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**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 20-F**

 

| **o**                                                                                                                                                                                                                                                                                                                    | **REGISTRATION STATEMENT PURSUANT  TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF  1934**                                 |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                                                                                               | ** **                                                                                                                                            |
| **OR**                                                                                                                                                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                                                                                                               | ** **                                                                                                                                            |
| **x**                                                                                                                                                                                                                                                                                                                    | **ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934  For the fiscal year ended December 31, 2008** |
| ** **                                                                                                                                                                                                                                                                                                               | ** **                                                                                                                                            |
| **OR**                                                                                                                                                                                                                                                                                                                   |
| ** **                                                                                                                                                                                                                                                                                                               | ** **                                                                                                                                            |
| **o**                                                                                                                                                                                                                                                                                                                    | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                               |
| ** **                                                                                                                                                                                                                                                                                                               | ** **                                                                                                                                            |
| **For the transition period from                        to                        **

**OR** |
| ** **                                                                                                                                                                                                                                                                                                               | ** **                                                                                                                                            |
| **o**                                                                                                                                                                                                                                                                                                                    | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                            |

 

Dateof event requiring this shell company report . . . . . . . . . . . . . . . . ... .

 

Commissionfile number: 1-13240

 
| **EMPRESA NACIONAL DE ELECTRICIDAD S.A.**                            |
|----------------------------------------------------------------------|
| (Exact name of Registrant as specified in its charter)               |
|                                                                 |
| **EMPRESA NACIONAL DE ELECTRICIDAD S.A.**                            |
| (Translation of Registrant’s name into English)                 |
|                                                                 |
| **CHILE**                                                            |
| (Jurisdiction of incorporation or organization)                      |
|                                                                 |
| **Santa Rosa 76, Santiago, Chile**

**Telephone No. (562) 630-9000** |
| (Address of principal executive offices)                             |

 

Securitiesregistered 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 registrationof American Depositary Shares, pursuant to the requirements of the Securitiesand Exchange Commission.

 

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

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act:

 
| **$ 400,000,000** | ** ** | **8.500%** | ** ** | **Notes  due 2009** |
|------------------------|------------|------------|------------|---------------------|
| **$ 400,000,000** | ** ** | **8.350%** | ** ** | **Notes  due 2013** |
| **$ 200,000,000** | ** ** | **8.625%** | ** ** | **Notes  due 2015** |
| **$ 205,881,000** | ** ** | **7.875%** | ** ** | **Notes  due 2027** |
| **$ 220,000,000** | ** ** | **7.325%** | ** ** | **Notes  due 2037** |
| **$ 40,416,000**  | ** ** | **8.125%** | ** ** | **Notes  due 2097** |
| (Title of Class)       |

 

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report.
| Shares  of Common Stock: | 8,201,754,580 |
|--------------------------|---------------|
|                     |          |

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.

x Yes   o No

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934.

o Yes   x No

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days:

x Yes   o No

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

| Large accelerated filer x |   | Accelerated filer o |   | Non-accelerated filer o |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

| U.S. GAAP o |   | International Financial Reporting Standards as issued  by the International Accounting Standards Board o |   | Other x |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

Indicateby check mark which financial statement item the registrant has elected tofollow:

o Item 17   x Item 18

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

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**TABLE OF CONTENTS**

 

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| ** **                        | **Page**                                                                      |
|-----------------------------------|-------------------------------------------------------------------------------|
|                              |                                                                          |
| GLOSSARY                          | 4                                                                             |
| INTRODUCTION                      | 8                                                                             |
| Financial  Information            | 8                                                                             |
| Technical Terms                   | 9                                                                             |
| Calculation  of Economic Interest | 9                                                                             |
| Forward-Looking  Statements       | 9                                                                             |
| PART I                       | 11                                                                            |
| Item 1.                           | Identity of Directors,  Senior Management and Advisors                        | 11 |
| Item 2.                           | Offer Statistics and Expected  Timetable                                      | 11 |
| Item 3.                           | Key Information                                                               | 11 |
| Item 4.                           | Information on  the Company                                                   | 22 |
| Item 4A.                          | Unresolved  Staff Comments                                                    | 71 |
| Item 5.                           | Operating  and Financial Review and Prospects                                 | 71 |
| Item 6.                           | Directors,  Senior Management and Employees                                   | 96 |
| Item 7.                           | Major  Shareholders and Related Party Transactions                            | 105 |
| Item 8.                           | Financial  Information                                                        | 106 |
| Item 9.                           | The Offer and  Listing                                                        | 108 |
| Item 10.                          | Additional  Information                                                       | 110 |
| Item 11.                          | Quantitative  and Qualitative Disclosures About Market Risk                   | 124 |
| Item 12.                          | Description  of Securities other than Equity Securities                       | 127 |
| PART II                      |                                                                          | 128 |
| Item 13.                          | Defaults, Dividend  Arrearages and Delinquencies                              | 128 |
| Item 14.                          | Material  Modifications to the Rights of Security Holders and Use of Proceeds | 128 |
| Item 15.                          | Controls and  Procedures                                                      | 128 |
| Item 16.                          | [Reserved]                                                                    | 129 |
| Item 16A.                         | Audit  Committee Financial Expert                                             | 129 |
| Item 16B.                         | Code of Ethics                                                                | 129 |
| Item 16C.                         | Principal  Accountant Fees and Services                                       | 130 |
| Item 16D.                         | Exemptions  from Listing Requirements for Audit Committees                    | 131 |
| Item 16E.                         | Purchases  of Equity Securities by the Issuer and Affiliated Persons          | 131 |
| Item 16F.                         | Change in  Registrant’s Certifying Accountant                            | 131 |
| Item 16G.                         | Corporate  Governance                                                         | 131 |
|                              |                                                                          |   |
| PART III                     |                                                                          | 133 |
| Item 17.                          | Financial  Statements                                                         | 133 |
| Item 18.                          | Financial  Statements                                                         | 133 |
| Item 19.                          | Exhibits                                                                      | 133 |

 

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**Endesa Chile’s Simplified Organizational Structure(1)**

As of December 31, 2008

 

 

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| (1): | Only principal  operating subsidiaries are presented here. Percentage ownership includes  Endesa Chile’s direct and indirect equity interest. |
|------|----------------------------------------------------------------------------------------------------------------------------------------------------|

 

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**GLOSSARY**

 
| Acciona,  S.A.     | * * | *Acciona, S.A.*                                                                |   | Spanish  construction holding company. Together with Enel, Acciona held a controlling  interest in Endesa Spain as of December 31, 2008.                                                                                                                                |
|--------------------|----------|--------------------------------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| ADR                | * * | *American Depositary Receipt*                                                  |   | Receipt  evidencing a variable number of ADSs.                                                                                                                                                                                                                               |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| ADS                | * * | *American Depositary Share*                                                    |   | One  ADS represents 30 common shares of the Company.                                                                                                                                                                                                                         |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| AESGener  or Gener | * * | *AES Gener S.A.*                                                               |   | Chilean  generation company that competes with us in Chile, Argentina, Brazil and  Colombia.                                                                                                                                                                                 |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| AFP                | * * | *Administradora de Fondos de  Pensiones*                                       |   | Chilean  pension fund.                                                                                                                                                                                                                                                       |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| Ampla              | * * | *Ampla Energía e Servicos S.A.*                                           |   | Brazilian  distribution company operating in Rio de Janeiro, owned by Endesa Brasil, a  subsidiary of our parent company, Enersis.                                                                                                                                           |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| ANEEL              | * * | *Agéncia Nacional de Energia  Elétrica*                              |   | Brazilian  governmental agency for electric energy.                                                                                                                                                                                                                          |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| Betania            | * * | *Central Hidroeléctrica de  Betania S.A. E.S.P.*                          |   | Colombian  subsidiary which merged with Emgesa, another Endesa Chile subsidiary, in  2007.                                                                                                                                                                                   |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| Bureau  Veritas    | * * | *Bureau Veritas*                                                               |   | International  independent certification company.                                                                                                                                                                                                                            |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| Cachoeira  Dourada | * * | *Centrais Eléctricas Cachoeira  Dourada S.A.*                             |   | Brazilian  generation company owned by Endesa Brasil, a subsidiary of our parent  company, Enersis.                                                                                                                                                                          |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| Cammesa            | * * | *Compañía Administradora del  Mercado Mayorista Eléctrico S.A.* |   | Argentine  autonomous entity in charge of the operation of the *Mercado  Eléctrico Mayorista* (Wholesale Electricity Market), or MEM.  Cammesa’s stockholders are generation, transmission and distribution companies,  large users and the Secretariat of Energy. |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| CDEC               | * * | *Centro de Despacho Económico  de Carga*                                  |   | Autonomous  entity in two Chilean electric systems in charge of coordinating the  efficient operation and dispatch of generation units to satisfy demand.                                                                                                                    |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| CELTA              | * * | *Compañía Eléctrica Tarapacá  S.A.*                        |   | Chilean  generation subsidiary of Endesa Chile that operates in the SING with  thermal plants.                                                                                                                                                                          |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| CEMSA              | * * | *Compañía de Energía del  Mercosur S.A.*                        |   | Argentine  energy trading company, a subsidiary of Endesa Chile.                                                                                                                                                                                                             |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| Chilectra          | * * | *Chilectra S.A.*                                                               |   | Chilean  electricity distribution company operating in the Santiago metropolitan area  and owned by our parent company, Enersis.                                                                                                                                             |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| CIEN               | * * | *Companhia de Interconexão  Energética S.A.*                         |   | Brazilian  transmission company, wholly-owned by Endesa Brasil, a subsidiary of our  parent company, Enersis.                                                                                                                                                                |
|               | * * | * *                                                                       |   |                                                                                                                                                                                                                                                                         |
| CNE                | * * | *Comisión Nacional de Energía*                                       |   | Chilean  National Energy Commission, governmental entity with responsibilities under  the Chilean regulatory framework.                                                                                                                                                      |

 

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| Codensa                    | * * | *Codensa S.A. E.S.P.*                                               |   | Colombian distribution  company controlled by our parent company, Enersis, that operates mainly in  Bogotá.                                                                                                                                                                                  |
|----------------------------|----------|---------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Coelce                     | * * | *Companhia Energética do Ceará  S.A.*                     |   | Brazilian  distribution company operating in the state of Ceará. Coelce is controlled by  Endesa Brasil, a subsidiary of our parent company, Enersis.                                                                                                                                        |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| CREG                       | * * | *Comisión de Regulación de  Energía y Gas*           |   | Colombian  Commission for the Regulation of Energy and Gas.                                                                                                                                                                                                                                       |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| CTM                        | * * | *Compañía de Transmisión del  Mercosur*              |   | Endesa  Brasil’s transmission subsidiary with operations in Argentina.                                                                                                                                                                                                                       |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Edegel                     | * * | *Edegel S.A.A.*                                                     |   | Peruvian  generation company, a subsidiary of Endesa Chile.                                                                                                                                                                                                                                       |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Edelnor                    | * * | *Empresa de Distribución  Eléctrica de Lima Norte S.A.A.* |   | Peruvian  distribution company with a concession area in the northern part of Lima, a  subsidiary of our parent company, Enersis.                                                                                                                                                                 |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Edesur                     | * * | *Empresa Distribuidora Sur S.A.*                                    |   | Argentine  distribution company with a concession area in the south of the Buenos Aires  larger metropolitan area, a subsidiary of our parent company, Enersis.                                                                                                                                   |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| El  Chocón            | * * | *Hidroeléctrica El Chocón S.A.*                           |   | Argentine  generation company, a subsidiary of Endesa Chile, with two hydroelectric  plants, El Chocón and Arroyito, in the Limay River.                                                                                                                                                     |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Emgesa                     | * * | *Emgesa S.A. E.S.P.*                                                |   | Colombian  generation company controlled by Endesa Chile.                                                                                                                                                                                                                                         |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Endesa  Brasil             | * * | *Endesa Brasil, S.A.*                                               |   | Brazilian  holding company, subsidiary of our parent company, Enersis, created in 2005.                                                                                                                                                                                                           |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Endesa  Chile              | * * | *Empresa Nacional de  Electricidad S.A.*                            |   | Our  company, a publicly held limited liability stock company incorporated under  the laws of the Republic of Chile, with operations in Chile, Argentina,  Colombia and Peru and an equity interest in Brazil, and 12,906 MW of  consolidated installed capacity. Registrant of this Report. |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Endesa  Costanera          | * * | *Endesa Costanera S.A.*                                             |   | Argentine  generation company controlled by Endesa Chile.                                                                                                                                                                                                                                         |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Endesa  Fortaleza          | * * | *Central Geradora Termelétrica  Endesa Fortaleza S.A.*         |   | Operates  a combined cycle generating plant, located in the state of Ceará. Endesa  Fortaleza is wholly owned by Endesa Brasil, a subsidiary of our parent  company, Enersis.                                                                                                                |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Endesa  Latinoamérica | * * | *Endesa**Latinoamérica**S.A.*                                  |   | Formerly  Endesa Internacional, a subsidiary of Endesa Spain and the direct controller  of our parent company, Enersis.                                                                                                                                                                           |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Endesa  Spain              | * * | *Endesa, S.A.*                                                      |   | A  Spanish electricity generation and distribution company with a 60.6% equity  interest in Enersis.                                                                                                                                                                                              |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Enel                       | * * | *Enel S.p.A*                                                        |   | Italian  power company, with a controlling-ownership of Endesa Spain.                                                                                                                                                                                                                             |
|                       | * * | * *                                                            |   |                                                                                                                                                                                                                                                                                              |
| Enersis                    | * * | *Enersis S.A.*                                                      |   | Chilean  company with a 60.0% controlling stake in Endesa Chile.                                                                                                                                                                                                                                  |

 

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| ENRE        | * * | *Ente Nacional Regulatorio de  la Energía*                                                                                                |   | Argentine  national regulatory authority of the energy sector.                                                                                                              |
|-------------|----------|------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| Foninvemem  | * * | *Fondo Para Inversiones Necesarias  Que Permitan Incrementar La Oferta De Energía Eléctrica En El Mercado  Eléctrico Mayorista* |   | Argentine  fund created to increase electricity supply in the MEM.                                                                                                          |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| GasAtacama  | * * | *GasAtacama S.A.*                                                                                                                              |   | Company  involved in the gas transportation and electricity generation in the north of  Chile, an affiliate of Endesa Chile.                                                |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| GNLQ        | * * | *Gas Natural Quintero S.A.*                                                                                                                    |   | Company  created to develop, build, finance, own and operate a LNG regasification  facility at Quintero Bay (Chile), in which LNG will be unloaded, stored and  regasified. |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| IFRS        | * * | *International  Financial Reporting Standards*                                                                                                 |   | Accounting  standards that the company adopted on January 1, 2009.                                                                                                |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| LNG         | * * | *Liquefied Natural Gas*.                                                                                                                       |   | Liquefied  natural gas.                                                                                                                                                     |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| MEM         | * * | *Mercado Eléctrico Mayorista*                                                                                                             |   | Wholesale  Electricity Market in Argentina.                                                                                                                                 |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| MME         | * * | *Ministério de Minas e Energia*                                                                                                           |   | Ministry  of Mines and Energy of Brazil.                                                                                                                                    |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| NIS         | * * | *Sistema Interconectado Nacional*                                                                                                              |   | National  interconnected electric system. There are such systems in Argentina, Brazil  and Colombia.                                                                        |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| ONS         | * * | *Operador Nacional do Sistema  Elétricos*                                                                                                 |   | Electric  System National Operator. Brazilian non-profit private entity responsible for  the planning and coordination of operations in interconnected systems.             |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| Osinergmin  | * * | *Organismo Supervisor de la  Inversión en Energía y Minería*                                                                    |   | Energy  and Mining Investment Supervisor Authority, the Peruvian regulatory  electricity authority.                                                                         |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| Pangue      | * * | *Empresa Eléctrica Pangue S.A.*                                                                                                           |   | Chilean  electricity company, owner of the Pangue power station. Pangue is an Endesa  Chile subsidiary.                                                                     |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| Pehuenche   | * * | *Empresa Eléctrica Pehuenche  S.A.*                                                                                                       |   | Chilean  electricity company, owner of three power stations in the Maule basin.  Pehuenche is an Endesa Chile subsidiary.                                                   |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| San  Isidro | * * | *Compañía Eléctrica San Isidro  S.A.*                                                                                           |   | Chilean  electricity company, owner of a thermal power station. San Isidro is  wholly-owned by Endesa Chile.                                                                |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| SEF         | * * | *Superintendencia de  Electricidad y Combustible*                                                                                              |   | Governmental  entity in charge of supervising the Chilean electricity industry.                                                                                             |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| SEIN        | * * | *Sistema Eléctrico Interconectado Nacional*                                                                                               |   | Peruvian  interconnected electric system.                                                                                                                                   |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| SIC         | * * | *Sistema Interconectado Central*                                                                                                               |   | Chilean  central interconnected electric system covering all of Chile except the north  and the extreme south.                                                              |
|        | * * | * *                                                                                                                                       |   |                                                                                                                                                                        |
| SING        | * * | *Sistema Interconectado del  Norte Grande*                                                                                                     |   | Electric  interconnected system operating in northern Chile.                                                                                                                |

 

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| SVS    | * * | *Superintendencia  de Valores y Seguros* |   | Chilean authority in charge of supervising public companies,  securities and the insurance business. |
|--------|----------|------------------------------------------|--------|------------------------------------------------------------------------------------------------------|
|   | * * | * *                                 |   |                                                                                                 |
| UF     | * * | *Unidad de Fomento*                      |   | Chilean  inflation-indexed peso denominated monetary unit.                                           |
|   | * * | * *                                 |   |                                                                                                 |
| UTA    | * * | *Unidad Tributaria Anual*                |   | Chilean  annual tax unit. One UTA equals 12 UTM.                                                     |
|   | * * | * *                                 |   |                                                                                                 |
| UTM    | * * | *Unidad Tributaria Mensual*              |   | Chilean  monthly tax unit used to define fines, among other purposes.                                |
|   | * * | * *                                 |   |                                                                                                 |
| VAD    | * * | *Valor Agregado de Distribución*    |   | Valued  added from distribution of electricity.                                                      |
|   | * * | * *                                 |   |                                                                                                 |
| VNR    | * * | *Valor Nuevo de Reemplazo*               |   | The  net replacement value of electricity assets.                                                    |

 

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**INTRODUCTION**

 

*As used in this Report on Form 20-F,first person personal pronouns such as “we,” “us” or “our” refer to EmpresaNacional de Electricidad S.A. (“Endesa Chile” or “the Company”) and ourconsolidated subsidiaries unless the context indicates otherwise.  Unless otherwise noted, our interest in ourprincipal subsidiaries and related companies is expressed in terms of oureconomic interest as of December 31, 2008.*

 

We are a Chilean company with electricity generationassets, and with subsidiaries and unconsolidated equity investments engagedprimarily in the generation, transmission and distribution of electricity inChile, Argentina, Brazil, Colombia and Peru. As of the date of this Report, our direct controlling entity,ENERSIS S.A. (“Enersis”), owns a 60.0% stake in our company.  ENDESA, S.A. (“Endesa Spain”), inturn, holds a 60.6% beneficial interest in Enersis.

 

**FinancialInformation**

** **

In this Report on Form 20-F, unless otherwisespecified, references to “dollars,” “$,” are to United States dollars;references to “pesos” or “Ch$” are to Chilean pesos; the legal currency ofChile; references to “Ar$” or “Argentine pesos” are to the legal currency ofArgentina; references to “R$,”  or“reais” are to Brazilian reals, the legal currency of Brazil; references to“soles” are to Peruvian soles, the legal currency of Peru; references to “CPs”or “Colombian pesos” are to the legal currency of Colombia; references to “€”or “Euros” are to the legal currency of the European Union; 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 onchanges in the previous month’s inflation rate. As of December 31, 2008, UF 1 was equivalent toCh$ 21,452.57.  The dollar equivalentof UF 1 was $ 33.71 at December 31, 2008, using theObserved Exchange Rate reported by the *Banco Central de Chile*(the “Chilean Central Bank,” or the “Central Bank”) as of December 31, 2008of Ch$ 636.45 per $ 1.00.  Asof May 29, 2009, UF 1 was equivalent to Ch$ 20,992.00.  The dollar equivalent of UF 1 was$ 37.45 for May 29, 2009, using the Observed Exchange Ratereported by the Central Bank of Ch$ 560.58 per $ 1.00.

 

Our audited consolidated financial statements and,unless otherwise indicated, other financial information concerning us and oursubsidiaries included in this Report are presented in constant pesos inconformity with Chileangenerally accepted accounting principles (“Chilean GAAP”) and the rules ofthe *Superintendencia de Valores y Seguros*,or SVS.  Data expressed in pesos for allperiods in the Company’s audited consolidated financial statements for thethree fiscal years ended December 31, 2008 are expressed in constantpesos as of December 31, 2008. See Note 2 to our audited consolidated financial statements includedherein.  For Chilean accounting purposes,inflation adjustments are calculated based on a “one-month lag” conventionusing an inflation adjustment factor based on the *Indice dePrecios al Consumidor* (Chilean consumer price index, or “ChileanCPI”).  The Chilean CPI is published byChile’s *Instituto Nacional de Estadísticas*(the “National Bureau of Statistics”). For example, the inflation adjustment applicable for the 2008 calendaryear is the percentage change between the November 2007 Chilean CPI andthe November 2008 Chilean CPI, which was 8.9%.  On the other hand, economic inflation for2008 is based on the CPI change between December 31, 2007 and 2008,which amounted to 7.1% and was lower than the figure used in accordance withaccounting norms.  Chilean GAAP differsin certain important respects from accounting principles generally accepted inthe United States (“U.S. GAAP”).  SeeNote 36 to our audited consolidated financial statements contained elsewhere inthis Report for a description of the principal differences between Chilean GAAPand U.S. GAAP, as they relate to us, and for a reconciliation to U.S. GAAPstockholders’ equity and net income as of and for each of the three years inthe three-year period ended December 31, 2008.

 

Under Chilean GAAP, we consolidate the results fromoperations of a company defined as a “subsidiary” under Law No. 18,046(the “Chilean Companies Act”).  In orderto consolidate a company, we must generally satisfy one of two criteria:

 

·                  control, directly or indirectly, more than a 50%voting interest in such company; or

 

·                  nominate or have the power to nominate a majority ofthe Board of Directors of such company if we control 50% or less of the votinginterest of that company.

 

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As of December 31, 2008, we consolidated allour Chilean subsidiaries, primarily, *CompañíaEléctrica Tarapacá S.A.*(“Celta”)*, Empresa Eléctrica Pangue S.A.*(“Pangue”),*Empresa Eléctrica Pehuenche S.A.*(“Pehuenche”)*, Compañía Eléctrica San Isidro S.A.*(“SanIsidro”).  InArgentina, we consolidated Central *HidroeléctricaEl Chocón S.A.* (“El Chocón”), and *EndesaCostanera S.A.*(“EndesaCostanera”).  In Colombia, we consolidated thegeneration company *Emgesa S.A. E.S.P.*,(“Emgesa”) which is controlled pursuant to a shareholders’ agreement.  We also consolidated the generation company *Edegel S.A.A.* (“Edegel”), in Peru.

 

For the convenience of the reader, this Reportcontains translations of certain peso amounts into dollars at specifiedrates.  Unless otherwise indicated, thedollar equivalent for information in pesos is based on the Observed ExchangeRate, as defined in “Item 3. Key Information—A. Selected FinancialData—Exchange Rates” at December 31, 2008.  The Federal Reserve Bank of New York does notreport a noon buying rate for pesos.  Norepresentation is made that the peso or dollar amounts shown in this Reportcould have been or could be converted into dollars or pesos, as the case maybe, at such rate or at any other rate. See “Item 3. Key Information—A. Selected Financial Data—Exchange Rates.”

 

**Technical Terms**

** **

References to “GW” and “GWh” are to gigawatts andgigawatt hours, respectively; references to “MW” and “MWh” are to megawatts andmegawatt hours, respectively; references to “kW” and “kWh” are to kilowatts andkilowatt hours, respectively; and references to “kV” are to kilovolts.  Unless otherwise indicated, statisticsprovided in this Report with respect to electricity generation facilities areexpressed in MW, in the case of the installed capacity of such facilities.  One GW = 1,000 MW, and one MW= 1,000 kW.  Statistics relating toaggregate annual electricity production are expressed in GWh and are based on ayear of 8,760 hours, except for 2008, a leap year, based on8,784 hours.  Statistics relating toinstalled capacity and production of the electricity industry do not includeelectricity of self-generators.  Statisticsrelating to our production do not include electricity consumed by us from ourgenerators.

 

Energy losses in transmission are calculated bysubtracting the number of GWh of energy sold from the number of GWh of energypurchased and generated (that excludes own energy consumption and losses of thepower plant), within a given period.

 

**Calculation ofEconomic Interest**

** **

References are made in this Report to the “economicinterest” of Endesa Chile and its subsidiaries or affiliates.  In circumstances where we do not directly ownan interest in a subsidiary or affiliate, our economic interest in suchsubsidiary or affiliate is calculated by multiplying the percentage beneficialinterest in a directly held subsidiary or affiliate by the percentage beneficialinterest of any entity in the chain of ownership of such subsidiary oraffiliate.  For example, if we own 60% ofa directly held subsidiary and that subsidiary owns 40% of an affiliate, oureconomic beneficial interest in such related company would be 24%.

 

**Forward-LookingStatements**

** **

This Report contains statements that are or mayconstitute forward-looking statements. These statements appear throughout this Report and include statementsregarding our intent, belief or current expectations, including, but notlimited to, any statements concerning:

 

·                  our capital investment program;

 

·                  trends affecting our financial condition or resultsfrom operations;

 

·                  our dividend policy;

 

·                  the future impact of competition and regulation;

 

·                  political and economic conditions in the countries inwhich we or our related companies operate or may operate in the future;

 

·                  any statements preceded by, followed by or thatinclude the words “believes,” “expects,” “predicts,” “anticipates,” “intends,”“estimates,” “should,” “may” or similar expressions; and

 

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·                  other statements contained or incorporated byreference in this Report regarding matters that are not historical facts.

 

Because suchstatements are subject to risks and uncertainties, actual results may differmaterially from those expressed or implied by such forward-lookingstatements.  Factors that could causeactual results to differ materially include, but are not limited to:

 

·                  changes in the regulatory framework forthe electric industry in one or more of the countries in which we operate;

 

·                  changes in the environmental regulatory framework inone or more of the countries in which we operate;

 

·                  our ability to implement proposed capitalexpenditures, including our ability to arrange financing where required;

 

·                  the nature and extent of future competition in ourprincipal markets;

 

·                  political, economic and demographic developments inthe emerging market countries of South America where we conduct our business;and

 

·                  the factors discussed below under “Risk Factors.”

 

You should not place undue reliance on suchstatements, which speak only as of the date that they were made.  Our independent public accountants have notexamined or compiled the forward-looking statements and, accordingly, do notprovide any assurance with respect to such statements.  You should consider these cautionarystatements together with any written or oral forward-looking statements that wemay issue in the future.  We do notundertake any obligation to release publicly any revisions to forward-lookingstatements contained in this Report to reflect later events or circumstances orto reflect the occurrence of unanticipated events.

 

For all these forward-looking statements, we claim theprotection of the safe harbor for forward-looking statements contained in thePrivate Securities Litigation Reform Act of 1995.

 

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** **

**PART I**

** **

**Item 1.   Identity of Directors, Senior Management and Advisors**

** **

Notapplicable.

 

**Item 2.   Offer Statisticsand Expected Timetable**

** **

Notapplicable.

 

**Item 3.   Key Information**

** **

**A.            Selectedfinancial data.**

** **

Thefollowing summary of consolidated selected financial and operating data shouldbe read in conjunction with, and is qualified in its entirety by reference to,our audited consolidated financial statements, included in this Report.  Our audited consolidated financial statementsare prepared in accordance with Chilean GAAP and the rules of the SVS,which differ in certain important respects from U.S. GAAP.  Note 36 to our audited consolidated financialstatements provides a description of the principal differences between ChileanGAAP and U.S. GAAP, and reconciliation to U.S. GAAP of net income andshareholders’ equity for the periods indicated therein.  Financial data as of and for each of theyears in the five-year period ended December 31, 2008 in thefollowing table have been restated in constant pesos as of December 31, 2008.

 

Ingeneral, amounts are in millions except for ratios, operating data, shares andADS data.  For the convenience of thereader, all data presented in dollars in the following summary, as of and forthe year ended December 31, 2008, are converted at the ObservedExchange Rate for December 31, 2008 of Ch$ 636.45 per$ 1.00.  No representation is madethat the peso or dollar amounts shown in this Report could have been or couldbe converted into dollars or pesos, at such rate or at any other rate.  For more information concerning historicalexchange rates, see “Item 3. Key Information A. Selected Financial DataExchange Rates” below.

 

Our principaloperating subsidiaries were consolidated prior to 1998.  As of October 1, 2005, the 92.51%participation interest we held in *CentraisElétricas Cachoeira Dourada S.A.,* or “Cachoeira Dourada,” wascontributed to Endesa Brasil and consequently ceased to be consolidated by us,which significantly affected balance sheet figures as of December 31, 2005,and revenues and related costs for 2005 and subsequent years.  See “Item 4. Information on the Company — A.History and Development of the Company,” for details on Endesa Brasil.  All companies have been consolidatedaccording to Chilean GAAP.

 

Theinformation detailed in the following table includes the effect of certainaccounting changes for the five years ended and as of December 31, 2008,which affect the comparability presented below. For information on changes in accounting policies see Note 3 to ourconsolidated financial statements.

 

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| ** **                                                     | ** ** | **As of or for the year ended December 31, (in constant millions  of Ch$)** | ** ** |
|----------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                     | ** ** | **2004**                                                                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                                     | ** ** | **Ch$**                                                                          | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **(millions  of $) (1)** | ** ** |
| **Chilean  GAAP:**                                             | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues from  operations                                      |       | 1,277,545                                                                        |       | 1,341,074 |   | 1,563,878 |   | 1,880,664 |   | 2,491,589 |   | 3,915 |   |
| Cost of  operations                                            |       | (778,395                                                                         | )          | (823,483 | ) | (927,786 | ) | (1,218,649 | ) | (1,549,013 | ) | (2,434 | ) |
| Administrative  and selling expenses                           |       | (42,613                                                                          | )          | (46,068 | ) | (46,066 | ) | (40,381 | ) | (49,215 | ) | (77 | ) |
| Operating income                                               |       | 456,537                                                                          |       | 471,523 |   | 590,026 |   | 621,634 |   | 893,360 |   | 1,404 |   |
| Equity in income  (losses) of related companies, net           |       | 23,757                                                                           |       | 16,203 |   | 49,526 |   | (11,383 | ) | 113,657 |   | 179 |   |
| Goodwill  amortization                                         |       | (1,812                                                                           | )          | (1,631 | ) | (1,103 | ) | (991 | ) | (1,185 | ) | (2 | ) |
| Interest  expense, net                                         |       | (219,772                                                                         | )          | (194,935 | ) | (183,743 | ) | (167,983 | ) | (166,169 | ) | (261 | ) |
| Price-level  restatement and foreign currency translation, net |       | 28,258                                                                           |       | 19,368 |   | 5,960 |   | 27,733 |   | (30,138 | ) | (47 | ) |

 
| ** **                                                                               | ** ** | **As of or for the year ended December 31, (in constant millions  of Ch$)** | ** ** |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2004**                                                                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                                                               | ** ** | **Ch$**                                                                          | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **(millions  of $) (1)** | ** ** |
| Other  non-operating expense, net                                                        |       | (34,694                                                                          | )          | (24,248 | ) | (15,906 | ) | (73,327 | ) | (861 | ) | (1 | ) |
| Income before  income taxes, minority interest and negative goodwill amortization        |       | 252,274                                                                          |       | 286,280 |   | 444,760 |   | 395,683 |   | 808,664 |   | 1,271 |   |
| Income taxes                                                                             |       | (115,582                                                                         | )          | (109,806 | ) | (153,048 | ) | (123,507 | ) | (191,557 | ) | (301 | ) |
| Extraordinary  loss                                                                      |       | —                                                                           |       | — |   | — |   | — |   | — |   | — |   |
| Minority  interest                                                                       |       | (52,952                                                                          | )          | (62,656 | ) | (77,088 | ) | (67,381 | ) | (180,686 | ) | (284 | ) |
| Amortization of negative  goodwill                                                       |       | 19,919                                                                           |       | 18,282 |   | 7,061 |   | 4,772 |   | 6,172 |   | 10 |   |
| Net income                                                                               |       | 103,659                                                                          |       | 132,100 |   | 221,685 |   | 209,566 |   | 442,592 |   | 695 |   |
| Net income per  share in Ch$/$                                                      |       | 12.63                                                                            |       | 16.11 |   | 27.03 |   | 25.55 |   | 53.96 |   | 0.08 |   |
| Net income per  ADS in Ch$/$ (2)                                                    |       | 379.03                                                                           |       | 483.27 |   | 810.87 |   | 766.54 |   | 1.618.89 |   | 2.54 |   |
| **U.S.  GAAP :**                                                                         | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenues from  operations                                                                |       | 1,277,545                                                                        |       | 1,341,074 |   | 1,563,878 |   | 1,880,664 |   | 2,491,589 |   | 3,915 |   |
| Operating income                                                                         |       | 479,904                                                                          |       | 490,685 |   | 619,125 |   | 639,972 |   | 796,498 |   | 1,251 |   |
| Equity in income  of related companies, net                                              |       | 23,757                                                                           |       | (17,908 | ) | 54,484 |   | (36,414 | ) | 131,775 |   | 207 |   |
| Income taxes                                                                             |       | (188,383                                                                         | )          | (119,108 | ) | (162,471 | ) | (127,743 | ) | (162,454 | ) | (255 | ) |
| Net income  (loss) from continuing operations                                            |       | 78,612                                                                           |       | 119,744 |   | 247,828 |   | 197,590 |   | 394,902 |   | 620 |   |
| Cumulative  effect of changes in accounting principles, net of tax and minority interest |       | 1,493                                                                            |       | — |   | — |   | — |   | — |   | — |   |
| Net income                                                                               |       | 80,105                                                                           |       | 119,744 |   | 247,828 |   | 197,590 |   | 394,902 |   | 620 |   |
| Income from  continuing operations per share in Ch$/$                               |       | 9.59                                                                             |       | 14.60 |   | 30.21 |   | 24.09 |   | 48,15 |   | 0.08 |   |
| Cumulative  effect of changes in accounting principles                                   |       | 0.17                                                                             |       | — |   | — |   | — |   | — |   | — |   |
| Net income per  share in Ch$/$                                                      |       | 9.77                                                                             |       | 14.60 |   | 30.21 |   | 24.09 |   | 48.15 |   | 0.08 |   |
| Net income per  ADS in Ch$/$ (2)                                                    |       | 287.71                                                                           |       | 438.13 |   | 875.20 |   | 722.66 |   | 1,444.45 |   | 2.27 |   |
|                                                                                          |            |                                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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| ** **                                  | ** ** | **As of or for the year ended December 31, (in constant millions  of Ch$)** | ** ** |
|---------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **2004**                                                                         | ** ** | **2005** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                  | ** ** | **Ch$**                                                                          | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **Ch$** | ** ** | **(millions  of $) (1)** | ** ** |
| **Consolidated  Balance Sheet Data**        | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Chilean  GAAP:**                          | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                |       | 6,578,671                                                                        |       | 5,820,837 |   | 6,184,246 |   | 5,866,855 |   | 7,142,356 |   | 11,222 |   |
| Long-term  liabilities                      |       | 2,711,321                                                                        |       | 2,114,296 |   | 2,448,228 |   | 2,092,644 |   | 2,364,004 |   | 3,714 |   |
| Minority interest                           |       | 1,394,737                                                                        |       | 1,115,214 |   | 1,093,783 |   | 965,815 |   | 1,192,717 |   | 1,874 |   |
| Total  Shareholders’ equity            |       | 1,940,941                                                                        |       | 1,961,098 |   | 2,098,600 |   | 2,051,923 |   | 2,364,524 |   | 3,715 |   |
| Capital stock                               |       | 1,331,714                                                                        |       | 1,331,714 |   | 1,331,714 |   | 1,331,714 |   | 1,331,714 |   | 2,092 |   |
| **U.S.  GAAP:**                             | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total assets                                |       | 6,177,650                                                                        |       | 5,491,703 |   | 5,842,360 |   | 5,582,810 |   | 6,919,873 |   | 10,873 |   |
| Long-term  liabilities                      |       | 2,856,971                                                                        |       | 2,273,211 |   | 2,578,315 |   | 2,229,327 |   | 2,670,071 |   | 4,195 |   |
| Minority  interest                          |       | 1,286,583                                                                        |       | 1,023,011 |   | 995,591 |   | 816,219 |   | 1,035,930 |   | 1,628 |   |
| Total  Shareholders’ equity            |       | 1,475,718                                                                        |       | 1,531,175 |   | 1,688,864 |   | 1,738,957 |   | 1,905,724 |   | 2,994 |   |
| Capital stock                               |       | 1,331,714                                                                        |       | 1,331,714 |   | 1,331,714 |   | 1,331,714 |   | 1,331,714 |   | 2,092 |   |
| **Other  Consolidated Financial Data**      | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Chilean  GAAP:**                          | ** ** | ** **                                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capital expenditures  (5)                   |       | 118,934                                                                          |       | 70,191 |   | 198,929 |   | 225,455 |   | 290,179 |   | 456 |   |
| Depreciation and  amortization              |       | 194,916                                                                          |       | 188,350 |   | 200,374 |   | 207,699 |   | 247,351 |   | 394 |   |
| Cash dividends  per share in Ch$/$ (3) |       | 5.11                                                                             |       | 6.98 |   | 3.01 |   | 14.19 |   | 16.19 |   | 0.027 |   |
| Cash dividends  per ADS in $ (2)(3)(4) |       | 0.00                                                                             |       | 0.00 |   | 0.16 |   | 0.86 |   | 0.76 |   |   |   |
| Weighted average  outstanding (million)     |       |                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Number of shares                            |       | 8,202                                                                            |       | 8,202 |   | 8,202 |   | 8,202 |   | 8,202 |   | 8,202 |   |
| Number of ADS                               |       | 14                                                                               |       | 14 |   | 14 |   | 14 |   | 14 |   | 14 |   |

 

----

(1)          Solely for theconvenience of the reader, peso amounts have been translated into dollars atthe rate of Ch$ 636.45 per dollar, the Observed Exchange Rate as of December 31, 2008.

(2)          Per ADS amountsin constant pesos are determined by multiplying per share amounts by 30 (1 ADS= 30 Shares).  Per share amounts in $ aredetermined by dividing per ADS amounts by 30.

(3)          This chartdetails dividends payable in any given year, and not necessarily paid that sameyear.  The 2007 dividend was paid in April 2008.  The final dividend for 2008 was paid afterthe stockholders meeting held on April 15, 2009.

(4)          Dollar amountsare calculated by applying the dollar exchange rate on the dividend paymentdate to the nominal peso amount.

(5)          Capitalexpenditures do not include investments in equity investments and capitalexpenditures in development stage subsidiaries.

 

**Exchange Rates**

** **

Fluctuationsin the exchange rate between the peso and the dollar will affect the dollarequivalent of the peso price of our shares of common stock, without par value(the “Shares,” or the “Common Stock”), on the *Bolsa deComercio de Santiago* (the “Santiago Stock Exchange”), the *Bolsa Electrónica de Chile* (the “Electronic Exchange”) andthe *Bolsa de Corredores de Valparaíso* (the “ValparaísoStock Exchange”) (collectively, the “Chilean Exchanges”).  These exchange rate fluctuations will likelyaffect the price of the Company’s American Depositary Shares (“ADSs”) and theconversion of cash dividends relating to the Shares represented by ADSs frompesos to dollars.  In addition, to theextent financial liabilities of the Company are denominated in foreigncurrencies, exchange rate fluctuations may have a significant impact onearnings.

 

The *Ley Orgánica del Banco Central de Chile 18,840* (the “CentralBank Act”) provides that the Central Bank may require that certain purchasesand sales of foreign currency be carried out in the *MercadoCambiario Formal*

 

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(the “Formal Exchange Market”), a market formed bybanks and other entities and explicitly authorized by the Central Bank.  Purchases and sales of foreign currency whichcan take place outside of the Formal Exchange Market, can be carried out in the*Mercado Cambiario Informal* (the “InformalExchange Market”), which is a recognized currency market in Chile.  Free market forces drive both the Formal andInformal Exchange Markets.  Foreigncurrency for payments and distributions with respect to the ADSs may bepurchased in either the Formal or the Informal Exchange Market, but suchpayments and distributions must be remitted through the Formal ExchangeMarket.  The Central Bank publishes dailythe *dólar observado* (the “Observed ExchangeRate”), which is computed by taking the weighted average of the previous day’stransactions in the Formal Exchange Market.

 

Since1993, the Observed Exchange Rate and the Informal Exchange Rate have typicallybeen within less than 1% of each other. On December 31, 2008, the Informal Exchange Rate wasCh$ 638.50, or 0.32% higher than the published Observed Exchange Rate ofCh$ 636.45 per $ 1.00.  On May 31, 2009,the informal exchange rate was Ch$ 561.45 per $ 1.00, 0.16% higherthan the Observed Exchange Rate corresponding to such date, of Ch$ 560.58per $ 1.00.  Unless otherwiseindicated, amounts translated to dollars were calculated based on the exchangerates in effect as of December 31, 2008.

 

Thefollowing table sets forth, for the periods and dates indicated, certaininformation concerning the Observed Exchange Rate reported by the Central Bank.

 
| ** **           | ** ** | **Observed Exchange Rate (1)  (Ch$ per $)** | ** ** |
|----------------------|------------|--------------------------------------------------|------------|
| ** **           | ** ** | **Low**                                          | ** ** | **High** | ** ** | **Average  (2)** | ** ** | **Period-  end** | ** ** |
| **Year**             |       |                                             |       |   |   |   |   |   |   |
| 2004                 |       | 557.40                                           |       | 649.45 |   | 611.11 |   | 557.40 |   |
| 2005                 |       | 509.70                                           |       | 592.75 |   | 558.06 |   | 512.50 |   |
| 2006                 |       | 511.44                                           |       | 549.63 |   | 529.64 |   | 532.39 |   |
| 2007                 |       | 493.14                                           |       | 548.67 |   | 521.06 |   | 496.89 |   |
| 2008                 |       | 431.22                                           |       | 676.75 |   | 530.48 |   | 636.45 |   |
| **Last  six months** | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| 2008                 |       |                                             |       |   |   |   |   |   |   |
| December             |       | 625.59                                           |       | 674.83 |   | — |   | 636.45 |   |
| 2009                 |       |                                             |       |   |   |   |   |   |   |
| January              |       | 610.09                                           |       | 643.87 |   | — |   | 617.10 |   |
| February             |       | 583.32                                           |       | 623.87 |   | — |   | 599.04 |   |
| March                |       | 572.39                                           |       | 614.85 |   | — |   | 583.26 |   |
| April                | ** ** | 575.12                                           |       | 601.04 |   | **—** |   | 580.10 |   |
| May                  |       | 558.95                                           |       | 580.10 |   | — |   | 560.58 |   |

 

----

*Source: Chilean CentralBank.*

 

(1)          Reflects pesosat historical values.

(2)          The average of the exchange rates on the last day ofeach month during the period.  This isnot applicable to monthly data.

 

**B.            Capitalizationand indebtedness.**

** **

Notapplicable.

 

**C.            Reasonsfor the offer and use of proceeds.**

** **

Notapplicable.

 

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**D.            Riskfactors.**

** **

**Risks Relating to Our Operations in Every Country inWhich We Operate**

** **

***SouthAmerican economic fluctuations are likely to affect our results fromoperations.***

*** ***

All ofour operations are located in South America. In 2008, we generated 44% of our consolidated operating revenues and 38%of our consolidated operating income outside Chile.  Accordingly, our consolidated revenues aresensitive to the performance of South American economies as a whole.  If local, regional or worldwide economictrends adversely affect the economy of any of the countries in which we haveinvestments or operations, our financial condition and results from operationscould be affected adversely.

 

TheSouth American financial and securities markets are, to varying degrees,influenced by economic and market conditions in other emerging countries.  Although economic conditions are different ineach country, investor reaction to developments in one country may have asignificant effect on the securities of issuers in other countries, includingChile.  Chilean financial and securitiesmarkets may be affected adversely by events in other countries and such effectsmay affect the value of our securities. Moreover, we have significant investments in relatively riskynon-Chilean countries such as Argentina, Brazil, Colombia and Peru.  Generation and distribution of cash fromsubsidiaries in these countries have proven to be volatile.

 

***Certain South American economieshave been characterized by frequent and occasionally drastic intervention bygovernmental authorities, which may affect our business adversely.***

*** ***

Governmentalauthorities have changed monetary, credit, tariff and other policies toinfluence the course of the economy of Argentina, Brazil, Colombia andPeru.  These governmental actions wereintended to control inflation and affect other policies have often involvedwage, price and tariff rate controls as well as other interventionist measures,which have included freezing bank accounts and imposing capital controls, forexample, this was the case in Argentina in 2001.  In 2008, the Argentine governmentnationalized the private sector pension funds. Changes in the policies of these governmental authorities with respectto tariff rates, exchange controls, regulations and taxation could affect ourbusiness and financial results adversely, as could inflation, devaluation,social instability and other political, economic or diplomatic developments,including the response by governments in the region to such circumstances.  If governmental authorities intervenematerially in any of the countries in which we operate, it could cause ourbusiness to become less profitable, and our results of operations may be affectedadversely.

 

***The worldwide financialcrisis will have a significant adverse effect on our access to bank loans and,to a lesser degree, the capital markets, and a prolonged recession is likely toaffect our results of operations.***

*** ***

The worldwide creditcrisis and its disruptive effect on the financial industry is likely to have anadverse impact on our ability to obtain new bank loans under the terms andconditions that have been available to us until now.

 

Our ability to tap thecapital markets in the five countries where we operate, as well as theinternational capital markets for other sources of liquidity, may also bediminished during the crisis, or such financing may be available only atinterest levels higher than those we have experienced until now, leading to anincrease in interest expense and reduced cash flows.   Reduced liquidity could, in turn, affect ourcapital expenditures, our long-term investments and acquisitions, our growthprospects, as well as our dividend payout policy.

 

In addition, to theextent that the five countries in which we operate experience a prolongedrecession, it is likely that our customers will demand less electricity than inthe past, which could affect our results of operations and financial conditionadversely.  Furthermore, some of ourcustomers may experience difficulties in paying their electricity bills, and anincrease in uncollectible accounts would also affect our results adversely.

 

***We are subject torefinancing risk and to debt covenants that could affect our liquidity.***

*** ***

As of December 31, 2008, on a consolidatedbasis, we had $ 1,051 million of indebtedness maturing in 2009(including a put option amounting to $ 220 million exercised byholders of certain Yankee Bonds on February 1, 2009 for$ 149 million):

·                  $ 391 million in 2010,

·                  $ 546 million in 2011,

 

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·                  $ 267 million in 2012,

·                  $ 481 million in 2013, and

·                  $ 1,606 million maturing thereafter.

The same $ 1,051 million indebtedness, on acountry by country basis, is as follows:

·                  $ 110 million in Argentina;

·                  $ 192 million in Colombia;

·                  $ 116 million in Peru; and

·                  $ 633 million in Chile.

 

Ourdebt agreements are subject to certain fairly standard debt to EBITDA and debtto equity financial covenant ratios, among others.  They also contain common affirmative andnegative covenants, as well as events of default, and in some cases, mandatoryprepayment events.

 

A substantialportion of our indebtedness contains cross-payment default provisions.  In the case of our Yankee Bond indentures,the cross-payment default may be potentially triggered by a default in anyamount on our debt or on that of any of our subsidiaries, as long as theprincipal on the debt giving rise to the cross-payment default exceeds$ 30 million.  For our syndicatedbank credit agreements under the laws of the State of New York, the materialitythreshold for the principal on the debt potentially giving rise to thecross-payment default increases to $ 50 million, and there is anadditional clause requiring that at least $ 50 million must be in defaultas well.  Furthermore, the bank debtfacilities do not apply to all subsidiaries, as is the case with the YankeeBonds.  In Yankee indentures and thesyndicated loan contracts, the cross default is not automatic; instead, acertain minimum quorum of debt holders need to formally request acceleration.  Our local Chilean bonds, denominated in UF,on the other hand, have cross default clauses with much higher materialitythresholds than the ones detailed here. Our non-Chilean risk debt facilities normally carry relatively lowcross default materiality thresholds, in line with market practice inthose countries.   In the event that anyof our cross-default provisions is triggered and our existing creditors demandimmediate repayment, a significant portion of our indebtedness, could becomedue and payable.  For more information onsome of these covenants and certain relevant provisions for these creditfacilities, see “Item 5. Operating and Financial Review and Prospects—B.Liquidity and Capital Resources.”

 

We maybe unable to refinance our indebtedness or obtain such refinancing on termsacceptable to us.  In the absence of suchrefinancing, we could be forced to dispose of assets in order to make up forany shortfall in the payments due on our indebtedness under circumstances thatmight not be favorable to obtaining the best price for such assets.  Furthermore, assets may not be sold quicklyenough, or for amounts sufficient to enable us to make such payments.

 

As ofthe date of this Report, Argentina is the country with the greatest refinancingrisk.  As of December 31, 2008,the third-party financial debt of our Argentine subsidiaries (Endesa Costaneraand El Chocón) was $ 314 million. As a matter of policy for all of our Argentine subsidiaries, as long asfundamental issues concerning the electricity sector remain unresolved, we arerolling over most of our outstanding debt. If our creditors do not continue to accept rolling over debt principalwhen it becomes due, we may be unable to refinance our indebtedness on termsotherwise acceptable to us.

 

***Sinceour business depends heavily on hydrological conditions, drought conditions mayaffect our profitability.***

*** ***

Approximately 62% of our consolidated installedgeneration capacity is hydroelectric. Accordingly, extreme hydrological conditions affect our business and mayhave a substantial influence over our results.

 

Duringperiods of drought, thermal plants, such as ours that use natural gas, fuel oilor coal as a fuel, are dispatched more frequently.  Our operating expenses increase during theseperiods and, depending on the size of our commitments, we may have to buyelectricity from other parties in order to comply with our contractual supplyobligations.  The cost of theseelectricity purchases in the spot market may exceed the price at which we sellcontracted electricity, thus producing losses from those contracts.

 

Ourgeneration subsidiaries have a commercial policy in order to limit thepotential impact of interruptions to our ability to supply electricity to ourcustomers, including those caused by droughts, interruptions in gas supply andprolonged plant stoppages.  Pursuant tothis policy, a level of contracts is determined for each generation company

 

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by reducing the hydrological risk to acceptablelevels, assured by a degree of statistical reliability of 95%. Any contractsfor volumes that exceed this 95% level are required to include clausestransferring the risk of interruptions and its related costs to the customers.  Notwithstanding this risk-reduction policy, aprolonged drought will adversely affect our results.

 

***Governmental regulations may impose additionaloperating costs which may reduce our profits.***

*** ***

We aresubject to extensive regulation of tariffs and other aspects of our business inthe countries in which we operate and these regulations may adversely affectour profitability.  In addition, changesin the regulatory framework, including changes that if adopted wouldsignificantly affect our operations, are often submitted to the legislators andadministrative authorities in the countries in which we operate and could havea material adverse impact on our business. For instance, in 2005 there was a change in Water Rights Law in Chilethat requires us to pay for all the unused water rights.

 

TheChilean government can impose electricity rationing during drought conditionsor prolonged failures in power facilities. If, during rationing, we are unable to generate enough electricity tocomply with our contractual obligations, we may be forced to buy electricity inthe pool market at the spot price, since even a severe drought does notconstitute a *force majeure* event.  The spot price may be significantly higherthan our costs to generate the electricity and can be as high as the “cost offailure” set by the National Energy Commission, or the CNE.  The “cost of failure” is determinedsemiannually by the CNE’s economic models as the highest cost of electricityduring periods of electricity deficit. If we are unable to buy enough electricity in the pool market to complywith all of our contractual obligations, then we would have to compensate ourregulated customers for the electricity we failed to provide at the rationedprice.  If material rationing policiesare imposed by regulatory authorities in Chile, our business, financialcondition and results from operations may be affected adversely in a materialway.

 

Similarly,if material rationing policies are imposed by any regulatory authority as aresult of adverse hydrological conditions in the other countries in which weoperate, our business, financial condition and results of operations may beaffected adversely in a material way. Rationing periods may occur in the future and, consequently, ourgeneration subsidiaries may be required to pay regulatory penalties if suchsubsidiaries fail to provide adequate service under such conditions.

 

***Regulatory authorities may impose fines on oursubsidiaries.***

*** ***

InChile, our electricity businesses may be subject to regulatory fines for anybreach of current regulations, including energy supply failure.  Such fines may range from 1 *Unidad Tributaria Mensual*, or $ 59,to 10,000 *Unidades Tributarias Anuales*,or $ 7.1 million, in each case using the UTM, UTA and foreign exchangerate for December 31, 2008. Any electricity company supervised by the Chilean Superintendence ofElectricity and Fuels, or SEF, may be subject to these fines in cases where, inthe opinion of the SEF, operational failures that affect the regular energysupply to the system are the fault of such company; for instance, when thecoordination duty of the system agents is not fulfilled, even when it is notwithin the company’s control to prevent such failures

 

Ourgeneration subsidiaries may be required to pay fines or to compensate customersif those subsidiaries are unable to deliver electricity to them even if suchfailure is due to forces outside of our control.

 

In2003, the SEF imposed fines on some of our Chilean generation subsidiaries inan aggregate amount of 5,330 UTA, or $ 3.8 million, due to theirfailure to transmit energy in the Metropolitan Region in 2002.

 

In2004, the SEF imposed fines on us in an aggregate amount of 2,030 UTA dueto a blackout that occurred in the Metropolitan Region in 2003.  As a result of an administrative resolution,these fines have since been reduced to 1,610 UTA, or$ 1.1 million.

 

In2005, the SEF imposed fines of 1,260 UTA, or $ 0.9 million, onus due to a blackout that occurred in the Metropolitan Region in 2003.

 

On February 17, 2009,the SEF imposed fines on Endesa Chile, Pehuenche and San Isidro for 200, 200and 100 UTA, respectively, or $ 0.3 million in total, due to an agreementin the CDEC-SIC.

 

We arecurrently appealing all these fines, but these appeals may be unsuccessful.

 

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***Wedepend in part on payments from our subsidiaries and affiliates to meet ourpayment obligations.***

*** ***

Inorder to pay our obligations, we rely in part on cash from dividends, loans,interest payments, capital reductions and other distributions from oursubsidiaries and equity affiliates, as well as cash from proceeds of theissuance of new securities.  The abilityof our subsidiaries and equity affiliates to pay dividends, interest payments,loans and other distributions to us is subject to legal constraints such asdividend restrictions, fiduciary duties, contractual limitations and foreignexchange controls that may be imposed in any of the five countries where theyoperate.

 

Historically,we have been able to access the cash flows of our Chilean subsidiaries, but wehave not been similarly able to access at all times the cash flows of all of ournon-Chilean operating subsidiaries due to government regulations, strategicconsiderations, economic conditions, and credit restrictions.

 

Ourfuture results from operations outside Chile may continue to be subject togreater economic and political uncertainties than what we have experienced inChile, thereby reducing the likelihood that we will be able to rely on cashflow from operations in those entities to repay our debt.

 

*Dividend Limits and Other Legal Restrictions. *Some of our non-Chilean subsidiaries are subject tolegal reserve requirements and other restrictions on dividend payments.  In addition, the ability of any of oursubsidiaries which are not wholly-owned to distribute cash to us may be limitedby the fiduciary duties of the directors of such subsidiaries to their minorityshareholders.  As a consequence of suchduties, our subsidiaries could, under certain circumstances, be prevented fromdistributing cash to us.

 

*Contractual Constraints. *Distributionrestrictions in our subsidiaries’ contractual agreements include thefollowing:  prohibitions against dividenddistributions by many companies in the case of default, in *Empresa Eléctrica Pangue S.A.*, or *Pangue*, one of our Chilean generationsubsidiaries, if it is not in compliance with certain debt-to-equity ratio anddebt coverage ratio (in each case, as defined in *Pangue’s* credit agreement that matures in January 2010);prohibitions against dividend distributions, capital reductions, intercompanyinterest payments and debt repayment by Endesa Costanera and El Chocón inArgentina, in each case in the case of default and if not in compliance withcertain financial ratios.

 

*Operating Results of OurSubsidiaries.*  The ability of our subsidiaries and equityaffiliates to pay dividends or make loan payments or other distributions to usis limited by their operating results. To the extent that the cash requirements at any of our subsidiariesexceed available cash, such subsidiary will not be able to make cash availableto us.

 

*Foreign Currency Controls.*  The ability ofour non-Chilean subsidiaries and equity affiliates to pay dividends and makeloan payments or other distributions to us may be subject to emergencyrestrictions that may be imposed by Central Banks or other governmentalauthorities in the various jurisdictions in which we operate.  For example, during the economic crisis inArgentina, the Central Bank of Argentina imposed restrictions on the transferof funds outside the country.

 

***Foreignexchange risks may adversely affect our results and the dollar value ofdividends payable to ADS holders***

*** ***

TheSouth American currencies in which we and our subsidiaries operate have beensubject to large devaluations and appreciations against the dollar and may besubject to significant fluctuations in the future.

 

Historically,a significant portion of our consolidated indebtedness has been denominated indollars and, although a substantial portion of our revenues are linked todollars, we generally have been and will continue to be materially exposed tofluctuations of our local currencies against the dollar because of time lagsand other limitations in the indexation of our tariffs to the dollar.

 

Becauseof this exposure the cash generated by our subsidiaries can be diminishedmaterially when the local currencies devalue against the dollar.  Future volatility in the exchange rate of thecurrencies in which we receive revenues or incur expenditures, may affect ourfinancial condition and results from operations.  For more information on the risks associatedwith foreign exchange rates, see “Item 11. Quantitative and QualitativeDisclosures About Market Risk.”

 

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As of December 31, 2008,using financial instead of accounting conventions, Endesa Chile’s totalconsolidated financial debt was $ 4,343 million (net of currencyhedging instruments).  Of this amount$ 2,798 million, or 64%, was denominated in dollars and$ 658 million was denominated in pesos.  In addition to the dollar and the peso, ourforeign currency denominated consolidated indebtedness included the equivalentof:

 

·                  $ 694 million in Colombianpesos,

·                  $ 149 million in soles, and,

·                  $ 45 million in Argentinepesos,

for anaggregate of $ 1,546 million in currencies other than dollars.

 

For the twelve-month period ended December 31, 2008,our operating revenues amounted to $ 3,915 million of which:

·                  $ 744 million, or 19%, wasdenominated in dollars,

·                  $ 1,916 million, or 49%, waslinked in some way to the dollar, and

·                  $ 88 million were revenues inpesos.

 

In theaggregate, 68% of our revenues was either in dollars or tied to dollars throughsome form of indexation.  Revenues beforeconsolidation adjustments in other currencies for the twelve-month period endedDecember 31, 2008, included the equivalent of $ 542 millionin Colombian pesos, $ 5,555 million in Argentine pesos, and$ 70 million in soles.

 

Despitethe fact that we generate revenues and incur debt in these same currencies, webelieve that we are subject to risk in terms of our foreign exchange exposureto these four currencies.  The mostmaterial case is that of Argentina, where most of our debt is denominated indollars while our revenues are mostly in Argentine pesos.

 

Furthermore,trading in the shares of our common stock underlying American Depositary Shares(ADSs) is conducted in pesos.  Ourdepositary bank will receive cash distributions that we make with respect tothe shares underlying the ADSs in pesos. The depositary bank will convert such pesos to dollars at thethen-prevailing exchange rate to make dividend and other distribution paymentsin respect of ADSs.  If the pesodepreciates against the dollar, the value of the ADSs and any dollardistributions ADS holders receive from the depositary bank will decrease.

 

***Construction ofnew facilities may be affected adversely by factors associated with theseprojects.***

*** ***

Factorsthat may adversely affect our ability to build new facilities include:  delays in obtaining regulatory approvals,including environmental permits; shortages or increase in the prices ofequipment, materials or labor; opposition by local or international political,environmental and ethnic groups; strikes; adverse changes in the political andregulatory environment in the countries where we and our affiliates operate;adverse weather conditions; natural disasters, accidents or other unforeseenevents; and the inability to obtain financing at affordable rates.

 

Any ofthese factors may cause delays in the completion of all or part of our capitalinvestments program and may increase the cost of the projects.

 

***We are involved inlitigation proceedings.***

*** ***

We arecurrently involved in various litigation proceedings, which could result inunfavorable decisions or financial penalties against us, and we will continueto be subject to future litigation proceedings, which could have materialadverse consequences to our business.

 

We area party to a number of legal proceedings, some of which have been pending forseveral years.  Some of these claims maybe resolved against us.  Our financialcondition or results from operations could be adversely affected in a materialway if certain of these material claims are resolved against us.  See Note 29 to our audited consolidatedfinancial statements.

 

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***Thevalues of our subsidiaries’ long-term energy supply contracts are subject tofluctuations in the market prices of certain commodities.***

*** ***

Wehave economic exposure to fluctuations in the market prices of certain commoditiesas a result of the long-term energy sales contracts we have entered into.  Our subsidiaries have material obligationsunder long-term fixed-price electricity sales contracts, the values of whichfluctuate with the market price of electricity. In addition, we have material obligations as selling parties underlong-term energy supply contracts with prices that vary in accordance with themarket price of electricity, which, in turn, depends on water levels inreservoirs, the market prices of commodities such as natural gas, oil, coal andother energy-related products, as well as the dollar exchange rate.  Changes in the market price of thesecommodities and in the dollar exchange rate do not always correlate with changesin the market price of electricity or with our cost of production ofelectricity.  Accordingly, there may betimes when the price paid to us under these contracts is less than our cost ofproduction or acquisition of electricity. We do not carry out transactions in commodity derivative instruments tomanage our exposure to commodity price fluctuations.  Under Chilean GAAP, our income statement doesnot reflect fluctuations in the fair value of our long-term energy contracts,although we are required to do so under U.S. GAAP.  For further discussion, please refer to “Item11. Quantitative and Qualitative Disclosures About Market Risk — CommodityPrice Risk.”

 

***Our controlling shareholders may have conflicts of interestrelating to our business.***

 

ENEL S.p.A. (“Enel”) holds majority control of ENDESA,S.A. (“Endesa Spain”) share capital; Enel and Acciona jointly held 92.06% ofEndesa Spain, which currently owns 60.6% of Enersis’ share capital, and Enersisbeneficially owns 60% of Endesa Chile’s outstanding capital stock (Enel, EndesaSpain and Enersis, collectively the “Controllers”).  The Controllers have the power to determinethe outcome of most material matters that require shareholder vote, such as theelection of the majority of our board members and, subject to contractual andlegal restrictions, the distribution of dividends.  The Controllers alsocan exercise influence over our operations and business strategies.  OurControllers’ interests may in some cases differ from those of our othershareholders.  The Controllers conduct their business in South Americaprimarily through us and through entities not consolidated by us or in which wehave no interest.

 

***Environmentalregulations in the countries in which we operate may increase our costs ofoperations.***

*** ***

Ouroperating subsidiaries are also subject to environmental regulations, which,among other things, require us to perform environmental impact studies forfuture projects and obtain permits from both local and nationalregulators.  Approval of theseenvironmental impact studies may be withheld by governmental authorities.  In addition, public opposition may causedelays or modifications to any proposed project and laws or regulations maychange or be interpreted in a manner that could adversely affect our operationsor our plans for companies in which we hold investments.  See “Item 4. Information on the Company — B.Business Overview —Electricity Industry Regulatory Framework.”

 

***The Argentinenatural gas crisis has increased the vulnerability of the electricity sector inChile.***

*** ***

InArgentina, the low price imposed by regulators on natural gas has directlyaffected production and investment in natural gas fields, which has impactedthe short and medium-term availability of natural gas, both in Chile and inArgentina.  The low price has alsoinduced Argentine customers to increase their demand.  A natural gas shortage has forced electricitygeneration companies, including ours, to use more expensive fuel oil, thussubstantially increasing production costs. Energy demand in Chile’s central region decreased by 0.9% in 2008 but itis expected to increase in the long term. Increasing demand, combined with a low level of mid-term investment inthe electricity sector, particularly exposes the Chilean electricity sector tothe adverse effects of the Argentine natural gas crisis.  Since 2004, Chile has been affected byincreasing restrictions in the supply of natural gas from Argentina despite theexistence of long-term contracts.

 

Ourcombined cycle plant, San Isidro, and both units in Taltal operate with naturalgas and diesel oil.  Our related company,GasAtacama, also operates with natural gas and diesel oil.  Each company has gas contracts with Argentinesuppliers and has been affected adversely by restrictions of natural gas fromArgentina.  The materiality of the impactin the future will depend on the level of natural gas restrictions, thecontractual commitments of each company, and the availability of alternative sources suchas LNG.  Currently a9.6 million m3/d (2.5 mtpa) LNG regasification terminalis being developed in Chile and is expected by its promoters to startoperations during the second half of 2009; however, no assurances can be givenas to when the LNG plant will come on line, the level of

 

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its actual production, orwhether it will have a material positive effect our operating costs. One of thepromoters of this project is Endesa Chile. For additional information, please see “Item 4. Information on theCompany — A History andDevelopment of the Company — Investments,Capital Expenditures and Divestitures.”

 

***The relative illiquidity and volatility of Chileansecurities markets could affect the price of our ADSs and common stockadversely.***

*** ***

Chilean securities markets are substantially smallerand less liquid than the major securities markets in the United States.  In addition, Chilean securities markets maybe affected materially by developments in other emerging markets.  The low liquidity of the Chilean market mayimpair the ability of holders of ADSs to sell shares of our common stockwithdrawn from the ADS program into the Chilean market in the amount and at theprice and time they wish to do so.

 

***We have outstanding credit facilities with “change ofcontrol” provisions which could result in some acceleration rights on suchindebtedness.***

*** ***

Approximately 26% of the amount outstanding in ourconsolidated debt obligations has “change of control” contractualprovisions.  As of December 31, 2008,$ 1,145 million of Endesa Chile’s consolidated indebtedness had somekind of “change of control” provision either in the form of a negativecovenant, a mandatory prepayment or otherwise. However, $ 378 million in Endesa Chile’s subsidiaries’contracts either (a) require a preliminary merger or spin-off prior totriggering such change of control provision, or (b) the change of controldoes not apply to Endesa Spain but to the other companies instead.

 

A total of $ 766 million Endesa Chile’sconsolidated indebtedness has “change of control” provisions which specificallyrefer to Endesa Spain, directly or indirectly, as the controlling entity.

 

Approximately $ 450 million of Endesa Chiledebt are to be found in revolving credit facilities governed by the laws of theState of New York.  Lenders on suchfacilities, on an individual basis, have rights to accelerate payment ifEndesa Spain is no longer, directly or indirectly, in the chain ofcontrol, provided that the new controlling entity does not satisfy certainminimum risk rating standards, which vary among the different debt facilities.

 

If a tender offer for Endesa Spain is successful, andif a change of control were to take place, we cannot give assurances that ourlenders would waive any acceleration rights that they might otherwise haveunder such credit agreements.  For moredetailed information on Endesa Chile contractual provisions, see “Item 5.Operating and Financial Review and Prospects — B. Liquidity and CapitalResources*.*”

 

***Lawsuits against us brought outside of Chile or complaintsagainst us based on foreign legal concepts may be unsuccessful.***

 

All of our assets are located outside of the UnitedStates.  All of our directors andofficers reside outside of the United States and most of their assets arelocated 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 toeffect service of legal process within the United States upon these persons orto enforce against them, in United States courts or Chilean courts, judgmentsobtained in United States courts based upon the civil liability provisions ofthe federal securities laws of the United States.  In addition, there is doubt as to whether anaction could be brought successfully in Chile on the basis of liability basedsolely upon the civil liability provisions of the United States federalsecurities laws.

 

***Our business is dependenton the Chilean economy and our revenues are sensitive to its performance.***

*** ***

A substantial portion of our assets and operations arelocated in Chile and, accordingly, our financial condition and results ofoperations are to a certain extent dependent upon economic conditionsprevailing in Chile.  In 2008, theChilean economy grew by 3.2% compared to a 5.1% increase in 2007.  The latest Chilean Central Bank estimate forgrowth in 2009, however, is in the -0.75 — 0.25% range.  There is no assurance that such growth willbe achieved, that the growth trend will continue in the future, or that futuredevelopments in the Chilean economy will not impair our ability to proceed withour strategic plans or adversely impact our financial condition or results ofoperations.  Our financial condition andresults from operations could also be affected by changes in economic or otherpolicies of the Chilean government, which has exercised and continues toexercise a substantial influence over many aspects of the private sector.  In addition, our financial condition andresults of operations could also be

 

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affected by otherpolitical or economic developments in Chile, a well as regulatory changes oradministrative practices of Chilean authorities, over which we have no control.

 

**Item 4.**   Information on the Company

 

**A.**            History and Development of the Company.

** **

***Incorporation andContact Information of the Company***

*** ***

EmpresaNacional de Electricidad S.A. (“Endesa Chile”) is a publicly held limitedliability stock company incorporated under the laws of the Republic of Chile onDecember 1, 1943.  Since 1943,the Company has been registered in Santiago with the SVS under Registration No. 0114.  The Company is commercially referred to asboth Endesa and Endesa Chile.

 

The Company’s contact information in Chile is:

 
| Main office:     | Santa Rosa 76,  Santiago, Chile |
|------------------|---------------------------------|
| Mailing Address: | C.P. 8330099,  Santiago         |
| Telephone:       | (562) 630-9000                  |
| Fax:             | (562) 635-3938                  |

 

TheCompany’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:       | (1-302) 738-6680                                      |
| Fax:             | (1-302) 738-7210                                      |

 

***Development of theCompany***

*** ***

TheChilean government owned Endesa Chile from its incorporation in 1943 until wewere privatized in 1987 through a series of public offerings which werecompleted in 1989.

 

In May 1992,Endesa Chile began its international expansion program with the followingacquisitions:

 

·      weacquired a stake in Endesa Costanera in 1992 and later, in August 1993, weacquired a controlling equity interest in El Chocón, both in Argentina; in March 2007Endesa Chile increased its equity interest in El Chocón from 47.44% to 65.37%and in Endesa Costanera from 64.26% to 69.76%.

 

·      weacquired Edegel in Peru in October 1995; in June 2006, there was amerger between Edegel and Etevensa, after which Endesa Chile’s equity interestbecame 33.06% of its Peruvian assets.

 

·      weacquired Betania and Emgesa, both in Colombia, in December 1996 and in October 1997,respectively. In September 2007 both subsidiaries were merged intoBetania, which then changed its name back to Emgesa S.A. E.S.P.; asof December 2008 Endesa Chile’s equity interest in Emgesa was 26.87%.

 

·      weacquired Cachoeira Dourada in Brazil in September 1997.  Since October 2005, Cachoeira Douradahas been a subsidiary of Endesa Brasil.

 

***RecentDevelopments***

*** ***

Since October 10, 2007,the Italian energy company, Enel, and the Spanish construction company,Acciona, jointly hold 92.1% of the share capital of Endesa Spain, which inturns owns 60.6% of Enersis.  Enersisowns 60% of Endesa Chile’s capital stock.

 

On February 20, 2009,Acciona and Enel announced that they had reached an agreement pursuant to whichAcciona, directly and indirectly, will transfer to Enel EnergyEurope S.r.L., a wholly-owned Enel subsidiary, a 25.0% equity interest inEndesa Spain.  The transfer issubject to approval by relevant authorities and various other 

 

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conditions.  Assuming the conditions are satisfied, EnelEnergy Europe S.r.L. will hold a 92.1% equity interest inEndesa Spain.

 

Underthe agreement, Enel committed to pay Acciona € 11,107 million for theequity interest.  Additionally,Endesa Spain agreed to transfer to Acciona wind power and hydroelectricenergy assets located in Spain and Portugal valued at € 2,890 million.  The transfer of shares and assets is expectedto be completed by the end of August 2009. The agreement between Enel and Acciona was filed with the Spanish CNMV (*Comisión Nacional del Mercado de Valores*) as an “essentialfact” on February 20, 2009, and may be found on the CNMV web site(www.cnmv.es).

 

***Investments,Capital Expenditures and Divestitures***

*** ***

Ourcapital expenditures and investments during 2008 included investments ofCh$ 305 billion ($ 479 million) primarily in Chile andArgentina and capital expenditure maintenance of Ch$ 90 billion($ 141 million) in all our operating subsidiaries.  As of December 31, 2008 we expectedto make capital expenditures of approximately Ch$ 2,463 billion($ 3.9 billion) over the next five years.  Although we have considered how theseinvestments will be financed as part of the Company’s budget process, we havenot committed to any particular financial structure and the financing willdepend on the market conditions at the time the cash flows are needed.

 

In midJanuary 2008, two months ahead of schedule, the San Isidro II plantcompleted the combined cycle and achieved a total capacity of 353 MW.  Taking into account both the open andcombined cycle stages, the project required a total investment of$ 233 million.  Once liquefiednatural gas (LNG) is available in Chile, the plant will reach its full capacityof 377 MW, by July 2009.  Theearly start-up of this plant helped provide support for the complex energysupply situation experienced in Chile in early 2008 as a result of theArgentine natural gas crisis.

 

EndesaChile began the operation of unit No.1 of the Taltal plant with 120 MWadditional installed capacity due to its operation with diesel, since the unitthat was originally designed to operate with Argentine natural gas.

 

On June 27, 2008,Endesa Eco started operating its Ojos de Agua pass­through hydroelectric plant,located close to the Cipreses power station, downstream from Lake LaInvernada.  The investment cost of this9 MW plant was $ 28 million.

 

ReinforcingEndesa Chile’s commitment to sustainability and non-conventional renewableenergy (“NCRE”) development initiatives, following the commercial start-up in December 2007of the Canela 18 MW wind farm, our subsidiary, Endesa Eco, acquiredadjoining land and entered into a supply agreement for 40 wind-generators thatwill produce an additional 60 MW with Acciona Windpower, with an estimatedinvestment of $ 150 million. The environmental impact declaration (“EID”) received a favorablequalification resolution from the Corema, the regional environmental authority.  On December 10, civil works contract wasawarded to the construction company Logro, a subsidiary of Sigdo Koppers.  We expect the wind farm should startoperations in the last quarter of 2009.

 

Aspart of its strategy for ensuring reliable and diversified energy sources, theCompany is actively taking part in the Chilean government-promoted initiativeto diversify the energy matrix through the Quintero LNG project, with a 20%holding in the ownership of the re-gasification terminal, together with Enap, Metrogasand British Gas, as gas supplier.  Itsestimated investment cost is approximately $ 1.1 billion andoperations are scheduled to start in July 2009.

 

In August 2008,the Corema issued an environmental qualification resolution with the approvalof the EID for the Quintero thermal-generation project, consisting of an opencycle to operate with diesel oil until LNG is available.  The plant will have a capacity of 250 MWand will be located alongside the Quintero regasification plant.  Endesa Chile awarded to General Electric thesupply of two 125 MW turbines and, in January 2008, it awarded theEPC contract to Sigdo Koppers.  As of December 18,all the equipment for the project had already arrived at the site, thusenabling the beginning of assembly work. The total investment cost in the Quintero project is estimated to beapproximately $ 140 million and start-up is expected during the firsthalf of 2009.

 

Constructionworks have continued on the Bocamina II coal-fired plant in the town of Coronelin Chile’s Eighth Region.  With acapacity of 370 MW, this plant will have the latest technologies forreducing emissions and is expected to commence operations in the second half of2010.  The estimated investment is$ 700 million.

 

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On April 16, 2008,the Maule regional environmental authority approved the environmental impactassessment of the Los Cóndores pass-through hydroelectric project, with acapacity of approximately 150 MW and an average annual generation of560 GWh.  This plant will use thewaters of Lake Maule and will be located to the east of the Cipreses and Islapower stations, in San Clemente, Talca. The estimated investment is approximately $ 400 million andits start up is planned for the first quarter of 2013.  Construction work began in the first quarterof 2009.

 

TheColombian Ministry of Mines and Energy assigned Emgesa’s El Quimbohydroelectric project to start providing energy by December 2014.  With an estimated investment of over$ 650 million, the project will have an installed capacity of400 MW and will be built in Huila on the river Magdalena, upstream fromthe Betania plant.

 

InPeru, a turnkey contract was signed in January 2008 with Siemens PowerGeneration for the installation of a 188 MW turbine at the Santa Rosaplant, which will operate with gas from Camisea, a project that will require aninvestment of approximately $ 90 million and is planned to come intoservice by the end of 2009**. **This project will increase Edegel’sinstalled capacity from 1,467 MW to 1,654 MW and enable it to keep upwith fast-growing electricity demand in the Peruvian market.

 

In Argentina, Endesa Chile has been taking part since2005 in the Foninvemem fund that is building two thermal plants of 800 MWeach.  Endesa Chile will hold a 21%equity interest through Endesa Costanera and El Chocón.  At the end of 2008, 1,125 MW wereoperating in open cycle.  The project isexpected to start operations in combined cycle during 2009.

 

The table below sets forth the capital expendituresmade by our subsidiaries in 2008 and expected capital expenditures for theperiod 2009-2013:

 

**CAPITALEXPENDITURES OF ENDESA CHILE AND ITS SUBSIDIARIES**

 
| ** ** | ** ** | **(in millions of $) (1)** | ** ** |
|------------|------------|----------------------------|------------|
| ** ** | ** ** | **2006**                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009-2013** | ** ** |
| Chile      |       | 241.3                      |       | 408.3 |   | 397.2 |   | 1,391.6 |   |
| Argentina  |       | 28.3                       |       | 34.9 |   | 48.3 |   | 245.2 |   |
| Colombia   |       | 36.6                       |       | 32.3 |   | 33.5 |   | 838.3 |   |
| Peru       |       | 94.5                       |       | 23.7 |   | 82.9 |   | 196.6 |   |
| **Total**  | ** ** | **400.7**                  | ** ** | **499.3** | ** ** | **561.9** | ** ** | **2,671.7** | ** ** |

 

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(1)   Figures for 2006, 2007 and 2008 are in historicaldollars. Figures for 2009-2013 are expressed in dollars at exchange ratesprojected in company’s estimates.

 

Wehave carried out some investments, divestitures and other reorganizations inthe last five years in order to implement our strategy, including thefollowing:

 

·      On April 18, 2005,Endesa Chile and its subsidiary Endesa Inversiones Generales S.A. (“ENIGESA”),created a new subsidiary Endesa Eco S.A.;

 

·      On May 24, 2005,the Board of Endesa Chile approved the constitution of the holding company inBrazil with the name of Endesa Brasil S.A., which received the contribution ofexisting assets in that country owned by Endesa Internacional, Endesa Chile,Enersis and Chilectra.  As of October 1, 2005,the total participation interest Endesa Chile held in Cachoeira Dourada, and in*Companhia de Interconexao Energética S.A*.,“CIEN”, in *Compañía de Transmisión delMercosur S.A.* (“CTM”) and in *Transportadorade Energía del Mercosur S.A.* (“TESA”) was transferred to this newentity, which translated into an economic interest of 37.8% for Endesa Chile inEndesa Brasil as of December 31, 2005 (37.65% as of December 2008).  The purpose of this asset reorganization wasto provide greater stability of local cash flows by being managed centrally,and the optimization of financing costs. It will also improve financing from third parties and strengthen thegroup’s positioning to take advantage of new investment opportunities, makingit the fourth integrated private sector electric utility in Brazil.

 

·      On October 3, 2005,the Board of Endesa Chile approved the dissolution and liquidation of theinvestment company Lajas Inversoras S.A., which owned 99.61% of the Braziliancompany Cachoeira Dourada.  The

 

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assets of thiscompany were distributed between its shareholders in proportion to theirparticipation in the company.

 

·      On November 16, 2005,*GNL Chile S.A*. was established todevelop the liquefied natural gas project in Chile.  The company was formed by Endesa Chile, ENAPand Metrogas, with equal equity participation. On March 17, 2007, the three companies and British Gas, a GNLsupplier, established GNL Quintero S.A., to construct, maintain and operate theregasification terminal.  The equityinterests in GNL Quintero S.A. are held by British Gas (40%), Endesa Chile(20%), ENAP (20%) and Metrogas (20%).

 

·      As ofDecember 13, 2005, Endesa Chile, through its Argentine subsidiaries,El Chocón and Endesa Costanera, participates in two new companies, *Termoeléctrica Manuel Belgrano S.A.* and *Termoeléctrica José de San Martín S.A.*,with a 15.4% and a 5.5% share interest, respectively, in each new company.  The expected start-up date for the ManuelBelgrano power plant is in the first half of 2009 and in the second half of2009 for José de San Martín.  Since thenthe companies will begin to recover their credits from the cash flows generatedby the project under the ten-year production sales contract with the *Mercado Eléctrico Mayorista*, or MEM. (See “— B. Business Overview. Operations in Argentina” for details).

 

·      On June 1, 2006,the merger between Endesa Chile’s Peruvian subsidiary, Edegel and Etevensa, asubsidiary of Endesa Internacional, was completed.  During October, the combined cycle ofVentanilla plant’s second boiler was closed,****leavingits final capacity at 457 MW.

 

·      *Centrales Hidroeléctricas de Aysén S.A.*, “HidroAysén”, a long-term investment company, wasformed on September 4, 2006. Endesa Chile has a 51% holding and Colbún S.A. holds the remaining49%.  The environmental impact assessment(EIA) for the 2,750 MW hydroelectric project was submitted to theenvironmental authority on August 14, 2008.  The EIA was prepared by an internationalconsortium comprised of SWECO, POCH Ambiental and EPS, and involved a totalinvestment of $ 14 million. The EIA is in process and the first request for clarifications has beenissued, for which the company is preparing answers. On August 1, 2008,HidroAysén mandated the transmission company Transelec to carry out the designand route studies for the construction and transmission of the high voltagedirect current (HVDC) line to provide energy and power to the SIC.

 

·      On February 28, 2007,Endesa acquired 19,574,798 ordinary shares from Southern Cone PowerArgentina S.A., which holds 5.5% of the share capital of EndesaCostanera.  The investment was$ 9.5 million.  As a result ofthis purchase, Endesa Chile’s beneficial interest in Endesa Costanera increasedfrom 64.3% to 69.8%.

 

·      On March 8, 2007,Endesa Chile acquired a total of 4,467,500 shares from CMS Generation Co. andCMS Generation S.R.L., representing 25% of the share capital of HidroinvestS.A., the Argentine holding company and controller of El Chocón, and alsoacquired 7,405,768 direct shares of El Chocón. The total purchase price was $ 50 million, which included thedebt that Hidroinvest S.A. owed to CMS. With this purchase, the beneficial interest of Endesa Chile inHidroinvest S.A. increased from 69.9% to 96.1%, and strengthens ourcontrol of El Chocón, which is 59%-controlled by Hidroinvest S.A.  As a result of the foregoing share purchases,Endesa Chile increased its beneficial interest in El Chocón from 47.4% to65.4%.

 

***·***      On June 30, 2007,Endesa Chile notified CMS Enterprises Company (CMS) of its decision to exerciseits right of first offer granted by CMS for their interests in the companiesand vehicles that conform GasAtacama.  Onthis same date, Endesa Chile and Southern Cross Latin America Private EquityFund III, L.P. (“Southern Cross”) executed a sale and purchase agreement for50% of the participation of Endesa Chile in the GasAtacama and of the sponsorloans associated to this participation, to the Southern Cross fund.  As a result of the foregoing, Endesa Chileand Southern Cross each own 50% of GasAtacama.

*** ***

·      On September 1, 2007 the Colombian companiesEmgesa S.A. E.S.P. and Central Hidroeléctrica Betania S.A. E.S.P. were mergedinto the latter, which then changed its name to Emgesa S.A. E.S.P.  As a result, Endesa Chile’s direct andindirect shareholding in the merged company, Emgesa S.A. E.S.P., is 26.9%. Thisnew corporate structure offers advantages for the management of Colombianfinancial transactions.

 

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**B.**            Business Overview.

** **

We are a publicly traded electric generation companywith operations in Chile, Argentina, Colombia and Peru and an equity interestin Brazil.  Our core business iselectricity generation.  We alsoparticipate in the engineering services industry and have a tunnelconcession.  The low proportion ofnon-generation contribution, less than 1.5% in terms of revenues, does notjustify the breakdown of revenues per activity.

 

Our consolidated installed capacity, as of December 31, 2008,was 12,906 MW, with 61.9% hydroelectric capacity, 38.0% thermal electricand 0.1% wind power generation capacity. Total installed capacity is defined asthe maximum power capacity (measured in MW generation units), under specifictechnical conditions and characteristics.

 

We own and operate 26 generation facilities in Chilewith an aggregate installed capacity, as of December 31, 2008, of4,893 MW, compared to 4,779 MW in 2007.  The main increase in our total installedcapacity in Chile is the addition of approximately 105 MW in San Isidro IIand the incorporation of Ojos de Agua (9 MW, mini hydroelectric) in June 27, 2008.  The San Isidro project started operations inopen cycle in April 2007, and in combined cycle in January 2008.  We accounted for 36.5% of Chile’s totalgeneration capacity as of December 31, 2008 measured by the maximumcapacity calculated by CDEC-SIC. Hydroelectric installed capacity represents 70.7% of Endesa Chile’stotal installed capacity in Chile.  CDECis the electricity dispatch center**inthe corresponding electric system.  See “— B.Business Overview — Electricity Industry and Regulatory Framework.”

 

As of December 31, 2008, we also hadinterests in 25 generation facilities outside of Chile with an aggregateinstalled capacity of 8,014 MW, compared to 7,941 MW in 2007.  The main changes to our total installedcapacity outside Chile are in Colombia with Cartagena (66 MW), and inArgentina with Arroyito (8 MW).  Foradditional detail on capacity increase of these units see “— D. Property, Plantand Equipment.”  Hydroelectric installedcapacity outside Chile represents 56.5% of Endesa Chile’s total installedcapacity outside Chile. Based on 2008 figures, the Company’s installedgeneration capacity in Argentina, Colombia and Peru represents approximately14%, 21% and 28% of total capacity in each country, respectively.

 

The following table setsout information relating to Endesa Chile’s electricity generation:

 

**ENDESA CHILE’SCONSOLIDATED HYDRO/THERMAL GENERATION (GWh)(1)**

 
| ** **                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                | ** ** | **(GWh)**                        | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** |
| Hydroelectric  generation |       | 38,617                           |       | 73 |   | 32,687 |   | 65 |   | 32,315 |   | 63 |   |
| Thermal  generation       |       | 14,332                           |       | 27 |   | 17,796 |   | 35 |   | 18,949 |   | 37 |   |
| Other generation  (Wind)  |       |                             |       |   |   | 3 |   | 0 |   | 30 |   | 0 |   |
| **Total  generation**     |       | 52,949                           |       | 100 |   | 50,486 |   | 100 |   | 51,294 |   | 100 |   |

 

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(1)   Generation minus power plants’own consumption and technical losses.

 

Our consolidatedelectricity production reached 51,294 GWh in 2008, 1.6% higher than the50,486 GWh produced in 2007. Argentina was the country which most reduced generation from12,117 GWh in 2007 to 10,480 GWh in 2008, a decrease of 13.5%.  Colombia was the country which most increasedgeneration from 11,942 GWh in 2007 to 12,905 GWh in 2008, an increaseby 8.1%.  Hydroelectric generation, in2008 in the four countries in which we consolidate the results from ouroperations, was 1% lower than in 2007 and thermal generation in 2008 was 6.5%higher than in 2007.

 

Our consolidated physical energy sales for 2008 were55,734 GWh, 0.9% higher than our consolidated physical energy sales of55,225 GWh in 2007.  The mainincreases in sales were in Peru and Colombia, and the main reduction was inArgentina as illustrated in the following table:

 

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**ENDESA CHILE PHYSICALDATA PER COUNTRY**

 
| ** **                           | ** ** | **As of and for the year ended December 31** | ** ** |
|--------------------------------------|------------|---------------------------------------------------|------------|
| ** **                           | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| Argentina                            |       |                                              |       |   |   |   |   |
| Number of generating  facilities (1) |       | 5                                                 |       | 5 |   | 5 |   |
| Installed  capacity (MW) (2)         |       | 3,638.7                                           |       | 3,644.1 |   | 3,652.1 |   |
| Energy generated  (GWh) (3)          |       | 13,750.3                                          |       | 12,117.1 |   | 10,480.2 |   |
| Energy sales  (GWh)                  |       | 13,926.3                                          |       | 12,406.3 |   | 11,097.7 |   |
| Chile                                |       |                                              |       |   |   |   |   |
| Number of  generating facilities (1) |       | 22                                                |       | 25 |   | 26 |   |
| Installed  capacity (MW) (2)         |       | 4,476.7                                           |       | 4,779.2 |   | 4,892.9 |   |
| Energy generated  (GWh) (3)          |       | 19,973.2                                          |       | 18,773.0 |   | 19,807.1 |   |
| Energy sales  (GWh)                  |       | 20,922.8                                          |       | 19,212.1 |   | 19,808.0 |   |
| Colombia                             |       |                                              |       |   |   |   |   |
| Number of  generating facilities (1) |       | 11                                                |       | 11 |   | 11 |   |
| Installed capacity  (MW) (2)         |       | 2,778.7                                           |       | 2,828.7 |   | 2,894.7 |   |
| Energy generated  (GWh) (3)          |       | 12,564.0                                          |       | 11,941.8 |   | 12,905.1 |   |
| Energy sales  (GWh)                  |       | 15,326.9                                          |       | 15,613.1 |   | 16,367.9 |   |
| Peru                                 |       |                                              |       |   |   |   |   |
| Number of  generating facilities (1) |       | 9                                                 |       | 9 |   | 9 |   |
| Installed  capacity (MW) (2)         |       | 1,425.5                                           |       | 1,468.0 |   | 1,466.8 |   |
| Energy generated  (GWh) (3)          |       | 6,662.0                                           |       | 7,654.4 |   | 8,101.9 |   |
| Energy sales  (GWh)                  |       | 6,766.5                                           |       | 7,993.5 |   | 8,460.8 |   |

 

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(1)   For details on generationfacilities, see “ —D. Property Plants and Equipment.”

(2)   Total installed capacity isdefined as the maximum MW capacity of generation units, under specifictechnical conditions and characteristics, in most cases confirmed bysatisfaction guarantee tests performed by equipment suppliers certified byBureau Veritas, an international independent certification company.  Figures may differ from installed capacitydeclared to regulating authorities and customers in each country, according tocriteria defined by each authority and corresponding contractual frameworks. Wehave decided not to make a restatement of capacities based on thiscertification.

(3)   Energy generated defined astotal generation minus own power plant consumption and technical losses.

(4)   Ventanilla’s generation inPeru consolidated since January 2006, Cartagena’s generation in Colombiaconsolidated since March 2006 and San Isidro II, Palmucho and Canela ́sgeneration in Chile consolidated since April, November and December 2007respectively.

 

We segment our sales to customers using two differentcategories.  First, we distinguishbetween regulated and unregulated customers. Regulated customers are distribution companies who mainly serveresidential clients.  Unregulatedcustomers, on the other hand, may freely negotiate the price of electricitywith generators or they may purchase electricity in the pool market at the spotprice.  The second criterion we use tosegment our customer sales is by contracted sales and non-contractedsales.  This method is useful because itprovides a uniform way for us to compare our customers from country to country.  The countries in which we operate havevarying classifications for what constitutes a regulated customer.  In contrast, contracted sales are defineduniformly throughout.

 

The following table contains information regardingEndesa Chile’s consolidated sales of electricity by type of customer for eachof the periods indicated:

 

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**ENDESA CHILE CONSOLIDATEDPHYSICAL SALES BY TYPE OF CUSTOMER (GWh)**

 
| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                     | ** ** | **Sales  (GWh)**                 | ** ** | **% of Sales Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of Sales Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of Sales Volume** | ** ** |
| Regulated  customers           |       | 20,146                           |       | 35.4 |   | 22,881 |   | 41.4 |   | 23,779 |   | 42.7 |   |
| Non-regulated  customers       |       | 13,735                           |       | 24.1 |   | 14,374 |   | 26.0 |   | 14,503 |   | 26.0 |   |
| Electricity pool  market sales |       | 23,061                           |       | 40.5 |   | 17,970 |   | 32.5 |   | 17,453 |   | 31.3 |   |
| **Total  electricity sales**   |       | 56,942                           |       | 100.0 |   | 55,225 |   | 100.0 |   | 55,734 |   | 100.0 |   |

 

In general, in the countries in which we operate, thepotential for contracting electricity is related to the volume of electricitydemand.  Customers identified as smallvolume-regulated customers, such as residential customers, subject togovernment regulated electricity tariffs, must purchase electricity directlyfrom a distribution company.  Thesedistribution companies, which purchase large amounts of electricity for smallresidential customers, generally enter into contractual agreements withgenerators at a regulated tariff price. Those identified as large volume industrial customers also enter intocontractual agreements with energy suppliers. However, such large volume industrial customers are not subject to theregulated tariff price.  Instead, thesecustomers are allowed to negotiate the price of energy with generators based onthe characteristics of the service required. Finally, the market pool, where energy is normally sold at the spotprice, is not carried out through contractual agreements.

 

The specific energy (measured in GWh) consumption limitfor regulated and non-regulated customers is country specific.  Moreover, regulatory frameworks often requirethat regulated distribution companies have contracts to support theircommitments to small customers and also determine which customers can purchaseenergy in electricity pool markets.

 

Under normal hydrological and fuel conditions ourregulated and non-regulated customers carry out their commercial relationshipsby means of contracts.  The electricitypool market sales are not governed by contracts, but instead comply with poolmarket operations.

 

The following table contains information regarding ourconsolidated physical sales of electricity per customer segment:

 

**ENDESA CHILE CONSOLIDATED PHYSICAL SALES PER CUSTOMERPRICE SEGMENT(GWh)**

 
| ** **                   | ** ** | **Year ended December 31,** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                   | ** ** | **Sales  (GWh)**                 | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** |
| Contracted sales  (1)        |       | 33,881                           |       | 59.5 |   | 37,255 |   | 67.5 |   | 38,282 |   | 68.7 |   |
| Non-contracted  sales        |       | 23,061                           |       | 40.5 |   | 17,970 |   | 32.5 |   | 17,453 |   | 31.3 |   |
| **Total  electricity sales** |       | 56,942                           |       | 100.0 |   | 55,225 |   | 100.0 |   | 55,734 |   | 100.0 |   |

 

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(1)   Includes the sales todistribution companies not backed by contracts in Chile and Peru.

 

In terms of expenses, the primarily variable costsinvolved in the electricity generation business, in addition to the directvariable cost of generating hydroelectric or thermal electricity such as fuelcosts, are energy purchases and transportation costs. During periods ofrelatively low rainfall conditions, the amount of our thermal generationincreases. This not only involves increasing the total cost of fuel, but alsothe cost of transporting that fuel to the thermal generation power plants.Under drought conditions, electricity that we have contractually agreed to providemay exceed the amount of electricity that we are able to generate, requiring usto purchase electricity in the pool market in order to satisfy our contractualcommitments. The cost of these pool market purchases may, under certaincircumstances, exceed the price at which we sell electricity under contracts,and result in a loss. We attempt to minimize the effect of poor hydrologicalconditions on our operations in any year primarily by limiting contractual

 

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sales requirements to anamount that does not exceed the estimated production in a “dry year.” Indetermining estimated production in a dry year, we take into account availablestatistical information concerning rainfall and water flows, and the capacityof key reservoirs. In addition to limiting contracted sales, we may adopt otherstrategies such as installing temporary thermal capacity, negotiating lower consumptionlevels with unregulated customers, negotiating with other water users andincluding pass-through costs clauses in contracts with clients.

 

The following tablecontains information regarding our electricity generation and purchases:

 

**CONSOLIDATED PHYSICALGENERATION AND PURCHASES (GWh)**

 
| ** **              | ** ** | **Year ended December 31,** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **              | ** ** | **Sales  (GWh)**                 | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** |
| Electricity  generation |       | 52,949                           |       | 91.8 |   | 50,486 |   | 89.8 |   | 51,294 |   | 90.7 |   |
| Electricity  purchases  |       | 4,730                            |       | 8.2 |   | 5,722 |   | 10.2 |   | 5,233 |   | 9.3 |   |
| **Total(1)**            |       | 57,679                           |       | 100.0 |   | 56,208 |   | 100.0 |   | 56,527 |   | 100.0 |   |

 

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(1)   Total energy generation (GWh)plus purchases differs from GWh sales due to technical transmission losses inChile and Peru, as the generation figure has already deducted power plantconsumption and technical losses of generation units.

 

Our equity investees in Chile are primarily conductedthrough GasAtacama.  Gas AtacamaGeneration and Gasoducto Atacama Chile S.A. were merged into Gas AtacamaGeneración in November 2008 and then changed their name to Gas AtacamaChile S.A.  We have a 50% beneficial interest in Gas Atacama ChileS.A. through which we participate in the gas transportation and thermalgeneration business in northern Chile. Since March 2008 we have a 51% beneficial interest in HidroAysénS.A. through which we participate in a hydroelectric project in the 11th Region.  Under current Chilean GAAP,  projects are not consolidated.  We also participate in the gas transportationbusiness in Chile through our related company, *ElectrogasS.A.*(“Electrogas”), in which we have a 42.5% beneficialinterest.  Electrogas owns a pipeline tothe Fifth Chilean Region and supplies natural gas to the power plants SanIsidro and Nehuenco.  The othershareholders are Colbún S.A. and ENAP.

 

Since September 2005, our participation in theBrazilian electricity business is carried out through our equity investment inEndesa Brasil, in which we have a beneficial interest of 37.7%.  Endesa Brasil consolidates operations of twogeneration companies, *Central GeradoraTermeléctrica Endesa Fortaleza S.A.,*(“Endesa Fortaleza”), and Cachoeira Dourada; CIEN, which ownstwo transmission lines between Argentina and Brazil; CTM and TESA, subsidiariesof CIEN which own the Argentine side of the lines; and two distributioncompanies, *Ampla Energía e Servicos S.A.,*(“Ampla”), which is the secondlargest electricity distribution company in the State of Rio de Janeiro and Companhia Energética do Ceará S.A. (“Coelce”),which is the sole electricity distributor in the State of Ceará.

 

We own and operate a total of 26 generation plants inChile directly and through our subsidiaries Pehuenche, Pangue, San Isidro,Celta and Eco.  Of these plants, 16 arehydroelectric, with a total installed capacity of approximately 3,461 MW.  This represents 70.7% of our total installedcapacity in Chile.  There are ninethermal plants which operate with gas, coal or oil with a total installedcapacity of 1,414 MW, representing 28.9% of our total installed capacityin Chile, and there is one wind power unit with approximately 18 MW.  Twenty-four (16 hydroelectric, 7thermoelectric and one wind power plant) of our plants are connected to thecountry’s major interconnected electricity systems, *Sistema Interconectado Central,*or the SIC*,*and the other two power plants are connected to the*Sistema Interconectado del Norte Grande*, or theSING.

 

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

 

**INSTALLED CAPACITYPER SUBSIDIARY IN CHILE (MW) (1)**

 
| ** ** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
|------------|------------|----------|------------|----------|------------|----------|------------|
| Endesa     |       | 2,754    |       | 3,034    |       | 3,139    |       |
| Pehuenche  |       | 695      |       | 699      |       | 699      |       |
| Pangue     |       | 467      |       | 467      |       | 467      |       |
| San Isidro |       | 379      |       | 379      |       | 379      |       |
| Celta      |       | 182      |       | 182      |       | 182      |       |
| Endesa Eco |       | —   |       | 18       |       | 27       |       |
| **Total**  |       | 4,477    |       | 4,779    |       | 4,893    |       |

 

----

(1)   The installed capacity wascertified during 2006, 2007 and 2008 by Bureau Veritas.

 

Our total electricity generation in Chile (in both theSIC and the SING) reached 19,807 GWh in 2008, 5.5% higher than in 2007,and accounted for approximately 35.1% of total electricity production in Chilein 2008.

 

The following table sets forth the electricitygeneration for each of our Chilean subsidiaries:

 

**ELECTRICITY GENERATION INCHILE (GWh)**

 
| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| Endesa     |       | 11,642                           |       | 11,093 |   | 12,204 |   |
| Pehuenche  |       | 4,345                            |       | 3,437 |   | 3,589 |   |
| Pangue     |       | 2,432                            |       | 1,351 |   | 1,763 |   |
| San Isidro |       | 802                              |       | 1,956 |   | 1,289 |   |
| Celta      |       | 751                              |       | 933 |   | 912 |   |
| Endesa Eco |       | —                           |       | 3 |   | 49 |   |
| **Total**  |       | 19,973                           |       | 18,773 |   | 19,807 |   |

 

Hydroelectric generation in 2008 was 5% higher than in2007.  The potential energy in reservoirsat December 31, 2008 was 12% higher than atDecember 31, 2007, as shown in the following table.

 
| ** **  | ** ** | **Year  ended December 31,** | ** ** |
|-------------|------------|------------------------------|------------|
| ** **  | ** ** | **2007**                     | ** ** | **2008** | ** ** | ** ** | ** ** |
|        | ** ** | **(GWh)**                    | ** ** | **(GWh)** | ** ** | **% Change** | ** ** |
| Reservoir   |       |                         |       |   |   |   |   |
| Laja        |       | 3,028                        |       | 3,107 |   | 3 |   |
| Maule       |       | 1,307                        |       | 1,111 |   | -15 |   |
| Chapo       |       | 119                          |       | 266 |   | 123 |   |
| Colbún |       | 283                          |       | 406 |   | 43 |   |
| Invernada   |       | 116                          |       | 296 |   | 156 |   |
| Rapel       |       | 53                           |       | 60 |   | 12 |   |
| Melado      |       | 6                            |       | 9 |   | 54 |   |
| Ralco       |       | 147                          |       | 398 |   | 172 |   |
| **Total**   |       | 5,059                        |       | 5,652 |   | 12 |   |

 

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Hydroelectricgeneration accounted for 69.6% of our total electricity generation in 2008compared with the 70.2% of 2007. Generation by type in Chile is shown in the following table:

 

**ENDESA CHILEHYDRO/THERMAL GENERATION IN CHILE (GWh)**

 
| ** **                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                | ** ** | **Generation  (GWh)**            | ** ** | **%** | ** ** | **Generation  (GWh)** | ** ** | **%** | ** ** | **Generation  (GWh)** | ** ** | **%** | ** ** |
| Hydroelectric  generation |       | 17,148                           |       | 85.9 |   | 13,179 |   | 70.2 |   | 13,784 |   | 69.6 |   |
| Thermal  generation       |       | 2,825                            |       | 14.1 |   | 5,591 |   | 29.8 |   | 5,993 |   | 30.3 |   |
| Other generation  (Wind)  |       |                             |       |   |   | 3 |   | 0.0 |   | 30 |   | 0.1 |   |
| **Total  generation**     |       | 19,973                           |       | 100.0 |   | 18,773 |   | 100.0 |   | 19,807 |   | 100.0 |   |

 

Our thermal electricgeneration facilities are either gas, coal or oil-fired.  In order to satisfy our natural gas andtransportation requirements, we enter into long-term gas contracts withsuppliers who establish maximum supply amounts and prices and long-term gastransportation agreements with the pipeline companies, currently Gas Andes and *Electrogas* (an Endesa Chile relatedcompany).  Since March 2008, all ofEndesa Chile natural gas units can operate with natural gas and diesel.  We obtain our coal and fuel oil requirementsthrough competitive auctions with major domestic and international suppliers.

 

Since 2006, Endesa Chilehas increased the use of diesel from 23,000 tons in 2006 to591,000 tons in 2007 and to 728,000 tons in 2008, and coal from438,000 tons in 2006 to 851,000 tons in 2007 and to 774,000 tonsin 2008.  During 2005, 2006 and 2007, SanIsidro entered into a swap contract with Endesa Costanera, which allowed SanIsidro to temporarily generate electricity with natural gas, using EndesaCostanera’s share, by paying Endesa Costanera the additional cost incurredthrough generation with fuel oil, plus a fee.

 

In May 2007,as part of a consortium with Enap, Metrogas and British Gas, in which EndesaChile participation is 20%, we agreed to construction of the liquefied naturalgas (“LNG”) regasification facility in Quintero Bay.  Partial commercial operations are expected tobegin in June 2009 while full commercial operations should occur in April 2010.

 

In July 2008,we started construction of a pipeline that will supply the gas obtained at theregasification plant in Quintero to Quillota and further to San Isidro andother off takers.  The pipeline is28 km long and 19 million m3/dcapacity.  The construction was completedin February 2009 and commercial operations are expected for July 2009.

 

**ELECTRICITY SALES PERSYSTEM IN CHILE (GWh)**

 
| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                     | ** ** | **Sales  (GWh)**                 | ** ** | **Sales  (GWh)** | ** ** | **Sales  (GWh)** | ** ** |
| Electricity  sales in the SIC  |       | 38,259                           |       | 39,982 |   | 39,594 |   |
| Electricity  sales in the SING |       | 12,027                           |       | 12,674 |   | 13,219 |   |
| Total  Electricity sales       |       | 50,286                           |       | 52,656 |   | 52,813 |   |

 

Our physical energy sales in Chile reached20,923 GWh in 2006, 19,212 GWh in 2007 and 19,808 GWh in 2008which represent a 41.6%, 36.5% and 37.5% market share, respectively.  The percentage of the energy purchases tosatisfy our contractual obligations to third parties has declined from 6.2% in2006 to 2.0% in 2008 as a result of our commercial strategy to reducecontracted sales.  This commercialstrategy is primarily influenced by our decision to reduce hydrologicalexposure because of current regulations. See “— B. Business Overview — Electricity Industry and RegulatoryFramework.”  We attempt to minimize theeffect of poor hydrological conditions on our operations, in any given year,primarily by limiting contractual commitments to an amount below the estimatedproduction in a dry year.  Governmentregulations have had the direct effect of increasing contract failure costs,which is the cost that we should have to pay when we are unable to satisfy our contractualcommitments, and the indirect effect of discouraging investment in generationassets.  Given the effects of thegovernment regulations, 

 

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energy supply has notincreased as much as energy demand, which has the effect of increasing the spotprice in the electricity pool market and making it a relatively more attractivecommercial alternative.

 

The following table setsforth our electricity purchases and production in Chile:

 

**ENDESA CHILE PHYSICALGENERATION AND PURCHASES IN CHILE (GWh)**

 
| ** **              | ** ** | **Year ended December 31,** | ** ** |
|-------------------------|------------|----------------------------------|------------|
| ** **              | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **              | ** ** | **Sales  (GWh)**                 | ** ** | **%  of Volume** | ** ** | **Sales  (GWh)** | ** ** | **%  of Volume** | ** ** | **Sales  (GWh)** | ** ** | **%  of Volume** | ** ** |
| Electricity  generation |       | 19,973                           |       | 93.8 |   | 18,773 |   | 94.7 |   | 19,807 |   | 98.0 |   |
| Electricity  purchases  |       | 1,317                            |       | 6.2 |   | 1,042 |   | 5.3 |   | 403 |   | 2.0 |   |
| **Total  (1)**          |       | 21,290                           |       | 100.0 |   | 19,815 |   | 100.0 |   | 20,210 |   | 100.0 |   |

 

----

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

 

We supply electricity to the major regulatedelectricity distribution companies, large unregulated industrial firms(primarily in the mining, pulp and steel sectors) and the pool market.  Commercial relationships with customers areusually governed by contracts.  Supplycontracts with distribution companies must be auctioned, are generallystandardized and have an average term of ten years.  Supply contracts with unregulated customers (largeindustrial customers) are specific to the needs of each client and theconditions are agreed upon between both parties and reflect competitive marketconditions.

 

In 2006, 2007 and 2008, Endesa Chile had 46, 35 and 33customers in Chile, respectively, including seven main distribution companiesin the SIC and 26 unregulated industrial customers.  There were nineteen distribution companieswhich presented energy withdrawals under the provisions of Resolution 88, accountingfor 14.0% of total sales.  (See “ — B.Business Overview—Electricity Industry Regulatory Framework.”).  *Sociedad Austral deElectricidad S.A.*, or Saesa, a non-related Chilean distributioncompany, was the largest with purchases of 766 GWh/year.  The following table sets forth informationregarding our sales of electricity in Chile by type of customer:

 

**ENDESA CHILE PHYSICAL SALES PER CUSTOMER PRICE SEGMENTIN CHILE (GWh)**

 
| ** **                     | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------|------------|----------------------------------|------------|
| ** **                     | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                     | ** ** | **Sales  (GWh)**                 | ** ** | **% of   Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of   Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of   Sales  Volume** | ** ** |
| Regulated  customers (1)       |       | 10,756                           |       | 51.4 |   | 11,502 |   | 59.9 |   | 11,466 |   | 57.9 |   |
| Non-regulated  customers       |       | 5,176                            |       | 24.7 |   | 5,281 |   | 27.5 |   | 5,025 |   | 25.4 |   |
| Electricity pool  market sales |       | 4,991                            |       | 23.9 |   | 2,430 |   | 12.6 |   | 3,317 |   | 16.7 |   |
| **Total  electricity sales**   |       | 20,923                           |       | 100.0 |   | 19,212 |   | 100.0 |   | 19,808 |   | 100.0 |   |

 

----

| (1) | Includes  the sales to distribution companies pursuant to Resolution 88. |
|-----|--------------------------------------------------------------------------|

 

Our most significant supply contracts with regulated customers are withChilectra S.A. (“Chilectra”), an Endesa Chile related company, and *Compañía General de Electricidad S.A.*(“CGE”),the two largest distribution companies in Chile in terms of sales.  Our current contracts with Chilectra and CGEexpire in December 2010 and December 2009, respectively.

 

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In March 2008, Chilectra and other distributorsallocated the third long-term energy bid for 1,800 GWh for the period2011-2021 and 1,500 GWh for the period 2022-2023, in both cases toAESGener.  In January 2009,Chilquinta, Saesa and CGE allocated 8,010 GWh, divided in four blocks(BB1, BB2, BB3 and BB4) to be delivered starting from January 2010 forfourteen, twelve, fourteen and fifteen years respectively.  The energy allocated was 7,110 GWh andrepresented 88.7% of the bidders’ demand. The energy allocation per company and per block was as follows:

 
| ** **           | ** ** | **BB1 -   Chilquinta  (GWh)** | ** ** | **BB2 - Saesa  (GWh)** | ** ** | **BB3 - CGE  (GWh)** | ** ** | **BB4 - CGE  (GWh)** | ** ** | **Total per   company  (GWh)** | ** ** |
|----------------------|------------|-------------------------------|------------|------------------------|------------|----------------------|------------|----------------------|------------|--------------------------------|------------|
| AES Gener            |       | 1,100                         |       | —                 |       | —               |       | —               |       | 1,100                          |       |
| Endesa               |       | 660                           |       | —                 |       | —               |       | 2,000                |       | 2,660                          |       |
| Campanario           |       | —                        |       | 850                    |       | 900                  |       | —               |       | 1,750                          |       |
| Monte Redondo        |       | —                        |       | —                 |       | 100                  |       | —               |       | 100                            |       |
| Colbún          |       | —                        |       | —                 |       | 1,500                |       | —               |       | 1,500                          |       |
|                 |       |                          |       |                   |       |                 |       |                 |       |                           |       |
| **Total  allocated** |       | 1,760                         |       | 850                    |       | 2,500                |       | 2,000                |       | 7,110                          |       |
| **Total  required**  |       | 1,760                         |       | 850                    |       | 2,700                |       | 2,700                |       | 8,010                          |       |
| **%  allocated**     |       | 100.0                         | %          | 100.0                  | %          | 92.6                 | %          | 74.1                 | %          | 88.7                           | %          |

 

Our contracts with unregulated customers are generallylong term, and typically range from five to fifteen years.  Such contracts are usually automaticallyextended at the end of the applicable term unless terminated by either partyupon prior notice.  Some of them includea price adjustment mechanism in the case of high marginal costs, which alsoreduces the hydrological risk.  Contractswith unregulated customers may also include specifications regarding powersources and equipment, which may be provided at special rates, as well asprovisions for technical assistance to the customer.  We have not experienced any supplyinterruptions under our contracts.  Incase of *force majeure*, ascontractually defined with non-regulated customers, we are also allowed toreject purchases and are not required to supply electricity.  Disputes are typically subject to bindingarbitration between the parties, subject to limited exceptions.

 

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The following table setsforth our sales by volume to our five largest distribution and unregulatedcustomers in Chile for each of the periods indicated:

 

**MAIN CUSTOMERS INCHILE (GWh)**

 
| ** **                                              | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008 (3)** | ** ** |
| ** **                                              | ** ** | **Sales  (GWh)**                 | ** ** | **% of  Sales** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales** | ** ** |
| Distribution  companies:                                |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Chilectra                                               |       | 4,190                            |       | 20.0 |   | 4,017 |   | 20.9 |   | 3,727 |   | 18.8 |   |
| CGE                                                     |       | 4,449                            |       | 21.3 |   | 4,835 |   | 25.2 |   | 4,800 |   | 24.2 |   |
| Saesa (1)                                               |       | 665                              |       | 3.2 |   | 746 |   | 3.9 |   | 766 |   | 3.9 |   |
| Empresa Eléctrica de la Frontera S.A (2)           |       | 717                              |       | 3.4 |   | 756 |   | 3.9 |   | 1 |   | 0.0 |   |
| Empresa Eléctrica de Atacama S.A.                  |       | 417                              |       | 2.0 |   | 195 |   | 1.0 |   | 173 |   | 0.9 |   |
| **Total  sales to five largest distribution companies** |       | 10,438                           |       | 49.9 |   | 10,548 |   | 54.9 |   | 9,467 |   | 47.8 |   |
| Unregulated  customers:                                 |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Codelco                                                 |       | 548                              |       | 2.6 |   | 494 |   | 2.6 |   | 482 |   | 2.4 |   |
| CMPC                                                    |       | 937                              |       | 4.5 |   | 1,103 |   | 5.7 |   | 973 |   | 4.9 |   |
| Cía. Minera Los Pelambres                          |       | 738                              |       | 3.5 |   | 871 |   | 4.5 |   | 874 |   | 4.4 |   |
| Cía. Minera  Collahuasi                            |       | 867                              |       | 4.1 |   | 869 |   | 4.5 |   | 857 |   | 4.3 |   |
| Cía. Acero del Pacífico — Huachipato     |       | 546                              |       | 2.6 |   | 588 |   | 3.1 |   | 568 |   | 2.9 |   |
| **Total  sales to five largest unregulated customers**  |       | 3,635                            |       | 17.4 |   | 3,925 |   | 20.4 |   | 3,753 |   | 18.9 |   |

** **

----

| (1) | We  do not have a contract with *Sociedad Austral de  Electricidad S.A.* (“Saesa”). Sales are the result of government  Resolution 88 that forces the generators of the CDEC-SIC system to supply  distribution companies without contracts. This situation will remain until  December 2009, when this Resolution is set to expire. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Until  December 2007, *Empresa Eléctrica de la  Frontera S.A.*, Frontel, was a party to two contracts; one was with  Endesa Chile and one with Pangue. In 2008 the contract with  Endesa Chile terminated.                                                                                                                      |
| (3) | In  2008 we agreed on a reduction of energy consumption with some costumers,  including CMPC — Inforsa and Codelco — Salvador.                                                                                                                                                                                                            |

 

We compete in the SIC primarily with two generationcompanies, AESGener and *Colbún S.A.*(“Colbún”).  According to the maximumpower considered by CDEC-SIC in the calculation of “firm capacity” in 2008,AESGener and its subsidiaries in the SIC counted on an installed capacity of1,587 MW, of which 82% was thermal electric, and Colbún on 2,018 MW,of which 59% was thermal electric.  Inaddition to these two large competitors, there are a number of smaller entitiesthat generate electricity in the SIC.

 

Our primary competitors in the SING are *Electroandina, Empresa Eléctrica del Norte GrandeS.A.* (“Edelnor”) and AESGener, which have 1,000 MW, 693 MWand 643 MW of installed capacity, respectively.  Our direct participation in the SING,includes our 182 MW Tarapacá thermal plant, owned by our subsidiary Celta andour indirect participation through our affiliate company, GasAtacama, whosepower plant has 781 MW of installed capacity.  See “— C. Organizational Structure” fordetails on related companies.

 

Electricity generation companies compete largely onthe basis of technical experience and reliability; and, in the case ofunregulated customers, on price.  Inaddition, because 73.5% of our installed capacity in the SIC derives fromhydroelectric power plants, we have lower production costs than companiesgenerating electricity with thermal plants. During periods of extended droughts, however, we may be forced to buymore expensive electricity from thermoelectric generators at spot prices inorder to satisfy our contractual obligations.

 

We have equity investments in GasAtacama andElectrogas.  GasAtacama has the abilityto transport up to 8.5 million cubic meters of gas daily and has agas-fired combined cycle plant with a total installed capacity of approximately781 MW in Mejillones.  Electrogasproduces transportation income derived from the pipeline supplying San Isidroand Nehuenco combined-cycle plants at Quillota.

 

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We, directly and through our subsidiaries Pehuenche,Pangue, San Isidro and Endesa Eco, are the principal operators in the SIC, with48.0% of the total installed capacity and 47.3% of the physical energy sales ofthis system in 2008.

 

Celta, our subsidiary, has a two-turbine 182 MWthermal power plant connected to the SING, which represents 5% of the totalcapacity of the SING.  Through ouraffiliated company, GasAtacama, we have an additional 781 MW participationin the SING.  The following table setsout information relating to Endesa Chile’s electricity generation capacity inChile:

 

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

 
| ** **               | ** ** | **Type (2)**                                     | ** ** | **System** | ** ** | **Installed   Capacity  (MW)** | ** ** |
|--------------------------|------------|--------------------------------------------------|------------|------------|------------|--------------------------------|------------|
| **Hydroelectric**        | ** ** | ** **                                       | ** ** | ** ** | ** ** | ** **                     | ** ** |
| Rapel                    |       | Reservoir                                        |       | SIC        |       | 377                            |       |
| Ralco                    |       | Reservoir                                        |       | SIC        |       | 690                            |       |
| Cipreses                 |       | Reservoir                                        |       | SIC        |       | 106                            |       |
| El Toro                  |       | Reservoir                                        |       | SIC        |       | 450                            |       |
| Pehuenche                |       | Reservoir                                        |       | SIC        |       | 570                            |       |
| 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                             |       |
| Palmucho                 |       | Pass-through                                     |       | SIC        |       | 32                             |       |
| Ojos de Agua             |       | Pass-through                                     |       | SIC        |       | 9                              |       |
| **Total  Hydroelectric** | ** ** | ** **                                       | ** ** | ** ** | ** ** | **3,461**                      | ** ** |
| ** **               |       |                                             |       |       |       |                           |       |
| **Thermal**              |       |                                             |       |       |       |                           |       |
| Huasco ST                |       | Steam Turbine/Coal                               |       | SIC        |       | 16                             |       |
| Bocamina                 |       | Steam Turbine/Coal                               |       | SIC        |       | 128                            |       |
| Tarapacá GT         |       | Steam Turbine/Diesel Oil                         |       | SING       |       | 24                             |       |
| Tarapacá coal       |       | Steam Turbine /Coal                              |       | SING       |       | 158                            |       |
| Diego de Almagro         |       | Gas Turbine/Diesel Oil                           |       | SIC        |       | 47                             |       |
| Huasco GT                |       | Gas Turbine/IFO 180 Oil                          |       | SIC        |       | 64                             |       |
| San Isidro               |       | Combined Cycle/Natural Gas & Diesel Oil |       | SIC        |       | 379                            |       |
| Taltal                   |       | Gas Turbine/Natural Gas & Diesel Oil    |       | SIC        |       | 245                            |       |
| San Isidro II            |       | Combined Cycle/Gas & Diesel Oil         |       | SIC        |       | 353                            |       |
| **Total  Thermal**       | ** ** | ** **                                       | ** ** | ** ** | ** ** | **1,414**                      | ** ** |
| ** **               |       |                                             |       |       |       |                           |       |
| **Others**               |       |                                             |       |       |       |                           |       |
| Canela                   |       | Wind Power                                       |       | SIC        |       | 18                             |       |
|                     |       |                                             |       |       |       |                           |       |
| **Total  Capacity**      | ** ** | ** **                                       | ** ** | ** ** | ** ** | **4,893**                      | ** ** |

 

----

| (1) | Total  installed capacity is defined as the maximum capacity, under specific  technical conditions and characteristics.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | “Reservoir”  and “pass-through” refer to a hydroelectric plant that uses a dam or a river,  respectively, to move the turbines which generate electricity. “Steam  Turbine” refers to 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” (“GT”) or “open cycle” refers to 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 a thermal power plant that uses natural gas, diesel oil or fuel oil  to generate gas that moves the turbines to generate electricity, and then  recovers the gas that escapes from that process to generate steam to move  another turbine. |

 

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***Operations inArgentina***

*** ***

We participate in electricity generation in Argentinathrough our subsidiaries Endesa Costanera and El Chocón, with a total of fivepower plants.  El Chocón owns twohydroelectric power plants, with total installed capacity of 1,328 MW andEndesa Costanera owns three thermal plants, with a total installed capacity of2,324 MW.  In 2008, our hydro andthermal generation plants in Argentina represented 13.9% of the MEM’sgeneration capacity in 2008.

 

Our Argentine subsidiaries participate in two newcompanies, *Termoeléctrica Manuel Belgrano S.A.* (“*Manuel Belgrano”*) and *Termoeléctrica José de SanMartin S.A.* (“*San Martín”*).  These companies were formed to undertake theconstruction of two new generation facilities under Foninvemem.  This fund was created by the Secretary ofEnergy to allow the financing and management of all investment aimed atincreasing the electric power supply within the MEM.  These power plants started up operationsusing gas turbines in 2008, with 1,125 MW of aggregate capacity, andoperation as combined cycles is expected to be launched by the second half of2009 with and additional 600 MW of total aggregate capacity.  Since 2002, government intervention andenergy industry authority actions, including limiting the spot price ofelectricity by considering the variable cost of generating electricity withnatural gas without the hydrological conditions of rivers and reservoirs or theuse of more expensive liquid oil, have led to the lack of investment in theelectric power sector.  (See “— ElectricityIndustry Regulatory Framework” and “ — A. History and Development of theCompany” for further detail.)

 

As of December 31, 2008, Endesa Costanera’sinstalled capacity accounted for 8.9% of the total installed capacity in the *Sistema Interconectado Nacional* (the “Argentine MEM”).  Endesa Costanera’s second combined cycleplant can operate with natural gas and diesel. Our 1,138 MW steam turbine power plant can operate with eithernatural gas or fuel oil.

 

El Chocón accounted for 5.1% of the installed capacityin the Argentine MEM as of December 31, 2008.  El Chocón has a 30-year concession, ending in2023, for two hydroelectric generation facilities with an aggregate of1,328 MW of installed capacity.  Thelarger of the two facilities for which El Chocón has a concession has1,200 MW of installed capacity and is the primary flood controlinstallation on the Limay River.  Thefacility’s large reservoir, Ezequiel Ramos Mejía, enables El Chocón to be oneof the Argentine MEM’s major peak suppliers. Variations in El Chocón’s waterdischarge are moderated by El Chocón’s Arroyito facility, a downstream dam with128 MW of installed capacity.  In November 2008we finished construction work on the Arroyito dam, and increased the elevationof the reservoir water level, that allows releasing additional 1,150 m3/sec water, for a total of 3,750 m3/sec.  Theadditional energy (69 GWh/year) will be sold on the spot market until April 2009and on the “Energy Plus” market thereafter. Energy Plus Service is the offer of new electricity capacity to supplythe growth in electricity demand, over the demand level for electricity in2005.  (For details on Energy Plus, see “— ElectricityIndustry Regulatory Framework”.)

 

The following table sets forth the installed capacityof our Argentine subsidiaries:

 

**INSTALLED CAPACITY PERSUBSIDIARY IN ARGENTINA (MW)**

 
| ** **                                                   | ** **   | **As of December 31,** | ** **   |
|--------------------------------------------------------------|--------------|-----------------------------|--------------|
| ** **                                                   | ** **   | **2006**                    | ** **   | **2007** | ** ** | **2008** | ** ** |
| **Endesa  Costanera**                                        | *** *** | *** ***                | *** *** | *** *** | *** *** | *** *** | *** *** |
| Costanera (steam  turbine)                                   |         | 1,138                       |         | 1,138 |   | 1,138 |   |
| Costanera  (combined cycle II)                               |         | 859                         |         | 859 |   | 859 |   |
| Central  Termoélectrica Buenos Aires (combined cycle I) |         | 322                         |         | 327 |   | 327 |   |
| **El  Chócon**                                          |         |                        |         |   |   |   |   |
| El Chócon  (hydroelectric)                              |         | 1,200                       |         | 1,200 |   | 1,200 |   |
| Arroyito  (hydroelectric)                                    |         | 120                         |         | 120 |   | 128 |   |
| **Total**                                                    |         | 3,639                       |         | 3,644 |   | 3,652 |   |

 

Our total generation in Argentina reached10,480 GWh in 2008, 13.5% lower than our 12,117 GWh total electricitygeneration in 2007.  Our generationmarket share was approximately 9.3% of total electricity production inArgentina during 2008.

 

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The following table sets forth the electricitygeneration of our Argentine subsidiaries:

 

**ELECTRICITY GENERATION PERSUBSIDIARY IN ARGENTINA (GWh)**

 
| ** **       | ** ** | **Year Ended December 31,** | ** ** |
|------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| Endesa Costanera |       | 8,709                            |       | 8,421 |   | 8,540 |   |
| El Chocón   |       | 5,041                            |       | 3,696 |   | 1,940 |   |
| **Total**        |       | 13,750                           |       | 12,117 |   | 10,480 |   |

 

Hydroelectric generation accounted for nearly 18.5% oftotal generation in 2008, lower than in 2007 due to the restrictions of theoperation of El Chocón imposed by CAMMESA and the low level of the reservoirduring the first half of the year.  Thelevel of El Chocón measured bi-annually in 2007 and 2008, in terms of GWh, isshown in the following table:

 
| ** **                   | ** ** | **2007**  | ** ** | **2008**  | ** ** |
|------------------------------|------------|-----------|------------|-----------|------------|
| **Reservoir El Chocón** | ** ** | **(GWh)** | ** ** | **(GWh)** | ** ** |
| June 30,                |       | 1,000     |       | 100       |       |
| December 31,            |       | 200       |       | 1,400     |       |

 

The percentage of hydroelectric and thermal generationis shown in the following table:

 

**HYDRO/THERMAL GENERATIONIN ARGENTINA (GWh) (1)**

 
| ** **                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                | ** ** | **(GWh)**                        | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** |
| Hydroelectric  generation |       | 5,041                            |       | 36.7 |   | 3,696 |   | 30.5 |   | 1,940 |   | 18.5 |   |
| Thermal  generation       |       | 8,709                            |       | 63.3 |   | 8,421 |   | 69.5 |   | 8,540 |   | 81.5 |   |
| **Total  generation**     |       | 13,750                           |       | 100.0 |   | 12,117 |   | 100.0 |   | 10,480 |   | 100.0 |   |

 

----

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

 

The amount of energy generated and purchased in thelast three years is shown in the following table:

 

**PHYSICAL GENERATION ANDPURCHASES IN ARGENTINA (GWh)**

 
| ** **              | ** ** | **2006**  | ** ** | **2007** | ** ** | **2008**  | ** ** |
|-------------------------|------------|-----------|------------|----------|------------|-----------|------------|
| ** **              | ** ** | **(GWh)** | ** ** | **%**    | ** ** | **(GWh)** | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** |
| Electricity  generation |       | 13,750    |       | 98.2     |       | 12,117    |       | 97.1 |   | 10,480 |   | 93.8 |   |
| Electricity  purchases  |       | 256       |       | 1.8      |       | 367       |       | 2.9 |   | 694 |   | 6.2 |   |
| **Total(1)**            |       | 14,006    |       | 100.0    |       | 12,484    |       | 100.0 |   | 11,174 |   | 100.0 |   |

 

----

| (1) | Energy  generation plus energy purchases differs from electricity sales due to power  plant consumption of electricity that had been uploaded to the grid, referred  to as non billed electricity consumption. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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The distribution ofphysical sales in Argentina, in terms of customer segment, is shown in thefollowing table:

 

**PHYSICALSALES PER CUSTOMER SEGMENT IN ARGENTINA (GWh)**

 
| ** **                   | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------|------------|----------------------------------|------------|
| ** **                   | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                   | ** ** | **(GWh)**                        | ** ** | **% of   Sales   Volume** | ** ** | **(GWh)** | ** ** | **% of Sales   Volume** | ** ** | **(GWh)** | ** ** | **% of Sales   Volume** | ** ** |
| Contracted sales             |       | 2,116                            |       | 15.2 |   | 2,364 |   | 19.1 |   | 2,397 |   | 21.6 |   |
| Non-contracted  sales        |       | 11,810                           |       | 84.8 |   | 10,042 |   | 80.9 |   | 8,701 |   | 78.4 |   |
| **Total  electricity sales** |       | 13,926                           |       | 100.0 |   | 12,406 |   | 100.0 |   | 11,098 |   | 100.0 |   |

 

**PHYSICAL SALES PERSUBSIDIARY IN ARGENTINA (GWh)**

 
| ** **       | ** ** | **Year Ended December 31,** | ** ** |
|------------------|------------|----------------------------------|------------|
| ** **       | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| Endesa Costanera |       | 8,736                            |       | 8,450 |   | 8,543 |   |
| El Chocón   |       | 5,191                            |       | 3,956 |   | 2,554 |   |
| **Total**        |       | 13,926                           |       | 12,406 |   | 11,098 |   |

 

During 2008,Endesa Costanera served an average of 42 non-regulated customers.  Endesa Costanera has no contract withdistribution companies.  Given theregulatory measures adopted since 2003, the current Argentine electricity industryprice scenario makes sales to distribution companies less attractive than salesto the wholesale market.

 

The following table setsforth Endesa Costanera’’s sales to its largest non-regulated customers for eachof the periods indicated:

 

**ENDESA COSTANERA’S MAINCUSTOMERS (GWh)**

 
| ** **                                              | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                              | ** ** | **Sales   (GWh)**                | ** ** | **% of   contract   Sales** | ** ** | **Sales   (GWh)** | ** ** | **% of   contract   Sales** | ** ** | **Sales   (GWh)** | ** ** | **% of   contract   Sales** | ** ** |
| YPF                                                     |       | —                           |       | — |   | 159 |   | 15.5 |   | 233 |   | 22.5 |   |
| Acindar (Cemsa)  (1)                                    |       | 102                              |       | 13.4 |   | 88 |   | 8.6 |   | 88 |   | 8.5 |   |
| Solvay                                                  |       | —                           |       | — |   | 87 |   | 8.5 |   | 130 |   | 12.5 |   |
| Transclor                                               |       | 86                               |       | 11.3 |   | 81 |   | 7.9 |   | 63 |   | 6.1 |   |
| Peugeot                                                 |       | 79                               |       | 10.4 |   | 79 |   | 7.7 |   | 63 |   | 6.1 |   |
| Cencosud                                                |       | 62                               |       | 8.2 |   | 119 |   | 11.6 |   | 59 |   | 5.7 |   |
| Papelera de la  Plata                                   |       | 45                               |       | 5.9 |   | — |   | — |   |   |   |   |   |
| **Total  sales to our largest non-regulated customers** |       | 373                              |       | 49.2 |   | 611 |   | 59.7 |   | 635 |   | 61.5 |   |

 

----

| (1) | During  2006, Acindar did not have contracts with Endesa Costanera, but it was served  by Cemsa, an Endesa Chile’s affiliate.   Since 2007, Acindar has been an Endesa Costanera customer. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

Sales to the pool market increased from 7,427 GWhin 2007 to 7,511 GWh in 2008.

 

The Argentine energy crisis, which began in 2004, continues as of thedate of this Report, but the effects of the restrictions on exports of gasabroad were reduced during 2008.  Inaccordance with the open season regulations, in 2008 the gas transportationcapacity was expanded by 3.7 million m3/day.  In June 2008 regasification shipsstarted operations in *Bahía Blanca* andinjected up to 8 million m3/dayof gas, with an average of 4.2 million m3/day.

 

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During 2008, Endesa Costanera,through its subsidiary Cemsa, negotiated with a number of gas producers, whichallowed Costanera to diversify and improve the availability of gas for supplyto Costanera’s units, including the ability to trade gas with other generators.

 

The relatively dry conditionsduring the first half of 2008 explain the decrease of 35.4% in physical salesof El Chocón, when compared to 2007. Contracted sales increased from 1,342 GWh in 2007 to 1,364 GWhin 2008 and spot sales decreased from 2,615 GWh in 2007 to 1,190 GWhin 2008.

 

During 2008, El Chocón served an average of 18non-regulated customers.  El Chocón hasno contract with distribution companies.

 

The following table setsforth sales by volume to the largest non-regulated customers of El Chocón foreach of the periods indicated:

 

**EL CHOCON’S MAINCUSTOMERS (GWh)**

 
| ** **                                              | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                              | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                              | ** ** | **Sales   (GWh)**                | ** ** | **% of   contract   Sales** | ** ** | **Sales   (GWh)** | ** ** | **% of   contract   Sales** | ** ** | **Sales   (GWh)** | ** ** | **% of   contract   Sale** | ** ** |
| Minera Alumbrera                                        |       | 496                              |       | 36.5 |   | 569 |   | 42.4 |   | 571 |   | 41.9 |   |
| Profertil  (Cemsa) (1)                                  |       | 242                              |       | 17.8 |   | 145 |   | 10.8 |   | 94 |   | 6.9 |   |
| Massuh                                                  |       | 127                              |       | 9.3 |   | 109 |   | 8.1 |   | 85 |   | 6.2 |   |
| Chevron                                                 |       | 107                              |       | 7.9 |   | 112 |   | 8.3 |   | 136 |   | 10.0 |   |
| Acindar (Cemsa)  (1)                                    |       | 88                               |       | 6.4 |   | 88 |   | 6.5 |   | 88 |   | 6.4 |   |
| Praxair                                                 |       | —                           |       | 0.0 |   | — |   | 0.0 |   | 89 |   | 6.5 |   |
| Ensi S.E.                                               |       | 40                               |       | 2.9 |   | — |   | 0.0 |   | 0 |   | 0.0 |   |
| **Total  sales to our largest non-regulated customers** |       | 1,100                            |       | 80.9 |   | 1,022 |   | 76.2 |   | 1,063 |   | 77.9 |   |

 

----

| (1) | Profertil  and Acindar do not have contracts with El Chocón, but are served through  Cemsa, an Endesa Chile affiliate. |
|-----|-----------------------------------------------------------------------------------------------------------------------------|

 

We operate El Chocón pursuant to an operatingagreement with a term equal to the duration of the concession that expires in2023.  El Chocón does not have the rightto terminate the operating agreement, unless we fail to perform our obligationsunder the agreement.  Under the terms ofthe operating agreement, we are entitled to a fee payable in dollars based onEl Chocón’s annual gross revenues, payable in monthly installments.

 

Our Argentine subsidiaries compete with all the majorpower plants connected to the MEM. According to the installed capacity reported by Cammesa in the monthlyreport for December 2008, our major competitors in Argentina are AESGroup, *Sociedad Argentina de Energía*,and *Pampa Energía*.  The AES Group has nine power plants connectedto the MEM with a total capacity of 2,866 MW and one plant not connectedto the MEM that delivers energy to the Chilean SING, Termo Andes, with a totalcapacity of 411 MW; Sadesa Grupo Bemberg owns two plants, *Piedra del Aguila* (hydro 1,400 MW)and *Central Puerto* (thermal1,777 MW); and *Pampa Energía*competeswith us through five power plants,  *Diamante* and *Nihuiles* (bothhydro, 612 MW in total); and *Güemes, Loma de la Lata*and *Piedra Buena* (thermal, 1,365 MW intotal).

 

**Operations inColombia**

** **

Until August 2007, we controlled two electricitygeneration companies in Colombia, Betania and Emgesa.  These companies were merged into Betania,which then changed its name to Emgesa S.A. E.S.P.  We have a 26.87% beneficial interest inEmgesa as of December 31, 2008, which we control pursuant ashareholders’ agreement.

 

As of December 31, 2008, our Colombian subsidiaryoperated eleven generation plants in Colombia, with a total installed capacityof 2,895 MW.  Emgesa has2,451 MW in hydroelectric plants and 444 MW in thermoelectric plant.  In April 2008, Emgesa launchedcommercial operations of the second unit of Cartagena that has an installed 

 

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capacity of66 MW.  The unit was out of servicesince 2006 for works that increased its capacity.

 

Our hydroelectric and thermal generation plants inColombia represent 21.4% of the country’s total electricity generation capacityas of December 2008.

 

The following table sets forth the installedgeneration capacity of our Colombian subsidiaries for the last three years:

 

**INSTALLED CAPACITY PERSUBSIDIARY IN COLOMBIA (MW)(1)(2)**

 
| ** **                        | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------|------------|----------------------------------|------------|
| ** **                        | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                        | ** ** | **(MW)**                         | ** ** |
| **Emgesa**                        |       |                             |       |   |   |   |   |
| Guavio  (hydroelectric)           |       | 1,163                            |       | 1,213 |   | 1,213 |   |
| Cadena Nueva  (hydroelectric)     |       | 601                              |       | 601 |   | 601 |   |
| Betania  (hydroelectric)          |       | 541                              |       | 541 |   | 541 |   |
| Termozipa  (thermal)              |       | 236                              |       | 236 |   | 236 |   |
| Cartagena  (thermal)              |       | 142                              |       | 142 |   | 208 |   |
| Minor Plants  (hydroelectric) (3) |       | 96                               |       | 96 |   | 96 |   |
| **Total**                         |       | 2,779                            |       | 2,829 |   | 2,895 |   |

 

----

| (1) | The figure includes the capacity used for power plant  consumption.                                                                                |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | The installed capacity was certified during 2006,  2007 and 2008 by Bureau Veritas.                                                                |
| (3) | As of December 31, 2008 Emgesa owned and  operated five minor plants: *Charquito*,  *El Limonar*, *La Tinta*, *Tequendama*and*La Junca*. |

 

Approximately 84.7% of our installed capacity inColombia is hydroelectric.  As a result,our physical generation depends on the reservoir levels and rainfalls.  Our generation market share in Colombia was24% in 2006, 22% in 2007 and 24% in 2008. In addition to hydrological conditions, the amount of generation dependson our commercial strategy.  Colombia’selectricity market is less regulated than the markets of the other countries inwhich we operate.  Companies are free tooffer their electricity at prices driven by market conditions, as opposed tobeing dispatched by a centralized operating entity to generate according to theminimum marginal costs of the system.

 

The following table sets forth the energy generationfor each of our Colombian subsidiaries:

 

**ENERGY GENERATION PERSUBSIDIARY IN COLOMBIA (GWh)(1)(2)**

 
| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **(GWh)**                        | ** ** |
| ** ** | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| Emgesa     |       | 10,360                           |       | 11,942 |   | 12,905 |   |
| Betania    |       | 2,204                            |       | — |   | — |   |
| **Total**  |       | 12,564                           |       | 11,942 |   | 12,905 |   |

 

----

| (1) |   | Generation  minus power plant own consumption and technical losses.                                                                                                                                          |
|-----|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) |   | Since  September 2007, Betania and Emgesa were merged into Betania, which then  changed its name back to Emgesa S.A. E.S.P. Emgesa has been consolidating the  total generation in Colombia since 2007. |

 

Hydrological conditions in 2008 translated into highergeneration for Emgesa when compared to 2007. The main increases were in Cadena Nueva and in Betania.  During 2008, thermal generation represented3.9% of total generation and hydroelectric generation the remaining 96.1% ofour generation in Colombia.  However, thetwo thermal facilities, Termozipa and Cartagena represent 15.3% of our totalinstalled capacity in Colombia.  Thevariable cost of generation for those plants was higher than the average spotmarket price, given the level of supply and demand of electricity during theyear.

 

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The following table sets forth the levels ofelectricity production and purchases for our Colombian subsidiaries for thepast three years:

 

**PHYSICALPRODUCTION AND PURCHASES IN COLOMBIA (GWh)**

 
| ** **             | ** ** | **Year ended December 31,** | ** ** |
|------------------------|------------|----------------------------------|------------|
| ** **             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **             | ** ** | **(GWh)**                        | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** |
| Electricity production |       | 12,564                           |       | 81.3 |   | 11,942 |   | 75.8 |   | 12,905 |   | 78.1 |   |
| Electricity purchases  |       | 2,883                            |       | 18.7 |   | 3,814 |   | 24.2 |   | 3,611 |   | 21.9 |   |
| **Total**              |       | 15,447                           |       | 100.0 |   | 15,756 |   | 100.0 |   | 16,517 |   | 100.0 |   |

 

The sole interconnected electricity system in Colombiais the Colombian National Interconnected System the “Colombian NIS.”  Electricity demand in the Colombian NISincreased 1.9% during 2008.  The totalelectricity consumption was 50,813 GWh in 2006, 52,851 GWh in 2007and 53,870 GWh in 2008.

 

The demand in Colombia’s electricity market has beenaffected by the agreement on International Transactions of Energy governing theinterconnection with Ecuador’s electricity system, which began operations in2003.  During 2008, physical sales toEcuador reached 510 GWh, 58% less than the 877 GWh reached in 2007.

 

The distribution of Endesa Chile’s physical sales inColombia, in terms of customer segment, is shown in the following table:

 

**PHYSICAL SALES PERCUSTOMER SEGMENT IN COLOMBIA (GWh)**

 
| ** **                  | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2008** | ** ** |
| ** **                  | ** ** | **Sales  (GWh)**                 | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of Sales  Volume** | ** ** |
| Contracted sales            |       | 9,687                            |       | 63.2 |   | 10,539 |   | 67.5 |   | 11,169 |   | 68.2 |   |
| Non-contracted sales        |       | 5,640                            |       | 36.8 |   | 5,074 |   | 32.5 |   | 5,199 |   | 31.8 |   |
| **Total electricity sales** |       | 15,327                           |       | 100.0 |   | 15,613 |   | 100.0 |   | 16,368 |   | 100.0 |   |

 

During 2008, Emgesa served an average of698 contracts with non-regulated customers and 20 distribution and tradingcompanies.  Our sales to the distributioncompany Codensa accounted for 33.9% of our total contract sales in 2008.  Physical sales to the five largestnon-regulated customers altogether reached 3.4% of total contracted sales.

 

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The following table sets forth our sales by volume to our five largestdistribution customers in Colombia for the last three years:

 

**MAIN DISTRIBUTIONAND TRADING CUSTOMERS IN COLOMBIA (GWh)**

 
| ** **                                             | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **Sales  (GWh)**                 | ** ** | **% of  Sales** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales** | ** ** |
|                                                   |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Codensa (1)                                            |       | 2,959                            |       | 30.5 |   | 3,036 |   | 28.8 |   | 3,784 |   | 33.9 |   |
| Enertolima                                             |       | 811                              |       | 8.4 |   | 437 |   | 4.1 |   | 150 |   | 1.3 |   |
| Electrocosta                                           |       | 610                              |       | 6.3 |   | 652 |   | 6.2 |   | 79 |   | 0.7 |   |
| Electricaribe                                          |       | 469                              |       | 4.8 |   | 479 |   | 4.5 |   | 1,194 |   | 10.7 |   |
| EPM                                                    |       | 436                              |       | 4.5 |   | 1,102 |   | 10.5 |   | 1,455 |   | 13.0 |   |
| Dicel                                                  |       | 225                              |       | 2.3 |   | — |   | — |   | — |   | — |   |
| Essa                                                   |       | 7                                |       | 0.1 |   | — |   | — |   | — |   | — |   |
| Cens                                                   |       | 5                                |       | 0.0 |   | — |   | — |   | — |   | — |   |
| Meta                                                   |       |                             |       |   |   | 649 |   | 6.2 |   | 624 |   | 5.6 |   |
| **Total sales to our largest distribution  customers** |       | 5,521                            |       | 57.0 |   | 6,355 |   | 60.3 |   | 7,286 |   | 65.2 |   |

 

----

(1)  Subsidiaryof Enersis.

 

Our most important competitors in Colombia include thefollowing state-owned companies: Empresas Públicas de Medellín with2,601 MW, Isagen with 2,106 MW, and Gecelca with 1,178 MW.  We also compete with the following privatelyowned companies in Colombia: EPSA (Unión Fenosa) with 832 MW and Chivor,which is owned by AESGener, with 1,000 MW, all as of December 2008.

 

**Operations in Peru**

** **

Through our subsidiary Edegel, we operate a total ofnine generation plants in Peru, with a total installed capacity as of December 2008,of 1,467 MW.  Edegel owns sevenhydroelectric power plants, with a total installed capacity of 745 MW, twoof which are located 280 kilometers from Lima and five of which arelocated approximately 50 kilometers from Lima.  The company has two thermal plants whichrepresent the remaining 722 MW of total installed capacity.  Our hydroelectric and thermal generationplants in Peru represent 28.5% of the country’s total electricity generationcapacity according to the information reported in December 2008 by the *Organismo Supervisor de la Inversión en Energía y Minería*(“Osinergmin”).

 

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The following chart setsforth the installed capacity of Edegel:

 

**INSTALLED CAPACITYIN PERU (MW)(1)**

 
| ** **                  | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                  | ** ** | **(MW)**                         | ** ** |
| **Edegel S.A.**             |       |                             |       |   |   |   |   |
| Huinco (hydroelectric)      |       | 247                              |       | 247 |   | 247 |   |
| Matucana (hydroelectric)    |       | 129                              |       | 129 |   | 129 |   |
| Callahuanca (hydroelectric) |       | 75                               |       | 80 |   | 80 |   |
| Moyopampa (hydroelectric)   |       | 65                               |       | 65 |   | 65 |   |
| Huampani (hydroelectric)    |       | 30                               |       | 30 |   | 30 |   |
| Yanango (hydroelectric)     |       | 43                               |       | 43 |   | 43 |   |
| Chimay (hydroelectric)      |       | 151                              |       | 151 |   | 151 |   |
| Santa Rosa (thermal)        |       | 229                              |       | 231 |   | 229 |   |
| Ventanilla (thermal) (2)    |       | 457                              |       | 493 |   | 493 |   |
| **Total**                   |       | 1,426                            |       | 1,469 |   | 1,467 |   |

 

----

(1)  The installed capacity was certified during 2006, 2007and 2008 by Bureau Veritas.

(2)  During 2007 Ventanilla increased its installed capacityby 36 MW due to the control of energy losses.

 

Some of our thermal units had unplanned maintenance inApril and March 2007. Thereafter, thermal generation in 2008 increased by 643 GWh.

 

Our generation market share was approximately 27% oftotal electricity production in Peru for 2008 and 28% for 2007.

 

**HYDRO/THERMALGENERATION IN PERU (GWh)(1)**

 
| ** **               | ** ** | **Year ended December 31,** | ** ** |
|--------------------------|------------|----------------------------------|------------|
| ** **               | ** ** | **2006(2)**                      | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **               | ** ** | **(GWh)**                        | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** |
| Hydroelectric generation |       | 4,197                            |       | 63.0 |   | 4,385 |   | 57.3 |   | 4,189 |   | 51.7 |   |
| Thermal generation       |       | 2,465                            |       | 37.0 |   | 3,270 |   | 42.7 |   | 3,913 |   | 48.3 |   |
| **Total generation**     |       | 6,662                            |       | 100.0 |   | 7,654 |   | 100.0 |   | 8,102 |   | 100.0 |   |

 

----

(1)  Generationminus power plant own consumption and technical losses.

(2)  Thermalgeneration includes Ventanilla’s generation since January 2006.

 

Hydrological generation represented 51.7% of Edegel’stotal production in 2008.  The portion ofelectricity supplied by Edegel’s own generation was 93.9% of total physicalsales, requiring only a small amount of purchases to satisfy contractualobligations to customers.

 

Edegel has supply, transportation and distribution contracts for thegas in Ventanilla and Santa Rosa.  During2007, the gas pipeline Camisea-Lima, owned by TGP, reached its fullcapacity.  However, since May 2008,TGP started restrictions on the gas transfer through the pipeline.  In order to guarantee the transportationcapacity for its natural gas demand, Edegel modified its agreements in the OpenSeason during 2007 and 2008, shifting from interruptible to firm mode, with acapacity of 1.5 million m3/d (from August 2008 to July 2009)and 2.7 million m3/d(from August 2009 to July 2019). Thus, Edegel expects it will have enough capacity for the combined cycleof Ventanilla and part of Santa Rosa.

 

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** **

**PHYSICALGENERATION AND PURCHASES IN PERU (GWh) (1)**

 
| ** **             | ** ** | **Year ended December 31,** | ** ** |
|------------------------|------------|----------------------------------|------------|
| ** **             | ** ** | **2006(2)**                      | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **             | ** ** | **(GWh)**                        | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** | **(GWh)** | ** ** | **%** | ** ** |
| Electricity generation |       | 6,662                            |       | 96.1 |   | 7,654 |   | 93.9 |   | 8,102 |   | 93.9 |   |
| Electricity purchases  |       | 274                              |       | 3.9 |   | 499 |   | 6.1 |   | 525 |   | 6.1 |   |
| **Total(1)**           |       | 6,935                            |       | 100.0 |   | 8,153 |   | 100.0 |   | 8,627 |   | 100.0 |   |

 

----

(1)          TotalGWh production plus purchases differs from GWh sales due to transmissionlosses, given that our own power plant consumption and technical losses havealready been deducted.

(2)          Figuresfor 2006 include Ventanilla’s generation and purchases since January 2006.

 

*Sistema Eléctrico InterconectadoNacional*, or theSINAC, is the only interconnected system in Peru.  Electricity generation in the SINAC increased8.5% during 2008 when compared to 2007, reaching a total yearly generation of29,559 GWh.  Increased demand inPeru is partially a consequence of larger electricity demand by the miningindustry whose growth in electricity demand has been driven by increasingcopper and gold production due to higher international prices for these products.

 

The distribution of Edegel’s physical sales, in termsof customer segment, is shown in the following table:

 

**PHYSICAL SALES PERCUSTOMER SEGMENT IN PERU (GWh)**

 
| ** **                  | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| ** **                  | ** ** | **2006 (2)**                     | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                  | ** ** | **Sales  (GWh)**                 | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** | **Sales  (GWh)** | ** ** | **% of  Sales  Volume** | ** ** |
| Contracted sales (1)        |       | 6,145                            |       | 90.8 |   | 7,569 |   | 94.7 |   | 8,225 |   | 97.2 |   |
| Non-contracted sales        |       | 621                              |       | 9.2 |   | 424 |   | 5.3 |   | 235 |   | 2.8 |   |
| **Total electricity sales** |       | 6,766                            |       | 100.0 |   | 7,994 |   | 100.0 |   | 8,461 |   | 100.0 |   |

 

----

(1) Includesthe sales to distributors without contracts.

(2) Figuresfor 2006 include Ventanilla’s sales since January 2006.

 

Edegel’s physical sales in 2008 increased 5.8% compared to sales in2007.  Sales in the spot market decreased44% and contracted sales increased 9%. The increase in contracted sales is primarily due to the increase inVentanilla’s generation which is sold to ElectroPerú, and the increase in salesto distributors for the bids realized during 2006 and 2007.  During 2008, Edegel had seven regulatedcustomers.  Edegel has had contractssince 1997 with *Luz del Sur* and Edelnor.  Edegel also won the bids launched by otherdistributors during 2006 and 2007.  Thecompany has twelve non-regulated customers. Sales to non-regulated customers represented 56.5% of Edegel’s totalcontracted sales in 2008, compared to 56.0% in 2007.

 

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The following table sets forth our sales by volume to our largestcustomers in Peru for each of the periods indicated:

 

**MAIN CUSTOMERS INPERU (GWh)**

 
| ** **                                             | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **Sales  (GWh)**                 | ** ** | **% of  contract  Sales** | ** ** | **Sales  (GWh)** | ** ** | **% of  contract  Sales** | ** ** | **Sales  (GWh)** | ** ** | **% of  contract  Sales** | ** ** |
| **Distribution companies:**                            |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Edelnor (Regulated) (1)                                |       | 957                              |       | 15.6 |   | 1,039 |   | 13.7 |   | 1,693 |   | 20.6 |   |
| Luz del Sur (Regulated) (1)                            |       | 441                              |       | 7.2 |   | 1,222 |   | 16.1 |   | 1,346 |   | 16.4 |   |
| Hidrandina                                             |       | —                           |       | — |   | 52 |   | 0.7 |   | 58 |   | 0.7 |   |
| Electronoroeste                                        |       | —                           |       | — |   | 46 |   | 0.6 |   | 49 |   | 0.6 |   |
| Electronorte                                           |       | —                           |       | — |   | 45 |   | 0.6 |   | 50 |   | 0.6 |   |
| Electrosur                                             |       | —                           |       | — |   | 27 |   | 0.4 |   | 30 |   | 0.4 |   |
| **Total sales to our largest distribution  companies** |       | 1,398                            |       | 22.8 |   | 2,431 |   | 32.1 |   | 3,226 |   | 37.6 |   |
| ** **                                             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Unregulated costumers:**                             | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ElectroPerú (2)                                   |       | 1,620                            |       | 26.4 |   | 2,427 |   | 32.1 |   | 2,775 |   | 33.7 |   |
| Antamina                                               |       | 683                              |       | 11.1 |   | 682 |   | 9.0 |   | 644 |   | 7.8 |   |
| Refinería                                         |       | 569                              |       | 9.3 |   | 516 |   | 6.8 |   | 635 |   | 7.7 |   |
| Siderperú                                         |       | 330                              |       | 5.4 |   | 362 |   | 4.8 |   | 334 |   | 4.1 |   |
| **Total sales to our largest unregulated  companies**  |       | 3,202                            |       | 52.1 |   | 3,987 |   | 52.7 |   | 4,387 |   | 53.3 |   |
| **Total sales to our largest costumers**               |       | 4,600                            |       | 75.0 |   | 6,418 |   | 84.8 |   | 7,484 |   | 91.0 |   |

 

----

(1)          The figures for Edelnor andLuz del Sur represent sales under bilateral contracts with Edegel only, and notwithdrawals of these companies assigned to Edegel for non contract-related consumption.  For 2007 and 2008, the energy sold to thesedistributors includes the amount won by Edegel in the bids realized during 2006and 2007.

(2)          Since 2006, ElectroPerú has been a customer of Edegeldue to a merger with Etevensa.  Theincrease in 2008 is due to the increase in Ventanilla ́s generation which sellsthe energy to ElectroPeru.

 

Our most important competitors in Peru areElectroPerú, Enersur and Egenor, whose capacity is approximately 908 MW,836 MW and 507 MW, respectively.

 

**ELECTRICITYINDUSTRY REGULATORY FRAMEWORK**

** **

**Chile**

** **

*Industry Structure*

* *

The electricity industry in Chile is divided intothree business segments: generation, transmission and distribution.  The generation segment consists of companiesthat produce electricity.  They selltheir production to distribution companies, unregulated customers throughprivate contracts, or to other generation companies through the spotmarket.  The transmission segmentconsists of companies that transmit at high voltage the electricity produced bygeneration companies.  Finally, thedistribution segment is defined for regulatory purposes to include allelectricity supply to end users at a voltage no higher than 23 kV.

 

The electricity sector in Chile is regulated pursuantto Decree with force of Law No. 1 of 1982, as amended, and the regulationsunder Decree No. 327 of 1998, as amended, collectively known as theChilean Electricity Law.

 

In Chile there are four separate interconnectedelectricity systems.  The main systemsthat cover the most populated areas of Chile are the *SistemaInterconectado Central,*or**SIC, thatservices the central and south central part of the territory, where 93% of theChilean population lives, and the *Sistema Interconectado delNorte Grande,*

 

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*or* SING, which operates in the northern part of thecountry.  According to the 2002 census,6.1% of the Chilean population lives in the territory serviced by theSING.  In addition to the SIC and theSING, there are two isolated systems in southern Chile that provide electricityin remote areas.  The operation of electricitygeneration companies in each of the two major interconnected electricitysystems is coordinated by their respective dispatch center,*Centro de Despacho Económico de Carga*,(“CDEC”), an autonomous entity that involves industry groups and transmissioncompanies.  CDECs coordinate theoperation of their system as efficient markets for the sale of electricity, inwhich 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 ofproduction available in the system at any moment.  Certain major industrial companies own andoperate generation systems to satisfy their own needs.

 

**ChileanElectricity Law**

** **

*General*

* *

The goal of the Chilean Electricity Law is to provideincentives to maximize efficiency and to provide a simplified regulatory schemeand tariff-setting process which limits the discretionary role of thegovernment by establishing objective criteria for setting prices.  The expected result is an economicallyefficient allocation of resources.  Theregulatory system is designed to provide a competitive rate of return oninvestment to stimulate private investment, while ensuring the availability ofelectricity service to all who request it.

 

Three governmental entities have primaryresponsibility for the implementation and enforcement of the ChileanElectricity Law.  The CNE calculatesretail tariffs and wholesale, or node prices, which require the final approvalof the Ministry of Economy, and prepares the indicative plan, a ten-year guidefor the expansion of the system that must be consistent with the calculatednode prices.  The**SEF sets and enforces the technicalstandards of the system and the proper compliance with the law.  In addition, the Ministry of Economy grantsfinal approval of tariffs and node prices set by the CNE and regulates thegranting of concessions to electricity generation, transmission anddistribution companies.

 

Companiesengaged in generation must coordinate their operations through the CDECs tominimize the operating costs of the electricity system and monitor the qualityof service provided by the generation and transmission companies.  Generation companies satisfy theircontractual sales requirements with dispatched electricity, whether produced bythem or purchased from other generation companies in the spot market.  The principal purpose of a CDEC in operatingthe dispatch system is to ensure that only the most efficiently producedelectricity is dispatched to customers. However, the CDEC also seeks to ensure that every generation company hasenough installed capacity and can produce enough electricity to satisfy thedemand of its customers. Endesa Chile’s production in the SIC is primarily hydroelectric.Hydroelectric marginal cost of production is generally the lowest in that interconnectedsystem, and therefore, under normal or abundant hydrological conditions,Endesa Chile’s electricity capacity in the SIC is generally dispatchedfirst.  Generation companies balancetheir contractual obligations with their dispatch by buying electricity at thespot market price, which is set hourly by each CDEC, based on the marginal costof production of the next kWh to be dispatched.

 

***Sales byGeneration Companies***

** **

Sales may be made to final customers under contractsor to other generation companies, on a spot basis.  Generation companies may also be engaged incontracted sales among each other at negotiated prices.  Contract terms are freely determined.

 

***Sales toDistribution Companies and Certain Regulated Customers***

** **

Historically, sales to distribution companies forresale to regulated customers have been made through contracts at regulatedprices (“node prices”) in effect at the relevant locations (“nodes”) on theinterconnected system through which such electricity is supplied.  Nevertheless, since 2005 all new contractsbetween generation and distribution companies for the supply to regulatedcustomers must be the result of international bids which have a maximumregulated offer price equal to 56% over the average price paid by the unregulatedcustomers at the time that the bid is made. If a first bid is unsuccessful, authorities may increase this maximumprice by an additional 15%.  The bids areawarded on a minimum price basis.  Theprice associated with these bids will be transferred directly to final users,replacing the current regulated price regime. During the life of the contract, the energy and capacity prices will beindexed according to formulas set forth in the bid documentation and linked tofuel, investment and other 

 

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costs of energygeneration.  Under the bid system alldistribution companies will have electricity contracts from 2010 onwards.

 

Regulated customers are those with a maximumconsumption capacity not exceeding 0.5 MW. Customers between 0.5 and2 MW may choose their status as regulated or unregulated. Customers withcapacity needs over 2 MW are unregulated. Two node prices are paid bydistribution companies: one for capacity and the other for energyconsumption.  Node prices for capacityare calculated based on the marginal cost of increasing the existing capacityof the electricity system with the least expensive dispatch by any generatingfacility.  Node prices for energyconsumption are calculated based on the projected marginal cost of satisfyingthe demand for energy at a given point in the interconnected system, during thenext 48 months in the SIC and during the next 24 months in the SING.  The determination of such marginal cost takesinto account the principal variables in the cost of energy over the ten-yearperiod, including projected growth in demand, reservoir levels, fuel costs forthermal electricity generation facilities, planned maintenance schedules andother factors that could affect the availability of existing generationcapacity and scheduled additions to generation capacity during the ten-yearindicative electricity development plan. The same general principles are usedto determine marginal cost in the SING.

 

Node prices for capacity and energy consumption areestablished every six months, in April and October.  Although node prices are quoted in pesos, thecalculations are made in dollars.  Nodeprices may be adjusted during such period depending on the fluctuations of theaverage prices on sales by generators to their unregulated clients.

 

***Sales toOther Generation Companies***

** **

Each CDEC annually determines a firm capacity for eachpower plant.  The generator is allowed tosell capacity up to its “firm capacity”. Firm capacity is the highest capacity which a generator may supply tothe system at certain peak hours, taking into consideration statisticalinformation regarding the time it is out of service for maintenance.

 

A generation company may be required to purchase orsell energy or capacity in the spot market at any time, depending upon itscontractual requirements in relation to the amount of electricity to bedispatched from such company and to its firm capacity.

 

***Transmission***

** **

Since transmission assets are built pursuant toconcessions granted by the government, the law requires a company to operate onan “open access” basis, in which users may obtain access to the system bycontributing towards the costs of operating, maintaining and, if necessary,expanding the system.  Transmissioncompanies recover their investment in transmission assets through tolls, or“wheeling rates,” which are charged to generation companies and final customersin the proportion 80% to generators and 20% to customers.  Transmission tariffs are determined everyfour years by a decree of the Ministryof Economy.

 

***Concessions***

** **

The law permits generation activity without aconcession.  However, companies may applyfor a concession to facilitate access to third-party properties.  Third-party property owners are entitled tocompensation, which may be agreed to by the parties or, if there is noagreement, may be determined by an administrative proceeding that may beappealed in the Chilean courts.

 

***Fines****and Compensations*

** **

If a rationing decree is enacted in response toprolonged periods of electricity shortages, severe penalties may be imposed ongeneration companies that contravene the decree.  A severe drought is not considered a *force majeure* event.

 

Generation companies may also be required to pay finesto the regulatory authorities, related to system blackouts due to anygenerator’s operational mistake, including failures related to the coordinationduties of all system agents as well as to make compensatory payments toelectricity consumers affected by shortages of electricity. If generationcompanies cannot satisfy their contractual commitments to deliver electricityduring periods when a rationing decree is in effect and there is no energyavailable to purchase in the system, the generation 

 

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company must paycompensation to the customers at the failure cost determined by the authorityin each tariff setting.  Failure costscorrespond to the average cost incurred by final users in providing a kWh bytheir own means.

 

***EnvironmentalRegulation***

** **

The Chilean Constitution grants all citizens the rightto live in a pollution-free environment. It further provides that other constitutional rights may be limited inorder to protect the environment.  Chilehas numerous laws, regulations, decrees and municipal ordinances that may raiseenvironmental considerations.  Amongthem, are regulations relating to waste disposal (including the discharge ofliquid industrial wastes), the establishment of industries in areas in whichthey may affect public health and the protection of water for human consumption.

 

Environmental Law No. 19,300, was enacted in 1994and implemented by “*Reglamento 30*,”issued in 1997.  This law requirescompanies to conduct environmental impact studies of any future generation ortransmission projects and to submit such studies for approval by the ChileanEnvironmental Commission, or Conama.  Italso requires an evaluation of environmental impact by the Chilean governmentor obtaining an environmental insurance policy insuring compliance with standardsfor emissions, noise, waste and disposal, and authorizes the relevantministries to establish emission standards. Endesa Chile applies the guidelines set out in *Reglamento30* when analyzing the development of future projects.

 

On April 1, 2008, Law 20,257, which is anamendment to the General Services Law*,* wasenacted.  The purpose of the amendment isto promote the use of non-conventional renewable energy, or NCRE.  This law defines the different types oftechnologies considered as NCRE, and establishes the obligation of generatorsbetween 2010 and 2014, to supply 5% of the total energy contracted from August 31, 2007,to be of such type, and to progressively increase this percentage from 0.5% onthat date up to 10% in 2024.  Our powerplants recognized as NCRE generators are: Palmucho, Canela wind farm and Ojosde Agua.  Additionally, the law setsforth fines for the generators that do not comply with this obligation.  Endesa Chile estimates that it will be ableto fully comply with this obligation in 2010 and generate excess energy withNCRE, with the capacity to sell the surplus to other generators.  The additional cost of generating with NCREwill be charged to the new contracts thus eliminating the impact on revenues.

 

***Waterrights***

** **

Endesa Chile owns unlimited duration, unconditional andabsolute property water rights granted by the Chilean Water Authority.  Chilean generation companies must pay anannual fee for unused water rights. Endesa Chile continuously analyzes which water rights it will maintainor disregard.  During 2008, we paid andrecovered fees in the amount of Ch$ 2,501 million($ 3.9 million using the 2008 year-end exchange rate).  This amount may vary in the future accordingto the actual water rights we may hold each year.  We estimate that in 2009 we will pay fees in theamount of Ch$ 1,802 million ($ 3.0 million).  We estimate that if we do not abandon anywater rights in the SIC, we will have to pay license fees aggregating to nomore than $ 4.9 million per year until 2011.  Thereafter, this amount will be doubled andwill remain constant for five years, at which point the license fee will bedoubled again.  In the case of waterrights located in the extreme south of Chile, outside the area comprised by theSIC, the license fees will be paid starting as of January 1, 2012.  They may be recovered through monthly taxcredits until the license fee payments are recovered in full.

 

**Argentina**

** **

***Introduction***

* *

Law No. 15,336 of 1960 and Law No. 24,065of 1992 (together, the “Argentine Electricity Act”) set the regulatory frameworkfor the electricity sector.

 

Under the Argentine Electricity Act the Federal Government:

 

·                  Divided the electricity industry intothree business segments: generation, transmission and distribution to enablethe electric market development under conditions of free competition forgeneration with reduced tariffs, requirements regarding quality standards, andto avoid ownership concentration;

 

·                  Created the *MercadoEléctrico Mayorista* (Wholesale Power Market) or “MEM” where fourcategories of agents (namely, generators, transmitters, distributors and largeusers) are allowed to buy and sell electricity 

 

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and related products;

 

·                  Imposed the *CompañíaAdministradora del Mercado Mayorista Eléctrico* (AdministrativeCompany for the Wholesale Electricity Market) or “Cammesa”, responsible for thedispatch coordination, the administration of the agent transactions in the MEMand the calculation of the spot prices. The agents participate as shareholders in Cammesa through theircorresponding associations with the Secretariat of Energy, the owner of theremaining 20% of the capital stock.  TheMinistry of Federal Planning, Public Inversion and Services (*Ministerio de Planificación Federal, Inversión Pública y Servicios)*appointsthe Cammesa chairman;

 

·                  Created the *EnteNacional Regulador de la Electricidad* (Electric Power NationalRegulatory Agency) or “ENRE”, empowered to regulate public service activitiesin the electricity sector and impose jurisdictional decisions.

 

TheSecretariat of Energy is primarily responsible for the implementation of theArgentine Electricity Law, and as a consequence, Resolution SEE No. 61/1992,as amended, established the *Procedimientos para laProgramación de la Operación, el Despacho de Cargas y el Cálculo de Precios*(Operation, Dispatch of Charges and Price Calculation Program Procedures) orthe “Procedures”, which regulate the dispatch of the system and the activitiesin the MEM.  Resolution SE No. 21/1997regulates the procedure to grant the concessions of internationalinterconnected transmission systems.

 

***Industry structure***

 

The generation sector is organized on a competitive basis, withindependent generators selling their output on the spot market of the MEM orthrough private contracts to purchasers on the term market of the MEM.

 

Transmissionis a public service that works under monopoly conditions by several companiesto whom the Federal Government grants concessions.  One concessionaire operates and maintains thehighest voltage facilities and eight concessionaires operate and maintain highand medium voltage facilities, to which facilities of the generation plants,distribution systems and big clients are connected.  The international interconnected transmissionsystems also require concessions granted by the Federal Government.  Transmission companies are authorized tocharge different tolls for their services.

 

Distributionis a public service that works under monopoly conditions, and is provided bycompanies who have been granted concessions. Distribution companies have the obligation to make electricity availableto the end-users within a specific concession area even though it is contractedwith the distributor or with a generator. Accordingly, these companies are regulated with respect to tariffs andare subject to service quality specifications. Distribution companies may obtain electricity either in the spot marketof the MEM at a price called seasonal price, or in the term market of the MEMthrough private contracts with generators. The seasonal price defined by the Secretariat of Energy is the cap forthe costs of electricity bought by distributors and passed through to regulatedcustomers.

 

There arethree electricity distribution areas subject to federal concessions.  The concessionaires are Edelap, Edesur andEdenor.  The local distribution areas aresubject to concessions granted by the provincial or municipal authorities.  Notwithstanding, all distribution companiesacting in the MEM must operate under its rules.

 

Electricityend-users are regulated customers supplied by distributors at regulatedtariffs, unless they have a minimum demand of at least 30 kW, and choose tocontract their supply from generators in the spot market in the MEM, in whichcase they become ‘large users’ which may freely negotiate theirprices with generating companies.

 

Traders arealso authorized to act as participants in the MEM.  They buy and sell energy and related productsfrom and for agents of the MEM, including such received by the provinces aspayments for electricity royalties.

 

Nogenerator, distributor, big client, nor any company controlled by some of themor controlling the same, may either be owner or major shareholder of atransmission company or of its controlling company.  Transmission companies are prohibited fromgenerating, distributing, purchasing and/or selling electricity.  Distribution companies are prohibited frombeing owners of generation units.

 

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***Dispatch and Pricing***

 

The coordination of dispatch operations, the spot prices fixing and theadministration of the economic transactions in the MEM are controlled byCammesa.  All generators that are MEMagents should be connected to the *Sistema Argentino deInterconexión*(Argentine Interconnected System) or “Argentine NIS”and are obliged to comply with the dispatch order to generate and deliver theenergy to the Argentine NIS in order to be sold either in the spot market or inthe term market.  Distribution companies,traders and bigclients that have entered into private supply contracts with generationcompanies pay the contractual price directly to the generator and also pay atoll to distribution companies for the use of their systems.

 

The spot price is calculated on an hourly basis by Cammesa according tothe cost of the marginal kW to be dispatched in the Argentine NIS and is paidto generators and sellers of energy at the spot market.  The Argentine Electricity Act sets thatelectricity prices in the spot market are determined on a marginal costbasis.  Since 2002, the Secretariat ofEnergy started to modify several criteria around the spot prices and imposed,among other restrictions, caps for the spot prices to be paid to the generatorsand only recognized the costs of natural gas established by the FederalGovernment to calculate them, even though additional costs are collected by themarket and paid to the generator with such costs.

 

In order to stabilize the prices for distribution tariffs, the markethas a seasonal price as the energy price to be paid by distributors for theirpurchases of electricity traded in the spot market.  It is a fixed price determined every sixmonths by the Secretariat of Energy after Cammesa recommends the seasonal pricelevel for next period according to its estimated spot price based on itsevaluation of the expected supply, demand and available capacity, as well asother factors.  The seasonal price ismaintained for at least 90 days. Since 2002, the Secretariat of Energy hasbeen approving seasonal prices lower than those calculated by Cammesa.

 

***RegulatoryDevelopments: the industry after the Public Emergency Law***

 

***General***

 

Law No. 25,561, titled Public Emergency Law, was enacted in 2002to manage the public emergency.  Itforced the renegotiation of public service contracts (such as electricitytransmission and distribution concession contracts), imposed the conversion ofdollar denominated obligations into Argentine pesos at a rate of Ar$ 1 per$ 1 and empowered the Federal Government to implement additional monetary,financial and exchange measures to overcome the economic crisis in the mediumterm.  The effects of these measures havebeen periodically extended.  In fact, LawNo. 26,456, enacted in December 2008, extended its effects until December 31, 2009.

 

Following that law, the Secretariat of Energy introduced severalregulatory measures aimed to correct the effects of the devaluation into thecosts and prices in the MEM and to reduce the price to be paid by theend-users.

 

***Generation***

 

The mandatory conversion of transmission and distribution tariffs inArgentine pesos from dollars at a pegged rate of Ar$ 1 per $ 1 whenthe market exchange rate had been approximately Ar$ 3 per $ 1 and theregulatory measures to cap and reduce the spot and seasonal prices hindered thetransfer of variable costs of generation into the transmission and distributiontariffs to end-users.

 

This situation resulted in a reduction in the money collected bygenerators since the authority — through Resolution SE N° 406/2003- only allowspayments to them for the remaining amounts collected from the purchasers in thespot market after the payment of other obligations in the MEM and discouragedsavings in electricity consumption as well as investments to satisfy theincrease in demand, including the transmission capacity.

 

Additionally, the generators suffer a reduction of estimated incomefrom contract prices because they are reduced as a consequence of the spotprice level.

 

The obligation to settle the unpaid spot electricity with generatorsled authorities to fund investments in new capacity within the MEM, throughFoninvemem, a fund managed by Cammesa. Funds in the Foninvemem have been used to install two combined cyclegeneration plants of 800 MW each.

 

Resolution SE No. 240/2003 changed the way to fix spot prices withnatural gas tariffs by imposing a cap on generation costs and decoupling thespot price from the marginal costs of the generating companies also operating 

 

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with fuel.  The resolution alsoimposed additional capped prices for hydroelectric generators.  Although generation dispatch is still basedon actual fuels used, the calculation of the spot price under the resolution isdefined as if all dispatched generation units did not have restrictions onnatural gas supply, even though they have had restrictions, and the water valueis not considered if its opportunity cost is higher than the cost of generatingwith natural gas.

 

Resolution SE No. 724/2008 gave thermal generators theopportunity to reduce some of the effects of Resolution SE N° 406/2003 byentering into MEM Supply Commitment Contract or “CCAM”.  The thermal generators with a CCAM can supplyenergy to Cammesa for up to 36 months, renewable only for an additional periodof six months, and charge spot prices.

 

***Transmission and distribution***

 

Transmission and distribution companies have been renegotiatingcontracts since 2005 and although tariffs were partially and temporarilyestablished, definitive tariffs are still pending.

 

As a result, although the terms to define energy prices pursuant to theArgentine Electricity Act are still in force, their implementation reflects theintervention of the authorities to reduce compensation for all electricitycompanies.

 

***Natural gas market***

 

There has been a shortage of natural gas to supply power plants forseveral years.  In order to secureinternal supply, the Argentine government entered into an agreement withVenezuela to secure fuel until 2010. Although the fuel oil is used as a last recourse, the nationalregulatory policy supported the acquisition of liquid fuel by the electricgenerators and provided financing from the Stabilization Fund.  The parties also agreed to purchase a fixedamount of fuel oil of instant availability in order to cover any stock shortages.  Generators are generally able to buy dieseland fuel at subsidized prices.

 

Since 2004, the Federal Government has been importing natural gas fromBolivia.  On June 29, 2006,Argentina and Bolivia entered into a 20-year agreement under which Argentinahas the right to receive up to 28 million cubic meters daily.

 

One of the measures relating to natural gas in recent years was thecreation of the Electronic Gas Market (“MEG”). Through the MEG, the regulatory authorities increased the transparencyof physical and commercial operations in the spot market.

 

***Export and Import ofElectricity***

 

In order to give priority to the internal market supply, theSecretariat of Energy adopted additional measures that restricted electricityexports.  Resolution SE No. 949/2004established measures that allowed agents to export and import energy under veryrestricted conditions.  These measuresprevented generators from satisfying their export commitments.

 

***Foninvemem***

 

Resolution SE No. 712/2004 created a fund, called Foninvemem, toincrease electricity capacity/generation within the MEM.  Pursuant to Resolution SE No. 406/2003the Secretariat of Energy decided to pay the generators the spot prices up tothe amount available at the Stabilization Fund after collecting the funds fromthe purchasers in the spot market at seasonal prices lower than spot prices forthe same period.  Foninvemem wouldreceive the differences between spot prices and payments to sellers accordingto Resolution SE No. 406/2003 from January 1, 2004 to December 31, 2006.  Cammesa was appointed to manage theFoninvemem.

 

Pursuant to Resolution SE No. 1,193/2005 all private generators ofthe MEM were called to participate in the construction, operation andmaintenance of the electric energy generation plants to be built with theFoninvemem, consisting of two combined cycle generation plants of 800 MWeach.  These power plants are powered bynatural gas or alternative fuels.

 

Because of the insufficient resources to conclude the plants,Resolution SE No. 564/2007 gathered all private sector generators ofthe MEM to commit to Foninvemem by including the differences between spotprices and payments made pursuant to Resolution SE No. 406/2003 for theextra period ending December 31, 2007.

 

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***Incentive Programs in energy sectors***

 

In order to provideincentives for the installation of new capacity in the NIS, Resolution1,281/2006 created the Energy Plus Service, which is the offer of newelectricity capacity to supply the growth in electricity demand, over the “BaseDemand,” which was the demand for electricity in 2005.  The Energy Plus Service is supplied bygenerators that install new capacity or that offer existing generation capacitynot connected before to the NIS.  All ‘largeusers’ that, as of November 1, 2006, had a higher demand than theirBase Demand, must contract excess demand with the Energy Plus Service.  The consumption that exceeds the Base Demandwithout a contract to supply such excess should pay additional amounts for thesurplus energy.  The price of thecontracts for Energy Plus Service should be approved by the relevantauthorities.  Consumptions that cannot besecured by an Energy Plus Service contract, may request Cammesa to conduct anauction to satisfy such demands.

 

The Federal Governmenthas adopted several measures to promote new investments, including auctions toexpand natural gas and electric power transport capacity, the implementation ofcertain projects for the construction of several power plants, and the creationof fiduciary funds to finance expansions. Law 26,095 of 2006 created specific charges that must be paid by finalusers to finance new electricity and gas infrastructure projects.  The Federal Government has also enacted someregulations to promote the rational and efficient use of electric power.

 

***Regulation for the promotion of Energy Infrastructureprojects***

 

Law No. 26,095 andNational Decree No. 1,216/2006 imposed charges to be paid by end-users ofelectricity and natural gas in order to finance new electricity and gasinfrastructure projects in an effort to achieve new investments in theelectricity sector and to expand natural gas and electric power transportcapacity.  In addition, the FederalGovernment enacted some regulations to promote the rational and efficient useof electric power.

 

***Environmental Regulation***

 

Electricity facilitiesare subject to federal and local environmental laws and regulations, includingLaw No. 24,051, or the Hazardous Waste Law, and its ancillary regulations.

 

Certain reporting andmonitoring obligations and emission standards are imposed on the electricitysector.  Failure to satisfy theserequirements entitles the government to impose penalties, such as suspension ofoperations, which, in case of public services, could result in the cancellationof concessions.

 

**Brazil**

** **

Although we do not ownany Brazilian subsidiaries, we do own equity investments through Endesa Brasil.

 

***Industry Structure***

*** ***

Brazil’selectricity industry is organized into one large interconnected electricitysystem, which is known as the *Sistema InterligadoNacional* (the “Brazilian NIS”), which comprises most of the regionsof Brazil and several other small, isolated systems.

 

Generation,transmission and distribution are legally separated activities in Brazil.  According to the specifications set forth inLaw 9,427/96 non-regulated customers in Brazil are currently those customers: (i) whodemand at least 3,000 kW and choose to contract the energy supply directlywith generators or retailers; or (ii) who demand at least 500 kW (andless than 3,000 kW) and choose to contract the energy supply directly withalternative generators or traders,.

 

Theelectricity industry in Brazil is regulated by the Federal Government, actingthrough the Ministry of Mines and Energy, or MME, which has exclusive authorityover the electricity sector and whose primary role is to establish thepolicies, guidelines and regulations for the sector.  Regulatory policies are implemented by theANEEL, whose main responsibilities include, among others: (1) supervisionof the concessions for electricity sale, generation, transmission anddistribution activities, and approval of electricity tariffs; (2) enactmentof regulations for the electricity sector; (3) implementation andregulation of the exploitation of electricity resources, including the use of hydroelectricity;(4) promotion of a bidding process for new concessions; (5) resolutionof administrative disputes between electricity sector agents; and (6) settingthe criteria and methodology for determining distribution and transmissiontariffs.

 

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Otherregulatory authorities include: (i) the Brazilian Electricity SystemOperator (ONS), comprised of generation, transmission and distributioncompanies, and independent consumers, responsible for the coordination andcontrol of the generation and transmission operations of the Brazilian NIS; (ii) theElectricity Trading Board (CCEE), a company in which Agents are gathered infour categories: Generation, Distribution, Trading and Consumers and whose mainpurpose is to carry out the wholesale transactions and trading of electricpower within the Brazilian NIS; and (iii) the Brazilian Energy PolicyCouncil (CNPE) in charge of  developing anational electricity policy.

 

***Deregulation andPrivatization***

*** ***

TheConcessions Law (No. 8,987) and the Power Sector Law (No. 9,074),both enacted in 1995, intend to inject competition and attract private capitalinto the electricity sector.  Since then,several assets owned by the Federal Government of Brazil and/or states governmentswere privatized.

 

***Independent PowerProducers and Self-Producers***

*** ***

ThePower Sector Law also introduced the concept of independent power producers, orIPPs, in order to open the electricity sector to private sectorinvestment.  IPPs are individual agentsor agents acting in a consortium who receive a concession, permit orauthorization from the Brazilian government to produce electricity for sale onits own account.

 

TheConcessions Law also provides that, upon receiving a concession, IPPs, self-producers,suppliers and consumers will have access to the distribution and transmissionsystems owned by other concessionaires, provided that they are reimbursed fortheir costs as determined by ANEEL.

 

Law No. 9,648/98created the Wholesale Energy Market, formed by the generation and distributioncompanies.  According to this model, thepurchase and sale of electricity was freely negotiated.

 

Pursuantto Law No. 10,433/02, the Wholesale Energy Market structure changed to beclosely regulated and monitored by ANEEL, which is also responsible for settingWholesale Energy Market governance rules including measures to stimulatecontinued external investment.

 

Law No. 10,848/04seeks to maintain public service for the production and distribution ofelectricity to consumers within each concession area, restructures planningsystem, guarantees transparency in the auction and bidding process for publicprojects to mitigate the systemic risks, to maintain centralized andcoordinated operations of the energy system and to grant universal use andaccess to electricity throughout Brazil, and it also modifies the biddingprocess of public service concessions.

 

***Structure of theElectricity Sector***

*** ***

Themodel established pursuant to Laws No. 10,847 and 10,848 seeks to providecheaper tariffs for consumers and guarantees the expansion of the system, withthe Power Research Company, (EPE), a governmental body, responsible for theplanning of generation and transmission activities.  This model has defined an unregulatedcontracting environment and a regulated environment.

 

In theunregulated contracting environment, the conditions for purchasing energy arenegotiable between suppliers and their customers.  In relation to the regulated environment,where distribution companies operate, the purchase of energy must be executedpursuant to a bidding process coordinated by ANEEL.

 

Pursuant to the model,100% of the energy demand from distributors must be satisfied through long-termcontracts in advance of the expiration of current contracts in the regulatedenvironment.

 

Anotherchange imposed on the electricity sector is the separation of the biddingprocess for “previously existing power” and “new power project.”  Power plants that were in existence prior to2000 are considered “previously existing power” and those that were developedafter 2000 are considered “new power project.” The government believes that “previously existing power” plants are ableto provide power at more competitive prices and therefore it should givepriority in the bidding process to power generated by new power projectcompanies.  Under the new functioning ofthe sector, this priority will be in the form of more favorable contractualterms.  For example, a generatorconsidered new power project is guaranteed a power purchase agreement with a20-year term 

 

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if it wins the bidding process, while an existingpower is not necessarily even guaranteed participation in the bidding process

 

***Concessions***

*** ***

Companiesor consortia that intend to build or operate hydroelectric generationfacilities with a capacity in excess of 30 MW, or transmissions networksin Brazil, have to use a public tender process. Concessions granted to the holder give the right to generate, transmitor distribute electricity, as the case may be, in a given concession area for agiven period of time.

 

Theperiod of time is limited to 35 years for new generation concessions and to 30years for new transmission or distribution concessions.  Existing concessions might be renewed at theBrazilian government’s discretion, even if the respective concessionaire hasfulfilled all its obligations under the concession agreements and requested therenewal within the deadline.  There is noguarantee that existing concessions will be renewed.

 

***Environmental Regulation***

*** ***

TheBrazilian Constitution gives both the federal and state governments power toenact laws designed to protect the environment and to issue regulations undersuch laws.  While the federal governmenthas power to enact environmental regulations, state governments have the powerto enact more stringent environmental regulations.  Most of the environmental regulations inBrazil are at the state and local level rather than at the level of the federalgovernment.

 

Hydroelectricfacilities are required to obtain concessions for water rights andenvironmental approvals.  Thermalelectricity generation, transmission and distribution companies are required toobtain environmental approvals from environmental regulatory authorities.

 

***Electricity Sales***

*** ***

In the Regulated Environment (ACR), electricity distribution companies buy the electricitythrough bids that are regulated by ANEEL and organized by CCEE.  Distributors must buy electricity at publicbids.

 

Thereare two types of regulated bids at which distributors buy electricity, one atwhich existing contracts can be renewed, and one at which new contracts areentered into.  The government has alsothe right to call special bids for renewable electricity (biomass, small hydro,solar and wind).  ANEEL and CCEE hold thebids annually.

 

Unregulatedcontracts*,*or ACL, include the sale ofelectricity between generation concessionaires, independent producers,self-producers, sellers of electricity, importers of electricity, unregulatedand special consumers.  The ACL alsoincludes contracts in place between generators and distributors until theirexpiration, at which point new contracts may be entered into under the terms ofthe new regulatory framework.

 

***Energy Bids***

 

Thesale of electricity in the ACR occurs through new electricity bids, existingelectricity bids and adjustment bids. The contracting system is multilateral, with generating companiesentering into contracts with all distributors who call for bids.

 

***Settlement Spot Price***

*** ***

TheSettlement Price for the Differences is used to value the purchase and sale ofelectric power in the short term market. According to the New Industry Model Law, CCEE is responsible for thesetting of the electricity price in the spot market.

*** ***

***Fines applicable toagents in the electricity industry***

*** ***

Selling agents areresponsible to the buying agent for payments if they are unable to satisfy theirdelivery obligations.  ANEEL regulationsets forth the fines applicable to electricity agents based on the nature andthe materiality of the violation (including warnings, fines, temporarysuspension of the right to participate in bids for new concessions, licenses orauthorizations and forfeiture).  For eachviolation, fines may be imposed for up to 2.0% 

 

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of the concessionaire’srevenues arising from the sale of electricity and services provided (net oftaxes) in the 12-month period immediately preceding any assessment notice.

 

ANEEL may also imposerestrictions on the terms and conditions of agreements between related partiesand, in extreme circumstances, terminate such agreements.

 

A party defaulting onpayment of contributions to Global Reversal Reserve (or RGR), Proinfa, EnergyDevelopment Account (or CDE), Fossil-fuel Consumption Account (or CCC), or any otherpayments due by virtue of the purchase of electricity in the ACR or fromItaipú, cannot use tariff adjustments (except for the extraordinaryrevision).  CDE was created by Law No. 10,438/02to grant subsidies to power plants using Brazilian mineral coal and to supportthe production of electricity from alternative sources.  The CCC was created in 1973 with the intentto grant subsidies to cover the cost of fuel used by thermoelectric plantslocated in isolated systems.

 

***Incentives for theDevelopment of Alternative Sources of Energy***

*** ***

Law10,438/02 created certain incentive programs for the use of alternative sourcesin the generation of electricity. Proinfa assures the purchase of the electricity generated by Eletrobrásfor a period of 20 years and financial support from the BNDES.  Other programs include a discount up to 50%on the distribution or transmission tariffs and a special exception  for the consumers with electricity demand of500 kV to 3 MW (special consumers), who decide to migrate to ACL providedthat such consumers purchase electricity from generating companies usingalternative sources of electricity.

 

***Industry Charges***

*** ***

ThePower Industry Law requires that holders of a concession to use water resourcespay a fee, ranging from 6.00% to 6.75%, depending on the size of the generationplant, of the amount of the electricity they produce.

 

Theelectricity service inspection fee, is an annual fee of approximately 0.5% ofthe annual benefit obtained by the company and varies according to the type ofservice and in proportion to the size of the concession, permit orauthorization.

 

Withregard to the subsidy of fuel costs to SIN-connected thermoelectric plantsusing Brazilian coal, CDE succeed the CCC. The CDE is funded by all electricity consumers and was created tosupport: (1) the development of electricity production throughout thecountry; (2) production of electricity from alternative sources (wind,mineral coal, gas and biomass); and (3) social objectives, such as theavailability of electricity services throughout the country, reduction of thecost of electricity to low-income residents and preservation of the coalindustry in southern Brazil.

 

Forexisting thermoelectric plants that use coal produced in Brazil, the lawrequires that the CDE be used to subsidize up to 100% of the cost of thecoal.  In accordance with the applicablelegislation, power plants must make a minimum purchase of coal in order toguarantee certain levels of production of Brazilian coal to benefit from thesubsidy.  However, self-producingconsumers do not pay the CDE charge, which is a significant advantage for thesekinds of projects.

 

Until December 2003,all power industry agents, whether distribution companies, generation companiesor dealers, who negotiated electricity with final consumers, made monthlycontributions to the Fossil-fuel Consumption Account — CCC - an economicsubsidy to cover the cost of fuel used by thermoelectric located in isolatedsystems, for a period of 20 years, in order to promote the generation ofelectricity in these regions.

 

***Contribution for Research and Development***

 

Companiesholding concessions, permits and authorizations for the distribution,generation and transmission of electricity must invest every year at least 1%of their net operating revenues in research and development of the powerindustry.  Mini-hydro power stations,solar and wind electricity and biomass projects are exempt from theserequirements.

 

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**Colombia**

 

Two pieces of legislationregulate the electricity business in Colombia: Law 142 (the “Colombian PublicUtilities Law”) sets the regulatory framework for the supply of public residentialservices, including electricity, and Law 143 (the “Colombian ElectricityLaw”) establishes the framework for the generation, trading, transmission anddistribution of electricity.  Law 142states that the provision of electricity is an essential public service thatmust be provided by government and private sector entities.

 

Utility companiesare required to ensure continuous and efficient service, facilitate the accessof low-income users to subsidies granted by the government, inform users regardingefficient and safe use of the services, protect the environment, allow accessand interconnection to other public service companies and large users,cooperate with the authorities in the event of an emergency to prevent damageto users, and report to the authority commercial start-up of operations.

 

The ColombianElectricity Act sets out the principles for the electricity industry, which areimplemented through the resolutions enacted by the Energy and Gas RegulatoryCommission, or “CREG”.  Such principlesare: efficiency - the correct allocation and use of resources and the supply ofelectricity at minimum cost;  quality -compliance with technical requirements; continuity - continuous electricity supply without unjustifiedinterruptions;  adaptability – theincorporation of modern technology and administrative systems to promotequality and efficiency; neutrality – impartial treatment to all electricityconsumers;  solidarity — the provision offunds by higher-income consumers to subsidize the subsistence consumption oflower income consumers; and equity — an adequate and nondiscriminatory supplyof electricity to every person who asks for it.

 

The ColombianElectricity Act regulates the generation, transmission, distribution, andtrading (the “Activities”) of electricity. Under the law, any company, domestic or foreign, may undertake any ofthe Activities.  New companies, however,must engage exclusively in one of the Activities.  Trading can be combined with eithergeneration or distribution.

 

The market share forgenerators and traders is limited.  The limit for generators is 25% of theColombian system Firm Energy.  Firm Energy for the Reliability Chargerefers to the maximum electric energy that a generation plant is able todeliver on a continuous basis during a year, in extreme conditions; forinstance, in the case of the *El Niño*phenomenon.

 

Similarly, atrader may not account for more than 25% of the trading activity in theColombian National Interconnected System (Colombian NIS).  Limitations for traders take into accountinternational energy sales.  Market shareis calculated on a monthly basis and traders have up to six months to reducetheir share when the limit is exceeded.

 

Such limits areapplied to economic groups, including companies that are controlled by, orunder common control with, other companies. In addition, generators may not own more than a 25% interest in adistributor, and vice versa.  However, thislimitation only applies to individual companies and does not preclude cross-ownershipby companies of the same corporate group.

 

A generator,distributor, trader or an integrated company, *i.e*.a firm combining generation, transmission and distribution activities, cannotown more than 15% of the equity in a transmission company if the latterrepresents more than 2% of the national transmission business in terms ofrevenues.  A distribution company canhave more than 25% of an integrated company’s equity if the market share of thelast company is less than 2% of the national generation business.  A company created before enactment of Law 143is banned from merging with another company created after Law 143.

 

The Ministry ofMines and Energy defines the government’s policy for the energy sector.  Other government entities which play animportant role in the electricity industry are: *Superintendenciade Servicios Públicos Domiciliarios*, which is in charge ofoverseeing and inspecting the utility companies; CREG, which is in charge ofregulating the energy and gas sectors; and the**Miningand Energy Planning Agency, which is in charge of planning the expansion of thegeneration and transmission network.

 

CREG is empoweredto issue regulations to govern technical and commercial operations and to setcharges for regulated activities.  CREG’smain functions are to establish conditions for gradual deregulation of theelectricity sector toward an open and competitive market, approve charges fortransmission and distribution networks and 

 

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charges for retailing to regulatedcustomers, establish the methodology for calculating and establishing maximumtariffs for supplying the regulated market, establish regulations for planningand coordination of operations of the Colombian NIS and establish technicalrequirements for quality, reliability and security of supply and the protectionof customers’ rights.

 

***Generation***

 

The generationsector is organized on a competitive basis with companies selling theirproduction on the electricity pool market, the Energy Exchange, or the *Bolsa*, at the spot price or by long-term private contractswith other participants and non-regulated users at freely negotiatedprices.  The Colombian NIS is the systemformed by generation plants, the interconnection grid, regional transmissionlines, distribution lines and consumer loads. The spot price is the price paid by the participant in the wholesalemarket for energy dispatched under the direction of the Dispatch NationalCenter (“CND”).  The hourly spot pricepaid for energy reflects prices offered by generators in the *Bolsa*and the respective supply and demandconditions.

 

Generatorsconnected to the Colombian NIS can also receive “reliability payments” whichare a result of the Firm Energy Obligation that they provide to the system.  The Firm Energy Obligation (OEF) is a commitment onthe part of generation companies backed by its physical resource capable ofproducing firm energy during scarcity periods. The generator that acquires an OEF will receive a fixed compensationduring the commitment period, whether or not the fulfillment of its obligationis required.  To receive reliabilitypayments, generators have to participate in firm energy bids by declaring andcertifying their firm energy.  Until November 2012,the transition period, the firm energy supply for reliability purposes will beassigned proportionally to the declared firm energy of each generator.  Beyond the transition period, the additionalfirm energy required by the system will be allocated by bids.  The first bid for this period took place in May 6, 2008,where existing generators participated with new generation projects whilemeeting the established market share limits.

 

***Dispatch andPricing***

 

The purchase andsale of electricity can take place between generators, distributors acting intheir capacity as traders, traders (who do not generate or distributeelectricity) and unregulated consumers. There are no restrictions for new entrants into the market as long asthe participants comply with the applicable laws and regulations.

 

The EnergyExchange facilitates the sale of excess energy that has not been committedunder contracts.  In the Energy Exchange*,*an hourly spot price for all dispatchedunits is established based on the offer price of the highest priced generatingdispatched unit for that period.  The CNDreceives price bids each day from all the generators participating in theEnergy Exchange.  These bids indicateprices and the hourly available capacity for the following day.  Based on this information, the CND guided by “optimaldispatch” principle (which assumes an infinite transmission capacity throughthe network), ranks the generators according to their offer price, startingwith the lowest bid, and establishing the merit order, on an hourly basis,determining which generator will be dispatched the following day to satisfyexpected demand.  The price for allgenerators is set as the less expensive generator dispatched in each hourlyperiod under the optimal dispatch.  Thisprice-ranking system is intended to ensure that national demand, increased bythe total amount of energy exported to other countries will be satisfied by thelowest cost combination of available generating units in the country.Additionally, the CND performs the “planned dispatch,” which takes into accountthe limitations of the network as well as every other condition necessary tosatisfy the energy demands expected for the following day, in a secure,reliable and cost-efficient manner.

 

If a generatordelivers less energy than that assigned by the optimal dispatch, it is chargedwith the average of the market price and their offer prices.  On the other hand, those generators thatdeliver energy in excess are credited with the difference.  The net value of these restrictions isassigned proportionally to all the traders within the Colombian NIS, accordingto their demands of energy.  Somegenerators have initiated legal proceedings arguing that recognized prices donot cover the costs associated with these restrictions.

 

***Transmission***

 

Transmissioncompanies which operate at least at 220 kV make up the NationalTransmission System, or NTS.  They arerequired to provide access to third parties on equal conditions and areauthorized to collect a tariff for their services.  The transmission tariff includes a connectioncharge that underwrites the cost of operating the facilities, and a usagecharge, which applies only to traders.

 

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CREG guaranteesan annual fixed income to transmission companies.  Income is determined by the new replacementvalue of the networks and equipment, and by the resulting value of biddingprocesses awarding new projects for the expansion of the NTS.  This value is allocated among the traders ofthe NTS in proportion to their energy demand.

 

The expansion ofthe NTS is conducted according to model expansion plans designed by the Miningand Energy Planning Agency and pursuant to bidding processes opened to existingtransmission companies and new companies, which are handled by the Ministry ofMines and Energy in accordance with the guidelines set by CREG.  Accordingly, the construction, operation andmaintenance of new projects is awarded to the company that offers the lowestpresent value of cash flows needed for carrying out the project.  Transmission charges are expected to be updatedby CREG in 2009.

 

***Distribution***

 

Distribution isdefined as the operation of local networks below 220 kV.  Any user may have access to a distributionnetwork for which it pays a connection charge. CREG regulates distribution prices that should permit distributioncompanies to recover costs, including operating, maintenance and capital costsoperating efficiently.  Distributioncharges are set by CREG for each company based on the replacement cost of theexisting distribution assets, cost of capital, as well as operational andmaintenance costs that vary depending on the voltage level.

 

A new compensationmethodology for the distribution was defined by CREG in 2008 which set theWeighted Average Cost of Capital at 13.9% before taxes, for assets operating at34.5 kV or less, and 13% before taxes for assets operating above 34.5 kV.  CREG also defined a new methodology for thecalculation of distribution charges, defining an incentive scheme foradministrative, operational and maintenance costs, service quality and energylosses.  It is expected that CREG will apply the resolutions to determinenew distribution charges for the period 2009-2013 in the first semester of2009.

 

***Trading***

 

The retail marketis divided into regulated and unregulated customers.  Customers in the unregulated market mayfreely contract for electricity supply directly from a generator or adistributor, acting as traders, or from a pure trader.  The unregulated customer market consists ofcustomers with a peak demand of more than 0.1 MW or a minimum monthlyconsumption of 55 MWh, which currently represent about 32% of the market.

 

Trading is theresale to end users of electricity purchased in the wholesale market.  It may be conducted by generators,distributors or independent agents, which comply with certainrequirements.  Parties freely agree upontrading prices for unregulated users.

 

Trading toregulated users is subject to the “regulated freedom regime” under whichtariffs are set by each trader using a combination of general cost formulasgiven by CREG and individual trading costs approved by CREG for eachtrader.  Since CREG approves limits oncosts, traders in the regulated market may set lower tariffs for economicreasons.  Tariffs include, among otherthings, energy procurement costs, transmission charges, distribution chargesand a trading margin.  Trading chargesfor regulated users are expected to be updated in 2009.

 

The tariffformula became effective on February 1, 2008.  The main changes in the new formula are theestablishment of a fixed monthly charge, and the introduction of reductioncosts of non-technical energy losses in the trading charges.  In addition, CREG allows the traders in theregulated market to choose tariff options to manage tariff increments.

 

In order to improvewholesale price formation, CREG is designing a new energy procurement schemebased on long term energy bids.

 

***Environmental Regulation***

 

Law 99 of 1993provided the framework for environmental regulation and established theMinistry of the Environment as the authority for determining environmentalpolicies.  The Ministry defines, issuesand executes policies and regulations that focus on the recovery, conservation,protection, organization, administration and use of renewable resources.  Therefore, the use of natural resources orany impact to them as a result of any activity or project will require theissuance of permits and environmental licenses and the establishment ofenvironmental management plans.  The lawparticularly seeks to prevent environmental damage by entities in the energysector.  

 

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Any entity planning toundertake projects or activities relating to generation, interconnection,transmission or distribution of electricity which may result in environmentaldeterioration, must first obtain an environmental license.

 

According to Law99, generators are required to contribute to the conservation of theenvironment through a payment for their activities.  Hydroelectric power plants which have a totalinstalled nominal capacity above 10 MW must pay 6% of their energy sales;thermoelectric plants which have a total installed nominal capacity above10 MW must pay 4% of their energy sales. This payment is made monthly to the municipalities and environmentalcorporations where these facilities are located.

 

**Peru**

 

***Industry Structure***

** **

The main regulations ofthe Peruvian electricity industry are: the Law of Electricity Concessions(Decree Law 25,844) and its ancillary regulations, the Law to Secure theEfficient Development of Electricity Generation (Law 28,832), the TechnicalRegulation on the Quality of the Electricity Supply (Supreme Decree 020-97),the Electricity Import and Export Regulation (Supreme Decree 049-2005), theAntitrust Law on the Electricity Sector (Law 26,876), Law 26,734, whichregulates the investments in energy, in addition to the supplementary Law27,699 of*Organismo Supervisor de la Inversiónen Energía y Minería*(Energy and Mining Investment Supervisor Authority) or the**Osinergmin, the Peruvianregulatory electricity authority, and the regulation for resolution ofcontroversies that arise within this institution.

 

Some of the characteristicsof the regulatory framework are (i) the separation of the three mainactivities: generation, transmission and distribution; (ii) freedom ofprices for the supply of energy in competitive market conditions; (iii) asystem of regulated prices based on the principle of efficiency shared with abidding regime; and (iv) private operation of the interconnectedelectricity systems subject to the principles of efficiency and quality ofservice.

 

There is oneinterconnected system, the SEIN, and several isolated regional and smallersystems that provide electricity to specific areas.

 

The Ministry of Energyand Mining, or the MINEM, defines the energy policies, regulates environmentmatters, and oversees the granting, supervision, maturity and termination of licenses,authorizations and concessions for generation, transmission, and distributionactivities.

 

Osinergmin is anautonomous public regulatory entity that controls and enforces compliance withlegal and technical regulations related to electrical and hydrocarbonactivities, compliance of the obligations stated in the concession contracts,as well as the preservation of the environment in connection with thedevelopment of these activities. Osinergmin’s**Tariff Regulatory Bureau**has the authority to**publish the regulated tariffs.  The**Committee of the Economic Operation of theSystem, or the COES, coordinates the operation and dispatch ofelectricity of the SEIN and prepares the technical and financial study thatserves as a basis for the annual busbar tariff calculations.  The COES includes as members the generation,transmission and distribution companies, as well as users with a capacity needhigher than 1 MW, the threshold for non-regulated customers.

 

Service provided byelectricity companies has to comply with technical standards, otherwisecompanies may be charged with fines imposed by Osinergmin.

 

***Dispatch and Pricing***

 

Customers with a capacitydemand of less than 1 MW are considered regulated customers, and thesupply of their energy is defined as a public service.  Nevertheless, according to Law 28,832,regulated customers whose annual demand is within certain demand limits areable to choose to be unregulatedcustomers.

 

The access to the spotmarket is permitted to generating and distribution companies, as well as tousers with a contracted capacity in excess of 10 MW.

 

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***Transmission***

 

Transmission lines are divided into principal, those for the common useand trading of all generators; or secondary, those lines that connect a powerplant with the system or a substation with a distribution company or a finalconsumer. Law 28,832, enacted in 2006, defined also guaranteed andcomplementary systems applicable to projects commissioned after the enactmentof that law.  Guaranteed lines are theresult of a public bid and complementary lines are freely constructed andexploited as private projects.  Theprincipal and guaranteed system lines are accessible to all generators andallow electricity to be delivered to all customers.  The transmission concessionaire receives anannual fixed income and receives tariff revenues and connection tollsreflecting a charge per kW.  Thesecondary and complementary system lines are accessible to all generators, butare used to serve only certain customers who are responsible for makingpayments related to their use of the system.

 

***Distribution***

 

The Efficient DevelopmentLaw establishes a bidding regime for the acquisition of energy and capacity bydistributors establishing a mechanism to determine prices during the life of acontract.  The approval of this mechanismis important to generators, because it establishes a mechanism for determiningprice for the duration of a contract that is not fixed by the regulator.

 

Sales to distributioncompanies for resale to regulated customers must be made at bus bar prices setby Osinergmin or at fixed prices determined by bids.  Bus bar prices are set annually.  Bus bar prices are the maximum prices forelectricity purchased by distribution companies that can be transferred toregulated customers, except in the case of contracts entered into as a resultof a public bid, where the prices that will be transferred to regulatedcustomers will be the price defined in the bid.

 

The electricity tarifffor regulated clients includes charges for capacity and energy for generationand transmission (busbar prices) and for the VAD (value added by distribution),which considers a regulated return over capital investments, operating andmaintenance fixed charges and a standard percentage for energy distributionlosses.

 

***Concessions***

 

A concession forelectricity generation activity is required when a power plant has an installedcapacity in excess of 500 kW.

 

A concession forelectricity generation activity is an agreement between the generator and MINEM*,* while an authorization is merely a unilateral permitgranted by the Ministry. Authorizations and concessions are granted by theMINEM for an unlimited period of time, although their termination is subject tothe same considerations and requirements as the termination of a concessionunder the procedures set forth in the Law of Electrical Concessions and relatedregulations.

 

***Cogeneration Regulation***

 

Supreme Decree 037/2006establishes the basic rules for the use of the energy produced as a resultof any industrial activity, *i.e*.,cogeneration plants.  They are eligibleto be part of the COES and trade their energy in the SEIN. Cogeneration is thesimultaneous generation of heat and power, in a single thermodynamic process.

 

***Environmental Regulation***

 

The environmental legal framework applicable to energyrelated activities in Peru is set forth in the Environmental Law (Law 28,611)and in the Regulation for Environmental Protection regarding ElectricityActivities (Supreme Decree 029-94-EM). The MINEM dictates the specific environmental legal dispositions for theactivities within the electricity industry, and the Osinergmin is in charge ofsupervising their application and implementation.  According to the Environmental Law, theMinistry of Environment is in charge of (i) designing the generalenvironmental policies to every productive activity and (ii) establishingthe main guidelines of the different government authorities on their specificenvironmental sector regulations, as its principal duties.

 

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** **

**C. Organizational structure**

** **

The following informationsets out a brief description of Endesa Chile’s most important operationalsubsidiaries and affiliates.

 

**EndesaCostanera (Argentina)**

 

Endesa Costanera is apublicly traded electricity generation company in Argentina, with 2,324 MW oftotal installed capacity in Buenos Aires, including two turbines with anaggregate of 1,465 MW capacity in oil- and gas-fired plants, and a 859 MWcapacity natural gas combined-cycle facility. The company was acquired from the Argentine government after theprivatization of *Servicios Eléctricos del Gran Buenos AiresS.A.* in 1992, when Endesa Chile acquired a 24% interest.  Endesa Chile subsequently increased its totalownership to the current level of 69.8% in February 2007.

 

**ElChocón (Argentina)**

 

ElChocón is an electricity generation company, incorporated in Argentina, locatedbetween the Neuquén and Río Negro provinces, the Comahue Zone in southernArgentina.  It has two hydroelectricpower stations with an aggregate installed capacity of 1,328 MW.  A 30-year concession was granted by theArgentine government to our subsidiary, Hidroinvest S.A., which bought 59.0% ofthe shares in July 1993 during the privatization process.  Endesa Chile operates El Chocón for a feepursuant to an operating agreement with a term equal to the duration of theconcession, which expires in 2023.  In March2007, Endesa Chile increased its beneficial interest from 44.8% to 65.4%.

 

**EndesaEco (Chile)**

 

On April18, 2005, Endesa Chile created a subsidiary called Endesa Eco S.A., whoseobjectives are the promotion and development of renewable energy projects suchas mini-hydro, wind, geo-thermal, solar and biomass power plants and to act asthe depositary and trader of emission reduction certificates obtained by theseprojects.  As of December 2008, EndesaEco’s installed capacity was 27 MW. Endesa Eco is a wholly-owned subsidiary of Endesa Chile.

 

**Pehuenche(Chile)**

 

Pehuenche,a generation company connected to the SIC, owns three hydroelectric facilitiessouth of Santiago in the high-rainfall hydrological basin of the Maule River,with a total installed capacity of 699 MW. The 570 MW Pehuenche plant started operations in 1991; the 89 MWCurillinque plant started in 1993; and the 40 MW Loma Alta plant startedoperating in 1997.  Endesa Chile holds92.7% of the share capital.

 

**Pangue(Chile)**

 

Panguewas incorporated to build and operate the 467 MW installed capacityhydroelectric power station in the Bío-Bío River. The first unit startedoperations in 1996, while the second unit started operations in 1997.  Endesa Chile holds 95% of Pangue’s sharecapital.

 

**Celta(Chile)**

 

Celtais incorporated in Chile and was formed in 1995 to build and operate the 158 MWcoal-fired and the 24 MW gas/fuel thermal plants in the SING. Celta iswholly-owned by Endesa Chile.

 

**SanIsidro (Chile)**

 

SanIsidro was incorporated in Chile in 1996 to build and operate a 379 MWcombined-cycle thermal plant in Quillota, in the Fifth Region.  The plant began commercial operations in1998.  A 220 kV transmission line of 9 kilometerswas built to connect this thermal plant to the SIC.  This transmission system is owned byTransquillota Ltda., in which San Isidro has a 50% interest.  In April 2007 San Isidro II startedoperations with 248 MW of installed capacity in open cycle.  In January 2008 the combined cycle of SanIsidro II was finished with 353 MW.  By July2009 the project is expected to operate at 377 MW using LNG.  San Isidro is wholly-owned by Endesa Chile.

 

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**Ingendesa(Chile)**

 

Ingendesais a multi-disciplinary engineering company founded in 1990.  Its purpose is to provide engineeringservices, project management and related services in Chile and abroad.  The company offers civil, mechanical andelectrical engineering, metallurgy, architecture and environmentalservices.  Ingendesa is wholly-owned byEndesa Chile.

 

**Emgesa(Colombia)**

 

Emgesa has a totalinstalled generating capacity of 2,895 MW. On September 1, 2007 *Central HidroeléctricaBetania S.A. E.S.P.* and Emgesa S.A. E.S.P. were merged into Betania,and then Betania changed its name back to Emgesa S.A. E.S.P.

 

On March 2, 2006,Emgesa purchased the assets of Termocartagena (208 MW), through a public tenderprocess. On September 15, 1997, Central Hidroeléctrica Betania, through itsformer subsidiary Inversiones Betania S.A. and in association with EndesaDesarrollo S.A. of Spain, was awarded control of the generation company Emgesathrough the company Capital de Energía S.A. (“CESA”), with 48.5% of theshares.  On January 30, 2006, due to acompany restructuring, the company CESA ceased to exist.  Empresa de Energía de Bogotá S.A.has a direct participation in Emgesa of 51.5%. Endesa Chile’sindirect ownership in Emgesa is 26.9%.

 

**Edegel(Peru)**

 

Edegelis an electricity generation company, acquired by Endesa Chile in 1995.  It currently owns seven hydroelectric plantsand two thermal plants, with a combined installed capacity of 1,467 MW.  In June 2006, Endesa Chile in Peru concludedthe merger of Edegel and *Empresa de GeneraciónTermoelectrica Ventanilla S.A.* (“Etevensa”), owner of a 493 MWthermoelectric generation company.  As aresult of the merger, Endesa Chile’s beneficial ownership in Edegel decreasedfrom 37.9% to 33.1%.  Endesa Chile has a53.2% economic interest in Edegel through its subsidiary*Generandes Peru S.A.*

 

**SelectedRelated Companies**

 

**CEMSA(Argentina)**

 

CEMSA is responsible fortrading electricity.  As of the date ofthis Report, Endesa Chile has an indirect ownership holding in CEMSA of45%.  CEMSA’s other shareholder is EndesaSpain.

 

**Electrogas(Chile)**

 

Electrogas wasconstituted in 1996.  This company offersnatural gas transportation services to the Fifth Region in Chile, especially tothe San Isidro and Nehuenco combined-cycle plants at Quillota.  Endesa Chile has a beneficial interest of42.5% share in this company. The other shareholders are Colbún S.A. and ENAP.

 

**GasAtacama(Chile)**

 

EndesaChile has a 50% total beneficial interest in GasAtacama. As of 2007, SouthernCross Latin America Private Equity Fund III, L.P. had the remaining 50%beneficial interest. Subsidiaries of this holding company were GasoductoAtacama Chile S.A., Gasoducto Atacama Argentina S.A. and GasAtacama Generación,which are involved in electricity generation and natural gas transportation. OnNovember 28, 2008, Gas Atacama Generación S.A. and Gasoducto Atacama Chile S.A.merged into GasAtacama Generación S.A., which changed its name to GasAtacamaChile S.A.

 

**HidroAysén(Chile)**

 

CentralesHidroeléctricas de Aysén S.A. (HidroAysén) was incorporated in March 2007.Endesa Chile has a 51% ownership interest and Colbún S.A. a 49% ownershipinterest in HidroAysén. Endesa Chile does not consolidate Hidroaysén. Thecompany was created to develop and exploit the Aysén Project, a hydro projectlocated in the Aysén Region.

 

Thefollowing table sets forth the main subsidiaries and affiliates of Endesa Chileand the percentage of each subsidiary and affiliates owned by Endesa Chile:

 

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**Percentageof Economic Interest in each Operational Subsidiary and Related Company perCountry**

 

**SUBSIDIARIES (as of December 31, 2008)**

 
| ** **                                       | ** ** | ** **                | ** ** | ** **                                                                                                                                              | ** ** | ** **       | ** ** | ** **       | ** ** | **ENGINEERING** | ** ** | ** **                    | ** ** |
|--------------------------------------------------|------------|---------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------|------------|------------------|------------|-----------------|------------|-------------------------------|------------|
| **GENERATION**                                   | ** ** | ** **                | ** ** | ** **                                                                                                                                              | ** ** | ** **       | ** ** | ** **       | ** ** | **SERVICES**    | ** ** | **INFRASTRUCTURE**            | ** ** |
| **Argentina**                                    | ** ** | **Brazil**                | ** ** | **Chile**                                                                                                                                               | ** ** | **Colombia**     | ** ** | **Peru**         | ** ** | **Chile**       | ** ** | **Chile**                     | ** ** |
| Endesa  Costanera  69.8%

El  Chocón  65.4% |       |                      |       | Pehuenche 92.6%  Pangue 95% (1)  Celta 100%  San Isidro 100%  Endesa Eco 100%                                                                           |       | Emgesa 26.9% (4) |       | Edegel 33.1% (3) |       | Ingendesa 100%  |       | Túnel El Melón 100% |       |
|                                             |       |                      |       |                                                                                                                                                    |       |             |       |             |       |            |       |                          |       |
| **Related  Companies**                           |       |                      |       |                                                                                                                                                    |       |             |       |             |       |
|                                             |       |                      |       |                                                                                                                                                    |       |             |       |             |       |            |       |                          |       |
| CEMSA 45%                                        |       | Endesa Brasil (2)  37.65% |       | GasAtacama 50%  Electrogas 42.5%GasAtacama Chile 50% (5)  Gasoducto Atacama Argentina 50%  Gasoducto Taltal 50%  Transquillota 50%  HidroAysén 51% |       |             |       |             |       |            |       |                          |       |

 

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(1)         Endesa Latinoamérica(formerly Endesa Internacional), a subsidiary of Endesa Spain, has a 5.01%shareholding in Pangue.

(2)         The economic interest inEndesa Brasil decreased from 37.85% as of December 2005 to 37.65% at December 2006as a consequence of the reduction in the indirect share of Endesa Chile inEdegel due to the merger of Edegel and Etevensa.

(3)         In June 2006, Edegel and*Empresa de Generacion Termoelectrica Ventanilla S.A.*(“Etevensa”), a 493 MW thermoelectric generation company, merged.

(4)         On September 1, 2007 CentralHidroeléctrica Betania S.A. E.S.P. and Emgesa S.A. E.S.P merged into Betaniaand then Betania changed its name to Emgesa S.A. E.S.P.

(5)         On November 28, 2008, GasAtacama Generación S.A. and Gasoducto Atacama Chile S.A. merged into GasAtacamaGeneración S.A., whichchanged its name to GasAtacama Chile S.A.

 

Thefollowing table shows, as of December 31, 2008, Endesa Chile’s direct andindirect economic interests in all its companies:

 

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**ENDESA CHILE**

 

**As of December31, 2008**

 

 

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Additionally,the following table is a simplified version of the previous table, includingthe most important companies with operations:

 

 

**D.            Property,Plant and Equipment**

** **

EndesaChile’s main properties in Chile are its 26 electricity generation facilities,in addition to its 27,793 square meter headquarters in Santiago.

 

Asubstantial portion of Endesa Chile’s cash flow and net income is derived fromthe sale of electricity produced by its electricity generation facilities.  Significant damage to one or more of EndesaChile’s main electricity generation facilities or interruption in theproduction of electricity, whether as a result of an earthquake, flood, volcanicactivity or other cause, would have a material adverse effect on Endesa Chile’soperations.  Endesa Chile insures all ofits electricity generation facilities against damage due to earthquakes, fires,floods and other similar occurrences and from damage due to third-partyactions, based on the appraised value of the facilities as determined from timeto time by an independent appraiser. Based on geological, hydrological and engineering studies, Endesa Chile’smanagement believes that the risk of an event with a material adverse effect isremote.  Claims under Endesa Chile’sinsurance policies are subject to customary deductibles and otherconditions.  Endesa Chile also maintainsbusiness interruption insurance providing for coverage for failure of any ofits facilities for a period of up to 18 months, commencing after the deductibleperiod.

 

EndesaChile consolidates revenues from generating companies in Argentina, Colombiaand Peru, which involve a total of 25 generation power plants detailed below,which together with the plants in Chile aggregate to a total of 51 powerplants.  The insurance coverage takenabroad is approved by the management of each company, taking into account thequality of the insurance companies and the needs, conditions and riskevaluations of each generating facility, and is based on general corporateguidelines.

 

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Allinsurance policies are purchased from reputable international insurers.  The Company continuously monitors theinsurance industry market in order to obtain what it believes to be the mostcommercially reasonable coverage and premiums available on the market.

 

Thefollowing table identifies the power plants that Endesa Chile owns, at the endof each year, and their basic characteristics:

 
| **Country/Company**             | ** ** | **Power Plant Name**        | ** ** | **Power Plant Type (1)** | ** ** | **2006**   | ** ** | **2007**  | ** ** | **2008**   | ** ** |
|---------------------------------|------------|---------------------------------------|------------|-----------------------------------------|------------|------------|------------|-----------|------------|------------|------------|
| ** **                      | ** ** | ** **                            | ** ** | ** **                              | ** ** | ** ** | ** ** | **MW(2)** | ** ** | ** ** | ** ** |
| ** **                      |       |                                  |       |                                    |       |       |       |      |       |       |       |
| **Argentina**                   |       |                                  |       |                                    |       |       |       |      |       |       |       |
| Endesa Costanera                | ** ** | **Total**                             | ** ** | ** **                              | ** ** | **2,319**  | ** ** | **2,324** | ** ** | **2,324**  | ** ** |
| ** **                      |       | Costanera Steam Turbine               |       | Steam Turbine/Natural Gas+ Fuel Oil     |       | 1,138      | (2)        | 1,138     |       | 1,138      |       |
|                            |       | Costanera Combined Cycle II           |       | Combined Cycle/Natural Gas+Diesel Oil   |       | 859        | (2)        | 859       |       | 859        |       |
|                            |       | Central Buenos Aires Combined Cycle I |       | Combined Cycle/Natural Gas              |       | 322        |       | 327       | (2)        | 327        | ** ** |
|                            |       |                                  |       |                                    |       |       |       |      |       |       |       |
| El Chocón                  | ** ** | **Total**                             | ** ** | ** **                              | ** ** | **1,320**  | ** ** | **1,320** | ** ** | **1,328**  | ** ** |
|                            |       | Chocón                           |       | Reservoir                               |       | 1,200      |       | 1,200     |       | 1,200      |       |
|                            |       | Arroyito                              |       | Pass-through                            |       | 120        |       | 120       |       | 128        | (5)        |
| **Total Capacity in Argentina** | ** ** | ** **                            | ** ** | ** **                              | ** ** | **3,639**  | ** ** | **3,644** | ** ** | **3,652**  | ** ** |
| ** **                      |       | ** **                            |       | ** **                              |       |       |       |      |       |       |       |
| **Chile**                       |       | ** **                            |       | ** **                              |       |       |       |      |       |       |       |
| Endesa Chile                    | ** ** | **Total**                             | ** ** | ** **                              | ** ** | **2,754**  | ** ** | **3,034** | ** ** | **3,139**  | ** ** |
| ** **                      | ** ** | **Total Hydroelectric**               | ** ** | ** **                              | ** ** | **2,254**  | ** ** | **2,286** | ** ** | **2,286**  | ** ** |
| ** **                      |       | Rapel                                 |       | Reservoir                               |       | 377        |       | 377       |       | 377        |       |
|                            |       | Cipreses                              |       | Reservoir                               |       | 106        |       | 106       |       | 106        |       |
|                            |       | El Toro                               |       | Reservoir                               |       | 450        |       | 450       |       | 450        |       |
|                            |       | Los Molles                            |       | Pass-through                            |       | 18         |       | 18        |       | 18         |       |
|                            |       | Sauzal                                |       | Pass-through                            |       | 77         |       | 77        |       | 77         |       |
|                            |       | Sauzalito                             |       | Pass-through                            |       | 12         |       | 12        |       | 12         |       |
|                            |       | Isla                                  |       | Pass-through                            |       | 68         |       | 68        |       | 68         |       |
|                            |       | Antuco                                |       | Pass-through                            |       | 320        |       | 320       |       | 320        |       |
|                            |       | Abanico                               |       | Pass-through                            |       | 136        |       | 136       |       | 136        |       |
|                            |       | Ralco                                 |       | Reservoir                               |       | 690        |       | 690       |       | 690        |       |
|                            |       | Palmucho                              |       | Pass-through                            |       | —     |       | 32        | (4)        | 32         |       |
|                            | ** ** | **Total Thermal**                     | ** ** | ** **                              | ** ** | **500**    | ** ** | **748**   | ** ** | **853**    | ** ** |
| ** **                      |       | Huasco                                |       | Steam Turbine/Coal                      |       | 16         |       | 16        |       | 16         |       |
|                            |       | Bocamina                              |       | Steam Turbine/Coal                      |       | 128        |       | 128       |       | 128        |       |
|                            |       | Diego de Almagro (5)                  |       | Gas Turbine/ Diesel Oil                 |       | 47         |       | 47        |       | 47         |       |
|                            |       | Huasco                                |       | Gas Turbine/IFO 180 Oil                 |       | 64         |       | 64        |       | 64         |       |
|                            |       | Taltal                                |       | Gas Turbine/Natural Gas+Diesel Oil (6)  |       | 245        |       | 245       |       | 245        |       |
|                            |       | San Isidro II                         |       | Combined Cycle/ Diesel Oil (7)          |       | —     |       | 248       |       | 353        |       |
| Pehuenche                       | ** ** | **Total**                             | ** ** | ** **                              | ** ** | **695**    | ** ** | **699**   | ** ** | **699**    | ** ** |
|                            |       | Pehuenche                             |       | Reservoir                               |       | 566        |       | 570       | (2)        | 570        |       |
|                            |       | Curillinque                           |       | Pass-through                            |       | 89         |       | 89        |       | 89         |       |
|                            |       | Loma Alta                             |       | Pass-through                            |       | 40         |       | 40        |       | 40         |       |
| Pangue                          |       | Pangue                                |       | Reservoir                               |       | 467        |       | 467       |       | 467        | (2)        |
| San Isidro                      |       | San Isidro                            |       | Combined Cycle /Natural Gas+Diesel Oil  |       | 379        |       | 379       |       | 379        |       |
| Celta                           | ** ** | **Total**                             | ** ** | ** **                              | ** ** | **182**    | ** ** | **182**   | ** ** | **182**    | ** ** |
|                            |       | Tarapacá                         |       | Steam Turbine/Coal                      |       | 158        |       | 158       |       | 158        |       |
|                            |       | Tarapacá                         |       | Gas Turbine/Diesel Oil                  |       | 24         |       | 24        |       | 24         |       |
| Endesa Eco                      | ** ** | **Total**                             | ** ** | ** **                              | ** ** | **—** | ** ** | **18**    | ** ** | **27**     | ** ** |
|                            |       | Canela                                |       | Wind Farm                               |       | —     |       | 18        | (8)        | 18         |       |
|                            |       | Ojos de Agua                          |       | Pass-through                            |       | —     |       | —    |       | 9          |       |
| **Total Capacity in Chile**     | ** ** | ** **                            | ** ** | ** **                              | ** ** | **4,477**  | ** ** | **4,779** | ** ** | **4,893**  | ** ** |

 

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| **Country/Company**            | ** ** | **Power Plant Name** | ** ** | **Power Plant Type (1)** | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** |
|--------------------------------|------------|--------------------------------|------------|-----------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                     | ** ** | ** **                     | ** ** | ** **                              | ** ** | ** ** | ** ** | **MW(2)**  | ** ** | ** ** | ** ** |
| ** **                     |       | ** **                     |       | ** **                              |       |       |       |       |       |       |       |
| **Colombia**                   |       | ** **                     |       | ** **                              |       |       |       |       |       |       |       |
| Emgesa                         | ** ** | **Total**                      | ** ** | ** **                              | ** ** | **2,238**  | ** ** | **2,829**  | (9)        | **2,895**  | (9)        |
| ** **                     |       | Guavio                         |       | Reservoir                               |       | 1,163      |       | 1,213      | (10)       | 1,213      |       |
|                           |       | Paraíso                   |       | Reservoir                               |       | 276        |       | 276        |       | 276        |       |
|                           |       | La Guaca                       |       | Pass-through                            |       | 325        |       | 325        |       | 325        | (2)        |
|                           |       | Termozipa                      |       | Steam Turbine/Coal                      |       | 236        |       | 236        |       | 236        |       |
|                           |       | Cartagena (11)                 |       | Steam Turbine/ Natural Gas + Diesel Oil |       | 142        |       | 142        |       | 208        |       |
|                           |       | Minor plants (12)              |       | Pass-through                            |       | 96         |       | 96         |       | 96         |       |
|                           |       | Betania (9)                    |       | Reservoir                               |       |       |       | 541        |       | 541        |       |
| Betania (9)                    |       | Betania                        |       | Reservoir                               |       | 541        |       |       |       |       |       |
| **Total Capacity in Colombia** | ** ** | ** **                     | ** ** | ** **                              | ** ** | **2,779**  | ** ** | **2,829**  | ** ** | **2,895**  | ** ** |
| **Peru**                       |       | ** **                     |       | ** **                              |       |       |       |       |       |       |       |
| Edegel                         | ** ** | **Total**                      | ** ** | ** **                              | ** ** | **1,426**  | ** ** | **1,469**  | ** ** | **1,467**  | ** ** |
| ** **                     |       | Huinco                         |       | Pass-through                            |       | 247        |       | 247        |       | 247        |       |
|                           |       | Matucana                       |       | Pass-through                            |       | 129        |       | 129        |       | 129        |       |
|                           |       | Callahuanca                    |       | Pass-through                            |       | 75         |       | 80         | (13)       | 80         |       |
|                           |       | Moyopampa                      |       | Pass-through                            |       | 65         |       | 65         |       | 65         |       |
|                           |       | Huampani                       |       | Pass-through                            |       | 30         |       | 30         |       | 30         |       |
|                           |       | Yanango                        |       | Pass-through                            |       | 43         |       | 43         |       | 43         |       |
|                           |       | Chimay                         |       | Pass-through                            |       | 151        |       | 151        |       | 151        | (2)        |
|                           |       | Santa Rosa                     |       | Gas Turbine/Diesel Oil                  |       | 229        |       | 231        | (2)        | 229        | (14)       |
|                           |       | Ventanilla (15)                |       | Combined Cycle/Natural Gas              |       | 457        |       | 493        | (16)       | 493        | ** ** |
| **Total Capacity in Peru**     | ** ** | ** **                     | ** ** | ** **                              | ** ** | **1,426**  | ** ** | **1,469**  | ** ** | **1,467**  | ** ** |
| **Total Endesa Chile**         | ** ** | ** **                     | ** ** | ** **                              | ** ** | **12,320** | ** ** | **12,721** | ** ** | **12,906** | ** ** |

 

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| (1)    | 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 natural gas, coal, diesel or  fuel oil, to produce steam which moves the turbines to generate the  electricity.                                                                                                    |
|   | “Gas Turbine” (GT) 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 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. |
|   | “Wind Farm” refers to the  technology that transforms the kinetic energy of wind into electricity.                                                                                                                                                                                      |
| (2)    | Installed capacities  certified by Bureau Veritas. (For further details, see “ — B. Business  Overview. Note (2) to table Endesa Chile Physical Data per Country”)                                                                                                                 |
| (3)    | In November 2008, Arroyito  power plant increased its installed capacity due to a higher dam elevation.                                                                                                                                                                                           |
| (4)    | The Palmucho plant began  commercial operations on November 28, 2007.                                                                                                                                                                                                                             |
| (5)    | Includes one additional unit  of Diego de Almagro (23 MW), which Endesa Chile has rented from Codelco since  2001.                                                                                                                                                                                |
| (6)    | Until March 2008, only one  of the units was able to use diesel as fuel. Since that date, both units can  operate with natural gas and diesel oil.                                                                                                                                                |
| (7)    | San Isidro II plant began  commercial operations in open cycle on April 23, 2007. Commercial operations  in combined cycle began on January 2008.                                                                                                                                                 |
| (8)    | Canela plant (wind farm)  began its commercial operation on December 27, 2007                                                                                                                                                                                                                     |
| (9)    | During 2007, Emgesa and  Betania merged and Emgesa added Betania to its generation assets.                                                                                                                                                                                                        |
| (10)   | On February 12, 2007, the  five units of the Guavio plant were repowered (240 MW each).                                                                                                                                                                                                           |
| (11)   | Purchased in 2006. Until  2007 figure represented capacity value for units 1 and 3. Unit 2 was added in  2008, following overhaul and recovery of capacity.                                                                                                                                       |
| (12)   | Minor plants are registered  with a total capacity of 96.1 MW. At December 31, 2008 Emgesa owned and  operated five minor plants: *Charquito*,  *El Limonar*, *La Tinta*, *Tequendama*and *La Junta*. On January 1, 2006, the  minor plant San Antonio (19.5 MW) was withdrawn from the NIS.      |
| (13)   | Callahuanca plant was  repowered in 2007.                                                                                                                                                                                                                                                         |
| (14)   | During 2008, the installed  capacity of Santa Rosa was redefined as required by the relevant authority.                                                                                                                                                                                           |
| (15)   | During 2006, Edegel and  Etevensa merged and Edegel added Ventanilla to its generation assets.                                                                                                                                                                                                    |
| (16)   | The regulator notified  maximum capacity with additional fire of the Ventanilla plant in 2007.                                                                                                                                                                                                    |

 

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Inaddition to generation power plants, Endesa Chile owns other assets whoseamount is not significant, such as transmission assets in Peru and Túnel ElMelón in Chile.  These assets, in the aggregate,represent less than 1% of the value of Endesa Chile’s total consolidatedassets.

 

As of December2008, the Company has received the international standard ISO 14,001certification of 99% of its installed capacity in South America.

 

In2008, Endesa Chile obtained certifications for four additional power plants inChile: San Isidro II thermoelectric power plant (353 MW), Palmuchohydroelectric power plant (32 MW), Canela I wind farm (18.15 MW) and Ojos deAgua mini hydroelectric power plant (9 MW), for a total of 48 out of 51generation facilities, which produced 96% of the Company’s total annualelectricity generation in 2008.

 

**Investment ProjectsCompleted during 2008**

** **

*Chile. San Isidro Power Plant Expansion Project*

 

Thisproject consists of the installation of a combined cycle gas turbine) with 379 MWlocated next to San Isidro, Valparaíso Region. The Project has three stages of development:

 

·                  Stage 1: Operation of gas turbine as an open cycle using diesel (248 MW).  Commercial operations started on April 23, 2007.

·                  Stage 2: Operation of gas turbine as a combined cycleusing diesel, reaching 353 MW. In December 2007 San Isidro II synchronized ascombined-cycle. The steam unit began commercial operations in January 2008.

·                  Stage 3 (2009, depending on the availability ofLNG):  Operation of gas turbine as acombined-cycle using LNG, expecting to have a 377 MW capacity with the use ofthis fuel.

 

*Chile.Conversion to diesel Taltal Gas Turbine*

 

Taltalpower plant was originally designed to use natural gas.  Later one unit was converted to also usediesel in two stages.  In March 2008 thesecond unit started operations with the capability of using diesel and naturalgas.

 

*Chile. Ojos de Agua Project*

 

Thisproject consists of a mini-hydro plant in Chile’s Maule Region, which benefitsfrom limited water flows from La Invernada Lake that power a turbogenerator of9 MW.  This project was developed by EndesaEco.  The Ojos de Agua power plant beganits commercial operations in June 2008.

 

**Projects under Construction**

 

*Chile.Bocamina Plant Expansion, Second Unit*

 

Locatedin the district of Coronel, Bío-Bío Region, the project benefits from theexisting harbor services, as well as some ancillary facilities of the firstunit, built for coal storing and disposal of ashes.  This second unit will use pulverized coal andthe latest technology for reduction of emissions.  Its installed capacity is estimated to be 370MW and the start-up is planned for 2010.

 

*Chile.LNG Receiving Terminal at Quintero, Valparaíso Region*

 

GNLQuintero S.A. owned by British Gas, or BG, (40%), ENAP (20%), Metrogas (20%)and Endesa Chile (20%) was incorporated in Chile on March 9, 2007.  GNL Quintero intends to develop, build,finance, own and operate an LNG regasification facility at Quintero Bay wherebyLNG will be unloaded, stored and regasified.

 

Theproject is under construction by Chicago Bridge & Iron.  The commercial operation of the facility isguaranteed by the EPC contractor, with a first stage of 6 million m3/d by July 2009, and final LNG capacity of 9.6 millionm3/d (2.5 mtpa), and two 160,000 m3 fullcontainment LNG tanks, in 2010.

 

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*Argentina.Manuel Belgrano and José de San Martín Power Plant Projects*

 

Twopower plant projects are being developed by Termoeléctrica Manuel Belgrano S.A.and Termoeléctrica José de San Martín S.A, both related to Endesa Chile throughits subsidiaries, Endesa Costanera and El Chocón.

 

Eachproject consists of the installation of a combined cycle gas turbine of 823 MW,the first located next to Campana, (80 km north from Buenos Aires), and thesecond, in Timbúes, (35 km north of Rosario).

 

During 2008, both gas turbines started commercialoperation in open cycle, with natural gas. A couple of months later they were also enabled to use gas oil asalternative fuel.

 

During 2008, Manuel Belgrano produced 435.9 GWh andTermoeléctrica José de San Martín S.A., 568.3 GWh.  Commercial operations under combined cycleare expected for the second half of 2009.

 

*Peru.Santa Rosa Thermal Plant Expansion Project*

 

Thisproject consists of the expansion of the Santa Rosa 227 MW thermal plant by theconstruction of a gas turbine in open cycle. The new unit will have a capacityof approximately 188 MW and will use natural gas from Camisea as fuel.  In January 2008, a turn-key contract withSiemens Power Generation was signed for its installation.   Start-up is planned for December 2009.

 

*Chile.Canela II Wind Farm Project*

 

CanelaII wind farm includes the expansion of the existing 18 MW wind farm with theinstallation of additional 60 MW on an adjoining site.  Commercial operations are planned to begin bythe end of 2009.

 

*Chile.Quintero Quillota Pipeline*

 

Developedby Electrogás, the project involves the installation of a 28.1 km pipeline totransport the natural gas that will be obtained in the LNG Receiving Terminalat Quintero.  The pipeline was ready totransport gas in March 2009.

 

In2007, we entered into two contracts with GNLQ, one for the firm daily transportof 15 million cubic meters, for the period 2009-2029, and one for theinterconnection between natural gas production and transport installations.

 

**Projects under Development**

 

EndesaChile continuously analyzes different growth opportunities in the countries inwhich it participates.  The most relevantprojects in the pipeline are as follows:

 

*Chile.Los Cóndores Project*

 

Theproject, that already has the environmental approval, is located in the Mauleriver basin, in Chile’s Seventh Region and consists of a hydroelectric powerstation of 150 MW that will use the water flows from Maule Lake, using a 4 kmlong concrete pipe and 9 km long tunnels. Civil works and electromechanical equipment supply bidding processeswere held in 2008.

 

*Chile.  Piruquina Mini Hydro Project*

 

Theproject is developed by Endesa Eco and is located in the island of Chiloé, 17 kmfrom Castro.  It consists of arun-of-river hydro plant which will use water flow from the Carihueico River.According to the feasibility study, the installed capacity will be 7.6 MW.  During 2008 there was progress in thepreparation of the Environmental Impact Study and basic engineering, necessaryto call for civil works and equipment bids.

 

*Chile.  Neltume-Choshuenco Hydroelectric Project*

 

TheNeltume and Choshuenco projects are located in Chile’s Los Ríos Region, on theupper part of the river Valdivia basin. The Neltume project consists of a 473 MW hydro plant.  The Choshuenco project uses the flows of theLlanquihue River at its source, at the junction with the Fui and NeltumeRivers, with the possibility of building a run-of-river hydro plant of 128 MW.

 

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During2008 there was progress in the preparation of Enviromental Impact Study andbasic engineering necessary to call for civil works and equipment bids.

 

*Chile.  HidroAysén Project*

 

TheHidroAysén hydropower project consists of five hydroelectric power stations,with an aggregate capacity of 2,750 MW, two of which in the Baker River (660 MWand 360 MW) and the other three in the Pascua River (500 MW, 770 MW and 460 MW).  Connection to the SIC electric grid consistsof a nearly 2,000 km, 500 kV high-voltage direct current transmission line “HVDC”.

 

On August14, 2008, HidroAysén presented its Environmental Impact Assesment (EIA) to theAysén Corema, beginning the formal evaluation process, which permitted to startcertain works.  In October, publichearings started, introducing the project in the relevant localities.

 

In November,HidroAysén received from Corema the consolidated report of requests forclarifications, and amendments for its EIA which includes extensive commentsfrom public services and the community; subsequently HidroAysén requested anine month extension of the deadline to answer such report.

 

Worksat HidroAysén have been mainly concentrated in engineering and environmentalstudies.  The company developed directcontact with local communities through round table meetings, attended byresidents and their representatives.

 

HidroAyséncommissioned the design and route studies for the HVDC line that will carry theenergy to the SIC, to Transelec, an unrelated transmission company.

 

*Colombia.Quimbo Hydroelectric Project*

 

ElQuimbo hydroelectric project will be located in the department of Huila, on theriver Magdalena, upstream of the Betania power plant.  Its installed capacity will be 400 MW throughtwo generator units. It is expected that the project will start operations by December2014.

 

During2008, the Ministry of the Environment made it possible to start theEnvironmental Impact Study.  Besidesthis, definitive pre-feasibility studies were completed and the basic designbegun.  The award of the contract fordeviation works is expected for 2009, once the environmental license andbuilding permission are approved.

 

As aresult of the award process, Emgesa assumed the obligation to offer firm energyfrom El Quimbo as of December 2014.

 

**Climate Change**

** **

TheCompany has been involved for a long time in efforts to developnon-conventional renewable energy (NCRE) projects and committed to thereduction of carbon dioxide (“CO2”)emissions.  These projects in Chileinclude the Canela I (in operation) and II (in construction) wind farms, andmini-hydro units, such as Ojos de Agua (in operation) and Piruquina (inevaluation by the environmental authorities). These power stations and projects are the first step to develop similarenvironmentally-friendly power plants in the rest of the countries in which weoperate.

 

NCREpower stations and projects not only provide clean energy, but also allow theCompany to trade so-called “carbon bonds” in the international market,associated with non-released greenhouse gases (“GHG”).  The Ojos de Agua mini-hydro power station wasregistered as Clean Development Mechanism (“CDM”) in April 2007 in the UnitedNations Framework Convention on Climate Change (UNFCCC) and the Canela I windfarm was registered on April 2009.  As ofthe date of this Report, an independent consultant is verifying the amount oftons of CO2 equivalent associated with the Ojos de Aguaplant for its initial period during the second semester of 2008, in order toallow the Company to trade those emissions. The estimated amount for thisperiod is 8,000 tons of CO2 equivalent; however, going forward, weestimate 20,870 tons of CO2 equivalent per annum.  Since Canela I was not registered as CDM in2008, it is in the process of verifying and then trading the tons of CO2 equivalent for2008 in the open market.  The estimatedamount for Canela I in 2008 is 18,000 tons of CO2 equivalent.

 

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The Company is also aware that hydroelectricgeneration is the cleanest source of electricity for the environment inChile.  Approximately 62% of the Company’sconsolidated installed capacity is hydro based; if we only consider Chile, thispercentage amounts to 71%.  Additionally,the Company is actively involved in developing new power stations based onhydroelectric capacity, such as Chile’s HidroAysén, that will have an installedcapacity of 2,750 MW and Colombia’s El Quimbo, with a projected installedcapacity of 400 MW.

 

The CO2 (GHG) emissions of the Company for the three yearsended December 31, 2008 were 7.5 million tons in 2006, 11.5 million tons in2007 and 11.5 million tons in 2008.

 

**Major Encumbrances**

** **

EndesaCostanera’s debt with Mitsubishi Corporation corresponds to the balance ofpayments in the purchase of equipment. As of December 31, 2008, the value of the assets pledged as a guaranteeof this debt was Ch$ 74 billion. Additionally, Endesa Costanera has executed liens in favor of CreditSuisse First Boston in order to guarantee a loan in the amount of Ch$ 27 billionas of December 31, 2007.

 

Pangue executed a first mortgage on the property where itspower plant is located, including the water rights and the concession toestablish the power plant.  There is alsoa lien on the electricity lines, machinery and equipment of the power plant.  Both include the prohibition to sell,transfer or further encumber such assets. The value of the pledged assets was Ch$ 107 billion as of December 31, 2008.  These encumbrances and prohibitions guaranteethe obligations of Pangue**with the project lenders: ExportDevelopment Corporation and Kreditanstalt für Wiederaufbau.

 

Edegelhas a debt originated in the financing of Ventanilla power plant.  As of December 31, 2008, the value of theassets pledged as a guarantee of this debt was Ch$ 135 billion.

 

GNLQproject finance required the sponsors, Endesa Chile among them, to encumbertheir shares in the company as a guarantee for the lenders.

 

**Item 4A.                **Unresolved Staff Comments****

** **

None.

 

**Item 5.   Operating and Financial Review and Prospects**

** **

**A.            Operatingresults**

** **

**General**

** **

*The following discussion should be read in conjunction withour audited consolidated financial statements, included in Item 18 in thisannual report, and “Selected financial data,” included in Item 3 herein.  Our consolidated financial statements areprepared in accordance with Chilean GAAP, which differs in some importantrespects from U.S. GAAP.  See Note 36 toour audited consolidated financial statements.*

 

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

** **

We ownand operate electricity generation companies in Chile, Argentina, Colombia andPeru.  We also have equity investments inEndesa Brasil, which owns generation companies in Brazil that, are operated byus.  Revenues, cash flow and equityincome primarily come from the electricity generation business of Endesa Chileitself and of our subsidiaries and affiliates, which operate in these fivecountries.  For the years ended December 31,2006, 2007 and 2008, non-generation revenues, related to engineering consultingservices and, represented 5%, 3% and 3%, respectively, of total consolidatedrevenues in each of those three years.

 

Factorssuch as hydrological conditions, regulatory developments, extraordinary actionsadopted by government authorities and economic conditions, including growthrate, and exchange rates in each country in which we operate are important indetermining our financial results.  See “Item 3.  Key Information — D. Risk factors.” Also, our reported results of operations and financial position havebeen significantly affected by BT 64, which relates to the consolidation of theresults of our companies outside of Chile, as well as other critical accountingpolicies.

 

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Ourportfolio strategy allows the impact of significant changes in one country tobe sometimes offset by opposing changes in other countries, leading tononmaterial impacts on consolidated figures. The impact of these factors on us, for the years covered by this Report,is discussed below.

 

**a.             HydrologicalConditions**

** **

Interms of installed capacity, in 2006, 2007 and 2008, approximately 64%, 63% and62% of Endesa Chile’s consolidated installed capacity, respectively, has beenhydroelectric.  Consolidatedhydroelectric capacity was 7,876 MW as of December 31, 2006, 7,968 MW as of December31, 2007 and 7,985 MW as of December 31, 2008. The increase in total hydro capacity between 2007 and 2008 came mainlyfrom El Chocón and Endesa Chile.  (See “Item4. Information on the Company — A. History and Development of the Company”).  As of December 31, 2008, 62% of ourconsolidated generation capacity is dependent upon the hydrological conditionsprevailing in the countries in which we operate, although only extremehydrological conditions materially affect the Company’s operating results andfinancial condition.

 

Hydrologicalconditions for the period between 2006 and 2008 have not led to materialchanges in our financial condition and results of operations.  Hydroelectric generation was 38,617 GWh in2006, 32,687 GWh in 2007 and 32,315 GWh in 2008.  The generation decrease in 2008 is associatedwith dryer conditions in Chile, Argentina and Peru.  Total operating income was Ch$ 541.8 billionin 2006, Ch$ 570.8 billion in 2007 and Ch$ 893.4 billion in 2008.

 

InEndesa Chile, we may compensate for the effect on physical and monetary salesof low hydrology (reservoir levels, rainfall and snow), in the geographicalareas where our power plants are located, with thermal generation andelectricity purchases.  Our thermalcapacity and ability to purchase electricity from other generators, given theregulatory framework of the industry in these countries, enables us to increasethermal generation and/or purchase electricity from other industry players inorder to maintain the level of physical sales when hydrological conditions leadto a reduction in hydroelectric generation. Additionally, when hydrology is low, given the industry structure andthe percentage of hydroelectric generation capacity in the countries in whichwe operate, the market price of electricity generally increases.  Low hydrology may therefore lead to greaterrevenues (depending on the weight of all the effects), and sometimes, greater operatingincome.

 

Interms of expenses, operating costs of thermal generation and energy purchasesare greater than the corresponding variable cost of hydroelectricgeneration.  The cost of thermalgeneration does not directly depend on the level of hydrology.  However, the cost of electricity purchases inthe spot market does depend on the hydrology.

 

Theimpact of low hydrology on operating results depends on the sensitivity orreaction to electricity prices in the market, the severity of the impact of hydrologicalconditions on the Company’s hydroelectric generation, the Company’s cost ofthermal generation and the need for energy purchases.  The effect of low hydrology on market pricesmay either partially or completely compensate (depending on the conditions ofall relevant market factors) for the higher cost of sales, leading to aninsignificant impact on operating results.

 

**b.             Regulatory Developments**

 

Theregulatory frameworks governing our business in the five countries where weoperate have a material effect on our results from operations.  In particular, regulators set generationtariffs taking into consideration factors such as the cost of fuels, level ofreservoirs, exchange rates, future investment in installed capacity and growthin demand, all of which are intended to allow companies to earn a regulatedlevel of return on their investment, and guarantee quality service andreliability. Accordingly, the earnings of our subsidiaries are determined insignificant part by the actions of government regulators, mainly through the tariff fixationprocess. For additional informationrelating to the regulatory frameworks in the countries in which we operate,please see “Item 4. Information on the Company — B. Business Overview —Electricity Industry Regulatory Framework.”

 

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

 

Macroeconomic conditionsin the countries in which we operate may have a significant effect on ouroperating results.  The most significanteconomic variables include economic growth, mainly due to its impact on electricitydemand, and the local currency exchange rate against the dollar, which affectsrevenues and expenses, as well as assets and liabilities, depending on thepercentage denominated in dollars.  As aresult, devaluation of local currencies against the dollar shrinks ouroperating margins and increases the cost of capital expenditure plans.  See 

 

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“Item 3. Key Information— D. Risk Factors — Foreign exchange risks may adversely affect our resultsfrom operations and financial condition.”

 

**EconomicGrowth and Electricity Demand**

 

In most of the countriesin which we operate the worldwide financial crisis adversely impacted economicgrowth in 2008.  Demand for electricitywas also lower compared to the prior year due to the economic constraints inthose countries.  The GDP and electricitygrowth rate for the years covered by this Report are included in the followingtable:

 
| ** ** | ** ** | **2006**                 | ** ** | **2007**                                 | ** ** | **2008**             | ** ** |
|------------|------------|--------------------------|------------|------------------------------------------|------------|----------------------|------------|
| ** ** | ** ** | **GDP Growth  (%)** | ** ** | **Electricity  Demand  Growth (%)** | ** ** | **GDP  Growth  (%)** | ** ** | **Electricity  Demand  Growth (%)** | ** ** | **GDP  Growth (1)  (%)** | ** ** | **Electricity  Demand  Growth (%)** | ** ** |
| Chile (2)  |       | 4.3                      |       | 6.0                                      |       | 5.1                  |       | 4.7 |   | 3.2 |   | 0.3 |   |
| Argentina  |       | 8.5                      |       | 5.9                                      |       | 8.7                  |       | 5.2 |   | 7.0 |   | 2.9 |   |
| Colombia   |       | 6.8                      |       | 4.1                                      |       | 7.7                  |       | 4.0 |   | 2.5 |   | 2.7 |   |
| Brazil     |       | 3.8                      |       | 3.9                                      |       | 5.4                  |       | 4.8 |   | 5.1 |   | 2.6 |   |
| Peru       |       | 7.7                      |       | 7.7                                      |       | 8.9                  |       | 10.7 |   | 9.8 |   | 9.7 |   |

 

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(1)          Sources: For Chile, CentralBank of Chile.  For Argentina, Colombia,Brazil and Peru, World Economic Outlook

(April 2009) estimate of the International Monetary Fund, and internalCompany physical energy data for 2006-2008.

(2)          Electricity Demand Growth inthe Central Interconnected System (SIC) and the Northern Grid System (SING).

 

**LocalCurrency Exchange Rate**

 

The value of the localcurrency in the countries in which we operate may have a significant impact onour operating results and overall financial position depending on thepercentage of dollar-denominated assets, liabilities, revenues and expenses,including depreciation and interest expense. A devaluation or depreciation of local currencies against the dollaraffects our operating margins by increasing the value of sales denominated indollars and the value of operating expenses, such as fuel priced in dollars,and depreciation of assets valued in dollars when expressed in localcurrency.  Interest expense fixed indollars and the value of dollar-denominated debt on the balance sheet increase,as well.  Conversely, the appreciation oflocal currencies against the dollar affects operating margins by reducingrevenues denominated in dollars when expressed in local currencies, and reducesthe value of operating expenses denominated in dollars.  Interest expense of dollar-denominated debtalso declines.

 

As of December 31, 2008,Endesa Chile had total consolidated indebtedness of $ 4,343 million, of which65% was denominated in dollars, 15% denominated in Chilean pesos, 16% is inColombian pesos, 3% in soles and 1% in Argentine pesos.

 

The following tableincludes year-end and average local currency dollar exchanges for the periodcovered by this Report.

 
| ** **                   | ** ** | **Local Currency U.S. Dollar Exchange Rates** | ** ** |
|------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                   | ** ** | **2006**                                                               | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                   | ** ** | **Average**                                                            | ** ** | **Year End** | ** ** | **Average** | ** ** | **Year End** | ** ** | **Average** | ** ** | **Year End** | ** ** |
| Chile (peso per  dollar)     |       | 529.64                                                                 |       | 532.39 |   | 521.7 |   | 496.89 |   | 521.8 |   | 636.45 |   |
| Argentina (peso  per dollar) |       | 3.08                                                                   |       | 3.061 |   | 3.14 |   | 3.149 |   | 3.16 |   | 3.45 |   |
| Colombia (peso  per dollar)  |       | 2,358.3                                                                |       | 2,239.0 |   | 2,074 |   | 2,009 |   | 1,963 |   | 2,246 |   |
| Brazil (reais  per dollar)   |       | 2.17                                                                   |       | 2.14 |   | 1.94 |   | 1.77 |   | 1.83 |   | 2.34 |   |
| Peru (sol per  dollar)       |       | 3.27                                                                   |       | 3.20 |   | 3.13 |   | 2.99 |   | 2.92 |   | 3.14 |   |

 

For the twelve-monthperiod ended December 31, 2008, our revenues amounted to $ 3,915 million ofwhich approximately 19% were denominated in dollars, and approximately 49% werelinked in some way to the dollar.  Inrespect of the total balance, the equivalent of $ 88 million were revenues inpesos, $ 542 million in Colombian pesos, $ 555 million in Argentine pesos and $70 million in soles.

 

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**d.             TechnicalBulletin 64 and Other Critical Accounting Policies**

** **

***Technical Bulletin64***

*** ***

Ourconsolidation of the results of our non-Chilean subsidiaries has been governedby Technical Bulletin 64 (BT 64).  BT 64establishes a mechanism to consolidate the financial results of a non-Chileancompany, which are prepared in local GAAP and denominated in local currency,with the financial results of its Chilean parent company, which are prepared inChilean GAAP and denominated in pesos. The implementation of BT 64 affects thereporting of our operating results.  Inparticular, exchange rate variations, if significant, can materially affect theamounts of operating revenues and expenses reported in the Company’sconsolidated financial statements in Chilean GAAP, as well as generate materialnon-operating gains and losses.

 

*BT 64—Conversion Effect*.  BT 64requires Endesa Chile to convert the financial statements of its non-Chileansubsidiaries from local currency to dollars and to restate these financialstatements into Chilean GAAP. A restatement could convert the dollar amountsinto pesos. The gain or loss resulting from this balance sheet conversion isreferred to as the “conversion effect.” To convert monetary assets andliabilities of its non-Chilean subsidiaries to dollars, Endesa Chile must usethe 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-monetaryassets and liabilities, to dollars, Endesa Chile must use the dollar/localcurrency exchange rate applicable at the time when such equity interests ornon-monetary assets or liabilities were acquired or incurred.

 

Inaddition, BT 64 requires income and expense accounts (except for the expensesincurred in connection with depreciation and amortization) of foreignsubsidiaries to be converted into dollars at the average exchange rate of themonth during which such results or expenses were recorded.  All amounts converted from local currency todollars are then converted from dollars to pesos at the exchange rateapplicable at the end of the reporting period. The currency conversion can have different effects on results whenconsolidating these figures in Chilean GAAP depending on the behavior of thepeso in regards to the dollar.  Forexample, an appreciation of the peso over the dollar will result in thereduction of revenues and expenses of foreign subsidiaries when consolidating.This effect can be compensated or aggravated depending on whether the localexchange rate, in the markets where our international subsidiaries operate,devalued or appreciated against the dollar.

 

BT 64may exclude from our reported financial position the effect of devaluation onnon-monetary assets of devaluation in the countries in which our subsidiariesand investments are located.  Thecurrency conversion from local currencies to dollars can have different effectsdepending on a foreign subsidiary’s structure of monetary and non-monetaryassets and liabilities.  For example,when a foreign subsidiary has more monetary assets than monetary liabilities, adevaluation of the applicable local currency against the dollar may result in aloss due to the effects of the currency conversion. On the other hand, theappreciation of the applicable local currency results in a gain. The reverse isalso true for foreign subsidiaries with more monetary liabilities than monetaryassets, where a devaluation of the applicable local currency against the dollarmay result in a gain, whereas an appreciation may result in a loss. The recentfluctuations of the exchange rates between the currencies of the countrieswhere we operate and the dollar, as well as in the exchange rate between thepeso and the dollar, have materially affected the comparability of our resultsof operations during the periods discussed because of this conversion effect.

 

*BT  64—Equity Hedge*. BT 64 allows dollar-denominated debt incurred in connection with theacquisition of equity in non-Chilean subsidiaries located in unstable countriesto be hedged by the investing company against and limited to the book value ofsuch equity investments.  For purposes ofBT 64, all the countries where we have investments — Argentina, Brazil,Colombia and Peru — are considered unstable countries.  This hedge results in the elimination of theeffects of exchange rate variations on the debt incurred in connection withsuch investments.  If the book value ofan equity investment is lower than the dollar-denominated debt incurred inconnection with its acquisition, the results of the exchange rate fluctuationsaffecting the amount of dollar-denominated debt that is not hedged are includedin determining net income. On the other hand, if the book value of an equityinvestment is higher than the dollar-denominated debt incurred in connectionwith its acquisition, then the results of the exchange rate fluctuationsaffecting the book value of the equity that is not hedged are recorded incumulative translation adjustment in a reserve account as part of shareholders’equity referred to as cumulative translation adjustment for GAAP purposes.

 

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***U.S. GAAPReconciliation***

*** ***

Ouraudited consolidated financial statements have been prepared in accordance withChilean GAAP, which differs in certain significant respects from U.S.GAAP.  See Note 36 to our auditedConsolidated Financial Statements for a description of the principaldifferences between Chilean GAAP and U.S. GAAP, as well as the reconciliationto U.S. GAAP of net income and total shareholders’ equity.

 

Theprincipal differences between Chilean GAAP and U.S. GAAP as they relate to theCompany are (i) the effects on goodwill and negative goodwill from theapplication of fair value purchase accounting, (ii) the effects of accountingfor derivatives at fair value, (iii) the effects of adjustments to U.S. GAAP inequity method investments, (iv) the effects of eliminating capitalized exchangerate differences and general and administrative expenses capitalized in fixedassets, (v) the effects of recording a liability related to minimum dividendspayable and (vi) the elimination of complementary accounts in deferred taxes aswell as the tax impact of other reconciling differences.

 

Thefollowing 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 of December 31, 2008)** | ** ** |
| Net income for  the year ended December 31:   |       |                                                                                                   |       |               |       |
| 2006                                          |       | 221,685                                                                                                |       | 247,828            |       |
| 2007                                          |       | 209,566                                                                                                |       | 197,591            |       |
| 2008                                          |       | 442,592                                                                                                |       | 394,902            |       |
|                                          |       |                                                                                                   |       |               |       |
| Shareholders’  equity as of December 31: |       |                                                                                                   |       |               |       |
| 2006                                          |       | 2,098,600                                                                                              |       | 1,688,864          |       |
| 2007                                          |       | 2,051,923                                                                                              |       | 1,738,957          |       |
| 2008                                          |       | 2,364,524                                                                                              |       | 1,905,724          |       |

 

***CriticalAccounting Policies***

*** ***

FinancialReporting Release FR-60 encourages all companies to include a discussion ofcritical accounting policies or methods used in the preparation of financialstatements.  Critical accounting policiesare defined as those that are reflective of significant judgments anduncertainties, which would potentially result in materially different resultsunder different assumptions and conditions. We believe that our critical accounting policies in the preparation ofour Chilean GAAP financial statements are limited to the policies describedbelow.  In many cases, Chilean GAAPspecifically dictates the accounting treatment of a particular transaction anddoes not allow for management’s judgment to enter into its application.  For a summary of significant accountingpolicies and methods used in the preparation of financial statements, see Note2 to our consolidated financial statements.

 

***Impairment of Long-lived Assets***

* *

Inaccordance with Chilean GAAP, the company evaluates the recoverability of thecarrying amount of property, plants and equipment and other long-lived assetsto determine impairment in relation to the recoverable value (calculated on thebasis of operating performance and future non-discounted cash flows of theunderlying business), assessed individually for each entity to determine thepossibility of an impairment.  Thesestandards require that an impairment loss be recognized in the event that factsand circumstances indicate that the carrying amount of an asset may not befully recoverable.  An impairment isrecorded based on a “useful value,” which is the present value of future cashflows as they compare to current carrying amounts.  The most relevant estimates made indetermining the recoverability of long-lived assets depend on expectationssurrounding the company’s business plan, including macroeconomic framework andassumptions regarding GDP growth, inflation and interest rates, growthestimates for energy demand, estimated installed capacity, hydrology,regulations and frameworks governing tariffs, fixed and variable costs, etc,all of which have an important impact on the calculations.

 

Impairmentof our property, plants and equipment and other long-lived assets may have amaterial negative impact on our operating profit in any period, depending onthe outcome of impairment tests.  Foryears ending on December 31st, 2008, 2007 and 2006, management concluded thatthe book value of our assets did not exceed their 

 

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carrying value. Given certain key economic factors subject to fluctuations, climaticconditions and global prices of fuels used in energy production, it is likelythat the expected operating conditions may change significantly from period toperiod.

 

***Impairment of Goodwill***

 

UnderChilean GAAP, accounting treatment of goodwill requires management to estimatean adequate goodwill amortization period and assess recoverability of thecarrying value of goodwill in situations where there may be a loss.  The maximum amortization period permitted forgoodwill under Chilean GAAP is 20 years. The following factors are taken into account when estimating theappropriate goodwill amortization period:

 

·                  Expected useful life of the business and expectationsregarding future benefits associated with the business or unidentifiableassets;

 

·                  Expected actions to be taken by existing andprospective competitors; and

 

·                  Legal, regulatory or contractual provisions that mayhave an impact on useful life.

 

Anassessment on the recoverability of goodwill is conducted systematically at theend of each year or more frequently if deemed necessary after the initialassessment.

 

Wehave used the “useful value” when calculating recoverability of goodwill.  Forecasts of future cash flows before taxesare determined on the basis of macroeconomic frameworks that take into accountGDP growth estimates, inflation, interest and exchange rates, anticipatedgrowth in energy demand, forecasts of installed capacity, hydrology, regulatoryand tariff frameworks, variable and fixed costs, etc., all of which have amaterial impact on the calculation. Accordingly, calculations include the best possible cost and revenueestimates for the various companies, using industrial forecasts, past experienceand future expectations for upcoming years, in addition to reasonable growthrates for those years.

 

Basedon the outcome of these estimates for the various cash generating units,management believes that as of December 31, 2008, the goodwill recorded will beentirely recoverable in the future.

 

***Litigation and Contingencies***

* *

Thecompany is currently involved in certain legal and tax proceedings. Asdiscussed in Note 29 of our Consolidated Financial Statements, as of December 31,2008, we have come to an estimate of the likely costs for the resolution ofthese claims.  We arrived at thisestimate in consultation with legal and tax counsel handling our defense inthese matters and an analysis on potential results, assuming a combination oflitigation and settlement strategies.

 

Exceptfor the case of the material proceedings described in Note 29 of ourConsolidated Financial Statements, as of December 31, 2008 we do not know whenthese legal or tax proceedings will come to an end.

 

***Pension and Post-RetirementBenefits Liabilities***

*** ***

Wesponsor several benefit plans for our employees.  These plans pay benefits to employees atretirement using formulas based on employee years of service andcompensation.  We provide certainadditional benefits for certain retired employees as well.

 

Recordedpensions and other post-retirement benefit liabilities reflect our bestestimate of the future cost of honoring our obligations under these benefitplans.  The accounting applied to thesebenefit plans involves actuarial calculations, which contain key assumptions,including: employee turnover, life expectancy and retirement ages, discountrates, expected returns on assets, future salary and benefit level, claim ratesunder medical plans and future medical cost. These assumptions change as market and economic conditions change andany change in any of these assumptions could have a material effect on ourreported results from operations.  Onceevery three years we review the key assumptions used in the determination ofthe pension obligation plan assets and net periodic pension cost as prescribedby Technical Bulletin No. 8.

 

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Thefollowing table shows the effect of a 1% decrease in the discount rate on ourprojected benefit obligation for the periods indicated.

 
| ** **                    | ** ** | **Year ended December 31,**                  | ** ** |
|-------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                    | ** ** | **2007**                                                    | ** ** | **2008** | ** ** |
| ** **                    | ** ** | **(increase in millions of Ch$ )** | ** ** |
| Projected  benefit obligation |       | 1,958                                                       |       | 2,068 |   |

 

Thefollowing table shows the effect of a 1% change in the discount rate on ouraccumulated post-retirement benefit obligation for the periods indicated.

 
| ** **                                      | ** ** | **Year ended December 31,**                  | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                      | ** ** | **2007**                                                    | ** ** | **2008** | ** ** |
| ** **                                      | ** ** | **(increase in millions of Ch$ )** | ** ** |
| Accumulated  post-retirement benefit obligation |       | 807                                                         |       | 855 |   |

* *

***Introduction of International Financial ReportingStandards***

*** ***

*On August 28, 2007, the SVS announced the adoptionof International Financial Reporting Standards (IFRS) in Chile beginning on January1, 2009, in keeping with which Endesa Chile voluntarily adopted these standardsas of that date.  Pursuant to theconvergence plan set forth by the company, at present Endesa Chile is studyingthe impact IFRS application will have on its financial standards.*

* *

***SAB 74 Disclosures - Recent Accounting Pronouncements***

*** ***

*See note 36 - 2 r*

* *

**2.**              Countryby Country Comparative Analysis of Operating Results and Details ofNon-Operating Figures 2007 vs. 2008

** **

***Revenues fromoperations***

*** ***

***It is important to note that when comparing annual consolidated figuresin pesos, the fluctuations of all local currencies against the dollar affectedthe Company’s results.***

 
| ** **                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|--------------------------------------------|------------|
| ** **                       | ** ** | **2007**                                   | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **(as a % of total)**  | ** ** |
| Chile                            |       | 56.5                                       |       | 56.1 |   |
| Argentina                        |       | 15.3                                       |       | 14.2 |   |
| Colombia                         |       | 18.4                                       |       | 19.8 |   |
| Peru                             |       | 9.7                                        |       | 9.9 |   |
| **Total  Consolidated Revenues** |       | 100.0                                      |       | 100.0 |   |

 

EndesaChile’s revenues that were not related to its electricity business accountedfor 1.5% of total consolidated revenues in 2008.  We consider those revenues to be immaterialand believe that they do not affect the analysis of the company’s consolidatedfinancial statements.  These revenuescome mainly from engineering consulting services and a tunnel concession.  The tables below sets forth the breakdown bycountry of Endesa Chile’s total revenues from operations and volume of GWhsales for 2007 and 2008, and the percentage changes year to year:

 
| ** **                | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| **Revenues**              | ** ** | **2007**                                                                                                                         | ** ** | **2008** | ** ** | **%  Change** | ** ** |
| ** **                | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| Generation  (Chile)       |       | 1,032,187                                                                                                                        |       | 1,360,684 |   | 31.8 |   |
| Other businesses  (Chile) |       | 31,287                                                                                                                           |       | 37,665 |   | 20.4 |   |
| Argentina                 |       | 288,520                                                                                                                          |       | 352,943 |   | 22.3 |   |

 

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| ** **          | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|---------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| **Revenues**        | ** ** | **2007**                                                                                                                         | ** ** | **2008** | ** ** | **%  Change** | ** ** |
| ** **          | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| Colombia            |       | 346,395                                                                                                                          |       | 493,221 |   | 42.4 |   |
| Peru                |       | 182,276                                                                                                                          |       | 247,072 |   | 35.6 |   |
| **Total  Revenues** |       | 1,880,664                                                                                                                        |       | 2,491,589 |   | 32.5 |   |

 
| ** **            | ** ** | **Year ended December 31,** | ** ** |
|-----------------------|------------|--------------------------------------------|------------|
| **Energy Sales** | ** ** | **2007**                                   | ** ** | **2008** | ** ** | **%  Change** | ** ** |
| ** **            | ** ** | **(GWh)**                                  | ** ** | **(GWh)** | ** ** | **(GWh)** | ** ** |
| Chile                 |       | 19,212                                     |       | 19,808 |   | 3.1 |   |
| Argentina             |       | 12,406                                     |       | 11,098 |   | (10.5 | ) |
| Colombia              |       | 15,613                                     |       | 16,368 |   | 4.8 |   |
| Peru                  |       | 7,994                                      |       | 8,461 |   | 5.8 |   |
| **Total**             |       | 55,225                                     |       | 55,735 |   | 0.9 |   |

 

Totalgeneration revenues in Chile in 2008 increased by 31.8% from Ch$ 1,032 billionin 2007 to Ch$ 1,361 billion in 2008, mainly as a result of higher prices onaverage.  The increase in physical saleswas 3.1%, mainly explained by a 36.5% increase in energy sales to the spotmarket to 3,317 GWh.  In the spot market,the average energy market price was $ 207 per MWh in the SIC, compared to $ 172in 2007, due to the impact of higher commodity prices and lower hydrology inthe first half of the year.  Sales toregulated customers decreased by 0.3% at a node price which is the result of aprice-setting system that reflects the new energy matrix in Chile.  The average prices for regulated customers,during 2008 compared with 2007, increased from $ 81 per MWh in December 2007 to$ 113 per MWh in December 2008, reflecting the higher costs of generation ofthe system.  The total average salesprice of Endesa Chile in Chile increased by 40%, from $ 96 per MWh in 2007 to $134.3 per MWh in 2008.

 

Totalrevenues in Argentina increased by 22.3% in 2008, from Ch$ 288.5 billion in2007 to Ch$ 352.9 billion in 2008.  Thisimprovement was the result of higher average prices during 2008, which offsetthe 10.5% decrease in physical sales. Physical energy sales from El Chocón amounted to 2,554 GWh, a 35.4%decrease from 2007.  Average sales priceof El Chocón was Ar$ 103.8 per MWh in 2008, 22% higher than the year before.Energy sold by Endesa Costanera increased by 1.1% to 8,543 GWh in 2008.  There was also an increase in average energyprices given the lower hydrology and the dispatch of electricity at highercosts.  The average sale price in EndesaCostanera, expressed in pesos, increased by 11% during the year, reaching anaverage of Ar$ 171.6 per MWh.  InArgentina, the sales mix at spot and non-regulated markets was 78% and 22%,respectively.  For additional informationof Main Customers in Argentina see “Item 4. Information on the Company — B.Business Overview.”  The net impact ofthe depreciation of the average Argentine peso and the depreciation of theChilean peso in relation to the dollar, due to the BT64 conversion, resulted inadditional Ch$ 34.6 billion in revenues in Endesa Costanera and Ch$ 9.2 billionin El Chocón.

 

Totalrevenues in Emgesa (Colombia) increased by 42.4%, from Ch$ 346.4 billion in2007 to Ch$ 493.2 billion in 2008, mainly due to the effect of the conversionto Chilean GAAP explained by the exchange rate fluctuations with respect to thedollar in Chile and Colombia, that amount to Ch$ 84 billion of this growth;an11% increase in average sales price in local currency, amounting to CPs$ 83,800per MWh in 2008 as well as a 5% increase in sales volume.  The sales mix in 2008 at regulated, spot andnon-regulated prices was 53%, 32% and 15%, respectively.  For additional information of MainDistribution and Trading Customers in Colombia see “Item 4. Information on theCompany — B. Business Overview.”

 

Revenuesof Edegel (Peru) increased by 35.6%, from Ch$ 182.3 billion in 2007 to Ch$ 247.1billion in 2008, partly explained by the effect of the conversion to ChileanGAAP following the  devaluation of theChilean peso against the dollar and the appreciation of the average Peruviansol against the dollar, that amounted to Ch$ 47 billion.  Physical energy sales increased by 6% andaverage prices, expressed in local currency, decreased from 130.5 soles per kWhin 2007 to 124.4 soles per kWh in 2008. The sales mix at non-regulated, regulated and spot prices was 55%, 42%and 3%, respectively.  For additionalinformation of Main Customers in Peru see “Item 4. Information on the Company —B. Business Overview.”

 

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***Operating Expenses***

*** ***

Thetable below sets forth the breakdown by country of operating expenses for 2007and 2008 and the percentage change from year to year:

 

 
| ** **                             | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|----------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **2007**                                                                                                                         | ** ** | **2008** | ** ** | **% Change** | ** ** |
| ** **                             | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| **Operating  Expenses** (1)            |       |                                                                                                                             |       |   |   |   |   |
| Generation  (Chile) (2)                |       | 648,765                                                                                                                          |       | 786,692 |   | 21.3 |   |
| Other businesses  (Chile)              |       | 25,723                                                                                                                           |       | 29,690 |   | 15.4 |   |
| Argentina                              |       | 256,481                                                                                                                          |       | 328,917 |   | 28.2 |   |
| Colombia                               |       | 166,391                                                                                                                          |       | 223,279 |   | 34.2 |   |
| Peru                                   |       | 122,325                                                                                                                          |       | 181,245 |   | 48.2 |   |
| Consolidated  Adjustments Foreign Subs |       | (1,036                                                                                                                           | )          | (810 | ) | (21.8 | ) |
| **Total**                              |       | 1,218,649                                                                                                                        |       | 1,549,013 |   | 27.1 |   |

 

----

(1)          Excludes SG&A expenses.

(2)          Includes allsubsidiaries and investment vehicles in Chile.

 

Operatingcosts under the generation business in Chile increased by 21.3% in 2008compared to 2007, given lower hydroelectric generation and higher thermalgeneration using diesel at extremely high costs instead of natural gas, asnatural gas restrictions from Argentina continued during 2008.  This situation led fuel costs in Chile toincrease by Ch$ 144.4 billion during the year. The average variable cost ofgeneration, excluding the cost of energy purchases, rose by 22.6%, from Ch$ 24.3per kWh in 2007 to Ch$ 29.8 per kWh in 2008, as a result of the 7.2% increasein thermal electric generation using diesel. The cost of electricity purchases, including energy and capacity,decreased from Ch$ 65.2 billion in 2007 to Ch$ 56.8 billion in 2008, due to61.3% decrease in physical energy purchases. The average cost of purchases increased from Ch$ 62.5 per kWh in 2007 toCh$ 141.1 per kWh in 2008.

 

Operatingexpenses in Argentina increased by Ch$ 72.4 billion, from Ch$ 256.5 billion in2007 to Ch$ 328.9 billion in 2008.  Hydrogeneration decreased by 47.5% while thermoelectric generation increased by1.4%.  The cost of fuel increased by Ch$ 45.9billion in 2008, due to higher prices of fuel when compared to the price offuels in 2007.  The average variablegenerating cost increased from Ch$ 16.0 per kWh in 2007 to Ch$ 22.0 per kWh in2008.  Electricity purchases, includingenergy and capacity, rose by Ch$ 7.8 billion in 2008, due to an increase inphysical energy purchases in the spot market, with an average purchase priceincrease from Ch$ 19.7 per kWh in 2007 to Ch$ 21.6 per kWh in 2008. Thecombined effect of the fluctuations of the peso and the Argentine peso againstthe dollar decreased total operating expenses of Endesa Costanera by Ch$ 34.6 billionin 2008 when compared to 2007, and Ch$ 5.1 billion of El Chocón operatingexpenses.

 

Colombia’soperating expenses increased by 34.2%, from Ch$ 166.4 billion in 2007 to Ch$ 223.3billion in 2008, primarily because of the conversion to Chilean GAAP given theexchange rate fluctuations of the Colombian peso and the peso against thedollar and higher prices of fuel and purchasing prices towards the end of2008.  The average variable generationcost, excluding the cost of energy purchases, increased from Ch$ 5.8 per kWh in2007 to Ch$ 7.8 per kWh in 2008.  Tollsand energy transportation costs increased by Ch$ 17.7 billion.  Electricity purchases, including energy andcapacity, increased by Ch$ 11.6 billion in 2008 and the average purchase pricerose from Ch$ 12.1 per kWh in 2007 to Ch$ 16.0 per kWh in 2008.  The combination of the fluctuations of theappreciation of the average Colombian peso against the dollar in 2008 and thedevaluation of the Chilean peso resulted in Ch$ 38 billion in additional costs.

 

Operatingexpenses in Peru increased by 48.2% from Ch$ 122.3 billion in 2007 to Ch$ 181.2billion in 2008.  This was primarily due tothe conversion to Chilean GAAP given the exchange rate fluctuations of the soland the peso against the dollar and increased use of diesel at higher pricesdue to capacity constraints in the natural gas pipeline.  The average variable generating cost, excludingthe cost of electricity purchases, was Ch$ 6.7 per kWh in 2007 compared to Ch$ 10.1per kWh in 2008.  The combination of thefluctuations of the peso and the sol against the dollar in 2008 led to a netdecrease in operating expenses of Ch$ 29 billion.

 

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***Administrative andSelling Expenses***

*** ***

Administrativeand selling expenses relate to compensation, administrative expenses,depreciation and amortization, and office materials and supplies.  These expenses increased by Ch$ 21.9 billionin 2008.

 

The table below sets forth the breakdown of sellingand administrative expenses for 2007 and 2008 and the percentage change fromyear to year:

 
| ** **                                    | ** ** | **Year ended December 31,**                                                                                      | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2007(1)**                                                                                                                     | ** ** | **2008** | ** ** | **% Change** | ** ** |
| ** **                                    | ** ** | **(in millions of constant Ch$ as of  December 31, 2008 except percentages)** | ** ** |
| **Administrative  and Selling Expenses**      |       |                                                                                                                            |       |   |   |   |   |
| Chile                                         |       | 20,989                                                                                                                          |       | 24,945 |   | 18.8 |   |
| Argentina                                     |       | 4,212                                                                                                                           |       | 6,017 |   | 42.9 |   |
| Colombia                                      |       | 5,468                                                                                                                           |       | 6,971 |   | 27.5 |   |
| Peru                                          |       | 9,845                                                                                                                           |       | 11,459 |   | 16.4 |   |
| Consolidated  Adjustment Foreign Subs         |       | (133                                                                                                                            | )          | (176 | ) | (32.3 | ) |
| **Total  Selling and Administrative Expense** |       | 40,381                                                                                                                          |       | 49,215 |   | 21.9 |   |

 

----

(1)         The differences in Chile,Argentina and Peru compared to last year’s Form 20-F are explained byaccounting reclassifications associated with the investment vehicles in eachcountry.

 

Theincrease in Selling and Administrative expenses of 21.9% in 2008 mainly comesfrom Chile due to higher depreciation expenses and higher compensation toemployees. In other countries, the increase is mainly due to highercompensation to employees.

 

***Operating Marginand Operating Income***

*** ***

Ouroperating margin, or operating income as a percentage of revenues, increasedfrom 33.1% in 2007 to 35.9% in 2008. This increase is due to higher operating margins reported in Chile andColombia, partially offset by the lower operating margin in Argentina andPeru.  The following is our operatingmargin by country:

 
| ** **                  | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|
| ** **                  | ** ** | **2007**                                   | ** ** | **2008** | ** ** |
| **Operating  Margin**       |       |                                       |       |   |   |
| Chile                       |       | 34.6                                       | %          | 39.8 | % |
| Argentina                   |       | 9.7                                        | %          | 5.1 | % |
| Colombia                    |       | 50.4                                       | %          | 53.3 | % |
| Peru                        |       | 27.6                                       | %          | 22.0 | % |
| **Total  Operating Margin** |       | 33.1                                       | %          | 35.9 | % |

 

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Endesa Chile’s consolidated operating income reachedCh$ 893.4 billion in 2008 compared to Ch$ 621.6 billion in 2007.  The following table breaks down operating incomeby country for the years ended December 31, 2007 and 2008:

 
| ** **                            | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **2007(1)**                                                                                                                      | ** ** | **2008** | ** ** | **%  Change** | ** ** |
| ** **                            | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| **Operating  Income**                 |       |                                                                                                                             |       |   |   |   |   |
| Generation  (Chile)                   |       | 363,843                                                                                                                          |       | 550,712 |   | 51.4 |   |
| Other businesses  (Chile)             |       | 4,153                                                                                                                            |       | 6,310 |   | 51.9 |   |
| Argentina                             |       | 27,828                                                                                                                           |       | 18,009 |   | (35.3 | ) |
| Colombia                              |       | 174,536                                                                                                                          |       | 262,971 |   | 50.7 |   |
| Peru                                  |       | 50,105                                                                                                                           |       | 54,372 |   | 8.5 |   |
| Consolidated  Adjustment Foreign Subs |       | 1,169                                                                                                                            |       | 986 |   | (0.2 | ) |
| **Total  Operating Income**           |       | 621,634                                                                                                                          |       | 893,360 |   | 43.7 |   |

 

----

(1)          The differencesin Chile, Argentina and Peru compared to last year’s Form 20-F are explained byaccounting reclassifications associated with the investment vehicles in eachcountry.

 

In Chile, in the generation business, operating incomewas Ch$ 550.7 billion, 51.4% over the Ch$ 363.8 billion accounted in 2007.  This increase is primarily the result of anincrease in revenues as the average price remained relatively high during 2008due to higher generation costs of the electricity throughout the country.  Beside the low hydrology during the firsthalf of 2008, the natural gas restrictions from Argentina also forced ourthermal facilities to burn diesel, leading to Ch$ 144.4 billion of higher fuelcosts, thus increasing total operating expenses by 21% to Ch$ 786.7 billion in2008 which explains the increase of the operating margin from 35.3% in 2007 to40.5% in 2008.

 

The low hydrology in El Chocón area, the lack ofnatural gas and high fuel prices for Endesa Costanera led 2008 operating incomein Argentina to decrease to Ch$ 18.0 billion, compared to Ch$ 27.8 billion inthe previous year, a decrease of 35.3%. These effects also explain the drop in Argentina’s operating margin from9.7% in 2007 to 5.1% in 2008. Its commercial policy enabled Endesa Costanera toincrease operating income to Ch$ 6.3 billion, as a result of a 31% increase inrevenues mainly due to the rise in average prices.  On the other hand, El Chocón showed areduction in operating income to Ch$ 11.9 billion in 2008, due to a 35% fall inphysical sales, explained by the reduced dispatch caused by low hydrology.

 

Operating income in Colombia was Ch$ 263.0 billion in2008, Ch$ 88.4 billion more than that for 2007. As explained above, this improvement is mainly explained by the effectof the conversion to Chilean GAAP due to exchange rate fluctuations withrespect to the dollar in Chile and Colombia, and also by higher average salesprices and a 5% greater sales volume, with better hydro dispatch.  On the other hand, operating expenses fortheir part rose by 34%, mainly due to higher tolls and purchases of energy andpower.  All these elements explain theincrease in Emgesa’s operating margin from 50.4% in 2007 to 53.3% in 2008.

 

The Peruvian subsidiary of Endesa Chile, Edegel, accountedfor operating income of Ch$ 54.4 billion in 2008, an increase of 8.5% from2007, due to the effect of the conversion to Chilean GAAP following US dollarexchange rate fluctuations in Chile and Peru. Operating expenses increased by 48%, partly due to the conversion toChilean GAAP, but also as a result of greater thermal generation with dieselbecause of maintenance work and constraints on the Camisea natural gaspipeline, and also due to more expensive diesel prices.  The latter made Edegel’s operating margindrop from 27.6% in 2007 to 22.0% in 2008.

 

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***Non-operating Results***

 

The following table sets forth certain informationregarding our non-operating results for each of the periods indicated:

 
| ** **                                    | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2007**                                                                                                                         | ** ** | **2008** | ** ** | **% Change** | ** ** |
| ** **                                    | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| **Non-operating  income:**                    |       |                                                                                                                             |       |   |   |   |   |
| Interest income                               |       | 25,346                                                                                                                           |       | 28,676 |   | 13.1 |   |
| Equity income of  non-consolidated affiliates |       | 51,125                                                                                                                           |       | 119,628 |   | 134.0 |   |
| Other  non-operating income                   |       | 19,511                                                                                                                           |       | 79,233 |   | 306.1 |   |
| **Non-operating  expenses:**                  |       |                                                                                                                             |       |   |   |   |   |
| Interest expense                              |       | 193,329                                                                                                                          |       | 194,845 |   | 0.8 |   |
| Equity losses of  non-consolidated affiliates |       | 62,509                                                                                                                           |       | 5,971 |   | (90.4 | ) |
| Goodwill  amortization                        |       | 991                                                                                                                              |       | 1,185 |   | 19.6 |   |
| Other  non-operating expenses                 |       | 92,838                                                                                                                           |       | 80,094 |   | (13.7 | ) |
| **Monetary  correction:**                     |       |                                                                                                                             |       |   |   |   |   |
| Price level  restatement                      |       | 9,642                                                                                                                            |       | 425 |   | (95.6 | ) |
| Foreign Exchange  translation                 |       | 18,090                                                                                                                           |       | (30,563 | ) | (268.9 | ) |
| **Non-operating  results**                    |       | (225,951                                                                                                                         | )          | (84,697 | ) | (62.5 | ) |

 

Non-operating loss in 2008 amounted to Ch$ 84.7 billion,compared to a loss of Ch$ 226.0 billion in 2007, positively affecting theCompany’s net income for 2008.  Theprincipal variations in the non-operating result are as follows:

 

Net income from investments in related companiesincreased by Ch$ 125.0 billion in 2008 compared to 2007.  This variation is basically explained by Ch$ 68.2billion of improved results from the affiliate company Endesa Brasil and alsoby an investment impairment booked by GasAtacama Holding Ltda. in 2007 for anamount of Ch$ 53.2 billion.

 

Net other non-operating income and expenses showed animprovement of Ch$ 72.5 billion, mainly explained by Ch$ 84.1 billion of betterresult of the conversion adjustment (BT64) of our foreign subsidiaries, mainlyin Colombia and Peru, by Ch$ 10.0 billion of reduced provisions for capital taxin Colombia, and by Ch$ 4.5 billion of reduced provisions for contingencies andlitigation.  This was partially offset byCh$ 18.6 billion of taxes on the dissolution of Cono Sur and the deregistrationof Endesa Chile’s branch in the Cayman Islands and by Ch$ 5.7 billion of highernet expenses in recalculations of certain energy and capacity sales.

 

Consolidated interest expenses rose by Ch$ 1.5 billion,from Ch$ 193.3 billion in 2007 to Ch$ 194.8 billion in 2008, an increase of0.8%.  Interest income rose by Ch$ 3.3 billion,from Ch$ 25.3 billion in 2007 to Ch$ 28.7 billion in 2008, mainly in Chile dueto higher average cash balances maintained as a conservative measure to facethe global financial markets.

 

Price-level restatements showed a negative change ofCh$ 9.2 billion, mainly due to the effect of higher inflation in 2008 in Chile,which reached 8.9%, compared to 7.4% in 2007. This change affects non-monetary assets and liabilities and certainmonetary items, mainly bonds denominated in U.F., as well as the restatement ofthe income statement accounts.

 

Exchange rate differences showed a negative change ofCh$ 48.7 billion in 2008 compared to 2007, from a gain of Ch$ 18.1 billion in2007 to a loss of Ch$ 30.6 billion in 2008. This is mainly explained by fluctuations in the exchange rate betweenboth years.  In 2008, the Chilean pesodepreciated against the dollar by 22% in contrast to a 7% appreciation of thepeso in 2007.

 

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***Net Income***

*** ***

Thefollowing table sets forth our net income for the periods indicated:

 
| ** **                                                                     | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2007**                                                                                                                         | ** ** | **2008** | ** ** | **%  Change** | ** ** |
| ** **                                                                     | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| Operating income                                                               |       | 621,634                                                                                                                          |       | 893,360 |   | 43.7 |   |
| Non-operating  expense                                                         |       | (225,951                                                                                                                         | )          | (84,697 | ) | (62.5 | ) |
| **Income  before taxes, minority interest and negative goodwill amortization** |       | 395,683                                                                                                                          |       | 808,664 |   | 104.4 |   |
| Current income  taxes                                                          |       | (87,126                                                                                                                          | )          | (164,363 | ) | 88.6 |   |
| Deferred income  taxes                                                         |       | (36,381                                                                                                                          | )          | (27,194 | ) | (25.3 | ) |
| **Total income  taxes**                                                        |       | (123,507                                                                                                                         | )          | (191,557 | ) | 55.1 |   |
| Minority  interest                                                             |       | (67,381                                                                                                                          | )          | (180,686 | ) | 168.2 |   |
| Amortization of  negative goodwill                                             |       | 4,772                                                                                                                            |       | 6,172 |   | 29.3 |   |
| **Net  income**                                                                |       | 209,566                                                                                                                          |       | 442,592 |   | 111.2 |   |

 

*Income Taxes*.   Income taxesrose by Ch$ 68.0 billion in 2008 compared to 2007.  Consolidated income tax amounted to Ch$ 191.6billion, comprising a charge for income tax of Ch$ 164.4 billion and Ch$ 27.2 billionof deferred taxes.  Current income taxshowed an increase over 2007 of Ch$ 77.2 billion, related to taxable income,mainly in Endesa Chile, Pehuenche, Pangue, and Emgesa in Colombia.  Deferred taxes showed a reduction of Ch$ 9.2 billioncompared to 2007.  The Company’seffective tax rate (the ratio of total income taxes to income before taxes)declined from 31% in 2007 to 24% in 2008, due to the combined effect of the43,7% higher operating income and the 62,5% decrease in non-operating expenses.

 

*Minority Interest*.  Minorityinterest expenses increased by Ch$ 113.3 billion in 2008, primarily due tohigher net income in our Colombian subsidiary, Emgesa.

 

**3.**              Countryby Country Comparative Analysis of Operating Results and Details ofNon-operating Figures 2007 vs. 2006

** **

***Revenues fromoperations***

*** ***

***During2007, the year end appreciation of the peso against the dollar was 7.1%,negatively affecting revenues from foreign operations when compared to 2006,while the sol and the Colombian peso appreciated 6.9% and 11.4%, respectivelyin 2007. It is important to note this exchange difference when comparing annualfigures in pesos. This treatment is in accordance with the accounting rules governingforeign currency results as required in BT 64.***

 
| ** **                        | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------------|------------|--------------------------------------------|------------|
| **Revenues from sales** | ** ** | **2006**                                   | ** ** | **2007** | ** ** |
| ** **                        | ** ** | **(as a % of total)**  | ** ** |
| Chile                             |       | 49.3                                       |       | 56.5 |   |
| Argentina                         |       | 17.6                                       |       | 15.3 |   |
| Colombia                          |       | 20.5                                       |       | 18.4 |   |
| Peru                              |       | 12.6                                       |       | 9.7 |   |
| **Total  Consolidated Revenues**  |       | 100.0                                      |       | 100.0 |   |

 

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Other non-core business revenues accounted for 4.8% oftotal consolidated revenues in both 2007 and 2006.  These businesses are engineering consultingservices and third-party sales. The tables below sets forth the breakdown bycountry of Endesa Chile’s total revenues from operations and volume of GWhsales for 2006 and 2007, and the percentages change from year to year:

 
| ** **                | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|---------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| **Revenues (1)**     | ** ** | **2006**                                                                                                                         | ** ** | **2007** | ** ** | **%  Change** | ** ** |
| ** **                | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| Generation  (Chile)       |       | 740,397                                                                                                                          |       | 1,032,187 |   | 39.4 |   |
| Other businesses  (Chile) |       | 31,176                                                                                                                           |       | 31,287 |   | 0.4 |   |
| Argentina                 |       | 275,339                                                                                                                          |       | 288,520 |   | 4.8 |   |
| Colombia                  |       | 320,262                                                                                                                          |       | 346,395 |   | 8.2 |   |
| Peru                      |       | 196,704                                                                                                                          |       | 182,276 |   | (7.3 | ) |
| **Total  Revenues**       |       | 1,563,878                                                                                                                        |       | 1,880,664 |   | 20.3 |   |

 

----

(1)          The differencesin Chile, Argentina and Peru compared to last year’s Form 20-F are explained byaccounting reclassifications associated with the investment vehicles in eachcountry.

 
| ** **            | ** ** | **Year ended December 31,** | ** ** |
|-----------------------|------------|--------------------------------------------|------------|
| **Energy Sales** | ** ** | **2006**                                   | ** ** | **2007** | ** ** | **%  Change** | ** ** |
| ** **            | ** ** | **(GWh)**                                  | ** ** | **(GWh)** | ** ** | **(GWh)** | ** ** |
| Chile                 |       | 20,923                                     |       | 19,212 |   | (8.2 | ) |
| Argentina             |       | 13,926                                     |       | 12,406 |   | (10.9 | ) |
| Colombia              |       | 15,327                                     |       | 15,613 |   | 1.9 |   |
| Peru                  |       | 6,767                                      |       | 7,994 |   | 18.1 |   |
| **Total**             |       | 56,943                                     |       | 55,225 |   | (3.0 | ) |

 

Totalgeneration revenues in Chile in 2007 increased by 39.4% from Ch$ 740.4 billionin 2006 to Ch$ 1,032.2 billion in 2007, as a result of higher regulated pricesand spot prices, on average. Endesa Chile and its Chilean subsidiaries sold2,430 GWh on the spot market, where the average energy market price was $ 187.9per MWh. The decline in physical sales was 8.2%, mainly explained by a 51.3%decrease in energy sales to the spot market to 2,430 GWh, partially compensatedby a 6.9% increase of energy sales to regulated customers to 11,502 GWh, at anode price which is the result of a price-setting system that reflects the newenergy matrix in Chile. The prices for non-regulated customers, during 2007compared with 2006, showed an increase in value, which positively affected thecompany’s revenues, reflecting the higher costs of generation of the system.The total average sales price of Endesa Chile in Chile increased by 58.3%, fromCh$ 33.3 per kWh in 2006 to Ch$ 52.8 per kWh in 2007.

 

Totalrevenues in Argentina increased by 4.8% in 2007, from Ch$ 275.3 billion in 2006to Ch$ 288.5 billion in 2007. This improvement was the result of higher averageprices during 2007, which offset the 10.9% decrease in physical sales. Physicalenergy sales from El Chocón amounted to 3,956 GWh, a 23.8% decrease from2006.  The effect of the BT 64 conversiondecreased revenues by Ch$ 10.2 billion. Energy volume sold by Endesa Costaneradecreased by 3.3% to 8,450 GWh compared to 8,736 GWh in 2006, due to lowergeneration.  There was also an increasein energy prices following the higher reference price of natural gas determinedby the local regulator. In Argentina, the sales mix at spot and non-regulatedprices was 80.9% and 19.1%, respectively. For additional information of MainDistribution and Trading Customers in Argentina see “Item 4. Information on theCompany — B. Business Overview.”

 

Theaverage sale price for our Argentine subsidiaries, expressed in pesos,increased by 17.6%, from Ch$ 19.8 per kWh in 2006 to Ch$ 23.3 per kWh in 2007.However, when expressed in Argentine local currency, the average energy saleprice increased by 37.5% in 2007.  Theincrease in the average sale price is mainly due to an increase in thewholesale market spot price.

 

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Totalrevenues in Colombia (Emgesa) increased by 8.2%, from Ch$ 320.3 billion in 2006to Ch$ 346.4 billion in 2007, primarily due to the new reliability charge,which started to apply in 2007 and positively affected revenues byapproximately $ 44 million.  The salesmix in 2007 at regulated, spot and non-regulated prices was 51.5%, 32.5% and16.0%, respectively. For additional information of Main Distribution andTrading Customers in Colombia see “Item 4. Information on the Company — B.Business Overview.” Our Colombian subsidiaries’ average price, expressed inpesos, rose by 6.2%, from Ch$ 20.8 per kWh in 2006 to Ch$ 22.1 per kWh in2007.  When expressed in Colombian localcurrency, the nominal average sales price increase was 13.8% in 2007.

 

Revenuesof our electricity generator in Peru (Edegel) decreased by 7.3%, from Ch$ 196.7billion in 2006 to Ch$ 182.3 billion in 2007, primarily due to a 21.6% loweraverage sales price, which offset the 18.1% increase of physical energy sales.The drop in average prices is a consequence of the good hydrology and thereduction of the regulated price due to the indexation to the local exchangerate and to the lower price of natural gas. The sales mix at non-regulated,regulated and spot prices was 53%, 41.7% and 5.3%, respectively.  For additional information of MainDistribution and Trading Customers in Peru see “Item 4. Information on theCompany — B. Business Overview.” The company’s average sales price, expressedin pesos, declined from Ch$ 28.9 per kWh in 2006 to Ch$ 22.7 per kWh in 2007,as a result of the 15.1% appreciation of the Chilean peso against the dollar inreal terms, partially compensated by the 4.6% appreciation of the sol againstthe dollar.  When expressed in Peruvian localcurrency, the nominal average sales price decreased by 13.1% in 2007.

 

***Operating Expenses***

*** ***

Thetable below sets forth the breakdown by country of operating expenses for 2006and 2007 and the percentage change from year to year:

 
| ** **                             | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|----------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                             | ** ** | **2006**                                                                                                                         | ** ** | **2007** | ** ** | **% Change** | ** ** |
| ** **                             | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| **Operating  Expenses**(1)             |       |                                                                                                                             |       |   |   |   |   |
| Generation  (Chile) (2)                |       | 381,352                                                                                                                          |       | 648,765 |   | 70.1 |   |
| Other businesses  (Chile)              |       | 26,665                                                                                                                           |       | 25,723 |   | (3.5 | ) |
| Argentina                              |       | 230,339                                                                                                                          |       | 256,481 |   | 11.3 |   |
| Colombia                               |       | 172,992                                                                                                                          |       | 166,391 |   | (3.8 | ) |
| Peru                                   |       | 117,898                                                                                                                          |       | 122,325 |   | 3.8 |   |
| Consolidated  Adjustments Foreign Subs |       | (1,460                                                                                                                           | )          | (1,036 | ) | — |   |
| **Total**                              |       | 927,786                                                                                                                          |       | 1,218,649 |   | 31.4 |   |

 

----

(1)          Excludes SG&A expenses.

(2)          Includes allsubsidiaries and investment vehicles in Chile.

 

Operatingcosts in Chile increased by 70.1% in 2007 compared to 2006, given lowerhydroelectric generation and higher thermal generation using diesel instead ofnatural gas, as natural gas restrictions from Argentina continued during2007.  This situation led fuel costs in Chileto increase by Ch$ 223.3 billion during the year. The average variable cost ofgeneration, excluding the cost of energy purchases, rose by 139.4%, from Ch$ 10.2per kWh in 2006 to Ch$ 24.5 per kWh in 2007, as a result of the 97.9% increasein thermal electric generation.  The costof electricity purchases, including energy and capacity, increased from Ch$ 62.9billion in 2006 to Ch$ 65.1 billion in 2007, despite a 20.9% decrease inphysical energy purchases. The average price of purchases increased from Ch$ 47.8per kWh in 2006 to Ch$ 62.5 per kWh in 2007.

 

Operatingexpenses in Argentina increased by Ch$ 26.1 billion, from Ch$ 230.3 billion in2006 to Ch$ 256.5 billion in 2007. Hydro and thermoelectric generationdecreased by 26.7% and 3.3%, respectively. The cost of fuel increased by Ch$ 26.1 billion in 2007, due to higherprices of fuel in the generation of electricity when compared to the price offuels in 2006. The average variable generating cost increased from Ch$ 12.4 perkWh in 2006 to Ch$ 16.0 per kWh in 2007. Electricity purchases, includingenergy and capacity, rose by Ch$ 771 million in 2007, due to an increase inphysical energy purchases in the spot market, which led the average purchaseprice decrease from Ch$ 25.3 per kWh in 2006 to Ch$ 19.7 per kWh in 2007. Thecombined effect of the appreciation of the peso against the dollar and thedepreciation of the Argentine peso against the dollar decreased total operatingexpenses in 2007 when compared to 2006 by Ch$ 33 billion.

 

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Colombia’soperating expenses decreased by 3.8%, from Ch$ 173.0 billion in 2006 to Ch$ 166.4billion in 2007.  The average variablegeneration cost, excluding the cost of energy purchases, increased from Ch$ 4.5per kWh in 2006 to Ch$ 10.0 per kWh in 2007. Tolls and energy transportationcosts increased by Ch$ 9.5 billion.  The54.2% increase in thermal generation caused fuel costs to increase by Ch$ 2.9 billion.Electricity purchases, including energy and capacity, decreased by Ch$ 15.0 billionin 2007, due to lower energy costs in certain periods of the year and to energytrading operations.  Average purchaseprice dropped from Ch$ 21.2 per kWh in 2006 to Ch$ 12.1 per kWh in 2007. Thecombination of the appreciation of the peso and the appreciation of theColombian peso against the dollar in 2007, led to a net increase of Ch$ 7.0 billion.

 

Operatingexpenses in Peru increased by 3.8% from Ch$ 117.9 billion in 2006 to Ch$ 122.3 billionin 2007. This was primarily due to an increase of Ch$ 8.2 billion of energypurchases as a consequence of higher physical energy purchases in the spotmarket due to a capacity constraint in the transmission line in the northernregion of the country.  This was offsetby lower fuel costs of Ch$ 7.0 billion due to lower cost of natural gas,despite the fact that thermal generation increased by 32.7% in 2007. Theaverage variable generating cost, excluding the cost of electricity purchases,was Ch$ 8.9 per kWh in 2006 compared to Ch$ 6.8 per kWh in 2007. Thecombination of the appreciation of the peso and the appreciation of the solagainst the dollar in 2007 led to a net decrease in operating expenses of Ch$ 11.5billion.

 

***Administrative andSelling Expenses***

*** ***

Administrativeand selling expenses relate to compensation, administrative expenses,depreciation and amortization, and office materials and supplies. Theseexpenses decreased by Ch$ 5.7 billion in 2007.

 

The table below sets forth the breakdown of sellingand administrative expenses for 2006 and 2007 and the percentage change fromyear to year:

 
| ** **                                    | ** ** | **Year ended December 31,**                                                                                      | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                                                                                                        | ** ** | **2007(1)** | ** ** | **% Change** | ** ** |
| ** **                                    | ** ** | **(in millions of constant Ch$ as of  December 31, 2008 except percentages)** | ** ** |
| **Administrative  and Selling Expenses (1)**  |       |                                                                                                                            |       |   |   |   |   |
| Chile                                         |       | 23,142                                                                                                                          |       | 20,989 |   | (8.0 | ) |
| Argentina                                     |       | 3,829                                                                                                                           |       | 4,212 |   | 6.1 |   |
| Colombia                                      |       | 5,363                                                                                                                           |       | 5,468 |   | 1.9 |   |
| Peru                                          |       | 13,851                                                                                                                          |       | 9,845 |   | (30.0 | ) |
| Consolidated  Adjustment Foreign Subs         |       | (121                                                                                                                            | )          | (133 | ) | — |   |
| **Total  Selling and Administrative Expense** |       | 46,065                                                                                                                          |       | 40,381 |   | (12.3 | ) |

 

----

(1)          The differencesin Chile, Argentina and Peru compared to last year’s Form 20-F are explained byaccounting reclassifications associated with the investment vehicles in eachcountry.

 

Thedecrease in Selling and Administrative expenses of 12.3% mainly comes from Peruand Chile. In Peru, the 30% decrease is due to lower compensation to employeesand taxes that as of December 2006 were included in Selling and AdministrativeExpenses, but in December 2007 were accounted to Generation Costs and theincrease in financial advisory fees accounted in 2006 for the Etevensa mergerwith Edegel. In Chile, the 8.0% lower Selling and Administrative Expenses isexplained by a decrease in general expenses and lower compensation toemployees.

 

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***Operating Marginand Operating Income***

*** ***

Ouroperating margin, which is operating income as a percentage of revenues,decreased from 37.7% in 2006 to 33.1% in 2007. This decrease is due to lower operating margins reported in Chile,Argentina and Peru, partially offset by the higher operating margin inColombia. The following is our operating margin by country:

 
| ** **                  | ** ** | **Year ended December 31,** | ** ** |
|-----------------------------|------------|--------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                   | ** ** | **2007** | ** ** |
| **Operating  Margin**       |       |                                       |       |   |   |
| Chile                       |       | 44.1                                       | %          | 34.6 | % |
| Argentina                   |       | 15.5                                       | %          | 9.7 | % |
| Colombia                    |       | 44.3                                       | %          | 50.4 | % |
| Peru                        |       | 33.0                                       | %          | 27.6 | % |
| **Total  Operating Margin** |       | 37.7                                       | %          | 33.1 | % |

 

EndesaChile’s consolidated operating income reached Ch$ 621.6 billion in 2007compared to Ch$ 590.0 billion in 2006. The following table breaks down operating income by country for theyears ended December 31, 2006 and 2007:

 
| ** **                            | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|---------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                                                                                                         | ** ** | **2007(1)** | ** ** | **%  Change** | ** ** |
| ** **                            | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| **Operating  Income**                 |       |                                                                                                                             |       |   |   |   |   |
| Generation Chile                      |       | 337,414                                                                                                                          |       | 363,843 |   | 7.8 |   |
| Other businesses                      |       | 3,175                                                                                                                            |       | 4,153 |   | 30.8 |   |
| Argentina                             |       | 41,172                                                                                                                           |       | 27,828 |   | (32.0 | ) |
| Colombia                              |       | 141,905                                                                                                                          |       | 174,536 |   | 23.0 |   |
| Peru                                  |       | 64,953                                                                                                                           |       | 50,105 |   | (22.6 | ) |
| Consolidated  Adjustment Foreign Subs |       | 1,581                                                                                                                            |       | 1,169 |   | — |   |
| **Total  Operating Income**           |       | 590,027                                                                                                                          |       | 621,634 |   | 5.4 |   |

 

----

(1)          The differencesin Chile, Argentina and Peru compared to last year’s Form 20-F are explained byaccounting reclassifications associated with the investment vehicles in eachcountry.

 

In the Chilean generation business, operating incomewas Ch$ 363.8 billion in 2007, a 7.8% increase over 2006, mainly the result ofhigher energy sale prices. Physical energy sales by 8.2% over the same period,explained by 23.1% reduced hydroelectric generation and a 98% increase inthermal production, as the hydrology in 2007 was dryer than normal. The naturalgas restrictions from Argentina forced our thermal facilities to burn diesel,boosting fuel costs up by Ch$ 223.6 billion which in turn made total operatingcosts increase by 65.3% in 2007.  Thissituation explains the decrease of the operating margin to 34.6% in 2007compared to 44.1% in 2006.

 

The low hydrology near El Chocón’s facilities, thelack of natural gas and high fuel prices for Endesa Costanera led 2007’soperating income in Argentina to decrease to Ch$ 27.8 billion, compared to Ch$ 41.2billion in the previous year, a fall of 32%. These effects also explain thedrop in Argentina’s operating margin from 15.5% in 2006 to 9.7% in 2007. On theother hand, sales increased by 4.8% as a result of higher average sale prices.The operating income of Endesa Costanera declined from Ch$ 6.3 billion to Ch$ 0.4billion, reflecting an increase in the consumption and cost of fuels and highermaintenance costs, which exceeded the 12.1% increase in its energy sales.Operating income of El Chocón dropped from Ch$ 35.5 billion in 2006 to Ch$ 27.6billion in 2007, with a 15.9% drop in sales volume due to reduced hydrology.

 

Operating income in Colombia was Ch$ 174.6 billion in2007, Ch$ 32.7 billion more than that for 2006. This improvement is mainlyexplained by higher revenues due to the new reliability charge and lower costsof energy purchases; both elements explain the increase in Emgesa’s operatingmargin from 44.3% in 2006 to 50.4% in 2007.

 

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The Peruvian subsidiaryof Endesa Chile, Edegel, accounted for operating income of Ch$ 50.3 billion in2007, a decrease of 22.6% from 2006, basically due to a 21.6% fall in averageenergy sale prices as a result of better hydrology and a reduction in the regulatedprice due to the indexation of the exchange rate and the lower cost of fuels inPeru. The latter, plus the higher variable cost of energy purchases, madeEdegel’s operating margin drop from 33.0% in 2006 to 27.6% in 2007.

 

***Non-operating Results***

 

The following table sets forth certain informationregarding our non-operating results for each of the periods indicated:

 
| ** **                                    | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|-----------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **2006**                                                                                                                         | ** ** | **2007** | ** ** | **% Change** | ** ** |
| ** **                                    | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| **Non-operating  income:**                    |       |                                                                                                                             |       |   |   |   |   |
| Interest income                               |       | 17,330                                                                                                                           |       | 25,346 |   | 46.3 |   |
| Equity income of  non-consolidated affiliates |       | 49,673                                                                                                                           |       | 51,125 |   | 2.9 |   |
| Other  non-operating income                   |       | 35,049                                                                                                                           |       | 19,511 |   | (44.3 | ) |
| **Non-operating  expenses:**                  |       |                                                                                                                             |       |   |   |   |   |
| Interest expense                              |       | 201,074                                                                                                                          |       | 193,329 |   | (3.9 | ) |
| Equity losses of  non-consolidated affiliates |       | 146                                                                                                                              |       | 62,509 |   | 42,585.1 |   |
| Goodwill  amortization                        |       | 1,103                                                                                                                            |       | 991 |   | (10.1 | ) |
| Other  non-operating expenses                 |       | 50,956                                                                                                                           |       | 92,838 |   | 82.2 |   |
| **Monetary  correction:**                     |       |                                                                                                                             |       |   |   |   |   |
| Price level  restatement                      |       | 1,740                                                                                                                            |       | 9,642 |   | 454.2 |   |
| Foreign Exchange  translation                 |       | 4,220                                                                                                                            |       | 18,090 |   | 328.7 |   |
| **Non-operating  results**                    |       | (145,267                                                                                                                         | )          | (225,951 | ) | 55.5 |   |

 

Non-operating results for 2007 amounted to a loss ofCh$ 226.0 billion, compared to a loss of Ch$ 145.3 billion in 2006, adverselyaffecting the Company’s net income for the year. The most important factorsleading to this higher loss include:

 

The net result of investments in related companiesdeclined by Ch$ 60.9 billion in 2007 compared to 2006, a charge largelyexplained by the Ch$ 53.2 billion provision due to the investment impairment asa consequence of the lack of gas supply from Argentina and the Ch$ 11.1 billionoperating loss of Inversiones GasAtacama Holding Limitada.  This was partially offset by an improvedresult of Ch$ 4.4 billion by the affiliate, Endesa Brasil S.A.

 

Other non-operating income and expenses resulted in alower net result of Ch$ 59.3 billion in 2007, basically due to: Ch$ 26.0 billionof reduced income from the conversion adjustment, under BT 64, with respect toour foreign subsidiaries, principally Colombia and Peru; Ch$ 11.8 billion ofincreased tax payment over the equity of the Colombian subsidiaries, partiallyoffset by Ch$ 8.1 billion in reduced indemnities and commissions received; andCh$ 12.9 billion of lower reversals of provisions for contingencies andlitigation in previous years and a higher provision for contingencies in Chile.The negative result of the conversion adjustment in accordance with BT 64 forour Colombian subsidiaries is mainly due to the 10% appreciation of theColombian peso against the dollar, which adversely affected Colombianliabilities in local currency translated into dollars, and then to Chileanpesos for consolidation purposes under Chilean GAAP. This accounting adjustmenthas no effect on the Company’s cash flow.

 

Price-level restatements and exchange differencesshowed a net positive change of Ch$ 24.1 billion in 2007 compared to 2006, froma gain of Ch$ 6.0 billion in 2006 to Ch$ 29.9 billion in 2007. This is mainlyexplained by exchange rate fluctuations. During 2007, the Chilean pesoappreciated 7.1% against the dollar, compared to a depreciation of 3.9% in2006.

 

Consolidated interest expense declined by Ch$ 7.7 billionin 2007, from Ch$ 201.0 billion in 2006 to Ch$ 193.3 billion in 2007, a decreaseof 3.9%, deriving from higher capitalized interest expenses, a lower averageinterest rate and a reduced exchange rate. On the other hand, higher averagecash balances, mainly in Colombia, and 

 

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higher interest rates in Chile and Argentina,increased interest income by Ch$ 8.1 billion in 2007, from Ch$ 17.3 billion in2006 to Ch$ 25.4 billion in 2007.

 

***Net Income***

*** ***

Thefollowing table sets forth our net income for the periods indicated:

 
| ** **                                                                     | ** ** | **Year ended December 31,**                                                                                       | ** ** |
|--------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                     | ** ** | **2006**                                                                                                                         | ** ** | **2007** | ** ** | **%  Change** | ** ** |
| ** **                                                                     | ** ** | **(in millions of constant Ch$ as of  December 31, 2008, except percentages)** | ** ** |
| Operating income                                                               |       | 590,026                                                                                                                          |       | 621,634 |   | 5.4 |   |
| Non-operating  expense                                                         |       | (145,267                                                                                                                         | )          | (225,951 | ) | 55.5 |   |
| **Income  before taxes, minority interest and negative goodwill amortization** |       | 444,760                                                                                                                          |       | 395,683 |   | (11.0 | ) |
| Current income  taxes                                                          |       | (116,274                                                                                                                         | )          | (87,126 | ) | (25.1 | ) |
| Deferred income  taxes                                                         |       | (36,774                                                                                                                          | )          | (36,381 | ) | (1.1 | ) |
| **Total  income taxes**                                                        |       | (153,048                                                                                                                         | )          | (123,507 | ) | (19.3 | ) |
| Minority  interest                                                             |       | (77,088                                                                                                                          | )          | (67,381 | ) | (12.6 | ) |
| Amortization of  negative goodwill                                             |       | 7,061                                                                                                                            |       | 4,772 |   | (32.4 | ) |
| **Net  income**                                                                |       | 221,684                                                                                                                          |       | 209,566 |   | (5.5 | ) |

 

*Income Taxes*.   Income taxes decreased by Ch$ 29.5 billion in2007 compared to 2006. Consolidated accumulated income tax amounted to Ch$ 123.5billion in 2007, comprising a charge for income tax of Ch$ 87.1 billion and Ch$36.4 billion of deferred taxes. Accumulated income tax was Ch$ 29.2 billionlower than in 2006, related to a reduced taxable income, mainly in Endesa Chileand Emgesa in Colombia. The Company’s effective tax rate (the ratio oftotal income taxes to income before taxes) declined from 34% in 2006 to 27.5%in 2007, due to the decrease of our income that is taxed at the Chilean rate,which is lower than the tax rate in other countries.

 

*Minority Interest. *Minorityinterest expenses decreased by Ch$ 9.7 billion in 2007, primarily due to lowernet income in our subsidiaries in Peru, Argentina and Colombia.

 

**B.            Liquidityand capital resources.**

** **

Thefollowing discussion of cash sources and uses reflects the key drivers of cashflow for Endesa Chile, as they are regularly described to the holders of EndesaChile’s debt and included in the calculation of financial covenant ratios.  This discussion is relevant to holders ofEndesa Chile debt because it presentsthe financial effects, which vary regarding the accounting effects as aconsequence of time lag between certain cash flows and actual accounting effects.  For information on cash flows from theaccounting rather than financial perspective, please see “ConsolidatedStatements of Cash Flows for the years ended December 31, 2006, 2007 and 2008”in Item 18.

 

EndesaChile receives cash inflows from its own operational assets and from itssubsidiaries, as well as from related companies in Chile and abroad.

 

Cashflows generated by Endesa Chile and subsidiaries in which Endesa Chile has 100%economic participation (that is, San Isidro and Conosur for 2007 and only SanIsidro for 2008 as Conosur was dissolved in 2008) are included in the analysisas inflows and outflows from operating activities. Inflows and outflows of allother subsidiaries (Pehuenche, Pangue, Celta, Endesa Eco, Canela, Ingendesa,Enigesa, Túnel El Melón, Endesa Costanera, El Chocón, Emgesa and Edegel) andrelated companies (Electrogas, Gas Atacama, Hidroaysén, GNL Quintero, GNL Chileand Endesa Brasil) are included in the analysis primarily as dividends andcapital reductions, and also as interest income and intercompany debtamortization.

 

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| ** **                                                 | ** ** | **2007**                                  | ** ** | **2008** | ** ** |
|------------------------------------------------------------|------------|-------------------------------------------|------------|----------|------------|
| ** **                                                 | ** ** | **(figures in $ million)** | ** ** |
| **INITIAL  CASH (A)**                                      |       | 103.1                                     |       | 107.3    |       |
|                                                       |       |                                      |       |     |       |
| **SOURCES  (B) + (C)**                                     |       | 1,928.0                                   |       | 3,715.0  |       |
|                                                       |       |                                      |       |     |       |
| **Cash  Inflows from Chile (B)**                           |       | 1,765.4                                   |       | 3,584.4  |       |
| Cash inflows  from operations                              |       | 1,384.5                                   |       | 2,269.0  |       |
| Interest income  from Chilean Subs.                        |       | 6.3                                       |       | 5.2      |       |
| Dividend from  Chilean Subs.                               |       | 220.7                                     |       | 377.6    |       |
| Amortization of  intercompany loans from Chilean Subs      |       | 25.9                                      |       | 113.8    |       |
| Other income  from non-operating activities                |       | 23.7                                      |       | 49.7     |       |
| Net new  financing                                         |       | 104.4                                     |       | 769.1    |       |
|                                                       |       |                                      |       |     |       |
| **Cash  Inflows from Foreign subsidiaries (C)**            |       | 162.6                                     |       | 130.6    |       |
| Interest income  from foreign Subs.                        |       | 0.6                                       |       | 0.5      |       |
| Dividends from  foreign Subs and foreign related Companies |       | 143.9                                     |       | 130.1    |       |
| Capital  reductions                                        |       | 4.8                                       |       | 0.0      |       |
| Amortization of  intercompany loans from foreign Subs.     |       | 10.4                                      |       | 0.0      |       |
| Management fee  and others                                 |       | 2.9                                       |       | 0.0      |       |
|                                                       |       |                                      |       |     |       |
| **USES (D)  + (E)**                                        |       | 1,923.8                                   |       | 3,013.6  |       |
|                                                       |       |                                      |       |     |       |
| **Cash  Outflows from Operations (D)**                     |       | 1,533.8                                   |       | 2,012.4  |       |
| Cash outflows  from operations (1)                         |       | 1,404.9                                   |       | 1,942.8  |       |
| Taxes                                                      |       | 128.9                                     |       | 69.6     |       |
| **Cash  Outflows from non-operating Activities (E)**       |       | 390.0                                     |       | 1,001.2  |       |
| Intercompany  loans                                        |       | 4.1                                       |       | 43.4     |       |
| Interest expenses  and derivative contracts                |       | 182.7                                     |       | 177.8    |       |
| Dividend payment                                           |       | 202.8                                     |       | 278.3    |       |
| Net debt  amortization                                     |       | 0.0                                       |       | 421.1    |       |
| Others                                                     |       | 0.4                                       |       | 80.6     |       |
|                                                       |       |                                      |       |     |       |
| **FINAL  CASH (A)+(B)+(C)-(D)-(E)**                        |       | 107.3                                     |       | 808.7    |       |

 

----

(1) Includes cash flows frominvestment and operations.

 

For the twelve-monthperiod ended December 31, 2008, Endesa Chile’s principal sources of funds were:

 

·            $ 2,269.0 million cash inflows from theoperating revenues, before taxes and interest expense, of Endesa Chile and itswholly-owned subsidiaries;

 

·            $ 496.6 million from interest income,dividends and amortization of intercompany loans from its other Chileansubsidiaries;

 

·            $ 769.1 million from net financingoperations which include $ 234 million drawn from Endesa Chile’s revolvingcredit facilities, $ 200 million from a new term loan facility and $ 335 millionfrom the issuance of a new local bond issued in UF; and

 

·            $ 130.6million from foreign subsidiaries and foreign-related companies, mainly EndesaBrasil ($ 58 million), Emgesa ($ 60 million) and Edegel ($ 10 million).

 

Theaggregate inflows of cash from these sources amounted to $ 3,715.0 million.

 

Forthe same twelve-month period ended December 31, 2008, Endesa Chile’s principalcash outflows totaled an amount of $ 3,013.6million, through the following:

 

·            $ 1,942.8 million in investments,including capital expenditure and operating expenses of Endesa Chile and itswholly-owned subsidiaries;

 

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·            $ 177.8 million in interestexpense (net of derivative contracts). In 2008, derivative instruments resultedin additional interest expenses of $ 0.3 million; and

 

·            $ 278.3 million in dividendpayments by Endesa Chile and dividends paid by Endesa Chile’s wholly-ownedsubsidiaries to third parties.

 

As of December 2008,Endesa Chile including its wholly-owned subsidiaries, had final cash of $ 808.7 million.

 

For the twelve-monthperiod ended December 31, 2007, Endesa Chile’s principal sources offunds were:

 

·            $ 1,384.5 million cash inflowsfrom the operating revenues, before taxes and interest expense, of Endesa Chileand its wholly-owned subsidiaries;

 

·            $ 252.9 million from interestincome, dividends and amortization of intercompany loans from its other Chileansubsidiaries;

 

·            $ 23.7 million fromnon-operating activities, mainly from the sale of shares of Emgesa S.A toEmpresa Eléctrica de Bogotá (as agreed to in the Emgesa S.A. — Betania S.A.merger agreement) for $ 16.7 million;

 

·            $ 104.4 million from netfinancing operations, which mainly included four borrowings of Endesa Chile’sRevolving Credit Facilities for an aggregate amount of $ 116 million;and

 

·            $ 162.6 million from foreignsubsidiaries and foreign-related companies, mainly Endesa Brasil($ 74 million), Emgesa ($ 50 million) and Edegel($ 19 million).

 

Theaggregate inflows of cash from these sources amounted to$ 1,928 million.

 

Forthe same twelve-month period ended December 31, 2007, Endesa Chile’sprincipal cash outflows totaled an amount of $ 1,923.8 million,through the following:

 

·            $ 1,404.9 million ininvestments, including capital expenditure and operating expenses of EndesaChile and its wholly-owned subsidiaries;

 

·            $ 182.7 million in interestexpense (net of derivative contracts). In 2007, derivative instruments resultedin additional interest expenses of $ 0.3 million; and

 

·            $ 202.8 million in dividendpayments by Endesa Chile and dividends paid by Endesa Chile’s wholly-ownedsubsidiaries to third parties;

 

As of December 2007,Endesa Chile, including its wholly-owned subsidiaries, had final cash of$ 107.3 million.

 

For adescription of liquidity risks resulting from the inability of Endesa Chile’ssubsidiaries to transfer funds, please see “Item 3. Key Information — D. RiskFactors — Risks Relating to Our Operations in Every Country in Which We Operate—We depend in part on payments from our subsidiaries and affiliates to meet ourpayment obligations.”

 

EndesaChile coordinates the overall financing strategy of its subsidiaries. Itsoperating subsidiaries independently develop capital expenditure plans, and thestrategy in the case of operating foreign subsidiaries is to independentlyfinance capital expansion programs through internally generated funds or directfinancings. In the case of Chilean subsidiaries, they are financed from EndesaChile through intercompany loans. All generation acquisition financing iscoordinated from Endesa Chile. For information regarding Endesa Chile’scommitments for capital expenditures, see “Item 4. Information on the Company —A. History and Development of the Company — Investments, Capital Expendituresand Divestitures.”

 

On July 3, 2007,Standard & Poor’s upgraded its credit rating for Endesa Chile fromBBB- to BBB, with stable outlook. Also in the same month, the rating agenciesFeller Rate and Fitch improved the domestic ratings of Endesa Chile from A+ toAA- with stable outlook.

 

EndesaChile has accessed the international equity capital markets, registering oneADR program with the SEC

 

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on August 3, 1994. It has also frequentlyissued bonds in the United States, so-called Yankee Bonds. Endesa Chile issuedYankee Bonds between 1996 and 2003, of which $ 1.5 billion wereoutstanding as of December 31, 2008.

 

Thefollowing table lists the Yankee Bonds issued by Endesa Chile and consolidatedsubsidiaries outstanding as of December 31, 2008. The weightedaverage annual interest rate for Yankee Bonds issued by Endesa Chile and itsconsolidated subsidiaries is 8.20%.

 
| **Issuer**   | ** ** | **Maturity**               | ** ** | **Coupon**            | ** ** | **Aggregate Principal  Amount Issued** | ** ** | **Aggregate Principal  Amount Outstanding** | ** ** |
|--------------|------------|----------------------------|------------|-----------------------|------------|----------------------------------------|------------|---------------------------------------------|------------|
| ** **   | ** ** | ** **                 | ** ** | **(as a percentage)** | ** ** | **(in $ millions)**               | ** ** | **(in $ millions)**                    | ** ** |
| Endesa Chile |       | April 1, 2009    |       | 8.500                 |       | 400.0                                  |       | 400.0                                       | (3)        |
| Endesa Chile |       | August 1, 2013   |       | 8.350                 |       | 400.0                                  |       | 400.0                                       |       |
| Endesa Chile |       | August 1, 2015   |       | 8.625                 |       | 200.0                                  |       | 200.0                                       |       |
| Endesa Chile |       | February 1, 2027 |       | 7.875                 |       | 230.0                                  |       | 205.9                                       | (1)        |
| Endesa Chile |       | February 1, 2037 |       | 7.325                 |       | 220.0                                  |       | 220.0                                       | (2)        |
| Endesa Chile |       | February 1, 2097 |       | 8.125                 |       | 200.0                                  |       | 40.4                                        | (1)        |

 

----

| (1) | Considers cancellation of  Yankee Bonds repurchased by Endesa Chile in 2001.                                                                                                                                       |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2) | Holders of these Yankee  Bonds exercised a put option against Endesa Chile for a total amount of  $ 149.2 million on February 1, 2009. The remaining bonds  will mature in February 2037. |
| (3) | These Yankee Bonds matured  and were paid on April 2009.                                                                                                                                                      |

 

The Endesa Chile YankeeBonds contain covenants that place restrictions on the extent to which EndesaChile and certain of its subsidiaries may (i) create or incur liens onproperties and assets and (ii) enter into sale and leaseback transactions.

 

Between2001 and 2008 Endesa Chile issued local bonds in the Chilean market, so-calledLocal Bonds, of which UF 19.5 million ($ 655 million) wereoutstanding as of December 31, 2008.

 

Thefollowing table lists the Local Bonds issued by Endesa Chile outstanding as of December 31, 2008.  The weighted average annual interest rate forLocal Bonds issued by Endesa Chile and its consolidated subsidiaries iscalculated at an inflation-adjusted rate of 4.96%.

 
| **Issuer**   | ** ** | **Maturity**                | ** ** | **Coupon (inflation-  adjusted rate)** | ** ** | **Aggregate Principal  Amount Issued** | ** ** | **Aggregate Principal  Amount Outstanding** | ** ** |
|--------------|------------|-----------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|---------------------------------------------|------------|
| ** **   | ** ** | ** **                  | ** ** | **(as a percentage)**                  | ** ** | **(in UF millions)**                   | ** ** | **(in UF millions)**                        | ** ** |
| Endesa Chile |       | August 1, 2022    |       | 6.20                                   |       | 1.5                                    |       | 1.5                                         |       |
| Endesa Chile |       | October 15, 2028  |       | 6.20                                   |       | 4.0                                    |       | 4.0                                         |       |
| Endesa Chile |       | April 15, 2027    |       | 3.80                                   |       | 4.0                                    |       | 4.0                                         |       |
| Endesa Chile |       | December 15, 2029 |       | 4.75                                   |       | 10.0                                   |       | 10.0                                        |       |

 

Endesa Chile and its subsidiaries in the fivecountries in which it operates also have access to the local capital markets,where they have issued debt instruments including commercial paper and mediumand long-term bonds that are primarily sold to pension funds, life insurancecompanies and other institutional investors. For detailed information aboutlocal bonds issued by Endesa Chile, see Note 19 to the Audited ConsolidatedFinancial Statements.

 

Endesa Chile is also a frequent borrower in thecommercial bank markets, both in the form of bilateral loans as well as in syndicatedloans.

 

BetweenFebruary 2004 and December 2008, Endesa Chile, entered into foursenior unsecured syndicated revolving credit facilities with various banks, foran aggregate amount of $ 850 million, with maturity dates between2009 and 2014.  All of these facilitiesare subject to a mandatory prepayment clause, inter alia, at the option of eachlender in the event that there is a “Change of Control,” as definedcontractually.  In no case could a Changeof Control be triggered if Endesa Spain remains in the chain of controlover Endesa Chile.  In the eventthat Endesa Spain is no longer in the chain of control, the mandatoryprepayment clause could be invoked by a lender subject to additional requirements.  Under the 2004 facility, the new controllingentity would not have to have a credit rating, either by S&P or Moody’s,inferior to that of Endesa Spain subsequent to the launching of a transactionthat would end in an effective Change of Control.  Under the 2006 and 2008 facilities, however,the new controlling entity could have a rating inferior to that ofEndesa Spain before the initial announcement of the transaction, and no

 

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Change of Control Mandatory Prepayment could betriggered unless all of S&P, Moody’s and Fitch were to rate the newcontrolling company by more than one notch, including with respect to outlook,below Endesa Spain’s ratings at such time.

 

The December 2006and 2008 credit facilities do not contain a condition precedent requirementthat there should not have occurred any “material adverse effect” (as definedcontractually) prior to a disbursement, allowing the Company the flexibility todraw on such revolving facilities under any circumstances.  The undrawn amount of Endesa Chile’sfour revolving credit facilities is $ 400 million as of December 31, 2008.

 

On June 2008,Endesa Chile signed a six-year term loan for $ 200 million and a$ 200 million revolving credit facility. Proceeds from the term loanfacility were used to refinance the $ 400 million Yankee bond at itsmaturity in July 2008.

 

All ofEndesa Chile’s credit facilities are subject to various financialcovenants. Endesa Chile’s Yankee Bonds, on the other hand, are not subjectto financial covenants.

 

As iscustomary for certain credit and capital market debt facilities, a significantportion of Endesa Chile’s financial indebtedness is subject to crossdefault provisions.  The four creditfacilities described above, as well as all of Endesa Chile’s Yankee Bondshave cross default provisions with different definitions, criteria, levels ofmateriality thresholds, and applicability as to the subsidiaries that couldgive rise to a cross default.  YankeeBonds are the most restrictive in that any matured default of eitherEndesa Chile or any subsidiary could potentially give rise to across default to Endesa Chile’s Yankee Bonds if the matured default,on an individual basis, has a principal exceeding $ 30 million, orits equivalent in other currencies.  Inthe case of a matured default above the materiality threshold, bondholderswould have the option to accelerate if either the Trustee or bondholdersrepresenting no less than 25% of the aggregate debt of a particular series thenoutstanding choose to do so. Under all of Endesa Chile’s creditfacilities, only matured defaults exceeding $ 50 million qualify fora potential cross default when the principal also exceeds$ 50 million, or its equivalent in other currencies.  The cross default provision for bank loanindebtedness for Endesa Chile in its Chilean-risk debt refers only toso-called “Relevant Subsidiaries,” a contractually defined term that refers tothe most important subsidiaries.  There is a complex mathematicaldetermination to determine the list of Relevant Subsidiaries, which varysomewhat from year to year.  As of December 31, 2008, the EndesaChile Relevant Subsidiaries were Endesa Argentina S.A., Generandes Peru S.A.and Emgesa.

 

Certain other customaryevents of default include bankruptcy and insolvency proceedings, materialadverse judgments, and certain governmental actions such as nationalization,seizure, or expropriation of assets. The general cross-acceleration provisionsgive rise to an event of default only when other material indebtedness has beenaccelerated at the direction of the required lenders there under or otherwisepursuant to its terms, after expiration of grace periods where applicable, andafter formal notices have been granted.

 

At thetime of this Report, Endesa Costanera, our Argentine subsidiary, has not paidthe installments due March 2009 for its supplier credit with MitsubishiCorporation (“MC”) dating back to 1996. However, on March 31, 2009, MC sent a waiver of the paymentdue to Endesa Costanera.  The waiver alsostates MC’s willingness to discuss a new payment date for the amount past due.

 

Finally,most of our companies have access to existing credit lines sufficient to meetall of our present working capital needs.

 

Paymentof dividends and distributions by Endesa Chile’s subsidiaries and relatedcompanies represent a significant source of funds for Endesa Chile.  The payment of dividends and distributions bysuch subsidiaries and related companies may be subject to legal and contractualrestrictions, such as legal reserve requirements, capital and retained earningcriteria, and is contingent upon their earnings and cash flows. Endesa Chilehas been advised by legal counsel in the various jurisdictions where itssubsidiaries and related companies operate that there are currently no otherlegal restrictions on the payment to Endesa Chile of dividends or distributionsfrom such jurisdictions, other than customary restrictions limiting dividends tothe amount of net income and retained earnings. Certain credit facilities andinvestment agreements of Endesa Chile’s subsidiaries restrict the payment ofdividends or distributions under certain circumstances. For a description ofliquidity risks resulting from our holding company status, please see “Item 3.Key Information — D. Risk Factors—Risks Relating to Our Operations in EveryCountry in Which We Operate — We depend in part on payments from oursubsidiaries and affiliates to meet our payment

 

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obligations” in this Report.

 

Managementexpects that cash flow generated by operations, cash balances, available creditlines (including credit lines from suppliers) and planned borrowings will besufficient to meet working capital, debt service and capital expenditurerequirements for the foreseeable future.

 

Transactionsthat most significantly affected Endesa Chile’s foreign subsidiaries’ liquidityin 2008 included:

 

·                  Edegel: leasingagreement for $ 90 million to finance the Santa Rosa project. Edegelalso made bond issuances in the Peruvian market for approximately$ 29 million. Finally, the company obtained loans for $ 96 million,which were used to refinance and prepay debt.

 

·                  Endesa Costanera:debt refinancing for $ 60 million with bank loans with short and medium-termmaturities and supplier financing with maturity of 5 years.

 

·                  El Chocón: debtrefinancing for $ 12 million with bank loans in local currency, extending itsdebt maturity

 

·                  Emgesa: bank loans for $ 147 million withshort term maturity

 

Transactionsthat most significantly affected Endesa Chile’s foreign subsidiaries’ liquidityin 2007 included:

 

·                  Edegel: loan agreements for $50 million for the short and the longterm.  Edegel also made bond issuances inthe Peruvian market for approximately $71 million, with maturities rangingfrom 4 to 15 years, which were used to refinance and prepay its debt, improvingcontractual conditions and debt maturity.

 

·                  Endesa Costanera: debt refinancing for $70 million with bank loans withmedium-term maturity and supplier financing with maturity of 5 years.

 

·                  Emgesa: bank loans for $57 million with short-term maturity and debtrefinancing in February 2007 with local bond issuances for $77 millionwith a maturity of 10 years.

 

**C.**                                   Research and developments, patents andlicenses, etc.

** **

The company conducts several research and developmentactivities:

 

a)              Researching and surveying appropriatelocations for new power plant development;

 

A new program wasinitiated in 2008 seeking to find 1,800 MW of NCRE (Non ConventionalRenewable Energy) in Latin America by the end of 2009.

 

b)             Conducting studies to verify technicaland economical feasibility of generation projects.

 

Our main studiesduring 2008 were in connection with hydroelectric projects, such as Piruquina,Los Cóndores, Neltume and El Quimbo. Additionally, during the same year studieswere done of the thermoelectric project Punta Alcalde and other locationssuitable for installing thermoelectric power stations. The total amount spentin this activity during 2008 was more than $ 15 million.

 

c)              Technological research through agreementswith research centers, universities and other institutions, seeking to acquireknow-how in technologies currently in the research stage with potential use inChile or other Latin American countries or in state-of-the-art technologicapplications in the Company.

 

During 2008 acooperation agreement with the Pontifical Catholic University of Chile enabledus to identify opportunities in the NCRE area and intelligent systems forpromoting research and innovation in the electricity sector. These activitiesinclude:

 

·                  Research and application of tidal and wavegenerated power. The objective is to study the current potential on the coastof southern Chile and define the most suitable technology for such conditions.

 

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·                  Applicationsof intelligent systems oriented toward the development of research in the areaof analytical processing, artificial intelligence and IT tools with characteristicswhich may make them very useful for application in the electricity generationarea.

 

The amount spenton research and development for the last three years was $ 0.2 million in 2006,$ 0.3 million in 2007 and $ 1.3 million in 2008.

 

d)             Internal development of math models andapplications modeling the electric systems in which the Company participates.

 

**D.**                                   Trend information

** **

During 2008 energy demand diminished significantly, asshown below:

 
| ** **   | ** ** | ** **    | ** ** | **Chile** | ** ** | ** ** | ** ** | ** **   | ** ** |
|--------------|------------|---------------|------------|-----------|------------|------------|------------|--------------|------------|
| ** **   | ** ** | **Argentina** | ** ** | **SIC**   | ** ** | **SING**   | ** ** | **Colombia** | ** ** | **Peru** | ** ** |
| 2008 vs 2007 |       | 2.9           | %          | -0.9      | %          | 4.3        | %          | 1.9          | %          | 9.5 | % |
| 2007 vs 2006 |       | 6.3           | %          | 4.5       | %          | 5.4        | %          | 4.0          | %          | 10.7 | % |

 

The SIC in Chile faced an energy crisis in the firsthalf of 2008 with significant demand reduction. This was the result of the package of energy saving measures conductedby the Chilean government due to several factors: i) the drought conditions in2007 and the first half of 2008; ii) shortfall of natural gas from Argentina,and iii) high international oil prices.

 

A rationing decree was published on February 2008,and included:

 

·                  a ten percentelectricity voltage reduction;

·                  more flexibleagreements for water usage;

·                  acommunication campaign informing families on ways to reduce their electricityconsumption;

·                  the deliveryof energy-efficient light bulbs to low-income families; and

·                  for Chileangovernment offices, a 5% reduction in their electricity consumption.

 

During the third quarter of 2008, energy savingmeasures and better rainfall conditions permitted Chilean government to ceasethe application of the abovementioned measures by October 31, 2008.

 

Additionally, the international financial crisisexplains lower annual growth rates in most of the countries.

 

Gas supply conditions were better in 2008 due to thearrival of LNG to Brazil and Argentina and we expect that the LNG terminal willstart operations in Chile by July 2009. New transport capacity was added in Argentina during 2008 and will beexpanded during 2009.  The increase ofenergy imported/exported between Brazil and Argentina and new power plants ineach country during 2009 should lead to more reliable electric systems.

 

The year 2008 showed significant oil price volatilitywith a historical peak in June, which was reflected in higher production costsand energy marginal costs, particularly in Argentina and Chile. In the thirdquarter, commodity prices decreased and contributed to lower energy prices.

 

Just as with the whole economy in 2009, theelectricity sector should be affected by higher uncertainty and pricevolatility.  In this context, thecommercial policy implemented by Endesa Chile and its subsidiaries forcontrolling variations and stabilizing margins becomes relevant.  Our commercial policy seeks to establish aglobal framework to conduct the energy trading operations, setting responsibilities,guidelines and acceptable risk limits aligned with company objectives.

 

Altogether, we believe that the uncertainty andvolatility of the markets offer opportunities for improving generation marginsand present the challenge of relationships with customers subject to higherprices and regulators whose essential concern is the reliability and adequacyof electricity supply.

 

Investors should not look at our past performance asindicative of future performance.

 

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**E.**                                     Off-balance sheet arrangements

** **

Endesa Chile is not a party to any off-balance sheettransactions.

 

**F.**                                     Tabular disclosures of contractual obligations

** **

**The table below sets forth the Company’s cashpayment obligations as of December 31, 2008:**

 

**Payments due by period (in billions of Ch$)Endesa Chile on a consolidated basis (3)**

 
| **As of December 31, 2008**       | ** ** | **TOTAL** | ** ** | **2009** | ** ** | **2010-  2011** | ** ** | **2012-  2013** | ** ** | **After  2013** | ** ** |
|---------------------------------------------|------------|-----------|------------|----------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| Bank debt                                   |       | 737       |       | 123      |       | 372             |       | 112             |       | 130             |       |
| Local bonds                                 |       | 867       |       | 118      |       | 152             |       | 44              |       | 553             |       |
| Yankee bonds                                |       | 933       |       | 395      |       | —          |       | 255             |       | 284             |       |
| Other debt (1)                              |       | 116       |       | 26       |       | 51              |       | 34              |       | 6               |       |
| Interest expense                            |       | 1,747     |       | 150      |       | 226             |       | 176             |       | 1,194           |       |
| Pension and  postretirement obligations (2) |       | 34        |       | 4        |       | 6               |       | 5               |       | 19              |       |
| Contractual  operational obligations        |       | 2,322     |       | 250      |       | 404             |       | 350             |       | 1,319           |       |
| Financial leases                            |       | 141       |       | 11       |       | 33              |       | 41              |       | 57              |       |
|                                        |       |      |       |     |       |            |       |            |       |            |       |
| **Total**                                   |       | 6,897     |       | 1,077    |       | 1,244           |       | 1,017           |       | 3,562           |       |

 

----

| (1) | Includes the Mutual Financing Agreement with Peruana de Energía S.A.  (Perené) of Ch$ 5.6 billion and Endesa Costanera’s debt with  Mitsubishi Corporation for Ch$ 92 billion. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (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 postretirement obligations.      |
| (3) | All figures are in historical Ch$ of each year.                                                                                                                                                              |

 

**G.**                                   Safe Harbor

** **

The information contained in the Items 5.E and 5.Fcontains statements that may constitute forward looking statements.  See “Forward-Looking Statements” in the “Introduction”of this Report, for safe harbor provisions.

 

**Item6.**          Directors, SeniorManagement and Employees

** **

**A.**                                   Directors and Senior Management

** **

We aremanaged by our Board of Directors, which consists of nine members who are electedfor a three-year term at a General Stockholders’ Meeting.  If a vacancy occurs in the interim, the Boardof Directors will elect a temporary director to fill the vacancy until the nextregularly scheduled stockholders’ meeting, at which time the entire Board ofDirectors will be elected.  There werefive members who left the Board in 2008. The entire Board was elected at the last stockholders’ meeting that tookplace on April 1, 2008.  OurChief Executive Officer is appointed by the Board of Directors.

 

Setforth below are the members of our Board of Directors and Executive Officers asof December 31, 2008.

 

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| **Name**                          | ** ** | **Position**  | ** ** | **Current Position  Held Since** | ** ** |
|-----------------------------------|------------|---------------|------------|----------------------------------|------------|
|                              |       |          |       |                             |       |
| **Directors**                     |       |          |       |                             |       |
|                              |       |          |       |                             |       |
| Mario Valcarce  D. (2)            |       | Chairman      |       | 2006                             |       |
| Juan Gallardo C.  (4)             |       | Vice Chairman |       | 2008                             |       |
| Borja Prado E.  (3)               | * *   | Director      |       | 2008                             |       |
| Francesco  Buresti                | * *   | Director      |       | 2008                             |       |
| Leonidas Vial E.  (1)             | * *   | Director      |       | 1995                             |       |
| Raimundo  Valenzuela L. (1)(2)(4) | * *   | Director      |       | 2007                             |       |
| Fernando  D’Ornellas S. (3)  | * *   | Director      |       | 2008                             |       |
| Jaime Estévez V.  (1)(2)(3)  | * *   | Director      |       | 2006                             |       |
| Pío Cabanillas  A. (4)       | * *   | Director      |       | 2008                             |       |

 

----

| (1) | Independent member                              |
|-----|-------------------------------------------------|
| (2) | Member of the Directors’ Committee.        |
| (3) | Member of the Audit  Committee.                 |
| (4) | Board members who resigned  in March 2009. |

 
| **Name**                     | ** ** | **Position**                               | ** ** | **Current Position  Held Since** | ** ** |
|------------------------------|------------|--------------------------------------------|------------|----------------------------------|------------|
|                         |       |                                       |       |                             |       |
| **Executive  Officers**      |       |                                       |       |                             |       |
|                         |       |                                       |       |                             |       |
| Rafael Mateo A.              |       | Chief Executive Officer                    |       | 2005                             |       |
| Juan Benabarre  B.           |       | Production & Transmission Officer |       | 2005                             |       |
| Sebastian  Fernández C. |       | Energy Planning Officer                    |       | 2008                             |       |
| Renato Fernández  B.    |       | Communications Officer                     |       | 2003                             |       |
| Manuel  Irarrázaval A.  |       | Chief Financial Officer                    |       | 2006                             |       |
| Claudio Iglesis  G.          |       | Generation Chile Officer                   |       | 1999                             |       |
| Carlos Martín V.        |       | General Counsel                            |       | 1996                             |       |
| Juan Carlos  Mundaca A.      |       | Human Resources Officer                    |       | 2000                             |       |
| Julio Valbuena  S.           |       | Planning & Control Officer        |       | 2002                             |       |
| José Venegas M.         |       | Trading & Marketing Officer       |       | 2001                             |       |

** **

**Directors**

** **

**MarioValcarce D., Chairman of the Board of Directors and Member of the Director’sCommittee. **Mr. ValcarceD. became a Directorand the Chairman of the Board on October 26, 2006.  From August 2003 to October 26, 2006,Mr. Valcarce served as CEO of Enersis. He joined Chilectra in 1980.  Mr. Valcarcewas the CFO of Endesa Chile from 1995 to September 2002 and the CFO ofEnersis from October 2002 to July 2003.  He is a member of the Risk ClassificationCommittee of the Chilean Pension Funds System. Since March 2004 he has been a member of the Directivo-EmpresarialAdvisor Counsel of the Commercial Engineering School at PUC, Valparaíso.  Since October 2006 he has been a memberof the Board of the *Universidad Católica deValparaíso Televisión*, and since February 2007 he has been amember of the Finance and Business Circle ICARE.  For the period between June 2007 and June 2011,Mr. Valcarce has been appointed director of *Sociedad deFomento Fabril (Sofofa)*.  Heis also Director at Generandes Perú S.A. Mr. Valcarce holds a degree in commercial engineering from the *Universidad Católica de Valparaíso*.

 

**JuanGallardo C.**, **Director and theVice Chairman of the Board**. Mr. Gallardo became a Director in April 2008.  In October 2007 Mr. Gallardo wasappointed CFO of Endesa Spain and a member of its Executive Committee.  From 1997 to 2007 Mr. Gallardo wasGeneral Director of the Economic and Financial Division of Grupo Acciona. Mr. Gallardoholds a law degree and he is a member of the Madrid Bar Association. He has acertificate in Human Resources Affairs at the *EscuelaSocial de Madrid* and also in Financial and Tax Law at the *Centro de Estudios Financieros*.

 

**LeonidasVial E.**, **Director of the Board.**Mr. Vial****became a Director in April 1995.  Mr. Vial has been Vice Chairman of theSantiago Stock Exchange since June 1988, as well as a director of *Empresas Santa Carolina S.A., Cía. Industrial ElVolcán S.A, Larraín Vial S.A.,*Chairman of*Cías. Cic S.A.*,director of *Embotelladora Arica*,none of which are related to the Endesa Group.

 

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**JaimeEstévez V., Director and Member of the Director’s Committee and AuditCommittee. **Mr. Estévez****became aDirector in March 2006. Since March 27, 2007, Mr Estévez hasbeen a Director of *Banco de Chile*.Mr. Estévez was Minister of Public Works and Minister of Transport andTelecommunications in 2005. He was Chairman of the Board of *BancoEstado*, a state-owned bank, between 2000 and 2004 andDirector of *AFP Provida* and *AFPProtección*, two Chilean pension funds. He was a Congressman andPresident of the lower Chamber of Congress from 1990 to 1998. Mr. Estévezholds a Bachelor’s degree in Economics from the *Universidadde Chile* and was awarded the ICU prize for the best student of hisclass**.**

 

**RaimundoValenzuela L., Director and Member of the Director’s Committee. **Mr. Valenzuela became a Director in April 2007.  Mr. Valenzuela worked in the Superintendency of Securities and Insurancefor four years.  He has occupied topmanagement positions in different companies in Chile, such as *Cristalerías de Chile* and *Viña Santa Rita*.  Mr. Valenzuela has been director ofother companies’ Boards of Directors unrelated to the Endesa Group, including *Parque Arauco, Forestal Argentina* and *CompassChile*.  Mr. Valenzuelaholds a degree in Commercial Engineering from *PontificiaUniversidad Católica de Chile*, where he has been Professor ofFinance, and holds an MBA degree from the Wharton School, University of Pennsylvania.

 

**PíoCabanillas A.**,**Director of theBoard**. Mr. Cabanillas became a Director in April 2008. Mr. Cabanillaswas Deputy General Director of the Chairman of Grupo Acciona, SpokesmanMinister of the Spanish Government between 2000 and 2002, General Director ofthe Grupo RTVE, Development and International Affairs Director of Grupo Prisaand General Director of Sogecable. During his career outside Spain, Mr. Cabanillaswas Deputy General Attorney of The News Corporation and lawyer of the EuropeanCommission at the General Direction of Competition. Currently Mr. Cabanillasis the Communications General Director of Endesa Spain. Mr. Cabanillasholds a law degree from the *Universidad Complutense*and a Master of Arts in law and diplomacy from the Fletcher School of Law andDiplomacy (Tufts-Harvard).

 

**FernandoD’Ornellas S., Director of the Board****and Member of the Audit Committee****. **Mr. D’Ornellas became a Director in April 2008. Mr. D’Ornellaswas Deputy Financial Director of Johnson & Johnson, Financial Directorof Toyota Spain, Deputy Counselor of Chrysler Spain, Chairman of ChryslerPortugal and CEO of Bergé Automoción. Mr. D’Ornellas is currently DeputyCounselor of the Bergé Group, Chairman of Bergé Automoción, Vice-Chairman ofSKBergé Latin America and Director of Endesa Spain. Mr. D’Ornellasholds a degree from ICADE E-3, a Master’s degree in Management from the *Instituto de Empresa* and an MBA from IESE in Barcelona(International Section).

 

**FrancescoBuresti, Director of the Board.**Mr. Buresti****became a Director in April 2008.  Mr. Buresti was consultant for Accenturein the industrial sector, and consultant for McKinsey in the industrial andutilities sectors. In 2005, Mr. Buresti joined Enel as DistributionAcquisition Director (Network and Market). In October 2007 Mr. Burestiwas appointed General Acquisition Director and member of the ExecutiveCommittee of the Endesa Spain Group. Mr. Buresti holds a degree inElectronics Engineering from the *Università degli Studi diBologna*.

 

**BorjaPrado E., Director and Member of the Audit Committee.**Mr. Pradobecame a Director in April 2008.  Mr. Pradois currently Executive Chairman of *Mediobanca* inSpain and Portugal and Country Head for South America. He is also President ofthe Auditing and Compliance Commission, member of the Compensations andNominations Committee and Counselor of *Telecinco España*,the largest private sector television network in Spain.  In March 2009 he was elected as Chairmanof Endesa Spain.  Mr. Pradoholds a law degree from the *Universidad Autónoma deMadrid*.

 

A new Board of Directorswas appointed at the General Shareholders Meeting held on April 15, 2009.The newly appointed directors are: Messrs. Andrea Brentan, José MaríaCalvo-Sotelo, and Gerardo Jofré. Additionally, the following directors werereelected: Messrs. Mario Valcarce, Francesco Buresti, Fernando D’Ornellas,Borja Prado, Jaime Estévez and Leonidas Vial.

 

**ExecutiveOfficers**

 

**RafaelMateo A**.**became ChiefExecutive Officer in September 2005, after serving as Production &Transmission Officer since August 1999.  Prior to that, since 1982 heworked in Endesa Spain always in the generation area, where he held thepositions of Power Station Manager and Thermal Production Director. From January 1997to July 1999, he was the Production Deputy Director of Endesa Spain.  He was also Chairman of the European ThermalProduction Group of *Unipede* inBrussels.  He holds a degree in industrial engineering from 

 

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*Universidadde Zaragoza* and two MBA degrees, one from the *Instituto de Estudios Superiores de la Empresa, “*IESE”,and the other from *INSEAD*.

 

**SebastiánFernández C.**joinedEnersis in January 1997, beginning his professional career as researchengineer.  He has served in differentpositions in the Group, such as Project Manager of Endesa Europe, DeputyManager of Planning and Investments in Endesa Italy, and Deputy Manager ofGeneration Projects in Endesa Chile.  Since January 2008, he holds the positionof Energy Planning Officer of Endesa Chile. Mr. Fernández holds a commercial engineering degree from the *Universidad de los Andes* and attended the YMP program in theINSEAD, in Fontainebleu, France.

 

**Renato Fernández B.** has been the External Affairs Officer since August 2003,when he joined Endesa Chile.  Prior tothat, he was the External Affairs Director of *Smartcom PCS*from December 2000 to July 2003.  From December 1997 to December 2000,Mr. Fernández was the External Affairs Director of *Hill & Knowlton Captiva*.  Heholds a degree in Journalism from *UniversidadGabriela Mistral*.

 

**Manuel Irarrázaval A.**has been Chief Financial Officer since November 2006.  Except for a 17-month period in which he wasthe CFO of *Viña Santa Rita*, awinery, Mr. Irarrázaval has been connected to Endesa Chile affiliatessince he joined Enersis in 1995.  Heserved as Development Manager of Endesa Latinoamérica in Madrid, DevelopmentManager of Endesa North America (New York City), and as Deputy Finance Managerof Endesa Chile between 2002 and February 2005.  Mr. Irarrázaval is a civil industrialengineer from the *Pontificia UniversidadCatólica de Chile*, with specialization in environmental engineering,and has a Master’s Degree in Engineering from the *Pontificia Universidad Católica de Chile* and an MBA from theDarden Graduate School of Business****ofthe University of Virginia in the United States.

 

**JuanBenabarre B.******joined Endesa Chile in October 1995.  Mr. Benabarre became Production &Transmission Officer in October 2005.  Mr. Benabarre has heldseveral positions in the Endesa Chile Group since 1979.  From 2000 through 2005, he was CEO ofIngendesa.  Mr. Benabarre is also amember of the boards of directors of several companies in the EndesaGroup.  Mr. Benabarre holds a degreein mechanical civil engineering from *Universidadde Chile* and completed graduate studies in geothermal energy at theUniversity of Auckland, New Zealand. He also holds an M.B.A. from the *Universidad Adolfo Ibáñez*.

 

**Claudio Iglesis G.**has been the Generation Director since July 1999.  He joined Endesa Chile in 1982. He has beenChief Executive Officer of Emgesa and Betania, both Colombian subsidiaries ofEndesa Chile, and Central Buenos Aires, currently part of Endesa Chile’ssubsidiary Endesa Costanera in Argentina. Mr. Iglesis was director of *Cammesa* andChairman of the *AGEERA* in Argentina.  Heholds a degree in electric civil engineering from the *Universidadde Chile*.

 

**CarlosMartín V.** became the General Counsel in May 1996.  He had served as the General Counsel ofEnersis prior to that, when he joined in 1989. He holds a law degree from the *UniversidadCatólica de Valparaíso* and a Doctor in Law degree from the *Universidad de Navarra,*Spain.

 

**Juan****Carlos****Mundaca****A.** has been theHuman Resources Officer since June 2000. Prior to that, from January 1998 to May 2000, he was HumanResources Officer of Chilectra.  Mr. Mundacahas also served as Customer Service Officer and Branch Officer of Chilectra,which he joined in 1974.  He holds adegree in commercial engineering from the *Universidadde Santiago*.

 

**Julio Valbuena S**. has been the Planning and Control Officer ofEndesa Chile since July 2002.  Mr. Valbuenawas the Planning and Control Officer of *Endesa Energía*(Spain) from 1998 to June 2002.  He holds an Executive M.B.A. from the *Instituto de EstudiosSuperiores de la Empresa*(Madrid) and a degree in civil engineeringfrom the *Escuela Técnica Superior de Ingenieros de Caminos,Canales y Puertos*of the*Universidad Politécnicade Madrid.*

 

**José Venegas M.** has been the Trading & Marketing Officersince June 2001.  Mr. Venegasjoined the Company in 1992.  He has alsoserved as Planning and Energy Officer from June 2000 to April 2001,Commercial Officer from September 1997 to May 2000 and Director ofthe CDEC-SIC Economic Load Dispatch Center in 1997.  Mr. Venegas holds a degree in industrialcivil engineering from the *PontificiaUniversidad Católica de Chile* and an MBA from *Universidad Adolfo Ibáñez*.

 

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** **

**B.**                                   Compensation

** **

At theregular shareholders’ meeting held on April 1, 2008, our shareholdersmaintained the compensation policy for the Board of Directors approved lastyear.  Each director receives a fixedsalary of UF 55 per month and a fee of UF 36 for attending meetingsof the Board.  The Vice Chairman willreceive a fixed salary of UF 82.5 per month and a fee of UF 54 forattending meetings of the board.  TheChairman will receive a fixed salary of UF 110 per month and a fee ofUF 72 for attending meetings of the Board. In 2008, the total compensation paid to each director in pesos, was asfollows:

 
| **Director**                           | ** ** | **Board  Compensation  From Endesa  Chile**                      | ** ** | **Board  Compensation  From  Subsidiaries** | ** ** | **Director  Committee** | ** ** | **Total** | ** ** |
|----------------------------------------|------------|------------------------------------------------------------------|------------|---------------------------------------------|------------|-------------------------|------------|-----------|------------|
| ** **                             | ** ** | **Year ended December 31, 2008 (in thousands of Ch$)** | ** ** |
| Mario Valcarce  D.                     |       | 43,258                                                           |       |                                        |       | 8,405                   |       | 51,663    |       |
| Carlos Torres V.  (1).                 |       | 5,284                                                            |       |                                        |       |                    |       | 5,284     |       |
| Jaime Estevez V                        |       | 21,251                                                           |       |                                        |       | 13,770                  |       | 35,021    |       |
| Leonidas Vial E.                       |       | 20,490                                                           |       |                                        |       |                    |       | 20,490    |       |
| Raimundo  Valenzuela L. (2)            |       | 20,486                                                           |       |                                        |       | 6,883                   |       | 27,369    |       |
| Enrique García  A. (1)            |       | 5,829                                                            |       |                                        |       | 2,306                   |       | 8,135     |       |
| José Fernández  O. (1)       |       | 5,829                                                            |       |                                        |       | 2,306                   |       | 8,135     |       |
| Juan Gallardo C.  (2) (4)         |       |                                                             |       |                                        |       |                    |       |      |       |
| Francesco  Buresti (4)                 |       |                                                             |       |                                        |       |                    |       |      |       |
| Pío Cabanillas  A. (2) (4)   |       |                                                             |       |                                        |       |                    |       |      |       |
| Fernando  D’Ornellas S.           |       | 13,914                                                           |       |                                        |       | 3,807                   |       | 17,721    |       |
| Borja Prado E.                         |       | 15,424                                                           |       |                                        |       | 1,528                   |       | 16,952    |       |
| Rafael Español  N. (1)            |       | 5,829                                                            |       |                                        |       |                    |       | 5,829     |       |
| José Maria Calvo-Sotelo I. (1)(3) |       | 5,829                                                            |       |                                        |       |                    |       | 5,829     |       |
| **Total**                              |       | 163,423                                                          |       |                                        |       | 39,005                  |       | 202,428   |       |

 

----

| (1) | Board member until  March 2008.             |
|-----|--------------------------------------------------|
| (2) | Board member until  March 2009.             |
| (3) | Appointed as a board member  in April 2009. |
| (4) | Board member with no  compensation.              |

 

We donot disclose, to our shareholders or otherwise, information on individualexecutive officers’ compensation.  Forthe year ended December 31, 2008, the aggregate compensation(including performance-based bonuses) of our executive officers, either paid oraccrued, was Ch$ 2,394 million. Executive officers are eligible for variable compensation under a bonusplan.  Endesa Chile provides for itsexecutive officers an annual bonus plan for meeting company-wide objectives andfor their individual contribution to the Company’s results.  The annual bonus plan provides for a range ofbonus amounts according to hierarchy. The bonuses eventually paid to executives consist of a certain number ofgross monthly salaries. The total variable compensation paid in March 2009was Ch$ 693 million and is included in the aggregate compensation. Ofthis variable compensation, Ch$ 133 million were deposited in pensionfunds, and Ch$ 560 million were paid to the executive officers.

 

Theamounts set aside or accrued by the Company in 2008 to provide pension,retirement or similar benefits totaled Ch$ 260 million.

 

Theamount set aside or accrued by the Company to provide severance indemnities toits executive officers amounts Ch$ 406 million,of which Ch$ 85 million wereaccrued during 2008.

 

All of our executive officers have severance indemnity agreements withthe Company in the event of voluntary resignation, mutual agreement among theparties, or death.  They do not have aright to severance indemnity if their relationship with the Company is terminateddue to willful misconduct, prohibited negotiations, unjustified absences,abandonment of duties, among other causes, as defined in article 160 of theChilean Labor Code.  All of the Company’semployees are entitled to legal severance pay if dismissed due to the needs ofthe Company, as defined in article 161 of the Chilean Labor Code.

 

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** **

**C.            Board Practices**

** **

***CorporateGovernance***

* *

Endesa Chile is managed by its Executive Officersunder the direction of its Board of Directors which, in accordance with the *estatutos*, or articles of incorporationand bylaws, consists of nine directors who are elected at an annual regularshareholders’ meeting.  Each directorserves for a three-year term and the term of each of the nine directors expireson the same day.  The directors can bereelected indefinitely.  Staggered termsare not permitted under Chilean law.  Ifa vacancy occurs on the Board during the three-year term, the Board ofDirectors may appoint a temporary director to fill the vacancy.  Any vacancy will trigger an election forevery seat on the Board of Directors at the next regular annual shareholders’meeting.  See “ — A. Directors and SeniorManagement,” for more details on the disclosure of the terms of the directors’offices.  The members of the Board ofDirectors do not have service contracts with Endesa Chile or any of itsaffiliates that provide benefits upon termination of employment.

 

Chilean corporate law provides that a company’s boardof directors is responsible for the management, administration andrepresentation of a company in all matters concerning its corporate purpose,subject to the provisions of the company’s *estatutos*and the stockholders’ resolutions.  Inaddition to the *estatutos*, theBoard of Directors of Endesa Chile has adopted regulations and policies thatguide our corporate governance principles. The most important of these regulations and policies are the following:

 

The Internal Regulations on Conduct in SecuritiesMarkets, approved by the Board in June 2002, defines the rules ofconduct that must be followed by members of the Board of Directors, seniormanagement and other managers and employees who, due to the nature of their jobresponsibilities, may have access to sensitive or confidential information,with a view to contributing to transparency and to the protection ofinvestors.  These regulations are basedon the principles of impartiality, good faith, placing the company’s interestsbefore one’s own, and care and diligence in using information and acting in thesecurities markets.

 

The Charter Governing Executives (“*Estatuto del Directivo*”), approved by theBoard in July 2003, and the Employees Code of Conduct, explain ourprinciples and ethical values, establish the rules governing dealings withcustomers and suppliers, and establish the principles that should be followedby employees in their work: ethical conduct, professionalism andconfidentiality.  They also imposelimitations on the activities our senior executives and other employees mayundertake outside the scope of their employment with us, such as non-competelimitations.

 

Our Corporate Governance Basis (“*Bases del Gobierno Corporativo*”), wereapproved by the Board of Directors on February 28, 2005.

 

In order to ensure compliance with the provisions ofthe Securities Market Law 18,045 and other legal rules, imposed by the SVS, theboard of Endesa Chile at its meeting held on May 29, 2008, approvedthe “Manual for the Management of Information of Interest to the Market”.  The provisions of this Manual are based onprinciples of impartiality, good faith, giving preference to general interestsbefore one’s own and care and diligence in the use of information andparticipations in the securities’ markets.

 

The provisions of this Manual shall be applied to themembers of the board, as well as executives and employees of Endesa Chile whohave access or are able to access privileged information and especially thosewho work in areas related to the securities markets.

 

***Compliancewith NYSE Listing Standards on Corporate Governance***

* *

The following is a summary of the significantdifferences between our corporate governance practices and those applicable todomestic issuers under the corporate governance rules of the New YorkStock Exchange.

 

***Independenceand Functions of the Audit Committee***

* *

Under the NYSE corporate governance rules, all membersof the Audit Committee must be independent. We are subject to this requirement as of July 31, 2005.

 

Under the NYSE corporate governance rules, the AuditCommittee of a U.S. company must perform the functions detailed in the NYSEListed Company Manual Rules 303A.06 and 303A.07.  Non-U.S. companies have

 

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been required to complywith Rule 303A.06 beginning July 31, 2005.  Non-U.S. companies are not required to complywith Rule 303A.07.  Since July 31, 2005,we comply with the independence and the functional requirements of Rule 303A.06.  As required by the Sarbanes-Oxley Act and theNYSE corporate governance rules, on June 29, 2005, the Board ofDirectors of Endesa Chile created an Audit Committee, composed of threedirectors, who are also directors of the Company.  The current members of this Committee, whosatisfy the requirements of independence of NYSE, are: Fernando D’Ornellas S.,Borja Prado E. and Jaime Estévez V.  Messrs. D’Ornellasand Prado sit on the Board of Directors of Endesa Spain and are relying on theexemption provided by Rule 10A-3(b)(1)(iv)(B).  Messrs. D’Ornellas and Prado otherwisemeet the independence requirements of Rule 10A-3(b)(1)(ii).

 

As required by Chilean Law, Endesa Chile also has a*Comité de Directores*(“Directors’ Committee”)**composed of three members of theBoard.  Although Chilean Law requiresthat a majority of the Directors’Committee (two out of three members) must be composed of directors whowere not nominated by the controlling shareholder and did not seek votes fromthe controlling shareholder (a “non-control director”), it permits the Directors’ Committee to be composedof a majority of control directors or even completely of control directors, ifthere are not sufficient non-control directors on the Board to serve on thecommittee.  Currently, our Directors’ Committee is composed oftwo non-control directors and one director appointed by the controllingshareholder.

 

Our Directors’ Committee**performs the following functions:

 

·                  examination of Annual Report, FinancialStatements and the Reports of the External Auditors and Inspectors of theAccounts;

 

·                  formulation of the proposal to the Board of Directorsfor the selection of external auditors and private rating agencies;

 

·                  examination of information related to operations bythe Company with related parties and/or related to operations in which theCompany board members or relevant executive officers may have personalinterest;

 

·                  examination of the compensation framework and plansfor managers and executive officers; and,

 

·                  any other function mandated to the committee by the *estatutos*, the Board of Directors or theshareholders of the Company.

 

The current members of this Committee are MarioValcarce D., Raimundo Valenzuela L. and Jaime Estévez V.

 

By agreement adopted bythe special shareholders’ meeting held on March 21, 2006, a newchapter was included in the Endesa Chile’s bylaws, which refers to the “Comitéde Directores and Audit Committee.” Visit our website for details(www.endesa.cl).

 

***CorporateGovernance Guidelines***

* *

The NYSE’s corporate governance rules requirelisted companies to adopt and disclose corporate governance guidelines.  Although Chilean law does not contemplatethis practice, other than with respect to the codes of conduct described above,the Company establishes guidelines in The Bases of Corporate Governance ofEndesa Chile (“*Bases del GobiernoCorporativo*”), approved by the Board of Directors in February 2005.See “Item 16B. Code of Ethics” for more details.

 

**D.            Employees**

** **

The following table provides the total number of fulltime employees of our Companies for the last three fiscal years:

 
| **Company**                       | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
|-----------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **In  Argentina**                 |       |     |       |     |       |     |       |
| Endesa Costanera                  |       | 267      |       | 273      |       | 274      |       |
| El Chocón                    |       | 49       |       | 50       |       | 51       |       |
| **Total  personnel in Argentina** |       | 316      |       | 323      |       | 325      |       |

 

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| **Company**                                           | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** |
|-------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **In  Chile**                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Endesa Chile                                          |       | 501        |       | 525        |       | 554        |       |
| Pehuenche                                             |       | 3          |       | 3          |       | 3          |       |
| Pangue                                                |       | —     |       | —     |       | —     |       |
| San Isidro                                            |       | —     |       | —     |       | —     |       |
| Celta                                                 |       | 1          |       | 1          |       | 1          |       |
| Ingendesa (1)                                         |       | 261        |       | 289        |       | 418        |       |
| Túnel El Melón                              |       | 23         |       | 23         |       | 24         |       |
| **Total  personnel in Chile**                         |       | 789        |       | 841        |       | 1,000      |       |
|                                                  |       |       |       |       |       |       |       |
| **In  Colombia**                                      |       |       |       |       |       |       |       |
| Emgesa (2)                                            |       | 341        |       | 399        |       | 404        |       |
| Betania                                               |       | 35         |       | —     |       | —     |       |
| **Total  personnel in Colombia**                      |       | 376        |       | 399        |       | 404        |       |
|                                                  |       |       |       |       |       |       |       |
| **In Peru**                                           |       |       |       |       |       |       |       |
| Edegel                                                |       | 200        |       | 206        |       | 219        |       |
| **Total  personnel in Peru**                          |       | 200        |       | 206        |       | 219        |       |
|                                                  |       |       |       |       |       |       |       |
| **Total  personnel of Endesa Chile and Subsidiaries** |       | 1,681      |       | 1,769      |       | 1,948      |       |

----

(1)          The Ingendesa figure includesIngendesa employees of Ingendesa’s subsidiary in Brazil.

(2)          In September 2007,Emgesa and Betania were merged into the latter, which then changed its name toEmgesa, where all the employees were transferred.

 

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The followingtable provides the total number of temporary employees of our companies for thelast three fiscal years:

 
| **Company**                                                     | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** |
|-----------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **In  Argentina**                                               |       |       |       |       |       |       |       |
| Endesa Costanera                                                |       | —     |       | —     |       | —     |       |
| El Chocón                                                  |       | —     |       | —     |       | —     |       |
| **Total  temporary personnel in Argentina**                     |       | —     |       | —     |       | —     |       |
|                                                            |       |       |       |       |       |       |       |
| **In  Chile**                                                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Endesa Chile                                                    |       | 10         |       | 9          |       | 5          |       |
| Pehuenche                                                       |       | —     |       | —     |       | —     |       |
| Pangue                                                          |       | —     |       | —     |       | —     |       |
| San Isidro                                                      |       | —     |       | —     |       | —     |       |
| Celta                                                           |       | —     |       | —     |       | —     |       |
| Ingendesa (1)                                                   |       | 315        |       | 269        |       | 301        |       |
| Túnel El Melón                                        |       | 2          |       | 2          |       | 1          |       |
| **Total  temporary personnel in Chile**                         |       | 327        |       | 280        |       | 307        |       |
| ** **                                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **In  Colombia**                                                |       |       |       |       |       |       |       |
| Emgesa (2)                                                      |       | —     |       | —     |       | —     |       |
| Betania (2)                                                     |       | —     |       | —     |       | —     |       |
| **Total  temporary personnel in Colombia**                      |       | —     |       | —     |       | —     |       |
|                                                            |       |       |       |       |       |       |       |
| **In Peru**                                                     |       |       |       |       |       |       |       |
| Edegel                                                          |       | 20         |       | 20         |       | 23         |       |
| **Total  temporary personnel in Peru**                          |       | 20         |       | 20         |       | 23         |       |
|                                                            |       |       |       |       |       |       |       |
| **Total temporary  personnel in Endesa Chile and Subsidiaries** |       | 347        |       | 300        |       | 330        |       |

 

----

(1)          Ingendesa figure includesIngendesa employees of Ingendesa’s subsidiary in Brazil.

(2)          In September 2007,Emgesa and Betania were merged into the latter, which then changed its name toEmgesa, where all the employees were transferred.

 

All Chilean employees who are dismissed for reasonsother than misconduct are entitled by law to a severance payment.  According to Chilean law, permanent employeesare entitled to a basic payment of one month’s salary for each year (or asix-month portion thereof) worked, subject to a limitation of a total paymentof no more than 11 months’ pay for employees hired after August 14, 1981.  Severance payments to employees hired priorto that date consist of one month’s salary for each full year worked, notsubject to any limitation on the total amount payable.  In addition, under Endesa Chile’s collectivebargaining agreements, Endesa Chile is obligated to make severance payments toall covered employees in cases of voluntary resignation or death in specifiedamounts that increase according to seniority. In December 2007, Ingendesa signed a new collective contract withits three trade unions for a four-year term. During 2008, Endesa Chile signed three collective contracts, coveringtechnicians and administrative staff. Two of the collective contracts have a three-year term and the third onehas a four-year term.  Management believesEndesa Chile’s relationship with its trade unions is a positive one.

 

**E.            Share ownership**

** **

To the best of the Company’s knowledge, none of EndesaChile’s directors and officers own more than 0.1% of the shares of theCompany.  None of Endesa Chile’sdirectors or officers has any stock options, which are not permitted under Chileansecurities laws and regulations.  It isnot possible to confirm whether any of our officers or directors has abeneficial, rather than direct, interest in the shares of Endesa Chile.  To the best of our knowledge, anyshareholding by all of the directors and officers of Endesa Chile, in theaggregate, amounts to significantly less than 10% of outstanding shares.

 

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**Item 7.**   Major Shareholders and Related PartyTransactions

** **

**A.**            Major shareholders

** **

Endesa Chile has only one class of capital stock.  As of December 31, 2008 EndesaChile had 19,886 registered shareholders who held 8,201,754,580 outstandingshares.

 

The following table setsout information concerning beneficial ownership of Endesa Chile’s shares forequity interest greater than 5% as of December 31, 2008:

 
| ** **  | ** ** | **As of December 31, 2008** | ** ** |
|-------------|------------|---------------------------------------|------------|
| ** **  | ** ** | **Shares  Beneficially  Owned**       | ** ** | **Percentage of  Total Shares  Outstanding** | ** ** |
|        |       |                                  |       |   |   |
| Enersis (1) |       | 4,919,488,794                         |       | 59.98 | % |

 

----

(1)          As of December 31, 2008,Endesa Spain, directly or indirectly, owned 60.6%, of the share capital ofEnersis.

 

Enersis is a company primarily engaged, through itssubsidiaries and related companies, in the generation and distribution ofelectricity in Chile, Argentina, Colombia and Peru, and in the generation,transmission and distribution of electricity in Brazil.  Enersis is controlled by Endesa Spain, one ofthe largest Spanish electricity companies, which owns 60.6% of Enersis’outstanding capital stock.

 

Since October 10, 2007, the Italian energycompany, ENEL S.p.A. (“Enel”), and the Spanish construction company,Acciona, S.A. (“Acciona”), jointly held 92.06% of the share capital ofEndesa Spain.  On February 20, 2009,Acciona and Enel reached an agreement through which Acciona, directly andindirectly, will transfer to Enel Energy Europe S.r.L., a wholly-owned Enelsubsidiary, 25.01% of Endesa Spain’s share capital.  The transfer is subject to legal authorizationsand approval by relevant authorities.  Asa result, Enel Energy Europe S.r.L. will hold 92.06% of Endesa Spain’sshare capital.  Enel’s 25.01% additionalstake in Endesa Spain will be exchanged for approximately€ 11.1 billion in cash, as well as wind and hydroelectric assetslocated in Spain and Portugal which are valuated at approximately€ 2.9 billion.  The transfer ofshares and assets is expected to take place by August 31, 2009. Whenthe transaction is completed, Enel will hold a 33.5% beneficial interest inEndesa Chile.   For additionalinformation see “Item 4. Information on the Company — A. History andDevelopment of the Company — Recent Developments”.

 

**B.**            Related party transactions

** **

Article 89 of the Chilean Companies Act requiresthat the Company’s transactions with related parties be on a market basis, *i.e.* on terms similar to those customarily prevailing in themarket.  Directors and executive officersof companies that violate Article 89 are liable for losses caused to theCompany resulting from such violation. In addition, Article 44 of the Chilean Companies Act provides thatany transaction in which a Director has a personal interest or is acting onbehalf of a third party may be approved only when the Board of Directors haspreviously been informed and has approved the terms of such transaction andthat such terms are similar to those prevailing in the market.  Resolutions approving such transactions mustbe reported to the Company’s shareholders at the next shareholders’meeting.  Violation of Article 44may result in administrative or criminal sanctions to the Company; the same lawprovides that the Company, shareholders or interested third parties who sufferlosses as a result of such violation have the right to receivecompensation.  The Directors’ Committeeexamines the operations referred to in Clause 89 and 44 of the ChileanCompanies Act and reports on these agreements to the Company’s Board.

 

Our largest electricity distribution customer isChilectra, a subsidiary of Enersis.  Theterms of our contracts with Chilectra are regulated in accordance with theChilean Electricity Law.  For additionalinformation concerning the Company’s transactions with affiliates and otherrelated parties, see Note 6 to the audited consolidated financialstatements.  We believe that we havecomplied with the requirements of Article 89 and Article 44 in alltransactions with related parties.

 

It is common practice to transfer surplus funds fromone company to another affiliate that has a cash deficit.  It is the Endesa group’s policy that all cashinflows and outflows of Endesa Chile and Endesa Chile’s Chilean subsidiariesare managed through a centralized cash management policy in coordination withEnersis.  These 

 

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operations are carriedout through either short-term or structured intercompany loans.  Under Chilean law and regulations, suchtransactions must be carried out on an arm’s length basis.  Our centralized cash management is efficientfor both financial and tax reasons.  Allof these operations are subject to the supervision of our Directors’ Committee.  As of December 2008, these operationsare priced at TIP (Chilean variable interest rate) + 0.05% per month.

 

In other countries in which we do business, theseintercompany transactions are permitted, but they have adverse taxconsequences.  Accordingly, we do notmanage the cash flows of our non-Chilean subsidiaries.

 

Endesa Chile has alsomade structured loans to its subsidiaries in Chile, primarily to financeprojects and refinance existing indebtedness.  As of December 31, 2008,the outstanding net balance for such loans was $ 302 million. Thelargest amount outstanding during 2008 and 2007 was $ 521 million and$ 519 million respectively.  Endesa Chile has only oneoutstanding loan granted to a foreign subsidiary.  The outstanding net balance of this loan wasof $ 7.1 million as of December 31, 2008.  The largestnet amount outstanding during 2008 and 2007 for such loans was$ 7.1 million and $ 165 million, respectively.

 

As of December 31, 2008 the interest rateson these intercompany loans to Endesa Chile’s Chilean subsidiaries, measured inequivalent dollars, range from 2.30% to 7.50%, with a weighted average interestrate of approximately 5.53%.  Theinterest rate on the outstanding intercompany loan granted to Endesa-Chile’sforeign subsidiaries, measured in equivalent dollars, is 6.40%.

 

**C.**            Interests of experts and counsel

** **

Not applicable.

 

**Item 8.**   Financial Information

** **

**A.**            Consolidated Statements and OtherFinancial Information

** **

See Item 18 for our consolidated financial statements.

 

**Legal Proceedings**

** **

**Chile**

** **

The Company is party to various lawsuits arising inthe ordinary course of its business. Management considers that it is unlikely that any losses associated withthe pending lawsuits described below will significantly affect the Company orits subsidiaries’ operations, financial position or cash flows.

 

For detailed information on the December 31, 2008on the status of the most significant pending lawsuits that have been filedagainst the Company or its subsidiaries, please refer to Note 29 of ourconsolidated financial statements.  Thelawsuits are detailed by company and the descriptions provide the court of lawoverseeing the lawsuit, a legal reference number, a general description of thelawsuit, the process status of the lawsuit and the estimate of the amountinvolved in the lawsuit.

 

The following lawsuits were resolved during 2008, and,therefore, are not included in Note 29 of our consolidated financialstatements.

 

***Proceeding initiated by Endesa Chile against theDepartment of Water Resources (Appeals Court of Santiago N° 6746-2007)***

 

This case was an appeal of Exemption Resolution DGA No. 2144of the Department of Water Resources, issued on September 11, 2007,which establishes rules for auctioning off water rights for the Manso River.  These water rights were simultaneouslyrequested by Endesa Chile and AES Gener S.A., but the latter withdrew itsrequest on September 7, 2006. Given these facts, the Plaintiff is claiming that the Department ofWater Resources should not auction off these water rights, which would infringeon Articles 6 and 7 of the Chilean Constitution and Article 142 of theWater Code, among other.

 

The Appeals Court of Santiago rejectedEndesa Chile’s appeal.  Even thoughthe Company filed an appeal of annulment against this ruling, it later ceasedto continue with this lawsuit.

 

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***Proceeding******initiated by Empresa Eléctrica PehuencheS.A. against Empresa Eléctrica Colbún S.A. (20th Civil Court of SantiagoN°5863-2001)***

 

Pehuenche S.A. requestedthe fulfillment of contract with an indemnity of Ch$ 3,923 million,for damages related to services rendered by Pehuenche S.A. to Colbún S.A.during the last drought period in 1998, plus interests. Colbún S.A. respondedwith a countersuit against Pehuenche S.A. seeking payment for losses caused bynot being able to operate the dam below a specific level from April and May 2001related to a ruling dictated by the Appeals Court of Talca, in a lawsuitrelated to the obligation to supply the Maule Norte Bajo canal that was laterreversed by the Supreme Court.  Theamount involved was Ch$ 3,932 million plus interests.

 

The Supreme Court rejectedthe appeal by Colbún S.A. against the Court of Appeals’ ruling, confirming theresolution issued in Pehuenche S.A.’s favor.

 

**Dividend Policy**

** **

The Board generally establishes a definitive dividendpayable each year, and attributable to the prior year, which cannot be lessthan the legal minimum of 30% of annual net income before negative goodwillamortization. As agreed at a meeting held on March 25, 2009, the Board ofDirectors informed at the GSM held on April 15, 2009 the payment of adefinitive dividend of Ch$6.1 per share for fiscal year 2008, equal to a payoutratio of 35.27% (based on annual net income before negative goodwillamortization).  The provisional dividendof Ch $1.5391 per share paid on December 2008 was deducted from thedefinitive dividend paid on April 30, 2009, as agreed by the GSM.

 

The Board of Directors also approved a dividend policyfor fiscal year 2009 according to which a provisional dividend will be paid tostockholders equal to 15% of the net income accumulated up to September 30,2009 and will propose a definitive dividend payout equal to 60% of the annualnet income of fiscal year 2009.  Actualdividend payments will be subject to net profits obtained in each period, aswell as to expectations of future profit levels and other conditions that mayexist at the time of such dividend declaration. The fulfillment of the aforementioned dividend policy will depend onactual 2009 net income. The proposed dividendpolicy is subject to the Board of Director’s prerrogative to change the amountand timing of the dividend under the circumstances at the time of the payment.

 

Currently, there are no restrictionson the ability of Enersis or any of its subsidiaries to pay dividends, otherthan the customary legal restriction of limiting the amount of dividends to netincome and retained earnings and in the event of specific circumstances giventhe conditions of certain credit agreements, except for the following: Panguemay not pay dividends unless it complies with certain financial covenantsrelating to leverage and debt service coverage ratios; Costanera is prohibitedfrom paying dividends while certain debt is outstanding; and dividend paymentsby El Chocón are limited by a credit agreement executed in 2006.  In general terms companies may noy paydividends in case of default on credit agreements. (See. “Item 5. Operating andFinancial Review and Prospects — B. Liquidity andcapital resources” for further detail on Enersis debt instruments).

 

Stockholders set dividend policies at each subsidiaryand affiliate.  There are currently nomaterial currency controls which prohibit Enersis from repatriating thedividend payments from its non-Chilean principal subsidiaries and affiliates.

 

The Company pays dividends toshareholders of record as of five business days before the payment date.  Holders of ADSs on the applicable recorddates will be entitled to participate in all future dividends.

 

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**Dividends**

 

Thetable below sets forth, for each of the years indicated, the per share amountsof dividends distributed by the Company in pesos and the amount of dividendsdistributed per 30 common shares (one ADS represents 30 common shares) indollars.  See “Item 10. AdditionalInformation — D. Exchange Controls.”

 
| ** ** | ** ** | **Dividends Distributed (1)** | ** ** |
|------------|------------|-------------------------------|------------|
| **Year**   | ** ** | **Ch$ per Share (2)**    | ** ** | **Ch$ per Share (3)** | ** ** | **$ per ADS (4)** | ** ** |
| 2004       |       | 4.13                          |       | 5.11 |   | 0.17 |   |
| 2005       |       | 5.82                          |       | 6.98 |   | 0.23 |   |
| 2006       |       | 13.41                         |       | 15.53 |   | 0.52 |   |
| 2007       |       | 13.76                         |       | 14.77 |   | 0.49 |   |
| 2008 (5)   |       | 21.28                         |       | 21.28 |   | 0.71 |   |

 

----

(1)          This chart details dividendsaccrued but not necessarily paid in any given year and does not reflectreduction for any applicable Chilean tax withholding.

(2)          Amounts in historical pesos.

(3)          Amounts in constant pesos asof December 31, 2008.

(4)          The dollar per ADS amount hasbeen calculated by applying the exchange rate of Ch$ 636.45 = $ 1.00,the Observed Exchange Rate prevailing on December 31, 2008, to theconstant peso amount.  One AmericanDepositary Share represents 30 common shares.

(5)          Dividend approved at theAnnual Shareholders’ Meeting of Endesa Chile held on April 15, 2009.

 

**B.**            Significant Changes

** **

None.

 

**Item 9.**   The Offer and Listing

** **

**A.**            Offer and listing details

** **

**Market Price andVolume Information**

** **

The shares of our common stock currently trade on theChilean Exchanges.  Shares of our commonstock have traded in the United States on the NYSE since 1994 in the form ofADSs under the ticker symbol “ENI.”  EachADS represents 30 shares of common stock, with the ADSs in turn evidenced byAmerican Depositary Receipts (“ADRs”). The ADRs are outstanding under a Deposit Agreement dated as of August 3, 1994among Endesa Chile, Citibank N.A. as depositary, and the holders from time totime of ADRs issued thereunder.  Onlypersons in whose names ADRs are registered on the books of the depositary aretreated by the depositary as owners of ADRs.

 

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Thetable below shows, for the periods indicated high and low closing prices inpesos on the Santiago Stock Exchange and high and low closing prices of theADSs in dollars as reported by the NYSE. As of December 31, 2008, ADRs evidencing 15,013,106 shareswere outstanding (equivalent to 450,393,180 shares or 5.49% of the total numberof issued shares).  It is not practicablefor the Company to determine the proportion of ADRs beneficially owned bypersons.  The stock closed at$ 33.49 on the last trading day on the NYSE in 2008.

 
| ** **                 | ** ** | **Santiago Stock  Exchange (1)(2)** | ** ** | **NYSE (1)**       | ** ** |
|----------------------------|------------|-------------------------------------|------------|--------------------|------------|
| ** **                 | ** ** | **Ch$ per share**              | ** ** | **$ per ADS** | ** ** |
| **Most Recent Six Months** | ** ** | **High**                            | ** ** | **Low**            | ** ** | **High** | ** ** | **Low** | ** ** |
| May 2009              |       | 844.00                              |       | 738.00             |       | 45.38 |   | 37.50 |   |
| April 2009            |       | 760.01                              |       | 716.00             |       | 39.42 |   | 36.70 |   |
| March 2009            |       | 773.00                              |       | 708.00             |       | 39.58 |   | 34.24 |   |
| February 2009         |       | 799.90                              |       | 720.00             |       | 39.39 |   | 35.26 |   |
| January 2009          |       | 770.00                              |       | 712.00             |       | 37.74 |   | 33.60 |   |
| December 2008         |       | 785.10                              |       | 709.99             |       | 36.12 |   | 30.01 |   |
|                       |       |                                |       |               |       |   |   |   |   |
| 2008 Annual                |       | 865.00                              |       | 485.00             |       | 52.50 |   | 28.75 |   |
| lst Quarter                |       | 712.01                              |       | 485.00             |       | 49.02 |   | 31.34 |   |
| 2nd Quarter                |       | 835.02                              |       | 693.00             |       | 52.50 |   | 42.61 |   |
| 3rd Quarter                |       | 865.00                              |       | 680.00             |       | 52.39 |   | 40.83 |   |
| 4th Quarter                |       | 785.10                              |       | 610.00             |       | 44.75 |   | 28.75 |   |
| 2007 Annual                |       | 794.35                              |       | 693.92             |       | 47.80 |   | 37.60 |   |
| lst Quarter                |       | 738.00                              |       | 668.83             |       | 43.08 |   | 36.31 |   |
| 2nd Quarter                |       | 871.33                              |       | 757.83             |       | 51.09 |   | 39.74 |   |
| 3rd Quarter                |       | 810.33                              |       | 694.00             |       | 49.75 |   | 37.25 |   |
| 4th Quarter                |       | 757.75                              |       | 655.00             |       | 47.27 |   | 37.10 |   |
|                       |       |                                |       |               |       |   |   |   |   |
| 2006 Annual                |       | 576.68                              |       | 490.63             |       | 32.77 |   | 27.31 |   |
|                       |       |                                |       |               |       |   |   |   |   |
| 2005 Annual                |       | 495.50                              |       | 429.65             |       | 27.13 |   | 22.07 |   |
|                       |       |                                |       |               |       |   |   |   |   |
| 2004 Annual                |       | 347.50                              |       | 225.00             |       | 18.66 |   | 11.50 |   |

 

----

(1)          Sources: Santiago StockExchange, Official Quotation Bulletin, NYSE.

(2)          Nominal price in pesos pershare at trade date.

 

**B.            Plan of Distribution**

** **

Not applicable.

 

**C.            Markets**

** **

In Chile, the Company’s stock is traded on three stockexchanges.  The largest exchange in thecountry, the Santiago Stock Exchange, was established in 1893 as a privatecompany.  Its equity consists of 48shares held by 45 stockholders as of the date of this Report.  As of December 31, 2008, 235companies had shares listed on the Santiago Stock Exchange.  For the year ended 2008, the Santiago StockExchange accounted for 85.4% of Endesa Chile’s total equity traded inChile.  In addition, approximately 14.5%of Endesa Chile’s equity trading was conducted on the Electronic Exchange, anelectronic trading market that was created by banks and non-member brokeragehouses, and 0.1% was traded on the Valparaíso Exchange.

 

Equities, closed-end funds, fixed-income securities, short-termand money market securities, gold and dollars are traded on the Santiago StockExchange.  The Santiago Stock Exchangealso trades dollar futures and Selective Shares Price Index, or IPSA, futures.  Securities are traded primarily through anopen voice auction system; a firm offers system or the daily auction.  Trading through the open voice system occurson each business day from 9:30 a.m. to 4:30 p.m., from April toOctober, and from 9:30 a.m. to 5:30 p.m. from November to March,Santiago time, which differs from New York City time up to two hours, dependingon the season.  The Santiago StockExchange has an electronic trading system called *Telepregón*, which operates continuously for high volumesfrom 9:30 a.m. to 

 

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4:30 p.m. on eachbusiness day.  Auctions may be conducted,three times a day, at 9:15 a.m., 12:30 p.m. and 4:30 p.m.

 

There are two share price indices on the SantiagoStock Exchange: the General Shares Price Index, or IGPA, and the SelectiveShares Price Index, or IPSA.  The IGPA iscalculated using the prices of shares that are traded at least 5% of thetrading days of a year. The IPSA is calculated using the prices of the 40 mostactively traded shares.  The sharesincluded in the IPSA and IGPA are weighted according to the weighted value ofthe shares traded.  Endesa Chile has beenincluded in the IPSA since the beginning of its privatization process in 1987.

 

In Spain, shares of Endesa Chile were first listed andbegan trading on the *Bolsa de ValoresLatinoamericanos de la Bolsa de Madrid*, or Latibex,in 2001.  One trading unit is theequivalent of 30 common shares and the trading ticker symbol is “XEOC.”  Trading of our shares in the Latibex during2008 amounted to 775,574********units,which in turn was the equivalent of € 22.3 million.  The stock closed at € 24.37 on the last2008 trading day.

 

**D.            Selling shareholders**

** **

Not applicable.

 

**E.            Dilution**

** **

Not applicable.

 

**F.            Expense of the issue**

** **

Not applicable.

 

**Item10.     Additional Information**

** **

**A.            Share capital**

** **

It is included below in Section B of this item.

 

**B.            Memorandum and Articles of Association**

** **

**Description ofShare Capital**

** **

Set forth below is certain information concerning ourshare capital and a brief summary of certain significant provisions of ourbylaws and Chilean law.

 

**General**

** **

Shareholders’ rights in Chilean companies are governedby the company’s bylaws, which serve the same purpose as the articles orcertificate of incorporation and the bylaws of a company incorporated in theUnited States; and by the Law 18,046,or the Chilean Companies Act.  Inaddition, D.L.-3500, which permits the investment by Chilean pension funds instock of qualified companies, indirectly affects corporate governance andprescribes certain rights of shareholders. In accordance with the Chilean Companies Act, legal actions byshareholders against us enforcing their rights as shareholders must be broughtin Chile in arbitration proceedings or, at the option of the plaintiff, beforethe ordinary courts of Chile.

 

The Chilean securities markets are principallyregulated by the Superintendency of Securities and Insurances, or the SVS,under the Law 18,045, or theSecurities Market Law, and the Chilean Companies Act.  These two laws provide for disclosurerequirements, restrictions on insider trading and price manipulation, andprotection of minority investors.  TheSecurities Market Law sets forth requirements for public offerings, stockexchanges and brokers, and outlines disclosure requirements for companies thatissue publicly offered securities.  TheChilean Companies Act clarifies rules establishing publicly held limitedliability stock companies while eliminating government supervision of privatesector companies.  Law 19,705, enacted in2000, introduced important amendments to the Chilean Companies Act and theSecurities Market Law.  Among otherthings, it provides a new definition for publicly held stock companies and new rules regardingchange of control, tender offers, transactions with directors, qualifiedmajorities, shares repurchase, directors’ committee, stock options andderivative actions.  Publicly heldlimited liability stock companies are those with 500 or more shareholders, orcompanies in which 100 

 

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or more shareholders ownat least 10% of the subscribed capital, excluding those whose individualholdings exceed this percentage, and all other companies which are voluntarilyregistered with the SVS, regardless of the number of their shareholders.  Endesa Chile is a publicly held limitedliability stock company.

 

**ReportingRequirements Regarding Acquisition or Sale of Shares**

** **

Under Article 12 of the Securities Market Law andSection II, Circular 585, of the SVS, certain information regardingtransactions in shares of publicly held limited liability stock companies mustbe reported to the SVS and the Chilean stock exchanges.  Since the ADSs are deemed to represent theshares of common stock underlying the ADRs, transactions in ADRs are subject tothese reporting requirements and those established in Circular 1,375 of theSVS.  The following transactions must bereported:

 

·                  any direct or indirect acquisition or sale of sharesmade by a holder that owns directly or indirectly 10% or more of a publiclyheld limited liability stock company’s subscribed capital;

 

·                  any direct or indirect acquisition or sale of sharesmade by a holder that, due to an acquisition of shares of such publicly heldstock company, results in the holder acquiring directly or indirectly 10% ormore of a publicly held stock company’s subscribed capital; and

 

·                  any direct or indirect acquisition or sale of sharesin any amount, made by a director, receiver, principal executive, generalmanager or manager of a publicly held stock company.

 

In addition, persons who enter into the aforementionedtransactions must inform the SVS and the Chilean stock exchanges if suchtransactions are entered into with the intention of obtaining control of theCompany.

 

Under Article 54 of the Securities Market Law and*Norma de Carácter General**104* enacted by the SVS, any person who directly orindirectly intends to take control of a publicly held stock company mustdisclose this intent to the market at least ten business days in advance of theproposed change of control and, in any event, as soon as the negotiations forthe change of control have started.

 

**Register**

** **

Endesa Chile is registered with the SVS and its entrynumber is 0114, and with the Securities and Exchange Commission in the UnitedStates.

 

**CorporateObjective and Purpose**

** **

Article 4 of our bylaws states that our corporateobjectives and purposes are, among other things, to exploit the production,transportation, distribution and supply of electric power, as well as, toprovide engineering consultancy services, directly or through other companies,in Chile and abroad.

 

**Board of Directors**

** **

Our Board of Directors is comprised of ninemembers.  Members of the Board areappointed by the General Shareholders’ Meeting (“GSM”) and are elected for aperiod of three years at the end of which they will be re-elected or replaced.

 

The nine directors elected at the GSM are the nineindividual nominees who receive the most votes. Each shareholder may vote his shares in favor of one nominee or mayapportion his shares among any number of nominees.  These voting provisions ensure that ashareholder owning more than 10% of our shares is able to elect a member of theBoard of Directors..

 

The compensation of the directors is set annually bythe GSM. See “Item 6. Directors, Senior Management and Employees — B.Compensation.”

 

Agreements entered into by Endesa Chile in which oneor more directors have an interest or act as the representative of anotherperson have to be known by, and approved previously by, the Board and have tobe consistent with usually prevailing market conditions.  The resolutions taken by the Board to thiseffect have to be 

 

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submitted at the nextshareholders’ meeting by the Chairman, and have to be listed in the notice ofthat meeting as a matter to be addressed at the meeting.

 

All agreements between Endesa Chile and its majorityshareholders, its directors or executives, or related parties, need to beapproved by a two-thirds majority of the Board and must be recorded in theminutes of the Board of Director meetings.

 

**Certain Powers ofthe Board of Directors**

** **

Our bylaws do not contain provisions relating to:

 

·                  the directors’ power, in the absence of an independentquorum, to vote on compensation for themselves or any members of their body;

 

·                  borrowing powers exercisable by the directors and howsuch borrowing powers can be varied;

 

·                  retirement or non-retirement of directors under an agelimit requirement; or

 

·                  number of shares, if any, required for directors’qualification.

 

**Certain ProvisionsRegarding Shareholder Rights**

** **

As of the date of the filing of this Report, EndesaChile’s capital is comprised of only one class of shares, all of which areordinary shares and have the same rights.

 

Our bylaws do not contain any provisions relating to:

 

·                  redemption provisions;

 

·                  sinking funds; or

 

·                  liability to capital calls by the Company.

 

Under Chilean law, the rights of holders of stock mayonly be changed by an amendment to the bylaws of the Company that complies withthe requirements explained below under “— Shareholders’ Meetings and VotingRights.”

 

**Capitalization**

** **

Under Chilean law, only the shareholders of a company,acting at a special shareholders’ meeting, have the power to authorize anincrease in its capital.  When aninvestor subscribes for shares, the shares are officially issued and registeredin his name, and the subscriber is treated as a shareholder for all purposesexcept receipt of dividends and for return of capital in the event that theshares have been subscribed but not paid for. The subscriber becomes eligible to receive dividends only for the sharesthat he has actually paid for, unless the company’s bylaws provideotherwise.  If a subscriber does notfully pay for shares for which he has subscribed on or prior to the date agreedupon for payment, the company is entitled to auction the shares on the stockexchange where such shares are traded and has a cause of action against thesubscriber for the difference between the subscription price and the priceactually received at auction, if any.  However, until such shares are sold at auction, the subscriber continuesto exercise all the rights of a shareholder, except the right to receivedividends and return of capital. Authorized and issued shares for which full payment has not been madewithin the period fixed by the special shareholders’ meeting at which theirsubscription was authorized, which in no case may exceed three years from thedate of such meeting, are canceled and are no longer available for issuance.

 

As of the date of this Report, the capital subscribedand fully paid for totals Ch$ 1,331,714 million (corresponding to thesubscribed and paid capital as of December 31, 2008) for8,201,754,580 shares.

 

**Preemptive Rightsand Increases of Share Capital**

** **

The Chilean Companies Act requires Chilean companiesto grant shareholders the preemptive right to purchase a sufficient number ofshares to maintain their existing ownership percentage of such company wheneversuch company issues new shares.

 

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Under Chilean law, preemptive rights are exercisableor freely transferable by shareholders during a 30-day period following the daythe capital increase is made public. During such 30-day period, and for an additional 30-day period, publiclyheld limited liability stock companies are not permitted to offer anyunsubscribed shares to third parties on terms which are more favorable thanthose offered to their shareholders.  Atthe end of this additional 30-day period, a Chilean publicly held limitedliability stock company is authorized to sell non-subscribed shares to thirdparties on any terms, provided they are sold on one of the Chilean stockexchanges.

 

**Shareholders’Meetings and Voting Rights**

** **

Amendments to Articles 1bis, 5bis, 16bis, 20bis,35bis, 36bis, 40bis, 42bis, 43bis and 44bis of the bylaws requires theaffirmative vote of 75% of the issued shares with voting rights.  A GSM must be held within the first fourmonths following the end of our fiscal year. The last GSM was held on April 15, 2009.  Extraordinary meetings may be called by theBoard of Directors when deemed appropriate or when requested by shareholdersrepresenting at least 10% of the issued shares with voting rights or by theSVS.  To convene an extraordinarymeeting, or a general shareholder meeting, notice must be given three times ina newspaper located in our corporate domicile. The newspaper designated by our shareholders is *El Mercurio de Santiago*.  The first notice must be published not lessthan 15 days and no more than 20 days in advance of the scheduled meeting.  Notice must also be mailed to eachshareholder, to the SVS and to the Chilean stock exchanges.  The last extraordinary meeting ofshareholders was held on April 15, 2009.

 

Under Chilean law, a quorum for a shareholders’meeting is established by the presence, in person or by proxy, of shareholdersrepresenting at least a majority of the issued shares with voting rights of a company.  If a quorum is not present at the firstmeeting, a reconvened meeting can take place at which the shareholders presentare deemed to constitute a quorum regardless of the percentage of the sharesrepresented.  The second meeting musttake place within 45 days following the scheduled date for the firstmeeting.  Shareholders’ meetings adoptresolutions by the affirmative vote of an absolute majority of those sharespresent or represented at the meeting. Additionally, an extraordinary shareholders’ meeting must be called totake the following actions:

 

·                  a transformation of the company into a form other thana *sociedad anónima abierta* (a publiclyheld limited liability stock company) under the Chilean Companies Act, a mergeror division of the company;

 

·                  an amendment to the term of duration or earlydissolution of the company;

 

·                  a change in the corporation’s domicile;

 

·                  a decrease of corporate capital;

 

·                  approval of capital contributions in kind andassessment of assets that do not consist of money;

 

·                  modification of the authority reserved to shareholdersor limitations on the board of directors;

 

·                  reduction in the number of members of the board ofdirectors;

 

·                  disposition of 50% or more of the assets of thecorporation, whether it includes disposition of liabilities or not, as well asthe approval or the amendment of the business plan which contemplates thedisposition of assets for such amount;

 

·                  the form of distributing corporate benefits;

 

·                  issue of guarantees for third-party liabilities whichexceed 50% of the assets, except when the third party is a subsidiary of thecompany, in which case approval of the board of directors is sufficient;

 

·                  the purchase of the corporation’s own shares;

 

·                  others established by the bylaws or the laws;

 

·                  certain remedies for the nullification of thecorporate bylaws.

 

Regardless of the quorum present, the vote requiredfor any of the actions above is a two-thirds majority of the outstanding shareswith voting rights.

 

Bylaw amendments for the creation of a new class ofshares, or an amendment to or an elimination of those classes of shares thatalready exist, must be approved by two-thirds of the outstanding shares of theaffected series.

 

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Chilean law does not require a publicly held Chileancompany to provide its shareholders the same level and type of informationrequired by the securities laws regarding the solicitation of proxies.  However, shareholders are entitled to examinethe books of the company within the 15-day period before the scheduledGSM.  Under Chilean law, a notice of ashareholders meeting listing matters to be addressed at the meeting must bemailed at least 15 days prior to the date of such meeting, and, in the case ofa GSM, the company will offer to the shareholders an annual report of thecompany’s activities which includes audited financial statements.

 

The Chilean Companies Act provides that, upon therequest by shareholders representing 10% or more of the issued shares withvoting rights, a Chilean company’s annual report must include, in addition tothe materials provided by the board of directors to shareholders, suchshareholders’ comments and proposals in relation to the company’s affairs.  Similarly, the Chilean Companies Act providesthat whenever the board of directors of a publicly held stock company convenesa GSM and solicits proxies for the meeting, or circulates information supportingits decisions or other similar material, it is obligated to include thepertinent comments and proposals that may have been made by shareholders owning10% or more of the shares with voting rights who request that such comments andproposals be so included.

 

Only shareholders registered as such with Endesa Chileat least five business days prior to the date of a meeting are entitled toattend and vote their shares.  Ashareholder may appoint another individual, who need not be a shareholder, ashis proxy to attend and vote on his behalf. Proxies for such representation shall be given in writing for all theshares held by the owner.  Everyshareholder entitled to attend and vote at a shareholders’ meeting shall haveone vote for every share subscribed.

 

There are no limitations imposed by Chilean law or thecompany’s bylaws on the right of nonresidents or foreigners to hold or voteshares of common stock.  However, theregistered holder of the shares of common stock represented by ADSs, andevidenced by outstanding ADRs, is the custodian of the Depositary, currentlyCitibank N.A. (Chile), or any successor thereto.  Accordingly, holders of ADRs are not entitledto receive notice of meetings of shareholders directly or to vote theunderlying shares of common stock represented by ADSs and evidenced by the ADRsdirectly.  The Deposit Agreement containsprovisions pursuant to which the Depositary has agreed to solicit instructionsfrom registered holders of ADRs as to the exercise of the voting rights pertainingto the shares of common stock represented by the ADSs and evidenced by suchADRs.  Subject to compliance with therequirements of the Deposit Agreement and receipt of such instructions, theDepositary has agreed to endeavor, insofar as practicable and permitted underChilean law and the provisions of the bylaws, to vote or cause to be voted (orgrant a discretionary proxy to the Chairman of the Board of Directors of thecompany or to a person designated by the Chairman of the Board of Directors of thecompany to vote) the shares of common stock represented by the ADSs evidencedby such ADRs in accordance with any such instruction.  The Depositary shall not itself exercise anyvoting discretion over any shares of common stock underlying ADSs.  If no voting instructions are received by theDepositary from a holder of ADRs with respect to the shares of common stockrepresented by the ADSs, and evidenced by such ADRs, on or before the dateestablished by the Depositary for such purpose, the shares of common stockrepresented by the ADSs, subject to limitations set forth in the DepositAgreement, may be voted in the manner directed by the Chairman of the Board ofthe company.

 

**Dividends andLiquidation Rights**

** **

According to the Chilean CompaniesAct, unless otherwise decided by unanimous vote of its issued Shares eligibleto vote, all companies must distribute a cash dividend in an amount equal to atleast 30% of its consolidated net income, before amortization and negativegoodwill for each year (on a Chilean GAAP basis), unless and except to theextent the company has carried forward losses. The law provides that the Board of Directors has to propose thedividends policy to the shareholders at the GSM.

 

Any dividend in excess of 30% of net income may bepaid, at the election of the shareholder, in cash, in Endesa Chile’s shares orin shares of publicly held corporations held by Endesa Chile.  Shareholders who do not expressly elect toreceive a dividend other than in cash are legally presumed to have decided toreceive the dividend in cash.

 

Dividends which are declared but not paid within theappropriate time period set forth in the Chilean Companies Act (as to minimumdividends, 30 days after declaration; as to additional dividends, the date setfor payment at the time of declaration) are adjusted to reflect the change inthe value of UF, from the date set for payment to the date such dividends areactually paid.  Such dividends alsoaccrue interest at the then-prevailing rate for UF-denominated deposits duringsuch period.  The right to receive adividend lapses if it is not claimed within

 

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five years from the date suchdividend is payable; payments not collected in such period are transferred forthe benefit of the fire department, formed by volunteers.

 

In the event of a liquidation of Endesa Chile, theholders of shares would participate in the assets available in proportion tothe number of paid-in shares held by them, after payment to all creditors.

 

**Approval ofFinancial Statements**

** **

The Board of Directors is required to submit EndesaChile’s financial statements to the shareholders annually for theirapproval.  If the shareholders by a voteof a majority of shares present (in person or by proxy) at the shareholders’meeting reject the financial statements, the Board of Directors must submit newfinancial statements no later than 60 days from the date of such meeting.  If the shareholders reject the new financialstatements, the entire Board of Directors is deemed removed from office and anew board is elected at the same meeting. Directors who individually approved such financial statements aredisqualified for reelection for the following period.  Our shareholders have never rejected thefinancial statements presented by the Board of Directors.

 

**Change of Control**

** **

Law 19,705, enacted in 2000, establishes acomprehensive regulation related to tender offers.  The law defines a tender offer as the offerto purchase shares of companies which publicly offer their shares or securitiesconvertibles into shares and which offer is made to shareholders to purchasetheir shares under conditions which allow the bidder to reach a certainpercentage of ownership of the company within a fixed period of time.  These provisions apply to both voluntary andhostile tender offers.

 

**Acquisition ofShares**

** **

There are no provisions in our bylaws thatdiscriminate against any existing or prospective holder of shares as a resultof such shareholder owning a substantial number of shares.  However, no person may directly or indirectlyown more than 65% of the outstanding shares of our stock.  The foregoing restriction does not apply tothe depositary as record owner of shares represented by ADRs, but it does applyto each beneficial ADS holder. Additionally, our bylaws prohibit any shareholder from exercising votingpower with respect to more than 65% of the common stock owned by such shareholderor on behalf of others representing more than 65% of the outstanding issuedshares with voting rights.

 

**Right ofDissenting Shareholders to Tender Their Shares**

** **

The Chilean Companies Act provides that upon theadoption of any of the resolutions enumerated below at a meeting ofshareholders, dissenting shareholders acquire the right to withdraw from thecompany and to compel the company to repurchase their shares, subject to thefulfillment of certain terms and conditions. In order to exercise such rights, holders of ADRs must first withdrawthe shares represented by their ADRs pursuant to the terms of the depositagreement.

 

“Dissenting” shareholders are defined as those whovote against a resolution that results in the withdrawal right, or who if absentfrom such meeting, state in writing their opposition to the respectiveresolution, within the 30 days following the shareholders’ meeting.  The price paid to a dissenting shareholder ofa publicly held company whose shares are quoted and actively traded on one ofthe Chilean stock exchanges, is the greater of (i) the weighted average ofthe sales prices for the shares as reported on the Chilean stock exchanges onwhich the shares are quoted for the two-month period preceding the shareholders’meeting giving rise to the withdrawal right, and (ii) the market priceresulting from the average price of transactions on such day.  If, because of the volume, frequency, numberand diversity of the buyers and sellers, the SVS determines that the shares arenot actively traded on a stock exchange, the price paid to the dissentingshareholder shall be the book value. Book value for this purpose shall equal paid capital plus reserves andprofits, less losses, divided by the total number of subscribed shares, whetherentirely or partially paid.  For thepurpose of making this calculation, the last annual balance sheet is used, asadjusted to reflect inflation up to the date of the shareholders’ meeting whichgave rise to the withdrawal right.

 

The resolutions that result in a shareholder’s rightto withdraw include, among others, the following:

 

·                  the transformation of the company into an entity whichis not a *sociedad anónima abierta* (a publiclyheld limited liability stock company) governed by Chilean Companies Act;

 

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·                  the merger of the company with another company;

 

·                  disposition of at least 50% of the assets of thecorporation, whether it includes disposition of liabilities or not, as well asany business plan which contemplates the disposition of assets for an amountgreater than this percentage;

 

·                  issue of guarantees for third parties’ liabilitieswhich exceed 50% of the assets (if the third party is a subsidiary of thecompany, the approval of the board of directors is sufficient);

 

·                  the creation of preferential rights for a class ofshares or an amendment to the existing ones. In this case the right to withdraw only accrues to the dissentingshareholders of the class or classes of shares adversely affected;

 

·                  certain remedies for the nullification of thecorporate bylaws; and

 

·                  such other causes as may be established by the law orby the company’s bylaws.

 

**Investments byAFPs**

** **

DL-3500 permits *Administradorasde Fondos y Pensiones*, Chilean Pension Funds, or AFPs, to investtheir funds in companies that are subject to Title XII and, subject to greaterrestrictions, in other companies.  Thedetermination of which stocks may be purchased by AFPs is made by the RiskClassification Committee.  The RiskClassification Committee establishes investment guidelines and is empowered toapprove or disapprove those companies that are eligible for AFPinvestments.  Endesa Chile has been aTitle XII Company since 1987 and is approved by the Risk Classification Committee.

 

Title XII companies are required to have bylaws thatlimit the ownership of any shareholder to a specified maximum percentage, andthat require that certain actions be taken only at a meeting of theshareholders and give the shareholders the right to approve certain investmentand financing policies.

 

**Registrations andTransfers**

** **

Shares issued by Endesa Chile are registered with anadministrative agent named *Depósito Centralde Valores S.A.*, *Depósito**de Valores*.  This entity is responsible for Endesa Chile’sshareholders registry as well.  In caseof jointly owned shares, an attorney-in-fact must be appointed to represent thejoint owners in dealing with Endesa Chile.

 

**Foreign InvestmentContract and Chapter XXVI**

** **

Regarding our initial offering of ADSs in 1994, weentered into a foreign investment contract (the “Foreign Investment Contract”)with the Chilean Central Bank and the Depositary, pursuant to Article 47of the Central Bank Act and Chapter XXVI of the former Compendium ofForeign Exchange Regulations (“Chapter XXVI”), which governed the issuanceof ADSs by a Chilean company.  Pursuantto the Foreign Investment Contract, the foreign exchange for payments anddistributions with respect to the ADSs may be purchased in either the FormalExchange Market or the Informal Exchange Market, but such payments must benecessarily remitted through the Formal Exchange Market.  The new Compendium of Foreign ExchangeRegulations, in force since April 19, 2001, eliminatedChapter XXVI.  This Compendium wasrestated and has been in force since March 1, 2002.  As a result of the elimination ofChapter XXVI, there is no longer assured access to the Formal ExchangeMarket.  However, because the ForeignInvestment Contract was entered into pursuant to Chapter XXVI, theprinciples of Chapter XXVI still apply to its terms.  Foreign investors who have purchased theirshares under a Foreign Investment Contract pursuant to Chapter XXVIcontinue to have access to the Formal Exchange Market for the purpose ofconverting pesos to dollars and repatriating from Chile amounts received withrespect to the deposited shares of common stock or shares of common stockwithdrawn from deposit on surrender of ADRs (including amounts received as cashdividends and proceeds from the sale in Chile of the underlying shares ofcommon stock and any rights with respect thereto).  The Foreign Investment Contracts cannot bemodified or terminated without the consent of all parties, and thereforeforeign investors who have purchased their shares under a Foreign InvestmentContract will continue to have access to the Formal Exchange Market.  However, foreign investors who did notdeposit the shares of common stock into our ADS facility will not have thebenefits of our foreign investment contract with the Central Bank but insteadwill be subject to the normal foreign investment rules.

 

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The following is a summary of certain provisions whichwere contained in Chapter XXVI and the Foreign Investment Contract, andwhich therefore remain relevant.  Thissummary does not purport to be complete and is qualified in its entirety byreference to Chapter XXVI and the Foreign Investment Contract.

 

Under Chapter XXVI and the Foreign InvestmentContract, the Central Bank agreed to grant to the Depositary, on behalf of ADRholders, and to any investor not residing or domiciled in Chile who withdrawscommon stock upon delivery of ADRs (such shares of common stock being referredto herein as “Withdrawn Shares”) access to the Formal Exchange Market toconvert pesos into dollars (and to remit such dollars outside of Chile),including amounts received as:

 

·                  cash dividends;

 

·                  proceeds from the sale in Chile of Withdrawn Sharessubject to receipt by the Central Bank of a certificate from the holder of theWithdrawn Shares (or from an institution authorized by the Central Bank) thatsuch holder’s residence and domicile are outside Chile and a certificate from aChilean stock exchange (or from a brokerage or securities firm established inChile) that such Withdrawn Shares were sold on a Chilean stock exchange;

 

·                  proceeds from the sale in Chile of rights to subscribefor additional shares of Common Stock;

 

·                  proceeds from the liquidation, merger or consolidationof our Company; and

 

·                  other distributions, including, without limitation,those resulting from any recapitalization, as a result of holding shares ofCommon Stock represented by ADSs or Withdrawn Shares.

 

Transferees of Withdrawn Shares were not entitled toany of the foregoing rights under Chapter XXVI.  Investors receiving Withdrawn Shares inexchange 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 FormalExchange Market in connection with dividend payments was conditioned uponcertification by us to the Central Bank that a dividend payment has been madeand any applicable tax has been withheld. Chapter XXVI also provided that the access to the Formal ExchangeMarket in connection with the sale of Withdrawn Shares or distributions thereonwas conditioned upon receipt by the Central Bank of certification by theDepositary (or the Custodian on its behalf) that such Shares have beenwithdrawn in exchange for ADRs and receipt of a waiver of the benefit of theForeign Investment Contract with respect thereto until such Withdrawn Shareswere redeposited.

 

The Foreign Investment Contract provides that a personwho brings foreign currency into Chile to purchase shares of common stock withthe benefit of the Foreign Investment Contract must convert it into pesos onthe same day and has five banking business days within which to invest inshares of common stock in order to receive the benefits of the ForeignInvestment Contract.  If such person decideswithin such period not to acquire shares of common stock, such person canaccess the Formal Exchange Market to reacquire dollars provided that theapplicable request is presented to the Central Bank within seven bankingbusiness 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 (orthe Custodian on its behalf) that such deposit has been effected and that therelated ADRs have been issued and receipt of a declaration from the personmaking such deposit waiving the benefits of the Foreign Investment Contractwith respect to the deposited shares of common stock.

 

Access to the Formal Exchange Market under any of thecircumstances described above is not automatic. Pursuant to Chapter XXVI, such access required approval of theCentral Bank based on a request therefor presented through a bankinginstitution established in Chile.  TheForeign Investment Contract provides that if the Central Bank has not acted onsuch request within seven banking days, the request will be deemed approved.

 

In November 1995, the Central Bank amendedChapter XXVI to regulate secondary offerings of ADSs by companies thathave previously entered into a Foreign Investment Contract.

 

On November 16, 1999, the Central Bankissued new regulations that amended Chapter XXVI.  Among the amendments, Chapter XXVIrequired that foreign currency that entered Chile pursuant to Chapter XXVIbe

 

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converted into pesos inthe Formal Exchange Market and the shares evidencing ADRs only be paid inpesos.  In addition, foreign currencyrequired to remit the proceeds of the sale of the underlying shares must beacquired alternatively in either the Formal or in the Informal Exchange Market,although remittance of such amounts necessarily was to be made through theFormal Exchange Market (i.e., through a bank). On May 12, 2000, the rule that required that the investedcapital remain in the country for at least one year before being repatriatedwas eliminated.

 

Under current Chilean law, the Foreign Investment Contractcannot be changed unilaterally by the Central Bank.  It is not certain, however, that additionalChilean restrictions applicable to the holders of ADRs, the disposition ofunderlying shares of Common Stock or the repatriation of the proceeds from suchdisposition could not be imposed in the future, nor can there be any assessmentof the duration or impact of such restrictions if imposed.

 

**The Compendium andInternational Bond Issuances**

** **

Chilean issuers may offer bonds issued by the CentralBank internationally under Chapter XIV, as amended, of the Compendium ofForeign Exchange Regulations (the “Compendium”).

 

**C.            Material contracts**

** **

None.

 

**D.            Exchange controls**

** **

The Central Bank is responsible for, among otherthings, monetary policies and exchange controls in Chile.  Foreign Exchange Regulations are ruled by theCompendium approved by Chilean Central Bank in 2002.  The Compendium completed the process ofgradual deregulation of the foreign exchange market, in particular by removingvarious restrictions on cross-border investing and financing.  The Compendium enhances the quality of theinformation gathered by the Central Bank with respect to monetary policies andexchange controls.

 

**E.            Taxation**

** **

**Chilean TaxConsiderations**

** **

The following discussion summarizes material Chileanincome and withholding tax consequences to beneficial owners arising from theownership and disposition of the shares and ADSs.  The summary which follows does not purport tobe a comprehensive description of all of the tax considerations that may berelevant to a decision to purchase, own or dispose of shares or ADSs and doesnot purport to deal with the tax consequences applicable to all categories ofinvestors, some of which may be subject to special rules.  Holders of shares and ADSs are advised toconsult 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, asin effect on the date hereof, and is subject to any changes in these or otherlaws occurring after such date, possibly with retroactive effect.  Under Chilean law, provisions contained instatutes such as tax rates applicable to foreign investors, the computation oftaxable income for Chilean purposes and the manner in which Chilean taxes areimposed and collected may be amended only by another law.  In addition, the Chilean tax authoritiesenact rulings and regulations of either general or specific application andinterpret the provisions of Chilean tax law. Chilean tax may not be assessed retroactively against taxpayers who actin good faith relying on such rulings, regulations and interpretations, butChilean tax authorities may change their rulings, regulations andinterpretations in the future.  Thediscussion that follows is also based, in part, on representations of theDepositary, and assumes that each obligation in the deposit agreement and anyrelated agreements will be performed in accordance with its terms.  There is no income tax treaty in forcebetween Chile and the United States.

 

As used in this Report,the term “foreign holder” means either:

 

·                  in the case of an individual, a person who is not aresident of Chile; for purposes of Chilean taxation, an individual holder isresident of Chile if he or she has resided in Chile for more than six months inone calendar year, or a total of more than six months in two consecutive fiscalyears; or

 

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·                  in the case of a legal entity, an entity that is notorganized under the laws of Chile, unless the shares or ADSs are assigned to abranch, agent, representative or permanent establishment of such entity inChile.

 

**Taxation of Sharesand ADSs**

** **

***Taxation of Cash Dividends andProperty Distributions***

* *

***General Rule****:*Cash dividends paid with respect to the shares or ADSsheld by a foreign holder will be subject to a 35% Chilean withholding tax,which is withheld and paid by the company. A credit against the Chilean withholding tax is available based on thelevel of corporate income tax actually paid by the company on the income to bedistributed; however, this credit does not reduce the Chilean withholding taxon a one-for-one basis because it also increases the base on which the Chileanwithholding tax is imposed.  In addition,if the company distributes less than all of its distributable income, thecredit for the Chilean corporate income tax paid by the company isproportionately reduced.  As of January 1, 2004,the Chilean corporate tax rate is 17%. The example below illustrates the effective Chilean withholding taxburden on a cash dividend received by a foreign holder, assuming a Chileanwithholding tax rate of 35%, an effective Chilean corporate income tax rate of17% and a distribution of 50% of the net income of the company distributableafter 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 withholdingtax rate, after giving effect to the credit for the Chilean corporate incometax 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 are generally assumed to have been paid outof the Company’s oldest retained profits for purposes of determining the levelof Chilean corporate income tax that was paid by the Company.  For information as to the retained earningsof the Company for tax purposes and the tax credit available on thedistribution of such retained earnings, see Note 8 to our consolidatedfinancial statements.

 

Under Chilean income tax law, dividend distributionsmade in property are subject to the same Chilean tax rules as cashdividends.  Stock dividends are notsubject to Chilean taxation.

 

***Exceptions****:* Despite the general rule previously examined,there are special circumstances under which a different tax treatment wouldapply depending on the source of the income or due to special circumstancesexisting at the date of the dividend distribution.  The special cases of most common occurrenceare briefly described below:

 

1)                                     Circumstances where there is no creditagainst the Chilean withholding tax: Dividends distributed by the company to foreign holders may not receivea credit against the Chilean withholding tax. Such is the case, for instance, when dividend distributions exceed thecompany’s taxable income or when the income was not subject to corporate incometax due to an exemption.  In these cases,the foreign holder will be subject to the Chilean withholding tax rate of 35%,without any credit whatsoever.

 

2)                                     Circumstances where dividends have beenimputed to income exempted of all Chilean income taxes: In these cases,dividends distributed by the company to the foreign holder will not be subjectto Chilean withholding tax.  Incomeexempted of all Chilean income taxes is expressly listed in the Chilean IncomeTax Law.

 

3)                                     Circumstances where dividends are subjectto a provisional withholding tax: In the event that on the date of the dividenddistribution there are no earnings on which income tax has been paid and notax-exempt earnings, a provisional withholding must be made on the dividends atthe time of payment to the foreign

 

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holders.  This provisional withholding is calculated asif the dividends were paid from taxable income with corporate tax credit.  In other words, dividends will be subject toa 35% Chilean withholding tax rate, but they will provide a general corporatetax credit of 17%, which results in an effective dividend withholding rate of21.69%.

 

Theprovisional withholding tax must be confirmed by December 31 of the yearin which the dividend was paid.  Thisconfirmation must be based on the company’s effective income up to December 31.  As a result of such confirmation thefollowing circumstances may arise:

 

a)              That part or the total amount of the dividendcorresponds to taxable income without tax credit, in which case the excesscredit must to be refunded to the Chilean Treasury by April of the yearfollowing the dividend payment date.  Theexcess credit will be deducted from the next dividend to be paid to the foreignholder.

 

b)             That part or the total amount of the dividendcorresponds to tax-exempted earnings.  Insuch cases, a refund of the excess taxes paid must be requested from theChilean treasury by April of the year following the dividend payment.

 

Circumstanceswhen it is possible to use in Chile credit against income taxes paid abroad or “taxcredit”:  This occurs when dividendsdistributed by the Chilean company have as their source income generated bycompanies resident in third countries. If that income was subject to withholding tax or corporate income tax inthose third countries, such income will have a credit or “tax credit” againstcorresponding Chilean taxes, which can be proportionally transferred to theshareholders of the Chilean company.

 

***Taxation on Sale or Exchange ofADSs***

* *

Gains obtained by a foreign holder from the sale orexchange of ADSs outside Chile will not be subject to Chilean taxation.

 

***Taxation on sale or exchange ofShares where shares or ADSs were acquired on or before April 19, 2001***

* *

Gainrecognized on a sale or exchange of shares (as distinguished from sales orexchanges of ADSs representing such common shares) will be subject to both a17% Chilean income tax and the 35% Chilean withholding tax (the former beingcreditable against the latter) if the foreign holder acquired and disposed ofthe shares in the ordinary course of its business or as a trader.  In all other cases, gain on the dispositionof shares will be subject to a 17% Chilean income tax but will not be subjectto the 35% Chilean withholding tax.  Thedate of acquisition of the ADSs is considered to be the date of acquisition ofthe shares for which the ADSs are exchanged.

 

***Taxation on sale or exchange ofShares where shares or ADSs were acquired after April 19, 2001***

* *

The income tax law includes a tax exemption on capitalgains arising from the sale of shares of listed companies traded in the stockmarkets.  Although there are certainrestrictions, in general terms, the amendment provides that to access to thecapital gain exemption: (i) the shares must be of a public stock companywith a certain minimum level of trading on a stock exchange; (ii) the salemust be carried out in a Chilean stock exchange, or on another stock exchangeauthorized by the SVS, or in a tender offer subject to Chapter XXV of theChilean Securities Market Law; (iii) the shares which are being sold musthave been acquired on a stock exchange, or in a tender offer subject toChapter XXV of the Chilean Securities Market Law, or in an initial publicoffering (due to the creation of a company or to a capital increase), or due tothe exchange of convertible bonds; and (iv) the shares must have beenacquired after April 19, 2001. If the shares do not qualify for the exemption, capital gain on theirsale or exchange, if any, will be taxed in accordance with the rules describedin the preceding paragraph. In addition, if the exemption does not apply andthe foreign holder has held the shares for less than one year, gains from thedisposition of shares will be subject to both income and withholding tax asdescribed in the preceding paragraph. The date of acquisition of the ADSs is considered to be the date ofacquisition of the shares for which the ADSs are exchanged.

 

***Taxation of Rights and ADS Rights***

* *

For Chilean tax purposes, the receipt of rights or ADSrights by a foreign holder of shares or ADSs pursuant to a rights offering is anontaxable event.  In addition, there areno Chilean income tax consequences to foreign holders

 

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upon the exercise or thelapse of the rights or the ADS rights. Any gain on the sale, exchange or transfer of the rights by a foreignholder is subject to a 35% Chilean withholding tax.

 

***Other Chilean Taxes***

* *

There is no gift, inheritance or succession taxesapplicable to the ownership, transfer or disposition of ADSs by a foreignholder, but such taxes will generally apply to the transfer at death or by giftof the shares by a foreign holder.  Thereis no Chilean stamp, issue, registration or similar taxes or duties payable byholders of shares or ADSs.

 

**Material U.S.Income Tax Considerations**

** **

This discussion is based on the Internal Revenue Code of 1986, asamended (the “Code”), administrative pronouncements, judicial decisions andfinal, temporary and proposed Treasury regulations, all as of the datehereof.  These authorities are subject tochange, possibly with retroactive effect. This discussion is also based in part on representations by theDepositary and assumes that each obligation under the Deposit Agreement and anyrelated agreement will be performed in accordance with its terms.

 

The following are the material U.S. federal income tax consequences toU.S. Holders described herein of owning and disposing of shares or ADSs, but itdoes not purport to be a comprehensive description of all of the taxconsiderations that may be relevant to a particular person’s decision to holdsuch securities.  The discussion appliesonly if you hold shares or ADSs as capital assets for U.S. federal income taxpurposes and it does not describe all of the tax consequences that may berelevant in light of your particular circumstances, such as:

 

·                  certainfinancial institutions;

 

·                  insurancecompanies;

 

·                  dealers andtraders in securities who use a mark-to-market method of tax accounting;

 

·                  persons holdingshares or ADSs as part of a hedge, “straddle,” integrated transaction orsimilar transaction;

 

·                  persons whosefunctional currency for U.S. federal income tax purposes is not the U.S.dollar;

 

·                  partnerships orother entities classified as partnerships for U.S. federal income tax purposes;

 

·                  persons liablefor the alternative minimum tax;

 

·                  tax-exemptorganizations;

 

·                  persons holdingshares or ADSs that own or are deemed to own ten percent or more of our votingstock;

 

·                   persons whoacquired our shares or ADSs pursuant to the exercise of any employee stockoption or otherwise as compensation; or

 

·                  persons holdingshares or ADSs in connection with a trade or business conducted outside of theUnited States.

 

If an entity is classified as a partnership for U.S. federal income taxpurposes holds shares or ADSs, the U.S. federal income tax treatment of apartner will generally depend on the status of the partner and upon theactivities of the partnership. Partnerships holding shares or ADSs and partners in such partnershipsshould consult their tax advisors as to the particular U.S. federal income taxconsequences of holding and disposing of the shares or ADSs.

 

You are a “U.S. Holder” if you are a beneficial owner of our shares orADSs and if you are, for U.S. federal tax purposes:

 

·       a citizen or individualresident of the United States, or,

 

·       a corporation, or otherentity taxable as a corporation, created or organized in or under the laws ofthe United States or any political subdivision thereof; or

 

·       an estate or trust theincome of which is subject to U.S. federal income taxation regardless of itssource.

 

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In general, if you ownADSs, you will be treated as the owner of the shares represented by those ADSsfor U.S. federal income tax purposes. Accordingly, no gain or loss will be recognized if you exchange ADSs forthe underlying shares represented by those ADSs.

 

The U.S. Treasury has expressed concerns that parties to whom Americandepositary shares are released before shares are delivered to the Depositary (“pre-release”)or intermediaries in the chain of ownership between holders and the issuer ofthe security underlying the American depositary shares may be taking actionsthat are inconsistent with the claiming of foreign tax credits for holders ofdepositary shares.  Such actions wouldalso be inconsistent with the claiming of the reduced tax rate, describedbelow, applicable to dividends received by certain non-corporate holders.  Accordingly, the analysis of thecreditability of Chilean taxes, and the availability of the reduced tax ratefor dividends received by certain non-corporate holders, each described below,could be affected by actions taken by such parties or intermediaries.

 

This discussion assumes that the Company is not, and will not become, apassive foreign investment company, as described below.

 

The summary of U.S. federal income tax consequences set out below is intendedfor general informational purposes only. You should consult your tax advisors with respect to the particular taxconsequences to you of owning or disposing of shares or ADSs, including theapplicability and effect of state, local, non-U.S. and other tax laws and thepossibility of changes in tax laws.

 

***Taxation of Distributions***

* *

Distributions paid on shares or ADSs other than certain pro ratadistributions of common shares will be treated as dividends to the extent paidout of our current or accumulated earnings and profits (as determined underU.S. federal income tax principles). Because we do not maintain calculations of our earnings and profitsunder U.S. federal income tax principles, it is expected that distributionsgenerally will be reported to U.S. holders as dividends.

 

Subject to applicable limitations and the discussion above regardingconcerns expressed by the U.S. Treasury, dividends paid by qualified foreigncorporations to certain non-corporate U.S. holders in taxable years beginning beforeJanuary 1, 2011 are taxable at a maximum rate of 15%.  A foreign company is treated as a qualifiedforeign corporation with respect to dividends paid on stock that is readilytradable on a securities market in the United States, such as the New York StockExchange where our ADSs are traded.  Youshould consult your tax advisors to determine whether the favorable rate willapply to dividends you receive and whether you are subject to any special rules thatlimit your ability to be taxed at this favorable rate.

 

The amount of a dividend will include the net amount withheld by us inrespect of Chilean withholding taxes on the distribution.  The amount of the dividend will be treated asforeign-source dividend income to you and will not be eligible for thedividends-received deduction generally allowed to U.S. corporations under theCode.  Dividends will be included in yourincome on the date of your, or in the case of ADSs, the Depositary’s, receiptof the dividend.  The amount of anydividend paid in Chilean pesos will be a dollar amount calculated by referenceto the exchange rate for converting Chilean pesos into dollars in effect on thedate of such receipt regardless of whether the payment is in fact convertedinto dollars.  If the dividend isconverted into U.S. dollars on the date of receipt, you generally should not berequired to recognize foreign currency gain or loss in respect of the dividendincome.  You may have foreign currencygain or loss if the dividend is converted into dollars on a date after the dateof receipt.

 

Subject to applicable limitations that may vary depending upon yourcircumstances and subject to the discussion above regarding concerns expressedby the U.S. Treasury, the net amount of Chilean withholding tax (afterreduction for the credit for Chilean corporate income tax, as discussed aboveunder “—Chilean Tax Considerations — Taxation of Shares and ADSs — Taxation ofCash Dividends and Property Distributions”) withheld from dividends on sharesor ADSs will be creditable against your U.S. federal income tax liability.  The rules governing foreign tax creditsare complex and, therefore, you should consult your tax advisor regarding theavailability of foreign tax credits in your particular circumstances.  Instead of claiming a credit, you may, atyour election, deduct such Chilean taxes in computing your taxable income,subject to generally applicable limitations under U.S. law.  An election to deduct foreign taxes insteadof claiming foreign tax credits must apply to all taxes paid or accrued in thetaxable year to foreign countries and possessions of the United States.

 

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* *

***Sale or Other Disposition ofShares or ADSs***

* *

For U.S. federal income tax purposes, the gain or loss you realize onthe sale or other disposition of shares or ADSs will be a capital gain or loss,and will be a long-term capital gain or loss if you have held the shares orADSs for more than one year.  The amountof your gain or loss will equal the difference between your tax base in theshares or ADSs disposed of and the amount realized on the disposition, in eachcase as determined in dollars.  Such gainor loss will generally be U.S.-source gain or loss for foreign tax creditpurposes.

 

In certain circumstances, Chilean taxes may be imposed upon the sale ofshares.  See “Chilean Tax Considerations— Taxation of Shares and ADSs.”  If aChilean tax is imposed on the sale or disposition of shares, and a U.S. holderdoes not receive significant foreign source income from other sources, suchU.S. holder may not be able to credit such Chilean tax against his U.S. federalincome tax liability.

 

***Passive Foreign InvestmentCompany Rules***

* *

We believe that we were not a “passive foreign investment company”(PFIC) for U.S. federal income tax purposes for our 2008 taxable year.  However, because PFIC status depends upon thecomposition of a company’s income and assets and the market value of its assets(including, among others, less than 25% owned equity investments) from time totime, and because it is unclear whether certain types of our income constitutepassive income for PFIC purposes, there can be no assurance that we will not beconsidered a PFIC for any taxable year. If we were a PFIC for any taxable year during which you held shares orADSs, certain adverse consequences could apply to you, including the impositionof higher amounts of tax than would otherwise apply, and additional filingrequirements.  You should consult yourtax advisors regarding the consequences to you if we were a PFIC, as well asthe availability and advisability of making any election, which may mitigatethe adverse consequences of PFIC status.

 

***Information Reporting and BackupWithholding***

* *

Payments of dividends and sales proceeds that are made within theUnited States or through certain U.S.-related financial intermediariesgenerally are subject to information reporting and to backup withholding unless(i) you are a corporation or other exempt recipient or (ii) in thecase of backup withholding, you provide a correct taxpayer identificationnumber and certify that you are not subject to backup withholding.

 

The amount of any backup withholding from a payment to you will beallowed as a credit against your U.S. federal income tax liability and mayentitle you to a refund, provided that the required information is timelyfurnished to the Internal Revenue Service.

 

**F.            Dividends and paying agents**

** **

Not applicable.

 

**G.            Statement by experts**

** **

Not applicable.

 

**H.            Documents on display**

** **

We are subject to the information requirements of theExchange Act, except that as a foreign issuer, we are not subject to the proxy rules orthe short-swing profit disclosure rules of the Exchange Act.  In accordance with these statutoryrequirements, we file or furnish reports and other information with theSEC.  Reports and other information filedor furnished by us with the SEC may be inspected and copied at the publicreference facilities maintained by the SEC at Room 1024, 100 FStreet, N.E., Washington, D.C. 20549, and at the SEC’s regional offices at233 Broadway, New York, New York 10279 and 475 West JacksonBoulevard, Suite 900, Chicago, Illinois 60604.  Copies of such material may also be inspectedat 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 SECmaintains a website that contains information filed electronically with theSEC, which can be accessed over the Internet at http://www.sec.gov.

 

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**I.             Subsidiary information**

** **

Not applicable.

 

**Item11.     Quantitative and QualitativeDisclosures About Market Risk**

** **

The Company is exposed to risks from changes incommodity prices interest rates and foreign exchange rates. These risks aremonitored and managed by the company in coordination with Enersis, our parentcompany.  The Company’s Board ofDirectors approves risk management policies at all levels.

 

The Company does not enter into financial instrumentsfor non-trading or speculative purposes. As a result, the Company’s market risk is limited to trading risks.

 

**Commodity PriceRisk**

** **

In our electricity generation business, we are exposedto market risks arising from the volatility of electricity, natural gas, dieseloil and coal prices.  In order to managethese exposures, we enter into long-term contracts with suppliers andcustomers.

 

We are exposed to the volatility of natural gas pricesin the Chilean and Argentine markets.  Weseek to ensure our supply of this commodity by securing long-term contractswith our suppliers for terms that are expected to match the lifetime of ourgeneration assets.  These contractsgenerally provide for us to purchase gas at market prices prevailing at thetime the purchase occurs.  As of December 31, 2008,2007 and 2006, we did not hold any contracts classified as either derivativefinancial instruments or financial instruments or derivative commodityinstruments related to natural gas.

 

We are partially exposed to the volatility of coal anddiesel oil prices.  In the countrieswhere we operate, the dispatch mechanism allows the thermal power plant tocover its variable cost.  On the otherhand, under certain circumstances, fuel price fluctuations might affectmarginal costs.  Additionally, throughadequate commercial risk mitigation policies, and a hydrothermal mix, we seekto naturally protect from commodity price volatility our operating income.  As of December 31, 2008, 2007 and2006, we did not hold any contracts classified as either derivative financialinstruments or financial instruments or derivative commodity instrumentsrelated either to coal or to diesel oil.

 

As of December 31, 2008, we did not holdelectricity price-sensitive instruments.

 

**Interest Rate Risk**

** **

At December 31, 2007and 2008, 18.1% and 27.3% of our outstanding debt obligations were subject tofloating interest rates (primarily based on LIBOR). We manage our risk exposureto interest rates by maintaining debt with both variable and fixed rates, accordingto the policy approved by the Board of Directors.

 

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As of December 31, 2008, the recorded valuesfor financial accounting purposes or notional amounts (derivatives) and thecorresponding fair value of these significant financial instruments (includehedging instruments) which expose us to interest rate risk are as follows:

 
| ** **                     | ** ** | **As of December 31, 2008** | ** ** |
|--------------------------------|------------|---------------------------------------|------------|
| ** **                     | ** ** | **2009**                              | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value** | ** ** |
| ** **                     | ** ** | **(in millions of constant Ch$)**     | ** ** |
| **Debt:**                      |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fixed rate:**                |       |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ch$- and UF-denominated        |       | 644                                   |       | 5,106 |   | 5,106 |   | 5,106 |   | 5,428 |   | 396,293 |   | 417,682 |   | 526,439 |   |
| Weighted average interest rate |       | 16.48                                 | %          | 16.50 | % | 16.50 | % | 16.50 | % | 16.50 | % | 8.85 | % | 9.24 | % | 0.00 | % |
| US$ denominated           |       | 425,549                               |       | 20,290 |   | 25,857 |   | 30,364 |   | 272,726 |   | 320,187 |   | 1,094,974 |   | 1,438,038 |   |
| Weighted average interest rate |       | 8.33                                  | %          | 7.28 | % | 7.31 | % | 6.58 | % | 8.49 | % | 8.23 | % | 8.25 | % | 0.00 | % |
| Other currencies               |       | 27,097                                |       | 14,664 |   | 142,.909 |   | — |   | 20,256 |   | 144,119 |   | 349,046 |   | 360,038 |   |
| Weighted average interest rate |       | 10.38                                 | %          | 5.64 | % | 10.47 | % | 0.00 | % | 6.51 | % | 11.49 | % | 10.45 | % | 0.00 | % |
| **Variable rate**              | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ch$- and UF-denominated        |       | 1,241                                 |       | — |   | — |   | — |   | — |   | — |   | 1,241 |   | 1,241 |   |
| Weighted average interest rate |       | 0.00                                  | %          | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % | 0.00 | % |
| US$ denominated           |       | 84,112                                |       | 200,183 |   | 173,742 |   | 48,152 |   | 7,893 |   | 161,513 |   | 675,596 |   | 675,481 |   |
| Weighted average interest rate |       | 6.61                                  | %          | 4.63 | % | 4.64 | % | 5.52 | % | 5.69 | % | 4.40 | % | 4.90 | % | 0.00 | % |
| Other currencies               |       | 130,521                               |       | 8,389 |   | — |   | 86,523 |   | — |   | — |   | 225,434 |   | 229,959 |   |
| Weighted average interest rate |       | 14.16                                 | %          | 20.78 | % | 0.00 | % | 12.24 | % | 0.00 | % | 0.00 | % | 13.67 | % | 0.00 | % |
| **Total**                      |       | 669,165                               |       | 248,633 |   | 347,614 |   | 170,146 |   | 306,303 |   | 1,022,112 |   | 2,763,973 |   | 3,231,197 |   |

 

By comparison, as of December 31, 2007 therecorded values for financial accounting purposes or notional amounts(derivatives) and the corresponding fair value of these significant financialinstruments which expose us to interest rate risk were as follows:

 
| ** **                      |       | **As of December 31, 2007**                 |       |
|---------------------------------|------------|-------------------------------------------------------|------------|
| ** **                      |       | **2008**                                              | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value** | ** ** |
| ** **                      |       | **(in millions of constant Ch$, except percentages)** |       |
| **Debt:**                       |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fixed  rate:**                |       |                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Ch$- and  UF-denominated        |       | 589                                                   |       | 589 |   | 4,670 |   | 4,670 |   | 4,670 |   | 171,227 |   | 186,415 |   | 267,032 |   |
| Weighted average  interest rate |       | 12.88                                                 | %          | 12.89 | % | 12.89 | % | 12.89 | % | 12.90 | % | — |   | 12.89 | % | — |   |
| $ denominated              |       | 220,235                                               |       | 331,426 |   | 15,816 |   | 23,144 |   | 22,221 |   | 440,809 |   | 1,053,652 |   | 1,269,770 |   |
| Weighted average  interest rate |       | 8.17                                                  | %          | 8.05 | % | 8.09 | % | 8.16 | % | 8.33 | % | — |   | 8.16 | % | — |   |
| Other currencies                |       | 46,357                                                |       | 20,415 |   | 11,939 |   | 108,764 |   | — |   | 135,913 |   | 323,388 |   | 316,885 |   |
| Weighted average  interest rate |       | 8.98                                                  | %          | 9.00 | % | 9.17 | % | 9.04 | % | 9.04 | % | — |   | 9.04 | % | — |   |
| **Variable  rate**              | ** ** | ** **                                            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Ch$- and  UF-denominated        |       | —                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Weighted average  interest rate |       | —                                                |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| $ denominated              |       | 38,325                                                |       | 48,972 |   | 68,635 |   | 97,075 |   | 26,465 |   | 5,795 |   | 285,266 |   | 277,749 |   |
| Weighted average  interest rate |       | 5.15                                                  | %          | 5.16 | % | 5.37 | % | 4.63 | % | 1.46 | % | — |   | 5.13 | % | — |   |
| Other currencies                |       | 19,493                                                |       | 75,755 |   | 1,782 |   | — |   | 75,223 |   | — |   | 172,252 |   | 162,777.27 |   |
| Weighted average  interest rate |       | 11.87                                                 | %          | 11.11 | % | 10.30 | % | 10.30 | % | — |   | — |   | 11.16 | % | — |   |
| **Total**                       |       | 324,999                                               |       | 477,157 |   | 102,842 |   | 233,654 |   | 128,578 |   | 753,743 |   | 2,020,973 |   | 2,294,213 |   |

 

**Foreign Currency Risk**

** **

We areexposed to foreign currency risk arising from long-term debt denominated indollars. This risk is mitigated by the fact that a substantial portion of ourrevenues is linked to the dollar either directly or indirectly. Additionally,we manage this risk through the use of dollar/Chilean peso exchange currencyswaps and dollar/Chilean peso forward foreign exchange contracts. As of December 31, 2008,we had total consolidated financial indebtedness of $ 4,343 million,of which $ 2,798 million (net of currency hedging instruments), or64%, was denominated in dollars. For the twelve-month period ended December 31, 2008,our revenues amounted to $ 3,915 million, of which 19% weredenominated in dollars, and  49% werelinked in some way to the dollar. On the 

 

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other hand, the equivalent of $ 88 millionwas revenues in pesos, $ 542 million in Colombian pesos, $ 555 millionin Argentine pesos and $ 70 million in soles.

 

Althoughthe current foreign currency exchange risk to which we are exposed depends uponthe fluctuation of foreign exchange rates in which monetary assets andliabilities are maintained as compared to the Chilean peso, for accountingpurposes our results from operations are affected by variations in the exchangerate between the dollar and the Chilean peso due to the application ofBT 64. Under Chilean accounting standards, the effect of remeasuring Chileanpeso from dollar exchange rate fluctuations is recorded in equity net of anyprice level restatement due to the effects of Chilean inflation on such foreigninvestment amounts.

 

Foreigncurrency gains and losses are included in the results of operations for theperiod together with price-level restatement.

 

As of December 31, 2008,the recorded values for financial accounting purposes and the correspondingfair values of the significant financial instruments, which expose us inforeign currency risk, are as follows:

 
| ** **                                 |   | **As of December 31, 2008**  |       |
|--------------------------------------------|--------|----------------------------------------|------------|
| ** **                                 |   | **2009**                               | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **2013** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value (3)** |   |
| ** **                                 |   | **(in millions of constant Ch$)  (1)** |       |
| **Debt:**                                  |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fixed rate:**                            |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US$ denominated                       |   | 425,549                                |       | 20,290 |   | 25,857 |   | 30,364 |   | 272,726 |   | 320,187 |   | 1,094,974 |   | 1,438,038 |   |
| Other currencies                           |   | 27,741                                 |       | 19,770 |   | 148,015 |   | 5,106 |   | 25,684 |   | 540,413 |   | 766,728 |   | 1,760,453 |   |
| **Variable rate**                          |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US$ denominated                       |   | 84,112                                 |       | 200,183 |   | 173,742 |   | 48,152 |   | 7,893 |   | 161,513 |   | 675,596 |   | 675,481 |   |
| Other currencies                           |   | 131,763                                |       | 8,389 |   | — |   | 86,523 |   | — |   | — |   | 226,676 |   | 1,088,503 |   |
| **Other Instruments(2)**                   |   |                                   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| US$ denominated                       |   | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Other currencies                           |   | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Forward contracts (receive US$/pay Ch$-UF) |   | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Other foreign currency derivatives         |   | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |

 

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(1)          Calculated basedon the Observed Exchange Rate as of December 31, 2008, which wasCh$ 636.45 = $ 1.00.

(2)          “Otherinstruments” include cash, time deposits and short-term accounts receivables.

(3)          Fair values werecalculated based on the discounted value of future cash flows expected to bepaid (or received), considering current discount rates that reflect thedifferent risks involved.

 

As of December 31, 2007the recorded values for financial accounting purposes and the correspondingfair value of the significant financial instruments, which expose us to foreigncurrency risk, are as follows:

 
| ** **                                |   | **As of December 31, 2007** |       |
|-------------------------------------------|--------|---------------------------------------|------------|
| ** **                                |   | **2008**                              | ** ** | **2009** | ** ** | **2010** | ** ** | **2011** | ** ** | **2012** | ** ** | **Thereafter** | ** ** | **Total** | ** ** | **Fair value  (3)** |   |
| ** **                                |   | **(in millions of constant Ch$) (1)** |       |
| **Debt:**                                 |   |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Fixed  rate:**                          |   |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $ denominated                        |   | 220,235                               |       | 331,426 |   | 15,816 |   | 23,144 |   | 22,221 |   | 440,809 |   | 1,053,652 |   | 1,269,055 |   |
| Other foreign  currencies                 |   | 46,946                                |       | 21,004 |   | 16,609 |   | 113,434 |   | 4,670 |   | 307,140 |   | 509,803 |   | 583,917 |   |
| **Variable  rate:**                       |   |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $ denominated                        |   | 38,325                                |       | 48,972 |   | 68,635 |   | 97,075 |   | 26,465 |   | 5,795 |   | 285,266 |   | 278,464 |   |
| Other foreign  currencies                 |   | 19,493                                |       | 75,755 |   | 1,782 |   | — |   | 75,223 |   | — |   | 172,252 |   | 162,777 |   |
| **Other  Instruments(2):**                |   |                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| $ denominated                        |   | —                                |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Other foreign  currencies                 |   | —                                |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Forward  contracts (receive $/pay Ch$-UF) |   | —                                |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   |
| Swap contracts  (receive $/pay Ch$)       |   | 62,111                                |       | — |   | — |   | — |   | — |   | — |   | 62,111 |   | (3,878 | ) |

 

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(1)          Calculated basedon the Observed Exchange Rate as of December 31, 2007, which was Ch$ 496.89 = $ 1.00.

(2)          “Otherinstruments” include cash, time deposits and short-term accounts receivables.

(3)          Fair values were calculated based on the discountedvalue of future cash flows expected to be paid (or received), consideringcurrent discount rates that reflect the different risks involved.

 

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** **

**D.            Safe Harbor**

** **

The information in this “Item 11 Quantitative andQualitative Disclosures About Market Risk,” contains statements that mayconstitute forward looking statements. See “Forward-Looking Statements” in the Introduction to this Report forsafe harbor provisions.

 

**Item12.     Description of Securities otherthan Equity Securities**

** **

Not applicable.

 

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** **

**PART II**

** **

**Item13.     Defaults, Dividend Arrearages andDelinquencies**

** **

None.

 

**Item14.     Material Modifications to theRights of Security Holders and Use of Proceeds**

** **

None.

 

**E.            Use of proceeds.**

** **

Not applicable.

 

**Item 15.Controls and Procedures.**

** **

**(a) DisclosureControls and Procedures**

** **

The Company carried out an evaluation under thesupervision and with the participation of the Company’s Management, includingthe Chief Executive Officer and Chief Financial Officer, of the effectivenessof the design and operation of the Company’s “disclosure controls andprocedures” (as defined in Rules 13 (a)-15 (e) and 15 (d)-15 (e) underthe Exchange Act) for the year ended December 31, 2008.  There are inherent limitations to theeffectiveness of any system of disclosure controls and procedures, includingthe possibility of human error, and the circumvention or overriding of thecontrols and procedures.  Accordingly,the Company’s disclosure controls and procedures are designed only to providereasonable assurance of achieving their control objectives.

 

Based upon the Company’s evaluation, the ChiefExecutive Officer and the Chief Financial Officer concluded that the disclosurecontrols and procedures are effective in providing reasonable assurance thatinformation required to be disclosed in the reports the Company files andsubmits under the Exchange Act is recorded, processed, summarized and reported,within the time periods specified in the applicable rules and forms, andthat it is gathered and communicated to the Company’s Management, including theChief Executive Officer and Chief Financial Officer, as appropriate, to allowtimely decisions regarding required disclosure.

 

**(b) Management’sAnnual Report on Internal Control Over Financial Reporting**

** **

As required by Section 404 of the Sarbanes-OxleyAct of 2002, Endesa Chile’s Management is responsible for establishing andmaintaining “adequate internal control over financial reporting” (as defined inRule 13 (a)-15 (f) under the Exchange Act).  The Company’s internal control over financialreporting is designed to provide reasonable assurance regarding the reliabilityof financial reporting and the preparation of the financial statements forexternal purposes in accordance with accounting principles generally accepted.

 

Because of its inherent limitations, internal controlover financial reporting may not necessarily prevent or detect somemisstatements.  It can only providereasonable assurance regarding financial statement preparation and presentation.  Also, projections of any evaluation ofeffectiveness for future periods are subject to the risk that controls maybecome inadequate because of changes in conditions or because the degree ofcompliance with the policies or procedures may deteriorate over time.

 

Management assessed the effectiveness of its internalcontrol over financial reporting for the year ended December 31, 2008.  The assessment was based on criteriaestablished in the “Internal Controls — Integrated Framework” issued by theCommittee of Sponsoring Organizations of the Treadway Commission (COSO).  Based on the assessment, Endesa Chile’sManagement has concluded that as of December 31, 2008, the Company’sinternal control over financial reporting was effective.

 

**(c) AttestationReport**

** **

KPMG Auditores Consultores Ltda., the independentregistered public accounting firm that has audited our Consolidated FinancialStatements, has issued an attestation report on the company’s internal controlover financial reporting as of December 31, 2008. This attestationreport appears on page F-3.

 

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**(d) Changesin internal control**

** **

There were no changes inthe Company’s internal control over financial reporting that occurred during2008 that have materially affected, or are reasonably likely to materiallyaffect, the Company’s internal control over financial reporting.

 

**Item16.     [Reserved]**

** **

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

** **

As of December 31, 2008, our Board ofDirectors has determined that Jaime Estévez V. is an audit committee financialexpert as defined in the Exchange Act, is serving on the audit committee and isan independent member of the audit committee. See “Item 6. Directors, Senior Management and Employees — C. BoardPractices” for more details.

 

**Item 16B.              Code of Ethics**

** **

The standards of ethical conduct in Endesa Chile aregoverned by means of two corporate rulings on policies: the Charter GoverningExecutives and the Internal Regulations on Conduct in Securities Markets, andin the document “Bases of Corporate Governance of Endesa Chile.”

 

The Charter Governing Executives was adopted by theBoard of Directors in June 2003 and is applicable to all managerscontractually related to Endesa Chile or its controlled subsidiaries in whichit is the majority shareholder, both in Chile and internationally, includingthe Chief Executive Officer, the Chief Financial Officer and other seniorofficers of the Company.  The object of thisset of rules, introduced into the contracts of those subject to its compliance,is to establish the behavior of management with respect to the principlesgoverning their actions, and the limitations and incompatibilities involved,all within Endesa Chile’s vision, mission and values.

 

The Internal Regulations on Conduct in SecuritiesMarkets, adopted by Endesa Chile’s Board of Directors in June 2002, setthe behavioral criteria to be followed in market operations in order tocontribute to their transparency and the protection of investors, and isapplicable to the members of the Board of Directors, the senior executives, andthe executives and employees of Endesa Chile determined by the Chief ExecutiveOfficer, and known to the Chairman, who work in areas related to the securitiesmarket or have access to privileged information.

 

Inorder to ensure compliance with the provisions of the Securities Market Law andother legal rules, imposed by the SVS, the board of Endesa Chile, at itsmeeting held on May 29, 2008, approved the “Manual for the Managementof Information of Interest to the Market” (“Manual”).

 

ThisManual is of a binding nature and shall be applicable to the members of theboard, as well as executives and employees of Endesa Chile who have access orare able to access privileged information, and especially those who work inareas related to the securities markets. Its provisions are based on the belief that such persons shall act onthe basis of the principles of impartiality, good faith, precedence of generalinterests before their own, care and diligence in the use of information, andtheir actions in the securities markets will be in that line.

 

We arecommitted to continuously improve our corporate governance practices, based onthe equitable treatment of all shareholders and to act in their best interest,providing them with a reasonable return on their investment.

 

Efforts in this matter are concentrated basically onthe following key areas: i) Relations with Shareholders and the Company, ii)Board and Management, and iii) Policies for Publishing Information.  The Basis of Corporate Governance of EndesaChile are structured as a friendly and simple format of questions and answersthat attempt to cover the most important elements in these three areas.

 

The Internal Regulations on Conduct in SecuritiesMarkets, the Charter Governing Executives, the Manual and the Basis ofCorporate Governance of Endesa Chile are accessible via Endesa Chile’s websiteat www.endesa.cl (which has not been incorporated as an exhibit into thisReport).  A copy of these documents isalso available upon request, free of charge, by writing or telephoning us at:

 

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Empresa Nacional deElectricidad S.A.

Attention: Investor Relations Department

Santa Rosa 76

Santiago, Chile

(562) 630 9000

 

**Item 16C.              Principal Accountant Fees andServices**

** **

The shareholders nominated Ernst & Young (2007)and KPMG Auditores Consultores Ltda. (2008) as external auditors for EndesaChile in replacement of Ernst & Young.

 

The following table provides information on theaggregate fees billed by our external auditors, KPMG, as well as the othermember firms of Ernst & Young and KPMG and their respectiveaffiliates, by type of services rendered for periods indicated. .

 
| **Services Rendered**   | ** ** | **2007**            | ** ** | **2008** | ** ** |
|-------------------------|------------|---------------------|------------|----------|------------|
| ** **              | ** ** | **(millions of $)** | ** ** |
| Audit Fees (1)          |       | 0.90                |       | 1.01     |       |
| Audit-Related  Fees (2) |       | 0.04                |       | 0.05     |       |
| Tax Fees                |       | 0.00                |       | 0.00     |       |
| **Total**               |       | 0.94                |       | 1.06     |       |

 

----

(1)          During 2008, KPMG hasincreased its scope including audit services in Argentina. Those services wereprovided in 2007 by another external auditor, different from our principalaccountants.

(2)          During 2008, fees were paidfor special requirement of the SVS in the amount of $ 48,593, primarilyrelated to the adoption of IFRS. During 2007, fees were paid for due diligenceworks in Colombia for $ 36,000.

 

Additionally KPMG performed audit services related tothe reporting packages prepared under the accounting policies of Endesa Spainfor the purpose of inclusion in their consolidated financial statementsprepared in accordance with IFRS.

 

The amounts included in the table above and therelated footnotes have been classified in accordance with Public CompanyAccounting Oversight Board (PCAOB) guidance, which are different incertain respects from the classifications made under our consolidated financialstatements prepared for Endesa Spain, in accordance with IFRS.

 

**Audit Committee Pre-Approval Policiesand Procedures**

 

Our external auditors are appointed by ourshareholders at the GSM. Similarly, the shareholders of our subsidiaries, whichare located in countries where applicable law and regulation establishes so,appoint such subsidiaries’ external auditors.

 

The Audit and Control Committee, through the corporateaudit department, manages appointment proposals, review of engagement letters,fee negotiations, quality control in respect of the services provided, reviewand control of independence issues and other related matters.

 

The Audit and Control Committee has a pre-approvalpolicy regarding the contracting of Endesa Chile’s external auditor, or anyaffiliate of the external auditor, for professional services. The professionalservices covered by such policy include audit and non-audit services providedto Endesa Chile.

 

Fees payable in connection with recurring auditservices are approved as part of our annual budget. Fees payable in connectionwith nonrecurring audit services, once they have been analyzed by the corporateaudit department, are submitted to the Audit and Control Committee for approvalor rejection.

 

The pre-approval policy established by the Audit andControl Committee for non-audit services is as follows:

 

·                  The business unit that has requested the service and the audit firmrequested to perform the service must request that the corporate audit managerreview the nature of the service to be provided.

 

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·                  At that point, the corporate audit department analyzes the request andrequires the audit firm that has been requested to provide the service issue acertificate signed by the partner responsible for the audit of our consolidatedfinancial statements confirming such audit firm’s independence.

 

·                  Finally, the proposal is submitted to the Audit and Control Committeefor approval or denial.

 

The services described in footnote (2) to thetable above have been approved in line with the procedure described immediatelyabove since July 2005.

 

In addition, due to the SEC-PCAOB release number34-53677 (Audit Committee Pre-Approval of Certain Tax Services), the AuditCommittee has designed, approved and implemented the necessary procedures tofulfill the new requirements described by this rule.

 

**Item 16D.              Exemptions from ListingRequirements for Audit Committees**

** **

Messrs. D’Ornellas and Prado sit on the Board ofDirectors of Endesa Spain and are relying on the exemption provided by Rule 10A-3(b)(1)(iv)(B).  Messrs. D’Ornellas and Prado otherwisemeet the independence requirements of Rule 10A-3(b)(1)(ii).  We believe that this does not materiallyaffect the ability of our Audit Committee to act independently.

 

**Item 16E.              Purchases of Equity Securities bythe Issuer and Affiliated Persons**

** **

Not applicable.

 

**Item 16F.              Change in Registrant’s CertifyingAccountant**

** **

Not applicable.

 

**Item 16G.              Corporate Governance**

** **

The following is a summary of the significantdifferences between our corporate governance practices and those applicable todomestic issuers under the corporate governance rules of the New YorkStock Exchange.

 

***Independenceand Functions of the Audit Committee***

* *

Under the NYSE corporate governance rules, all membersof the Audit Committee must be independent. We are subject to this requirement as of July 31, 2005.

 

Under the NYSE corporate governance rules, the AuditCommittee of a U.S. company must perform the functions detailed in the NYSEListed Company Manual Rules 303A.06 and 303A.07.  Non-U.S. companies have been required tocomply with Rule 303A.06 beginning July 31, 2005.  Non-U.S. companies are not required to complywith Rule 303A.07.  Since July 31, 2005,we comply with the independence and the functional requirements of Rule 303A.06.  As required by the Sarbanes-Oxley Act and theNYSE corporate governance rules, on June 29, 2005, the Board ofDirectors of Endesa Chile created an Audit Committee, composed of threedirectors, who are also directors of the Company.  The current members of this Committee, whosatisfy the requirements of independence of NYSE, are: Fernando D’Ornellas S.,Borja Prado E. and Jaime Estévez V.  Messrs. D’Ornellasand Prado sit on the Board of Directors of Endesa Spain.  Messrs. D’Ornellas and Prado otherwisemeet the independence requirements of Rule 10A-3(b)(1)(ii).

 

As required by Chilean Law, Endesa Chile also has a*Comité de Directores*(“Directors’ Committee”)**composed of three members of theBoard.  Although Chilean Law requiresthat a majority of the Directors’Committee (two out of three members) must be composed of directors whowere not nominated by the controlling shareholder and did not seek votes fromthe controlling shareholder (a “non-control director”), it permits the Directors’ Committee to be composedof a majority of control directors or even completely of control directors, ifthere are not sufficient non-control directors on the Board to serve on thecommittee.  Currently, our Directors’ Committee is composed oftwo non-control directors and one director appointed by the controllingshareholder.

 

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Our Directors’ Committee**performs the following functions:

 

·                  examination of Annual Report, FinancialStatements and the Reports of the External Auditors and Inspectors of theAccounts;

 

·                  formulation of the proposal to the Board of Directorsfor the selection of external auditors and private rating agencies;

 

·                  examination of information related to operations bythe Company with related parties and/or related to operations in which theCompany board members or relevant executive officers may have personalinterest;

 

·                  examination of the compensation framework and plansfor managers and executive officers; and,

 

·                  any other function mandated to the committee by the *estatutos*, the Board of Directors or theshareholders of the Company.

 

The current members of this Committee are MarioValcarce D., Raimundo Valenzuela L. and Jaime Estévez V.

 

By agreement adopted bythe special shareholders’ meeting held on March 21, 2006, a newchapter was included in the Endesa Chile’s bylaws, which refers to the “Comitéde Directores and Audit Committee.” Visit our website for details(www.endesa.cl).

 

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**PART III**

** **

**Item17.     Financial Statements**

** **

None.

 

**Item18.     Financial Statements**

** **

**Endesa Chile andSubsidiaries**

 

**Index to the Audited Consolidated Financial Statements**

 
| **Reports of  Independent Registered Public Accounting Firms:**                                                                        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                             | ** ** |
| Report of KPMG Auditores Consultores Ltda. — Empresa  Nacional de Electricidad S.A. (Endesa Chile) 2008                           | F-1        |
| Report of KPMG Auditores Consultores Ltda. — Endesa  Chile — Internal Control over Financial Reporting 2008                  | F-3        |
| Report of  Ernst & Young Ltda. — Endesa Chile and Subsidiaries 2006 and 2007                                             | F-5        |
| Report of  Deloitte & Touche Ltda. — Emgesa S.A. E.S.P. 2006, 2007, and 2008                                             | F-6        |
| Report of  Deloitte & Touche S.R.L. — Endesa Argentina 2006 and 2007                                                     | F-7        |
| Report of  Deloitte & Touche Auditores y Consultores Ltda. — Endesa Brasil S.A.  2006, 2007, and 2008                    | F-8        |
| Report of  Ernst & Young Auditores Independientes S.S. — Centrais Electricas  Cachoeira Dourada S.A. 2006 and 2007       | F-9        |
| Report of  Ernst & Young Auditores Independientes S.S. — Central Geradora  Termeletrica Fortaleza S.A. 2006 and 2007     | F-10       |
| Report of  Ernst & Young Auditores Independientes S.S. — CIEN — Companhia de  Interconexao Energetica 2006 and 2007 | F-11       |
| Report of  Deloitte & Touche Co. S.R.L. — Transportadora de Energia S.A. 2006  and 2007                                  | F-13       |
| Report of  Deloitte & Touche Co. S.R.L. — Compañia de Transmisión del Mercosur  S.A. 2006 and 2007             | F-14       |
|                                                                                                                                   |       |
|                                                                                                                                   |       |
| **Consolidated  Financial Statements:**                                                                                                | ** ** |
| Consolidated  Balance Sheets as of December 31, 2007 and 2008                                                                     | F-15       |
| Consolidated  Statements of Income for the years ended December 31, 2006, 2007 and  2008                                          | F-17       |
|                                                                                                                                   |       |
| Consolidated  Statements of Shareholders’ Equity for the years ended December 31,  2006, 2007 and 2008                       | F-18       |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2006, 2007 and  2008                                      | F-20       |
| Notes to  the Consolidated Financial Statements                                                                                        | F-22       |
|                                                                                                                                   |       |
| **Consolidated  Financial Statements Endesa Brasil S.A**                                                                               | G-1        |

** **

**Item19.     Exhibits**

 
| **Exhibit** | ** ** | **Description**                                                                                                                |
|-------------|------------|--------------------------------------------------------------------------------------------------------------------------------|
| 1.1         |       | Bylaws (Estatutos) of Empress Nacional de Electricidad S.A., as amended.*                                                      |
| 8.1         |       | List of Subsidiaries as  of December 31, 2008.                                                                            |
| 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 Endesa Chile’s Form 20-Ffor the year ended December 31, 2006.

 

We will furnish to theSecurities and Exchange Commission, upon request, copies of any unfiledinstruments that define the rights of holders of long-term debt of Endesa.

 

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**SIGNATURES**

** **

The registrant certifies that it meets all of therequirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual Report on its behalf.

 
| ** ** | **EMPRESA NACIONAL DE ELECTRICIDAD S.A.** |
|------------|-------------------------------------------|
| ** ** | ** **                                |
| ** ** | ** **                                |
|       | By:                                       | /s/ Rafael Mateo  A. |
|       | Name:                                     | Rafael Mateo A. |
|       | Title:                                    | Chief Executive  Officer |

 

Date: June 8, 2009.

 

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** **

**Endesa Chile and Subsidiaries**

** **

**Index to theAudited Consolidated Financial Statements**

 
| **Reports of Independent Registered Public  Accounting Firms:**                                                                        | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                                                                                             | ** ** |
| Report of KPMG Auditores Consultores Ltda. — Empresa  Nacional de Electricidad S.A. (Endesa Chile) 2008                           | F-1        |
| Report of KPMG Auditores Consultores Ltda. — Endesa  Chile — Internal Control over Financial Reporting 2008                  | F-3        |
| Report of  Ernst & Young Ltda. — Endesa Chile and Subsidiaries 2006 and 2007                                             | F-5        |
| Report of  Deloitte & Touche Ltda. — Emgesa S.A. E.S.P. 2006, 2007, and 2008                                             | F-6        |
| Report of  Deloitte & Touche S.R.L. — Endesa Argentina 2006 and 2007                                                     | F-7        |
| Report of  Deloitte & Touche Auditores y Consultores Ltda. — Endesa Brasil S.A.  2006, 2007, and 2008                    | F-8        |
| Report of  Ernst & Young Auditores Independientes S.S. — Centrais Electricas  Cachoeira Dourada S.A. 2006 and 2007       | F-9        |
| Report of  Ernst & Young Auditores Independientes S.S. — Central Geradora  Termeletrica Fortaleza S.A. 2006 and 2007     | F-10       |
| Report of  Ernst & Young Auditores Independientes S.S. — CIEN — Companhia de  Interconexao Energetica 2006 and 2007 | F-11       |
| Report of  Deloitte & Touche Co. S.R.L. — Transportadora de Energia S.A. 2006  and 2007                                  | F-13       |
| Report of  Deloitte & Touche Co. S.R.L. — Compañia de Transmisión del Mercosur  S.A. 2006 and 2007             | F-14       |
|                                                                                                                                   |       |
|                                                                                                                                   |       |
| **Consolidated Financial Statements:**                                                                                                 | ** ** |
| Consolidated  Balance Sheets as of December 31, 2007 and 2008                                                                     | F-15       |
| Consolidated  Statements of Income for the years ended December 31, 2006, 2007 and  2008                                          | F-17       |
|                                                                                                                                   |       |
| Consolidated  Statements of Shareholders’ Equity for the years ended December 31,  2006, 2007 and 2008                       | F-18       |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2006, 2007 and  2008                                      | F-20       |
| Notes to  the Consolidated Financial Statements                                                                                        | F-22       |
|                                                                                                                                   |       |
| **Consolidated  Financial Statements Endesa Brasil S.A**                                                                               | G-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 (c)). |
| ThCh$ |   | Thousand of Chilean pesos                                                                                                                                                |
| ThUS$ |   | Thousand of United States dollars                                                                                                                                        |

 

**Application of ConstantChilean Pesos**

** **

Theconsolidated financial statements included herein have been restated forgeneral price-level changes and expressed in constant Chilean pesos of December 31,2008 purchasing power.

 

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|            |
|------------|
| ** ** | **KPMG Consultores Auditores Ltda.** |   | Phone | +56 (2) 798  1000 |
|       | 3520  Isidora Goyenechea Av., 2nd floor |   | Fax | +56 (2) 798  1001 |
|       | Las  Condes, Santiago, Chile | ** ** | **www.kpmg.cl** |

 

**Report of Independent Registered Public Accounting Firm**

 

The Board of Directors and Shareholders of Empresa Nacional de Electricidad S.A.(Endesa-Chile):

 

We have audited the accompanying consolidated balance sheet ofEndesa-Chile and subsidiaries (the Company) as of December 31, 2008, andthe related consolidated statements of income, shareholders’ equity, and cashflows for the year then ended. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these consolidated financial statements based on our audit. We didnot audit the consolidated financial statements of certain subsidiaries andnonsubsidiary investees carried on the equity method of accounting, which statementsreflect total assets constituting 30.25 percent and total revenues constituting24.46 percent of the Company’s related 2008 consolidated totals. Thosefinancial statements were audited by other auditors whose reports werefurnished to us, and our opinion, insofar as it relates to the amounts includedfor those entities, is based solely on the reports of the other auditors.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements, assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financialstatement presentation. We believe that our audit and the reports of the otherauditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audit and the reports of the otherauditors, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of Endesa-Chile andsubsidiaries as of December 31, 2008, and the results of their operationsand their cash flows for the year then ended, in conformity with accountingprinciples generally accepted in Chile.

 

Accounting principles generally accepted in Chile vary in certainsignificant respects from accounting principles generally accepted in theUnited States of America. Information relating to the nature and effect of suchdifferences is presented in Note 36 to the accompanying consolidated financialstatements.

 

Theaccompanying consolidated financial statements as of and for the year ended December 31,2008 have been translated into United States dollars solely for the convenienceof the reader. We have audited the translation and, in our opinion, theconsolidated financial statements expressed in thousands of Chilean pesos, asrestated for general price-level changes, have been translated into UnitedStates dollars on the basis set forth in note 2 b) of the notes to theconsolidated financial statements.

 

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As discussed in Note 35 to the accompanying consolidated financialstatements, the Company adopted International Financial Reporting Standards(IFRS), effective January 1, 2009.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), Endesa-Chile’s internal controlover financial reporting as of December 31, 2008, based on the criteriaestablished in Internal Control — Integrated Framework issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO), and our reportdated May 29, 2009, expressed an unqualified opinion on the effectivenessof the Company’s internal control over financial reporting.

 

 

**KPMG Auditores Consultores Ltda.**

 

Santiago, Chile May 29, 2009

 

KPMG Auditores Consultores Ltda. aChilean member firm of KPMG International, a Swiss cooperative. All rightsreserved.

 

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|            |                                         |       |            |                       |
|------------|----------------------------------------------|------------|-----------------|----------------------------|
| ** ** | **KPMG Consultores Auditores Ltda.**         |       | Phone           | +56 (2) 798 1000 |
|       | 3520  Isidora Goyenechea Av., 2nd floor |       | Fax             | +56 (2) 798 1001 |
|       | Las  Condes, Santiago, Chile                 | ** ** | **www.kpmg.cl** |
|            |                                              |            |                 |                            |  |  |  |  |

 

**Report of Independent Registered Public Accounting Firm**

 

The Board of Directors and Shareholders of Empresa Nacional de Electricidad S.A.(Endesa-Chile):

 

We have audited Endesa-Chile’s internal control over financialreporting as of December 31, 2008, based on criteria established in *Internal Control - Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission(COSO). Endesa-Chile’s management is responsible for maintaining effectiveinternal control over financial reporting and for its assessment of theeffectiveness of internal control over financial reporting, included in theaccompanying *Management’s Annual Report onInternal Control over Financial Reporting*. Our responsibility is toexpress an opinion on Endesa-Chile’s internal control over financial reportingbased on our audit.

 

We conducted our audit in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, and testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk. Our audit also included performingsuch other procedures as we considered necessary in the circumstances. We believethat our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a processdesigned to provide reasonable assurance regarding the reliability of financialreporting and the preparation of financial statements for external purposes inaccordance with generally accepted accounting principles. A company’s internalcontrol over financial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof its inherent limitations, internal control over financial reporting may notprevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

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In our opinion, Endesa-Chile maintained, in all material respects,effective internal control over financial reporting as of December 31,2008, based on criteria established in *InternalControl - Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

Wealso have audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated balance sheet ofEndesa-Chile and subsidiaries as of December 31, 2008, and the relatedconsolidated statements of income, shareholders’ equity, and cash flows for theyear then ended, and our report dated May 29, 2009 expressed anunqualified opinion on those consolidated financial statements.

 

 

**KPMG Auditores Consultores Ltda.**

 

Santiago, Chile May 29, 2009

 

KPMG Auditores Consultores Ltda. aChilean member firm of KPMG International, a Swiss cooperative. All rightsreserved.

 

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** **
|   |            | **Ernst &  Young Chlle**

Huérfanos  770, piso 5 |
|--------|------------|----------------------------------------------------------------|
|   | ** ** | Santiago                                                       |
|   | ** ** |                                                           |
|   | ** ** | Tel:  5626761000                                               |
|   | ** ** | Fax:  5626761010                                               |
|   | ** ** | www.ey.com/cl                                                  |

 

**Report of Independent Registered Public Accounting Firm**

** **

To the Board of Directorsand Shareholders of Empresa Nacional de Electricidad S. A. (Endesa-Chile):

 

We have audited theaccompanying consolidated balance sheet of Endesa-Chile and its subsidiaries(the “Company”) as of December 31, 2007, and the related consolidatedstatements of income, changes in shareholders’ equity and cash flows for eachof the two years in the period ended December 31, 2007. These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits. We did not audit the consolidated financial statements of certainsubsidiaries, which statements reflect total assets representing 31.39 percentas of December 31, 2007 and total revenues representing of 38.08 percentand 33.76 percent for each of the two years in the period ended December 31,2007, respectively. We also did not audit the consolidated financial statementsof certain investments accounted for under the equity method, which represented6.84 percent of total consolidated assets as of December 31, 2007 and theequity in their net results represented 19.6 percent and 9.5 percent of theconsolidated net income for each of the two years in the period ended December 31,2007, respectively. Those statements were audited by other auditors whosereports have been furnished to us, and our opinion, insofar as it relates tothe amounts included for those entities, is based solely on the reports of theother auditors.

 

We conducted our auditsin accordance with the standards of the Public Company Accounting OversightBoard (United States). Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit 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 bymanagement, and evaluating the overall financial statement presentation. Webelieve that our audits and the reports of other auditors provide a reasonablebasis for our opinion.

 

In our opinion, based onour audits and the reports of other auditors, the financial statements referredto above present fairly, in all material respects, the consolidated financialposition of Endesa-Chile and subsidiaries at December 31, 2007 and theresults of their operations and their cash flows for each of the two years inthe period ended December 31, 2007 in conformity with accountingprinciples generally accepted in Chile, which differ in certain respects fromaccounting principles generally accepted in the United States of America (seeNote 36 to the consolidated financial statements).

 
| ERNST & YOUNG  LTDA.                                   |        |
|-----------------------------------------------------------------|--------|
|                                                            |   |
| Santiago, Chile                                                 |   |
| February 19, 2008                                          |   |
| (except for Note 36 for  which the date is April 30, 2008) |   |

 

A member firm of Ernst& Young Global Limited

 

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|        |   |                                |
|--------|--------|-------------------------------------|
|   |   | Deloitte &  Touche Ltda.   |
|   |   | Cra.  7 N° 94 - 09             |
|   |   | A.A.  075874                        |
|   |   | Nit.  860.005.813-14                |
|   |   | Bogotá  D.C.                   |
|   |   | Colombia                            |
|   |   |                                |
|   |   | Tel:  +57(1) 5461810 - 5461815 |
|   |   | Fax:  +57(1) 2178088           |
|   |   | www.deloitte.com/co                 |

 

**Report of Independent RegisteredPublic Accounting Firm**

 

Tothe Board of Directors and Shareholders of **Emgesa S.A. E.S.P.:**

 

Wehave audited the balance sheets of Emgesa S.A. E.S.P. (the “Company”) as of December 31,2008 and 2007 and the related statements of income, shareholders’ equity andcash flows for the three years in the period ended December 31, 2008, allexpressed in thousands of U.S. dollars (not separately presented herein). Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included considerations ofinternal control over financial reporting as a basis for designing auditprocedures that are appropriate in the circumstances, but not for the purposeof expressing an opinion on the effectiveness of the Company’s internal controlover financial reporting. Accordingly, we express no such opinion. An auditalso includes examining, on a test basis evidence supporting the amounts anddisclosures in the financial statements, assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, such financial statements present fairly, in all materialrespects, the financial position of the Company as of December 31, 2008and 2007, and the results of its operations and its cash flows for the threeyears in the period ended December 31, 2008 in conformity with accountingprinciples generally accepted in Chile.

 

Asdescribed in greater detail in Note 1 to the financial statements, on August 17,2007, the Office of the Superintendent of Corporations in Colombia authorizedthe merger through absorption between Central Hidroeléctrica de Betania S.A.E.S.P. and Emgesa S.A. E.S.P.

 

Accountingprinciples generally accepted in Chile vary in certain significant respectsfrom accounting principles generally accepted in the United States of America.The application of the latter would have affected the determination of netincome for each of the three years ended December 31, 2008 and thedetermination of shareholders’ equity at December 31, 2008 and 2007 to theextent summarized in Note 28.

 

Ouraudits also comprehended the translation of U.S. dollar amounts into constantChilean Peso amounts and, in our opinion; such translation has been made inconformity with the basis stated in Note 2 c). Such constant Chilean Pesoamounts are presented solely for the convenience of readers in Chile.

 

 

DELOITTE &TOUCHE LTDA.

Bogotá- Colombia

February 27,2009

 

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|        |   |                              |
|--------|--------|-----------------------------------|
|   |   | Deloitte &  Co. S.R.L.   |
|   |   | Florida  234, Piso 5°        |
|   |   | C1005AAF                          |
|   |   | Ciudad  Autónoma             |
|   |   | De  Buenos Aires                  |
|   |   | Argentina                         |
|   |   |                              |
|   |   | Tel:  (54-11) 4320-2700           |
|   |   | Fax:  (54-11) 4325-8081/4326-7340 |
|   |   | www.deloitte.com                  |

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

Tothe President and Board of Directors of **Endesa Argentina S.A.:**

 

Wehave audited the consolidated balance sheets of Endesa Argentina S.A. andsubsidiaries (the “Company”) as of December 31, 2007 and the relatedconsolidated statements of operations and cash flows for each of the two yearsin the period ended December 31, 2007 (none of which are presentedherein). These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States of America). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial respects, the financial position of Endesa Argentina S.A. and subsidiariesas of December 31, 2007, and the results of their operations and theircash flows for each of the two years in the period ended December 31, 2007in conformity with accounting principles generally accepted in Chile.

 

Accountingprinciples generally accepted in Chile vary in certain significant respectsfrom accounting principles generally accepted in the United States of America.The application of the latter would have affected the determination of netincome for each of the two years in the period ended December 31, 2007 andthe determination of shareholders’ equity at December 31, 2007, to theextent summarized in Note 36.

 

**DELOITTE & Co. S.R.L.**

 

 

CarlosA. Lloveras

BuenosAires, March 27, 2008

 

*Deloitte refers to one or more of Deloitte Touche Tohmatsu,a Swiss Verein, and its network of member firms, each of which is a legallyseparate and independent entity. Please see www.deloitte.com/about for adetailed description of the legal structure of Deloitte Touche Tohmatsu and itsMember Firms.*

 

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|        |   |                                    |
|--------|--------|-----------------------------------------|
|   |   | Deloitte  Auditores y Consultores Ltda. |
|   |   | RUT:  80.276.200-3                      |
|   |   | Av.  Providencia 1760                   |
|   |   | Pisos  6, 7, 8, 9 y 13                  |
|   |   | Providencia,  Santiago                  |
|   |   | Chile                                   |
|   |   | Fono:  (56-2) 729 7000                  |
|   |   | Fax:  (56-2) 374 9177                   |
|   |   | e-mail:  deloittechile@deloitte.com     |
|   |   | www.deloitte.cl                         |

 

**REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM**

 

Tothe Board of Directors and Stockholders of **Endesa Brasil S.A.:**

 

Wehave audited the accompanying consolidated balance sheets of Endesa Brasil S.A.and subsidiaries (the “Company”) as of December 31, 2007 and 2008, and therelated consolidated statements of operations, changes in shareholders’ equityand cash flows for each of the three years in the period ended December 31,2008. These financial statements are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on these financialstatements based on our audits. We did not audit the financial statements ofcertain of its consolidated subsidiaries (hereinafter collectively referred toas the “Subsidiaries”), which statements reflect total assets constituting30.63% of consolidated total assets at December 31, 2007 and totalrevenues constituting 27.21% and 36.32% of consolidated total revenues for theyears ended December 31, 2006 and 2007, respectively. With respect to theconsolidated shareholders’ equity and net income information stated on thebasis of accounting principles generally accepted in the United States ofAmerica (“U. S. GAAP”) in Note 25, these financial statements reflect 54.43% ofthe Endesa Brasil consolidated U.S. GAAP adjustments to shareholders’ equity atDecember 31, 2007 and 56.77% and 55.31% of the Endesa Brasil consolidatedU.S. GAAP adjustments to net income for the years ended December 31, 2006and 2007, respectively. Those statements were audited by other auditors whosereports have been furnished to us and our opinion, insofar as it relates to theamounts included for the Companies, is based solely on the reports of the otherauditors.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States of America). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that ouraudits and the reports of the other auditors provide a reasonable basis for ouropinion.

 

Inour opinion, based on our audits and the reports of the other auditors, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Endesa Brasil S. A. and subsidiaries as of December 31,2007 and 2008, and the results of their operations, changes in shareholders’equity and cash flows for each of the three years in the period ended December 31,2008, in conformity with accounting principles generally accepted in Chile.

 

Accountingprinciples generally accepted in Chile vary in certain significant respectsfrom accounting principles generally accepted in the United States of America.The application of the latter would have affected the determination of netincome for each of the three years in the period ended December 31, 2008,and the determination of shareholders’ equity as of December 31, 2007 and2008, to the extent summarized in Note 25 to the consolidated financialstatements.

 

 

Santiago,Chile

May 29,2009

 

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| ****   | ·                            | Praia de Botafogo, 300 - 13o andar | ·                           | Fone: (55) (21) 2109-1400 |
|--------|----------------------------------------|-----------------------------------------|---------------------------------------|---------------------------|
|   | 22250-040 - Rio de Janeiro, RJ, Brasil |                                    | Fax:   (55) (21)  2109-1600 |
|   |                                   |                                    |                                  | www.ey.com.br             |

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

** **

Tothe Board of Directors and Shareholders of

**Centrais El****é****tricas Cachoeira Dourada - CDSA**

 

Wehave audited the accompanying balance sheets of Centrais Elétricas CachoeiraDourada - CDSA (the “Company”) as of December 31, 2006 and 2007, and therelated statements of income, changes in shareholders’ equity and cash flowsfor the years then ended (not presented separately herein). These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that we planand perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting.Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

Inour opinion, based on our audits, the financial statements referred to abovepresent fairly, in all material respects, the financial position of Centrais ElétricasCachoeira Dourada - CDSA as of December 31, 2006 and 2007, and the resultsof its operations and its cash flows for the years then ended in conformitywith accounting principles generally accepted in Chile, which differ in certainrespects from accounting principles generally accepted in the United States ofAmerica (see Note 21 to the financial statements).

 

Rio de Janeiro, Brazil, March 27, 2008

 

ERNST & YOUNGAuditores Independentes S.S.

 

Claudio CamargoPartner

 

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| ****   | ·                            | Praia de Botafogo, 300 - 13o andar | ·                           | Fone: (55) (21) 2109-1400 |
|--------|----------------------------------------|-----------------------------------------|---------------------------------------|---------------------------|
|   | 22250-040 - Rio de Janeiro, RJ, Brasil |                                    | Fax:   (55) (21)  2109-1600 |
|   |                                   |                                    |                                  | www.ey.com.br             |

 

**REPORT OFINDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

 

Tothe Board of Directors and Shareholders of

**Central Geradora Termel****é****trica Fortaleza - CGTF**

 

Wehave audited the accompanying balance sheets of Central Geradora TermelétricaFortaleza - CGTF (the “Company”) as of December 31, 2006 and 2007, and therelated statements of income, changes in shareholders’ equity and cash flowsfor the years then ended (not presented separately herein). These financialstatements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

Weconducted our audits in accordance with the standards of the Public Company AccountingOversight Board (United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whether the financialstatements are free of material misstatement. We were not engaged to perform anaudit of the Company’s internal control over financial reporting. Our auditincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management,and evaluating the overall financial statement presentation. We believe thatour audits provide a reasonable basis for our opinion.

 

Inour opinion, based on our audits, the financial statements referred to abovepresent fairly, in all material respects, the financial position of CentralGeradora Termelétrica Fortaleza - CGTF as of December 31, 2006 and 2007,and the results of its operations and its cash flows for the years then endedin conformity with accounting principles generally accepted in Chile, whichdiffer in certain respects from accounting principles generally accepted in theUnited States of America (see Note 21 to the financial statements).

 

Rio de Janeiro, Brazil, March 27, 2008

 

ERNST & YOUNGAuditores Independentes S.S.

 

Claudio Camargo

Partner

 

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| ****   | ·                            | Praia de Botafogo, 300 - 13o andar | ·                           | Fone: (55) (21) 2109-1400 |
|--------|----------------------------------------|-----------------------------------------|---------------------------------------|---------------------------|
|   | 22250-040 - Rio de Janeiro, RJ, Brasil |                                    | Fax:   (55) (21)  2109-1600 |
|   |                                   |                                    | www.ey.com.br                         |

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

** **

Tothe Board of Directors and Shareholders of

**CIEN - Companhia de Interconexão Energética**

 

Wehave audited the accompanying consolidated balance sheets of CIEN - Companhiade Interconexão Energética and its subsidiaries (the “Company”) as of December 31,2006 and 2007, and the related consolidated statements of income, changes inshareholders’ equity and cash flows for years then ended (not presentedseparately herein). These financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits. We did not audit the financialstatements of Transportadora de Energía S.A. - TESA and Compañía de Transmisióndel MERCOSUR S.A. - CTM, wholly-owned subsidiaries of the Company, whichstatements reflect total assets of 13 percent and 11 percent as of December 31,2006 and 2007, respectively, and total revenues representing and 6 percent and2 percent for each of the two years in the period ended December 31, 2007,respectively. Those statements were audited by other auditors whose reportshave been furnished to us, and our opinion, insofar as it relates to theamounts included for Transportadora de Energía S.A. - TESA and Compañía deTransmisión del MERCOSUR S.A. - CTM, is based solely on the reports of theother auditors.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. We were not engaged toperform an audit of the Company’s internal control over financial reporting.Our audit included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits and the reports of other auditorsprovide a reasonable basis for our opinion.

 

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Inour opinion, based on our audits and the reports of other auditors, thefinancial statements referred to above present fairly, in all materialrespects, the consolidated financial position of CIEN - Companhia de InterconexãoEnergética and its subsidiaries at December 31, 2006 and 2007, and theconsolidated results of their operations and their cash flows for the yearsthen ended, in conformity with accounting principles generally accepted inChile, which differ in certain respects from accounting principles generallyaccepted in the United States of America (see Note 24 to the financialstatements).

 

Rio de Janeiro, Brazil, March 27, 2008

 

ERNST & YOUNGAuditores Independentes S.S.

 

Claudio Camargo

Partner

 

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|                       | Deloitte &  Co. S.R.L.   |
|----------------------------|-----------------------------------|
| Florida  234, Piso 5° |
| C1005AAF                   |
|                       | Ciudad  Autónoma             |
|                       | De  Buenos Aires                  |
|                       | Argentina                         |
|                       |                              |
|                       | Tel:  (54-11) 4320-2700           |
|                       | Fax:  (54-11) 4325-8081/4326-7340 |
|                       | www.deloitte.com                  |

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the President and Board of Directors of

**Transportadora de Energía S.A.:**

 

We have audited the balance sheet of Transportadora deEnergía S.A. (the “Company”) as of December 31, 2007 and the statements ofoperations and cash flows for each of the two years in the period ended December 31,2007 (none of which are presented herein). These financial statements are theresponsibility of the Company’s management. Our responsibility is to express anopinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States of America).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements present fairly,in all material respects, the financial position of Transportadora de EnergíaS.A. as of December 31, 2007, and the results of its operations and itscash flows for each of the two years in the period ended December 31, 2007in conformity with accounting principles generally accepted in Chile.

 

Accounting principles generally accepted in Chile vary incertain significant respects from accounting principles generally accepted inthe United States of America. The application of the latter would have affectedthe determination of net income for each of the two years in the period ended December 31,2007 and the determination of shareholders’ equity at December 31, 2007 tothe extent summarized in Note 20.

 

**DELOITTE & Co. S.R.L.**

 

 

Carlos A. Lloveras

Buenos Aires, March 27, 2008

 

*Deloitte refers to one or more ofDeloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, eachof which is a legally separate and independent entity. Please see**www.deloitte.com/about for a detaileddescription of the legal structure of Deloitte Touche Tohmatsu and its MemberFirms.*

 

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** **
|                            | Deloitte &  Co. S.R.L.   |
|----------------------------|-----------------------------------|
| Florida  234, Piso 5° |
|                       | C1005AAF                          |
|                       | Ciudad  Autónoma             |
|                       | De  Buenos Aires                  |
|                       | Argentina                         |
|                       |                              |
|                       | Tel:  (54-11) 4320-2700           |
|                       | Fax:  (54-11) 4325-8081/4326-7340 |
|                       | www.deloitte.com                  |

 

**REPORT OF INDEPENDENT REGISTEREDPUBLIC ACCOUNTING FIRM**

 

To the President and Board of Directors of

**Compañía de Transmisión delMercosur S.A.:**

 

We have audited the balance sheet of Compañía deTransmisión del Mercosur S.A. (the “Company”) as of December 31, 2007 andthe statements of operations and cash flows for each of the two years in theperiod ended December 31, 2007 (none of which are presented herein). Thesefinancial statements are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on these financial statements based onour audits.

 

We conducted our audits in accordance with the standardsof the Public Company Accounting Oversight Board (United States of America).Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. The Company is not required to have, nor were we engaged toperform, an audit of its internal control over financial reporting. Our auditsincluded consideration of internal control over financial reporting as a basisfor designing audit procedures that are appropriate in the circumstances, butnot for the purpose of expressing an opinion on the effectiveness of theCompany’s internal control over financial reporting. Accordingly, we express nosuch opinion. An audit also includes examining, on a test basis, evidencesupporting the amounts and disclosures in the financial statements, assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

In our opinion, such financial statements present fairly,in all material respects, the financial position of Compañía de Transmisión delMercosur S.A. as of December 31, 2007 and the results of its operationsand its cash flows for each of the two years in the period ended December 31,2007 in conformity with accounting principles generally accepted in Chile.

 

Accounting principles generally accepted in Chile vary incertain significant respects from accounting principles generally accepted inthe United States of America. The application of the latter would have affectedthe determination of net income for each of the two years in the period ended December 31,2007 and the determination of shareholders’ equity at December 31, 2007 tothe extent summarized in Note 19.

 

**DELOITTE & Co. S.R.L.**

 

 

Carlos A. Lloveras

Buenos Aires, March 27, 2008

 

*Deloitte refers to one or more ofDeloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, eachof which is a legally separate and independent entity. Please see**www.deloitte.com/about for a detaileddescription of the legal structure of Deloitte Touche Tohmatsu and its MemberFirms.*

 

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**Endesa Chile and Subsidiaries**

**Consolidated Balance Sheets**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, except as stated)**

 
| ** **                                    | ** ** | ** ** | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------------------------|------------|
| **Assets**                                    | ** ** | **Note**   | ** ** | **2007**                    | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThUS$** | ** ** |
| ** **                                    | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | **(Note 2 (b))** | ** ** |
| **Current assets:**                           |       |       |       |                        |       |   |   |   |   |
| Cash                                          |       |       |       | 21,123,564                  |       | 54,516,339 |   | 85,657 |   |
| Time deposits                                 |       | 4          |       | 48,212,900                  |       | 172,001,465 |   | 270,251 |   |
| Marketable securities                         |       |       |       | 11,221,911                  |       | 101,229,674 |   | 159,054 |   |
| Accounts receivable, net                      |       | 5a         |       | 230,007,246                 |       | 276,420,886 |   | 434,317 |   |
| Other accounts receivable, net                |       | 5a         |       | 65,389,290                  |       | 32,082,616 |   | 50,409 |   |
| Accounts receivable from related companies    |       | 6a         |       | 191,610,270                 |       | 72,262,754 |   | 113,540 |   |
| Inventories                                   |       | 7          |       | 56,941,649                  |       | 44,286,274 |   | 69,583 |   |
| Taxes receivables                             |       | 8          |       | 70,655,942                  |       | 29,687,065 |   | 46,645 |   |
| Prepaid expenses                              |       |       |       | 4,988,847                   |       | 6,144,242 |   | 9,654 |   |
| Deferred income taxes                         |       | 8a         |       | 3,141,292                   |       | 3,750,652 |   | 5,893 |   |
| Other current assets                          |       | 9          |       | 30,299,225                  |       | 376,410,316 |   | 591,422 |   |
| Total current assets                          |       |       |       | 733,592,136                 |       | 1,168,792,283 |   | 1,836,424 |   |
|                                          |       |       |       |                        |       |   |   |   |   |
| **Property, plant and equipment, net**        |       | 10         |       | 4,536,151,170               |       | 5,040,756,935 |   | 7,920,115 |   |
|                                          |       |       |       |                        |       |   |   |   |   |
| **Other assets:**                             |       |       |       |                        |       |   |   |   |   |
| Investments in related companies              |       | 11a        |       | 483,551,029                 |       | 688,882,708 |   | 1,082,383 |   |
| Investments in other companies                |       | 13         |       | 4,499,098                   |       | 4,605,373 |   | 7,236 |   |
| Long-term accounts receivables                |       | 5a         |       | 90,698,407                  |       | 94,690,545 |   | 148,779 |   |
| Goodwill, net                                 |       | 12a        |       | 10,731,594                  |       | 10,882,321 |   | 17,098 |   |
| Negative goodwill, net                        |       | 12b        |       | (40,297,249                 | )          | (41,092,610 | ) | (64,565 | ) |
| Accounts receivable from related companies    |       | 6a         |       | 402                         |       | 109,601,626 |   | 172,208 |   |
| Other intangibles                             |       | 14         |       | 27,505,392                  |       | 34,277,280 |   | 53,857 |   |
| Accumulated amortization of other intangibles |       | 14         |       | (10,776,596                 | )          | (14,465,911 | ) | (22,729 | ) |
| Other assets                                  |       | 15         |       | 31,199,054                  |       | 45,425,101 |   | 71,373 |   |
| Total other assets                            |       |       |       | 597,111,131                 |       | 932,806,433 |   | 1,465,640 |   |
| **Total assets**                              | ** ** | ** ** | ** ** | **5,866,854,437**           | ** ** | **7,142,355,651** | ** ** | **11,222,179** | ** ** |

 

F-15

----

Table ofContents

 

**Endesa Chile and Subsidiaries**

**Consolidated Balance Sheets**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, except as stated)**

 
| ** **                                                                 | ** ** | ** ** | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------------------|------------|------------|------------|-----------------------------|------------|
| **Liabilities and Shareholders’ equity**                              | ** ** | **Note**   | ** ** | **2007**                    | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                                                 | ** ** | ** ** | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThUS$** | ** ** |
| ** **                                                                 | ** ** | ** ** | ** ** | ** **                  | ** ** | ** ** | ** ** | **(Note 2 (b))** | ** ** |
| **Current liabilities:**                                                   |       |       |       |                        |       |   |   |   |   |
| Short-term debt due to banks and financial institutions                    |       | 16         |       | 28,788,252                  |       | 69,048,007 |   | 108,489 |   |
| Current portion of long-term debt due to banks and financial  institutions |       | 17         |       | 72,961,594                  |       | 67,275,418 |   | 105,704 |   |
| Current portion of bonds payable                                           |       | 19         |       | 279,464,898                 |       | 556,888,969 |   | 874,992 |   |
| Current portion of long-term notes payable                                 |       | 19         |       | 25,498,337                  |       | 35,081,124 |   | 55,120 |   |
| Dividends payable                                                          |       |       |       | 25,619,201                  |       | 4,604,966 |   | 7,235 |   |
| Accounts payable                                                           |       |       |       | 210,127,149                 |       | 264,266,515 |   | 415,220 |   |
| Miscellaneous payables                                                     |       |       |       | 27,407,092                  |       | 18,255,074 |   | 28,683 |   |
| Accounts payable to related companies                                      |       | 6a         |       | 17,144,245                  |       | 84,489,283 |   | 132,751 |   |
| Accrued liabilities                                                        |       | 20         |       | 32,162,898                  |       | 33,744,756 |   | 53,020 |   |
| Employee withholdings                                                      |       |       |       | 21,736,924                  |       | 30,542,779 |   | 47,989 |   |
| Income taxes payable                                                       |       | 8          |       | 8,980,655                   |       | 54,688,924 |   | 85,928 |   |
| Deferred revenue                                                           |       |       |       | 683,953                     |       | 400,565 |   | 629 |   |
| Other current liabilities                                                  |       |       |       | 5,897,326                   |       | 1,824,863 |   | 2,867 |   |
| Total current liabilities                                                  |       |       |       | 756,472,524                 |       | 1,221,111,243 |   | 1,918,629 |   |
| **Long-term liabilities:**                                                 |       |       |       |                        |       |   |   |   |   |
| Long-term debt due to banks and financial institutions                     |       | 18         |       | 316,696,529                 |       | 614,543,066 |   | 965,579 |   |
| Bonds payable                                                              |       | 19         |       | 1,395,877,167               |       | 1,287,175,391 |   | 2,022,430 |   |
| Long-term notes payable                                                    |       | 19         |       | 68,659,150                  |       | 81,088,822 |   | 127,408 |   |
| Miscellaneous payables                                                     |       |       |       | 79,362,332                  |       | 125,258,026 |   | 196,807 |   |
| Accrued liabilities                                                        |       | 20         |       | 30,337,719                  |       | 30,372,553 |   | 47,722 |   |
| Deferred income taxes                                                      |       | 8a         |       | 173,087,423                 |       | 190,779,902 |   | 299,756 |   |
| Other long-term liabilities                                                |       |       |       | 28,623,647                  |       | 34,786,029 |   | 54,656 |   |
| Total long-term liabilities                                                |       |       |       | 2,092,643,967               |       | 2,364,003,789 |   | 3,714,359 |   |
| **Commitments and contingencies**                                          |       | 29         |       |                        |       |   |   |   |   |
| **Minority interest**                                                      |       | 22a        |       | 965,815,136                 |       | 1,192,716,624 |   | 1,874,015 |   |
| **Shareholders’ equity:**                                             |       | 23         |       |                        |       |   |   |   |   |
| Stated capital                                                             |       |       |       | 1,331,714,085               |       | 1,331,714,085 |   | 2,092,410 |   |
| Additional paid-in capital — share premium                            |       |       |       | 261,232,246                 |       | 261,232,246 |   | 410,452 |   |
| Other reserves                                                             |       | 23d        |       | (176,405,325                | )          | (160,614,415 | ) | (252,360 | ) |
| Retained earnings                                                          |       |       |       | 425,815,439                 |       | 489,600,112 |   | 769,267 |   |
| Net income                                                                 |       |       |       | 209,566,365                 |       | 442,591,967 |   | 695,407 |   |
| **Total Shareholders’ equity**                                        | ** ** | ** ** | ** ** | **2,051,922,810**           | ** ** | **2,364,523,995** | ** ** | **3,715,176** | ** ** |
| **Total Liabilities and Shareholders’ equity**                        | ** ** | ** ** | ** ** | **5,866,854,437**           | ** ** | **7,142,355,651** | ** ** | **11,222,179** | ** ** |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-16

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Consolidated Statements of Income**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 
| ** **                                           | ** ** | ** ** | ** ** | **For the years ended December 31,** | ** ** |
|------------------------------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                                           | ** ** | **Note**   | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThUS$** | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | **(Note 2 (b))** | ** ** |
| **Operating income:**                                |       |       |       |                                      |       |   |   |   |   |   |   |
| Sales                                                |       |       |       | 1,563,877,917                             |       | 1,880,663,715 |   | 2,491,588,673 |   | 3,914,822 |   |
| Cost of sales                                        |       |       |       | (927,785,827                              | )          | (1,218,648,914 | ) | (1,549,012,893 | ) | (2,433,833 | ) |
| Gross profit                                         |       |       |       | 636,092,090                               |       | 662,014,801 |   | 942,575,780 |   | 1,480,990 |   |
| Administrative and selling expenses                  |       |       |       | (46,065,057                               | )          | (40,380,822 | ) | (49,215,400 | ) | (77,328 | ) |
| Operating income                                     |       |       |       | 590,027,033                               |       | 621,633,979 |   | 893,360,380 |   | 1,403,662 |   |
|                                                 |       |       |       |                                      |       |   |   |   |   |   |   |
| **Non-operating income and expense:**                |       |       |       |                                      |       |   |   |   |   |   |   |
| Interest income                                      |       |       |       | 17,330,604                                |       | 25,346,152 |   | 28,675,508 |   | 45,055 |   |
| Equity participation in income of related  companies |       | 11a        |       | 49,672,511                                |       | 51,125,437 |   | 119,628,189 |   | 187,962 |   |
| Other non-operating income                           |       | 24a        |       | 35,049,741                                |       | 19,510,858 |   | 79,232,845 |   | 124,492 |   |
| Equity participation in losses of related  companies |       | 11a        |       | (146,441                                  | )          | (62,508,538 | ) | (5,971,152 | ) | (9,382 | ) |
| Goodwill amortization                                |       | 12 a       |       | (1,102,713                                | )          | (991,089 | ) | (1,184,879 | ) | (1,862 | ) |
| Interest expense                                     |       |       |       | (201,074,012                              | )          | (193,328,896 | ) | (194,845,084 | ) | (306,144 | ) |
| Other non-operating expenses                         |       | 24b        |       | (50,956,196                               | )          | (92,838,176 | ) | (80,093,958 | ) | (125,845 | ) |
| Price-level restatement, net                         |       | 25         |       | 1,739,748                                 |       | 9,642,423 |   | 424,645 |   | 667 |   |
| Foreign currency translation, net                    |       | 26         |       | 4,219,834                                 |       | 18,090,406 |   | (30,562,735 | ) | (48,021 | ) |
| Non-operating loss                                   |       |       |       | (145,266,924                              | )          | (225,951,423 | ) | (84,696,621 | ) | (133,077 | ) |
|                                                 |       |       |       |                                      |       |   |   |   |   |   |   |
| Income before income taxes                           |       |       |       | 444,760,109                               |       | 395,682,556 |   | 808,663,759 |   | 1,270,585 |   |
| Income taxes                                         |       | 8          |       | (153,048,224                              | )          | (123,507,299 | ) | (191,557,383 | ) | (300,978 | ) |
| Income before minority interest                      |       |       |       | 291,711,885                               |       | 272,175,257 |   | 617,106,376 |   | 969,607 |   |
| Minority interest                                    |       | 22b        |       | (77,088,340                               | )          | (67,380,973 | ) | (180,686,406 | ) | (283,897 | ) |
| Income before amortization of negative goodwill      |       |       |       | 214,623,545                               |       | 204,794,284 |   | 436,419,970 |   | 685,710 |   |
| Amortization of negative goodwill                    |       | 12b        |       | 7,061,329                                 |       | 4,772,081 |   | 6,171,997 |   | 9,698 |   |
| Net income                                           | ** ** | ** ** | ** ** | **221,684,874**                           | ** ** | **209,566,365** | ** ** | **442,591,967** | ** ** | **695,407** | ** ** |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-17

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Consolidated Statements ofShareholders’ Equity**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 
| ** **                                             | ** ** | **Number of   outstanding shares** | ** ** | **Stated capital** | ** ** | **Additional paid-  in capital** | ** ** | **Development stage  companies (3)** | ** ** | **Other  reserves** | ** ** | **Retained earnings** | ** ** | **Net income**  | ** ** | **Total**         | ** ** |
|--------------------------------------------------------|------------|------------------------------------|------------|--------------------|------------|----------------------------------|------------|--------------------------------------|------------|---------------------|------------|-----------------------|------------|-----------------|------------|-------------------|------------|
| ** **                                             | ** ** | **(In thousands)**                 | ** ** | **ThCh$**          | ** ** | **ThCh$**                        | ** ** | **ThCh$**                            | ** ** | **ThCh$**           | ** ** | **ThCh$**             | ** ** | **ThCh$**       | ** ** | **ThCh$**         | ** ** |
| As of January 1, 2006                             |       | 8,201,755                          |       | 1,115,200,845      |       | 218,760,487                      |       | —                               |       | (34,508,449         | )          | 232,182,953           |       | 110,622,993     |       | 1,642,258,829     |       |
| Reclassification of prior year net income              |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | 110,622,993           |       | (110,622,993    | )          | —            |       |
| Price-level restatement of capital                     |       | —                             |       | 23,419,218         |       | 4,593,970                        |       | —                               |       | (724,677            | )          | 6,047,727             |       | —          |       | 33,336,238        |       |
| Dividends                                              |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | (47,734,212           | )          | —          |       | (47,734,212       | )          |
| Reorganization of entities under common control (2)    |       | —                             |       | —             |       | —                           |       | —                               |       | (6,410,324          | )          | —                |       | —          |       | (6,410,324        | )          |
| Cumulative translation adjustment                      |       | —                             |       | —             |       | —                           |       | —                               |       | 4,699,526           |       | —                |       | —          |       | 4,699,526         |       |
| Accumulated deficit of development stage companies     |       | —                             |       | —             |       | —                           |       | (303,015                             | )          | —              |       | —                |       | —          |       | (303,015          | )          |
| Interim dividends                                      |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | (21,078,509           | )          | —          |       | (21,078,509       | )          |
| Net income                                             |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | —                |       | 189,541,318     |       | 189,541,318       |       |
| As of December 31, 2006                           | ** ** | **8,201,755**                      | ** ** | **1,138,620,063**  | ** ** | **223,354,457**                  | ** ** | **(303,015**                         | **)**      | **(36,943,924**     | **)**      | **280,040,952**       | ** ** | **189,541,318** | ** ** | **1,794,309,851** | ** ** |
| As of December 31, 2008 (1)                       | ** ** | **8,201,755**                      | ** ** | **1,331,714,085**  | ** ** | **261,232,246**                  | ** ** | **(354,402**                         | **)**      | **(43,209,096**     | **)**      | **327,531,  977**     | ** ** | **221,684,874** | ** ** | **2,098,599,684** | ** ** |
| As of January 1, 2007                             |       | 8,201,755                          |       | 1,138,620,063      |       | 223,354,457                      |       | (303,015                             | )          | (36,943,924         | )          | 280,040,952           |       | 189,541,318     |       | 1,794,309,851     |       |
| Reclassification of prior year net income              |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | 189,541,318           |       | (189,541,318    | )          | —            |       |
| Price-level restatement of capital                     |       | —                             |       | 84,257,885         |       | 16,528,230                       |       | —                               |       | (2,733,849          | )          | 28,626,028            |       | —          |       | 126,678,294       |       |
| Dividends                                              |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | (88,907,020           | )          | —          |       | (88,907,020       | )          |
| Reorganization of entities under common control (2)    |       | —                             |       | —             |       | —                           |       | —                               |       | (94,522,445         | )          | —                |       | —          |       | (94,522,445       | )          |
| Cumulative translation adjustment                      |       | —                             |       | —             |       | —                           |       | —                               |       | (27,788,143         | )          | —                |       | —          |       | (27,788,143       | )          |
| Accumulated deficit of development stage companies (3) |       | —                             |       | —             |       | —                           |       | 303,015                              |       | —              |       | (303,015              | )          | —          |       | —            |       |
| Interim dividends                                      |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | (17,983,167           | )          | —          |       | (17,983,167       | )          |
| Net income                                             |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | —                |       | 192,439,270     |       | 192,439,270       |       |
| As of December 31, 2007                           | ** ** | **8,201,755**                      | ** ** | **1,222,877,948**  | ** ** | **239,882,687**                  | ** ** | **—**                           | ** ** | **(161,988,361**    | **)**      | **391,015,096**       | ** ** | **192,439,270** | ** ** | **1,884,226,640** | ** ** |
| As of December 31, 2008 (1)                       | ** ** | **8,201,755**                      | ** ** | **1,331,714,085**  | ** ** | **261,232,246**                  | ** ** | **—**                           | ** ** | **(176,405,325**    | **)**      | **425,815,439**       | ** ** | **209,566,365** | ** ** | **2,051,922,810** | ** ** |
| As of January 1, 2008                             |       | 8,201,755                          |       | 1,222,877,948      |       | 239,882,687                      |       | —                               |       | (161,988,361        | )          | 391,015,096           |       | 192,439,270     |       | 1,884,226,641     |       |
| Reclassification of prior year net income              |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | 192,439,270           |       | (192,439,270    | )          | —            |       |
| Price-level restatement of capital                     |       | —                             |       | 108,836,137        |       | 21,349,559                       |       | —                               |       | (14,842,094         | )          | 44,885,805            |       | —          |       | 160,229,407       |       |
| Dividends                                              |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | (94,850,832           | )          | —          |       | (94,850,832       | )          |
| Cumulative translation adjustment                      |       | —                             |       | —             |       | —                           |       | —                               |       | 16,216,041          |       | —                |       | —          |       | 16,216,041        |       |
| Interim dividends                                      |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | (43,889,229           | )          | —          |       | (43,889,229       | )          |
| Net income                                             |       | —                             |       | —             |       | —                           |       | —                               |       | —              |       | —                |       | 442,591,967     |       | 442,591,967       |       |
| As of December 31, 2008                           | ** ** | **8,201,755**                      | ** ** | **1,331,714,085**  | ** ** | **261,232,246**                  | ** ** | **—**                           | ** ** | **(160,614,414**    | **)**      | **489,600,110**       | ** ** | **442,591,967** | ** ** | **2,364,523,995** | ** ** |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-18

----

Table ofContents

 

**Endesa Chile and Subsidiaries**

**Consolidated Statements of Shareholders’ Equity**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

----

(1)     Restated in thousands of constant Chileanpesos as of December 31, 2008.

(2)     As a result of a reorganization of entitiesunder common control, the movements in other reserves accounted for in a mannersimilar to the pooling-of-interest method are as follows:

 
| **Transaction**                             | ** ** | **2006**       | ** ** | **2007**       | ** ** |
|---------------------------------------------|------------|----------------|------------|----------------|------------|
| ** **                                  | ** ** | **ThCh$**      | ** ** | **ThCh$**      | ** ** |
| ** **                                  | ** ** | **(historic)** | ** ** | **(historic)** | ** ** |
|                                        |       |           |       |           |       |
| Merger Edegel-Etevensa (Note  11 d. (iii))  |       | (9,599,504     | )          | —         |       |
| Liquidation of CESA (Note 11 e. (i))        |       | 3,189,180      |       | —         |       |
| Merger Betania and Emgesa (Note 11 c. (ii)) |       | —         |       | (94,522,106    | )          |
| Total                                       |       | (6,410,324     | )          | (94,522,106    | )          |

 

(3) SeeNote 3.

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-19

----

Table ofContents

 

**Endesa Chile and Subsidiaries**

**Consolidated Statements of CashFlows**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 
| ** **                                                                | ** ** | **For the years ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                                                | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThUS$** | ** ** |
| ** **                                                                | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | **(Note 2 (b))** | ** ** |
| **Cash flows from operating activities:**                                 |       |                                      |       |   |   |   |   |   |   |
| Net income                                                                |       | 221,684,874                               |       | 209,566,365 |   | 442,591,967 |   | 695,407 |   |
| (Gain) loss on sales of property, plant and equipment                     |       | (3,685,778                                | )          | (412,692 | ) | 14,735 |   | 23 |   |
| Net gain on sales of investments                                          |       | —                                    |       | (3,351,925 | ) | — |   | — |   |
| **Charges (credits) to income which do not  represent cash flows:**       |       |                                      |       |   |   |   |   |   |   |
| Depreciation                                                              |       | 205,036,039                               |       | 210,150,835 |   | 250,505,112 |   | 393,597 |   |
| Amortization of intangibles                                               |       | 1,295,716                                 |       | 1,330,242 |   | 1,832,903 |   | 2,880 |   |
| Write-offs and provisions                                                 |       | 30,549                                    |       | 154,759 |   | 410,510 |   | 645 |   |
| Equity participation in income of related companies                       |       | (49,672,511                               | )          | (51,125,437 | ) | (119,628,189 | ) | (187,962 | ) |
| Equity participation in losses of related companies                       |       | 146,441                                   |       | 62,508,538 |   | 5,971,152 |   | 9,382 |   |
| Amortization of goodwill                                                  |       | 1,102,713                                 |       | 991,089 |   | 1,184,879 |   | 1,862 |   |
| Amortization of negative goodwill                                         |       | (7,061,329                                | )          | (4,772,081 | ) | (6,171,997 | ) | (9,698 | ) |
| Price-level restatement, net                                              |       | (1,739,748                                | )          | (9,642,423 | ) | (424,645 | ) | (667 | ) |
| Foreign currency translation, net                                         |       | (4,219,834                                | )          | (18,090,406 | ) | 30,562,735 |   | 48,021 |   |
| Dividends received from equity method investees                           |       | 19,831,393                                |       | 50,031,975 |   | 36,396,113 |   | 57,186 |   |
| Other credits to income which do not represent cash flows                 |       | (707,032                                  | )          | (1,077,280 | ) | (35,830 | ) | (56 | ) |
| Other charges to income which do not represent cash flows                 |       | 8,096,663                                 |       | 3,522,315 |   | 5,064,105 |   | 7,957 |   |
| Income attributable to minority interest                                  |       | 77,088,340                                |       | 67,380,973 |   | 180,686,406 |   | 283,897 |   |
| **Changes in assets which affect cash flows:**                            |       |                                      |       |   |   |   |   |   |   |
| Increase in trade receivables                                             |       | (112,290,649                              | )          | (138,798,454 | ) | (68,887,357 | ) | (108,237 | ) |
| Decrease (increase) on inventory                                          |       | 5,102,634                                 |       | (29,801,961 | ) | 12,192,166 |   | 19,157 |   |
| Decrease (increase) in other assets                                       |       | (18,174,606                               | )          | (54,719,487 | ) | (5,927,687 | ) | (9,314 | ) |
| **Changes in liabilities which affect cash flows:**                       |       |                                      |       |   |   |   |   |   |   |
| Increase (decrease) in accounts payable associated with operating results |       | 67,442,108                                |       | 226,732,632 |   | (60,847,263 | ) | (95,604 | ) |
| Decrease in interest payable                                              |       | (1,927,505                                | )          | (20,330,128 | ) | (398,022 | ) | (625 | ) |
| Increase in income tax payable                                            |       | 71,287,980                                |       | 19,203,019 |   | 118,038,561 |   | 185,464 |   |
| Increase in other accounts payable associated with non-operating  results |       | 3,780,459                                 |       | 13,149,581 |   | 8,387,633 |   | 13,179 |   |
| Net (decrease) increase in value added tax and other payables             |       | 8,897,068                                 |       | (75,388,850 | ) | 35,266,215 |   | 55,411 |   |
|                                                                      |       |                                      |       |   |   |   |   |   |   |
| **Net cash flows provided by operating activities**                       |       | 491,343,985                               |       | 457,211,199 |   | 866,784,202 |   | 1,361,905 |   |

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-20

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Consolidated Statements of CashFlows**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **
| ** **                                                                                   | ** ** | **For the years ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                   | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** |
| ** **                                                                                   | ** ** | **ThCh$**                                 | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThUS$** | ** ** |
| ** **                                                                                   | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** | **(Note 2 (b))** | ** ** |
| **Cash flows from financing activities:**                                                    |       |                                      |       |   |   |   |   |   |   |
| Proceeds from the issuance of debt                                                           |       | 623,985,442                               |       | 180,914,780 |   | 387,187,168 |   | 608,354 |   |
| Proceeds from bond issuances                                                                 |       | 54,414,214                                |       | 166,324,463 |   | 232,389,281 |   | 365,134 |   |
| Proceeds from loans obtained from related companies                                          |       | 39,435,602                                |       | 43,255,604 |   | 67,650,974 |   | 106,294 |   |
| Dividends paid                                                                               |       | (133,692,807                              | )          | (257,789,954 | ) | (282,015,440 | ) | (443,107 | ) |
| Distributions of capital by foreign subsidiaries                                             |       | —                                    |       | — |   | 456,542 |   | 717 |   |
| Repayment of debt                                                                            |       | (420,692,640                              | )          | (173,692,919 | ) | (165,883,078 | ) | (260,638 | ) |
| Repayment of bonds                                                                           |       | (315,176,115                              | )          | (117,891,523 | ) | (227,609,282 | ) | (357,623 | ) |
| Payment of loans obtained from related companies                                             |       | (6,161,368                                | )          | — |   | (6,565,819 | ) | (10,316 | ) |
| Other disbursements for financing                                                            |       | (1,370,738                                | )          | (1,120,954 | ) | (621,018 | ) | (976 | ) |
|                                                                                         |       |                                      |       |   |   |   |   |   |   |
| **Net cash provided by (used in) financing  activities**                                     |       | (159,258,410                              | )          | (160,000,503 | ) | 4,989,328 |   | 7,839 |   |
| ** **                                                                                   |       |                                      |       |   |   |   |   |   |   |
| **Cash flows from investing activities:**                                                    |       |                                      |       |   | ** ** | ** ** |   |   |   |
| Proceeds from sales of property, plant and equipment                                         |       | 21,431,568                                |       | 3,244,219 |   | 471,007 |   | 740 |   |
| Payments related to loans to related companies                                               |       | 14,990,013                                |       | — |   | 85,217,248 |   | 133,895 |   |
| Other receipts from investments (1)                                                          |       | 1,212,072                                 |       | 47,014,775 |   | 14,205 |   | 22 |   |
| Additions to property, plant and equipment                                                   |       | (198,928,912                              | )          | (225,455,435 | ) | (290,178,733 | ) | (455,933 | ) |
| Long-term investments                                                                        |       | (24,576,510                               | )          | (41,582,252 | ) | (19,864,710 | ) | (31,212 | ) |
| Proceeds from sales of long-term investments                                                 |       | 57,768                                    |       | 9,118,784 |   | 7,730,911 |   | 12,147 |   |
| Liquidation of subsidiary (2)                                                                |       | (4,819,794                                | )          | — |   | — |   | — |   |
| Other loans granted to related companies                                                     |       | (48,550,111                               | )          | (89,122,732 | ) | (53,161,289 | ) | (83,528 | ) |
| Other disbursements related to investing activities (1)                                      |       | —                                    |       | (47,553,154 | ) | (8,317,231 | ) | (13,068 | ) |
|                                                                                         |       |                                      |       |   |   |   |   |   |   |
| **Net cash used in investing activities**                                                    |       | (239,183,906                              | )          | (344,335,795 | ) | (278,088,592 | ) | (436,937 | ) |
| ** **                                                                                   |       |                                      |       |   |   |   |   |   |   |
| Net cash flow for the year                                                                   |       | 92,901,669                                |       | (47,125,099 | ) | 593,684,938 |   | 932,807 |   |
| Effect of price-level restatement and exchange rate difference on  cash and cash equivalents |       | (8,177,113                                | )          | (24,788,508 | ) | (1,291,363 | ) | (2,029 | ) |
|                                                                                         |       |                                      |       |   |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                         |       | 84,724,556                                |       | (71,913,607 | ) | 592,393,575 |   | 930,778 |   |
|                                                                                         |       |                                      |       |   |   |   |   |   |   |
| Cash and cash equivalents - Beginning of year                                                |       | 97,161,511                                |       | 181,886,067 |   | 109,972,460 |   | 172,790 |   |
|                                                                                         |       |                                      |       |   |   |   |   |   |   |
| Cash and cash equivalents - End of year                                                      |       | 181,886,067                               |       | 109,972,460 |   | 702,366,035 |   | 1,103,568 |   |

 

----

(1) See Note 27.

(2) See Note 11 (e) (i).As a result of the liquidation of CESA, cash amounting to ThCh$ 4,819,794 wastransferred to CESA’s other shareholder, Endesa Latinoamérica S.A.

 

The accompanying notes are an integral part ofthese consolidated financial statements.

 

F-21

----

Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes tothe Consolidated Financial Statements**

** (Restated for general price-level changes andexpressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **

**1.****                 ****Description of Business:**

** **

Empresa Nacional de Electricidad S.A.  (“Endesa Chile” or the “Company”, NYSE: EOC)is a publicly held limited liability stock company domiciled in Chile. TheCompany predominantly obtains its revenues from the sale of electric energy butalso provides engineering services and operates a road tunnel under publicconcession.  It is a publicly-tradedcompany, regulated by the Chilean Superintendence of Securities and Insurance(Superintendencia de Valores y Seguros or “SVS”) as well as by the UnitedStates Securities and Exchange Commission (“SEC”) since registering American Depositary Share (“ADSs”) in 1994.

 

As of December 31, 2008 the Company’s only subsidiarythat is regulated by the SVS is Empresa Eléctrica Pehuenche S.A. (“PehuencheS.A.”).

 

TheCompany is a subsidiary of ENERSIS S.A., or Enersis (NYSE: ENI), which holds59.98% of the Company’s outstanding shares as of December 31, 2008.

 

**2.****                 ****Summary of Significant Accounting Policies:**

 

a)                  General:

 

Theconsolidated financial statements of the Company have been prepared inaccordance with accounting principles generally accepted in Chile and theregulations established by the SVS (collectively “Chilean GAAP”). Certainaccounting practices applied by the Company that conform with accountingprinciples generally accepted in Chile do not conform with accountingprinciples generally accepted in the United States (“US GAAP”) or InternationalFinancial Reporting Standards (“IFRS”). No reclassification has occurred inyear 2008.

 

The preparation of financial statements requires managementto make estimates and assumptions that affect the reported amounts of assetsand liabilities and disclosures of contingent assets and liabilities as of thedate of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from thoseestimates.

 

In certain cases generally accepted accountingprinciples require that assets or liabilities be recorded or disclosed at theirfair values.

 

The accompanying financial statements reflect theconsolidated results of operations of Endesa Chile and its subsidiaries. Allsignificant intercompany transactions have been eliminated in consolidation.The Company consolidates the financial statements of companies in which itdirectly or indirectly exercises control through a majority of the votingshares, provided that there are no substantive minority participating rightsthat prevent control. Majority-owned companies in which Endesa Chile does notexercise management control due to restrictions concerning the control ofassets and management (“unconsolidated affiliates”) are accounted for under theequity method.

 

The financial statements as of and for the years ended December 31,2006, 2007 and 2008 of certain of the Company’s foreign subsidiaries, have beenprepared in accordance to technical bullettins No72, No64, and No42issued  by the Chilean Association ofAccountants, prior to consolidation.

 

F-22

----

Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

** (Restated for general price-level changes andexpressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                 ****Summary of Significant Accounting Policies, continued:**

 

The table below setsforth the percentage participation of Endesa Chile in its consolidatedcompanies:

 
| ** **                                                         | ** ** | **Percentage participation in  voting rights as of December 31,** | ** ** |
|--------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|
| ** **                                                         | ** ** | **2006**                                                               | ** ** | **2007** | ** ** | **2008** | ** ** |
| **Company name**                                                   | ** ** | **Total**                                                              | ** ** | **Total** | ** ** | **Direct** | ** ** | **Indirect** | ** ** | **Total** | ** ** |
| Enigesa S.A. (Chile)                                               |       | 100.00                                                                 |       | 100.00 |   | 99.51 |   | 0.49 |   | 100.00 |   |
| Ingendesa S.A. (Chile)                                             |       | 100.00                                                                 |       | 100.00 |   | 98.75 |   | 1.25 |   | 100.00 |   |
| Pehuenche S.A. (Chile)                                             |       | 92.65                                                                  |       | 92.65 |   | 92.65 |   | — |   | 92.65 |   |
| Endesa Argentina S.A.  (Argentina)                                 |       | 99.99                                                                  |       | 99.99 |   | 99.66 |   | 0.33 |   | 99.99 |   |
| Pangue S.A.(1) (Chile)                                        |       | 94.99                                                                  |       | 94.99 |   | 94.98 |   | 0.01 |   | 94.99 |   |
| Hidroinvest S.A. (Argentina) (2)                                   |       | 69.93                                                                  |       | 96.09 |   | 41.94 |   | 54.15 |   | 96.09 |   |
| Hidroeléctrica El Chocón S.A.  (Argentina) (2)           |       | 65.19                                                                  |       | 67.67 |   | 2.48 |   | 65.19 |   | 67.67 |   |
| Endesa Costanera S.A.  (Argentina) (2) (3)                    |       | 64.26                                                                  |       | 69.77 |   | 12.33 |   | 57.43 |   | 69.77 |   |
| Endesa Brasil Participacoes  Ltda. (Brazil)(4)                     |       | 100.00                                                                 |       | 100.00 |   | — |   | — |   | — |   |
| Sociedad Concesionaria Túnel  El Melón S.A.(Chile) (5)   |       | 99.96                                                                  |       | 100.00 |   | 99.99 |   | 0.01 |   | 100.00 |   |
| Compañía Eléctrica Cono Sur  S.A. (Pánama) (6) |       | 100.00                                                                 |       | 100.00 |   | — |   | — |   | — |   |
| Emgesa S.A. (Colombia) (7) (8)                                |       | 23.45                                                                  |       | 26.87 |   | 26.87 |   | — |   | 26.87 |   |
| Central Eólica Canela S.A. (Chile) (9)                        |       | —                                                                 |       | 75.00 |   | — |   | 75.00 |   | 75.00 |   |
| Edegel S.A. (Peru) (10)                                            |       | 55.44                                                                  |       | 55.44 |   | — |   | 54.20 |   | 54.20 |   |
| Generandes Perú S.A. (Peru)  (10)                             |       | 59.63                                                                  |       | 59.63 |   | — |   | 61.00 |   | 61.00 |   |
| Southern Cone Power  Argentina S.A. (Argentina) (3)                |       | —                                                                 |       | 100.00 |   | 98.00 |   | 2.00 |   | 100.00 |   |
| Compañía Eléctrica San Isidro  S.A. (Chile)         |       | 100.00                                                                 |       | 100.00 |   | 100.00 |   | — |   | 100.00 |   |
| Compañía Eléctrica Tarapacá  S.A. (Chile)      |       | 100.00                                                                 |       | 100.00 |   | 99.94 |   | 0.06 |   | 100.00 |   |
| Inversiones Endesa Norte S.A.  (Chile)                             |       | 100.00                                                                 |       | 100.00 |   | 99.99 |   | 0.01 |   | 100.00 |   |
| Ingendesa Do Brasil Limitada  (Brazil)                             |       | 100.00                                                                 |       | 100.00 |   | 1.00 |   | 99.00 |   | 100.00 |   |
| Endesa Eco S.A. (Chile) (9)                                        |       | 100.00                                                                 |       | 100.00 |   | 99.99 |   | 0.01 |   | 100.00 |   |

 

----

| (1)  | See Note 11 (d) (i).                                                                                                                                                                                                                                                |
|------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  | See Note 11 (d) (v).                                                                                                                                                                                                                                                |
| (3)  | See Note 11 (d) (iv).                                                                                                                                                                                                                                               |
| (4)  | See Note 11 (e) (iii).                                                                                                                                                                                                                                              |
| (5)  | See Note 11 (d) (vi).                                                                                                                                                                                                                                               |
| (6)  | See Notes 11 (e) (ii) and 11 (c) (i).                                                                                                                                                                                                                     |
| (7)  | Endesa Chile exercises control over this company pursuant  to a shareholders’ agreement dated August 30, 2007 held between the  Company and Endesa Latinoamérica S.A.                                                                                     |
| (8)  | See Notes 11 (c) (ii), 11 (d) (i) and 11  (e) (i)                                                                                                                                                                                                    |
| (9)  | See Note 11 (b) (iii).                                                                                                                                                                                                                                              |
| (10) | See Notes 11 (d) (ii) and 11 (b)                                                                                                                                                                                                                               |
| (11) | On June 1, 2008, the Scotiabank interest group, which  owned 2.27% in Generandes Perú S.A., withdrew its participation in exchange  for 1.24% of Edegel S.A. Therefore, Endesa group participation in Generandes  Perú S.A. increased from 59.63% to 61%. |

 

F-23

----

Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                         ****Summaryof Significant Accounting Policies, continued:**

 

The participationin voting rights is equal to economic participation in all subsidiaries apartfrom those presented in the following table. Economic interest of the Companyin a subsidiary or related company is calculated by multiplying the percentageownership interest of the Company in a directly held subsidiary or relatedcompany by the percentage ownership interest of any entity in the chain ofownership of such ultimate subsidiary or related company. Economicparticipation 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,** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------------------|------------|
| ** **                                   | ** ** | **2006**                                                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **%**                                                            | ** ** | **%** | ** ** | **%** | ** ** |
|                                         |       |                                                             |       |   |   |   |   |
| Edegel S.A. (1)                              |       | 33.06                                                            |       | 33.06 |   | 33.06 |   |
| Hidroeléctrica El Chocón S.A.  (2) |       | 47.45                                                            |       | 65.37 |   | 65.37 |   |

 

----

(1)                      See Notes 11 (d) (ii) and 11 (b) (vi)

(2)                      See Note 11 (d) (v).

 

b)               Constant currencyrestatement:

 

The cumulative inflation rate in Chile as measured by theChilean Consumer Price Index (“CPI”) for the three-year period ended December 31,2008 was approximately 18.4%.

 

Chilean GAAP requires that the financial statements berestated to reflect the full effects of changes in the purchasing power of theChilean peso on the financial position and results of operations of reportingentities.  The method described below isbased on a model that enables calculation of net inflation gains or lossescaused by monetary assets and liabilities exposed to changes in the purchasingpower of local currency. The model prescribes that the historical cost of allnon-monetary accounts be restated for general price-level changes between thedate of origin of each item and the year-end.

 

The financial statements of the Company have been price-levelrestated in order to reflect the effects of the changes in the purchasing powerof the Chilean currency during each year. All non-monetary assets andliabilities, all equity accounts and income statement accounts have beenrestated to reflect the changes in the CPI from the date they were acquired orincurred to year-end (see also Note 25).

 

The resulting gain or loss included in net income reflectsthe effects of Chilean inflation on the monetary assets and liabilities held bythe Company.

 

Therestatements were calculated using the official consumer price index of theNational Institute of Statistics and based on the “prior-month rule,” in whichthe inflation adjustments are based on the CPI at the close of the monthpreceding the close of the respective period or transaction.  This index is considered by the businesscommunity, the accounting profession and the Chilean government to be the indexthat most closely complies with the technical requirement to reflect thevariation in the general level of prices in Chile, and consequently it iswidely used for financial reporting purposes.

 

F-24

----

Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                 ****Summary of Significant Accounting Policies, continued:**

 

Thevalues of the Chilean consumer price indices used to reflect the effects of thechanges in the purchasing power of the Chilean peso (“price-level restatement”)for accounting purposes are as follows:

 
| ** **             | ** ** | **Index** | ** ** | **Change over Previous  November 30,** | ** ** |
|------------------------|------------|-----------|------------|---------------------------------------------|------------|
|                   |       |      |       |                                        |       |
| December 31, 2006 |       | 100.00    |       | 2.1                                         | %          |
| December 31, 2007 |       | 107.40    |       | 7.4                                         | %          |
| December 31, 2008 |       | 116.96    |       | 8.9                                         | %          |

 

By way of comparison, the actual values of the Chileanconsumer price indices as of the balance sheet dates are as follows:

 
| ** **             | ** ** | **Index** | ** ** | **Change over Previous December 31,** | ** ** |
|------------------------|------------|-----------|------------|--------------------------------------------|------------|
|                   |       |      |       |                                       |       |
| November 30, 2006 |       | 100.00    |       | 2.6                                        | %          |
| November 30, 2007 |       | 107.80    |       | 7.8                                        | %          |
| November 30, 2008 |       | 115.45    |       | 7.1                                        | %          |

 

The above-mentioned price-level restatements do not purportto represent appraisal or replacement values and are only intended to restateall non-monetary financial statement components in terms of local currency of asingle purchasing power and to include in net income or loss for each year thegain or loss in purchasing power arising from the holding of monetary assetsand liabilities exposed to the effects of inflation.

 

*Index-linked assets andliabilities*

 

Assets and liabilities that are denominated in index-linkedunits of account are stated at the year-end values of the respective units ofaccount.  The principal index-linked unitused 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 arelinked to the UF.  When the Company’sindexed liabilities exceed its indexed assets, the increase in the indexresults in a net loss. Values for the UF are as follows (historical Chileanpesos per UF):

 
| ** **             | ** ** | **Ch$**   | ** ** |
|------------------------|------------|-----------|------------|
|                   |       |      |       |
| December 31, 2006 |       | 18,336.38 |       |
| December 31, 2007 |       | 19,622.66 |       |
| December 31, 2008 |       | 21,452.57 |       |

 

F-25

----

Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                 ****Summary of Significant Accounting Policies, continued:**

 

*Comparative financial statements*

 

For comparative purposes, the historical December 31,2006 and 2007 consolidated financial statements and their accompanying noteshave been presented in constant Chilean pesos as of December 31, 2008.Amounts previously presented in constant Chilean pesos as of each balance sheetdate have been adjusted by the percentage changes in the CPI to December 31,2008 as follows:

 
| **Year**   | ** ** | **Change in Index** | ** ** |
|------------|------------|---------------------|------------|
| ** ** | ** ** | ** **          | ** ** |
| 2007       |       | 7.4                 | %(1)       |
| 2008       |       | 8.9                 | %(2)       |

 

----

(1) Equivalent to the amounts for 2006 multiplied by thechange in the CPI for 2007, then by the change in the CPI for 2008.

(2) Equivalent to the amounts for 2007 multiplied by thechange in the CPI for 2008.

 

This updating does not change the prior years’ statements orinformation in any way except to update the amounts to constant Chilean pesosof similar purchasing power.

 

*Convenience translation to USdollars*

* *

The financial statementsare stated in Chilean pesos.  Thetranslations of Chilean pesos into dollars are included solely for theconvenience of the reader, using the observed exchange rate reported by theChilean Central Bank as of December 31, 2008 of Ch$ 636.45 for $ 1.00. Theconvenience translations should not be construed as representations that theChilean peso amounts have been, could have been, or could in the future be,converted into dollars at this or any other exchange rate.

 

c)                Assets andliabilities denominated in foreign currencies:

 

Assets and liabilities denominated in foreign currencies aredetailed in Note 31.  These amounts havebeen stated at the observed rates of exchange reported by the Central Bank ofChile as of each year-end as follows:

 
| **Currency**                    | ** ** | **Symbol used** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
|---------------------------------|------------|-----------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                      | ** ** | ** **      | ** ** | **Ch$**  | ** ** | **Ch$**  | ** ** | **Ch$**  | ** ** |
| United States dollar (observed) |       | US$             |       | 532.39   |       | 496.89   |       | 636.45   |       |
| Colombian Peso                  |       | $ Col      |       | 0.24     |       | 0.25     |       | 0.28     |       |
| New Peruvian Sol                |       | Soles           |       | 166.58   |       | 165.65   |       | 202.69   |       |
| Brazilian real                  |       | Rs              |       | 249.01   |       | 280.52   |       | 272.34   |       |
| Euro                            |       | €          |       | 702.08   |       | 730.94   |       | 885.80   |       |
| Argentine peso                  |       | $ Arg      |       | 173.87   |       | 157.79   |       | 184.32   |       |

 
| **Index**                     | ** ** | **Symbol used** | ** ** | **2006**  | ** ** | **2007**  | ** ** | **2008**  | ** ** |
|-------------------------------|------------|-----------------|------------|-----------|------------|-----------|------------|-----------|------------|
| ** **                    | ** ** | ** **      | ** ** | **Ch$**   | ** ** | **Ch$**   | ** ** | **Ch$**   | ** ** |
| “Unidad de Fomento” |       | UF              |       | 18,336.38 |       | 19,622.66 |       | 21,452.57 |       |
| Annual Tax Unit               |       | UTA             |       | 386,472   |       | 410,664   |       | 451,824   |       |

 

F-26

----

Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                           ****Summary of Significant Accounting Policies, continued:**

 

d)                 Time deposits andMarketable securities:

 

Time deposits are presented at cost plus accrued interest andUF indexation adjustments, as applicable (see Note 4).  Marketable securities consist primarily ofcommon stock and are stated at the lower of cost or market value.

 

e)                  Inventories:

 

Inventories primarily include fuel for the generation ofelectricity and are valued at the lower of price-level restated average cost ornet realizable value. In addition to production materials and wages, productioncosts include material and production overheads, based on normal capacity. Costof sale is determined by using the weighted average method. Inventory riskresulting from excess and obsolescence are provided for by appropriatevaluation allowances.

 

f)                    Accounts receivableand Allowance for doubtful accounts:

 

Accounts receivable are generally recorded at their nominalvalues and are classified as current or long-term, depending on theircollection terms. Long-term receivables not bearing interest or bearing anunreasonable interest rate are discounted using a reasonable interestrate.  Current and long-term tradeaccounts receivable, notes receivable and other receivables are presented netof allowances for doubtful accounts (see Note 5). The Company establishes itsallowance for doubtful accounts based on the aging of the accounts and priorexperience with specific accounts.

 

g)                 Other currentassets:

 

This caption is mostly composed of guarantee deposits,investment securities under agreements to repurchase, fair value of derivativesand others. Investments securities under agreements to repurchase are carriedat cost of purchase plus an accumulated and earned portion of the agreedrepurchase price at year-end (see Note 9).

 

h)                 Property, plant andequipment:

 

Until 1980, property, plant and equipment were valued at net replacementcost as determined by the Chilean Superintendence of Electricity and Fuelsadjusted for price-level restatement in accordance with Decree Law N° 4 of1959.

 

Property, plant and equipment are currently shown atcontributed amounts or cost, as appropriate, plus price-level restatement.  The interest cost on debt directly obtainedin the construction projects is capitalized during the period of construction.  Costs of maintenance and repairs are expensedas incurred unless such costs increase the useful life or productivity of therelated assets, in which case the costs are capitalized when incurred.

 

In 1986, an increase based upon a technical appraisal ofproperty, plant and equipment was recorded in the manner authorized by the SVSin Circulars No.’s 550 and 566 dated October 15 and December 16,1985, respectively, and Communication No. 4790, dated December 11,1985.

 

When the Company’s operations are not expected to producesufficient net cash flows on a discounted basis to recover the net carryingvalue of all property, plant and equipment (including property, plant andequipment under capital lease), the book values of those assets are reduced totheir net recoverable values with a charge to non-operating expense.  The Company has not identified impairment ofits property, plant and equipment for the years ended December 31, 2006,2007 and 2008.

 

F-27

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Table of Contents

** **

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **

**2.****                           ****Summary of Significant Accounting Policies, continued:**

 

i)                     Leasing:

 

Property, plant andequipment under capital leases is recorded at the present value of theaggregated future minimum lease payments or at the fair value of the assetleased, whichever is lower. Assets under capital lease are amortized over thelease term or the useful life of the asset, whichever is lower and are recordedin the caption Other property, plant and equipment.

 

If at its inception a leasemeets one or more of the following four criteria, the lease is classified as acapital lease. Otherwise, it is classified as an operating lease:

 

a. The lease transfersownership of the property to the lessee by the end of the lease term.

 

b. The lease contains abargain purchase option.

 

c. The lease term is equalto 75 percent or more of the estimated economic life of the leased property.

 

d. The present value at thebeginning of the lease term of the minimum lease payments equals or exceeds 90percent of the fair value of the leased property.

 

At the inception of a lease, the Company determines the leaseterm by assuming the exercise of those renewal options that are reasonablyassured because of the significant economic penalty that exists for notexercising those options. The exercise of lease renewal options is at theCompany’s sole discretion. Lease incentives and increases are amortized on astraight-line basis over the lease term or over the useful life of therespective item, when less than remaining lease period.

 

j)                     Depreciation:

 

Depreciation expense is generally calculated on theprice-level restated balances using the straight-line method over the estimateduseful lives of the assets. Certain property, plant and equipment aredepreciated using the unit-of-production method when this method betterreflects the depreciation expenses, of these assets.

 

k)                  Other intangibles:

 

Intangibles, other than goodwill, correspond primarily toeasements and rights for the use of waterways and are amortized on astraight-line basis over periods not exceeding 40 years in accordance withTechnical Bulletin No. 55 of the Chilean Association of Accountants.Intangibles are reviewed for impairment, whenever events or changes incircumstances indicate that the carrying amount may not be recovered.

 

l)                     Investments inrelated companies:

 

The Company classifies an investment as investment in relatedcompanies, when it has the ability to exercise significant influence over theoperations.  Investments in relatedcompanies are included in “Other assets” using the equity method. Thisaccounting method recognizes in income the Company’s proportionate share in thenet income or loss of each investee on an accrual basis****(Notell).

 

Investments in foreign affiliates are recorded in accordancewith Technical Bulletin No. 64 and No. 72 of the Chilean Associationof Accountants, which amended Technical Bulletin No. 42.

 

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Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                           ****Summary of Significant Accounting Policies, continued:**

 

The Company assesses its ability to recover the carryingamounts of its investments in related companies accounted for under the equitymethod, whenever events or changes in circumstances indicate that the carryingamount of the investments may not be recoverable. This assessment requiresdetermining the fair values of the equity method investments.  Fair value is determined using valuationmethodologies, including discounted cash flows and the ability of the investeeto sustain an earnings capacity that justifies the carrying amount of theinvestment. A write down is recorded in case the fair value is less than thecarrying value and the decline in value is considered to be other thantemporary. As indicated in Note 11 f., the Company during the year ended December 31,2007 recorded an impairment of its investment in Inversiones Gas AtacamaHolding Limitada amounting to ThCh$48,890,387 (historical) as a result of another-than-temporary impairment of the investment. The impairment chargeincludes a write down of the investment to its recoverable amount andimpairment of goodwill which was recorded in connection with the investment(see Note 12 (a)).

 

m)               Foreign investments:

 

Under Technical Bulletin No. 64 of the ChileanAssociation of Accountants, investments in foreign subsidiaries and equitymethod investees are price-level restated, the effects of which are reflectedin income, while the effects of the foreign exchange gains or losses betweenthe Chilean peso and the US dollar on the foreign investment measured in USdollars, are reflected in equity in the account “Cumulative TranslationAdjustment”.

 

The Company has evaluated the recoverability of its foreigninvestments as required by Technical Bulletin No. 33 and No 42 of theChilean Association of Accountants. The result of the valuation was that noforeign investment was impaired as of December 31, 2006, 2007 and 2008.

 

n)                 Goodwill andnegative goodwill:

 

Priorto January 1, 2004, goodwill arose from the excess of the purchase priceof companies acquired over their net book value; negative goodwill arose whennet book value exceeded the purchase price of companies acquired.

 

Goodwilland negative goodwill are also accounted for in the purchase of investmentsaccounted for by the equity method. Chilean GAAP also provides that goodwilland negative goodwill amortization may be accelerated if the proportional netincome or net loss of the investee exceeds the respective straight-lineamortization amount.

 

BeginningJanuary 1, 2004, the Company adopted Technical Bulletin No.72 of theChilean Association of Accountants, which changes the basis for determiningaccounting for goodwill and negative goodwill generated in transactions after January 1,2004, based on an allocation of the purchase price based on the fair value ofthe identifiable assets acquired and identifiable liabilities assumed. Bothgoodwill and negative goodwill are normally amortized over the maximum periodof twenty years considering the expected period of return of the investments.

 

Wheneverevents or changes in circumstances indicate that goodwill recordedmight be impaired, the Company performs a goodwill impairment test. Goodwill istested for impairment on the level of cash generating units (CGU).

 

Thetesting of goodwill for impairment involves two steps:

 

1.             The first step is to compareeach CGU’s fair value with its carrying amount, including goodwill. The CGU’sfair value is determined using market prices, or, if not available, valuationtechniques including discounted cash flow approaches. If a CGU’s carryingamount exceeds its fair value, an indicator for goodwill impairment exists andstep two is performed.

 

F-29

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Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                           ****Summary of Significant Accounting Policies, continued:**

 

2.             The second step is tocompare the implied fair value of goodwill with its carrying amount. Theimplied fair value represents the excess of the CGU’s net assets at fair value overthe CGU’s net identifiable assets. Any excess of the carrying amount ofgoodwill over its implied fair value is recorded as impairment loss, writingdown the carrying amount of goodwill to its implied fair value.

 

Duringthe year ended December 31, 2007, the Company recorded an impairment ofgoodwill recorded over its equity method investment in Inversiones Gas AtacamaLimitada amounting to ThCh$ 62,675 (historical)

 

o)                 Investments inother companies:

 

Investments in other companies are recorded at their acquisition costadjusted for inflation.

 

p)                 Bonds:

 

Bonds payable are recorded at the face value of the bonds.The difference between the face value and the issuance proceeds, equal to thepremium or discount, is deferred and amortized over the term of the bonds (seeNote 19). Discounts on the bond issuances of Endesa Chile and its subsidiariesare deferred over the term of the respective bonds amounted to ThCh$ 7,523,412and ThCh$ 8,104,292 as of December 31, 2007 and 2008, respectively,presented in “Other assets” (see Note 15).

 

q)                 Current and deferred incometaxes:

 

The Company records income taxes in accordance with Technical Bulletin No. 60and complementary technical bulletins thereto issued by the Chilean Associationof Accountants, and with SVS Circulars No. 1466 and No. 1560, recognizing,using the liability method, the deferred tax effects of temporary differencesbetween the financial and tax values of assets and liabilities.  As a transitional provision at the date ofadoption, a contra asset or liability has been recorded offsetting the effectsof the deferred tax assets and liabilities not recorded prior to January 1,2000.  Such contra asset or liabilitymust be amortized to income over the estimated average reversal periodscorresponding to the underlying temporary differences to which the deferred taxasset or liability relates calculated using the tax rates that will be ineffect at the time of reversal. Deferred tax assets and liabilities aremeasured using the enacted tax rates expected to be applicable for taxable incomein the year in which temporary differences are expected to be recovered orsettled. The effect on deferred tax assets and liabilities of a change in taxrates is recognized in income for the period that includes the enactment date.

 

The valuation allowances reflect amounts, which relate to deferred taxassets that management believes will more likely than not expire withoutbenefit. In the future, management’s estimates of the amount of the deferredtax assets considered realizable may change, and hence the valuation allowancemay increase or decrease.

 

r)                    Staff severance indemnity:

 

Theseverance indemnity that the Company is obliged to pay at all event undercollective bargaining agreements to its employees who have completed 15 yearsof service, is recorded based on the projected benefit obligation, using adiscount rate at which the obligations could be effectively settled.

 

F-30

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Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes to theConsolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****                           ****Summary of Significant Accounting Policies, continued:**

 

s)                  Accrued vacation expense:

 

In accordance with Technical Bulletin No. 47 issued by the ChileanAssociation of Accountants, employee vacation expenses are recorded on anaccrual basis.

 

t)                    Pension and Post-retirement benefits:

 

Pension and post-retirement benefits are recorded in accordance with therespective employee collective bargaining agreements based on the actuariallydetermined projected benefit obligation using a discount rate at which theobligations could be effectively settled.

 

u)                 Other provisions:

 

Other provisions and liabilities are recorded when an obligation to athird party has been incurred, the payment is probable and the amount can bereasonable estimated.

 

v)                 Operating income

 

Operating income includes energy supplied but not invoiced as of eachyear-end, valued at the sales price based on current rates. These amounts arerecorded as current assets in Accounts receivables. The cost of this energy isincluded in cost of sales.  The Companyhas also recognized revenue from motor vehicle tolls and engineering andinspection services.

 

w)               Revenuerecognition:

** **

Revenues are generally recognized upon delivery of products to customersor fulfillment of services. Delivery has occurred when the risk and rewardsassociated with ownership have been transferred to the buyer, compensation hasbeen contractually established and collection of the resulting receivable isprobable. The following is a description of the Company’s major revenuerecognition policies in the various segments:

 

*Core Energy Business:*

* *

Revenues from the sale of electricity are recognized when earned on thebasis of contractual arrangements with the customers, reflecting the value ofthe volume supplied, including an estimated value of the volume supplied tocustomers between the date of the last meter reading and year end. Thiselectricity supplied and unbilled at each year-end is valued at the sellingprice using the current rates and has been included in revenue from operations.The unbilled amount is presented in current assets as trade receivables and thecorresponding cost is included in cost of operations.

 

*Other Services:*

* *

The Company recognizes revenue generated from engineering and inspectionservices and highway tolls at the time the related services are provided,persuasive evidence of the arrangements exists, the sales price is fixed ordeterminable and collection of the resulting receivable is reasonably assured.

 

Additonally any taxes collected from customers and remitted to governmentalauthorities (i.e. VAT, sales taxes or excise) are accounted for on a net basisand therefore are excluded from revenues in the consolidated statements ofincome.

 

F-31

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****        ****Summary of Significant Accounting Policies, continued:**

 

x)      Statements of cash flows:

 

The Consolidated Statements of cash flow have been preparedusing the indirect method.  Forclassification purposes, cash flows from operations include collections fromclients and payments to suppliers, payroll and taxes. Cash and cash equivalentspresented in the consolidated statements of cash flows include cash, timedeposits, and other balances classified as current assets with an originalmaturity of 90 days or less at the time purchased and are detailed as follows:

 
| ** **                      | ** ** | **As of December 31,** | ** ** |
|---------------------------------|------------|-----------------------------|------------|
| ** **                      | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                      | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                            |       |                        |       |   |   |   |   |
| Cash                            |       | 24,977,853                  |       | 21,123,564 |   | 54,516,339 |   |
| Time deposits                   |       | 107,959,764                 |       | 48,212,900 |   | 172,001,465 |   |
| Repurchase agreements           |       | 42,834,417                  |       | 29,420,343 |   | 374,618,557 |   |
| Marketable securities           |       | 6,114,033                   |       | 11,215,653 |   | 101,229,674 |   |
| Total cash and cash equivalents |       | 181,886,067                 |       | 109,972,460 |   | 702,366,035 |   |

 

y)      Financial derivative contracts:

 

As of December 31, 2007 and 2008, the Company hascurrency swaps, interest rate swaps and collars with various financialinstitutions, which are recorded according to Technical Bulletin No. 57 ofthe Chilean Association of Accountants. Financial derivative contracts are valued at estimated fair values, withcertain gains and losses deferred until settlement if the instrument qualifiesas a hedge, at which time such amounts are included in earnings as “Othernon-operating income and expense” upon the expiration of the contract.

 

z)      Research and development:

 

Costs incurred in research and development by the Companythat are general in nature (water-level studies, hydroelectric research,seismic-activity surveys) are expensed as incurred.  Studies related to specific and approvedconstruction projects are capitalized.  Research and development costs are expensed as incurred andrecorded as other operating expenses.

 

aa)    Computer software:

 

The Company has deferred the costs of purchasedcomputer software packages, which are being amortized over a period of threeyears.

 

bb)   Cost of sales and administrative andselling expenses:

 

The cost of sales line item in the ConsolidatedStatements of Income includes the cost of the following items: purchased energyand power, materials and fuel used in our operations, tolls, energytransportation, direct production salaries, production related depreciation andamortization, and maintenance of productive assets and other costs ofoperations. The administrative and selling expenses line item in theConsolidated Statements of Income includes the cost of the following items:general administration of the Company, office supplies and materials, overheadsalaries, the allowance for doubtful accounts, amortization and depreciation ofassets that are not used in or directly attributable to the production process.

 

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**2.****        ****Summary of Significant Accounting Policies, continued:**

 

cc)    Cost recovery:

 

The Company has notrecognized any assets for expected recoveries, through insurance or fromothers, related to litigation and other legal actions, in the periodspresented. The Company records such recoveries only in the case that it isvirtually certain such recoveries will be realized. In the case that theCompany does record expected recoveries, the Company’s policy is to record suchamounts as an asset in our consolidated balance sheet, unless a right of offsetclearly exists.

 

dd)   Advertisingcosts:

 

Advertising costs areexpensed as incurred. During the years ended December 31, 2006, 2007 and2008, the Company recorded ThCh$ 570,248 ThCh$ 324,421 and ThCh$ 382,352 ofadvertising expense in the income statement in the administrative and sellingexpense line.

 

ee)    Debtissuance costs:

 

Costs incurred in the public registration andissuance of debt is capitalized and amortized on a straight-line basis over theterm of the respective obligation (see Note 15).

 

ff)     Use of estimates:

 

The preparation of the consolidated financialstatements, in accordance with generally accepted principles in Chile, requiresmanagement to make estimates and assumptions that affect the amounts reportedin the consolidated financial statements and accompanying notes. Significantitems subject to such estimates and assumptions include the carrying amount ofproperty, plant and equipment, intangibles and goodwill; valuation allowancesfor receivables, inventories and deferred income tax assets; valuation of derivativeinstruments; and assets and obligations related to employee benefits. Actualresults could differ from those estimates.

 

**3.****        ****Change in accounting policy:**

** **

No changes of accounting policy occurred in2008. During the year ended December 31, 2007, the Company adoptedCircular 1819 issued by the SVS, which requires the consolidation ofsubsidiaries in the development stage and the recognition of income fromdevelopment stages in consolidated income rather than in a special component ofequity. As a consequence of the adoption of Circular 1819 amounts of gains orlosses which had been previously accumulated in this special component ofequity were reclassified to the retained earnings balance as of January 1,2007. The amount reclassified as of January 1, 2007 amounted to ThCh$303,015 (historical Chilean pesos). Pursuant to the transitory provision ofCircular 1819, prior year income statement and balance sheet were not restated.

 

F-33

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**4.****        ****Time deposits:**

** **

Time deposits as of December 31, 2007 and 2008 and theapplicable annual interest rates and scheduled maturities as of December 31,2008 are as follows:

 
| ** **                  | ** ** | **Annualized**     | ** ** | **Scheduled**          | ** ** | **As of December 31,** | ** ** |
|-----------------------------|------------|--------------------|------------|------------------------|------------|-----------------------------|------------|
| **Financial Institution**   | ** ** | **Interest Rates** | ** ** | **Maturity**           | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                  | ** ** | **%**              | ** ** | ** **             | ** ** | **ThCh $**                  | ** ** | **ThCh$** | ** ** |
| Banco Santander             |       | 1.27               |       | January 29,  2009 |       | 251,349                     |       | 76,833,576 |   |
| Citibank N.A. (Overnight)   |       | 0.08               |       | January 2,  2009  |       | 28,220,999                  |       | 42,333,634 |   |
| Banco BBVA                  |       | 2.35               |       | January 29,  2009 |       | —                      |       | 19,151,871 |   |
| Banco Rio                   |       | 3.23               |       | January 2,  2009  |       | 2,981,364                   |       | 10,071,363 |   |
| Banco JP Morgan Chase       |       | 1.74               |       | January 5,  2009  |       | —                      |       | 7,156,625 |   |
| Banco Río de la Plata  |       | 3.23               |       | January 5,  2009  |       | 37,878                      |       | 3,764,602 |   |
| Banco Nación Argentina |       | 3.23               |       | January 2,  2009  |       | —                      |       | 3,687,668 |   |
| Corficolombiana Valor Plus  |       | 0.92               |       | January 1,  2009  |       | 68,285                      |       | 2,190,103 |   |
| Bank of America             |       | 3.23               |       | January 5,  2009  |       | 3,560,526                   |       | 2,092,648 |   |
| Standard Bank               |       | 1.58               |       | January 28,  2009 |       | —                      |       | 1,680,228 |   |
| Fondo Suvalor               |       | 0.77               |       | January 1,  2009  |       | —                      |       | 1,347,216 |   |
| Banco Galicia               |       | 1.52               |       | January 5,  2009  |       | 798,945                     |       | 1,308,541 |   |
| Citibank                    |       | 2.21               |       | January 5,  2009  |       | 3,177,768                   |       | 382,047 |   |
| Fiducolombia                |       | 0.80               |       | January 1,  2009  |       | 6,645                       |       | 633 |   |
| Fidubogotá             |       | 0.93               |       | January 1,  2009  |       | 23,456                      |       | 581 |   |
| Corficolombiana Multiplicar |       | 1.10               |       | January 1,  2009  |       | 8,185                       |       | 129 |   |
| Citibank New York           |       | 1.38               |       | October 1,  2008  |       | 8,135,836                   |       | — |   |
| Banco Itau Corp Plus        |       | 1.84               |       | October 1,  2008  |       | 941,664                     |       | — |   |
| Total                       |       |               |       |                   |       | 48,212,900                  |       | 172,001,465 |   |

 

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **

**5.****     ****Accounts receivable and other receivables:**

** **

a.     Current accounts receivable, other accounts receivableand related allowances for doubtful accounts as of            December 31, 2007 and 2008 areas follows:

 
| ** **                    | ** ** | **As of December 31,** | ** ** |
|-------------------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| **Account**                   | ** ** | **Under 91  days**          | ** ** | **91 days  to 1 year** | ** ** | **Allowance** | ** ** | **Total** | ** ** | **Under 91  Days** | ** ** | **91 days to  1 year** | ** ** | **Allowance** | ** ** | **Total** | ** ** |
| ** **                    | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Accounts Receivable           |       | 225,142,414                 |       | 6,227,522 |   | (1,362,690 | ) | 230,007,246 |   | 253,230,862 |   | 24,742,452 |   | (1,552,428 | ) | 276,420,886 |   |
| Other Accounts Receivable (1) |       | 63,236,486                  |       | 3,065,435 |   | (912,631 | ) | 65,389,290 |   | 29,280,329 |   | 3,877,485 |   | (1,075,198 | ) | 32,082,616 |   |
| Total                         |       | 288,378,900                 |       | 9,292,957 |   | (2,275,321 | ) | 295,396,536 |   | 282,511,191 |   | 28,619,937 |   | (2,627,626 | ) | 308,503,502 |   |

 

Long-termreceivables as of December 31, 2007 and 2008, are ThCh$ 90,698,407 andThCh$ 94,690,545, respectively, with no valuation allowance. To the extentlong-term receivables do not bear interest or an unreasonable interest rate,they are discounted to their present value using a reasonable interest rate.

 

----

(1) As of December 31,2007 and 2008 the balances include amounts of ThCh$ 31,995,105 and ThCh$10,720,714, respectively, that will be reimbursed to Endesa Chile and its subsidiariesfor transmission line use.

 

b.     Current and long-term accounts receivable,net of the related allowances for doubtful accounts by country as of December 31,2007 and 2008, are as follows:

 
| ** **  | ** ** | **As of December 31,** | ** ** |
|-------------|------------|-----------------------------|------------|
| ** **  | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| **Country** | ** ** | **ThCh$**                   | ** ** | **%** | ** ** | **ThCh$** | ** ** | **%** | ** ** |
|        |       |                        |       |   |   |   |   |   |   |
| Chile       |       | 163,509,271                 |       | 42.35 | % | 144,105,484 |   | 35.74 | % |
| Peru        |       | 17,052,156                  |       | 4.42 | % | 40,672,289 |   | 10.09 | % |
| Argentina   |       | 130,623,646                 |       | 33.83 | % | 151,986,806 |   | 37.69 | % |
| Colombia    |       | 56,757,363                  |       | 14.70 | % | 66,429,468 |   | 16.48 | % |
| Panama (1)  |       | 18,152,507                  |       | 4.70 | % | — |   | — |   |
| Total       |       | 386,094,943                 |       | 100.00 | % | 403,194,047 |   | 100.00 | % |

 

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(1) Country of incorporation of thewholly-owned subsidiary, Compañía Eléctrica Cono Sur S.A. (See note 11 (e) (ii))

 

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**5.****        ****Accounts receivable and other receivables, continued:**

** **

c.     Changesin the allowance for doubtful accounts are as follows:

 
| ** **                                         | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                         | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                               |       |                             |       |   |   |   |   |
| Beginning balance                                  |       | 3,792,358                        |       | 3,058,924 |   | 2,275,321 |   |
| Charged to expense                                 |       | 432,979                          |       | 512,408 |   | 306,714 |   |
| Write-offs                                         |       | (603,652                         | )          | (702,612 | ) | (46,566 | ) |
| Price-level restatement and conversion  adjustment |       | (562,761                         | )          | (593,399 | ) | 92,157 |   |
| Ending balance                                     |       | 3,058,924                        |       | 2,275,321 |   | 2,627,626 |   |

 

d.     Salesrecorded but not invoiced are ThCh$ 111,610,824 ThCh$ 163,547,931 and ThCh$ 194,398,173 as of December 31, 2006, 2007 and 2008, respectively.

 

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Table ofContents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **

**6.****     ****Transactions with RelatedCompanies:**

** **

If not stated otherwise, the balances of currentaccounts receivable and payable correspond principally to:

 

·      Sales and purchases of electricity and variousservices, which have payment terms of 30 days and are not adjustable.

·      Operating loans, which have adjustment clauses andbear interest.

 

Balances of notes and accounts receivable and payableclassified according to the nature of the related company transaction are asfollows as of December 31, 2007 and 2008:

 

a.     Notes and accounts receivable fromrelated companies:

 
| ** **                                     | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------|------------|-----------------------------|------------|
| ** **                                     | ** ** | **Short-term**              | ** ** | **Long-term** | ** ** |
| **Company Name**                               | ** ** | **2007**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                     | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Transmisora Eléctrica de  Quillota Ltda., |       | 2,020,666                   |       | 4,257,321 |   | — |   | — |   |
| Atacama Finance Co.                            |       | 97,663,785                  |       | 313,383 |   | — |   | 109,601,626 |   |
| CEMSA.                                         |       | 1,739,037                   |       | 3,634,618 |   | — |   | — |   |
| Chilectra S.A.                                 |       | 18,802,565                  |       | 23,879,572 |   | 402 |   | — |   |
| CIEN.                                          |       | 816,052                     |       | 993,290 |   | — |   | — |   |
| Codensa S.A.                                   |       | 20,774,661                  |       | 26,451,167 |   | — |   | — |   |
| Edelnor S.A.                                   |       | 2,752,347                   |       | 5,734,712 |   | — |   | — |   |
| Empresa Eléctrica Piura S.A.              |       | 98,377                      |       | 2,121 |   | — |   | — |   |
| Enersis S.A.                                   |       | 88,268                      |       | 362,058 |   | — |   | — |   |
| Endesa Brasil S.A.                             |       | 59,455                      |       | 90,524 |   | — |   | — |   |
| Gasoducto Tal Tal Ltda.                        |       | 196                         |       | 246 |   | — |   | — |   |
| Gas Atacama Generación S.A.               |       | 20.060                      |       | 39,531 |   | — |   | — |   |
| GNL Quintero S.A.                              |       | 43,751,232                  |       | 4,198,715 |   | — |   | — |   |
| Endesa Fortaleza                               |       | 1,951                       |       | 7,997 |   | — |   | — |   |
| Cam Colombia Ltda                              |       | 62,817                      |       | 18,789 |   | — |   | — |   |
| Synapsis Soluciones y  Servicios IT Ltda.,     |       | 14,777                      |       | 88,763 |   | — |   | — |   |
| GNL Chile S.A.                                 |       | 2,040,429                   |       | 725,127 |   | — |   | — |   |
| Gasoducto Atacama Chile S.A.                   |       | 14,262                      |       | — |   | — |   | — |   |
| Consorcio Ara — Ingendesa Ltda.           |       | 54,911                      |       | 63,130 |   | — |   | — |   |
| Hidroaysen.                                    |       | 819,838                     |       | 1,315,318 |   | — |   | — |   |
| Sociedad Consorcio Ingendesa  Ara Ltda         |       | 787                         |       | — |   | — |   | — |   |
| Endesa Latinoamérica S.A.                 |       | 13,797                      |       | 27,382 |   | — |   | — |   |
| Empresa Eléctrica de Colina  S.A.         |       | —                      |       | 21,072 |   | — |   | — |   |
| CAM                                            |       | —                      |       | 19,739 |   | — |   | — |   |
| GasAtacama S.A.                                |       | —                      |       | 12,459 |   | — |   | — |   |
| Edesur S.A.                                    |       | —                      |       | 4,175 |   | — |   | — |   |
| Luz Andes S.A.                                 |       | —                      |       | 1,545 |   | — |   | — |   |
| Total                                          |       | 191,610,270                 |       | 72,262,754 |   | 402 |   | 109,601,626 |   |

 

F-37

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Tableof Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **

**6.****     ****Transactions with RelatedCompanies, continued:**

** **

a.      Notes and accounts payable due to related companies(continued):

 
| ** **                                    | ** ** | **As of****December 31,** | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| ** **                                    | ** ** | **Short-term**                 | ** ** | **Long-term** | ** ** |
| **Company Name**                              | ** ** | **2007**                       | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | **ThCh$**                      | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                    | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| CEMSA                                         |       | 11,196,449                     |       | 14,433,685 |   | — |   | — |   |
| CTM                                           |       | 816,052                        |       | 879,934 |   | — |   | — |   |
| Chilectra S.A.                                |       | 118,255                        |       | 235,031 |   | — |   | — |   |
| Codensa S.A.                                  |       | 3,099,260                      |       | 64,864,048 |   | — |   | — |   |
| Enersis S.A.                                  |       | 295,669                        |       | 271,958 |   | — |   | — |   |
| Synapsis Soluciones y Servicios  IT Ltda.     |       | 635,510                        |       | 823,391 |   | — |   | — |   |
| Transmisora Eléctrica de  Quillota Ltda. |       | 35,048                         |       | 172,749 |   | — |   | — |   |
| CAM                                           |       | 92,275                         |       | 30,272 |   | — |   | — |   |
| Electrogas S.A.                               |       | 228,055                        |       | 1,784,801 |   | — |   | — |   |
| Cam Colombia Ltda.                            |       | 272,673                        |       | 459,933 |   | — |   | — |   |
| Synapsis Perú Ltda.,                     |       | 38,118                         |       | 168,973 |   | — |   | — |   |
| Synapsis Colombia Ltda.                       |       | —                         |       | 246,280 |   | — |   | — |   |
| Synapsis Argentina Ltda.                      |       | 87,098                         |       | 27,589 |   | — |   | — |   |
| Gas Atacama Generación S.A.              |       | 34,003                         |       | 23,316 |   | — |   | — |   |
| Gasoducto Tal Tal Ltda.                       |       | 50,731                         |       | 39,743 |   | — |   | — |   |
| Consorcio Ara-Ingendesa Ltda.                 |       | 363                            |       | — |   | — |   | — |   |
| Edelnor S.A.                                  |       | 99,503                         |       | 11,085 |   | — |   | — |   |
| Cam Perú                                 |       | 30,307                         |       | 16,485 |   | — |   | — |   |
| Empresa Eléctrica Piura S.A.             |       | 14,876                         |       | 10 |   | — |   | — |   |
| Total                                         |       | 17,144,245                     |       | 84,489,283 |   | — |   | — |   |

 

Balances of notesand accounts receivable from and payable to related companies correspond mainlyto:

 

· Operations within the Company’s line of business and various services,which are due in 30 days and whose values are not readjusted.

 

·  Operating loans, which include readjustment clauses andinterest payments.

 

The balancereceivable from GNL Quintero S.A. corresponds to financing operations that aredenominated in dollars and accrue interest at an average annual rate of 3.50%,maturing in 2009.

 

The balance receivablefrom Atacama Finance Co. corresponds to loans granted by the dissolvedsubsidiary, Compañía Eléctrica Cono Sur S.A. (see Note 11 (e) (ii)), tofinance the construction of Gasoducto Atacama Argentina S.A. and Gas AtacamaChile S.A. The loans are expressed in US dollars and accrue interest at anaverage annual rate of 7.5%. On September 15, 2008, (date on which theloans originally matured) the loans were renegotiated and whilst conditionswere maintained, maturity was extended to March 15, 2010.  This loan also includes a guarantee.

 

Thebalance payable to Enersis S.A. in both years was generated by financingoperations, expressed in Chilean pesos and US dollars, which accrue interest atmarket rates.

 

F-38

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**6.****        ****Transactions with Related Companies, continued:**

 

b.      Themost significant transactions and their effects in income (expense) for each year ended December 31are as follows:

** **
| ** **                        | ** ** | **Nature of**                | ** ** | **Income (expense)** | ** ** |
|-----------------------------------|------------|------------------------------|------------|----------------------|------------|
| **Company**                       | ** ** | **Transaction**              | ** ** | **2006**             | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                        | ** ** | ** **                   | ** ** | **ThCh$**            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                              |       |                         |       |                 |       |   |   |   |   |
| Atacama Finance Co.               |       | Interest                     |       | 7,597,511            |       | 7,735,811 |   | 7,485,097 |   |
|                              |       | Price-level restatement      |       | 2,206,193            |       | 7,374,963 |   | 7,941,886 |   |
|                              |       | Foreign currency translation |       | 1,921,769            |       | (14,148,359 | ) | 16,639,067 |   |
| CAM                               |       | Services provided            |       | —               |       | 265 |   | 98,408 |   |
| Endesa Fortaleza S.A.,            |       | Services provided            |       | 272,002              |       | 84,449 |   | 43,951 |   |
| CEMSA                             |       | Sales of energy              |       | 6,834,491            |       | 10,146,955 |   | 20,669,866 |   |
|                              |       | Purchases of energy          |       | (48,568              | )          | (90,366 | ) | (94,195 | ) |
|                              |       | Services received            |       | —               |       | (17,124,607 | ) | — |   |
| Codensa S.A.                      |       | Purchases of energy          |       | (21,214,567          | )          | (17,499,060 | ) | (22,617,524 | ) |
|                              |       | Sales of energy              |       | 60,135,547           |       | 65,319,938 |   | 114,110,393 |   |
|                              |       | Services provided            |       | 70,984               |       | 80,501 |   | 104,362 |   |
|                              |       | Services received            |       | (822,565             | )          | (564,703 | ) | (523,660 | ) |
|                              |       | Interest                     |       | 1,204,255            |       | 28,679 |   | (184,570 | ) |
| CTM                               |       | Purchases of energy          |       | (774,609             | )          | — |   | — |   |
| CIEN                              |       | Sales of energy              |       | 774,609              |       | — |   | — |   |
|                              |       | Foreign currency translation |       | 768,487              |       | 750,007 |   | 726,480 |   |
| Chilectra S.A.                    |       | Sales of energy              |       | 177,439,565          |       | 203,075,567 |   | 255,452,943 |   |
|                              |       | Services provided            |       | 2,910,184            |       | 2,972,033 |   | 2,783,160 |   |
|                              |       | Services received            |       | (116,172             | )          | (762,548 | ) | (785,707 | ) |
| Gas Atacama Generación S.A.  |       | Services provided            |       | 1,134,771            |       | 384,654 |   | 100,887 |   |
| Empresa Eléctrica Piura S.A. |       | Sales of energy              |       | 793,340              |       | 284,927 |   | — |   |
|                              |       | Services provided            |       | 108,903              |       | 15,280 |   | 9,928 |   |
| Enersis S.A.                      |       | Interest                     |       | (215,181             | )          | (1,312,460 | ) | (103,603 | ) |
|                              |       | Services provided            |       | 154,329              |       | 1,182,461 |   | 1,072,658 |   |
|                              |       | Foreign currency translation |       | 119,206              |       | — |   | 531,196 |   |
|                              |       | Services received            |       | —               |       | (1,067,295 | ) | 1,167,488 |   |
| EndesaLatinoamérica S.A.     |       | Services received            |       | (4,821,252           | )          | — |   | — |   |
|                              |       | Interest                     |       | (87,782              | )          | — |   | — |   |
|                              |       | Price-level restatement      |       | (70,498              | )          | — |   | — |   |
|                              |       | Foreign currency translation |       | (14,845              | )          | — |   | — |   |
| Consorcio Ingendesa ARA Ltda.     |       | Services provided            |       | 192,709              |       | 675,910 |   | — |   |
| Electrogas S.A.                   |       | Purchases of gas             |       | (2,300,926           | )          | (2,984,422 | ) | (4,576,224 | ) |
| Endesa Brasil S.A.                |       | Services provided            |       | 212,589              |       | 291,948 |   | 981,558 |   |
| Edelnor S.A.                      |       | Sales of energy              |       | 29,495,598           |       | 27,489,949 |   | 51,420,380 |   |
| Synapsis Argentina Ltda.          |       | Services received            |       | —               |       | (121,099 | ) | (98,013 | ) |

 

F-39

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**6.****     ****Transactions with Related Companies, continued:**

** **

The most significant transactions and their effects in income (expense) for each yearended December 31, continued:

 
| ** **                                 | ** ** | **Nature of**            | ** ** | **Income (expense)** | ** ** |
|--------------------------------------------|------------|--------------------------|------------|----------------------|------------|
| **Company**                                | ** ** | **Transaction**          | ** ** | **2006**             | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                 | ** ** | ** **               | ** ** | **ThCh$**            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                 | ** ** | ** **               | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cam Colombia Ltda.,                        |       | Services received        |       | (583,219             | )          | (645,010 | ) | (833,906 | ) |
| Cam Perú S.A.                         |       | Services received        |       | (381,942             | )          | (6,587 | ) | (71,909 | ) |
| Synapsis Sol y Serv. IT Ltda.              |       | Services received        |       | (2,303,322           | )          | (2,742,590 | ) | (2,860,109 | ) |
|                                       |       | Services provided        |       | —               |       | 597,481 |   | 686,527 |   |
| Synapsis Colombia                          |       | Services received        |       | (571,833             | )          | (815,374 | ) | (784,088 | ) |
| Synapsis Brasil Ltda.                      |       | Services received        |       | 2,014                |       | — |   | — |   |
| Synapsis Perú Ltda.                   |       | Services received        |       | (324,348             | )          | (192,068 | ) | (146,934 | ) |
| Consorcio ARA — Ingendesa Ltda.       |       | Services provided        |       | 935,725              |       | 32,839 |   | 505,331 |   |
| Cachoeira Dourada S.A.                     |       | Services provided        |       | 10,082               |       | 19,453 |   | 1,848 |   |
| Transmisora Eléc, De Quillota  Ltda., |       | Interest                 |       | 31,449               |       | — |   | (184,781 | ) |
|                                       |       | Services provided        |       | 5,986                |       | — |   | — |   |
| Sociedad Agrícola Pastos Verdes       |       | Services provided        |       | 10,504               |       | 7,908 |   | — |   |
| Consorcio Ingendesa Minmetal Ltda.         |       | Services provided        |       | 73,753               |       | — |   | — |   |
| GNL Quintero S.A.                          |       | Interest                 |       | —               |       | 873,402 |   | 1,748,868 |   |
|                                       |       | Exchange rate difference |       | —               |       | (3,392,004 | ) | 1,902,123 |   |
|                                       |       | Price-level restatement  |       | —               |       | 1,426,636 |   | 1,744,270 |   |
| Hidroaysen                                 |       | Services provided        |       | —               |       | 3,221,315 |   | 4,678,724 |   |
|                                       |       | Price-level restatement  |       | —               |       | 25,966 |   | — |   |
|                                       |       | Interest                 |       | —               |       | 6,180 |   | — |   |

** **

These transactions were carried out at pricesthat approximate market value.

 

The transfer of short-term funds between relatedcompanies, which are not for collection or payment of services, is on the basisof a current cash account, at a variable interest rate based on market conditions.The resulting accounts receivable and accounts payable are essentially on30-day terms, with automatic rollover for the same period and settlement inline with cash flows.

 

**7.****     ****Inventories**:

** **

Inventories are mostly composed of fuel to be used inthe powerplants, and they are accounted for based on what is described in Note2 (e).

 

F-40

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

 

**8.****     ****Income taxes**:

** **

General information: Recoverable taxes as of eachyear-end are as follows:

 
| ** **                   | ** ** | **As of December 31,** | ** ** |
|------------------------------|------------|-----------------------------|------------|
| ** **                   | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                         |       |                        |       |   |   |
| Income tax payable           |       | 8,980,655                   |       | 54,688,924 |   |
| Value added tax recoverable  |       | (64,102,767                 | )          | (29,680,259 | ) |
| Income tax recoverable       |       | (6,553,175                  | )          | (6,806 | ) |
| Net tax position recoverable |       | (70,655,942                 | )          | (29,687,065 | ) |

 

a.     In accordance with technicalbulletins No. 60 and No. 69 issued by the Chilean Association ofAccountants, and circular No. 1466 issued by the SVS, the Company and itssubsidiaries have recorded consolidated deferred income taxes as of December 31,2007 and 2008 as follows:

 
| ** **                          | ** ** | **As of December 31, 2007** | ** ** | **As of December 31, 2008** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **Asset**                        | ** ** | **Liability**                    | ** ** | **Asset** | ** ** | **Liability** | ** ** |
| ** **                          | ** ** | **Short-term**                   | ** ** | **Long-term**                    | ** ** | **Short-term** | ** ** | **Long-term** | ** ** | **Short-term** | ** ** | **Long-term** | ** ** | **Short-term** | ** ** | **Long-term** | ** ** |
| ** **                          | ** ** | **ThCh$**                        | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                |       |                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts receivables                |       | 430                              |       | 7,918,695                        |       | — |   | — |   | 36 |   | 9,313,978 |   | — |   | — |   |
| Deferred income                     |       | 113,864                          |       | 984,081                          |       | — |   | — |   | 41,587 |   | 890,862 |   | — |   | — |   |
| Vacation accrual                    |       | 596,929                          |       | —                           |       | — |   | — |   | 615,518 |   | — |   | — |   | — |   |
| Assets in leasing                   |       | —                           |       | —                           |       | — |   | 1,153,164 |   | — |   | — |   | — |   | 429,069 |   |
| Depreciation                        |       | —                           |       | —                           |       | — |   | 314,863,026 |   | — |   | — |   | — |   | 318,018,746 |   |
| Severance indemnities               |       | —                           |       | —                           |       | — |   | 1,073,384 |   | — |   | — |   | — |   | 984,623 |   |
| Deferred expenses                   |       | —                           |       | —                           |       | — |   | 768,619 |   | — |   | — |   | — |   | 824,839 |   |
| Capitalized interest                |       | —                           |       | —                           |       | — |   | 15,354,890 |   | — |   | — |   | — |   | 14,612,551 |   |
| Tax loss carryforwards              |       | —                           |       | 25,598,038                       |       | — |   | — |   | — |   | 17,238,948 |   | — |   | — |   |
| Contingencies                       |       | 1,232,980                        |       | 2,973,347                        |       | — |   | — |   | 1,997,148 |   | 5,213,711 |   | — |   | — |   |
| Imputed interest on construction    |       | —                           |       | —                           |       | — |   | 4,311,595 |   | — |   | — |   | — |   | 4,041,198 |   |
| Costs of studies                    |       | —                           |       | —                           |       | — |   | 9,758,104 |   | — |   | — |   | — |   | 7,659,391 |   |
| Spare parts used                    |       | —                           |       | —                           |       | — |   | 878,155 |   | — |   | — |   | — |   | 807,175 |   |
| Accrued liabilities                 |       | 670,440                          |       | —                           |       | — |   | — |   | 556,894 |   | — |   | — |   | — |   |
| Bonds discount                      |       | —                           |       | —                           |       | — |   | 256,601 |   | — |   | — |   | — |   | 2,288,016 |   |
| Intangibles                         |       | —                           |       | —                           |       | — |   | 361,853 |   | — |   | — |   | — |   | 332,227 |   |
| Recoverable contributions to assets |       | —                           |       | —                           |       | — |   | 346,813 |   | — |   | — |   | — |   | 236,352 |   |
| Provision for obsolete spare parts  |       | —                           |       | 1,574,685                        |       | — |   | — |   | — |   | 1,515,433 |   | — |   | — |   |
| Pension benefits                    |       | 526,649                          |       | 969,748                          |       | — |   | — |   | 539,469 |   | 641,657 |   | — |   | — |   |
| Deferred bond discount              |       | —                           |       | —                           |       | — |   | 977,207 |   | — |   | — |   | — |   | 904,815 |   |
| Capitalized commission for loans    |       | —                           |       | —                           |       | — |   | 55,303 |   | — |   | — |   | — |   | 10,947 |   |
| Other events                        |       | —                           |       | —                           |       | — |   | 1,039,524 |   | — |   | — |   | — |   | 858,564 |   |
| Complementary accounts, net         |       | —                           |       | (4,667,196                       | )          | — |   | (146,094,182 | ) | — |   | (4,432,430 | ) | — |   | (137,199,934 | ) |
| Earned exigible                     |       | —                           |       | —                           |       | — |   | — |   | — |   | — |   | — |   | 3,279,627 |   |
| Valuation allowance                 |       | —                           |       | (3,334,765                       | )          | — |   | — |   | — |   | (3,073,855 | ) | — |   | — |   |
| Total                               |       | 3,141,292                        |       | 32,016,633                       |       | — |   | 205,104,056 |   | 3,750,652 |   | 27,308,304 |   | — |   | 218,088,206 |   |
| Net deferred tax balance            |       | —                           |       | —                           |       | — |   | (173,087,423 | ) | — |   | — |   | — |   | (190,779,902 | ) |

 

F-41

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chilean pesos as of December 31, 2008, except asstated)**

 

**8.****                 ****Income taxes, continued**:

** **

b.              Income tax expensefor the years ended December 31, 2006, 2007 and 2008 is as follows:

 
| ** **                               | ** ** | **As of December 31,** | ** ** |
|------------------------------------------|------------|-----------------------------|------------|
| ** **                               | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                               | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                     |       |                        |       |   |   |   |   |
| **Current income tax (expense) benefit** |       |                        |       |   |   |   |   |
| Income tax provision                     |       | (121,203,005                | )          | (87,941,346 | ) | (163,041,786 | ) |
| Adjustment from prior periods            |       | 4,929,566                   |       | 815,665 |   | (1,321,215 | ) |
|                                     |       |                        |       |   |   |   |   |
| **Deferred tax (expense) benefit**       |       |                        |       |   |   |   |   |
| Deferred taxes                           |       | (26,035,437                 | )          | (54,063,095 | ) | (17,148,607 | ) |
| Amortization of complementary accounts   |       | (10,631,679                 | )          | (10,612,664 | ) | (10,849,504 | ) |
| Change in valuation allowance (1)        |       | (126,973                    | )          | 28,312,191 |   | 575,353 |   |
| Other charges or credits                 |       | 19,304                      |       | (18,050 | ) | 228,376 |   |
| Total                                    |       | (153,048,224                | )          | (123,507,299 | ) | (191,557,383 | ) |

 

----

(1) During the year ended December 31, 2007, due to thereorganization of subsidiaries in Colombia (see Note 11 (c) (ii)), theCompany was able to recover tax loss carryforwards recorded in the formersubsidiary Betania. These tax loss carryforwards and the related deferred taxassets were previously fully covered by a valuation allowance. As a result ofthe transaction, the tax loss carryforwards and the related deferred tax assetwere recovered and the related valuation allowance has been reversed.

 

**9.****                 ****Other current assets**:

** **

Other current assets as of each year-end are as follows:

 
| ** **                                                | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                                | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| Advance payments                                          |       | 145,731                     |       | 133,821 |   |
| Investment securities under agreements to  repurchase (1) |       | 29,420,347                  |       | 374,618,557 |   |
| Other                                                     |       | 733,147                     |       | 1,657,938 |   |
| Total                                                     |       | 30,299,225                  |       | 376,410,316 |   |

 

F-42

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chilean pesos as of December 31, 2008, except asstated)**

 

**9.****                 ****Other current assets, continued:**

** **

(1) The detail of investment securities under agreements torepurchase as of December 31, 2008 is as follows:

 
| ** ** | ** ** | **Dates**     | ** ** | ** **   | ** ** | ** **                    | ** ** | **Acquisition** | ** ** | **Interest** | ** ** | ** ** | ** ** | **Instrument** | ** ** | **Current** | ** ** |
|------------|------------|---------------|------------|--------------|------------|-------------------------------|------------|-----------------|------------|--------------|------------|------------|------------|----------------|------------|-------------|------------|
| **Code**   | ** ** | **Inception** | ** ** | **Maturity** | ** ** | **Counter-party**             | ** ** | **Currency**    | ** ** | **cost**     | ** ** | **rate**   | ** ** | **Nominal**    | ** ** | **type**    | ** ** | **Amount** | ** ** |
| ** ** | ** ** | ** **    | ** ** | ** **   | ** ** | ** **                    | ** ** | ** **      | ** ** | **ThCh$**    | ** ** | **%**      | ** ** | **ThCh$**      | ** ** | ** **  | ** ** | **ThCh$** | ** ** |
| CRV        |       | 12-16-2008    |       | 1-5-2009     |       | Central Bank                  |       | Ch$             |       | 10,056,476   |       | 0.60       |       | 10,096,703     |       | Bond        |       | 10,086,645 |   |
| CRV        |       | 12-16-2008    |       | 1-5-2009     |       | Central Bank                  |       | Ch$             |       | 10,041,193   |       | 0.55       |       | 10,078,010     |       | PDBC        |       | 10,068,806 |   |
| CRV        |       | 12-16-2008    |       | 1-5-2009     |       | Central Bank                  |       | Ch$             |       | 707          |       | 0.55       |       | 710            |       | Zero        |       | 709 |   |
| CRV        |       | 12-19-2008    |       | 1-5-2009     |       | Central Bank                  |       | Ch$             |       | 29,107,162   |       | 0.55       |       | 29,197,880     |       | Bond        |       | 29,171,198 |   |
| CRV        |       | 12-19-2008    |       | 1-5-2009     |       | Central Bank                  |       | Ch$             |       | 10,892,838   |       | 0.55       |       | 10,926,787     |       | PDBC        |       | 10,916,802 |   |
| CRV        |       | 12-19-2008    |       | 1-5-2009     |       | Central Bank                  |       | Ch$             |       | 23,023,000   |       | 0.55       |       | 23,107,801     |       | Bond        |       | 23,082,860 |   |
| CRV        |       | 12-17-2008    |       | 1-6-2009     |       | Central Bank                  |       | Ch$             |       | 4,029        |       | 0.55       |       | 4,044          |       | Zero        |       | 4,039 |   |
| CRV        |       | 12-17-2008    |       | 1-6-2009     |       | Central Bank                  |       | Ch$             |       | 10,067,171   |       | 0.55       |       | 10,104,084     |       | PDBC        |       | 10,093,010 |   |
| CRV        |       | 12-26-2008    |       | 1-6-2009     |       | Central Bank                  |       | Ch$             |       | 12,048,003   |       | 0.55       |       | 12,072,300     |       | Bond        |       | 12,059,047 |   |
| CRV        |       | 12-26-2008    |       | 1-6-2009     |       | Central Bank                  |       | Ch$             |       | 1,581,214    |       | 0.55       |       | 1,584,403      |       | Zero        |       | 1,582,664 |   |
| CRV        |       | 12-26-2008    |       | 1-6-2009     |       | Central Bank                  |       | Ch$             |       | 2,891,183    |       | 0.55       |       | 2,897,013      |       | PDBC        |       | 2,893,833 |   |
| CRV        |       | 12-19-2008    |       | 1-7-2009     |       | Central Bank                  |       | Ch$             |       | 4,628        |       | 0.55       |       | 4,644          |       | Zero        |       | 4,638 |   |
| CRV        |       | 12-19-2008    |       | 1-7-2009     |       | Central Bank                  |       | Ch$             |       | 69,995,373   |       | 0.55       |       | 70,239,190     |       | Zero        |       | 70,149,364 |   |
| CRV        |       | 12-19-2008    |       | 1-12-2009    |       | Central Bank                  |       | Ch$             |       | 19,014,393   |       | 0.55       |       | 19,098,057     |       | Bond        |       | 19,056,225 |   |
| CRV        |       | 12-19-2008    |       | 1-12-2009    |       | Central Bank                  |       | Ch$             |       | 6,675,212    |       | 0.55       |       | 6,704,583      |       | Zero        |       | 6,689,898 |   |
| CRV        |       | 12-19-2008    |       | 1-12-2009    |       | Central Bank                  |       | Ch$             |       | 14,310,395   |       | 0.55       |       | 14,373,360     |       | PDBC        |       | 14,341,878 |   |
| CRV        |       | 12-23-2008    |       | 1-14-2009    |       | Central Bank                  |       | Ch$             |       | 15,098,985   |       | 0.40       |       | 15,143,276     |       | Bond        |       | 15,115,090 |   |
| CRV        |       | 12-23-2008    |       | 1-14-2009    |       | INP                           |       | Ch$             |       | 3,115        |       | 0.40       |       | 3,124          |       | Bond        |       | 3,118 |   |
| CRV        |       | 12-29-2008    |       | 1-19-2009    |       | Central Bank                  |       | Ch$             |       | 41,980,000   |       | 0.41       |       | 42,100,483     |       | Bond        |       | 41,991,475 |   |
| CRV        |       | 12-29-2008    |       | 1-19-2009    |       | Central Bank                  |       | Ch$             |       | 4,005        |       | 0.54       |       | 4,020          |       | Zero        |       | 4,006 |   |
| CRV        |       | 12-29-2008    |       | 1-19-2009    |       | Central Bank                  |       | Ch$             |       | 15,831,395   |       | 0.54       |       | 15,891,238     |       | PDBC        |       | 15,837,094 |   |
| CRV        |       | 12-22-2008    |       | 1-26-2009    |       | Central Bank                  |       | Ch$             |       | 23,710,553   |       | 0.48       |       | 23,843,332     |       | Bond        |       | 23,744,696 |   |
| CRV        |       | 12-22-2008    |       | 1-26-2009    |       | Central Bank                  |       | Ch$             |       | 3,647        |       | 0.48       |       | 3,667          |       | Bond        |       | 3,652 |   |
| CRV        |       | 12-30-2008    |       | 1-28-2009    |       | Central Bank                  |       | Ch$             |       | 14,573,586   |       | 0.40       |       | 14,629,938     |       | Bond        |       | 14,575,529 |   |
| CRV        |       | 12-30-2008    |       | 1-28-2009    |       | Central Bank                  |       | Ch$             |       | 3,714        |       | 0.40       |       | 3,728          |       | Bond        |       | 3,714 |   |
| CRV        |       | 12-30-2008    |       | 1-28-2009    |       | Central Bank                  |       | Ch$             |       | 4,236,400    |       | 0.54       |       | 4,258,514      |       | Bond        |       | 4,237,163 |   |
| CRV        |       | 12-17-2008    |       | 1-29-2009    |       | Central Bank                  |       | Ch$             |       | 7,000,950    |       | 0.17       |       | 7,017,674      |       | Bond        |       | 7,014,065 |   |
| CRV        |       | 11-27-2008    |       | 1-14-2009    |       | Treasury - Republic of  Chile |       | US$             |       | 7,877,796    |       | 0.17       |       | 7,898,803      |       | Bond        |       | 7,890,911 |   |
| CRV        |       | 11-27-2008    |       | 1-14-2009    |       | Central Bank                  |       | US$             |       | 12,553,962   |       | 0.17       |       | 12,587,439     |       | PDBC        |       | 12,580,192 |   |
| CRV        |       | 11-27-2008    |       | 1-14-2009    |       | Central Bank                  |       | US$             |       | 1,871,261    |       | 0.17       |       | 1,876,251      |       | Zero        |       | 1,871,261 |   |
| CRV        |       | 11-27-2008    |       | 1-14-2009    |       | Central Bank                  |       | US$             |       | 9,531,858    |       | 0.17       |       | 9,557,276      |       | Bond        |       | 9,544,975 |   |
|       |       |          |       |         |       | Total                         |       |            |       | 373,994,204  |       |       |       | 375,308,332    |       |        |       | 374,618,557 |   |

 

F-43

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chilean pesos as of December 31, 2008, except asstated)**

** **

**10.****          ****Property, plant and equipment**:

** **

The composition ofproperty, plant and equipment as of each year-end is as follows:

 
| ** **                                               | ** ** | **Estimated years** | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------|------------|---------------------|------------|-----------------------------|------------|
| ** **                                               | ** ** | **of useful lives** | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                               | ** ** | ** **          | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| ** **                                               | ** ** | ** **          | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Land                                                     |       | —              |       | 57,654,357                  |       | 62,246,145 |   |
|                                                     |       |                |       |                        |       |   |   |
| Buildings and infrastructure                             |       | 35  – 65       |       | 3,368,228,041               |       | 6,995,618,412 |   |
|                                                     |       |                |       |                        |       |   |   |
| Distribution and transmission lines and public lighting  |       | 35                  |       | 32,574,505                  |       | 29,184,829 |   |
|                                                     |       |                |       |                        |       |   |   |
| Machinery and equipment                                  |       | 10  – 30       |       | 1,246,792,593               |       | 1,480,903,737 |   |
|                                                     |       |                |       |                        |       |   |   |
| Construction in progress                                 |       | —              |       | 59,546,743                  |       | 165,426,608 |   |
| Property, plant and equipment in leasing (*)             |       | —              |       | 85,157,084                  |       | 118,628,151 |   |
| Furniture and fixtures, tools, software and IT equipment |       | 3  – 10        |       | 24,100,150                  |       | 26,611,228 |   |
| Vehicles                                                 |       | 6  – 10        |       | 1,865,450                   |       | 2,319,453 |   |
| Other assets                                             |       | 3  – 8         |       | 13,428,760                  |       | 19,213,941 |   |
| Sub-total                                                |       |                |       | 184,098,187                 |       | 332,199,381 |   |
| Technical appraisal                                      |       | —              |       | 13,975,667                  |       | 14,012,301 |   |
|                                                     |       |                |       |                        |       |   |   |
| Total Property, plant and equipment                      |       |                |       | 7,903,323,350               |       | 8,914,164,805 |   |
|                                                     |       |                |       |                        |       |   |   |
| Less: Accumulated depreciation                           |       |                |       | (3,367,172,180              | )          | (3,873,407,870 | ) |
| Total Property, plant and equipment, net                 |       |                |       | 4,536,151,170               |       | 5,040,756,935 |   |

 

Depreciationexpense, including depreciation of assets held in capital leases, was ThCh$205,036,039 ThCh$ 210,150,835 and ThCh$ 250,505,112 for the years ended December 31,2006, 2007 and 2008, respectively.

 

----

(*) Refers to leasing contracts listed below:

 

   (a) A leasing contract exists between theCompany and Huepil S.A. for the 2x220KV Ralco-Charrúa transmission lines andthe related technical installations amounting to ThCh$ 34,343,714 in 2007 and2008. This contract has a duration of 20 years and the annual interest rate peryear is 6.5% (see also Note 36 (p)).

 

   (b) Correspondsto certain contracts to convert the ventanilla thermopower plant to a combinedcycle plant (ex-Etevensa) amounting to ThCh$ 50,813,370 in 2007 and ThCh$84,284,437 in 2008. The project is being carried out by the Company’ssubsidiary Endegel S.A. and the financial institutions: Banco de Crédito delPerú and BBVA-Banco Continental. These contracts are for 8 years and bearannual interest rates ranging from Libor + 2.5% to Libor + 3% (see also Note 36(p)).

 

TheCompany and its subsidiaries have all risk, earthquake and machinery breakdowninsurance policies on their property with maximum coverage limits of ThUS$200,000 including losses for business interruption. Generally, these costs arerecorded as part of prepaid expenses, to the extent they are paid in advance.

 

F-44

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Table of Contents

 

**Endesa Chile andSubsidiaries**

**Notes tothe  Consolidated Financial Statements**

**(Restated forgeneral price-level changes and expressed in thousands of constant**

**Chilean pesos as of December 31,2008, except as stated)**

** **

**11.****          ****Investments in related companies**:

a.Investments in related companies and respective equity in net earnings (losses)as of and for each year-ended are as follows:

 
| ** **                                     | ** ** | **As of  December  31, 2007** | ** ** | **As of December 31, 2008** | ** ** | ** **     | ** ** | ** **    | ** ** |
|------------------------------------------------|------------|-------------------------------|------------|----------------------------------|------------|----------------|------------|---------------|------------|
| ** **                                     | ** ** | **Percentage**                | ** ** | **Number of**                    | ** ** | **Percentage** | ** ** | **Related**   | ** ** | **Carrying Value** | ** ** | **Equity in Net Earnings (Losses)** | ** ** |
| **Related Companies**                          | ** ** | **Owned**                     | ** ** | **Shares**                       | ** ** | **Owned**      | ** ** | **Equity**    | ** ** | **2007** | ** ** | **2008** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                     | ** ** | **%**                         | ** ** | ** **                       | ** ** | **%**          | ** ** | **ThCh$**     | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Gas Atacama Generación S.A.               |       | 0.05                          | %          | —                           |       | —         |       | —        |       | (2,727 | ) | — |   | (9,016 | ) | (15,935 | ) | — |   |
| Gasoducto Atacama Argentina  S.A.              |       | 0.03                          | %          | 5                                |       | 0.03           | %          | 149,546,537   |       | 38,549 |   | 44,877 |   | 6,166 |   | (476 | ) | (464 | ) |
| Gasoducto Atacama Chile S.A.                   |       | 0.05                          | %          | 50                               |       | 0.05           | %          | 113,785,208   |       | 51,033 |   | 56,893 |   | 6,610 |   | 10,274 |   | 367 |   |
| Hidroaysen. (4) (5)                       |       | 51.00                         | %          | 3,369,824                        |       | 51.00          | %          | 67,071,658    |       | 16,249,871 |   | 34,206,512 |   | — |   | (1,072,903 | ) | (1,908,047 | ) |
| Hydroaysen Transmisión S.A. (4)           |       | —                        |       | 51                               |       | 0.51           | %          | 22,368        |       | — |   | 114 |   | — |   | — |   | — |   |
| Inversiones Electrogas S.A.                    |       | 42.50                         | %          | 425                              |       | 42.50          | %          | 21,330,980    |       | 7,988,511 |   | 9,065,667 |   | 2,183,805 |   | 2,446,804 |   | 2,697,740 |   |
| Inversiones Gas Atacama  Holding Ltda. (6)     |       | 50.00                         | %          | —                           |       | 50.00          | %          | 188,984,690   |       | 29,681,532 |   | 41,250,713 |   | 3,325,420 |   | (61,033,655 | ) | (2,747,294 | ) |
| CEMSA (2)                                      |       | 45.00                         | %          | 6,305,400                        |       | 45.00          | %          | 9,632,067     |       | 3,718,827 |   | 4,334,430 |   | 920 |   | (57,997 | ) | (39,604 | ) |
| Transmisora Eléctrica de  Quillota Ltda.  |       | 50.00                         | %          | —                           |       | 50.00          | %          | 9,332,138     |       | 4,396,883 |   | 4,666,069 |   | 250,422 |   | 361,173 |   | 269,186 |   |
| Endesa Brasil S.A.                             |       | 40.45                         | %          | 67,256,360                       |       | 40.45          | %          | 1,405,498,495 |       | 417,689,806 |   | 568,566,260 |   | 43,634,505 |   | 48,040,436 |   | 116,243,794 |   |
| Gas Atacama S.A.                               |       | 0.001                         | %          | 1,147                            |       | 0.001          | %          | 201,085,532   |       | 1,969 |   | 2,306 |   | 85 |   | (123 | ) | (2 | ) |
| Electrogas S.A.                                |       | 0.02                          | %          | 85                               |       | 0.02           | %          | 20,118,448    |       | 3,709 |   | 4,275 |   | 1,126 |   | 1,264 |   | 1,399 |   |
| Distrilec Inversora S.A.                       |       | 0.89                          | %          | 4,416,141                        |       | 0.89           | %          | 331,108,611   |       | 2,441,617 |   | 2,938,476 |   | (137,425 | ) | 111,679 |   | 66,679 |   |
| Consorcio ARA — Ingendesa Ltda.(1)        |       | 50.00                         | %          | —                           |       | 50.00          | %          | 624,116       |       | 115,583 |   | 312,058 |   | 108,854 |   | 152,995 |   | 346,325 |   |
| Sociedad Consorcio Ingendesa  ARA Ltda. (1)    |       | 50.00                         | %          | —                           |       | 50.00          | %          | 1,276         |       | 12,970 |   | 638 |   | 68,631 |   | (15,209 | ) | 1,411 |   |
| Consorcio Ingendesa — Minmetal Ltda. (1)  |       | 50.00                         | %          | —                           |       | 50.00          | %          | 32,028        |       | 17,860 |   | 16,014 |   | 85,967 |   | 812 |   | (1,847 | ) |
| Consorcio ARA Ingendesa Sener  Ltda. (1)       |       | 33.33                         | %          | —                           |       | 33.33          | %          | 675           |       | (1,918 | ) | 225 |   | — |   | (2,280 | ) | 1,288 |   |
| GNL Chile S.A. (4) (8)                    |       | 33.33                         | %          | 3,023,642                        |       | 33.33          | %          | (2,244,975    | )          | (620,315 | ) | (748,325 | ) | — |   | (149,733 | ) | (655,168 | ) |
| GNL Quintero S.A. (4) (7)                 |       | 20.00                         | %          | 200                              |       | 20.00          | %          | 120,633,413   |       | 1,731,556 |   | 24,126,683 |   | — |   | (160,227 | ) | (618,726 | ) |
| Central Térmica San Martín  S.A. (3) |       | 20.86                         | %          | 104,300                          |       | 20.86          | %          | 93,290        |       | 17,857 |   | 19,412 |   | — |   | — |   | — |   |
| Central Térmica Manuel  Belgrano S.A. (3) |       | 20.86                         | %          | 104,300                          |       | 20.86          | %          | 93,290        |       | 17,856 |   | 19,411 |   | — |   | — |   | — |   |
|                                           |       |                          |       |                             |       | Total          |       |          |       | 483,551,029 |   | 688,882,708 |   | 49,526,070 |   | (11,383,101 | ) | 113,657,037 |   |

 

----

| (1)   These companies are non-consolidated affiliates of the Company’s subsidiary  Ingendesa.                                                          |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (2)  This company is a non-consolidated affiliate of the  Company’s subsidiary Endesa Argentina.                                                       |
| (3)  These companies are non-consolidated affiliates of the  Company’s subsidiaries Endesa Costanera S.A. and Hidroeléctrica El Chocón  S.A. |
| (4)  Non-consolidating affiliates of the Company in development  stage.                                                                                     |
| (5)   See Notes 11 (b) (i), 11 (b) (iv), and 11 (b) (v).                                                                                     |
| (6)  See Note 11 (f).                                                                                                                                       |
| (7)  See Note 11 (b) (vi) and 11(b) (ii).                                                                                                    |
| (8)  See Notes 11 (b) (vii) and 11 (b) (ii).                                                                                                 |

 

F-45

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**11.****   ****Investment in related companies, continued:**

** **

b.  *Constitution of companies*

* *

(i)    On September 4,2006, Endesa Chile and its subsidiary, Endesa Inversiones Generales S.A.,created a new subsidiary named Hidroaysen, whose main objective is thedevelopment, financing, ownership, and exploitation of a hydroelectric projectin the Region XI in Aysén, Chile. The shareholder’s equity of the newsubsidiary is ThCh$ 1,169, divided in 100 nominative shares, all of the sameunique series, of equal value and without nominal value. Endesa Chilesubscribed 99 shares, representing 99% of the paid-in capital and effectivelypaid ThCh$ 1,169 for all 99 shares; Endesa Inversiones Generales S.A.subscribed 1 share, representing 1% of the paid-in capital and effectively paidThCh$ 12 for 1 share.

 

OnSeptember 21, 2006, Hidroaysen celebrated its First General Shareholders’Meeting and approved a capital increase of ThCh$ 23,391,720 divided into2,000,000 nominative shares, all of the same unique series, of equal value andwithout par value. All of which would  besubscribed to and effectively paid within three years from the date of theFirst General Shareholders’ Meeting. Accordingly, of the 1,999,000 sharescorresponding to the capital increase, Endesa Chile subscribed to 1,019,900shares, representing 51% of the capital increase and 50.99995% of currentshareholders’ equity, while the new shareholder, Colbún S.A., subscribed to980,000 shares representing 49% of the capital increase. Endesa InversionesGenerales S.A. did not exercise its preferential right to subscribe to shares.Therefore, its participation in the shareholders’ equity remained at 0.00005%

 

Asof October 10, 2006, Endesa Chile subscribed to and effectively paid ThCh$11,880,881 for 1,019,899 shares, which corresponds to Ch$ 11,650 per share.This amount is equal to the placement price agreed to in Aysén’s First GeneralShareholders’ Meeting. In the same transaction, the Company subscribed to andeffectively paid Ch$ 11,650 for 1 share, an amount that is equal to theplacement price agreed to in Aysén’s First General Shareholders’ Meeting. Thepayment of the subscribed share was made in conformity with the termsestablished in the public deed “Payment of Acquired Shares by Transfer of BareProperty and the Granting of Usufruct of Groundwater Rights”, which has beensubscribed to by all parties to date with the sum of Ch$ 11,650 paid in cashand through contribution of the bare property of the groundwater rights thatare described in the aforementioned deed.

 

(ii)   On March 9,2007, the Company subscribed 200 of the 1,000 registered shares issued bySociedad GNL Quintero S.A., which it paid ThCh$2,190,919 by ceding,transferring and capitalizing the accounts receivable from its affiliate GNLChile S.A. The Company’s participation in GNL Quintero S.A. totals 20%. On May 31,2007, a pending contribution of ThCh$771 was made to GNL Chile S.A. bycapitalizing an account receivable.

 

(iii)  On October 29,2007, the entity Central Eólica Canela S.A. (“Canela”) was created, with theCompany’s subsidiary Endesa Eco S.A. subscribing 75% of the issued shares. The25% were subscribed by Centinela S.A., an unrelated party. In addition,Centinela S.A. subscribed a put-option for its participation in Canela,establishing that the participation can be sold to Endesa Eco S.A. on or after October 29,2012.

 

(iv)  On April 15,2008, the Company made a final payment of ThCh$2,108,778 to its affiliateCentrales Hidroeléctricas de Aysén S. A. (“Hidroaysen”) for certain sharessubscribed on October 16, 2007 (see Note 11 (c) (i)).

 

F-46

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**11.****   ****Investment in related companies, continued:**

** **

(v)   On April 30,2008, the Company additionally subscribed 1,667,700 shares in Hidroaysen, whichwere paid in three different installments on June 5, 2008, August 20,2008, and September 22, 2008, for ThCh$7,236,710 (685,950 shares),ThCh$5,044,622 (490,722 shares), and ThCh$5,474,600 (491,028 shares),respectively.

 

(vi)  On July 15, 2008, theCompany made a capital contribution of US$35,680,377 to GNL Quintero S.A.,which is equivalent to ThCh$18,472,192, by capitalizing loans, maintaining itsparticipation of 20%.

 

(vii) On August 20, 2008, theCompany made a capital contribution of US$1,000,000 to GNL Chile S.A., which isequivalent to ThCh$538,137, maintaining its participation of 33.33%.

 

*c.  Reorganizations of entities under commoncontrol*

* *

(i)    On August 3,2007, the wholly-owned subsidiaries Compañía Eléctrica Cono Sur S.A. and EndesaChile Internacional S.A. were merged, with Compañía Eléctrica Cono Sur S.A.being the surviving entity. As of the date of the merger both entities wereunder common control of the Company, the transaction was accounted for as areorganization of entities under common control using the pooling-of-interestsmethod to combine the balance sheets and income statements of the involvedentities.

 

(ii)   On September 1,2007, the Company’s subsidiaries Betania and Emgesa were merged, by Betaniaabsorbing Emgesa and the changing its name back to Emgesa. Prior to the merger,the Company directly and indirectly owned 99.99% in Betania and through Betania23.45% in Emgesa. Pursuant to a shareholders’ agreement, the Company hadcontrolled Emgesa prior to the merger. The merger was materialized by Betaniaissuing shares in exchange for the investment in Emgesa. As a result of theexchange ratio agreed between the shareholders of former Emgesa, and thesubsequent exchange of Emgesa shares against Betania shares, the Companyincreased its participation in Emgesa (merged entity) to 26.87%.

 

Theshareholders of former Emgesa, Endesa Chile and Endesa Latinoamérica are undercommon control of Endesa S.A., the Company’s ultimate parent company.Consequently, pursuant to Technical Bulletin No. 72, the transaction wasaccounted for as a common control transaction, using the pooling-of-interestmethod to combine the balance sheets and income statements of the mergedentities, resulting in a decrease of other reserves of ThCh$ 102,934,573.

 

Allthe transfers were recorded at book value of the related investments.

 

*d   Acquisitions*

* *

(i)    On October 5,2004, Corporación Financiera del Valle (“Corfivalle”) committed to withdrawingas a shareholder of Central Hidroeléctrica de Betania S.A.E.S.P., through anexchange of assets between Corfivalle and Endesa Chile, which was to take placeas soon as the legal processes defined by both parties was to be settled. On December 29,2006, the transaction was legally formalized and effective.

 

F-47

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**11.****   ****Investment in related companies, continued:**

** **

Asa result of the finalized transaction, Endesa Chile through its indirectsubsidiary Betania transferred a transformer station previously owned byBetania and 3.81% participation in Empresa de Energía de Bogotá S.A. E.S.P. toCorfivalle in exchange for 14.3% participation in Central Hidroélectrica deBetania S.A. E.S.P. which, prior to the formalization of the transaction wasowned by Corfivalle. Consequently, the Company increased its participation inCentral Hidroeléctrica de Betania S.A. E.S.P. from 85.62% to 99.99%.

 

Inaccordance with Technical Bulletin No. 72 of the Chilean Association ofAccountants and Circular No. 1697 of the Superintendence of Securities andInsurance, the Company accounted for the purchase of minority interest inBetania under the purchase method and consequently valued the assets andliabilities acquired from Central Hidroeléctrica de Betania S.A., at theirrespective fair values. As a result of this evaluation, it was concluded thatthe fair values did not significantly differ from the book values.

 

Consequently,the aforementioned purchase of minority interest was recorded in conformitywith Technical Bulletin No. 72 of the Chilean Association of Accountantsand resulted in a negative goodwill amounting to ThCh$ 8,554,907.

 

(ii)   On January 13,2006, the Company acquired 5,500 shares in Empresa Eléctrica Pangue S.A. forthe sum of ThCh$ 6,594, maintaining its direct participation in this entity to94.97%. On July 20, 2006, the Company acquired 3,500 shares in EmpresaEléctrica Pangue S.A. for the sum of ThCh$ 4,110, increasing its participationto 94.98%.

 

(iii)  On June 1,2006, Empresa de Generación Termoeléctrica Ventanilla S.A. (“Etevensa”) wasupstream merged into the subsidiary Edegel S.A.

 

In accordance withTechnical Bulletin No. 72 of the Chilean Association of Accountants, thisreorganization of companies under common control is accounted for using thepooling of interests method. As a result of the merger, which materializedthrough stock issued by the Company’s indirect subsidiary Edegel, the Companydecreased its indirect participation in Edegel, held through its investmentvehicle Generandes Perú S.A. to 55.44% (63.56% as of December 31, 2005)and a decrease in equity was recognized in other reserves amounting to ThCh$11,227,445.

 

(iv)  On February 27, 2007, the Company purchased 19,574,798 of theoutstanding ordinary shares of Southern Cone Power Argentina S.A. These sharesrepresented 100% of the outstanding shares and were purchased for ThCh$5,995,273 in cash. The acquired entity owns 8,081,160 (5.5%) of the outstandingclass A shares of Endesa Costanera S.A., which is the acquired entity’s onlyasset. Through the purchase of Southern Cone Power Argentina, the Companyincreased its participation in Endesa Costanera S.A. to 69.77%.

 

(v)   On March 8, 2007, the Companypurchased all of the shares in Hidroeléctrica El Chocón S.A. that were directlyand indirectly held by CMS Generation S.R.L. The Company exercised the right offirst refusal that it was given in an agreement with shareholders. The Companypaid US$ 50,000,000 (ThCh$31,394,520 in December 2008 pesos), for2,734,110 class R shares and 1,733,390 class L shares, equivalent to 25% of theoutstanding shares of Hidroinvest S.A., the controlling company, with 59%, ofEndesa Chile’s subsidiary Hidroeléctrica el Chocón S.A. and additionally7,405,768 shares of Hidroeléctrica el Chocón S.A, equivalent to 2.4803% of theoutstanding shares. As a result, the Company increased its direct and indirectparticipation in Hidroeléctrica el Chocón S.A. to 67.67%.

 

F-48

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**11.****   ****Investment in related companies, continued:**

** **

In accordance with Technical Bulletin No. 72 ofthe Chilean Association of Accountants and Circular No. 1,697 of theSuperintendency of Securities and Insurance, the Company assessed the assetsand liabilities acquired from Endesa Costanera S.A. and Central HidroeléctricaEl Chocón S.A., at their respective fair values and concluded that their fairvalues did not differ significantly from their book values. As a result, thispurchase of minority interest was accounted for as required by TechnicalBulletin No. 72, recording negative goodwill of ThCh$ 2,216,534 related toEndesa Costanera and negative goodwill of ThCh$ 5,833,599 related toHidroeléctrica el Chocón S.A. (see Note 11).

 

(vi)  On March 27, 2007, Sociedad ConcesionariaTúnel el Melón S.A. increased its paid-in capital by issuing 3,169,614,306shares at a total amount of ThCh$ 34,893,978, with the Company subscribing for100%, through a cash payment of ThCh$ 18,433,872 and capitalization of loans inthe amount of ThCh$ 16,460,040, thereby increasing the Company’s participationin that company by 0.01% to 100%.

 

(vii)On October 16, 2007, at anExtraordinary Shareholders’ Meeting of Centrales Hidroeléctricas de Aysén S.A.,shareholders increased their paid-in capital by ThCh$ 14,565,375 by issuing1,337,500 shares without par value that had to be subscribed and paid withinthree years of the date of that meeting. The Company subscribed 682,125  shares for a total of ThCh$7,428,341, ofwhich it paid ThCh$1,219,136 by capitalizing loans and ThCh$ 2,106,746 incash.  On December 17, 2007, theCompany paid an additional ThCh$2,083,823 in cash.

 

*e.  Dissolution of related parties*

* *

(i)   As a result of an agreement signed on October 5,2004, Corporación Financiera del Valle (Corfivalle) withdrew its participationin Central Hidroeléctrica de Betania S.A. E.S.P. through an exchange of assetsbetween Grupo Corfivalle and the Company. This agreement was formalized during2006 when the legal processes defined by both parties were completed.Afterwards, the assets were transferred.

 

In this transaction, theCompany was to transfer Betania S.A. E.S.P.’s electric substation as well as3.81% of its participation in Empresa de Energía de Bogotá S.A. E.S.P. toCorfivalle in exchange for Corfivalle’s 14.3% participation in CentralHidroeléctrica de Betania S.A. E.S.P. The parties, understanding that themeasures necessary to complete the asset transfer would occur gradually, hadgranted usufruct of political and economic rights of the aforementioned assets,which was exchanged on January 1, 2004.

 

OnJanuary 30, 2006, Capital Energía S.A. (“Cesa”) was dissolved andliquidated. Cesa owned 48.48% of Emgesa S.A.. Central Hidroeléctrica BetaniaS.A. controlled Cesa with a 51.00% participation.

 

In accordance withTechnical Bulletin No. 72 of the Chilean Association of Accountants, thistransaction performed by companies under common control was accounted for usingthe pooling of interests method. As a result of the transaction, the Companyincreased its indirect participation in Emgesa to 23.45%. (22.36% as of December 31,2005). In addition, an increase in equity was recognized in other reservesamounting to ThCh$ 3,730,019 and a negative goodwill of ThCh$ 8,554,907 wasregistered.

 

(ii)  On September 1, 2008, Compañía Eléctrica Cono Sur S.A.,a Panamanian subsidiary of Endesa Chile S.A., was dissolved. This dissolutionwas approved by this entity’s shareholders in an Extraordinary Shareholders’Meeting on September 1, 2008. This dissolution had no effect on theCompany’s accounting as Endesa Chile owned 100% of this company. Therefore, allof its assets and liabilities were absorbed by Endesa Chile.

 

F-49

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**11.****   ****Investment in related companies, continued:**

** **

(iii) On December 22, 2008, Endesa Brasil Participacoes Ltda.,a Brazilian subsidiary in which Endesa Argentina S.A. and Endesa Chile hadparticipation of 95% and 5%, respectively, was dissolved.  This dissolution had no effect on the Company’saccounting as Endesa directly and indirectly owned 100% of this company.

 

f.  *Impairment of investment accounted for under the equity-method:*

* *

During the year ended December 31,2007, the Company recorded an impairment charge of ThCh$48,890,387 (inhistorical pesos) on itsinvestment in Inversiones Gas Atacama Holding Limitada and subsidiaries (“Gas Atacama”), as the Company believed that at thetime the investment was other-than-temporary impaired. Gas Atacama operates gaspipelines between Argentina and Chile, as well as power-generatingthermoelectrical plants in the north of Chile.

 

Gas Atacama Generación S.A. (“GAG”), a subsidiary of GasAtacama, was notified of the arbitration ruling in its arbitration suit withthe electricity distributors Empresa Eléctrica de Arica S.A., Empresa Eléctricade Iquique S.A. and Empresa Eléctrica de Antofagasta S.A., decided byarbitrator Ricardo Peralta, in which GAG demanded termination of theelectricity supply contracts signed with these distributors. The arbitrationruling was unfavorable for GAG, which further aggravated the entity’s sensitiveoperating and financial situation.

 

On April 29, 2008, GAG signed a contract with largemining companies in the north of Chile and its owners, Endesa Chile andSouthern Cross, which enables GAG to continue operating while a final solutionfor its situation is identified.

 

The main objects of this contract include:  (1) continuing to supply electricity inthe SING —at least 600 MW can be supplied continuously until December 31,2013, with diesel if necessary—to minimize the risk of electricity rationingand the consequential production losses for mining companies, and (2) securinggeneration capacity until 2013, which would allow room for other operatingunits to fail or for delays in start-up of new coal-fired plants.  At the same time, GAG entered into a long-termcontract with Compañía de Petróleos de Chile COPEC S.A., for daily consumptionof up to 3,400 cubic meters of diesel, in order to guarantee availability ofthis fuel until the end of 2013.

 

In the contract, the mining companies must pay for the backupservice that amounts to approximately 71% of the Empresas EMEL’s deficit, with the remaining 29% financed by GAG,Southern Cross and Endesa Chile, with maximum limits of US$50 million for eachowner.  The mining companies limit theircontribution to US$650 million and if oil prices exceed US$120/barrel duringthe period or if this limit of US$650 million is reached for any other reason,they have the right to early termination of the contract.

 

F-50

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**11.****   ****Investment in related companies, continued:**

** **

g. *Net investment hedge*

* *

In accordance with Technical Bulletin No. 64 ofthe Chilean Association of Accountants for the years ended December 31,2006, 2007 and 2008, the Company has designated long-term liabilities ashedging instruments for net investments in foreign countries, when thefunctional currency of those investments is the same currency in which theliability is denominated. The Company recorded foreign exchange gains andlosses on those liabilities as cumulative translation adjustments inshareholders’ equity. To the extent that liabilities exceed the totalinvestment, the gain or loss on this ineffective portion of the hedge isrecorded in current income. As of December 31, 2007 and 2008, thecorresponding investments and associated liabilities are as follows:

 
| ** **                              | ** ** | **As of December 31, 2008** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|
| **Company**                             | ** ** | **Country of  Origin**           | ** ** | **Investment** | ** ** | **Functional  Currency** | ** ** | **Associated  Liability** | ** ** |
| ** **                              | ** ** | ** **                       | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** |
| ** **                              | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Emgesa S.A.                             |       | Colombia                         |       | 246,295,371 |   | US$ |   | 291,989,846 |   |
| Endesa Brasil S.A.                      |       | Brazil                           |       | 509,753,175 |   | US$ |   | 442,980,964 |   |
| Edegel S.A.                             |       | Peru                             |       | 166,512,773 |   | US$ |   | 134,553,414 |   |
| Hidroeléctrica el Chocón S.A. |       | Argentina                        |       | 260,039,949 |   | US$ |   | 90,445,806 |   |
| CEMSA                                   |       | Argentina                        |       | 4,334,430 |   | US$ |   | 3,040,052 |   |
| Endesa Costanera S.A.                   |       | Argentina                        |       | 97,040,474 |   | US$ |   | 53,349,910 |   |
| Distrilec Inversora S.A.                |       | Argentina                        |       | 2,938,476 |   | US$ |   | 1,438,581 |   |
| Total                                   |       |                             |       | 1,286,914,648 |   |   |   | 1,017,798,573 |   |

 
|                                    |       | **As of December 31, 2007** |       |
|-----------------------------------------|------------|----------------------------------|------------|
| **Company**                             |       | **Country of   Origin**          |       | **Investment** |   | **Functional  Currency** |   | **Associated  Liability** |   |
| ** **                              | ** ** | ** **                       | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** |
| ** **                              | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Emgesa S.A.                             |       | Colombia                         |       | 194,015,987 |   | US$ |   | 248,251,337 |   |
| Endesa Brasil S.A.                      |       | Brazil                           |       | 374,483,862 |   | US$ |   | 376,624,796 |   |
| Edegel S.A.                             |       | Peru                             |       | 134,515,725 |   | US$ |   | 114,398,035 |   |
| Hidroeléctrica el Chocón S.A. |       | Argentina                        |       | 228,069,515 |   | US$ |   | 76,304,626 |   |
| CEMSA                                   |       | Argentina                        |       | 3,718,827 |   | US$ |   | 2,535,385 |   |
| Endesa Costanera S.A.                   |       | Argentina                        |       | 83,461,096 |   | US$ |   | 46,000,548 |   |
| Distrilec Inversora S.A.                |       | Argentina                        |       | 2,441,617 |   | US$ |   | 1,223,089 |   |
| Total                                   |       |                             |       | 1,020,706,629 |   |   |   | 865,337,816 |   |

 

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**12.****   ****Goodwill and Negative Goodwill:**

** **

a.     Goodwillas of December 31, 2007 and 2008 and the related amortization for each ofthe years ended December 31, is as follows:

 
| ** **                        | ** ** | **As of December 31,** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | **Amortization**            | ** ** | **Net Balance** | ** ** |
| **Company**                       | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                        | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                              |       |                        |       |   |   |   |   |   |   |   |   |
| Emgesa S.A.                       |       | 846,838                     |       | 674,227 |   | 938,764 |   | 7,301,241 |   | 7,648,856 |   |
| Gasoducto Atacama Chile Ltda. (1) |       | 6,113                       |       | 74,366 |   | — |   | — |   | — |   |
| Edegel S.A.                       |       | 35,544                      |       | 28,278 |   | 31,897 |   | 306,341 |   | 323,671 |   |
| Pangue S.A.                       |       | 214,218                     |       | 214,218 |   | 214,218 |   | 3,124,012 |   | 2,909,794 |   |
| Total                             |       | 1,102,713                   |       | 991,089 |   | 1,184,879 |   | 10,731,594 |   | 10,882,321 |   |

 

----

(1) Duringthe year ended December 31, 2007, in addition to ordinary annualamortization of ThCh$ 5,613 the Company recorded goodwill impairment amountingto ThCh$ 62,675 resulting in a complete impairment of goodwill recorded overthis investment (see Note 11 (d) for details).

 

b.     Negativegoodwill as of December 31, 2007 and 2008 and the related amortization foreach of the years ended December 31, is as follows:

 
| ** **                                            | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                            | ** ** | **Amortization**            | ** ** | **Net Balance** | ** ** |
| **Company**                                           | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                            | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                  |       |                        |       |   |   |   |   |   |   |   |   |
| Edegel S.A.                                           |       | 1,981,209                   |       | 1,721,696 |   | 2,407,115 |   | 20,803,821 |   | 21,956,856 |   |
| Endesa Costanera S.A.                                 |       | 3,016,162                   |       | 2,717,463 |   | 3,218,905 |   | 6,803,434 |   | 4,783,203 |   |
| Emgesa (see Note 11 (c))                              |       | 2,063,958                   |       | 105,638 |   | 189,540 |   | 6,856,395 |   | 7,847,590 |   |
| Hidroeléctrica el Chocón (see  Note 11 (c)) |       | —                      |       | 227,284 |   | 356,437 |   | 5,833,599 |   | 6,504,961 |   |
| Total                                                 |       | 7,061,329                   |       | 4,772,081 |   | 6,171,997 |   | 40,297,249 |   | 41,092,610 |   |

 

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**13.****          ****Investmentsin other companies:**

** **

Investmentsin other companies as of December 31, 2007 and 2008 are as follows:

 
| ** **                                        | ** ** | **Number of** | ** ** | **Percentage  owned as of  December 31,** | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------------|------------|---------------|------------|------------------------------------------------|------------|-----------------------------|------------|
| **Company**                                       | ** ** | **shares**    | ** ** | **2008**                                       | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                        | ** ** | ** **    | ** ** | **%**                                          | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                                              |       |          |       |                                           |       |                        |       |   |   |
| Club de la Banca y Comercio                       |       | 1             |       | —                                         |       | 2,060                       |       | 3,267 |   |
| Club Empresarial                                  |       | 1             |       | —                                         |       | 23,455                      |       | 26,744 |   |
| Empresa Eléctrica de Aysén  S.A         |       | 2,516,231     |       | 6.70                                           | %          | 2,533,354                   |       | 2,533,354 |   |
| Cooperativa Eléctrica de  Chillán Ltda. |       | —        |       | —                                         |       | 16,531                      |       | 16,531 |   |
| CDEC-SIC Ltda.                                    |       | —        |       | 13.57                                          | %          | 191,485                     |       | 173,225 |   |
| CDEC-SING Ltda.                                   |       | —        |       | 7.69                                           | %          | 303,133                     |       | 303,133 |   |
| Financiera Eléctrica Nacional  S.A.          |       | 4,098         |       | 0.10                                           | %          | 112,064                     |       | 0 |   |
| Electrificadora de la Costa  S.A.                 |       | 6,795,148     |       | 0.14                                           | %          | 92,999                      |       | 0 |   |
| Electrificadora del Caribe  S.A.                  |       | 109,353,394   |       | 0.22                                           | %          | 1,224,017                   |       | 1,549,119 |   |
| Total                                             |       |          |       |                                           |       | 4,499,098                   |       | 4,605,373 |   |

** **

Theseinvestments are stated at price-level restated cost as they are not traded onan open market.

 

**14.****          ****O****therintangible assets:**

 

The detail of other intangibles as of each year-end is as follows:

 
| ** **                | ** ** | ** **    | ** ** | **As of December 31,** | ** ** |
|---------------------------|------------|---------------|------------|-----------------------------|------------|
| ** **                | ** ** | **Estimated** | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                | ** ** | **Useful**    | ** ** | ** **                  | ** ** | **Accumulated** | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated** | ** ** | ** ** | ** ** |
| **Item**                  | ** ** | **life**      | ** ** | **Total**                   | ** ** | **Amortization** | ** ** | **Net Balance** | ** ** | **Total** | ** ** | **Amortization** | ** ** | **Net Balance** | ** ** |
| ** **                | ** ** | **Months**    | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                | ** ** | ** **    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Easements                 |       | 24            |       | 3,718,704                   |       | (2,874,742 | ) | 843,962 |   | 3,684,657 |   | (2,885,990 | ) | 798,667 |   |
| Water rights              |       | 1,440         |       | 13,943,505                  |       | (2,134,601 | ) | 11,808,904 |   | 18,050,259 |   | (3,626,735 | ) | 14,423,524 |   |
| Salex-fourth line Comahue |       | 60            |       | 7,060,445                   |       | (3,801,861 | ) | 3,258,584 |   | 8,304,400 |   | (5,024,773 | ) | 3,279,627 |   |
| Software                  |       | 36            |       | 2,527,870                   |       | (1,731,013 | ) | 796,856 |   | 3,847,825 |   | (2,553,636 | ) | 1,294,189 |   |
| Other                     |       | 36-50         |       | 254,867                     |       | (234,378 | ) | 20490 |   | 390,139 |   | (374,777 | ) | 15,362 |   |
| Total                     |       |          |       | 27,505,391                  |       | (10,776,595 | ) | 16,728,796 |   | 34,277,280 |   | (14,465,911 | ) | 19,811,369 |   |

 

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated FinancialStatements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**15.****          ****Other assets:**

 

Otherassets as of each year-end are as follows:

 
| ** **                                         | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------|------------|-----------------------------|------------|
| ** **                                         | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                         | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                                               |       |                        |       |   |   |
| Bond discount (1)                                  |       | 7,523,412                   |       | 8,104,292 |   |
| Reimbursable contributions                         |       | 2,040,073                   |       | 1,390,305 |   |
| Deferred commissions on loans and lines of  credit |       | 6,757,517                   |       | 6,984,439 |   |
| Minimum tax on productive assets (Argentina)       |       | 8,969,959                   |       | 11,608,900 |   |
| Capitalized debt issuance costs (1)                |       | 3,725,701                   |       | 5,916,785 |   |
| Unrealized loss on derivative contracts            |       | 1,470,114                   |       | 7,292,840 |   |
| Other                                              |       | 712,278                     |       | 4,127,540 |   |
| Total                                              |       | 31,199,054                  |       | 45,425,101 |   |

 

----

(1) During the year ended December 31, 2007,the Company repaid its series G bonds and completely amortized the relateddeferred bond-discount and capitalized bond issuance costs totaling ThCh$2,448,157.

 

**16.****          ****Debt due to banks and financialinstitutions — short term:**

** **

Short-term debt due to banks and financial institutions:

 
| ** **                                    | ** ** | **Foreign  Currency** | ** ** | **Local  Currency**           | ** ** | **Total**  | ** ** |
|-----------------------------------------------|------------|-----------------------|------------|-------------------------------|------------|------------|------------|
| ** **                                    | ** ** | **US$**               | ** ** | **Other  Foreign Currencies** | ** ** | **Ch$**    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Financial  Institution**                    | ** ** | **2007**              | ** ** | **2008**                      | ** ** | **2007**   | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                    | ** ** | **ThCh$**             | ** ** | **ThCh$**                     | ** ** | **ThCh$**  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Banco BBVA                                    |       | —                |       | —                        |       | —     |       | 12,604,378 |   |   |   |   |   |   |   | 12,604,378 |   |
| Banco Santander  RIO                          |       | —                |       | 404,811                       |       | —     |       | 6,740,006 |   | — |   | — |   | — |   | 7,144,817 |   |
| Banco Santander  Santiago                     |       | —                |       | —                        |       | —     |       | — |   | — |   | 1,257,313 |   | — |   | 1,257,313 |   |
| Banco de Crédito                         |       | —                |       | —                        |       | —     |       | 2,795,380 |   | — |   | — |   | — |   | 2,795,380 |   |
| Banco BBVA Bhif                               |       | —                |       | —                        |       | —     |       | — |   | 1 |   | 1 |   | 1 |   | 1 |   |
| Banco Nacion  Argentina                       |       |                  |       |                          |       |       |       | 4,617,885 |   |   |   |   |   |   |   | 4,617,885 |   |
| Scotiabank                                    |       | 2,213,299             |       | 2,621,179                     |       | —     |       | — |   | — |   | — |   | 2,213,299 |   | 2,621,179 |   |
| Banco Ciudad de Buenos Aires                  |       | —                |       | —                        |       | —     |       | 1,120,666 |   | — |   | — |   | — |   | 1,120,666 |   |
| Banco de Crédito e Inversiones Perú |       | 4,800,556             |       | 12,827,084                    |       | —     |       | — |   | — |   | — |   | 4,800,556 |   | 12,827,084 |   |
| Banco de Bogotá                          |       | —                |       | —                        |       | 4,842,201  |       | — |   | — |   | — |   | 4,842,201 |   | — |   |
| Banco Itau                                    |       | 1,118,298             |       | 1,298,740                     |       | —     |       | — |   | — |   | — |   | 1,118,298 |   | 1,298,740 |   |
| Citibank                                      |       |                  |       |                          |       |       |       | 8,569,590 |   |   |   |   |   |   |   | 8,569,590 |   |
| AVVillas                                      |       | —                |       | —                        |       | 10,788,396 |       | — |   | — |   | — |   | 10,788,396 |   | — |   |
| Banco Provincia de Buenos Aires               |       | 964,512               |       | 1,046,049                     |       | —     |       | — |   | — |   | — |   | 964,512 |   | 1,046,049 |   |
| Banco Santander                               |       | —                |       | —                        |       | 1,430,703  |       | 8,527,153 |   | — |   | — |   | 1,430,703 |   | 8,527,153 |   |
| Citibank                                      |       | —                |       | 3,321,777                     |       | —     |       | — |   | — |   | — |   | — |   | 3,321,777 |   |
| Banco Bladex                                  |       | 2,630,286             |       | 1,295,995                     |       | —     |       | — |   | — |   | — |   | 2,630,286 |   | 1,295,995 |   |
| Total                                         |       | 11,726,951            |       | 22,815,635                    |       | 17,061,300 |       | 44,975,058 |   | 1 |   | 1,257,314 |   | 28,788,252 |   | 69,048,007 |   |
| Total outstanding  principal                  |       | 4,620,319             |       | 19,238,865                    |       | 17,061,300 |       | 44,950,365 |   | — |   | 1,257,313 |   | 21,681,619 |   | 65,446,543 |   |
|                                          |       |                  |       |                          |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Weighted average  interest rate               |       | 6.47                  | %          | 6.80                          | %          | 11.95      | %          | 12.99 | % | — |   | — |   | 9.72 | % | 10.72 | % |

 
| ** **                             | ** ** | **As of December 31,** | ** ** |
|----------------------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                             | ** ** | **%**                       | ** ** | **%** | ** ** |
| Percentage of debt in foreign currency |       | 100.00                      | %          | 98.18 | % |
| Percentage of debt Chilean Peso        |       | —                      |       | 1.82 | % |
| Total                                  |       | 100.00                      | %          | 100.00 | % |

 

F-54

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**17.****      ****Debt due to banks and financialinstitutions — current portion of long-term debt:**

 

Current portion of long-term debt due to banks and financialinstitutions were denominated as follows:

 
| ** **                                          | ** ** | **Foreign  Currency** | ** ** | **Local  Currency**           | ** ** | **Total**  | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|-------------------------------|------------|------------|------------|
| ** **                                          | ** ** | **US$**               | ** ** | **Other  Foreign Currencies** | ** ** | **Ch$**    | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Financial  Institution**                          | ** ** | **2007**              | ** ** | **2008**                      | ** ** | **2007**   | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                          | ** ** | **ThCh$**             | ** ** | **ThCh$**                     | ** ** | **ThCh$**  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                |       |                  |       |                          |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Bancolombia                                         |       | —                |       | —                        |       | 3,141,715  |       | 5,354,867 |   | — |   | — |   | 3,141,715 |   | 5,354,867 |   |
| Banesto                                             |       | 2,229,889             |       | —                        |       | —     |       | — |   | — |   | — |   | 2,229,889 |   | — |   |
| Banco Continental                                   |       | 1,618,405             |       | 1,591,666                     |       | 10,655,714 |       | — |   | — |   | — |   | 12,274,119 |   | 1,591,666 |   |
| Banco Bilbao Vizcaya Argentaria S.A.                |       | —                |       | 72,555                        |       | 2,671,550  |       | 1,076,528 |   | — |   | — |   | 2,671,550 |   | 1,149,083 |   |
| Banco de Crédito                               |       | —                |       | 60,507                        |       | 10,940,072 |       | — |   | — |   | — |   | 10,940,072 |   | 60,507 |   |
| Banco  Mediocredito Italiano                        |       | —                |       | —                        |       | 2,182,005  |       | 2,523,313 |   | — |   | — |   | 2,182,005 |   | 2,523,313 |   |
| Banco Nationale  París                         |       | 3,517,450             |       | 3,270,303                     |       | —     |       | — |   | — |   | — |   | 3,517,450 |   | 3,270,303 |   |
| Banco Santander  Central Hispano                    |       | —                |       | —                        |       | 3,041,596  |       | 3,205,326 |   | — |   | — |   | 3,041,596 |   | 3,205,326 |   |
| Caja Madrid Miami  Agency                           |       | 20,003                |       | 16,298                        |       | —     |       | — |   | — |   | — |   | 20,003 |   | 16,298 |   |
| Davivienda                                          |       | —                |       | —                        |       | 1,021,538  |       | 771,146 |   | — |   | — |   | 1,021,538 |   | 771,146 |   |
| Export  Development Corporation                     |       | 1,777,642             |       | 1,965,537                     |       | —     |       | — |   | — |   | — |   | 1,777,642 |   | 1,965,537 |   |
| Citibank                                            |       | 5,415,491             |       | 6,365,817                     |       | —     |       | — |   | — |   | — |   | 5,415,491 |   | 6,365,817 |   |
| Kreditanstalt für  Wiederaufbau                |       | 301,452               |       | 176,238                       |       | —     |       | — |   | — |   | — |   | 301,452 |   | 176,238 |   |
| Credit Suisse  First Boston                         |       | 4,659,830             |       | 10,921,057                    |       | —     |       | — |   | — |   | — |   | 4,659,830 |   | 10,921,057 |   |
| Deutsche Bank                                       |       | 3,252,091             |       | 7,484,652                     |       | —     |       | — |   | — |   | — |   | 3,252,091 |   | 7,484,652 |   |
| Standard Bank                                       |       | 3,252,091             |       | 7,484,652                     |       | —     |       | — |   | — |   | — |   | 3,252,091 |   | 7,484,652 |   |
| The Bank of  Tokyo-Mitsubishi, Ltd. New York Branch |       | 30,385                |       | 12,508                        |       | —     |       | — |   | — |   | — |   | 30,385 |   | 12,508 |   |
| WestLB AG. New  York Branch                         |       | 142,839               |       | 10,334,519                    |       | —     |       | — |   | — |   | — |   | 142,839 |   | 10,334,519 |   |
| Scotiabank                                          |       | 3,963,075             |       | 4,587,929                     |       | 9,126,761  |       |   |   | — |   | — |   | 13,089,836 |   | 4,587,929 |   |
| Total                                               |       | 30,180,643            |       | 54,344,238                    |       | 42,780,951 |       | 12,931,180 |   | — |   | — |   | 72,961,594 |   | 67,275,418 |   |
| Total outstanding  principal                        |       | 29,697,834            |       | 53,966,152                    |       | 42,652,652 |       | 12,918,647 |   | — |   | — |   | 72,350,486 |   | 66,884,799 |   |
|                                                |       |                  |       |                          |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Weighted average  interest rate                     |       | 7.85                  | %          | 6.32                          | %          | 7.19       | %          | 10.10 | % |   |   |   |   | 7.46 | % | 7.05 | % |

 
| ** **                             | ** ** | **As of  December 31,** | ** ** |
|----------------------------------------|------------|------------------------------|------------|
| ** **                             | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                             | ** ** | **%**                        | ** ** | **%** | ** ** |
|                                   |       |                         |       |   |   |
| Percentage of debt in foreign currency |       | 100.00                       | %          | 100.00 | % |
| Percentage of debt in Chilean Peso     |       | 0.00                         | %          | 0.00 | % |
| Total                                  |       | 100.00                       | %          | 100.00 | % |

 

F-55

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**18.****          ****Debt d****ue to banks and financialinstitutions — long term:**

Long-term portion of debt due to banks and financial institutions weredenominated as follows:

 
| ** **                           | ** ** | ** **   | ** ** | **As of  December  31, 2007** | ** ** | **As of December 31, 2008**            | ** ** |
|--------------------------------------|------------|--------------|------------|-------------------------------|------------|----------------------------------------|------------|
| **Financial Institution**            | ** ** | **Currency** | ** ** | **Long-term  Portion**        | ** ** | **After 1  year but  within 2  years** | ** ** | **After 2  years but  within 3  years** | ** ** | **After 3  years but  within 5  years** | ** ** | **After 5  years but  within 10  years** | ** ** | **After 10  years** | ** ** | **Total long-term  portion** | ** ** | **Annual  interest  rate** | ** ** |
| ** **                           | ** ** | ** **   | ** ** | **ThCh$**                     | ** ** | **ThCh$**                              | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **%** | ** ** |
| ABN Amro Bank                        |       | US$          |       | 1,916,443                     |       | 6,629,688                              |       | — |   | — |   | — |   | — |   | 6,629,688 |   | 1.96 | % |
| Instituto de  Crédito Oficial   |       | US$          |       | 9,005,026                     |       | 6,629,688                              |       | 12,729,000 |   |   |   | — |   | — |   | 19,358,688 |   | 1.96 | % |
| Bancolombia                          |       | $Col         |       | 26,057,081                    |       | —                                 |       |   |   | 27,522,189 |   | — |   | — |   | 27,522,189 |   | 12.13 | % |
| Banco Bilbao  Viscaya Argentaria     |       | US$          |       | 5,749,328                     |       | 19,889,063                             |       |   |   | — |   | 37,550,550 |   | — |   | 57,439,613 |   | 1.96 | % |
| Banco Bilbao  Viscaya Argentaria     |       | $Col         |       | 22,159,071                    |       | —                                 |       |   |   | 23,404,940 |   | — |   | — |   | 23,404,940 |   | 12.13 | % |
| Banco Estado                         |       | US$          |       | 4,873,401                     |       | —                                 |       | 8,751,187 |   |   |   | — |   | — |   | 8,751,187 |   | 1.96 | % |
| Banco Nationales  de Paris           |       | US$          |       | 1,781,152                     |       |                                   |       |   |   | — |   | — |   | — |   | — |   | — |   |
| Banco Nationales  de Paris           |       | US$          |       | 6,197,103                     |       | 1,041,278                              |       | 1,041,278 |   | 2,082,556 |   | 2,082,555 |   | — |   | 6,247,667 |   | 5.98 | % |
| Banco Medio  Crédito            |       | $Arg         |       | 5,420,564                     |       | 2,510,735                              |       | 1,255,233 |   | — |   | — |   | — |   | 3,765,968 |   | 1.75 | % |
| Banco Santander  Central Hispano     |       | US$          |       | 15,871,526                    |       | 13,524,562                             |       | 21,480,187 |   |   |   | 21,002,850 |   | — |   | 56,007,599 |   | 1.96 | % |
| Banco Santander  Central Hispano     |       | $Col         |       | 25,228,247                    |       | —                                 |       |   |   | 26,646,842 |   | — |   | — |   | 26,646,842 |   | 12.13 | % |
| Bank Of Tokio  Mitsubishi Ltda       |       | US$          |       | 16,561,446                    |       | 15,911,250                             |       | 21,480,188 |   | — |   | 21,002,850 |   | — |   | 58,394,288 |   | 1.96 | % |
| Caja Madrid,  Miami Agency           |       | US$          |       | 2,989,650                     |       | 10,342,312                             |       | — |   | — |   | 31,822,500 |   | — |   | 42,164,812 |   | 1.96 | % |
| Citibank N.A.                        |       | US$          |       | 17,711,311                    |       | 19,889,062                             |       | 21,480,188 |   | — |   | — |   | — |   | 41,369,250 |   | 1.96 | % |
| Citibank                             |       | US$          |       | 5,411,132                     |       | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Davivienda                           |       | $Col         |       | 8,473,106                     |       | —                                 |       | — |   | 8,949,497 |   | — |   | — |   | 8,949,497 |   | 12.13 | % |
| Export  Development Corporation      |       | US$          |       | 4,648,282                     |       | 911,208                                |       | 911,208 |   | 1,822,416 |   | 911,208 |   | — |   | 4,556,040 |   | 4.12 | % |
| Export  Development Corporation      |       | US$          |       | 1,178,616                     |       | 462,087                                |       | — |   | — |   | — |   | — |   | 462,087 |   | 3.75 | % |
| Banco Santander  RIO                 |       | US$          |       | —                        |       | 849,749                                |       | — |   | — |   |   |   |   |   | 849,749 |   | 5.61 | % |
| Export  Development Canada           |       | US$          |       | 8,860,729                     |       | —                                 |       | 15,911,250 |   | — |   | — |   | — |   | 15,911,250 |   | 1.96 | % |
| Kreditanstalt für  Wiederaufbau |       | US$          |       | 148,004                       |       | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   |
| WestLB AG, New  York Branch          |       | US$          |       | 8,657,811                     |       | —                                 |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Banco de Crédito                |       | US$          |       | —                        |       | 7,637,400                              |       | 11,456,100 |   | — |   | — |   | — |   | 19,093,500 |   | 5.19 | % |
| Banco Continental                    |       | US$          |       | 11,426,419                    |       | 4,291,045                              |       | 7,556,887 |   | — |   | — |   | — |   | 11,847,932 |   | 3.97 | % |
| Banco Continental                    |       | Soles        |       | —                        |       | 11,951,162                             |       | — |   | — |   | — |   | — |   | 11,951,162 |   | 6.50 | % |
| The Bank of Nova  Scotia             |       | US$          |       | 1,839,784                     |       | 6,364,500                              |       | — |   | — |   | — |   | — |   | 6,364,500 |   | 1.96 | % |
| Credit Suisse  First Boston          |       | US$          |       | 11,595,281                    |       | 2,727,643                              |       | — |   | — |   | — |   | — |   | 2,727,643 |   | 8.55 | % |
| Scotiabank                           |       | US$          |       | 13,636,053                    |       | 9,164,880                              |       | 2,291,220 |   | — |   | — |   | — |   | 11,456,100 |   | 3.08 | % |
| Deutsche Bank AG,  New York          |       | US$          |       | 1,533,154                     |       | 5,303,750                              |       | — |   | — |   | — |   | — |   | 5,303,750 |   | 1.96 | % |
| Deutsche Bank AG,  New York          |       | US$          |       | 23,899,077                    |       | 7,425,143                              |       | 13,259,482 |   | — |   | — |   | — |   | 20,684,625 |   | 9.19 | % |
| ING Bank N.V.,  Curacao Branch       |       | US$          |       | 7,359,140                     |       | 25,458,000                             |       | — |   | — |   | — |   | — |   | 25,458,000 |   | 1.96 | % |
| San Paolo                            |       | US$          |       | 4,599,462                     |       | 15,911,250                             |       | — |   | — |   | — |   | — |   | 15,911,250 |   | 1.96 | % |
| HSBC                                 |       | US$          |       | 3,832,886                     |       | 13,259,375                             |       | — |   | — |   | — |   | — |   | 13,259,375 |   | 1.96 | % |
| The Royal Bank of  Scotland PLC      |       | US$          |       | 3,544,292                     |       | —                                 |       | 6,364,500 |   | — |   | — |   | — |   | 6,364,500 |   | 1.96 | % |
| B.N.P. Paribas Panama Branch         |       | US$          |       | 7,088,583                     |       | —                                 |       | 12,729,000 |   |   |   | — |   | — |   | 12,729,000 |   | 1.96 | % |
| Banesto N.Y.  Branch                 |       | US$          |       | 3,544,292                     |       | —                                 |       | 6,364,500 |   | 15,911,250 |   | — |   | — |   | 22,275,750 |   | 1.96 | % |
| Standard Bank                        |       | US$          |       | 23,899,077                    |       | 7,425,144                              |       | 13,259,481 |   | — |   | — |   | — |   | 20,684,625 |   | 9.19 | % |
| Total                                |       |         |       | 316,696,529                   |       | 215,509,974                            |       | 178,320,889 |   | 106,339,690 |   | 114,372,513 |   | — |   | 614,543,066 |   |   |   |

 
| ** **                             | ** ** | **As of  December 31,** | ** ** |
|----------------------------------------|------------|------------------------------|------------|
| ** **                             | ** ** | **2006**                     | ** ** | **2007** | ** ** |
| ** **                             | ** ** | **%**                        | ** ** | **%** | ** ** |
|                                   |       |                         |       |   |   |
| Percentage of debt in foreign currency |       | 100.00                       | %          | 100.00 | % |
| Percentage of debt in Chilean Peso     |       | —                       |       | — |   |
| Total                                  |       | 100.00                       | %          | 100.00 | % |

 

F-56

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**18.      Debtd****ue tobanks and financial institutions — long term, continued:**

 

Debt priority: Except for certain debts, which arecollateralized by liens on specific assets (see Note 29), all of these debtsrank *pari passu* the same in priority of payment.

 

**On November 5, 2004, EndesaChile S.A. entered into a credit for the amount of US$250 million, maturing on November 11,2010 with an interest rate of Libor + 0.375%, which had been completely drawnas of December 31, 2008.**

** **

**On January 26, 2006, EndesaChile entered into a second credit (Revolving Facility) for the amount of ThUS$200,000 with maturity on July 26, 2011 and an interest rate of Libor+0.300%.**

** **

**On December 7, 2006, EndesaChile entered into a third credit (Revolving Facility) for the amount of ThUS$200,000 with maturity on December 7, 2009 and an interest rate ofLibor+0.25%. As of December 31, 2008, the Company has not drawn any amountof this credit line.**

** **

On June 16, 2008,Endesa Chile entered into a fourth credit that was 50% fixed term and 50%revolving for the amount of****US$400 million, maturing on June 16,2014 with an interest rate of Libor + 0.750%, of which US$200 million had beendrawn as of December 31, 2008.

 

These transactions wereall senior unsecured facilities governed by the laws of the State of New York.

 

The revolving credits ofEndesa Chile can be paid down and drawn at any moment prior to expiration.

 

F-57

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Table ofContents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.****          ****Bonds and notes payable****:**

 

Details of the current portionof bonds payable is as follows at each year-end:

 
| ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **                  | ** ** | ** **         | ** ** | ** **        | ** ** | **Par Value**   | ** ** |
|-----------------|------------|--------------|------------|--------------|------------|-----------------------------|------------|--------------------|------------|-------------------|------------|-----------------|------------|
| **Issuer**      | ** ** | **Series**   | ** ** | **Currency** | ** ** | **Face Value  Outstanding** | ** ** | **Interest  rate** | ** ** | **Maturity Date** | ** ** | **ThCh$  2007** | ** ** | **ThCh$  2008** | ** ** |
| Endesa Chile    |       | 1            |       | US$          |       | 205,881,000                 |       | 7.88               | %          | 02-01-2027        |       | 3,669,749       |       | 4,299,519 |   |
| Endesa Chile    |       | 2            |       | US$          |       | 220,000,000                 |       | 7.33               | %          | 02-01-2037        |       | 3,633,349       |       | 144,292,497 |   |
| Endesa Chile    |       | 3            |       | US$          |       | 40,416,000                  |       | 8.13               | %          | 02-01-2097        |       | 837,824         |       | 870,822 |   |
| Endesa Chile    |       | 1            |       | US$          |       | 400,000,000                 |       | 7.75               | %          | 07-15-2008        |       | 224,133,600     |       | — |   |
| Endesa Chile    |       | 1            |       | US$          |       | 400,000,000                 |       | 8.50               | %          | 04-01-2009        |       | 4,599,462       |       | 259,989,824 |   |
| Endesa Chile    |       | F            |       | U.F.         |       | 1,500,000                   |       | 6.20               | %          | 08-01-2022        |       | 1,456,673       |       | 1,445,988 |   |
| Endesa Chile    |       | 144A         |       | US$          |       | 400,000,000                 |       | 8.35               | %          | 08-01-2013        |       | 7,530,493       |       | 8,857,263 |   |
| Endesa Chile    |       | 144A         |       | US$          |       | 200,000,000                 |       | 8.63               | %          | 08-01-2015        |       | 3,889,251       |       | 4,574,484 |   |
| Endesa Chile    |       | M            |       | U.F.         |       | 10,000,000                  |       | 4.75               | %          | 12-15-2029        |       | —          |       | 419,648 |   |
| Endesa Chile    |       | H            |       | U.F.         |       | 4,000,000                   |       | 6.20               | %          | 10-15-2008        |       | 1,087,466       |       | 1,091,714 |   |
| Endesa Chile    |       | K            |       | U.F.         |       | 4,000,000                   |       | 3.80               | %          | 04-15-2027        |       | 670,384         |       | 673,003 |   |
| Edegel-Peru     |       | 5A           |       | US$          |       | 10,000,000                  |       | 3.75               | %          | 01-26-2009        |       | 86,804          |       | 6,466,597 |   |
| Edegel-Peru     |       | 6A           |       | Soles        |       | 30,000,000                  |       | 5.88               | %          | 02-27-2008        |       | 5,525,275       |       | — |   |
| Edegel-Peru     |       | 6 B          |       | Soles        |       | 20,000,000                  |       | 8.50               | %          | 06-18-2008        |       | 3,621,264       |       | — |   |
| Edegel-Peru     |       | 7A           |       | US$          |       | 10,000,000                  |       | 4.94               | %          | 07-26-2009        |       | 165,628         |       | 6,498,945 |   |
| Edegel-Peru     |       | 8A           |       | Soles        |       | 22,370,000                  |       | 6.00               | %          | 03-10-2008        |       | 4,112,986       |       | — |   |
| Edegel-Peru     |       | 8 B          |       | Soles        |       | 25,700,000                  |       | 6.47               | %          | 03-30-2008        |       | 4,715,218       |       | — |   |
| Edegel-Peru     |       | 9A           |       | Soles        |       | 70,000,000                  |       | 6.91               | %          | 06-01-2009        |       | 72,738          |       | 14,260,949 |   |
| Edegel-Peru     |       | 10A          |       | Soles        |       | 35,000,000                  |       | 6.72               | %          | 10-21-2010        |       | 81,378          |       | 91,298 |   |
| Edegel-Peru     |       | 11A          |       | US$          |       | 20,000,000                  |       | 6.06               | %          | 11-18-2012        |       | 76,544          |       | 90,031 |   |
| Edegel-Peru     |       | 13 A         |       | Soles        |       | 25,000,000                  |       | 6.47               | %          | 10-20-2013        |       | 56,775          |       | 63,696 |   |
| Edegel-Peru     |       | 13 B         |       | Soles        |       | 25,000,000                  |       | 6.16               | %          | 01-15-2014        |       | 127,362         |       | 142,888 |   |
| Edegel-Peru     |       | 14 A         |       | Soles        |       | 25,000,000                  |       | 6.09               | %          | 10-27-2010        |       | 48,135          |       | 54,003 |   |
| Edegel-Peru     |       | 14 B         |       | Soles        |       | 25,000,000                  |       | 5.91               | %          | 02-22-2011        |       | 94,790          |       | 106,345 |   |
| Edegel-Peru     |       | 15 A         |       | Soles        |       | 30,000,000                  |       | 6.16               | %          | 11-27-2011        |       | 30,567          |       | 34,293 |   |
| Edegel-Peru     |       | 1°A     |       | Soles        |       | 25,000,000                  |       | 6.31               | %          | 06-21-2022        |       | 7,123           |       | 7,992 |   |
| Edegel-Peru     |       | 2°A     |       | US$          |       | 8,000,000                   |       | 5.97               | %          | 07-18-2011        |       | 116,271         |       | 136,757 |   |
| Edegel-Peru     |       | 3°A     |       | Soles        |       | 25,000,000                  |       | 6.28               | %          | 07-03-2019        |       | 139,399         |       | 156,392 |   |
| Edegel-Peru     |       | 4°A     |       | Soles        |       | 20,000,000                  |       | 6.75               | %          | 08-31-2014        |       | 81,248          |       | 91,153 |   |
| Edegel-Peru     |       | 5°A     |       | Soles        |       | 25,000,000                  |       | 6.50               | %          | 03-18-2013        |       | 83,944          |       | 93,263 |   |
| Edegel-Peru     |       | 6°A     |       | Soles        |       | 25,000,000                  |       | 6.44               | %          | 05-21-2013        |       | 32,286          |       | 35,316 |   |
| Edegel-Peru     |       | 7°A     |       | Soles        |       | 25,000,000                  |       | 6.63               | %          | 06-13-2013        |       | 14,951          |       | 16,775 |   |
| Edegel-Peru     |       | 8°A     |       | US$          |       | 10,000,000                  |       | 6.34               | %          | 01-25-2028        |       | —          |       | 173,836 |   |
| Edegel-Peru     |       | 9°A     |       | Soles        |       | 28,300,000                  |       | 6.59               | %          | 07-03-2014        |       | —          |       | 118,646 |   |
| Edegel-Peru     |       | 10°A    | ** ** | US$          |       | 9,720,000                   |       | 9.00               | %          | 12-11-2014        |       | —          |       | 74,237 |   |
| Emgesa-Colombia |       | B 1°    |       | $Col.        |       | 400,000,000,000             |       | 14.73              | %          | 11-10-2011        |       | 1,627,978       |       | 2,260,188 |   |
| Emgesa-Colombia |       | A-10 3° |       | $Col.        |       | 210,000,000,000             |       | 13.15              | %          | 02-23-2015        |       | 621,777         |       | 778,697 |   |
| Emgesa-Colombia |       | A-10 3° |       | $Col         |       | 40,000,000,000              |       | 13.15              | %          | 02-23-2015        |       | 118,434         |       | 148,323 |   |
| Emgesa-Colombia |       | B-10 4° |       | $Col         |       | 170,000,000,000             |       | 13.28              | %          | 02-20-2017        |       | 4,270,761       |       | 5,544,669 |   |
| Emgesa-Colombia |       | B-10 1° |       | $Col.        |       | 229,825,000,000             |       | 12.73              | %          | 10-09-2009        |       | 1,606,953       |       | 4,840,736 |   |
| Emgesa-Colombia |       | B-10 1° |       | $Col.        |       | 60,000,000,000              |       | 13.49              | %          | 11-10-2009        |       | 247,163         |       | 17,332,484 |   |
| Emgesa-Colombia |       | C-10 1° |       | $Col.        |       | 17,235,158,229              |       | 10.25              | %          | 10-09-2009        |       | 60,735          |       | 65,264,107 |   |
| Emgesa-Colombia |       | C-10 1° |       | $Col.        |       | 9,684,517,481               |       | 10.25              | %          | 10-09-2009        |       | 112,160         |       | 5,491,591 |   |
| Total           |       |         |       |         |       |                        |       |               |       |              |       | 279,464,898     |       | 556,888,969 |   |

 

 

F-58

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.****          ****Bonds and notes payable, continued:**

** **

Details of the long-term portion of bondspayable is as follows at each year-end:

 
| ** **           | ** ** | ** **   | ** ** | ** **   | ** ** | ** **                   | ** ** | ** **         | ** ** | ** **         | ** ** | **Par Value**   | ** ** |
|----------------------|------------|--------------|------------|--------------|------------|------------------------------|------------|--------------------|------------|--------------------|------------|-----------------|------------|
| **Issuer**           | ** ** | **Series**   | ** ** | **Currency** | ** ** | **Face  Value  Outstanding** | ** ** | **Interest  Rate** | ** ** | **Maturity  Date** | ** ** | **2007  ThCh$** | ** ** | **2008  ThCh$** | ** ** |
| Endesa Chile         |       | 1            |       | US$          |       | 205,881,000                  |       | 7.88               | %          | 02-01-2027         |       | 111,404,929     |       | 131,032,962 |   |
| Endesa Chile         |       | 2            |       | US$          |       | 220,000,000                  |       | 7.33               | %          | 02-01-2037         |       | 119,044,906     |       | — |   |
| Endesa Chile         |       | 3            |       | US$          |       | 40,416,000                   |       | 8.13               | %          | 02-01-2097         |       | 21,869,629      |       | 25,722,763 |   |
| Endesa Chile         |       | 1            |       | US$          |       | 400,000,000                  |       | 8.50               | %          | 04-01-2009         |       | 216,445,284     |       | — |   |
| Endesa Chile         |       | F            |       | U.F.         |       | 1,500,000                    |       | 6.20               | %          | 08-01-2022         |       | 31,412,543      |       | 30,891,701 |   |
| Endesa Chile         |       | 144A         |       | US$          |       | 400,000,000                  |       | 8.35               | %          | 08-01-2013         |       | 216,445,284     |       | 254,580,000 |   |
| Endesa Chile         |       | 144A         |       | US$          |       | 200,000,000                  |       | 8.63               | %          | 08-01-2015         |       | 108,222,642     |       | 127,290,000 |   |
| Endesa Chile         |       | H            |       | U.F.         |       | 4,000,000                    |       | 6.20               | %          | 10-15-2028         |       | 85,476,307      |       | 85,810,280 |   |
| Endesa Chile         |       | K            |       | U.F.         |       | 4,000,000                    |       | 3.80               | %          | 04-15-2027         |       | 85,476,307      |       | 85,810,280 |   |
| Endesa Chile         |       | M            |       | U.F.         |       | 10,000,000                   |       | 4.75               | %          | 12-15-2029         |       | —          |       | 214,525,700 |   |
| Edegel-Peru          |       | 5A           |       | US$          |       | 10,000,000                   |       | 3.75               | %          | 01-26-2009         |       | 5,411,132       |       | — |   |
| Edegel-Peru          |       | 7A           |       | US$          |       | 10,000,000                   |       | 4.94               | %          | 07-26-2009         |       | 5,411,132       |       | — |   |
| Edegel-Peru          |       | 9A           |       | Soles        |       | 70,000,000                   |       | 6.91               | %          | 06-01-2009         |       | 12,638,614      |       | — |   |
| Edegel-Peru          |       | 10A          |       | Soles        |       | 35,000,000                   |       | 6.72               | %          | 10-21-2010         |       | 6,319,307       |       | 7,089,672 |   |
| Edegel-Peru          |       | 11A          |       | US$          |       | 20,000,000                   |       | 6.06               | %          | 11-18-2012         |       | 10,822,263      |       | 12,729,000 |   |
| Edegel-Peru          |       | 13 A         |       | Soles        |       | 25,000,000                   |       | 6.47               | %          | 10-20-2013         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 13 B         |       | Soles        |       | 25,000,000                   |       | 6.16               | %          | 01-15-2014         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 14 A         |       | Soles        |       | 25,000,000                   |       | 6.09               | %          | 10-27-2010         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 14 B         |       | Soles        |       | 25,000,000                   |       | 5.91               | %          | 02-22-2011         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 15 A         |       | Soles        |       | 30,000,000                   |       | 6.16               | %          | 11-27-2011         |       | 5,416,548       |       | 6,076,862 |   |
| Edegel-Peru          |       | 1°A     |       | Soles        |       | 25,000,000                   |       | 6.31               | %          | 06-21-2022         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 2°A     |       | US$          |       | 8,000,000                    |       | 5.97               | %          | 07-18-2011         |       | 4,328,903       |       | 5,091,600 |   |
| Edegel-Peru          |       | 3°A     |       | Soles        |       | 25,000,000                   |       | 6.28               | %          | 07-03-2019         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 4°A     |       | Soles        |       | 20,000,000                   |       | 6.75               | %          | 08-31-2014         |       | 3,611,032       |       | 4,051,240 |   |
| Edegel-Peru          |       | 5°A     |       | Soles        |       | 25,000,000                   |       | 6.50               | %          | 03-18-2013         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 6°A     |       | Soles        |       | 25,000,000                   |       | 6.44               | %          | 05-21-2013         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 7°A     |       | Soles        |       | 25,000,000                   |       | 6.63               | %          | 06-13-2013         |       | 4,513,791       |       | 5,064,052 |   |
| Edegel-Peru          |       | 8°A     |       | US$          |       | 10,000,000                   |       | 6.34               | %          | 01-25-2028         |       | —          |       | 6,364,500 |   |
| Edegel-Peru          |       | 9°A     |       | Soles        |       | 28,300,000                   |       | 6.59               | %          | 07-03-2014         |       | —          |       | 5,732,505 |   |
| Edegel-Peru          |       | 10°A    |       | US$          |       | 9,720,000                    |       | 9.00               | %          | 12-11-2014         |       | —          |       | 6,186,293 |   |
| Emgesa (ex  Betania) |       | B 1°    |       | $Col.        |       | 400,000,000,000              |       | 14.73              | %          | 11-10-2011         |       | 107,429,933     |       | 113,470,139 |   |
| Emgesa-Colombia      |       | A-10 3° |       | $Col.        |       | 210,000,000,000              |       | 13.15              | %          | 02-23-2015         |       | 56,400,651      |       | 59,571,713 |   |
| Emgesa-Colombia      |       | A-10 3° |       | $Col         |       | 40,000,000,000               |       | 13.15              | %          | 02-23-2015         |       | 10,742,981      |       | 11,346,993 |   |
| Emgesa-Colombia      |       | B-10 4° |       | $Col         |       | 170,000,000,000              |       | 13.28              | %          | 02-20-2017         |       | 45,657,669      |       | 48,224,720 |   |
| Emgesa-Colombia      |       | B-10 1° |       | $Col.        |       | 229,825,000,000              |       | 12.73              | %          | 10-09-2009         |       | 61,725,140      |       | — |   |
| Emgesa-Colombia      |       | B-10 1° |       | $Col.        |       | 60,000,000,000               |       | 13.49              | %          | 11-10-2009         |       | 16,114,471      |       | — |   |
| Emgesa-Colombia      |       | C-10 1° |       | $Col.        |       | 17,235,158,229               |       | 10.25              | %          | 10-09-2009         |       | 4,719,100       |       | — |   |
| Emgesa-Colombia      |       | C-10 1° |       | $Col.        |       | 9,684,517,481                |       | 10.25              | %          | 10-09-2009         |       | 2,706,341       |       | — |   |
| Total                |       |         |       |         |       |                         |       |               |       |               |       | 1,395,877,167   |       | 1,287,175,391 |   |

 

F-59

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**19.****          ****Bonds and notes payable, continued:**

** **

Bonds payable by entities:

 

*Endesa Chile (individual legalentity):*

*** ***

1)As of December 31, 2008, the following local bond offerings wereoutstanding:

 

·                  OnAugust 9, 2001, the fourth bond issuance of UF 7,500,000 was placed underinscription No. 264 and was entirely subscribed by December 31, 2001.Series E1 end E2 were entirely paid by July 31, 2006.

 

·                  OnNovember 26, 2002, the fifth bond issuance of UF 8,000,000 was placedunder inscription No. 317 and 318 (an amendment), and was entirelysubscribed by December 31, 2003.

 

·                  OnApril 15, 2007, series G of the UF 4,000,000 issuance was early redeemedwith the proceeds of series K for the same amount, both series had aninscription of No. 318, dated November 26, 2002.

 

·                  OnDecember 26, 2007, the sixth issuance of UF 10,000,000 was registeredunder No. 522 and was entirely subscribed by December 18, 2008.

 

·                  AtDecember 31, 2008, the following coupons on series F were paid:

 
| Coupon 1 paid on January 29, 2008 |   | UF | 15,000 |   |
|----------------------------------------|--------|----|--------|--------|
| Coupon 2 paid on July 2008        |   | UF | 15,000 |   |

 

Risk ratings of the last two bonds issuances are asfollows:

 
| **Rating Entity**                           | ** ** | **Category** |
|---------------------------------------------|------------|--------------|
| Feller - Rate Clasificadora de Riesgo Ltda, |       | AA-          |
| Fitch Chile Clasificadora de Riesgo Ltda,   |       | AA-          |

 

Characteristics of each issuance:

 
| **Fourth  Issuance**  | ** ** | **Issuance  Terms**                                                                                                                                                                                                                                        |
|-----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                |       | Empresa Nacional de Electricidad S.A.                                                                                                                                                                                                                      |
| Securities issued     |       | Bearer bonds in local currency, denominated in UF                                                                                                                                                                                                          |
| Issuance  Value       |       | Seven  and a half million (UF 7,500,000) divided into:  Series E-1: 1000 bonds at UF 1,000 each. (Paid)  Series E-2: 500 bonds at UF 10,000 each. (Paid)  Series F: 150 bonds at UF 10,000 each.                                       |
| Indexation            |       | Based on variations in UF index                                                                                                                                                                                                                            |
| Amortization period   |       | Series F: August 1, 2022.                                                                                                                                                                                                                        |
| Early Redemption      |       | Only in the case of Series F, beginning  February 1, 2012.                                                                                                                                                                                       |
| Nominal interest rate |       | 6.2% annually, compounded on outstanding capital,  readjusted by the value of the UF. The interest rate applied semi-annually  will be equal to 3.0534%.                                                                                                   |
| Placement period      |       | 36 months from the registration date in the Chilean  Securities Register of the SVS.                                                                                                                                                                       |
| Guarantee             |       | There is no specific guarantee; however, there is a  general guarantee over the issuer’s assets.                                                                                                                                                      |
| Interest payments     |       | Interest paid semi-annually each August 1 and  February 1, starting August 1, 2001. Accrued interest as of  December 31, 2008 amounted to ThCh$ 802,411 (ThCh$ 815,600 in 2007) and  is presented under current liabilities. |

 

F-60

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.****      ****Bonds andnotes payable, continued:**

 
| **Fifth  Issuance**   | ** ** | **Issuance  Terms**                                                                                                                                                                                                                                                                                                                                                                         |
|-----------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                |       | Empresa Nacional de Electricidad S.A                                                                                                                                                                                                                                                                                                                                                        |
| Securities issued     |       | Bearer bonds in local currency, denominated in UF                                                                                                                                                                                                                                                                                                                                           |
| Issuance  Value       |       | Eight  million (UF 8,000,000) divided into:  Series K: 4,000 bonds at UF 1,000 each.   Series H: 4,000 bonds at UF 1,000 each.                                                                                                                                                                                                                                               |
| Indexation            |       | Based on variations in UF index                                                                                                                                                                                                                                                                                                                                                             |
| Amortization period   |       | Series K: April 15, 2027.  Series H: in semi-annual installments from April 15, 2010.                                                                                                                                                                                                                                                                                   |
| Early Redemption      |       | Only in the case of Series K, beginning  October 16, 2011.                                                                                                                                                                                                                                                                                                                        |
| Nominal interest rate |       | Series K: 3.8% annually, in semi-annual  installments, compounded on outstanding capital, readjusted by the value of  the UF. The interest rate applied semi-annually equal to 1.8823%.   Series H: 6.2% annually, in semi-annual installments, compounded on  outstanding capital, readjusted by the value of the UF. The interest rate  applied semi-annually equal to 3.0534%. |
| Placement period      |       | 36 months from the registration date in the Chilean  Securities Register of the SVS.                                                                                                                                                                                                                                                                                                        |
| Guarantee             |       | There is no specific guarantee; however, there is a  general guarantee over the issuer’s assets.                                                                                                                                                                                                                                                                                       |
| Interest payments     |       | Interest paid semi-annually each April 15 and  October 15, starting April 15, 2007. Accrued interest as of  December 31, 2008 amounted to ThCh$ 1,764,717 (ThCh$ 1,757,850 in 2007)  and is presented under current liabilities.                                                                                                                              |

 
| **Sixth  Issuance**   | ** ** | **Issuance  Terms**                                                                                                                                                                                                          |
|-----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                |       | Empresa Nacional de Electricidad S.A.                                                                                                                                                                                        |
| Securities issued     |       | Bearer bonds in local currency, denominated in UF                                                                                                                                                                            |
| Issuance  Value       |       | Ten  million (UF 10,000,000) divided into:   Series M: 10,000 bonds at UF 1,000 each.                                                                                                                              |
| Indexation            |       | Based on variations in UF index                                                                                                                                                                                              |
| Amortization period   |       | Semi-annual installments from June 15, 2019.                                                                                                                                                                            |
| Early Redemption      |       | Beginning December 15, 2011.                                                                                                                                                                                            |
| Nominal interest rate |       | 4.75% annually, in semi-annual installments,  compounded on outstanding capital, readjusted by the value of the UF. The  interest rate applied semi-annually will be equal to 2.34740%.                                      |
| Placement period      |       | 36 months from the registration date in the Chilean  Securities Register of the SVS.                                                                                                                                         |
| Guarantee             |       | There is no specific guarantee; however, there is a  general guarantee over the issuer’s assets.                                                                                                                        |
| Interest payments     |       | Interest paid semi-annually each June 15 and  December 15, starting June 15, 2009. Accrued interest as of  December 31, 2008 amounted to ThCh$ 419,648 and is presented under  current liabilities. |

 

F-61

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**19.****      ****Bonds andnotes payable, continued:**

** **

2) The Company has issued and placed four public bondofferings in the international market as follows:

 

Risk ratings of the bonds are as follows as of thedate of these financial statements:

 
| **Rating Entity**                | ** ** | **Category** |
|----------------------------------|------------|--------------|
| Standard &  Poor’s |       | BBB          |
| Moody’s  Investors Services |       | Baa3         |
| Fitch                            |       | BBB          |

** **
| **First  Issuance**    | ** ** | **Issuance  Terms**                                                                                                                                                                                                                                                     |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Empresa Nacional de Electricidad S.A.                                                                                                                                                                                                                                   |
| Securities issued      |       | Notes denominated in dollars (Yankee bonds) registered  in the SEC.                                                                                                                                                                                                     |
| Issuance Value         |       | Six hundred and fifty million US Dollars (US$ 650,000,000) divided into:   Tranche 1:US$ 230,000,000  Tranche 2:US$ 220,000,000  Tranche 3:US$ 200,000,000                                                                                          |
| Indexation             |       | Variation of the US Dollar                                                                                                                                                                                                                                              |
| Capital Amortization   |       | Tranche 1 full expiration on February 1, 2027.                                                                                                                                                                                                                     |
|                   |       | Tranche  2 full expiration on February 1, 2037, (put option exercisable on  February 1, 2009, on which date the holders may redeem 100% of the  securities plus accrued interest). Tranche 3 full expiration on February 1,  2097                        |
| Nominal  interest rate |       | Tranche  1: 7.875% annually  Tranche 2: 7.325% annually  Tranche 3: 8.125% annually                                                                                                                                                                                     |
| Interest Payments      |       | Interest paid semi-annually each February 1 and  August 1 annually, starting January 27, 1997. Accrued interest as  of December 31, 2008 amounts to ThCh$ 9,443,838 (ThCh$ 8,140,922 in  2007), which is shown under current liabilities. |

 
| **Second  Issuance**   | ** ** | **Issuance  Terms**                                                                                                                                                                                                                                           |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Empresa Nacional de Electricidad S.A.                                                                                                                                                                                                                         |
| Securities issued      |       | Notes denominated in dollars (Yankee bonds)  registered in the SEC.                                                                                                                                                                                           |
| Issuance Value         |       | Four hundred million US Dollars (US$ 400,000,000)                                                                                                                                                                                                        |
| Indexation             |       | Variation in the US Dollar                                                                                                                                                                                                                                    |
| Capital amortization   |       | Tranche 1 full expiration on July 15, 2008.                                                                                                                                                                                                              |
| Nominal  interest rate |       | Tranche  1: 7.75% annually                                                                                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually each January 15 and  July 15 annually, starting January 15, 1999, as of  December 31, 2008 no accrued interest had been recorded (ThCh$ 7,688,316  in 2007), since the bonds had been entirely redeemed. |

 
| **Third  Issuance**    | ** ** | **Issuance  Terms**                                                                                                                                                                                                                                             |
|------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Empresa Nacional de Electricidad S.A.                                                                                                                                                                                                                           |
| Securities issued      |       | Notes denominated in dollars (Yankee bonds)  registered in the SEC.                                                                                                                                                                                             |
| Issuance Value         |       | Four hundred million US Dollars (US$ 400,000,000)                                                                                                                                                                                                          |
| Indexation             |       | Variation in the US Dollar                                                                                                                                                                                                                                      |
| Capital amortization   |       | Tranche 1 full expiration on April 1, 2009.                                                                                                                                                                                                                |
| Nominal  interest rate |       | Tranche  1: 8.50% annually                                                                                                                                                                                                                                      |
| Interest Payments      |       | Interest paid semi-annually each October 1 and  April 1 annually, starting October, 1 1999. Accrued interest as of December 31,  2008 amounts to ThCh$ 5,409,825 (ThCh$ 4,599,462 in 2007), which is shown  under current liabilities. |

 

F-62

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.  Bondsand notes payable, continued:**

 
| **Fourth  Issuance**   | ** ** | **Issuance  Terms**                                                                                                                                                                                                                                                           |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Empresa Nacional de Electricidad S.A.                                                                                                                                                                                                                                         |
| Securities issued      |       | Bonds denominated in dollars under the  Rule 144-A, with SEC registration rights, and “Regulation S”.                                                                                                                                                          |
| Issuance Value         |       | Six hundred million dollars (US$ 600,000,000)  divided in two tranches.                                                                                                                                                                                                  |
| Indexation             |       | Variation in the US Dollar                                                                                                                                                                                                                                                    |
| Capital amortization   |       | Tranche 1: expiration on August 1, 2013: US  Dollars 400,000,000;  Tranche 2: expiration on August 1, 2015: US Dollars 200,000,000                                                                                                                                  |
| Nominal  interest rate |       | Tranche  1: 8.35% annually Tranche 2: 8.625% annually                                                                                                                                                                                                                         |
| Interest Payments      |       | Interest will be paid semi-annually each  February 1 and August 1 annually, starting July 23, 2003.  Accrued interest as of December 31, 2008 amounts to ThCh$ 13,431,747(ThCh$ 11,419,744 in 2007), which is shown under current  liabilities. |

** **

Repurchase of Yankee Bonds

 

During November 2001, the Company’s formersubsidiary Compañía Eléctrica Cono Sur S.A. made a tender offer to repurchaseall of a portion of the First Issuance of the following series of Yankee Bonds:

 

· Tranche 1:  US$230,000,000; 30 years term with maturity in 2027.

· Tranche 3:  US$200,000,000; 100 years term with maturity in 2097.

 

As of result the Company repurchased a total of US$24,119,000 and US$ 159,584,000 of tranches 1 and 3 bonds, respectively, withaccrued interest, at prices of US$ 21,324,000 and US$ 134,828,000 for tranches1 and 3, respectively.

 

On December 31, 2008, the Company redeemed therepurchased bonds entirely.

 

F-63

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.  Bondsand notes payable, continued:**

** **

*Edegel S.A.*

* *

Edegel S.A. made twenty eight bond issues in 2008. Thefollowing bonds had not matured as of December 31, 2008:

** **
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                           |
|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                           |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                          |
| Securities issued      |       | Marketable securities denominated in dollars (10,000  bonds).                                                                                                                        |
| Issuance Value         |       | One hundred and ten million dollars (US$10,000,000)                                                                                                                                  |
| Capital  amortization  |       | Full  expiration as of January 26, 2009                                                                                                                                         |
| Nominal  interest rate |       | 3.75%  annually .                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 102,097 (ThCh$ 86,804 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                            |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                            |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                           |
| Securities issued      |       | Marketable securities denominated in dollars (10,000  bonds).                                                                                                                         |
| Issuance Value         |       | Ten million dollars (US$ 10,000,000).                                                                                                                                            |
| Capital  amortization  |       | Full  expiration as of July 26, 2009                                                                                                                                             |
| Nominal  interest rate |       | 4.94%  annually.                                                                                                                                                                      |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 134,445 (ThCh$ 165,628 in 2007) and  is shown under other current liabilities. |

** **
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated in Peruvian Soles  (14,000 bonds).                                                                                                                |
| Issuance Value         |       | Sixty million Peruvian Soles (Peruvian Soles  70,000,000)                                                                                                                           |
| Capital  amortization  |       | Full  expiration as of June 1, 2009                                                                                                                                            |
| Nominal  interest rate |       | 6.91  % annually.                                                                                                                                                                   |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 81,605 (ThCh$ 72,738 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated in Peruvian Soles  (7,000 bonds).                                                                                                                 |
| Issuance Value         |       | Thirty five million Peruvian Soles (Peruvian Soles  35,000,000)                                                                                                                     |
| Capital  amortization  |       | Full  expiration as of October 21, 2010                                                                                                                                        |
| Nominal  interest rate |       | 6.72%  annually.                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 91,298 (ThCh$ 81,378 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated in dollars (20,000  bonds).                                                                                                                       |
| Issuance Value         |       | Twenty million dollars (US$ 20,000,000)                                                                                                                                        |
| Capital  amortization  |       | Full  expiration as of November 18, 2012                                                                                                                                       |
| Nominal  interest rate |       | 6.06%  annually,                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 90,031 (ThCh$ 76,544 in 2007) and is  shown under other current liabilities. |

 

F-64

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**19.  Bondsand notes payable, continued:**

** **

*Edegel S.A.*

** **
| **Issuance Terms**    | ** ** | ** **                                                                                                                                                                          |
|-----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **            | ** ** | ** **                                                                                                                                                                          |
| Issuer                |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued     |       | Marketable securities denominated in Peruvian Soles  (5,000 bonds).                                                                                                                 |
| Issuance Value        |       | Twenty five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                     |
| Capital amortization  |       | Full  expiration as of October 20, 2013                                                                                                                                        |
| Nominal interest rate |       | 6.47%  annually.                                                                                                                                                                    |
| Interest Payments     |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 63,696 (ThCh$ 56,775 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated in Peruvian Soles  (5,000 bonds).                                                                                                                 |
| Issuance Value         |       | Twenty five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                     |
| Capital  amortization  |       | Full  expiration as of October 27, 2010                                                                                                                                        |
| Nominal  interest rate |       | 6.09%  annually.                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 54,003 (ThCh$ 48,135 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated in Peruvian Soles  (6,000 bonds).                                                                                                                 |
| Issuance Value         |       | Thirty million Peruvian Soles (Peruvian Soles  30,000,000)                                                                                                                          |
| Capital  amortization  |       | Full  expiration as of November 27, 2011                                                                                                                                       |
| Nominal  interest rate |       | 6.16%  annually.                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 34,293 (ThCh$ 30,567 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                            |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                            |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                           |
| Securities issued      |       | Marketable securities denominated in Peruvian Soles  (5,000 bonds).                                                                                                                   |
| Issuance Value         |       | Twenty-five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                       |
| Capital  amortization  |       | Full  expiration as of January 15, 2014                                                                                                                                          |
| Nominal  interest rate |       | 6.16%  annually                                                                                                                                                                       |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 142,888 (ThCh$ 127,362 in 2007) and  is shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                           |
|------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                           |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                          |
| Securities issued      |       | Marketable securities denominated Peruvian Soles  (5,000 bonds).                                                                                                                     |
| Issuance Value         |       | Twenty-five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                      |
| Capital  amortization  |       | Full  expiration as of February 22, 2011                                                                                                                                        |
| Nominal  interest rate |       | 5.91%  annually.                                                                                                                                                                     |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 106,345 (ThCh$ 94,790 in 2007) and is  shown under other current liabilities. |

 

F-65

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.  Bondsand notes payable, continued:**

** **

*Edegel S.A.*

 
| **Issuance Terms**    | ** ** | ** **                                                                                                                                                                        |
|-----------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **            | ** ** | ** **                                                                                                                                                                        |
| Issuer                |       | Edegel S.A.                                                                                                                                                                       |
| Securities issued     |       | Marketable securities denominated Peruvian Soles  (5,000 bonds).                                                                                                                  |
| Issuance Value        |       | Twenty-five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                   |
| Capital amortization  |       | Full expiration as of June 21, 2022                                                                                                                                          |
| Nominal interest rate |       | 6.31% annually.                                                                                                                                                                   |
| Interest Payments     |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 7,992 (ThCh$ 7,123 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                            |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                            |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                           |
| Securities issued      |       | Marketable securities denominated dollars (8,000  bonds).                                                                                                                             |
| Issuance Value         |       | Eight million dollars (US$8,000,000)                                                                                                                                                  |
| Capital  amortization  |       | Full  expiration as of July 18, 2011                                                                                                                                             |
| Nominal  interest rate |       | 5.97%  annually.                                                                                                                                                                      |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 136,757 (ThCh$ 116,271 in 2007) and  is shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                            |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                            |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                           |
| Securities issued      |       | Marketable securities denominated Peruvian Soles  (5,000 bonds).                                                                                                                      |
| Issuance Value         |       | Twenty five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                       |
| Capital  amortization  |       | Full  expiration as of July 3, 2019.                                                                                                                                             |
| Nominal  interest rate |       | 6.28%  annually.                                                                                                                                                                      |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 156,392 (ThCh$ 139,399 in 2007) and  is shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated Peruvian Soles  (4,000 bonds).                                                                                                                    |
| Issuance Value         |       | Twenty million Peruvian Soles (Peruvian Soles  20,000,000)                                                                                                                          |
| Capital  amortization  |       | Full  expiration as of August 31, 2014.                                                                                                                                        |
| Nominal  interest rate |       | 6.75%  annually.                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 91,153 (ThCh$ 81,248 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated Peruvian Soles  (5,000 bonds).                                                                                                                    |
| Issuance Value         |       | Twenty five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                     |
| Capital  amortization  |       | Full  expiration as of March 18, 2013.                                                                                                                                         |
| Nominal  interest rate |       | 6.50%  annually.                                                                                                                                                                    |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 93,263 (ThCh$ 83,944 in 2007) and is  shown under other current liabilities. |

 

F-66

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**19.  Bondsand notes payable, continued:**

** **

*Edegel S.A.*

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated Peruvian Soles  (5,000 bonds).                                                                                                                    |
| Issuance Value         |       | Twenty five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                     |
| Capital  amortization  |       | Full  expiration as of May 21, 2013                                                                                                                                            |
| Nominal  interest rate |       | 6.4375%  annually.                                                                                                                                                                  |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 35,316 (ThCh$ 32,286 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                                          |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                                          |
| Issuer                 |       | Edegel S.A.                                                                                                                                                                         |
| Securities issued      |       | Marketable securities denominated Peruvian Soles  (5,000 bonds).                                                                                                                    |
| Issuance Value         |       | Twenty-five million Peruvian Soles (Peruvian Soles  25,000,000)                                                                                                                     |
| Capital amortization   |       | Full expiration as of June 13, 2013.                                                                                                                                           |
| Nominal  interest rate |       | 6.625%  annually.                                                                                                                                                                   |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 16,775 (ThCh$ 14,951 in 2007) and is  shown under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                              |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                              |
| Issuer                 |       | Edegel S.A.                                                                                                                                                             |
| Securities issued      |       | Marketable securities denominated dollars (10,000  bonds).                                                                                                              |
| Issuance Value         |       | Ten million dollars (US$10,000,000)                                                                                                                                     |
| Capital  amortization  |       | Full  expiration as of January 25, 2028                                                                                                                            |
| Nominal  interest rate |       | 6.34375%  annually.                                                                                                                                                     |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 173,836 (none in 2007) and is shown  under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                              |
|------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                              |
| Issuer                 |       | Edegel S.A.                                                                                                                                                             |
| Securities issued      |       | Marketable securities nominated Peruvian Soles  (5,660 bonds).                                                                                                          |
| Issuance Value         |       | Twenty eight million three hundred thousand Peruvian  Soles (Peruvian Soles 28,300,000)                                                                                 |
| Capital  amortization  |       | Full  expiration as of March 7, 2014.                                                                                                                              |
| Nominal  interest rate |       | 6.59375%  annually.                                                                                                                                                     |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 118,646 (none in 2007) and is shown  under other current liabilities. |

 
| **Issuance Terms**     | ** ** | ** **                                                                                                                                                             |
|------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                                                             |
| Issuer                 |       | Edegel S.A.                                                                                                                                                            |
| Securities issued      |       | Marketable securities denominated dollars (9,720  bonds).                                                                                                              |
| Issuance Value         |       | Nine million seven hundred twenty thousand dollars  (US$ 9,720,000)                                                                                               |
| Capital  amortization  |       | Full  expiration as of November 12, 2014.                                                                                                                         |
| Nominal  interest rate |       | 9.00%  annually.                                                                                                                                                       |
| Interest Payments      |       | Interest paid semi-annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 74,237 (none in 2007) and is shown  under other current liabilities. |

 

F-67

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**19.  Bondsand notes payable, continued:**

** **

*Emgesa S.A.*

* *

Emgesa S.A. made four bond issues in 2008. Thefollowing bonds had not matured as of December 31, 2008:

** **
| **First  Issuance**    | ** ** | **Issuance  Terms**                                                                                                                                                             |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Emgesa S.A. (from formerly Central Hidroeléctrica de  Betania S.A. E.S.P.)                                                                                                 |
| Securities issued      |       | Ordinary bonds denominated in Colombian pesos                                                                                                                                   |
| Issuance Value         |       | Four hundred billion Colombian pesos ($Col  400,000,000,000)                                                                                                                    |
| Capital  amortization  |       | Expiration  between 2009 and 2011 at the amount of $Col 400,000,000,000                                                                                                         |
| Nominal  interest rate |       | 14.73%  effective annual rate                                                                                                                                                   |
| Interest Payments      |       | Interest paid quarterly. Accrued interest as of  December 31, 2008 amounts to ThCh$ 2,260,188 (ThCh$ 1,627,978 in 2007)  and is shown under current liabilities. |

 
| **First  Issuance**    | ** ** | **Issuance  Terms**                                                                                                                                                                         |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Emgesa S.A.                                                                                                                                                                                 |
| Securities issued      |       | Marketable securities denominated in Colombian pesos                                                                                                                                        |
| Issuance Value         |       | Five hundred and thirty billion Colombian pesos  ($Col 530,000,000,000)                                                                                                                     |
| Capital  amortization  |       | Full  expiration durante 2009 at the amount of $Col 316,744,675,710                                                                                                                         |
| Nominal  interest rate |       | 11.77%  annual average rate                                                                                                                                                                 |
| Interest Payments      |       | Interest paid quarterly and annually. Accrued  interest as of December 31, 2008 amounts to ThCh$ 2,333,080 (ThCh$ 2,027,011 in 2007) and is shown under current liabilities. |

 
| **Third  Issuance**    | ** ** | **Issuance  Terms**                                                                                                                                                             |
|------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Issuer                 |       | Emgesa S.A.                                                                                                                                                                     |
| Securities issued      |       | Marketable securities denominated in Colombian pesos                                                                                                                            |
| Issuance Value         |       | Two hundred and fifty billion of Colombian pesos  ($Col 250,000,000,000)                                                                                                        |
| Capital  amortization  |       | Full  expiration on February 23, 2015                                                                                                                                      |
| Nominal  interest rate |       | 13.15%  annual average rate                                                                                                                                                     |
| Interest Payments      |       | Interest paid annually. Accrued interest as of  December 31, 2008 amounts to ThCh$ 927,020 (ThCh$ 740,211 in 2007) and  is shown under current liabilities.      |
|                   |       |                                                                                                                                                                            |
| **Fourth  Issuance**   | ** ** | **Issuance  Terms**                                                                                                                                                             |
| Issuer                 |       | Emgesa S.A.                                                                                                                                                                     |
| Securities issued      |       | Ordinary bonds denominated in Colombian pesos                                                                                                                                   |
| Issuance Value         |       | One hundred seventy billion Colombian pesos ($Col  170,000,000,000)                                                                                                             |
| Capital  amortization  |       | Full  expiration on February 20, 2017                                                                                                                                      |
| Nominal  interest rate |       | 13.28%  annual average rate                                                                                                                                                     |
| Interest Payments      |       | Interest paid quarterly. Accrued interest as of  December 31, 2008 amounts to ThCh$ 5,544,669 (ThCh$ 4,270,761 in 2007) and  is shown under current liabilities. |

 

The discount of the above mentioned bonds was deferredand recorded under the caption Other Assets in the year of the respectiveissuance. As of December 31, 2007 and 2008, such discounts amounted toThCh$ 7,523,412 and ThCh$ 8,104,292, respectively.

 

F-68

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**20.  Accrued liabilities:**

** **

The accrued expenses included in short-term and long-termliabilities as of each year end are as follows:

 
| ** **                                                     | ** ** | **Short-term**              | ** ** | **Long-term**               | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **As of December 31,** | ** ** | **As of December 31,** | ** ** |
| ** **                                                     | ** ** | **2007**                    | ** ** | **2008**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                     | ** ** | **ThCh$**                   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                           |       |                        |       |                        |       |   |   |   |   |
| Employee salaries                                              |       | 10,895,457                  |       | 15,856,229                  |       | — |   | — |   |
| Provision for contingences, lawsuits, and others               |       | 7,472,746                   |       | 12,094,488                  |       | — |   | — |   |
| Provision for expenses, costs and investments                  |       | 10,874,311                  |       | 5,240,472                   |       | — |   | — |   |
| Post retirement benefits                                       |       | —                      |       | —                      |       | 4,351,565 |   | 3,822,534 |   |
| Employee severance indemnities (Note 21)                       |       | 14,328                      |       | —                      |       | 6,997,150 |   | 7,277,677 |   |
| Pensions and post-retirement benefits of  foreign subsidiaries |       | —                      |       | —                      |       | 18,404,557 |   | 19,247,134 |   |
| Others                                                         |       | 2,906,056                   |       | 553,567                     |       | 584,447 |   | 25,208 |   |
| Total                                                          |       | 32,162,898                  |       | 33,744,756                  |       | 30,337,719 |   | 30,372,553 |   |

 

**21.  Staff Severance Indemnities:**

** **

This caption within long-term accruals include severanceindemnities to personnel, calculated in accordance with the policy described inNote 2 (r), and an analysis of the changes in the accrual in each year is asfollows:

 
| ** **                           | ** ** | **As of December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                           | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                                 |       |                        |       |   |   |
| Opening balance as of January 1 |       | 6,950,223                   |       | 6,997,150 |   |
| Net increase in accrual              |       | 877,830                     |       | 828,170 |   |
| Payments during the year             |       | (830,903                    | )          | (547,643 | ) |
| Total                                |       | 6,997,150                   |       | 7,277,677 |   |

 

F-69

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**22.****          ****Minority interest:**

** **

The information presented below represents the participationby non-controlling shareholders in the legal entities presented below.  As a result the economic participation by minorityinterest shareholders may be larger at the consolidated level of Endesa Chile.

 

a.               Minorityshareholders’ participation in the shareholders’ equity of the Company’ssubsidiaries as of each year-end is as follows:

 
| ** **                                   | ** ** | **As of December 31, 2007** | ** ** | **As of December 31, 2008** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|----------------------------------|------------|
| **Company**                                  | ** ** | **Equity**                       | ** ** | **Participation**                | ** ** | **Total** | ** ** | **Equity** | ** ** | **Participation** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **ThCh$**                        | ** ** | **%**                            | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **%** | ** ** | **ThCh$** | ** ** |
| Endesa Costanera S.A. (2)                    |       | 129,922,855                      |       | 30.23                            | %          | 39,282,055 |   | 146,468,784 |   | 30.23 | % | 44,284,702 |   |
| Edegel S.A.                                  |       | 443,276,162                      |       | 44.56                            | %          | 197,512,656 |   | 542,604,216 |   | 45.80 | % | 248,514,901 |   |
| Emgesa S.A. (1)                              |       | 747,460,237                      |       | 73.13                            | %          | 546,609,664 |   | 945,683,872 |   | 73.13 | % | 691,540,911 |   |
| Empresa Eléctrica Pangue S.A.           |       | 128,603,931                      |       | 5.01                             | %          | 6,451,030 |   | 150,796,031 |   | 5.01 | % | 7,564,231 |   |
| Endesa Argentina S.A.                        |       | 146,354,700                      |       | 0.01                             | %          | 14,635 |   | 167,765,147 |   | 0.01 | % | 16,777 |   |
| Generandes Perú S.A.                    |       | 225,066,542                      |       | 40.37                            | %          | 90,857,157 |   | 272,448,080 |   | 39.00 | % | 106,259,110 |   |
| Hidroeléctrica El Chocón S.A.  (3) |       | 185,335,604                      |       | 32.33                            | %          | 59,911,588 |   | 207,232,574 |   | 32.33 | % | 66,990,002 |   |
| Hidroinvest S.A. (4)                         |       | 112,899,066                      |       | 3.91                             | %          | 4,409,161 |   | 131,448,184 |   | 3.91 | % | 5,133,577 |   |
| Pehuenche S.A.                               |       | 282,546,801                      |       | 7.35                             | %          | 20,767,190 |   | 304,930,787 |   | 7.35 | % | 22,412,413 |   |
| Total                                        |       |                             |       |                             |       | 965,815,136 |   |   |   |   |   | 1,192,716,624 |   |

 

----

(1) See Notes 11 (c) (ii),11 (d) (i).  and 11 (e) (i).

(2) See Note 11 (d) (v) and 11 (d) (v).

(3) See Note 11 (d) (v.).

(4) See Note 11 (d) (v).

 

b.     Minority shareholders’ equity participationin the results from operations of the Company’s subsidiaries for each year isas follows:

 
| ** **                              | ** ** | **Year-ended  December 31, 2006** | ** ** | **Year-ended  December 31, 2007** | ** ** | **Year-ended  December 31, 2008** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|----------------------------------------|------------|
| ** **                              | ** ** | **Net**                                | ** ** | ** **                             | ** ** | ** **                             | ** ** | **Net** | ** ** | ** ** | ** ** | ** ** | ** ** | **Net** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Company**                             | ** ** | **Income**                             | ** ** | **ParticiPation**                      | ** ** | **Total**                              | ** ** | **Income** | ** ** | **Participation** | ** ** | **Total** | ** ** | **Income** | ** ** | **Participation** | ** ** | **Total** | ** ** |
| ** **                              | ** ** | **ThCh$**                              | ** ** | ** **                             | ** ** | **ThCh$**                              | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** |
| Endesa Costanera  S.A.                  |       | (7,236,116                             | )          | 35.74                                  | %          | (2,585,819                             | )          | (12,125,856 | ) | 30.23 | % | (3,666,242 | ) | (6,344,711 | ) | 30.23 | % | (1,918,318 | ) |
| Edegel S.A.                             |       | 10,102,858                             |       | 44.56                                  | %          | 4,501,579                              |       | 4,141,590 |   | 44.56 | % | 1,845,388 |   | 42,835,262 |   | 45.80 | % | 19,606,857 |   |
| Emgesa S.A.                             |       | 73,270,271                             |       | 76.55                                  | %          | 56,086,122                             |       | 55,552,308 |   | 73.13 | % | 50,415,261 |   | 185,177,674 |   | 73.13 | % | 135,413,050 |   |
| Empresa Eléctrica Pangue S.A.      |       | 45,553,449                             |       | 5.01                                   | %          | 2,285,052                              |       | 37,176,490 |   | 5.01 | % | 1,864,847 |   | 59,061,346 |   | 5.01 | % | 2,962,635 |   |
| Endesa Argentina  S.A.                  |       | (2,822,942                             | )          | 0.01                                   | %          | (282                                   | )          | 41,777,734 |   | 0.01 | % | 4,177 |   | (2,825,294 | ) | 0.01 | % | (283 | ) |
| Generandes Perú  S.A.              |       | 7,453,707                              |       | 40.37                                  | %          | 3,008,988                              |       | 3,827,262 |   | 40.37 | % | 1,545,029 |   | 24,148,892 |   | 39.00 | % | 9,433,768 |   |
| Hidroeléctrica El Chocón S.A. |       | 16,161,552                             |       | 34.81                                  | %          | 5,625,836                              |       | 9,599,349 |   | 32.33 | % | 3,115,153 |   | (2,137,199 | ) | 32.33 | % | (690,871 | ) |
| Hidroinvest S.A.                        |       | 7,812,532                              |       | 30.07                                  | %          | 2,349,228                              |       | 22,768,646 |   | 3.91 | % | 1,152,299 |   | 467,468 |   | 3.91 | % | 18,256 |   |
| Pehuenche S.A.                          |       | 79,136,500                             |       | 7.35                                   | %          | 5,816,532                              |       | 151,089,268 |   | 7.35 | % | 11,105,061 |   | 215,800,169 |   | 7.35 | % | 15,861,312 |   |
| Tunel el Melon                          |       | 2,065,788                              |       | 0.05                                   | %          | 1,032                                  |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Betania                                 |       | 1,185,578                              |       | 0.01                                   | %          | 72                                     |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Total                                   |       |                                   |       |                                   |       | 77,088,340                             |       |   |   |   |   | 67,380,973 |   |   |   |   |   | 180,686,406 |   |

 

F-70

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**23.****          ****Shareholders’ equity:**

** **

a.               Dividends

 

In accordance with Law 18.046, the Company must declare aminimum dividend. This minimum dividend amounts to 30% of consolidated netincome before consolidated amortization of negative goodwill.  The Company paid dividends to shareholdersduring 2006, 2007 and 2008 related to 2005, 2006, 2007 and 2008 net income, asfollows:

 
| ** **         | ** ** | **Historical value**   | ** ** | ** **           |
|--------------------|------------|------------------------|------------|----------------------|
| **Payment date**   | ** ** | **Ch$ per share** | ** ** | **Type of dividend** |
|               |       |                   |       |                 |
| April 2002    |       | 0.94000                |       | Final                |
| April 2004    |       | 2.30000                |       | Final                |
| April 2005    |       | 4.13000                |       | Final                |
| March 2006    |       | 5.82000                |       | Final                |
| December 2006 |       | 2.57000                |       | Interim              |
| May 2007      |       | 10.84000               |       | Final                |
| December 2007 |       | 2.1926                 |       | Interim              |
| April 2008    |       | 11.56470               |       | Final                |
| December 2008 |       | 5.35120                |       | Interim              |

 

b.     Number ofshares

 

Duringeach of the years ended December 31, 2006, 2007 and 2008, the number ofshares authorized, subscribed, outstanding and paid for was 8,201,754,580, allof which having voting rights**.**

 

c.     Subscribedand paid-in capital

 

Subscribedand paid-in capital as of December 31, 2006, 2007 and 2008 amounted to ThCh$ 1,331,714,085.

 

F-71

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**23.****          ****Shareholders’ equity, continued:**

** **

d.     Otherreserves

 

Otherreserves are composed of the following as of December 31, of each year:

 
| ** **                                                                                                  | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                  | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                                                                                  | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                                                                                                        |       |                        |       |   |   |
| Accumulated capital revaluation                                                                             |       | 2,114,927                   |       | 2,114,927 |   |
| Revaluation of property, plant and equipment under Decree Law  No. 4                                   |       | 1,450,000                   |       | 1,449,999 |   |
| Other revaluations                                                                                          |       | 94,357                      |       | 94,356 |   |
| Reserve for technical revaluation of property, plant and equipment  (Circulars 550 and 566)                 |       | 36,272,954                  |       | 36,272,954 |   |
| Reserve for technical revaluation of investments in subsidiaries  subsequently sold (Circulars 550 and 566) |       | 30,502,828                  |       | 30,502,828 |   |
| Equity adjustment of unconsolidated subsidiaries                                                            |       | (413,305                    | )          | (413,305 | ) |
| Reserve for reorganization of entities under common control                                                 |       | (150,668,583                | )          | (150,668,584 | ) |
| Reduction of capital in foreign subsidiaries                                                                |       | (7,698,843                  | )          | (7,698,843 | ) |
| Accumulated translation adjustment of Chilean entities reporting in  foreign currency                       |       | (33,870,779                 | )          | (14,716,325 | ) |
| Accumulated foreign currency translation adjustment related to  foreign subsidiaries, net (1)               |       | (54,188,881                 | )          | (57,552,422 | ) |
| Total                                                                                                       |       | (176,405,325                | )          | (160,614,415 | ) |

 

----

| (1) |   | The  detail of the net cumulative translation adjustment for foreign currency  gains and losses on liabilities and net investments measured in currencies  other than the Chilean peso as of December 31, 2006, 2007 and 2008,  respectively are as follows: |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| ** **                          | ** ** | **As of December 31,** | ** ** |
|-------------------------------------|------------|-----------------------------|------------|
| ** **                          | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                          | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                |       |                        |       |   |   |   |   |
| Endesa Argentina S.A.               |       | (5,358,148                  | )          | (12,557,381 | ) | (5,677,519 | ) |
| Endesa Chile Internacional          |       | 2,085,343                   |       | 2,085,342 |   | 2,085,342 |   |
| Distrilec Inversora S.A.            |       | (127,986                    | )          | (294,823 | ) | (80,135 | ) |
| Gas Atacama                         |       | —                      |       | (315 | ) | 25 |   |
| Electrogas                          |       | —                      |       | (516 | ) | (245 | ) |
| Inversiones Electrogas              |       | —                      |       | (740,987 | ) | (115,890 | ) |
| Hidroeléctrica El Chocón  |       | —                      |       | 195,726 |   | (69,931 | ) |
| Hidroinvest                         |       | —                      |       | (3,058,330 | ) | (197,059 | ) |
| Southern Cone Power Argentina, S.A. |       | —                      |       | (721,077 | ) | 122,206 |   |
| Ingendesa Do Brasil Ltda.           |       | (271,538                    | )          | (452,453 | ) | 640 |   |
| Endesa Costanera S.A.               |       | (1,507,754                  | )          | (3,061,830 | ) | (1,046,979 | ) |
| Endesa Brasil S.A.                  |       | —                      |       | (18,547,471 | ) | (21,581,342 | ) |
| Enigesa S.A.                        |       | —                      |       | — |   | (131,604 | ) |
| Ingendesa S.A.                      |       | —                      |       | — |   | (148,852 | ) |
| Emgesa S.A                          |       | —                      |       | (12,406,185 | ) | (33,310,682 | ) |
| Edegel S.A                          |       | —                      |       | (4,628,581 | ) | 2,599,603 |   |
| C.H. Betania S.A                    |       | (211,282                    | )          | — |   | — |   |
| Cono Sur S.A.                       |       | (32,521,432                 | )          | — |   | — |   |
| Total                               |       | (37,912,797                 | )          | (54,188,881 | ) | (57,552,422 | ) |

 

F-72

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**24.****          ****Other income and expenses:**

 

a.               The detail of other non-operating income in each yearis as follows:

 
| ** **                                        | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------|------------|----------------------------------|------------|
| ** **                                        | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                        | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                              |       |                             |       |   |   |   |   |
| Gain from foreign currency transaction            |       | 40,417                           |       | 99,237 |   | 46,735,217 |   |
| Gain on sale of property, plant and equipment     |       | 3,888,814                        |       | 489,269 |   | 505,774 |   |
| Energy and power contract settlement              |       | 5,944,656                        |       | 7,035,141 |   | 20,927,728 |   |
| Indemnities and commissions                       |       | 9,335,126                        |       | 2,344,556 |   | 2,083,493 |   |
| Gains on service and other contracts              |       | 637,983                          |       | 231,726 |   | 850,757 |   |
| Gain on sale of investments                       |       | —                           |       | 3,351,925 |   | — |   |
| Recovery of expenses and clients’ portfolios |       | 1,027,210                        |       | 2,582,587 |   | 3,114,376 |   |
| Reversal of contingency provision                 |       | 10,165,978                       |       | 957,033 |   | 587,086 |   |
| Other                                             |       | 4,009,557                        |       | 2,419,384 |   | 4,428,414 |   |
| Total                                             |       | 35,049,741                       |       | 19,510,858 |   | 79,232,845 |   |

 

b.              Other non-operating expenses in each year are asfollows:

 
| ** **                                      | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------|------------|----------------------------------|------------|
| ** **                                      | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                      | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                            |       |                             |       |   |   |   |   |
| Loss from foreign currency transaction          |       | 18,354,140                       |       | 44,427,419 |   | 6,973,089 |   |
| Loss on sale of property, plant and equipment   |       | 203,035                          |       | 76,577 |   | 716,437 |   |
| Costs of sales of property, plant and equipment |       | 652,428                          |       | — |   | — |   |
| Obsolescence provision of fixes assets          |       | —                           |       | — |   | 1,327,027 |   |
| Retirement benefits and severance indemnities   |       | 1,256,576                        |       | 850,243 |   | 871,549 |   |
| Board of directors compensation                 |       | 281,826                          |       | 295,592 |   | 216,168 |   |
| Contingencies and litigation                    |       | 9,608,563                        |       | 13,207,932 |   | 8,315,954 |   |
| Energy and power settlement                     |       | 7,680,162                        |       | 9,260,626 |   | 28,883,052 |   |
| Tax penalties                                   |       | 3,495,832                        |       | 3,695,267 |   | 2,102,707 |   |
| Tax on equity, Colombia                         |       | 3,481,437                        |       | 15,286,613 |   | 5,323,658 |   |
| Tax on liquidation/dissolution of subsidiaries  |       | —                           |       | — |   | 18,594,642 |   |
| Other                                           |       | 5,942,197                        |       | 5,737,907 |   | 6,769,675 |   |
| Total                                           |       | 50,956,196                       |       | 92,838,176 |   | 80,093,958 |   |

 

F-73

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Tableof Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**25.****          ****Price-level restatement:**

** **

The gain (loss) from price-level restatement as of each yearis as follows:

 
| ** **                                                                | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| **Assets and expenses**                                                   |       |                             |       |   |   |   |   |
|                                                                      |       |                             |       |   |   |   |   |
| Current assets                                                            |       | 6,734,971                        |       | 943,273 |   | 6,542,725 |   |
| Accounts receivable from subsidiaries                                     |       | 2,135,696                        |       | 8,801,599 |   | 9,686,156 |   |
| Property, plant and equipment                                             |       | 44,675,434                       |       | 158,434,824 |   | 193,893,936 |   |
| Investment in subsidiaries                                                |       | 11,545,333                       |       | 42,167,977 |   | 39,518,863 |   |
| Goodwill and negative goodwill                                            |       | (557,797                         | )          | (3,328,016 | ) | (2,988,542 | ) |
| Other assets                                                              |       | 19,561,034                       |       | 84,863,853 |   | 56,712,238 |   |
| Expense accounts                                                          |       | 5,771,919                        |       | 46,730,823 |   | 59,199,643 |   |
| Net gain from asset and expense accounts                                  |       | 89,866,590                       |       | 338,614,333 |   | 362,565,019 |   |
|                                                                      |       |                             |       |   |   |   |   |
| **Liabilities, shareholders’ equity and income**                     |       |                             |       |   |   |   |   |
|                                                                      |       |                             |       |   |   |   |   |
| Shareholders’ equity                                                 |       | (38,989,598                      | )          | (137,952,661 | ) | (160,229,407 | ) |
| Current and long-term liabilities                                         |       | (36,028,880                      | )          | (119,839,352 | ) | (112,678,576 | ) |
| Minority interest                                                         |       | (3,305,612                       | )          | (9,027,999 | ) | (8,856,880 | ) |
| Income acocounts                                                          |       | (9,802,752                       | )          | (62,151,898 | ) | (80,375,511 | ) |
| Net loss from Liabilities, shareholders’ equity  and income accounts |       | (88,126,842                      | )          | (328,971,910 | ) | (362,140,374 | ) |
|                                                                      |       |                             |       |   |   |   |   |
| Net gain from price level restatement                                     |       | 1,739,748                        |       | 9,642,423 |   | 424,645 |   |

 

F-74

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Table ofContents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**26.****          ****Foreign currency translation:**

** **

The (charge)credit to income for foreign currency translation as of each year is asfollows:

** **

** **

 
| ** **                            | ** ** | ** **   | ** ** | **As of December 31,** | ** ** |
|---------------------------------------|------------|--------------|------------|-----------------------------|------------|
| **Current assets**                    | ** ** | **Currency** | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                            | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                  |       |         |       |                        |       |   |   |   |   |
| **Assets**                            |       |         |       |                        |       |   |   |   |   |
| Cash                                  |       | US$          |       | 493,518                     |       | 369,035 |   | 619,136 |   |
|                                  |       | Other        |       | (3,013                      | )          | (54,158 | ) | 14,627 |   |
| Time deposits                         |       | US$          |       | (528,968                    | )          | (167,760 | ) | 2,939,335 |   |
|                                  |       | Other        |       | —                      |       | — |   | 1,766,069 |   |
| Other accounts receivable, net        |       | US$          |       | 3,002                       |       | (490 | ) | 55,847 |   |
|                                  |       | Other        |       | 13,566                      |       | (302,229 | ) | 388,093 |   |
|                                  |       | Other        |       | (10,596                     | )          | — |   | — |   |
|                                  |       | US$          |       | —                      |       | (2,032,617 | ) | (10,405,877 | ) |
| Other current assets                  |       | US$          |       | 671                         |       | — |   | 17,734,457 |   |
|                                  |       | Other        |       | (2,891                      | )          | (959 | ) | 71,632 |   |
| Accounts due from related companies   |       | US$          |       | 168,037                     |       | — |   | — |   |
|                                  |       |         |       |                        |       |   |   |   |   |
| **Non-current assets**                |       |         |       |                        |       |   |   |   |   |
| Accounts due from related companies   |       | US$          |       | 2,641,426                   |       | (16,790,354 | ) | 19,798,866 | ** ** |
| Forward contracts                     |       | US$          |       | 43,104                      |       | — |   | — |   |
| Other non-current assets              |       | US$          |       | 11,913,525                  |       | (6,100,673 | ) | — |   |
|                                  |       |         |       |                        |       |   |   |   |   |
| Subtotal foreign currency translation |       |         |       | 14,731,381                  |       | (25,080,205 | ) | 32,982,185 |   |

 
| ** **                                                                 | ** ** | ** **   | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------------------|------------|--------------|------------|-----------------------------|------------|
| **Current liabilities**                                                    | ** ** | **Currency** | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                 | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                       |       |         |       |                        |       |   |   |   |   |
| **Liabilities**                                                            |       |         |       |                        |       |   |   |   |   |
| Short-term debt due to banks and financial  institutions                   |       | US$          |       | —                      |       | 90,581 |   | 95,481 |   |
| Current portion of long-term debt due to banks  and financial institutions |       | US$          |       | 23,501                      |       | 1,611,972 |   | 498,743 |   |
| Current portion of bonds payable                                           |       | US$          |       | (4,183,778                  | )          | 2,177,963 |   | (55,401,874 | ) |
| Current portion of long-term notes pay                                     |       | US$          |       | —                      |       | — |   | (19,493 | ) |
| Accrued liabilities                                                        |       | US$          |       | —                      |       | 620,745 |   | (1,447,082 | ) |
|                                                                       |       | Other        |       | 2,166                       |       | (13,881 | ) | (18,554 | ) |
| Miscellaneous payables                                                     |       | US$          |       | (247,304                    | )          | 893,732 |   | (251,914 | ) |
| Other current liabilities                                                  |       | US$          |       | (353,416                    | )          | (378,899 | ) | (172,182 | ) |
|                                                                       |       | Other        |       | 123                         |       | 27,224 |   | — |   |
|                                                                       |       |         |       |                        |       |   |   |   |   |
|                                                                       |       |         |       | —                      |       | — |   | — |   |
| **Long-term liabilities**                                                  |       |         |       |                        |       |   |   |   |   |
| Debt due to banks and fin. institutions                                    |       | US$          |       | 1,572,854                   |       | 23,282,378 |   | (74,921,266 | ) |
| Bonds payable                                                              |       | US$          |       | (6,755,298                  | )          | 17,217,235 |   | 75,248,554 |   |
| Accounts payable                                                           |       | US$          |       | —                      |       | 1,694,945 |   | (8,064,293 | ) |
| Other long-term liabilities                                                |       | US$          |       | (555,549                    | )          | 1,065,135 |   | — |   |
| Accts. payable to related companies                                        |       | US$          |       | (14,845                     | )          | — |   | — |   |
| Forwards                                                                   |       | US$          |       | —                      |       | (5,118,518 | ) | 908,960 |   |
| Subtotal foreign currency translation                                      |       |         |       | (10,511,547                 | )          | 43,170,611 |   | (63,544,920 | ) |
| Net effect on income                                                       |       |         |       | 4,219,834                   |       | 18,090,406 |   | (30,562,735 | ) |

 

**27.****          ****Other cash-flow items:**

** **

The detail of other disbursements for financing purposes as of December 31,2006, 2007 and 2008 are as follows:

 
| ** **                                 | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                 | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                       |       |                        |       |   |   |   |   |
| Realization of forward and swaps contracts |       | (623,605                    | )          | (501,662 | ) | (621,018 | ) |
| Revolving Facility Mitsubishi Fees         |       | (667,190                    | )          | — |   | — |   |
| Other                                      |       | (79,943                     | )          | (619,293 | ) | — |   |
| Total cash-outflow                         |       | (1,370,738                  | )          | (1,120,955 | ) | (621,018 | ) |

 

F-75

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**27.****          ****Other cash-flow items, continued:**

** **

Cash flows related to other receipts from investment activities are asfollows:

 
| ** **                                                                    | ** ** | **Year ended December, 31** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                    | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                    | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                                                    | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Forward                                                                       |       | —                      |       | — |   | 2,428 |   |
| Sale of participation in Gas Atacama to  Southern Cross (1)                   |       | —                      |       | 47,014,775 |   | — |   |
| Receipt of Loans granted to former subsidiaries  of Infraestructura 2000 S.A. |       | 634,900                     |       | — |   | — |   |
| Others                                                                        |       | 577,172                     |       | — |   | 11,777 |   |
| Total Cash flows related to other receipts from investments                   |       | 1,212,072                   |       | 47,014,775 |   | 14,205 |   |

** **

Cash flows related to other disbursements from investment activities areas follows:

 
| ** **                                                       | ** ** | **Year ended December, 31** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                       | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                       | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                                       | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| Liquidation Swap                                                 |       | —                      | ** ** | **—** |   | (3,785,243 | ) |
| Intangibles                                                      |       | —                      | ** ** | **—** |   | (3,998,246 | ) |
| Purchase of participation in Gas Atacama from  CMS (1)           |       | —                      |       | (47,200,351 | ) | — |   |
| Others                                                           |       | —                      |       | (352,803 | ) | (533,742 | ) |
| Total Cash flows related to other disbursements from investments |       | —                      |       | (47,553,154 | ) | (8,317,231 | ) |

 

----

(1) OnJune 30, 2007, the Company notified CMS Enterprises Company (the entitycontrolling 50% of Inversiones Gas Atacama Holding and subsidiaries) of itsdecision to exercise its right of first offer to purchase the interest held byCMS Enterprises Company in Inversiones Gas Atacama Holding for US$ 80 million.Included in this amount was the purchase of a sponsor loan that CMS had grantedto Inversiones Gas Atacama Holding and its subsidiaries.

 

Onthe same date, the Company and Southern Cross Latin America Private Equity FundIII L.P. (“Southern Cross”) subscribed a sale and purchase agreement for theCompany’s 50%participation in Inversiones Gas Atacama Holding S.A. and itssubsidiaries and in its sponsor loans to Southern Cross for the amount of US$80 million.

 

TheCompany, by exercising its right of first offer to purchase from CMS andselling this participation on the same date and in a linked transaction toSouthern Cross acted as an agent and thus did not record any gains or lossesrelated to the sale and purchase of the participation.

 

F-76

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**28.****          ****Financial derivatives:**

** **

As of December 31, 2008, the Company and its subsidiariesheld the following financial derivative contracts with financial institutionswith the objective of decreasing exposure to interest rates and foreigncurrency risk:

 
| ** ** | ** ** | ** **  | ** ** | ** **            | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | **As of December 31, 2008** | ** ** |
|------------|------------|-------------|------------|-----------------------|------------|----------------|------------|------------------|------------|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **Nominal** | ** ** | **Period**            | ** ** | ** **     | ** ** | ** **       | ** ** | ** ** | ** ** | **Hedged**                       | ** ** | **Deferred** | ** ** |
| **Type**   | ** ** | **amount**  | ** ** | **Of**                | ** ** | ** **     | ** ** | **Sales (S)/**   | ** ** | **Hedged** | ** ** | **Amount**                       | ** ** | **Fair Value  Change** | ** ** |
| **(1)**    | ** ** | **US$**     | ** ** | **Maturity**          | ** ** | **Item**       | ** ** | **Purchase (P)** | ** ** | **Item**   | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** |
| EO         |       | 40,000,000  |       | 3rd Quarter 2010 |       | Interest  rate |       | P/S              |       | Bank-debt  |       | 25,458,000                       |       | (4,325 | ) |
| EO         |       | 40,000,000  |       | 3rd Quarter 2009 |       | Interest  rate |       | P/S              |       | Bank-debt  |       | 25,458,000                       |       | (3,794 | ) |
| EO         |       | 20,000,000  |       | 4th Quarter 2009 |       | Interest  rate |       | P/S              |       | Bank-debt  |       | 12,729,000                       |       | (1,799 | ) |
| S          |       | 44,166,667  |       | 3rd Quarter 2011 |       | Interest  rate |       | P                |       | Bank-debt  |       | 28,109,875                       |       | (1,031,634 | ) |
| S          |       | 57,020,000  |       | 4th Quarter 2012 |       | Interest  rate |       | P                |       | Bank-debt  |       | 36,290,380                       |       | (3,120,587 | ) |
| S          |       | 30,000,000  |       | 1st Quarter 2013 |       | Interest rate  |       | P                |       | Bank-debt  |       | 19,093,500                       |       | (843,690 | ) |

 

----

(1) EO= European Option, S = Swap

 

**29.****          ****Commitments and contingencies:**

** **

The detail of liens and guaranties granted by the Company and its subsidiariesas of December 31, 2008, is as follows:

 

a.     Liens held by third parties:

** **
| ** **                                           | ** ** | ** **                          | ** ** | **As of December 31, 2008**                                            | ** ** |
|------------------------------------------------------|------------|-------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                                           | ** ** | ** **                          | ** ** | **Book value of remaining  encumbered assets and schedule to be  released** | ** ** |
| **Guarantee**                                        | ** ** | **Subsidiary**                      | ** ** | **2008**                                                                    | ** ** | **2009-2010** | ** ** | **After 2010** | ** ** | **Total** | ** ** |
| ** **                                           | ** ** | ** **                          | ** ** | **ThCh$**                                                                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Banks                                                |       | Pangue S.A.                         |       | 1,586,879                                                                   |       | — |   | — |   | 1,586,879 |   |
| Soc. de Energía de la  República Argentina |       | Endesa Argentina, Endesa  Costanera |       | 6,289,281                                                                   |       | — |   | — |   | 6,289,281 |   |
| Mitsubishi                                           |       | Endesa Costanera                    |       | 48,567,006                                                                  |       | — |   | — |   | 48,567,006 |   |
| Credit Suisse First Boston                           |       | Endesa Costanera                    |       | 25,458,000                                                                  |       | — |   | — |   | 25,458,000 |   |
| Miscellaneous                                        |       | Endesa parent company               |       | 508,461                                                                     |       | — |   | — |   | 508,461 |   |
| Miscellaneous                                        |       | Edegel                              |       | 57,563,928                                                                  |       | — |   | — |   | 57,563,928 |   |
| Banco Santander (agente de  garantía)           |       | G.N.L.  Quintero                    |       | 94,205,737                                                                  |       | — |   | — |   | 94,205,737 |   |
| Total                                                |       |                                |       | 234,179,292                                                                 |       | — |   | — |   | 234,179,292 |   |

 

b.     No guarantees of subsidiaryobligations existed at December 31, 2008.

 

F-77

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Tableof Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**29.****          ****Commitments and contingencies,continued:**

** **

c.     Litigation and other legalactions:

 

TheCompany is party to various lawsuits arising in the ordinary course of itsbusiness.  Management considers itunlikely that any losses associated with the pending lawsuits described belowwill significantly affect the Company or it subsidiaries’ results ofoperations, financial position and cash flows, although no assurance can begiven to such effect.  Accordingly, theCompany has established a provision for these lawsuits of ThCh$ 7,472,746  and ThCh$ 12,094,488as of December 31, 2007 and 2008,respectively, which Management considers to be adequate.  Management does not believe that it isreasonably possible that the Company will incur losses in excess of theestablished provision.

 

The following is a detailof significant pending lawsuits that have been filed against the Company, itssubsidiaries and equity method investees. The lawsuits are detailed by Company and the descriptions provide the courtof law overseeing the lawsuit, a legal reference number, the parties, a generaldescription of the lawsuit, the process status of the lawsuit and the amountsinvolved in the lawsuit.  The mostrelevant cases are detailed below.

 

*Endesa Chile*

* *
| i. Court:        |   | 7th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 8895-2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiffs:      |   | Juan Francisco Aranguiz Córdova plus 24 other  people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Defendant:       |   | PANGUE S.A. (“Pangue”) and Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Cause:           |   | The plaintiffs, former shareholders of Pangue, seek  annulment of a contract signed on September 25, 2000, between this  company and Endesa Chile to establish a voluntary easement over Pangue’s  water rights in favor of Endesa Chile, allowing the point of restitution of  the Ralco Power Plant, located upstream, to occupy the final part of the  tailwaters of the Pangue reservoir. They also claim that, as a consequence of  signing this contract, their shares in Pangue lost value, for which they are  demanding the sum of Ch$ 2.5 billions. Lastly, they claim that had this  contract not been signed, Pangue would have distributed dividends to them. |
| Process status:  |   | The court ruled in favor of the defendants,  rejecting the lawsuit in all its parts. The plaintiff filed an appeal before  the Appeals Court of Santiago. The plaintiffs have adhered to the appeal  which is awaiting its review.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Amount involved: |   | Ch$ 3,604 million or  US$ 5.7 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ii. Court:       |   | 24th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Case No.:        |   | 3622-2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiffs:      |   | Francisco Javier Errázuriz  Talavera, Francisco Javier Errázuriz Ovalle and Matías Errázuriz Ovalle                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Defendants:      |   | Endesa Chile, Francisco  Fernández Montero, Luis Felipe Acuña Rivas, Rene Agustín Lara Montoya and  Inversiones Cirrus                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Cause:           |   | The lawsuit is based on the fact that the defendants  initiated criminal actions against the plaintiffs based on incidents that occurred  at a property called “La Esperanza de Marchigüe”, owned by the plaintiffs, on  August 21, 1998, for the crime of kidnapping, claims that were finally  dismissed by the court. The plaintiffs believe that these criminal charges  against them caused moral damage, for which they are seeking restitution.                                                                                                                                                                                                                |
| Process status:  |   | Sentence was given favorable to Endesa Chile, which  was appealed against by the plaintiffs. The appeal is pending.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Amount involved: |   | Ch$ 1,400 millions or US$ 2.2 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |

 

F-78

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**29.****          ****Commitments and contingencies,continued:**

** **
| iii. Court:      |   | 24th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 7957-2005 (accumulated Case No 15279-05 Ninth Civil  Court of Santiago, Case No 1608-2005 Tenth Civil Court of Santiago)                                                                                                                                                                                                                                                                                                                                                                             |
| Plaintiffs:      |   | Inversiones M.D. Ltda. Inversiones Facona  ltda., Inversiones Huilo S.A, María Teresa Navarro Haeussler, Marcela Correa  Pero, María Cecilia Navarro Haeussler, Jaime Arrieta Correa, A. Combeau  Ingeniería Ltda., Alberto Combeau Vergara, Guillermo Villaseca Castro,  Inversiones Teigo Ltda., Inmobiliaria Santa Inés Ltda., Gregorio Echeñique  Larraín and Inmobiliaria Pirehueico S.A., and José Manuel Jordán Barahona on  behalf of 38 plaintiffs. |
| Defendants:      |   | Chilean Treasury, Department of Water Resources and  Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Cause:           |   | The Plaintiffs are suing for a public right  annulment of Dept. of Water Resolution No. 134 dated March 22,  2000, which gives Endesa non-consumptive water rights to carry out the  Central Neltume project, with indemnities for damages. Alternatively, the  plaintiffs are suing for damages allegedly suffered by the plaintiffs for the  quality loss as lakefront owners at Pirehueico and for the property  devaluation.                                                           |
| Process Status:  |   | An order for evidence was issued for the base of the  matter, with reversal proceedings against it brought by the parties.                                                                                                                                                                                                                                                                                                                                                                           |
| Amount involved: |   | Undetermined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| iv. Court:       |   | Civil Court of Santa Bárbara                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Case No.:        |   | 3938                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiff:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Defendants:      |   | Bunster Barrueto and others                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Cause:           |   | A case brought by Endesa Chile for the deposit made  based on the amount determined by the “Commission of Wise Men” paid to the  defendants for the easements established in relation to the electricity  concession granted by Supreme Decree No. 31 on January 18, 2000,  for the construction of the Ralco power plant. In the same case, the  defendants presented a claim against the appraisals performed by the  Commission.                                              |
| Process Status:  |   | The court of first instance ruled in favor of Endesa  Chile. The defendants appealed but this was rejected by the Concepción Court  of Appeal. The defendant filed an appeal for annulment before the Supreme  Court which is pending resolution.                                                                                                                                                                                                                                               |
| Amount involved: |   | Ch$ 2,574 millions or US$ 4.0 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| v. Court:        |   | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Case No.:        |   | 5783-04                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Plaintiff:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Defendant:       |   | SEF                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Cause:           |   | Claim Resolution number No.1439 of August 14,  2003. Generalized fault on the SIC on September 23, 2002                                                                                                                                                                                                                                                                                                                                                                                    |
| Process status:  |   | The Court is waiting to hear allegations jointly on  several claims deriving from the same circumstances.                                                                                                                                                                                                                                                                                                                                                                                            |
| Amount involved: |   | Ch$ 677.7 millions or US$ 1.1  millions.                                                                                                                                                                                                                                                                                                                                                                                                                                              |

 

F-79

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**29.****          ****Commitments and contingencies,continued:**

** **
| vi. Court:       |   | 9th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                            |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 13084-04                                                                                                                                                                                                                                                                                                                                                                                               |
| Plaintiffs:      |   | Endesa Chile, Pangue and PEHUENCHE S.A.  (“Pehuenche”)                                                                                                                                                                                                                                                                                                                                       |
| Defendant:       |   | Chilean Treasury                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:           |   | The annulment is sought of public right of  Ministerial Resolution No. 35 issued by the Ministry of Economy,  Development and Reconstruction on June 15, 2004, which pronounced on a  matter that was not originally a matter of dispute, by instructing the  CDEC-SIC to define the hours of greatest probability of load loss.                                                             |
| Process Status:  |   | The lawsuit was rejected in the first instance. The  defendants presented appeal and annulment in the form, proceedings before the  Santiago Court of Appeal, which are pending resolution.                                                                                                                                                                                                            |
| Amount involved: |   | Undetermined.                                                                                                                                                                                                                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| vii. Court:      |   | 19th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                           |
| Case No.:        |   | 2487-2005                                                                                                                                                                                                                                                                                                                                                                                              |
| Plaintiff:       |   | Empresa Eléctrica Guacolda S.A.                                                                                                                                                                                                                                                                                                                                                                   |
| Defendants:      |   | Endesa Chile, Pangue, Pehuenche and SAN ISIDRO S.A.  (“San Isidro”)                                                                                                                                                                                                                                                                                                                          |
| Cause:           |   | It is sought that the court declare that Guacolda  has the right to receive from each of the defendants, in its position as  owner of the transmission lines between the Maitencillo and Cardones  substations on SIC, for electricity transmissions by each of the defendants  during the period from October 9, 2003 to March 12, 2004, part of  the remuneration relating to basic tolls. |
| Process Status:  |   | Final sentence was given accepting the demand. The  defendants presented an appeal.                                                                                                                                                                                                                                                                                                                    |
| Amount involved: |   | Ch$ 423.6 millions or US$ 0.7 millions.                                                                                                                                                                                                                                                                                                                                                      |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| viii. Court:     |   | 12th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                           |
| Case No.:        |   | 2838-2005                                                                                                                                                                                                                                                                                                                                                                                              |
| Plaintiff:       |   | Sociedad Agrícola Ganadera y  Forestal Las Cruces Ltda.                                                                                                                                                                                                                                                                                                                                           |
| Defendant:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                           |
| Cause:           |   | The demand is based on the fact that Endesa Chile  had made arbitrary and indiscriminate use of legal proceedings in order to  deprive the plaintiff of its rights to use water. The plaintiff alleges that  these actions against the company had caused it material and moral damages  and is seeking restitution.                                                                                   |
| Process Status:  |   | Final sentence was given favor of Endesa, rejecting  the demand in all its parts. The plaintiff has lodged an appeal with the  Santiago Court of Appeal.                                                                                                                                                                                                                                               |
| Amount involved: |   | Ch$ 2,423.7 millions or US$ 3.8 millions.                                                                                                                                                                                                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                   |
| ix. Court:       |   | Civil Court of Santa Bárbara                                                                                                                                                                                                                                                                                                                                                                      |
| Case No.:        |   | 4563                                                                                                                                                                                                                                                                                                                                                                                                   |
| Plaintiff:       |   | Luis Danús Covian and another fifteen people                                                                                                                                                                                                                                                                                                                                                      |
| Defendant:       |   | Endesa Chile and Pangue                                                                                                                                                                                                                                                                                                                                                                                |
| Cause:           |   | The plaintiffs are demanding that the court declare  that the plaintiffs and defendants form part of a community with respect to  the Fundo Ralco and therefore they have co-ownership rights.                                                                                                                                                                                                         |
| Process Status:  |   | Final sentence given in favor of the defendants,  rejecting the demand in all its parts and ordering the plaintiff to pay  costs. The plaintiffs have presented appeal and annulment proceedings before  the Appeals Court of Concepción, which are pending resolution.                                                                                                                           |
| Amount involved: |   | Undetermined                                                                                                                                                                                                                                                                                                                                                                                           |

 

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**29.****          ****Commitments and contingencies,continued:**

** **
| x. Court:        |   | 19th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 7361-2005                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Plaintiffs:      |   | María Victoria Errázuriz  Ovalle, María Victoria Ovalle Ovalle, María Ignacia Errazuriz Ovalle                                                                                                                                                                                                                                                                                                                                                                              |
| Defendants:      |   | Endesa Chile, Francisco  Fernández Montero, Luis Felipe Acuña Rivas, René Agustín Lara Montoya and Inversiones  Cirrus S.A.                                                                                                                                                                                                                                                                                                                                                 |
| Cause:           |   | The demand is based on the fact that the defendants  had brought criminal actions against the family of the plaintiffs (father and  siblings) based on events that occurred on a property called “La Esperanza de  Marchigue”, owned by the Plaintiffs, on August 21, 1998, for the crime  of kidnapping, claims that were dismissed by the court. The plaintiffs allege  that these criminal charges against them caused moral damage, for which they  are seeking restitution. |
| Process Status:  |   | Order for evidence was notified to the parties which  brought annulment proceedings which are pending resolution.                                                                                                                                                                                                                                                                                                                                                                               |
| Amount involved: |   | Ch$ 3,200 millions or US$ 5.0 millions                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| xi. Court:       |   | 29th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Case No.:        |   | 575-2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Plaintiff:       |   | José María Lladser Prado                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Defendant:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Cause:           |   | The plaintiff is suing for payment of damages  suffered when Endesa Chile opened the sluice-gates of the Rapel dam in  June 2005, which produced alleged damage to property owned by the  plaintiff.                                                                                                                                                                                                                                                                                       |
| Process status:  |   | Final sentence was given in favor of Endesa,  rejecting the demand in all its parts. The plaintiff has appealed against  this resolution.                                                                                                                                                                                                                                                                                                                                                       |
| Amount involved: |   | Ch$ 192 millions or US$ 0.3 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| xii. Court:      |   | Civil Court of Santa Bárbara                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Case No.:        |   | 3.362                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Plaintiff:       |   | Forestal Agrícola Industria  Maderera Los Ángeles Limitada                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Defendant:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Cause:           |   | The plaintiff seeks the recovery of a piece of land  of 405 hectares that it believes forms part of its “Los Prados de Quillaileo”  property, located at Santa Bárbara in Chile’s 8th Region, which land is  currently occupied by Pehuenches to whom Endesa assigned rights and actions  related to the construction of the Ralco dam.                                                                                                                                     |
| Process status:  |   | The Concepción Court of Appeal previously ordered the  first instance tribunal to complement the definitive sentence, resolving the  peremptory exceptions; the Court of Appeal rejected them. Endesa presented  proceedings of appeal and annulment in the form against the complementary  sentence.                                                                                                                                                                                      |
| Amount involved: |   | Undetermined.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| xiii. Court:     |   | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Case No.         |   | 10805-05                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Plaintiff:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Defendant:       |   | SEF                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Cause:           |   | Claim Resolutions No.817 from April 27, 2004  and No. 1838 from November 3, 2005. Black-out of January 13,  2003.                                                                                                                                                                                                                                                                                                                                                           |
| Process status:  |   | The court is waiting the joint overview of several  claims deriving from the same incident, which are being examined together,  starting with the oldest.                                                                                                                                                                                                                                                                                                                                       |
| Amount involved: |   | Ch$ 253 millions or US$ 0.4 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**29.****          ****Commitments and contingencies,continued:**

** **
| xiv.  Court:     |   | Arbitration tribunal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 2144-J                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Plaintiff:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Defendant:       |   | CMPC Celulosa S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:           |   | The disputes between the parties originated from the  supply contract signed by Endesa Chile and CMPC Celulosa S.A. on May 31,  2003, relating to supplies for the defendant’s plants in the Eighth Region  and relating mainly to Endesa’s decision to dispute part of the usage required  by CMPC Celulosa S.A. as it does not consider this usage to be covered by the  contract.                                                                                                                                                                                                  |
| Process Status:  |   | The parties have been notified to hear sentence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Amount Involved: |   | Undetermined                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| xv. Court:       |   | 2nd Civil Court of Coronel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Case No.:        |   | 6940-2006                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Plaintiffs:      |   | Marlena Breve Toledo and Others                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Defendant:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Cause:           |   | A group of mothers from the Coronel region has sued  Endesa Chile for moral damages allegedly suffered by their children due to  burns they sustained on lands surrounding the Bocamina Power Plant. These  events occurred during January and February 2002.                                                                                                                                                                                                                                                                                                                              |
| Process status:  |   | Sentence was given favorable to Endesa Chile,  rejecting the demand in all its parts. The plaintiffs have brought appeal and  annulment proceedings in the form before the Concepción Court of Appeal.                                                                                                                                                                                                                                                                                                                                                                                          |
| Amount involved: |   | Ch$ 460 millions or US$ 0.7 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| xvi. Court:      |   | 16th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Case No.:        |   | 14234-2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Plaintiffs:      |   | Enrique Herrera Brondi and another 10 people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Defendants:      |   | Endesa Chile and Pangue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Cause:           |   | The plaintiffs, former shareholders of Pangue, seek  annulment of a contract signed on September 25, 2000, between Pangue and  Endesa Chile to establish a voluntary easement over Pangue’s water rights,  allowing the point of return of the Ralco power plant located upstream, to be  located in the final part of the tail of the Pangue reservoir. The plaintiffs  also claim that, as a consequence of signing this contract, their shares in  Pangue lost value and they are seeking Ch$ 1,037 millions to compensate for  damages arising from the signing of this contract. |
| Process status:  |   | An order for evidence was issued, pending  notification to both parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Amount involved: |   | Ch$ 1,037 millions or US$ 1.6 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| xvii. Court:     |   | 18th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Case No.:        |   | 13577-2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Plaintiffs:      |   | Ana Luisa Aránguiz Escobar and Others                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Defendant:       |   | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Cause:           |   | The Plaintiff is suing for compensation for damages  as in the final electricity concession given to Endesa to establish and  exploit the Rapel power plant, Endesa established easements for flooding the  lands in the area due to the water and reservoir works, paying the property  owners the corresponding compensation. The plaintiff alleges that the land  was excluded without reason from the concession’s special plans and therefore  did not receive compensation.                                                                                                               |
| Process status:  |   | An order for evidence was issued but has not been  notified to the parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Amount involved: |   | Ch$ 548.5 millions or US$ 0.9 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |

 

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**29.****          ****Commitments and contingencies,continued:**

** **
| xviii. Court:    |     | Third Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|------------------|----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |     | 26.499-2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Plaintiff:       |     | Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Defendant:       |     | Chilean Treasury                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Cause:           |     | Endesa Chile has sued the Treasury in order for the  court to declare that Endesa Chile, as a generating company, with respect to  the operation of its power plants and artificial dams, is subject to the  General Electricity Services Law and all other legal regulations affecting  the electricity industry and the instructions issued by the SIC CDEC of the  respective interconnected system, and not by decisions and guidelines issued  by the Control Committees (regulated by the Waters Code).                                                                                                                                                                                                                                                                                                                                           |
| Process status:  |     | The court did not give order for evidence and called  the parties to hear sentence. Endesa Chile appealed against the first  resolution and replacement of the second against it, proceedings are awaiting  resolution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Amount involved: |     | Undetermined                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|             |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| *Pangue S.A.*    | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| * *         | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| i. Court:        |     | 7th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Case No.:        |     | 8895-2003                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Plaintiffs:      |     | Juan Francisco Aranguiz Córdoba and another 24  people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Defendants:      |     | Pangue and Endesa Chile                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Cause:           |     | The plaintiffs, former shareholders of Pangue, seek  annulment of a contract signed on September 25, 2000, between Pangue and  Endesa Chile to establish a voluntary easement over Pangue’s water rights,  allowing the point of return of the Ralco Power Plant located upstream, to be  located in the final part of the tail of the Pangue reservoir. The Plaintiffs  also claim that, as a consequence of signing this contract, their shares in  Pangue lost value and they are seeking Ch$ 2,522 millions. Lastly, they claim  that had the contract not been signed, Pangue would have distributed  dividends to them. Dilatory exceptions were presented which are awaiting the  court’s resolution. The court decreed an injunction prohibiting any new  contracts involving water rights registered in the name of Pangue |
| Process Status:  |     | The court ruled in favor of the defendants,  rejecting the demand in all its parts. The plaintiff filed an appeal with the  Santiago Appeals Court. The defendants adhered to the appeal which is pending  resolution.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Amount involved: |     | Ch$ 3,604 millions or US$ 5.7 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|             |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| ii. Court:       |     | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Case No.:        |     | 5785-04                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiff:       |     | Pangue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Defendant:       |     | SEF                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Cause:           |     | Claim Resolution No.1432 of August 14, 2003.  Generalized SIC black-out on September 23, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Process status:  |     | The court is waiting the joint overview of several  claims deriving from the same incident.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Amount of fine:  |     | Ch$ 451.8 millions, or US$ 0.7 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**29.****          ****Commitments and contingencies,continued:**

** **
| iii. Court:      |   | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 10803-05                                                                                                                                                                                                                                                                                                                                                                                                  |
| Plaintiff:       |   | Pangue                                                                                                                                                                                                                                                                                                                                                                                                    |
| Defendant:       |   | SEF                                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:           |   | Claim Resolutions No.818 of April 27, 2004 and  No.1834 of November 3, 2005. Blackout January 13, 2003.                                                                                                                                                                                                                                                                                    |
| Process status:  |   | The Appeals Court is waiting the joint overview of  several electricity claims deriving from the same incident, which are being  examined together, starting with the oldest.                                                                                                                                                                                                                             |
| Amount of fine:  |   | Ch$ 253 millions, or US$ 0.4 millions.                                                                                                                                                                                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| iv. Court:       |   | Ninth Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                             |
| Case No.         |   | 13084-04                                                                                                                                                                                                                                                                                                                                                                                                  |
| Plaintiff:       |   | Endesa Chile, Pangue and Pehuenche                                                                                                                                                                                                                                                                                                                                                                        |
| Defendant:       |   | Chilean Treasury                                                                                                                                                                                                                                                                                                                                                                                          |
| Cause:           |   | The plaintiffs are seeking a declaration of nullity  of public right of the Ministerial Resolution No.35 issued by the Ministry of  Economy, Development and Reconstruction on June 15, 2004, whereby this  authority pronounces on a matter that was not originally one of dispute, by  instructing the CDEC-SIC to define the hours of greatest probability of load  loss.                         |
| Process Status:  |   | The demand was rejected in the first instance. The  plaintiffs filed proceedings of appeal and annulment before the Santiago  Appeals Court, which are currently pending resolution.                                                                                                                                                                                                                      |
| Amount involved: |   | Undetermined.                                                                                                                                                                                                                                                                                                                                                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| v. Court:        |   | Civil Court of Santa Bárbara                                                                                                                                                                                                                                                                                                                                                                         |
| Case No.:        |   | 4563                                                                                                                                                                                                                                                                                                                                                                                                      |
| Plaintiffs:      |   | Luis Danús Covian and fifteen other people                                                                                                                                                                                                                                                                                                                                                           |
| Defendants:      |   | Endesa Chile and Pangue                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:           |   | The plaintiffs have demanded that the court declare  that the plaintiffs and defendants form part of a community with respect to  the Fundo Ralco and therefore they have co-ownership rights.                                                                                                                                                                                                            |
| Process Status:  |   | The court gave definitive sentence in favor of the  defendants, rejecting the demand in all its parts and ordering that the  plaintiff pay costs. The plaintiffs filed appeal and nullity proceedings  before the Concepción Appeal Court, which are currently pending resolution.                                                                                                                   |
| Amount involved: |   | Undetermined                                                                                                                                                                                                                                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| vi. Court:       |   | 19th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                              |
| Case No.:        |   | 2487-2005                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiff:       |   | Empresa Eléctrica Guacolda S.A.                                                                                                                                                                                                                                                                                                                                                                      |
| Defendants:      |   | Endesa Chile, Pangue, Pehuenche and San Isidro                                                                                                                                                                                                                                                                                                                                                            |
| Cause:           |   | It is sought that the court declare that Guacolda  has the right to receive payment from each of the defendants in its position  as owner of the transmission lines between the Maitencillo and Cardones  Substations on the SIC, for remuneration related to basic tolls with respect  to electricity transmitted by each defendant during the period from  October 9, 2003 to March 12, 2004. |
| Process Status:  |   | Definitive sentence was given accepting the demand,  against which the defendants has filed an appeal.                                                                                                                                                                                                                                                                                                    |
| Amount involved: |   | Ch$ 423 millions or US$ 0.7 millions.                                                                                                                                                                                                                                                                                                                                                           |

 

F-84

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**29.****          ****Commitments and contingencies,continued:**

** **
| vii. Court:      |   | 16th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 14234-2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Plaintiffs:      |   | Enrique Herrera Brondi along with another 10 people                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Defendants:      |   | Endesa Chile and Pangue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Cause:           |   | The plaintiffs, former shareholders of Pangue, seek  a declaration of nullity of a contract signed on September 25, 2000,  between this company and Endesa Chile whereby the former established a  voluntary easement over water rights, allowing the point of return of the  Ralco power plant located upstream, to be located in the final part of the  tail-end of the Pangue reservoir. The plaintiffs also claim that, as a  consequence of signing this contract, their shares in Pangue lost value and  they are seeking ThCh$ 1,036,809 to compensate for damages arising from the  signing of this contract.     |
| Process status:  |   | An order for evidence has been issued, which has not  been notified to the parties.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Amount involved: |   | Ch$ 1,036.8 millions or US$ 1.6 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| viii. Court:     |   | Civil Court of Nacimiento                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Case No.:        |   | 16.757-2007                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Plaintiff:       |   | Municipality of Nacimiento                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Defendant:       |   | Pangue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Cause:           |   | Based on Law 19,300 governing General Environmental  Standards, the Municipality of Nacimiento seeks the repair and compensation  for the environmental damage allegedly caused by the operation of the Pangue  power plant, particularly from spills occurring during July 2006; these  damages amount to Ch$13.2 millions. The plaintiff is also specifically  demanding that the defendant be ordered to adopt the following protective and  mitigation measures: construction of a containment wall and a bridge that  connects Nacimiento to other nearby towns and community buildings, at a cost  of Ch$4,914 millions. |
| Process status:  |   | The proceedings are in the evidence stage, with some  parts still pending.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Amount involved: |   | Ch$ 4,927.2 millions or US$ 7.7 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| ix. Court:       |   | 12th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Case No.:        |   | 2.657-2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Plaintiff:       |   | José Manuel Gajardo Sepúlveda, on behalf of 749  people.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Defendant:       |   | Pangue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Cause:           |   | The plaintiff is suing Pangue for the repair and  compensation for the environmental damage allegedly caused by the operation  of the Pangue plant, particularly spillages that occurred in July 2006,  amounting to Ch$1,916.5 millions.                                                                                                                                                                                                                                                                                                                                                                                      |
| Process status:  |   | Parties have been called for conciliation  proceedings, but this did not occur.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Amount involved: |   | Ch$ 1,916.5 millions or US$ 4.6 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| x. Court:        |   | Family, civil and criminal Court of Laja                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Case No.:        |   | 11.642-2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Plaintiffs:      |   | Iris Carrasco Jara and another 418 people                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Defendant:       |   | Pangue                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Cause:           |   | The plaintiff is suing Pangue for the repair and  damages allegedly caused by the operation of the Pangue plant due to  spillages that occurred on the river Bío Bío in July 2006, particularly  the flooding that occurred in the town of Laja in Chile’s 8th Region,  amounting to ThCh$12,570,000 plus interest.                                                                                                                                                                                                                                                                                             |
| Process status:  |   | Pangue was notified of the demand on  October 27, 2008, having opposed dilatory exceptions which have still  not been resolved by the court.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Amount involved: |   | Ch$ 12,570 millions or US$ 19.8 millions plus  interests.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |

 

F-85

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

** **

**29.****          ****   Commitments and contingencies,continued:**

** **

*Pehuenche S.A.*

* *
| i. Court:        |   | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 5784-04                                                                                                                                                                                                                                                                                                                                                                                                   |
| Plaintiff:       |   | Pehuenche                                                                                                                                                                                                                                                                                                                                                                                                 |
| Defendant:       |   | SEF                                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:           |   | Claim Resolution No.1429 of August 14, 2003.  Generalized black-out on the SIC on September 23, 2002                                                                                                                                                                                                                                                                                            |
| Process status:  |   | The court is awaiting the joint overview of several  claims deriving from the same incident.                                                                                                                                                                                                                                                                                                              |
| Amount of fine:  |   | Ch$ 677.7 millions or US$ 1.1 millions.                                                                                                                                                                                                                                                                                                                                                         |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| ii. Court:       |   | Ninth Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                             |
| Case No.:        |   | No.13084-04                                                                                                                                                                                                                                                                                                                                                                                               |
| Plaintiff:       |   | Endesa Chile, Pangue and Pehuenche                                                                                                                                                                                                                                                                                                                                                                        |
| Defendant:       |   | Chilean Treasury                                                                                                                                                                                                                                                                                                                                                                                          |
| Cause:           |   | The Plaintiffs are seeking the annulment in public  right of Ministerial Resolution No.35 issued by the Ministry of Economy,  Development and Reconstruction on June 15, 2004, in which this authority  pronounces on issues that were not originally matters of dispute, by  instructing the CDEC-SIC to define the hours of greatest probability of load  loss.                                    |
| Process Status:  |   | The court ruled first instance rejecting the demand.  The plaintiffs filed appeal and annulment proceedings with the Santiago  Appeals Court which are pending resolution.                                                                                                                                                                                                                                |
| Amount involved: |   | Undetermined.                                                                                                                                                                                                                                                                                                                                                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| iii. Court:      |   | 19th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                              |
| Case No.:        |   | 2487-2005                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiff:       |   | Empresa Eléctrica Guacolda S.A.                                                                                                                                                                                                                                                                                                                                                                      |
| Defendants:      |   | Endesa Chile, Pangue, Pehuenche and San Isidro                                                                                                                                                                                                                                                                                                                                                            |
| Cause:           |   | It is sought that the court declare that Guacolda  has the right to receive payment from each of the defendants in its position  as owner of the transmission lines between the Maitencillo and Cardones  substations on the SIC, for remuneration related to basic tolls with respect  to electricity transmitted by each defendant during the period from  October 9, 2003 to March 12, 2004. |
| Process Status:  |   | Definitive sentence was given accepting the demand,  against which the defendants have filed an appeal.                                                                                                                                                                                                                                                                                                   |
| Amount involved: |   | Ch$ 423.6 millions or US$ 0.7 millions.                                                                                                                                                                                                                                                                                                                                                         |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| iv. Court:       |   | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                  |
| Case No.:        |   | 10801-05                                                                                                                                                                                                                                                                                                                                                                                                  |
| Plaintiff:       |   | Pehuenche                                                                                                                                                                                                                                                                                                                                                                                                 |
| Defendant:       |   | SEF                                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:           |   | Claim Resolutions No.806 of April 27, 2004 and  No.1836 of November 3, 2005. Black-out on January 13, 2003                                                                                                                                                                                                                                                                                 |
| Process status:  |   | The Appeals Court is awaiting the joint overview of  several claims deriving from the same incident, which are being examined  together, starting with the oldest.                                                                                                                                                                                                                                        |
| Amount of fine:  |   | Ch$ 158 millions or US$ 0.2 millions.                                                                                                                                                                                                                                                                                                                                                           |

 

F-86

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

** **

**29.          Commitmentsand contingencies, continued:**

 
| *San Isidro S.A.* | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                  |
|-------------------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| * *          | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                  |
| i. Court:         |     | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                  |
| Case No.:         |     | 5782-04                                                                                                                                                                                                                                                                                                                                                                                                   |
| Plaintiff:        |     | San Isidro                                                                                                                                                                                                                                                                                                                                                                                                |
| Defendant:        |     | SEF                                                                                                                                                                                                                                                                                                                                                                                                       |
| Case:             |     | Claim Resolution No.1428 of 14.08.2003. Generalized  fault on SIC on 23.09.2002                                                                                                                                                                                                                                                                                                                           |
| Process stage:    |     | Awaiting joint overview of claims referring to the  same incident.                                                                                                                                                                                                                                                                                                                                        |
| Amount of fine:   |     | Ch$ 226 millions or US$ 0.4 millions.                                                                                                                                                                                                                                                                                                                                                           |
|              |     |                                                                                                                                                                                                                                                                                                                                                                                                      |
| ii. Court:        |     | 19th Civil Court of Santiago                                                                                                                                                                                                                                                                                                                                                                              |
| Case No.:         |     | 2487-2005                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiff:        |     | Empresa Eléctrica Guacolda S.A.                                                                                                                                                                                                                                                                                                                                                                      |
| Defendants:       |     | Endesa Chile, Pangue, Pehuenche and San Isidro                                                                                                                                                                                                                                                                                                                                                            |
| Cause:            |     | It is sought that the court declare that Guacolda  has the right to receive payment from each of the defendants in its position  as owner of the transmission lines between the Maitencillo and Cardones  substations on the SIC, for remuneration related to basic tolls with respect  to electricity transmitted by each defendant during the period from  October 9, 2003 to March 12, 2004. |
| Process Status:   |     | Definitive sentence was given accepting the demand,  against which the defendants have filed an appeal.                                                                                                                                                                                                                                                                                                   |
| Amount involved:  |     | Ch$ 424 millions or US$ 0.7 millions.                                                                                                                                                                                                                                                                                                                                                           |
|              |     |                                                                                                                                                                                                                                                                                                                                                                                                      |
| iii. Court:       |     | Santiago Court of Appeal                                                                                                                                                                                                                                                                                                                                                                                  |
| Case No.:         |     | 10799-05                                                                                                                                                                                                                                                                                                                                                                                                  |
| Plaintiff:        |     | San Isidro                                                                                                                                                                                                                                                                                                                                                                                                |
| Defendant:        |     | SEF                                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:            |     | Claim Resolutions No.819 of April 27, 2004 and  No.1830 of November 3, 2005. Black-out on January 13, 2003                                                                                                                                                                                                                                                                                 |
| Process status:   |     | The Appeals Court is awaiting the joint overview of  several claims deriving from the same incident, which are being examined  together, starting with the oldest.                                                                                                                                                                                                                                        |
| Amount of fine:   |     | Ch$ 158 millions or US$ 0.2 millions.                                                                                                                                                                                                                                                                                                                                                           |
|              |     |                                                                                                                                                                                                                                                                                                                                                                                                      |
| *Edegel  S.A.A,*  | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                  |
| * *          | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                  |
| i. Tribunal:      |     | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                     |
| Case No.:         |     | n/n                                                                                                                                                                                                                                                                                                                                                                                                       |
| Plaintiff:        |     | National Superintendence of Tax Administration  (“SUNAT”)                                                                                                                                                                                                                                                                                                                                       |
| Defendant:        |     | Edegel                                                                                                                                                                                                                                                                                                                                                                                                    |
| Cause:            |     | On July 10, 2003, Edegel was notified of a  SUNAT resolution which objected to the depreciation recorded on assets  reappraised on their disposal.                                                                                                                                                                                                                                                   |
| Process Status:   |     | The claim that is still pending resolution by the  tribunal is related to fiscal year 1999 and refers only to the objection to  the 15% “financing interest” in the appraisal.                                                                                                                                                                                                                  |
| Amount involved:  |     | Soles 26.8 millions or US$ 8.5 millions.                                                                                                                                                                                                                                                                                                                                                             |

 

F-87

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| ii. Tribunal:    |   | SUNAT                                                                                                                                                                                                                           |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 0150340004124                                                                                                                                                                                                                   |
| Plaintiff:       |   | SUNAT                                                                                                                                                                                                                           |
| Defendant:       |   | Edegel                                                                                                                                                                                                                          |
| Cause:           |   | Tax comment — audit of fiscal year 2000 (General  sales tax — Fiscal year 2000 — Disregard of economic reality for consulting  services invoiced by Generandes).                                                 |
| Process Status:  |   | Pending pronouncement by the fiscal tribunal of the  appeal made by Edegel with respect to the resolutions of determination and  fine that were not the subject of abandonment.                                                 |
| Amount involved: |   | Soles 44.5 millions or US$ 14.2 millions.                                                                                                                                                                                  |
|             |   |                                                                                                                                                                                                                            |
| iii. Tribunal:   |   | SUNAT                                                                                                                                                                                                                           |
| Case No.:        |   | n/n                                                                                                                                                                                                                             |
| Plaintiff:       |   | SUNAT                                                                                                                                                                                                                           |
| Defendants:      |   | Talleres Mayopampa/Edegel                                                                                                                                                                                                       |
| Cause:           |   | Tax comment (joint and several liability of Edegel  attributed with Talleres Moyopampa — Payment of income taxes — Regularization  Tax Year 1994 — Legal Entities. Period from May 1994 to June 1994). |
| Process Status:  |   | Pending ruling.                                                                                                                                                                                                                 |
| Amount involved: |   | Soles 6.2 millions or US$ 2.0 millions.                                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                            |
| iv. Tribunal:    |   | ESSALUD                                                                                                                                                                                                                         |
| Case No.:        |   | 603-REC-GCC-GCR-IPSS-97                                                                                                                                                                                                         |
| Plaintiff:       |   | ESSALUD                                                                                                                                                                                                                         |
| Defendant:       |   | Edegel                                                                                                                                                                                                                          |
| Cause:           |   | Payment of contributions for Decree Laws 22482  (Health), 19990 (Pensions) and 18846 (Work-related accidents) for period from  April 1994 to March 1996.                                                              |
| Process Status:  |   | Pending ruling.                                                                                                                                                                                                                 |
| Amount involved: |   | Soles 8.2 millions or US$ 2.6 millions, plus  interests.                                                                                                                                                                   |
|             |   |                                                                                                                                                                                                                            |
| v. Tribunal:     |   | ESSALUD                                                                                                                                                                                                                         |
| Case No:         |   | n/n                                                                                                                                                                                                                             |
| Plaintiff:       |   | ESSALUD                                                                                                                                                                                                                         |
| Defendant:       |   | Edegel                                                                                                                                                                                                                          |
| Cause:           |   | Payment orders issued for alleged omission of social  security contributions during period from April 1997 to  December 1998.                                                                                         |
| Process Status:  |   | Pending ruling.                                                                                                                                                                                                                 |
| Amount involved: |   | Soles 29 millions or US$ 9 millions, plus interests.                                                                                                                                                                       |

 

F-88

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| vi. Tribunal:    |   | District Municipality of San Ramón                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | n/n                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Plaintiff:       |   | District Municipality of San Ramón                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Defendant:       |   | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:           |   | Comment on municipal taxes (Property tax and fine —  Fiscal years 2000 to 2004).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Process Status:  |   | The District Municipality of San Ramón persists in  not complying with the tax tribunal’s order and has not sent the records to  that entity for its pronouncement. The Second Public Prosecutor of La Merced  — Chanchamayo formalized criminal actions against the mayor of the  Municipality of San Ramón for crimes of omission, refusal or delay in  functional acts, following which the Second Criminal Court of La Merced —  Chanchamayo began criminal actions against the mayor. Edegel has joined the  process as having been considered the presumed injured party. |
| Amount involved: |   | Soles 5.8 millions or US$ 1.8 millions, plus  interests.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| vii. Court:      |   | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Case No.:        |   | n/n                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Plaintiff:       |   | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Defendan:        |   | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:           |   | Tax comment — Income Taxes (Fiscal Year 2000) -  Income taxes — Third Category — Prepayments — Fiscal Year 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Process Status:  |   | On October 9, 2008, Edegel made a partial  appeal against the Resolution of Governor’s Office of August 29, 2008.  The following objections were appealed against: (i) Foward 2001,  (ii) Services Generandes 2000 — 2001, (iii) Excess depreciation  2000 — 2001, (iv) Loan for purchase of shares 2000 — 2001, (v) REI  2001.  The amount appealed reaches  approximately S/. 44,822,640 for the year 2000 and S/. 20,624,492 for 2001.                                                                                                    |
| Amount:          |   | Soles 65.4 millions or US$ 20.8 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| viii. Tribunal:  |   | Specialized civil court of La Merced                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Case No.:        |   | 168-2008                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Plaintiff:       |   | District Municipality of San Ramón                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Defendant:       |   | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:           |   | Contentious administrative action brought against  the Resolution of the Mayor’s Office No.019-2008-MDSR which ratified the fine  demanded by the municipality alleging that Edegel has not regularized some  buildings of the Yanango plant.                                                                                                                                                                                                                                                                                                                                                       |
| Process Status:  |   | Pending pronouncement of the judge with respect to  the exceptions of prescription and res judicata presented by the District  Municipality of San Ramón.                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Amount involved: |   | Soles 4.7 millions or US$ 1.5 millions, plus  interests.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |

 

F-89

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| ix. Court:       |   | 3rd Labor Court of Lima                                                                                                                                                                                                                                                                                                                                                                                                                      |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 254-2001                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Plaintiffs:      |   | José Carlos de la Flor Arízaga,  Sergio E.Palomino, Rigoberto Mendieta Vedia, Luis Ampuero Salas, Manuel  Salazar López and Oscar Curay Rivera                                                                                                                                                                                                                                                                                |
| Defendant:       |   | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:           |   | Payment of labor benefits: a) profits 1994-1995, b)  bonuses from 1994-1996, c) compensation for not buying shares due to  privatization, d) double vacations for 1994-1995, e) CTS for the period  1995-June 1996, f) recalculation of the incentives paid at termination,  g) benefits agreed upon with Electroperu.                                                                                                                  |
| Process status:  |   | A date for the hearing is still pending.                                                                                                                                                                                                                                                                                                                                                                                                     |
| Amount involved: |   | Soles 7.2 millions or US$ 2.3 millions.                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| x. Tribunal:     |   | National and International Arbitration Tribunal of  the Lima Chamber of Commerce.                                                                                                                                                                                                                                                                                                                                                            |
| Case No.:        |   | 1236-009-2007                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Plaintiff:       |   | PROINVERSION                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Defendant:       |   | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Arbitrators:     |   | Lorenzo Zolezzi Ibárcena (chairman), Shoschanna  Zusman and Delia Revoredo                                                                                                                                                                                                                                                                                                                                                              |
| Cause:           |   | PROINVERSIÓN considers that the former ETEVENSA  complied fully but late in the first and second stages of investment  commitment.                                                                                                                                                                                                                                                                                                      |
| Process Status:  |   | Following the arbitration award that resolves this  litigation, EDEGEL paid to PROINVERSIÓN the amount awarded, thus concluding  these proceedings.                                                                                                                                                                                                                                                                                     |
| Amount involved: |   | US$ 900,000                                                                                                                                                                                                                                                                                                                                                                                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| xi. Tribunal:    |   | Osinergmin                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Case Nos.:       |   | CC-33-2007, CC-35-2007 and CC-38-2007                                                                                                                                                                                                                                                                                                                                                                                                        |
| Plaintiffs:      |   | ELECTROANDES, DUKE ENERGY, ENERSUR, ELECTROPERÚ and  CAHUA                                                                                                                                                                                                                                                                                                                                                                              |
| Defendant:       |   | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Cause:           |   | EDEGEL has been demanded to credit the corresponding  reimbursement for having been responsible for certain events according to the  Technical Quality Standards of Electricity Services (NTCSE).                                                                                                                                                                                                                                            |
| Process Status:  |   | In the contentious administrative process brought  against Duke and Electroandes, sentence was given declaring the demand  brought by Edegel to be unfounded. Edegel appealed against this sentence.  Regarding the contentious administrative proceedings brought against ENERSUR  and ELECTROPERU, it remains pending for the court to declare each process  resolved and the files sent to the Public Prosecutor for promulgation of law. |
|             |   | Regarding the claim presented by Cahua, Edegel  appealed against the resolution of the ad-hoc Collegiate Body of Osinergmin  which pronounced that Edegel comply in paying the compensations for  interruptions in supplies due to rejections of load in 2006.                                                                                                                                                                               |
| Amount involved: |   | Soles 33 millions or US$ 10 million.                                                                                                                                                                                                                                                                                                                                                                                                    |

 

F-90

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| xii. Tribunal:              |     | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|-----------------------------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:                   |     | 0150340008058                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Plaintiff:                  |     | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Defendant:                  |     | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Cause:                      |     | Tax Limit - Audit from 2002 and 2003 (Income Taxes)                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Process Status:             |     | By Governor’s Resolution No,.01501140007736 of  October 31, 2008, part of the claim presented by Edegel was declared  founded and consequently rectified. It was resolved to follow the charging of  the debts contained in Determination Resolutions 012-003-0012226 to  012-003-0012239 and the Fine Resolutions 012-002-0011741 and 012-002-0011742.  On December 10, 2008, Edegel lodged a partial appeal against the above  Governor’s resolution. |
| Amount:                     |     | Soles 3.2 millions or US$ 1 million.                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|                        |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| xiii. Court:                |     | Mixed Court of Ventanilla                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Case No.:                   |     | 2008-4570                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Plaintiff:                  |     | Association of Owners Casa Huerta Virgen de las  Mercedes.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Defendant:                  |     | Edegel                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Cause:                      |     | The Association of Owners Casa Huerta Virgen de las  Mercedes has demanded the closure of the register entry No.53972, in which  the Ventanilla plant is registered, due to duplicated registration and  superposition with register entry No.38115, in which land owned by it is  registered. As an accessory claim, it demands the recovery of 65,867.83  square meters of land occupied by the Ventanilla thermal plant due the entry  whose closure is sought.          |
| Process Status:             |     | Edegel and the Fiduciaria have absolved the transfer  of the demand. In the case of Edegel, together with the answer of the demand,  presented a counterclaim for declaring that the Association of Owners Casa  Huerta Virgen de las Mercedes is not the owner of the land and ordering the  closure of the record card, where the title to the property in their favor is  registered.                                                                                    |
| Amount:                     |     | US$ 658,678                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|                        |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| *Generandes Perú S.A.* |
| * *                    | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Tribunal:                   |     | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Case No.:                   |     | 0260340031172                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Plaintiff:                  |     | SUNAT                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Defendant:                  |     | GENERANDES PERU S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Cause:                      |     | Tax annotation against various determination  resolutions and general sales tax and income tax fines - Audit 2000.                                                                                                                                                                                                                                                                                                                                                          |
| Process Status:             |     | The process is awaiting resolution by the SUNAT.                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Amount involved:            |     | Soles 50 millions or US$ 15.9 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                |

 

F-91

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| *Emgesa S.A. ESP, (Colombia)* |
|-------------------------------|
| * *                      | * * | * * |
| i. Court:                     |   | Neiva Administrative Court (Huila) |
| Case No.:                     |   | 2004-645 |
| Plaintiffs:                   |   | Consultoría Colombiana S.A. and  Consultores Regionales Asociados Ltda |
| Defendants:                   |   | ICEL — Electrificadora del  Huila S.A. and Central Hidroeléctrica de Betania S.A. E.S.P. (now Emgesa) |
| Cause:                        |   | Damages for not awarding the contract to the  plaintiffs after performing preliminary feasibility study in 1992 relating to  the El Quimbo project. |
| Process Status:               |   | The evidence stage has been concluded. |
| Amount involved:              |   | Col$ 2,000 millions or US$ 0.9 millions. |
|                          |   |   |
| ii. Court:                    |   | Various Courts in the Huila and Tolima Jurisdictions |
| Case Nos.:                    |   | Various |
| Plaintiffs:                   |   | 325 individuals in various jurisdictions |
| Defendant:                    |   | Central Hidroeléctrica de Betania S.A. (Now Emgesa) |
| Cause:                        |   | The defendant is being sued in different proceedings  and courts for extra-contractual civil liability by Central Hidroeléctrica de  Betania S.A. ESP. for the flooding that occurred during 1986, 1989, 1994,  1999 and 2007, which allegedly washed away and damaged the crops and property  of the plaintiffs. |
| Process Status:               |   | First instance rulings have already been handed down  for some lawsuits, with unfavorable sentences for the Company, which have  been appealed against. The remaining cases are either in the evidence stage  or are being answered (i.e. in initial stage). During this quarter, Emgesa  has been notified of another 25 demands. |
| Amount involved:              |   | Col$ 18,066 millions or US$ 7.9 millions. |
|                          |   |   |
| iii. Court:                   |   | 1st Circuit Court of Neiva |
| Case No.:                     |   | 2003-123 |
| Plaintiff:                    |   | Empresa Antioqueña de Energía  (EADE) |
| Defendant:                    |   | Central Hidroeléctrica de  Betania S.A. ESP (now Emgesa) |
| Cause:                        |   | Ordinary proceedings intended to obtain a  declaration of liability by CHB for alleged non-compliance with energy supply  obligations between July 1, 1997 and May 31, 1999. |
| Process Status:               |   | The conciliatory hearing was postponed until the  plaintiff can determine who was in charge of the rights originating the  lawsuit following the dissolution of EADE, a company that was absorbed by  Empresas Públicas de Medellín. |
| Amount involved:              |   | Col$ 7,805 millions or US$ 3.4 millions.. |
|                          |   |   |
| iv. Tribunal:                 |   | Administrative tribunal of Huila |
| Case No.:                     |   | 2004-1328 |
| Plaintiff:                    |   | Central Hidroeléctrica de Betania S.A. ESP (now  Emgesa) |
| Defendant:                    |   | Municipality of Yaguará |
| Cause:                        |   | The municipality is seeking to sanction the company  for not presenting its declaration of ICA (Industrial and Commerce Tax) under  Law 14 of 1981, ignoring the payments made by Betania under a special law  that regulates electricity generation companies (Law 56 of 1981). The company  presented a request to nullify the acts that imposed the sanction (Sanction  Resolutions years 1998 to 2002). |
| Process Status:               |   | This case is in the evidence stage. |
| Amount Involved:              |   | Col$ 98,438 millions or US$ 43.3 millions. |

 

F-92

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| v. Tribunal:     |   | Administrative Tribunal of Huila                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 2005-1743                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Plaintiff:       |   | Central Hidroeléctrica de Betania S.A. ESP (now  Emgesa)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Defendant:       |   | Municipality of Yaguará                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Cause:           |   | The incorrect application of the Industry and  Commerce Tax regulation by the municipality, ignoring the special regulation  (Law 56 of 1981) that affects generating companies only for their plants’  installed generating capacity and not their revenues as the municipality  claims by applying the general regulation (Law 14 of 1983). the Plaintiff on  their revenue instead of the installed capacity of their plant. The company  objected to the authority ́s assessments correspondig for the years 1998-2002. |
| Process Status:  |   | This case is in the stage of concluding arguments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Amount Involved: |   | Col$ 4,160 millions or US$ 1.8 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| vi. Tribunal:    |   | Administrative Tribunal of Huila                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Case No.:        |   | 2006-1024                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Plaintiff:       |   | Central Hidroeléctrica de Betania S.A. ESP (now  Emgesa)                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Defendant:       |   | Municipality of Yaguará                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Cause:           |   | Summons to declare the Industry and Commerce Tax  2003. The Municipality of Yaguará ignored the statement presented by Betania,  based on Law 56 of 1981 (a special law applicable to generating companies)  and penalized the company by applying a sanction of 20% of reported revenues.  In addition, reassessment of the tax, applying a regulation of general nature  (Law 14 of 1983) that does not apply for energy generation companies, thus  increasing the tax charge of Betania.                                    |
| Process Status:  |   | This case is at the stage of concluding arguments.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Amount Involved: |   | Col$ 23,116 millions or US$ 10.2 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| vii. Tribunal:   |   | 4th Section of the Administrative Tribunal of  Cundinamarca                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| Case No.:        |   | 2004-238                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Plaintiff:       |   | Emgesa                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Defendant:       |   | Municipality of Ubalá                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| Cause:           |   | The municipality incorrectly applied an Industry and  Commerce Tax to the plaintiff, ignoring the special regulation (Law 56 of  1981) which taxes generating companies on their plants’ installed capacity  and not their revenue, as the municipality intends by the application of the  general regulation (Law 14 of 1983).                                                                                                                                                                                                 |
| Process Status:  |   | Sentence in the first instance is expected.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Amount Involved: |   | Col$ 40,593 millions or US$ 17.9 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| viii. Tribunal:  |   | Administrative Tribunal of Cauca — fourth section                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Case No.:        |   | 2007-125                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Plaintiff:       |   | Emgesa                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Defendant:       |   | Municipality of Caloto                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Cause:           |   | Summons for not declaring for the years 2003 to  2005. Incorrect application of the Industry and Commerce Tax by the municipality,  ignoring the special regulation (Law 56 of 1981) which taxes generating  companies only on their plants’ installed capacity and not their revenue, as  the municipality intends by the application of the general regulation (Law 14  of 1983).                                                                                                                                             |
| Process Status:  |   | The case is at the evidence stage                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Amount Involved: |   | Col$ 374 millions or US$ 0.2 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |

 

F-93

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| ix. Tribunal:    |   | 4th Section of the Administrative Tribunal of  Cauca                                                                                                                                                                                                                                                                                                                                                                 |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 2007-00127                                                                                                                                                                                                                                                                                                                                                                                                                |
| Plaintiff:       |   | Emgesa                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Defendant:       |   | Municipality of Puerto Tejada                                                                                                                                                                                                                                                                                                                                                                                             |
| Cause:           |   | Summons for not declaring for the years 2002 to  2004. Incorrectly application of the Industry and Commerce Tax by the  municipality, ignoring the special regulation (Law 56 of 1981) which taxes  generating companies only on their plants’ installed generating capacity and  not their revenue, as the municipality intends by the application of the  general regulation (Law 14 of 1983).                     |
| Process Status:  |   | The case is at the evidence stage                                                                                                                                                                                                                                                                                                                                                                                         |
| Amount Involved: |   | Col$ 1,189 millions or US$ 0.5 millions.                                                                                                                                                                                                                                                                                                                                                                        |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| x. Tribunal:     |   | Administrative Tribunal of Bolívar                                                                                                                                                                                                                                                                                                                                                                                   |
| Case No.:        |   | 2007-242                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Plaintiff:       |   | Emgesa                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Defendant:       |   | Bolívar Department                                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:           |   | The Bolívar Department wrongly charged the company  for Pro-Development and Pro-Culture stamps related to the purchase of the  Cartagena power plant.                                                                                                                                                                                                                                                                |
| Process Status:  |   | The case is at the evidence stage                                                                                                                                                                                                                                                                                                                                                                                         |
| Amount Involved: |   | Col$ 276 millions or US$ 0.1 millions.                                                                                                                                                                                                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| xi. Tribunal:    |   | Administrative Tribunal of Cundinamarca, First  Section                                                                                                                                                                                                                                                                                                                                                                   |
| Case No.:        |   | 2001-016                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Plaintiffs:      |   | Orlando Enrique Guaqueta and Sibaté residents (class  action Miguel Ángel Chávez - Nancy Stella Martínez Pulido and others)                                                                                                                                                                                                                                                                           |
| Defendants:      |   | Emgesa, Empresa de Energía de  Bogotá S.A. ESP (“EEB”) and Corporación Autónoma Regional (“CAR”)                                                                                                                                                                                                                                                                                  |
| Cause:           |   | The plaintiffs seek the joint liability of the  defendants related to the damages produced in the Muña reservoir due to  contaminated water from the Bogota river pumped in by Emgesa.                                                                                                                                                                                                                               |
| Process Status:  |   | The case was sent to the State Council to resolve  the motions presented by the companies (among others, Encomables, Hospital  Juan N Corpas, Agrinal S.A., Líquido Carbónico Colombiana S.A., Tinzuque,  Refisal, Peldar, Incollantas), companies that do not believe they can be  considered direct defendants in the case. Once these motions are ruled on,  the first instance evidence stage should begin. |
| Amount involved: |   | Col$ 3,000,000 millions or US$ 1,320 millions.                                                                                                                                                                                                                                                                                                                                                                  |

 

F-94

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| xii. Tribunal:   |   | Administrative Tribunal of Cundinamarca, Fourth  Section                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:        |   | 2001-479                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Plaintiff:       |   | Gustavo Moya                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Defendants:      |   | Emgesa, EEB, the Capital District of Bogotá, Empresa  de Acueducto y Alcantarillado de Bogotá, the Municipality of Sibaté and other  industries and government entities that allegedly contribute to the pollution  of the Bogotá River by action or omission.                                                                                                                                                                                                             |
| Cause:           |   | Class action seeking to declare the defendants  responsible for damages caused to the environment produced by storing  contaminated water in the Muña reservoir, and thus compensate for the  collective damage caused.                                                                                                                                                                                                                                                              |
| Process Status:  |   | Appeal proceedings pending against the first  instance sentence before the State Council, which exonerated Emgesa from  responsibility and a compliance agreement was approved. For its part, the  Administrative Tribunal of Cundinamarca has held various audiences for  checking compliance with the Bogotá river decontamination works. The audience  of December 16, 2008 Emgesa reaffirmed that the company has complied  with all its commitments under the agreement signed. |
| Amount Involved: |   | Undetermined                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| xiii. Tribunal:  |   | Administrative Circuit Court (10)                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Case No.:        |   | 2004-1348                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Plaintiffs:      |   | José Edgar Bejarano and Others                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Defendants:      |   | Emgesa and Chivor S.A. ESP.                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
| Cause:           |   | Liability is demanded for the flooding of the Upia  river-banks in 2002, arguing negligence in operating the Guavio dam’s  sluice-gates. The defendants are therefore being sued for payment of the  respective damages.                                                                                                                                                                                                                                                                  |
| Process Status:  |   | Pending resolution of the proceedings brought by  those called in guarantee by the plaintiff entities. Presently with the State  Council.                                                                                                                                                                                                                                                                                                                                                      |
| Amount Involved: |   | Col$2,000 millions or US$ 0.9 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |
| xiv. Tribunal:   |   | Administrative Tribunal of Cundinamarca — first  section                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Case No.:        |   | 2005-1476                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| Plaintiff:       |   | Emgesa                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Defendant:       |   | CAR                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Cause:           |   | Action of nullity and re-establishment of law by  which it seeks to be declared invalid administrative acts given by the CAR  (Resolutions 506 of March 28, 2005 and 1189 of July 8, 2005) and  reestablish the rights of Emgesa that were violated by these resolutions  because they impose the carrying out of works at the Muña reservoir as a  condition of the maintenance of the water concession.                                                                       |
| Process status:  |   | On November 19, 2008, an order was issued  notifying CAR to pronounce with respect to the suspension of the process  requested by Emgesa.                                                                                                                                                                                                                                                                                                                                                 |
| Amount involved: |   | Col$2,000 millions or US$ 0.9 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                   |

 

F-95

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| xv. Court:                                        |     | Administrative Circuit Court (40)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
|---------------------------------------------------|----------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:                                         |     | 2005-1990                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| Plaintiffs:                                       |     | Juan Andrés Cano García and others                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Defendants:                                       |     | Emgesa and 18 other entities, including the  ministries of mining and the environment, CAR, National Institute of Mines  and various municipalities in the zone of influence.                                                                                                                                                                                                                                                                                                                                                                         |
| Cause:                                            |     | Class Action for claiming that Emgesa is  responsible for environmental damage at the Tominé dam and specifically the  reduction of the volume of water in the reservoir since 1997 and an abundance  of non-native vegetation, thus neglecting to comply with its function of  guaranteeing public assets that it uses to carry on business. The plaintiffs  argue that Emgesa has not invested in the recovery and conservation of water  resources and to date has not carried out any kind of work to clear the  non-native vegetation. |
| Process status:                                   |     | Pending compliance by the plaintiffs with the  notification of the individuals who should be notified of the content of the  demand.                                                                                                                                                                                                                                                                                                                                                                                                                  |
| Amount involved:                                  |     | Col$2,000 millions or US$ 0.9 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                              |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| *Hidroelectrica  El Chocón S.A. (Argentina)* |
| * *                                          | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| i. Tribunal:                                      |     | National Chamber of Appeals in Administrative  Disputes                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| Case No.:                                         |     | 20570/08                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Plaintiff:                                        |     | AFIP —DGI                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Defendant:                                        |     | Hecsa                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Cause:                                            |     | The AFIP determined the obligation of the company to  pay the sum of Arg$1,754,938 with respect to income taxes — withholdings from  foreign beneficiaries, understanding that the company omitted to make such  withholdings on payments made abroad for work in obtaining a bank loan during  1994. The company did not make the withholdings because it considered that  these were foreign-sourced earnings not subject to the tax.                                                                                                          |
| Process status:                                   |     | Pending appeal made by Hecsa against the sentence of  the fiscal tribunal that partially revoked the resolution of AFIP with costs  to the company.                                                                                                                                                                                                                                                                                                                                                                                                   |
| Amount involved:                                  |     | Arg$ 2.9 millions or US$ 0.8 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|                                              |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ii. Court:                                        |     | Supreme Court of Argentina                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Case No.:                                         |     | 114/99                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| Plaintiff:                                        |     | Province of Neuquén                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Defendant:                                        |     | Hecsa                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| Cause:                                            |     | On June 26, 2000, the company was notified of a  lawsuit for interest to be paid related to royalties allegedly paid late,  initiated by the province of Neuquén before the Supreme Court of Justice of  the Nation.                                                                                                                                                                                                                                                                                                                        |
| Process status:                                   |     | On September 30, 2008, the Supreme Court  resolved to establish the amounts of the fees of the lawyers of Neuquén plus  those of the accounting expert, which amount to a total of $ 1,446,000 plus  VAT, which sum was deposited by Hecsa in November 2008.                                                                                                                                                                                                                                                                      |
| Amount involved:                                  |     | Arg$1.4 millions or US$ 0.4 millions, plus VAT.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |

 

F-96

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.          Commitmentsand contingencies, continued:**

 
| iii. Court:                     |     | Supreme Court of Argentina                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|---------------------------------|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Case No.:                       |     | N 164/99                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Plaintiff:                      |     | Province of Neuquén                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Defendants:                     |     | Hecsa, Estado Nacional, AES  Alicurá S.A., Piedra del Águila S.A. and Cerros Colorados S.A.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Cause:                          |     | On September 27, 2000, the Company was notified  of a demand by the province of Neuquén against the state and hydroelectric  generators of Comahue to obtain royalties earned on accumulated funds in the  Salex Account. The action seeks to charge 12% of the funds understood to be  contributed by each generator to the account. In 2004, an accounting expert  determined the amounts allegedly accumulated by the company and the  respective percentages and, with this base, estimated the total amount of  royalties owed. The expert testimony was refuted.                                                                                                                                                                                                                 |
| Process status:                 |     | The case is awaiting sentence.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Amount involved:                |     | Arg$1.6 millions or US$ 0.5 millions, plus interest  and indexation.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|                            |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| iv. Tribunal:                   |     | Administrative Branch                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Case No.:                       |     | n/n                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Plaintiff:                      |     | Province of Río Negro                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Defendant:                      |     | Hecsa                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| Cause:                          |     | Hecsa received notification from the Provincial  Directorate of Cadastre of the Rio Negro Province about a real estate tax  payment for the May 2004 period, which established a property value of  $294,997,709 Argentine pesos and taxes payable of $393,328.40 Argentine  pesos. On October 25, 2004 the Company responded questioning the revenue  service’s appraisal of the property value. The General Revenue Service sent  the company demands to pay installments 5 and 6 of 2004 and 1 through 6 of  2005. The Company presented a note rejecting each of these demands.                                                                                                                                                                                               |
| Process status:                 |     | Pending administrative proceedings.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| Amount involved:                |     | Arg$56 millions or US$ 16 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|                            |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| *Hidroinvest  S.A. (Argentina)* |
| * *                        | * * | * *                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| Tribunal:                       |     | Argentine Supreme Court                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
| Case No.:                       |     | H 7336/05                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| Plaintiff:                      |     | Hidroinvest S.A. (“Hidroinvest”)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
| Defendant:                      |     | AFIP —DGI                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| Cause:                          |     | The AFIP made demand on the company to pay income  taxes of Arg$3.4 Hidroinvestthat Hidroinvest supposedly should have paid on  differences between the cost and transfer price of bonds given to the  Argentine State for having benefited economically from said operation. The  National Tax Tribunal confirmed AFIP’s ruling in 2004 with respect to the taxes  and interest, imposing costs to Hidroinvest, but revoked the imposed fine of  70% of the unpaid tax. In order to avoid the start of the fiscal execution of  the presumed credit, the company paid the sum of Arg$3.4 with respect to  capital and Arg$13.6 for interest, in July 2004, stating that the  reserve and expecting the results of the proceedings against the sentence of  the National Tax Tribunal. |
| Process status:                 |     | The Company and the IRS both filed appeals against  the ruling of the National Tax Tribunal before the National Chamber for  Federal Administrative Disputes. This tribunal rejected the appeals made and  upheld the sentence of the National Tax Tribunal. Against this decision they  filed ordinary and extraordinary appeals before the Supreme Court of Argentina  which are pending resolution.                                                                                                                                                                                                                                                                                                                                                                                           |
| Amount involved:                |     | Arg$17.5 millions or US$ 5.1 millions.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |

 

F-97

----

Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**29.      Commitmentsand contingencies, continued:**

 

*Endesa Costanera S.A. (Argentina)*

* *

In July 1990, theItalian Government authorized Medio Credito Centrale to grant a loan to theArgentine Government to finance purchases of goods and services of Italianorigin, to renew four groups of the thermo-electric plant owned by ServiciosEléctricos del Gran Buenos Aires (“SEGBA”). SEGBA granted to Endesa Costanera a mandate to administer the carryingout the corresponding works covered by a contract between SEGBA and aconsortium led by Ansaldo S.p.A., Italy.

 

In accordance with Law No. 25.561,Decree No. 214/02 and their related regulations, the obligation to pay byEndesa Costanera contained in the contract were “pesified” at the rate of onepeso to one dollar, plus a special stabilization coefficient (“CER”), with theoriginal interest rate stated for the obligation.

 

On January 10, 2003,the Executive National Power dictated Decree No.53/03 that modified Decree No.410/02by including exceptions to the “pesification” of the obligation to pay sums ofmoney in foreign currency of provinces, municipalities, public and privatesector companies to the state government arising from subsidiary or other loansand guarantees, originally financed by multilateral credit organisms ororiginated in liabilities assumed by the National Treasury and refinanced withforeign creditors.

 

Endesa Costaneraconsiders that the loan resulting from the contract does not meet any of theassumptions foreseen in Decree No.53/03, plus there are solid arguments fordetermining the unconstitutionality of that decree as it violates principles ofequity and property rights established in the National Constitution.  The maximum contingency that would beproduced by complying with the assumption mentioned would, as of December 31,2008, imply a patrimonial reduction, net of tax effects, of approximately US$19millions. To date, the Secretary of Energy has presented no complaint againstthe “pesified” payments made by Endesa Costanera.

 

d.     Restrictions:

 

The Company is incompliance with all financial ratios and covenants as of December 31, 2008and 2007, detailed as follows:

 

*Endesa Chile*

* *

The Company must complywith financial covenants and requirements derived from loan agreements withfinancial institutions.  Some of the morerestrictive covenants are summarized as follows:

 

·      Theratio of consolidated debt to consolidated EBITDA for the four consecutivefiscal quarters does not exceed 4.20;

·      Ratioof consolidated debt to equity plus minority interest to be no greater than105%;

·      Atleast 50% of the consolidated assets of Endesa Chile should be regulatedassets, *i.e.* companies whose principal businessis the generation, transmission and trade of electric energy;

·      Minimumshareholders’ equity of at least equal to UF 45,000,000.

 

The covenants dealingwith Adjusted Operating Cash Flow, as defined, were eliminated in amendmentssigned in October 2008.

 

As is customary in creditagreements and capital market transactions, a substantial portion of EndesaChile’s indebtedness is subject to cross-default provisions.  If a material default is not cured byapplicable grace periods, it could result in a cross-default for Endesa Chileand a significant part of Endesa Chile’s liabilities could become due andpayable subject to certain additional condictions.

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.****                  ****Commitments and contingencies, continued:**

** **

Under the bank facilitiesentered into between 2004 and 2008, if Endesa Chile’s or any RelevantSubsidiary, as defined for facilities in 2004 and 2006, fails in the paymentfor an amount in excess of US$ 50 million in any indebtedness with anoutstanding principal amount over US$ 50 million, or if any indebtedness ofEndesa Chile’s or any Relevant Subsidiary is declared due and payable, lendersrepresenting more than half of the amount outstanding would have the right todeclare the loan due and payable.

 

Similarly, under theIndentures that governs Endesa Chile’s Yankee Bonds, if Endesa Chile’s or anyof its Subsidiaries, fails in a payment of any indebtedness with an outstandingprincipal amount over US$30 million, the Trustee or bondholders representing atleast 25% of any given series would have the right to declare the bonds due andpayable.

 

Furthermore,some credit agreements contain provisions such that certain non-payment events,in this company or any of its relevant subsidiaries, such as bankruptcy,insolvency, adverse court rulings and expropriations of assets greater than US$50 million, could cause the loan payment schedule to be accelerated

** **

*Endesa Costanera S.A.*

 

In virtue of thearrangement in Annex VI-A of the International Public Tender for the Sale ofShares of Endesa Costanera , the domain of Endesa Costanera S.A.’s land wastransferred subject to the condition that it used as the location for anelectric power plant for a term of twenty five years as of the date ofpossession.

 

If under any circumstancewhatsoever the land ceases to be used for that purpose during the indicatedperiod, its domain shall be considered revoked due to this cause, returningsuch title effective immediately, and as a matter of law, to SEGBA S.A. or, asapplicable, to the National State.

 

The most significantrequirements in respect to financial covenants are those contained in thesyndicated loan, the Agent of which is BBVA Banco Francés, and in the bilateralwith JP Morgan, which are the following:

 

·      Thelong-term debt with third parties cannot exceed US$ 215 million (excludingshort-term debt, commercial debt, intercompany loans, and debt with ItalianGovernment (see above)); short term debt of less than 180 days cannot exceedUS$ 10 million;

·      Clausesthat restrict change of control of the company;

·      Clausesthat restrict payments to shareholders, including subordination of the debtassociated with certain financial indicators.

 

*El Chocón*

* *

Thecredit agreement from September 7, 2006 imposes certain obligations tocomply with the following financial ratios:

 

·      Ratioof EBITDA to financial expenses no less than 3.5;

·      Ratioof debt to EBITDA no greater than 3.0;

·      Netequity no less than 690 million Argentine pesos;

·      Third-partydebt no greater than US$ 120 million.

 

*Edegel S.A*

* *

In accordance contracteddebt agreements, Edegel has to comply with the following:

* *

·                  Indebtedness ratio less than 1.50

·                  Interest coverage no less than 3.25

·                  Ebitda less than 4.0

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**29.****                              ****Commitments and contingencies, continued:**

** **

The credit agreements donot contain clauses such that changes in the debt rating of these companieswould create an obligation to prepay the debt. However, a change in Standard & Poor’s (S&P) riskclassification for debt denominated in foreign currency would produce a changein the applicable margin of syndicated credits subscribed in 2004 and 2006.

 

**30.      Collaterals obtained from third parties:**

** **

*Endesa Chile*

* *

The Company has receivedcertified guarantees from contractors and third parties to guaranteeperformance and construction to the amount of ThCh$ 127,753,565 as of December 31,2008 (ThCh$ 39,626,060 in 2007).

 

*Enigesa S.A.*

* *

The Company has receiveddocuments in guarantee amounting to ThCh$ 28,000 as of December 31, 2008  (ThCh$ 30,492 in 2007).

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

# **31.          Foreign currencies:**

# ** **

Asof December 31, 2007 and 2008, foreign currency denominated assets andliabilities are as follows:

 

Thenote details in which currency assets and liabilities are denominated. Assetsand liabilities held by foreign subsidiaries are remeasured in US dollar, whichin accordance with BT 64 is the functional currency of foreign subsidiaries,(see Notes 2 (c) and 2 (m))

 

a.               Assets:

 
| ** **                                  | ** ** | ** **   | ** ** | **As of December 31,** | ** ** |
|---------------------------------------------|------------|--------------|------------|-----------------------------|------------|
| **Account**                                 | ** ** | **Currency** | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                  | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| Cash                                        |       | Ch$          |       | 775,858                     |       | 2,518,360 |   |
|                                        |       | US$          |       | 7,557,000                   |       | 12,464,891 |   |
|                                        |       | $ Col   |       | 9,862,730                   |       | 29,219,483 |   |
|                                        |       | Soles        |       | 2,436,164                   |       | 9,941,360 |   |
|                                        |       | $ Arg   |       | 411,574                     |       | 169,829 |   |
|                                        |       | Reales       |       | 80,238                      |       | 202,416 |   |
|                                        |       |         |       |                        |       |   |   |
| Time deposits                               |       | US$          |       | 41,191,484                  |       | 147,358,605 |   |
|                                        |       | $ Col   |       | 1,133,633                   |       | 3,538,662 |   |
|                                        |       | $ Arg   |       | 5,636,434                   |       | 20,832,077 |   |
|                                        |       | Reales       |       | 251,349                     |       | 272,121 |   |
|                                        |       |         |       |                        |       |   |   |
| Marketable securities                       |       | Ch$          |       | 5,987                       |       | 6,120 |   |
|                                        |       | US$          |       | 270                         |       | — |   |
|                                        |       | $ Col   |       | 11,215,654                  |       | 101,223,554 |   |
|                                        |       |         |       |                        |       |   |   |
| Accounts receivables, net                   |       | Ch$          |       | 119,672,199                 |       | 119,542,577 |   |
|                                        |       | US$          |       | 5,049,323                   |       | 655,153 |   |
|                                        |       | $ Col   |       | 48,816,528                  |       | 56,334,099 |   |
|                                        |       | Soles        |       | 10,376,092                  |       | 38,744,669 |   |
|                                        |       | $ Arg   |       | 46,093,104                  |       | 61,144,388 |   |
|                                        |       |         |       |                        |       |   |   |
| Other accounts receivable, net              |       | UF           |       | 3,050,769                   |       | 3,088,979 |   |
|                                        |       | Ch$          |       | 34,615,202                  |       | 17,490,502 |   |
|                                        |       | US$          |       | 12,101,214                  |       | 379 |   |
|                                        |       | $ Col   |       | 7,940,836                   |       | 10,095,369 |   |
|                                        |       | Soles        |       | 1,000,940                   |       | 1,385,225 |   |
|                                        |       | $ Arg   |       | 2,706                       |       | 636 |   |
|                                        |       | Reales       |       | 6,677,623                   |       | 21,526 |   |
|                                        |       |         |       |                        |       |   |   |
| Accounts receivables from related companies |       | Ch$          |       | 67,641,788                  |       | 34,964,596 |   |
|                                        |       | US$          |       | 99,402,822                  |       | 340,765 |   |
|                                        |       | $ Col   |       | 20,837,478                  |       | 26,469,956 |   |
|                                        |       | Soles        |       | 2,850,724                   |       | 5,756,833 |   |
|                                        |       | Reales       |       | 877,458                     |       | 1,091,811 |   |
|                                        |       | $Arg         |       | —                      |       | 3,638,793 |   |

 

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

** **

a,     Assets, continued:

 
| ** **               | ** ** | ** **   | ** ** | **As of December 31,** | ** ** |
|--------------------------|------------|--------------|------------|-----------------------------|------------|
| **Account**              | ** ** | **Currency** | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **               | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| Inventory, net           |       | Ch$          |       | 41,037,081                  |       | 20,887,489 |   |
|                     |       | US$          |       | —                      |       | 862,560 |   |
|                     |       | $ Col   |       | 3,588,155                   |       | 6,559,890 |   |
|                     |       | Soles        |       | 10,273,169                  |       | 13,779,946 |   |
|                     |       | $ Arg   |       | 2,043,244                   |       | 2,196,389 |   |
|                     |       |         |       |                        |       |   |   |
| Income taxes recoverable |       |  Ch$    |       | 53,229,576                  |       | 26,865,180 |   |
|                     |       | Reales       |       | 6,946                       |       | — |   |
|                     |       | Soles        |       | 3,878,141                   |       | 1,533,714 |   |
|                     |       | $ Col   |       | 11,283,834                  |       | 2,710 |   |
|                     |       | $ Arg   |       | 2,257,445                   |       | 1,285,461 |   |
|                     |       |         |       |                        |       |   |   |
| Prepayments              |       | Ch$          |       | 599,151                     |       | 631,262 |   |
|                     |       | US$          |       | 766,598                     |       | 1,269,073 |   |
|                     |       | $ Col   |       | 870,110                     |       | 1,228,349 |   |
|                     |       | Soles        |       | 1,728,119                   |       | 1,146,941 |   |
|                     |       | $ Arg   |       | 1,024,869                   |       | 1,868,617 |   |
|                     |       | Reales       |       | —                      |       | — |   |
|                     |       |         |       |                        |       |   |   |
| Deferred income tax      |       | Ch$          |       | 2,470,852                   |       | 3,193,758 |   |
|                     |       | $ Col   |       | 670,440                     |       | 556,894 |   |
|                     |       |         |       |                        |       |   |   |
| Other current assets     |       | Ch$          |       | 29,640,975                  |       | 335,890,229 |   |
|                     |       | $ Col,  |       | 563,298                     |       | 247,579 |   |
|                     |       | US$          |       | —                      |       | 38,901,403 |   |
|                     |       | $ Arg   |       | 94,695                      |       | 1,370,913 |   |
|                     |       | Reales       |       | 257                         |       | 192 |   |
|                     |       |         |       |                        |       |   |   |
| Total current assets     |       |         |       | 733,592,136                 |       | 1,168,792,283 |   |

 

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

 

a. Assets, continued

 
|                            |       |         |   | **As of  December 31,** |       |
|---------------------------------|------------|--------------|--------|------------------------------|------------|
| **Fixed assets**                | ** ** | **Currency** |   | **2007**                     | ** ** | **2008** |   |
| ** **                      | ** ** | ** **   |   | **ThCh$**                    | ** ** | **ThCh$** |   |
| Land                            |       | Ch$          |   | 36,615,093                   |       | 36,792,316 |   |
|                            |       | $ Col   |   | 11,716,184                   |       | 14,488,148 |   |
|                            |       | Soles        |   | 4,144,627                    |       | 4,874,854 |   |
|                            |       | $ Arg   |   | 5,178,453                    |       | 6,090,827 |   |
|                            |       |         |   |                         |       |   |   |
| Construction  in progress  |       | Ch$          |   | 4,060,158,720                |       | 4,257,827,402 |   |
|                            |       | $ Col   |   | 1,537,249,609                |       | 1,831,810,660 |   |
|                            |       | Soles        |   | 548,403,275                  |       | 635,248,300 |   |
|                            |       | $ Arg   |   | 254,990,942                  |       | 299,916,879 |   |
|                            |       |         |   |                         |       |   |   |
| Machinery  and equipment        |       | Ch$          |   | 16,077,796                   |       | 16,989,989 |   |
|                            |       | $ Col   |   | 13,452,616                   |       | 11,002,948 |   |
|                            |       | Soles        |   | 581,995,628                  |       | 672,402,667 |   |
|                            |       | $ Arg   |   | 635,220,915                  |       | 780,421,355 |   |
|                            |       | Reales       |   | 45,638                       |       | 86,778 |   |
|                            |       |         |   |                         |       |   |   |
| Other  fixed assets             |       | Ch$          |   | 98,641,051                   |       | 156,261,748 |   |
|                            |       | $ Col   |   | 9,470,564                    |       | 12,841,652 |   |
|                            |       | Soles        |   | 68,453,783                   |       | 154,221,882 |   |
|                            |       | $ Arg   |   | 7,524,720                    |       | 8,854,929 |   |
|                            |       | Reales       |   | 8,069                        |       | 19,170 |   |

 

F-103

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

** **

a. Assets, continued

** **
| ** **               | ** ** | ** **   | ** ** | **As of December 31,** | ** ** |
|--------------------------|------------|--------------|------------|-----------------------------|------------|
| **Fixed assets**         | ** ** | **Currency** | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **               | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| Technical appraisal      |       | Ch$          |       | 13,975,667                  |       | 14,012,301 |   |
|                     |       |         |       |                        |       |   |   |
| Accumulated depreciation |       | Ch$          |       | (1,912,259,700              | )          | (2,025,117,766 | ) |
|                     |       | $ Col   |       | (461,246,525                | )          | (583,634,197 | ) |
|                     |       | Soles        |       | (500,289,068                | )          | (631,889,872 | ) |
|                     |       | $ Arg   |       | (493,355,099                | )          | (632,727,404 | ) |
|                     |       | Reales       |       | (21,788                     | )          | (38,631 | ) |
|                     |       |         |       |                        |       |   |   |
| Total fixed assets       |       |         |       | 4,536,151,170               |       | 5,040,756,935 |   |

** **
| ** **                            | ** ** | ** **   | ** ** | **As of December 31,** |
|---------------------------------------|------------|--------------|------------|-----------------------------|
| **Other assets**                      | ** ** | **Currency** | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                            | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| Investments in related companies |       | Ch$          |       | 59,613,936                  |   | 112,902,962 |   |
|                                  |       | US$          |       | 423,937,093                 |   | 575,979,746 |   |
|                                  |       |         |       |                        |   |   |   |
| Investments in other companies        |       | Ch$          |       | 3,044,503                   |   | 3,026,243 |   |
|                                  |       | $ Col   |       | 1,429,079                   |   | 1,549,119 |   |
|                                  |       | Soles        |       | 25,516                      |   | 30,011 |   |
|                                  |       |         |       |                        |   |   |   |
| Goodwill                              |       | Ch$          |       | 3,124,012                   |   | 3,233,465 |   |
|                                  |       | US$          |       | 306,341                     |   | — |   |
|                                  |       | $ Col   |       | 7,301,241                   |   | 7,648,856 |   |
|                                  |       |         |       |                        |   |   |   |
| Negative goodwill                     |       | Ch$          |       | (13,004,197                 | ) | — |   |
|                                  |       | US$          |       | (6,489,231)                 |   | (19,135,754 | ) |
|                                  |       | Soles        |       | (20,803,821                 | ) | (21,956,856 | ) |

 

F-104

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

** **

a. Assets, continued

** **
|                                |       |         |   | **As of  December 31,** |       |
|-------------------------------------|------------|--------------|--------|------------------------------|------------|
| **Other assets**                    | ** ** | **Currency** |   | **2007**                     | ** ** | **2008** |   |
| ** **                          | ** ** | ** **   |   | **ThCh$**                    | ** ** | **ThCh$** |   |
| Long-term  receivables              |       | UF           |   |  5,372,914              |       |  2,782,676 |   |
|                                |       | Ch$          |   |  797,657                |       |  1,066,087 |   |
|                                |       | $ Arg   |   |  84,527,836             |       |  90,841,782 |   |
|                                |       | Soles        |   |  —       |       |  —   |   |
|                                |       |         |   |                         |       |   |   |
| Receivables  from Related companies |       |  Ch$    |   | 402                          |       | — |   |
|                                |       | US$          |   | —                       |       |  109,601,626 |   |
|                                |       |         |   |                         |       |   |   |
| Other  long-term assets             |       | Ch$          |   |  19,941,699             |       |  23,822,847 |   |
|                                |       | US$          |   |  1,470,114              |       |  6,280,884 |   |
|                                |       | $ Col   |   |  13,181,584             |       |  18,186,023 |   |
|                                |       | Soles        |   |  395,352                |       |  507,849 |   |
|                                |       | $ Arg   |   |  12,939,101             |       |  16,438,867 |   |
|                                |       |         |   |                         |       |   |   |
| Total other assets                  |       |         |   | 597,111,131                  |       | 932,806,433 |   |

** **
|                         |       |         |   | **As of  December 31,** |       |
|------------------------------|------------|--------------|--------|------------------------------|------------|
| **Total assets by currency** | ** ** | **Currency** |   | **2007**                     | ** ** | **2008** |   |
| ** **                   | ** ** | ** **   |   | **ThCh$**                    | ** ** | **ThCh$** |   |
|                         |       | UF           |   |  8,423,683              |       |  5,871,655 |   |
|                         |       | Ch$          |   |  2,736,415,308          |       |  3,162,807,667 |   |
|                         |       | US$          |   |  585,293,028            |       |  874,579,331 |   |
|                         |       | $ Col   |   |  1,249,337,048          |       |  1,549,369,754 |   |
|                         |       | Soles        |   |  714,868,641            |       |  885,727,523 |   |
|                         |       | $ Arg   |   |  564,590,939            |       |  662,344,338 |   |
|                         |       | Reales       |   |  7,925,790              |       |  1,655,383 |   |
| Total assets                 |       |         |   | 5,866,854,437                |       | 7,142,355,651 |   |

 

F-105

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

 

b.              Current liabilities:

 
|                              |       | ** **   |       | **Within 90 days**          |       | **91 days to 1 year**       | ** ** |
|-----------------------------------|------------|--------------|------------|-----------------------------|------------|-----------------------------|------------|
|                              |       | ** **   | ** ** | **as of December 31, 2007** | ** ** | **as of December 31, 2008** |       | **as of December 31, 2007** | ** ** | **as of December 31, 2008** | ** ** |
|                              |       |         |       | ** **                  | ** ** | **Average**                 | ** ** | ** ** | ** ** | **Average** |   | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Account**                       | ** ** | **Currency** | ** ** | **Amount**                  | ** ** | **Rate**                    | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** |
| ** **                        | ** ** | ** **   | ** ** | **ThCh$**                   | ** ** | ** **                  | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** |
|                              |       |         |       |                        |       |                        |       |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Short-term debt due to banks and  |       | Ch $         |       | 1                           |       | 0.30                        | %          | 1,257,314 |   | 0.96 | % | — |   |   |   | — |   |   | ** ** |
| financial  Institutions           |       | US$          |       | 8,096,081                   |       | 6.18                        | %          | 19,492,411 |   | 6.77 | % | 3,630,870 |   | 6.90 | % | 3,323,224 |   | 20.00 | % |
|                              |       | $ Col,  |       | 17,061,300                  |       | 11.95                       | %          | 32,496,501 |   | 10.83 | % | — |   |   |   | — |   |   | ** ** |
|                              |       | $ Arg,  |       | —                      |       | —                      |       | 110,743 |   | 17.44 | % | — |   | — |   | 12,367,814 |   | 16.77 | % |
| Current portion of long-term debt |       | US$          |       | 13,621,729                  |       | 7.15                        | %          | 6,592,603 |   | 8.36 | % | 16,558,914 |   | 8.35 | % | 47,751,635 |   | 6.04 | % |
| due to banks and  financial       |       | Soles        |       | 30,722,549                  |       | 5.96                        | %          | — |   | — |   | — |   |   |   | — |   |   | ** ** |
| Institutions                 |       | $ Arg   |       | —                      |       | —                      |       | 1,267,922 |   | 1.75 | % | 2,182,004 |   | 1.75 | % | 1,255,391 |   | 1.75 | % |
|                              |       | $ Col,  |       | 9,876,398                   |       | 12.19                       | %          | 10,407,867 |   | 12.13 | % | — |   |   |   | — |   |   | ** ** |
| Current portion of                |       | UF           |       | —                      |       | —                      |       | — |   | — |   | 3,214,523 |   | 5.70 | % | 3,630,353 |   | 5.59 | % |
| bonds payable                     |       | US$          |       | 445,250                     |       | 7.79                        | %          | 7,075,903 |   | 7.98 | % | 248,293,725 |   | 7.79 | % | 429,248,909 |   | 7.98 | % |
|                              |       | $ Col   |       | 8,665,961                   |       | 10.97                       | %          | 101,660,795 |   | 10.99 | % | — |   |   |   | — |   |   | ** ** |
|                              |       | Soles        |       | 18,845,439                  |       | 10.20                       | %          | 1,093,665 |   | 6.87 | % | — |   |   |   | 14,179,344 |   | 6.87 | % |
| Current portion of long term      |       | US$          |       | 13,312,241                  |       | 7.42                        | %          | 21,076,678 |   | 7.42 | % | 7,847,224 |   | 7.42 | % | 5,846,348 |   | 7.42 | % |
| Payables                          |       | $ Arg   |       | 1,158,694                   |       | —                      |       | 3,233,122 |   | 4.92 | % | 3,180,178 |   |   |   | 4,924,976 |   | 4.92 | % |
| Dividends payable                 |       | Ch $         |       | 3,278,585                   |       | —                      |       | 4,242,444 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | $ Col,  |       | 21,967,674                  |       | —                      |       | — |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | Soles        |       | 79,682                      |       | —                      |       | 75,242 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | $ Arg,  |       | 293,260                     |       | —                      |       | 287,280 |   | — |   | — |   |   |   | — |   |   | ** ** |
| Miscellaneous payables            |       | Ch $         |       | 124,265,515                 |       | —                      |       | 157,663,468 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | US$          |       | 30,404,204                  |       | —                      |       | 7,427,720 |   | — |   | 7,707,945 |   |   |   | 8,816,356 |   |   | ** ** |
|                              |       | Euro         |       | 452,058                     |       | —                      |       | 1,928,092 |   | — |   |   |   |   |   |   |   |   | ** ** |
|                              |       | $ Col,  |       | 11,452,661                  |       | —                      |       | 21,692,777 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | Soles        |       | 11,800,108                  |       | —                      |       | 27,312,436 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | $ Arg,  |       | 24,043,955                  |       | —                      |       | 39,417,816 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | Reales       |       | 703                         |       | —                      |       | 7,850 |   | — |   | — |   |   |   | — |   |   | ** ** |
| Accounts payable                  |       | Ch$          |       | 5,013,704                   |       | —                      |       | 2,421,666 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | US$          |       | 260,368                     |       | —                      |       | 1,830,377 |   | — |   | 7,602,818 |   |   |   | 5,590,469 |   |   | ** ** |
|                              |       | $ Col,  |       | 9,968,389                   |       | —                      |       | 4,228,213 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | Soles        |       | 4,559,968                   |       | —                      |       | 1,953,109 |   | — |   | — |   |   |   | 2,230,094 |   |   | ** ** |
|                              |       | Reales       |       | 1,845                       |       | —                      |       | 1,146 |   | — |   | — |   |   |   | — |   |   | ** ** |
| Accounts payable  to related      |       | US$          |       | 12,012,501                  |       | —                      |       | — |   | — |   | — |   |   |   | — |   |   | ** ** |
| companies                         |       | Ch$          |       | 1,489,909                   |       | —                      |       | 3,381,261 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | $ Col   |       | 3,371,933                   |       | —                      |       | 65,570,261 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | Soles        |       | 182,804                     |       | —                      |       | 196,553 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                              |       | $ Arg   |       | 87,098                      |       | —                      |       | 15,341,208 |   | — |   | — |   |   |   | — |   |   | ** ** |

 

F-106

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

 

b,              Current liabilities, continued:

 
|                       |       | ** **   |       | **Scheduled  Maturities**   | ** ** |
|----------------------------|------------|--------------|------------|-----------------------------|------------|
|                       |       | ** **   |       | **Within 90 days**          |       | **91 days to 1 year** | ** ** |
|                       |       | ** **   | ** ** | **As of December 31, 2007** | ** ** | **As of December 31, 2008** |   | **As of December 31, 2007** | ** ** | **As of December 31, 2008** | ** ** |
|                       |       |         |       | ** **                  | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** |   | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Account**                | ** ** | **Currency** | ** ** | **Amount**                  | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** |
|                       |       |         |       |                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Accrued income             |       | Ch$          |       | —                      |       | — |   | — |   | — |   | — |   | — |   | — |   |   | ** ** |
|  Provisions           |       | Ch$          |       | 1,626,705                   |       | — |   | 1,532,845 |   | — |   | 14,298,395 |   |   |   | 21,562,930 |   |   | ** ** |
|                       |       | US$          |       | 7,220                       |       | — |   | — |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Col   |       | 13,745,606                  |       | — |   | 8,560,889 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | Soles        |       | 505,852                     |       | — |   | 1,385,844 |   | — |   | 659,048 |   |   |   | 5,150 |   |   | ** ** |
|                       |       | $ Arg   |       | 1,315,446                   |       | — |   | 693,094 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | Reales       |       | —                      |       | — |   | — |   | — |   | 4,626 |   |   |   | 4,004 |   |   | ** ** |
| Withholdings               |       | Ch$          |       | 11,929,248                  |       | — |   | 17,546,571 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Col   |       | 930,142                     |       | — |   | 1,451,703 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | Soles        |       | 1,958,312                   |       | — |   | 2,439,723 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Arg   |       | 6,908,613                   |       | — |   | 9,079,205 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | Reales       |       | 10,609                      |       | — |   | 25,577 |   | — |   | — |   |   |   | — |   |   | ** ** |
| Income  tax payables       |       | Ch $         |       | —                      |       | — |   | 18,628,303 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Col   |       | —                      |       | — |   | 36,060,621 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Arg   |       | 8,881,291                   |       | — |   | — |   | — |   | 99,364 |   |   |   |   |   |   | ** ** |
| Unearned  Revenue          |       | Ch $         |       | —                      |       | — |   | 130,000 |   | — |   | 683,953 |   |   |   | 270,565 |   |   | ** ** |
| Other current  liabilities |       | Ch $         |       | —                      |       | — |   | — |   | — |   | 63,228 |   |   |   | 48,677 |   |   | ** ** |
|                       |       | US$          |       | —                      |       | — |   | — |   | — |   | 4,693,031 |   |   |   | 9,918 |   |   | ** ** |
|                       |       | Soles        |       | 1,046,372                   |       | — |   | 23,668 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Arg   |       | 94,695                      |       | — |   | 1,742,600 |   | — |   | — |   |   |   | — |   |   | ** ** |
| Total  current liabilities |       | UF           |       | —                      |       | — |   | — |   | — |   | 3,214,523 |   |   |   | 3,630,353 |   |   | ** ** |
|    per currency  |       | Ch$          |       | 147,603,667                 |       | — |   | 206,803,872 |   | — |   | 15,045,576 |   |   |   | 21,882,172 |   |   | ** ** |
|                       |       | US$          |       | 78,159,594                  |       | — |   | 63,495,692 |   | — |   | 296,334,527 |   |   |   | 500,586,859 |   |   | ** ** |
|                       |       | Euro         |       | 452,058                     |       | — |   | 1,928,092 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | $ Col   |       | 97,040,064                  |       | — |   | 282,129,627 |   | — |   | — |   |   |   | — |   |   | ** ** |
|                       |       | Soles        |       | 69,701,086                  |       | — |   | 34,480,240 |   | — |   | 659,048 |   |   |   | 16,414,588 |   |   | ** ** |
|                       |       | $ Arg   |       | 42,783,052                  |       | — |   | 71,172,990 |   | — |   | 5,461,546 |   |   |   | 18,548,181 |   |   | ** ** |
|                       |       | Reales       |       | 13,157                      |       | — |   | 34,573 |   | — |   | 4,626 |   |   |   | 4,004 |   |   | ** ** |
| Total current  liabilities |       |         |       | 435,752,678                 |       |   |   | 660,045,086 |   |   |   | 320,719,846 |   |   |   | 561,066,157 |   |   | ** ** |

 

F-107

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

 

c.               Long-term liabilities, December 31,2008:

 
|                                                    |       |         |       | **Scheduled  maturity** | ** ** |
|---------------------------------------------------------|------------|--------------|------------|-------------------------|------------|
|                                                    |       | ** **   |       | **1 to 3  years**       |       | **3 to 5  years** |   | **5 to 10  years** |   | **More  than 10 years** | ** ** |
|                                                    |       |         |       | ** **              | ** ** | **Average** |   | ** ** | ** ** | **Average** |   | ** ** | ** ** | **Average** |   | ** ** | ** ** | **Average** | ** ** |
| **Account**                                             | ** ** | **Currency** |       | **Amount**              | ** ** | **Rate** |   | **Amount** | ** ** | **Rate** |   | **Amount** | ** ** | **Rate** |   | **Amount** | ** ** | **Rate** | ** ** |
| ** **                                              | ** ** | ** **   | ** ** | **ThCh$**               | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Long-term  debt due to banks and financial institutions |       | US$          |       | 378,113,733             |       | 4.38 | % | 3,904,972 |   | 3.63 | % | 130,283,763 |   | 3.63 | % | — |   |   | ** ** |
|                                                    |       | Soles        |       | 11,951,162              |       | 6.60 | % | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Arg   |       | 3,765,968               |       | 1.75 | % | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Col,  |       |                    |       |   |   | 86,523,468 |   | 12.13 | % | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Bonds payable                                           |       | UF           |       | —                  |       |   |   | — |   |   |   | — |   |   |   | 417,037,961 |   | 4.96 | % |
|                                                    |       | US$          |       | 136,124,562             |       | 7.81 | % | 267,309,000 |   | 8.13 | % | 133,476,293 |   | 8.64 | % | 32,087,263 |   | 7.78 | % |
|                                                    |       | $ Col,  |       | 113,470,139             |       | 13.43 | % | — |   |   |   | 119,143,426 |   | 12.99 | % | — |   |   | ** ** |
|                                                    |       | Soles        |       | 23,294,638              |       | 6.26 | % | 20,256,208 |   | 6.51 | % | 19,911,849 |   | 6.44 | % | 5,064,052 |   | 6.31 | % |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Long-term notes payable                                 |       | US$          |       | 43,506,787              |       | 7.42 | % | 29,192,733 |   | 7.42 | % | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $Arg         |       | 8,389,302               |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Miscellaneous                                           |       | UF           |       | —                  |       |   |   | — |   |   |   | — |   |   |   | 171,762 |   |   | ** ** |
|                                                    |       | Ch$          |       | 40,190                  |       |   |   | 2,900,655 |   |   |   | — |   |   |       | — |   |   | ** ** |
|                                                    |       | US$          |       | 52,693,545              |       |   |   | 18,447,573 |   |   |   | 37,743,026 |   |   |   | 13,261,275 |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Accrued expenses                                        |       | Ch$          |       | 971,536                 |       |   |   | 835,747 |   |   |   | 1,975,170 |   |   |   | 7,209,863 |   |   | ** ** |
|                                                    |       | $ Col   |       | 19,272,342              |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | Reales       |       | 107,895                 |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Deferred Taxes                                          |       | Ch $         |       | 39,245,992              |       |   |   | 8,036,382 |   |   |   | 34,271,252 |   |   |   | 53,744,345 |   |   | ** ** |
|                                                    |       | Soles        |       | —                  |       |   |   | — |   |   |   | 47,499,575 |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Arg,  |       | 7,982,356               |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Other long-term  liabilities                            |       | UF           |       | 2,827,536               |       |   |   | 1,885,024 |   |   |   | 1,885,027 |   |   |   | — |   |   | ** ** |
|                                                    |       | Ch$          |       | —                  |       |   |   | — |   |   |   | — |   |   |   | 177,836 |   |   | ** ** |
|                                                    |       | US$          |       | 3,508,725               |       |   |   | 3,964,276 |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $Col         |       | 4,151,563               |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Arg,  |       | 16,386,042              |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Total long-term  liabilities                            |       | UF           |       | 2,827,536               |       |   |   | 1,885,024 |   |   |   | 1.885.027 |   |   |   | 417,209,723 |   |   | ** ** |
| per currency                                            |       | Ch $         |       | 40,257,718              |       |   |   | 11,772,784 |   |   |   | 36.246.422 |   |   |   | 61,132,044 |   |   | ** ** |
|                                                    |       | US$          |       | 613,947,352             |       |   |   | 322,818,554 |   |   |   | 301.503.082 |   |   |   | 45,348,538 |   |   | ** ** |
|                                                    |       | $ Col   |       | 136,894,044             |       |   |   | 86,523,468 |   |   |   | 119.143.426 |   |   |   | — |   |   | ** ** |
|                                                    |       | Soles        |       | 35,245,800              |       |   |   | 20,256,208 |   |   |   | 67.411.424 |   |   |   | 5,064,052 |   |   | ** ** |
|                                                    |       | $ Arg,  |       | 36,523,668              |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | Reales       |       | 107,895                 |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Total  long-term liabilities                            |       |         |       | 865,804,013             |       |   |   | 443,256,038 |   |   |   | 526,189,381 |   |   |   | 528,754,357 |   |   | ** ** |

 

F-108

----

Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes andexpressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**31.****                              ****Foreign currencies, continued:**

 

d.              Long-term liabilities asof  December 31, 2007:

 
|                                                    |       |         |       | **Scheduled  maturity** | ** ** |
|---------------------------------------------------------|------------|--------------|------------|-------------------------|------------|
|                                                    |       | ** **   |       | **1 to 3  years**       |       | **3 to 5  years** |   | **5 to 10  years** |   | **More  than 10 years** | ** ** |
|                                                    |       |         |       | ** **              | ** ** | **Average** |   | ** ** | ** ** | **Average** |   | ** ** | ** ** | **Average** |   | ** ** | ** ** | **Average** | ** ** |
| **Account**                                             | ** ** | **Currency** |       | **Amount**              | ** ** | **Rate** |   | **Amount** | ** ** | **Rate** |   | **Amount** | ** ** | **Rate** |   | **Amount** | ** ** | **Rate** | ** ** |
| ** **                                              | ** ** | ** **   | ** ** | **ThCh$**               | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** | **ThCh$** | ** ** | ** ** | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Long-term  debt due to banks and financial institutions |       | US$          |       | 128,400,708             |       | 7.08 | % | 96,752,423 |   | 6.47 | % | 4,205,329 |   | 5.75 | % | — |   |   | ** ** |
|                                                    |       | Soles        |       | —                  |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Arg   |       | 4,336,381               |       | 1.75 | % | 1,084,183 |   | 1.75 | % | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Col   |       | —                  |       |   |   | 81,917,505 |   | 12.19 | % | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Bonds payable                                           |       | UF           |       | —                  |       |   |   | — |   |   |   | — |   |   |   | 202,365,157 |   | 5.19 | % |
|                                                    |       | US$          |       | 351,723,587             |       | 8.21 | % | 15,151,168 |   | 4.36 | % | 324,667,920 |   | 8.44 | % | 127,863,429 |   | 7.71 | % |
|                                                    |       | $ Col   |       | 85,265,053              |       | 11.25 | % | 107,429,932 |   | 11.29 | % | 112,801,301 |   | 10.53 | % | — |   |   | ** ** |
|                                                    |       | Soles        |       | 23,471,716              |       | 6.70 | % | 5,416,549 |   | 6.16 | % | 30,693,774 |   | 6.43 | % | 9,027,581 |   | 6.30 | % |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Long-term notes payable                                 |       | US$          |       | 31,689,213              |       |   |   | 30,370,899 |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $Arg         |       | 6,599,038               |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Miscellaneous                                           |       | UF           |       | —                  |       |   |   | — |   |   |   | — |   |   |   | 171,094 |   |   | ** ** |
|                                                    |       | Ch$          |       | 10,427,189              |       |   |   | 3,084,861 |   |   |   | — |   |   |       | — |   |   | ** ** |
|                                                    |       | US$          |       | 14,007,119              |       |   |   | 32,229,617 |   |   |   | 6,583,442 |   |   |   | 12,859,010 |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Accrued expenses                                        |       | Ch$          |       | 1,093,731               |       |   |   | 868,255 |   |   |   | 2,065,043 |   |   |   | 7,321,685 |   |   | ** ** |
|                                                    |       | $ Col   |       | 18,989,005              |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Deferred Taxes                                          |       | Ch$          |       | 31,513,876              |       |   |   | 6,258,450 |   |   |   | 31,993,444 |   |   |   | 34,339,917 |   |   | ** ** |
|                                                    |       | Soles        |       | —                  |       |   |   | 64,655,535 |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Arg   |       | 4,326,201               |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Other long-term  liabilities                            |       | UF           |       | —                  |       |   |   | — |   |   |   | 7,692,617 |   |   |   | — |   |   | ** ** |
|                                                    |       | Ch$          |       | —                  |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | US$          |       | 751,276                 |       |   |   | 782,977 |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $Col         |       | 5,078,922               |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       | $ Arg   |       | 14,317,855              |       |   |   | — |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Total long-term  liabilities                            |       | UF           |       | —                  |       |   |   | — |   |   |   | 7,692,617 |   |   |   | 202,536,251 |   |   | ** ** |
| per  currency                                           |       | Ch$          |       | 43,034,796              |       |   |   | 10,211,566 |   |   |   | 34,058,487 |   |   |   | 41,661,602 |   |   | ** ** |
|                                                    |       | US$          |       | 526,571,903             |       |   |   | 175,287,084 |   |   |   | 335,456,691 |   |   |   | 140,722,439 |   |   | ** ** |
|                                                    |       | $ Col   |       | 109,332,980             |       |   |   | 189,347,437 |   |   |   | 112,801,301 |   |   |   | — |   |   | ** ** |
|                                                    |       | Soles        |       | 23,471,716              |       |   |   | 70,072,084 |   |   |   | 30,693,774 |   |   |   | 9,027,581 |   |   | ** ** |
|                                                    |       | $ Arg   |       | 29,579,475              |       |   |   | 1,084,183 |   |   |   | — |   |   |   | — |   |   | ** ** |
|                                                    |       |         |       |                    |       |   |   |   |   |   |   |   |   |   |   |   |   |   | ** ** |
| Total  long-term liabilities                            |       |         |       | 731,990,870             |       |   |   | 446,002,354 |   |   |   | 520,702,870 |   |   |   | 393,947,873 |   |   | ** ** |

 

**32.      Sanctions:**

** **

TheCompany and its directors have not been subject of sanctions by the SVS nor byany other administrative authorities.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

# **33.**                               Environment:

# ** **

During the yearended December 31, 2008, the Company and its domestic and foreignsubsidiaries made environmental expenditures of ThCh$3,330,696, whichprincipally corresponds to:

 

Operating expenseswhich include: studies, monitoring, follow-up, laboratory analyses, removal andtreatment of solid waste in hydroelectric and thermoelectric power plants,which totaled ThCh$2,389,003 expensed during the year. Environmental protectionexpenses for Hidroeléctrica el Chocón and Endesa Costanera (includingenvironmental monitoring, ISO 14001, the cleaning of hydrocarbon chamberscreens, measurement of gas emissions, measurement of Nox and SO2) wasequivalent to ThCh$426,422.

 

The Company capitalizedThCh$515,271for investments in the following projects.

 

·            Civil works for its EnvironmentalManagement System;

·            Replacement and removal of condenserscontaminated with PCBs;

·            Adaptation and certification under ISO9001, ISO 14001 and OHSAS 18001 standards;

·            Air quality studies needed to comply withRCA; and

·            Study and repairs to drainage systems atthe Bocamina Power Plant, considered in its Environmental System.

 

**34.****                              ****Subsequentevents:**

** **

Management is not awareof other significant events that have occurred after year-end and which couldaffect the presentation of these financial statements.

 

# **35.**                               Adoption of Internacional Financial Reporting Standards:

# ** **

In accordance withinstructions in Oficio Circular No. 427, issued by the SVS on December 28,2007, related to the process of adopting International Accounting Standards andInternational Financial Reporting Standards (IFRS), which complementsinstructions contained in Oficio Circular No. 384 of February 6,2007, beginning in 2009, Empresa Nacional de Electricidad S.A. should issue itsfinancial statements in accordance with IFRS as issued by the InternationalAccounting Standards Board (IASB). The preliminary effects of this change inthe Company’s financial statements has been quantified and communicated to theSVS in accordance with the instructions contained in Oficio Circular No. 457from June 20, 2008.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles:**

 

Chilean GAAP differs in certain important respects fromUS GAAP. Such differences involve certain methods for measuring the amountsshown in the financial statements.

 

#### **I.**                             Differences in Measurement Methods

#### ** **

Theprincipal differences between Chilean GAAP and US GAAP are described belowtogether with an explanation, where appropriate, of the method used in thedetermination of the adjustments that affect net income and total shareholders’equity. References below to “SFAS” are to Statements of Financial AccountingStandards issued by the Financial Accounting Standards Board in the UnitedStates.

 

a)              Inflationaccounting

 

The cumulative inflation rate in Chile as measured by theConsumer Price Index for the three-years ended December 31, 2008 wasapproximately 18.4%. Pursuant to Chilean GAAP, the Company’s financialstatements recognize certain effects of inflation.  The inclusion of price-level adjustments inthe accompanying consolidated financial statements is considered appropriateunder the prolonged inflationary conditions affecting the Chilean economy eventhough the cumulative inflation rate for the last three years does not exceed100%. As allowed pursuant to items 17(c)(iv)(A) of the Securities ExchangeCommission’s (SEC) rules, and rule 3-20 of the SEC’s regulation S-X, thereconciliation included herein of consolidated net income, comprehensive incomeand shareholders’ equity, as determined in accordance with US GAAP, does notinclude adjustments to eliminate the effect of inflation accounting underChilean GAAP.

 

b)             Reversal ofrevaluation of property, plant and equipment

 

Inaccordance with standards issued by the SVS, certain property, plant andequipment are recorded in the financial statements at amounts determined inaccordance with a technical appraisal. Under Chilean GAAP, the difference between the carrying value and therevalued amount is included in shareholders’ equity, beginning in 1989, in “Otherreserves”, and is subject to adjustments for price-level restatement anddepreciation.  Revaluation of property,plant and equipment is an accounting principle not generally accepted under USGAAP, therefore, the effects of the reversal of this revaluation, as well as ofthe related accumulated depreciation and depreciation expense is included inparagraph (w) below.

 

c)              Deferred incometaxes

 

c-1)Under Chilean GAAP, until December 31, 1999, deferred income taxes wererecorded based on non-recurring timing differences between the recognition ofincome and expense items for financial statement and tax purposes.  Accordingly, there was an orientation towardthe income statement focusing on differences in the timing of recognition ofrevenues and expenses in pre-tax accounting income and taxable income.  At the time, Chilean GAAP also permitted notproviding for deferred income taxes where a deferred tax asset or liability waseither offsetting or not expected to be realized.

 

Starting January 1, 2000, the Company recorded income taxes in accordancewith Technical Bulletin No. 60 and its related amendments issued by the ChileanAssociation of Accountants, recognizing, using the liability method, thedeferred tax effects of temporary differences between the financial and taxvalues of assets and liabilities.  As atransitional provision, a contra (referred to as “complementary”) asset orliability was recorded offsetting the effects of the deferred tax assets andliabilities not recorded prior to January 1, 2000.  Such complementary asset or liability isbeing amortized to income over the estimated average reversal periodscorresponding to the underlying temporary differences to which the deferred taxasset or liability relates.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

c-2)Under US GAAP, companies must account for deferred taxes in accordance withSFAS 109, which requires an asset and liability approach for financialaccounting and reporting of income taxes, under the following basic principles:

 

a.                           A deferred taxliability or asset is recognized for the estimated future tax effectsattributable to temporary differences and tax loss carry forwards.

 

b.                          The measurementof deferred tax liabilities and assets is based on the provisions of theenacted tax law.  The effects of futurechanges in tax laws or rates are not anticipated.

 

c.                           The measurementof deferred tax assets are reduced by a valuation allowance, if based on theweight of available evidence, it is more likely than not that some portion ofthe deferred tax assets will not be realized.

 

Taxabletemporary differences are defined as any difference between the financial reportingbasis and the tax basis of an asset and liability that at some future date willreverse, thereby resulting in taxable income or expense.  Temporary differences ordinarily becometaxable or deductible when the related asset is recovered or the related liabilityis settled.  A deferred tax liability orasset represents the tax effect of the amount of future deductible expenses fortax purposes or non-deductible expenses for tax purposes, respectively, as aresult of temporary differences at the end of the current year.

 

The principal effect on the Company due to the difference inthe accounting for deferred income taxes between Chilean and US GAAP relatesto:

 

(i.)                      Net operating loss-carry forwards

(ii.)                   Accelerated depreciation methods for accounting purposesunder Chilean GAAP

(iii.)                The reversal ofthe complementary assets and liabilities recorded as a transitional provisionfor unrecorded deferred taxes as of January 1, 2000 and theircorresponding amortization into income, and

(iv.)               Accounting fordeferred tax differences related to US GAAP adjustments.

 

The effect of these differences on the net income andshareholders’ equity of the Company is included in paragraph (w) below.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

In addition, During 2007, theCompany adopted FASB Interpretation No. 48: “Accounting for Uncertainty inIncome Taxes — an interpretation of FASB Statement No. 109” (“FIN 48”),which clarifies the accounting for uncertainty in income taxes recognized in anenterprise’s financial statements in accordance with Statement of FinancialAccounting Standards No. 109: “Accounting for Income Taxes” (“FAS 109”).The Interpretation prescribes a threshold for the financial statementrecognition and measurement of a tax position taken or expected to be takenwithin an income tax return. For each tax position, the enterprise must determinewhether it is more likely than not that the position will be sustained uponexamination by taxing authorities, based on the technical merits of theposition, including resolution of any related appeals or litigation. A taxposition that meets the more likely than not recognition threshold is thenmeasured to determine the amount of benefit to be recognized within thefinancial statements. No benefits may be recognized for tax positions that donot meet the more likely than not threshold. For tax positions that meet themore likely than not threshold, the benefit to be recognized is the largestamount that is greater than 50% likely of being realized upon ultimatesettlement.

 

As a result of implementingFIN 48, there was no impact on the Company’s financial statements from theadoption of this interpretation. In addition, as of the date of the adoption ofFIN 48, the Company did not have any accrued interest and penalties related tounrecognized tax benefits. The Company and its subsidiary will recognize interestand penalties related to unrecognized tax benefits in financial expense andother operating expense, respectively.

 

We are potentially subject to income tax audits in numerousjurisdictions in Chile and internationally until the applicable statute oflimitations expire. Tax audits by their nature are often complex and canrequire several years to complete.

 

d)             Staffseverance indemnities

 

As described in Note 2 (r), under the Company’s employmentcontracts, it has committed to provide a lump sum payment to each employee atthe end of their employment, whether due to death, termination, resignation orretirement. Until December 31, 2003, under Chilean GAAP, those obligationswere calculated based on the present value of the liability determined at eachyear-end based on the current salary and average service life of each employee.The Company, and certain of its subsidiaries, used a real discount rate of 9.5%for the year ended December 31, 2003. Starting January 1, 2004 theCompany changed its accounting policy for staff severance indemnities byapplying actuarial valuation of the future obligation.

 

Under US GAAP EITF 88-1severance indemnities described above may be recorded based on the vestedbenefits to which the employees are entitled if their employment terminatedimmediately (settlement basis).  Under USGAAP, the Company used this accounting treatment up to December 31, 2003.Since January 1, 2004 the Company applied accounting for staff severanceindemnities in accordance with SFAS 88 “Employers’ Accounting for Settlementsand Curtailments of Defined Benefit Pension Plans and for Termination Benefits”using the actuarial method to measure liabilities related to staff severanceindemnities, the same method as applied under Chilean GAAP.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

e)                          Pension andpost-retirement benefits

 

During 2006, the Company adopted FAS 158 “Employer’s Accounting forDefined Pension and Other Postretirement Plans — an amendment of FASBStatements No 87, 88, 106 and 132(R)”. Thisstatement required the recognition of the funded status of a benefit plan inthe statement of financial position. It also requires the recognition as acomponent of other comprehensive income (OCI), net of tax, of the gainsor losses and prior service costs or credits that arise during the period butare not recognized as components of net periodic benefit cost pursuant SFAS 87or SFAS 106.

 

The adoption resulted in the recognition of priorservice costs and related plan assets in the balance sheet of the Company’sequity method investee Endesa Brasil. The effects of the adoption of FAS 158are presented in paragraph (w) below.

 

f)                            Investments inrelated companies

 

UnderChilean GAAP, until December 31, 2003 for all investments accounted for bythe equity method, the proportionate net book value of the investee company wasrecorded as an investment and the difference between the cost of investment andthe proportionate net book value of the investee was recorded as goodwill.Generally, goodwill is amortized into income over a maximum period of twentyyears. The investment account is adjusted to recognize the investor’s share ofthe earnings or losses of the investee determined under Chilean GAAP subsequentto the date of the purchase. Technical Bulletin No. 72 issued by ChileanAssociation of Accountants requires goodwill to be determined based on theallocation of the acquisition price to fair values of acquired assets andliabilities assumed for the accounting for all acquisitions after January 1,2004.

 

UnderUS GAAP, in accordance with Accounting Principles Board Opinion No. 18, “TheEquity Method for accounting for Investment in Common Stock” (“APB No. 18”),the carrying amount of an investment accounted for under the equity method isinitially recorded at cost and shown as a single amount in the balance sheet ofthe investor. It is adjusted to recognize the investor’s share of the earningsor losses of the investee determined under US GAAP subsequent to the date ofinvestment. The investment reflects adjustments similar to those made inpreparing consolidated financial statements, including adjustments to eliminateinter-company gains and losses and to account for the differences, if any,between the investor’s cost and the underlying equity in net assets of theinvestee at the date of investment. The investment is also adjusted to reflectthe investor’s share of change in the investee capital accounts. Furthermore,under Chilean GAAP, the excess of purchase price consideration over the fairvalue of net assets of equity method investees acquired is recorded asgoodwill. Under US GAAP, as investments in equity method investees areinitially recorded at cost, goodwill is not shown separately in the financialstatements.

 

TheCompany’s equity share of the effect of the adjustments from Chilean GAAP to USGAAP of equity accounted investees is included in paragraph (w) below.  The principal US GAAP adjustments affectingthe Company’s equity investees are as follows:

 

(i)                                     The recordingof deferred taxes in accordance with SFAS 109 (see paragraph c).

(ii)                                  Adjustmentrelated to pensions and other post-retirement benefits (see paragraph e).

(iii)                               Adjustmentrelated to negative goodwill (see paragraph h).

(iv)                              Adjustment related to capitalized foreign currencyexchange differences (see paragraph i).

(v)                                 Adjustmentrelated to capitalized general and administration expenses (see paragraph l).

(vi)                              The recordingof derivative instruments in accordance with SFAS 133 (see paragraph p).

(vii)                           Adjustmentrelated to capitalized interests. (A)

(viii)                        Adjustmentrelated to regulated assets and liabilities(B)

(ix)                                The deferredincome tax effects of adjustments (i) to (viii).

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

(A) UnderUS GAAP, investments accounted for under the equity method are qualifyingassets of the investor, if the investee is undergoing activities in preparationfor its planned principal operations provided that the investments activitiesinclude the use of funds to acquire qualifying assets.

 

(B) As a result of changes in BrazilianElectricity Laws and Regulations, Endesa Brasil’s subsidiaries, Ampla Energia eServiços S.A. (AMPLA, ex CERJ) and Companhia Energética do Ceará (Coelce), aresubject to the provisions of SFAS No. 71 beginning on January 1,2001. With the new regulations issued by the National Agency of Electric Energy(ANEEL), the rate-setting structure in Brazil is now designed to providerecovery for allowable costs incurred, which will be recovered through futureincreases in energy tariffs in order to recover losses experienced during theperiod of Brazilian Federal Government mandated energy rationing from June 1,2001 to December 31, 2001. The Company estimates remaining costs will berecovered over a period of three years, from the balance date. Accordingly, theCompany capitalizes incurred costs as deferred regulatory assets when it isprobable that future revenue equal to the costs incurred will be billed andcollected as a direct result of the inclusion of the costs in an increasedtariff set by the regulator. Endesa Brasil has recorded deferred regulatoryassets, which it expects to pass on to its customers in accordance with andsubject to regulatory provisions.

 

At the end of 2006, theBrazilian National Electric Power Agency (“Agencia Nacional de EnergiaEléctrica” —ANEEL) published the Normative Resolution N°234 that establishedgeneral concepts, methodologies and procedures to carry out the second round ofthe periodic Tariff review for public concessionaires engaged in the electricdistribution sector services. These modifications were incorporated into theregulation issued by ANEEL during the year 2007, which contain the provisionalparameters of the fix Tariff model for the following years. According to this,for US GAAP purposes a regulatory liability has been recorded during 2007 inaccordance with the provisions of SFAS No. 71, “Accounting for the Effectsof Certain Types Regulation”.

 

g)                         Goodwill

 

(i)                         Under ChileanGAAP, for acquisitions that occurred until December 31, 2003 assetsacquired and liabilities assumed were recorded at their carrying value and theexcess of the purchase price over the carrying value is recorded asgoodwill.  Circular No. 1358, dated December 3,1997 issued by the SVS, extended the maximum amortization period of goodwill to20 years from the previous 10 years.

 

UnderUS GAAP, assets acquired and liabilities assumed are recorded at theirestimated fair values, and the excess of the purchase price over the estimatedfair value of the net identifiable assets and liabilities acquired are recordedas goodwill. Prior to January 1, 2002 under US GAAP, the Company amortizedgoodwill on a straight-line basis over the estimated useful lives of theassets, ranging from 20 to 40 years.

 

OnJanuary 1, 2002, the Company adopted SFAS 142 and thus ceased amortizinggoodwill under US GAAP. Instead, impairment tests are performed at leastannually on the level of reporting units.

 

TechnicalBulletin No. 72 issued by Chilean Association of Accountants requiresusing fair value of acquired assets and liabilities for the accounting for allacquisitions after January 1, 2004, and consequently after that datedifference in accounting treatment related to the recognition of assetsacquired and liabilities assumed between Chilean GAAP and US GAAP no longerexists.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

(ii)                      Under ChileanGAAP, the Company evaluates the carrying amount of goodwill for impairment onthe level of cash-generating units. The Company determines the impairmentlosses using a discounted cash flow approach and recent comparable transactionsin the market. In order to estimate recoverable value, the Company makesassumptions about future events that are highly uncertain at the time ofestimation. The results of this analysis showed no impairment of goodwill forthe years ended December 31, 2007 and 2008, apart from the impairment ofgoodwill over the Company’s equity method investee Gas Atacama Holding (seeNote 11(f)).

 

                                    Under US GAAP,goodwill is tested for impairment at least annually on the level of reportingunits, which the Company defined to be as operation units. In addition,goodwill is evaluated for impairment between these annual tests if events orchanges in circumstances indicate that goodwill might be impaired. The impairmenttest is performed based on a two-step approach:

 

1.               The first stepis to compare each reporting unit’s fair value with its carrying amountincluding goodwill. If a reporting units carrying amount (including goodwill)exceeds its fair value, goodwill might be impaired and the second step isrequired.

2.               The second stepis to compare the implied fair value of the reporting unit’s goodwill with thecarrying amount of goodwill. The implied fair value is computed by allocatingthe reporting unit’s fair value to all of its assets and liabilities in amanner that is similar to a purchase price allocation in a business combinationaccounted for in accordance with SFAS 141. The difference between the fairvalue of the reporting unit and the fair value of its net assets is the impliedfair value of goodwill. If the implied fair value of goodwill is less than itscarrying amount, the carrying amount is written-down against income to theimplied fair value of goodwill.

 

TheCompany carried out the required annual impairment test of goodwill in thefourth quarter of each year.

 

The following effects are included in the net income and shareholders’equity reconciliation to US GAAP under paragraph (w) below:

 
| (i)   | differences  in the amount of goodwill under US GAAP related to basis differences in the  original determination and subsequent amortization methodology between  Chilean GAAP and US GAAP;               |
|-------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (ii)  | the  reversal of negative goodwill impairment under Chilean GAAP, as under US GAAP  negative goodwill is treated as an adjustment to the net book value of the  related fixed assets to their fair value; |
| (iii) | the  reversal of goodwill amortization recorded under Chilean GAAP.                                                                                                                                       |

 

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

Asummary of the changes in the Company’s goodwill under US GAAP during the yearsended December 31, 2007 and 2008, by segment of operation is as follows:

** **
| ** ** | ** ** | **Goodwill under US GAAP** | ** ** |
|------------|------------|----------------------------|------------|
| ** ** | ** ** | **January 1, 2007**   | ** ** | **Impairment(1)** | ** ** | **Currency  Translation Adjustment** | ** ** | **December 31, 2007** | ** ** |
| ** ** | ** ** | **ThCh$**                  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|       |       |                       |       |   |   |   |   |   |   |
| Chile      |       | 6,190,361                  |       | (104,928 | ) | — |   | 6,085,432 |   |
| Peru       |       | 22,167,247                 |       | — |   | (2,904,058 | ) | 19,263,189 |   |
| Colombia   |       | 15,177,737                 |       | — |   | (1,987,920 | ) | 13,189,817 |   |
|       |       |                       |       |   |   |   |   |   |   |
| Total      |       | 43,535,345                 |       | (104,928 | ) | (4,891,978 | ) | 38,538,438 |   |

 
| ** ** | ** ** | **Goodwill under US GAAP** | ** ** |
|------------|------------|----------------------------|------------|
| ** ** | ** ** | **January 1, 2008**   | ** ** | **Impairment** | ** ** | **Currency  Translation Adjustment** | ** ** | **December 31, 2008** | ** ** |
| ** ** | ** ** | **ThCh$**                  | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|       |       |                       |       |   |   |   |   |   |   |
| Chile      |       | 6,085,432                  |       | — |   | — |   | 6,085,432 |   |
| Peru       |       | 19,263,189                 |       | — |   | 3,393,902 |   | 22,657,091 |   |
| Colombia   |       | 13,189,817                 |       | — |   | 2,323,956 |   | 15,513,773 |   |
| Total      |       | 38,538,438                 |       | — |   | 5,717,858 |   | 44,256,296 |   |

 

----

(1) See Note 11 (f).

 

To perform goodwill impairment tests, theCompany determines the fair value of its reporting units based on a valuationmodel which draws on medium-term planning data that the Company uses forinternal reporting and planning purposes. The model uses the discounted cashflow approach and market comparables. The fair value of each reporting unitexceeded its carrying amount as of December 31, 2007 and 2008. During 2007, dueto the impairment recorded in the equity investee Gas Atacama Holding (see note11 (f)), a goodwill impairment test was carried out, testing the goodwillrecorded over the investment. As a result of the impairment test, the goodwillrecorded over Gas Atacama Holding was impaired during the year ended December31, 2007.

 

h)                         Negativegoodwill

 

Under Chilean GAAP, until December 31,2003 the excess of the carrying value of the net assets acquired in a businesscombination over the purchase price was recorded as negative goodwill. CircularNo. 1358, dated December 3, 1997 issued by the SVS, extended themaximum amortization period of negative goodwill to 20 years from the previous5 years. Technical Bulletin No. 72 issued by Chilean Associationof Accountants requires using fair value of acquired assets and liabilities forthe accounting for all acquisitions after January 1, 2004. Subsequent tothe adoption of Technical Bulletin No. 72 issued by Chilean Association ofAccountants, any excess of the fair value of net assets acquired over thepurchase price consideration is recorded as negative goodwill and amortizedagainst income over the remaining weighted average useful live of the assetsacquired.

 

Under US GAAP, the fair values of the assets acquired less the fairvalues of the liabilities assumed in excess of the purchase price are allocatedproportionately to reduce the values assigned to non-current, non-monetaryassets. If the allocation reduces the non-current assets to zero, the remainderof the excess is recorded as an extraordinary gain to income.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

Adjustments related to negativegoodwill necessary to make the consolidated financial statements conform to USGAAP are included in paragraph (w) below and are as follows:

 

h-1:                        The reversal of negative goodwill amortizationrecorded under Chilean GAAP;

h-2:                        The effects of reducing depreciation expense, due tothe proportionate allocation of the excess fair value to property, plant andequipment and other effects on income.

 

i)                             Capitalizedinterest and exchange differences

 

In accordance with Chilean GAAP, the Company has capitalized bothinterest on debt directly related to property, plant and equipment underconstruction as well as finance costs corresponding to exchange differencesgenerated by the loans associated with such assets. The capitalization ofinterest costs associated with projects under construction is optional whenincurred on debt that is not directly related to such projects.

 

Under US GAAP, the capitalization of interest on qualifying assetsunder construction is required, regardless of whether interest is associatedwith debt directly related to a project. In addition, under US GAAP, foreigncurrency translation exchange differences may not be capitalized. Theadjustment to reverse out the capitalized interest and exchange differences isshown in paragraph (w) below.

 

j)                             Accumulateddeficit during the development stage

 

Prior to the adoption of Circular 1819 issued by the SVS on January 1,2007, under Chilean GAAP, the net income (loss) incurred during the developmentstage of subsidiary companies are recorded directly in the parent company’sequity, rather than in income. Furthermore, companies in the development stagewere not consolidated even if the Company owned the majority of voting rights.

 

Under US GAAP, such results must be included in the consolidatedstatement of income. As of December 31, 2004 and 2005 and for the years thenended, no company was classified as development-stage company. For the yearended December 31, 2006, the effects of the adjustment are included inparagraph (w) below.

 

On January 1, 2007 the Company adopted Cicular 1819 issued by the SVS(see Note 3), requiring consolidation of subsidiaries in development stage andrecording income derived from development stage companies in accordance withaccounting principles for consolidation or investments in related companies,respectively. Thus, subsequent to the adoption of Circular 1819, the accountingtreatment under Chilean GAAP is the same as under US GAAP.

 

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**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****                              ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

k)                          Minimumdividend

 

As required by the Chilean Companies Act,unless otherwise decided by the unanimous vote of the holders of issued andsubscribed shares, the Company must distribute a cash dividend in an amountequal to at least 30% of its net income for each year as determined inaccordance with Chilean GAAP, unless and except to the extent the Company hasunabsorbed prior year losses or interim dividends have been paid toshareholders. Net income related to the amortization of negative goodwill canonly be distributed as an additional dividend by the approval of theshareholders, and accordingly, is not included in the calculation of theminimum dividend to be distributed.  Sincethe payment of the 30% dividend out of each year’s income is required byChilean law, an accrual has been made in the reconciliation in paragraph (w)below to reflect the unrecorded dividend liability, whenever and to the extentthe recorded interim dividends do not reach the 30% minimum dividend.

 

l)          Capitalizedgeneral and administrative expenses

 

Until 1993 under Chilean GAAP, Endesa Chilecapitalized a portion of its administrative and selling expenses as part of thecost of constructions-in-progress because a substantial portion of the effortsof management were involved in the administration of major projects. Under USGAAP, general and administrative expenses are charged to expense unless theycan be directly identified with the supervision of the constructions ofspecific projects.  Under Chilean GAAPthe Company has also capitalized other administrative expenses into otherlong-term assets, which under US GAAP would not be allowed.

 

The effects of eliminating capitalized general andadministrative expenses are detailed in paragraph (w) below as follows:

 
| l-1: | The elimination of the capitalized administrative  and selling expenses from property, plant and equipment and the effect on  depreciation expense for the year; |
|------|------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| l-2: | The elimination of the capitalized administrative  and selling expenses from other assets and the effect on income for the year.                                 |

 

m)                       Involuntaryemployee termination benefits

 

Under Chilean GAAP, the Argentine subsidiariy,Endesa Argentina, recorded an accrual of certain involuntary employeestermination benefits related to the restructuring plan announced in 1997.  Additionally, during 2003 the Companyincreased the amount of the accrual recorded under Chilean GAAP.  In accordance with US GAAP, in order torecognize a liability at the balance sheet date for the cost to terminateemployees involuntarily, the following conditions have to be met:

 

·                  Management, having the authority to approve theaction, commits to a plan of termination

·                  The plan identifies the number of employees to beterminated, their job classifications or functions and their locations, and theexpected completion date

·                  The plan establishes the terms of the benefitarrangement, including the benefits that employees will receive upontermination (including but not limited to cash payments), in sufficient detailto enable employees to determine the type and amount of benefits they willreceive if they are involuntarily terminated, and

·                  Actions required to complete the plan indicate thatit is unlikely that significant changes to the plan will be made or that theplan will be withdrawn.

 

.As of December 31, 2006, 2007 and 2008,respectively, this requirement had not been met. The effect of eliminating theaccrued liability recognized is presented in paragraph (w) below.

 

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**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

 

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

 

n)         Creation ofEndesa Brasil

 

As of September 30,2005, the Brazilian investments of Endesa, S.A. (Spain), the ultimate parentcompany of Endesa Chile, were reorganized. As a result of this reorganizationof entities under common control, a new entity, Endesa Brasil S.A., was createdand the total participation of Endesa Chile held in its subsidiary CentraisElectricas Cachoeira Dourada S.A. (CDSA) and in its equity method investeeCompanhia de Interconexao Energetica S.A. (CIEN) were transferred to thisentity in exchange for 38.75% participation in the newly formed company. As of September 30,2005, the Company deconsolidated CDSA, stopped accounting for CIEN under theequity method and began to account for its participation in Endesa Brasil S.A.under the equity method. The difference between net assets contributed andreceived generated a difference presented as reserve in equity, as thementioned transaction represents a reorganization under common control.Although the transaction received the same accounting treatment under bothChilean GAAP and US GAAP, as a result of the existing adjustments to US GAAP inthe subsidiaries which were the subject of the reorganization, an incrementaladjustment to equity of Endesa Chile was recorded. For the year ended December 31, 2005 the effectsof the adjustment are included in paragraph (w) below. This difference wasrecorded in 2005 and had no effect on years 2006 through 2008.

 

o)        Translation offinancial statements of investments outside of Chile

 

UnderChilean GAAP, in accordance with Technical Bulletin 64 (“BT 64”) the financialstatements of foreign subsidiaries and equity method investees that operate incountries exposed to significant risks (“unstable” countries), and that are notconsidered to be an extension of the parent company’s operations, arere-measured into US dollars. The Company’s foreign subsidiaries and investeesdomiciled in Argentina, Peru, Brazil, and Colombia all meet the criteria offoreign subsidiaries that operate in countries exposed to significant risksunder BT 64, and are re-measured into US dollars. The Company has re-measuredits foreign subsidiaries into US dollars under this requirement as follows:

 

·    Monetary assets and liabilities are translated atyear-end rates of exchange between the US dollar and the local currency;

 

·    All non-monetary assets and liabilities and shareholder’sequity are translated at historical rates of exchange between the US dollar andthe local currency;

 

·    Income and expense accounts are translated ataverage rates of exchange between the US dollar and local currency;

 

·    The effects of any exchange rate fluctuationsbetween the local currency and the US dollar are included in the results ofoperations for the period.

 

UnderBT 64, the investment in the foreign subsidiary is price-level restated, theeffects of which are reflected in income, while the effects of the foreignexchange gains or losses between the Chilean Peso and the US dollar on theforeign investment measured in US dollars, are reflected in equity in theaccount “Cumulative Translation Adjustment” which amounted to a net gain of ThCh$ 1,977,105, a net loss ofThCh$ 13,985,574  and a net gain of ThCh$19,154,454 for the years ended December 31, 2006, 2007 and 2008,respectively.

** **

UnderUS GAAP, the functional currency is determined based on criteria provided bySFAS 52, resulting in the functional currency of an entity being the currencyof the primary economic environment of operations of the entity. Differencesresulting from fluctuation of exchange rates between foreign currencies andfunctional currency are recorded in income, whereas translation differencesfrom converting the financial statements from functional currency to the group’spresentation currency are recorded in other comprehensive income.

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

** **

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

** **

However,in the opinion of the Company, the foreign currency translation proceduresdescribed above are part of the comprehensive basis of preparation ofprice-level adjusted financial statements required by Chilean GAAP. Althoughunder US GAAP, certain of the Company’s subsidiaries and equity methodinvestees might have functional currencies different to the measurementcurrency determined under Chilean GAAP, inclusion of inflation and translationeffects in the financial statements is considered appropriate under theinflationary conditions that have historically affected the Chilean economy,and accordingly, are not eliminated in the reconciliation to US GAAP inaccordance to the reporting requirements of Form 20-F and as provided bythe AICPA International Tak Force..

 

p)    Derivative instruments

 

The Company engages in derivative activity for hedgingpurposes. These derivatives are considered accounting hedges under ChileanGAAP. Under Chilean GAAP the accounting treatment of hedging activity issimilar to the accounting treatment of fair value hedges and cash flow hedgesunder SFAS 133. The documentation and hedge effectiveness requirements underChilean GAAP though are not as burdensome as under SFAS 133.

 

Under US GAAP, if the derivative is designated andqualifies as a fair value hedge, changes in fair value of the derivative and ofthe hedged item attributable to the hedged risk are recognized directly inearnings. If the derivative is designated as a cash flow hedge, the effectiveportion of changes in the fair value of the derivative are recorded in OtherComprehensive Income (“OCI”) and are reclassified into earnings in the sameperiod during which the hedged item affects earnings. Ineffectiveness, if any,is reflected directly in earnings. Finally, the gain or loss on a hedgingderivative instrument that is designated as, and is effective as, an economic hedgeof the net investment in a foreign operation shall be reported in the samemanner as a translation adjustment to the extent it is effective as a hedge.The ineffective portion of net investment hedges shall be reported in earnings.If the derivative is not designated as a hedge, or if it does not meet therequirements for hedge accounting under SFAS 133, changes in fair value of thederivative instrument are recorded directly in earnings.

 

Until December 31, 2004, the Company did notapply hedge accounting to its derivative instruments under US GAAP. Therefore,all derivative instruments have been accounted at fair value with changes infair value recognized directly in earnings. As of and for the years ended December 31, 2006, 2007 and 2008, theCompany applied hedge accounting to a portfolio of derivative instrumentsexecuted in those years. These instruments were designated as cash flow hedgesof variable interest-bearing liabilities with changes in fair value recorded inOCI. Derivative instruments not assigned as hedging instruments were accountedat fair value with changes in fair value recognized directly in earnings. TheCompany considers hedging instruments to be non-operating derivative financialinstruments, whereas commodity and embedded derivative instruments areconsidered to be operating derivative instruments.

 

The Company hasdesignated under Chilean GAAP certain non-derivative financial instruments ashedges of the foreign currency exposure of net investments in foreignoperations. The gain or loss on the non-derivative financial instrument that isdesignated as a hedge is reported as a translation adjustment to the extent itis effective as a hedge, any ineffectiveness is recorded in earnings. Thisaccounting treatment is consistent with SFAS 52 and SFAS 133.

 

Theeffects of the adjustment with respect to financial derivatives, commodityderivatives, and embedded derivatives for the years ended December 31,2006, 2007 and 2008 are included in the net income and shareholders’ equityreconciliation to US GAAP under paragraph (w) below.

 

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**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

 

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

 

q)         Reorganization ofsubsidiaries

 

Thisadjustment corresponds to the reorganization of the Company’s subsidiariesEndesa Costanera S.A. and Central Buenos Aires (CBA) during 2001, in whichEndesa Costanera acquired the minority interest in CBA from third parties andexchanged shares with Endesa Argentina S.A. Under Chilean GAAP, this purchaseof minority interest was accounted for at book values. Under US GAAP, apurchase of minority interest shall be accounted for under the purchase method,resulting in measuring assets acquired and liabilities assumed at fair values.

 

During2006, the Company’s subsidiary Edegel was merged with Etevensa, an entity whichwas controlled by Endesa Internacional S.A., the Company’s parent company. Thisreorganization included a purchase of a minority interest portion in exchangefor shares of Edegel and cash.

 

UnderChilean GAAP, the Company recorded these transactions under the pooling ofinterests method, using the book values of the net assets acquired under mergeraccounting as proscribed by Technical Bulletin 72 for reorganizations undercommon control.

 

UnderUS GAAP, the exchange of shares between entities under common control isrecorded at book values. However, to the extent that shares in CBA and Etevensawere acquired from third parties, the identifiable assets acquired andliabilities assumed are recorded at fair value using purchase accountingtogether with the shares issued by the subsidiaries Endesa Costanera S.A. andEdegel S.A.. The difference in property, plant and equipment basis betweenChilean GAAP and US GAAP results in a greater depreciation expense to berecorded under US GAAP over the remaining estimated useful life. The effect ofthis adjustment is included in the net income and shareholders’ equityreconciliation to US GAAP under paragraph (w) below.

 

During2007, the Company’s subsidiaries Betania and Emgesa were merged into a newentity Emgesa (merged entity). (See Notes 11 (e) (i) and 11 (c) (ii)).The merger was materialized through a stock exchange where the Companyexchanged the shares it owned in Betania and Emgesa for shares issued by thenew entity Emgesa (merged entity). In addition, as a result of theshare-exchange, the Company purchased a portion of minority interest from athird party.

 

UnderChilean GAAP, the transaction was accounted for under the pooling-of-interestmethod pursuant BT 72, using book values of the entities and shares involved,as the transaction is considered to be a transaction under common control.

 

UnderUS GAAP, to the extent that shares of the Company’s former fully ownedsubsidiary Betania were exchanged, the exchange represents an exchange ofmonetary assets, which shall be accounted for at fair values.

 

Inaddition, the purchase of minority interest to the extent that this minorityinterest was purchased from an unrelated party shall be accounted for under thepurchase method pursuant to SFAS 141, measuring the proportion of assetsacquired and proportional liabilities assumed at fair values.

 

Tothe extent minority interest was acquired from a related party, the transactionunder US GAAP shall be accounted for as a common control transaction, using thepooling-of-interest method and thus book values to reflect the increase inparticipation, with any difference between purchase price consideration andbook value of net assets acquired being recorded in shareholders’ equity.

 

Theeffects of:

 

· Application ofthe purchase method for the purchase of minority interest from unrelatedparties

· Differencesresulting from different book values under US GAAP of the assets andliabilities involved are recorded in paragraph (w) below.

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

** **

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

 

r)          Amortization of bonddiscount and deferred debt issuance costs

 

UnderChilean GAAP, the Company amortizes bond discounts and deferred debt issuancecosts using the straight-line method over the remaining maturity of the relateddebt.

 

UnderUS GAAP, deferred debt issuance costs and bond discounts have to be amortizedusing the effective interest method. The effect of this adjustment is includedin the net income and shareholders’ equity reconciliation to US GAAP underparagraph (w) below.

 

s)         Accounting for assetretirement obligations

 

InJune 2001, the FASB issued Statement of Financial Accounting Standard No. 143“Accounting for Asset Retirement Obligations” (“SFAS 143”), which addressesfinancial accounting and reporting for obligations associated with theretirement of tangible long-lived assets and the associated asset retirementcosts.  The Company adopted SFAS 143effective January 1, 2003. This standard requires the Company to recordthe fair value of the legal obligation it has to make certain environmentalrestorations upon closure of its facilities. The fair value of the liability isestimated by discounting the future estimated expenditures related to therestoration. The Company then measures changes in the liability due to passageof time by applying an interest method of allocation to the amount of theliability at the beginning of the period. The interest rate used to measurethat change is the credit-adjusted risk-free rate that existed when theliability, or portion thereof, was initially measured. The interest rate forexisting liabilities will not be changed in future years. For new liabilities,as well as for increases in fair value due to changes in estimates that aretreated like new liabilities, the interest rate used for subsequent valuationsis the interest rate that was valid at the time the new liability was incurredor when the change in estimate occurred. The change in fair value of theliability due to the passage of tine is recognized as an increase in thecarrying amount of the liability and the expense is classified as an operatingitem in the statement of income, referred to as accretion expense.  At the same time the standard requires theCompany to capitalize the new costs arising as the result of additionalliabilities incurred, such as the activation of a new generation facility, andsubsequently allocate that asset retirement cost to expense over the life ofthe plant based on the useful life of the plant.

 

TheCompany is subject to certain assets retirement obligations related tocontractually agreed or legal dismantlement obligations of power plant andtransmission lines, as well as the removal of environmental damage once itdiscontinues usage of certain power plants. Consequently, costs arising fromthe asset retirement obligations have been capitalized to power-plant andtransmission lines included in property, plant and equipment.

 

Theeffects on US GAAP income and Shareholders equity are shown in paragraph (w) belowas follows:

 

s-1:          The effects of amortizing the deferred costs of the asset retirementobligation are reflected as depreciation expense;

s-2:          The effects of re-measuring the liability due to the passage of timeduring the year ended December 31, 2006, 2007 and 2008 are reflected asaccretion expense.

 

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**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

 

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

 

The following table shows a reconciliation ofthe liability for the years ended December 31, 2006, 2007 and 2008 asrecorded by the Company:

 
| ** **                         | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------|------------|----------------------------------|------------|
| ** **                         | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                         | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                               |       |                             |       |   |   |   |   |
| Balance as of January 1       |       | 1,119,470                        |       | 2,474,938 |   | 2,778,202 |   |
| Cumulative translation adjustment  |       | 9,464                            |       | (208,626 | ) | 344,792 |   |
| Liabilities incurred in the period |       | 958,261                          |       | 499,520 |   | — |   |
| Accretion expense                  |       | 387,743                          |       | 12,370 |   | 101,851 |   |
| Balance as of December 31     |       | 2,474,938                        |       | 2,778,202 |   | 3,224,845 |   |

 

t)         Effects of minority intereston the US GAAP adjustments

 

The Companycalculated effects of the participation of the non-controlling shareholders,referred to as minority interest, related to the US GAAP adjustments in thesubsidiaries in which it is not the sole shareholder.

 

u)        Accountingfor the Impairment or Disposal of Long-Lived Assets

 

In accordance with SFAS 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets,” the Companyevaluates the carrying amount of property, plant and equipment and otherlong-lived assets, in relation to the operating performance and futureundiscounted cash flows of the underlying business.  This standard requires that an impairmentloss be recognized in the event that facts and circumstances indicate that thecarrying amount of an asset may not be fully recoverable, when compared to theestimated future undiscounted cash flows. Impairment is recorded based on estimates of future discounted cashflows, as compared to carrying amounts. For the years ended December 31,2006, 2007, and 2008 no additional amounts were recorded for impairment underUS GAAP.

 

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**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

 

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

 

(v)       Exchange of non-financialassets and acquisition of minority interest

 

As stated in Note 11 (c) (ii), during 2007, theCompany’s subsidiaries in Colombia were subject to a reorganization whichinvolved the purchase of a minority interest portion. Under Chilean GAAP, thetransaction was accounted for as a transaction under common control using bookvalues of the involved assets and liabilities, with any differences between netassets given up and net assets received being recorded in other reserves withinshareholders’ equity. Under US GAAP, the several steps to materialize thetransaction were accounted for as follows:

 

a.             The exchange of the participation in Betania against participation ofEmgesa (merged entity) was accounted for as an exchange of financial assets,realizing a loss to the extent the transaction did not represent a commoncontrol transaction

b.             To the extent that minority interest was purchased from third parties,the transaction was accounted for under the purchase method pursuant to SFAS141, with any excess of the purchase price consideration over the fair value ofidentifiable net assets acquired being accounted for as goodwill.

c.             To the extent third parties were involved, the disposal of a portion ofparticipation of Emgesa (merged entity) was accounted for as a partial disposalof investments, affecting net income of the period to the extent the fair valueof consideration received exceeded the book value of the investment togetherwith the pro-rata portion of goodwill, fair value increment to net assets andaccumulated other comprehensive income previously accounted for.

 

To the extent the transaction was carried out amongparties under common control, book values were used and differences betweenconsideration given (step a. and b.) and consideration received (step c.) overthe book value of net assets received (step a. and b.) and book value of netassets given up (step c.) being recorded in other reserves of shareholders’equity.

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

** **

**36.****     ****Differences between Chilean andUnited States Generally Accepted Accounting Principles, continued:**

 

(w)       Effects ofconforming to US GAAP:

 

(i) Thereconciliation of reported net income required to conform to US GAAP is asfollows:

 
| ** **                                                                                                                                                                                                                | ** ** | **Years Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                                                                                | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                                                                                                                                                                | ** ** | **ThCh$**                         | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                                                                                                                                                                      |       |                              |       |   |   |   |   |
| **Net income in accordance with Chilean GAAP**                                                                                                                                                                            |       | 221,684,874                       |       | 209,566,365 |   | 442,591,967 |   |
| Reversal of revaluation of property, plant and equipment (paragraph  b)                                                                                                                                                   |       | 374,042                           |       | 459,471 |   | 361,699 |   |
| Effect of application of FAS 109 (paragraph c-1)                                                                                                                                                                          |       | 10,631,679                        |       | 10,612,664 |   | 10,849,504 |   |
| Deferred income taxes on US GAAP adjustments (paragraph c-2)                                                                                                                                                              |       | (20,053,791                       | )          | (14,847,798 | ) | 18,253,336 |   |
| Investments in related companies (paragraph f)                                                                                                                                                                            |       | 5,312,681                         |       | (25,030,578 | ) | 18,117,974 |   |
| Goodwill (paragraph g)                                                                                                                                                                                                    |       | 1,102,713                         |       | 885,903 |   | 1,189,624 |   |
| Negative goodwill (paragraph h):                                                                                                                                                                                          |       |                              |       |   |   |   |   |
| h-1: Amortization of negative goodwill                                                                                                                                                                                    |       | (7,061,329                        | )          | (4,772,081 | ) | (5,710,526 | ) |
| h-2: Depreciation of property, plant and equipment                                                                                                                                                                        |       | 20,641,843                        |       | 12,827,936 |   | 12,502,939 |   |
| Capitalized interest and exchange differences (paragraph i):                                                                                                                                                              |       | 579,800                           |       | 560,765 |   | 583,015 |   |
| Accumulated deficit during the development stage (paragraph j)                                                                                                                                                            |       | (354,402                          | )          | — |   | — |   |
| Capitalized general and administrative expenses (paragraph l):                                                                                                                                                            |       |                              |       |   |   |   |   |
| l-1: Depreciation of property, plant and equipment                                                                                                                                                                        |       | (264,014                          | )          | 436,384 |   | 1,141,988 |   |
| l-2: Other operating results                                                                                                                                                                                              |       | 1,135,825                         |       | 857,205 |   | (3,553,938 | ) |
| Involuntary employee termination benefits (paragraph m)                                                                                                                                                                   |       | (24,910                           | )          | (20,021 | ) | (22,912 | ) |
| Derivative instruments (paragraph p)                                                                                                                                                                                      |       |                              |       |   |   |   |   |
| Operating                                                                                                                                                                                                                 |       | 5,372,416                         |       | 6,723,787 |   | (95,107,147 | ) |
| Non-operating                                                                                                                                                                                                             |       | 161,036                           |       | — |   | — |   |
| Reorganization of subsidiaries (paragraph q)                                                                                                                                                                              |       | (277,091                          | )          | (330,981 | ) | (850,767 | ) |
| Amortization of bond discount and deferred debt issuance costs  (paragraph r)                                                                                                                                        |       | 2,031,289                         |       | (525,599 | ) | 130,177 |   |
| Accounting for asset retirement obligations (paragraph s)                                                                                                                                                                 |       |                              |       |   |   |   |   |
| s-1: Depreciation expense                                                                                                                                                                                                 |       | (16,926                           | )          | (26,317 | ) | (210,364 | ) |
| s-2: Accretion expense                                                                                                                                                                                                    |       | (1,346,004                        | )          | (12,370 | ) | (101,851 | ) |
| Effects of minority interest on the US GAAP adjustments (paragraph t)                                                                                                                                                     |       | 8,198,389                         |       | 225,929 |   | (5,262,380 | ) |
| **Net income in accordance with US GAAP**                                                                                                                                                                                 |       | 247,828,120                       |       | 197,590,664 |   | 394,902,338 |   |
| **Other comprehensive income (loss):**                                                                                                                                                                                    |       |                              |       |   |   |   |   |
| (Loss)/gain on hedge of the foreign currency exposure of net  investment in foreign operations, net of income tax of ThCh$ 0                                                                                         |       | 3,519,395                         |       | (16,276,083 | ) | (2,938,413 | ) |
| Fair value change of hedging instruments used in cash flow hedges  (paragraph p), net of tax (ThCh$ 5,113, ThCh$ 279,385 and ThCh$ 992,972  as of December 31, 2006 2007 and 2008, respectively) |       | (24,962                           | )          | (974,999 | ) | (2,805,100 | ) |
| Amortization of FAS 158 adjustment (paragraph e)                                                                                                                                                                          |       | —                            |       | (320,885 | ) | (3,257,941 | ) |
| Cumulative translation adjustment, net of income tax (ThCh$ 0)  (paragraph o)                                                                                                                                   |       | (3,406,632                        | )          | 11,479,446 |   | (35,211,803 | ) |
| **Comprehensive income in accordance with US GAAP**                                                                                                                                                                       |       | 247,915,921                       |       | 191,498,143 |   | 350,689,081 |   |

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

** **

**36.   Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

 

(w)      Effects of conforming to US GAAP:

(ii) The reconciliation to conformshareholders’ equity amounts to US GAAP is as follows:

 
| ** **                                                                    | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                    | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                                                    | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                                                                          |       |                        |       |   |   |
| **Shareholders’ equity in accordance with Chilean  GAAP**                |       | 2,051,922,810               |       | 2,364,523,995 |   |
| Reversal of revaluation of property, plant and equipment (paragraph  b):      |       |                        |       |   |   |
| Property, plant and equipment                                                 |       | (13,942,496                 | )          | (13,942,496 | ) |
| Accumulated depreciation                                                      |       | 8,896,095                   |       | 9,257,794 |   |
| Effect of application of FAS 109 (paragraph c-1)                              |       | (141,426,986                | )          | (132,767,504 | ) |
| Deferred income taxes on US GAAP adjustments (paragraph c-2)                  |       | 14,632,335                  |       | 36,462,114 |   |
| Investments in related companies (paragraph f)                                |       | (39,076,878                 | )          | (39,618,459 | ) |
| Goodwill (paragraph g):                                                       |       |                        |       |   |   |
| Goodwill, gross                                                               |       | 23,316,380                  |       | 27,007,730 |   |
| Accumulated amortization                                                      |       | 4,490,464                   |       | 6,366,457 |   |
| Negative goodwill (paragraph h):                                              |       |                        |       |   |   |
| h-1: Negative goodwill                                                        |       | 378,291,338                 |       | 444,941,128 |   |
| h-1 Accumulated amortization of negative goodwill                             |       | (337,994,089                | )          | (403,848,518 | ) |
| h-2: Property, plant and equipment                                            |       | (534,390,191                | )          | (628,542,477 | ) |
| h-2: Accumulated depreciation of property, plant and equipment                |       | 217,689,844                 |       | 270,039,527 |   |
| Capitalized interest and exchange differences (paragraph i):                  |       |                        |       |   |   |
| Property, plant and equipment                                                 |       | (23,693,432                 | )          | (24,805,886 | ) |
| Accumulated depreciation of property, plant and equipment                     |       | 2,395,389                   |       | 3,145,273 |   |
| Minimum dividend (paragraph k)                                                |       | (41,854,616                 | )          | (87,036,762 | ) |
| Capitalized general and administrative expenses (paragraph l):                |       |                        |       |   |   |
| l-1: Property, plant and equipment                                            |       | (36,725,268                 | )          | (31,739,969 | ) |
| l-1: Accumulated depreciation of property, plant and equipment                |       | 12,828,351                  |       | 10,562,193 |   |
| l-2: Other assets                                                             |       | 1,304,624                   |       | (5,088,418 | ) |
| Involuntary employee termination benefits (paragraph m)                       |       | 19,481                      |       | — |   |
| Derivative instruments (paragraph p)                                          |       | 19,960,522                  |       | (81,439,504 | ) |
| Reorganization of subsidiaries (paragraphs q and v)                           |       | 22,897,153                  |       | 26,080,553 |   |
| Amortization of bond discount and deferred debt issuance costs  (paragraph r) |       | 1,505,690                   |       | 1,635,867 |   |
| Accounting for asset retirement obligations, net (paragraph s)                |       | (1,686,464                  | )          | (2,255,037 | ) |
| Effects of minority interest on the US GAAP adjustments (paragraphs t  and v) |       | 149,596,816                 |       | 156,786,145 |   |
| **Shareholders’ equity in accordance with US GAAP**                      |       | 1,738,956,872               |       | 1,905,723,746 |   |

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

** **

**36.****     ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

(w)      The changes inshareholders’ equity in US GAAP as of each year-end are as follows:

 
| ** **                                                                                     | ** ** | **As of December 31,** |
|------------------------------------------------------------------------------------------------|------------|-----------------------------|
| ** **                                                                                     | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                                     | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                                           |       |                        |   |   |   |   |   |
| **Shareholders’ equity in accordance with US GAAP  — January 1,**               |       | 1,531,175,758               |   | 1,688,863,827 |   | 1,738,956,872 |   |
|                                                                                           |       |                        |   |   |   |   |   |
| Dividends paid during the year                                                                 |       | (80,482,398                 | ) | (116,403,414 | ) | (138,740,061 | ) |
| Reversal of minimum dividends as of previous balance sheet date                                |       | 27,501,903                  |   | 33,090,665 |   | 41,854,616 |   |
| Minimum dividend current period(paragraph k)                                                   |       | (33,090,665                 | ) | (41,854,616 | ) | (87,036,762 | ) |
| Cumulative translation adjustment                                                              |       | (3,406,632                  | ) | 11,479,446 |   | (35,211,803 | ) |
| Reorganization under common control                                                            |       | (7,515,141                  | ) | (16,237,733 | ) | — |   |
| Gain (loss) on hedge of the foreign currency exposure of net  investment in foreign operations |       | 3,519,395                   |   | (16,276,083 | ) | (2,938,413 | ) |
| Fair value change of hedging instruments used in cash flow hedges                              |       | (24,962                     | ) | (974,999 | ) | (2,805,100 | ) |
| Amortization of FAS 158 adjustment Endesa Brasil                                               |       | 3,358,448                   |   | (320,885 | ) | (3,257,941 | ) |
| Net income in accordance with US GAAP for the year                                             |       | 247,828,121                 |   | 197,590,664 |   | 394,902,338 |   |
| **Shareholders’ equity in accordance with US GAAP  — December 31,**             |       | 1,688,863,827               |   | 1,738,956,872 |   | 1,905,723,746 |   |

 

F-128

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Table ofContents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated**

 

**36.****      ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

 

**II.****       ****Additional Disclosure Requirements:**

** **

**a)**** ****Basic and diluted earnings pershare:**

** **
| ** **                                                        | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                        | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                        | ** ** | **Ch$**                          | ** ** | **Ch$** | ** ** | **Ch$** | ** ** |
|                                                              |       |                             |       |   |   |   |   |
| Chilean GAAP earnings per share                                   |       | 27.03                            |       | 25.55 |   | 53.96 |   |
|                                                              |       |                             |       |   |   |   |   |
| US GAAP basic and diluted earnings per share                      |       | 30.22                            |       | 24.09 |   | 48.15 |   |
|                                                              |       |                             |       |   |   |   |   |
| Weighted average number of common shares outstanding (000’s) |       | 8,201,755                        |       | 8,201,755 |   | 8,201,755 |   |

 

There are no requirementsto provide earnings per share disclosures under Chilean GAAP. The earnings pershare figures disclosed above for both US GAAP and Chilean GAAP purposes havebeen calculated by dividing the respective consolidated net income by theweighted average number of common shares outstanding during the year.  The Company has not issued convertible debtor equity securities nor does it have other common stock equivalent securitiesor stock options outstanding. Consequently, there are no potentially dilutive effects on the earningsper share of the Company.

 

F-129

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.****     ****Differences between Chilean and United States Generally Accepted AccountingPrinciples, continued:**

** **

**b)****       ****Income taxes:**

** **

The (provision) benefit for income taxes(charged)/credited to the results of operations determined in accordance withUS GAAP is as follows:

 
| ** **                                              | ** ** | **Year ended December 31, 2006** | ** ** |
|---------------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                              | ** ** | **Chile**                             | ** ** | **Argentina** | ** ** | **Peru** | ** ** | **Colombia** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **ThCh$**                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Income tax provision under Chilean GAAP:                |       |                                  |       |   |   |   |   |   |   |   |   |
| Current income tax as determined under Chilean  GAAP    |       | (46,921,023                           | )          | (4,742,923 | ) | (19,436,225 | ) | (45,173,267 | ) | (116,273,438 | ) |
| Deferred income taxes as determined under  Chilean GAAP |       | (27,799,918                           | )          | (11,021,986 | ) | (13,227,744 | ) | 15,274,862 |   | (36,774,786 | ) |
| Total income tax provision under Chilean GAAP           |       | (74,720,941                           | )          | (15,764,909 | ) | (32,663,969 | ) | (29,898,405 | ) | (153,048,224 | ) |
|                                                    |       |                                  |       |   |   |   |   |   |   |   |   |
| US GAAP adjustments:                                    |       |                                  |       |   |   |   |   |   |   |   |   |
| Deferred tax effect of applying SFAS 109                |       | 6,756,518                             |       | — |   | 3,875,162 |   | — |   | 10,631,679 |   |
| Deferred tax effect of adjustment to US GAAP            |       | (7,370,802                            | )          | (3,276,230 | ) | (7,529,059 | ) | (1,877,701 | ) | (20,053,791 | ) |
| Total US GAAP adjustments                               |       | (614,284                              | )          | (3,276,230 | ) | (3,653,897 | ) | (1,877,701 | ) | (9,422,112 | ) |
| Total income tax provision under US GAAP                |       | (75,335,225                           | )          | (19,041,139 | ) | (36,317,866 | ) | (31,776,106 | ) | (162,470,336 | ) |

 

F-130

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Table of Contents

** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.       Differences between Chilean and United States GenerallyAccepted Accounting Principles, continued:**

 
| ** **                                              | ** ** | **Year ended December 31, 2007** |
|---------------------------------------------------------|------------|---------------------------------------|
| ** **                                              | ** ** | **Chile**                             | ** ** | **Argentina** | ** ** | **Peru** | ** ** | **Colombia** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **ThCh$**                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Income tax provision under Chilean GAAP:                |       |                                  |   |   |   |   |   |   |   |   |   |
| Current income tax as determined under Chilean  GAAP    |       | (36,183,942                           | ) | (11,044,121 | ) | (16,413,847 | ) | (23,483,772 | ) | (87,125,682 | ) |
| Deferred income taxes as determined under  Chilean GAAP |       | (27,928,032                           | ) | (2,804,049 | ) | (5,411,988 | ) | (237,549 | ) | (36,381,618 | ) |
| Total income tax provision under Chilean GAAP           |       | (64,111,974                           | ) | (13,848,170 | ) | (21,825,835 | ) | (23,721,321 | ) | (123,507,300 | ) |
|                                                    |       |                                  |   |   |   |   |   |   |   |   |   |
| US GAAP adjustments:                                    |       |                                  |   |   |   |   |   |   |   |   |   |
| Deferred tax effect of applying SFAS 109                |       | 6,925,184                             |   | — |   | 3,687,480 |   | — |   | 10,612,664 |   |
| Deferred tax effect of adjustment to US GAAP            |       | (7,930,705                            | ) | (88,617 | ) | (6,915,613 | ) | 87,136 |   | (14,847,799 | ) |
| Total US GAAP adjustments                               |       | (1,005,521                            | ) | (88,617 | ) | (3,228,133 | ) | 87,136 |   | (4,235,135 | ) |
| Total income tax provision under US GAAP                |       | (65,117,495                           | ) | (13,936,787 | ) | (25,053,968 | ) | (23,634,185 | ) | (127,742,435 | ) |

 
| ** **                                              | ** ** | **Year ended December 31, 2008** |
|---------------------------------------------------------|------------|---------------------------------------|
| ** **                                              | ** ** | **Chile**                             | ** ** | **Argentina** | ** ** | **Peru** | ** ** | **Colombia** | ** ** | **Total** | ** ** |
| ** **                                              | ** ** | **ThCh$**                             | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Income tax provision under Chilean GAAP:                |       |                                  |   |   |   |   |   |   |   |   |   |
| Current income tax as determined under Chilean  GAAP    |       | (75,505,083                           | ) | (5,165,428 | ) | (18,021,670 | ) | (65,670,820 | ) | (164,363,001 | ) |
| Deferred income taxes as determined under  Chilean GAAP |       | (35,680,126                           | ) | (684,821 | ) | 3,959,949 |   | 5,210,616 |   | (27,194,382 | ) |
| Total income tax provision under Chilean GAAP           |       | (111,185,209                          | ) | (5,850,249 | ) | (14,061,721 | ) | (60,460,204 | ) | (191,557,383 | ) |
|                                                    |       |                                  |   |   |   |   |   |   |   |   |   |
| US GAAP adjustments:                                    |       |                                  |   |   |   |   |   |   |   |   |   |
| Deferred tax effect of applying SFAS 109                |       | 6,819,286                             |   | — |   | 4,030,218 |   | — |   | 10,849,504 |   |
| Deferred tax effect of adjustment to US GAAP            |       | 11,852,242                            |   | (104,453 | ) | 5,381,763 |   | 1,123,784 |   | 18,253,336 |   |
| Total US GAAP adjustments                               |       | 18,671,528                            |   | (104,453 | ) | 9,411,981 |   | 1,123,784 |   | 29,102,840 |   |
| Total income tax provision under US GAAP                |       | (92,513,681                           | ) | (5,954,702 | ) | (4,649,740 | ) | (59,336,420 | ) | (162,454,543 | ) |

 

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

 

Deferredtax assets and liabilities in accordance with US GAAP as of each balance sheetdate are as follows:

 
| ** **                                 | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------|------------|-----------------------------|------------|
| ** **                                 | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                 | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                 | ** ** | **Short-term**              | ** ** | **Long-term** | ** ** | **Short-term** | ** ** | **Long-term** | ** ** |
| **Deferred income tax assets**             |       |                        |       |   |   |   |   |   |   |
| Property, plant and equipment              |       | —                      |       | 113,363,564 |   | — |   | 129,713,211 |   |
| Prepaid income                             |       | 113,864                     |       | 984,081 |   | 41,587 |   | 890,862 |   |
| Derivative contracts                       |       | —                      |       | 240,811 |   | — |   | 14,680,973 |   |
| Vacation accrual                           |       | 596,896                     |       | — |   | 615,518 |   | — |   |
| Tax losses (1)                             |       | —                      |       | 25,598,038 |   | — |   | 17,238,948 |   |
| Contingencies                              |       | 1,232,981                   |       | 2,973,347 |   | 1,997,148 |   | 5,213,711 |   |
| Accounts receivables                       |       | 430                         |       | 7,918,695 |   | 36 |   | 9,313,978 |   |
| Provision for employee obligations         |       | 526,649                     |       | 969,748 |   | 539,469 |   | 641,657 |   |
| Provision for spare parts                  |       | —                      |       | 1,574,685 |   | — |   | 1,515,433 |   |
| Other                                      |       | 670,472                     |       | 795,195 |   | 556,894 |   | 947,558 |   |
| Valuation allowance                        |       | —                      |       | (7,121,370 | ) | — |   | (7,934,959 | ) |
| **Total deferred income tax  assets**      |       | 3,141,292                   |       | 147,296,794 |   | 3,750,652 |   | 172,221,372 |   |
|                                       |       |                        |       |   |   |   |   |   |   |
| **Deferred income tax liabilities**        |       |                        |       |   |   |   |   |   |   |
| Property, plant and equipment              |       | —                      |       | (407,065,383 | ) | — |   | (421,759,173 | ) |
| Severance indemnities                      |       | —                      |       | (1,073,384 | ) | — |   | (984,623 | ) |
| Derivative contracts                       |       | —                      |       | (3,515,490 | ) | — |   | — |   |
| Finance costs                              |       | —                      |       | (15,354,890 | ) | — |   | (14,612,551 | ) |
| Capitalized interest on construction       |       | —                      |       | (4,311,595 | ) | — |   | (4,041,198 | ) |
| Capitalized cost of studies                |       | —                      |       | (9,758,104 | ) | — |   | (7,659,391 | ) |
| Capitalized spare parts used               |       | —                      |       | (878,155 | ) | — |   | (807,175 | ) |
| Bonds discount                             |       | —                      |       | (512,568 | ) | — |   | (2,566,113 | ) |
| Leasing                                    |       | —                      |       | (1,153,164 | ) | — |   | (429,069 | ) |
| Earned exigible                            |       | —                      |       | — |   | — |   | (3,279,627 | ) |
| Investment in Argentina                    |       | —                      |       | (361,853 | ) | — |   | (332,227 | ) |
| Other                                      |       | —                      |       | (3,194,282 | ) | — |   | (2,835,517 | ) |
|                                       |       |                        |       |   |   |   |   |   |   |
| **Total deferred income tax  liabilities** |       | —                      |       | (447,178,868 | ) | — |   | (459,306,664 | ) |
|                                       |       |                        |       |   |   |   |   |   |   |
| **Net deferred tax balance**               |       | 3,141,292                   |       | (299,882,074 | ) | 3,750,652 |   | (287,085,292 | ) |

 

In assessing therealizability of deferred tax assets, the Company considers whether it is morelikely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is dependent upon thegeneration of future taxable income during the periods in which those temporarydifferences become deductible. Management considers the scheduled reversal ofdeferred tax liabilities (including the impact of available carryback andcarryforward periods), projected future taxable income, and tax-planningstrategies in making this assessment. Based upon the level of historicaltaxable income and projections for future taxable income over the periods inwhich the deferred tax assets are deductible, the Company believes it is morelikely than not that the Company will realize the benefits of these deductibledifferences, net of the existing valuation allowances at December 31,2008. The amount of the deferred tax asset considered realizable, however,could be reduced in the near term if estimates of future taxable income duringthe carryforward period are reduced.

 

F-132

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.****    ****Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

** **

Changes in the amount ofdeferred tax asset valuation allowance are as follows:

 
| ** **                        | ** ** | **As of December 31,** | ** ** |
|-----------------------------------|------------|-----------------------------|------------|
| ** **                        | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                        | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                              |       |                        |       |   |   |
| Balance as of January 1,     |       | (34,224,655                 | )          | (7,121,369 | ) |
| Cumulative translation adjustment |       | 2,577,698                   |       | — |   |
| Decrease of valuation allowance   |       | 28,333,096                  |       | 261,874 |   |
| Increase of valuation allowance   |       | (3,807,509                  | )          | (1,075,464 | ) |
| Balance as of December 31,   |       | (7,121,370                  | )          | (7,934,959 | ) |

 

----

(1) Accumulated taxlosses by country as of December 31, 2007 and 2008 are as follows:

 
| ** ** | ** ** | **December 31, 2007** | ** ** | **December 31, 2008** | ** ** |
|------------|------------|----------------------------|------------|----------------------------|------------|
| ** ** | ** ** | **Amount**                 | ** ** | **Year of  expiration**    | ** ** | **Amount** | ** ** | **Year of  expiration** | ** ** |
| ** ** | ** ** | **ThCh$**                  | ** ** | ** **                 | ** ** | **ThCh$** | ** ** | ** ** | ** ** |
| Chile      |       | 150,426,168                |       | Do not expire              |       | 95,139,241 |   | Do  not expire |   |
| Argentina  |       | 5,135,700                  |       | 2012                       |       | 3,033,183 |   | 2012 |   |
| Total      |       | 155,561,868                |       |                       |       | 98,172,424 |   |   |   |

 

Tax losses applied againsttaxable income in the years ended December 31, 2006, 2007 and 2008 are asfollows:

 
| ** **   | ** ** | **Year ended December 31,** | ** ** |
|--------------|------------|----------------------------------|------------|
| ** **   | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **   | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| Chile        |       | 1,721,585                        |       | 8,414,145 |   | 53,487,352 |   |
| Argentina    |       | 32,787,955                       |       | 2,584,247 |   | 2,475,552 |   |
| Colombia (A) |       | 1,356,230                        |       | 81,203,538 |   | — |   |
| Total        |       | 35,865,770                       |       | 92,201,930 |   | 55,962,904 |   |

 

----

(A)                                   During the years ended December 31, 2005 and 2006, management didnot expect that the subsidiaries in Colombia will be able to recover deferredtax assets related to tax loss carry forwards. Thus, as of December 31,2006, a valuation allowance has been recorded, which covered the whole amountof the deferred tax asset related to tax loss carryforwards. However, due tothe merger of the Company’s Colombian Subsidiaries, the tax loss carryforwardswere applied against income during the year ended December 31, 2007.

 

Incometax audits:

 

We are potentially subject toincome tax audits in numerous jurisdictions in Chile and internationally untilthe applicable statute of limitations expire. Tax audits by their nature areoften complex and can require several years to complete. The following is asummary of tax years, potentially subject to examination, in the significanttax and business jurisdictions in which we operate.

 
| **Tax jurisdiction** | ** ** | **Tax Years  Subject to  Examination** | ** ** |
|----------------------|------------|----------------------------------------|------------|
|                 |       |                                   |       |
| Chile                |       | 2006-2008                              |       |
| Argentina            |       | 2004-2008                              |       |
| Colombia             |       | 2003-2008                              |       |
| Peru                 |       | 2005-2008                              |       |

 

F-133

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

** **

A reconciliation of the Chilean Statutory income taxrate to the Company’s effective tax rate on net income calculated in accordancewith US GAAP is as follows:

 
| ** **                                             | ** ** | **2006**    | ** ** |
|--------------------------------------------------------|------------|-------------|------------|
| ** **                                             | ** ** | **Chile**   | ** ** | **Argentina** | ** ** | **Peru** | ** ** | **Colombia** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **ThCh$**   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| At Chilean statutory income tax rate (17%)             |       | (53,021,097 | )          | (5,771,317 | ) | (7,777,946 | ) | (14,891,475 | ) | (81,461,835 | ) |
| Effect of differences in foreign tax rates             |       | —      |       | (6,110,806 | ) | (7,549,183 | ) | (18,833,336 | ) | (32,493,325 | ) |
| Increase (decrease) in rates resulting from:           |       |        |       |   |   |   |   |   |   |   |   |
| Price-level restatement not accepted for tax  purposes |       | (4,208,860  | )          | (7,123,287 | ) | — |   | 14,883,510 |   | 3,551,363 |   |
| Non-taxable items                                      |       | 17,282,463  |       | 3,214,389 |   | 1,876,428 |   | 799,428 |   | 23,172,708 |   |
| Non-deductable items                                   |       | (40,486,087 | )          | (2,262,296 | ) | (21,035,651 | ) | (14,790,955 | ) | (78,574,989 | ) |
| Prior year income tax                                  |       | 4,929,566   |       | — |   | — |   | — |   | 4,929,566 |   |
| Effect of change in valuation allowance                |       | (244,649    | )          | — |   | — |   | (68,017 | ) | (312,666 | ) |
| Other                                                  |       | 413,439     |       | (987,822 | ) | (1,831,513 | ) | 1,124,738 |   | (1,281,158 | ) |
| Tax benefit (expense) at effective tax rate            |       | (22,314,128 | )          | (13,269,822 | ) | (28,539,919 | ) | (16,884,632 | ) | (81,008,501 | ) |
| Total income tax under US GAAP                         |       | (75,335,225 | )          | (19,041,139 | ) | (36,317,865 | ) | (31,776,107 | ) | (162,470,336 | ) |

 

F-134

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the Consolidated FinancialStatements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

 
| ** **                                             | ** ** | **2007**    | ** ** |
|--------------------------------------------------------|------------|-------------|------------|
| ** **                                             | ** ** | **Chile**   | ** ** | **Argentina** | ** ** | **Peru** | ** ** | **Colombia** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **ThCh$**   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| At Chilean statutory income tax rate (17%)             |       | (37,327,601 | )          | (10,262,869 | ) | (4,675,443 | ) | (13,645,583 | ) | (65,911,496 | ) |
| Effect of differences in foreign tax rates             |       | —      |       | (10,866,567 | ) | (3,635,743 | ) | (13,645,583 | ) | (28,147,893 | ) |
| Increase (decrease) in rates resulting from:           |       |        |       |   |   |   |   |   |   |   |   |
| Price-level restatement not accepted for tax  purposes |       | (14,683,516 | )          | 1,195,126 |   | (15,613 | ) | — |   | (13,504,003 | ) |
| Non-taxable items                                      |       | 30,712,158  |       | 20,349,026 |   | 1,504,791 |   | 7,436,233 |   | 60,002,208 |   |
| Non-deductable items                                   |       | (41,043,177 | )          | (14,351,503 | ) | (17,380,903 | ) | (31,834,585 | ) | (104,610,168 | ) |
| Prior year income tax                                  |       | 815,665     |       | — |   | — |   | — |   | 815,665 |   |
| Effect of change in valuation allowance                |       | (3,083,617  | )          | — |   | — |   | 27,609,204 |   | 24,525,587 |   |
| Other                                                  |       | (507,406    | )          | — |   | (851,057 | ) | 446,128 |   | (912,335 | ) |
| Tax benefit (expense) at effective tax rate            |       | (27,789,893 | )          | (3,673,918 | ) | (20,378,525 | ) | (9,988,603 | ) | (61,830,939 | ) |
| Total income tax under US GAAP                         |       | (65,117,494 | )          | (13,936,787 | ) | (25,053,968 | ) | (23,634,186 | ) | (127,742,435 | ) |

 

F-135

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

 
| ** **                                             | ** ** | **2008**    | ** ** |
|--------------------------------------------------------|------------|-------------|------------|
| ** **                                             | ** ** | **Chile**   | ** ** | **Argentina** | ** ** | **Peru** | ** ** | **Colombia** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **ThCh$**   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| At Chilean statutory income tax rate (17%)             |       | (73,795,785 | )          | 45,302 |   | (9,631,065 | ) | (41,339,110 | ) | (124,720,658 | ) |
| Effect of differences in foreign tax rates             |       | —      |       | 47,968 |   | (7,408,573 | ) | (38,907,397 | ) | (46,268,002 | ) |
| Increase (decrease) in rates resulting from:           |       |        |       |   |   |   |   |   |   |   |   |
| Price-level restatement not accepted for tax  purposes |       | (33,707,683 | )          | (4,067,279 | ) | 3,884,083 |   | — |   | (33,890,879 | ) |
| Non-taxable items                                      |       | 57,644,575  |       | 1,020,637 |   | 18,253,536 |   | 21,781,879 |   | 98,700,627 |   |
| Non-deductable items                                   |       | (38,270,603 | )          | (3,001,330 | ) | (9,516,364 | ) | (2,197,568 | ) | (52,985,865 | ) |
| Prior year income tax                                  |       | (2,646,991  | )          | — |   | — |   | 1,325,776 |   | (1,321,215 | ) |
| Effect of change in valuation allowance                |       | (813,590    | )          | — |   | — |   | — |   | (813,590 | ) |
| Other                                                  |       | (923,604    | )          | — |   | (231,357 | ) | — |   | (1,154,961 | ) |
| Tax benefit (expense) at effective tax rate            |       | (18,717,896 | )          | (6,000,004 | ) | 4,981,325 |   | (17,997,310 | ) | (37,733,885 | ) |
| Total income tax under US GAAP                         |       | (92,513,681 | )          | (5,954,702 | ) | (4,649,740 | ) | (59,336,420 | ) | (162,454,543 | ) |

 

F-136

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Table of Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

** **

The following table breaks down income before incometaxes in according with US GAAP by country as of December 31, 2006, 2007and 2008, respectively.

 

| ** ** | ** ** | **Year ended December 31,** | ** ** |
|------------|------------|----------------------------------|------------|
| ** ** | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** ** | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|       |       |                             |       |   |   |   |   |
| Chile      |       | 332,540,020                      |       | 178,408,134 |   | 293,682,319 |   |
| Argentina  |       | 12,661,752                       |       | 40,739,351 |   | 7,993,345 |   |
| Peru       |       | 46,671,905                       |       | 25,917,475 |   | 12,509,983 |   |
| Colombia   |       | 18,424,781                       |       | 80,268,138 |   | 243,171,234 |   |
| Total      |       | 410,298,458                      |       | 325,333,098 |   | 557,356,881 |   |

 

**c)********          ****Segment disclosure**

** **

The Company providesdisclosures in accordance with SFAS No. 131, “Disclosures About Segmentsof an Enterprise and Related Information” (“SFAS 131”), which establishesstandards for reporting information about operating segments in annualfinancial statements as well as related disclosures about products and servicesand geographic areas.  Operating segmentsare defined as components of an enterprise for which separate financialstatement information is available and evaluated regularly by the chiefoperating decision maker in making decisions about allocating resources andassessing performance. In accordance with SFAS 131, the Company has foursegments, which are split into: Chile, Argentina, Peru and Colombia. The chiefoperating decision maker evaluates the performance of the segment by reviewingthe segment’s operating income as determined under Chilean GAAP. The operatingsegments Chile, Argentina, Peru and Colombia include power generationactivities. In addition, the operating segment Chile includes the Company’sengineering services activities and the public concession activity, which arereviewed by the Chief Operating Decision maker together with the Chilean powergenerating activities. These other services are carried out in Chile only. TheChief Operating Decision maker reviews revenues including intersegmentrevenues.

 

The accounting policies of each segment are the same asthose described in Note 2.

 

F-137

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** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

** **

Consistentwith US GAAP reporting requirements of financial information reviewed by thechief operating decision maker, the following segment information presented hasbeen determined in accordance with Chilean GAAP.

 

The Company’s reportable segments as of December 31,2006, 2007 and 2008 and for the years then ended are as follows:

 
| ** **                        | ** ** | **Chile**     | ** ** | **Argentina** | ** ** | **Peru**    | ** ** | **Colombia**  | ** ** | **Total**     | ** ** |
|-----------------------------------|------------|---------------|------------|---------------|------------|-------------|------------|---------------|------------|---------------|------------|
| ** **                        | ** ** | **ThCh$**     | ** ** | **ThCh$**     | ** ** | **ThCh$**   | ** ** | **ThCh$**     | ** ** | **ThCh$**     | ** ** |
| **2006**                          | ** ** | ** **    | ** ** | ** **    | ** ** | ** **  | ** ** | ** **    | ** ** | ** **    | ** ** |
| Total revenues                    |       | 771,573,659   |       | 275,339,184   |       | 196,703,561 |       | 320,261,513   |       | 1,563,877,917 |       |
| Depreciation and amortization     |       | 92,846,993    |       | 40,397,968    |       | 33,748,623  |       | 39,338,172    |       | 206,331,756   |       |
| Operating income                  |       | 341,274,149   |       | 41,894,566    |       | 64,952,970  |       | 141,905,347   |       | 590,027,032   |       |
|                              |       |          |       |          |       |        |       |          |       |          |       |
| Long lived assets (net) (1)  |       | 2,779,538,622 |       | 503,790,707   |       | 855,050,764 |       | 1,322,416,025 |       | 5,460,796,117 |       |
| **2007**                          |       |          |       |          |       |        |       |          |       |          |       |
| Total revenues                    |       | 1,063,473,049 |       | 288,520,482   |       | 182,275,513 |       | 346,394,671   |       | 1,880,663,715 |       |
| Depreciation and amortization     |       | 101,117,464   |       | 40,252,871    |       | 35,559,548  |       | 34,551,193    |       | 211,481,076   |       |
| Operating income                  |       | 372,489,414   |       | 24,522,466    |       | 50,105,261  |       | 174,516,839   |       | 621,633,980   |       |
|                              |       |          |       |          |       |        |       |          |       |          |       |
| Long lived assets (net) (1)       |       | 2,737,598,666 |       | 416,608,770   |       | 725,531,236 |       | 1,131,625,766 |       | 5,011,364,438 |       |
| **2008**                          |       |          |       |          |       |        |       |          |       |          |       |
| Total revenues                    |       | 1,398,349,419 |       | 352,943,348   |       | 247,075,160 |       | 493,220,746   |       | 2,491,588,673 |       |
| Depreciation and amortization     |       | 112,302,917   |       | 52,999,737    |       | 44,822,815  |       | 42,212,546    |       | 252,338,015   |       |
| Operating income                  |       | 557,021,626   |       | 19,001,456    |       | 54,371,898  |       | 262,965,400   |       | 893,360,380   |       |
|                              |       |          |       |          |       |        |       |          |       |          |       |
| Long lived assets (net) (1)       |       | 3,071,802,661 |       | 470,209,466   |       | 872,247,718 |       | 1,309,586,251 |       | 5,723,846,096 |       |

 

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** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.********               ****Differences between Chilean and United StatesGenerally Accepted Accounting Principles, continued:**

** **

A summary ofactivities presented in accordance with Chilean GAAP by geographic area is asfollows:

 
| ** ** | ** ** | **Revenues**                     | ** ** | **Long-lived assets**       | ** ** |
|------------|------------|----------------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **Year ended December 31,** | ** ** | **As of December 31,** | ** ** |
| ** ** | ** ** | **2006**                         | ** ** | **2007**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** ** | ** ** | **ThCh$**                        | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|       |       |                             |       |                        |       |   |   |   |   |   |   |
| Chile (1)  |       | 771,573,658                      |       | 1,063,473,048               |       | 1,398,349,419 |   | 2,737,598,666 |   | 3,071,802,661 |   |
| Argentina  |       | 275,339,184                      |       | 288,520,482                 |       | 352,943,348 |   | 416,608,770 |   | 470,209,466 |   |
| Colombia   |       | 320,261,513                      |       | 346,394,671                 |       | 493,220,746 |   | 1,131,625,766 |   | 1,309,586,251 |   |
| Peru       |       | 196,703,561                      |       | 182,275,513                 |       | 247,075,160 |   | 725,531,236 |   | 872,247,718 |   |
| Total      |       | 1,563,877,916                    |       | 1,880,663,714               |       | 2,491,588,673 |   | 5,011,364,438 |   | 5,723,846,096 |   |

 

----

(1) The Chilesegment includes assets not assigned to specific segments (such as corporateheadquarter)

 

During the years ended December 31,2006, 2007 and 2008, revenues from Chile include revenues from energy sales toChilectra, a related company (see Note 6), which exceeded 10% of totalconsolidated revenues. The revenues derived from energy sales to Chilectraamounted to ThCh$ 177,439,565, ThCh$ 203,075,567 and ThCh$ 255,452,943,respectively.

 

**d)********          ****Concentration of risk:**

** **

TheCompany does not believe that it is exposed to any unusual credit risk from anysingle financial institution. The Company’s debtors are dependent on theeconomy in Latin America, which could make them vulnerable to downturns in theeconomic activity in the countries in which the Company operates.

 

Theonly customer which accounted for more than 10% of revenues for the yearsending December 31, 2006, 2007 and 2008, respectively was Chilectra S.A.,subsidiary of the Company’s parent company Enersis S.A. , transactions withwhich represented a participation in consolidated revenues amounted to 12.3%,11.76% and 10.25% for the years ended December 31, 2006, 2007 and 2008,respectively.

 

F-139

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** **

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

** **

**36.   Differences betweenChilean and United States Generally Accepted Accounting Principles,****continued:**

 

**e)********          ****Schedule of debt maturity:**

** **

Following is a schedule of debt maturity in each of thenext five years and thereafter:

 

| ** **          | ** ** | **As of  December 31,  2008** | ** ** |
|---------------------|------------|------------------------------------|------------|
| ** **          | ** ** | **ThCh$**                          | ** ** |
|                |       |                               |       |
| 2009                |       | 728,293,518                        |       |
| 2010                |       | 235,468,138                        |       |
| 2011                |       | 333,385,007                        |       |
| 2012                |       | 129,709,959                        |       |
| 2013                |       | 316,951,240                        |       |
| 2014 and thereafter |       | 967,292,935                        |       |
| Total               |       | 2,711,100,797                      |       |

 

**f)********            ****Disclosure regarding interest capitalization under US GAAP:**

 
| ** **             | ** ** | **Year ended December 31,** | ** ** |
|------------------------|------------|----------------------------------|------------|
| ** **             | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **             | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                   |       |                             |       |   |   |   |   |
| Interest cost incurred |       | 207,544,446                      |       | 197,286,997 |   | 199,336,228 |   |
| Interest capitalized   |       | 6,470,434                        |       | 3,958,101 |   | 4,491,144 |   |

 

F-140

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Tableof Contents

 

**Endesa Chile and Subsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-levelchanges and expressed in thousands of constant**

**Chilean pesos as of December 31, 2008, exceptas stated)**

 

**36.      Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

** **

**g)********         ****Cash flow information**

 

The statement of cash flows under Chile GAAP differs incertain respects from the presentation of a statement of cash flows under USGAAP as marketable securities under Chile GAAP qualify as cash equivalents,whereas under US GAAP they are classified as available-for-sale securities (seeNote 36 (q)):

 
| ** **                                                                                     | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                     | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                                     | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                                           |       |                        |       |   |   |   |   |
| **Operating cash flow Chile GAAP and US GAAP**                                                 | ** ** | **491,343,985**             | ** ** | **457,211,199** | ** ** | **866,784,202** | ** ** |
|                                                                                           |       |                        |       |   |   |   |   |
| Cash flow investing activities Chile GAAP                                                      |       | (239,183,906                | )          | (344,335,795 | ) | (278,088,592 | ) |
|                                                                                           |       |                        |       |   |   |   |   |
| Differences between Chilean GAAP and US GAAP: Purchase of marketable  securities during period |       | (6,114,033                  | )          | (11,215,653 | ) | — |   |
|                                                                                           |       |                        |       |   |   |   |   |
| Sale of marketable securities during period                                                    |       | 2,234,235                   |       | 6,114,033 |   | 11,215,653 |   |
|                                                                                           |       |                        |       |   |   |   |   |
| **Cash flow investing activities US GAAP**                                                     | ** ** | **(243,063,704**            | **)**      | **(349,437,415** | **)** | **(266,872,939** | **)** |
| ** **                                                                                     | ** ** | ** **                  | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Cash flow financing activities Chile GAAP and US  GAAP**                                     | ** ** | **(159,258,410**            | **)**      | **(160,000,503** | **)** | **4,989,328** | ** ** |
|                                                                                           |       |                        |       |   |   |   |   |
| Net cash flow                                                                                  |       | 89,021,871                  |       | (52,226,719 | ) | 604,900,591 |   |
|                                                                                           |       |                        |       |   |   |   |   |
| Effect of inflation and foreign exchange differences (1)                                       |       | (8,177,113                  | )          | (24,788,508 | ) | (1,291,363 | ) |
|                                                                                           |       |                        |       |   |   |   |   |
| **Total change of cash and cash equivalent**                                                   | ** ** | **80,844,758**              | ** ** | **(77,015,227** | **)** | **603,609,228** | ** ** |
|                                                                                           |       |                        |       |   |   |   |   |
| Cash equivalent at the beginning of the period                                                 |       | 94,927,276                  |       | 175,772,034 |   | 98,756,807 |   |
| Cash equivalent at the end of the period                                                       |       | 175,772,034                 |       | 98,756,807 |   | 702,366,035 |   |

 

The reconciliation of cash and cash equivalents fromChilean GAAP to US GAAP as of December 31, 2006, 2007 and 2008 is asfollows:

 
| ** **                                   | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                         |       |                        |       |   |   |   |   |
| Cash and cash equivalents under Chilean GAAP |       | 181,886,067                 |       | 109,972,460 |   | 702,366,035 |   |
| Elimination of marketable securities         |       | (6,114,033                  | )          | (11,215,653 | ) | — |   |
| Cash and cash equivalents under US GAAP      |       | 175,772,034                 |       | 98,756,807 |   | 702,366,035 |   |

 

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** **

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

** **

**36.     Differences between Chilean and United States Generally AcceptedAccounting Principles, continued:**

** **

UnderUS GAAP, cash and cash equivalents includes all highly liquid debt instrumentspurchased with a maturity of three months or less:

 
| ** **                                                     | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                     | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                     | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                           |       |                        |       |   |   |   |   |
| Cash                                                           |       | 24,977,853                  |       | 21,123,564 |   | 54,516,339 |   |
| Time deposits repurchase agreements and  marketable securities |       | 150,794,182                 |       | 77,633,243 |   | 647,849,696 |   |
| Total cash and cash equivalents under US GAAP                  |       | 175,772,035                 |       | 98,756,807 |   | 702,366,035 |   |

 

Additionaldisclosures required under US GAAP are as follows:

 
| ** **                                               | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                               | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                               | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                     |       |                             |       |   |   |   |   |
| Interest paid during the year, net of amount capitalized |       | 201,033,174                      |       | 207,151,327 |   | 194,809,595 |   |
| Income taxes paid during the year                        |       | 88,905,025                       |       | 93,930,646 |   | 102,417,837 |   |

 

----

(1) UnderChilean GAAP in accordance with Technical Bulletin No. 50“Cash flow statement” of the Chilean Association of Accountants, the effects of foreign exchange changes oncash and cash equivalents are not required to be disclosed separately in thestatement of cash flows.  Pursuant to thecomprehensive basis of preparation of price-level adjusted financial statementsunder US GAAP the effects of foreign exchange gains or losses and effects ofinflation on cash and cash equivalents are separately disclosed as presented inthe table below:

 
| ** **                                           | ** ** | **Year ended December 31,** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                           | ** ** | **2006**                         | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                           | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                 |       |                             |       |   |   |   |   |
| Foreign exchange losses                              |       | (10,537,144                      | )          | (25,731,783 | ) | (18,474,479 | ) |
| Effects of inflation                                 |       | 2,360,032                        |       | 943,273 |   | 17,183,116 |   |
| Effect of inflation and foreign exchange differences |       | (8,177,112                       | )          | (24,788,510 | ) | (1,291,363 | ) |

 

F-142

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** **

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

** **

**36.     Differences between Chilean and UnitedStates Generally Accepted Accounting Principles,****continued:**

 

**h)****            ****Fair value measurements and the fair value option**

** **

**i) Disclosures about fair value of financial instruments**

** **

The following methods and assumptions were used toestimate the fair value of each class of financial instruments as of December 31,2007 and 2008 for which it is practicable to estimate that value:

 

·  **Cash**

** **

The fair value of the Company’s cash is equal to itscarrying value.

 

·  **Timedeposits, repurchase agreements, marketable securities, short-term receivablesand payables**

** **

The fair value of time deposits, repurchase agreements,marketable securities, short-term receivables and payables approximatescarrying value due to their relatively short-term nature.

 

·  **Long-termreceivables**

** **

The fair value of long-term receivables was estimatedusing the interest rates that are currently offered for loans with similarterms and remaining maturities The carrying values of these receivablesapproximate their fair values since they are tied to floating rates.

 

·  **Long-termdebt**

** **

The fair value of long-term debt was based on ratescurrently available to the Company for debt with similar terms, risks andremaining maturities.

 

·  **Derivativeinstruments**

** **

Estimatesof fair values of derivative instruments for which no quoted prices orsecondary market exists have been made using valuation techniques such asforward pricing models, present value of estimated future cash flows, and othermodeling techniques.  These estimates offair value include assumptions made by the Company about market variables thatmay change in the future.  Changes inassumptions could have a significant impact on the estimate of fair valuesdisclosed.  As a result such fair valueamounts are subject to significant volatility and are highly dependent on thequality of the assumptions used.

 

F-143

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**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**36.     Differences between Chilean and UnitedStates Generally Accepted Accounting Principles,****continued:**

 

The estimated fair values of the Company’s financialinstruments compared to US GAAP carrying amounts are as follows:

 
| ** **                            | ** ** | **As of December 31,** | ** ** |
|---------------------------------------|------------|-----------------------------|------------|
| ** **                            | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **Carrying  Amount**        | ** ** | **Fair  Value** | ** ** | **Carrying  Amount** | ** ** | **Fair  Value** | ** ** |
| ** **                            | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                  |       |                        |       |   |   |   |   |   |   |
| Cash                                  |       | 21,123,564                  |       | 21,123,564 |   | 54,516,339 |   | 54,516,339 |   |
| Time deposits                         |       | 48,212,900                  |       | 48,212,900 |   | 172,001,465 |   | 172,001,465 |   |
| Marketable securities                 |       | 11,221,911                  |       | 11,221,911 |   | 101,229,674 |   | 101,229,674 |   |
| Repurchase agreements                 |       | 29,420,347                  |       | 29,420,347 |   | 374,618,557 |   | 374,618,557 |   |
| Current receivables, net              |       | 230,007,246                 |       | 230,007,246 |   | 276,420,886 |   | 276,420,886 |   |
| Other receivables, net                |       | 65,389,290                  |       | 65,389,290 |   | 32,082,616 |   | 32,082,616 |   |
| Long term receivables                 |       | 90,698,407                  |       | 90,698,407 |   | 94,690,545 |   | 94,690,545 |   |
| Derivative contracts (Assets)         |       | 42,942,294                  |       | 42,942,294 |   | — |   | — |   |
| Accounts payable                      |       | (210,127,149                | )          | (210,127,149 | ) | (264,266,515 | ) | (264,266,515 | ) |
| Debt, notes payable and bonds payable |       | (2,187,945,927              | )          | (2,423,821,069 | ) | (2,711,100,797 | ) | (3,106,538,403 | ) |
| Derivative contracts (Liabilities)    |       | (22,981,772                 | )          | (22,981,772 | ) | (81,469,101 | ) | (81,469,101 | ) |

 

**ii)  Fair valuehierarchy**

** **

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 157, which defines fairvalue as the exchange price that would be received for an asset or paid totransfer a liability (an exit price) in the principal or most advantageousmarket for the asset or liability in an orderly transaction between marketparticipants at the measurement date. SFAS No. 157 establishes athree-level fair value hierarchy that prioritizes the inputs used to measurefair value. This hierarchy requires entities to maximize the use of observableinputs and minimize the use of unobservable inputs. The three levels of inputsused to measure fair value are as follows:

 

Level1 — Quoted prices in active markets for identical assets or liabilities.

 

Level2 — Observable inputs other than quoted prices included in Level 1, such asquoted prices for similar assets and liabilities in active markets; quotedprices for identical or similar assets and liabilities in markets that are notactive; or other inputs that are observable or can be corroborated byobservable market data.

 

Level3 — Unobservable inputs that are supported by little or no market activity andthat are significant to the fair value of the assets or liabilities. Thisincludes certain pricing models, discounted cash flow methodologies and similartechniques that use significant unobservable inputs.

 

TheCompany’s adoption of SFAS No. 157 did not have a material impact on ourconsolidated financial statements. The Company has segregated all financialassets and liabilities that are measured at fair value on a recurring basis (atleast annually) into the most appropriate level within the fair value hierarchybased on the inputs used to determine the fair value at the measurement date inthe table below. FSP FAS 157-2 delayed the effective date for all nonfinancial 

 

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**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

assetsand liabilities until January 1, 2009, except those that are recognized ordisclosed at fair value in the financial statements on a recurring basis.

 

Thefollowing section describes the valuation methodologies we use to measuredifferent financial instruments at fair value.

 

**Derivatives**

** **

The derivatives portfolio isentirely over-the-counter (OTC), their measurement is estimated using industrystandard valuation models. Where applicable, these models project future cashflows and discount the future amounts to a present value using market-basedobservable inputs including interest rate curves, foreign exchange rates, andforward and spot prices for currencies. Also, these estimates considerassumptions for the Company’s own credit risk and the respective counter partycredit risk. Level 2 derivative assets and liabilities primarily includecertain over-the-counter, collar and swap contracts.

 

The embedded derivativeliabilities included in Level 2 represent to derivative contracts correspondingto foreign currency.

 
| ** **             | ** ** | ** **                 | ** ** | **Fair Value Measurements at Reporting Date Using** | ** ** |
|------------------------|------------|----------------------------|------------|-----------------------------------------------------|------------|
| **(thousands of Ch$)** | ** ** | **December 31, 2008** | ** ** | **Level 1**                                         | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets**             |       |                       |       |                                                |       |   |   |   |   |
| Financial Derivatives  |       | —                     |       | —                                              |       | — |   | — |   |
| Embedded Derivative    |       | —                     |       | —                                              |       | — |   | — |   |
| **Total assets**       | ** ** | ** **                 | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
|                   |       |                       |       |                                                |       |   |   |   |   |
| **Liabilities**        |       |                       |       |                                                |       |   |   |   |   |
| Financial Derivatives  |       | (7,322,437                 | )          | —                                              |       | (7,322,437 | ) | — |   |
| Embedded Derivative    |       | (74,146,664                | )          | —                                              |       | (74,146,664 | ) | — |   |
| **Total liabilities**  | ** ** | **(81,469,101**            | **)**      | **—**                                          | ** ** | **(81,469,101** | **)** | **—** | ** ** |

 

**iii)  Fair value option**

** **

EffectiveJanuary 1, 2008, the Company adopted SFAS No. 159, which providesentities the option to measure many financial instruments and certain otheritems at fair value. Entities that choose the fair value option will recognizeunrealized gains and losses on items for which the fair value option waselected in earnings at each subsequent reporting date. The Company hascurrently chosen not to elect the fair value option for any items that are notalready required to be measured at fair value in accordance with US GAAP.

 

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Table of Contents

 

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**36.      Differencesbetween Chilean and United States Generally Accepted Accounting Principles,continued:**

** **

**i)**                Derivativeinstruments

** **

The Company is exposed to the impact of marketfluctuations in the price of electricity, natural gas, petroleum, coal, andother energy-related products, interest rates, and foreign exchange rates.  The Company has policies and procedures inplace to manage the risks associated with these market fluctuations on a globalbasis through strategic contract selection, fixed-rate and variable-rateportfolio targets, net investment hedges, and financial derivatives.    The Company has chosen to apply hedgeaccounting under US GAAP for derivatives and non-derivative instruments thatmeet the criteria for hedge accounting under SFAS 133, the accounting treatmentfor these instruments depends on whether they qualify as fair value, cash flowor net investment hedges.  Derivativesthat do not meet hedge criteria are accounted at fair value with changes infair value recorded in earnings.

 

The Company has a number of contracts denominated inUS dollars or with indexation features linked to the US dollar. According toSFAS 133, a contract with payments expressed in: the functional currency of anysubstantial party to the contract;  thecurrency in which the price of the related good or service is routinelydenominated in international commerce; the local currency of any substantialparty to the contract; or the currency used by a substantial party to thecontract as if it were the functional currency because the primary economicenvironment in which the party operates is highly inflationary, could beexcluded from the normal purchase and sale exception.  For purposes of evaluating the functionalcurrency of the Company’s subsidiaries in Argentina, Peru, Brazil, and Colombia,the Company applied BT 64, consistent with the methodology described inparagraph I o), thus the functional currency of these subsidiaries wasconsidered to be the US dollar as these subsidiaries’ financial statements werere-measured into US dollars because they are foreign subsidiaries that operatein countries exposed to significant risks as determined under BT 64.

 

The following is a summary of the Company’sadjustments in consolidated companies to other assets and liabilities relatedto the fair values for all identified derivative contracts as of December 31,2007 and 2008.

 

| ** **                                   | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
|                                         |       |                        |       |   |   |
| Embedded derivatives - assets                |       | 42,942,294                  |       | — |   |
| Embedded derivatives - liabilities           |       | (21,981,811                 | )          | (74,146,664 | ) |
| Financial derivatives - liabilities          |       | (999,961                    | )          | (7,292,840 | ) |
| Total derivative adjustment (paragraph I p)  |       | 19,960,522                  |       | (81,439,504 | ) |
| Effects of minority interest (paragraph I t) |       | 154,134                     |       | 2,253,801 |   |
| Deferred tax effects (paragraph I c)         |       | (3,274,681                  | )          | 14,680,973 |   |
| Net effect of adjustment                     |       | 16,839,975                  |       | (64,504,730 | ) |

 

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Table ofContents

 

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**36.      Differencesbetween  and United States GenerallyAccepted Accounting Principles, continued:**

** **

*Commodity derivatives*

* *

The Company has generation and distribution commoditycontracts that meet the definition of a derivative under SFAS 133 and arerequired to be accounted for at fair value. These derivative contracts wereevaluated for qualification under the normal purchase and sale exception.  A number of contracts could not qualify undersuch exemption because they had prices tied to an unrelated underlying such asa local and/or foreign inflationary index.

 

The Company has commodity contracts that are unique,due to their long-term nature and complexity. In establishing the fair value of contracts management makes assumptionsusing available market data and pricing models. Factors such as commodity price risk are also included in the fair valuecalculation.  Inputs to pricing modelsinclude estimated forward prices of electricity and natural gas, interestrates, foreign exchange rates, inflation indices, transmission costs, andothers.  These inputs become moredifficult to predict and the estimates are less precise, the further out intime these estimates are made. As a result, fair values are highly sensitive tothe assumptions being used.

 

Until December 31, 2005 the Company’s Argentinegeneration entities had access to the Brazilian energy market through aninterconnection system between those two countries. Due to action taken byArgentine Regulation Authorities, the exportations of energy from Argentina toBrazil were limited, resulting in a default of most energy supply contracts theCompany had entered into. However, during 2006 the Brazilian regulator issued astatement that allowed these interconnection contracts to reduce their amountsof power and energy to be delivered, and to accelerate their maturity date to December 2007.As a result of action taken by Argentine and Brazilian regulation authorities,the contracts the Argentine subsidiaries had entered into, ceased to exist asof the December 31, 2006.

 

*Embedded Derivative Contracts*

* *

The Company enters into certain contracts that haveembedded features that require bifurcation and fair value accounting withchanges in fair value recorded in earnings, as mandated by SFAS 133. Embeddedderivatives that were held as of December 31, 2006, 2007 and 2008corresponded to foreign currency and indexation features embedded in leases,service type contracts and notes payable.

 

*Net Investment Hedges*

* *

TheCompany is also exposed to foreign currency risk arising from long-term debtdenominated in foreign currencies, The Company has designated certainnon-derivative instruments as hedges of net investments in foreignoperations.  Accounting classification for such operations is thesame under Chilean GAAP and under US GAAP.  The changes in thecumulative translation adjustment are shown net of foreign currency gains orlosses of debt designated as hedges for foreign net investments.

 

Gains(losses) related to debt designated as hedges of Ch$ (15.7) billion,Ch$  122.7 billion and Ch$ 152.5 billion were included in thecumulative translation adjustment for the years ended December 31, 2006,2007 and 2008, respectively.

 

TheCompany also uses short duration forward foreign currency contracts, swaps, andcross-currency swaps, where possible, to manage its risk related to foreigncurrency fluctuations.

 

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** **

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

** **

**36.     Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

** **

“Derivativeinstruments”

 

Theuse of derivative instruments is one of the Company’s tools to mitigate theserisks.  Hedging strategies applicable according to the termsestablished by our Board of Directors are as follows:

 
| (a) | Exchange rate risk hedging policy |
|-----|-----------------------------------|

 

Theexchange rate risk hedging policy for the Endesa Chile Group is based on cashflow.  Its objective is to balance foreign currency indexed flows andthe assets and liability structure in such currency.  In order tomitigate the exchange rate risk, the company has entered into financialderivative contracts, such as cross currency swaps (“CCS”) and currencyforwards, which have reduced the impact of fluctuations of the exchange rateapplicable to assets and liabilities subject to foreign currency volatility.

 
| (b) | Interest rate risk hedging policy |
|-----|-----------------------------------|

 

Theinterest rate risk hedging policy for the Endesa Chile Group is based onmaintaining a significant level of debt not subject to interest ratevariations.  We have set the desired level of fixed interest ratedebt (which includes both variable rate instruments that have been swapped tofixed rate, as well as variable rate instruments with a hedging option whichlimits the interest variability around a desired minimum and maximum band) atapproximately 75% of total debt.  When the level of variable debtincreases significantly above a 25% threshold, the Company uses derivativeinstruments, typically interest rate swaps and interest rate collars, as a toolto remain close to the desired level of maximum unhedged variable debt.

 

Asa result of the foregoing hedging policies, the Company uses cash flow hedgesprimarily.  The exchange and interest rate hedging policies convertvariable cash flows into fixed cash flows.  As of December 31,2008, the maximum amount of time over which future cash flows are hedged isapproximately 5 years, which corresponds to interest rate swaps  with a notional value of US$ 131.2 millionand a negative fair value of  US$ 7.8million.

 

UnderUS GAAP, for the years ended December 31, 2006, 2007 and 2008, the derivativeportfolio for the Endesa Chile Group is the follows:

 
| ** **         | ** ** | ** **    | ** ** | ** **     | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|---------------|------------|----------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | ** **    | ** ** | ** **     | ** ** | **(in thousands of Ch$)**   | ** ** |
| ** **         | ** ** | ** **    | ** ** | ** **     | ** ** | **2006**                                   | ** ** | **2007** | ** ** | **2008** | ** ** |
| **Accounting**     | ** ** | **Risk**      | ** ** | **Derivative** | ** ** | **Notional**                               | ** ** | **Fair** | ** ** | **Notional** | ** ** | **Fair** | ** ** | **Notional** | ** ** | **Fair** | ** ** |
| **Classification** | ** ** | **Hedged**    | ** ** | **Instrument** | ** ** | **Value**                                  | ** ** | **Value** | ** ** | **Value** | ** ** | **Value** | ** ** | **Value** | ** ** | **Value** | ** ** |
| Cash Flow Hedge    |       | Exchange      |       | CCS            |       | 77,834,487                                 |       | 186,803 |   | 67,639,151 |   | (4,220,683 | ) | — |   | — |   |
|               |       | Interest Rate |       | Collar         |       | 62,267,589                                 |       | — |   | 54,111,321 |   | (757,558 | ) | 63,645,000 |   | (2,326,526 | ) |
|               |       | Interest Rate |       | Swap           |       | 56,040,830                                 |       | 622,676 |   | 45,507,621 |   | (757,558 | ) | 83,493,754 |   | (4,995,911 | ) |
|               |       |          |       |           |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
|               |       |          |       | Total          |       | 196,142,906                                |       | 809,479 |   | 167,258,093 |   | (5,735,799 | ) | 147,138,754 |   | (7,322,437 | ) |

 

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Table of Contents

 

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**36.     Differences between Chilean and UnitedStates Generally Accepted Accounting Principles, continued:**

** **

Inorder to allow hedge accounting classification under SFAS 133, it was necessaryto fulfill strict documentation and effectivenessrequirements.  Hedge accounting cannot be applied to derivatives thatdo not satisfy documentation requirements, and accordingly, such operations areregistered according to the general treatment of derivatives (“investmentcontracts”).  As a result, fair value adjustments to investmentcontracts have a direct effect on the income statement. This is a significantdifference when compared to Chilean GAAP, which is more flexible in itsdocumentation requirements.

 

TheCompany performs tests on a quarterly basis in order to measure theeffectiveness level of its accounting hedge, which may be either a cash flow orfair value hedge.  Test results for 2006, 2007 and 2008 revealed thatthe ineffective portion of our hedging contracts were immaterial.

 

**j)****          ****Reclassificationsunder US GAAP**

** **

Certain reclassifications would be made to the Chilean GAAPincome statement in order to present Chilean GAAP amounts in accordance withpresentation requirements under US GAAP. Amortization of negative goodwill,amortization of goodwill, and certain other non-operating income and expense,would be included in operating income under US GAAP.  Recoverable taxes included in othernon-operating revenues would be recorded as part of income taxes under USGAAP.  Equity participation in income orlosses of related companies included in non-operating income would be presentedafter income taxes and minority interest in accordance with US GAAP.

 

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**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

 

**36.****      ****Differences between Chilean andUnited States Generally Accepted Accounting Principles, continued:**

 

(i)         The most significant reclassifications from other non-operating incomeunder Chilean GAAP to other operating income as classified under US GAAP butcalculated in accordance with Chilean GAAP, are presented as follow:

 
| ** **                                                                                                       | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                       | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                                                       | ** ** | **ThCh$**                         | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                                                                                       | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other non-operating income under Chilean GAAP**                                                                |       | 35,049,741                        |       | 19,510,858 |   | 79,232,845 |   |
| Gain on sale of fixed assets                                                                                     |       | 3,888,814                         |       | 489,269 |   | 505,774 |   |
| Reversal of contingency provision                                                                                |       | 10,165,978                        |       | 957,033 |   | 587,086 |   |
| Energy and power settlement                                                                                      |       | 5,944,656                         |       | 7,035,141 |   | 20,927,728 |   |
| Indemnities and commissions                                                                                      |       | 9,335,126                         |       | 2,344,556 |   | 2,083,493 |   |
| Recovery of expenses and clients’ portfolio                                                                 |       | 1,027,210                         |       | 2,582,587 |   | 3,114,376 |   |
| Gains on service and other contracts                                                                             |       | 637,983                           |       | 231,726 |   | 850,757 |   |
| Total reclassifications                                                                                          |       | 30,999,767                        |       | 13,640,312 |   | 28,069,214 |   |
| **Total other non-operating income as classified  under US GAAP but calculated in accordance with Chilean GAAP** |       | 4,049,974                         |       | 5,870,546 |   | 51,163,631 |   |

** **

(ii)        The most significant reclassifications from other non-operating expensesunder Chilean GAAP to other operating expenses as classified under US GAAP butcalculated in accordance with Chilean GAAP, are presented as follow:

 
| ** **                                                                                                         | ** ** | **Years ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                         | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                                                         | ** ** | **ThCh$**                         | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| **Other non-operating expenses under Chilean GAAP**                                                                |       | 50,956,196                        |       | 92,838,176 |   | 80,093,958 |   |
| Loss on sale of fixed assets                                                                                       |       | 203,035                           |       | 76,577 |   | 716,437 |   |
| Retirement benefits and severance indemnities                                                                      |       | 1,256,576                         |       | 850,243 |   | 871,549 |   |
| Board of directors compensation                                                                                    |       | 281,826                           |       | 295,592 |   | 216,168 |   |
| Contingencies and litigation                                                                                       |       | 9,608,563                         |       | 13,207,932 |   | 8,315,954 |   |
| Energy and power settlement                                                                                        |       | 7,680,162                         |       | 9,260,626 |   | 28,883,052 |   |
| Costs of sales of materials and fixed assets                                                                       |       | 652,428                           |       | — |   | — |   |
| Obsolescence provision of fixed assets                                                                             |       | —                            |       | — |   | 1,327,027 |   |
| Total reclassifications                                                                                            |       | 19,682,590                        |       | 23,690,970 |   | 40,330,187 |   |
| **Total other non-operating expenses as classified  under US GAAP but calculated in accordance with Chilean GAAP** |       | 31,273,606                        |       | 69,147,206 |   | 39,763,771 |   |

 

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** **

**EndesaChile and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

**(Restatedfor general price-level changes and expressed in thousands of constant**

**Chileanpesos as of December 31, 2008, except as stated)**

** **

**36.****      ****Differences between Chilean andUnited States Generally Accepted Accounting Principles, continued:**

** **

(iii)      The condensed consolidated statements of income for the years ended December 31under US GAAP and classified in accordance with US GAAP are presented asfollows:

** **
| ** **                                                                                     | ** ** | **Years ended December 31,** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                     | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                                     | ** ** | **ThCh$**                         | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                                                                           |       |                              |       |   |   |   |   |
| Sales                                                                                          |       | 1,563,877,917                     |       | 1,880,663,714 |   | 2,491,588,673 |   |
| Costs of sales                                                                                 |       | (910,584,538                      | )          | (1,190,821,523 | ) | (1,631,202,525 | ) |
| Selling, general and administrative expenses                                                   |       | (65,167,847                       | )          | (63,511,027 | ) | (91,957,537 | ) |
| Other operating income, net                                                                    |       | 30,999,768                        |       | 13,640,314 |   | 28,069,214 |   |
| Operating income                                                                               |       | 619,125,300                       |       | 639,971,478 |   | 796,497,825 |   |
| Non-operating income and expenses, net                                                         |       | (194,421,243                      | )          | (211,069,659 | ) | (184,967,169 | ) |
| Income taxes                                                                                   |       | (162,470,336                      | )          | (127,742,433 | ) | (162,454,543 | ) |
| Minority interest                                                                              |       | (68,889,949                       | )          | (67,155,043 | ) | (185,948,786 | ) |
| Equity participation in income of related companies, net                                       |       | 54,484,348                        |       | (36,413,679 | ) | 131,775,011 |   |
| Income from continuing operations                                                              |       | 247,828,120                       |       | 197,590,664 |   | 394,902,338 |   |
| Net income                                                                                     |       | 247,828,120                       |       | 197,590,664 |   | 394,902,338 |   |
| **Other comprehensive income (loss):**                                                         |       |                              |       |   |   |   |   |
| Gain (loss) on hedge of the foreign currency exposure of net  investment in foreign operations |       | 3,519,395                         |       | (16,276,083 | ) | (2,938,413 | ) |
| Cumulative translation adjustment                                                              |       | (3,406,632                        | )          | 11,479,446 |   | (35,211,803 | ) |
| Amortization of FAS 158 adjustment Endesa Brasil                                               |       | —                            |       | (320,885 | ) | (3,257,941 | ) |
| Fair value change in hedging instruments                                                       |       | (24,962                           | )          | (974,999 | ) | (2,805,100 | ) |
| Comprehensive income                                                                           |       | 247,915,921                       |       | 191,498,143 |   | 350,689,081 |   |

 

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**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

(iv)                  Certain reclassifications would be made to the ChileanGAAP balance sheet in order to present Chilean GAAP amounts in accordance withpresentation requirements under US GAAP. Deferred taxes from depreciation differences that are recorded asshort-term under Chilean GAAP would be recorded as long-term under USGAAP.  Debt discounts are included inother assets in Chilean GAAP while the discount would be offset against thedebt under US GAAP.  The amountsreceivable and payable related to financial derivatives have been recorded inthe balance sheet at their gross amounts, whereas, these amounts would havebeen recorded at their net amounts by financial institution under US GAAP,provided the contracts have net settlement provisions.  Negative goodwill would be presented as adeduction to property, plant, and equipment instead of a separate line-item inother assets. Goodwill related to investments accounted for under the equitymethod under US GAAP would be shown as part of investments in relatedcompanies, rather than being recorded under goodwill under Chilean GAAP.  Until December 31, 2006, investments insubsidiaries in the development stage would be consolidated under US GAAP, asopposed to being presented as equity method investees, under Chilean GAAP (seealso Note 3).

 

The following are condensed consolidated balancesheets of the Company using a US GAAP presentation and amounts determined inaccordance with US GAAP:

 
| ** **                                                | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                                | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** |
| ** **                                                | ** ** | ** **                  | ** ** | ** ** | ** ** |
| Current assets                                            |       | 733,592,136                 |       | 1,168,792,283 |   |
| Property, plant, and equipment                            |       | 7,318,560,854               |       | 8,242,184,338 |   |
| Accumulated depreciation of property, plant and equipment |       | (3,125,362,499              | )          | (3,580,403,083 | ) |
| Property, plant, and equipment, net                       |       | 4,193,198,355               |       | 4,661,781,255 |   |
| Goodwill, net                                             |       | 38,538,438                  |       | 44,256,508 |   |
| Other assets                                              |       | 617,480,386                 |       | 1,045,043,105 |   |
| Total assets                                              |       | 5,582,809,315               |       | 6,919,873,151 |   |
|                                                      |       |                        |       |   |   |
| Current liabilities                                       |       | 798,307,660                 |       | 1,308,148,005 |   |
| Long-term liabilities                                     |       | 2,229,326,462               |       | 2,670,070,921 |   |
| Minority interest                                         |       | 816,218,320                 |       | 1,035,930,479 |   |
| Shareholders’ equity                                 |       | 1,738,956,874               |       | 1,905,723,746 |   |
| Total liabilities and shareholders’ equity           |       | 5,582,809,316               |       | 6,919,873,151 |   |

 

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Table ofContents

 

**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**k)****      ****Employee Benefit Plans**

** **

Endesa Chile and its subsidiaries sponsorvarious benefit plans for its current and retired employees.  A description of such benefits follows:

 

#### ***Severanceindemnities***

#### *** ***

Theprovision for severance indemnities, included in the account “Accruedliabilities” short and long-term is calculated in accordance with the policyset forth in Note 2 (r), using the current salary levels of all employeescovered under the severance indemnities agreement, an assumed discount rate of6.5% for the years ended December 31, 2006, 2007 and 2008, respectively,and an estimated average service period based on the years of services for theCompany.

 

*Benefits for Retired Personnel*

** **

Other benefits provided tocertain retired personnel of Endesa Chile include electrical service ratesubsidies, additional medical insurance and additional post-retirementbenefits.  Descriptions of these benefitsfor retired personnel are as follows:

 

i)          Electrical rate service

 

This benefit is extended only to certainretired personnel of Endesa Chile.  Theseelectric rate subsidies result in the eligible retired employees paying apercentage of their total monthly electricity costs, with Endesa Chile payingthe difference.

 

ii)         Medical benefits

 

Thisbenefit provides supplementary health insurance, which covers a portion ofhealth benefits not covered under the institutional health benefits maintainedby employees of Endesa Chile. This benefit expires at the time of death of thepensioner.

 

iii)        Supplementary pension benefits

 

Eligibleemployees are entitled to receive a monthly amount designed to cover a portionof the difference between their salary at the point of retirement and thetheoretical pension that would have been received had the employee reached thelegal retirement age of the *Institución de PrevisiónSocial* (Institute of Social Welfare).  This benefit expires upon the death of thepensioner for the Endesa Chile employee, however, continues to cover thesurviving-spouse in the case of employees of Endesa Chile (individual entity).

 

iv)                        Worker’scompensation benefits

 

Employees that were entitled to Worker’s compensation insurance inprior years for work related accidents receive benefits from the Company assuch insurance has expired. This benefit continues at the time of death of thepensioner, to cover the surviving-spouse.

 

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** **

**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

The Company has recognized liabilities related tosupplementary pension plan benefits and other post-retirement benefits asstipulated in collective bargaining agreements. Under US GAAP pension andpost-retirement employee benefits have been accounted for in accordance withSFAS 87 and SFAS 106.  The effects ofaccounting for post-retirement benefits under US GAAP have been presented inparagraph I (w), above.  The followingdata are presented in accordance with US GAAP for the Company’s post-retirementbenefit plans.

 
| ** **                                          | ** ** | **Pensions Benefits** | ** ** | **Other Benefits** | ** ** |
|-----------------------------------------------------|------------|-----------------------|------------|--------------------|------------|
| ** **                                          | ** ** | **Foreign**           | ** ** | **Chilean**        | ** ** | **Foreign** | ** ** |
| ** **                                          | ** ** | **2007  ThCh$**       | ** ** | **2008  ThCh$**    | ** ** | **2007  ThCh$** | ** ** | **2008  ThCh$** | ** ** | **2007  ThCh$** | ** ** | **2008  ThCh$** | ** ** |
|                                                |       |                  |       |               |       |   |   |   |   |   |   |   |   |
| **Changes  in benefit obligations**                 |       |                  |       |               |       |   |   |   |   |   |   |   |   |
| Obligations as of January 1                    |       | (21,366,320           | )          | (19,909,456        | )          | (11,797,008 | ) | (10,805,095 | ) | (1,995,194 | ) | (1,755,108 | ) |
| Foreign exchange effect                             |       | 923,841               |       | (1,119,387         | )          | — |   | — |   | 86,207 |   | (98,679 | ) |
| Net periodic expense                                |       | (1,779,189            | )          | (2,349,594         | )          | (1,612,499 | ) | (1,857,860 | ) | (30,900 | ) | (273,321 | ) |
| Benefits paid                                       |       | 2,312,212             |       | 2,527,316          |       | 2,604,412 |   | 1,549,588 |   | 184,779 |   | 202,686 |   |
| Projected benefit obligation as of December 31 |       | (19,909,456           | )          | (20,851,121        | )          | (10,805,095 | ) | (11,113,367 | ) | (1,755,108 | ) | (1,924,422 | ) |
|                                                |       |                  |       |               |       |   |   |   |   |   |   |   |   |
| **Funded Status of the Plans**                      |       |                  |       |               |       |   |   |   |   |   |   |   |   |
| Projected benefit obligation                        |       | (19,909,456           | )          | (20,851,121        | )          | (10,805,095 | ) | (11,113,367 | ) | (1,755,108 | ) | (1,924,422 | ) |
| Fair value of plan assets                           |       | —                |       | —             |       | — |   | — |   | — |   | — |   |
| Funded status                                       |       | (19,909,456           | )          | (20,851,121        | )          | (10,805,095 | ) | (11,113,367 | ) | (1,755,108 | ) | (1,924,422 | ) |
| Unrecognized net loss                               |       | —                |       | —             |       | — |   | — |   | — |   | — |   |
| Net amount recognized                               |       | (19,909,456           | )          | (20,851,121        | )          | (10,805,095 | ) | (11,113,367 | ) | (1,755,108 | ) | (1,924,422 | ) |
|                                                |       |                  |       |               |       |   |   |   |   |   |   |   |   |
| Accumulated benefit obligation                      |       | (19,909,456           | )          | (20,851,121        | )          | (10,805,095 | ) | (11,113,367 | ) | (1,755,108 | ) | (1,924,422 | ) |

 
| ** **                                       | ** ** | **Pension Benefits** | ** ** |
|--------------------------------------------------|------------|----------------------|------------|
| ** **                                       | ** ** | **Foreign**          | ** ** |
| ** **                                       | ** ** | **2006  ThCh$**      | ** ** | **2007  ThCh$** | ** ** | **2008  ThCh$** | ** ** |
|                                             |       |                 |       |   |   |   |   |
| **Assumptions  as of December 31**          |       |                 |       |   |   |   |   |
| Weighted-average discount rate                   |       | 10.4                 | %          | 9.8 | % | 10.19 | % |
| Weighted-average salary increase                 |       | 5.3                  | %          | 4.8 | % | 5.15 | % |
| Weighted-average return on plan assets           |       | —               |       | — |   | — |   |
|                                             |       |                 |       |   |   |   |   |
| **Components of net periodic Benefits expenses** |       |                 |       |   |   |   |   |
| Service cost                                     |       | (63,747              | )          | (67,927 | ) | (79,486 | ) |
| Interest cost                                    |       | (2,274,546           | )          | (1,974,961 | ) | (1,940,364 | ) |
| Expected return on assets                        |       | —               |       | — |   | — |   |
| Actuarial gain (loss)                            |       | 102,146              |       | 263,701 |   | (329,744 | ) |
| Net periodic expenses                            |       | (2,236,147           | )          | (1,779,189 | ) | (2,349,594 | ) |

 

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** **

**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 
| ** **                                       | ** ** | **Other Benefits** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|
| ** **                                       | ** ** | **Chilean**        | ** ** | **Foreign** | ** ** |
| ** **                                       | ** ** | **2006**           | ** ** | **2007** | ** ** | **2008** | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                       | ** ** | **ThCh$**          | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
| ** **                                       | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Assumptions as of December 31**           |       |               |       |   |   |   |   |   |   |   |   |   |   |
| Weighted-average discount rate                   |       | 6.50               | %          | 6.50 | % | 6.50 | % | 10.40 | % | 9.8 | % | 10.19 | % |
| Weighted-average salary increase                 |       | 3.50               | %          | 3.50 | % | 3.50 | % | 5.30 | % | 4.8 | % | 5.15 | % |
|                                             |       |               |       |   |   |   |   |   |   |   |   |   |   |
| **Components of net periodic Benefits expenses** | ** ** | ** **         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Service cost                                     |       | (145,306           | )          | (8,098 | ) | (314,289 | ) | (5,614 | ) | (5,831 | ) | (5,787 | ) |
| Interest cost                                    |       | (966,204           | )          | (333,262 | ) | (767,291 | ) | (217,600 | ) | (189,164 | ) | (171,992 | ) |
| Expected return on assets                        |       | —             |       | — |   | — |   | — |   | — |   | — |   |
| Actuarial gain (loss)                            |       | (679,368           | )          | (1,271,139 | ) | (776,280 | ) | 75,958 |   | 164,095 |   | (95,542 | ) |
| Net periodic expenses                            |       | (1,790,878         | )          | (1,612,499 | ) | (1,857,860 | ) | (147,256 | ) | (30,900 | ) | (273,321 | ) |

 

The following is a schedule of the estimated pay-out ofpension benefits in each of the next five years and thereafter:

 
| ** ** | ** ** | **As of December 31,  2008** | ** ** |
|------------|------------|-----------------------------------|------------|
| ** ** | ** ** | **ThCh$**                         | ** ** |
|       |       |                              |       |
| 2009       |       | 3,541,674                         |       |
| 2010       |       | 3,151,493                         |       |
| 2011       |       | 3,049,922                         |       |
| 2012       |       | 2,479,174                         |       |
| 2013       |       | 2,197,969                         |       |
| Thereafter |       | 19,468,678                        |       |
| Total      |       | 33,888,910                        |       |

 

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Tableof Contents

** **

**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**l)****          ****Comprehensiveincome (loss)**

** **

In accordance with US GAAP, the Company reports a measure ofall changes in shareholders’ equity that result from transactions and othereconomic events of the period other than transactions with owners(“comprehensive income”).  Comprehensiveincome is the total of net income and other non-owner equity transactions thatresult in changes in net shareholders’ equity.

 

Thefollowing represents accumulated other comprehensive income balances as of December 31,2006, 2007 and 2008 (in thousands of constant Chilean pesos as of December 31,2008).

 
| ** **                     | ** ** | **2006**                                                                      | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Foreign  currency  translation  adjustment  related to  Chilean  entities** | ** ** | **Chilean GAAP  cumulative  translation  adjustment  related to  foreign  subsidiaries** | ** ** | **Effect of US  GAAP  adjustments on  cumulative  translation  adjustment** | ** ** | **Application  of FAS 158  Endesa Brasil  (See note  36 I e)** | ** ** | **Fair value  change of  financial  instruments  used in  cash-flow  hedges** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** |
| Beginning balance              |       | (41,432,193                                                                   | )          | (35,267,975 | ) | 59,348,015 |   | — |   | (161,037 | ) | (17,513,190 | ) |
| Credit (charge) for the period |       | 3,519,395                                                                     |       | 1,977,106 |   | (5,383,738 | ) | 3,358,448 |   | (24,962 | ) | 3,446,249 |   |
| Ending balance                 |       | (37,912,798                                                                   | )          | (33,290,869 | ) | 53,964,277 |   | 3,358,448 |   | (185,999 | ) | (14,066,941 | ) |

 
| ** **                     | ** ** | **2007**                                                                      | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Foreign  currency  translation  adjustment  related to  Chilean  entities** | ** ** | **Chilean GAAP  cumulative  translation  adjustment  related to  foreign  subsidiaries** | ** ** | **Effect of US  GAAP  adjustments on  cumulative  translation  adjustment** | ** ** | **FAS 158  Endesa Brasil  (See note  36 I e)** | ** ** | **Fair value  change of  financial  instruments  used in cash-  flow hedges** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** |
| Beginning balance              |       | (37,912,798                                                                   | )          | (33,290,869 | ) | 53,964,277 |   | 3,358,448 |   | (185,999 | ) | (14,066,941 | ) |
| Credit (charge) for the period |       | (16,276,083                                                                   | )          | (13,985,574 | ) | 25,465,020 |   | (320,885 | ) | (974,999 | ) | (6,092,521 | ) |
| Ending balance                 |       | (54,188,881                                                                   | )          | (47,276,443 | ) | 79,429,297 |   | 3,037,563 |   | (1,160,998 | ) | (20,159,462 | ) |

 
| ** **                     | ** ** | **2008**                                                                      | ** ** |
|--------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                     | ** ** | **Foreign  currency  translation  adjustment  related to  Chilean  entities** | ** ** | **Chilean GAAP  cumulative  translation  adjustment  related to  foreign  subsidiaries** | ** ** | **Effect of US  GAAP  adjustments on  cumulative  translation  adjustment** | ** ** | **FAS 158  Endesa Brasil  (See note  36 I e)** | ** ** | **Fair value  change of  financial  instruments  used in cash-  flow hedges** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** |
| Beginning balance              |       | (54,188,881                                                                   | )          | (47,276,443 | ) | 79,429,297 |   | 3,037,563 |   | (1,160,998 | ) | (20,159,462 | ) |
| Credit (charge) for the period |       | (2,938,413                                                                    | )          | 19,154,457 |   | (54,366,260 | ) | (3,257,941 | ) | (2,805,100 | ) | (44,213,257 | ) |
| Ending balance                 |       | (57,127,294                                                                   | )          | (28,121,986 | ) | 25,063,037 |   | (220,378 | ) | (3,966,098 | ) | (64,372,719 | ) |

 

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Table ofContents

 

**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**m)****    ****Other Intangible assets**

** **

TheCompany’s other intangible assets were ThCh$ 27,505,392 and ThCh$ 34,277,280 and therelated accumulated amortization was ThCh$ (10,776,596) and ThCh$ (14,465,911) as of December 31, 2007 and2008, respectively. All of the Company’s other intangible assets are subject toamortization and there is no difference between Chilean and US GAAP in theircarrying amount or amortization method. The Company expects to amortizeapproximately ThCh$ 1,665,042, ThCh$ 1,522,883, ThCh$ 1,270,176and ThCh$ 1,125,406 of intangibleassets in 2009, 2010, 2011 and 2012, respectively.

 

Asacquisitions and disposals, as well as fluctuations of exchange rates occur inthe future, actual amounts to be recorded as amortization in future years mayvary.

 

**n)****       ****Investments in related companies**

** **

The following tables show combined summarized financial informationprepared in accordance with Chilean GAAP of the related companies accounted forusing the equity method for the purpose of complying with disclosurerequirement for significant equity investees pursuant to Rule S-X 4.08(g). All amounts are in thousands of constant Chilean pesos of December 31,2008 purchasing power.

 
| ** **                                      | ** ** | **As of December 31,** | ** ** |
|-------------------------------------------------|------------|-----------------------------|------------|
| ** **                                      | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                      | ** ** | **ThCh$**                   | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** |
|                                            |       |                        |       |   |   |   |   |
| Current assets                                  |       | 904,759,147                 |       | 1,162,465,970 |   | 778,411,002 |   |
| Non-current assets                              |       | 3,252,444,768               |       | 3,335,617,158 |   | 3,545,293,992 |   |
| Total assets                                    |       | 4,157,203,915               |       | 4,498,083,128 |   | 4,323,704,994 |   |
|                                            |       |                        |       |   |   |   |   |
| Current liabilities                             |       | 828,760,989                 |       | 1,102,816,030 |   | 650,831,278 |   |
| Non-current liabilities                         |       | 1,881,936,988               |       | 1,848,304,430 |   | 1,036,273,242 |   |
| Total liabilities                               |       | 2,710,697,977               |       | 2,951,120,460 |   | 1,687,104,520 |   |
|                                            |       |                        |       |   |   |   |   |
| Net sales                                       |       | 1,584,810,625               |       | 1,776,892,421 |   | 1,832,841,544 |   |
| Gross profit                                    |       | 438,445,148                 |       | 161,045,625 |   | 309,786,579 |   |
| Net income                                      |       | 121,287,759                 |       | 119,019,670 |   | 293,648,948 |   |
|                                            |       |                        |       |   |   |   |   |
| Endesa Chile’s participation in net income |       | 49,276,567                  |       | 41,872,419 |   | 113,657,037 |   |

 

TheCompany is required to present separately the Chilean GAAP audited financialstatements together with a reconciliation to US GAAP of Endesa Brasil andSubsidiaries as of December 31, 2007 and 2008 and for the years then endedas these companies met the definition of a significant subsidiary under Rule 1-02(w) ofRegulation S-X as of December 31, 2008.

 

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**Endesa Chile and Subsidiaries**

**Notes to the Consolidated Financial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**o)   Restrictions which limit the payment of dividends by theregistrant**

 

Asstated in Note 29, the Company has subsidiaries that must abide by certainfinancial ratios and covenants that require minimum equity levels or thatcontain other characteristics that restrict the transfer of assets to theparent company. Furthermore, the Company’s subsidiaries domiciled in Peru andColombia are subject to legal equity reserve requirements pursuant to locallaw. The amounts of Endesa Chile’s proportionate share of restricted net assetsin consolidated subsidiaries as of December 31, 2008 are as follows:

 
| **Subsidiary** | ** ** | **Proportionate Share  of Restricted Net  Assets** | ** ** |
|----------------|------------|----------------------------------------------------|------------|
| ** **     | ** ** | **ThCh$**                                          | ** ** |
|           |       |                                               |       |
| Pangue         |       | 28,520,105                                         |       |
| Edegel S.A     |       | 79,547,518                                         |       |
| El Chocón |       | 83,209,473                                         |       |
| Total          |       | 191,277,096                                        |       |

 

The amount of consolidated retained earnings which representsundistributed earnings of investees accounted for under the equity method as ofDecember 31, 2008 is ThCh$ 137,864,229.

 

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** **

**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

** **

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**p)****        ****Capital lease obligations**

** **

Minimum lease obligationsfor capital lease are presented net of interest expense (Chilean GAAP and USGAAP), as of December 31 are summarized as follows:

 
| ** **                       | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------|------------|----------------------------------|------------|
| ** **                       | ** ** | **2007**                         | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **ThCh$**                        | ** ** | **ThCh$** | ** ** |
| Short-term:                      |       |                             |       |   |   |
| Lease obligations                |       | 11,902,123                       |       | 11,151,903 |   |
| Less: interest expense           |       | (4,299,304                       | )          | (4,050,332 | ) |
| Net short-term lease obligations |       | 7,602,819                        |       | 7,101,571 |   |
|                             |       |                             |       |   |   |
| Long-term:                       |       |                             |       |   |   |
| Lease obligations                |       | 79,259,923                       |       | 130,334,354 |   |
| Less interest expense            |       | (18,341,547                      | )          | (26,692,470 | ) |
| Net long-term lease obligations  |       | 60,918,376                       |       | 103,641,884 |   |
|                             |       |                             |       |   |   |
| Weighted-average interest rate   |       | 7.00                             | %          | 6.08 | % |

 

Future payments undercapital leases (including interest) are summarized as follows:

 
| ** **          | ** ** | **Year ended  December 31,  2008** | ** ** |
|---------------------|------------|-----------------------------------------|------------|
| ** **          | ** ** | **ThCh$**                               | ** ** |
|                |       |                                    |       |
| 2009                |       | 11,151,903                              |       |
| 2010                |       | 17,431,750                              |       |
| 2011                |       | 15,277,725                              |       |
| 2012                |       | 31,762,882                              |       |
| 2013                |       | 8,830,671                               |       |
| 2014 and thereafter |       | 57,031,326                              |       |
| **Total**           |       | 141,486,257                             |       |

 

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**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**q)****        ****Available for sale securities**

** **

Under US GAAP, thecompany classifies marketable securities as available-for-sale securities

 

Realized gains and losses are determined using theproceeds from sales less the cost of the investment identified to be sold.Gross gains and losses realized on the sale of available-for-sale securitiesfor the years ended December 31, 2006, 2007 and 2008 are as follows:

 
| ** **                                              | ** ** | **Cost**   | ** ** | **Gross  unrealized  gains** | ** ** | **Fair  value** | ** ** |
|---------------------------------------------------------|------------|------------|------------|------------------------------|------------|-----------------|------------|
| ** **                                              | ** ** | **ThCh$**  | ** ** | **ThCh$**                    | ** ** | **ThCh$**       | ** ** |
|                                                    |       |       |       |                         |       |            |       |
| Securities available-for-sale at December 31, 2006 |       | 6,114,033  |       | —                       |       | 6,114,033       |       |
| Securities available-for-sale at December 31, 2007 |       | 11,215,653 |       | —                       |       | 11,215,653      |       |
| Securities available-for-sale at December 31, 2008 |       | —     |       | —                       |       | —          |       |

 

Information on sales ofavailable-for-sale securities during the years ended December 31, 2006,2007 and 2008 is as follows:

 
| ** **          | ** ** | **2006**  | ** ** | **2007**  | ** ** | **2008**   | ** ** |
|---------------------|------------|-----------|------------|-----------|------------|------------|------------|
| ** **          | ** ** | **ThCh$** | ** ** | **ThCh$** | ** ** | **ThCh$**  | ** ** |
|                |       |      |       |      |       |       |       |
| Proceeds from sales |       | 2,234,235 |       | 6,114,033 |       | 11,215,653 |       |

** **

As of December 2006,2007 and 2008, the Company has no securities that are considered to be tradingsecurities or debt securities to be held to maturity. The cost ofavailable-for-sale securities is determined using the average cost method.

 

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**Endesa Chile andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

**(Restated for general price-level changes and expressed in thousands ofconstant**

**Chilean pesos as of December 31, 2008, except as stated)**

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

**r)****        ****Recent accounting pronouncements**

 

FASB Statement No. 141(Revised 2007), ‘Business combinations’ (“SFAS 141R”). SFAS 141R providesadditional guidance on improving the relevance, representational faithfulness,and comparability of the financial information that a reporting entity providesin its financial reports about a business combination and its effects. ThisStatement applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The impact of implementingthis new pronouncement on the Company’s financial statements is currentlyunknown.

 

FASB Statement No. 160,‘Non-controlling interests in consolidated financial statements - an amendmentof ARB No. 51’ (“SFAS 160”). SFAS 160 amends ARB No. 51 to establishaccounting and reporting standards for the non-controlling interest in asubsidiary and for the deconsolidation of a subsidiary. This Statement iseffective for fiscal years and interim periods within those fiscal years,beginning on or after December 15, 2008. The impact of implementing thisnew pronouncement on the Company’s financial statements is currently unknown.

 

FASB Staff Position FAS141(R)-1, ‘Accounting for assets acquired and liabilities assumed in a businesscombination that arise from contingencies’ (“FSP FAS 141(R)-1”). FSP FAS141(R)-1 amends and clarifies SFAS 141R to address application issues raised bypreparers, auditors, and members of the legal profession on initial recognitionand measurement, subsequent measurement and accounting, and disclosure ofassets and liabilities arising from contingencies in a business combination.Under the new guidance, assets acquired and liabilities assumed in a businesscombination that arise from contingencies should be recognized at fair value onthe acquisition date if fair value can be determined during the measurementperiod. If fair value cannot be determined, companies should typically accountfor the acquired contingencies using existing guidance. This FSP is effectivefor assets or liabilities arising from contingencies in business combinationsfor which the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008. The impact ofimplementing this new pronouncement on the Company’s financial statements iscurrently unknown.

 

FASB Staff Position FAS 152-2and FAS 124-2, ‘Recognition and presentation of other-than-temporaryimpairments’ (“FSP FAS 152-2 and FAS 124-2”). FSP FAS 152-2 and FAS 124-2 clarifiesthat in periods in which an entity determines that a security’s decline in fairvalue below its amortized cost basis as other than temporary, the entity shallpresent the total other-than-temporary impairment in the income statement withan offset for the amount of the total other-than-temporary impairment that isrecognized in other comprehensive income, if any. This FSP is effective forinterim and annual reporting periods ending after June 15, 2009. Theimpact of implementing this new pronouncement on the Company’s financialstatements is currently unknown.

 

FASB Staff Position FAS 157-2,‘Effective date of FASB Statement No. 157’ (“FSP FAS 157-2”). FSP FAS157-2 delays the effective date of FASB Statement No. 157, Fair ValueMeasurements (“SFAS 157”) for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually). This FSPpartially defers the effective date of SFAS 157 to fiscal years beginning afterNovember 15, 2008, and interim periods within those fiscal years foritemvs within the scope of this FSP. The impact of implementing this newpronouncement on the Company’s financial statements is currently unknown.

 

FASB Staff Position FAS 157-4,‘Determining fair value when the volume and level of activity for the asset orliability have significantly decreased and identifying transactions that arenot orderly’ (“FSP FAS 157-4”). FSP FAS 157-4 provides additional guidance for estimatingfair value in accordance with SFAS 157 when the volume and level of activityfor the asset or liability have significantly decreased. This FSP also includesguidance on identifying circumstances that indicate a transaction is notorderly. This FSP is effective for interim and annual reporting periods endingafter June 15, 2009 and is applied prospectively. The impact ofimplementing this new pronouncement on the Company’s financial statements iscurrently unknown.

 

F-161

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Table of Contents

 

**36.      Differences betweenChilean and United States Generally Accepted Accounting Principles, continued:**

 

As discussed on Note 36,Enersis S.A. has adopted IFRS as its accountingstandards beginning on January 1, 2009. The Company expects thatits next Annual Report on Form 20-F, for the fiscal year ended December 31,2009, will be filed using IFRS as the accountingprinciples used in preparing its financial statements

 

****************

 

F-162

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Table of Contents

 

**Endesa Brasil and Subsidiaries**

**ConsolidatedBalance Sheets**

**(Inthousands of US dollars)**

** **
| ** **                               | ** ** | **As of December 31,** | ** ** |
|------------------------------------------|------------|---------------------------------------|------------|
| ** **                               | ** ** | **2007**                              | ** ** | **2008** | ** ** |
| ** **                               | ** ** | **ThUS$**                             | ** ** | **ThUS$** | ** ** |
| **ASSETS**                               |       |                                  |       |   |   |
| ** **                               |       |                                  |       |   |   |
| CURRENT ASSETS:                          |       |                                  |       |   |   |
| Cash                                     |       | 79,864                                |       | 18,943 |   |
| Time deposits                            |       | 512,761                               |       | 485,908 |   |
| Marketable  securities                   |       | 133                                   |       | 53 |   |
| Accounts  receivable, net                |       | 809,653                               |       | 540,608 |   |
| Notes  receivable, net                   |       | 14,491                                |       | 5,486 |   |
| Other accounts  receivable, net          |       | 43,436                                |       | 44,221 |   |
| Amounts due from related companies       |       | 22,603                                |       | 33,015 |   |
| Inventories                              |       | 3,498                                 |       | 1,805 |   |
| Tax recoverable                          |       | 125,389                               |       | 130,355 |   |
| Prepaid  expenses                        |       | 86,995                                |       | 76,353 |   |
| Deferred taxes                           |       | 53,754                                |       | 41,466 |   |
| Other current  assets                    |       | 72,293                                |       | 94,729 |   |
|                                     |       |                                  |       |   |   |
| Total current  assets                    |       | 1,824,870                             |       | 1,472,942 |   |
|                                     |       |                                  |       |   |   |
| PROPERTY, PLANT  AND EQUIPMENT:          |       |                                  |       |   |   |
| Land                                     |       | 71,504                                |       | 74,393 |   |
| Buildings and infrastructure             |       | 3,842,940                             |       | 3,976,415 |   |
| Machinery and  equipment                 |       | 1,445,633                             |       | 1,679,970 |   |
| Other plant and  equipment               |       | 314,450                               |       | 326,526 |   |
| Accumulated  depreciation                |       | (1,997,684                            | )          | (2,210,567 | ) |
|                                     |       |                                  |       |   |   |
| Total property, plant and equipment, net |       | 3,676,843                             |       | 3,846,737 |   |
|                                     |       |                                  |       |   |   |
| OTHER ASSETS:                            |       |                                  |       |   |   |
| Investment in  other companies           |       | 6                                     |       | 4 |   |
| Long-term  receivables                   |       | 64,273                                |       | 36,897 |   |
| Amounts due from related companies       |       | 254,376                               |       | 326 |   |
| Long-term deferred income taxes          |       | 225,931                               |       | 161,232 |   |
| Intangibles                              |       | 35,828                                |       | 39,191 |   |
| Accumulated  amortization                |       | (26,507                               | )          | (28,346 | ) |
| Other assets                             |       | 320,701                               |       | 262,014 |   |
|                                     |       |                                  |       |   |   |
| Total other  assets                      |       | 874,608                               |       | 471,318 |   |
|                                     |       |                                  |       |   |   |
| TOTAL ASSETS                             |       | 6,376,321                             |       | 5,790,997 |   |

 

**The accompanying notes are an integral part of theseconsolidated financial statements**

 

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Table of Contents

 

**EndesaBrasil and Subsidiaries**

**ConsolidatedBalance Sheets**

**(Inthousands of US dollars)**

 
| ** **                                                                 | ** ** | **As of December 31,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                 | ** ** | **2007**                    | ** ** | **2008** | ** ** |
| ** **                                                                 | ** ** | **ThUS$**                   | ** ** | **ThUS$** | ** ** |
| **LIABILITIES  AND SHAREHOLDERS’ EQUITY**                             | ** ** | ** **                  | ** ** | ** ** | ** ** |
| ** **                                                                 | ** ** | ** **                  | ** ** | ** ** | ** ** |
| CURRENT  LIABILITIES:                                                      |       |                        |       |   |   |
| Short-term debt due to banks and financial  institutions                   |       | 59,413                      |       | 122,745 |   |
| Current portion of long-term debt due to  banks and financial institutions |       | 118,296                     |       | 164,747 |   |
| Current portion of bonds payable                                           |       | 186,296                     |       | 14,766 |   |
| Current portion of long-term notes payable                                 |       | 1,548                       |       | 769 |   |
| Dividends  payable                                                         |       | 29,604                      |       | 504 |   |
| Accounts  payable                                                          |       | 306,108                     |       | 204,104 |   |
| Notes payable                                                              |       | 32,059                      |       | 25,087 |   |
| Miscellaneous  payables                                                    |       | 109,961                     |       | 154,380 |   |
| Amounts payable to related companies                                       |       | 356,699                     |       | 68,321 |   |
| Accrued  expenses                                                          |       | 24,018                      |       | 19,255 |   |
| Withholdings                                                               |       | 113,123                     |       | 86,212 |   |
| Taxes payable                                                              |       | 1,213                       |       | 566 |   |
| Other current  liabilities                                                 |       | 121,786                     |       | 85,868 |   |
|                                                                       |       |                        |       |   |   |
| Total current  liabilities                                                 |       | 1,460,124                   |       | 947,324 |   |
|                                                                       |       |                        |       |   |   |
| LONG-TERM  LIABILITIES:                                                    |       |                        |       |   |   |
| Due to banks and financial institutions                                    |       | 1,092,257                   |       | 817,175 |   |
| Bonds payable                                                              |       | 278,664                     |       | 216,451 |   |
| Long-term notes  payable                                                   |       | 120,586                     |       | 80,014 |   |
| Miscellaneous  payables                                                    |       | 140,767                     |       | 42,974 |   |
| Amounts payable to related companies                                       |       | 16,426                      |       | 14,106 |   |
| Accrued  expenses                                                          |       | 472,414                     |       | 384,644 |   |
| Other long-term  liabilities                                               |       | 25,105                      |       | 16,475 |   |
|                                                                       |       |                        |       |   |   |
| Total long-term  liabilities                                               |       | 2,146,219                   |       | 1,571,839 |   |
|                                                                       |       |                        |       |   |   |
| MINORITY  INTEREST                                                         |       | 861,815                     |       | 1,063,493 |   |
|                                                                       |       |                        |       |   |   |
| SHAREHOLDERS’  EQUITY:                                                |       |                        |       |   |   |
| Paid-in capital, no par value                                              |       | 354,376                     |       | 354,376 |   |
| Share premium                                                              |       | 1,315,062                   |       | 1,315,062 |   |
| Other reserves                                                             |       | 51,665                      |       | 51,665 |   |
|                                                                       |       |                        |       |   |   |
| RETAINED  EARNINGS                                                         |       |                        |       |   |   |
| Retained  earnings                                                         |       | 167,255                     |       | 187,060 |   |
| Net income for the year                                                    |       | 219,467                     |       | 451,497 |   |
| Interim  dividends                                                         |       | (199,662                    | )          | (151,319 | ) |
|                                                                       |       |                        |       |   |   |
| Total  shareholders’ equity                                           |       | 1,908,163                   |       | 2,208,341 |   |
|                                                                       |       |                        |       |   |   |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY                            |       | 6,376,321                   |       | 5,790,997 |   |

 

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Table of Contents

 

**Endesa Brasil and Subsidiaries**

**Consolidated Statements of Income**

**(In thousands of US dollars)**

 
| ** **                           | ** ** | **As of December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                           | ** ** | **ThUS$**                   | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| OPERATING  INCOME:                   |       |                        |       |   |   |   |   |
| Sales                                |       | 2,072,100                   |       | 2,270,808 |   | 2,832,091 |   |
| Cost of sales                        |       | (1,463,149                  | )          | (1,420,932 | ) | (1,782,988 | ) |
|                                 |       |                        |       |   |   |   |   |
| GROSS PROFIT                         |       | 608,951                     |       | 849,876 |   | 1,049,103 |   |
|                                 |       |                        |       |   |   |   |   |
| Administrative  and selling expenses |       | (123,212                    | )          | (192,237 | ) | (182,171 | ) |
|                                 |       |                        |       |   |   |   |   |
| OPERATING  INCOME                    |       | 485,739                     |       | 657,639 |   | 866,932 |   |
|                                 |       |                        |       |   |   |   |   |
| NON-OPERATING INCOME AND EXPENSE:    |       |                        |       |   |   |   |   |
| Financial  income                    |       | 189,415                     |       | 162,094 |   | 176,769 |   |
| Other  non-operating income          |       | 113,598                     |       | 247,805 |   | 382,451 |   |
| Financial expense                    |       | (280,895                    | )          | (287,552 | ) | (295,962 | ) |
| Other  non-operating expenses        |       | (232,221                    | )          | (401,604 | ) | (258,868 | ) |
|                                 |       |                        |       |   |   |   |   |
| NON-OPERATING  EXPENSE, NET          |       | (210,103                    | )          | (279,257 | ) | 4,390 |   |
|                                 |       |                        |       |   |   |   |   |
| INCOME BEFORE  INCOME TAXES          |       | 275,636                     |       | 378,382 |   | 871,322 |   |
|                                 |       |                        |       |   |   |   |   |
| INCOME TAXES                         |       | (16,653                     | )          | (113,265 | ) | (141,785 | ) |
|                                 |       |                        |       |   |   |   |   |
| INCOME BEFORE  MINORITY INTEREST     |       | 258,983                     |       | 265,117 |   | 729,537 |   |
|                                 |       |                        |       |   |   |   |   |
| MINORITY  INTEREST                   |       | (85,755                     | )          | (45,650 | ) | (278,040 | ) |
|                                 |       |                        |       |   |   |   |   |
| NET INCOME FOR THE YEAR              |       | 173,228                     |       | 219,467 |   | 451,497 |   |

 

Theaccompanying notes are an integral part of these consolidated financialstatements

 

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Tableof Contents

 

**EndesaBrasil and Subsidiaries**

**Statements of Shareholders’ Equity**

**(Inthousands of US dollars)**

##  

| ** **                                        | ** ** | **Paid-in** | ** ** | **Share**   | ** ** | **Other**    | ** ** | **Retained** | ** ** | **Interim**   | ** ** | **Income  for the** | ** ** | **Total  Shareholders’** | ** ** |
|---------------------------------------------------|------------|-------------|------------|-------------|------------|--------------|------------|--------------|------------|---------------|------------|---------------------|------------|-------------------------------|------------|
| **Movements**                                     | ** ** | **capital** | ** ** | **premium** | ** ** | **reserves** | ** ** | **earnings** | ** ** | **dividends** | ** ** | **year**            | ** ** | **equity**                    | ** ** |
| ** **                                        | ** ** | **ThUS$**   | ** ** | **ThUS$**   | ** ** | **ThUS$**    | ** ** | **ThUS$**    | ** ** | **ThUS$**     | ** ** | **ThUS$**           | ** ** | **ThUS$**                     | ** ** |
| ** **                                        | ** ** | ** **  | ** ** | ** **  | ** ** | ** **   | ** ** | ** **   | ** ** | ** **    | ** ** | ** **          | ** ** | ** **                    | ** ** |
| Historical balances as of  December 31, 2005 |       | 354,376     |       | 1,315,062   |       | 51,665       |       | —       |       | —        |       | 62,020              |       | 1,783,123                     |       |
| Prior year profit distribution                    |       | —      |       | —      |       | —       |       | 62,020       |       | —        |       | (62,020             | )          | —                        |       |
| Interim dividends for the  period (1)             |       | —      |       | —      |       | —       |       | —       |       | (67,993       | )          | —              |       | (67,993                       | )          |
| Income for the period                             |       | —      |       | —      |       | —       |       | —       |       | —        |       | 173,228             |       | 173,228                       |       |
|                                              |       |        |       |        |       |         |       |         |       |          |       |                |       |                          |       |
| Balances as of December 31, 2006             |       | 354,376     |       | 1,315,062   |       | 51,665       |       | 62,020       |       | (67,993       | )          | 173,228             |       | 1,888,358                     |       |
|                                              |       |        |       |        |       |         |       |         |       |          |       |                |       |                          |       |
| Historical balances as of  December 31, 2006 |       | 354,376     |       | 1,315,062   |       | 51,665       |       | 62,020       |       | (67,993       | )          | 173,228             |       | 1,888,358                     |       |
| Prior year profit distribution                    |       | —      |       | —      |       | —       |       | 105,235      |       | 67,993        |       | (173,228            | )          | —                        |       |
| Interim dividends for the  period (1)             |       | —      |       | —      |       | —       |       | —       |       | (199,662      | )          | —              |       | (199,662                      | )          |
| Income for the period                             |       | —      |       | —      |       | —       |       | —       |       | —        |       | 219,467             |       | 219,467                       |       |
|                                              |       |        |       |        |       |         |       |         |       |          |       |                |       |                          |       |
| Balances as of December 31, 2007             |       | 354,376     |       | 1,315,062   |       | 51,665       |       | 167,255      |       | (199,662      | )          | 219,467             |       | 1,908,163                     |       |
|                                              |       |        |       |        |       |         |       |         |       |          |       |                |       |                          |       |
| Historical balances as of  December 31, 2007 |       | 354,376     |       | 1,315,062   |       | 51,665       |       | 167,255      |       | (199,662      | )          | 219,467             |       | 1,908,163                     |       |
| Prior year profit distribution                    |       | —      |       | —      |       | —       |       | 19,805       |       | 199,662       |       | (219,467            | )          | —                        |       |
| Interim dividends for the  period (1)             |       | —      |       | —      |       | —       |       | —       |       | (151,319      | )          | —              |       | (151,319                      | )          |
| Income for the period                             |       | —      |       | —      |       | —       |       | —       |       | —        |       | 451,497             |       | 451,497                       |       |
|                                              |       |        |       |        |       |         |       |         |       |          |       |                |       |                          |       |
| Balances as of December 31, 2008             |       | 354,376     |       | 1,315,062   |       | 51,665       |       | 187,060      |       | (151,319      | )          | 451,497             |       | 2,208,341                     |       |

 

----

## (1)          As of December 31, 2008, Endesa Brasil has paid ThUS$103,777 fordividends declared on Net Income for the period ended December 31, 2008and retained earnings through 2007.

##  

## Asof December 31, 2007, Endesa Brasil has paid ThR$401,563 (ThUS$207,973)for dividends declared on Net Income for the period ended December 31,2007 and retained earnings through 2006.

##  

## Asof December 31,2006, Endesa Brasil has paid ThR$148,933 (ThUS$69,400) for dividends declared on Net Income forthe period ended December 31, 2006. An additional dividend was declaredand paid during 2006 related to period Net Income totaling ThR$1,067(ThUS$481). Dividend payments totaled ThR$150,000 (ThUS$69,818) in 2006.

 

 

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Table ofContents

 

**Endesa Brasil and Subsidiaries**

**Consolidated Statements of CashFlows**

**(In thousands of US dollars)**
| ** **                                                                  | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                  | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                                  | ** ** | **ThUS$**                   | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                                                        |       |                        |       |   |   |   |   |
| NET INCOME FOR  THE YEAR                                                    |       | 173,228                     |       | 219,467 |   | 451,497 |   |
|                                                                        |       |                        |       |   |   |   |   |
| GAIN (LOSSES)  FROM SALES OF ASSETS:                                        |       |                        |       |   |   |   |   |
| Losses (gain) on  sale of property, plant and equipment                     |       | (30,440                     | )          | (404 | ) | 117 |   |
|                                                                        |       |                        |       |   |   |   |   |
| Charges  (credits) to income which do not represent cash flows:             |       |                        |       |   |   |   |   |
| Depreciation                                                                |       | 213,006                     |       | 205,181 |   | 229,135 |   |
| Amortization of intangibles                                                 |       | 2,730                       |       | 2,954 |   | 1,837 |   |
| Write-offs and  accrued expenses                                            |       | 18,202                      |       | 79,712 |   | 31,010 |   |
| Other credits to  income which do not represent cash flows - less           |       | (19,686                     | )          | (90,788 | ) | (315,723 | ) |
| Other charges to  income which do not represent cash flows                  |       | 49,944                      |       | 239,022 |   | 131,325 |   |
|                                                                        |       |                        |       |   |   |   |   |
| Changes in  assets which affect operating cash flows:                       |       |                        |       |   |   |   |   |
| Decrease  (increase) in trade receivables                                   |       | (13,265                     | )          | (40,870 | ) | 178,087 |   |
| Decrease (increase) in inventory                                            |       | (16                         | )          | (800 | ) | 846 |   |
| Decrease  (increase) in other assets                                        |       | (37,044                     | )          | 37,636 |   | (75,424 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| Changes in  liabilities which affect operating cash flows:                  |       |                        |       |   |   |   |   |
| Increase  (decrease) in acounts payable associated with operating results   |       | 122,267                     |       | (30,481 | ) | (23,658 | ) |
| Increase  (decrease) in interest payable                                    |       | (26,375                     | )          | 47,800 |   | (32,389 | ) |
| Increase  (decrease) in income tax payable                                  |       | 19,823                      |       | (220,296 | ) | (23,165 | ) |
| Increase in  other accounts payable associated with operating results       |       | (103,863                    | )          | (58,470 | ) | 1,364 |   |
| Net increase  (decrease) in value added tax and other similar taxes payable |       | (105,165                    | )          | (10,996 | ) | (5,743 | ) |
| (Income) loss  attributable to minority interest                            |       | 85,755                      |       | 45,650 |   | 278,040 |   |
|                                                                        |       |                        |       |   |   |   |   |
| NET CASH FLOWS  PROVIDED BY OPERATING ACTIVITIES                            |       | 349,101                     |       | 424,317 |   | 827,156 |   |
|                                                                        |       |                        |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                      |       |                        |       |   |   |   |   |
| Borrowings                                                                  |       | 628,720                     |       | 473,488 |   | 398,413 |   |
| Bonds payable                                                               |       | 174,718                     |       | — |   | — |   |
| Other sources of financing                                                  |       | —                      |       | — |   | 128,018 |   |
| Dividends paid - less                                                       |       | (84,451                     | )          | (283,986 | ) | (189,093 | ) |
| Payment of debt - less                                                      |       | (758,183                    | )          | (169,785 | ) | (273,486 | ) |
| Payment of loans  obtained from related companies                           |       | (69,545                     | )          | (4,779 | ) | (187,367 | ) |
| Payment of  issuance and placement of bonds - less                          |       | (939                        | )          | — |   | (167,853 | ) |
| Other financing disbursements - less                                        |       | (10,591                     | )          | (234 | ) | (22,999 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| NET CASH USED IN  FINANCING ACTIVITIES                                      |       | (120,271                    | )          | 14,704 |   | (314,367 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                      |       |                        |       |   |   |   |   |
| Proceeds from  sales of property, plant and equipment                       |       | 48,541                      |       | 962 |   | 3,110 |   |
| Other investment income                                                     |       | 27                          |       | — |   | 62,513 |   |
| Additions to  property, plant and equipment - less                          |       | (350,714                    | )          | (422,268 | ) | (412,774 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| NET CASH USED IN  INVESTING ACTIVITIES                                      |       | (302,146                    | )          | (421,306 | ) | (347,151 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| POSITIVE NET  CASH FLOW FOR THE PERIOD                                      |       | (73,316                     | )          | 17,715 |   | 165,638 |   |
|                                                                        |       |                        |       |   |   |   |   |
| EFFECT OF  FOREIGN EXCHANGE ON CASH AND CASH EQUIVALENTS                    |       | 54,028                      |       | 188,887 |   | (253,492 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| NET INCREASE  (DECREASE) IN CASH AND CASH EQUIVALENTS                       |       | (19,288                     | )          | 206,602 |   | (87,854 | ) |
|                                                                        |       |                        |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS AT BEGINNING OF THE PERIOD                       |       | 405,444                     |       | 386,156 |   | 592,758 |   |
|                                                                        |       |                        |       |   |   |   |   |
| CASH AND CASH  EQUIVALENTS AT END OF THE PERIOD                             |       | 386,156                     |       | 592,758 |   | 504,904 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements

 

G-5

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 1.           Nature of Operations**

 

## **a.****                            **On June 10, 2005, Endesa Brasil S.A. (the “Company”or “Endesa Brasil”) was incorporated; its purpose is to acquire equity inoperating companies or startups in the electricity sector, including companiesthat provide for the transmission, distribution, generation and marketing ofelectrical energy, in Brazil and other countries. Endesa Brasil was created asan energy holding company concentrating all of the Brazilian electricity sectorinvestments of the Endesa Group.

##  

## **b.****                            **Endesa Brasil holds ownership percentages in thefollowing companies: Companhia de Interconexão Energética S.A. (“CIEN”),Central Geradora Termelétrica Fortaleza S.A. (“CGTF”), Companhia de Energéticado Ceará S.A. (“COELCE”), Ampla Energia e Serviços S.A. (“Ampla”), AmplaInvestimentos e Serviços S.A., Ampla Generación S.A., Investluz S.A. andCentrais Elétricas Cachoeira Dourada S.A. (“CDSA”).

##  

## **c.****                            **On July 6, 2006, the International FinanceCorporation (“IFC”) became a new shareholder in Endesa Brasil, contributing111,025 million Brazilian reals, or $50 million US dollars, aquiring 2.7%of Endesa Brasil’s equity as of December 31, 2008. Enersis directlyand indirectly controls 71.52% of Endesa Brasil’s share capital.

##  

## EndesaBrasil and IFC agreed to list Endesa Brasil on the stock market within the nextthree years. Additionally, a put agreement was included so that IFC has theoption of selling its equity interest, known as a “put option”, which can beexercised in the event that Endesa Brasil abandons its project of being alisted company or as a result of non-compliance with other specific conditionsestablished in the agreement.  The putoption, which in some cases is not under the control of the management ofEndesa Brasil, allow the capital increase subscribed by IFC to be recorded as adebt instrument, while the put option is in effect. At December 31, 2008the put option has been valued in accordance with the clauses established inthe agreement and recorded under long-term debt.

##  

## **d.****                            **On December 5, 2008, the Company carried out theincorporation of one of its controllers — Luz de Rio, that had 2.7% ofparticipation in the Company, with this the respective shareholders of Luz deRio proportionally received the rights of participation in Endesa Brasil, wereno patrimonial changes by the effects of this incorporation.

##  

## **e.****                            **Companhia de Interconexão EnergéticaS.A. (“CIEN”)

##  

## Thiscompany sells electricity in Argentina and Brazil. Because of the reduction inthe maximum availability of the generation and physical guarantee of energy andits associated power, the Company is focusing its business on a differentcompensation structure that is not based on the purchase and sale of energybetween the countries.  Given thestrategic importance of the Company’s assets in the relations between Braziland Argentina, the Brazilian government has been presented with a new businessplan model changing its selling activity to an electricity transmissionactivity with payment of a fixed compensation, which is in the process of beingapproved.

##  

## Thispresupposes integrating its transmission lines with the Brazilian transmissiongrid operated by the Brazilian Government.As in 2007, this year the Argentineangovernment formalized payment of usage charges with the Company for conveyingenergy between the two countries. Management considers that this situation furtheremphasizes the importance of the application made to the Brazilian governmentto approve the new business plan and considers that it will probably beapproved. The Company expects to have the business structure defined in 2009.

 

**Note 2.           Summary of Significant AccountingPolicies**

 

**a. General: **The financialstatements of the Company have been prepared in accordance with generallyaccepted accounting principles in Chile and the regulations established by theSVS (collectively “Chilean GAAP”), and the specific corporate regulations ofLaw No. 18,046, related to the formation, registration and liquidation ofChilean corporations, among others.

 

G-6

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

The preparation of financialstatements in conformity with Chilean GAAP requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosures of contingent assets and liabilities as of the date ofthe financial statements, and the reported amounts of revenues and expensesduring the reporting year.  Actualresults could differ from those estimates.

** **

In certain cases generally accepted accountingprinciples in Chile require that assets or liabilities be recorded or disclosedat their fair values.

 

**b. Financial years:** These financial statements relateto the years ended December 31, 2008 and 2007

** **

**c. Translation basis:**

 

c.1.   Purpose of financial statements

 

Thesefinancial statements have been prepared in accordance with Technical Bulletin No. 64established by the Colegio de Contadores de Chile A.G.

 

c.2.   Translation into US Dollars

 

TheCompany maintains its accounting records in Reais (R$), the currency of thecountry in which the Company is incorporated and operates, according toaccounting practices adopted in Brazil.

 

Theassets and liabilities as of December 31, 2008 and 2007, and the incomefor the years then ended have been translated from Reais into dollars using thetranslation methodology applicable to investments in countries with unstablecurrencies and are not considered an extension of the operations of theinvesting Company, as described in Technical Bulletin No. 64, summarizedas follows:

 

c.2.1.   Non monetary assets and liabilities

 

Thenon monetary assets and liabilities and the shareholders’ equity are expressedin historic US dollars, translating the Reais of each transaction into USdollars, using the historical exchange rate in effect at the date of thetransaction.

 

c.2.2.   Monetary assets and liabilities

 

Themonetary assets and liabilities have been translated into US dollars at theexchange rate prevailing at year end, applicable to remittances abroad.

 

Theexchange rate in effect at December 31, 2008 was US$1 = R$2.337 (US$1 =R$1.771  in 2007).

 

c.2.3.   Income statement accounts

 

Theincome statement accounts — except for those that are determined at historicalamounts — were translated using a monthly average exchange rate.

 

Theresulting translation gain or loss is recorded in non-operating income(expense) in the income statement.

 

G-7

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**d. Reclassifications:  **Certain amountsin the prior year’s financial statements have been reclassified to conform tothe current year’s presentation.

 

**Reclassifications in the balancesheet 2008**

 
| ** **                                       | ** ** | **ThUS$**   | ** ** |
|--------------------------------------------------|------------|-------------|------------|
| **From  account**                                | ** ** | **charges** | ** ** |
|                                             |       |        |       |
| Buldings and infrastructure and work in progress |       | 187,495     |       |
| Short-term accrued  expenses                     |       | 20,103      |       |

 
| ** **                  | ** ** | **ThUS$**     | ** ** |
|-----------------------------|------------|---------------|------------|
| **To account**              | ** ** | **(credits)** | ** ** |
|                        |       |          |       |
| Technical  Appraisal        |       | (187,495      | )          |
| Long-term  accrued expenses |       | (20,103       | )          |

 

**Reclassificationsin the statements of operation 2007**

 
| ** **                                       | ** ** | **ThUS$**   | ** ** |
|--------------------------------------------------|------------|-------------|------------|
| **From  account**                                | ** ** | **charges** | ** ** |
| ** **                                       | ** ** | ** **  | ** ** |
| Energy and power sales to unaffiliated costumers |       | 350,414     |       |

 
| ** **                                         | ** ** | **ThUS$**     | ** ** |
|----------------------------------------------------|------------|---------------|------------|
| **To account**                                     | ** ** | **(credits)** | ** ** |
| ** **                                         | ** ** | ** **    | ** ** |
| Energy and Power costs  for unaffiliated costumers |       | (350,414      | )          |

 

 

**e. Basis of consolidation:** The accompanying financial statements reflect the consolidated resultsof operations of Endesa Brasil S.A. and its subsidiaries. All significantintercompany transactions have been eliminated in consolidation. Investments incompanies in the development stage are accounted for using the equity method,except that income or losses are included directly in equity instead of beingreflected in the Company’s consolidated statement of operations..

** **

**The consolidated financial statements have been prepared inaccordance with Technical Bulletin No. 72 (which partially supercededTechnical Bulletin No. 42) of the Chilean Institute of Accountants and inconformity with Circular No. 1697 (which supercedes Circular No. 368)of the Superintendence of Securities and Insurance.**

** **

The Company consolidates the financial statements of companies in whichit controls over 50% of the voting shares, provided there are no substantiveminority participating rights that prevent control, as detailed as follows:

 

 
| ** **                                                            | ** ** | **Percentage of ownership as of  December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                            | ** ** | **2006**                                             | ** ** | **2007** | ** ** | ** ** | ** ** | **2008** | ** ** | ** ** | ** ** |
| **Name**                                                              | ** ** | **Total**                                            | ** ** | **Total** | ** ** | **Direct** | ** ** | **Indirect** | ** ** | **Total** | ** ** |
| ** **                                                            | ** ** | **%**                                                | ** ** | **%** | ** ** | **%** | ** ** | **%** | ** ** | ** ** | ** ** |
| ** **                                                            | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cachoeira Dourada S.A.                                                |       | 99.605880                                            |       | 99.605880 |   | 99.605880 |   | — |   | 99.605880 |   |
| Central Generadora  Termoeléctrica Fortaleza S.A. (CGTF)         |       | 100.000000                                           |       | 100.000000 |   | 100.000000 |   | — |   | 100.000000 |   |
| Ampla Energía e Serviços  S.A.(*)                           |       | 46.886283                                            |       | 46.886283 |   | 46.886283 |   | — |   | 46.886283 |   |
| Ampla Investimentos e  Serviços S.A.(*)                          |       | 46.886283                                            |       | 46.886283 |   | 46.886283 |   | — |   | 46.886283 |   |
| Investluz S.A.                                                        |       | 100.000000                                           |       | 100.000000 |   | 63.569367 |   | 36.430633 |   | 100.000000 |   |
| Compañía Energetica Do  Ceara (COELCE)                      |       | 58.867455                                            |       | 58.867455 |   | 2.273448 |   | 56.594007 |   | 58.867455 |   |
| Compañía de Interconexión  Energética S.A. (CIEN) |       | 100.000000                                           |       | 100.000000 |   | 100.000000 |   | — |   | 100.000000 |   |
| Transportadora de Energía  S.A. (TESA)                           |       | 99.990000                                            |       | 99.990000 |   | — |   | 99.990000 |   | 99.990000 |   |
| Compañía de Transmisión  del Mercosur S.A. (CTM)       |       | 99.990000                                            |       | 99.990000 |   | — |   | 99.990000 |   | 99.990000 |   |

 

----

(*) The consolidation of Ampla Energía y Servicos S.A. and AmplaInvestimentos e Servicos S.A. is a result of majority participation in votingrights of the board. This share of voting rights was obtained in January 27,2004 in the board ́s pact between ENDESA Latinoamérica and ENERSIS S.A.subsidiaries.

 

**f. Time deposits:** Time deposits are presented at originalplacement plus accrued interest (Note 4).

 

**g. Inventories:** Inventories are comprised of rawmaterials, spare parts and various supplies, which are used in providingservices. Inventories are valued at the lower of price-level restated cost ornet realizable value and presented net of deductions for obsolescence.  Inventories are classified in accordance withtheir most probable use, either in current assets or in fixed assets.

 

G-8

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**h. Allowance for doubtful accoun**ts: The estimate for theallowance for doubtful accounts has been made considering the aging and natureof the accounts receivable. Current and long-term trade accounts receivable,notes receivable and other receivables are classified as current or long-term,depending on their collection terms, and are presented net of the allowancesfor doubtful accounts amounted to ThUS$182,676, ThUS$296,956 and ThUS$186,025as of December 31, 2006, 2007 and 2008, respectively. (Note 5).

 

**i. Property, plant and equipment:** Property, plant and equipmentare stated at acquisition cost, including technical appraisal (Note 8).  Expenses related to work in progress, such asinterest, third party services, and personal expenses, among others, arecapitalized and depreciated only when the work is completed. Maintenance andrepair expenses are charged to income during the period in which they areincurred, whereas renewals, improvements and major repairs are capitalized asproperty, plant and equipment if they increase the useful life of property,plant and equipment.

 

In accordance with Technical Bulletin No. 64 of the ChileanInstitute of Accountants, these assets must be kept in historic United Statesdollars, for purposes of Chilean regulations.

 

In accordance with Technical Bulletin No.33 of the Chilean Institute ofAccountants, the Company is required to evaluate the recoverability of itsproperty, plant and equipment when certain indicators of impairment exist. TheCompany has not identified any impairment to property, plant and equipment as aresult of applying Technical Bulletin No. 33.

 

**j. Depreciation:**Depreciation is calculated using thestraight-line method in accordance with depreciation rates set forth by AgenciaNacional de Energía Eléctrica (ANEEL), the regulatory agency for the electricsector, which considers the effective useful lives of the assets used in thissector.

 

Depreciation charged to income amounted to ThUS$213,006 in 2006,  ThUS$205,181 in 2007 and Thus$229,135 in2008. These amounts are classified as follows: ThUS$208,880 in 2006,ThUS$203,537 in 2007 and ThUS$227,420 in 2008 in cost of sales and ThUS$4,126in 2006, ThUS$1,644 in 2007 and ThUS$1,715 in 2008 in administrative and sellingexpenses.

 

**k. Intangibles, other thangoodwill:**  Intangible assets are recorded at acquisitioncost. Such assets are amortized over their estimated useful lives, not toexceed twenty years. Intangibles correspond mainly to easements and rights ofway.

 

**l. Investments in related companie**s: Investments in relatedcompanies are presented using the equity method of accounting, recognizing theCompany’s proportionate share in the net income or loss of each investee on anaccrual basis in income..

 

Investments in foreign affiliates are recorded in accordance withTechnical Bulletins No.64 and No. 72 (which partially superceded TechnicalBulletin No. 42) of the Chilean Institute of Accountants.

 

The Company evaluates the recoverability of its investments in relatedcompanies whenever events or changes in circumstances indicate that thecarrying amount of the investments may not be recoverable. Such assessmentrequires determining the fair values of the equity method investments. Fairvalue is determined using valuation methodologies, including discounted cashflows and the ability of the investee to sustain an earnings capacity thatjustifies the carrying amount of the investment. In the case the fair value isless than the carrying value and such decline in value is considered to beother than temporary, a write down is recorded. As of December 31, 2007and 2008, there are no indications of impairment of assets that are other thantemporary.

 

**m. Bonds:** Bonds payableare recorded in liabilities at the face value of the bonds. The differencebetween the face value and the carrying amount, equal to the premium ordiscount, is deferred and amortized over the term of the bonds (Note 13).

 

G-9

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**n. Income tax and deferred income taxes:**At December 31,2008, the Company and its subsidiaries recorded the current tax expensedetermined in accordance with the laws and regulations of Brazil. The charge toincome for current income tax expense was ThUS$125,843 in 2006, ThUS$124,193 in2007 and ThUS$132,577 in 2008. Additionally, the Company has recorded a net deferredtax credit (charge) for the effect of temporary differences of ThUS$109,190 in2006, ThUS$10,928 in 2007, and ThUS$(9,208) in 2008.  The Company records deferred income taxes inaccordance with Technical Bulletin No.60 and other supplementary bulletins ofthe Chilean Institute of Accountants, and in conformity with circulars Nos.1466and 1560 issued by the Superintendence of Securities and Insurance, recognizingdeferred tax effects of temporary differences, tax benefits arising from taxlosses, and other events that create differences between the financial and taxvalues of assets and liabilities, on the basis of tax rates estimated to be ineffect at the time of reversal of the temporary differences that gave rise tothem (Note 7).

 

**o. Pension and post-retirementbenefits:**  Pension and post-retirement benefits arerecorded based on actuarially determined projected benefit obligations inaccordance with the respective collective bargaining contracts of employee. Seenote 25 II i).

 

**p. Revenue recognition**: The Company’s revenues areprimarily derived from electric power generation and distribution services, andinclude energy supplied and unbilled at each year-end.  Revenues are valued using rates in effectwhen services are provided to customers. Accrued unbilled revenues arepresented in current assets as trade receivables. The corresponding cost isincluded in cost of sales.

 

**q. Financial derivativecontracts:**  As of December 31, 2006, 2007 and 2008the Company and its subsidiaries have forward contracts, currency swaps, andinterest rate swaps and collars with several financial institutions.  Such contracts are mainly utilized by theCompany to hedge against foreign currency and interest risk exposures, which arerecorded according to Technical Bulletin No.57 of the Chilean Association ofAccountants.

 

**r. Software**: The software of the Company and its subsidiaries hasbeen acquired as computer packages, and is amortized over its estimated usefullife of five years.

 

**s. Statements of cash flow:** The Consolidated Statements of CashFlows have been prepared in accordance with the indirect method.

 

Investments considered ascash equivalents, as indicated in point 6.2 of Technical Bulletin No.50 issuedby the Chilean Association of Accountants, include time deposits, investmentsin fixed income securities classified as marketable securities, repurchaseagreements classified as other current assets, and other cash balancesclassified as other accounts receivable with maturities less than 90 days.

 

For classification purposes, cash flows from operations includecollections from clients and payments to suppliers, payroll and taxes.

 

**Note 3.   Changesin Accounting Principles**

 

There were no changes inaccounting principles during the years ended December 31, 2006, 2007 and2008 that would affect the comparison with the prior year financial statements.

 

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 4.           Time Deposits**

 

Time deposits for 2007and 2008 are as follows:

 
| **Financial**                  | ** ** | ** **  | ** ** | **Scheduled**  | ** ** | **Balance  at December 31,** | ** ** |
|--------------------------------|------------|-------------|------------|----------------|------------|-----------------------------------|------------|
| **Institution**                | ** ** | **Rate  %** | ** ** | **Maturities** | ** ** | **2007**                          | ** ** | **2008** | ** ** |
| ** **                     | ** ** | ** **  | ** ** | ** **     | ** ** | **ThUS$**                         | ** ** | **ThUS$** | ** ** |
|                           |       |        |       |           |       |                              |       |   |   |
| Bradesco                       |       | 12.15       | %          | 02-01-09       |       | 21,904                            |       | 123,601 |   |
| Votorantim                     |       | 8.48        | %          | 02-01-09       |       | 16,341                            |       | 72,607 |   |
| Unibanco                       |       | 6.23        | %          | 02-01-09       |       | 32,231                            |       | 50,544 |   |
| Bradesco Compostela            |       | 1.01        | %          | 02-01-09       |       | 106,711                           |       | 48,624 |   |
| Trento                         |       | 1.01        | %          | 02-01-09       |       | —                            |       | 44,525 |   |
| Vicenza                        |       | 1.03        | %          | 02-01-09       |       | —                            |       | 40,806 |   |
| Banco Itau                     |       | 6.52        | %          | 02-01-09       |       | 96,428                            |       | 36,432 |   |
| OC Unibanco                    |       | 1.05        | %          | 02-01-09       |       | 6,306                             |       | 17,393 |   |
| Santander Banespa              |       | 13.62       | %          | 02-01-09       |       | 71                                |       | 12,932 |   |
| OC Santander                   |       | 1.04        | %          | 02-01-09       |       | —                            |       | 11,148 |   |
| Santander                      |       | 1.14        | %          | 02-01-09       |       | 1,834                             |       | 8,581 |   |
| OC Bradesco                    |       | 1.04        | %          | 02-01-09       |       | —                            |       | 8,289 |   |
| Banco Santander NY Plazo  Fijo |       | 0.30        | %          | 02-01-09       |       | 18,477                            |       | 3,805 |   |
| Bradesco Fif Target            |       | 1.05        | %          | 02-01-09       |       | 1,722                             |       | 3,165 |   |
| CDB ABN                        |       | 1.04        | %          | 02-01-09       |       | —                            |       | 2,508 |   |
| Banco Rio de La Plata          |       | 19.00       | %          | 02-01-09       |       | 472                               |       | 341 |   |
| Alfa                           |       | 13.62       | %          | 02-01-09       |       | —                            |       | 271 |   |
| Banco Pactual                  |       | 13.62       | %          | 02-01-09       |       | 3,042                             |       | 131 |   |
| CDB Bradesco                   |       | 0.99        | %          | 02-01-09       |       | 116                               |       | 99 |   |
| Safra                          |       | 13.62       | %          | 02-01-09       |       | —                            |       | 90 |   |
| HSBC                           |       | 13.62       | %          | 02-01-09       |       | 84,083                            |       | 10 |   |
| ABN Amor Real                  |       | 13.62       | %          | 02-01-09       |       | —                            |       | 6 |   |
| CDB Unibanco                   |       | 0.85        | %          | 02-01-09       |       | 30,013                            |       | — |   |
| CDB Votorantim                 |       | 0.85        | %          | 02-01-09       |       | 23,339                            |       | — |   |
| Bradesco Premium               |       | 0.84        | %          | 02-01-09       |       | 16,367                            |       | — |   |
| Santander CDB                  |       | 0.84        | %          | 02-01-09       |       | 15,700                            |       | — |   |
| OC Votorantim                  |       | 0.85        | %          | 02-01-09       |       | 10,471                            |       | — |   |
| Itau Fed                       |       | 0.83        | %          | 02-01-09       |       | 7,341                             |       | — |   |
| CDB HSBC                       |       | 0.84        | %          | 02-01-09       |       | 6,921                             |       | — |   |
| Itau CDB                       |       | 0.84        | %          | 02-01-09       |       | 3,466                             |       | — |   |
| Citibank Large Corp            |       | 0.83        | %          | 02-01-09       |       | 3,394                             |       | — |   |
| Caixa Economica                |       | 11.12       | %          | 02-01-09       |       | 2,961                             |       | — |   |
| OC Safra                       |       | 0.85        | %          | 02-01-09       |       | 2,830                             |       | — |   |
| Banco Boston                   |       | 11.12       | %          | 02-01-09       |       | 220                               |       | — |   |
| Total                          |       |        |       |           |       | 512,761                           |       | 485,908 |   |

 

**Note 5.           Accounts, Notes and Other Receivables**

 

Current accounts, notesand other receivables and their related allowances for doubtful accounts as ofrespective December 31, are as follows:

 
| ** **                       | ** ** | **As  of December 31,** | ** ** |
|----------------------------------|------------|------------------------------|------------|
| ** **                       | ** ** | **Under  90 days**           | ** ** | **90  days to 1 year** | ** ** | **Sub  total** | ** ** | **Current** | ** ** | **Long-term** | ** ** |
| **Account**                      | ** ** | **2007**                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                       | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                             |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Accounts receivable (1)          |       | 850,746                      |       | 581,577 |   | 238,724 |   | 132,873 |   | 714,450 |   | 809,653 |   | 540,608 |   | 60,843 |   | 32,900 |   |
| Allowance for doubtful  accounts |       | (127,792                     | )          | (98,450 | ) | (152,024 | ) | (75,392 | ) | (173,842 | ) | — |   |   |   | — |   | — |   |
|                             |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Notes receivable                 |       | 14,491                       |       | 5,486 |   | — |   | — |   | 5,486 |   | 14,491 |   | 5,486 |   | — |   | — |   |
| Allowance for doubtful  accounts |       | —                       |       | — |   | — |   | — |   | — |   | — |   |   |   | — |   | — |   |
|                             |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Other receivables                |       | 59,509                       |       | 56,404 |   | — |   | — |   | 56,404 |   | 43,436 |   | 44,221 |   | 4,496 |   | 3,997 |   |
| Allowance for doubtful  accounts |       | (16,074                      | )          | (12,183 | ) | — |   | — |   | (12,183 | ) |   |   |   |   | (1,066 | ) |   |   |
|                             |       |                         |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                            |       |                         |       |   |   |   |   |   |   | 590,315 |   | 867,580 |   | 590,315 |   | 64,273 |   | 36,897 |   |

 

G-11

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

Current and long-termaccounts receivable per country (net of allowances for doubtful accounts) as ofeach December 31, are as follows:

 
| ** **  | ** ** | **As  of December 31,** | ** ** |
|-------------|------------|------------------------------|------------|
| ** **  | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| **Country** | ** ** | **ThUS$**                    | ** ** | **%** | ** ** | **ThUS$** | ** ** | **%** | ** ** |
|        |       |                         |       |   |   |   |   |   |   |
| Argentina   |       | 4,517                        |       | 0.48 | % | 4,014 |   | 0.64 | % |
| Brazil      |       | 927,336                      |       | 99.52 | % | 623,198 |   | 99.36 | % |
|        |       |                         |       |   |   |   |   |   |   |
| Total       |       | 931,853                      |       | 100.00 | % | 627,212 |   | 100.00 | % |

 

----

(1)          Balance includes accounts receivable of ThUS$ 60,652for Cachoeira Dourada S.A associated with its subsidiary Compañia deElectricidade de Goiás (CELG) for the 2004 period. In 2008 CELG (Empresaestatal Del estado de Goiás) carries the remaining debt. CELG is in the processof negotiations with the financial institution BNDES to obtain resources tocancel its debts. The board expects a favorable resolution related tothesenegotiations and anticipates recovery of at least the recorded amount.

 

Amounts of unbilledenergy sold are as follows:

 
| ** **                | ** ** | **As of December 31,** | ** ** |
|---------------------------|------------|-----------------------------|------------|
| ** **                | ** ** | **2006**                    | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                | ** ** | **ThUS$**                   | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                      |       |                        |       |   |   |   |   |
| **Unbilled  energy sold** | ** ** | 126,105                     |       | 134,175 |   | 134,953 |   |

 

**Note 6.           Balancesand Transactions with Related Companies**

 

The balances of accountsreceivable and payable with related companies are as follows atDecember 31, 2007 and 2008:

 

## **a.****                            ****Notes and accounts receivable duefrom related companies (1):**

 
| ** **                                            | ** ** | **As  of December 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|
| ** **                                            | ** ** | **Short-term**               | ** ** | **Long-term** | ** ** |
| **Company**                                           | ** ** | **2007**                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                            | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                                  |       |                         |       |   |   |   |   |   |   |
| Enersis S.A.                                          |       | —                       |       | — |   | 253,123 |   | 137 |   |
| Luz de Río Ltda.                                 |       | —                       |       | — |   | 386 |   | — |   |
| Compañía Americana de  Multiservicios Ltda. |       | —                       |       | — |   | 867 |   | — |   |
| Endesa Costanera S.A.                                 |       | 7,604                        |       | 10,260 |   | — |   | — |   |
| Compañía de Energía del  Mercosur S.A. |       | 14,999                       |       | 22,755 |   | — |   | — |   |
| Cam Brasil Ltda.                                      |       | —                       |       | — |   | — |   | 185 |   |
| Synapsis Brasil Ltda.                                 |       | —                       |       | — |   | — |   | 4 |   |
|                                                  |       |                         |       |   |   |   |   |   |   |
| Total                                                 |       | 22,603                       |       | 33,015 |   | 254,376 |   | 326 |   |

 

G-12

----

Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

##  

## **b.****                            ****Notes and accounts payable due torelated companies:**

 
| ** **                                            | ** ** | **As  of December 31,** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|
| ** **                                            | ** ** | **Short-term**               | ** ** | **Long-term** | ** ** |
| **Company**                                           | ** ** | **2007**                     | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                            | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                            | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Enersis S.A.                                          |       | 280,331                      |       | 6,758 |   | — |   | — |   |
| Chilectra S.A.                                        |       | —                       |       | 6,730 |   | — |   | — |   |
| Luz de Río Ltda.                                 |       | 19,337                       |       | — |   | — |   | — |   |
| Compañía Americana de  Multiservicios Ltda. |       | 4,120                        |       | — |   | — |   | — |   |
| CAM Brasil Ltda.                                      |       | —                       |       | 1,158 |   | — |   | — |   |
| Synapsis Brasil Ltda.                                 |       | 3,531                        |       | 2,855 |   | — |   | — |   |
| Endesa Costanera S.A.                                 |       | 8,300                        |       | 10,435 |   | — |   | — |   |
| Edelnor                                               |       | 10                           |       | 10 |   | — |   | — |   |
| Endesa Latinoamérica S.A.  (2)                   |       | 5,272                        |       | 2,881 |   | 16,426 |   | 14,106 |   |
| Compañía de Energía del  Mercosur S.A. |       | 35,798                       |       | 37,492 |   | — |   | — |   |
| Ingendesa                                             |       | —                       |       | 2 |   | — |   | — |   |
|                                                  |       |                         |       |   |   |   |   |   |   |
| Total                                                 |       | 356,699                      |       | 68,321 |   | 16,426 |   | 14,106 |   |

 

----

**(1) Short-termnotes and accounts receivable and payable** - The balances of short-term accountsreceivable and payable relate to normal ongoing operations maturing within 30days, and are not subject to indexation.

 

**(2) Long-term notes and accountsreceivable and payable** - The balancepayable due to Endesa Latinoamérica S.A. relates to loans granted to CIEN tofinance the acquisition of machinery and equipment and to complete theconstruction of its second transmission line. These loans accrue interest at anannual average rate of 8.08% and they mature in May 2012.

 

## **c.****                            **Significant related company transactions and theireffects in income (expense) for each year ended December 31 are asfollows:

##  

| ** **                                            | ** ** | ** **       | ** ** | ** **          | ** ** | **2006**   | ** ** | **2007**      | ** ** | **2008**   | ** ** |
|-------------------------------------------------------|------------|------------------|------------|---------------------|------------|------------|------------|---------------|------------|------------|------------|
| ** **                                            | ** ** | ** **       | ** ** | **Nature  of**      | ** ** | ** ** | ** ** | **Income**    | ** ** | ** ** | ** ** | **Income** | ** ** | ** ** | ** ** | **Income** | ** ** |
| **Company**                                           | ** ** | **Relationship** | ** ** | **transaction**     | ** ** | **Amount** | ** ** | **(Expense)** | ** ** | **Amount** | ** ** | **(Expense)** | ** ** | **Amount** | ** ** | **(Expense)** | ** ** |
|                                                  | ** ** | ** **       | ** ** | ** **          | ** ** | **ThUS$**  | ** ** | **ThUS$**     | ** ** | **ThUS$**  | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                            | ** ** | ** **       | ** ** | ** **          | ** ** | ** ** | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Enersis S.A.                                          |       | Parent           |       | Interest            |       | 4,711      |       | (4,711        | )          | 2,639      |       | 2,639 |   | 949 |   | (949 | ) |
| Chilectra S.A.                                        |       | Affiliate        |       | Interest            |       | 9          |       | 9             |       | —     |       | — |   | — |   | — |   |
| Luz de Río Ltda.                                 |       | Affiliate        |       | Interest            |       | 1,638      |       | (1,638        | )          | 2,605      |       | (2,605 | ) | 3,573 |   | (3,573 | ) |
| CAM Brasil Ltda.                                      |       | Affiliate        |       | Services            |       | 1,148      |       | (1,148        | )          | 7,675      |       | 7,675 |   | 2,021 |   | (2,021 | ) |
| Synapsis Brasil Ltda.                                 |       | Affiliate        |       | Services            |       | 20,836     |       | (20,836       | )          | 17,708     |       | (17,708 | ) | 19,728 |   | (19,728 | ) |
| Endesa Costanera S.A.                                 |       | Affiliate        |       | Purchase  of energy |       | 4,071      |       | (4,071        | )          | 4,220      |       | (4,220 | ) | — |   | — |   |
|                                                  |       |             |       | Services            |       | 3,872      |       | 3,872         |       | 3,674      |       | 3,674 |   | 3,620 |   | 3,620 |   |
| Enersis Internacional                                 |       | Affiliate        |       | Interest            |       | 2,723      |       | (2,723        | )          | —     |       | — |   | — |   | — |   |
| Edelnor                                               |       | Affiliate        |       | Interest            |       | 1          |       | 1             |       | 2          |       | 2 |   | 3 |   | (3 | ) |
| Endesa Latinoamérica S.A.                        |       | Common  Parent   |       | Interest            |       | 3,865      |       | (3,865        | )          | 1,980      |       | (1,980 | ) | 1,304 |   | (1,304 | ) |
| Compañía de Energía del Mercosur  S.A. |       | Affiliate        |       | Purchase  of energy |       | 22,033     |       | (22,033       | )          | 10,274     |       | (10,274 | ) | 1,627 |   | (1,627 | ) |
|                                                  |       |             |       | Services            |       | 10,995     |       | 10,995        |       | 26,810     |       | 26,810 |   | 10,625 |   | 10,625 |   |
| Endesa España                                    |       | Common  Parent   |       | Interest            |       | 6,008      |       | (6,008        | )          | 59         |       | (59 | ) | — |   | — |   |

 

Transfers of short-termfunds between related companies are treated as current cash transactions, withassociated variable interest rates based on market conditions. The resultingaccounts receivable and accounts payable are essentially on 30 day terms, withautomatic rollover for the same year and settlement in line with cash flows.

 

G-13

----

Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 7.           DeferredIncome Taxes**

 

**a)**              Incometaxes (recoverable) payable as of each year-end are as follows:

 
| ** **                  | ** ** | **As  of December 31,** | ** ** |
|-----------------------------|------------|------------------------------|------------|
| ** **                  | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                  | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                  | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Income tax provision, net   |       | 124,193                      |       | 132,577 |   |
| Value-added and other taxes |       | (122,980                     | )          | (132,011 | ) |
|                        |       |                         |       |   |   |
| Total income tax payable    |       | 1,213                        |       | 566 |   |

 

**b)**              Temporarydifferences of the Company and its subsidiaries generated deferred taxesresulting in a net credit of ThUS$10,928 at December 31, 2007 and a netcharge to income of ThUS$9,208 at December 31, 2008.

 

**c)**              Inaccordance with BT No.60 and 69 of the Chilean Association of Accountants, andCircular No.1,466 of the SVS, the Company and its subsidiaries have recordedconsolidated deferred income taxes as of December 31, 2007 and 2008 asfollows:

 
| ** **                                        | ** ** | **As  of December 31, 2007** | ** ** | **As  of December 31, 2008** | ** ** |
|---------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                        | ** ** | **Asset**                         | ** ** | **Liability**                     | ** ** | **Asset** | ** ** | **Liability** | ** ** |
| **Description**                                   | ** ** | **Short-term**                    | ** ** | **Long-term**                     | ** ** | **Short-term** | ** ** | **Long-term** | ** ** | **Short-term** | ** ** | **Long-term** | ** ** | **Short-term** | ** ** | **Long-term** | ** ** |
| ** **                                        | ** ** | **ThUS$**                         | ** ** | **ThUS$**                         | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                              |       |                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Allowance for doubtful  accounts                  |       | 54,857                            |       | 76,734                            |       | — |   | — |   | 18,315 |   | 39,328 |   | — |   | — |   |
| Deferred charges                                  |       | —                            |       | —                            |       | 2,568 |   | — |   | — |   | — |   | 1,704 |   | — |   |
| Fixed asset depreciation                          |       | —                            |       | 5,191                             |       | 635 |   | 53,486 |   | — |   | 5,191 |   | 571 |   | 52,427 |   |
| Financial expenses                                |       | —                            |       | —                            |       | — |   | 10,721 |   | — |   | — |   | — |   | — |   |
| Intangibles                                       |       | 2,044                             |       | —                            |       | — |   | — |   | 2,621 |   | — |   | — |   | — |   |
| Other                                             |       | 6,001                             |       | 1,440                             |       | 458 |   | 4,994 |   | 3,520 |   | 871 |   | — |   | — |   |
| Actuarial deficit                                 |       | —                            |       | 24,750                            |       | — |   | — |   | — |   | 29,437 |   | — |   | — |   |
| Obsolescence of materials and inventory provision |       | 688                               |       | 19                                |       | — |   | — |   | 595 |   | — |   | — |   | — |   |
| Imputed salaries on  construction                 |       | —                            |       | 8,637                             |       | — |   | — |   | — |   | 6,195 |   | — |   | — |   |
| Tax losses                                        |       | 12,825                            |       | 54,106                            |       | — |   | — |   | 14,849 |   | 23,988 |   | — |   | — |   |
| Contingencies                                     |       | 14,371                            |       | 115,170                           |       | — |   | — |   | 11,463 |   | 92,129 |   | — |   | 2,334 |   |
| Regulated assets                                  |       | —                            |       | —                            |       | 33,371 |   | 18,331 |   | — |   | — |   | 7,622 |   | 16,518 |   |
| Exchange difference                               |       | —                            |       | —                            |       | — |   | 13,682 |   | — |   | — |   | — |   | 5,669 |   |
| Supplementary accounts net of amortization        |       | —                            |       | (12,388                           | )          | — |   | (53,486 | ) | — |   | (9,946 | ) | — |   | (52,427 | ) |
| Valuation allowance                               |       | —                            |       | —                            |       | — |   | — |   | — |   | (1,440 | ) | — |   | — |   |
|                                              |       |                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                             |       | 90,786                            |       | 273,659                           |       | 37,032 |   | 47,728 |   | 51,363 |   | 185,753 |   | 9,897 |   | 24,521 |   |

 

Income tax benefit(expense) for the year ended December 31, 2006, 2007 and 2008 is asfollows:

 
| ** **                         | ** ** | **As  of December 31,** | ** ** |
|------------------------------------|------------|------------------------------|------------|
| **Item**                           | ** ** | **2006**                     | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                         | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                         | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Current income tax  expense        |       | (125,843                     | )          | (124,193 | ) | (132,577 | ) |
| Deferred income (loss) tax benefit |       | 109,190                      |       | 10,928 |   | (9,208 | ) |
|                               |       |                         |       |   |   |   |   |
| Total                              |       | (16,653                      | )          | (113,265 | ) | (141,785 | ) |

 

G-14

----

Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 8.           Property,Plant and Equipment**

#  

The composition ofproperty, plant and equipment is as follows:

 
| ** **                                                       | ** ** | **As  of December 31,** | ** ** |
|------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                       | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                                                       | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| **Gross Property, Plant and Equipment**                          | ** ** | ** **                   | ** ** | ** ** | ** ** |
| ** **                                                       | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Land                                                             |       | 71,504                       |       | 74,393 |   |
|                                                             |       |                         |       |   |   |
| Buildings and  infrastructure                                    |       | 1,802,461                    |       | 1,816,539 |   |
| Distribution and transmission lines and public lighting          |       | 2,280,355                    |       | 2,443,944 |   |
| Less: third party  contributions                                 |       | (239,876                     | )          | (284,068 | ) |
|                                                             |       |                         |       |   |   |
| Sub-total                                                        |       | 3,842,940                    |       | 3,976,415 |   |
|                                                             |       |                         |       |   |   |
| Machinery and equipment                                          |       | 1,445,633                    |       | 1,679,970 |   |
|                                                             |       |                         |       |   |   |
| Other Property, Plant and Equipment                              |       |                         |       |   |   |
| Work in progress                                                 |       | 192,276                      |       | 179,407 |   |
| Construction materials                                           |       | 29,998                       |       | 34,505 |   |
| Furniture and fixture, tools, software and computing equipment   |       | 23,166                       |       | 24,618 |   |
| Vehicles                                                         |       | 3,293                        |       | 3,661 |   |
| Property, Plant and Equipment in transit                         |       | 12,820                       |       | 16,580 |   |
| Other assets                                                     |       | 52,897                       |       | 67,755 |   |
|                                                             |       |                         |       |   |   |
| Sub-total                                                        |       | 314,450                      |       | 326,526 |   |
|                                                             |       |                         |       |   |   |
| Total property, plant and equipment                              |       | 5,674,527                    |       | 6,057,304 |   |
|                                                             |       |                         |       |   |   |
| **Depreciation**                                                 |       |                         |       |   |   |
|                                                             |       |                         |       |   |   |
| Accumulated depreciation at beginning of year:                   |       |                         |       |   |   |
| Buildings and  infrastructure                                    |       | (1,372,532                   | )          | (1,490,522 | ) |
| Machinery and equipment                                          |       | (399,790                     | )          | (468,427 | ) |
| Other assets                                                     |       | (20,181                      | )          | (22,483 | ) |
|                                                             |       |                         |       |   |   |
| Total accumulated depreciation at beginning of the year          |       | (1,792,503                   | )          | (1,981,432 | ) |
|                                                             |       |                         |       |   |   |
| Depreciation of the period (cost of sales)                       |       | (203,537                     | )          | (227,420 | ) |
| Depreciation of the period (administrative and selling expenses) |       | (1,644                       | )          | (1,715 | ) |
|                                                             |       |                         |       |   |   |
| Total accumulated depreciation charged to income                 |       | (205,181                     | )          | (229,135 | ) |
|                                                             |       |                         |       |   |   |
| Total accumulated depreciation at period end                     |       | (1,997,684                   | )          | (2,210,567 | ) |
|                                                             |       |                         |       |   |   |
| Total property, plant and equipment, Net                         |       | 3,676,843                    |       | 3,846,737 |   |

 

G-15

----

Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 9.           OtherAssets**

 

Other long-term assets asof December 31, 2007 and 2008 are as follows:

 
| ** **                                   | ** ** | **As  of December 31,** | ** ** |
|----------------------------------------------|------------|------------------------------|------------|
| ** **                                   | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                                   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Regulatory assets (1)                        |       | 119,820                      |       | 60,500 |   |
| Guaranteed deposits, litigations and credits |       | 127,574                      |       | 109,909 |   |
| Recoverable taxes and  others                |       | 67,643                       |       | 50,820 |   |
| Deferred expenses                            |       | —                       |       | 38,415 |   |
| Post-retirement benefits and other pensions  |       | 3,194                        |       | 2,275 |   |
| Commissions on loans                         |       | 1,060                        |       | 95 |   |
| Others                                       |       | 1,410                        |       | — |   |
|                                         |       |                         |       |   |   |
| Total                                        |       | 320,701                      |       | 262,014 |   |

 

----

(1)                      Regulatory Assets

 

Based on Decree Law No.14(that became Law No.10,438 dated April 26, 2002) and Resolution No.91issued by Cámara de Gestión de la Crisis de Energía Eléctrica — CGCEE (ElectricEnergy Crisis Council) both dated December 21, 2001 and Resolution No.31issued by ANEEL, dated January 24, 2002, all electric energy distributorswere required to adopt rates associated with an extraordinary raterestructuring imposed in order to recover the economic-financial balance ofdistribution contracts.

 

This extraordinary raterestructuring was made by applying an adjustment to rates in effect atDecember 31, 2001, recognized by ANEEL, as follows:

 

2.9% for residentialcustomers (except those with low income), rural customers and public lighting; 

7.9% for the rest of thecustomers.

 

**Note 10.         Short-Term Debt due to Banks andFinancial Institutions**

 

As of December 31,2007 and 2008 the detail is as follows:

 
| ** **       | ** ** | ** **                            | ** ** | **Foreign  currency** | ** ** | ** ** | ** ** | ** ** | ** ** |
|------------------|------------|---------------------------------------|------------|-----------------------|------------|------------|------------|------------|------------|
| ** **       | ** ** | **Bank  or financial**                | ** ** | **US$**               | ** ** | **Euros**  | ** ** | **Reais**  | ** ** | **As  of December 31,** | ** ** |
| **Taxpayer No.** | ** ** | **institution**                       | ** ** | **2007**              | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **       | ** ** | ** **                            | ** ** | **ThUS$**             | ** ** | **ThUS$**  | ** ** | **ThUS$**  | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|             |       |                                  |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
| Foreign          |       | Banco  do Brasil                      |       | —                |       | —     |       | —     |       | — |   | 12,792 |   | — |   | 12,792 |   | — |   |
| Foreign          |       | Banco  Santander                      |       | —                |       | —     |       | —     |       | — |   | — |   | 67,045 |   | — |   | 67,045 |   |
| Foreign          |       | Banco  Safra                          |       | —                |       | —     |       | —     |       | — |   | — |   | 55,700 |   | — |   | 55,700 |   |
| Foreign          |       | Unibanco                              |       | 40,680                |       | —     |       | —     |       | — |   | 5,941 |   | — |   | 46,621 |   | — |   |
|             |       |                                  |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
|             |       | Total                                 |       | 40,680                |       | —     |       | —     |       | — |   | 18,733 |   | 122,745 |   | 59,413 |   | 122,745 |   |
|             |       |                                  |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
|             |       | Total principal                       |       | 40,680                |       | —     |       | —     |       | — |   | 18,617 |   | 116,175 |   | 59,297 |   | 116,175 |   |
|             |       |                                  |       |                  |       |       |       |       |       |   |   |   |   |   |   |   |   |   |   |
|             |       | Weighted average annual interest rate |       | 10.86                 | %          | —     |       | —     |       | — |   | 12.78 | % | 12.56 | % | 10.46 | % | 12.56 | % |

 
| ** **                              | ** ** | **As  of December 31,** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                              | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Percentage of debt in foreign currency: |       | 68.47                        | %          | 0.00 | % |
| Percentage of debt in local currency:   |       | 31.53                        | %          | 100.00 | % |
|                                    |       |                         |       |   |   |
| Total                                   |       | 100.00                       | %          | 100.00 | % |

 

G-16

----

Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 11.         CurrentPortion of Long-Term Debt Due to Banks and Financial Institutions**

 

As of December 31,2007 and 2008 the detail is as follows:

 
| **Long-term / current portion** | ** ** | **Foreign  currency**                    | ** ** |
|---------------------------------|------------|------------------------------------------|------------|
| ** **                      | ** ** | **Bank  or financial**                   | ** ** | **US$** | ** ** | **Euros** | ** ** | **Yen** | ** ** | **Reais** | ** ** | **As  of December 31,** | ** ** |
| **Taxpayer  No.**               | ** ** | **institution**                          | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                      | ** ** | ** **                               | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                      | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Foreign                         |       | Bndes                                    |       | 2,318 |   | — |   | — |   | — |   | — |   | — |   | 71,472 |   | 45,982 |   | 73,790 |   | 45,982 |   |
| Foreign                         |       | Santander  Central Hispano               |       | 164 |   | — |   | — |   | — |   | — |   | — |   | — |   |   |   | 164 |   | — |   |
| Foreign                         |       | Santander                                |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 294 |   | — |   | 294 |   |
| Foreign                         |       | Banco  Itaú                         |       | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 6 |   | — |   | 6 |   |
| Foreign                         |       | Banco  do Brasil                         |       | — |   | — |   | — |   | — |   | — |   | — |   | 4,409 |   | 3,943 |   | 4,409 |   | 3,943 |   |
| Foreign                         |       | BEI  — Banco Europeo de Inversiones |       | 10,015 |   | 9,329 |   | — |   | — |   | — |   | — |   | — |   | — |   | 10,015 |   | 9,329 |   |
| Foreign                         |       | Unibanco                                 |       | — |   | 383 |   | — |   | — |   | — |   | — |   | 1,733 |   | 33,966 |   | 1,733 |   | 34,349 |   |
| Foreign                         |       | Banco  Alfa                              |       | — |   | — |   | — |   | — |   | — |   | — |   | 669 |   | 2,016 |   | 669 |   | 2,016 |   |
| Foreign                         |       | Bradesco                                 |       | — |   | — |   | — |   | — |   | — |   | — |   | 2,173 |   | 33,662 |   | 2,173 |   | 33,662 |   |
| Foreign                         |       | Banco  Pactual                           |       | — |   | — |   | — |   | — |   | — |   | — |   | 1,051 |   | 16,470 |   | 1,051 |   | 16,470 |   |
| Foreign                         |       | Banco  HSBC                              |       | — |   | — |   | — |   | — |   | — |   | — |   | 692 |   | 658 |   | 692 |   | 658 |   |
| Foreign                         |       | Votorantim                               |       | — |   | — |   | — |   | — |   | — |   | — |   | 7,266 |   | — |   | 7,266 |   | — |   |
| Foreign                         |       | BNB                                      |       | — |   | — |   | — |   | — |   | — |   | — |   | 7,994 |   | 8,035 |   | 7,994 |   | 8,035 |   |
| Foreign                         |       | IFC  A—B—C                     |       | — |   | 10,003 |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 10,003 |   |
| Foreign                         |       | International  Finance Corporation       |       | 8,340 |   | — |   | — |   | — |   | — |   | — |   | — |   | — |   | 8,340 |   | — |   |
|                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |       | Total                                    |       | 20,838 |   | 19,715 |   | — |   | — |   | — |   | — |   | 97,458 |   | 145,032 |   | 118,296 |   | 164,747 |   |
|                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |       | Total principal                          |       | 20,838 |   | 8,669 |   | — |   | — |   | — |   | — |   | 97,458 |   | 134,297 |   | 118,296 |   | 142,966 |   |
|                            |       |                                     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                            |       | Weighted average annual interest rate    |       | 11.06 | % | 10.25 | % | — |   | — |   | — |   | — |   | 12.15 | % | 12.15 | % | 11.81 | % | 11.81 | % |

 
| ** **                              | ** ** | **As  of December 31,** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                              | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Percentage of debt in foreign currency: |       | 17.62                        | %          | 11.97 | % |
| Percentage of debt in local currency:   |       | 82.38                        | %          | 88.03 | % |
|                                    |       |                         |       |   |   |
| Total                                   |       | 100.00                       | %          | 100.00 | % |

 

**Note 12.         Long-Term Portion of Debt Due to Banksand Financial Institution**

 

As of December 31,2007 and 2008 the detail is as follows:

 
| ** **   | ** ** | **Bank or**                                                 | ** ** | ** **   | ** ** | **As of December 31,  2008** | ** ** | **Total**             | ** ** | **Annual**            | ** ** | **Total**             | ** ** |
|--------------|------------|-------------------------------------------------------------|------------|--------------|------------|-----------------------------------|------------|-----------------------|------------|-----------------------|------------|-----------------------|------------|
| **Taxpayer** | ** ** | **financial**                                               | ** ** | ** **   | ** ** | **After 1 year but**              | ** ** | **After 2 years but** | ** ** | **After 3 years but** | ** ** | **After 5 years but** | ** ** | **After 10 years** | ** ** | **long-term** | ** ** | **average** | ** ** | **long-term** | ** ** |
| **No.**      | ** ** | **institution**                                             | ** ** | **Currency** | ** ** | **within 2 years**                | ** ** | **within 3 years**    | ** ** | **within 5 years**    | ** ** | **within 10 years**   | ** ** | **Term in  Years** | ** ** | **Amount** | ** ** | **2008** | ** ** | **interest rate** | ** ** | **2007** | ** ** |
| ** **   | ** ** | ** **                                                  | ** ** | ** **   | ** ** | **ThUS$**                         | ** ** | **ThUS$**             | ** ** | **ThUS$**             | ** ** | **ThUS$**             | ** ** | ** ** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** |
|         |       |                                                        |       |         |       |                              |       |                  |       |                  |       |                  |       |   |   |   |   |   |   |   |   |   |   |
| Foreign      |       | BNDES  - Banco Nacional de Desenvolvimento Economico Social |       | Rs           |       | —                            |       | —                |       | —                |       | —                |       | — |   | — |   | — |   | 12.30 | % | 132,799 |   |
| Foreign      |       | BNDES  - Banco Nacional de Desenvolvimento Economico Social |       | US$          |       | 43,707                            |       | 32,400                |       | 10,968                |       | —                |       | — |   | — |   | 87,075 |   | 12.20 | % | — |   |
| Foreign      |       | Santander  Central Hispano                                  |       | Rs           |       | 42,790                            |       | 102,696               |       | 111,254               |       | —                |       | — |   | — |   | 256,740 |   | 14.84 | % | 338,734 |   |
| Foreign      |       | Banco  do Brasil                                            |       | Rs           |       | 4,786                             |       | 5,087                 |       | 52,965                |       | 1,121                 |       | — |   | — |   | 63,959 |   | 13.56 | % | 85,059 |   |
| Foreign      |       | Banco  do Brasil                                            |       | US$          |       | 300                               |       | 295                   |       | 356                   |       | 74                    |       | 16 |   | 2,772 |   | 3,797 |   | 4.31 | % | 4,129 |   |
| Foreign      |       | Banco  do Nordeste Brasil                                   |       | Rs           |       | 16,310                            |       | 16,310                |       | 30,725                |       | 8,344                 |       | — |   | — |   | 71,689 |   | 7.68 | % | 88,527 |   |
| Foreign      |       | Unibanco                                                    |       | Rs           |       | 1,138                             |       | 2,276                 |       | 2,276                 |       | —                |       | — |   | — |   | 5,690 |   | 12.52 | % | 52,013 |   |
| Foreign      |       | BEI  - Banco Europeo de Inversiones                         |       | US$          |       | 8,333                             |       | 8,333                 |       | 8,333                 |       | —                |       | — |   | — |   | 24,999 |   | 18.33 | % | 33,333 |   |
| Foreign      |       | Banco  Alfa                                                 |       | Rs           |       | 4,279                             |       | 4,279                 |       | 21,395                |       | —                |       | — |   | — |   | 29,953 |   | 12.18 | % | 39,519 |   |
| Foreign      |       | Bradesco                                                    |       | Rs           |       | 1,142                             |       | 19,401                |       | 27,959                |       | —                |       | — |   | — |   | 48,502 |   | 12.39 | % | 44,902 |   |
| Foreign      |       | Votorantim                                                  |       | Rs           |       | —                            |       | —                |       | —                |       | —                |       | — |   | — |   | — |   | 12.65 | % | 56,455 |   |
| Foreign      |       | Banco  HSBC                                                 |       | Rs           |       | —                            |       | 32,092                |       | 32,092                |       | —                |       | — |   | — |   | 64,184 |   | 12.09 | % | 84,683 |   |
| Foreign      |       | Banco  Itaú                                            |       | Rs           |       | 1,142                             |       | 2,285                 |       | 2,285                 |       | —                |       | — |   | — |   | 5,712 |   | 12.40 | % | 7,537 |   |
| Foreign      |       | Banco  Pactual                                              |       | Rs           |       | —                            |       | —                |       | —                |       | —                |       | — |   | — |   | — |   | 19.93 | % | 18,897 |   |
| Foreign      |       | Banco  Nacional de desenv.Economico Social                  |       | Rs           |       | 11,997                            |       | 11,997                |       | 23,994                |       | 11,997                |       | — |   | — |   | 59,985 |   | 17.75 | % | — |   |
| Foreign      |       | International  Finance Corporation                          |       | US$          |       | —                            |       | —                |       | —                |       | —                |       | — |   | — |   | — |   | 7.83 | % | 105,670 |   |
| Foreign      |       | IFC  A                                                      |       | US$          |       | 8,359                             |       | 4,650                 |       | 10,361                |       | 18,607                |       | — |   | — |   | 41,977 |   | 7.39 | % | — |   |
| Foreign      |       | IFC  B                                                      |       | US$          |       | 13,246                            |       | 7,341                 |       | 16,295                |       | 9,031                 |       | — |   | — |   | 45,913 |   | 7.67 | % | — |   |
| Foreign      |       | IFC  C                                                      |       | US$          |       | —                            |       | —                |       | —                |       | 7,000                 |       | — |   | — |   | 7,000 |   | 11.96 | % | — |   |
|         |       |                                                        |       |         |       |                              |       |                  |       |                  |       |                  |       |   |   |   |   |   |   |   |   |   |   |
|         |       | Total                                                       |       |         |       | 157,529                           |       | 249,442               |       | 351,258               |       | 56,174                |       | 16 |   | 2,772 |   | 817,175 |   |   |   | 1,092,257 |   |

 
| ** **                              | ** ** | **As  of December 31,** | ** ** |
|-----------------------------------------|------------|------------------------------|------------|
| ** **                              | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                              | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Percentage of debt in foreign currency: |       | 13.10                        | %          | 25.79 | % |
| Percentage of debt in local currency:   |       | 86.90                        | %          | 74.21 | % |
|                                    |       |                         |       |   |   |
| Total                                   |       | 100.00                       | %          | 100.00 | % |

 

G-17

----

Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 13.         BondsPayable**

#  

Details of the short-termportion of bonds payable is as follows:

 
| ** **              | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | ** **   | ** ** | ** **   | ** ** | **Frequency**  | ** ** | ** **       | ** ** | ** **    | ** ** | ** **   | ** ** | **Placed in** | ** ** |
|-------------------------|------------|---------------|------------|-----------------|------------|--------------|------------|--------------|------------|--------------|------------|----------------|------------|------------------|------------|---------------|------------|--------------|------------|---------------|------------|
| ** **              | ** ** | ** **    | ** ** | **Face value**  | ** ** | ** **   | ** ** | **Interest** | ** ** | ** **   | ** ** | **Payment of** | ** ** | **Payment of**   | ** ** | **Par value** | ** ** | **Chile or** | ** ** |
| **Instrument**          | ** ** | **Series**    | ** ** | **outstanding** | ** ** | **Currency** | ** ** | **rate**     | ** ** | **Maturity** | ** ** | **interest**   | ** ** | **amortization** | ** ** | **2007**      | ** ** | **2008**     | ** ** | **abroad**    | ** ** |
| ** **              | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | **%**        | ** ** | ** **   | ** ** | ** **     | ** ** | ** **       | ** ** | **ThUS$**     | ** ** | **ThUS$**    | ** ** | ** **    | ** ** |
|                    |       |          |       |            |       |         |       |         |       |         |       |           |       |             |       |          |       |         |       |          |       |
| Bonds Ampla             |       | 1° Serie |       | 290,000,000     |       | Reais        |       | CDI+1.2%aa   |       | 01/03/2008   |       | Half-yearly    |       | Upon maturity    |       | 169,858       |       | —       |       | Abroad        |       |
| Bonds Ampla             |       | 2° Serie |       | 110,000,000     |       | Reais        |       | IGP-M+11.4%  |       | 01/03/2010   |       | Annually       |       | Upon maturity    |       | 6,536         |       | 5,527        |       | Abroad        |       |
| Bonds Ampla             |       | Unit          |       | 370,000,000     |       | Reais        |       | DI+0.85%aa   |       | 01/08/2012   |       | Half-yearly    |       | Upon maturity    |       | 9,902         |       | 9,239        |       | Abroad        |       |
|                    |       |          |       |            |       |         |       |         |       |         |       |           |       |             |       |          |       |         |       |          |       |
| Total - current portion |       |          |       |            |       |         |       |         |       |         |       |           |       |             |       | 186,296       |       | 14,766       |       |          |       |

** **

Details of the long-termportion of bonds payable is as follows:

** **
| ** **      | ** ** | ** **    | ** ** | ** **      | ** ** | ** **   | ** ** | ** **     | ** ** | ** **   | ** ** | **Frequency**   | ** ** | ** **       | ** ** | ** **     | ** ** | ** **    | ** ** | **Placed  in** | ** ** |
|-----------------|------------|---------------|------------|-----------------|------------|--------------|------------|----------------|------------|--------------|------------|-----------------|------------|------------------|------------|----------------|------------|---------------|------------|----------------|------------|
| ** **      | ** ** | ** **    | ** ** | **Face  value** | ** ** | ** **   | ** ** | **Interest**   | ** ** | **Maturity** | ** ** | **Payment  of** | ** ** | **Payment  of**  | ** ** | **Par  value** | ** ** | **Chile  or** | ** ** |
| **Instrument**  | ** ** | **Series**    | ** ** | **outstanding** | ** ** | **Currency** | ** ** | **rate**       | ** ** | ** **   | ** ** | **interest**    | ** ** | **amortization** | ** ** | **2007**       | ** ** | **2008**      | ** ** | **abroad**     | ** ** |
|            | ** ** | ** **    |       |            |       |         |       | %              |       |         |       |            |       |             |       | **ThUS$**      |       | **ThUS$**     |       |           |       |
|            |       |          |       |            |       |         |       |           |       |         |       |            |       |             | ** ** | ** **     |       | ** **    | ** ** |           |       |
| Bonds Ampla     |       | 2° Serie |       | 110,000,000     |       | Reais        |       | IGP-M+11,4% aa |       | 01/03/2010   |       | Annually        |       | Upon maturity    |       | 69,778         |       | 58,128        |       | Abroad         |       |
| Bonds Ampla     |       | Unit          |       | 370,000,000     |       | Reais        |       | DI+0.85% aa    |       | 01/08/2012   |       | Half-yearly     |       | Upon maturity    |       | 208,886        |       | 158,323       |       | Abroad         |       |
|            |       |          |       |            |       |         |       |           |       |         |       |            |       |             |       |           |       |          |       |           |       |
| Total long-term |       |          |       |            |       |         |       |           |       |         |       |            |       |             |       | 278,664        |       | 216,451       |       |           |       |

 

**13.1**        Bonds payable consist of the following:

 

**13.1.1**    Ampla Energia e Serviços S.A.

 

## **a.      **OnMarch 1, 2005, the Company issued bonds in Reais for a total amount ofR$400,000,000 in two series, completing the first issue. At December 31,2008 the current obligations are as follows:

##  

| Second Series         |   |                                   |
|-----------------------|--------|----------------------------------------|
| Issuer                |   | : Ampla Energía e Servicos S.A.   |
| Issued securities     |   | : Negotiable bonds in Brazilian Reais. |
| Amount issued         |   | : R$110,000,000.                       |
| Principal due         |   | : Maturity in 2010.                    |
| Nominal interest rate |   | : IGP - M + 11.4% per annum            |
| Interest payment      |   | : Annual.                              |

 

## **b.      **OnAugust 1, 2006, the Company issued bonds in Reais for R$370,000,000 in asingle series.

##  

| Issuer                |   | : Ampla Energía e Servicos S.A.   |
|-----------------------|--------|----------------------------------------|
| Issued securities     |   | : Negotiable bonds in Brazilian Reais. |
| Amount issued         |   | : R$370,000,000.                       |
| Principal due         |   | : Maturity in 2012                     |
| Nominal interest rate |   | : DI + 0.85% per annum                 |
| Interest payment      |   | : Semi-annual.                         |

 

G-18

----

Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 14.         Accrued Expenses and Write-Offs**

 

## **a.****                            **Short-term accruals:

##  

Accrued expenses includedin current liabilities are as follows:

 
| ** **                          | ** ** | **As  of December 31,** | ** ** |
|-------------------------------------|------------|------------------------------|------------|
| ** **                          | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                          | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                          | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Bonus and other employee benefits   |       | 22,456                       |       | 17,914 |   |
| Litigation and other  contingencies |       | 1,562                        |       | 1,341 |   |
|                                |       |                         |       |   |   |
| Total                               |       | 24,018                       |       | 19,255 |   |

 

## **b.****                            **Long-term accruals:

##  

Accrued expenses includedin long-term liabilities are as follows:

 
| ** **                                                  | ** ** | **As  of December 31,** | ** ** |
|-------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                  | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                                                  | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                                                  | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Legal, labor and tax contingencies (Ampla, Coelce and Cien) |       | 322,898                      |       | 243,871 |   |
| Regulatory contingencies  (1)                               |       | 62,043                       |       | 47,075 |   |
| Employee and retired personnel benefits (Ampla - Coelce)    |       | 87,462                       |       | 93,690 |   |
| Others                                                      |       | 11                           |       | 8 |   |
|                                                        |       |                         |       |   |   |
| Total                                                       |       | 472,414                      |       | 384,644 |   |

 

----

(1)          The provision of Brazilian subsidiary Central GeradoraTermeléctrica Fortaleza (CGTF) is used to cover the likely risk of a sanctionby the regulatory agency (ANEEL, Brazilian Electricity Regulatory Agency) thathas been calculated based on the opinion of our legal consultants and isrelated to the sale of electric energy higher than the thermal energygeneration capacity authorized for CGTF by ANEEL in January-December 2004period.

 

At December 31, 2007and 2008 no write-offs of allowance of doubtful accounts have been made.

 

**Note 15.         Minority Interest**

 

## **a.****                            **Minority shareholders’ participation in theshareholders’ equity of the Company’s subsidiaries is as follows:

 
| ** **                                                | ** ** | **As  of December 31, 2007** | ** ** | **As  of December 31, 2008** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| **Company**                                               | ** ** | **Equity**                        | ** ** | **Participation**                 | ** ** | **Total** | ** ** | **Equity** | ** ** | **Participation** | ** ** | **Total** | ** ** |
| ** **                                                | ** ** | **ThUS$**                         | ** ** | **%**                             | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **%** | ** ** | **ThUS$** | ** ** |
|                                                      |       |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Ampla Energia e Serviços  S.A.                       |       | 895,385                           |       | 53.11                             | %          | 475,572 |   | 1,147,682 |   | 53.11 | % | 609,576 |   |
| Ampla Investimentos e  Serviços S.A.                 |       | 77,561                            |       | 53.11                             | %          | 41,195 |   | 113,897 |   | 53.11 | % | 60,495 |   |
| Cachoeira Dourada S.A.                                    |       | 681,199                           |       | 0.39                              | %          | 2,685 |   | 615,922 |   | 0.39 | % | 2,428 |   |
| Companhia Energetica Do  Ceara - Coelce                   |       | 832,248                           |       | 41.14                             | %          | 342,361 |   | 950,467 |   | 41.14 | % | 390,992 |   |
| Compañía de Transmisión  del Mercosur S.A. |       | 23,273                            |       | 0.01                              | %          | 2 |   | 22,431 |   | 0.01 | % | 2 |   |
|                                                      |       |                              |       |                              |       |   |   |   |   |   |   |   |   |
| Total                                                     |       |                              |       |                              |       | 861,815 |   |   |   |   |   | 1,063,493 |   |

 

G-19

----

Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

## **b.****                            **Minority shareholders’ participation in the net(income) or loss of the Company’s subsidiaries is as follows:

 
| ** **                                                | ** ** | **As  of December 31, 2006** | ** ** | **As  of December 31, 2007** | ** ** | **As  of December 31, 2008** | ** ** |
|-----------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                                | ** ** | **Loss  (income)**                | ** ** | **Participation**                 | ** ** | ** **                        | ** ** | **Loss  (income)** | ** ** | **Participation** | ** ** | ** ** | ** ** | **Loss  (income)** | ** ** | **Participation** | ** ** | ** ** | ** ** |
| **Company**                                               | ** ** | **for  the period**               | ** ** | **%**                             | ** ** | **Total**                         | ** ** | **for  the period** | ** ** | **%** | ** ** | **Total** | ** ** | **for  the period** | ** ** | **%** | ** ** | **Total** | ** ** |
| ** **                                                | ** ** | **ThUS$**                         | ** ** | ** **                        | ** ** | **ThUS$**                         | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** |
| ** **                                                |       |                              |       |                              |       |                              | ** ** |   |   |   |   |   | ** ** |   |   |   |   |   |   |
| Ampla Energia e Serviços  S.A.                       |       | (47,224                           | )          | 53.11                             | %          | (25,083                           | )          | (12,528 | ) | 53.11 | % | (6,654 | ) | 273,645 |   | 53.11 | % | 145,343 |   |
| Ampla Investimentos e  Serviços S.A.                 |       | (7,809                            | )          | 53.11                             | %          | (4,148                            | )          | (5,209 | ) | 53.11 | % | (2,767 | ) | 44,872 |   | 53.11 | % | 23,833 |   |
| Cachoeira Dourada S.A.                                    |       | (65,129                           | )          | 0.39                              | %          | (257                              | )          | (124,823 | ) | 0.39 | % | (492 | ) | 141,452 |   | 0.39 | % | 557 |   |
| Companhia Energetica Do  Ceara - Coelce                   |       | (136,780                          | )          | 41.14                             | %          | (56,267                           | )          | (86,875 | ) | 41.14 | % | (35,737 | ) | 263,282 |   | 41.14 | % | 108,307 |   |
| Compañía de Transmisión  del Mercosur S.A. |       | (3,648                            | )          | 0.01                              | %          | —                            |       | (2,482 | ) | 0.01 | % | — |   | (842 | ) | 0.01 | % | — |   |
|                                                      |       |                              |       |                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                     |       |                              |       |                              |       | (85,755                           | )          |   |   |   |   | (45,650 | ) |   |   |   |   | 278,040 |   |

 

**Note 16.         Shareholders’Equity**

 

## **a.****                            **Number of shares:

 

**As of December 31,2008**

 
| ** ** | ** ** | **Number  of** | ** ** | **Number  of** | ** ** | **Number  of** | ** ** |
|------------|------------|----------------|------------|----------------|------------|----------------|------------|
| ** ** | ** ** | **subscribed** | ** ** | **paid-in**    | ** ** | **voting**     | ** ** |
| **Series** | ** ** | **shares**     | ** ** | **shares**     | ** ** | **shares**     | ** ** |
| ** ** | ** ** | ** **     | ** ** | ** **     | ** ** | ** **     | ** ** |
| Single     |       | 166,259,080    |       | 166,259,080    |       | 166,259,080    |       |

 

## **b.****                            **Subscribed and paid-in capital is as follows:

** **

**As of December 31, 2008**

** **
| **Series** | ** ** | **Subscribed  capital** | ** ** | **Paid-in  capital** | ** ** |
|------------|------------|-------------------------|------------|----------------------|------------|
| ** ** | ** ** | **ThUS$**               | ** ** | **ThUS$**            | ** ** |
|       |       |                    |       |                 |       |
| Single     |       | 354,376                 |       | 354,376              |       |

** **

## **c.****                            **Other reserves

##  

Other reserves atDecember 31, 2008 are composed of the following:

 
| ** **                                      | ** ** | **Initial  balance at**   | ** ** | **Reserve  for** | ** ** | **Final  balance at**       | ** ** |
|-------------------------------------------------|------------|---------------------------|------------|------------------|------------|-----------------------------|------------|
| **2008**                                        | ** ** | **January 1,  2008** | ** ** | **the  period**  | ** ** | **December 31,  2008** | ** ** |
| ** **                                      | ** ** | **ThUS$**                 | ** ** | **ThUS$**        | ** ** | **ThUS$**                   | ** ** |
| ** **                                      | ** ** | ** **                | ** ** | ** **       | ** ** | ** **                  | ** ** |
| Reserves for Technical Bulletin No. 72 (1) |       | 51,665                    |       | —           |       | 51,665                      |       |
|                                            |       |                      |       |             |       |                        |       |
| Total                                           |       | 51,665                    |       | —           |       | 51,665                      |       |

 

----

## (1)                      Corresponds to the reserve generated by thecapitalization of the contributions made by the Endesa Brasil shareholders, whocontributed their interest in Ampla Energia e Serviços S.A., CompanhiaEnergética do Ceará — Coelce, Centrais Elétricas Cachoeira Dourada S.A. — CDSA,Companhia de Interconexão Energética — CIEN, Central Geradora TermelétricaFortaleza S.A. CGTF and Investluz S.A. This reorganization of the investmentsin Brazil has been recorded in conformity with the provisions of TechnicalBulletin No. 72 of the Chilean Institute of Accountants for a businesscombination under the pooling of interest method.

 

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 17.         OtherIncome and Expenses**

 

## **a.****                            **Other income:

##  

The detail of othernon-operating income is as follows:

** **
| ** **                                                            | ** ** | **Year  ended December 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                            | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                            | ** ** | **ThUS$**                         | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                                            | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Fiscal benefit and other taxes                                        |       | 15,094                            |       | — |   | — |   |
| Gain on sale of property, plant and equipment and materials           |       | 30,746                            |       | 789 |   | 1,179 |   |
| Effect of application of Technical Bulletin No.64                     |       | 17,176                            |       | 73,333 |   | 315,644 |   |
| Reversal of contingencies provision and expenses and other provisions |       | 15,251                            |       | 141,606 |   | 65,038 |   |
| Payment of energy and power                                           |       | 6,655                             |       | — |   | — |   |
| Cost recovery                                                         |       | 6,549                             |       | 4,798 |   | 139 |   |
| Provision for CVAs  amortization                                      |       | —                            |       | — |   | — |   |
| Liquidation of Cemsa  contract                                        |       | —                            |       | 16,391 |   | — |   |
| Regulatory Asset                                                      |       | 7,680                             |       | — |   | — |   |
| Index Brazilian  subsidiaries                                         |       | 10,137                            |       | 9,789 |   | — |   |
| Other                                                                 |       | 4,310                             |       | 1,099 |   | 451 |   |
|                                                                  |       |                              |       |   |   |   |   |
| Total                                                                 |       | 113,598                           |       | 247,805 |   | 382,451 |   |

 

## **b.****                            **Other expenses:

##  

Other non-operatingexpenses are as follows:

 
| ** **                                               | ** ** | **Year  ended December 31,** | ** ** |
|----------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                               | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                               | ** ** | **ThUS$**                         | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                               | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Write-off of Copel and others contracts (Brazil)         |       | 57,323                            |       | — |   | — |   |
| Contingecies and  litigations                            |       | 37,695                            |       | 79,826 |   | 71,691 |   |
| Effect of application of Technical Bulletin No.64        |       | 32,182                            |       | 238,152 |   | 131,187 |   |
| Tax penalties and other expenses                         |       | 28,887                            |       | 32,132 |   | 15,791 |   |
| Energy efficiency of Brazilian subsidiaries              |       | 18,905                            |       | 2,479 |   | — |   |
| Brazilian and Argentinean Taxes (PIS, COFINS and others) |       | 15,896                            |       | 17,124 |   | 15,385 |   |
| Obsolescence provision and write-offs of fixed asset     |       | 11,848                            |       | 4,235 |   | 5,124 |   |
| Updating index of Brazilian subsidiaries                 |       | 6,129                             |       | 4,479 |   | 4,669 |   |
| Pension plan expense                                     |       | 6,072                             |       | 11,143 |   | 8,827 |   |
| Loss on sale of fixed assets and materials               |       | 220                               |       | 871 |   | 1,185 |   |
| Other                                                    |       | 17,064                            |       | 11,163 |   | 5,009 |   |
|                                                     |       |                              |       |   |   |   |   |
| Total                                                    |       | 232,221                           |       | 401,604 |   | 258,868 |   |

 

G-21

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 18.         FinancialDerivatives**

 

As of December 31,2008 the Company and its subsidiaries held the following financial derivativecontracts with financial institutions with the objective of decreasing exposureto interest rate and foreign currency risk, as follows:

 
| ** **     | ** ** | ** **   | ** ** | **Description of derivative  contracts** | ** ** | ** **      | ** ** | ** **     | ** ** | ** **   | ** ** | ** **        | ** ** | ** ** | ** ** |
|----------------|------------|--------------|------------|------------------------------------------|------------|-----------------|------------|----------------|------------|--------------|------------|-------------------|------------|------------|------------|
| ** **     | ** ** | **Purchase** | ** ** | ** **                               | ** ** | ** **      | ** ** | **Amount**     | ** ** | **Accounts** | ** ** |
| **Type of**    | ** ** | **Type of**  | ** ** | **Nominal**                              | ** ** | **Date of**     | ** ** | ** **     | ** ** | **Sale**     | ** ** | **Hedged**        | ** ** | ** ** | ** ** | **of hedged** | ** ** | **Asset/Liability** | ** ** | **Income** | ** ** |
| **derivative** | ** ** | **contract** | ** ** | **amount**                               | ** ** | **maturity**    | ** ** | **Item**       | ** ** | **Position** | ** ** | **item**          | ** ** | **Amount** | ** ** | **item** | ** ** | **Account** | ** ** | **Amount** | ** ** | **Realized** | ** ** | **Unrealized** | ** ** |
| ** **     | ** ** | ** **   | ** ** | **US$**                                  | ** ** | ** **      | ** ** | ** **     | ** ** | ** **   | ** ** | ** **        | ** ** | **ThUS$**  | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** |
|           |       |         |       |                                     |       |            |       |           |       |         |       |              | ** ** | ** ** | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** | ** ** |
| SWAP           |       | CCPE         |       |                                     |       | III  trim. 2008 |       | Interest  rate |       | C            |       | Bank  liabilities |       | —     |       | — |   | Other  long-term liabilities |   | — |   | (1,642,999 | ) | — |   |
| SWAP           |       | CCTE         |       |                                     |       | III  trim. 2008 |       | Exchange  rate |       | C            |       | Bank  liabilities |       | —     |       | — |   | Other  long-term liabilities |   | — |   | (11,146,503 | ) | — |   |
| SWAP           |       | CCTE         |       |                                     |       | IV  trim. 2008  |       | Exchange  rate |       | C            |       | Bank  liabilities |       | —     |       | — |   | Other  long-term liabilities |   | — |   | 11,335 |   | — |   |
| SWAP           |       | CCTE         |       | 30,471,390                               |       | II  trim. 2012  |       | Exchange  rate |       | C            |       | Bank  liabilities |       | 19,393,516 |       | 19,393,516 |   | Other  accounts receivable |   | (3,657,588 | ) | (4,007,363 | ) | (3,657,588 | ) |
| SWAP           |       | CCPE         |       | 17,713,549                               |       | IV  trim. 2015  |       | Interest  rate |       | C            |       | Bank  liabilities |       | 11,273,788 |       | 11,273,788 |   | Other  current liabilities |   | (1,340,673 | ) | (615,563 | ) | (1,340,674 | ) |
| SWAP           |       | CCPE         |       |                                     |       | IV  trim. 2008  |       | Exchange  rate |       | C            |       | Bank  liabilities |       | —     |       | — |   | Other  current liabilities |   | — |   | (775,913 | ) | — |   |
| SWAP           |       | CCPE         |       | 18,001,517                               |       | IV  trim. 2015  |       | Exchange  rate |       | C            |       | Bank  liabilities |       | 11,457,065 |       | 11,457,065 |   | Other  current liabilities |   | (2,113,715 | ) | (702,897 | ) | (2,113,715 | ) |

 

**Note 19.         Commitmentsand Contingencies**

 

**a.****                            **At December 31, 2007 and2008 the Company and its subsidiaries have provided the following guarantees:

 

Collateral held by thirdparties:

** **
| ** **                         | ** ** | ** **              | ** ** | ** **                          | ** ** | **Committed  Assets**    | ** ** | **Balance  payable of related** | ** ** | **Release  of** | ** ** |
|------------------------------------|------------|-------------------------|------------|-------------------------------------|------------|--------------------------|------------|---------------------------------|------------|-----------------|------------|
| ** **                         | ** ** | ** **              | ** ** | **Type**                            | ** ** | ** **               | ** ** | ** **                      | ** ** | **Book**        | ** ** | **debt  at December 31,** | ** ** | **Guarantees** | ** ** |
| **Guarantee**                      | ** ** | **Subsidiary**          | ** ** | **Guarantee**                       | ** ** | **Type**                 | ** ** | **Currency**                    | ** ** | **value**       | ** ** | **Currency** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
|                               |       |                    |       |                                |       |                     |       |                            |       |            |       |   |   |   |   |   |   |   |   |
| Other creditors                    |       | Ampla  S.A.             |       | Pledge over collections  and others |       |                     |       | ThUS$                           |       | 21,283          |       | ThUS$ |   | 271,134 |   | 222,331 |   | — |   |
| Other creditors                    |       | Coelce  S.A.            |       | Pledge over collections  and others |       |                     |       | ThUS$                           |       | 8,510           |       | ThUS$ |   | 122,754 |   | 142,645 |   | — |   |
| International Finance  Corporation |       | CGT  Fortaleza S.A.     |       | Mortgage  and pledge                |       | Real  estate, properties |       | ThUS$                           |       | 275,995         |       | ThUS$ |   | 113,986 |   | 110,398 |   | — |   |
| Bndes                              |       | Cachoeira  Dourada S.A. |       | Pledge                              |       |                     |       | ThUS$                           |       | —          |       | ThUS$ |   | 1,242 |   | — |   | — |   |

 

Guarantees of subsidiaryobligations (1):

** **
| ** **                             | ** ** | ** **     | ** ** | ** **    | ** ** | **Committed  Assets** | ** ** | **Balance  payable of related** | ** ** | **Release  of**                | ** ** |
|----------------------------------------|------------|----------------|------------|---------------|------------|-----------------------|------------|---------------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | ** **     | ** ** | **Type  of**  | ** ** | ** **            | ** ** | **Book**                        | ** ** | **debt  at December 31,** | ** ** | **Guarantees** | ** ** |
| **Guarantee**                          | ** ** | **Subsidiary** | ** ** | **Guarantee** | ** ** | **Currency**          | ** ** | **value**                       | ** ** | **Currency**                   | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
| ** **                             | ** ** | ** **     | ** ** | ** **    | ** ** | ** **            | ** ** | ** **                      | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cédulas de Crédito  Bancario |       | Cien           |       | Guarantees    |       | ThUS$                 |       | 256,739                         |       | ThUS$                          |       | 338,734 |   | 256,739 |   | — |   |

 

----

(1)          Unless otherwisestated, the guarantees in the table “Guarantees of subsidiary obligations” wereprovided by a subsidiary of the Company (the “Guarantor”) to a third partycreditor that had entered into a new obligation with another subsidiary (the “SubsidiaryDebtor”).  If the Subsidiary Debtor isunable to meet the requirements of the related obligation, the Guarantor willbe required to make future payments on behalf of the Subsidiary Debtor up tothe remaining amount payable.

 

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**b.****                            **Litigation and other legal actions:

 

Ampla Energia e ServiçosS.A. (“Ampla”)

 
| Plaintiff           | : |   Meridional S/A Servicios, Emprendimientos y Participaciones |
|---------------------|---|-------------------------------------------------------------------------|
| Defendant           | : |   Ampla                                                       |
| Court               | : |   9th Chamber  of Rio de Janeiro Public Finance               |
| Case/Identification | : |   98.001.048296-8                                             |

Summary of Proceedings:Meridional - Mistral and Civel, represented by Meridional, claim they arecreditors of the former state electricity distribution company CELF, resultingfrom the existence of contracts of jobs undertaken for said company. Meridionalin its representation demands payment of invoices supposedly outstanding andthe payment of contractual fines for rescission of the contracts for the abovementioned jobs, for the sum of R$136,085,827.20

Process status: On December 18, 2007 the courtrecords returned from the prosecuting authority and were favorable to Ampla’sargument; therefore, the civil appeal of Meridional lost its purpose. On March 7,2008 the presence or absence of appeals in the three lawsuits attached wasrequested to be certified. On March 18, 2008 the appeal judge votedfavorably to Ampla, allowing Ampla to file other resorts such as infringingembargos and special resorts. The parties filed resorts (embargos ofstatement). On November 28, 2008 the court records were sent to the PublicProsecutor’s Office. This Office considered that the resorts filed by theparties should be disallowed. On November 18, 2008 the proceeding wasprocessed to issue a final decision. On November 28, 2008 a resolution wasissued. On December 2, 2008 the resolution was published so that theparties state their opinions on the resorts.

Amount:R$ 337.3 millions - US$ 142.6 millions.

 
| Plaintiff           | : |   Enertrade - Comercializadora de Energía S.A                    |
|---------------------|---|---------------------------------------------------------------------------------|
| Defendant           | : |   Ampla                                                               |
| Court               | : |   Getulio  Vargas Foundation Chamber for Conciliation and Arbitration |
| Case/Identification | : |   Arbitration  procedure No. 03/2005                             |

Summary of Proceedings:On December 22, 2002, Ampla and Enertrade signed a 20-year electric energysales contract (40MW average). This contract was sent to ANEEL for itsevaluation and resulting official approval. ANEEL approved the contract becausecertain conditions were fulfilled, among them, a 25% reduction in the price ofthe contracted energy (from R$97.4 R$72.6/MWh). Given this determination, Amplaonly paid the value authorized by ANEEL. ENERTRADE sustained that the contractwas tacitly approved by ANEEL due to the passage of time and obtained, throughjudicial demand No.2003.34.00.023785-2 against ANEEL, a provisional judicialmeasure that suspended the effects of the condition imposed by ANEEL, declaringthe contract tacitly approved by that entity. ANEEL has not yet been able tohave this provisional measure annulled. With the purpose of confirming theright assured by the provisional measure, Enertrade, in December 2005,established an arbitration procedure against Ampla, under no 3/2005 in the *Cámara de Conciliación y Arbitraje of the Fundación Getúlio Vargas*/RJ.Ampla continued to pay the reduced rate because, in addition to not being partof the process, it was not authorized to transfer the full cost to its tariffs.

Process status: On February 29, 2008 theArbitration Court delivered a judgment establishing a due date (March 24,2008) for closing the investigation. On March 17, 2008 the ArbitrationCourt extended the closing of the investigation for 30 days. On March 20,2008 the Arbitration Court delivered a judgment extending the period forcompleting the arbitration proceedings No.03/05 and No.04/06 to September 22,2008. On April 28, 2008 Ampla filed a claim against the expert’srequirements. On May 16, 2008 the Arbitration Court deferred the extensionof the period for 15 days for delivering the accounting expert’s finding. On June 10,2008 the accounting expert filed his finding at the Arbitration Court and tothe technical assistants of Ampla and Enertrade. On June 20, 2008 Amplainformed that it was opposed to some points in the expert’s finding. On June 27,2008 the Arbitration Court fixed the date for the adjudicative hearing (July 22,2008). The hearing took place on July 22, 2008. On August 29, 2008the Arbitration Court turned down the claim for partial judgment filed byEnertrade. On December 19, 2008 the Court informed the extension of theperiod to issue the judgment for 60 days.

AmountR$ 110.2 millions - US$ 46.5 millions.

 

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

** **
| Plaintiff           | : | Ampla                                                               |
|---------------------|---|---------------------------------------------------------------------|
| Defendant           | : | Enertrade - Comercializadora de Energía S.A                    |
| Court               | : | Getulio Vargas  Foundation Chamber for Conciliation and Arbitration |
| Case/Identification | : | Arbitration procedure  No. 04/2006                             |

Summary of Proceedings: Counterclaim by Ampla againstEnertrade. The facts of this procedure are the same as arbitration procedure03/2005. Bearing in mind that the arbitration rules of this Chamber do notconsider counterclaims, Ampla petitioned for a new arbitration to beestablished, with a view to decreeing the nullity of the contract or,alternatively, its avoidance. In this case, the same arbitration court hasjurisdiction for hearing the case, which shall be processed together with theother proceeding. On August 28, 2006, Ampla petitioned in the arbitrationcourt for the nullity of the contract entered into with Enertrade, or,alternatively, vacating it, maintaining simply that the contract is null andvoid, since it was not ratified by ANEEL, as stipulated in the law, which wasan essential condition for entering into the contract; also null and voidbecause it infringes Law 8.884/94; it was entered into in unfair terms andconditions, typifying the abuse of the power of control; and the contract failsto comply with its business function.

Process status: Rebuttaland rejoinder presented. On January 12,2007, the parties presented graphs showing the stock ownership of the companiesinvolved in the arbitration, as well as also information about the companiesthat audited the parties and the companies linked to them. At the request ofthe Court of Arbitration, Ampla clarified the information presented, indicatingthe other auditing companies of the Endesa Spain Group. On February 12,2007, the petition for expert accounting and technical testimony required byAmpla was ordered, as well as also for expert witnesses. On March 2, 2007,the technical assistants were appointed and the legal standing and role of thewitnesses presented. Enertrade challenged the issues presented by Ampla. On March 16,2007 Ampla filed a reply to the challenge. On April 2, 2007, the Court ofArbitration notified the extension of the deadline for concluding thearbitration proceedings by 178 days. The new deadline is September 28,2007. On May 21, 2007, the experts for the technical and accounting experttestimony were named. The progress of this proceeding is the same asabove for the arbitration proceeding of Enertrade against Ampla.
| Amount: R$ 40.2 millions - US$ 17 millions. |   |   |
|-------------------------------------------------------|--------|--------|

 
| Plantiff            | : | Getec Guanabara Química E Industrial S/A |
|---------------------|---|-----------------------------------------------|
| Defendant           | : | Ampla                                         |
| Court               | : | 3er Juzgado Civil de Niterói             |
| Case/Identification | : | 1996.002.017152-9                             |

Summary of Proceedings: Refund equal to the equivalentof 16.67% of electric energy invoices during March of 1986 through March of1991, and March 1991 going forward, twice such amount, with interestaccrued since date of litigation (September 26, 1997) and legal fees basedon 20% of the sentence.

Process Status: Execution phase, in which Ampla sustains the need for dismissal of thesentence. In a decision issued on September 4, 2008 the courts refused specialappeal presented by Ampla.

Amount: R$98.8 millions - US$ 41.7 millions.

 
| Plaintiff           | : | Unión Federal                                |
|---------------------|---|---------------------------------------------------|
| Defendant           | : | Ampla                                             |
| Court               | : | Organo Especial del TRF de la 2a Región |
| Case/Identification | : | 2009655-3                                         |

Summaryof Proceedings: COFINS — INMUNITY. In the nineties, a large number of theBrazilian public utility companies files resorts against the tax known asCOFINS (Contribution for Financing Social Security) because they consideredthat the Brazilian Constitution exonerated them from that tax. Most of thecompanies lost the lawsuits. Ampla won the lawsuit (for the period from 1996 to2001), because the Tax Administration forgot to file an appeal against thedecision handed down by the court of appeal. However, the Prosecutor’s Officeof the Federal Union brought an exceptional action known as “an action forannulment” to attempt to annul the unappealable judgment favorable to Ampla.

Process status: In December,2003, the Regional Court of Rio de Janeiro (equivalent to the Court of Appeal)confirmed the inadmissibility of the action for annulment filed by the FederalUnion. On December 21, 2007, the Federal Union filed a Special Resortagainst the decision of the Rio de Janeiro Court rejecting unanimously all ofits previous appeals. This Special Resort is addressed to the Higher Court ofLaw (STJ), the court in Brasilia that rules on unconstitutional 

 

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

issues. On February 29,2008 Ampla was notified to submit its reasons against the special resort filedby the Federal Union. The special resort was filed without the extraordinaryresort and there is judicial practice that indicates that both resorts shouldbe filed together. Therefore, there are arguments to consider that theextraordinary resort of the Federal Union has become null and void. On April 30,2008 the Regional Federal Court (Court of Rio) decided not to accept thespecial resort of the Federal Union, whose objective was to take the discussionon the admissibility of the annulment action to the Superior Court (Court ofBrasilia). On June 12, 2008 such decision was published. The Federal Unioncould still file a resort against this decision. The Federal Union filed aresort at the Superior Court on July 11, 2008. Ampla will be notified sothat it files its pleadings within a 10 day period. The decision so that Amplafiles its pleadings was published on September 11, 2008. Ampla filed itspleadings on September 22, 2008. The judgment of the resort has not beendelivered yet.

Amount:R$ 387 millions - US$ 166 millions.

 
| Plaintiff               | : | Secretaria de Receita Federal (“SRF”, theBrazilian IRS)                                      |
|-------------------------|---|--------------------------------------------------------------------------------------------------------|
| Defendant               | : | Ampla                                                                                                  |
| Tribunal                | : | Comisaría de la Recaudación de Impuestos Federal de Niterói/RJ                          |
| Rol/Identificación | : | Auto de Infracción No 0710200/00112/05 y Juicio Administrativo no  10730.003110/2005-55 |

Summaryof Proceedings: COFINS — Period after Immunity. In December, 2001, the articleof the Federal Constitution on which Ampla had based its discussion of immunitywith regard to the COFINS, pursuant to which Ampla did not pay this tax, wasamended. There is an article in the constitution that states that legislativechanges come into force 90 days after their publication. Based on this article,Ampla started paying the COFINS tax as of April, 2002. However, the SRF arguesthat this constitutional regulation only applies to changes to regulationsinvolving laws, but not the Constitution itself, whose amendments should comeinto force immediately. The SRF also claims that, as a result of Ampla’s changein tax regimen (from earned to accrued), the taxable amount of the COFINS taxincreased during the first semester of 2002.

Process status: The actionwas notified in 2003. The decision of the 1st administrative instance wentagainst Ampla and an appeal with the second administrative instance was filedon October, 2004. The resort was ruled on recently in the 2nd administrativeinstance, partly favorable to the Treasury in terms of the period when changesto the Constitution come into force and partly favorable to Ampla in terms ofthe tax on income due to the change in tax regimen from earned to accrue. Taxesin question are estimated to be 35%. Once the amount owed by the SRF isdetermined, it may be enforced. The part of the Document thatwas accepted by the Court of Appeal is R$87,040. This will have to be confirmedby the Secretaria SRF. Once the amount due by the SRF is calculated, this agencywill be able to start the executory process, when Ampla will discuss theconstitutional issue. On April 8, 2008 the Treasury Department filed aresort against this decision at the Court of Appeal. On September 19, 2008Ampla was called upon to make its plea for the defense against the specialresort filed by the Treasury Department. On October 6, 2008 Ampla made itsplea for the defense against the aforementioned resort and also filed a resortat the Court of Appeal to try to change the part of the decision that was notfavorable to Ampla. The judgment has not been delivered yet.

Amount: R$124.1 millions - US$ 53.1 millions.

 
| Plaintiff | :      | SRF                                                        |
|-----------|--------|------------------------------------------------------------|
| Defendant | :      | Ampla                                                      |
| Court     | :      | Commissariat of the  Niterói Federal Collection Tax   |
| ID Number | :      | Infraction Proceeding  0710200/00112/05 and Administrative |
|      |   | Trial  10730.003110/2005-55 (d.38)                         |

Summary of Proceedings: FRNs — In order to finance itsinvestment in Coelce, in 1998 Ampla issued FRNs (bonds) for $350 millions  maturing in 2008, which were subscribed byCerj Overseas (an overseas subsidiary of Ampla, which former name was Cerj).The bonds have a special tax regimen consisting of no withholding tax (15% or25%) being applied on payment of interest abroad, always provided that, amongother requirements, there is no advanced amortization before the average termof 96  months. In order to acquire thesebonds, Cerj Overseas obtained financing outside Brazil consisting of asix-month loan. At the end of the period (October, 1999) because of problems ofaccess to other sources of financing, Cerj Overseas had to refinance withAmpla, which granted it a loan in Reais. The Secretary of Federal TaxCollection argues that the tax concession had been lost in 1998, since theloans in Reais granted to Cerj Overseas by Ampla were the equivalent of anadvanced amortization of the debt before the average amortization period of 96months. Currently there remain FRNs for $ 169 R$40.2 millions.   (The balance was capitalized in 2004).

 

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**Notesto the Consolidated Financial Statements**

 

Process status: The notice of infringement was notified inJuly, 2005. In August, 2005, Ampla filed a resort with the 1st administrativeinstance, and it was rejected. In April, 2006, a resort was filed with theCouncil of Taxpayers (2nd administrative instance). On December 6, 2007,the Council of Taxpayers issued its verdict completely favorable to Ampla. Theperiod for executing the verdict and publishing the decision is estimated atabout 6 months. After the publication of the decision, the SRF will have 30days to file a resort.

Amount:R$ 557 millions - US$ 239 millions.

 
| Plaintiff           | : | Secretary of Treasury                                                               |
|---------------------|---|-------------------------------------------------------------------------------------|
| Defendant           | : | Ampla                                                                               |
| Court               | : | Office of Commissioner  of Treasury                                                 |
| Case/Identification | : | Infringement Document  No.03.177555-4; Administrative Proceeding No.E-34/059.193/05 |

Summary of Proceedings:ICMS FINE. In 2002, the State of Rio de Janeiro stipulated via a decree thatthe ICMS should be calculated and paid on the 10th, 20th and 30th of the samemonth accrued. Because of cash problems, Ampla continued to pay the ICMS underthe former system (payment until the 5th of the month after it accrued).

Process status:Notwithstanding an informal agreement with the State of Rio de Janeiro, and 2amnesty laws, in October, 2004, the State of Rio de Janeiro brought aproceeding against Ampla to collect the fine for late payments; Ampla appealedagainst the fine in the same year. In February, 2007, Ampla was notified of thedecision of the 1st administrative instance, which confirmed the proceedingbrought by the State of Rio de Janeiro. On March 23, 2007, an appeal waslodged with the Council of Taxpayers of the State of Rio de Janeiro (2ndadministrative instance). Ampla obtained a preliminary ruling in its favor thatenabled it to bring this resort without having to make a deposit of furnish aguarantee for 30% of the value of the updated fine. Waiting for the decision ofthe Council of Taxpayers.

Amount:R$ 135 millions - US$ 58 millions.

 
| Plaintiff             | : | Companhia Brasileira de Antibióticos (CIBRAN) |
|-----------------------|---|----------------------------------------------------|
| Defendant             | : | Ampla                                              |
| Court                 | : | 1st Civil Court of  Itaboraí                  |
| Number/Identification | : | 2006.023.008555-6                                  |

Summary of proceedings: This is an action in which theplaintiff requires the compensation for damages as a result of loss of productsand raw materials, breaking of machinery, among other things, occurred due tothe poor service provided by Ampla between 1987 and May 1994, as well ascompensation for moral prejudice.

Process status: On June 4, 2008 a Judge’sdecision was published. The Judge partially accepted the precautionary measurefiled by Ampla to recognize the statute of limitations of the plaintiff’s claimin regard to the period from January 1993 in accordance with theregulation of the Civil Code. A resort was filed against that decision so thatin the event that the legal significance of the action is lost, it is possibleto try to recognize the statute of limitations based on the Consumer Code.CIBRAN filed a resort against that last decision on June 17, 2008. On August 27,2008 CIBRAN’s resort was rejected, as was published on September 1, 2008).

Amount R$ 69.5millions - US$ 29.3 millions.

 
| Plaintiff           | : | Qualita’s Tecnología y Servicios Ltda and Symon de Souza Coury |
|---------------------|---|--------------------------------------------------------------------------|
| Defendant           | : | Ampla                                                                    |
| Court               | : | 4th Civil Court of  Niteroi County                                       |
| Case/Identification | : | 2005.002.024695-9                                                        |

Summary of Proceedings: The plaintiff brought thissuit pleading that it had been created to serve Ampla since October, 1999 andthat this contract should be in force until March 31, 2009, being able tobe extended. The plaintiff petitioned for redress for material damages andmoral prejudice caused by an alleged unilateral annulment of the contract byAmpla, which would have caused the plaintiff damages of about R$54  millions.

Process status: On January 29, 2008 the adjudicative hearing took place. Also, thejudgment was delivered and determined a successive 10 day period for filingreports. Ampla filed its reports on February 11, 2008. On August 7,2008 the judgment was published. This judgment considered the plaintiff’srequest as inadmissible, and the issue as abated as result of the resolution ofthe legal significance. The judgment also ordered the plaintiff to pay thecourt costs and the attorney’s fees amounting to 10% of the lawsuit. On November 25,2008 the resolution was published and determined the filing of argumentsagainst the resort of appeal filed by Qualita.

Amount:R$ 63.6 millions - US$ 26.7 millions.

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 
| Plaintiff             | : | Laboratorios B. Braun  S.A                      |
|-----------------------|---|-------------------------------------------------|
| Defendant             | : | Ampla                                           |
| Court                 | : | Regional Federal Court  (RFC) of the 1st Region |
| Number/Identification | : | 2003.002.026302-2                               |

Summary of Proceedings: Refund of the amounts wronglycollected and the exclusion of invoices to be expired. All of this for 20%including interest and monetary correction.

Process status: Pre-trial proceedings. The producingof the expert evidence was deferred. Dr. Sylvio Batista dos Santos Filhowas appointed as an expert. He should be notified to file his finding in 20days. The parties were enabled to appoint a technical assistant and proposepoints to be considered in the investigation. Dr. Sylvio Batista did notaccept to conduct the expert’s investigation and a new expert was appointed, Dr. TavaresMoreira, who should be notified to inform whether he accepts to conduct theexpert’s investigation.

Amount: R$56.4 millions - US$ 23.8 millions.

 
| Plaintiff           | : | Cibrapel S/A Industria de Papel y Embalajes |
|---------------------|---|---------------------------------------------|
| Defendant           | : | Ampla                                       |
| Court               | : | Single Chamber of  Guapimirim County        |
| Case/Identification | : | 1998.073.000018-6                           |

Summary of Proceedings:1) Plaintiff asks the court to order Ampla to indemnify the material and otherdamages caused by the poor quality of the services rendered by Ampla betweenthe years 1991 and 1998. 2) Plaintiff asks the court to order Ampla to refundthe amounts paid as a result of the price increase implemented followingadministrative resolutions 38 and 45 of 1986, which have been consideredillegal, both by the government and by the courts.

Process status: On February 1, 2008 the judgmentwas published and was partially favorable to Ampla. On February 6, 2008Ampla filed resorts requiring a change to the decision in regards to thepayment of court costs and attorneys’ fees. The resorts filed by Ampla werepartially accepted in regards to changing the judgment regarding the attorneys’fees. On May 28, 2008 the plaintiff’s resorts were rejected. The decisionwas published on June 16, 2008. On July 1, 2008 Ampla filed a resortof appeal and so did the plaintiff. We are waiting for the opening of theperiod to file arguments against the resort of appeal.

Amount: R$49.6 millions - US$ 20.9 millions.

 
| Plaintiff             | : | Astec Assesoria de Serviço Técnicos e Tributários Ltda. |
|-----------------------|---|------------------------------------------------------------------------|
| Defendant             | : | Ampla                                                                  |
| Court                 | : | 4th Civil Court of  Niteroi                                            |
| Number/Identification | : | 2007.002.074798-9                                                      |

Summary of proceedings: The plaintiff alleges thatAmpla has not complied with clauses of the agreement signed by the partiesregarding the rendering of consulting services.

Process status: This legal action was filed on December 19,2007. Ampla was notified to make its plea for the defense as rendered by Amplaon February 21, 2008. The plaintiff made its plea for the defense on May 26,2008. The Judge deferred the admission of additional proof of private documentsand accounting expert evidence, appointing Dr. Robson Gago as an expert.The parties were entitled to appoint technical assistants and prepare thepoints to be considered. After that, the expert will be notified so that hestates if he accepts the work and presents his fee proposal. The analysis ofthe producing of oral evidence will be performed after the filing of the expertevidence. The expert returned the proceeding with his fee proposal.

Amount: R$39.7 millions - US$ 16.8 millions.

 
| Plaintiff             | : | Perma Ind de Bebidas  S/A        |
|-----------------------|---|----------------------------------|
| Defendant             | : | Ampla                            |
| Court                 | : | 2nd Civil Court of  Niterói |
| Number/Identification | : | 2006.002.003327-9                |

Summary of proceedings: Refund of the excessivecollection of electric energy rates.

Process status: Period for the hearing of the caseafter the redistribution of the proceeding to the Provincial Justice.

Amount: R$ 35.4 millions - US$ 14.9 millions.

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 
| Plaintiff             | : | Fábrica Boechat Ltda.                      |
|-----------------------|---|-------------------------------------------------|
| Defendant             | : | Ampla                                           |
| Court                 | : | Regional Federal Court  (RFC) of the 1st Region |
| Number/Identification | : | 1999.01.00.019832-8                             |

Summary of proceedings: Refund of the excessivecollection of the electric energy rate.

Process status: Period allowed for filing of anappeal.

Amount: R$34.4 millions - US$ 14.5 millions.

 
| Plaintiff             | : | Municipality of Itaboraí     |
|-----------------------|---|-----------------------------------|
| Defendant             | : | Ampla                             |
| Court                 | : | 2nd Civil Court of  Itaboraí |
| Number/Identification | : | 2004.023.004759-9                 |

Summary of proceedings: The claim is the review of theamount collected for the supply of electric energy to the plaintiff and doublerefund of the value paid in excess for the last ten years for the publiclighting in streets, squares and municipal public areas. The plaintiff allegesthat the collection is not consistent with the actual consumption, as theconcessionary company does not consider night time and turned off bulbscorrectly. This results in a difference in excess for 21.89% in invoices.

Process status: The proceeding is in the periodallowed for the investigation. Return of court records by the expert on July 23,2008. The expert also informed his fees for R$102,000. On August 25, 2008Ampla was required to notify the expert so that he was informed of the methodof work used in the investigation.

Amount: R$23.8millions - US$ 10 millions.

 
| Plaintiff             | : | Televisión Cidade S/A. |
|-----------------------|---|-----------------------------|
| Defendant             | : | Ampla                       |
| Court                 | : | 8th Civil Court of  Niteroi |
| Number/Identification | : | 2004.002.008999-1.          |

Summary of proceedings: On May 3, 2004 theplaintiff filed an action to reduce the value of the agreement for the passing(support) of the plaintiff’s cables in the network of Ampla, alleging that theprice of the agreement is excessively high.

Process status: On September 20, 2006 the courtrecords were sent to the expert and they are still under investigation.

Amount: R$24.1 millions - US$ 10.2 millions.

 
| Plaintiff             | : | Real Veículos Com E Ser Ltda.              |
|-----------------------|---|-------------------------------------------------|
| Defendant             | : | Ampla                                           |
| Court                 | : | Regional Federal Court  (RFC) of the 2nd Region |
| Number/Identification | : | 1997.51.01.104745-5                             |

Summary of proceedings: Refund of the excessivecollection of electric energy rates.

Process status: Currently within appeal period.

Amount: R$18.6 millions - US$ 7.9 millions.

 
| Plaintiff           | : | Electrovidro S.A                                    |
|---------------------|---|-----------------------------------------------------|
| Defendant           | : | Ampla                                               |
| Court               | : | 8th Tax Court of the  County of Río de Janeiro |
| Case/Identification | : | 1995.001.065045-7                                   |

Summaryof proceedings: Lawsuit dated June 14, 1995 in which it is argued thatAMPLA infringed the rules of Statutory Decree 2283/86 which stipulatedfreezing of prices while the *Cruzado* Planwas in force. This plan corresponds to *Porteria* 45/86of the DNAEE which increased the rate for electrical energy for industrial useby 20%. The plaintiff petitions for the charge to be declared illegal and forrestitution of the amounts paid incorrectly with interest penalties.

Process status: The objectionto the claim filed by Ampla on February 20, 2008 was rejected. Against thedecision of harmonization of the expert’s finding issued on November 8,2007, both parties filed resorts (seizures of statement); however, they wererejected and so new resorts were filed (torts) by Ampla and Electrovidro (filenumbers 

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

2008.002.02344 and 2008.002.02723). In regard toresort No.2008.002.02344 filed by the plaintiff, the Court of Rio de Janeiroissued the decision to establish that the calculations of the settlementsentence should include the wrong increase value until the invoices of December 2005,when the expert’s finding was completed, recognizing the “cascade effect”.After that, due to the decision of its resort (tort), the plaintiff required tonotify Ampla to pay R$16,178,697.80 in accordance with Article 475-J ofCPC (Brazilian Civil Code), in regard to the improper “cascade effect” of therefund of the amounts for wrong payments, which was deferred by the judge. Therelated decision was published on May 5, 2008. A special resort was filedto change the Court’s Decision. After that, a tort was filed to give leave forthe special resort, which was distributed to the superior court and will beassessed by the Judge. Also, Ampla filed precautionary measureNo.2008.014.00082. The precautionary measure was deferred by the 3rd Vice-Presidency of the Court of Rio deJaneiro, which determined the interruption of the executory process. Afterthat, the special resort was rejected and the precautionary measure wasannulled. Also, we filed a new precautionary measure at the superior court.This measure was abated without considering the merits of the case. A tort wasfiled. This tort has not been assessed yet. In first instance Electrovidro tookup again the execution of the cascade effect in the restated amount of R$18.7millions , including the 10% fine of Article 475-J of CPC, calculated bythe Judge. Therefore, we filed a letter of bank hypothecation, which wasaccepted with guarantee of the appealable proceeding. The seizure of on lineassets required by Electrovidrio was turned down. For this reason, a tort wasfiled. In this resort of Electrovidro, on October 1, 2008 the Courtauthorized the blocking of 5% of the billing of Amplia up to 18.7 millionReais. Ampla requested the interruption of the measure that authorized theseizure of 5% of the billing. This was approved by the Head Judge. Electrovidrofiled a resort whose judgment has not been delivered yet. Also, the SupremeCourt has not delivered a judgment of a resort in which Ampla tries to correcta material error of the final judicial decision arguing that this would giveoccasion for the execution of the cascade effect of Electrovidro. An objectionto the serving of the judicial decision was filed in first instance in order torequire the interruption of the serving until the final judicial decision onthe incident. This was approved by the judge. Electrovidiro did not agree onthe above and filed a resort. The judge approved to continue with the serving,that is the 5% seizure of Ampla’s billing. Therefore, Ampla requested toreconsider that decision. The responsible judge informed that he understandsthat the preliminary measure is also interrupted. We are waiting for thejudgment of the objection to serve the judicial decision and the resorts at theSuperior Court and Court of Rio de Janeiro.

Amount:R$ 19.5 millions - US$ 8.2 millions.

** **
| Plaintiff             | : | Companhia  Eletromecânica Celma            |
|-----------------------|---|-------------------------------------------------|
| Defendant             | : | Ampla                                           |
| Court                 | : | Regional Federal Court  (RFC) of the 2nd Region |
| Number/Identification | : | 1994.002.005084-9  (2001.002.007238-8)          |

Summary of proceedings: Refund of amounts collectedand received excessively.

Process status: The final judicial decision thatsolved the settlement was published. Ampla filed a resort against such finaljudicial decision. The final judicial decision rejected the objection and fixedthe final value of the serving in R$298,853.85, plus interest and monetarycorrection that were already set from the date of the last calculation untilits actual payment. Some resorts were filed that were later rejected andresulted in the filing of an appeal. We are waiting for the plaintiff’sresponse.

Amount: R$16.5 millions - US$ 7 millions.

 
| Plaintiff             | : | Engebra Empresa de Energia do Brasil Ltda. e Usina Termeléctrica de  Anápolis (UTE Daia) |
|-----------------------|---|----------------------------------------------------------------------------------------------------|
| Defendant             | : | Ampla and other 26  concessionary companies                                                        |
| Court                 | : | 6th Court of Goiana                                                                                |
| Number/Identification | : | 2008.02220430                                                                                      |

Summary of proceedings: Discussion on the value of theenergy purchase-sale contract and the value of VUC (variable unit cost ofgenerated energy) in accordance with the contract. The plaintiff requests therate recomposition and compensation.

Process status: The claim was notified on May 21,2008. An issue of jurisdiction is being processed. On July 17, 2008 Amplaand Coelce filed a resort (tort) against the decision on the jurisdictiondispute that provided a precautionary measure. The judge of the 6th Civil Court of Goiás was appointed to processthe emergency measures. On September 1, 2008 the decision of the Court waspublished. The Court did not recognize the jurisdiction dispute unanimously. OnSeptember 10, 2008 Ampla and the other defendants filed resorts at theSuperior Court. On November 10, 2008 the Superior Court issued a decision,in which it rejected the resorts. As the lack of jurisdiction of the statejustice of 

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

Goiânia to adjudicate the lawsuit was determined, weare waiting for the distribution of the proceeding to the Federal Court of theFederal District so that it continues with the proceeding.

Amount: Undetermined

 
| Plaintiff             | : | Usina Termeléctrica de  Anápolis (UTE Daia)             |
|-----------------------|---|-------------------------------------------------------------------|
| Defendant             | : | ANEEL, Federal Union,  AMPLA and other 26 concessionary companies |
| Court                 | : | 15th Court of the  Federal District                               |
| Number/Identification | : | 2008.34.00.003724-2                                               |

Summary of proceedings: Discussion on the value of theenergy purchase-sale contract and the value of VUC (variable unit cost ofgenerated energy) in accordance with the contract. The plaintiff requests therate recomposition and compensation.

Process status: On August 7, 2008 the finaljudicial decision was published. This decision approved the request for the withdrawalof the case by the plaintiff. The plaintiff and one of the defendants (Elektro)on August 20 and 21, 2008, respectively, filed an appeal.

Amount: There is no amount (continued in lawsuitNo.2008.02220430 above)

 
| Plaintiff             | : | Fraspol Ind e Com Ltda           |
|-----------------------|---|----------------------------------|
| Defendant             | : | Ampla                            |
| Court                 | : | 7th Civil Court of  Niterói |
| Number/Identification | : | 2005.002.014243-0                |

Summary of proceedings: Refund the amount paidexcessively. The plaintiff alleges that there was an illegal increase in theelectric energy rate during the “Crossed Plan”. Process status: Ampla presentedthe expert’s fees for starting the works in progress. The findings of theexpert investigation were prepared and the parties expressed their opinionsthrough a resolution that will be published.

Amount: R$ 13.9millions - US$ 5.9 millions.

 
| Plaintiff             | : | Sadia Concórdia S A            |
|-----------------------|---|-------------------------------------|
| Defendant             | : | Ampla                               |
| Court                 | : | 1st Civil Court of  Duque de Caxias |
| Number/Identification | : | 1997.512.004615-5  (2004.001.10345) |

Summary of proceedings: The Court ordered Ampla torefund the standing charges for electric energy rates paid in excess (20%) dueto the application of the adjustments in accordance with Resolutions 38 and 45during the period of price freeze, as well as their effects on the subsequentperiods, plus interest and monetary correction in accordance with the consumerprice index (CPI) and the attorneys’ fees fixed in 20% of the total value ofthe refund.

Process status: We are waiting that the plaintiffstarts the executory process of the court decision.

Amount: R$13.6 millions - US$ 5.8 millions.

 
| Plaintiff             | : | Cerámica Marajó Ltda. |
|-----------------------|---|---------------------------------|
| Defendant             | : | Ampla                           |
| Court                 | : | 3rd Civil Court of  Niteroi     |
| Number/Identification | : | 1998.002.026066-0               |

Summary of proceedings: Eliminate the illegal 20%increase in the invoices for electric energy consumption based on Resolution45/86 of DNAEE (Brazilian National Water and Electric Energy Department) andits consistent reflections on the subsequent invoices and refund all theamounts illegally received.

Process status: In executory process; we are waitingfor the preparation of the technical report by the judicial expert. Proceedingsent to the expert on March 19, 2008. Ampla filed an objection to theexpert finding.

Amount: R$ 13.2 millions - US$ 5.6 millions.

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 
| Plaintiff             | : | Pinto de Almeida  Engenharia S/A |
|-----------------------|---|----------------------------------|
| Defendant             | : | Ampla                            |
| Court                 | : | 7th Civil Court of  Niteroi      |
| Number/Identification | : | 1998.002.027241-7                |

Summary of proceedings: Absence of obligation of theplaintiff to pay the electric energy increased by Resolutions 38 and 45 andrefund of amounts wrongly paid from March 1986, plus interest and monetarycorrection; order the defendant to reduce future invoices in the sameproportion of the increases supported by those resolutions.

Process status: The lawsuit was reopened by theplaintiff to start the executory process of the court decision.

Amount: R$ 11.7 millions - US$ 6.3 millions.

 
| Plaintiff             | : | Roberto Barbosa Ramos  and Almira Barbosa Ramos |
|-----------------------|---|-------------------------------------------------|
| Defendant             | : | Ampla                                           |
| Court                 | : | Court of Arraial do  Cabo                       |
| Number/Identification | : | 2002.005.000034-6                               |

Summary of proceedings: Compensation for death of achild due to electrocution. The parents try to obtain compensation for moralprejudice equivalent to 20,000 minimum wages for R$ 59 millions.

Process status: Proceeding in the period allowed forpre-trial proceedings. We are waiting for the filing of the fee proposal by theexpert and the subsequent start of the expert’s investigation. The expert’sfees were proposed for R$ 4,750. That decision was objected. The objection hasnot been processed yet. After that, the expert evidence should be performed.The expert maintained the value of his fees. Therefore, there was a new requestso that the expert expresses his opinion on a possible reduction of his feesand financing of the amount required.

Amount: R$21.8 millions - US$ 9.2 millions.

 
| Plaintiff             | : | Compañía Brasileña de Antibióticos (Cibran) |
|-----------------------|---|-----------------------------------------------------------------|
| Defendant             | : | Ampla                                                           |
| Court                 | : | 11th Court of the  Treasury of Rio de Janeiro                   |
| Number/Identification | : | 2000.001.109379-0                                               |

Summary of proceedings: Questioning of the calculationbase of the ICMS (Brazilian VAT) as it includes the value of the same tax (“inside”calculation).

Process status: In the initial period allowed forpre-trial proceedings. On March 5, 2008 the prosecuting authority returnedthe proceeding and we are waiting for the proceeding to start being processed.

Amount: Undetermined.

 
| Plaintiff           | : | Union of Workers in the  Niterói Electrical Energy Industry representing a class action suit by 2841  employees |
|---------------------|---|----------------------------------------------------------------------------------------------------------------------|
| Defendant           | : | Ampla                                                                                                                |
| Court               | : | Niterói Work Chamber                                                                                            |
| Case/Identification | : | Labour Complaint  884/1989                                                                                           |

Summary of Proceedings    : In April 1989, the Niterói Union, inrepresentation of 2841 employees, launched an action claiming salarydifferences of 26.05% since February 1989 that were related to theeconomic plan instituted by Decree Law 2.335/87, or “Summer Plan”.

Process status: Ordinary proceedings have finished.The current discussion is focused on the compliance with the final judicialdecision where execution motion to dismiss was filed. The main proceedings wereaccepted in accordance with the execution motion to dismiss. We are waiting forthe decision on the resort filed the plaintiffs.

Amount: R$48.3millions - US$ 20.4 millions.

 
| Plaintiff | : | Selma de Souza and 122  other plaintiffs |
|-----------|---|------------------------------------------|
| Defendant | : | Ampla                                    |
| Court     | : | 2nd Employment Chamber  of Niterói  |
| ID Number | : | Work Complaint  No.3142/1995             |

Summary of Proceedings   : The plaintiffs were fired by the Companyand demand to be reinstated and to have their right of employment stabilityrecognized.

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

Process status: AccessoryInnominate Action for Provisional Resort filed, taking into account that the previousAction for Provisional Resort, which kept the plaintiffs out of the company,was repealed by the effect of the Tort filed in the Claim proceedings submittedby the plaintiffs to the TST, which understood that it was competent to dojustice to the suspensive effect in question. In the face of the positionadopted by the TST, this Action for Provisional Resort was filed seeking tostay the effects of the advanced tutelage and also have a suspensive effect onthe ordinary resort filed in the pleas and proceedings of the case, with suchbeing favorable to the company’s position. The court records were taken fromBrasilia to the Regional Labor Court (RLC) to consider the legal significanceof the resort; however, this will be adjudicated after the proceeding of theresort filed at the Federal Supreme Court.

Amount:R$ 70.2 millions - US$ 29.6 millions.

 
| Plaintiff             | : | José Reynaldo  Ferreirinha and Others |
|-----------------------|---|--------------------------------------------|
| Defendant             | : | Ampla and Brasiletros                      |
| Court                 | : | 3rd Labor Court of  Niterói           |
| Number/Identification | : | Labor Claim 2422/1990                      |

Summary of proceedings: The plaintiffs requested thejointly sentence, differences of complements and additional of retirementpension, plots expired and to be expired with reflections and attorneys’ fees.

Process status: We are waiting for the decision on theappeal filed by Ampla.

Amount: R$16.3 millions - US$ 6.9 millions.

 
| Plaintiff             | : | Ampla                                      |
|-----------------------|---|--------------------------------------------|
| Defendant             | : | Instituto Nacional de Seguro Social (INSS) |
| Court                 | : | 1st Federal Court of  Niteroi              |
| Number/Identification | : | 2005.51.01.011845-3                        |

Summary of proceedings: Ampla filed an action againstINSS (National Social Security Institute) requesting the right to receive thecontribution to the occupational accident insurance (OAI) in accordance withthe level of risk of the activity mainly carried out in every place of business(parent company and subsidiaries) legally incorporated and the level of risk ofthe activity carried out by the company.

Process status: The company required the producing ofproof of private documents, expert evidence and evidence of witnesses.Evidentiary stage closed and judge is considering his ruling since July 31,2008.

Amount: R$ 0.2millions - US$ 84,424

 
| Plaintiff             | : | Federal Union                        |
|-----------------------|---|--------------------------------------|
| Defendant             | : | Ampla and others                     |
| Court                 | : | 5th Federal Court of  Niterói   |
| Number/Identification | : | 2008.51 of  February 20001414-1 |

Summary of proceedings: The purpose of this executoryprocess distributed to Ampla and its directors and former directors is theservice of dispossession of debit: 35.887.326-6 and 35.887.328-2, regarding thecontribution to the OAI. The legal significance was discussed in proceedingNo.2005.51 of February 20011845-3. Ampla filed a claim requiring toexclude from the liabilities of this executory process Ampla’s directors andformer directors, considering that this company already took on theresponsibility for the debit of this action when fully guaranteed the actionfor provisional resort No.2008.51 of February 20001005-6. The transfer ofthe letters of hypothecation guaranteed in this action for provisional resortto the executory process in order to file resorts against executory process wasrequired (this was granted in the trial).

Process status: On November 7, 2008 we filedexecution motion to dismiss regarding the current directors in order to excludethem. On November 11, 2008 resorts against the executory process werefiled. On November 19, 2008 a judicial decision was issued. This decisionstated the opinion of the Public Prosecutor’s Office of the Treasury on Ampla’sclaim of motion to dismiss and the negative representations of service of thelegal process regarding the former directors. On November 21, 2008 thecourt records were sent to the Public Prosecutor’s Office of the Treasury. Weare waiting for the opinion of the Public Prosecutor’s Office of the Treasuryon the claim of motion to dismiss filed by Ampla.

Amount: R$ 19millions - US$ 8 millions.

 

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**Notesto the Consolidated Financial Statements**

 
| Plaintiff           | : | Ampla                                                             |
|---------------------|---|-------------------------------------------------------------------|
| Defendant           | : | Unión Federal                                                |
| Court               | : | 2nd Federal Court of  Niterói.                               |
| Case/Identification | : | Ordinary Proceeding  96.0035652-1 and Civil Appeal 98.02.09149-9. |

Summaryof proceedings: PIS — This is an ordinary proceeding in which AMPLA seeks toobtain tax immunity for collection of the tax known as PIS. It also seeks forthe Federal Union to be sentenced to reimbursing all the amounts collected overthe past five years since August, 1996, based on paragraph 3 of article 155 ofthe Federal Constitution.

Process status: Appealable judgment unfavorable toAmpla. On August 5, 2008 the judicial decision was published andconsidered as admissible the resorts (seizures of statement) filed by Ampla.Ampla filed a claim to confirm what was requested and request that theexecutory process should start. On October 15, 2008 the decision thatdetermined the remittance of the proceeding to the judicial accountant so thatthe calculations filed by Ampla were compared was published. Ampla filed aresort (seizure of statement) against such decision so that the proceeding isnot sent to the judicial accountant as the judicial accountant alreadyexpressed his opinion that he has no technical qualifications to compare thecalculations. We are waiting for the judge’s ruling.

Amount: R$23.6 millions - US$ 10 millions.

 
| Plaintiff             | : | Office of Treasury                                                                     |
|-----------------------|---|----------------------------------------------------------------------------------------|
| Defendant             | : | Ampla                                                                                  |
| Court                 | : | Board in Full  Attendance                                                              |
| Number/Identification | : | Infringement Document  No.01.082242-7 and Administrative Litigation No.E-04/893.637/99 |

Summary of proceedings: Tax sanction due topresumptive difference in the payment of ICMS (Brazilian VAT). Ampla is an ICMSdebtor for wrong VAT credits in connection with amounts of entry of products intendedfor fixed assets.

Process status: On July 27, 1999 Ampla filed itsobjection to the Infringement Document, which was considered as inadmissible bythe Tax Review Authority of the State of Rio de Janeiro. As a result, Amplafiled a voluntary appeal, which was no accepted by the 3rd Chamber of the Taxpayers Council. Due to thenew decision unfavorable to Ampla, Ampla filed a resort at the Board in FullAttendance. The proceeding is in the period allowed for steps and then will beadjudicated by the Board in Full Attendance. The decision of the court has notbeen issued since February 25, 2008

Amount: R$ 15.3 millions - US$ 6.5 millions.

 
| Plaintiff             | : | Municipality of Magé         |
|-----------------------|---|-----------------------------------|
| Defendant             | : | Ampla                             |
| Court                 | : | Municipal Office of the  Treasury |
| Number/Identification | : | Infringement Document  No.1056    |

Summary ofproceedings: Infringement Document prepared in order to collect the Land UseRate between 2000 and 2005.

Process status:Ampla filed an objection to the infringement document. Waiting for theappealable decision of the Court.

Amount: R$ 12.9 millions - US$5.5 millions.

 
| Plaintiff           | : | ASOBRAEE - Brazilian  Association of Consumers of Water and Electricity |
|---------------------|---|-------------------------------------------------------------------------|
| Defendant           | : | Ampla                                                                   |
| Court               | : | 5th Civil Court of  Niteroi County                                      |
| Case/Identification | : | 2006.002.002621-4                                                       |

Summary of Proceedings: The Plaintiff presented thisaction requiring that the DNAEE no 038 and 045 Resolutions of 1986 be declarednull. These resolutions established the rate adjustment, for which AMPLA may becondemned to the restitution of the improper charge, equivalent to 20% of whatit would have charged all the consumer in the period from March to November 1986,as well as to force Ampla to present the complete schedule of payments made forall of the consumers in the period from March to November 1986.

Process status: The resort filed by Ampla against thedecision that adjudicated the incident of objection to the value of the lawsuitbecame a retained resort for the preliminary assessment for the appeal trial bythe Court of the State of Rio de Janeiro.

Amount: Undetermined.

 

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**Notesto the Consolidated Financial Statements**

 
| Plaintiff           | : | Consumer Defence  Commission of the Legislative Assembly of the State of Rio de Janeiro |
|---------------------|---|-----------------------------------------------------------------------------------------|
| Defendant           | : | Ampla                                                                                   |
| Court               | : | 7th Business chamber of  the State of Rio de Janeiro                                    |
| Case/Identification | : | 2005.001.084370-8                                                                       |

Summary of Proceedings:This is a Public Civil action launched in order to prevent the installation ofelectronic measurement meters. The plaintiff states that this modernization’sonly purpose is to prevent theft of electricity and would actually depriveconsumers of their right to information. Plaintiff argues that it is Ampla’sresponsibility to detect electricity theft in other ways and not put the burdenon the consumer.

Process status: Amplasubmitted allegations against the Appeal filed by the Plaintiff and theproceedings were then remitted to the Justice Court. The Appeal entered thecourt under No. 2006.001.22785 and was distributed to the 15th civilchamber of the court. The court, by unanimous decision, rejected the appeal,which was published on August 16, 2006. The Plaintiff then filed a SpecialRecourse, with the proceedings being remitted to the 3rd Vice-presidency of thecourt. On October 16, 2006 Ampla submitted its allegations. On October 25,2006, the proceedings were remitted to the “Procuraduria General de Justicia”and were returned on November 22, 2006. On January 3, 2007, thisresort was rejected. On January 16, 2007, the Plaintiff filed instrumenttort against the decision that rejected the special resort. On March 6,2007, the instrument tort was remitted to the Higher Court. On April 12,2007, the case records were remitted to the reporting clerk, where they havebeen to this date. On September 11, 2007, the decision accepting hearingof the Special Resort by the Higher Court was published. On October 16,2007 the court records were sent to the Superior Court.

Amount:Undetermined

 
| Plaintiff           | : | Macao Consumer and  Worker Defense Association - AMADECONT |
|---------------------|---|------------------------------------------------------------|
| Defendant           | : | Ampla                                                      |
| Court               | : | Single Chamber of the  County of Río das Ostras       |
| Case/Identification | : | 2004.068.001287-1                                          |

Summary of Proceedings:The plaintiff launched this action requesting partial power in advance toprevent the Defendant from charging the TMIP (“Municipal Street Lighting Rate”),and requesting that Ampla be required to refund the amounts wrongly charged andpay the costs of the trial.

Process status: The prosecuting authority filed aresort (a tort - Proceeding 2008.002.22940) against the decision that rejectedthe trusteeship. On August 15, 2008 the decision was published. Thisdecision accepted the tort and determined that Ampla is refrained fromcollecting the TIP in the electric energy invoices of consumers in the districtof Río das Ostras until the end of the lawsuit. On August 22, 2008 Amplafiled resorts (seizures of statement). On September 1, 2008 the judicialdecision was issued. This decision accepted the resorts (seizures of statement)imputing the change of the effects to such resort and rejected to follow up theresort of the prosecuting authority (tort). On September 5, 2008 Amplainformed the Judge about the decision of the appeals for reconsideration ofjudgment filed against the decision issued in the trial documents of theresort. On November 3, 2008 this was removed from the resort.

Amount: Undetermined

 
| Plaintiff           | : | General Attorney’s  Office of the State of Rio do Janeiro |
|---------------------|---|----------------------------------------------------------------|
| Defendant           | : | Ampla and Municipality  of Paraty                              |
| Court               | : | Single Court of Paraty  County                                 |
| Case/Identification | : | 2005.041.001008-9                                              |

Summary of Proceedings:The plaintiff brought this suit petitioning, by way of advanced tutelage, sentencingof the Municipality of Paraty to abstain from collecting the Contribution forStreet Lighting (CIP), under penalty of a fine of R$50,000.00 (US$23,277.46)and, additionally, that Ampla should be compelled to collect the CIPseparately, although on the same energy consumption bill, using different barcodes, under penalty of a fine of R$10,000.00 (US$4,666.79).

Process status: On July 3,2008 the judgment was delivered. This judgment considered the proceeding asabated with no resolution of the legal significance. On July 11, 2008 thecourt records were sent to the prosecuting authority and they were returned on July 29,2008. On August 4, 2008 the court records were sent to the TreasuryDepartment and they were returned on August 8, 2008. The judicial decisionwas published on September 24, 2008.

Amount:Undetermined

 

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**Notesto the Consolidated Financial Statements**

 
| Plaintiff           | : | Municipality of Paraty         |
|---------------------|---|--------------------------------|
| Defendant           | : | Ampla                          |
| Court               | : | Single Court of Paraty  County |
| Case/Identification | : | 2005.041.001124-0              |

Summary of Proceedings:The plaintiff brought this suit petitioning for: 1) Acceptance of theprecautionary measure for Ampla to abstain from shutting off the power supplyservices, under penalty of a fine of R$10,000.00 (US$4,666.79) to be applied toeach non-compliance of the delegated order, without detriment to any other possiblepenalties; 2) That Ampla should maintain the regularity of the system of supplyand maintenance of the power transmission grid in satisfactory conditions forthe users; 3) That Ampla should be sentenced to submit and execute within areasonable period of time a project to modernize the grid, consisting ofimprovements to the power transmission equipment and lines in the area of theMunicipality of Paraty; 4) the injunction for the Public Prosecutor’s Office tobe a party to or to act in the case of legal expenses; and 5) The injunction ofthe Granting Power in the case, the State of Río de Janeiro, to express aninterest in the case through its legal representative.

Process status: The court records were returned by theexpert on June 11, 2008. On June 30, 2008 the court records were sentto the Municipal Treasury and they were returned on July 31, 2008. TheMunicipal Treasury filed an objection to the expert’s fees proposal. On August 21,2008 the court orders were published. These court orders determined that theparties should express their opinion on the expert’s motion, which reduced hisfees proposal to R$60,000.

Amount: Undetermined.

 
| Plaintiff             | : | Universidade Federal  Fluminense |
|-----------------------|---|----------------------------------|
| Defendant             | : | Ampla                            |
| Court                 | : | 4th Federal Court                |
| Number/Identification | : | 2000.51.020.04388-9              |

Summary ofproceedings: The plaintiff filed a claim for the absence of judicialrelationship between the plaintiff and the Province of Rio de Janeiro, inregard to the ICMS (Brazilian VAT) on the electric energy supply. The plaintiffalleges the unconstitutionality of the ICMS on electric energy invoices as ithas tax immunity.

Process status: OnJune 13, 2003 the judicial decision was published. The decision consideredthe plaintiff’s request inadmissible. On July 13, 2005 the appeal filed bythe plaintiff was sent to the reporting clerk.

Amount: Undetermined.

 
| Plaintiff             | : | Sindicato da Indústria  de Cerâmica para Construção de Campos (Union of the Construction Ceramics  Industry of Campos) |
|-----------------------|---|--------------------------------------------------------------------------------------------------------------------------------------------|
| Defendant             | : | Ampla                                                                                                                                      |
| Court                 | : | 6th Civil Court of Niterói                                                                                                            |
| Number/Identification | : | 2003.002.019554-5                                                                                                                          |

Summary ofproceedings: The Union of the Construction Ceramics Industry of Campos filed anaction against Ampla alleging that the ICMS should not affect the demand forhired power, but the demand for power actually measured.

Process status: OnJune 23, 2008 the courts orders were published. These court ordersdetermined the opinion of Ampla. On July 1, 2008 Ampla signed the claimand informed that it already completed the costs of the bench warrant. On August 19,2008 the positive warrant of writ of summons by the State was attached. On October 9,2008 this was removed from the letter rogatory. The letter rogatory is expectedto be attached to the court records.

Amount: Undetermined

 
| Plaintiff           | : | State Attorney  General’s Office       |
|---------------------|---|---------------------------------------------|
| Defendant           | : | Ampla                                       |
| Court               | : | 2nd Civil Chamber of  Town of Saint Gonzalo |
| Case/Identification | : | 2003.004.034117-9                           |

Summary ofProceedings: Plaintiff launched the Public Civil Action requesting first thatAmpla be ordered to supply the regular consumers of Saint Gonzalo a qualityelectrical energy service without interruptions, and take all measuresnecessary to prevent such interruptions, even if in order to achieve this itmust restructure all of its equipment; in the event it is absolutely necessaryto interrupt the supply, then the restoration of supply must be immediate orthe fine shall be R$10,000 a day.

 

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**Notesto the Consolidated Financial Statements**

 

Process status: OnNovember 13, 2008 the court records were sent to the prosecuting authorityand they were returned on November 13, 2008.

Amount:Undetermined

 
| Plaintiff             | : | Federal Prosecuting  Authority        |
|-----------------------|---|---------------------------------------|
| Defendant             | : | Ampla                                 |
| Court                 | : | 17th Federal Court of  Rio de Janeiro |
| Number/Identification | : | 2008.51.01.012193-3                   |

Summary ofproceedings: A criminal indemnification action based on Ampla’s administrativeinvestigation of the electronic meters. Requires as a precautionary measurethat Ampla refrains from (i) issuing an invoice or collecting based onmeasurements made by electronic meters versions CS 5.0.2, 6.0.1 and 6.0.2; (iI)interrupting the electric energy supply to consumers that are in debit inconnection with invoices issued based on electronic meters versions CS 5.0.2,6.0.1 and 6.0.2; (iII) inserting in restrictive credit records the names ofsuch users that are in debit. Also requires that ANEEL inspects the compliancewith the precautionary measure by Ampla and that Ampla pays equity damages and moral prejudice through credit in theinvoice of electric energy.

Process status: OnDecember 4, 2008 the resolution was published. This resolution ordered toprovide with the copy of the claim filed by the Federal Office of the PublicProsecutor on July 11, 2008 as it was lost or, if not possible, that bothparties express their opinions (the plaintiffs first) within a ten successiveday period.

Amount: R$ 21 millions - US$9 millions

 
| Plaintiff             | : | Labor Prosecuting  Authority     |
|-----------------------|---|----------------------------------|
| Defendant             | : | Ampla                            |
| Court                 | : | 3rd Labor Court of  Niterói |
| Number/Identification | : | 2028/2001                        |

Summary ofproceedings: The purpose of this action is to order Ampla to refrain fromabsorbing labor through a company (subcontract); otherwise, Ampla will beimposed a daily fine for noncompliance.

Process status:The court unanimously rejected the judgment of both resorts to maintain thejudicial decision in all respects. Ampla filed resorts.

Amount: Undetermined

 
| Plaintiff             | : | Sindicato de  Trabajadores de las Industrias de Energía Eléctrica del Norte y Noroeste  Fluminense (Labor Union of Electric Energy Industries of the North and  Northwest of Rio de Janeiro) |
|-----------------------|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Defendant             | : | Ampla                                                                                                                                                                                                  |
| Court                 | : | 2nd Labor Court of Campos  dos Goytacazes                                                                                                                                                              |
| Number/Identification | : | 1388/2003                                                                                                                                                                                              |

Summary ofproceedings: This is a suit intended to order Ampla in the obligation of notdoing (refrain from absorbing labor through a company - subcontract);otherwise, Ampla will be imposed a daily fine for noncompliance.

Process status:Waiting for the period allowed for opinion about the expert finding.

Amount: Undetermined

 
| Plaintiff             | : | Ampla                                                                        |
|-----------------------|---|------------------------------------------------------------------------------|
| Defendant             | : | Federal Union                                                                |
| Court                 | : | 2nd Federal Court and  4th Group of Regional Federal Court of the 2nd Region |
| Number/Identification | : | Action No.96.0035653-0  and Civil Appeal No.98 of February 2021000-5    |

Summary ofproceedings: COFINS — Action filed by Ampla requesting: 1) Decree of taximmunity of Ampla for COFINS (social security financing tax); and 2) To orderthe Federal Union to refund the payments made on account of COFINS in the lastfive years duly corrected and increased in accordance with legal charges. As aresult of the decision processed in the court and announced in injunctionNo.92.0113589-4, Ampla changed its requests maintaining only request 2 (refundof payments).

Process status: OnMay 2, 1997 the final judicial decision was issued. This decisionconsidered as inadmissible Ampla’s request and ordered to pay the fees based on5% of the value of the lawsuit. On August 15, 2006 the court rejected the

 

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**Notesto the Consolidated Financial Statements**

 

judgment of Ampla’sresort and accepted the judgment of the supporting resort of the Federal Unionso that the proceeding returns to first instance and the Federal Union files anew plea due to the change in Ampla’s request. On December 6, 2006 theCourt’s decision was published. This decision rejected the judgment of Ampla’sresort. On December 11, 2006 Ampla filed resorts so that the courtexplains the omission of the judicial decision. The trial for the resorts ispending.

Amount: Undetermined

 
| Plaintiff           | : | Ampla                                                                           |
|---------------------|---|---------------------------------------------------------------------------------|
| Defendant           | : | Federal Union                                                                   |
| Court               | : | 4th Federal Chamber of  Niterói and 4th Group of the TRF of the 2nd Region |
| Case/Identification | : | Ordinary Action  No.96.0035387-5 and Civil Appeal No.1999.02.01.047064-8 (d.4)  |

Summary ofProceedings: FINSOCIAL - Ampla seeks to obtain the declaration that thetax-legal relationship (tax immunity) does not exist as regards the payment ofthe tax called FINSOCIAL, which would have an impact on its gross monthlyrevenue. It also seeks to have the Federal Union forced to refund the totalamount collected in the last five years, starting from October 1996 and,if the foregoing is not possible, that the Federal Union be made to refund thedifference between the amount paid in accordance with Laws 7,787/89, 7,784/89and 8,147/90, and that due in accordance with Decree Law No.1.940/82, in thesame period referred to above..

Process status:The lower court’s decision declared without grounds the request for immunity,but accepted the petition to declare unconstitutional the increases in theFINSOCIAL tax rate above 0.5% and the right to offset the said excess incurrent and future taxes due. The appeals of Federal Union and Ampla werefiled. The proceedings were sent to Federal Regional Court where they arecurrently awaiting a judgment on the two appeals The judgment of the appealsfiled by Ampla and the Treasury was delivered on December 2, 2008. TheRegional Federal Court rejected the resorts and maintained the appealabledecision.

Amount: Undetermined

 
| Plaintiff             | : | Ampla                                                                                                                    |
|-----------------------|---|--------------------------------------------------------------------------------------------------------------------------|
| Defendant             | : | Federal Union                                                                                                            |
| Court                 | : | 3rd Group of the  Regional Federal Court of the 2nd Region and 1st Federal Court of Niterói                         |
| Number/Identification | : | Injunction No. 98  of February 2002033-8 and Appeal against Injunction No.2000 of  February 2001.055412-5 |

Summary ofproceedings: This is an injunction against the act to be performed by theCommissioner of the Federal Tax Collection in Niterói intended to ensure thatAmpla is fully indemnified for the tax impairment for the purpose ofclarification of the calculation base of IRPJ (Income Tax on Legal Entities),and negative calculation bases for the purpose of the CSLL (CompanyContribution on Loss of Profits) clarified until December 31, 1994(excluding 1993) not subject to the 30% limit of taxable profit.

Process status:Appealable judgment totally favorable to Ampla. The Court has not delivered ajudgment of the resort filed by the Federal Union at the Regional Federal Courtsince February 23, 2005. Due to the decision announced in the courtproceedings 98.0207129-3, Ampla paid the infringement document related to suchproceeding amounting to R$5,785,915.75. This amount may be recovered in theevent that the lawsuit is favorable.

Amount: Undetermined

 
| Plaintiff             | : | Ampla                                                                                                                    |
|-----------------------|---|--------------------------------------------------------------------------------------------------------------------------|
| Defendant             | : | Federal Union                                                                                                            |
| Court                 | : | 3rd Group of the  Regional Federal Court of the 2nd Region and 1st Federal Court of Niterói                         |
| Number/Identification | : | Injunction No. 98  of February 2007129-3 and Appeal against Injunction No.1998.51 of  February 20207129-6 |

 

Summary ofproceedings: This is an injunction against the Commissioner of the Federal TaxCollection in Niterói intended to ensure that Ampla to be fully indemnified forthe tax impairment for the purpose of the calculation of the calculation baseof IRPJ (Income Tax on Legal Entities) and the negative calculation bases forthe purpose of the CSLL (Company Contribution on Loss of Profits ) for 1993,1995 and 1996 with profits generated in base years 1998 and subsequent years,not subject to the 30% limit of taxable profit.

Process status:Appealable judgment totally favorable to Ampla. The Federal Union filed aresort at the Regional Federal Court (RFC). The decision of the RFC was topartially accept the appeal filed by the Federal Union. After the

 

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**Notesto the Consolidated Financial Statements**

 

publication of thedecision of the court in regard to the appeal, Ampla filed resorts topre-question some points to be included in the resorts at the superior courts.The resorts were rejected and Ampla filed a resort at the superior court andsuperior federal court. On February 22, 2008 the court orders werepublished. These court orders accepted the resorts. On April 11, 2008 theproceeding was distributed to the superior court to deliver a judgment (numberof the resort at the superior court 1041385).

Amount: Undetermined

 
| Plaintiff             | : | Ampla                            |
|-----------------------|---|----------------------------------|
| Defendant             | : | State of Rio de Janeiro          |
| Court                 | : | Superior Court                   |
| Number/Identification | : | Injunction  No.2002.001.110494-9 |

Summary ofproceedings: Injunction issued so that the authority refrains from perform anyact intended to collect the ICMS (Brazilian VAT) established by DecreeNo.31.632/02.

Process status: OnOctober 13, 2008 the Treasury filed its arguments against Ampla’s resorts.On December 18, 2008 the judgment of the resort was delivered. The judgerejected the judgment of the resort, but another judge request to see theproceeding and interrupted the judgment.

Amount: Undetermined

 
| Plaintiff             | : | Ampla                                              |
|-----------------------|---|----------------------------------------------------|
| Defendant             | : | Federal Treasury —  Federal Union             |
| Court                 | : | Federal Court of  Niterói                     |
| Number/Identification | : | Injunction No.2008.51  of February 20004965-9 |

Summary ofproceedings: The purpose of the lawsuit is to exclude the ICMS (Brazilian VAT)from the taxable base of the taxes for PIS (Brazilian Social IntegrationProgram) and COFINS (social security financing tax).

Process status:The claim was filed on December 17, 2008.

Amount: Undetermined

 

**Coelce S.A.**

 
| Plaintiff           | : | Romério Moreira de Deus             |
|---------------------|---|------------------------------------------|
| Defendant           | : | Coelce                                   |
| Court               | : | Court of the State of  Ceará (TJCE) |
| Case/Identification | : | 2000.0161.6981-7.                        |

Summary ofproceedings: The Plaintiff is the owner of a plot of land in Aracati/Ceará,where Coelce built several electrification networks, without having compensatedthe client. Thus, the plaintiff intends to prevent the construction of newelectrification networks and have the existing ones removed. Coelce won the lawsuitin the first instance by having it dismissed. However, the sentence was revokedon appeal and Coelce was sentenced to remove the new networks in the process ofbeing installed and pay about $3.3 millions as compensation. As a result of theabove, the plaintiff filed for enforcement of the sentence, petitioning acredit based on a compensation of nearly $3.3 millions. In parallel, Coelce hasappealed for the sentence by the Court of Appeal, in terms of the compensationgranted beyond what was petitioned, to be voided. The plaintiff has alreadyraised a plea against Coelce’s appeal and notification of the pleading was madeto the other party for the rejoinder.

Process status:The plaintiffs succeeded in the legal action filed as they obtained a court orderto make Coelce remove the posts located in their properties. However, insteadof requiring Coelce to comply with the court order, the plaintiffs required acompensation for damages as a result of the setting up of the aforementionedposts, which was in the order of R$9,861,385.07 in accordance with theircalculations at December 9, 1997. This request was considered asinadmissible by the judge. This decision was appealed by the plaintiffs. Thisappeal was rejected in July 2007.

Amount: R$ 69.4 millions - US$29.6 millions.

 

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**Notesto the Consolidated Financial Statements**

 
| Plaintiff            | : | Cooperativa de  Eletrificação Rural do Vale do Acaraú Ltda. |
|----------------------|---|----------------------------------------------------------------------------|
| Defendant            | : | Coelce                                                                     |
| Court                | : | 1st Federal Court of  the Ceará Judicial Section                      |
| Casel/Identification | : | 2001.81.00.008007-0                                                        |

Summary of theproceedings: An action was filed to review the clause regarding the amount ofthe lease entered into by the parties for power grids owned by the plaintiff.

Process status: Inits defense, Coelce pleaded that the issue involved interests of ANEEL.Consequently, ANEEL entered the fray and the proceeding was remitted to theFederal Court. The Federal Court granted the petition made by the plaintiff andincreased the monthly rent to R$35,000.00. Coelce deposited the amount for thefirst three months after the decision stipulating the increase. Coelce also appealedfor the decision increasing the monthly rent to be repealed.

Due to theinterruption of the decision, Coelce required the identification of the amountdeposited. On September 1, 2008 a writ was issued. This writ gave rise toa negative dispute of jurisdiction. The proceedings are pending until thedecision of the superior court.

Amount: R$ 55.6 millions - US$23.7millions.

 
| Plaintiff           | : | State Deputy Luiz  Carlos Andrade Moraes and Federal Deputy Francisco Lopes da Silva |
|---------------------|---|--------------------------------------------------------------------------------------|
| Defendant           | : | COELCE, CGTF, ANEEL AND  UNION FEDERAL                                               |
| Court               | : | 10th Federal Court of  Ceará                                                    |
| Case/Identification | : | 2007.81.00.006310-3                                                                  |

Summary ofproceedings: Popular Lawsuit — Lawsuit brought by a State Deputy and FederalDeputy against Coelce, CGTF, ANEEL and the Federal Union on April 23, 2007.They are petitioning for immediate recalculation of Coelce’s rate review ratiofor 2007, replacing the thermal energy purchase price with the cheapestavailable energy; the avoidance of the contract signed by Coelce and CGTFbecause of its high cost (high cost of steam-electric energy compared tohydroelectric energy, which would de detrimental to the consumers of the Stateof Ceará); and for the additional income obtained by Coelce from May toOctober, 2005 to be included in the calculations of Coelce’s rate review. Thelatter refers to another lawsuit, where Coelce had a provisional precautionarymeasure limiting its rate adjustment revoked. During that proceeding, aprecautionary measure was in force from May to October, 2005 and, despiteit, Coelce charged this difference retroactively to the consumers. According tothe plaintiffs, Coelce should wait for end of the case to charge these amounts.

Process status: Inregard to the main lawsuit, on November 24, 2008 the judge issued ajudgment which considered as inadmissible the plaintiff’s claims. On September 1,2008 CGTF was notified in regard to this decision. We are waiting for thepublication of this decision and the resort to personally notify the plaintiffsto file a possible resort. In regard to the resort filed against the decisionthat rejected the objection to the amount of the lawsuit and after filingarguments, the court records were sent to the judge for analysis. We arewaiting for the judgment of this resort.

Amount: R$ 516millions - US$218 millions.

 
| Plaintiff           | : | Bar of Lawyers of  Brazil and Others                             |
|---------------------|---|------------------------------------------------------------------|
| Defendant           | : | Coelce.                                                          |
| Court               | : | 7° Juzgado de Justicia Federal - Sección de Ceará |
| Case/Identification | : | 2005.81.00.006496-2                                              |

Summary ofproceedings: Civil public action launched with the objective of preventing theapplication of the rate adjustment (percentage 23.59%) authorized by ANEEL in April 2005.

Process status:The Supreme Court judge suspended on October 7, 2005 the guarantee thatprevented the adjustment from being applied. Thereby, the concessionaire mayapply from that date on the above mentioned adjustment. Coelce had to suspendthe retroactive collection of the installments generated by the time in whichthe guarantee made it impossible to put the adjustment into effect. The guaranteesare expected to be annulled and Coelce will be able to re-begin collecting theremaining installments On September 5, 2008 the lawsuit was considered asinadmissible. We are waiting for the publication of the final judicial judgment

Amount: US$44 millions.

 

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**Notesto the Consolidated Financial Statements**

 
| Plaintiff           | : | Inácio Nunes  Arruda & Others. |
|---------------------|---|----------------------------------------------|
| Defendant           | : | Coelce.                                      |
| Court               | : | 2nd Court of Public  Finance - Ceará    |
| Case/Identification | : | 2000.0122.6248-0/0                           |

Summary ofproceedings: Popular action whose objective is to cancel the sales process ofCoelce. The plaintiffs allege that in the process of privatization of Coelcethere was no participation of the employees of Coelce; shares were not offeredto the employees in sufficient numbers, and thus they were prevented fromgaining control of the Company; that the bidding terms and conditions favoredthe participation of foreign companies and removed the incentive for employeesof the Company; that there was insufficient publicity in the bidding; that thepublic stockholders’ equity of Fortaleza was damaged; etc.

Process status:Faced with the activation of the process there was no protest of any kind bythe plaintiffs. The trial awaits the judge’s verdict.

Amount:Undetermined.

 
| Plaintiff           | : | Sindicato da Indústria  de Fiação e Tecelagem |
|---------------------|---|--------------------------------------------------------------|
| Defendant           | : | Coelce                                                       |
| Court               | : | 1st Federal Court of  Ceará.                            |
| Case/Identification | : | 2003.81.00.014020-7                                          |

Summary ofproceedings: Action to declare the 31.29% rate adjustment determined by ANEELunconstitutional. An action was brought petitioning for advanced protection,which was granted by the Judge, thereby enabling the Plaintiffs to pay theirelectrical consumption minus the 31.29%, without Coelce being able to cut-offtheir power supply.

Process status: OnJune 17, 2003, the Judge reconsidered his previous decision and rejectedthe petition for advanced protection since such was in the jurisdiction of theFederal Courts. Waiting for the result of the action brought.

Amount:Undetermined.

 
| Plaintiff           | : | TBM S/A Indústria  Têxtil. |
|---------------------|---|--------------------------------------|
| Defendant           | : | Coelce.                              |
| Court               | : | Supremo Tribunal  Federal (STF)      |
| Case/Identification | : | 441.392                              |

Summary ofproceedings: This is a “Trial for Tarifazo”, that corresponds to the differenttrials begun as a result of the dictation of rate decrees 38, 45 and 153 of1986, by the National Department of Water and Electrical of Brazil (formerlyANEEL), which enabled the different electricity companies of Brazil to increasetheir rates considerably between the months of March and November 1996.In this case, the plaintiff seeks the devolution of amount paid as determinedby decrees above mentioned.

Process status:The appeal against the final judicial judgment that accepted the claim againstCoelce was rejected. A special resort was filed at the Superior Court and anextraordinary resort was filed at the superior federal court. Both resorts wereconsidered as admissible by the Chief Judge of the Court of the State of Ceará.The fees of the plaintiff’s attorneys for R$800,000 are in the period allowedfor enforcement performance against Coelce. TBM’s lawyer will start applyinghis professional fees for his work for R$550,000 in accordance with the finaljudicial judgment. Coelce was opposed to this fee application in terms of theamount compensated and the amount of the fees of TMB’s lawyers. Theaforementioned opposition was rejected. Coelce filed a claim against thisresolution. We are waiting for the decision of the court. At the same time,Coelce filed a new annulment action, which was also considered as inadmissible.Coelce also filed a claim against this resolution, but it did not succeed. Thespecial resort was rejected. The lawsuit was remitted to the Federal SuperiorCourt and we are waiting for the decision about the extraordinary resort.

Amount: R$26.9 millions - US$8.6 millions.

 
| Plaintiff             | : | State of Ceará                        |
|-----------------------|---|--------------------------------------------|
| Defendant             | : | Coelce                                     |
| Court                 | : | Tax Review Authority                       |
| Number/Identification | : | Administrative proceeding  No.2008.03658-0 |

Summary ofproceedings: On April 10, 2008 the Treasury of the State of Ceará issued aTax Assessment against Coelce. Such assessment is related to the calculation ofthe ICMS for 2003 and 2004 based on the comparison between monthly data ofgross income for sales of electric energy from the financial statements and thetaxable bases in the calculation 

 

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**Notesto the Consolidated Financial Statements**

 

document regardingthe ICMS. The amount was changed in accordance with the information furnishedby the Office of the Treasury.

Process status: OnMay 12, 2008 Coelce filed an objection to the Infringement Document. Weare waiting for the resolution of the objection. On November 26, 2008 theappealable decision by the Treasury of Ceará maintained the ICMS InfringementDocument filed against Coelce. December 9, 2008 the aforementioneddecision that the ICMS Infringement Document was maintained against Coelce wasnotified. The company may file a voluntary appeal at the Taxpayer Councilwithin a 20 calendar day period, which may be extended for another 10 days, startingfrom the evidence of the notification in the proceeding. On January 5,2009 the 30 day period for the filing of the aforementioned resort for anunappealable administrative decision started.

Amount: R$ 146.4 millions - US$62.7 millions.

 
| Plaintiff             | : | State Office of  Treasury                  |
|-----------------------|---|--------------------------------------------|
| Defendant             | : | Coelce                                     |
| Court                 | : | Tax Review Authority                       |
| Number/Identification | : | Administrative  Proceeding No.2006.25755-6 |

Summary ofproceedings: Infringement Document filed for the non-collection of the ICMS inregard to the Difference of Interprovincial Fractional Part.

Process status:The Infringement Document was filed on November 29, 2006. On January 2,2007 Coelce filed an objection. We are waiting for the judgment of theobjection.

Amount: R$ 28,9millions - US$12.3 millions

 

**Investluz S.A.**

 
| Plaintiff             | : | Federal Union                                      |
|-----------------------|---|----------------------------------------------------|
| Defendant             | : | Investluz                                          |
| Court                 | : | Federal Treasury                                   |
| Number/Identification | : | Administrative  Proceeding No.10380.012956/2006-84 |

Summary ofproceedings: Claim filed to require COFINS (social security financing tax) credits(effect of COFINS on financial income, dividends and retirement of shares).

Process status:The claim was filed on December 21, 2006. An objection was filed on January 22,2007. We are waiting for the judgment of the objection.

Amount: R$ 24.1 millions - US$10.3 millions.

 

**Compañía de InterconexionEnergética S.A.**

 
| Plaintiff           | : | CIEN                                                       |
|---------------------|---|------------------------------------------------------------|
| Defendant           | : | Federal Union                                              |
| Court               | : | 21st Federal Court of  the Rio de Janeiro Judicial Section |
| Case/Identification | : | 2005.5101.011614-6                                         |

Summaryof proceedings: A lawsuit was brought challenging the declaration ofunconstitutionality of Law 9.718/98 (enlarging the base and calculation of PISand COFINS taxes) and establishing the right to credit and compensation,considering that the Constitutional Court (STF) found in favor of thetaxpayers.

Processstatus: On February 12, 2007, the decision handed down with regard to theappeal from the Treasury was published, determining that CIEN should submit adeclaration regarding the appeal. On March 12, 2007, the decisionregarding the declarations submitted by CIEN and the supplementary appeal,aimed at considering a barring by limitation after 10 years, not 5, as thelower court judge had considered, was published.  With the declaration by the Public Prosecutor’sOffice regarding the declarations and appeal filed by CIEN having beensubmitted, the appeals were sent to the judge for final sentencing. Waiting forthe decision regarding the appeals filed.

Amount:R$ 50.9 millions - US$21.8 millions. (Active contingency —recovery of credits)

 

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**Notesto the Consolidated Financial Statements**

 
| Plaintiff           | : | Municipality of Itá              |
|---------------------|---|---------------------------------------|
| Defendant           | : | CIEN                                  |
| Court               | : | Single Court County of  Itá (SC) |
| Case/Identification | : | 068.03.000397-8                       |

Summaryof proceedings: The Municipality of Itá (SC) filed a legal claim against CIENpetitioning advanced protection to determine that Itá was the place where theevent taxed with ICMS (VAT) in selling electrical energy imported fromArgentina, occurred, and also to determine that the invoices for such operationshould obligatorily be issued in Itá—Santa Catarina subsidiary, not inGarruchos — Rio Grande do Sul, as CIEN normally does.

Processstatus: On March 11, 2003 the claim was tried by the Municipality of Itá.On March 12, 2003 the early trusteeship required by the plaintiff wasdeferred. On April 14, 2003 Cien filed a resort (“tort”) against suchdecision. On August 16, 2005 the resort filed by Cien was consideredadmissible and the claim was abated with no resolution of the legalsignificance of the claim due to absence of the required “intention to bring anaction” by the Municipality of Itá. Due to this decision on October 10,2005 Cien filed a resort (“seizures of statement) so that the amount of thesentence of the Municipality of Itá was changed to “losing party’s cost”. On November 22,2005 our resort was considered as inadmissible. Against that decision on February 14,2006 the parties filed “special resorts”, which were not accepted by the court.On March 14, 2007 Cien filed a “tort” against that decision at theSuperior Court. On October 19, 2007 the Superior Court considered as inadmissiblethe “tort” filed by Cien. On October 29, 2007 Cien filed a new resort (“tort”)against that decision. The judgment of this resort has not been delivered yet.On October 31, 2008 the Municipality of Itá was notified to express itsopinion on the resort filed by Cien. On November 25, 2008 the resort filedby Cien was considered as inadmissible. We are waiting for the publication ofthat decision.

Amount:None

 
| Plaintiff           | : | Federal Treasury of Rio  de Janeiro — MF         |
|---------------------|---|-------------------------------------------------------|
| Defendant           | : | CIEN - COMPANHIA DE INTERCONEXÃO ENERGÉTICA |
| Court               | : | National Tax Court of  Rio de Janeiro                 |
| Case/Identification | : | 18471.000814/2007-48                                  |

Summaryof proceedings: Fine for Lack of Import Documentation - On July 11, 2007,the Federal Tax Authorities (SRF) issued an “Infringement Proceeding” againstCIEN for imports of energy in 2002. According to the Tax inspector formalrequirements required by general regulations for tax documentation of importswere not met, so a fine equivalent to 100% of the value of the imports wasbeing imposed. However, there was no approved law whatsoever regulating taxdocumentation to be prepared when importing electrical energy until May, 2006.Since May, 2006, CIEN has all the documentation required by the law.

Process status: On August 10,2007, an appeal was filed with the first administrative instance. On September 14,2007, the Claim was judged inadmissible. On the same date, the decision of thefirst administrative instance was sent to the second administrative instance(Council of Taxpayers) for a resolution. On December 6, 2007, the SRFpublished an Interpretative Declaratory Ruling stipulating that no penalty offine whatsoever was imposed by reason of the non-existence of electrical energyimport and export records for operations performed until May 2, 2006, thedate on which Regulatory Instructions 649 of April 28, 2006 came intoforce. This ruling definitively resolves the administrative process dealingwith the lack of import records, which has already been won in the firstinstance, in CIEN’s favor. A copy of the interpretative ruling was submitted tothe Council of Taxpayers, asking for the proceeding to be closed. Waiting forthe Council of Taxpayers to declare the proceeding closed. On February 27,2008 the claim was sent to the Third Taxpayers Council. We expect theapplication of the interpretation favorable to us and that the proceeding isabated.

Amount: R$ 351.4 millions - US$ 111.9 millions.

 

**Endesa Cachoeira S.A.**

 
| Plaintiff           | : | Municipality of Cachoeira Dourada                                 |
|---------------------|---|-------------------------------------------------------------------|
| Defendant           | : | Centrais Elétricas Cachoeira Dourada S.A. (“CDSA”) |
| Court               | : | Public Finance Court of  Itumbiara County                         |
| Case/Identification | : | 2005.0334233-0                                                    |

Summary of proceedings: As a result of the unbundlingof CELG, one of whose successors wasCDSA, and the privatization of CDSA, the Municipality of Cachoeira Douradabrought two proceedings against the company charging the ITBI (Tax onConveyance of Real Estate).

 

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**Notesto the Consolidated Financial Statements**

 

Process status: 1. Proceeding regarding the conveyance of real estate. Arguments for thedefense: The Federal Constitution and the Labor Code stipulate word for wordthat the ITBI does not apply to conveyance of real estate in unbundlingoperations. CDSA’s appeal against this proceeding is still pending a decisionby the second administrative instance (The decision was unfavorable to CDSA inthe first administrative instance - May, 2003). 2. Proceeding regarding the transfer of shares: Arguments for thedefense: The ITBI does not apply to the transfer of movable property (shares),which as recognized by the Court of Goiás (Court of Appeal). In June, 2006, theMunicipality filed for enforcement of the amount of this claim against CDSA,despite it having been declared null and void by the Court Goiás. CDSA filed aplea of prior judgment with effect of *res judicata*,and in June, 2007, the Court of Goias declared the legal enforcement abatedsince it understood that the writ of execution of the Municipality was notenforceable. On August 21, 2007, the Municipality of Cachoeira Douradalodged an appeal against this decision. We lodged our rejoinder on October 1,2008. On November 12, 2008 the proceeding was remitted to theCourt. On September 23, 2008 the Court of Goiás delivered a judgment. Thecourt unanimously maintained the appealable decision that had considered asabated the executory process (decision favorable to CDSA). We are waiting forthe publication of the decision. On December 2, 2008 the judgment of theCourt of Goiás was published. We are waiting for the opinion of the MunicipalTreasury.

Amount: R$ 212.3 millions - US$ 90.8 millions.

 
| Plaintiff           | : | Municipality of  Cachoeira Dourada |
|---------------------|---|------------------------------------|
| Defendant           | : | CDSA                               |
| Court               | : | Municipal Secretary of  Finance    |
| Case/Identification | : | None                               |

Summary of proceedings: ISS (Services Tax)  — The municipality of Cachoeira Dourada hasnotified CDSA, through a Claim, that the Company owes the Municipality theServices Tax (ISS) on generation of electrical energy produced between 1997 and2000. The municipality understands that the generation of energy is a service.However, the generation of energy is not on the list of ISS taxable services(Federal legislation) and, therefore, cannot be considered a taxable eventunder that tax. The Brazilian Federal Constitution expressly prohibitsapplication of any tax on electrical energy operations other than the ICMS(VAT), II (Import Tax) or IE (Export Tax).

Process status:Administrative proceeding: Waiting for the Municipality to make a decisionregarding the appeal lodged. If lost, an appeal will be lodged with the secondadministrative process. Court proceedings: In parallel fashion, on September 12,2007, a legal action was brought to void such administrative collection anddeclare it inadmissible. On September 28, 2007, the petition was approvedprovisionally by the judge and the requirement to pay tax was stayed until theadmissibility of the administrative collection was resolved.  On February 13, 2008 themunicipality made its plea for the defense and on February 29, 2008 CDSAmade its plea for the defense. On July 21, 2008 there was an appealabledecision favorable to CDSA. We are waiting for the opinion of the Municipality.On August 1, 2008 the decision was published. In the event of loss we willfile a resort in the second administrative instance. The Municipality did nothave an opinion (did not file a claim) against the appealable judgment and theperiod allowed for that expired. However, the judgment will be reviewed by thecourt of appeal. This review is an obligatory routine judicial procedurerequired by the Brazilian procedural law, when there is a judgment against theTreasury and the amount of the litigation is over 60 minimum wages. We arewaiting for the review of the appealable judgment by the court of appeal.

Amount: R$ 87.6 millions - US$ 37.5 millions.

 

**Endesa Fortaleza S.A. (“EndesaFortaleza”)**

 
| Plaintiff           | : | Endesa Fortaleza                 |
|---------------------|---|----------------------------------|
| Defendant           | : | Federal Union                    |
| Court               | : | 1st Federal Court of  Ceará |
| Case/Identification | : | 2002.81.00.020687-1              |

Summary of proceedings: Generator Set — Endesa Fortaleza filed a lawsuit against the Federal Uniontowards the end of 2002, with a view to it recognizing that the goods importedfor the turbo-generator sets are “Other Generator Sets”, so as to be able claimthe 0% Import Tax (II) and Tax on Industrialized Products (IPI). TheFederal Union argues that the imported goods are not generator sets. CGTF wonan accessory resolution in its favor allowing it to clear the goods throughcustoms at a 0% rate, subject to R$56 million (US$29 million) — updated atJune, 2007 with the court. In order to prevent the taxes from becoming null andvoid, the Federal Tax Authorities brought an action requiring the suspension ofthe tax until the proceedings pending against the Federal Union are resolved.

 

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**Notesto the Consolidated Financial Statements**

 

Process status:The lawsuit against the Federal Union is pending resolution in the lower court.In parallel fashion, the Action brought by the Federal Tax Authorities (whoseenforcement is suspended until the lawsuit against the Federal Union isresolved) was declared null and void in the first administrative instancebecause it did not comply with the requirements of form. The Tax Authoritiesmay well bring another action correcting the errors.  On February 21, 2008 the Treasuryexpressed its opinion in regard to the resort filed by Endesa Fortaleza and theexpert’s report prepared in 2005. On April 17, 2008 CGTF made itsrepresentations about the technical report filed by the Treasury. On May 12,2008 the proceeding was remitted to the Public Prosecutor’s Office of theTreasury and it was returned with no representations or opinion of theTreasury. On September 19, 2008 the appealable judgment was delivered andit was favorable to Endesa Fortaleza. The aforementioned decision recognizedthe classification of the power generator in accordance with Endesa Fortaleza’sclaim and determined that the judicial deposit should continue as guarantee ofthe proceeding until the final judicial decision. We are waiting for the filingof the resort by the Federal Treasury at the Regional Federal Court (RFC),which is the second judicial instance, against the appealable judgmentfavorable to Endesa Fortaleza. The period allowed for the Federal Treasury tofile the aforementioned resort is 30 days starting from the publication of theappealable judgement. On September 29, 2008 the aforementioned judgmentwas issued. On November 10, 2008 the Treasury was notified about theappealable judgment favorable to Endesa Fortaleza. Therefore, the 30 calendarday period starts from that date (the period expires on December 10, 2008)so that the Treasury files the resort at the Regional Federal Court. We arewaiting that it is informed whether the Treasury filed the resort at theRegional Federal Court within the period. We noted that the Judge’s secretarymade a mistake as she sent the proceeding to the Legal Department of theFederal Union (LDFU) instead of having sent the proceeding to the PublicProsecutor’s Office of the Treasury. On December 10, 2008 the LDFUreturned the litigation and informed the aforementioned mistake. As a result ofthe above, the notification to the Treasury dated November 10, 2008 wasnullified. We are waiting for a new notification to the Treasury, when a new 30calendar day period will start so that the Treasury files the resort at theRegional Federal Court. This new notification should be sent after the end ofthe judicial holiday due to year-end holidays, that is, January 7, 2009.We do not know the exact date of the notification.

Amount R$ 125.1 millions - US$ 53.5 millions.

 
| Plaintiff | : | Treasury         |
|-----------|---|------------------|
| Defendant | : | Endesa Fortaleza |

Summaryof Proceedings: The Federal Tax Authorities have issued a Resolution to collectPIS/COFINS taxes allegedly owed in 2003 to 2004.

Process status: Theresolution was received on February 12, 2007. Pleas for the defense wereraised on March 14, 2007. The Resolution was judged to be partiallyadmissible on November 5, 2007. The appealable judgment considered thatthe income from the contract for the purchase and sale of energy with Coelce isnot subject to paying cumulative PIS/COFINS but is subject to non-cumulativeones. However, the resolution was judged admissible with regard to the month ofOctober, 2004. An appeal was lodged on December 5, 2007. On December 2,2008 the decision was announced. The decision maintained the administrativeappealable judgment. We are waiting for the formalization and notification ofthe decision.

Amount R$ 35.8 millions - US$ 15.3 millions.

 

**Compañía deTransmisión del Mercosur S.A. (“CTM”)**

 
| Plaintiff           | : | CTM                                 |
|---------------------|---|-------------------------------------|
| Defendant           | : | Province of Corrientes  (Argentina) |
| Court               | : | Supreme Court of the  Nation        |
| Case/Identification | : | C-222/03                            |

Summary of proceedings:CTM initiated a statement of certainty action against the Province ofCorrientes, for the Supreme Court to declare that the activity carried out bythe company in the province is under federal jurisdiction and therefore exemptfrom the Gross Income Tax that the Province of Corrientes currently demands. Italso requested an injunction, to order the General Revenue Department of theProvince of Corrientes to abstain from demanding CTM the payment of thementioned tax.

Process status: TheSupreme Court (the “Court”) on August 21, 2003, resolved
| (i)  | That it was competent  to see the cause;           |
|------|----------------------------------------------------|
| (ii) | Notify the Province of  Corrientes of proceedings; |

 

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**Notesto the Consolidated Financial Statements**

 
| (iii) | Issue the injunction  requested by CTM (to not innovate) in relation to the payment of the gross  business income tax included in the Fiscal Code of the Province of Corrientes  with regard to the activity carried our by CTM, in the following terms:  “Decree the injunction requested, and consequently, orders the Province of  Corrientes to abstain from pursuing the fiscal execution of the gross  business income tax regarding the contract signed on June 14, 2000  between the National State and CTM for the construction, operation and  maintenance of the second circuit for electric energy transport of the Nodo  Rincón de Santa María-Nodo Frontera Garabí section (Province of Corrientes).  The Province of Corrientes was notified of the demand and answered stating  that there was no current and concrete requirement for the payment of the  gross business income tax. |
|-------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

Likewise, it stated that according to expressdispositions of the Provincial Fiscal Code, it corresponded that CTM pay theGross Business Income Tax and the inapplicability Federal Pact for Employment,Production and Growth by which some provinces, including Corrientes, hadcommitted to eliminate the Gross Business Income Tax. CTM rebutted each of thearguments invoked by the province in its presentation. Later, the Province ofCorrientes requested the lifting of the injunction, presentation that wasopportunely answered by CTM. On April 5, 2005, the Court rejected therequest for the lifting of the injunction. On September 9, 2005, CTMrequested the cause be opened to evidence and the CSJN set the conciliationaudience for November 9, 2005. In the mentioned audience, the partiesmanifested that it was not possible to achieve conciliation. As a result, thecase was opened to evidence. On March 13, 2006 the Court certified thatthe term for evidence was expired without any evidence pending and itinstructed the parties to present their arguments regarding the evidencepresented. Ctm argued on the evidence produced. The proceedings passed to theAttorneys Office on September 8, 2006. At December 27, 2006, theproceedings had not returned from the Attorneys Office.  The case records returned from thePublic Prosecutor’s Office on April 30, 2004 with a negative verdict onthe admissibility of the lawsuit, since it considered that there was no “case”,as required by article 322 of the Procedural Code, since it is understood thatthere was no specific requirement from the Province. The proceedings were readyfor sentencing on May 2, 2007, but no sentence has so far been issued.

Amount: Undetermined

 

# **Note 20.       Collateral Obtained fromThird Parties**

#  

During the yearsended December 31, 2006, 2007 and 2008 the Company and its subsidiarieshave not obtainer collateral from third parties.

 

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**Notesto the Consolidated Financial Statements**

 

**Note 21.****                     ForeignCurrencies**

 

As of December 31, 2007 and 2008, localand foreign currency-denominated assets and liabilities are as follows:

** **

## **a.****                            **Current Assets

 
| ** **                | ** ** | ** **   | ** ** | **As  of December 31,** | ** ** |
|---------------------------|------------|--------------|------------|------------------------------|------------|
| **Account**               | ** ** | **Currency** | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                | ** ** | ** **   | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                | ** ** | ** **   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Cash                      | ** ** | $ Arg.  | ** ** | 254                          | ** ** | 2,593 | ** ** |
|                      | ** ** | Reais        | ** ** | 79,610                       | ** ** | 16,350 | ** ** |
| Time deposits             | ** ** | US$          | ** ** | 18,595                       | ** ** | 3,855 | ** ** |
|                      | ** ** | $ Arg.  | ** ** | 354                          | ** ** | 292 | ** ** |
|                      | ** ** | Reais        | ** ** | 493,812                      | ** ** | 481,761 | ** ** |
| Marketable securities     | ** ** | US$          | ** ** | 133                          | ** ** | 53 | ** ** |
| Trade accounts receivable | ** ** | Reais        | ** ** | 809,653                      | ** ** | 540,608 | ** ** |
| Accounts receivable, net  | ** ** | Reais        | ** ** | 14,491                       | ** ** | 5,486 | ** ** |
| Other receivables         | ** ** | Reais        | ** ** | 43,436                       | ** ** | 44,204 | ** ** |
|                      | ** ** | $ Arg.  | ** ** | —                       | ** ** | 17 | ** ** |
| Amounts due from          | ** ** | $ Arg.  | ** ** | 22,603                       | ** ** | 33,015 | ** ** |
| related companies         | ** ** |         | ** ** | —                       | ** ** | — | ** ** |
| Inventories, net          | ** ** | Reais        | ** ** | 3,498                        | ** ** | 1,805 | ** ** |
| Income taxes recoverable  | ** ** | $ Arg.  | ** ** | 8                            | ** ** | 11 | ** ** |
|                      | ** ** | Reais        | ** ** | 125,381                      | ** ** | 130,344 | ** ** |
| Prepaid expenses          | ** ** | Reais        | ** ** | 86,995                       | ** ** | 76,353 | ** ** |
| Deferred income taxes     | ** ** | $ Arg.  | ** ** | 4,873                        | ** ** | 3,047 | ** ** |
|                      | ** ** | Reais        | ** ** | 48,881                       | ** ** | 38,419 | ** ** |
| Other current assets      | ** ** | Reais        | ** ** | 72,293                       | ** ** | 94,729 | ** ** |
|                      | ** ** |         | ** ** |                         | ** ** |   | ** ** |
| **Total current assets**  | ** ** |         | ** ** | 1,824,870                    | ** ** | 1,472,942 | ** ** |

 

## **b.****                            **Property, Plant andEquipment

 
| ** **                              | ** ** | ** **   | ** ** | **As  of December 31,** | ** ** |
|-----------------------------------------|------------|--------------|------------|------------------------------|------------|
| **Account**                             | ** ** | **Currency** | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                              | ** ** | ** **   | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
|                                    |       |         |       |                         |       |   |   |
| Land                                    |       | Reais        |       | 71,504                       |       | 74,393 |   |
| Building and  infrastructure            |       | $ Arg.  |       | 85,342                       |       | 85,342 |   |
|                                    |       | Reais        |       | 3,757,598                    |       | 3,891,073 |   |
| Machinery and equipment                 |       | Reais        |       | 1,445,633                    |       | 1,679,970 |   |
| Other plant and equipment               |       | $ Arg.  |       | 283                          |       | 283 |   |
|                                    |       | Reais        |       | 314,167                      |       | 326,243 |   |
| Accumulated depreciation                |       | $ Arg.  |       | (28,323                      | )          | (32,577 | ) |
|                                    |       | Reais        |       | (1,969,361                   | )          | (2,177,990 | ) |
|                                    |       |         |       |                         |       |   |   |
| **Total property, plant and equipment** |       |         |       | 3,676,843                    |       | 3,846,737 |   |

 

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**Notesto the Consolidated Financial Statements**

 

## **c.****                            **Other assets

 
| ** **                          | ** ** | ** **   | ** ** | **As  of December 31,** | ** ** |
|-------------------------------------|------------|--------------|------------|------------------------------|------------|
| **Account**                         | ** ** | **Currency** | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                          | ** ** | ** **   | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                          | ** ** | ** **   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Investments in other companies      |       | Reais        |       | 6                            |       | 4 |   |
| Long-term accounts  receivable      |       | $Arg.        |       | 4,496                        |       | 3,997 |   |
|                                |       | Reais        |       | 59,777                       |       | 32,900 | ** ** |
| Amounts due from related  companies | ** ** | Reais        | ** ** | 254,376                      | ** ** | 326 | ** ** |
| Deferred taxes                      |       | Reais        |       | 225,931                      |       | 161,232 |   |
| Other long-term assets              |       | Reais        |       | 330,022                      |       | 268,590 |   |
|                                |       | $ Arg.  |       | —                       |       | 4,269 | ** ** |
| ** **                          | ** ** | ** **   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| **Total other assets**              |       |         |       | 874,608                      | ** ** | 471,318 | ** ** |
| ** **                          | ** ** | ** **   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Total assets by currency            |       | US$          |       | 18,728                       | ** ** | 3,908 | ** ** |
|                                |       | $ Arg.  |       | 89,890                       |       | 100,289 | ** ** |
|                                |       | Reais        |       | 6,267,703                    |       | 5,686,800 | ** ** |
| ** **                          | ** ** | ** **   | ** ** | ** **                   | ** ** | ** ** | ** ** |
| **Total assets by currency**        |       |         |       | 6,376,321                    | ** ** | 5,790,997 | ** ** |

** **

## **d.****                            **Current liabilities

** **
| ** **                                      | ** ** | ** **   | ** ** | **Within 90 days**                | ** ** | **90 days to 1 year**             | ** ** |
|-------------------------------------------------|------------|--------------|------------|-----------------------------------|------------|-----------------------------------|------------|
| ** **                                      | ** ** | ** **   | ** ** | **As of December 31,  2007** | ** ** | **As of December 31,  2008** | ** ** | **As of December 31,  2007** | ** ** | **As of December 31,  2008** | ** ** |
| ** **                                      | ** ** | ** **   | ** ** | ** **                        | ** ** | **Average**                       | ** ** | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** | ** ** | ** ** | **Average** | ** ** |
| **Account**                                     | ** ** | **Currency** | ** ** | **Amount**                        | ** ** | **Rate**                          | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** | **Amount** | ** ** | **Rate** | ** ** |
| ** **                                      | ** ** | ** **   | ** ** | **ThUS$**                         | ** ** | ** **                        | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** | ** ** | ** ** |
| ** **                                      | ** ** | ** **   | ** ** | ** **                        | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Debt due to banks                               |       | US$          |       | 265                               |       | —                            |       | — |   | — |   | 40,415 |   | — |   | — |   | — |   |
| and financial  institutions                     |       | Yen          |       | 115                               |       | —                            |       | — |   | — |   | 12,677 |   | — |   | — |   | — |   |
|                                            |       | Euro         |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | $ Arg.  |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | Reais        |       | 238                               |       | —                            |       | 11,723 |   | 13.23 | % | 5,703 |   | — |   | 111,022 |   | 13.23 | % |
| Current portion of long - term                  |       | US$          |       | 9,819                             |       | —                            |       | 10,002 |   | 27.70 | % | 11,019 |   | — |   | 9,712 |   | 12.82 | % |
| debt due to banks and                           |       | Euro         |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
| financial institutions                          |       | Reais        |       | 1,571                             |       | —                            |       | 293 |   | 15.87 | % | 95,887 |   | — |   | 144,740 |   | 29.18 | % |
|                                            |       | $ Arg.  |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Current portion of                              |       | Reais        |       | —                            |       | —                            |       | — |   | — |   | 186,296 |   | — |   | 14,766 |   | 15.43 | % |
| bonds payable                                   |       | Reais        |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
| Long-term liabilities  maturing within one year |       | Reais        |       | —                            |       | —                            |       | — |   | — |   | 1,548 |   | — |   | 769 |   | 5.00 | % |
| Dividends payable                               |       | US$          |       | 1,413                             |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | Reais        |       | 28,184                            |       | —                            |       | 444 |   | — |   | 7 |   | — |   | 58 |   | — |   |
|                                            |       | US$          |       | —                            |       | —                            |       | 2 |   | — |   | — |   | — |   | — |   | — |   |
| Accounts payable                                |       | $Arg.        |       | 23                                |       | —                            |       | 43 |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | Reais        |       | 216,726                           |       | —                            |       | 122,854 |   | — |   | 89,359 |   | — |   | 81,207 |   | — |   |
| Notes payable                                   |       | Reais        |       | 13,071                            |       | —                            |       | 9,877 |   | — |   | 18,988 |   | — |   | 15,210 |   | — |   |
| Miscellaneous payables                          |       | Reais        |       | 39,674                            |       | —                            |       | 99,403 |   | — |   | 70,287 |   | — |   | 54,977 |   | — |   |
| Accounts payable to                             |       | US$          |       | 329,771                           |       | —                            |       | 50,808 |   | — |   | — |   | — |   | 13,500 |   | — |   |
| related companies                               |       | Reais        |       | 26,928                            |       | —                            |       | 1,188 |   | — |   | — |   | — |   | 2,825 |   | — |   |
| Accrued expenses                                |       | US$          |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | $ Arg.  |       | 1,057                             |       | —                            |       | 964 |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | Reais        |       | 16,784                            |       | —                            |       | 13,663 |   | — |   | 26,280 |   | — |   | 4,628 |   | — |   |
| Withholdings                                    |       | $Arg.        |       | —                            |       | —                            |       | 2,139 |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | Reais        |       | 49,444                            |       | —                            |       | 32,294 |   | — |   | 63,679 |   | — |   | 51,779 |   | — |   |
| Income tax payable                              |       | Reais        |       | —                            |       | —                            |       | — |   | — |   | — |   | — |   | — |   | — |   |
|                                            |       | $ Arg.  |       | 1,213                             |       | —                            |       | 566 |   | — |   | — |   | — |   | — |   | — |   |
| Other current liabilities                       |       | Reais        |       | 85,403                            |       | —                            |       | 52,609 |   | — |   | 36,383 |   | — |   | 33,259 |   | — |   |
|                                            |       |         |       |                              |       |                              |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Total current liabilities                       |       | US$          |       | 341,268                           |       |                              |       | 60,812 |   |   |   | 51,434 |   |   |   | 23,212 |   |   |   |
| by currency                                     |       | Reais        |       | 478,023                           |       |                              |       | 344,348 |   |   |   | 594,417 |   |   |   | 515,240 |   |   |   |
|                                            |       | $ Arg.  |       | 2,293                             |       |                              |       | 3,712 |   |   |   | — |   |   |   | — |   |   |   |
|                                            |       | Euro         |       | —                            |       |                              |       | — |   |   |   | — |   |   |   | — |   |   |   |
|                                            |       | Yen          |       | 115                               |       |                              |       | — |   |   |   | 12,677 |   |   |   | — |   |   |   |
| **Total current liabilities**                   |       |         |       | 821,699                           |       |                              |       | 408,872 |   |   |   | 658,528 |   |   |   | 538,452 |   |   |   |

 

G-47

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Tableof Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

## **e.****                            **Long-term liabilities as of December 31,2007

** **
| ** **                   | ** ** | ** **   | ** ** | **1 to 3 years** | ** ** | **3 to 5 years**  | ** ** | **5 to 10 years** | ** ** | **More than 10 years** | ** ** |
|------------------------------|------------|--------------|------------|------------------|------------|-------------------|------------|-------------------|------------|------------------------|------------|
| ** **                   | ** ** | ** **   | ** ** | ** **       | ** ** | **Annual**        | ** ** | ** **        | ** ** | **Annual**             | ** ** | ** ** | ** ** | **Annual** | ** ** | ** ** | ** ** | **Annual** | ** ** |
| ** **                   | ** ** | ** **   | ** ** | ** **       | ** ** | **average**       | ** ** | ** **        | ** ** | **average**            | ** ** | ** ** | ** ** | **average** | ** ** | ** ** | ** ** | **average** | ** ** |
| **Account**                  | ** ** | **Currency** | ** ** | **Amount**       | ** ** | **interest rate** | ** ** | **Amount**        | ** ** | **interest rate**      | ** ** | **Amount** | ** ** | **interest rate** | ** ** | **Amount** | ** ** | **interest rate** | ** ** |
| ** **                   | ** ** | ** **   | ** ** | **ThUS$**        | ** ** | ** **        | ** ** | **ThUS$**         | ** ** | ** **             | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | ** **   | ** ** | ** **       | ** ** | ** **        | ** ** | ** **        | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Due to banks and financial   |       | US$          |       | 38,501           |       | 21.00             | %          | 40,351            |       | 12.51                  | %          | 57,627 |   | 21.00 | % | 6,653 |   | 9.00 | % |
| institutions                 |       | Reais        |       | 312,975          |       | 28.00             | %          | 552,517           |       | 28.00                  | %          | 83,633 |   | 28.00 | % | — |   | — | ** ** |
| Bonds payable                |       | Reais        |       | —           |       | —            |       | 278,664           |       | 31.00                  | %          | — |   | — |   | — |   | — | ** ** |
| Notes payable                |       | Reais        |       | 71,642           |       | 11.00             | %          | 30,277            |       | 11.00                  | %          | 18,667 |   | 11.00 | % | — |   | — | ** ** |
| Miscellaneous payables       |       | Reais        |       | 28,060           |       | —            |       | 10,713            |       | —                 |       | 19,875 |   | — |   | — |   | — | ** ** |
|                         |       | US$          |       | —           |       | —            |       | —            |       | —                 |       | 82,119 |   | — |   | — |   | — |   |
| Amounts payable to           |       | Reais        |       | —           |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — | ** ** |
| related companies            |       | US$          |       | 16,426           |       |              |       |              |       | —                 |       | — |   | — |   | — |   | — | ** ** |
| Accrued expenses             |       | Reais        |       | 472,414          |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — | ** ** |
| Other long-term  liabilities |       | Reais        |       | 25,105           |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   |   | ** ** |
|                         |       |         |       |             |       |              |       |              |       |                   |       |   |   |   |   |   |   |   | ** ** |
| Total long-term  liabilities |       | US$          |       | 54,927           |       |              |       | 40,351            |       |                   |       | 139,746 |   |   |   | 6,653 |   |   | ** ** |
| by currency                  |       | Reais        |       | 910,196          |       |              |       | 872,171           |       |                   |       | 122,175 |   |   |   | — |   |   | ** ** |
|                         |       |         |       |             |       |              |       |              |       |                   |       |   |   |   |   |   |   |   | ** ** |
| Total long-term  liabilities |       |         |       | 965,123          |       |              |       | 912,522           |       |                   |       | 261,921 |   |   |   | 6,653 |   |   | ** ** |

 

## **f.****                              **Long-term liabilities as of December 31,2008

** **
| ** **                              | ** ** | ** **   | ** ** | **1 to 3 years** | ** ** | **3 to 5 years**  | ** ** | **5 to 10 years** | ** ** | **More than 10 years** | ** ** |
|-----------------------------------------|------------|--------------|------------|------------------|------------|-------------------|------------|-------------------|------------|------------------------|------------|
| ** **                              | ** ** | ** **   | ** ** | ** **       | ** ** | **Annual**        | ** ** | ** **        | ** ** | **Annual**             | ** ** | ** ** | ** ** | **Annual** | ** ** | ** ** | ** ** | **Annual** | ** ** |
| ** **                              | ** ** | ** **   | ** ** | ** **       | ** ** | **average**       | ** ** | ** **        | ** ** | **average**            | ** ** | ** ** | ** ** | **average** | ** ** | ** ** | ** ** | **average** | ** ** |
| **Account**                             | ** ** | **Currency** | ** ** | **Amount**       | ** ** | **interest rate** | ** ** | **Amount**        | ** ** | **interest rate**      | ** ** | **Amount** | ** ** | **interest rate** | ** ** | **Amount** | ** ** | **interest rate** | ** ** |
| ** **                              | ** ** | ** **   | ** ** | **ThUS$**        | ** ** | ** **        | ** ** | **ThUS$**         | ** ** | ** **             | ** ** | **ThUS$** | ** ** | ** ** | ** ** | **ThUS$** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | ** **   | ** ** | ** **       | ** ** | ** **        | ** ** | ** **        | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Due to banks and financial institutions |       | US$          |       | 50,855           |       | 21.43             | %          | 35,346            |       | 21.43                  | %          | 34,713 |   | 21.43 | % | 2,771 |   | 9.01 | % |
|                                    |       | $ Arg.  |       | —           |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — |   |
|                                    |       | Reais        |       | 356,117          |       | 24.00             | %          | 315,912           |       | 24.00                  | %          | 21,461 |   | 10.00 | % | — |   | — |   |
| Bonds payable                           |       | Reais        |       | —           |       | —            |       | 216,451           |       | 34.00                  | %          | — |   | — |   | — |   | — | ** ** |
| Notes payable                           |       | Reais        |       | 54,867           |       | 11.00             | %          | 15,501            |       | 11.00                  | %          | 8,784 |   | 11.00 | % | 862 |   | 11.00 | % |
| Miscellaneous payables                  |       | Reais        |       | 22,244           |       | —            |       | 13,045            |       | —                 |       | 7,685 |   | — |   | — |   | — | ** ** |
| Amounts payable to                      |       | Reais        |       | —           |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — | ** ** |
| related companies                       |       | US$          |       | 14,106           |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — | ** ** |
| Accrued expenses                        |       | Reais        |       | 384,644          |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — | ** ** |
| Other long-term  liabilities            |       | Reais        |       | 16,475           |       | —            |       | —            |       | —                 |       | — |   | — |   | — |   | — | ** ** |
|                                    |       |         |       |             |       |              |       |              |       |                   |       |   |   |   |   |   |   |   | ** ** |
| Total long-term  liabilities            |       | US$          |       | 64,961           |       |              |       | 35,346            |       |                   |       | 34,713 |   |   |   | 2,771 |   |   | ** ** |
| by currency                             |       | Reais        |       | 834,347          |       |              |       | 560,909           |       |                   |       | 37,930 |   |   |   | 862 |   |   | ** ** |
|                                    |       |         |       |             |       |              |       |              |       |                   |       |   |   |   |   |   |   |   | ** ** |
| Total long-term  liabilities            |       |         |       | 899,308          |       |              |       | 596,255           |       |                   |       | 72,643 |   |   |   | 3,633 |   |   | ** ** |

** **

**Note 22.****                     Sanctions**

 

During 2008, neither regulatory bodies norother administrative authorities have imposed any sanctions on the Company, itsDirectors or its management.

 

**Note 23.****                     Environment**

 

During the year ended December 31, 2008,the Company and its subsidiaries have implemented the ISO 14001 environmentalmanagement system, and the OHSAS 18001 health care and labor security system.

 

**Note 24.****                     SubsequentEvents**

 

From January 1, 2009 to the date ofissuance of these financial statements, there have been no subsequent eventsthat would materially affect the financial statements in question.

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

**Note 25.****                     Differencesbetween Chilean and United States Generally Accepted Accounting Principles**

 

Chilean GAAP varies in certain important respects fromU.S. GAAP. Such differences involve certain methods for measuring the amountsshown in the financial statements.

 

**I.****                     Differencesin Measurement Methods**

 

The principal differencesbetween Chilean GAAP and U.S. GAAP are described below together with anexplanation, where appropriate, of the method used in the determination of theadjustments that affect net income and total shareholders’ equity. Referencesbelow to “SFAS” are to Statements of Financial Accounting Standards issued bythe Financial Accounting Standards Board in the United States.

** **

**(a)**              Deferred income taxes

** **

Under Chilean GAAP, untilDecember 31, 1999, deferred income taxes were recorded based onnon-recurring timing differences between the recognition of income and expenseitems for financial statement and tax purposes. Accordingly, there was anorientation toward the income statement focusing on differences in the timingof recognition of revenues and expenses in pre-tax accounting income andtaxable income. Chilean GAAP also permitted not providing for deferred incometaxes where a deferred tax asset or liability was either offsetting or notexpected to be realized. Starting January 1, 2000, the Company recordedincome taxes in accordance with Technical Bulletin No. 60, and its relatedamendments issued by the Chilean Association of Accountants, recognizing, usingthe liability method, the deferred tax effects of temporary differences betweenthe financial and tax values of assets and liabilities. As a transitionalprovision, a contra (referred to as “complementary”) asset or liability hasbeen recorded against the deferred tax assets and liabilities recognized as ofJanuary 1, 2000. Such complementary assets and liabilities are beingamortized to income over the estimated average reversal periods of theunderlying temporary differences to which the corresponding deferred tax assetor liability relates.

 

Under U.S. GAAP,companies must account for deferred taxes in accordance with SFAS No. 109,which requires an asset and liability approach to financial accounting andreporting for income taxes, using the following basic principles:

** **

i.                  A deferred tax liability or asset isrecognized for the estimated future tax effects attributable to temporarydifferences and tax loss carryforwards.

 

ii.   The measurement of deferred tax liabilitiesand assets is based on the provisions of the enacted tax law. The effects offuture changes in tax laws or rates are not recognized prior to the period inwhich such changes are enacted into law.

 

iii.  Deferred tax assets are reduced by avaluation allowance, to the extent that, based on the weight of availableevidence, it is deemed more likely than not that the deferred tax assets willnot be realized.

 

Temporary differences aredefined as any difference between the financial reporting basis and the taxbasis of an asset and liability that at some future date will reverse, therebyresulting in taxable income or expense. Temporary differences ordinarily becometaxable or deductible when the related asset is recovered or the relatedliability is settled. A deferred tax liability or asset represents the amountof taxes payable or refundable in future years as a result of temporarydifferences at the end of the current year.

 

The principal differencebetween U.S. GAAP and Chile GAAP relates to the reversal of the complementaryassets and liabilities recorded as a transitional provision for unrecordeddeferred taxes as of January 1, 2000 and their corresponding amortizationinto income. Additionally, under U.S. GAAP, temporary differences arising inconnection with fair value adjustments on business combinations result indeferred taxes and a corresponding adjustment to goodwill. An adjustment isrequired in the reconciliation to U.S. GAAP to record goodwill arising fromdeferred tax liabilities related to past business combinations (see Note 25 II(b)). When required, the income tax effects of U.S. GAAP adjustments arerecorded in our reconciliations to U.S. GAAP. The effect of these differenceson the net income and shareholders’ equity of the Company is included in paragraph(n) below.

** **

**G-49**

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**Table of Contents**

** **

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

** **

**(b)**              PIS-COFIN

** **

Brazilian Tax Dispute —PIS and COFINS

 

In 1998, Brazilian Law9718/98 was enacted, which increased the base for both PIS (Contribuição aosProgramas de Integração Social — Contributions to Social Integration Programs)and COFINS (Contribuição para Financiamento da Seguridade Social —Contributions to the Financing of Social Security), which are socialcontributions taxation on revenues, beginning in 1999 to be levied onother revenue lines and not only sales, while at the same time, increasing therate for COFINS from 2% to 3%.

 

The Company’s subsidiaryin Brazil, Ampla, has decided not to pay such PIS and COFINS taxes under Law9718/98 and has filed a tax lawsuit dispute challenging that the payment of PISand COFINS on other revenues was unconstitutional. During 2007, such subsidiaryreceived a favorable verdict from local courts, agreeing with the Company andruling in favor of it on the grounds of the unconstitutionality of Law 9718/98.Such ruling, however, could be appealed by the Brazilian Government and wouldonly achieve a final resolution upon the final decision of the BrazilianFederal Supreme Court. In this respect, several other companies have filedsimilar lawsuits on the same basis and have obtained a favorable ruling on thematter from the Brazilian Federal Supreme Court. Such cases have set a basejurisprudence ground that makes virtually certain that the final verdict willbe in favor of the Company and, therefore, reducing to a remote, if any, theprobability of the Company to make any payment in relation to this tax dispute.

 

Under Chilean GAAP, afterthe favorable verdict by a local court of the Company’s dispute and consideringthe base jurisprudence, the Company considered that it is not probable that itwill have to pay any amount in relation to PIS and COFINS taxes as a result ofLaw 9718/98. As such, we have reversed the provision in 2007.

 

Under US GAAP, theprobability of payment is irrelevant if settlement of the liability is requiredby current law or by contract. When the obligating event or transaction hasoccurred (in this instance, through sales or other revenues), the probabilityof payment is not relevant in determining whether a contractual or legalobligation is a liability or a loss contingency. That is, when the obligatingevent or transaction has occurred, the enterprise has incurred a liability; andaccordingly, there is no contingency. Therefore, until the Brazilian FederalSupreme Court announces a favorable and final ruling the amount should stayprovisioned by not recording the reversal made under Chilean GAAP.

 

The effect of thisdifference on the net income and shareholders ́equity of the Company is includedin paragraph (n) below.

** **

**(c)**              Pension and post-retirement benefits accounting

** **

During2006, the Company adopted FAS 158 “Employer’s Accounting for Defined Pensionand Other Postretirement Plans - an amendment of FASB Statements N°87, 88, 106and 132 (R)”. These statements required the recognition of the funded status ofa benefit plan in the statement of financial position. It also requires therecognition as a component of other comprehensive income (OCI), net of tax, ofthe gains or losses and prior service costs or credits that arise during theperiod, but are not recognized as components of net periodic benefit costpursuant to statements 87 or 106. The adoption resulted in the recognitionthrough AOCI for accumulated effect through the 2006 year - end of priorservice costs and related plan assets in the balance sheet of the certainBrazilian subsidiaries. The effects of the adoption of SFAS 158 are presentedin paragraph (n) below.

 

Theeffects of accounting for post-retirement benefits under US GAAP have beenpresented in paragraph (n).

** **

**(d)**              Negative Goodwill

** **

Under Chilean GAAP, untilDecember 31, 2003, the excess of the carrying value of the assets assumedin a business combination over the purchase price is recorded as negativegoodwill. Circular No. 1358, dated December 3, 1997 issued by theSVS, extended the maximum amortization period of negative goodwill to 20 yearsfrom the previous 5 years. Technical Bulletin No. 72 issued by ChileanAssociation of Accountants requires using fair value accounting for allacquired assets and liabilities for all acquisitions after January 1,2004. Technical Bulletin No. 72 states that whenever the negative goodwillexceeds the fair value of identified non-monetary assets, the excess must berecognized immediately as income.

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

Under U.S. GAAP, the fairvalue of the net assets acquired in excess of the purchase price is allocatedproportionately to reduce the values assigned to long-lived assets. If theallocation reduces the long-lived assets to zero, the remainder of the excessis recorded as an extraordinary gain to income.

 

The effect of reduceddepreciation expense on the long-lived assets (for which no circumstanceschanged requiring an impairment test under SFAS No.144) to which negativegoodwill had been allocated under U.S. GAAP net of reversals of bothamortization and write-offs of negative goodwill recorded in Chilean GAAP (overthe appropriate useful lives as defined in the first paragraph) are included inparagraph (n) below.

 

Theadjustment related to negative goodwill necessary to make the consolidatedfinancial statements conform to US GAAP is included in paragraph (n) belowand is as follow:

 

·                  Theeffects of reducing depreciation expense, due to the proportionate allocationof the excess purchase price to property, plant and equipment and other effectson income.

 

**(e)**              Capitalized interest and exchange differences

** **

In accordance withChilean GAAP, the Company has capitalized both interest on debt directlyrelated to property, plant and equipment under construction and finance costscorresponding to exchange differences generated by the loans associated withsuch assets.  The capitalization ofinterest costs associated with projects under construction is optional whenincurred on debt that is not directly related to such projects.  The Company has optioned for not capitalizingindirect interest cost under Chilean GAAP.

 

Under U.S. GAAP, thecapitalization of interest on qualifying assets under construction is required,regardless of whether interest is associated with debt directly related to aproject to the extent that interest cost would have been avoided if the projecthad not been done.  In addition, underU.S. GAAP, foreign currency translation exchange differences may not becapitalized.  The accounting differencesbetween Chilean and U.S. GAAP for financing costs and the related depreciationexpense are included in the reconciliation to U.S. GAAP under paragraph (n) below.

** **

**(f)**                Capitalized general and administrative expenses

** **

Under Chilean GAAP, aportion of administrative and selling expenses were capitalized as part of thecost of construction in progress because a substantial portion of the effortsof management were involved in the administration of major projects.  Under U.S. GAAP, general and administrativeexpenses are charged to expense unless they can be directly identified with thesupervision of the construction of specific projects.  Under Chilean GAAP the Company has alsocapitalized other administrative expenses into other long-term assets, whichare prohibited under US GAAP.  Theeffects of eliminating capitalized general and administrative expenses and therelated depreciation and amortization for U.S. GAAP purposes are shown belowunder paragraph (n).

** **

**(g)    Elimination of capitalizedinterest in Brazil**

** **

Until 1999, under ChileanGAAP, the Company capitalized interest to property, plant and equipment as aresult of the creation of a legal reserve specifically permitted in Brazil forthe electricity industry by crediting interest expense.  Under U.S. GAAP, interest capitalized must bebased on actual interest incurred, and as such the effects of the eliminationof the interest capitalized to property, plant and equipment and the effects ondepreciation expense are included in paragraph (n) below.

** **

**(h)**             Translation of Financial Statements ofInvestments Outside of Chile

** **

Under Chilean GAAP, inaccordance with Technical Bulletin 64 (“B.T. 64”) the financial statements offoreign subsidiaries that operate in countries exposed to significant risks (“unstable”countries), and that are not considered to be an extension of the parent company’soperations, are remeasured into US dollars. The Company’s foreign subsidiaries in Argentina and Brazil all meet thecriteria of foreign subsidiaries that operate in countries exposed tosignificant risks

 

G-51

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

under BT 64, and areremeasured into US dollars.  The Companyhas remeasured into US dollars under this requirement as follows:

 

·                  Monetary assets and liabilities aretranslated at year-end rates of exchange between the US dollar and the localcurrency.

 

·                  All non-monetary assets and liabilities andshareholder’s equity are translated at historical rates of exchange between theUS dollar and the local currency.

 

·                  Income and expense accounts are translated ataverage rates of exchange between the US dollar and local currency.

 

·                  The effects of any exchange rate fluctuationsbetween the local currency and the US dollar are included in the results ofoperations for the period.

 

The amount of foreignexchange gain (loss) included in income that is attributable to operations inunstable countries because these amounts have been remeasured into US dollarswas ThUS$(15,006), ThUS$(164,819) and ThUS$184,457 for the years ended December 31,2006, 2007 and 2008 respectively (See Note 17).

 

Under US GAAP, thefunctional currency is determined based on criteria provided by SFAS 52,resulting in the functional currency of an entity being the currency of theprimary economic environment of operations of the entity. Differences resultingfrom fluctuation of exchange rates between foreign currencies and functionalcurrency are recorded in income, whereas translation differences fromconverting the financial statements from functional currency to the group’spresentation currency are recorded in other comprehensive income.

 

**(i)**                Derivative instruments

** **

The Company engages inderivative activity for hedging purposes. These derivatives are consideredaccounting hedges under Chilean GAAP. Under Chilean GAAP the accountingtreatment of hedging activity is similar to the accounting treatment of fairvalue hedges and cash flow hedges under SFAS 133, however under Chilean GAAPthe changes in the fair value for cash flow hedges is recorded against otherassets (losses no realized) or other liabilities (gain no realized) in thebalance sheet. The documentation and hedge effectiveness requirements underChilean GAAP though are not as burdensome as under SFAS 133.

 

Under US GAAP, if thederivative is designated as a fair value hedge, changes in fair value of thederivative and of the hedged item attributable to the hedged risk arerecognized directly in earnings. If the derivative is designated as a cash flowhedge, the effective portion of changes in the fair value of the derivative arerecorded in Other Comprehensive Income (“OCI”) and are reclassified intoearnings in the same period during which the hedged item affects earnings.Ineffectiveness, if any, is reflected directly in earnings. Finally, the gainor loss on a hedging derivative instrument that is designated as, and iseffective as, an economic hedge of the net investment in a foreign operationshall be reported in the same manner as a translation adjustment to the extentit is effective as a hedge. The ineffective portion of net investment hedgesshall be reported in earnings. If the derivative is not designated as a hedge,or if it does not meet the requirements for hedge accounting under SFAS 133,changes in fair value of the derivative instrument are recorded directly inearnings.

 

Until December 31,2004 the Company did not apply hedge accounting to its derivative instrumentsunder US GAAP. Therefore, all derivative instruments have been accounted atfair value with changes in fair value recognized directly in earnings. However, hedge accounting was applied under Chilean GAAP to other derivativeinstruments in addition to those applied under US GAAP in those periods.Starting as of and for the years ended December 31, 2006, 2007 and 2008,the Company applied hedge accounting to derivative instruments executed inthose years.

 

G-52

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

SFAS 133 also requiresthat certain embedded derivatives be separated and reported on the balancesheet at fair value and be subject to the same rules as other derivativeinstruments. Current Chilean accounting rules do not consider theexistence of derivative instruments embedded in other contracts and thereforethey are not reflected in the financial statements under Chilean GAAP.

 

The effects of theadjustment with respect to financial derivatives, commodity derivatives, andembedded derivatives for the years ended December 31, 2006, 2007 and 2008are included in the net income and shareholders’ equity reconciliation to USGAAP under paragraph (n) below.

 

**(j)**                Special Obligations

** **

At the end of 2006, theBrazilian National Electric Power Agency (“Agencia Nacional de EnergiaEléctrica” —ANEEL) published the Normative Resolution N°234 that establishedgeneral concepts, methodologies and procedures to carry out the second round ofthe periodic Tariff review for public concessionaires engaged in the electricdistribution sector services. These modifications were incorporated into theregulation issued by ANEEL during the year 2007, which contain the provisionalparameters of the fix Tariff model for the following years, which willrepresents a Tariff decrease in the electric distribution entities of the Grouplocated in Brazil. According to this, for US GAAP purposes a regulatoryliability has been recognized and a charge to current year earnings forThUS$9,226, in accordance to the provisions of FAS No. 71, “Accounting forthe Effects of Certain Types Regulation”.

 

Under Chilean GAAP,regulatory accounting described in FAS No. 71, does not apply andtherefore the adjustment above mentioned has not been recorded.

 

The effect onshareholders’ equity and net income for the years presented is included in (n) below.

** **

**(k)**            Deferred income

** **

During 2000, fiber opticcable was contributed to the Company in return for granting the contributingcompany access to the fiber optic network after installation in the Company’selectricity distribution system.  UnderChilean GAAP, the contributed assets were recorded at their fair market value,with a corresponding credit recognized as income in 2000.  Under U.S. GAAP, the amount was deferred andamortized over the life of the related service contract.  This adjustment reverses the gain underChilean GAAP and records the amortization of the deferred income recognizedunder U.S. GAAP.

 

The effect onshareholders’ equity and net income for the years presented is included in (n) below.

** **

**(l)**                Regulated assets and deferred costs

** **

The electricity sector inLatin American countries is regulated pursuant to applicable laws.  Most of the Company’s sales are subject tonode price regulation, which is designed to ensure an adequate supply of energyat reasonable, determined prices, which considers a variety of factors.  The marginal cost pricing model is not solelybased upon costs incurred by the Company, and as a result, the requirements ofU.S. GAAP under SFAS No.71, “Accounting for the Effects of Certain Types ofRegulation”, related to a businesses whose rates are not regulated are notapplicable, except for the Company’s operations in Brazil as described below.

 

As a result of changes inBrazilian Electricity Laws and Regulations, the Company’s distributionsubsidiaries in Brazil, Ampla Energia e Serviços S.A. (AMPLA, ex CERJ) andCompanhia Energética do Ceará (Coelce), are subject to the provisions of SFAS No. 71beginning on January 1, 2001.  Withthe new regulations issued by the National Agency of Electric Energy (ANEEL),the rate-setting structure in Brazil is now designed to provide recovery forallowable costs incurred, which will be recovered through future increases inenergy tariffs in order to recover losses experienced during the period ofBrazilian Federal Government mandated energy rationing from June 1, 2001to December 31, 2001.  The Companyestimates remaining costs will be recovered over a period of five years, fromthe balance date.

 

Accordingly, the Companycapitalizes incurred costs as deferred regulatory assets when it is probablethat future revenue equal to the costs incurred will be billed and collected asa direct result of the inclusion of the costs in an increased rate set by theregulator.  The deferred regulatory assetis eliminated when the Company collects the related

 

G-53

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

 

costs through billings tocustomers. ANEEL perform a rate review on an annual basis.  If ANEEL excludes all or part of a cost fromrecovery, that portion of the deferred regulatory assets is impaired and isaccordingly reduced to the extent of the excluded cost. The Company hasrecorded deferred regulatory assets, which it expects to pass on to itscustomers in accordance with and subject to regulatory provisions.

 

The regulations alsoincluded certain fixes costs or VPA costs, which each distribution company ispermitted to defer and pass on to their customers using future rateadjustments. VPA costs are limited by concession contracts to the cost ofpurchased power and certain other costs and taxes. Due to uncertainty in theBrazilian economy, ANEEL delayed the approval of such VPA rate increases. AnExecutive Order in October 2001 created a tracking account mechanism, inorder to calculate the variation in the VPA costs for future rate adjustmentcalculation purposes. The Company has not recognized any regulatory assets forVPA costs incurred prior to 2001, because costs incurred prior to January 1,2001, are not recoverable through the tracking account.

 

Under Chilean GAAP, theCompany recognized revenue and deferred costs related to the regulatedassets.  Under U.S. GAAP, in accordancewith EITF 92-7, “Accounting by Rate Regulated Utilities for the Effects ofCertain Alternate Revenue Programs”, revenue amounts not expected to becollected within 24 months, have been deferred.

 

The effect of deferringrevenues expected to be collected after two years is included in (n) below.

 

**(m)**          Effects of minority interest on the U.S. GAAPadjustments

** **

The net income andshareholders’ equity under Chilean GAAP is adjusted in the U.S. GAAP for theimpact of the U.S. GAAP reconciling items on the allocation of income and lossto minority interests.  The sum of thisadjustment and the minority interest reflected in our consolidated incomestatement and balance sheet for each period presented under Chilean GAAPrepresents the allocation of our results and shareholders’ equity to ourminority shareholders’ under U.S. GAAP.

 

The effect of thisadjustment is included in net income and shareholders’ equity reconciliation toUS GAAP under paragraph (n) below.

** **

**(n)**             Effect of conforming to U.S. GAAP

** **

**Thereconciliation of reported net income required to conform to U.S. GAAP is asfollows:**

** **
| ** **                                                               | ** ** | **As  of December 31,** | ** ** |
|--------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                               | ** ** | **2006**                     | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                               | ** ** | **ThUS$$**                   | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                                               | ** ** | ** **                   | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net income in accordance with Chilean GAAP**                           | ** ** | 173,228                      |       | 219,467 |   | 451,497 |   |
| ** **                                                               | ** ** |                         |       |   |   |   |   |
| Deferred income taxes (paragraph a)                                      | ** ** | 1,370                        |       | 2,157 |   | (1,383 | ) |
| Pension and post-retirement benefits (paragraph c)                       | ** ** | 292                          |       | (9,297 | ) | (3,332 | ) |
| Capitalized interest  (paragraph e)                                      | ** ** | 22,357                       |       | 16,709 |   | 9,198 |   |
| Depreciation capitalized interest (paragraph e)                          | ** ** | (3,599                       | )          | (2,714 | ) | (4,403 | ) |
| Difference foreign exchange capitalized (paragraph e)                    | ** ** | 59                           |       | 58 |   | 58 |   |
| Capitalized general and administrative expenses (paragraph f)            | ** ** | (6,905                       | )          | (22,026 | ) | (10,867 | ) |
| Elimination of amortization of capitalized legal reserve (paragraph g)   | ** ** | 877                          |       | 878 |   | 877 |   |
| Derivative instruments  (paragraph i)                                    | ** ** | (11,452                      | )          | (6,937 | ) | — |   |
| Deferred income  (paragraph k)                                           | ** ** | 245                          |       | 245 |   | 246 |   |
| Regulated assets  (paragraph l)                                          | ** ** | (6,692                       | )          | 965 |   | — |   |
| Effects of minority interest on the U.S. GAAP adjustments (paragraph  m) | ** ** | (2,525                       | )          | 149,106 |   | (14,295 | ) |
| Deferred tax effects on the U.S. GAAP adjustments                        | ** ** | 1,832                        |       | 8,987 |   | 5,802 |   |
| Amortization of negative goodwill (paragraph d)                          | ** ** | 2,988                        |       | 2,988 |   | 2,987 |   |
| Special obligations  (paragraph j)                                       | ** ** | —                       |       | (259,348 | ) | (9,226 | ) |
| PIS - COFIN (paragraph b)                                                | ** ** | —                       |       | (27,166 | ) | — |   |
| Application of SFAS 158                                                  | ** ** | —                       |       | 11,139 |   | 38,872 |   |
| ** **                                                               | ** ** |                         |       |   |   |   |   |
| **Net income in accordance with U.S. GAAP**                              | ** ** | 172,075                      |       | 85,211 |   | 466,031 |   |
| ** **                                                               | ** ** |                         |       |   |   |   |   |
| **Net income in accordance with U.S. GAAP**                              | ** ** | 172,075                      |       | 85,211 |   | 466,031 |   |
| Other comprehensive  income (loss):                                      | ** ** |                         |       |   |   |   |   |
| SFAS 158                                                                 | ** ** | —                       |       | (2,479 | ) | (10,007 | ) |
| ** **                                                               | ** ** |                         |       |   |   |   |   |
| **Comprehensive income in accordance with U.S.GAAP**                     | ** ** | 172,075                      |       | 82,732 |   | 456,024 |   |

** **

**G-54**

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**Table of Contents**

** **

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

** **

**Thereconciliation to conform shareholders’ equity amounts to U.S. GAAP is asfollows:**

** **
| ** **                                                                | ** ** | **As  of December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------|------------|
| ** **                                                                | ** ** | **2007**                     | ** ** | **2008** | ** ** |
| ** **                                                                | ** ** | **ThUS$**                    | ** ** | **ThUS$** | ** ** |
| ** **                                                                | ** ** | ** **                   | ** ** | ** ** | ** ** |
| **Shareholders’ equity in accordance with Chilean  GAAP**            | ** ** | 1,908,163                    |       | 2,208,341 |   |
| ** **                                                                | ** ** | ** **                   | ** ** | ** ** | ** ** |
| Deferred income taxes (paragraph a)                                       |       | (41,098                      | )          | (42,481 | ) |
| Pension and post-retirement benefits liabilities long term (paragraph  c) |       | 5,838                        |       | 2,506 |   |
| Capitalized interest  (paragraph f)                                       |       | 159,357                      |       | 164,152 |   |
| Exchange difference  (paragraph f)                                        |       | (897                         | )          | (839 | ) |
| Capitalized general and administrative expenses (paragraph g)             |       | (36,999                      | )          | (47,866 | ) |
| Elimination of capitalized legal reserve (paragraph h)                    |       | (8,639                       | )          | (7,762 | ) |
| Deferred income  (paragraph k)                                            |       | (3,434                       | )          | (3,188 | ) |
| Effects of minority interest on the U.S. GAAP adjustments (paragraph  n)  |       | 131,167                      |       | 128,180 |   |
| Negative goodwill  (paragraph e)                                          |       | (31,738                      | )          | (28,751 | ) |
| Deferred tax effects on the U.S. GAAP adjustments                         |       | (78,788                      | )          | (62,005 | ) |
| Special obligations  (paragraph k)                                        |       | (259,348                     | )          | (268,574 | ) |
| PIS - COFIN (paragraph c)                                                 |       | (27,166                      | )          | (20,590 | ) |
| ** **                                                                | ** ** | ** **                   | ** ** | ** ** | ** ** |
| **Shareholders’ equity in accordance with U.S.  GAAP**               | ** ** | 1,716,418                    |       | 2,021,123 |   |

** **

**The changesshareholders’ equity in U.S. GAAP as of each year-end are as follows:**

** **
| ** **                                                         | ** ** | **2006**   | ** ** | **2007**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                                                         | ** ** | **ThUS$**  | ** ** | **ThUS$**  | ** ** | **ThUS$**  | ** ** |
| ** **                                                         | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Shareholders equity in accordance with U.S. GAAP - January 1  |       | 1,714,714  |       | 1,833,348  |       | 1,716,418  |       |
|                                                               |       |       |       |       |       |       |       |
| Dividends paid during the year                                     |       | (67,993    | )          | (199,662   | )          | (151,319   | )          |
|                                                               |       |       |       |       |       |       |       |
| SFAS 158, net deferred tax                                         |       | 14,552     |       | (2,479     | )          | (10,007    | )          |
|                                                               |       |       |       |       |       |       |       |
| Net income in accordance with U.S. GAAP for the year               |       | 172,075    |       | 85,211     |       | 466,031    |       |
|                                                               |       |       |       |       |       |       |       |
| Shareholders equity in accordance with U.S.GAAP - December 31 |       | 1,833,348  |       | 1,716,418  |       | 2,021,123  |       |

** **

**II.            Adittionaldisclosure requirements:**

** **

**(a)**              Basic and diluted earnings per share:

** **
| ** **                                                        | ** ** | **For the year ended  December 31,** | ** ** |
|-------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                        | ** ** | **2006**                                  | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                                                        | ** ** | **ThUS$**                                 | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                                        | ** ** | ** **                                | ** ** | ** ** | ** ** | ** ** | ** ** |
| Chilean GAAP earnings per share                                   |       | 1.04                                      |       | 1.32 |   | 2.72 |   |
|                                                              |       |                                      |       |   |   |   |   |
| Basic and diluted U.S. GAAP earnings per share                    |       | 1.03                                      |       | 0.51 |   | 2.80 |   |
|                                                              |       |                                      |       |   |   |   |   |
| Total number of common outstanding shares at December 31,    |       | 166,259                                   |       | 166,259 |   | 166,259 |   |
|                                                              |       |                                      |       |   |   |   |   |
| Weighted average number of common shares outstanding (000’s) |       | 166,259                                   |       | 166,259 |   | 166,259 |   |

** **

**G-55**

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**Table of Contents**

** **

**EndesaBrasil S.A. and Subsidiaries**

**Notesto the Consolidated Financial Statements**

** **

**There areno requirements to provide earnings per share disclosures under Chilean GAAP.**The earnings per share figures for both U.S. GAAP andChilean GAAP purposes have been calculated by dividing the respective earnings(loss) amounts in accordance with U.S. GAAP and Chilean GAAP, respectively, bythe weighted average number of common shares outstanding during the year.  The Company has not issuedconvertible debt or equity securities nor does it have other common stockequivalent securities or stock options outstanding.  Consequently, there are nopotentially dilutive effects on the earnings per share of the Company.

** **

**(b)**              Income taxes:

** **

The provision (benefit) for income taxes charged to theresults of operations determined in accordance with U.S. GAAP is as follows:

** **
| ** **                                             | ** ** | **2006**      | ** ** |
|--------------------------------------------------------|------------|---------------|------------|
| ** **                                             | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                             | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income tax provision under Chilean GAAP                |       |          |       |   |   |   |   |
| Current income taxes as determined under Chilean GAAP  |       | (170          | )          | (125,673 | ) | (125,843 | ) |
| Deferred income taxes as determined under Chilean GAAP |       | 4,632         |       | 104,558 |   | 109,190 |   |
|                                                   |       |          |       |   |   |   |   |
| Total income tax provision under Chilean GAAP          |       | 4,462         |       | (21,115 | ) | (16,653 | ) |
| U.S. GAAP adjustments:                                 |       |          |       |   |   |   |   |
| Deferred tax effect of applying SFAS No. 109      |       | —        |       | 1,370 |   | 1,370 |   |
| Deferred tax effect of adjustments to U.S. GAAP        |       | —        |       | 1,832 |   | 1,832 |   |
|                                                   |       |          |       |   |   |   |   |
| Total U.S. GAAP adjustments:                           |       | —        |       | 3,202 |   | 3,202 |   |
|                                                   |       |          |       |   |   |   |   |
| Total Income tax provision under U.S. GAAP             |       | 4,462         |       | (17,913 | ) | (13,451 | ) |

 
| ** **                                             | ** ** | **2007**      | ** ** |
|--------------------------------------------------------|------------|---------------|------------|
| ** **                                             | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| Income tax provision under Chilean GAAP                |       |          |       |   |   |   |   |
| Current income taxes as determined under Chilean GAAP  |       | (1,049        | )          | (123,144 | ) | (124,193 | ) |
| Deferred income taxes as determined under Chilean GAAP |       | (1,670        | )          | 12,598 |   | 10,928 |   |
|                                                   |       |          |       |   |   |   |   |
| Total income tax provision under Chilean GAAP          |       | (2,719        | )          | (110,546 | ) | (113,265 | ) |
| U.S. GAAP adjustments:                                 |       |          |       |   |   |   |   |
| Deferred tax effect of applying SFAS No. 109      |       | —        |       | 2,157 |   | 2,157 |   |
| Deferred tax effect of adjustments to U.S. GAAP        |       | —        |       | 8,987 |   | 8,987 |   |
|                                                   |       |          |       |   |   |   |   |
| Total U.S. GAAP adjustments:                           |       | —        |       | 11,144 |   | 11,144 |   |
|                                                   |       |          |       |   |   |   |   |
| Total Income tax provision under U.S. GAAP             |       | (2,719        | )          | (99,402 | ) | (102,121 | ) |

 
| ** **                                             | ** ** | **2008**      | ** ** |
|--------------------------------------------------------|------------|---------------|------------|
| ** **                                             | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **                                             | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                             | ** ** | ** **    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income tax provision under Chilean GAAP                |       |          |       |   |   |   |   |
| Current income taxes as determined under Chilean GAAP  |       | (583          | )          | (131,994 | ) | (132,577 | ) |
| Deferred income taxes as determined under Chilean GAAP |       | 621           |       | (9,829 | ) | (9,208 | ) |
|                                                   |       |          |       |   |   |   |   |
| Total income tax provision under Chilean GAAP          |       | 38            |       | (141,823 | ) | (141,785 | ) |
| U.S. GAAP adjustments:                                 |       |          |       |   |   |   |   |
| Deferred tax effect of applying SFAS No. 109      |       | —        |       | (1,383 | ) | (1,383 | ) |
| Deferred tax effect of adjustments to U.S. GAAP        |       | —        |       | 5,802 |   | 5,802 |   |
|                                                   |       |          |       |   |   |   |   |
| Total U.S. GAAP adjustments:                           |       | —        |       | 4,419 |   | 4,419 |   |
|                                                   |       |          |       |   |   |   |   |
| Total Income tax provision under U.S. GAAP             |       | 38            |       | (137,404 | ) | (137,366 | ) |

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

** **

Deferredtax assets (liabilities) as of balance sheet dates are summarized as follows:

 
| ** **                                | ** ** | **2007**              | ** ** | **2008**         | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------|------------|
| ** **                                | ** ** | **SFAS No. 109** | ** ** | ** **       | ** ** | ** ** | ** ** | **SFAS No.109** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Applied to**        | ** ** | **SFAS No.**     | ** ** | **Total** | ** ** | **Applied to** | ** ** | **SFAS No.** | ** ** | **Total** | ** ** |
| ** **                                | ** ** | **Chilean**           | ** ** | **109 applied**  | ** ** | **Deferred** | ** ** | **Chilean** | ** ** | **109 applied** | ** ** | **Deferred** | ** ** |
| ** **                                | ** ** | **GAAP**              | ** ** | **to U.S. GAAP** | ** ** | **Taxes under** | ** ** | **GAAP** | ** ** | **to U.S. GAAP** | ** ** | **Taxes under** | ** ** |
| ** **                                | ** ** | **Balances**          | ** ** | **Adjustments**  | ** ** | **SFAS No. 109** | ** ** | **Balances** | ** ** | **Adjustments** | ** ** | **SFAS No. 109** | ** ** |
| ** **                                | ** ** | **ThUS$**             | ** ** | **ThUS$**        | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property, plant and  equipment            |       | 5,191                 |       | 17,115           |       | 22,307 |   | 5.191 |   | 19,198 |   | 24,389 |   |
| Derivative contracts                      |       | —                |       | —           |       | — |   | — |   | — |   | — |   |
| Tax losses                                |       | 66,931                |       | —           |       | 66,931 |   | 38,837 |   | — |   | 38,837 |   |
| Contingencies                             |       | 129,541               |       | 9,236            |       | 138,777 |   | 103,592 |   | 7,001 |   | 110,593 |   |
| Allowance for doubtful  accounts          |       | 131,591               |       | —           |       | 131,591 |   | 57,643 |   | — |   | 57,643 |   |
| Actuarial deficit  (companies Brazil)     |       | 24,750                |       | (1,984           | )          | 22,766 |   | 29,437 |   | (852 | ) | 28,585 |   |
| Salaries for construction-in progress     |       | 8,637                 |       | —           |       | 8,637 |   | 6,195 |   | — |   | 6,195 |   |
| Other events                              |       | 10,192                |       | —           |       | 10,192 |   | 4,986 |   | 1,084 |   | 6,070 |   |
| Intangible                                |       | —                |       | —           |       | — |   | 2,621 |   | — |   | 2,621 |   |
|                                      |       |                  |       |             |       |   |   |   |   |   |   |   |   |
| Valuation allowance                       |       | —                |       | —           |       | — |   | (1,440 | ) | — |   | (1,440 | ) |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total deferred income tax assets**      | ** ** | **376,833**           | ** ** | **24,367**       | ** ** | **401,201** | ** ** | **247,062** | ** ** | **26,431** | ** ** | **273,493** | ** ** |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Property, plant and  equipment            |       | 54,121                |       | 48,974           |       | 103,095 |   | 52,998 |   | 32,624 |   | 85,622 |   |
| Regulated assets  (deferred assets)       |       | 51,702                |       | —           |       | 51,702 |   | 24,140 |   | — |   | 24,140 |   |
| Finance costs                             |       | 10,721                |       | —           |       | 10,721 |   | — |   | — |   | — |   |
| Exchange difference                       |       | 13,682                |       | —           |       | 13,682 |   | 5,669 |   | — |   | 5,669 |   |
| Capitalized interest                      |       | —                |       | 54,181           |       | 54,181 |   | — |   | 55,812 |   | 55,812 |   |
| Contingencias                             |       | —                |       | —           |       | — |   | 2,334 |   | — |   | 2,334 |   |
| Other events                              |       | 8,020                 |       | —           |       | 8,020 |   | 1,704 |   | — |   | 1,704 |   |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Total deferred income tax liabilities** | ** ** | **138,246**           | ** ** | **103,155**      | ** ** | **241,401** | ** ** | **86,845** | ** ** | **88,436** | ** ** | **175,281** | ** ** |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net deferred assets  (liabilities)        |       | 238,587               |       | (78,788          | )          | 159,800 |   | 160,217 |   | (62,005 | ) | 98,212 |   |
|                                      |       |                  |       |             |       |   |   |   |   |   |   |   |   |
| Complementary Account                     |       | 41,098                |       | (41,098          | )          | — |   | 42,481 |   | (42,481 | ) | — |   |
| ** **                                | ** ** | ** **            | ** ** | ** **       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **—** | ** ** |
| **Net deferred tax asset (liability)**    | ** ** | **279,685**           | ** ** | **(119,886**     | **)**      | **159,800** | ** ** | **202,698** | ** ** | **(104,486** | **)** | **98,212** | ** ** |

 

Accumulated tax losses by country as of December 31,2007 and 2008, are as follows:

 
| ** ** | ** ** | **December 31,  2007** | ** ** | **December 31,  2008** | ** ** |
|------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** ** | ** ** | **Amount**                  | ** ** | **Year  of expiration**     | ** ** | **Amount** | ** ** | **Year  of expiration** | ** ** |
| ** ** | ** ** | **ThUS$**                   | ** ** | ** **                  | ** ** | **ThUS$** | ** ** | ** ** | ** ** |
| Argentina  |       | 278,970                     |       | 2012                        |       | 891 |   | 2013 |   |
| Brazil     |       | 367,733                     |       | Do not expire               |       | 192,817 |   | Do not expire |   |
|       |       |                        |       |                        |       |   |   |   |   |
| Total      |       | 646,703                     |       |                        |       | 193,708 |   |   |   |

 

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**EndesaBrasil S.A. and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

 

A reconciliation of theU.S. GAAP Statutory Income Tax rate to the Company’s effective tax rate on netincome is as follows:

 
| ** **                                   | ** ** | **2006**      | ** ** |
|----------------------------------------------|------------|---------------|------------|
| ** **                                   | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                         |       |          |       |   |   |   |   |
| Statutory US GAAP tax                        |       | (730          | )          | (101,360 | ) | (102,090 | ) |
| Effect of higher foreign tax rates           |       | (22           | )          | — |   | (22 | ) |
| Increase (decrease) in rates resulting from: |       |          |       |   |   |   |   |
| Non-taxable items                            |       | 5,214         |       | 102,079 |   | 107,293 |   |
| Non-deductible items                         |       | —        |       | (29,032 | ) | (29,032 | ) |
| Other                                        |       | —        |       | 10,400 |   | 10,400 |   |
|                                         |       |          |       |   |   |   |   |
| Tax (benefit) expense at effective tax rate  |       | 4,462         |       | (17,913 | ) | (13,451 | ) |

 
| ** **                                   | ** ** | **2007**      | ** ** |
|----------------------------------------------|------------|---------------|------------|
| ** **                                   | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                         |       |          |       |   |   |   |   |
| Statutory US GAAP tax                        |       | (2,130        | )          | (25,372 | ) | (27,502 | ) |
| Effect of higher foreign tax rates           |       | (62           | )          | — |   | (62 | ) |
| Increase (decrease) in rates resulting from: |       | —        |       | — |   | — |   |
| Non-taxable items                            |       | —        |       | 128,519 |   | 128,519 |   |
| Non-deductible items                         |       | (527          | )          | (205,784 | ) | (206,311 | ) |
| Other                                        |       | —        |       | 3,235 |   | 3,235 |   |
|                                         |       |          |       |   |   |   |   |
| Tax (benefit) expense at effective tax rate  |       | (2,719        | )          | (99,402 | ) | (102,121 | ) |

 
| ** **                                   | ** ** | **2008**      | ** ** |
|----------------------------------------------|------------|---------------|------------|
| ** **                                   | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                         |       |          |       |   |   |   |   |
| Statutory US GAAP tax                        |       | 478           |       | (304,010 | ) | (303,532 | ) |
| Effect of higher foreign tax rates           |       | 14            |       | — |   | 14 |   |
| Increase (decrease) in rates resulting from: |       | —        |       | — |   | — |   |
| Non-taxable items                            |       | 55            |       | 226,315 |   | 226,370 |   |
| Non-deductible items                         |       | (509          | )          | (80,732 | ) | (81,241 | ) |
| Other                                        |       | —        |       | 21,023 |   | 21,023 |   |
|                                         |       |          |       |   |   |   |   |
| Tax (benefit) expense at effective tax rate  |       | 38            |       | (137,404 | ) | (137,366 | ) |

 

Additionally, effective January 1,2007, the Company adopted FASB Interpretation No. 48: “Accounting forUncertainty in Income Taxes — an interpretation of FASB Statement No. 109”(“FIN 48”), which clarifies the accounting for uncertainty in income taxesrecognized in an enterprise’s financial statements in accordance with Statementof Financial Accounting Standards No. 109: “Accounting for Income Taxes” (“FAS109”). The Interpretation prescribes a threshold for the financial statementrecognition and measurement of a tax position taken or expected to be takenwithin an income tax return. For each tax position, the enterprise mustdetermine whether it is more likely than not that the position will besustained upon examination by taxing authorities, based on the technical meritsof the position, including resolution of any related appeals or litigation. Atax position that meets the more likely than not recognition threshold is thenmeasured to determine the amount of benefit to be recognized within thefinancial statements. No benefits may be recognized for tax positions that donot meet the more likely than not threshold. For tax positions that meet themore likely than not threshold, the benefit to be recognized is the largestamount that is greater than 50% likely of being realized upon ultimatesettlement.

 

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Table of Contents

 

**EndesaBrasil S.A. and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

 

As a result ofimplementing FIN 48, there was no impact on the Company’s financial statementsfrom the adoption of this interpretation. In addition, as of the date of theadoption of FIN 48, the Company did not have any accrued interest and penaltiesrelated to unrecognized tax benefits. The Company and its subsidiaries willrecognize interest and penalties related to unrecognized tax benefits ininterest expense and other operating expense, respectively.

 

We are potentiallysubject to income tax audits in numerous jurisdictions in Brazil and Argentinauntil the applicable statute of limitations expire. Tax audits by their natureare often complex and can require several years to complete. The following is asummary of tax years, potentially subject to examination, in the significanttax and business jurisdictions in which we operate.

 
| **Jurisdiction** | ** ** | **Tax Years Subject to Examination** | ** ** |
|------------------|------------|----------------------------------------------------------|------------|
| Argentina        |       | 2002-2008                                                |       |
| Brazil           |       | 2004-2008                                                |       |

 

**(c)**              Segmentdisclosures:

** **

The Company is primarilyengaged in the distribution and generation of electricity in Argentina andBrazil. The Company provides these and other services through four businesssegments:

 

Generation

Distribution

Transmission

Corporate and other

 

Generation involves thegeneration of electricity through its subsidiaries Cachoeira Dourada and CGTF.Distribution involves the supply of electricity to regulated and unregulatedcustomers. Transmission involves the transmission of high voltage theelectricity produced by generation companiest. The Company’s reportablesegments are strategic business units that offer different products andservices and are managed separately. The methods of revenue recognition bysegment are as follows:

** **

**Generation**

** **

Revenue is recognized when energy and power output is delivered andcapacity is provided at rates specified under contract terms or prevailingmarket rates.

 

**Distribution- Operating Revenues**

** **

Revenue is recognized when energy and power is provided at ratesspecified under contract terms or prevailing market rates.

 

**Distribution- Non Operating Revenues**

** **

Revenue is recognized asservices are provided, such as public light posts, telephone poles, and otherservices related to distribution services.

** **

**Transmission**

** **

Revenue is recognized asservices are provided, through to  tollsfor the transmission service of high voltage the electricity produced bygeneration companies..

 

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** **

**EndesaBrasil S.A. and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

** **

**Corporateand Other**

** **

Revenue is recognized asservices are provided, or when supplies or equipment are sold.

 

The following segmentinformation has been disclosed in accordance with U.S. reporting requirements;however, the information presented has been determined in accordance withChilean GAAP:

** **
| ** **                     | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | **Corporate** | ** ** | ** **       | ** ** | ** **       | ** ** |
|--------------------------------|------------|----------------|------------|------------------|------------|------------------|------------|---------------|------------|------------------|------------|------------------|------------|
| **2006**                       | ** ** | **Generation** | ** ** | **Transmission** | ** ** | **Distribution** | ** ** | **and other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                     | ** ** | **ThUS$**      | ** ** | **ThUS$**        | ** ** | **ThUS$**        | ** ** | **ThUS$**     | ** ** | **ThUS$**        | ** ** | **ThUS$**        | ** ** |
|                           |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Total revenues                 |       | 305,823        |       | 270,290          |       | 1,789,292        |       | —        |       | (293,305         | )          | 2,072,100        |       |
|                           |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Operating income               |       | 154,167        |       | (1,425           | )          | 342,023          |       | (9,026        | )          | —           |       | 485,739          |       |
|                           |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Depreciation and  amortization |       | (38,158        | )          | (25,463          | )          | (152,066         | )          | (49           | )          | —           |       | (215,736         | )          |

** **
| ** **                      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | **Corporate** | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------|------------|----------------|------------|------------------|------------|------------------|------------|---------------|------------|------------------|------------|------------------|------------|
| **2007**                        | ** ** | **Generation** | ** ** | **Transmission** | ** ** | **Distribution** | ** ** | **and other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                      | ** ** | **ThUS$**      | ** ** | **ThUS$**        | ** ** | **ThUS$**        | ** ** | **ThUS$**     | ** ** | **ThUS$**        | ** ** | **ThUS$**        | ** ** |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Total revenues                  |       | 396,584        |       | 175,598          |       | 1,994,767        |       | —        |       | (296,141         | )          | 2,270,808        |       |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Operating income                |       | 191,667        |       | 46,651           |       | 428,867          |       | (9,546        | )          | —           |       | 657,639          |       |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Depreciation and  amortization  |       | (32,902        | )          | (24,938          | )          | (150,211         | )          | (84           | )          | —           |       | (208,135         | )          |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Identificable  assets including |       | 1,244,893      |       | 854,657          |       | 4,711,456        |       | 1,994,678     |       | (2,429,363       | )          | 6,376,321        |       |

** **
| ** **                      | ** ** | ** **     | ** ** | ** **       | ** ** | ** **       | ** ** | **Corporate** | ** ** | ** **       | ** ** | ** **       | ** ** |
|---------------------------------|------------|----------------|------------|------------------|------------|------------------|------------|---------------|------------|------------------|------------|------------------|------------|
| **2008**                        | ** ** | **Generation** | ** ** | **Transmission** | ** ** | **Distribution** | ** ** | **and other** | ** ** | **Eliminations** | ** ** | **Consolidated** | ** ** |
| ** **                      | ** ** | **ThUS$**      | ** ** | **ThUS$**        | ** ** | **ThUS$**        | ** ** | **ThUS$**     | ** ** | **ThUS$**        | ** ** | **ThUS$**        | ** ** |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Total revenues                  |       | 503,085        |       | 146,481          |       | 2,398,610        |       | —        |       | (216,085         | )          | 2,832,091        |       |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Operating income                |       | 240,527        |       | 94,909           |       | 550,375          |       | (18,879       | )          | —           |       | 866,932          |       |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Depreciation and  amortization  |       | (34,177        | )          | (28,798          | )          | (167,746         | )          | (251          | )          | —           |       | (230,972         | )          |
|                            |       |           |       |             |       |             |       |          |       |             |       |             |       |
| Identificable  assets including |       | 1,055,217      |       | 784,363          |       | 4,265,377        |       | 2,301,451     |       | (2,615,411       | )          | 5,790,997        |       |

 

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** **

**EndesaBrasil S.A. and Subsidiaries**

**Notes tothe Consolidated Financial Statements**

** **

A summary of activitiesby geographic area is as follows:

** **
| ** **                   | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
|------------------------------|------------|---------------|------------|------------|------------|-----------|------------|
| ** **                   | ** ** | **ThUS$**     | ** ** | **ThUS$**  | ** ** | **ThUS$** | ** ** |
| ** **                   |       |          |       |       |       |      |       |
| **2006**                     |       |          |       |       |       |      |       |
| Total revenues               |       | 14,867        |       | 2,057,233  |       | 2,072,100 |       |
|                         |       |          |       |       |       |      |       |
| Long lived assets (net)  (1) |       | 61,579        |       | 3,496,756  |       | 3,558,335 |       |
|                         |       |          |       |       |       |      |       |
| Total assets                 |       | 108,980       |       | 5,611,505  |       | 5,720,485 |       |
|                         |       |          |       |       |       |      |       |
| **2007**                     |       |          |       |       |       |      |       |
| Total revenues               |       | 14,093        |       | 2,256,715  |       | 2,270,808 |       |
|                         |       |          |       |       |       |      |       |
| Long lived assets (net)  (1) |       | 57,302        |       | 3,619,541  |       | 3,676,843 |       |
|                         |       |          |       |       |       |      |       |
| Total assets                 |       | 112,455       |       | 6,263,866  |       | 6,376,321 |       |
|                         |       |          |       |       |       |      |       |
| **2008**                     |       |          |       |       |       |      |       |
| Total revenues               |       | 13,885        |       | 2,818,206  |       | 2,832,091 |       |
|                         |       |          |       |       |       |      |       |
| Long lived assets (net)  (1) |       | 53,048        |       | 3,793,689  |       | 3,846,737 |       |
|                         |       |          |       |       |       |      |       |
| Total assets                 |       | 104,195       |       | 5,686,802  |       | 5,790,997 |       |

 

----

(1)          Long-lived assets include property, plantand equipment.

 

**(d)**              Concentration ofrisk:

** **

The Company does notbelieve that it is exposed to any unusual credit risk from any single customer.The Company’s debtors are dependent on the economy in region, which could makethem vulnerable to downturns in the economic activity in the countries in whichthe Company operates.

 

No single customersaccounted for more than 10% of revenues for the years ending December 31,2006, 2007 and 2008.

** **

**(e)**              Schedule of debtmaturity:

** **

Following is a scheduleof debt maturity in each of the next five years and thereafter:

** **
| ** ** | ** ** | **As  of**                  | ** ** |
|------------|------------|-----------------------------|------------|
| ** ** | ** ** | **December 31,  2008** | ** ** |
| ** ** | ** ** | **ThUS$**                   | ** ** |
|       |       |                        |       |
| 2009       |       | 303,027                     |       |
| 2010       |       | 295,204                     |       |
| 2011       |       | 328,810                     |       |
| 2012       |       | 365,476                     |       |
| 2013       |       | 86,740                      |       |
| Thereafter |       | 37,411                      |       |
|       |       |                        |       |
| Total      |       | 1,416,668                   |       |

** **

**G-61**

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**Table of Contents**

** **

**Endesa Brasil S.A. andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

** **

**(f)**                Disclosureregarding interest capitalization:

** **
| ** **                           | ** ** | **Year  ended December 31,** | ** ** |
|--------------------------------------|------------|-----------------------------------|------------|
| ** **                           | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                           | ** ** | **ThUS$**                         | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                           | ** ** | ** **                        | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest expense incurred            |       | 280,895                           |       | 287,552 |   | 295,962 | ** ** |
| Interest capitalized under U.S. GAAP |       | 22,357                            |       | 16,709 |   | 9,198 | ** ** |

** **

**(g)**             Fair valuemeasurements and the fair value option.:

** **

**a)**              Disclosures about fair value of financial instruments:

** **

The following methods andassumption were used to estimate the fair value of each class of financialinstruments as of December 31, 2007 and 2008 for which it is practicableto estimate that value:

** **

**Cash**

** **

The fair value of theCompany’s cash is equal to its carrying value.

 

**Timedeposits**

** **

The fair value of timedeposits is equal to its carrying value due to its relatively short-termnature.

 

**Long-termaccounts receivable**

** **

The fair value oflong-term accounts receivable was estimated using the interest rates that arecurrently offered for loans with similar terms and remaining maturities.

 

**Long-termdebt**

** **

The fair value oflong-term debt was based on rates currently available to the Company for debtwith similar terms and remaining maturities.

 

**Derivativeinstruments**

** **

Estimates of fair valuesof derivative instruments for which no quoted prices or secondary market existshave 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 aboutmarket variables that may change in the future. Changes in assumptions couldhave a significant impact on the estimate of fair values disclosed. As a resultsuch fair value amounts are subject to significant volatility and are highlydependent on the quality of the assumptions used.

 

G-62

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Table of Contents

 

**Endesa Brasil S.A. andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

 

The estimated fair valuesof the Company’s financial instruments compared to Chilean GAAP carryingamounts are as follows:

** **
| ** **                         | ** ** | **2007**     | ** ** | **2008**   | ** ** |
|------------------------------------|------------|--------------|------------|------------|------------|
| ** **                         | ** ** | **Carrying** | ** ** | **Fair**   | ** ** | **Carrying** | ** ** | **Fair** | ** ** |
| ** **                         | ** ** | **amount**   | ** ** | **Value**  | ** ** | **amount** | ** ** | **Value** | ** ** |
| ** **                         | ** ** | **ThUS$**    | ** ** | **ThUS$**  | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
| ** **                         | ** ** | ** **   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash                               |       | 79,864       |       | 79,864     |       | 18,943 |   | 18,943 |   |
| Time deposits                      |       | 512,761      |       | 512,761    |       | 485,908 |   | 485,908 |   |
| Marketable securities              |       | 133          |       | 133        |       | 53 |   | 53 |   |
| Accounts receivable                |       | 809,653      |       | 809,653    |       | 540,608 |   | 540,608 |   |
| Notes receivable, net              |       | 14,491       |       | 14,491     |       | 5,486 |   | 5,486 |   |
| Other accounts  receivable, net    |       | 43,436       |       | 43,436     |       | 44,221 |   | 44,221 |   |
| Amounts due from related companies |       | 22,603       |       | 22,603     |       | 33,015 |   | 33,015 |   |
| Long-term accounts  receivable     |       | 64,273       |       | 64,273     |       | 36,897 |   | 36,897 |   |
| Accounts payable and  other        |       | (336,925     | )          | (336,925   | )          | (205,174 | ) | (205,174 | ) |
| Notes payable                      |       | (510,544     | )          | (510,544   | )          | (179,276 | ) | (179,276 | ) |
| Long-term debt                     |       | (1,857,060   | )          | (1,868,428 | )          | (1,416,668 | ) | (1,448,319 | ) |
| Derivative instruments             |       | (35,780      | )          | (35,780    | )          | (11, 174) |   | (11,174 | ) |

** **

**b)**              Fair Value Measurements

** **

**Effective January 1, 2008, the Company adoptedSFAS No. 157, which defines fair value as the exchange price that would bereceived for an asset or paid to transfer a liability (an exit price) in theprincipal or most advantageous market for the asset or liability in an orderlytransaction between market participants at the measurement date. SFAS No. 157establishes a three-level fair value hierarchy that prioritizes the inputs usedto measure fair value. This hierarchy requires entities to maximize the use ofobservable inputs and minimize the use of unobservable inputs. The three levelsof inputs used to measure fair value are as follows:**

** **

**Level 1 — Quoted prices in active marketsfor identical assets or liabilities.**

** **

**Level 2 — Observable inputs other thanquoted prices included in Level 1, such as quoted prices for similarassets and liabilities in active markets; quoted prices for identical orsimilar assets and liabilities in markets that are not active; or other inputsthat are observable or can be corroborated by observable market data.**

** **

**Level 3 — Unobservable inputs that aresupported by little or no market activity and that are significant to the fairvalue of the assets or liabilities. This includes certain pricing models,discounted cash flow methodologies and similar techniques that use significantunobservable inputs.**

** **

**The Company’s adoption of SFAS No. 157 did nothave a material impact on our consolidated financial statements. The Companyhas segregated all financial assets and liabilities that are measured at fairvalue on a recurring basis (at least annually) into the most appropriate levelwithin the fair value hierarchy based on the inputs used to determine the fairvalue at the measurement date in the table below. FSP FAS 157-2 delayedthe effective date for all nonfinancial assets and liabilities until January 1,2009, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis.**

** **

**The following section describes the valuationmethodologies we use to measure different financial instruments at fair value.**

** **

**Derivatives**

** **

**The derivatives portfolio is entirelyover-the-counter (OTC), your measurement is estimated using industry standardvaluation models. Where applicable, these models project future cash flows anddiscount the future amounts to a present value using market-based observableinputs including interest rate curves, foreign exchange rates, and forward andspot prices for currencies. Also, these estimates consider assumptions for theCompany’s own credit risk and the respective counter party credit risk. Level 2derivative assets and liabilities primarily include certain over-the-counter,collar, cross currency swap, and swap contracts.**

** **

**G-63**

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**Table of Contents**

** **

**Endesa Brasil S.A. andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

** **

**Debt and bond payable**

** **

**Only the debt and bond payable designated as ahedged item in a fair value hedge are measurement to fair value. Themeasurement this hedged items are the following:**

** **

**When available, we use observable market data,including pricing on recent closed market transactions, to value this debt andbond payable which are included in Level 2. When this data is unobservable, weuse valuation methodologies using current market interest rate data adjustedfor inherent credit risk and such loans are included in Level 3. Whenappropriate, loans are valued using collateral values as a practical expedient.**

 
| ** **             | ** ** | ** **                 | ** ** | **Fair Value Measurements at Reporting Date Using** | ** ** |
|------------------------|------------|----------------------------|------------|-----------------------------------------------------|------------|
| **(thousands of US$)** | ** ** | **December 31, 2008** | ** ** | **Level 1**                                         | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| **Assets**             |       |                       |       |                                                |       |   |   |   |   |
| Financial  Derivatives |       | —                     |       | —                                              |       | — |   | — |   |
| **Total  assets**      |       | —                     |       | —                                              |       | — |   | — |   |
|                   |       |                       |       |                                                |       |   |   |   |   |
| **Liabilities**        |       |                       |       |                                                |       |   |   |   |   |
| Financial  Derivatives | ** ** | (11,174                    | )          | —                                              |       | (11,174 | ) | — |   |
| Debt and bond  payable |       | (52,888                    | )          | —                                              |       | (52,888 | ) | — |   |
| **Total  liabilities** | ** ** | **(64,062**                | **)**      | —                                              | ** ** | **(64,062** | **)** | — |   |

** **

**c)**              Fair Value Option

** **

Effective January 1, 2008, the Company adoptedSFAS No. 159, which provides entities the option to measure many financialinstruments and certain other items at fair value. Entities that choose thefair value option will recognize unrealized gains and losses on items for whichthe fair value option was elected in earnings at each subsequent reportingdate. The Company has currently chosen not to elect the fair value option forany items that are not already required to be measured at fair value inaccordance with accounting principles generally accepted in the United States.

 

**(h)**             Derivativeinstruments

** **

The Company is exposed tothe impact of market fluctuations in the price of electricity, primarymaterials such as natural gas, petroleum, coal, and other energy-relatedproducts, interest rates, and foreign exchange rates. The Company has policiesand procedures in place to manage the risks associated with these marketfluctuations on a global basis through strategic contract selection, fixed-rateand variable-rate portfolio targets, and financial derivatives. All derivativesthat do not qualify for the normal purchase and sales exemption under SFAS No. 133are recorded at their fair value. On the date that swaps, cross currency swapcontracts are entered into, the Company designates the derivatives as a “hedge”,if the documentation is not appropriate to designate as a “hedge”, thederivative’s mark-to-market adjustment flows through the income statement.

 

The Company hasclassified its derivatives into the following general categories: embeddedderivatives, and financial derivatives. According to SFAS No. 133, anembedded foreign currency derivative should be separated from the host contractbecause none of the applicable exclusions are met (See Embedded DerivativeContracts below). For purposes of evaluating the functional currency of theCompany’s subsidiaries in Argentina and Brazil, the Company applied BT 64,consistent with the methodology described in Note 25 I paragraph (i), thus thefunctional currency of these subsidiaries was the US dollar as thesesubsidiaries were remeasured into US dollars because foreign subsidiariesoperate in countries exposed to significant risks as determined under BT 64.

 

G-64

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Table of Contents

** **

**Endesa Brasil S.A. andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

** **

The following is asummary of the Company’s derivative contracts as of December 31, 2007 and2008.

** **
| ** **           | ** ** | **2007**      | ** ** |
|----------------------|------------|---------------|------------|
| ** **           | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **           | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                 |       |          |       |   |   |   |   |
| Financial derivaties |       | —        |       | (35,780 | ) | (35,780 | ) |

 
| ** **           | ** ** | **2008**      | ** ** |
|----------------------|------------|---------------|------------|
| ** **           | ** ** | **Argentina** | ** ** | **Brazil** | ** ** | **Total** | ** ** |
| ** **           | ** ** | **ThUS$**     | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                 |       |          |       |   |   |   |   |
| Financial derivaties |       | —        |       | (11,174 | ) | (11,174 | ) |

** **

Certain Company’sgeneration and distribution commodity contracts in 2006 could be seen ascontracts that meet the definition of a derivative under SFAS No. 133 andare required to be accounted for at fair value. These conditions are (i) havean underlying, which is the market price of power at the delivery location anda notional amount specified in the contract; (ii) have no initial paymenton entering into the contract; and (iii) have a net settlement provisionor have the characteristic of net settlement because power is readilyconvertible to cash, as it is both fungible and actively traded in the countryof generation or country of distribution.

** **

Until December 31,2005 the Company’s Argentine generation entities had access to the Brazilianenergy market through an interconnection system between those two countries.Due to action taken by Argentine Regulation Authorities, the exportations ofenergy from Argentina to Brazil were limited, resulting in a default of mostenergy supply contracts the Company had entered into. However, during 2006 theBrazilian regulator issued a statement that allowed these interconnectioncontracts to reduce their amounts of power and energy to be delivered, and toaccelerate their maturity date to December 2007. As a result of actiontaken by Argentine and Brazilian regulation authorities, the contracts theArgentine subsidiaries had entered into ceased to exist as of the December 31,2006.

** **

*Derivativeinstruments*

* *

Theuse of derivative instruments is one of the Company’s tools to mitigate theserisks.  Hedging strategies applicableaccording to the terms established by our Board of Directors are as follows:

 

(a)       Exchange rate riskhedging policy

 

Theexchange rate risk hedging policy for the Group is based on cash flow.  Its objective is to balance foreign currencyindexed flows and the assets and liability structure in such currency.  In order to mitigate the exchange rate risk,the company has entered into financial derivative contracts, such as cross currencyswaps (“CCS”) and currency forwards, which have reduced the impact offluctuations of the exchange rate applicable to assets and liabilities subjectto foreign currency volatility.

 

(b)       Interest rate riskhedging policy

 

Theobjective of Endesa Brasil’s interest rate risk policy is to protect thecompany and its subsidiaries against adverse effects of financial marketvolatility on their Financial Statements. Because of Brazilian financial marketcharacteristics, in which fixed interest rate transactions are usuallyconsiderably more expensive than variable interest rate transactions, themajority of interests bearing liabilities held by the group are contracted atvariable interest rate.

 

G-65

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Table ofContents

 

**Endesa Brasil S.A. andSubsidiaries**

**Notes to the ConsolidatedFinancial Statements**

 

UnderUS GAAP, for the years ended December 31, 2006, 2007 and 2008, thederivative portfolio for the Endesa Brasil Group is the following:

** **
| ** **                     | ** ** | ** **       | ** ** | ** **                 | ** ** | **Year  ended December 31,** | ** ** |
|--------------------------------|------------|------------------|------------|----------------------------|------------|-----------------------------------|------------|
| ** **                     | ** ** | ** **       | ** ** | ** **                 | ** ** | **(thousands  US$)**              | ** ** |
| ** **                     | ** ** | ** **       | ** ** | ** **                 | ** ** | **2006**                          | ** ** | **2007** | ** ** | **2008** | ** ** |
| **Accounting  Classification** | ** ** | **Risk  Hedged** | ** ** | **Derivative  Instrument** | ** ** | **Notional  Value**               | ** ** | **Fair  Value** | ** ** | **Notional  Value** | ** ** | **Fair  Value** | ** ** | **Notional  Value** | ** ** | **Fair  Value** | ** ** |
|                           |       |             |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Cash Flow                      |       | Interest         |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Hedge                          |       | Rate             |       | Swap                       |       | 21,390                            |       | (550 | ) | 19,615 |   | (931 | ) | 17,714 |   | (2,106 | ) |
|                           |       |             |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Fair Value                     |       | Exchange         |       | CCS                        |       | 50,000                            |       | (6,231 | ) | 117.,794 |   | (33,598 | ) | 49,555 |   | (9,068 | ) |
| Hedge                          |       | Rate             |       | Swap                       |       | —                            |       | — |   | 5,087 |   | 11 |   | — |   | — |   |
|                           |       |             |       |                       |       |                              |       |   |   |   |   |   |   |   |   |   |   |
| Investment                     |       | Exchange         |       | CCS                        |       | 2,468                             |       | (1,693 | ) | 1,062 |   | (1,262 | ) | — |   | — |   |
|                           |       |             | ** ** | **Total**                  | ** ** | **73,858**                        | ** ** | **(8,474** | **)** | **143,558** | ** ** | **(35,780** | **)** | **67,269** | ** ** | **(11,174** | **)** |

** **

Inorder to allow hedge accounting classification under SFAS 133, it was necessaryto fulfill strict documentation and effectiveness requirements.  Hedge accounting cannot be applied toderivatives that do not satisfy documentation requirements, and accordingly,such operations are registered according to the general treatment ofderivatives (“investment contracts”).  Asa result, fair value adjustments to investment contracts have a direct effecton the income statement. This is a significant difference when compared toChilean GAAP, which is more flexible in its documentation requirements.

 

TheCompany performs tests on a quarterly basis in order to measure theeffectiveness level of its accounting hedge, which may be either a cash flow orfair value hedge.  Test results for 2006,2007 and 2008 revealed that the ineffective portion of our hedging contractswere immaterial.

 

*EmbeddedDerivative Contracts*

 

TheCompany enters into certain contracts that have embedded features that are notclearly and closely related to the host contract. As specified in SFAS No. 133,bifurcation analysis focuses on whether the economic characteristics and risksof the embedded derivative are clearly and closely related to the economiccharacteristics and risks of the host contract. In certain identifiedcontracts, the host service contract and the embedded feature are not indexedto the same underlying and changes in the price or value of service will notalways correspond to changes in the price of the commodity to which thecontract is indexed. U.S. GAAP requires embedded features to be measured atfair value as freestanding instruments. Unless the embedded contracts areremeasured at fair value under otherwise applicable GAAP, the embedded featuremust be valued at fair value with changes in fair value reported in earnings asthey occur.

 

Embeddedforeign currency derivative instruments are not separated from the hostcontract and considered a derivative instrument if the host contract is not afinancia1 instrument and it requires payments denominated in either: (1) thecurrency of any substantial patty to the contract. (2) the local currencyof any substantial party to the contract, (3) the currency used becausethe primary economic environment is highly inflationary, or (4) thecurrency in which the good or service is routinely denominated in internationalcommerce.

 

**(i)**                Employee BenefitPlans:

** **

The Group sponsor various benefit plans for itscurrent and retired employees. A description of such benefits follows:

** **

***Benefits for Retired Personnel***

* *

Other benefits provided to certain retired personnelof Group include subsidies, additional medical insurance and additionalpost-retirement benefits. Descriptions of these benefits for retired personnelare as follows:

 

G-66

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Table of Contents

 

**Endesa Brasil S.A. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

 

***i)***********Medical benefits**

 

This benefit provides supplementary health insurance,which covers a portion of health benefits not covered under the institutionalhealth benefits maintained by employees of Group. This benefit expires at thetime of death of the pensioner.

* *

***ii)*********Worker’s compensationbenefits**

 

Employees that were entitled to Worker’s compensationinsurance in prior years for work related injuries receive benefits from theCompany when that insurance expires. This benefit continues at the time ofdeath of the pensioner, to cover the surviving-spouse.

 

The Company has recognized liabilities related tocomplementary pension plan benefits and other postretirement benefits asstipulated in collective bargaining agreements. Under U.S. GAAP, post-retirementemployee benefits have been accounted for in accordance with SFAS No. 87and SFAS No. 106, with inclusion of prior-period amounts in current year’sincome as the amounts are not considered significant to the overall financialstatement presentation. The effects of accounting for post-retirement benefitsunder U.S. GAAP have been presented in paragraph (p), above. The following datarepresents Chile GAAP amounts presented under FAS No.132 Revised 2003 Employers’Disclosures about Pensions and other Postretirement Benefits, for Company’spost-retirement benefit plans.

 
| ** **                                 | ** ** | **At  December 31, 2007** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Pension  Benefits**          | ** ** | **Other  Benefits** | ** ** |
| ** **                                 | ** ** | **ThUS$**                      | ** ** | **ThUS$** | ** ** |
| Assets and obligations                     |       |                           |       |   |   |
|                                       |       |                           |       |   |   |
| Accumulated benefit  obligation            |       | (634,987                       | )          | (44,410 | ) |
| Plan assets at fair value                  |       | 625,369                        |       | — |   |
|                                       |       |                           |       |   |   |
| Unfunded accumulated  benefit              |       | (9,618                         | )          | (44,410 | ) |
|                                       |       |                           |       |   |   |
| Changes in benefit  (obligations)          |       |                           |       |   |   |
|                                       |       |                           |       |   |   |
| Benefit (obligations) at  January 1   |       | (31,623                        | )          | (31,579 | ) |
|                                       |       |                           |       |   |   |
| Foreign exchange effect                    |       | (6,558                         | )          | (6,620 | ) |
| Net periodic expense                       |       | (20,209                        | )          | (9,985 | ) |
| Contributions                              |       | 21,176                         |       | 3,774 |   |
|                                       |       |                           |       |   |   |
| Benefit (obligations) at  December 31 |       | (37,214                        | )          | (44,410 | ) |
|                                       |       |                           |       |   |   |
| Funded Status of the Plans                 |       |                           |       |   |   |
| Projected Benefit  Obligation              |       | (662,583                       | )          | (44,410 | ) |
| Fair value of the plans assets             |       | 625,369                        |       | — |   |
|                                       |       |                           |       |   |   |
| Funded Status                              |       | (37,214                        | )          | (44,410 | ) |
|                                       |       |                           |       |   |   |
| Net liability recorded under U.S. GAAP     |       | (37,214                        | )          | (44,410 | ) |
|                                       |       |                           |       |   |   |
| Change in the plan assets                  |       |                           |       |   |   |
|                                       |       |                           |       |   |   |
| Fair value of the plan assets, beginning   |       | 421,046                        |       | — |   |
| Foreign exchange effect                    |       | 124,732                        |       | — |   |
| Actual return on the plan assets           |       | 106,776                        |       | — |   |
| Employer contributions                     |       | 12,988                         |       | — |   |
| Plan participant  contributions            |       | 8,188                          |       | — |   |
| Benefits paid                              |       | (48,361                        | )          | — |   |
|                                       |       |                           |       |   |   |
| Fair value of plans assets, ending         |       | 625,369                        |       | — |   |

 

G-67

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Table of Contents

 

**Endesa Brasil S.A. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

 
| Service cost                     |   | (4,298  | )      | — |   |
|----------------------------------|--------|---------|--------|--------|--------|
| Interest cost                    |   | (66,174 | )      | (4,438 | )      |
| Actual return on the plan assets |   | 106,776 |   | — |   |
| Actuarial gain (loss)            |   | (56,513 | )      | (5,547 | )      |
|                             |   |    |   |   |   |
| Net periodic expenses            |   | (20,209 | )      | (9,985 | )      |

 
| ** **                                    | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|-----------------------------------------------|------------|----------------------|------------|--------------------|------------|
| **Assumptions as of  December 31, 2007** |       |                 |       |               |       |
| ** **                                    |       |                 |       |               |       |
| Weighted - discount rate  (1)                 |       | 11.2                 | %          | 12.1               | %          |
| Weighted - salary  increase                   |       | 6.1                  | %          | —             |       |
| Weighted - return on plan assets (1)          |       | 12.8                 | %          | —             |       |
| Weighted - long term  inflation (2)           |       | 4.7                  | %          | 5.0                | %          |

 

----

(1) Includesfixed long term inflation assumption detail in (2)

** **
| ** **                                 | ** ** | **At  December 31, 2008** | ** ** |
|--------------------------------------------|------------|--------------------------------|------------|
| ** **                                 | ** ** | **Pension  Benefits**          | ** ** | **Other  Benefits** | ** ** |
| ** **                                 | ** ** | **ThUS$**                      | ** ** | **ThUS$** | ** ** |
| Assets and obligations                     |       |                           |       |   |   |
|                                       |       |                           |       |   |   |
| Accumulated benefit  obligation            |       | (463,832                       | )          | (35,659 | ) |
| Plan assets at fair value                  |       | 414,265                        |       | — |   |
|                                       |       |                           |       |   |   |
| Unfunded accumulated  benefit              |       | (49,567                        | )          | (35,659 | ) |
|                                       |       |                           |       |   |   |
| Changes in benefit  (obligations)          |       |                           |       |   |   |
|                                       |       |                           |       |   |   |
| Benefit (obligations) at  January 1   |       | (37,214                        | )          | (44,410 | ) |
|                                       |       |                           |       |   |   |
| Foreign exchange effect                    |       | 18,338                         |       | 7,759 |   |
| Net periodic expense                       |       | (51,003                        | )          | (4,974 | ) |
| Contributions                              |       | 17,696                         |       | 2,990 |   |
|                                       |       |                           |       |   |   |
| Benefit (obligations) at  December 31 |       | (52,183                        | )          | (38,635 | ) |
|                                       |       |                           |       |   |   |
| Funded Status of the Plans                 |       |                           |       |   |   |
| Projected Benefit  Obligation              |       | (466,448                       | )          | (38,635 | ) |
| Fair value of the plans assets             |       | 414,265                        |       | — |   |
|                                       |       |                           |       |   |   |
| Funded Status                              |       | (52,183                        | )          | (38,635 | ) |
|                                       |       |                           |       |   |   |
| Net liability recorded under U.S. GAAP     |       | (52,183                        | )          | (38,635 | ) |

 

G-68

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Table of Contents

 

**Endesa Brasil S.A. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

 
| Change in the plan assets                |   |     |   |   |   |
|------------------------------------------|--------|----------|--------|--------|--------|
|                                     |   |     |   |   |   |
| Fair value of the plan assets, beginning |   | 625,369  |   | — |   |
| Foreign exchange effect                  |   | (185,337 | )      | — |   |
| Actual return on the plan assets         |   | (19,361  | )      | — |   |
| Employer contributions                   |   | 16,725   |   | — |   |
| Plan participant  contributions          |   | 971      |   | — |   |
| Benefits paid                            |   | (24,102  | )      | — |   |
|                                     |   |     |   |   |   |
| Fair value of plans assets, ending       |   | 414,265  |   | — |   |
|                                     |   |     |   |   |   |
| Service cost                             |   | (3,966   | )      | — |   |
| Interest cost                            |   | (54,271  | )      | (3,900 | )      |
| Actual return on the plan assets         |   | (19,361  | )      | — |   |
| Actuarial gain (loss)                    |   | 26,595   |   | (1,074 | )      |
|                                     |   |     |   |   |   |
| Net periodic expenses                    |   | (51,266  | )      | (4,974 | )      |

 
|                                          |   | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|-----------------------------------------------|--------|----------------------|------------|--------------------|------------|
| **Assumptions as of  December 31, 2008** |   |                 |       |               |       |
| ** **                                    |   |                 |       |               |       |
| Weighted - discount rate  (1)                 |   | 11.65                | %          | 12.14              | %          |
| Weighted - salary increase                    |   | 7.25                 | %          | —             |       |
| Weighted - return on plan assets (1)          |   | 12.45                | %          | —             |       |
| Weighted - long term inflation (2)            |   | 4.67                 | %          | 5                  | %          |

 

----

(1) Includesfixed long term inflation assumption detail in (2)

 

The company expects to pay-out of pension benefits forThUS$ 1,630, ThUS$ 40,750, ThUS$ 39,885, ThUS$ 39,337 and 39,142 in 2009, 2010,2011, 2012 and 2013, respectively.

 

**The following data presentsome supplementary information regarding the Company ́s pension plans in Brazil:**

** **

**Defined benefit pensionplan asset allocations at December 31, 2007 and 2008, by assets categoryare as follows:**

** **
| ** **          | ** ** | **2007**        | ** ** | **2008**       | ** ** |
|---------------------|------------|-----------------|------------|----------------|------------|
| **Asset  Category** |       | **Plan  asset** | ** ** | **Plan asset** |       |
|                |       |            |       |           |       |
| Equity securities   |       | 25.84           | %          | 13.28          | %          |
| Debt securities     |       | 67.55           | %          | 77,11          | %          |
| Real estate         |       | 5.76            | %          | 5,83           | %          |
| Other               |       | 0.86            | %          | 3,77           | %          |

** **

**G-69**

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**Table of Contents**

** **

**Endesa Brasil S.A. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

** **

**(j)**                Presentation to U.S. GAAP

 

Certain reclassifications and adjustment would be madeto the Chilean GAAP income statement in order to present the amounts inaccordance with U.S. GAAP. For example, certain non-operating income andexpenses under Chilean GAAP would be included in the determination of operatingincome under U.S. GAAP. Such reclassifications from non-operating to operatingincome and expense include the following:

 
| • |   | Losses arising from contingencies and litigation,  and reversals thereof |
|--------|--------|--------------------------------------------------------------------------|
| • |   | Gains and losses from disposals of fixed assets                          |
| • |   | Taxes, other than income taxes                                           |
| • |   | Penalties and fines                                                      |

** **
| ** **                              | ** ** | **Years ended  December 31,** | ** ** |
|-----------------------------------------|------------|------------------------------------|------------|
| ** **                              | ** ** | **2006**                           | ** ** | **2007** | ** ** | **2008** | ** ** |
| ** **                              | ** ** | **ThUS$**                          | ** ** | **ThUS$** | ** ** | **ThUS$** | ** ** |
|                                    |       |                               |       |   |   |   |   |
| Operating income                        |       | 391,744                            |       | 408,256 |   | 830,468 |   |
| Non-operating  income and expenses, net |       | (117,938                           | )          | (324,380 | ) | 65,264 |   |
| Income taxes                            |       | (13,451                            | )          | (102,121 | ) | (137,366 | ) |
| Minority interest                       |       | (88,280                            | )          | 103,456 |   | (292,335 | ) |
| Net income                              |       | 172,075                            |       | 85,211 |   | 466,031 |   |
| **Other comprehensive income (loss):**  |       |                               |       |   |   |   |   |
| Application of FAS 158                  |       |                               |       | (2,479 | ) | (10,007 | ) |
| Comprehensive income                    |       | 172,075                            |       | 82,732 |   | 456,024 |   |

** **

Certain reclassifications and adjustments would bemade to the Chilean GAAP balance sheet in order to present Chilean GAAP amountsin accordance with U.S. GAAP. Deferred taxes from depreciation differences thatare recorded as short-term under Chilean GAAP would be recorded as long-termunder U.S. GAAP. Additionally, the regulated asset recorded during 2001 byCoelce and Ampla, Brazilian subsidiaries, has been partially recorded in tradereceivables and an additional component was recorded in current assets byCoelce under Chilean GAAP. However, under U.S. GAAP the presentation of theseregulated assets should be classified as non-current assets as the recovery ofthese assets is not expected in the short term. Under U.S. GAAP, negativegoodwill is allocated to long-lived assets instead of a separate line term inthe other assets. Until December 31, 2006, investments in subsidiaries inthe development stage would be consolidated under US GAAP, as opposed to beingpresented as equity method investees, under Chilean GAAP.

** **
| ** **                                       | ** ** | **As of December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **2007**                    | ** ** | **2008** | ** ** |
|                                             |       | **ThUS$**                   | ** ** | **ThUS$** |   |
|                                             |       |                        |       |   |   |
| Current assets                                   |       | 1,722,719                   |       | 1,425,022 |   |
| Property, plant,  and equipment, net             |       | 3,789,665                   |       | 3,954,422 |   |
| Other assets                                     |       | 945,021                     |       | 490,487 |   |
| Total assets                                     |       | 6,457,405                   |       | 5,869,931 |   |
|                                             |       |                        |       |   |   |
| Current liabilities                              |       | 1,487,290                   |       | 967,914 |   |
| Long-term liabilities                            |       | 2,523,049                   |       | 1,945,581 |   |
| Minority interest                                |       | 730,648                     |       | 935,313 |   |
| Shareholders’ equity                        |       | 1,716,418                   |       | 2,021,123 |   |
| Total  liabilities and shareholders’ equity |       | 6,457,405                   |       | 5,869,931 |   |

** **

**G-70**

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**Table of Contents**

** **

**Endesa Brasil S.A. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

** **

**(k)**            Recent accountingpronouncements

** **

FASB Statement No. 141(Revised 2007), ‘Business combinations’ (“SFAS 141R”). SFAS 141R providesadditional guidance on improving the relevance, representational faithfulness,and comparability of the financial information that a reporting entity providesin its financial reports about a business combination and its effects. ThisStatement applies prospectively to business combinations for which theacquisition date is on or after the beginning of the first annual reportingperiod beginning on or after December 15, 2008. The impact of implementing this new pronouncement on the Company’sfinancial statements is currently unknown.

 

FASB Statement No. 160,‘Non-controlling interests in consolidated financial statements - an amendmentof ARB No. 51’ (“SFAS 160”). SFAS 160 amends ARB No. 51 to establishaccounting and reporting standards for the non-controlling interest in asubsidiary and for the deconsolidation of a subsidiary. This Statement iseffective for fiscal years and interim periods within those fiscal years,beginning on or after December 15, 2008. The impact of implementing this new pronouncement on the Company’sfinancial statements is currently unknown.

 

FASB Staff Position FAS141(R)-1, ‘Accounting for assets acquired and liabilities assumed in a businesscombination that arise from contingencies’ (“FSP FAS 141(R)-1”). FSP FAS 141(R)-1amends and clarifies SFAS 141R to address application issues raised bypreparers, auditors, and members of the legal profession on initial recognitionand measurement, subsequent measurement and accounting, and disclosure ofassets and liabilities arising from contingencies in a business combination.Under the new guidance, assets acquired and liabilities assumed in a businesscombination that arise from contingencies should be recognized at fair value onthe acquisition date if fair value can be determined during the measurementperiod. If fair value cannot be determined, companies should typically accountfor the acquired contingencies using existing guidance. This FSP is effectivefor assets or liabilities arising from contingencies in business combinationsfor which the acquisition date is on or after the beginning of the first annualreporting period beginning on or after December 15, 2008. The impact of implementing this new pronouncementon the Company’s financial statements is currently unknown.

 

FASB Staff Position FAS152-2 and FAS 124-2, ‘Recognition and presentation of other-than-temporaryimpairments’ (“FSP FAS 152-2 and FAS 124-2”). FSP FAS 152-2 and FAS 124-2clarifies that in periods in which an entity determines that a security’sdecline in fair value below its amortized cost basis as other than temporary,the entity shall present the total other-than-temporary impairment in theincome statement with an offset for the amount of the total other-than-temporaryimpairment that is recognized in other comprehensive income, if any. This FSPis effective for interim and annual reporting periods ending after June 15,2009. The impact of implementing this newpronouncement on the Company’s financial statements is currently unknown.

 

FASB Staff Position FAS157-2, ‘Effective date of FASB Statement No. 157’ (“FSP FAS 157-2”). FSPFAS 157-2 delays the effective date of FASB Statement No. 157, Fair ValueMeasurements (“SFAS 157”) for all nonfinancial assets and nonfinancialliabilities, except those that are recognized or disclosed at fair value in thefinancial statements on a recurring basis (at least annually). This FSPpartially defers the effective date of SFAS 157 to fiscal years beginning afterNovember 15, 2008, and interim periods within those fiscal years for itemswithin the scope of this FSP. The impact ofimplementing this new pronouncement on the Company’s financial statements iscurrently unknown.

 

FASB Staff Position FAS157-4, ‘Determining fair value when the volume and level of activity for theasset or liability have significantly decreased and identifying transactionsthat are not orderly’ (“FSP FAS 157-4”). FSP FAS 157-4 provides additionalguidance for estimating fair value in accordance with SFAS 157 when the volumeand level of activity for the asset or liability have significantly decreased.This FSP also includes guidance on identifying circumstances that indicate atransaction is not orderly. This FSP is effective for interim and annualreporting periods ending after June 15, 2009 and is applied prospectively.The impact of implementing this newpronouncement on the Company’s financial statements is currently unknown.

 

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Table of Contents

 

**Endesa Brasil S.A. and Subsidiaries**

**Notes to the Consolidated Financial Statements**

 

**Adoption of International FinancialReporting Standards (IFRS)**

 

Considering that bothEnersis and Endesa Chile have adopted IFRS as accounting standards starting on January 1,2009,  and expects that its next Form 20-F,for the fiscal year ended December 31, 2009, will be filed using IFRS asits accounting standard used to prepare the financial statements, Endesa Brasildoes not expect to prepare reconciliations to US GAAP in the future.

 

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