |   |   |   |   |   | (Note 2 (b)) |   |
| **Cash flows from operating activities:**                          |                                                                                       |   |   |                            |   |   |   |   |   |   |   |   |   |
| **Charges (credits) to income which do not represent cash flows:** |                                                                                       |   |   |                            |   |   |   |   |   |   |   |   |   |
|                                                               | Net (loss) income                                                                          |   |   | (9,647,554                      | )      |   | 80,084,185 |   |   | 83,788,756 |   |   | 150,321 |   |
|                                                               | (Gain) loss on sales of property, plant and equipment                                      |   |   | (732,784                        | )      |   | 6,166,018 |   |   | (6,304,856 | ) |   | (11,311 | ) |
|                                                               | ****(Gain) on sales of investments                                                         |   |   | —                          |   |   | (1,494,462 | ) |   | — |   |   | — |   |
|                                                               | (Gain) loss on sales of other assets                                                       |   |   | —                          |   |   | 409,474 |   |   | (25,640 | ) |   | (46 | ) |
|                                                               | Depreciation                                                                               |   |   | 202,762,640                     |   |   | 183,975,838 |   |   | 170,790,295 |   |   | 306,405 |   |
|                                                               | Amortization of intangibles                                                                |   |   | 3,319,915                       |   |   | 1,679,893 |   |   | 1,401,515 |   |   | 2,514 |   |
|                                                               | Write-offs and accrued expenses                                                            |   |   | 397,826                         |   |   | — |   |   | — |   |   | — |   |
|                                                               | Equity participation in income of related companies                                        |   |   | (15,551,209                     | )      |   | (18,186,463 | ) |   | (19,289,364 | ) |   | (34,606 | ) |
|                                                               | Equity participation in losses of related companies                                        |   |   | 6,678,602                       |   |   | 382,508 |   |   | 86,341 |   |   | 155 |   |
|                                                               | Amortization of goodwill                                                                   |   |   | 112,388,501                     |   |   | 1,581,682 |   |   | 1,463,507 |   |   | 2,626 |   |
|                                                               | Amortization of negative goodwill                                                          |   |   | (88,946,770                     | )      |   | (15,979,290 | ) |   | (16,101,574 | ) |   | (28,887 | ) |
|                                                               | Price-level restatement, net                                                               |   |   | (4,137,358                      | )      |   | (589,303 | ) |   | (2,211,342 | ) |   | (3,967 | ) |
|                                                               | Foreign currency translation, net                                                          |   |   | 456,561                         |   |   | (9,179,863 | ) |   | (20,630,308 | ) |   | (37,012 | ) |
|                                                               | Other credits to income which do not represent cash flows                                  |   |   | (78,819,026                     | )      |   | (19,633,041 | ) |   | (6,332,286 | ) |   | (11,360 | ) |
|                                                               | Other charges to income which do not represent cash flows                                  |   |   | 90,723,104                      |   |   | 32,374,707 |   |   | 43,242,815 |   |   | 77,581 |   |
| **Changes in assets which affect cash flows:**                     |                                                                                       |   |   |                            |   |   |   |   |   |   |   |   |   |
|                                                               | Increase in trade receivables                                                              |   |   | (17,534,489                     | )      |   | (67,674,112 | ) |   | (7,769,482 | ) |   | (13,939 | ) |
|                                                               | Decrease (increase) in inventory                                                           |   |   | 4,845,680                       |   |   | (1,162,872 | ) |   | (3,938,310 | ) |   | (7,066 | ) |
|                                                               | Decrease in other assets                                                                   |   |   | 14,353,699                      |   |   | 28,277,396 |   |   | 30,103,025 |   |   | 54,006 |   |
| **Changes in liabilities which affect cash flows:**                |                                                                                       |   | — |                            |   | — |   |   |   |   |   | — |   |
|                                                               | Increase (decrease) in accounts payable associated with operating                  results |   |   | 7,091,492                       |   |   | 28,072,408 |   |   | (42,845,930 | ) |   | (76,867 | ) |
|                                                               | Increase (decrease) in interest payable                                                    |   |   | 3,956,803                       |   |   | (3,810,075 | ) |   | 7,813,166 |   |   | 14,017 |   |
|                                                               | Increase (decrease) in income tax payable                                                  |   |   | 2,367,400                       |   |   | (15,385,276 | ) |   | 10,391,667 |   |   | 18,643 |   |
|                                                               | Increase (decrease)    in other accounts payable associated with non-operating results     |   |   | 75,272,890                      |   |   | (5,671,716 | ) |   | (27,529,321 | ) |   | (49,389 | ) |
|                                                               | Net increase in value added tax and other accounts payable                                 |   |   | 7,261,422                       |   |   | 11,510,374 |   |   | 13,360,488 |   |   | 23,969 |   |
|                                                               | Income attributable to minority interest                                                   |   |   | 48,116,654                      |   |   | 71,326,105 |   |   | 42,802,276 |   |   | 76,788 |   |
|                                                               |                                                                                            |        |        |                                 |        |  |  |  |  |  |  |  |  |   |
|                                                               | **Net    cash flows provided by operating activities**                                     |   |   | 364,623,999                     |   |   | 287,074,115 |   |   | 252,265,438 |   |   | 452,575 |   |
|                                                               |                                                                                       |   |   |                                 |   |   |  |   |   |  |   |   |  |   |
|                                                               |                                                                                       |   |   |                            |   |   |   |   |   |   |   |   |   |   |

The accompanying notes are an integral part of these consolidated financial statements.

F-11

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**Endesa-Chile and Subsidiaries****Audited Consolidated Statements of Cash Flows****Translation of financial statements originally issued in Spanish-See Note 2 (a)****(Restated for general price-level changes and expressed in thousands of constant****Chilean pesos as of December 31, 2004, except as stated)**

|                                                           |                                                 |   |       |                                                                                    |   |
|----------------------------------------------------------------|------------------------------------------------------|--------|------------|------------------------------------------------------------------------------------|--------|
|                                                           |                                                 |   |       |    **Years Ended December 31,**       |   |
|                                                           |                                                 |   |       |                                                                                    |   |
|                                                           | ****                                                 |        |            | **2002**                                                                           |        |  | **2003** |  |  | **2004** |  |  | **2004** |  |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
|                                                           |                                                 |   |       | ThCh$                                                                              |   |   | ThCh$ |   |   | ThCh$ |   |   | ThUS$ |   |
|                                                           |                                                 |   |       |                                                                               |   |   |   |   |   |   |   |   | (Note 2 (b)) |   |
| **Cash flows from financing activities:**                      |                                                 |   |       |                                                                               |   |   |   |   |   |   |   |   |   |
|                                                           | Issuance of subsidiary shares                        |   |       | 1,910,813                                                                          |   |   | — |   |   | — |   |   | — |   |
|                                                           | Proceeds from the issuance of debt                   |   |       | 259,213,070                                                                        |   |   | 204,431,286 |   |   | 258,854,272 |   |   | 464,396 |   |
|                                                           | Proceeds from bond issuances                         |   |       | 110,798,639                                                                        |   |   | 616,962,069 |   |   | 94,648,792 |   |   | 169,804 |   |
|                                                           | Proceeds from loans obtained from related companies  |   |       | 108,479,585                                                                        |   |   | — |   |   | 3,063,277 |   |   | 5,496 |   |
|                                                           | Other loans received from related companies          |   |       | 50,587,988                                                                         |   |   | — |   |   | — |   |   | — |   |
|                                                           | Other sources of financing                           |   |       | 24,518,498                                                                         |   |   | 6,485,772 |   |   | 10,137,413 |   |   | 18,187 |   |
|                                                           | Dividends paid                                       |   |       | (71,072,604                                                                        | )      |   | (37,269,921 | ) |   | (73,833,212 | ) |   | (132,460 | ) |
|                                                           | Distributions of capital by foreign subsidiaries     |   |       | (7,596,181                                                                         | )      |   | (12,987,764 | ) |   | (9,997,191 | ) |   | (17,935 | ) |
|                                                           | Payment of debt                                      |   |       | (513,475,548                                                                       | )      |   | (611,930,038 | ) |   | (350,092,705 | ) |   | (628,082 | ) |
|                                                           | Payment of bonds                                     |   |       | (6,034,435                                                                         | )      |   | (407,311,066 | ) |   | (31,109,294 | ) |   | (55,811 | ) |
|                                                           | Payment of loans obtained from related companies     |   |       | (156,266,589                                                                       | )      |   | (24,539,594 | ) |   | (3,144,879 | ) |   | (5,642 | ) |
|                                                           | Payment of bond issuance costs                       |   |       | (11,533,492                                                                        | )      |   | (5,823,428 | ) |   | (474,817 | ) |   | (852 | ) |
|                                                           | Other disbursements for financing                    |   |       | (16,220,416                                                                        | )      |   | (56,954,870 | ) |   | (8,150,854 | ) |   | (14,624 | ) |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
|                                                           | Net cash used in financing activities                |   |       | (226,690,672                                                                       | )      |   | (328,937,554 | ) |   | (110,099,198 | ) |   | (197,523 | ) |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
| **Cash flows from investing activities:**                      |                                                 |   |       |                                                                               |   |   |   |   |   |   |   |   |   |
|                                                           | Proceeds from sales of property, plant and equipment |   |       | 20,150,038                                                                         |   |   | 156,658,973 |   |   | 13,408,899 |   |   | 24,056 |   |
|                                                           | Payments received on loans to related companies      |   |       | 35,772,309                                                                         |   |   | 44,195,646 |   |   | 82,027,344 |   |   | 147,161 |   |
|                                                           | Other receipts from investments                      |   |       | 3,881,641                                                                          |   |   | 51,033,045 |   |   | 40,574,360 |   |   | 72,792 |   |
|                                                           | Additions to property, plant and equipment           |   |       | (139,611,705                                                                       | )      |   | (134,418,313 | ) |   | (96,135,574 | ) |   | (172,472 | ) |
|                                                           | Long-term investments                                |   |       | (5,278,459                                                                         | )      |   | (3,061,889 | ) |   | — |   |   | — |   |
|                                                           | Sale of long-term investments                        |   |       | —                                                                             |   |   | — |   |   | 2,557,742 |   |   | 4,589 |   |
|                                                           | Investment in financial instruments                  |   |       | (749,938                                                                           | )      |   | — |   |   | — |   |   | — |   |
|                                                           | Other loans granted to related companies             |   |       | (29,892,615                                                                        | )      |   | — |   |   | (113,356,939 | ) |   | (203,367 | ) |
|                                                           | Other investment disbursements                       |   |       | (1,657,068                                                                         | )      |   | — |   |   | — |   |   | — |   |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
|                                                           | Net cash provided by (used in) investing activities  |   |       | (117,385,797                                                                       | )      |   | 114,407,462 |   |   | (70,924,168 | ) |   | (127,241 | ) |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
| Positive net cash flow for the year                            |                                                 |   | 20,547,530 |                                                                               |   | 72,544,023 |   |   | 71,242,072 |   |   | 127,811 |   |
| Effect of price-level restatement on cash and cash equivalents |                                                 |   | 9,359,502  |                                                                               |   | (32,002,152 | ) |   | (9,101,852 | ) |   | (16,329 | ) |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
|                                                           | Net increase in cash and cash equivalents            |   |       | 29,907,032                                                                         |   |   | 40,541,871 |   |   | 62,140,220 |   |   | 111,482 |   |
|                                                           |                                                 |   |       |                                                                               |   |   |   |   |   |   |   |   |   |   |
|                                                           | Cash and cash equivalents beginning of year          |   |       | 97,288,943                                                                         |   |   | 127,195,975 |   |   | 167,737,846 |   |   | 300,929 |   |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |
|                                                           | Cash and cash equivalents end of year                |   |       | 127,195,975                                                                        |   |   | 167,737,846 |   |   | 229,878,066 |   |   | 412,411 |   |
|                                                           |                                                 |   |       |                                                                                    |   |   |  |   |   |  |   |   |  |   |

The accompanying notes are an integral part of these consolidated financial statements.

F-12

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**Endesa-Chile and SubsidiariesNotes to the Audited Consolidated Financial StatementsTranslation of financial statements originally issued in Spanish-See Note 2 (a)(Restated for general price-level changes and expressed in thousands of constantChilean pesos as of December 31, 2004, 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, 2004 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 59.98% of the shares as of December 31, 2004. 

| **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”) or International Financial Reporting Standards (“IFRS”). Certain amounts in the prior years' financial statements have been reclassified to conform to the current year's presentation.

For the convenience of the reader, these financial statements and their accompanying notes have been translated from Spanish to English.

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 that there are no substantive minority participating rights that prevent control, detailed as follows:

F-13

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**Endesa-Chile and SubsidiariesNotes to the Audited Consolidated Financial StatementsTranslation of financial statements originally issued in Spanish-See Note 2 (a)(Restated for general price-level changes and expressed in thousands of constantChilean pesos as of December 31, 2004, except as stated)**

| **2.** | **Summary of Significant Accounting Policies, continued:** |
|--------|------------------------------------------------------------|
|   |                                                       |

|                                                          |   |    **Percentage    participation in voting rights as of December 31,** |      |
|---------------------------------------------------------------|--------|---------------------------------------------------------------------------------------|-----------|
|                                                          |   |                                                                                       |           |  |  |  |  |  |  |   |
| **Company name**                                              |   |                                                                                  | **2002**  |   |   | **2003** |   |   | **2004** |   |
|                                                          |   |                                                                                       |           |   |  |  |   |  |  |  |  |  |  |  |  |   |
|                                                          |   |                                                                                  | **Total** |   |   | **Total** |   |   | **Direct** |   |   | **Indirect** |   |   | **Total** |   |
|                                                               |        |                                                                                       |           |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Enigesa S.A.                                                  |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | 99.51 |   |   | 0.49 |   |   | 100.00 |   |
| Ingendesa S.A.                                                |   |                                                                                  | 97.64     |   |   | 97.64 |   |   | 96.39 |   |   | 1.25 |   |   | 97.64 |   |
| Pehuenche S.A.                                                |   |                                                                                  | 92.65     |   |   | 92.65 |   |   | 92.65 |   |   | — |   |   | 92.65 |   |
| Endesa Argentina S.A (1)                                      |   |                                                                                  | 99.99     |   |   | 99.99 |   |   | 97.99 |   |   | 2.00 |   |   | 99.99 |   |
| Endesa-Chile Internacional                                    |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | 100.00 |   |   | — |   |   | 100.00 |   |
| Pangue S.A.                                                   |   |                                                                                  | 94.99     |   |   | 94.99 |   |   | 94.97 |   |   | 0.02 |   |   | 94.99 |   |
| Hidroinvest S.A.                                              |   |                                                                                  | 69.93     |   |   | 69.93 |   |   | — |   |   | 69.93 |   |   | 69.93 |   |
| Infraestructura Dos Mil S.A. (2)                              |   |                                                                                  | 60.00     |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Hidroeléctrica El Chocón  S.A.                    |   |                                                                                  | 65.19     |   |   | 65.19 |   |   | — |   |   | 65.19 |   |   | 65.19 |   |
| Central Costanera S.A.                                        |   |                                                                                  | 51.93     |   |   | 64.26 |   |   | 12.33 |   |   | 51.93 |   |   | 64.26 |   |
| Endesa Brasil Participacoes Ltda.                             |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | 5.00 |   |   | 95.00 |   |   | 100.00 |   |
| Túnel El Melón S.A.                               |   |                                                                                  | 99.95     |   |   | 99.95 |   |   | 99.95 |   |   | — |   |   | 99.95 |   |
| Soc. Concesionaria Autopista del Sol S.A. (2)                 |   |                                                                                  | 100.00    |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Inecsa 2000 S.A. (2)                                          |   |                                                                                  | 97.32     |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Soc. Concesionaria Autopista Los Libertadores S.A. (2)        |   |                                                                                  | 99.95     |   |   | — |   |   | — |   |   | — |   |   | — |   |
| Compañía Eléctrica Cono Sur S.A.         |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | 100.00 |   |   | — |   |   | 100.00 |   |
| Central Hidroeléctrica Betania S.A.                    |   |                                                                                  | 85.62     |   |   | 85.62 |   |   | 0.44 |   |   | 85.18 |   |   | 85.62 |   |
| Endesa de Colombia S.A. (5)                                   |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | — |   |   | — |   |   | — |   |
| Lajas Inversora S.A.                                          |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | — |   |   | 100.00 |   |   | 100.00 |   |
| Centrais Electricas Cachoeira Dourada S.A.                    |   |                                                                                  | 99.59     |   |   | 99.61 |   |   | — |   |   | 99.61 |   |   | 99.61 |   |
| Capital de Energía S.A. (6)                            |   |                                                                                  | 50.90     |   |   | 50.90 |   |   | 0.05 |   |   | 50.95 |   |   | 51.00 |   |
| Emgesa S.A (3)                                                |   |                                                                                  | 48.48     |   |   | 48.48 |   |   | — |   |   | 48.48 |   |   | 48.48 |   |
| Edegel S.A.                                                   |   |                                                                                  | 63.56     |   |   | 63.56 |   |   | — |   |   | 63.56 |   |   | 63.56 |   |
| Generandes Perú S.A.                                   |   |                                                                                  | 59.63     |   |   | 59.63 |   |   | — |   |   | 59.63 |   |   | 59.63 |   |
| Compañía Eléctrica San Isidro S.A. (4)   |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | — |   |   | 100.00 |   |   | 100.00 |   |
| Compañía Eléctrica Tarapacá  S.A. |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | 99.90 |   |   | 0.10 |   |   | 100.00 |   |
| Inversiones Endesa Norte S.A.                                 |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | 99.99 |   |   | 0.01 |   |   | 100.00 |   |
| Ingendesa Do Brasil Limitada                                  |   |                                                                                  | 100.00    |   |   | 100.00 |   |   | — |   |   | 100.00 |   |   | 100.00 |   |
|                                                          |   |                                                                                  |      |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | On          November 17, 2004, the Company sold 492,920 shares (2% of its participation)    of this company to Enigesa S.A.                                                                                    |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | On          June 23, 2003 these companies were sold as part of the sale of Infraestructura    Dos Mil S.A.                                                                                                     |
| (3) | Endesa-Chile    exercises control over this company pursuant to a shareholders agreement.                                                                                                                      |
| (4) | Endesa-Chile          owns 100% of the class A shares of Compañía Eléctrica    San Isidro, which compose 50% share capital of this company and are the    only shares with voting rights. |

| (5) | Endesa        de Colombia S.A., which held 8.91% of Central Hidroeléctrica Betania        S.A. was liquidated on December 17, 2004. As a result of this transaction        Endesa-Chile (Individual legal entity) and Compañía Eléctrica        Conosur S.A., who owned shares of Endesa de Colombia S.A., acquired additional    participation in Central Hidroeléctrica Betania S.A. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (6) | In        2004 as the result of the review of ownership related to shareholdings        in Capital de Energía S.A., the Company determined that its participation        is 0.1% greater. The increase in participation of ThCh 216,746 was recorded    in the income statement for the year ended December 31, 2004.                                                                                              |

F-14

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**Endesa-Chile and SubsidiariesNotes to the Audited Consolidated Financial StatementsTranslation of financial statements originally issued in Spanish-See Note 2 (a)(Restated for general price-level changes and expressed in thousands of constantChilean pesos as of December 31, 2004, 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 percentage 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,** |     |
|---------------------------------------------------------|--------|----------------------------------------------------------------|----------|
|                                                    |   |                                                                |          |  |  |  |  |  |  |   |
|                                                    |   |                                                           | **2002** |   |   | **2003** |   |   | **2004** |   |
|                                                    |   |                                                                |          |   |  |  |   |  |  |   |
|                                                    |   |                                                           | %        |   |   | % |   |   | % |   |
| Lajas Inversora S.A.                                    |   |                                                           | 92.88    |   |   | 92.88 |   |   | 92.88 |   |
| Centrais Electricas Cachoeira Dourada S.A.              |   |                                                           | 92.51    |   |   | 92.51 |   |   | 92.51 |   |
| Emgesa S.A.                                             |   |                                                           | 22.36    |   |   | 22.36 |   |   | 22.36 |   |
| Edegel S.A.                                             |   |                                                           | 37.90    |   |   | 37.90 |   |   | 37.90 |   |
| Capital de Energía S.A.                          |   |                                                           | 43.58    |   |   | 43.58 |   |   | 43.68 |   |
| Compañía Eléctrica San Isidro S.A. |   |                                                           | 75.00    |   |   | 75.00 |   |   | 75.00 |   |
| Hidroeléctrica 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, 2004 was approximately 6.32%.

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 21).

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-15

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**Endesa-Chile and SubsidiariesNotes to the Audited Consolidated Financial StatementsTranslation of financial statements originally issued in Spanish-See Note 2 (a)(Restated for general price-level changes and expressed in thousands of constantChilean pesos as of December 31, 2004, 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:

|              |   |   | **Index** |   |   | **Change over PreviousNovember  30,** |   |
|-------------------|--------|--------|-----------|--------|--------|---------------------------------------|--------|
|                   |        |        |           |        |        |                                       |        |
|              |   |   |      |   |   |                                  |   |
| November 30, 2002 |   |   | 113.36    |   |   | 3.0                                   | %      |
| November 30, 2003 |   |   | 114.44    |   |   | 1.0                                   | %      |
| November 30, 2004 |   |   | 117.28    |   |   | 2.5                                   | %      |

By way of comparison, the actual values of the Chilean consumer price indices as of the balance sheet dates are as follows:

|              |   |   | **Index** |   |   | **Change over PreviousDecember 31,** |   |
|-------------------|--------|--------|-----------|--------|--------|--------------------------------------|--------|
|                   |        |        |           |        |        |                                      |        |
|              |   |   |      |   |   |                                 |   |
| December 31, 2002 |   |   | 112.86    |   |   | 2.8                                  | %      |
| December 31, 2003 |   |   | 114.07    |   |   | 1.1                                  | %      |
| December 31, 2004 |   |   | 116.84    |   |   | 2.4                                  | %      |

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, 2002 |   |   | 16,744.12 |   |
| December 31, 2003 |   |   | 16,920.00 |   |
| December 31, 2004 |   |   | 17,317.05 |   |

F-16

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**Endesa-Chile and SubsidiariesNotes to the Audited Consolidated Financial StatementsTranslation of financial statements originally issued in Spanish-See Note 2 (a)(Restated for general price-level changes and expressed in thousands of constantChilean pesos as of December 31, 2004, except as stated)**

**2.**    **Summary of Significant Accounting Policies, continued:**

*Comparative financial statements*

For comparative purposes, the historical December 31, 2002 and 2003 consolidated financial statements and their accompanying notes have been presented in constant Chilean pesos as of December 31, 2004. 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, 2004 as follows:

| **Year** |   |   | **Change in Index** |   |
|----------|--------|--------|---------------------|--------|
|          |        |        |                     |        |
|     |   |   |                |   |
| 2002     |   |   | 3.5% (1)            |   |
| 2003     |   |   | 2.5%  (2)           |   |

(1) Equivalent to the amounts for 2002 multiplied by the change in the CPI for 2003, then by the change in the CPI for 2004.