##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION  FORM 20-F
 [  ] REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE
THE SECURITIES EXCHANGE ACT OF 1934  
 For the fiscal year ended December 31, 2003
  
 
 ENERSIS S.A.  ENERSIS S.A.
(Translation of Registrants name into English)
    
    CHILE
(Jurisdiction of incorporation or organization)
 Avenida Santa Rosa 76, Santiago
Santiago, Chile
(Address of principal executive offices)Securities registered or to be registered pursuant to Section 12(b) of the Act: Name of each exchangeTitle of Each Class
    
    on which registeredAmerican Depositary Shares representing Common Stock
    
    New York Stock ExchangeCommon Stock, no par value
    
    New York Stock Exchange*US$300,000,000 6.90% Notes due December 1, 2006
    
    New York Stock ExchangeUS$350,000,000 7.40% Notes due December 1, 2016
    
    New York Stock ExchangeUS$150,000,000 6.60% Notes due December 1, 2026
    
    New York Stock Exchange
   *
    
    Listed, not for trading, but only in connection with the registration of
American Depositary Shares, pursuant to the requirements of the Securities
and Exchange Commission. Securities registered or to be registered pursuant to Section 12(g) of the Act: None Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None Indicate the number of outstanding shares of each of the issuers classes
of capital or common stock as of the close of the period covered by the annual report: Shares of Common Stock: 32,651,166,465 Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: YES [X] NO [  ] Indicate by check mark which financial statements item the registrant has
elected to follow: ITEM 17 [  ] ITEM 18 [X]




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TABLE OF CONTENTS PageIntroduction
    
    
    1Financial Information
    
    
    1Technical Terms
    
    
    2Calculation of Economic Interest
    
    
    2Forward-Looking Statements
    
    
    2PART IItem 1. Identity of Directors, Senior Management and Advisers
    
    
    4Item 2. Offer Statistics and Expected Timetable
    
    
    4Item 3. Key Information
    
    
    4Item 4. Information on the Company
    
    
    23Item 5. Operating and Financial Review and Prospects
    
    
    74Item 6. Directors, Senior Management and Employees
    
    
    108Item 7. Major Shareholders and Related Party Transactions
    
    
    115Item 8. Financial Information
    
    
    117Item 9. The Offer and Listing
    
    
    123Item 10. Additional Information
    
    
    126Item 11. Quantitative and Qualitative Disclosures About Market Risk
    
    
    140Item 12. Description of Securities Other than Equity Securities
    
    
    146PART IIItem 13. Defaults, Dividend Arrearages and Delinquencies
    
    
    147Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds
    
    
    147Item 15. Controls and Procedures
    
    
    147Item 16. [Reserved]
    
    
    147Item 16A. Audit Committee Financial Expert
    
    
    147Item 16B. Code of Ethics
    
    
    147Item 16C. Principal Accountant Fees and Services
    
    
    148Item 16D. Exemptions from Listing Requirements for Audit Committees
    
    
    149Item 16E. Purchases of Equity Securities by One Issuer and Affiliated Persons
    
    
    149PART IIIItem 17. Financial Statements
    
    
    150Item 18. Financial Statements
    
    
    150Item 19. Exhibits
    
    
    151
  i




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Enersis Corporate Structure(*)
as of December 31, 2003 (FLOW CHART)







ii





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INTRODUCTION 
 Financial Information As used in this annual report onForm 20-F, first person personal pronouns
such as we, us or our refers to ENERSIS S.A. (Enersis) and its
consolidated subsidiaries unless the context indicates otherwise. Unless
otherwise indicated, our interest in our principal subsidiaries and related
companies is expressed in terms of our economic interest as of December 31,
2003. In this annual report on Form 20-F, unless otherwise specified, references
to dollars, $, US dollars or US$ are to United States dollars,
references to pesos or Ch$ are to Chilean pesos, the legal currency of
Chile, references to Ar$ or Argentine pesos are to the legal currency of
Argentina, references to R$, reals or reais are to Brazilian reals, the
legal currency of Brazil, references to soles are to Peruvian soles, the
legal currency of Peru, references to CPs or Colombian pesos are to the legal
currency of Colombia and references to UF are to Unidades de Fomento. The
Unidad de Fomento is a Chilean inflation-indexed, peso-denominated monetary
unit. The UF rate is set daily in advance based on changes in the previous
months inflation rate. As of December 31, 2003, 1 UF was equivalent to
Ch$16,920.00. The US dollar equivalent of 1 UF was US$28.49 for December 31,
2003, using the Observed Exchange Rate reported by the Banco Central de Chile
(the Chilean Central Bank or the Central Bank) for December 31, 2003 of
Ch$593.80 per US$1.00. Our consolidated financial statements and, unless otherwise indicated,
other financial information concerning us and our subsidiaries included in this
annual report are presented in constant Chilean pesos in conformity with
Chilean generally accepted accounting principles (Chilean GAAP) and the rules
of the Superintendencia de Valores y Seguros, or SVS. Data expressed in
Chilean pesos for all periods in our audited consolidated financial statements
for the three fiscal years ended December 31, 2003 are expressed in constant
Chilean pesos as of December 31, 2003. See note 2(c) to our consolidated
financial statements. For Chilean accounting purposes, inflation adjustments
are calculated based upon a one-month lag convention using an inflation
adjustment factor based on the Indice de Precios al Consumidor(Chilean
consumer price index or Chilean CPI). The Chilean CPI is published by
Chiles Instituto Nacional de Estadísticas(the National Bureau of
Statistics). For example, the inflation adjustment applicable for the 2003
calendar year is the percentage change between the November 2002 Chilean CPI
and the November 2003 Chilean CPI, which was 1.0%. Chilean GAAP differs in
certain important respects from accounting principles generally accepted in the
United States (US GAAP). See Note 37 to our consolidated financial
statements contained elsewhere in this annual report for a description of the
principal differences between Chilean GAAP and US GAAP, as they relate to us
and a reconciliation to US GAAP of net income and stockholders equity for the
period and as of the dates therein indicated. Certain amounts may not add up
due to rounding. Under Chilean GAAP, we consolidate the results from operations of a
company defined as a subsidiary under Law No. 18,046. In order to
consolidate a company, we must generally satisfy one of two criteria:  
    
    control, directly or indirectly, more than a 50% voting interest in
that company; or
    
    nominate or have the power to nominate a majority of the board of
directors of that company if we control 50% or less of the voting
interest of that company. As of December 31, 2003, we consolidated Endesa-Chile, Chilectra S.A., or
Chilectra, Inversiones Distrilima S.A.(which in turn consolidated Empresa de
Distribución Eléctrica de Lima Norte S.A.A.or Edelnor), Empresa Distribuidora
Sur S.A., or Edesur, Inmobiliaria Manso de Velasco Limitada, or Manso de
Velasco, Synapsis Soluciones y Servicios IT Ltda., or Synapsis, Compañía
Americana de Multiservicios Ltda., or Cam, Companhia de Eletricidade do Rio de
Janeiro S.A., or Cerj, Luz de Bogotá, S.A.(which in turn consolidated Codensa
S.A.E.S.P.) or Codensa and Investluz(which in turn consolidated Companhia
Energética do Ceará S.A.) or Coelce. Endesa-Chile, in turn, consolidated all of its operational Chilean
subsidiaries.In Argentina, Endesa-Chile consolidated the hydroelectric company
Central Hidroeléctrica El Chocón S.A., or El Chocón, and thermoelectric
companies Central Costanera S.A., or Costanera.In Colombia, Endesa-Chile
consolidated generation companies Central Hidroeléctrica de Betania S.A.
E.S.P., or Betania, and Emgesa S.A.E.S.P., or Emgesa.Endesa-Chile also 1




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consolidated the hydroelectric company Cachoeira Dourada S.A., or Cachoeira
Dourada, in Brazil and the generation company Edegel S.A.A., or Edegel, in
Peru. For the convenience of the reader, this annual report contains
translations of certain Chilean peso amounts into US$ at specified rates.
Unless otherwise indicated, the US dollar equivalent for information in Chilean
pesos is based on the Observed Exchange Rate, as defined in Item 3. Key
InformationA. Selected Financial DataExchange Rates. The Federal Reserve
Bank of New York does not report a noon buying rate for Chilean pesos. No
representation is made that the Chilean peso or US dollar amounts shown in this
annual report could have been or could be converted into US$ or Chilean pesos,
as the case may be, 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 and gigawatt hours,
respectively; references to MW and MWh are to megawatts and megawatt hours,
respectively; references to kW and kWh are to kilowatts and kilowatt hours,
respectively; and references to kV are to kilovolts. Unless otherwise
indicated, statistics provided in this annual report with respect to
electricity generation facilities are expressed in MW, in the case of the
installed capacity of such facilities, and in GWh, in the case of the aggregate
annual electricity production of such facilities. One GW = 1,000 MW, and one
MW = 1,000 kW. Statistics relating to aggregate annual electricity production
are expressed in GWh and are based on a year of 8,760 hours. Statistics
relating to installed capacity and production of the electricity industry do
not include electricity of self-generators. Statistics relating to our
production do not include electricity consumed by our generators. Energy losses are calculated by:  
    
    subtracting the number of GWh of energy sold from the number of GWh
of energy purchased and self-generated within a given period; and
    
    calculating the percentage that the resulting quantity bears to the
aggregate number of GWh of energy purchased and self-generated within
the same period. 
 Calculation of Economic Interest References are made in this annual report to the economic interest of
Enersis in its subsidiaries or related companies. In circumstances where
Enersis does not own its interest in a subsidiary or related company directly,
the economic interest of Enersis in such ultimate subsidiary or related company
is calculated by multiplying the percentage ownership interest of Enersis in a
directly held subsidiary or related company by the percentage ownership
interest of any entity in the chain of ownership of such ultimate subsidiary or
related company. For example, if Enersis owns 60% of a directly held
subsidiary and that subsidiary owns 40% of a related company, Enersis economic
ownership interest in such related company would be 24%. References are also
made in this annual report to the economic interest of Endesa-Chile in its
subsidiaries and related companies. Calculation of Endesa-Chiles economic
interest is made based on the same method used to calculate the economic
interest of Enersis. Enersis, a holding company engaged in the generation, transmission and
distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru,
beneficially owned as of the date of this annual report, directly or
indirectly, 60.0% of Endesa-Chiles outstanding capital stock. ENDESA, S.A.
(Endesa-Spain), the largest electricity generation and distribution company
in Spain, owned a 60.6% beneficial interest in Enersis as of December 31, 2003. 
 Forward-Looking Statements This annual report contains statements that are or may constitute
forward-looking statements. These statements appear throughout this annual
report and include statements regarding our intent, belief or current
expectations, including but not limited to any statements concerning:  
    
    our capital investment program; 2




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




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PART I 
 Item 1. Identity of Directors, Senior Management and Advisers Not applicable. 
 Item 2. Offer Statistics and Expected Timetable Not applicable. 
 Item 3. Key Information A. Selected Financial Data. The following summary of consolidated financial data should be read in
conjunction with, and is qualified in its entirety by reference to our audited
consolidated financial statements including their notes, included elsewhere in
this annual report. Our consolidated financial statements are prepared in
accordance with Chilean GAAP and the related rules of the SVS, which together
differ in certain important respects from US GAAP. Note 37 to our consolidated
financial statements provides a description of the principal differences
between Chilean GAAP and US GAAP and a reconciliation to US GAAP of net income
(loss) and shareholders equity for the periods and as of the dates therein
indicated. Financial data as of or for each of the five years ended December
31, 2003 in the following table have been restated in constant Chilean pesos as
of December 31, 2003. All data, except ratios and operating data, are in
millions. For convenience purposes, all data presented in US$ as of or for the
year ended December 31, 2003 are translated at the Observed Exchange Rate of
Ch$593.80 per US$1.00. Such translations should not be construed as
representing that the Chilean peso amounts actually represent, have been or
could be converted into US$ at the rates indicated or used herein or at all.
For information concerning historical exchange rates, see Exchange Rates
below. Under Chilean GAAP and US GAAP, we consolidated the following electricity
companies: Chilectra, Distrilima (which in turn consolidated Edelnor), Edesur,
Cerj, Investluz (which in turn consolidated Coelce), Luz de Bogota (which in
turn consolidated Codensa) and Endesa-Chile. We also consolidated under Chilean GAAP and US GAAP all of our
non-electricity utility businesses, including Manso de Velasco, our real estate
development subsidiary, Cam, our procurement and services company and Synapsis,
our computer systems company, among others. The financial statements of
Distrilima have been consolidated since the acquisition of Distrilima in August
1994. The financial statements of Edesur were first consolidated for the 1995
fiscal year and have been consolidated for subsequent periods. The financial
statements of Endesa-Chile were first consolidated, under Chilean GAAP for the
1996 fiscal year. Our other Chilean principal operating subsidiaries have been
consolidated since prior to 1993. As of December 31, 1998, we accounted for our interests in Luz de Bogotá
(which owns a 51.3% interest in Codensa), Cerj and Investluz (which owns a
56.6% interest in Coelce) using the equity method. As described in note 2 to
our consolidated financial statements, effective January 1, 1999, we began to
consolidate these companies because we obtained the right to elect a majority
of the board of directors. Currently, we consolidate Cerj and Investluz (which
in turn consolidated Coelce) given our economic ownership interest. We also
include in equity in income of related parties the equity in income of
entities in which Endesa-Chile owns interests and for which Endesa-Chile
accounts for as equity-method investees. Effective January 1, 1998, the method of measuring our net investments in
our foreign affiliates was changed prospectively to comply with a change in the
Chilean GAAP foreign currency translation standards. In prior years, foreign
investments were measured in Chilean pesos at historical rates of exchange and
then price-level restated using the Chilean consumer price index. From January
1, 1998, foreign investments are first translated into US$ at historical rates
of exchange and then into Chilean pesos at the closing rate of exchange. In
addition, certain US dollar-denominated liabilities may now be designated as
hedges of the net foreign investment. Effective January 1, 1998, the
unrealized exchange gains or losses resulting from the translation of the
financial statements of foreign investees and the related hedges are not
recorded in income, but in a separate component of shareholders equity. See
Item 5. Operating and Financial Review and Prospects. 4




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In 2000, we sold our water utility companies, Esval and Aguas Cordillera,
as well as our electricity transmission company, Transelec. Therefore, those
companies ceased to be reflected in our financial statements as of December 31,
2000. In 2003, we sold Compañía Eléctrica del Río Maipoor Río Maipo and
Infraestructura Dos Mil S.A.or Infraestructura 2000, and, as a result, these
companies ceased to be reflected in our financial statements with effect from
January 1, 2003. The information detailed in the following table includes changes in
certain accounting policies for the five years ended and as of December 31,
2003, which affect the comparability of the data presented below. Beginning
January 1, 2000, the Company adopted new accounting policies concerning
accounting for deferred taxes in accordance with new Chilean accounting rules.
See note 3 to our consolidated financial statements for a further description
of changes in accounting policies. For the year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(millions of(millions of constant Ch$ of December 31, 2003)
    
    US$)(1)CONSOLIDATED INCOME STATEMENT DATAChilean GAAP:Sales
    
    
    2,550,124
    
    
    
    2,784,617
    
    
    
    3,089,974
    
    
    
    2,510,732
    
    
    
    2,352,333
    
    
    
    3,961Cost of operations
    
    
    (1,793,271
    )
    
    
    (1,913,985
    )
    
    
    (2,045,565
    )
    
    
    (1,747,351
    )
    
    
    (1,651,732
    )
    
    
    (2,782
    )Administrative and selling expenses
    
    
    (274,835
    )
    
    
    (312,356
    )
    
    
    (282,319
    )
    
    
    (225,410
    )
    
    
    (169,503
    )
    
    
    (285
    )Operating income
    
    
    482,018
    
    
    
    558,276
    
    
    
    762,090
    
    
    
    537,971
    
    
    
    531,098
    
    
    
    894Equity in income of related Companies, net
    
    
    1,737
    
    
    
    78
    
    
    
    (10,807
    )
    
    
    8,347
    
    
    
    17,517
    
    
    
    29Goodwill amortization
    
    
    (58,885
    )
    
    
    (72,431
    )
    
    
    (81,382
    )
    
    
    (511,407
    )
    
    
    (53,228
    )
    
    
    (90
    )Interest (expense) income, net
    
    
    (382,746
    )
    
    
    (455,103
    )
    
    
    (400,170
    )
    
    
    (357,795
    )
    
    
    (353,198
    )
    
    
    (595
    )Price-level restatement, net
    
    
    (155,953
    )
    
    
    (16,668
    )
    
    
    (28,652
    )
    
    
    (11,256
    )
    
    
    (10,554
    )
    
    
    (18
    )Other non-operating income (expense), net
    
    
    146,384
    
    
    
    373,019
    
    
    
    10,873
    
    
    
    67,616
    
    
    
    (50,447
    )
    
    
    (85
    )Income before income taxes, minority interest and
amortization of negative goodwill (2)
    
    
    32,555
    
    
    
    387,171
    
    
    
    251,952
    
    
    
    (266,524
    )
    
    
    81,188
    
    
    
    137Income taxes
    
    
    (95,728
    )
    
    
    (147,786
    )
    
    
    (131,149
    )
    
    
    (66,677
    )
    
    
    (41,571
    )
    
    
    (70
    )Extraordinary loss
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    (22,600
    )
    
    
    0
    
    
    
    0Minority interest
    
    
    (63,318
    )
    
    
    (185,840
    )
    
    
    (126,405
    )
    
    
    16,446
    
    
    
    (78,325
    )
    
    
    (132
    )Amortization of negative goodwill
    
    
    38,718
    
    
    
    43,072
    
    
    
    48,177
    
    
    
    113,370
    
    
    
    51,176
    
    
    
    86Net income (loss)
    
    
    (87,773
    )
    
    
    96,617
    
    
    
    42,575
    
    
    
    (225,985
    )
    
    
    12,468
    
    
    
    21Net Income (loss) per Share
    
    
    (12.91
    )
    
    
    14.21
    
    
    
    5.14
    
    
    
    (27.26
    )
    
    
    0.38
    
    
    
    N.A.Net Income (loss) per ADS
    
    
    (645.39
    )
    
    
    710.42
    
    
    
    256.75
    
    
    
    (1,362.83
    )
    
    
    19.09
    
    
    
    N.A.U.S. GAAP
(1999-2002, as restated) (3):Operating Income
    
    
    306,287
    
    
    
    775,796
    
    
    
    812,041
    
    
    
    (218,216
    )
    
    
    472,482
    
    
    
    796Equity in Income of Related Companies
    
    
    (5,441
    )
    
    
    78
    
    
    
    (28,458
    )
    
    
    23,527
    
    
    
    43,613
    
    
    
    73Income taxes
    
    
    (61,178
    )
    
    
    (234,654
    )
    
    
    (222,449
    )
    
    
    (2,783
    )
    
    
    (21,749
    )
    
    
    (37
    )Net Income (loss) from continuing operations
    
    
    (97,201
    )
    
    
    74,663
    
    
    
    (39,105
    )
    
    
    (333,377
    )
    
    
    29,480
    
    
    
    50Income (loss) from discontinued operations net of tax
and minority interest
    
    
    1,122
    
    
    
    263
    
    
    
    287
    
    
    
    168
    
    
    
    69
    
    
    
    N.A.Net Income (loss)
    
    
    (96,079
    )
    
    
    74,925
    
    
    
    2,866
    
    
    
    (333,209
    )
    
    
    29,269
    
    
    
    49Net Income (loss) from continuing operations per Share
    
    
    (14.30
    )
    
    
    10.40
    
    
    
    (4.73
    )
    
    
    (40
    )
    
    
    1.44
    
    
    
    N.A.Net Income (loss) from continuing operations per ADS
    
    
    (713.00
    )
    
    
    519.10
    
    
    
    (235.83
    )
    
    
    (2,011
    )
    
    
    72.00
    
    
    
    N.A.Net Income (loss) per Share
    
    
    (14.10
    )
    
    
    10.40
    
    
    
    0.37
    
    
    
    (40
    )
    
    
    1.43
    
    
    
    N.A.Net Income (loss) per ADS
    
    
    (704.80
    )
    
    
    520.90
    
    
    
    17.27
    
    
    
    (2,010
    )
    
    
    71.50
    
    
    
    N.A.Cash Dividends per share
    
    
    4.50
    
    
    
    0
    
    
    
    1.90
    
    
    
    0
    
    
    
    0
    
    
    
    0Cash Dividends per ADS
    
    
    224.60
    
    
    
    0
    
    
    
    94.00
    
    
    
    0
    
    
    
    0
    
    
    
    0Capital stock
    
    
    474,798
    
    
    
    792,424
    
    
    
    792,424
    
    
    
    792,424
    
    
    
    2,387,035
    
    
    
    4,020Numbers of shares of common stock (thousands)
    
    
    6,800,000
    
    
    
    6,800,000
    
    
    
    8,291,020
    
    
    
    8,291,020
    
    
    
    32,651,166
    
    
    
    Number of American Depository Shares (thousands)
    
    
    18,919
    
    
    
    21,019
    
    
    
    14,892
    
    
    
    6,578
    
    
    
    55,111
    
    
    
    
 5




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As at December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(millions of(millions of constant Ch$ of December 31, 2003)
    
    US$)(1)CONSOLIDATED BALANCE SHEET DATAChilean GAAP:Total assets
    
    
    12,491,610
    
    
    
    11,872,908
    
    
    
    12,887,398
    
    
    
    12,737,860
    
    
    
    10,732,747
    
    
    
    21,071Long Term Debt
    
    
    6,232,465
    
    
    
    5,277,040
    
    
    
    5,890,687
    
    
    
    5,458,227
    
    
    
    3,707,922
    
    
    
    9,631Minority interest
    
    
    4,045,426
    
    
    
    3,768,032
    
    
    
    4,114,307
    
    
    
    4,091,109
    
    
    
    3,349,282
    
    
    
    6,727Shareholders equity
    
    
    784,568
    
    
    
    1,180,449
    
    
    
    1,226,708
    
    
    
    1,015,636
    
    
    
    2,548,392
    
    
    
    2,006U.S.
GAAP (1999-2002, as restated) (3):Assets
    
    
    12,361,745
    
    
    
    11,966,563
    
    
    
    13,237,979
    
    
    
    12,453,475
    
    
    
    10,562,454
    
    
    
    17,788Long Term Debt
    
    
    6,234,088
    
    
    
    5,525,627
    
    
    
    6,472,965
    
    
    
    5,257,907
    
    
    
    3,806,507
    
    
    
    6,410Minority Interest
    
    
    3,953,757
    
    
    
    3,619,373
    
    
    
    4,003,360
    
    
    
    4,299,886
    
    
    
    3,127,745
    
    
    
    5,267Shareholders Equity
    
    
    785,999
    
    
    
    1,146,797
    
    
    
    1,170,180
    
    
    
    864,614
    
    
    
    2,512,521
    
    
    
    4,231
 6




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##### Table of Contents



As of or for the year endedDecember 31,1999
    
    2000
    
    2001
    
    2002
    
    2003
    
    2003(millions of constant Ch$ of December 31, 2003,
    
    (millions ofexcept for ratios and operating data)
    
    US$)(1)OTHER CONSOLIDATED FINANCIAL DATAChilean GAAP:Capital expenditures
    
    
    403,726
    
    
    
    346,440
    
    
    
    344,970
    
    
    
    321,094
    
    
    
    258,786
    
    
    
    436Depreciation and amortization
    
    
    407,238
    
    
    
    439,042
    
    
    
    438,393
    
    
    
    469,509
    
    
    
    404,999
    
    
    
    682U.S.
GAAP(3):Capital expenditures
    
    
    403,726
    
    
    
    346,440
    
    
    
    344,970
    
    
    
    321,094
    
    
    
    258,786
    
    
    
    436Depreciation and amortization
    
    
    443,776
    
    
    
    493,795
    
    
    
    500,741
    
    
    
    1,047,676
    
    
    
    404,431
    
    
    
    681
   (1)
    
    Solely for the convenience of the reader, Chilean peso amounts have been
translated into dollars at the rate of Ch$593.80 per U.S. dollar, the
Observed Exchange Rate for December 31, 2003 for amounts given as of
December 31, 2003.(2)
    
    Income before income taxes, minority interest and amortization of
negative goodwill as shown in our audited consolidated statements of
income.(3)
    
    See Item 5. Results from Operations for the Fiscal Years Ended December
31, 2002 and December 31, 2003Price-level restatement and foreign
exchange translation and Note 37 for a discussion of how our revenues and
balance sheet can be impacted by accounting differences under Chilean and
U.S. GAAP. The two most significant adjustments that result from
reconciling our Chilean GAAP accounts to U.S. GAAP relate to accounting
for amortization of goodwill discussed in paragraphs (g), (h) and (II-o)
of Note 37 and accounting for derivative instruments discussed in
paragraphs (p) and (II-k) of Note 37 to the audited consolidated financial
statements. In addition, as discussed in Note 37, our U.S. GAAP
information has been restated. 7




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##### Table of Contents



As of or for the year ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003Operating Data of SubsidiariesChilectraElectricity Sold (GWh) (1)
    
    
    8,425
    
    
    
    8,854
    
    
    
    9,585
    
    
    
    9,952
    
    
    
    10,518Number of Customers (thousands)
    
    
    1,239
    
    
    
    1,262
    
    
    
    1,289
    
    
    
    1,319
    
    
    
    1,341Total Energy Losses (%) (2)
    
    
    5.4
    
    
    
    5.2
    
    
    
    5.4
    
    
    
    5.6
    
    
    
    5.6Río MaipoElectricity Sold (GWh)
    
    
    1,050
    
    
    
    1,191
    
    
    
    1,245
    
    
    
    1,274
    
    
    
    Number of Customers (thousands)
    
    
    274
    
    
    
    287
    
    
    
    294
    
    
    
    302
    
    
    
    Total Energy Losses (%) (2)
    
    
    5.8
    
    
    
    5.4
    
    
    
    6.4
    
    
    
    6.2
    
    
    
    EdesurElectricity Sold (GWh)
    
    
    12,325
    
    
    
    12,597
    
    
    
    12,909
    
    
    
    12,138
    
    
    
    12,638Number of Customers (thousands)
    
    
    2,105
    
    
    
    2,108
    
    
    
    2,097
    
    
    
    2,090
    
    
    
    2,117Total Energy Losses (%) (2)
    
    
    7.8
    
    
    
    10.3
    
    
    
    9.9
    
    
    
    11.6
    
    
    
    11.8CerjElectricity Sold (GWh)
    
    
    7,694
    
    
    
    7,656
    
    
    
    6,739
    
    
    
    7,145
    
    
    
    7,398Number of Customers (thousands)
    
    
    1,559
    
    
    
    1,581
    
    
    
    1,691
    
    
    
    1,778
    
    
    
    1,905Total Energy Losses (%) (2)
    
    
    15.3
    
    
    
    19.7
    
    
    
    22.7
    
    
    
    22.6
    
    
    
    23.6CoelceElectricity Sold (GWh)
    
    
    5,709
    
    
    
    5,894
    
    
    
    5,352
    
    
    
    5,558
    
    
    
    5,897Number of Customers (thousands)
    
    
    1,652
    
    
    
    1,796
    
    
    
    1,917
    
    
    
    2,009
    
    
    
    2,255Total Energy Losses (%) (2)
    
    
    13.0
    
    
    
    13.3
    
    
    
    13.0
    
    
    
    12.9
    
    
    
    13.5CodensaElectricity Sold (GWh)
    
    
    8,502
    
    
    
    8,776
    
    
    
    8,673
    
    
    
    9,015
    
    
    
    9,254Number of Customers (thousands)
    
    
    1,746
    
    
    
    1,802
    
    
    
    1,850
    
    
    
    1,911
    
    
    
    1,972Total Energy Losses (%) (2)
    
    
    13.5
    
    
    
    10.5
    
    
    
    11.8
    
    
    
    10.3
    
    
    
    10.2EdelnorElectricity Sold (GWh)
    
    
    3,423
    
    
    
    3,583
    
    
    
    3,685
    
    
    
    3,872
    
    
    
    3,972Number of Customers (thousands)
    
    
    838
    
    
    
    852
    
    
    
    867
    
    
    
    871
    
    
    
    892Total Energy Losses (%) (2)
    
    
    8.8
    
    
    
    9.9
    
    
    
    8.9
    
    
    
    8.5
    
    
    
    8.4Endesa-ChileInstalled capacity in Chile (MW)
    
    
    4,130
    
    
    
    4,035
    
    
    
    3,935
    
    
    
    3,935
    
    
    
    3,762Installed capacity in Argentina (MW)
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622Installed capacity in Colombia (MW)
    
    
    3,035
    
    
    
    3,035
    
    
    
    3,035
    
    
    
    3,035
    
    
    
    2,589Installed capacity in Brazil (MW)
    
    
    658
    
    
    
    658
    
    
    
    658
    
    
    
    658
    
    
    
    658Installed capacity in Peru (MW)
    
    
    806
    
    
    
    997
    
    
    
    997
    
    
    
    1,003
    
    
    
    967Production in Chile (GWh)
    
    
    13,672
    
    
    
    15,346
    
    
    
    15,741
    
    
    
    16,286
    
    
    
    16,524Production in Argentina (GWh)
    
    
    9,150
    
    
    
    10,129
    
    
    
    9,948
    
    
    
    7,261
    
    
    
    8,128Production in Colombia (GWh)
    
    
    10,898
    
    
    
    9,618
    
    
    
    10,106
    
    
    
    10,699
    
    
    
    10,794Production in Brazil (GWh)
    
    
    3,222
    
    
    
    3,406
    
    
    
    2,256
    
    
    
    2,467
    
    
    
    3,024Production in Peru (GWh)
    
    
    2,950
    
    
    
    3,623
    
    
    
    4,176
    
    
    
    4,279
    
    
    
    4,458
   (1)
    
    Energy sold by Chilectra includes sales to Río Maipo, which have not been
eliminated in this chart. Río Maipo purchased substantially all of its
energy from Chilectra.(2)
    
    Energy losses are calculated by (a) subtracting the number of GWh of
energy sold from the aggregate GWh of energy purchased and self-generated
within a period and (b) calculating the percentage that the resulting sum
bears to the aggregate number of GWh of energy purchased and
self-generated within the same period. 8




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Physical Energy Losses We calculate physical energy losses as the difference between the energy
that we generate and purchase and the energy that we ultimately sell to our
customers. Our calculation of physical energy losses includes energy losses
due to illegally tapped energy as well as to technical failures. In 2000, we
changed the criteria used for measuring physical energy losses for our
distribution companies in the five countries in which we operate to make the
criteria homogeneous and comparable for all our companies, which was not the
case before 2000. We attempted to give retroactive effect to this new criteria
for 1999, but the necessary information was not available. Accordingly, the
1999 figures for physical energy losses are our best estimates using such
partial information. EXCHANGE RATES To the extent our financial liabilities are denominated in foreign
currencies, fluctuations in the exchange rate between the Chilean peso and the
U.S. dollar may have a significant impact on our earnings. Chiles Ley Orgánica del Banco Central de ChileNo. 18,840, or the Central
Bank Act, enacted in 1989, liberalized the ability to buy and sell foreign
exchange in Chile. Prior to 1989, the law authorized the purchase and sale of
foreign exchange only in those cases explicitly authorized by the Central Bank.
The Central Bank Act currently provides that the Central Bank may require that
certain purchases and sales of foreign exchange be carried out in the Mercado
Cambiario Formal, or the formal exchange market, a market formed by banks and
other entities explicitly authorized by the Central Bank. Purchases and sales
of foreign exchange which are generally permitted to be transacted outside the
formal exchange market can be carried out in the Mercado Cambiario Informal, or
the informal exchange market, which is a recognized currency market in Chile.
Both the formal and informal exchange markets are driven by free market forces. For the purposes of the operation of the formal exchange market, the
Central Bank sets a reference exchange rate (dólar acuerdo). The reference
exchange rate is reset daily by the Central Bank, taking into account internal
and external inflation and variations in parties between the Chilean peso and
each of the U.S. dollar, the Japanese yen and the Euro in a ratio of 80:5:15,
respectively. In order to keep the average exchange rate within certain limits,
on rare occasions the Central Bank intervenes by buying or selling foreign
exchange in the formal exchange market. The daily observed exchange rate (dólar
observado) reported by the Central Bank and published daily in Chilean
newspapers is computed by taking the weighted average of the previous business
days transactions in the formal exchange market. The informal exchange market reflects transactions carried out at informal
exchange rates by entities not expressly authorized to operate in the formal
exchange market (e.g., certain foreign exchange houses, travel agencies and
others). There are no limits imposed on the extent to which the rate of
exchange in the informal exchange market can fluctuate above or below the
observed exchange rate. Since 1993, the observed exchange rate and the informal
exchange rate have typically been within less than 1% of each other. On
December 31, 2003, the informal exchange rate was Ch$593.40, or 0.07% lower
than the published observed exchange rate of Ch$593.80 per US$1.00. On March
31, 2004, the informal exchange rate was Ch$611.00, or 0.88% lower than the
observed exchange rate of Ch$616.41 per US$1.00 corresponding to such date. The following table sets forth, for the periods and dates indicated,
certain information concerning the observed exchange rate reported by the
Central Bank. No representation is made that the Chilean peso or U.S. dollar
amounts referred to herein could have been or could be converted into U.S.
dollars or Chilean pesos, as the case may be, at the rates indicated or at any
other rate. The Federal Reserve Bank of New York does not report a noon buying
rate for Chilean pesos. Observed Exchange Rate(1)(Ch$ per US$)Year
    
    Low (2)
    
    High(2)
    
    Average(3)
    
    Period-end1999
    
    
    468.69
    
    
    
    550.93
    
    
    
    512.85
    
    
    
    530.072000
    
    
    501.04
    
    
    
    580.37
    
    
    
    542.08
    
    
    
    573.652001
    
    
    557.13
    
    
    
    716.62
    
    
    
    637.57
    
    
    
    654.792002
    
    
    641.75
    
    
    
    756.56
    
    
    
    692.32
    
    
    
    718.612003
    
    
    593.10
    
    
    
    758.21
    
    
    
    691.53
    
    
    
    593.80
 9




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##### Table of Contents



Observed Exchange Rate(1)(Ch$ per US$)Last six months
    
    Low (2)
    
    High(2)
    
    Average(3)
    
    Period-end2003December
    
    
    593.10
    
    
    
    621.27
    
    
    
    602.90
    
    
    
    593.802004January
    
    
    559.21
    
    
    
    596.78
    
    
    
    573.64
    
    
    
    591.42February
    
    
    571.35
    
    
    
    598.60
    
    
    
    584.31
    
    
    
    592.87March
    
    
    588.04
    
    
    
    623.21
    
    
    
    603.91
    
    
    
    616.41April
    
    
    596.61
    
    
    
    624.84
    
    
    
    608.55
    
    
    
    624.98May
    
    
    622.25
    
    
    
    644.42
    
    
    
    635.76
    
    
    
    636.02June (4)
    
    
    636.02
    
    
    
    649.45
    
    
    
    645.23
    
    
    
    646.47
 Source: Central Bank.   (1)
    
    Reflects Chilean pesos at historical values rather than in constant
Chilean pesos.(2)
    
    Exchange rates are the actual high and low, on a day-by-day basis, for
each period.(3)
    
    The average of the exchange rates on the last day of each month during
the period.(4)
    
    The information for June has been calculated through June 21, 2004. B. Capitalization and indebtedness. Not applicable. C. Reasons for the offer and use of proceeds. Not applicable. D. Risk Factors. Risks Relating to Our Operations Our business depends heavily on hydrological conditions, and drought
conditions may hurt our profitability. Approximately 65% of our consolidated generation capacity is hydroelectric
and, accordingly, we are dependent upon hydrological conditions prevailing,
from time to time, in the geographic regions in which we operate. In
particular, we are exposed to the risks discussed below. During periods of drought, electricity from thermal generators, including
those that are fueled with natural gas, fuel oil or coal, is dispatched more
frequently. During such periods, we are required to purchase electricity from
thermal producers, to the extent our own production is not sufficient to
fulfill contractual obligations. The cost of these spot market purchases may
exceed the price at which we sell electricity under contracts, resulting in a
loss. With the aim of partially decreasing the effects of a protracted future
drought, since 2000 our generation subsidiaries have changed their commercial
policy by decreasing their contractual energy sales levels to better match the
amount of firm energy associated with their installed capacity, giving priority
to their higher-paying clients and to industrial firms and distribution
companies that demand larger amounts of energy, limiting contractual sales to
regulated customers and increasing their thermal generating capacity. It is not
certain that this new policy will insulate Endesa-Chile and its operations from
negative consequences of a protracted drought period. 10




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##### Table of Contents



We are a holding company and depend on payments from our subsidiaries and
related companies to meet our payment obligations. We are a holding company with no significant assets other than the stock
of our subsidiaries. To pay our obligations, we rely on cash from dividends and
other distributions, interest payments, loans and returns of capital from our
subsidiaries, as well as cash from proceeds of the issuance of our own capital
stock or new debt. In addition, the ability of our subsidiaries to pay
dividends, interest payments, loans and other distributions to us is subject to
legal limits such as dividend restrictions, fiduciary duties, contractual
limitations and foreign exchange controls that may be imposed in any of the
five countries where our subsidiaries operate, and to the operating results of
our subsidiaries and equity affiliates. In recent years, we have been able to access the cash flows of our Chilean
subsidiaries. We have not been similarly able to access the cash flows of our
non-Chilean operating subsidiaries due to government regulations, strategic
considerations, economic conditions, and credit contract restrictions. For
example, since 2002 our ability to access the cash flows of Edesur have been
limited due to Argentine governmental restrictions, which were enacted to
prevent the upstreaming of funds outside Argentina. Although these
restrictions have now been somewhat relaxed, as a strategic decision, we have
allowed Edesur to maintain its excess cash during this period of Argentine
economic instability. This has allowed Edesur to be in a better position for
negotiating with its creditors. Another example is with our subsidiaries
Costanera, Betania and Cerj, whose debt covenant restrictions in certain
contracts have prevented such companies from distributing dividends. See Item
5  Results from Operations for the years ended December 31, 2002 and 2003 
Liquidity and Capital Resources. Our future results from operations outside of Chile may continue to be
subject to greater economic and political risks than what we have experienced
in Chile, thereby reducing the likelihood that we will be able to rely on cash
flow from operations in those non-Chilean entities. Dividend Limits and Other Legal Restrictions. Legal restrictions may
prevent our subsidiaries from upstreaming cash to us. We and our Chilean
subsidiaries are subject to customary legal restrictions limiting the amount of
dividend distributions of net income. Some of our non-Chilean subsidiaries are
also subject to legal reserve requirements and other restrictions on dividend
payments. In addition, the ability of any of our less-than-wholly-owned
subsidiaries to upstream cash to us may be limited by the fiduciary duties of
the directors of such subsidiaries to their minority shareholders. As a
consequence of such duties, our subsidiaries could under some circumstances be
prevented from upstreaming cash to us. The ability of our non-Chilean subsidiaries and equity affiliates to pay
dividends and make loan payments or other distributions to us is also subject
to emergency restrictions that may be imposed during special circumstances by
Central Banks or other governmental authorities in the various jurisdictions in
which we operate. For example, during the economic crisis in Argentina, the
Central Bank of Argentina imposed restrictions on the transfer of funds outside
of Argentina. Contractual Limitations. Upstreaming restrictions in our subsidiaries
contractual agreements include:  
    
    prohibitions against dividend distributions by Empresa Eléctrica
Pangue S.A., or Pangue, our Chilean generation subsidiary, if it is not
in compliance with certain debt to equity ratios and debt coverage
ratios (each as defined in Pangues credit agreements);
    
    prohibitions against dividend distributions by Edelnor and Edegel
in Peru, and Betania in Colombia in the case of default of certain
loans;
    
    prohibitions against repayments by Betania (an Endesa-Chile
subsidiary in Colombia) of intercompany debt unless Betania raises
additional funds from the sale of assets or capital reductions of its
subsidiaries (Emgesa), and against payments by Betania of interest on
intercompany debt if any scheduled payment of Betanias syndicated loan
is due and not paid;
    
    prohibitions against dividend distributions, capital reductions,
intercompany interest payments and debt repayment by Cerj in Brazil and
Costanera in Argentina while certain of its debt is outstanding. 11




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##### Table of Contents



Operating Results of Our Subsidiaries. The ability of our subsidiaries and
equity affiliates to distribute dividends or make interest payments, loans and
other distributions to us is limited by their operating results. To the extent
that the cash needs at any of our subsidiaries exceed its available cash, such
subsidiary will not be able to make cash available to us. We expect that in
2004 some of our non-Chilean subsidiaries may experience cash flow deficits and
not have funds available for distribution to us. For examples of recent
disruptions to our non-Chilean subsidiaries earnings and cash flows, see the
risk factor below entitled Breaches by our customers of contracts entered into
by subsidiaries of Endesa-Chile and equity affiliates with Brazilian
counterparties may impact the amount of dividends and distributions we receive
from those investments. Foreign Exchange Controls. The ability of our non-Chilean subsidiaries and
equity affiliates to pay dividends and make loan payments or other
distributions to us is subject to emergency restrictions that may be imposed by
Central Banks or other governmental authorities in the various jurisdictions in
which we operate. For example, during the economic crisis in Argentina, the
Central Bank of Argentina imposed restrictions on the transfer of funds outside
of Argentina. Our generation subsidiaries may have to pay regulatory penalties related to
operating our business during drought conditions. In Chile, our generation subsidiaries may have to pay regulatory penalties
related to operating their business if rationing occurs. Under current Chilean
law, such generation subsidiaries may be required to pay the following three
types of costs or penalties during periods of electricity rationing imposed by
the Chilean authorities:  
    
    Our generation businesses may be subject to regulatory fines, which
range from 1 Unidad Tributaria Mensual, or UTM, or approximately US$50,
to 10,000 Unidades Tributarias Anuales, or UTA, or approximately US$6
million. Any electricity company supervised by the Chilean
Superintendency of Electricity and Fuels, or SEF, may be subject to
these fines, which apply in cases where, in the opinion of the SEF,
there are operational failures that affect the regular energy supply to
the system. These fines are subject to appeal.
    
    If our Chilean generation subsidiaries are not able to satisfy
their contractual obligations during a period of drought in which a
rationing decree is in effect, they are required to buy the shortfall
in the electricity pool at spot prices, which may be considerably
higher than the cost of our own generation. If such incremental
purchases are still insufficient to meet contractual obligations, there
may be a so-called failure cost as determined by the Comisión
Nacional de Electricidad, or CNE, and such cost would represent the
highest marginal cost of electricity during such periods of drought.
    
    If any end-consumer of electricity in Chile fails to receive
electricity during any declared rationing period, that consumer must be
paid a compensation payment, which would be equal to a failure cost
set by regulatory authorities. There have been no compensation payments
imposed during the last four years. If rationing policies are imposed by any regulatory authority as a result
of adverse hydrological conditions in the countries in which our generation and
distribution subsidiaries operate, our business, financial condition and
results from operations may be affected adversely in a material way. Rationing
periods may occur in the future, and consequently our generation subsidiaries
may be obligated to pay regulatory penalties if such subsidiaries fail to
provide adequate service under such conditions. Our subsidiaries may be subject to significant regulatory fines in addition to
those penalties that our subsidiaries may have to pay during drought
conditions. Our generation and distribution subsidiaries may be required to pay fines
or to compensate customers if those subsidiaries are unable to deliver
electricity to them even if such failure is due to forces outside of our
control. For example, in 1999, Argentine regulators required us to pay
approximately US$59 million in fines as a consequence of electricity outages
resulting from a fire in one of our distribution substations belonging to
Edesur. The imposition of these penalties in Argentina increased our operating
costs significantly and was not accounted for under the tariff structure that
determines our revenues. Our profitability will be affected adversely if we are
required to pay penalties and compensation. 12




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##### Table of Contents



On August 14, 2003, the SEF imposed fines on some of our Chilean
generation subsidiaries in an aggregate amount of approximately US$2.3 million
due to a failure in the transmission of energy in the Metropolitan Region on
September 23, 2002. Our subsidiaries are currently appealing these fines but
these appeals may not be successful. On April 27 and May 3, 2004, the SEF imposed fines on both Endesa-Chile
and Chilectra in an aggregate amount of approximately US$2.0 million due to a
black out that occurred in the Metropolitan Region on January 13, 2003. Our
subsidiaries are currently appealing these fines but these appeals may not be
successful. Changes in government regulations may impose additional operating costs and
may cause revenues to decline. Our distribution subsidiaries, as public utilities, are subject to
extensive regulation of tariffs and other aspects of our business in the
countries in which we operate. Changes in the regulatory framework, including
changes that if adopted would significantly affect our operations, are
frequently submitted to the legislators and administrative authorities in the
countries in which we operate and could have a material adverse impact on our
business. Chile. Chiles National Congress and Executive Branch have considered
proposals, from time to time, for a modification of the electric energy
regulatory framework. More recently, proposals have been made by certain
members of the Chilean National Congress and the Executive Branch to modify
certain aspects of the regulators framework, short of the full modifications.
These more limited changes are referred to as the Ley Corta, or Short Law,
which was enacted in January 2004 and published on March 12, 2004. Changes introduced by the
Short Law are described in Item 4. Information on the CompanyElectricity
Industry Regulatory Framework. We are still evaluating the potential effect
of the Short Law on us and we cannot be certain that it will not affect our
results from operations adversely. The 1999 modifications to Chiles Electricity Law have affected our
strategic planning for our distribution companies. During 2002, at least two
Chilean electricity distribution companies (including Chilectra) published
several bids for energy and power contracts. As a result of this process, in
2002 Chilectra obtained energy supply contracts covering 100% of its
anticipated needs during 2003, principally from Endesa-Chile. Nevertheless, in
most cases the bidding processes were abandoned since no generation companies
submitted bids. We attribute this lack of interest to rules, enacted in 1999
and set forth in Article 99 bisof the Electricity Law, as a result of which a
drought can no longer constitute a force majeure event and therefore cannot be
invoked by hydroelectric generating companies as a basis for failure to deliver
energy. Nevertheless, Resolution No. 88 of the Economy Ministry, which is
described below, requires distribution companies to buy, and generation
companies to sell, energy and power at node prices in the absence of contracts
with generation companies. On May 3, 2000 another change was made to the regulatory framework in
Chile, Ley General de Servicios Eléctricos en Chile, through Law No. 19,674,
which regulated services relating to energy supply and provided for the
imposition of a regulated tariff repayment in cases where the Chilean antitrust
court (Tribunal de Defensa de la Libre Competencia) believes that prevailing
market conditions are inadequate to ensure fair pricing of such services
through free competition. These services include, among others, pole
attachments, meter rentals, disconnection and reconnection of service, public
lighting installation and maintenance and other services. At the end of 2003 the NEC started the process of tariff setting for
services associated with the electricity supply, which are supposed be
finalized by the end of June 2004, with the publishing of the ministerial
decree that sets tariffs for these services, although it is possible that this
date may be postponed. The resulting tariffs will be reviewed with the
distribution tariff setting process ending in November 2004. As of the date of
this report, we cannot predict the magnitude of any adverse tariff revisions or
their impact on us. Resolution 88. In May 2001, the Ministry of Economics issued Resolution
88, under which electricity generators such as Endesa-Chile, and its Chilean
subsidiaries, are required to provide power to distribution companies in the
Sistema Interconectado Central, or SIC, if distribution companies are not able
to freely contract adequate power supply to deliver to their customers. Under
the terms of Resolution 88, each generator must supply power to such
distributors in the SIC, at a price equal to the node price, in proportion to
the generators share of total 13




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firm capacity energy  the estimated aggregate
amount of energy that can be reliably delivered to an interconnected system
during a given year by all generating units in that system, under certain
assumptions. For a more complete discussion of this topic, see Item 4.
Information on the CompanyElectricity Industry Regulatory Framework. If
Endesa-Chile cannot generate sufficient energy power to supply distribution
companies needs, it is required to purchase energy on the spot market, at
prices that may be significantly higher than the price at which it would be
required to sell to distributors, and accordingly it may incur losses. In
addition, the requirement to sell to distributors may limit Endesa-Chiles
ability to expand sales to non-regulated customers. Environmental Regulation. Our operating subsidiaries are also subject to
environmental regulations, which, among other things, require us to perform
environmental impact studies on future projects and obtain regulatory permits.
Approval of these environmental impact studies may be withheld by governmental
authorities, public opposition may result in delays or modifications to any
proposed project and laws or regulations may change or be interpreted in a
manner that could adversely affect our operations or our plans for companies in
which we hold investments. See Item 4. Information on the CompanyD. Property,
plants and equipmentEnvironmental Issues. . Brazilian Sector Reform Studies. Law No 10,848, legislation which
reformed the Brazilian electricity sector, was enacted in March 2004. The law
will be implemented by means of decrees and resolutions that will regulate the
Brazilian electricity market and will determine, among other things, how
inherent risks will be distributed among the different market participants
(e.g. hydrological risk, market variation and account receivables) and will
prohibit the participation of the distribution companies in other activities
related to electricity, such as generation. This direct and indirect
prohibition on vertical integration in the electricity sector affects Cerjs
limited generation activities and its ownership participation in Coelce through
Investluz. In the case of distributors, other risks of Law No 10,848 are associated
with possible restrictions on the pass-through of power purchase expenses,
possible fines for sub-contracting and possible changes in the rules governing
the sale or liquidation in the spot market of excess capacity, which is
currently limited to 3%. It is not yet possible to predict the impact of Law No 10,848 because the
implementation of regulations has not yet been made and it is not clear whether
they will have a material adverse effect over the companies we own or on our
activities and operations in Brazil. Our generation subsidiaries could be affected by the proposals being
considered by the Chilean Congress relating to their water rights. Approximately 72% of the installed capacity of our generation subsidiaries
in Chile is hydroelectric as of the date of this annual report. Our Chilean
generation subsidiaries own water rights granted by the Chilean Water Authority
for the supply of water from rivers and lakes near their production facilities.
Under current law, these water rights are of unlimited duration. They are
absolute and unconditional property rights not subject to further challenge.
Chilean Congress is discussing a proposal to amend the laws governing unused
water rights. Under the proposal, our generation subsidiaries would have to pay
a fee each year for unused water rights whether they were granted before or
after the enactment of such proposal. We are unable to predict whether or in
what form any such proposed changes to the laws governing water rights will be
enacted and whether any changes, if enacted, will have a material adverse
effect on either us or our operations. Construction of new facilities may be affected adversely by factors associated
commonly with new construction projects. Factors that may affect our ability to build new facilities include:  
    
    delays in obtaining regulatory approvals;
    
    shortages or changes in the prices of equipment, materials or labor;
    
    local opposition of political and ethnic groups; 14




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
    
    adverse changes in the political and regulatory environment in the
countries where we and our related companies operate;
    
    adverse weather conditions, which may delay the completion of power
plants or substations, or natural disasters, accidents or other
unforeseen events; and
    
    the inability to obtain financing at affordable rates. Any of these factors may cause delays in the completion of all or part of
our capital investments program and may increase the cost of the projects
contemplated. We are subject to financial covenants under our existing indebtedness. On April 14, 2004, we entered into an agreement with a syndicate of banks
referred to as the Amended Enersis Facility, a credit facility with a
principal outstanding of US$350 million, which matures in 2008. On February 4,
2004, Endesa-Chile entered into an agreement with a syndicate of banks to
provide a new US$250 million senior unsecured term loan facility through
Endesa-Chiles Cayman Islands branch (the Endesa-Chile Facility). For more
information on these credit facilities, see Item 5  Results from Operations
for the years ended December 31, 2002 and 2003  Liquidity and Capital
Resources. In addition, substantially all of our indebtedness contains cross-default
provisions, generally triggered by default on other indebtedness aggregating at
least US$30 million. In the event that any of our cross-default provisions are
triggered and our existing creditors demand immediate repayment, substantially
all of our indebtedness will become due and we would be unable to pay such
debt. For more information on the rolled over debt of our Brazilian and
Argentinian subsidiaries and the cross default provisions in our debt
facilities, please refer to Liquidity and Capital Resources in Item 5 of this
report. Foreign exchange risks may affect our results from operations and financial
condition adversely. The Chilean peso and the other South American currencies in which we and
our subsidiaries operate have been subject to large devaluations against the
dollar in the past and may be subject to significant fluctuations in the
future. Historically, a significant portion of our consolidated indebtedness
has been denominated in U.S. dollars and, although a substantial portion of our
revenues are linked in part to U.S. dollars, we generally have been and will
continue to be materially exposed to fluctuations of our local currencies
against the dollar because of time lags and other limitations in the indexation
of our tariffs to the dollar. Because of this exposure, the cash generated by
us and our subsidiaries can be diminished materially when our local currencies
devalue against the dollar. For example, in the case of our Argentine
subsidiaries, regulatory changes introduced in 2002 eliminated dollar
indexation of our tariffs altogether, which together with a devaluation of
approximately 71% of the Argentine peso against the U.S. dollar and
pesification of our contractual rates, resulted in a shortfall of net cash
generation that prevented the Argentine subsidiaries from meeting their debt
service obligations. Future volatility in the exchange rate of the Chilean
peso, and the other currencies in which we receive revenues or incur
expenditures, to the U.S. dollar, may affect our financial condition and
results from operations. For more information on the risks associated with
foreign exchange rates, see Item 11. Quantitative and Qualitative Disclosures
About Market Risk. As of December 31, 2003, Enersis had total consolidated indebtedness of
US$6.4 billion, of which US$4,685 million, or 73%, was denominated in U.S.
dollars. For the twelve-month period ended December 31, 2003, our revenues
amounted to US$4,508 million (before consolidation adjustments) of which US$422
million, or 9.4%, were denominated in U.S. dollars, and US$598 million, or
13.3% were linked in some way to the U.S. dollar. In aggregate, 22.6% of our
consolidated revenues were either in U.S. dollars or correlated to such
currency through some form of indexation. On the other hand, the equivalent of
US$984 million were revenues in pesos, which represents 21.8% of our 2003
consolidated revenues. In addition to the U.S. dollar and the Chilean peso, and as of December
31, 2003, our foreign-currency denominated consolidated indebtedness included
the equivalent of US$463 million in Brazilian reais, US$431 million in
Colombian pesos, US$231 million in Peruvian soles, and US$40 million in
Argentine pesos, for an aggregate of US$1,165 million in currencies other than
Chilean pesos and U.S. dollars. At the same time, revenues 15




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before consolidation adjustments in these other currencies for the
twelve-month period ended December 31, 2003, included the equivalent of US$946
million in Brazilian reais, US$745 million in Colombian pesos, US$443 million
in Argentine pesos, and US$370 million in Peruvian soles, for an aggregate of
US$2,504 million in such currencies. Despite the fact that we have both
revenues and debt in these same currencies, we believe that we are exposed to
risk in terms of our foreign exchange exposure to these four currencies. The
most material case is that of Argentina, where we have mostly U.S.$-denominated
debt while our revenues are mostly in Argentine pesos, as detailed above. The impact on the value of our assets of high levels of devaluation in the
countries in which we operate outside Chile may not be reflected on our
reported financial condition as a result of Chilean accounting treatment. The manner in which we restate our foreign investments under Chilean GAAP
requires us to translate non-monetary assets and non-monetary liabilities of
our non-Chilean subsidiaries and equity affiliates into U.S. dollars at
historical rates of exchange. This accounting treatment may have the effect of
excluding from our reported balance sheet the effect of devaluation on our
non-monetary assets in the countries in which our subsidiaries and investments
are located because devaluations of the local currency against the dollar or
the Chilean peso are not reflected. See Item 5. Results from Operations for
the Fiscal Years Ended December 31, 2002 and December 31, 2003Critical
Accounting PoliciesTechnical Bulletin No. 64. We and our subsidiaries may be subject to refinancing risk. As of December 31, 2003, on a consolidated basis, we had US$892 million of
indebtedness maturing in 2004, US$270 million in 2005, and
US$2,532 million of indebtedness maturing in the period 2006 through 2008 and
US$2,713 million maturing thereafter (excluding the US$350 million aggregate
principal amount of 7.375% notes due 2014 issued on November 24, 2003). We may be unable to refinance our indebtedness or obtain such refinancing
on terms acceptable to us. In the absence of such refinancings, we could be
forced to dispose of assets in order to make up for any shortfall in the
payments due on our indebtedness under circumstances that might not be
favorable to obtaining the best price for such assets. Furthermore, assets may
not be sold quickly enough, or for amounts sufficient to enable us to make such
payments. As of December 31, 2003, the debt of our Brazilian and Argentine operating
subsidiaries amounted to approximately US$947 million. US$434 of this amount is
short term debt due in 2004. As a matter of policy for all of our Brazilian
and Argentine subsidiaries, we are primarily making interest payments when due,
and we are negotiating extensions of the principal payment dates of most of our
outstanding debt. Our international creditors have understood the
extraordinary circumstances that have led us to take these steps and have
accepted these financing arrangements. However, if our international creditors
do not continue to accept rolling over debt principal when it becomes due, we
may be unable to refinance our indebtedness on terms acceptable to us. For
further discussion of our short term debt obligations and their expected
refinancing, see Item 5  Results from Operations for the years ended December
31, 2002 and 2003  Liquidity and Capital Resources. We and our subsidiaries are currently involved in various litigation
proceedings which could result in unfavorable decisions or financial penalties
for us, and we will continue to be subject to future litigation proceedings,
any of which could have material adverse consequences to our business. We are a party to a number of legal proceedings, some of which have been
pending for several years. Some of these claims may be resolved against us.
Our financial condition or results from operations could be affected adversely
to a material extent if any of these material claims are resolved against us. For a further discussion of the legal proceedings affecting us and our
subsidiaries, see the section entitled Legal Proceedings Item 8 included in
this annual report. There are potential conflicts of interest with our affiliates which could
adversely affect our business. As of December 31, 2003 Endesa-Spain owned 60.6% of Enersis share
capital. Therefore, Endesa-Spain has the power to determine the outcome of most
material matters to be decided by a vote of our shareholders, such as
the election of the majority of our board members and, subject to legal
restrictions, the distribution of dividends. 16




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Endesa-Spain can also exercise
influence over our operations and business strategies. Endesa-Spain conducts
its business in South America through us and through affiliates not
consolidated by us. To the extent any conflict arises between our interests and
those of Endesa-Spains other businesses in any jurisdiction in South America,
Endesa-Spain might have a conflict of interest, which could have an adverse
effect on our business. Three of our directors, Rafael Miranda, Alfonso Arias and Jose Luis
Palomo, are officers of Endesa-Spain, with Rafael Miranda as the Chief
Executive Officer. In addition, Alfonso Arias is a director of Cerj, an
Enersis subsidiary. Our subsidiaries sell electricity and capacity to other companies
controlled by Endesa-Spain at regulated prices and have entered into contracts
for other services with other companies controlled by Endesa-Spain, or the
Endesa Group. The values of our subsidiaries long-term energy supply contracts are subject
to fluctuations in the market prices of certain commodities. We have economic exposure to fluctuations in the market price of certain
commodities as a result of the long-term energy sales contracts to which our
subsidiaries are parties. Our subsidiaries have material obligations under
long-term fixed-price electricity sales contracts, the values of which
fluctuate with the market price of electricity. In addition, our generation
subsidiaries have material obligations as selling parties under long-term
energy supply contracts with prices that vary in accordance with the market
price of electricity, water levels in our reservoirs, the market prices of
primary materials such as natural gas, oil, coal and other energy-related
products, as well as the exchange rate of the U.S. dollar. Changes in the
market price of these commodities and in the exchange rate do not always
correlate with changes in the market price of electricity or with our cost of
production of electricity; accordingly, there may be times when the price paid
to us under these contracts is less than our cost of production or acquisition
of electricity. We do not carry out transactions in commodity derivative
instruments to manage our exposure to commodity price fluctuations. Under
Chilean GAAP, we do not reflect in our income statement fluctuations in the
fair value of our long-term energy contracts, although we are required to do so
under U.S. GAAP. As a matter of policy, we do not enter into supply contracts
for amounts of electricity in excess of our firm capacity under adverse
hydrological conditions. For further discussion of commodity price risk,
please refer to Item 11. Quantitative and Qualitative Disclosures About
Market RiskCommodity Price Risk in this annual report. Risk Factors Relating to Chile Our business is dependent on the Chilean economy and our revenues are
sensitive to its performance. A substantial portion of our assets and operations are located in Chile
and, accordingly, our financial condition and results from operations are, to a
certain extent, dependent upon economic conditions prevailing from time to time
in Chile. In 2003, the Chilean economy grew by 3.3% compared to a 2.2% increase
in 2002. The Central Bank recently reclassified its criteria for growth
measurements, and the figures for 2000, 2001 and 2002 reported in our 2002 Form
20-F are different from those reported in prior Form 20-Fs. The latest Chilean
Central Bank forecasts for GDP growths between 4.0% and 5.0% for 2004 and
greater than 4.5% for 2005 (Central Bank, Informe Política Monetaria, May
2004). There is no assurance that such growth will be achieved, that the
growth trend will continue in the future, or that future developments in the
Chilean economy will not impair our ability to proceed with our strategic plans
or impact our financial condition or results from operations adversely. Our
financial condition and results from operations could also be affected by
changes in economic or other policies of the Chilean government, which has
exercised and continues to exercise a substantial influence over many aspects
of the private sector. In addition, our financial condition and results from
operations could also be affected by other political or economic developments
in Chile, as well as regulatory changes or administrative practices of Chilean
authorities, over which we have no control. Increased inflation in Chile may affect our results from operations adversely. Although Chilean inflation has moderated in recent years, Chile has
experienced high levels of inflation in the past. High levels of inflation in
Chile could affect the Chilean economy adversely and, indirectly, the value of
shares of Enersis common stock and ADSs. Chilean CPI for the 12 months ended
December 31, 2003, was 1%, and
government officials expect Chilean CPI to be approximately 2.0% and 3.0%
for 2004 and 2005 respectively. 17




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Historically, a substantial part of our
expenses have been denominated in Chilean pesos, and future increases in
Chilean inflation could cause our expenses to rise significantly. As a result,
the level of Chilean inflation may affect our financial condition and results
from operations. We believe that moderate inflation will not materially affect our business
in Chile materially. Electricity tariffs in Chile, both for generation and
distribution, contain indexing mechanisms that are intended to neutralize the
effects of inflation. However, we believe that the performance of the Chilean
economy, our operating results, and the value of securities issued by us, could
be affected adversely if inflation levels were to rise significantly. Lawsuits against us brought outside Chile or complaints against us based on
foreign legal concepts may be unsuccessful. We are incorporated under the laws of Chile and substantially all of our
assets are located in Chile or elsewhere in South America. All of our
directors and officers reside outside the United States. If any shareholder
were to bring a lawsuit against our directors, officers or experts in the
United States, it may be difficult for them to effect service of legal process
within the United States upon these persons or to enforce against them, in
United States courts or Chilean courts, judgments obtained in the United States
courts based upon the civil liability provisions of the federal securities laws
of the United States. In addition, there is doubt as to whether an action could
be brought successfully in Chile on the basis of liability based solely upon
the civil liability provisions of the United States federal securities laws. Political factors may affect regulatory processes and tariffs in Chile. During 2001, Chilean Congress lower chamber or Cámara de Diputados,
investigated the tariff-setting process for electricity distribution companies
carried out in 2000. The National Energy Commission is the entity subject to
this investigation. The initiatives sponsors alleged that the tariff-setting
process evidenced irregularities, which were beneficial to several electricity
distribution companies, including Chilectra. As a result of this
investigation, two reports were produced with the majority and minority views.
The majority view was that the National Energy Commission exceeded its legal
authority favoring certain distribution companies while the minority view was
that the National Energy Commission had acted in full compliance with its
authority. Both reports were read in front of the full congressional lower
chamber on March 5, 2002. However, no votes were taken nor, as of the date of
this annual report, has a new date been set for the revision and vote on the
reports. We are not able to determine whether the ultimate results of these
resolutions will be materially adverse to our financial performance or future
prospects. Foreign exchange risks may affect the US dollar amount of dividends payable to
holders of Enersis ADS adversely. Chilean trading in the shares of common stock underlying the ADSs is
conducted in pesos. Enersis depositary will receive cash distributions that
we make with respect to the shares underlying the ADSs in pesos. The
depositary will convert such pesos to US dollars at the then-prevailing
exchange rate to make dividend and other distribution payments in respect of
ADSs. If the value of the peso falls relative to the US dollar, the value of
the ADSs and any distributions ADS holders receive from the depositary may
decrease. The relative illiquidity and volatility of Chilean securities markets could
affect the price of the Enersis ADSs and common stock adversely. Chilean securities markets are substantially smaller and less liquid than
the major securities markets in the United States. In addition, Chilean
securities markets may be affected materially by developments in other emerging
markets, particularly other countries in South America. The low liquidity of
the Chilean market may impair the ability of holders of ADSs to sell shares of
our common stock withdrawn from the ADS program into the Chilean market in the
amount and at the price and time they wish to do so. 18




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Risk Factors Relating to the Rest of South America South American economic fluctuations are likely to affect our results from
operations. All of our operations are located in South America. Although we originally
operated only in Chile, we have, through strategic acquisitions and
investments, expanded our operations throughout South America. We now generate
a significant portion of our consolidated operating revenues and consolidated
operating income outside Chile, 64% and 53%, respectively, in 2003.
Accordingly, our consolidated revenues are sensitive to the performance of the
South American economies as a whole. If local, regional or worldwide economic
trends adversely affect the economy of any of the countries in which we have
investments or operations, our financial condition and results from operations
could be affected adversely. The South American financial and securities markets have exhibited
significant volatility since October 1997, reflecting the risk created by
weakness in global commodity prices and slowing global economic growth. South
American countries have generally responded to these external factors,
including currency speculation, by widening or eliminating currency fluctuation
bands, raising interest rates and tightening fiscal policies. South American
economies, including many of those in which we have investments, have recently
been affected adversely by a number of internal and external factors. The South American financial and securities markets are, to varying
degrees, influenced by economic and market conditions in other emerging market
countries. Although economic conditions are different in each country, investor
reaction to developments in one country can have significant effects on the
securities of issuers in other countries, including Chile. Chilean financial
and securities markets may be affected adversely by events elsewhere,
especially in other emerging markets, and such effects may affect the value of
or the interest rate yields in the secondary markets for our debt securities.
Moreover, Enersis and Endesa-Chile have significant investments in relatively
risky non-Chilean countries such as Argentina, Brazil, Colombia and Peru.
Generation and upstreaming of cash from subsidiaries in these countries have
proven to be volatile. Chilean sovereign debt has recently been upgraded by Standard & Poors to
an A rating and is currently the only South American sovereign debt with an
investment grade rating. Certain South American economies have been characterized by frequent and
occasionally drastic intervention by governmental authorities. Governmental authorities have often changed monetary, credit, tariff and
other policies to influence the course of the economy of Argentina, Brazil,
Colombia and Peru. These governments actions to control inflation and effect
other policies have often involved wage, price and tariff rate controls as well
as other interventionist measures, which have included freezing bank accounts
and imposing capital controls. Changes in the policies of these governmental
authorities with respect to tariff rates, exchange controls, regulations and
taxation could affect our business 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 government authorities intervene in any of the countries
in which we operate, it could cause our business to be less profitable, and our
results from operations may be affected. Risk Factors Related to Brazil Breaches by our customers of contracts entered into by subsidiaries of
Endesa-Chile and equity affiliates with Brazilian counterparties may impact
the amount of dividends and distributions we receive from those investments. Recent hydrological conditions in Brazil have led to historically low
prices in the Brazilian spot energy market. As a result, a number of our most
important Brazilian customers have breached their contracts with us in order to
purchase energy in the spot market instead of pursuant to these contracts. For example, in April 2003, CELG, the sole contracted customer of
Endesa-Chiles Brazilian subsidiary, Cachoeira Dourada, was awarded a
preliminary and provisional judgment that permitted CELG to suspend its
payments under a long-term take or pay contract with Cachoeira Dourada. CELG
has also claimed damages of 19




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approximately US$250 million from 1997 to 2003 relating to this contract.
On July 4, 2003, the court presiding over the dispute ruled that CELG would be
required to make payments until December 2005 to Cachoeira Dourada at price
ranges significantly lower than the R$61.63 per MWh amount provided for under
the existing terms of the take or pay contract. The terms of this contract
provide for payments of approximately R$16.0 million per month of which
Cachoeira Dourada received as of December 31, 2003, approximately R$59.9
million, corresponding to less than half of the payments due under the contract
for the year. On June 16, 2004, the preliminary and provisional judgment was
revoked, which obliges CELG to pay 100% of the contract to Cachoeira Dourada
including payments due for all of 2003. By virtue of this resolution Cachoeira
Dourada, in the event that CELG does not pay what it owes, may make effective
the contractual guarantees or demand the payment of the same. CELG has
petitioned for reconsideration of this decision. A final unfavorable decision
could mean that Cachoeira Dourada would receive significantly lower payments
from its only contracted customer, which would affect its ability to pay
dividends to Endesa-Chile. Cachoeira Dourada has not made provisions for the
accounts receivable from CELG or CELGs damages claim. If CELG were to prevail
in its damages claim, it would have a material adverse effect on our results
from operations. As another example, in December 2003, Companhia Paranaense de
EnergiaCOPEL, or Copel, suspended payments to CIEN, a non-consolidated company
in which Endesa-Chile has a 45% interest, under a take or pay power and energy
supply contract signed in 1999. CIEN also sells energy to three other Brazilian
companies. As a justification for its action, Copel alleged economic and
financial imbalance in the 1999 contracts. Copel also requested a revision of
the prices previously agreed. On August 18, 2003, CIEN and Copel entered into a
memorandum of understanding in which they agreed to modify the terms and
conditions of the current contracts. On December 10, 2003 these contracts were
executed, providing among other things, for a 50% reduction in the energy
volume contracted for (now 400 MW), and a reduction in the term of the contract
from 20 to 13 years ending on December 31, 2015. Energy losses in Brazil may affect our financial results adversely. Our Brazilian distribution subsidiaries experience materially higher
energy losses than occur in the rest of our distribution operations, with
Coelce and Cerj experiencing loss rates for 2003 of 13.5% and 23.6%,
respectively, compared with an average loss rate of 9.0% for the rest of our
distribution operations. Elevated energy loss rates in our Brazilian
distribution subsidiaries are due principally to energy theft, which is
particularly acute in areas with high concentrations of low-income customers
and in periods of economic downturn. Energy losses affect our financial results
because lost energy could otherwise have been distributed to customers or sold
to other distributors in return for payment. Risk Factors Related to Argentina The property, operations and customers of Edesur, our Argentine
distribution subsidiary, Costanera and El Chocón, our Argentine generation
subsidiaries, are located in Argentina and most of their indebtedness is
denominated in U.S. dollars. Accordingly, our Argentine subsidiaries financial
condition and results from operations depend to a significant extent on
economic and political conditions prevailing in Argentina and on the rates of
exchange between the Argentine peso and the U.S. dollar. As detailed below, the
Argentine economy has experienced a severe recession and the abandonment of
dollar-peso parity has led to significant devaluation of the peso against major
international currencies. These conditions have adversely affected and will
continue to adversely affect the financial condition of our Argentine
investments and their results from operations and may continue to impair their
ability to make distributions to us. The current macroeconomic situation in Argentina and the changes to
regulations affecting our Argentine subsidiaries could affect the ability of
our Argentine subsidiaries to meet their obligations. The current macroeconomic crisis in Argentina has affected our investments
in Argentina significantly. On January 6, 2002, the Argentine Congress approved the Public Emergency
and Reform of Exchange Regulation Law 25,561, or the Economic Emergency Law.
The Economic Emergency Law amended the law that had pegged the Argentine peso
at parity with the U.S. dollar since April 1991. The Economic Emergency Law
empowered the Argentine Federal Executive Branch to implement, among other
things, additional monetary, 20




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financial and exchange measures to overcome the economic crisis in the
medium term, such as the creation of a system for determining the rate at which
the Argentine peso is exchanged into foreign currencies. The Economic Emergency
Law:  
    
    repealed the provisions of the convertibility law that fixed the
parity of the Argentine peso, or Ar$, with the U.S. dollar, or US$, at
1 to 1 and instead allows the Ar$ to float against the US$; and
    
    repealed certain provisions of public service concessions, thus
prohibiting the recognition of inflation index mechanisms from other
countries and any other indexation mechanism in the setting of tariffs
for public services. Some of the more significant measures adopted by decree of the Argentine
Federal Executive Branch included the following:  
    
    the creation of an exchange market that allows the Ar$to float freely;
    
    the imposition of certain restrictions on access to funds deposited in financial institutions; and
    
    asymmetric mandatory conversion into Argentine pesos of Argentine
banks foreign currency denominated assets at an exchange rate of US$1
to Ar$1 and of foreign currency-denominated deposits at an exchange
rate of US$1 to Ar$1.40. Additionally, the Argentine Federal Executive Branch and members of the
National Congress are considering proposals to modify the public services
framework, including electricity distribution service. There have been no
proposals submitted by the Argentine Federal Executive Branch to legislators or
that have emerged from the National Congress as a bill. It is unclear whether
or in what form any amendments to the electricity public services regulatory
framework will be enacted, and the timing and applicability of any new
legislation is as yet unclear. Such amendments could adversely affect our
profitability by increasing the costs associated with and/or decreasing the
revenues earned from distributing electricity, and/or modifying some rights of
concessionaires recognized under the current regulatory framework. The Central Bank of Argentina has recently lifted, but may reinstate,
restrictions on the transfer of funds outside of Argentina that could prevent
our Argentine subsidiaries from distributing dividends and paying principal on
certain of their external debt as it comes due. From December 3, 2001 to May 6, 2003, the Argentine government imposed a
number of monetary and currency exchange control measures that included
restrictions on the free transfer of funds deposited with banks and severe
restrictions on transferring funds abroad (including payments of dividends,
principal and interest on debt), with certain exceptions for transfers related
to foreign trade and other authorized transactions. The restrictions, requiring
the Argentine Central Banks prior authorization for the transfer of funds
abroad in order to make payments of principal and/or interest, were gradually
relaxed from January to May 2003. In addition, funds may now be transferred abroad without the prior
authorization of the Argentine Central Bank in order to pay dividends
corresponding to prior periods provided that independent accountants have
certified the financial statements for such period. We cannot predict, however, whether the Argentine Central Bank will again
require its prior authorization for the transfer of funds abroad for principal
and/or interest payments by any of our Argentine subsidiaries to their foreign
creditors or for dividend payments by our Argentine subsidiaries to their
shareholders. Should the Argentine Central Bank reimpose restrictions on the transfer of
funds outside of Argentina that prevent our Argentine subsidiaries from paying
principal on certain of their external debt, a substantial portion of their
debt obligations may become due and payable, unless new financing is funded
outside Argentina and is available to our Argentine subsidiaries or they are
able to renegotiate, or obtain a waiver with respect to the indebtedness that
would be subject to such restrictions. If similar restrictions are imposed
again, our Argentine subsidiaries may not be able to obtain new financing or be
able to renegotiate or obtain waivers with respect to 21




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indebtedness subject to foreign exchange restrictions. In addition, such
restrictions may impede the ability of our Argentine subsidiaries to make cash
distributions to us. As of December 31, 2003, the debt of our Argentine subsidiaries amounted
to approximately US$649 million. As a matter of policy for all of our Argentine
subsidiaries, including generation and distribution companies, as long as the
foreign currency restrictions remain in Argentina, and as long as fundamental
issues concerning the electricity sector remain unresolved, we are primarily
making interest payments when due, as permitted by the Argentine Central Bank,
and we are rolling over most of our outstanding debt. On December 31, 2002, our
Argentinian subsidiaries total outstanding debt was US$671 million, of which
US$485 million was due during 2003. We paid US$50.5 million of principal and
US$45.7 million of interest due during 2003 and rolled over US$434.9 million to
2004. As of March 31, 2004 we have paid US$48.4 million of principal and
US$11.5 million of interest of our Argentine debt and rolled over US$207.4
million and our Argentine subsidiaries have a total outstanding debt amount of
US$561 million, which had an average maturity of approximately 24 months. Our
international creditors have understood the extraordinary circumstances that
have led us to take these steps and to date have accepted these refinancing
arrangements. If our creditors do not continue to accept, or the Argentine
Central Bank will not continue to permit, rolling over debt principal when it
become due, we may be unable to refinance our indebtedness on terms acceptable
to us. Argentine authorities have implemented a number of monetary and
currency-exchange control measures that have had, and may continue to have, an
adverse effect on our results from operations and financial condition in
Argentina. The Economic Emergency Law has affected Edesur adversely by repealing the
provisions of Edesurs concession contract that permitted its distribution
tariffs to be pegged to the dollar, and that provided for certain price
indexation mechanisms. Since Edesurs invoices to its clients are no longer
pegged to the dollar, the dollar value of such receivables has declined
significantly in the wake of the devaluation of the Argentine peso. Because
Edesurs indebtedness is largely dollar-denominated, the above-mentioned
factors have had a significant negative impact on Edesurs net income. The Economic Emergency Law and other recent Argentine foreign exchange
restrictions have affected the economic and financial condition of El Chocón
adversely due to the pesification of all privately negotiated contracts and
spot energy market prices, since this generation subsidiary of Endesa-Chile has
electricity power supply contracts with clients in the Republic of Argentina
and operates in the Argentine Electricity Retail Market. The pesification of El
Chocóns contracts, together with the devaluation of the peso, have had a
significant adverse effect on El Chocóns net income. The Economic Emergency Law also authorized the Argentine Federal Executive
Branch to renegotiate all public service contracts, and establishes certain
guidelines dealing with potential impacts on the Argentine domestic economy,
quality of service and capital expenditure plans, consumer interests, the
security of the systems, and the profitability of the companies providing such
services. On March 20, 2002, the government listed the set of contracts to be
renegotiated, as well as the general procedures to be used as guidance in such
negotiations. Among these contracts is Edesurs concession contract. At the time of this filing, it is not possible to determine how the
Kirchner administration in Argentina, elected in May 2003, will resolve these
very important electricity tariff issues. We cannot predict whether the final result of such developments will have
a material adverse effect on Edesur. We may experience higher generation costs and reduced operating margins due to
the deficit of natural gas in Argentina. The recent natural gas deficit in Argentina could have a negative impact
on some of our generation plants in Chile and Argentina particularly those that
use natural gas produced in Argentina for their thermoelectric generation. In Argentina, this deficit has caused the local price of natural gas to
rise. If we are unable to pass along these higher costs to our customers, our
operating margins could decrease. 22




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In Chile, Endesa Chile and another related company currently rely on
natural gas for their thermoelectric generation and are parties to take or pay
gas contracts with Argentine suppliers. On March 26, 2004, the Argentine
government announced a resolution that allows for the partial suspension of
natural gas exports. Furthermore, the resolution gives the Argentine president
the authority to effectively ignore the long-term contracts of Argentine
exporters. If we experience continuous interruptions in the supply of natural
gas supply from Argentina, we would have to replace natural gas with more
expensive fuels such as coal and/or diesel to maintain our current generation
level, resulting in higher generation costs and lower operating margins. Risk Factor Related to Colombia Colombias electricity power industry has in the past been affected adversely
by guerilla attacks. Guerrilla organizations have long been active in Colombia. Although our
Colombian facilities have never been subject to any attacks having a material
impact by any guerilla group, we cannot predict whether such attacks will occur
in the future. In many remote regions of the country that have traditionally
lacked an effective government presence, the guerillas have exerted influence
over the local population. In recent years, guerilla organizations have
employed acts of terrorism to draw attention to their causes. Despite efforts
by the Colombian government to address the situation, Colombia continues to be
affected by social friction and violence related to guerilla activity. Most of
this activity has been directed towards the oil industry. During 2002, our Colombian companies paid an anti-terrorism tax which
affected our net income. Although we believe such a tax was non-recurrent,
future guerilla or terrorist actions in Colombia may result in similar actions
by the Colombian tax authorities. Risk Factor Related to Peru Peru electricity power industry can be affected by the Camisea project. The Camisea pipeline project, a project to build a pipeline from the North
of Peru to Lima, may affect the prices of natural gas in that country. If
completed the project will result in lowering the price of gas and our
subsidiary in Peru, Edegel, and its electricity generation plants that rely on
more expensive fossil fuels may be negatively affected. 
 Item 4. Information on the Company A. History and development of the company. Description of Business Enersis was originally organized as Compañía Chilena Metropolitana de
Distribución EléctricaS.A., as recorded in a public deed on June 19, 1981.
The existence of our company was authorized, and its by-laws were approved,
pursuant to Resolution No. 409-S on July 17, 1981, issued by the Chilean
Superintendency of Securities and Insurance, or SVS (using the Spanish
acronym). The by-laws have been amended subsequently. The existence of our
company under its current name, ENERSIS S.A., or Enersis, dates back to August
1, 1988. Enersis is a limited liability stock company domiciled in Santiago,
Chile, and operates under Chilean law and regulations. The corporate
headquarters are located in Avenida Santa Rosa 76, Santiago, Chile. Our
telephone number is (562) 353 4400. Introduction We are an electricity utility company primarily engaged, through our
principal subsidiaries and related companies, in the generation, transmission
and distribution of electricity in Chile, Argentina, Brazil, Colombia and Peru.
We are one of the largest private sector electricity companies in South
America in terms of consolidated assets and operating revenues with over 10
million customers and the largest electricity company in Chile. Through
Endesa-Chile, our largest consolidated subsidiary, we are one of the
largest
private sector electricity generation company in South America in terms of
installed capacity. We also have smaller operations in other non-electricity
businesses. Endesa-Spain, Spains largest electricity generation and
distribution company, acquired control of our company in April 1999 and owned
60.6% of our outstanding shares as of December 31, 2003. 23




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For the seven years ended December 31, 2003, we have ranked as the largest
private sector electricity company in Chile, measured by consolidated assets
and consolidated operating revenues. As of and for the year ended December 31,
2003, our consolidated assets were Ch$10,732.7 billion and our consolidated
operating revenue was Ch$2,352.3 billion. We trace our origin to Compañía Chilena de Electricidad Ltda., or CCE,
which was formed in 1921 as a result of the merger of Chilean Electric Tramway
and Light Co., founded in 1889, and Compañía Nacional de Fuerza Eléctrica, with
operations dating to 1919. In 1970, the Chilean government nationalized CCE.
In 1981, CCEs operations were divided into one generation company, the current
AES Gener S.A., and two distribution companies, one with a concession in Region
V, the current Chilquinta S.A., and the other with a concession in the Santiago
metropolitan region, Compañía Chilena Metropolitana de Distribución Eléctrica
S.A.From 1982 to 1987, the Chilean electric utility sector went through a
process of re-privatization. On August 1, 1988, Compañía Chilena Metropolitana
de Distribución Eléctrica S.A.changed its name to ENERSIS S.A. and became the
new parent company of Distribuidora Chilectra Metropolitana S.A.,later renamed
Chilectra S.A.In 1989, Río Maipo, was spun off from Chilectra and Río Maipo
has since operated the electricity distribution concession in the more rural
southern and western portions of the Santiago metropolitan region. Enersis
sold Río Maipo in April 30, 2003. In the 1990s, we diversified into
electricity generation and transmission through our increasing equity stakes in
Endesa-Chile. We began our international operations with the 1992 investment
in Edesur, the Argentine electricity distribution company. We then expanded
primarily into electricity generation and distribution businesses in four South
American countries: Argentina, Brazil, Colombia and Peru. Currently, we
remain focused on the electricity sector, although we also have small
operations in other businesses. Electricity Generation Our electricity generation business is conducted primarily through
Endesa-Chile, which has operations in Chile, Argentina, Brazil, Colombia and
Peru. As of December 31, 2003, Endesa-Chile, together with its principal
subsidiaries and related companies, accounted for an aggregate of 11,599 MW of
generation capacity. Endesa-Chiles Operation in Chile The Chilean electricity system is divided into four systems: Sistema
Interconectado Central(the SIC); Sistema Interconectado del Norte Grande
(the SING); and two minor isolated systems, Aysénand Magallanes. Endesa-Chile is the largest electricity generation company in Chile
measured by installed capacity and one of the largest private sector
electricity
companies in the country. Endesa-Chile had operating income of Ch$338.5
billion and Ch$349.7 billion for the fiscal years ended December 31, 2003 and
2002, respectively. Endesa-Chile had revenues in Chile of Ch$920.3 billion in
2003 and Ch$947.5 billion in 2002. We own 60.0% of Endesa-Chile. Endesa-Chile owns and operates 19 generation facilities in Chile.
Endesa-Chile accounted for approximately 35% of Chiles total installed
capacity as of December 31, 2003, and its electricity production of 16,286 GWh
in 2003, accounted for approximately 36% of all electricity production in
Chile. As of December 31, 2003, 18 of the generation facilities owned and
operated by Endesa-Chile in Chile were connected to the SIC, with the remaining
generation facility located in the SING, which provides electricity to the
northern mining regions of Chile. Twelve of Endesa-Chiles 19 generation
plants are hydroelectric, with a total installed capacity of 2,727 MW. The
remaining seven are coal, oil or gas-fired thermal plants with an installed
capacity of 1,036 MW. Endesa-Chile had 69 customers in 2001, 67 customers in 2002 and 60
customers in 2003. These customers include the principal distribution
companies of the SIC and large industrial firms whose rates are not government
regulated, which are primarily in the mining, pulp and steel sectors. Supply
contracts entered into with distribution companies are more standardized than
those with unregulated customers and generally have terms ranging from four to
eight years. These contracts are extended automatically at the end of the
applicable term unless terminated by either party upon prior notice. The
contracts may also include provisions that waive obligations for Endesa-Chile
in connection with events of force majeureand for binding arbitration in the
event of disputes. After the 1998-1999 drought in Chile, the most severe in
recorded history, the Ministry of Economy did not accept drought as a potential
cause of force majeure. See Item 8. Legal ProceedingsPayments Related to
Failure to Deliver Electricity. In 2003, sales to unregulated customers
represented 46.5% of Endesa-Chiles total physical energy sales. 24




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The following table sets out information relating to Endesa-Chiles
installed capacity and electricity sales in Chile: Year ended December 312001
    
    2002
    
    2003Installed
Capacity (MW) (1)
    
    
    3,935
    
    
    
    3,935
    
    
    
    3,763Electricity Sales (GWh)
    
    
    18,673
    
    
    
    18,344
    
    
    
    18,681
   (1)
    
    Figures take into account the sale of the Canutillar Plant in April 2003. Endesa-Chile is currently in the process of finishing a new generation
plant in Chile. The hydroelectric generation plant at Ralco will have an
installed capacity of 570 MW. Because of several construction delays, the
facility is scheduled to commence its operations in the second half of 2004.
As of March 31, 2004, the construction of Ralco project was 98% completed. Competition. Endesa-Chile competes in the SIC primarily with two other
electricity generation companies, AES Gener S.A.(Gener), controlled by the
United States company, AES, and Empresa Eléctrica Colbún Machicura S.A.,
(Colbún), which is partly owned by Tractebel, the Matte Group and the Chilean
state. As of December 31, 2003, in Chile Gener had an installed capacity of
1,785 MW, of which approximately 85% was thermal electric, and Colbún had an
installed capacity of 1,521 MW, of which approximately 48% was thermal
electric. In addition, there are a number of smaller entities that generate
electricity in the SIC. Electricity generation companies compete largely on
the basis of technical experience and reliability and, in the case of
unregulated customers, price. We believe that Endesa-Chile has considerable
competitive strength in the SIC due to its size, diversification, extensive
geographic coverage, technical expertise, customer service and established
commercial relationships. Approximately 72% of Endesa-Chiles installed
capacity comes from hydroelectric power plants, as a result of which
Endesa-Chile generally has lower production costs than companies that rely more
heavily on thermal plants. During periods of extended droughts, however,
Endesa-Chile is often forced to buy more expensive electricity from
thermoelectric generators at spot prices in order to satisfy its contractual
obligations. In the SING, Endesa-Chile operates a thermal facility with an
installed capacity as of December 31, 2003, of 182 MW, or 5% , of that systems
total installed capacity. The main generation companies operating in the SING
are Electroandina(formerly Corporación Nacional del Cobre División Tocopilla),
Empresa Eléctrica del Norte Grande S.A.(Eldenor), and Norgener S.A. Gasoducto GasAndes S.A., or GasAndes, a subsidiary of Total Elf Fina,
which owns a natural gas pipeline running from Argentina to central Chile,
began operations in August 1997, introducing natural gas to the Chilean market
in the SIC on a large scale. We entered into several firm contracts for the
transportation of gas with GasAndes. Our first gas-fired plant built by San
Isidro, a 75%-owned subsidiary of Endesa-Chile, commenced its operations in the
SIC in October 1998. Endesa-Chile, through its subsidiary Electrogas S.A., has
a 42.5% interest in a consortium which built a natural gas pipeline from
Santiago to Quillota to supply natural gas to the combined cycle plants built
by San Isidro and Colbún and to regional gas distribution companies. The
pipeline became fully operational in two stages during 1998. GasAtacama S.A.(GasAtacama), in which Endesa-Chile has a 50% ownership
interest and CMS has the remaining 50% ownership interest, has built a
940-kilometer natural gas pipeline from northern Argentina into northern Chile
which commenced the supply of gas to the SING in July 1999. Endesa-Chile and
CMS have built two new gas-fired combined cycle plants with a total installed
capacity of approximately 555 MW in Mejillones, connected to the SING. The
pipeline project of GasAtacama faces competition from a second source of gas
from the northern part of Argentina to the northern part of Chile which became
operational in November 2000. Hydrological conditions and rationing decree.A substantial portion of
Endesa-Chiles operations in Chile, Argentina, Brazil, Colombia and Peru
involve hydroelectric generation and, accordingly, are dependent upon
hydrological conditions prevailing from time to time in the geographic regions
in which it operates. Endesa-Chiles operations in Chile, Argentina and
Colombia were affected adversely by extreme weather conditions during 1996 and
the first part of 1997. In addition, beginning with the second half of 1998,
and lasting through June 1999, Chile 25




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endured the worst drought in its recorded history, as measured by rainfall
and snow-melt runoffs during such period in the SIC. The SIC covers the area
where most of the Chilean industrial, commercial and residential demand for
electricity is located. During periods of drought conditions, the amount of
electricity that Endesa-Chile has contractually agreed to provide may exceed
the amount of electricity that it is able to generate, which means that
Endesa-Chile is then required to purchase electricity from thermal producers on
the spot market in order to satisfy its contractual commitments. The cost of
these spot market purchases may, under certain circumstances, exceed price at
which Endesa-Chile sells electricity under contracts, resulting in a loss.
Endesa-Chile attempts to minimize the effect of poor hydrological conditions on
its operations in any year primarily by limiting contractual sales requirements
to an amount not in excess of estimated production in a dry year. In
determining estimated production in a dry year, Endesa-Chile takes into account
available statistical information concerning rainfall and water-flows, as well
as the capacity of key reservoirs. In addition, Endesa-Chile may take other
measures such as using water from reservoirs, installing temporary thermal
capacity, negotiating lower consumption levels with its unregulated customers
and negotiating with other water users. However, in 1998 and the first half of
1999, for example, contractual commitments exceeded ability to supply
electricity to customers from Endesa-Chiles own production. The severity of the 1998-1999 drought, coupled with delays in the
beginning of operation of a large gas-fired plant of Colbún led to the
implementation by the Chilean Ministry of the Economy of periods of electricity
rationing in 1998 and 1999. The impact of the drought in Chile caused
Endesa-Chile and its affected subsidiaries to take significant measures to
maintain the electricity supply, including, among other things, installing
additional temporary thermal capacity in the SIC, negotiating agreements with
unregulated customers to lower consumption and purchasing large amounts of
electricity from thermal producers to satisfy contractual obligations. As a
result, operating margins in Chile during this period were affected adversely. Since the third quarter of 1999 through the first half of 2003,
hydrological conditions have generally improved because of higher rainfalls,
which permitted the normal supply of electricity to Endesa-Chiles clients,
thereby putting an end to the need for electricity rationing. Endesa-Chile
believes that it will not be affected as severely by any future drought for
several reasons. First, Endesa-Chile has reduced its reliance on hydroelectric
generation by increasing its thermal and combined cycle capacity. The combined
cycle plant San Isidro became operational in 1998, and the Tal Tal natural
gas-fired plant became operational in 2000. Secondly, Endesa-Chile has changed
its commercial policy in order to limit sales to regulated customers. In
addition, the Ralco hydroelectric plant is scheduled to commence its operations
during the second half of 2004. Sale of Canutillar Hydroelectric Plant. On March 27, 2003, the board of
directors of Endesa-Chile accepted the offer by Hidroeléctrica Guardia Vieja
S.A.of US$ 174 million for the purchase of the 172 MW reservoir-based
hydroelectric generating power plant Canutillar. This sale was approved by
Endesa-Chiles Extraordinary Shareholders Meeting on March 31, 2003, for which
Endesa-Chile received the entire cash payment on April 30, 2003. Sale of Transmission Lines. Endesa-Chile reached an agreement with HQI
Transelec S.A. to sell its transmission assets on the SING for US$110 million.
This transaction, which closed on May 30, 2003, included the sale of 285
kilometers of 220 kV line circuits for a total of approximately US$ 32 million
by Celta S.A., a subsidiary of Endesa-Chile, and the sale of 673 kilometers of
220 kV line circuits for a total of approximately US$78 million through
GasAtacama Generación Limitada, in which Endesa-Chile holds a 50% ownership
interest. In both cases, the transaction included the transfer of the
respective substations. Sale of Infraestructura 2000.On June 23, 2003, Endesa-Chile closed the
sale of Infraestructura 2000 to the Spanish company, OHL Concesiones, S.L.,
subsidiary of the Spanish company Obrascón Huarte Lain S.A. for a total amount
of UF 2,305,507 (approximately US$55 million, as of that date). In addition,
this transaction allows the deconsolidation of UF 9,011,000 (approximately
US$220 million, as of that date) in debt that Infraestructura 2000 has with
third parties. The sale of the Canutillar plant, the transmission lines and
Infraestructura 2000 described in the preceding three paragraphs were part of
the Financial Strengthening Plan, which we implemented in October 2002. The
proceeds of the sales were used to reduce Endesa-Chiles debt. 26




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Endesa-Chiles Operations in Argentina As of December 31, 2003, Endesa-Chile owned directly and indirectly 47.4%
of El Chocón, the second largest hydroelectric generation facility in Argentina
measured in terms of installed capacity, with a total installed capacity of
1,320 MW in 2003. As of December 31, 2003, Endesa-Chile beneficially owned
64.3% of Costanera, a thermoelectric generation company with an installed
capacity of 2,302 MW in 2003, which
includes CBA. In September 1995, Costanera acquired a 51.0% interest in CBA,
which has 320 MW of installed capacity. Costanera merged with CBA as of
December 1, 2001. Total generation of electricity in Argentina by our
subsidiaries in 2003 amounted to 8,128 GWh, or 11.5% higher than in 2002.
Energy sales increased from 7,897 GWh in 2002 to 9,259 GWh in 2003.
Endesa-Chile had revenues in Argentina of Ch$111.3 billion in 2003 and Ch$99.1
billion in 2002. Endesa-Chiles generation companies in Argentina accounted
for approximately 16% of the countrys installed capacity in the National
Interconnected System, or NIS grid, as of December 31, 2003. The following table sets out information regarding Endesa-Chiles
installed capacity and electricity sales in Argentina for the periods
indicated: Year ended December 312001
    
    2002
    
    2003Installed Capacity (MW)
    
    
    3,622
    
    
    
    3,622
    
    
    
    3,622Electricity Sales (GWh)
    
    
    12,988
    
    
    
    7,897
    
    
    
    9,259
 In May 1998, in anticipation of the completion of a combined cycle plant
and the termination of the Edesur and Edenor contracts, Costanera entered into
a 20-year contract to sell 500 MW of electricity capacity to Companhia de
Interconexão Energética(CIEN), a Brazilian transmission company of which
Endesa-Chile has a 45% interest. An additional 462 MW of Costanera  ́s capacity
was committed through a contractual agreement to CEMSA, an affiliated company
of which Endesa-Chile has a 45% ownership share. Of the current 962 MW of
capacity committed by Costanera, 750 MW are from the first interconnection line
and 212 MW from the second interconnection line. As a result of the high
hydroelectric production in south-east Brazil, there was no demand under these
energy export contracts during 2003. However, even though there was no call for
the export of energy, Costanera has received payments for having take-or-pay
capacity available for that market. Endesa-Chiles Operations in Brazil In September 1997, a consortium consisting of Endesa-Chile and Edegel was
awarded 78.9% of the share capital of Cachoeira Dourada for US$715.2 million,
and role as operator of Cachoeira Dourada, representing Endesa-Chiles first
entry into Brazil. As of December 31, 2003, Endesa-Chile had an economic
interest of 92.5% in this company. Cachoeira Dourada is located in the State
of Goias, south of Brasilia. Cachoeira Dourada is a run-of-the-river
hydroelectric plant with a total installed capacity of 658 MW, representing
0.8% of the total installed capacity in the Brazilian market and 2003 annual
generation of 3,770 GWh, or 4.9% more than 2002. Cachoeira Dourada sells all
of its electricity pursuant to a long-term take-or-pay contract with Companhia
Elétrica do Estado Goias S.A., or CELG, the regional state-owned distribution
company at prices fixed by the regulatory authority. Endesa-Chile had revenues
in Brazil of Ch$30.8 billion in 2003 and Ch$51.9 billion in 2002. The following table sets out certain statistical information regarding
Endesa-Chiles installed capacity and electricity sales in Brazil for the years
ended December 31, 2001, 2002 and 2003. Year ended December 312001
    
    2002
    
    2003Installed Capacity (MW)-Cachoeira
Dourada
    
    
    658
    
    
    
    658
    
    
    
    658Electricity Sales (GWh)
    
    
    3,743
    
    
    
    3,591
    
    
    
    3,770
 27




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Endesa-Chile, through its 45% ownership interest in Companhia de
Interconexão Energética(CIEN), Compañía de Transmisión del Mercosur S.A.
(CTM), CEMSA, and Transportadora de Energía S.A.(TESA) is participating in
two lines that connect the Argentine and Brazilian transmission systems and to
sell electricity generated in Argentina in the Brazilian market. In order to
connect the Argentine and Brazilian transmission systems, CIEN has built two
500 kV transmission lines over a distance of approximately 500 kms from Rincón
de Santa María, Argentina, to Itá in the State of Santa Catarina, Brazil. The
cost of the two lines was approximately US$ 650 million. Two converter
stations were installed in order to convert the energy from 50Hz to 60Hz. The
first line started operations in June 2000. The second line is divided into
two stages of 500 MW. The first of these two stages started operations on May
1, 2002 and the second stage started in August 2002. CIEN has received two
20-year authorizations from ANEEL to operate the transmission lines, after
which time the transmission lines and the converter stations will become the
property of the Brazilian government. CIEN executed four power purchase
agreements, to sell energy in Brazil, including to Furnas Centrais Elétricas
S.A., or FURNAS, Centrais Geradoras do Sul do Brasil S.A., or GERASUL, and
Companhia Paranaense de Energia  COPEL, Copel and Cerj. In December 2003, Companhia Paranaense de EnergiaCOPEL, or Copel,
suspended payments to CIEN, a non-consolidated company in which Endesa-Chile
has a 45% interest, under a take or pay power and energy supply contract signed
in 1999. As a justification for its action, Copel alleged economic and
financial imbalance in the 1999 contracts. Copel also requested a revision of
the prices previously agreed. On August 18, 2003, CIEN and Copel entered into a
memorandum of understanding in which they agreed to modify the terms and
conditions of the current contracts. On December 10, 2003 these modifications
were executed, providing among other things, for a 50% reduction in the energy
volume contracted for (now 400 MW), and a reduction in the term of the contract
from 20 to 13 years ending on December 31, 2015. Endesa-Chiles Operations in Colombia In December 1996, the Colombian government conducted a competitive auction
for its 99.9% interest in Betania. A consortium led by Endesa-Chile won the
auction, and Endesa-Chile obtained a 74.8% interest in Betania. As of December
31, 2003, Endesa-Chile had an economic interest of 85.6% in Betania. The
remaining stake is owned by wholly-owned subsidiaries of Corporación Financiera
del Valle S.A., a Colombian investment company. Endesa-Chile is Betanias
technical operator. Betania has one hydroelectric generation facility with an
installed capacity of 540 MW. This represents approximately 4.0% of the total
installed capacity in the Colombian system. The plant is located at the
intersection of the Magdalena and Yaguara rivers, in the southwest of Colombia,
380 kilometers from Bogotá. Betanias generation of energy decreased, from
1,829 GWh in 2002 to 1,589 in 2003. During 2003, Betanias sales of
electricity (consisting of its own production and electricity purchases) were
2,598 GWh, or 1.47% lower than in 2002. Approximately 42.9% of Betanias sales
were pursuant to sales contracts. The remainder was sold in the spot market.
Pursuant to the terms of the privatization, in December 2001 the consortium
offered for sale 15% of the shares which it purchased from the government in
1996 on the Colombian Stock Exchange. As a result of the public offering,
500,000 shares were sold. Endesa-Chile had revenues in Colombia of Ch$208.6
billion in 2003 and Ch$229 billion in 2002. In September 1997, Capital Energía S.A., or CESA, a company in which
Betania had a 51.0% interest, acquired a 48.5% equity interest in Emgesa. At
the same time, CESA also acquired a 5.5% interest in Empresa de Energía de
Bogatá S.A.E.S.P. (EEB), which owns the remaining 51.5% of Emgesa, giving
CESA, as of December 31, 2003, a 51.3% economic interest in Emgesa, which is
therefore consolidated with Betania. Endesa-Chiles economic interest in
Emgesa was 22.4% as of December 31, 2003. Emgesa has an installed capacity of
2,049 MW, or approximately 15% of the total installed capacity in the Colombian
system. Emgesa was formed to provide a vehicle for the privatization of the
generation assets of EEB, and did not commence operations until October 1997.
In 2003, Emgesa generated energy of 9,205 GWh, a 3.78% increase over the 8,870
GWh generated in 2002. The following table sets out information regarding Endesa-Chiles
installed capacity and electricity sales in Colombia for the periods indicated: Year ended December 312001
    
    2002
    
    2003Installed Capacity (MW)(1)
    
    
    3,035
    
    
    
    2,735
    
    
    
    2,589Electricity Sales (GWh)
    
    
    14,591
    
    
    
    14,639
    
    
    
    14,900
   (1)
    
    On July 2, 2002, EMGESA suspended 302 MW of its installed capacity in
Casalacos facility. 28




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Approximately 91.4% of Endesa-Chiles installed capacity in Colombia is
hydroelectric. As a result, production can be affected adversely by drought
conditions in Colombia. Between 1999 and 2001 (following severe drought
conditions in central Colombia in 1997 through February 1998 caused by the
weather effect, Fenómeno del Niño), normal hydrological conditions stabilized
spot market prices. During 2002, the Fenómeno del Niño was moderate,
resulting in drier climate conditions and higher prices. The Fenómeno del
Niño has different effects in different countries. It may produce severe
droughts in some countries where we operate and severe flooding in other
countries, in any given year. Endesa-Chiles Operations in Peru In October 1995, Endesa-Chile expanded its operations into Peru when
Generandes Co., a Cayman Islands company organized by a consortium led by
Entergy Corporation, a U.S. company, and Endesa-Chile, acquired a 60.0%
interest in Edegel. In August 1996, Generandes Co. assigned its interest in
Edegel to Generandes Perú S.A.(Generandes). Edegels operations were
previously part of Electrolima Empresa Regional de Servicio Público de
Electricidad S.A.(Electrolima), a privatized Peruvian state electric
utility. As of December 31, 2003, Endesa-Chile owned 59.6%, Southern Cone
Power Perú S.A.owned 38.1% and local Peruvian partners owned the remaining
interest in Generandes. Endesa-Chiles economic interest in Edegel as of such
date was 37.9%. Endesa-Chile had revenues in Peru of Ch$111.74 billion in 2003
and Ch$118.74 billion in 2002. The following table sets forth information regarding Endesa-Chiles
installed capacity and electricity sales in Peru for the periods indicated: Year ended December 312001
    
    2002
    
    2003Installed Capacity (MW)
    
    
    1,003
    
    
    
    1,003
    
    
    
    967Electricity Sales (GWh)
    
    
    4,239
    
    
    
    4,158
    
    
    
    4,443
 Edegel owns seven hydroelectric plants, most of which are near Lima, and
one thermal plant located in the city of Lima. Edegel is the largest
privately-owned electricity generation company in Peru in terms of installed
capacity. In 2002, the eight plants have a combined installed capacity of
1,003 MW, of which 739 MW are hydroelectric. In 2003, Edegel produced 4,458
GWh, or 4.2% higher than the 4,279 GWh produced in 2002. All the plants
deliver energy to the Sistema Interconectado Nacional, or the SINAC grid.
Edegel also owns transmission lines (220 kV and 66 kV) that connect the plants
with demand centers in the Lima area. Edegel accounted for approximately 22%
of the installed capacity in Peru as of December 31, 2003. Approximately 71%
of Edegels power sales in terms of megawatts are currently made under
contractual agreements to the principal distribution companies and other large
customers. The remaining sales are made in the spot market. Energy sales in
2003 were 4,443 GWh, or 6.9% higher than the 4,158 GWh sold in 2002. Enersis Fortaleza Generation Project The only exception to our policy of having generation assets conducted
through Endesa-Chile is the case of our Fortaleza Project. The project had
total capital expenditures of approximately US$250 million, and is 51% owned by
Endesa Internacional, a wholly-owned subsidiary of Endesa-Spain, and 49% owned
by Enersis. The Fortaleza Project involved the construction of a 310 MW
combined cycle gas plant which came on stream in December 2003. It is located
in the port of Pecém, 52 kilometers (32.5 miles) from the city of Fortaleza,
the capital of the State of Ceará, in northeastern Brazil, where we also own
Coelce, a distribution company. The construction of the thermoelectric plant
is within the Brazilian Governments Programa Prioritario de
Termoelectricidad 29




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(Thermoelectric Priority Program), or PPT. One of the advantages of being
under the PPT is that Fortaleza has a 20-year guaranteed supply of natural gas.
In addition, there are compensation-related incentives for investments as well
as soft-credit financing for certain Brazilian-manufactured plant equipment. In addition to this generation facility, Enersis has 60 MW of
hydroelectric installed capacity in Brazil owned by its distribution company
Cerj, which is located in the State of Rio de Janeiro. Electricity Distribution Our electricity distribution business has been conducted in Chile through
Chilectra and Río Maipo, in Argentina through Edesur, in Brazil through Cerj
and Coelce, in Colombia through Codensa and in Peru through Edelnor. For the
year ended December 31, 2003, our principal subsidiaries and related companies
sold approximately 49,677 GWh of electricity. For more information on energy
sales by our distribution subsidiaries for the past three fiscal years, see
Item 3. Key Information  A. Selected Financial Data. Currently, Chilectra
is the technical operator of Edesur, Edelnor, Cerj and Coelce. Enersis sold
Río Maipo on April 30, 2003. Chilectra Chilectra is the largest electricity distribution company in Chile in
terms of regulated clients, distribution assets and energy sales. Chilectra
had consolidated operating income of Ch$88.1 billion for the year ended
December 31, 2003. Subsequent to a tender offer that commenced in November
2000 and was renewed in July 2001, we increased our equity stake in Chilectra
by 26%, and we now own a 98.2% interest. Chilectra operates in a concession
area of 2,118 square kilometers. Chilectra transmits and distributes electricity in the Santiago
metropolitan region. Chilectras service area is defined mainly as a high
density area under the Chilean tariff regulations governing electricity
distribution companies and includes all residential, commercial and industrial
customers located in the capital city of Santiago and its suburbs. The
Santiago metropolitan region is Chiles most densely populated area and has the
highest concentration of industries, industrial parks and office facilities in
Chile. As of December 31, 2003, Chilectra served approximately 1.3 million
customers. Chilectra currently owns a 34% interest in Edesur and, as the operator of
Edesur through 2007, receives management fees pursuant to the terms of an
operating agreement between Chilectra and the stockholders of Edesur. In May 2003 Chilectra increased its interest in Cerj in Brazil from 33.4%
to 41.2% through a capital increase to which Enersis subscribed in January
2003, and later sold a share to Chilectra. In February 2004 Cerj fulfilled
another capital increase. In this operation, Enersis capitalized intercompany
loans for approximately US$243 million. During March 2004, Chilectra acquired
part of Enersis share of Cerj, increasing its interest in the mentioned
company from 41.2% to 46.1%. Its interest in Coelce in Brazil was also
indirectly increased, through Cerj, from 14.4% to 15.4% as of March 2004.
Chilectra also owns a 9.9% interest in Codensa in Colombia and a 15.6% interest
in Edelnor in Peru. Chilectra is the operator of Cerj, Coelce and Edelnor,
although there are no operator fees associated with these arrangements. Chilectra has significantly improved its operating efficiency by steadily
reducing energy losses from both theft and technical factors from 22.4% in
1983, at the time of Chilectras privatization, to 5.6% as of December 31,
2003. Chilectra has also implemented proprietary billing and accounts
receivable management systems, increased labor productivity and improved
information systems. In 2003, Chilectras energy sales amounted to 10,518 GWh. For the
five-year period ended December 31, 2003, physical energy sales increased at a
compounded annual rate of 5.7%. For the year ended December 31, 2003, revenues
from electricity sales were Ch$426.8 billion. Edesur Edesur is the second largest electricity distribution company in Argentina
as measured by energy purchases. Pursuant to an agreement entered into with
Edesur, Chilectra is and will remain the technical operator of Edesur until
2007. Operating losses were Ch$5.2 billion for the year ended December 31,
2003. In May 2000, we 30




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increased our economic interest in Edesur to 56.2% through the acquisition
of shares that were previously owned by Edesur employees. After giving full
effect to our additional purchase of Chilectra shares, our economic interest in
Edesur increased to 65.1%. Edesur operates in a concession area of 3,309
square kilometers. Edesur distributes electricity in the south-central part of the greater
Buenos Aires metropolitan area. Edesurs service area comprises the major
business district of Buenos Aires and several residential areas of the southern
part of Buenos Aires. As of December 31, 2003, Edesur distributed electricity
to 2.1 million customers. For the fiscal year ended December 31, 2003,
residential, commercial, industrial and other customers, primarily public and
municipal, represented: 21%, 32%, 21% and 26%, respectively, of Edesurs total
energy sales of 12,638 GWh. Since our acquisition of Edesur in 1992, working through Chilectra, we
have implemented cost reductions and other measures to improve Edesurs
operations and profitability. Edesur had energy losses of 11.8% for the fiscal
year ended December 31, 2003 compared to 11.6% in 2002 and 9.9% in 2001. This
slight increase in physical losses can be attributable to the Argentine
economic crisis in 2002. Our objective is to continue to strive for increased
productivity and physical loss reductions at Edesur, although we cannot be
certain that this objective can be achieved. For the year ended December 31, 2003, Edesurs physical energy sales
increased approximately 4.1%, to 12,638 GWh, compared to 12,138 GWh in 2002 and
12,909 GWh in 2001. Energy sales at Edesur in the 2000-2002 period include
toll revenues received from other companies for the use of Edesurs
distribution network. For the five year period ended December 31, 2003,
physical energy sales increased at a compounded annual rate of 0.6%. During 2003, the electricity market was affected by the severe economic
crisis in Argentina that began in the final months of 2001. In response to the
economic crisis, Law No. 25,561 Law on Public Emergency and Reform of the
Exchange Regulations and its subsequent complementary regulations were
enacted. This law froze tariffs for public services, forced companies to
convert their tariffs into Argentine Pesos, and assigned the task of
renegotiating the concession contracts to the Ministry of the Economy. This
Law has modified part of the procedures for power dispatching and the
dispatching methodology of energy price calculations. Consequently, during 2003, Edesurs efforts were directed to sustain its
operations in the midst of a highly complex environment resulting from the
adverse political, economic and social situation in Argentina. Since the beginning of 2002, Edesur has encountered the following
difficulties:  (a)
    
    the unavailability of internal and external sources of
financing, which affected its operations and planning of capital
expenditures;(b)
    
    higher equipment and material costs in Argentine peso terms
due to the devaluation of the Argentine peso from Ar$1.00 per
US$1.00 to Ar$3.37 per US$1.00;(c)
    
    renegotiation and downward adjustments of existing work,
services and supply contracts;(d)
    
    the highest rates of vandalism experienced by the company in
recent years and an increase in electricity theft in low-income
regions, which resulted in an increase of energy losses from 9.9% in
2001 to 11.6% in 2002;(e)
    
    increased rates of payment delinquency by government-related
customers; and(f)
    
    significant increases in debt service as measured in
Argentine Pesos from Ar$251 million in 2001 to Ar$405 million in
2003, notwithstanding the fact that Edesur has one of the lowest
leverage ratios of public companies in Argentina. During 2003, some of the above enumerated difficulties began to reverse.
For example:  (a)
    
    demand for energy increased over 4%, resulting in increased
revenues for Edesur;(b)
    
    Edesur was able to refinance US$434.5 million under its
indebtedness, which allowed it to increase capital expenditures to
over Ar$110 million; 31




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(c)
    
    the Argentine peso strengthened from Ar$3.37 per US$1 in
December 2002 to Ar$2.96 per US$1 in December 2003, resulting in a
decrease in the equipment and material costs that were indexed to
the US$;(d)
    
    some existing services and supply contracts were renegotiated
and adjusted upward to compensate for our increased costs in U.S.
dollars; and(e)
    
    Edesur was able to control energy losses, which reached 11.8%
as of December 2003, despite the continued adverse economic and
social conditions and resulting vandalism During 2003, Edesur took appropriate measures to diminish the effects of
the crisis in Argentina. For example, Edesur successfully renegotiated
substantially all indebtedness on more favorable terms, extending the average
life and reducing the cost of its indebtedness. Cerj Cerj is the second largest electricity distribution company in the State
of Rio de Janeiro, Brazil. As of December 31, 2003 we owned a 71.8% interest
in Cerj after Enersis capitalized its R$370 million intercompany loan to Cerj.
Previously, we had increased our interest to 58.2% through a capital increase
executing an option received from Endesa-Spain in December 2000 through the
Public Share Purchase Option initiated by Endesa-Spain on May 31, 2000.
Chilectra is Cerjs technical operator but does not receive any fees for its
role as operator. Operating income was Ch$24.5 billion for the year ended
December 31, 2003. Cerj operates in a concession area of 31,741 square
kilometers. Cerj is engaged principally in the distribution of electricity to 66
municipalities of the State of Rio de Janeiro and serves 1.9 million customers
in a concession area of 31,741 square kilometers, where an estimated population
of 4.1 million people live. As of December 31, 2003, residential, commercial,
industrial and other customers represented approximately 39%, 19%, 24% and 18%,
respectively, of Cerjs total sales of 7,398 GWh. Cerj also owns nine small
power plants in the State of Rio de Janeiro with a total installed capacity of
62 MW. Coelce Because of our higher participation in Cerj, we increased our interest to
29.4% in Coelce, the sole electricity distributor in the State of Ceará, in
northeastern Brazil, through a 52% interest in Investluz, which owns 56.6% of
the capital stock of Coelce. We acquired our interest in Coelce in the second
quarter of 1998. Chilectra is Coelces technical operator but does not receive
fees for its role as operator. Operating income was Ch$19.7 billion for the
year ended December 31, 2003. As of December 31, 2003, Coelce served over 2.26
million customers within a concession area of 146,817 square kilometers.
During 2003, Coelce had annual sales of 5,897 GWh of energy. Coelces energy
sales increased by 6.1% in 2003 compared to 2002. Coelce has a relatively stable client base with residential clients
representing about 31% of energy sold. About 34% of the population and 41% of
the energy demand in the State of Ceará is presently concentrated in the
metropolitan area of the capital city of Fortaleza. Coelce buys its energy
mainly from CGTF (Central Geradora Termelectrica Fortaleza), CIEN (Companhia de
Interconexao Energetica) and CHESF (Companhia Hidroelétrica do São Francisco). As of December 31, 2003, residential, commercial, industrial and other
customers represented approximately 31%, 18%, 29% and 22%, respectively, of
Coelces total energy sales. As of December 31, 2003, Coelces energy losses were 13.5% compared to
12.9% in 2002. Codensa We own a 21.7% interest in Codensa, an electricity distribution company
that serves a region of approximately 14,087 square kilometers in Bogotá, and
96 other municipalities in the Department of Cundinamarca, Tolima and Boyacá.
More than 11.9 million people, or approximately 22.6% of the Colombian
population, live in Codensas service area. Codensa serves approximately 1.97
million customers in its service area. Our interest in Codensa is 32




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held through Luz de Bogotá S.A.A subsidiary of Endesa-Spain is the
technical operator of Codensa. Operating income was Ch$33.7 billion for the
year ended December 31, 2003. During 2003, Codensa had annual sales of 9,254
GWh, of which ,residential, commercial, industrial and other customers
represented approximately 37%, 13%, 6% and 43%. Codensa purchased 72.8% of its
energy in 2003 from Emgesa, a generating company controlled by Endesa-Chile.
Physical energy sales increased by 2.7% in 2003 compared to 2002. Since 2001,
Codensa only services regulated clients. The unregulated market is serviced
directly by our generation company, Emgesa. In 2003, Codensa had energy losses of 10.2% compared to 10.3% in 2002 and
11.8% in 2001. We will continue implementing the same energy loss reduction
measures that we have applied in Chile, Argentina, and Peru. Edelnor Edelnor is a Peruvian electricity distribution company that is 60% owned
by Distrilima. Chilectra is Edelnors operator but does not receive any fees
for its role as operator. As of December 31, 2003, we owned an equity interest
of 55.7% in Distrilima which represents a 33.4% interest in Edelnor. Edelnor
operates in a concession area of 2,440 square kilometers. Edelnor has an exclusive concession to distribute electricity in the
northern part of the Lima metropolitan area, some provinces of the Lima
department such as Huaral, Huaura and Barranca, and in the adjacent province of
Callao. As of December 31, 2003, Edelnor distributed electricity to
approximately 891,589 customers, a 2.4% increase from December 31, 2002. Edelnor had energy losses of 8.4% in 2003 compared to 8.5% for the year
ended December 31, 2002. For the year ended December 31, 2003, Edelnor had total energy sales of
3,972 GWh. The compounded annual growth rate in energy sales from 1998 to 2002
was 3.7% per annum. Other Businesses Our other businesses Synapsis and Cam, had operating income of Ch$8.7
billion and Ch$13.7 billion, respectively, for the fiscal year ended December
31, 2003. Manso de Velasco had operating losses of Ch$0.9 billion as of
December 31, 2003. Manso de Velasco Manso de Velasco, our wholly owned subsidiary, develops real estate
projects in Chile. In December 2003, Manso de Velasco concluded the sale of
residential housing lots located in a high income area in Santiago, La Dehesa.
As part of this project, during 1998 to 2003, Manso de Velasco sold a total of
708.9 acres for US$148.2 million. During 2003, Manso de Velasco subdivided the
residential neighborhood of Meseta Puerto Pacifico into 9 lots. 41% of these
lots were sold for apartment building construction. In addition, Manso de
Velasco has a 55% interest in ENEA, a long-term project involving a 2,593.5
acres near Santiagos international airport. The goal of this project is to
create both industrial and residential lots. The real estate business is not a
core business of Enersis and as a result, we plan to divest our interest in
Manso de Velasco under the best possible conditions. Cam Cam is engaged in the electrical parts procurement business and is the
entity in charge of giving continuity to our engineering and electrical service
activities, both in Chile and abroad, and concentrates on managing large-scale
services for public utility companies, especially in the electricity,
telecommunications, gas and water distribution sectors. The services provided
by Cam include maintaining and calibrating electricity meters and other
precision equipment, connecting electricity to final users, and constructing
electrical facilities and distribution network connections. On January 2002
CAM Uno merged into Cam to form a sole company with the purpose to provide
integral services to massive public service distributors. The combination of
supply procurement and subsequent services have strengthened the operating,
commercial and competitive capacity of the company. The company is able to
provide improved value in turnkey solutions with reduced transaction costs by
integrating the procurement of materials as part of the services. This company
represented approximately 0.6% of our consolidated assets as of December 31,
2003 and 2.6% of our consolidated operating income for the year ended December
31, 2003. 33




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Synapsis Synapsis, a wholly owned subsidiary of Enersis, is engaged in the computer
services business. Synapsis provides support services to our electric utility
businesses, both in Chile and abroad, and also transacts business with
unrelated third parties. Synapsis is the main provider of information systems
to Enersis and its subsidiaries and supplies services and equipment relating to
computers and data processing. This company represented approximately 0.2% of
our consolidated assets as of December 31, 2003 and 1.6% of our consolidated
operating income for the year ended December 31, 2003. Other businesses Endesa-Chiles other Chilean businesses include infrastructure projects,
including building and operating a concession for a private tunnel and two toll
roads, as well as engineering services primarily associated with large
hydroelectric dam construction. Endesa-Chile has decided to discontinue
further expansion of its involvement in infrastructure projects. B. Business overview. Business Strategy We believe that there is long-term potential for significant growth in per
capita energy demand in South America, as well as for significant growth
attributable to demographic trends, and we seek to take advantage of our
know-how and market position as the leading private sector electricity company
in the region to:  
    
    enhance earnings through expansion of our unregulated client base;
    
    improve our operating margins by reducing the operating costs of our existing businesses; and
    
    focus on our core business by disposing of our interests in non-strategic business lines. The elements of our strategy are described in greater detail below. Continued demographic growth in South America to take advantage of an
increasingly regional energy market We intend to continue to experience demographic growth in the South
American utility sector. We believe that we have considerable expertise in
managing utilities, including:  
    
    reducing energy losses associated with distribution businesses over the long term;
    
    building and operating generation facilities;
    
    implementing proprietary billing and accounts receivable management systems;
    
    increasing work force productivity while maintaining good labor relations; and
    
    operating under a range of tariff and regulatory frameworks that reward efficient operations. Financial Strengthening Plan On October 4, 2002, our board of directors unanimously approved a
financial strengthening plan in order to reduce our leverage and improve our
capital structure, refinance our bank debt and the debt of some of our
subsidiaries and sell some of our non-core assets in order to confront
potential short-term liquidity issues. As of the date of this filing, the
plan, the principal elements of which are set forth below, has been completed. Capital increase. On March 31, 2003, at an extraordinary shareholders
meeting, our shareholders approved the issuance of up to 24,382,994,488 shares
in a capital increase, including two pre-emptive rights offering periods. The
first pre-emptive rights period ended on June 30, 2003 and the second
pre-emptive rights period took place between November 20 and December 20, 2003. 34




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ENDESA, S.A. (Endesa-Spain), through Elesur S.A., a wholly-owned
subsidiary and our direct parent company as of the date of the capital increase
(Elesur), exercised a portion of its pre-emptive options corresponding to
14,406,840,511 new shares, which were paid by the extinguishment of a Ch$1.0
trillion (approximately US$1.4 billion at the exchange rate applicable at that
time) intercompany loan that had previously been granted to Enersis by Elesur
(the Loan). As required by Chilean law, an independent appraiser valued the
Loan exclusively for purposes of the capital increase at 86.84% of its par
value. Endesa-Spain, acting through Elesur, subscribed for 59.09% of the new
shares at a value of approximately Ch$870.5 billion, the appraised value of the
Loan. Endesa-Spain and its wholly-owned subsidiaries did not exercise all their
pre-emptive options during the first pre-emptive rights period in order to make
shares available for a possible exchange offer to local bondholders and
voluntarily excluded themselves from the second pre-emptive rights period in
order to permit minority shareholders to participate with higher pro rata
shares in that period. Minority shareholders subscribed 31.61% of the shares available to third
parties in the first pre-emptive rights period for a total cash subscription of
approximately Ch$465.6 billion. During the second pre-emptive rights period,
minority shareholders subscribed an additional 5.55% for a total cash
subscription of approximately Ch$81.8 billion. Additionally, 3.66% of the new
shares were subscribed as part of the local bond exchange offer, which took
place in between the first and the second pre-emptive rights periods of the
capital increase. As a result, the total amount of local bonds exchanged was
equivalent to approximately Ch$54 billion. In summary, the total number of shares subscribed was 24,360,123,331 for
an aggregate capital increase of US$2,106 million. Of this amount, 59.1% were
subscribed by Endesa-Spain, acting through Elesur, and 40.82% were subscribed
by minority shareholders. As a result of the foregoing, since December 20,
2003, Endesa-Spains ownership interest in Enersis has been 60.6% decreasing
from 65.0% prior to the capital increase. Our capital increase during 2003 resulted in an increase of our
outstanding shares from 8,291,020,100 to 32,651,166,476. The increase in the
number of outstanding shares resulted in a dilution of 75% of the holdings that
did not participate in the subscription of new shares. The capital increase
allowed us to significantly reduce our indebtedness as a result of the
extinguishment of the Ch$1.0 trillion intercompany loan from Elesur and the
application of cash proceeds from the capital increase to repay US$741 million
of indebtedness. Debt Refinancing.Following is a description of the amounts of our debt
that had been scheduled to mature in 2003 and 2004 and the refinancing or
repayment, if any, of such amounts:  
    
    US$170 million 7.3% notes due May 1, 2003, issued in 1996 by Pehuenche,which were repaid in full.  
    
    US$931 million of syndicated and bilateral loans of Endesa-Chile:  
    
    On May 15, 2003, Endesa-Chile refinanced US$743 million of its
syndicated and bilateral bank debt by entering into a senior guaranteed
syndicated term loan facility, hereinafter referred to as the
Endesa-Chile May 2003 Facility.  
    
    On February 4, 2004, Endesa-Chile entered into an unsecured
syndicated term loan facility for an aggregate amount of US$250
million, hereinafter referred to as the Endesa-Chile Facility.
Endesa-Chile borrowed the full amount under this facility and used
the proceeds of the borrowing plus the net proceeds from the sale of
notes to prepay its indebtedness under the Endesa-Chile May 2003
Facility in accordance with its terms.  
    
    400 million three-year floating rate notes maturing on July 24, 2003
issued by Endesa-Chile Internacional, Endesa-Chiles wholly owned finance
subsidiary:  
    
    In July 2003, Endesa-Chile completed an issuance and sale of notes
in an aggregate principal amount of US$600 million, the net proceeds of
which were used to pay the 400 million three-year floating rate
notes described above and to prepay indebtedness of Endesa-Chile under
the Endesa-Chile May 2003 facility described above, in accordance with
its terms. 35




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
    
    US$1,588 million of syndicated and bilateral loans of Enersis:  
    
    On May 15, 2003 we entered into two senior secured syndicated term
loan facilities for an aggregate amount of US$1,588 million,
hereinafter referred to as the Enersis May 2003 Facilities.  
    
    On November 14, 2003, we entered into a US$800 million senior
unsecured syndicated term loan facility, hereinafter referred to as
the Enersis November 2003 Facility, of which only US$500 million were
drawn, the funds of which were used to prepay in part the Enersis May
2003 Facilities.The Enersis November 2003 Facility has already been
refinanced as described below.
    
    On November 19, 2003 we completed the issuance and sale of the
old notes in an aggregate principal amount of US$350 million, the net
proceeds of which were used to prepay in part indebtedness under the
Enersis May 2003 Facilities in accordance with its terms.
    
    We used approximately Ch$465.6 billion in cash proceeds from
the subscription of shares during the first pre-emptive rights period
of our capital increase to repay approximately US$582 million
outstanding under the Enersis May 2003 Facilities.  
    
    US$149 million was returned to Enersis bondholders for 2026 notes with a
put option exercisable on December 1, 2003. Approximately US$0.9 million
of such issuance remains outstanding because a few bondholders did not
exercise their option. Also, we used approximately Ch$78 million in cash proceeds from the
subscription of shares during the second pre-emptive rights period of our
capital increase to repay outstanding short lines of credit. On April 14, 2004, we made a voluntary repayment under the Enersis
November 2003 Facility of US$150 million, reducing the outstanding amount of
the loans to US$350 million.On the same date, we amended and restated the
Enersis November 2003 Facility, hereinafter referred to as the Amended Enersis
Facility. The Amended Enersis Facility effectively reduces the spread over
LIBOR by 110 basis points to 115 basis points, while improving the structural
terms of the facility and therefore improving our financial flexibility. Asset Sales.As part of the financial strengthening plan, we sold our
entire interests in:  
    
    Central Hidroeléctrica Canutillar.Previously owned by
Endesa-Chile, this plant has an installed capacity of 172 MW (or
approximately 4.4% of Chiles total installed capacity) and was sold on
April 30, 2003 for net proceeds of US$174 million.
    
    Infraestructura Dos Mil S.A., or Infraestructura.The sale of this
toll road company, which was consummated on June 23, 2003, contributed
approximately UF2.3 million in net proceeds.As of March 31, 2003,
Infraestructura had outstanding payables and debt of UF9.4 million.
Accordingly, the deconsolidation of Infraestructura as a result of the
sale reduced Enersis consolidated payables and debt by such amount.
    
    Transmission.Endesa-Chiles subsidiary Celta and its equity
affiliate GasAtacama Generación Limitada sold their transmission assets
on May 30, 2003 for a total consideration of US$110 million, of which
US$32 million was paid to Celta and US$78 million was paid to Atacama
Finance.Endesa-Chile received US$25 million of the proceeds from
GasAtacama in the form of a partial repayment of an existing
intercompany loan.The outstanding principal amount of this
intercompany loan as of December 31, 2003 is US$215 million.
    
    Compañía Eléctrica del Río Maipo S.A., or Río Maipo.This
distribution company was sold on April 30, 2003 for US$170 million in
cash, which resulted in the deconsolidation of US$33 million of debt. As a result of all the foregoing:  
    
    our consolidated debt decreased 29% from US$8.98 billion as of
December 31, 2002, to US$6.40 billion as of December 31, 2003; 36




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
    
    our debt to equity ratio decreased from 1.49 as of December 31,
2002 to 0.82 as of December 31, 2003;
    
    the ratio of current assets to current liabilities increased from
0.56 as of December 31, 2002 to 1.02 as of December 31, 2003; and
    
    we were able to obtain financing at more favorable costs; for
example, the spread over LIBOR of our bank debt decreased from 350
basis points in May 2003 to 225 basis points in December 2003, and to
115 basis points in April 2004. Maximize our return on investment in our subsidiaries We believe that we are able to maximize our return on investment in
subsidiaries by seeking to exert significant managerial influence in all of our
operations. We bring significant expertise in efficiently developing and
managing electricity businesses. We have a policy of long-term ownership and
do not view any potential minority holdings as passive investments. Focus on core competencies through divestiture of non-strategic businesses We intend to focus on our core electricity businesses of generation,
distribution and electricity interconnection systems. In this context, in 2000
we divested ourselves of our water utilities Aguas Cordillera and Esval. In
addition, Endesa-Chile divested itself in October 2000 of Transelec, a Chilean
electricity transmission company, for approximately US$1,076 million,
representing a gain for Endesa-Chile of approximately US$225 million. Although
electricity transmission is a business that we also consider part of our core
business, Endesa-Chile sold Transelec primarily because of concerns by the
Chilean antitrust authorities regarding the integration of our generation,
transmission and distribution businesses in Chile. Endesa-Chile also sold its
transmission assets on Chiles Northern Grid System to HQI Transelec S.A. on
May 30, 2003. On June 23, 2003, Endesa-Chile sold Infraestructura 2000, owner
of Autopista del Sol (a highway from Santiago to the coast) and Autopista
Los Libertadores (a section of a highway from Santiago to the north).
Depending on market conditions, we may also dispose of ENEA, a business and
commercial park located near the Santiago international airport, and Santuario
del Valle, a project of residential real estate lots aimed at high-income
families in northeastern Santiago. Capital Investment Program We coordinate the overall financing strategy of our subsidiaries and
intercompany advances to optimize debt management as well as the terms and
conditions of our financing. Our operating subsidiaries independently develop
capital expenditure plans and our strategy is generally to have the operating
subsidiaries independently finance capital expansion through internally
generated funds or direct financings. One of our aims is to reduce the total
amount of capital expenditures made by each company over the five-year period
of the project, by reviewing short-term investments and focusing on investments
that will provide a long-term benefit, such as energy loss reduction projects.
Additionally, by focusing on the Enersis group as a whole and seeking to
provide services across the group, we are aiming to reduce the level of
investment necessary at the individual subsidiary level in items such as
procurement, telecommunication and information systems. For the period between 2004 and 2008, we expect to make capital
expenditures of approximately Ch$1,598 billion in our
majority-owned subsidiaries, including Endesa-Chile. The table
below sets forth the capital expenditures made by our
subsidiaries in 2003 and expected capital expenditures for the
period 2004-2008. 37




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Capital Expenditure(in billions of Ch$)2003
    
    2004-2008Electricity GenerationEndesa-Chile (Chile, Argentina, Brazil, Colombia and Peru)
    
    
    153
    
    
    
    496Electricity DistributionChilectra (Chile)
    
    
    39
    
    
    
    225Edesur (Argentina)
    
    
    22
    
    
    
    247Cerj (Brazil)
    
    
    37
    
    
    
    261Coelce (Brazil)
    
    
    26
    
    
    
    154Codensa (Colombia)
    
    
    17
    
    
    
    123Edelnor (Peru)
    
    
    16
    
    
    
    79Other Businesses
    
    
    5
    
    
    
    13Total
    
    
    315
    
    
    
    1,598
 Electricity Generation Endesa-Chile had total capital expenditures of Ch$153 billion in 2003.
For the period between 2004 and 2008, Endesa-Chile expects to make further
capital expenditures of approximately Ch$496 billion in currently identified
generation projects in Chile, primarily associated with the Ralco hydroelectric
power plant, which is scheduled to commence operations in the second half of
2004. Electricity Distribution In 2003, Chilectra incurred capital expenditures of Ch$39 billion. The
capital expenditures were principally to improve existing distribution
facilities and networks. Chilectras capital expenditures were financed
through internally generated funds. Pursuant to the current capital
expenditure plan, capital expenditures in Chilectra is expected to be Ch$225
billion for the period between 2004 and 2008. Edesur incurred capital expenditures of Ch$22 billion in 2003, principally
due to repairs and expansion of existing facilities, including replacement of
old equipment and lines and expansion of capacity. Edesur expects to meet its
capital expenditure requirements principally with internally generated funds.
Capital expenditures for Edesur are anticipated to be Ch$247 billion for the
period between 2004 and 2008. Competition In the electricity generation business segment, our Chilean subsidiary,
Endesa-Chile, competes in the SIC primarily with two other electricity
generation companies, AES Gener S.A.(formerly Chilgener S.A.) (Gener) and
Colbún. According to statistics published by autonomous generating industry
groups, known as Centro de Despacho Económico de Carga(CDEC), as of December
31, 2003, in Chile Gener had an installed capacity of 1,785 MW (including
Guacolda 304 MW and Eléctrica Santiago 379 MW) of which 85% was thermal
electric, and Colbún had an installed capacity of 1,521 MW, of which 48% was
thermal electric. In addition, there are a number of smaller entities that
generate electricity in the SIC. Electricity generation companies compete
largely on the basis of technical experience and reliability and, in the case
of unregulated customers, price. Endesa-Chile believes that it has
considerable competitive strength in the SIC due to its large diversified
capacity, extensive geographic coverage, technical expertise, customer service
and established commercial relationships. In addition, as 72% of
Endesa-Chiles installed capacity comes from hydroelectric power plants,
Endesa-Chile generally has lower production costs than companies that rely more
heavily on thermal production. During periods of extended droughts, however,
Endesa-Chile is often forced to buy more expensive electricity from
thermoelectric generators at spot prices in order to satisfy its contractual
obligations. In the SING, Endesa-Chile operates one thermal electric facility
with an aggregate installed capacity as of December 31, 2003, of 182 MW, or 5%
of the total installed capacity in the SING. The main generation companies
operating in the SING are Electroandina(formerly Corporación Nacional del
Cobre División Tocopilla), Empresa Eléctrica del Norte Grande S.A.(Edelnor),
and Norgener S.A. 38




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Also within our electricity generation business segment, our Argentine
subsidiaries, Costanera, Central Buenos Aires S.A.and El Chocón, compete
against other important operators in the Argentine market such AES, Pluspetrol,
PECOM Energia and TotalFinaElf. Our Peruvian subsidiary, Edegel, competes
within the Peruvian market against Electroperú, Egenor, Enersur, Eepsa and
Etevensa. Our Colombian subsidiaries, Betania and Emgesa compete, against AES
and Unión Fenosa within the Colombian market. Finally, our Brazilian
subsidiary, Cachoeira Dourada, competes against other important private
operators in the Brazilian market, including Tractebel, AES, Duke and
state-owned Eletrobrás. In the electricity distribution business segment, each one of our
subsidiaries is a natural monopoly in its respective concession area. There
are natural, although not legal, barriers to entry since it is uneconomic for
more than one distribution company to operate in the same concession area.
Although the long-term trend in many of our markets is toward increased
competition through the incorporation, among other matters, of trading
companies that compete with distribution companies for certain customers. In
addition, distribution companies are normally allowed to charge trading
companies a toll for the use of their lines. At the date of this annual
report, the only such country where there is a trading market is Colombia. At
the same time, if such trading companies are allowed in other countries by
future regulatory changes, we would expect to form such trading companies
ourselves in order to compete effectively with our existing technical and
commercial know-how. Utility Business Chile In accordance with Chiles regulatory framework for electricity
distribution, more than one concession may be granted for the same territory.
However, barriers to entry are high because electricity distribution requires
an extensive distribution network and significant capital outlays. To date,
the Ministry of Economy has not granted any significant overlapping
concessions. Nevertheless, the existing tariff system for distribution
companies, which sets tariffs by applying efficiency guidelines to a selected
actual company of similar size, the model company, has the inherent effect of
creating competition between similar-sized electricity distribution companies
to improve operating efficiency, reduce distribution energy losses and increase
operating margins. Electricity generation companies compete with each other to obtain
long-term contracts with distribution companies, and they compete with each
other and with distribution companies to provide service to unregulated
(high-usage) customers. All sales to regulated customers are subject to
tariffs that fix the maximum prices that can be charged. The Chilean
Electricity Law requires that the difference between such maximum prices
charged to regulated customers and actual prices to unregulated customers not
exceed 5% on average. (This percentage was reduced from 10% to 5% with the
recent enactment of the Short Law.) Any variation of more than 10% requires
that the regulated prices be adjusted. Consequently, competition for sales to
unregulated customers may affect the tariff for regulated sales. By law, distribution and transmission companies must permit the use of
their lines and ancillary facilities for the transmission of electricity upon
payment of a toll. Unregulated customers have several distribution
alternatives, including:  
    
    installing their own lines directly from a generation company;
    
    arranging a supply contract with a generation company, which pays a
toll to a transmission company and a distribution company;
    
    negotiating a contract with a distribution company; and
    
    generating their own electricity. We are not aware of customers in our concession area that have installed
their own lines from a generation company as of the date of this annual report.
We believe there is presently no significant self-generation or co-generation
within Chilectras concession area. 39




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Argentina Our electricity distribution operations in Argentina are conducted through
Edesur, which holds a concession from the Argentine government to transmit and
distribute electricity in its territory. The concession agreement precludes
third parties from constructing distribution assets within Edesurs territory. Electricity transmission companies are required by law to provide
generators, distributors and large users access to available transmission
capacity upon payment of a toll. Our electricity generation operations in Argentina are carried out by El
Chocón, Costanera and Central Buenos Aires (CBA). Generation companies compete
with each other in the wholesale electricity market for sales to distribution
companies and large users. The prices received by electricity generation
companies in the wholesale market are determined primarily by the marginal cost
of supplying additional capacity on the system. Brazil As of December 31, 2003, our electricity distribution business in Brazil
was conducted through Cerj and Coelce. The concession agreements for Cerj and
Coelce are non-exclusive for their respective territories. Brazils
electricity sector is mainly comprised of government-owned generation and
transmission companies. Currently, Brazils electricity generation needs are
supplied primarily by approximately 70 companies. Substantially all of the
countrys generating capacity is controlled by either states or the federal
government. As a means to promote the integrated development of the electricity
sector, Brazil was divided into four regions: the Southeast (including the
State of Rio de Janeiro and Cerjs concession area), the South, the North and
the Northeast (including Coelces concession area). Each of these regions is
supplied primarily by a federally-owned generation company which is charged
with promoting the development of electricity power generation and transmission
in its region. The main federal generating company for the Southeast region is
Furnas Centrais Elétricas S.A., or FURNAS. Centrais Elétricas Brasileiras, or
Eletrobrás, a company controlled by the Brazilian federal government, owns
three of the four regional generating companies and is generally responsible
for implementing policy with respect to the operation of the electricity sector
as well as coordinating its planning, financing and operations together with
the Operador Nacional do Sistema Elétricos, or ONS. Our electricity generation
in Brazil is conducted through Cachoeira Dourada, Endesa Fortaleza(CGTF or
Central Geradora Termelectrica Fortaleza) and Companhia de Interconexao
Energetica. Colombia Enersis conducts its Colombian electricity distribution business through
Codensa, the second such company to be privatized in Colombia. Since most of
the other distribution companies are state owned, there is a very limited level
of competition in the electricity distribution business. On the other hand,
the possibility of trading energy in Colombia makes that countrys electricity
market quite competitive. Our electricity generation business in Colombia is conducted through
Betania, one of the first electricity generation facilities to be privatized in
Colombia and through Emgesa. Peru Our electricity distribution business in Peru is conducted through
Edelnor. Edelnors concession agreement is exclusive for its territory. As in
Chile, the Peruvian regulatory authority sets tariffs for distribution
companies by using the model company approach which entails applying efficiency
guidelines to a selected actual company of comparable size. This approach to
setting tariffs has the inherent effect of encouraging distribution companies
to improve operating efficiency, reduce distribution losses and increase
operating margins. Our electricity generation business in Peru is conducted through Edegel,
the largest privately-owned electricity generation company in the country.
Electricity generation companies compete with each other and with distribution
companies to provide service to unregulated large users. Edegel is located in
the geographic area covered by the SICN electricity grid system, but competes
with the generation companies in both the northern and southern electricity
systems. Competition for sales to unregulated customers may affect the tariff
for regulated sales. As is 40




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the case in Chile, distribution and transmission companies are required by
law to permit the use of their lines and ancillary facilities for the
transmission of electricity upon payment of a toll. ELECTRICITY INDUSTRY REGULATORY FRAMEWORK Chile Industry Structure The electricity industry in Chile is divided into three sectors:
generation, transmission and distribution. The generation sector consists of
companies that generate electricity from hydroelectric and thermal production
sources. They sell their production to distribution companies, regulated and
unregulated customers and other generation companies. The transmission sector
consists of companies that transmit at high voltage the electricity produced by
generation companies. The third sector consists of distribution companies that
purchase electricity from generation companies for sale to their regulated and
unregulated customers. Distribution is defined for regulatory purposes to
include all supply of electricity at a voltage up to and including 23 kV. The electricity sector in Chile is regulated pursuant to DFL No. 1, which
was enacted in 1982, and the regulations under Decree No. 327 of 1998, as
amended from time to time, collectively known as the Chilean Electricity Law.
Under the Chilean Electricity Law, the generation, transmission and
distribution of electricity are supervised by the Superintendencia de
Electricidad y Combustibles, or the SEF (SEC in Spanish), and the Ministry of
Economy acting through the Comisión Nacional de Electricidad, or NEC (CNE in
Spanish). The Ministry of Economy grants concessions to generation companies
for hydroelectric facilities and to transmission and distribution companies for
networks. The NEC calculates maximum prices for electricity sales to regulated
end users. Chiles electricity industry is organized into separate interconnected
electricity systems which facilitate the coordination of generation,
transmission and distribution activities within a given geographic area. The
largest generation companies in Chile, including Endesa-Chile, sell electricity
through interconnected electricity systems. In addition to the SIC and the
Sistema Interconectado Norte Grande, or SING, there are several other isolated
and less significant systems, including systems in the Aysén and Magallanes
regions of southern Chile that provide electricity in remote areas outside the
interconnected electricity systems. The operation of electricity generation
companies in each of the two major interconnected electricity systems in Chile,
the SIC and the SING, is coordinated by autonomous generating industry groups
and transmission companies, the dispatch center, known as the Centro de
Despacho Económico de Cargaor CDEC. The SIC and the SING are intended to be
efficient markets for the sale of electricity in which the lowest marginal cost
producer is used to satisfy demand. As a result, at any specific level of
demand, the appropriate supply will be provided at the lowest possible cost of
production available in the system. In addition, certain major industrial
companies own and operate generation systems to meet their own demand. Chilean Electricity Law General The goal of the Chilean Electricity Law is to provide sufficient
incentives toward maximizing efficiency and a simplified regulatory scheme and
tariff-setting process which limits the discretionary role of the government
through the establishment of objective criteria for setting prices. The
expected result is an economically efficient allocation of resources to and
within the electricity sector. The regulatory system is designed to provide a
competitive rate of return on investments in order to stimulate private
investment, while ensuring the availability of electricity service to all who
request it. We are subject to regulation of our prices and other aspects of
our business in Chile under the Chilean Electricity Law. Three governmental
entities have primary responsibility for the implementation and enforcement of
the Chilean Electricity Law. The NEC calculates retail tariffs and wholesale,
or node-prices, which require the final approval of the Ministry of Economy,
and prepares the indicative plan, a 10-year guide for the expansion strategy of
the electricity system that must be consistent with the calculated node-prices.
The SEF sets and enforces the technical standards of the system and the
correct compliance of the law. In addition, the Ministry of Economy grants
final approval of tariffs and node-prices set by the NEC and regulates the
granting of concessions to electricity generation, transmission and
distribution companies. 41




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Pursuant to the Chilean Electricity Law, companies engaged in the
generation of electricity in Chile must coordinate their operations through the
CDECs to minimize the operating costs of the electricity system and monitor the
quality of service provided by the generation and transmission companies.
Generation companies meet their contractual sales requirements with dispatched
electricity, whether produced by them or purchased from other generation
companies in the spot market. The principal purpose of a CDEC in operating the
dispatch system is to ensure that only the most efficiently produced
electricity is dispatched to customers. However, the CDEC also seeks to ensure
that every generation company has enough installed capacity and can produce
enough electricity to meet the demand of its customers. Because Endesa-Chiles
production in the SIC is primarily hydroelectric, and therefore its marginal
cost of production is generally the lowest in that interconnected system, its
electricity capacity in the SIC is generally dispatched under normal or
abundant hydrological conditions. Generation companies balance their
contractual obligations with their dispatch by buying electricity at the spot
market price, which is set hourly by the CDECs, based on the marginal cost of
production of the next kWh to be dispatched. This is known as the spot
marginal cost. Sales by Generation Companies Sales may be made pursuant to short- or long-term contracts or, in the
case of sales to other generation companies, on a spot basis. Generation
companies may also be engaged in contracted sales among each other at
negotiated prices. Generation companies are free to determine whether and with
whom to contract, the duration of the contracts and the amount of electricity
to be sold. Sales to Distribution Companies and Certain Regulated Customers Under the Chilean Electricity Law and regulations thereunder, sales to
distribution companies for resale to regulated customers must be made at the
node-prices then in effect at the relevant locations (nodes) on the
interconnected system through which such electricity is supplied. Until March
2006, two years after approval of the Short Law, regulated customers are
those with a maximum consumption capacity equal to or less than 2 MW. After
March 2006, those clients with maximum consumption capacity between 0.5 MW and
2 MW will be able to choose their status as a regulated or unregulated
customer. Two node-prices are paid by distribution companies: node-prices for
capacity and node-prices for energy consumption. Node-prices for capacity are
determined by making a calculation of the marginal cost of increasing the
existing capacity of the electricity system with the least expensive generating
facility. Node prices for energy consumption are calculated based on the
projected short-term marginal cost of satisfying the demand for energy at a
given point in the interconnected system, quarterly during the succeeding 48
months in the SIC and monthly during the succeeding 24 months in the SING. The
determination of such marginal cost in the SIC takes into account the principal
variables in the cost of energy over the 48-month period, including projected
growth in demand, reservoir levels (which are important in determining the
availability and price of hydroelectricity), fuel costs for thermal electricity
generation facilities, planned maintenance schedules and other factors that
would affect the availability of existing generation capacity and scheduled
additions to generation capacity during the 10-year Indicative Electricity
Development Plan. The same general principles are used to determine marginal
cost in the SING. Node-prices for capacity and energy consumption are established every six
months, in April and October, by a decree issued by the Ministry of Economy.
Although node-prices are quoted in Chilean pesos, the calculations used to
determine node-prices are mainly effected in United States dollars.
Node-prices so established become effective in May and November. Node-prices
are adjusted during a six-month period only if changes in the underlying
variables in the formula used to project a node-price then in effect would
result in a variation in excess of 10% with respect to the initially calculated
price. In addition, the Chilean Electricity Law requires that the difference
between node-prices and the average price paid by unregulated customers in the
four month period prior to the date of node-price calculation not exceed 5%.
If node-prices do not meet this requirement, they will be adjusted so that such
difference will not exceed 5%. Distribution companies are required to pay
generation companies for each months electricity purchases on the 21st day of
the following month, at the applicable node-prices in effect at the time. The Chilean Electricity Law provides that if a generation company sells
directly to a regulated customer outside the concession area of a distribution
company, then the generation company must apply the same price as the nearest
distribution company would be required to apply. 42




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Sales to Other Generation Companies To accomplish its objective of operating the dispatch system to ensure
that only the most efficiently produced electricity reaches customers, each
CDEC annually determines Firm Energy and Firm Capacity. Firm Capacity is the total probable capacity of all generating units in an
interconnected system at any point in time, calculated using historical data,
statistical analyses and certain assumptions regarding hydrology. Each CDEC
compares Firm Capacity to the maximum anticipated peak demand for capacity at
peak hours on the system. The amount by which the system-wide probable
capacity exceeds the maximum anticipated demand at peak hours is prorated for
each generating unit in the system based on the installed capacity of such
unit. Installed capacity of each unit is reduced by such pro rata amount to
determine Allocated Firm Capacity. If the Allocated Firm Capacity of any
generation company exceeds its peak hour contracted commitments to customers,
such generation company will be paid for its excess Allocated Firm Capacity by
generation companies with peak hour commitments to customers in excess of their
Allocated Firm Capacity, based on the prevailing node-price for capacity. A generation company may be required to purchase or sell energy or
capacity in the spot market at any time depending upon its contractual
requirements in relation to the amount of electricity from such company to be
dispatched. Purchases and sales made in the spot market are transacted at the
spot marginal cost of the interconnected system in which the companies are
located, which is the marginal cost of the next kWh to be dispatched.
Generation companies making sales in the spot market are paid for each months
sales on the 22nd day of the following month at the spot marginal cost in
effect at the time of sale. Transmission To the extent that a companys transmission assets were built pursuant to
concessions granted by the Chilean government, the Chilean Electricity Law
requires such company to operate the covered transmission system on an open
access basis in which users may obtain access to the system by contributing
towards the costs of operating, maintaining and, if necessary, expanding the
system. Transmission companies recover their investment in transmission assets
through tolls, or wheeling rates which are charged to generation companies
and final customers according to the following proportion defined by law: 80%
to generators and 20% to customers in the central part of the network (the
Common Influence Area, initially located between Quillota and Charrúa), and,
in the rest of the transmission system, 100% to either generators or customers,
according to the direction of the power flows. According to the Short Law
(Ley Corta) the transmission companies become public service companies and its
incomes are determined every 4 years by Decree of the Ministerio de Economía,
Fomento y Reconstrucción. Sales to Unregulated Customers The Electricity Law distinguishes between regulated and unregulated prices
for electricity supply. Electricity supply prices are unregulated for:  
    
    final customers with a connected capacity greater than 2 MW, commonly known as large customers;
    
    temporary customers; and
    
    customers with special quality requirements. From March 2006, final customers with a connected capacity between 0.5 MW
and 2 MW may voluntarily decide to leave their status as regulated customers.
However, these customers must reamin at their chosen status for the next four
years. Customers not subject to regulated prices, commonly known as unregulated
customers, may negotiate prices freely with distribution and/or generation
companies. All other customers are subject to the maximum prices established
by the tariffs. Distribution Tariff to Final Customers 43




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The tariff charged by distribution companies to their final customers is
determined by the sum of the cost of electricity purchased by the distribution
company (the node-prices for capacity and energy consumption at the point of
purchase from the generation company), a transmission charge and
sub-transmission surcharge, a factor for distribution losses of capacity and
energy, and the value added by the distribution network, or the VAD. The price
for both generation and distribution capacity sold to customers includes an
overlap factor to reflect the overlap between peak capacity demand for the
customer and for the system as a whole. The transmission charge reflects the
cost paid to transmission companies and sub-transmission surcharge reflects the
cost of transmitting and transforming electricity from a node on the
interconnected system to a substation at the distribution level. The VAD
includes an allowed return on investment. VAD Tariff The Chilean tariff system allows distribution companies to recover the
operating costs of a model company, including allowed losses, and a return on
investment. Recovery is primarily made through capacity charges and, in the
case relating to the lowest voltage tariff rate (BT-1), through sales of
energy. The BT-1 tariff rate is designed for customers with connected capacity
not greater than 10 kW for whom capacity usage is not metered. This tariff
only measures energy consumed and the capacity usage by such customers is
determined based on energy (kWh) used. The distribution costs associated with
all other customers are recovered through either measured or contracted
capacity (kW) sales. The VAD, which is based on a model company, includes the following
costs: selling, general and administrative costs of distribution; maintenance
and operating costs of distribution assets; cost of energy and energy losses;
and an expected return on investment, before taxes, of 10% per annum in real
terms based on the new replacement cost of assets employed in distribution.
The new replacement cost of assets includes the cost of renewing all the
facilities and physical assets used to provide the distribution services,
including interest expense, intangible assets and working capital. Distribution Tariff-Setting Process The distribution tariffs are set every four years. During the
tariff-setting process, the NEC classifies companies into groups, hereinafter
referred to as the Typical Distribution Areas or TDAs, based on economic
factors that classify like-companies with similar distribution costs. By applying efficiency guidelines established by the NEC to a selected
actual company, the NEC chooses a model company for the purpose of setting a
tariff. The tariff is not based on actual costs incurred by any given
distribution company, but on investment, operating, maintenance and general
administrative standards and overall efficiency of operations of the model
company, which is used as a benchmark. A given distribution companys actual return on investment is dependent on
its performance relative to the standards chosen by the NEC for the model
company. The tariff system allows for a greater return to distribution
companies that are more efficient than the model company. For the four-year
period beginning November 2000, Chilectra was the only company classified in
the high-density TDA, and Compañía General de Electricidad S.A.was chosen for
the medium-density TDA. Tariff studies are performed both by the NEC and by
the distribution companies. Each party typically retains specialized
consultants to perform a parallel tariff study. The tariffs are calculated as
a weighted average of the results of the NEC-commissioned study and the
companies study, with the results of the NECs study bearing twice the weight
of the companies results. Preliminary tariffs are tested to ensure that they
provide an average real annual internal rate of return between 6% and 14% on
the replacement cost of assets for the entire distribution industry. The distribution tariffs are enacted by the Ministry of Economy and are valid for four years, unless:  
    
    the cumulative variation in the consumer price index exceeds 100% within the four-year period; or
    
    the annual internal real rate of return for the electricity
distribution industry as a whole falls below 5%, or increases above
15%. 44




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At the beginning of 2004, the Chilean SEF informed the exploitation costs
which the NEC calculates the rate of return of the industry for 2002. In this
context, the Chilean SEF reduced the allowed operating costs by 4.9% for
Chilectra and further reduced the accepted costs of energy and power purchases
by 1.1%. The electricity distribution companies, including Chilectra, commenced
two judicial actions in the Santiago Court. These judicial actions claim that
the resolutions by which the SEF reduced the allowed operation cost of the
distribution companies were not consistent with the sentence of the Supreme
Court, which has instructed the SEF that, in the event that it rejected
operating costs, it should issue an explanatory resolution for such action and
specify the costs that were turned down for being either unnecessary or
excessive. These judicial actions are still awaiting resolution. On December 31, 2003, the Experts Committee (Comisión Pericial)
announced the net replacement value of the asset base (VNR) of Chilectra.
Even though the approved VNR was 13.9% lower than the VNR proposed by the
company, it was still 8.5% higher than the VNR approved four years earlier.
The VNR is only used for the rate of return checking process done at the end of
the tariff setting process. It does not influence the results of the VAD
study, and it does not, by itself, allow an estimate of the final result of the
tariff setting process. In addition, the tariff formulas can be modified before their expiration
date by agreement between all of the companies and the NEC. As required by the
Chilean Electricity Law, distribution tariffs have been reset every four years
starting with 1984. The next tariff resetting is scheduled for November 200.
Chilectra is currently working in the tariff study to be presented to the NEC.
Tariff formulas allow monthly indexing based on variations in node-prices and
distribution costs, including the consumer price index, the wholesale price
index for domestic goods, copper prices, currency exchange rates and import
duties. The indexed tariffs are the maximum prices that distribution companies
may charge regulated customers for supplying electricity. Node-prices are
adjusted during the six-month period only if changes in the underlying
variables in the formula used to project a node-price then in effect would
result in a variation in excess of 10%. Concessions In certain cases, the Chilean Electricity Law permits the generation and
transmission of electricity without the need to obtain a concession from the
Chilean government. However, companies may apply for a concession from the
Chilean government, particularly to facilitate use of and access to third-party
properties. Third-party property owners are entitled to compensation, which
may be agreed to by the parties or, absent agreement, determined by an
administrative proceeding that may be appealed to the Chilean courts. Concessions for the operation of distribution networks are granted by the
Ministry of Economy pursuant to the Chilean Electricity Law. Concessions are
non-exclusive and of indefinite duration but may be revoked by the President of
Chile if certain quality and safety standards are not met. In such case, the
distribution companys assets will be liquidated in a public auction. The net
proceeds from such auction will be paid to the concession holder after all
associated expenses are reimbursed. Government approval is required for the
transfer of concessions and for the territorial expansion of a concession. The
concession holder has the right to use public rights-of-way to install overhead
and underground lines for the distribution of electricity within its territory. Distribution companies are required to provide service within their
concession area at applicable tariffs, and may provide service to customers
outside the concession area connected to the distribution facilities through
their own lines or lines of third parties at applicable tariffs. The Chilean
Electricity Law permits a distribution company to demand that a customer
finance the capital investment required to extend the transmission and
distribution facilities necessary to provide service. Such law requires that
customer financing be repaid by the distribution company, but gives the
distribution company the discretion to determine the form of repayment over a
period not to exceed 15 years. Repayment may be made by delivery of promissory
notes, electricity, common shares or other form of consideration agreed to by
both parties. Changes to Electricity Law, Potential Fines, Compensations and Regulatory
Payments Chilean Congress amended the Chilean Electricity Law, effective as of June
8, 2000, placing severe penalties on deficit generation companies in the event
of prolonged periods of electricity shortages. Electricity rationing may be
enforced by the enactment of a rationing decree which is subject to the prior
approval by the NEC and the 45




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Ministry of Economy. Such approval is contingent upon the severity of the
prevailing conditions causing the electricity shortage. The Chilean Electricity Law, as amended, no longer exempts deficit
generation companies from fines if power shortages are due to severe drought
and states that such weather conditions will no longer be considered a force
majeure event. In addition, the Chilean Electricity Law, as amended, requires
that generation companies compensate consumers during periods of rationing as
compared to the law prior to amendment      , which only compensated surplus
generators but did not penalize deficit generators during power shortages.
Companies penalized under the legislation will have the right to appeal but
only after they have made a prepayment equal to 25% of the fine. Under the Chilean Electricity Law, as currently in effect, we may be
required to pay fines to the regulatory authorities, make compensatory payments
to electricity consumers affected by the shortage of electricity and make
payments to generation companies from whom we are forced to purchase
electricity in order to meet contractual commitments. These types of penalties
or payments are described below.  
    
    Fines.The fines, that could apply to any electricity company
supervised by the NEC and the SEF, including generation, transmission
and distribution companies, range from the equivalent of approximately
US$50 to a maximum of the equivalent of approximately US$6 million.
Companies penalized under the legislation will have the right to appeal
but only after they have made a prepayment equal to 25% of the fine.
    
    Compensatory payments by generation companies. If the Ministry of
Economy issues a rationing decree, generation companies may be required
to reimburse distribution customers on a pro rata basis for credits
given to final consumers in an amount equal to the product of: (i) the
difference between the rationed end-consumer price specified in the
rationing decree and the applicable node price, and (ii) the difference
between the consumers actual energy consumption during the rationing
period (taking into account only the hours of effective interruptions
of service) and during the same period in the prior year, with certain
adjustments.
    
    Failure cost. Chiles Electricity Law calls for a failure cost
to be imposed on generation companies that cannot meet their
contractual commitments to deliver electricity during periods when a
rationing decree is in effect. The failure cost is implemented as the
price that must be paid by deficit generation companies to the surplus
generation companies from whom deficit generation companies purchase
electricity.
    
    Compensatory payments by distribution companies. Distribution
companies may be required to compensate final customers if there are
shortages of electricity that exceed the authorized standards. These
compensatory payments shall be at an amount equal to double the
non-supplied energy at failure cost. On March 21, 2001, the Chilean Antitrust Commission issued Resolution No.
525, which established a list of 25 services related to the supply of
electricity, such as the lease of meters, that should be regulated. As of the
date of this annual report, such services have not been regulated and it is
expected that the NEC will regulate such services in the next tariff setting
scheduled for November 2004, although the ministerial decree was originally
supposed to be published at the end of June 2004. On May 30, 2001, the Ministry of Economy issued Resolution No. 88, which
stated that generation companies are required to supply electricity to SAESA, a
distribution company which was not able to renew its electricity supply
contracts. Such resolution also stated that the electricity supply shall be
provided at the node-price and on a pro rata basis, considering the firm
capacity of each generation company. The regulatory authority has announced that the Chilean electricity
regulatory framework will be amended in two steps. The first step dealing with
those matters that were needed with more urgency is known as the Short Law
and was published in March 2004. The second step will deal with the remaining
amendments that are needed, known as the Long Law. 46




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The Short Law The Short Law was approved by Chilean Congress and it became effective as
of March 2004. The principal changes implemented by the Short Law include:  
    
    a new methodology concerning compensation to, and expansion of,
transmission systems, reducing generators transmission costs by
transferring part of the cost to final customers,
    
    regulation on the subject of ancillary services (including
frequency regulation, among others);
    
    reduction of the regulated node price band with respect to the
unregulated customer contract price from 10% to 5%,
    
    regulation of the distribution toll (wheeling rate), requiring
electricity distributors to provide service to third parties;
    
    a reduction of the definition of unregulated customer from 2 MW to
0.5 MW of power capacity needs, starting two years after the law was
declared effective. The newly eligible customers will be given the
option to decide whether to remain as regulated or to change their
status to unregulated.
    
    a permanent expertise commission will be established to resolve
discrepancies that arise in each of the tariff and toll setting
processes. In our opinion, the approval of this law has established a better
framework for companies to analyze new investments. Nevertheless, the
convenience of developing new projects depends not only on regulations, but
also on the stability and attractiveness of the industry price levels. As of the date of this report, the final proposal of the Long Law is still
being evaluated by government authorities. Environmental Regulation The Chilean Constitution of 1980 grants to all citizens the right to live
in an environment free of pollution. It further provides that other
constitutional rights may be limited in order to protect the environment.
Although environmental regulation is not as well developed in Chile as in the
United States and certain other countries, Chile has numerous laws,
regulations, decrees and municipal ordinances that may raise environmental
considerations. Among them are regulations relating to waste disposal
(including the discharge of liquid industrial wastes), the establishment of
industries in areas in which they may affect public health and the protection
of water for human consumption. Our operations in Chile are also subject to Ley No. 19,300, or the Chilean
Environmental Law, which was enacted in 1994. The Chilean Environmental Law
requires Endesa-Chile to conduct environmental impact studies of any future
generation or transmission projects or activities that may affect the
environment and to arrange for the review of such studies by the Chilean
Environmental Commission, or CONAMA. It also requires an evaluation of
environmental impact by the Chilean government or the posting of an
environmental insurance policy insuring compliance with standards for
emissions, noise, waste and disposal and authorizes the relevant ministries to
establish emission standards. The Chilean Enviornmental Law was implemented by
Reglamento No. 30 del Ministerio Secretaria General de la Presidencia
(Reglamento No. 30) on March 20, 1997. Endesa-Chile applies the guidelines
set out in Reglamento No. 30 when analyzing the development of future projects.
Prior to the enactment of the Chilean Environmental Law and its implementation
through Reglamento No. 30, Endesa-Chile applied similar guidelines to its
projects. The Chilectras transmission lines may be also affected by
regulations under the Chilean Environmental Law issued on April 3, 1997, which
require environmental impact studies for projects involving high voltage
transmission lines and their substations. Water rights 47




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Endesa-Chile owns water rights granted by the Chilean Water Authority for
the supply of water from rivers and lakes near Endesa-Chiles production
facilities. Under current law, these water rights are of unlimited duration,
and they are the absolute and unconditional property rights of Endesa-Chile.
Chilean Congress is currently considering a proposal to revise the laws
governing water rights. Under the proposal Endesa-Chile would have to pay a
fee for previously granted but unused water rights in each year that the right
remained unused. General Regulation Applicable to Non Chilean Operating Companies Enersis and Endesa-Chiles non-Chilean operating companies were acquired
in connection with the privatization of formerly government-owned and
controlled companies. In connection with these privatizations, in certain
instances, the bidding terms established limitations on the winning bidders
ability to transfer their shares without prior regulatory approval or
expiration of prescribed waiting periods. Accordingly, Enersis and
Endesa-Chiles ability to transfer interests in its non-Chilean operating
entities is subject to compliance with such requirements. Argentina Industry Structure Federal Law No. 24,065 of January 1992, or the Argentine Electricity Act,
divides the electricity industry into three sectors: generation, transmission
and distribution. The generation sector is organized on a competitive basis
with independent generation companies selling their production in the spot
market of the Wholesale Electricity Market, or the WEM, or by private contracts
with certain other market participants in the term market of the WEM.
Transmission is organized on a regulated basis. Transmission companies are
required to operate, maintain and provide third parties access to the
transmission systems they own and are authorized to collect a toll for
transmission services. Transmission companies are prohibited from generating
or distributing electricity. The major transmission company is Compañía de
Transporte de Energía Eléctrica en Alta Tensión S.A.or Transener.
Distribution involves the transfer of electricity from the supply points of
transmitters to customers. Distribution companies operate as geographic
monopolies, providing service to almost all customers within their specific
region. Accordingly, distribution companies are regulated as to rates and are
subject to service specifications. Although distribution companies may acquire
the electricity needed to meet the demand either in the WEM at seasonal prices
or through contracts with generation companies, all of them prefer to buy
electricity in the WEM because distribution companies are allowed to pass
through only the seasonal prices reflecting the average spot energy price. The WEM classifies large users of energy into three categories, Major
Large Users, or GUMAs in its Spanish acronym, Minor Large Users, or GUMEs in
its Spanish acronym, and Large Particular Users, or GUPAs in its Spanish
acronym. Users in each of the three categories may freely negotiate their
supply contract prices with generating companies. GUMAs are all users with a
peak capacity demand of at least 1.0 MW and a minimum annual energy consumption
of 4.38 GWh. GUMAs must contract to purchase at least 50% of their demand and
purchase the rest in the spot market. GUMEs are all users with peak capacity
demand ranging between 0.03 MW and 2.0 MW. GUPAs are all users with a peak
demand ranging between 0.03 MW and 0.1 MW. GUMEs and GUPAs are not required to
have a minimum annual energy consumption. GUMEs and GUPAs must contract to
purchase all of their demand and do not effect any transactions in the spot
market. The regulation also recognizes the following entities as participants in
the WEM:  
    
    power traders, who market generation capacity and energy demand by
entering into contracts with generation companies and large consumers;
    
    provinces which can sell the energy received under royalty rights; and
    
    foreign companies that are part of import/export energy contracts. Dispatch and Pricing The Argentine electricity dispatch system, like the Chilean system, is
designed to ensure that the lowest cost electricity reaches customers. The
National Interconnected System, or NIS, coordinates the generation, 48




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transmission, and distribution of electricity. Generation companies sell
their electricity to distribution companies, power traders and large users in
the competitive WEM through freely negotiated supply contracts or through the
spot market at prices set by the Compañía Administradora del Mercado Mayorista
Eléctrico S.A.,or CAMMESA. The operation of the WEM is the responsibility of
CAMMESA. CAMMESAs stockholders are generation, transmission and distribution
companies, large users (through their respective associations) and the
Secretariat of Energy. All generation companies that are in the NIS pool operate in the WEM. The
contractual price is paid by distribution companies, power traders and large
users that have entered into supply contracts with generation companies. Large
users who contract directly with generation companies must also pay their
distribution companies a toll for the use of their distribution networks. The
average spot price is the price paid by distribution companies for electricity
from the pool and is a fixed price reset every three months by CAMMESA and
approved by the Secretariat of Energy according to supply, demand, available
capacity and other factors. The spot price is the price paid to generation
companies, or by power traders marketing generation capacity, for energy
dispatched under CAMMESAs direction and for capacity required by CAMMESA to
maintain adequate reserves. This hourly price paid for energy reflects the
marginal cost of generation. The actual operation of CAMMESA involves the dispatch of generating
resources without regard to the contracts among generation companies, power
traders and distribution companies or large users. Consequently, a generation
companys capacity may be dispatched to provide more or less energy to the pool
irrespective of its contractual commitments. Under these circumstances, the
generation company will be obligated to buy or sell excess energy from or to
the pool at spot prices. Transmission Tariff The transmission tariff that must be paid by generation companies,
distributors and large users can be broken down into:  
    
    a connection charge that underwrites the costs of operating and
maintaining the equipment that links them to the transmission system;
    
    a capacity charge that underwrites costs of operating and
maintaining lines; and
    
    a variable charge based on the aggregate amount of electricity
energy transported to cover losses that occur during transmission. Regulation of Hydroelectric Operations The Basin Authority. Ley Nacional No. 23,896of 1990 created the Basin
Authority of the Limay, Neuquén and Negro Rivers, or the Basin Authority. The
Basin Authority is responsible for the administration, control, use and
preservation of the basin of the Limay, Neuquén and Negro Rivers, and for the
adequate management of related water resources. The Basin Authority monitors
compliance by El Chocón, one of the largest hydroelectric generation facilities
in Argentina, and other hydroelectric concession holders in the region with the
provisions of their respective concession agreements, environmental laws and
the Basin Authoritys resolutions. The Basin Authority also serves as a forum
for public hearings at which complaints against those holding concessions can
be heard and resolved. ORSEP.The Entity for Safety of Dams, or ORSEP in its Spanish acronym, is
in charge of supervising the safety of El Chocóns dams, and of any additional
works performed by El Chocón. ORSEP supervises and inspects the construction,
operation, maintenance, repair or modification of the works related to the dams
and related structures in order to monitor their safety and to protect persons
and assets. ORSEP is empowered to:  
    
    inspect and verify the functioning of any part of the dams or
related structures;
    
    require reports on the design, construction, operation,
maintenance, use, repair or modification of dams and related
structures; and 49




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
    
    monitor any situation which may cause risk to the dam or any death
or injury caused by such dams or related structures. ORSEP also handles the approval of quality control programs submitted by
El Chocón, the determination of specifications to prevent accidents and the
maintenance of public safety within the area of the dams and related
structures. Distribution Tariff to Final Customers In general, Edesurs distribution tariff is comprised of:  
    
    a fixed charge applicable to small users who are generally
residential, small industrial and commercial customers, or a charge per
unit of maximum demand for medium or large users who are generally
commercial, industrial or governmental customers; and
    
    variable energy charges, which are recalculated at the beginning of
each three-month period coinciding with the dates on which the seasonal
prices reflecting the average spot energy prices in the WEM are
effective. The fixed charge or the charge per unit of maximum demand portion of the tariff includes two components:  
    
    the cost of capacity in the WEM, adjusted at the beginning of the same three-month period; and
    
    the distribution component (VAD) which was fixed in United States
dollars for each class of users until the enactment of the Economic
Emergency Law, adjusted semi-annually for changes in U.S. wholesale and
consumer price index. The variable energy charges are designed to allow a distribution company
to recover its variable energy costs based upon the weighted proportion of each
distribution companys energy supply derived from the average spot prices set
for the next three months, energy purchased under post-privatization long-term
contracts and amounts payable by such distribution company into the National
Energy Fund. Upon expiration of the initial ten-year period and upon each successive
five-year period thereafter, the tariff schedule will be revised for the next
five years. One year before the end of each such period, Edesur must propose
its recommended revisions. According to Argentine regulations, the Ente
Nacional Regulador de la Electricidad, or ENRE, must appoint experts to propose
alternative tariff formulas taking into consideration the interests of both
consumers and Edesur. The tariff schedule should have been revised in 2002, but the tariff
revision process is in a stage of uncertainty because ENRE postponed the
presentation of the tariff proposal for the period starting on September 1,
2002 and ending on October 31, 2007. The postponement was requested by the
distribution companies due to the re-negotiation of the concession contracts,
which is taking place under the Economic Emergency Law, and because it is not
possible, under the current circumstances, to establish the criteria and valid
premises to determine the economic costs and a reasonable rate of return for
distribution companies. Law No. 25,790 recognized the authority of the ENRE to
revise tariff schedules in a manner consistent with the development of the
renegotiation process and the possibility of transitory modifications of the
concession contracts. Emergency Measures As of the date of this annual report, the Argentine electricity regulatory
framework is undergoing significant changes, the effects of which are hard to
evaluate in the long-term. Although Law No. 24,065 has not been formally
derogated, and as such, it still prevails from a formal perspective, the trend
that has been observed in 2002 to date leads us to believe that there will be
an increased state intervention that will modify the regulatory framework
described herein. In particular, in January 2002, the Economic Emergency Law
was promulgated, and authorizes the Argentine Federal Executive Branch to
renegotiate public service concession contracts. 50




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The enactment of the Economic Emergency Law produced a considerable
imbalance in the economic equation for Edesur and repealed provisions of Law
No. 24,065 that previously ensured a reasonable rate of return. The devaluation and pesification measures undertaken pursuant to the
Economic Emergency Law resulted in a shortfall of revenues, and Edesur was
unable to satisfactorily meet its financing needs because the frozen tariffs
Edesur could charge for its services were lower than the costs and a reasonable
rate of return associated with such services. Since the beginning of the Argentine crisis, many companies in Argentina,
especially those with foreign currency indebtedness, have fallen behind
temporarily on payments of certain debt obligations, and have had to constantly
renegotiate new payment schedules and terms with creditors. During 2003, we
have rolled over US$109 million in financial debt, paid US$31 million in
principal and extended the maturity of this debt from 12 to 18 months.
Costanera is delayed on payments aggregating US$3.6 million of bank debt,
representing the entire remaining principal amount outstanding under an export
credit facility. Costanera is in advanced discussions with the lender under
this facility and expects to reach an agreement providing for partial payment
and a rescheduling of the remainder of the debt. Our international creditors
have understood the extraordinary circumstances that have led us to take these
steps and to date have accepted these refinancing arrangements. Even after the creation of the Renegotiation Entity, which replaced the
Renegotiation Commission and is composed of two ministries of the Argentine
Federal Executive Branch, as of the date of this annual report, the progress in
the renegotiation process has been minimal and we cannot predict if, and when,
we will obtain acceptable tariffs for Edesur. Concessions Edesur holds an exclusive concession to distribute electricity within the
concession area for a period of 95 years from August 31, 1992. The concession
consists of an initial 15-year period and eight additional ten-year periods.
This exclusive concession may expire, or the area of concession may be changed,
if technical advances permit new methods of electricity distribution. The
government must notify Edesur at least six months before the expiration of the
first concession period, August 31, 2007, or any subsequent concession period,
if it intends to exercise its right to modify the concession area. On March 25, 1997, the ENRE approved an amendment to Edesurs by-laws
passed by stockholders at a meeting held on March 14, 1997, allowing Edesur to
participate in other energy distribution companies, to act as a broker in the
electricity market, and to provide services to third parties. Edesur is required under the concession contract to supply electricity
upon request by owners or occupants of premises in its concession area, meet
certain quality standards relating to electricity supplied, meet certain
operating requirements relating to the maintenance of distribution assets and
bill customers based on actual readings. As a condition of the concession, and
to ensure its performance under the terms thereof, Distrilec, the direct owner
of 56.4% of the shares of Edesur and the entity through which we holds part of
our beneficial ownership in Edesur, has pledged its shares of Edesur to the
Argentine government. The Argentine government may sell the pledged shares if,
for instance:  
    
    Edesur does not comply with the quality standards established in
the concession agreement or accumulates penalties in any given year in
an amount greater than 20% of its invoices after taxes and
contributions; and
    
    Distrilec transfers its shares of Edesur without authorization or
allows another person to pledge its shares in Edesur. The Argentine government may also cancel the concession if Edesur does not
comply with its obligations and thereby prevents or materially affects the
concession service for more than 90 days after compliance is required. The concession agreement also provides that, before the end of each
concession period, the ENRE will arrange for a public auction of the shares of
Edesur owned by Distrilec. Distrilec will participate in the auction, and its
bid will establish the minimum price for the shares. If a bid is made that
exceeds Distrilecs bid, Distrilec must sell its 51




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Edesur shares to the bidder for the bid price. If no bid exceeds
Distrilecs bid, Distrilec will retain the concession but will not be obligated
to make any payment. The Economic Emergency Law enacted on January 6, 2002, has affected Edesur
adversely by repealing the provisions of Edesurs concession contract that
permitted its distribution tariffs to be pegged to the dollar, and that
provided for certain price indexation mechanisms. Since Edesurs invoices to
its clients are no longer pegged to the dollar, the dollar value of such
receivables has declined significantly in the wake of the devaluation of the
Argentine peso. Because Edesurs indebtedness is largely dollar-denominated,
the above-mentioned factors have had a significant negative impact on Edesurs
net income. The Economic Emergency Law also authorized the Argentine Federal Executive
Branch to renegotiate all public service contracts, and establishes certain
guidelines dealing with potential impacts on the Argentine domestic economy,
quality of service and capital expenditure plans, consumer interests, the
security of the systems, and the profitability of the companies providing such
services. On March 20, 2002, the government listed the set of contracts to be
renegotiated, as well as the general procedures to be used as guidance in such
negotiations. Among these contracts is Edesurs concession contract. Electricity Regulatory Changes and Emergency Measures In 2002 and during 2003, the Secretary of Energy introduced some
regulatory measures (including Resolutions No. 2 and 8 in 2002 and Resolutions
1, 82, 240, 406 and 784 in 2003) in order to correct the mismatches produced by
the devaluation of the Argentine peso, to reduce energy prices and distribution
tariffs and to ensure the normal operation of generation activities. Even
though the Secretary of Energy first recognized the U.S. dollar as the correct
currency of denomination for certain variable costs of production such as
liquid fuels, spot prices are no longer determined by a uniform tariff
calculated for all generation companies in the spot market, and limits on spot
market prices have been imposed by the Secretary of Energy at its discretion.
Seasonal prices expressed in pesos to be paid by the distributors are
maintained at levels similar to those in force in November 2002 despite the
fact that they are not sufficient to cover the amounts owed to the generation
companies in accordance with Law No. 24,065. A second important aspect of these regulatory measures was to make an
adjustment in the price stabilization system in order to identify real costs
and prices, reduce the price volatility and diminish the arbitrage risk of
differences between the spot prices and seasonal prices. Consequently, an
anticipated spot market has been created that introduces a prior adjustment to
energy prices that acts as a price stabilization system. Subsequently, the Secretary of Energy enacted Resolution No. 246/2002 that
established various regulatory changes. The following are the more significant
measures:  
    
    the separation of capacity and energy payments such that the
capacity payments are tied to availability and short-term reserves are
regulated and tied to commitment reserves;
    
    the modification of energy supply guarantee rights and obligations,
supply priority and demand interruptability, and regulation of short-
and medium-term reserves for service disruption conditions with respect
to large customers;
    
    a new capacity relief scheme proposed by CAMMESA;
    
    the integration of node and adaptation factors for demand without
affecting the calculation of the variable transmission remuneration and
energy delivered by generation companies and traders;
    
    the acknowledgement of new tax rates that are applied to natural
gas, oil and fuel transfers as additional costs;
    
    expansion and increased ease of the conditions of the contract market; and
    
    the adjustment of forced generation regulations. 52




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On July 18, 2002 Resolution No. 317/2002 of the Secretary of Energy, which
supplements Resolution No. 246/2002, increased the capacity payment from
Ar$10/MW to Ar$12/MW in the hours that the capacity is remunerated. Finally, on January 2, 2003 the Secretary of Energy enacted Resolution SE
No. 1/2003 whose principal features are the following:  
    
    the compensation for generation companies whose variable costs are
higher than the first failure cost step (Ar$120/MWh) is incremented;
    
    the establishment of a new reserve service to ensure availability
in areas where shortage of natural gas in winter will be foreseen;
    
    the adjustment of the reserve service reliability to cover the peak time capacity demand;
    
    the reestablishment of the anticipated spot market operation for seasonal energy transactions; and
    
    the implementation of a transitional process to identify and manage
the high voltage system and distribution expansions and to improve the
availability of energy supply. With respect to generation, regulatory changes have been introduced in
order to:  
    
    increase the actual market price transparency to improve the
predictability of the generation companies remunerations and
facilitate their decisions; and
    
    gradually obtain a more stable seasonal price. With respect to transmission, regulatory changes have been introduced in order to:  
    
    provide a more friendly environment and create incentives to accomplish certain critical projects; and
    
    revise the operational and design guidelines to meet the safety and
operating requirements enacted in the law. By means of Resolution SE No. 82/2003 and, more recently, Resolution SE
No. 784/2003, the Secretary of Energy approved the winter seasonal schedulings,
quarterly reschedulings and summer seasonal schedulings for the WEM that would
maintain the seasonal prices to be paid by the distributors at levels similar
to those in force in November 2002. Therefore, the 2003 energy winter prices
continued, and the 2003/2004 energy summer prices will continue, to ignore the
increase required to cover the spot prices payable to the generation companies.
As a result, the seasonal stabilization fund, a fund created to collect the
seasonal stabilization prices paid by distributors and to provide the amounts
to cover the gap between the spot prices and the seasonal prices that are
passed through to the end users by the distributors, is now depleted. In
accordance with Resolution SE No. 406/2003, the Secretary of Energy established
a priority for payments in the WEM, by which generators are compensated only
after certain other creditors of the WEM are compensated, granting
hydro-generators priority only in collecting the part of their remuneration
which reflects their operational and transmission costs and eliminating the
right of hydro-generators to collect the total energy price sanctioned in the
spot market. Additionally, on August 14, 2003 the Secretary of Energy took further
measures pursuant to Resolution SE No. 240/2003 which temporarily imposed,
until certain alleged restrictions in the supply of natural gas are overcome,
an artificial limit on the energy spot price by ignoring the actual
restrictions of gas supply to electricity generation companies. According to
the Resolution, in order to define the energy spot price, the WEM will not
consider variable costs reflecting liquid fuels prices but it will only
consider natural gas tariffs, which excludes the possibility that water values
of the hydro facilities and hourly import transactions of energy may influence
the spot prices in the event they are higher than the variable costs of the
marginal unit using natural gas. In addition, Resolution SE No. 240/2003
discriminates against hydro-generators by not permitting them to recognize
their generation costs in excess of the node-price, whereas thermal generators
variable costs in excess of the node-price continue to be recognized as a
sobrecosto transitorio de despacho(a transitory dispatch cost). 53




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Environmental Regulation The operations of electricity generation facilities are subject to federal
and local environmental laws and regulations, including Ley Nacional No. 24,051
enacted in January 1992, or the Hazardous Waste Law, and its implementing
decree, Decree No. 831/1993, which regulate the disposal of hazardous waste in
Argentina. Pursuant to the terms and conditions established by the Argentine
government for the concession relating to El Chocóns hydroelectric facilities
and the sale of Costanera, El Chocón and Costanera must comply with certain
reporting and monitoring obligations and emission standards. The failure by El
Chocón and Costanera to comply with these requirements and federal and local
environmental legislation entitles the Argentine government to impose
penalties, and in certain cases, cancel the concession agreement of El Chocón
or order the suspension of operations of Costanera. Costanera and El Chocón
have filed reports pursuant to the Hazardous Waste Law and its implementing
decree, Decree 831/1993, which regulate the disposal of hazardous waste. El
Chocón and Costanera have been classified as eventual generators of hazardous
waste. Endesa-Chile believes that El Chocón and Costanera are in compliance
with all material obligations relating to environmental matters. Pursuant to
the regulations established by the Argentine government, Edesur must comply
with requirements relating to environmental protection, human health and
safety, handling, use and release of hazardous substances, and pollution. We
believe that Edesur is in compliance with all material obligations relating to
environmental matters, except for Resolution SPA No. 1118/2002 and the related
regulations of the Province of Buenos Aires, relating to polychlorated biphenyl
(PCB), which has been objected to by administrative proceeding and which has
also caused us to file a claim before the Argentine Federal Supreme Court
seeking a declaration of unconstitutionality and an injunction, based on our
belief that the resolution and regulations, among other things, are contrary to
the applicable federal regulatory framework. Edesur complies with the
provisions set forth by Federal Law of Minimum Budgets No. 25,670 regarding PCB
and is currently in the process of obtaining some necessary environmental
permits in the Province of Buenos Aires. With respect to electromagnetic fields, Edesur complies with the current
regulation (Resolution SE No. 77). This compliance was ratified by the Federal
Court of the city of La Plata, in the Province of Buenos Aires, which decided
that, even as Edesur remains in compliance with the current regulation, it must
still avoid causing damage to the public health. Brazil Industry Structure Under the present regulatory structure, the electricity industry in Brazil
is comprehensively regulated by the União (Union), acting through the Ministry
of Mines and Energy, or MME, which has exclusive authority over the electricity
sector through its concessionaire and regulatory powers. Regulatory policy for
the sector is implemented by the National Agency of Electric Energy, or ANEEL,
established pursuant to Law No. 9.427/96. ANEEL is responsible on behalf of
União for, among other things:  
    
    granting and supervising concessions on behalf of the União for
electricity generation, transmission, trading and distribution,
including approval of applications for the setting of tariff rates;
    
    supervising and auditing the concessionaire companies;
    
    issuing regulations for the electricity sector;
    
    granting decisions in order to solve, as an administrative matter,
the differences among concessionaires, independent producers, consumers
and other industry participants;
    
    establishing the criteria to calculate transmission prices;
    
    imposing contractual and regulatory penalties; or
    
    terminating a concession, in those cases contemplated in the law and/or a concession agreement. 54




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Recently privatized electricity companies, including Coelce, have
executed concession contracts with ANEEL. Planning functions were executed
by two executive committees coordinated by Eletrobrás, the Grupo Coordenador
de Planejamento dos Sistemas, or the GCPS, and the Grupo Coordenador de
Operações Interligadas, or the GCOI, which include representatives of each
of the major concessionaires. As of March 1999, pursuant to the terms of Law No. 9648/98, the GCOIs
coordination and supervisory role over the generation and transmission of
energy in the interconnected systems has been transferred to the ONS, which
is a nonprofit private entity whose main objectives are:  
    
    the planning and coordination of the operations and dispatch of
electricity in order to optimize the electricity produced in the
interconnected systems;
    
    the supervision and coordination of the operation centers of the electricity systems; and
    
    the definition of rules for the transmission of energy in the interconnected systems. Law No. 8,631 (1993) fundamentally changed the regulatory structure
governing electricity rates in Brazil. This law abolished utilities
guaranteed annual real rate of return (Guaranteed Return) and the system of
uniformity of electricity rates throughout the country. This Law called for
automatic inflation tariff adjustments according to a complex multivariable
parametric formula. Law No. 8,631 (1993) established that electricity tariffs
were expected to reflect operating costs of each company plus a certain return
on capital, which is not a pre-defined return, but instead it is obtained
through a financial/ economic equilibrium. In December 1994, the Brazilian government introduced the Real Plan.
Specifically in the electricity industry, the Real Plan superceded previous
rate setting laws. Under the Real Plan, rate increases for public utilities
due to inflation are no longer granted automatically. In an attempt to curtail
inflation, the Real Plan prohibited price adjustments for periods of less than
one year in any and all contracts. Under the Real Plan, prices are reviewed and
corrected on an annual basis. Deregulation Brazils concessions regulations were replaced by two statutes enacted in
1995, Law No. 8,987 of February 13, 1995, or the Concessions Law, and Law No.
9,074 of July 7, 1995, or the Power Sector Law. The Congressional Law and the
Power Sector Law gave rise to substantial changes in both the regulations for
public service concessions and the rule for renewal and approval of
concessions. The objectives of the mentioned laws with respect to the
electricity sector include the injection of competition into what had been a
government monopoly, the infusion of private capital into the sector, the
creation of incentives to complete projects on which work was suspended or
delayed due to financial and macroeconomic difficulties and the laying of the
groundwork for privatizations in the sector. Independent Power Producers and Self-Producers The Power Sector Law also introduced the concept of the independent power
producers, or IPP, as a further factor in opening up the electricity sector to
private investment. The Power Sector Law provides for the formation of
consortia to generate power for public utilities, for use by consortium
members, for independent power production or for any one or more of these, in
each case governed by applicable rules. Self-producers (producers who generate
power primarily for their own use) may:  
    
    contribute or exchange energy with other self-producers within a consortium;
    
    sell excess energy to the local distribution concessionaire; or
    
    exchange energy with the local distribution concessionaire to allow
for consumption by industrial plants owned by the self-producer and
located somewhere other than in the area of generation. Decree No. 2,003 (of 1996) sets forth the regulatory framework for IPPs
and self-producers. Pursuant to such decree, the development of hydroelectric
power plants by an IPP or a self-producer requires a concession (awarded 55




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following a bidding process) only when the project will generate power in
excess of 1 MW in the case of an IPP and 10 MW in the case of a self-producer.
In all other cases, including development of thermoelectric plants, the IPP or
self-producer is only required to obtain authorization from, or to register
with, ANEEL. Decree No. 2,003 also provides that concessions and
authorizations granted thereunder have terms of 35 and 30 years, respectively,
with the possibility of extensions for periods equal to the initial terms. As part of the old Federal Government of Brazils attempt to abolish the
monopolies enjoyed by most power companies, the Concessions Law also provides
that, upon receiving a concession, IPPs, self-producers, suppliers and
consumers will be permitted access to the distribution and transmission systems
of all concessionaires, provided that the concessionaires are reimbursed for
their related costs The basis on which such costs will be reimbursed has been
determined by the ANEEL. The power industry was reviewed by the Cardoso administration and was
subject to additional significant changes, including, but not limited to,
restructuring and privatization of assets owned by the Federal Government of
Brazil in addition to those which were already privatized (mostly in
distribution area). Such changes attempt to result in the creation of a more
competitive electricity industry. The former federal government requested recommendations from independent
consultants for a restructuring regime in anticipation of the privatization of
the Brazilian electricity sector. Such recommendations were contemplated by
Law No. 9648/98 whereby the federal government has determined the creation of a
Wholesale Energy Market formed by the generation and distribution companies.
The price offered at the Wholesale Energy Market for energy contracts is
determined according to market conditions, and therefore the spot price derived
from the operation of the market system is independent of the contractual
relationships of the agents. According to this model, the purchase and sale of
electricity was going to be negotiated freely. However, in order to facilitate
the transition to this competitive model, the contracts already in effect at
the time of the creation of the Wholesale Energy Market called Initial
Contracts were to remain in effect until 2002 and afterward will be reduced
annually at the rate of 25%. The first bundle of energy was liberalized in
January 1, 2003, previously having been auctioned among generation companies in
September 2002. The auction had little success, with only 33% of the energy
offered successfully auctioned. The lack of interest was due in part to the
decline in energy demand in Brazil and in part to consumption pattern changes
after rationing, whereby consumers continue to save energy as they were legally
required to do during the rationing period. Former President Cardoso announced a significant restructuring of the
Brazilian power industry. Pursuant to Law No. 10,433, dated as April 24, 2002,
the Wholesale Energy Market structure changed to be closely regulated and
monitored by ANEEL. As a result of Law No. 10,433, ANEEL will be responsible
for setting Wholesale Energy Market governance rules. Under the former regime,
such rules were primarily established by the market players, subject only to
ANEELs ratification. This restructuring seeks to reorganize the electricity
system model to allow for continued external investment. On April 26, 2002, former President Cardoso issued another relevant rule
to the sector (Law No. 10,438), with the objective of recovering the lost
revenues due to the rationing decree which occurred between June 2001 and
February 2002, expanding the emergency energy supply and increasing the
alternative energy sources and producing modifications of some important rules
to the electricity sector. During its first year in office, the government of President Luiz Inácio
Lula da Silva recognized that Cardosos regulatory regime had not been
successful in stimulating growth in the electricity generation industry or with
respect to the maintenance of low tariffs. As a result, in February 2003, the
Ministry of Mines and Energy created a committee to work on institutional
reform. The committee published a Proposal of an Institutional Model for the
Electricity Sector. The basic guidelines or goals of this proposal, which
were approved by the CNPE (Resolution No. 5, July 21, 2003), consist of:  
    
    maintaining the public service concept for the production and
distribution of the electricity to consumers within our concession
area;
    
    restructuring the system planning;
    
    transparency in the auction and bidding process for public projects; 56




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
    
    mitigating the systemic risks;
    
    maintaining centralized and coordinated operations of the Brazilian energy system;
    
    granting universal use and access to electricity services throughout Brazil; and
    
    modify the bidding process of public service concessions. Structure of the New Electricity Sector As expected the power industry was reviewed by Luiz Inácio Lula da Silva ́s
new administration and it was subject to significant changes. On March 16,
2004, Law N° 10,848, legislation which reformed the Brazilian electricity
sector, was enacted. The law will be implemented by means of decrees and
resolutions that will regulate the Brazilian electricity market and will
determine, among other things, how inherent risks will be distributed among the
different market participants (e.g. hydrological risk, market variation and
account receivables). The new electricity sector will establish a larger participation of the
Brazilian Government in the electricity sector, since the new law was created
(i) to regulate the purchase and sale of energy, (ii) to increase the
participation of the Federal Government in previously independent institutions
(for example, Operador Nacional do Sistema Elétricos, or ONS); and (iii) to
reduce ANEEL ́s role in regulating the electric sector, indicating that ANEEL
would be simply a management and controlling institution. The new electricity
sector maintains the State role as an investor and interrupts the privatization
of the public corporations. An analysis of both the laws and the prevailing technical documents
reveals that the new electricity sector contemplates the existence of a totally
competitive generation framework. In this competitive generation framework
there are two contracting modes, one that is unregulated and applies to free
clients and traders and one that is regulated and applies to distribution
companies and traders. In the regulated mode, distributers may participate
solely through auctions and traders may participate solely through adjusted
contracts with distributers. The objective of the new electricity sector are to obtain the lowest
tariffs compatible with any given service standard and to guarantee the
expansion of the system. For regulated customers, the new electricity sector
considers forward market contracts with terms of five years and for the medium
to long term customers, the new electricity sector considers contracts with
terms of 3 to 35 years. The new electricity sector also assumes centralized
planning of generation and transmission acitivities, which is exercised by the
government through EPE. The main changes introduced by the new electricity sector are the
following: The first major change of the new electricity sector is the institution of
a regulated contracting market, which will be more limiting than the existing
free contracting market. In the regulated contracting market electricity
supply prices will be established through a bidding process. Only distributors
and energy traders will be allowed to act in the regulating contracting market.
By contrast, in the free contracting market, power supply prices were freely
negotiated and generators negotiated directly with the free consumers and
energy traders. As a result of the regulated contracting market, the contracts
of CIEN and CDSA may be affected, especially those with CIEN, since our
contract prices are favorable and it will likely be difficult for CIEN to
negotiate prices and freely enter into contracts with customers. The second major change in the electricity sector is the separation of the
bidding process for existent power and new project
power. Power plants
that were in existence prior to 2000 are considered existent power and those
that were developed after 2000 are considered new project power. Cachoeira
Dourada is considered an existent power and CIEN is considered a new project
power. The government believes that existing power plants are able to provide
power at more competitive prices, and therefore it should give priority in the
bidding process to power generated by new project power companies. Under the
new electricity sector, this priority will be in the form of more favorable
contractual terms. For example, a generator considered a new project power is
guaranteed a power purchase agreement with a twenty-year term if it wins the
bidding process, while an existent power is not necessarily even guaranteed
participation in the bidding process. Brazil has an excess supply of energy,
and therefore existent power generators are adversely affected by the priority
given to the new project power. 57




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The third important change in the electricity framework is the creation of
new sector agents, like Empresa de Pesquisa Energética(Power Research
Company), or EPE, bound to Ministry of Mines and Energy. EPE will have the
objective of researching the Brazilian Power Sector Planning. Other new sector
agents will be the Câmara de Comercialização de Energia Elétrica(Power
Commercialization Chamber), or CCEE, which will be the MAEs substitute in
contract administration and monitoring contractual warranties; and Comitê de
Monitoramento do Setor Elétrico(Monitoring Committee of the Electricity
Sector) or CMSE, which will monitor and evaluate the safety and security in the
energy supply industry. The fourth important change in the electricity sector will be the
separation of the sector activities by forbidding distribution companies from
performing generation and transmission activities. This prohibition on
vertical integration in the electricity sector affects Cerjs generation
activities and its ownership participation in Coelce through Investluz. Finally, the contracts in effect at the time of the enactment of the law
will be respected, but amendments changing term, price and quantities to the
mentioned contracts is forbidden. Distribution Pricing The Concession Law establishes three kinds of revisions related to the
energy supply to final consumers. These are: Annual Tariff Resetting, Ordinary
Tariff Revision and Extraordinary Tariff Revisions. Annual Tariff Resetting Distribution company pricing during a first period that ends in 2003 aims
to maintain constant a concessionaires operating margins by:  
    
    allowing for tariff increases related to costs beyond managements
control; and
    
    permitting the concessionaire to retain any efficiencies achieved,
such as energy loss reductions, for defined periods of time, beyond
which such efficiencies are expected to be transferred to the final
consumer. The tariff formula presupposes that the company is breaking even at the
time that it was purchased by the consortium and that revenues are exactly
sufficient to cover the costs of the concessionaire. Costs are divided into
two broad categories: those over which management has an influence, such as
wages, or VPB, and those over which management does not have an influence, or
VPA. Since the tariff formula presupposes a break-even equilibrium, VPB costs,
in contrast, are defined as the difference between revenues and VPA costs. In
practice, the financial losses which result from increases between tariff
settings of the VPA costs were at first difficult to transfer to final
distribution tariffs. The problem has been partially solved with the creation
of a compensatory tracking account. The tariff adjustment formula that applies
to Cerj for the first seven years since its purchase keeps VPA costs as
actually incurred, indexes VPB by inflation, and divides the sum of those two
components for the following year by annual revenues for the previous year,
assuming constant demand in each year. The established convention for annual
revenues is the aggregate of the last 12 months revenues as accounted for in
the companys books. Every year within a tariff-setting period, the parameters
of the formula are updated to arrive at break-even equilibrium for the previous
year. Application of this tariff formula to Cerj resulted in nominal local
currency increases of 24.0% for the 1999-2000 period, 17.6% for 2001, 18.6% as
of January 2002 and 28.6% as for January 2003. For Coelce, the tariff adjustments in nominal local currency have been
10.6% for 1997, 11.4% for 1999, 11.3% in 2000, 15.0% for 2001 and 14.3% for
2002. Ordinary Tariff Revision A tariff revision is different than a tariff resetting because a tariff
revision takes into account the entire tariff setting structure of the company,
including the costs of providing services, the costs of purchasing energy and
the remuneration of the investor. During 2002, the ANEEL established, through
resolution No. 493, a methodology to determine the asset base to be
remunerated. This asset base consists of the market value of the assets or the
replacement value of the depreciated assets during their useful life from an
accounting point of view. 58




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During 2003, ANEEL set the rate of return for the distribution assets
based on the use of weighted average cost of capital, or WACC, on a model
company, considering efficient capital costs of equity, debt and an efficient
leverage level. The operating and maintenance costs that are reflected in the
tariff are calculated based on the model company that considers the unique
characteristics of the concession area for each distributor. Coelce had its first ordinary tariff revision adjustment on April 22,
2003. For 2003, the ordinary tariff revision for Coelce was a 31.3% increase.
Cerj had its first ordinary tariff revision adjustment on December 31, 2003.
For 2003, the ordinary tariff revision for Cerj was a 15.5% increase.
Beginning in 2004, tariffs will be recalculated every five years for Cerj and
every four years for Coelce. Although the companies have already readjusted their tariffs in the recent
tariff revisions, the results of the tariff revision process is still
provisory, since the final value recognized for the basis of definitive
compensation and the quota of regulatory reintegration still needs to be
determined. These pending issues will be resolved in the next tariff setting
process. Extraordinary Tariff Revision The Concessions Law guarantees an economic and financial equilibrium for a
company in the event that there is a substantial change in its operating cost. In the event that VPA, the cost components over which management does not
exert influence (such as energy purchases and taxes) increases significantly
within the period between two annual tariff adjustments and the concessionaire
makes a formal request, ANEEL may permit those costs in the tariff to be
charged by the distribution company to be adjusted. ANEELs Resolution 22, of
February 1, 2001 sets forth formulas that limit the transfer to the
distribution tariff due to costs associated with the purchase of energy from
the IPPs and concessionaries, at market prices. Under the resolution, a VN
(normative value) is defined by ANEEL by taking into account the power purchase
agreements executed by the IPPs or concessionaires and the distribution
companies. Such VN will constitute the limit of energy costs permitted to be
transferred to the distribution tariff from time to time. Concessions Under the current Brazilian Concessions Law, concessions are exclusive
with respect to generation, transmission and distribution assets that, in the
opinion of ANEEL, will permit the concessionaire to recover its investment.
However, trading is permitted subject to payment of tolls. Such time period is
limited to 35 years in the case of concessions for power generation and 30
years in the case of concessions for transmission or distribution. Concessions
may be renewed at the discretion of ANEEL for a period equal to their initial
term. Concessionaires may apply for further extensions, but the terms under
which such extensions may be granted in cases in which the concessionaires may
be deemed to have recovered their investments are unclear under the Concessions
Law. The consortium and the company that were awarded controlling interests in
Cerj and Coelce, respectively, signed 30-year concession agreements with the
Brazilian government for distribution on November 20, 1996 and May 13, 1998,
respectively. The two concession agreements establish the norms applicable for
operations, marketing and purchase of electricity from generation companies.
They also impose certain restrictions on investments to be carried out and
require Cerj and Coelce to participate in certain studies. The concession
agreements establish a mathematical formula for tariffs, taking into
consideration the rights and responsibilities of both the concessionaire and
ANEEL. Subject to the terms of the concession agreements, ANEEL has
substantial discretion to set Cerjs and Coelces tariffs beginning in 2003. Law No 10,848, a legislation reforming the Brazilian electricity sector,
was enacted in March 2004. The law will be implemented by means of decrees and
resolutions that will regulate the whole Brazilian electricity market and will
determine, among other things, how inherent risks will be distributed among the
different market participants (e.g. hydrological risk, market variation and
account receivables) and will prohibit the participation of the distribution
companies in other activities related to electricity, such as generation. This
direct and indirect prohibition on vertical integration in the electricity
sector affects Cerjs limited generation activities and its ownership
participation in Coelce through Investluz. 59




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Concessions for the operation of electrical distribution networks in each
concession area are granted by the MME on an exclusive basis, with the
exception that large users are free to negotiate their supply of electricity
with any generating company, in accordance with Articles 15 and 16 of Law No.
9,074 (1995). Cerj and Coelce are required to supply electricity for public
services at the established prices, on a continuous basis, in sufficient
quantity and within certain standards of quality. The concessions may be
revoked by the MME in the event of non-compliance with certain commercial,
operating and quality standards. The concession agreements also provide for
ANEEL to levy fines and penalties in the event of non-compliance as previously
defined in each concession agreement. Cachoeira Dourada also executed a 30-year generation concession agreement
with the Brazilian government as of September 30, 1997. If a concession is revoked, all the property and the facilities used in
connection with the concession revert to the federal government against payment
of compensation to the electricity utility. Until the end of 2010, electricity
utilities are required to make monthly contributions to the Reserva Global de
Reversão, or RGR, a reserve fund designed to provide funds for such
compensation to such utilities. As disposed on ANEEL  ́s Resolution 23/99 the
monthly contributions are at an annual rate equal to 2.5% of Revertible Assets.
The amount of contributions is capped at an amount equal to 3% of total
revenues. If a concession is revoked or not renewed, the electricity utility
is entitled to receive compensation from the reserve fund in an amount equal to
the value of its Revertible Assets as stated on its balance sheet. Environmental Regulation The Brazilian Constitution gives both the federal and state governments
power to enact laws designed to protect the environment and to issue
regulations under such laws. While the federal government has power to
promulgate environmental regulations, state governments have the power to enact
more stringent environmental regulations. Most of the environmental
regulations in Brazil are thus at the State and local level rather than at the
level of the federal government. We are currently in the process of obtaining
necessary environmental permits for our subsidiaries operating in Brazil. We
are not certain when these permits will be obtained. See the discussion of
revenues from Cerj, our Brazilian distribution company, in Item 5. Results
from Operations for the Fiscal Years Ended December 31, 2002 and December 31,
2003. In Brazil, hydroelectric generation companies are required to obtain the
use of water concessions and environmental approvals, and thermal electricity
generation, transmission and distribution companies are required to obtain
environmental approvals from ANEEL and the environmental regulatory
authorities. Recent Changes in the Tax Law Recent tax changes may affect results of Brazilian operations. On December
29, 2003 the Federal Government issued the Law No. 10.833/03, which establishes
the non-cumulative COFINS, determining a tax credit right for some companies
and increasing the COFINSs rate from 3% to 7.6%. Additionally, according to
this law, the revenues arising from long-term agreements executed before
October 31, 2003 will not be impacted by this new legal framework and will
remain subject to the old one (without tax credit right and with the 3%
COFINS  ́s rate). Cachoeira Dourada is not affected by this new tax because it
is not subject to this tax regime. The majority of CIENs contracts are
long-term agreements signed before October 31, 2003 and will consequently not
be impacted by the new tax. Therefore, we believe this new law will not
strongly affect Endesa-Chiles Brazilian subsidiary and related companies. Another relevant change in tax legislation was the Provisional Measure
164/04, which creates a tax to be applied to imports of movable assets, the
Imports PIS/COFINS, effective as of May 2004. This new rule follows the
general terms and conditions of Law No. 10.833/03 and also foresees the
possibility of a tax credit. The tax rate for Imports PIS/COFINS is 9.25%
(7.6% of COFINS and 1.65% of PIS). As of the date of this annual report, we
have not finished a complete analysis of the impact of this new rule, if
applicable, on our Brazilian operations. Cachoeira Dourada is not involved in
the import of goods and services and therefore is not subject to this tax
regime. However, CIENs main activity is the import of electricity from
Argentina and therefore it could be affected by this 60




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new legislation. Recent Regulatory Developments Minimum Contract Level Rule Resolution No. 511 of 2002 establishes that at least 85% of the energy
sold by the MAE participants to final consumers must be guaranteed by energy
assured from generation facilities or by energy supply contracts with at least
two years of duration in any sub-market and, at least 10% of the energy
consumed by free consumers must be guaranteed by energy assured from generation
facilities or by bilateral contracts of any duration in any sub-market,
totaling 95% of the energy to be sold. Resolution No. 91 of 2003 modifies those limits. The new limits require
that at least 95% of the contract must be guaranteed from generation facilities
for periods over six months. With the enactment of Law N° 10,848, the limits have been increased and
require that the demand from the distribution companies be contracted
completely Intercompany Contracts Approval ANEEL approval is required for related company contracts. The contracts
between companies of the Enersis Group, Cerj-CIEN, Coelce-CIEN,
Coelce-Synapsys, Cerj-Synapsis and Cerj-Cam were approved by ANEEL The modifications to the contract between Cerj and ENERTRADE (subsidiary
of Electricidad de Portugal EDP and shareholder of Cerj) determined by ANEEL
are being questioned in court by ENERTRADE. Colombia Industry Structure The Colombian constitution provides that the government has a duty to
ensure that public services are made available in an efficient manner to all of
the countrys inhabitants. Ley No. 142of 1994, or Law 142, provides the broad
regulatory framework for the provision of residential public services,
including electricity, and Ley No. 143of 1994, or the Colombian Electricity
Law, provides the regulatory framework for the generation, trading,
transmission and distribution of energy. Law 142 establishes that the provision of electricity services is
considered an essential public service that may be provided by public and
private sector entities. Public services companies are required to:  
    
    ensure continuous and efficient service without monopolistic abuse;
    
    facilitate for low-income users access to subsidies granted by the authorities;
    
    inform users regarding efficient and safe usage of the services;
    
    protect the environment;
    
    allow free and indiscriminate access for the transmission and
interconnection to the electric network to other public service
companies, or to their large users;
    
    report the commencement of their activities to the appropriate
regulatory commission and the Superintendencia de Servicios Públicos
Domiciliarios, or the SSPD; and
    
    register as an agent in the wholesale energy market before the
administrator of the Commercial Exchange System (SIC) for generation
and trading. 61




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The Colombian Electricity Law sets out the following principles for the
electricity industry, which are implemented in the resolutions promulgated by
the Comisión de Regulación de Energía y Gas, or CREG, and other regulatory
bodies governing the electricity sector such as the Ministry of Mines and
Energy and the SSPD:  
    
    efficiency (correct allocation and utilization of resources and the
supply of electricity at minimum cost);
    
    quality (compliance with the technical requirements established in regulations affecting the sector);
    
    continuity (a continuous electricity supply without unjustified interruptions);
    
    adaptability (the incorporation of modern technology and
administrative systems to promote quality and efficiency);
    
    neutrality (the impartial treatment of all electricity consumers);
    
    solidarity (the provision of funds by higher-income consumers to
subsidize the subsistence consumption of lower income consumers); and
    
    equity (an adequate and non-discriminatory supply of electricity to
all regions and sectors of the country). Prior to the passage of the Colombian Electricity Law, the Colombian
electricity sector was extensively vertically integrated. The Colombian
Electricity Law separately regulates generation, transmission, trading and
distribution hereinafter referred to as the Activities and, individually, as
Activity. Under this law, any company, domestic or foreign, may undertake any
of the Activities. New companies, however, must engage exclusively in one of
the Activities. Trading can be combined with either generation or
distribution. Companies which were vertically integrated at the time Law 143
became effective may continue to engage in all the Activities in which they
were engaged prior to the effectiveness of Law 143, but must maintain separate
accounting records for each Activity. Pursuant to Resolutions 128 of 1996 and 065 of 1998, effective as of
January 1, 2002, the market share of generation companies, traders and
distributors will be limited as follows:  
    
    a generation company may not own more than 25% of the installed
generating capacity in Colombia;
    
    a trader may not account for over 25% of the trading activity in
the Colombian National Interconnected System, or the Colombian NIS; and
    
    a distributor cannot have more than 25% of the distribution
activity in the Colombian NIS. In order to calculate these limits, the participation of a given company
is added with those of other companies of the same corporate group, of parent
companies, of affiliates and of subsidiaries. In addition effective as of
January 1, 2002, generation companies may not own more than a 25% interest in a
distributor, and vice versa; however, this limitation only applies to
individual companies and does not preclude cross-ownership by companies of the
same corporate group, nor by its parents, affiliates or subsidiaries. In 1999,
CREG issued Resolution 42 which established that no generation company may
increase, directly or indirectly, its participation in the Generation Market
pursuant to acquisitions or mergers, if the total MW of Net Effective Capacity
resulting therefrom exceed the so-called Capacity Band as set by CREG.
Through Resolution 5 of 2002, CREG set the Capacity Band at 4,250 MW. The Ministry of Mines and Energy defines the governments policies for the
energy sector. Other government entities which play an important role in the
electricity industry are:  
    
    SSPD, which is in charge of overseeing and inspecting the companies
incorporated as public services companies;
    
    CREG, which is in charge of regulating the energy and gas sectors;
and
    
    the Unidad de Planeación Minera y Energética(Mining and Energy
Planning Agency), which is in charge of planning the expansion of the
generation and transmission network, among other things. 62




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Under the Colombian Electricity Law, CREG is empowered to issue mandatory
regulations governing the technical and commercial operation of the sector and
the setting of charges for regulated activities. Among such attributions,
CREGs main functions are as follows:  
    
    to establish the conditions for the gradual deregulation of the
electricity sector toward an open and competitive market;
    
    to approve charges for transmission and distribution networks and
charges for trading to regulated customers;
    
    to establish methodology for calculating and establishing maximum
tariffs for supplying the regulated market;
    
    to establish the operations regulations for the planning and
coordination of the operation of Colombian NIS;
    
    to regulate monopolies in public service companies when there is no possibility of competition;
    
    to establish technical requirements for the quality, reliability and security of supply; and
    
    to protect customers rights.
    
    to define agreements in order to promote energy regulation
harmonization between countries directly affected by CAN decision
No 536. CREG resolutions do not require Congressional approval. Law No. 142
establishes that any of CREG Resolutions, which give rise to a right or
obligation of an individual utility, may be contested first through a recurso
de reposición, an appeal filed with CREG which makes a decision or promulgates
an administrative act, requesting reversal, modification or clarification of
its decisions or resolutions; and secondly through lawsuits before the
administrative courts. Resolutions of a general nature may be directly
contested through a lawsuit before an administrative court. CREG also has the
authority to resolve disputes between participants in the electricity and gas
sectors, per their request, through arbitration, when the dispute refers to the
interpretation of operational or commercial rules. In order to supplement the
regulations pertaining to CREGs functioning, and especially in the
determination of voting mechanisms for decision making, a Presidential Decree
was issued, the effect of which is to grant special powers to the Ministry of
Mines and Energy. The Ministry of Mines and Energy may settle ties only in the
case that ties persist after two consecutive occasions. The generation sector is organized on a competitive basis with generation
companies selling their production on the spot market in an energy pool known
as the Bolsa de Energía (the Bolsa) at the spot price or by long-term private
contracts with certain other market participants and non-regulated users at
freely negotiated prices. The Sistema Interconectado Nacional (SIN) is the
Colombian electricity system formed by the following elements: the generation
plants, the interconnection grid, the regional and inter-regional transmission
lines, the distribution lines and the electrical loads of the users. Betania
and Emgesa are part of the SIN. The spot price is the price paid by the
participant in the wholesale market for energy dispatched under the direction
of the Centro Nacional de Despacho (CND). The hourly spot price paid for
energy reflects prices offered by generators in the Bolsa and the respective
supply and demand. Generators connected to the SIN also receive a capacity
charge provided they meet certain conditions established in the CREG Resolution
116 of 1996 (Resolution 116), as amended by Resolution 113 of 1998,
Resolutions 47 and 59 of 1999 and Resolutions 77 and 111 of 2000. The capacity
charge is calculated pursuant to formulas also included in such Resolutions.
Since the creation of the wholesale electricity market in July of 1995,
relatively stable amounts of energy have been exchanged between generators and
distribution companies, acting in their capacity as traders. Initially,
distribution companies were required to enter into contracts to supply 100% of
their unregulated market, and although this requirement has gradually been
reduced, distribution companies have still tended to secure contractors for a
large proportion of their unregulated market. Dispatch and Pricing 63




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The purchase and sale of electricity can take place between generators and
distributors acting in their capacity as traders (who do not generate or
distribute electricity). There are no restrictions limiting new entrants into
the market as long as the participants comply with the applicable laws and
regulations. The principal function of the Bolsa is to allow for the sale of excess
energy not committed under contracts and for spot sales of electricity. Its
operations are similar to the electricity pools which operate in England, Wales
and Argentina. In the Bolsa an hourly spot price for all units dispatched is
established based on the offer price of the highest priced generating unit
dispatched for that period. Every day the CND receives price bids from all the
generation companies that participate in the Bolsa. These bids indicate the
daily prices at which the generators companies are willing to supply
electricity and the hourly available capacity for the following day. Based on
this information, the CND following the principle known as optimal dispatch
(which assumes an infinite transmission capacity through the network) ranks the
generators according to their offer price, starting with the lowest bid,
thereby establishing on an hourly basis the merit order in which generators
would be dispatched in the following day to meet expected demand. The price in
the Bolsa for all generators is set by the costliest generator dispatched in
each hourly period under the optional dispatch. This price ranking system is
intended to ensure that national demand, increased by the total amount of
energy exported to other countries, will be satisfied by the lowest cost
combination of available generating units in the country. During 2003,
international short term electricity transactions were regulated through
Resolution CRED 004, which became effective in March 2003 when electricity
trading with Equador began. Also, the CND performs the planned dispatch,
which takes into consideration the limitations of the network as well as every
other condition necessary to attend energy demands expected for the following
day, in a secure, reliable and cost efficient manner. The planned dispatch is
revised continuously by the CND in response to any changes affecting the system
(e.g., demand, actual plant availability, system restrictions, etc.) that may
take place throughout the day. Differences among real dispatch and optimal dispatch give rise to what
is known as restrictions, which are settled for each generation company in
the following way: restricted generation companies (those whose real
generation is lower than the required dispatch) are charged with the
difference, appraised at its offer price; and out-of-merit generation companies
(those whose real generation is greater than the required dispatch) are
credited with the difference, also appraised at its offer price. The net value
of these restrictions are assigned proportionally to all the traders within the
Colombian NIS, according to their demands of energy. The attacks by guerrillas
on the transmission infrastructure gave rise to a significant increase in
restrictions, which in turn gave rise to claims from users given the subsequent
increase of tariffs. This situation forced CREG to issue Resolution 34 (2001)
and some other amending resolutions, in order to intervene in the settlement of
the restrictions, in such a manner that for the restricted generation
companies, the difference is appraised with the sum of the offer price and the
spot price divided by two. The out-of-merit generation companies have a
maximum cap on the recognized price (i.e. on the credit they can receive for
their supplemental generation). This resolution, which is still in force,
despite the fact that it had been announced as a temporary measure, has been
challenged, and, in certain cases, has resulted in legal proceedings initiated
by the thermal generation companies, who consider that the recognized prices do
not cover the costs associated with these restrictions. The dominance of hydroelectric generation and the marked seasonal
variations in Colombias hydrology result in a high degree of price volatility
in the Bolsa. In order to enhance predictability and mitigate the volatility
of spot sale prices, CREG introduced a new firm capacity charge pursuant to
Resolution 116 (the Capacity Charge), effective as of December 1, 1997,
amended by Resolution 113 of 1998, Resolutions 47 and 59 of 1999 and
Resolutions 77 and 111 of 2000. The Capacity Charge is a fixed monthly charge
intended to be equivalent to the capital costs of an open-cycle gas turbine.
The Capacity Charge remunerates generators for the firm capacity made available
to the SIN in periods of critical hydrology. Generators receive the Capacity
Charge payment regardless of actual plant dispatch, provided that their
declared availability exceeds certain limits and that they meet other
conditions set forth in Resolution 116, as amended. The Capacity Charge
provides generators with a source of fixed revenue which is dependent primarily
on the generators own firm energy. The CND can verify a generators declared
availability and the SSPD can impose sanctions if the actual availability is
lower than the declared availability. If a generators availability is less
than the minimum limit, the generator does not receive the total amount of the
Capacity Charge. If a generators availability is less than the minimum limit during the
dry season, between December 1 and April 30 of each year, the generator only
receives the Capacity Charge equivalent to its actual availability. Also, the 64




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minimum limit for the rainy season (between May 1 and November 30 of each
year) is determined by the lowest value between the minimum limit and the
average actual availability during the dry season. In 2000, Resolution 077 and
111 modified the calculation of the Capacity Charge for generation companies,
shifting the balance in favor of thermal generation companies over
hydroelectric generation companies. The Capacity Charge of a given power plant
is calculated on the basis of the firm energy that could be supplied during a
period of drought assuming hydrological conditions that prevailed during the
El Niño phenomenon that occurred between 1991 and 1992. Pursuant to
Resolution 077 and 111 (2000) the capacity charge of a given power plant is
calculated on the basis of the firm energy that could be supplied during a
hypothetical period that assumes the most severe hydrological conditions. Transmission Tariff Transmission companies (defined as those that operate networks of voltages
of at least 220 kV, which in turn make up the National Transmission System, or
NTS) are required to provide third-party access to the transmission system
under equal conditions and are authorized to collect a tariff for transmission
services. If the parties do not agree upon the conditions of such access, CREG
is entitled to impose an easement of access. The transmission tariff that must
be paid by generation companies, distribution companies and traders is composed
of:  
    
    a connection charge that underwrites the cost of operating the
equipment that links the user to the transmission system, which is not
charged if the generation or distribution company is the owner of the
connecting equipment; and
    
    a usage charge, applicable only to traders, effective January 1,
2002. The NTS regulates income for transmission companies by means of a
guaranteed annual fixed income, subject to the compliance of certain minimum
availability, which is determined by the new replacement value of the networks
and equipment existing as of January 1, 2000, and in the case of new projects,
by the resulting value of the bidding processes awarded for the expansion of
the NTS. Until 2001, the monthly value required in order to compensate
transmission companies within the NTS was allocated as follows: 25% for
generation companies and 75% for NTS traders. Effective January 1, 2002, such
value has been allocated 100% among the traders of the NTS in proportion to the
energy demand registered by all of its clients. According to CREG Resolution 51/98, with the exception of Interconexión
Eléctrica S.A. E.S.P.(the government-owned transmission company), no company
or real beneficiary (i.e. one who benefits substantially from the contracts of
the Public Service Companies, SSPD and CREG) can own more than 25% of the NTS.
Pursuant to Resolution 51/98, the CREG issued Resolution 004/99 which
established that the generation companies, distributors, traders and companies
that are vertically integrated and carry on these activities simultaneously
cannot own more than 15% of the social capital of an existing or future
national transmission company or otherwise control or be under common control
with such a company. The expansion of the NTS is carried out according to model expansion plans
designed by Unidad Planeación Minero-Energética, or UPME, and pursuant to
bidding processes opened to existing transmission companies and new companies
whose sole purpose is the transmission of power, which are handled by the
Ministry of Mines and Energy following the guidelines set forth in CREG
Resolutions 51 of 1998 and 004 of 1999. According to such Resolutions, the
construction, operation and maintenance of new projects is awarded to the
Company that demands the lowest present value of cash flows needed for carrying
out the project. Distribution Distribution is defined as the operation of local networks at below 220
kV. Any user may have access to a distribution network provided the user pays
a connection charge. CREG regulates distribution prices and operations.
Distribution prices should permit distribution companies to recover their
reasonable costs, including operating, maintenance and capital costs. The use
of the system charges, or DUOS charges, for each company is approved by CREG
and varies depending on the voltage level. In June 1998, CREG issued Resolution 70 (1998), also known as the
Distribution Code. The latter determined maximum limits on the frequency and
duration of service disruptions to distribution company users. This 65




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Resolution, as amended, compels companies to compensate users who suffer
disruptions that exceed these maximum limits, valuing energy not delivered at
the rationing cost. In December 2002, CREG enacted resolution 082, which
determines the compensation for distribution activities for a five-year period
ending December 2007. Although the general conception for distribution
compensation is based on an assets replacement cost, particular methodologies
were used depending on asset operating voltage. During 2003, CREG approved distribution tariffs for all companies based on
Resolution 082. Resolutions 071 and 072 involving Codensa  ́s distribution
business were approved on August 2003. These regulations became fully operative
by October 2003, resulting in a tariff improvement of approximately 15%. CREG
has plans to review these rates by 2005. Codensa formally presented to CREG a
proposal to revise the distribution tariffs approved in Resolutions 071 and 072
because of a mistake in the averaging of the companys urban rural
customer-based composition. In addition, Codensa is arguing that these
approved tariffs did not take in account Bogotás high underground network
component built in compliance of municipal regulations. Codensa commenced a
lawsuit before competent authorities for these same reasons on December 2003. Trading Trading is the resale directly to end users of electricity purchased in
the wholesale market and may be conducted by generators, distributors or
independent agents which must comply with the requirements of CREG. The
parties freely agree upon trading prices for deregulated users. Trading to
regulated users is subject to a regulated freedom regime where the tariffs
are set by each trader using the tariff options based on a formula established
by CREG in Resolution 31 (1997) for the 5-year period ending on December 31,
2002; and individual trading costs approved by CREG for each trader. The approved costs are maximum costs. Thus the traders may set tariffs
applying lower costs supported by economic reasons, duly evidenced. Tariffs
include, among other things, the costs for the purchase of electricity by the
trader, transmission charges, distribution charges and a margin to cover the
risks of the activity and the return on the investment. Because CREG did not decide on the new tariff formula to be applied in the
next tariff period, the current methodology remains in effect for 2003. It is
expected that the new tariff formula, the regulated margin for trading
activities and the conditions of competition of the industry will be determined
by the CREG in December 2004. It is expected that the elements in retail trading regulation that grant
artificial competitive advantages to independent traders will be corrected by
the new retail trading scheme. The bulk of National Development Plan regulation
regarding the electric retail business is published in decree 3734, published
by the Ministry of Mines in December 2003. Under this decree, independent
traders are forced to have the same market composition, in terms of average
energy consumption per customer, as the established trading and distribution
company. This decree also imposes an obligation to recognize costs associated
with being the last resort supplier. At a wholesale level, a new long-term
energy supply scheme is under study by CREG. This proposal intends to replace
the existing bilateral contracts with a bid based electronic standardized
contract system. CREG hopes to begin this scheme by the second half of 2004. Environmental Regulation Law No. 99 of 1993 provides the legal framework for environmental
regulation and, among other things, created the Ministry of the Environment as
the authority for establishing environmental policies. Since 1993, Colombia
has experienced a significant expansion in its environmental regulations. Of
particular importance is Law 99 of 1993 which created the Ministry of the
Environment as the supervisory governmental authority in this field, with a
specific focus on the definition, issuance and execution of policies and
regulations seeking the recuperation, conservation, protection, organization,
administration and use of renewable resources. Thus, the use of natural
resources or any impact to them as a result of any activity or project will
require the issuance of permits and environmental licenses or the establishment
of environmental management plans. The law places particular attention on
environmental impact prevention by entities in the energy sector. Any such
entity planning to undertake projects or activities relating to generation,
interconnection, transmission or distribution of electricity which may result
in environmental deterioration, must first obtain an environmental license. 66




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Inspection and Control According to the National Constitution and the Public Utilities Law, the
Superintendency of Public Utilities exercises supervision of public services
companies involved in the aforementioned electricity activities. In 2003, the
Superintendency of Public Utilities implemented a central information system in
order to consolidate all the information of public utilities for both control
and information purposes. Peru Industry Structure The regulatory framework for the electricity industry in Peru was modeled
after the regulatory framework in Chile. Its main regulations are: Law of
Electrical Concessions (Law Decree No. 25,844) and its regulation (Supreme
Decree No. 009-93 EM), Technical Regulation on the Quality of the Electrical
Supply (Supreme Decree No. 020-97 EM), Antitrust Law on the Electrical Sector
(Law No. 26,876) and its regulation (Supreme Decree No. 017-98-ITINCI), Law No.
26,734 which created the regime that supervises Investments in Energy and its
Regulation (Decree No. 54-2001 PCM), in addition to the supplementary Law
27,699 of Organismo Supervisor de la Inversión en Energía,or OSINERG (the
Peruvian regulatory electricity authority), and the regulation for resolution
of controversies that arise within this institution (Resolution No.
0826-2002-OS/CD). Some of the most important characteristics of the regulatory framework for
the electricity industry in Peru are: (i) vertical disintegration, or
separation of the three main activities: generation, transmission and
distribution; (ii) freedom of prices for the supply of energy in competitive
markets, and a system of regulated prices based on the principle of efficiency
(correct allocation and utilization of resources and the supply of electricity
at minimum costs); and (iii) private operation of the interconnected
electricity systems subject to the principles of efficiency and service quality
(compliance with the technical requirements established in regulations
affecting the sector). The electricity sector in Peru consists of one interconnected system, the
Sistema Eléctrico Interconectado Nacional,or the SEIN, plus several isolated
regional and smaller systems which provide electricity to rural areas. In
Peru, the Ministerio de Energía y Minas,or the Ministry of Energy and Mines,
defines energy sector policies, and regulates matters relating to the
environment, and the granting, supervision, maturity and termination of
licenses and concessions for generation, transmission, and distribution
activities, among others. OSINERG is an autonomous public regulatory entity
established in 1996 to control the compliance with legal and technical
regulations related to electrical and hydrocarbon activities, as well as the
conservation of the environment in connection with the development of these
activities. One of OSINERGs functions is the publication of the regulated
tariffs. The Comité de Operación Económica del Sistema,or the COES,
coordinates the dispatch of electricity of Perus SEIN in a manner similar to
the CDECs in Chile and prepares the technical and financial study that serves
as a basis for the semi-annual busbar (i.e., node) tariff calculations. As of October 1997, there are established technical norms against which to
compare the quality and conditions of the service provided by electricity
companies. As of October 1999, those companies that do not meet the minimum
quality standards are subject to fines and penalties imposed by OSINERG, as
well as to compensatory mechanisms for those customers who received substandard
service. Dispatch and Pricing The dispatch methodology and pricing at the generation level in Peru are
virtually identical to the dispatch methodology and pricing in Chile, except
that node prices are referred to as busbar prices in Peru and unregulated
customers in Peru are those with demand for capacity of greater than 1 MW,
whereas in Chile unregulated customers are those with demand for capacity
greater than 2 MW. Supplies for demand capacity lower than 1MW are considered
a public service supply and served by electricity distribution companies. Edelnor, as a distribution company is required to supply electricity
within its concession area for public service supplies at regulated prices on a
continuous basis in sufficient quantity and within certain quality standards.
In addition, it is responsible for supplying electricity for public lighting.
Until December 22, 1999, electricity provided to non-public service customers
was supplied at negotiated prices. Currently, in the case of both electricity
sold to the public and private service customers, the transmission and
distribution tariffs are regulated by OSINERG. 67




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Transmission At the transmission level in Peru, transmission lines are divided into
principal and secondary systems. The principal system lines, all of which form
part of the main grid, are accessible to all generation facilities connected to
the grid and allow electricity to be carried to all customers. The
transmission concessionaire of facilities that form part of the main
transmission system receives tariff revenues and connection tolls reflecting a
charge determined in accordance with the respective concession agreement. The
secondary system lines typically link generation facilities or unregulated
customers with the grid. Distribution Pricing Sales by generation companies to distribution companies of capacity or
energy for resale to regulated customers must be made at busbar prices set by
OSINERG. Busbar prices for capacity and energy are published every six months,
in April and October, and become effective the first day of May and November,
respectively. Busbar prices are the maximum prices for electricity purchased
by distribution companies that can be transferred to regulated customers.
Although these prices are quoted in Peruvian soles, the calculations are mainly
effected in U.S. dollars. Other conditions of distribution pricing are similar
to those in Chile. The electricity tariff for a customer of the Servicio Público de
Electricidad(regulated clients) includes charges for capacity and energy from
generation and transmission (busbar prices) and from the VAD which considers a
regulated return over capital investments, operating and maintenance fixed
charges and a standard for energy distribution losses. Distribution electricity tariffs are set on the basis of voltage levels.
Regulated customers have a range of tariff options that allow them to manage
the charges based on consumption in peak hours (between 6:00 p.m. and 11:00
p.m.) or non-peak hours (all the remaining hours of the day). However, the
majority of the redulated clients of Edelnor are within the tariff category
that simply measures the energy consumed without any reference to capacity or
division of consumption between peak and non-peak hours (Tarifa BT-5).
Regulated customers subject to Tarifa BT-5represented 99.6% of Edelnors
clients and 45.3% of total sales of electricity during 2002. Unregulated
customers can choose to pay for energy consumed or capacity or consumption
distinguishing between peak and non-peak hours, or a combination of these
factors according to stipulations on their contracts. Value Added from Distribution Value Added from Distribution (VAD) includes the following distribution
costs: (a) general, administrative and selling costs; (b) maintenance and
operation costs for distribution equipment; (c) a margin for standard energy
and capacity losses; and (d) a return on investment based on the net
replacement value (VNR in its Spanish acronym) of the equipment used in
distribution. VNR equipment includes costs for renewal of all the
installations and equipment used to provide distribution services, including
intangible assets and working capital. The process to set the VAD gathers distribution companies in groups
hereinafter referred to as Typical Sectors or ST, which are established by The
Ministry of Energy and Mines based on factors such as energy consumer density
or equipment density in the distribution network. Different efficiency
standards are applied depending on the ST. Based on the efficiency standards obtained from a selected real company,
OSINERG chooses a model company for purposes of setting the VAD. A given
distribution companys actual return on investment is dependent on its
performance relative to the standards chosen by OSINERG for the model company.
The tariff system allows for a greater return to distribution companies that
are more efficient than the model company. Once OSINERG has established the performance standards, the distribution
companies retain specialized consultants who perform a parallel tariff study
subject to OSINERG guidelines. Preliminary tariffs established by OSINERG are
tested to ensure that they provide an average real annual internal rate of
return between 8% and 16% on the VNR of assets for the entire distribution
industry. Once the component of the VAD for the tariff has been set, it will remain
in effect for a period of four years unless the adjustment tariff index has
doubled during such period. The VAD index allows adjustments based on 68




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variations on busbar prices and distribution costs, including wages, the
wholesale price index for domestic products, aluminum prices, currency exchange
rates and import duties. The VAD index is adjusted when the underlying
variables in the formula to project the VAD then in effect would result in a
variation in excess of 3%. The current VAD component of the tariff was set in
November 2001. The next VAD setting is expected for November 2005. Concessions Concessions for the operation of distribution networks are granted by the
Ministry of Energy and Mines. Edelnor holds exclusive concessions to
distribute electricity within its concession areas for an indefinite period of
time. The concession areas may be expanded by the holder of the concession
upon prior notice to the Ministry of Energy and Mines every two years. The
concession area may not be reduced without the authorization of the Ministry of
Energy and Mines. The concessions may be revoked by the Ministry of Energy and
Mines in the event of non-compliance with certain commercial operating and
quality standards. Edelnor may give up its concession with one years prior
notice to the Ministry of Energy and Mines. A concession for electricity generation activities is required when a
hydroelectric or geothermal power plant has an installed capacity in excess of
10 MW while an authorization for electricity generation activities is required
when a thermoelectric, hydroelectric or geothermal power plant has an
installed capacity in excess of 500 kW. Neither an authorization nor concession is required for electricity
generation activities when the hydroelectric, geothermal or thermoelectric
power plant has an installed capacity below 500 kW. A concession for electricity generation activities constitutes an
agreement between the generation company and Ministry of Energy and Mines while
an authorization is merely an unilateral permission granted by the ministry.
Authorizations and concessions are granted by the ministry under the procedures
set forth in the Electricity Concessions Law and its regulations and
amendments. Environmental Regulation In Peru, electricity distribution companies are subject to the general
environmental and penal laws which govern environmental matters and to the
Reglamento de Protección Ambiental de las Actividades Eléctricas, a regulation
which specifically governs the protection of the environment by electricity
companies and maximizes the emission standards set from time to time by the
governmental authority. The regulation establishes a number of requirements
that need to be satisfied by electricity companies, including reporting
requirements, environmental audits and record-keeping of emissions. Companies
that do not comply with the regulation are subject to penalties. The
authorities governing environmental matters are the Dirección General de
Asuntos Ambientales, or the General Office of Environmental Matters, which is
dependent on the Ministry of Energy and Mines and OSINERG. Electricity distribution companies that were in operation prior to 1994
are required to have a Programa de Adecuación y Manejo Ambiental,or PAMA, or a
set of environmental compliance standards to conduct their operations within
the maximum allowed limits for gas and liquid emissions and to comply with
environmental regulations. Distribution companies and companies that meet
certain minimum standards set by the applicable laws, that began operations
after 1994, are required to prepare and obtain the approval by the Ministry of
Energy of an environmental impact study that, among others things, meets
certain emission limits and other rules applicable to the company. Changes to Electricity Law The Ministerio de Energía y Minas(the Ministry of Energy and Mines)
announced in recent years its plan with the participation of regulators,
customer representatives and electricity operators who are members of the
Comité de Energía de la Sociedad Nacional de Minería, Petróleo y Energíato
discuss the Reform to the Second Generation of the Electricity Sector and to
set a tentative agenda. However, the reform is advancing at a relatively low
speed and only minor changes have been recently approved. Other Recent Regulatory Changes 69




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Article 176 of Electricity Concession Rules and Regulations was modified
on March 21, 2003 to establish the maximum interest rate that a distribution
company may charge for supplies to regulated consumers that are not paid when
due. Article 180 was also modified on November 13, 2003 to establish the
maximum costs of interruption of supply for public service that OSINERG could
approve. On January 5, 2004, Article 1 and 5 were modified to establish certain
OSINERG functions. Pursuant to Article 1 of Law 26,734, OSINERG will regulate
and supervise the electricity sectors compliance with technical and legal
regulations on public safety. OSINERG will also inform the appropriate entity
or regulator of any violations and sanctions imposed. Principal Subsidiaries and Related Companies The subsidiaries listed in the following table were consolidated by us as
of December 31, 2003. Our economic interest is calculated by multiplying our
percentage ownership interest in a directly held subsidiary by the percentage
ownership interest of any entity in the chain of ownership of such ultimate
subsidiary. As of the date of this annual report, the economic ownership
interest in Cerj and Coelce have changed as described earlier and we no longer
have an economic ownership interest in Río Maipo. All other subsidiaries and
related companies have not changed since December 31, 2003. Consolidated Assets
    
    Operating Income% Economic
    
    of Each
    
    of EachOwnership of
    
    Principal Subsidiary
    
    Principal SubsidiaryPrincipal Subsidiary and
    
    Principal Subsidiary
    
    on a
    
    on aCountry of Operation
    
    by Enersis
    
    Stand-alone Basis
    
    Stand-alone Basis(in billions of Ch$ except percentages)Electricity GenerationEndesa-Chile (Chile)
    
    
    60.0
    %
    
    
    5,465.3
    
    
    
    338.5Electricity DistributionChilectra (Chile)
    
    
    98.2
    %
    
    
    1,063.2
    
    
    
    88.1Edesur (Argentina)
    
    
    65.1
    %
    
    
    762.7
    
    
    
    (5.2
    )Edelnor (Peru)
    
    
    33.4
    %
    
    
    364.7
    
    
    
    26.5Cerj (Brazil)
    
    
    71.8
    %
    
    
    1,076.0
    
    
    
    24.5Coelce (Brazil)
    
    
    29.4
    %
    
    
    783.6
    
    
    
    16.7Codensa (Colombia)
    
    
    21.7
    %
    
    
    1,047.0
    
    
    
    33.7Other BusinessesManso de Velasco (Chile)
    
    
    100.0
    %
    
    
    87.9
    
    
    
    (0.9
    )Synapsis (Chile)
    
    
    100.0
    %
    
    
    24.6
    
    
    
    8.7Cam (Chile)
    
    
    100.0
    %
    
    
    59.5
    
    
    
    13.7
 70




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##### Table of Contents



Business and Subsidiaries Description Enersis controls subsidiaries engaged in the electricity generation and
distribution businesses in South America and wholly owns subsidiaries that
provide support services to related and unrelated companies. The following
chart represents Enersis direct and indirect ownership participation in its
opertaing subsidiaries and affiliates as of December 31, 2003. (FLOW CHART) 71




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##### Table of Contents



D.  Property, plants and equipment. Description of Property In April 2002, Enersis relocated to its new corporate headquarters in
Santa Rosa 76, Santiago, Chile, shared with Endesa-Chile (see further below)
and Chilectra. Additionally, we own 26 administrative properties in Santiago
with a total of 71,454 square meters. We own 437,231 square meters of
electricity transformation installations in the Santiago metropolitan region.
Through Manso de Velasco, we own 22 office buildings and properties in
Santiago, 29 acres of land in a residential area of Santiago, a 9-acre property
in Viña del Mar and a 55% interest in a 2,118 acre plot of land outside of
Santiago. We also have significant interests or control of investments in
electricity distribution companies in Argentina, Brazil, Colombia and Peru. Endesa-Chiles principal properties are its 19 electricity generation
facilities, all of which it owns directly or indirectly. See Table of
Generation Facilities below. In addition, Endesa-Chile owns its 27,793 square
meter headquarters building in Santiago which it shares with Enersis and
Chilectra. A substantial portion of the Endesa-Chiles cash flow and net
income is derived from the sale of electricity produced by its electricity
generation facilities. Significant damage to one or more of Endesa-Chiles
principal electricity generation facilities or interruption in the production
of electricity, whether as a result of an earthquake, flooding, volcanic
activity or other cause, would have a material adverse effect on Endesa-Chiles
operations. Endesa-Chile insures all of its electricity generation facilities
against damage due to earthquakes, fires, floods and other similar occurrences
and from damage due to third-party actions, based on the appraised value of the
facilities as determined from time to time by an independent appraiser. Claims
under Endesa-Chiles insurance policies are subject to customary deductibles
and other conditions. Endesa-Chile also maintains business interruption
insurance providing for coverage for failure of any of its facilities for a
period of up to 18 months, commencing after the deductible period. However, we
cannot be certain that such insurance proceeds would be available on a timely
basis or be sufficient to affect fully any losses. Endesa-Chile also has investments and controls generating companies in
Argentina, Brazil, Colombia and Peru. See Table of Generation Facilities
below. The insurance coverage taken with respect to the generation assets of
these companies is approved by the management of each affiliate, taking into
account the quality of the insurance companies and the needs, conditions and
risk evaluations of each generating facility, and are based on general
corporate guidelines given by Endesa-Chile on this subject. 72




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##### Table of Contents



Table of Generation Facilities Capacity (MW)
    
    Ownership InterestCompany
    
    Location
    
    Facility Name
    
    Type
    
    2002
    
    2003
    
    Endesa-Chile
    
    EnersisCentral Costanera S.A.
    
    Argentina
    
    Costanera steam
    
    Thermoelectric
    
    
    1,131
    
    
    
    1,131
    
    
    
    64.26
    %
    
    
    38.54
    %Central Costanera S.A.
    
    Argentina
    
    Costanera combined
cycle
    
    Thermoelectric
    
    
    851
    
    
    
    851
    
    
    
    64.26
    %
    
    
    38.54
    %Central Costanera S.A.
    
    Argentina
    
    Central Buenos Aires
    
    Thermoelectric
    
    
    320
    
    
    
    320
    
    
    
    64.26
    %
    
    
    38.54
    %Hidroeléctrica El
Chocón
    
    Argentina
    
    Chocón
    
    Hydroelectric
    
    
    1,200
    
    
    
    1,200
    
    
    
    47.45
    %
    
    
    28.46
    %Hidroeléctrica El
Chocón
    
    Argentina
    
    Arroyito
    
    Hydroelectric
    
    
    120
    
    
    
    120
    
    
    
    47.45
    %
    
    
    28.46
    %Centrais Elétricas
Cachoeira Dourada
S.A.
    
    Brasil
    
    Cachoeira Dourada
    
    Hydroelectric
    
    
    658
    
    
    
    658
    
    
    
    92.51
    %
    
    
    55.49
    %C. G. T. Fortaleza
    
    Brasil
    
    C. G. T. Fortaleza
various small
    
    Thermoelectric
    
    
    310
    
    
    
    310
    
    
    
    0.00
    %
    
    
    48.82
    %Cerj
    
    Brasil
    
    facilities
    
    Hydroelectric
    
    
    60
    
    
    
    63
    
    
    
    0.00
    %
    
    
    71.8
    %Endesa-Chile
    
    Chile
    
    Canutillar
    
    Hydroelectric
    
    
    172
    
    
    
    0
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Rapel
    
    Hydroelectric
    
    
    377
    
    
    
    377
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Cipreses
    
    Hydroelectric
    
    
    106
    
    
    
    106
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    El Toro
    
    Hydroelectric
    
    
    450
    
    
    
    450
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Los Molles
    
    Hydroelectric
    
    
    18
    
    
    
    18
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Sauzal
    
    Hydroelectric
    
    
    90
    
    
    
    90
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Isla
    
    Hydroelectric
    
    
    68
    
    
    
    68
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Antuco
    
    Hydroelectric
    
    
    320
    
    
    
    320
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Abanico
    
    Hydroelectric
    
    
    136
    
    
    
    136
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Huasco steam
    
    Thermoelectric
    
    
    16
    
    
    
    16
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Bocamina
    
    Thermoelectric
    
    
    128
    
    
    
    128
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Diego de Almagro
    
    Thermoelectric
    
    
    24
    
    
    
    24
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Huasco gas turbines
    
    Thermoelectric
    
    
    64
    
    
    
    64
    
    
    
    100.00
    %
    
    
    59.98
    %Endesa-Chile
    
    Chile
    
    Taltal
    
    Thermoelectric
    
    
    243
    
    
    
    243
    
    
    
    100.00
    %
    
    
    59.98
    %Pangue S.A.
    
    Chile
    
    Pangue
    
    Hydroelectric
    
    
    467
    
    
    
    467
    
    
    
    94.98
    %
    
    
    56.97
    %Pehuenche S.A.
    
    Chile
    
    Pehuenche
    
    Hydroelectric
    
    
    566
    
    
    
    566
    
    
    
    92.65
    %
    
    
    55.57
    %Pehuenche S.A.
    
    Chile
    
    Curillinque
    
    Hydroelectric
    
    
    89
    
    
    
    89
    
    
    
    92.65
    %
    
    
    55.57
    %Pehuenche S.A.
    
    Chile
    
    Loma Alta
    
    Hydroelectric
    
    
    40
    
    
    
    40
    
    
    
    92.65
    %
    
    
    55.57
    %Compañía Eléctrica
Tarapacá S.A. (Celta)
    
    Chile
    
    Tarapacá
    
    Thermoelectric
    
    
    182
    
    
    
    182
    
    
    
    100.00
    %
    
    
    59.98
    %Compañía Eléctrica
San Isidro
    
    Chile
    
    San Isidro
    
    Thermoelectric
    
    
    379
    
    
    
    379
    
    
    
    75.00
    %
    
    
    44.99
    %Emgesa S.A. E.S.P.
    
    Colombia
    
    Guavío
    
    Hydroelectric
    
    
    1,150
    
    
    
    1,150
    
    
    
    22.37
    %
    
    
    13.42
    %Emgesa S.A. E.S.P.
    
    Colombia
    
    Cadena Nueva
    
    Hydroelectric
    
    
    821
    
    
    
    600
    
    
    
    22.37
    %
    
    
    13.42
    %Emgesa S.A. E.S.P.
    
    Colombia
    
    Termozipa
    
    Thermoelectric
    
    
    223
    
    
    
    223
    
    
    
    22.37
    %
    
    
    13.42
    %Emgesa S.A. E.S.P.
    
    Colombia
    
    Otras
    
    Hydroelectric
    
    
    
    
    
    
    76
    
    
    
    22.37
    %
    
    
    13.42
    %Central
Hidroeléctrica de
Betania S.A. E.S.P.
    
    Colombia
    
    Betania
    
    Hydroelectric
    
    
    540
    
    
    
    540
    
    
    
    85.62
    %
    
    
    51.35
    %Edegel S.A.A.
    
    Perú
    
    Huinco
    
    Hydroelectric
    
    
    247
    
    
    
    247
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Matucana
    
    Hydroelectric
    
    
    129
    
    
    
    129
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Callahuanca
    
    Hydroelectric
    
    
    75
    
    
    
    75
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Moyopampa
    
    Hydroelectric
    
    
    65
    
    
    
    65
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Huampani
    
    Hydroelectric
    
    
    30
    
    
    
    30
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Yanango
    
    Hydroelectric
    
    
    43
    
    
    
    43
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Chimay
    
    Hydroelectric
    
    
    151
    
    
    
    151
    
    
    
    37.90
    %
    
    
    22.73
    %Edegel S.A.A.
    
    Perú
    
    Santa Rosa
    
    Thermoelectric
    
    
    263
    
    
    
    227
    
    
    
    37.90
    %
    
    
    22.73
    %TOTAL
    
    Argentina
    
    
    
    
    
    
    3,622
    
    
    
    3,622Brasil
    
    
    
    
    
    
    1,028
    
    
    
    1031Chile
    
    
    
    
    
    
    3,935
    
    
    
    3,763Colombia
    
    
    
    
    
    
    2,734
    
    
    
    2,589Perú
    
    
    
    
    
    
    1,003
    
    
    
    967
 73




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##### Table of Contents



Environmental Issues The electricity sector is subject to extensive environmental regulations
that require environmental impact studies to be made to obtain approval for
future projects. Enersis subsidiaries have always planned their projects and
operations to meet and comply with the environmental regulations of the various
jurisdictions in which they operate. Major Encumbrances The Banco Estado de Chileloan was used to finance the acquisition of
equipment for the Curillinque Power Plant. To guarantee this loan, Pehuenche
S.A.pledged Ch$12 billion of the acquired equipment. As of December 2003, the
value of the acquired equipment pledge as a guarantee was Ch$9.9 billion. Costanera S.A.has a loan from Mitsubishi Corporation that was used to
invest in Costaneras power plant capacity. On December 31, 2003, the value of
the fixed assets pledged as a guarantee of this loan was Ch$12.6 billion. Pangue S.A.executed the following liens and mortgages, pursuant to the
Agreement on Administration and Distribution of Guarantees of August 18, 1993:
(1) first mortgage on the water rights and real estate on which the power plant
is located; (2) first lien, under Law No. 18,112 on the electricity lines,
machinery and equipment of the power plant; and (3) prohibition to sell,
transfer or encumber such assets, including the definitive concession to
establish the Pangue power plant. The mortgages and their corresponding
prohibitions are registered with the Conservador de Bienes Raícesof Santa
Bárbara. The value of the pledged equipment was Ch$86.2 billion at December
31, 2003. These encumbrances and prohibitions guarantee the obligations of
Pangue S.A.with the project lenders: Skandinaviska Enskilda Banken, Export
Development Corporation, Kreditanstalt für Wiederaufbau and Eksportfinans. San Isidro executed a lien for Ch$71.5 billion in connection with
equipment provided by Mitsubishi Corporation. As of December 31, 2003, the
value of the equipment was Ch$80.9 billion. 
 Item 5. Operating and Financial Review and Prospects Introduction We are a holding company that owns and operates electricity generation,
transmission and distribution companies in Chile, Argentina, Brazil, Colombia
and Peru. Substantially all of our revenues, income and cash flow comes from
our subsidiaries and equity affiliates operations in these five countries. Factors such as hydrological conditions, extraordinary actions by
government authorities, regulatory developments and economic conditions in each
country in which we operate are important in determining our financial results.
In addition, our reported results from operations and financial condition are
significantly affected by variations in exchange rates between the U.S. dollar
and the Chilean peso and other currencies of the countries in which we operate.
Such exchange rate variations have a significant non-cash effect due to the
implementation of Chilean GAAPs Technical Bulletin No. 64, Accounting for
Permanent Foreign Investments in connection with the consolidation of the
results of our companies outside of Chile. Lastly, our other critical
accounting policies also have a significant effect on our consolidated results
from operations.  
    
    Hydrological conditions. A substantial portion of our generation
business is dependent upon the hydrological conditions prevailing in
the countries where we operate. Our thermal generators, which are
fueled with natural gas, coal or diesel, are dispatched to cover peaks
in energy demand and any shortfalls of our hydroelectric plants because
of insufficient water resources. The use of fuels for the generation
of electricity results in higher costs of operations that we would not
have to incur otherwise. Accordingly, our results of operation are
adversely affected by low rainfall. In addition, adverse hydrological
conditions at times have led governments to take affirmative steps to
regulate the electricity business. For additional information regarding
the effects of hydrological conditions on our results from operations,
please see
Item 4. Information on the Company Introduction Electricity Generation
Hydrological conditions and rationing decree. 74




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##### Table of Contents




    
    Extraordinary actions by government authorities. Our operations
are materially affected by extraordinary actions taken by the
governments of the countries in which we operate. In the past few years
the results from operations of our Argentine, Brazilian and Colombian
subsidiaries were affected by actions taken by the governments of those
countries. Following are some examples:  
    
    In Argentina, electricity tariffs historically were expressed
in U.S. dollars at an exchange of Ar$1 to US$1. However, following a
devaluation of the Argentine peso against the U.S. dollar from
Ar$1.00 per US$1.00 to Ar$3.37 per US$1.00 as of December 31, 2002,
the Argentine government converted electricity tariffs to Argentine
pesos at the old exchange rate of Ar$1 to US$1. As a result of this
devaluation and the tariff conversion rate dictated by the Argentine
government, the U.S. dollar equivalent of our Argentine revenues
declined significantly.
    
    As a consequence of a severe drought in Brazil, during 2001 and
the first quarter of 2002, the Brazilian government imposed
restrictions limiting the consumption of electricity in certain
provinces where our distribution companies operate. As a result of
these restrictions on electricity consumption our distribution
subsidiaries experienced a reduction in their revenues.
    
    In 2002, the Colombian government imposed an extraordinary tax
to finance Colombias antiterrorist campaign.  
    
    Regulatory developments. The regulatory structure governing our
distribution and generation business has a material effect in our
results from operations. In particular, regulators in the countries in
which we operate set (x) distribution tariffs taking into consideration
the costs of energy purchases paid by distribution companies (which
distribution companies pass on to their customers) and the
Distribution Added Value, or VAD and (y) generation tariffs taking
into consideration principally the costs of fuels, level of reservoirs,
exchange rate, future investments in installed capacity and growth in
demand, all of which is intended to reflect investment and operating
costs incurred by distribution and generation companies and is meant to
allow such companies to earn a regulated level of return on their
investments. Accordingly, the earnings of our electricity subsidiaries
are determined in significant part by the actions of government
regulators. For additional information relating to the regulatory
frameworks in the countries in which we operate, please see Item 4. The
CompanyElectricity Industry Regulatory Framework included in this
annual report.
    
    Economic conditions. Macroeconomic conditions in the countries in
which we operate have a significant effect on our results from
operations. For example, when a country experiences sustained economic
growth, consumption of electricity by industrial and individual
consumers of electricity increases while electricity theft decreases.
Other macroeconomic factors such as a devaluation of the local currency
in the countries in which we operate may have a negative impact in our
results from operations because while most of our revenues are
denominated in the currency of the countries in which we operate, our
financing and significant other costs such as depreciation are
denominated in U.S. dollars. As a result, devaluation of local
currencies against the dollar shrinks our operating margins and
increases the cost of capital expenditure plans. Technical Bulletin No. 64 Our consolidation of the results of our non-Chilean subsidiaries is
governed by Technical Bulletin No. 64. Technical Bulletin No. 64 establishes a
mechanism to consolidate the financial results of a non-Chilean company
prepared in local GAAP and denominated in local currency into the financial
results of its Chilean parent which are prepared in Chilean GAAP and
denominated in Chilean pesos. The implementation of Technical Bulletin No. 64
affects the reporting of our results from operations. In particular, exchange
rate variations, if significant, can materially affect the amounts of operating
revenues and expenses reported in our consolidated financial statements in
Chilean GAAP as well as generate material non-operating gains and losses. Technical Bulletin No. 64Conversion Effect. Technical Bulletin No. 64
requires Enersis to convert the denomination of the financial statements of its
non-Chilean subsidiaries from local currency to U.S. dollars and to restate
such financial statements into Chilean GAAP after such conversion, including by
converting such U.S. dollar 75




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##### Table of Contents



amounts into Chilean pesos. We refer to the gain
or loss resulting of this balance sheet conversion as the conversion effect.
In order to convert monetary assets and liabilities of its non-Chilean
subsidiaries to U.S. dollars, Enersis must use the U.S. dollar/local currency
exchange rate applicable at period-end. In order to convert Enersiss equity
interests in such subsidiaries as well as such subsidiaries non-monetary
assets and liabilities to U.S. dollars, Enersis must use the U.S. dollar/local
currency exchange rate applicable at the time when such equity interests or
non-monetary assets or liabilities were acquired or incurred. In addition,
Technical Bulletin No. 64 requires income and expense accounts (except for the
expenses incurred in connection with depreciation and amortization) of foreign
subsidiaries to be converted into to U.S. dollars at the average exchange rate
of the month during which such results or expenses were recorded. All amounts
converted from local currency to U.S. dollars are then converted from U.S.
dollars to Chilean pesos at the exchange rate applicable at the end of the
reporting period. Technical Bulletin No. 64 may have the effect of excluding
from our reported financial condition the effect on non-monetary assets of
devaluation in the countries in which our subsidiaries and investments are
located. For example, the carrying value of our Argentine and Brazilian
non-monetary assets increased in 2002 notwithstanding the devaluation of
Argentine peso and Brazilian real because these assets are carried at
historical dollar value and the dollar appreciated against the Chilean peso in
2002. The currency conversion from local currencies to U.S. dollars can have
different effects depending on a foreign subsidiarys structure of monetary and
non-monetary assets and liabilities. For example, when a foreign subsidiary
has more monetary assets than monetary liabilities, a devaluation of the
applicable local currency against the U.S. dollar may result in a loss due to
the effects of the currency conversion. On the other hand, the appreciation of
the applicable local currency results in a gain. The reverse is also true for
foreign subsidiaries with more monetary liabilities than monetary assets, where
a devaluation of the applicable local currency against the U.S. dollar may
result in a gain, whereas an appreciation may result in a loss. The recent
fluctuations of the exchange rates between the currencies of the countries
where we operate and the U.S. dollar, as well as in the exchange rate between
the Chilean peso and the U.S. dollar, have materially affected the
comparability of our results from operations during the periods discussed below
because of this conversion effect. Technical Bulletin No. 64Equity Hedge. Technical Bulletin No. 64 allows
U.S. dollar denominated debt incurred in connection with the acquisition of
equity in non-Chilean subsidiaries located in unstable countries, to be hedged
by the investing company against and limited to the book-value of such equity
investments. For purposes of Technical Bulletin No. 64 all the countries where
we have investments  Argentina, Brazil, Colombia and Peru  are considered
unstable countries. This hedge results in the elimination of the effects of
exchange rate variations on the debt incurred in connection with such
investments. If the book-value of an equity investment is lower than the U.S.
dollar denominated debt incurred in connection with its acquisition, the
results of the exchange rate fluctuations affecting the amount of U.S. dollar
denominated debt that is not hedged are included in determining net income. On
the other hand, if the book-value of an equity investment is higher than the
U.S. dollar denominated debt incurred in connection with its acquisition, then
the results of the exchange rate fluctuations affecting the book-value of the
equity that is not hedged are recorded in cumulative translation adjustment in
a reserve account as part of shareholders equity. Critical accounting policies Financial Reporting Release No. 60, which was recently issued by the
Securities and Exchange Commission, encourages all companies to include a
discussion of critical accounting policies or methods used in the preparation
of the financial statements. Critical accounting policies are defined as those
that are reflective of significant judgments and uncertainties, which would
potentially result in materially different results under different assumptions
and conditions. We believe that our critical accounting policies in the
preparation of our Chilean GAAP financial statements are limited to the
policies described below. In many cases, Chilean GAAP specifically dictates
the accounting treatment of a particular transaction, with no need for
managements judgment in their application. For a summary of significant
accounting policies and methods used in the preparation of the financial
statements, see Note 2 to our consolidated financial statements. Impairment of long-lived assets In accordance with Chilean GAAP, the Company evaluates for impairment the
recoverability of the carrying amount of property, plant and equipment and
other long-lived assets, in relation to the operating performance and 76




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future
undiscounted cash flows of the underlying business. These standards require
that an impairment loss be recognized in the event that facts and circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
Impairment is recorded based on an estimate of future discounted cash flows, as
compared to current carrying amounts. The most significant estimates made in
determining discounted future net cash flow include the selection of
appropriate discount rates and the number of years on which to base the cash
flow projection, as well as appropriate adjustments to historical results for
anticipated operating conditions. As described in greater detail below, these
estimates are subject to meaningful variation from period to period, which
could materially affect our analysis of the impairment of our long-lived
assets. The number of years included in determining discounted cash flow, in our
opinion, is estimable in the case of our generating companies because the
number is closely associated with the useful lives of the plants and their
equipment. These useful lives are readily determinable based on historical
experience and type of power generated. The discount rates used in the
analysis vary by country and fluctuate as economic conditions in these
countries vary, therefore the likelihood of change in estimate in any given
period is high. Adjustments to historical results based on anticipated
operating conditions are estimated in light of the current competitive market
in the countries in which we do business. These conditions change
periodically; therefore, the likelihood of a change in estimate in any given
period is high. On the distribution side of our business, the probability of a change to
the number of years included in discounted cash flow and the discount rate
would be based on the same factors as the generation business. Adjustments to historical results based on anticipated operating
conditions in the distribution business depend on underlying assumptions about
the tariff regulatory scheme to which our distribution companies are subject.
Tariff-setting procedures vary from country to country in the countries in
which we do business. Because underlying economic factors, weather conditions
affecting the availability of power and global prices for fuel used in
producing power may be relatively volatile, it is highly likely that
assumptions about anticipated operating conditions may change significantly
from period to period. Impairment of goodwill Goodwill includes the cost of acquired subsidiaries and equity investees
in excess of the book value of the net assets recorded in connection with
acquisitions. Accounting for goodwill requires management to estimate the
appropriate amortization period and the recoverability of the carrying value of
goodwill. The maximum amortization period under Chilean GAAP is 20 years.
Factors that are considered in estimating the appropriate amortization period
of goodwill include:  
    
    the foreseeable life of the business;
    
    expected actions by competitors and potential competitors; and
    
    legal, regulatory, or contractual provisions affecting the useful life. Estimates of these factors are necessarily uncertain and subject to
change, which could cause our determination of the appropriate amortization
period to change. Under Chilean GAAP, we test goodwill for impairment in the
same way as any other long-lived asset. The likelihood of materially different
reported results under different conditions or assumptions is similar to that
disclosed under Impairment of Long-Lived Assets for both the generation and
the distribution business. Regulatory Asset and Deferred Costs Under Brazilian law Enersis distribution subsidiaries in Brazil have
recognized as of December 31, 2001 a regulatory asset based on extraordinary
tariffs expected to be in effect over a period of approximately three years in
order to allow electricity companies to recover losses experienced during
the period of energy rationing from June 1, 2001 to March 1, 2002. The regulatory asset recorded by the Companys distribution subsidiaries
(Cerj and Coelce) was Ch$32.3 billion and Ch$97.3 billion as of December 31,
2002 and 2001, respectively, and was recorded as revenue during 2002 and 77




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2001.
In order to record this asset, our subsidiaries and other companies in the
Energy Sector have agreed to forfeit any future claim related to the events and
regulations derived from the rationing program and increases through the
extraordinary tariff. Additionally, certain costs, including fuel costs, energy transfer costs,
and generator transmission costs were deferred by Cerj and Coelce for the years
ending December 31, 2001 and 2002, respectively and amounted to Ch$24.0 billion
and Ch$31.8 billion, respectively. These costs will be recovered through
future billings. We assume that the remaining regulatory asset and deferred costs will be
collected through future billings during the established period of recovery.
That assumption is based on an historical analysis of the costs recovered to
date in relation to the period of recovery expired compared to the unrecovered
costs and the period remaining to recover them, assuming these events will
occur ratably over time. Tariff-setting regulation changes could materially
affect our assumptions about recovery. Estimation of fair value of certain energy contracts under U.S. GAAP Certain
of our generation and distribution commodity contracts are
accounted for as derivatives under U.S. GAAP and are required to be accounted for
at fair value. Estimates of fair values of these contracts, for which no quoted prices or
secondary market exists, are made using valuation techniques such as forward
pricing models, present value of estimated future cash flows, and other
modeling techniques. These estimates of fair value include assumptions made by
the Company about market variables that may change in the future. Changes in
assumptions could have a significant impact on the estimate of fair values
disclosed. As a result, such fair value amounts are subject to significant
volatility and are highly dependent on the quality of the assumptions used. Our purchase and sale interconnection contracts are for
periods up to 20 years in complex markets, where no similar-term forward market
information is available. We have estimated the fair values of these
contracts based on the
best information available; however,
with different assumptions regarding interest rates, inflation rates, exchange
rates, electricity rates and cost trends, materially different
fair values could result. As a result, such estimates are highly volatile and
dependent upon the assumptions used. Pension and post-retirement benefits liabilities We sponsor several defined benefit plans for employees. These plans pay
benefits to employees at retirement using formulas based on participants years
of service and compensation. We provide certain additional benefits for
certain retired employees as well. Recorded pensions and other post-retirement benefit liabilities reflect
our best estimate of the future cost of honoring our obligations under these
benefit plans. In accounting for defined benefit plans, actuarial calculations
are made. These calculations contain key assumptions, which include:
employee turnover, mortality and retirement ages, discount rates, expected
returns on assets, future salary and benefit level, claim rates under medical
plans and future medical cost. These assumptions change as market and economic
conditions change and any change in any of these assumptions could have a
material effect on our reported results from operations. Once every three
years we 78




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review the key assumptions used in the determination of the pension
obligation plan assets and net periodic pension cost as prescribed by Technical
Bulletin No. 8. The following table shows the effect of a 1% change in discount rate on
our projected benefit obligation for the periods indicated. Year ended December 31,2002
    
    2003(increase in millions of Ch$)Projected benefit obligation
    
    
    12,990
    
    
    
    15,391
 The following table shows the effect of a 1% change in discount rate on
our accumulated post-retirement benefit obligation for the periods indicated. Year ended December 31,2002
    
    2003(increase in millions of Ch$)Accumulated post-retirement
benefit obligation
    
    
    1,452
    
    
    
    1,312
 SAB 74 Disclosures   New Accounting Pronouncements In October 2002, the EITF reached a final consensus on EITF Issue No.
02-03. Primarily, the final consensus provided for (1) the rescission of the
consensus reached on EITF Issue No. 98-10, (2) the reporting of gains and
losses on all derivative instruments considered to be held for trading purposes
to be shown on a net basis in the income statement, and (3) gains and losses on
non-derivative energy trading contracts to be similarly presented on a gross or
net basis, in connection with the guidance in EITF Issue No. 99-19, Reporting
Revenue Gross as a Principal versus Net as an Agent. The Company adopted the on EITF Issue No. 02-03, as of January 1, 2003 the
adoption of this consensus did not have a material impact on the Companys
consolidated results of operations, cash flows or financial position. In June 2001, the FASB issued SFAS No. 143, which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the related asset retirement costs. The standard
applies to legal obligations associated with the retirement of long-lived
assets that result from the acquisition, construction, development and/or
normal use of the asset. For obligations related to non-regulated operations.
SFAS No. 143 was applicable to the Company on January 1, 2003; the adoption of
this standard did not have a material impact on the companys financial
position. SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities.In April 2003, the FASB issued SFAS No. 149, which
amends and clarifies financial accounting and reporting for derivative
instruments and for hedging activities, including the qualifications for the
normal purchases and normal sales exception, under SFAS No. 133. The amendment
reflects decisions made by the FASB and the DIG process in connection with
issues raised about the application of SFAS No. 133. Generally, the provisions
of SFAS No. 149 are to be applied prospectively for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after
June 30, 2003. SFAS No. 149 provisions that resulted from the DIG process that
became effective in quarters beginning before June 15, 2003 continue to be
applied based upon their original effective dates. The Company adopted the
provisions of SFAS No. 149 on July 1, 2003. Certain modifications and changes
to the applicability of the normal purchase and normal sales scope exception
for contracts to deliver electricity led The Company to re-evaluate its policy
for accounting for forward sales contracts. As a result, The Company elected to
designate substantially all forward contracts to sell power entered into after
July 1, 2003 as cash flow hedges on a prospective basis. Contracts that were
being accounted for under the normal purchases and normal sales exception under
SFAS No. 133 as of June 30, 2003 will continue to be accounted for under such
exception, including following any modifications to these contracts, as long as
the requirements for applying the normal purchases and normal sales exception
are met. On June 25, 2003, the FASB cleared the guidance contained in DIG Issue
C20, Scope Exceptions: Interpretation of the Meaning of Not Clearly and
Closely Related in Paragraph 10(b) regarding Contracts with a Price Adjustment
Feature. DIG Issue C20, which applies only to the guidance in paragraph 10(b)
of FASB No. 133 and not in reference to embedded derivatives, describes
circumstances in which the underlying in a price adjustment clause incorporated
into a contract that otherwise satisfies the
requirements for the normal purchases and normal sales exception would be
considered to be not clearly and closely related to the asset being sold or
purchased. The guidance in DIG Issue C20 was effective for the Company on July
1, 2003. The Companys review of existing contracts designated as normal
purchases and normal sales under FASB No. 133 yielded no instances where an
embedded price adjustment clause was not clearly and closely related to the
contracts underlying. As a result, this issue did not have a material impact
on The Companys consolidated results of operations, cash flows or financial
position. EITF Issue No. 01-08, Determining Whether an Arrangement Contains a
Lease.In May 2003, the EITF reached consensus in EITF Issue No. 01-08 to
clarify the requirements of identifying whether an arrangement should be
accounted for as a lease at its inception. The guidance in the consensus is
designed to broaden the scope of arrangements accounted for as leases. EITF
Issue No. 01-08 requires both parties to an arrangement to determine whether a
service contract or similar arrangement is, or includes, a lease within the
scope of SFAS No. 13, Accounting for Leases. The Company has historically
entered into pipeline and electricity capacity agreements both as the lessee
and as a lessor. Upon application of EITF Issue No. 01-08, the accounting
requirements under the consensus may impact the timing of revenue and expense
recognition, and amounts previously reported as revenues may be required to be
reported as rental or lease income. Should capital lease treatment be
necessary, purchasers in the arrangements are required to recognize assets on
their balance sheets. The consensus will be applied for the Company
prospectively to arrangements agreed to, modified, or acquired in business
combinations on or after January 1, 2004. Previous arrangements that would be
leases or would contain a lease according to the consensus will continue to be
accounted for under historical accounting. The adoption of EITF Issue No. 01-08
would not have a material effect on the Companys consolidated results of
operations, cash flows or financial position. EITF Issue No. 03-11, Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, and Not Held for Trading
Purposes.In July 2003, the EITF reached consensus in EITF Issue No. 03-11
that determining whether realized gains and losses on derivative contracts not
held for trading purposes should be reported on a net or gross basis is a
matter of judgment that depends on the relevant facts and circumstances and the
economic substance of the transaction. In analyzing the facts and
circumstances, EITF Issue No. 99-19, and Opinion No. 29, Accounting for
Nonmonetary Transactions, should be considered. EITF Issue No. 03-11 was
effective for transactions or arrangements entered into after December 31,
2003. The adoption of EITF Issue No. 03-11 would not have a material effect on
The Companys consolidated results of operations, cash flows or financial
position. Revised SFAS No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits.In December 2003, the FASB revised the provisions
of SFAS No. 132 to include additional disclosures related to defined benefit
pension plans and other defined benefit postretirement plans, such as the
following: (1) long-term rate of return on plan assets along with narrative
discussion of basis for selecting the rate of return used; (2) information
about plan assets for each major asset category (i.e. equity securities, debt
securities, real estate, etc) along with the targeted allocation percentage of
plan assets by each major asset category and the actual allocation percentage
at the measurement date; (3) amount of benefit payments expected to be paid in
each of the next five years and the following five year period, in the
aggregate; (4) current best estimate of range of contributions expected to be
made in following year; (5) the accumulated benefit obligation for defined
benefit pension plans; and (6) disclosure of measurement date utilized. The
provisions of revised SFAS No. 132 do not change the measurement or recognition
provisions of defined benefit pension and postretirement plans as required by
previous accounting standards. Except as discussed below, the provisions of
revised SFAS No. 132 are effective for fiscal years ending after December 15,
2003 (December 31, 2003 for calendar-year entities). The disclosure provisions
of estimated future benefit payments and information about foreign plans are
effective for fiscal years ending after June 15, 2004 (December 31, 2004 for
the Company). See Note 37 II (l) for additional disclosures required as of
December 31, 2003. FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities.In January 2003, the FASB issued FIN 46 which requires the
primary beneficiary of a variable interest entitys activities to consolidate
the variable interest entity. FIN 46 defines a variable interest entity as an
entity in which the equity investors do not have substantive voting rights and
there is not sufficient equity at risk for the entity to finance its activities
without additional subordinated financial support. The primary beneficiary is
the party that absorbs a majority of the expected losses and/or receives a
majority of the expected residual returns of the variable interest entitys
activities. In December 2003, the FASB issued FIN 46R, which supercedes and
amends certain provisions of FIN 46. While FIN 46R retains many of the concepts
and provisions of FIN 46, it also provides additional guidance related to the
application of FIN 46, provides for certain additional scope exceptions, and
incorporates several FASB Staff Positions issued related to the application of
FIN 46. The provisions of FIN 46 are immediately applicable to variable interest
entities created, or interests in variable interest entities obtained, after
January 31, 2003 and the provisions of FIN 46R are required to be applied to
such entities, except for special purpose entities, by the end of the first
reporting period ending after March 15, 2004 (December 31, 2004 for The
Company). For variable interest entities created, or interests in variable
interest entities obtained, on or before January 31, 2003, FIN 46 or FIN 46R is
required to be applied to special-purpose entities by the end of the first
reporting period ending after December 15, 2003 (December 31, 2003 for
calendar-year entities) and is required to be applied to all other non-special
purpose entities by the end of the first reporting period ending after March
15, 2004 (December 31, 2004 for calendar-year entities). FIN 46 and FIN 46R may
be applied prospectively with a cumulative-effect adjustment as of the date it
is first applied, or by restating previously issued financial statements with a
cumulative-effect adjustment as of the beginning of the first year restated.
FIN 46 and FIN 46R also require certain disclosures of an entitys relationship
with variable interest entities. The Company has not identified any material variable interest entities created,
or interests in variable entities obtained, after January 31, 2003 which
requires consolidation or disclosure under FIN 46 and continues to assess the
existence of any interests in variable interest entities created on or prior to
January 31, 2003. The Company continues to assess the provisions and perform
their analysis of the impact FIN 46R that would be applicable to the company
for periods starting on January 1, 2004 but does not anticipate that it will
have a material impact on its consolidated results of operations, cash flows or
financial position. Change in Presentation We have changed the presentation of our operating revenues and costs by
business unit from that in our annual report on Form 20-F for the year ended
December 31, 2002 by presenting operating revenues and costs of each of our
business units without consolidation adjustments and presenting aggregate
consolidation adjustments as a separate line item. Prior to this annual Report
on Form 20-F for the year ended December 31, 2003, we presented each business
units operating revenues and expenses net of consolidation expenses.  A.
    
    Operating results. Enersiss Results From Operations for the Years Ended
December 31, 2002 and December 31, 2003 Overview Our 2003 results, when compared to those of 2002, were mainly affected by
the following factors:  
    
    our operating income amounted to Ch$531.1 billion for the year
ended December 31, 2003, which represents a decrease of Ch$6.9 billion
, or 1.3%, compared to the same period in 2002. The decrease was mainly
due to the accounting effect under Technical Bulletin No. 64 of the
appreciation of the Chilean peso against the U.S. dollar and the
deconsolidation of Río Maipo and Infraestructura 2000. If we eliminate
the negative impact of the appreciation of the Chilean peso during
2003, our operating income would have increased by 8.2%. If we
eliminate the effect of the deconsolidation of Río Maipo and
Infraestructura 2000, as well as the effect of the appreciation of the
Chilean peso against the U.S. dollar, operating income would have
increased by 12.4%, for the reasons explained below. We believe that
it is helpful to eliminate the effects of the deconsolidation of Río
Maipo and Infraestructura 2000 and of the appreciation of the Chilean
peso in order to understand the underlying trend in our operating
income. For a reconciliation of these non-GAAP measures to Chilean
GAAP, see Reconciliation of non-GAAP measures to Chilean GAAP below.
    
    our non-operating expenses amounted to Ch$449.9 billion for the
year ended December 31, 2003, which represents a decrease of Ch$354.6
billion, or 44.1%, compared to the same period in 2002. This decrease
in expenses is mainly explained by the non-recurrence of Ch$446.9
billion in write-offs in December 2002 of goodwill arising from our
investments in Argentina and Brazil. The effects of Technical Bulletin
No. 64 in 79




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our non-operating expenses decreased from Ch$181.8 billion of
gains arising from the conversion effect discussed above during 2002 to
Ch$67.5 billion of losses from that effect during 2003, mainly due to
the fluctuations of the Brazilian real and the Argentine peso against
the U.S. dollar during 2002 and 2003; and  
    
    our amortization of negative goodwill decreased to Ch$51.2 billion
for the year ended December 31, 2003, which represents a decrease of
Ch$62.2 billion, or 54.9%, compared to the same period in 2002. This
decrease is mainly explained by the write-off of negative goodwill
arising from our investments in Argentina and Brazil in December 2002,
which did not occur again in 2003. The Chilean peso depreciated 6.5% in 2002 and appreciated 18.2% against
the U.S. dollar during 2003. We have described the effects of the Chilean peso
appreciation during 2003 in our analysis comparing our results of operations of
2002 and 2003. We have not included the same detailed information in our
analysis comparing our results of operations of 2002 and 2001 because the
effect of the Chilean peso depreciation during 2002 was not material. Operating income The table below breaks down operating income by country for the years
ended December 31, 2002 and 2003. Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    98,568
    
    
    
    88,051
    
    
    
    (10,517
    )
    
    
    (10.7
    )%Non-electricity subsidiaries (Chile)(1)
    
    
    3,688
    
    
    
    7,803
    
    
    
    4,115
    
    
    
    111.6
    %Total operating income, Chile except
generation business (Endesa-Chile)
    
    
    102,256
    
    
    
    95,854
    
    
    
    (6,402
    )
    
    
    (6.3
    )%Edesur (Argentina)
    
    
    (12,865
    )
    
    
    (5,247
    )
    
    
    7,618
    
    
    
    (59.2
    )%Distrilima/Edelnor (Peru)
    
    
    33,220
    
    
    
    26,533
    
    
    
    (6,687
    )
    
    
    (20.1
    )%Cerj (Brazil)
    
    
    20,609
    
    
    
    24,513
    
    
    
    3,904
    
    
    
    18.9
    %Investluz/Coelce (Brazil)
    
    
    24,232
    
    
    
    19,684
    
    
    
    (4,548
    )
    
    
    (18.8
    )%Luz de Bogota/Codensa (Colombia)
    
    
    21,582
    
    
    
    30,617
    
    
    
    9,035
    
    
    
    41.9
    %Total operating income, excluding Chile and
generation business
    
    
    86,778
    
    
    
    96,100
    
    
    
    9,322
    
    
    
    10.7
    %Endesa-ChileOperating Income (Chile)
    
    
    172,500
    
    
    
    155,260
    
    
    
    (17,240
    )
    
    
    (10.0
    )%Operating Income (Argentina)
    
    
    12,725
    
    
    
    32,313
    
    
    
    19,588
    
    
    
    153.9
    %Operating Income (Colombia)
    
    
    76,129
    
    
    
    85,984
    
    
    
    9,855
    
    
    
    12.9
    %Operating Income (Brazil)
    
    
    17,151
    
    
    
    3,657
    
    
    
    (13,494
    )
    
    
    (78.7
    )%Operating Income (Peru)
    
    
    71,182
    
    
    
    61,297
    
    
    
    (9,885
    )
    
    
    (13.9
    )%Endesa-Chiles total operating income
    
    
    349,687
    
    
    
    338,511
    
    
    
    (11,176
    )
    
    
    (3.2
    )%Less: intercompany transactions
    
    
    (749
    )
    
    
    634
    
    
    
    1,383
    
    
    
    n.a.Total operating income
    
    
    537,971
    
    
    
    531,099
    
    
    
    (6,872
    )
    
    
    (1.4
    )%
   (1)
    
    Includes operating revenues of Compañía Americana de Multiservicios
Ltda., Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de
Velasco Limitada and Holding Enersis y Soc. de Inv. The table below breaks down operating income by segment for the years
ended December 31, 2002 and 2003. 80




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Year ended December 31,(in million of Ch$)Generation
    
    Distribution
    
    Other
    
    Intercompany Transactions
    
    Total2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003Operating revenues
    
    
    906,504
    
    
    
    896,228
    
    
    
    1,779,732
    
    
    
    1,603,848
    
    
    
    201,705
    
    
    
    176,720
    
    
    
    (377,209
    )
    
    
    (324,462
    )
    
    
    2,510,732
    
    
    
    2,352,333Operating costs
    
    
    (532,134
    )
    
    
    (529,762
    )
    
    
    (1,412,284
    )
    
    
    (1,282,694
    )
    
    
    (148,167
    )
    
    
    (134,475
    )
    
    
    345,234
    
    
    
    295,199
    
    
    
    (1,747,351
    )
    
    
    (1,651,732
    )Operating margin
    
    
    374,370
    
    
    
    366,466
    
    
    
    367,448
    
    
    
    321,154
    
    
    
    53,538
    
    
    
    42,245
    
    
    
    (31,975
    )
    
    
    (29,264
    )
    
    
    763,381
    
    
    
    700,601Selling and
administrative
expenses
    
    
    (34,382
    )
    
    
    (30,261
    )
    
    
    (182,118
    )
    
    
    (137,003
    )
    
    
    (40,137
    )
    
    
    (32,136
    )
    
    
    31,227
    
    
    
    29,897
    
    
    
    (225,410
    )
    
    
    (169,503
    )Operating income
    
    
    339,988
    
    
    
    336,205
    
    
    
    185,330
    
    
    
    184,151
    
    
    
    13,401
    
    
    
    10,109
    
    
    
    (749
    )
    
    
    633
    
    
    
    537,971
    
    
    
    531,098
 In 2003, our operating income decreased Ch$6.8 billion, or 1.3%, to
Ch$531.1 billion. This decrease reflects the effect of the appreciation of the
Chilean peso against the U.S. dollar and the deconsolidation of Río Maipo and
Infraestructura 2000, offset in part by increased volumes of electricity sold
and price increases in some of the markets in which we operate. If we
eliminate the effect of the appreciation of the Chilean peso against the U.S.
dollar and the deconsolidation of Río Maipo and Infraestructura 2000 our
operating income would have increased 12.4% year on year, or 8.2% if we
eliminate only the effect of appreciation of the Chilean peso. We believe that
it is helpful to eliminate the effects of the deconsolidation of Río Maipo and
Infraestructura 2000 and of the appreciation of the Chilean peso in order to
understand the underlying trend in our operating income. For a reconciliation
of these non-GAAP measures to reported Chilean GAAP amounts please see
Reconciliation of non-GAAP measures to Chilean GAAP below. Operating income in our subsidiaries Codensa, Cerj, Edesur, Synapsis and
CAM increased while that of our subsidiaries Endesa-Chile, Edelnor, Coelce and
Inmobiliaria Manso de Velasco decreased. Physical sales in our distribution business increased from 48,953 GWh as
of December 31, 2002 to 49,677 GWh as of December 31, 2003, or 1.7%. In
addition, physical sales in our generation business also increased from 48,629
GWh as of December 31, 2002 to 51,053 GWh as of December 31, 2003, or 5.0%.
These increases are mainly due to economic recovery in most of the countries in
which we operate. Our customer base increased 5.1% from 9.98 million as of
December 31, 2002 to 10.48 million as of December 31, 2003. This amounts to
0.5 million new clients. Our 2003 operating income also benefited from
distribution tariff increases in Brazil and Colombia, which are discussed in
greater detail below in Operating Revenues, and improved margins in Argentina
due to high levels of rainfall, which allowed more electricity to be dispatched
from our hydroelectric generation subsidiary, El Chocón. Our operating margin as a percentage of revenues decreased slightly from
30.4% in 2002 to 29.8% in 2003, reflecting a decline in operating margin in
Brazil. Revenues from operations Our revenues from operations are derived principally from electricity
generation and distribution. Generation revenues are derived mainly from the
sale of electricity. Electricity distribution operating revenues consist of
resale of electricity and Value Added from Distribution, or VAD, revenues.
Resale of electricity revenues consist of revenues related to the recovery of
the cost of wholesale electricity purchased from electricity generation
companies. VAD revenues consist of revenues related to the recovery of costs
and return on investment associated with distribution assets and allowed losses
under the current tariff regulations. Other revenues derived from our
distribution services consist of charges related to new connections and
maintenance and leases of meters. The table below presents, for the periods indicated, the breakdown of
physical sales of electricity by our distribution subsidiaries and percentage
changes from period to period. 81




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##### Table of Contents



Distribution Business Physical sales duringYear ended December 31,2002
    
    2003
    
    Change
    
    % Change(GWh)ChileChilectra
    
    
    9,952
    
    
    
    10,518
    
    
    
    566
    
    
    
    5.7
    %Río Maipo
    
    
    1,274
    
    
    
    0
    
    
    
    (1,274
    )
    
    
    n.a.Argentina(1)
    
    
    12,138
    
    
    
    12,638
    
    
    
    500
    
    
    
    4.1
    %Peru
    
    
    3,872
    
    
    
    3,972
    
    
    
    100
    
    
    
    2.6
    %Brazil
    
    
    12,703
    
    
    
    13,295
    
    
    
    592
    
    
    
    4.7
    %Colombia(1)
    
    
    9,014
    
    
    
    9,254
    
    
    
    240
    
    
    
    2.7
    %Total
    
    
    48,953
    
    
    
    49,677
    
    
    
    724
    
    
    
    1.48
    %
   (1)
    
    Includes sales of third party energy for which we are paid transmission
tolls. The table below presents, for the periods indicated, the breakdown of
physical sales of electricity by our generation subsidiaries and percentage
changes from period to period. Generation Business Physical sales duringYear ended December 31,2002
    
    2003
    
    Change
    
    % Change(GWh)Chile
    
    
    18,344
    
    
    
    18,681
    
    
    
    337
    
    
    
    1.8
    %Argentina
    
    
    7,897
    
    
    
    9,259
    
    
    
    1,362
    
    
    
    17.2
    %Peru
    
    
    4,158
    
    
    
    4,443
    
    
    
    285
    
    
    
    6.9
    %Brazil
    
    
    3,591
    
    
    
    3,770
    
    
    
    179
    
    
    
    5.0
    %Colombia
    
    
    14,639
    
    
    
    14,900
    
    
    
    261
    
    
    
    1.8
    %Total
    
    
    48,629
    
    
    
    51,053
    
    
    
    2,424
    
    
    
    5.0
    %
 The table below presents, for the periods indicated, the breakdown of our
operating revenues and percentage changes from period to period. Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    459,153
    
    
    
    426,823
    
    
    
    (32,330
    )
    
    
    (7.0
    )%Non-electricity subsidiaries (Chile)(1)
    
    
    160,730
    
    
    
    152,667
    
    
    
    (8,063
    )
    
    
    (5.0
    )%Total operating revenues, Chile except
generation business
    
    
    619,883
    
    
    
    579,490
    
    
    
    (40,393
    )
    
    
    (6.5
    )%Edesur (Argentina)
    
    
    201,473
    
    
    
    183,942
    
    
    
    (17,531
    )
    
    
    (8.7
    )%Distrilima/Edelnor (Peru)
    
    
    205,670
    
    
    
    175,947
    
    
    
    (29,723
    )
    
    
    (14.5
    )%Cerj (Brazil)
    
    
    348,613
    
    
    
    317,593
    
    
    
    (31,020
    )
    
    
    (8.9
    )%Investluz/Coelce (Brazil)
    
    
    230,002
    
    
    
    207,387
    
    
    
    (22,615
    )
    
    
    (9.8
    )%Luz de Bogotá/Codensa (Colombia)
    
    
    334,820
    
    
    
    292,155
    
    
    
    (42,665
    )
    
    
    (12.7
    )%Total operating revenues, excluding Chile
and generation business
    
    
    1,320,578
    
    
    
    1,177,024
    
    
    
    (143,554
    )
    
    
    (10.9
    )%Endesa-ChileSales of electricity (Chile)
    
    
    408,740
    
    
    
    429,149
    
    
    
    20,409
    
    
    
    5.0
    %Sales of electricity (Argentina)
    
    
    99,137
    
    
    
    111,279
    
    
    
    12,142
    
    
    
    12.2
    %Sales of electricity (Colombia)
    
    
    227,539
    
    
    
    208,374
    
    
    
    (19,165
    )
    
    
    (8.4
    )%Sales of electricity (Brazil)
    
    
    51,917
    
    
    
    30,792
    
    
    
    (21,125
    )
    
    
    (40.7
    )%Sales of electricity (Peru)
    
    
    118,031
    
    
    
    110,912
    
    
    
    (7,119
    )
    
    
    (6.0
    )%
 82




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##### Table of Contents



Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Other
    
    
    42,116
    
    
    
    29,776
    
    
    
    (12,340
    )
    
    
    (29.3
    )%Endesa-Chiles total revenues
    
    
    947,480
    
    
    
    920,282
    
    
    
    (27,199
    )
    
    
    (2.9
    )%Less: intercompany transactions
    
    
    (377,209
    )
    
    
    (324,462
    )
    
    
    52,747
    
    
    
    (14.0
    )%Total operating revenues
    
    
    2,510,732
    
    
    
    2,352,333
    
    
    
    (158,399
    )
    
    
    (6.3
    )%
   (1)
    
    Includes operating revenues of Compañía Americana de Multiservicios
Ltda., Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de
Velasco Limitada and Holding Enersis y Soc. de Inv. Distribution business revenues from operations Operating revenues of our Chilean distribution subsidiaries (Chilectra
S.A., or Chilectra, and Río Maipo in 2002, and only Chilectra for 2003)
decreased Ch$32.3 billion, or 7.0%, compared to 2002. This decrease is mainly
explained by the sale of Río Maipo in April 2003. In accordance with Chilean
GAAP, the 2002 period includes the full year of Río Maipo results amounting to
Ch$57.2 billion in consolidated revenues, whereas the 2003 period includes no
results of Río Maipo. This decrease is partially offset by an increase of
Ch$24.9 billion in operating revenues of Chilectra during 2003, mainly due to a
5.7% increase in physical sales from 9,952GWh in 2002 to 10,518 GWh in 2003,
resulting from a 1.7% increase in customers to 1.34 million as of December 31,
2003 and an increase in average per capita consumption of 3.5% compared to the
same period in 2002. The gain from the sale of Río Maipo as well as the
results of Río Maipo as of April 2003 are reflected in Enersis non-operating
income in 2003. Operating revenues from our Argentine electricity distributor, Empresa
Distribuidora Sur S.A., or Edesur, decreased Ch$17.5 billion, or 8.7%, during
2003. This decrease is mainly explained by a negative effect amounting to
Ch$34.6 billion resulting from the appreciation of the Chilean peso against the
U.S. dollar in the periods under comparison and by the reduction of
toll-related revenues during 2003 which decreased Ch$3.5 billion, or 11.8% in
Gwh terms, compared to the same period in 2002. Operating revenues decreased,
despite an increase of 4.1% in physical sales resulting from a 1.3% increase in
customers to 2.12 million as of December 31, 2003 and an increase in average
per capita consumption of 3.44% compared to the same period in 2002. Edesurs
operating revenues as reflected in our consolidated operating revenues under
Chilean GAAP also were positively affected by the appreciation of the Argentine
peso against the U.S. dollar in 2003 compared to 2002. Operating revenues of Distrilima S.A., or Distrilima, our Peruvian
subsidiary that consolidates the electricity distribution company Empresa de
Distribución Eléctrica de Lima Norte S.A.A., or Edelnor, decreased Ch$29.7
billion, or 14.5%, during 2003. This decrease is mainly explained by a
negative effect amounting to Ch$35.3 billion resulting from the appreciation of
the Chilean peso against the U.S. dollar in the periods under comparison.
Operating revenues decreased, despite an increase of 2.6% in physical sales
resulting from a 2.4% increase in customers to 0.89 million as of December 31,
2003 and an increase in average per capita consumption of 1.2% compared to the
same period in 2002. Operating revenues of our Brazilian distribution subsidiary, Companhia de
Electricidade do Rio de Janeiro S.A., or Cerj, decreased Ch$31.0 billion, or
8.9%, during 2003. This decrease is mainly explained by a negative effect
amounting to Ch$59.9 billion resulting from the appreciation of the Chilean
peso against the U.S. dollar in the periods under comparison. In addition,
there was no recurrence during 2003 of the Ch$19.2 billion one-time tariff
compensation package received by Cerj in 2002 from the Brazilian government to
partially compensate for the rationing that took place during 2001 and the
first quarter of 2002. Operating revenues decreased, despite an increase of
3.5% in physical sales resulting from a 7.1% increase in customers to 1.9
million as of December 31, 2003 and a decrease in average per capita
consumption of 2.9% compared to the same period in 2002. Also, in January 2003
the Brazilian government increased the tariffs charged by Cerj by 28.56% which
resulted in an increase of 23.4% in Cerjs average tariffs in local currency
terms compared to average tariffs charged during 2002. 83




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Operating revenues of our Brazilian distribution subsidiary, Companhia
Energetica do Ceara S.A., or Coelce, our other Brazilian distribution
subsidiary, decreased Ch$22.6 billion, or 9.8%, during 2003. This decrease is
mainly explained by a negative effect amounting to Ch$39.6 billion resulting
from the appreciation of the Chilean peso against the U.S. dollar in the
periods under comparison. In addition, like Cerj, during 2003 Colece did not
receive a Ch$15.3 billion one-time tariff compensation package paid in 2002 by
the Brazilian government. Operating revenues decreased, despite an increase of
6.1% in physical sales resulting from a 12.2% increase in customers to 2.3
million as of December 31, 2003 and an increase in average per capita
consumption of 2.1% compared to the same period in 2002. Also, in April 2003
the Brazilian government increased the tariffs charged by Coelce by 31.8% which
resulted in an increase of 28.0% in Coelces average tariffs in local currency
terms compared to tariffs charged during 2002. Operating revenues of Codensa S.A. E.S.P., or Codensa, decreased Ch$42.7
billion, or 12.7%, during 2003. This decrease is mainly explained by a negative
effect amounting to Ch$57.6 billion resulting from the appreciation of the
Chilean peso against the U.S. dollar in the periods under comparison.
Operating revenues decreased, despite an increase of 2.7% in physical sales
resulting from a 3.2% increase in customers to 1.97 million as of December 31,
2003 and a decrease in average per capita consumption of 0.7% during 2003
compared to the same period in 2002. Also, in September 2003 the Colombian
government increased the average tariffs charged by Codensa by 15.4% which
resulted in an increase of 14.0% in Codensas average tariffs in local currency
terms compared to average tariffs charged during 2002. The effect of this
tariff increase on our Chilean GAAP consolidated operating revenues was largely
offset by the devaluation of the Colombian peso against the U.S. dollar in 2003
compared to 2002. Generation business revenues from operations Revenues from sales of electricity in Chile increased by 5.0% to Ch$429.1
billion in 2003 from Ch$408.7 billion in 2002. This increase was mainly due to
an increase in the average sales price of 3.1% to Ch$23.0 per kWh in 2003 from
Ch$22.3 per kWh in 2002 and an increase in volume terms of approximately 9.8%
in contractual sales offset in part by a decrease in spot sales volumes of
approximately 10.7%. Revenues from sales of electricity in Argentina increased by 12.2% to
Ch$111.3 billion in 2003, from Ch$99.1 billion in 2002. The increase in
revenues was primarily due to higher water levels in El Chocóns reservoir,
which allowed the company to increase physical energy sales by 25.7%
(generating a Ch$13.7 billion increase in revenues), as well as a 9.7% increase
in physical energy sales at Costanera (generating a Ch$16.5 billion increase in
revenues) from the second interconnection line with Brazil, which operated
throughout 2003, but only the last five months of 2002. These positive factors
were offset in part by the impact of the appreciation of the Chilean peso
against the dollar, which caused a decrease in revenues of Ch$18.0 billion. Revenues from sales of electricity in Colombia decreased by 8.4% to
Ch$208.4 billion in 2003 from Ch$227.5 billion in 2002. This was mainly due to
the impact of the appreciation of the Chilean peso against the U.S. dollar,
which caused a decrease in revenues of Ch$41.6 billion. This decrease was
offset in part by an increase of 1.8% in physical energy sales (generating a
Ch$21.2 billion increase in revenues) due to a 208.5% increase in non-regulated
sales offset in part by a decrease of 37.5% in regulated and spot physical
energy sales. Revenues from sales of electricity in Brazil decreased by 40.7% to Ch$30.8
billion in 2003 from Ch$51.9 billion in 2002. This primarily reflected a
decline of 31% in the average price of electricity sold due to good
hydrological conditions in the region as well as the dispute between Cachoeira
Dourada and CELG (see Legal Proceedings in Item 8 of this Report), which
resulted in a loss of Ch$11.7 billion. Revenues were also adversely affected
by the appreciation of the Chilean peso against the U.S. dollar, which caused a
decrease in revenues of Ch$10.4 billion. These effects were offset in part by
a 5% increase in physical sales. Revenues from sales of electricity in Peru decreased by 6.0% to Ch$110.9
billion in 2003 from Ch$118.0 billion in 2002, due to the appreciation of the
Chilean peso against the U.S. dollar, which caused a decrease of Ch$21.6
billion, partially offset by an increase of 6.9% in physical sales that
generated additional revenues of Ch$14.6 billion. Other revenues decreased by 29.3% to Ch$29.8 billion in 2003 from Ch$42.1
billion in 2002, mainly due to the sale of Infraestructura Dos Mil S.A.
(Infraestructura) in June 2003. Infraestructura Dos Mil S.A. revenues in 2002 84




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amounted to Ch$20.4 billion. Under Chilean GAAP, Endesa-Chile ceased
consolidating Infraestructura Dos Mil S.A. with effect from January 1, 2003.
The effect of this disposition was partially offset by an increase of Ch$6.0
billion of other revenues in Chile. Operating costs Operating costs consist principally of electricity purchases from third
parties, depreciation and amortization, tolls paid to transmission companies,
maintenance costs, salaries, fuel purchases and other expenses. The table below sets forth the breakdown of the costs described above as a
percentage of our total costs of operations for the years ended December 2002
and 2003. Year ended December 31,2002
    
    2003(as a percentage ofoperating costs)Electricity purchases
    
    
    42.2
    %
    
    
    44.2
    %Depreciation and amortization
    
    
    25.7
    %
    
    
    23.4
    %Transmission tolls
    
    
    7.3
    %
    
    
    8.0
    %Operating costs and maintenance
    
    
    9.3
    %
    
    
    7.8
    %Salaries
    
    
    5.9
    %
    
    
    5.9
    %Fuel purchases
    
    
    5.1
    %
    
    
    5.5
    %Other expenses
    
    
    4.4
    %
    
    
    5.2
    %100
    %
    
    
    100
    %
 The table below sets forth the breakdown of costs of operations for the
years ended on December 31, 2002 and 2003. Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    (324,364
    )
    
    
    (304,334
    )
    
    
    20,030
    
    
    
    (6.2
    )%Non-electricity subsidiaries (Chile)(1)
    
    
    (119,159
    )
    
    
    (113,790
    )
    
    
    5,369
    
    
    
    (4.5
    )%Total operating costs, Chile except
generation business
    
    
    (443,523
    )
    
    
    (418,124
    )
    
    
    25,399
    
    
    
    (5.7
    )%Edesur (Argentina)
    
    
    (183,447
    )
    
    
    (161,166
    )
    
    
    22,281
    
    
    
    (12.1
    )%Distrilima/Edelnor (Peru)
    
    
    (152,721
    )
    
    
    (132,315
    )
    
    
    20,406
    
    
    
    (13.4
    )%Cerj (Brazil)
    
    
    (306,380
    )
    
    
    (282,155
    )
    
    
    24,225
    
    
    
    (7.9
    )%Investluz/Coelce (Brazil)
    
    
    (164,954
    )
    
    
    (158,070
    )
    
    
    6,884
    
    
    
    (4.2
    )%Luz de Bogotá/Codensa (Colombia)
    
    
    (280,417
    )
    
    
    (244,654
    )
    
    
    35,763
    
    
    
    (12.8
    )%Total operating costs, excluding Chile and
generation business
    
    
    (1,087,919
    )
    
    
    (978,360
    )
    
    
    109,559
    
    
    
    (10.1
    )%Endesa-ChileCost of operations (Chile)
    
    
    (258,913
    )
    
    
    (285,264
    )
    
    
    26,351
    
    
    
    10.2
    %Cost of operations (Argentina)
    
    
    (84,602
    )
    
    
    (77,036
    )
    
    
    (7,566
    )
    
    
    (8.9
    )%Cost of operations (Colombia)
    
    
    (145,284
    )
    
    
    (119,894
    )
    
    
    (25,390
    )
    
    
    (17.5
    )%Cost of operations (Brazil)
    
    
    (32,901
    )
    
    
    (25,215
    )
    
    
    (7,686
    )
    
    
    (23.4
    )%Cost of operations (Peru)
    
    
    (39,441
    )
    
    
    (43,037
    )
    
    
    (3,596
    )
    
    
    9.1
    %Endesa-Chiles total operating costs
    
    
    (561,141
    )
    
    
    (550,447
    )
    
    
    10,695
    
    
    
    (1.9
    )%Less: intercompany transactions
    
    
    345,233
    
    
    
    295,199
    
    
    
    (50,034
    )
    
    
    (14.5
    )%Total operating costs
    
    
    (1,747,351
    )
    
    
    (1,651,732
    )
    
    
    95,619
    
    
    
    5.5
    %
 85




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##### Table of Contents



(1)
    
    Includes operating costs of Companía Americana de Multiservicios Ltda.,
Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de Velasco
Limitada and Holding Enersis y Soc. de Inv. Distribution business operating costs Operating costs in Chile decreased Ch$25.4 billion, or 5.7%, during 2003
mainly due to a Ch$20.0 billion decrease in operating costs of our electricity
subsidiaries, resulting from a Ch$42.9 billion decrease in costs due to the
deconsolidation of Río Maipo, partially offset by a Ch$22.8 billion increase in
operating costs of Chilectra. The higher operating costs of Chilectra are
related to a 5.7% increase in physical sales. Our non-electricity subsidiaries
experienced a decrease in operating costs equal to Ch$5.4 billion, or 4.5%,
during 2003 due to lower material and equipment purchases by Synapsis of Ch$5.6
billion and by CAM of Ch$6.3 billion, partially offset by an increase in costs
of Manso de Velasco by Ch$4.6 billion. Operating costs of Edesur, our Argentine distribution subsidiary,
decreased Ch$22.3 billion, or 12.1%, as of December 31, 2003 compared to the
same period in 2002. This decrease is mainly explained by a positive effect
amounting to Ch$31.5 billion resulting from the appreciation of the Chilean
peso against the U.S. dollar in the periods under comparison and a reduction of
maintenance costs by Ch$4.3 billion. This decrease was partially offset by a
4.5% increase in energy purchases from 13,750 GWh during 2002 to 14,364 GWh
during 2003, equal to Ch$13.9 billion, due to increased demand, a 7.2% increase
in average purchase price in local currency terms and by an increase in energy
losses from 11.6% during 2002 to 11.8% during 2003 due to vandalism and theft.
Edesurs operating costs as reflected in our consolidated Chilean GAAP
operating costs also were respectively affected by the appreciation of the
Argentine peso against the U.S. dollar in 2003 compared to 2002. Operating costs for Distrilima, the Peruvian company that consolidates the
electricity distribution company Edelnor, decreased Ch$20.4 billion, or 13.4%,
as of December 31, 2003 compared to the same period in 2002. This decrease is
mainly explained by a positive effect amounting to Ch$26.3 billion resulting
from the appreciation of the Chilean peso against the U.S. dollar in the
periods under comparison, and to a lesser extent to a decrease in energy losses
from 8.5% during 2002 to 8.4% during 2003. This decrease was partially offset
by a 2.3% increase in energy purchases from 4,233 GWh during 2002 to 4,329 GWh
during 2003, equal to Ch$6.6 billion, due to increased demand, and a 4%
increase in average purchase price in local currency terms. Operating costs for Cerj, one of our Brazilian electricity distribution
companies, decreased Ch$24.2 billion, or 7.9%, as of December 31, 2003 compared
to the same period in 2002. This decrease is mainly explained by a positive
effect amounting to Ch$52.7 billion resulting from the appreciation of the
Chilean peso against the U.S. dollar in the periods under comparison, a
decrease of Ch$1.8 billion in salaries and a decrease of Ch$9.6 billion in
maintenance costs. This decrease was partially offset by a 4.1% increase in
energy purchases from 8,914 GWh during 2002 to 9,283 GWh during 2003, equal to
Ch$42.5 billion, due to increased demand, a 38.8% increase in average purchase
price in local currency terms and by an increase in energy losses from 22.6%
during 2002 to 23.6% during 2003 due to vandalism and theft especially in the
favelas, which are very low income housing areas where energy theft is high
during economic downturns. The increase in the average purchase price of
energy reflected the effect of inflation and currency indexation provisions in
our energy purchase contracts. Operating costs for Coelce, our other Brazilian electricity distribution
company, decreased Ch$6.9 billion, or 4.2%, as of December 31, 2003 compared to
the same period in 2002. This decrease is mainly explained by a positive effect
amounting to Ch$28.4 billion resulting from the appreciation of the Chilean
peso against the U.S. dollar in the periods under comparison. This decrease was
partially offset by a 6.8% increase in energy purchases from 6,393 GWh during
2002 to 6,825 GWh during 2003, equal to Ch$14.2 billion, due to increased
demand, an increase of Ch$3.2 billion in miscellaneous costs, an increase of
Ch$2.6 billion in salaries, a 43.3% increase in average purchase price in local
currency terms and by an increase in energy losses from 12.9% during 2002 to
13.5% during 2003 due to defects in the electric grid and to a lesser extent to
vandalism and theft. The increase in the average purchase price of energy
reflected the effect of inflation and currency index energy provisions in our
energy purchase contracts. Operating costs for Codensa, our Colombian electricity distribution
company, decreased Ch$35.8 billion, or 12.8%, as of December 31, 2003 compared
to the same period in 2002. This decrease is mainly explained by a 86




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positive effect amounting to Ch$48.2 billion resulting from the
appreciation of the Chilean peso against the U.S. dollar in the periods under
comparison and to a lesser extent to a decrease in energy losses from 10.3%
during 2002 to 10.2% during 2003. This decrease was partially offset by a 2.4%
increase in energy purchases from 10,067 GWh during 2002 to 10,310 GWh during
2003, equal to Ch$10.8 billion, due to increased demand and a 16.7% increase in
average purchase price in local currency terms. The increase in average
purchase price of energy resulted from the bankruptcy of the counterparty to a
long term supply contract, which required Codensa to recontract the supply on a
shorter term, more expensive basis. Codensas operating costs as reflected in
our consolidated Chilean GAAP operating costs also were positively affected by
the devaluation of the Colombian peso against the U.S. dollar in 2003 compared
to 2002. Generation business operating costs Chilean operating costs increased 10.2% to Ch$285.3 billion in 2003 from
Ch$258.9 billion in 2002. Weaker hydrological conditions caused a 10.2%
increase in variable costs (Ch$27.4 billion) resulting from: (i) a 26.5%
increase in thermoelectric generation, producing a Ch$4.2 billion increase in
fuel costs and Ch$2.8 billion higher tolls and energy transport costs, mainly
gas transportation necessary for the thermo generation, and (ii) a 63.1%
increase in energy and power purchases at an average purchase price of Ch$20.1
per KWh during 2003, 60% higher than during 2002, which increased costs by
Ch$18.8 billion. Costs of operations in Argentina decreased by 8.9% to Ch$77.0 billion in
2003 from Ch$84.6 billion in 2002, mainly due to a Ch$15.4 billion decrease in
expenses due to the appreciation of the Chilean peso against the U.S. dollar.
This effect was offset in part by an increase of Ch$4.3 billion in fuel costs,
energy and power purchases at Costanera due to 13.3% higher thermoelectric
generation and Ch$2.8 billion of higher energy and power purchases at el
Chocon, both because of higher levels of energy demand. Costs of operations in Colombia decreased by 17.5% to Ch$120.0 billion in
2003 from Ch$145.3 billion in 2002, principally reflecting a Ch$26.4 billion
decrease in expenses due to the appreciation of the Chilean peso against the
U.S. dollar. Costs of operations in Brazil decreased by 23.4% to Ch$25.2 billion in
2003 from Ch$32.9 billion in 2002, principally reflecting a Ch$6.0 billion
decrease in expenses due to the appreciation of the Chilean peso against the
U.S. dollar and Ch$4.4 billion decrease due to a 71% decrease in the average
price of purchased energy, offset in part by a Ch$2.6 billion increase in other
variable costs. Costs of operations in Peru increased by 9.1% to Ch$43.0 billion in 2003
from Ch$39.4 billion in 2002, mainly due to an increase of Ch$7.1 billion in
energy purchases and tolls and transport costs due to lack of rainfall and an
increase of Ch$4.3 billion in depreciation because of higher fixed assets.
These increases were offset in part by a Ch$7.2 billion decrease in expenses
due to the appreciation of the Chilean peso against the U.S. dollar and also by
Ch$1.2 billion of lower other fixed costs. Selling and administrative expenses Selling and administrative expenses consist principally of salaries,
general administrative expenses, depreciation and amortization, uncollectable
accounts and materials and office supplies. The table below sets forth the breakdown of selling and administrative
expenses as a percentage of our total selling and administrative expenses. Year ended December 31,2002
    
    2003(as a percentage ofadministrative expenses)Salaries
    
    
    41.8
    %
    
    
    42.8
    %General administrative expenses
    
    
    40.1
    %
    
    
    38.2
    %Depreciation and amortization
    
    
    9.0
    %
    
    
    10.9
    %Uncollectible accounts
    
    
    8.4
    %
    
    
    7.4
    %Materials and office supplies
    
    
    0.7
    %
    
    
    0.8
    %100
    %
    
    
    100
    %
 87




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##### Table of Contents



The table below sets forth the breakdown of selling and administrative
expenses for the years ended on December 31, 2002 and 2003, as well as
percentage changes from period to period. Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    (36,221
    )
    
    
    (34,438
    )
    
    
    1,783
    
    
    
    (4.9
    )%Non-electricity subsidiaries (Chile)(1)
    
    
    (37,883
    )
    
    
    (31,074
    )
    
    
    6,809
    
    
    
    (18.0
    )%Total selling and administrative expenses
Chile, except generation business
    
    
    (74,104
    )
    
    
    (65,512
    )
    
    
    8,592
    
    
    
    (11.6
    )%Edesur (Argentina)
    
    
    (30,891
    )
    
    
    (28,023
    )
    
    
    2,868
    
    
    
    (9.3
    )%Distrilima/Edelnor (Peru)
    
    
    (19,729
    )
    
    
    (17,099
    )
    
    
    2,630
    
    
    
    (13.3
    )%Cerj (Brazil)
    
    
    (21,624
    )
    
    
    (10,925
    )
    
    
    10,699
    
    
    
    (49.5
    )%Investluz/Coelce (Brazil)
    
    
    (40,816
    )
    
    
    (29,633
    )
    
    
    11,183
    
    
    
    (27.4
    )%Luz de Bogota/Codensa (Colombia)
    
    
    (32,821
    )
    
    
    (16,884
    )
    
    
    15,937
    
    
    
    (48.6
    )%Total selling and administrative expenses,
excluding Chile and generation business
    
    
    (145,881
    )
    
    
    (102,564
    )
    
    
    43,317
    
    
    
    (29.7
    )%Endesa-Chile
    
    
    (36,652
    )
    
    
    (31,324
    )
    
    
    5,328
    
    
    
    (14.5
    )%Less: intercompany transactions
    
    
    31,227
    
    
    
    29,897
    
    
    
    (1,330
    )
    
    
    (4.3
    )%Total selling and administrative expenses
    
    
    (213,760
    )
    
    
    (163,785
    )
    
    
    49,975
    
    
    
    (23.4
    )%
   (1)
    
    Includes selling and administrative expenses of Compañía Americana de
Multiservicios Ltda., Synapsis Soluciones y Servicios IT Ltda.,
Inmobiliaria Manso de Velasco Limitadaand Holding Enersis y Soc. de Inv. Selling and administrative expenses for our Chilean electricity
distribution subsidiaries decreased by 4.9%, or Ch$1.8 billion, from Ch$36.2
billion as of December 2002 to Ch$34.4 billion as of December 2003. This was
attributable to a Ch$4.0 billion decrease resulting from the deconsolidation of
Río Maipo, partially offset by a Ch$1.5 billion increase in operating and
maintenance expenses, and a Ch$0.4 billion increase in salaries. Selling and administrative expenses for our Chilean non-electricity
subsidiaries decreased by 18.0%, or Ch$6.8 billion, from Ch$37.9 billion in
2002 to Ch$31.1 billion in 2003, explained by a decrease of Ch$1.9 billion in
salary expense, a reduction in the provision for uncollectible accounts at CAM
of Ch$0.8 billion and a number of other smaller reductions. Edesurs expenses fell to Ch$28.0 billion in 2003, a decrease of Ch$2.9
billion, or 9.3%, in comparison to 2002. There was a Ch$2.3 billion decrease
in provisions for uncollectible accounts, partially offset by a Ch$796 million
increase in salaries, as well as number of other smaller effects. Edelnors selling and general administrative expenses decreased by Ch$2.6
billion, or 13.3%, in 2003, primarily explained by Ch$1.1 billion reduction in
salary expenses. Cerjs selling and administrative expenses decreased by 49.5%, or Ch$10.7
billion, from Ch$21.6 billion in 2002 to Ch$10.7 billion in 2003, primarily
because of the non-recurrence in 2003 of approximately Ch$8.9 billion in
expenses incurred in 2002 in connection with a campaign against energy theft,
and to a lesser degree, on a salary expense reduction of Ch$1.0 billion. Coelces expenses in 2003 decreased by 27.4%, or Ch$11.2 billion,
reflecting a Ch$2.8 billion reduction in salary expenses and a number of other
smaller reductions. 88




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##### Table of Contents



Codensas expenses decreased by 48.6%, or Ch$15.9 billion, in 2003, in
comparison to 2002, primarily because of a Ch$11.2 billion reduction in salary
expenses resulting from a reversal of provisions for pension expense and, to a
lesser extent, reduced headcount and to a Ch$2.8 billion reduction provisions
for uncollectible accounts. Administrative and selling expenses at Endesa-Chile and its subsidiaries
decreased by 14.5% to Ch$31.3 billion in 2003 from Ch$36.7 billion in 2002.
This is due to a decrease of Ch$3.5 billion resulting from the impact of the
appreciation of the Chilean peso against the U.S. dollar. Other important
factors were a decrease in salaries and other expenses in Colombia by Ch$3.5
billion and Ch $1.6 billion higher general expenses in the other foreign
subsidiaries. Non-operating income (expense) The table below sets forth non-operating income (expense) for the year
ended December 31, 2002 and 2003, and the percentage change from period to
period. Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Net interest expense
    
    
    (363,195
    )
    
    
    (353,198
    )
    
    
    9,997
    
    
    
    (2.8
    )%Net income from related companies
    
    
    8,346
    
    
    
    17,517
    
    
    
    9,171
    
    
    
    109.9
    %Net other non-operating income (expense)
    
    
    73,017
    
    
    
    (50,448
    )
    
    
    (123,465
    )
    
    
    (169.1
    )%Net monetary exposure
    
    
    (11,256
    )
    
    
    (10,553
    )
    
    
    703
    
    
    
    (6.2
    )%Goodwill amortization
    
    
    (511,408
    )
    
    
    (53,228
    )
    
    
    458,180
    
    
    
    (89.6
    )%Total
non-operating income (expense)
    
    
    (804,496
    )
    
    
    (449,910
    )
    
    
    354,586
    
    
    
    (44.1
    )%
 Total non-operating expense decreased Ch$354.6 billion, or 44.1%, from
Ch$804.5 billion losses as of December 2002, to Ch$449.9 billion losses as of
December 2003. This was mainly explained by a Ch$458.2 billion decrease in
goodwill amortizations due to the non-recurrence in 2003 of write-offs relating
to investments in Argentina and Brazil, partially offset by an increase of
Ch$123.5 billion in other non-operating expenses. Net interest expense decreased Ch$10.0 billion, or 2.8%, as a consequence
of debt repayments, offset in part by an increase in the spread over LIBOR paid
on our indebtedness Through its debt repayments, Enersis reduced its
consolidated debt by Ch$1,527.8 billion. Notwithstanding, this reduction was
partially offset by fees amounting to Ch$39.1 billion associated with the
prepayment of bank loans with the proceeds of the capital increase during 2003
and other loans that were refinanced during the same period. Net interest
expense excluding such fees declined by 13.5%. We believe that it is important
to consider our interest expenses excluding such fees because prepayment levels
in 2003 were unusual. During 2002, we did not have any prepayment
expenses. Please see a reconciliation of this non-GAAP
measure to Chilean GAAP in section Reconciliation of non-GAAP measures to
Chilean GAAP below. We expect that our net interest expense will be further
reduced during 2004 compared to 2003 because of lower average levels of
indebtedness and a decrease in the spread over LIBOR to be paid on our
indebtedness. See Item 5  Results from Operations for the years ended
December 31, 2002 and 2003  Liquidity and Capital Resources. As of December 31, 2003 net income from related companies increased Ch$9.2
billion, or 109.9%, compared to the same period in 2002. This increase is
mainly due to the favorable results of Cien and GasAtacama Generación Limitada,
or GasAtacama, companies in which we hold minority interests. As of December
31, 2003, Ciens income increased Ch$3.8 billion, or 52.0%, compared to the
same period in 2002, mainly due to the opening of a second transmission line.
GasAtacamas net income reached Ch$2 million as of December 2003 compared to a
net loss of Ch$4.8 billion in the same period of 2002, due to a 17% of decrease
in operational costs mainly resulting from a Ch$2.3 billion reduction in gas
transportation costs and Ch$1.0 billion reduction in depreciation after the
sale of transmission lines during 2003. As of December 31, 2003 net other non-operating income decreased Ch$123.5
billion, or 169.1%, compared to the same period in 2002, mainly due to: 89




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##### Table of Contents




    
    an increase in losses amounting to Ch$249.4 billion from the
application of Technical Bulletin No. 64. As explained in the overview
to this section, the different structures of monetary assets and
monetary liabilities in our foreign subsidiaries, and the depreciation
and the appreciation of the Brazilian real and the Argentine peso
against the U.S. dollar during 2002 and 2003, respectively, generated
net non-operating consolidated losses, which we refer to as the
conversion effect, of Ch$181.8 billion in 2003. During 2002 we had
Ch$67.5 billion in gains, from this conversion effect.  
    
    an increase in pension funds expenses amounting to Ch$21.2 billion
reflecting payments made pursuant to our obligation to fully fund
employee pension funds;  
    
    a loss of Ch$7.7 billion in connection with the sale of assets;  
    
    lower dividends from related companies for Ch$6.6 billion; and  
    
    lower profits from forward operations in Ch$4.9 billion. These higher expenses were partially offset by:  
    
    profits before taxes, amounting to Ch$89.3 billion, due to the
sales of Río Maipo and Infraestructura 2000;  
    
    the non-recurrence in 2003 of Ch$68.2 billion in write-offs of real
estate and other non-generation assets that occurred in 2002;  
    
    a reduction of Ch$8.1 billion in litigation provisions; and  
    
    a reduction of Ch$4.8 billion in connection with power compensation payments at the SIC in Chile. Net monetary expense consists of the effects of foreign exchange movements
and price level restatement on the balance sheet of Enersis and its Chilean
subsidiaries. In 2003, net monetary exposure increased Ch$0.7 billion, or 6.2%,
compared to the same period in 2003, reflecting the effects of the appreciation
of the Chilean peso against the U.S. dollar in 2003, compared to the
devaluation of the Chilean peso in the previous year, which effects were
offset to a large extent by foreign exchange hedges. Goodwill amortization decreased Ch$458.2 billion, or 89.6%, as of December
31, 2003 compared to the same period in 2002. This decrease is mainly due to
the non-recurrence in 2003 of write-offs that occurred in December 2002
amounting to Ch$428.9 billion and relating to investments in Argentina and
Brazil. Net income The following table sets forth our net income for the periods indicated. Year ended December 31,2002
    
    2003
    
    Change
    
    % Change(in millions of Ch$)Operating income
    
    
    537,971
    
    
    
    531,098
    
    
    
    (6,873
    )
    
    
    (1.3
    )%Non-operating income
    
    
    (804,496
    )
    
    
    (449,910
    )
    
    
    354,586
    
    
    
    (44.1
    )%Net income before taxes,
minority interest and negative
goodwill amortization
    
    
    (266,525
    )
    
    
    81,188
    
    
    
    347,713
    
    
    
    (130.5
    )%Income tax
    
    
    (75,840
    )
    
    
    (100,753
    )
    
    
    (24,913
    )
    
    
    32.8
    %Deferred taxes
    
    
    9,163
    
    
    
    59,182
    
    
    
    50,019
    
    
    
    545.9
    %Total income taxes
    
    
    (66,677
    )
    
    
    (41,571
    )
    
    
    25,106
    
    
    
    (37.7
    )%Minority interest
    
    
    16,445
    
    
    
    (78,325
    )
    
    
    (94,770
    )
    
    
    (576.3
    )%Amortization of negative goodwill
    
    
    113,370
    
    
    
    51,176
    
    
    
    (62,194
    )
    
    
    (54.9
    )%Extraordinary items
    
    
    (22,599
    )
    
    
    0
    
    
    
    22,599
    
    
    
    n.a.Net income
    
    
    (225,986
    )
    
    
    12,468
    
    
    
    238,454
    
    
    
    (105.5
    )%
 90




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##### Table of Contents



As of December 31, 2003 net income increased Ch$238.5 billion to Ch$12.5
billion from a net loss of Ch$226.0 billion in 2002. As described above, as of December 31, 2003, the Ch$6.9 billion decrease
in operating income was offset by the Ch$354.6 billion in non-operating income
during the same period. Income tax increased by Ch$24.9 billion from Ch$75.8 billion during 2002
to Ch$100.8 billion for the comparable period in 2003. This increase is mainly
due to tax of Ch$16.3 billion paid by Enersis, relating to the sale of Río
Maipo, and to tax of Ch$7.1 billion paid by Endesa-Chile for the sale of
Canutillar. The remainder of the variation was due to net increased taxable
income of our subsidiaries. Deferred taxes reflected a positive effect of Ch$50.0 billion, increasing
from Ch$9.2 billion during 2002, to Ch$59.2 billion during 2003. This was
mainly due to an increase of Ch$19.3 billion in gains from deferred taxes in
Enersis, as a consequence of higher taxable losses. Cerj, Costanera and Chocón
had deferred tax gains of Ch$17.3 billion, Ch$16.6 billion and Ch$16.5 billion,
respectively, due to the effect of exchange differences in Brazil and
Argentina. This was partially offset by deferred tax losses in Edesur of
Ch$12.5 billion, resulting from the partial reversal of deferred tax recognized
during 2002 primarily as a result of the depreciation of the Argentine peso in
2002. As of December 31, 2003 amortization of negative goodwill decreased by
Ch$62.2 billion reflecting the write-offs of negative goodwill made by Enersis
in Argentina and Brazil in December 2002, partially offset by the additional
negative goodwill arising from additional equity investment by us in Cerj which
we subscribed in exchange for the cancellation of an inter-company loan for
Ch$34.5 billion in January 2003. Extraordinary items increased Ch$22.6 billion as of December 31, 2003, due
to the non-recurrence in 2003 of the payments from our Colombian subsidiaries
to the Colombian government relating to special anti-terrorist taxes. Enersis Results From Operations for the Years Ended December 31, 2002 and December 31, 2001
 Overview Our 2002 results, when compared to those of 2001, were mainly affected by
the following factors:  
    
    our operating income amounted to Ch$538.0 billion in 2002,
which represents a decrease of Ch$224.1 billion, or 29.4%, compared
to 2001. This decline is mainly the result of continued economic
instability in Argentina and the strong depreciation of the real in
Brazil; and  
    
    our non operating expenses amounted to Ch$804.5 billion in
2002, which was Ch$294.4 billion higher than non-operating expenses
of Ch$510.1 billion in 2001, largely explained by US$387 million in
non-cash losses recognized in 2002, which did not occur in 2001.
These loses arose from adjustments made to properly reflect the
value of our goodwill. These adjustments relate to the acceleration
of the net balance of negative and positive goodwill associated with
investments in distribution and generation located in Argentina and
Brazil, resulting from the socioeconomic instability experienced in
those countries. Operating income The table below sets forth the breakdown of operating income for 2001 and
2002 and the percentage change from year to year. 91




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##### Table of Contents



Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    92,635
    
    
    
    98,568
    
    
    
    5,933
    
    
    
    6.4
    %Non-electricity subsidiaries (Chile)(1)
    
    
    5,619
    
    
    
    3,688
    
    
    
    (1,932
    )
    
    
    (34.4
    )%Total operating income Chile except
generation business (Endesa-Chile)
    
    
    98,254

    
    
    
    102,256
    
    
    
    4,002
    
    
    
    4.1
    %Edesur (Argentina)
    
    
    119,027
    
    
    
    (12,865
    )
    
    
    (131,892
    )
    
    
    (110.8
    )%Distrilima/Edelnor (Peru)
    
    
    34,986
    
    
    
    33,220
    
    
    
    (1,766
    )
    
    
    (5.0
    )%Cerj (Brazil)
    
    
    70,713
    
    
    
    20,609
    
    
    
    (50,104
    )
    
    
    (70.9
    )%Investluz/Coelce (Brazil)
    
    
    44,150
    
    
    
    24,232
    
    
    
    (19,918
    )
    
    
    (45.1
    )%Luz de Bogotá/Codensa (Colombia)
    
    
    28,880
    
    
    
    21,582
    
    
    
    (7,298
    )
    
    
    (25.3
    )%Total operating income, excluding Chile and
generation business
    
    
    297,757
    
    
    
    86,778
    
    
    
    (210,979
    )
    
    
    (70.9
    )%Endesa-Chile
    
    
    351,454
    
    
    
    349,687
    
    
    
    (1,767
    )
    
    
    (0.5
    )%Less: intercompany transactions
    
    
    14,625
    
    
    
    (749
    )
    
    
    (15,374
    )
    
    
    (105.1
    %)Total operating income
    
    
    762,089
    
    
    
    537,971
    
    
    
    (224,118
    )
    
    
    (29.4
    %)
   (1)
    
    Includes operating costs of Compañía Americana de Multiservicios Ltda.,
Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de Velasco
Limitadaand Holding Enersis y Soc. De Inv. Total operating income decreased by 29.4% to Ch$538 billion as of December
31, 2002, from Ch$762 billion at the same date of 2001. This decrease was
mainly explain by the economic instability of Argentina and the strong
devaluation in Brazil. As described below, our Chilean subsidiaries had better
operating results during 2002 compared to 2001. Physical sales in our distribution business increased from 48,188 GWh as
of December 31, 2001 to 48,953 GWh as of December 31, 2002, or 1.6%. Our
customer base increased 2.7% from 10.0 million as of December 31, 2001 to 10.3
million as of December 31, 2002. In our generation business, physical sales
decreased from 54,233 GWh as of December 31, 2001 to 48,629 GWh as of December
31, 2002, or 10.3%, mainly due to a 39% reduction in physical sales in
Argentina, as a consequence of the reduction of the electricity demand in the
Argentine market because of economic instability during this period. As of
December 31, 2002, our generation subsidiary Endesa-Chile had a Ch$1.8 billion
decrease in operating income, or 0.5% compared to the same period in 2001,
mainly due to lower results in Argentina and Brazil, due to the reduction of
the average sale prices in U.S. dollar terms, as a consequence of the
devaluation of the Argentine peso and Brazilian real against the U.S. dollar.
This was partially offset by improved results in Chile and Peru as of December
31, 2002 compared to the same period in 2001. Our operating margin as a percentage of revenues decreased from 33.8% in
2001 to 30.4% in 2002 reflecting declines in the operating margin in Argentina
due to the pesification of the distribution tariffs and the devaluation of the
Argentine peso, as well as in the operating margin in Brazil mainly due to the
devaluation of the Brazilian real. Revenues from operations The table below presents, for the periods indicated, the breakdown of
physical sales of electricity by our distribution subsidiaries and percentage
changes from period to period. Distribution Business Physical sales duringYear ended December 31,2001
    
    2002
    
    Change
    
    % Change(GWh)ChileChilectra
    
    
    9,585
    
    
    
    9,952
    
    
    
    367
    
    
    
    3.8
    %Río Maipo
    
    
    1,245
    
    
    
    1,274
    
    
    
    29
    
    
    
    2.3
    %Argentina(1)
    
    
    12,909
    
    
    
    12,138
    
    
    
    (771
    )
    
    
    (6.0
    )%
 92




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##### Table of Contents



Physical sales duringYear ended December 31,2001
    
    2002
    
    Change
    
    % Change(GWh)Peru
    
    
    3,685
    
    
    
    3,872
    
    
    
    187
    
    
    
    5.1
    %Brazil
    
    
    12,091
    
    
    
    12,703
    
    
    
    612
    
    
    
    5.1
    %Colombia(1)
    
    
    8,673
    
    
    
    9,014
    
    
    
    341
    
    
    
    3.9
    %Total
    
    
    48,188
    
    
    
    48,953
    
    
    
    765
    
    
    
    1.6
    %
   (1)
    
    Includes sales of third party energy for which we are paid transmission
tolls. The table below presents, for the periods indicated, the breakdown of
physical sales of electricity by our generation subsidiaries and percentage
changes from period to period. Generation Business Physical sales duringYear ended December 31,2001
    
    2002
    
    Change
    
    % Change(GWh)Chile
    
    
    18,673
    
    
    
    18,344
    
    
    
    (329
    )
    
    
    (1.8
    )%Argentina
    
    
    12,988
    
    
    
    7,897
    
    
    
    (5,091
    )
    
    
    (39.2
    )%Peru
    
    
    4,239
    
    
    
    4,158
    
    
    
    (81
    )
    
    
    (1.9
    )%Brazil
    
    
    3,743
    
    
    
    3,591
    
    
    
    (152
    )
    
    
    (4.1
    )%Colombia
    
    
    14,590
    
    
    
    14,639
    
    
    
    49
    
    
    
    0.3
    %Total
    
    
    54,233
    
    
    
    48,629
    
    
    
    (5,604
    )
    
    
    (10.3
    )%
 The table below presents, for the periods indicated, the breakdown of our
revenues from operations and the percentage change from period to period. Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    428,223
    
    
    
    459,153
    
    
    
    30,930
    
    
    
    7.2
    %Non-electricity subsidiaries (Chile)(1)
    
    
    163,732
    
    
    
    160,730
    
    
    
    (3,003
    )
    
    
    (1.8
    )%Total operating revenues from Chile, except
generation business
    
    
    591,955
    
    
    
    619,883
    
    
    
    27,928
    
    
    
    4.7
    %Edusur (Argentina)
    
    
    605,366
    
    
    
    201,473
    
    
    
    (403,892
    )
    
    
    (66.7
    )%Distrilima/Edelnor (Peru)
    
    
    190,971
    
    
    
    205,670
    
    
    
    14,700
    
    
    
    7.7
    %Cerj (Brazil)
    
    
    380,636
    
    
    
    348,613
    
    
    
    (32,023
    )
    
    
    (8.4
    )%Investluz/Coelce (Brazil)
    
    
    250,000
    
    
    
    230,002
    
    
    
    (19,998
    )
    
    
    (8.0
    )%Luz de Bogotá/Codensa (Colombia)
    
    
    330,171
    
    
    
    334,820
    
    
    
    4,649
    
    
    
    1.4
    %Total operating revenues, excluding Chile
and generation business
    
    
    1,757,143
    
    
    
    1,320,578
    
    
    
    (436,564
    )
    
    
    (24.8
    )%Endesa-Chile
    
    
    1,055,732
    
    
    
    947,480
    
    
    
    (108,252
    )
    
    
    (10.3
    )%Sales of electricity (Chile)
    
    
    389,943
    
    
    
    408,740
    
    
    
    18,797
    
    
    
    4.8Sales of electricity (Argentina)
    
    
    230,017
    
    
    
    99,137
    
    
    
    (130,880
    )
    
    
    (56.9
    )Sales of electricity (Colombia)
    
    
    222,513
    
    
    
    227,539
    
    
    
    5,026
    
    
    
    2.3Sales of electricity (Brazil)
    
    
    66,986
    
    
    
    51,917
    
    
    
    (15,069
    )
    
    
    (22.5
    )Sales of electricity (Peru)
    
    
    109,294
    
    
    
    118,031
    
    
    
    8,737
    
    
    
    8.0Other
    
    
    36,979
    
    
    
    42,116
    
    
    
    5,137
    
    
    
    13.9Endesa-Chiles total revenues
    
    
    1,055,732
    
    
    
    947,480
    
    
    
    (108,252
    )
    
    
    (10.3
    )Less: intercompany transactions
    
    
    (314,855
    )
    
    
    (377,209
    )
    
    
    (62,354
    )
    
    
    19.8
    %Total operating revenues
    
    
    3,089,975
    
    
    
    2,510,732
    
    
    
    (579,243
    )
    
    
    (18.7
    )%
 93




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##### Table of Contents



(1)
    
    Includes operating revenues of Compania Americana de Multiservicios
Ltda., Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de
Velasco Limitadaand Holding Enersis y Soc. De Inv. Distribution business revenues from operations Operating revenues of our Chilean distribution subsidiaries, Chilectra and
Río Maipo, increased by Ch$30.9 billion, or 7.2%, to Ch$459.2 billion in 2002
from Ch$428.2 billion in 2001. This increase in revenues was primarily
attributable to a 3.8% increase in energy sold to 9,952 GWh in 2002, combined
with a 6.5% increase in the average energy tariffs charged to Chilean
customers. The increase in physical energy sales, in turn, was attributable to
a 3.7% increase in the number of customers, reaching 11.2 million as of
December 31,2002. The 3.8% increase in energy sold in Chile contrasts well
with a GDP growth rate of 2.1% in 2002, a slight decline from 3.1% in 2001.
Operating revenues of our non electricity Chilean subsidiaries slightly
decreased by 1.8% to Ch$160.7 billion in 2002 from Ch$163.7 billion in 2001. Operating revenues of our Argentine electricity distributor, Edesur,
decreased by 66.7% to Ch$201.5 billion as of December 31, 2002, from Ch$605.4
billion as of December 31, 2001. This decrease is explained by a 63.4%
decrease in our Argentine distribution tariff in Chilean peso terms, driven
primarily by the devaluation of the Ar$, which started 2002 at Ar$1.70 per US$
and ended the same year at Ar$3.37 per US$. At the same time, tariffs were
frozen in Ar$. Also, physical energy sales, decreased by 6.0% to 12,138 GWh in

2002 from 12,909 GWh in 2001. Excluding the effect of the transmission sales,
the decrease in physical energy sales was 5.4%, attributable to a 5.1% decline
in per capita consumption, and a decline of approximately 6,700 customers in
southern Buenos Aires. Operating revenues of Distrilima, our Peruvian company that consolidates
the electricity distribution company Edelnor, increased 7.7% to Ch$205.7
billion in 2002 from Ch$191.0 billion in 2001. This increase is primarily
attributable to a 6.3% increase in average electricity distribution tariffs in
Chilean peso terms and a 5.1% increase in physical energy sales, reaching 3,872
GWh. The increase in physical energy sales, in turn, is attributable primarily
to a 0.5% increase in the number of customers to 871,430, or approximately,
4,000 more customers in 2002 than 2001, combined with a 4.6% increase in per
capita consumption. Operating revenues of our Brazilian distribution company Cerj, decreased
by 8.4% to Ch$348.6 billion in 2002 from Ch$380.6 billion in 2001. This
decrease was attributable to a 13.7% decrease in average electricity
distribution tariffs in Chilean peso terms, reflecting in part a devaluation of
the Brazilian real, from 2.31 per U.S. dollar in January 2002 to 3.53 per U.S.
dollar on December 31, 2002. Physical energy sales of Cerj increased by 6.0%
in 2002 compared to 2001, reaching 7,146 GWh as of December 31, 2002. This
increase is related to a 5.1% increase in the number of clients and a 0.9%
increase in per capita consumption. Operating revenues of our other Brazilian distribution subsidiary Coelce,
decreased by 8.0% to Ch$230.0 billion in 2002 from Ch$250.0 billion in 2001.
This decrease is mainly due U.S. to an 8.8% decrease in average electricity
distribution tariffs in Chilean peso terms, reflecting in part a devaluation of
the Brazilian real against the U.S. dollar during 2002. Physical energy sales
increased by 3.8%, reaching 5,558 GWh as of December 31, 2002, related to a
4.8% increase in the number of clients, reaching 2.0 million customers. Operating revenues of our Colombian distribution subsidiary, Codensa,
increased by 1.4% to Ch$334.8 billion in 2002, from Ch$330.2 billion in 2001.
This increase is attributable primarily to a 3.9% increase in physical energy
sales, combined with an average increase in tariffs of 0.1% in Chilean peso
terms. On an aggregate basis, the increase in physical energy sold was
attributable to a 0.7% increase in per capita consumption combined with a 3.3%
increase in the number of customers in 2002. 94




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##### Table of Contents



Generation business revenues from operations Revenues from operations We derive a substantial portion of our consolidated revenues from the sale
of electricity in Chile. However, revenues from sales from countries other
than Chile accounted for 50.2% and 52.6% of our consolidated revenues in 2003
and 2002, respectively. Revenues from sales of electricity in Argentina
accounted for 12.1% of our consolidated revenues in 2003 as compared to 10.5%
in 2002. Revenues from sales of electricity in Colombia accounted for 22.6% in
2003 as compared to 24.0% in 2002 and revenues from sales of electricity in
Brazil accounted for 3.3% in 2003 as compared to 5.5% in 2002. In addition,
revenues from sales of electricity in Peru accounted for 12.1% in 2003 as
compared to 12.5% in 2002. In each of 2003 and 2002, other income accounted
for less than 5% of total consolidated revenues. The table below sets forth the breakdown of Endesa-Chiles revenues from
operations for 2002 and 2003, and the percentage change from year to year. 2002
    
    2003
    
    Change
    
    %Change(in millions of constant Ch$ as of December 31, 2003,except volume data)Sales of electricity (Chile)
    
    
    408,740
    
    
    
    429,149
    
    
    
    20,409
    
    
    
    5.0Sales of electricity (Argentina)
    
    
    99,137
    
    
    
    111,279
    
    
    
    12,142
    
    
    
    12.2Sales of electricity (Colombia)
    
    
    227,539
    
    
    
    208,374
    
    
    
    19,165
    
    
    
    (8.4
    )Sales of electricity (Brazil)
    
    
    51,917
    
    
    
    30,792
    
    
    
    21,125
    
    
    
    (40.7
    )Sales of electricity (Peru)
    
    
    118,031
    
    
    
    110,912
    
    
    
    7,119
    
    
    
    (6.0
    )Other
    
    
    42,116
    
    
    
    29,776
    
    
    
    12,340
    
    
    
    (29.3
    )Total
    
    
    947,480
    
    
    
    920,282
    
    
    
    27,198
    
    
    
    (2.9
    )
 Year ended December 31,2002
    
    2003
    
    Change
    
    %Change(GWh)
    
    (GWh)Energy Sales (Chile)
    
    
    18,344
    
    
    
    18,681
    
    
    
    337
    
    
    
    1.8Energy Sales (Argentina)
    
    
    7,897
    
    
    
    9,259
    
    
    
    1,362
    
    
    
    17.2Energy Sales (Colombia)
    
    
    14,639
    
    
    
    14,481
    
    
    
    (158
    )
    
    
    (1.1
    )Energy Sales (Brazil)
    
    
    3,591
    
    
    
    3,770
    
    
    
    179
    
    
    
    5.0Energy Sales (Peru)
    
    
    4,158
    
    
    
    4,443
    
    
    
    285
    
    
    
    6.9Total
    
    
    48,629
    
    
    
    50,634
    
    
    
    2,005
    
    
    
    4.1
 Operating costs The table below sets forth the breakdown of the operating costs as a
percentage of our total costs of operations for the years ended December 2001
and 2002. Year ended December 31,2001
    
    2002(as a percentage ofoperating costs)Electricity purchases
    
    
    47.08
    %
    
    
    42.24
    %Depreciation and amortization
    
    
    20.55
    %
    
    
    25.71
    %Transmission rolls
    
    
    5.52
    %
    
    
    7.31
    %Operating costs and maintenance
    
    
    8.92
    %
    
    
    9.34
    %Salaries
    
    
    5.47
    %
    
    
    5.85
    %Fuel purchases
    
    
    4.57
    %
    
    
    5.11
    %Other expenses
    
    
    7.88
    %
    
    
    4.44
    %100
    %
    
    
    100
    %
 95




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##### Table of Contents



The table below sets forth the breakdown of costs of operations for 2001
and 2002 and the percentage change from year to year. Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    (299,553
    )
    
    
    (324,365
    )
    
    
    (24,812
    )
    
    
    8.3
    %Non-electricity subsidiaries (Chile)(1)
    
    
    (120,609
    )
    
    
    (119,159
    )
    
    
    1,450
    
    
    
    (1.2
    )%Total operating income Chile except
generation business
    
    
    (420,162
    )
    
    
    (443,523
    )
    
    
    (23,362
    )
    
    
    5.6
    %Edesur (Argentina)
    
    
    (412,140
    )
    
    
    (183,447
    )
    
    
    228,692
    
    
    
    (55.5
    )%Distrilima/Edelnor (Peru)
    
    
    (136,572
    )
    
    
    (152,721
    )
    
    
    (16,149
    )
    
    
    11.8
    %Cerj (Brazil)
    
    
    (277,567
    )
    
    
    (306,380
    )
    
    
    (28,813
    )
    
    
    10.4
    %Investluz/Coelce (Brazil)
    
    
    (160,036
    )
    
    
    (164,953
    )
    
    
    (4,918
    )
    
    
    3.1
    %Luz de Bogotá/Codensa (Colombia)
    
    
    (272,607
    )
    
    
    (280,417
    )
    
    
    (7,810
    )
    
    
    2.9
    %Total operating come, excluding Chile and
generation business
    
    
    (1,258,922
    )
    
    
    (1,087,919
    )
    
    
    171,002
    
    
    
    (13.6
    )%Endesa-Chile
    
    
    (669,233
    )
    
    
    (561,141
    )
    
    
    108,092
    
    
    
    (16.2
    )%Cost of operations (Chile)
    
    
    258,913
    
    
    
    285,264
    
    
    
    26,351
    
    
    
    10.2Cost of operations (Argentina)
    
    
    84,602
    
    
    
    77,036
    
    
    
    (7,566
    )
    
    
    (8.9
    )Cost of operations (Colombia)
    
    
    145,284
    
    
    
    119,894
    
    
    
    (25,390
    )
    
    
    (17.5
    )Cost of operations (Brazil)
    
    
    32,901
    
    
    
    25,215
    
    
    
    (7,686
    )
    
    
    (23.4
    )Cost of operations (Peru)
    
    
    39,441
    
    
    
    43,037
    
    
    
    3,596
    
    
    
    9.1Endesa-Chiles total operating costs
    
    
    561,141
    
    
    
    550,447
    
    
    
    (10,694
    )
    
    
    (1.9
    )Less: intercompany transactions
    
    
    302,753
    
    
    
    345,234
    
    
    
    42,482
    
    
    
    14.0
    %Total operating income
    
    
    (2,045,565
    )
    
    
    (1,747,351
    )
    
    
    298,215
    
    
    
    (14.6
    )%
   (1)
    
    Includes operating costs of Compañía Americana de Multiservicios Ltda.,
Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de Velasco
Limitadaand Holding Enersis y Soc. De Inv. Distribution business operating costs Operating costs from our subsidiaries Chilectra and Río Maipo, Chilean
electricity distribution subsidiaries, increased by 8.3% to Ch$324.4 billion in
2002 from Ch$299.6 billion in 2001. This increase of Ch$24.8 billion is
explained primarily by increased costs of energy and power purchased from
generators. Purchases of energy by our Chilean electricity distribution
subsidiaries increased by 9.7%, or 379 GWh, while the average cost of energy
purchased increased by 6.5%. Physical energy losses for Chilectra increased
marginally, from 5.4% in 2001 to 5.6% in 2002, while those for Río Maipo
decreased from 6.4% in 2001 to 6.2% in 2002. The physical energy losses in Río
Maipo and Chilectra have remained relatively constant due to energy-theft
control programs. Finally, non-electricity related Chilean subsidiaries
recorded operating costs of Ch$119.2 billion in 2002, a slightly decrease of
Ch$1.5 billion from 2001. Operating costs for Edesur, our Argentine distribution company, decreased
by 55.5% to Ch$183.4 billion in 2002, from Ch$412.1 billion in 2001, mainly due
to a 65.2% decrease in the cost of energy purchased in Chilean peso terms due
to frozen tariffs and the devaluation of the Argentine peso, as well as a 4.2%
decrease in physical energy purchases to satisfy the lower demand for
electricity in southern Buenos Aires. The Argentine peso devalued 96




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from 1.70 to 3.37 per U.S. dollar, during 2002. The decrease in cost is
partially offset by the increase in physical energy losses from 9.9% in 2001 to
11.6% in 2002. Lower demand and increased theft are explained by the prolonged
economic downturn and increase in unemployment in Argentina. Operating costs for Distrilima, the Peruvian company that consolidates the
electricity distribution company Edelnor, increased by 11.8% to Ch$152.7
billion in 2002 from Ch$136.6 billion in 2001. Energy purchases increased by
4.6%, compared to 2001 and the cost of energy purchased increased by 7.6% in
Chilean peso terms, in 2002 compared to 2001, partially offset by lower
physical energy losses of 8.5% in 2002 compared to 8.9% in 2001. Operating costs for Cerj, one of our Brazilian distribution subsidiaries
that operates in the area of Río de Janeiro, increased by 10.4% to Ch$306.4
billion in 2002, from Ch$277.6 billion in 2001. The two main reasons for the
increased costs were that energy purchases for Cerj increased by 201 GWh, or
2.3%, from 8,713 GWh in 2001 to 8,914 GWh in 2002, and the average cost of
electricity purchased increased by 3.0% in Chilean peso terms. In addition,
the Brazilian real devalued from 2.31 to 3.53 per U.S. dollar during 2002.
Energy losses at Cerj were slightly reduced from 22.7% in 2001 to 22.6% in
2002. The concession area for Cerj includes the favelas, which are very low
income housing where energy theft is high during economic downturns. Operating costs of our other Brazilian distribution subsidiary, Coelce,
operating in the northeast State of Ceará, increased by 3.1% to Ch$165.0
billion in 2002, from Ch$160.0 billion in 2001. In the case of Coelce, the
operating costs increased less than in the case of Cerj, because despite the
increase in energy purchases by 234 GWh, or 3.8%, from 6,159 GWh in 2001 to
6,393 GWh in 2002, the average cost of electricity purchased decreased by 5.4%.
Energy losses at Coelce were slightly reduced from 13.0% in 2001 to 12.9% in
2002. Operating costs associated with our Colombian electricity distribution
company, Codensa, increased by Ch$7.8 billion, or 2.9%, to Ch$280.4 billion in
2002 from Ch$272.6 billion in 2001. Although the average cost of electricity
purchased in Colombia decreased by 3.2% in Chilean peso terms between 2001 and
2002, this was offset by a 2.4% increase in energy purchased. Despite that
increase, energy sold by our Colombian companies increased by 3.9%, which is
more than the 2.4% increase in energy purchases, the difference between energy
purchased and energy sold is mainly explained by the successful reduction in
physical energy losses, which were reduced from 11.8% in 2001 to 10.3% in 2002. As a result of the foregoing, our cost of operations, except for those
attributable to our generation segment, decreased by 8.8% to Ch$1,531.4
billion in 2002, from Ch$1,679.1 billion in 2001. Generation business operating costs Cost of operations decreased to Ch$561.1 billion in 2002, 16.2% less
compared to Ch$669.2 billion in 2001. The main drivers of this cost reduction
were savings in our operations in Argentina, Chile and Brazil, partially offset
by higher operating expenses in Colombia, and Peru. Cost of operations in Chile decreased by 5.0% to Ch$258.9 billion in 2002
from Ch$272.5 billion in 2001. This decline is explained by the exceptional
hydrology of the period, which allowed us to deliver energy pursuant to our
contracts by principally using our hydroelectric plants. Cost of operations in Argentina decreased by 53.1% to Ch$84.6 billion in
2002 from Ch$180.4 billion in 2001. The lower energy demand and the operation
of our plants resulted in lower purchased power needs from the Argentine pool
market. El Chocón reduced its purchased power by 63% and its power purchase
cost by more than 82%. In the case of Costanera, physical purchases fell by
more than 75%, contributing to a decrease of purchased power cost of 77%. In
addition, the decrease in generation in our Argentine plants decreased other
operational expenses. With respect to Costanera, the devaluation and conversion
of contracts to local currency reduced the fuel costs of the plant by Ch$36.1
billion, 68% compared to 2001. As a hydroelectric plant, El Chocón does not
have fuel costs, but nevertheless reduced its tolls and transportation costs by
almost Ch$3.2 billion because of lower sales volumes. Cost of operations in Brazil decreased by 12.9% to Ch$32.9 billion in 2002
from Ch$37.8 billion in 2001. Cachoeira Dourada in Brazil benefited from the
lower spot prices produced by the end of shortages and rationing in 97




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the beginning of 2002, reducing its power purchase costs by 55%, and
thereby decreasing its operating expenses by 9% compared to last year. Cost of operations in Colombia increased by 1.5% to Ch$145.3 billion from
Ch$143.2 billion. This increase was mainly due to higher toll expenses. Cost of operations in Peru increased by 11.4% to Ch$39.4 billion in 2002
from Ch$35.4 billion in 2001. The increase in Edegels cost of operations was
mostly the result of the amortization of maintenance cost associated to Central
Chimay. Selling and administrative expenses The table below sets forth the breakdown of selling and administrative
expenses as a percentage of our total selling and administrative expenses. Year ended December 31,2002
    
    2003(as a percentage ofoperating costs)Salaries
    
    
    40.17
    %
    
    
    41.79
    %General administrative expenses
    
    
    36.34
    %
    
    
    40.14
    %Depreciation and amortization
    
    
    6.71
    %
    
    
    8.98
    %Uncollectible accounts
    
    
    15.33
    %
    
    
    8.42
    %Materials and office supplies
    
    
    1.44
    %
    
    
    0.67
    %100
    %
    
    
    100
    %
 The table below sets forth the breakdown of administrative and selling
expenses for 2001 and 2002 and the percentage change from year to year. Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Electricity distribution subsidiaries (Chile)
    
    
    (36,035
    )
    
    
    (36,221
    )
    
    
    (186
    )
    
    
    0.5
    %Non-electricity subsidiaries (Chile)(1)
    
    
    (37,5040
    )
    
    
    (37,883
    )
    
    
    (380
    )
    
    
    1.0
    %Total selling and administrative expenses,
Chile except generation business
    
    
    (73,539
    )
    
    
    (74,104
    )
    
    
    (566
    )
    
    
    0.8
    %Edesur (Argentina)
    
    
    (74,199
    )
    
    
    (30,891
    )
    
    
    43,308
    
    
    
    (58.4
    )%Distrilima/Edelnor (Peru)
    
    
    (19,412
    )
    
    
    (19,729
    )
    
    
    (317
    )
    
    
    1.6
    %Cerj (Brazil)
    
    
    (32,355
    )
    
    
    (21,624
    )
    
    
    10,731
    
    
    
    (33.2
    )%Investluz/Coelce (Brazil)
    
    
    (45,815
    )
    
    
    (40,816
    )
    
    
    4,998
    
    
    
    (10.9
    )%Luz de Bogotá/Codensa (Colombia)
    
    
    (28,684
    )
    
    
    (32,821
    )
    
    
    (4,137
    )
    
    
    14.4
    %Total selling and administrative expenses,
excluding Chile and generation business
    
    
    (200,465
    )
    
    
    (145,881
    )
    
    
    54,583
    
    
    
    (27.2
    )%Endesa-Chile
    
    
    (35,044
    )
    
    
    (36,652
    )
    
    
    (1,608
    )
    
    
    4.6
    %Less: intercompany transactions
    
    
    26,728
    
    
    
    31,227
    
    
    
    4,500
    
    
    
    16.8
    %Total operating income
    
    
    (282,320
    )
    
    
    (225,410
    )
    
    
    56,910
    
    
    
    (20.2
    )%
   (1)
    
    Includes operating costs of Compañía Americana de Multiservicios Ltda.,
Synapsis Soluciones y Servicios IT Ltda., Inmobiliaria Manso de Velasco
Limitadaand Holding Enersis y Soc. De Inv. Selling and administrative expenses of our Chilean electricity
distribution subsidiaries, Chilectra and Río Maipo increased by 0.5%, from
Ch$36.0 billion as of December 31, 2001 to Ch$36.2 billion as of the same date
in 2002. Selling and administrative expenses of our Chilean non-electricity
subsidiaries also increased Ch$0.4 billion, or 1.0%, from Ch$37.5 billion in
2001 to Ch$37.9 billion in 2002. As a percentage of Chilean revenues in the
electricity related distribution subsidiaries, administrative and selling
expenses decreased from 8.4% in 2001 to 7.9% in 2002. 98




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Our foreign distribution companies recorded lower expenses principally as
a result of the devaluation of the Argentine peso and to a lesser extent, the
devaluation of the Brazilian real, both against the U.S. dollar. Argentine selling and administrative expenses decreased by 58.4%, or
Ch$43.3 billion, from Ch$74.2 billion in 2001 to Ch$30.9 billion in 2002. As a
percentage of operating revenues, Edesurs expenses increased from 12.3% in
2001 to 15.3% in 2002. Peruvian selling and administrative expenses increased by 1.6% to Ch$19.7
billion in 2002 from Ch$19.4 billion in 2001 despite the recovery of
uncollectible accounts. As a percentage of operating revenues, Edelnors
expenses decreased from 10.2% in 2001 to 9.6% in 2002. Selling and administrative expenses of Cerj, one of our Brazilian
distribution companies, decreased by 33.2% from Ch$32.4 billion in 2001 to
Ch$21.6 billion in 2002. As a percent of operating revenues associated with
Cerj, such selling and administrative expenses decreased from 8.5% in 2001 to

6.2% in 2002. Selling and administrative expenses of Coelce, our other Brazilian
distribution company, decreased by 10.9% from Ch$45.8 billion in 2001 to
Ch$40.8 billion in 2002. As a percent of operating revenues associated with
Coelce, such selling and administrative expenses decreased from 18.3% in 2001
to 17.7% in 2002. Selling and administrative expenses associated with our Colombian
distribution company increased by 14.4% from Ch$28.7 billion in 2001 to Ch$32.8
billion in 2002. As a percentage of our Colombian revenues, the ratio
deteriorated from 8.7% in 2001 to 9.8% in 2002. Finally, selling and administrative expenses at Endesa-Chile and its
subsidiaries increased by Ch$1.6 billion, or 4.6 %, from Ch$35.0 billion in
2001 to Ch$36.7 billion in 2002, mainly due to the effect of a provision made
during 2002 related to severance liabilities in Colombia, partially compensated
by the decerase in adminstrative and selling expenses in Argentina. Non operating income (expense) The table below sets forth non-operating income (expense) for the year
ended December 31, 2001 and 2002, and the percentage change from period to
period. Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Net interest expense
    
    
    (400,170
    )
    
    
    (357,795
    )
    
    
    42,376
    
    
    
    (10.6
    )%Net income from related companies
    
    
    (10,806
    )
    
    
    8,347
    
    
    
    19,153
    
    
    
    (177.2
    )%Net other non-operating income (expense)
    
    
    10,872
    
    
    
    67,616
    
    
    
    56,745
    
    
    
    522.0
    %Net monetary exposure
    
    
    (28,652
    )
    
    
    (11,256
    )
    
    
    17,395
    
    
    
    (60.7
    )%Goodwill amortization
    
    
    (81,382
    )
    
    
    (511,408
    )
    
    
    (430,026
    )
    
    
    528.4
    %Non-operating expense
    
    
    (510,138
    )
    
    
    (804,496
    )
    
    
    (294,357
    )
    
    
    57.7
    %
 Non-operating expense increased by 57.7%, or Ch$294.4 billion, to Ch$804.5
billion in 2002, compared to Ch$510.1 billion in 2001. This is mainly
explained by the accounting adjustments made by the Company, to more properly
reflect the value of its investments. These adjustments were in accordance to
Chilean Generally Accepted Accounting Principles. These adjustments correspond
to the acceleration of net balance of negative and positive goodwill of
investments in distribution and generation located in Argentina and Brazil, and
due to the socioeconomic instability experienced in that countries. We believe, it is important to highlight that these adjustments were due
to the application of accounting principles and did not represent cash flow
reduction. Therefore, these adjustments did not negatively affect the
liquidity of Enersis. Net interest expense decreased by Ch$42.4 billion, or 10.6%, from a loss
of Ch$400.2 billion in 2001 to a loss of Ch$357.8 billion in 2002. This
variation is the result of lower market interest rates. 99




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Net income from related companies registered a profit of Ch$8.3 billion in
2002, a positive variation of Ch$19.2 billion, or 177.2%, when compared to the
net loss of Ch$10.8 billion in 2001. This was principally due to the better
result of Ch$13.2 billion of CIEN due to the second 1,000 MW transmission line
going into operation, and the effects of the exchange rates in the results for
both periods of the Endesa-Chiles related companies. Net other non-operating income increased by Ch$56.7 billion, reaching a
total amount of Ch$67.6 billion in 2002. This increase is mainly due to:  
    
    An increase of Ch$158.4 billion derived from the adjustments
on converting local currencies to Chilean pesos pursuant to
Technical Bulletin No. 64, particularly with respect to subsidiaries
in Brazil and Argentina. This was principally due to the
devaluation of both the Brazilian real and the Argentine peso
against the U.S. dollar, and the monetary assets and liabilities
structure of each company.  
    
    Lower losses of Ch$10.7 billion from forward contracts, which
recovered from a loss of Ch$5.8 billion as of December 31, 2001 to a
profit of Ch$4.9 billion in 2002.  
    
    Higher dividends received from related companies of Ch$5.4
billion. This was partially offset by:  
    
    Provisions made during 2002 of Ch$63.5 billion (Ch$42.7
billion net of minority interest), for real estate projects in
progress.  
    
    Lower profits during 2002 of Ch$24.4 billion, due to the
repurchase of Yankee Bonds made by Enersis and Endesa-Chile on
November 2001 which did not occur again in 2002.  
    
    An increase of Ch$13.3 billion in provisions for
contingencies and lawsuits.  
    
    Net losses of Ch$7.6 billion resulting from the power
compensation payments at the SIC-SING system.  
    
    Tax adjustments of the sales in a Brazilian subsidiary during
the year 2001 of Ch$6.8 billion  
    
    Adjustment to the market value of the Sovereign Bond of the
Argentinean Government held by Edesur by Ch$5.2 billion. As for net monetary exposure, we had lower losses of Ch$17.4 billion.
This was caused principally by the effects of the nominal devaluation of 9.8%
of the Chilean peso against the U.S. dollar in 2002, compared to a devaluation
of 14.4% in 2001. These effects were compensated to a large extent by forward
contracts held by the Company. Goodwill amortization for the year 2002, amounted to Ch$511.4 billion, an
increase of Ch$430.0 billion respect to Ch$81.4 billion as of December 2001.
The increase in the amortization is related to the acceleration of amortization
of the net balance of negative and positive goodwill of investments in
distribution and generation located in Argentina and Brazil by Ch$428.9 billion
(Ch$276.5 billion net of minority). The final effect is a loss of Ch$365.8
billion (Ch$238.8 billion net of minority interest). Net income The following table sets forth our net income for the periods indicated. Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Operating income
    
    
    762,089
    
    
    
    537,971
    
    
    
    (224,119
    )
    
    
    (29.4
    )%Non-operating income
    
    
    (510,138
    )
    
    
    (804,496
    )
    
    
    (294,357
    )
    
    
    57.7
    %Net income before taxes,
minority interest and negative
goodwill amortization
    
    
    251,952
    
    
    
    (266,525
    )
    
    
    (518,476
    )
    
    
    (205.8
    )%
 100




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Year ended December 31,2001
    
    2002
    
    Change
    
    % Change(in millions of Ch$)Income taxes
    
    
    (131,149
    )
    
    
    (66,677
    )
    
    
    64,471
    
    
    
    (49.2
    )%Minority taxes
    
    
    (126,405
    )
    
    
    16,445
    
    
    
    142,850
    
    
    
    (113.0
    )%Amortization of negative goodwill
    
    
    48,177
    
    
    
    113,370
    
    
    
    65,193
    
    
    
    135.3
    %Extraordinary items
    
    
    0
    
    
    
    (22,599
    )
    
    
    (22,600
    )
    
    
    n.a.Net income
    
    
    42,576
    
    
    
    (225,986
    )
    
    
    (268,561
    )
    
    
    (630.8
    )%
 Net income as of December 31, 2002 decreased by Ch$268.6 billion, reaching
a loss of Ch$226.0 billion compared to a gain of Ch$42.6 billion as the same
date of the previous year. Income taxes during 2002 show a reduction of Ch$64.5 billion, or 49.2%,
amounting Ch$66.7 billion, respect to Ch$131.1 billion in the year 2001. This
was mainly explained by lower income tax of Ch$51.7 billion due to lower income
from our Argentine subsidiaries due to the economic crisis, which resulted in
the devaluation of the Argentine peso against the U.S. dollar, and lower
expenses for deferred taxes for Ch$12.8 billion. Negative goodwill was Ch$113.4 billion in 2002, compared to Ch$18.2
billion for 2001. This increase resulted primarily from the impairment of the
Companys investments in Brazil and Argentina during 2002. See note 13 to our
audited consolidated financial statements and Critical Accounting
PoliciesTechnical Bulletin No. 64. Extraordinary items show a loss of Ch$22.6 billion due to a new tax
imposed by the Colombian government relating to anti-terrorist taxes and
imposed upon all companies established in that country. This was a one-time
tax, and was completely paid during 2002. B. Liquidity and capital resources We are a holding company with no significant assets other than the stock
of our subsidiaries. For the twelve month period ended December 31, 2002, our
principal sources of liquidity, expressed in U.S. dollars at the year end
exchange rate, were:  
    
    US$148.8 million in intercompany debt principal and interest
payments from Chilectra, Río Maipo and Chilean wholly owned
subsidiaries;  
    
    US$43.5 million and US$0.7 million from capital reductions in Codensa and Investluz, respectively;  
    
    US$42.7 million in new debt (excluding proceeds used to refinance debt);  
    
    US$26.2 million and US$6.6 million in intercompany debt
amortizations and interest payments from Cerj and Coelce, respectively;  
    
    US$8.1 million, US$2.5 million and US$2.0 million in dividends from
Edelnor, Investluz and Codensa, respectively;  
    
    US$8.8 million from interest income;  
    
    US$8.4 million in dividends received from Endesa-Chile; and  
    
    US$1.5 million in management fees. The aggregate inflows of cash from these sources amounted to approximately
US$299.7 million in 2002. For the same twelve month period ended December 31, 2002, we applied a
total of US$277.5 million in cash, on the following items:  
    
    US$224.9 million primarily to pay interest expenses and derivative contract payments; 101




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
    
    US$42.8 million to grant an inter company loan to Endesa-Chile; and  
    
    US$9.8 million for other uses. Net cash generation during 2002 was approximately US$22.2 million. For the twelve month period ended December 31, 2003, our principal sources
of liquidity, expressed in U.S. dollars at the year end exchange rate, were:  
    
    US$800.8 million in cash from our capital increase;  
    
    US$174.2 million in cash from the sale of Río Maipo;  
    
    US$146.6 million in intercompany debt amortizations and
intercompany interest payments from Chilectra, Río Maipo and wholly
owned subsidiaries;  
    
    US$19.9 million and US$8.7 million in dividends from Codensa and Edelnor, respectively;  
    
    US$21.6 million in principal payments from an intercompany loan to Endesa-Chile;  
    
    US$19.4 million from new debt (excluding proceeds used to refinance debt);  
    
    US$9.5 million from a capital reduction in Edelnor;  
    
    US$6.5 million and US$0.1 million in intercompany interest payments
from Colece and Cerj, respectively;  
    
    US$5.7 million in interest income; and  
    
    US$1.9 million in management fees. The aggregate inflows of cash from these sources amounted to approximately
US$1,210 million in 2003. For the same twelve month period ended December 31, 2003, we applied a
total of US$1,116 million in cash, on the following items:  
    
    US$898.2 million to pay outstanding indebtedness (US$737.5 million
for the remaining outstanding portion of a syndicated credit facility
entered into in May 2003, US$149.1 million to pay for almost all the
bondholders who exercised their put option on our 6.6% Notes due 2026
on December 1, 2003, and US$11.5 million to pay local bond
amortizations);  
    
    US$211.6 million primarily to pay interest expenses and derivative contract payments; and  
    
    US$6.6 million for other uses. Net cash generation during 2003 was approximately US$93.6 million. For a description of liquidity risks resulting from our holding company
status, please see Risk FactorsRisks Relating to Our OperationsWe are a
holding company and depend on payments from our subsidiaries and related
companies to meet our payment obligations in this annual report. We coordinate the overall financing strategy of our majority owned
subsidiaries. Our operating subsidiaries independently develop capital
expenditure plans and our strategy is generally to have the operating
subsidiaries independently finance capital expansion programs through
internally generated funds or direct financings. We also coordinate
acquisition financing in respect of distribution operations with Chilectra. We
coordinate all generation and transmission acquisition financing with
Endesa-Chile. For information regarding our commitments for capital
expenditures, see Item 4. Information on the CompanyB. Business
overviewBusiness StrategyCapital Investment Program and our contractual
obligations table set forth below 102




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We have accessed the international equity capital markets, with three SEC
registered ADS issuances in October 1993, February 1996 and September 2000, for
Enersis and once in 1994 for Endesa-Chile. We have also frequently issued
bonds in the international capital markets, or Yankee Bonds, for both Enersis
and Endesa-Chile, as well as for Pehuenche, a subsidiary of Endesa-Chile.
Enersis issued US$800 million in Yankee Bonds in November 1996, and US$350
million in November 2003. Endesa-Chile and its consolidated subsidiaries have
also issued Yankee Bonds between 1996 and 2003, of which US$2,200 million are
currently outstanding. In June 2000, both Enersis and Endesa-Chile established
Euro medium-term note programs, or EMTN Programs, for an aggregate amount of
1 billion each. Endesa-Chile issued 400 million in 3 year floating
rate notes in July 2000 under its EMTN Program. The following table lists the Yankee Bonds of Enersis and consolidated
subsidiaries outstanding at March 31, 2004. The weighted average annual
interest rate for Yankee Bonds issued by Enersis and its consolidated
subsidiaries, of which an aggregate principal amount US$3.2 billion is
outstanding as of the date of this report, is approximately 7.8%. Aggregate PrincipalIssuer
    
    Maturity
    
    Coupon
    
    Amount Issued(as a percentage)
    
    (in U.S. millions)Endesa-Chile Overseas Co.
    
    April 1, 2006
    
    
    7.200
    
    
    
    150Endesa-Chile
    
    July 15, 2008
    
    
    7.750
    
    
    
    400Endesa-Chile
    
    April 1, 2009
    
    
    8.500
    
    
    
    400Endesa-Chile
    
    August 1, 2013
    
    
    8.350
    
    
    
    400Endesa-Chile
    
    August 1, 2015
    
    
    8.625
    
    
    
    200Endesa-Chile
    
    February 1, 2027
    
    
    7.875
    
    
    
    230Endesa-Chile(1)
    
    February 1, 2037
    
    
    7.325
    
    
    
    220Endesa-Chile
    
    February 1, 2097
    
    
    8.125
    
    
    
    200Enersis
    
    December 1, 2006
    
    
    6.900
    
    
    
    300Enersis
    
    January 15, 2014
    
    
    7.375
    
    
    
    350Enersis
    
    December 1, 2016
    
    
    7.400
    
    
    
    350Enersis (2)
    
    December 1, 2026
    
    
    6.600
    
    
    
    150
   (1)
    
    Holders of these Yankee Bonds can exercise a put option against
Endesa-Chile on February 1, 2009.(2)
    
    Holders of these Yankee Bonds exercised a put option against Enersis on
December 1, 2003 for an aggregate principal amount of US$149.1 million. Both Enersis and Endesa-Chile, as well as our subsidiaries in the five
countries in which we operate, also have access to local capital markets, where
we have issued debt instruments including commercial paper and medium and
long-term bonds that are primarily sold to pension funds, life insurance
companies and other institutional investors. In 2001, Endesa-Chile issued
UF7.5 million (approximately US$180 million at the time of issuance) in 5-year
and 21-year local bonds, in each case with an interest rate of 6.2% per annum.
Enersis issued UF6.5 million (approximately US$169 million at the time of
issuance) in 8-year and 21-year local bonds, each with interest rates of 5.5%
and 5.75% per annum, respectively. On October 24, 2003, Endesa-Chile issued
UF4 million in 7-year UF denominated bonds with an interest rate of 5.65% per
annum, and another UF4 million in 25-year UF denominated bonds with an interest
rate of 6.20% per annum, for an aggregate principal amount of UF8 million
(Ch$135.8 billion or US$214 million at the time of issuance). For a full
description of the local bonds issued by Enersis and Endesa-Chile, see Item
18. Audited Consolidated Financial Statements as of December 31,
2003Note 19Bonds Payable. Our companies are also frequent borrowers in the commercial bank markets,
both in the form of bilateral loans as well as in syndicated loans. In 1999,
we entered into US$3.5 billion in 2-year bilateral loans with a group of
relationship banks. The loans were extended for two additional years, and were
scheduled to mature in 2003, but were paid with the proceeds of syndicated
credit facilities that we entered into in May 2003. We have also entered into
several syndicated loans over the last few years, including, among others, an
aggregate of US$400 million 3-year bullet syndicated facility for Enersis in
late March 2001 and two 3-year bullet US$500 million syndicated facilities, one
for Enersis and one for Endesa-Chile, in July 2001. These loans were also paid
before their stated maturity with the proceeds of syndicated credit facilities
that we entered into in May 2003. 103




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On March 31, 2003, at an extraordinary shareholders meeting, our
shareholders approved the issuance of up to 24,382,994,488 shares in a capital
increase, including two pre-emptive rights offering periods. The first
pre-emptive rights period ended on June 30, 2003 and the second pre-emptive
rights period took place between November 20 and December 20, 2003. ENDESA, S.A. (Endesa-Spain), through Elesur S.A., a wholly-owned
subsidiary and our direct parent company as of the date of the capital increase
(Elesur), exercised a portion of its pre-emptive options corresponding to
14,406,840,511 new shares, which were paid by the extinguishment of a Ch$1.0
trillion (approximately US$1.4 billion at the exchange rate applicable at that
time) intercompany loan that had previously been granted to Enersis by Elesur
(the Loan). As required by Chilean law, an independent appraiser valued the
Loan exclusively for purposes of the capital increase at 86.84% of its par
value. Endesa-Spain, acting through Elesur, subscribed for 59.09% of the new
shares at a value of approximately Ch$ 870.5 billion, the appraised value of
the Loan. Endesa-Spain and its wholly-owned subsidiaries did not exercise all their
pre-emptive options during the first pre-emptive rights period in order to make
shares available for a possible exchange offer to local bondholders and
voluntarily excluded themselves from the second pre-emptive rights period in
order to permit minority shareholders to participate with higher pro rata
shares in that period. Minority shareholders subscribed 31.61% of the shares available to third
parties in the first pre-emptive rights period for a total cash subscription of
approximately Ch$465.6 billion. During the second pre-emptive rights period,
minority shareholders subscribed an additional 5.55% for a total cash
subscription of approximately Ch$81.8 billion. Additionally, 3.66% of the new
shares were subscribed as part of the local bond exchange offer, which took
place in between the first and the second pre-emptive rights periods of the
capital increase. As a result, the total amount of local bonds exchanged was
equivalent to approximately Ch$54 billion. In summary, the total number of shares subscribed was 24,360,123,331 for
an aggregate capital increase of US$2,106 million. Of this amount, 59.1% were
subscribed by Endesa-Spain, acting through Elesur, and 40.9% were subscribed by
minority shareholders. As a result of the foregoing, since December 20,2003,
Endesa-Spains ownership interest in Enersis has been 60.6% decreasing from
65.0% prior to the capital increase. Our capital increase during 2003 resulted in an increase of our
outstanding shares from 8,291,020,100 to 32,651,166,465. The increase in the
number of outstanding shares resulted in a dilution of 75% of the holdings that
did not participate in the subscription of new shares. The capital increase
allowed us to significantly reduce our indebtedness as a result of the
extinguishment of the Ch$1.0 trillion intercompany loan from Elesur and the
application of cash proceeds from the capital increase to repay US$741 million
of indebtedness. Finally, as of December 31, 2003, Endesa Spains ownership interest in
Enersis is 60.6%, diluted from the 65.0% level on December 31, 2002. On May 15, 2003, Enersis entered into credit facilities for an aggregate
amount of approximately US$1,588 million and Endesa-Chile entered into a credit
facility for US$743 million. These facilities refinanced most of Enersis and
Endesa-Chiles indebtedness under outstanding syndicated and bilateral credit
agreements, which otherwise would have matured in 2003 and 2004. The total
outstanding amounts under both these credit facilities have been prepaid in
full as described below. On November 14, 2003, we entered into an agreement with a syndicate of
banks to provide a new US$800 million senior unsecured term loan facility
through our Cayman Islands branch (the Enersis November 2003 Facility),
consisting of a US$500 million tranche and a US$300 million tranche. The
US$500 million tranche was drawn on November 19, 2003. The period for drawing
the US$300 million tranche expired on the closing date upon the issuance of
7.375% notes due 2014 in the aggregate principal amount of US$350 million. The
proceeds of the Enersis November 2003 Facility and the proceeds from the
issuance and sale of the 7.375% notes, together with cash from other sources,
were used to repay all amounts outstanding under the US$1,588 million credit
facilities dated May 15, 2003. On April 14, 2004, we made a voluntary repayment under the Enersis
November 2003 Facility of US$150 million, reducing the outstanding amount of
the loans to US$350 million. On the same date, we amended and 104




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restated the Enersis November 2003 Facility (the Amended Enersis
Facility). The Amended Facility ranks pari passu with all other unsecured and
unsubordinated debt of Enersis. No principal repayments are required under the
Amended Enersis Facility during the 30-month period beginning on November 19,
2003. During this period we will pay only interest in respect of the unpaid
principal amount of all loans under the Amended Enersis Facility, subject to
mandatory prepayments of all amounts owed to any lender, at the option of such
lender, in the event of a change of control or Enersis ceasing to be a public
company. Beginning 30 months after November 19, 2003, and on each six-month
anniversary thereafter, we are required to repay the loans in an aggregate
principal amount equal to one-sixth of the aggregate principal amount of loans
outstanding on April 14, 2004, subject to adjustment for voluntary prepayments.
The Amended Enersis Facility matures five years from November 19, 2003. The
margin over LIBOR at which interest accrues under the Amended Enersis Facility
is determined by reference to our foreign currency issuer credit rating by S&P.
Such margin ranges from 75 basis points for an A- or higher rating to 275
basis points for a rating lower than BB+. At the time of this filing, the
current interest rate applicable to the Amended Enersis Facility is LIBOR plus
115 basis points. The Amended Enersis Facility requires us to be in compliance on the last
day of any fiscal quarter with specified financial covenants related to maximum
ratios of indebtedness to adjusted cash flow (ranging from 8.75:1 in the first
quarter of 2004 to 6.00:1 in 2008), indebtedness to EBITDA (as defined in the
credit agreement, which may differ from the manner in which EBITDA may be
commonly calculated) (ranging from 5.00:1 in 2004 to 3.00:1 in 2008), debt to
equity (ranging from 80% in 2004 to 60% in the fourth quarter of 2008) and
minimum ratio of adjusted cash flow to interest expense (ranging from 1.25:1 in
the first quarter of 2004 to 2.30:1 in the fourth quarter of 2008). On February 4, 2004, Endesa-Chile entered into an agreement with a
syndicate of banks to provide a new US$250 million senior unsecured term loan
facility through Endesa-Chiles Cayman Islands branch (the Endesa-Chile
Facility). Endesa-Chile borrowed the full amount under this facility and used
the proceeds of the borrowing plus the proceeds of the issuance of US$600
million Yankee Bonds on July 18, 2003 to repay all amounts outstanding under
another Endesa-Chile credit facility dated May 15, 2003 for US$743 million.
The Endesa-Chile Facility ranks pari passu with all other unsubordinated debt
of Endesa-Chile. No principal repayments are required under the Endesa-Chile
facility until it matures 42 months from its original closing date, February 9,
2004; prior to maturity Endesa-Chile is required to pay interest in respect of
the unpaid principal amount of all loans under the Endesa-Chile Facility,
subject to mandatory prepayment of all amounts owed to any lender, at the
option of such lender, in the event of a change of control or Endesa-Chile
ceasing to be a public company. The margin over LIBOR at which interest
accrues under the Endesa-Chile Facility is determined by reference to the S&P
rating of Endesa-Chiles senior unsecured long-term foreign currency
denominated debt; such margin ranges from 75 basis points for an A- or higher
rating to 275 basis points for a rating lower than BB+. At the time of this
filing, the current interest rate applicable to the Endesa-Chile Facility is
LIBOR plus 115 basis points. The Enersis and Endesa-Chile Yankee Bonds contain covenants that place
restrictions on the extent to which Enersis and Endesa-Chile and certain of
their subsidiaries (i) create or incur liens on properties and assets and (ii)
enter into sale and leaseback transactions. As is customary for certain credit and capital market debt facilities, a
significant portion of Enersis financial indebtedness is subject to cross
default provisions. The Amended Enersis Facility, the Endesa-Chile Facility
and the Yankee Bonds represent the Companys most material indebtedness, and
contain the most material cross default provisions. Other outstanding
indebtedness is for less significant amounts, and their cross default
provisions, if any, have higher thresholds. Payment defaults in relation to any individual indebtedness of
Endesa-Chile, or some of its more relevant subsidiaries, subject to expiration
of applicable grace periods (if any) and a materiality threshold of US$30
million outstanding (on an individual basis) could give rise to a cross default
under the Endesa-Chile Facility. Endesa-Chiles relevant subsidiaries which
have indebtedness in excess of US$30 million as of March 31, 2004 are Celta,
Pehuenche, Endesa Internacional and Betania. Likewise, payment defaults in relation to any individual indebtedness of
Enersis, or some of its relevant subsidiaries, including Endesa-Chile, subject
to expiration of applicable grace periods (if any) and a materiality threshold
of US$30 million (on an individual basis) could give rise to a cross default
under the Amended Enersis 105




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Facility. Enersiss relevant subsidiaries which have indebtedness in
excess of US$30 million as of March 31, 2004 are Endesa-Chile, Betania and
Cerj. If Enersis or any of its subsidiaries defaults in the payment on any
individual indebtedness having a principal amount in excess of US$30 million,
an event of default would be triggered under the Enersis Yankee Bonds.
Enersis subsidiaries, which include certain subsidiaries of Endesa-Chile, and
have indebtedness in excess of US$30 million as of March 31, 2004 are
Endesa-Chile, Betania, Cerj, Coelce, Celta, Pehuenche, Endesa Internacional,
San Isidro, Costanera and Emgesa. In addition, if Endesa Chile or any of its subsidiaries defaults in the
payment on any individual indebtedness having a principal amount in excess of
US$30 million, an event of default would be triggered under the Endesa-Chile
Yankee Bonds. Endesa Chiles subsidiaries which have indebtedness in excess of
US$30 million as of March 31, 2004 are Betania, Celta, Pehuenche, Endesa
Internacional, San Isidro, Costanera and Emgesa. Any event of default arising
out of Endesa Chiles or Enersis Yankee Bonds would trigger a cross default
under most of the existing bank credit agreements. In addition to the payment cross default provisions described in the
previous paragraphs, certain Enersis and Endesa-Chiles indebtedness is subject
to (A) cross acceleration provisions, again subject to a materiality threshold
of US$30 million (US$50 million in certain cases) on an individual basis, and
(B) certain other customary events of default. Some of the more material
examples of such customary event of default triggers include bankruptcy and
insolvency proceedings, material adverse judgments, and certain governmental
actions such as nationalization, seizure, or expropriation of assets. The
general cross acceleration provisions give rise to an event of default only
when other material indebtedness has been accelerated at the direction of the
required lenders thereunder or otherwise pursuant to its terms, after
expiration of grace periods where applicable. At the time of this filing, we are in compliance with our material
covenants contained in our debt instruments. There is one delayed payment of an
immaterial amount in Costanera (totaling US$ 3.6 million of bank debt). We
are in advanced discussions with the lender under this facility and expect that
we will soon reach an agreement for its partial payment and rescheduling. As of December 31, 2003, our consolidated debt due in the short term
amounted to US$892.2 million, of which approximately US$345 million was paid as
of March 31, 2004, resulting in a balance of approximately US$548 million for
the remainder of 2004. We are in the process of refinancing this balance:  
    
    Endesa-Chile intends to roll over US$290 million in short term debt;  
    
    Codensa will refinance approximately US$113 million with long term bonds issued in the local market;  
    
    Coelce is currently negotiating a US$50 million new facility which
it intends to use to prepay existing short term debt;  
    
    Cerj is in the process of refinancing US$31 million in bank debt
and US$21 million in loans from government agencies, through the
issuance and sale of up to US$90 million in long-term debentures;  
    
    Edelnor will seek to refinance US$27 million in short term debt
with long term bank debt or by issuing local bonds; and  
    
    other non-distribution Chilean subsidiaries have approximately
US$61 million in bank debt which we intend to refinance with new bank
debt with maturities of at least 3 years. We will probably need to access external credit in order to refinance
Enersis and Endesa-Chiles stand-alone indebtedness, mostly in the form of
local and Yankee Bond issuances, starting in 2006. We expect that we will
continue to have access to sufficient sources of liquidity, principally local
and international bond markets and bank loans. In addition to available cash, as of this filing, Enersis currently has
the ability to draw up to approximately US$99.7 million from unused lines of
credit granted by Chilean banks, and Endesa-Chile has the ability to draw up 106




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to approximately another US$102.2 million from similar sources. Our
levels of consolidated indebtedness decreased by 29%, from US$8.98 billion as
of December 31, 2002, to US$6.4 billion as of December 31, 2003. The Company
does not currently anticipate liquidity short falls affecting its ability to
meet the obligations outlined in the table above. We expect to refinance our
indebtedness as it becomes due, fund our purchase obligations outlined in the
table above with intentionally generated cash, and fund capital expenditures
with a mixture of intentionally generated cash and borrowings. In our most recent fixed rate financing, Yankee Bonds issued by Enersis on
November 14, 2003, we are paying an annual coupon of 7.375% plus an Additional
Interest of 0.5% per annum until such moment as we are able to complete an
exchange of these notes for SEC registered new notes. Reconciliation of non-GAAP measures to Chilean GAAP The table below excludes the effect of the deconsolidation of Río Maipo
and Infraestructura 2000, as well as the effect of the appreciation of the
Chilean peso against the U.S. dollar in our operating income for the periods
indicated. 2002
    
    2003(in millions CH$)Operating Income
    
    
    537,971
    
    
    
    531,099Río Maipo
    
    
    (10,582
    )
    
    
    Infraestructura
    
    
    (8,288
    )
    
    
    Effect of Ch$ appreciation
    
    
    (46,488
    )
    
    
    Operating income excluding above
    
    
    472,613
    
    
    
    531,099
 The table below excludes the effect of fees associated with the prepayment
of bank loans on our net interest expense for the period indicated. 2002
    
    2003(in millions CH$)Net interest expense
    
    
    (363,195
    )
    
    
    (353,198
    )Prepayment fees
    
    
    0
    
    
    
    39,095Net interest expense excluding above
    
    
    (363,195
    )
    
    
    (314,103
    )
 C. Research and development, patents and licenses, etc. None D. Trend Information In general, trends cannot be easily established for the energy business in
the five countries in which we operate. However, we have identified the
following themes: There is a tendency toward greater competition in some
countries, combined with a liberalization of regulated markets, and the
introduction, or proposed introduction, of trading companies that will market
energy to final clients. This would give us access to a wider universe of
customers, allowing us to compete to serve higher margin clients. There is
also a general tendency toward the interconnection of electricity systems,
including systems that cross international borders, such as our CIEN project
between Argentina and Brazil, increasing competition in the markets served by
interconnection projects and at the same time opening new markets for our
current installed capacity. Our ability to rely on natural gas from Argentina is increasingly
uncertain, because of natural gas restrictions applied by the Argentine
government. See Item 3. Key InformationRisk Factors relating to Argentina. 107




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E. Off balance sheet arrangements Enersis is not a party to any off balance sheet transactions. F. Tabular disclosure of contractual obligations The table below sets forth the Companys cash payment obligations as of
December 31, 2003. Jan 2004
    
    Jan 2005
    
    Jan 2006
    
    Jan 2007
    
    AfterAs of December 31, 2003:
    
    Dec 2004
    
    Dec 2005
    
    Dec 2006
    
    Dec 2007
    
    2007
    
    Total(1)(in U.S. millions)Contractual Obligations(1)Leases(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations(3)
    
    
    926
    
    
    
    937
    
    
    
    911
    
    
    
    925
    
    
    
    4,262
    
    
    
    7,961Bank Debt
    
    
    757
    
    
    
    73
    
    
    
    233
    
    
    
    390
    
    
    
    362
    
    
    
    1,815Yankee bonds
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    
    
    
    
    2,751
    
    
    
    3,201Chilean bonds
    
    
    34
    
    
    
    53
    
    
    
    294
    
    
    
    145
    
    
    
    452
    
    
    
    978Interest on Indebtedness
    
    
    495
    
    
    
    420
    
    
    
    368
    
    
    
    311
    
    
    
    2,840
    
    
    
    4,432Other long term liabilities
    
    
    102
    
    
    
    144
    
    
    
    87
    
    
    
    104
    
    
    
    260
    
    
    
    697Total(4)
    
    
    2,446
    
    
    
    1,733
    
    
    
    2,455
    
    
    
    2,051
    
    
    
    12,060
    
    
    
    20,745
   (1)
    
    In addition to the contractual obligation set forth above, we expect to
make capital expenditures of US$273 million in 2004, US$285 million in
2005 and US$275 million in 2006.(2)
    
    We do not have any material operating or capital lease obligations.(3)
    
    Includes generation and distribution business purchase obligations
comprised mainly of energy purchases, operating and maintenance contracts
and other services.(4)
    
    Our table of contractual cash obligations does not include planned
funding of pension and other postretirement benefit obligations. For a
comprehensive discussion of our employee benefit obligations, including
the assets held in our plans, our estimated obligations, and the
assumptions behind those estimates, please see Critical Accounting
Policies in this Item 5 and our consolidated financial statements in Item
18, particularly Note 37. We will continually assess, based on the amounts
that are presented in these areas of our Form 20-F, whether there is
additional material information that should be presented in this table to
provide an understanding of our cash requirements. G. Safe Harbor None 
 Item 6. Directors, Senior Management and Employees A. Directors and senior management. We are managed by our board of directors, which consists of seven members
who are elected for a term of three years at the General Stockholders meeting.
If a vacancy occurs, the board of directors will elect a temporary director to
fill the vacancy until the next regularly scheduled meeting of stockholders, at
which time the entire board of directors will be elected. On July 26, 2002,
Mr. Alfredo Llorente resigned from the board of directors and returned to
Spain, having completed his international assignment from Endesa-Spain. On the
same date, Mr. Luis Rivera resigned from the board to assume a position as
chairman of Endesa-Chile. The board elected Mr. Pablo Yrarrázaval as the new
chairman to replace Mr. Llorente, and Mr. José Luis Palomo to replace Mr.
Rivera. At the annual Stockholders meeting on March 31, 2002, our
stockholders approved these appointments and also ratified the election of Mr.
Alfonso Arias, who replaced Mr. José María Fesser as a director. Our officers
are appointed by the board of directors and hold office at the discretion of
the board. Set forth below are the members of our board of directors as of
December 31, 2003 (except for Mr. Alfonso Arias who has been director since
March 2003). 108




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Directors Current PositionAge
    
    Position
    
    Held SincePablo Yrarrázaval (1)
    
    51
    
    Chairman
    
    2002Rafael Miranda
    
    54
    
    Vice Chairman
    
    1999Alfonso Arias
    
    51
    
    Director
    
    2003José Luis Palomo
    
    49
    
    Director
    
    2002Ernesto Silva (1)
    
    55
    
    Director
    
    1997Hernán Somerville (1)
    
    62
    
    Director
    
    1999Eugenio Tironi
    
    51
    
    Director
    
    2000
   (1)
    
    Member of the Comité de Directores Set forth below are brief biographical descriptions of our directors, as
of December 31, 2003, four of whom reside in Chile and three of whom reside in
Spain. Pablo Yrarrázaval.Mr.Yrarrázaval became Chairman of the board of
directors in July 2002.Mr.Yrarrázaval is a partner in the firm Corredora de
Bolsa Yrarrázaval y Compañía, Limitada, Vice Chairman of Depósito Central de
Valores S.A., DCV, and is also Chairman of the Santiago Stock Exchange, a
position he has occupied since 1982.Before Mr.Yrarrázaval became Chairman of
the board of directors of Enersis he was Chairman of Endesa-Chile. Rafael Miranda.Mr.Miranda, an industrial engineer, joined Endesa-Spain
as Chief Executive Officer in 1987.Prior to that, he was in charge of the
industrial division of Campofrío, S.A.for four years and worked for Tudor,
S.A.for 12 years in several capacities.Mr.Miranda currently serves on the
board of directors of Endesa-Spain and as Chairman of several of its
subsidiaries, including Endesa Internacional, Compañía Sevillana de
Electricidad, S.A.and Fecsa.At Enersis, Mr.Miranda has been a director and
Vice Chairman since April 1999. Alfonso Arias.Mr.Arias received a law degree as well as graduate degrees
in Economy and Management from Universidad Complutense de Madrid.Mr.Arias is
the General Counsel of Endesa Internacional S.A., a subsidiary of Endesa-Spain.
From 1995 to 1997 he was General Secretary of the Nuclear Safety Council of
Spain.Mr.Arias joined Endesa Spain Group in 1997 as General Secretary of
Endesa.At Enersis, Mr.Arias has been a director since March 2003. José Luis Palomo.Mr.Palomo holds degrees in Business Administration, in
Sociology and in Law from the Universidad de Madrid.He also holds an MBA
degree from IESE, Universidad de Navarra.Since 1991, he has been the Chief
Financial Officer of Endesa-Spain.Mr.Palomo started his professional career
in the Financial Division of the INI (National Industry Institute) in 1976,
where he became Assistant Financial Director.Appointed in 1983, he has been
Financial Director of the Spanish/Canadian Aluminum Group, today INESPAL.Mr.
Palomo has been a member of the board of directors of Banco Arabe Español
(Aresbank), Banco Saudi Español S.A.(Saudesbank) , Infoleasing S.A., Musini,
Babcock Wilcox Española S.A., Sevillana and Vice Chairman of Unelco.At
Enersis, Mr.Palomo has been a director since July 2002. Ernesto Silva.Mr.Silva has a commercial engineering degree from
Pontificia Universidad Católica de Chileand holds an M.A.in Economics from
the University of Chicago.Mr.Silva was Chief Executive Officer of Pehuenche
between 1990 and 1995.Subsequently, he held several positions at Endesa-Chile
including Energy Division Director and Deputy Chief Executive Officer.In the
past, Mr.Silva served as CEO of Ladeco S.A., CEO of Refractorios Chilenos
S.A., CEO of Empresa Nacional de Petróleo, the state-owned oil company, as well
as leading positions in Mideplanand Comisión Chilena del Cobre.He also worked
as a university professor and in numerous non-profit organizations.Currently,
he is President of the Universidad del Desarrollo.At Enersis, Mr.Silva has
been a director since 1997. Hernán Somerville.Mr.Somerville has a law degree from Universidad de
Chile, and a M.C.J.degree from New York University Law School.From 1988 to
the present, Mr.Somerville has been a Managing Director and Partner of FINTEC,
a Chilean investment management company through which, among other things, he
has led the bank debt-to-equity conversion program sponsored by the Chilean
Central Bank, or CCB.For a six-year period beginning in 1983, he was also
Director of the CCB, and Chief Debt Negotiator for Chilean public debt and
private commercial bank debt.Mr.Somerville is also a member of the
Interamerican Bar Association and the New York 109




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City Bar Association.He is on the board of directors of several Chilean
companies and serves on the boards of several banks and bank associations.
Among other activities, Mr.Somerville is a director of a technical educational
institute, and is Chairman of the Chilean Indian Chamber of Commerce.At
Enersis, Mr.Somerville has been a director since 1999. Eugenio Tironi.Mr.Tironi received a Ph.D.in sociology from LEcole des
Hautes Etudes en Sciences Sociales(Paris, France).He is currently a Professor
of the Sociology Department of Pontificia Universidad Católica de Chile, and
has published thirteen books and hundreds of articles in this field, both in
Chile and abroad.Mr.Tironi has been a consultant to international
organizations such as the World Bank, the International Labor Organization, the
Economic Commission for South America and the Caribbean (CEPAL in its Spanish
acronym) and the United Nations Development Program.Between 1990 and 1994, he
was a Director of the Secretary for Communication and Culture of the Chilean
Government.In addition, since 1994, Mr.Tironi has been the Chairman of
Tironi Asociados, a consulting and strategic communications firm, which has
advised many Chilean and international firms.Recently, Mr.Tironi was a
visiting professor at Notre Dame University (USA) for the fall 2002 semester.
Mr.Tironi has been a director of Enersis since July 2000. Officers (as of December 31, 2003) Current
    
    Years withPosition
    
    EnersisAge
    
    Position
    
    Held Since
    
    and SubsidiariesMario Valcarce
    
    54
    
    Chief Executive Officer
    
    2003
    
    
    12Francisco Herrera
    
    39
    
    Corporate Auditing Officer
    
    2003
    
    
    7José Luis Domínguez
    
    48
    
    Communications Officer
    
    2003
    
    
    16Domingo Valdés
    
    39
    
    General Counsel
    
    1999
    
    
    10Alfredo Ergas
    
    37
    
    Chief Financial Officer
    
    2003
    
    
    10Macarena Lama (1)
    
    45
    
    Regional Planning and Control Officer
    
    2003
    
    
    1Fernando Isac (2)
    
    51
    
    Regional Accounting Officer
    
    2003
    
    
    3Francisco Silva
    
    43
    
    Human Resources Officer
    
    2003
    
    
    16
   (1)
    
    Ms. Macarena Lama joined Endesa-Spain in 1997 and she has been working
with Enersis since September 2003.(2)
    
    Mr. Fernando Isaac joined Endesa-Spain in 1977 and he has been working
with Enersis for the last 3 years. Set forth below are brief biographical descriptions of our executive
officers, all of whom reside in Chile. Mario Valcarce.Mr.Valcarce has been Chief Executive Officer of Enersis
since July 31, 2003.Before becoming Chief Executive Officer, Mr.Valcare held
the position of Chief Financial Officer of Enersis since October 2002.Prior to
that, Mr.Valcarce was the CFO of Endesa-Chile since 1995.Mr.Valcarce holds a
degree in commercial engineering from the Universidad Católica de Valparaíso.
He is also a member of the Risk Classification Commission of the Chilean
Pension Funds System.Currently, Mr.Valcarce is also Director of Generandes
Peru S.A., Chairman of Enersis International, Chairman of Chilectra
International, Chairman of Luz de Panama Inc., and Chairman of Cerj Overseas
Inc., all affiliates or subsidiaries of Enersis. Francisco Herrera.Mr.Herrera, Auditing Officer since July 2003, is a
civil engineer from Pontificia Universidad Católica de Chile.He joined the
Enersis Group in 1996, having worked as Finance Director of Endesa-Chile
subsidiaries prior to his most current position.Prior to joining the Enersis
Group, Mr.Herrera worked at Cemento Polpaico, CMPC and Ladeco. José Luis Domínguez.Mr.Domínguez, currently Chief Communications Officer
since July 2003, is a civil engineer from Pontificia Universidad Católica de
Chile.Mr.Domínguez joined the Enersis Group in May 1987 and held many
positions in Endesa-Chile and its Chilean subsidiaries until 2000, when he
became the Institutional Relations Director of Enersis for the past three
years. Domingo Valdés.Mr.Valdés, General Counsel since May 1999, is a lawyer
from Universidad de Chilewith a Master of Laws Degree from the University of
Chicago.Prior to his current position, he was a lawyer at Chilectra since 1993
and Legal Counselor at Enersis since December 1997.Mr.Valdés also worked as
an intern at the New 110




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York City law firms of Milbank, Tweed, Hadley & McCloy and Chadbourne &
Parke LLP.Before joining Chilectra, Mr.Valdés was a lawyer at Chase Manhattan
Bank, N.A.of Chile and as an associate at Carey & Cía., a Santiago-based law
firm.Mr.Valdés is also Secretary of the Enersis board of directors and a
Professor of Law and Economics at Universidad de ChileLaw School. Alfredo Ergas.Mr.Ergas, a commercial engineer from Universidad de Chile
is currently the Chief Financial Officer of Enersis since July 2003, after
having held a similar position at Endesa-Chile.Before that, Mr.Ergas served
as Chief Finance and Administration Officer of the Chilean telecommunications
company, Smartcom, from May 2000.Prior to that, Mr.Ergas served in Enersis
as Chief Planning and Control Officer and since April 1993 he served as Deputy
Chief Financial Officer for Endesa-Chile.Currently, Mr.Ergas serves as
Director of Inversiones Distrilima, S.A., Codensa S.A.Esp,and Inversiones Gas
Atacama Holding Ltda.,all affiliates or subsidiaries of Enersis. Macarena Lama.Ms.Lama, an agricultural engineer by profession, is a
graduate of Escuela Técnica Superior de Ingenieros, and received a degree in
business management in 1984.Prior to joining Endesa-Spain in 1997, she worked
at SEPI (the Spanish state-owned entity in charge of sales of operating
companies to the private sector), among others.Over the last six years, she
has held several key positions in planning, control and financing obligations
of Endesa Diversificación S.A.(Spain).As of September 2003, Ms.Lama is
Enersis Regional Planning and Control Officer. Fernando Isac.Mr.Isac, an economist, is a graduate of Universidad de
Zaragoza.Mr.Isac worked in several accounting and financing positions in ERZ,
a subsidiary of Endesa-Spain, between 1977 and 1996.Subsequently, he was a
Director of Electricidad de Caracas(Venezuela) until 1998.Between 1998 and
September 2000, he was Deputy Chief Financial Officer (Subdirector Económico
Financiero) of Electricas Reunidas de Zaragoza, a subsidiary of Endesa-Spain.
In September 2000, Mr.Isac joined Enersis as Accounting Director.As of July
2003, Mr.Isac is the Regional Accounting Officer, reporting directly to the
CEO. Francisco Silva.Mr.Silva, a business administrator, is a graduate of
Universidad de Chile, and received a D.P.A.from Universidad Adolfo Ibáñezin
1986.Mr.Silva joined Chilectra in 1987, and has since worked mostly in human
resources and general management positions in several subsidiaries and
affiliates of Enersis.Between 1998 and 2000, and again since July 2003, he has
been the Enersis Human Resources Officer.In the interim, he worked as Adjunct
Director of an Endesa-Spain subsidiary (from January 2001 to June 2003). B. Compensation. Directors are paid fees for attendance at meetings of the board of
directors and for service on the Boards of Directors of our subsidiaries. In
2003, the total compensation paid to each of our directors, which in certain
cases includes compensation for service on the boards of our subsidiaries, was
as follows: Year endedDecember 31, 2003(in thousandsof Ch$)Pablo Yrarrázaval
    
    
    58,895Rafael Miranda
    
    
    34,957José Luis Palomo
    
    
    24,540José María Fesser
    
    
    9,120Alfonso Arias
    
    
    17,249Ernesto Silva
    
    
    33,740Hernán Somerville
    
    
    33,740Eugenio Tironi
    
    
    25,156Total
    
    
    237,397
 For the year ended December 31, 2003, the aggregate amount of compensation
paid by us to all directors and executive officers, was approximately US$4.8
million. These amounts include executive performance-related executive cash
bonuses and compensation for officers who are no longer with the company.
Enersis provides for its 111




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executive officers an annual bonus plan for meeting company-wide
objectives and for their individual contribution to Enersis. The annual bonus
plan is in a range according to seniority level, and amounts to certain
additional months of gross salary compensation. Enersis does not offer stock
options. C. Board practices. The current board of directors was elected at the Shareholders meeting
dated March 31, 2003 for a period of three years (for the period during which
that person has served the office, please see  A. Directors and senior
management above). There are no directors service contracts with Enersis. Corporate Governance Enersis is managed by its executive officers under the direction of its
board of directors which, in accordance with the estatutos, or articles of
incorporation and bylaws, of Enersis, consists of seven directors who are
elected at the annual regular shareholders meeting. Each director serves for a
three year term and the term of each of the seven directors expires on the same
day. Staggered terms are not permitted under Chilean law. If a vacancy occurs
on the board during the three year term, the board of directors may appoint a
temporary director to fill the vacancy until a permanent replacement is elected
at the next general shareholders meeting. The current board of directors was
elected in March 2003 and their terms expire in March 2006. The members of the
board of directors do not have service contracts with Enersis or any of its
subsidiaries that provide benefits upon termination of employment. Chilean corporate law provides that a companys board of directors is
responsible for the management, administration and representation of a company
in all matters concerning its corporate purpose, subject to the provisions of
the companys estatutosand the stockholders resolutions. In addition to the
estatutos, the Board of Directors of Enersis S.A. has adopted regulations and
policies that guide our corporate governance principles. The most important of
these regulations and policies are the following:    The Internal Regulations on Conduct in Securities Markets, approved by
the Board on January 31, 2002, which determine the rules of conduct that must
be followed by members of the Board of Directors, senior management and other
managers and employees who, due to the nature of their job responsibilities,
may have access to sensitive or confidential information, with a view to
contributing to transparency and to the protection of investors. These
regulations are based on the principles of impartiality, good faith, placing
the companys interests before ones own, and care and diligence in using
information and acting in the securities markets.    The Charter Governing Executives (Estatuto del Directivo"), approved by
the Board on May 28, 2003, and the Employees Code of Conduct, which develop our
principles and values, establish the rules governing dealings with customers
and suppliers, and establish the principles that should be followed by
employees in their work: ethical conduct, professionalism and confidentiality.
They also impose limitations on the activities our senior executives and other
employees may undertake outside the scope of their employment with us, such as
non-compete limitations. The above regulations and rules reflect our core principles of
transparency, respect for stockholders rights, and the duty of care and
loyalty of the directors imposed by Chilean law Compliance with NYSE Listing Standards on Corporate Governance Following is a summary of the significant differences between our
corporate governance practices and those applicable to domestic issuers under
the corporate governance rules of the New York Stock Exchange. Because we are
a controlled company under the NYSE rules (a company of which more than 50%
of the voting power is held by an individual, a group or another company), we
would not, were we a domestic U.S. company, be subject to the requirement that
we have a majority of independent directors, or nomination and compensation
committees. Independence and functions of the Audit Committee Under the NYSE corporate governance rules, all members of the audit
committee must be independent. We will be subject to this requirement
effective July 31, 2005. As required by Chilean Law, Enersis has a Comité de
Directorescomposed of three directors. Although Chilean Law requires that a
majority of the Comité de Directores 112




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(two out of three members) must be composed of directors who were not
nominated by the controlling shareholder and did not seek votes from the
controlling shareholder (a non-control director), it permits the Comité de
Directoresto be composed of a majority or even a unanimity of controlled
directors, if there are not sufficient non-control directors on the board to
serve on the committee. Currently, our Comité de Directoresis composed by one
non-control director and by two directors appointed by the controlling
shareholder. Our Comité de Directoresdoes not currently meet the independence
requirements to which the audit committee of Enersis, whether the Comité de
Directoresor a different committee, will become subject on July 31, 2005, or
the additional independence requirements to which the audit committees of U.S.
companies are subject. Under the NYSE corporate governance rules, the audit committee of a U.S.
company must perform the functions enumerated in NYSE Listed Company Manual
Rules 303A.06 and 303A.07. Non-U.S. companies are required to comply with Rule
303A.06 beginning July 31, 2005, but are not at any time required to comply
with Rule 303A.07. We do not currently comply with these rules, but we expect
that, when we become subject to Rule 303A.06, we will comply with both the
independence and the function requirements of the rule. Corporate Governance Guidelines The NYSEs corporate governance rules require U.S. listed companies to
adopt and disclose corporate governance guidelines. Chilean law does not
contemplate this practice, other than with respect to the codes of conduct
described above. Committees and Other Advisory Bodies The Comité de Directores The Comité de Directoresis composed of three members who are
simultaneously directors of the Company. It performs the following functions:  
    
    examination of Annual Report, Financial Statements and the Reports
of the External Auditors and Inspectors of the Accounts;
    
    formulation of the proposal to the Board of Directors for the
selection of external auditors and private rating agencies;
    
    examination of information related to operations by the Company
with related parties and/or related to operations in which the Company
board members or relevant executive officers may have personal
interest;
    
    examination of the remuneration framework and compensation plans
for managers and executive officers; and
    
    any other function mandated to the committee by the estatutos, the
board of directors or the shareholders of the company. Pablo Yrarrázaval Valdés has served as chairman of this committee since
July 31, 2002. Its other members are Hernán Somerville and Ernesto Silva.D. 113




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Employees. The following table provides the total number of employees for our company
and its subsidiaries for the past five fiscal years: Years ended December 31,1999
    
    2000
    
    2001
    
    2002
    
    2003Enersis (Chile)
    
    
    212
    
    
    
    267
    
    
    
    235
    
    
    
    242
    
    
    
    206Endesa-Chile(1)
    
    
    2,526
    
    
    
    1,764
    
    
    
    1,752
    
    
    
    1,937
    
    
    
    1,515Chilectra (Chile)
    
    
    1,383
    
    
    
    868
    
    
    
    722
    
    
    
    720
    
    
    
    745Edesur (Argentina)
    
    
    2,630
    
    
    
    2,379
    
    
    
    2,267
    
    
    
    2,251
    
    
    
    2,258Edelnor (Peru)
    
    
    724
    
    
    
    618
    
    
    
    557
    
    
    
    565
    
    
    
    554Cerj (Brazil)
    
    
    1,782
    
    
    
    1,402
    
    
    
    1,354
    
    
    
    1,451
    
    
    
    1,517Codensa (Colombia)
    
    
    1,213
    
    
    
    969
    
    
    
    813
    
    
    
    802
    
    
    
    858Coelce (Brazil)
    
    
    1,958
    
    
    
    1,592
    
    
    
    1,464
    
    
    
    1,401
    
    
    
    1,375Other Business
    
    
    1,909
    
    
    
    1,006
    
    
    
    1,169
    
    
    
    1,549
    
    
    
    2,128Total
    
    
    11,970
    
    
    
    10,865
    
    
    
    10,333
    
    
    
    10,918
    
    
    
    11,156
   (1)
    
    Includes Chilean operations and subsidiaries abroad. Chile As of December 31, 2003, Enersis and its principal subsidiaries and
related companies had 11,156 employees, including 2,816 employees of Enersis
and of all Chilean majority owned subsidiaries, which in turn includes 499
employees of Endesa-Chile employed in Chile. In July and December 2003, two
collective bargaining agreements were entered with employees of Enersis. Each
agreement expires in 4 years, in July and December 2007, respectively.
Collective bargaining agreements with employees of Chilectra took effect on
December 31, 2000 and are scheduled to expire on December 31, 2004.
Endesa-Chile signed an agreement with the Engineers union in December 2003.
This agreement will expire in December 2006. Enersis collective bargaining
agreements with our electro-mechanical, technical and administrative personnel
terminate in December 2004 and May 2005. Argentina As of December 31, 2003, Edesur had 2,258 employees and Endesa-Chiles
subsidiaries, Costanera and CBA had 233 employees and El Chocón had 50
employees. Since July 2003, Edesur has been negotiating two collective
bargaining agreements. These negotiations have been postponed until the
Argentine government issues resolutions that are meant to alleviate the effects
of the local currency devaluation in terms of the U.S. dollar. Costanera is
also a party to two collective bargaining agreements that are scheduled to
expire in April 2005 and October 2005. Brazil As of December 31, 2003, Cerj had 1,517 employees. Endesa-Chile employed
53 persons in Cachoeira Dourada at the end of 2003. As of December 31, 2003,
Coelce had 1,375 employees. Coelce is a party to a collective bargaining
agreement that is scheduled to expire in October 2004. Cachoeira Dourada has
two agreements. Both of these agreements will expire in May 2005. Cerj is a
party to collective bargaining agreements that are scheduled to expire in
October and November 2004. Such agreements establish salaries, productivity
bonuses, individual performance evaluation and general working conditions.
Brazilian law stipulates that collective bargaining agreements cannot be of
more than two years. Colombia As of December 31, 2003, Codensa had 858 employees. Endesa-Chiles
Betania employed 34 persons and Emgesa had 286 employees as of December 31,
2003. Codensa has two collective bargaining agreements that expire in December
2007. Typically, collective bargaining agreements have two-year terms;
however, there are no legal restrictions on the maximum duration of 114




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such agreements. Emgesa is a party to a collective bargaining agreement
that is scheduled to expire in December 2007. Peru As of December 31, 2003, Edelnor had 554 employees and Endesa-Chiles
related company Edegel had 153 employees. Edelnor is a party to two collective
bargaining agreements that are scheduled to expire in November and December
2005. E. Share ownership To the best of the Companys knowledge, none of Enersis directors or
officers owns more than 0.1%, if any, of the shares of the Company. None of
Endesa-Chiles directors and officers have any stock options, as these are not
permitted under current Chilean securities laws and regulations. 
 Item 7. Major Shareholders and Related Party Transactions A. Major shareholders. As of December 31, 2003, Endesa-Spain, beneficially owned 60.6% of the
shares of Enersis. Chilean private pension funds, or AFPs, owned 16.09% in
the aggregate, with the highest AFP shareholding being AFP Provida, with 6.29%.
Chilean stock brokers, mutual funds, insurance companies, foreign equity
funds, and other Chilean institutional investors collectively owned 10.75% of
our equity. ADR holders own 8.44% of the equity. Approximately 10,140
minority shareholders own the remaining 4.10% of shares. On March 31, 2003, at an extraordinary shareholders meeting, our
shareholders approved the issuance of up to 24,382,994,488 shares in a capital
increase, including two pre-emptive rights offering periods. The first
pre-emptive rights period ended on June 30, 2003 and the second pre-emptive
rights period took place between November 20 and December 20, 2003. ENDESA S.A
(Endesa-Spain), through their wholly-owned subsidiary, Elesur S.A.,
subscribed for 14,406,840,511 new shares in the first period, which were paid
by the extinguishment of a Ch$1.0 trillion (approximately US$1.4 billion at the
exchange rate applicable at that time) intercompany loan that had previously
been granted to Enersis by Elesur. Endesa-Spain and its wholly-owned
subsidiaries did not exercise all their pre-emptive options during the first
pre-emptive rights period in order to make shares available for a possible
exchange offer to local bondholders and voluntarily excluded themselves from
the second pre-emptive rights period in order to permit minority shareholders
to participate with higher pro rata shares in that period. Endesa-Spain subscribed for 59.09% of the new shares and minority
shareholders subscribed for 31.61% of the shares available to third parties in
the first pre-emptive rights period for a total cash subscription of
approximately Ch$465.6 billion. During the second pre-emptive rights period,
minority shareholders subscribed an additional 5.55% for a total cash
subscription of approximately Ch$81.8 billion. Additionally, 3.66% of the new
shares were subscribed as part of the local bond exchange offer, which took
place in between the first and the second pre-emptive rights periods of the
capital increase. In summary, the total number of shares subscribed was 24,360,146,365 for
an aggregate capital increase of US$2,104 million. Of this amount, 59.1% were
subscribed by Endesa-Spain, acting through Elesur, and 40.9% were subscribed by
minority shareholders. As a result of the foregoing, since December 20,2003,
Endesa-Spains ownership interest in Enersis has been 60.6% decreasing from
65.0% prior to the capital increase. Principal Shareholders Enersis only outstanding voting securities are shares of common stock.
As of December 31, 2003, according to our stockholder records, our
32,651,166,465 shares of common stock outstanding were held by 10,294
stockholders of record. As of December 31, 2003, five of seven members of our board of directors
were designees of Endesa-Spain and one of the two remaining directors was
elected with the votes from Endesa-Spain. As a result of all the foregoing,
Endesa-Spain has exerted majority control over Enersis since April 1999.
However, Endesa-Spain does not have 115




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different voting rights than the other shareholders of Enersis. The
following table sets forth certain information concerning ownership of the
common stock as of December 31, 2003, with respect to each stockholder known to
us to own more than 5% of the outstanding shares of common stock. No. of
    
    Percentage of TotalShares Owned
    
    Shares OutstandingEndesa-Spain (1)
    
    
    19,794,618,139
    
    
    
    60.6
    %AFP Provida (2)
    
    
    2,054,685,902
    
    
    
    6.3
    %
   (1)
    
    Endesa-Spains 60.6% beneficial interest is held primarily through Endesa
Internacional S.A.(2)
    
    AFP Provida (Pension Fund) beneficial interest is held through four
different investment funds. B. Related party transactions. Article 89 of the Chilean Companies Act requires that our transactions
with our parent company, subsidiaries and/or their related parties be on
equitable conditions, similar to those customarily prevailing in the market.
Directors and executive officers of companies that violate Article 89 are
liable for losses resulting from such violation. In addition, Article 44 of
the Chilean Companies Act, as amended, provides that a corporation may only
execute transactions, in which one or more directors have a personal interest
or an interest as a representative of another person, when such transactions
are previously approved by the board of directors and the terms of such
transactions are adjusted to equitable conditions similar to those customarily
prevailing in the market. Resolutions approving transactions under Article 44
must be reported to our stockholders in the next stockholders meeting. If the
transactions involve a material amount, the board of directors must determine
in advance if the transactions are adjusted to equitable conditions similar to
those customarily prevailing in the market or not. If the board decides that
it is not possible to ascertain such conditions, the board of directors, with
the exclusion of interested directors, may approve or reject the transaction,
or appoint two independent appraisers. The appraisers report will be
available to the shareholders and the board of directors for a period of 20
business days. Once such term has expired, the board of directors may approve
or reject the transaction, with the abstention of interested directors. If
shareholders representing 5% or more of the voting shares consider that the
terms and conditions of the transactions are not favorable to the interests of
the company, or that the appraisers reports are substantially different, they
may request that the board convoke an extraordinary shareholders meeting to
approve or reject the transaction with a majority of 2/3 of the voting shares.
Violation of Article 44 may result in administrative and criminal sanctions and
civil liability to us, our shareholders or interested third parties who suffer
losses as a result of such violation. We, our shareholders and interested
third parties, however, may ask the interested director to reimburse the
company in an amount equivalent to the benefits that the transaction in
violation of Article 44 represented to the interested director, relatives
and/or representatives. It is common practice in Chile to transfer surplus funds of one company to
another related company that has a cash deficit. These transactions are
carried out through short-term inter-company loans. Under Chilean law and
regulation, such transactions must be carried out on an arms length basis. It
is our policy to manage all cash inflows and outflows of our wholly owned
Chilean subsidiaries, Endesa-Chile and Endesa-Chiles Chilean subsidiaries by
way of a centralized cash management policy. Such centralized cash management
is more efficient for both financial and tax reasons. All of these operations
are subject to the supervision of our Board of Directors Committee. In other countries in the regions in which we do business, these
intercompany transactions are permitted but they have adverse tax consequences.
Accordingly, we do not similarly manage the cash flows of our non-Chilean
subsidiaries. Enersis has made structured loans in Chile, at the same cost of funds of
Enersis, primarily in order to finance foreign investments. As of December 31,
2003, the outstanding net balance for such loans was US$682 million. The
largest amount outstanding during 2003 for such loans was US$684 million.
Additionally, Enersis lent to its foreign subsidiaries an amount of US$358
million as of December 31, 2003. The largest amount outstanding during 2003 for
such loans to its foreign subsidiaries was US$360 million. 116




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The interest rate on these intercompany loans to Enersis subsidiaries
ranges from 7% to 7.6% in Chile, with a weighted average interest rate of
approximately 7.1%. The interest rate on these intercompany loans to Enersis
foreign subsidiaries ranges from 4.6% to 10.5%, with a weighted average
interest rate of approximately 5.93%. Endesa-Chile has also made structured loans to its subsidiaries in Chile,
primarily to finance projects and refinance existing indebtedness. As of
December 31, 2003, the outstanding net balance for such loans was US$431
million, the largest amount outstanding during 2003. Additionally,
Endesa-Chile lent money to its foreign subsidiaries, in order to finance
foreign investments, in an amount of US$481 million as of December 31, 2003.
The largest amount outstanding during 2003 for such loans to its foreign
subsidiaries was US$492 million. The interest rate on these intercompany loans to Endesa-Chiles
subsidiaries ranges from 3.77% to 8.13% in Chile, with a weighted average
interest rate of approximately 4.6%. The interest rate on these intercompany
loans to Endesa-Chiles foreign subsidiaries ranges from 6.58% to 9.00%, with a
weighted average interest rate of approximately 7.3%. C. Interests of experts and counsel. Not applicable. 
 Item 8. Financial Information A. Consolidated Statements and Other Financial Information. See Item 18 for our consolidated financial statements. Legal Proceedings Payments Relating to Failure to Deliver Electricity Our operations in Chile were affected adversely by a severe and protracted
drought during 1998 and the first half of 2000. The severity of the drought
coupled with delays in the planned operation of a large gas-fired plant of
Colbún, one of Endesa-Chiles competitors, led the Ministry of the Economy to
decree rationing periods. The Chilean government imposed electricity rationing during three periods
in 1998 and 1999. During these periods, Endesa-Chile and other hydroelectric
generators were required by law to purchase energy from thermal electric
generators with surplus energy. Chiles Electricity Law calls for the failure
costs to be imposed on generators who do not fulfill their contractual
obligations during rationing periods. Failure cost is calculated and set by
the Comisión Nacional de Electricidad, or NEC, and penalizes generators who
cannot meet their contractual commitments. Transactions between electricity
generators who have a surplus and those who have a deficit must be carried out
at the failure costs in those node locations and during the hours when the
energy supplied is not enough to satisfy demand. The first rationing decree was issued for the period between November 13,
1998 and December 31, 1998, though actual rationing took place for only 14 days
during this period. Under the then prevailing Chilean Electricity Law, a
drought as severe as the one that occurred in 1968-1969 constituted a force
majeure event. Because the drought in 1998 was the worst in recorded history,
Endesa-Chile argued that the force majeure exemption should be applied and
disputed the applicability of the failure costs during the first rationing
period. The dispute was settled on March 26, 1999 by the Ministry of Economy,
which held that those transactions carried out in the spot market between
generation companies in those node locations and during the hours when the
energy supplied was not sufficient to satisfy the demand had to be calculated
based on failure costs. However, the Ministry of Economy did not establish the
appropriate procedures to calculate these failure costs but instead left the
matter to be resolved by the SICs dispatch center. As of the date of this
annual report, no such procedures have been established. Even if an
unfavorable decision is reached, we do not expect that it will have a material adverse
consequence on the company. The second rationing decree period began on April 30, 1999 and was
eventually superseded by a third rationing decree which began on June 12, 1999
and was extended to August 31, 1999. In the interim, on June 8, 1999, the
Electricity Law was amended and, as a result, extreme hydrological conditions
were no longer deemed to constitute 117




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a force majeure event. In addition, the amended Electricity Law provided for
customer compensation (there is no maximum level of compensation) in the event
of rationing occurring as a result of any hydrological event. It also provided
for the payment of fines by electricity generators of up to a maximum amount of
approximately US$6 million per breach resulting from inadequate supply to the
electricity system. In respect of the third rationing decree period,
Endesa-Chile paid US$2.3 million by way of compensation to customers in 1999.
The amount paid was based on the days and hours in which rationing actually
occurred. Endesa-Chile contested the payments on the grounds that its power
purchase agreements with the distribution companies were executed prior to the
enactment of the amendment to the Electricity Law and that the amendment should
not be applied retroactively to pre-existing contracts. This case is currently
being reviewed by the Chilean courts. Even if an unfavorable decision is
reached we do not expect that it will have a material adverse consequence on the company. Notwithstanding Endesa-Chiles position, the regulatory authorities have
asserted that the compensation payments made during the third rationing decree
were insufficient. Endesa-Chile has contested this assertion, but as of the
date of this annual report, there has been no definitive resolution or
statement issued by the authorities on this matter. Meridional Lawsuit: payment relating to contractual penalties On April 1, 1998, Meridional S/A Serviços Empreendimentos e Participações,
or Meridional, sued Cerj before the Brazilian courts requesting the payment of
contractual penalties. The action is based on the termination of a contract
for the execution of construction works requested from Meridional by CELF, a
state-owned company which assigned parts of its assets to Cerj prior to the
latters privatization. Additionally, the plaintiff argues that CELF has not
paid certain invoices. According to Meridional, Cerj was sued because the assets belonging to
CELF were assigned to Cerj, which, in turn, was allegedly detrimental to the
execution of the judgments against CELF. The amount of the claim is approximately US$90 million. As of the date of
this annual report, there has been no final resolution issued by the court of
first instance in Brazil. Additionally, the parties have the right to appeal
the resolution issued by such court. Edelnor S.A.: Peruvian Tax Authority (Superintendencia de Administración
Tributaria or SUNAT) inquiry In October 2000, the Peruvian Tax Authority (SUNAT) ruled that Edelnor
owed additional income tax for the 1996-1999 fiscal years in the amount of $209
million Peruvian soles. SUNAT alleged excess asset depreciation of Edelnors
revalued assets after the merger with Edechancay in 1996. SUNAT issued a ruling pursuant to Law No. 27,034 stating that Edelnor
should not have depreciated the reassessed assets beginning in 1999. Edelnor
appealed the ruling before SUNAT and concurrently commenced an arbitration
proceeding with the Peruvian Government to appeal such ruling. The appeal
before SUNAT was resolved against Edelnor before the arbitration process was
ended; however, the arbitration decision was favorable to Edelnor. Edelnor
then appealed SUNATs ruling with the Fiscal Court, which in turn ruled in
favor of enforcing the arbitration decision and declared SUNATs ruling void.
The Fiscal Court ordered SUNAT to resolve the controversy taking into
consideration the decision rendered in the arbitration process and if the case
required it, to qualify the facts as established in the VIII Norm Title of the
Tax Code. In July 2003, SUNAT declared that the VIII Norm of the Tax Code was not
applicable to the merger of Edelnor and Edechancay. SUNAT ruled that income
tax for the fiscal years 1997, 1998 and 1999 was due because the reassessment
of Edelnors assets was not made pursuant to the applicable legal requirements
and that Edelnor should not have depreciated such assets. Edelnor appealed the
resolution on August 1, 2003 before the Fiscal Court. In January 2004, the
Fiscal Court ruled in favor of Edelnor and ordered SUNAT to decide definitely
whether Edelnor effectively recorded an excessive depreciation of its
reassessed assets, and if so, it ordered SUNAT to limit its claim to the amount
recorded in excess. A final resolution from the Fiscal Court is still pending
until SUNAT renders its ruling. 118




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Edegel S.A.: SUNAT Inquiry As a result of a tax audit, SUNAT assessed an initial US$86 million income
tax claim against Edegel relating to the 1996 spin-off from which Edegel was
formed. SUNAT claims, among other things, Edegels excessive tax depreciation
for revalued fixed assets. SUNAT based its assessment calculations on the
Seventh Transitory and Final Provision of Law No. 27,034, which repealed the
option to depreciate the revaluation of fixed assets commencing from 1999. In
January 2002, Edegel filed an objection to this assessment and concurrently
commenced an arbitration proceeding. Prior to the decision of the arbitrator, which ultimately favored Edegel
by deciding that Law No. 27,034 was not applicable to this matter, SUNAT ruled
against Edegel. Edegel subsequently appealed SUNATs ruling with the Fiscal
Court on April 10, 2002. The Fiscal Court, adhering to the decision rendered
in the arbitration process initiated by Edegel, ruled that SUNATs ruling was
void. The Fiscal Court ordered SUNAT to resolve the matter by taking into
consideration the decision rendered in the arbitration process and the criteria
in Rule VIII in the preliminary Title of the Ordered Unique Text of the Tax
Code, if applicable, in its tax assessment. However, after performing a new
assessment pursuant to the arbitration decision, SUNATs claim reached the
amount of US$159 million. On July 10, 2003 SUNAT issued a new ruling accepting some of Edegels
claims. However, SUNAT ruled that the tax benefits granted by Law No. 27,034
and its regulations were not applicable to Edegel because the 1996 spin-off was
not valid. Additionally, SUNAT rejected the market value Edegel attributed to
the fixed assets it acquired from Moyopampa. On August 1, 2003, Edegel appealed SUNATs ruling with the Fiscal Court
and in September and November 2003 Edegel presented complementary written
reports to the Fiscal Court to reinforce its legal and economic analysis. On November 14, 2003 Edegel accepted some of SUNATs claims and paid
approximately US$15 million. However, the claims relating to excessive tax
depreciation for revalued fixed assets, the unavailability of the tax benefits
granted by Law No. 27,034 and its regulations and the dispute over the market
value of acquired fixed assets are still pending. A hearing took place on December 10, 2003 before the Fiscal Court. We are
unable to predict the outcome of these proceedings. Legal Proceeding by CELG In April 2003, CELG, the sole customer of Endesa-Chiles Brazilian
subsidiary Cachoeira Dourada, was awarded a preliminary and provisional
judgment that permitted CELG to suspend its payments under a long-term take or
pay contract with Cachoeira Dourada. CELG has also claimed damages of
approximately US$250 million from 1997 to 2003 relating to this contract. On
July 4, 2003, the court presiding over the dispute ruled that CELG would be
required to make payments, until the final decision is ruled, to Cachoeira
Dourada at price ranges significantly lower than the R$61.63 per MWh amount
provided for under the current terms of the take or pay contract. Cachoeira
Dourada appealed this ruling, but only received an instruction establishing
that CELG should make a deposit in court for the difference between the old
price and amount actually paid according to the July decision. The terms of
this contract provide for payments of approximately R$16.0 million per month of
which Cachoeira Dourada has received, up to March 2004, approximately R$83.8
million, corresponding to less than half of the payments due under the contract
since the breach of the contract. On June 16, 2004, the preliminary and
provisional judgment was revoked, which obliges CELG to pay 100% of the
contract to Cachoeira Dourada including payments due for all of 2003. CELG has
petitioned for reconsideration of this decision. A final unfavorable decision
could mean that Cachoeira Dourada would receive significantly lower payments
from its only customer, which would affect its ability to pay dividends to
Endesa-Chile. Cachoeira Dourada has not made provisions for the accounts
receivable from CELG or CELGs damages claim. If CELG were to prevail in its
damages claim, it would have a material adverse effect on our results from
operations. In September 2003, another claim was filed by CELG against Cachoeira
Dourada in the amount of approximately R$357 million (approximately US$120
million as of the date of this report) seeking indemnity for 119




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losses resulting from the energy rationing crisis in Brazil. CELG claims
an energy supply shortfall of 20% from the amount provided for in the supply
agreement between CELG and Cachoeira Dourada. Cachoeira Dourada was notified of
the proceeding and in November 2003 argued that CELG had already received
tariff compensation for the supply shortfall pursuant to a Rationing
Agreement signed by certain Brazilian energy companies, including Cachoeira
Dourada. Although Cachoeira Dourada expects a favorable decision, we cannot
assure that it will prevail in this proceeding. Legal Proceeding: Annulment of Privatization of Cachoeira Dourada S.A. In 1997, a legal proceeding commenced against the State of Goiás and
others requesting the annulment of the privatization of Cachoeira Dourada. We
were notified of this claim only in 2002. In its response, Cachoeira Dourada
argued that the claim was insufficient to void the legality and the legitimacy
of the privatization process of Cachoeira Dourada. Cachoeira Dourada also
requested to remit the claim to the federal court to determine whether ANEEL
should become a party to these proceedings. We believe it is likely
that the final judgment will be favorable to the interests of
Cachoeira Dourada, although we cannot give assurance. The legal demand filed against Cachoeira Dourada did not call for a
specific compensation or damages award. Additionally, there is no legal
precedent that would enable us to estimate the potential liability. We are
currently awaiting the final decision on this matter and Cachoeira Douradas
expectation is to have success. ICSID Arbitration On April 25, 2003, Enersis, Endesa-Chile, or Elesur, and Chilectra filed
an action before the International Center for the Settlement of Investment
Disputes, or the ICSID, in Washington, D.C., requesting an arbitration for
resolving a dispute with the Republic of Argentina. The grounds of this action
are the damages experienced by the Company and its subsidiaries in Argentina as
a consequence of the approval of Law No 25,561 (Economic Emergency Law) on
January 6th , 2002, Decree No. 214/2002, Decree No. 293/2002,
Resolution No. 38/2002 of the Ministry of Economy, and complementary rules. The outcome of
these new rules has been a completely new legal framework for the Argentine
investments of Enersis and its subsidiaries, which originally date back to
September 1992. The original commitments assumed by the Republic of Argentina
regarding these investments have not been respected. The arbitration action
argues that the Republic of Argentinas failure to comply with its commitments
in relation to our investments in the Republic of Argentina is against the
letter and the spirit of the Treaty for the promotion and protection of
reciprocal investments signed between the Republic of Chile and the Republic of
Argentina. On January 21, 2004 the Arbitration Court was settled and their
first meeting with all parties took place on April 3, 2004. Starting from that
date, the Court conceded four months to submit the final suit and a term of
four months as well for answering such suit by the Republic of Argentina. There can be no assurance that the outcome of this arbitration will be
favorable to us or, if favorable, that we will be able to execute our claim
against the Argentine government. Legal Proceeding: Breach of contractual paymentsCIEN In January 2003, Copel suspended payments to CIEN, a non-consolidated
company in which Endesa-Chile has a 45% interest under a take or pay power and
energy supply contract signed in 1999. CIEN also sells energy to three other
Brazilian companies. Copel claimed the alleged economic and financial
imbalance of the 1999 contracts as the reason for its breach. Copel also
requested a revision of the prices previously agreed. On August 18, 2003, CIEN
and Copel entered into a memorandum of understanding in which they agreed to
modify the terms and conditions of the current contract. Among other things,
the modified contract, already executed by both parties, is expected to provide
for a 50% reduction in the energy volume contracted for (now 400 MW), and a
reduction in the term of the contract from 20 to 13 years ending on December
31, 2015. Cerj S.A.: Federal Government Tax Claim Ação Rescisória No. 97.02.09655-3 Cerj won an injunction in 1996 against the Federal Government of Brazil,
which stated that Cerj was not obligated to pay the tax called a Contribuição
para o Financiamento da Seguridade Social. The tax is based on revenues earned
from the provision of electric power services. The Court of Appeal reaffirmed
the prior courts decision and stated it was final and in 1997 the Federal
Government of Brazil brought a new claim called an Ação 120




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Rescisória. This is a special claim based on strict statutory
authorization that allows the Court to nullify the prior final judgment and
retry the case. This claim called Embargos Infringentes, is now before the
Federal Court of Appeals of the Second Circuit  Rio de Janeiro. The amount in
controversy is approximately US$100 million. There is as yet no date scheduled
for the decision. Emgesa S.A.: Muña Class Action On August 16, 2001, approximately 4,000 inhabitants of the
Sibaté-Cundinamarca community filed a class action environmental claim against
Emgesa and other public and private entities before the Administrative Court of
Cundinamarca. This claim was based on the alleged pumping of polluted waters
from the Bogotá River to the Muña Reservoir, for the generation of electricity.
The plaintiffs are seeking damages of approximately US$1,085 million. It is
important to note that Emgesa did not begin generating energy in the Muña
Reservoir until the end of 1997, when it was incorporated. In addition, there
is a separate claim seeking the decontamination of the Muña Reservoir, which
may present an additional liability of US$3 to US$5 million for Emgesa.
Moreover, the Empresa de Energía Eléctrica de Bogotá, the previous owner of the
Muña Reservoir, was recently ordered by a judicial ruling to begin the
decontamination process of the Muña Reservoir, which may offset the amount of
damages Emgesa will be responsible for should the plaintiffs prevail in either
of these proceedings. Endesa-Chile Arbitration: Minera Los Pelambres In October 2003, Minera Los Pelambres(Los Pelambres) filed a breach of
contract claim against Endesa-Chile for alleged misrepresentations made in a
Purchase and Sale Agreement entered into on June 12, 2002. The Purchase and
Sale Agreement was entered into pursuant to an option included in a
pre-existing contract between Los Pelambres and Endesa-Chile for the supply of
electricity and power. Under the terms of the original contract, which was
entered into on October 28, 1996, Endesa-Chile would construct various
structures in order to supply electricity to Los Pelambres, including a power
line between San Isidro and Los Piuquenes. Los Pelambres had the option to buy
these power lines, and exercised that option, for a purchase price of US$ 32
million, when it entered into the Purchase and Sale Agreement with us. Los
Pelambres claims that Endesa-Chile made certain misrepresentations in the
Purchase and Sale Agreement as to the function, design and construction of the
power line. Los Pelambres claims it has suffered damages in the amount of
approximately US$ 22.8 million for costs it incurred to repair the line. It
also claims that Endesa-Chile should compensate them approximately US$ 6.5
million, which is the amount they believe they overpaid for the power line due
to our alleged misrepresentation as to its condition and construction. In November 2003, we filed an answer to Los Pelambres complaint, in which
we denied all of Los Pelambres claims, using as arguments that the
difficulties that the line has presented are due to climatic reasons of force
majeure and that the line is well designed and constructed in accordance with
the conditions of bid which was prepared by Los Pelambres. The lawsuit is
currently in discovery. Other We and our principal subsidiaries and related companies are routinely
parties to legal proceedings arising in the normal course of business that are
not material to our consolidated results from operations. Dividends As determined by Enersis board of directors, the current dividend policy
is to pay dividends to stockholders as close as possible to 85% of annual net
income from normal operations. Net income from normal operations generally
includes income from Enersis majority-owned Chilean subsidiaries and excludes
income from accounting gains arising from non-cash equity contributions by
Enersis to its subsidiaries, gains recorded which arise from the issuance of
shares by subsidiaries at prices in excess of book value, certain other
non-cash accounting gains, and income (but not losses) arising, directly or
indirectly, from our interests in Endesa-Chile and our non-Chilean subsidiaries
and related companies. The board of directors customarily declares provisional
dividends amounting to 85% of net income from normal operations derived from
the quarters ending in March, June, September and December. To perform such
calculation, previously paid dividends will be credited and deducted from the
accumulated profits to date at the time of dividend distribution. We
ordinarily pay a provisional quarterly dividend 121




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in May, August and November of each year and in February of each following
year. However, in 2001, 2002 and 2003 we made no such provisional dividend
payments. In addition, the board generally proposes to the shareholders a
definitive dividend payable each year, and attributable to the prior year,
which cannot be less than the legal minimum. Since Enersis did not have
positive income before amortization of negative goodwill in 2003 the
shareholders approved on March 26, 2004 that no definitive dividend be paid
out. Enersis, as a holding company, is primarily dependent upon remittances
from its operating subsidiaries in the form of dividend payments in servicing
its debt obligations. The principal operating subsidiaries and related
companies of Enersis are Endesa-Chile, Chilectra in Chile, Edesur in Argentina,
Edelnor in Peru, Cerj and Coelce in Brazil and Codensa in Colombia. See Item
4. Information on the CompanyC. Organizational structurePrincipal
Subsidiaries and Related Companies. Stockholders set dividend policies at each subsidiary and related company.
There are currently no material currency controls which prohibit Enersis from
repatriating the dividend payments from its non-Chilean principal subsidiaries
and related companies. We believe that the projected cash flows on an
unconsolidated basis are sufficient to pay the debt obligations at the holding
company level, although there can be no assurances. To the extent Enersis subsidiaries and related companies are not able for
any given period to pay dividends due to insufficient net income for such
period or otherwise, Enersis may receive inter-company advances of funds for
liquidity purposes. We believe that cash flow generated from operations, cash balances, assets
sales, borrowings from commercial banks and access to both domestic and foreign
capital markets will be sufficient to meet our needs for working capital, debt
service, dividends and routine capital expenditures, although there can be no
such assurance. Dividends Paid (Ch$  per share) Nominal
    
    US$Year
    
    Ch$
    
    per ADS(1)1999
    
    
    4.00
    
    
    
    0.332000
    
    
    0.00
    
    
    
    0.002001
    
    
    1.81
    
    
    
    0.152002
    
    
    0.00
    
    
    
    0.002003
    
    
    0.00
    
    
    
    0.00
   (1)
    
    The US dollar per ADS amount has been calculated by applying the exchange
rate of Ch$ 593.80 = US$ 1.00, the Observed Exchange Rate prevailing on
December 31, 2003, to the constant Chilean peso amount. For a discussion of Chilean Withholding Taxes and access to the formal
currency market in Chile in connection with the payment of dividends and sales
of ADSs and the underlying Common Stock, see Item 10. Additional Information
 E. Taxation. and Item 10. Additional
Information  D. Exchange Controls. B. Significant Changes. None. 122




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Item 9. The Offer and Listing A. Offer and listing details. Market Price and Volume Information The shares of Common Stock are currently traded on the Chilean Exchanges.
Shares of Common Stock have traded in the United States on the NYSE since
October 19, 1993 in the form of ADSs under the ticker symbol ENI. Each ADS
represents 50 shares of Common Stock, with the ADSs in turn evidenced by
American Depositary Receipts (ADRs). The ADRs are outstanding under a
deposit agreement dated as of October 18, 1993, as amended, among us, Citibank,
N.A., as depositary, and the holders from time to time of ADRs issued
thereunder. Only persons in whose names ADRs are registered on the books of
the depositary are treated by the Depositary as owners of ADRs. 123




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The table below shows, for the periods indicated, the share volume,
quarterly high and low closing prices in Chilean pesos of the Shares on the
Santiago Stock Exchange and the quarterly high and low closing prices of the
ADSs in US$ as reported by the NYSE. Chilean Pesos Per Share(1)
    
    US$ per ADS(2)Share Volume
    
    High
    
    Low
    
    High
    
    Low2004June (through June 21, 2004)
    
    
    284,299,373
    
    
    
    78.00
    
    
    
    72.50
    
    
    
    6
    1/6
    
    
    5
    2/3May
    
    
    308,418,141
    
    
    
    78.00
    
    
    
    70.00
    
    
    
    6
    2/9
    
    
    5
    1/2April
    
    
    327,166,003
    
    
    
    82.01
    
    
    
    76.50
    
    
    
    6
    5/6
    
    
    6March
    
    
    372,499,499
    
    
    
    85.26
    
    
    
    73.00
    
    
    
    7
    1/3
    
    
    5
    7/8February
    
    
    421,974,949
    
    
    
    87.00
    
    
    
    76.50
    
    
    
    7
    2/5
    
    
    6
    4/9January
    
    
    619,317,199
    
    
    
    87.50
    
    
    
    76.50
    
    
    
    7
    3/4
    
    
    6
    1/92003December
    
    
    690,266,339
    
    
    
    86.50
    
    
    
    78.00
    
    
    
    7
    2/5
    
    
    6
    5/94th quarter
    
    
    2,949,415,326
    
    
    
    88.00
    
    
    
    72.01
    
    
    
    7
    2/5
    
    
    5
    7/93rd quarter
    
    
    2,615,141,119
    
    
    
    76.50
    
    
    
    60.80
    
    
    
    6
    
    
    
    4
    1/22nd quarter
    
    
    2,037,701,115
    
    
    
    73.00
    
    
    
    56.00
    
    
    
    5
    1/4
    
    
    3
    6/71st quarter
    
    
    435,639,838
    
    
    
    67.00
    
    
    
    55.00
    
    
    
    4
    5/7
    
    
    3
    5/820024th quarter
    
    
    684,639,252
    
    
    
    77.00
    
    
    
    52.00
    
    
    
    5
    2/9
    
    
    3
    5/73rd quarter
    
    
    692,521,240
    
    
    
    92.80
    
    
    
    65.01
    
    
    
    6
    4/5
    
    
    4
    1/62nd quarter
    
    
    474,079,058
    
    
    
    127.02
    
    
    
    79.49
    
    
    
    10
    
    
    
    5
    4/71st quarter
    
    
    512,037,133
    
    
    
    176.00
    
    
    
    117.50
    
    
    
    13
    3/4
    
    
    8
    3/420014th quarter
    
    
    393,051,601
    
    
    
    202.00
    
    
    
    163.76
    
    
    
    15
    1/2
    
    
    11
    1/33rd quarter
    
    
    226,195,786
    
    
    
    200.00
    
    
    
    171.00
    
    
    
    15
    2/5
    
    
    12
    1/42nd quarter
    
    
    292,388,256
    
    
    
    207.75
    
    
    
    185.00
    
    
    
    17
    2/5
    
    
    14
    1/21st quarter
    
    
    217,618,425
    
    
    
    222.00
    
    
    
    188.00
    
    
    
    20
    1/9
    
    
    15
    3/520004th quarter
    
    
    198,483,727
    
    
    
    218.00
    
    
    
    166.99
    
    
    
    19
    
    
    
    14
    1/23rd quarter
    
    
    88,658,193
    
    
    
    226.00
    
    
    
    191.00
    
    
    
    21
    1/4
    
    
    172nd quarter
    
    
    110,101,006
    
    
    
    234.00
    
    
    
    192.00
    
    
    
    22
    4/7
    
    
    18
    3/81st quarter
    
    
    190,988,287
    
    
    
    252.00
    
    
    
    190.00
    
    
    
    24
    1/8
    
    
    18
    3/819994th quarter
    
    
    151,276,179
    
    
    
    255.00
    
    
    
    205.50
    
    
    
    24
    3/8
    
    
    18
    5/83rd quarter
    
    
    151,227,476
    
    
    
    257.00
    
    
    
    219.00
    
    
    
    25
    
    
    
    20
    3/42nd quarter
    
    
    245,149,949
    
    
    
    257.00
    
    
    
    177.00
    
    
    
    28
    1/8
    
    
    17
    1/31st quarter
    
    
    141,861,828
    
    
    
    273.00
    
    
    
    215.00
    
    
    
    28
    3/4
    
    
    22
    3/8
   (1)
    
    As reported by the Santiago Stock Exchange. Chilean pesos per share
reflect the nominal price as of the trade date; the price has not been
restated in constant Chilean pesos.(2)
    
    As reported by the NYSE. One ADS = 50 Shares. The table below shows the market prices on May 23, 2003, the last day
before the pre-emptive offering, and on December 19, 2003, the last day of the
preemptive offering in 2003. Prices are in Chilean pesos of the Shares on the
Santiago Stock Exchange and in US$ of the ADSs as reported by the NYSE. Chilean Pesos Per Share(1)
    
    US$ per ADS(2)May 23, 2003
    
    
    71.55
    
    
    
    5.00December 19, 2003
    
    
    84.50
    
    
    
    7.21
   (1)
    
    As reported by the Santiago Stock Exchange.(2)
    
    As reported by the NYSE. One ADS = 50 Shares. 124




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As of December 31, 2003, there were 55,110,696 ADSs (equivalent to
2,755,534,800 common shares) outstanding. Such ADSs represented at such date
approximately 8.44% of the total number of outstanding shares. It is not
practicable for us to determine the proportion of ADRs beneficially owned by
U.S. persons. Trading The Santiago Stock Exchange was established in 1893 and is a private
company whose equity consists of 48 shares held by 46 stockholders as of the
date of this filing. As of December 31, 2003, 239 companies had shares listed
on the Santiago Stock Exchange. The Santiago Stock Exchange is Chiles
principal exchange and, for the year ended 2003, accounted for 76.5% of all
equity traded in Chile. Approximately 22.9% of equity trading was conducted on
the Electronic Exchange, an electronic trading market which was created by
banks and non-member brokerage houses. The remaining 0.6% of equity was traded
on the Valparaíso Exchange. Equities, closed-end funds, fixed-income securities, short-term and money
market securities, gold and US$ are traded on the Santiago Stock Exchange. In
1990, the Santiago Stock Exchange initiated a futures market with two
instruments, US dollar futures and Selective Shares Price Index, or IPSA,
futures. Securities are traded primarily through an open voice auction system,
a firm offers system or the daily auction. Trading through the open voice
system occurs on each business day from 9:30 a.m. to 4:30 p.m., Santiago time,
which varies from New York City time depending on the season. The Santiago
Stock Exchange has an electronic trading system called Telepregón, which
operates continuously from 9:30 a.m. to 4:30 p.m. on each business day. On
days in which auctions are scheduled, there are three times available for such
auctions, 9:15 a.m., 12:30 p.m. and 4:30 p.m. There are two share price indices on the Santiago Stock Exchange: the
General Share Price Index, or IGPA, and the IPSA. The IGPA is calculated using
the prices of over 159 issues and is broken into five main sectors: banks and
finance; farming and forest products; mining; industry and miscellaneous. The
IPSA is calculated using the prices of the 40 most actively traded shares. The
shares included in the IPSA are weighted according to the value of the shares
traded. As of December 31, 2003, Enersis and Endesa-Chile were all included in
the IPSA. Shares of Enersis were first listed and began trading on the Bolsa de
Valores Latinoamericanos de la Bolsa de Madrid, or Latibex, as of December 17,
2001. One trading unit is the equivalent of 50 common shares (the same unit
conversion of 50:1 as an ADS) and the trading ticker symbol is XENI. Banco
Santander Central Hispano Bolsa S.A. S.V.B. acts as the liaison entity, and
the Banco Santander as the depositary in Chile. Trading of our shares in the
Latibex amounted to approximately 329 million units in 2003, which in turn was
the equivalent of  1.466 million. The stock closed at  5.86 the last day of
trading in Latibex in 2003. B. Plan of distribution. Not applicable. C. Markets. See A. Offer and listing detailsMarket Price and Volume Information
above. D. Selling shareholders. Not applicable. E. Dilution. Not applicable. F. Expense of the issue. Not applicable. 125




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Item 10. Additional Information A. Share capital. Not applicable. B. Memorandum and articles of association Description of Share Capital Set forth below is certain information concerning our share capital and a
brief summary of certain significant provisions of our by-laws and Chilean law. General Shareholders rights in Chilean companies are governed by a companys
by-laws, which effectively service the purpose of both the articles, or
certificate, of incorporation and the by-laws of a company incorporated in the
United States, and by the Chilean Companies Act. In accordance with the
Chilean Companies Act, legal actions by shareholders against us enforcing their
rights as shareholders must be brought in Chile in arbitration proceedings or
at the option of the plaintiff before the ordinary courts of Chile. The Chilean securities markets are principally regulated by the
Superintendency of Securities and Insurance (Superintendencia de Valores y
Segurosor SVS), under the Securities Market Law (Ley de Mercado de Valores No.
18045) and the Chilean Companies Act. These two laws provide for disclosure
requirements, restrictions on insider trading and price manipulation, and
protection of minority investors. The Securities Market Law sets forth
requirements for public offerings, stock exchanges and brokers, and outlines
disclosure requirements for companies that issue publicly offered securities.
On December 20, 2000, Law 19,705 was enacted, introducing important amendments
to the Chilean Companies Act and the Securities Market Law. Among other
things, it provides a new definition for publicly held limited liability stock
companies and new rules regarding takeovers, tender offers, transactions with
directors, qualified majorities, share repurchase, directors committee, stock
options and derivative actions. Publicly held limited liability stock
companies are those with 500 or more shareholders, or companies in which 100 or
more shareholders own at least 10% of the subscribed capital, excluding those
whose individual holdings directly or indirectly exceed such percentage, and
all other companies whose shares are registered voluntarily with the SVS,
regardless the number of their shareholders. Enersis is a publicly held
limited liability stock company (sociedad anónima abierta). Reporting Requirements Regarding Acquisition or Sale of Shares. Under Article 12 of the Securities Market Law and Section II of Circular
585 of the SVS, certain information regarding transactions in shares of
publicly held limited liability stock companies must be reported to the SVS and
the Chilean stock exchanges. Since the ADRs are deemed to represent the shares
of common stock underlying the ADRs, transactions in ADRs will be subject to
these reporting requirements and those established in Circular 1,375 of the
SVS. Shareholders of publicly held limited liability stock companies are
required to report to the SVS and the Chilean stock exchanges:  
    
    any direct or indirect acquisition or sale of shares or options to
buy or sell shares that results in the holders acquiring or disposing,
directly or indirectly, of 10% or more of a publicly held limited
liability stock companys subscribed capital; and
    
    any direct or indirect acquisition or sale of shares or options to
buy or sell shares, in any amount, if made by a holder of 10% or more
of a publicly held limited liability stock companys subscribed
capital. Any direct or indirect acquisition or sale of shares or options to buy or
sell shares, in any amount, made by a director, receiver, principal executive,
general manager or manager of a company whose shares are registered with the
SVS must be reported to the SVS and the Chilean stock exchanges. 126




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In addition, the majority shareholders must inform the SVS and the Chilean
stock exchanges if the above-mentioned acquisitions are done with the intention
to obtain the control of the company or only as passive investment. Under new Article 54 of the Securities Market Law and Norma de Carácter
GeneralNo. 104 enacted by the SVS on January 5, 2001, any person who directly
or indirectly intends to take control of a publicly held limited liability
stock company must disclose his intent to the market at least 10 business days
in advance of the change of control and, in any event, as soon as the
negotiations for the change of control have started. If the change of control
shall occur by means of a tender offer, the new provisions on tender offers
will apply. Law 19,705 introduces a new chapter to the Securities Market Law,
establishing a comprehensive regulation on tender offers. The law defines a
tender offer as the offer to purchase shares of corporations which publicly
offer their shares or securities convertibles into shares and which offer is
made to shareholders to purchase their shares in conditions which allow the
bidder to reach a certain percentage of ownership of the corporation within a
fixed period of time. The new provisions apply to both voluntary and mandatory
tender offers. Register Enersis is registered with the SVS and its entry number is 0175. Corporate Object and Purpose Article 4 of our by-laws state that our corporate objective and purpose
is, among other things, to conduct the exploration, development, operation,
generation, distribution, transmission, transformation, or sale of energy in
any form, directly or through other companies, as well as to provide
engineering-consultancy services related to these objectives, in Chile and
abroad. In the Enersis Extraordinary Shareholders Meeting held on April 11,
2002, an amendment to the corporate object and purpose of the company was
approved in order to allow Enersis, directly or through its subsidiaries, to
participate in the telecommunications business. Other amendments to the
aforementioned article of our by-laws were approved in order to clarify some
aspects of our corporate object and purpose. Board of Directors Our board of directors is made up of 7 members who may or may not be
shareholders of Enersis. Members of the board are appointed by the general
meeting of shareholders and are elected for a period of three years at the end
of which they will be re-elected or replaced. The seven directors elected at the shareholders meeting are those seven
individual nominees who receive the most votes. Each shareholder may vote all
of his shares in favor of one nominee or may apportion his shares among any
number of nominees. These voting provisions ensure that a shareholder owning
more than 12.5% of our shares outstanding is able to elect a member of the
board of directors. The compensation of the directors is set annually by the general meeting
of shareholders. The Chairman is entitled to receive twice the compensation
paid to each director. Thus, the board of directors does not have power to
vote compensation for themselves or any members of their body. Certain Powers of the Board of Directors In
addition, our by-laws do not contain provisions relating to:  
    
    borrowing powers exercisable by the directors and how such borrowing powers can be varied; or
    
    retirement or non-retirement of directors under an age limit requirement. 127




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Certain Provisions Regarding Shareholder Rights As of the date of the filing of this annual report, Enersis capital is
comprised of only one class of shares, all of which are ordinary shares and
have the same rights. Our by-laws do not contain any provisions relating to:  
    
    redemption provisions;
    
    sinking funds; or
    
    liability to further capital calls by the company. Under Chilean law, the rights of holders of stock may only be changed by
an amendment to the by-laws of the company that complies with the requirements
explained below under Shareholders Meetings and Voting Rights. Capitalization Under Chilean law, the shareholders of a company, acting at an
extraordinary shareholders meeting, have the power to authorize an increase in
its capital. When an investor subscribes for shares, the shares are officially
issued and registered in his name, and the subscriber is treated as a
shareholder for all purposes except receipt of dividends and for return of
capital in the event that the shares have been subscribed but not paid for.
The subscriber becomes eligible to receive dividends once he has paid for the
shares, or, if he has paid for only a portion of such shares, such subscriber
is entitled to receive a corresponding pro-rata portion of the dividends
declared with respect to such shares unless the companys by-laws provide
otherwise. If a subscriber does not fully pay for shares for which he has
subscribed on or prior to the date agreed upon for payment, the company is
entitled to auction the shares on the stock exchange where such shares are
traded and has a cause of action against the subscriber for the difference, if
any, between the subscription price and the price received at auction.
However, until such shares are sold at auction, the subscriber continues to
exercise all the rights of a shareholder, except the right to receive dividends
and return of capital. Authorized shares, and issued shares for which full
payment has not been made within the period fixed by the extraordinary
shareholders meeting at which their subscription was authorized, which in no
case may exceed three years from the date of such meeting, are canceled and are
no longer available for issuance. On April 30, 1999, our shareholders approved a capital increase of 2.58
billion shares. In 2000, the Company issued a Pre-Emptive Rights Offering,
including an ADS Offering, in which approximately 1.49 billion common shares
were fully subscribed and paid under this capital increase. On April 30, 2002,
the three-year period, granted by the Companys shareholders in order to carry
out the remainder of the authorized capital increase, expired. Therefore, the
shares of the Company were reduced to the number which until now have been
fully subscribed and paid. On March 31, 2003, at an Extraordinary
Shareholders Meeting, Enersis shareholders approved the issuance of
24,382,994,488 shares, at a market value of approximately US$2 billion. The
capital increase allowed Endesa-Spain, acting through Elesur S.A., a
wholly-owned subsidiary as of the date of such capital increase, to exercise a
portion of its pre-emptive options corresponding to 14,406,840,511 new shares,
which were paid by the extinguishment of a Ch$1.0 trillion (approximately
US$1.4 billion at the exchange rate applicable at that time) intercompany loan
that had previously been granted to Enersis by Elesur S.A. As required by
Chilean law, an independent appraiser valued the loan exclusively for purposes
of the capital increase at 86.84% of its par value. Endesa-Spain, acting
through Elesur S.A., subscribed for 59.09% of the new shares at a value of
approximately Ch$870.5 billion, the appraised value of the loan. Additionally,
the capital increase allowed the subscription for 3.66% of the new shares as
part of the local bond exchange offer, which took place in between the first
and the second pre-emptive rights periods of the capital increase. The total
amount of local bonds exchanged was equivalent to approximately Ch$54 billion. At the same Extraordinary Shareholders Meeting held on March 31, 2003,
the shareholders approved the elimination of the 65% by-laws restriction on
the maximum shareholding by any party. On March 26, 2004, our shareholders
approved a new amendment to our by-laws to reinstate, among other things, the
65% maximum shareholding restriction set forth above. 128




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Preemptive Rights and Increases of Share Capital The Chilean Companies Act requires Chilean companies to grant shareholders
the preemptive right to purchase a sufficient number of shares to maintain
their existing ownership percentage of such company whenever such company
issues new shares. Under Chilean law, preemptive rights are exercisable or freely
transferable by shareholders during the 30-day period following the granting of
such rights. During such 30-day period, and for an additional 30-day period,
Chilean publicly held limited liability stock companies are not permitted to
offer any unsubscribed shares to third parties on terms which are more
favorable than those offered to their shareholders, but they may be freely sold
after the 30-day period following the granting of such rights to third parties
on terms less favorable for the purchaser than those offered to shareholders.
At the end of such additional 30-day period, a Chilean publicly held limited
liability stock company is authorized to sell non-subscribed shares to third
parties on any terms, provided they are sold on one of the Chilean stock
exchanges. Under the last capital increase, the first pre-emptive rights period ended
on June 30, 2003 and the second period was from November 20 and December 20,
2003. Between the two pre-emptive rights periods, there was also a preferred
opportunity for Enersis local bondholders to tender their bonds in exchange
for shares of common stock. Shareholders Meetings and Voting Rights A modification of our by-laws requires the affirmative vote of
shareholders holding not less than two-thirds of the shares eligible to vote. An ordinary annual meeting of our shareholders is held within the first
four months following the end of our fiscal year, generally in March or April.
The last ordinary annual meeting was held on March 26, 2004. Extraordinary
meetings may be called by the board of directors when deemed appropriate or
when requested by shareholders representing at least 10% of the issued voting
shares or by the SVS. To convene an extraordinary meeting, or an ordinary
annual meeting, notice must be given by three publications in a prescribed
manner in a newspaper of our corporate domicile. The newspapers designated by
our shareholders are the Santiago edition of El Mercurio. The first notice
must be published not less than 15 days nor more than 20 days in advance of the
scheduled meeting. Notice must also be mailed to each shareholder and given to
the SVS and the Chilean stock exchanges. The last extraordinary meeting of
shareholders was also held on March 26, 2004. Under Chilean law, a quorum for a shareholders meeting is established by
the presence, in person or by proxy, of shareholders representing at least a
majority of the issued voting shares of a company. If a quorum is not present
at the first meeting, a reconvened meeting can take place at which the
shareholders present are deemed to constitute a quorum regardless of the
percentage of the shares represented. The second meeting must take place
within 45 days following the scheduled date for the first meeting.
Shareholders meetings adopt resolutions by the affirmative vote of an absolute
majority of those shares present, or represented, at the meeting.
Additionally, if a shareholders meeting is called for the purpose of
considering:  
    
    a transformation of the company into a form other than a sociedad
anónima abierta(a publicly held, limited liability stock company)
under the Chilean Companies Act, a merger or division of the company;
    
    an amendment to the term of duration or early dissolution;
    
    a change in the corporations domicile;
    
    a decrease of corporate capital;
    
    approval of capital contributions in kind and assessment of such assets;
    
    modification of the authority reserved to shareholders or limitations on the board of directors;
    
    reduction in the number of members of the board of directors; 129




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
    
    disposition of 50% or more of the assets of the corporation,
whether it includes disposition of liabilities or not, as well as the
approval or the amendment of the business plan which contemplates the
disposition of assets for such amount;
    
    the form of distributing corporate benefits;
    
    issue of guarantees for third parties liabilities which exceed 50%
of the assets, but if the third party is a subsidiary of the company,
the approval of the board of directors is sufficient;
    
    the purchase of the corporations own shares; or
    
    certain remedies for the nullification of the corporate by-laws, regardless of the quorum present, the vote required for the action is a
two-thirds majority of the issued voting shares. By-law amendments for the creation of a new class of shares, or an
amendment to or an elimination of those classes of shares that already exist,
must be approved by two-thirds of the outstanding shares of the affected
series. Shareholders are entitled to examine the books of the company within the
15-day period before the scheduled meeting. Under Chilean law, a notice of a
shareholders meeting listing matters to be addressed at the meeting must be
mailed no sooner than 15 days prior to the date of such meeting, and, in cases
of an ordinary annual meeting, shareholders must be sent an annual report of
the companys activities which includes audited financial statements.
Limitations on the distribution of annual reports are established for the SVS
in Circular No. 1,108. In addition to these requirements, we regularly
provide, and management currently intends to continue to provide, together with
the notice of the ordinary shareholders meetings, a proposal for the final
dividend and an explanation of the dividend policy for interim dividends for
that current year, previously approved by the board of directors. The Chilean Companies Act provides that, upon the request by shareholders
representing 10% or more of the issued voting shares, a Chilean companys
annual report must include, in addition to the materials provided by the board
of directors to shareholders, such shareholders comments and proposals in
relation to the companys affairs. Similarly, the Chilean Companies Act
provides that whenever the board of directors of a publicly held limited
liability stock company convenes an ordinary meeting of shareholders and
solicits proxies for the meeting, or circulates information supporting its
decisions or other similar material, it is obligated to include the pertinent
comments and proposals that may have been made by shareholders owning 10% or
more of the companys voting shares who request that such comments and
proposals be so included. Only shareholders registered as such with Enersis at least five business
days prior to the date of a meeting are entitled to attend and vote their
shares. A shareholder may appoint another individual, who need not be a
shareholder as his proxy to attend and vote on his behalf. Proxies for such
representation shall be given in writing for all the shares held by the owner.
Every shareholder entitled to attend and vote at a shareholders meeting shall
have one vote for every share subscribed. Dividends and Liquidation Rights In accordance with Chilean law, we are required to pay cash dividends
equal to at least 30% of annual audited net income, calculated in accordance
with Chilean GAAP. If there is no net income in a given year, we may, but are
not legally obligated to, distribute dividends out of retained earnings. Any dividend in excess of 30% of net income may be paid, at the election
of the shareholder, in cash, in Enersis shares or in shares of publicly held
limited liability stock corporations held by Enersis. Shareholders who do not
expressly elect to receive a dividend other than in cash are legally presumed
to have decided to receive the dividend in cash. Dividends which are declared but not paid within the appropriate time
period set forth in the Chilean Companies Act  as to minimum dividends, 30
days after declaration; as to additional dividends, the date set for payment at
the time of declaration, are adjusted to reflect the change in the value of UF, a Chilean inflation adjusted currency, from the date set for payment to the
date such dividends are actually paid. Such dividends also accrue 130




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interest at the then prevailing rate for UF -denominated deposits during
such period. The right to receive a dividend lapses if it is not claimed
within five years from the date such dividend is payable. In the event of a liquidation of Enersis, the holders of shares would
participate in the assets available in proportion to the number of paid-in
shares held by them, after payment of all creditors. Approval of Financial Statements The board of directors is required to submit Enersis financial statements
to the shareholders annually for their approval. If the shareholders by a vote
of a majority of shares present (in person or by proxy) at the shareholders
meeting reject the financial statements, the board of directors must submit new
financial statements no later than 60 days from the date of such meeting. If
the shareholders reject the new financial statements, the entire board of
directors is deemed removed from office and a new board is elected at the same
meeting. Directors who individually approved such financial statements are
disqualified for reelection for the following period. Our shareholders have
never rejected the financial statements presented by the board of directors. There are no limitations on the rights to own securities, including the
rights of non-resident or foreign shareholders to hold or exercise voting
rights on the securities, imposed by foreign law or by the charter or any other
constitutive document of the Company. Change of Control Our by-laws do not contain any provisions that would delay, defer or
prevent a change in control of Enersis. Under new Article 54 of the Securities
Market Law and Norma de Carácter GeneralNo. 104 enacted by the SVS on January
5, 2001, any person who directly or indirectly intends to take control of a
publicly held limited liability stock company must disclose his intent to the
market at least 10 business days in advance of the change of control and, in
any event, as soon as the negotiations for the change of control have started.
If the change of control shall occur by means of a tender offer, the new
provisions on tender offers will apply. Acquisition of Shares There are no provisions in our by-laws that discriminate against any
existing or prospective holder of shares as a result of such shareholder owning
a substantial number of shares. Right of Dissenting Shareholders to Tender Their Shares The Chilean Companies Act provides that upon the adoption of any of the
resolutions enumerated below at an extraordinary meeting of shareholders,
dissenting shareholders acquire the right to withdraw from the company and to
compel the company to repurchase their shares, subject to the fulfillment of
certain terms and conditions. In order to exercise such rights, holders of
ADRs must first withdraw the shares represented by their ADRs pursuant to the
terms of the deposit agreement. Dissenting shareholders are defined as those who vote against a
resolution that results in the withdrawal right, or who if absent from such
meeting, state in writing their opposition to the respective resolution. The
price paid to a dissenting shareholder of a publicly held limited liability
stock company, the shares of which are quoted and actively traded on one of
Chilean stock exchanges, is the greatest among (i) the weighted average of the
sales prices for the shares as reported on the Chilean stock exchanges on which
the shares are quoted for the two-month period preceding the shareholders
meeting giving rise to the withdrawal right, and (ii) the market price
resulting from the average price of transactions on such day. If, because of
the volume, frequency, number and diversity of the buyers and sellers, the SVS
determined that the shares are not actively traded on a stock exchange, the
price paid to the dissenting shareholder shall be the book value. Book value
for this purpose shall equal paid capital plus reserves and profits, less
losses, divided by the total number of subscribed shares, whether entirely or
partially paid. For the purpose of making this calculation, the last annual
balance sheet is used, as adjusted to reflect inflation up to date of the
shareholders meeting which gave rise to the withdrawal right. The resolutions that result in a shareholders right to withdraw include,
among others, the following: 131




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
    
    the transformation of the company into an entity which is not
sociedad anónima abiertagoverned by the Chilean Companies Act;
    
    the merger of the company with another company;
    
    disposition of 50% or more of the assets of the corporation,
whether it includes disposition of liabilities or not, as well as the
approval or the amendment of the business plan which contemplates the
disposition of assets for such amount;
    
    issue of guarantees for third parties liabilities which exceed 50%
of the assets, but if the third party is a subsidiary of the company,
the approval of the board of directors is sufficient;
    
    the creation of preferential rights for a class of shares or an
amendment to the existing ones. In this case the right to withdraw
only accrues to the dissenting shareholders of the class or classes of shares adversely affected;
    
    certain remedies for the nullification of the corporate by-laws; and
    
    such other causes as may be established by a companys by-laws. Investments by AFPs Title XII of DL-3500 permits AFPs to invest their fund assets in companies
that are subject to Title XII and, subject to greater restrictions, in other
companies. The determination of which stocks may be purchased by AFPs is made
by the Comisión Clasificadora de Riesgo, or the CCR. The CCR establishes
investment guidelines and is empowered to approve or disapprove those companies
that are eligible for AFP investments. Enersis had been a Title XII Company
since 1985 and is approved by the CCR. Title XII companies are required, among other things: (i) to have by-laws
that limit the ownership of any shareholder or shareholder groups to a
specified maximum percentage, (ii) to take only certain actions at shareholders
meetings, and (iii) to give the shareholders the right to approve certain
investment and financing policies. At the Extraordinary Shareholders Meeting held on March 31, 2003, the
shareholders approved the elimination of the 65% by-laws restriction on the
maximum shareholding by any party. On March 26, 2004, our shareholders
approved a new amendment to our by-laws to reinstitute the 65% maximum
shareholding restriction described above as well as certain other restrictions. Registrations and Transfers The shares are currently registered by Enersis through an Administrative
Agent named DCV Registros S.A.This entity is responsible for Enersis
shareholders registry as well. In case of jointly owned shares, an
attorney-in-fact must be appointed to represent the joint owners in dealing
with Enersis. Foreign Investment Contract and Chapter XXVI In connection with our initial offering of ADSs in 1993, we entered into a
foreign investment contract (the Foreign Investment Contract) with the
Central Bank and Citibank N.A., New York, the Depositary, pursuant to Article
47 of the Central Bank Act and Chapter XXVI of the Compendium of Foreign
Exchange Regulations of the Central Bank (Chapter XXVI), which governed the
issuance of ADSs by a Chilean company. Pursuant to the Foreign Investment
Contract, the foreign exchange for payments and distributions with respect to
the ADSs may be purchased in either the Formal Exchange Market or the Informal
Exchange Market, but such payments must be necessarily remitted through the
Formal Exchange Market. A new Compendium of Foreign Exchange Regulations in
force since April 19, 2001 eliminated Chapter XXVI. This Compendium was
restated and has been in force since March 1, 2002. As a result of the
elimination of Chapter XXVI, there is no longer assured access to the Formal
Exchange Market. However, because the Foreign Investment Contract was entered
into pursuant to Chapter XXVI, the principles of Chapter XXVI still apply to
its terms. Foreign investors who have purchased their shares under a 132




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Foreign Investment Contract pursuant to Chapter XXVI continue to have
access to the Formal Exchange Market for the purpose of converting Chilean
pesos to US$ and repatriating from Chile amounts received with respect to the
deposited shares of common stock or shares of common stock withdrawn from
deposit on surrender of ADRs (including amounts received as cash dividends and
proceeds from the sale in Chile of the underlying shares of common stock and
any rights with respect thereto). The Foreign Investment Contracts cannot be
modified or terminated without consent of all parties, and therefore foreign
investors who have purchased their shares under a Foreign Investment Contract
will continue to have access to the Formal Exchange Market. However, foreign
investors who did not deposit their shares of common stock into our ADS
facility will not have the benefits of our foreign investment contract with the
Central Bank but instead will be subject to the normal foreign investment
rules. The following is a summary of certain provisions which were contained in
Chapter XXVI and the Foreign Investment Contract, and which therefore remain
relevant. This summary does not purport to be complete and is qualified in its
entirety by reference to Chapter XXVI and the Foreign Investment Contract. Under Chapter XXVI and the Foreign Investment Contract, the Central Bank
agreed to grant to the Depositary, on behalf of ADR holders, and to any
investor not residing or domiciled in Chile who withdraws common stock upon
delivery of ADRs (such shares of common stock being referred to herein as
Withdrawn Shares) access to the Formal Exchange Market to convert Chilean
pesos into US dollars (and to remit such dollars outside of Chile), including
amounts received as:  
    
    cash dividends;
    
    proceeds from the sale in Chile of Withdrawn Shares subject to
receipt by the Central Bank of a certificate from the holder of the
Withdrawn Shares (or from an institution authorized by the Central
Bank) that such holders residence and domicile are outside Chile and a
certificate from a Chilean stock exchange (or from a brokerage or
securities firm established in Chile) that such Withdrawn Shares were
sold on a Chilean stock exchange;
    
    proceeds from the sale in Chile of rights to subscribe for additional shares of Common Stock;
    
    proceeds from the liquidation, merger or consolidation of our company; and
    
    other distributions, including without limitation those resulting
from any recapitalization, as a result of holding shares of Common
Stock represented by ADSs or Withdrawn Shares. Transferees of Withdrawn Shares were not entitled to any of the foregoing
rights under Chapter XXVI. Investors receiving Withdrawn Shares in exchange
for ADRs had the right to redeposit such shares in exchange for ADRs, provided
that certain conditions relating to redeposit were satisfied. Chapter XXVI provided that access to the Formal Exchange Market in
connection with dividend payments was conditioned upon certification by us to
the Central Bank that a dividend payment has been made and any applicable tax
has been withheld. Chapter XXVI also provided that the access to the Formal
Exchange Market in connection with the sale of Withdrawn Shares or
distributions thereon was conditioned upon receipt by the Central Bank of
certification by the Depositary (or the Custodian on its behalf) that such
Shares have been withdrawn in exchange for ADRs and receipt of a waiver of the
benefit of the Foreign Investment Contract with respect thereto until such
Withdrawn Shares were redeposited. The Foreign Investment Contract provides that a person who brings foreign
currency into Chile to purchase shares of common stock with the benefit of the
Foreign Investment Contract must convert it into Chilean pesos on the same date
and has five banking business days within which to invest in shares of common
stock in order to receive the benefits of the Foreign Investment Contract. If
such person decides within such period not to acquire shares of common stock,
such person can access the Formal Exchange Market to reacquire US$, provided
that the applicable request is presented to the Central Bank within seven
banking business days of the initial conversion into pesos. Shares acquired as
described above may be deposited for ADRs and receive the benefits of the
Foreign Investment Contract, subject to receipt by the Central Bank of a
certificate from the Depositary (or the Custodian on its behalf) that such
deposit has been effected and that the related ADRs have been issued and
receipt of a 133




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declaration from the person making such deposit waiving the benefits of
the Foreign Investment Contract with respect to the deposited shares of common
stock. Access to the Formal Exchange Market under any of the circumstances
described above is not automatic. Pursuant to Chapter XXVI, such access
required approval of the Central Bank based on a request therefore presented
through a banking institution established in Chile. The Foreign Investment
Contract provides that if the Central Bank has not acted on such request within
seven banking days, the request will be deemed approved. In November 1995, the Central Bank amended Chapter XXVI to regulate
secondary offerings of ADSs by companies that have previously entered into a
Foreign Investment Contract. In accordance with the new regulations, we
entered into an amended Foreign Investment Contract in connection with its
offering of ADSs completed in February 1996 to comply with the rules in effect
on the date of Central Bank approval of the new issuance of ADSs. On November 16, 1999, the Central Bank issued new regulations which
amended Chapter XXVI. Among the amendments, Chapter XXVI required that foreign
currency that entered Chile pursuant to Chapter XXVI be converted into Chilean
pesos in the Formal Exchange Market, and the shares evidencing ADRs only be
paid in Chilean pesos. In addition, foreign currency required to remit the
proceeds of the sale of the underlying shares be acquired alternatively in the
Formal or in the Informal Exchange Market, although remittance of such amounts
necessarily was to be made through the Formal Exchange Market (i.e., through a
bank). On May 12, 2000, the rule that required that the invested capital
remain in the country for at least one year before being repatriated was
eliminated. In connection with our capital increase approved in our shareholders
meeting of April 30, 1999, we first amended our Foreign Investment Contract on
September 7, 2000 and subsequently entered into a new Foreign Investment
Contract on October 12, 2000. Under current Chilean law, the Foreign Investment Contract cannot be
changed unilaterally by the Central Bank. It is not certain, however, that
additional Chilean restrictions applicable to the holders of ADRs, the
disposition of underlying shares of Common Stock or the repatriation of the
proceeds from such disposition could not be imposed in the future, nor can
there be any assessment of the duration or impact of such restrictions if
imposed. The Compendium and International Bond Issuances Chilean issuers may offer bonds internationally under Chapter XIV, as
amended, of the Compendium of Foreign Exchange Regulations (the Compendium),
issued by the Central Bank. Prior to September 17, 1998, foreign loans (including international bond
offerings) granted to individuals or companies in Chile were subject to a
mandatory deposit (encaje) of an amount equal to 10% (reduced from a prior
level of 30%) of the proceeds of the loan (or bond offering) in a one-year, non
interest-bearing US dollar account with the Central Bank (or to payment of a
charge to the Central Bank on the next working day after the date of conversion
of foreign currency into Chilean pesos in an amount equal to interest on such
deposit at the rate of the twelve-month LIBOR for US dollar deposits plus a
market spread that currently approximates 4%). On September 17, 1998, the
encajedeposit requirement was reduced to 0%, and on April 19, 2001, the encaje
was eliminated. Despite this elimination, the Central Bank may at any time
reinstate the encaje. C. Material contracts. None. D. Exchange controls. The Central Bank is responsible for, among other things, monetary policies
and exchange controls in Chile. On January 23, 2002, the Chilean Central Bank approved a new Compendium of
Foreign Exchange Regulations that replaced the existing one. The new
Compendium is in effect since March 1, 2002. 134




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With these new rules, the Central Bank ends a process of gradual
deregulation of the foreign exchange market. This new Compendium enhances the information gathered by the Central Bank
and the quality of such information. In addition, this new Compendium
includes the main rules that modified the Compendium of Foreign Exchange
Regulations in April 1991. In other words, new cross-border investing and
financing decisions will no longer be subject to any restrictions set forth
in both Articles 42 and 49 of the Central Bank Law such as:  
    
    the prior Central Bank authorization requirement for the entry of
capital associated with foreign loans, investments, capital
contributions, bonds and ADRs;
    
    the prior Central Bank authorization for capital remittances
associated with returns of capital, dividends, and other benefits
related to capital contributions, investments and prepayment of foreign
loans;
    
    the prior Central Bank authorization for the return of capital,
profits and other benefits associated with investments made by Chilean
residents abroad;
    
    the limitations to the special prepayment and acceleration clauses contained in foreign loans;
    
    the restrictions of minimum risk classification and the weighted duration for the issuance of bonds;
    
    the limitations with respect to the currencies in which external debt can be issued or contracted;
    
    the restrictions to the issue of ADRs; and
    
    the reserve requirement on funds coming from abroad (which was already 0%). E. Taxation. Chilean Tax Considerations The following discussion summarizes material Chilean income and
withholding tax consequences to beneficial owners arising from the receipt, the
exercise and/or the sale of ADS rights as well as from the purchase, ownership
and disposition of the shares and ADSs. The summary which follows does not
purport to be a comprehensive description of all of the tax considerations that
may be relevant to a decision to purchase, own or dispose of shares or ADSs and
does not purport to deal with the tax consequences applicable to all categories
of investors, some of which may be subject to special rules. Holders of shares
and ADSs are advised to consult their own tax advisors concerning the Chilean
and other tax consequences of the ownership of shares, of ADSs evidenced by
ADRs. The summary which follows is based on Chilean law, all as in effect on the
date hereof, and is subject to any changes in these or other laws occurring
after such date, possibly with retroactive effect. Under Chilean law,
provisions contained in statutes such as tax rates applicable to foreign
investors, the computation of taxable income for Chilean purposes and the
manner in which Chilean taxes are imposed and collected may be amended only by
another law. In addition, the Chilean tax authorities enact rulings and
regulations of either general or specific application and interpret the
provisions of Chilean tax law. Chilean tax may not be assessed retroactively
against taxpayers who act in good faith relying on such rulings, regulations
and interpretations, but Chilean tax authorities may change their rulings,
regulations and interpretations prospectively. The discussion which follows is
also based, in part, on representations of the depositary, and assumes that
each obligation in the deposit agreement and any related agreements will be
performed in accordance with its terms. There is no income tax treaty in force
between Chile and the United States. As used in this annual report, the term foreign holder means either:  
    
    in the case of an individual, a person who is not a resident in
Chile; for purposes of Chilean taxation, an individual holder is
resident in Chile if he or she has resided in Chile for more than six
months in one calendar year, or a total of more than six months in two
consecutive fiscal years; or 135




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
    
    in the case of a legal entity that is not organized under the laws
of Chile, unless the shares, ADSs or Notes are assigned to a branch,
agent, representative or permanent establishment of such entity in
Chile. Taxation of Shares and ADSs Taxation of Cash Dividends and Property Distributions Cash dividends paid with respect to the shares or ADSs held by a foreign
holder will be subject to a 35% Chilean withholding tax, which is withheld and
paid over by the company. A credit against the Chilean withholding tax is
available based on the level of corporate income tax actually paid by the
company on the income to be distributed; however, this credit does not reduce
the Chilean withholding tax on a one-for-one basis because it also increases
the base on which the Chilean withholding tax is imposed. In addition, if the
company distributes less than all of its distributable income, the credit for
the Chilean corporate income tax paid by the company is proportionately
reduced. On September 28, 2001, the income tax rate applicable to individuals
who are Chilean residents, and the Chilean corporate tax rate, were amended.
Until December 31, 2001, the corporate tax rate was 15%. For 2002, the
corporate tax rate was to 16%. For 2003, the corporate tax rate increased to
16.5% and it is now 17% in 2004. At the same time, income tax rates applicable
to individuals who are Chilean residents were lowered and will continue to be
gradually decreased in the future. The example below illustrates the effective
Chilean withholding tax burden on a cash dividend received by a foreign holder,
assuming a Chilean withholding tax rate of 35%, an effective Chilean corporate
income tax rate of 17% and a distribution of 50% of the net income of the
company distributable after payment of the Chilean corporate income tax: Company taxable income
    
    
    100.0Chilean corporate income tax (17% of Ch$100)
    
    
    (17
    )Net distributable income
    
    
    83Dividend distributed (50% of net distributable income)
    
    
    41.5Withholding tax (35% of the sum of Ch$41.50 dividend plus Ch$8.50 credit)
    
    
    (17.5
    )Credit for 50% of Chilean corporate income tax
    
    
    8.5Net withholding tax
    
    
    (9
    )Net dividend received
    
    
    32.5Effective dividend withholding rate
    
    
    21.69
    %
 In general, the effective dividend Chilean withholding tax rate, after
giving effect to the credit for the Chilean corporate income tax paid by the
company, can be computed using the following formula: Effective Dividend
    
    
    
    (Withholding tax rate)  (Chilean corporate income tax rate)=Withholding Tax Rate
    
    
    
    1  (Chilean corporate income tax rate)
 Under Chilean tax law, dividend distributions made in property are subject
to the same Chilean tax rules as cash dividends. Stock dividends are not
subject to Chilean taxation. Dividends generally are assumed to have been paid
out of the Companys oldest retained profits for purposes of determining the
level of Chilean corporate income tax that was paid by the Company. For
information as to the retained earnings of the Company for tax purposes and the
tax credit available on the distribution of such retained earnings, see note 8
to our consolidated financial statements. Taxation on Sale or Exchange of Shares or ADSs Gains obtained by a foreign holder from the sale or exchange of ADSs, or
ADRs evidencing ADSs outside Chile will not be subject to Chilean taxation. Taxation on shares acquired on or before April 19, 2001 Gain recognized on a sale or exchange of shares (as distinguished from
sales or exchanges of ADSs representing such shares) will be subject to both a
17% Chilean corporate income tax and the 35% Chilean withholding tax (the
former being creditable against the latter) if either the foreign holder:  
    
    has held the shares for less than one year since exchanging ADSs
for the shares; or 136




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
    
    acquired and disposed of the shares in the ordinary course of its
business or as an habitual trader of shares. In all other cases, gain on the disposition of shares will be subject to a
flat 17% Chilean corporate income tax but will not be subject to the 35%
Chilean withholding tax. Taxation on shares acquired after April 19, 2001 On November 7, 2001, the income tax law was amended in order to create a
tax exemption on capital gains arising from the sale of shares of listed
companies traded in the stock markets. Although there are certain restrictions
established in the amended income tax law, in general terms, the amendment
provides that in order to have access to the capital gain exemption: (i) the
shares must be of a public stock corporation with a certain minimum level of
trading in a stock exchange; (ii) the sale must be carried out in a Chilean
stock exchange, or in another stock exchange authorized by the SVS, or in a
tender offer subject to Chapter XXV of the Chilean Securities Market Law; (iii)
the shares which are being sold must have been acquired in a stock exchange, or
in a tender offer subject to Chapter XXV of the Chilean Securities Market Law,
or in an initial public offering (due to the creation of a company or to a
capital increase), or due to the exchange of convertible bonds; and (iv) the
shares must have been acquired after April 19, 2001. The tax basis of shares received in exchange for ADSs will be the
acquisition value of the shares. The valuation procedure set forth in the
deposit agreement, which values shares at the highest price at which they trade
on the Santiago Stock Exchange on the date of the exchange, will determine the
acquisition value for this purpose. Consequently, the conversion of ADSs into
shares and the immediate sale of the shares for the value established under the
deposit agreement will not generate a capital gain subject to taxation in
Chile. Taxation of Rights and ADS Rights For Chilean tax purposes, the receipt of rights or ADS rights by a foreign
holder of shares or ADSs pursuant to a rights offering is a non-taxable event.
In addition, there is no Chilean income tax consequences to foreign holders
upon the exercise or the lapse of the rights or the ADS rights. Any gain on
the sale, exchange or transfer of the rights by a foreign holder is subject to
a 35% Chilean withholding tax. Other Chilean Taxes There are no gift, inheritance or succession taxes applicable to the
ownership, transfer or disposition of ADSs by a foreign holder, but such taxes
will generally apply to the transfer at death or by gift of the shares by a
foreign holder. There are no Chilean stamp, issue, registration or similar
taxes or duties payable by holders of shares or ADSs. United States Tax Considerations The following discussion describes the material U.S. federal income tax
consequences of acquiring, owning and disposing of our ADSs or shares to a
beneficial owner that is, for U.S. federal income tax purposes: (i) a citizen
or resident of the United States, (ii) a corporation, or other entity taxable
as a corporation, created or organized in or under the laws of the United
States or of any political subdivision thereof, or (iii) an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source. The discussion is based on the tax laws of the United States,
including the Internal Revenue Code of 1986, as amended (the Code), final,
temporary and proposed regulations, published rulings and court decisions, all
as currently in effect or proposed, any of which is subject to change at any
time, possibly with retroactive effect. This discussion deals only with our ADSs or shares held by you as capital
assets as defined in Section 1221 of the Code and does not address the tax
treatment to you, if you are a member of a class of holders subject to special
treatment under U.S. federal income tax laws such as:  
    
    certain financial institutions;
    
    a dealer in securities or foreign currencies; 137




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
    
    a trader in securities that elects to use a mark-to-market method
of accounting for your securities holdings;
    
    an insurance company;
    
    a tax-exempt entity;
    
    a person subject to the alternative minimum tax;
    
    a person who will hold our ADSs or shares as part of a straddle,
hedging transaction or conversion transaction;
    
    a person that has a principal place of business or tax home
outside the United States, or a person whose functional currency is not
the US dollar;
    
    a person who acquired our ADSs or shares pursuant to the exercise
of an employee stock option or otherwise as compensation; and
    
    a person owning directly, indirectly or by attribution 10% or more
of our capital stock. Moreover, the effect of any applicable U.S. state or local tax laws as
well as of any foreign taxing jurisdiction is not discussed herein. In general, if you hold ADSs, you will be treated as the holder of
underlying shares represented by those ADSs for US federal income tax purposes.
Accordingly, no gain or loss will be recognized if you exchange ADSs for the
underlying shares represented by those ADSs. Unless otherwise stated, this discussion assumes that we are not, and will
not become, a passive foreign investment company (a PFIC) for U.S. federal
income tax purposes, as described more fully below. This discussion also
assumes that each obligation in the Deposit Agreement and any related agreement
will be performed in accordance with its terms and that the representations
made by the Depositary regarding the pre-release of our ADRs are true. The
U.S. Treasury has expressed concern that parties to whom ADSs are pre-released
may be taking actions that are inconsistent with the claiming of foreign tax
credits. Such actions would also be inconsistent with claiming the 15% rate
applicable to certain dividends received by non-corporate holders.
Accordingly, the creditability of Chilean taxes and the availability of the 15%
rate for dividends received by certain non-corporate holders described below
could be affected by actions taken by parties to whom ADSs are pre-released. Taxation of dividends To the extent paid out of our current or accumulated earnings and profits
(as determined in accordance with U.S. federal income tax principles),
distributions made in respect of our ADSs or shares (including amounts withheld
by us in respect of Chilean taxes) will be treated as foreign-source dividend
income to you and will not be eligible for the dividends-received deduction
allowed to corporations under the Code. Under recently enacted legislation,
dividends received by noncorporate U.S. Holders on ADSs may be subject to U.S.
federal income tax at lower rates (generally 15%) than other types of ordinary
income if certain conditions are met. U.S. Holders should consult their own
tax advisors regarding the implications of this new legislation in their
particular circumstances. Distributions in excess of current or accumulated
earnings and profits will be treated first as a tax-free return of capital to
the extent of your basis in the ADSs or shares and as capital gain thereafter,
which will be long-term capital gain if you held our ADSs or shares for more
than one year. The amount of any distribution of property other than cash will
be the fair market value of the property on the date of distribution. To the extent such distributions are taxable (as discussed above), you
will be required to include such distributions paid in Chilean pesos in a US
dollar amount calculated by reference to the exchange rate in effect on the
date you actually or constructively received such dividends, regardless of
whether the pesos are in fact converted into US dollars at that time. If you
hold shares, dividends and gains, if any, are treated as received on the date
you receive your distribution. If you hold ADSs, that date would be the date
on which the Depositary receives the distribution. If items received in pesos
are not converted into US dollars on the day they are received, you may be 138




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required to recognize foreign currency gain or loss (which will be
U.S.-source ordinary income or loss, as the case may be) upon a subsequent sale
or other disposition of the pesos. Effect of Chilean withholding taxes Payments of dividends on our ADSs or shares to foreign investors are
subject to Chilean withholding taxes. For U.S. federal income tax purposes,
you will be treated as having received the gross amount of any dividend paid,
including the net amount of Chilean taxes withheld by us and then as having
paid over the withheld taxes to the Chilean tax authorities. As a result, the
amount of dividend income includible in gross income for U.S. federal income
tax purposes by you in connection with a payment of dividends will be greater
than the amount of cash actually received by you. However, subject to generally applicable limitations and restrictions, you
will be entitled to a credit against your U.S. federal income tax liability, or
a deduction in computing your U.S. federal taxable income, for the net amount
of Chilean income taxes withheld by us. You must satisfy minimum
holding-period requirements to be eligible to claim a foreign tax credit for
foreign taxes withheld on dividends. A foreign tax credit will be denied for
foreign taxes withheld on dividends in circumstances where you are under an
obligation to make related payments in connection with positions in
substantially similar or related property. The limitation on foreign taxes
eligible for credit is calculated separately for specific classes of income.
For this purpose, depending on your particular circumstances, dividends paid by
us on our ADSs or shares will generally constitute passive income or
financial services income. You are urged to consult your tax advisor to
determine the extent to which you are entitled to foreign tax credits with
respect to dividends paid on our ADSs or shares. Sale or other disposition Upon a sale or other disposition of our ADSs or shares, you generally will
recognize a capital gain or loss for U.S. federal income tax purposes equal to
the difference between the amount realized on the disposition and your adjusted
tax basis in the ADSs or shares. This gain or loss will be long-term capital
gain or loss if you held our ADSs or shares for more than one year on the date
of disposition. Capital losses are subject to limitations. Any gain or loss
will generally be U.S.-source gain or loss for foreign tax credit purposes.
Certain gains recognized upon a sale or exchange of our shares or ADSs (except
for ADSs that are disposed of outside Chile) are subject to Chilean income
taxes. Due to generally applicable limitations and restrictions, those taxes
may not be creditable against your U.S. federal income tax liability. You are
urged to consult your tax adviser to determine the extent to which you may be
entitled to foreign tax credits with respect to gains recognized upon sale or
exchange of our shares or ADSs. Passive Foreign Investment Company rules We believe that we will not be considered a PFIC for United States federal
income tax purposes for the 2003 taxable year. We believe that we have never
been a PFIC and that it is unlikely that we will become a PFIC in the
foreseeable future. However, because PFIC status depends upon the composition
of a companys income and assets and the market value of its assets (including,
among others, less-than-25-percent-owned equity investments) from time to time,
and because it is unclear whether certain types of our income constitutes
passive income for PFIC purposes, there can be no assurance that we will not be
considered a PFIC for any taxable year. If we were treated as a PFIC for any
taxable year during which you held an ADS or a share, certain adverse
consequences could apply to you. If we were treated as a PFIC for any taxable year during your holding
period, gain recognized by you on a sale or other disposition of our ADSs or
shares would be allocated ratably over your holding period for such ADSs or
shares. The amounts allocated to the taxable year of the sale or other
exchange and to any year before we became a PFIC would be taxed as ordinary
income. The amount allocated to each other taxable year would be subject to
tax at the highest rate in effect for individuals or corporations, as
appropriate, and an interest charge would be imposed on the amount allocated to
such taxable year. Further, any distribution in respect of our ADSs or shares
in excess of 125 percent of the average of the annual distributions on our ADSs
or shares received by you during the preceding three years or your holding
period, whichever is shorter, would be subject to taxation as described above.
Certain 139




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elections (including a mark-to-market election) may be available to United
States persons that may ameliorate the adverse consequences of status. Backup withholding and other reporting requirements Payments of dividends and other proceeds in connection with our ADSs or
shares by a U.S. paying agent or other U.S. intermediary will be reported to
the IRS and to you as may be required under applicable regulations. You will
be subject to United States backup withholding on these payments if you fail to
provide your taxpayer identification number to the paying agent and comply with
certain certification procedures or otherwise establish an exemption from
backup withholding. The amount of any backup withholding from a payment to you
will be allowed as a credit against your United States federal income tax
liability and may entitle you to a refund, provided that the required
information is furnished to the Internal Revenue Service. F. Dividends and paying agents. Not applicable. G. Statement by experts. Not applicable. H. Documents on display. We are subject to the information requirements of the Exchange Act, except
that as a foreign issuer, we are not subject to the proxy rules or the
short-swing profit disclosure rules of the Exchange Act. In accordance with
these statutory requirements, we file or furnish reports and other information
with the SEC. Reports and other information filed or furnished by us with the
SEC may be inspected and copied at the public reference facilities maintained
by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the SECs regional offices at 233 Broadway, New York, New York 10279 and 175 W.
Jackson Boulevard, Suite 900, Chicago, Illinois 60604. Copies of such material
may also be inspected at the offices of the New York Stock Exchange, 11 Wall
Street, New York, New York 10005, on which our ADSs are listed. In addition,
the SEC maintains a Web site that contains information filed electronically
with the SEC, which can be accessed over the internet at http://www.sec.gov. I. Subsidiary Information. Not applicable. 
 Item 11. Quantitative and Qualitative Disclosures About Market Risk We are exposed to risks associated with interest rates and foreign
exchange rates. These risks are constantly monitored and managed by our
finance department and finance committee, which in turn report directly to the
board of directors. Since many of our subsidiaries are widely held, risk
management criteria of such subsidiaries is determined by the Boards of
Directors at each subsidiary. In addition, we manage our participation in the
remaining unmanaged exposure in order to mitigate market risk at a consolidated
level. The respective Boards of Directors must first approve risk management
policies at all levels. The tables included in this section show the net debt
position of Enersis after cross-currency swaps, interest rate collars and
interest rate swaps. Our core businesses are the generation, transmission and distribution of
electricity. We do not enter into financial instruments for trading or
speculative purposes. As a result, all market risks are non-trading risks. Commodity Price Risk In our electricity generation business we are exposed to market risks
arising from the volatility of electricity, natural gas, and coal prices. In
order to manage these exposures, we enter into long-term contracts with
suppliers and customers. In Brazil and Argentina we also enter into contracts
to secure long-term supplies of electricity for our interconnection business
between Argentina and Brazil. All such contracts that constitute
commodity-price sensitive instruments that were held as of December 31, 2003
and 2002 related to electricity and were entered into for purposes other than
trading. 140




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We are exposed to the volatility of natural gas prices in the Chilean and
Argentine markets. We manage our exposure to this commodity by securing
long-term contracts with our suppliers for terms that are expected to match the
lifetime of our generation assets. These contracts generally provide for us to
purchase gas at market prices prevailing at the time the purchase occurs. As
of December 31, 2003 and 2002 we did not hold any contracts classified as
either derivative financial instruments, financial instruments or derivative
commodity instruments related to natural gas. We are exposed to the volatility of coal prices in the Chilean and
Colombian market. We manage our exposure to this commodity by entering into
short-term contracts with our suppliers. We believe that our exposure to this
commodity is immaterial. As of December 31, 2003 and 2002 we did not hold any
contracts classified as either derivative financial instruments, financial
instruments or derivative commodity instruments related to coal. The following tables sets forth certain information with respect to
electricity price-sensitive instruments issued or held by the Company as of
December 31, 2003 and 2002 differentiated by power market and company. These
electricity price sensitive-instruments are power forward contracts with
multiple delivery dates and require physical delivery. Net settlement is not
allowed for any of the contracts. Most contracts have optionality features in
quantities and prices with indexation clauses to factors such as inflation
indices, foreign currencies and natural gas prices in Argentina. In the
construction of these tables management makes assumptions using available
market data and pricing models. Inputs to pricing models include estimated
forward prices of electricity and natural gas, interest rates, foreign exchange
rates, inflation indices, transmission costs and others. These inputs become
more difficult to predict and the estimates less precise as the term of the
contract increases. As a result, fair values are highly dependent upon the
assumptions being used. Intercompany amounts have not been eliminated in the
following tables. Contract TermsAs of December 31,
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair valuein MMUS$Chile Endesa-Chile:Purchase of electricity in GWh
    
    
    720
    
    
    
    720
    
    
    
    720
    
    
    
    720
    
    
    
    
    
    
    
    
    
    
    
    2,880
    
    
    
    (10.03
    )Weighted average price in US$/MWh
    
    
    24
    
    
    
    23.2
    
    
    
    23.3
    
    
    
    23.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colombia Emgesa and Betania:Sale of electricity in GWh
    
    
    4,850
    
    
    
    232
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,082
    
    
    
    12.65Weighted average price in US$/MWh
    
    
    27.8
    
    
    
    24.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    102
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    0.08Weighted average price in US$/MWh
    
    
    24.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brazil CIEN:(1)Sale of electricity in GWh
    
    
    7,584
    
    
    
    7,744
    
    
    
    8,182
    
    
    
    9,934
    
    
    
    10,400
    
    
    
    101,468
    
    
    
    145,312
    
    
    
    440.22Weighted average price in US$/MWh
    
    
    29.9
    
    
    
    28.1
    
    
    
    27.5
    
    
    
    25.7
    
    
    
    25.2
    
    
    
    25.4
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    2,326
    
    
    
    3,086
    
    
    
    3,857
    
    
    
    6,943
    
    
    
    7,735
    
    
    
    74,567
    
    
    
    98,514
    
    
    
    (305.26
    )Weighted average price in US$
    
    
    16.9
    
    
    
    15.4
    
    
    
    15.7
    
    
    
    16.3
    
    
    
    16.9
    
    
    
    17.0
    
    
    
    
    
    
    
    Argentina CEMSA:(1)Sale of electricity in GWh
    
    
    1,388
    
    
    
    2,210
    
    
    
    2,762
    
    
    
    4,972
    
    
    
    5,539
    
    
    
    52,055
    
    
    
    68,926
    
    
    
    298.51Weighted average price in US$/MWh
    
    
    15.1
    
    
    
    15.5
    
    
    
    15.9
    
    
    
    16.7
    
    
    
    17.5
    
    
    
    17.8
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    1,426
    
    
    
    2,270
    
    
    
    2,837
    
    
    
    5,107
    
    
    
    5,690
    
    
    
    53,308
    
    
    
    70,638
    
    
    
    (182.51
    )Weighted average price in US$
    
    
    14.3
    
    
    
    14.7
    
    
    
    15.2
    
    
    
    16.1
    
    
    
    16.6
    
    
    
    18.1
    
    
    
    
    
    
    
    Argentina COSTANERA  CBA:(1)Sale of electricity in GWh
    
    
    1,059
    
    
    
    1,685
    
    
    
    2,107
    
    
    
    3,792
    
    
    
    4,225
    
    
    
    44,666
    
    
    
    57,534
    
    
    
    (18.51
    )Weighted average price in US$/MWh
    
    
    15.0
    
    
    
    15.0
    
    
    
    15.1
    
    
    
    15.3
    
    
    
    15.4
    
    
    
    15.5
    
    
    
    
    
    
    
    
   (1)
    
    During 2003 some of the Companys long-term contracts related to the
electricity interconnection business between Argentina and Brazil were
amended. Such amendments were primarily made to reduce the quantity of
electricity that was sold in the Brazilian market and purchased on
Argentine market. 141




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Contract TermsAs of December 31,
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair valuein MMUS$Chile Endesa Chile:Purchase of electricity in GWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average price in US$/MWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Colombia Emgesa and Betania:Sale of electricity in GWh
    
    
    4,072
    
    
    
    4,784
    
    
    
    179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,035
    
    
    
    25.72Weighted average price in US$/MWh
    
    
    25.6
    
    
    
    24.3
    
    
    
    21.6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Weighted average price in US$/MWh
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Brazil CIEN:Sale of electricity in GWh
    
    
    10,717
    
    
    
    12,003
    
    
    
    12,046
    
    
    
    12,439
    
    
    
    12,702
    
    
    
    171,239
    
    
    
    231,146
    
    
    
    913.54Weighted average price in US$/MWh
    
    
    26.7
    
    
    
    24.9
    
    
    
    24.8
    
    
    
    24.7
    
    
    
    24.7
    
    
    
    27.2
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    2.903
    
    
    
    6.057
    
    
    
    6,787
    
    
    
    7,600
    
    
    
    8,143
    
    
    
    101,174
    
    
    
    132,664
    
    
    
    (982.6
    )Weighted average price in US$
    
    
    17.2
    
    
    
    16.6
    
    
    
    16.7
    
    
    
    16.9
    
    
    
    17.1
    
    
    
    18.5
    
    
    
    
    
    
    
    Argentina CEMSA:Sale of electricity in GWh
    
    
    1,609
    
    
    
    4,298
    
    
    
    5,144
    
    
    
    5,761
    
    
    
    6,172
    
    
    
    76,685
    
    
    
    99,669
    
    
    
    908.76Weighted average price in US$/MWh
    
    
    16.7
    
    
    
    16.9
    
    
    
    17.2
    
    
    
    17.4
    
    
    
    17.7
    
    
    
    19.6
    
    
    
    
    
    
    
    Purchase of electricity in GWh
    
    
    1,645
    
    
    
    4,392
    
    
    
    5,257
    
    
    
    5,887
    
    
    
    6,307
    
    
    
    78,116
    
    
    
    101,604
    
    
    
    (802.22
    )Weighted average price in US$
    
    
    16.1
    
    
    
    16.3
    
    
    
    16.5
    
    
    
    16.8
    
    
    
    17.0
    
    
    
    18.8
    
    
    
    
    
    
    
    Argentina COSTANERA  CBA:Sale of electricity in GWh
    
    
    1,125
    
    
    
    3,003
    
    
    
    3,594
    
    
    
    4,025
    
    
    
    4,313
    
    
    
    53,334
    
    
    
    69,394
    
    
    
    264.06Weighted average price in US$/MWh
    
    
    16.1
    
    
    
    16.2
    
    
    
    16.3
    
    
    
    16.5
    
    
    
    16.6
    
    
    
    17.7
    
    
    
    
    
    
    
    
 We do not have material holdings of commodity-price sensitive instruments
in our distribution business. Interest Rate Risk As of December 31, 2002 and 2003, 59.8% and 33%, respectively, of our
outstanding debt obligations bore interest at floating rates of interest
(primarily LIBOR-based and the Chilean interbank rate (TAB)). We manage
interest rate risk by maintaining an appropriate mixture of both variable and
fixed rate debts. Additionally, we manage interest rate risk through the use
of interest rate swaps and collars. 142




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As of December 31, 2003, the recorded values of our financial debt for
accounting purposes, and the corresponding fair values of the significant
financial instruments exposing us to interest rate risk are as follows,
according to the date of maturity: Contract TermsAs of December 31,
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair Value (1)(in millions of constant Ch$)Long-term DebtFixed rate:Ch$ - and UF
-denominated
    
    
    3,889
    
    
    
    4,354
    
    
    
    75,538
    
    
    
    5,088
    
    
    
    5,100
    
    
    
    196,314
    
    
    
    290,283
    
    
    
    272,409Weighted average
interest rate
    
    
    5.5
    %
    
    
    5.5
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    5.7
    %
    
    
    
    
    
    
    5.6
    %
    
    
    US$-denominated
    
    
    33,461
    
    
    
    78,837
    
    
    
    319,899
    
    
    
    84,103
    
    
    
    261,071
    
    
    
    1,268,837
    
    
    
    2,046,207
    
    
    
    2,183,179Weighted average
interest rate
    
    
    7.7
    %
    
    
    7.7
    %
    
    
    7.9
    %
    
    
    7.9
    %
    
    
    7.9
    %
    
    
    
    
    
    
    7.8
    %
    
    
    Other currencies (2)
    
    
    27,960
    
    
    
    31,237
    
    
    
    98,976
    
    
    
    17,280
    
    
    
    5,855
    
    
    
    22,343
    
    
    
    203,650
    
    
    
    207,139Weighted average
interest rate
    
    
    10.7
    %
    
    
    10.6
    %
    
    
    10.2
    %
    
    
    11.9
    %
    
    
    12.5
    %
    
    
    
    
    
    
    11.1
    %
    
    
    Variable rate:Ch$- and UF
-denominated
    
    
    34,553
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    34,553
    
    
    
    30,396Weighted average
interest rate
    
    
    4.6
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.6
    %
    
    
    US$-denominated
    
    
    15,183
    
    
    
    28,527
    
    
    
    143,599
    
    
    
    212,249
    
    
    
    181,351
    
    
    
    11,452
    
    
    
    735,360
    
    
    
    736,994Weighted average
interest rate
    
    
    4.4
    %
    
    
    5.7
    %
    
    
    6.8
    %
    
    
    7.4
    %
    
    
    6.7
    %
    
    
    8.1
    %
    
    
    5.9
    %
    
    
    Other currencies (2)
    
    
    263,222
    
    
    
    34,478
    
    
    
    33,687
    
    
    
    28,587
    
    
    
    16,652
    
    
    
    118,072
    
    
    
    494,699
    
    
    
    504,586Weighted average
interest rate
    
    
    14.9
    %
    
    
    14.6
    %
    
    
    14.1
    %
    
    
    13.9
    %
    
    
    13.7
    %
    
    
    16.0
    %
    
    
    14.4
    %
    
    
    Total
    
    
    521,268
    
    
    
    177,433
    
    
    
    671,698
    
    
    
    347,306
    
    
    
    470,030
    
    
    
    1,617,017
    
    
    
    3,804,752
    
    
    
    3,934,702
   (1)
    
    As of December 31, 2003. Fair values were calculated based on the
discounted value of future cash flows expected to be paid (or received),
considering current discount rates that reflect the different risks
involved.(2)
    
    Other currencies includes the Euro, the Brazilian real, the Colombian peso
and the Peruvian sol, among others. 143




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By comparison, as of December 31, 2002, the recorded values of our
financial debt for accounting purposes, and the corresponding fair values of
the significant financial instruments exposing us to interest rate risk are as
follows, according to the date of maturity: Contract TermsFairAs of December 31,
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Total
    
    Value (1)(in millions of constant Ch$)Long-term DebtFixed rate:Ch$ - and UF
-denominated
    
    
    11,566
    
    
    
    11,986
    
    
    
    13,587
    
    
    
    58,181
    
    
    
    17,305
    
    
    
    169,558
    
    
    
    282,184
    
    
    
    273,204Weighted average
interest rate
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    5.9
    %
    
    
    5.9
    %
    
    
    5.9
    %
    
    
    5.9
    %US$-denominated
    
    
    264,715
    
    
    
    20,134
    
    
    
    88,583
    
    
    
    441,179
    
    
    
    93,664
    
    
    
    1,167,357
    
    
    
    2,076,633
    
    
    
    2,028,498Weighted average
interest rate
    
    
    7.4
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.8
    %
    
    
    7.8
    %
    
    
    7.6
    %Other currencies (2)
    
    
    22,615
    
    
    
    29,374
    
    
    
    14,486
    
    
    
    68,500
    
    
    
    9,093
    
    
    
    20,660
    
    
    
    167,727
    
    
    
    174,506Weighted average
interest rate
    
    
    8.2
    %
    
    
    8.0
    %
    
    
    8.1
    %
    
    
    7.8
    %
    
    
    8.6
    %
    
    
    9.7
    %
    
    
    8.2
    %
    
    
    Variable rate:Ch$ - and UF
-denominated
    
    
    59,812
    
    
    
    1,034,123
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    1,093,935
    
    
    
    963,997Weighted average
interest rate
    
    
    5.1
    %
    
    
    4.0
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4.1
    %
    
    
    US$-denominated
    
    
    549,352
    
    
    
    1,231,841
    
    
    
    28,675
    
    
    
    10,793
    
    
    
    10,488
    
    
    
    22,833
    
    
    
    1,853,981
    
    
    
    1,811,630Weighted average
interest rate
    
    
    2.8
    %
    
    
    3.6
    %
    
    
    5.1
    
    
    
    5.7
    %
    
    
    6.1
    %
    
    
    6.5
    %
    
    
    3.4
    %
    
    
    Other currencies (2)
    
    
    647,319
    
    
    
    27,912
    
    
    
    32,613
    
    
    
    33,035
    
    
    
    25,400
    
    
    
    137,655
    
    
    
    903,933
    
    
    
    887,482Weighted average
interest rate
    
    
    12.05
    
    
    
    11.55
    
    
    
    11.5
    %
    
    
    11.5
    %
    
    
    11.4
    %
    
    
    11.3
    %
    
    
    11.9
    %
    
    
    Total
    
    
    1,558,378
    
    
    
    2,355,369
    
    
    
    177,943
    
    
    
    611,689
    
    
    
    155,950
    
    
    
    1,518,063
    
    
    
    6,377,393
    
    
    
    6,139,317
   (1)
    
    As of December 31, 2002. Fair values were calculated based on the
discounted value of future cash flows expected to be paid (or received),
considering current discount rates that reflect the different risks
involved.(2)
    
    Other currencies includes the Euro, the Brazilian real, the Colombian peso
and the Peruvian sol, among others. Foreign Currency Risk We are exposed to foreign currency risk arising from long-term debt
denominated in foreign currencies, the majority of which is the US dollar.
This risk is mitigated, as a substantial portion of our revenues are linked to
the US dollar either directly or indirectly. For example, up to 90% of
revenues of Endesa-Chile, in Chile, are linked to the US dollar. Despite these
natural hedges, to a certain extent we remain subject to such exchange rate
fluctuations between the Chilean peso and the US dollar, which we manage
through the use of US dollar/UF forward foreign exchange contracts. Prior to our acquisition of a controlling interest in Endesa-Chile, we did
not manage foreign exchange rate risk. This risk management policy changed in
1999 due to the instability of the Chilean peso and the change in the trend, in
which the UF, or inflation-indexed peso, began to devaluate against the United
States dollar. We now manage foreign currency risk on a consolidated basis to
the extent that such risks are not managed at the subsidiary level, for those
amounts not fully hedged for our proportionate equity interest in such
subsidiaries. In order to hedge the risk of fluctuations between the US dollar
and the Chilean peso, we enter into forward foreign currency contracts. In
addition, through Endesa-Chile, we enter into exchange rate swaps, futures and
other similar derivative instruments in order to hedge the currency
fluctuations in foreign currency debt. Although the actual foreign currency exchange risk to which we are exposed
depends upon the fluctuation of foreign exchange rates in which monetary assets
and liabilities are maintained as compared to the Chilean peso, for 144




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accounting purposes our results from operations are affected by variations
in the exchange rate between the US dollar and the Chilean peso, due to the
application of Technical Bulletin No. 64. Under this Chilean accounting
standard, the effects of re-measuring many of our non-Chilean investments into
US dollars are recorded in income, while the accumulated effects of Chilean
peso to US dollar exchange rate fluctuations are recorded in equity, net of any
price-level restatement, due to the effects of Chilean inflation on such
foreign investment amounts. Foreign currency gains and losses are included in the results from
operations for the period together with price-level restatement. As of December 31, 2003, the recorded values for our financial debt for
accounting purposes and the corresponding fair values of the significant
financial instruments exposing us to foreign currency risk are as follows,
according to the date of maturity: Contract TermsAs of December 31,
    
    2004
    
    2005
    
    2006
    
    2007
    
    2008
    
    Thereafter
    
    Total
    
    Fair Value (1)(in millions of constant Ch$)Long-term DebtFixed rate:US$-denominated
    
    
    33,461
    
    
    
    78,837
    
    
    
    319,899
    
    
    
    84,103
    
    
    
    261,071
    
    
    
    1,268,837
    
    
    
    2,046,207
    
    
    
    2,183,179Other currencies (2)
    
    
    27,960
    
    
    
    31,237
    
    
    
    98,976
    
    
    
    17,280
    
    
    
    5,855
    
    
    
    22,343
    
    
    
    203,650
    
    
    
    207,139Variable rateUS$-denominated
    
    
    158,183
    
    
    
    28,527
    
    
    
    143,599
    
    
    
    212,249
    
    
    
    181,351
    
    
    
    11,452
    
    
    
    735,360
    
    
    
    736,994Other currencies (2)
    
    
    263,222
    
    
    
    34,478
    
    
    
    33,687
    
    
    
    28,587
    
    
    
    16,653
    
    
    
    118,072
    
    
    
    494,699
    
    
    
    504,586Other instruments (3)US$-denominated assets
    
    
    162,800
    
    
    
    132,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    295,703
    
    
    
    295,703Assets in other currencies (2)
    
    
    579,672
    
    
    
    21,437
    
    
    
    25,074
    
    
    
    28,896
    
    
    
    12,564
    
    
    
    
    
    
    
    667,643
    
    
    
    667,643Forward contracts(receive US$/Pay Ch$) (1)
    
    
    (90,258
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (90,258
    )
    
    
    6,720Other foreign currency
derivatives (2)
    
    
    517,361
    
    
    
    45,488
    
    
    
    768,674
    
    
    
    
    
    
    
    172,202
    
    
    
    
    
    
    
    1,503,726
    
    
    
    (37,946
    )
   (1)
    
    Calculated based on the Observed Exchange Rate as of December 31, 2003,
which was Ch$593.80 = US$1.00. Fair values were calculated based on the
discounted value of future cash flows expected to paid (or received),
considering current discount rates that reflect the different risks
involved.(2)
    
    Other currencies includes the , Brazilian real, the Colombian pesos
and Peruvian soles among others.(3)
    
    Other instruments include cash, time deposits and short-term accounts
receivables (see Note 29 to financial statements.) 145




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As of December 31, 2002, the recorded values for our financial debt for
accounting purposes and the corresponding fair values of the significant
financial instruments exposing us to foreign currency risk are as follows,
according to the date of maturity: Contract TermsFair ValueAs of December 31,
    
    2003
    
    2004
    
    2005
    
    2006
    
    2007
    
    Thereafter
    
    Total
    
    (1)(in millions of constant Ch$)Long-term DebtFixed rate:US$-denominated
    
    
    264,715
    
    
    
    20,134
    
    
    
    88,583
    
    
    
    441,179
    
    
    
    93,664
    
    
    
    1,167,357
    
    
    
    2,075,633
    
    
    
    2,028,498Other currencies(2)
    
    
    25,615
    
    
    
    29,374
    
    
    
    14,486
    
    
    
    68,500
    
    
    
    9,093
    
    
    
    20,660
    
    
    
    167,727
    
    
    
    174,506Variable rate:US$-denominated
    
    
    549,352
    
    
    
    1,231,841
    
    
    
    28,675
    
    
    
    10,793
    
    
    
    10,488
    
    
    
    22,833
    
    
    
    1,852,981
    
    
    
    1,811,630Other currencies(2)
    
    
    647,319
    
    
    
    27,912
    
    
    
    32,613
    
    
    
    33,035
    
    
    
    25,400
    
    
    
    137,655
    
    
    
    903,933
    
    
    
    887,482Other instruments(3)US$-denominated
assets
    
    
    274,016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    274,016
    
    
    
    274,016Assets in other
currencies(2)
    
    
    510,133
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    510,133
    
    
    
    510,133Forward contracts(receive US$/Pay
Ch$-UF)(1)
    
    
    271,635
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    0
    
    
    
    271,635
    
    
    
    (1,116
    )Other foreign currency
derivatives(2)
    
    
    786,105
    
    
    
    537,726
    
    
    
    60,107
    
    
    
    996,171
    
    
    
    0
    
    
    
    58,854
    
    
    
    2,408,962
    
    
    
    13,194
   (1)
    
    Calculated based on the Observed Exchange Rate as of December 31, 2002,
which was Ch$718.61 = US$1.00. Fair values were calculated based on the
discounted value of future cash flows expected to paid (or received),
considering current discount rates that reflect the different risks
involved.(2)
    
    Other currencies includes the , Brazilian real, the Colombian pesos
and Peruvian soles among others.(3)
    
    Other instruments include cash, time deposits and short-term accounts
receivables (see Note 29 to financial statements.) 
 Item 12. Description of Securities Other than Equity Securities A. Debt Securities. Not applicable. B. Warrants and Rights. Not applicable. C. Other Securities. Not applicable. D. American Depositary Shares. Not applicable. 146




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##### Table of Contents



PART II 
 Item 13. Defaults, Dividend Arrearages and Delinquencies None. 
 Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds None. E. Use of proceeds. Not applicable. 
 Item 15. Controls and Procedures Enersis management, under the supervision of the Chief Executive Officer
and the Chief Financial Officer, performed an evaluation of the effectiveness
of Enersis disclosure controls and procedures as of December 31, 2003. Based
on this evaluation, Enersis Chief Executive Officer and Chief Financial
Officer concluded that Enersis disclosure controls and procedures are
effective at the reasonable assurance level for gathering, analyzing and
disclosing the information Enersis is required to disclose in the reports it
files under the Securities Exchange Act of 1934, within the time periods
specified in the SECs rules and forms. Enersis management applied its
judgment in assessing the costs and benefits of such controls and procedures,
which by their nature can provide only reasonable assurance regarding
managements control objectives. There have been no significant changes in Enersis internal control over
financial reporting that occurred during the period covered by this annual
report that have materially affected, or are reasonably likely to materially
affect, the companys internal control over financial reporting. 
 Item 16. [Reserved] 
 Item 16A. Audit Committee Financial Expert Although
we have not determined whether any particular member of our
Board of Directors is a financial
expert in accordance with SEC rules and regulations, and
therefore, have not named any particular member of such board as
our Audit Committee Financial Expert, we believe that
several members of the Board have an understanding of Chilean GAAP,
the ability to assess the general application of Chilean GAAP in
connection with the accounting for estimates, accruals and reserves,
experience analyzing and evaluating financial statements that present
a breadth and level of complexity of accounting issues that are
generally comparable to the breadth and complexity of issues that can
reasonably be expected to be raised by our consolidated financial
statements, an understanding of internal controls over financial
reporting, and an understanding of audit committee functions. These
members of our Board of Directors also have experience
assessing the performance of Enersis, S.A. and its
consolidated subsidiaries and overseeing our external auditors with respect to
the preparation, auditing and evaluation of our consolidated
financial statements. 
 Item 16B. Code of Ethics The standards of ethical conduct at Enersis are governed by means of two
corporate rulings or policies: the Charter Governing Executives (estatutos del
directivo) and the Internal Regulations on Conduct in Securities Markets. The Charter Governing Executives, approved as a corporate statute, was
adopted by the Board of Directors in May 2003 and is applicable to all managers
contractually related to Enersis, including the Chief Executive Officer, the
Chief Financial Officer and other senior financial officers of the Company, and
to all controlled subsidiaries in which Enersis is the majority shareholder,
both in Chile and internationally. The objective of this statute is to
establish standards for the governance of our managements actions. The Internal Regulations on Conduct in Securities Markets, adopted by
Enersis Board of Directors in January 2002, sets the criteria to be followed
in market operations in order to make the market more transparent and to
protect market investors. It is applicable to members of the Board of
Directors, the senior executives and the executives and employees of Enersis
determined by the Chief Executive Officer, and known to the Chairman, who work
in areas related to the securities market or have access to privileged
information. A copy of these documents is also available at request, free of charge, by
writing or telephoning us at: 147




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ENERSIS S.A.
Attention: Investor Relations Department
Santa Rosa 76
Santiago, Chile
(56-2) 353-4682 During fiscal year 2003, there have been no amendments to any provisions
of the Charter Governing Executives or the Internal Regulations on Conduct in
Securities Markets. No waivers from any provisions of the Charter Governing Executives or the
Internal Regulations on Conduct in Securities Markets were expressly or
implicitly granted to the Chief Executive Officer, the Chief Financial Officer
or any other senior financial officer of the Company in fiscal year 2003. 
 Item 16C. Principal Accountant Fees and Services Audit fees are fees for professional services performed by our auditors
for the audit of the Companys annual financial statements and services that
are normally provided in connection with statutory and regulatory filings.
Audit related fees consist mainly of accounting consultations and audits in
connection with acquisitions and disposals of businesses, reviews of internal
controls and advice on accounting control policies and procedures, attest
services not required by statute or regulation and consultations concerning
financial accounting and reporting standards. Audit-related fees are fees related to the performance of the audit or
review of Enersis financial statements that are not covered by the audit fees.
Typical examples of audit-related fees are those fees associated with
non-periodic consultations and issuances. The following table summarize the fees to our independent external
auditors for the year ended December 31, 2003: OtherDeloitte
    
    Auditors
    
    Total(in US$ millions)Audit fees
    
    
    1.53
    
    
    
    0.47
    
    
    
    2.00Audit-related fees
    
    
    0.78
    
    
    
    0.36
    
    
    
    1.14Tax fees
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Other fees (1)
    
    
    0.234
    
    
    
    0.04
    
    
    
    0.274Total fees
    
    
    2.544
    
    
    
    0.87
    
    
    
    3.414
    The following table summarize the fees to our independent external
auditors for the year ended December 31, 2002: OtherDeloitte
    
    Auditors
    
    Total(in US$ millions)Audit fees
    
    
    1.57
    
    
    
    0.43
    
    
    
    2.00Audit-related fees
    
    
    0.044
    
    
    
    0.012
    
    
    
    0.056Tax fees
    
    
    0.0
    
    
    
    0.0
    
    
    
    0.0Other fees (1)
    
    
    0.078
    
    
    
    0.003
    
    
    
    0.081Total fees
    
    
    1.692
    
    
    
    0.445
    
    
    
    2.137
 148




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##### Table of Contents



Each year the Directors
Committee submits to the Board of Directors a proposal with the name
or names of potential external auditors for the Company. This
proposal relates only to the selection of the external auditors who
will perform the audit of Enersis financial statements in that
year. The Directors Committee proposal may be adopted or not adopted
by the Board of Directors. If such proposal is not adopted by the
Board of Directors, the Board of Directors will propose one or more
other audit firms to perform the audit of Enersis financial
statements in that year. In either case, the actual selection of the
external auditor is made by the shareholders meeting, which
votes on the proposal of the Directors Committee adopted by the Board
of Directors or, if the Board of Directors does not adopt the
Directors Committee proposal, chooses between the audit firm or firms
recommended by the Directors Committee and the audit firm or firms
recommended by the Board of Directors. Any
engagement of the external auditor to perform services in addition to
the audit of the financial statements is pre-approved by the Board
of Directors. 
 Item 16D. Exemptions from Listing Requirements for Audit Committees Not Required. 
 Item 16E. Purchases of Equity Securities by One Issuer and Affiliated Persons Not Required. 149




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##### Table of Contents



PART III 
 Item 17. Financial Statements None. 
 Item 18. Financial Statements PageIndex to Financial StatementsENERSIS S.A. and SubsidiariesAudited Consolidated Financial StatementsReport of Independent AccountantsReport of
Independent Registered Accounting Firm  Enersis S.A 2003, 2002 and 2001
    
    
    F-2Report of
Independent Auditors  Endesa-Chile 2003 and 2002
    
    
    F-4Report of
Independent Registered Accounting Firm  Endesa Colombia S.A. 2003 and 2002
    
    
    F-5Report of
Independent Registered Accounting Firm 
Central Hidroeléctrica de Betania S.A.E.S.P. 2003
    
    
    F-6Report of
Independent Registered Accounting Firm  Endesa Argentina S.A. 2003 and 2002
    
    
    F-7Report of
Independent Registered Accounting Firm  Edesur S.A. 2002
    
    
    F-8Report of
Independent Registered Accounting Firm  Cachoeira Dourada 2003 and 2002
    
    
    F-9Report of
Independent Registered Accounting Firm  CIEN 2003 and 2002
    
    
    F-10Consolidated
Balance Sheets as of December 31, 2002 and 2003
    
    
    F-11Consolidated Statements of Income for the years ended December 31, 2001, 2002 and
2003
    
    
    F-13Consolidated Statements of Changes in Shareholders Equity for the years ended
December 31, 2001, 2002 and 2003
    
    
    F-14Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002
and 2003
    
    
    F-15Notes to the Consolidated Financial Statements
    
    
    F-16Schedule I
Financial Statements of Enersis Parent Company
    
    
    F-178
 150




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##### Table of Contents



Item 19. Exhibits Exhibit
    
    Description1.1
    
    By-laws (Estatutos) of ENERSIS S.A., as amended.1.2
    
    By-laws (Estatutos) of ENERSIS S.A., as amended (English translation).4.1
    
    Assignment of Rights Contract, dated June 25, 1999, between Endesa Internacional S.A. and
Enersis Investment S.A. (Spanish version) (incorporated by reference to Exhibit 10.3 of
our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June
30, 2000).4.2
    
    Assignment of Rights Contract, dated June 25, 1999, between Endesa Internacional S.A. and
Enersis Investment S.A. (English version) (incorporated by reference to Exhibit 10.4 of
our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June
30, 2000).8
    
    List of Subsidiaries (incorporated by reference to Exhibit 21 of our Form F-4 filed with
the Securities and Exchange Commission on June 2, 2004).12.1
    
    Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act12.2
    
    Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act13
    
    Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act
 We will furnish to the Securities and Exchange Commission, upon request,
copies of any unfiled instruments that define the rights of holders of
long-term debt of ENERSIS S.A. 151




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##### Table of Contents



SIGNATURES The registrant certifies that it meets all of the requirements for filing
on Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf. ENERSIS S.A.By:
    /s/ Mario ValcarceName:
    Mario ValcarceTitle:
    Chief Executive Officer Date: June 30, 2004 152




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##### Table of Contents



Enersis S.A. and Subsidiaries Index to the Audited Consolidated Financial Statements PageReport of Independent Accountants:Report of Independent Registered Accounting Firm  Enersis S.A. 2001,
2002 and 2003
    
    F-2Report
of Independent Auditors  Endesa Chile S.A. 2002 and 2003
    
    F-4Report
of Independent Registered Accounting Firm  Endesa Colombia S.A. 2002 and 2003
    
    F-5Report
of Independent Registered Accounting Firm  Central Hidroeléctrica de Betania S.A. E.S.P. 2003
    
    F-6Report
of Independent Registered Accounting Firm  Endesa Argentina S.A. 2002 and 2003
    
    F-7Report
of Independent Registered Accounting Firm  Edesur S.A. 2002
    
    F-8Report
of Independent Registered Accounting Firm  Cachoeira Dourada 2002 and 2003
    
    F-9Report
of Independent Registered Accounting Firm  CIEN 2002 and 2003
    
    F-10Consolidated Financial Statements:Consolidated Balance Sheets as of December 31, 2002 and 2003
    
    F-11Consolidated Statements of Income for the years ended December 31, 2001, 2002
and 2003
    
    F-13Consolidated Statements of Changes in Shareholders Equity for the years ended December 31, 2001, 2002 and 2003
    
    F-14Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2002 and 2003
    
    F-15Notes to the Consolidated Financial Statements
    
    F-16SCHEDULE I Financial Statements of Enersis Parent Company
    
    F-178




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of Enersis S.A.:  1.
    
    We have audited the accompanying consolidated balance sheets of Enersis
S.A. and Subsidiaries (the Company) as of December 31, 2002 and 2003,
and the related consolidated statements of operations, shareholders
equity and cash flows for each of the three years ended December 31, 2003
(expressed in constant Chilean pesos). Our audit also included the
financial statements schedules listed in the index to Item 18. These
financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the financial statements for the
years ended December 31, 2002 and 2003 of Empresa Nacional de Electricidad
S.A. and certain of its subsidiaries and investees or the financial
statements for the year ended December 31, 2002 of the subsidiary Empresa
Distribuidora Edesur S.A. These financial statements reflect total
combined assets constituting 34.44% and 25.66% on a Chilean GAAP
basis and 34.27% and 22.99% on a US GAAP basis, of consolidated total assets
at December 31, 2002 and 2003
respectively, and total combining revenues constituting 30.40% and
23.72% of
consolidated total revenues on both a Chilean GAAP and US GAAP basis for
the years then ended, respectively. Those statements were audited by
other auditors whose reports have been provided to us and our opinion,
insofar as it relates to the amounts included for these companies, is
based solely on the reports of such auditors.2.
    
    We conducted our audits in accordance with Standards of the Public
Company Accounting Oversight Board (Unites States of America). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and
the reports of the other auditors provide a reasonable basis for our
opinion.3.
    
    In our opinion, based on our audits and the reports of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enersis S.A.
and Subsidiaries as of December 31, 2002 and 2003, and the results of
their operations, shareholders equity and cash flows for each of the
three years ended December 31, 2003, in conformity with accounting
principles generally accepted in Chile. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.4.
    
    As discussed in Note 2 a (iii) to the consolidated financial statements,
the accompanying consolidated statement of cash flows for the year ended
December 31, 2001 has been restated under Chilean GAAP. F-2




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5.
    
    Accounting principles generally accepted in Chile vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect
of such differences is presented in Note 37 to the consolidated financial
statements.6.
    
    As discussed in Note 37 to the consolidated financial statements, the
information relating to the nature and effect of the differences between
Chilean GAAP and US GAAP has been restated for the years ended December
31, 2001 and 2002.7.
    
    Our audit also comprehended the translation of constant Chilean Peso
amounts into U.S. dollar amounts and, in our opinion, such translation has
been made in conformity with the basis stated in Note 2 (c). Such U.S.
dollar amounts are presented solely for the convenience of readers in the
United States of America. Deloitte & Touche
Sociedad de Auditores Consultores Limitada Santiago, Chile
January 24, 2004
(except for Notes 2(a), 2(c), 37 and 38 for which the date is June 25, 2004) F-3




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Report of Independent Auditors To the Board of Directors and Shareholders of
Empresa Nacional de Electricidad S.A. (Endesa-Chile) and subsidiaries: We have audited the accompanying consolidated balance sheets of Endesa-Chile
and subsidiaries (the Company) as of December 31, 2002 and 2003, and the
related consolidated statements of income, changes in shareholders equity and
cash flows for the years then ended. Our audits also included the
financial statement Schedule 1  Condensed financial
information. These financial statements and Schedule are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements and Schedule based on our audits. We did not audit the
consolidated financial statements of certain subsidiaries, which
statements reflect total assets representing 40.06 percent and 49.61 percent as
of December 31, 2002 and 2003, respectively, and total revenues representing of
31.93 percent and 39.38 percent for the years ended December 31, 2002 and 2003,
respectively. We also did not audit the financial statements of certain
investments accounted for under the equity method, which represented total
assets of 0.87 percent and 1.07 percent of total assets as of December 31, 2002
and 2003, respectively, and net income representing 61.23 percent and 14.87
percent of the consolidated net income for the years then ended, respectively.
Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for those entities, is based solely on the reports of the other auditors. We conducted our audits in accordance with standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits and the reports of other auditors provide a reasonable basis for our
opinion. In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Endesa-Chile and subsidiaries
at December 31, 2002 and 2003, and the results of their operations and their
cash flows for the years then ended in conformity with accounting principles
generally accepted in Chile, which differ in certain respects from accounting
principles generally accepted in the United States of America (see Note 34 to
the consolidated financial statements). Also, in our opinion, the
related financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, present fairly in
all material respects the information set forth therein.  ERNST & YOUNG LTDA.
Santiago, Chile
January 23, 2004
(except for Notes 32 and 34 for which the date is May 1, 2004) F-4




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Report of Independent Registered Accounting Firm
(Translation of a report originally issued in Spanish) To the Board of Directors and Shareholders of Endesa Colombia S.A.: We have audited the balance sheets of Endesa Colombia S.A. (the Company) as
of December 31, 2003 and 2002, and the related statements of income and cash
flows for the years then ended, all expressed in thousands of constant Chilean
pesos (not presented separately herein). These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of the Company for the year ended December 31, 2001, were
audited by other auditors who have ceased operations. Those auditors expressed
an unqualified opinion on those financial statements in their report dated
January 18, 2002. We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Endesa de
Colombia S.A. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 18 to the financial statements.  Carlos Eduardo Tovar
Bogotá, Colombia, January 15, 2004,
  except for Note 18 for which the date is April 30, 2004
    
    DELOITTE AND TOUCHE LTDA.
 F-5




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Report of Independent Registered Public Accounting Firm
(Translation of a report originally issued in Spanish) To the Board of Directors and Shareholders of Central Hidroeléctrica de Betania S.A. E.S.P. and Subsidiaries: We have audited the consolidated balance sheet of Central Hidroeléctrica de
Betania S.A. E.S.P. and Subsidiaries (the Company) as of December 31, 2003,
and the related consolidated statement of income and cash flows for the year
then ended, all expressed in thousands of constant Chilean pesos (not
separately presented herein). These financial statements are the
responsibility of the Companys management. Our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, based on our audit, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Central Hidroeléctrica de Betania S.A. E.S.P. and its Subsidiaries as of
December 31, 2003, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 26 to the financial statements.  Carlos Eduardo Tovar
Bogotá, Colombia, January 15, 2004,
  except for Note 26 for which the date is April 30, 2004
    
    DELOITTE AND TOUCHE LTDA.
 F-6




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the President and Board of Directors ofEndesa Argentina S.A. We have audited the consolidated balance sheets of Endesa Argentina S.A. and
Subsidiaries (the Company) as of December 31, 2003 and 2002, and the related
consolidated statements of income and cash flows for the years then ended (not
separately presented herein). These financial statements are the
responsibility of the Companys Management. Our responsibility is to express
an opinion on these financial statements based on our audits. The consolidated
financial statements of the Company for the year ended December 31, 2001, were
audited by other auditors who were a member firm of a worldwide organization
that has ceased operations. Those auditors expressed an unqualified opinion on
those financial statements in their report dated March 8, 2002, which included
emphasis paragraphs expressing the uncertainty on the Companys capacity to
meet its obligations and continue operations, and discussing the major effects
that the severe changes made by the Argentinean Government to the economic
model and to the International Exchange Law that had been in force since 1991
might have on the Company. We conducted our audits in accordance with the Standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Endesa Argentina S.A. and Subsidiaries as of December 31, 2003 and 2002, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with accounting principles generally
accepted in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 40 to the financial statements. Buenos Aires, January 22, 2004, except for Note 40 for which the date is April
30, 2004. DELOITTE & Co. S.R.L.  CARLOS A. LLOVERA
(Partner)
 F-7




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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  To the Shareholders and Board of Directors ofEMPRESA DISTRIBUIDORA SUR S.A.
(EDESUR S.A.) We have audited the balance sheet of EDESUR S.A. (an Argentine corporation) as
of December 31, 2002, and the related statements of income, changes in
shareholders equity and cash flows for the year then ended, all expressed in
U.S. dollars (not presented separately herein). Those financial statements are
the responsibility of the Companys management. Our responsibility is to
express an opinion on those financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the 2002 financial statements referred to above (not presented
separately herein) present fairly, in all material respects, the financial
position of EDESUR S.A. as of December 31, 2002, and the results of its
operations and its cash flows for the year then ended, in conformity with
generally accepted accounting principles in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Application of accounting principles generally accepted in the United
States of America would have affected shareholders equity as of December 31,
2002 and the results of operations for the year ended December 31, 2002, to the
extent summarized in Note 29 of the Notes to the financial statements.  Buenos Aires, ArgentinaFebruary 7, 2003PISTRELLI, HENRY MARTIN Y ASOCIADOS S.R.L.(Member Firm of Ernst & Young Global)EZEQUIEL A. CALCIATIPartner
 F-8




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Report of Independent Registered Public Accounting Firm  To the Board of Directors and Shareholders of
Centrais Elétricas Cachoeira Dourada S.A.
Cachoeira Dourada  GO, Brazil We have audited the balance sheets of Centrais Elétricas Cachoeira Dourada S.A.
as of December 31, 2003 and 2002, and the related statements of income and cash
flows for the years then ended, all expressed in United States dollars. These financial statements are the responsibility
of the Companys management. Our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Centrais Elétricas Cachoeira
Dourada S.A. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 21 to the consolidated financial statements.  January 17, 2004 F-9




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Report of Independent Registered Public Accounting Firm  To the Board of Directors and Shareholders of
CIEN  Companhia de Interconexão Energética
Rio de Janeiro  RJ, Brazil We have audited the accompanying consolidated balance sheets of CIEN 
Companhia de Interconexão Energética as of
December 31, 2003 and 2002, and the related consolidated statements of income
and cash flows for the years then ended, all expressed in United States
dollars. These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CIEN  Companhia de
Interconexão Energética S.A. and subsidiaries as of December 31, 2003 and 2002,
and the results of its operations and its cash flows for the years then ended,
in conformity with generally accepted accounting principles in Chile. Accounting principles generally accepted in Chile vary in certain significant
respects from accounting principles generally accepted in the United States of
America. Information relating to the nature and effect of such differences is
presented in Note 23 to the consolidated financial statements.  Rio de Janeiro, Brasil
January 17, 2004 F-10




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ENERSIS S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) As of December 31,ASSETS
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThUS$CURRENT ASSETSCash
    
    
    48,666,727
    
    
    
    26,370,232
    
    
    
    44,409Time deposits
    
    
    147,083,163
    
    
    
    256,254,606
    
    
    
    431,550Marketable securities
    
    
    1,558,723
    
    
    
    11,155,741
    
    
    
    18,787Accounts receivable, net
    
    
    463,428,121
    
    
    
    467,170,365
    
    
    
    786,747Notes receivable, net
    
    
    5,182,662
    
    
    
    8,362,627
    
    
    
    14,083Other accounts receivable, net
    
    
    63,403,857
    
    
    
    94,194,266
    
    
    
    158,630Amounts due from related companies
    
    
    197,352,823
    
    
    
    17,060,125
    
    
    
    28,730Inventories
    
    
    60,986,480
    
    
    
    44,308,194
    
    
    
    74,618Income taxes recoverable
    
    
    54,980,336
    
    
    
    61,286,338
    
    
    
    103,210Prepaid expenses
    
    
    7,742,678
    
    
    
    16,452,494
    
    
    
    27,707Deferred income taxes
    
    
    42,958,648
    
    
    
    69,459,772
    
    
    
    116,975Other current assets
    
    
    133,341,824
    
    
    
    73,928,782
    
    
    
    124,501Total current assets
    
    
    1,226,686,042
    
    
    
    1,146,003,542
    
    
    
    1,929,949PROPERTY, PLANT AND EQUIPMENTLand
    
    
    131,203,835
    
    
    
    115,453,784
    
    
    
    194,432Buildings and infrastructure and works in progress
    
    
    11,738,526,563
    
    
    
    10,053,936,197
    
    
    
    16,931,519Machinery and equipment
    
    
    1,998,142,088
    
    
    
    1,762,236,656
    
    
    
    2,967,728Other plant and equipment
    
    
    540,209,473
    
    
    
    348,089,694
    
    
    
    586,207Technical appraisal
    
    
    753,652,675
    
    
    
    619,471,230
    
    
    
    1,043,232Accumulated depreciation
    
    
    (5,183,481,869
    )
    
    
    (4,802,827,051
    )
    
    
    (8,088,291
    )Total property, plant and equipment, net
    
    
    9,978,252,765
    
    
    
    8,096,360,510
    
    
    
    13,634,827OTHER ASSETSInvestments in related companies
    
    
    196,105,799
    
    
    
    180,211,471
    
    
    
    303,488Investments in other companies
    
    
    161,061,462
    
    
    
    133,460,297
    
    
    
    224,756Goodwill, net
    
    
    855,988,634
    
    
    
    780,397,218
    
    
    
    1,314,243Negative goodwill, net
    
    
    (96,124,680
    )
    
    
    (79,234,632
    )
    
    
    (133,437
    )Long-term receivables
    
    
    127,109,018
    
    
    
    127,935,044
    
    
    
    215,451Amounts due from related companies
    
    
    907,149
    
    
    
    129,103,833
    
    
    
    217,420Intangibles
    
    
    81,725,052
    
    
    
    77,170,981
    
    
    
    129,961Accumulated amortization
    
    
    (34,994,773
    )
    
    
    (39,272,322
    )
    
    
    (66,137
    )Other assets
    
    
    241,143,152
    
    
    
    180,611,025
    
    
    
    304,161Total other assets
    
    
    1,532,920,813
    
    
    
    1,490,382,915
    
    
    
    2,509,907TOTAL ASSETS
    
    
    12,737,859,620
    
    
    
    10,732,746,967
    
    
    
    18,074,683
 The accompanying notes are an integral part of these consolidated financial statements F-11




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ENERSIS S.A. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) As of December 31,LIABILITIES AND SHAREHOLDERS EQUITY
    
    2002
    
    2003
    
    2,003ThCh$
    
    ThCh$
    
    ThUS$CURRENT LIABILITIES:Short-term debt due to and financial institutions
    
    
    429,299,753
    
    
    
    312,156,562
    
    
    
    525,693Current portion of long-term debt due to banks and financial institutions
    
    
    611,314,573
    
    
    
    165,695,013
    
    
    
    279,042Promissory notes
    
    
    13,321,409
    
    
    
    
    
    
    
    Current portion of bonds payable
    
    
    503,486,357
    
    
    
    70,945,193
    
    
    
    119,477Current portion of long-term notes payable
    
    
    42,045,203
    
    
    
    21,433,863
    
    
    
    36,096Dividends payable
    
    
    14,699,745
    
    
    
    3,158,548
    
    
    
    5,319Accounts payable
    
    
    224,296,744
    
    
    
    215,444,227
    
    
    
    362,823Short-term notes payable
    
    
    4,881,405
    
    
    
    21,069,881
    
    
    
    35,483Miscellaneous payables
    
    
    74,151,727
    
    
    
    43,916,496
    
    
    
    73,958Amounts payable to related companies
    
    
    16,448,569
    
    
    
    30,748,293
    
    
    
    51,782Accrued expenses
    
    
    85,779,624
    
    
    
    53,704,224
    
    
    
    90,442Withholdings
    
    
    56,040,617
    
    
    
    63,702,463
    
    
    
    107,279Income taxes payable
    
    
    27,807,349
    
    
    
    47,840,056
    
    
    
    80,566Deferred income
    
    
    9,176,531
    
    
    
    11,975,374
    
    
    
    20,167Other current liabilities
    
    
    60,137,375
    
    
    
    65,360,835
    
    
    
    110,072Total current liabilities
    
    
    2,172,886,981
    
    
    
    1,127,151,028
    
    
    
    1,898,200LONG-TERM LIABILITIES:Due to banks and financial institutions
    
    
    1,708,252,057
    
    
    
    833,894,860
    
    
    
    1,404,336Bonds payable
    
    
    2,118,824,024
    
    
    
    2,299,294,966
    
    
    
    3,872,171Long-term notes payable
    
    
    197,801,287
    
    
    
    145,343,166
    
    
    
    244,768Accounts payable
    
    
    22,832,594
    
    
    
    26,802,731
    
    
    
    45,138Amounts payable to related companies
    
    
    998,174,521
    
    
    
    84,320
    
    
    
    142Accrued expenses
    
    
    254,486,113
    
    
    
    317,416,983
    
    
    
    534,552Deferred income taxes
    
    
    52,841,577
    
    
    
    24,748,583
    
    
    
    41,678Other long-term liabilities
    
    
    105,015,620
    
    
    
    60,336,617
    
    
    
    101,611Total long-term liabilities
    
    
    5,458,227,793
    
    
    
    3,707,922,226
    
    
    
    6,244,396MINORITY INTEREST
    
    
    4,091,108,748
    
    
    
    3,349,281,823
    
    
    
    5,640,421SHAREHOLDERS EQUITY:Paid-in capital, no par value
    
    
    758,720,279
    
    
    
    2,227,711,340
    
    
    
    3,751,619Additional paid-in capital
    
    
    33,703,758
    
    
    
    159,323,362
    
    
    
    268,311Other reserves
    
    
    47,348,383
    
    
    
    (25,671,685
    )
    
    
    (43,233
    )Retained earnings
    
    
    406,835,727
    
    
    
    176,016,726
    
    
    
    296,424Net income (loss) for the year
    
    
    (225,985,568
    )
    
    
    12,467,863
    
    
    
    20,997Deficit of subsidiaries in development stage
    
    
    (4,986,481
    )
    
    
    (1,455,716
    )
    
    
    (2,452
    )Total
shareholders equity
    
    
    1,015,636,098
    
    
    
    2,548,391,890
    
    
    
    4,291,667TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    12,737,859,620
    
    
    
    10,732,746,967
    
    
    
    18,074,683
 F-12




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ENERSIS S.A. AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENT (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) As of December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$OPERATING INCOME:SALES
    
    
    3,089,974,569
    
    
    
    2,510,731,952
    
    
    
    2,352,333,380
    
    
    
    3,961,491COST OF SALES
    
    
    (2,045,565,193
    )
    
    
    (1,747,350,860
    )
    
    
    (1,651,731,835
    )
    
    
    (2,781,630
    )GROSS PROFIT
    
    
    1,044,409,376
    
    
    
    763,381,092
    
    
    
    700,601,545
    
    
    
    1,179,861ADMINISTRATIVE AND SELLING EXPENSES
    
    
    (282,320,171
    )
    
    
    (225,410,287
    )
    
    
    (169,503,861
    )
    
    
    (285,456
    )OPERATING INCOME
    
    
    762,089,205
    
    
    
    537,970,805
    
    
    
    531,097,684
    
    
    
    894,405NON-OPERATING INCOME AND EXPENSE:Interest income
    
    
    57,158,760
    
    
    
    86,137,470
    
    
    
    67,235,139
    
    
    
    113,229Equity in income of related companies
    
    
    3,665,585
    
    
    
    15,146,206
    
    
    
    17,754,503
    
    
    
    29,900Other non-operating income
    
    
    196,640,517
    
    
    
    311,225,325
    
    
    
    197,576,789
    
    
    
    332,733Equity in loss of related companies
    
    
    (14,471,370
    )
    
    
    (6,799,786
    )
    
    
    (237,707
    )
    
    
    (400
    )Amortization of goodwill
    
    
    (81,382,111
    )
    
    
    (511,407,613
    )
    
    
    (53,228,237
    )
    
    
    (89,640
    )Interest expense
    
    
    (457,329,288
    )
    
    
    (449,331,872
    )
    
    
    (420,432,628
    )
    
    
    (708,037
    )Other non-operating expenses
    
    
    (185,768,536
    )
    
    
    (238,208,379
    )
    
    
    (248,024,672
    )
    
    
    (417,691
    )Price-level restatement, net
    
    
    2,196,826
    
    
    
    5,014,539
    
    
    
    (4,499,391
    )
    
    
    (7,577
    )Exchange difference, net
    
    
    (30,848,078
    )
    
    
    (16,271,349
    )
    
    
    (6,054,305
    )
    
    
    (10,196
    )NON-OPERATING EXPENSE, NET
    
    
    (510,137,695
    )
    
    
    (804,495,459
    )
    
    
    (449,910,509
    )
    
    
    (757,680
    )INCOME (LOSS) BEFORE INCOME TAXES
    
    
    251,951,509
    
    
    
    (266,524,654
    )
    
    
    81,187,175
    
    
    
    136,725INCOME TAXES
    
    
    (131,148,638
    )
    
    
    (66,677,155
    )
    
    
    (41,570,717
    )
    
    
    (70,008
    )EXTRAORDINARY ITEMS
    
    
    
    
    
    
    (22,599,396
    )
    
    
    INCOME (LOSS) BEFORE MINORITY INTEREST AND
AMORTIZATION OF NEGATIVE GOODWILL
    
    
    120,802,871
    
    
    
    (355,801,205
    )
    
    
    39,616,458
    
    
    
    66,717MINORITY INTEREST
    
    
    (126,404,145
    )
    
    
    16,445,385
    
    
    
    (78,324,793
    )
    
    
    (131,904
    )LOSS BEFORE AMORTIZATION OF NEGATIVE GOODWILL
    
    
    (5,601,274
    )
    
    
    (339,355,820
    )
    
    
    (38,708,335
    )
    
    
    (65,187
    )AMORTIZATION
OF NEGATIVE GOODWILL
    
    
    48,176,847
    
    
    
    113,370,252
    
    
    
    51,176,198
    
    
    
    86,184NET INCOME (LOSS) FOR THE YEAR
    
    
    42,575,573
    
    
    
    (225,985,568
    )
    
    
    12,467,863
    
    
    
    20,997
 The accompanying notes are an integral part of these consolidated financial statements F-13




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) As of December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$As restatedNet income(loss) for the year
    
    
    42,575,573
    
    
    
    (225,985,568
    )
    
    
    12,467,863
    
    
    
    20,997GAIN (LOSSES) FROM SALES OF ASSETS:Losses (gain) on sale of property, plant and equipment
    
    
    (5,791,785
    )
    
    
    (1,106,875
    )
    
    
    6,254,224
    
    
    
    10,533Gain on sale of investments
    
    
    
    
    
    
    
    
    
    
    (89,285,108
    )
    
    
    (150,362
    )Losses on sale of other assets
    
    
    
    
    
    
    
    
    
    
    399,487
    
    
    
    673Charges (credits) to income which do not represent cash flows:Depreciation
    
    
    430,280,646
    
    
    
    459,015,845
    
    
    
    396,415,628
    
    
    
    667,591Amortization of intangibles
    
    
    8,112,291
    
    
    
    10,493,180
    
    
    
    8,583,470
    
    
    
    14,455Write-offs and accrued expenses
    
    
    84,131,101
    
    
    
    56,497,694
    
    
    
    54,402,387
    
    
    
    91,617Equity in income of related companies
    
    
    (3,665,585
    )
    
    
    (15,146,206
    )
    
    
    (17,754,503
    )
    
    
    (29,900
    )Equity in losses of related companies
    
    
    14,471,370
    
    
    
    6,799,786
    
    
    
    237,707
    
    
    
    400Amortization of goodwill
    
    
    81,382,111
    
    
    
    511,407,613
    
    
    
    53,228,237
    
    
    
    89,640Amortization of negative goodwill
    
    
    (48,176,847
    )
    
    
    (113,370,252
    )
    
    
    (51,176,198
    )
    
    
    (86,184
    )Price-level restatement, net
    
    
    (2,196,826
    )
    
    
    (5,014,539
    )
    
    
    4,499,391
    
    
    
    7,577Exchange difference, net
    
    
    30,848,078
    
    
    
    16,271,349
    
    
    
    6,054,305
    
    
    
    10,196Other credits to income which do not represent cash flows
    
    
    (86,272,467
    )
    
    
    (231,345,363
    )
    
    
    (29,777,139
    )
    
    
    (50,147
    )Other changes to income which do not represent cash flows
    
    
    70,095,915
    
    
    
    149,131,944
    
    
    
    153,256,564
    
    
    
    258,095Changes in assets which affect cash flows:Decrease (increase) in trade receivables
    
    
    121,160,874
    
    
    
    56,532,837
    
    
    
    (84,407,019
    )
    
    
    (142,147
    )Decrease in inventory
    
    
    1,223,503
    
    
    
    11,886,420
    
    
    
    10,372,331
    
    
    
    17,468Decrease (increase) in other assets
    
    
    24,672,940
    
    
    
    (23,278,402
    )
    
    
    19,368,706
    
    
    
    32,618Changes in liabilities which affect cash flows:Decrease in
accounts payable associated with operating results
    
    
    (62,807,832
    )
    
    
    (50,083,576
    )
    
    
    31,758,837
    
    
    
    53,484Increase (decrease) in interest payable
    
    
    7,904,077
    
    
    
    55,676,296
    
    
    
    (11,090,838
    )
    
    
    (18,678
    )Decrease in income tax payable
    
    
    (54,614,079
    )
    
    
    (46,296,619
    )
    
    
    (41,018,493
    )
    
    
    (69,078
    )Increase in other accounts payable associated
    
    
    (94,807,159
    )
    
    
    30,330,183
    
    
    
    39,198,600
    
    
    
    66,013Net decrease (increase) in value added tax and other similar taxes payable
    
    
    (118,803,844
    )
    
    
    (1,910,207
    )
    
    
    24,163,738
    
    
    
    40,693Income (loss) attributable to minority interest
    
    
    126,404,145
    
    
    
    (16,445,385
    )
    
    
    78,324,793
    
    
    
    131,904Net cash flows provided by operating activities
    
    
    566,126,200
    
    
    
    634,060,155
    
    
    
    574,476,970
    
    
    
    967,459CASH FLOWS FROM FINANCING ACTIVITIES:Proceeds from issuance of shares to minority shareholders
    
    
    
    
    
    
    1,924,710
    
    
    
    546,464,851
    
    
    
    920,284Proceeds
from the issuance of debt
    
    
    1,956,268,705
    
    
    
    988,703,723
    
    
    
    1,022,598,818
    
    
    
    1,722,127Proceeds from bond issuances
    
    
    283,178,595
    
    
    
    132,830,563
    
    
    
    828,121,856
    
    
    
    1,394,614Other sources of financing
    
    
    58,500,047
    
    
    
    26,611,951
    
    
    
    24,038,068
    
    
    
    40,482Distribution of capital in subsidiary
    
    
    
    
    
    
    (120,479,434
    )
    
    
    (24,031,631
    )
    
    
    (40,471
    )Dividends paid
    
    
    (145,912,135
    )
    
    
    (101,450,778
    )
    
    
    (80,795,294
    )
    
    
    (136,065
    )Payment of debt
    
    
    (1,888,763,092
    )
    
    
    (1,105,491,293
    )
    
    
    (2,128,072,013
    )
    
    
    (3,583,819
    )Payment of bonds
    
    
    (253,850,026
    )
    
    
    (29,640,676
    )
    
    
    (487,071,031
    )
    
    
    (820,261
    )Payment of loans obtained from related companies
    
    
    (101,909,144
    )
    
    
    (44,833,529
    )
    
    
    (4,467,535
    )
    
    
    (7,524
    )Payment of share issuance costs
    
    
    
    
    
    
    
    
    
    
    (10,831,654
    )
    
    
    (18,241
    )Payment of bond issuance costs
    
    
    (1,006,108
    )
    
    
    (11,252,187
    )
    
    
    (5,681,393
    )
    
    
    (9,568
    )Other disbursements for financing
    
    
    (44,052,058
    )
    
    
    (24,813,311
    )
    
    
    (116,030,617
    )
    
    
    (195,404
    )Net cash used in financing activities
    
    
    (137,545,216
    )
    
    
    (287,890,261
    )
    
    
    (435,757,575
    )
    
    
    (733,846
    )CASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of property, plant and equipment
    
    
    19,913,882
    
    
    
    22,831,460
    
    
    
    160,760,440
    
    
    
    270,732Sales of investment in related companies
    
    
    
    
    
    
    
    
    
    
    121,827,367
    
    
    
    205,166Other loans received from related companies
    
    
    
    
    
    
    
    
    
    
    24,972,489
    
    
    
    42,055Proceeds from loans obtained from related parties
    
    
    5,581,221Other receipts from investments
    
    
    13,812,607
    
    
    
    18,741,707
    
    
    
    49,788,337
    
    
    
    83,847Additions to property, plant and equipment
    
    
    (344,969,273
    )
    
    
    (321,094,597
    )
    
    
    (258,785,648
    )
    
    
    (435,813
    )Long-term investments
    
    
    (13,008,535
    )
    
    
    (23,699,930
    )
    
    
    (2,987,209
    )
    
    
    (5,031
    )Investment in financial instruments
    
    
    
    
    
    
    (731,647
    )
    
    
    Other loans granted to related companies
    
    
    (235,951
    )
    
    
    
    
    
    
    (312,412
    )
    
    
    (526
    )Other investments disbursements
    
    
    (10,829,373
    )
    
    
    (36,294,538
    )
    
    
    (6,887,966
    )
    
    
    (11,600
    )Net cash provided by (used in) investing activities
    
    
    (329,735,422
    )
    
    
    (340,247,545
    )
    
    
    88,375,398
    
    
    
    148,830POSITIVE NET
CASH FLOW FOR THE PERIOD
    
    
    98,845,562
    
    
    
    5,922,349
    
    
    
    227,094,793
    
    
    
    382,443EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS
    
    
    (75,746
    )
    
    
    (2,524,628
    )
    
    
    (119,497,566
    )
    
    
    (201,242
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    98,769,816
    
    
    
    3,397,721
    
    
    
    107,597,227
    
    
    
    181,201CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR
    
    
    121,236,061
    
    
    
    220,005,877
    
    
    
    223,403,598
    
    
    
    376,227CASH AND CASH EQUIVALENTS AT END OF THE YEAR
    
    
    220,005,877
    
    
    
    223,403,598
    
    
    
    331,000,825
    
    
    
    557,428
 The accompanying notes are an integral part of these consolidated financial statements F-15




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY (Expressed in thousands of historical Chilean pesos, except as stated) Additional
    
    
    
    
    
    
    
    
    
    Deficit of
    
    Net incomePaid-in
    
    paid-in
    
    Other
    
    Retained
    
    subsidiaries in
    
    (loss) forcapital
    
    capital
    
    reserves
    
    earnings
    
    development stage
    
    the year
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$As of January 1, 2001
    
    
    707,398,979
    
    
    
    31,423,970
    
    
    
    6,038,042
    
    
    
    264,427,970
    
    
    
    1,228,679
    
    
    
    90,082,590
    
    
    
    1,100,600,230Transfer of prior year income to
retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,082,590
    
    
    
    
    
    
    
    (90,082,590
    )
    
    
    Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,976,824
    )
    
    
    
    
    
    
    
    
    
    
    (14,976,824
    )Deficit of subsidiaries in the development stage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (399,387
    )
    
    
    
    
    
    
    (399,387
    )Price-level restatement of capital
    
    
    21,929,368
    
    
    
    974,144
    
    
    
    187,179
    
    
    
    10,615,407
    
    
    
    38,089
    
    
    
    
    
    
    
    33,744,187Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    19,291,937
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,291,937Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,926,246
    
    
    
    40,926,246As of December 31, 2001
    
    
    729,328,347
    
    
    
    32,398,114
    
    
    
    25,517,158
    
    
    
    350,149,143
    
    
    
    867,381
    
    
    
    40,926,246
    
    
    
    1,179,186,389As of December 31, 2001 (1)
    
    
    736,621,630
    
    
    
    32,722,095
    
    
    
    25,772,330
    
    
    
    353,650,634
    
    
    
    876,055
    
    
    
    41,335,508
    
    
    
    1,190,978,253As of January 1, 2002
    
    
    729,328,347
    
    
    
    32,398,114
    
    
    
    25,517,158
    
    
    
    350,149,143
    
    
    
    867,381
    
    
    
    40,926,246
    
    
    
    1,179,186,389Transfer of prior year income to retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,926,246
    
    
    
    
    
    
    
    (40,926,246
    )
    
    
    Changes in equity of affiliates
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deficit of subsidiaries in the development stage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,830,512
    )
    
    
    
    
    
    
    (5,830,512
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    20,596,914
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,596,914Price-level restatement of capital
    
    
    21,879,850
    
    
    
    971,943
    
    
    
    765,515
    
    
    
    11,732,261
    
    
    
    26,021
    
    
    
    
    
    
    
    35,375,590Net loss for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (223,748,087
    )
    
    
    (223,748,087
    )As of December 31, 2002
    
    
    751,208,197
    
    
    
    33,370,057
    
    
    
    46,879,587
    
    
    
    402,807,650
    
    
    
    (4,937,110
    )
    
    
    (223,748,087
    )
    
    
    1,005,580,294As of December 31, 2002 (1)
    
    
    758,720,279
    
    
    
    33,703,758
    
    
    
    47,348,383
    
    
    
    406,835,727
    
    
    
    (4,986,481
    )
    
    
    (225,985,568
    )
    
    
    1,015,636,098As of January 1, 2003
    
    
    751,208,197
    
    
    
    33,370,057
    
    
    
    46,879,587
    
    
    
    402,807,650
    
    
    
    (4,937,110
    )
    
    
    (223,748,087
    )
    
    
    1,005,580,294Capital increase
    
    
    1,471,844,920
    
    
    
    125,881,577
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,597,726,497Transfer of prior year loss to retained earnings
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (228,581,520
    )
    
    
    4,833,433
    
    
    
    223,748,087
    
    
    
    Changes in equity of affiliates
    
    
    
    
    
    
    
    
    
    
    (11,432,599
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (11,432,599
    )Deficit of subsidiaries in the development stage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,302,667
    )
    
    
    
    
    
    
    (1,302,667
    )Cumulative translation adjustment
    
    
    
    
    
    
    
    
    
    
    (61,587,469
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61,587,469
    )Price-level restatement of capital
    
    
    4,658,223
    
    
    
    71,728
    
    
    
    468,796
    
    
    
    1,790,596
    
    
    
    (49,372
    )
    
    
    
    
    
    
    6,939,971Net income for the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,467,863
    
    
    
    12,467,863As of December 31, 2003
    
    
    2,227,711,340
    
    
    
    159,323,362
    
    
    
    (25,671,685
    )
    
    
    176,016,726
    
    
    
    (1,455,716
    )
    
    
    12,467,863
    
    
    
    2,548,391,890As of December 31, 2003 (2)
    
    
    3,751,619
    
    
    
    268,311
    
    
    
    (43,233
    )
    
    
    296,424
    
    
    
    (2,452
    )
    
    
    20,997
    
    
    
    4,291,667
 (1) Restated in thousands of constant Chilean pesos as of December 31, 2003.
(2) Restated in thousands of constant US$ as of December 31, 2003 The accompanying notes are an integral part of these consolidated financial statements F-14




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003, except as stated)
As of and for the years ended December 31, 2002 and 2003 Note 1. Description of Business Enersis S.A. (the Company) is registered in the Securities Register under
No.0175 and is regulated by the Chilean Superintendency of Securities and
Insurance (the SVS). The Company issued publicly registered American
Depositary Receipts in 1993 and 1996. Enersis S.A. is a reporting company
under the United States Securities and Exchange Act of 1934. The Companys subsidiaries, Chilectra S.A. and Empresa Nacional de Electricidad
S.A. (Endesa S.A.) are registered in the Securities Register under No. 0321 and
0114, respectively. Note 2. Summary of Significant Accounting Policies  a)
    
    General(i)
    
    The consolidated financial statements of the Company have been prepared
in accordance with generally accepted accounting principles in Chile and
the regulations established by the SVS (collectively Chilean GAAP), and
the specific corporate regulations of Law No.18,046, related to the
formation, registration and liquidation of Chilean corporations, among
others. Certain amounts in the prior years financial statements have
been reclassified to conform to the current years presentation.The preparation of financial statements in conformity with Chilean GAAP
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosures of contingent assets
and liabilities as of the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting year. Actual results
could differ from those estimates.In certain cases generally accepted accounting principles in Chile require
that assets or liabilities be recorded or disclosed at their fair values.
The fair value is the amount at which an asset could be bought or sold or the
amount at which a liability could be incurred or settled in a current
transaction between willing parties, other than in a forced or liquidation
sale. Where available, quoted market prices in active markets have been used
as the basis for the measurement; however, where quoted market prices in
active markets are not available, the Company has estimated such values based
on the best information available, including using modeling and other
valuation techniques. F-16




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (ii)
    
    Reclassifications For purposes of comparison, the following
reclassifications were made in the 2001 and 2002 financial statements: 2001: Balance sheet reclassifications  ChargeFrom
    
    (credit)ThCh$Notes receivable
    
    
    (6,398,225
    )Goodwill
    
    
    3,425,245Land
    
    
    (34,495,002
    )Technical appraisal
    
    
    17,288,335Current portion of long-term notes payable
    
    
    5,626,907Miscellaneous payables
    
    
    (5,775,304
    )Due to banks and financial institutions
    
    
    (17,721,033
    )Other long-term liabilities
    
    
    (21,735,599
    )Other reserves
    
    
    1,222,846
 ChargeTo
    
    (credit)ThCh$Other accounts receivable, net
    
    
    6,398,225Negative goodwill, net
    
    
    (3,425,245
    )Other assets
    
    
    34,495,002Accumulated depreciation
    
    
    (17,288,335
    )Current portion of long-term debtdue to banks and financial institutions
    
    
    (4,665,731
    )Other current liabilities
    
    
    4,814,129Short-term notes payable
    
    
    18,637,958Bonds payable
    
    
    20,818,673Deficit during development period of subsidiary
    
    
    (1,222,846
    )
   Statement of operations reclassifications  ChargeFrom
    
    (credit)ThCh$Other non-operating expenses
    
    
    1,601,933Income taxes
    
    
    (4,489,018
    )Deferred income taxes
    
    
    (2,416,758
    )Amortization of negative goodwill
    
    
    (250,628
    )
 ChargeTo
    
    (credit)ThCh$Other non-operating income
    
    
    1,960,016Interest expense
    
    
    3,665,824Foreign currency translation, net
    
    
    (321,997
    )Amortization of goodwill
    
    
    250,628
   Statement of Cash flow reclassifications  ChargeFrom
    
    (credit)ThCh$Other credits to income which do
not represent cash flows
    
    
    24,492,823Other charges to income which do
not represent cash flows
    
    
    915,649
 ChargeTo
    
    (credit)ThCh$Other accounts payable associated
with non-operating results
    
    
    (24,492,823
    )Other
disbursements for financing
Amortization of intangibles
    
    
    (915,649
    )
   F-17




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) 2002: Balance sheet reclassifications  From
    
    ChargeThCh$Technical appraisal
    
    
    5,600,813Accounts payable long-term
    
    
    25,294,270Deferred income taxes long-term
    
    
    9,516,702
 To
    
    CreditThCh$Accumulated depreciation
    
    
    (5,600,813
    )Accrued expenses long-term
    
    
    (25,294,270
    )Deferred income taxes short-term
    
    
    (9,516,702
    )
   Statement of operations reclassifications  From
    
    CreditThCh$Other non-operating expenses
    
    
    (5,400,191
    )
 To
    
    ChargeThCh$Interest expense
    
    
    5,400,191
    (iii)
    
    Restatement of the 2001 Chilean GAAP Statement of Cash FlowsAs disclosed in our 2002 Form 20-F, we have reclassified:  (a)
    
    A cash outflow of ThCh$85,102,292 for interest payments previously
classified in Payment of bonds (financing) to (i) Other accounts
payable associated with non-operating results (operating), in the
amount of ThCh$78,596,592, and (ii) Decrease in interest payable
(operating) in the amount of ThCh$7,356,723 and(b)
    
    A net cash inflow of ThCh$17,297,324 from the settlement of forward
exchange contracts, used to hedge the Companys exposure to the U.S.
dollar, previously classified in Other charges to income not
representing cash flows (operating) to: (i) Other sources of
financing (financing), in the amount of ThCh$27,862,275 (for receipts
from derivative contracts) and (ii) Other disbursements for financing,
in the amount of ThCh$10,391,978 (for cash outflow from these derivative
contracts). We have redefined these reclassifications as restatements under Chilean and
U.S. GAAP, on the face of the statement of cash flows and in Note 37,
Differences Between Chilean and United States Generally Accepted Accounting
Principles (Note 37). The effect of the restatements on the Chilean GAAP
2001 Statement of Cash Flows inclusive of inflation restatement is set forth
in the table below. Additionally,
we have reclassified a cash out flow of ThCh$178,940,560 for the
repurchase of Yankee bonds, previously classified in Other
investments disbursements (investing) to Payment of
bonds (financing) as that repurchase was made for cancellation
of the bonds and not made with the intention of resale in the short
term. Additionally,
we have reclassified a cash out flow of ThCh$178,940,560 for the
repurchase of Yankee bonds, previously classified in Other
investments disbursements (investing) to Payment of
bonds (financing) as that repurchase was made for cancellation
of the bonds and not with the intention of resale in the short
term. F-18




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) Cash flow provided by (used in)
    
    Operating
    
    Financing
    
    Investingfor the period ended December 31, 2001
    
    activities
    
    activities
    
    activitiesThCh$
    
    ThCh$
    
    ThCh$As previously reported
    
    
    662,920,609
    
    
    
    (61,414,127
    )
    
    
    (503,639,586
    )Price level restatement as of December 31, 2003
    
    
    6,629,206
    
    
    
    (614,141
    )
    
    
    (5,036,396
    )Subtotal
    
    
    669,549,815
    
    
    
    (62,028,268
    )
    
    
    (508,675,982
    )Interest payments
    
    
    (85,953,318
    )
    
    
    85,953,315Settlement of forward exchange contracts
    
    
    (17,470,297
    )
    
    
    17,470,297Repurchase
of Yankee bonds
    
    
    
    
    
    
    (178,940,560
    )
    
    
    178,940,560Subtotal
    
    
    (103,423,615
    )
    
    
    (75,516,948
    )
    
    
    178,940,560As restated
    
    
    566,126,200
    
    
    
    (137,545,216
    )
    
    
    (329,735,422
    )
  (iv)
    
    The accompanying financial statements reflect the consolidated results of
operations of Enersis S.A. and its subsidiaries. All significant
intercompany transactions have been eliminated in consolidation.
Investments in companies in the development stage are accounted for using
the equity method, except that income or losses are included directly in
equity instead of being reflected in the Companys consolidated statement
of operations. The Company consolidates the financial statements of
companies in which it controls over 50% of the voting shares, provided
there are no substantive minority participating rights that prevent
control, as detailed as follows: Company
    
    Percentage participation in voting rights as of December 31,2001
    
    2002
    
    
    
    2003Total
    
    Total
    
    Direct
    
    Indirect
    
    TotalChilectra S.A.
    
    
    98.24
    
    
    
    98.24
    
    
    
    98.24
    
    
    
    
    
    
    
    98.24Compañía Eléctrica del Río Maipo S.A. (2)
    
    
    98.74
    
    
    
    98.74
    
    
    
    
    
    
    
    
    
    
    
    Synapsis Soluciones y Servicios IT Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.99
    
    
    
    0.01
    
    
    
    100.00Inmobiliaria Manso de Velasco Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    0.00
    
    
    
    100.00Cía. Americana de Multiservicios Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.931
    
    
    
    0.69
    
    
    
    100.62Endesa Chile S.A. (4)
    
    
    59.98
    
    
    
    59.981
    
    
    
    59.981
    
    
    
    
    
    
    
    59.981Enersis de Argentina S.A. (3)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    Enersis Internacional Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00Inversiones Distrilima S.A.
    
    
    54.54
    
    
    
    55.683
    
    
    
    15.93
    
    
    
    39.753
    
    
    
    55.683Empresa Distribuidora Sur S.A. (Edesur)
    
    
    65.09
    
    
    
    65.093
    
    
    
    16.023
    
    
    
    49.07
    
    
    
    65.093Luz de Bogotá S.A. (1)
    
    
    44.66
    
    
    
    44.661
    
    
    
    25.714
    
    
    
    18.946
    
    
    
    44.661Cerj
    
    
    58.16
    
    
    
    61.95
    
    
    
    26.47
    
    
    
    45.35
    
    
    
    71.81Investluz (1)
    
    
    47.02
    
    
    
    48.41
    
    
    
    15.61
    
    
    
    36.389
    
    
    
    51.999Enersis Energía de Colombia S.A. (3)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    
  (1)
    
    Investluz is Parent Company of Companhia Energética do Céará S.A.
Coelce and Luz de Bogotá S.A. is Parent Company of Codensa S.A.. The
Company obtained shareholder agreements dated June 25, 1999, from
Endesa International, the majority shareholder of these companies,
giving the Company the right to elect a majority of the Board of
Directors. The Superintendency of Securities and Insurance was
notified on June 28, 1999. F-19




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  (2)
    
    On April 30, 2003, Compañía Eléctrica del Río Maipo S.A. was sold to
Compañía General de Electricidad Industrial S.A. and, as a result, that
company ceased to be reflected in our consolidation from January 1, 2003
and was treated as an equity  method investee until its sale.(3)
    
    Enersis de Argentina S.A. and Enersis Energía de Colombia S.A. have been
dissolved during 2003.(4)
    
    Consolidated subsidiaries of Endesa Chile S.A. area detailed as follows: Percentage participation in votingCompany name
    
    rights as of December 31,2001
    
    2002
    
    2003Total
    
    Total
    
    Direct
    
    Indirect
    
    Total%
    
    %
    
    %
    
    %
    
    %Enigesa S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.51
    
    
    
    0.49
    
    
    
    100.00Ingendesa S.A.
    
    
    97.64
    
    
    
    97.64
    
    
    
    96.39
    
    
    
    1.25
    
    
    
    97.64Pehuenche S.A.
    
    
    93.66
    
    
    
    92.65
    
    
    
    92.65
    
    
    
    
    
    
    
    92.65Endesa Argentina S.A.
    
    
    99.99
    
    
    
    99.99
    
    
    
    99.99
    
    
    
    
    
    
    
    99.99Endesa-Chile Internacional
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00Pangue S.A.
    
    
    92.48
    
    
    
    94.99
    
    
    
    94.97
    
    
    
    0.02
    
    
    
    94.99Hidroinvest S.A.
    
    
    69.93
    
    
    
    69.93
    
    
    
    
    
    
    
    69.93
    
    
    
    69.93Infraestructura 2000 S.A. (*)
    
    
    60.00
    
    
    
    60.00
    
    
    
    
    
    
    
    
    
    
    
    Hidroeléctrica El Chocón S.A.
    
    
    65.19
    
    
    
    65.19
    
    
    
    
    
    
    
    65.19
    
    
    
    65.19Central Costanera S.A.
    
    
    51.93
    
    
    
    51.93
    
    
    
    12.33
    
    
    
    51.93
    
    
    
    64.26Endesa Brasil Participacoes Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    5.00
    
    
    
    95.00
    
    
    
    100.00Túnel El Melón S.A.
    
    
    99.95
    
    
    
    99.95
    
    
    
    99.95
    
    
    
    
    
    
    
    99.95Soc. Concesionaria Autopista del Sol S.A. (*)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    Inecsa 2000 S.A. (*)
    
    
    97.32
    
    
    
    97.32
    
    
    
    
    
    
    
    
    
    
    
    Soc. Concesionaria Autopista Los Libertadores S.A. (*)
    
    
    99.95
    
    
    
    99.95
    
    
    
    
    
    
    
    
    
    
    
    Compañía Eléctrica Cono Sur S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00Central Hidroeléctrica Betania S.A.
    
    
    85.62
    
    
    
    85.62
    
    
    
    
    
    
    
    85.62
    
    
    
    85.62Endesa de Colombia S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    5.10
    
    
    
    94.90
    
    
    
    100.00Lajas Inversora S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00
    
    
    
    100.00Centrais Electricas Cachoeira Dourada S.A.
    
    
    99.51
    
    
    
    99.59
    
    
    
    
    
    
    
    99.61
    
    
    
    99.61Capital de Energía S.A.
    
    
    50.90
    
    
    
    50.90
    
    
    
    
    
    
    
    50.90
    
    
    
    50.90Emgesa S.A (**)
    
    
    48.48
    
    
    
    48.48
    
    
    
    
    
    
    
    48.48
    
    
    
    48.48Edegel S.A.
    
    
    63.56
    
    
    
    63.56
    
    
    
    
    
    
    
    63.56
    
    
    
    63.56Generandes Perú S.A.
    
    
    59.63
    
    
    
    59.63
    
    
    
    
    
    
    
    59.63
    
    
    
    59.63Compañía Eléctrica San Isidro S.A. (***)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00
    
    
    
    100.00Compañía Eléctrica Tarapacá S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.90
    
    
    
    0.10
    
    
    
    100.00Inversiones Endesa Norte S.A.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.99
    
    
    
    0.01
    
    
    
    100.00Ingendesa Do Brasil Limitada
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00
    
    
    
    100.00
  (*)
    
    On June 23, 2003 Infraestructura 2000 Holding and its consolidated
subsidiaries was sold, and a result, these companies ceased to be consolidated
in our financial statements Chile-from January 1, 2003 and were treated as
equity  method investees until their sale. On June 23, 2003 these companies
were sold as part of the sale of Infraestructura 2000.(**)
    
    Endesa-Chile exercise control over this company due to agreement with
other shareholders.(***)
    
    Endesa-Chile directly owns all of shares A, which compose 50% of share
capital of this company. Only shares A have voting rights  other shareholders
do not have voting rights. F-20




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) The participation in voting rights is equal to economic participation in
all subsidiaries except from those presented as follows: Company
    
    Percentage participation in voting rights as of December 31,2001
    
    2002
    
    
    
    2003Total
    
    Total
    
    Direct
    
    Indirect
    
    TotalChilectra S.A.
    
    
    98.24
    
    
    
    98.24
    
    
    
    98.24
    
    
    
    
    
    
    
    98.24Compañía Eléctrica del Río Maipo S.A. (2)
    
    
    98.74
    
    
    
    98.74
    
    
    
    
    
    
    
    
    
    
    
    Synapsis Soluciones y Servicios IT Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.99
    
    
    
    0.01
    
    
    
    100.00Inmobiliaria Manso de Velasco Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    0.00
    
    
    
    100.00Cía. Americana de Multiservicios Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    99.931
    
    
    
    0.69
    
    
    
    100.62Endesa Chile S.A. (4)
    
    
    59.98
    
    
    
    59.981
    
    
    
    59.981
    
    
    
    
    
    
    
    59.981Enersis de Argentina S.A. (3)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    Enersis Internacional Ltda.
    
    
    100.00
    
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    100.00Inversiones Distrilima S.A.
    
    
    54.54
    
    
    
    55.683
    
    
    
    15.93
    
    
    
    39.753
    
    
    
    55.683Empresa Distribuidora Sur S.A. (Edesur)
    
    
    65.09
    
    
    
    65.093
    
    
    
    16.023
    
    
    
    49.07
    
    
    
    65.093Luz de Bogotá S.A. (1)
    
    
    44.66
    
    
    
    44.661
    
    
    
    25.714
    
    
    
    18.946
    
    
    
    44.661Cerj
    
    
    58.16
    
    
    
    61.95
    
    
    
    26.47
    
    
    
    45.35
    
    
    
    71.81Investluz (1)
    
    
    47.02
    
    
    
    48.41
    
    
    
    15.61
    
    
    
    36.389
    
    
    
    51.999Enersis Energía de Colombia S.A. (3)
    
    
    100.00
    
    
    
    100.00
    
    
    
    
    
    
    
    
    
    
    
    
 Percentage of economicparticipation as of December 31,2001
    
    2002
    
    2003%
    
    %
    
    %Lajas Inversora S.A.
    
    
    92.88
    
    
    
    92.88
    
    
    
    92.88Centrais Electricas Cachoeira Dourada S.A.
    
    
    92.51
    
    
    
    92.51
    
    
    
    92.51Emgesa S.A.
    
    
    22.36
    
    
    
    22.36
    
    
    
    22.36Edegel S.A.
    
    
    37.9
    
    
    
    37.9
    
    
    
    37.9Capital de Energía S.A.
    
    
    43.58
    
    
    
    43.58
    
    
    
    43.58Compañía Eléctrica San Isidro S.A.
    
    
    75
    
    
    
    75
    
    
    
    75Hidroeléctrica El Chocon S.A.
    
    
    47.45
    
    
    
    47.45
    
    
    
    47.45
 Economic participation is calculated taking into account Enersis
participation in share capital of its subsidiaries and equity method
investees.  b)
    
    Years covered These financial statements reflect the Companys financial position as of
December 31, 2002 and 2003, and the results of its operations, the changes in
its shareholders equity and its cash flows for years ended December 31, 2001,
2002 and 2003. F-21




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued)  c)
    
    Constant currency restatement The cumulative inflation rate in Chile as measured by the Chilean Consumer
Price Index (CPI) for the three-year ended December 31, 2003 was
approximately 7.25%. Chilean GAAP requires that the financial statements be restated to reflect the
full effects of gain or loss in the purchasing power of the Chilean peso on the
financial position and results of operations of reporting entities. The method
described below is based on a model that enables calculation of net inflation
gains or losses caused by monetary assets and liabilities exposed to changes in
the purchasing power of local currency. The model prescribes that the
historical cost of all non-monetary accounts be restated for general
price-level changes between the date of origin of each item and the year-end. The financial statements of the Company have been price-level restated in order
to reflect the effects of the changes in the purchasing power of the Chilean
currency during each year. All non-monetary assets and liabilities, all equity
accounts and income statement accounts have been restated to reflect the
changes in the CPI from the date they were acquired or incurred to year-end
(see also Note 25). The purchasing power gain or loss included in net income reflects the effects
of Chilean inflation on the monetary assets and liabilities held by the
Company. The restatements were calculated using the official consumer price index of the
National Institute of Statistics and based on the prior month rule, in which
the inflation adjustments are based on the CPI at the close of the month
preceding the close of the respective year or transaction. This index is
considered by the business community, the accounting profession and the Chilean
government to be the index that most closely complies with the technical
requirement to reflect the variation in the general level of prices in Chile,
and consequently it is widely used for financial reporting purposes. The values of the Chilean consumer price indices used to reflect the effects of
the changes in the purchasing power of the Chilean peso (price-level
restatement) are as follows: Change overPreviousIndex
    
    November 30,November 30, 2001
    
    
    110.10
    
    
    
    3.1
    %November 30, 2002
    
    
    113.36
    
    
    
    3.0
    %November 30, 2003
    
    
    114.44
    
    
    
    1.0
    %
 F-22




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) By way of comparison, the actual values of the Chilean consumer price indices
as of the balance sheet dates are as follows: Change overPreviousIndex
    
    December 31,December 31, 2001
    
    
    109.76
    
    
    
    2.6
    %December 31, 2002
    
    
    112.86
    
    
    
    2.8
    %December 31, 2003
    
    
    114.07
    
    
    
    1.1
    %
 The above-mentioned price-level restatements do not purport to represent
appraisal or replacement values and are only intended to restate all
non-monetary financial statement components in terms of local currency of a
single purchasing power and to include in net income or loss for each year the
gain or loss in purchasing power arising from the holding of monetary assets
and liabilities exposed to the effects of inflation. Index-linked assets and liabilities Assets and liabilities that are denominated in index-linked units of account
are stated at the year-end values of the respective units of account. The
principal index-linked unit used in Chile is the Unidad de Fomento (UF),
which is adjusted daily to reflect the changes in Chiles CPI. Certain of the
Companys investments are linked to the UF. As the Companys indexed
liabilities exceed its indexed assets, the increase in the index results in a
net loss on indexation. Values for the UF are as follows (historical Chilean
pesos per UF): Ch$December 31, 2001
    
    
    16,262.66December 31, 2002
    
    
    16,455.03December 31, 2003
    
    
    16,946.03
 Comparative financial statements For comparative purposes, the 2002 consolidated financial statements and the
amounts disclosed in the related Notes have been restated in terms of Chilean
pesos of December 31, 2003, purchasing power. This updating does not change the prior years statements or information in any
way except to update the amounts to constant Chilean pesos of similar
purchasing power. Convenience translation to U.S. dollars The financial statements are stated in Chilean pesos. The translations of
Chilean pesos into US dollars are included solely for the convenience of the
reader, using the observed exchange rate reported by the Chilean Central Bank
as of December 31, 2003 of Ch$593.80 to US$1.00. The convenience translations
should not be construed as representations that the Chilean peso amounts have
been, could have been, or could in the future be, converted into US dollars at
this or any other rate of exchange. F-23




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) d)  Assets and liabilities in foreign currencies Assets and liabilities denominated in foreign currencies are detailed in Note
33. These amounts have been stated at the observed exchange rates reported by
the Central Bank of Chile as of each December 31, as follows: Currency
    
    Symbolused
    
    2001
    
    2002
    
    2003Ch$
    
    Ch$
    
    Ch$United States dollar
    
    US$
    
    
    654.79
    
    
    
    718.61
    
    
    
    593.80British pound sterling
    
    £
    
    
    948.01
    
    
    
    1,152.91
    
    
    
    1,056.21Colombian peso
    
    $Col
    
    
    0.29
    
    
    
    0.25
    
    
    
    0.21New Peruvian sol
    
    Soles
    
    
    190.29
    
    
    
    204.73
    
    
    
    171.62Brazilian real
    
    Rs
    
    
    282.97
    
    
    
    203.57
    
    
    
    205.52Japanese yen
    
    ¥
    
    
    4.99
    
    
    
    6.07
    
    
    
    5.55Euro
    
    
    
    
    578.18
    
    
    
    752.55
    
    
    
    744.95Pool Unit (IBRD)(1)
    
    UP
    
    
    7,742,160.26
    
    
    
    9,089,158.76
    
    
    
    8,408,776.27Unidad de Fomento (UF)
    
    UF
    
    
    16,262.66
    
    
    
    16,744.12
    
    
    
    16,920.00Unit of Account (IDB) (1)
    
    UC
    
    
    929.26
    
    
    
    1,093.75
    
    
    
    970.23Argentine peso
    
    $Arg
    
    
    385.17
    
    
    
    219.09
    
    
    
    200.61
  (1)
    
    Units of measurement used by the International Bank for Reconstruction
and Development (IBRD) and Interamerican Development Bank (IDB) to express
the weighted-average of multicurrency loan obligations granted using fixed
currency rates to the US dollar, at a determined date. e)  Time deposits and marketable securities Time deposits are presented at original placement plus accrued interest and UF
indexation adjustments, as applicable. Marketable securities include
investments in quoted shares that are valued at the lower of cost or market
value. The investments are in both short-term highly liquid fixed rate
investment shares and mutual fund units valued at cost plus interest and
indexation or redemption value as appropriate (Note 4). f)  Allowance for doubtful accounts Accounts receivable are classified as current or long-term, depending on their
collection terms. Current and long-term trade accounts receivable, notes
receivable and other receivables are presented net of allowances for doubtful
accounts (see Note 5). Write-offs of uncollectible accounts amounted
ThCh$147,840,906 to ThCh$116,503,027 and ThCh$104,385,199 for the years ended
December 31, 2001, 2002 and 2003, respectively. In addition, the total sum
owed by the companies that have gone into bankruptcy amounting to ThCh$821,469
in 2003, ThCh$714,833 in 2002 and ThCh$602,751 in 2001, is included in the bad
debt allowance estimation. F-24




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) g)  Inventories Inventory of materials in transit, and operation and maintenance materials on
hand, are valued at the lower of price-level restated cost or net realizable
value. The cost of real estate projects under development, included in inventory,
include the cost of land, demolition, urbanizing, payments to contractors and
other direct costs. The costs and revenues of construction in progress are accounted for under the
completed contract method in accordance with Technical Bulletin No.39 of the
Chilean Association of Accountants and are included in current assets as their
realization is expected in the short-term. h)  Property, plant and equipment Property, plant and equipment are valued at net replacement cost as determined
by the former Superintendency of Electric and Gas Services (SEG) adjusted for
price-level restatement in accordance with D.F.L. No.4 of 1959. The latest
valuation under the D.F.L. 4 was in 1980. Property, plant and equipment acquired after the latest valuation of net
replacement cost are shown at cost, plus price-level restatement. Interest on
debt directly obtained to finance construction projects is capitalized during
the year of construction (only in power generators). In 1986, an increase based upon a technical appraisal of property, plant and
equipment was recorded in the manner authorized by the SVS in Circulars No.s
550 and 566 dated October 15 and December 16, 1985, respectively, and
Communication No.4790, dated December 11, 1985. In accordance with Chilean GAAP, the Company has evaluated the recoverability
of its foreign investments as required by Technical Bulletin No. 33 of the
Chilean Association of Accountants. It is the Companys policy, when evidence
exists of an other than temporary impairment of fixed assets, such that the
Companys operations are not expected to generate sufficient net cash flows, to
recover all fixed asset costs, including depreciation, that the book values of
those assets must be reduced to their net realizable values with a charge to
non-operating expenses. The Company has not identified impairments in the net
book values of its property, plant and equipment. i)  Depreciation Depreciation expense is calculated on the revalued balances using the
straight-line method over the estimated useful lives of the assets. The table below provides the useful life range for our most significant fixed
assets classes. Useful lifeTable
    
    in yearsDistribution and transmission lines network
    
    30  40Substations
    
    30  40Public lighting
    
    30  40Generator and turbines
    
    20  30Combined cycle
    
    20  30
 F-25




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) j)  Leased assets The leased assets, whose contracts have financial lease characteristics, are
accounted for as an acquisition of property plant and equipment, recognizing
the total obligation and the unrecorded interest. Said assets do not legally
belong to the Company, for which reason, as long as the purchase option is not
exercised, it will not be able to freely dispose of them. k)  Power installations financed by third parties As established by D.F.L. 1 of the Ministry of Mines dated September 13, 1982,
power installations financed by third parties are treated as reimbursable
contributions. As such, the installations constructed using this mechanism form
part of the Companys plant and equipment. Such installations completed prior to D.F.L. 1 are deducted from Plant and
equipment and their depreciation is charged to Power installations financed by
third parties. l)  Investments in related companies Investments in related companies are included in Other assets using the
equity method. This valuation method recognizes in income the Companys equity
in the net income or loss of each investee on an accrual basis (Note 11). Investments in foreign affiliates are recorded in accordance with Technical
Bulletin No. 64 of the Chilean Association of Accountants. Under Technical Bulletin No. 64 of the Chilean Association of Accountants,
investments in foreign subsidiaries are price-level restated, the effects of
which are reflected in income, while the effects of the foreign exchange gains
or losses between the Chilean peso and the US dollar on the foreign investment
measured in US dollars, are reflected in equity in the account Cumulative
Translation Adjustment. Investments in related companies over which the Company has significant
influence are included in Other assets and are recorded using the equity
method. Accordingly, the Companys proportional share in net income (or loss)
of each investee is recognized in the non-operating income and expense
classification in the Consolidated Statements of Income on accrual basis, after
eliminating any unrealized profits from transactions with the related
companies. In accordance with Chilean GAAP, the Company has evaluated the recoverability
of its foreign investments as required by Technical Bulletins No. 33 and No. 42
of the Chilean Association of Accountants. The Company has not identified
impairments in the net book values of its investments. m)  Intangibles, other than goodwill Intangibles, other than goodwill, correspond mainly to easements, adjustments
to carrying value for assets contributed by in the state of Chile upon
incorporation of the Company, and rights for the use of telephone lines and are
amortized in accordance with Technical Bulletin No.55 of the Chilean
Association of Accountants. F-26




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) n)  Severance indemnity The severance indemnity that the Company is obliged to pay to its employees
under collective bargaining agreements is stated at the present value of the
benefit under the vested cost method, discounted at 9.5% and assuming an
average employment span which varies based upon years of service with the
Company. o)  Revenue recognition Revenue consists of revenue for electric power generation and distribution,
among which is included energy supplied and unbilled at each year-end, valued
at the selling price using the current rates which has been included in revenue
from operations. The unbilled amount is presented in current assets as trade
receivables and the corresponding cost is included in cost of operations. The Company also recognizes revenues for amounts received from highway tolls
for motorized vehicles, income related to computer advisory services,
engineering services and sale of materials. p)  Cost of sales and Administrative and selling expenses The cost of sales line item includes: purchased energy and power, materials,
fuel, tolls and energy transportation cost, direct production salaries,
productive assets depreciation, amortization, and maintenance and operation
cost. The purchases power amounted to ThCh$963,132,175, ThCh$738,026,964 and
ThCh$729,986,804 for the years ended December 31, 2001, 2002 and 2003. The
administrative and selling expense line item includes: general administrative
cost, materials and office supplies, overhead salaries, allowance for doubtful
accounts, non-productive assets amortization and depreciation. q)  Income tax and deferred income taxes At December 31, 2001, 2002 and 2003, the Company recorded current tax expense
according to the tax laws and regulations in each country of ThCh$112,097,522,
ThCh$75,840,151 and ThCh$100,753,177, respectively and, additionally, it
recorded in the years income the effect of temporary differences due to
deferred taxes of net charge of ThCh$19,051,116 in 2001, net credit of
ThCh$9,162,996 in 2002 and net credit of ThCh$59,182,460 in 2003. The Company
records deferred income taxes in accordance with Technical Bulletin No.60 of
the Chilean Association of Accountants, and with circular No.1466 issued on
January 27, 2000 by the SVS, recognizing, using the liability method, the
deferred tax effects of temporary differences between the financial and tax
values of assets and liabilities using the tax rates estimated to be in effect
at the time of reversal of the temporary differences that gave rise to them. r)  Accrued vacation expense In accordance with Technical Bulletin No.47 issued by the Chilean Association
of Accountants, employee vacation expense is recorded on the accrual basis. F-27




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) s)  Reverse repurchase agreements Reverse repurchase agreements are included in Other current assets and are
stated at cost plus interest and indexation accrued at year-end, in conformity
with the related contracts. t)  Statements of cash flows The Consolidated Statements of Cash Flows have been prepared in accordance with
the indirect method. Investments considered as cash equivalents, as indicated in point 6.2 of
Technical Bulletin No.50 issued by the Chilean Association of Accountants,
include time deposits, investments in fixed income securities classified as
marketable securities, repurchase agreements classified as other current
assets, and other cash balances classified as other accounts receivable with
maturities less than 90 days. For classification purposes, cash flows from operations include collections
from clients and payments to suppliers, payroll and taxes. u)  Financial derivative contracts As of December 31, 2002 and 2003 the Company and its subsidiaries have forward
contracts, currency swaps, and interest rate swaps and collars with several
financial institutions, to hedge against mainly foreign currency and interest
risk exposures, which are recorded according to Technical Bulletin No.57 of the
Chilean Association of Accountants. Forward foreign exchange contracts gains
and losses are recorded at estimated fair value with certain gains and losses
deferred as assets or liabilities until settlement if the instrument qualifies
as a hedge and included in earnings as Other non-operating income and
expense. v)  Goodwill and negative goodwill Goodwill and negative goodwill are determined according to Circular No.368 of
the SVS. Amortization is determined using the straight-line method,
considering the nature and characteristic of each investment, foreseeable life
of the business and investment return, not to exceed 20 years. As of December 31, 2002 and 2003 the Company evaluated the recoverability of
its goodwill and negative goodwill value arising from investments abroad and in
virtue of Technical Bulletin No.56 of the Chilean Association of Accountants,
under IAS 36 Impairment of Assets Value, an impairment of goodwill and
negative goodwill was recorded (See Note 13). At December 31 2002, and as a result of the recoverability analysis specified
in the previous paragraph, the Company amortized all of the goodwill and
negative goodwill recorded by investments in Argentina and Brazil, since
expected cash flows from our subsidiaries in those countries did not support
the recoverability of the goodwill and negative goodwill recorded. Effects in
2002 were a net charge to income of ThCh$238,798,904, net of minorities and
included in the income statement under item amortization of negative goodwill. F-28




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS  (Continued) w)  Pension and post-retirement benefits Pension and post-retirement benefits are recorded in accordance with the
respective Collective Bargaining Contracts of the employees based on the
actuarially determined projected benefit obligation. x)  Bonds Bonds payable are recorded at the face value of the bonds. The difference
between the face value and the placement value, equal to the premium or
discount, is deferred and amortized over the term of the bonds. y)  Investments in other companies Investments in other companies are presented at acquisition cost adjusted for
price-level restatement, as they do not trade in an organized market. z)  Research and development costs Costs incurred by the Company in research and development relate mainly to
water-level studies, hydroelectric research, and seismic-activity surveys which
are expensed as incurred. Costs incurred in performing studies related to
specific construction projects are capitalized. aa)  Cost of share issue Costs incurred to date associated with issuing and placing shares are recorded
according to the provisions of Circular No. 1370 of 1998 of the Superintendency
of Securities and Insurance. The amounts under these items are deducted from
the premium account. Breakdown of the costs is shown in Note 29. ab)  Litigation and other legal action The Company has established accruals for probable losses in the aggregate
amount of US$119,383,279, including accruals Endesa-Chile has established in
the amount of US$30,856,208 and see Note 31 for detail of claims to which such
accruals relate to. The Company has not recognized any assets for expected recoveries, through
insurance or from others, related to litigation and other legal actions, in the
periods presented. The Company records such recoveries only in the case that it
is virtually certain such recoveries will be realized. In the case that the
Company does record expected recoveries, the Companys policy is to record such
amounts as an asset in our consolidated balance sheet, unless a right of offset
clearly exists. F-29




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 3. Change in Accounting Principles There were no changes in accounting principles during the year ended December
31, 2001, 2002 and 2003 that would affect the comparison with the prior year
financial statements. Note 4. Time Deposits Time deposits as of each year end are as follows: 2002
    
    2003
    
    As of December 31,Annual
    
    Scheduled
    
    Annual
    
    Scheduled
    
    2002
    
    2003Financial Institution
    
    Rate %
    
    Maturity
    
    Rate %
    
    Maturity
    
    ThCh$
    
    ThCh$Banco Bilbao Vizcaya
    
    
    1.28
    %
    
    
    30.01.03
    
    
    
    0.97
    %
    
    
    05-01-04
    
    
    
    4,584,493
    
    
    
    68,469,616Banco Colpatria
    
    
    8.50
    %
    
    
    02.01.03
    
    
    
    9.35
    %
    
    
    02-01-04
    
    
    
    14,956,447
    
    
    
    8,454,519Banco Continental
    
    
    2.42
    %
    
    
    01.02.03
    
    
    
    1.48
    %
    
    
    06-01-04
    
    
    
    3,402,753
    
    
    
    2,104,459Banco Crédito del Perú
    
    
    1.13
    %
    
    
    03.01.03
    
    
    
    
    
    
    
    
    
    
    
    4,152,837
    
    
    
    Banco de Bogotá
    
    
    7.50
    %
    
    
    02.01.03
    
    
    
    10.50
    %
    
    
    02-02-04
    
    
    
    613,024
    
    
    
    202,040Banco de Chile
    
    
    1.10
    %
    
    
    02.01.03
    
    
    
    
    
    
    
    
    
    
    
    150,979
    
    
    
    Banco de Chile N.Y.
    
    
    1.10
    %
    
    
    02.01.03
    
    
    
    
    
    
    
    
    
    
    
    348,392
    
    
    
    Banco do Brasil
    
    
    18.55
    %
    
    
    15.09.03
    
    
    
    1.37
    %
    
    
    02-01-04
    
    
    
    1,070,955
    
    
    
    3,469,083Banco do Estado do Ceará
    
    
    
    
    
    
    
    
    
    
    1.37
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    3,019,595Banco Frances
    
    
    25.00
    %
    
    
    07.01.03
    
    
    
    2.50
    %
    
    
    20-01-04
    
    
    
    609,612
    
    
    
    278,814Banco Holandes
    
    
    3.50
    %
    
    
    01.01.03
    
    
    
    3.75
    %
    
    
    28-01-04
    
    
    
    436,058
    
    
    
    201,973Banco Interbank
    
    
    1.46
    %
    
    
    14.01.03
    
    
    
    0.70
    %
    
    
    02-01-04
    
    
    
    2,891,618
    
    
    
    1,301,911Banco Itau
    
    
    3.00
    %
    
    
    01.01.03
    
    
    
    1.44
    %
    
    
    02-01-04
    
    
    
    215,200
    
    
    
    6,238Banco Nationale de Paris
    
    
    2.75
    %
    
    
    01.01.03
    
    
    
    1.44
    %
    
    
    02-01-04
    
    
    
    700,763
    
    
    
    404,796Banco Pactual
    
    
    1.46
    %
    
    
    01.01.03
    
    
    
    1.39
    %
    
    
    15-01-04
    
    
    
    2,952,372
    
    
    
    2,698,006Banco Provincia de Buenos Aires
    
    
    6.50
    %
    
    
    02.01.03
    
    
    
    
    
    
    
    
    
    
    
    657,112
    
    
    
    Banco Real
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    379,939Banco Rio de la Plata
    
    
    7.30
    %
    
    
    21.01.03
    
    
    
    1.59
    %
    
    
    28-01-04
    
    
    
    5,176,989
    
    
    
    2,480,797Banco Safra
    
    
    
    
    
    
    
    
    
    
    16.03
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    2,659,815Banco Santander
    
    
    2.90
    %
    
    
    02.01.03
    
    
    
    1.51
    %
    
    
    02-01-04
    
    
    
    2,366,916
    
    
    
    5,514,171Banco Santander Do Brasil
    
    
    18.55
    %
    
    
    02.01.03
    
    
    
    1.37
    %
    
    
    02-01-04
    
    
    
    1,182,363
    
    
    
    246Banco Santos
    
    
    
    
    
    
    
    
    
    
    1.39
    %
    
    
    15-01-04
    
    
    
    
    
    
    
    861,954Banco Tequendama
    
    
    
    
    
    
    
    
    
    
    8.50
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    751,813Banco Unión
    
    
    
    
    
    
    
    
    
    
    9.75
    %
    
    
    01-03-04
    
    
    
    
    
    
    
    10,311,678Banco Votorantim
    
    
    19.40
    %
    
    
    23.09.03
    
    
    
    1.39
    %
    
    
    15-01-04
    
    
    
    3,260,288
    
    
    
    981,676Banco Wiese Sudameris
    
    
    1.44
    %
    
    
    02.01.03
    
    
    
    
    
    
    
    
    
    
    
    435,478
    
    
    
    Bancolombia
    
    
    
    
    
    
    
    
    
    
    1.00
    %
    
    
    05-01-04
    
    
    
    
    
    
    
    1,246,980Bank Boston
    
    
    1.10
    %
    
    
    03.01.03
    
    
    
    0.80
    %
    
    
    02-01-04
    
    
    
    95,035
    
    
    
    440,462Bank of America
    
    
    0.87
    %
    
    
    01.01.03
    
    
    
    0.56
    %
    
    
    05-01-04
    
    
    
    5,373,623
    
    
    
    16,444,649Bradesco
    
    
    19.37
    %
    
    
    15.09.03
    
    
    
    1.38
    %
    
    
    15-01-04
    
    
    
    3,801,902
    
    
    
    855,934BTM
    
    
    
    
    
    
    
    
    
    
    0.60
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    651,994Citibank N.Y.
    
    
    1.10
    %
    
    
    02.01.03
    
    
    
    0.53
    %
    
    
    05-01-04
    
    
    
    55,796,821
    
    
    
    43,612,454Citiliquit
    
    
    
    
    
    
    
    
    
    
    0.95
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    3,077,936Colcorp S.A.
    
    
    9.00
    %
    
    
    03.02.03
    
    
    
    
    
    
    
    
    
    
    
    1,034,481
    
    
    
    Corficol S.A.
    
    
    8.12
    %
    
    
    02.01.03
    
    
    
    9.66
    %
    
    
    02-01-04
    
    
    
    3,724,255
    
    
    
    6,925,006Corfinsura
    
    
    
    
    
    
    
    
    
    
    1.41
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    1,968,859Corfivalle
    
    
    7.98
    %
    
    
    02.01.03
    
    
    
    1.70
    %
    
    
    02-01-04
    
    
    
    3,761,704
    
    
    
    4,513,569Corporacion las Villas
    
    
    
    
    
    
    
    
    
    
    9.95
    %
    
    
    01-03-04
    
    
    
    
    
    
    
    919,059Encargo Fiduciario Banco Santander
    
    
    6.18
    %
    
    
    02.01.03
    
    
    
    6.51
    %
    
    
    02-01-04
    
    
    
    2,387,475
    
    
    
    501,514Fiduciaria Banco Colpatria
    
    
    
    
    
    
    
    
    
    
    7.71
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    1,648Fiduciaria Bancolombia
    
    
    8.12
    %
    
    
    01.01.03
    
    
    
    7.37
    %
    
    
    02-01-04
    
    
    
    228
    
    
    
    5,315,138Fiduciaria de Santander
    
    
    9.00
    %
    
    
    02.01.03
    
    
    
    6.72
    %
    
    
    04-01-04
    
    
    
    163,304
    
    
    
    1,520Fiducolombia
    
    
    
    
    
    
    
    
    
    
    8.14
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    1,095,663Fiduoccidente
    
    
    7.73
    %
    
    
    02.01.03
    
    
    
    
    
    
    
    
    
    
    
    9,825
    
    
    
    Fiduvalle
    
    
    7.66
    %
    
    
    01.01.03
    
    
    
    7.08
    %
    
    
    02-01-04
    
    
    
    768,985
    
    
    
    1,722,823Granahorrar
    
    
    
    
    
    
    
    
    
    
    8.90
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    806,257HSBC  Bamerindus
    
    
    3.00
    %
    
    
    01.01.03
    
    
    
    1.39
    %
    
    
    15-01-04
    
    
    
    5,504,531
    
    
    
    18,052,231Interbolsa S.A
    
    
    
    
    
    
    
    
    
    
    9.68
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    10,279,888Merrill Lynch
    
    
    1.50
    %
    
    
    06.01.03
    
    
    
    0.60
    %
    
    
    05-01-04
    
    
    
    8,293,650
    
    
    
    5,993,536Porvenir
    
    
    
    
    
    
    
    
    
    
    3.22
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    14,906,595Pruential Securiti
    
    
    
    
    
    
    
    
    
    
    0.20
    %
    
    
    30-01-04
    
    
    
    
    
    
    
    1,029,285Serfinco
    
    
    
    
    
    
    
    
    
    
    8.05
    %
    
    
    02-01-04
    
    
    
    
    
    
    
    88,380Suvalor
    
    
    9.04
    %
    
    
    02.01.03
    
    
    
    9.10
    %
    
    
    02-01-04
    
    
    
    4,055,608
    
    
    
    1,244,538Unibanco
    
    
    7.00
    %
    
    
    08.09.03
    
    
    
    
    
    
    
    
    
    
    
    2,145,470
    
    
    
    Otros
    
    
    
    
    
    
    02.01.03
    
    
    
    
    
    
    
    02-01-04
    
    
    
    1,617
    
    
    
    5,549Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    147,083,163
    
    
    
    256,254,606
 F-30




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 5. Accounts, Notes and Other Receivables  (a)
    
    Current accounts, notes and other receivables and their related
allowances for doubtful accounts as of each December 31, are as follows: As of December 31,Under 90 days
    
    91 days to 1 year
    
    Sub total
    
    Current
    
    Long termAccount
    
    2002
    
    2003
    
    2002
    
    2003
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Account receivable
    
    
    492,269,288
    
    
    
    496,640,838
    
    
    
    77,681,457
    
    
    
    62,052,667
    
    
    
    558,693,505
    
    
    
    569,950,745
    
    
    
    467,170,365
    
    
    
    
    
    
    
    Allowance for
doubtful accounts
    
    
    (38,380,312
    )
    
    
    (33,028,933
    )
    
    
    (68,142,312
    )
    
    
    (58,494,207
    )
    
    
    (91,523,140
    )
    
    
    (106,522,624
    )Notes receivables
    
    
    4,700,533
    
    
    
    7,981,338
    
    
    
    1,457,111
    
    
    
    1,152,322
    
    
    
    9,133,660
    
    
    
    6,157,644
    
    
    
    8,362,627
    
    
    
    
    
    
    
    Allowance for
doubtful accounts
    
    
    (120,165
    )
    
    
    (116,344
    )
    
    
    (854,817
    )
    
    
    (654,689
    )
    
    
    (771,033
    )
    
    
    (974,982
    )Other receivables
    
    
    53,062,242
    
    
    
    52,477,241
    
    
    
    19,347,036
    
    
    
    50,286,032
    
    
    
    102,763,273
    
    
    
    72,409,278
    
    
    
    94,194,266
    
    
    
    129,592,779
    
    
    
    131,457,063Allowance for
doubtful accounts
    
    
    (3,033,127
    )
    
    
    (2,779,433
    )
    
    
    (5,972,294
    )
    
    
    (5,789,574
    )
    
    
    (8,569,007
    )
    
    
    (9,005,421
    )
    
    
    
    
    
    
    (2,483,761
    )
    
    
    (3,522,019
    )Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    532,014,640
    
    
    
    569,727,258
    
    
    
    127,109,018
    
    
    
    127,935,044
  (b)
    
    Current and long-term accounts receivable per country as of each December
31, are as follows: As of December 31,Country
    
    2002
    
    2003ThCh$
    
    %
    
    ThCh$
    
    %Chile
    
    
    146,118,266
    
    
    
    22.17
    %
    
    
    169,757,602
    
    
    
    24.33
    %Perú
    
    
    58,769,018
    
    
    
    8.92
    %
    
    
    45,292,103
    
    
    
    6.49
    %Argentina
    
    
    40,866,386
    
    
    
    6.20
    %
    
    
    46,986,117
    
    
    
    6.73
    %Colombia
    
    
    100,786,120
    
    
    
    15.29
    %
    
    
    110,553,416
    
    
    
    15.85
    %Brazil
    
    
    311,586,391
    
    
    
    47.27
    %
    
    
    324,777,530
    
    
    
    46.55
    %Panamá
    
    
    997,477
    
    
    
    0.15
    %
    
    
    295,534
    
    
    
    0.04
    %Total
    
    
    659,123,658
    
    
    
    100.00
    %
    
    
    697,662,302
    
    
    
    100.00
    %
  (c)
    
    Changes in provision for accounts receivables are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Balance at beginning of period
    
    
    122,546,617
    
    
    
    147,840,905
    
    
    
    116,503,027Additions charged to costs and expenses
    
    
    43,286,963
    
    
    
    18,986,803
    
    
    
    36,721,929Deductions
    
    
    (6,403,493
    )
    
    
    (1,309,980
    )
    
    
    (3,195,380
    )Other
    
    
    (11,589,181
    )
    
    
    (49,014,701
    )
    
    
    (45,644,377
    )Balance at end of period
    
    
    147,840,906
    
    
    
    116,503,027
    
    
    
    104,385,199
  Bad debts write-offs of ThCh$6,403,493, ThCh$1,309,980 and ThCh$3,195,380
were recorded for the years ended December 31, 2001, 2002 and 2003,
respectively. F-31




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  (d)
    
    Amounts of unbilled energy sold are as follows: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Unbilled energy sold
    
    
    171,963,781
    
    
    
    143,838,262
    
    
    
    156,479,164
 Note 6. Transactions with Related Companies The balances of accounts receivable and payable are as follows at December 31,
2002 and 2003:  (a)
    
    Notes and accounts receivable due from related companies: As of December 31,Short-term
    
    Long-termCompany
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Aguas Santiago Poniente S.A.
    
    
    260,374
    
    
    
    578,492
    
    
    
    
    
    
    
    Atacama Finance Co.
    
    
    183,867,364
    
    
    
    1,904,970
    
    
    
    
    
    
    
    128,184,900CGTF Fortaleza
    
    
    3,900
    
    
    
    144,600
    
    
    
    
    
    
    
    Cía. Interconexión Energética S.A.
    
    
    4,142,233
    
    
    
    2,669,983
    
    
    
    37
    
    
    
    155,439Com. de Energía del Mercosur S.A.
    
    
    4,467,110
    
    
    
    5,058,905
    
    
    
    
    
    
    
    Consorcio Energetico Punta Cana-Macao
    
    
    948
    
    
    
    939
    
    
    
    
    
    
    
    Distrilec Inversora S.A.
    
    
    7,330
    
    
    
    5,996
    
    
    
    
    
    
    
    Elesur S.A.
    
    
    24,459
    
    
    
    27,313
    
    
    
    
    
    
    
    Empresa Eléctrica de Bogotá S.A.
    
    
    173,464
    
    
    
    34,433
    
    
    
    
    
    
    
    Empresa Eléctrica Piura S.A.
    
    
    282,337
    
    
    
    32,431
    
    
    
    
    
    
    
    Endesa España
    
    
    325,343
    
    
    
    
    
    
    
    
    
    
    
    Endesa Internacional S.A.
    
    
    1,648,410
    
    
    
    1,279,417
    
    
    
    
    
    
    
    169,245Etevensa
    
    
    222,220
    
    
    
    93,762
    
    
    
    
    
    
    
    Fundación Endesa
    
    
    166,926
    
    
    
    37,937
    
    
    
    
    
    
    
    Gas Atacama S.A.
    
    
    
    
    
    
    2,615,689
    
    
    
    
    
    
    
    Gas Atacama Generación Ltda.
    
    
    576,149
    
    
    
    29,846
    
    
    
    
    
    
    
    Gasoducto Atacama Chile
    
    
    
    
    
    
    123,521
    
    
    
    
    
    
    
    Gasoducto Tal Tal Ltda.
    
    
    146,320
    
    
    
    
    
    
    
    
    
    
    
    Ingendesa do Brasil
    
    
    
    
    
    
    
    
    
    
    16,181
    
    
    
    Consorcio Ara-Ingendesa Ltda.
    
    
    
    
    
    
    452,110
    
    
    
    
    
    
    
    Inversiones Electricas Quillota S.A.
    
    
    1,010
    
    
    
    2,000
    
    
    
    
    
    
    
    Sacme
    
    
    102,108
    
    
    
    88,515
    
    
    
    
    
    
    
    Smartcom S.A.
    
    
    625,597
    
    
    
    1,571,083
    
    
    
    
    
    
    
    Soc. de Inv. Chispa Uno S.A.
    
    
    1,956
    
    
    
    1,973
    
    
    
    
    
    
    
    Transmisora Eléctrica de Quillota Ltda.
    
    
    307,265
    
    
    
    306,210
    
    
    
    890,931
    
    
    
    594,249Total
    
    
    197,352,823
    
    
    
    17,060,125
    
    
    
    907,149
    
    
    
    129,103,833
 F-32




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  (b)
    
    Notes and accounts payable due to related companies: As of December 31,Short-term
    
    Long-term2002
    
    2003
    
    2002
    
    2003Company
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Aguas Santiago Poniente S.A.
    
    
    637
    
    
    
    6
    
    
    
    
    
    
    
    Cía. Interconexión Energética S.A.
    
    
    
    
    
    
    20,940,972
    
    
    
    
    
    
    
    Cía. de Transmisión del Mercosur S.A.
    
    
    108,115
    
    
    
    1,008,377
    
    
    
    
    
    
    
    CGTF Fortaleza
    
    
    
    
    
    
    3,194,163
    
    
    
    
    
    
    
    Com. de Energía del Mercosur S.A.
    
    
    767,772
    
    
    
    569,799
    
    
    
    
    
    
    
    Electrogas S.A.
    
    
    236,175
    
    
    
    194,463
    
    
    
    
    
    
    
    Elesur S.A.
    
    
    11,580,352
    
    
    
    133,160
    
    
    
    997,244,777
    
    
    
    Empresa Eléctrica de Bogotá S.A.
    
    
    1,238,934
    
    
    
    2,851,852
    
    
    
    929,744
    
    
    
    84,320Empresa Eléctrica Piura S.A.
    
    
    866,000
    
    
    
    385,358
    
    
    
    
    
    
    
    Endesa Internacional S.A.
    
    
    1,120,838
    
    
    
    1,200,147
    
    
    
    
    
    
    
    Endesa Servicios
    
    
    125,876
    
    
    
    95,887
    
    
    
    
    
    
    
    Gasoducto Tal Tal Ltda.
    
    
    162,165
    
    
    
    
    
    
    
    
    
    
    
    Ingendesa do Brasil
    
    
    
    
    
    
    7,126
    
    
    
    
    
    
    
    Sacme
    
    
    102,737
    
    
    
    112,315
    
    
    
    
    
    
    
    Smartcom S.A.
    
    
    55,741
    
    
    
    31,848
    
    
    
    
    
    
    
    Transmisora Eléctrica de Quillota Ltda.
    
    
    83,227
    
    
    
    22,820
    
    
    
    
    
    
    
    Total
    
    
    16,448,569
    
    
    
    30,748,293
    
    
    
    998,174,521
    
    
    
    84,320
 F-33




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  (c)
    
    The most significant transactions and their effects in income (expense)
for each year ended December 31 are as follows: 2001
    
    2002
    
    2003Nature of
    
    Income
    
    Income
    
    IncomeCompany
    
    Relationship
    
    Transaction
    
    (Expense)
    
    (Expense)
    
    (Expense)ThCh$
    
    ThCh$
    
    ThCh$Aguas Santiago Poniente S.A.
    
    Affiliate
    
    Interest
    
    
    
    
    
    
    71,465
    
    
    
    22,128Services
    
    
    
    
    
    
    32,381
    
    
    
    15,159Atacama Finance Co.
    
    Affiliate
    
    Interest
    
    
    10,156,851
    
    
    
    6,726,455
    
    
    
    5,540,261Monetary correction
    
    
    4,621,097
    
    
    
    5,038,575
    
    
    
    1,737,790Exchange difference
    
    
    17,203,587
    
    
    
    11,218,729
    
    
    
    (28,991,652
    )CGTF Fortaleza
    
    Affiliate
    
    Services
    
    
    478,557
    
    
    
    478,557
    
    
    
    1,144,349Purchase of energy
    
    
    (21,852
    )
    
    
    (21,852
    )
    
    
    (3,127,438
    )Cía. Interconexión Energética S.A.
    
    Affiliate
    
    Sale of energy
    
    
    47,308,136
    
    
    
    27,260,902
    
    
    
    21,407,084Purchase of energy
    
    
    (3,558
    )
    
    
    
    
    
    
    (50,556,652
    )Interest
    
    
    912,416
    
    
    
    
    
    
    
    66,539Services
    
    
    
    
    
    
    275,635
    
    
    
    54,867Exchange difference
    
    
    
    
    
    
    (3,558
    )
    
    
    Consorcio ARA-Ingendesa
    
    Affiliate
    
    Services
    
    
    
    
    
    
    
    
    
    
    2,077,094Com. de Energía del Mercosur S.A.
    
    Affiliate
    
    Sale of energy
    
    
    23,038,719
    
    
    
    19,344,388
    
    
    
    19,987,902Purchase of energy
    
    
    (15,500,667
    )
    
    
    (1,977,795
    )
    
    
    (2,125,804
    )Interest
    
    
    (63,144
    )
    
    
    (63,144
    )
    
    
    Services
    
    
    74,594
    
    
    
    74,594
    
    
    
    18,353Com. Transmisión del Mercosur S.A.
    
    Affiliate
    
    Purchase of energy
    
    
    (4,025,762
    )
    
    
    (1,411,673
    )
    
    
    (2,058,111
    )Exchange difference
    
    
    455Monetary correction
    
    
    212Cía. Interconexión Energética S.A.
    
    Affiliate
    
    Sale of energy
    
    
    47,308,136Exchange difference
    
    
    (3,558
    )Services
    
    
    912,416Gasoducto Atacama Generación Ltda.
    
    Affiliate
    
    Services
    
    
    328,628Empresa Eléctrica Piura S.A.
    
    Member of Controling Group
    
    Sale of energy
    
    
    947,738Purchase of energy
    
    
    (9,910,166
    )Services
    
    
    1,225,280Exchange difference
    
    
    (817
    )Gasoducto Tal Tal Ltda.
    
    
    
    Services
    
    
    Empresa Eléctrica de Bogotá S.A.
    
    Affiliate
    
    Exchange difference
    
    
    
    
    
    
    
    
    
    
    (2,148,962
    )Elesur S.A.
    
    Parent company
    
    Interest
    
    
    (52,027,484
    )
    
    
    (43,842,919
    )
    
    
    (9,267,916
    )Monetary correction
    
    
    20,683
    
    
    
    (29,373,511
    )
    
    
    (15,675,723
    )Services
    
    
    (30,852,658
    )
    
    
    16,078
    
    
    
    35,744Empresa Eléctrica Piura S.A.
    
    Member of Controling Group
    
    Sale of energy
    
    
    (760,745
    )
    
    
    1,471,956
    
    
    
    488,777Purchase of energy
    
    
    
    
    
    
    (9,715,844
    )
    
    
    (4,794,788
    )Services
    
    
    
    
    
    
    177,673
    
    
    
    96,395Electrogas S.A.
    
    Affiliate
    
    Services
    
    
    (2,474,130
    )
    
    
    (3,008,489
    )
    
    
    (2,615,631
    )Edenor S.A.
    
    
    
    Services
    
    
    4,478,844Sales of energy
    
    
    Aguas Santiago Poniente S.A.
    
    Affiliate
    
    Interest
    
    
    211,520Services
    
    
    30,096Endesa Internacional S.A.
    
    Parent company
    
    Services
    
    
    (8,389
    )
    
    
    184,543
    
    
    
    127,134Interest
    
    
    (3,013,636
    )
    
    
    (1,036,799
    )
    
    
    (188,999
    )Endesa Servicios
    
    Member of Controling Group
    
    Services
    
    
    
    
    
    
    
    
    
    
    (122,745
    )Empresa Propietaria de la Red
    
    Affiliate
    
    Services
    
    
    
    
    
    
    350,464
    
    
    
    149,404Etevensa
    
    Member of Controling Group
    
    Sale of energy
    
    
    
    
    
    
    5,815,456
    
    
    
    2,214,085Services
    
    
    
    
    
    
    155,153
    
    
    
    128,047Gasoducto Atacama Generación Ltda.
    
    Affiliate
    
    Services
    
    
    
    
    
    
    591,737
    
    
    
    78,694Gasoducto Tal Tal Ltda.
    
    Affiliate
    
    Services
    
    
    
    
    
    
    (40,899
    )
    
    
    Ingendesa do Brasil
    
    Member of Controling Group
    
    Services
    
    
    
    
    
    
    
    
    
    
    (24,940
    )Sacme
    
    Affiliate
    
    Services
    
    
    (831,763
    )
    
    
    (368,040
    )
    
    
    (308,575
    )Smartcom S.A.
    
    Member of Controling Group
    
    Services
    
    
    4,134,590
    
    
    
    3,441,365
    
    
    
    3,759,498Soc. de Inv. Chispa Uno S.A.
    
    Affiliate
    
    Services
    
    
    6,648
    
    
    
    8,516
    
    
    
    8,518Transmisora Eléctrica de Quillota Ltda.
    
    Affiliate
    
    Interest
    
    
    135,751
    
    
    
    145,491
    
    
    
    107,246Monetary correction
    
    
    
    
    
    
    44,434
    
    
    
    24,733Services
    
    
    44,434
    
    
    
    5,117
    
    
    
    128,29444,081,056
    
    
    
    (7,934,859
    )
    
    
    (62,589,841
    )
  The transfer of short-term funds between related companies, is on the basis
of a current cash account, at a variable interest rate based on market
conditions. The resulting accounts receivable and accounts payable are
essentially on 30 day terms, with automatic rollover for the same year and
settlement in line with cash flows. F-34




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Detail of the long-term payables / receivables is as follows: Capital inforeign
    
    
    
    InterestCompany
    
    Type
    
    Due Date
    
    currency
    
    Currency
    
    rateTransmisora Eléctrica de Quillota Ltda.
    
    Account receivables
    
    2006
    
    
    70,242.29
    
    
    U.F.
    
    
    9.00
    %Atacama Finance Co.
    
    Account receivables
    
    2005
    
    
    215,872,179
    
    
    US$
    
    
    3.42
    %
 Note 7. Inventories Inventories include the following items and are presented net of an allowance
for obsolescence amounting to ThCh$4,145,771, ThCh$4,385,619 and ThCh$2,683,638
as of December 31, 2001, 2002 and 2003, respectively: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Real estate under development
    
    
    24,042,270
    
    
    
    16,157,076Materials in transit
    
    
    1,115,246
    
    
    
    135,300Operation and maintenance material
    
    
    27,986,470
    
    
    
    22,051,283Fuel
    
    
    6,760,428
    
    
    
    5,964,453Others
    
    
    1,082,066
    
    
    
    82Total
    
    
    60,986,480
    
    
    
    44,308,194
 Note 8. Deferred Income Taxes  a)
    
    Income taxes (recoverable) payable as of each year-end are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Income tax provision  current
    
    
    27,807,349
    
    
    
    47,840,056Recoverable tax credits
    
    
    (54,980,336
    )
    
    
    (61,286,338
    )Total
    
    
    (27,172,987
    )
    
    
    (13,446,282
    )
  b)
    
    Tax loss carryforwards As of December 31, 2002 and 2003, the Company and its subsidiaries had tax loss
carryforwards of ThCh$579,079,580 and ThCh$589,825,921 respectively as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Chile
    
    
    462,244,197
    
    
    
    385,871,605
    (1)Brasil
    
    
    
    
    
    
    59,940,238
    (1)Argentina
    
    
    61,948,446
    
    
    
    120,953,147
    (2)Perú
    
    
    54,886,937
    
    
    
    23,060,931
    (2)Total
    
    
    579,079,580
    
    
    
    589,825,921
  (1)
    
    Tax losses with an indefinite term.  (2)
    
    Tax losses with a 5 year maturity term. F-35




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  c)
    
    The balance of taxed retained earnings (tax losses) and the related tax
credits are as follows: Year
    
    Amount of loss
    
    CreditThCh$
    
    ThCh$2001
    
    
    (18,341,170
    )2002
    
    
    23,935,936
    
    
    
    4,569,8032003
    
    
    199,692,930
    
    
    
    
  d)
    
    The net effect of recording deferred tax expense resulted in a net charge
to income of ThCh$(19,051,116), net credit to income of ThCh$9,162,996 and
ThCh$59,182,460 during the year ended December 31, 2001, 2002 and 2003,
respectively.e)
    
    In accordance with BT No.60 and 69 of the Chilean Association of
Accountants, and Circular No.1,466 of the SVS, the Company and its
subsidiaries have recorded consolidated deferred income taxes as of
December 31, 2002 and 2003 as follows: As of December 31, 2002
    
    As of December 31, 2003Asset
    
    Liability
    
    Asset
    
    LiabilityConcepts
    
    Short-term
    
    Long-term
    
    Short-term
    
    Long-term
    
    Short-term
    
    Long-term
    
    Short-term
    
    Long-termThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Allowance for doubtful accounts
    
    
    25,532,561
    
    
    
    8,170,065
    
    
    
    
    
    
    
    
    
    
    
    27,035,992
    
    
    
    1,409,835
    
    
    
    90,863
    
    
    
    Deferred income
    
    
    930,762
    
    
    
    1,842,789
    
    
    
    
    
    
    
    
    
    
    
    1,494,877
    
    
    
    5,359,656
    
    
    
    
    
    
    
    Vacation accrual
    
    
    1,223,410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    769,811
    
    
    
    
    
    
    
    
    
    
    
    Intangibles
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    72,015
    
    
    
    
    
    
    
    12,393
    
    
    
    1,502Leasing assets
    
    
    
    
    
    
    2,324,725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fixed assets depreciation
    
    
    
    
    
    
    7,733,690
    
    
    
    64,631
    
    
    
    429,741,603
    
    
    
    146
    
    
    
    6,886,751
    
    
    
    
    
    
    
    374,043,309Severance indemnities
    
    
    
    
    
    
    5,300
    
    
    
    
    
    
    
    822,383
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948,245Other
    
    
    4,253,906
    
    
    
    2,103,847
    
    
    
    4,420,170
    
    
    
    7,986,537
    
    
    
    3,594,092
    
    
    
    1,606,843
    
    
    
    938,639
    
    
    
    3,901,701Contingencies
    
    
    6,660,238
    
    
    
    38,423,059
    
    
    
    
    
    
    
    
    
    
    
    7,938,072
    
    
    
    44,976,491
    
    
    
    
    
    
    
    Bond discount
    
    
    
    
    
    
    
    
    
    
    156,053
    
    
    
    1,734,298
    
    
    
    
    
    
    
    
    
    
    
    109,977
    
    
    
    1,745,623Cost of studies
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,052,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,980,878Finance cost
    
    
    
    
    
    
    118,204
    
    
    
    
    
    
    
    13,893,414
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,638,763Imputed interest on construction
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,912,067
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,550,251Deferred charges
    
    
    
    
    
    
    
    
    
    
    778,509
    
    
    
    3,143,392
    
    
    
    
    
    
    
    
    
    
    
    1,755,492
    
    
    
    2,736,926Actuarial deficit (Brazil)
    
    
    
    
    
    
    6,834,095
    
    
    
    
    
    
    
    2,324,725
    
    
    
    
    
    
    
    11,775,837
    
    
    
    
    
    
    
    Withholdings
    
    
    1,253,029
    
    
    
    869,566
    
    
    
    5,549
    
    
    
    195,075
    
    
    
    574,558
    
    
    
    
    
    
    
    5,721
    
    
    
    1,219Obsolescence
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    302,156
    
    
    
    76,847
    
    
    
    
    
    
    
    Materials used
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,097,152
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,716,538Tax losses
    
    
    15,458,979
    
    
    
    100,984,920
    
    
    
    
    
    
    
    
    
    
    
    29,982,094
    
    
    
    97,925,200
    
    
    
    
    
    
    
    Provision real state project
    
    
    
    
    
    
    2,682,607
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,873,023
    
    
    
    
    
    
    
    Sie2000A project
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    178,733Provision for employee benefits
    
    
    451,937
    
    
    
    1,191,673
    
    
    
    522
    
    
    
    521
    
    
    
    699,478
    
    
    
    2,527,267
    
    
    
    527
    
    
    
    Difference between the financial and
tax value Río Maipo
    
    
    
    
    
    
    
    
    
    
    1,489,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Derivative contracts
    
    
    354,326
    
    
    
    236,516
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    305,207
    
    
    
    965,095
    
    
    
    Exchange difference subsidiaries
    
    
    1,301,759
    
    
    
    3,905,276
    
    
    
    
    
    
    
    
    
    
    
    910,639
    
    
    
    2,731,918
    
    
    
    
    
    
    
    Operating fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,981,513
    
    
    
    
    
    
    
    
    
    
    
    Energy in measurers
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,730,718
    
    
    
    Regulated assets
    
    
    
    
    
    
    
    
    
    
    3,866,280
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,226,949
    
    
    
    13,224,702Capitalized expenses
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,498,430
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,414,276Intangibles Chocon
    
    
    
    
    
    
    
    
    
    
    37
    
    
    
    2,926,732
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,725,964Complementary account  net
    
    
    (3,683,753
    )
    
    
    (42,590,056
    )
    
    
    (3,219
    )
    
    
    (292,945,140
    )
    
    
    (60,887
    )
    
    
    (21,245,613
    )
    
    
    (1,590
    )
    
    
    (248,470,634
    )Valuation allowance
    
    
    
    
    
    
    (2,294,384
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,619,849
    )
    
    
    
    
    
    
    Total
    
    
    53,737,154
    
    
    
    132,541,892
    
    
    
    10,778,506
    
    
    
    185,383,469
    
    
    
    78,294,556
    
    
    
    154,589,413
    
    
    
    8,834,784
    
    
    
    179,337,996
 F-36




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  f)
    
    Income tax benefit (expense) for the year ended December 31, 2001, 2002 and
2003 is as follows: As of December 31,Item
    
    2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Current income tax expense:Income tax provision
    
    
    (115,240,330
    )
    
    
    (75,327,507
    )
    
    
    (100,751,537
    )Adjustment for tax expense  prior year
    
    
    3,142,808
    
    
    
    (512,644
    )
    
    
    (1,640
    )Deferred tax expense (benefit):Deferred taxes
    
    
    (37,260,914
    )
    
    
    24,716,698
    
    
    
    50,210,225Benefits for tax losses
    
    
    13,644,919
    
    
    
    5,093,617
    
    
    
    27,116,024Amortization of complementary accounts
    
    
    6,205,300
    
    
    
    (15,656,230
    )
    
    
    (18,105,168
    )Valuation allowance
    
    
    (1,623,074
    )
    
    
    (127,841
    )
    
    
    (38,621
    )Other charges or credits
    
    
    (17,347
    )
    
    
    (4,863,248
    )
    
    
    Total
    
    
    (131,148,638
    )
    
    
    (66,677,155
    )
    
    
    (41,570,717
    )
 Note 9. Other Current Assets Other current assets are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Forwards contracts and swap (1)
    
    
    73,528,595
    
    
    
    10,923,643Guaranties and indemnities
    
    
    1,195,240
    
    
    
    2,371,350Deferred expenses
    
    
    5,766,204
    
    
    
    6,614,476Post-retirement benefits
    
    
    917,756
    
    
    
    865,286Deposits for commitments and guarantees
    
    
    26,359,504
    
    
    
    12,659,720Bond discount
    
    
    
    
    
    
    722,598Account receivables from the Chilean Ministry of Public Works
    
    
    8,483,476
    
    
    
    Recoverable  taxes
    
    
    2,887,193
    
    
    
    2,354,873Fair value derivatives contracts
    
    
    11,719,458
    
    
    
    1,177,039Others
    
    
    2,484,398
    
    
    
    755,709Reverse repurchase agreements (2)
    
    
    
    
    
    
    35,484,088Total
    
    
    133,341,824
    
    
    
    73,928,782
  (1)
    
    See detail in Note 30. F-37




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  (2)
    
    The detail of reverse repurchase agreements is as follows: As of December 31, 2003Date
    
    
    
    
    
    
    
    Interest
    
    CurrentCode
    
    Start
    
    End
    
    Financial institution
    
    Currency
    
    Document
    
    rate
    
    amount
    
    Nominal
    
    Fair value%
    
    ThCh$
    
    ThCh$
    
    ThCh$CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    Bono
    
    
    0.27
    %
    
    
    41,682
    
    
    
    41,652
    
    
    
    41,682CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    CERO
    
    
    0.27
    %
    
    
    3,747
    
    
    
    3,744
    
    
    
    3,747CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.27
    %
    
    
    411,177
    
    
    
    410,881
    
    
    
    411,177CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.27
    %
    
    
    201,207
    
    
    
    201,062
    
    
    
    201,207CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.27
    %
    
    
    4,625,621
    
    
    
    4,622,293
    
    
    
    4,625,621CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.27
    %
    
    
    13,849,961
    
    
    
    13,839,996
    
    
    
    13,849,961CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.R.
    
    
    0.27
    %
    
    
    600,893
    
    
    
    600,461
    
    
    
    600,893CRV
    
    23-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.R.
    
    
    0.27
    %
    
    
    280,112
    
    
    
    279,911
    
    
    
    280,112CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    Bono
    
    
    0.26
    %
    
    
    55,117
    
    
    
    55,112
    
    
    
    55,117CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    CERO
    
    
    0.26
    %
    
    
    3,450
    
    
    
    3,450
    
    
    
    3,450CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.26
    %
    
    
    1,289,499
    
    
    
    1,289,387
    
    
    
    1,289,499CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.26
    %
    
    
    919,240
    
    
    
    919,161
    
    
    
    919,240CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.26
    %
    
    
    911,798
    
    
    
    911,719
    
    
    
    911,798CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.26
    %
    
    
    347,418
    
    
    
    347,388
    
    
    
    347,418CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.26
    %
    
    
    1,380,795
    
    
    
    1,380,675
    
    
    
    1,380,795CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.26
    %
    
    
    807,441
    
    
    
    807,371
    
    
    
    807,441CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.R.
    
    
    0.26
    %
    
    
    207,268
    
    
    
    207,250
    
    
    
    207,268CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.R.
    
    
    0.26
    %
    
    
    106,637
    
    
    
    106,627
    
    
    
    106,637CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.R.
    
    
    0.26
    %
    
    
    1,399,906
    
    
    
    1,399,784
    
    
    
    1,399,906CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    P.D.B.C.
    
    
    0.26
    %
    
    
    306,264
    
    
    
    306,238
    
    
    
    306,264CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    CERO
    
    
    0.20
    %
    
    
    2,226
    
    
    
    2,226
    
    
    
    2,226CRV
    
    30-12-03
    
    05-01-04
    
    BBVA C. Bolsa BHIF S.A.
    
    $
    
    D.P.F.
    
    
    0.20
    %
    
    
    270,192
    
    
    
    270,174
    
    
    
    270,192CRV
    
    30-12-03
    
    05-01-04
    
    BCI C. Bolsa S.A.
    
    $
    
    L.H.
    
    
    0.25
    %
    
    
    402,243
    
    
    
    402,210
    
    
    
    402,243CRV
    
    30-12-03
    
    05-01-04
    
    BCI C. Bolsa S.A.
    
    $
    
    L.H.
    
    
    0.25
    %
    
    
    4,435,471
    
    
    
    4,435,101
    
    
    
    4,435,471CRV
    
    30-12-03
    
    05-01-04
    
    BCI C. Bolsa S.A.
    
    $
    
    L.H.
    
    
    0.25
    %
    
    
    305,586
    
    
    
    305,560
    
    
    
    305,586CRV
    
    30-12-03
    
    05-01-04
    
    BCI C. Bolsa S.A.
    
    $
    
    L.H.
    
    
    0.25
    %
    
    
    18,931
    
    
    
    18,929
    
    
    
    18,931CRV
    
    30-12-03
    
    02-01-04
    
    Bancoestado S.A. C.B.
    
    $
    
    L.H.
    
    
    0.27
    %
    
    
    20,681
    
    
    
    20,679
    
    
    
    20,681CRV
    
    30-12-03
    
    02-01-04
    
    Bancoestado S.A. C.B.
    
    $
    
    D.P.R.
    
    
    0.27
    %
    
    
    396,015
    
    
    
    395,979
    
    
    
    396,015CRV
    
    30-12-03
    
    02-01-04
    
    Bancoestado S.A. C.B.
    
    $
    
    D.P.R.
    
    
    0.27
    %
    
    
    176,185
    
    
    
    176,170
    
    
    
    176,185CRV
    
    30-12-03
    
    02-01-04
    
    Bancoestado S.A. C.B.
    
    $
    
    D.P.R.
    
    
    0.27
    %
    
    
    1,092,832
    
    
    
    1,092,733
    
    
    
    1,092,832CRV
    
    30-12-03
    
    02-01-04
    
    Bancoestado S.A. C.B.
    
    $
    
    D.P.R.
    
    
    0.27
    %
    
    
    597,439
    
    
    
    597,386
    
    
    
    597,439CRV
    
    30-12-03
    
    02-01-04
    
    Bancoestado S.A. C.B.
    
    $
    
    D.P.F.
    
    
    0.27
    %
    
    
    17,054
    
    
    
    17,053
    
    
    
    17,054Total
    
    
    
    
    
    
    
    
    35,484,088
    
    
    
    35,468,362
    
    
    
    35,484,088
 F-38




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 10. Property, Plant and Equipment The composition of property, plant and equipment is as follows: As of December 31,
    
    Useful life2002
    
    2003
    
    rangeThCh$
    
    ThCh$
    
    YearsLand
    
    
    131,203,835
    
    
    
    115,453,784
    
    
    
    Buildings and infrastructure
    
    
    6,672,031,327
    
    
    
    5,720,327,311
    
    
    
    21-40Distribution and transmission lines and public lighting
    
    
    5,112,002,563
    
    
    
    4,372,434,555
    
    
    
    20-50Less: third party contributions
    
    
    (45,507,327
    )
    
    
    (38,825,669
    )
    
    
    20-50Sub-total
    
    
    11,738,526,563
    
    
    
    10,053,936,197Machinery and equipment
    
    
    1,998,142,088
    
    
    
    1,762,236,656
    
    
    
    4-20Work in progress
    
    
    368,152,002
    
    
    
    159,006,562
    
    
    
    Construction materials
    
    
    57,023,213
    
    
    
    51,432,701
    
    
    
    4-10Leased assets
    
    
    722,292
    
    
    
    615,332
    
    
    
    4-10Furniture and fixtures, tools, and computing equipment
    
    
    80,047,377
    
    
    
    76,291,759
    
    
    
    4-10Vehicles
    
    
    13,228,900
    
    
    
    13,710,401
    
    
    
    4-10Equipment in transit
    
    
    7,537,621
    
    
    
    6,199,631
    
    
    
    4-10Other assets
    
    
    13,498,068
    
    
    
    40,833,308
    
    
    
    4-10Sub-total
    
    
    540,209,473
    
    
    
    348,089,694Technical
appraisal
Buildings and infrastructure
    
    
    611,329,810
    
    
    
    502,988,090
    
    
    
    20-50Machinery and equipment
    
    
    142,061,512
    
    
    
    116,269,308
    
    
    
    4-20Other assets
    
    
    261,353
    
    
    
    213,832
    
    
    
    4-10Total technical appraisal
    
    
    753,652,675
    
    
    
    619,471,230Total property plant and equipment
    
    
    15,161,734,634
    
    
    
    12,899,187,561Accumulated
depreciation at beginning of yearBuildings and infrastructure
    
    
    (3,844,983,403
    )
    
    
    (3,659,649,792
    )Machinery and equipment
    
    
    (635,172,469
    )
    
    
    (567,927,448
    )Other assets
    
    
    (77,638,424
    )
    
    
    (44,393,681
    )Accumulated depreciation at beginning of year
    
    
    (4,557,794,296
    )
    
    
    (4,271,970,921
    )Accumulated
depreciation at beginning of year technical appraisalBuildings and infrastructure
    
    
    (111,126,219
    )
    
    
    (87,418,330
    )Machinery and equipment
    
    
    (55,171,029
    )
    
    
    (46,705,243
    )Other assets
    
    
    (374,480
    )
    
    
    (316,929
    )Total accumulated depreciation at beginning of year technical appraisal
    
    
    (166,671,728
    )
    
    
    (134,440,502
    )Depreciation of the year
    
    
    (459,015,845
    )
    
    
    (396,415,628
    )Total accumulated depreciation at end of year
    
    
    (5,183,481,869
    )
    
    
    (4,802,827,051
    )Total property, plant and equipment, net
    
    
    9,978,252,765
    
    
    
    8,096,360,510
 F-39




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Depreciation expense of the three years ended December 31, 2003 has been
allocated as follows: 2001
    
    2002
    
    20003ThCh$
    
    ThCh$
    
    ThCh$Cost of sales
    
    
    419,962,916
    
    
    
    444,302,226
    
    
    
    382,896,216Administrative and selling expenses
    
    
    12,317,719
    
    
    
    14,713,619
    
    
    
    13,519,412Total
    
    
    430,280,646
    
    
    
    459,015,845
    
    
    
    396,415,628
 At December 31, 2002 and 2003 Enersis S.A. and its local subsidiaries have
proceeded to carry out an analysis of the book values of their property, plant
and equipment and of the companies in which it has invested abroad. The
analysis consisted of evaluating both the recoverability of property, plant and
equipment of these companies, and the recorded goodwill and negative goodwill,
in accordance with accounting principles generally accepted in Chile. The property, plant and equipment recoverability analysis, as explained in Note
2h, was carried out considering that when there is evidence that the companys
operations do not have sufficient earnings to recover all costs, including the
depreciation of property, plant and equipment taken as a whole, and when the
book value of said assets exceed its realization value, these values must be
written down to recoverable amounts, charging non operating income. The results of this analysis determined that no adjustments affecting the
Company and its Subsidiaries book values of property, plant and equipment are
required. Note 11. Investment in Related Companies  a)
    
    Investments in related companies of December 31, 2002 and 2003 are as
follows: Number
    
    Percentage
    
    Shareholders' equity
    
    Net incomeRelated Companies
    
    of shares
    
    owned
    
    of investee
    
    of investees
    
    Equity in income
    
    Investment book value2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2001
    
    2002
    
    2003
    
    2002
    
    2003(6)
    
    (6)
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Cía. de Interconexión Energética S.A. (2)
    
    
    128,270,106
    
    
    
    45.00
    %
    
    
    45.00
    %
    
    
    119,509,231
    
    
    
    121,877,449
    
    
    
    16,228,851
    
    
    
    24,759,084
    
    
    
    (5,885,119
    )
    
    
    7,302,991
    
    
    
    11,141,588
    
    
    
    53,779,154
    
    
    
    54,844,852Gas Atacama Generación S.A. (7)
    
    
    
    
    
    
    50.00
    %
    
    
    0.05
    %
    
    
    68,448,335
    
    
    
    59,258,642
    
    
    
    (9,682,534
    )
    
    
    3,258,586
    
    
    
    (3,475,447
    )
    
    
    (4,841,267
    )
    
    
    1,629
    
    
    
    34,224,168
    
    
    
    29,629Gasoducto Atacama Argentina S.A. (7)
    
    
    
    
    
    
    50.00
    %
    
    
    0.05
    %
    
    
    64,868,716
    
    
    
    54,547,284
    
    
    
    4,820,005
    
    
    
    1,475,845
    
    
    
    (4,733,533
    )
    
    
    2,410,003
    
    
    
    738
    
    
    
    32,434,358
    
    
    
    27,274Gasoducto Atacama Chile S.A. (7)
    
    
    
    
    
    
    50.00
    %
    
    
    0.05
    %
    
    
    56,417,660
    
    
    
    51,450,616
    
    
    
    6,489,614
    
    
    
    5,293,292
    
    
    
    3,336,818
    
    
    
    3,244,807
    
    
    
    2,647
    
    
    
    28,208,829
    
    
    
    25,725Inversiones Eléctricas Quillota S.A.
    
    
    608,676
    
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    17,298,638
    
    
    
    21,995,615
    
    
    
    2,646,460
    
    
    
    6,580,436
    
    
    
    (30,092
    )
    
    
    1,323,229
    
    
    
    3,290,216
    
    
    
    8,649,319
    
    
    
    10,997,808Inversiones Electrogas S.A.
    
    
    425
    
    
    
    42.50
    %
    
    
    42.50
    %
    
    
    15,869,870
    
    
    
    18,797,232
    
    
    
    1,517,084
    
    
    
    5,856,912
    
    
    
    34,432
    
    
    
    644,761
    
    
    
    2,489,188
    
    
    
    6,744,695
    
    
    
    7,988,824Cía. de Energía del Mercosur S.A. (3)
    
    
    6,305,400
    
    
    
    45.00
    %
    
    
    45.00
    %
    
    
    7,690,175
    
    
    
    7,708,759
    
    
    
    (3,421,870
    )
    
    
    1,355,690
    
    
    
    49,361
    
    
    
    (1,539,842
    )
    
    
    610,060
    
    
    
    3,460,579
    
    
    
    3,468,942Transmisora Eléctrica de Quillota Ltda.
    
    
    
    
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    5,082,987
    
    
    
    5,392,454
    
    
    
    255,588
    
    
    
    310,329
    
    
    
    88,718
    
    
    
    127,794
    
    
    
    155,165
    
    
    
    2,541,493
    
    
    
    2,696,227Atacama Finance Co. (7)
    
    
    3,150,000
    
    
    
    50.00
    %
    
    
    
    
    
    
    5,230,813
    
    
    
    
    
    
    
    (269,198
    )
    
    
    
    
    
    
    122,027
    
    
    
    (134,600
    )
    
    
    
    
    
    
    2,615,406
    
    
    
    Endesa Market Place (4)
    
    
    210
    
    
    
    15.00
    %
    
    
    
    
    
    
    3,231,944
    
    
    
    
    
    
    
    (1,893,847
    )
    
    
    
    
    
    
    (339,771
    )
    
    
    (284,077
    )
    
    
    
    
    
    
    484,793
    
    
    
    Sacme
    
    
    12,000
    
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    79,470
    
    
    
    86,122
    
    
    
    31,355
    
    
    
    14,280
    
    
    
    (7,408
    )
    
    
    15,678
    
    
    
    7,140
    
    
    
    39,735
    
    
    
    43,061Electrogas S.A.
    
    
    85
    
    
    
    0.02
    %
    
    
    0.02
    %
    
    
    11,302,024
    
    
    
    17,267,942
    
    
    
    1,613,238
    
    
    
    5,965,918
    
    
    
    37
    
    
    
    342
    
    
    
    1,268
    
    
    
    2,402
    
    
    
    3,669Consorcio ARA- Ingendesa
    
    
    
    
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    106,824
    
    
    
    124,272
    
    
    
    114,992
    
    
    
    100,775
    
    
    
    
    
    
    
    57,496
    
    
    
    50,388
    
    
    
    53,412
    
    
    
    62,136Consorcio Ingendesa  Minmetal Limited (1)
    
    
    
    
    
    
    50.00
    %
    
    
    50.00
    %
    
    
    3,713
    
    
    
    3,326
    
    
    
    38,210
    
    
    
    
    
    
    
    22,790
    
    
    
    19,105
    
    
    
    
    
    
    
    1,856
    
    
    
    1,663Gas Atacama S.A.
    
    
    1,147
    
    
    
    
    
    
    
    0.0011
    %
    
    
    
    
    
    
    164,950,845
    
    
    
    
    
    
    
    385,814
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    1,891Inversiones Gas Atacama Holding Ltda. (7)
    
    
    
    
    
    
    
    
    
    
    50.00
    %
    
    
    
    
    
    
    164,948,946
    
    
    
    
    
    
    
    (475,414
    )
    
    
    
    
    
    
    
    
    
    
    (237,707
    )
    
    
    
    
    
    
    82,474,473Central Geradora Termelectrica Fortaleza
S.A. (5)
    
    
    20,246,908
    
    
    
    48.82
    %
    
    
    48.82
    %
    
    
    44,134,443
    
    
    
    33,459,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,546,421
    
    
    
    16,334,900Ingendesa do Brasil Limitada
    
    
    
    
    
    
    100.00
    %
    
    
    
    
    
    
    58,016
    
    
    
    
    
    
    
    (81,816
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    58,016
    
    
    
    Distrilec Inversora S.A.
    
    
    4,416,141
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,683
    
    
    
    
    
    
    
    8,683
    
    
    
    11,402
    
    
    
    
    
    
    
    4,472
    
    
    
    
    
    
    
    4,472Aguas Santiago Poniente S.A. (5)
    
    
    1,031,949
    
    
    
    55.00
    %
    
    
    55.00
    %
    
    
    2,293,024
    
    
    
    2,192,591
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,261,163
    
    
    
    1,205,925Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10,805,785
    )
    
    
    8,346,420
    
    
    
    17,516,796
    
    
    
    196,105,799
    
    
    
    180,211,471
  Equity method investee:  (1)
    
    Related companies with subsidiary Ingendesa Ltda.(2)
    
    Related companies with subsidiary Compañía Eléctrica Cono Sur S.A.(3)
    
    Related companies with subsidiary Endesa Argentina S.A.(4)
    
    Company with negative equity in 2003.(5)
    
    These subsidiaries were in the development stage for the years
shown and accordingly, were not consolidated under Chilean GAAP.(6)
    
    The ownership percentage represents the nominal interest held in
the related party.(7)
    
    See Note 11(e). F-40




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  b)
    
    Income and (losses) recognized by Enersis S.A. based on the participation in
the related companies as of December 31, 2003, amounted to ThCh$17,754,503
(ThCh$237,707), ThCh$15,146,206 (ThCh$6,799,786) in 2002 and ThCh$3,665,585
(ThCh$14,471,370) in 2001.c)
    
    In accordance with Technical Bulletin No.64 of the Chilean Association of
Accountants for the years ended December 31, 2001, 2002 and 2003, the
Company has recorded foreign exchange gains and losses on liabilities
related to net investments in foreign countries that are denominated in
the same currency as the functional currency of those foreign investments.
Such gains and losses are included in the cumulative translation
adjustment account in shareholders equity, and in this way, act as a
hedge of the exchange risk affecting the investments. As of December 31,
2003 the corresponding amounts are as follows: Country
    
    
    
    
    
    ReportingCompany
    
    of origin
    
    Investment
    
    currency
    
    LiabilityThCh$
    
    
    
    ThCh$Edesur S.A.
    
    Argentina
    
    
    376,658,893
    
    
    US$
    
    
    232,116,929Edelnor S.A.
    
    Perú
    
    
    18,790,742
    
    
    US$
    
    
    19,323,450Companhia de Eletricidade do Río de Janeiro
    
    Brasil
    
    
    323,818,995
    
    
    US$
    
    
    348,180,545Luz de Bogotá S.A. (Codensa S.A.)
    
    Colombia
    
    
    224,263,713
    
    
    US$
    
    
    253,090,879Investluz S.A. (Coelce)
    
    Brasil
    
    
    74,616,732
    
    
    US$
    
    
    95,856,203Central Hidroeléctrica Betania S.A.
    
    Colombia
    
    
    388,075,105
    
    
    US$
    
    
    275,373,220Cachoeira Dourada S.A.
    
    Brasil
    
    
    358,414,232
    
    
    US$
    
    
    405,082,294Edegel S.A.
    
    Perú
    
    
    180,701,515
    
    
    US$
    
    
    165,456,684Cía. Interconexión Energética S.A.
    
    Brasil
    
    
    54,844,852
    
    
    US$
    
    
    48,193,748Hidroeléctrica El Chocón S.A.
    
    Argentina
    
    
    189,748,674
    
    
    US$
    
    
    81,628,031Comercializadora de Energia del Mercosur S.A.
    
    Argentina
    
    
    3,468,942
    
    
    US$
    
    
    2,271,562Central Costanera S.A.
    
    Argentina
    
    
    92,380,475
    
    
    US$
    
    
    57,636,346Total
    
    
    
    
    2,285,782,870
    
    
    
    
    
    1,984,209,891
  d)
    
    The investments made by Enersis S.A. and its affiliates for the years
ended December 31, 2002 and 2003, amounted to ThCh$23,699,930 and
ThCh$2,987,209, respectively, which are detailed as follows: As of December 31,2002
    
    2003Company
    
    ThCh$
    
    ThCh$Central Termeléctrica Fortaleza S.A.
    
    
    15,635,180
    
    
    
    Central Eléctrica Cachoeira Dourada S.A.
    
    
    59,520
    
    
    
    24,761Pangue S.A.
    
    
    5,048,883
    
    
    
    Inversiones Distrilima S.A.
    
    
    1,202,192
    
    
    
    Central Costanera S.A.
    
    
    
    
    
    
    2,962,448Aguas Santiago Poniente S.A.
    
    
    1,649,613
    
    
    
    Luz de Río Ltda.
    
    
    62,084
    
    
    
    Compañía Eléctrica del Río Maipo S.A.
    
    
    1,145
    
    
    
    Others
    
    
    41,313
    
    
    
    Total
    
    
    23,699,930
    
    
    
    2,987,209
 F-41




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  
    
    Capital increase in Cerj
On November 15, 2002, at an Extraordinary Meeting No16, the Board of
Directors of Enersis approved a capital increase in its subsidiary Cerj in
Brazil. Such increase will be done in a direct and indirect way through its
subsidiaries Chilectra and Luz de Río in order to maintain its participation
percentage in Cerj.On December 10, 2002, the Extraordinary General Shareholders Meeting of the
Company Cerj agreed to an increase in the authorized capital for an
approximate total amount of MUS$105.000.On January 6, 2003, the companies Endesa Internacional, Endesa Internacional
Energía, Chilectra S.A. assigned 100% of the rights of share subscription of
the company Cerj and part of the rights of Luz de Río S.A. to Enersis, for
no considerationA capital increase was made on January 10, 2003 through the issuance and the
subscription of 770.833.333.333 ordinary shares, at a value of R$0,48 by lot
of thousand shares totaling the US$100.000 million approved by the Meeting
and increasing the authorized capital of the Company to US$259.085 million.After this capital increase, the percentage of direct and indirect
participation held by Enersis S.A. and subsidiaries increased from 61.9521%
to 71.8148%.
    
    Sale of Río Maipo
The purchasing contract between Enersis and Compañía General de Electricidad  Distribución
was signed on April 30, 2003 for the entire share
participation held by Enersis (356.078.645 shares) in the Company Río Maipo.The disposal of Rio Maipo to Company CGE Distribución was approved by the
Board of Directors of Enersis on March 28, 2003, with a bid of US$170
million for the shares held by Enersis and was later ratified at an
Extraordinary Shareholders Meeting dated March 31, 2003.The signature of the purchasing contract marked the end of the process of
disposal of the Company Río Maipo, which was part of the strategic plan of
Enersis approved on October 4, 2002. The effects for the sale of the shares
are detailed in Note 24.
    
    Sale of Infraestructura 2000 S.A.
On June 23, 2003, Endesa Chile S.A. sold 330,939,522 shares of the
subsidiary Infraestructura 2000 S.A. in the amount of MCh$39,097,079 and
3,741 shares of Sociedad Concesionaria Autopista del Sol S.A., in the amount
of MCh$40,147 which amounts represent 100% of its participation in these
related Companies (Note 24). F-42




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  e)
    
    Group ReorganizationOn December 1, 2003 the firm names of subsidiaries Gasoducto Atacama Chile
Limitada, Gasoducto Atacama Argentina Limitada and Gas Atacama Generación
Limitada were amended by public deeds and changed to Gasoducto Atacama Chile
S.A., Gasoducto Atacama Argentina S.A. and Gas Atacama Generación S.A.,
respectively.On December 29, 2003 our subsidiary, Compañía Eléctrica Cono Sur S.A.
transfer to our related party GasAtacama S.A. all our shares held in Atacama
Finance for US$4,400,000 as part of a reorganization of our natural gas
business holding (Note 24)On December 29, 2003, Compañía Eléctrica Cono Sur S.A. transfer to
GasAtacama S.A. its 50% interest in Energex Co. for US$5,000 as part of the
above reorganization. (Note 24)
    
    Merger of Inmobiliaria Manso de Velasco Limitada and Sociedad
Agrícola el Gobernador Limitada. Partners of these Companys agreed
by public deed dated December 31, 2003 to a merger by absorption
of Inmobiliaria Manso de Velasco into Constructora el Gobernador
Ltda., which, for all legal intents and purposes, became the
successor, changing its name as of that date to Inmobiliaria Manso
de Velasco Limitada. As a result of this merger, Inmobiliaria
Manso de Velasco Ltda. was dissolved, and its partners received
rights in the continuing Company.
    
    Dissolution of Investment Vehicles. During 2003, Companys Enersis
Energía de Colombia S.A. and Enersis de Argentina S.A. were
dissolved.f)
    
    Incorporation of CompaniesOn October 1 and November 17, 2003 Inversiones Gas Atacama Holding Limitada
was incorporated by public deed; Inversiones Endesa Norte S.A. contributed
ThCh$700,000 in cash and 99.99% of its ownership rights in Gasoducto Atacama
Chile Limitada, Gasoducto Atacama Argentina Limitada and Gas Atacama
Generación Limitada, which represent 49.95% of all its rights in the
aforementioned affiliates, in return of a 50% interest in the Company. The
transaction was recognized at historical carrying, values as a
reorganization of the group interest in its natural gas business. F-43




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 12. Investments in Other Companies Investments in other companies at December 31, 2002 and 2003 are as follows: Number
    
    Percentage
    
    As of December 31,Company
    
    of shares
    
    owned
    
    2002
    
    2003%
    
    ThCh$
    
    ThCh$Electrificadora de la Costa
    
    
    3,599,191
    
    
    
    0.06
    %
    
    
    
    
    
    
    26,475Electrificadora del Caribe
    
    
    85,568,116
    
    
    
    0.23
    %
    
    
    
    
    
    
    1,343,089Autopista del Río Maipo S.A.
    
    
    25
    
    
    
    
    
    
    
    4,875
    
    
    
    Banco Destak
    
    
    
    
    
    
    
    
    
    
    43,376
    
    
    
    CDEC-SIC Ltda.
    
    
    
    
    
    
    24.35
    %
    
    
    225,345
    
    
    
    169,004CDEC-SING Ltda.
    
    
    
    
    
    
    7.69
    %
    
    
    
    
    
    
    100,655Club de la Banca y Comercio
    
    
    2
    
    
    
    1.00
    %
    
    
    2,726
    
    
    
    1,945Club Empresarial
    
    
    1
    
    
    
    1.00
    %
    
    
    6,212
    
    
    
    6,290Coger
    
    
    
    
    
    
    
    
    
    
    2,055
    
    
    
    Cooperativa Eléctrica de Chillán
    
    
    
    
    
    
    
    
    
    
    13,037
    
    
    
    13,037Emgesa S.A.
    
    
    1
    
    
    
    
    
    
    
    3
    
    
    
    Edegas
    
    
    1
    
    
    
    1.00
    %
    
    
    3,456
    
    
    
    Distasa S.A.
    
    
    1
    
    
    
    
    
    
    
    6
    
    
    
    Empresa Eléctrica de Aysen S.A
    
    
    2,516,231
    
    
    
    
    
    
    
    1,997,810
    
    
    
    1,997,810Empresa Eléctrica de Bogotá S.A.
    
    
    12,818,264
    
    
    
    11.00
    %
    
    
    158,367,971
    
    
    
    129,566,567Financiera Eléctrica Nacional S.A.
    
    
    4,098
    
    
    
    0.10
    %
    
    
    357,091
    
    
    
    108,998Inmobiliaria España S.A.
    
    
    1
    
    
    
    
    
    
    
    98
    
    
    
    98Inverandes S.A.
    
    
    1,011,899
    
    
    
    
    
    
    
    3,455
    
    
    
    3,455Menescal Produciones Artisticas
    
    
    
    
    
    
    
    
    
    
    5,896
    
    
    
    51,444Prod. Cinematográfica
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,663Saelpa
    
    
    
    
    
    
    
    
    
    
    732
    
    
    
    1,932Supra CCVM Ltda.
    
    
    
    
    
    
    
    
    
    
    26,790
    
    
    
    Termocartagena
    
    
    22
    
    
    
    
    
    
    
    6
    
    
    
    Teleceara
    
    
    
    
    
    
    
    
    
    
    522
    
    
    
    1,375Telebras
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    43,460Total
    
    
    
    
    
    
    
    
    
    
    161,061,462
    
    
    
    133,460,297
 F-44




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 13. Goodwill  a)
    
    In accordance with current standards, recognition has been given to the
excess of purchase price of the proportional equity in the net assets
acquired (goodwill) in the purchase of shares as of December 31, 2002 and
2003, as follows: As of December 31,Amortization
    
    Net Balance2001
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Central Cachoeira Dourada S.A.
    
    
    (4,121,311
    )
    
    
    (70,260,190
    )
    
    
    
    
    
    
    
    
    
    
    Central Costanera S.A.
    
    
    (1,651,827
    )
    
    
    (24,259,256
    )
    
    
    
    
    
    
    
    
    
    
    Chilectra S.A.
    
    
    (6,240,602
    )
    
    
    (6,306,827
    )
    
    
    (6,277,891
    )
    
    
    107,339,283
    
    
    
    101,061,394Cía. de Eletricidade do Río de Janeiro
    
    
    (6,870,670
    )
    
    
    (110,468,063
    )
    
    
    
    
    
    
    
    
    
    
    Cía. Eléctrica del Río Maipo S.A.
    
    
    (572,120
    )
    
    
    (580,158
    )
    
    
    
    
    
    
    10,329,890
    
    
    
    Codensa S.A.
    
    
    (1,694,772
    )
    
    
    (1,805,878
    )
    
    
    (1,477,454
    )
    
    
    26,787,488
    
    
    
    18,960,902Coelce S.A.
    
    
    (12,293,507
    )
    
    
    (216,129,350
    )
    
    
    
    
    
    
    
    
    
    
    Distrilec Inversora S.A.
    
    
    (667,285
    )
    
    
    (11,758,649
    )
    
    
    
    
    
    
    
    
    
    
    Edegel S.A.
    
    
    (38,279
    )
    
    
    (41,430
    )
    
    
    (33,895
    )
    
    
    614,544
    
    
    
    468,885Edesur S.A.
    
    
    (645,976
    )
    
    
    (9,578,673
    )
    
    
    
    
    
    
    
    
    
    
    Emgesa S.A.
    
    
    (1,531,826
    )
    
    
    (1,631,589
    )
    
    
    (1,335,456
    )
    
    
    24,210,381
    
    
    
    18,471,931Empresa Eléctrica de Colina S.A.
    
    
    (187,040
    )
    
    
    (187,040
    )
    
    
    (187,038
    )
    
    
    2,571,792
    
    
    
    2,384,754Empresa Eléctrica Pangue S.A.
    
    
    
    
    
    
    (70,389
    )
    
    
    (168,933
    )
    
    
    3,308,270
    
    
    
    3,139,337Empresa Nacional de Electricidad S.A.
    
    
    (43,387,864
    )
    
    
    (43,387,863
    )
    
    
    (43,387,862
    )
    
    
    674,318,980
    
    
    
    630,931,117Gasoducto Atacama Chile Ltda.
    
    
    (4,820
    )
    
    
    (4,820
    )
    
    
    (4,820
    )
    
    
    77,926
    
    
    
    73,106Hidroeléctrica El Chocón S.A.
    
    
    (818,126
    )
    
    
    (10,170,013
    )
    
    
    
    
    
    
    
    
    
    
    Hidroinvest S.A.
    
    
    (78,471
    )
    
    
    (1,393,519
    )
    
    
    
    
    
    
    
    
    
    
    Inversiones Distrilima S.A.
    
    
    (1,422
    )
    
    
    (1,515
    )
    
    
    (1,239
    )
    
    
    18,180
    
    
    
    13,635Investluz S.A.
    
    
    (62,920
    )
    
    
    (1,106,194
    )
    
    
    
    
    
    
    
    
    
    
    Lajas Inversora S.A.
    
    
    (106,529
    )
    
    
    (1,816,112
    )
    
    
    
    
    
    
    
    
    
    
    Luz de Bogotá S.A.
    
    
    (406,746
    )
    
    
    (450,085
    )
    
    
    (353,649
    )
    
    
    6,411,900
    
    
    
    4,892,157Total
    
    
    (81,382,111
    )
    
    
    (511,407,613
    )
    
    
    (53,228,237
    )
    
    
    855,988,634
    
    
    
    780,397,218
 F-45




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  b)
    
    Following current standards, recognition has been given to the excess of the
equity in the net assets purchased over the purchase price (negative
goodwill) in the purchase of shares as of December 31, 2002 and 2003 as
follows: As of December 31,Company
    
    Amortization
    
    Net Balance2001
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Central Cachoeira Dourada S.A.
    
    
    2,016,729
    
    
    
    37,238,402
    
    
    
    
    
    
    
    
    
    
    
    Central Costanera S.A.
    
    
    
    
    
    
    
    
    
    
    424,069
    
    
    
    
    
    
    
    16,538,687Central Hidroeléctrica Betania S.A.
    
    
    34,103,376
    
    
    
    35,234,878
    
    
    
    6,448,438
    
    
    
    25,067,747
    
    
    
    14,322,281Hidroeléctrica El Chocón S.A.
    
    
    250,628
    
    
    
    3,649,603
    
    
    
    
    
    
    
    
    
    
    
    Cía. de Eletricidade do Río de Janeiro (*)
    
    
    119,420
    
    
    
    16,033,466
    
    
    
    34,517,091
    
    
    
    
    
    
    
    Coelce S.A.
    
    
    492,398
    
    
    
    9,268,830
    
    
    
    
    
    
    
    
    
    
    
    Edegel S.A.
    
    
    9,757,944
    
    
    
    10,397,103
    
    
    
    8,506,245
    
    
    
    63,714,136
    
    
    
    43,620,591Edelnor S.A.
    
    
    1,179,353
    
    
    
    1,256,602
    
    
    
    1,028,071
    
    
    
    2,721,743
    
    
    
    1,198,685Empresa Eléctrica de Bogotá S.A.
    
    
    241,530
    
    
    
    257,351
    
    
    
    210,799
    
    
    
    3,860,510
    
    
    
    2,947,623Inversiones Distrilima S.A.
    
    
    
    
    
    
    18,550
    
    
    
    26,017
    
    
    
    617,459
    
    
    
    479,150Synapsis Soluciones y Servicios IT Ltda.
    
    
    15,468
    
    
    
    15,467
    
    
    
    15,468
    
    
    
    143,085
    
    
    
    127,615Total
    
    
    48,176,847
    
    
    
    113,370,252
    
    
    
    51,176,198
    
    
    
    96,124,680
    
    
    
    79,234,632
  (*)
    
    According to the provisions of Circular 368 of the Superintendency of
Securities and Insurance, the Company has amortized higher quarterly
installments due to the revaluation of Cerj, caused by the capital
increase in January 2003. F-46




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 14. Other Assets Other assets as of each year end are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Bond discount
    
    
    21,025,338
    
    
    
    19,583,113Bond issuance cost
    
    
    13,029,921
    
    
    
    6,495,002Forwards contracts and swap
    
    
    9,457,463
    
    
    
    4,864,823Deferred expenses
    
    
    13,894,838
    
    
    
    7,211,463Amortizabel bank fees and interest expense
    
    
    23,525,743
    
    
    
    29,299,485Post-retirement benefits
    
    
    19,470,838
    
    
    
    2,079,192Security deposits for judicial obligations
    
    
    23,887,123
    
    
    
    28,818,185Recoverable  taxes
    
    
    14,721,537
    
    
    
    15,668,749Reimbursable contributions
    
    
    1,460,199
    
    
    
    1,283,129Regulatory assets
    
    
    40,505,145
    
    
    
    42,067,391Fair  value derivative contracts
    
    
    52,419,114
    
    
    
    16,263,309Others
    
    
    7,745,893
    
    
    
    7,027,184Total
    
    
    241,143,152
    
    
    
    180,661,025
 The debt refunding plan was completed in May 2003, which meant incurring in
expenditures required to obtain the loans, which are amortized in the same term
as the debt. Disbursements for this item amount to ThCh$56,100,807 classified
in the statements of cash flow under item disbursements for financing, within
cash flows for financing activities. Continuing with the companys refunding plan, Enersis S.A. and its subsidiary
Endesa Chile prepaid US$2,045 million of the last loan obtained in May 2003.
These payments were made with funds from sale of assets, capital increase,
issuance and placement of bonds and obtaining new loans. As a result of these pre-payments, accelerated amortizations of deferred
expenses for ThCh$39,095,216 were made and charged to financial expenses. F-47




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 15. Due to Banks and Financial Institutions  a)
    
    Short-term debt due to banks and financial institutions: Foreign currencyFinancial Institution
    
    US$
    
    Euros
    
    Other foreign currency
    
    Ch$
    
    As of December 31,2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$ABN Amro Bank
    
    
    6,622,851
    
    
    
    5,955,112
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,711,031
    
    
    
    
    
    
    
    
    
    
    
    6,622,851
    
    
    
    19,666,143AV Villas
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,510,896
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,510,896Banco Alfa
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,943,726
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,943,726
    
    
    
    Banco Banrisul
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,054,159
    
    
    
    391,505
    
    
    
    
    
    
    
    
    
    
    
    2,054,159
    
    
    
    391,505Banco Bayerische Landes
    
    
    8,831,904
    
    
    
    684,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,831,904
    
    
    
    684,183Banco BBVA
    
    
    15,543,762
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,248,037
    
    
    
    13,359,061
    
    
    
    
    
    
    
    
    
    
    
    22,791,799
    
    
    
    13,359,061Banco BBVA Bhif
    
    
    15,016,903
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    20,591,559
    
    
    
    7,849
    
    
    
    35,608,462
    
    
    
    7,849Banco Beal
    
    
    14,218,335
    
    
    
    460,216
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,218,335
    
    
    
    460,216Banco Continental  Soles
    
    
    9,057
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,667,303
    
    
    
    21,145,202
    
    
    
    
    
    
    
    
    
    
    
    24,676,360
    
    
    
    21,145,202Banco Crédito
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    20,739,383
    
    
    
    12,725,091
    
    
    
    
    
    
    
    
    
    
    
    20,739,383
    
    
    
    12,725,094Banco Crédito Inversiones
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,734,680
    
    
    
    175
    
    
    
    5,734,680
    
    
    
    175Banco Crédito Nacional
    
    
    
    
    
    
    2,436,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,436,019Banco Davivienda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,320,628
    
    
    
    3,254,460
    
    
    
    
    
    
    
    
    
    
    
    2,320,628
    
    
    
    3,254,460Banco de Bogota
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,731,982
    
    
    
    10,842,960
    
    
    
    
    
    
    
    
    
    
    
    12,731,982
    
    
    
    10,842,960Banco de Chile
    
    
    1,409,375
    
    
    
    393,370
    
    
    
    54,356
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,145,575
    
    
    
    6
    
    
    
    8,609,306
    
    
    
    393,376Banco de Colombia
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,004,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,004,996Banco de Occidente
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,074,494
    
    
    
    1,714,007
    
    
    
    
    
    
    
    
    
    
    
    5,074,494
    
    
    
    1,714,007Banco do Brasil
    
    
    
    
    
    
    5,249,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,249,210Banco Europeo de Investimentos
    
    
    996,155
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    996,155
    
    
    
    Banco Ganadero
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    893,455
    
    
    
    8,752,484
    
    
    
    
    
    
    
    
    
    
    
    893,455
    
    
    
    8,752,484Banco HBSC
    
    
    15,116,121
    
    
    
    9,929,412
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,116,121
    
    
    
    9,929,412Banco Hermes
    
    
    
    
    
    
    3,290,246
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,290,246Banco Itau
    
    
    17,509,425
    
    
    
    14,872,587
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,509,425
    
    
    
    14,872,587Banco Lloyds
    
    
    11,111,737
    
    
    
    7,907,429
    
    
    
    
    
    
    
    
    
    
    
    971,971
    
    
    
    4,397,147
    
    
    
    
    
    
    
    
    
    
    
    12,083,708
    
    
    
    12,304,576Banco Nacional del Lavoro
    
    
    
    
    
    
    2,515,387
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,515,387Banco Nationale de Paris
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,746,177
    
    
    
    1,451,120
    
    
    
    
    
    
    
    
    
    
    
    1,746,177
    
    
    
    1,451,120Banco Popular
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,369,870
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,369,870Banco Río
    
    
    5,221,052
    
    
    
    3,662,785
    
    
    
    
    
    
    
    
    
    
    
    4,685,030
    
    
    
    3,023,178
    
    
    
    
    
    
    
    
    
    
    
    9,906,082
    
    
    
    6,685,963Banco Safra
    
    
    
    
    
    
    2,018,355
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,018,355Banco Santander
    
    
    10,599,649
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,349,245
    
    
    
    
    
    
    
    117
    
    
    
    2,370,847
    
    
    
    21,949,011
    
    
    
    2,370,847Banco Santander Central Hispano
    
    
    89,380
    
    
    
    22,245,103
    
    
    
    
    
    
    
    
    
    
    
    6,823,709
    
    
    
    10,359,095
    
    
    
    
    
    
    
    
    
    
    
    6,913,089
    
    
    
    32,604,198Banco Santiago
    
    
    953,597
    
    
    
    2,057,182
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,348,364
    
    
    
    1
    
    
    
    31,301,961
    
    
    
    2,057,183Banco Sudameris
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,316,225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,316,225Banco Tequendama
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,755,593
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,755,593Banco Union
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096,602
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,096,602Bank Boston
    
    
    21,789,155
    
    
    
    5,662,876
    
    
    
    
    
    
    
    
    
    
    
    7,693,681
    
    
    
    17,526,889
    
    
    
    
    
    
    
    
    
    
    
    29,482,836
    
    
    
    23,189,765Bank of Tokio  Mitsubishi
    
    
    12,329,952
    
    
    
    16,274,281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,329,952
    
    
    
    16,274,281Barings
    
    
    5,085,087
    
    
    
    3,644,804
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,085,087
    
    
    
    3,644,804Bndes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,835,526
    
    
    
    14,078
    
    
    
    
    
    
    
    
    
    
    
    3,835,526
    
    
    
    14,078Brandesco
    
    
    4,110,296
    
    
    
    9,146,376
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,110,296
    
    
    
    9,146,376Caixa General de Depósitos
    
    
    
    
    
    
    
    
    
    
    4,533,855
    
    
    
    3,500,552
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,533,855
    
    
    
    3,500,552Citibank
    
    
    17,250,924
    
    
    
    7,914,720
    
    
    
    
    
    
    
    
    
    
    
    10,728,750
    
    
    
    16,926,318
    
    
    
    
    
    
    
    
    
    
    
    27,979,674
    
    
    
    24,841,038Colpatria
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,391,074
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,391,074Conavi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,840,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,840,258Corfisura
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,010,410
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,010,410Deutsche Bank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    731,210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    731,210
    
    
    
    Electrobras  Brasil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,466
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,466Granahorrar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,109,129
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,109,129
    
    
    
    Interbank
    
    
    24
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,220
    
    
    
    
    
    
    
    
    
    
    
    24
    
    
    
    7,220Banco San Paolo
    
    
    40,715,709
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    40,715,709
    
    
    
    Unibanco
    
    
    4,013,202
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,055,240
    
    
    
    
    
    
    
    
    
    
    
    4,013,202
    
    
    
    2,055,240Total
    
    
    228,543,652
    
    
    
    126,319,656
    
    
    
    4,588,211
    
    
    
    3,500,552
    
    
    
    132,347,595
    
    
    
    179,957,476
    
    
    
    63,820,295
    
    
    
    2,378,878
    
    
    
    429,299,753
    
    
    
    312,156,562Total principal
    
    
    174,509,774
    
    
    
    120,003,673
    
    
    
    4,358,800
    
    
    
    3,325,524
    
    
    
    118,837,220
    
    
    
    170,959,602
    
    
    
    63,655,109
    
    
    
    2,378,693
    
    
    
    361,360,903
    
    
    
    296,667,492Weighted average annual
interest rate
    
    
    8.14
    %
    
    
    8.20
    %
    
    
    4.38
    %
    
    
    5.00
    %
    
    
    14.84
    %
    
    
    15.93
    %
    
    
    2.48
    %
    
    
    1.01
    %
    
    
    10.35
    %
    
    
    10.40
    %
 As of December 31,2003
    
    2002%
    
    %Percentage of debt in foreign currency:
    
    
    99.24
    %
    
    
    85.13
    %Percentage of debt in local currency:
    
    
    0.76
    %
    
    
    14.87
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
 F-48




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  b)
    
    Current portion of long-term debt due to banks and financial institutions: Foreign currencyUS$
    
    Euros
    
    Yen
    
    Other foreign currency
    
    Ch$
    
    As of December 31Financial Institution
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$ABN Amro Bank
    
    
    2,663,133
    
    
    
    1,761,445
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,663,133
    
    
    
    1,761,445Bancafe
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710Banca Intesa S.P.A. London Branch
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Banco Bayerische Landes
    
    
    5,678,769
    
    
    
    337,528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,678,769
    
    
    
    337,528Banco BBVA Bhif
    
    
    1,461,868
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,461,868
    
    
    
    Banco BBVA
    
    
    
    
    
    
    213,887
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    213,887Banco Beal
    
    
    
    
    
    
    9,900,548
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,900,548Banco Colpatria
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,140
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,140Banco Corfinsura
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,560
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    196,560Banco Davivienda
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,212
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    159,212Banco de Sabadell
    
    
    
    
    
    
    2,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,087Banco do Brasil
    
    
    154,365
    
    
    
    321,635
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,001,256
    
    
    
    
    
    
    
    
    
    
    
    154,365
    
    
    
    1,322,891Banco do Estado de Ceará
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    891,815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    891,815
    
    
    
    Banco do Nordeste do Brasil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,007
    
    
    
    45,113
    
    
    
    
    
    
    
    
    
    
    
    2,007
    
    
    
    45,113Banco Español de Crédito
    
    
    
    
    
    
    5,233
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,195
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,428Banco Estado
    
    
    940,631
    
    
    
    3,867
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    42,973
    
    
    
    
    
    
    
    1,756,624
    
    
    
    36,040,302
    
    
    
    2,740,228
    
    
    
    36,044,169Banco Europeo de Investimentos
    
    
    
    
    
    
    896,489
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    896,489Banco HBSC
    
    
    10,933,205
    
    
    
    19,750
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,933,205
    
    
    
    19,750Banco Hermes
    
    
    5,445,443
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,445,443
    
    
    
    Banco Lloyds
    
    
    7,291,639
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,138,324
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,429,963
    
    
    
    Banco Medio Crédito
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,820,338
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,820,338Banco Nacionale del Lavoro
    
    
    172,877
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,399,301
    
    
    
    
    
    
    
    2,433
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,574,611
    
    
    
    Banco Popular Español
    
    
    
    
    
    
    7,352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,352Banco Real
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475,035
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    475,035
    
    
    
    Banco San Paolo
    
    
    
    
    
    
    137,340
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    137,340Banco Santander  Santiago
    
    
    776,322
    
    
    
    81,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    776,322
    
    
    
    81,025Banco Santander Central Hispano
    
    
    218,106,678
    
    
    
    197,438
    
    
    
    
    
    
    
    
    
    
    
    6,546,225
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    224,652,903
    
    
    
    197,438Bancolombia
    
    
    108,190
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    297,351
    
    
    
    
    
    
    
    
    
    
    
    108,190
    
    
    
    297,351Banesto
    
    
    4,647,067
    
    
    
    5,093,156
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,647,067
    
    
    
    5,093,156Bank Boston
    
    
    606,567
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,784,096
    
    
    
    13,180,928
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15,390,663
    
    
    
    13,180,928Bank of América
    
    
    98,757,351
    
    
    
    46,438,382
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    98,757,351
    
    
    
    46,438,382Bank of Tokio  Mitsubishi
    
    
    47,458,466
    
    
    
    5,887,459
    
    
    
    128,565
    
    
    
    123,767
    
    
    
    14,731,635
    
    
    
    424,533
    
    
    
    
    
    
    
    412,346
    
    
    
    
    
    
    
    
    
    
    
    62,318,666
    
    
    
    6,848,105Banque Nationale París
    
    
    11,980,120
    
    
    
    11,763,016
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,143,098
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,123,218
    
    
    
    11,763,016Birf
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,117,055
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,117,055Bndes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,039,576
    
    
    
    8,245,660
    
    
    
    
    
    
    
    
    
    
    
    2,039,576
    
    
    
    8,245,660Caja de Ahorros y Monte de Piedad de
Madrid
    
    
    
    
    
    
    118,463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,463Citibank N.A.
    
    
    24,538,356
    
    
    
    10,253,572
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    24,538,356
    
    
    
    10,253,572Credit Lyonnais N.Y.
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Conavi
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,850
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    122,850Corporación Financiera del Valle
    
    
    56,385
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    56,385
    
    
    
    Dresner B. Luxemburg
    
    
    83,762,158
    
    
    
    16,448
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,762,158
    
    
    
    16,448Deutsche Bank A.G.
    
    
    
    
    
    
    55,936
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    55,936Eximbank
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464,068
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    464,068
    
    
    
    Export Develop. Corp.
    
    
    2,532,048
    
    
    
    1,827,243
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,532,048
    
    
    
    1,827,243Granahorrar
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    73,710ING Bank N.V.
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Israel Discount Bank N.Y.
    
    
    
    
    
    
    1,682
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,682J.P.Morgan Chase Bank
    
    
    1,015,169
    
    
    
    315,209
    
    
    
    4,591,217
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,207,721
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,814,107
    
    
    
    315,209Kreditanstal Fur Weideraubau
    
    
    429,022
    
    
    
    346,974
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    429,022
    
    
    
    346,974Landesbank Rheiniland-Pfalz
    
    
    
    
    
    
    9,345
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,345Midland Bank
    
    
    5,725,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,725,137
    
    
    
    Mizuho Corporate Bank Ltd.
    
    
    
    
    
    
    4,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,205Nord LB Norddeutshe Landes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Royal Bank of Canada
    
    
    
    
    
    
    10,496
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,496Santander Investment Bank Ltd.
    
    
    6,412,718
    
    
    
    3,057,654
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,412,718
    
    
    
    3,057,654Skandinaviska Enskildabnken
    
    
    2,398,873
    
    
    
    1,985,176
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,398,873
    
    
    
    1,985,176Societe Generale
    
    
    1,863,978
    
    
    
    1,140,973
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,863,978
    
    
    
    1,140,973Westlb A.G. N.Y. Branch
    
    
    
    
    
    
    10,498
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,498Unibanco
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    53,325
    
    
    
    55,982
    
    
    
    
    
    
    
    
    
    
    
    53,325
    
    
    
    55,982Total
    
    
    545,916,535
    
    
    
    102,253,005
    
    
    
    4,719,782
    
    
    
    123,767
    
    
    
    46,599,581
    
    
    
    13,605,461
    
    
    
    12,322,051
    
    
    
    13,672,478
    
    
    
    1,756,624
    
    
    
    36,040,302
    
    
    
    611,314,573
    
    
    
    165,695,013Total principal
    
    
    518,620,707
    
    
    
    98,286,131
    
    
    
    4,693,974
    
    
    
    121,738
    
    
    
    46,284,777
    
    
    
    13,594,206
    
    
    
    8,973,553
    
    
    
    12,673,182
    
    
    
    1,569,638
    
    
    
    35,813,075
    
    
    
    580,142,649
    
    
    
    160,488,332Weighted average annual interest rate
    
    
    3.24
    %
    
    
    4.96
    %
    
    
    3.79
    %
    
    
    3.00
    %
    
    
    2.08
    %
    
    
    3.46
    %
    
    
    8.53
    %
    
    
    16.79
    %
    
    
    8.73
    %
    
    
    4.56
    %
    
    
    3.30
    %
    
    
    5.64
    %
 As of December 31,2003
    
    2002%
    
    %Percentage of debt in foreign currency:
    
    
    78.25
    %
    
    
    99.71
    %Percentage of debt in local currency:
    
    
    21.75
    %
    
    
    0.29
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
 F-49




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) On May 15, 2003, Enersis S.A. and its subsidiary Empresa Nacional de
Electricidad S.A. subscribed syndicated loans to refinance bank debts in an
amount of US$2.330 million with 32 banks. Due to this refinancing, obligations with original maturities in 2003 and 2004,
were postponed until 2008, with principal payments starting in 2005. The covenants which regulate these loans do not trigger prepayment of the
obligations if the Company or its subsidiary Endesa Chiles risk rating falls
below investment grade. On July 28, 2003, Enersis S.A. prepaid US$582 million of bank debt with
resources from the sale of Río Maipo and its own capital increase. On November 24, 2003, Enersis S.A. prepaid all the subscribed loan refinance in
May 2003; this prepayment was made mainly with funds from a new loan of US$500
million subscribed with six banks on November 14, 2003 and from the issuance
and placement of bonds worth US$350 million on the United States market and a
further US$155 million from other cash sources. This final payment released
all the securities pledged to the first thirty two syndicated banks Similarly, Endesa Chile has prepaid US$458 million with resources from the sale
of assets and issuance and placement of bonds issued on October 3, 2003. F-50




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 16. Long-Term Portion of Debt Due to Banks and Financial Institutions As of December 31, 2003
    
    Total
    
    AnnualAfter 1 year
    
    After 2 years
    
    After 3 years
    
    After 5 years
    
    
    
    
    
    
    
    
    
    Long-term
    
    interest
    
    TotalFinancial
    
    
    
    
    
    but within
    
    but within
    
    but within
    
    but within
    
    
    
    
    
    
    
    
    
    portion
    
    rate
    
    long-termInstitution
    
    Currency
    
    2 years
    
    3 years
    
    5 years
    
    10 years
    
    After 10 years
    
    2003
    
    average
    
    portion - 2002ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    Years
    
    ThCh$
    
    ThCh$
    
    
    
    ThCh$ABN Amro Bank
    
    US$
    
    
    
    
    
    
    8,313,200
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,313,200
    
    
    
    2.75
    %
    
    
    84,854,044Bancafe
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    12.55
    %
    
    
    Banca Intesa S.P.A.
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %
    
    
    Banco Bayerische Landes
    
    US$
    
    
    1,210,897
    
    
    
    10,038,124
    
    
    
    1,686,392
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12,935,413
    
    
    
    5.63
    %
    
    
    Banco BBVA
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    78,677,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,129,150
    
    
    
    3.50
    %
    
    
    471,767,465Banco Colpatria
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    2,137,347
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,137,347
    
    
    
    12.55
    %
    
    
    Banco Estado
    
    $Reaj.
    
    
    1,395,900
    
    
    
    1,694,640
    
    
    
    1,273,686
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,364,226
    
    
    
    9.00
    %
    
    
    57,203,605US$
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,650Banco Español de Crédito
    
    US$
    
    
    472,190
    
    
    
    944,380
    
    
    
    1,416,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,833,140
    
    
    
    4.16
    %
    
    
    Banco Europeo de Investimentos
    
    US$
    
    
    213,065
    
    
    
    
    
    
    
    9,896,667
    
    
    
    19,793,333
    
    
    
    
    
    
    
    
    
    
    
    29,903,065
    
    
    
    1.37
    %
    
    
    36,289,805Banco Davivienda
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    6,412,312
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,412,312
    
    
    
    12.55
    %
    
    
    Banco de Sabadell
    
    US$
    
    
    188,314
    
    
    
    376,628
    
    
    
    564,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,129,884
    
    
    
    4.16
    %
    
    
    Banco do Brasil
    
    Rs
    
    
    
    
    
    
    1,779,121
    
    
    
    1,779,121
    
    
    
    4,447,804
    
    
    
    
    
    
    
    518,910
    
    
    
    8,524,956
    
    
    
    17.74
    %
    
    
    8,348,419US$
    
    
    
    
    
    
    441,448
    
    
    
    384,610
    
    
    
    2,406,728
    
    
    
    
    
    
    
    
    
    
    
    3,232,786
    
    
    
    14.21
    %
    
    
    4,592,606Banco Medio Crédito
    
    $Arg
    
    
    1,797,897
    
    
    
    1,797,897
    
    
    
    1,797,897
    
    
    
    6,292,887
    
    
    
    
    
    
    
    
    
    
    
    11,686,578
    
    
    
    1.75
    %
    
    
    12,090,311Banco Nacionale de Paris
    
    US$
    
    
    12,791,168
    
    
    
    13,675,789
    
    
    
    25,867,553
    
    
    
    9,054,045
    
    
    
    
    
    
    
    1,644,520
    
    
    
    63,033,075
    
    
    
    4.73
    %
    
    
    76,093,655Banco Popular Español
    
    US$
    
    
    663,314
    
    
    
    1,326,628
    
    
    
    1,989,942
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,979,884
    
    
    
    4.16
    %
    
    
    Bancolombia
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    12.55
    %
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    352,696
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352,696
    
    
    
    29.08
    %
    
    
    489,590Banco Santander Central Hispano
    
    US$
    
    
    7,310,509
    
    
    
    14,621,019
    
    
    
    96,156,528
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118,088,056
    
    
    
    3.69
    %
    
    
    290,318,440Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,048,945Banesto
    
    US$
    
    
    2,418,557
    
    
    
    2,418,557
    
    
    
    4,837,114
    
    
    
    7,255,675
    
    
    
    
    
    
    
    
    
    
    
    16,929,903
    
    
    
    4.29
    %
    
    
    28,650,213Bank Tokio  Mitsubishi
    
    US$
    
    
    14,954,039
    
    
    
    1,894,380
    
    
    
    47,376,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64,224,989
    
    
    
    3.52
    %
    
    
    13,928,001Sterling
    
    
    402,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    402,154
    
    
    
    4.63
    %
    
    
    886,725Yen
    
    
    422,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    422,438
    
    
    
    0.89
    %
    
    
    933,276Euros
    
    
    121,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    121,738
    
    
    
    3.00
    %
    
    
    248,420Banco do Estado de Ceará
    
    Rs
    
    
    
    
    
    
    172,996
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172,996
    
    
    
    13.00
    %
    
    
    147,003Banco do Nordeste do Brasil
    
    Rs
    
    
    
    
    
    
    81,691
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    81,691
    
    
    
    15.79
    %
    
    
    119,893BIRF
    
    
    U.P.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,201,425BNDES
    
    Rs
    
    
    1,783,205
    
    
    
    76,815,884
    
    
    
    2,989,260
    
    
    
    3,994,579
    
    
    
    
    
    
    
    
    
    
    
    85,582,928
    
    
    
    22.64
    %
    
    
    90,316,657Caja de Ahorros y
Monte de Piedad de Madrid
    
    US$
    
    
    
    
    
    
    
    
    
    
    44,535,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44,535,000
    
    
    
    3.42
    %
    
    
    Citibank N.Y.
    
    US$
    
    
    11,762,358
    
    
    
    4,862,430
    
    
    
    7,293,645
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,918,433
    
    
    
    3.86
    %
    
    
    397,114,151Conavi
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    5,343,369
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,343,369
    
    
    
    12.55
    %
    
    
    Corfinsura
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,549,390
    
    
    
    12.55
    %
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32,935,663Credit Lyonnais N.Y.
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %
    
    
    Deutsche Bank A.G.
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    19,297,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    23,749,150
    
    
    
    3.70
    %
    
    
    Dresdner Bank
    
    US$
    
    
    1,484,025
    
    
    
    2,968,050
    
    
    
    4,452,075
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,904,150
    
    
    
    4.16
    %
    
    
    Export Develop. Corp.
    
    US$
    
    
    1,691,051
    
    
    
    1,691,051
    
    
    
    3,382,102
    
    
    
    5,437,396
    
    
    
    
    
    
    
    828,802
    
    
    
    13,030,402
    
    
    
    2.23
    %
    
    
    17,817,287Granahorrar
    
    $Colom
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,206,021
    
    
    
    12.55
    %
    
    
    HBSC Bank
    
    US$
    
    
    1,781,954
    
    
    
    3,563,908
    
    
    
    5,345,862
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,691,724
    
    
    
    4.16
    %
    
    
    ING Bank N.V.
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %
    
    
    Israel Discount Bank of N.Y.
    
    US$
    
    
    151,775
    
    
    
    303,551
    
    
    
    455,326
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    910,652
    
    
    
    4.16
    %
    
    
    J.P.Morgan Chase Bank
    
    US$
    
    
    32,659,000
    
    
    
    
    
    
    
    14,845,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    47,504,000
    
    
    
    8.53
    %
    
    
    58,063,688Kreditanstal Fur Weideraubau
    
    US$
    
    
    324,830
    
    
    
    324,830
    
    
    
    649,660
    
    
    
    162,415
    
    
    
    
    
    
    
    
    
    
    
    1,461,735
    
    
    
    4.85
    %
    
    
    2,183,691Landesbank Rheinland Pflaz Giroz
    
    US$
    
    
    843,196
    
    
    
    1,686,392
    
    
    
    2,529,588
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,059,176
    
    
    
    4.16
    %
    
    
    Lloyds Bank
    
    US$
    
    
    6,900,518
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,900,518
    
    
    
    5.50
    %
    
    
    1,146,528Yen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,088,694Mizuho Corporate Bank Ltd.
    
    US$
    
    
    379,438
    
    
    
    758,876
    
    
    
    1,138,314
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,276,628
    
    
    
    4.16
    %
    
    
    Royal Bank of Canadá
    
    US$
    
    
    947,192
    
    
    
    1,894,381
    
    
    
    2,841,573
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,683,146
    
    
    
    4.16
    %
    
    
    San Paolo IMI S.P.A.
    
    US$
    
    
    1,703,256
    
    
    
    3,406,512
    
    
    
    49,644,768
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54,754,536
    
    
    
    3.56
    %
    
    
    Santander Investment
    
    US$
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,701,560Skandinaviska Enskildabnken
    
    US$
    
    
    1,962,604
    
    
    
    1,962,509
    
    
    
    981,302
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,906,415
    
    
    
    0.65
    %
    
    
    7,196,504Societe Generale
    
    US$
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,391,829Westlb A.G. N.Y. Branch
    
    US$
    
    
    947,190
    
    
    
    1,894,380
    
    
    
    2,841,570
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,683,140
    
    
    
    4.16
    %
    
    
    Unibanco
    
    Rs
    
    
    
    
    
    
    27,839
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    27,839
    
    
    
    14.21
    %
    
    
    79,314Total
    
    
    
    
    
    
    115,493,392
    
    
    
    173,356,331
    
    
    
    483,208,043
    
    
    
    58,844,862
    
    
    
    
    
    
    
    2,992,232
    
    
    
    833,894,860
    
    
    
    
    
    
    
    1,708,252,057
 As of December 31,2003
    
    2002%
    
    %Percentage of debt in local currency:
    
    
    17.84
    %
    
    
    10.52
    %Percentage of debt in foreign currency:
    
    
    82.16
    %
    
    
    89.48
    %Total
    
    
    100.00
    %
    
    
    100.00
    %
 F-51




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 17. Other Current Liabilities Other current liabilities are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Advances and guarantee on construction
    
    
    608,017
    
    
    
    123,101Taxes payables
    
    
    2,507,700
    
    
    
    1,033,592Contingencies  third party claims
    
    
    15,364,751
    
    
    
    19,372,593Customer advances
    
    
    3,326,514
    
    
    
    2,450,478Azopardo provision
    
    
    2,360,050
    
    
    
    3,052,829Accrued employees benefits  other
    
    
    2,250,384
    
    
    
    1,685,050Forward contracts and swaps
    
    
    5,787,192
    
    
    
    25,868,021Fair value  derivative contracts
    
    
    11,364,036
    
    
    
    7,466,784Emergency energy provision (Brazil)
    
    
    10,815,538
    
    
    
    1,625,660Other current liabilities
    
    
    5,753,193
    
    
    
    2,682,727Total
    
    
    60,137,375
    
    
    
    65,360,835
 Note 18. Promissory Notes Interest
    
    As of December 31,Financial Instruments
    
    Currency
    
    Face value
    
    Maturity date
    
    rate
    
    2002
    
    2003%
    
    ThCh$
    
    ThCh$Commercial papers
    
    Soles
    
    
    3,030,678
    
    
    
    01-05-03
    
    
    
    5.00
    %
    
    
    3,120,503
    
    
    
    Commercial papers
    
    Soles
    
    
    2,081,801
    
    
    
    01-08-03
    
    
    
    5.25
    %
    
    
    2,145,548
    
    
    
    Promissory note  AFR
    
    
    U.F.
    
    
    
    
    
    
    
    31-12-03
    
    
    
    10.00
    %
    
    
    123,350
    
    
    
    OPP-027/2002
    
    Soles
    
    
    1,000
    
    
    
    10-06-03
    
    
    
    
    
    
    
    3,500,603
    
    
    
    Promissory note  Banco Santander
    
    Soles
    
    
    286,299
    
    
    
    03-01-03
    
    
    
    5.00
    %
    
    
    289,162
    
    
    
    OPP-058/2002
    
    Soles
    
    
    1,000
    
    
    
    05-09-03
    
    
    
    
    
    
    
    4,142,243
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,321,409
    
    
    
    
 F-52




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 19. Bonds Payable a)Details of the current portion of bonds payable is as follows: Face value
    
    
    
    
    
    Interest
    
    
    
    
    
    As of December 31,Instrument
    
    Series
    
    outstanding
    
    Currency
    
    rate
    
    Maturity date
    
    2002
    
    2003%
    
    
    
    ThCh$
    
    ThCh$Bonos Edelnor
    
    One
    
    
    4,891,900
    
    
    Soles
    
    
    9.61
    %
    
    
    01/02/2011
    
    
    
    6,005
    
    
    
    5,024Bonos Edelnor
    
    I°Prog.
    
    
    80,000,000
    
    
    Soles
    
    VAC + 7,5
    %
    
    
    01/07/2006
    
    
    
    601,008
    
    
    
    522,743Bonos Edelnor
    
    I°Prog.
    
    
    18,570,000
    
    
    Soles
    
    VAC + 6,2
    %
    
    
    26/04/2007
    
    
    
    44,225
    
    
    
    37,402Bonos Edelnor
    
    I°Prog.
    
    
    30,000,000
    
    
    Soles
    
    
    6.50
    %
    
    
    01/01/2004
    
    
    
    180,123
    
    
    
    5,292,702Bonos Edelnor
    
    I°Prog.
    
    
    20,000,000
    
    
    Soles
    
    
    6.34
    %
    
    
    24/01/2004
    
    
    
    49,499
    
    
    
    3,470,489Bonos Edelnor
    
    I°Prog.
    
    
    100,000,000
    
    
    Soles
    
    VAC + 6,9
    %
    
    
    10/10/2006
    
    
    
    292,190
    
    
    
    247,110Bonos Edelnor
    
    I°Prog.
    
    
    40,000,000
    
    
    Soles
    
    
    4.47
    %
    
    
    11/09/2007
    
    
    
    
    
    
    
    93,654Yankee Bonds  Enersis
    
    One
    
    
    300,000,000
    
    
    US$
    
    
    6.90
    %
    
    
    21/11/2006
    
    
    
    1,210,264
    
    
    
    1,024,305Yankee Bonds  Enersis
    
    Two
    
    
    350,000,000
    
    
    US$
    
    
    7.45
    %
    
    
    21/11/2016
    
    
    
    1,080,485
    
    
    
    926,706Yankee Bonds  Enersis
    
    Three
    
    
    150,000,000
    
    
    US$
    
    
    6.63
    %
    
    
    21/11/2026
    
    
    
    578,822
    
    
    
    2,802Yankee Bonds II  Enersis
    
    One
    
    
    350,000,000
    
    
    US$
    
    
    7.38
    %
    
    
    01/12/2014
    
    
    
    
    
    
    
    1,532,747Bono N° 269
    
    
    B-1
    
    
    
    445,863
    
    
    
    U.F.
    
    
    
    5.50
    %
    
    
    15/06/2009
    
    
    
    7,677,871
    
    
    
    152,759Bono N° 269
    
    
    B-2
    
    
    
    2,500,000
    
    
    
    U.F.
    
    
    
    5.75
    %
    
    
    15/06/2022
    
    
    
    106,535
    
    
    
    77,343Bonos Endesa
    
    One
    
    
    230,000,000
    
    
    US$
    
    
    7.88
    %
    
    
    01/02/2027
    
    
    
    4,906,923
    
    
    
    4,005,132Bonos Endesa
    
    Two
    
    
    220,000,000
    
    
    US$
    
    
    7.33
    %
    
    
    01/02/2037
    
    
    
    4,873,420
    
    
    
    3,987,121Bonos Endesa
    
    Three
    
    
    200,000,000
    
    
    US$
    
    
    8.13
    %
    
    
    01/02/2097
    
    
    
    1,019,215
    
    
    
    769,694Bonos Endesa
    
    One
    
    
    400,000,000
    
    
    US$
    
    
    7.75
    %
    
    
    15/07/2008
    
    
    
    10,312,351
    
    
    
    8,436,908Bonos Endesa
    
    One
    
    
    400,000,000
    
    
    US$
    
    
    8.50
    %
    
    
    01/04/2009
    
    
    
    6,169,267
    
    
    
    5,047,300Bonos Endesa
    
    
    E-1 y E-2
    
    
    
    6,000,000
    
    
    
    U.F.
    
    
    
    6.20
    %
    
    
    01/08/2006
    
    
    
    2,581,888
    
    
    
    2,583,176Bonos Endesa
    
    
    C2; D1 Y D2
    
    
    
    1,251,257
    
    
    
    U.F.
    
    
    
    6.80
    %
    
    
    01/11/2010
    
    
    
    2,473,129
    
    
    
    2,600,930Bonos Endesa
    
    
    F
    
    
    
    1,500,000
    
    
    
    U.F.
    
    
    
    6.20
    %
    
    
    01/08/2022
    
    
    
    645,472
    
    
    
    645,794Bonos Endesa
    
    
    G
    
    
    
    4,000,000
    
    
    
    U.F.
    
    
    
    4.80
    %
    
    
    15/10/2010
    
    
    
    
    
    
    
    668,867Bonos Endesa
    
    
    H
    
    
    
    4,000,000
    
    
    
    U.F.
    
    
    
    6.20
    %
    
    
    15/10/2008
    
    
    
    
    
    
    
    861,052Bonos Endesa
    
    
    144A
    
    
    
    400,000,000
    
    
    US$
    
    
    8.35
    %
    
    
    01/08/2013
    
    
    
    
    
    
    
    8,649,357Bonos Endesa
    
    
    144A
    
    
    
    200,000,000
    
    
    US$
    
    
    8.63
    %
    
    
    01/08/2015
    
    
    
    
    
    
    
    4,467,626Bonos Pehuenche
    
    One
    
    
    170,000,000
    
    
    US$
    
    
    7.30
    %
    
    
    01/05/2003
    
    
    
    124,886,525
    
    
    
    Bonos Edegel
    
    One
    
    
    30,000,000
    
    
    US$
    
    
    8.75
    %
    
    
    13/06/2007
    
    
    
    150,293
    
    
    
    122,974Bonos Edegel
    
    Two
    
    
    30,000,000
    
    
    US$
    
    
    8.41
    %
    
    
    14/02/2007
    
    
    
    697,526
    
    
    
    570,865Bonos Edegel
    
    Three
    
    
    30,000,000
    
    
    US$
    
    
    8.75
    %
    
    
    03/06/2006
    
    
    
    98,468
    
    
    
    80,569Bonos Edegel
    
    Four
    
    
    20,000,000
    
    
    US$
    
    
    8.46
    %
    
    
    26/11/2005
    
    
    
    136,680
    
    
    
    111,835Bonos Edegel
    
    Four A
    
    
    50,000,000
    
    
    Soles
    
    
    4.75
    %
    
    
    12/12/2006
    
    
    
    
    
    
    
    22,356Bonos Edegel
    
    Five A
    
    
    30,000,000
    
    
    Soles
    
    
    11.60
    %
    
    
    22/08/2003
    
    
    
    7,524,632
    
    
    
    Bonos Edegel
    
    Five B
    
    
    35,000,000
    
    
    Soles
    
    
    6.00
    %
    
    
    22/02/2004
    
    
    
    132,188
    
    
    
    5,250,320Bonos Edegel
    
    One A
    
    
    100,000,000
    
    
    Soles
    
    
    6.00
    %
    
    
    06/06/2005
    
    
    
    
    
    
    
    68,568Bonos Edegel
    
    Three A
    
    
    50,000,000
    
    
    Soles
    
    
    4.13
    %
    
    
    05/05/2006
    
    
    
    
    
    
    
    113,923Bonos Edegel
    
    Three B
    
    
    50,000,000
    
    
    Soles
    
    
    4.88
    %
    
    
    30/10/2006
    
    
    
    
    
    
    
    70,800Bonos Emgesa
    
    
    A-1
    
    
    
    15,000,000
    
    
    $Col.
    
    
    9.89
    %
    
    
    26/07/2006
    
    
    
    1,308,919
    
    
    
    58,942Bonos Emgesa
    
    
    B-3
    
    
    
    31,525,018
    
    
    $Col.
    
    
    14.79
    %
    
    
    08/02/2003
    
    
    
    10,264,100
    
    
    
    Bonos Emgesa
    
    
    B-5
    
    
    
    12,750,000
    
    
    $Col.
    
    
    9.97
    %
    
    
    09/10/2004
    
    
    
    75,658
    
    
    
    2,788,242Bonos Emgesa
    
    
    B-7
    
    
    
    19,500,000
    
    
    $Col.
    
    
    10.29
    %
    
    
    09/10/2006
    
    
    
    119,344
    
    
    
    99,864Bonos Emgesa
    
    
    B-10
    
    
    
    229,825,000
    
    
    $Col.
    
    
    10.60
    %
    
    
    09/10/2009
    
    
    
    1,449,421
    
    
    
    1,213,243Bonos Emgesa
    
    
    B-10
    
    
    
    60,000,000
    
    
    $Col.
    
    
    10.57
    %
    
    
    10/11/2009
    
    
    
    
    
    
    
    196,835Bonos Emgesa
    
    
    C-10
    
    
    
    7,701,962
    
    
    $Col.
    
    
    9.88
    %
    
    
    09/10/2009
    
    
    
    81,486
    
    
    
    73,690Bonos Emgesa
    
    
    C-10
    
    
    
    19,777,918
    
    
    $Col.
    
    
    10.25
    %
    
    
    08/10/2009
    
    
    
    44,130
    
    
    
    39,903Bonos Emgesa
    
    B-10 2° issuance
    
    
    50,000,000
    
    
    $Col.
    
    
    15.18
    %
    
    
    26/06/2006
    
    
    
    223,180
    
    
    
    1,164,287Bonos Emgesa
    
    
    A-5
    
    
    
    172,858
    
    
    $Col.
    
    
    8.35
    %
    
    
    08/10/2004
    
    
    
    70,746
    
    
    
    Bonos Emgesa
    
    
    B-1
    
    
    
    85,000,000
    
    
    $Col.
    
    
    13.95
    %
    
    
    26/07/2006
    
    
    
    
    
    
    
    1,185,974Eurobono
    
    Unica
    
    
    400,000,000
    
    
    Euro
    
    
    3.34
    %
    
    
    24/07/2003
    
    
    
    306,778,275
    
    
    
    Endesa Chile Internacional
    
    Unica
    
    
    150,000,000
    
    
    US$
    
    
    7.20
    %
    
    
    01/04/2006
    
    
    
    1,959,649
    
    
    
    1,603,260Bonos Autopista del Sol S.A
    
    
    A-1
    
    
    
    3,446,160
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    1,648,440
    
    
    
    Bonos Autopista del Sol S.A
    
    
    A-2
    
    
    
    861,540
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    412,110
    
    
    
    Bonos Autopista del Sol S.A
    
    
    B-1
    
    
    
    964,372
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    491,702
    
    
    
    Bonos Autopista del Sol S.A
    
    
    B-2
    
    
    
    243,578
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    124,193
    
    
    
    Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    503,486,357
    
    
    
    70,945,193
 F-53




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) b)Details of the long-term portion of bonds payable is as follows at each year ended: Face value
    
    
    
    
    
    Interest
    
    
    
    
    
    As of December 31,Instrument
    
    Series
    
    outstanding
    
    Currency
    
    rate
    
    Maturity date
    
    2002
    
    2003%
    
    
    
    ThCh$
    
    ThCh$Bonos Edelnor
    
    One
    
    
    4,891,900
    
    
    Soles
    
    
    9.61
    %
    
    
    01/02/2011
    
    
    
    1,010,394
    
    
    
    838,813Bonos Edelnor
    
    I°Prog.
    
    
    80,000,000
    
    
    Soles
    
    VAC + 7,5
    %
    
    
    01/07/2006
    
    
    
    16,647,508
    
    
    
    14,079,415Bonos Edelnor
    
    I°Prog.
    
    
    100,000,000
    
    
    Soles
    
    VAC + 6,9
    %
    
    
    10/10/2006
    
    
    
    20,884,730
    
    
    
    17,662,273Bonos Edelnor
    
    I°Prog.
    
    
    30,000,000
    
    
    Soles
    
    
    6.50
    %
    
    
    01/01/2004
    
    
    
    6,196,324
    
    
    
    Bonos Edelnor
    
    I°Prog.
    
    
    20,000,000
    
    
    Soles
    
    
    6.34
    %
    
    
    24/01/2004
    
    
    
    4,130,883
    
    
    
    Bonos Edelnor
    
    I°Prog.
    
    
    18,570,000
    
    
    Soles
    
    VAC + 6,2
    %
    
    
    26/04/2007
    
    
    
    3,898,572
    
    
    
    3,297,092Bonos Edelnor
    
    I°Prog.
    
    
    40,000,000
    
    
    Soles
    
    
    4.47
    %
    
    
    11/09/2007
    
    
    
    
    
    
    
    6,858,793Yankee Bonds  Enersis
    
    One
    
    
    300,000,000
    
    
    US$
    
    
    6.90
    %
    
    
    21/11/2006
    
    
    
    217,738,830
    
    
    
    178,140,000Yankee Bonds  Enersis
    
    Two
    
    
    350,000,000
    
    
    US$
    
    
    7.45
    %
    
    
    21/11/2016
    
    
    
    181,255,964
    
    
    
    148,292,049Yankee Bonds  Enersis
    
    Three
    
    
    150,000,000
    
    
    US$
    
    
    6.63
    %
    
    
    21/11/2026
    
    
    
    108,869,415
    
    
    
    509,480Yankee Bonds II  Enersis
    
    One
    
    
    350,000,000
    
    
    US$
    
    
    7.38
    %
    
    
    01/12/2014
    
    
    
    
    
    
    
    207,830,000Bono N° 269
    
    
    B-1
    
    
    
    2,928,543
    
    
    
    U.F.
    
    
    
    5.50
    %
    
    
    15/06/2009
    
    
    
    49,526,236
    
    
    
    679,076Bono N° 269
    
    
    B-2
    
    
    
    2,500,000
    
    
    
    U.F.
    
    
    
    5.75
    %
    
    
    15/06/2022
    
    
    
    42,278,903
    
    
    
    32,740,200Bonos Endesa
    
    One
    
    
    230,000,000
    
    
    US$
    
    
    7.88
    %
    
    
    01/02/2027
    
    
    
    149,427,626
    
    
    
    122,252,138Bonos Endesa
    
    Two
    
    
    220,000,000
    
    
    US$
    
    
    7.33
    %
    
    
    01/02/2037
    
    
    
    159,675,142
    
    
    
    130,636,000Bonos Endesa
    
    Three
    
    
    200,000,000
    
    
    US$
    
    
    8.13
    %
    
    
    01/02/2097
    
    
    
    29,333,775
    
    
    
    23,999,021Bonos Endesa
    
    One
    
    
    400,000,000
    
    
    US$
    
    
    7.75
    %
    
    
    15/07/2008
    
    
    
    290,318,440
    
    
    
    237,520,000Bonos Endesa
    
    Unica
    
    
    400,000,000
    
    
    US$
    
    
    8.50
    %
    
    
    01/04/2009
    
    
    
    290,318,440
    
    
    
    237,520,000Bonos Endesa
    
    
    E-1 y E-2
    
    
    
    6,000,000
    
    
    
    U.F.
    
    
    
    6.20
    %
    
    
    01/08/2006
    
    
    
    101,469,367
    
    
    
    101,520,000Bonos Endesa
    
    
    C2; D1 Y D2
    
    
    
    1,251,257
    
    
    
    U.F.
    
    
    
    6.80
    %
    
    
    01/11/2010
    
    
    
    20,029,882
    
    
    
    17,662,331Bonos Endesa
    
    
    F
    
    
    
    1,500,000
    
    
    
    U.F.
    
    
    
    6.20
    %
    
    
    01/08/2022
    
    
    
    25,367,342
    
    
    
    25,380,000Bonos Endesa
    
    
    G
    
    
    
    4,000,000
    
    
    
    U.F.
    
    
    
    4.80
    %
    
    
    15/10/2010
    
    
    
    
    
    
    
    67,680,000Bonos Endesa
    
    
    H
    
    
    
    4,000,000
    
    
    
    U.F.
    
    
    
    6.20
    %
    
    
    15/10/2008
    
    
    
    
    
    
    
    67,680,000Bonos Endesa
    
    
    144A
    
    
    
    400,000,000
    
    
    US$
    
    
    8.35
    %
    
    
    01/08/2013
    
    
    
    
    
    
    
    237,520,000Bonos Endesa
    
    
    144A
    
    
    
    200,000,000
    
    
    US$
    
    
    8.63
    %
    
    
    01/08/2015
    
    
    
    
    
    
    
    118,760,000Bonos Edegel
    
    One
    
    
    30,000,000
    
    
    US$
    
    
    8.75
    %
    
    
    13/06/2007
    
    
    
    21,773,883
    
    
    
    17,814,000Bonos Edegel
    
    Two
    
    
    30,000,000
    
    
    US$
    
    
    8.41
    %
    
    
    14/02/2007
    
    
    
    21,773,883
    
    
    
    17,814,000Bonos Edegel
    
    Three
    
    
    30,000,000
    
    
    US$
    
    
    8.75
    %
    
    
    03/06/2006
    
    
    
    21,773,883
    
    
    
    17,814,000Bonos Edegel
    
    Four
    
    
    20,000,000
    
    
    US$
    
    
    8.46
    %
    
    
    26/11/2005
    
    
    
    14,515,922
    
    
    
    11,876,000Bonos Edegel
    
    Four A
    
    
    50,000,000
    
    
    Soles
    
    
    4.75
    %
    
    
    12/12/2006
    
    
    
    
    
    
    
    8,571,016Bonos Edegel
    
    One A
    
    
    100,000,000
    
    
    Soles
    
    
    6.00
    %
    
    
    06/06/2005
    
    
    
    
    
    
    
    17,142,033Bonos Edegel
    
    Five B
    
    
    35,000,000
    
    
    Soles
    
    
    6.00
    %
    
    
    22/04/2004
    
    
    
    6,196,324
    
    
    
    Bonos Edegel
    
    Three A
    
    
    50,000,000
    
    
    Soles
    
    
    4.13
    %
    
    
    05/05/2006
    
    
    
    
    
    
    
    8,571,016Bonos Edegel
    
    Three B
    
    
    50,000,000
    
    
    Soles
    
    
    4.88
    %
    
    
    30/10/2006
    
    
    
    
    
    
    
    8,571,016Bonos Emgesa
    
    
    A-1
    
    
    
    15,000,000
    
    
    $Col.
    
    
    9.89
    %
    
    
    26/07/2006
    
    
    
    3,800,258
    
    
    
    3,206,021Bonos Emgesa
    
    
    B-1
    
    
    
    85,000,000
    
    
    $Col.
    
    
    13.95
    %
    
    
    26/06/2006
    
    
    
    21,534,796
    
    
    
    18,167,453Bonos Emgesa
    
    
    B-5
    
    
    
    12,750,000
    
    
    $Col.
    
    
    9.97
    %
    
    
    09/10/2004
    
    
    
    3,230,219
    
    
    
    0Bonos Emgesa
    
    
    B-7
    
    
    
    19,500,000
    
    
    $Col.
    
    
    10.29
    %
    
    
    09/10/2006
    
    
    
    4,940,336
    
    
    
    4,167,827Bonos Emgesa
    
    
    B-10
    
    
    
    229,825,000
    
    
    $Col.
    
    
    10.60
    %
    
    
    09/10/2009
    
    
    
    58,226,188
    
    
    
    49,121,888Bonos Emgesa
    
    
    B-10
    
    
    
    60,000,000
    
    
    $Col.
    
    
    10.57
    %
    
    
    10/11/2009
    
    
    
    
    
    
    
    12,824,085Bonos Emgesa
    
    
    C-10
    
    
    
    7,701,962
    
    
    $Col.
    
    
    9.88
    %
    
    
    09/10/2009
    
    
    
    
    
    
    
    3,086,739Bonos Emgesa
    
    
    C-10
    
    
    
    19,777,918
    
    
    $Col.
    
    
    10.25
    %
    
    
    08/10/2009
    
    
    
    5,331,860
    
    
    
    1,734,454Bonos Emgesa
    
    B-10 2° issuance
    
    
    50,000,000
    
    
    $Col.
    
    
    15.18
    %
    
    
    26/07/2006
    
    
    
    15,201,032
    
    
    
    10,686,737Bonos Autopista del Sol S.A
    
    
    A-1
    
    
    
    3,446,160
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    58,279,946
    
    
    
    Bonos Autopista del Sol S.A
    
    
    A-2
    
    
    
    861,540
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    14,569,986
    
    
    
    Bonos Autopista del Sol S.A
    
    
    B-1
    
    
    
    964,372
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    16,309,031
    
    
    
    Bonos Autopista del Sol S.A
    
    
    B-2
    
    
    
    243,578
    
    
    
    U.F.
    
    
    
    5.80
    %
    
    
    15/01/2018
    
    
    
    4,119,290
    
    
    
    Bonos Endesa Internacional
    
    Unica
    
    
    150,000,000
    
    
    US$
    
    
    7.20
    %
    
    
    01/04/2006
    
    
    
    108,869,414
    
    
    
    89,070,000Total
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,118,824,024
    
    
    
    2,299,294,966
 VAC (Valor de activación constante) is issued by the Banco Central de Reserva
del Perú and calculated based in the inflation rate. Year
    
    %2002
    
    1.452003
    
    1.87
 F-54




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) c) Bonds payable consist of the following:  (1)
    
    Enersis S.A. Series B1-B2On September 11, 2001, Enersis S.A. registered two series of bearer
bonds dated June 14, 2001, as follows: Total amount
    
    No. of bonds
    
    Face valueSeries
    
    In UF
    
    per series
    
    in UFB1
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    1,000B1
    
    
    3,000,000
    
    
    
    300
    
    
    
    10,000B2
    
    
    1,000,000
    
    
    
    1,000
    
    
    
    1,000B2
    
    
    1,500,000
    
    
    
    150
    
    
    
    10,000
  The scheduled maturity of the Series B-1 bonds is 8 years, interest and
principal payable semi-annually. Annual interest is 5.50%, compounded
semi-annually.The scheduled maturity of the Series B-2 bonds is 21 years, principal
payments beginning after 5 years, interest and principal payable
semi-annually. Annual interest is 5.75%, compounded semi-annually.In November 2003, these series were voluntarily exchanged for shares
in connection with Enersis capital increase approved on March 31,
2003 (See Note 23a) bond exchanged.(2)
    
    Enersis S.A. (Yankee Bonds)On November 21, 1996, the Company, acting through its agency in the
Cayman Islands, issued corporate notes (Yankee Bonds) for US$800
million in three series, as follows: Total amount
    
    Years to
    
    Stated annualSeries
    
    in US$
    
    maturity
    
    interest rate1
    
    
    300,000,000
    
    
    
    10
    
    
    
    6.9
    %2
    
    
    350,000,000
    
    
    
    20
    
    
    
    7.4
    %3
    
    
    150,000,000
    
    
    
    30
    
    
    
    6.6
    %
  Interest is payable on a semi-annual basis and principal is due upon
maturity. The Series 3 bond holders has a pre-redemption option in
year seven, which was exercised by nearly all holders in November 2003
for US$149,142,000. F-55




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Repurchase of Yankee BondsEnersis Internacional, a 100% subsidiary of Enersis during November
2001 made a tender offer to repurchase all or a portion of the Series 2
Yankee Bonds. The offer expired November 21, 2001 and the Enersis
Internacional repurchased a total of US$100,266,000 in bonds with
accrued interest, at a price of US$95,536,000.(3)
    
    Bonos Internacionales (Yankee Bonds II)On November 24 2003, the Company, through its Cayman Islands Agency,
issued and placed Yankee Bonds on the American market for US$350
million. This placement was made in a single tranche, whose features
are as follows: Total amount
    
    Years to
    
    Stated annualSeries
    
    in US$
    
    maturity
    
    interest rate1
    
    
    350.000.000
    
    
    
    10
    
    
    
    7,4
    %
  Interest is paid six-monthly and amortization of capital is a single
installment at the end of the term.(4)
    
    Bonds of Chilectra S.A.On October 13, 2003, Chilectra S.A. registered, in the Superintendency
of Securities and Insurance, 2 lines of bonds corresponding to No 347
and 348 for a maximum line amount of UF4,200,000 and UF4,000,000
respectively; the placement has a maturity of 10 years from August 22,
2003. To date, the placement of the related bonds has not been made.(5)
    
    Edelnor Bonds (Subsidiary of Distrilima S.A.) First issueDate of Issue
    
    :
    
    March 1, 1996Number of bonds subscribed
    
    :
    
    49,919Face value
    
    :
    
    100 soles eachRedemption term
    
    :
    
    15 yearsInterest rate
    
    :
    
    9.6136% annualInterest payment
    
    :
    
    Annually, on coupon maturityPrincipal amortization
    
    :
    
    Amortization of total principal upon maturity
 F-56




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Second issueDate of Issue
    
    :
    
    November 10, 1998Number of bonds subscribed
    
    :
    
    146,300Face value
    
    :
    
    1,000 soles eachRedemption term
    
    :
    
    4 yearsInterest rate
    
    :
    
    14.396% annualInterest payment
    
    :
    
    Accrued and paid within 90 daysAnticipated redemption option
    
    :
    
    Early redemption optionAt December 31, 2003, this issue is totally cancelled.Third issueDate of Issue
    
    :
    
    August 7, 1998Number of bonds subscribed
    
    :
    
    15,000Face value
    
    :
    
    US$1,000 eachRedemption term
    
    :
    
    3 yearsInterest rate
    
    :
    
    7.7% annualInterest payment
    
    :
    
    Accrued and paid within 90 daysAt December 31, 2003, this issue is totally cancelled.First program of Corporate BondsFirst issueDate of Issue
    
    :
    
    October 29, 2001Number of bonds subscribed
    
    :
    
    146,300Face value
    
    :
    
    30,000 soles eachRedemption term
    
    :
    
    5 yearsInterest rate
    
    :
    
    7.5% annualInterest payment
    
    :
    
    Semi - annualSecond issueDate of Issue
    
    :
    
    October 19, 2001Number of bonds subscribed
    
    :
    
    20,000Face value
    
    :
    
    5,000 new soles eachRedemption term
    
    :
    
    5 yearsInterest rate
    
    :
    
    6.9% annual + VACInterest payment
    
    :
    
    Semi  annualThird issueDate of issue
    
    :
    
    January 24, 2002Number of bonds subscribed
    
    :
    
    6,000Face value
    
    :
    
    5,000 (new soles each)Redemption term
    
    :
    
    2 yearsInterest rate
    
    :
    
    6.5 % annualInterest payment
    
    :
    
    Semi - annual
 F-57




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Fourth issueDate of issue
    
    :
    
    April 24, 2002Number of bonds subscribed
    
    :
    
    4,000Face value
    
    :
    
    5,000 (new soles each)Redemption term
    
    :
    
    2 yearsInterest rate
    
    :
    
    6.34 % annualInterest payment
    
    :
    
    Semi - annualFifth issueDate of issue
    
    :
    
    March 1, 2003Number of bonds subscribed
    
    :
    
    3,714Face value
    
    :
    
    5,000 (new soles each)Redemption term
    
    :
    
    4 yearsInterest rate
    
    :
    
    6.2 % annual + VACInterest payment
    
    :
    
    Semi - annualSixth issueDate of issue
    
    :
    
    September 12, 2003Number of bonds subscribed
    
    :
    
    8,000Face value
    
    :
    
    5,000 (new soles each)Redemption term
    
    :
    
    4 yearsInterest rate
    
    :
    
    4.46875 % annualInterest payment
    
    :
    
    Semi - annual
  (6)
    
    Endesa Chile S.A.Our Subsidiary Endesa  Chile S.A. currently has two outstanding
public bond issues on the domestic market on the following dates:  
    
    On December 7 1990, it registered the third issue of
bonds worth U.F. 4,000,000 under No. 131. U.F. 2,030,000 of this
issue had been placed at December 31 1997. The remaining balance of
U.F. 1,970,000 has been cancelled, because its placement deadline
has expired.
    
    On August 9 2001, it registered the fourth bond issue
worth U.F: 7,500,000 under No. 264; this was totally placed at
December 31 2001. F-58




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  
    
    On November 26 2002, it registered the fifth bond issue worth U.F.
8,000,000 under Nos. 317 and 318 and then amended it on October 2
2003; this issue was totally placed at December 31 2003.  I
    
    Risk rating of the issued bonds is a follows as of the date of
December 31, 2003: Category- Comisión Clasificadora de Riesgo
    
    BBB+- Fitch IBCA Chile Clasificadora de Riesgo Ltda
    
    A+- Clasificadora de Riesgo Humphreys Ltda.
    
    BBB+
 ISSUANCE TERMS Third IssuanceIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Bearer bonds in local currency, denominated in Unidades de FomentoIssuance Value
    
    :
    
    Four million Unidades de Fomento (UF4,000,000) divided into:- Series C-1: 120 bonds at UF10,000 each- Series C-2: 800 bonds at UF1,000 each- Series D-1: 120 bonds at UF10,000 each- Series D-2: 800 bonds at UF1,000 eachIndexation
    
    :
    
    Based on variations in Unidad de Fomento indexAmortization year
    
    :
    
    Series C-1 and C-2: 15 years (5-year grace year and 10 years to pay off at principal).Series D-1 and D-2: 20 years (5-year grace year and 15 years to pay off at principal).Capital amortization
    
    :
    
    Series C-1 and C-2: 20 consecutive installments payable semi-annually, starting April 1, 1996.Series D-1 and D-2: 30 consecutive installments payable semi-annually, starting May 1, 1996.Paydown installments are incrementalEarly Redemption
    
    :
    
    As elected by the issuer, starting May 1, 1996 and only on the interest payment and amortization dates.Nominal interest rate
    
    :
    
    6.8% annually upon expiration, compound and actual rate per semester on outstanding principal,
readjusted by the value of the Unidad de Fomento.  The applicable semi-annual interest rate will
be equal to 3.34409%.Interest Payments
    
    :
    
    Interest will be paid semi-annually each May 1 and November 1, starting May 1, 1991.  Accrued
interest as of December 31, 2003, 2002 and 2001 amounts to ThCh$223,384, ThCh$248,075
and ThCh$271,403 respectively, and is shown under current liabilities.Guarantee
    
    :
    
    There is no specific collateral ration, however, a general guarantee collateralizes all the issuer's assets.Placement year
    
    :
    
    48 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance.
 F-59




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Fourth IssuanceIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Bearer bonds in local currency, denominated in Unidades de FomentoIssuance Value (1)
    
    :
    
    Up to seven and a half million (UF7,500,000) divided into:Series E-1: 1,500 bonds at UF1,000 each.Series E-2:  600 bonds at UF10,000 each.Series F:  200 bonds at UF10,000 each.Readjustment
    
    :
    
    Variation in the UFAmortization year
    
    :
    
    Series E-1 and E-2: August 1, 2006.Series F: August 1, 2022.Early redemption
    
    :
    
    Only in the Series F case, beginning February 1, 2012.Nominal interest rate
    
    :
    
    6.2% annually, compounded semi-annually and effective on the outstanding principal adjusted for
the value of the Unidad de fomento.  The semi-annual interest rate will be 3.0534%.Interest payments
    
    :
    
    Accrued interest as of December 31, 2003 amounts to ThCh$3,228,970 (ThCh$3,227,360 in 2002)
which is shown under current liabilities.Guarantee
    
    :
    
    There is no specific collateralization; however, a general guarantee covers all the issuer's assetsPlacement year
    
    :
    
    36 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance
  (1)
    
    Through cross a currency swap, the UF debt was exchanged for US dollar
debt, leaving a net position of ThCh$4,843,040 as of December 31, 2003
which is included in other assets. Fifth IssueIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Dematerialized bearer bonds in local currency, expressed in Unidades de Fomento.Amount of issue
    
    :
    
    Eight million Unidades de Fomento (U.F. 8,000,000) divided into:-
    
    Series G: 4,000 bonds U.F. 1,000 each.-
    
    Series H: 4,000 bonds U.F. 1,000 each.Adjustment
    
    :
    
    Variation in Unidad de Fomento.Amortization term
    
    :
    
    Series G: October 15 2010.Series H: Six-monthly and successively as of April 16 2010.Pre-redemption
    
    :
    
    Only for series G bonds, as of October 16 2004.Nominal interest rate
    
    :
    
    Series G: 4.8% per year, compounded every six months and effective on the capital not fully paid
adjusted by the value of the Unidad de Fomento.  The interest rate to be applied every six months will be 2.3719%.Series H
    
    :
    
    6.2% per year, compounded every six months and effective on the capital not fully paid adjusted by
the value of the Unidad de Fomento. The interest rate to be paid every six months will be 3.0534%.Placement deadline
    
    :
    
    36 months as of date of registration in Securities Register of the Superintendency of Securities
and Insurance.Security
    
    :
    
    No specific security, except for general security of all the issuer's properties.
 F-60




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Payment of interests
    
    :
    
    Interests will be paid six-monthly, due on April 15 and October
15 of each year starting from April 15 2004. Interests accrued at year-end are ThCh$1,529,919 and
they are presented in current liabilities.
  II        The Company has issued
and placed three public offerings of bonds in the international market as follows: First IssuanceIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Marketable securities denominated in US$(Yankee bonds) in the US market.Issuance Value
    
    :
    
    Six hundred and fifty million US Dollars (US$650,000,000) divided into:Series 1: US$230,000,000Series 2: US$220,000,000Series 3: US$200,000,000Readjustment
    
    :
    
    Variation in the US DollarAmortization year
    
    :
    
    Series 1 matures on February 1, 2027:  Series 2 matures on February 1, 2037 (Put Option on
February 1, year 2009, on which date the holders may redeem 100% of bonds plus accrued interest).Series 3 matures on February 1, 2097.Nominal interest rate
    
    :
    
    Series 1: 7.875% annuallySeries 2: 7.325% annuallySeries 3: 8.125% annuallyInterest Payments
    
    :
    
    Interest will be paid semi-annually each February 1 and August 1 annually, starting January 27,
1997.  Accrued interest as of the year end amounts to ThCh$12,488,977 (ThCh$15,265,158 in 2002 and
ThCh$14,326,736 in 2001), which is shown under current liabilities.Second IssuanceIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Marketable securities denominated in US$(Yankee bonds) in the US market.Issuance Value
    
    :
    
    Four hundred million US Dollars (US$400,000,000) :Readjustment
    
    :
    
    Variation in the US DollarCapital amortization
    
    :
    
    Series 1 matures on July 15, 2008 yearNominal interest rate
    
    :
    
    Series 1: 7.75% annuallyInterest Payments
    
    :
    
    Interest will be paid semi-annually each January 15 and July 15 annually, starting January 15,
1999.  Accrued interest as of the year end amounts to ThCh$8,436,908 (ThCh$9,678,403 in 2001) (ThCh$10,312,351 in 2002),
which is shown under current liabilities.
 F-61




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Third IssuanceIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Marketable securities denominated in US$(Yankee bonds) in the US market.Issuance Value
    
    :
    
    Four hundred million US Dollars (US$400,000,000).Readjustment
    
    :
    
    Variation in the US DollarCapital amortization
    
    :
    
    Series 1 matures on April 1, 2009.Nominal interest rate
    
    :
    
    Series 1:  8.502% annuallyInterest Payments
    
    :
    
    Interest will be
paid semi-annually each October 1 and April 1 annually, starting October 1, 1999.
Accrued interest as of the year end amounts to
ThCh$5,047,300, ThCh$6,169,267 and ThCh$5,790,012 in 2003,
2002 and 2001, respectively, which is shown under current liabilities.Fourth IssueIssuer
    
    :
    
    Empresa Nacional de Electricidad S.A.Securities issued
    
    :
    
    Electronic negotiable bonds expressed in American dollars on
the American and European markets, under rules "Rule.144A" and "Regulation S".Amount of issue
    
    :
    
    Six hundred million US dollars (US$600,000,000) divided into:Series 01.08.2013: US$400,000,000Series 01.08.2015: US$200,000,000Adjustment
    
    :
    
    Variation in US dollar.Capital amortization term
    
    :
    
    Series of ThMUS$400 total maturity on August 1 2013.:
    
    Series of ThMUS$200 total maturity on August 1 2015.Nominal interest rate
    
    :
    
    Series of ThMUS$400 8.35% per year.Series of ThUS$400 8.625% per year.Payment of interests
    
    :
    
    Interests will be paid six-monthly on February 1 and August
1 each year starting from July 23 2003. Interests accrued
at year-end were ThCh$13,116,983 and they are presented in current liabilities.
  The risk rating of these bonds is as follows as of the date of December 31,
2003: Category- Standard & Poors
    
    BBB-- Moodys Investors Services
    
    Ba 2- Fitch
    
    BBB-
 F-62




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Repurchase of Yankee BondsEndesa Chile Internacional, a 100% subsidiary of Endesa, made a tender offer in
November 2001, for the total or partial purchase, in cash, of the following
bond issue in US dollar (Yankee Bonds) made by its parent company, Endesa.  
    
    Series 1: ThCh$230,000 at 30 years, maturing in 2027.
    
    Series 3: ThCh$200,000 at 100 years, maturing in 2097.  As a result of the offer which expired on November 21, 2001, series 1 and
series 2 bonds, for ThUS$21,324 and ThUS$134,828, respectively, were purchased,
whose nominal values amounted to ThUS$24,119 and ThUS$159,584 for each series.  (7)
    
    Subsidiaries of Endesa S.A.  I            Endesa Chile Internacional issued Yankee Bonds on April 1, 1996.  Risk rating of the bond issuance is as follows as of December 31, 2003: Category- Standard & Poors
    
    BBB-- Moodys Investors Services
    
    Ba 2
 ISSUANCE TERMS First IssuanceIssuer
    
    :
    
    Endesa Chile Internacional.Securities issued
    
    :
    
    Marketable securities denominated in US$(150,000 bonds).Issuance Value
    
    :
    
    One hundred and fifty million Dollars (US$150,000,000):Capital amortization
    
    :
    
    Maturity as of April 1, 2006Nominal interest rate
    
    :
    
    7.2 % annually in arrears.Interest Payments
    
    :
    
    Interest will be paid semi-annually in arrears starting October 1, 1996.  Accrued interest as of
the year end amounts to ThCh$1,603,260, (ThCh$1,839,180 in 2001) (ThCh$1,959,649 in 2002) and
is shown under current liabilities.Guarantee
    
    :
    
    Guarantee from Empresa Nacional de Electricidad S.A.
  As of July 24, 2000, the first issue of Eurobonds (European Medium Term Note
Programme) was registered in England for 1,000 million Euros. F-63




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) ISSUANCE TERMS First Registration Securities registered
    
    :
    
    1,000 million EurosIssuance value
    
    :
    
    Euros 400,000,000 (*)Capital amortization
    
    :
    
    Principal due July 24, 2003Nominal interest rate
    
    :
    
    Euribor + 0.80%Interest payments
    
    :
    
    Quarterly beginning October 24, 2000 in
arrears. Accrued interest as of December
31, 2003, 2002 and 2001 amounts to ThCh$0,
ThCh$2,333,602 and ThCh$2,082,318 and is
shown in current liabilities.Guarantee
    
    :
    
    Empresa Nacional de Electricidad S.A.
  (*)
    
    By way of a cross-currency swap operation, the debt in Euros was
exchanged for U.S. dollar debt. At December 31, 2003, this issue is totally cancelled.  II
    
    Empresa Eléctrica Pehuenche S.A. issued bonds on May 2, 1996. First Issuance Issuer
    
    :
    
    Empresa Eléctrica Pehuenche S.A.Securities issued
    
    :
    
    Marketable securities denominated in US$.Issuance Value
    
    :
    
    One hundred and seventy million US Dollars (US$170,000,000)Capital amortization
    
    :
    
    Maturity as of May 1, 2003Nominal interest rate
    
    :
    
    7.3% annuallyInterest payments
    
    :
    
    Interest will be paid semi-annually in arrears, starting November 1, 1996.
Accrued interest as of December 31, 2003, 2002 and 2001 amounts to ThCh$0,
ThCh$1,501,188 and ThCh$1,408,903 and is shown in Current Liabilities.
 At December 31, 2003, this issue is totally cancelled  III
    
    Edegel S.A. issued bonds on June 4, 1999, February 15, 2000, June 14, 2000 and November 27, 2000, August 22, 2001, June 6, 2003,
September 4, 2003, October 29, 2003 and December 12, 2003 as per the following: First Issuance Issuer
    
    :
    
    Edegel S.A.Securities issued
    
    :
    
    Marketable securities denominated in US$(120,000 bonds).Issuance value
    
    :
    
    US$120,000,000Capital amortization
    
    :
    
    June 3, 2006, February 14, 2007, June 13, 2007, November 26, 2005 and February 22, 2004,
respectively.Nominal interest rate
    
    :
    
    8.75%, 8.41%, 8.75%, 8.4375% and 6.0% annually
 F-64




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Interest payments
    
    :
    
    Interest will be paid semi-annually, starting December 3, 1999. Accrued interest as of December
31, 2003, 2002 and 2001 amounts to ThCh$1,269,600, ThCh$1,318,190 and ThCh$1,296,540 and is
shown in other current liabilities.Issuer
    
    :
    
    Edegel S.A.Securities issued
    
    :
    
    Marketable securities denominated in new soles (20,000 bonds).Issuance value
    
    :
    
    100,000,000 new solesCapital amortization
    
    :
    
    Maturity as of June 6, 2005.Nominal interest rate
    
    :
    
    6.0% annuallyInterest payments
    
    :
    
    Interest will be paid semi-annually. Accrued interest as of December 31, 2003 and 2002 amounts
to ThCh$68,568 and ThCh$0 and is shown in other current liabilities.Issuer
    
    :
    
    Edegel S.A.Securities issued
    
    :
    
    Marketable securities denominated in new soles (10,000 bonds).Issuance value
    
    :
    
    50,000,000 new solesCapital amortization
    
    :
    
    Maturity as of May 5, 2006.Nominal interest rate
    
    :
    
    4.13% annuallyInterest payments
    
    :
    
    Interest will be paid semi-annually. Accrued interest as of December 31, 2003 and 2002 amounts
to ThCh$113,923 and ThCh$0 and is shown in other current liabilities.Issuer
    
    :
    
    Edegel S.A.Securities issued
    
    :
    
    Negotiable Instruments in Nuevos Soles (10,000 bonds)Amount of issue
    
    :
    
    Fifty million nuevos soles (NS50,000,000).Capital amortization
    
    :
    
    Total maturity at October 10 2006.Nominal interest rate
    
    :
    
    4.875% per year.Payment of interests
    
    :
    
    Interests will be paid six-monthly. Interests accrued at year-end are ThCh$70,800 and they are
presented in current liabilities.Issuer
    
    :
    
    Edegel S.A.Securities issued
    
    :
    
    Negotiable instruments in Nuevos Soles (10,000 bonds)Amount of issue
    
    :
    
    Fifty million Nuevos Soles (NS50,000000).Capital amortization
    
    :
    
    Total maturity at October 10 2006.Nominal interest rate
    
    :
    
    4.75% per year.Payment of interest
    
    :
    
    Interests will be paid six-monthly. Interests accrued at year-end are ThCh$22.356 and they are
presented in current liabilities.
 F-65




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  IV
    
    Emgesa S.A. issued bonds on October 8, 1999 and July 9, 2001 of commercial paper, the first issuance, and on February 26, 2003
from the second issuance as per the following: First Issuance Issuer
    
    :
    
    Emgesa S.A.Securities issued
    
    :
    
    Marketable securities denominated in Colombian pesosIssuance Value
    
    :
    
    $Col 530,000,000Capital amortization
    
    :
    
    Maturities as of 2002, 2006, 2007,
2009 and 2010 for $Col 31,525,000; $Col 100,000,000; $Col 81,407,744; $Col 19,500,000 and $Col 297,567,256 respectively.Interest nominal rate
    
    :
    
    15.5% annual average rateInterest payment
    
    :
    
    Interest will be paid semi-annually. Accrued interest as of December 31, 2003, 2002 and 2001
amounts to ThCh$1,904,178, ThCh$5,439,841 and ThCh$5,772,816 and is shown under current
liabilities.
 Second Issuance Issuer
    
    :
    
    Emgesa S.A.Securities issued
    
    :
    
    Marketable securities denominated in Colombian pesosIssuance value
    
    :
    
    $Col 50,000,000Capital amortization
    
    :
    
    Maturity as of July 26, 2006.Nominal interest rate
    
    :
    
    15.18% annual average rateInterest payments
    
    :
    
    Interest will be paid annually. Accrued interest as of December 31, 2003 and 2002 amounts to
ThCh$1,164,287 and ThCh$223,180 and is shown in other current liabilities.
 Amortized bond discounts of Enersis S.A. and its affiliates of ThCh$23,550,612,
ThCh$21,025,338 and ThCh$19,583,113 as of December 31, 2001, 2002 and 2003,
respectively are included in Other Assets (see Note 14). F-66




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 20. Accrued Expenses (a) Short-term accruals: Accrued expenses included in current liabilities are as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Bonus and other employee benefits
    
    
    27,180,757
    
    
    
    23,848,378Litigation and other contingencies
    
    
    21,468,598
    
    
    
    4,802,668Construction and other
    
    
    7,244,769
    
    
    
    2,711,826Energy purchases from others
    
    
    14,606,379
    
    
    
    6,403,478Pension accruals
    
    
    1,811,021
    
    
    
    1,773,893Suppliers and services
    
    
    6,357,124
    
    
    
    12,985,061Others
    
    
    7,110,976
    
    
    
    1,178,920Total
    
    
    85,779,624
    
    
    
    53,704,224
 (b) Long-term accruals: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Advance monthly corporate and other taxes
    
    
    7,070,602
    
    
    
    7,639,831Post-retirement benefits-Chilean subsidiaries
    
    
    10,401,086
    
    
    
    11,400,723Post-retirement benefits (Cerj Coelce)
    
    
    39,019,281
    
    
    
    37,982,596Severance indemnity
    
    
    8,641,873
    
    
    
    10,636,080Labor contingencies (Cerj)
    
    
    109,134,019
    
    
    
    158,876,188Post-retirement benefits-foreign subsidiaries
    
    
    72,758,940
    
    
    
    87,905,846Others
    
    
    7,460,312
    
    
    
    2,975,719Total
    
    
    254,486,113
    
    
    
    317,416,983
 F-67




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 21. Severance Indemnities Long-term accruals include employee severance indemnities, calculated in
accordance with the policy described in Note 2n. An analysis of the changes in
the accruals in each year is as follows: As of December 31,2002
    
    2003ThCh$
    
    ThCh$Opening balance as of January 1
    
    
    7,388,911
    
    
    
    8,400,118Increase in accrual
    
    
    2,081,794
    
    
    
    2,801,092Transfer to short-term
    
    
    
    
    
    
    (41,058
    )Payments during the period
    
    
    (828,832
    )
    
    
    (524,072
    )Total
    
    
    8,641,873
    
    
    
    10,636,080
 Note 22. Minority Interest  (a)
    
    Minority shareholders participation in the shareholders equity of the
Companys subsidiaries is as follows: As of December 31, 2002
    
    As of December 31, 2003Equity
    
    Participation
    
    Total
    
    Equity
    
    Participation
    
    TotalCompany
    
    ThCh$
    
    %
    
    ThCh$
    
    ThCh$
    
    %
    
    ThCh$Autopista Los Libertadores S.A.
    
    
    25,465,151
    
    
    
    0.05
    %
    
    
    12,733
    
    
    
    
    
    
    
    
    
    
    
    Cam Argentina S.A.
    
    
    550,915
    
    
    
    0.10
    %
    
    
    550
    
    
    
    513,485
    
    
    
    0.10
    %
    
    
    513Cam Colombia S.A.
    
    
    1,883,440
    
    
    
    0.001
    %
    
    
    25
    
    
    
    2,268,316
    
    
    
    0.001
    %
    
    
    30Capital de Energía S.A.
    
    
    571,885,956
    
    
    
    49.10
    %
    
    
    280,796,004
    
    
    
    464,741,947
    
    
    
    49.10
    %
    
    
    228,188,296Central Hidroeléctrica Betania S.A.
    
    
    524,653,325
    
    
    
    14.38
    %
    
    
    75,433,605
    
    
    
    427,549,420
    
    
    
    14.38
    %
    
    
    61,472,200Central Cachoeira Dourada
    
    
    491,582,589
    
    
    
    0.41
    %
    
    
    2,002,022
    
    
    
    406,438,881
    
    
    
    0.39
    %
    
    
    1,601,856Central Costanera S.A.
    
    
    173,176,401
    
    
    
    48.07
    %
    
    
    83,241,500
    
    
    
    169,484,178
    
    
    
    35.74
    %
    
    
    60,565,015Cía. do Electricidade do Río do Janeiro
    
    
    585,356,719
    
    
    
    37.42
    %
    
    
    219,056,803
    
    
    
    446,403,953
    
    
    
    27.46
    %
    
    
    122,584,959Chilectra S.A.
    
    
    425,908,659
    
    
    
    1.76
    %
    
    
    7,440,146
    
    
    
    426,495,495
    
    
    
    1.76
    %
    
    
    7,449,863Cía. Eléctrica San Isidro S.A.
    
    
    34,559,972
    
    
    
    50.00
    %
    
    
    17,279,986
    
    
    
    43,956,845
    
    
    
    50.00
    %
    
    
    21,978,423Cía. Peruana de Electricidad S.A.
    
    
    43,634,109
    
    
    
    49.00
    %
    
    
    21,380,713
    
    
    
    32,999,474
    
    
    
    49.00
    %
    
    
    16,169,742Codensa S.A.
    
    
    1,019,559,638
    
    
    
    51.52
    %
    
    
    525,985,364
    
    
    
    827,256,794
    
    
    
    51.52
    %
    
    
    426,206,054Companhia Energetica Do Ceara  Coelce
    
    
    701,533,656
    
    
    
    43.41
    %
    
    
    304,537,745
    
    
    
    533,453,412
    
    
    
    43.41
    %
    
    
    231,573,636Compañía Eléctrica del Río Maipo S.A.
    
    
    22,849,917
    
    
    
    1.26
    %
    
    
    287,350
    
    
    
    
    
    
    
    
    
    
    
    Constructora y Proyectos Los Maitenes S.A.
    
    
    353,458
    
    
    
    45.00
    %
    
    
    159,056
    
    
    
    (547,964
    )
    
    
    45.00
    %
    
    
    (246,584
    )Edegel S.A.
    
    
    687,370,285
    
    
    
    36.44
    %
    
    
    250,503,852
    
    
    
    544,119,075
    
    
    
    36.44
    %
    
    
    198,297,667Edelnor S.A.
    
    
    294,969,042
    
    
    
    40.00
    %
    
    
    117,987,616
    
    
    
    221,638,247
    
    
    
    40.00
    %
    
    
    88,655,299Edesur S.A.
    
    
    737,116,149
    
    
    
    34.11
    %
    
    
    251,415,708
    
    
    
    575,959,955
    
    
    
    34.11
    %
    
    
    196,448,526Emgesa S.A.
    
    
    973,289,667
    
    
    
    51.52
    %
    
    
    501,408,665
    
    
    
    795,386,193
    
    
    
    51.52
    %
    
    
    409,758,310Empresa Eléctrica Pangue S.A.
    
    
    75,180,999
    
    
    
    5.01
    %
    
    
    3,766,568
    
    
    
    85,397,699
    
    
    
    5.02
    %
    
    
    4,283,719Endesa
    
    
    1,444,941,673
    
    
    
    40.02
    %
    
    
    578,252,302
    
    
    
    1,492,669,040
    
    
    
    40.02
    %
    
    
    597,352,354Endesa Argentina S.A.
    
    
    22,016,613
    
    
    
    0.01
    %
    
    
    2,202
    
    
    
    56,988,038
    
    
    
    0.01
    %
    
    
    5,699Generandes Perú S.A.
    
    
    373,148,990
    
    
    
    40.37
    %
    
    
    150,636,590
    
    
    
    302,246,635
    
    
    
    40.37
    %
    
    
    122,014,005Hidroeléctrica El Chocón S.A.
    
    
    229,449,565
    
    
    
    34.81
    %
    
    
    79,871,394
    
    
    
    201,332,047
    
    
    
    34.81
    %
    
    
    70,083,686Hidroinvest S.A.
    
    
    93,395,129
    
    
    
    30.07
    %
    
    
    28,083,916
    
    
    
    83,655,531
    
    
    
    30.07
    %
    
    
    25,155,218Inecsa 2000 S.A.
    
    
    25,666,499
    
    
    
    2.68
    %
    
    
    687,863
    
    
    
    
    
    
    
    
    
    
    
    Infraestructura 2000 S.A.
    
    
    64,642,503
    
    
    
    40.00
    %
    
    
    25,857,001
    
    
    
    
    
    
    
    
    
    
    
    Ingendesa S.A.
    
    
    2,289,440
    
    
    
    2.36
    %
    
    
    54,088
    
    
    
    2,561,114
    
    
    
    2.36
    %
    
    
    60,506Inmobiliaria Centro Nuevo Ltda.
    
    
    (13,460
    )
    
    
    0.08
    %
    
    
    (10
    )
    
    
    
    
    
    
    
    
    
    
    Inmobiliaria y Constructora Stgo. 2000 Ltda.
    
    
    81,804
    
    
    
    7.50
    %
    
    
    6,136
    
    
    
    
    
    
    
    
    
    
    
    Inversiones Distrilima S.A.
    
    
    174,521,754
    
    
    
    31.61
    %
    
    
    55,166,327
    
    
    
    132,003,816
    
    
    
    31.61
    %
    
    
    41,726,407Investluz S.A.
    
    
    361,127,823
    
    
    
    37.55
    %
    
    
    135,603,498
    
    
    
    286,769,700
    
    
    
    37.55
    %
    
    
    107,682,022Luz de Bogotá S.A.
    
    
    606,535,104
    
    
    
    55.00
    %
    
    
    333,594,313
    
    
    
    487,492,327
    
    
    
    55.00
    %
    
    
    268,120,785Pehuenche S.A.
    
    
    184,730,491
    
    
    
    7.35
    %
    
    
    13,577,691
    
    
    
    194,308,570
    
    
    
    7.35
    %
    
    
    14,281,680Soc. Agrícola de Cameros Ltda.
    
    
    7,005,739
    
    
    
    42.50
    %
    
    
    2,977,439
    
    
    
    6,918,050
    
    
    
    42.50
    %
    
    
    2,940,171Soc. Agrícola Pastos Verdes Ltda.
    
    
    53,431,384
    
    
    
    45.00
    %
    
    
    24,044,123
    
    
    
    55,277,858
    
    
    
    45.00
    %
    
    
    24,875,036Túnel El Melón S.A.
    
    
    (4,273,191
    )
    
    
    0.05
    %
    
    
    (2,136
    )
    
    
    (6,539,494
    )
    
    
    0.05
    %
    
    
    (3,270
    )Total
    
    
    
    
    
    
    
    
    
    
    4,091,108,748
    
    
    
    
    
    
    
    
    
    
    
    3,349,281,823
 F-68




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  (b)
    
    Minority shareholders participation in the net (income) or loss of the
Companys subsidiaries is as follows: As of December 31, 2001
    
    As of December 31, 2002
    
    As of December 31, 2003Net income
    
    Participation
    
    Total
    
    Net income
    
    Participation
    
    Total
    
    Net income
    
    Participation
    
    TotalCompany
    
    ThCh$
    
    %
    
    ThCh$
    
    ThCh$
    
    %
    
    ThCh$
    
    ThCh$
    
    %
    
    ThCh$Autopista Los Libertadores
    
    
    (45,544
    )
    
    
    0.05
    %
    
    
    (23
    )
    
    
    84,611
    
    
    
    0.05
    %
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    Cam Argentina S.A.
    
    
    1,443,044
    
    
    
    0.10
    %
    
    
    1,443
    
    
    
    188,475
    
    
    
    0.10
    %
    
    
    189
    
    
    
    (62,762
    )
    
    
    0.10
    %
    
    
    (63
    )Cam Colombia S.A.
    
    
    (418,925
    )
    
    
    0.001
    %
    
    
    (5
    )
    
    
    (719,263
    )
    
    
    0.001
    %
    
    
    (9
    )
    
    
    (727,405
    )
    
    
    0.001
    %
    
    
    (10
    )Capital de Energía S.A.
    
    
    (8,688,357
    )
    
    
    49.10
    %
    
    
    (4,265,984
    )
    
    
    (23,907,723
    )
    
    
    49.10
    %
    
    
    (11,738,692
    )
    
    
    (8,613,883
    )
    
    
    49.10
    %
    
    
    (4,229,417
    )Central Hidroeléctrica Betania S.A.
    
    
    8,752,677
    
    
    
    14.38
    %
    
    
    1,258,443
    
    
    
    7,428,523
    
    
    
    14.38
    %
    
    
    1,068,058
    
    
    
    1,688,410
    
    
    
    14.38
    %
    
    
    242,756Central Cachoeira Dourada
    
    
    (26,100,238
    )
    
    
    0.49
    %
    
    
    (128,239
    )
    
    
    35,856,858
    
    
    
    0.41
    %
    
    
    146,031
    
    
    
    (4,314,551
    )
    
    
    0.39
    %
    
    
    (17,005
    )Central Costanera S.A.
    
    
    11,683,579
    
    
    
    48.07
    %
    
    
    5,616,000
    
    
    
    (24,982,628
    )
    
    
    48.07
    %
    
    
    (12,008,515
    )
    
    
    (27,802,310
    )
    
    
    35.74
    %
    
    
    (12,253,976
    )Cía. do Electricidade do Río do Janeiro
    
    
    3,434,355
    
    
    
    41.25
    %
    
    
    1,416,661
    
    
    
    9,102,554
    
    
    
    37.42
    %
    
    
    3,406,431
    
    
    
    98,773,475
    
    
    
    27.46
    %
    
    
    27,123,735Chilectra S.A.
    
    
    (73,917,100
    )
    
    
    1.76
    %
    
    
    (1,395,872
    )
    
    
    31,311,681
    
    
    
    1.76
    %
    
    
    547,161
    
    
    
    (51,469,555
    )
    
    
    1.76
    %
    
    
    (899,957
    )Cía. Eléctrica San Isidro S.A.
    
    
    102,294
    
    
    
    50.00
    %
    
    
    51,147
    
    
    
    (5,302,727
    )
    
    
    50.00
    %
    
    
    (2,651,364
    )
    
    
    (13,177,857
    )
    
    
    50.00
    %
    
    
    (6,588,929
    )Cía. Peruana de Electricidad S.A.
    
    
    (3,105,345
    )
    
    
    49.00
    %
    
    
    (1,521,620
    )
    
    
    (3,290,720
    )
    
    
    49.00
    %
    
    
    (1,612,453
    )
    
    
    (2,205,560
    )
    
    
    49.00
    %
    
    
    (1,080,724
    )Codensa S.A.
    
    
    (23,026,882
    )
    
    
    51.52
    %
    
    
    (11,862,858
    )
    
    
    6,722,511
    
    
    
    51.52
    %
    
    
    3,463,437
    
    
    
    (18,020,379
    )
    
    
    51.52
    %
    
    
    (9,284,172
    )Companhia Energetica Do Ceara  Coelce
    
    
    (13,574,803
    )
    
    
    43.41
    %
    
    
    (5,892,859
    )
    
    
    (20,555,300
    )
    
    
    43.41
    %
    
    
    (8,923,114
    )
    
    
    10,188,005
    
    
    
    43.41
    %
    
    
    4,422,642Compañía Eléctrica del Río Maipo S.A.
    
    
    (9,354,606
    )
    
    
    1.26
    %
    
    
    (135,272
    )
    
    
    (11,844,565
    )
    
    
    1.26
    %
    
    
    (148,952
    )
    
    
    
    
    
    
    
    
    
    
    Constructora y Proyectos Los Maitenes S.A.
    
    
    499,856
    
    
    
    45.00
    %
    
    
    224,935
    
    
    
    592,704
    
    
    
    45.00
    %
    
    
    266,717
    
    
    
    901,422
    
    
    
    45.00
    %
    
    
    405,640Edegel S.A.
    
    
    (28,922,541
    )
    
    
    36.44
    %
    
    
    (10,540,473
    )
    
    
    (4,600,041
    )
    
    
    36.44
    %
    
    
    (1,676,429
    )
    
    
    (31,881,870
    )
    
    
    36.44
    %
    
    
    (11,618,965
    )Edelnor S.A.
    
    
    (18,858,860
    )
    
    
    40.00
    %
    
    
    (7,543,544
    )
    
    
    (19,956,887
    )
    
    
    40.00
    %
    
    
    (7,982,755
    )
    
    
    (13,077,512
    )
    
    
    40.00
    %
    
    
    (5,231,005
    )Edesur S.A.
    
    
    (84,516,285
    )
    
    
    34.11
    %
    
    
    (28,826,829
    )
    
    
    (8,287,192
    )
    
    
    34.11
    %
    
    
    (2,826,597
    )
    
    
    27,101,386
    
    
    
    34.11
    %
    
    
    9,243,746Emgesa S.A.
    
    
    (18,984,503
    )
    
    
    51.52
    %
    
    
    (9,780,228
    )
    
    
    (56,730,401
    )
    
    
    51.52
    %
    
    
    (29,225,744
    )
    
    
    (22,221,183
    )
    
    
    51.52
    %
    
    
    (11,447,665
    )Empresa Eléctrica Pangue S.A.
    
    
    (6,634,223
    )
    
    
    7.52
    %
    
    
    (498,894
    )
    
    
    (19,039,350
    )
    
    
    5.01
    %
    
    
    (953,871
    )
    
    
    (37,165,525
    )
    
    
    5.02
    %
    
    
    (1,864,297
    )Endesa
    
    
    (72,881,618
    )
    
    
    40.02
    %
    
    
    (29,166,550
    )
    
    
    9,412,247
    
    
    
    40.02
    %
    
    
    3,766,694
    
    
    
    (78,130,912
    )
    
    
    40.02
    %
    
    
    (31,267,269
    )Endesa Argentina S.A.
    
    
    10,931,525
    
    
    
    0.01
    %
    
    
    1,094
    
    
    
    10,888,971
    
    
    
    0.01
    %
    
    
    1,089
    
    
    
    (38,333,485
    )
    
    
    0.01
    %
    
    
    (3,833
    )Generandes Perú S.A.
    
    
    (28,208,767
    )
    
    
    40.37
    %
    
    
    (11,387,603
    )
    
    
    (13,236,381
    )
    
    
    40.37
    %
    
    
    (5,343,397
    )
    
    
    (28,556,438
    )
    
    
    40.37
    %
    
    
    (11,527,954
    )Hidroeléctrica El Chocón S.A.
    
    
    (9,019,242
    )
    
    
    34.81
    %
    
    
    (3,139,598
    )
    
    
    26,030,227
    
    
    
    34.81
    %
    
    
    9,061,122
    
    
    
    (13,610,490
    )
    
    
    34.81
    %
    
    
    (4,737,812
    )Hidroinvest S.A.
    
    
    (2,662,364
    )
    
    
    30.07
    %
    
    
    (800,573
    )
    
    
    26,767,299
    
    
    
    30.07
    %
    
    
    8,048,926
    
    
    
    (7,105,008
    )
    
    
    30.07
    %
    
    
    (2,136,476
    )Inecsa 2000 S.A.
    
    
    (32,624
    )
    
    
    2.68
    %
    
    
    (874
    )
    
    
    99,306
    
    
    
    2.68
    %
    
    
    2,661
    
    
    
    
    
    
    
    
    
    
    
    Infraestructura 2000 S.A.
    
    
    (1,006,235
    )
    
    
    40.00
    %
    
    
    (402,494
    )
    
    
    (417,093
    )
    
    
    40.00
    %
    
    
    (166,837
    )
    
    
    
    
    
    
    
    
    
    
    Ingendesa S.A.
    
    
    (882,416
    )
    
    
    2.36
    %
    
    
    (20,846
    )
    
    
    (932,483
    )
    
    
    2.36
    %
    
    
    (22,030
    )
    
    
    (1,601,578
    )
    
    
    2.36
    %
    
    
    (37,837
    )Inmobiliaria Centro Nuevo Ltda.
    
    
    (1,463
    )
    
    
    0.08
    %
    
    
    
    
    
    
    1,298
    
    
    
    0.08
    %
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    Inmobiliaria y Constructora Stgo. 2000 Ltda.
    
    
    (2,791
    )
    
    
    7.50
    %
    
    
    (209
    )
    
    
    (6,293
    )
    
    
    7.50
    %
    
    
    (473
    )
    
    
    
    
    
    
    
    
    
    
    Inversiones Distrilima S.A.
    
    
    (12,465,704
    )
    
    
    32.75
    %
    
    
    (4,082,518
    )
    
    
    (13,202,015
    )
    
    
    31.61
    %
    
    
    (4,173,157
    )
    
    
    (8,857,512
    )
    
    
    31.61
    %
    
    
    (2,799,860
    )Investluz
    
    
    11,838,069
    
    
    
    37.55
    %
    
    
    4,445,195
    
    
    
    200,235,743
    
    
    
    37.55
    %
    
    
    75,188,523
    
    
    
    8,682,013
    
    
    
    37.55
    %
    
    
    3,260,096Luz de Bogotá S.A.
    
    
    (11,639,289
    )
    
    
    55.00
    %
    
    
    (6,401,609
    )
    
    
    4,557,123
    
    
    
    55.00
    %
    
    
    2,506,419
    
    
    
    (4,206,442
    )
    
    
    55.00
    %
    
    
    (2,313,543
    )Pehuenche S.A.
    
    
    (5,013,232
    )
    
    
    6.34
    %
    
    
    (317,839
    )
    
    
    (20,212,254
    )
    
    
    7.35
    %
    
    
    (1,485,601
    )
    
    
    (45,798,189
    )
    
    
    7.35
    %
    
    
    (3,366,167
    )Soc. Agrícola de Cameros Ltda.
    
    
    167,136
    
    
    
    42.50
    %
    
    
    71,032
    
    
    
    (105,662
    )
    
    
    42.50
    %
    
    
    (44,907
    )
    
    
    87,689
    
    
    
    42.50
    %
    
    
    37,268Soc. Agrícola Pastos Verdes Ltda.
    
    
    (3,061,465
    )
    
    
    45.00
    %
    
    
    (1,377,659
    )
    
    
    (99,316
    )
    
    
    45.00
    %
    
    
    (44,693
    )
    
    
    (788,606
    )
    
    
    45.00
    %
    
    
    (354,873
    )Túnel El Melón S.A.
    
    
    1,951,707
    
    
    
    0.05
    %
    
    
    977
    
    
    
    2,946,920
    
    
    
    0.05
    %
    
    
    1,474
    
    
    
    2,266,302
    
    
    
    0.05
    %
    
    
    1,133Total
    
    
    
    
    
    
    
    
    
    
    (126,404,145
    )
    
    
    
    
    
    
    
    
    
    
    16,445,385
    
    
    
    
    
    
    
    
    
    
    
    (78,324,793
    )
 F-69




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 23. Shareholders Equity (a) Paid capital The Extraordinary General Meeting of Shareholders of Enersis held on March 31,
2003 approved a capital increase of about US$2,000 million. The issue was
registered in the Securities Register on May 23, 2003 under No. 686 for
Ch$1,473,225,403,563 pesos, divided into 24,382,994,488 shares. The operation
was structured as follows:  1)
    
    First preferential underwriting period (from May 31 to June 30), in which
shareholders registered in the company register at last May 26 have the
option of taking up 2.9408 new shares for each old one at a price of
Ch$60.4202 per share.2)
    
    Voluntary redemption of local bonds (from November 1 to 15), in which
holders of local 269 bonds (series B1 and B2) may exchange their bonds for
Enersis shares, according to the value assigned by the aforementioned
independent expert and at placement price  Ch$60.4202 per share.3)
    
    Second preferential underwriting period (from November 20 to December
20), in which all Enersis shareholders registered five working days before
the start of this new period, except for the controlling partner and its
members, may participate. In this phase, shareholders may take up the remaining shares that were not
underwritten at the close of the preferential underwriting period and at the
conclusion of the voluntary redemption of local bonds. In this period, new
issue shares may only be paid in cash at the same price of Ch$60.4202 per
share. Once the deadline for the capital increase has expired (December 30 2003), its
final amount will be the amount actually underwritten and paid in. At June 30, 2003, end date of the first preferential underwriting period,
22,113,264,060 shares were underwritten for a sum of Ch$1,336,087,841,061
equivalent to 90.69% of the total issue. Of total shares underwritten in this
preferential period, 14,406,840,511 shares were taken up by controlling
shareholder Elesur for the equivalent of Ch$870,464,185,043 and 7,706,423,549
shares by minority shareholders for the equivalent of Ch$465,623,656,018. Elesur underwrote and paid in its shares by capitalizing financial loans that
it held with Enersis on the date of underwriting. The exchange was approved by
the Extraordinary Shareholders Meeting on March 31, 2003, at 86.84% of its par
value base on an independent expert aprasiar report performed pursuant of the
Chilean Company Law, with the difference being recorded as a share premium of
Ch$131,912,812,936. The second preferential underwriting period in November 2003 involved the
voluntary exchange of 269 bonds, series B1 and B2. Holders converted
Ch$63,656,586,836 into the equivalent of 893,612,466 first issues shares; the
amounts underwritten were determined by experts by capitalizing
Ch$46,964,178,894 for series B1 and Ch$7,028,065,024 for series B2, at
Ch$60.4202 per share. This operation meant recording a share premium of
Ch$6,247,821,056. F-70




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) During the second preferential underwriting period, 1,244,542,758 shares
equivalent to Ch$75,195,523,918 were subscribed. The second share underwriting period concluded on December 30, 2003 determining
the capital increase, in which 99.9% of the capital authorized by the
Extraordinary General Meeting of Shareholders, in other words 24,360,146,365
shares, were subscribed, leaving Enersis capital with a total of
32,651,166,465 subscribed and paid in shares. (b) Dividends During the years ended
December 31, 2002 and 2003 the Company paid no dividends (c) Number of shares As of December 31,2001
    
    2002
    
    2003Shares
    
    Shares
    
    SharesCapital stock authorized
    
    
    9,380,000,000
    
    
    
    8,291,020,100
    
    
    
    32,651,166,465Capital stock issued and outstanding
    
    
    8,291,020,100
    
    
    
    8,291,020,100
    
    
    
    32,651,166,465
 (d) Subscribed and paid capital is as follows: As of December 31, 2003Shares
    
    ThCh$As of December 31, 2002
    
    
    8,291,020,100
    
    
    
    758,720,279Intercompany loan capitalization
    
    
    14,406,840,511
    
    
    
    868,723,257Bonds capitalization
    
    
    893,612,466
    
    
    
    53,830,267Subscribed shares
    
    
    9,059,693,388
    
    
    
    546,437,537As of December 31, 2003
    
    
    32,651,166,465
    
    
    
    2,227,711,340
 F-71




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (e) Other reserves Other reserves at December 31, 2003 are composed of the following: ThCh$Reserve for transaction entities using remeasurement method
    
    
    (10,243,322
    )Reserve for accumulated conversion differences
    
    
    (15,428,363
    )Total
    
    
    (25,671,685
    )
 Detail of changes in the reserve for accumulated conversion differences is as
follows: Initial
    
    
    
    
    
    
    
    
    
    Finalbalance at
    
    Reserve
    
    Reserve for
    
    balance atJanuary 1, 2003
    
    for assets
    
    liabilities
    
    December 31, 2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Cumulative translation adjustment
    
    
    46,159,106
    
    
    
    (253,265,921
    )
    
    
    191,678,452
    
    
    
    (15,428,363
    )Total
    
    
    46,159,106
    
    
    
    (253,265,921
    )
    
    
    191,678,452
    
    
    
    (15,428,363
    )
 The detail of the accumulated conversion difference reserve at December 31,
2003 is as follows: ThCh$Distrilec Inversora S.A.
    
    
    (7,733,126
    )Inversiones Distrilima S.A.
    
    
    2,471,385Cía. Peruana de Electricidad S.A.
    
    
    1,302,547Edesur S.A.
    
    
    (4,503,144
    )Cerj S.A.
    
    
    (2,915,573
    )Luz de Bogotá S.A.
    
    
    (4,985,333
    )Investluz S.A.
    
    
    3,629,135Central Geradora Termelétrica Fortaleza S.A.
    
    
    (2,662,889
    )Synapsis de Colombia Ltda.
    
    
    19,801Endesa Market Place
    
    
    367,029Endesa Argentina S.A.
    
    
    2,557,220Compañía Eléctrica Conosur S.A.
    
    
    (2,954,154
    )Endesa de Colombia S.A.
    
    
    68,499Central Costanera S.A.
    
    
    (79,994
    )Ingendesa Do Brasil Ltda.
    
    
    (9,766
    )Total
    
    
    (15,428,363
    )
 F-72




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  (f)
    
    Net losses from operations and accumulated net income (losses) of
development-stage subsidiaries are as follows: As of December 31, 2003Net income (loss)
    
    Retained earningsfor the period
    
    (accumulated deficit)Company
    
    ThCh$
    
    ThCh$Compañía Eléctrica Taltal Ltda.
    
    
    
    
    
    
    147,835Central Generadora Termoelectrica Fortaleza S.A.
    
    
    (1,292,923
    )
    
    
    (2,608,453
    )Aguas Santiago Poniente S.A.
    
    
    (55,238
    )
    
    
    (167,940
    )Infraestructura 2000 S.A.
    
    
    
    
    
    
    355,245Gas Atacama Generación
    
    
    
    
    
    
    819,520Ingendesa (Ingendesa do Brasil)
    
    
    44,914
    
    
    
    (1,855
    )Enigesa (Ingendesa do Brasil)
    
    
    580
    
    
    
    (68
    )Total
    
    
    (1,302,667
    )
    
    
    (1,455,716
    )
 Note 24. Other Income and Expenses a. The detail of other non-operating income is as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Adjustments to investments in related companies
    
    
    3,285,579
    
    
    
    517,322
    
    
    
    7,529,538Gain on sale of property, plant and equipment
    
    
    12,974,275
    
    
    
    3,511,474
    
    
    
    3,142,819Gain on sale of materials
    
    
    
    
    
    
    2,681,149
    
    
    
    3,830,847Gain on forward contracts and swaps
    
    
    18,001,214
    
    
    
    4,863,450
    
    
    
    Services  projects and inspections
    
    
    9,343,577
    
    
    
    14,525,962
    
    
    
    16,165,628Penalties charged to contractors and suppliers
    
    
    15,292,769
    
    
    
    7,017,364
    
    
    
    7,283,913CDEC-SING power settlement gain
    
    
    6,552,130
    
    
    
    11,264,690
    
    
    
    1,604,824Public lighting and telephone lines
    
    
    14,102,900
    
    
    
    13,660,931
    
    
    
    11,996,639Gain on sale of investments
    
    
    3,194,957Cost recoveries
    
    
    6,412,617
    
    
    
    5,163,916
    
    
    
    12,278,321Recoverable taxes
    
    
    8,197,975
    
    
    
    6,451,499
    
    
    
    5,080,587Effect of application of BT 64 (1)
    
    
    63,300,484
    
    
    
    212,921,872
    
    
    
    19,677,720Comahue fourth line income
    
    
    415,466Gain on repurchase of bonds
    
    
    24,353,971Gain on sale of subsidiaries (2)
    
    
    
    
    
    
    
    
    
    
    89,285,108Indemnities and commissions
    
    
    
    
    
    
    3,213,534
    
    
    
    3,591,404Dividend from investees
    
    
    5,479,282
    
    
    
    10,839,568
    
    
    
    4,288,277Other
    
    
    5,733,321
    
    
    
    14,592,594
    
    
    
    11,821,164Total
    
    
    196,640,517
    
    
    
    311,225,325
    
    
    
    197,576,789
  (1)
    
    These amounts correspond to the net adjustments related to the
translation of financial statements of foreign affiliates from the
respective local country currency to US Dollars.(2)
    
    Sale of Compañía Eléctrica del Rio Maipo S.A. and Infraestructura 2000
S.A. F-73




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) b. Other non-operating expenses are as follows: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Adjustments to investments in related companies
    
    
    2,203,723
    
    
    
    4,208,128
    
    
    
    8,188,085Cost of sales  materials
    
    
    2,862,995
    
    
    
    1,662,559
    
    
    
    3,139,887Loss on sale of fixed assets
    
    
    3,316,048
    
    
    
    2,404,599
    
    
    
    9,397,043Donations
    
    
    
    
    
    
    148,062
    
    
    
    1,494,374Effect of application of BT 64 (1)
    
    
    39,820,734
    
    
    
    31,075,441
    
    
    
    87,189,396Contingencies and litigation
    
    
    35,515,625
    
    
    
    48,776,456
    
    
    
    52,974,009Deferred expense amortization
    
    
    1,236,495
    
    
    
    3,676,482
    
    
    
    6,818,702SIC power settlement loss
    
    
    9,544,552
    
    
    
    17,148,228
    
    
    
    2,676,757Pension plan expense
    
    
    22,631,531
    
    
    
    5,802,577
    
    
    
    20,790,427Revenue recovery
    
    
    
    
    
    
    5,154,802
    
    
    
    3,610,872Index UFIR Brasil Cerj
    
    
    
    
    
    
    
    
    
    
    6,829,656Penalties and fines
    
    
    15,819,778
    
    
    
    12,482,466
    
    
    
    4,365,336Cost of projects, inspections and other
    
    
    8,373,219
    
    
    
    5,307,741
    
    
    
    6,222,466Provision for real estate projects
    
    
    
    
    
    
    16,766,197
    
    
    
    Provision for write-off work in progress
    
    
    
    
    
    
    46,775,052
    
    
    
    2,483,690Other taxes Argentina and Brazil
    
    
    
    
    
    
    6,798,645
    
    
    
    9,594,035Loss on forward contracts and swaps
    
    
    23,810,904
    
    
    
    
    
    
    
    1,142,690Write-off fixed assets
    
    
    8,775,579
    
    
    
    7,299,621
    
    
    
    15,638,914Others
    
    
    11,857,354
    
    
    
    22,721,323
    
    
    
    5,468,333Total
    
    
    185,768,536
    
    
    
    238,208,379
    
    
    
    248,024,672
  (1)
    
    These amounts correspond to the net adjustments related to the
translation of financial statements of foreign affiliates from the
respective local country currency to US Dollars. F-74




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIESNotes to the Consolidated Financial Statements  (Continued)   Note 25. Price-level Restatement The (charge) credit to income for price-level restatement is as follows: Year ended December 31,Index
    
    2001
    
    2002
    
    2003Assets
    
    
    
    
    
    ThCh$
    
    ThCh$
    
    ThCh$Inventory
    
    
    I.P.C.
    
    
    
    686,595
    
    
    
    1,092,619
    
    
    
    324,537Current assets
    
    
    I.P.C.
    
    
    
    87,693
    
    
    
    6,117,451
    
    
    
    9,634,298U.F.
    
    
    
    
    
    
    
    51,700
    
    
    
    12,493Property, plant and equipment
    
    
    I.P.C.
    
    
    
    70,303,922
    
    
    
    71,893,309
    
    
    
    23,367,200Accounts receivable from subsidiaries
    
    
    I.P.C.
    
    
    
    4,621,097
    
    
    
    5,083,009
    
    
    
    1,762,523Investment in subsidiaries
    
    
    I.P.C.
    
    
    
    30,888,590
    
    
    
    2,701,811
    
    
    
    1,990,421Amortization of goodwill
    
    
    I.P.C.
    
    
    
    27,903,151
    
    
    
    26,045,738
    
    
    
    6,259,407Other assets
    
    
    I.P.C.
    
    
    
    25,352,524
    
    
    
    23,398,374
    
    
    
    18,247,746U.F.
    
    
    
    
    
    
    
    189,167
    
    
    
    69,242Price-level restatement of the income statement
    
    
    
    
    
    
    
    
    
    
    18,451,848
    
    
    
    (66,109
    )Net credits  assets
    
    
    
    
    
    
    159,843,573
    
    
    
    155,025,026
    
    
    
    61,601,758Liabilities and Shareholders equityShareholders equity
    
    
    I.P.C.
    
    
    
    (35,104,078
    )
    
    
    (35,729,346
    )
    
    
    (6,939,971
    )Current and long-term liabilities
    
    
    I.P.C.
    
    
    
    (95,963,273
    )
    
    
    (79,057,836
    )
    
    
    (50,396,993
    )U.F.
    
    
    
    
    
    
    
    (8,701,419
    )
    
    
    (1,412,702
    )Minority interest
    
    
    I.P.C.
    
    
    
    6,582,451
    
    
    
    17,707,548
    
    
    
    7,619,133Accounts payable to subsidiaries
    
    
    I.P.C. - U.F.
    
    
    
    (30,852,658
    )
    
    
    (24,290,502
    )
    
    
    (15,675,723
    )Non-monetary liabilities
    
    
    I.P.C.
    
    
    
    (686,025
    )
    
    
    (52,471
    )
    
    
    (93,288
    )U.F.
    
    
    
    
    
    
    
    
    
    
    
    (72,800
    )Price-level restatement of the income statement
    
    
    I.P.C.
    
    
    
    (1,623,163
    )
    
    
    (19,886,461
    )
    
    
    871,195Net charge-liabilities and shareholders equity accounts
    
    
    
    
    
    
    (157,646,747
    )
    
    
    (150,010,487
    )
    
    
    (66,101,149
    )Net credits (charge) to income
    
    
    
    
    
    
    2,196,826
    
    
    
    5,014,539
    
    
    
    (4,499,391
    )
 F-75




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES 
Notes to the Consolidated Financial Statements  (Continued) Note 26. Exchange Differences The (charge) credit to income for foreign currency translation is as follows:  Year ended December, 31Assets
    
    Currency
    
    2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    US$
    
    
    1,510,881
    
    
    
    2,698,211
    
    
    
    2,850,565Euro
    
    
    
    
    
    
    
    
    
    
    (1,524
    )Other
    
    
    (56,854
    )
    
    
    (13,835
    )
    
    
    (238,858
    )Time deposits
    
    US$
    
    
    204,307
    
    
    
    266,765
    
    
    
    (26,152,483
    )Other
    
    
    (78,163
    )
    
    
    (31,365
    )
    
    
    (6,922
    )Marketable securities
    
    US$
    
    
    11,915,745
    
    
    
    494,092
    
    
    
    (169,033
    )Other
    
    
    (1,905
    )
    
    
    
    
    
    
    (19,546
    )Accounts receivable, net
    
    US$
    
    
    105,140
    
    
    
    220,306
    
    
    
    (458,528
    )Euro
    
    
    
    
    
    
    
    
    
    
    32,835Other
    
    
    (49,150
    )
    
    
    42,961
    
    
    
    (47,542
    )Other accounts receivable, net
    
    US$
    
    
    1,135,935Other
    
    
    53,020Inventory
    
    Other
    
    
    (11,942
    )Prepaid expenses
    
    US$
    
    
    170,676
    
    
    
    29,736
    
    
    
    (62,642
    )Other
    
    
    (2,389
    )Other current assets
    
    US$
    
    
    11,636,290
    
    
    
    6,786,792
    
    
    
    2,541,960Other
    
    
    (267,100
    )
    
    
    (142,245
    )
    
    
    (1,355
    )Amounts due from related companies
    
    US$
    
    
    
    
    
    
    
    
    
    
    (80,463
    )Non-current assetsLong-term receivables
    
    US$
    
    
    1,064,685
    
    
    
    605,943
    
    
    
    (12,379,444
    )Other
    
    
    279,938
    
    
    
    204,029
    
    
    
    (222,446
    )Amounts due from related companies
    
    US$
    
    
    17,203,587
    
    
    
    11,193,324
    
    
    
    (28,911,189
    )Deferred expenses
    
    US$
    
    
    249,328
    
    
    
    230,340
    
    
    
    Other assets
    
    US$
    
    
    28,619,443
    
    
    
    6,606,448
    
    
    
    (204,265,262
    )Forward contracts and swaps
    
    US$
    
    
    36,371,323
    
    
    
    16,197,938
    
    
    
    21,876,845Total gain (loss)
    
    
    
    
    110,052,795
    
    
    
    45,389,440
    
    
    
    (245,715,032
    )
 Year ended December, 31Liability
    
    Currency
    
    2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Short-term debt due to banks
    
    US$
    
    
    (6,892,194
    )
    
    
    (2,659,647
    )
    
    
    6,653,542and financial institutions
    
    Other
    
    
    (1,909
    )
    
    
    
    
    
    
    (3
    )Current portion of long-term
    
    US$
    
    
    (2,370,285
    )
    
    
    3,587,599
    
    
    
    7,374,930debt due to banks
    
    Yen
    
    
    26,513
    
    
    
    (72,424
    )
    
    
    56,071and financial institutions
    
    Other
    
    
    (64,206
    )
    
    
    (244,524
    )
    
    
    167,230Current portion of bonds payable
    
    US$
    
    
    (3,869,910
    )Euro
    
    
    
    
    
    
    (26,389
    )
    
    
    87,199Current portion of bonds payable
    
    US$
    
    
    (1,440,353
    )
    
    
    (2,123,443
    )
    
    
    13,329,822Current portion of notes payable
    
    US$
    
    
    19,318
    
    
    
    (865,294
    )
    
    
    2,248,465Dividends payable
    
    Other
    
    
    102Accounts payable
    
    US$
    
    
    287,561
    
    
    
    477,636
    
    
    
    110,039Other
    
    
    195,341
    
    
    
    
    
    
    
    (45,861
    )Notes payable
    
    US$
    
    
    (310,858
    )Other
    
    
    (82,715
    )Other
    
    
    
    
    
    
    (870,274
    )
    
    
    432,188Miscellaneous payables
    
    US$
    
    
    (434,591
    )
    
    
    (655,650
    )
    
    
    1,325,272Accrued expenses
    
    Other
    
    
    197,359
    
    
    
    (104
    )
    
    
    640,372Other
    
    
    
    
    
    
    
    
    
    
    (975
    )Accrued expenses
    
    US$
    
    
    38,093Other
    
    
    (30,246
    )Deferred income
    
    US$
    
    
    (57,348
    )
    
    
    (365,914
    )
    
    
    19,356Other current liabilities
    
    US$
    
    
    (930,875
    )
    
    
    84,826
    
    
    
    775,133Other
    
    
    (12,041
    )
    
    
    
    
    
    
    631,225Dividends payable
    
    Other
    
    
    
    
    
    
    1,858
    
    
    
    45Long-term liabilitiesDue to banks and
    
    US$
    
    
    (42,491,384
    )
    
    
    (22,873,343
    )
    
    
    108,669,368financial institutions
    
    Yen
    
    
    23,068
    
    
    
    (182,578
    )
    
    
    39,275Euro
    
    
    
    
    
    
    (61,092
    )
    
    
    1,008Other
    
    
    (249,392
    )
    
    
    (372,406
    )
    
    
    14,043Bonds payable
    
    US$
    
    
    (52,555,805
    )
    
    
    (25,245,051
    )
    
    
    111,608,434Notes payable
    
    US$
    
    
    (6,802,258
    )
    
    
    (2,842,535
    )
    
    
    5,972,670Accounts payable
    
    US$
    
    
    (1,005,570
    )
    
    
    361,815
    
    
    
    (173,051
    )Other long-term liabilities
    
    US$
    
    
    (22,116,110
    )
    
    
    (6,713,858
    )
    
    
    10,852,174Other
    
    
    29,822
    
    
    
    3
    
    
    
    Forward
    
    US$
    
    
    
    
    
    
    
    
    
    
    (31,127,244
    )Total gain (loss)
    
    
    
    
    (140,900,871
    )
    
    
    (61,660,789
    )
    
    
    239,660,727Exchange difference  net loss
    
    
    
    
    (30,848,078
    )
    
    
    (16,271,349
    )
    
    
    (6,054,305
    )
   F-76




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES 
Notes to the Consolidated Financial Statements  (Continued) Note 27. Extraordinary Items In this item, the Company shows the net equity 1.2% tax, in accordance with
decree N°1,949 of August 29, 2002 of the Republic of Colombia; a tax that will
be used for said countrys democratic security. At December 31, 2002 and 2003, the subsidiaries paying this tax and the
corresponding amounts are as follows: As of December 31,Company
    
    2002
    
    2003ThCh$
    
    ThCh$Central Hidroeléctrica de Betania S.A.
    
    
    2,045,366
    
    
    
    Capital de Energía S.A.
    
    
    67,795
    
    
    
    Emgesa S.A.
    
    
    8,926,232
    
    
    
    Cam Colombia S.A.
    
    
    33,875
    
    
    
    Codensa S.A.
    
    
    11,526,128
    
    
    
    Total
    
    
    22,599,396
    
    
    
    
 Note 28. Cash flow statement  
    
    Other financing disbursements for the year ended 2003In the item Other disbursements for financing, in the cash flow from
financing activity, the following items are included: Disbursements for
commissions on debt refinancing in the amount of ThCh$57,188,457, forward
contract payments in the amount of ThCh$40,816,629, collar and collateral
derivative contracts premiums in the amount of ThCh$5,459,187, payments to
Siemens A.G. Alemania of ThCh$4,555,075 and other disbursements in an amount
of ThCh$8,011,269.
    
    Other receipts investment for the year ended 2003In the item Other receipts from investments, in the cash flow from
investment activities, the following items are included receipts from loans
granted to the ex-subsidiary Infraestructura 2000 in the amount of
ThCh$47,899,341, capital return amount of ThCh$1,230,126 and other items in
the amount of ThCh$658,870. F-77




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIESNotes to the Consolidated Financial Statements  (Continued)   Non-Cash Financing Transactions  
    
    Capital increaseOn June 2, 2003 Elesur S.A. capitalized the financial credits that it held
with Enersis S.A. for ThCh$1,002,376,998, which transaction did not generate
a cash flow. Details of this transaction are explained in Note 23b).In November 2003 there was a voluntary exchange of bonds in connection with
the capital increase of Enersis. Holders converted ThCh$63,656,587 into
893.612.466 first issue shares; this operation did not generate any cash
flow. Details of this transaction are referred to in Note 23b). Note 29. Share issuance costs  a.
    
    Expenses incurred at the close of these financial statements for issuing
and placing the shares, outstanding at December 30, 2003, were recorded as
described in Note 2 aa) and break down as follows: As of December 312002
    
    2003ThCh$
    
    ThCh$Appraisal services
    
    
    
    
    
    
    75,326Printing costs
    
    
    
    
    
    
    13,954Legal cost
    
    
    
    
    
    
    199,989Financial adviser
    
    
    
    
    
    
    10,377,599DCV commissions
    
    
    
    
    
    
    2,990Bank commissions
    
    
    
    
    
    
    1,448,873Risk classification services
    
    
    
    
    
    
    139,613Total
    
    
    
    
    
    
    12,258,344
  b.
    
    Expenses incurred for issuing and placing debt instruments incurred each
year in placing bonds are as follows: As of December 312002
    
    2003ThCh$
    
    ThCh$Taxes
    
    
    1,463,307
    
    
    
    2,176,804Commissions
    
    
    755,595
    
    
    
    2,595,871Financial adviser
    
    
    1,725,416
    
    
    
    853,328Insurance issue
    
    
    7,307,869
    
    
    
    Others
    
    
    
    
    
    
    55,390Total
    
    
    11,252,187
    
    
    
    5,681,393
 F-78




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES 

Notes to the Consolidated Financial Statements  (Continued) Note 30. Financial Derivatives As of December 31, 2003 the Company and its subsidiaries held the following
financial derivative contracts with financial institutions with the objective
of decreasing exposure to interest rate and foreign currency risk, as follows: AccountsType
    
    Type
    
    Nominal
    
    Date of
    
    
    
    Sale /
    
    
    
    
    
    
    
    Amount
    
    Assets/Liabilities
    
    Incomederivative
    
    contract
    
    amount
    
    maturity
    
    Item
    
    Purchase
    
    Hedge item
    
    Amount
    
    Hedge item
    
    Account
    
    Amount
    
    Realized
    
    UnrealizedUS$
    
    
    
    
    
    
    
    
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$FR
    
    CCPE
    
    
    17,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    P
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600
    
    
    Other assets/liabilities s/t
    
    
    910,556
    
    
    
    
    
    
    
    945,243FR
    
    CCPE
    
    
    17,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    P
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600
    
    
    Other assets/liabilities s/t
    
    
    910,556
    
    
    
    
    
    
    
    945,030FR
    
    CCPE
    
    
    20,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    P

    
    Bonds
    
    
    11,876,000
    
    
    
    11,876,000
    
    
    Other assets/liabilities s/t
    
    
    1,062,641
    
    
    
    
    
    
    
    1,101,819FR
    
    CCPE
    
    
    17,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    S
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600
    
    
    Other assets/liabilities s/t
    
    
    (688,330
    )
    
    
    
    
    
    
    (688,330
    )FR
    
    CCPE
    
    
    17,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    S
    
    Bonds
    
    
    10,094,600
    
    
    
    10,094,600
    
    
    Other assets/liabilities s/t
    
    
    (688,482
    )
    
    
    
    
    
    
    (688,482
    )FR
    
    CCPE
    
    
    20,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    S
    
    Bonds
    
    
    11,876,000
    
    
    
    11,876,000
    
    
    Other assets/liabilities s/t
    
    
    (812,650
    )
    
    
    
    
    
    
    (812,650
    )FR
    
    CCPE
    
    
    14,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    P

    
    Bonds
    
    
    8,313,200
    
    
    
    8,313,200
    
    
    Other assets/liabilities s/t
    
    
    31,311
    
    
    
    
    
    
    
    31,360FR
    
    CCPE
    
    
    219,000,000
    
    
    III quarter 03
    
    Exchange rate
    
    S
    
    Other current assets
    
    
    130,042,200
    
    
    
    130,042,200
    
    
    Other assets/liabilities s/t
    
    
    8,570,040
    
    
    
    11,384,569
    
    
    
    8,420,887FR
    
    CCPE
    
    
    76,000,000
    
    
    I quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    45,128,800
    
    
    
    45,128,800
    
    
    Other assets/liabilities l/t
    
    
    2,129,811
    
    
    
    (9,734,826
    )
    
    
    (1,569,669
    )FR
    
    CCPE
    
    
    5,000,000
    
    
    II quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    2,969,000
    
    
    
    2,969,000
    
    
    Other liabilities s/t
    
    
    (52,182
    )
    
    
    
    
    
    
    (2,237
    )OE
    
    CCPE
    
    
    11,800,000
    
    
    III quarter 04
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    7,006,840
    
    
    
    7,006,840
    
    
    Other liabilities l/t
    
    
    (484,967
    )
    
    
    (114,728
    )
    
    
    47,352OE
    
    CCTE
    
    
    50,000,000
    
    
    III quarter 04
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    29,690,000
    
    
    
    29,690,000
    
    
    Other liabilities s/t other assets l/t
    
    
    (35,105
    )
    
    
    (310,843
    )
    
    
    (7,571
    )OE
    
    CCTE
    
    
    50,000,000
    
    
    III quarter 05
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    29,690,000
    
    
    
    29,690,000
    
    
    Other liabilities l/t
    
    
    (1,057,852
    )
    
    
    (642,231
    )
    
    
    (111,812
    )OE
    
    CCTE
    
    
    150,000,000
    
    
    I quarter 06
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    89,070,000
    
    
    
    89,070,000
    
    
    Other liabilities s/t other assets l/t
    
    
    (2,157,097
    )
    
    
    (1,210,272
    )
    
    
    (99,276
    )OE
    
    CCTE
    
    
    550,000,000
    
    
    II quarter 06
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    326,590,000
    
    
    
    326,590,000
    
    
    Other liabilities s/t other assets l/t
    
    
    (12,474,660
    )
    
    
    (5,554,191
    )
    
    
    (1,318,021
    )OE
    
    CI
    
    
    100,000,000
    
    
    II quarter 04
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    29,690,000
    
    
    
    29,690,000
    
    
    Other liabilities s/t
    
    
    (656,251
    )
    
    
    (1,411,094
    )
    
    
    (656,251
    )OE
    
    CI
    
    
    350,000,000
    
    
    III quarter 04
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    44,535,000
    
    
    
    44,535,000
    
    
    Other liabilities s/t
    
    
    (1,108,795
    )
    
    
    (5,423,005
    )
    
    
    (1,108,795
    )OE
    
    CI
    
    
    150,000,000
    
    
    I quarter 06
    
    Interest rate
    
    P/S
    
    
    
    
    
    
    
    
    
    
    
    Other liabilities s/t
    
    
    (230,914
    )
    
    
    (4,138,451
    )
    
    
    (230,914
    )OE
    
    CI
    
    
    250,000,000
    
    
    III quarter 06
    
    Interest rate
    
    P/S
    
    
    
    
    
    
    
    
    
    
    
    Other liabilities s/t
    
    
    (120,816
    )
    
    
    (3,481,620
    )
    
    
    (120,816
    )S
    
    CCPE
    
    
    273,495
    
    
    IV quarter 03
    
    Exchange rate
    
    P
    
    
    
    
    162,401
    
    
    
    162,401
    
    
    Other liabilities s/t
    
    
    (16,637,093
    )
    
    
    
    
    
    
    (23,390,093
    )S
    
    CCPE
    
    
    13,008,308
    
    
    I quarter 04
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    7,724,333
    
    
    
    7,724,333
    
    
    Other liabilities s/t
    
    
    (2,182,501,690
    )
    
    
    
    
    
    
    (2,186,184,690
    )S
    
    CCPE
    
    
    98,916,783
    
    
    I quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    58,736,786
    
    
    
    58,736,786
    
    
    Other liabilities s/t
    
    
    (11,243,673,373
    )
    
    
    
    
    
    
    (11,198,577,048
    )S
    
    CCPE
    
    
    10,800,763
    
    
    II quarter 04
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    6,413,493
    
    
    
    6,413,493
    
    
    Other liabilities s/t
    
    
    (1,082,648,739
    )
    
    
    (20,808,251
    )
    
    
    (1,105,905,990
    )S
    
    CCPE
    
    
    5,750,485
    
    
    II quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    3,414,638
    
    
    
    3,414,638
    
    
    Other liabilities s/t
    
    
    (777,432,324
    )
    
    
    (23,907,865
    )
    
    
    (813,301,189
    )S
    
    CCPE
    
    
    62,746,133
    
    
    III quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    37,258,654
    
    
    
    37,258,654
    
    
    Other liabilities s/t
    
    
    (3,034,406,503
    )
    
    
    (1,379,621,025
    )
    
    
    (5,314,493,527
    )S
    
    CCPE
    
    
    546,990
    
    
    IV quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    324,803
    
    
    
    324,803
    
    
    Other liabilities s/t
    
    
    (34,413,842
    )
    
    
    
    
    
    
    (46,751,842
    )S
    
    CCPE
    
    
    820,485
    
    
    I quarter 05
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    487,204
    
    
    
    487,204
    
    
    Other liabilities s/t
    
    
    (48,375,002
      )
    
    
    
    
    
    
    (70,158,002
    )S
    
    CCPE
    
    
    175,000,000
    
    
    II quarter 08
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    103,915,000
    
    
    
    103,915,000
    
    
    Other liabilities s/t other assets l/t
    
    
    486,670
    
    
    
    (901,962
    )
    
    
    (264,761
    )S
    
    CCTE
    
    
    50,000,000
    
    
    I quarter 04
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    29,690,000
    
    
    
    29,690,000
    
    
    Other liabilities s/t
    
    
    394,874
    
    
    
    (1,482,082
    )
    
    
    (227,128
    )S
    
    CCTE
    
    
    15,000,000
    
    
    I quarter 04
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    8,907,000
    
    
    
    8,907,000
    
    
    Other liabilities l/t
    
    
    (277,898
    )
    
    
    
    
    
    
    (277,898
    )S
    
    CCTE
    
    
    50,000,000
    
    
    III quarter 04
    
    Interest rate
    
    P/S
    
    Bank obligations
    
    
    29,690,000
    
    
    
    29,690,000
    
    
    Other liabilities l/t
    
    
    1,100,608
    
    
    
    (747,764
    )
    
    
    (458,817
    )S
    
    CCTE
    
    
    3,191,000
    
    
    III quarter 04
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    1,894,816
    
    
    
    1,894,816
    
    
    Other liabilities l/t
    
    
    (213,174
    )
    

    
    
    
    
    
    (213,174
    )S
    
    CCTE
    
    
    35,381,000
    
    
    IV quarter 04
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    21,009,238
    
    
    
    21,009,238
    
    
    Other liabilities l/t
    
    
    (353,311
    )
    
    
    
    
    
    
    (353,311
    )S
    
    CCTE
    
    
    14,000,000
    
    
    II quarter 05
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    8,313,200
    
    
    
    8,313,200
    
    
    Other liabilities l/t
    
    
    (1,166,223
    )
    
    
    
    
    
    
    (1,166,223
    )S
    
    CCTE
    
    
    50,000,000
    
    
    II quarter 06
    
    Interest rate
    
    P

    
    Bank obligations
    
    
    29,690,000
    
    
    
    29,690,000
    
    
    Other liabilities l/t
    
    
    (1,653,733
    )
    
      
    
    
    
    
    (1,653,733
      )S
    
    CI
    
    
    11,657,290
    
    
    I quarter 04
    
    Exchange rate
    
    P

    
    Bank obligations
    
    
    6,922,099
    
    
    
    6,922,099
    
    
    Bank obligations
    
    
    (442,792
    )
    
    
    
    
    
    
    (442,792
    )S
    
    CI
    
    
    115,000,000
    
    
    II quarter 08
    
    Interest rate
    
    P/S
    
    
    
    
    
    
    
    
    0
    
    
    Other liabilities s/t
    
    
    (165,046
    )
    
    
    (22,460
    )
    
    
    (165,046
    )S (1)
    
    CCPE
    
    
    94,470,311
    
    
    III quarter 06
    
    Exchange rate
    
    P

    
    Bonds
    
    
    66,384,753
    
    
    
    66,384,753
    
    
    Others asstes/liabilities l/t
    
    
    10,288,282
    
    
    
    
    
    
    
    15,242,584S (1)
    
    CCPE
    
    
    94,470,311
    
    
    III quarter 06
    
    Exchange rate
    
    P

    
    Bonds
    
    
    1,689,160
    
    
    
    1,689,160
    
    
    Others asstes s/t
    
    
    1,060,056
    
    
    
    7,276,312
    
    
    
    1,060,055S (2)
    
    CCPE
    
    
    50,000,000
    
    
    III quarter 06
    
    Exchange rate
    
    S
    
    Bonds
    
    
    35,135,243
    
    
    
    35,135,243
    
    
    Others asstes/liabilities l/t
    
    
    (5,445,243
    )
    
    
    
    
    
    
    (6,605,724
    )S (2)
    
    CCPE
    
    
    50,000,000
    
    
    III quarter 06
    
    Exchange rate
    
    S
    
    Bonds
    
    
    307,398
    
    
    
    307,398
    
    
    Others asstes s/t
    
    
    (434,352
    )
    
    
    (1,610,706
    )
    
    
    (434,351
    )
   (1)
    
    Fr = Forward, S = Swap Within the compass of the financial strengthening plan, approved in October
2002, Enersis and its subsidiary Endesa Chile have obtained financing during
this year by placing bonds on the local market and on the US market; this has
enabled them to obtain financing with a fixed rate debt and prepay obligations
with banks which had a variable rate. The above, together with prepayment of borrowings made using resources obtained
from the capital increase, has reduced the variable debt by about US$1,550
million. As a result of the above, hedging instruments covering variable rate
borrowings, which were refinanced at fixed rates or prepaid, now have no
associated debt and, therefore, appear in the derivatives schedule as
investments. F-79




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 31. Commitments and Contingencies Collateral held by third parties: Balance payable of related debtCommited assets
    
    at December 31,
    
    Release of guaranteesBook value ofGuarantee
    
    Subsidiary
    
    Type guarantee
    
    Type
    
    Currency
    

    

collateral
    

    
    Currency
    
    2002
    
    2003
    
    2004
    
    2005
    
    2006BancoEstado
    
    Pehuenche S.A.
    
    Chat. Mortg. Without conveyance
    
    Equipment
    
    ThCh$
    
    
    9,940,774
    
    
    ThCh$
    
    
    940,632
    
    
    
    3,867
    
    
    
    3,867
    
    
    
    
    
    
    
    Arriendo Maq. y Const. Talca Ltda.
    
    Pehuenche S.A.
    
    Bank bond
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    
    2,519
    
    
    
    2,519
    
    
    
    
    
    
    
    Director Customs Office of Chile
    
    Pangue S.A.
    
    Bill of exchange
    
    
    
    
    
    ThCh$
    
    
    53,442
    
    
    ThCh$
    
    
    65,322
    
    
    
    53,442
    
    
    
    53,442
    
    
    
    
    
    
    
    Creditors banks
    
    Pangue S.A.
    
    Mortgage and pledge
    
    Real Estate, properties
    
    ThCh$
    
    
    86,239,360
    
    
    ThCh$
    
    
    20,433,809
    
    
    
    14,350,944
    
    
    
    3,149,680
    
    
    
    3,149,585
    
    
    
    2,168,378Mitsubishi Corp.
    
    San Isidro S.A.
    
    Chattel mortgage
    
    Facilities
    
    ThCh$
    
    
    80,895,593
    
    
    ThCh$
    
    
    57,972,160
    
    
    
    33,809,253
    
    
    
    
    
    
    
    
    
    
    
    Syndicated loan Citibank N.A.
    
    Pehuenche S.A., Pangue, Celta
    
    Financial guarantee
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    
    168,639,200
    
    
    
    
    
    
    
    28,106,531
    
    
    
    140,532,669Banco Estado
    
    Tunel el Melón
    
    Pledge over 45% of income
    
    
    
    
    
    ThCh$
    
    
    1,348,922
    
    
    ThCh$
    
    
    7,148,286
    
    
    
    5,729,877
    
    
    
    
    
    
    
    
    
    
    
    Soc. de Energía de la República Argentina
    
    Endesa Argentina, Central Costanera S
    
    Pledge
    
    Shares
    
    ThCh$
    
    
    88,013,134
    
    
    ThCh$
    
    
    12,090,308
    
    
    
    11,686,578
    
    
    
    
    
    
    
    
    
    
    
    Mitsubishi
    
    Central Costanera S.A.
    
    Pledge
    
    Facilities
    
    ThCh$
    
    
    12,624,188
    
    
    ThCh$
    
    
    
    
    
    
    12,624,188
    
    
    
    
    
    
    
    
    
    
    
    Banco Santander Central Hispano
    
    Cono Sur S.A.
    
    Prenda
    
    Shares
    
    ThCh$
    
    
    54,844,852
    
    
    ThCh$
    
    
    139,032,394
    
    
    
    90,033,203
    
    
    
    
    
    
    
    
    
    
    
    Miscellaneous payables
    
    Endesa (Parent)
    
    Bank bond
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    1,133,633
    
    
    
    1,309,333
    
    
    
    
    
    
    
    
    
    
    
    J.P. Morgan e ING Baring
    
    Central Costanera
    
    Pledge
    
    Facilities
    
    ThCh$
    
    
    60,567,600
    
    
    ThCh$
    
    
    
    
    
    
    60,567,600
    
    
    
    
    
    
    
    
    
    
    
    
 Guarantees of subsidiary obligations (1): Balance payable of related debtCommitted assets
    
    at December 31
    
    Release of guaranteesGuarantee
    
    Subsidiary
    
    Relation
    
    Type
    
    Currency
    
    AccountingValue
    
    Currency
    

    
    2002
    

    

    
    2003
    

    
    2004
    
    2005
    
    2006
    
    2007
    
    2008Citibank N.A.
    
    Endesa ChileInternacional
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    363,285,519
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Midlabank (BSCH)
    
    Endesa ChileInternacional
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    5,725,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Banco Santander Central Hispano
    
    Endesa ChileInternacional
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    112,031,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J.P. Morgan & Co. Y C.S.F.B.
    
    Endesa ChileInternacional
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    90,673,260
    
    
    ThCh$
    
    
    110,829,064
    
    
    
    90,673,260
    
    
    
    
    
    
    
    
    
    
    
    90,673,260
    
    
    
    99,145,500
    
    
    
    BNP
    
    Endesa ChileInternacional
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    153,389,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    BBVA
    
    Endesa ChileInternacional
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    153,389,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Mitsubishi Co.
    
    Cía. Eléctrica SanIsidro S.A.
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    33,809,252
    
    
    ThCh$
    
    
    49,589,674
    
    
    
    33,809,252
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    33,809,252Banco Español de Crédito
    
    Cía. EléctricaTarapacá S.A.
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    22,023,058
    
    
    ThCh$
    
    
    33,297,279
    
    
    
    22,023,058
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    22,023,058Banco Santander
    
    Cía. EléctricaTarapacá S.A.
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    776,322
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    ABN Bank
    
    Cía. EléctricaTarapacá S.A.
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    1,758,906
    
    
    ThCh$
    
    
    4,310,602
    
    
    
    1,758,906
    
    
    
    
    
    
    
    1,758,906
    
    
    
    
    
    
    
    
    
    
    
    Chase Manhattan Bank
    
    Endesa deColombia S.A.
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    207,576,479
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Banco Santander Central Hispano
    
    Cía. EléctricaConosur S.A.
    
    Subsidiary
    
    Guarantor
    
    ThCh$
    
    
    90,033,203
    
    
    ThCh$
    
    
    139,032,394
    
    
    
    90,033,203
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    90,033,203
   (1)
    
    Unless otherwise stated, the guarantees in the table Guarantees of
Subsidiary Obligations were provided by a subsidiary of the Company (the
Guarantor) to a third party creditor that had entered into a new
obligation with another subsidiary (the Subsidiary Debtor). If the
Subsidiary Debtor is unable to meet the requirements of the related
obligation, the Guarantor will be required to make future payments on
behalf of the Subsidiary Debtor up to the remaining amount payable. F-80




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) Litigation and other legal actions: Enersis S.A. Individual  i.
    
    Mercedes Jimenez de Arechaga with Enersis S.A., Enersis S.A. Agencia
Islas Caimán, Enersis Internacional, Chilectra S.A., Chilectra S.A.
Agencia Islas Caimán and Empresa Nacional de Electricidad.On May 30, 2000 Pérez Companc S.A., today PECOM ENERGIA S.A. and PCI Power
Edesur Holding Limited (together, PECOM) commenced an action against
Endesa-Chile, Chilectra and Enersis (together, Enersis Group) before the
Arbitration Court of the International Chamber of Commerce, Paris, France.
PECOM has petitioned the court to either:Recognize its alleged right to nominate both a director and an alternate
director in addition to the directors whom it already has the right to
nominate in Distrilec Inversora; or State that PECOM and the Enersis Group
should each have an equal number of directors in Distrilec Inversora.On August 2, 2000, Enersis Group contested PECOMs action and
presented a counterclaim requesting the court to terminate several
agreements among the parties. Likewise, PECOM requested to be
compensated by the Enersis Group if the agreements among the parties
were terminated. Based on the provisional estimates made by PECOM,
the Arbitration Court determined that the amount of the suit is
between US$180-200 million. The parties have presented their
arguments, evidence and final allegations. The Arbitration Court
issued an arbitration award on September 2, 2002, ruling that Enersis
Group and PECOM keep their rights to nominate equal number of board
members in Distrilec Inversora S.A. and rejecting not only the Enersis
Groups counterclaim, but also Pecoms claim for compensation of
approximately US$200 millions. Enersis Group challenged the
arbitration award through an appeal for annulment, which was filed
before the Uruguayan Court of Appeals. The Republic of Uruguay is the
domicile established by the Arbitration Court for all legal purposes.
The Uruguayan Court of Appeals has concluded the probative year and is
working on the final judgment.On June 18, 2003, Montevideos Civil Court of Appeals, 2nd Circuit, ruled
on an unappealable basis that the ruling of the Arbitration Court of the
International Chamber of Commerce stands, therefore the Arbitral Award
remains definitive.In this context, on November 5, 2003 notice has been served of the
petition to regulate lawyers fees arising from challenging the arbitral
award as invalid, petitioning that they be set at between US$1,270,000
and US$15,210,000.These amounts are based on differing circumstances. F-81




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated
Financial Statements  (Continued)  US$15,210,000 is calculated on the basis of the amount set for the
Arbitral Award in the respective Mission Record. This figure is a claim
enforced by Petrobrás Argentina at the end of the arbitration
proceedings hearing period in the sense that, if the ruling declared the
aforementioned agreements of shareholders null and void, said Groups
should be indemnified with the above amount. Since the above ruling
declared that the shareholders agreements remained in force, the
International Chamber of Commerce rejected this subsidiary claim.US$1,270,000, in contrast, is obtained based on the amount of Ur$400
million set by the court for certain social security contributions
demanded from the lawyers in Uruguay.Since both figures are not presented as subsidiary to each other, the
Companys Uruguayan lawyer understands that the most the plaintiff could
aspire to is an award for the lower figure, i.e. US$1,270,000.Furthermore, when the remedy of invalidity was filed it stated that the
matter was not susceptible to pecuniary valuation, and this was not
disputed.On November 19, 2003, a plea was raised in defense against the petition to
regulate the fees.On December 10, 2003, notified on December 16, 2003, the appeal for
reconsideration of judgment filed by the Companys side so that
proceedings would move on to receiving evidence was disallowed, and the
proceeding stayed in the award stage.ii.
    
    Court : 2nd Labor Court of SantiagoProcess number : 6061-2001
Cause : Complaint filed for severance pay for years of service on
December 19, 2001 by Mr. Guillermo Calderón Ortega
against Enersis S.A.
Process status : On 01/31/2003 appealable judgment was passed, endorsing
the petition. An appeal for annulment was filed in the manner
Amounts involved: ThCh$52,858iii.
    
    The Ordinary Labor Trial, titled Acevedo Bravo, Efraín and Others with
Enersis S.A., case list N°4.175-2002, heard before the 4th Labor Court
for Santiago, arising from the claim for the payment of 2% monthly
contribution made to finance the claimants conventional severance
indemnity. The claim was notified on 11/06/2002, against which dilatory
exceptions were opposed on 12/09/2002 and the claim was answered on a
subsidiary basis. On December 18, 2003, all parts of the petition were
disallowed, since the court judged that it was incompetent to try the
case. Decision appealed. F-82




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated
Financial Statements  (Continued)  iv.
    
    Court : 25th Civil Court of SantiagoProcess number : 3151-00Cause : Complaint filed for compensation of damages by
Mrs. Odette Legrand Halcartegaray against Enersis S.A..Process status : On January 31, 2003 the decision was handed down
disallowing the petition. This decision has been appealed.Amounts involved: ThCh$50,000v.
    
    Economic protection appeal, filed before the Court of Appeals
for Santiago, List N°4591-2002, for Compañía de Teléfonos Complejo
Manufacturero de Equipos Telefónicos S.A.C.I., CMET, against Enersis
S.A.. The appeal was filed on 08/27/02 by CMET against Enersis S.A., which seemed to be based on the fact that Enersis S.A., through various
acts, facts or omissions, would have breached article 19 N°21 of the
Political Constitution of the Republic, preventing CMET from developing
its commercial activities.On September 17, 2002, Enersis S.A. informed the Court, as requested,
carrying out all the discharges it deemed reasonable in accordance with
law and expressly rejected CMETs accusations because of their unfounded
nature.On September 11, 2003, the Court ruled on this appeal, disallowing all of
its parts, with costs.
CMET filed an appeal for reconsideration of this verdict, with
alternative appeals, which have still not been ruled on.Amounts involved: Undeterminable.vi.
    
    In a Meeting on March 7, 2003, the Board of Directors of the Company
agreed unanimously to submit the dispute with the Argentine Republic
over the investments made by the Enersis Group in that country
through Enersis S.A., Empresa Nacional de Electricidad S.A., Enersis
Internacional, Chilectra Internacional and Chilectra S.A., to
international arbitration by the International Center for the
Settlement of Differences Involving Investments between States and
Nationals of other States, C.I.A.D.I. On July 22, 2003, Ciadi
recorded the petition for arbitration. The procedure for appointing
and forming the arbitration panel is currently ongoing.vii.
    
    Appealable tax proceeding, that is to say, before the Chilean
Internal Revenue Service, because of the difference of ThCh$62,400
between First Category Income Tax and Repayment of Monthly
Provisional Payments for absorbed profits from the 1998 tax year.
This proceeding is at the sentencing stage.viii.
    
    Appealable tax proceeding, that is before the Internal Revenue
Service, because of the difference of ThCh$1,461,400 between First
Category Income Tax and Repayment of Monthly Provisional Payments
for profits absorbed from the 1999 tax year. This proceeding is at
the discussion stage.ix.
    
    Appealable tax proceeding, that is before the Internal Revenue
Service, because of the difference of ThCh$900,000 between First
Category Income Tax and Repayment of Monthly Provisional Payments
for profits absorbed from the 2000 tax year. This proceeding is at
the discussion stage. F-83




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated
Financial Statements  (Continued) Enersis Subsidiaries: Chilectra At December 30, 2003, there are legal actions for compensation for damages
against the Company, whose effects management does not consider significant,
based on reports by its legal advisors and the fact that the Company has
taken out insurance covering this kind of event, making provisions for the
respective deductibles. Inmobiliaria Manso de Velasco Limitada Mr. Mauro Valero Gómez arbitration proceeding. Mr. Valero performed some
services and professional consultancy activities aimed at obtaining property
tax rebates, agreeing to a success fee for results within a specified period of
time. The contract was terminated at the stipulated term, subsequent to which
Mr. Valero sued for about Ch$100 million. The litigation is currently in the
Santiago Court of Appeal, because of an appeal by this Company. Court case
6.196  2000. The case appears on the Court of Appeals schedule on Friday
January 23 in the fourth position. The appealable arbitral award ruled payment
of Ch$37 million of the Ch$100 million claimed. Filiales Construcciones y Proyectos Los Maitenes S.A. y Sociedad Agrícola
Pastos Verdes Limitada.  i.
    
    The subsidiaries Construcciones y Proyectos Los Maitenes S.A. and
Sociedad Agrícola Pastos Verdes Limitada, Lawsuit against Appraisal of
Compensation for Expropriation of Land for the Road Junction in Arturo
Merino Benítez Airport Access Road. In order to build the Road Junction,
the Chilean Government expropriated a piece of land and compensation was
paid based on an appraisal by experts according to Expropriation
Procedures. Suit was filed against the Appraisal, and there is an
appealable decision which raised the compensation by about UF 35,000.
The case is pending in the Court of Appeal, Court Case 7930-1999, and to
date it has still not appeared on the Schedule.ii.
    
    Arbitration proceeding involving Carlos Alberto Cruz Claro y Compañía
Ltda. Plaintiff: Carlos Alberto Cruz Claro y Compañía Ltda.iii.
    
    Defendant: Inmobiliaria Manso de Velasco Limitada, who also sued.
Contents of lawsuit: Carlos Alberto Cruz Claro y Compañía Ltda. is
the entity that provided professional architectural services for the
Puerto Pacífico Project. The other party considers that a clause of
the contract, clause 12, stipulates an all event indemnity for sale
of the land. Manso de Velasco asserts that payment only applies, if
the architectural project is included in the sale, which is not the
case. Amount: the Companys being sued for UF 7,440 (Ch$127 million).
Process status: Pleas for defense have been raised and the litigation
is in the period allowed for producing evidence. Conciliation
hearing took place.iv.
    
    There are other legal actions involving expropriations affecting
properties of Agrícola e Inmobiliaria Pastos Verdes Ltda. These
involve complaints about the amount of compensation set. According to
the companys lawyers, none imply any contingencies for the company. F-84




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated
Financial Statements  (Continued)   Edelnor S.A.  i.
    
    At December 31, 2003, the subsidiary has various legal actions filed
against it for about US$10.4 million. According to Management and its
legal advisors, these legal actions will not result in significant
liabilities for the financial statements of Inversiones Distrilima S.A.
(the Company).From November 2000 to July 2001, tax authorities reviewed the
subsidiarys Income Tax and General Sales Tax (IGV) for the period from
1995 to 1999. As a result of that review, in July 2001 the National
Superintendency of Tax Administration (SUNAT) notified the subsidiary via
several resolutions of assessments and fines regarding Income Tax and IGV
for the periods under review.From the items mentioned, the amount not accepted and not paid by the
subsidiary concerns the Tax Administrations pretension of applying Final
Temporary Provision Seven of Law 27034 and, therefore, to disregard, as
of 1999, the subsidiarys right to a tax allowance for depreciation from
the increase in value as a result of the revaluation of its assets
resulting from the merger that took place in 1996, pursuant to Law 26283,
even though the subsidiary has a Legal Stability Agreement that has
stabilized its income tax system until the year 2006. The amount claimed
is about (in thousands) US$129,720.On August 9, 2001, the subsidiary commenced an arbitration proceeding
against the Ministry of Energy and Mines, representing the State of Peru,
according to the provisions of clause eight of the Legal Stability
Agreement. On August 14 2001, the Ministry of Energy and Mines expressed
its agreement to an arbitration proceeding and, subsequently, it
expressed its agreement to the make-up of the Arbitration Court, whose
members were appointed by agreement of the parties.On November 22, 2001, the Arbitration Court issued it arbitration award
whereby it declared that the subsidiarys complaints regarding the
inapplicability of Final Temporary Provision Seven of Law 27034 were
well-founded, pursuant to the Legal Stability Agreement signed with the
State of Peru. Therefore, the Arbitration Court recognizes the
subsidiarys right to a tax allowance for the depreciation on the
increase in value from revaluations made in previous years.SUNAT did not void its decisions as a result of the arbitration award, so,
on December 3, 2001, the subsidiary filed an appeal in the Tax Court
against the assessment and fines for Income Tax (years 1997, 1998 and
1999), and for IGV (year 1999).Based on the decision by the Tax Court in Decision 06604-2002 of November
20, 2002, the Superintendency of Tax Administration SUNAT has issued
Intendency Resolution 01501-50000031 on July 9, 2003 which, with regard
to the most significant discrepancy, in other words, the objection to
excessive tax allowance and cost taken on revalued property, plant and
equipment in 1996 as a result of the merger, resolves to object to the
1996 appraisal process and, therefore, to disregard the revaluation
assigned to EDELNORS fixed assets, imputing income tax debts to the
company for about (in thousands) US$35,466, US$5,300 and US$19,525
respectively, including fines and interest, for the years 1997, 1998 and
1999. F-85




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated
Financial Statements  (Continued)  On August 1, 2003, the subsidiary filed an appeal against the Intendency
Resolution. The subsidiary appealed against payment of the above items.By means of Note 722-2003-2H3100 of August 27, 2003, Tax Administration
sent the case file of the appeal lodged by the subsidiary with the Tax
Court, after having evaluated compliance with admissibility requirements.On September 11, 2003, the subsidiary lodged a argument brief with the Tax
Court expanding the appeal. On the same date, the subsidiary lodged an
argument brief attaching evidence defending the position put forward in
the appeal.To date, the subsidiary is waiting for a pronouncement by the Tax Court.
Management and the legal advisors of the Company and subsidiary are of
the opinion that there are solid arguments for the Tax Court to issue a
pronouncement in due time that will be favorable to the interests of the
subsidiary.ii.
    
    On December 17, 2003, the subsidiary received Assessment
012-003-0001833, whereby the Tax Administration intends to collect (in
thousands) US$3,758 for an alleged higher Income Tax for year 1996, and
(in thousands) US$1,561 for an alleged infringement of numeral 1 of
Article 178 of the Tax Code, consisting of declaring false figures or
data that influence assessment of the income tax liability for the year
1998.This assessment was issued in compliance with the provisions of
Intendency Resolution 1501-50000031, subject of appeal case file
5047-2003.To date, the subsidiary is in the process of preparing a recourse of
complaint, whose deadline for presentation expires on January 16, 2004.
Management and the legal advisors of the Company and its subsidiary are
of the opinion that there are solid arguments for obtaining a result that
is favorable to the interests of the subsidiary. Cerj S.A. On the basis of management estimates and the legal counsel opinion, Cerj
established a provision of ThUS$232,346 of which ThUS$60,136 relates to labor
lawsuits related to overtime, unjustified layoffs and hardship pay, ThUS$43,528
to civil lawsuits filed by former customers for interest and penalties charged
on late payments of energy bills and ThUS$128,682 to tax lawsuits, related to
collection of taxes and penalties. The Company is the defendant in other civil, tax and labor cases amounting to
ThUS$83,362 at December 31, 2003. The companys legal advisors consider that
these contingencies will not have an adverse impact on the Company. F-86




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Endesa S.A.  Parent Company  i.
    
    Court: Supreme Court of ArgentinaProcess number: 2753-4000/97Cause: Dirección Provincial de Rentas, Provincia de Neuquén versus TGN
(Transportadora de Gas del Norte S.A.). Resolution regarding Stamp Tax sum
that eventually should be paid jointly by TGN and ENDESA.Process status: TGN requested a precautionary measure before the Supreme
Court of Argentina to paralyze the proceeding filed by the Province of
Neuquen, which was accepted. Therefore the administrative complaint
proceeding is paralyzed.Amounts involved: ThCh$3,156,128 ($Arg 13,943,572.54) (Includes tax,
interest and fines).ii.
    
    Court: Arbitration CourtProcess number: N/ACause: On December 27, 2001, Empresa Nacional de Electricidad S.A. was
notified of an arbitration to resolve controversies related to insurance
policy N°94.676, issued by Compañía de Seguros Generales Consorcio Allianz,
currently AGF/Allianz Chile Compañía de Seguros Generales S.A., in favor of
Endesa, for the construction of the Ralco Hydroelectric Plant. Process status: Endesa replied to the complaint sustaining that the plaintiff is
distorting the facts, omitting information that was provided by
Endesa-Chile, altering the risks covered by the contract and is unaware of
the stipulations in the policy; that the flood that affected the Cofferdam
was an insurable risk, included in the policy, and therefore it should be
rejected since it has no foundation in fact or in law.Amounts involved: ThCh$6,531,800 (ThUS$11,000).iii.
    
    Hqi Transelec Chile S.A. vs. Endesa  ChileLawsuit Contents: Action by arbitration proceeding on the additional usage
charges for the connections of Endesas customers, Codelco Salvador, since
October 1, 2001, CMP (Cía. Minera del Pacífico), Emelat and Eso La Silla,
since January 1, 2002, for the usage of transmission facilities by the
plaintiff.Transelec requests that Endesa be sentenced to pay $3,617,831,425
(US$4,955,933), which Endesa would owe it by way of additional usage
charge, for Endesas usage of its transmission system to supply electricity
to the abovementioned customers. Endesa states that said usage charge is
not applicable, because the sectors of the transmission system it uses to
provide such supply is within the area of influence of Endesas Power
Stations, and as provisioned in the Basic Usage Charge Agreement signed
with Transelec, Endesa is entitled to circulate electricity for those
customers without paying additional usage charges. Endesa also argues that
the Additional Usage Charge Agreement for said customers expired along with
the validity of the past supply agreements, and therefore a new additional
usage charge agreement should be entered into with Transelec; in the
meantime, the law should be abided by regarding the sectors contained
within the area of influence of Endesas Power Stations, and neither
payment of additional usage charges, nor payment of basic usage charges
regarding backflow sectors are applicable. F-87




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Process Status: On July 30, 2003, the Court pronounced sentence. The
ruling was in favor of ENDESA and completely rejected the action in all
its parts, unanimously. HQI TRANSELEC filed a complaint and dismissal
recourse in the form. ENDESA became a party arguing against the recourse,
and requested a joint hearing. The recourses were heard in Court on
January 9, 2004. The trial hearing is pending.iv.
    
    Arbitration proceeding for Breach of Contract and Forced Performance Thereof filed by
Empresa Eléctrica Capullo S.A. against Endesa. Judge Mr. Sergio Urrejola Parties:
    
    Plaintiff
    
    : Empresa Eléctrica Capullo S.A.Defendant
    
    : Empresa Nacional de Electricidad S.A.
  Two actions are being brought in the lawsuit:The first, contained in the main petition, is for breach of contract,
enforced performance thereof and a subsidiary action for compensation for
damages: The arbitrator is petitioned:1.- To declare that Endesa has not performed the contract that is the
subject of this litigation (contract dated April 1, 1995 for the purchase
of electricity).2.- Declare that Endesa must pay Capullo Ch$1,243,489,606, plus current
interest, by reason of payment of the purchase price for energy supplied
to Endesa from January 1998 to March 2000, inclusive, or, alternatively,
the amounts and interests determined by the arbitrator on the merits of
the case; all of this plus any VAT that might apply according to the
respective law and as determined by the arbitrator;3.- As an alternative to the above two petitions, declare that Endesa
should be sentenced to pay Ch$1,243,489,606 by way of compensation for
damages caused as a result of failing to comply with said payment
obligation, plus legal interests and adjustment from the date on which
the lawsuit was filed to its actual payment, or, alternatively, the
amount, adjustment and interest determined by the Arbitrator on the
merits of the case plus VAT, if, as determined by the Arbitrator, said
tax should be imposed.The second, which is contained in the lawsuits first accessory petition,
is for compensation for damages due to breach of the aforementioned
contract for the sale of energy during the period from January to
December 1997 and petitions that Endesa should be sentenced to pay
Ch$170,419,646 plus legal interest and readjustment from the date on
which the lawsuit was filed to its actual payment, or, alternatively, the
amount, adjustments and interest determined by the Arbitrator on the
merits of the case plus VAT, if so considered and decreed by the
Arbitrator. F-88




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Endesa contested the lawsuit, stating that it owes nothing to Capullo,
since the price stipulated in the Contract for the Sale of Energy was the
differential cost of energy determined by CDEC-SIC, and that the
differential costs for the periods in the lawsuit have not been
officially determined by CDEC-SIC, since there are differences for
determining said prices that are pending a resolution by the Ministry of
Economy. It also points out that the values determined by CDEC-SIC,
which are referred to in the lawsuit, are referential values and have not
been officially approved, so the difference between what Endesa paid
provisionally for the energy purchased from Capullo and the amounts
demanded by the latter have not been able to be established, since one of
the essential parameters for making the comparison is missing.Current Process status: Once the period of discussion had concluded, the
arbitrator summoned the parties to a conciliation hearing on
June 5, 2003,
which was held. Each party presented its proposal. Awaiting for a further
summons to the parties as part of conciliation procedures.v.
    
    Arbitration Proceeding Minera Los Pelambres against Endesa. San Isidro 
Piuquenes Line. Parties:
    
    Plaintiff:
Defendant:
    
    Minera Los Pelambres
Empresa Nacional de Electricidad S.A.
  Arbitrator: Mr. Orlando Poblete IturrateSummary of proceedings: On October 28, 1996 Endesa and Minera Los
Pelambres signed a contract for the supply of electrical power and
energy. In this contract, ENDESA promised to build several installations
to provide this supply, including a 220 kV line between the San Isidro
Substation and the Los Piuquenes Substation. According to the contract,
Pelambres had an option to purchase that line, which it exercised. The
purchase was executed on June 12, 2002, by a public deed drawn up and
registered by Notary Public Raúl Undurraga Laso. This purchase contract
contains several declarations by ENDESA in the sense that the line is in
perfect working order and that it was designed and built under criteria
defined in the supply contract.Minera Los Pelambres considers that the declarations made by ENDESA in
the line purchase contract were not true, since the line has evidenced
several technical problems that would seem to be the result of design
faults, so it has sued ENDESA petitioning that ENDESA should be sentenced
to pay for the damages caused, which it considers to be of two types:Those involving the cost of repairing the line, which it estimates to be
US$22,752,263.
Those arising from the decrease in equity of Minera Los Pelambres because
of having purchased a line in conditions other than those that it could
study when it opted to purchase it, which it estimates to be
US$6,486,009.The total amount of the lawsuit is US$29,238,272. F-89




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Alternatively, if this lawsuit is not accepted, it sues ENDESA
petitioning that the latter should be sentenced to pay damages arising
from its liability as designer and builder of the line, which damages it
estimates to be the same as the amounts specified above.Process status: Discussion period has been concluded. The conciliation
hearing took place. There was no conciliation. Term for presenting
evidence is running.vi.
    
    Errázuriz Francisco Javier and Others against Empresa Nacional de
Electricidad and Others.Suit for compensation for damages in the 24th Civil Court of Santiago.
Case Number 3622-2003.Parties: Plaintiffs: Francisco Javier Errázuriz Talavera
Francisco Javier Errázuriz Ovalle
Matías Errázuriz OvalleDefendants: Empresa Nacional de Electricidad S.A.
Francisco Fernández Montero
Luis Felipe Acuña Rivas
Rene Agustín Lara Montoya
Inversiones CirrusSummary of proceedings: An incident occurred in Fundo La Esperanza de
Marchigue owned by the plaintiffs on August 21, 1998. The lawsuit is based
on the fact that, as a result of these incidents, the defendants filed a
criminal complaint for kidnapping, which criminal complaints were
dismissed because of a lack of merit, after hearing the plaintiffs.The plaintiffs consider that the criminal complaints that were dismissed
have caused them moral damages for which they seek the following
indemnities: Francisco Javier Errázuriz Talavera
    
    Ch$700,000,000.-Francisco Javier Errázuriz Ovalle
    
    Ch$350,000,000.-Matías Errázuriz Ovalle
    
    Ch$350,000,000.-
  The total lawsuit is for Ch$1,400,000,000.- (US$2,153,846).Process status: All defendants notified. Pleas for defense raised.
Plaintiffs answer lodged. Rejoinder given. Parties summoned for
conciliation hearing, notification pending.vii.
    
    Ordinary Proceedings for Invalidity and Other Actions filed by Sociedad
Punta de Lobos S.A. against Endesa, Celta and Chilean Treasury in the 30th
Civil Court of Santiago. Case Number 4061-2002.Parties: Plaintiff: Sociedad Punta de Lobos S. A.
Defendants: Endesa, Celta and Chilean Treasury. F-90




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Contents of lawsuit: On August 22, 2002 Endesa and Celta were notified of
a lawsuit filed by Sociedad Punta de Lobos S.A. in the 30th Civil Court
of Santiago against Endesa, Celta and the Chilean Treasury.The lawsuit petitions that the assign and transfer, or any legal
transaction by Endesa to Celta, whether for valuable consideration or
not, whose object is the real estate by nature or adhibition that makes
up or forms part of the maritime concession given to Endesa in the sector
of Punta Patache, should be declared absolutely null and void.It also petitions the forfeiture of the maritime concession as Endesa has
committed a series of violations of the law regulating maritime
concessions that constitute grounds for forfeiture of the concession,
and, therefore, all construction built on the concessions land must be
incorporated cost-free into the equity of the Chilean Treasury, and that
Sociedad Punta de Lobos is entitled to obtain a reward, recompense or
prize amounting to 20% of the net value of those assets for having
recovered them for the Treasury.Endesa maintains that the lawsuit is unfounded, since there has never
been any transaction by Endesa alienating the maritime concession or the
properties making up the concession to Celta; that the buildings or
improvements built by Celta on the properties of the concession have been
done in performance of a mandate given to it by its parent company Endesa
to act on its own behalf; that the plaintiff has no legal interest in the
invalidity filed, since it is not party to the concession contract.Amount: There is no given amount for the litigation.Process status: On August 28, 2002, the plaintiff managed to secure that
Court decree a precautionary measure prohibiting any transactions or
contracts to be entered into on the maritime concession given to Endesa
and on the real estate by nature or adhibition that makes up or forms
part of said concession.Endesa y Celta raised dilatory pleas consisting of the incompetence of
the Court to hear the case. A) With regard to the declaration of
forfeiture because it is a matter exclusively within the jurisdiction of
the Ministry of National Defense B) with regard to the declaration of
invalidity, because, if there is any contravention, the law considers
another penalty to be imposed by another authority other than the Courts,
and C) with regard to the reward or prize, because it is the exclusive
prerogative of the President of the Republic.The Court endorsed the plea of incompetence with regard to forfeiture and
reward, but maintained its competence with regard to the invalidity
action and ordered pleas to be raised in defense against the petition.The plaintiff appealed. Endesa and Celta also appealed.On September 8, 2003, the Court of Appeal endorsed the appeal filed by
Punta de Lobos with regard to the plea of incompetence endorsed in the
first instance. F-91




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  As a result of the above, Endesa and Celta raised pleas in defense
against the second and third petitions and then Punta de Lobos lodged its
answer; the enjoinder procedure which terminates the discussion stage to
give rise to the evidence stage is still pending.Procedures for the petition by Endesa and Celta to have the precautionary
measure lifted continued in parallel fashion.viii.
    
    Ordinary Proceeding for Performance of Contract Filed by
Sociedad Punta de Lobos S.A. against Endesa, Celta and
Terminal Marítimo Minera Patache S.A. in the 8th Civil Court
of Santiago, Case Number 129-2003. Parties:Plaintiff:
    
    Sociedad Punta de Lobos S.A.Defendants:
    
    Empresa Nacional de Electricidad S.A.
 Cía. Eléctrica Tarapacá S.A.
Terminal Marítimo Minera Patache S.A.Summary of proceedings: The plaintiff petitions that forced performance
of the so-called Bidding Contract called by Celta and in which both the
latter and Endesa, Terminal Marítimo Patache S.A. and Punta de Lobos S.A.
were involved, should be ordered; that the act whereby all the bids
submitted to Celta on occasion of the Puerto Patache bidding process were
rejected is inexistent, or alternatively absolutely invalid, or
alternatively imputable to Punta de Lobos, since it comes from exercising
a right that is only apparent and not real and is based on catering to an
interest that has not been protected by the Regulations regulating said
bidding; that the Purchase and Sale Contract of November 30, 2001 between
Celta and Endesa, as selling promisors, and Terminal Marítimo Minera
Patache, as purchaser promisor, is invalid; that the intent manifested by
the bidders Endesa and Celta in the Contract of Promise of Sale/Purchase
of November 30, 2001, entered into with Terminal Marítimo Minera Patache
S.A., was a tacit acceptance of the bid submitted by Punta de Lobos in
the Puerto Patache bidding process.Endesa maintains that the lawsuit is unfounded since, according to the
bidding conditions, both Endesa and Celta were fully empowered to reject
all bids submitted in the bidding process, without giving their reasons;
that there has never been any contract, not even a tacit one with Punta
de Lobos, so there are no grounds for requesting that a non-existent
contract that does not exist be performed.Process status: On June 19, 2003, the plaintiff sought and procured that
the Court decree a precautionary measure prohibiting transactions or
contracts to be entered into with regard to Puerto Patache and ordered
the Undersecretary for the Navy to be notified, which was done.By a decision on July 14, 2003, the Court specified the scope of the
precautionary measure decreed in the proceeding in the sense that it does
not prevent Puerto Patache from being transferred, which decision was
appealed by Punta de Lobos, since the injunctions against further
petitioned moves had been denied twice. F-92




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  With regard to the substance of the case, the discussion stage is over
and the evidence submission stage has concluded; on November 6 2003 the
Court summoned the parties to hear the verdict.ix.
    
    Sociedad Punta de Lobos against Chilean Treasury,
Case Number 553-2003, in 21st Civil Court of
Santiago. Parties:Plaintiff:
    
    Sociedad Punta de Lobos S.A.Defendant:
    
    Chilean Treasury
  Summary of Proceedings: The plaintiff petitions that Supreme Decree 139
of 2002 of the Ministry of Defense, Undersecretary for the Navy, should
be declared invalid by public law, since it was issued contravening the
provisions that the Law considers for its issuance; that the
aforementioned Supreme Decree 139 has not entered into effect in a valid
fashion, and, therefore, it cannot have any legal effect.Decree 139 endorsed the expansion of Endesas Maritime Concession for
shipping salt through Puerto Patache, which was one of the conditions
stipulated in the promise of purchase/sale signed by Endesa and Celta and
Terminal Marítimo Puerto Patache S.A..Process status: The Treasury was notified of the lawsuit. The plaintiff
obtained a precautionary measure to immediately stay any effect of
decree 139 of 2002 of the Ministry of Defenses Undersecretary for the
Navy, and said agencies must refrain from performing any administrative
action, or action of any kind, that impinges on or is related to said
Decree.After several incidences, the court accepted Endesas participation as a
contributory third party with the Treasury.Amount: Undeterminable.The discussion stage is over, in other words, the Treasury and Endesa
raised pleas in defense asking for the lawsuit to be rejected. Punta de
Lobos answered and the former two made their rejoinders, with the court
order for evidence having been issued on October 17, 2003.With regard to the precautionary measure, Endesas petition for it to be
declared null and void, is pending a decision.x.
    
    Other contingenciesThere are other proceedings for lesser amounts that in aggregate amount
to ThCh$2,500,013 at December 31, 2003 (ThCh$1,914,034 in 2002). F-93




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Endesa-Chile Subsidiaries Pehuenche S.A.  i.
    
    Court: 20th Civil Courthouse of SantiagoProcess number: 5863-2001Cause: Empresa Eléctrica Pehuenche S.A. versus Empresa Eléctrica Colbún
S.A. This complaint is for services rendered by Pehuenche S.A. to Colbún
during a drought.Process status: Case is awaiting sentencing.
Amounts involved: ThCh$1,187,600 (ThUS$2,000).ii.
    
    Actions were filed related to the payment of compensation as per Supreme
Decree N°287, dated 1999 and issued by the Ministry of Economy,
Development and Reconstruction and modification of Art. 99 bis of DFL
N°1/82 of Mining Law.iii.
    
    Court : 24th Civil Court of SantiagoProcess number: 3908-99Cause: A precautionary prejudicial measure was presented and denied by the
Tribunal. In the same proceeding Pehuenche presented an ordinary public
law motion to vacate against Sociedad Austral de Electricidad S.A.Process status: Sentence was passed on December 10, 2002. Pehuenche has
appealed the verdict and is awaiting the decision of the Appeals Court of
Santiago.Amounts involved: Undeterminable.iv.
    
    Court : 17th Civil Courthouse of SantiagoProcess number: 3940-99Cause: Pehuenche versus Chilectra S.A. A precautionary prejudicial measure
was presented and denied by the Tribunal. Pehuenche presented in the same
case, an ordinary suit to annul public rights against Chilectra S.A.Process status: Summoned to hear sentenceAmounts involved: Undeterminable.v.
    
    Court: 20th Civil Courthouse of SantiagoProcess number: 4005-99Cause: A precautionary prejudicial measure was presented and denied by the
Tribunal. Pehuenche presented in the same case, an ordinary public law
motion to vacate against Empresa Eléctrica Atacama S.A.Process status: Summoned to hear sentenceAmounts involved: Undeterminable. F-94




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  vi.
    
    Court: Santiago Court of AppealsProcess number: 6515-99Cause: CDEC-SIC failure to provide timely information to the CNE.
Resolution 1,557 dated October 1, 1999. The State Defense Council made
itself a party to the case.Process status: Pending hearing. CDEC-SEC report ordered once again to
hear the case. Scheduling is pendingAmounts involved: Five fines for a total of 1,610 Units of Tax Measurement
(UTM) or ThCh$47,880.vii.
    
    Court: 5th Civil Courthouse of SantiagoProcess number: 2272-99Cause: Resolution 631 dated April 27, 1999, for not establishing Dispatch
Center before January 1, 1999. Sentenced passed but not notified.Process status: Verdict notification pending.
Amounts involved: Fine of ThCh$14,870 (500 UTM).x.
    
    Court : 16th Civil Courthouse of SantiagoProcess number: 4164-97Cause: Claim against Resolution 856, resulting in a fine imposed on October
16, 1997, for failure on May 11, 1997.Process status: Rejected recourse, appeal prepared, awaiting reopening of
file.Amounts involved: Fine of ThCh$13,383 (450 UTM).xi.
    
    Court: 16th Civil Courthouse of SantiagoProcess number: 1928-98Cause: Claim against Resolution 331 dated May 8, 1998, for failure on October 13, 1997.Process status: Rejected recourse, pending appeal.Amounts involved: Fine of ThCh$8,922 (300 UTM).xii.
    
    Authority: Superintendence of Electricity and Fuels (SEC)Process number: N/ACause: Reposition appeal before the SEC for Resolution 805 dated May 2,
2000 for a fine for failure on July 14, 1999.Process status: Pending resolution.Amounts involved: Fine of ThCh$142,747 (400 UTA).xiii.
    
    Appeal for Reconsideration of Judgment before the SEC for Resolution No.
1,429 dated August 14, 2003. Said resolution imposed a fine of UTA 1,500,
for the blackout which occurred on September 23, 2002.xiv.
    
    Court: 3rd Local Police Court of SantiagoProcess number: 50419-AGOCause: SERNAC with Pehuenche, claim for lack of electricity supplyProcess status: The accusation was rejected and SERNAC appealed. The case
was tried. Decision is pending. SERNACS appeal endorsed. Court ordered 3rd
Court to hear the accusation directly. Sentence was passed and Pehuenche
was ordered to pay a fine of 50 UTM. Appeal lodged with the Santiago Court
of Appeal.Amounts involved: Fine of ThCh$1,487 (50 UTM). F-95




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Empresa Eléctrica Pangue S.A.  i.
    
    Court: 1st Civil Court of SantiagoProcess number: 1294-99Cause: Claim against Resolution SEC 415 dated March 12, 1999 which fined
Pangue for not complying with Article 9 of rationing Decree 640, which is
to inform the SEC of normal usage of its customers. Pangue made itself a
party before the Court of Appeals. A motion to vacate was filed before
the Supreme Court.Process status: Case is pending to be heard.Amounts involved: Fine of ThCh$297 (10 UTM).ii.
    
    Court: 1st Civil Court of SantiagoProcess number: 2273-99Cause: Claim against SEC Resolution N°631 dated April 27, 1999 that fined
Pangue for infraction of Article 183 of the Regulation when it did not
build an independent Dispatch and Control Center.Process status: On June 16, 2002, a judgment was passed ordering a fine to
be paid. Pending official notification of judgment.Amounts involved: Fine of ThCh$14,870 (500 UTM).iii.
    
    Court: 23rd CourtProcess number: 4293-97Cause: Claim against SEC Resolution N°856 dated October 16, 1997, which
fined for a blackout on May 1, 1997.Process status: On May 31, 1999, judgment was passed ordering fine to be
paid. Appeal made on November 29, 1999 and is pending hearing.Amounts involved: Fine of ThCh$13,383 (450 UTM).iv.
    
    Court: 23rd CourtProcess number: 1910-98Cause: Claim against SEC Resolution N°331 dated May 8, 1998 that fined
Pangue for a blackout on October 13, 1997. The Tribunal rejected the
recourse in its verdict dated July 30, 1999.Process status: Appealed to the Court of Appeals and is pending hearing.Amounts involved: Fine of ThCh$14,870 (500 UTM).v.
    
    Authority: Superintendence of Energy and Fuels (SEC)Process number: N/ACause: Appeal before the SEC to set aside SEC Resolution N°740 dated April
26, 2000 which fined Pangue for a blackout on July 14, 1999.Process status: Decision on appeal for reconsideration of judgment is
pending.Amounts involved: Fine of ThCh$107,060 (300 UTA). F-96




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  vi.
    
    Court: 18th Civil Court of Santiago (Chilectra)Process number: 3886-99Cause: Ordinary public right annulment complaint. Request to annul
obligation to pay compensation to regulated price users derived from
electric rationing decree N°287 issued by the Ministry of Economy.Process status: Judgment pronouncement pendingAmounts involved: Undeterminable.vii.
    
    Appeal for Reconsideration of Judgment before the SEC for Resolution No.
1.432 dated August 14, 2003. Said resolution imposed a fine of UTA 1,000,
for the blackout which occurred on September 23, 2002.viii.
    
    There are 37 administrative oppositions presented by Pangue S.A. before the Provincial
Government of Malleco, to the corresponding requests of diverse individuals to amend water
use rights in the Commune of Lonquimay.ix.
    
    Remedy of Protection  Illustrious Municipality of Hualqui and Empresa Eléctrica Pangue.
Court of Concepción. Case Number 1.799-2002. Parties:
    
    Appellant:
    
    Illustrious Municipality of Hualqui, VIII Región,Respondent:
    
    Empresa Eléctrica Pangue S.A.
  Contents of Lawsuit: The Illustrious Municipality of Hualqui filed a
constitutional demand for protection against EMPRESA ELECTRICA PANGUE S.A.,
claiming an illegal, arbitrary omission, which caused damages and ravages
among the population on the shores of the Bío Bío River in the community of
Hualqui, as a result of opening the floodgates in the winter of 2001, as
the river rose suddenly following the rains, without prior warning.Amount: Not quantified.Process status: The Court of Appeal rejected the demand. The appellant
appealed to the Supreme Court. The Supreme Court upheld the decision of the
Court of Concepción.Closed with favorable result for Pangue S.A.x.
    
    Appeal of Protection Carlos Castillo Osorio and others against Empresa
Eléctrica Pangue S.A., in the Concepción Court of Appeal. Case Number
2.178-2003. Parties:
    
    Appellant:
    
    Carlos Castillo Osorio and othersRespondent:
    
    Empresa Eléctrica Pangue S.A.
  Contents of appeal: The appellants, all inhabitants of Hualqui, filed a
remedy of protection against Pangue S.A. maintaining that the generating
company has systematically flooded the lands of the inhabitants of Hualqui,
due to arbitrary handling of the dams floodgates. Pangue claimed expiry of
the statutory time limit and lack of entitlement of the appellants.Process status: Pangue obtained information about the remedy. Data
requested from government departments is being attached.Prognosis: The remedy should be rejected as being unfounded. F-97




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  xi.
    
    Remedy of Protection Junta de Vecinos Hualqui against Empresa Eléctrica
Pangue Case Number 2126-2003, Court of Concepción.Parties: Appellant: Junta de Vecinos Hualqui and others.Respondent: Empresa Eléctrica Pangue S.A., Intendent of Region VIII of Bio
Bio.The plaintiffs filed a constitutional action against the generating
company, alleging that, on June 21, 2003, it committed an illegal, arbitrary
act in handling the dams floodgates.Pangue raised a plea in defense that the plaintiffs are not principals of
the constitutional actions, that the remedy is unintelligible, that there
is no violation of constitutional guarantees, that it is inadmissible
because the grounds or facts on which the plaintiffs base their suit are
unjustified.Process status: Information on remedy obtained by Intendent and by Pangue
S.A., steps and documents pending to hear the remedy.xii.
    
    Petition for Invalidity and other Actions Aranguiz and Others and
Inversiones Ilihue S.A. and Others, Case Number 4.663-2003 in 29th Civil
Court of SantiagoContents of lawsuit: A group of minority shareholders, former workers of
Pangue S.A., filed suit against Asesorías e Inversiones Ilihue S.A.,
Bancard S.A., Empresa Eléctrica Pangue S.A., Elesur S.A., Servicios
Financieros S.A. and José Cox Donoso.The suit petitions that a series of transactions and contracts pursuant to
which these shareholders sold their shares to Ilihue S.A. and Bancard S.A.
should be declared invalid, since they are impaired by several
irregularities of consent, with compensation for damages amounting to UF.
75,557.97; that, as a result of these invalidities, other transactions made
by Servicios Financieros S.A. should be declared null and void; that Elesur
S.A. must return Pangue S.A.s shares acquired on June 2, 2003 to the
plaintiffs and that the transactions entered into by Pangue S.A., omitting
their summons to the shareholders meeting, are unenforceable on the
plaintiffs, and, especially, that the agreements reached in the
Shareholders meeting on April 10, 2003 are
unenforceable.
Current status: Pangue S.A. was notified of the lawsuit on
November 19,
2003. Pleas were raised in defense against the suit.xiii.
    
    Petition for Invalidity and Compensation for Damages Aránguiz and
others against Empresa Eléctrica Pangue S.A., and Empresa Nacional de
Electricidad S.A. Case Number 8895-2003 in the 7th Civil Court of
Santiago Parties:
    
    Plaintiffs: Aránguiz Córdoba Juan Francisco and others (all former
shareholders of Pangue S.A.)Defendants:
    
    Empresa Eléctrica Pangue S.A.Empresa Nacional de Electricidad S.A.
  Summary of proceedings: The plaintiffs, all former shareholders of Pangue
S.A., petition that the contract signed by Pangue S.A. and Endesa on
September 25, 2000, called Establishment of Voluntary Easement, should be
declared invalid, because, in the opinion of the plaintiffs, it suffers
from several defects that are grounds for invalidity. They assert that they
have active F-98




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) competency to sue because they were shareholders of Pangue S.A. when said
contract was signed. They assert that, as a result of that contract, their shares in Pangue
S.A. dropped in value, and therefore they are suing for
Ch$2,521,996,400 (US$4,424,555). They also assert that, if said contract
had not been signed, Pangue S. A. would have distributed dividends to the
plaintiffs for US$1,742,211. It must be pointed out that, via the aforementioned contract, Pangue S.A.
established a voluntary easement on its water rights so as to allow the
tailwater of Endesas Ralco Power Station, located upstream, to use the end
part of the Pangue dams tailwater. Process status: The suit was notified on December 31, 2003. Since procedures
were violated in serving the notice, the Court was petitioned to declare
the notice null and void. This petition has still not been ruled on.  xiv.
    
    Municipality of Hualqui and Pangue S.A. in Second Civil Court of
Concepción Case Number 6693-2003.This is a summary judgment lawsuit based on Law 19.300 on the Environment,
which seeks redress and compensation for environmental damages allegedly
caused by operation of the Pangue Power Station, especially by the flows in
2001 and 2002.The following actions and measures of protection and mitigation are being
petitioned for redress of environmental damages:  1.
    
    Construction of a retaining wall with the following
characteristics:  a.
    
    Rock fill on the right bank of the Bío Bío River along
2,200 meters; cost Ch$770,000,000.b.
    
    Levees with about 200 meters of rock fill protection;
cost Ch$30,000,000.c.
    
    Channeling of 600 meters of the Hualqui Stream; cost
Ch$120,000,000;  2.
    
    Obligation to issue a warning when the Pangue Power Stations
floodgates are opened.3.
    
    Compensation for damages caused, evaluated at Ch$1,000,000,000. Current process status: Conciliation hearing held, petition was made in the
hearing to change the proceeding to ordinary law and, alternatively, a plea
was raised in defense against the suit. San Isidro S.A.  i.
    
    Court: 7th Civil Court of Santiago
Process number: 2195-99
Cause: Resolution No. 628 dated April 27, 1999 for infraction of Article
183 of Supreme Decree 327, issued by the Chilean Ministry of Economy, by
not establishing the independent Dispatch and Control Center before
January 1, 1999.
Process status: Summoned to hear sentence.
Amounts involved: Fine of ThCh$14,870 (500 UTM). F-99




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  ii.
    
    Court: Superintendence of Energy and Fuels (SEC)
Process number: N/A
Cause : Appeal to set aside before the SEC the SEC Resolution N°719 dated
April 24, 2000, which fined San Isidro ThCh$53,530 (150 UTA), for a
blackout on July 14, 1999.
Process status: Decision on appeal for reconsideration of judgment is
pending.
Amounts involved: Fine of ThCh$53,530 (150 UTA).iii.
    
    Appeal for reconsideration of judgment before SEC for SEC Resolution
1.428 of August 14, 2003. This resolution imposed a fine on San Isidro of
ThCh$178,434 (500 UTA), for the black out on September 23, 2002.iv.
    
    File No. 2753-4000/97Cause: Resolution regarding Stamp Tax (includes taxes, interest and
fines), amount that eventually must be paid by TGN and Endesa, according
to gas transportation contracts signed by both companies on October 17,
1995 and February 20, 1998. Notified on March 27, 2001. Reconsideration
will be requested. TGN filed a precautionary measure with the Supreme
Court of Argentina to interrupt the procedure initiated by the Providence
of Neuquén, which was accepted, and in consequence, the administrative
claim proceeding is currently pending.Amounts involved: ThCh$3,156,128 ($Arg13,943,572.54).v.
    
    Cause: On June 12, 2003, an arbitration proceeding was filed were against
San Isidro and Endesa-Chile by Minera Los Pelambres in order for the
arbitrator to declare the non-fulfillment of San Isidro with the energy
and power supply contract originally signed by Endesa-Chile with Pelambres
on October 28, 1996 and which on January 26, 2000, Endesa-Chile assigned
to San Isidro, leaving it subsidiarily obligated for the obligations
arising from the contract with San Isidro. The complaint is founded on
interruptions and unavailability of electricity during 2001 and 2002,
which according to the contract are penalized with fines, which San Isidro
has refused to pay.Process status: Evidence issues set and term for presenting evidence is
running.Amounts involved: ThCh$1,589,745 (US$2,677,241) plus the readjustment
established in the contract and common interest up to the date of the
effective payment. Compañía Eléctrica de Tarapacá S.A.  i.
    
    Court: Superintendence of Energy and Fuels (SEC)
Process number: Official Letter 4966
Cause: Formulation of SEC charges, dated August 3, 2000 for SING blackout
on September 23, 1999.
Process status: Pending SEC Resolution.
Amounts involved: Undeterminable. F-100




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  ii.
    
    Court: 20th Civil Court of Santiago
Process number: 2760-2000
Cause: Verification of Credit in Inmobiliaria La Cascada Agreement.
Process status: Report No. 1 was received from the Liquidating Commission.
A first distribution of funds from the sale of goods took place; Celta
received ThCh$60,557.
Amounts involved: ThCh$203,718.iii.
    
    Court: 30th Civil Court of Santiago
Process number: 4061-2002
Cause: Lawsuit for annulment and other actions filed by Sociedad Punta de
Lobos S.A. against Endesa-Chile, Celta and the Chilean Government. The
complaint requests that any attempted assignment, transfer, or any legal
action presented by Endesa-Chile to Celta be rejected with respect to the
marine concession granted to Endesa-Chile in the Punta Patache sector. It
also requests that the concession be taken away from Endesa-Chile due to
alleged violations of the laws that regulate marine concessions, and that
all assets constructed on the concession lands be converted to property of
the Government. Endesa-Chile contends that the plaintiff lacks a legal
interest in its claim due to the fact that it is not a party to the
concession contract.Process status: On August 28, 2002 the Tribunal declared as a precautionary
measure the prohibition to take action or execute contracts in respect to
the marine concession granted to Endesa-Chile and in respect to the real
estate which by nature composes or forms part of that concession.On September 8, 2003, the Court of Appeals accepted the recourse of appeal
filed by Punta de Lobos regarding the exception of in competence accepted
in first instance.As a result of the above, Endesa and Celta defended the suit regarding the
second and third claims to which Punta de Lobos replied, and the rejoinder
proceeding is still pending which ends the discussion stage and commences
the evidence stage.Similarly, the request by Endesa and Celta for the lifting of the
precautionary measures continued.Amounts involved: Undeterminable.iv.
    
    Court: 12th Civil Court of Santiago
Process number: 5237-2002
Cause: Lawsuit against Empresas Eléctricas del Norte Grande S.A. (EDELNOR
et al, including Celta) for reimbursement of compensation paid by the
electrical distributors Empresa Eléctrica de Arica S.A., Empresa Eléctrica
de Iquique S.A. and Empresa Eléctrica de Antofagasta S.A., to their
customers due to the blackout on July 25, 1999 of the Sistema
Interconectado del Norte Grande (SING). The complaint is directed against
EDELNOR, Electroandina, Norgener, AES Gener and Celta to jointly reimburse
the electrical distributors for the sums paid to end users in compensation
for unsupplied energy. F-101




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Process Status: The discussion period ended. On August 19, 2003, the Court
issued a resolution that admitted the evidence and set the evidence issues.
It is in the evidence stage, pending notice. Amounts involved: ThCh$64,269 (US$91,378)  v.
    
    Court: 8th Civil Court of Santiago.
Process number: 129-2003
Cause: Lawsuit brought against Endesa S.A., Celta S.A. and Terminal
Marítimo Minera Patache S.A. by Sociedad Punta de Lobos S.A. regarding the
rejection of its offer for the concession to operate the Minera Patache sea
terminal, which Punta de Lobos S.A. considers a breach of
contract.
Endesa S.A. maintains that no such contractual obligations regarding the
concession exists.
Process status: In discussion.
Amounts involved: Undeterminable.On July 14, 2003, the Court issued a resolution that specified the scope of
the precautionary measures pronounced in the trial, stating it does not
prevent the transfer of Puerto Patache. Said resolution was appealed by
Punta de Lobos, and the requested injunction to preserve the status quo was
denied twice.In the background, the discussion stage and the period to submit evidence
have ended. On November 6, 2003, the court summoned the parties to hear the
verdict.vi.
    
    Court: 21th Civil Court of Santiago.
Plaintiff: Sociedad Punta de Lobos S.A.
Defendant: Chilean Treasury
Cause: The plaintiff requests that decree 139 is filed. This decree
accepted extension of Endesas Marine Concession for shipping salt via
Puerto Patache, which was one of the conditions established in the promise
of sale that Endesa and Celta signed with Terminal Marítimo Puerto Patache
S.A. Therefore, if the lawsuit is accepted, said operation would be at
risk.Process status: The plaintiff obtained a precautionary measure for
immediate suspension of the decree. Endesa and Celta are parties in the
lawsuit. The discussion stage has ended, that is, the IRS and Endesa
defended the suit requesting its denial, Punta de Lobos replied, and IRS
and Endesa replied to the counterclaim, and a writ of evidence was issued
on October 17, 2003, therefore after the presented reconsiderations are
resolved, the trial stage will begin.As regards to the precautionary measures, Endesas request to set them
aside is still pendingAmounts involved: Undetermined. F-102




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Hidroeléctrica El Chocón S.A.  i.
    
    Federal Public Revenues Administration  General Tax Services (FPRA-GTS)On December 28, 2000 the Federal Public Revenues Administration  General
Tax Services (FPRA-GTS) notified Hidroeléctrica El Chocon S.A. that it owed
ThCh$352,055 of taxes related to failure to withhold income tax on certain
payments made abroad for a bank loan obtained in 1994. It was also
determined that Hidroeléctrica El Chocón S.A. must pay ThCh$799,868 for
related accrued interest calculated as of December 20, 2000.
Hidroeléctrica El Chocón S.A. did not make these payments as it considered
them relating to foreign source income and therefore not subject to taxes.
Hidroelectrica El Chocon S.A. entered a plea in which it objected to
payment of the taxes. FPRA-GTS has also fined Hidroeléctrica El Chocón
S.A. ThCh$246,438 which Hidroeléctrica El Chocón S.A appealed by on
February 20, 2001.On December 28, 2000 Hidroeléctrica El Chocón S.A. was notified that it
owed accrued interest related to value-added-tax for the year from December
1993 to July 1995 amounting to ThCh$159,302 as of December 11, 2000, as
well as an imposed fine of ThCh$210.111. On February 20, 2001
Hidroeléctrica El Chocón S.A. filed an appeal with the courts under the
premise that Chilean law does not require payment of fines, including
accrued interest, for obligations or infractions committed before July 31,
1995. On February 20, 2001 the Company filed an appeal in the Nations Tax
Court.ii.
    
    RoyaltiesOn June 26, 2000, Hidroeléctrica El Chocón S.A. was notified of a lawsuit
for interest to be paid related to royalties, initially amounting to
ThCh$356,290. Additionally, on September 27, 2000, the Company was
notified of a new complaint from the province of Neuquén against the State
and hydroelectric generators of Comahue to obtain royalties earned on
accumulated funds in the Salex Account. The complaint does not state the
precise amount or date as of which the sums claimed are considered as owed,
but seeks charges from each generator equal to 12% of the funds contributed
to the account.iii.
    
    Provincial Revenue Department of the Province of Buenos AiresOn September 10, 2001 the Company received a notice from the Provincial
Revenue Department of the Province of Buenos Aires of an official
assessment of ThCh$347,567 (which does not include interests or fines)
for tax on gross income from tax periods from February 1995 to December
1998. The differences claimed are due to: a) failure to pay tax in the
Province of Buenos Aires from February 1995 to June 1996 on contracts
entered into by the Company, and b) the use of a lower rate than should
have been applied, according to the Treasury. On October 25, 2001, the
Company included a debt of ThCh$128,906 in the easy payment system
provided for in Law 12.727. On December 28, 2001, the Provincial Revenue
Department notified the Company of Resolution 655/01, which (i)
determined that the Company had a tax shortfall of ThCh$197,389 for tax
on gross income during the tax F-103




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) periods from February to December 1995, January to December 1996, January
to December 1997 and January to December 1998; and (ii) imposed a fine on
the Company of ten percent of the amount that allegedly was not paid. On
January 22, 2002, the Company filed an appeal asserting that the amount
included in the extended period payment system had not been computed and
the reasons why the rate specified by the Provincial Revenue Department
should not be applied. The Management of Hidroeléctrica El Chocón S.A., as well as its legal
advisors, are of the opinion that the claims made by the aforementioned
tax authorities are unfounded, so these issues will probably not give
rise to any significant adverse effect on the Companys equity and
results recorded at December 31, 2003. Hidroinvest S.A. On December 27, 2000 Hidroinvest S.A. was notified that it owed tax of
ThCh$782,157 for gains made in 1993 on the difference between the
acquisition cost and transfer price of bonds, accrued interest of
ThCh$1,682,419 and related fines of ThCh$547,510. On February 19, 2001,
Hidroinvest S.A. filed an appeal against the notice. On September 12, 2002,
Hidroinvest S.A. was notified of the registration of the General Property
Restraining Order on the Companys properties as part of a precautionary
procedure commenced by AFIP-DGI pursuant to the provisions of article 111
of law 11.683, as a result of the obligation to pay the above amounts. An
appeal was filed against the resolution that decided the admissibility of
the precautionary measure, and this was granted on November 25, 2002.
Likewise, on July 10, 2003, the Nations Tax Court issued a decision
confirming the precautionary measure and Hidroinvest S.A. was notified on
December 29, 2003. Hidroinvest S.A.s legal advisors are of the opinion that these issues will
probably not result in any significant negative impact on the Companys
equity and results at December 31, 2003. Central Costanera S.A. Central Costanera S.A. has a debt obligation corresponding to an
agreement related to Work Order No. 4322 (the Agreement). Central
Costanera S.A. has fixed the obligation at the rate of one peso equal to
one US dollar in accordance with applicable laws. However, certain laws
have excluded several obligations from this fixed exchange rate, and
should the Secretary of Energy rule that the obligations of Central
Costanera S.A be excluded, an appeal would be filed. Central Costanera S.A. considers that the obligation resulting from the
Agreement does not dovetail with any of the hypotheses provided for in
the aforementioned decree and, even in the event that it was understood
to do so, there are solid grounds for deciding the unconstitutionality of
the aforementioned decree. F-104




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Edegel S.A.  i.
    
    Edegel / SUNAT
From November 2000 to October 2001, tax authorities reviewed the
Subsidiarys income tax and general sales tax (IGV) for the period from
1995 to 1999. As a result of that review, in December 2001 the National
Superintendency of Tax Administration (SUNAT) notified the subsidiary of
its comments via several Resolutions of Assessments and Fines regarding
Income Tax and IGV for the periods under review.From the items mentioned, the amount not accepted and not paid by the
subsidiary mainly concerns the Tax Administrations desire to apply Final
Temporary Provision Seven of Law 27034 and, therefore, to disregard, as of
1999, the subsidiarys right to a tax allowance for the depreciation from
the increased value attributed as a result of the revaluation of its assets
resulting from the purchase of the subsidiary 1995, pursuant to Law 26283,
even though the subsidiary has a Legal Stability Agreement that has
stabilized its income tax system until the year 2005, as has been mentioned
in Note 8(a). The total estimated amount claimed is about Th$61,550,412
(MUS$84,804).On February 11, 2002, the subsidiary commenced an arbitration proceeding
against the State of Peru, represented by CONITE, according to the
provisions of clause eight of the Legal Stability Agreement. On
April 22, 2002, the Arbitration Court issued it arbitration award whereby it declared
that the subsidiarys complaints regarding the inapplicability of Final
Temporary Provision Seven of Law 27034 were well-founded, pursuant to the
Legal Stability Agreement signed with the State of Peru. Therefore, the
Arbitration Court recognized the subsidiarys right to deduct the
depreciation from the increased value assigned by revaluations made in
previous years, from the income tax base.In spite of the award, the litigious tax proceeding
continued, so, on July 12, 2002, the subsidiary filed an appeal in the Tax Court against the
resolutions of assessment and fines regarding income tax (years 1996, 1997,
1998 and 1999).In November 2002, the Tax Court issued its decision stating that: (i) SUNAT
will have to review and make a new pronouncement considering the provisions
of the Arbitration Award of April 22, 2002, which was favorable to Edegel
S.A., and which involves deducting the depreciation due to revaluation of
the fixed assets and (ii) decided against it in other issues brought by
SUNAT.On July 9, 2003, Edegel S.A. was notified by the National Superintendency of
Tax Administration (SUNAT) of Intendency Resolution 1501  150032 regarding
its review of the tax notes required by the Tax Court for years 1996 to
1999. The total amount of the new tax note is about US$160 million, mainly
arising from: (i) non-recognition of the revaluation of Edegel S.A.s fixed
assets and, consequently, non-deduction of their respective depreciation,
(ii) non-deduction of interest and exchange rate difference on loans
related to the purchase of Lajas Holdings shares, since they are not
associated with generation of taxable income and (iii) capitalization of
overheads associated with fixed assets (taxes on
expenses). On August 1, 2003, the company filed an appeal in the Tax Court, whose decision to date
is still pending. F-105




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) It has to be mentioned that management estimated and recorded a provision
for contingencies of about US$16.5 million at December 31, 2003 (about
US$16.1 million at December 31, 2002) for all those items mentioned in the
resolution referred to in the previous paragraph and appealed in the tax
court, which, in the opinion of its tax advisors, has very little chance of
success (points (ii) and (iii) above). On April 28 2003 the company filed rectifying tax returns of its sworn
annual income tax returns for years 2000 and 2001  pending inspection and
review  adopting the criterion of the most recent Intendency Resolution
regarding the interests and exchange rate difference on loans linked to the
purchase of Lajas Holdings shares and the tax on expenses and SUNATs
original criterion regarding the economic life of the assets. As a result,
it made an additional payment of S/21,196,000 (equivalent to US$6,056,000
and Ch$3,600 million) charging it to the provision referred to in the
previous paragraph. Similarly, on November 14, 2003 the company presented a partial
discontinuance of the appeal filed in the Tax Court against the
aforementioned Intendency Resolution, in order to avail itself of the
Special System for Updating and Paying Tax Debts  SEAP  approved by
Statutory Decree 914, accepting all the objections made by SUNAT except for
the objection due to non-recognition of the depreciation of the revaluation
excess by applying Clause Eight of the Tax Code and the objection for
non-deduction of expenses related to the Olympic project. The amount paid
was about US$14,290,000, which settled all unpaid tax in the years 1996 to
1999, charging it to the provision for contingencies referred to above. The
Companys management and its external legal advisors are of the opinion
that the result of this dispute will be favorable to the Company. Furthermore, the sworn annual tax return for the year 2002 (submitted on
April 2, 2003) and the calculation of income tax accrued in 2003 have
already taken SUNATS criteria regarding tax on expenses and on interest
and exchange rate difference on loans linked to the purchase of Lajas
Holdings shares and SUNATS original criterion regarding the economic life
of the assets when determining taxable income, so the Companys Management
and its legal advisors are of the opinion that the result of the review of
2000 to 2003 will not result in additional liabilities for the Company at
December 31, 2003.  ii.
    
    Lawsuits filed by ESSALUD for payment of contributions of Statutory
Decrees 22482, 19990 and 18846 amounting to THCh$3,055,250 (US$4.21
million). Management and its legal advisors are of the opinion that a
favorable decision will probably be obtained for the Subsidiary, so
no liabilities have been recorded for these items at December 31, 2003
and 2002.iii.
    
    Resolutions of Assessment and Fine for ThCh$421,687 (MUS$581) issued
against Talleres Moyopampa S.A., against which the subsidiary has
filed the respective complaints and appeals since it was formed by
the division of the above company. These complaints and appeals, are
pending a final decision by the Tax Administration. Management and
its external legal advisors are of the opinion that these actions,
individually or collectively, will not have any significant negative
effect on the Companys financial position or its operating results
or its liquidity, since it is clear from the terms of the agreement
signed with Electrolima and the State of Peru that Electrolima is the
company bound to pay the taxes. F-106




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  iv.
    
    Lawsuit filed by the Subsidiarys workers union petitioning that the
percentage of participation in the profits, which the Law stipulates as 5
percent, should be increased to 10 percent, thereby doubling the payment in
this regard in 1994, 1995 and 1996 by about ThCh$3,387,291 (ThUS$4,667).
The appealable judgment was pronounced on August 24, 2000, declaring that
the lawsuit was unfounded.In a decision dated December 12, 2000 (notified on November 13, 2001), the
Second Division of Limas Supreme Court voided the appealable judgment
which declared the lawsuit unfounded. The subsidiary filed an appeal for
annulment against that decision, which was not admitted, so the case will
return to the Court for a new ruling. Management and its external legal
advisors are of the opinion that the final decision will be favorable to
the subsidiary and no liabilities for these items have been recorded at
December 31, 2003 and 2002. Central Cachoeira Dourada S.A. In April 2003, Companhia Elétrica do Estado de Goiás S.A. (CELG), the
sole customers the Companys Brazilian subsidiary, Cachoeira Dourada,
obtained an interim order that allowed CELG to suspend payments in respect
to a firm contract for long-term purchase of energy it has with Cachoeira
Dourada. On July 4, 2003, the Court presiding over this dispute determined
that CELG had to make payments to Cachoeira Dourada until the final
resolution of the litigation with price ranges inferior to those of R$61.63
per MWh, amounts included in the current purchase contract. Cachoeira
Dourada has decided to appeal this decision. On July 23, 2003, the Regional Federal Court of the 1st Region has decided
in favor of Cachoeira Dourada finding that CELG must pay the entire amount
owed. On July 29, 2003, the ruling was reconsidered and the previous decision was
maintained which compels CELG to pay R$31.00 per MWh to CDSA; this is
currently in force. On August 18, 2003, the Judge approved the holding of a settlement hearing
between CDSA and CELG on September 04, 2003, but no agreement was reached.
A technical evaluation has been ruled on that is in progress. On December 19, 2003, a temporary measure was granted to determine that CELG
should admit into the proceeding the difference between the value paid to
CDSA and the value stipulated in the contract. On December 23, 2003, CELG filed an appeal for reconsideration of judgment. On December 26, 2003, the judge granted a stay to the appeal for
reconsideration of judgment filed by CELG, accepting the offer of
collateral made by CELG. F-107




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Compañía de Interconección Energética (CIEN) In January 2003, Companhia Paranaense de Energía  COPEL (Copel)
suspended its payments to Companhia de Interconexão Energética (CIEN), an
equity method investee in respect of the firm contract for purchase of
energy and power, which was signed in 1999. In addition CIEN sells energy
to another three Brazilian companies. Copel cited the economic and
financial imbalance of the 1999 contracts as the reason for its violation.
In addition Copel has requested a review of the previously agreed upon
prices. On August 18, 2003, CIEN and COPEL reached an agreement and signed a
Memorandum of Understanding that reflects the renegotiation of Agreements
001/99 and 002/99. Said agreement will be the basis for the contractual additions to be
signed, and essentially determines the following: (i) a reduction in the
Agreements signed that modifies the agreed amounts from 400 MW to 200 MW
each; (ii) a term of seven (7) years for the additions, starting on January
1, 2003, and ending on December 31, 2009; (iii) CIENs taking on the
portion that refers to the CUST for the introduction of energy in the basic
network up to the center of gravity; (iv) the reference annual payment
flow, which will be paid in monthly portions of the payable invoices; and
(v) new conditions for price adjustment. The Memorandum of Understanding establishes that the Commercialization
Agreement signed by the parties on December 13, 1999, should be canceled by
mutual settlement. In December 2003 supplementary or additional agreements between investee
Cien and Brazilian company COPEL, pursuant to which the original contracts
between both companies were amended, were signed. As a direct result of the
signing of these additional agreements, 203 million reales were immediately
paid to Cien by COPEL. Emgesa S.A. Environmental contingency  Group action against Emgesa S.A. E.S.P.,
Empresa de Energía de Bogotá S.A. E.S.P. and CAR for alleged material and
moral damages caused by the environmental damage that occurred in the Muña
reservoir. The plaintiffs initial claim is for ThCh$890,700,000. The
Companys Management and its legal advisors consider that, if the decision
goes against the company, the maximum amount of the claim would be
ThCh$35,564,000, which should be assumed by the three entities being sued.
However, the Companys legal advisor considers this contingency to be
remote. Enersis S.A. and its subsidiaries are defendants or plaintiffs in other minor
lawsuits with probable or reasonably possible risk of loss, but whose
individual effects, if the decision is unfavorable, are not significant in
these consolidated financial statements. F-108




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Restrictions: Enersis S.A. The Companys loan agreements establish an obligation to comply with the
following financial ratios, on a consolidated level:  
    
    Enersiss ratio between debt and cash flow for four quarters and that of its Chilean subsidiaries did not exceed 8.75x;
    
    The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 5.0x;
    
    The ratio of Enersis and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than 1.25x;
    
    The ratio of consolidated debt to shareholders equity plus minority interest not exceeding 80%;
    
    Assets corresponding to companies whose business is
regulated, is not to be less than 50% of the total consolidated assets;
    
    Minimum shareholders equity at least equal to
ThCh$456,840,000 (U.F.27 million). As of December 31, 2003 all these obligations have been met. Chilectra S.A. The Company did not have any management restrictions or financial covenants
during the years ended December 31, 2002 and 2003. The Company holds long-term energy purchase contracts with Endesa, Gener S.A.,
Pangue S.A., Colbún Machicura S.A., Carbomet Energía S.A., Empresa Eléctrica
Puyehue S.A. (formerly Pilmaiquén), Sociedad Canalistas del Maipo and
Iberoamerica de Energía IBENER S.A., the terms of which extend to beyond 2003,
in order to ensure its supply and corresponding cost. Endesa S.A. On a consolidated level, Endesa must comply with financial covenants and
requirements derived from loan agreements with financial institutions, among
which are the following:  
    
    Endesas ratio between debt and cash flow for four quarters and that of its Chilean subsidiaries did not exceed 9.5x;
    
    The ratio of consolidated debt to EBITDA for four consolidated quarters, not exceeding 6.75x;
    
    The ratio of Endesa Chile and its Chilean subsidiaries cash flow to financial expenses for four quarters, not less than
1.5x;
    
    The ratio of consolidated debt to shareholders equity plus minority interest not exceeding 115%;
    
    Assets corresponding to companies whose business is
regulated, is not to be less than 50% of the total consolidated assets;
    
    Minimum shareholders equity at least equal to
ThCh$761,400,000 (U.F.45 million). As of December 31, 2003 all these obligations have been met. F-109




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Pehuenche S.A. The Santander Investment Bank Ltd. and the Chase Manhattan Bank N.A., in
relation to loans granted to the Company, place obligations and restrictions on
Pehuenche S.A., some of which are of a financial nature, such as: long-term
financial liabilities not exceeding 1.5 times the shareholders equity, and a
minimum company equity of ThCh$160,740,000 (UF9,500,000). As of December 31, 2003 all these obligations have been met. Pangue S.A. The following is a summary of the main obligations, which Empresa Eléctrica
Pangue S.A. must comply with as per agreements with financial institutions.  
    
    Maintain creditors duly informed regarding its financial situation.
    
    Different conditions with the objective of guaranteeing a healthy
financial situation. Thus, the institutions have defined certain
indexes such as restrictions for the payment of dividends and
indebtedness, and acceleration clauses. In regard to the long-term
debt limit for loans in cash, for these events, the limit is 2.0 times
shareholders equity.
    
    Insure and maintain insured all assets. As of December 31, 2003 all these obligations have been met. Central Costanera S.A. In virtue of the arrangement in Annex VI-A of the Concurso Público
Internacional para la Venta de las Acciones de Central Costanera Sociedad
Anónima (International Public Tender for the Sale of shares of Central
Costanera Sociedad Anonima), the domain of Central Costanera S.A.s land was
transferred subject to the condition that it used as the location for an
electric power plant for a term of twenty five years as of the date of
possession. If under any circumstance whatsoever the land ceases to be used for than
purpose during the indicated year, its domain shall be considered revoked due
to this cause, and return of such title will be effective immediately, and as a
matter of law, to SEGBA S.A. or, as applicable, to the National State. The most demanding requirements in respect to financial coefficients are those
contained in the Syndicated loan, the Agent of which is Bank of America, and in
the bilateral with JP Morgan, which are the following:  
    
    The long-term debt with third parties cannot exceed US$347 million; the debt with a maximum
of 30 days cannot exceed US$10 million.
    
    Clauses that restrict change of Control.
    
    Clauses that restrict payments to shareholders, including subordination of the related debt. F-110




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Edegel S.A. Financial indicators originated by credit contracts, Bonds Program and Short-term instruments:  
    
    Net Shareholders Equity must not be less than Soles 2,400 million, inflation-indexed.  
    
    Debt ratio no greater than 1.5  
    
    EBITDA/twelve month interest expense no less than 4.5 to 1.5  
    
    Financial Debt no greater than 3.0 to 1.0.  
    
    Net Liabilities (Liabilities-Cash) no greater than 0.55 to 1.0. Hidroeléctrica Betania S.A. Covenants include limitations on the payment of related debt and limitations on
change in control and the following financial ratios:  
    
    EBITDA/Senior Financial Debt no less than 1.4  
    
    Cash Flows before Dividend Payments/Senior Financial Debt no less than 1.3  
    
    Shareholders Equity/Senior Debt no less than 5. Other restrictions  i.
    
    As a common and habitual practice for some bank loan debts and also in
capital markets, a substantial portion of Enersis S.A.s financial
indebtedness is subject to cross-failure provisions. Some failures of
relevant subsidiaries, if not corrected in time (as to those specific
provisions allowing a year of time to correct the problem), might result
in the cross-failure at the Endesa-Chile and Enersis S.A. level., and, in
this case, significant percent of Enersis S.A.s consolidated liabilities
might eventually become on demand.There are no longer debt covenants that specify the acceleration of
maturities, if the Companys risk-rating falls below investment-grade.The syndicated loan signed during May 2003 specifies that cash obtained
from the sale of Company assets, capital increases, new debt issuances, and
at least 75% of excess annual cash is to be used to pre-pay the syndicated
loan.At December 31, 2002 and 2003, these obligations and restrictions have been
fully met.ii.
    
    Endesa Chile has Compañía Eléctrica Tarapacá S.A., Pangue S.A., Endesa
Chile Internacional S.A. and Pehuenche S.A. as joint sureties through joint
securities and debts for the full amounts owed from the syndicated loan, in
other words, ThUS$742,857.The Company has subsidiaries that must abide by certain
financial ratios and covenants that require minimum equity levels or
that contain other characteristics that restrict the transfer of
assets to the parent company. The amounts of Enersiss proportionate
share of restricted net assets in consolidated subsidiaries as of
December 31, 2003 is ThCh$1,301,955,391. F-111




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 32. Sureties Obtained from Third Parties Enersis S.A. The Company has received certificates of deposit for ThCh$228,082 at
December 31, 2003 (ThCh$256,000 in 2002). Chilectra S.A. The Company presents among its current liabilities, deposits received in cash
for the use of temporary connections by customers of the company for
ThCh$45,378 and ThCh$48,129 at December 31, 2002 and 2003, respectively. Inmobiliaria Manso de Velasco Ltda. The Company has received guarantees from third parties to guarantee obligations
incurred in the acquisition of assets of ThCh$3,084,700 as of December 31,
2003. Compañía Americana de Multiservicios Ltda. The Company has delivered bank bonds for ThCh$855,496 (ThCh$742,219 in 2002)
and has received bank bonds for ThCh$2,090,246 (ThCh$1,526,984 in 2002). Endesa S.A. The Company has received performance bonds from contractors and third parties
to guarantee jobs and construction (mainly the Ralco Project), for
ThCh$19,465,542 as of December 31, 2003 (ThCh$25,047,366 in 2002). San Isidro S.A. Documents in guarantee received for ThCh$1,389,669 as of December 31, 2003
(ThCh$4,723,754 in 2002). Compañía Eléctrica de Tarapacá S.A. The Company has received documents in guarantee for ThCh$287,026 as of December
31, 2003 (ThCh$289,896 in 2002). Pangue S.A. The Company has received documents in guarantee for ThCh$9,827 as of December
31, 2003 (ThCh$8,968 in 2002). F-112




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 33. Foreign Currencies As of December 31, 2002 and 2003, foreign currency denominated assets and
liabilities are as follows: (a) Current assets As of December 31,2002
    
    2003Account
    
    Currency
    
    ThCh$
    
    ThCh$Cash
    
    Ch$ no Reaj.
    
    
    5,788,827
    
    
    
    4,366,271US$
    
    
    2,160,583
    
    
    
    1,026,270Euro
    
    
    46,450
    
    
    
    Yen
    
    
    329
    
    
    
    $ Col.
    
    
    12,523,238
    
    
    
    7,929,796Soles
    
    
    1,286,336
    
    
    
    1,020,537$ Arg.
    
    
    4,511,726
    
    
    
    4,122,947Reales
    
    
    22,349,238
    
    
    
    7,904,411Time deposits
    
    US$
    
    
    75,905,747
    
    
    
    146,982,431$ Col.
    
    
    31,897,980
    
    
    
    63,307,495Soles
    
    
    4,905,424
    
    
    
    1,748,487$ Arg.
    
    
    9,507,348
    
    
    
    4,410,142Reales
    
    
    24,866,664
    
    
    
    39,806,051Marketable securities
    
    Ch$ no Reaj.
    
    
    4,870
    
    
    
    4,871US$
    
    
    1,276,716
    
    
    
    2,830,725$ Col.
    
    
    277,137
    
    
    
    231,125$ Arg.
    
    
    
    
    
    
    8,089,020Accounts receivable, net
    
    Ch$ Reaj.
    
    
    6,671,078
    
    
    
    1,046,341Ch$ no Reaj.
    
    
    106,088,706
    
    
    
    101,858,793US$
    
    
    6,806,024
    
    
    
    6,775,774$ Col.
    
    
    80,422,109
    
    
    
    84,202,512Soles
    
    
    36,122,348
    
    
    
    28,841,723$ Arg.
    
    
    42,594,258
    
    
    
    43,692,757Reales
    
    
    184,723,598
    
    
    
    200,752,465Notes receivable
    
    Ch$ Reaj.
    
    
    
    
    
    
    4,517,969Ch$ no Reaj.
    
    
    2,146,369
    
    
    
    1,300,807US$
    
    
    1,119,350
    
    
    
    632,141$ Arg.
    
    
    25,278
    
    
    
    22,796Reales
    
    
    1,891,665
    
    
    
    1,888,914Other receivables
    
    Ch$ Reaj.
    
    
    58,223
    
    
    
    39,902,763Ch$ no Reaj.
    
    
    11,961,868
    
    
    
    9,696,238US$
    
    
    3,447,244
    
    
    
    1,302,969$ Col.
    
    
    14,525,588
    
    
    
    19,761,136Soles
    
    
    10,566,901
    
    
    
    5,246,655$ Arg.
    
    
    1,269,043
    
    
    
    953,696Reales
    
    
    20,403,806
    
    
    
    16,323,724U.C.
    
    
    1,171,184
    
    
    
    1,007,085
 F-113




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) As of December 31,2002
    
    2003Account
    
    CurrencyThCh$
    
    ThCh$Amounts due from related
    
    Ch$ no Reaj.
    
    
    1,918,671
    
    
    
    5,680,924companies
    
    US$
    
    
    186,040,780
    
    
    
    3,250,576$ Col.
    
    
    173,464
    
    
    
    34,433Soles
    
    
    504,558
    
    
    
    126,193$ Arg.
    
    
    4,569,218
    
    
    
    5,153,416Reales
    
    
    4,146,132
    
    
    
    2,814,583Inventories, net
    
    Ch$ no Reaj.
    
    
    35,710,977
    
    
    
    28,788,239$ Col.
    
    
    8,953,589
    
    
    
    4,333,120Soles
    
    
    12,659,809
    
    
    
    9,048,884$ Arg.
    
    
    1,977,870
    
    
    
    1,607,923Reales
    
    
    1,684,235
    
    
    
    530,028Income taxes recoverable
    
    Ch$ no Reaj.
    
    
    27,797,051
    
    
    
    34,170,548$ Col.
    
    
    478,455
    
    
    
    588,720Soles
    
    
    231,921
    
    
    
    743,820$ Arg.
    
    
    10,850,700
    
    
    
    4,690,838Reales
    
    
    15,622,209
    
    
    
    21,092,412Prepaid expenses and other
    
    Ch$ no Reaj.
    
    
    937,491
    
    
    
    1,097,393US$
    
    
    2,595,712
    
    
    
    1,494,553$ Col.
    
    
    125,461
    
    
    
    213,159Soles
    
    
    558,892
    
    
    
    246,320$ Arg.
    
    
    484,120
    
    
    
    777,746Reales
    
    
    3,041,002
    
    
    
    12,623,323Deferred income taxes
    
    Ch$ no Reaj.
    
    
    20,359,733
    
    
    
    34,416,516$ Col.
    
    
    1,162,684
    
    
    
    3,319,951$ Arg.
    
    
    7,504,259
    
    
    
    9,123,931Reales
    
    
    13,931,972
    
    
    
    22,599,374Other current assets
    
    Ch$ Reaj.
    
    
    700,230
    
    
    
    798,303Ch$ no Reaj.
    
    
    43,563,049
    
    
    
    45,432,597US$
    
    
    38,528,887
    
    
    
    10,626,857$ Col.
    
    
    897,084
    
    
    
    Soles
    
    
    404,514
    
    
    
    1,366,258$ Arg.
    
    
    3,031,489
    
    
    
    2,207,110Reales
    
    
    46,216,571
    
    
    
    13,497,657Total current assets
    
    
    
    
    1,226,686,042
    
    
    
    1,146,003,542
 F-114




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (b) Property, plant and equipment Property, plant and equipment As of December 31,Account
    
    
    
    2002
    
    2003Currency
    
    ThCh$
    
    ThCh$Land
    
    Ch$ no Reaj.
    
    
    41,866,427
    
    
    
    40,758,597$ Col.
    
    
    34,478,422
    
    
    
    28,423,186Soles
    
    
    10,312,312
    
    
    
    8,459,010$ Arg.
    
    
    10,039,567
    
    
    
    8,214,593Reales
    
    
    34,507,107
    
    
    
    29,598,398Building,
infrastructure and work in progress
    
    Ch$ no Reaj.
    
    
    3,788,311,757
    
    
    
    3,451,715,480$ Col.
    
    
    3,291,744,168
    
    
    
    2,697,689,287Soles
    
    
    1,188,708,130
    
    
    
    997,026,075$ Arg.
    
    
    1,660,123,728
    
    
    
    1,389,142,982Reales
    
    
    1,809,638,780
    
    
    
    1,518,362,373Machinery and equipment
    
    Ch$ no Reaj.
    
    
    55,812,812
    
    
    
    52,033,499$ Col.
    
    
    15,630,227
    
    
    
    21,958,804Soles
    
    
    461,991,240
    
    
    
    379,000,445$ Arg.
    
    
    788,901,749
    
    
    
    649,667,638Reales
    
    
    675,806,060
    
    
    
    659,576,270Other plant and equipment
    
    Ch$ no Reaj.
    
    
    120,590,946
    
    
    
    124,216,778$ Col.
    
    
    4,140,014
    
    
    
    9,241,536Soles
    
    
    60,548,176
    
    
    
    35,393,490$ Arg.
    
    
    163,453,511
    
    
    
    119,315,444Reales
    
    
    191,476,826
    
    
    
    59,922,446Technical appraisal
    
    Ch$ no Reaj.
    
    
    31,777,948
    
    
    
    28,879,432$ Col.
    
    
    74,140,072
    
    
    
    60,656,670Soles
    
    
    511,049,848
    
    
    
    418,108,337Reales
    
    
    136,684,807
    
    
    
    111,826,791Accumulated depreciation
    
    Ch$ no Reaj.
    
    
    (1,591,311,321
    )
    
    
    (1,563,199,720
    )$ Col.
    
    
    (716,220,943
    )
    
    
    (673,389,749
    )Soles
    
    
    (984,492,558
    )
    
    
    (838,391,706
    )$ Arg.
    
    
    (1,225,841,949
    )
    
    
    (946,081,154
    )Reales
    
    
    (665,615,098
    )
    
    
    (781,764,722
    )Total property, plant and equipment
    
    
    
    
    9,978,252,765
    
    
    
    8,096,360,510
 F-115




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (c) Other assets Other assets As of December 31,2002
    
    2003Account
    
    Currency
    
    ThCh$
    
    ThCh$Investments in related
    
    Ch$ no Reaj.
    
    
    114,086,546
    
    
    
    105,437,088companies
    
    US$
    
    
    81,494,725
    
    
    
    74,731,322Euro
    
    
    484,792
    
    
    
    $ Arg.
    
    
    39,736
    
    
    
    43,061Investments in other
    
    Ch$ no Reaj.
    
    
    2,244,620
    
    
    
    2,284,059companies
    
    $ Col.
    
    
    158,725,075
    
    
    
    131,045,129Soles
    
    
    12,394
    
    
    
    8,235Reales
    
    
    79,373
    
    
    
    122,874Goodwill, net
    
    Ch$ no Reaj.
    
    
    797,946,141
    
    
    
    737,589,708US$
    
    
    7,044,625
    
    
    
    5,374,677$ Col.
    
    
    50,997,868
    
    
    
    37,432,833Negative goodwill, net
    
    Ch$ no Reaj.
    
    
    (143,085
    )
    
    
    (16,666,302
    )US$
    
    
    (617,459
    )
    
    
    (13,188,948
    )$ Col.
    
    
    (28,928,256
    )
    
    
    (4,560,106
    )Soles
    
    
    (66,435,880
    )
    
    
    (44,819,276
    )Long-term accounts
    
    Ch$ Reaj.
    
    
    1,537,677
    
    
    
    3,490,210receivable
    
    Ch$ no Reaj.
    
    
    2,069,969
    
    
    
    1,906,343US$
    
    
    7,209,126
    
    
    
    4,548,181$ Col.
    
    
    6,617,950
    
    
    
    7,623,915Soles
    
    
    1,762,125
    
    
    
    2,051,708$ Arg.
    
    
    2,119,167
    
    
    
    2,443,258Reales
    
    
    104,670,530
    
    
    
    105,871,429U.C.
    
    
    
    1,122,474
    
    
    
    Amounts due from
    
    Ch$ no Reaj.
    
    
    890,930
    
    
    
    594,249related companies
    
    US$
    
    
    
    
    
    
    128,354,145Reales
    
    
    16,219
    
    
    
    155,439Other assets
    
    Ch$ Reaj.
    
    
    2,991,117
    
    
    
    5,293,263Ch$ no Reaj.
    
    
    93,804,042
    
    
    
    62,381,600US$
    
    
    23,322,875
    
    
    
    20,721,449$ Col.
    
    
    39,084,349
    
    
    
    24,755,128Soles
    
    
    4,660,955
    
    
    
    3,461,991$ Arg.
    
    
    8,988,891
    
    
    
    16,164,285Reales
    
    
    115,021,202
    
    
    
    85,731,968Total other assets
    
    
    
    
    
    
    1,532,920,813
    
    
    
    1,490,382,915
 F-116




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (d) Total assets As of December 31,Account
    
    Currency
    
    2002
    
    2003Total assets by currency
    
    Ch$ Reaj.
    
    
    11,958,325
    
    
    
    55,048,849Ch$ no Reaj.
    
    
    3,714,225,344
    
    
    
    3,294,744,008US$
    
    
    436,334,935
    
    
    
    395,463,122Euro
    
    
    531,242
    
    
    
    Yen
    
    
    329
    
    
    
    $ Col.
    
    
    3,081,845,735
    
    
    
    2,524,798,080Soles
    
    
    1,255,357,445
    
    
    
    1,008,687,186$ Arg.
    
    
    1,494,149,709
    
    
    
    1,323,762,429Reales
    
    
    2,741,162,898
    
    
    
    2,129,236,208U.C.
    
    
    2,293,658
    
    
    
    1,007,085Total assets by currency
    
    
    
    
    12,737,859,620
    
    
    
    10,732,746,967
 (e) Current liabilities Within 90 days
    
    91 days to 1 yearAs of December 31, 2002
    
    As of December 31, 2003
    
    As of December 31, 2002
    
    As of December 31, 2003Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$Short-term debt due to banks and
    
    Ch$ no Reaj.
    
    
    61,450,630
    
    
    
    2.48
    %
    
    
    2,378,878
    
    
    
    2.99
    %
    
    
    2,369,665
    
    
    
    2.48
    %
    
    
    
    
    
    
    financial institutions
    
    US$
    
    
    114,803,536
    
    
    
    8.14
    %
    
    
    82,745,591
    
    
    
    12.71
    %
    
    
    113,740,116
    
    
    
    8.14
    %
    
    
    43,574,065
    
    
    
    12.71
    %Euro
    
    
    4,588,211
    
    
    
    4.38
    %
    
    
    3,500,552
    
    
    
    5.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    7,678,923
    
    
    
    14.35
    %
    
    
    114,491,527
    
    
    
    15.93
    %
    
    
    44,136,355
    
    
    
    14.75
    %
    
    
    
    
    
    
    Soles
    
    
    37,562,298
    
    
    
    8.68
    %
    
    
    27,764,763
    
    
    
    15.93
    %
    
    
    14,671,059
    
    
    
    4.07
    %
    
    
    11,381,827
    
    
    
    15.93
    %$ Arg.
    
    
    16,417,063
    
    
    
    6.00
    %
    
    
    10,259,883
    
    
    
    15.93
    %
    
    
    3,048,487
    
    
    
    6.00
    %
    
    
    
    
    
    
    Reales
    
    
    8,833,410
    
    
    
    9.24
    %
    
    
    234,126
    
    
    
    15.93
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    
    
    
    
    
    
    
    
    15,825,350
    
    
    
    15.93
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Current portion of long-term debt
    
    Ch$ Reaj.
    
    
    316,182
    
    
    
    8.73
    %
    
    
    1,443,405
    
    
    
    4.56
    %
    
    
    1,440,442
    
    
    
    8.73
    %
    
    
    34,596,897
    
    
    
    4.56
    %due to banks and financial
    
    US$
    
    
    210,008,448
    
    
    
    3.24
    %
    
    
    21,833,533
    
    
    
    4.96
    %
    
    
    335,908,087
    
    
    
    3.24
    %
    
    
    80,419,472
    
    
    
    4.96
    %institutions
    
    Euro
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,719,782
    
    
    
    3.79
    %
    
    
    123,767
    
    
    
    3.00
    %Yen
    
    
    39,583,181
    
    
    
    2.08
    %
    
    
    13,180,928
    
    
    
    3.46
    %
    
    
    7,016,400
    
    
    
    2.08
    %
    
    
    424,533
    
    
    
    3.46
    %$ Col.
    
    
    
    
    
    
    
    
    
    
    960,741
    
    
    
    16.79
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    1,379,521
    
    
    
    22.75
    %
    
    
    
    
    
    
    
    
    
    
    662,488
    
    
    
    1.75
    %
    
    
    
    
    
    
    Reales
    
    
    2,158,075
    
    
    
    11.23
    %
    
    
    3,760,739
    
    
    
    16.79
    %
    
    
    5,206,028
    
    
    
    11.23
    %
    
    
    5,601,259
    
    
    
    16.79
    %U.P.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,207,721
    
    
    
    5.32
    %
    
    
    1,117,055
    
    
    
    16.79
    %Sterling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    461,251
    
    
    
    4.81
    %
    
    
    412,346
    
    
    
    16.79
    %Others
    
    
    
    
    
    
    
    
    
    
    921,390
    
    
    
    16.79
    %
    
    
    1,246,967
    
    
    
    8.53
    %
    
    
    898,948
    
    
    
    16.79
    %Promissory notes
    
    Ch$ Reaj.
    
    
    123,350
    
    
    
    10.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    5,659,198
    
    
    
    4.50
    %
    
    
    
    
    
    
    
    
    
    
    7,538,861
    
    
    
    4.50
    %
    
    
    
    
    
    
    Current portion of bonds payable
    
    Ch$ Reaj.
    
    
    
    
    
    
    
    
    
    
    230,102
    
    
    
    5.88
    %
    
    
    16,161,340
    
    
    
    5.80
    %
    
    
    7,359,819
    
    
    
    5.88
    %US$
    
    
    3,303,376
    
    
    
    7.06
    %
    
    
    4,372,803
    
    
    
    7.87
    %
    
    
    154,776,512
    
    
    
    7.06
    %
    
    
    36,966,398
    
    
    
    7.87
    %Euro
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    306,778,275
    
    
    
    3.34
    %
    
    
    
    
    
    
    $ Col.
    
    
    
    
    
    
    
    
    
    
    6,820,980
    
    
    
    11.25
    %
    
    
    13,636,984
    
    
    
    13.70
    %
    
    
    
    
    
    
    Soles
    
    
    1,173,050
    
    
    
    7.28
    %
    
    
    6,621,600
    
    
    
    4.94
    %
    
    
    7,656,820
    
    
    
    13.70
    %
    
    
    8,573,491
    
    
    
    4.94
    %Current portion of long-term
    
    US$
    
    
    30,053,579
    
    
    
    9.00
    %
    
    
    7,977,202
    
    
    
    
    
    
    
    11,991,624
    
    
    
    9.00
    %
    
    
    13,456,661
    
    
    
    notes payable
    
    $ Arg.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dividends payable
    
    Ch$ no Reaj.
    
    
    432,729
    
    
    
    
    
    
    
    982,140
    
    
    
    
    
    
    
    982,146
    
    
    
    
    
    
    
    716,480
    
    
    
    $ Col.
    
    
    8,368,039
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    18,714
    
    
    
    
    
    
    
    80,106
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    
    
    
    
    
    
    
    
    731
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    1,379,089
    
    
    
    
    
    
    
    4,163,576
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    734,541
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accounts payable
    
    Ch$ no Reaj.
    
    
    54,805,509
    
    
    
    
    
    
    
    64,751,606
    
    
    
    
    
    
    
    5,870,198
    
    
    
    9.00
    %
    
    
    
    
    
    
    US$
    
    
    12,466,164
    
    
    
    
    
    
    
    840,065
    
    
    
    
    
    
    
    1,134,906
    
    
    
    
    
    
    
    340
    
    
    
    Euro
    
    
    
    
    
    
    
    
    
    
    152,918
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    27,445,681
    
    
    
    
    
    
    
    28,253,765
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    24,026,113
    
    
    
    
    
    
    
    16,936,632
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    27,218,931
    
    
    
    
    
    
    
    28,381,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    60,255,618
    
    
    
    
    
    
    
    76,127,463
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    11,073,624
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-117




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Within 90 days
    
    91 days to 1 yearAs of December 31, 2002
    
    As of December 31, 2003
    
    As of December 31, 2002
    
    As of December 31, 2003Average
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$Short-term notes payables
    
    Ch$ no Reaj.
    
    
    577
    
    
    
    
    
    
    
    18,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    1,067,230
    
    
    
    16.89
    %
    
    
    21,051,531
    
    
    
    
    
    
    
    3,813,598
    
    
    
    16.89
    %
    
    
    
    
    
    
    Miscellaneous payables
    
    Ch$ no Reaj.
    
    
    9,336,767
    
    
    
    
    
    
    
    5,268,913
    
    
    
    
    
    
    
    421,043
    
    
    
    
    
    
    
    5,498,770
    
    
    
    US$
    
    
    8,310,295
    
    
    
    
    
    
    
    6,708,584
    
    
    
    
    
    
    
    8,735,432
    
    
    
    
    
    
    
    62,349
    
    
    
    $ Col.
    
    
    22,774,897
    
    
    
    
    
    
    
    10,741,843
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    5,897,275
    
    
    
    
    
    
    
    8,605,921
    
    
    
    
    
    
    
    11,451,858
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    3,085
    
    
    
    
    
    
    
    2,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    6,841,564
    
    
    
    
    
    
    
    7,027,596
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    379,511
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amounts
payable to related companies
    
    Ch$ Reaj.
    
    
    11,580,352
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ch$ no Reaj.
    
    
    537,944
    
    
    
    
    
    
    
    249,137
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    1,246,715
    
    
    
    
    
    
    
    1,429,194
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    1,238,934
    
    
    
    
    
    
    
    2,851,852
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    866,000
    
    
    
    
    
    
    
    385,358
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    978,624
    
    
    
    
    
    
    
    1,690,491
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    
    
    
    
    
    
    
    
    24,142,261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    Ch$ Reaj.
    
    
    14,295
    
    
    
    
    
    
    
    29,361
    
    
    
    
    
    
    
    8,456
    
    
    
    
    
    
    
    82,808
    
    
    
    Ch$ no Reaj.
    
    
    12,517,102
    
    
    
    
    
    
    
    7,019,432
    
    
    
    
    
    
    
    28,863,812
    
    
    
    
    
    
    
    28,676,767
    
    
    
    US$
    
    
    102,588
    
    
    
    
    
    
    
    1,024
    
    
    
    
    
    
    
    90,138
    
    
    
    
    
    
    
    67,877
    
    
    
    $ Col.
    
    
    13,411,977
    
    
    
    
    
    
    
    5,573,186
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    2,338,800
    
    
    
    
    
    
    
    1,528,330
    
    
    
    
    
    
    
    2,250,372
    
    
    
    
    
    
    
    2,474,566
    
    
    
    $ Arg.
    
    
    2,155,138
    
    
    
    
    
    
    
    2,867,494
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    23,945,150
    
    
    
    
    
    
    
    5,372,542
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,837
    
    
    
    Others
    
    
    81,796
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Withholdings
    
    Ch$ no Reaj.
    
    
    7,199,028
    
    
    
    
    
    
    
    7,830,494
    
    
    
    
    
    
    
    1,441,876
    
    
    
    
    
    
    
    157,420
    
    
    
    $ Col.
    
    
    1,891,296
    
    
    
    
    
    
    
    2,210,532
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    5,164,141
    
    
    
    
    
    
    
    5,030,010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    10,935,836
    
    
    
    
    
    
    
    16,852,919
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    29,405,859
    
    
    
    
    
    
    
    31,621,088
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Others
    
    
    2,581
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income tax payable
    
    Ch$ no Reaj.
    
    
    542,553
    
    
    
    
    
    
    
    16,411,961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    20,111,038
    
    
    
    
    
    
    
    22,933,978
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,175,016
    
    
    
    Soles
    
    
    690
    
    
    
    
    
    
    
    19,326
    
    
    
    
    
    
    
    2,664,820
    
    
    
    
    
    
    
    2,934,142
    
    
    
    $ Arg.
    
    
    3,366,238
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    1,122,010
    
    
    
    
    
    
    
    3,365,633
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred income
    
    Ch$ no Reaj.
    
    
    5,874,167
    
    
    
    
    
    
    
    5,978,448
    
    
    
    
    
    
    
    2,884,571
    
    
    
    
    
    
    
    1,924,436
    
    
    
    $ Col.
    
    
    417,793
    
    
    
    
    
    
    
    4,072,490
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other current liabilities
    
    Ch$ Reaj.
    
    
    3,350
    
    
    
    
    
    
    
    9,992
    
    
    
    
    
    
    
    5,827
    
    
    
    
    
    
    
    5,935
    
    
    
    Ch$ no Reaj.
    
    
    460,762
    
    
    
    
    
    
    
    10,652
    
    
    
    
    
    
    
    5,527,866
    
    
    
    
    
    
    
    2,796,045
    
    
    
    US$
    
    
    15,262,624
    
    
    
    
    
    
    
    9,151,633
    
    
    
    
    
    
    
    290,853
    
    
    
    
    
    
    
    1,205,885
    
    
    
    $ Col.
    
    
    2,016,785
    
    
    
    
    
    
    
    1,460,594
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    50,647
    
    
    
    
    
    
    
    44,555
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    16,034,314
    
    
    
    
    
    
    
    20,848,457
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    20,484,347
    
    
    
    
    
    
    
    29,827,087
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total current liabilities by currency
    
    Ch$ Reaj.
    
    
    12,037,529
    
    
    
    
    
    
    
    1,712,860
    
    
    
    
    
    
    
    17,616,065
    
    
    
    
    
    
    
    42,045,459Ch$ no Reaj.
    
    
    153,157,768
    
    
    
    
    
    
    
    110,900,011
    
    
    
    
    
    
    
    48,361,177
    
    
    
    
    
    
    
    39,769,918US$
    
    
    395,557,325
    
    
    
    
    
    
    
    135,059,629
    
    
    
    
    
    
    
    626,667,668
    
    
    
    
    
    
    
    175,753,047Euro
    
    
    4,588,211
    
    
    
    
    
    
    
    3,653,470
    
    
    
    
    
    
    
    311,498,057
    
    
    
    
    
    
    
    123,767Yen
    
    
    39,583,181
    
    
    
    
    
    
    
    13,180,928
    
    
    
    
    
    
    
    7,016,400
    
    
    
    
    
    
    
    424,533$ Col.
    
    
    105,355,363
    
    
    
    
    
    
    
    200,371,490
    
    
    
    
    
    
    
    57,773,339
    
    
    
    
    
    
    
    2,175,016Soles
    
    
    82,756,926
    
    
    
    
    
    
    
    67,016,601
    
    
    
    
    
    
    
    46,233,790
    
    
    
    
    
    
    
    25,364,026Reales
    
    
    154,113,263
    
    
    
    
    
    
    
    203,909,155
    
    
    
    
    
    
    
    13,183,202
    
    
    
    
    
    
    
    5,612,096$ Arg.
    
    
    78,488,750
    
    
    
    
    
    
    
    80,903,933
    
    
    
    
    
    
    
    3,710,975
    
    
    
    
    
    
    
    U.P.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,207,721
    
    
    
    
    
    
    
    1,117,055Sterling
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    461,251
    
    
    
    
    
    
    
    412,346Others
    
    
    12,272,053
    
    
    
    
    
    
    
    16,746,740
    
    
    
    
    
    
    
    1,246,967
    
    
    
    
    
    
    
    898,948Total current liabilities
    
    
    
    
    1,037,910,369
    
    
    
    
    
    
    
    833,454,817
    
    
    
    
    
    
    
    1,134,976,612
    
    
    
    
    
    
    
    293,696,211
 F-118




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (f) Long-term liabilities as of December 31, 2003 1 to 3 years
    
    3 to 5 years
    
    5 to 10 years
    
    More than 10 yearsAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$Due to banks
and financial institutions
    
    Ch$ Reaj.
    
    
    3,090,540
    
    
    
    9.00
    %
    
    
    1,273,686
    
    
    
    9.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    200,556,323
    
    
    
    4.77
    %
    
    
    437,964,229
    
    
    
    3.83
    %
    
    
    44,109,592
    
    
    
    3.36
    %
    
    
    2,473,322
    
    
    
    3.89
    %Euro
    
    
    121,738
    
    
    
    3.00
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    422,438
    
    
    
    0.89
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    3,595,794
    
    
    
    1.75
    %
    
    
    1,797,897
    
    
    
    1.75
    %
    
    
    6,292,887
    
    
    
    1.75
    %
    
    
    
    
    
    
    $ Col.
    
    
    
    
    
    
    
    
    
    
    37,403,850
    
    
    
    12.55
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    80,660,736
    
    
    
    22.50
    %
    
    
    4,768,381
    
    
    
    20.81
    %
    
    
    8,442,383
    
    
    
    20.06
    %
    
    
    518,910
    
    
    
    17.74
    %Sterling
    
    
    402,154
    
    
    
    4.63
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonds payable
    
    Ch$ Reaj.
    
    
    6,110,308
    
    
    
    5.88
    %
    
    
    110,427,387
    
    
    
    5.88
    %
    
    
    101,832,395
    
    
    
    5.88
    %
    
    
    94,971,517
    
    
    
    5.88
    %US$
    
    
    118,760,000
    
    
    
    7.91
    %
    
    
    213,768,000
    
    
    
    7.91
    %
    
    
    475,040,000
    
    
    
    7.91
    %
    
    
    989,798,688
    
    
    
    7.91
    %$ Col.
    
    
    102,995,204
    
    
    
    10.50
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    74,596,769
    
    
    
    4.39
    %
    
    
    10,155,885
    
    
    
    4.39
    %
    
    
    838,813
    
    
    
    4.39
    %
    
    
    
    
    
    
    Long-term notes payable
    
    US$
    
    
    40,470,881
    
    
    
    7.42
    %
    
    
    48,220,374
    
    
    
    7.42
    %
    
    
    31,840,790
    
    
    
    7.42
    %
    
    
    
    
    
    
    Reales
    
    
    11,328,176
    
    
    
    14.46
    %
    
    
    4,581,768
    
    
    
    14.46
    %
    
    
    8,901,177
    
    
    
    14.46
    %
    
    
    
    
    
    
    Miscellaneous payable
    
    Ch$ Reaj.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,434
    
    
    
    Ch$ no Reaj.
    
    
    863,350
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    17,574
    
    
    
    US$
    
    
    5,226,699
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,905,744
    
    
    
    3.26
    %Reales
    
    
    8,480,593
    
    
    
    
    
    
    
    3,145,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amounts payable to related companies
    
    $ Col.
    
    
    84,320
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    Ch$ no Reaj.
    
    
    2,450,592
    
    
    
    
    
    
    
    2,609,663
    
    
    
    
    
    
    
    6,235,668
    
    
    
    
    
    
    
    10,432,103
    
    
    
    US$
    
    
    
    
    
    
    
    
    
    
    2,971,683
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    20,701,649
    
    
    
    
    
    
    
    45,091,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    226,924,205
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Deferred income taxes
    
    Ch$ no Reaj.
    
    
    10,455,989
    
    
    
    
    
    
    
    6,904,019
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    
    
    
    
    
    
    
    
    1,639,845
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    2,626,425
    
    
    
    
    
    
    
    1,348,653
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    1,773,652
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    Ch$ Reaj.
    
    
    9,200
    
    
    
    
    
    
    
    11,512
    
    
    
    
    
    
    
    6,415
    
    
    
    
    
    
    
    
    
    
    
    Ch$ no Reaj.
    
    
    3,455,877
    
    
    
    
    
    
    
    974,342
    
    
    
    
    
    
    
    1,142,803
    
    
    
    
    
    
    
    1,641,711
    
    
    
    US$
    
    
    12,779,861
    
    
    
    
    
    
    
    5,155,183
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    2,058,195
    
    
    
    
    
    
    
    698,247
    
    
    
    
    
    
    
    1,189,040
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    7,972,337
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    23,241,894
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
long-term liabilities by currency
    
    Ch$ Reaj.
    
    
    9,210,048
    
    
    
    
    
    
    
    111,712,585
    
    
    
    
    
    
    
    101,838,810
    
    
    
    
    
    
    
    95,134,951Ch$ no Reaj.
    
    
    17,225,808
    
    
    
    
    
    
    
    10,488,024
    
    
    
    
    
    
    
    7,378,471
    
    
    
    
    
    
    
    12,091,388US$
    
    
    377,793,764
    
    
    
    
    
    
    
    708,079,469
    
    
    
    
    
    
    
    550,990,382
    
    
    
    
    
    
    
    1,001,177,754Euro
    
    
    121,738
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    422,438
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    123,781,173
    
    
    
    
    
    
    
    84,135,115
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    79,281,389
    
    
    
    
    
    
    
    12,202,785
    
    
    
    
    
    
    
    2,027,853
    
    
    
    
    
    
    
    $ Arg.
    
    
    11,568,131
    
    
    
    
    
    
    
    1,797,897
    
    
    
    
    
    
    
    6,292,887
    
    
    
    
    
    
    
    Reales
    
    
    352,409,256
    
    
    
    
    
    
    
    12,495,486
    
    
    
    
    
    
    
    17,343,560
    
    
    
    
    
    
    
    518,910Sterling
    
    
    402,154
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total long-term liabilities
    
    
    
    
    972,215,899
    
    
    
    
    
    
    
    940,911,361
    
    
    
    
    
    
    
    685,871,963
    
    
    
    
    
    
    
    1,108,923,003
 F-119




---



##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (g) Long-term liabilities as of December 31, 2002 1 to 3 years
    
    3 to 5 years
    
    5 to 10 years
    
    More than 10 yearsAverage
    
    
    
    
    
    Average
    
    
    
    
    
    Average
    
    
    
    
    
    AverageAccount
    
    Currency
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    Rate
    
    Amount
    
    RateThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$
    
    
    
    
    
    ThCh$Due to banks
and financial institutions
    
    Ch$ Reaj.
    
    
    54,237,250
    
    
    
    3.66
    %
    
    
    2,966,355
    
    
    
    3.66
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    US$
    
    
    1,345,934,070
    
    
    
    3.19
    %
    
    
    104,732,270
    
    
    
    3.19
    %
    
    
    71,457,319
    
    
    
    3.19
    %
    
    
    6,415,711
    
    
    
    3.19
    %Euro
    
    
    248,420
    
    
    
    4.13
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    9,070,915
    
    
    
    1.96
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    3,723,918
    
    
    
    1.75
    %
    
    
    1,861,959
    
    
    
    1.75
    %
    
    
    6,504,433
    
    
    
    1.75
    %
    
    
    
    
    
    
    Reales
    
    
    82,481,803
    
    
    
    17.11
    %
    
    
    1,628,960
    
    
    
    11.23
    %
    
    
    14,696,907
    
    
    
    11.23
    %
    
    
    203,617
    
    
    
    11.23
    %U.P.
    
    
    1,201,425
    
    
    
    5.32
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling
    
    
    886,725
    
    
    
    4.81
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Bonds payable
    
    Ch$ Reaj.
    
    
    
    
    
    
    
    
    
    
    101,469,367
    
    
    
    6.20
    %
    
    
    69,556,117
    
    
    
    6.00
    %
    
    
    160,924,499
    
    
    
    6.00
    %US$
    
    
    341,124,167
    
    
    
    7.00
    %
    
    
    355,640,089
    
    
    
    8.06
    %
    
    
    290,318,440
    
    
    
    8.50
    %
    
    
    628,561,921
    
    
    
    8.06
    %$ Col.
    
    
    
    
    
    
    
    
    
    
    33,505,610
    
    
    
    14.35
    %
    
    
    78,759,079
    
    
    
    14.35
    %
    
    
    
    
    
    
    Soles
    
    
    54,055,768
    
    
    
    7.19
    %
    
    
    3,898,572
    
    
    
    7.19
    %
    
    
    1,010,395
    
    
    
    7.19
    %
    
    
    
    
    
    
    Long-term notes payable
    
    US$
    
    
    44,904,268
    
    
    
    7.50
    %
    
    
    42,289,050
    
    
    
    7.50
    %
    
    
    60,063,668
    
    
    
    7.50
    %
    
    
    
    
    
    
    Reales
    
    
    36,859,991
    
    
    
    9.50
    %
    
    
    4,647,622
    
    
    
    9.50
    %
    
    
    8,787,084
    
    
    
    9.50
    %
    
    
    249,604
    
    
    
    9.50
    %Miscellaneous payable
    
    Ch$ Reaj.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    163,399
    
    
    
    Ch$ no Reaj.
    
    
    2,151,638
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    51,051
    
    
    
    US$
    
    
    7,215,480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,640,919
    
    
    
    9.48
    %
    
    
    
    
    
    
    Reales
    
    
    2,610,107
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amounts payable to related companies
    
    Ch$ Reaj.
    
    
    998,174,521
    
    
    
    3.33
    %
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accrued expenses
    
    Ch$ Reaj.
    
    
    
    
    
    
    
    
    
    
    57,854
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Ch$ no Reaj.
    
    
    3,531,357
    
    
    
    
    
    
    
    3,288,636
    
    
    
    
    
    
    
    7,684,362
    
    
    
    
    
    
    
    7,525,626
    
    
    
    US$
    
    
    3,769,628
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    68,363,088
    
    
    
    Reales
    
    
    26,142,431
    
    
    
    
    
    
    
    82,397,881
    
    
    
    
    
    
    
    2,120,404
    
    
    
    
    
    
    
    49,604,846
    
    
    
    Deferred income taxes
    
    Ch$ no Reaj.
    
    
    6,801,356
    
    
    
    
    
    
    
    3,782,966
    
    
    
    
    
    
    
    14,137,664
    
    
    
    
    
    
    
    22,328,589
    
    
    
    $ Col.
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,624,671
    
    
    
    Soles
    
    
    
    
    
    
    
    
    
    
    1,236,961
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    199,151
    
    
    
    
    
    
    
    132,767
    
    
    
    
    
    
    
    597,452
    
    
    
    
    
    
    
    
    
    
    
    Other long-term liabilities
    
    Ch$ Reaj.
    
    
    10,913
    
    
    
    
    
    
    
    10,115
    
    
    
    
    
    
    
    472,290
    
    
    
    
    
    
    
    
    
    
    
    Ch$ no Reaj.
    
    
    4,306,898
    
    
    
    4.55
    %
    
    
    14,948,249
    
    
    
    4.55
    %
    
    
    4,730,059
    
    
    
    
    
    
    
    13,818,110
    
    
    
    4.55
    %US$
    
    
    38,401,268
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Soles
    
    
    4,657,394
    
    
    
    
    
    
    
    259,501
    
    
    
    
    
    
    
    2,235,811
    
    
    
    
    
    
    
    
    
    
    
    $ Arg.
    
    
    7,531,040
    
    
    
    
    
    
    
    115,184
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Reales
    
    
    13,518,788
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total long-term liabilities
by currency
    
    Ch$ Reaj.
    
    
    1,052,422,684
    
    
    
    
    
    
    
    104,503,691
    
    
    
    
    
    
    
    70,028,407
    
    
    
    
    
    
    
    161,087,898Ch$ no Reaj.
    
    
    16,791,249
    
    
    
    
    
    
    
    22,019,851
    
    
    
    
    
    
    
    26,552,085
    
    
    
    
    
    
    
    43,723,376US$
    
    
    1,781,348,881
    
    
    
    
    
    
    
    502,661,409
    
    
    
    
    
    
    
    432,480,346
    
    
    
    
    
    
    
    634,977,632Euro
    
    
    248,420
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Yen
    
    
    9,070,915
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $ Col.
    
    
    
    
    
    
    
    
    
    
    33,505,610
    
    
    
    
    
    
    
    78,759,079
    
    
    
    
    
    
    
    71,987,759Soles
    
    
    58,713,162
    
    
    
    
    
    
    
    5,395,034
    
    
    
    
    
    
    
    3,246,206
    
    
    
    
    
    
    
    $ Arg.
    
    
    11,454,109
    
    
    
    
    
    
    
    2,109,910
    
    
    
    
    
    
    
    7,101,885
    
    
    
    
    
    
    
    Reales
    
    
    161,613,120
    
    
    
    
    
    
    
    88,674,463
    
    
    
    
    
    
    
    25,604,395
    
    
    
    
    
    
    
    50,058,067U.P.
    
    
    1,201,425
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Sterling
    
    
    886,725
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total long-term liabilities
    
    
    
    
    3,093,750,690
    
    
    
    
    
    
    
    758,869,968
    
    
    
    
    
    
    
    643,772,403
    
    
    
    
    
    
    
    961,834,732
 Note 34. Sanctions The Company and its directors has not been the subject to sanctions by the SVS
nor by any other administrative authorities. F-120




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 35. Environment Chilectra S.A. The Company has made disbursements during the year of ThCh$1,561,001,
mainly for the following items: Investments:  
    
    Audit El Salto 220 KV Line
    
    La Cisterna Environmental Impact Statement
    
    Santa Elena Environmental Impact Statement
    
    San Bernardo Environmental Impact Statement
    
    Chena Maipú Environmental Impact Statement
    
    Construction of oil retaining pits
    
    TAP Chacabuco reafforestation construction
    
    Multipurpose Pipelines Expenses:  
    
    High Voltage Network Maintenance Unit
    
    Southern Maintenance Center
    
    Northern Maintenance Center
    
    Eastern Maintenance Center Endesa S.A. During the year from January 1 to December 31, 2003, the Company and its
subsidiaries have made disbursements for a value of ThCh$12,145,906, which
mainly corresponds to:  
    
    Operating expenses: corresponding to studies, follow-up procedures and
laboratory analysis (ThCh$379,802 expenses in 2003), Environment Law N°99
(Colombia) and ISO 14,001 certification in Central Costanera and El Chocón
ThCh$5,846,734 (US$9,846,302).  
    
    Investments related to the following projects:  
    
    Central Ralcos environmental program.
    
    Implementation of environmental management system (S.G.A.) and
its ISO 14.001 certification in San Isidro, Central Tarapacá, Central
Rapel, Pehuenche, Loma Alta and Curillinque Power Stations.
    
    Construction of transformer pools Rapel Power Station, Sauzal
and Los Molles.
    
    Pangue Power Station  Restoration of former ore deposit camp
    
    Works on Muña reservoir (Emgesa) F-121




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) Note 36. Subsequent Events No significant events that might affect these financial statements have
occurred in the period from January 1, 2004 to their date of issue. Note 37. Differences between Chilean and United States Generally Accepted
Accounting Principles Chilean GAAP varies in certain important respects from U.S. GAAP. Such
differences involve certain methods for measuring the amounts shown in the
financial statements. Differences in Measurement Methods The principal differences between Chilean GAAP and U.S. GAAP are described
below together with an explanation, where appropriate, of the method used in
the determination of the adjustments that affect net income and total
stockholders equity. References below to SFAS are to Statements of
Financial Accounting Standards issued by the Financial Accounting Standards
Board in the United States. F-122




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) Restatements of U.S. GAAP Consolidated Net Income, Shareholders Equity,
Balance Sheet, and Statement of Cash Flows  i.
    
    In addition to the restatement of its 2001 Chilean GAAP Statement of Cash
Flows as described in Note 2, the Company also made certain adjustments to
its previously -reported consolidated shareholders equity as of December
31, 2002 and consolidated net income (loss) for the years ended December
31, 2002 and 2001, that only had an impact on the Companys previously
reported U.S. GAAP amounts. The total impact of these adjustments on
consolidated shareholders equity as of December 31, 2002 and consolidated
net income (loss) the years ended December 31, 2002 and 2001 under U.S.
GAAP are presented below. Restatements of ThCh$4,212,536 relating to
periods prior to January 1, 2001 were recorded as a reduction of opening
retained earnings as of January 1, 2001: 2001
    
    2002Year ended December 31,
    
    ThCh$
    
    ThCh$Net income (loss) in accordance with US GAAP as previously reported
    
    
    3,088,583
    
    
    
    (329,910,417
    )Price level restatement as of December 31, 2003
    
    
    30,886
    
    
    
    (3,299,104
    )Subtotal
    
    
    3,119,469
    
    
    
    (333,209,521
    )Effect of restatements on previously-reported US GAAP net income (loss):Goodwill - Codensa
    
    
    (1,107,905
    )Minority interest impact of above restatement
    
    
    853,973Net income (loss) in accordance with US GAAP as restated
    
    
    2,865,537
    
    
    
    (333,209,521
    )Basic and diluted earnings (loss) per share as previously reported
    
    
    0.38
    
    
    
    (40.19
    )Basic and diluted earnings (loss) per share as restated
    
    
    0.35
    
    
    
    (40.19
    )
 As ofDecember 31,2001ThCh$Shareholders equity in accordance with US GAAP, as previously reported
    
    
    1,154,673,833Price level restatement as of December 31, 2003
    
    
    11,546,738Subtotal
    
    
    1,166,220,571Effect of restatements on previously-reported US GAAP net income (loss):Goodwill - Codensa
    
    
    17,271,396Minority interest impact of above restatement
    
    
    (13,312,792
    )Shareholders equity in accordance with US GAAP, as restated
    
    
    1,170,179,175
 F-123




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  The following is a description of the adjustments that only had an impact on
net income (loss) and shareholders equity determined in accordance with
U.S. GAAP:  Goodwill  Codensa  Under Chilean GAAP, when we initially recorded the purchase of our interest
in Codensa in 1997, the Company recognized a deferred balance,
Reorganization expenses - Codensa, and an Allowance for Doubtful Accounts
in the opening balance sheet related to certain receivables that the Company
and the acquiree agreed had previously been overvalued. Our deferred
expenses under Chilean GAAP are disclosed in Note 14, Other Assets. Under
U.S. GAAP, this amount should have been recognized as goodwill and not a
separate deferred balance. Further, this deferred balance was incorrectly
expensed as reorganization expenses in 1999. Under U.S. GAAP, we have
restated our previous results to include this balance in goodwill. This
adjustment reflects the effect of the capitalization of the goodwill and the
subsequent amortization recognized. Under U.S. GAAP, prior to the adoption
of SFAS No. 142 effective January 1, 2002, goodwill was capitalized and
amortized over a period not exceeding 40 years. After the adoption of SFAS
No. 142, goodwill is no longer amortized, but tested for impairment at least
annually.ii.
    
    As described above (and Note 2), the Company made certain adjustments to
its 2001 Chilean GAAP Statement of Cash Flows. The effect of the
restatements on the U.S. GAAP 2001 Statement of Cash Flows is set forth in
the table below: Operating
    
    FinancingActivities
    
    ActivitiesUS GAAP Cash flow provided by (used in)
    
    ThCh$
    
    ThCh$As previously reported
    
    
    662,920,609
    
    
    
    (61,414,127
    )Price level restatement as of December 31, 2003
    
    
    6,629,206
    
    
    
    (614,141
    )Subtotal
    
    
    669,549,815
    
    
    
    (62,028,268
    )Interest payments
    
    
    (85,953,318
    )
    
    
    85,953,315Settlement of forward exchange contracts
    
    
    (17,470,297
    )
    
    
    17,470,297Subtotal
    
    
    (103,423,615
    )
    
    
    103,423,612As restated
    
    
    566,126,200
    
    
    
    41,395,344
 F-124




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  iii.
    
    In addition, as discussed in Note 19, Bonds Payable, the holders of our
Series 3 Yankee Bonds had the option to require redemption of the bonds in
December of 2003. The Company has made adjustments to its previously
reported U.S. GAAP current and long-term liabilities to classify these bonds
as current as of December 31, 2002. The effect of the restatements on the
U.S. GAAP balance sheet as of December 31, 2002, is set forth in the table
below: Current
    
    Long-termUS GAAP liabilities:
    
    ThCh$
    
    ThCh$As previously reported
    
    
    2,122,819,104
    
    
    
    5,347,252,501Price level restatement as of December 31, 2003
    
    
    21,228,191
    
    
    
    53,472,525Subtotal
    
    
    2,144,047,295
    
    
    
    5,400,725,026Restatement to current
    
    
    108,869,415
    
    
    
    (108,869,415
    )As restated
    
    
    2,252,916,710
    
    
    
    5,291,855,611
  (a)
    
    Inflation accounting The cumulative inflation rate in Chile as measured by the Consumer Price Index
for the three-year period ended December 31, 2003 was approximately 7.25%.
Pursuant to Chilean GAAP, the Companys financial statements recognize certain
effects of inflation. The inclusion of price-level adjustments in the
accompanying consolidated financial statements is considered appropriate under
the prolonged inflationary conditions affecting the Chilean economy even though
the cumulative inflation rate for the last three years does not exceed 100%.
As allowed pursuant to Item 17 c (iv) of Form-20-F the reconciliation included
herein of consolidated net income, comprehensive income and shareholders
equity, as determined in accordance with U.S. GAAP, excludes adjustments
attributable to the effect of differences between the accounting for inflation
under Chilean GAAP versus U.S. GAAP.  (b)
    
    Reversal of revaluation of property, plant and equipment In accordance with standards issued by the SVS., certain property, plant and
equipment are recorded in the financial statements at amounts determined in
accordance with a technical appraisal. The difference between the carrying
value and the revalued amount is included in shareholders equity, beginning in
1989, in Other reserves, and is subject to adjustments for price-level
restatement and depreciation. Revaluation of property, plant and equipment is
an accounting principle not generally accepted under U.S. GAAP, therefore, the
effects of the reversal of this revaluation, as well as of the related
accumulated depreciation and depreciation expense are included in paragraph
(gg) below. F-125




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  (c)
    
    Depreciation of property, plant and equipment Under Chilean GAAP, certain costs related to the cost of acquisition of Edesur
S.A., at the time of the acquisitions in 1992 and 1994 by Distrilec Inversora
S.A., were charged to earnings as incurred. Under U.S. GAAP, these costs would
have been included in the purchase price and would have been allocated to the
net assets acquired based upon fair values. For purposes of the reconciliation
to U.S. GAAP, these costs were considered to be of part of property, plant, and
equipment, the primary assets of Edesur S.A. As discussed in paragraph (i), under Chilean GAAP, assets acquired and
liabilities assumed are recorded at their carrying value, and the excess of the
purchase price over the carrying value is recorded as goodwill. Under U.S.
GAAP, assets acquired and liabilities assumed are recorded at their estimated
fair values, and the excess of the purchase price over the estimated fair value
of the net identifiable assets and liabilities acquired is recorded as
goodwill. As part of the purchase of the majority ownership interest in
Endesa-Chile, under U.S. GAAP, the cost of the purchase price would have been
allocated to the fair value of property, plant and equipment. The effect on shareholders equity and net income for the years presented is
included in paragraph (gg) below.  (d)
    
    Intangibles Under Chilean GAAP, the Company has recorded intangible assets (consisting
mainly of rights of way) relating to the transfer of revalued assets which
originate in the predecessor company, Compañía Chilena de Distribución
Eléctrica S.A. at the time of the Companys formation. Under U.S. GAAP, such
intangible assets would have been recorded at the Predecessor Companys
carrying values which was zero. The estimated aggregated amortization expense
to be reversed for US GAAP purposes for each of the five succeeding fiscal
years to be as follows: AmortizationYear
    
    ThCh$2004
    
    
    5,722,6982005
    
    
    5,248,9172005
    
    
    4,173,2312007
    
    
    2,160,6542008
    
    
    1,775,204
 The effects of adjusting shareholders equity for this intangible asset net of
accumulated amortization, inclusive of accumulated price-level restatement, and
net income for the annual amortization expense are included in paragraph (gg)
below. F-126




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  (e)
    
    Deferred income taxes Under Chilean GAAP, until December 31, 1999, deferred income taxes were
recorded based on non-recurring timing differences between the recognition of
income and expense items for financial statement and tax purposes.
Accordingly, there was an orientation toward the income statement focusing on
differences in the timing of recognition of revenues and expenses in pre-tax
accounting income and taxable income. Chilean GAAP also permitted not
providing for deferred income taxes where a deferred tax asset or liability,
was either offsetting or not expected to be realized. Starting January 1,
2000, the Company recorded income taxes in accordance with Technical Bulletin
No. 60 of the Chilean Association of Accountants, recognizing, using the
liability method, the deferred tax effects of temporary differences between the
financial and tax values of assets and liabilities. As a transitional
provision, a contra (referred to as complementary) asset or liability has
been recorded offsetting the effects of the deferred tax assets and liabilities
not recorded prior to January 1, 2000. Such complementary asset or liability
are being amortized to income over the estimated average reversal periods
corresponding to the underlying temporary differences to which the deferred tax
asset or liability relates. Under U.S. GAAP, companies must account for deferred taxes in accordance with
SFAS No. 109, which requires an asset and liability approach for financial
accounting and reporting of income taxes, under the following basic principles:  i.
    
    A deferred tax liability or asset is recognized for the estimated future
tax effects attributable to temporary differences and tax loss
carryforwards.ii.
    
    The measurement of deferred tax liabilities and assets is based on the
provisions of the enacted tax law. The effects of future changes in tax
laws or rates are not anticipated.iii.
    
    The measurement of deferred tax assets are reduced by a valuation
allowance, if, based on the weight of available evidence, it is more
likely than not that some portion of the deferred tax assets will not be
realized. Temporary differences are defined as any difference between the financial
reporting basis and the tax basis of an asset and liability that at some future
date will reverse, thereby resulting in taxable income or expense. Temporary
differences ordinarily become taxable or deductible when the related asset is
recovered or the related liability is settled. A deferred tax liability or
asset represents the amount of taxes payable or refundable in future years as a
result of temporary differences at the end of the current year. The principal difference relates to the reversal of the complementary assets
and liabilities recorded as a transitional provision for unrecorded deferred
taxes as of January 1, 2000 and their corresponding amortization into income.
The effect of these differences on the net income and shareholders equity of
the Company is included in paragraph (gg) below. F-127




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  (f)
    
    Severance indemnity As described in Note 2 n, under the Companys employment contracts, it has
committed to provide a lump sum payment to each employee at the end of their
employment, whether due to death, termination, resignation or retirement.
Those obligations are calculated based on the present value of the liability
determined at each year-end based on the current salary, average service life
of each employee and discounted at an interest rate determined every three
years. The Company and certain of its subsidiaries used a discount rate of
9.5% for the years ended December 31, 2002 and 2003, and assumed an average
service life which varies based upon years of service with the Company. Under US GAAP, this arrangement is considered to be a termination indemnity
plan and should therefore be accounted for in accordance with SFAS No. 87,
Employers Accounting for Pensions. The liability would be measured at the
actuarial present value as of the balance sheet of all benefits attributed by
the severance indemnity benefit formula to employee service rendered prior to
the balance sheet. The projected benefit obligation is measured using
assumptions as to future compensation levels. For U.S. GAAP purpose the
discount rate has to be reassessed every year, to the relevant discount rate
for the period between the date and the expected date of payment. Consequently,
the discount rates to be applied for each of the years should have been 8.1% of
2001 and 6.5% for 2002. In practice, the Company believes that the salary
progression rate will not differ significantly from the general inflation rate.
In 2003 the Company for US GAAP purposes used 6.5% discount rate in according
with the above guidance the impact of using the appropriate discount rates
under US GAAP for 2001 and 2002 would have not resulting a material difference
than the rate use in accordance with Chilean GAAP. The Company recognizes actuarial gains and losses immediately for Severance
indemnity plans for both Chilean GAAP and U.S. GAAP. The effects of accounting for severance indemnity benefits under US GAAP have
been presented in paragraph (gg).  (g)
    
    Pension and post-retirement benefits The Company has obligations related to post-retirement benefits as stipulated
in collective bargaining agreements and pension obligations as stipulated by
contract for its subsidiares in Brazil, Colombia and Chile under U.S. GAAP,
post-retirement benefits are accounted for under SFAS 106 and pension
obligations are accounted for under SFAS 87 which results in the following
differences:  
    
    In 2000, the Company recorded its obligation for post-retirement
benefits at our consolidated subsidiaries, Cerj and Coelce under
Chilean GAAP. Technical Bulletin 8 allows the Company to record a
transition asset for post-retirement benefits and pension obligations,
as calculated under Chilean GAAP, and to amortize the amount, on a
straight-line basis, for up to five years. The Company is amortizing
this amount over a period of three years. Cerj and Coelce had adopted
U.S. GAAP for external reporting purposes prior to 2000 and there was
no remaining unamortized transition obligation. Therefore, the
amortization that is appropriately being recorded under Chilean GAAP
for the transition asset related to post-retirement benefits and
pensions is reversed in our reconciliation to U.S. GAAP.  
    
    Under both Chilean GAAP and US GAAP, actuarial gains/losses are
deferred over the average remaining service period when the cumulative
amount of deferred actuarial gains and losses exceeds 10% of the
higher of the projected benefit obligation or fair value of plan
assets. F-128




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  
    
    Chilean GAAP recognizes an additional minimum liability, similar to that
defined under SFAS 87, through the income statement. Under US GAAP if the
amount of the additional minimum liability required to be recognized
exceeds the unrecognized prior service costs, the excess shall be reported
as a separate component within other comprehensive income net of any tax
benefits, if no excess exists the additional minimum liability is
recognized an intangible asset is recognized in respect of the prior
service cost not get recognize. The effects of accounting for post-retirement benefits under US GAAP have been
presented in paragraph (gg).  (h)
    
    Investments in related companies The Companys equity share of the effect of the adjustments from Chilean GAAP
to U.S. GAAP of equity accounted investees is included in paragraph (gg) below.
The principal U.S. GAAP adjustments affecting the Companys equity investees
are as follows:  (a)
    
    Reversal of complementary accounts (asset or liability) recorded as a
transitional provision as of January 1, 2000.(b)
    
    Organizational costs deferred under Chilean GAAP that, under U.S. GAAP,
should have been included in income.(c)
    
    For the year beginning January 1, 2001, the recording of derivative
instruments in accordance with SFAS No. 133.(d)
    
    The deferred income tax effects of adjustments (b) and (c).  (i)
    
    Goodwill and long-lived assets  (i)
    
    Under Chilean GAAP, assets acquired and liabilities assumed are recorded
at their carrying value, and the excess of the purchase price over the
carrying value are recorded as goodwill. Circular No. 1358, dated
December 3, 1997 issued by the SVS, extended the maximum amortization
period of goodwill to 20 years form the previous 10 years.Under U.S. GAAP, assets acquired and liabilities assumed are recorded at
their estimated fair values, and the excess of the purchase price over the
estimated fair value of the net identifiable assets and liabilities acquired
are recorded as goodwill. Up until December 31, 2001, the Company amortized
goodwill on a straight-line basis over the estimated useful lives of the
assets, ranging from 20 to 40 years. Goodwill acquired after June 30, 2001
is not amortized (see Note 34 II (o)). In accordance with SFAS No. 142, the
Company discontinued amortizing goodwill on January 1, 2002. The effects of
recording the different amortization periods and reversing the amortization
of goodwill for 2002 are included in paragraph (gg) below.Under Chilean GAAP, the Company has evaluated the carrying amount of
goodwill net of negative goodwill for impairment. The measurement of the
impairment loss was based on the fair value of the investment which the
Company determined using a discounted cash flow approach and recent
comparable transactions in the market. In order to estimate fair value, the
Company made assumptions about future events that are highly uncertain at
the time of estimation. The results of this analysis showed that the
goodwill and negative goodwill F-129




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ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued)  associated with investments in Argentina and Brazil were impaired because
estimated future discounted cash flows were not sufficient to recover
goodwill and negative goodwill. During 2002, under Chilean GAAP the Company
recorded a net charge related to its investments in Central Costanera S.A.,
Hidroeléctrica El Chocón S.A., Hidroinvest S.A., Lajas Inversora S.A.,
Central Eléctrica Cachoeira Dourada S.A., Cía. de Electricidade do Rio de
Janeiro S.A., Coelce S.A., Distrelec Inversora S.A., Edesur S.A., and
Investluz S.A., in the amount of ThCh$238,798,904 net minority interest, to
write-off all amounts of goodwill and negative goodwill.In accordance with U.S. GAAP, the Company adopted SFAS No. 142 Goodwill and
Other Intangible Assets, (SFAS No. 142) as of January 1, 2002. SFAS 142
applies to all goodwill and intangible assets acquired in a business
combination. Under the new standard, all goodwill, including that acquired
before initial application of the standard, and indefinite-lived intangible
assets are not amortized, as of the effective date but must be tested for
impairment at least annually. The transitional impairment test required by
the standard was performed and no adjustment for impairment was required.
However, based on subsequent testing of the Companys investments in
Argentina and Brazil performed as of December 31, 2002, it was determined
that these investments were impaired. The following net effects are
included in the net income (loss) and shareholders equity reconciliation to
U.S. GAAP under paragraph (gg) below:  (a)
    
    the reversal of goodwill amortization related to reporting units
that were not found to be impaired under U.S. GAAP for the year ended
December 31, 2002, and adjustment of goodwill amortization which is
different in amount because of goodwill basis differences in 2001.(b)
    
    the adjustment to record the reversal of the impairment recorded
under Chilean GAAP during 2002, which is different in amount because of
goodwill basis differences,(c)
    
    the adjustment to record the impairment under US GAAP from
investment in Argentina and Brazil.  The adjustment as of each year are as follows: As of December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Adjustment of goodwill amortization
    
    
    (2,218,785
    )
    
    
    54,467,593
    
    
    
    51,133,050Reversal of impairment record under Chilean GAAP
    
    
    
    
    
    
    456,940,020Impaiment of goodwill under US GAAP
    
    
    
    
    
    
    (606,383,813
    )Totals
    
    
    (2,218,785
    )
    
    
    (94,976,200
    )
    
    
    51,133,050
 F-130




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued)  Had we adopted SFAS No 142 effective January 1, 2001 and accordingly
not amortized goodwill for the years ended December 31, 2001 our net
gain (loss) and basic income (loss) per share should have been as
follows: 2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Net income (loss) in accordance with U.S. GAAP before
cumulative effect of change in accounting principle
    
    
    (18,359,658
    )
    
    
    (333,209,521
    )
    
    
    29,268,881Goodwill amortization under US GAAP add back
    
    
    (83,600,896
    )
    
    
    
    
    
    
    Adjusted net income (loss) in accordance with U.S. GAAP before
cumulative effect of change in accounting principle
    
    
    65,241,238
    
    
    
    (333,209,521
    )
    
    
    29,268,8812001
    
    2002
    
    2003Ch$
    
    Ch$
    
    Ch$Basic earnings per share:Net income (loss) in accordance with U.S. GAAP before effect of
discontinued operations, and cumulative effect of change in
accounting principle
    
    
    (2.21
    )
    
    
    (40.19
    )
    
    
    1.45Goodwill amortization under US GAAP add back
    
    
    (10.08
    )
    
    
    
    
    
    
    Adjusted net income (loss) in accordance with U.S. GAAP before effect
cumulative effect of change in accounting principle
    
    
    7.87
    
    
    
    (40.19
    )
    
    
    1.45
  (ii)
    
    The company has considered important factors, which could trigger an
impairment review, such as the following:  
    
    Significant underperformance relative to expected historical or
projected future operating results;
    
    Significant changes in the manner of use of the acquired assets or
the strategy for our overall business; and
    
    Significant negative industry or economic trends  In accordance with SFAS No.121, Accounting for the Impairment of Long-Lived
Assets and for Long Lived Assets to Be Disposed Of during 2001, which was
superceded by SFAS No.144, Accounting for the Impairment or Disposal of
Long-Lived Assets beginning in 2002, the Company evaluates the carrying
amount of property, plant and equipment and other long-lived assets, in
relation to the operating performance and future undiscounted cash flows of
the underlying business. These standards require that an impairment loss be
recognized in the event that facts and circumstances indicate that the
carrying amount of an asset may not be fully recoverable. Impairment is
recorded based on an estimate of future discounted cash flows, as compared
to current carrying amounts. For the years ended December 31, 2001, 2002,
and 2003, no additional amounts were recorded for impairment under U.S.
GAAP, except for
adjustments for this concept recorded under Chilean GAAP in the subsidiaries
Centrais Eléctrica Cachoeira Dourada S.A. and Inmobiliaria Manso de Velasco
Limitada, which are included in other non-operating expenses (see Note 23).
This amounts are reclassified to operating income for US GAAP purposes. F-131




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (j) Negative Goodwill Under Chilean GAAP, the excess of the carrying value of the assets assumed in a
business combination over the purchase price is recorded as negative goodwill.
Circular No. 1358, dated December 3, 1997 issued by the SVS, extended the
maximum amortization period of negative goodwill to 20 years from the previous
5 years. Under U.S. GAAP, the fair values of the assets acquired less the fair
values of the liabilities assumed in excess of over the purchase price is
allocated proportionately to reduce the values assigned to non-current assets.
If the allocation reduces the non-current monetary assets to zero, the
remainder of the excess is recorded as a deferred credit account called
negative goodwill upon adoption of SFAS 142 in January 1, 2002 the excess will
no longer be deferred but recognized immediately in income. The effect of
reducing depreciation expense, due to the proportionate allocation of the
excess purchase price to property, plant and equipment, as compared to the
amortization of negative goodwill under Chilean GAAP and the reversal of
negative goodwill write-offs described in paragraph (i), which did not meet the
U.S. GAAP impairment criteria for long-lived assets under SFAS No. 144
described above, and updated amortization period under the Circular No. 1.358
are included in paragraph (gg) below. (k) Capitalized interest and exchange differences In accordance with Chilean GAAP, the Company has capitalized both interest on
debt directly related to property, plant and equipment under construction and
finance costs corresponding to exchange differences generated by the loans
associated with such assets. The capitalization of interest costs associated
with projects under construction is optional when incurred on debt that is not
directly related to such projects. The Company has optioned for not
capitalizing indirect interest cost under Chilean GAAP. Under U.S. GAAP, the capitalization of interest on qualifying assets under
construction is required, regardless of whether interest is associated with
debt directly related to a project to the extent that interest cost would have
been available if the project had not been done. In addition, under U.S. GAAP,
foreign translation exchange differences may not be capitalized. The
accounting differences between Chilean and U.S. GAAP for financing costs and
the related depreciation expense are included in the reconciliation to U.S.
GAAP under paragraph (gg) below. (l) Accumulated deficit during the development stage Under Chilean GAAP, the losses incurred during the development stage of
subsidiary companies is recorded directly in the parent companys equity.
Under U.S. GAAP, such costs must be charged to income as incurred. The effects
are included in paragraph (gg) below. F-132




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (m) Minimum dividend As required by the Chilean Companies Act, unless otherwise decided by the
unanimous vote of the holders of issued and subscribed shares, the Company must
distribute a cash dividend in an amount equal to at least 30% of its net income
for each year as determined in accordance with Chilean GAAP, unless and except
to the extent the Company has unabsorbed prior year losses. Since the payment
of the 30% dividend out of each years income is required by Chilean law, an
accrual was made in the reconciliation in paragraph (gg) below to reflect the
unrecorded dividend liability for 2001. In April 2002, the meeting of shareholders decided, that dividends would
consist of the income from normal company operations defined as income before
amortization of negative goodwill in the income statement. Therefore, the
distributable profit at December 31, 2001 was zero, necessitating a reversal of
the prior year accrual under U.S. GAAP. (n) Capitalized general and administrative expenses Until 1993, Endesa-Chile capitalized a portion of its administrative and
selling expenses as part of the cost of construction in progress because a
substantial portion of the efforts of management were involved in the
administration of major projects. Under U.S. GAAP, general and administrative
expenses are charged to expense unless they can be directly identified with the
supervision of the construction of specific projects. The effects of
eliminating capitalized general and administrative expenses and the related
depreciation for U.S. GAAP purposes are shown below under paragraph (gg). (o) Involuntary employee termination benefits Under Chilean GAAP, the Argentine subsidiaries, Central Costanera and
Hidroelectricidad, recorded an accrual of certain involuntary employees
termination benefits related to the restructuring plan announced in 1997.
Since that date employees have continued to be made redundant pursuant to this
plan. In accordance with U.S. GAAP, at that time in order to recognize a
liability at the balance sheet date for the cost to terminate employees
involuntarily, there must be a plan that specifically includes notification to
employees prior to the balance sheet date. As of December 31, 2001, 2002 and
2003, this requirement had not been met. The net effect of eliminating the
accrued liability recognized under Chile GAAP is presented in paragraph (gg)
below. (p) Adjustment in selling price of investment Under Chilean GAAP, pursuant to the share transaction contract entered into in
1995 between Endesa-Chile and Endesa Overseas Co. with Enersis Intemational
Limited, Chilectra S.A. and Chilectra Intemational Limited, Endesa Argentina
recognized income related to an adjustment of the share purchase price. Under
U.S. GAAP, the contingent price adjustment would be considered a
part of the purchase price, and would therefore be offset against the amount of
goodwill that was originally determined. As described in paragraph (i), the
Company determined goodwill amounts recorded in investments in Argentina were
impaired as of December 31, 2002, thus the adjustment in selling price of
investment is a basis difference between Chilean and U.S. GAAP was eliminated F-133




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) after the impairment charge recorded in 2002. The effects of the adjustments
to conform to U.S. GAAP are included under paragraph (gg) below. (q) Elimination of capitalized interest in Brazil Under Chilean GAAP, the Company capitalized interest to property, plant and
equipment as a result of the creation of a legal reserve specifically permitted
in Brazil for the electricity industry with credit against interest expense.
Under U.S. GAAP, interest capitalized must be based on actual interest
incurred, and as such the effects of the elimination of the interest
capitalized to property, plant and equipment and the effects on depreciation
expense are included in paragraph (gg) below. (r) Organizational and start-up costs Certain costs related to the organization and creation of certain subsidiaries
of the Company are deferred and capitalized under Chilean GAAP and amortized.
Under U.S. GAAP, such organizational and start-up costs may not be deferred and
must be included in income as incurred. The effects of the difference are
included in paragraph (gg) below. (w) Translation of Financial Statements of Investments Outside of Chile Under Chilean GAAP, in accordance with Technical Bulletin 64 (B.T. 64) the
financial statements of foreign subsidiaries that operate in countries exposed
to significant risks (unstable countries), and that are not considered to be
an extension of the parent companys operations, are remeasured into US
dollars. The Companys foreign subsidiaries in Argentina, Perú, Brazil, and
Colombia all meet the criteria of foreign subsidiaries that operate in
countries exposed to significant risks under BT 64, and are remeasured into US
dollars. The Company has remeasured its foreign subsidiaries into US dollars
under this requirement as follows:  
    
    Monetary assets and liabilities are translated at year-end rates of
exchange between the US dollar and the local currency.
    
    All non-monetary assets and liabilities and shareholders equity are
translated at historical rates of exchange between the US dollar and the
local currency.
    
    Income and expense accounts are translated at average rates of exchange
between the US dollar and local currency.
    
    The effects of any exchange rate fluctuations between the local currency
and the US dollar are included in the results of operations for the
period. Under BT 64, the investment in the foreign subsidiary is price-level restated,
the effects of which are reflected in income, while the effects of the foreign
exchange gains or losses between the Chilean Peso and the US dollar on the
foreign investment measured in US dollars, are reflected in equity in the
account Cumulative Translation Adjustment. The amount of foreign exchange gain (loss) included in income that is
attributable to operations in unstable countries because these amounts have
been remeasured into US dollars was ThCh$23,479,750, ThCh$181,846,422 and
ThCh$(67,511,676) for the years ended December 31, 2001, 2002 and 2003,
respectively (See Note 24). F-134




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Companys Management believes that, foreign currency translation procedures
described above are part of the comprehensive basis of preparation of
price-level adjusted financial statements required by Chilean GAAP. Inclusion
of inflation and translation effects in the financial statements is considered
appropriate under the inflationary conditions that have historically affected
the Chilean economy, and accordingly, are not eliminated in the reconciliation
to U.S. GAAP as permitted by Item 17 b (iv) of Form 20-F. (t) Derivative instruments Under Chilean GAAP, forward foreign exchange contracts and currency swaps are
used to hedge existing balance sheet risks or fair value hedges, while
interest swaps and collars are used to hedge against future transaction risks
or cash flow hedges. Fair value hedges are recorded at fair values with
losses recorded at the time of their estimation and gains deferred until the
transaction date or to the extent losses have been previously recorded, while
gains and losses from cash flow hedges are deferred as either an asset or a
liability until the transaction date. The hedging criteria and documentation
requirements under Chilean GAAP are less onerous than U.S. GAAP. Realized
gains and losses are recorded in Other non-operating income and expense. Prior
to January 1, 2001, under U.S. GAAP, contracts that were designated and
effective as hedges of existing assets and liabilities were recorded at the
closing spot exchange rate and included in earnings with the initial discount
or premium amortized over the life of the contract as interest expense.
However, contracts not designated or ineffective were recorded at fair value
with the unrealized gains and losses recognized in income. For contracts with
fair values different from the values of the contracts at the closing spot
exchange rate, a difference between U.S. and Chilean GAAP resulted. The
effects of the difference were not considered material to the consolidated
financial statements and accordingly were not previously included in paragraph
(gg) below. Currently under U.S. GAAP, the accounting for derivative instruments is
described in SFAS No. 133 Accounting for Certain Derivative Instruments and
Certain Hedging Activities (SFAS No. 133) and other complementary rules and
amendments. SFAS No. 133, as amended, establishes accounting and reporting
standards requiring that every derivative instrument (including certain
derivative instruments embedded in other contracts) be recorded in the balance
sheet as either an asset or liability measured at its fair value. SFAS No. 133
requires that changes in the derivative instruments fair value be recognized
currently in earnings unless specific hedge accounting criteria are met.
Special accounting for qualifying hedges allows a derivative instruments gains
and losses to offset related results on the hedged item in the income
statement, to the extent effective, and requires that a company must formally
document, designate, and assess the effectiveness of transactions designated
for hedge accounting. F-135




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) The Company adopted SFAS No. 133, as amended, on January 1, 2001. SFAS No. 133
required that as of the date of initial adoption, the difference between the
market value of derivative instruments recorded on the balance sheet and the
previous carrying amount of those derivatives be reported in net income or
other comprehensive income, as appropriate, as the cumulative effect of a
change in accounting principle in accordance with Accounting Principles Board
Opinion No. 20, Accounting Changes. SFAS No. 133 cannot be applied
retroactively. SFAS No. 133 must be applied to (a) derivative instruments and
(b) certain embedded derivative instruments. As permitted under this standard,
the Company has applied SFAS No. 133 to only those embedded instruments that
were issued, acquired, or substantively modified after January 1, 1999. SFAS No. 133, in part, allows special hedge accounting for fair value and
cash flow hedges. SFAS No. 133 provides that the gain or loss on a derivative
instrument designated and qualifying as a fair value hedging instrument as
well as the offsetting loss or gain on the hedged item attributable to the
hedged risk be recognized currently in earnings in the same accounting period.
The accounting standard provides that the effective portion of the gain or loss
on a derivative instrument designated and qualifying as a cash flow hedging
instrument be reported as a component of other comprehensive income and be
reclassified into earnings in the same period or periods during which the
hedged forecasted transaction affects earnings. The remaining gain or loss on
the derivative instrument, if any, must be recognized currently in earnings.
While the Company enters into derivatives for the purpose of mitigating its
global financial and commodity risks, these operations do not meet the
documentation requirements to qualify for hedge accounting under U.S. GAAP.
Therefore changes in the respective fair values of all derivatives are reported
in earnings when they occur. Current Chilean accounting rules do not consider the existence of derivative
instruments embedded in other contracts and therefore they are not reflected in
the financial statements. For U.S. GAAP purposes, certain implicit or explicit
terms included in host contracts that affect some or all of the cash flows or
the value of other exchanges required by the contract in a manner similar to a
derivative instrument, must be separated from the host contract and accounted
for at fair value. The Company separately measures embedded derivatives as
freestanding derivatives instruments at their estimated fair values recognizing
changes in earnings when they occur. Estimates of fair values of financial instruments for which no quoted prices or
secondary market exists have been made using valuation techniques such as
forward pricing models, present value of estimated future cash flows, and other
modeling techniques. These estimates of fair value include assumptions made by
the Company about market variables that may change in the future. Changes in
assumptions could have a significant impact on the estimate of fair values
disclosed. As a result such fair value amounts are subject to significant
volatility and are highly dependent on the quality of the assumptions used. The Company is also exposed to foreign currency risk arising from long-term
debt denominated in foreign currencies, the majority of which is US dollar.
This risk is partially mitigated, as a
substantial portion of the Companys revenues are either directly or indirectly
linked to the US dollar. Additionally, the Company records the foreign
exchange gains and losses on liabilities related to net investments in foreign
countries which are denominated in the same currency as the functional currency
of those foreign investments. Such unrealized gains and losses are included in F-136




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) the cumulative translation adjustment account in shareholders equity, and in
this way act as a net investment hedge of the exchange risk affecting the
investments (see Note 11 (c) and Note 22 (e) for further detail). The Company
also uses short duration forward foreign currency contracts and swaps, and
cross-currency swaps, where possible, to manage its risk related to foreign
currency fluctuations. The effect of adopting SFAS No. 133 as of January 1, 2001, resulted in a
cumulative effect on net income of ThCh$21,225,196 net of deferred taxes for
ThCh$47,041,680 and minority interest for ThCh$63,247,656, which is presented
under the caption Cumulative effect of changes in accounting principles, the
effects of the adjustment with respect to financial derivatives, commodity
derivatives, and embedded derivatives for the year ended on December 31, 2001
is included in the net income and shareholders equity reconciliation to U.S.
GAAP under paragraph (gg) below. (u) Fair value of long-term debt assumed As discussed in paragraph (i), under Chilean GAAP, assets acquired and
liabilities assumed are recorded at their carrying value, and the excess of the
purchased price over the carrying value are recorded as goodwill. Under U.S.
GAAP, assets acquired and liabilities assumed are recorded at their estimated
fair values, and the excess of the purchased price over the estimated fair
value of the net identifiable assets and liabilities acquired are recorded as
goodwill. As part of the purchase of the majority ownership interest in
Endesa-Chile, under U.S: GAAP, the cost of the purchase price would have been
allocated to the fair value of long-term debt. The effect on shareholders
equity and net income for the years presented is included in paragraph (gg)
below. (v) Effects on US GAAP of sale of subsidiary Río Maipo The adjustment of the net gain obtained from the sale of the subsidiary
Compañía Eléctrica del Río Maipo S.A results from the reversal of the
accumulated US GAAP adjustment at December 31, 2002. As explained in Note 11d)
this subsidiary was sold in April 2003. The reversal of these adjustment
increased by ThCh$489,353 the gain obtained from the sale of this subsidiary. The operating income generated by Río Maipo until disposal date amounted to
ThCh$2,759,358 (sales amounted to ThCh$14,462,630 less cost of sales amounted
to ThCh$10,817,530 and administrative and selling expenses amounted to
ThCh$885,742) was reclassified from Non-operating income to Operating Income in
accordance with US GAAP (see Note 37 II (k)). The sales of subsidiaries Infraestructura 2000 and Canutillar Plan did not
provide for any US GAAP difference adjustment. F-137




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (w) Deferred income During 2000,
fiber optic cable was contributed to the Company in return for
granting the contributing company access to the fiber optic network after
installation in the Companys electricity distribution system. Under Chilean
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 and amortized over the life of the related service contract. This
adjustment reverses the gain under Chile GAAP and records the amortization of
the deferred income recognized under U.S. GAAP. The effect on shareholders
equity and net income for the years presented is included in (gg) below. (x) Regulated assets and deferred costs The electricity sector in Chile and other countries of operation in Latin
America is regulated pursuant to the Chilean and other country electricity
laws. Most of the Companys sales are subject to node price regulation, which
is designed to ensure an adequate supply of energy at reasonable, determined
prices, which considers a variety of factors. The marginal cost pricing model
is not solely based upon costs incurred by the Company, and as a result, the
requirements of U.S. GAAP under SFAS No.71, Accounting for the Effects of
Certain Types of Regulation, related to a businesses whose rates are regulated
are not applicable to the Companys financial statements, except for the
Companys operations in Brazil as described below. As a result of changes in Brazilian Electricity Laws and Regulations, the
Companys distribution subsidiaries in Brazil, Companhia de Electricidad do Rio
de Janeiro (Cerj) and Companhia Energética do Ceará (Coelce), are subject to
the provisions of SFAS No. 71 beginning on January 1, 2001. With the new
regulations issued by the National Agency of Electrictric Energy (ANEEL), the
rate-setting structure in Brazil is now designed to provide recovery for
allowable costs incurred, which will be recovered through future increases in
energy tariffs in order to recover losses experienced during the period of
Brazilian Federal Government mandated energy rationing from June 1, 2001 to
December 31, 2001. The Company estimates remaining costs will be recovered
over a period estimated of three years, from the balance date. Accordingly, the Company capitalizes incurred costs as deferred regulatory
assets when there is a probable expectation that future revenue equal to the
costs incurred will be billed and collected as a direct result of the inclusion
of the costs in an increased rate set by the regulator. The deferred
regulatory asset is eliminated when the Company collects the related costs
through billings to customers. ANEEL perform a rate review on an annual basis.
If ANEEL excludes all or part of a cost from recovery, that portion of the
deferred regulatory assets is impaired and is accordingly reduced to the extent
of the excluded cost. The Company has recorded deferred regulatory assets,
which it expects to pass on to its customers in accordance with and subject to
regulatory provisions. The regulations also included certain VPA costs, which are certain that each
distribution company is permitted to defer and pass on the their customers
using future rate adjustments. VPA costs are limited by concession contracts
to the cost of purchased power and certain other costs and taxes. Due to
uncertainly in the Brazilian economy, ANEEL delayed the approval of such VPA
rate F-138




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) increases. An Executive Order in October 2001 created a tracking account
mechanism, in order to calculate the variation in the VPA costs for future rate
adjustment calculation purposes. The Company has not recognized any regulatory
assets for VPA costs incurred prior to 2001, because costs incurred prior to
January 1, 2001, are not recoverable through the tracking account. Under Chilean GAAP, the Company recognized revenue and deferred costs related
to the regulated assets. Under U.S. GAAP, in accordance with Emerging Issues
Taskforce (EITF) No. 92-7, Accounting by Rate Regulated Utilities for the
Effects of Certain Alternate Revenue Programs, revenue amounts not expected to
be collected within 24 months, have been deferred. The effect of deferring
revenues expected to be collected after two years is included in (gg) below. (y) Reorganization of subsidiaries Corresponds to the reorganization of the Companys subsidiaries Central
Costanera and Central Buenos Aires (CBA) during 2001, in which Central
Costanera acquired the minority interest in CBA from third parties and
exchanged shares with Endesa Argentina. Under Chilean GAAP, the Company
recorded the goodwill for the proportional minority interest acquired as the
difference between the purchase price and the carrying values of the assets
acquired and liabilities assumed. Under U.S. GAAP, the proportional fair value
of the assets acquired compared to the purchase price was recorded as goodwill.
The effect on shareholders equity is included in (gg) below. (z) Assets held for sale Under Chilean GAAP the Company records divestitures of investments or assets in
the year in which they occur. Under U.S. GAAP, in accordance with SFAS No.
144, long-lived assets for which there is a plan to sell the assets within the
following year, shall be disclosed separately from the Companys other assets,
provided all the criteria are met. Additionally, long-lived assets classified
as held for sale must be measured at the lower of their carrying amount or fair
value less cost to sell. Long-lived assets shall not be depreciated while they
are classified as held for sale, while interest and other expenses attributable
to the liabilities of a disposal group classified as held for sale shall
continue to be accrued. The Companys Board of Directors approved a plan to sell a number of the
Companys assets during October 2002. The following assets to be sold meet the
definition of, reporting units or long-lived assets held for sale:  
    
    Compañía Eléctrica del Río Maipo S.A.
    
    Central Canutillar power plant
    
    Gas Atacama transmission lines
    
    CELTA transmission lines
    
    Infraestructura 2000 S.A. F-139




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) The Company evaluated the carrying values of all assets held for sale,
recording a loss to the extent that one of the assets fair values less cost to
sell was lower than the carrying value of those assets. Additionally, the
Company ceased recording depreciation expense once the assets met the
qualification criteria of held for sale, which varied from October to December
2002. The effect of these adjustments is included in the net income and
shareholders equity reconciliation to U.S. GAAP under paragraph (gg) below. (aa) Elimination of discontinued operations Under Chilean GAAP, no restatement to the financial statement information
presented in previous years is required after a divestiture has occurred.
Under US GAAP, in accordance with SFAS No. 144, the discontinued operations of
a component must be retroactively separated from the continuing operations of
an entity, when the operations and cash flows of a component which will be
eliminated from the ongoing operations of an entity as a result of a disposal
transaction will not have any significant continuing involvement in the
operations of a component after the disposal transaction. The Company evaluated whether any of the assets held for sale met either
criteria, noting that the transmission lines and power plant are not
components, as they are included as a part of larger cash flow generating
groups, and the operations of these assets cannot be separated from their
respective groups. Additionally, Endesa-Chile plans to continue generating
revenues from Canutillar through a purchase power agreement, management
agreement, and a transmission leasing arrangement with the future buyer.
Infraestructura 2000 S.A. meets the conditions for being classified as a
discontinued operation, because it has distinct and separable financial results
from operations and cash flows. As a result of the disposal the results of
operations of the reporting unit have been eliminated from the ongoing
operations of Enersis, as Enersis will not have any continuing involvement in
the operations of Infraestructura 2000 S.A. after its sale. The Rio Maipo
facility was classified as held for sale on December 31, 2002. In April,
2003, the Company sold facility. In accordance with SFAS 144, the Company
determined that the Rio Maipo did not meet the criteria to be classified as a
discontinued operations as Enersis will have a significant continuing
involvement through continuing sales to Rio Maipo though its subsidiary Endesa
 Chile. The effect of restating discontinued operations is included in the
net income reconciliation to U.S. GAAP under paragraph (gg) below. (bb) Effects of minority interest on the U.S. GAAP adjustments The net income and shareholders equity under Chilean GAAP is adjusted at the
U.S. GAAP footnote for the impact of the U.S. GAAP reconciling items on the
allocation of income and loss to minority interests. The effect of this
adjustments is included in net income and shareholders equity reconciliation
to US GAAP under paragraph (gg) below. The sum of this adjustment and the
minority interest reflected in our consolidated income statement and balance
sheet for each period presented under Chilean GAAP represents the allocation of
our results and shareholders equity to our minority shareholders under U.S.
GAAP. F-140




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (cc) Extraordinary Items In 2002, the Company incurred a Chilean GAAP extraordinary charge in accordance
with Decree No. 1,949 of the Republic of Colombia for a tax that will be used
for Colombias democratic security, as disclosed in Note 27 Extraordinary
Items. Under U.S. GAAP, this charge is classified as income tax expense in
accordance with SFAS 109, Accounting for Income Taxes (SFAS 109), as discussed
in Note 37 II k) Reclassification to U.S. GAAP. (dd) Negative Goodwill CERJ In January 2003, CERJ, one of our Brazilian subsidiaries approved a capital
increase as a result of which our ownership interest in CERJ increases, as
certain minority shareholders, including certain wholly owned subsidiaries of
Endesa-Spain, Enersis ultimate parent company did not participate. Under Chile GAAP in accordance with BT. No 42 and SVS Circular 368 the company
recognized the value of the discount between the amount contributed and the
underlying net book in the company was recognized as a negative goodwill, to be
amortized over a 20 year period. In accordance the appropriate guidance,
Enersis is allowed to fully amortized into income the amount of any negative
goodwill, if during the first year subsequent to the capital increase the
amount of the losses incurred by the subsidiary is in excess the amount of
negative goodwill. During 2003, CERJ incurred losses in excess of the negative
would recognized consequently Enersis fully amortized into income the negative
goodwill originally recognized. Under US GAAP, the transaction would be
considered a transaction between entities under common control in which the
minority interest did not participate, consequently similar to the guidance in
FTB No. 85-5, Issues Relating to Accounting for Business Combinations the
transaction is accounted for as a recovery from the minority interest..
Consequently the amount of the discount under book value is accounted for
directly as an increase of consolidated equity. The effects in net income of the US GAAP adjustment are presented in note (gg)
below (ee) Extinguishment of debt In March 2003, certain bondholders were granted an option to exchange between
November 1, and 15, 2003 their bonds in exchange for shares of the Company at a
fixed price of Ch 60,4202. Under Chile GAAP the transaction was accounted for
as an exchange of debt for equity with the difference between the carrying
amount of the debt and the strike price of the conversion recognized directly
in equity a share premium. Under US GAAP the transaction should be recognized
as an extinguishment of debt in accordance with APB No. 14, using as
reacquisition price of the extinguished debt the value of the common issued or
the value of the debtwhichever is more clearly evident, as Enersis stock is
publicly trade the fair value of the shares is being considered to be more
clearly evident. The average conversion price during November 2003, the
conversion period was Ch 78 per share. The effects in net income and shareholders equity of the US GAAP adjustment
are presented in note (gg) below. (ff) Asset retirement obligations Under Chilean GAAP, there is no requirement to record obligations associated
with the retirement of tangible long-lived assets. Under U.S. GAAP, the
Company adopted SFAS No. 143,
Accounting for Asset Retirement Obligations effective January 1, 2003.
Previously, the Company had not been recognizing amounts related to asset
retirement obligations under U.S. GAAP. F-141




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) SFAS No. 143 requires entities to record the fair value of a legal liability
for an asset retirement obligation in the period of its inception. For the
Company, such liabilities primarily relate to assets. The liability is
recorded at its net present value with a corresponding increase in the carrying
value of the related long-lived asset. The liability is accreted each period,
representing the time value of money, and the capitalized cost is depreciated
over the remaining useful life of the related asset. As SFAS No. 143 required retrospective application to the inception of the
liability, the effects of the adoption reflect the accretion and depreciation
from the liability inception date through December 31, 2002. The cumulative
effect of the change in accounting principle on prior years resulted in a
charge to income of ThCh$280,490 (net of income taxes and minority interest of
ThCh$150,612) (Ch$0.03 per share) during the year ended December 31, 2003. The
effect of the adoption of SFAS No. 143 on the year ended December 31, 2003 was
to decrease net income in accordance with U.S. GAAP before the cumulative
effect of the change in accounting principle by ThCh$25,719 (net of income
taxes and minority interest of ThCh$12,760) (Ch$0.001 per share). The effects
of this U.S. GAAP adjustment on net income and shareholders equity are
presented in note (gg) below. In Peru, where we have eight hydroelectric plants and one thermoelectric plant,
existing legislation includes the requirement for entities with electrical
assets to conduct retirement activities when operations cease. In Chile, under
certain concession decrees governing four distribution lines, we are similarly
required to conduct retirement activities upon cessation of operations. F-142




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) (gg) Effect of conforming to U.S. GAAP The reconciliation of reported net income required to conform with U.S. GAAP is as follows: As of December 31,2001(Restated)
    
    2002(Restated)
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Net income (loss) in accordance with Chilean GAAP
    
    
    42,575,573
    
    
    
    (225,985,568
    )
    
    
    12,467,863Reversal of amortization of revaluation of property, plant and equipment (paragraph b)
    
    
    1,918,777
    
    
    
    3,370,176
    
    
    
    1,612,891Depreciation of property, plant and equipment and difference in fixed assets
value at acquisition date (paragraph c)
    
    
    (1,863,883
    )
    
    
    (5,510,241
    )
    
    
    (2,405,077
    )Amortization of intangibles (paragraph d)
    
    
    192,945
    
    
    
    123,058
    
    
    
    123,058Deferred income taxes (paragraph e)
    
    
    (28,905,022
    )
    
    
    (21,360,619
    )
    
    
    9,181,675Pension and post-retirement benefits (paragraph g)
    
    
    3,776,020
    
    
    
    23,361,327
    
    
    
    11,856,234Investments in related companies (paragraph h)
    
    
    (18,300,848
    )
    
    
    21,069,544
    
    
    
    27,398,946Amortization and impairment of goodwill (paragraph i)
    
    
    (1,110,880
    )
    
    
    (94,976,200
    )
    
    
    51,138,178Amortization of goodwill (paragraph i)
    
    
    (1,107,905
    )
    
    
    
    
    
    
    Amortization of negative goodwill (paragraph j)
    
    
    (27,172,670
    )
    
    
    (83,137,442
    )
    
    
    (13,332,392
    )Capitalized interest (paragraph k)
    
    
    19,854,278
    
    
    
    (25,528,504
    )
    
    
    10,363,942Depreciation capitalized interest (paragraph k)
    
    
    (1,167,465
    )
    
    
    2,454,240
    
    
    
    (3,012,696
    )Difference foreign exchange capitalized (paragraph k)
    
    
    (13,750,019
    )
    
    
    (9,780,446
    )
    
    
    29,339,287Accumulated deficit during the development stage (paragraph l)
    
    
    (415,483
    )
    
    
    (5,888,817
    )
    
    
    (1,302,667
    )Capitalized general and administrative expenses (paragraph n)
    
    
    (128,237
    )
    
    
    1,978,009
    
    
    
    (2,252,144
    )Involuntary employee termination benefits (paragraph o)
    
    
    (8,885
    )
    
    
    (350,560
    )
    
    
    11,876Adjustment in selling price of investment (paragraph p)
    
    
    (77,193
    )
    
    
    4,536,226
    
    
    
    Elimination of amortization of capitalized legal reserve (paragraph q)
    
    
    597,394
    
    
    
    912,401
    
    
    
    520,763Amortization of organizational and start-up costs (paragraph r)
    
    
    3,999,877
    
    
    
    5,418,734
    
    
    
    3,486,794Derivative instruments operating income (paragraph t)
    
    
    60,004,530
    
    
    
    (51,878,218
    )
    
    
    (163,699,107
    )Derivative instruments non operating income (paragraph t)
    
    
    5,837,022
    
    
    
    (26,978,871
    )
    
    
    24,344,422Fair value of long-term debt assumed (paragraph u)
    
    
    (175,971
    )
    
    
    (92,475
    )
    
    
    (64,682
    )Sale of subsidiaries (paragraph v)
    
    
    
    
    
    
    
    
    
    
    489,353Deferred income (paragraph w)
    
    
    167,073
    
    
    
    277,577
    
    
    
    119,722Regulated assets (paragraph x)
    
    
    (42,322,272
    )
    
    
    (51,750,311
    )
    
    
    57,517,976Reorganization of subsidiaries (paragraph y)
    
    
    
    
    
    
    (322,979
    )
    
    
    (264,242
    )Asset held for sale (paragraph z)
    
    
    
    
    
    
    (896,113
    )
    
    
    896,113Reclassification of discontinued operations (paragraph aa)
    
    
    (362,123
    )
    
    
    (150,103
    )
    
    
    (296,070
    )Effects of minority interest on the U.S. GAAP adjustments (paragraph bb)
    
    
    (4,245,704
    )
    
    
    128,905,670
    
    
    
    21,771,883Effects of minority interest on the U.S. GAAP adjustments (paragraph bb)
    
    
    853,973
    
    
    
    
    
    
    
    Deferred tax effects on the U.S. GAAP adjustments
    
    
    (17,309,814
    )
    
    
    78,804,214
    
    
    
    5,559,569Extinguishment of debt (paragraph ee)
    
    
    
    
    
    
    
    
    
    
    (17,703,656
    )Reversal amortization of negative goodwill Cerj. (paragraph dd)
    
    
    
    
    
    
    
    
    
    
    (34,517,091
    )Staff severance indemnities (paragraph f)
    
    
    
    
    
    
    
    
    
    
    174,385Asset
retirement cost - (paragraph ff)
    
    
    
    
    
    
    
    
    
    
    (1,453
    )Asset
retirement obligations - liabilities (paragraph ff)
    
    
    
    
    
    
    
    
    
    
    (43,389
    )Net income (loss) in accordance with U.S. GAAP before effect of discontinued
operations, and cumulative effect of change in accounting principle
    
    
    (18,646,912
    )
    
    
    (333,376,291
    )
    
    
    29,480,264Income from discontinued operations net of taxes and minority interest (paragraph aa)
    
    
    287,254
    
    
    
    166,770
    
    
    
    69,107Net income (loss) in accordance with U.S. GAAP before effect of cumulative effect
of change in accounting principle
    
    
    (18,359,658
    )
    
    
    (333,209,521
    )
    
    
    29,549,371Cumulative effect of change in accounting principle, net of the tax and minority interest
    
    
    21,225,195
    
    
    
    
    
    
    
    (280,490
    )Net income (loss) in accordance with U.S. GAAP
    
    
    2,865,537
    
    
    
    (333,209,521
    )
    
    
    29,268,881Other comprehensive income (loss):Cumulative translation adjustment determined under Chilean GAAP net of taxes and minority
    
    
    19,653,919
    
    
    
    20,802,883
    
    
    
    (73,020,068
    )Cumulative translation adjustment related to U.S GAAP adjustments net of taxes
and minority interest
    
    
    (3,007,132
    )
    
    
    (12,276,027
    )
    
    
    51,171,555Comprehensive income (loss) in accordance with U.S. GAAP
    
    
    19,512,324
    
    
    
    (324,682,665
    )
    
    
    7,420,368
 F-143




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) The reconciliation to conform shareholders equity amounts to U.S. GAAP is as follows: As of December 31,2002
(Restated)
    
    2003ThCh$
    
    ThCh$Shareholders equity in accordance with Chilean GAAP
    
    
    1,015,636,097
    
    
    
    2,548,391,890Reversal of revaluation of property, plant and equipment net of accumulated
amortization revaluation of property, plant and equipment (paragraph b)
    
    
    (14,292,454
    )
    
    
    (12,160,106
    )Depreciation of property, plant and equipment and difference in fixed asset value
at acquisition date (paragraph c)
    
    
    (3,095,667
    )
    
    
    (7,821,500
    )Intangibles (paragraph d)
    
    
    (1,107,525
    )
    
    
    (984,467
    )Deferred income taxes (paragraph e)
    
    
    (280,732,850
    )
    
    
    (241,904,311
    )Pension and post-retirement benefits assets long term (paragraph g)
    
    
    (16,516,169
    )
    
    
    Pension and post-retirement benefits liabilities long term (paragraph g)
    
    
    (13,311,718
    )
    
    
    (12,691,906
    )Investments in related companies (paragraph h and paragraph z)
    
    
    4,329,102
    
    
    
    30,940,961Goodwill (paragraph i)
    
    
    234,348,121
    
    
    
    280,623,341Goodwill (paragraph i)
    
    
    18,954,776
    
    
    
    15,662,663Goodwill gross amount (paragraph i)
    
    
    4,410,196
    
    
    
    4,410,196Negative goodwill (paragraph j)
    
    
    (301,274,313
    )
    
    
    (395,338,766
    )Capitalized interest (paragraph k)
    
    
    62,343,128
    
    
    
    60,073,352Exchange difference (paragraph k)
    
    
    (45,234,295
    )
    
    
    (14,447,201
    )Minimum dividend (paragraph m)
    
    
    
    
    
    
    Capitalized general and administrative expenses (paragraph n)
    
    
    (25,932,290
    )
    
    
    (26,295,885
    )Reversal of accrual of certain involuntary employee termination benefits (paragraph o)
    
    
    93,627
    
    
    
    88,476Adjustment in selling price of investment (paragraph p)
    
    
    
    
    
    
    Elimination of capitalized legal reserve (paragraph q)
    
    
    (9,455,672
    )
    
    
    (7,215,264
    )Amortization organizational and start-up costs (paragraph r)
    
    
    (38,058,571
    )
    
    
    (27,650,297
    )Derivative instruments (paragraph t)
    
    
    151,399,321
    
    
    
    (24,918,299
    )Fair value of long-term debt assumed (paragraph u)
    
    
    1,278,540
    
    
    
    1,213,858Reorganization of subsidiaries (paragraph y)
    
    
    6,130,801
    
    
    
    4,751,588Asset held for sale (paragraph z)
    
    
    (896,113
    )
    
    
    Deferred income (paragraph w)
    
    
    (3,471,483
    )
    
    
    (2,720,428
    )Regulated assets (paragraph x)
    
    
    (98,077,436
    )
    
    
    (22,722,716
    )Effects of minority interest on the U.S. GAAP adjustments (paragraph bb)
    
    
    227,423,329
    
    
    
    233,609,202Effects of minority interest on the U.S. GAAP adjustments (paragraph bb)
    
    
    (14,610,341
    )
    
    
    (12,072,781
    )Elimination of result of discontinuing operations
    
    
    732,011
    
    
    
    Deferred tax effects on the U.S. GAAP adjustments
    
    
    (2,742,970
    )
    
    
    141,986,835Staff severance indemnities (paragraph f)
    
    
    
    
    
    
    174,385Asset retirement cost (paragraph ff)
    
    
    
    
    
    
    62,696Asset
retirement obligations - liabilities (paragraph ff)
    
    
    
    
    
    
    (524,556
    )Shareholders equity in accordance with U.S. GAAP
    
    
    858,269,182
    
    
    
    2,512,520,960
 F-144




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) The changes in shareholders equity in U.S. GAAP as of each year-end are as follows: 2002
    
    2003ThCh$
    
    ThCh$As restatedShareholders
equity in accordance with U.S. GAAP - January 1
    
    
    1,170,179,175
    
    
    
    858,269,182Reversal of minimum dividend payable as of previous balance sheet date (m)
    
    
    12,772,672
    
    
    
    Negative goodwill Cerj (paragraph dd)
    
    
    
    
    
    
    34,517,091Extinguishment of debt (paragraph ee)
    
    
    
    
    
    
    17,703,656Cumulative translation adjustment
    
    
    8,526,856
    
    
    
    (21,848,513
    )Capital increase
    
    
    
    
    
    
    1,594,610,663Net income (loss) in accordance with U.S. GAAP for the year
    
    
    (333,209,521
    )
    
    
    29,268,881Shareholders
equity in accordance with U.S. GAAP-December 31
    
    
    858,269,182
    
    
    
    2,512,520,960
 F-145




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) II. Additional disclosure requirements: (a) Goodwill and negative goodwill The following is an analysis of goodwill and negative goodwill, determined on
Chilean GAAP basis, as of December 31, 2002 and 2003, respectively: 2002
    
    2003ThCh$
    
    ThCh$Goodwill
    
    
    1,247,825,338
    
    
    
    1,682,402,179Less: accumulated amortization
    
    
    (391,836,704
    )
    
    
    (902,004,961
    )Goodwill, net
    
    
    855,988,634
    
    
    
    780,397,218Negative goodwill
    
    
    (346,245,075
    )
    
    
    (446,721,526
    )Less: accumulated amortization
    
    
    250,120,396
    
    
    
    367,486,894Negative goodwill, net
    
    
    (96,124,680
    )
    
    
    (79,234,632
    )
 (b) Basis and diluted earnings per share: For the year ended December 31,2001
    
    2002
    
    2003Ch$
    
    Ch$
    
    Ch$Chilean GAAP (loss) earnings per share
    
    
    5.13
    
    
    
    (27.26
    )
    
    
    0.61U.S. GAAP (loss) earnings per share:U.S. GAAP (loss) earnings per share before effect of
discontinued operations and cumulative
effect of change in accounting principle
    
    
    (2.24
    )
    
    
    (40.21
    )
    
    
    1.44Discontinued operations (net of tax)
    
    
    0.03
    
    
    
    0.02
    
    
    
    0.003U.S. GAAP (loss) earnings per share before effect of
cumulative effect of change in accounting principle
    
    
    (2.21
    )
    
    
    (40.19
    )
    
    
    1.44Cumulative effect of change in accounting principle (net of tax)
    
    
    2.56
    
    
    
    
    
    
    
    (0.01
    )Basic and diluted U.S. GAAP (loss) earnings per share
    
    
    0.35
    
    
    
    (40.19
    )
    
    
    1.43Total number of common outstanding shares at December 31,
    
    
    8,291,020
    
    
    
    8,291,020
    
    
    
    32,651,166Weighted average number of common shares outstanding (000s)
    
    
    8,291,020
    
    
    
    8,291,020
    
    
    
    20,471,093
  (1)
    
    The earnings per share figures for both U.S. GAAP and Chilean GAAP
purposes have been calculated by dividing the respective earnings (loss)
amounts in accordance with U.S. GAAP and Chilean GAAP, respectively, by
the weighted average number of common shares outstanding during the year.
The Company has not issued convertible debt or contingent equity
securities. Consequently, there are no potentially dilutive effects on the
earnings per share of the Company. F-146




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ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) (c) Income taxes: The provision (benefit) for income taxes charged to the results of operations
determined in accordance with U.S. GAAP is a follows: 2001Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    Other
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAPCurrent income taxes as determined under Chilean GAAP (1)
    
    
    (14,215,006
    )
    
    
    (45,655,129
    )
    
    
    (8,294,461
    )
    
    
    (22,887,411
    )
    
    
    (31,814,033
    )
    
    
    (72,499
    )
    
    
    (122,938,539
    )Deferred income taxes as determined under Chilean GAAP
    
    
    (6,123,588
    )
    
    
    (2,421,935
    )
    
    
    (13,305,356
    )
    
    
    13,814,973
    
    
    
    (174,193
    )
    
    
    
    
    
    
    (8,210,099
    )Total income tax provision under Chilean GAAP
    
    
    (20,338,594
    )
    
    
    (48,077,064
    )
    
    
    (21,599,817
    )
    
    
    (9,072,438
    )
    
    
    (31,988,226
    )
    
    
    (72,499
    )
    
    
    (131,148,638
    )U.S. GAAP adjustments:Deferred tax effect of applying SFAS No. 109
    
    
    (1,004,780
    )
    
    
    (23,621,204
    )
    
    
    (696,907
    )
    
    
    (3,416,340
    )
    
    
    (165,791
    )
    
    
    
    
    
    
    (28,905,022
    )Deferred tax effect of adjustments to U.S. GAAP
    
    
    3,126,564
    
    
    
    (3,063,845
    )
    
    
    784,668
    
    
    
    6,442,004
    
    
    
    (24,599,205
    )
    
    
    
    
    
    
    (17,309,814
    )Deferred tax
effect of cumulative effect of change
in accounting principle
    
    
    1,859,794
    
    
    
    (41,945,155
    )
    
    
    (216,491
    )
    
    
    205,276
    
    
    
    (6,945,105
    )
    
    
    
    
    
    
    (47,041,681
    )Total U.S. GAAP adjustments:
    
    
    3,981,578
    
    
    
    (68,630,204
    )
    
    
    (128,730
    )
    
    
    3,230,940
    
    
    
    (31,710,101
    )
    
    
    
    
    
    
    (93,256,517
    )US GAAP reclassifications (2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,197,975
    
    
    
    
    
    
    
    
    
    
    
    8,197,975Total Income tax provision under U.S. GAAP
    
    
    (16,357,016
    )
    
    
    (116,707,268
    )
    
    
    (21,728,547
    )
    
    
    2,356,477
    
    
    
    (63,698,327
    )
    
    
    (72,499
    )
    
    
    (216,207,180
    )
 2002Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    Other
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAPCurrent income taxes as determined under Chilean GAAP
    
    
    (13,425,130
    )
    
    
    62,744
    
    
    
    (12,787,952
    )
    
    
    (2,628,912
    )
    
    
    (45,700,626
    )
    
    
    
    
    
    
    (74,479,876
    )Deferred income taxes as determined under Chilean GAAP
    
    
    (3,246,886
    )
    
    
    34,416,658
    
    
    
    (30,625,633
    )
    
    
    5,938,454
    
    
    
    1,320,128
    
    
    
    
    
    
    
    7,802,721Total income tax provision under Chilean GAAP
    
    
    (16,672,016
    )
    
    
    34,479,402
    
    
    
    (43,413,585
    )
    
    
    3,309,542
    
    
    
    (44,380,498
    )
    
    
    
    
    
    
    (66,677,155
    )U.S. GAAP adjustments:Deferred tax effect of applying SFAS No. 109
    
    
    (2,321,768
    )
    
    
    30,730,636
    
    
    
    (21,703,800
    )
    
    
    (24,542,702
    )
    
    
    (3,522,985
    )
    
    
    
    
    
    
    (21,360,619
    )Deferred tax effect of adjustments to U.S. GAAP
    
    
    13,349,961
    
    
    
    (13,924,852
    )
    
    
    21,801,269
    
    
    
    20,567,000
    
    
    
    37,010,836
    
    
    
    
    
    
    
    78,804,214Total U.S. GAAP adjustments:
    
    
    11,028,193
    
    
    
    16,805,784
    
    
    
    97,469
    
    
    
    (3,975,702
    )
    
    
    33,487,851
    
    
    
    
    
    
    
    57,443,595US GAAP reclassifications (2)
    
    
    296,480
    
    
    
    
    
    
    
    
    
    
    
    6,155,018
    
    
    
    (22,599,396
    )
    
    
    
    
    
    
    (16,147,898
    )Total Income tax provision under U.S. GAAP
    
    
    (5,347,343
    )
    
    
    51,285,186
    
    
    
    (43,316,116
    )
    
    
    5,488,858
    
    
    
    (33,492,043
    )
    
    
    
    
    
    
    (25,381,458
    )
 2003Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    Other
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Income tax provision under Chilean GAAPCurrent income taxes as determined under Chilean GAAP
    
    
    (28,348,929
    )
    
    
    
    
    
    
    (14,649,203
    )
    
    
    (8,938,095
    )
    
    
    (48,816,949
    )
    
    
    
    
    
    
    (100,753,176
    )Deferred income taxes as determined under Chilean GAAP
    
    
    23,735,924
    
    
    
    20,598,165
    
    
    
    (15,627,624
    )
    
    
    29,871,477
    
    
    
    604,518
    
    
    
    
    
    
    
    59,182,460Total income tax provision under Chilean GAAP
    
    
    (4,613,005
    )
    
    
    20,598,165
    
    
    
    (30,276,827
    )
    
    
    20,933,382
    
    
    
    (48,212,431
    )
    
    
    
    
    
    
    (41,570,716
    )U.S. GAAP adjustments:Deferred tax effect of applying SFAS No. 109
    
    
    5,697,010
    
    
    
    (1,890,566
    )
    
    
    5,323,258
    
    
    
    51,973
    
    
    
    
    
    
    
    
    
    
    
    9,181,675Deferred tax effect of adjustments to U.S. GAAP
    
    
    (4,667,672
    )
    
    
    57,850,670
    
    
    
    (18,544,339
    )
    
    
    (26,290,516
    )
    
    
    (2,788,575
    )
    
    
    
    
    
    
    5,559,568U.S. GAAP reclassifications (2)
    
    
    97,540
    
    
    
    
    
    
    
    
    
    
    
    4,983,047
    
    
    
    
    
    
    
    
    
    
    
    5,080,587Total U.S. GAAP adjustments:
    
    
    1,126,878
    
    
    
    55,960,104
    
    
    
    (13,221,081
    )
    
    
    (21,255,496
    )
    
    
    (2,788,575
    )
    
    
    
    
    
    
    19,821,830Total Income tax provision under U.S. GAAP
    
    
    (3,486,127
    )
    
    
    76,558,269
    
    
    
    (43,497,908
    )
    
    
    (322,114
    )
    
    
    (51,001,006
    )
    
    
    
    
    
    
    (21,748,886
    )
  (1)
    
    The income tax provisions under Chilean GAAP for the years ended December
31, 2001 are stated net of income tax recovery of ThCh$8,116,807.  (2)
    
    US GAAP reclassifications are tax related expenses under Chilean GAAP are
classified as non-operating expenses, but under US GAAP would be
classified as income taxes. F-147




---



##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) Deferred tax assets
(liabilities) as of balance sheet dates are summarized as
follows: 2002
    
    2003SFAS No. 109
    
    
    
    
    
    
    
    
    
    SFAS No. 109Applied to
    
    SFAS No.
    
    Total
    
    Applied to
    
    SFAS No.
    
    TotalChilean
    
    109 applied
    
    Deferred
    
    Chilean
    
    109 applied
    
    DeferredGAAP
    
    to U.S. GAAP
    
    Taxes under
    
    GAAP
    
    to U.S. GAAP
    
    Taxes underBalances
    
    Adjustments
    
    SFAS No. 109
    
    Balances
    
    Adjustments
    
    SFAS No. 109ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Deferred income tax assetsProperty, plant and equipment
    
    
    6,092,340
    
    
    
    13,976,184
    
    
    
    20,068,524
    
    
    
    6,886,897
    
    
    
    3,471,272
    
    
    
    10,358,169Regulated assets and related deferred
cost (companies in Brazil)
    
    
    
    
    
    
    33,346,329
    
    
    
    33,346,329
    
    
    
    
    
    
    
    7,725,723
    
    
    
    7,725,723Negative goodwill
    
    
    
    
    
    
    22,369,938
    
    
    
    22,369,938
    
    
    
    
    
    
    
    9,515,638
    
    
    
    9,515,638Allowance for doubtful accounts
    
    
    32,539,943
    
    
    
    
    
    
    
    32,539,943
    
    
    
    28,445,827
    
    
    
    
    
    
    
    28,445,827Actuarial deficit (companies in Brazil)
    
    
    6,834,095
    
    
    
    
    
    
    
    6,834,095
    
    
    
    12,350,395
    
    
    
    
    
    
    
    12,350,395Deferred income
    
    
    2,773,552
    
    
    
    1,180,304
    
    
    
    3,953,856
    
    
    
    6,854,533
    
    
    
    924,944
    
    
    
    7,779,477With-holdings
    
    
    3,285,278
    
    
    
    
    
    
    
    3,285,278
    
    
    
    10,253,712
    
    
    
    
    
    
    
    10,253,712Provision real estate projects
    
    
    2,682,607
    
    
    
    
    
    
    
    2,682,607
    
    
    
    3,252,026
    
    
    
    
    
    
    
    3,252,026Derivative contracts
    
    
    590,842
    
    
    
    9,088,367
    
    
    
    9,679,209
    
    
    
    305,207
    
    
    
    4,281,408
    
    
    
    4,586,615Severance indemnities
    
    
    5,301
    
    
    
    419,419
    
    
    
    424,720
    
    
    
    
    
    
    
    
    
    
    
    Vacation accrual
    
    
    1,223,410
    
    
    
    
    
    
    
    1,223,410
    
    
    
    769,811
    
    
    
    
    
    
    
    769,811Post retirement benefits
    
    
    1,643,609
    
    
    
    10,959,331
    
    
    
    12,602,940
    
    
    
    3,226,745
    
    
    
    5,418,377
    
    
    
    8,645,122Tax loss carryforwards (1)
    
    
    117,632,905
    
    
    
    
    
    
    
    117,632,905
    
    
    
    140,743,998
    
    
    
    
    
    
    
    140,743,998Contingencies
    
    
    51,441,049
    
    
    
    
    
    
    
    51,441,049
    
    
    
    52,914,563
    
    
    
    
    
    
    
    52,914,563Finance costs
    
    
    118,204
    
    
    
    
    
    
    
    118,204
    
    
    
    
    
    
    
    
    
    
    
    Salaries for construction-in progress
    
    
    3,966,075
    
    
    
    5,639,274
    
    
    
    9,605,349
    
    
    
    
    
    
    
    1,574,341
    
    
    
    1,574,341Exchange difference -subsidiaries
    
    
    5,207,034
    
    
    
    
    
    
    
    5,207,034
    
    
    
    3,642,557
    
    
    
    
    
    
    
    3,642,557Valuation allowance
    
    
    (3,483,390
    )
    
    
    
    
    
    
    (3,483,390
    )
    
    
    (2,619,849
    )
    
    
    (1,026,722
    )
    
    
    (3,646,571
    )Others
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    135,981
    
    
    
    135,981Total deferred income tax assets
    
    
    232,552,854
    
    
    
    96,979,146
    
    
    
    329,532,000
    
    
    
    267,026,422
    
    
    
    32,020,962
    
    
    
    299,047,384Deferred income tax liabilitiesProperty, plant and equipment
    
    
    463,864,534
    
    
    
    5,281,301
    
    
    
    469,145,835
    
    
    
    378,897,544
    
    
    
    (131,867,382
    )
    
    
    247,030,162Severance indemnities
    
    
    822,383
    
    
    
    
    
    
    
    822,383
    
    
    
    948,245
    
    
    
    29,646
    
    
    
    977,891Regulated assets
    
    
    3,866,280
    
    
    
    
    
    
    
    3,866,280
    
    
    
    15,451,651
    
    
    
    
    
    
    
    15,451,651Actuarial deficit (companies in Brazil)
    
    
    2,324,725
    
    
    
    
    
    
    
    2,324,725
    
    
    
    
    
    
    
    
    
    
    
    Finance costs
    
    
    13,893,414
    
    
    
    
    
    
    
    13,893,414
    
    
    
    10,638,763
    
    
    
    
    
    
    
    10,638,763Derivative contracts
    
    
    
    
    
    
    70,442,401
    
    
    
    70,442,401
    
    
    
    965,095
    
    
    
    311,282
    
    
    
    1,276,377Bond discount
    
    
    1,890,351
    
    
    
    
    
    
    
    1,890,351
    
    
    
    1,855,600
    
    
    
    
    
    
    
    1,855,600Cost of studies
    
    
    8,052,280
    
    
    
    
    
    
    
    8,052,280
    
    
    
    7,980,878
    
    
    
    
    
    
    
    7,980,878Imputed interest on construction
    
    
    4,912,067
    
    
    
    
    
    
    
    4,912,067
    
    
    
    4,550,251
    
    
    
    
    
    
    
    4,550,251With-holdings
    
    
    200,624
    
    
    
    
    
    
    
    200,624
    
    
    
    
    
    
    
    
    
    
    
    Materials used
    
    
    1,097,152
    
    
    
    
    
    
    
    1,097,152
    
    
    
    3,716,538
    
    
    
    
    
    
    
    3,716,538Hid. El Chocón investment
    
    
    2,926,769
    
    
    
    
    
    
    
    2,926,769
    
    
    
    2,725,964
    
    
    
    
    
    
    
    2,725,964Capitalized expenses
    
    
    3,921,901
    
    
    
    
    
    
    
    3,921,901
    
    
    
    5,906,694
    
    
    
    
    
    
    
    5,906,694Capitalized interest
    
    
    
    
    
    
    21,105,052
    
    
    
    21,105,052
    
    
    
    
    
    
    
    19,462,302
    
    
    
    19,462,302Post retirement benefits
    
    
    1,043
    
    
    
    530,557
    
    
    
    531,600
    
    
    
    
    
    
    
    1,325,219
    
    
    
    1,325,219Contingencies
    
    
    13,905,137
    
    
    
    
    
    
    
    13,905,137
    
    
    
    3,007,781
    
    
    
    
    
    
    
    3,007,781Others
    
    
    
    
    
    
    2,362,805
    
    
    
    2,362,805
    
    
    
    
    
    
    
    773,060
    
    
    
    773,060Differences between the financial and
tax value of Río Maipo S.A.
    
    
    1,489,974
    
    
    
    
    
    
    
    1,489,974
    
    
    
    
    
    
    
    
    
    
    
    Total deferred income tax liabilities
    
    
    523,168,634
    
    
    
    99,722,116
    
    
    
    622,890,750
    
    
    
    436,645,004
    
    
    
    (109,965,873
    )
    
    
    326,679,131Net deferred assets (liabilities)
    
    
    (290,615,780
    )
    
    
    (2,742,970
    )
    
    
    (293,358,750
    )
    
    
    (169,618,582
    )
    
    
    141,986,835
    
    
    
    (27,631,747
    )
  (1)
    
    Tax loss carryforwards relate primarily to Peruvian, Chilean and
Brazilian entities. In accordance with the current enacted tax law in
Chile and Brazil, such tax losses may be carried-forward indefinitely,
however Peruvian tax carryforwards expire after five years. F-148




---



##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) A reconciliation of the Chilean Statutory Income Tax rate to the Companys
effective tax rate on net income is as follows: 2001Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    Other
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Statutory Chilean tax
    
    
    (35,559,239
    )
    
    
    (33,377,079
    )
    
    
    (8,345,121
    )
    
    
    757,531
    
    
    
    (19,963,764
    )
    
    
    32,899,600
    
    
    
    (63,588,072
    )Effect of higher foreign tax rates
    
    
    
    
    
    
    (64,286,128
    )
    
    
    (16,626,493
    )
    
    
    (1,657,047
    )
    
    
    (30,400,164
    )
    
    
    6,625,823
    
    
    
    (106,344,009
    )Increase (decrease) in rates resulting from:Price-level restatement not accepted
for tax purposes
    
    
    (10,939,483
    )
    
    
    476,112
    
    
    
    477,541
    
    
    
    1,166,548
    
    
    
    (15,126,317
    )
    
    
    
    
    
    
    (23,945,598
    )Non-taxable items
    
    
    20,057,025
    
    
    
    (13,024,156
    )
    
    
    (4,736,306
    )
    
    
    (95,619
    )
    
    
    
    
    
    
    (39,525,423
    )
    
    
    (37,324,479
    )Non-deductible items (2)
    
    
    24,413,911
    
    
    
    (20,534,132
    )
    
    
    7,649,848
    
    
    
    319,665
    
    
    
    726,865
    
    
    
    
    
    
    
    12,576,157Prior years income tax
    
    
    (2,006,509
    )
    
    
    
    
    
    
    (405,301
    )
    
    
    2,185,396
    
    
    
    
    
    
    
    
    
    
    
    (226,414
    )Effect of Chilean tax rate increase
    
    
    (8,294,744
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,294,744
    )Other
    
    
    (4,027,977
    )
    
    
    14,038,115
    
    
    
    257,284
    
    
    
    (8,517,972
    )
    
    
    1,065,053
    
    
    
    (72,499
    )
    
    
    2,742,004US GAAP reclassifications (1)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,197,975
    
    
    
    
    
    
    
    
    
    
    
    8,197,975Tax expense at effective tax rate
    
    
    (16,357,016
    )
    
    
    (116,707,268
    )
    
    
    (21,728,547
    )
    
    
    2,356,477
    
    
    
    (63,698,327
    )
    
    
    (72,499
    )
    
    
    (216,207,180
    )
 2002Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    Other
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Statutory Chilean tax
    
    
    67,168,315
    
    
    
    (167,432
    )
    
    
    (13,114,914
    )
    
    
    74,751,569
    
    
    
    (6,834,175
    )
    
    
    
    
    
    
    121,803,363Effect of higher foreign tax rates (3)
    
    
    (430,542
    )
    
    
    (198,824
    )
    
    
    (14,344,438
    )
    
    
    58,337,620
    
    
    
    6,969,289
    
    
    
    
    
    
    
    50,333,105Increase (decrease) in rates resulting from:Price-level restatement not accepted
for tax purposes
    
    
    (6,897,315
    )
    
    
    23,588,346
    
    
    
    (571,201
    )
    
    
    (1,951,871
    )
    
    
    (13,678,525
    )
    
    
    
    
    
    
    489,434Non-taxable items
    
    
    1,281,470
    
    
    
    (7,906,847
    )
    
    
    (8,395,157
    )
    
    
    (44,416,218
    )
    
    
    201
    
    
    
    
    
    
    
    (59,436,551
    )Non-deductible items (2)
    
    
    (65,503,689
    )
    
    
    35,639,598
    
    
    
    (7,057,169
    )
    
    
    (88,139,584
    )
    
    
    4,098,513
    
    
    
    
    
    
    
    (120,962,331
    )Prior years income tax
    
    
    (2,696,489
    )
    
    
    
    
    
    
    (1,368,126
    )
    
    
    
    
    
    
    514,748
    
    
    
    
    
    
    
    (3,549,867
    )Other
    
    
    1,434,427
    
    
    
    330,345
    
    
    
    1,534,889
    
    
    
    752,324
    
    
    
    (1,962,698
    )
    
    
    
    
    
    
    2,089,287US GAAP reclassifications (1)
    
    
    296,480
    
    
    
    
    
    
    
    
    
    
    
    6,155,018
    
    
    
    (22,599,396
    )
    
    
    
    
    
    
    (16,147,898
    )Tax (benefit) expense at effective tax rate
    
    
    (5,347,343
    )
    
    
    51,285,186
    
    
    
    (43,316,116
    )
    
    
    5,488,858
    
    
    
    (33,492,043
    )
    
    
    
    
    
    
    (25,381,458
    )
 2003Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    Other
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Statutory Chilean tax
    
    
    (54,608,415
    )
    
    
    28,242,985
    
    
    
    (12,716,631
    )
    
    
    8,189,725
    
    
    
    (12,546,195
    )
    
    
    
    
    
    
    (43,438,531
    )Effect of higher foreign tax rates (3)
    
    
    (1,229,007
    )
    
    
    32,016,055
    
    
    
    (13,090,131
    )
    
    
    14,397,858
    
    
    
    (16,728,261
    )
    
    
    
    
    
    
    15,366,514Increase (decrease) in rates resulting from:Price-level restatement not accepted
for tax purposes
    
    
    7,796,437
    
    
    
    (16,232,476
    )
    
    
    (1,397,456
    )
    
    
    (1,932,546
    )
    
    
    146,194
    
    
    
    
    
    
    
    (11,619,847
    )Non-taxable items
    
    
    21,941,298
    
    
    
    35,741,549
    
    
    
    5,162,000
    
    
    
    (1,160,034
    )
    
    
    16,962,743
    
    
    
    
    
    
    
    78,647,556Non-deductible items (2)
    
    
    25,352,956
    
    
    
    (2,310,618
    )
    
    
    (19,606,532
    )
    
    
    (23,875,022
    )
    
    
    (36,081,848
    )
    
    
    
    
    
    
    (56,521,064
    )Prior years income tax
    
    
    (1,381,708
    )
    
    
    
    
    
    
    (355,686
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,737,394
    )Other
    
    
    (1,455,228
    )
    
    
    (899,226
    )
    
    
    (1,493,472
    )
    
    
    (925,142
    )
    
    
    (2,753,639
    )
    
    
    
    
    
    
    (7,526,707
    )US GAAP reclassifications (1)
    
    
    97,540
    
    
    
    
    
    
    
    
    
    
    
    4,983,047
    
    
    
    
    
    
    
    
    
    
    
    5,080,587Tax (benefit) expense at effective tax rate
    
    
    (3,486,127
    )
    
    
    76,558,269
    
    
    
    (43,497,908
    )
    
    
    (322,114
    )
    
    
    (51,001,006
    )
    
    
    
    
    
    
    (21,748,886
    )
  (1)
    
    US GAAP reclassifications are tax related expenses that under Chilean
GAAP are classified as non-operating expenses, but under US GAAP would be
classified as income taxes.  (2)
    
    This represents mainly deductible temporary differences related to
investments in subsidiaries that are permanent in nature for which
deferred tax asset are not recognized.  (3)
    
    This amount represents the foreign tax rate applied certain branches
opened in 2002 that are taxed outside Chile eventhough. F-149




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (d) Segment disclosures The Company is primarily engaged in the distribution and generation of
electricity in Chile, Argentina, Brazil, Colombia and Perú. Enersis provides
these and other services through four business segments:  
    
    Generation  
    
    Distribution  
    
    Engineering Services and Real Estate  
    
    Corporate and other Generation involves the generation of electricity primarily through its
subsidiary Endesa-Chile. Distribution involves the supply of electricity to
regulated and unregulated customers. Engineering Services and Real Estate
includes engineering services and real estate development. Corporate and other
includes computer-related data processing services and the sale of
electric-related supplies and equipment. The Companys reportable segments are
strategic business units that offer different products and services and are
managed separately. The methods of revenue recognition by segment are as
follows:  
    
    Generation Revenue is recognized when energy and power output is delivered and capacity is
provided at rates specified under contract terms or prevailing market rates.  
    
    Distribution  Operating Revenues Revenue is recognized when energy and power is provided at rates specified
under contract terms or prevailing market rates.  
    
    Distribution  Non Operating Revenues Revenue is recognized as services are provided, such as public light posts,
telephone poles, and other services related to distribution services.  
    
    Engineering Services and Real Estate Revenue is recognized as services are provided, or when projects are sold.  
    
    Corporate and Other Revenue is recognized as services are provided, or when supplies or equipment
are sold. F-150




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) The following segment information has been disclosed in accordance with U.S.
reporting requirements, however, the information presented has been determined
in accordance with Chilean GAAP: Engineeringservices and
    
    Corporate2001
    
    Generation
    
    Distribution
    
    real estate
    
    and other
    
    Eliminations
    
    ConsolidatedThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales to unaffilated customers
    
    
    844,506,320
    
    
    
    2,147,389,446
    
    
    
    35,397,122
    
    
    
    62,681,681
    
    
    
    
    
    
    
    3,089,974,569Intersegment sales
    
    
    211,225,793
    
    
    
    44,142,772
    
    
    
    28,620,014
    
    
    
    30,868,358
    
    
    
    (314,856,938
    )
    
    
    Total revenues
    
    
    1,055,732,113
    
    
    
    2,191,532,218
    
    
    
    64,017,136
    
    
    
    93,550,039
    
    
    
    (314,856,938
    )
    
    
    3,089,974,569Operating income
    
    
    351,454,915
    
    
    
    390,365,680
    
    
    
    10,234,607
    
    
    
    (4,590,746
    )
    
    
    14,624,750
    
    
    
    762,089,205Participation in net income of
affiliate companies
    
    
    (10,458,607
    )
    
    
    
    
    
    
    
    
    
    
    (347,178
    )
    
    
    
    
    
    
    (10,805,785
    )Depreciation and amortization
    
    
    150,676,964
    
    
    
    262,879,718
    
    
    
    1,253,711
    
    
    
    57,056,905
    
    
    
    (269,097
    )
    
    
    471,598,201Identifiable assets including
investment in related companies
    
    
    6,425,187,081
    
    
    
    6,373,163,204
    
    
    
    136,740,449
    
    
    
    4,995,187,129
    
    
    
    (5,042,880,558
    )
    
    
    12,887,397,305Capital expenditures
    
    
    (53,502,146
    )
    
    
    (290,870,798
    )
    
    
    (419,649
    )
    
    
    (176,680
    )
    
    
    
    
    
    
    344,969,273
 Engineeringservices and
    
    Corporate2002
    
    Generation
    
    Distribution
    
    real estate
    
    and other
    
    Eliminations
    
    ConsolidatedThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales to unaffiliated customers
    
    
    731,955,841
    
    
    
    1,729,173,357
    
    
    
    34,499,156
    
    
    
    15,103,598
    
    
    
    
    
    
    
    2,510,731,952Intersegment sales
    
    
    215,524,302
    
    
    
    50,558,319
    
    
    
    71,877,991
    
    
    
    43,288,180
    
    
    
    (381,248,793
    )Total revenues
    
    
    947,480,143
    
    
    
    1,779,731,676
    
    
    
    106,377,147
    
    
    
    58,391,778
    
    
    
    (381,248,793
    )
    
    
    2,510,731,952Operating income
    
    
    339,988,226
    
    
    
    185,330,075
    
    
    
    13,513,095
    
    
    
    (112,154
    )
    
    
    (748,437
    )
    
    
    537,970,805Participation in net income of
affiliate companies
    
    
    8,627,162
    
    
    
    
    
    
    
    
    
    
    
    (280,742
    )
    
    
    
    
    
    
    8,346,420Depreciation and amortization
    
    
    223,572,979
    
    
    
    517,672,939
    
    
    
    1,425,329
    
    
    
    111,930,386
    
    
    
    12,944,753
    
    
    
    867,546,386Identifiable assets including
investment in related companies
    
    
    6,589,443,410
    
    
    
    6,118,309,478
    
    
    
    142,194,426
    
    
    
    4,337,837,501
    
    
    
    (4,449,925,195
    )
    
    
    12,737,859,620Capital expenditures
    
    
    136,206,696
    
    
    
    183,677,826
    
    
    
    762,643
    
    
    
    447,432
    
    
    
    
    
    
    
    321,094,597
 Engineeringservices and
    
    Corporate2003
    
    Generation
    
    Distribution
    
    real estate
    
    and other
    
    Eliminations
    
    ConsolidatedThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Sales to unaffiliated customers
    
    
    643,554,766
    
    
    
    1,591,449,768
    
    
    
    38,357,529
    
    
    
    10,585,159
    
    
    
    
    
    
    
    2,283,947,222Intersegment sales
    
    
    276,726,632
    
    
    
    12,397,751
    
    
    
    64,694,441
    
    
    
    39,029,949
    
    
    
    (324,462,615
    )
    
    
    68,386,158Total revenues
    
    
    920,281,398
    
    
    
    1,603,847,519
    
    
    
    103,051,970
    
    
    
    49,615,108
    
    
    
    (324,462,615
    )
    
    
    2,352,333,380Operating income
    
    
    338,510,897
    
    
    
    184,150,775
    
    
    
    12,880,852
    
    
    
    (5,078,576
    )
    
    
    633,736
    
    
    
    531,097,684Participation in net income of
affiliate companies
    
    
    17,369,712
    
    
    
    
    
    
    
    
    
    
    
    147,084
    
    
    
    
    
    
    
    17,516,796Depreciation and amortization
    
    
    167,081,095
    
    
    
    208,174,509
    
    
    
    1,466,036
    
    
    
    32,329,497
    
    
    
    
    
    
    
    409,051,137Identifiable assets including
investment in related companies
    
    
    5,465,335,840
    
    
    
    5,206,741,058
    
    
    
    147,442,898
    
    
    
    3,897,847,886
    
    
    
    (3,984,620,715
    )
    
    
    10,732,746,967Capital expenditures
    
    
    131,139,818
    
    
    
    126,927,756
    
    
    
    527,549
    
    
    
    190,525
    
    
    
    
    
    
    
    258,785,648
 F-151




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) A summary of activities by geographic area as follows: Chile
    
    Argentina
    
    Perú
    
    Brazil
    
    Colombia
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$2001Total revenues
    
    
    813,163,450
    
    
    
    835,626,392
    
    
    
    268,144,033
    
    
    
    698,574,698
    
    
    
    474,465,995
    
    
    
    3,089,974,569Long lived assets (net) (1)
    
    
    2,389,497,306
    
    
    
    1,578,515,030
    
    
    
    1,185,701,940
    
    
    
    1,963,493,584
    
    
    
    2,604,092,296
    
    
    
    9,721,300,1562002Total revenues
    
    
    807,456,701
    
    
    
    300,610,346
    
    
    
    295,351,398
    
    
    
    630,532,907
    
    
    
    476,780,600
    
    
    
    2,510,731,952Long lived assets (net) (1)
    
    
    2,398,481,937
    
    
    
    1,567,339,505
    
    
    
    1,248,150,159
    
    
    
    2,060,027,668
    
    
    
    2,704,253,496
    
    
    
    9,978,252,7652003Total revenues
    
    
    854,422,820
    
    
    
    292,342,045
    
    
    
    249,728,449
    
    
    
    550,603,624
    
    
    
    405,236,442
    
    
    
    2,352,333,380Long lived assets (net) (1)
    
    
    2,136,131,207
    
    
    
    1,219,885,731
    
    
    
    999,287,802
    
    
    
    1,596,985,069
    
    
    
    2,144,070,701
    
    
    
    8,096,360,510
  (1)
    
    Long-lived assets include property, plant and equipment. (e) Concentration of risk: The Company does not believe that it is exposed to any unusual credit risk from
any single customer. The Companys debtors are dependent on the economy in
Latin America, which could make them vulnerable to downturns in the economic
activity in the countries in which the Company operates. No single customers accounted for more than 10% of revenues for the years
ending December 31, 2001, 2002 and 2003. (f) Schedule of debt maturity: Following is a schedule of debt maturity in each of the next five years and
thereafter: ThCh$2004
    
    
    521,267,5372005
    
    
    177,433,2042006
    
    
    671,698,3772007
    
    
    347,306,1272008
    
    
    470,030,250Thereafter
    
    
    1,617,016,564Total
    
    
    3,804,752,059
 F-152




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (g) Disclosure regarding interest capitalization: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Interest expense incurred
    
    
    461,793,511
    
    
    
    450,524,679
    
    
    
    420,432,628Interest capitalized under Chilean GAAP
    
    
    24,492,823
    
    
    
    19,662,407
    
    
    
    10,479,354Interest capitalized under U.S. GAAP
    
    
    29,429,617
    
    
    
    23,893,073
    
    
    
    15,663,609
 (h) Cash flow information:  (i)
    
    The statement of cash flows under Chile GAAP differs in certain
respects from the presentation of a statement of cash flow under U.S.
GAAP as follows: Year ended December 31,2001Restated
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Cash provided by operating activities under Chilean GAAP
    
    
    566,126,200
    
    
    
    634,060,155
    
    
    
    574,476,970Development stage companies
    
    
    1,316,935Cash provided by (used in) operating activities under U.S.
GAAP
    
    
    567,443,135
    
    
    
    634,060,155
    
    
    
    574,476,970Cash provided by (used in) financing activities under Chilean
GAAP
    
    
    (137,545,216
    )
    
    
    (287,890,263
    )
    
    
    (435,757,575
    )Development stage companies
    
    
    (995,575
    )Cash provided by (used in) financing activities under U.S.
GAAP
    
    
    (138,540,791
    )
    
    
    (287,890,263
    )
    
    
    (435,757,575
    )Cash provided by (used in) investing activities under Chilean
GAAP
    
    
    (329,735,425
    )
    
    
    (340,247,545
    )
    
    
    88,375,398Development stage companies
    
    
    (314,002
    )Time deposits (1)
    
    
    
    
    
    
    (10,278,615
    )Cash provided by (used in) investing activities under U.S.
GAAP
    
    
    (330,049,427
    )
    
    
    (350,526,160
    )
    
    
    88,375,398
  (1)
    
    Time deposits with maturities longer than 90 days. F-153




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued)  (ii)
    
    Cash and cash equivalents includes all highly liquid debt instruments
purchased with an original maturity of three months or less: Year ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    
    38,025,284
    
    
    
    48,666,727
    
    
    
    26,370,232Time deposits
    
    
    179,894,366
    
    
    
    147,083,163
    
    
    
    256,129,167Marketable securities
    
    
    200,230
    
    
    
    1,558,723
    
    
    
    11,150,635Other current assets
    
    
    1,885,996
    
    
    
    26,094,984
    
    
    
    37,350,791Total cash and cash equivalents under Chilean GAAP
    
    
    220,005,877
    
    
    
    223,403,597
    
    
    
    331,000,825Time deposits with maturities longer than 90 days
    
    
    
    
    
    
    10,278,615
    
    
    
    Total cash and cash equivalents under US GAAP
    
    
    220,005,877
    
    
    
    233,682,212
    
    
    
    331,000,825
  (iii)
    
    Additional disclosures required under U.S. GAAP are as follows: Years ended December 31,2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Interest paid during the year
    
    
    409,290,777
    
    
    
    460,105,547
    
    
    
    392,987,628Income taxes paid during the year
    
    
    133,520,396
    
    
    
    137,777,819
    
    
    
    396,388,375Assets acquired under capital leasing
    
    
    240,976
    
    
    
    
    
    
    
    
  (i)
    
    Disclosures about fair value of financial instruments The following methods and assumption were used to estimate the fair value of
each class of financial instruments as of December 31, 2002 and 2003 for which
it is practicable to estimate that value:  
    
    CashThe fair value of the Companys cash is equal to its carrying value.
    
    Time depositsThe fair value of time deposits approximates carrying value due to the
relatively short-term nature.
    
    Marketable securitiesThe fair value of marketable securities is based on quoted market prices of
the mutual money market funds held and approximates carrying value. F-154




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued)  
    
    Long-term accounts receivableThe fair value of long-term accounts receivable was estimated using the
interest rates that are currently offered for loans with similar terms and
remaining maturities.
    
    Long-term debtThe fair value of long-term debt was based on rates currently available to
the Company for debt with similar terms and remaining maturities.
    
    Derivative instrumentsEstimates of fair values of derivative instruments for which no quoted
prices or secondary market exists have been made using valuation techniques
such as forward pricing models, present value of estimated future cash
flows, and other modeling techniques. These estimates of fair value include
assumptions made by the Company about market variables that may change in
the future. Changes in assumptions could have a significant impact on the
estimate of fair values disclosed. As a result such fair value amounts are
subject to significant volatility and are highly dependent on the qualify of
the assumptions used.The estimated fair values of the Companys financial instruments compared to
Chilean GAAP carrying amounts are as follows: 2001
    
    2002
    
    2003Carrying
    
    Fair
    
    Carrying
    
    Fair
    
    Carrying
    
    Fairamount
    
    Value
    
    amount
    
    Value
    
    amount
    
    ValueThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Cash
    
    
    38,025,284
    
    
    
    38,025,284
    
    
    
    48,666,727
    
    
    
    48,666,727
    
    
    
    26,370,232
    
    
    
    26,370,232Time deposits
    
    
    179,894,366
    
    
    
    179,894,366
    
    
    
    147,083,163
    
    
    
    147,083,163
    
    
    
    256,254,606
    
    
    
    256,254,606Marketable securities
    
    
    205,103
    
    
    
    205,103
    
    
    
    1,558,723
    
    
    
    1,558,723
    
    
    
    11,155,741
    
    
    
    11,155,741Accounts receivable
    
    
    555,751,482
    
    
    
    555,751,482
    
    
    
    463,428,121
    
    
    
    463,428,121
    
    
    
    467,170,365
    
    
    
    467,170,365Notes receivable, net
    
    
    12,138,388
    
    
    
    12,138,388
    
    
    
    5,182,662
    
    
    
    5,182,662
    
    
    
    8,362,627
    
    
    
    8,362,627Other accounts receivable, net
    
    
    66,544,701
    
    
    
    66,544,701
    
    
    
    63,403,857
    
    
    
    63,403,857
    
    
    
    94,194,266
    
    
    
    94,194,266Amounts due from related companies
    
    
    190,574,244
    
    
    
    190,574,244
    
    
    
    198,259,972
    
    
    
    198,259,972
    
    
    
    146,163,958
    
    
    
    146,163,958Long-term
accounts receivable
    
    
    102,922,598
    
    
    
    102,922,598
    
    
    
    127,109,018
    
    
    
    127,109,018
    
    
    
    127,935,044
    
    
    
    127,935,044Accounts payable and other
    
    
    (268,624,170
    )
    
    
    (268,624,170
    )
    
    
    (238,996,489
    )
    
    
    (238,996,489
    )
    
    
    (218,602,775
    )
    
    
    (218,602,775
    )Notes payable
    
    
    (282,189,682
    )
    
    
    (282,189,682
    )
    
    
    (227,976,962
    )
    
    
    (227,976,962
    )
    
    
    (166,413,047
    )
    
    
    (166,413,047
    )Long-term debt
    
    
    (6,294,849,228
    )
    
    
    (6,253,197,087
    )
    
    
    (6,441,166,465
    )
    
    
    (6,406,158,889
    )
    
    
    (3,804,752,059
    )
    
    
    (3,934,702,914
    )Derivatives instruments
    
    
    (80,782,182
    )
    
    
    131,689,145
    
    
    
    129,973,402
    
    
    
    129,973,402
    
    
    
    (735,991
    )
    
    
    (735,991
    )
  (j)
    
    Derivative instruments The Company is exposed to the impact of market fluctuations in the price of
electricity, primary materials such as natural gas, petroleum, coal, and other
energy-related products, interest rates, and foreign exchange rates. The
Company employs policies and procedures to manage its risks associated with
these market fluctuation on a global basis through strategic contract
selection, fixed-rate and variable-rate portfolio targets, net investment
hedges, and financial derivatives. All derivatives that do not qualify for the
normal purchase and sales exemption under SFAS No. 133 are
recorded at their fair value. On the date that swaps, futures, forwards or
option contracts are entered into, the Company designates the derivatives as a
hedge, if the documentation is not appropriate to designate as a hedge the
derivatives mark-to-market adjustment flows through the income F-155




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) statement. The
Company does not have the appropriate documentation in place to designate
contracts as hedges of a forecasted transaction or future cash flows (cash flow
hedge) or as a hedge of a recognized assets, liability or firm commitment (fair
value hedge). The Company has classified its derivatives into the following general
categories: commodity derivatives, embedded derivatives, and financial
derivatives. Certain energy and other contracts for the Companys operations
in Chile are denominated in the US dollar. According to SFAS No. 133, an
embedded foreign currency derivative should be separated from the host contract
because none of the applicable exclusions are met (See Embedded Derivative
Contracts below). For purposes of evaluating the functional currency of the
Companys subsidiaries in Argentina, Perú, Brazil, and Colombia, the Company
applied BT 64, consistent with the methodology described in paragraph (s), thus
the functional currency of these subsidiaries was the US dollar as these
subsidiaries were remeasured into US dollars because foreign subsidiaries
operate in countries exposed to significant risks as determined under BT 64. The following is a summary of the Companys adjustment to fair values for all
identified derivative contracts as of December 31, 2002 and 2003. 2002Distribution
    
    Generation
    
    TotalThCh$
    
    ThCh$
    
    ThCh$Embedded derivatives
    
    
    (11,088,082
    )
    
    
    208,326,850
    
    
    
    197,238,768Financial derivatives
    
    
    (28,717,230
    )
    
    
    (17,122,217
    )
    
    
    (45,839,447
    )(39,805,312
    )
    
    
    191,204,633
    
    
    
    151,399,321Investment in related companies
    
    
    
    
    
    
    7,725,718
    
    
    
    7,725,718Derivative
instruments U.S. GAAP
Shareholders equity adjustment
    
    
    (39,805,312
    )
    
    
    198,930,351
    
    
    
    159,125,039
 2003Distribution
    
    Generation
    
    TotalThCh$
    
    ThCh$
    
    ThCh$Embedded derivatives
    
    
    (1,481,950
    )
    
    
    (7,095,906
    )
    
    
    (8,577,856
    )Financial derivatives
    
    
    (13,418,260
    )
    
    
    (2,922,182
    )
    
    
    (16,340,442
    )(14,900,210
    )
    
    
    (10,018,088
    )
    
    
    (24,918,298
    )Investment in related companies
    
    
    
    
    
    
    36,864,544
    
    
    
    36,864,544Derivative
instruments U.S. GAAP
Shareholders equity adjustment
    
    
    (14,900,210
    )
    
    
    26,846,456
    
    
    
    11,946,246
 F-156




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) Certain Companys generation and distribution commodity contracts could be seen
as contracts that meet the definition of a derivative under SFAS No. 133 and
would be required to be accounted for at fair value. These conditions are (i)
have an underlying, which is the market price of power at the delivery location
and a notional amount specified in the contract; (ii) have no initial payment
on entering into the contract; and (iii) have a net settlement provision or
have the characteristic of net settlement because power is readily convertible
to cash, as it is both fungible and actively traded in the country of
generation or country of distribution. The Company assessed that its commodity contracts that are requirements
contracts do no meet the above definition because the contracts do not have
notional amounts, as they only have maximum amounts or no specified amounts,
and do not include an implicit or explicit minimum amount in a settlement or a
default clause. A requirements contract allows the purchaser to use as many
units of power as required to satisfy its actual needs for power during the
period of the contract, and the party is not permitted to buy more than its
actual needs. The Company concluded that all of its power is readily convertible to cash as
energy is actively traded, or the Company has access, to markets where energy
is actively traded. However, only certain participants have access to the
energy markets, thus determination as to whether energy could be considered
readily convertible to cash was analyzed on a country by country basis.
Currently, Chilean distributors do not have access to the Chilean spot market,
however this could change in the future if energy regulations are changed. The
Company has also concluded that multiple-delivery long-term power contracts
meet the net settlement characteristic. Management multiple-delivery long-term
power contracts are readily convertible to cash because the Company operates in
countries with active spot markets, that although they contain varying levels
of liquidity, can rapidly absorb the contracts quantities at each delivery
date without significantly affecting the price, and thus meet the definition of
net settlement, consequently these contracts are accounted for as derivatives
that under SFAS No.133. Because both the purchases and sales interconnection contracts are for periods
up to 20 years in complex markets, where no similar term forward market
information is available, the Company has estimated such values based on the
best information available, including using modeling and other valuation
techniques. The Company has recorded the best estimate of fair value, however
with different assumptions such as interest rates, inflation rates, exchange
rates, electricity rates, and increases in cost trends, materially different
fair values could result. As a result such estimates are highly volatile and
dependent upon the assumptions used. The assumption to measure the fair value
of these interconnection related contracts using the Argentine market prices
may have a significant effect on the Companys net income and shareholders
equity. Such values are included in the reconciliation to U.S. GAAP in Note 37
paragraph (gg). F-157




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) Embedded Derivative Contracts The Company enters into certain contracts that have embedded features that are
not clearly and closely related to the host contract. As specified in SFAS No.
133, bifurcation analysis focuses on whether the economic characteristics and
risks of the embedded derivative are clearly and closely related to the
economic characteristics and risks of the host contract. In certain identified
contracts, the host service contract and the embedded feature are not indexed
to the same underlying and changes in the price or value of service will not
always correspond to changes in the price of the commodity to which the
contract is indexed. U.S. GAAP requires embedded features to be measured at
fair value as freestanding instruments. Unless the embedded contracts are
remeasured at fair value under otherwise applicable GAAP, the embedded feature
must be valued at fair value with changes in fair value reported in earnings as
they occur. Embedded foreign currency derivative instruments are not separated from the
host contract and considered a derivative instrument if the host contract is
not a financial instrument and it requires payments denominated in either: (1)
the functional currency of any substantial party to the contract, (2) the local
currency of any substantial party to the contract, (3) the currency used
because the primary economic environment is highly inflationary, or (4) the
currency in which the good or service is routinely denominated in international
commerce. Financial Derivatives Changes in interest rates expose the Company to risk as a result of its
portfolio of fixed-rate and variable rate debt. The Company manages interest
rate risk exposure on a global basis by limiting its variable rate and
fixed-rate exposures to certain variable/fixed mixes set by policy. The
Company manages interest rate risk through the use of interest rate swaps and
collars and cross-currency swaps. The Company does not enter into
financial
instruments for trading or speculative purposes. Net Investment Hedges The Company is also exposed to foreign currency risk arising from long-term
debt denominated in foreign currencies, the majority of which is the US dollar.
This risk is mitigated, as a substantial portion of the Companys revenues are
either directly or indirectly linked to the US dollar. Additionally, the
Company records the foreign exchange gains and losses on liabilities related to
net investments in foreign countries which are denominated in the same currency
as the functional currency of those foreign investments. Such unrealized gains
and losses are included in the cumulative translation adjustment account in
shareholders equity, and in this way act as a net investment hedge of the
exchange risk affecting the investments (see Note 11 (c) and Note 22 (f) for
further detail). The Company also uses short duration forward foreign currency
contracts and swaps, and cross-currency swaps, where possible, to manage its
risk related to foreign currency fluctuations. These contracts are considered
cover contracts under Chilean GAAP. In accordance with Chilean GAAP the gain
and losses on these contracts are deferred until realized as assets or
liabilities. For U.S. GAAP purposes, as the Company has not met the requirements for
designating these derivatives contracts as hedges, the contracts are recorded
at fair value in the balance sheet with any unrealized gain and/or losses being
directly recorded in the income statement. F-158




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued)  (k)
    
    Reclassification to U.S. GAAP Certain reclassifications would be made to the Chilean GAAP income statement in
order to present Chilean GAAP amounts in accordance with presentation
requirements under U.S. GAAP. Amortization of negative goodwill, amortization
of goodwill, and certain other non-operating income and expense would be
included in operating income. Recoverable taxes included in other
non-operating revenues would be recorded as part of income taxes under U.S.
GAAP. Equity participation in income or losses of related companies included
in non-operating income would be presented after income taxes and minority
interest in accordance with U.S. GAAP. The following reclassifications
included in the column labeled Reclassifications disclose amounts using a
U.S. GAAP presentation, although the amounts displayed have been determined in
accordance with Chilean GAAP: 2001Chilean
    
    Reclassification
    
    U.S. GAAPThCh$
    
    ThCh$
    
    ThCh$Operating income
    
    
    762,089,205
    
    
    
    (84,856,195
    )
    
    
    677,233,010Non-operating expense, net
    
    
    (510,137,695
    )
    
    
    111,036,254
    
    
    
    (399,101,441
    )Income taxes
    
    
    (131,148,638
    )
    
    
    8,197,975
    
    
    
    (122,950,663
    )Minority interest
    
    
    (126,404,145
    )
    
    
    
    
    
    
    (126,404,145
    )Equity participation in income of
related companies, net
    
    
    
    
    
    
    (10,805,785
    )
    
    
    (10,805,785
    )Amortization of negative goodwill
    
    
    48,176,847
    
    
    
    (47,926,219
    )
    
    
    250,628Net income
    
    
    42,575,574
    
    
    
    
    
    
    
    42,575,575
 2002Chilean
    
    Reclassification
    
    U.S. GAAPThCh$
    
    ThCh$
    
    ThCh$Operating income
    
    
    537,970,805
    
    
    
    (447,432,384
    )
    
    
    90,538,421Non-operating expense, net
    
    
    (804,495,458
    )
    
    
    546,004,716
    
    
    
    (258,490,742
    )Income taxes
    
    
    (66,677,155
    )
    
    
    (16,147,897
    )
    
    
    (82,825,052
    )Minority interest
    
    
    16,445,384
    
    
    
    
    
    
    
    16,445,384Equity participation in income of
related companies, net
    
    
    
    
    
    
    8,346,421
    
    
    
    8,346,421Amortization of negative goodwill
    
    
    113,370,252
    
    
    
    (113,370,252
    )
    
    
    Net loss before extraordinary items
    
    
    (203,386,172
    )
    
    
    (22,599,396
    )
    
    
    (225,985,568
    )Extraordinary items
    
    
    (22,599,396
    )
    
    
    22,599,396
    
    
    
    Net loss
    
    
    (225,985,568
    )
    
    
    
    
    
    
    (225,985,568
    )
 F-159




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) 2003Chilean
    
    Reclassification
    
    U.S. GAAPThCh$
    
    ThCh$
    
    ThCh$Operating income
    
    
    531,097,684
    
    
    
    23,609,549
    
    
    
    554,707,233Non-operating expense, net
    
    
    (449,910,509
    )
    
    
    4,969,266
    
    
    
    (444,941,243
    )Income taxes
    
    
    (41,570,717
    )
    
    
    5,080,587
    
    
    
    (36,490,130
    )Minority interest
    
    
    (78,324,793
    )
    
    
    
    
    
    
    (78,324,793
    )Equity participation in income of related companies, net
    
    
    
    
    
    
    17,516,796
    
    
    
    17,516,796Amortization of negative goodwill
    
    
    51,176,198
    
    
    
    (51,176,198
    )
    
    
    Net income
    
    
    12,467,863
    
    
    
    
    
    
    
    12,467,863
 Certain reclassifications would be made to the Chilean GAAP balance sheet in
order to present Chilean GAAP amounts in accordance with presentation
requirements under U.S. GAAP. Deferred taxes from depreciation differences
that are recorded as short-term under Chilean GAAP would be recorded as
long-term under U.S. GAAP. Real estate properties under development and
construction-in-progress are included in current assets as inventory in Chilean
GAAP and under U.S. GAAP such assets would have been included as property,
plant and equipment. Additionally, the regulated asset recorded during 2001 by
Coelce and Cerj, Brazilian subsidiaries, has been partially recorded in trade
receivables and an additional component was recorded in current assets by
Coelce under Chilean GAAP. However, under U.S. GAAP the presentation of these
regulated assets should be classified as non-current assets as the recovery of
these assets is not expected in the short term. These reclassifications
exclude consolidation of development stage companies, the effect of which is
immaterial. F-160




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ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) The effect of the following reclassifications included in the column labeled
Reclassifications discloses amounts using a U.S. GAAP presentation, although
the amounts displayed have been determined in accordance with Chilean GAAP: 2002Chilean GAAP
    
    Reclassification
    
    U.S. GAAPThCh$
    
    ThCh$
    
    ThCh$Current assets
    
    
    1,226,686,042
    
    
    
    (85,538,392
    )
    
    
    1,141,147,650Property, plant an equipment, net
    
    
    9,978,252,764
    
    
    
    24,042,272
    
    
    
    10,002,295,036Other assets
    
    
    1,532,920,813
    
    
    
    (24,846,332
    )
    
    
    1,508,074,481Total assets
    
    
    12,737,859,619
    
    
    
    (86,342,452
    )
    
    
    12,651,517,167Current liabilities
    
    
    2,172,886,981
    
    
    
    80,029,729
    
    
    
    2,252,916,710Long-term liabilities
    
    
    5,458,227,793
    
    
    
    (166,372,182
    )
    
    
    5,291,855,611Minority interest
    
    
    4,091,108,748
    
    
    
    
    
    
    
    4,091,108,748Shareholders equity
    
    
    1,015,636,098
    
    
    
    
    
    
    
    1,015,636,098Total liabilities and shareholders equity
    
    
    12,737,859,620
    
    
    
    (86,342,453
    )
    
    
    12,651,517,167
 2003Chilean GAAP
    
    Reclassification
    
    U.S. GAAPThCh$
    
    ThCh$
    
    ThCh$Current assets
    
    
    1,146,003,542
    
    
    
    (50,015,206
    )
    
    
    1,095,988,336Property, plant an equipment, net
    
    
    8,096,360,510
    
    
    
    16,157,076
    
    
    
    8,112,517,586Other assets
    
    
    1,490,382,915
    
    
    
    (18,323,797
    )
    
    
    1,472,059,118Total assets
    
    
    10,732,746,967
    
    
    
    (52,181,927
    )
    
    
    10,680,565,040Current liabilities
    
    
    1,127,151,028
    
    
    
    (11,470,682
    )
    
    
    1,115,680,346Long-term liabilities
    
    
    3,707,922,226
    
    
    
    (40,711,245
    )
    
    
    3,667,210,981Minority interest
    
    
    3,349,281,823
    
    
    
    
    
    
    
    3,349,281,823Shareholders equity
    
    
    2,548,391,890
    
    
    
    
    
    
    
    2,548,391,890Total liabilities and shareholders equity
    
    
    10,732,746,967
    
    
    
    (52,181,927
    )
    
    
    10,680,565,040
 F-161




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ENERSIS S.A. AND
SUBSIDIARIES

Notes to the Consolidated Financial Statements  (Continued) (1) Employee Benefit Plans Enersis S.A. and its subsidiaries sponsor various benefit plans for its current
and retired employees. A description of such benefits follows: Severance indemnities The provision for severance indemnities, included in the account Accrued
expenses short and long-term is calculated in accordance with the policy set
forth in Note 2 (n), using the current salary levels of all employees covered
under the severance indemnities agreement, an assumed discount rate of 9.5% for
the years ended December 31, 2001, 2002 and 2003, and an estimated average
service period based on the years of services for the Company. Benefits for Retired Personnel Other benefits provided to certain retired personnel of Enersis include
electrical service rate subsidies, additional medical insurance and additional
post-retirement benefits. Descriptions of these benefits for retired personnel
are as follows: i)Electrical rate service This benefit is extended only to certain retired personnel of Enersis. These
electric rate subsidies result in the eligible retired employees paying a
percentage of their total monthly electricity costs, with Enersis paying the
difference. ii)Medical benefits This benefit provides supplementary health insurance, which covers a portion of
health benefits not covered under the institutional health benefits maintained
by employees of Enersis. This benefit expires at the time of death of the
pensioner. iii)Supplementary pension benefits Eligible employees are able to receive a monthly amount designed to cover a
portion of the difference between their salary at the point of retirement and
the theoretical pension that would have been received had the employee reached
the legal retirement age of the Institución de Previsión Social(Institute of
Social Welfare). This benefit expires upon the death of the pensioner for the
Enersis employee, however, continues to cover the surviving-spouse in the case
of employees of the subsidiary Endesa-Chile. iv)Workers compensation benefits Employees that were entitled to Workers compensation insurance in prior years
for work related injuries receive benefits from the Company when that insurance
expires. This benefit continues at the time of death of the pensioner, to
cover the surviving-spouse. F-162




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) The Company has recognized liabilities related to complementary pension plan
benefits and other postretirement benefits as stipulated in collective
bargaining agreements. Under U.S. GAAP, post-retirement employee benefits have
been accounted for in accordance with SFAS No. 87 and SFAS No. 106, with
inclusion of prior-period amounts in current years income as the amounts are
not considered significant to the overall financial statement presentation.
The effects of accounting for post-retirement benefits under U.S. GAAP have
been presented in paragraph (gg), above. The following data represents Chile
GAAP amounts presented under FAS N°132 Revised 2003 Employers Disclosures
about Pensions and other postretirement Benefits, for Companys post-retirement
benefit plans. The following is a schedule of estimated pay-out of pension benefits in each of
the next five years: As of December 31,2003ThCh$2004
    
    
    19,323,7002005
    
    
    19,169,9002006
    
    
    19,057,5002007
    
    
    20,742,9002008 y más
    
    
    227,275,400Total assets of discontinued operations
    
    
    305,569,400
 At December 31, 2001Pension Benefits
    
    Other BenefitsComponents of net periodicBenefits
expenses
    
    NonContributory
    
    Contributory
    
    Total
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Service cost
    
    
    (545,019
    )
    
    
    (159,677
    )
    
    
    (704,696
    )
    
    
    (11,240,471
    )Interest cost
    
    
    (9,727,157
    )
    
    
    (14,103,948
    )
    
    
    (23,831,105
    )
    
    
    (996,389
    )Expected return on assets
    
    
    
    
    
    
    15,984,583
    
    
    
    15,984,583
    
    
    
    Amortization gain (loss)
    
    
    3,124,848
    
    
    
    (7,002,042
    )
    
    
    (3,877,194
    )
    
    
    Amortization of prior service cost
    
    
    (1,108,677
    )
    
    
    (1,394,346
    )
    
    
    (2,503,023
    )
    
    
    (212,744
    )Net periodic expenses
    
    
    (8,256,005
    )
    
    
    (6,675,430
    )
    
    
    (14,931,435
    )
    
    
    (12,449,604
    )
 F-163




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES

Notes to the Consolidated Financial Statements  (Continued) At December 31, 2002Pension Benefits
    
    Other BenefitsUnfunded
    
    Funded
    
    Total
    
    TotalThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Assets and obligationsAccumulated benefit obligation
    
    
    (30,025,642
    )
    
    
    (150,206,029
    )
    
    
    (180,231,671
    )
    
    
    (33,521,901
    )Plan assets at fair value
    
    
    
    
    
    
    94,128,798
    
    
    
    94,128,798
    
    
    
    Unfunded accumulated benefit
    
    
    (30,025,642
    )
    
    
    (56,077,231
    )
    
    
    (86,102,873
    )
    
    
    (33,521,901
    )Changes in benefit (obligations)Benefit (obligations) at January 1
    
    
    (60,885,105
    )
    
    
    (99,016,529
    )
    
    
    (159,901,634
    )
    
    
    (18,978,461
    )Price-level restatement
    
    
    1,298,767
    
    
    
    2,883,977
    
    
    
    4,182,744
    
    
    
    473,409Foreign exchange effect
    
    
    6,823,162
    
    
    
    (9,362,510
    )
    
    
    (2,539,348
    )
    
    
    Net periodic expense
    
    
    (7,076,864
    )
    
    
    (6,709,096
    )
    
    
    (13,785,960
    )
    
    
    (19,172,729
    )Benefits paid
    
    
    2,530,551
    
    
    
    12,263,081
    
    
    
    14,793,632
    
    
    
    (171,947
    )Company contributions
    
    
    
    
    
    
    32,880,421
    
    
    
    32,880,421
    
    
    
    4,069,724Benefit (obligations) at December 31
    
    
    (57,309,489
    )
    
    
    (67,060,656
    )
    
    
    (124,370,145
    )
    
    
    (33,780,004
    )Funded Status of the PlansProtected Benefits Obligation
    
    
    (59,352,440
    )
    
    
    (151,599,190
    )
    
    
    (210,951,630
    )
    
    
    (33,626,130
    )Fair value of the plans assets
    
    
    
    
    
    
    94,128,797
    
    
    
    94,128,797
    
    
    
    Funded Status
    
    
    (59,352,440
    )
    
    
    (57,470,393
    )
    
    
    (116,822,833
    )
    
    
    (33,626,130
    )Unrecognized loss
    
    
    849,966
    
    
    
    (18,160,143
    )
    
    
    (17,310,177
    )
    
    
    (13,187,275
    )Unrecognized net prior service cost
    
    
    1,192,985
    
    
    
    8,569,880
    
    
    
    9,762,865
    
    
    
    13,033,401Net liability recorded under U.S. GAAP
    
    
    (57,309,489
    )
    
    
    (67,060,656
    )
    
    
    (124,370,145
    )
    
    
    (33,780,004
    )Change in the plan assetsFair value of plans assets, beginning
    
    
    
    
    
    
    87,310,089
    
    
    
    87,310,089Foreign exchange effect
    
    
    
    
    
    
    (19,531,524
    )
    
    
    (19,531,524
    )Actual return on the plan assets
    
    
    
    
    
    
    28,344,308
    
    
    
    28,344,308Employer contributions
    
    
    
    
    
    
    13,802,233
    
    
    
    13,802,233Plan participant contributions
    
    
    
    
    
    
    4,151,502
    
    
    
    4,151,502Benefits paid
    
    
    
    
    
    
    (19,947,810
    )
    
    
    (19,947,810
    )Fair value of plans assets, ending
    
    
    
    
    
    
    94,128,798
    
    
    
    94,128,798Components of net periodicBenefits expensesService cost
    
    
    (53,845
    )
    
    
    (968,655
    )
    
    
    (914,810
    )
    
    
    (4,451,331
    )Interest cost
    
    
    (3,322,547
    )
    
    
    (10,311,252
    )
    
    
    (13,741,489
    )
    
    
    (2,612,864
    )Expected return on assets
    
    
    
    
    
    
    6,607,326
    
    
    
    6,607,326
    
    
    
    Amortization gain (loss)
    
    
    (3,079,729
    )
    
    
    (1,001,112
    )
    
    
    (4,080,841
    )
    
    
    (10,222,116
    )Amortization of transition asset
    
    
    (620,743
    )
    
    
    (1,035,403
    )
    
    
    (1,656,146
    )
    
    
    (1,886,418
    )Net periodic expenses
    
    
    (7,076,864
    )
    
    
    (6,709,096
    )
    
    
    (13,785,960
    )
    
    
    (19,172,729
    )
 Pension Benefits
    
    Other BenefitsAssumptions as of December 31
    
    Chile
    
    Colombia
    
    Brazil
    
    Chile
    
    Brazil
    
    ColombiaWeighted  discount rate (1)
    
    
    9.5
    %
    
    
    13.5
    %
    
    
    11.3
    %
    
    
    9.5
    %
    
    
    11.3
    %
    
    
    13.5
    %Weighted  salary increase
    
    
    3.0
    %
    
    
    8.3
    %
    
    
    5.5
    %Weighted  return on plan assets (1)
    
    
    
    
    
    
    
    
    
    
    11.3
    %Weighted  long term inflation (2)
    
    
    3.0
    %
    
    
    8.3
    %
    
    
    4.5
    %
    
    
    3.0
    %
    
    
    4.5
    %
    
    
    8.3
    %
 (1) Includes fixed long term inflation assumption detail in (2) F-164




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) At December 31, 2003Pension Benefits
    
    Other BenefitsUnfunded
    
    Funded
    
    Total
    
    TotalAssets and obligationsAccumulated benefit obligation
    
    
    (36,887,534
    )
    
    
    (172,849,877
    )
    
    
    (209,737,411
    )
    
    
    (29,592,497
    )Plan assets at fair value
    
    
    
    
    
    
    119,095,191
    
    
    
    119,095,191
    
    
    
    Unfunded accumulated benefit
    
    
    (36,887,534
    )
    
    
    (53,754,686
    )
    
    
    (90,642,220
    )
    
    
    (29,592,497
    )Changes in benefit (obligations)Benefit (obligations) at January 1
    
    
    (58,159,448
    )
    
    
    (67,060,656
    )
    
    
    (125,220,104
    )
    
    
    (34,854,960
    )
    
    
    
    
    
    
    
    
    
    
    
    Price-level restatement
    
    
    410,068
    
    
    
    663,967
    
    
    
    1,074,035
    
    
    
    262,893Foreign exchange effect
    
    
    8,351,963
    
    
    
    11,531,944
    
    
    
    19,883,907
    
    
    
    4,035,814Net periodic expense
    
    
    (11,645,290
    )
    
    
    (17,064,442
    )
    
    
    (28,709,732
    )
    
    
    1,417,669Benefits paid
    
    
    2,344,522
    
    
    
    10,398,385
    
    
    
    12,742,907
    
    
    
    49,158Company contributions
    
    
    
    
    
    
    286,269
    
    
    
    286,269
    
    
    
    (1,745,146
    )Benefit (obligations) at December 31
    
    
    (58,698,185
    )
    
    
    (61,244,532
    )
    
    
    (119,942,717
    )
    
    
    (30,834,572
    )Funded Status of the PlansProtected Benefits Obligation
    
    
    (57,553,854
    )
    
    
    (174,368,245
    )
    
    
    (231,922,099
    )
    
    
    (30,132,395
    )Fair value of the plans assets
    
    
    
    
    
    
    119,095,191
    
    
    
    119,095,191
    
    
    
    Funded Status
    
    
    (57,553,854
    )
    
    
    (55,273,055
    )
    
    
    (112,826,909
    )
    
    
    (30,132,395
    )Unrecognized loss (gain)
    
    
    (1,748,907
    )
    
    
    (15,935,576
    )
    
    
    (17,684,483
    )
    
    
    (12,214,579
    )Unrecognized net prior service cost
    
    
    604,576
    
    
    
    9,964,098
    
    
    
    10,568,674
    
    
    
    11,512,402Net liability recorded under U.S. GAAP
    
    
    (58,698,185
    )
    
    
    (61,244,532
    )
    
    
    (119,942,717
    )
    
    
    (30,834,572
    )Change in the plan assetsFair value of plans assets, beginning
    
    
    
    
    
    
    94,128,798
    
    
    
    94,128,798Foreign exchange effect
    
    
    
    
    
    
    (11,049,701
    )
    
    
    (11,049,701
    )Actual return on the plan assets
    
    
    
    
    
    
    35,619,325
    
    
    
    35,619,325Employer contributions
    
    
    
    
    
    
    9,032,029
    
    
    
    9,032,029Plan participant contributions
    
    
    
    
    
    
    3,827,173
    
    
    
    3,827,173Benefits paid
    
    
    
    
    
    
    (12,462,433
    )
    
    
    (12,462,433
    )Fair value of plans assets, ending
    
    
    
    
    
    
    119,095,191
    
    
    
    119,095,191Components of net periodic
Benefits expensesService cost
    
    
    (26,988
    )
    
    
    (1,325,391
    )
    
    
    (1,298,403
    )
    
    
    740,956Interest cost
    
    
    (7,446,986
    )
    
    
    (16,247,928
    )
    
    
    (23,748,890
    )
    
    
    229,975Expected return on assets
    
    
    
    
    
    
    25,046,215
    
    
    
    25,046,215
    
    
    
    Amortization gain (loss)
    
    
    (3,556,718
    )
    
    
    (22,555,598
    )
    
    
    (26,112,316
    )
    
    
    (351,347
    )Amortization of transition asset
    
    
    (614,598
    )
    
    
    (1,981,739
    )
    
    
    (2,596,337
    )
    
    
    798,085Net periodic expenses
    
    
    (11,645,290
    )
    
    
    (17,064,442
    )
    
    
    (28,709,732
    )
    
    
    1,417,669
 Pension Benefits
    
    Other BenefitsAssumptions as of December 31
    
    Chile
    
    Colombia
    
    Brazil
    
    Chile
    
    Brazil
    
    ColombiaWeighted  discount rate (1)
    
    
    9.5
    %
    
    
    12.8
    %
    
    
    11.3
    %
    
    
    9.5
    %
    
    
    11.3
    %
    
    
    12.8
    %Weighted  salary increase
    
    
    3.0
    %
    
    
    7.5
    %
    
    
    5.5
    %Weighted  return on plan assets (1)
    
    
    
    
    
    
    
    
    
    
    11.3
    %Weighted  long term inflation (2)
    
    
    3.0
    %
    
    
    7.5
    %
    
    
    4.5
    %
    
    
    3.0
    %
    
    
    4.5
    %
    
    
    7.5
    %
  (1)
    
    Includes fixed long term inflation assumption detail in (2) F-165




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) (m) Comprehensive income (loss) In accordance with U.S. GAAP, the Company reports a measure of all changes in
shareholders equity that result from transactions and other economic events of
the period other than transactions with owners (comprehensive income).
Comprehensive income is the total of net income and other non-owner equity
transactions that result in changes in net shareholders equity. The following represents accumulated other comprehensive income balances as of
December 31, 2001, 2002 and 2003 (in thousands of constant Chilean pesos as of
December 31, 2003). 2001Chilean GAAP
    
    Effect of U.S. GAAP
    
    Accumulated othercumulative translation
    
    adjustments on cumulative
    
    comprehensiveadjustment
    
    translation adjustment
    
    income (loss)ThCh$
    
    ThCh$
    
    ThCh$Beginning balance
    
    
    9,889,646
    
    
    
    844,720
    
    
    
    10,734,366Credit (charge) for the period
    
    
    19,653,919
    
    
    
    (3,007,132
    )
    
    
    16,646,787Ending balance
    
    
    29,543,565
    
    
    
    (2,162,412
    )
    
    
    27,381,153
 2002Chilean GAAP
    
    Effect of U.S. GAAP
    
    Accumulated othercumulative translation
    
    adjustments on cumulative
    
    comprehensiveadjustment
    
    translation adjustment
    
    income (loss)ThCh$
    
    ThCh$
    
    ThCh$Beginning balance
    
    
    29,543,565
    
    
    
    (2,162,412
    )
    
    
    27,381,153Credit (charge) for the period
    
    
    20,802,883
    
    
    
    (12,276,027
    )
    
    
    8,526,856Ending balance
    
    
    50,346,448
    
    
    
    (14,438,439
    )
    
    
    35,908,009
 F-166




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##### Table of Contents



ENERSIS S.A. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) 2003Chilean GAAP
    
    Effect of U.S. GAAP
    
    Accumulated othercumulative translation
    
    adjustments on cumulative
    
    comprehensiveadjustment
    
    translation adjustment
    
    income (loss)ThCh$
    
    ThCh$
    
    ThCh$Beginning balance
    
    
    50,346,448
    
    
    
    (14,438,439
    )
    
    
    35,908,009Credit (charge) for the period
    
    
    (73,020,068
    )
    
    
    51,171,555
    
    
    
    (21,848,513
    )Ending balance
    
    
    (22,673,620
    )
    
    
    36,733,116
    
    
    
    14,059,496
 The Company does not recognize deferred tax assets associated to cumulative
translation adjustment due to the permanent nature of the investment
in
associates. Consequently the amounts in the table have not been tax effected. (n) Discontinued operations In October of 2001, the FASB issued SFAS No. 144 which is effective for fiscal
years beginning after December 15, 2001. SFAS No. 144 establishes accounting
and reporting standards for the impairment and disposal of long-lived assets
and discontinued operations. The Company adopted SFAS No. 144 in 2002. All
prior year reporting periods have been restated to reflect the adoption. The
application of this statement resulted in the classification, and separate
financial presentation of certain entities as discontinued operations, the
results of which are not included in continuing operations. There was no
impairment of assets related to discontinued operations, as their fair value
exceeded their carrying value. Fair values used in these calculations has been
determined by using the agreed upon sales prices. In 2002, the Endesa Chile (Enersis Subsidiary) committed to a plan to dispose
the 60% equity participation it held in the consolidated subsidiary,
Infraestructura Dos Mil S.A. It was accounted for as discontinued operations
in accordance with SFAS No. 144 and, accordingly, amounts in reconciliation of
net income to US GAAP and the additional disclosure notes required under US
GAAP for all periods shown, reflect that component as a discontinued operation. F-167




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) The net sales from discontinued operations for the years 2001 and 2002 were
ThCh$20,150,123 and ThCh$20,202,007, respectively. The major classes of
discontinued consolidated assets, consolidated liabilities and minority
interest included in the Chilean GAAP Endesa Chile consolidated Balance Sheet
are as follows: As of December 31,2002ThCh$Assets:Cash
    
    
    191,966Account receivable, net
    
    
    14,917,106Other current assets
    
    
    35,708,670Property, plant and equipment, net
    
    
    170,181,293Intangibles
    
    
    34,764Other assets
    
    
    18,236,278Total assets of discontinued operations
    
    
    239,270,078Liabilities:Current liabilities
    
    
    74,919,888Long term liabilities
    
    
    98,127,832Income taxes payable (including deferred)
    
    
    843,429Minority interest
    
    
    736,427Total liabilities and minority interest of discontinued operations
    
    
    174,627,576
 The major classes of consolidated revenues and expenses included in the US GAAP
Enersis consolidated Income Statement are as follows: 2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$Sales
    
    
    20,351,624
    
    
    
    20,404,027Costs of sales
    
    
    (10,562,356
    )
    
    
    (10,061,349
    )Gross profit
    
    
    9,789,268
    
    
    
    10,342,678
    
    
    
    Administrative and selling expenses
    
    
    (1,304,346
    )
    
    
    (1,322,735
    )Operating income
    
    
    8,484,922
    
    
    
    9,019,943
    
    
    
    Non operating (loss) income
    
    
    (7,073,841
    )
    
    
    (7,576,012
    )Income before taxes and minority interest
    
    
    1,411,081
    
    
    
    1,443,931
    
    
    
    Income tax
    
    
    (611,188
    )
    
    
    (982,180
    )Minority interest
    
    
    (512,639
    )
    
    
    (294,981
    )Net income for the year
    
    
    287,254
    
    
    
    166,770
 F-168




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) (o) Goodwill and intangible assets As discussed in Note 37 paragraph (i), Enersis S.A. adopted SFAS 142, which
requires companies to stop amortizing goodwill and certain intangible assets
with an indefinite useful life. Instead, FAS 142 requires that goodwill and
intangible assets deemed to have an indefinite useful life be reviewed for
impairment upon adoption of SFAS 142, effective January 1, 2002 and annually
thereafter. Under SFAS 142, goodwill impairment is deemed to exist if the net
book value of a reporting unit exceeds its estimated fair value. The Companys
reporting units are at the operating subsidiary level. This methodology
differs from Enersiss previous policy, as provided under accounting standards
existing at that time of using undiscounted cash flows on an enterprise-wide
basis to determine if goodwill was recoverable. Subsequent to adoption 2002 of
SFAS No. 142 due to change in circumstances, the Company recognized a non-cash
charge of ThCh$600,380,013 to reduce the carrying value of goodwill. In calculating the impairment charge, the fair value of the impaired reporting
units underlying the segments was estimated using discounted cash flow
methodology. The ThCh$600,380,013 goodwill impairment is associated entirely
with goodwill associated with investments in Argentina and Brazil. The
impairment reflects the decline in the Companys revenues and forecasted cash
flows in their Argentina and Brazilian subsidiaries and the increase in
inflation and interest rates and decreasing expectations of the currencies in
Argentina and Brazil. Prior to performing the review for impairment, SFAS 142
required that all goodwill deemed to be related to the entity as a whole be
assigned to all of the Companys reporting units, including the reporting units
of the acquirer. A summary of the changes in the Companys goodwill under U.S. GAAP during the
year ended December 31, 2002 and 2003, by country of operation and segment is
as follows: 2002: January 1,
    
    
    
    
    
    Translation
    
    
    
    
    
    December 31,By Country
    
    2002
    
    Acquisitions
    
    adjustment
    
    Impairment
    
    2002ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Chile
    
    
    1,008,326,553
    
    
    
    3,367,279
    
    
    
    
    
    
    
    (1,730,261
    )
    
    
    1,009,963,571Argentina
    
    
    84,027,989
    
    
    
    
    
    
    
    6,690,514
    
    
    
    (90,718,503
    )
    
    
    Brazil
    
    
    487,804,583
    
    
    
    
    
    
    
    26,130,466
    
    
    
    (513,935,049
    )
    
    
    Colombia
    
    
    78,463,830
    
    
    
    
    
    
    
    3,758,050
    
    
    
    
    
    
    
    82,221,880Perú
    
    
    20,193,668
    
    
    
    
    
    
    
    1,322,608
    
    
    
    
    
    
    
    21,516,276Total
    
    
    1,678,816,623
    
    
    
    3,367,279
    
    
    
    37,901,638
    
    
    
    (606,383,813
    )
    
    
    1,113,701,727
 F-169




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) GoodwillJanuary 1,
    
    
    
    
    
    Translation
    
    
    
    
    
    December 31,2002
    
    Acquisitions
    
    adjustment
    
    Impairment
    
    2002By Segment
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Generation
    
    
    1,051,082,728
    
    
    
    3,304,022
    
    
    
    11,775,309
    
    
    
    (140,832,760
    )
    
    
    925,329,299Distribution
    
    
    626,004,310
    
    
    
    
    
    
    
    26,126,329
    
    
    
    (463,821,468
    )
    
    
    188,309,171Other
    
    
    1,729,585
    
    
    
    63,257
    
    
    
    
    
    
    
    (1,729,585
    )
    
    
    63,257Total
    
    
    1,678,816,623
    
    
    
    3,367,279
    
    
    
    37,901,638
    
    
    
    (606,383,813
    )
    
    
    1,113,701,727
 2003: January 1,
    
    Acquisitions
    
    Translation
    
    
    
    
    
    December 31,2003
    
    (sales)
    
    adjustment
    
    Impairment
    
    2003By Country
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Chile
    
    
    1,009,965,464
    
    
    
    (10,942,944
    )
    
    
    
    
    
    
    
    
    
    
    999,022,520Colombia
    
    
    73,227,440
    
    
    
    
    
    
    
    (15,971,976
    )
    
    
    
    
    
    
    57,255,464Perú
    
    
    21,516,276
    
    
    
    
    
    
    
    (3,912,545
    )
    
    
    
    
    
    
    17,603,731Total
    
    
    1,104,709,180
    
    
    
    (10,942,944
    )
    
    
    (19,884,521
    )
    
    
    
    
    
    
    1,073,881,715
 January 1,
    
    Acquisitions
    
    Translation
    
    
    
    
    
    December 31,2003
    
    (sales)
    
    adjustment
    
    Impairment
    
    2003By Segment
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$
    
    ThCh$Generation
    
    
    925,329,298
    
    
    
    74,637
    
    
    
    (9,224,750
    )
    
    
    
    
    
    
    916,179,185Distribution
    
    
    179,316,625
    
    
    
    (11,017,581
    )
    
    
    (10,659,771
    )
    
    
    
    
    
    
    157,639,273Other
    
    
    63,257
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63,257Total
    
    
    1,104,709,180
    
    
    
    (10,942,944
    )
    
    
    (19,884,521
    )
    
    
    
    
    
    
    1,073,881,715
 The Companys intangible assets were ThCh$71,697,080 and ThCh$80,915,893 and
related accumulated amortization were ThCh$25,148,069 and ThCh$34,648,290 as of
December 31, 2001 and 2002, respectively. There is no difference between
Chilean and U.S. GAAP in the amortization of intangible assets because all of
the Companys intangible assets are subject to amortization, since they relate
to finite contracts or concessions. F-170




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##### Table of Contents



ENERSIS S.A. AND
SUBSIDIARIES
Notes to the Consolidated Financial Statements  (Continued) (p) Asset retirement obligations As discussed in Note 37 paragraph (ff), the Company adopted SFAS No. 143
effective January 1, 2003. The following table describes all changes to the
Companys U.S. GAAP asset retirement obligation during the year ended December
31, 2003: 2003ThCh$Liability recognized at adoption on January 1, 2003
    
    
    588,126Liabilities incurredLiabilities settledRevisions in estimated cash flowsCurrent translation adjustment
    
    
    (106,959
    )Accretion expense
    
    
    43,389Asset retirement obligation as of December 31, 2003
    
    
    524,556
 The pro forma effects of the application of SFAS No. 143 as if the Statement
had been adopted on January 1, 2001 (rather than January 1, 2003) are as
follows (on a U.S. GAAP basis): 2001
    
    2002
    
    2003ThCh$
    
    ThCh$
    
    ThCh$(Unaudited)
    
    (Unaudited)
    
    (Unaudited)Pro forma amounts assuming the
accounting change is applied
retroactively net-of-tax:Net income (loss)
    
    
    2,827,469
    
    
    
    (333,261,011
    )
    
    
    29,268,881Net income (loss) per common
share  basic and
diluted
    
    
    2.93
    
    
    
    (40.19
    )
    
    
    1.43
 The pro forma asset retirement obligation liability balances as if SFAS No. 143
had been adopted on January 1, 2001 (rather than January 1, 2003) are as
follows (on a U.S. GAAP basis): December 31,2002
    
    2003ThCh$
    
    ThCh$(Unaudited)Pro forma amounts of liability for asset
retirement obligation at beginning of year
    
    
    443,620
    
    
    
    588,126Pro forma amounts of liability for asset
retirement obligation at end of year
    
    
    588,126
    
    
    
    524,556
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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued) (q) Recent accounting pronouncements The following new accounting standards have been adopted by the Company during
the year-ended December 31, 2003 and the impact of such adoption, if
applicable, has been presented in the accompanying consolidated financial
statements.  i.
    
    In October 2002, the EITF reached a final consensus on EITF Issue No.
02-03. Primarily, the final consensus provided for (1) the rescission of
the consensus reached on EITF Issue No. 98-10, (2) the reporting of gains
and losses on all derivative instruments considered to be held for trading
purposes to be shown on a net basis in the income statement, and (3) gains
and losses on non-derivative energy trading contracts to be similarly
presented on a gross or net basis, in connection with the guidance in EITF
Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an
Agent.The Company adopted the on EITF Issue No. 02-03 as of
January 1, 2003. The
adoption of this consensus did not have a material impact on the Companys
consolidated results of operations, cash flows or financial position.ii.
    
    SFAS No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. In April 2003, the FASB issued SFAS No. 149, which
amends and clarifies financial accounting and reporting for derivative
instruments and for hedging activities, including the qualifications for
the normal purchases and normal sales exception, under SFAS No. 133. The
amendment reflects decisions made by the FASB and the DIG process in
connection with issues raised about the application of SFAS No. 133.
Generally, the provisions of SFAS No. 149 are to be applied prospectively
for contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. SFAS No. 149 provisions that
resulted from the DIG process that became effective in quarters beginning
before June 15, 2003 continue to be applied based upon their original
effective dates. The Company adopted the provisions of SFAS No. 149 on
July 1, 2003. Certain modifications and changes to the applicability of
the normal purchase and normal sales scope exception for contracts to
deliver electricity led the Company to re-evaluate its policy for
accounting for forward sales contracts. As a result, the Company elected
to designate substantially all forward contracts to sell power entered
into after July 1, 2003 as cash flow hedges on a prospective basis.
Contracts that were being accounted for under the normal purchases and
normal sales exception under SFAS No. 133 as of June 30, 2003 will
continue to be accounted for under such exception, including following any
modifications to these contracts, as long as the requirements for applying
the normal purchases and normal sales exception are met.iii.
    
    On June 25, 2003, the FASB cleared the guidance contained in DIG Issue
C20, Scope Exceptions: Interpretation of the Meaning of Not Clearly and
Closely Related in Paragraph 10(b) regarding Contracts with a Price
Adjustment Feature. DIG Issue C20, which applies only to the guidance in
paragraph 10(b) of FASB No. 133 and not in reference to embedded
derivatives, describes circumstances in which the underlying in a price
adjustment clause incorporated into a contract that otherwise satisfies
the requirements for the normal purchases and normal sales exception would
be considered to be not clearly and closely related to the F-172




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued)  asset being sold or purchased. The guidance in DIG Issue C20 was effective
for the Company on July 1, 2003. The Companys review of existing contracts
designated as normal purchases and normal sales under FASB No. 133 yielded
no instances where an embedded price adjustment clause was not clearly and
closely related to the contracts underlying. As a result, this issue did
not have a material impact on the Companys consolidated results of
operations, cash flows or financial position.iv.
    
    EITF Issue No. 01-08, Determining Whether an Arrangement Contains a
Lease. In May 2003, the EITF reached consensus in EITF Issue No. 01-08
to clarify the requirements of identifying whether an arrangement should
be accounted for as a lease at its inception. The guidance in the
consensus is designed to broaden the scope of arrangements accounted for
as leases. EITF Issue No. 01-08 requires both parties to an arrangement to
determine whether a service contract or similar arrangement is, or
includes, a lease within the scope of SFAS No. 13, Accounting for
Leases. The Company has historically provided capacity agreements both as
the lessee and as a lessor. Upon application of EITF Issue No. 01-08, the
accounting requirements under the consensus may impact the timing of
revenue and expense recognition, and amounts previously reported as
revenues may be required to be reported as rental or lease income. Should
capital lease treatment be necessary, purchasers in these arrangements are
required to recognize assets on their balance sheets. The consensus will
be applied prospectively to arrangements agreed to, modified, or acquired
in business combinations on or after January 1, 2004. Previous
arrangements that would be leases or would contain a lease according to
the consensus will continue to be accounted for under historical
accounting. The adoption of EITF Issue No. 01-08 would not have a material
effect on the Companys consolidated results of operations, cash flows or
financial position.v.
    
    EITF Issue No. 03-11, Reporting Realized Gains and Losses on Derivative
Instruments That Are Subject to FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, and Not Held for Trading
Purposes. In July 2003, the EITF reached consensus in EITF Issue No.
03-11 that determining whether realized gains and losses on derivative
contracts not held for trading purposes should be reported on a net or
gross basis is a matter of judgment that depends on the relevant facts and
circumstances and the economic substance of the transaction. In analyzing
the facts and circumstances, EITF Issue No. 99-19, and Opinion No. 29,
Accounting for Nonmonetary Transactions, should be considered. EITF
Issue No. 03-11 was effective for transactions or arrangements entered
into after December 31, 2003. The adoption of EITF Issue No. 03-11 would
not have a material effect on the Companys consolidated results of
operations, cash flows or financial position.vi.
    
    Revised SFAS No. 132, Employers Disclosures about Pensions and Other
Postretirement Benefits. In December 2003, the FASB revised the
provisions of SFAS No. 132 to include additional disclosures related to
defined benefit pension plans and other defined benefit postretirement
plans, such as the following: (1) long-term rate of return on plan assets
along with narrative discussion of basis for selecting the rate of return
used; (2) information about plan assets for each major asset category
(i.e., equity securities, debt securities, real estate, etc) along with the
targeted allocation percentage of plan assets by each major asset category
and the actual allocation percentage at the measurement date; (3) amount
of benefit payments expected F-173




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued)  to be paid in each of the next five years and the following five year
period, in the aggregate; (4) current best estimate of range of
contributions expected to be made in following year; (5) the accumulated
benefit obligation for defined benefit pension plans; and (6) disclosure of
measurement date utilized. The provisions of revised SFAS No. 132 do not
change the measurement or recognition provisions of defined benefit pension
and postretirement plans as required by previous accounting standards.
Except as discussed below, the provisions of revised SFAS No. 132 are
effective for fiscal years ending after December 15, 2003 (December 31, 2003
for calendar-year entities). The disclosure provisions of estimated future
benefit payments and information about foreign plans are effective for
fiscal years ending after June 15, 2004 (December 31, 2004 for the Company).
See Note 37 II (l) for additional disclosures required as of December 31,
2003.vii.
    
    FASB Interpretation No. 46 (FIN 46), Consolidation of Variable Interest
Entities. In January 2003, the FASB issued FIN 46 which requires the
primary beneficiary of a variable interest entitys activities to
consolidate the variable interest entity. FIN 46 defines a variable
interest entity as an entity in which the equity investors do not have
substantive voting rights and there is not sufficient equity at risk for
the entity to finance its activities without additional subordinated
financial support. The primary beneficiary is the party that absorbs a
majority of the expected losses and/or receives a majority of the expected
residual returns of the variable interest entitys activities. In December
2003, the FASB issued FIN 46R, which supercedes and amends certain
provisions of FIN 46. While FIN 46R retains many of the concepts and
provisions of FIN 46, it also provides additional guidance related to the
application of FIN 46, provides for certain additional scope exceptions,
and incorporates several FASB Staff Positions issued related to the
application of FIN 46.The provisions of FIN 46 are immediately applicable to variable interest
entities created, or interests in variable interest entities obtained, after
January 31, 2003 and the provisions of FIN 46R are required to be applied to
such entities, except for special purpose entities, by the end of the first
reporting period ending after March 15, 2004 (December 31, 2004 for The
Company). For variable interest entities created, or interests in variable
interest entities obtained, on or before January 31, 2003, FIN 46 or FIN 46R
is required to be applied to special-purpose entities by the end of the
first reporting period ending after December 15, 2003 (December 31, 2003 for
calendar-year entities) and is required to be applied to all other
non-special purpose entities by the end of the first reporting period ending
after March 15, 2004 (December 31, 2004 for calendar-year entities). FIN 46
and FIN 46R may be applied prospectively with a cumulative-effect adjustment
as of the date it is first applied, or by restating previously issued
financial statements with a cumulative-effect adjustment as of the beginning
of the first year restated. FIN 46 and FIN 46R also require certain
disclosures of an entitys relationship with variable interest entities. F-174




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ENERSIS S.A. AND SUBSIDIARIES Notes to the
Consolidated Financial Statements  (Continued)  The Company has not identified any material variable interest entities
created, or interests in variable entities obtained, after January 31, 2003
which requires consolidation or disclosure under FIN 46 and continues to
assess the existence of any interests in variable interest entities created
on or prior to January 31, 2003. The Company continues to assess the
potential impacts of FIN 46R but does not anticipate that it will have a
material impact on its consolidated results of operations, cash flows or
financial position. F-175




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) Note 38. Condensed financial information CONDENSED FINANCIAL INFORMATION Comercializadora de
Energía del Mercosur S.A. - CEMSA
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 ) As of December 31,2003
    
    2002
    
    2001Condensed balance sheet:
    
    ThCh$
    
    ThCh$
    
    ThCh$Current assets
    
    
    24,856,076
    
    
    
    21,108,703
    
    
    
    14,700,312Fixed assets
    
    
    177,649
    
    
    
    147,059
    
    
    
    56,949Noncurrent assets
    
    
    
    
    
    
    64,910
    
    
    
    230,090Total assets
    
    
    25,033,725
    
    
    
    21,320,672
    
    
    
    14,987,351Current liabilities
    
    
    17,324,966
    
    
    
    13,630,496
    
    
    
    4,558,416Noncurrent liabilities
    
    
    
    
    
    
    
    
    
    
    Equity
    
    
    7,708,759
    
    
    
    7,690,175
    
    
    
    10,428,936Total liabilities and equity
    
    
    25,033,725
    
    
    
    21,320,672
    
    
    
    14,987,351
 For the year ended December 31,2003
    
    2002
    
    2001Condensed income statement:
    
    ThCh$
    
    ThCh$
    
    ThCh$Net sales
    
    
    3,514,138
    
    
    
    2,809,318
    
    
    
    301,000Gross margin
    
    
    
    
    
    
    
    
    
    
    Net income
    
    
    1,355,690
    
    
    
    (3,421,870
    )
    
    
    34,043
 F-176




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ENERSIS S.A. AND SUBSIDIARIES Notes to the Consolidated Financial Statements  (Continued) CONDENSED FINANCIAL INFORMATION Companhia de Interconexão Energética
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 ) As of December 31,2003
    
    2002
    
    2001ThCh$
    
    ThCh$
    
    ThCh$Condensed balance sheet:Current assets
    
    
    106,812,150
    
    
    
    68,993,451
    
    
    
    30,383,486Fixed assets
    
    
    356,019,916
    
    
    
    334,999,174
    
    
    
    248,096,969Noncurrent assets
    
    
    53,893,288
    
    
    
    63,913,605
    
    
    
    73,277,854Total assets
    
    
    516,725,354
    
    
    
    467,906,230
    
    
    
    351,758,310Current liabilities
    
    
    296,330,546
    
    
    
    104,821,650
    
    
    
    47,644,088Noncurrent liabilities
    
    
    98,517,952
    
    
    
    243,574,994
    
    
    
    245,573,598Equity
    
    
    121,876,856
    
    
    
    119,509,586
    
    
    
    58,540,624Total liabilities and equity
    
    
    516,725,354
    
    
    
    467,906,230
    
    
    
    351,758,310
 For the year ended December 31,2003
    
    2002
    
    2001ThCh$
    
    ThCh$
    
    ThCh$Condensed income statement:Net sales
    
    
    226,389,219
    
    
    
    168,756,303
    
    
    
    106,669,075Gross margin
    
    
    (95,307,275
    )
    
    
    52,935,213
    
    
    
    (5,396,974
    )Net income
    
    
    24,758,491
    
    
    
    16,228,801
    
    
    
    (13,077,937
    )
 F-177




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SCHEDULE I Enersis S.A. Individual Condensed Financial Statements(Restated for general price-level changes and expressed in thousand of constant
Chilean pesos as of December 31, 2003, except as stated) ENERSIS S.A. (PARENT COMPANY) BALANCE SHEETS
(Restated for general price- level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) As of December 31,2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThUS$ASSETSCURRENT ASSETS:Cash
    
    
    424,171
    
    
    
    332,918
    
    
    
    561Time deposits
    
    
    4,645,095
    
    
    
    1,152,306
    
    
    
    1,941Notes receivable, net
    
    
    744
    
    
    
    737
    
    
    
    1Other accounts receivable, net
    
    
    4,770,740
    
    
    
    1,730,919
    
    
    
    2,915Amounts due from related companies
    
    
    189,818,602
    
    
    
    125,426,886
    
    
    
    211,227Income taxes recoverable
    
    
    9,344,985
    
    
    
    14,481,845
    
    
    
    24,388Prepaid expenses
    
    
    24,185
    
    
    
    54,080
    
    
    
    91Deferred income taxes
    
    
    13,840,925
    
    
    
    27,820,558
    
    
    
    46,852Other current assets
    
    
    5,053,069
    
    
    
    16,881,389
    
    
    
    28,429Total current assets
    
    
    227,922,516
    
    
    
    187,881,638
    
    
    
    316,405PROPERTY, PLANT AND EQUIPMENTBuildings and infrastructure
    
    
    20,798,254
    
    
    
    20,798,233
    
    
    
    35,026Machinery and equipment
    
    
    2,260,279
    
    
    
    2,301,896
    
    
    
    3,877Other assets
    
    
    785,804
    
    
    
    798,232
    
    
    
    1,344Technical appraisal
    
    
    33,182
    
    
    
    33,176
    
    
    
    56Sub - total
    
    
    23,877,519
    
    
    
    23,931,537
    
    
    
    40,303Less: accumulated depreciation
    
    
    (10,781,577
    )
    
    
    (11,628,486
    )
    
    
    (19,583
    )Total property, plant and equipment, net
    
    
    13,095,942
    
    
    
    12,303,051
    
    
    
    20,720OTHER ASSETS:Investments in related companies
    
    
    2,316,302,919
    
    
    
    2,172,567,483
    
    
    
    3,658,753Goodwill, net
    
    
    795,599,874
    
    
    
    734,738,083
    
    
    
    1,237,349Negative goodwill, net
    
    
    (760,544
    )
    
    
    (606,765
    )
    
    
    (1,022
    )Long-term receivables
    
    
    480,134
    
    
    
    475,380
    
    
    
    801Amounts due from related companies
    
    
    505,640,490
    
    
    
    440,541,432
    
    
    
    741,902Intangibles
    
    
    1,437,928
    
    
    
    1,437,928
    
    
    
    2,422Accumulated amortization
    
    
    (351,586
    )
    
    
    (423,618
    )
    
    
    (713
    )Other assets
    
    
    53,141,309
    
    
    
    26,726,999
    
    
    
    45,010Total other assets
    
    
    3,671,490,524
    
    
    
    3,375,456,922
    
    
    
    5,684,502TOTAL ASSETS
    
    
    3,912,508,982
    
    
    
    3,575,641,611
    
    
    
    6,021,627
 F-178




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SCHEDULE I Enersis S.A. Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousand of constant
Chilean pesos as of December 31, 2003, except as stated) ENERSIS S.A. (PARENT COMPANY) BALANCE SHEETS
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) As of December 31,2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThUS$LIABILITIES
AND SHAREHOLDERS EQUITYCURRENT LIABILITIES:Current portion of long-term debt due to banks
and financial institutions
    
    
    269,236,251
    
    
    
    789,754
    
    
    
    1,330Current portion of bonds payable
    
    
    11,087,782
    
    
    
    4,071,574
    
    
    
    6,857Dividends payable
    
    
    212,195
    
    
    
    111,612
    
    
    
    188Accounts payable
    
    
    354,521
    
    
    
    173,004
    
    
    
    291Miscellaneous payables
    
    
    227,515
    
    
    
    241,059
    
    
    
    406Amounts payable to related companies
    
    
    35,693,493
    
    
    
    33,960,434
    
    
    
    57,192Accrued expenses
    
    
    5,553,310
    
    
    
    21,642,293
    
    
    
    36,447Withholdings
    
    
    203,922
    
    
    
    133,370
    
    
    
    225Income taxes payable
    
    
    16,842
    
    
    
    16,284,563
    
    
    
    27,424Unearned income
    
    
    200,478
    
    
    
    135,718
    
    
    
    229Other current liabilities
    
    
    4,099,460
    
    
    
    8,468,298
    
    
    
    14,261Total current liabilities
    
    
    326,885,769
    
    
    
    86,011,679
    
    
    
    144,850LONG -TERM LIABILITIES:Due to banks and financial institutions
    
    
    834,665,515
    
    
    
    296,900,000
    
    
    
    500,000Bonds payable
    
    
    672,442,019
    
    
    
    627,728,756
    
    
    
    1,057,138Amounts payable to related companies
    
    
    1,018,223,736
    
    
    
    
    
    
    
    Accrued expenses
    
    
    2,014,151
    
    
    
    2,502,841
    
    
    
    4,215Deferred income taxes
    
    
    4,240,426
    
    
    
    4,700,566
    
    
    
    7,916Other long-term liabilities
    
    
    38,401,268
    
    
    
    9,405,879
    
    
    
    15,840Total long-term liabilities
    
    
    2,569,987,115
    
    
    
    941,238,042
    
    
    
    1,585,109SHAREHOLDERS EQUITY:Paid-in capital, no par value shares
    
    
    758,720,279
    
    
    
    2,227,711,340
    
    
    
    3,751,619Additional paid-in capital
    
    
    33,703,758
    
    
    
    159,323,362
    
    
    
    268,311Other reserves
    
    
    47,348,383
    
    
    
    (25,671,685
    )
    
    
    (43,233
    )Retained earnings
    
    
    406,835,727
    
    
    
    176,016,726
    
    
    
    296,424Net income (loss) for year
    
    
    (225,985,568
    )
    
    
    12,467,863
    
    
    
    20,997Accumulated development period
surplus (deficit) of subsidiaries
    
    
    (4,986,481
    )
    
    
    (1,455,716
    )
    
    
    (2,452
    )Total
shareholders equity
    
    
    1,015,636,098
    
    
    
    2,548,391,890
    
    
    
    4,291,666TOTAL
LIABILITIES AND SHAREHOLDERS EQUITY
    
    
    3,912,508,982
    
    
    
    3,575,641,611
    
    
    
    6,021,625
 F-179




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SCHEDULE I Enersis S.A. Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousand of constant
Chilean pesos as of December 31, 2003, except as stated) ENERSIS S.A. (PARENT COMPANY) STATEMENTS OF INCOME
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) Years ended December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$OPERATING INCOME:SALES
    
    
    4,343,833
    
    
    
    4,324,336
    
    
    
    4,332,016
    
    
    
    7,295COST OF SALES
    
    
    (853,350
    )
    
    
    (1,096,812
    )
    
    
    (1,130,291
    )
    
    
    (1,903
    )GROSS PROFIT
    
    
    3,490,483
    
    
    
    3,227,524
    
    
    
    3,201,725
    
    
    
    5,392ADMINISTRATIVE AND SELLING EXPENSES
    
    
    (20,847,878
    )
    
    
    (22,047,860
    )
    
    
    (17,018,287
    )
    
    
    (28,660
    )OPERATING LOSS
    
    
    (17,357,394
    )
    
    
    (18,820,336
    )
    
    
    (13,816,562
    )
    
    
    (23,268
    )NON-OPERATING INCOME SELLING EXPENSES:Interest income
    
    
    47,474,528
    
    
    
    57,665,112
    
    
    
    39,627,790
    
    
    
    66,736Equity in income of related companies
    
    
    251,252,159
    
    
    
    72,606,599
    
    
    
    113,734,272
    
    
    
    191,536Other non-operating income
    
    
    29,793,279
    
    
    
    22,602,401
    
    
    
    99,732,781
    
    
    
    167,957Equity in losses of related companies
    
    
    (10,235,882
    )
    
    
    (81,134,551
    )
    
    
    (71,649,236
    )
    
    
    (120,662
    )Amortization of goodwill
    
    
    (50,975,706
    )
    
    
    (108,967,612
    )
    
    
    (49,863,556
    )
    
    
    (83,974
    )Interest expense
    
    
    (163,308,304
    )
    
    
    (145,596,315
    )
    
    
    (142,566,879
    )
    
    
    (240,092
    )Other non-operating expenses
    
    
    (16,445,284
    )
    
    
    (18,249,143
    )
    
    
    (23,109,000
    )
    
    
    (38,917
    )Price-level restatements, net
    
    
    1,598,939
    
    
    
    1,596,506
    
    
    
    (4,426,198
    )
    
    
    (7,454
    )Exchange difference, net
    
    
    (37,675,895
    )
    
    
    (18,323,195
    )
    
    
    30,533,147
    
    
    
    51,420NON-OPERATING RESULT
    
    
    51,477,835
    
    
    
    (217,800,198
    )
    
    
    (7,986,879
    )
    
    
    (13,450
    )INCOME (LOSS) BEFORE INCOME TAXES AND
AMORTIZATION OF NEGATIVE GOODWILL
    
    
    34,120,440
    
    
    
    (236,620,534
    )
    
    
    (21,803,441
    )
    
    
    (36,718
    )INCOME TAX
    
    
    8,389,307
    
    
    
    9,581,493
    
    
    
    12,635,903
    
    
    
    21,280INCOME (LOSS) BEFORE AMORTIZATION
OF NEGATIVE GOODWILL
    
    
    42,509,748
    
    
    
    (227,039,041
    )
    
    
    (9,167,538
    )
    
    
    (15,438
    )AMORTIZATION OF NEGATIVE GOODWILL
    
    
    65,826
    
    
    
    1,053,473
    
    
    
    21,635,401
    
    
    
    36,436NET INCOME (LOSS) FOR YEAR
    
    
    42,575,573
    
    
    
    (225,985,568
    )
    
    
    12,467,863
    
    
    
    20,998
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SCHEDULE I Enersis S.A. Individual Condensed Financial Statements
(Restated for general pricelevel changes and expressed in thousand of constant
Chilean pesos as of December 31, 2003, except as stated) ENERSIS S.A. (PARENT COMPANY) STATEMENT OF CASH FLOWS
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) Years ended December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$CASH FLOWS FROM OPERATING ACTIVITIES:Net income (loss) for the year
    
    
    42,575,573
    
    
    
    (225,985,568
    )
    
    
    12,467,863
    
    
    
    20,997GAIN (LOSSES) FROM SALES OF ASSETS:
    
    
    5,852
    
    
    
    
    
    
    
    (87,827,096
    )
    
    
    (147,907
    )Gain on sales of investments
    
    
    
    
    
    
    
    
    
    
    (87,827,096
    )
    
    
    (147,907
    )Changes (credits) to income which do not represent cash flows:
    
    
    (153,149,216
    )
    
    
    141,523,656
    
    
    
    14,084,933
    
    
    
    23,720Depreciation
    
    
    808,195
    
    
    
    1,051,655
    
    
    
    1,084,945
    
    
    
    1,827Amortization of intangibles
    
    
    72,030
    
    
    
    72,032
    
    
    
    72,032
    
    
    
    121Equity in income of related companies
    
    
    (251,252,159
    )
    
    
    (72,606,599
    )
    
    
    (113,734,272
    )
    
    
    (191,536
    )Equity in losses of related companies
    
    
    10,235,882
    
    
    
    81,134,551
    
    
    
    71,649,236
    
    
    
    120,662Amortization of goodwill
    
    
    50,975,706
    
    
    
    108,967,612
    
    
    
    49,863,556
    
    
    
    83,974Amortization of negative goodwill
    
    
    (65,826
    )
    
    
    (1,053,473
    )
    
    
    (21,635,401
    )
    
    
    (36,436
    )Price-level restatement, net
    
    
    (1,598,939
    )
    
    
    (1,596,506
    )
    
    
    4,426,198
    
    
    
    7,454Exchange difference, net
    
    
    37,675,895
    
    
    
    18,323,195
    
    
    
    (30,533,147
    )
    
    
    (51,420
    )Other credits to income which do not represent cash flows
    
    
    
    
    
    
    (14,088,548
    )
    
    
    (292,285
    )
    
    
    (492
    )Other changes to income which do not represent cash flows
    
    
    
    
    
    
    21,319,737
    
    
    
    53,184,071
    
    
    
    89,566Changes in assets which affect cash flows:
    
    
    84,636,141
    
    
    
    31,083,309
    
    
    
    17,338,050
    
    
    
    29,198Decrease (increase) in trade receivables
    
    
    (30,625
    )
    
    
    419,149
    
    
    
    (443,759
    )
    
    
    (747
    )Decrease in other assets
    
    
    84,666,766
    
    
    
    30,664,160
    
    
    
    17,781,809
    
    
    
    29,946Changes in liabilities which affect cash flows:
    
    
    22,354,740
    
    
    
    42,997,196
    
    
    
    (44,302,091
    )
    
    
    (74,608
    )Increase (decrease) in accounts payable associated with operating results
    
    
    (15,913,909
    )
    
    
    1,119,595
    
    
    
    (5,769,787
    )
    
    
    (9,717
    )Increase in interest payable
    
    
    32,542,208
    
    
    
    42,271,931
    
    
    
    (27,408,737
    )
    
    
    (46,158
    )Decrease in income tax payable
    
    
    (8,389,307
    )
    
    
    (9,581,494
    )
    
    
    (12,635,903
    )
    
    
    (21,280
    )Increase in other accounts payable associated with non-operating results
    
    
    16,413,302
    
    
    
    9,869,159
    
    
    
    1,507,622
    
    
    
    2,539Net decrease in value added tax and other similar taxes payable
    
    
    (2,297,553
    )
    
    
    (681,995
    )
    
    
    4,714
    
    
    
    8Net cash flows used in operating activities
    
    
    (3,576,910
    )
    
    
    (10,381,407
    )
    
    
    (88,238,341
    )
    
    
    (148,600
    )
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SCHEDULE I Enersis S.A. Individual Condensed Financial Statements
(Restated for general price-level changes and expressed in thousand of constant
Chilean pesos as of December 31, 2003, except as stated) ENERSIS S.A. (PARENT COMPANY) STATEMENT OF CASH FLOWS
(Restated for general price-level changes and expressed in thousands of constant
Chilean pesos as of December 31, 2003 and thousands of US dollars) Years ended December 31,2001
    
    2002
    
    2003
    
    2003ThCh$
    
    ThCh$
    
    ThCh$
    
    ThUS$Proceeds from issuance of shares to minority shareholders
    
    
    
    
    
    
    
    
    
    
    546,464,851
    
    
    
    920,284Loans obtained
    
    
    737,495,892
    
    
    
    66,700,429
    
    
    
    367,500,129
    
    
    
    618,895Proceeds from bond issuances
    
    
    103,344,167
    
    
    
    
    
    
    
    219,384,315
    
    
    
    369,458Loans obtained from related companies
    
    
    7,245,911
    
    
    
    56,916,083
    
    
    
    
    
    
    
    Other sources of financing
    
    
    
    
    
    
    
    
    
    
    17,710,486
    
    
    
    29,826Dividends paid
    
    
    (16,014,821
    )
    
    
    (137,362
    )
    
    
    (70,757
    )
    
    
    (119
    )Payment of loans
    
    
    (409,762,960
    )
    
    
    (77,459,982
    )
    
    
    (1,054,710,719
    )
    
    
    (1,776,205
    )Payment of bonds
    
    
    (3,433,929
    )
    
    
    (7,120,809
    )
    
    
    (85,430,527
    )
    
    
    (143,871
    )Payment of loans granted by related companies
    
    
    (155,337,587
    )
    
    
    (99,900,769
    )
    
    
    (4,467,535
    )
    
    
    (7,524
    )Payment of other loans obtained from related companies
    
    
    (162,857,762
    )
    
    
    (22,394,079
    )
    
    
    (60,430,647
    )
    
    
    (101,769
    )Payment of bond issuance costs
    
    
    (1,006,108
    )
    
    
    
    
    
    
    (10,831,654
    )
    
    
    (18,241
    )Other disbursements for financing
    
    
    (5,798,498
    )
    
    
    
    
    
    
    (60,304,504
    )
    
    
    (101,557
    )Net cash provided by (used in) financing activities
    
    
    93,874,304
    
    
    
    (83,396,489
    )
    
    
    (125,186,562
    )
    
    
    (210,823
    )CHASH FLOWS FROM INVESTING ACTIVITIES:Proceeds from sales of long-term investments
    
    
    
    
    
    
    1,142
    
    
    
    161,428,334
    
    
    
    271,856Additions to property, plant and equipment
    
    
    (74,159
    )
    
    
    
    
    
    
    
    
    
    
    Proceeds from loans obtained from related companies
    
    
    96,809,531
    
    
    
    257,502,017
    
    
    
    53,071,377
    
    
    
    89,376Long-term investments
    
    
    (11,506,160
    )
    
    
    (16,899,455
    )
    
    
    
    
    
    
    Loans granted to related companies
    
    
    (185,525,350
    )
    
    
    (164,491,518
    )
    
    
    (5,788,156
    )
    
    
    (9,748
    )Other receipts from investments
    
    
    13,534,098
    
    
    
    29,776,143
    
    
    
    1,635,460
    
    
    
    2,754Other loans granted to related companies
    
    
    
    
    
    
    (1,592,098
    )
    
    
    
    
    
    
    Other investment disbursements
    
    
    (20,964
    )
    
    
    (9,151,081
    )
    
    
    
    
    
    
    Net cash provided by (used in) investing activities
    
    
    (86,783,004
    )
    
    
    95,145,150
    
    
    
    210,347,015
    
    
    
    354,238NET CASH FLOW FOR THE YEAR
    
    
    3,514,390
    
    
    
    1,367,254
    
    
    
    (3,077,888
    )
    
    
    (5,185
    )EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS
    
    
    381,331
    
    
    
    (231,430
    )
    
    
    (506,154
    )
    
    
    (852
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    3,895,720
    
    
    
    1,135,824
    
    
    
    (3,584,042
    )
    
    
    (6,037
    )CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
    
    
    37,721
    
    
    
    3,933,442
    
    
    
    5,069,266
    
    
    
    8,537CASH AND CASH EQUIVALENTS AT END OF YEAR
    
    
    3,933,442
    
    
    
    5,069,266
    
    
    
    1,485,224
    
    
    
    2,500
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders of Enersis S.A.:  1.
    
    We have audited the accompanying consolidated balance sheets of Enersis
S.A. and Subsidiaries (the Company) as of December 31, 2002 and 2003,
and the related consolidated statements of operations, shareholders
equity and cash flows for each of the three years ended December 31, 2003
(expressed in constant Chilean pesos). Our audit also included the
financial statements schedules listed in the index to Item 18. These
financial statements are the responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements
based on our audits. We did not audit the financial statements for the
years ended December 31, 2002 and 2003 of Empresa Nacional de Electricidad
S.A. and certain of its subsidiaries and investees or the financial
statements for the year ended December 31, 2002 of the subsidiary Empresa
Distribuidora Edesur S.A. These financial statements reflect total assets
constituting 34.44% and    , respectively, of consolidated total assets on
a Chilean GAAP and US GAAP basis at December 31, 2002 and 2003 and total
revenues constituting 41.86% XX% and    , respectively, of consolidated
total revenues on a Chilean GAAP and US GAAP basis for the years then
ended. Those statements were audited by other auditors whose reports have
been provided to us and our opinion, insofar as it relates to the amounts
included for these companies, is based solely on the reports of such
auditors.2.
    
    We conducted our audits in accordance with Standards of the Public
Company Accounting Oversight Board (Unites States of America). Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits and
the reports of the other auditors provide a reasonable basis for our
opinion.3.
    
    In our opinion, based on our audits and the reports of the other
auditors, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Enersis S.A.
and Subsidiaries as of December 31, 2002 and 2003, and the results of
their operations, shareholders equity and cash flows for each of the
three years ended December 31, 2003, in conformity with accounting
principles generally accepted in Chile. Also, in our opinion, such
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.4.
    
    As discussed in Note 2 a (iii) to the consolidated financial statements,
the accompanying consolidated statement of cash flows for the year ended
December 31, 2001 has been restated under Chilean GAAP.5.
    
    Accounting principles generally accepted in Chile vary in certain
significant respects from accounting principles generally accepted in the
United States of America. Information relating to the nature and effect
of such differences is presented in Note 37 to the consolidated financial
statements.6.
    
    As discussed in Note 37 to the consolidated financial statements, the
information relating to the nature and effect of the differences between
Chilean GAAP and US GAAP has been restated for the years ended December
31, 2001 and 2002.




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##### Table of Contents



7.
    
    Our audit also comprehended the translation of constant Chilean Peso
amounts into U.S. dollar amounts and, in our opinion, such translation has
been made in conformity with the basis stated in Note 2 (c). Such U.S.
dollar amounts are presented solely for the convenience of readers in the
United States of America. Santiago, Chile
January 24, 2004
(except for Notes 2(a), 2(c) and 37 for which the date is June 25, 2004)