20-F

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

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

OR

    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

OR

    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number 001-12440

ENERSIS S.A.
(Exact name of Registrant as specified in its charter)
ENERSIS S.A.	CHILE
(Translation of Registrant’s name into English)	(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:

Title of Each Class	Name of each exchange on which registered
American Depositary Shares representing Common Stock	New York Stock Exchange
Common Stock, no par value	New York Stock Exchange*
US$ 300,000,000 6.90% Notes due December 1, 2006	New York Stock Exchange
US$ 350,000,000 7.40% Notes due December 1, 2016	New York Stock Exchange
US$ 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: 8,291,020,100

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

YES      NO   

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

ITEM 17      ITEM 18   

TABLE OF CONTENTS

	Page
Introduction	1
Financial Information	1
Technical Terms	2
Calculation of Economic Interest	2
Forward-Looking Statements	3
PART I
Item 1.  Identity of Directors, Senior Management and Advisers	4
Item 2.  Offer Statistics and Expected Timetable	4
Item 3.  Key Information	4
Item 4.  Information on the Company	20
Item 5.  Operating and Financial Review and Prospects	74
Item 6.  Directors, Senior Management and Employees	111
Item 7.  Major Shareholders and Related Party Transactions	116
Item 8.  Financial Information	117
Item 9.  The Offer and Listing	123
Item 10.  Additional Information	126
Item 11.  Quantitative and Qualitative Disclosures About Market Risk	140
Item 12.  Description of Securities Other than Equity Securities	144
PART II
Item 13.  Defaults, Dividend Arrearages and Delinquencies	145
Item 14.  Material Modifications to the Rights of Security Holders and Use of Proceeds	145
Item 15.  Controls and Procedures	145
Item 16.  [Reserved]	145
PART III
Item 17.  Financial Statements	146
Item 18.  Financial Statements	146
Item 19.  Exhibits	147

INTRODUCTION

Financial Information

As used in this annual report on Form 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, 2002.

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$,” “reals” or “reais” are to Brazilian reals, the legal currency of Brazil, references to “soles” are to Peruvian soles, the legal currency of Peru, references to “CPs” or Colombian pesos are to the legal currency of Colombia and references to “UF” are to Unidades de Fomento.  The Unidad de Fomento is a Chilean inflation-indexed, peso-denominated monetary unit.  The UF rate is set daily in advance based on changes in the previous month’s inflation rate.  As of December 31, 2002, 1 UF was equivalent to Ch$ 16,744.12.  The US dollar equivalent of 1 UF was US$ 23.30 for December 31, 2002, using the Observed Exchange Rate reported by the Banco Central de Chile (the “Chilean Central Bank” or the “Central Bank”) for December 31, 2002 of Ch$ 718.61 per US$ 1.00.

Our consolidated financial statements, as well as the audited consolidated financial statements of our electricity generation subsidiary Empresa Nacional de Electricidad S.A., or Endesa-Chile, and, unless otherwise indicated, other financial information concerning our company or Endesa-Chile included in this annual report are presented in constant Chilean pesos in conformity with accounting principles generally accepted in Chile (“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, 2002, as well as Endesa-Chile’s consolidated financial statements for the same periods are expressed in constant Chilean pesos as of December 31, 2002.  See note 2(c) to our consolidated financial statements and note 2(c) to Endesa-Chile’s consolidated financial statements included in this annual report.  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 Institute of Statistics”).  For example, the inflation adjustment applicable for the 2002 calendar year would be the percentage change between the November 2001 Chilean CPI and the November 2002 Chilean CPI, which was 3.0%.  Chilean GAAP differs in certain important respects from accounting principles generally accepted in the United States (“US GAAP”).  See Note 34 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 of 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, 2002, we consolidated Endesa-Chile, Chilectra S.A. (“Chilectra”), Compañía Eléctrica del Río Maipo S.A. (“Río Maipo”), Distrilima S.A. (which in turn consolidated Empresa de Distribución Eléctrica de Lima Norte S.A.A. or “Edelnor”), Empresa Distribuidora Sur S.A. (“Edesur”), Inmobiliaria Manso de Velasco Limitada (“Manso de Velasco”), Synapsis Soluciones y Servicios IT Ltda.  (“Synapsis”), Compañía Americana de Multiservicios Ltda.  (“Cam”), Companhia de Electricidade do Río de Janeiro (“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 or“Coelce”).  Due to consolidating adjustments, financial data reported by us relating to our consolidated subsidiaries may be materially different from that reported by our

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consolidated subsidiaries on a stand-alone basis.  Endesa-Chile, in turn, consolidated all of its operational Chilean subsidiaries.  In Argentina, Endesa-Chile consolidated the hydroelectric company Hidroeléctrica El Chocón S.A. (“El Chocón”) and thermoelectric companies Central Costanera S.A. (“Costanera”) and Central Termoeléctrica Buenos Aires S.A. (“CBA”).  In Colombia, Endesa-Chile consolidated generation companies Central Hidroeléctrica de Betania S.A.  E.S.P.  (“Betania”)and Emgesa S.A.  E.S.P.  (“Emgesa”).  Endesa-Chile also consolidated the hydroelectric company Centrais Eléctricas Cachoeira Dourada S.A. (“Cachoeira Dourada”) in Brazil and the generation company Edegel S.A.A. (“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 on a rolling twelve-month basis by:

• subtracting the number of GWh of energy sold from the aggregate GWh of energy purchased and self-generated within a given twelve-month 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 twelve-month 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 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 65% beneficial interest in Enersis as of December 31, 2002.

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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 Financial Strengthening Plan;

• our capital investment program and development of new products;

• our cost reduction project, the Genesis Project;

• trends affecting our financial condition or results of 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:

• our ability to implement proposed capital expenditures, including our ability to arrange financing where required;

• the nature and extent of future competition in our principal markets;

• political, economic and demographic developments in the emerging market countries of Latin America where we conduct 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.  Our independent public accountants have not examined or compiled the forward-looking statements, and, accordingly, do not provide any assurance with respect to such statements.  You should consider these cautionary statements together with any written or oral forward-looking statements that we may issue in the future.  We do not undertake any obligation to release publicly any revisions to forward-looking statements contained in this annual report to reflect later events or circumstances or to reflect the occurrence of unanticipated events.

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

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PART I

Item 1.	Identity of Directors, Senior Management and Advisers
	Not applicable.
Item 2.	Offer Statistics and Expected Timetable
	Not applicable.
Item 3.	Key Information
A.	Selected Financial Data.

The following summary of consolidated 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 34 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, 2002 in the following table have been restated in constant Chilean pesos as of December 31, 2002.  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, 2002 are translated at the Observed Exchange Rate of Ch$ 718.61 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 distribution companies:  Chilectra, Río Maipo, Distrilima (which in turn consolidated Edelnor) and Edesur.  For the year ended December 31, 1998, Enersis consolidated Endesa-Chile, our electricity generation subsidiary, under Chilean GAAP, but not for US GAAP purposes.  Beginning in June 1, 1999, Enersis consolidated the financial statements of Endesa-Chile for Chilean GAAP and US GAAP purposes by virtue of owning 60.0% of its shares. 

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 for the 1996 fiscal year and have been consolidated for subsequent periods.  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.  Our other 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.  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

4

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—Price Level Restatement.”

The information detailed in the following table includes changes in certain accounting policies for the five years ended December 31, 2002, which affect the comparability of the information presented below.  Beginning January 1, 1998, we adopted new accounting policies for foreign currency translations, amortization of intangibles, and amortization of goodwill.  Beginning January 1, 2000, we adopted new accounting policies concerning the accounting for deferred taxes in accordance with a new Chilean accounting standard.  See note 3 to our consolidated financial statements for a further description of changes in accounting policies.

	As of December 31,
	1998			1999			2000			2001			2002			2002 (1)
	(Constant Ch$ millions as of December 31, 2002  except ratios, operating data, and per share/ADS amounts)															(in millions US$)
Consolidated Income Statement Data
Chilean GAAP:
Revenues from operations		1,766,446			2,524,875			2,757,047			3,059,381			2,485,873			3,459.3
Cost of operations		(1,074,913	)		(1,775,516	)		(1,895,035	)		(2,025,312	)		(1,730,050	)		(2,407.5	)
Administrative and selling expenses		(148,134	)		(272,114	)		(309,263	)		(279,525	)		(223,179	)		(310.6	)
Operating income		543,399			477,245			552,749			754,544			532,644			741.2
Equity in income of related companies		26,434			1,720			77			(10,700	)		8,264			11.5
Goodwill amortization		(23,784	)		(58,302	)		(71,714	)		(80,576	)		(506,344	)		(704.6	)
Interest (expense) income, net		(209,554	)		(378,956	)		(450,597	)		(396,208	)		(354,252	)		(493.0	)
Price level restatement		(20,817	)		(154,409	)		(16,503	)		(28,368	)		(11,145	)		(15.5	)
Other non-operating income, net		16,894			144,935			369,326			10,764			66,947			93.2
Income before income taxes, minority interest and amortization of negative goodwill		332,572			32,233			383,338			249,457			(263,886	)		(367.2	)
Income taxes		(82,703	)		(94,780	)		(146,323	)		(129,850	)		(66,017	)		(91.9	)
Non recurring items		—			—			—			—			(22,376	)		(31.1	)
Minority interest		(183,243	)		(62,691	)		(184,000	)		(125,153	)		16,283			22.7
Amortization of negative goodwill		36,149			38,335			42,646			47,700			112,248			156.2
Net income (loss)		102,775			(86,903	)		95,661			42,154			(223,748	)		(311.4	)
Net income (loss) per share		15.11			(12.78	)		13.26			5.08			(26.99	)		(0.04	)
Net income (loss) per ADS (3)		755.70			(638.99	)		662.84			254.22			(1,349.34	)		(1.88	)
Dividends payable per share (7)		6.20			—			1.86			—			—			—
Dividends payable per ADS in US$ (3) (4) (7)		0.58			—			0.15			—			—			—
Weighted average shares outstanding (million)		6,800			6,800			7,216			8,291			8,291			8,291
US GAAP (2):
Operating income		557,870			303,261			769,194			805,098			(216,055	)		(300.7	)
Equity in income of related companies		31,896			(5,387	)		77			(28,176	)		23,294			32.4
Income taxes		(79,141	)		(60,572	)		(232,331	)		(220,247	)		(2,755	)		(3.8	)
Net income (loss) from continuing operations		113,842			(96,010	)		71,171			2,805			(330,076	)		(459.3	)
Income (loss) from discontinued operations net of tax and minority interest		(1,464	)		1,111			260			284			166			0.2
Net income (loss)		112,378			(94,899	)		74,431			3,089			(329,910	)		(459.1	)
Net income (loss) on continuing operations per share		16.7			(14.1	)		10.3			0.3			(39.8	)		(0.1	)

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	As of December 31,
	1998			1999			2000			2001			2002			2002 (1)
	(Constant Ch$ millions as of December 31, 2002  except ratios, operating data, and per share/ADS amounts)															(in millions US$)
Income (loss) on discontinued operations per share		(0.2	)		0.1			0.0			0.0			0.0			0.0
Net income (loss) per share		16.5			(14.0	)		10.3			0.3			(39.8	)		(0.1	)
Net income (loss) on continuing operations per ADS		837.1			(706.0	)		513.9			16.9			(1,990.6	)		(2.8	)
Income (loss) on discontinued operations per ADS		(10.8	)		8.2			1.8			1.7			1.0			0.0
Net income (loss) per ADS (3)		826.3			(697.8	)		515.7			18.8			(1,989.6	)		(2.8	)
Consolidated Balance Sheet Data
Chilean GAAP:
Total assets		8,489,490			12,367,931			11,755,354			12,759,799			12,621,165			17,563.3
Long-term debt		3,825,427			6,170,757			5,224,792			5,832,363			5,413,608			7,533.4
Minority interest		3,012,495			4,005,372			3,730,725			4,073,571			4,050,603			5,636.7
Shareholders’ equity		894,305			776,800			1,168,761			1,214,562			1,005,580			1,399.3
US GAAP (2):
Total assets		2,929,409			12,221,812			11,830,179			13,089,810			12,313,073			17,134.6
Long-term debt		1,103,830			6,172,364			5,470,918			6,408,876			5,205,849			7,244.3
Minority interest		500,725			3,901,091			3,569,739			3,976,904			4,270,494			5,942.7
Shareholders’ equity		845,920			774,197			1,131,339			1,154,674			852,134			1,185.8
Other Consolidated Financial Data
Chilean GAAP
Equity/Capitalization (%) (5)		11.6	%		7.1	%		11.5	%		10.9	%		10.5	%
Return on equity (%) (6)		11.3	%		—			9.6	%		3.5	%		—
US GAAP
Equity/Capitalization (%) (5)		34.5	%		7.1	%		11.1	%		10.0	%		8.2	%
Return on equity (%) (6)		13.7	%		—			7.6	%		0.3	%		—

(1)	Chilean peso amounts have been translated into US$at the rate of Ch$718.61 per US$1.00, the Observed Exchange Rate on December 31, 2002.
(2)	Under US GAAP, which differs from Chilean GAAP, prior to our acquisition of an additional 34.7% interest in May 1999, Endesa-Chile was not consolidated for the two fiscal years ended December 31, 1998.  Endesa-Chile was consolidated under Chilean GAAP for the full year ended December 31, 1999 and under US GAAP as of June 1, 1999.  See “Item 5.  Operating and Financial Review and Prospects.”
(3)	Per ADS amounts in millions of constant Chilean pesos are determined by multiplying per share amounts by 50 (1 ADS = 50 Shares).  Per share amounts in millions of US$are determined by dividing per ADS amounts by 50.
(4)	US dollar amounts are calculated by applying the US dollar exchange rate on the dividend payment date to the nominal Chilean peso amount.
(5)	Shareholders’ equity divided by total capitalization.  Total capitalization is defined as long-term debt, minority interest and shareholders’ equity.
(6)	Net income for the current fiscal period divided by the average of shareholders’ equity at the end of the current fiscal period and shareholders’ equity at the prior fiscal year end.
(7)	This chart details dividends payable in any given year, and not necessarily paid that same year.

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	As of or for the year ended December 31,
	1998		1999		2000		2001		2002
Operating Data of Subsidiaries
Chilectra
Electricity Sold (GWh) (1)		8,175		8,425		8,854		9,585		9,952
Number of Customers (thousands)		1,212		1,239		1,262		1,289		1,319
Total Energy Losses (%) (2)		6.0		5.3		5.2		5.4		5.6
Río Maipo
Electricity Sold (GWh)		1,016		1,050		1,191		1,245		1,274
Number of Customers (thousands)		267		274		287		294		302
Total Energy Losses (%) (2)		6.0		5.8		5.4		6.4		6.2
Edesur
Electricity Sold (GWh)		11,680		12,325		12,597		12,909		12,138
Number of Customers (thousands)		2,094		2,105		2,108		2,097		2,090
Total Energy Losses (%) (2)		8.1		9.4		10.3		9.9		11.6
Cerj
Electricity Sold (GWh)		7,208		7,694		7,656		6,739		7,146
Number of Customers (thousands)		1,452		1,559		1,581		1,691		1,778
Total Energy Losses (%) (2)		19.1		16.5		19.7		22.7		22.6
Coelce
Electricity Sold (GWh)		5,377		5,709		5,894		5,352		5,558
Number of Customers (thousands)		1,508		1,652		1,796		1,917		2,009
Total Energy Losses (%) (2)		13.3		13.0		13.3		13.0		12.9
Codensa
Electricity Sold (GWh)		8,217		8,502		8,776		8,673		9,015
Number of Customers (thousands)		1,628		1,746		1,802		1,850		1,911
Total Energy Losses (%) (2)		19.5		13.5		10.5		11.8		10.3
Edelnor
Electricity Sold (GWh)		3,389		3,423		3,583		3,685		3,872
Number of Customers (thousands)		816		838		852		867		871
Total Energy Losses (%) (2)		9.7		9.8		9.9		8.9		8.5
Endesa-Chile
Installed capacity in Chile (MW)		3,522		4,130		4,035		3,935		3,935
Installed capacity in Argentina (MW)		3,622		3,622		3,622		3,622		3,622
Installed capacity in Colombia (MW)		3,035		3,035		3,035		3,035		2,732
Installed capacity in Brazil (MW)		658		658		658		658		658
Installed capacity in Peru (MW)		809		806		997		997		1,003
Production in Chile (GWh)		12,188		13,672		15,346		15,741		16,286
Production in Argentina (GWh)		7,310		9,150		10,129		9,948		7,168
Production in Colombia (GWh)		11,489		10,898		9,618		10,106		10,616
Production in Brazil (GWh)		2,941		3,222		3,406		2,256		2,467
Production in Peru (GWh)		3,072		2,950		3,623		4,176		4,279

(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 on a rolling twelve-month basis by (a) subtracting the number of GWh of energy sold from the aggregate GWh of energy purchased and self-generated within a twelve-month 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 twelve-month period.

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Physical Energy Losses

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 have attempted to give retroactive effect to this new criteria for 1999, but the necessary information was not always available.  Accordingly, the 1999 figures for physical energy losses are our best estimates using such partial information.  For 1998, which used the former energy loss methodology, it is impossible to give retroactive effect to the energy loss criteria adopted in 2000.

Exchange Rates

Fluctuations in the exchange rate between the Chilean peso and the US dollar will affect the US dollar equivalent of the Chilean peso price of our shares of common stock, without par value (the “Shares” or the “Common Stock”), on the Bolsa de Comercio de Santiago (the “Santiago Stock Exchange”), the Bolsa Electrónica de Chile (the “Electronic Exchange”) and the Bolsa de Corredores de Valparaíso (the “Valparaíso Stock Exchange”) (collectively, the “Chilean Exchanges”), and, as a result, will likely affect the market price of our American Depositary Shares (“ADSs”).  Such fluctuations will also affect conversion of cash dividends relating to the Shares represented by ADSs from Chilean pesos to US dollars.  In addition, to the extent our financial liabilities are denominated in foreign currencies, exchange rate fluctuations may have a significant impact on earnings.

Chile’s Ley Orgánica del Banco Central de Chile No. 18,840 (the “Central Bank Act”), enacted in 1989, liberalized the ability to buy and sell foreign exchange in Chile.  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 (the “Formal Exchange Market”), a market formed by banks and other entities explicitly authorized by the Central Bank.  Purchases and sales of foreign exchange can be carried out in the Mercado Cambiario Informal (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.  Foreign exchange for payments and distributions with respect to the ADSs may be purchased in either the Formal Exchange Market or the Informal Exchange Market, but such payments and distributions must be necessarily remitted through the Formal Exchange Market.

For the purposes of the operation of the Formal Exchange Market, the autonomous Central Bank of Chile sets a reference exchange rate (dólar acuerdo) (the “Reference Exchange Rate”).  The Reference Exchange Rate is reset daily by the Central Bank, taking into account internal and external inflation and variations in parities between the Chilean peso and each of the US dollar, the Japanese yen and the € in a ratio of 80:5:15, respectively.  To keep the average exchange rate within certain limits, the Central Bank may intervene by buying or selling foreign exchange in the Formal Exchange Market.  The daily observed exchange rate (dólar observado) (the “Observed Exchange Rate”) reported by the Central Bank and published daily in the Chilean newspapers is computed by taking the weighted average of the previous business day’s transactions in the Formal Exchange Market.

The Informal Exchange Market reflects transactions carried out at informal exchange rates (the “Informal Exchange Rate”) by entities not expressly authorized to operate in the Formal Exchange Market (e.g., certain foreign exchange houses, travel agencies and others).  There are no limits imposed on the extent to which the rate of exchange in the Informal Exchange Market can fluctuate above or below the Observed Exchange Rate.  Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of each other.  On December 31, 2002, the Informal Exchange Rate was Ch$ 720.50, or 0.23% higher than the published Observed Exchange Rate of Ch$ 718.61 per US$ 1.00.

The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank.  No representation is made that the Chilean peso or US dollar amounts referred to herein could have been or could be converted into US dollar 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.  On June 20, 2003, the Observed Exchange Rate was Ch$ 705.75 = US$ 1.00.

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	Observed Exchange Rate (1) (Ch$ per US$)
Year	Low(2)		High(2)		Average(3)		Period-end
1998		439.58		475.41		462.20		472.41
1999		468.69		550.93		512.85		530.07
2000		501.04		580.37		542.08		573.65
2001		557.13		716.62		637.57		654.79
2002		641.75		756.56		692.32		718.61
Last six months
2003
January		709.22		738.87
February		733.10		755.26
March		725.79		758.21
April		704.42		729.78
May		694.22		714.10
June (through June 20, 2003)		705.24		717.40

Source:  Central Bank of Chile.

(1)	Reflects Chilean pesos at historical values rather than in constant Chilean pesos.
(2)	Exchange rates are the actual high and low, on a day-by-day basis, for each period.
(3)	The average of the exchange rates on the last day of each month during the period.

B. Capitalization and indebtedness.

Not applicable.

C. Reasons for the offer and use of proceeds.

Not applicable.

D. Risk Factors.

Risk Factors Relating to Enersis

Our business depends heavily on hydrological conditions.

A substantial portion of the operations of our subsidiary, Endesa-Chile, in Chile, Argentina, Brazil, Colombia and Peru involves hydroelectric generation 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.

Drought conditions may hurt the profitability of our electricity generation subsidiaries.

During periods of drought or other adverse hydrological conditions, electricity from thermal generators, including those that are fueled with natural gas or coal, is dispatched more frequently.  During such periods, Endesa-Chile is required to purchase electricity from thermal producers, to the extent Endesa-Chile’s own production is not sufficient to fulfill contractual obligations.  The cost of these spot market purchases may exceed the price at which Endesa-Chile sells electricity under contracts, resulting in a loss.

With the aim of decreasing to some extent the effects of a protracted future drought, Endesa-Chile changed its commercial policy in 2000 by decreasing its energy sales levels to better match the amount of firm energy associated with its installed capacity, giving priority to its higher-paying clients and to industrial firms and distribution companies that demand larger amounts of energy and limiting sales to regulated customers.  While Endesa-Chile enacted this change to lessen the impact of a protracted drought period, we can give you no assurance

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that this change in policy will insulate Endesa-Chile or our operations from negative consequences of a protracted drought period.

Rationing periods may also affect the profitability of our distribution subsidiaries as a result of a reduction in available energy levels and an increase in operating expenses among other things.

We may have to pay regulatory penalties related to operating our business if a rationing occurs.  Under current Chilean law, we 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 and distribution businesses may be subject to regulatory fines, which range from 1 Unidad Tributaria Mensual (“UTM”), or approximately US$44, to 10,000 Unidades Tributarias Anuales (“UTA”), or approximately US$5 million.  Any company supervised by the Chilean Superintendency of Electricity and Fuels, or SEF, is 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 by SEF-regulated companies.

• If our Chilean generation subsidiaries are required to buy electricity on the spot market during a period in which a rationing decree is in effect, they are required to pay a “failure cost” set by the authorities.

• 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 three years ended December 31, 2002.

A drier than normal rainy season in Brazil caused reservoir levels in southeastern Brazil to fall significantly in 2001.  Given the importance of water in Brazil’s supply mix, the Brazilian government imposed a rationing period from June 2001 through March 2002, which affected the southeastern and northeastern regions of the country, where our distributors are located.  There can be no assurance that further rationing periods will be avoided in Brazil for our distribution subsidiaries.

If rationing policies are imposed by regulatory authorities as a result of adverse hydrological conditions in the countries in which we operate, our business, financial condition and results of operations may be affected adversely in a material way.

Our business is subject to significant regulatory fines.

We may be required to pay fines or to compensate customers if we are unable to deliver electricity to them even if such failure is due to forces outside of our control.

Regulators in Argentina have required us to compensate end-users of electricity when we were unable to deliver electricity to them for reasons other than hydrological conditions, even when our failure to deliver the electricity was due to forces outside of our control.  For example, in 1999, Argentine regulators required us to pay approximately US$ 95.4 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(s) that determine our revenues.  Our profitability will be affected adversely if we are required to pay penalties under similar circumstances in the future.  No assurances can be given that such penalties will not be assessed in the five countries in which we carry out our operations.

Changes in government regulations may impose additional operating costs and may cause revenues to decline.

Our operating subsidiaries, as public utilities, are subject to extensive regulation of tariffs and other aspects of our business in the countries in which we operate.  The current regulatory framework governing electric utility businesses has been in existence in Chile since 1982, in Argentina since 1992, in Peru since 1993, in Colombia since 1994 and in Brazil since 1997.  The National Congress in Chile is in the process of discussing an amendment to the electricity sector’s regulatory framework through a project known as the Ley Corta (“Short Law”).  Although there

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has been considerable discussion about the Short Law in the media, we are unable to predict whether or in what form any amendments to the electricity sector’s regulatory framework will be enacted, or the timing and applicability of any new legislation.  Such amendments could affect our profitability adversely by increasing the costs associated with generating and distributing electricity and/or decreasing the revenues we earn from these activities.  In Colombia, the tariff-setting process is under way for distribution and trading activities for the next five years.  Furthermore, modifications to Chile’s Electricity Law, enacted in June 1999, increased the cost of doing business for Chile’s electricity generators, particularly hydro-based electricity generators such as Endesa-Chile.  The modifications include a system of graduated fines for companies that do not comply with regulations, including maximum fines equivalent to approximately US$ 5 million, a requirement to pay 25% of total outstanding fines before appeals can be made and mandatory compensation for regulated users affected by electricity cuts.  There have been no such regulatory payments for the 3-year period ending December 31, 2002.  We can provide no assurance that these modifications will not affect our future profitability adversely by increasing the costs associated with generating and distributing electricity. 

The 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) announced several open bids for energy and power contracts.  Chilectra was awarded an energy supply contract for the first time in two years, which accounts for only 4.7% of its needs.  In most cases, the bidding processes were abandoned as no generation companies were interested in participating.  We attribute this lack of interest to the new rules, which do not provide adequate commercial incentives for generation companies to contract for more than their firm capacity.  Nevertheless, Resolution No. 88 of the Economy Ministry requires distribution companies to buy energy and power at market prices in absence of contracts with generation companies.

On May 3, 2000 another change to the regulatory framework in Chile Ley General de Servicios Eléctrico en Chile was made through Law No.19,674, which regulates services relating to energy supply in such cases where the regulatory authority believes that there are no prevailing market conditions to guarantee a market tariff regime.  These services include, among others, meter renting, disconnection and reconnection of service, public lighting installation and maintenance.  Our distribution companies in Chile derive important revenues from all these services and we cannot make any assurance that our revenues will not be affected negatively by the regulation.

We and 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.  As with any regulated company, we cannot assure you that these environmental impact studies will be approved by governmental authorities, that public opposition will not result in delays or modifications to any proposed project or that laws or regulations will not change or be interpreted in a manner that could adversely affect our operations or our plans for the companies in which we hold an investment.

Following the Brazilian electricity crisis in 2001, the Electricity Sector Model Revitalization Committee of the former Brazilian federal government announced several measures to revitalize the energy sector in order to ensure a higher level of competition, encourage further investments and increase the transparency in the rules that regulate these services.  However, these proposals were not implemented due to political changes in Brazil.  The new executive government has undertaken a new phase of studies to determine the necessary changes to the electricity regulatory framework.  The objective of this new restructuring of the regulatory framework is to simplify the operation of the electricity sector, provide long term stability, give meaning to the concept of a service provider and redefine the important roles of the public and private sectors.  It is not yet possible to predict the magnitude of the reforms, and consequently, we cannot quantify their potential effect over the companies we own.

Our business could be affected by the proposals being considered by the Chilean Congress in respect to our water rights.

Approximately 74% of Endesa-Chile’s installed capacity in Chile is hydroelectric.  We own 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; they are absolute and unconditional property rights and they are not subject to further challenge.  The Chilean Congress is currently considering a proposal to revise the laws governing unused water rights.  Under the proposal, Endesa-Chile would have to pay a fee each year in which such water rights continued unused.  We are unable to predict whether or in

11

what form any such proposed changes to the laws governing water rights will be enacted.  We cannot assure you any changes would not, if enacted, have a material adverse effect on either Endesa-Chile or our operations. 

We may not be able to fully implement our principal strategies.

Our future results of operations will depend in significant part upon our ability to implement some of our principal strategies including operating and financial cost reductions, which we announced in 1999 as the Genesis Project.  For more information on the Genesis Project, see “Item 4.  Information on the Company—B. Business overview—Business Strategy—Enhance our Operating Margin through Cost Reductions.”  The success of our strategy to cut costs generally will depend upon numerous factors, including the cost and availability of financing and our ability to achieve the operating efficiencies that have been budgeted for our subsidiaries.  If we are unsuccessful in any of these strategies, our profitability and the value of our Shares and ADSs could suffer.  Our ability to carry out these strategies could be adversely affected by a number of factors, including:

• the inability to repay or refinance existing debt on more favorable terms and/or to finance expansion;

• the inability to enhance operating efficiencies for our existing subsidiaries; and

• the emergence of more competition in the five countries in which we operate.

Construction of new facilities may be adversely affected by factors commonly associated with new construction projects.

Factors that may affect our ability to build new facilities include:

• delays in obtaining regulatory approvals, including environmental permits;

• shortages or changes in the price of equipment, materials or labor;

• local opposition of political and ethnic groups;

• adverse changes in the political and regulatory environment in the countries where we and our related companies operate;

• adverse weather conditions, which may delay the completion of power plants, or natural disasters, accidents or other unforeseen events; and

• 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 may encounter difficulties in fully implementing our Financial Strengthening Plan and assuring the liquidity needed to make payments on publicly issued bonds.

On October 4, 2002, Enersis’ board of directors unanimously approved a financial plan aimed at strengthening our equity base, refinancing the debt of some of our subsidiaries, selling some of our assets in order to deal with potential short-term liquidity issues and improving our cash flow over a three-year horizon.  Over the next few months, some modifications were made to the original plan, including raising the size of the approved capital increase by US$ 500 million (from US$ 1.5 billion to US$ 2 billion), and a decision to refinance substantially all the bank debt coming due at the Enersis and Endesa-Chile levels, instead of at the subsidiary levels.  The original plan, as modified over the course of the next few months, came to be widely known, both internally and in the media, as the “Financial Strengthening Plan.”  Although well advanced, the portions of this Financial Strengthening Plan that were meant to be completed in 2003 have not been fully completed as of the time of this annual report.  In particular, a portion of the capital increase is scheduled to be completed in the second half of 2003, and not all the assets that were planned for sale have been sold.  There can be no assurance that the remaining components of the Financial Strengthening Plan meant to be completed in 2003 will be successfully completed this year, or in the future.

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In order to improve our capital structure and to resolve our significant liquidity risk issues, the Financial Strengthening Plan, as modified, contemplates the following four basic strategies:

(a)	a capital increase in Enersis of up to approximately US$ 2 billion;
(b)	the divestiture of certain assets in 2003, including:

• hydroelectric plant Empresa Eléctrica Canutillar (“Canutillar”);

• electricity distribution company Compañía Eléctrica del Río Maipo S.A. (“Río Maipo”);

• real estate company Inmobiliaria Manso de Velasco S.A. (“Manso de Velasco”), if possible under current market conditions;

• certain electricity transmission assets (wholly-owned by Endesa-Chile);

• toll road company Infraestructura Dos Mil S.A. (“Infraestructura 2000,” wholly-owned by Endesa-Chile);

(c)	bank refinancing of all outstanding syndicated bank credit agreements extended to Enersis and Endesa-Chile and most of the bilateral credit agreements to both borrowers, in all cases maturing in 2003 and 2004, for an aggregate total of US$2.33 billion; and
(d)	operating cash flow improvements of approximately US$130 million during the three-year period ending December 31, 2005.

At the time of this annual report, a substantial portion of this Financial Strengthening Plan has been completed.  See “Item 4.  Information on the Company—B. Business overview—Business Strategy—Financial Strengthening Plan.”  Notwithstanding the fact that we have made significant progress to date in implementing the Financial Strengthening Plan, there can be no assurance that Enersis and Endesa-Chile will be able to carry out the plan completely, or otherwise entirely eliminate the liquidity risk associated with the payment of the outstanding € 400 million three-year floating rate note maturing on July 24, 2003, issued by Endesa-Chile Internacional (the “Endesa-Chile MTN”), and the 6.6% Notes due December 1, 2026 with a put option exercisable on December 1, 2003, issued in 1996 by Enersis (the “Enersis 2003 Put Yankee Bond”).  Moreover, although the semi-annual bank debt repayments scheduled under the new credit agreements begin in November 2005, Enersis and Endesa-Chile also have other public bonds that mature in 2006 and 2008 for which we may also have liquidity risks.

Our 5-year US$ 2.33 billion bank credit agreements contain stringent covenants that require us to apply most of the proceeds derived from asset sales, equity issuances or debt issuances to prepay these facilities.  They also provide for cross-default provisions that would be triggered by defaults in relation to any single indebtedness of Enersis, or some of its more relevant subsidiaries, including Endesa-Chile, with outstanding amounts equal to or greater than US$ 30 million after the applicable grace periods (if any) have expired.  See “Item 5.  Operating and Financial Review and Prospects – B. Liquidity and Capital Resources.”

Furthermore, we can give no assurance that we will be able to meet our operating cash flow improvement strategy, which is largely contingent on our ability to improve our operating efficiency and reduce operating costs.

For more discussion on our refinancing, the limitations our debt arrangements impose on our ability to undertake certain activities and conditions to borrowing, see “Item 5.  Operating and Financial Review and Prospects—B. Liquidity and Capital Resources.”

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 income from dividends, distributions and other cash flows from our subsidiaries.  Because we are a holding company, the claims of our subsidiaries’ creditors, including trade creditors of, and bank and other lenders to, our subsidiaries, will have priority over Enersis’ creditors, with respect to the assets and cash flow of

13

those subsidiaries.  At December 31, 2002, our subsidiaries’ total indebtedness, including notes payable, was Ch$ 4.6 trillion (US$ 6.3 billion).

In April 2003, Companhia Elétrica de Estado de Goiás S.A. (“CELG”), the sole customer of Endesa-Chile’s Brazilian subsidiary Cachoeira Dourada, was awarded a preliminary and provisional judgment that permitted CELG to suspend its payments under a long-term take-or-pay contract with Cachoeira Dourada.  We are currently awaiting the final judgment on the April 2003 decision and have no assurance that the final decision will be favorable to Cachoeira Dourada.  An unfavorable decision would result in Cachoeira Dourada losing payments from its only customer, which may affect Cachoeira Dourada’s ability to pay dividends to Endesa-Chile.

The payment of dividends and distributions by our subsidiaries and related companies to us are subject, under special circumstances, to emergency restrictions on behalf of the executive authorities of Chile, the local Central Bank or other governmental bodies, as to legal and contractual restrictions, such as legal reserve requirements, capital and retained earning criteria and other restrictions, and is contingent upon their earnings and cash flows.  Additional upstreaming restrictions include the following:

• subsidiaries where dividend distribution is prohibited in the case of default of certain loans;

• Cerj in Brazil and Costanera (an Endesa-Chile subsidiary in Argentina) where dividend distributions, capital reductions, inter-company interest and debt repayment are prohibited while certain debt is outstanding;

• Betania (an Endesa-Chile subsidiary in Colombia) where inter-company debt repayment is prohibited unless Betania raises additional funds from the sale of assets or capital reductions of its subsidiaries (Emgesa), and inter-company interest payments are prohibited if any scheduled payment of the syndicated loan is due and not paid; and

• Argentina, which restricted the payment of dividends abroad during 2002 and until February 2003.

We are not aware of any other material legal restrictions on the payment to us of dividends or distributions in the various jurisdictions where our material subsidiaries and related companies operate, other than customary restrictions limiting dividends as to the amount of net income and retained earnings.  Certain consortium investment agreements of our subsidiaries restrict the payment of dividends or distributions under certain circumstances.  We cannot assure you that legal restrictions will not be imposed, or that additional contractual restrictions will not arise in the future.

Risk Factors Related to Argentina

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.

On January 6, 2002, the Argentine Congress approved the Public Emergency and Reform of the Exchange Regulation Law 25,561 (“Economic Emergency Law”).  The Economic Emergency Law amended the law that had pegged the Argentine peso at parity with the US dollar since April 1991.  The Economic Emergency Law empowered the Federal Executive Power to implement, among other things, additional monetary, financial and exchange measures to overcome the current economic crisis in the medium term, such as create a system for determining the rate at which the Argentine peso is to be exchanged into foreign currencies.  The Economic Emergency Law declared a public emergency over social, economic, administrative, financial and foreign exchange matters, and conferred upon the Federal Executive Power full privileges under the law until December 10, 2003.  This law also imposed the conversion of dollar-denominated obligations into Argentine pesos at a rate of AR$ 1 per US$ 1 (with some exceptions) and authorized the forced renegotiation of public service contracts and repealed the following:

(a) the prior Convertibility Law which fixed the parity of the Argentine peso, or Ar$, with the United States dollar, or US$, at 1 to 1 and instead allows the Ar$to devalue in relation to the US$,

14

(b) the same 1 to 1 parity in connection with any public service tariffs that call for any foreign currency adjustment; and

(c) the recognition of  inflation index mechanisms from other countries and any other indexation mechanism to be applicable to public services tariffs.

Some of the more important foreign exchange changes that have been introduced by Executive Power decrees are the following:

(a) the creation of an exchange market that allows the Ar$ to float freely except for interventions of the Argentine Central Bank to buy or sell foreign currency;

(b) certain restrictions to full access to funds deposited in financial institutions;

(c) the conversion of US$ bank deposits into Ar$ at the exchange rate of US$ 1 = Ar$ 1.4 while US$ obligations, or debts incurred with financial institutions under Argentine regulation until January 6, 2002 have remained at the US$ 1 = Ar$ 1 fixed parity, with certain subsequent stabilizing adjustments; and

(d) all privately negotiated contracts prior to January 6, 2002, have been converted into Ar$ at the US$ 1 = Ar$ 1 fixed parity.

The Economic Emergency Law created an imbalance in the economic and financial equation of the Argentine companies.  The current devaluation and the Emergency Economic Law’s repeal of allowing certain tariffs to be pegged to the US dollar (and instead requiring the tariffs to be pegged to the Argentine peso, which we refer to as “pesification” in this annual report) resulted in a revenue shortfall that led to inadequate financing for electricity sector activities.  The electricity tariffs do not take into account the real costs of services provided and the energy prices in the hourly market do not reflect the marginal costs of generation as provided for under the previous regulation (Law 24,065).

As a result of the current macroeconomic crisis affecting Argentina and the modifications to regulations affecting our Argentine subsidiaries, as further described under the risk factors discussed below, we cannot assure you that our Argentine subsidiaries will be able to obtain financial resources to repay or refinance their short-term debt or that they will otherwise be able to comply with the obligations to which they are subject under their credit agreements and other financial contracts.  We believe that our economic interests have been significantly affected and can provide no assurance that these events will not have a material adverse effect on our financial condition or results of operations.  Between February 21, 2002 and March 2002, Standard & Poor’s assigned a rating of “SD” (selective default) to Edesur, our distribution subsidiary in Buenos Aires. 

The Central Bank of Argentina may impose 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.

In early December 2001, the Argentine government imposed a number of monetary and currency exchange control measures that included restrictions on the free withdrawal of funds deposited with banks and tight 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.  Although most of these monetary and exchange control restrictions were recently lifted or softened, there is no assurance that the Argentine government will not reinstate such restrictions in the future, affecting Edesur’s business and/or its ability to repay foreign debt.

Currently, the prior approval of the Argentine Central Bank is not required for the remittance of dividends.  However, such approval is required to prepay foreign debt abroad while principal and interest payments due and payable can only be paid outside Argentina after compliance with information and documentation requirements imposed by the Argentine Central Bank.  We cannot assure you that the Argentine Central Bank will accept this information and documentation, or otherwise authorize such transfers.

15

As of December 31, 2002, the debt of our Argentine subsidiaries amounted to approximately US$ 523 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.  Our international creditors have understood the extraordinary circumstances that have led us to take these steps and to date have accepted these refinancing arrangements.  No assurance can be given that our creditors will continue to accept, or that the Argentine Central Bank will continue to permit, rolling over debt principal when it becomes due. 

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 of operations and financial condition in Argentina.

The Economic Emergency Law has affected Edesur adversely by repealing the provisions of Edesur’s concession contract (the “Concession Contract”) that permitted our 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.  Edesur’s ability to comply with its obligations under the indebtedness to which it is subject has been adversely affected by the Economic Emergency Law and the devaluation of the Argentine peso.

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 affiliate 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 National Executive Power 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.

The National Executive Power created the Comisión Renegociadora (the “Renegotiation Commission”) with the responsibility for renegotiating the public service contracts.  The original negotiation period granted to the Renegotiation Commission was to terminate in June 2002.  During 2002 the deadline was extended until April 9, 2003.

In April 2002, Edesur presented a renegotiation proposal, which provided for recalculating the economic and financial equation of the Concession Contract, in order to mitigate the negative impact experienced by the company due to the devaluation, pesification and tariff setting in Argentina.  The proposal was based on the creation of a “Regulatory Asset,” which would allow more time for Edesur to carry out the terms of the contract according to its original conditions.

Later, even though the Renegotiation Commission continued working on the renegotiation of the contracts, Edesur was informed that, if an urgent tariff resetting was needed (which would be included in the final results of the contract renegotiation) it should present a firmer proposal.  Edesur responded with a proposal of an urgent tariff resetting that did not contemplate the retribution of the capital invested, as such discussion and analysis was left for further stages of the renegotiation process.  Edesur requested, pursuant to the “Shared Sacrifice” guideline that the government established for the renegotiation process, total or partial tariff reallocation of tax collection, which accounts for 38% of the net tariff, thereby achieving either a socially acceptable tariff increase, or none at all.  However, the Argentine Government did not comment on the Edesur’s proposal.

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In relation to the urgent tariff resetting, the Executive Power issued Decree No. 2437/02 in December 2002 granting a higher tariff to Argentine distribution companies.  However, these tariff increases were suspended by two judicial resolutions that were appealed by the National Government and Edesur in January 2003.

On September 9, 2002, Enersis asked for the beginning of non-adversarial consultations established in article 10 (1) of the Tratado sobre Promoción y Protección Recíprocas de Inversiones entre La República de Argentina y la República de Chile (the “Treaty”).  Enersis expressed its aspiration that the institutional and confidential framework of the Treaty would facilitate the parties in reaching a mutually satisfactory solution to this tariff-resetting controversy.  However, Enersis also made clear that this conflict would ultimately be settled in an international arbitration if the non-adversarial consultations failed to yield a solution.  On March 24, 2003 the period of consultations contemplated in article 10 of  the Treaty ended without reaching a resolution to the controversy.

On April 25, 2003, Enersis, Endesa-Chile, Elesur S.A. (“Elesur”) and Chilectra filed an action before the Centro Internacional de Arreglo de Diferencias relativas a Inversiones (“CIADI”) 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 investments of Enersis, our subsidiaries and Elesur in Argentina as a consequence of the approval of Economic Emergency Law, Decree No. 214/2002, Decree No. 293/2002 and Resolution No. 38/2002 of the Ministry of Economy.  The outcome of these new rules has been a complete 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 met.  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. 

On January 23, 2003 the National Executive Power enacted Decree No. 120 establishing transitory revisions, or tariff settings adjustments, that would be needed to guarantee customers the continuity, safety and quality of the services provided.

Subsequently, on January 30, 2003 the National Executive Power enacted Decree No. 146 with temporary adjustment to the tariffs for gas and electricity public services from January 1, 2003 to the end of the renegotiation process.  However, these tariff increases were suspended by two judicial resolutions.

At the time of this annual report, it is not possible to determine how the new Kirchner Administration in Argentina, elected in May 2003, will resolve these pending tariff issues.

There can be no assurance that the final result of such negotiations will not have a material adverse effect on Edesur, or that the practical effect of any long-lasting structural changes will not have a material adverse effect on Edesur’s financial performance.

Risk Factors Relating to Chile

Our business is dependent on the Chilean economy and our revenues are sensitive to its performance.

A substantial portion of our assets and operations are located in Chile and, accordingly, our financial condition and results of operations are to a certain extent dependent upon economic conditions prevailing from time to time in Chile.  In 2002, the Chilean economy grew by 2.1% compared to a 3.1% increase in 2001 and an increase of 4.2% in 2000.  The Central Bank recently reclassified its criteria for growth measurements, and the figures for 2000, 2001 and 2002 reported in this annual report are different from those reported in prior Form 20-Fs.  The latest Chilean Central Bank forecasts for GDP growths are between 3.0% and 4.0% for 2003 and greater than 4.0% for 2004 (Central Bank, “Informe Política Monetaria,” May 2003).  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 of operations adversely.  Our financial condition and results of 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 of 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.

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Increased inflation in Chile may affect our results of 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 adversely affect the Chilean economy and, indirectly, the value of shares of Enersis’ common stock and ADSs.  The inflation rate was 27.3% in 1990, although it fell to single digits by 1994, and continued to decline steadily to a low of 2.3% in 1999.  Chilean CPI for the 12 months ended December 31, 2002, was 2.8%, and government officials expect 2003 Chilean CPI to be approximately 3.0% for 2003 and 2004.  Historically, a substantial part of our expenses have been denominated in Chilean pesos, and any future increases in Chilean inflation could cause our expenses to rise significantly.  As a result, the level of Chilean inflation may affect our financial condition and results of operations.

We believe that moderate inflation will not materially affect our business in Chile.  Electricity tariffs in Chile, both for generation and distribution, contain indexing mechanisms that are intended to neutralize the effects of inflation.  However, we cannot assure you that the performance of the Chilean economy, our operating results, or the value of our ADSs will not be affected adversely by a significant increase in the level of inflation or that Chilean inflation will not increase significantly from the current level.

Foreign exchange risks may adversely affect the results of our operations and the US dollar amount of dividends payable to holders of Enersis’ ADSs.

The Chilean peso has been subject to large devaluations in the past and may be subject to significant fluctuations in the future.  Historically, a significant portion of our indebtedness has been denominated in US dollars, and, although a substantial portion of our revenues are linked in part to the US dollar, future fluctuations in the exchange rate of the Chilean peso to the US dollar, or other currencies in which we receive revenues or incur expenditures may affect our financial condition and results of operations. 

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 will decrease.

Chilean corporate disclosure, governance and accounting standards may provide investors different information than would be provided under U.S. standards.

The securities laws of Chile that govern publicly listed companies such as ours impose disclosure requirements that are more limited than those in the United States in important respects.  The Chilean securities markets are not as highly regulated and supervised as the U.S. securities markets.  There are also important differences between Chilean and U.S. accounting and financial reporting standards.  As a result, Chilean financial statements and reported earnings generally differ from those reported based on U.S. accounting and reporting standards.  See Note 34 to our consolidated financial statements for a description of the principal differences between Chilean GAAP and US GAAP relating to our financial statements and a reconciliation to US GAAP of net income and total shareholders’ equity for the periods ended and as of the dates therein indicated.

The relative illiquidity and volatility of Chilean securities markets could adversely affect the price of the Enersis ADSs and common stock.

Chilean securities markets are substantially smaller and less liquid than the major securities markets in the United States.  In addition, Chilean securities markets may be affected materially by developments in other emerging markets, particularly other countries in Latin America.  The low liquidity of the Chilean market may impair the ability of holders of ADSs to sell shares of our common stock withdrawn from the ADS program into the Chilean market in the amount and at the price and time they wish to do so.  In addition, if Endesa-Spain increases its equity stake in Enersis above 65% as a result of the capital increase that is scheduled to end on December 30, 2003, the free float of our common stock will decrease, resulting in lower stock liquidity.  For more information on the Enersis capital increase, and the higher equity stake that Endesa-Spain may end up having in Enersis, see “Item 4.  Information on the Company—B. Business overview—Financial Strengthening Plan—Capital Increase.”

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Political factors may affect regulatory processes and tariffs in Chile.

During 2001, the Chilean Congress’ Cámara de Diputados, or lower chamber, investigated the tariff-setting process for electricity distribution companies carried out in 2000.  The National Energy Commission is directly responsible for the investigation.  The initiative’s sponsors have 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 in favor of distribution companies while the minority view was that the regulator had acted in full compliance with its authority under the law.  Both reports were read in front of the full congressional lower chamber on March 5, 2002.  However, due to the extensive length of the documents, 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 can give no assurance that the ultimate results of these resolutions will be favorable to our distribution subsidiaries, and if they are unfavorable, or that the consequences will not be materially adverse to our financial performance or future prospects. 

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

If any shareholder, including ADS holders, were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce against them in United States courts judgments obtained in the United States courts based upon the civil liability provisions of the federal securities laws of the United States.  In addition, there is doubt whether an action could be brought successfully in Chile in the first instance on the basis of liability based solely upon the civil liability provisions of the United States federal securities laws.

Risk Factors Relating to the Rest of Latin America

Latin American economic fluctuations are likely to affect our results of operations.

All of our operations are located in Latin America.  Although we originally operated only in Chile, we have expanded our operations in Latin America through strategic acquisitions and investments.  We now generate a significant portion of our consolidated operating revenue and consolidated operating income outside Chile.  Accordingly, our consolidated revenues are sensitive to the performance of the Latin American economies as a whole.  If local, regional or worldwide economic trends adversely affect the economies of any of the countries in which we have investments or operations, our financial condition and results of operations could be affected adversely.

The Latin 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.  Latin 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.  Latin 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 Latin American financial and securities markets are, to varying degrees, influenced by economic and market conditions in other emerging market countries.  Although economic conditions are different in each country, investor reaction to developments in one country can have significant effects on the securities of issuers in other countries, including Chile.  We can offer no assurance that the Chilean financial and securities markets will not continue to be affected adversely by events elsewhere, especially in other emerging markets, or that such effects will not affect the value of our common stock or ADSs, or the interest rate yields in the secondary markets associated with our publicly listed bonds.  Moreover, Enersis and Endesa-Chile have significant investments in relatively risky non-Chilean countries such as Argentina, Brazil, Colombia and Peru.  Cash flow generation by, and upstreaming from, subsidiaries in these countries have proven volatile.

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Chile continues to be rated “A-” by Standard & Poor’s and is the only investment grade country in South America.  However, we cannot give assurances that Chile will continue to maintain the credit rating granted by Standard & Poor’s and other credit agencies.

Certain Latin 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.  Any government’s actions to control inflation and effect other policies have often involved wage, price and tariff rate controls as well as other interventionist measures, which have included freezing bank accounts and imposing capital controls.  Changes in the policies of these governmental authorities with respect to tariff rates, exchange controls, regulations and taxation could affect our business and financial results adversely, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, including the governments’ response 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 of operations may be affected adversely.

We may be affected by exchange rate instability in other countries.

Revenues from our non-Chilean subsidiaries are principally denominated in the relevant local currency.  Therefore, the relationship of the value of non-Chilean currencies to the US dollar and Chilean peso, and the relative rates of devaluation of local currencies to the prevailing rates of inflation may affect our financial condition and results of operations. 

Colombia’s electricity power industry has in the past been adversely affected by guerilla attacks.

Guerrilla organizations have long been active in Colombia.  Although our Colombian facilities have never been subject to any attacks having a material impact by any guerilla group, we cannot assure you that such attacks will not occur in the future.  In many remote regions of the country that have traditionally lacked an effective government presence, the guerillas have exerted influence over the local population.  In recent years, guerilla organizations have employed acts of terrorism to draw attention to their causes.  Despite efforts by the Colombian government to address the situation, Colombia continues to be affected by social friction and violence related to guerilla activity.  Most of this activity has been directed towards the oil industry.  The peace negotiations between the former Colombian government and the largest guerrilla organization in the country came to an end in February 2002, and there has been an escalation of violence since then.  The increased violence could also result in renewed attacks against electricity assets, which may adversely affect our interests.  The Colombian government, under its president in office since 2002, has targeted its intervention on inflation, devaluation, unemployment, fiscal policy and drug-related violence.  We cannot assure you, however, that these measures will result in higher economic growth in Colombia or remove the risks of attack against our electricity assets.

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 Eléctrica S.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 at Avenida Santa Rosa 76, Santiago, Santiago, Chile.  Our telephone number is (562) 353 4400. 

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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 also the largest privately-owned electricity distribution company in Latin America with over 10 million customers.  Through Endesa-Chile, our largest consolidated subsidiary, we are the biggest private sector electricity generation company in Latin 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 65.0% of our outstanding shares as of December 31, 2002.  As part of our capital increase, which is scheduled to be completed on December 30, 2003, Endesa-Spain is likely to increase its equity stake in Enersis.  For more information on the Enersis capital increase, and the higher equity stake that Endesa-Spain is likely to have in Enersis, see “—B. Business overview—Financial Strengthening Plan—Capital Increase.”

For the six years ended December 31, 2002, we have ranked as the largest private sector company in Chile, measured by consolidated assets and consolidated operating income.  As of and for the year ended December 31, 2002, our consolidated assets were Ch$ 12,621.2 billion and our consolidated operating income was Ch$ 532.6 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., or Chilectra.  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, 2002, Endesa-Chile, together with its principal subsidiaries and related companies, accounted for an aggregate of 11,953 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, Aysén and Magallanes.

Endesa-Chile is the largest electricity generation company in Chile measured by installed capacity and one of the largest privately-owned companies in the country.  Endesa-Chile had operating income of Ch$ 346.2 billion and Ch$ 347.9 billion for the fiscal years ended December 31, 2002 and 2001, respectively.  We own 60.0% of Endesa-Chile.

Endesa-Chile owns and operates 20 generation facilities in Chile with an aggregate installed capacity of 3,935 MW as of December 31, 2002 (compared to 3,935 MW as of December 31, 2001).  Endesa-Chile accounted for approximately 39% of Chile’s total installed capacity as of December 31, 2002, and its electricity production of 16,286 GWh in 2002, which was 3.5% higher than in 2001, accounted for approximately 38% of all electricity production in Chile.  As of December 31, 2002, 19 of the generation facilities owned and operated by Endesa-Chile

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in Chile were connected to the Sistema Interconectado de Chile, or SIC, with the remaining generation facility located in the Sistema Interconectado de Norte Grande, or the SING, which provides electricity to the northern mining regions of Chile.  Approximately 74% of Endesa-Chile’s installed capacity is hydroelectric, while the remainder is thermal.  Thirteen of Endesa-Chile’s 20 generation plants are hydroelectric, with a total installed capacity of 2,899 MW.  The remaining seven are coal, oil or gas-fired thermal plants with an installed capacity of 1,036 MW.

In Chile, Endesa-Chile had energy sales of 20,086 GWh in 2000, 18,673 GWh in 2001, and 18,344 GWh in 2002.  Endesa-Chile had 75 customers in 2000, 69 in 2001 and 67 customers in 2002.  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 majeure and for binding arbitration in the event of disputes.  In 2002, sales to unregulated customers represented 31.5% of Endesa-Chile’s total energy sales. 

The following table sets out information relating to Endesa-Chile’s installed capacity and electricity sales in Chile:

	Year ended December 31
	2000		2001		2002
Installed Capacity (MW) (1)		4,130.2		4,035.0		3,934.8
Electricity Sales (GWh)		20,086		18,673		18,344

(1) Figures do not take into account the sale of the Canutillar Plant in April 2003.

Endesa-Chile is currently in the process of constructing a new generation plant in Chile.  The hydroelectric generation plant at Ralco will have an installed capacity of 570 MW.  As a result of a significant increase in the flow of the Bío Bío River, which in turn was brought on by unusually heavy rains, the Ralco cofferdam collapsed on May 27, 2001.  Because of the construction delays caused by this damage, the facility is scheduled to commence its operations during the second half of 2004.  As of May 31, 2003, the Ralco project was 82.4% completed. 

The combined-cycle thermal generation plant at Tal Tal was completed in July 2000 and has an installed capacity of 240 MW.  The natural gas that fuels the Tal Tal plant comes from Argentina and is transported by Gasatacama S.A. (“Gasatacama”).  Endesa-Chile has a 50% ownership interest in Gasatacama and CMS Energy Corp., or CMS, a U.S. corporation, has the remaining 50% ownership interest. 

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, 2002, Gener had an installed capacity of 1,439 MW, of which approximately 83% was thermal electric, and Colbún had an installed capacity of 1,067 MW, of which approximately 35% 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 73.7% 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, 2002 of 182 MW, or 5% , of that system’s total installed capacity.  All of the other generation companies operating in the SING, principally Electroandina (formerly

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Corporación Nacional del Cobre División Tocopilla) and Empresa Eléctrica del Norte Grande S.A., have substantially larger operations than Endesa-Chile in that interconnected system.

Prices.  Over the last several years, the introduction of gas-fired plants in the SIC has placed downward pressure on electricity prices, including average spot market prices, in the SIC.  Average node prices in dollar terms decreased 41.3% from April 1995 through October 1999.  These price decreases affected Endesa-Chile’s operating margins adversely during those years.  Between October 1999 and April 2001, average node prices increased by 25.5%, from 2.825 United States cents/kWh to 3.544 cents/kWh, reversing the trend of the previous five years.  Despite the fact that the favorable hydrological conditions of 2002 again put downward pressure on electricity prices, in April 2003, the node price was set at 3.310 United States cents/kWh, representing a 3.5% increase from the price set in October 2002 by local authorities.  This increase mainly resulted from the recovery of the energy demand in the system. 

Gasoducto GasAndes S.A., or GasAndes, a subsidiary of Gener, 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, 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 project to supply gas from the northern part of Argentina to the northern part of Chile which became operational in November 2000.

Endesa-Chile completed the construction of an extension to the Gasatacama pipeline from Mejillones to Tal Tal, approximately 230 km to the south, in February 2000.  In addition, in July 2000, the 240 MW Tal Tal plant was put into service.

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 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 planned operation of a large gas-fired plant of Colbún, one of Endesa-Chile’s competitors, 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

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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 improved significantly because of abundant 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 regulated customers.  In addition, Endesa-Chile is advancing with the construction of its Ralco hydroelectric plant, scheduled to commence its operations during the second half of 2004.

Sale of Transelec.  Endesa-Chile is no longer engaged in the electricity transmission business in Chile.  On October 23, 2000, Endesa-Chile completed the sale of 100% of the shares of Compañía Nacional de Transmisión Eléctrica S.A., or Transelec, for US$ 1,076 million.  The divestment of this transmission subsidiary, as planned for in the Genesis Project, was carried out under a public tender offer.  The winning bid was made by Hydro Québec International Inc., a Canadian company.  This transaction resulted in a net gain of US$ 225 million. 

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 a 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).  In addition, this transaction allows the deconsolidation of UF 9,011,000 (approximately US$ 220 million) 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 falls within the Financial Strengthening Plan, which provides for, among its main targets, the divestiture of those assets identified in October 2002 as appropriate for sale in order to reduce our indebtedness.  The proceeds of the sales were used to reduce Endesa-Chile’s debt.

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. 

Endesa-Chile’s Operations in Argentina

Endesa-Chile owns interests in generation companies in Argentina that had an aggregate installed capacity of 3,622 MW as of December 31, 2002.  At that date, Endesa-Chile owned directly and indirectly 47.5% of El Chocón, the second largest hydroelectric generation facility in Argentina measured in terms of installed capacity, with a total

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installed capacity of 1,320 MW, which generated 3,682 GWh of energy in 2002.  As of December 31, 2002, Endesa-Chile beneficially owned 51.7% of Costanera, a thermoelectric generation company with an installed capacity of 2,302 MW which generated 3,486 GWh of energy in 2002, 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 2002 amounted to 7,168 GWh, or 27.9% less than in 2001.  Energy sales declined from 12,988 GWh in 2001 to 7,897 GWh in 2002.  Endesa-Chile’s generation companies in Argentina accounted for approximately 16.2% of the country’s installed capacity in the National Interconnected System, or NIS grid, as of December 31, 2002.

The following table sets out information regarding Endesa-Chile’s installed capacity and electricity sales in Argentina for the periods indicated:

	Year ended December 31
	2000		2001		2002
Installed Capacity (MW)		3,622		3,622		3,622
Electricity Sales (GWh)		15,549		12,988		7,897

Comercializadora del Mercosur S.A. (“CEMSA”), a non-consolidated company in which Endesa-Chile has a 45% interest, sells energy to CIEN.  On June 6, 2003, CIEN notified CEMSA that for the month of May 2003, it would only make a partial payment on agreements relating to the Second Interconnection Line Brazil-Argentina.  This partial payment would equal all of those agreements executed by parties other than Copel to the Second Interconnection Line Agreement, which corresponds to approximately 20% of the total payment.  CIEN’s notice indicated that CIEN was deducting all of the amount relating to Copel since its client, COPEL Distribuição S.A. (“Copel Distribuição”) has not fulfilled payments to CIEN arising from this agreement.  Thus, CEMSA notified Costanera, Endesa-Chile’s Argentine subsidiary, that CEMSA will only be able to make a 20% partial payment on the agreements related to the Second Interconnection Line Brazil-Argentina.  This 20% partial payment would amount to 69 MW of the total 344 MW pertaining to agreements not related to Copel.  We note that Costanera’s 750MW contracts corresponding to the First Interconnection Line Brazil-Argentina will not be affected by Copel’s partial payment relating to the Second Interconnection Line.

Costanera had a syndicated yen-denominated loan for the equivalent of US$ 95 million which was originally scheduled to mature on June 30, 2003.  As a result of the exchange controls imposed in Argentina, Costanera was not in compliance with a provision of the loan facility, which provided that the imposition of exchange controls constituted an event of default.  In addition, Costanera was not able to meet a debt coverage ratio under the facility because the Argentine peso’s devaluation increased the amount of Costanera’s liabilities.  On February 2, 2003, Costanera refinanced that facility and structured it as a US$ 86.8 million loan maturing in December 2004, with a growing amortization schedule commencing June 2003.  At the same time, a bilateral bank contract for US$ 8.6 million was signed under the same conditions as the syndicated loan.  The bilateral facility was structured in order to replace the mark to market value of the outstanding currency swap with one bank.  Before this debt restructuring, Costanera had not been in compliance with its financial covenants although the banks had waived the need for Costanera to comply with them.  The new facilities replaced the prior covenants and, in their place, included a maximum debt covenant with which Costanera is in full compliance.

At the date of this report, Costanera is in arrears on the seventh semi-annual installment, originally due on March 29, 2003, which includes US$ 8.9 million in principal and US$ 0.9 million in interest, on a supplier credit with aggregate remaining principal of US$ 179.7 million with Mitsubishi Corporation (“Mitsubishi”).  However, Costanera has received a letter from Mitsubishi acknowledging that Costanera has not yet been able to make the payment on the seventh installment, and that Mitsubishi accepts to renegotiate both the new payment date and the terms of the payment in arrears.  On prior occasions, Mitsubishi and Costanera have agreed on the extensions of other payments under this credit.  Costanera is also late in the principal payment of a US$ 3.6 million credit export obligation with a bank with aggregate principal amounting to US$ 7.5 million.

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.  We believe that all of our past due

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obligations will be resolved, although no assurances can be given as to the timing of such resolution.  See “Item 3. Key Information—D.Risk Factors—Risk Factors Related to Argentina.”

El Chocón has bonds outstanding in the aggregate principal amount of US$ 140 million.  El Chocón has successfully renegotiated extensions of the maturity date of the principal of these bonds on two separate occasions.  As of the date of this annual report, the bonds are scheduled to mature in February 2004 and El Chocón is in compliance with all of the contractual terms relating to the bonds.  Endesa-Chile believes that El Chocón will be able to extend the maturity date of this obligation again.

Negative exchange rate differences caused by the Argentine peso devaluation have adversely affected the balance sheets of many Argentine companies, including Endesa Argentina  and Costanera.  In order to prevent the application of mandatory dissolution laws to such companies, on March 21, 2002 the Comisión Nacional de Valores passed Expediente No. 301, a temporary rule which took effect as from January 31, 2002, and provides relief to all listed Argentine companies with US dollar obligations by allowing them under Argentine GAAP (but not under Chilean GAAP) to account for exchange rate differences by increasing the book value of their assets by the amount of the increase in liabilities caused by the peso devaluation.  As a result, no charges are made to the income statements of such companies; therefore, they are not forced to make a deduction to shareholders’ equity as a result of the exchange rate differences.  The increase in assets is amortized over time with contra asset book entry.

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, 2002, 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 1% of the total installed capacity in the Brazilian market and 2002 annual generation of 2,467 GWh, or 9.4% more than in 2001.  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.

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, 2000, 2001 and 2002.

	Year ended December 31
	2000		2001		2002
Installed Capacity (MW)-Cachoeira Dourada		658		658		658
Electricity Sales (GWh)		3,887		3,743		3,591

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 a 500 kV transmission line over a distance of 487 kms from Rincón de Santa María, Argentina, to Itá in the State of Santa Catarina, Brazil, and has built a second line with identical capacity.  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, or Copel.

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In January 2003, Copel suspended payments to CIEN on certain contracts.  CIEN sells energy in Brazil under power and energy supply contracts signed in 1999.  Endesa-Chile estimates that the current payments due by Copel to CIEN is approximately US$ 100 million, according to supply invoices and cost reimbursements for the months of December 2002 and January through May 2003.  This estimate includes contractual interest and fines.  CIEN and Copel are currently in discussions aimed at reaching an agreement on this matter in order to continue the current contracts.  These discussions will probably result in a modification of the contractual terms and conditions, which may in turn result in less favorable pricing on the contracts. 

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, 2002, 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 increased 3.3%, from 1,770 GWh in 2001 to 1,829 GWh in 2002.  During 2002, sales of electricity (consisting of its own production and electricity purchases) were 2,637 GWh, or 3.0% higher than in 2001.  Approximately 53.9% 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.

In September 1997, Capital Energía S.A., or CESA, a company in which a wholly-owned subsidiary of 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, 2002, 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, 2002.  Emgesa has an installed capacity of 2,192 MW, or approximately 16.1% 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 2002, Emgesa generated energy of 8,787 GWh, a 5.4% increase over the 8,335 GWh generated in 2001.

The following table sets out information regarding Endesa-Chile’s installed capacity and electricity sales in Colombia for the periods indicated:

	Year ended December 31
	2000		2001		2002
Installed Capacity (MW) (1)		3,034		3,034		2,732
Electricity Sales (GWh)		13,356		14,591		14,722

(1) On July 2, 2002, EMGESA closed 302 MW of its installed capacity in Casalaco’s facility.

Approximately 92.8% 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.

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Endesa-Chile’s Operations in Peru

In November 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, 2002, 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%.

The following table sets forth information regarding Endesa-Chile’s installed capacity and electricity sales in Peru for the periods indicated:

	Year ended December 31
	2000		2001		2002
Installed Capacity (MW)		1,003		1,003		1,003
Electricity Sales (GWh)		3,604		4,239		4,158

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.  The eight plants have a combined installed capacity of 1,003 MW, of which 739 MW are hydroelectric.  In 2002, Edegel produced 4,279 GWh, or 2.5% higher than the 4,176 GWh produced in 2001.  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, 2002.  Approximately 65% of Edegel’s power sales in terms of megawatts are currently made to the principal distribution companies and some large users.  The remaining sales are made in the spot market.  Energy sales in 2002 were 4,158 GWh, or 1.9% lower than the 4,239 GWh sold in 2001.

Enersis 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 has an estimated total capital expenditure of US$ 207 million, and it will be 51% owned by Endesa Internacional, a wholly-owned subsidiary of Endesa-Spain, and 49% owned by Enersis.  The Fortaleza Project involves the construction of a 310 MW combined cycle gas plant which is estimated to come on stream in December 2003.  It will be 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” (Thermoelectric Priority Program), or PPT.  One of the advantages of being under the PPT is that Fortaleza will be have 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.

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, 2002, our principal subsidiaries and related companies sold approximately 48,955 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.”  Chilectra is the technical operator of Edesur, Edelnor, Cerj, Coelce and Río Maipo.  We sold Río Maipo on April 30, 2003.

Chilectra

Chilectra is the largest electricity distribution company in Chile in terms of clients, assets and energy revenues.  Chilectra had consolidated operating income of Ch$ 87.3 billion for the year ended December 31, 2002.  Subsequent to a tender offer that commenced in November 2000 and was renewed in July 2001, we increased our equity stake in

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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, 2002, Chilectra and Río Maipo together served approximately 1.621 million customers, nearly half of Chile’s total customer base.

Chilectra currently owns a 34.0% 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.  Its interest in Coelce in Brazil was also indirectly increased, through Cerj, from 12.8% to 14.4%.  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, Edelnor and Río Maipo, 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 5.4% as of December 31, 2001.  Chilectra’s energy losses increased slightly to 5.6% in 2002.  Chilectra has also implemented proprietary billing and accounts receivable management systems, increased labor productivity and improved information systems. 

In 2002, Chilectra’s energy sales amounted to 9,952 GWh.  For the five-year period ended December 31, 2002, physical energy sales increased at a compounded annual rate of 5.0%.  For the year ended December 31, 2002, revenues from electricity sales were Ch$ 397.9 billion.

Río Maipo

Río Maipo is the fifth largest electricity distribution company in Chile as measured by energy sales.  Río Maipo had operating income of Ch$ 10.3 billion for the year ended December 31, 2002.  As of December 31, 2002, we owned a 98.7% interest in Río Maipo.

Río Maipo operates in a concession area of 1,596 square kilometers.  Río Maipo has a concession to distribute electricity to some of the more rural parts of the Santiago metropolitan region, including areas to the south, southeast, southwest and west of Santiago.  The concession area is approximately the same size as that of Chilectra but is located in a less densely populated area.  As of December 31, 2002, Río Maipo served 301,553 customers.  For the fiscal year ended December 31, 2002, residential, commercial, industrial and other customers, primarily public and municipal services, represented 40%, 8%, 42% and 10%, respectively, of Río Maipo’s total energy sales.

Río Maipo’s energy losses for 2002 were 6.2% compared to 6.4% in 2001.  In 2002, Río Maipo’s energy sales amounted to 1,274 GWh.  For the five-year period ended December 31, 2002, energy sales increased at a compounded annual rate of 5.8%.

On March 28, 2003, Enersis announced that the board of directors awarded the sale of its 98.7% equity stake in Río Maipo to CGE Distribución S.A. for US$ 203 million.  Enersis’ shareholders approved the sale of Río Maipo at a March 31, 2003 Extraordinary Shareholders’ Meeting.  Enersis estimates that the sale of Río Maipo will contribute US$ 126 million before taxes to its income statement for the year ended December 31, 2003, and expects to apply the proceeds of this sale to reduce its debt.  On April 30, 2003, Río Maipo was sold for US$ 203 million, including US$ 33 million in debt.

Edesur

Edesur is the second largest electricity distribution company in Argentina as measured by operating revenues.  Pursuant to an agreement entered into with Edesur, Chilectra is and will remain the technical operator of Edesur until 2007.  Operating losses were Ch$ 12.7 billion for the year ended December 31, 2002.  In May 2000, we

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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 has an exclusive concession until 2087 to distribute 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, 2002, Edesur distributed electricity to 2,089,997 customers.  For the fiscal year ended December 31, 2002, residential, commercial, industrial and other customers, primarily public and municipal, represented: 19%, 34%, 18% and 29%, respectively, of Edesur’s total energy sales of 12,138 GWh.

Since our acquisition of Edesur in 1992, working through Chilectra, we have implemented cost reductions and other measures to improve Edesur’s operations, services and profitability.  Edesur’s improved results since the date of our acquisition and until December 31, 2001 reflect our success in containing costs, reducing energy losses and improving workforce productivity.  Edesur had energy losses of 11.6% for the fiscal year ended December 31, 2002 compared to 9.9% in 2001.  This 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 there can be no assurance that this objective can be achieved.

For the year ended December 31, 2002, Edesur’s physical energy sales decreased approximately 6.0%, to 12,138 GWh, compared to 12,909 GWh in 2001 and 12,597 GWh in 2000.  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, 2002, physical energy sales increased at a compounded annual rate of 3.9%.

During 2002, 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 and 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 the programming, the dispatch of power and the calculation of prices.  For this reason, during 2002, several resolutions were enacted to ensure the continuity of the operations of the market and this situation continues in 2003.  Some of the more important resolutions are as follows: the increase in the price of power (in Argentine Pesos), the acknowledgement of the components in US dollars in the variable cost of generation and the pre-financing of fuel.

Consequently, during 2002, 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)	drastic fall of energy demand by all customer segments, thereby decreasing revenues;
(b)	the absence of internal and external sources of financing, which affected its operations and planning of capital expenditures;
(c)	higher equipment and material costs in dollar terms due to the devaluation of the Argentine Peso;
(d)	renegotiation and downward adjustments of existing work, services and supply contracts;
(e)	the highest rate of vandalism and delinquency that the company has encountered in the past years;
(f)	increase in energy theft in low-income regions exacerbated by the increased poverty rate;
(g)	increased delinquent payments by government-related customers; and

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(h) drastically increased debt service as measured in Argentine Pesos from Ar$ 251 million in 2001 to Ar$ 678 million in 2002, notwithstanding the fact that Edesur has one of the lowest leverage ratios of public companies in Argentina.

At the time of this annual report, Edesur has a bank payment obligation of US$ 20 million that has not been repaid.  Twice a month, on a routine basis, Edesur receives a letter from the bank, fixing the new bi-monthly period, as well as the interest expense to be paid.  In addition, Edesur has several export credit obligations which are past due, the sum of which amount to US$ 7 million.  We are currently in the process of discussions on refinancing these obligations.

Cerj

Cerj is the second largest electricity distribution company in the State of Rio de Janeiro, Brazil.  As of December 31, 2002 we owned a 62.0% interest in Cerj after Enersis and Chilectra converted R$ 260.8 million in debentures in July 2002.  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$ 20.4 billion for the year ended December 31, 2002.  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 1,778,407 customers in a concession area of 31,741 square kilometers, where an estimated population of 4.1 million people live.  As of December 31, 2002, residential, commercial, industrial and other customers represented approximately 38%, 19%, 24% and 19%, respectively, of Cerj’s total sales of 7,146 GWh.  Cerj also owns nine small power plants in the State of Rio de Janeiro with a total installed capacity of 60 MW.

In January 2003 Enersis increased its interest to 71.8% in Cerj after Enersis capitalized its R$ 370 million intercompany loan to Cerj.

Coelce

Because of our higher participation in Cerj, we increased our interest to 27.4% in Coelce, the sole electricity distributor in the State of Ceará, in northeastern Brazil, through a 48.4% 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$ 24.1 billion for the year ended December 31, 2002.  As of December 31, 2002, Coelce served over 2.01 million customers within a concession area of 146,817 square kilometers.  During 2002, Coelce had annual sales of 5,558 GWh of energy.  Coelce’s energy sales increased by 3.8% in 2002 compared to 2001. 

Coelce’s 30-year concession was granted by the ANEEL in May 1998.  Coelce has a relatively stable client base with residential clients representing about 30% of energy sold.  About 34% of the population and 44% of the energy demand in the State of Ceará is presently concentrated in the metropolitan area of the capital city of Fortaleza.

As of December 31, 2002, residential, commercial, industrial and other customers represented approximately 30%, 18%, 30% and 22%, respectively, of Coelce’s total energy sales. 

As of December 31, 2002, Coelce’s energy losses were 12.9% compared to 13.0% in 2001.

We began consolidating Coelce as of January 1, 1999 based on an agreement signed in June 1999 by virtue of being granted the political, but not economic, rights previously held by Endesa-Spain.  Prior to that, our interest in Coelce was treated under the equity method. 

In January 2003, after our increased equity stake in Cerj, Enersis increased its beneficial interest in Coelce to 29.5%.

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Codensa

We own a 21.7% interest in Codensa, an electricity distribution company that serves a region of approximately 14,087 square kilometers in Santa Fé de Bogotá, or Bogotá, and 96 other municipalities in the Department of Cundinamarca, Tolima and Boyacá.  More than 11.7 million people, or approximately 24% of the Colombian population, live in Codensa’s service area.  Codensa serves approximately 1.91 million customers in its service area.  Our interest in Codensa is held through Luz de Bogotá S.A.  A subsidiary of Endesa-Spain is the technical operator of Codensa.  Operating income was Ch$ 21.5 billion for the year ended December 31, 2002.  During 2002, Codensa had annual sales of 9,015 GWh, of which, residential, commercial, industrial and other customers represented approximately 38%, 13%, 6% and 43%.  Codensa purchased 43.14% of its energy in 2002 from Emgesa, a generating company controlled by Endesa-Chile.  Physical energy sales increased by 4.0% in 2002 compared to 2001.  Since 2001, Codensa only services regulated clients.  The unregulated market is serviced directly by our generation company, Emgesa. 

In 2002, Codensa had energy losses of 10.3% compared to 11.8% in 2001 and 10.5% in 2000.  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, 2002, we increased our equity interest from 54.5% to 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.  Edelnor’s concession period does not have a specified term.  Pursuant to the concession agreement, Edelnor must meet certain minimum standards of service.  If Edelnor does not fulfill the minimum requirements, the Peruvian government may revoke the concession.  As of December 31, 2002, Edelnor distributed electricity to approximately 871,000 customers, a 0.5% increase from December 31, 2001.

Edelnor had energy losses of 8.5% in 2002 compared to 8.9% for the year ended December 31, 2001.  A substantial portion of Edelnor’s energy losses are due to illegally tapped energy, faulty metering and inadequate invoicing and collection systems.  We believe that the implementation of a program aimed at reducing theft and improving efficiency through technological advances similar to that implemented in our other principal subsidiaries and related companies should continue to reduce energy losses.

For the year ended December 31, 2002, Edelnor had total energy sales of 3,872 GWh.  The compounded annual growth rate in energy sales from 1998 to 2002 was 4.4% per annum. 

Water Utility Businesses

In 1997, we purchased a 55% interest in Aguas Cordillera, a private water utility company that services over 80,000 customers in the eastern residential zone of Santiago.  In 1998, we purchased the remaining 45% minority interest in Aguas Cordillera, making Aguas Cordillera a wholly owned subsidiary.  Subsequent to our acquisition of our first water utility, a new law regulating water utility concessions was adopted that provided that no new water utility concessions could overlap with those already given to electricity distribution or local telephony companies with certain defined characteristics.  The new law does not have retroactive effect for the period before which such determination came into effect.  As a result, Aguas Cordillera, which is in Chilectra’s electricity distribution concession area, was limited in its growth opportunities because its owner is also in the public service sector. 

We began a process of divestiture of Aguas Cordillera in August 1999, but our board of directors suspended the process in December 1999 after the Antitrust Commission in October 1999 issued an injunction that put a halt to the sale.  The Antitrust Committee claimed that it needed to investigate any potential conflict of interest on the part of parties potentially interested in the purchase of Aguas Cordillera.  One of such parties was Empresa Metropolitana de Obras Sanitarias S.A., or EMOS, the privatized water utility that serves the same concession area as Chilectra, and which is now majority-controlled by Aguas de Barcelona S.A., or Agbar, in which Endesa-Spain has an equity

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interest of 11.8%.  On March 27, 2000, and subsequent to a request by Enersis to lift the injunction, the Antitrust Commission authorized the sale of Aguas Cordillera in a public bid,  but any party who won the bid would have to seek prior and definitive approval from the Antitrust Commission.  We entered into an agreement to sell Aguas Cordillera to EMOS in May 2000 for US$ 189 million.  On July 27, 2000, Enersis, with the prior authorization from the Antitrust Commission, sold its total shareholding in Aguas Cordillera, and thereby earned an after-tax gain of approximately Ch$ 46.3 billion.

We also formed Aguas Puerto with the minority participation of Anglian Water International Holding Limited, or Anglian Water, a U.K.  company, to bid on the acquisition of a 40.4% equity stake in Esval, a Chilean public drinking water and water treatment utility company.  Esval was one of the thirteen state-owned water and sewage treatment subsidiaries of CORFO.  It has the concession for both the production and supply of drinking water, as well as for the collection, treatment and disposal of wastewater in Chile’s Region V, which extends eastward from the Pacific Ocean to the Andes Mountains separating Chile from Argentina.  Within the concession area, Esval supplies drinking water to approximately 400,000 clients, representing almost 1.5 million consumers, and provides wastewater and sewage systems to about 350,000 clients.  Esval is the second largest water company in Chile and is one of the companies with the widest water treatment services, which covers 73% of its concession area.

On July 5, 2000, Enersis and Anglian Water agreed on the price of Enersis’ 72% shareholding in Aguas Puerto, amounting to approximately US$ 137 million.  On August 4, 2000, Enersis sold to Anglian Water its shareholding in Aguas Puerto, and the transaction resulted in an after-tax gain of approximately Ch$ 20.1 billion for Enersis.

The disposition of Aguas Puerto was justified, from a strategic perspective, by our inability to secure an operating synergy between the electricity and water utility businesses in Chile, given the limitations on overlapping concessions in these services, as imposed by Chilean laws and regulations.

Other Businesses

Our other businesses, Manso de Velasco, Synapsis, and Cam, had operating income of Ch$ 3.8 billion, Ch$ 6.2 billion, and Ch$ 12.4 billion, respectively, for the fiscal year ended December 31, 2002.

Manso de Velasco

Manso de Velasco, our wholly owned subsidiary, develops real estate projects in Chile.  As of December 31, 2002, Manso de Velasco’s principal projects under development included lots of land for residential housing in La Dehesa, a high-income sector of Santiago and a 55% interest in a long-term project involving a 1,050-hectare property near Santiago’s international airport.  In 2002, a total of 15 lots were sold in La Dehesa, plus five very large lots sold for development by third parties.  These figures compare with 14 lots sold in 2001, 36 in 2000, 21 in 1999, and 15 in 1998.  As of December 31, 2002, 94% of the La Dehesa project had been sold.  The real estate business does not form a part of Enersis’ core holdings.  As part of the Financial Strengthening Plan, we plan to divest our interest in Manso de Velasco.

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 0.4% of our consolidated assets as of December 31, 2002 and 2.3% of our consolidated operating income for the year ended December 31, 2002.  In Chile, Cam has developed successfully, on an experimental basis, a communications system using existing power lines, with the objective of providing intermediary communication services to internet service providers.  These services consist in the transmission of information and communications through power lines.

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Because of the components involved in Power Line Communications (“PLC”) technology (electrical & telecommunications systems), in Chile PLC is regulated by two government agencies: Subsecretaría de Telecomunicaciones or “Subtel” (Telecommunications) and the SEF (Electricity).  The Chilean government welcomes new technologies, especially if they increase competition in the telecommunications market.

The usage of the electrical power grid for value added services, like the Internet, has been specifically authorized by the Chilean Superintendency of Electricity and Fuels, or SEF, in 2002.  From the telecommunications regulatory point of view, PLC can operate as a local carrier, similar to a Cable TV network.

Cam has been working closely with the Chilean authorities, keeping Subtel and Chilean Superintendency of Electricity and Fuels, or SEF fully informed.  The Chilean government is in favor of this project because it believes it will foster the development of competition in the telecommunication sector and at the same time place Chile ahead in information technology.  The project is close to obtaining the final regulatory approval.  The feedback from the relevant regulatory agencies has been encouraging, and we expect that the project Enersis PLC will receive the final approvals in the near future.

On May 26, 2003, PLC started an open season process aimed at estimating the potential demand for its services.  The open season is scheduled to end in September 2003. 

Synapsis

Synapsis is a wholly owned subsidiary of Enersis.  Synapsis is engaged in the computer services business.  Synapsis provides support services to our utility business, both in Chile and abroad, and also transacts business with unrelated third parties.  Synapsis is the sole 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, 2002 and 1.2% of our consolidated operating income for the year ended December 31, 2002.

Enersis Results of Operations for the First Quarter of 2003

We recorded a net loss of Ch$ 26.2 billion in the first quarter of 2003, compared to a net profit of Ch$ 16.6 billion recorded for the same period in 2002.  We attribute this loss primarily to the Ch$ 42.3 billion loss of non-operating income principally from our subsidiaries in Brazil and Argentina resulting from the conversion to Chilean GAAP.  The resulting loss for the first quarter of 2003 we believe was mainly the result of the revaluation of the Brazilian real and the Argentine peso in relation to the US dollar and its impact on the structure of monetary assets and liabilities.  We also attribute a portion of the net loss for the period ended March 31, 2003 to a decrease of Ch$ 28.2 billion in net operating income resulting from lower contributions from our Brazilian electricity distributors, Cerj and Coelce.  This decrease in the consolidated operating income was only partially offset by Endesa-Chile’s improved operating income. 

B. Business overview.

Business Strategy

We seek to take advantage of our know-how and market position as the leading utility company in Latin America to:

• expand our coverage to compete in an increasingly regional market in which there is a long-term expectation of significant growth in per capita energy consumption, despite the current regional turmoil;

• enhance our operating margins by significantly reducing the operating costs of our existing businesses;

• maximize our return on investment in our subsidiaries; and

• focus on core competencies by disposing of our interests in non-strategic business lines.

The elements of our strategy are described in greater detail below.

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Continued demographic growth in Latin America to take advantage of an increasingly regional energy market

We intend to continue to experience demographic growth in the Latin 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;

• streamlining and upgrading information systems; and

• operating under a range of tariff and regulatory frameworks that reward efficient operations.

Enhance our operating margin through cost reductions — the Genesis Project 

We introduced the Genesis Project in October 1999 with the aim of obtaining significant cash-flow improvements.  This project is based upon a similar project previously undertaken by our parent company, Endesa-Spain, and is now scheduled to be carried out over the six-year period ending on December 31, 2006. 

Operating improvements:  We are seeking to reduce energy losses at each of our distribution subsidiaries, as well as to improve the productivity of our employees.  We expect to reduce energy losses principally by improving our ability to stop electricity theft over the long term, and to a lesser degree, reduce technical losses as well.  There may be increases in energy losses in our different distribution subsidiaries in any one year, but the trend over the long term is expected to show loss reductions.  Our employee productivity has increased over these years. 

Since December 31, 1998, our consolidated headcount has decreased by 30.3%, or 4,786 employees, from 15,780 in 1998 to 10,994 in 2002.  The personnel reduction through December 31, 2002 has fully met the Genesis Project targets.  Our net distribution ratio, excluding sales to our distribution subsidiary Río Maipo, improved to 6,348 MWh per employee at year-end 2002 from 6,201 MWh per employee at year end 2001 and 5,554 MWh per employee at year-end 2000 from 4,185 MWh per employee at year end 1999, in all four cases using the average employees on a yearly basis.

The New Group concept: We and our subsidiaries are now coordinating our activities on a group basis, rather than as individual companies.  This has led to the expansion of Synapsis to act as the sole provider of information systems to us and all of our subsidiaries, and also to the expansion of Cam, our procurement and services subsidiary, to other South American countries.  Additionally, we are seeking to take better advantage of the purchasing power of the group as a whole.  All of these efforts allow us to take advantages of economies of scale that would not be available to any of the group companies acting individually.

Financial Strengthening Plan

On October 4, 2002, Enersis’ board of directors unanimously approved the Financial Strengthening Plan in order to strengthen our equity base, refinance debt of some of our subsidiaries, sell some of our assets in order to deal with potential short-term liquidity issues and improve our cash flow over a three-year horizon.  Over the next few months, some modifications were made to the original plan, including raising the size of the approved capital increase by US$ 500 million (from US$ 1.5 billion to US$ 2 billion), and a decision to refinance substantially all the bank debt coming due at the Enersis and Endesa-Chile levels, instead of at the subsidiary levels. 

As modified since it was first announced in October 2002, this Financial Strengthening Plan contemplates the following operations:

Refinancing Bank Debt: Most of Enersis’ and Endesa-Chile’s syndicated and bilateral loans were scheduled to mature during 2003 and 2004.  In addition, three of our public bonds would mature between May and December 2003, posing a potential liquidity risk for us as a whole.  The three public bonds were the US$ 170 million 7.3%

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Notes due May 1, 2003, issued in 1996 by Empresa Eléctrica Pehuenche S.A., a majority-owned subsidiary of Endesa-Chile (the “Pehuenche Yankee Bond”), the Endesa-Chile MTN, and the Enersis 2003 Put Yankee Bond.  The Pehuenche Yankee Bond matured in May 2003 and was fully repaid upon its maturity.  As of June 15, 2003, obligations for the Endesa-Chile MTN and Enersis 2003 Put Yankee Bond amounted to approximately US$ 531 million after taking into account that the Endesa-Chile MTN was swapped into dollars, and the current obligation associated with that transaction was approximately US$ 381 million.

Moreover, a substantial portion of Enersis’ and Endesa-Chile’s financial indebtedness was subject to mandatory prepayment triggers (in the event of a loss of “investment grade” status from Standard & Poor’s) and a pricing grid based on each of the respective borrower’s senior unsecured long-term foreign currency Standard & Poor’s debt ratings.  On December 11, 2002, Standard & Poor’s lowered such ratings for both Enersis and Endesa-Chile from “BBB+” to “BBB” as a result of the currency devaluations affecting our Argentine and Brazilian subsidiaries and the reduction in Chilean node prices.  On February 24, 2003, Enersis and Endesa-Chile were downgraded again from “BBB” to “BBB- with a negative outlook”, based primarily on Standard & Poor’s heightened concerns about Enersis’ and Endesa-Chile’s ability to refinance in the midst of difficult market conditions and the deterioration of our investments in Argentina and Brazil.  This downgrade resulted in a 62.5 basis point increase on our interest rate margin.  See “Item 5.  Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”

On May 15, 2003, we refinanced US$ 2.33 billion of Enersis and Endesa-Chile syndicated loans and bilateral credit agreements structured as:

• a US$ 200 million Senior Secured Syndicated Term Loan Facility for Enersis and a US$ 1.388 billion Senior Secured Syndication Term Loan Facility for Enersis, acting through its Cayman Islands Branch (the “Enersis Facility”) each for five years; and

• a US$ 743 million Senior Guaranteed Syndicated Term Loan Facility for Endesa-Chile, acting through its Cayman Islands Branch (the “Endesa-Chile Facility”, and together with the Enersis Facility, the “Facilities”).

The refinancing of bank obligations with the Facilities has allowed Enersis and Endesa-Chile to: (a) make payments for the bond maturities and put option coming due in 2003 for a total of US$ 701 million, (b) lengthen the maturity profile of our debt, (c) allow a greater period of time before amortizing principal payments on our debt and (d) provide better conditions for the planned capital increase process.

On April 16, 2003, immediately after the successful bank refinancing, Standard & Poor’s lifted the “negative outlook” on our ratings and changed the outlook to “stable” for both Enersis and Endesa-Chile.

Capital Increase: On March 31, 2003, at an Extraordinary Shareholders’ Meeting, Enersis’ shareholders approved a capital increase for the equivalent of up to US$ 2 billion.  The capital increase, which commenced on May 31, 2003, will, if successful, allow for the capitalization of all of Endesa-Spain’s loan to Enersis (with a face value of approximately US$ 1.37 billion), the capitalization of Enersis’ local bonds (with a face value of approximately US$ 151 million), as well as the subscription of shares for cash.  All existing shareholders, other than Endesa-Spain, will have two 30-day pre-emptive rights periods in which they are allowed to subscribe their pro rata equity shares, or sell their rights in the market.  Endesa-Spain has exercised its rights on June 2, 2003, and has voluntarily excluded itself from the second pre-emptive rights period.  The new shares to be offered in our capital increase will not be registered with the Securities and Exchange Commission (the “SEC”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act of 1933, as amended.  Enersis’ shareholders approved the removal of the 65% maximum limit that a single shareholder was permitted to own in Enersis.  As a result, Endesa-Spain may increase its equity stake in Enersis to over 65% by the end of 2003.

Endesa-Spain agreed not to exercise any votes during the capital increase period in excess of its previous 65% shareholding as of December 31, 2002.  Endesa-Spain also agreed to vote in favor of reinstituting the 65% shareholding limit should the capital increase be subscribed entirely in such a way that Endesa-Spain ended up with exactly 65% of the issued and outstanding shares of Enersis.  Likewise, Endesa-Spain agreed not to sell or transfer to third parties its rights to subscribe for Enersis’ shares during the capital increase period.  Endesa-Spain also

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agreed that once the debt is capitalized, Endesa-Spain would acquire Enersis shares only in the secondary market in a public tender offer directed to all of Enersis’ shareholders.

Asset Sales: Asset sales are intended to generate net proceeds of approximately US$ 900 million, of which $300 million will correspond to debt that is expected to be deconsolidated.  The proceeds will be used to repay the indebtedness relating to the 2003 bond maturities.  Thus, we intend to repay such obligations as they become due with a combination of cash on hand and the proceeds of asset sales.  As of the date of this annual report, we have sold approximately 75% of our targeted assets.

Planned asset sales include the following:

• electricity distribution company Empresa eléctrica Río Maipo, sold on April 30, 2003 for US$ 203 million, including US$ 33 million in debt;

• real estate company Inmobiliaria Manso de Velasco;

• hydroelectric generation plant Canutillar, sold on April 30, 2003 for US$ 174 million;

• a toll road company, Infraestructura 2000, sold on June 23, 2003 for US$ 55 million.  The final effect of the sale will be to reduce consolidated debt by US$ 220 million; and

• certain transmission assets located in Chile sold on May 30, 2003 for US$ 108 million.

Cash Flow Improvement: Enersis has undertaken a program to boost all its operating and commercial capabilities.  We expect to improve the free cash flow generation by US$ 130 million by December 31, 2005, based on December 2002 figures.  We expect to achieve this goal primarily through cost and capital expenditure reduction and efficiency improvements in our distribution and generation companies through energy and risk management, electricity loss reductions and improvements in collections.

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.  The Genesis Project, as well as the

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Financial Strengthening Plan, have established targets for capital expenditures for each of our principal subsidiary companies.  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 2003 and 2007, we expect to make capital expenditures of approximately Ch$ 1,592 billion in our majority-owned subsidiaries, including Endesa-Chile.  The 5-year credit facilities signed on May 15, 2003 impose some restrictions to each company’s capital investment program.  The table below sets forth the capital expenditures made by our subsidiaries in 2002 and expected capital expenditures for the period 2003-2007.  These expected capital expenditures are in conformity with the restrictions our bank loans place on making capital investments.

	Capital Expenditure
	(in billions of Ch$)
	2002		2003-2007
Electricity Generation
Endesa-Chile (Chile, Argentina, Brazil, Colombia and Peru)		127		535
Electricity Distribution
Chilectra (Chile)		43		206
Río Maipo (Chile) (1)		5		0
Edesur (Argentina)		18		232
Cerj (Brazil)		47		222
Coelce (Brazil)		45		128
Codensa (Colombia)		32		153
Edelnor (Peru)		26		103
Other Businesses		5		13
Total		348		1,592

(1) Río Maipo was sold in March 2003 and no projections were made for the 2003-2007 period.

Electricity Generation

Endesa-Chile had total capital expenditures of Ch$ 127 billion in 2002.  For the period between 2003 and 2007, Endesa-Chile expects to make further capital expenditures of approximately Ch$ 535 billion in currently identified generation projects in Chile, primarily associated with the Ralco hydroelectric power plant, which is scheduled to commence operations during the second half of 2004.

Electricity Distribution

In 2002, Chilectra incurred capital expenditures of Ch$ 43 billion.  Río Maipo’s capital expenditures were Ch$ 5 billion.  The capital expenditures were principally to improve existing distribution facilities and networks.  Chilectra’s and Río Maipo’s capital expenditures were financed through internally generated funds and payments received from customers who are granted access to our Chilean networks as required by law.  Pursuant to the current capital expenditure plan, capital expenditures in Chilectra is expected to be Ch$ 206 billion for the period between 2003 and 2007. 

Edesur incurred capital expenditures of Ch$ 18 billion in 2002, 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$ 232 billion for the period between 2003 and 2007.

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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, 2002, Gener had an installed capacity of 1,439 MW (including Guacolda 304 MW and Eléctrica Santiago 379 MW) of which 83% was thermal electric, and Colbún had an installed capacity of 1,067 MW, of which 35% 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 73.7% 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, 2002, of 182 MW, or 5% of the total installed capacity in the SING.  All of the other generation companies operating in the SING, principally Electroandina (formerly Corporación Nacional del Cobre División Tocopilla), Empresa Eléctrica del Norte Grande S.A. (“Edelnor”), and Norgener S.A., have substantially larger operations than Endesa-Chile in the SING.

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, Pérez Companc 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 10% on average.  Any variation of more

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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 and Río Maipo’s concession areas.

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 expires on September 1, 2087.  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 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, 2002, 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.  Cachoeira Dourada has long-term contracts with CELG.

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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 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 (the “SEF”), and the Ministry of Economy acting through the Comisión Nacional de Electricidad (“NEC”).  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 SING, there are several other isolated and immaterial 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, the dispatch center, or 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

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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.  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. 

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 generators in the spot market.  The principal purpose of a CDEC in operating the dispatch system is to ensure that only the most cost efficiently produced electricity is dispatched to satisfy the aggregate demand.  However, the CDEC also seeks to ensure that every generation company has enough installed capacity and can produce enough electricity to meet the demand of its customers.  Because Endesa-Chile’s production in the SIC is primarily hydroelectric, and therefore its marginal cost of production is generally the lowest in that interconnected system, Endesa-Chile’s electricity 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.  Regulated customers are those with maximum consumption capacity equal to or less than 2 MW.  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.  Wholesale 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

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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 US$.  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%.  In addition, the Chilean Electricity Law requires that the difference between node prices and the average price paid by unregulated customers in the six-month period prior to the date of node price calculation not to exceed 10%.  If node prices do not meet this requirement, they will be adjusted so that such difference will not exceed 10%.  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.

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 Energy is 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, assuming that:

• such year is one of low hydrology conditions; and

• there will be average availability of thermal units during such year. 

For purposes of determining estimated hydroelectric production during low hydrology conditions, annual aggregate energy production of the system during the last 40 years is ranked by year from greatest to lowest, subject to certain adjustments to reflect assumptions as to how the currently prevailing water levels at Lake Laja (the principal reservoir in Chile) and recently constructed hydroelectric plants would have affected production in each of those years.  The amount of aggregate system energy produced in the year ranked closest to the tenth percentile from the bottom of the resulting ranking is used to determine the aggregate system production in a dry hydrology year.  To determine the average availability of thermal electricity units, the CDEC estimates the aggregate energy that can be delivered by existing thermal electricity plants, taking into consideration maintenance and failure periods, based on national and international statistics.  Generation companies whose proportionate share of Firm Energy is less than their contractual sales obligations must purchase, in advance and at negotiated prices, sufficient energy production to satisfy their contractual obligations from generation companies with a proportionate share of Firm Energy in excess of their contractual obligations.  Individual generation companies analyze Firm Energy statistics to determine their pro rata share of Firm Energy, as a tool in determining how best to match their contractual sales obligations with projected energy production in order to achieve optimal operating profits from energy sales.  This definition of “Firm Energy” is relevant only until December 2001.  Subsequent to that date, generation companies are no longer capped at “Firm Energy” for their contracts.  The rulings under the Electricity Law, as amended, replace this concept.

Firm Capacity is the total probable capacity of all generating units in an interconnected system at any point in time, calculated using historical data, statistical analyses and certain assumptions regarding hydrology.  Each CDEC compares Firm Capacity to the maximum anticipated peak demand for capacity at peak hours on the system.  The amount by which the system-wide probable capacity exceeds the maximum anticipated demand at peak hours is prorated for each generating unit in the system based on the installed capacity of 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 company

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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.  The toll is calculated according to a formula pursuant to which the owner of the transmission lines is reimbursed for its investment and operating costs relating to the transmission lines used.  The amount of the specific components of the formula is negotiated between the transmission company and the generation company.  Disputes relating to transmission matters are submitted to an arbitration proceeding in accordance with the Chilean Electricity Law. 

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.

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

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 sub-transmission surcharge, a factor for distribution losses of capacity and energy, and the value added by the distribution network (the “VAD”).  The price for both generation and distribution capacity sold to customers includes an “overlap factor” to reflect the overlap between peak capacity demand for the customer and for the system as a whole.  The sub-transmission surcharge 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.

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The Value Added from Distribution, or 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 (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.  Río Maipo operates as a medium-density company.

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%. 

At the end of 2002, the Chilean SEF informed the exploitation costs and net replacement value (“VNR” in Spanish) with which the NEC calculates the rate of return of the industry.  In this context, the Chilean SEF reduced the allowed operating costs by 7% for Chilectra and 11% for all the other electricity distributors.  In light of these reductions, the other electricity distribution companies presented 21 arguments in the courts around the country, 4 of which were received favorably.  These arguments claim that the resolutions by which the SEF reduced the allowed operation cost of the distribution companies were not well founded.  Consequently the return rate calculation process has been paralyzed. 

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 2004.

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%.

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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 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

The Chilean Congress amended the Chilean Electricity Law, effective as of June 8, 2000, placing severe penalties on deficit generators in the event of prolonged periods of electricity shortages.  Electricity rationing may be enforced by the enactment of a rationing decree which is subject to the prior approval by the NEC and the 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 generators from fines if power shortages are due to severe drought and states that such weather conditions will no longer be considered an event of force majeure.  In addition, the Chilean Electricity Law, as amended, requires that generators compensate consumers during periods of rationing as compared to the law prior to amendment. 

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 generators 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$42 to a maximum of the equivalent of approximately US$5 million.  Companies penalized under the legislation will have the right to appeal but only after they have made a prepayment equal to 25% of the fine.

• Compensatory Payments By Generation Companies.  If the Ministry of Economy issues a rationing decree, generation companies may be required to reimburse final customers for non-supplied energy at failure cost.

• Failure Cost.  Chile’s Electricity Law calls for a “failure cost” to be imposed on generators that cannot meet their contractual commitments to deliver electricity during periods when a rationing decree is in effect.  The failure cost is implemented as an additional amount that must be paid by deficit generators to the surplus generators from whom deficit generators purchase electricity.

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• 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 this date, such services have not been regulated.  It is expected that the NEC will regulate such services in the next tariff setting scheduled for November 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.  In the resolution referred to above it was also stated that such supply (with no contract and for regulated clients) shall be provided at the node price and on a pro rata basis, considering the firm capacity of each generator.

The regulatory authority has announced that the Chilean electricity regulatory framework will be amended in two steps.  The first step will refer to those matters which are needed with more urgency, the “Short Law.”  The second step will refer to the remaining amendments that are needed, the “Long Law.”

The “Short Law”

In May 2002, the executive power sent to Congress a draft of the “Short Law,” which aimed to improve current regulatory aspects so as to promote investments required for transmission and generation in the short- to medium-term, and would entail the following fundamental topics:

• a new methodology concerning compensation to, and expansion of, transmission systems, which would be financed in equal parts among demand and supply for this service;

• regulation on the subject of ancillary services (including frequency regulation, among others);

• adjustment of the node price in relation to the unregulated price, in such a way that the current 10% band would be lowered to 5%, so as to permit regulated prices to be closer to the free market, or unregulated prices;

• regulation of the distribution toll.  The electricity distributors are required to provide service to third parties; and

• a permanent expertise commission will be established to resolve discrepancies that arise in each of the tariff and toll setting processes.

In addition to these subjects, it is possible that while being discussed at the Congressional level, there may be an indication from the executive power that the 10% discount rate prevailing today may be substituted for a variable rate which would take into account such parameters as risk levels, costs of capital and debt, and others.

At the time of this annual report, the Short Law has not yet been promulgated.

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 is Ley Sobre Neutralización de los Residuos Provenientes de Establecimientos Industriales No. 3,133 dating back to 1916, referred to as Law 3,133, which regulates the discharge of liquid industrial wastes, and the Sanitary Code which contains provisions relating to waste disposal, the establishment of industries in areas in which they may affect public health and the protection of water for human consumption.  Regulations under Law 3,133 were published on February 23, 1993.  The regulations provide that no industrial establishment may dispose of

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substances that may pose a risk to irrigation or consumption in any sewer or natural or artificial body of water without prior authorization from the Ministry of Public Works and a favorable determination from the Superintendency of Sanitary Services.  The regulations also mandate governmental approval of any systems that an industrial establishment proposes to use for the purpose of neutralizing or purifying liquid industrial residues.  We do not believe that compliance with Law 3,133 will affect our operations adversely.

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 and authorizes the relevant ministries to establish emission standards.  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. 

Argentina

Industry Structure

Ley Nacional 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 Wholesale Electricity Market (the “WEM”) or by private contracts with certain other market participants.  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 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 average spot price.

The WEM classifies large users of energy into three categories, Major Large Users (“GUMAs” in its Spanish acronym), Minor Large Users (“GUMEs” in its Spanish acronym) and Large Particular Users (“GUPAs” in its Spanish acronym).  Users in each of the three categories may freely negotiate their supply contract prices with generating companies.  GUMAs are all users with a peak capacity demand of at least 1.0 MW and a minimum annual energy consumption of 4.38 GWh.  GUMAs must contract to purchase at least 50% of their demand and purchase the rest in the 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 generators and large consumers;

• provinces which can sell the energy received under royalty rights; and

• foreign companies that are part of import/export energy contracts. 

Dispatch and Pricing

The Argentine electricity dispatch system, like the Chilean system, is designed to ensure that the lowest cost electricity reaches customers.  The National Interconnected System (“NIS”) coordinates the generation, transmission, and distribution of electricity.  Generation companies sell their electricity to distribution companies,

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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. (“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 generators, distributors and by 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. 23,896 of 1990 created the Basin Authority of the Limay, Neuquén and Negro Rivers (the “Basin Authority”).  The Basin Authority is responsible for the administration, control, use and preservation of the basin of the Limay, Neuquén and Negro Rivers, and for the adequate management of related water resources.  The Basin Authority monitors compliance by El Chocón, 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 (“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; and

• require reports on the design, construction, operation, maintenance, use, repair or modification of dams and related structures; and

• any situation which may cause risk to the dam or any death or injury caused by such dams or related structures. 

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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 customers, and also 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 average spot prices in the wholesale electricity market are effective and on which the cost of energy purchased under the pre-privatization power purchase contracts changes. 

The fixed charge or the charge per unit of maximum demand portion of the tariff includes two components:

• the cost of capacity in the wholesale market, adjusted at the beginning of the same three-month period; and

• the distribution component (VAD), which until before the Argentine crisis, was fixed in US$for each class of users, adjusted semi-annually for changes in U.S. wholesale and consumer price indices.

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 at the average spot prices 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 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.

Emergency Measures

As of the date of this annual report, the Argentine electricity regulatory framework is undergoing profound changes, the effect of which is hard to evaluate in terms of long-lasting impacts.  Although Law 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 in this annual report.  In particular, in January 2002, Law No. 25,561 was promulgated, and authorizes the executive power to renegotiate public service concession contracts. 

The enactment of Law No. 25,561 “Law on Public Emergency and Reform of the Exchange Regulations” 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 Law No. 25,561 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 associated with such services.

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During all 2002 and 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 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. 

Electricity Regulatory Changes Prior to Emergency Measures

In 2002, the Secretary of Energy introduced some regulatory measures (Resolutions No. 2, 8 and others) in order to correct the mismatches produced by the devaluation of the Argentine peso and to ensure the normal operation of generation activities.  An important provision, in respect to the calculation of the spot prices, is the recognition of the US dollar as the correct currency of denomination for certain variable costs of production such as liquid fuels, which are tradable goods, some foreign machinery spare parts and long-term maintenance contracts with the equipment suppliers that are denominated in foreign currency.

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. 246/02 that established various regulatory changes.  The following are the more significant measures:

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• 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 generators and traders;

• the acknowledgement of new tax rates that are applied to natural gas, gas oil and fuel transfers as additional costs;

• conditions of the contract market are eased and expanded; and

• the adjustment of forced generation regulations.

On July 18, 2002 Resolution No. 317 of the Secretary of Energy, which supplements Resolution No. 246, increased the capacity payment from 10 Ar$/MW to 12 Ar$/MW in the hours that the capacity is remunerated.

On August 16, 2002 the Economy Ministry enacted Resolution ME No. 308 which governs Decree No. 1090/2002:

• the quality services parameters and fines contained in the Concession Law remained the same, contrary to what the distribution companies have requested;

• the execution of the administrative duties related with breach of contracts, are performed by the Control Entity or the Application Authority;

• in the cases where the distributor reasonably demonstrates that the breach of the contract is due to the impact of the Emergency Public Law, there will be no further administrative proceedings.  The economic sanction will prevail and all demand processes against the concession holder will be suspended.  There is an exception for sanctions that implicates customers compensations, which will continue with their normal course (the latter explain 60% of the total fines);

• in the cases where the concession holder does not reasonably demonstrate that the breach of the contract is due to the impact of the Emergency Public Law, the authority will continue with its own process and will be exempted from including such breach in the renegotiation process that the Renegotiation Commission is undertaking;

• all claims or presentations that are related to the normal operation of the concession and that are directly associated with the subjects that are contained in the renegotiation process will be presented to the Administrative Authority, which will in turn determine whether to forward to the Renegotiation Commission.  The Renegotiation Commission will determine if the claim should be included in the renegotiation process or if another course of action is to be taken; and

• during the renegotiation process, the concession holder that presents a demand in court with respect to the breach of contract will be asked by the Ministry of Economy to withdraw its demand.  If the concession holder persists in its actions, it will be excluded from the renegotiation process.

Finally, on January 2, 2003 the Secretary of Energy enacted Resolution SE No. 1/03 whose principal features are the following:

• the remuneration for generators whose variable costs are higher than the first failure cost step (120 Ar$/MWh) is incremented;

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• a new reserve service is established to ensure availability in areas where shortage of natural gas in winter will be foreseen;

• the reserve service reliability is adjusted to cover the peak time capacity demand;

• the anticipated spot market operation is reestablished for seasonal energy transactions; and

• a transitional process is instituted to identify and manage the high voltage system and distribution expansions and to improve the availability of energy supply.

With respect to generation, the regulatory changes are introduced with the purpose to:

• increase the actual market price transparency to improve the predictability of the generators remunerations and facilitate their decisions; and

• gradually obtain a more stable seasonal price.

With respect to transmission, the regulatory changes are introduced with the purpose to:

• provide 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.

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 (the “Hazardous Waste Law”) and its implementing decree, Decree No. 831/93, 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 831/93, which regulate the disposal of hazardous waste.  We believe that El Chocón and Costanera are in compliance with all material obligations relating to environmental matters. 

Brazil

Industry Structure

Under the present regulatory structure, the electricity industry in Brazil is comprehensively regulated by the União, acting through the MME, which has exclusive authority over the electricity sector through its concessionaire and regulatory powers.  Regulatory policy for the sector is implemented by ANEEL.  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;

• planning, coordinating, executing studies on water resources and the concession of new hydroelectric facilities and definition of optimal use of water resources;

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• 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.

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 (the “GCPS”) and the Grupo Coordenador de Operaçôes Interligadas (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 in which the concession holders and the unregulated consumers participate as members with voting rights and the Ministry of Energy and Mines and the Board of Consumers participate as members with no voting rights.  The main objectives of this entity 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.  The new system abolished utilities’ guaranteed annual real rate of return (“Guaranteed Return”) and the system of uniform electricity rates throughout the country.  The reforms called for automatic inflation tariff adjustments according to a complex multivariable parametric formula.  Law No. 8,631 (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 a financial/economic equilibrium.

In December 1994, the Brazilian government introduced the “Real Plan.”  The Real Plan, specifically in the electricity industry, superseded previous rate setting laws.  Under the Real Plan, rate increases for public utilities due to inflation are no longer granted automatically.  In an attempt to curtail inflation, the Real Plan prohibited price adjustments for periods of less than one year in any and all contracts.  Under the Real Plan, prices are reviewed and corrected on an annual basis.

Deregulation

Brazil’s concessions regulations were replaced by two statutes enacted in 1995, Law No. 8,987 of February 13, 1995 (the “Concessions Law”) and Law No. 9,074 of July 7, 1995 (the “Power Sector Law”).  The Congressional Law and the Power Sector Law gave rise to substantial changes in both the regulations for public service concessions and the rule for renewal and approval of concessions.  The objectives of the new laws 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. 

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 in addition to those which were already privatized (mostly in distribution area).  Such changes attempt to result in the creation of a more competitive electricity industry.

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The former federal government requested recommendations from independent consultants for a restructuring regime in anticipation of the privatization of the Brazilian electricity sector.  Such recommendations were contemplated by Law No. 9648/98 whereby the federal government has determined the creation of a Wholesale Energy Market formed by the generation and distribution companies.  The price offered at the Wholesale Energy Market will be formed according to market conditions.  According to this model, the companies will have a defined contracted capacity until 2003 when such capacity starts to be reduced annually at the rate of 25%.  The first bundle of energy was liberalized in January 1, 2003, previously having been auctioned among generators in September 2002.  The auction had little success, with only 33% of the energy offered successfully auctioned.  The lack of interest was due in part to the decline in 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. 

Currently, unregulated customers are those who demand 3,000 kW or more.  In addition, and in accordance with new measures meant to overhaul the electricity regulatory framework, new rules will be established so that new clients with a demand over 10 MW are encouraged to become unregulated.  There is some uncertainty regarding the status of current regulations and the structure and extent of new regulations that may be adopted. 

Former President Cardoso announced a significant restructuring of the Brazilian power industry.  According to Law No. 10,433, dated as April 24, 2002, the Wholesale Energy Market structure changed to be closely regulated and monitored by ANEEL.  As a result of Law No. 10,433, ANEEL will be responsible for setting Wholesale Energy Market governance rules.  Under the former regime, such rules were primarily established by the market players, subject only to ANEEL’s ratification.  This restructuring seeks to reorganize the electricity system model to allow for continued external investment.

On April 26, 2002, former President Cardoso issued another relevant rule to the sector (Law No. 10,438), with the objective of expanding the emergency energy offer, increasing the alternative energy sources and producing modifications of some important rules to the electricity sector.

We expect that the power industry will be reviewed by Luiz Inácio Lula da Silva’s new administration and that it may be subject to significant changes.

Independent Power Producers (“IPP”) and Self-Producers

The Power Sector Law also introduced the concept of the 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 forth IPPs and self-producers.  Pursuant to such decree, the development of hydroelectric power plants by an IPP or a self-producer requires a concession (awarded following a bidding process) only when the project will generate power in excess of 1 MW in the case of an IPP and 10 MW in the case of a self-producer.  In all other cases, including development of thermoelectric plants, the IPP or self-producer is only required to obtain authorization from, or to register with, ANEEL.  Decree No. 2,003 also provides that concessions and authorizations granted thereunder have terms of 35 and 30 years, respectively, with the possibility of extensions for periods equal to the initial terms. 

As part of the old federal government’s attempt to abolish the monopolies enjoyed by most power companies, the Concessions Law also provides that, upon receiving a concession, IPPs, self-producers, suppliers and consumers will be permitted access to the distribution and transmission systems of all concessionaires, provided that the

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concessionaires are reimbursed for their related costs.  In addition, public companies and other mixed capital companies, as defined in Law No. 8,666 dated June 21, 1993, as amended by Law 9,648/98, will no longer be required to announce a public bid for purposes of contracting electricity supply services from distribution concessionaires, IPPs or self-producers.

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 first tariff revision will be carried out on December 31, 2003 for Cerj and on April 22, 2003, for Coelce, and every five years subsequent to that date for Cerj and every four years for Coelce. 

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 (“VPB”) and those over which management does not have an influence (“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.  For 2003, the annual tariff resetting was 0.5%.

Ordinary Tariff Revision

The energy distribution public service tariffs are recalculated every 5 years for Cerj and every 4 years in the case of Coelce.  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.

During 2003, ANEEL set the rate of return for the distribution assets based on the use of weighted average cost of capital (“WACC”) on a model company, considering efficient capital costs of equity, debt and an efficient leverage level.  The operating and maintenance costs that will be reflected in the tariff will be calculated based on the model company that considers the unique characteristics of the concession area for each distributor.  Finally, the VPA costs incorporate the energy purchase costs that are forecasted for the next regulatory tariff setting year.

Coelce had its first ordinary tariff revision adjustment on April 22, 2003.  For 2003, the ordinary tariff revision for Coelce was 31.3%.  Cerj will have its first ordinary tariff revision adjustment on December 31, 2003.

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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 generators.  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 that takes 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.

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 (“RGR”), a reserve fund designed to provide funds for such compensation to such utilities.  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

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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.  See the discussion of revenues from Cerj, our Brazilian distribution company, in “Item 5.  Operating and Financial Review and Prospects — A.  Operating results.”

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 Regulatory Developments

General Agreement Law of the Electricity Sector

In April 2002, the enactment of Law 10,438 determined the payment of compensations to distribution and generation companies for their loss of revenues that occurred during the rationing in Brazil between June 2001 and February 2002.  The General Agreement Law of the Electricity Sector granted an extraordinary tariff setting (0% for low-income residential customers, 2.9% for other residential, rural and public lighting customers, and 7.9% for the rest) for the period necessary to cover the losses of each company as determined by ANEEL.

The law also established that the federal generators will have to sell at least 50% of their spare energy (after contracts) through public auctions with the remainder sold to the MAE.

It also established a new criterion for the reclassification of low-income residential customers and the goals for the energy supply expansion program.  The eventual higher cost resulting from the application of the new reclassification criteria will be financed by funds originated from the federal public energy auctions and the RGR account, as a tariff subsidy, without affecting the distribution companies.  The financing of the energy supply expansion program, not considered in the ordinary tariff revision, will be provided by the government and other sources of financing with the recognition that the economic financial equilibrium of the companies cannot be altered.

Finally, the law creates incentives for alternative energy sources which will be paid by all customers of the electricity system, in proportion to their consumption levels.

Obligatory Auction by Distributors.

Starting from 2003, the distribution companies are required to contract out their energy demand by means  of public auctions as established in Law 10,438.  Self dealing is allowed for up to 30% of the sales to the captive market.  The differences between the energy contracted and the energy demand can be covered by adjustment contracts as regulated by ANEEL.

Auction Flexibility  and Initial Contract Modifications

As a result of Law 10,438, the federal generators can sell their energy through modifications in the initial contracts, exclusive auctions to final consumers and energy auctions carried out by distribution companies.

Low Income Customers Reclassification Compensations

The tariff benefit granted by Law 10,438 will be financed with funds originated by the additional revenues obtained by the federal generators from the selling of their publicly auctioned energy contracts and funds from the RGR account.

The law also establishes that the potential unregulated customers that do not exercise their option for unregulated tariffs will have to substitute their energy supply contracts for equivalent energy supply contracts, right of connection and usage of the transmission system contracts.

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MAE Settlement

Resolution No. 763, 2002 determines that 50% of the resulting values considering the months between September 2000 and September 2002 to be settled in a period of 30 days and the remaining 50% to be settled after the auditing takes place.  The months of October, November and December of 2002 will be settled in the same sequence.

The settlements for January 2003 and the following months will take place subsequent to the constitution of guarantees.

Normative Value Changes (pass-through rule)

In May 2002, ANEEL enacted Resolution No. 248 which changed the pass-through rule of energy purchases for final consumers, establishing a value equal to 100% of the VN as the pass-through limit.  These changes do not affect the Group’s interests, as the same resolution excludes previously signed contracts from being affected.

Minimum Contract Level Rule

Resolution No. 511 of 2002 establishes that at least 85% of the energy sold by the MAE participants to final consumers must be guaranteed by energy assured from generation facilities or by energy supply contracts with at least two years of  duration in any sub-market and, at least 10% must be guaranteed by energy assured from generation facilities or by bilateral contracts of any duration in any sub-market, totaling 95% of the energy to be sold.

Intercompany Contracts Approval

As of December 2002, contracts between companies of the Group, Cerj-CIEN, Coelce-CIEN, Cerj-Synapsis and Cerj-Cam, were still pending ANEEL approval.  ANEEL approval is required for related company contracts.

The Cerj-Synapsis and Cerj-Cam contracts were approved in March 2003.  The rest of the contracts have already completed their general information and contractual fundamental study stages and are waiting for the final decision. 

There is a risk that even if the distribution companies have provided all the required information to the regulatory entity, these contracts may not be approved or they might be approved with different conditions.  In any of these cases, the companies will have to initiate an administrative or judicial proceeding to challenge these decisions.

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. 142 of 1994 (“Law 142”) provides the broad regulatory framework for the provision of residential public services, including electricity, and Ley No. 143 of 1994 (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;

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• allow access and interconnection to other public service companies, or to their large users; and

• report the commencement of their activities to the appropriate regulatory commission and the Superintendencia de Servicios Públicos Domiciliarios, or the SSPD. 

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 (“CREG”) and other regulatory bodies governing the electricity sector:

• 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 (the “Activities”).  Under this law, any company, domestic or foreign, may undertake any of the Activities.  New companies, however, must engage exclusively in one of the Activities.  Trading can be combined with either generation or distribution.  Companies which were vertically integrated at the time 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.

Effective as of January 1, 2002, the market share of generators, traders and distributors has been be limited as follows:

• a generator may not own more than 25% of the installed generating capacity in Colombia;

• a trader may not account for over 25% of the trading activity in the Colombian National Interconnected System (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, generators may not own more than a 25% interest in a distributor, and vice versa; however, this limitation only applies to individual companies and does not preclude cross-ownership by companies of the same corporate group, nor by its parents, affiliates or subsidiaries.  In 2000, CREG issued Resolution 42 which established that no generator may increase, directly or indirectly, its participation in the Generation Market pursuant to acquisitions or mergers, if the total MW of Net Effective Capacity resulting therefrom exceed the so-called “Capacity Band” as set by CREG.  Through Resolution 5 of 2002, CREG set the Capacity Band at 4,250 MW.  This resolution also includes rules to determine the participation of a company and its investors in the generation, distribution and trading businesses. 

The Ministry of Mines and Energy defines the government’s policies for the energy sector.  Other government entities which play an important role in the electricity industry are:

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• 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. 

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:

• establish the conditions for the gradual deregulation of the electricity sector toward an open and competitive market;

• approve charges for transmission and distribution networks and charges for trading to regulated customers;

• establish methodology for calculating and establishing maximum tariffs for supplying the regulated market;

• establish the operations’ regulations for the planning and coordination of the operation of Colombian NIS;

• establish technical requirements for the quality, reliability and security of supply; and

• protect customers’ rights. 

CREG resolutions do not require Congressional approval.  Law No. 142 of 1994 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 MME 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 Colombian NIS is the electricity system in Colombia with mandatory central dispatch of all plants in excess of 20 MW and optional central dispatch between 10 MW and 20 MW.  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 (the “CND”).  The hourly spot price paid for energy reflects the prices offered by generators in the Bolsa and the respective supply and demand.  Generators connected to the Colombian NIS also receive a capacity charge (the “Capacity Charge”) provided they meet certain conditions established in CREG Resolution 116 of 1996 (“Resolution 116”), as amended, including, among other things, being available and having executed fuel supply contracts in the case of thermal plants.  The capacity charge is calculated pursuant to formulas also included in Resolution 111, as amended. 

Since the creation of the wholesale electricity market in July 1995, relatively stable amounts of energy have been exchanged between generators and between generators and distribution companies, acting in their capacities as traders.  Initially, distribution companies were required to enter into contracts to supply 100% of their regulated market, and although this requirement was gradually reduced, distribution companies have still tended to secure contracts for a large proportion of their market.

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Dispatch and Pricing

The purchase and sale of electricity can take place between generators, distributors acting in their capacities as traders, pure traders (who do not generate or distribute electricity) and unregulated consumers.  There are no restrictions limiting new entrants into the market as long as the participants comply with the applicable laws and regulations.

The principal function of the Bolsa is to allow for the sale of excess energy not committed under contracts and for spot sales of electricity.  Its operations are similar to the electricity pools which operate in England, 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 generators that participate in the Bolsa.  These bids indicate the hourly prices at which the generators are willing to supply electricity and the hourly available capacity for the following day.  Based on this information, the CND following the principle known as “optimal dispatch” (which assumes an infinite transmission capacity through the network) ranks the generators according to their offer price, starting with the lowest bid, thereby establishing on an hourly basis the merit order in which generators would be dispatched in the following day to meet expected demand.  The price in the Bolsa for all generators is set by the costliest generator dispatched in each hourly period under the optional dispatch.  This price ranking system is intended to ensure that national demand, increased by the total amount of energy exported to other countries (international transactions are scheduled to begin March 2003), will be satisfied by the lowest cost combination of available generating units in the country.  Also, the CND realizes 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 generator in the following way:  restricted generators (those whose real generation is lower than optimal dispatch) are charged with the difference, appraised at its offer price; and out-of-merit generators (those whose real generation is greater than optimal 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 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 generators, the difference is appraised with the sum of the offer price and the spot price.  The out-of-merit generators have a maximum cap on the recognized price, in accordance with pre-established values.  This resolution, which is still in force, despite the fact that it had been announced as a temporary measure, has been challenged, and in certain cases, has resulted in legal proceedings initiated by the generators, who consider that the recognized prices do not cover the costs associated with these restrictions.

The dominance of hydroelectric generation and the marked seasonal variations in Colombia’s hydrology result in a high degree of price volatility in the Bolsa.  In order to enhance predictability and mitigate the volatility of spot sale prices, CREG introduced the Capacity Charge, pursuant to Resolution 116, effective December 1, 1997, and valid for ten years, as amended.  The Capacity Charge is a fixed monthly charge intended to be equivalent to the capital costs of an open-cycle gas turbine.  It remunerates generators for the firm capacity made available to the Colombian NIS 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 availability.  The CND can verify a generator’s declared availability and the Superintendency can impose sanctions if the actual availability is lower than the declared availability.  If a generator’s availability is less than the minimum limit during the dry season, between December 1 and April 30 of each year, the generator only receives the Capacity Charge equivalent to its actual availability.  Also, the minimum limit for the rainy season (between May 1 and November 30 of each year) is determined by the lowest value between the minimum limit and the average actual availability during the dry season.

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In 2000, Resolution 111 modified the calculation of the Capacity Charge for generation companies, shifting the balance in favor of thermal generators over hydroelectric generators.  The Capacity Charge of a given power plant is calculated on the basis of the firm energy that could be supplied during a period of drought assuming hydrological conditions that prevailed during the “El Niño” phenomenon that occurred between 1992 and 1994.  Pursuant to Resolution 111 (2000) the capacity charge of a given power plant is calculated 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 generators, distribution companies and traders is composed of:

• a connection charge that underwrites the cost of operating the equipment that links the user to the transmission system, which is not charged if the generator is the owner of the connecting equipment; and

• a usage charge, applicable only to traders, effective January 1, 2002. 

The NTS regulates income for transmission companies by means of a guaranteed annual fixed income, subject to the compliance of certain minimum availability, which is determined by the new replacement value of the networks and equipment existing as of January 1, 2000, and in the case of new projects, by the resulting value of the bidding processes awarded for the expansion of the NTS.  Until 2001, the monthly value required in order to compensate transmission companies within the NTS was allocated as follows: 25% for generators and 75% for NTS traders.  Effective January 1, 2002, such value has been allocated 100% among the traders of the NTS in proportion to the energy demand registered by all of its clients.

According to CREG Resolution 51/98, with the exception of Interconexión Eléctrica S.A.  E.S.P.  (the government-owned transmission company), no company can own more than 25% of the NTS. 

The expansion of the NTS is carried out according to model expansion plans designed by Unidad Planeación Minero-Energética (“UPME”) and pursuant to bidding processes opened to existing transmission companies and new companies, which are handled by the Ministry of Mines and Energy following the guidelines set forth in CREG Resolution 51 of 1998.  According to such Resolution, the construction, operation and maintenance of new projects is awarded to the Company that demands the lowest present value of cash flows needed for carrying out the project.

Distribution

Distribution is defined as the operation of local networks at below 220 kV.  Any user may have access to a distribution network provided the user pays a connection charge.  CREG regulates distribution prices and operations.  Distribution prices should permit distribution companies to recover their reasonable costs, including operating, maintenance and capital costs.  The use of the system charges (“DUOS charges”) for each company is approved by CREG and varies depending on the voltage level.

CREG must calculate DUOS charges for each company.  The methodology set by CREG for establishing charges for a regulatory period of five years ending December 31, 2002 is contained in Resolution 99 of 1997 and is based on the replacement cost of the distribution assets prevailing at the moment the charges are being calculated (the calculation method assumes that the marginal cost for new projects is lower than or equal to the approved average cost, and allows any excess over the average cost to be charged to the users interested in projects that do not meet such condition) and an assumed opportunity cost of capital, as well as operation and maintenance costs.

In June 1998, after the approval of the DUOS charges, CREG issued Resolution 70 (1998), also known as the Distribution Rule.  The latter determined maximum limits on the frequency and duration of service disruptions to distribution company users.  This Resolution, as amended, compels companies to compensate users who suffer disruptions that exceed these maximum limits, valuing energy not delivered at the rationing cost.  Since such quality

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standards became effective, Colombian distribution companies have been claiming that there is not an adequate compensation to distribution companies for providing these quality standards.

During 2002, CREG and electricity distribution companies discussed amendments to the distribution system compensation for the tariff period comprised between January 1, 2003 and December 31, 2007.  On the basis of these discussions, CREG enacted, on December 2002, Resolution No. 082/2002 that determines the compensation for distribution activities for the next tariff period.  The distribution companies have requested the approval of the regulatory charges based on this methodology in December 2002.  Currently, CREG is considering this request.  The new regulatory charges were expected to be approved in May 2003 in line with the Renegotiation Commission’s schedule.  As of June 2003, the tariffs process is still under consideration and probably new tariffs will be enacted in October 2003.  Despite the fact that the current state of these negotiations could lead to improvements in the tariff system (and in particular, higher rates of return and greater acknowledgement of operating, maintenance and administrative costs on the part of the regulator), some public leaders and politicians are asking for public service tariff increases to be capped by an inflation adjustment, or alternatively, an increase in the minimum wage. 

A tariff option, which became effective in January 2002, allows distributors to freeze a fixed level of quality standards, and to recognize physical loss levels equivalent to those of 2001.  As part of the tariff option, there is a 2.4% incremental monthly increase starting in October 2002 and ending in March 2003.  The aim was to minimize the impact of the new tariff increase for the next regulatory period.  These increases will be compensated with the new regulatory charges approved for the next period.  The new rate is 16.1% before taxes for the distribution assets with voltage level less than 57.5 kV.  For assets with voltage levels no less than 57.5 kV, or for Regional Transmission Systems a 14.1% rate before taxes is expected.  This entails a significant increase compared to the former rate which had been fixed at 9%.  The distribution market is divided into regulated and unregulated customer markets.  Customers in the unregulated market are free to contract electricity supplies directly from a generator or distributor, acting in their capacities as traders, or from a pure trader.  Initially, the unregulated customer market consisted of customers with a peak demand of more than 2 MW, which corresponds to approximately 260 large industrial and commercial customers and represents about 5% of the supply market.  This peak demand threshold was reduced to 1 MW as of January 1, 1997, to 0.5 MW as of January 1, 1998, and to 0.1 MW as of January 1, 2000, or a minimum monthly consumption of 55 MWh.  The member countries of the “Comunidad Andina de Naciones,” Venezuela, Colombia, Bolivia, Peru and Ecuador, subscribed through Decisión 536 dated December 19, 2002 a general guideline for sub regional electricity systems interconnections among the above mentioned countries.  Based on this decision, CREG issued Resolution No. 004/2003 on the coordination of the short term operation for international interconnections.  Beginning March 1, 2003, the interconnection between Ecuador and Colombia started functioning.  With this interconnection it is expected that Colombia will export approximately 5.0 GW-day (16% of the total demand in Ecuador).

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.  Trading prices for unregulated users are freely agreed upon by the parties.  Trading to regulated users is subject to a “regulated freedom regime” where the tariffs are set by each trader using the tariff options based on a formula established by CREG in Resolution 31 (1997) for the 5-year period ending on December 31, 2002.  Tariffs are determined pursuant to a combination of:

• general cost formulas given by CREG; and

• individual trading costs approved by CREG for each trader. 

The approved costs are maximum costs.  Thus the traders may set tariffs applying lower costs supported by economic reasons, duly evidenced.  Tariffs include, among others, the costs for the purchase of electricity by the trader, transmission charges, distribution charges and a margin to cover the risks of the activity and the return on the investment. 

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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 2003.

It is possible that some elements of the tariff formula that grant a competitive advantage to independent traders will be corrected, thereby better compensating the trading activities, that segment is up against the same political pressures as described under the Colombian distribution segment.  As such, trading margins could also decrease and the competition in the commercial activity could increase.

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. 

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. 

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 (Supreme Decree No. 005-97-EM), in addition to the supplementary Law 27,699 of Organismo Supervisor de la Inversión en Energía, or OSINERG (the Peruvian regulatory electricity authority), and the regulation for resolution of controversies that arise within this institution (Resolution No. 0826-2002-OS/CD).

Some of the most important characteristics of the regulatory framework 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).

As in Chile, the electricity sector in Peru consists of two main interconnected systems, the central and northern Sistema Interconectado Central-Norte, or the SICN, and the southern Sistema Interconectado Sur, or the SIS, plus several isolated regional and smaller systems which provide electricity to rural areas.  The SICN has the largest installed capacity and supplies electricity to approximately 8.2 million inhabitants.  The SIS, which is being formed by the interconnection of existing small system, supplies electricity to approximately 1.3 million inhabitants in the southeast and southwest of Peru.  As of October 2000, the SICN and SIS systems are connected and form one integrated system, the Sistema Eléctrico Interconectado Nacional, or the SEIN.

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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 SINAC in a manner similar to the CDECs in Chile and prepares the technical and financial study that serves as a basis for the semi-annual busbar (i.e., node) tariff calculations.  However, in Peru each COES consists of generation and transmission companies, whereas in Chile the CDECs include only generation companies. 

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. 

Edelnor is required to supply electricity for public services 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.  Effective December 23, 1999, Law 27,239 modified Article 44 of the Law on Electricity Concessions, and effectively ended the division between electricity sold to public service and that which followed competitive free market conditions.  In both cases, the transmission and distribution tariffs are regulated by OSINERG. 

Transmission

At the transmission level in Peru, transmission lines are divided into principal and secondary systems.  The principal system lines are accessible to all generators and allow electricity to be carried to all customers.  The transmission concessionaire receives tariff revenues and connection tolls reflecting a charge per kW.  The secondary system lines are accessible to all generators, but are used to serve only certain customers, who in turn are responsible for making payments related to their use of the system.

Distribution Pricing

Sales by generation companies to distribution companies of capacity or energy for resale to regulated customers must be made at busbar prices set by OSINERG.  Busbar prices for capacity and energy are published every six months, in April and October, and become effective the first day of May and November, respectively.  Busbar prices are the maximum prices for electricity purchased by distribution companies that can be transferred to regulated customers.  Although these prices are quoted in Peruvian soles, the calculations are mainly effected in US$.  Other conditions of distribution pricing are similar to those in Chile.

The electricity tariff for a customer of the Servicio Público de Electricidad (regulated clients) includes charges for capacity and energy from generation and transmission (busbar prices) and from the VAD which considers a regulated return over capital investments, operating and maintenance fixed charges and a standard for energy distribution losses.

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 our customers 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-5

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represented 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 Spanish) 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 (Typical Sectors or “ST”) which are established by OSINERG based on factors such as energy consumer density or equipment density in the distribution net.  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 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 either:

• a thermoelectric power plant has an installed capacity in excess of 500 kW; or

• a hydroelectric or geothermal power plant has an installed capacity between 500 kW and 10 MW. 

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 of electricity generation activities constitutes an agreement between the generator 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

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regulations and amendments.  In accordance with “national developments,” the ministry currently establishes the priorities to admit new applications for temporal and definitive concessions to be integrated in the interconnected systems.

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.  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 (the “General Office of Environmental Matters”), which is dependent on the Ministry of Energy and Mines, and OSINERG.

Electricity distribution companies are required to have a Programa de Adecuación y Manejo Ambiental (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.  In case no such limits or standards exist according to Peruvian laws, standards established by recognized international organizations (for example, the World Bank) will apply.

Changes to Electricity Law

Currently, the Ministerio de Energía y Minas (the Ministry of Energy and Mines) has summoned regulators, customer representatives and electricity operators who are members of the Comité de Energía de la Sociedad Nacional de Minería, Petróleo y Energía to discuss the “Reform to the Second Generation of the Electricity Sector.”

The agenda for this reform considers the following three broad issues:

1. Issues to consolidate the electricity sector reform:

• confirmation that private investment should play a primary role in the development of this sector and that public investment should play a secondary role on the electrification of rural and isolated areas;

• regulation of the international interconnected electricity systems;

• scope of functions of OSINERG in its dual capacity as regulator and prosecutor;

• mechanisms to facilitate the access of independent generators in the utilization of energy resources and more efficient technologies;

• utilization of hydrological resources; and

• institutional changes to improve the relationship between customers and the system.

2. Issues to improve economic efficiency:

• setting basic prices for energy, its future and concurrent factors;

• review of the qualification of the transmission systems, transmission and sub transmission fees, and of the methodology to determine the VAD;

• analysis of the criteria and methodology used to determine current generation costs versus the adoption of declared costs;

• adjustments on the structure and function of the electricity market to allow access of new agents and products for improving competition;

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• definition of the unregulated customer; and

• improvement of regulations on public lighting.

3. Specific technical issues and procedures such as the system for granting concessions, technical provisions to ensure quality of operations and specific obligations of operators.

A Coordination Committee and three Sub-Committees (for the three issues mentioned above) have been established and have held meetings to review these issues.  Resolutions from these meetings are expected in the medium term.

C. Organizational structure.

Business Divisions

Electricity Generation

We own a 60.0% interest in Endesa-Chile, a publicly-held Chilean electricity generation company.  We acquired our initial 10% ownership interest in Endesa-Chile in 1989, gradually increasing our stake to 25.3% in December 1995.  In May 1999, we purchased an additional 34.7% of Endesa-Chile, giving us a 60.0% beneficial interest, by means of a cash tender offer.  Endesa-Chile had an aggregate installed capacity of 3,935 MW in Chile as of December 31, 2002, 74% of which is hydroelectric, constituting approximately 36.5% of Chile’s total installed generation capacity.  In addition, Endesa-Chile has significant holdings in electricity generation companies in Argentina, Brazil, Colombia and Peru, with a total installed capacity of 3,622 MW in Argentina, 658 MW in Brazil, 2,732 MW in Colombia and 1,003 MW in Peru.  As of and for the year ended December 31, 2002, Endesa-Chile had consolidated assets of Ch$ 6,524.2 billion and consolidated operating income of Ch$ 346.2 billion. 

Electricity Distribution

Distribution in Chile

In Chile, we conduct our electricity distribution business through Chilectra and Río Maipo.  Chilectra, of which we own 98.2%, is the largest electricity distribution company in Chile and, together with Río Maipo, of which we owned 98.7%, served approximately 1.6 million customers in the greater Santiago metropolitan area in 2002, representing nearly half of Chile’s total customer base.  As of December 31, 2002, Chilectra had consolidated assets of Ch$ 1,136.9 billion and Río Maipo had assets of Ch$ 66.2 billion.  In 2002, Chilectra had operating income of Ch$ 87.3 billion and energy sales of 9,952 GWh, and Río Maipo had operating income of Ch$ 10.3 billion and energy sales of 1,274 GWh.  Substantially all of the energy sold by Río Maipo is purchased from Chilectra.  A very small percentage of Río Maipo’s energy  is purchased from AES Gener, one of our generation competitors.

Río Maipo will continue to purchase its energy from Chilectra after we sold it in 2003.  Therefore, Chilectra’s energy sales will not be substantially reduced.  Río Maipo’s energy sales amounted to 1,274 GWh and served 301,553 customers for the year ended December 31, 2002, which corresponds to 13% of our energy sales and 19% of our customers in Chile.  Río Maipo represented 11% of our 2002 operating income from distribution in Chile.

Distribution in Argentina

In Argentina, we own a 65.1% interest in Edesur, one of the largest privatized electricity distribution companies in Argentina in terms of operating revenues.  Edesur serves approximately 2.1 million customers in the greater Buenos Aires metropolitan area and is operated by Chilectra.  As of and for the year ended December 31, 2002, Edesur had consolidated assets of Ch$ 956.2 billion and an operating loss of Ch$ 12.7 billion.  In 2002, Edesur had energy sales of 12,138 GWh.

Distribution in Brazil

In Brazil, we conduct our electricity distribution business through Companhia de Eletricidade do Rio de Janeiro, or Cerj, the second largest electricity distributor in the State of Rio de Janeiro, and Coelce, the sole electricity distributor of the State of Ceará in northeastern Brazil.  Cerj serves 1.8 million and Coelce serves

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2.0 million customers in their respective concession areas.  Both Cerj and Coelce are operated by Chilectra.  We currently own a 71.8% interest in Cerj, after a capital increase occurred in January 2003.  As of and for the year ended December 31, 2002, Cerj had assets of Ch$ 1,225.0 billion and operating income of Ch$ 20.4 billion.  In 2002, Cerj had energy sales of 7,146 GWh. 

In the second quarter of 1998, we acquired our initial interest in Coelce, which is now 29.5%, after a capital increase in Cerj occurred in January 2003.  Our interest in Coelce is held through Investluz, a Brazilian limited liability stock company that owns 56.6% of the capital stock of Coelce of which Cerj holds a 36.4% equity interest.  As of and for the year ended December 31, 2002, Coelce had assets of Ch$ 958.6 billion and operating income of Ch$ 24.0 billion.  In 2002, Coelce had energy sales of 5,558 GWh.

Distribution in Colombia

In Colombia, we own a 22.9% interest in Codensa, an electricity distribution company that was created from the division of the generation and distribution assets of Empresa de Energía de Bogotá S.A.  Codensa serves approximately 1.9 million customers in its service area and is operated by Endesa-Spain.  Our interest in Codensa is held through Luz de Bogotá S.A.  We acquired our ownership interest in Codensa in October 1997.  As of and for the year ended December 31, 2002, Codensa had consolidated assets of Ch$ 1,212.9 billion and operating income of Ch$ 21.4 billion.  In 2002, Codensa had energy sales of 9,015 GWh.

Distribution in Peru

In Peru, we own a 33.4% interest in Edelnor S.A.A., or Edelnor, an electricity distribution company that serves approximately 871 thousand customers in its concession area.  Chilectra is the operator of Edelnor.  We acquired an equity interest in Edelnor in 1994.  We hold our interest through a 54.5% interest in Inversiones Distrilima S.A., or Distrilima, which owns a 60.0% controlling interest in Edelnor.  As of and for the year ended December 31, 2002, Edelnor had consolidated assets of Ch$ 447.1 billion and operating income of Ch$ 32.9 billion.  In 2002, Edelnor had energy sales of 3,872 GWh.

Other Businesses

We also provide engineering and other services and develop real estate through other wholly-owned subsidiaries.  In January 2002 CAM Uno merged into Cam to conform a sole company oriented to provide integrated services to massive public service distributors, which focus on managing large-scale services for public utility companies, and Inmobiliaria Manso de Velasco Limitada, or Manso de Velasco, which continues to develop real estate projects.  As part of the Financial Strengthening Plan, we plan to sell our interests in Manso de Velasco. 

We also engage in the supply of computer-related data processing services and systems through our wholly-owned subsidiary, Synapsis.

In Chile, Cam has developed successfully, on an experimental basis, a communications system using existing power lines, with the objective of providing intermediary communication services to internet providers.  These services consist of the transmission of information and communications through power lines. 

Because of the components involved in PLC technology (electrical & telecommunications systems), in Chile PLC is regulated by two government agencies: Subsecretaría de Telecomunicaciones or “Subtel” (Telecommunications) and the SEF (Electricity).  The Chilean government welcomes new technologies, especially if they increase competition in the telecommunications market.

The usage of the electrical power grid for value added services, like the Internet, has been specifically authorized by the Chilean Superintendency of Electricity and Fuels, or SEF, in 2002.  From the telecommunications regulatory point of view, PLC can operate as a local carrier, similar to a Cable TV network.

Cam has been working close to the Chilean authorities, keeping Subtel and Chilean Superintendency of Electricity and Fuels, or SEF fully informed.  The Chilean government is in favor of this project because it believes it will encourage the development of competition in the telecommunication sector and at the same time give Chile advantage in information technology.  The project is waiting for the final regulatory approval.  The feedback from

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the relevant regulatory agencies has been encouraging, and we expect that the project Enersis PLC will receive the final approvals in the near future. 

On May 26, 2003, PLC started an open season process aimed at estimating the potential demand for its services.  The open season process is scheduled to end in September 2003.

Principal Subsidiaries and Related Companies

The subsidiaries listed in the following table were consolidated by us as of December 31, 2002.  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 above and we no longer have an economic ownership interest in Río Maipo.  All other subsidiaries and related companies have not changed since December 31, 2002.

Principal Subsidiary and Country of Operation	% Economic Ownership of Principal Subsidiary by Enersis			Consolidated Assets of Each Principal Subsidiary on a Stand-alone Basis		Operating Income of Each Principal Subsidiary on a Stand-alone Basis
	(in billions of Ch$ except percentages)
Electricity Generation
Endesa-Chile (Chile)		60.0	%		6,524.2		346.2
CGTF (Brazil) (1)		48.8	%
Electricity Distribution
Chilectra (Chile)		98.2	%		1,136.9		87.3
Río Maipo (Chile)		98.7	%		66.2		10.3
Edesur (Argentina)		65.1	%		956.2		-12.7
Edelnor (Peru)		33.4	%		447.1		32.9
Cerj (Brazil)		62.0	%		1,255.0		20.4
Coelce (Brazil)		27.4	%		958.6		24.0
Codensa (Colombia)		21.7	%		1,212.9		21.4
Other Businesses
Manso de Velasco (Chile)		100.0	%		85.9		3.8
Synapsis (Chile)		100.0	%		25.2		6.2
Cam (Chile)		100.0	%		55.1		12.4

(1) Under construction.

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Business and Subsidiaries Description

Enersis controls subsidiaries engaged in the electricity generation and distribution businesses in Latin 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 subsidiaries and affiliates as of December 31, 2002.

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D. Property, plants and equipment.

Description of Property

As of April 2002, Enersis has relocated to its new corporate headquarters in Santa Rosa 76, Comuna de Santiago, 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 20 electricity generation facilities, all of which it owns.  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, there can be no assurance that such insurance proceeds would be available on a timely basis or be sufficient to affect fully any losses.

As part of the Financial Strengthening Plan launched in October 2002, Endesa-Chile will seek to sell and lease back our corporate headquarters located in Santa Rosa 76, downtown Santiago.

Endesa-Chile also owns 104 kilometers of transmission lines in the SIC.  Endesa-Chile does not believe that insurance coverage for its transmission assets is currently available on commercially acceptable terms.

Endesa-Chile also has investments and controls generating companies in Argentina, Brazil, Colombia and Peru.  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.

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.

Ralco Project

The Ralco project is located in the High Bío Bío River basin some 120 km to the southeast of the town of Los Angeles in Chile, and some 30 km upstream from the Pangue plant.  The Ralco plant, whose installed capacity is 570 MW, is expected to contribute an annual average generation of 3,100 GWh to the SIC.  The Ralco hydroelectric plant is expected to become operational in the second half of 2004.

Regarding the environmental aspects of the project, we are working towards satisfying all requirements and providing all plans and programs set forth in the environmental impact assessment report.  We seek to mitigate and compensate for the environmental impact and to comply with the project’s environmental qualification resolutions

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issued by CONAMA, Chile’s environmental authority.  Compliance with the environmental commitments made by Endesa-Chile has been certified by reports from independent auditors to the authorities concerning both ecological aspects and social and cultural matters.

With respect to the Ralco Project’s relocation plan, the Ayin Mapu and El Barco sites to which families were relocated are indigenous communities under the law.  The Continuity Assistance Plan, which is an important component of the Ralco Project, is fully in force, with various programs to attract participation by the relocated families. 

Endesa-Chile has signed 71 out of 77 property exchange agreements with the relocated families, all of which have been approved by the Corporación Nacional de Desarrollo Indígena (“CONADI”).  These families have already been relocated in the new communities or other remaining sites.  The final six pending agreements are currently under the review of a commission appointed by the Ministry of the Economy.

As a result of a significant increase in the flow of the Bío Bío River, which in turn was brought on by unusually heavy rains, the Ralco cofferdam collapsed on May 27, 2001.  Because of the construction delays caused by this damage the facility is scheduled to commence operations during the second half 2004.  As of March 31, 2003, the Ralco project was 82.4% completed.

Major Encumbrances

The Banco Estado de Chile loan 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.  Endesa Argentina S.A. has pledged 32,338,108 shares of Costanera to SEGBA S.A. and the Secretary of Energy of Argentina, to guarantee the payment of a loan of up to Ch$ 68 billion granted by the Italian government to SEGBA S.A., which has been assumed by Costanera.

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 Raíces of Santa Bárbara.  The value of the pledged equipment was Ch$ 84 billion at December 31, 2002.  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.

On May 15, 2003, Enersis granted 98.23% of the outstanding capital stock of Chilectra as collateral to secure the Enersis Facility, which consists of the US$ 200 million Senior Secured Syndicated Term Loan Facility and the US$ 1.388 billion Senior Secured Syndication Term Loan Facility. 

Each of Celta S.A., Pangue S.A. and Endesa-Chile Internacional jointly and severally guaranteed the payment of all amounts due and payable under the US$ 743 million Senior Guaranteed Syndicated Term Loan Facility for Endesa-Chile (the Endesa-Chile Facility).  In addition, Pehuenche jointly and severally guarantees the payment of up to US$ 185 million under the Endesa-Chile Facility, which guaranteed amount may be increased from time to time during the life of the Endesa-Chile Facility subject to certain conditions and limits.

Item 5. Operating and Financial Review and Prospects

General

An understanding of our results of operations requires an appreciation of the regulatory structure for the generation, distribution and pricing of electricity in Chile, Argentina, Brazil, Colombia and Peru, the principal countries in which we and our related companies operate.  Factors such as the pricing of electricity sales to regulated

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and unregulated customers and in the spot market, the significance of a generation company’s mix of contract and spot market sales and the effect of hydrological conditions on operations are important in determining financial results.  Accordingly, the following discussion should be read in conjunction with our discussion of the regulatory structures of the countries in which we operate in “Item 4.  Information on the Company—Business overview—Electricity Industry Regulatory Framework.” 

Our results have also been influenced by a variety of other factors not directly related to regulatory structures, such as our business strategy, economic conditions in the countries in which we operate, government policies, accounting policies and the effects of competition.  Several of these factors have been particularly significant in recent years, and some of these factors are expected to continue to materially influence our financial results in the future.  The most significant of these factors in recent years are described below.

Expansion of our operations

Our results of operations and financial condition have been significantly affected in recent years by our continued expansion outside Chile in the electricity sectors of Argentina, Brazil, Colombia and Peru.  Through our subsidiaries and related companies outside Chile, we managed approximately 11,950 MW of installed capacity and sold 47,681 GWh in 2002.  Our expansion in the three years ended December 31, 2002 includes:

• in 2002, we acquired an incremental equity interest in Cerj, raising our economic interest in Cerj to 62.0% as of December 31, 2002 and by consequence, to 27.4% in Coelce as of December 31, 2002 (on January 23, 2003, we increased our interest in Cerj to 71.8% and by consequence, to 29.5% in Coelce);

• in 2002, we increased our equity stake in Edelnor, resulting in a new economic interest of 33.4%;

• in 2000, we increased our equity stake in Chilectra, a Chilean distribution company, resulting in our current holding 98.2% in Chilectra; and

• in 2000, we increased our equity stake in Edesur, raising our economic interest in Edesur to 65.1%. 

Price-level restatement and foreign exchange translation

Under Chilean GAAP, we are required to restate non-monetary assets and liabilities, UF and foreign currency-denominated assets and liabilities, shareholders’ equity and income and expense accounts to reflect the effect of variations in the purchasing power of the Chilean peso.  However, under Chilean GAAP we do not restate Chilean peso-denominated monetary assets and liabilities.  Inflation has the effect of diminishing the percentage contribution of a company’s peso-denominated monetary assets to total assets, and also has the effect of reducing the percentage contribution of peso-denominated monetary liabilities to total liabilities.  See note 2(c) to our consolidated financial statements.

Non-monetary assets and liabilities, shareholders’ equity and income and expense accounts are generally restated using the Chilean CPI, based on the “prior month rule” in which inflation adjustments are based on the Chilean CPI at the end of the month preceding the period end.  Monetary assets and liabilities in UF and foreign currencies are restated at the value of the UF and the period-end exchange rates, respectively.

Price-level restatement and exchange difference can have a significant effect on our net income.  The impact of price-level restatement and foreign exchange translation for any period will depend primarily on the amount and composition of foreign currency-denominated monetary assets and liabilities and on the amount of peso-denominated monetary assets and liabilities.  Any mismatch between the amount of assets and liabilities in a foreign currency will generate exchange differences gains or losses, depending upon the amount and the composition of the mismatch and the movement of the applicable exchange rate.  Similarly, any mismatch between the amount of peso-denominated monetary assets, on the one hand, and peso-denominated liabilities and shareholders’ equity, on the other hand, will generate price-level restatement gains or losses, depending upon the amount and the composition of the mismatch, the inflation rate in Chile and the devaluation or appreciation of the Chilean peso. 

Periods of both moderate inflation and depreciation of the Chilean peso against the US dollar will tend to result in a modest amount of price-level restatement for us.  Conversely, the real appreciation or real devaluation of the

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Chilean peso generally leads to a high amount of price-level restatement.  Given the unpredictable nature of the foreign exchange markets and, to a lesser extent, inflation, there can be no assurance that price-level restatement will not adversely affect our net income.

The following table sets forth, for the periods indicated, variations for the CPI, UF and US dollar and the real appreciation (or devaluation) of the Chilean peso against the US dollar:

	Year ended December 31,
	2000			2001			2002
Inflation (year to year)		4.5			2.6			2.8
Inflation (using Chilean CPI “prior month” rule for accounting purposes)		4.7			3.1			3.0
Change in UF (year to year)		4.7			3.1			3.0
Devaluation of Chilean peso vs.  US dollar		8.2			14.1			9.7
Appreciation (depreciation) of the UF in relation to US dollar		(3.3	)		(9.7	)		(6.2	)

The effects of price-level restatement are summarized below:

	Year ended December 31,
	2000			2001			2002
	(in millions of Ch$)
Shareholders’ equity		(38,425	)		(34,756	)		(35,376	)
Property, plant and equipment		102,747			69,607			71,181
Other assets		87,754			88,653			76,154
Current and long-term liabilities		(179,842	)		(126,239	)		(110,992	)
Minority interest		15,247			6,517			5,418
Total balance sheet adjustments		(12,520	)		3,782			6,385
Income statement adjustments (1)		(2,732	)		(1,607	)		(1,421	)
Price-level restatement		(15,251	)		2,175			4,964

(1) These adjustments offset the effect of restating the income statement in constant Chilean pesos.

The effects of exchange differences in each year are set forth below:

Exchange Differences

	Year ended December 31,
	2000			2001			2002
	(in millions of Ch$)
Current Assets		515,496			26,004,447			10,248,930
Non-current assets		35,538,063			82,958,716			34,691,108
Current liabilities		(1,980,018	)		(15,577,468	)		(3,694,796	)
Long-term liabilities		(35,325,263	)		(123,928,347	)		(57,355,489	)
Exchange difference – net loss		(1,251,722	)		(30,542,652	)		(16,110,247	)

Variations in the Chilean peso and US dollar exchange rates also influence our results of operations because our US dollar-denominated and US dollar-indexed revenues and expenses are translated into Chilean pesos in the preparation of our financial statements at the prevailing rates of exchange.

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US GAAP Reconciliation

Our consolidated financial statements have been prepared in accordance with Chilean GAAP, which differs in some significant respects from US GAAP.  You should read Note 34 to our consolidated financial statements for a description of the principal differences between Chilean GAAP and US GAAP and a reconciliation to US GAAP of net income and total shareholders’ equity.

Financial Information with respect to our Subsidiaries

Unless otherwise indicated, all financial information in this annual report relating to our subsidiaries reflects consolidation adjustments.  These adjustments are principally:

• the elimination of revenues from our generation subsidiaries arising from sales made to our distribution subsidiaries;

• the elimination of expenses from our distribution subsidiaries arising from the purchases of energy and capacity from our generation subsidiaries; and

• interest expense associated with loans between related companies.

As a result of these adjustments, financial information with respect to our subsidiaries included in this annual report is materially different from the financial information reported by those subsidiaries in their stand-alone financial statements and the trends exhibited in our subsidiaries’ stand-alone financial information may be materially different from the trends described in this annual report.

Critical Accounting Policies

Financial Reporting Release No. 60, which was recently released 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.  We note that in many cases, Chilean GAAP specifically dictates the accounting treatment of a particular transaction, with no need for management’s judgment in their application.  Additionally, significant differences can exist between Chilean GAAP and US GAAP, as explained in the section entitled “—US GAAP Reconciliation” above.  There are also areas in which management’s judgment in selecting available alternatives would not produce materially different results.  For a summary of significant accounting policies and methods used in the preparation of the financial statements, see Note 2 to our consolidated financial statements. 

The preparation of our financial statements required us to make estimates and judgments that affected the reported amounts of assets and liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities at the date of our financial statements.  Actual results may differ from these estimates under different assumptions or conditions.

Impairment of Long-lived assets

We assess the impairment of our long-lived assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable.  Factors we consider important which could trigger an impairment review include the following:

• significant underperformance relative to expected historical or projected future operating results;

• significant changes in the manner of use of the acquired assets or the strategy for our overall business; and

• significant negative industry or economic trends.

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When we determine that the carrying value of long-lived assets may not be recoverable based upon the existence of one or more of the above indicators of impairment, we evaluate the future cash flows to determine if we need to take an impairment charge.  If the sum of the expected future cash flows (undiscounted) is less than the carrying amount of the assets, we recognize an impairment loss.  In order to estimate future cash flow, we must make assumptions about future events that are highly uncertain at the time of estimation.  For example, we make assumptions and estimates about future interest rates, exchange rates, electricity rate increases and cost trends such as taxes and plant repair and maintenance.  As a result, the actual cash flow may materially differ from our estimate and we may be required to make additional impairment charges or reverse previously made charges.  Long-lived assets amounted to Ch$ 9,879 billion and Ch$ 9,625 billion as of December 31, 2002 and 2001, respectively.

Impairment of Goodwill

We assess the impairment of goodwill in a similar manner as long-lived assets.  The measurement of the impairment loss is based on the fair value of the investment which we generally determine using a discounted cash flow approach and recent comparable transactions in the market.  In order to estimate fair value, we must make assumptions about future events that are highly uncertain at the time of estimation.  The results of this analysis undertaken in 2002 showed that the goodwill and negative goodwill associated with investments in Argentina and Brazil were impaired because estimated future discounted cash flows were not sufficient to recover goodwill and negative goodwill.  Therefore, during 2002, Enersis and certain of its subsidiaries, which held these investments, recorded a net charge of Ch$ 362.2 billion to write-off all amounts of goodwill and negative goodwill, or Ch$ 236.4 billion, net of minority interest. 

Income and Deferred Taxes

In accordance with Chilean law, Enersis and each of its subsidiaries compute and pay tax on a separate basis.  We estimate our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, for tax and accounting purposes.  These differences result in deferred tax assets and liabilities, which are included within our consolidated balance sheet.  As a transitional provision under Chilean GAAP, we recorded a contra asset or liability, offsetting the effects of the deferred tax assets and liabilities not recorded prior to January 1, 2000.  Such contra asset or liability amounts must be amortized to income over the estimated average reversal periods corresponding to the underlying temporary differences to which the deferred tax asset or liability relates calculated using the tax rates in effect at the time of reversal.  We then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent we believe that recovery is unlikely, we establish a valuation allowance.  In order for us to estimate the realizable value of deferred tax assets and the average reversal periods of contra assets or liabilities, we must make assumptions about future events that are highly uncertain at the time of estimation.  For example, we make estimates of future earnings, including estimates of future interest rates, exchange rates, electricity rate increases, and cost trends such as taxes and plant repair and maintenance.  Revisions to the estimated realizable value of deferred tax assets or estimated average reversal periods of contra assets or liabilities could cause our provision for income taxes to vary significantly from period to period.  The net deferred tax liability was Ch$ 9.8 billion and Ch$ 11.9 billion as of December 31, 2002 and 2001, respectively.

Fair value of Financial Derivative Instruments

Enersis’ financial derivative instruments are primarily short duration foreign currency forward exchange contracts to purchase US dollars or € and sell UF and interest swaps and collars and cross-currency swaps.  Enersis records these financial derivative contracts at fair value.  These estimates of fair value include assumptions made by the Company about market variables that may change in the future.  Changes in assumptions could have a significant impact on the estimate of fair values disclosed.  The net liability related to financial derivative instruments was Ch$ 82.5 billion and Ch$ 80.0 billion as of December 31, 2002 and 2001, respectively.

Argentine Peso to US Dollar Exchange Rate

From 1991 to January 2002, the Argentine peso was pegged to the US dollar at a fixed exchange rate of 1 Argentine peso to 1 US dollar.  In early December 2001, restrictions were put in place that prohibited cash withdrawals above a certain amount and restricted foreign money transfers, with certain limited exceptions.  While

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the legal exchange rate remained at 1 peso to 1 US dollar, financial institutions were allowed to conduct only limited activity due to these controls, and currency exchange activity was effectively halted except for personal transactions in small amounts.

In January 2002, the Argentine government announced its intent to create a dual currency system with an “official” fixed exchange rate of Ar$ 1.4 to 1 US dollar for import, and export transactions and a “free” floating exchange rate for other transactions.  On January 11, 2002, the exchange rate market holiday ended, and new “free” floating exchange rates ranged from Ar$ 1.6 to Ar$ 1.7 pesos to 1 US dollar.  On February 3, 2002, the Argentine government issued a decree that (1) eliminated the fixed exchange rate; (2) established one free floating exchange rate for the Argentine peso; and (3) required US dollar-denominated obligations be converted to peso-denominated obligations using mandated conversion rates, depending on the type of obligation.  The market for the floating exchange rate opened on February 11, 2002. 

Our Argentine subsidiaries remeasured their financial statements on December 31, 2001, using the “floating” rate of 1.7 Argentine pesos per US dollar.  We believe this was appropriate because although these companies could conceivably have paid certain liabilities using a rate of 1.4 Argentine pesos per US dollar, under the temporary Argentine law that was in effect until February 3, 2002, it was never our intention to repay any of our debt prior to this date.

The financial statements of our Argentine subsidiaries are remeasured into US dollars for purposes of the preparation of our consolidated financial statements, because under Chilean GAAP, in accordance with Technical Bulletin No. 64, the financial statements of foreign subsidiaries that operate in countries exposed to significant risks (“unstable” countries) and are not considered to be an extension of the parent company’s operations are required to be remeasured into US dollars.  The accounting loss derived from our Argentine subsidiaries included in results of operations as a consequence of the devaluation of the Argentine peso when so remeasured into US dollars was a gain of approximately US$ 3.0 million and US$ 12.9 million net of minority interest as of December 31, 2001 and 2002.  At the date of issuance of the consolidated financial statements, there was uncertainty regarding future changes that could occur in Argentina.  As required under Chilean GAAP, we assumed the Argentine monetary assets and liabilities and revenues and expenses were translated at Ar$ 1.7 and Ar$ 3.37 to the US dollar as of December 31, 2001 and 2002, respectively.  This accounting estimate required us to make assumptions about future events that were highly uncertain at the time of estimation, because the future exchange rate of Argentine pesos to US dollars was uncertain, however the exchange rate has since stabilized.  Our investments in Argentina represent 16.1% and 14.3% of total assets as of December 31, 2002 and 2001, respectively, and 15.0% and 26.9% of total revenues and –0.1% and 21.0% of total operating income for the years ended December 31, 2002 and 2001, respectively. 

Regulatory Asset and Deferred Costs

In accordance with Decree Law No. 14 and Resolution No. 91 of the Council for managing the Electric Energy Crisis (CGCEE), each dated December 21, 2001, and based on Resolution No. 31 of the National Agency of Electric Energy (ANEEL) dated January 24, 2002, Enersis’ distribution subsidiaries in Brazil have recognized as of December 31, 2001, a regulated asset, which will be recovered through extraordinary tariffs in order to recover losses experienced during the period of energy rationing from June 1, 2001 to March 1, 2002.

The regulated 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 2001.  This revenue represents lost revenues resulting from the Program of Emergency Reduction of Electric Energy Consumption (rationing program).  This regulated asset will be recovered through the increase of energy prices, over a period estimated to be three years.  This amounts were confirmed by ANEEL in August 29, 2002.

In order to record this asset as revenue, 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.

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Additionally, certain VPA costs including fuel costs, energy transfer costs, and generator transmission costs amounting to Ch$ 24.0 billion and Ch$ 31.8 were deferred by Cerj and Coelce for the year ending December 31, 2001 and 2002, respectively.  These costs will be recovered through future billings. 

We assume that the regulatory asset and deferred costs will be collected through future billings during the established period of recovery.  As a result, this accounting policy requires us to make assumptions about future events that are uncertain at the time of estimation.

Pension and Post-Retirement Benefits Liabilities

We have significant pension and post-retirement benefit plan liabilities which are developed from actuarial valuations.  Inherent in these valuations are key assumptions including discount rates and expected returns on plan assets.  We are required to consider current market conditions, including changes in interest rates, in selecting these assumptions.  Changes in the related pension and post-retirement benefit net liabilities, may occur in the future in due to changes resulting from fluctuations in our related headcount or to changes in the assumptions.  The net pension and post-retirement liability was Ch$ 122.0 billion and Ch$ 134.4 billion as of December 31, 2002 and 2001, respectively.

Technical Bulletin No. 64

In October 1998, the Chilean Institute of Accountants (Colegio de Contadores de Chile) issued Technical Bulletin No. 64, Accounting for Permanent Foreign Investments.  Technical Bulletin No. 64 differs from the foreign currency translation procedures to which a U.S. investor is accustomed under Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation” issued by the Financial Accounting Standards Board.  See note 34 to our consolidated financial statements for a further description of Technical Bulletin No. 64.  Technical Bulletin No. 64 changes the method used to restate foreign investments, by first translating foreign currency amounts in respect of foreign subsidiaries and investees to US$ at historical rates of exchange (in the case of non-monetary assets and liabilities) and period-end rates (in the case of monetary assets and liabilities) and then translating the US dollar amounts to Chilean pesos at the period-end rate of exchange, and income and expense accounts are translated at average rate of exchange between the US dollar and local currency.  In effect, the foreign investments are adopting the US dollar as their “functional currency”, because the Chilean peso is not considered to be a stable currency.  As a result, where the US dollar is the functional currency, non-monetary assets, such as property, plant and equipment are recorded and depreciation is determined in US dollars.  Therefore, in periods during which the Chilean peso depreciates against the US dollar, the respective carrying values and depreciation expense of our non-monetary assets also increases, which in the long term eliminates the differences between assets recorded using different functional currencies.  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 application of Technical Bulletin No. 64 results in the comprehensive separation of the effects of inflation in Chile (for financial accounting purposes) from the changes in foreign currency translation with respect to our non-Chilean investments.  Under Chilean GAAP, the amount of the net foreign investment as of the opening balance sheet date is price-level restated for the effects of inflation in Chile, thereby increasing net income due to price-level restatement.  Changes in the opening balance sheet balance of the net foreign investment due to movements in the Chilean peso to US dollar exchange rates are recorded net of the effects of price-level restatement mentioned above in shareholders’ equity under the caption “cumulative translation adjustments.”  As a result, during periods when the Chilean peso depreciates in excess of inflation in Chile, compared to the US dollar, shareholders’ equity would increase.  Conversely, during periods in which the Chilean peso appreciates in excess of inflation in Chile, as compared to the US dollar, shareholders’ equity would decrease.

The application of Chilean foreign currency translation standard Technical Bulletin No. 64 with respect to the translation of our non-Chilean operations is part of the comprehensive basis of preparing of price-level adjusted financial statements required by Chilean GAAP.  The inclusion of inflation and translation effects in the financial statements is considered appropriate under the inflationary conditions that have historically affected the Chilean

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economy and, accordingly, have not been eliminated.  In 1999, the Staff of the SEC confirmed that it would not object to the view that adjustments made in accordance with Technical Bulletin No. 64 in respect of investments located in unstable countries are part of a comprehensive basis of adjusting for inflation.  Accordingly, we do not eliminate differences between Technical Bulletin No. 64 and Statement of Financial Accounting Standards (“SFAS”) No. 52 in the reconciliation of our net income or shareholders’ equity to US GAAP.  If Enersis applied SFAS No. 52 instead of Technical Bulletin No. 64, the following significant differences would result:

• As the methodology used to determine both the Company’s and its subsidiaries functional currencies differs under SFAS No. 52, it is probable that the local currency would be considered the functional currency of the Company’s foreign subsidiaries instead of the US dollar.

• Gains or losses related to foreign currency denominated assets and liabilities may vary significantly. 

• Shareholder equity may vary significantly. 

Net Investment Hedge Under Technical Bulletin No. 64

Technical Bulletin No. 64 allows us to designate certain US$-denominated debt as a hedge against our net foreign investments being measured in US$.  The unrealized exchange differences resulting from the translation to Chilean pesos of the foreign investee financial statements and the related hedges are not included in determining net income for the period; rather, such differences are recorded in cumulative translation adjustment, a reserve account as part of shareholders’ equity.  For the years ending December 31, 2002 and 2001, the effect of unrealized exchange differences for net investments resulted in an unrecorded gain of Ch$ 96.5 billion and Ch$ 133.1 billion, the effect of unrealized exchange differences for US$-denominated debt resulted in an unrecorded loss of Ch$ 75.9 billion and Ch$ 113.2 billion, or a net unrecorded gain of Ch$ 20.6 billion and Ch$ 19.9 billion, respectively.  As of December 31, 2002 and 2001, the cumulative translation adjustment was Ch$ 45.7 billion and Ch$ 25.1 billion, respectively.

A. Operating results.

Enersis Results of Operations for the Years Ended December 31, 2002 and 2001

Overview

Our 2002 results, when compared to those of 2001, were mainly affected by the following factors:

• our operating income amounted to Ch$ 532.7 billion in 2002, which represents a decrease of Ch$ 221.9 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$ 796.5 billion in 2002, which was Ch$ 291.4 billion higher than non-operating expenses of Ch$ 505.1 billion in 2001, largely explained by a total amount of US$ 387 million in accounting adjustments in 2002, which didn’t occur in 2001. 

The purpose of the extraordinary adjustments described above was to properly reflect the value of our goodwill.  These adjustments are in accordance to Chilean GAAP and have been applied for the first time in accordance with long-lived asset impairment test on our financial statements.  The adjustments relate to the acceleration of 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.

Revenues from operations

Our revenues from operations are derived principally from electricity generation and distribution.  Generation revenues are derived principally 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 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

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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 our revenues from operations and the percentage change from period to period.

	Year ended December 31,
	2001			2002			% Change
	(in millions of Ch$)
Electricity distribution subsidiaries (Chile)		390,265			418,041			7.1	%
Non-electricity subsidiaries (Chile)		97,091			49,086			-49.4	%
Total revenues from operations (Chile) excluding Endesa-Chile		487,356			467,127			-4.2	%
Edesur (Argentina)		599,372			199,479			-66.7	%
Distrilima/Edelnor (Peru)		189,080			203,634			7.7	%
Cerj (Brazil)		376,867			345,161			-8.4	%
Investluz/Coelce (Brazil)		247,524			227,725			-8.0	%
Luz de Bogotá/Codensa (Colombia)		316,932			318,038			0.3	%
Enersis Energía (Colombia)		6,104			0			-100.0	%
Total revenues from operations (excluding Endesa-Chile)		2,223,235			1,761,164			-20.8	%
Endesa-Chile		1,045,279			938,099			-10.3	%
Less: intercompany transactions		(209,134	)		(213,390	)		2.0	%
Endesa-Chile (net of consolidating eliminations)		836,145			724,709			-13.3	%
Total revenues from operations		3,059,380			2,485,873			-18.7	%

Revenues from the operations of our Chilean distribution subsidiaries, Chilectra and Río Maipo, increased by Ch$ 27.8 billion, or 7.1%, to Ch$ 418.0 billion in 2002 from Ch$ 390.3 billion in 2001.  This increase in revenues was primarily attributable to a 3.5% increase in energy sold to 9,857 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 2.4% increase in the number of customers, and a 1.0% increase in per capita consumption.  The 3.5% 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. 

Revenues from the operations of our non-electricity Chilean subsidiaries decreased by 49.4% to Ch$ 49.1 billion in 2002 from Ch$ 97.1 billion in 2001.  This Ch$ 48.0 billion decrease in 2002 is explained primarily by a decline of Ch$ 31.1 billion attributable to our service and procurement company, Cam, and to a Ch$ 16.3 billion decrease associated with our computer services company, Synapsis. 

Revenues from operations for our Argentine electricity distributor, Edesur, decreased by 66.7% to Ch$ 199.5 billion in 2002, from Ch$ 599.4 billion in 2001.  This decrease is explained by a 63.4% decrease in our Argentine distribution tariff, driven primarily by the devaluation of the Ar$, which started 2002 at 1.70 per US$ and ended the year at 3.37 per US$.  At the same time, tariffs were frozen in Ar$.  Also, physical energy sales, excluding transmission sales, decreased by 5.4% to 9,697 GWh in 2002 from 10,250 GWh in 2001.  Excluding the effect of the transmission sales, the 5.4% decrease in physical energy sales was attributable to a 5.1% decline in per capita consumption, and a decline of approximately 6,700 customers in southern Buenos Aires. 

Revenues from operations of Distrilima, our Peruvian company that consolidates the electricity distribution company Edelnor, increased 7.7% to Ch$ 203.6 billion in 2002 from Ch$ 189.1 billion in 2001.  This increase is attributable primarily to a 6.3% increase in average electricity distribution tariffs and a 7.1% increase in physical energy sales.  The increase in physical energy sales, in turn, is attributable primarily to a 0.5% increase in the number of clients to 871,430, or approximately 4,000 more in 2002 than 2001, combined with a 4.6% increase in per capita consumption.

Revenues from operations of our Brazilian distribution company Cerj decreased by 8.4% to Ch$ 345.2 billion in 2002 from Ch$ 376.9 billion in 2001 while revenues from operations for Coelce decreased by 8.0% to Ch$ 227.8 billion in 2002 from Ch$ 247.5  billion in 2001.  These decreases were attributable to a 9.0% decrease in average

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electricity distribution tariffs for our Brazilian concessions as measured in domestic currency.  In addition, the Brazilian real experienced a devaluation, from 2.31 per US$ in January, 2002 to 3.53 per US$ on December 31, 2002.  Physical energy sales for Cerj increased by 6.0% while those for Coelce increased by 3.8% in 2002 compared to 2001.  On an aggregate basis, our Brazilian distribution subsidiaries increased physical energy sales by 5.1% in 2002 compared to 2001, which is explained by a 5.0% increase in the number of customers together with a 0.1% increase in per capita consumption.

Codensa’s revenues from operations increased by 0.3% to Ch$ 318.0 billion in 2002, from Ch$ 316.9 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%.  Our Colombian energy trading company, Enersis Energía de Colombia S.A., whose original purpose was to market energy to the unregulated market, is no longer operating.  This company had no sales in 2002 compared to sales for 235 GWh in 2001.  This trading company has been closed for several strategic, financial and tax considerations, and the unregulated market has been transferred directly to Endesa-Chile’s generation subsidiary in Colombia, Emgesa.  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. 

Our revenues from Endesa-Chile, our generation business segment, decreased by 13.3%, from Ch$ 836.1 billion in 2001 to Ch$ 724.7 billion in 2002, which accounted for 29.15% of our total revenues from operations.  For a discussion of Endesa-Chile’s revenues from operations, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001 — Revenues from operations.”

Total revenues from operations decreased by 18.7%, or Ch$ 573.5 billion, to Ch$ 2,485.9 billion in 2002 from Ch$ 3,059.4 billion in 2001.  Total revenues from non-generation business segments decreased by 20.8% to Ch$ 1,761.2 billion in 2002 from Ch$ 2,223.2 billion in 2001.  The most important revenue increases from our electricity distribution business segment are attributable to Ch$ 27.8 billion from Chilectra and Río Maipo in Chile, and Ch$ 14.6 billion from Edelnor, our Peruvian subsidiary.  The decrease in our revenues from operations from our electricity distribution business segment is explained by a Ch$ 399.9 million decline from Edesur in Argentina, a Ch$ 51.5 million decline from our operations in Brazil, and a Ch$ 5.0 million decline from our Colombian subsidiaries. 

Cost of operations

Cost of operations consists principally of electricity purchases from third parties, salaries, depreciation and amortization, maintenance costs, materials and equipment.

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The table below sets forth the breakdown of costs of operations for 2001 and 2002 and the percentage change from year to year.

	Year ended December 31,
	2001			2002			% Change
	(in millions of Ch$)
Electricity distribution subsidiaries (Chile)		245,301			265,137			8.1	%
Non-electricity subsidiaries (Chile)		106,185			70,788			-33.3	%
Total costs of operations (Chile) excluding Endesa-Chile		351,486			335,925			-4.4	%
Edesur (Argentina)		391,821			178,351			-54.5	%
Distrilima/Edelnor (Peru)		102,850			121,387			18.0	%
Cerj (Brazil)		274,023			303,347			10.7	%
Investluz/Coelce (Brazil)		158,452			163,320			3.1	%
Luz de Bogotá/Codensa (Colombia)		193,690			197,123			1.8	%
Enersis Energía (Colombia)		3,103			0			-100	%
Total cost of operations (excluding Endesa-Chile)		1,475,425			1,299,453			-11.9	%
Endesa-Chile		662,608			555,586			-16.2	%
Less: intercompany transactions		(112,723	)		(124,989	)		10.9	%
Endesa-Chile (net of consolidating eliminations)		549,885			430,597			-21.7	%
Total cost of operations		2,025,310			1,730,050			-14.6	%

Total cost of operations decreased by 14.6% to Ch$ 1,730.1 billion in 2002, from Ch$ 2,025.3 billion in 2001.  This Ch$ 295.3 billion decline in our costs of operations is attributable primarily to Ch$ 213.5 billion in lower costs associated with Edesur, Ch$ 119.3 billion in lower costs from our Chilean generation subsidiary Endesa-Chile, and Ch$ 35.4 billion in lower costs from our non-electricity subsidiaries in Chile, partially offset by incremental costs of Ch$ 29.3 billion in Cerj, Ch$ 19.8 billion associated with our Chilean subsidiaries, and to a lesser extent higher costs attributable to Edelnor in Peru and Coelce in Brazil. 

Chilean electricity distribution-related costs of operations from our subsidiaries Chilectra and Río Maipo increased by 8.1% to Ch$ 265.1 billion in 2002 from Ch$ 245.3 billion in 2001.  This increase of Ch$ 19.8 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. 

Non-electricity related Chilean subsidiaries recorded operating costs of Ch$ 70.8 in 2002, a decrease of Ch$ 35.4 from 2001.  This decrease is explained primarily by reduced maintenance costs of Ch$ 36.7 billion associated with our service and procurement subsidiary Cam, partially offset by higher depreciation expense of Ch$ 0.8 billion and higher salary expense of Ch$ 0.5, respectively, for the two years under comparison. 

Costs of operations for Edesur, our Argentine distribution company, decreased by 54.5% to Ch$ 178.4 billion in 2002, from Ch$ 391.8 billion in 2001, mainly due to a 65.2% decrease in the cost of energy purchased 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 from 1.70 to 3.37 per US$ 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. 

Costs of operations for Distrilima, the Peruvian company that consolidates the electricity distribution company Edelnor, increased by 18.0% to Ch$ 121.4 billion in 2002 from Ch$ 102.5 billion in 2001.  Energy purchases increased by 4.6%, compared to 2001 and the cost of energy purchased increased by 7.6% in 2002 compared to 2001, partially offset by lower physical energy losses of 8.5% in 2002 compared to 8.9% in 2001. 

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Costs of operations for Cerj, one of our Brazilian distribution subsidiaries that operates in the area of Rio de Janeiro, increased by 10.7% to Ch$ 303.4 billion in 2002, from Ch$ 274.0 billion in 2001.  Costs of operations of our other Brazilian distribution subsidiary, Coelce, operating in the northeast State of Ceará, increased by 3.1% to Ch$ 163.3 billion in 2002, from Ch$ 158.5 billion in 2001.  The two main reasons for the increased costs were that energy purchases for our Brazilian distribution companies increased by 435 GWh, or 2.9%, to 15,307 GWh in 2002 from 14,872 GWh in 2001, and the average cost of our electricity purchased in Brazil increased by 2.8%.  The Brazilian real devalued from 2.31 to 3.53 per US$ during 2002.  Energy losses at Coelce were slightly reduced from 13.0% in 2001 to 12.9% in 2002 and to a lesser extent at Cerj 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.

Costs of operations associated with our Colombian electricity distribution company, Codensa, increased by Ch$ 3.4 billion, or 1.8%, to Ch$ 197.1 billion in 2002 from Ch$ 193.7 billion in 2001.  Although the average cost of electricity purchased in Colombia decreased by 0.3% between 2001 and 2002, this was offset by a 2.4% increase in energy purchased, and a decrease in physical energy losses to 10.3% in 2002 from 11.8% in 2001.  Although energy purchased increased by 2.4%, energy sold by our Colombian companies increased by more than that amount (a 3.9% increase in 2002 compared to 2001), explained by the successful reduction in physical energy losses.

As a result of our phasing out of Enersis Energía, we had no operating costs associated with this activity in 2002, compared to cost of operations of Ch$ 3.1 billion in 2001.  Such costs were transferred directly to Emgesa.

As a result of all the foregoing, our cost of operations, except for those attributable to our generation segment, decreased by 11.9% to Ch$ 1,299.5 billion in 2002 from Ch$ 1,475.4 billion in 2001.

For a discussion of Endesa-Chile’s cost of operations, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001 — Cost of operations.”

Administrative and selling expenses

Administrative and selling expenses consist principally of salaries, provisions for doubtful accounts, marketing expenses, equipment depreciation and rentals, and insurance.

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
	(in millions of Ch$)
Electricity distribution subsidiaries (Chile)		21,040			19,653			-6.6	%
Non-electricity subsidiaries (Chile)		31,359			32,452			3.5	%
Administrative and selling expenses (Chile) excluding Endesa-Chile		52,399			52,105			-0.6	%
Edesur (Argentina)		71,411			30,585			-57.2	%
Distrilima/Edelnor (Peru)		16,293			14,437			-11.4	%
Cerj (Brazil)		32,035			21,410			-33.2	%
Investluz/Coelce (Brazil)		44,048			36,848			-16.3	%
Luz de Bogotá/Codensa (Colombia)		28,400			32,496			14.4	%
Enersis Energía (Colombia)		261			15			-94.3	%
Total administrative and selling expenses (excluding Endesa-Chile)		244,847			187,896			-23.3	%
Endesa-Chile		34,696			36,289			4.6	%
Less: intercompany transactions		(18	)		(1,007	)		5494.4	%
Endesa-Chile (net of consolidating eliminations)		34,678			35,282			1.7	%
Total administrative and selling expenses		279,525			223,178			-20.2	%

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Total administrative and selling expenses decreased by 20.2% to Ch$ 223.2 billion in 2002 from Ch$ 279.5 billion in 2001 due largely to the decreases in administrative and selling expenses of Edesur and Cerj.

Chilean administrative and selling expenses for our electricity-related distribution subsidiaries decreased by Ch$ 1.4 billion in 2002, or 6.6%, whereas such expenses increased by Ch$ 1.1 billion in 2002 for our Chilean non-electricity subsidiaries.  Total Chilean administrative and selling expenses remained almost unchanged in the two yearly periods, with a 0.6% reduction to Ch$ 52.1 billion in 2002 from Ch$ 52.4 billion in 2001. 

Our distribution companies recorded lower expenses principally as a result of the devaluation of the Argentine peso and to a lesser extent, the depreciation of the Brazilian real.  As a percentage of Chilean revenues in the electricity-related distribution subsidiaries, administrative and selling expenses decreased from 5.6% in 2001 to 4.9% in 2002.

Argentine administrative and selling expenses decreased by 57.2%, or Ch$ 40.8 billion, from Ch$ 71.4 billion in 2001 from Ch$ 30.6 billion in 2002.  As a percentage of operating revenues, Edesur’s expenses increased to 15.3% in 2002 from 11.9% in 2001. 

Peruvian administrative and selling expenses decreased by 11.4% to Ch$ 14.4 billion in 2002 from Ch$ 16.3 billion in 2001 because of a recovery of uncollectible accounts. 

Administrative and selling expenses of Cerj, one of our Brazilian distribution companies, decreased by 33.2% to Ch$ 21.4 billion in 2002 from Ch$ 32 billion in 2001.  As a percent of operating revenues associated with Cerj, such administrative and selling expenses decreased to 6.2% in 2002 from 8.5% in 2001.  Administrative expenses of Coelce, another Brazilian distribution company, decreased by 16.3% to Ch$ 36.9 billion in 2002 from Ch$ 44.1 billion in 2001. 

Total administrative and selling expenses associated with our Colombian distribution and trading companies increased by 13.4% to Ch$ 32.5 billion in 2002 from Ch$ 28.7 billion in 2001.  As a percentage of our Colombian revenues, the ratio deteriorated to 10.2% in 2002 from 8.9% in 2001.

For a discussion of Endesa-Chile’s administrative and selling expenses, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001 — Administrative and selling expenses.”

Operating income

The table below sets forth the breakdown of operating income for 2001 and 2002 and the percentage change from year to year.

	Year ended December 31,
	2001			2002			% Change
	(in millions of Ch$)
Chile (excluding Endesa-Chile)		83,471			79,097			-5.2	%
Argentina		136,140			(9,457	)		-106.9	%
Peru		69,937			67,810			-3.0	%
Brazil		115,833			47,961			-58.6	%
Colombia		97,582			88,404			-9.4	%
Total operating income (excluding Endesa-Chile)		502,963			273,815			-45.6	%
Endesa-Chile		347,975			346,224			-0.5	%
Less: intercompany transactions		(96,393	)		(87,394	)		-9.3	%
Endesa-Chile (net of consolidating eliminations)		251,582			258,830			2.9	%
Total operating income		754,545			532,645			-29.4	%

Total operating income decreased by 29.4% to Ch$ 532.7 billion in 2002 from Ch$ 754.6 billion in 2001.  This reduction was primarily driven by Edesur, which accounted for a Ch$ 145.6 billion decrease (to an operating loss of Ch$ 9.5 billion in 2002 compared to operating income of Ch$ 136.1 billion in 2001), and our Brazilian distribution subsidiaries, whose operating income decreased to Ch$ 48.0 billion in 2002, a Ch$ 67.9 billion decrease in

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comparison to operating income of Ch$ 115.9 billion in 2001.  To a lesser degree, consolidated operating income also decreased from our distribution subsidiaries in Colombia and Chile, partially offset by an increase in operating income from our generation company Endesa-Chile. 

For a discussion of Endesa-Chile’s operating income, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001 — Operating income.” 

Total non-operating income (expense)

	Year ended December 31,
	2001			2002			% Change
	(in millions of Ch$)
Interest income (1)		3,202			12,863			301.7	%
Equity in income of related companies (1)		(325	)		(281	)		-13.5	%
Goodwill amortization (1)		(58,724	)		(182,006	)		209.9	%
Interest expense (1)		(155,614	)		(135,472	)		-12.9	%
Price-level adjustment (1)		(18,201	)		(14,700	)		-19.2	%
Other non-operating income (expense), net (1)		43,417			18,300			-57.9	%
Non-operating income (expense) Edesur (Argentina)		9,351			(13,220	)		n/a
Non-operating income (expense) Distrilima/Edelnor (Peru)		(8,056	)		(1,197	)		-85.1	%
Non-operating income (expense) Cerj (Brazil)		(43,824	)		41,556			n/a
Non-operating income (expense) Investluz/Coelce (Brazil)		(37,564	)		(214,915	)		472.1	%
Non-operating income (expense) Luz de Bogotá/Codensa and Enersis Energía (Colombia)		6,407			(2,119	)		n/a
Total non-operating income (excluding Endesa-Chile)		(259,931	)		(491,191	)		89.0	%
Non-operating income (expense) Endesa-Chile		(247,798	)		(313,425	)		26.5	%
Less: intercompany transactions		2,642			8,086			206.1	%
Endesa-Chile (net of consolidating eliminations)		(245,156	)		(305,339	)		24.5	%
Total non-operating income (expense)		(505,087	)		(796,530	)		57.7	%

(1) Includes Enersis’ consolidated non-operating income (expense) except for companies included in this table.

Total non-operating expense increased by 57.7% to Ch$ 796.5 billion in 2002 from Ch$ 505.1 billion in 2001.  This increase is attributable primarily to the increase of Ch$ 123.3 billion in our goodwill amortization, a Ch$ 177.4 billion increase in non-operating expenses of Coelce, and the Ch$ 60.2 billion increase in Endesa-Chile non-operating income, all related to goodwill amortization.  This goodwill amortization increase is related to the write-off of the net balance of negative and positive goodwill investments in distribution and generation located in Argentina and Brazil as a result of our decision to write-off the full amount of our investments in those countries undergoing economic turmoil.  For a discussion of Endesa-Chile’s total non-operating income (expense), see “— Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001 —Non-operating results —Goodwill amortization.”  Excluding Endesa-Chile, our non-operating expenses decreased by Ch$ 60.2 billion in 2002 in relation to 2001.

For 2002, we accounted for Ch$ 20.1 billion in lower interest expense, net of interest income, compared to 2001.  Among other reasons, this reduction is partly due to lower interest rates in the international markets with respect to the previous year. 

Price-level adjustment expenses at the Enersis level decreased by Ch$ 3.5 billion in 2002, to Ch$ 14.7 billion in 2002 to Ch$ 18.2 billion in 2001.  The decrease in 2002 is primarily attributable to the nominal devaluation of 9.8% of the Ch$ against the US$ in 2002, compared to a devaluation of 14.1% the previous year.  The lower the depreciation of the UF , or the inflation adjusted peso, against the United States dollar, the lower the non-operating losses due to debt denominated in that currency.  A large percentage of our dollar denominated debt is hedged, which compensates for fluctuations in the Ch$/US$ exchange rate. 

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Other non-operating expenses, net of other non-operating income mentioned in separate line-items decreased by 57.9% to Ch$ 18.3 billion in 2002 from Ch$ 43.4 billion in 2001.  This difference is primarily explained by provisions of Ch$ 16.6 billion made during 2002 for ongoing real estate projects and lower profits booked during 2002 of US$ 24.4 million, due to the one-time Yankee Bond repurchase made by Enersis and Endesa-Chile in November 2001.  These non-recurring losses and higher expenses in 2002 were partially offset by Ch$ 10.8 billion in gains, net of losses, in our forward contracts.

Edesur’s non-operating expenses amounted to Ch$ 13.2 billion in 2002 compared to a net non-operating income of Ch$ 9.4 billion in 2001.  This is primarily attributable to the increase in interest expenses of Ch$ 11.9 billion, lower interest income of Ch$ 1.9 billion, a negative mark-to-market of Argentine Government Bonds of Ch$ 5.1 billion, and by a decrease of Ch$ 4.3 billion due to the effect of the application of Technical Bulletin No. 64.

Cerj had a net non-operating income of Ch$ 41.6 billion in 2002 compared to a net non-operating loss of Ch$ 43.8 billion in 2001.  This is primarily attributable to the positive effect of the application of Technical Bulletin No. 64, which resulted in a gain of Ch$ 63.4 billion and an increase in interest income of Ch$ 13.3 billion.  Non-operating expenses for Coelce increased by 472.1% to Ch$ 214.9 billion in 2002 from Ch$ 37.6 billion in 2001, primarily as a result of the negative effect of a non-recurring goodwill amortization of Ch$ 214.0 billion in 2002.

Codensa recorded Ch$ 8.5 billion less in non-operating income in 2002 compared to 2001, primarily because of the application of Technical Bulletin No. 64 that resulted in a loss of Ch$ 9.1 billion, and a Ch$ 1.5 billion capital increase of compensation to EEB, partially offset by Ch$ 2.9 billion in additional dividends received from EEB.

Edelnor’s non-operating expenses increased by Ch$ 7.0 billion in 2002, attributable primarily to a received Ch$ 2.6 billion of higher foreign exchange translation expense under Technical Bulletin No. 64, and to a Ch$ 3.5 billion non-recurring expense attributable to payments by Edelnor to the Peruvian Tax Authority in 2001.

For a discussion of Endesa-Chile’s total non-operating income, see “—Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001—Total non-operating income (expense).” 

Net income

	Year ended December 31,
	2001			2002
	(in millions of Ch$)
Operating income		754,544			532,644
Non-operating income (expense)		(505,087	)		(796,530	)
Income before income taxes, minority interest and amortization of negative goodwill		249,457			(263,886	)
Income taxes		(129,850	)		(66,017	)
Minority interest		(125,153	)		16,283
Amortization of negative goodwill		47,700			112,248
Extraordinary items		—			(22,376	)
Net income		42,154			(223,748	)

Income (loss) before income taxes, minority interest and amortization of negative goodwill decreased by Ch$ 513.3 billion to Ch$ (263.9) billion in 2002 from Ch$ 249.5 billion in 2001.  Income taxes decreased by Ch$ 63.8 billion as a result of lower 2002 income.  Minority interest expense related to that portion of consolidated subsidiaries that were not wholly-owned increased by Ch$ 141.4 billion.  As a result of all of the aforementioned, net income (loss)  was Ch$ (223.8) billion in 2002 compared to a net income Ch$ 42.2 billion in 2001.  A substantial portion of the loss is attributable to the increase in the amortization related to the acceleration of the net balance of negative and positive goodwill investments in distribution and generation located in Argentina and Brazil.  From an operating income perspective, the ratio of operating income to consolidated revenues decreased from 24.7% in 2001 to 21.4% in 2002.

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Enersis Results of Operations for the Years Ended December 31, 2001 and 2000

Overview

In comparing the three years ending December 31, 2001, it is important to keep in mind that there were important account reclassifications in 2001 in our retroactive comparison to 2000.  Therefore, the analysis comparing 2001 and 2000 will show significant variations in certain accounts for the year 2000 in relation to the analysis of 2000 when compared to 1999.  The more significant changes affecting this analysis are the following:

• For our Brazilian distribution subsidiaries, Cerj and Coelce, there is an additional tax, the so-called “Reserva Global de Reversión,” which is now being passed through, and therefore both revenues and costs of operations have increased by those same amounts, Ch$ 3.4 billion for Cerj and Ch$ 3.3 billion for Coelce.  Therefore, revenues and costs of operations increased by a total of Ch$ 6.7 billion.

• For these same Brazilian subsidiaries, a fuel expense which was previously reflected in “Administrative and Selling Expenses” is now being more accurately reflected in “Costs of Operations” instead.  In the case of Cerj, this represents a Ch$ 18.3 billion increase in Costs of Operations and an identical decrease in Administrative and Selling Expenses.  In the case of Coelce, the restated amount for the identical concept is Ch$ 6.6 billion.  Therefore, in the aggregate, Costs of Operations are higher by Ch$ 24.9 billion and Administrative and Selling Expenses are lower by that same amount.

We believe that the aforementioned accounting reclassifications better reflect the nature of the accounting entries, and lead to an improved understanding of our financial statements.

Our 2001 results, when compared to those of 2000, were mainly affected by the following factors:

• Our subsidiaries evidenced a 36.5% increase in operating income, from Ch$ 552.8 billion in 2000 to Ch$ 754.6 billion in 2001.  This was driven principally by the recovery of our generation subsidiary, Endesa-Chile, whose operating income from our consolidated perspective doubled, from Ch$ 125.0 billion in 2000 to Ch$ 251.6 billion in 2001, and that improved performance is largely explained by the end of the drought and the much better hydrological conditions, coupled with prudent commercial planning in long-term contracts.  Our other subsidiaries with strong operating income growth were our Brazilian, Colombian and Chilean electricity distribution subsidiaries.  Although some of our companies reflected higher physical losses, most of the other operating parameters that measure efficiency improved.

• Our non-operating income (expenses), which were Ch$ 335.7 billion lower in 2001, are largely explained by the non-recurrence in 2001 of divestitures made in 2000 of our important assets in electricity transmission (Transelec) and in our former water utilities (Esval and Aguas Cordillera).

Revenues from operations

Our revenues from operations are derived principally from electricity generation and distribution.  Generation revenues are derived principally 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 consist of revenues related to the recovery of the cost of wholesale electricity purchased from electric 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 our revenues from operations and the percentage change from period to period.

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	Year ended December 31,
	2000			2001			% Change
	(in millions of Ch$)
Electricity distribution subsidiaries (Chile)		334,984			390,265			16.5	%
Non-electricity subsidiaries (Chile)		83,236			97,091			16.6	%
Total revenues from operations (Chile) excluding Endesa-Chile		418,220			487,356			16.5	%
Edesur (Argentina)		547,920			599,372			9.4	%
Distrilima/Edelnor (Peru)		170,824			189,080			10.7	%
Cerj (Brazil)		359,189			376,867			4.9	%
Investluz/Coelce (Brazil)		231,891			247,524			6.7	%
Luz de Bogotá/Codensa (Colombia)		301,014			316,932			5.3	%
Enersis Energía (Colombia)		26,596			6,104			-77.0	%
Total revenues from operations (excluding Endesa-Chile)		2,055,654			2,223,235			8.2	%
Endesa-Chile		937,650			1,045,279			11.5	%
Less: intercompany transactions		(236,258	)		(209,134	)		-11.5	%
Endesa-Chile (net of consolidating eliminations)		701,392			836,145			19.2	%
Total revenues from operations		2,757,046			3,059,380			11.0	%

Revenues from the operations of our Chilean distribution subsidiaries, Chilectra and Río Maipo, increased by Ch$ 55.3 billion, or 16.5%, to Ch$ 390.3 billion in 2001 from Ch$ 335.0 billion in 2000.  This increase in revenues is primarily attributable to an increase of 5.3% in energy sold to 9,526 GWh in 2001, combined with a 14.0% increase in the average energy tariffs charged to Chilean customers.  The increase in physical energy sales, in turn, was attributable to approximately 34,000 new customers, or a 2.2% increase to a total of 1,582,592 customers, and to a 3.1% increase in per capita consumption.  The 5.3% increase in energy sold in Chile contrasts well with a GDP growth of 3.1% in 2001, down from 4.2% in 2000. 

Revenues from the operations of our non-electricity Chilean subsidiaries increased by 16.6% to Ch$ 97.1 billion in 2001 from Ch$ 83.2 billion in 2000.  This increase of Ch$ 13.9 billion in 2001 is explained primarily by a Ch$ 26.5 billion increase attributable to our procurement company, Diprel (changed its name to Cam in 2002), and to a Ch$ 5.0 billion increase associated with our computer services company, Synapsis, partially offset by a reduction of Ch$ 22.4 billion in revenues arising from our real estate subsidiary, Manso de Velasco, particularly related to the sale of residential family lots in Santuario del Valle.

Our Argentine electricity distributor Edesur’s revenues from operations increased by 9.4% to Ch$ 599.4 billion in 2001 from Ch$ 547.9 billion in 2000.  Physical energy sales, excluding transmission sales, increased 4.4% to 10,250 GWh in 2001 from 9,818 GWh in 2000.  Taking into account toll-related revenues, our Argentine distribution tariff increased by 9.5%.  Excluding the effect of the transmission sales, the 4.4% increase in physical energy sales was attributable to a 5.0% increase in per capita consumption, partially offset by a decline of approximately 11,800 customers in southern Buenos Aires. 

Revenues from operations of Distrilima, our Peruvian company that consolidates the electricity distribution company Edelnor, increased 10.7% to Ch$ 189.1 billion in 2001 from Ch$ 170.8 billion in 2000.  This increase is attributable primarily to a 11.3% increase in average electricity distribution tariffs and a 2.8% increase in physical energy sales.  The increase in physical energy sales, in turn, is attributable primarily to a 1.8% increase in the number of clients, or approximately 15,000 more in 2001 than 2000, combined with a 1.1% increase in per capita consumption.

Revenues from operations of our Brazilian distribution company Cerj increased 4.9% to Ch$ 376.9 billion in 2001 from Ch$ 359.2 billion in 2000 while those for Coelce increased 6.7% to Ch$ 247.5 billion in 2001 from Ch$ 231.9  billion in 2000.  These increases are primarily attributable to a 24.5% increase in average electricity distribution tariffs for our Brazilian concessions as measured in domestic currency.  A dryer than normal rainy season in Brazil caused reservoirs in southeastern Brazil to fall significantly.  Given the importance of water in Brazil’s supply mix, the Brazilian government imposed a rationing period from June 2001 until March 2002, which affected the southeastern and northeastern regions of the country, where Cerj and Coelce are located.  During the

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rationing period, distribution companies recognized a so-called “regulatory asset” corresponding to the losses caused by the rationing of electricity.  That extraordinary revenue was recognized in December 2001, and takes into consideration future tariff increases.  Physical energy sales for Cerj and Coelce, in the aggregate, decreased by 10.8% in 2001 in relation to 2000.  The number of customer connections in our Brazilian distribution companies increased by approximately 231,000, or 6.8%,  but the per capita consumption decreased by 16.5% because of the rationing of electricity.

Codensa’s revenues from operations increased 5.3% to Ch$ 316.9 billion in 2001, from to Ch$ 301.0 billion in 2000.  This increase is attributable primarily to an average increase in tariffs of 16.1%, offset in part by a 1.2% decrease in physical energy sales.  Our Colombian energy trading company Enersis Energía de Colombia S.A. sold 235 GWh in 2001 compared to 1,075 GWh in 2000.  The decrease in physical energy sold was attributable to a 3.8% decrease in per capita consumption offset in part by a 2.7% increase in the number of customers.  The lower energy consumption in our Colombian companies is primarily attributable to the fact that 256 unregulated clients, with an average monthly consumption of 66 GWh, were transferred as direct clients of our generation company, Emgesa, which began to sell electricity to those final clients without passing through our distribution companies.

Revenues from our Colombian energy trading company, Enersis Energía, decreased by Ch$ 20.5 billion, or 77.0%, to Ch$ 6.1 billion in 2001 from Ch$ 26.6 billion in 2000.  This decrease in revenue is part of an ongoing trend associated with our planned phase out of  our trading company in Colombia.  We decided that we will no longer engage in the energy trading market through Enersis Energía.  Instead, our generation company Emgesa is now servicing these same unregulated clients directly.  The decrease in revenues from this business segment is in direct proportion to the increase in revenues from our Colombian generation company.

Our revenues from Endesa-Chile, our generation business segment, increased by 19.2%, from Ch$ 701.4 billion in 2000 to Ch$ 836.2 billion in 2001.  For a discussion of Endesa-Chile’s revenues from operations, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2001 and 2000 — Revenues from operations.”

Total revenues from operations increased 11.0%, or Ch$ 302.3 billion, to Ch$ 3,059.4 billion in 2001 from Ch$ 2,757.1 billion in 2000.  Total revenues from non-generation business segments increased 8.2%, from Ch$ 2,055.7 billion in 2000 to Ch$ 2,223.2 billion in 2001.  The most important revenue increases from our electricity distribution business segment are attributable to Ch$ 55.3 billion from Chilectra and Río Maipo in Chile,  Ch$ 51.5 billion from Edesur in Argentina, Ch$ 18.3 billion from Edelnor in Peru, Ch$ 17.7 billion from Cerj in Brazil, Ch$ 15.9 billion from Codensa in Colombia, and Ch$ 15.6 billion from Coelce in Brazil.

Cost of operations

Cost of operations consist principally of electricity purchases from third parties, salaries, depreciation and amortization, maintenance costs, materials and equipment.

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The table below sets forth the breakdown of costs of operations for 2000 and 2001 and the percentage change from year to year.

	Year ended December 31,
	2000			2001			% Change
	(in millions of Ch$)
Electricity distribution subsidiaries (Chile)		210,932			245,301			16.3	%
Non-electricity subsidiaries (Chile)		92,740			106,185			14.5	%
Total costs of operations (Chile) excluding Endesa-Chile		303,672			351,486			15.7	%
Edesur (Argentina)		311,859			391,821			25.6	%
Distrilima/Edelnor (Peru)		83,420			102,850			23.3	%
Cerj (Brazil)		288,586			274,023			-5.0	%
Investluz/Coelce (Brazil)		157,891			158,452			0.4	%
Luz de Bogotá/Codensa (Colombia)		196,185			193,690			-1.3	%
Enersis Energía (Colombia)		9,570			3,103			-67.6	%
Total cost of operations (excluding Endesa-Chile)		1,351,183			1,475,425			9.2	%
Endesa-Chile		637,296			662,608			4.0	%
Less: intercompany transactions		(93,444	)		(112,723	)		20.6	%
Endesa-Chile (net of consolidating eliminations)		543,852			549,885			1.1	%
Total cost of operations		1,895,035			2,025,310			6.9	%

Total cost of operations increased 6.9% to Ch$ 2,025.3 billion in 2001 from Ch$ 1,895.0 billion in 2000.  This increase in costs of operations of Ch$ 130.3 billion is attributable primarily to Ch$ 80.0 billion in higher costs associated with Edesur, Ch$ 47.8 billion in higher costs from our Chilean non-generation subsidiaries, and Ch$ 19.4 billion incremental costs from Edelnor, partially offset by cost reductions of Ch$ 14.6 billion in Cerj and Ch$ 9.0 billion associated with our Colombian subsidiaries.  Endesa-Chile, on the other hand, accounted for a Ch$ 6.0 billion increase in 2001 in relation to the prior year.

Chilean electricity distribution-related costs of operations related to our subsidiaries Chilectra and Río Maipo increased 16.3% to Ch$ 245.3 billion in 2001 from Ch$ 210.9 billion in 2000.  This increase of Ch$ 34.4 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 5.7%, or 531 GWh, while the average cost of energy purchased increased by 28.2%.  Physical energy losses for Chilectra increased marginally, from 5.2% in 2000 to 5.4% in 2001, while those for Río Maipo increased from 5.4% in 2000 to 6.4% in 2000.  The higher losses in Río Maipo are attributable to an increase in theft of energy in that concession.  According to a poll conducted by Casen, seven of the eleven counties within our Río Maipo concession experienced an increase in unemployment as a consequence of the prolonged economic downturn, and there is usually a high correlation between increasing energy theft levels and increasing unemployment. 

Costs of operations of our non-electricity related Chilean subsidiaries increased 14.5% to Ch$ 106.2 billion in 2001 from Ch$ 92.7 billion in 2000.  This increase is explained primarily by higher maintenance costs of Ch$ 25.8 billion, partially offset by Ch$ 18.0 billion in reduced costs associated with lower real estate activity in our subsidiary, Manso de Velasco.

Costs of operations for Edesur, our Argentine distribution company, increased 25.6% to Ch$ 391.8 billion in 2001 from Ch$ 311.9 billion in 2000, due to a 2.0% increase in physical energy purchases to satisfy the increased demand for electricity in southern Buenos Aires, and by a 0.6% increase in the cost of energy purchased.  In 2001, Edesur did not purchase as much energy as in the prior year from Costanera, a subsidiary of Endesa-Chile.  Therefore, in the consolidating adjustments from the perspective of Enersis, Edesur was left with some significant operating costs in 2001 that were eliminated in 2000 when energy was purchased from a related company.  Physical energy losses associated with Edesur decreased from 10.3% in 2000 to 9.9% in 2001.

Costs of operations for Distrilima, the Peruvian company that consolidates the electricity distribution company Edelnor, increased 23.3% to Ch$ 102.9 billion in 2001 from Ch$ 83.4 billion in 2000.  Energy purchases increased

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by 2.0%, compared to 2000 and the cost of energy purchased increased by 11.5% in 2001 compared to 2000, partially offset by lower physical energy losses of 8.9% in 2001 compared to 9.9% in 2000. 

Costs of operations for Cerj, one of our Brazilian distribution subsidiaries, operating in the area of Rio de Janeiro, decreased 5.0% to Ch$ 274.0 billion in 2001 from Ch$ 288.6 billion in 2000.  Costs of operations of our other Brazilian distribution subsidiary, Coelce, operating in the northeast State of Ceará, increased slightly by 0.4% to Ch$ 158.5 billion in 2001 from Ch$ 157.9 billion in 2000.  Average cost of our electricity purchases increased 16.0% between 2000 and 2001, but that was partially offset by a 10.3% decrease in such purchases.  The lower purchases, in turn, were caused by the lower sales in 2001, which was a direct consequence of the electricity rationing period affecting our Brazilian subsidiaries.  On the other hand, physical energy losses increased in Cerj, from 19.7% in 2000 to 22.7% in 2001, though they decreased for Coelce, from 13.3% in 2000 to 13.0% in 2001.  The explanation for the increase in losses in Cerj, especially as contrasted to the reduction in Coelce, is attributable to the customer base.  The concession area for Cerj includes the favelas, or very low income housing where energy theft is high during economic downturns.

Costs of operations associated with our Colombian electricity distribution company, Codensa, decreased by Ch$ 2.5 billion, or 1.3%, to Ch$ 193.7 billion in 2001 from Ch$ 196.2 billion in 2000.  Even though the average cost of electricity purchased in Colombia increased 7.8% between 2000 and 2001, there was a 0.2% reduction in energy purchased, and physical energy losses increased from 10.5% in 2000 to 11.8% in 2001.  Although energy purchased remained practically the same, energy sold by our Colombian companies decreased, and this is explained by the higher physical energy losses.

As a result of our phasing out of Enersis Energía, the cost of operations associated with this activity decreased 67.6% to Ch$ 3.1 billion in 2001 from Ch$ 9.6 billion in 2000.

As a result of the foregoing, our cost of operations, except for those attributable to our generation segment increased 9.2% to Ch$ 1,475.4 billion in 2001 from Ch$ 1,351.2 billion in 2000.

For a discussion of Endesa-Chile’s cost of operations, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2001 and 2000 — Cost of operations.”

Administrative and selling expenses

Administrative and selling expenses consist principally of salaries, provisions for doubtful accounts, marketing expenses, equipment depreciation and rentals and insurance.

The table below sets forth the breakdown of administrative and selling expenses for 2000 and 2001 and the percentage change from year to year.

	Year ended December 31,
	2000			2001			% Change
	(in millions of Ch$)
Administrative and selling expenses (Chile) excluding Endesa-Chile		52,816			52,399			-0.8	%
Edesur (Argentina)		72,712			71,411			-1.8	%
Distrilima/Edelnor (Peru)		16,203			16,293			0.6	%
Cerj (Brazil)		58,478			32,035			-45.2	%
Investluz/Coelce (Brazil)		43,128			44,048			2.1	%
Luz de Bogotá/Codensa (Colombia)		32,785			28,400			-13.4	%
Enersis Energía (Colombia)		657			261			-60.3	%
Total administrative and selling expenses (excluding Endesa-Chile)		276,779			244,847			-11.5	%
Endesa-Chile		33,425			34,696			3.8	%
Less: intercompany transactions		(941	)		(18	)		-98.1	%
Endesa-Chile (net of consolidating eliminations)		32,484			34,678			6.8	%
Total administrative and selling expenses		309,263			279,525			-9.6	%

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Total administrative and selling expenses decreased 9.6% to Ch$ 279.5 billion in 2001 from Ch$ 309.3 billion in 2000 due largely to the decreases in administrative and selling expenses of Cerj and Codensa.

Chilean administrative and selling expenses for our electricity-related distribution subsidiaries decreased by Ch$ 2.7 billion in 2001, or 11.2%, which was partially offset by Ch$ 2.3 billion in higher 2001 expenses in Chilean non-electricity subsidiaries.  Our distribution companies recorded lower expenses principally as a result of the decrease in headcount, while the non-electricity Chilean businesses, including Cam, and Synapsis experienced an increase in their payrolls.  As a percentage of Chilean revenues in the aggregate, administrative and selling expenses decreased from 12.6% in 2000 to 10.8% in 2001.

Argentine administrative and selling expenses decreased by 1.8% to Ch$ 71.4 billion in 2001 from Ch$ 72.7 billion in 2000.  As a percentage of operating revenues, Edesur’s expenses decreased from 13.3% in 2000 to 11.9% in 2001. 

Peruvian administrative and selling expenses remained almost unchanged in the two yearly periods.  However, as a percent of Edelnor revenues, administrative and selling expenses decreased from 9.5% in 2000 to 8.6% in 2001.

Administrative and selling expenses of Cerj, one of our Brazilian distribution companies, decreased 45.2% to Ch$ 32.0 billion in 2001 from Ch$ 58.5 billion in 2000.  The decline in such expenses relative to revenues fell significantly partly because of the reclassifications mentioned in the introduction.  The decrease in these costs is primarily attributable to Ch$ 26.9 billion in a lower provision for uncollectible accounts, from Ch$ 45.9 billion in 2000 to Ch$ 19.1 billion in 2001. 

On the other hand, administrative expenses of Coelce, another Brazilian distribution company, increased 2.1% to Ch$ 44.0 billion in 2001 from Ch$ 43.1 billion in 2000, also in part because of the account reclassifications mentioned before. 

Total administrative and selling expenses associated with our Colombian distribution and trading companies, decreased 14.3% to Ch$ 28.7 billion in 2001 from Ch$ 33.4 billion in 2000.  As a percentage of our Colombian revenues, the ratio improved from 10.2% in 2000 to 8.9% in 2001.

For a discussion of Endesa-Chile’s administrative and selling expenses, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2000 and 1999 — Administrative and selling expenses.”

Operating income

The table below sets forth the breakdown of operating income for 2000 and 2001 and the percentage change from year to year.

	Year ended December 31,
	2000			2001			% Change
	(in millions of Ch$)
Operating income Chile (excluding Endesa-Chile)		61,733			83,471			35.2	%
Argentina		163,350			136,140			-16.7	%
Peru		71,202			69,937			-1.8	%
Brazil		42,997			115,833			169.4	%
Colombia		88,413			97,582			10.4	%
Total operating income (excluding Endesa-Chile)		427,695			502,963			17.6	%
Endesa-Chile		266,929			347,975			30.4	%
Less: intercompany transactions		(141,874	)		(96,393	)		-32.1	%
Endesa-Chile (net of consolidating eliminations)		125,055			251,582			101.2	%
Total operating income		552,750			754,545			36.5	%

Total operating income increased 36.5% to Ch$ 754.5 billion in 2001 from Ch$ 552.8 billion in 2000.  This increase was primarily driven by Endesa-Chile, which contributed a Ch$ 126.5 billion increase, and our Brazilian

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distribution subsidiaries, whose operating income increased by Ch$ 72.8 billion in 2001 in comparison to 2000.  To a lesser degree, consolidated operating income also increased from our subsidiaries in Chile and Colombia, partially offset by reductions in operating income from our Argentine and Peruvian distribution companies. 

For a discussion of Endesa-Chile’s operating income, see “— Endesa-Chile Results of Operations for Years Ended December 31, 2001 and 2000 — Operating income.” 

Total non-operating income (expense)

	Year ended December 31,
	2000			2001			% Change
	(in millions of Ch$)
Interest income (1)		4,706			3,202			-32.0	%
Equity in income of related companies (1)		(342	)		(325	)		-5.3	%
Goodwill amortization (1)		(52,018	)		(58,724	)		12.9	%
Interest expense (1)		(187,279	)		(155,614	)		-16.9	%
Price-level adjustment (1)		(20,081	)		(18,201	)		-9.4	%
Other non-operating income (expense), net (1)		111,948			43,417			-61.2	%
Non-operating income (expense) Edesur (Argentina)		(3,336	)		9,351			n/a
Non-operating income (expense) Distrilima/Edelnor (Peru)		(8,375	)		(8,056	)		-3.8	%
Non-operating income (expense) Cerj (Brazil)		5,314			(43,824	)		n/a
Non-operating income (expense) Investluz/Coelce (Brazil)		(21,571	)		(37,564	)		74.1	%
Non-operating income (expense) Luz de Bogotá/Codensa and Enersis Energía (Colombia)		26,062			6,407			-75.4	%
Total non-operating income (excluding Endesa-Chile)		(144,974	)		(259,931	)		79.3	%
Non-operating income (expense) Endesa-Chile		(36,076	)		(247,798	)		586.9	%
Less: intercompany transactions		11,637			2,642			-77.3	%
Endesa-Chile (net of consolidating eliminations)		(24,439	)		(245,156	)		874.1	%
Total non-operating income (expense)		(169,411	)		(505,087	)		198.1	%

(1) Includes Enersis’ consolidated non-operating income (expense) except for companies included in this table.

Total non-operating expense increased 194% to Ch$ 505.1 billion in 2001 from Ch$ 169.4 billion in 2000.  This increase is attributable primarily to the increase of Ch$ 220.7 billion in non-operating expenses of Endesa-Chile, and to a lesser degree, to the reduction of  Ch$ 68.5 billion in our “other non-operating income,” as explained below, and to Ch$ 49.1 billion in Cerj’s non-operating expenses.  Endesa-Chile’s lower results, in turn, are largely driven by the non-recurrence of Endesa-Chile’s sale of Transelec and transmission lines in 2000.  For a discussion of Endesa-Chile’s total non-operating income (expense), see “— Endesa-Chile Results of Operations for Years Ended December 31, 2001 and 2000 — Total non-operating income (expense).”  Excluding Endesa-Chile, our non-operating expenses increased by Ch$ 115.0 billion in 2001 in relation to 2000.

Our consolidated interest expense, net of interest income, excluding those subsidiaries that are listed as separate line-items, decreased 16.9%, to Ch$ 155.6 billion in 2001 from Ch$ 187.3 billion in 2000.  This reduction of Ch$ 31.7 billion of our interest expense is attributable to our lower financial debt levels as well as to a more favorable interest rate environment for the twelve months ended December 31, 2001 in relation to the same period in 2000. 

Price-level adjustment expenses at the Enersis level decreased by Ch$ 1.9 billion, from Ch$ 20.1 billion in 2000 to Ch$ 18.2 billion in 2001.  The decrease in 2001 is primarily attributable to the fact that in 2001, a much larger percentage of our dollar-denominated debt was hedged.  Therefore, the devaluation of the peso in real terms in 2001 had only a marginal impact in comparison to the prior year.

Other non-operating expenses, net of other non-operating income, excluding concepts mentioned in separate line-items, decreased 61.2% to Ch$ 43.4 billion in 2001 from Ch$ 112.0 billion in 2000.  This difference is primarily explained by Ch$ 84.0 billion in lower proceeds from divestitures and sale of fixed assets, which in turn were primarily related to the extraordinary sales in 2000 of our two water utility companies.  These non-recurring

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gains and higher expenses in 2001 were partly offset by Ch$ 7.4 billion in gains, net of losses, in our forward contracts, and Ch$ 5.6 gains related to our Yankee Bond repurchase of US$ 100 million face value of Enersis’ 7.4% Notes due 2016.

Edesur had net non-operating income of Ch$ 9.4 billion in 2001 compared to a net non-operating loss of Ch$ 3.3 billion in 2000.  This is primarily attributable to the positive effect of the application of Technical Bulletin 64 which resulted in a gain of Ch$ 17.2 billion, partially offset by Ch$ 3.2 billion in higher interest expense, net of interest income.

Cerj had a net non-operating loss of Ch$ 43.8 billion in 2001 compared to net non-operating income of Ch$ 5.3 billion in 2000, principally as a result of provisions for contingencies of Ch$ 25.4 billion in 2001 and Ch$ 21.6 billion in expenses associated with pension plan funding deficits.

Net operating expenses for Coelce increased 74% to Ch$ 37.6 billion in 2001 from Ch$ 21.6 billion in 2000 primarily as a result of the negative effect of Ch$ 7.9 billion in 2001 as a result of the application of Technical Bulletin 64 and an increase in bank interest expense of Ch$ 7.8 billion in 2001.

Codensa booked Ch$ 13.6 billion less in non-operating income in 2001 compared to 2000 primarily because of higher provisions of Ch$ 7.4 billion, a smaller gain of Ch$ 2.1 billion in 2001 in relation to 2000 associated with the application of Technical Bulletin 64, smaller gains of Ch$ 1.6 billion associated with the disposition of assets, and a decrease in interest income of Ch$ 0.9 billion. 

Net income

	Year ended December 31,
	2000			2001
	(in millions of Ch$)
Operating income		552,750			754,544
Non-operating income (expense)		(169,410	)		(505,087	)
Income before income taxes, minority interest and amortization of negative goodwill		383,340			249,457
Income taxes		(146,323	)		(129,850	)
Minority interest		(184,000	)		(125,153	)
Amortization of negative goodwill		42,647			47,700
Net income		95,664			42,154

Income before income taxes, minority interest and amortization of negative goodwill decreased 34.9% to Ch$ 249.5 billion in 2001 from Ch$ 383.3 billion in 2000.  Consolidated income taxes decreased by Ch$ 16.5 billion.  Minority interest expense related to that portion of consolidated subsidiaries that were not wholly-owned decreased by Ch$ 58.9 billion.  As a result of all of the aforementioned, net income decreased 55.9% to Ch$ 42.2 billion in 2001 from Ch$ 95.7 billion in 2000.  A substantial portion of the decrease in net income is attributable to the non-recurrence of electricity transmission and water utility divestments that took place in 2000.  From an operating income perspective, the ratio of operating income to consolidated revenues increased from 20.0% in 2000 to 24.7% in 2001.

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Endesa-Chile Results of Operations for Years Ended December 31, 2002 and 2001

Revenues from operations

Endesa-Chile derives a substantial portion of its consolidated revenues from the sale of electricity in Chile.  However, revenues from sales from countries other than Chile accounted for 52.6% and 59.6% of Endesa-Chile’s consolidated revenues in 2002 and 2001, respectively.  Revenues from sales of electricity in Argentina accounted for 10.5% of Endesa-Chile’s consolidated revenues in 2002 as compared to 21.8% in 2001.  Revenues from sales of electricity in Colombia accounted for 24.1% in 2002 as compared to 21.1% in 2001 and revenues from sales of electricity in Brazil accounted for 5.5% in 2002 as compared to 6.3% in 2001.  In addition, revenues from sales of electricity in Peru accounted for 12.5% in 2002 as compared to 10.4% in 2001.  In each of 2002 and 2001, other income accounted for less than 5% of total consolidated revenues.

The table below sets forth the breakdown of Endesa-Chile’s revenues from operations for 2001 and 2002, and the percentage change from year to year.

	Year ended December 31,
	2001		2002		% Change
	(in millions of constant Ch$ as of December 31, 2002,  except volume data)
Sales of electricity (Chile)		386,082		403,886	4.6
Sales of electricity (Argentina)		227,739		98,156	(56.9	)
Sales of electricity (Colombia)		220,309		226,093	2.6
Sales of electricity (Brazil)		66,323		51,403	(22.5	)
Sales of electricity (Peru)		108,212		116,863	8.0
Other		36,613		41,699	13.9
Total		1,045,279		938,099	(10.3	)
Energy Sales (GWh) (Chile)		18,673		18,344	(1.8	)
Energy Sales (GWh) (Argentina)		12,988		7,897	(39.2	)
Energy Sales (GWh) (Colombia)		14,591		14,639	0.3
Energy Sales (GWh) (Brazil)		3,743		3,591	(4.1	)
Energy Sales (GWh) (Peru)		4,239		4,158	(1.9	)

Total revenues from operations decreased by 10.3% to Ch$ 938.1 billion in 2002 from Ch$ 1,045.3 billion in 2001, which is explained primarily by the effect of the current market conditions in Argentina and Brazil on the operations of our subsidiaries in these markets, only partially offset by the improvement in the sales recorded in Chile and Peru.

Revenues from sales of electricity in Chile increased by 4.6% to Ch$ 403.9 billion in 2002 from Ch$ 386.1 billion in 2001.  This increase is primarily due to a higher average sales price of 6.5% to Ch$ 22.0 per kWh in 2002 from Ch$ 20.7 per kWh in 2001.  This increase was partially offset by a decrease in sales volumes of approximately 1.8% due to lower sales in the spot market.  The average sales price of electricity sold by us in Chile increased to Ch$ 22.0 per kWh in 2002 from Ch$ 20.7 per kWh in 2001, primarily due to an increase in the price of regulated and non regulated contract prices.

Revenues from sales of electricity in Argentina decreased by 56.9% to Ch$ 98.2 billion in 2002, from Ch$ 227.7 billion in 2001.  The decrease is primarily due to a 39.2% decrease in energy sales and a 29.1% decrease in the average sales price.  The average sales price per kWh of electricity sold by our subsidiaries in Argentina decreased to Ch$ 12.4 per kWh in 2002 from Ch$ 17.4 per kWh of electricity in 2001, primarily due to lower spot market sales prices and the lower contract price for El Chocón in 2002 due to the devaluation of the local currency by more than 70%.  The volume of electricity sold in Argentina decreased to 7,897 GWh in 2002 from 12,988 GWh in 2001 primarily due to the decrease in the sales related to the interconnection line between Argentina and Brazil and a reduction of the electricity demand in the Argentine market.

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Revenues from sales of electricity in Brazil decreased by 22.5% to Ch$ 51.4 billion in 2002 from Ch$ 66.3 billion in 2001 primarily as a result of a 19.2% decrease in the average sales price during fiscal year 2002 to Ch$ 14.3 per kWh in 2002 from Ch$ 17.7 per kWh in 2001.  This decrease was mainly produced by a 20.3% drop in the average price of energy sales due to the devaluation of the Brazilian currency with respect to the US dollar.

Revenues from sales of electricity in Colombia increased by 2.6% to Ch$ 226.1 billion in 2002 from Ch$ 220.3 billion in 2001 due to an increase in sales volumes to 14,639 GWh in 2002 from 14,591 GWh in 2001.  The increase in sales volumes is mainly related to higher energy production due to favorable hydrological conditions.

Revenues from sales of electricity in Peru increased by 8.0% to Ch$ 116.9 billion in 2002 from Ch$ 108.2 billion in 2001 due to a 10.1% higher average sales price of Ch$ 28.1 per kWh in 2002 from Ch$ 25.5 per kWh in 2001.  The increase in the average sales price, which was due to the increase in regulated prices, helped to offset the 1.9% decline in sales volumes.

Other revenues increased by 13.9% in 2002, mainly due to higher revenues from Infraestructura 2000, and higher sales from the engineering subsidiary Ingendesa related to new service contracts.

Cost of operations

The table below sets forth the breakdown of costs of operations for 2001 and 2002 and the percentage change from year to year.

	Year ended December 31,
	2001		2002		%Change
	(in millions of constant Ch$ as of December 31, 2002, except percentages)
Cost of operations (Chile)		268,287		255,198		(4.9	)
Cost of operations (Argentina)		180,094		84,106		(53.3	)
Cost of operations (Colombia)		141,773		144,655		2.0
Cost of operations (Brazil)		37,402		32,576		(12.9	)
Cost of operations (Peru)		35,052		39,051		11.4
Total		662,608		555,586		(16.2	)

Cost of operations decreased to Ch$ 555.6 billion in 2002, 16% less compared to Ch$ 662.6 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 4.9% to Ch$ 255.2 billion in 2002 from Ch$ 268.3 billion in 2001.  This decline is explained by the exceptional hydrology of the period, since we have been able to deliver energy pursuant to our contracts by principally using our hydroelectric plants.

Cost of operations in Argentina decreased by 53.3% to Ch$ 84.1 billion in 2002 from Ch$ 180.1 billion in 2001.  The lower energy demand and the operation of our plants resulted in lower purchased power needs from the Argentine spot market.  El Chocón reduced its purchased power by 63% and its power purchase cost by more than 80%.  In the case of Costanera, physical purchases fell by more than 75%, contributing to a decrease of purchased power cost of 87%.  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$ 38.7 billion, almost 70% 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$ 3.4 billion because of lower sales volumes.

Cost of operations in Brazil decreased by 12.9% to Ch$ 32.6 billion in 2002 from Ch$ 37.4 billion in 2001.  Cachoeira Dourada in Brazil benefited from the lower spot prices produced by the end of shortages and rationing in the beginning of 2002, reducing its power purchase costs by 57%, and thereby decreasing its operating expenses by 13% compared to last year.

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Cost of operations in Colombia increased by 2.0% to Ch$ 144.7 billion from Ch$ 141.8 billion.  This increase was mainly due to higher toll expenses.

Cost of operations in Peru increased by 11.4% to Ch$ 39.1 billion in 2002 from Ch$ 35.1 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.

Administrative and selling expenses

Administrative and selling expenses increased by 4.6% to Ch$ 36.3 billion in 2002 from Ch$ 34.7 billion in 2001.  This increase is primarily explained by the effect of a provision made during 2002 related to severance liabilities in Colombia, partially compensated by the decrease in administrative and selling expenses in Argentina.

Operating Income

The operating income for 2002 amounted to Ch$ 346.2 billion, a decrease of 0.5% from operating income of Ch$ 348 billion in 2001.  This slight reduction in operating income is basically due to lower operating income in Argentina and Brazil, which was almost entirely offset by the improved results in Chile and Peru.

In Chile, operating income for 2002 amounted to Ch$ 171.1 million, an increase of 25.4%.  This increase was principally the result of higher hydroelectric generation associated with an improvement in reservoir levels.  Another contributing factor was the increase in average sales prices resulting from Endesa-Chile’s marketing policies that enabled it to obtain the better prices from unregulated clients and spot markets.  Furthermore, the reduction in thermoelectricity generation resulted in a decrease of Ch$ 24.2 billion in the cost of fuel and transport gas.  In addition, the greater volumes of water allowed for a reduction of Ch$ 10.9 billion in the cost of energy purchases.

In Argentina, operating income amounted to Ch$ 12.3 billion, a fall of Ch$ 30.8 billion with respect to 2001.  This decrease is due to the drop in the average sales prices of energy from El Chocón as a result of the devaluation of the Argentine Peso and of a 39.2% decrease in the sales volumes of energy in Argentina.  Furthermore, the low energy prices in Brazil as a result of the abundant water supply in the region meant that in 2002 only 2% of water demand needed to be purchased from the CIEN interconnection line.  Nevertheless, the operating income of Central Costanera rose by Ch$ 2.9 billion in relation to the previous year due to the sales of capacity to the interconnection with Brazil that have partially offset the fall in El Chocón’s sales of energy.

In Brazil, the operating income of Cachoeira Dourada decreased by 39.1% to Ch$ 17.0 billion in 2002 from 27.9 billion in 2001.  This decrease was mainly the result of a 20.3% drop in the average price of energy sales due to the devaluation of the Brazilian currency relative to the US dollar and greater energy purchases associated with the recovery of reservoirs after a prolonged drought in southeastern Brazil.

In Colombia, the operating income for 2002 increased by 1.1% to Ch$ 75.4 billion mainly as a result of an increase in sales volumes of energy due to an improvement in water supplies and rainfall and to higher sales prices of energy on the spot market.

Our subsidiary in Peru, Edegel, also contributed to the increased consolidated operating income.  Edegel’s operating income rose by 6.7% to Ch$ 70.5 billion mainly due to higher average sales prices on the spot market, which more than offset the reduction in energy sales volumes.

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Non-operating Results

The following table sets forth certain information regarding our non-operating results for each of the periods indicated.

	Year ended December 31,
	2001			2002			%Change
	(in millions of constant Ch$ as of December 31, 2002, except percentages)
Non-operating income:
Interest earned		19,151			15,247			(20.4	)
Equity in income of non-consolidated affiliates		(9,948	)		8,570			(186.2	)
Other non-operating income		55,817			102,484			83.6
Non-operating expenses:
Interest expense		(235,883	)		(212,800	)		(9.8	)
Goodwill amortization		(8,269	)		(108,562	)		1,213.0
Other non-operating expenses		(58,501	)		(121,920	)		108.4
Monetary correction:
Price level restatement		4,338			3,996			(7.9	)
Foreign Exchange translation		(14,505	)		(441	)		(97.0	)
Non-operating results		(247,798	)		(313,425	)		26.5

Non-operating results amounted to losses of Ch$ 313.4 billion in 2002 in comparison to losses of Ch$ 247.8 billion in 2001.  This difference is basically explained by an increase of Ch$ 100.3 billion in goodwill amortization resulting from the impairment of the Company’s investments in Brazil and Argentina during 2002, partially offset by  a decrease of Ch$ 23.1 billion in net financial expenses, and a rise of Ch$ 18.5 billion in the equity in income from investments in related companies.

Interest earned.  Interest earned decreased by 20.4% to Ch$ 15.2 billion in 2002 from Ch$ 19.2 billion in 2001.  The decrease in 2002 from 2001 was primarily attributable to lower cash balances at our subsidiaries in Argentina.

Other non-operating income.  The increase of Ch$ 46.7 billion in the results of other non-operating income to Ch$ 55.8 billion in 2002 from Ch$ 102.5 billion in 2001 is explained principally by the positive effect of the devaluation on the liabilities in local currency of our subsidiaries in Colombia and Argentina.

Interest expense.  The Ch$ 23.1 billion fall in net financial expenses is explained principally by a reduction of US$ 240 million in debt.  This reduction was the result of operating cash flows that permitted the repayment of financial debt in 2002 and by lower interest rates explained by the drop in international interest rates from 2001.

Other non-operating expenses.  The Ch$ 63.4 billion increase in the results of other non-operating expenses is explained principally by a write-off during 2002 related to assets of our generating subsidiary in Brazil, Cachoeira Dourada.

Goodwill amortization.  The increase of Ch$ 100.3 billion in the charge for goodwill amortization is the result of an impairment of the Company’s investments, Cachoeira Dourada in Brazil, and El Chocón and Costanera in Argentina, during 2002.  For more information on this impairment please see note 13(b) to our audited consolidated financial statements and “—Critical Accounting Policies—Impairment of Investments in Related Companies, Long-lived assets, Identifiable Intangible Assets and Goodwill.”

Foreign exchange translation.  The loss of Ch$ 441 million for the year ended 2002, compared to a loss of Ch$ 14.5 billion for the year ended 2001 reflects the fact that for the year ended 2002, the Chilean peso depreciated by 9.7% against the US dollar as compared to a depreciation of 14.1% during the same period of the year before.

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On the other hand, these losses were offset to a large extent by forward contract operations that produced a profit of Ch$ 16.0 billion for the year ended 2002.

Equity income from non-consolidated affiliates.  The Ch$ 18.5 billion improvement in the net income from related companies is mainly due to the increase in the net profit of CIEN that for 2002, amounted to Ch$ 7.2 billion compared to a loss of Ch$ 5.8 billion for the year ended 2001.  The improved result of CIEN in 2002 is explained by significantly better operating results following the start-up of its second transmission line, with the first 500 MW coming on line in May 2002 and the other 500 MW in August 2002.

Price-level restatement.  In 2002, there was a Ch$ 4.0 billion price-level restatement gain, compared to a gain of Ch$ 4.3 million in 2001.  This slight decrease in the price-level restatement gain was due to the combined effect of lower inflation in Chile (a 2002 inflation rate of 3.0%, versus 3.1% for the same period in 2001); and a higher level of net monetary liabilities during 2002.

Income Taxes

The higher income tax during this period reflects the improved results of the operations in Chile and Peru.  The extraordinary item of Ch$ 10.9 billion corresponds to a one-time security tax imposed by the Colombian authorities on the equity of the companies in order to finance national security activities.  The total tax was recorded during the 2002 period.

Minority Interest

Minority interest expense resulted in charges of Ch$ 46.5 billion in 2002, compared to Ch$ 34.0 billion in 2001.  The 36.8% increase in 2002 compared to 2001 was mainly due to an improvement in the results of EMGESA in Colombia.

Negative Goodwill Amortization

Negative Goodwill was Ch$ 85.9 billion in 2002, compared to Ch$ 45.9 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.”

Net Income

The Company recorded a loss of Ch$ 9.3 billion in 2002, compared to a net income of Ch$ 72.2 billion in 2001.  This was primarily due to a net impairment of goodwill and negative goodwill of Ch$ 56.1 billion (net of minority interest) of investments in Argentina and Brazil.  The amount of the goodwill impairment is Ch$ 26.9 billion in Argentina and Ch$ 72.1 billion in Brazil.  This adjustment was partially offset by:

• a 25.4% increase in operating results in Chile due mainly to better hydrological conditions;

• a Ch$ 18.5 billion improvement in the net results on investments in related companies due fundamentally to the improved results of CIEN, which exports energy from Argentina to Brazil and in which Endesa-Chile has a participation of 45%; and

• a reduction of Ch$ 23.1 billion, or a decrease of 8.8% in net financial expenses.

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Endesa-Chile Results of Operations for Years Ended December 31, 2001 and 2000

Revenues from operations

Endesa-Chile derives a substantial portion of its consolidated revenues from the sale of electricity in Chile.  However, revenues from sales from countries other than Chile accounted for 59.6% and 63.6% of Endesa-Chile’s consolidated revenues in 2001 and 2000, respectively.  Revenues from sales of electricity in Argentina accounted for 21.8% of Endesa-Chile’s consolidated revenues in 2001 as compared to 30.1% in 2000.  Revenues from sales of electricity in Colombia accounted for 21.1% in 2001 as compared to 18.5% in 2000 and revenues from sales of electricity in Brazil accounted for 6.3% in 2001 as compared to 6.1% in 2000.  In addition, revenues from sales of electricity in Peru accounted for 10.4% in 2001 as compared to 8.9% in 2000.  In each of 2001 and 2000, 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 2000 and 2001, and the percentage change from year to year.

	Year ended December 31,
	2000		2001		%Change
	(in millions of constant Ch$ as of December 31, 2002, except volume data)
Sales of electricity (Chile)		307,921		386,082		25.4
Sales of electricity (Argentina)		282,461		227,739		(19.4	)
Sales of electricity (Colombia)		173,231		220,310		27.2
Sales of electricity (Brazil)		57,435		66,323		15.5
Sales of electricity (Peru)		83,560		108,212		29.5
Other		33,043		36,613		10.8
Total	$	937,650	$	1,045,279		11.5
Energy Sales (GWh) (Chile)		20,086		18,673		(7.0	)
Energy Sales (GWh) (Argentina)		15,549		12,988		(16.5	)
Energy Sales (GWh) (Colombia)		13,356		14,591		9.2
Energy Sales (GWh) (Brazil)		3,887		3,743		(3.7	)
Energy Sales (GWh) (Peru)		3,604		4,239		17.6

Total revenues from operations increased 11.5% to Ch$ 1,045.3 billion in 2001 from Ch$ 937.7 billion in 2000 which is explained primarily by higher revenues in Chile and Colombia due to better hydrological conditions and higher prices, and higher sales volumes in Peru due to the new Edegel plants, which were partially offset by a decrease in revenues in Argentina due to lower contract sales of Costanera.

Revenues from sales of electricity in Chile increased 25.4% to Ch$ 386.1 billion in 2001 from Ch$ 307.9 billion in 2000.  This increase is primarily due to a higher average sale price of 34.9% compared to the year 2000, partially compensated by a decrease in sales volumes of approximately 7% due to lower energy transactions in the spot market.  The average sales price of electricity sold by us in Chile increased to Ch$ 20.7 per kWh in 2001 from Ch$15.3 per kWh in 2000, primarily due to an increase in both node and spot prices.

Revenues from sales of electricity in Argentina decreased 19.4% to Ch$ 227.7 billion in 2001 from Ch$ 282.5 billion in 2000.  The decrease is primarily due to a 16.5% decrease in energy sales and a 3.5% decrease in average sales.  The average sales price per kWh of electricity sold by our subsidiaries in Argentina decreased to Ch$ 17.5 in 2001 from Ch$ 18.2 per kWh of electricity in 2000, primarily due to lower spot market sales prices for Central Buenos Aires and Costanera in 2001.  The volume of electricity sold in Argentina decreased to 12,988 GWh in 2001 from 15,549 GWh in 2000 primarily due to the termination of contracts with Edenor and Edesur at the end of May 2000.  The termination of the contracts in Argentina has been partially compensated by sales to Brazil, which represented 39.8% of 2001 total sales volumes and the increase in 74.7% in El Chocón’s sales volumes compared to 2000, due to better hydrological conditions in the Comahue zone.

Revenues from sales of electricity in Brazil increased to Ch$ 66.3 billion in 2001 from Ch$ 57.4 billion in 2000 mainly explained by a 20% increase in the average price during fiscal year 2001 to Ch$ 17.7 per kWh in 2001 from

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Ch$ 14.8 per kWh in 2000 explained by the 17.2% increase of tariffs in real terms in September 2000 and an additional 10.6% in September 2001.

Revenues from sales of electricity in Colombia increased 27.2% to Ch$ 220.3 billion in 2001 from Ch$ 173.2 billion in 2000 due to both a 16.4% increase in average sales price to Ch$ 15.1 per kWh in 2001 from Ch$ 13.0 per kWh in 2000 as well as a 9.2% increase in sales volumes to 14,591 GWh in 2001 from 13,356 GWh in 2000.  The increase in average prices is explained by an increase in the contractual sales and an increase in spot market prices due to restrictions in the Colombian transmission systems during the first half of 2001 which benefited our company.  The increase in sales volumes is mainly related to higher energy demand from Emgesa’s clients.

Revenues from sales of electricity in Peru increased 29.5% to Ch$ 108.2 billion in 2001 from Ch$ 83.6 billion in 2000 due to a 17.6% increase in energy sales volumes to 4,239 GWh in 2001, from 3,604 GWh in 2000 and a higher average price of 10.1% to Ch$ 25.5 per kWh in 2001 from Ch$ 23.2 per kWh in 2000.

Other revenues increased by 10.8%, mainly due to higher income from Infraestructura 2000 primarily related to the new highway, Autopista Los Libertadores.

Cost of operations

The table below sets forth the breakdown of costs of operations for 2000 and 2001 and the percentage change from year to year.

	Year ended December 31,
	2000		2001		%Change
	(in millions of constant Ch$ as of December 31, 2002, except percentages)
Cost of operations (Chile)		255,556		268,287		5.0
Cost of operations (Argentina)		229,099		180,093		(21.4	)
Cost of operations (Colombia)		103,127		141,773		37.5
Cost of operations (Brazil)		24,435		37,402		53.1
Cost of operations (Peru)		25,079		35,052		39.8
Total	$	637,296	$	662,608		4.0

Cost of operations increased 4.0% to Ch$ 662.6 billion in 2001 from Ch$ 637.3 billion in 2000 primarily due to an increase in the cost of operations in Brazil, Peru and Colombia, but partially offset by the decrease in the cost of operations in Argentina.

Cost of operations in Chile increased 5.0% to Ch$ 268.3 billion in 2001 from Ch$ 255.6 billion in 2000 principally due to the increases in transmission tolls mainly explained by the fact that Endesa’s transmission lines were sold to Transelec in 2000.  This was partially offset by the decrease in energy purchases costs by Ch$ 11.7 billion due to lower physical energy purchases, which dropped to 3,420 GWh in 2001 from 4,993 GWh in 2000 and a decrease in fuel cost of Ch$ 7.4 billion explained by a reduced reliance on thermal energy, which was compensated for by an increase in hydroelectric production of 13.2% or 1,483 GWh.

Cost of operations in Argentina decreased 21.4% to Ch$ 180.1 billion in 2001 from Ch$ 229.1 in 2000 primarily due to a decrease of 2,378 GWh hour in energy purchases and a 26.5% decrease in fuel costs for Costanera explained by a decrease in thermoelectric production of 27.6% to 4,579 GWh in 2001 from 6,321 GWh in 2000.  This favorable trend was partially compensated by higher transmission costs related to higher energy production in El Chocón, which increased by 93.2% to 4,496 GWh in 2001 from 2,327 GWh in 2000.

Cost of operations in Brazil increased 53.1% to Ch$ 37.4 billion in 2001 from Ch$ 24.4 billion in 2000 due primarily to higher energy purchases.  The higher costs of energy purchases during 2001 can be mostly explained by reduced production, a decrease of 33.8% to 2,256 GWh in 2001 from 3,406 GWh in 2000, and also because of higher spot prices in energy purchases.  The higher spot prices were a result of the drought in the Brazilian market that lead to a rationing in the southeast electric system since June 2001, and obliged companies to buy energy in the spot market at high prices in order to meet their commitments.

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Cost of operations in Colombia increased 37.5% to Ch$ 141.8 billion from Ch$ 103.1 billion due to higher energy purchases in the spot market related to the increase in sales during the period.  Energy purchases increased by 20% to 4,485 GWh in 2001 from 3,737 GWh in 2000.

Cost of operations in Peru increased 39.8% to Ch$ 35.1 billion in 2001 from Ch$ 25.1 billion in 2000 mainly due to higher depreciation charges and transmission costs related to the new hydroelectric plants at Edegel, which started operations at the end of 2000.

Administrative and selling expenses

Administrative and selling expenses increased 3.8% to Ch$ 34.7 billion in 2001 from Ch$ 33.4 billion in 2000.  This increase is primarily explained by the effect of the exchange rate on the amount booked in Chilean pesos in our investments abroad, partially compensated by the decrease in administrative and selling expenses in Argentina and Colombia.

Operating Income

Operating income increased 30.4% to Ch$ 348.0 billion in 2001 from Ch$ 266.9 billion in 2000.  The increase in operating income can largely be explained by better performance of our operations in Chile, Colombia and Peru, partially offset by the decrease in operating  results recorded in Argentina and Brazil.

In Chile, operating income increased by 102.3% compared to the same period last year, amounting to a total of Ch$ 136.5 billion, explained primarily by a 34.9% increase in the average price of energy sales, which can be attributed to higher regulated prices and spot market prices and a 13.2% increase in hydraulic generation associated with greater volumes of water in regions where the largest reservoirs are located.

In Argentina, a drop in average energy prices and in energy sales volumes at the Costanera thermoelectric power plants, brought on by the end of contracts with distributors and lower spot prices, resulted in a 11.1% decrease in Argentina’s operating income, totaling Ch$ 43.0 billion.  Nonetheless, due to an increase in water volume and reservoir levels, generation at the El Chocón hydroelectric power plant rose by 93.2%, thereby increasing its operating income by 173.4%.

In Brazil, Cachoeira Dourada’s operating income dropped by 10.6%, to Ch$ 27.9 billion, which can basically be explained by decreased generation and more energy purchased due to the critical level of the reservoirs in the system.  Due to the critical level of the reservoirs and poor rainfall conditions in Brazil since June 1, 2001, the government applied electricity rationing in the southeastern system in Brazil, where Cachoeira Dourada is located.  However, due to an agreement reached by the authorities and the agents of the Brazilian Electric System in December 2001, the negative effect on Cachoeira Dourada results was a loss of only US$ 5.4 million.

In Colombia, operating income rose 14.0%, to Ch$ 74.5 billion, primarily due to a 16.4% increase in average sales prices and a 9.2% increase in energy sales volumes.  This price increased primarily due to restrictions placed on the transmission of electric power in the Colombian system during the first few months of 2001.

Our subsidiary in Peru, Edegel, also contributed to the increased consolidated operating income.  Edegel’s operating income grew by 21.2% to Ch$ 66.0 billion, primarily because of a 17.6% increase in energy sales volumes, which was attributable to higher reservoir levels and to 191 MW of new hydraulic capacity that started operations during the second half 2000.

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Non-operating Results

The following table sets forth certain information regarding our non-operating results for each of the periods indicated.

	Year ended December 31,
	2000			2001			%Change
	(in millions of constant Ch$ as of December 31, 2002, except percentages)
Non-operating income:
Interest earned		33,850			19,151			(43.4	)
Equity in income of non-consolidated affiliates		678			(9,948	)		(1,567.1	)
Other non-operating income		272,788			55,817			(79.5	)
Non-operating expenses:
Interest expense		(271,334	)		(235,883	)		(13.1	)
Goodwill amortization		(7,245	)		(8,269	)		14.1
Other non-operating expenses		(61,082	)		(58,501	)		(4.2	)
Monetary correction:
Price level restatement		916			4,338			373.6
Foreign Exchange translation		(4,646	)		(14,505	)		212.2
Non-operating results		(36,076	)		(247,798	)		586.9

Non-operating results amounted to losses of Ch$ 247.8 billion in 2001 in comparison to losses of Ch$ 36.1 billion in 2000.  This was mainly related to:

• non-recurring profits from the sale of Transelec and other transmission assets booked in 2000, of Ch$ 183.6 billion;

• Ch$ 10.6 billion decrease in equity income from related companies;

• a higher loss of Ch$ 9.9 billion in foreign exchange translation; and

• higher other non-operating expenses due to the impact of the Argentine devaluation on the results of the Company’s Argentine subsidiaries.

The effects above were partially offset by:

• a decrease in interest expenses of Ch$ 35.5 billion; and

• an increase in other non-operating income by Ch$ 18.6 billion, due to profits attributable to the Yankee bond buyback in the last quarter of 2001.

Interest earned.  Interest earned decreased 43.4% to Ch$ 19.2 billion in 2001 from Ch$ 33.9 billion in 2000.  The decrease in 2001 from 2000 was primarily attributable to lower cash balances at Central Costanera partially compensated by higher interest income from Colombian operations.

Other non-operating income.  Other non-operating income decreased to Ch$ 55.8 billion in 2001 from Ch$ 272.8 billion in 2000.  The difference between other non-operating income in 2000 and 2001 is mostly due to Ch$ 142.2 billion in non-operating income related to the sale of Transelec and Ch$ 13.0 million in exceptional income related to El Chocón’s operations in the spot market in previous years.  All this income was booked in 2000, partially offset by higher profits of Ch$ 18.6 billion due to a Yankee bond buyback in 2001.  The Yankee bond buyback was carried out through a tender offer, which closed on November 21, 2001, pursuant to which we repurchased bonds for a total US$ 183,983,000 in the United States.  The bonds subject to the buyback were a

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US$ 23,719,000 bond due in 2027 and a US$ 160,264,000 bond due in 2097.  The percentage repurchased was 36.4% and 80.1% respectively.

Equity income from non-consolidated affiliates.  In 2001, our equity income from non-consolidated affiliates decreased to a loss of Ch$ 9.9 billion from a gain of Ch$ 678 million in 2000, principally due to the effect of the monetary correction on the results of CIEN and GasAtacama results during 2001.

Interest expense.  Interest expense decreased by 13.1% to Ch$ 235.9 billion in 2001 from Ch$ 271.3 billion in 2000.  The decrease in interest expense was largely due to the decrease in financial debt of approximately US$308 million, and a decrease in the market interest rate, both of which were partially offset by an increase in the exchange rate.

Goodwill amortization.  Goodwill was Ch$ 8.3 billion in 2001, as compared to Ch$ 7.2 billion for 2000.  This 15.3% increase resulted primarily from the depreciation of the Chilean peso in relation to the dollar in real terms.

Other non-operating expenses.  Other non-operating expenses decreased 4.2% to Ch$ 58.5 billion in 2001 from Ch$ 61.1 billion in 2000.  The decrease in other non-operating expenses was primarily due to expenses booked during 2000 related to operating expenses from previous years and other non-recurring charges.

Price-level restatement.  The price-level restatement was Ch$ 4.3 billion in 2001 as compared to Ch$ 916 million in 2000. 

Foreign exchange translation.  Foreign exchange translation resulted in a loss of Ch$ 14.5 billion, compared to a loss of Ch$ 4.6 billion in 2000.  The exchange rate difference reflected the 14.1% increase in the exchange rate during 2001, as compared to an 8.2% exchange rate increase in 2000.

Income Taxes

Income taxes decreased by Ch$ 48.6 billion, to Ch$ 39.9 billion in 2001 from Ch$ 88.5 billion in 2000.  This 54.9% decrease was the result of non-recurring income taxes during 2000 arising from our sale of Transelec.

Minority Interest

Minority interest expense resulted in charges of Ch$ 34.0 billion in 2001, compared to Ch$ 68.6 billion in 2000.  The decrease in minority interest expense in 2001 compared to 2000 was mainly due to the decrease in results of our Argentine subsidiary, Costanera.

Negative Goodwill Amortization

Negative goodwill amortization was Ch$ 45.9 billion in 2001, as compared to Ch$ 41.1 billion for 2000.  This increase resulted primarily from the depreciation of the Chilean peso in relation to the dollar in real terms.

Net Income

Net income decreased to Ch$ 72.2 billion in 2001 from Ch$ 114.9 billion in 2000.  This was primarily due to the following factors:

• the decrease in other non-operating income of Ch$ 217.0 billion, mainly due to profits from the sale of Transelec recorded during fiscal year 2000;

• a Ch$ 19.2 billion loss produced by the devaluation of the Argentine Peso on the Company’s consolidated results; and

• the impact of foreign exchange translation of Ch$ 9.9 billion in losses.

The effects above were partially offset by:

• the 30.4% increase (or Ch$ 81.0 billion), in the Company’s operating performance;

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• a decrease in interest expense of Ch$ 35.5 billion or 13.1%, explained by a lower debt level of approximately US$ 308 million in dollar terms, and lower international interest rates; and

• a Ch$ 48.6 billion decrease in income taxes and a Ch$ 34.6 billion reduction in minority interest expense.

B. Liquidity and Capital Resources.

We are a holding company with no significant assets other than the stock of our subsidiaries.  To pay our obligations, we rely on income from dividends, distributions and other cash flows from our subsidiaries.

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 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.”

Our primary sources of liquidity are dividends received from our subsidiaries and related companies, domestic and international borrowings from commercial banks and debt and equity offerings in the domestic and international capital markets.

We have accessed the international equity capital markets, including 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 SEC-registered United States corporate bonds, 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.  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.  Under Endesa-Chile’s EMTN Program, we issued € 400 million in 3-year floating rate notes in July 2000.

Both Enersis and Endesa-Chile, as well as our subsidiaries in the five countries in which we operate, also have access to the local capital markets, where we have issued, or may issue, debt instruments including commercial paper, medium- and long-term bonds that are primarily sold to pension funds, life insurance companies, and other institutional investors.  In 2001, Endesa-Chile issued UF 7.5 million (approximately US$ 170 million at the time of issuance but US$ 175 million with the year-end exchange rate) in Chilean 5-year and 21-year bonds, and Enersis issued UF 6.5 million (approximately US$ 153 million at the time of issuance but US$ 151 million with the year-end exchange rate) in similar 8-year and 21-year local bonds.  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 issued US$ 3.5 billion in 2-year bilateral loans with a group of relationship banks.  The loans were extended for two years, and were scheduled to mature in 2003.  We have also issued several syndicated loans over the years, including two 3-year bullet US$ 500 million syndicated facilities, one for Enersis and one for Endesa-Chile, in July 2001 and a US$ 400 million 3-year bullet syndicated facility in late March 2001. 

As of December 31, 2002, US$ 1,374 million, the remaining portion of Endesa-Spain’s loan to Enersis to finance our acquisition of an additional stake in Endesa-Chile in 1999, was on our balance sheet under long-term accounts payable with related parties. 

On March 31, 2003, at an Extraordinary Shareholders’ Meeting, Enersis’ shareholders approved a capital increase for the equivalent of up to US$ 2 billion.  The capital increase which commenced on May 31, 2003, has allowed for the capitalization of all of Endesa-Spain’s loan to Enersis (with a face value of approximately US$ 1,374 million), and will allow for the capitalization of Enersis’ local bonds (with a face value of approximately US$ 151 million), as well as the subscription of shares for cash.  At the time of this annual report, Enersis has received a substantial amount of cash in the context of the first pre-emptive rights period, which ends on June 30, 2003.

On May 15, 2003, Enersis and Endesa-Chile closed credit agreements for approximately US$ 1,588 million and US$ 743 million, respectively.  These facilities (collectively, the “Facilities”) refinanced most of the existing bank indebtedness of both borrowers.  As part of this refinancing, Enersis combined most of its outstanding syndicated

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and bilateral credit agreements, which would have otherwise matured in 2003 and 2004, into the Facilities, which now mature in May 2008.  The Facilities have a 30-month grace period prior to the commencement of debt repayment, during which period Enersis and Endesa-Chile will only make interest payments, subject to certain mandatory prepayments in the event of certain asset sales, or debt or equity issuances.  As of November 2005, Enersis and Endesa-Chile will be required to repay principal and also continue to make interest payments.  The Enersis Facility accrues interest at 350 basis points over Libor, while the Endesa-Chile Facility accrues interest at 300 basis points over Libor.  The Enersis facility is secured by all of Enersis’ equity stake in Chilectra as well as the intercompany loans owing from Chilectra to Enersis.  The Endesa-Chile Facility, in turn, is guaranteed by four of Endesa-Chile’s subsidiaries: Empresa Eléctrica Pehuenche S.A., Empresa Eléctrica Pangue S.A., Compañía Eléctrica Tarapacá S.A., and Endesa-Chile Internacional.  The Facilities eliminated two aspects of the prior bank indebtedness; namely, they do not require a mandatory prepayment in the event that the borrower fails to achieve “investment grade” ratings from Standard & Poor’s, and they also modified the pricing of the interest margin to a fixed level, as mentioned above, instead of one that was determined by the credit risk assigned by Standard & Poor’s, which is subject to change.

As is customary for certain credit and capital market debt facilities, a significant portion of Enersis’ financial indebtedness is subject to cross-default provisions.  Defaults in relation to any single indebtedness of Endesa-Chile or some of its more relevant subsidiaries, with an outstanding amount equal to or in excess of US$ 30 million could give rise to a cross-default under the Endesa-Chile Facility and under the Enersis Facility.  Likewise, defaults in relation to any single indebtedness of Enersis or some of its more relevant subsidiaries, including Endesa-Chile, with an outstanding amount equal to or in excess of US$ 30 million after the applicable grace periods (if any) have expired could give rise to a cross-default under the Enersis Facility.  In addition, if Enersis or any of its subsidiaries defaults in the payment on any indebtedness having a principal amount exceeding US$ 30 million, an Event of Default would be triggered under the Enersis Yankee Bonds.  Finally, 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. 

The Facilities require Enersis and Endesa-Chile to comply with specified financial covenants related to maximum ratios of indebtedness to cash flow, indebtedness to EBITDA and indebtedness to stockholders equity, and a minimum ratio of cash flow to interest expense.  The Facilities require us to apply 75% of our excess cash (as defined in the Facilities, including allowance for dividends), and most of the proceeds derived from asset sales, equity issuances or debt issuances to prepay the Facilities.  In addition, the Facilities contain covenants that (1) prohibit our subsidiaries whose principal place of business is in Chile from incurring indebtedness, subject to certain exceptions and (2) prohibit Enersis and Endesa-Chile and certain of our subsidiaries (subject, in each case, to a variety of exceptions) from, among other things: prepaying indebtedness, creating or permitting the existence of liens on properties and assets, making investments, loans (including intercompany loans) or advances, issuing guarantees or providing other credit support, selling or transferring essential operating assets, consummating mergers, consolidations, liquidations or dissolutions, making capital expenditures in excess of certain agreed thresholds, which range from US$ 238 million to US$ 307 million per year on a consolidated basis, repurchasing or redeeming capital stock or making other payments in respect of capital stock, entering into agreements (other than the Facilities) which restrict the ability of our subsidiaries to apply the proceeds from equity or debt issuances and asset sales by way of dividend or repayment of intercompany indebtedness, entering into transactions with affiliates, entering into sale and leaseback transactions and making material changes in the nature of the principal business of Enersis, Endesa-Chile and our more relevant subsidiaries.

A substantial portion of Enersis’ and Endesa-Chile’s financial indebtedness was subject to mandatory prepayment triggers (in the event of a loss of “investment grade” status from Standard & Poor’s) and a pricing grid based on each of the respective borrower’s senior unsecured long-term foreign currency Standard & Poor’s debt ratings.  On December 11, 2002, Standard & Poor’s lowered such ratings for both Enersis and Endesa-Chile from “BBB+” to “BBB” as a result of the currency devaluations affecting our Argentine and Brazilian subsidiaries and the reduction in Chilean node prices.  On February 24, 2003, Enersis and Endesa-Chile were downgraded again from “BBB” to “BBB- with a negative outlook”, based primarily on Standard & Poor’s heightened concerns about our ability to refinance ourselves in the midst of difficult market conditions and the deterioration of our investments in Argentina and Brazil.  This downgrade resulted in a 62.5 basis point increase on our interest rate margin.  However, all such indebtedness was refinanced with the new bank facilities described above on May 15, 2003.  Under the new bank Facilities, any adjustments to our credit rating will have no impact on the terms, including the interest payable, of the Facilities.  On May 16, and as a direct consequence of our new bank refinancing, Standard &

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Poor’s lifted its negative outlook and left both Enersis and Endesa-Chile corporate foreign currency ratings debt rating at “BBB-” with a stable outlook.

Finally, we believe that most of our companies have access to existing lines of credit sufficient to meet all of our present working capital needs in quantities sufficient to meet all of our funding requirements.

The table below sets forth the Company’s debt maturity schedule as of December 31, 2002.

Payments of Debt due by Period (in US$ million)

ENERSIS S.A. on a consolidated basis as of December 31, 2002

As of December 31, 2002:	Jan 2003 - Dec 2003		Jan 2004 - Dec 2004		Jan 2005 - Dec 2005		Jan 2006 - Dec 2006		After Dec 2006		TOTAL
Contractual Obligations
Bank Debt		1,247		1,811		83		45		88		3,273
Yankee bonds		329		5		55		450		1,541		2,380
Chilean bonds		25		42		37		296		433		833
EMTN bonds		381		—		—		—		—		381
Elesur debt*		—		1,374		—		—		—		1,374
Other debt		212		80		76		71		295		739
Total		2,194		3,312		251		861		2,357		8,980

Note:   Totals do not necessarily sum due to rounding.

* Elesur debt was our inter-company loan with a Chilean subsidiary of our holding company, ENDESA, S.A. (Endesa-Spain).  This was the portion of the original loan that had not yet been paid off as of December 31, 2002.  The proceeds of the original loan were used, in their entirety, for our purchase of a 34.7% stake in Endesa-Chile.  In June 2003, this debt was capitalized in the context of Enersis’ capital increase.

The table below sets forth the Company’s debt maturity schedule as of May 31, 2003.

Payments of Debt due by Period (in US$ million)

ENERSIS S.A. on a consolidated basis as of May 31, 2003

As of May 31, 2003 (1):	Jan 2003 - Dec 2003		Jan 2004 - Dec 2004		Jan 2005 - Dec 2005		Jan 2006 - Dec 2006		After Dec 2006		TOTAL
Contractual Obligations
Bank Debt		428		351		480		834		1,263		3,355
Yankee bonds		536		5		55		450		1,541		2,587
Chilean bonds		26		46		41		319		512		943
EMTN bonds		—		—		—		—		—		—
Elesur debt*		—		1,398		—		—		—		1,398
Other debt		218		92		96		86		318		810
Total		1,207		1,892		672		1,689		3,633		9,093

(1)

The pro forma table above has been prepared for illustrative purposes only in order to reflect our contractual obligations on a consolidated basis, giving effect to our refinancings through May 31, 2003.

*

Elesur debt was our inter-company loan with a Chilean subsidiary of our holding company, ENDESA, S.A. (Endesa-Spain).  This was the portion of the original loan that had not yet been paid off as of May 31, 2003.  The proceeds of the original loan were used, in their entirety, for our purchase of a 34.7% stake in Endesa-Chile.  In June 2003, this debt was capitalized in the context of Enersis’ capital increase.

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Our subsidiaries and related companies also generate cash flow from operations.  The discussion below of cash flow is based on our consolidated statements of cash flows prepared in accordance with Chilean GAAP that include cash flows from Endesa-Chile.

Our operating activities used net cash of Ch$ 538.7 billion in 2000, Ch$ 560.5 billion in 2001 and Ch$ 627.8 billion in 2002.  The increase from 2000 to 2001 is primarily attributed to the collection of sales receipts of Ch$ 229.4 billion and lower operating expenses paid of Ch$ 24.2 billion, which was partially offset by increases in interest costs paid of Ch$ 84.9 billion and higher value added taxes paid in the amount of Ch$ 116.0 billion.  The increase from 2001 to 2002 is attributed to lower value added taxes paid of Ch$ 115.7 billion and lower interest cost paid of Ch$ 47.3 billion which was offset by lower collection of sales receipts of Ch$ 64.0 billion.

In 2000, we had a net cash outflow of Ch$ 814.3 billion compared to a 2001 inflow of Ch$ 41.0 billion and a 2002 outflow of Ch$ 285.0 billion.  The net cash outflow in 2000 is principally due to payments of outstanding debt of Ch$ 2.2 billion with the proceeds received from the issuance of shares for Ch$ 314.4 billion and debt financing of Ch$ 1.6 billion.  The net inflow in 2001 is principally due to payments of outstanding debt and bonds of Ch$ 2.3 billion, offset by proceeds from debt and bond issuances of Ch$ 2.3 billion.  The net cash outflow in 2002 is attributable to payments of debt of Ch$ 1,094.5 billion and dividends paid of Ch$ 100.4 billion, which was partially offset by the issuance of Ch$ 978.9 billion of debt and bond issuances of Ch$ 131.5 billion. 

We had a net cash inflow of Ch$ 176.6 billion in 2000, compared to a net cash outflow of Ch$ 503.6 billion in 2001 and net cash outflow of Ch$ 336.9 billion in 2002.  Capital expenditures for property, plant and equipment were Ch$ 343.0 billion; Ch$ 341.5 billion and Ch$ 317.9 billion for the years ended 2000, 2001 and 2002, respectively, in accordance with our capital investment strategy.  Investment activities in 2000 resulted in positive cash flows due to the sale of our subsidiaries Transelec, Aguas Cordillera and Aguas Puerto in the aggregate amount of Ch$ 659.1 billion.  This was partially offset by our equity participation increase in existing subsidiaries for Ch$ 323.1 billion, the most important of which were Chilectra and Cerj for Ch$ 222.3 billion and Ch$ 80.3 billion, respectively.  Contributing to negative cash flows from investing activities in 2001 is Ch$ 187.9 billion in other investment disbursements which principally consists of the repurchase of Yankee bonds during November at prices of US$ 98.4 million and US$ 160.9 million for Enersis and Endesa-Chile, respectively.  Our most important cash outflows in 2002 were disbursements in Ralco of Ch$ 317.9 billion and the investment in Central Fortaleza (Brazil) for Ch$ 15.5 billion, offset by a sale of fixed assets for Ch$ 22.6 billion.

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

None.

D. Trend information.

In general, there are no trends that apply to all of  the generation and distribution companies in the five countries in which we operate.  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.  Our generation companies that have been affected by adverse weather conditions have taken appropriate strategic and commercial policies in order to partially mitigate that risk, through greater reliance on gas-fired power plants.  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.

From a strategic and operating perspective, Enersis established the Genesis Project in October 1999, in a plan that has been extended through December 2005, with intentions of significantly reducing costs, and maximizing operating and financial efficiencies.  In October 2002, Enersis’ board of directors approved a Financial Strengthening Plan with the purpose of refinancing US$ 2.33 billion of Enersis and Endesa-Chile syndicated and bilateral bank debt maturing in 2003 and 2004, improving the capital structure with a US$ 2 billion capital increase, asset sales of approximately US$ 600 million for liquidity reasons and, a cash flow improvement.  We refinanced this US$ 2.33 billion of indebtedness with the Enersis Facility and the Endesa-Chile Facility.  The higher cost of financing that results from the higher interest rate of the Facilities will require us to devote more capital to servicing our debt, and may divert us from investing in our operations and restrict our ability to provide credit support to our subsidiaries and affiliates from whom we receive dividends and distribution payments.  See “Item 4.  Information on

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the Company—B. Business overview—Business Strategy—Financial Strengthening Plan” and “—Liquidity and Capital Resources.” 

E.	[Reserved]
F.	[Reserved]
G.	[Reserved]
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 and Mr. Luis Rivera resigned from the board of directors.  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, 2002 (except for Mr. Alfonso Arias who has been director since March 2003).

Directors

	Age	Position	Current Position Held Since
Pablo Yrarrázaval (1)	51	Chairman	2002 (Chairman July 2002)
Rafael Miranda	54	Vice Chairman	1999
Alfonso Arias	51	Director	2003
José Luis Palomo	49	Director	2002
Ernesto Silva (1)	55	Director	1997
Hernán Somerville (1)	62	Director	1999
Eugenio Tironi	51	Director	2000

(1) Member of the Directors’ Committee.

Set forth below are brief biographical descriptions of our directors, as of December 31, 2002, 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 DCV “Depósito Central de Valores,”and is also Chairman of the Santiago Stock Exchange, a position he has occupied since 1982.  Before Mr. Yrarrázabal 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.

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José Luis Palomo.  Mr. Palomo holds degrees in Business Administration, in Sociology and in Law from the Universidad de Madrid.  He also holds a 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 Chile and 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 Mideplan and 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 City Bar Association.  He is on the board of directors of several Chilean companies, many of them related to the Claro Group, 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 Latin 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, Mr. Tironi is 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.

Officers (as of December 31, 2002)

	Age	Position	Current Position Held Since	Years with Enersis and Subsidiaries
Enrique García	58	Chief Executive Officer	1999	4
Rafael López	46	Corporate Chief Planning and Control Officer	2002	4
Mario Valcarce	53	Corporate Chief Financial Officer	2002	12
Domingo Valdés	39	General Counsel	1999	10
Marcelo Silva	56	Corporate Distribution and Services Officer	2002	21
Fernando Nadal	45	Corporate Communications Officer	1999	4
José M. Raventós*	39	Corporate Auditor	2001	2

^* Mr. Raventós left Enersis on January 31, 2003.

Set forth below are brief biographical descriptions of our executive officers, all of whom reside in Chile. 

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Enrique García.  Mr. García, the Chief Executive Officer since May 1999 and a civil engineer by profession, joined Enersis after a career of 25 years with Endesa-Spain, including the top positions of Chief Technical Officer between 1992 and 1997 and Chief Distribution Officer since 1997.  Mr. García spent many years in charge of civil engineering of hydraulic projects and thermal power plants.  He has served on numerous boards of directors of Endesa-Spain’s subsidiaries.

Mario Valcarce Durán.  Mr. Valcarce has been Chief Financial Corporate of Enersis since October 2002.  He was the CFO of Endesa-Chile until such time.  Mr. Valcarce holds a degree in commercial engineering from the Catholic University of Valparaíso.  He is also a member of the Risk Classification Commission of the Chilean Pension Funds System. 

Rafael López.  Mr. López, the Corporate Chief Planning and Control Officer, assumed his function as of January 1, 2002.  Prior to joining Enersis, Mr. López held the same position in Endesa-Chile since 1999.  Mr. López is a commercial engineer from Universidad de Málaga (Spain) and he holds a PDG from the IESE (Universidad de Navarra).  Mr. López joined Endesa-Spain on December 1, 1997, where he worked as a Director of Project Analysis for a subsidiary, Endesa Internacional, just prior to his position in Planning and Control in Endesa-Chile. 

Marcelo Silva.  Mr. Silva, the Corporate Distribution and Services Officer since November 2002, holds a degree in Commercial Engineering from Universidad de Chile.  Mr. Silva’s first appointment within the Enersis Group was in Chilectra in June 1973.  Since then, he has had increased responsibilities in Finance in Chilectra and its subsidiaries, having been appointed as CFO in 1989, deputy CEO in 1992 and CEO of Chilectra in 1997.  In 2000, Mr. Silva was appointed General Manager of the Distribution Business segment for Latin America.

Domingo Valdés.  Mr. Valdés, General Counsel since May 1999, is a lawyer from Universidad de Chile with a Master of Laws Degree from the University of Chicago.  In a prior period, he spent a year at an English language program at the University of Michigan and earned a diploma from its English Language Institute.  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 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 Chile Law School.

Fernando Nadal.  Mr. Nadal, the Corporate Communications Officer since May 1999, is a lawyer and a journalist, with degrees from Universidad Autónoma de Madrid and Universidad de Alcalá de Henares.  Mr. Nadal has had an extensive career as a journalist for several Spanish publications including Ya, ABC, El País and Expansión.  Prior to joining Enersis, Mr. Nadal was Communications Director for Endesa-Spain for a year.  At Enersis, Mr. Nadal reports directly to the board of directors.

Jose María Raventós.  Mr. Raventós, the Corporate Auditing Officer since February 2001, holds a business degree from Universidad de Sevilla (Spain).  Prior to joining Enersis, he worked as the Audit Director of our Brazilian subsidiaries, including Cerj, Coelce, CIEN and Cachoeira Dourada, for a period of three years.  Between 1990 and 1998, he worked in both the auditing and quality control areas of Compañía Sevillana de Electricidad, a subsidiary of Endesa-Spain.  At Enersis, Mr. Raventós reported directly to the board of directors.  He left the Company as of January 31, 2003 and returned to Endesa-Spain.

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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 2002, 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 ended December 31, 2002
	(in thousands of Ch$)
Alfredo Llorente		29,586
Pablo Yrarrázaval		25,225
Rafael Miranda		37,524
José María Fesser		24,406
Luis Rivera		13,019
José Luis Palomo		11,407
Ernesto Silva		28,606
Hernán Somerville		28,606
Eugenio Tironi		24,413
Total		222,792

For the year ended December 31, 2002, the aggregate amount of compensation paid by us to all directors and executive officers, was approximately US$ 3.3 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 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.

The directors’ committee is composed of: Pablo Yrarrázaval (Chairman), Hermán Somerville, and Ernesto Silva.  The secretary of the directors’ committee is Domingo Valdés.

The directors’ committee operates according to the Chilean Companies Act.  The duties of directors’ committee are the following:  (i)  examine the auditor’s reports, the accounting inspectors’ reports, the balance sheet and the financial statements, and provide its opinion prior to the presentation of such documents to the Shareholders’ meeting (their opinion must be included in the annual report); (ii)  propose to the board of directors the external auditors and the rating agencies to be submitted to the shareholders meeting; (iii) examine the transactions entered into by the company with related entities or directors, or in those where directors and officers have an interest, and to prepare a report on these transactions; and (iv) examine the remuneration systems of principal executives and managers.

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D. 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,
	1998		1999		2000		2001		2002
Enersis (Chile)		196		212		267		235		242
Endesa-Chile(1)		3,158		2,526		1,764		1,752		1,937
Chilectra (Chile)		1,674		1,383		868		722		720
Río Maipo (Chile)		215		181		92		78		76
Edesur (Argentina)		2,999		2,630		2,379		2,267		2,251
Edelnor (Peru)		765		724		618		557		565
Cerj (Brazil)		1,897		1,782		1,402		1,354		1,451
Codensa (Colombia)		1,904		1,213		969		813		802
Coelce (Brazil)		1,835		1,958		1,592		1,464		1,401
Other Business		1,137		1,909		1,006		1,169		1,549
Total		15,780		14,518		10,957		10,411		10,994

(1) Includes Chilean operations and subsidiaries abroad.

Chile

As of December 31, 2002, Enersis and its principal subsidiaries and related companies had 10,994 employees, including 2,494 employees of Enersis and of all Chilean majority owned subsidiaries, which in turn includes 818 employees of Endesa-Chile employed in Chile.  Collective bargaining agreements with employees of Enersis are scheduled to expire on December 31, 2003.  Collective bargaining agreements with employees of Chilectra took effect on December 31, 2000 and are scheduled to expire on December 31, 2004.  Endesa-Chile entered into a collective bargaining agreement with our engineering personnel in July 2000.  This agreement has a term of three and a half years.  Our collective bargaining agreements with our electro-mechanical, technical and administrative personnel terminate in June 2004 and December 2005.

Argentina

As of December 31, 2002, Edesur had 2,251 employees and Endesa-Chile’s subsidiaries, Costanera and CBA had 234 employees and El Chocón had 50 employees.  Edesur is a party to two collective bargaining agreements that are scheduled to expire in July 2003 February 2004.  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, 2002, Cerj had 1,451 employees.  Endesa-Chile employed 52 persons in Cachoeira Dourada at the end of 2002.  As of December 31, 2002, Coelce had 1,401 employees.  Coelce is a party to a collective bargaining agreement that is scheduled to expire in October  2004.  Cachoeira Dourada has two agreements.  One is scheduled to expire in May 2004 and the other, as of the date of this annual report is under negotiation.  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 in duration.

Colombia

As of December 31, 2002, Codensa had 802 employees.  Endesa-Chile’s Betania employed 34 persons and Emgesa had 315 employees as of December 31, 2002.

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Codensa is a party to two-year collective bargaining agreements that are scheduled to expire in December 2003.  Typically, collective bargaining agreements have two-year terms; however, there are no legal restrictions on the maximum duration of such agreements.  Emgesa is a party to a collective bargaining agreement that is scheduled to expire in December  2003.

Peru

As of December 31, 2002, Edelnor had 565 employees and Endesa-Chile’s related company Edegel had 154 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, 2002, Endesa-Spain, beneficially owned 65.0% of the shares of Enersis.  No other shareholder beneficially owned more than 5%.  Chilean private pension funds, or AFPs, owned 12.49% in the aggregate, with the highest AFP shareholding being AFP Habitat, with 3.90%.  Chilean stock brokers, mutual funds, insurance companies, foreign equity funds, and other Chilean institutional investors collectively owned 11.13% of our equity.  Approximately 10,075 minority shareholders own the remaining 7.41% of shares.

Subsequent to a capital increase which commenced May 31, 2003, Endesa-Spain may end up owning more than 65% of Enersis.  As of the date of this annual report, the capital increase has not finished and we cannot predict the final equity interest of Endesa-Spain in Enersis. 

Principal Shareholders

Enersis’ only outstanding voting securities are shares of common stock.  As of December 31, 2002, according to our stockholder records, our 8,291,020,100 shares of common stock outstanding were held by 10,194 stockholders of record.  On January 28, 1999, Endesa-Spain, our largest shareholder, with a 31.9% interest on such date, commenced a tender offer to increase its beneficial ownership interest in Enersis to 63.9% as of April 7, 1999.  During a 30-day pre-emptive equity rights offering ending October 10, 2000, in which Enersis raised approximately US$ 520 million, Endesa-Spain increased its ownership interest to 65.0%.  As of December 31, 2002, 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.  The following table sets forth certain information concerning ownership of the common stock as of December 31, 2002, with respect to each stockholder known to us to own more than 5% of the outstanding shares of common stock.

	No. of Shares Owned		Percentage of Total Shares Outstanding
Endesa-Spain (1)		5,389,163,065		65.00	%

(1) Endesa-Spain’s 65.0% beneficial interest is held through Elesur S.A. (35.15%), Compañía de Inversiones Chispa Uno S.A. (21.47%) and Endesa Internacional S.A. (8.38%).

Subsequent to a capital increase which commenced May 31, 2003, Endesa-Spain may end up owning more than 65% of Enersis.  As of the date of this annual report, the capital increase has not finished and we cannot predict the final equity interest of Endesa-Spain in Enersis.

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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.

Enersis carries out a cash management policy with respect to its subsidiaries in Chile.  It is common practice for Enersis to transfer surplus funds of one subsidiary to a subsidiary with a cash deficit.  These transfers are carried out through intercompany loans at standard market conditions.  As a result of the refinancing of US$ 2.33 billion in May 2003, Enersis’ ability to centralize cash management in this way with respect to its Chilean subsidiaries is now subject to certain restrictions. 

Enersis has made structured loans to Chilectra, at the same cost of funds of Enersis, primarily in order to finance Chilectra’s foreign investments.  As of December 31, 2002, the outstanding net balance for such loans was US$ 691 million.  Additionally, Enersis lent to its Brazilian subsidiaries an amount of US$ 333 million.

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

Antitrust Issues

In 1992, Enersis, which was at that time principally engaged in electricity distribution through Chilectra, became subject to an antitrust claim relating to its acquisition of an interest in Endesa-Chile because of alleged anticompetitive integration of distribution and generation businesses purportedly resulting from that acquisition.  In June 1992, the Chilean Supreme Court ruled in favor of Enersis, holding that its ownership of Endesa-Chile did not violate antitrust laws.  The Supreme Court also permitted Enersis to increase its ownership percentage of Endesa-Chile to the maximum permitted by Endesa-Chile’s by-laws, which was then 26%.  The Court recommended that the Fiscal Nacional Económico (the “Fiscal”), a semi-autonomous prosecutor for antitrust matters, monitor the activities of companies involved in the electricity sector to ensure free competition.

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In 1995, as a consequence of Enersis’ acquisition of additional shares of Endesa-Chile, the Fiscal submitted a request to the Comisión Resolutiva, a judicial and administrative body having jurisdiction over compliance with Chile’s antitrust laws, for an evidentiary review of the generation, transmission and distribution businesses of Chilectra, Endesa-Chile and Endesa-Chile’s transmission subsidiary, Transelec.  In September 1995, the Fiscal requested that the Comisión Resolutiva commence discovery on the two issues the Fiscal deemed relevant:

• whether, in the then current structure of the SIC, there was a vertical and/or horizontal integration of companies participating in generation, transmission and distribution activities that had a restrictive effect on electricity markets; and

• whether divestiture of one or more of the businesses was advisable.

On December 26, 1995, the Comisión Resolutiva notified Enersis that the Fiscal had added Enersis as a party because of its acquisition of additional shares of Endesa-Chile although Enersis had not previously been notified of this antitrust process.  The Fiscal contended that Enersis’ ownership interests in Chilectra and Endesa-Chile increased the vertical integration of companies participating in the electricity market.  On June 11, 1997, the Comisión Resolutiva unanimously ruled in favor of Enersis and refused the request of the Fiscal.  The matter was not appealed and the period during which an appeal before the Chilean Supreme Court could have been brought expired.

Notwithstanding this favorable outcome, the Comisión Resolutiva issued the following prescriptions which were required to be implemented within a reasonable time:

• that the government issue rules under the Chilean Electricity Law to enhance competition and to decrease ambiguity of the rules governing the electricity sector;

• that Transelec be transformed into a sociedad anónima abierta, or a publicly held limited liability stock company subject to public reporting requirements under the supervision of the SVS, that the stockholder base of Transelec be broadened to include other parties, and that Transelec become the owner, rather than the lessee, of the assets it operates; and

• that distribution companies submit their power and energy contracts to public bidding.

On September 10, 1998, the Reglamento de Servicios Eléctricos was enacted, which together with DFL No. 1, regulates the Chilean electricity sector.  Among other things, these regulations now require that distribution companies submit their power and energy contracts to public bidding.

In 1998, Endesa-Chile transferred approximately US$ 300 million of transmission assets to Transelec pursuant to a capital increase of Transelec.  During 2000, Endesa-Chile divested itself of Transelec (see “Item 4.  Information on the Company—A. History and development of the company —Description of Business—Introduction—Sale of Transelec”).

On April 27, 1999, the Fiscal submitted a third request to the Comisión Resolutiva seeking to prohibit Enersis from increasing its share ownership in Endesa-Chile from the then current 25.3%.  He also requested an injunction to halt the Chilean auction related to the cash tender offers by Enersis to purchase an incremental stake in Endesa-Chile (the “Cash Tender Offers”).  The Fiscal asserted, among other things, that control of Endesa-Chile by Enersis would be contrary to Chilean antitrust law since it would create a monopolistic cartel in the electricity sector of the Chilean economy that would hinder competition.  The Comisión Resolutiva initially decided to issue an injunction to halt the purchase of shares of Endesa-Chile by Enersis, and to prohibit Enersis, directly or indirectly through any related party, from increasing its 25.3% stake in Endesa-Chile for so long as the injunction was in effect or until the Comisión Resolutiva decided otherwise.

On May 10, 1999, the Comisión Resolutiva reversed its April 1999 decision, lifted the injunction, and issued new precautionary measures to replace prior resolutions.  The new precautionary measures will remain in effect until a final decree is issued or until the Comisión Resolutiva decides otherwise.  These precautionary measures include:

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• the shares of Endesa-Chile sold in excess of our then current 25.3% could be acquired solely and exclusively by Enersis and could only be registered in our name;

• we are prohibited from transferring, pledging, disposing or agreeing to accept any type of action that could restrict the disposition of, in any manner, any shares of Endesa-Chile acquired in excess of our then current 25.3% stake unless authorized by the Comisión Resolutiva; and

• Enersis and Endesa-Chile were prohibited from having common members on their respective boards of directors and not only from having common or related independent auditing firms, but also from having common or related accounting supervisors.

In September 2001, the parties presented their final allegations.  The final resolution was issued in October 30, 2002 under Resolution No. 667.  According to such final resolution, the Comisión Resolutiva ruled in favor of Enersis and rejected the request of divestiture formulated by the Fiscal.  Nonetheless, the aforesaid resolution incorporated as permanent restrictions to Enersis, Chilectra and Endesa-Chile some of the precautionary measures which were imposed on May 10, 1999.  Chilectra, which was not formerly contemplated in the precautionary measures, was included among such permanent restrictions.  Those permanent restrictions are the following:  Enersis, Chilectra and Endesa-Chile are prohibited from having common members on their respective board of directors, from having common or related independent auditing firms, and from having common or related accounting supervisors.  The resolution also established, among others, restrictions such as a prohibition of merging certain companies controlled by Enersis which are, respectively, dedicated to activities of generation and distribution without the approval of the Comisión Resolutiva, and the obligation for Enersis, Endesa-Chile and Chilectra to stay registered before the Superintendency of Securities and Insurance.

On May 15, 2003 the Supreme Court of Chile made its final verdict as a consequence of an appeal against Resolution No. 667, ruling in favor of Enersis and confirming Resolution No. 667.

On May 28, 2003, a private complaint against Enersis was filed with the Comisión Resolutiva alleging that Enersis has failed to comply with Resolution No. 667 since Enersis, Endesa-Chile and Chilectra have supposedly shared finance, auditing and communication departments.  The complaint alleges that by joining these departments, Enersis is frustrating the Comisión Resolutiva’s objective of preventing energy companies from sharing essential information and keeping the electricity business of generation and distribution independent.  Enersis believes that the Comisión Resolutiva’s investigation will not lead to a prohibition of Enersis’s control over the energy distribution and generation markets, because we believe this matter was clearly resolved by Resolution No. 667.

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 belonging to 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 a “failure cost” to be imposed on generators who do not fulfill their contractual obligations during rationing periods.  Failure cost is calculated and set by the 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 cost of failure 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 1968-69 constituted “force majeure.” Because the drought in 1998 was the worst in recorded history, Endesa-Chile argued that the “force majeure” exemption should be applied and disputed the applicability of failure cost during the first rationing period.  The dispute was settled on March 26, 1999 by the Ministry of Economy, which held that those transactions carried out in the spot market between generation companies in those node locations and during the hours when the energy supplied was not enough to

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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. 

The second rationing decree period began on April 30, 1999 and was eventually superseded by a third rationing decree which began on June 12, 1999 and was extended to August 31, 1999.  In the interim, on June 8, 1999, the Electricity Law was amended and, as a result, extreme hydrological conditions were no longer deemed to constitute “force majeure.”  In addition, the amended Electricity Law provided for the compensation (there is no maximum level of compensation) of customers 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$ 5 million per breach resulting from inadequate supply to the electricity system.  In respect of the third rationing decree period Endesa-Chile paid US$ 2.3 million by way of compensation to customers in 1999.  The amount paid was based on the days and hours in which rationing actually occurred.  Endesa-Chile contested the payments on the grounds that their power purchase agreements with the distribution companies, who in turn provide the electricity to the final clients, were executed prior to the enactment of the amendment to the Electricity Law and that the amendment could not be applied retroactively to pre-existing contracts.  This case is currently being reviewed by the Chilean courts.

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. 

On April 25, 2003, Enersis, Endesa-Chile, Elesur and Chilectra filed an action before the Centro Internacional de Arreglo de Diferencias relativas a Inversiones (“CIADI”) 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 investments of Enersis, our subsidiaries and Elesur, in Argentina, as a consequence of the approval of Economic Emergency Law, Decree No. 214/2002, Decree No. 293/2002 and Resolution No. 38/2002 of the Ministry of Economy.  The outcome of these new rules has been a complete 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 met.  The arbitration action argues that the Republic of Argentina’s failure to comply with its commitments in relation to our investments by the part of the Republic of Argentina is against the letter and the spirit of the Treaty.

Distrilec Inversora S.A.: Arbitration Relating to Appointment of Directors

On May 30, 2000 Pérez Companc S.A., now PECOM ENERGIA S.A. and PCI Power Edesur Holding Limited (collectively, “PECOM”) commenced an action against Endesa-Chile, Chilectra and Enersis (collectively, the “Enersis Group”) before the Arbitration Court of the International Chamber of Commerce, Paris, France.  PECOM 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 are terminated.  Based on the provisional estimates made by PECOM, the Arbitration Court determined that the amount of the process was between US$ 180-200 million.  The parties 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 an 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 a compensation of approximately US$ 200 million.  The arbitration award was challenged by

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the Enersis Group 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 recently issued the final judgment, which rejects the requested annulment of the aforesaid arbitration award.  This arbitration award stands as a firm and definitive resolution on this matter. 

Payments Relating to Contractual Penalties

On April 1, 1998, Meridional S/A Serviços Empreendimentos e Participações (“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 that 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 process is approximately US$ 61.7 million.  As of the date of this annual report, there has been no final resolution issued by the court of first instance in Brazil.  The parties have the right to appeal the resolution of the lower court.

Edelnor S.A.: Peruvian Tax Authority (“Superintendencia de Administración Tributaria” - “SUNAT”) inquiry

In October 2000, the Peruvian Tax Authority determined an income tax debt for the 1999 fiscal year due to alleged excess asset depreciation over the reassessment of Edelnor’s assets that occurred after the merger in 1996 of Edelnor and Edechancay.

The Peruvian Tax Authority determined through Law No. 27,034 (“Séptima Disposición Transitoria y Final de la Ley No.  27,034”) that starting fiscal year 1999, Edelnor should not depreciate over the reassessed assets.  Edelnor appealed the Tax Authority resolution and at the same time started an arbitration process with the Peruvian Government, in accordance with the Stability Agreement, in order to resolve the controversy originated by the Peruvian Tax Authority interpretation.  The appeal was resolved against Edelnor before the arbitration process finished.  The arbitration process was favorable to Edelnor.  Edelnor appealed to the Fiscal Court, which judged in favor of the arbitral process resolution and declared the Tax Authority pronouncement null and void.  The Fiscal Court ordered the Tax Authority to resolve the controversy taking into account the legal framework established in the arbitral process and if the case required it, to qualify the facts as established in the VIII Norm Title of the Tax Code.  Currently, the Tax Authority is evaluating the economic and managerial reasons why the merger between Edelnor and Edechancay occurred.

Ralco Project

The Sixth Civil Court of Santiago recently issued its ruling in relation to a lawsuit opposing the Ralco Project filed by a group of people belonging to the Pehuenche ethnic group.  The lower court’s sentence concludes that the voluntary procedure undertaken by Endesa-Chile for the assessment of the environmental impact of the Ralco Project is null since, in the court’s opinion, CONAMA, the Environmental Government Agency, was not legally entitled to assess the environmental impact study presented by the Company to CONAMA.  Both defendants, the Company and CONAMA, consider this questioning of the legitimacy of the process is unjustified.  The resolution dictated by the Sixth Civil Court of Santiago does not imply the penalization of the project, which to date has achieved more than 80% completion.

On May 30, 2003, the plaintiffs requested the suspension of the Ralco Project, which was rejected by the court.  Instead, of suspending the entire project, the judge ruled that the flooding of the dam should not proceed.  Endesa plans to appeal this ruling before the Appeals Court of Santiago.

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Legal Demand by CELG

In April 2003, CELG initiated legal proceedings against Cachoeira Dourada and ANEEL demanding the annulment of the energy sale contract signed with Cachoeira Dourada in 1998, alleging, among other things, that the contract is extremely onerous and damaging to the financial stability of CELG, causing it supposed damages of approximately US$ 250 million from 1997 to 2003.

CELG obtained a preliminary and provisional judgment that suspends the effects of the contract and authorizes CELG to stop payments, also provisionally, of the amounts contractually due to Cachoeira Dourada which correspond to the energy sale price.

Both Cachoeira Dourada and ANEEL presented their defenses and legal argument against the decision to suspend the contract.  All parties are waiting for the judge to decide whether or not to confirm the preliminary decision of suspending the effects of the contract.  Should the judge confirm the decision to suspend the effects of the contract, Cachoeira Dourada and ANEEL will have the opportunity to appeal to an appropriate authority.

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 of operations.

Dividends

As determined by Enersis’ board of directors, the current dividend policy is to pay dividends to stockholders as close as possible to 100% 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 in May, August and November of each year and in February of each following year.  However, in 2000, 2001 and 2002 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 in 2002 the shareholders approved on March 31, 2003 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.

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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)

Year	Nominal Ch$		Constant Pesos(1)		US$ per ADS(2)
1998		6.90		8.02		0.56
1999		4.00		4.51		0.31
2000		0.00		0.00		0.00
2001		1.81		1.90		0.13
2002		0.00		0.00		0.00

(1)	Restated in constant Chilean pesos as of December 31, 2002.
(2)	The US dollar per ADS amount has been calculated by applying the exchange rate of Ch$718.61 = US$1.00, the Observed Exchange Rate prevailing on December 31, 2002, 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.

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.

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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		Low
Most Recent Six Months
2003
June (through June 20)		794,686,111		68.70		61.12		4 2/5		4 15/16
May		452,692,199		73.00		61.50		5 1/8		4 1/2
April		96,666,405		62.50		56.50		4 5/9		3 7/8
March		61,843,215		60.00		55.00		4		3 2/3
February		132,965,617		61.50		56.25		4 1/5		3 5/7
January		240,831,006		66.50		57.10		4 2/3		3 6/7
2002
4th quarter		684,639,252		77.00		52.00		5 1/7		3 5/7
3rd quarter		692,521,240		92.80		65.01		6 3/4		4 3/7
2nd quarter		474,079,058		127.02		79.49		9 7/8		5 4/7
1st quarter		512,037,133		176.00		117.50		13 1/2		8 3/5
2001
4th quarter		393,051,601		202.00		163.76		14 6/7		11 1/3
3rd quarter		226,195,786		200.00		171.00		15 1/8		12 1/4
2nd quarter		292,388,256		207.75		185.00		17 1/5		14 2/3
1st quarter		217,618,425		222.00		188.00		19 8/9		16
2000
4th quarter		198,483,727		218.00		166.99		19		14 1/2
3rd quarter		88,658,193		226.00		191.00		21 1/4		16 5/16
2nd quarter		110,101,006		234.00		192.00		22 5/16		18 3/8
1st quarter		190,988,287		252.00		190.00		24 1/8		18 3/8
1999
4th quarter		151,276,179		255.00		205.50		24 3/8		18 5/8
3rd quarter		151,227,476		257.00		219.00		25 1/16		20 3/4
2nd quarter		245,149,949		257.00		177.00		28 1/8		17 5/16
1st quarter		141,861,828		273.00		215.00		28 3/4		22 3/8
1998
4th quarter		181,768,169		240.00		171.00		25 7/8		18 5/16
3rd quarter		339,681,114		263.00		150.00		28 3/8		15 7/8
2nd quarter		187,476,191		281.00		212.00		31 7/8		18 3/8
1st quarter		362,647,847		283.00		204.00		32 1/8		22 9/16

(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 June 20, 2003, 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		5.00
June 20, 2003		65.99		4.75

(1)	As reported by the Santiago Stock Exchange.
(2)	As reported by the NYSE.  One ADS = 50 Shares.

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As of December 31, 2002, there were 7,658,335 ADSs (equivalent to 328,916,750 common shares) outstanding.  Such ADSs represented at such date approximately 3.97% 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.

As of December 17, 2001, Enersis’ shares were traded on the Madrid Exchange under the Latinamerican Exchange program (Latibex).  Each share represents 50 shares of Common Stock and its 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 3,785,758  units in 2002, which in turn was the equivalent of € 25 million.  The stock closed at € 3.92 the last day of trading in Latibex in 2002.

Trading

The Santiago Stock Exchange was established in 1893 and is a private company whose equity consists of 48 shares held by 47 stockholders as of the date of this filing.  As of December 31, 2002, 245 companies had shares listed on the Santiago Stock Exchange.  The Santiago Stock Exchange is Chile’s principal exchange and, for the year ended 2002, accounted for 72.3% of all equity traded in Chile.  Approximately 25.9% 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 1.8% of equity was traded on the Valparaíso Exchange.

Equities, closed-end funds, fixed-income securities, short-term and money market securities, gold and US$ are traded on the Santiago Stock Exchange.  In 1991, the Santiago Stock Exchange initiated a futures market with two instruments, 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 in two sessions, from 11:00 a.m.  to 11:30 a.m. and from 4:00 p.m. to 4:30 p.m., Santiago time, which varies from New York City time depending on the season.  The Santiago Stock Exchange has an electronic trading system called Telepregón, which operates continuously from 9:30 a.m. to 5:30 p.m. on each business day.  On days in which auctions are scheduled, there are three times available for such auctions, 11:30 a.m., 1:00 p.m. and 3:30 p.m.

There are two share price indices on the Santiago Stock Exchange: the General Share Price Index, or IGPA, and the IPSA.  The IGPA is calculated using the prices of over 180 issues and is broken into five main sectors: banks and finance; farming and forest products; mining; industry and miscellaneous.  The IPSA is calculated using the prices of the 40 most actively traded shares.  The shares included in the IPSA are weighted according to the value of the shares traded.  As of December 31, 2002, 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.”  Trading of our shares in the Latibex amounted to approximately 3,785,758  units in 2002, which in turn was the equivalent of € 25 million.  The stock closed at € 3.92 the last day of trading in Latibex in 2002.

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.

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F.	Expense of the issue.
	Not applicable.

Item 10. Additional Information

A.	Share capital.
	Not applicable.
B.	Memorandum and articles of association

Description of Share Capital

Set forth below is certain information concerning our share capital and a brief summary of certain significant provisions of our by-laws and Chilean law.

General

Shareholders’ rights in Chilean companies are governed by a company’s by-laws, which effectively 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 Superintendencia de Valores y Seguros, the Superintendency of Securities and Insurance, or the SVS, under the Ley de Mercado de Valores No. 18045, or the Securities Market Law, and the Chilean Companies Act.  These two laws provide for disclosure requirements, restrictions on insider trading and price manipulation, and protection of minority investors.  The Securities Market Law sets forth requirements for public offerings, stock exchanges and brokers, and outlines disclosure requirements for companies that issue publicly offered securities.  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.

Reporting Requirements Regarding Acquisition or Sale of Shares.

Under Article 12 of the Securities Market Law and 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 1375 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.

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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.

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 General No. 104 enacted by the SVS on January 5, 2001, any person who directly or indirectly intends to take control of a publicly held 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.  At Enersis’ Extraordinary Shareholders’ Meeting dated April 2, 2001, the board of directors’ proposition to make use of transitory Article 10 of Law 19,705 was approved.  Accordingly, the current controlling shareholder may sell its shares outside the aforesaid new chapter which contains tender offer process rules until January 1, 2004.

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 additon, our by-laws do not contain provisions relating to:

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• 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.

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 for the capitalization of Endesa-Spain’s loan to Enersis (with a face value of approximately US$ 1,374 million), and will allow for the capitalization of  Enersis’ local bonds (with a face value of approximately US$ 151 million), as well as the subscription of shares for cash. 

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.  As of this date, there is no such maximum equity concentration.

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.

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Under Chilean law, preemptive rights are exercisable or freely transferable by shareholders during the 30-day period following the granting of such rights.  During such 30-day period, and for an additional 30-day period, 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 current capital increase, the first pre-emptive rights period ends on June 30, 2003 and the second period will be between November 20 and December 20, 2003.  There will also be a preferred opportunity for Enersis’ local bondholders to tender their bonds in exchange for non-subscribed shares.  This opportunity will begin on November 1, 2003 and will expire on November 15, 2003.

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 31, 2003.  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 31, 2003.

Under Chilean law, a quorum for a shareholders meeting is established by the presence, in person or by proxy, of shareholders representing at least a majority of the issued voting shares of a company.  If a quorum is not present at the first meeting, a reconvened meeting can take place at which the shareholders present are deemed to constitute a quorum regardless of the percentage of the shares represented.  The second meeting must take place within 45 days following the scheduled date for the first meeting.  Shareholders’ meetings adopt resolutions by the affirmative vote of an absolute majority of those shares present, or represented, at the meeting.  Additionally, if a shareholders’ meeting is called for the purpose of considering:

• a transformation of the company into a form other than a sociedad anónima abierta (a publicly held, limited liability 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;

• disposition of 50% or more of the assets of the corporation, whether it includes disposition of liabilities or not, as well as the approval or the amendment of the business plan which contemplates the disposition of assets for such amount;

• the form of distributing corporate benefits;

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• issue of guarantees for third parties’ liabilities which exceed 50% of the assets, but if the third party is a subsidiary of the company, the approval of the board of directors is sufficient;

• the purchase of the corporation’s own shares; or

• certain remedies for the nullification of the corporate by-laws,

regardless of the quorum present, the vote required for 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.

Chilean law does not require a Chilean publicly held limited liability stock company to provide its shareholders the same level and type of information required by U.S. securities laws regarding the solicitation of proxies.  However, shareholders are entitled to examine the books of the company within the 15-day period before the scheduled meeting.  Under Chilean law, a notice of a shareholders meeting listing matters to be addressed at the meeting must be mailed no sooner than 15 days prior to the date of such meeting, and, in cases of 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. 1108.  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 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.

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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.

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 General No. 104 enacted by the SVS on January 5, 2001, any person who directly or indirectly intends to take control of a publicly held 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:

• the transformation of the company into an entity which is not sociedad anónima abierta governed by the Chilean Companies Act;

• the merger of the company with another company;

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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;

• 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 to have by-laws that limit the ownership of any shareholder to a specified maximum percentage, require that certain actions be taken only at a meeting of the shareholders and give the shareholders the right to approve certain investment and financing policies, among other requirements.

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.  As of the date hereof, there is no such maximum equity concentration.  Therefore, Enersis is no longer a Title XII Company.  However, the AFPs may continue to hold Enersis shares as long as they comply with other rules of DL-3500.

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 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.  A new Compendium of Foreign Exchange Regulations in force since April 19, 2001 eliminated Chapter XXVI.  This Compendium was restated and is in force since March 1, 2002.  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.  There is no longer assured access to the Formal Exchange Market.  In any event, foreign investors who have purchased their shares under a Foreign Investment Contract 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).  If foreign investors do not deposit the shares of common stock into our ADS facility, they 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

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Investment Contract.  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 will not be entitled to any of the foregoing rights under Chapter XXVI.  Investors receiving Withdrawn Shares in exchange for ADRs have the right to redeposit such shares in exchange for ADRs, provided that certain conditions relating to redeposit are satisfied.

Chapter XXVI provides 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 provides 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 are redeposited.

The Foreign Investment Contract provides that a person who brings foreign currency into Chile to purchase shares of common stock with the benefit of the Foreign Investment Contract must convert it into Chilean pesos on the same date and has five banking business days within which to invest in shares of common stock in order to receive the benefits of the Foreign Investment Contract.  If such person decides within such period not to acquire shares of common stock, such person can access the Formal Exchange Market to reacquire US$, provided that the applicable request is presented to the Central Bank within seven banking business days of the initial conversion into pesos.  Shares acquired as described above may be deposited for ADRs and receive the benefits of the Foreign Investment Contract, subject to receipt by the Central Bank of a certificate from the Depositary (or the Custodian on its behalf) that such deposit has been effected and that the related ADRs have been issued and receipt of a declaration from the person making such deposit waiving the benefits of the Foreign Investment Contract with respect to the deposited shares of common stock.

Access to the Formal Exchange Market under any of the circumstances described above is not automatic.  Pursuant to Chapter XXVI, such access requires approval of the Central Bank based on a request therefore presented through a banking institution established in Chile.  The Foreign Investment Contract will provide 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. 

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On November 16, 1999, the Central Bank issued new regulations which amended Chapter XXVI.  Among the amendments, Chapter XXVI now requires that foreign currency that enters Chile pursuant to Chapter XXVI must be converted into Chilean pesos in the Formal Exchange Market, and the shares evidencing ADRs may only be paid in Chilean pesos.  In addition, foreign currency required to remit the proceeds of the sale of the underlying shares may now be acquired alternatively in the Formal or in the Informal Exchange Market, although remittance of such amounts must necessarily 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.  No assurance can be given, 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 encaje deposit requirement was reduced to 0%, and on April 19, 2001, the encaje was eliminated.  Despite this elimination, the Central Bank may at any time reinstate the encaje. 

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.

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 the restrictions set forth in Article 49 of the Central Bank Law and the following restrictions do not apply:

• 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;

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• 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 certain 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

• 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

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15%.  As of January 1, 2002, the corporate tax rate was to 16%.  As of January 1, 2003, the corporate tax rate increased to 16.5% and it will be 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 16.5% and a distribution of 50% of the net income of the company distributable after payment of the Chilean corporate income tax:

Company taxable income	100.0
Chilean corporate income tax (16.5% of Ch$100)	(16.5	)
Net distributable income	83.5
Dividend distributed (50% of net distributable income)	41.7	5
Withholding tax (35% of the sum of Ch$41.75 dividend plus Ch$8.25)	(17.5	)
Credit for 50% of Chilean corporate income tax	8.2	5
Net withholding tax	(9.2	5)
Net dividend received	32.5
Effective dividend withholding rate	22.1	6%

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 16.5% Chilean corporate income tax (which will increase to 17% in 2004) and the 35% Chilean withholding tax (the former being creditable against the latter) if either the foreign holder:

• has held the shares for less than one year since exchanging ADSs for the shares; or

• acquired and disposed of the shares in the ordinary course of its business or as an habitual trader of shares.

In all other cases, gain on the disposition of shares will be subject to a flat 16.5% Chilean corporate income tax (which will increase to 17% in 2004) 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

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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 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;

• 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;

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• 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.

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 ADRs are released may be taking actions that are inconsistent with the claiming of foreign tax credits.  Accordingly, the analysis of the creditability of Chilean taxes described below could be affected by actions that may be taken by the U.S. Treasury.

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 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$ 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$ on the day they are received, you may be 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

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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.  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 2002 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 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.

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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

We are exposed to market fluctuations in the price of electricity, natural gas, and coal.  We manage our exposure to commodity prices by attempting to secure long-term contracts with our suppliers.  We do not carry out transactions in commodity derivative instruments to manage our exposure to commodity price fluctuations.

Interest Rate Risk

As of December 31, 2001 and 2002, 43.4% and 59.8%, 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.

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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:

	As of December 31,
	2003			2004			2005			2006			2007			Thereafter			Total			Fair Value (1)
	(in millions of constant Ch$)
Long-term Debt
Fixed rate:
Ch$- and UF -denominated		11,566			11,986			13,587			58,181			17,305			169,558			282,184			273,204
Weighted average interest rate		6.0	%		6.0	%		6.0	%		5.9	%		5.9	%		5.9	%		5.9	%
US$-denominated		264,715			20,134			88,583			441,179			93,664			1,167,357			2,075,633			2,028,498
Weighted average interest rate		7.4	%		7.5	%		7.5	%		7.5	%		7.8	%		7.8	%		7.6	%
Other currencies (2)		25,615			29,374			14,486			68,500			9,093			20,660			167,727			174,506
Weighted average interest rate		8.2	%		8.0	%		8.1	%		7.8	%		8.6	%		9.7	%		8.2	%
Variable rate:
Ch$- and UF -denominated		59,812			1,034,123			0			0			0			0			1,093,935			963,997
Weighted 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			1,811,630
Weighted 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			887,482
Weighted average interest rate		12.0	%		11.5	%		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 Brazilian real, the Colombian peso and the Peruvian sol, among others.

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By comparison, as of December 31, 2001, 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:

	As of December 31,
	2002			2003			2004			2005			2006			Thereafter			Total		Fair Value (1)
	(in millions of constant Ch$)
Long-term Debt
Fixed rate:
Ch$- and UF -denominated		9,440			9,829			10,239			10,673			108,586			110,160			258,927		256,124
Weighted average interest rate		6.01	%		6.02	%		6.03	%		6.04	%		6.05	%		6.16	%
US$-denominated		122,769			261,494			53,287			86,934			358,226			1,195,839			2,078,549		2,034,076
Weighted average interest rate		8.89	%		7.35	%		6.45	%		7.13	%		7.56	%		7.72	%
Other currencies (2)		116,636			6,853			—			—			—			5,667			129,156		130,288
Weighted average interest rate		13.26	%		11.50	%		—			—			—			6.00	%
Variable rate:
Ch$- and UF -denominated		54,569			983,286			46,769			—			—			—			1,084,624		1,089,630
Weighted average interest rate		5.68	%		4.81	%		5.31	%		—			—			—
US$-denominated		207,186			578,013			969,188			80,711			1,557			62,037			1,898,692		1,898,693
Weighted average interest rate		3.00	%		4.50	%		5.37	%		6.27	%		6.14	%		6.07	%
Other currencies (2)		188,581			327,644			28,822			1,953			109,371			126,205			782,576		782,574
Weighted average interest rate		3.91	%		5.43	%		7.35	%		5.67	%		11.86	%		12.30	%
Total		699,181			2,167,119			1,108,305			180,271			577,740			1,499,908			6,232,524		6,191,385

(1)	As of December 31, 2001.  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 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, more than 80% of revenues from Endesa-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 due to the existence of minority interests in these 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

142

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 of operations for the period together with price-level restatement.

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:

	As of December 31,
	2003		2004		2005		2006		2007		Thereafter		Total		Fair Value (1)
	(in millions of constant Ch$)
Long-term Debt
Fixed rate:
US$-denominated		264,715		20,134		88,583		441,179		93,664		1,167,357		2,075,633		2,028,498
Other currencies (2)		25,615		29,374		14,486		68,500		9,093		20,660		167,727		174,506
Variable rate
US$-denominated		549,352		1,231,841		28,675		10,793		10,488		22,833		1,853,981		1,811,630
Other currencies (2)		647,319		27,912		32,613		33,035		25,400		137,655		903,933		887,482
Other instruments (3)
US$-denominated assets		274,016		—		—		—		—		—		274,016		274,016
Assets in other currencies (2)		510,133		—		—		—		—		—		510,133		510,133
Forward contracts
(receive US$/Pay Ch$) (1)		271,635		0		0		0		0		0		271,635		(1,116	)
Other foreign currency derivatives (2)		786,105		537,726		60,107		966,171		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.)

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As of December 31,  2001, the recorded values for financial 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:

	As of December 31,
	2002			2003			2004			2005			2006			Thereafter			Total			Fair Value (1)
	(in millions of constant Ch$)
Long-term Debt
Fixed rate:
US$-denominated		122,769			261,494			53,287			86,934			358,226			1,195,839			2,078,549			2,034,076
Other currencies(2)		116,636			6,853			—			—			—			5,667			129,156			130,288
Variable rate
US$-denominated		213,431			595,438			998,404			83,144			1,604			63,906			1,955,927			1,898,693
Other currencies(2)		188,581			327,644			28,822			1,953			109,371			126,205			782,575			782,574
Other instruments(3)
US$-denominated assets		145,856			—			—			—			—			—			145,856			145,856
Assets in other currencies(2)		584,404			—			—			—			—			—			584,404			584,404
Forward contracts
(receive US$/Pay Ch$-UF)(1)		(8,826	)		—			—			—			—			—			(8,826	)		(8,404	)
Other foreign currency derivatives(2)		(37,635	)		(33,373	)		(4,225	)		(436	)		(48	)		(4,561	)		(80,278	)		(98,569	)

(1)	Calculated based on the Observed Exchange Rate as of December 31, 2001, which was Ch$654.79 = 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.

144

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

Within 90 days prior to the date of this annual report, Enersis, under the supervision and with the participation of its management, including the Chief Executive Officer and the Chief Financial Officer, performed an evaluation of the effectiveness of Enersis’ disclosure controls and procedures.  Based on this evaluation, Enersis’ Chief Executive Officer and Chief Financial Officer concluded that Enersis’ disclosure controls and procedures are effective 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 necessarily 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 controls or other factors that could significantly affect internal controls subsequent to the date of their evaluation.

Item 16. [Reserved]

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PART III

Item 17. Financial Statements

None.

Item 18. Financial Statements

Index to Financial Statements	Page
ENERSIS S.A. and Subsidiaries—Audited Consolidated Financial Statements
Report of Independent Accountants
Audit Report of Deloitte & Touche – Enersis 2002	F-2
Audit Report of Ernst & Young Ltda. – Endesa-Chile 2002	F-4
Audit Report of Deloitte & Touche – Endesa Colombia S.A. 2002	F-6
Audit Report of Deloitte & Touche – Endesa Argentina S.A.  2002	F-7
Audit Report of Pistrelli, Henry Martin y Asociados S.R.L. (Member Firm of Ernst & Young Global) – Edesur S.A. 2002	F-9
Audit Report of Deloitte & Touche – Cachoeira Dourada 2002	F-10
Audit Report of Deloitte & Touche – CIEN 2002	F-12
Audit Report of Deloitte & Touche – Endesa – Chile 2001	F-14
Audit Report of Arthur Andersen Langton Clarke – Enersis S.A. 2001	F-16
Audit Report of Arthur Andersen – Endesa Argentina S.A. 2001	F-18
Audit Report of Arthur Andersen – Endesa Colombia S.A. 2001	F-20
Consolidated Balance Sheets as of December 31, 2001 and 2002	F-21
Consolidated Statements of Income for the years ended December 31, 2000, 2001 and 2002	F-23
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2000, 2001 and 2002	F-24
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002	F-25
Notes to the Consolidated Financial Statements	F-27

146

Enersis S.A. and Subsidiaries

Audited Consolidated Financial Statements as of

December 31, 2001 and 2002 and for the years then

ended December 31, 2000, 2001 and 2002

Enersis S.A. and Subsidiaries

Index to the Audited Consolidated Financial Statements

	Page
Report of Independent Accountants:
Audit Report of Deloitte & Touche – Enersis 2002	F-2
Audit Report of Ernst & Young Ltda. - Endesa-Chile 2002	F-4
Audit Report of Deloitte & Touche - Endesa Colombia S.A. 2002	F-6
Audit Report of Deloitte & Touche - Endesa Argentina S.A. 2002	F-7
Audit Report of Pistrelli, Henry Martin y Asociados S.R.L. (Member Firm of Ernst & Young Global) – Edesur S.A. 2002	F-9
Audit Report of Deloitte & Touche – Cachoeira Dourada 2002	F-10
Audit Report of Deloitte & Touche – CIEN 2002	F-12
Audit Report of Deloitte & Touche – Endesa Chile 2001	F-14
Audit Report of Arthur Andersen Langton Clarke – Enersis S.A. 2001	F-16
Audit Report of Arthur Andersen  - Endesa Argentina S.A. 2001	F-18
Audit Report of Arthur Andersen – Endesa Colombia  2001	F-20
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2001 and 2002	F-21
Consolidated Statements of Income for the years ended December 31, 2000, 2001 and 2002	F-23
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2000, 2001 and 2002	F-24
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 2001 and 2002	F-25
Notes to the Consolidated Financial Statements	F-27

Deloitte & Touche Sociedad de Auditores y Consultores Limitada Av. Providencia 1760, Pisos 6°, 7°, 8° y 9°
Santiago Chile
Tel : (56-2) 270 3000 Fax: (56-2) 374 9177 www.deloitte.cl	Deloitte & Touche

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders of Enersis S.A.:

We have audited the accompanying consolidated balance sheets of Enersis S.A. and Subsidiaries (the “Company”) as of December 31, 2002, and the related consolidated statements of operations, shareholders’ equity and cash flows for the year then ended (expressed in constant Chilean pesos). These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the 2002 financial statements of certain subsidiaries and investees, representing 34.44% and 30.40% of consolidated total assets and consolidated total revenues, respectively. These financial statements were audited by other auditors, whose reports have been provided to us. The report of these auditors on the financial statements of the subsidiary Edesur S.A., contains an emphasis that explains Argentina’s politically and economically unstable situation. Our opinion, insofar as it relates to the amounts included for these companies, is based solely on the reports of such other auditors. The consolidated financial statements of the Company for the years ended December 31, 2000 and 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 26, 2002 and included an explanatory paragraph that described on uncertainty arising from the effect of the politically and economically unstable situation in Argentina. Their report referred to other auditors, who, in turn, referred to other auditors, who have ceased to exist.

We conducted our audit in accordance with generally accepted auditing standards in Chile and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit 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 the results of their operations and their cash flows for the year ended December 31, 2002, in conformity with accounting principles generally accepted in Chile.

F-2

Accounting principles generally accepted in Chile vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of consolidated net income expressed in Chilean pesos for the year ended December 31, 2002 and the determination of shareholder’s equity, also expressed in Chilean pesos, at December 31, 2002 to the extent summarized in Note 34 to the consolidated financial statements.

Our audit also comprehended the translation of 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.

As discussed above, the consolidated financial statements of Enersis S.A. and Subsidiaries as of December 31, 2001, and for the two years then ended were audited by other auditors who have ceased opeerations. As described in Note 34 I (i), these financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards (Statement) No. 142, Goodwill and Other Intangible Assets, which was adopted by the Company as of January 1, 2002. Our audit procedures with respect to the disclosures in Note 34 I(i) with respect to 2000 and 2001 included (i) agreeing the previously reported net income to the previously issued financial statements and the adjustments to reported net income representing amortization expense (including any related tax effects) recognized in those periods related to goodwill, intangible assets that are no longer being amortized, deferred credits related to an excess over cost, equity method goodwill, and changes in amortization periods for intangible assets that will continue to be amortized as a result of initially applying Statement No. 142 (including any related tax effects) to the Company’s underlying records obtained from management, and (ii) testing the mathematical accuracy of the reconcilation of adjusted net income to reported net income, and the related earnings-per-share amounts. In our opinion, the disclosures for 2000 and 2001 in Note 34 I(i) are appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2000 and 2001 consolidated financial statements of the Company and subsidiaries other than with respect to such disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2000 and 2001 consolidated financial statements taken as a whole.

Deloitte & Touche

Santiago, Chile

January 31, 2003

(except for Notes 2(a), 2(c) and 34 for which the dates are June 16, 2003)

F-3

[LOGO OF ERNST & YOUNG]	Huérfanos	Teléfono :	(56-2) 676 1000
	Santiago, Chile	Fax         :	(56-2) 676 1010
		Casilla    :	2823

Report of Independent Auditors

To the Board of Directors and Shareholders of

Empresa Nacional de Electricidad S.A. (Endesa-Chile):

We have audited the accompanying consolidated balance sheet of Endesa-Chile and subsidiaries (the “Company”) as of December 31, 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the financial statements as of December 31, 2002 and for the year then ended of certain consolidated companies which statements reflect total revenues and total assets representing of 31.93 percent and 40.06 percent respectively, of the related consolidated totals. We also did not audit the financial statements as of December 31, 2002 and for the year then ended of certain investments accounted for under the equity method, which statements reflect investments and equity participation in income of 0.87 percent and 61.23 percent, respectively, of total assets and total net income, 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. The report of other auditors over the consolidated financial statements of the subsidiary, Endesa Argentina S.A. and subsidiaries, contains an emphasis paragraph regarding the instability of the economic and political situation in Argentina.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit and the reports of other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit 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 as of December 31, 2002, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in Chille.

Firma miembro de Ernst & Young Global

F-4

[LOGO OF ERNST & YOUNG]

Accounting principles generally accepted in Chile varyin certain significant respects from generally accepted accounting principles in the United States of America. Application of generally accepted accounting principles in the United States of America would have affected consolidated shareholders’ equity as of December 31, 2002 and the consolidated results of operations for the year ended December 31, 2002, to the extent summarized in Note 34 of the Notes to the consolidated financial statements.

ERNST & YOUNG LTDA.

/s/  Ernst & Young LTDA.

Santiago, Chile

January 24, 2003

(except for Notes 32 and 34 for which the dates are June 12,2003)

Firma miembro de Ernst & Young Global

F-5

Colombia
Tel  : 57 1 546 1810 Fax  : 57 1 217 2088
www.deloitte.com.co	Deloitte & Touche

Report of Independent Auditors

(Translation of a report originally issued in Spanish)

To the Board of Directors and Shareholders of
Endesa de Colombia S.A.:

We have audited the accompanying consolidated balance sheet of Endesa de Colombia S.A. and Subsidiaries (the “Company”) as of December 31, 2002, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of the Company for the year ended at 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 audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 Endesa de Colombia S.A. and Subsidiaries as of December 31, 2002, 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 generally accepted accounting principles in the United States of America. Application of generally accepted accounting principles in the United States of America would have affected consolidated shareholders’ equity as of December 31, 2002 and the consolidated results of operations for the year ended December 31, 2002, to the extent summarized in Note 27 of the Notes to the consolidated financial statements.

Carlos Eduardo Tovar
/s/ Carlos Eduardo Tovar	/s/ Deloitte Colombia LTDA
January 17, 2003, Bogotá, Colombia	DELOITTE COLOMBIA LTDA.

F-6

Florida 231 Piso 5 Buenos Aires-Argentina
www.deloitte.com.ar	Deloitte & Touche

AUDITORS’ REPORT

To the President and the Board of Directors of

Endesa Argentina S.A.

We have audited the accompanying consolidated balance sheet of Endesa Argentina S.A. and Subsidiaries (the “Company”) as of December 31, 2002 and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the year then ended. These financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on these financial statements based on our audit. The consolidated financial statements of the company for the year ended at December 31, 2001, were audited by other auditors who were member firm of a worldwide organization that has ceased operations. Those auditors expressed a qualified opinion due to an scope limitation on those financial statements in their report dated March 8, 2002.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also included 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 Endesa Argentina S.A. and Subsidiaries as of December 31, 2002, and the consolidated results of their operations and their consolidated cash flows for the year then ended, in conformity with accounting principles generally accepted in Chile.

F-7

As described in notes 37 and 38 to the financial statements referred to above, on January 2002 the Argentine Government approved certain economic measures with a negative impact on the Argentine economy and on the Company’s operations including: the devaluation of the Argentine peso; the default on the public external debt; the pesification of assets and liabilities denominated in foreign currency held in the country; the restriction on transfers of funds abroad, which require prior authorization from the Central Bank of the Republic of Argentina; and the pesification of the utilities rates. Taking into account that the official position of the Argentine Government related to the energy prices has not been defined yet, and that the rates of utilities renegotiation has not begun, as of the date of approval of these financial statements the future evolution of the electrical sector cannot be assessed in the short and medium term. Also, the Argentine Government continues to issue additional and supplementary measures, as described in note 28.1 to the financial statements referred to above, in respect of the “Agreement  related to the work order No. 4322.” As a consequence of the economic crisis, and in particular of the electrical sector, the Company is in negotiations to reschedule the maturity of some loans. The above described situations generate uncertainties in respect of the effects of the measures, to be taken by the Argentine Government related to the economic policy and, in particular, related to the electrical sector, could have on the Company’s consolidated financial position, the consolidated results of its operations and its future consolidated cash flows.

Accounting principles generally accepted in Chile vary in certain significant respects from generally accepted accounting principles in the United States of America. Application of generally accepted accounting principles in the United States of America would have affected consolidated shareholders’ equity as of December 31, 2002 and the consolidated results of operations for the year ended December 31, 2002, to the extent summarized in Note 39 to the consolidated financial statements.

Buenos Aires, January 17, 2003, except for the fifth paragraph for which the date is April 30, 2003

DELOITTE & Co. S.R.L.

/s/    Carlos A. Lloveras

CARLOS A. LLOVERAS

(Partner)

F-8

[LOGO OF ERNST & YOUNG]	Pistrell, Henry Martin Asociados SRL	Tel: (5411)4318-1600/4311-6644
	25 de Mayo 487 -C 1002ABI	Fax: (5411)4312-8647/4318-1777
	Buenos Aires, Argentina	www.????

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of

EMPRESA 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.

The financial statements of EDESUR S.A. as of December 31, 2001 and 2000, and for the years then ended (not presented separately herein), have been audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated February 26, 2002.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2002 financial statements referred to above (not presented separated herein) present fairly, in all material respects, the financial position of EDESUR, S.A. as of December 31, 2002, and the results of the 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 generally accepted accounting principles in the United States of America. Application of generally accepted accounting principles 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, Argentina	PISTRELLI HENRY MARTIN Y ASOCIADOS S.R.L
February 7, 2003	(Member Firm of Ernst & Young Global)
	/s/   Enrique C. Grotz
	ENRIQUE C. GROTZ
	Partner

F-9

Deloitte Touche Tohmatsu
Av. Presidente Wilson 231
Rio De Janeiro

Brasil
Telefono (21) 3981 - 0500
www.deloitte.com.br Deloitte
Touche
Tohmatsu

(Convenience Translation into English from the Original Report Previously Issued in Spanish)

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of

Centrais Elétricas Cachoeira Dourada S.A.

Cachoeira Dourada – GO, Brazil

1.	We have audited the balance sheets of Centrais Elétricas Cachoeira Dourada S.A. as of December 31, 2002 and 2001, and the related statements of income and cash flows for the years then ended, as expressed in United States dollars. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
2.	We conducted our audits in accordance with generally accepted auditing standards. 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.
3.	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, 2002 and 2001, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles and rules of Superintendencia de Valores y Seguros of Chile, according to the information included in the instructions and requirements of Endesa Chile Group, for purposes of consolidation.
4.	As of December 31, 2002, the Company has recorded, as current and non-current assets, accounts receivable in the amount of US$14,348 thousand and, as current liabilities, accounts payable in the amount of US$14,921 thousand, related to energy sale and purchase transactions in the Electric Energy Wholesale Market – MAE, based on calculations prepared and released by the MAE and/or based on estimates prepared by the Company’s management. Such amounts may be subject to changes depending on decisions on judicial lawsuits in progress, filed by sector companies, relating to interpretations of market regulations in force.
5.	The balance sheet as of December 31, 2002 and the related statements of income and cash flows for the year then ended are also presented in Chilean Pesos (CLP$) translated at year-end exchange rates of R$3.5333 = US$1.00 = CLP$718.61, solely for information purposes.

F-10

Centrais Elétricas Cachoeira Dourada S.A.

6. The accounting practices of the Company used in preparing the accompanying financial statements conform with accounting practices adopted in Chile, according to the information included in the instructions and requirements of Endesa Chile Group for purposes of consolidation, which vary in certain respects from accounting principles generally accepted in the United States of America (US GAAP). The application of the accounting principles generally accepted in the United States of America would have affected the results of operations for the years ended December 31, 2002 and 2001 and the shareholders’ equity of Centrais Electricas Cachoeira Dourada S.A. as of December 31, 2002 and 2001, to the extent summarized in Note 22 to the financial statements.

/s/    Deloitte Touche Tohmatsu

January 17, 2003

F-11

Deloitte Touche Tohmatsu
Av. Presidente Wilson 231
Rio De Janeiro

Brasil
Telefone: 21 3981-0500
www.deloitte.com.br Deloitte
Touche
Tohmatsu

(Convenience Translation into English from the Original Report Previously Issued in Spanish)

REPORT OF INDEPENDENT AUDITORS

To the Shareholders of

CIEN – Companhia de Interconexão Energética

Rio de Janeiro – RJ. Brazil

1.	We have audited the balance sheet of CIEN – Companhia de Interconexão Energética as of December 31, 2002, and the related statements of income and cash flows for the year then ended, as 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 audit.
2.	We conducted our audit in accordance with generally accepted auditing standards. 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.
3.	In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CIEN – Companhia de Interconexão Energética 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 and rules of Superintendencia de Valores y Seguros of Chile, according to the information included in the instructions and requirements of Endesa Chile Group, for purposes of consolidation.
4.	As of December 31, 2002, the Company has recorded, as current assets, accounts receivable in the amount of US$11,928 thousand and, as current liabilities, accounts payable in the amount of US$15,185 thousand, related to energy sale and purchase transactions in the Electric Energy Wholesale Market – MAE, based on calculations prepared and released by the MAE and/or based on estimates prepared by the Company’s management. Such amounts may be subject to changes depending on decisions on judicial lawsuits in progress, filed by sector companies, relating to interpretations of market regulations in force.
5.	The balance sheet as of December 31, 2002 and the related statements of income and cash flows for the year then ended are also presented in Chilean Pesos (CLP$) translated at year-end exchange rates of R$3.5333 = US$1.00 = CLP$718.61, solely for information purposes.

F-12

CIEN – Companhia de Interconexão Energética

6. The accounting practices of the Company used in preparing the accompanying financial statements conform with accounting practices adopted in Chile, according to the information included in the instructions and requirements of Endesa Chile Group for purposes of consolidation, which vary in certain respects from accounting principles generally accepted in the United States of America (US GAAP). The application of the accounting principles generally accepted in the United States of America would have affected the results of operations for the year ended December 31, 2002 and the shareholders’ equity of CIEN – Companhia de Interconexão Energética as of December 31, 2002, to the extent summarized in Note 24 to the financial statements.

/s/    Deloitte Touche Tohmatsu

January 17, 2003

F-13

Av. Providencia 1760, Pisos 6,7,8 y 9
Santiago
Chile

Tel: (56-2) 270 3000
Fax: (56-2) 374 9177
www.deloitte.cl Deloitte
& Touche

INDEPENDENT AUDITORS’ REPORT

To the President and Directors of
Empresa Nacional de Electricidad S.A.

We have audited the consolidated balance sheets of Empresa Nacional de Electricidad S.A. and Subsidiaries as of December 31, 2001 and 2000 and the related consolidated statements of income and of cash flows for each of the two years in the period ended December 31, 2001. These consolidated 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 2000 and 2001 of certain consolidated companies, which statements reflect total assets constituting 41.99% (41.18% in 2000) and total revenues constituting 41.92% (48.56% in 2000 and 55.06% in 1999) as of December 31, 2001, of the related consolidated totals. Those financial statements were audited by other auditors for the purpose of the Company’s Chilean annual financial statements and their reports have been furnished to us. The report of these auditors on the 2001 financial statements of Endesa Argentina S.A. include emphasis paragraphs expressing the uncertainty on the Argentinean subsidiaries’ capacity to meet their obligations and continue operations, and to disclose the major effects that the severe changes made by the Argentinean Government to the economic model and to the International Exchange Law that had been in force since 1991 might have on the companies. Our opinion, insofar as it relates to the amounts included for those companies for 2000 and 2001, is based solely on the reports of such other auditors. Their report referred to other auditors, one of whom was a member firm of a worldwide organization that has ceased operations, and another who has ceased to exist.

We conducted our audits in accordance with auditing standards generally accepted in Chile and in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provides a reasonable basis for our opinion.

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 Empresa Nacional de Electricidad S.A. and subsidiaries as of December 31, 2000 and 2001 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in Chile.

F-14

Accounting principles generally accepted in Chile vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of consolidated net income expressed in Chilean pesos for each of the two years in the period ended at December 31, 2001 and the determination of shareholder’s equity, also expressed in Chilean pesos, at December 31, 2000 and 2001 to the extent summarized in Note 32 to the consolidated financial statements.

As indicated in Note 26, the Company holds direct investments in Argentinean subsidiaries and indirect investments through the subsidiaries Compañía Eléctrica Cono Sur S.A. and Inversiones Endesa Norte S.A., whose financial statements show total assets and revenues amounting to 13.58% and 21.42%, respectively, of the corresponding consolidated totals. Due to the current economic situation in Argentina and considering the effects of the application of the Public Emergency Law referred to in Note 31, these direct and indirect subsidiaries are exposed to situations that might affect the values of their assets and liabilities and uncertainties arise with respect to their capacity to meet their obligations and continue operations. The present financial statements do not include adjustment that might arise from the resolution of these uncertainties.

/s/    Deloitte & Touche

Santiago, Chile

February 1, 2002

F-15

The Report of Langton Clarke-a member firm of Andersen Worlwide SC, below is a copy of their previously issued report contained in Enersis S.A. Annual Report on form 20-F for the year ended December 31, 2001. Langton Clarke - A Member Firm of Andersen Worldwide SC has ceased operations and has not reissued its report in connection with this Form 20F.

Langton Clarke	Huerfanos 770, Piso 5	Teléfono	(56 2) 676 1000
	Santiago - Chile	Fax	(56 2) 676 1010
Langton Clarke Auditores y Consultores Limitada
Firma miembro de
Andersen Worldwide SC

Report of Independent Accountants

To the Shareholders of Enersis S.A.:

We have audited the accompanying consolidated balance sheets of Enersis S.A. and Subsidiaries (the “Company”) as of December 31, 2000 and 2001, and the related consolidated statements of income, shareholders’ equity and cash flows for each of the three years in the period then ended. These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of the subsidiary Endesa-Chile S.A. which statements reflect total revenues of 32 percent, 18 percent, and 23 percent in 1999,2000, and 2001, respectively and total assets of 30 percent and 30 percent in 2000 and 2001, respectively, of the related consolidated totals. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for those entities, is based solely on the report of the other auditors.

We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion.

Accounting practices used by the Company in preparing the accompanying consolidated financial statements conform with generally accepted accounting principles in Chile, but do not conform with accounting principles generally accepted in the United States. A reconciliation of consolidated net income and shareholders’ equity, as revised, under accounting principles generally accepted in Chile to the corresponding amounts that would be reported in accordance with United States generally accepted accounting principles, except for the omissions, as allowed pursuant to Item 18 of Form 20-F, of adjustments necessary to eliminate the effect of price-level changes and the translation of non-Chilean operations described in Notes 2 (c) and 2 (I), is set forth in Note 33 to these consolidated financial statements.

As described in Notes 11, 31 (a) and 33 (p) to these financial statements, the Company has significant investments in Argentina, which are affected by the severe economic and political uncertaities affecting that country and the devaluation of the Argentine peso.  Such investments represent 14 percent of total assets as of December 31, 2001, 27 percent of total revenues and 21 percent of total operating income for the year ended December 31, 2001.

F-16

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Enersis S.A. and Subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with generally accepted accounting principles in Chile.

As described in Note 3, starting January 1, 2000, the Company modified the method in which income taxes are recorded, recognizing deferred taxes prospectively.

/s/   Langton Clarke

LANGTON CLARKE

Santiago (Chile)

February 26, 2002

(except for Notes 2  (a), 2 (c), 27, 31 and 33 for which the dates are June 25, 2002)

F-17

The report of Pistrelli Diaz y Asociados - A Member Firm of Andersen Worldwide SC, below is a copy of their previously issued report contained in Endesa Chile S.A. Annual Report on form 20-F for the year ended December 31, 2001. Pistrelli Diaz y Asociados - A Member Firm of Andersen Worldwide SC has ceased operations and has not reissued its report in connection with this Form 20-F

ANDERSEN

Pistrelli, Diaz y Asociados

Firma Miembro de Andersen

25 de Mayo 487

1002 Buenos Aires

Argentina

Tel 54 11 4318 1800 4311 8644

Fax 5411 4312 8647 4318 1777

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

(English translation of the report originally issued in Spanish)

To the Board of Directors of
ENDESA ARGENTINA S.A:

1.	We have audited the consolidated balance sheets of ENDESA ARGENTINA S.A. (the “Company”) and its subsidiaries ENDESA BRASIL PARTICIPAÇOES LTD., HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A. and CENTRAL COSTANERA S.A. as of December 31, 2001 and 2000, and the related consolidated statements of income and cash flows for the years then ended, not presented separately herein, all expressed in thousands of constant Chilean pesos. Those financial statements are the responsibility of the Company’s Management. Our responsibility is to express an opinion on those financial statements based on our audits.
2.	We conducted our audits in accordance with generally accepted auditing standards in the United States of America.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
3.	As described in note 38 to the financial statements referred to above (not presented separately herein), in the last few months, a deep change has been implemented in the economic framework of Argentina as well as in the Convertibility Law that was in place since March 1991. The main consequences of the set of measures adopted by the Argentine Federal Government, which are detailed in the above mentioned note, have been (a) the devaluation of the Argentine peso with respect to the US dollar and de-dollarization of certain assets and liabilities in foreign currency held in the country; (b) de-dollarization of utilities rates previously agreed-upon in US dollars and subsequent renegotiation in each particular case; (c) the implementation of restrictions on the withdrawal of funds deposited with financial institutions; (d) the restriction on transfers abroad on account of financial loan principal service and dividend distributions without prior authorization from the Central Bank; and (e) the increase in domestic prices. The future development of the economic crisis may require further measures from the Argentine Federal Government. The above mentioned financial statements, should be read taking into account the issues mentioned above.
4.	In our opinion, the consolidated financial statements referred to above (not presented separately herein) present fairly, in all material respects, the financial position of ENDESA ARGENTINA S.A. and its subsidiaries ENDESA BRASIL PARTICIPAÇOES LTD., HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A. and CENTRAL COSTANERA S.A. as of December 31, 2001 and 2000, and the results of their operations and their cash flows for the year then ended, in conformity with generally accepted accounting principles in Chile.

F-18

-2-

[LOGO OF ANDERSEN]

5.

As described in note 15 to the financial statements referred to above (not presented separately herein), as of the date of issuance thereof, HIDROELECTRICA EL CHOCON S.A. has been unable to repay yet past-due corporate bonds amounting to about USD 140 million. In addition, as mentioned in Note 28.2 to the above mentioned financial statements, as of December 31, 2001, CENTRAL COSTANERA S.A. does not meet a financial ratio required by the syndicated bank loan agreement, recorded under current liabilities in the amount of about CLP 62,240 million. Considering that this represents a breach of contractual provisions for this loan and for other loans with cross-default clauses, the lenders are entitled to demand accelerated repayment. As of December 31, 2001 HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A. and CENTRAL COSTANERA S.A. have negative working capital, which creates substantial doubt, among others, on the ability to pay their obligations. In addition, due to the negative exchange rate difference derived from devaluation mentioned in note 38 to the above mentioned financial statements, ENDESA ARGENTINA S.A. and CENTRAL COSTANERA S.A. could enter into the mandatory dissolution for loss of capital stock, as provided for by the Business Associations Law No. 19,550, which creates substantial doubt, among others, on the continuity of the operations of these Companies.

The continuity of the operations of ENDESA ARGENTINA S.A., HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A., and CENTRAL COSTANERA S.A. will depend on their ability to pay their obligations and the ability of ENDESA ARGENTINA S.A. and CENTRAL COSTANERA S.A. to restore its capital stock. The financial statements referred to above have been prepared assuming that ENDESA ARGENTINA S.A., HIDROELECTRICA EL CHOCON S.A., HIDROINVEST S.A. and CENTRAL COSTANERA S.A. will continue as going concerns; therefore, the financial statements referred to above do not include any adjustments that might result from the outcome of these uncertainties.

Buenos Aires,	PISTRELLI, DIAZ Y ASOCIADOS
March 8, 2002
	/s/   Ezequiel A. Calciati
	EZEQUIEL A. CALCIATI
	Partner

F-19

The report of Arthur Andersen y Cía. Ltda - A Member Firm of Andersen Worldwide SC, below is a copy of their previously issued report contained in Endesa Chile S.A. Annual Report on Form 20-F for the year ended December 31, 2001. Arthur Andersen y Cía. Ltda - A Member Firm of Andersen Worldwide SC has ceased operations and has not reissued its report in connection with this Form 20F.

	LOGO OF ARTHUR ANDERSEN
Report of independent Accountants	Arthur Andersen y Cía.Ltda
	Carrera 7 No. 74. 09
	Apartado Aéreo 075874
(Translation of a report originally issued in Spanish - (see Note 2 to the Financial Statements)	Bogota D.C.
	Colombia
	Tel 57 1 546 18 10 • ?48 18 15
	Fax 57 1 2 17 80 58 314 56 56

To the Shareholders of

Endesa de Colombia S.A. and Subsidiaries:

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

We conducted our audits in accordance with generally accepted auditing standards in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

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

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

F-20

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, 2002 and thousands of US dollars)

		As of December 31,
	Note	2001			2002			2002
		ThCh$			ThCh$			ThUS$
ASSETS								(Note 2)
CURRENT ASSETS:
Cash			37,648,796			48,184,878			67,053
Time deposits	4		178,113,234			145,626,894			202,651
Marketable securities			203,072			1,543,290			2,148
Accounts receivable, net	5		550,248,992			458,839,724			638,510
Notes receivable, net	5		5,683,330			5,131,349			7,141
Other accounts receivable, net	5		72,220,719			62,776,096			87,358
Amounts due from related companies	6a		18,019,578			195,398,835			271,912
Inventories	7		77,424,074			60,382,653			84,027
Income taxes recoverable	8a		57,510,102			54,435,976			75,752
Deferred income taxes	8e		24,162,101			51,955,793			72,300
Prepaid expenses			13,971,567			7,666,018			10,668
Other current assets	9		127,241,229			132,021,608			183,718
Total current assets			1,162,446,794			1,223,963,114			1,703,238
PROPERTY, PLANT AND EQUIPMENT, NET	10		9,625,049,659			9,879,458,183			13,748,011
OTHER ASSETS:
Investments in related companies	11		167,448,008			194,164,157			270,194
Investments in other companies	12		149,560,997			159,466,794			221,910
Long-term receivables	5		101,903,562			125,850,513			175,130
Goodwill, net	13a		1,318,832,593			847,513,499			1,179,379
Negative goodwill, net	13b		(181,194,560	)		(95,172,950	)		(132,440	)
Amounts due from related companies	6a		170,667,792			898,167			1,250
Intangibles			71,697,080			80,915,893			112,601
Accumulated amortization			(25,148,069	)		(34,648,290	)		(48,216	)
Other assets	14		198,535,455			238,755,596			332,246
Total other assets			1,972,302,858			1,517,743,379			2,112,054
TOTAL ASSETS			12,759,799,311			12,621,164,676			17,563,303

The accompanying notes are an integral part of these consolidated financial statements

F-21

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, 2002 and thousands of US dollars)

		As of December 31,
	Note	2001		2002			2002
		ThCh$		ThCh$			ThCh$
LIABILITIES AND SHAREHOLDERS’ EQUITY								(Note 2)
CURRENT LIABILITIES:
Short-term debt due to banks and financial institutions	15a		301,010,064		425,049,260			591,488
Current portion of long-term debt due to banks and financial institutions	15b		425,536,729		605,261,953			842,268
Promissory notes	18		54,630,248		13,189,514			18,354
Current portion of bonds payable	19a		62,848,322		498,501,344			693,702
Current portion of long-term notes payable			26,580,340		41,628,914			57,930
Dividends payable			7,008,951		14,554,203			20,253
Accounts payable			258,955,300		222,075,984			309,036
Short-term notes payable			45,429,070		4,833,074			6,726
Miscellaneous payables			53,324,443		73,417,551			102,166
Amounts payable to related companies	6b		31,120,649		16,285,712			22,663
Accrued expenses	20a		79,920,329		84,930,321			118,187
Withholdings			53,957,592		55,485,759			77,213
Income taxes payable	8a		77,283,022		27,532,029			38,313
Deferred income			11,314,564		9,085,674			12,643
Other current liabilities	17		150,383,758		59,541,957			82,857
Total current liabilities			1,639,303,381		2,151,373,249			2,993,799
LONG-TERM LIABILITIES:
Due to banks and financial institutions	16		1,971,249,920		1,691,338,670			2,353,625
Bonds payable	19b		2,271,468,659		2,097,845,568			2,919,310
Long-term notes payable			215,513,230		220,886,690			307,381
Accounts payable			34,746,948		22,606,529			31,459
Amounts payable to related companies	6b		1,001,707,159		988,291,605			1,375,282
Accrued expenses	20b		234,388,938		226,922,617			315,780
Deferred income taxes	8e		36,059,964		61,740,871			85,917
Other long-term liabilities			67,228,005		103,975,862			144,690
Total long-term liabilities			5,832,362,823		5,413,608,412			7,533,444
MINORITY INTEREST	21a		4,073,571,128		4,050,602,721			5,636,719
COMMITMENTS AND CONTINGENCIES	28
SHAREHOLDERS’ EQUITY:
Paid-in capital, no par value			751,208,197		751,208,197			1,045,363
Additional paid-in capital – share premium			33,370,057		33,370,057			46,437
Other reserves			27,176,075		41,942,477			58,366
Retained earnings			360,653,617		402,807,650			560,537
Net income (loss) for the year			42,154,033		(223,748,087	)		(311,362	)
Total shareholders’ equity			1,214,561,979		1,005,580,294			1,399,341
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			12,759,799,311		12,621,164,676			17,563,303

F-22

ENERSIS S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Restated for general price-level changes and expressed in thousands of constant

Chilean pesos as of December 31, 2002 and thousands of US dollars)

		Years ended December 31,
	Note	2000			2001			2002			2002
		ThCh$			ThCh$			ThCh$			ThCh$
												(Note 2)
OPERATING INCOME:
SALES			2,757,047,098			3,059,380,761			2,485,873,220			3,459,280
COST OF SALES			(1,895,035,057	)		(2,025,312,072	)		(1,730,050,356	)		(2,407,496	)
GROSS PROFIT			862,012,041			1,034,068,689			755,822,864			1,051,784
ADMINISTRATIVE AND SELLING EXPENSES			(309,262,420	)		(279,524,922	)		(223,178,503	)		(310,570	)
OPERATING INCOME			552,749,621			754,543,767			532,644,361			741,214
NON-OPERATING INCOME AND EXPENSE:
Interest income			74,161,853			56,592,832			85,284,624			118,680
Equity in income of related companies	11b		4,547,446			3,629,292			14,996,244			20,868
Other non-operating income	23a		463,501,342			194,693,581			308,143,887			428,805
Equity in losses of related companies	11b		(4,470,693	)		(14,328,089	)		(6,732,461	)		(9,369	)
Amortization of goodwill	13a		(71,713,807	)		(80,576,348	)		(506,344,171	)		(704,616	)
Interest expense			(500,043,818	)		(452,801,275	)		(439,536,318	)		(611,646	)
Other non-operating expenses	23b		(118,890,049	)		(183,929,244	)		(241,196,604	)		(335,643	)
Price-level restatement, net	24		(15,251,993	)		2,175,075			4,964,890			6,909
Exchange difference, net	25		(1,251,722	)		(30,542,651	)		(16,110,247	)		(22,419	)
NON-OPERATING EXPENSE, NET			(169,411,441	)		(505,086,827	)		(796,530,156	)		(1,108,431	)
INCOME (LOSS) BEFORE INCOME TAXES
EXTRAORDINARY  ITEMS, MINORITY INTEREST
AND AMORTIZATION OF NEGATIVE GOODWILL			383,338,180			249,456,940			(263,885,795	)		(367,217	)
INCOME TAXES	8f		(146,323,505	)		(129,850,137	)		(66,016,985	)		(91,868	)
EXTRAORDINARY ITEMS	26		—			—			(22,375,640	)		(31,137	)
INCOME (LOSS) BEFORE MINORITY INTEREST AND
AMORTIZATION OF NEGATIVE GOODWILL			237,014,675			119,606,803			(352,278,420	)		(490,222	)
MINORITY INTEREST	21b		(184,000,228	)		(125,152,619	)		16,282,559			22,658
INCOME BEFORE AMORTIZATION OF NEGATIVE
GOODWILL			53,014,447			(5,545,816	)		(335,995,861	)		(467,564	)
AMORTIZATION OF NEGATIVE GOODWILL	13b		42,646,957			47,699,849			112,247,774			156,202
NET INCOME (LOSS) FOR THE YEAR			95,661,404			42,154,033			(223,748,087	)		(311,362	)

The accompanying notes are an integral part of these consolidated financial statements

F-23

ENERSIS S.A. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(Expressed in thousands of historical Chilean pesos, except as stated)

	Number of shares		Paid-in capital		Additional paid-in capital		Other reserves		Retained earnings		Net income (loss) for the year		Total
		(in thousands)		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$
As of January 1, 2000		6,800,000		398,624,586		24,184,786		23,295,280		330,716,485		(78,158,729)		698,662,408
Transfer of prior year income to retained earnings		—		—		—		—		(78,158,729)		78,158,729		—
Price-level restatement of capital		—		22,015,443		1,203,739		1,094,879		11,870,214		—		36,184,275
Changes in equity of affiliates		—		—		—		(18,382,462)		—		—		(18,382,462)
Cumulative translation adjustment		—		—		—		1,259,024		—		—		1,259,024
Issuance of shares		1,491,020		286,758,950		6,035,445		—		—		—		292,794,395
Net income for the year		—		—		—		—		—		90,082,590		90,082,590
As of December 31, 2000		8,291,020		707,398,979		31,423,970		7,266,721		264,427,970		90,082,590		1,100,600,230
As of December 31, 2000 (1)		8,291,020		751,208,197		33,370,057		7,716,749		280,803,994		95,661,405		1,168,760,402
As of January 1, 2001		8,291,020		707,398,979		31,423,970		7,266,721		264,427,970		90,082,590		1,100,600,230
Transfer of prior year income to retained earnings		—		—		—		—		90,082,590		(90,082,590)		—
Dividends		—		—		—		—		(14,976,824)		—		(14,976,824)
Price-level restatement of capital		—		21,929,368		974,144		225,268		10,615,407		—		33,744,187
Cumulative translation adjustment		—		—		—		18,892,550		—		—		18,892,550
Net income for the year		—		—		—		—		—		40,926,246		40,926,246
As of December 31, 2001		8,291,020		729,328,347		32,398,114		26,384,539		350,149,143		40,926,246		1,179,186,389
As of December 31, 2001 (1)		8,291,020		751,208,197		33,370,057		27,176,075		360,653,617		42,154,033		1,214,561,979
As of January 1, 2002		8,291,020		729,328,347		32,398,114		26,384,539		350,149,143		40,926,246		1,179,186,389
Transfer of prior year income to retained earnings		—		—		—		—		40,926,246		(40,926,246)		—
Price-level restatement of capital		—		21,879,850		971,943		791,536		11,732,261		—		35,375,590
Cumulative translation adjustment		—		—		—		14,766,402		—		—		14,766,402
Net loss for the year		—		—		—		—		—		(223,748,087)		(223,748,087)
As of December 31, 2002		8,291,020		751,208,197		33,370,057		41,942,477		402,807,650		(223,748,087)		1,005,580,294

(1) Restated in thousands of constant Chilean pesos as of December 31, 2002.

The accompanying notes are an integral part of these consolidated financial statements

F-24

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, 2002 and thousands of US dollars)

	Years ended December 31,
	2000			2001			2002			2002
	ThCh$			ThCh$			ThCh$			ThUS$
										(Note 2)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) for the year		95,661,405			42,154,033			(223,748,087	)		(311,362	)
GAIN (LOSSES) FROM SALES OF ASSETS:
Gain on sale of property, plant and equipment		(62,896,876	)		(5,734,441	)		(1,095,916	)		(1,525	)
Gain on sale of investments		(208,107,787	)		—			—			—
Charges (credits) to income which do not represent cash flows:
Depreciation		400,622,477			426,020,442			454,471,134			632,431
Amortization of intangibles		34,072,887			8,031,971			10,389,287			14,457
Write-offs and accrued expenses		94,139,743			83,298,120			55,938,311			77,842
Equity in income of related companies		(4,547,446	)		(3,629,292	)		(14,996,244	)		(20,868	)
Equity in losses of related companies		4,470,693			14,328,089			6,732,461			9,369
Amortization of goodwill		71,713,807			80,576,348			506,344,171			704,616
Amortization of negative goodwill		(42,646,957	)		(47,699,849	)		(112,247,774	)		(156,201	)
Price-level restatement, net		15,251,993			(2,175,075	)		(4,964,890	)		(6,909	)
Foreign currency translation, net		1,251,722			30,542,651			16,110,247			22,419
Other credits to income which do not represent cash flows		(49,576,106	)		(85,418,284	)		(229,054,815	)		(318,747	)
Other charges to income which do not represent cash flows		113,338,851			69,401,896			147,655,390			205,474
Changes in assets which affect cash flows:
Decrease in trade receivables		(109,394,076	)		119,961,261			55,973,106			77,891
Decrease in inventory		23,105,545			1,211,389			11,768,733			16,377
Decrease (increase) in other assets		(53,360,920	)		24,428,653			(23,047,923	)		(32,073	)
Changes in liabilities which affect cash flows:
Decrease in accounts payable associated with operating results		(2,742,827	)		(62,185,972	)		(49,587,699	)		(69,005	)
Increase in interest payable		99,951,611			7,825,819			55,125,046			76,711
Increase (decrease) in income tax payable		11,473,486			(54,073,346	)		(45,838,237	)		(63,787	)
Increase (decrease) in other accounts payable associated with non-operating results		(75,419,017	)		(93,868,474	)		30,029,884			41,789
Net decrease in value added tax and other similar taxes payable		(1,671,587	)		(117,627,568	)		(1,891,294	)		(2,632	)
Income (loss) attributable to minority interest		184,000,228			125,152,619			(16,282,559	)		(22,658	)
Net cash flows provided by operating activities		538,690,849			560,520,990			627,782,332			873,609

The accompanying notes are an integral part of these consolidated financial statements

F-25

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, 2002 and thousands of US dollars)

	Years ended December 31,
		2000		2001		2002		2002
		ThCh$		ThCh$		ThCh$		ThUS$
								(Note 2)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of shares		314,324,467		—		—		—
Subsidiary issuance of shares minoritary interest		—		—		1,905,653		2,652
Proceeds from the issuance of debt		1,600,212,553		1,936,899,708		978,914,577		1,362,233
Proceeds from bond issuances		52,538,205		280,374,847		131,515,409		183,014
Other sources of financing		44,863,139		57,920,839		26,348,466		36,666
Distribution of capital in subsidiary		—		—		(119,286,568	)	(165,996	)
Dividends paid		(150,311,417	)	(144,467,460	)	(100,446,315	)	(139,779	)
Payment of debt		(2,123,472,019	)	(1,870,062,467	)	(1,094,545,835	)	(1,523,143	)
Payment of bonds		(210,365,004	)	(74,167,788	)	(29,347,204	)	(40,839	)
Payment of loans obtained from related companies		(157,860,304	)	(100,900,143	)	(44,389,633	)	(61,771	)
Payment of bond issuance costs		—		(996,147	)	(11,140,779	)	(15,503	)
Other disbursements for financing		(184,219,710	)	(43,615,899	)	(24,567,635	)	(34,188	)
Net cash provided by (used) in financing activities		(814,290,090	)	40,985,490		(285,039,864	)	(396,654	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property, plant and equipment		140,229,768		19,716,715		22,605,406		31,457
Sale of investment in related companies		518,889,641		—		—		—
Other loans received from related companies		16,355		—		—		—
Proceeds from sales of Transelec		199,277,388		—		—		—
Proceeds from loans obtained from related parties		3,855,665		5,525,961		—		—
Other receipts from investments		15,442,082		13,675,849		18,556,146		25,822
Additions to property, plant and equipment		(343,009,506	)	(341,553,736	)	(317,915,443	)	(442,403	)
Long-term investments		(323,132,841	)	(12,879,738	)	(23,465,277	)	(32,654	)
Investment in financial instruments		(1,899,939	)	—		(724,403	)	(1,008	)
Disbursements for highway construction costs		(27,107,200	)	—		—		—
Other loans granted to related companies		—		(233,615	)	—		—
Other investment disbursements		(5,945,345	)	(187,891,023	)	(35,935,186	)	(50,009	)
Net cash used in investing activities		176,616,068		(503,639,587	)	(336,878,757	)	(468,795	)
POSITIVE (NEGATIVE) NET CASH FLOW FOR THE YEAR		(98,983,173	)	97,866,893		5,863,711		8,160
EFFECT OF PRICE-LEVEL RESTATEMENT ON CASH AND CASH EQUIVALENTS		4,115,441		(74,996	)	(2,499,632	)	(3,478	)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(94,867,732	)	97,791,897		3,364,079		4,682
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR		214,903,436		120,035,704		217,827,601		303,123
CASH AND CASH EQUIVALENTS AT END OF YEAR		120,035,704		217,827,601		221,191,680		307,805

The accompanying notes are an integral part of these consolidated financial statements

F-26

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, 2002, except as stated)

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., Compañía Eléctrica del Río Maipo S.A. (Río Maipo S.A.) and Empresa Nacional de Electricidad S.A. (Endesa S.A.) are registered in the Securities Register under No. 0321, 0345, 0114, respectively.

Note 2. Summary of Significant Accounting Policies

(a) General

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 years’ 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 period. Actual results could differ from those estimates.

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

F-27

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Reclassifications – For purposes of comparison, the following reclassifications were made in the 2001 financial statements:

Balance sheet reclassifications
From	Charge (credit)			To	Charge (credit)
	ThCh$				ThCh$
Notes receivable		(6,334,876	)	Other accounts receivable, net		6,334,876
Goodwill		3,391,332		Negative goodwill, net		(3,391,332	)
Land		(34,153,467	)	Other assets		34,153,467
Technical appraisal		17,117,163		Accumulated depreciation		(17,117,163	)
Current portion of long-term notes payable		5,571,195		Current portion of long-term debt due to banks and financial institutions		(4,619,536	)
Miscellaneous payables		(5,718,123	)	Other current liabilities		4,766,464
Due to banks and financial institutions		(17,545,577	)	Short-term notes payable		18,453,424
Other long-term liabilities		(21,520,395	)	Bonds payable		20,612,548
Other reserves		1,210,739		Deficit during development period of subsidiary		(1,210,739	)

Statement of operations reclassifications
From	Charge (credit)			To	Charge (credit)
	ThCh$				ThCh$
Other non-operating expenses		1,586,072		Other non-operating income		1,940,610
Income taxes		(4,444,572	)	Interest expense		3,629,529
Deferred income taxes		(2,392,830	)	Foreign currency transalation, net		(318,809	)
Amortization of negative goodwill		(248,147	)	Amortization of goodwill		248,147

Statement of Cash flow reclassifications
From	Charge (credit)		To	Charge (credit)
	ThCh$			ThCh$
Payment of bonds		85,102,292	Other accounts payable associated with non-operating results		(102,068,728	)
Other credits to income which do not represent cash flows		24,250,320	Decrease in income tax payable		(7,283,884	)
Other sources of financing		27,586,411	Other charges to income which do not represent cash flows		(17,297,324	)
Other charges to income which do not represent cash flows		906,583	Other disburments for financing		(10,289,087	)
			Amortization of intangibles		(906,583	)

F-28

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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, which are the following:

	Percentage participation as of December 31,
Company name	2000		2001		2002
	Total		Total		Direct		Indirect		Total
Chilectra S.A.		97.97		98.24		98.24		—		98.24
Compañía Eléctrica del Río Maipo S.A.		98.40		98.74		98.74		—		97.74
Synapsis Soluciones y Servicios IT Ltda.		99.99		100.00		99.99		0.01		100.00
Inmobiliaria Manso de Velasco Ltda.		100.00		100.00		99.99		—		100.00
Cía. Americana de Multiservicios Ltda. (3)		100.00		100.00		99.93		0.07		100.00
Endesa Chile S.A. (4)		59.98		59.98		59.98		—		59.98
Enersis de Argentina S.A.		100.00		100.00		100.00		—		100.00
Enersis International Ltd.		100.00		100.00		100.00		—		100.00
Inversiones Distrilima S.A.		53.93		54.54		15.93		39.75		55.68
Empresa Distribuidora Sur S.A. (Edesur)		64.29		65.09		16.02		49.07		65.09
Empresa Eléctrica de Panamá S.A. (3)		99.61		99.67		—		—		—
Enersis Investment S.A.		100.00		—		—		—		—
Interocean Developments Inc. (2)		100.00		100.00		—		—
Luz de Bogotá S.A. (1)		44.21		44.66		25.71		18.95		44.66
Cerj		57.38		58.16		20.37		41.58		61.95
Investluz (1)		46.50		47.02		15.61		32.80		48.41
Cía. Americana de Multiservicios Uno Ltda. (3)		100.00		100.00		—		—		—
Electric Investment		100.00		—		—		—		—
Enersis Energia de Colombia S.A.		100.00		100.00		100.00		—		100.00

(1)	Parent Company of Companhia Energética do Céará S.A. Colelce. 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 and they do not have market value.
(2)	These companies were merged into other Enersis entities during 2002.
(3)	On January 1 2002, Cía. Americana de Multiservicios Ltda. merged with Cía. Americana de Multiservicios Uno.

F-29

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(4) Consolidated subsidiaries of Endesa Chile S.A. are detailed as follow:

	Percentage participation as of December 31,
	2000		2001		2002
Company name	Total		Total		Direct		Indirect		Total
Enigesa S.A.		100.00		100.00		99.51		0.49		100.00
Ingendesa S.A.		97.64		97.64		96.39		1.25		97.64
Pehuenche S.A.		92.55		93.66		92.65		—		92.65
Endesa Argentina S.A.		99.99		99.99		99.99		—		99.99
Endesa-Chile Internacional		100.00		100.00		100.00		—		100.00
Pangue S.A.		92.48		92.48		94.97		0.02		94.99
Hidroinvest S.A.		69.93		69.93		—		69.93		69.93
Infraestructura 2000 S.A.		60.00		60.00		60.00		—		60.00
Hidroeléctrica El Chocón  S.A.		47.45		65.19		—		65.19		65.19
Central Costanera S.A.		51.68		51.93		—		51.93		51.93
Endesa Brasil Participacoes Ltda.		100.00		100.00		5.00		95.00		100.00
Túnel El Melón S.A.		99.95		99.95		99.95		—		99.95
Soc. Concesionaria Autopista del Sol S.A.		60.04		100.00		0.10		99.90		100.00
Inecsa 2000 S.A.		58.39		97.32		—		97.32		97.32
Soc. Concesionaria Autopista Los Libertadores S.A.		58.36		99.95		—		99.95		99.95
Compañía Eléctrica Cono Sur S.A.		100.00		100.00		100.00		—		100.00
Central Hidroeléctrica Betania S.A.		85.62		85.62		—		85.62		85.62
Endesa de Colombia S.A.		100.00		100.00		5.10		94.90		100.00
Lajas Inversora S.A.		92.88		100.00		—		100.00		100.00
Cachoeira Dourada S.A.		91.80		99.51		—		99.59		99.59
Capital de Energía S.A.		43.67		50.90		—		50.90		50.90
Emgesa S.A		22.41		51.32		—		51.32		51.32
Edegel S.A.A.		37.90		63.56		—		63.56		63.56
Generandes Perú S.A.		54.26		59.63		—		59.63		59.63
Compañía Eléctrica San Isidro S.A.		75.00		75.00		50.00		25.00		75.00
Compañía Eléctrica Tarapacá  S.A.		100.00		100.00		99.90		0.10		100.00
Inversiones Endesa Norte S.A.		100.00		100.00		99.99		0.01		100.00

F-30

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Situation in Argentina

In Argentina, at the end of 2001, as a result of the serious economic crisis, a change in the economic model and the law of convertibility was implemented with the promulgation of new National Government regulations. This situation gave rise to, among other consequences: devaluation of the Argentinean peso with respect to the US dollar and the pesification of certain assets and liabilities recorded in foreign currency in said country, pesification of public service tariffs, introduction of deposit withdrawal limitations in financial institutions, limitations on making certain transfers abroad for capital services and financial loan interest without prior authorization of the Central Bank of the Republic of Argentina.

Considering the above mentioned unstable environment, the company performed an evaluation of the recoverability of its investments in Argentinean companies.  Management believes that the evolution of the aforementioned measures will not result in significant adjustments different to those recognized in these financial statements.

(b) Periods covered

These financial statements reflect the Company’s financial position as of December 31, 2001 and 2002, and the results of its operations, the changes in its shareholders’ equity and its cash flows for the years ended December 31, 2000, 2001 and 2002.

(c) Constant currency restatement

The cumulative inflation rate in Chile as measured by the Chilean Consumer Price Index (“CPI”) for the three-year period ended December 31, 2002 was approximately 10.8%.

Chilean GAAP requires that the financial statements be restated to reflect the full effects of 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 24).

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.

F-31

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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

The values of the Chilean consumer price indices used to reflect the effects of the changes in the purchasing power of the Chilean peso (“price-level restatement”) are as follows:

	Index		Change over Previous November 30,
November 30, 2000		106.82		4.7	%
November 30, 2001		110.10		3.1	%
November 30, 2002		113.36		3.0	%

By way of comparison, the actual values of the Chilean consumer price indices as of the balance sheet dates are as follows:

	Index		Change over Previous December 31,
December 31, 2000		106.94		4.5	%
December 31, 2001		109.76		2.6	%
December 31, 2002		112.86		2.8	%

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):

F-32

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

	Ch$
December 31, 2000		15,769.92
December 31, 2001		16,262.66
December 31, 2002		16,744.12

Comparative financial statements

For comparative purposes, the 2001 consolidated financial statements and the amounts disclosed in the related Notes have been restated in terms of Chilean pesos of December 31, 2002, 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, 2002 of Ch$718.61 to US$1.00.  The convenience translations should not be construed as representations that the Chilean peso amounts have been, could have been, or could in the future be, converted into US dollars at this or any other rate of exchange.

(d) Assets and liabilities in foreign currencies

Assets and liabilities denominated in foreign currencies are detailed in Note 30.  These amounts have been stated at the observed exchange rates reported by the Central Bank of Chile as of each year-end as follows:

Currency	Symbol used		2000		2001		2002
			Ch$		Ch$		Ch$
United States dollar (Observed)		US$		573.65		654.79		718.61
British pound sterling		£		856.58		948.01		1,152.91
Colombian peso		$ Col		0.26		0.29		0.25
New Peruvian sol		Soles		162.69		190.29		204.73
Brazilian real		Rs		294.33		282.97		203.57
Japanese yen		¥		5.01		4.99		6.07
Euro		€		538.84		578.18		752.55
French Franc (2)		FFr		82.15		88.36		—
Pool Unit (IBRD)(1)		UP		7,230,629.88		7,742,160.26		9,089,158.76
Unidad de Fomento (UF)		UF		15,769.92		16,262.66		16,744.12
Unit of Account (IDB) (1)		UC		850.92		929.26		1,093.75
Argentine peso		$ Arg		573.65		385.17		219.09

F-33

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(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.
(2)	Beginning on January 1, 2002, these currencies will be expressed in the Euro.

(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.

(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 to ThCh$121,333,284, ThCh$146,377,134 and ThCh$115,349,531 for the years ended December 31, 2000, 2001 and 2002, respectively.  In addition, the total sum owed by the companies that have gone into bankruptcy amounting to ThCh$707,755 (ThCh$585,195 in 2001) is included in the bad debts estimation.

(g) Inventories

Inventory of materials in transit, land and operation and maintenance materials, 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 period of construction (only in power generators).

F-34

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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.

The Company and its subsidiaries have evaluated the recoverability of the book value of their property, plant and equipment in accordance with Technical Bulletin No.33 of the Chilean Accounting Association.

As a result of this evaluation no adjustments have been made at that affect the book values of these assets, except for adjustments for this concept recorded in the subsidiaries Centrais Electrica Cachoeira Dourada S.A. and Inmobiliaria Manso de Velasco Limitada, which are includes in Other non-operating expenses (See Note 23).

(i) Depreciation

Depreciation expense is calculated on the revalued balances using the straight-line method over the estimated useful lives of the assets.  Depreciation expense was ThCh$400,622,477 ThCh$426,020,442 and ThCh$454,471,134 as of December 31, 2000, 2001 and 2002, respectively.  Depreciation expense of ThCh$439,903,194, ThCh$413,824,670 ThCh$387,193,626 was included in Cost of sales and ThCh$14,567,940 ThCh$12,195,772 and ThCh$13,428,851 included in Administrative and selling expenses, respectively.

(j) Leased assets

The leased assets, whose contracts have financial lease characteristics, are accounted for as 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 made 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 the accrual basis (Note 11).

F-35

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Investments in foreign affiliates are recorded in accordance with Technical Bulletin No.64 of the Chilean Association of Accountants.

The Company and its subsidiaries have evaluated the recoverability of the book value of their property, plant and equipment in accordance with Technical Bulletin No.33 of the Chilean Accounting Association.

As a result of this evaluation no adjustments have been made that affect the book values of these assets.

(m) Intangibles, other than goodwill

Intangibles, other than goodwill, correspond mainly to easements, adjustments to carrying value for spum-off assets, and rights for the use of telephone lines and are amortized in accordance with Technical Bulletin No.55 of the Chilean Association of Accountants.

(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

This is revenue for electric power generation and distribution, among which are 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) Income tax and deferred income taxes

At December 31, 2000, 2001 and 2002, the Company recorded current tax expense according to the tax laws and regulations in each country of ThCh$160,193,833, ThCh$110,987,646 and ThCh$75,089,258, respectively.  The Company records 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, recognizing the deferred tax effects of temporary differences between the financial and tax values of assets and liabilities using the tax rates to be in effect at the time of reversal.

The requirements of Technical Bulletin N°60 are only applicable for temporary differences, tax benefits arising from tax losses and other events that create differences between the accounting and tax bases for assets and liabilities that arise after January 1, 2000, as a transitional provision, a contra asset or liability has been recorded offsetting the effects of the deferred tax assets and

F-36

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

liabilities not recorded prior to January 1, 2000.  Such contra asset or liability must be amortized to income over the estimated average reversal periods corresponding to the underlying temporary differences to which the deferred tax asset or liability relates, thereby mitigating the effect of recording deferred income taxes relating to prior periods that were previously not recorded.

(q) 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.

(r) 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.

(s) 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.

(t) Financial derivative contracts

As of December 31, 2001 and 2002 the Company and its subsidiary have forward contracts, currency swaps, and interest rate swaps and collars with several financial institutions, defined as cover, 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.”

(u) 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, and does not exceed 20 years.

F-37

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

The Company has 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, it has used to IAS 36 “Impairment of Assets Value” as the appropriate guiding literature.

(v) 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.

(w) 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.

(x) Investments in other companies

Investments in other companies are presented at acquisition cost adjusted for price-level restatement and they do not have market value.

(y) Research and development costs

Costs incurred by the Company in research and development are either general in nature (water-level studies, hydroelectric research, seismic-activity surveys) which are expensed as incurred.  Costs incurred in performing studies related to specific construction projects are capitalized.

During 2000, 2001 and 2002 there have been no expenses under this caption.

Note 3. Change in Accounting Principles

There were no changes in accounting principles during 2002 that would affect the comparison with the prior year financial statements.

F-38

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 4. Time Deposits

Time deposits as of each year-end are as follows:

Financial Institution	Annual Rate		Scheduled Maturity		2001		2002
	%				ThCh$		ThCh$
Banco Bilbao Vizcaya		1.28		30.01.03		28,873,651		4,539,102
Banco CCF Brasil		—		—		812,623		—
Banco Colpatria		8.50		02.01.03		8,654,209		14,808,363
Banco Continental		2.42		01.02.03		—		3,369,062
Banco Crédito del Perú		1.13		03.01.03		1,762,858		179,675
Banco de Bogotá		7.50		02.01.03		444,764		606,954
Banco de Chile		1.10		02.01.03		491,759		149,484
Banco de Chile N.Y.		1.10		02.01.03		3,339,638		344,943
Banco do Brasil		18.55		15.09.03		—		1,060,351
Banco do Estado do Ceará		—		—		4,959,682		—
Banco Frances		25.00		07.01.03		—		603,576
Banco Ganadero		—		—		11,119		—
Banco Holandes		3.50		01.01.03		—		431,741
Banco Interbank		1.46		14.01.03		391,658		2,862,988
Banco Itau		3.00		01.01.03		—		213,069
Banco Liberal		—		—		482,268		—
Banco Nationale de Paris		2.75		01.01.03		13,048,776		693,825
Banco Pactual		1.46		01.01.03		—		2,923,141
Banco Provincia Buenos Aires		6.50		02.01.03		—		650,606
Banco Rio		7.30		21.01.03		9,832		5,125,732
Banco Santander		2.90		02.01.03		796,736		2,339,169
Banco Santander CDB		7.50		02.01.03		1,058,196		4,312
Banco Santander Do Brasil		18.55		02.01.03		909,937		1,170,656
Banco Sudameris		—		—		3,800,198		—
Banco Tequendama		—		—		2,936,874		—
Banco Union Colombiano		—		—		2,720,943		—
Banco Votorantim		19.40		23.09.03		—		3,228,008
Banco Wiese Sudameris		1.44		02.01.03		166,454		431,166
Bank Boston		1.10		03.01.03		1,322,428		94,094
Bank of America		0.87		01.01.03		17,553,537		5,320,419
Banco Credito-Soles		1.13		02.01.03		—		3,932,045
Bonos de Solidaridad		10.00		02.01.03		675		1,070
Bradesco		19.37		15.09.03		683,371		3,764,259
Citibank N.Y.		1.10		02.01.03		54,433,352		55,244,377
Cititrust		6.24		02.01.03		—		56
Colcorp S.A.		9.00		03.02.03		1,673,922		1,024,239
Corficolombia		8.12		02.01.03		—		3,687,381
Corfivalle		7.98		02.01.03		9,812,357		3,724,459
Corporacion las Villas		—		—		3,480,285		—
Cuenta Corriente Remunerada		—		—		2,749,309		—
Encargo Fiduciario Banco Santander		6.18		02.01.03		—		2,363,837
Fiduciaria Banco Colpatria		—		—		19,448		—
Fiduciaria Banco de Bogotá		—		—		6,292,881		—
Fiduciaria Bancolombia		8.12		01.01.03		—		226
Fiduciaria Cititrust		6.55		01.01.03		41,848		475
Fiduciaria de Crédito		—		—		297,505		—
Fiduciaria de Santander		9.00		02.01.03		23,540		161,687
Fiduciaria Lloyds Bank		—		—		52,337		—
Fiduciaria Cancolombia		—		—		1,431,793		—
Fiducolombia		—		—		125,117		—
Fiduganadero		—		—		774,567		—
Fiduoccidente		7.73		02.01.03		5,070		9,728
Fiduvalle		7.66		01.01.03		—		761,371
HSBC - Bamerindus		3.00		01.01.03		586,792		5,450,031
Megabanco		—		—		42,296		—
Merrill Lynch		1.50		06.01.03		—		8,211,535
Suvalor		9.04		02.01.03		—		4,015,453
Time Deposit		—		—		1,038,629		—
Unibanco		7.00		08.09.03		—		2,124,229
Total						178,113,234		145,626,894

F-39

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 5. Accounts, Notes and Other Receivables

Current accounts, notes and other receivables and 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-term (1)
Account	2001		2002		2001		2002		2002			2001		2002		2001		2002
	ThCh$		ThCh$		ThCh$		ThCh$		ThCh$			ThCh$		ThCh$		ThCh$		ThCh$
Accounts receivable		576,467,295		487,395,335		17,305,993		76,912,334		564,307,669			550,248,992		458,839,724		—		—
Allowance for doubtful accounts										(105,467,945	)
Notes receivable		6,295,375		4,653,993		407,105		1,442,684		6,096,677			5,683,330		5,131,349		—		—
Allowance for doubtful accounts										(965,328	)
Other receivables		42,743,736		53,684,615		37,770,437		18,007,739		71,692,354			72,220,719		62,776,096		101,903,562		125,850,513
Allowance for doubtful accounts										(8,916,258	)
						Total							628,153,041		526,747,169		101,903,562		125,850,513

(1) Include regulatory assets from subsidiaries in Brazil for amounts ThCh$64,879,173 and ThCh$87,285,245 in 2001 and 2002, respectively.

Current and long-term accounts receivable per country as of each December 31, are as follows:

	As of December 31,
Country	2001				2002
	ThCh$		%		ThCh$		%
Chile		180,592,722		24.74		145,659,152		22.32
Peru		40,147,163		5.50		58,187,147		8.92
Argentina		75,119,315		10.29		40,461,768		6.20
Colombia		127,104,349		17.41		99,788,238		15.29
Brasil (1)		307,093,054		42.06		308,501,377		47.27
Total		730,056,603		100.00		652,597,682		100.00

(1)	In accordance with Decree Law No.14 and Resolution No.91 of the Council for Managing the Electric Energy Crisis (CGCEE), both dated December 21, 2001, and based on Resolution No.31 of the National Agency of Electric Energy (ANEEL) dated January 24, 2002, the Company’s distribution subsidiaries in Brasil have recognized as of December 31, 2001 and at March 1, 2002, a regulated asset, which will be recovered through extraordinary tariffs in order to recover losses experienced during the period of energy rationing from June 1, 2001 to March 1, 2002.
	The Brazilian rationing program came to an end on March 1, 2002, the Brazilian Congress ratified the law to compensate Brazilian electric companies on April 16, 2002.  The law approved a 2.9% and 7.9% increase for residential and industrial customers, respectively.
	ANNEL subsequently established an 18.6% tariff adjustment for CERJ to be effective on January 1, 2002; also, ANNEL set a 14.3% tariff adjustment for Coelce (Subsidiary of Investluz), to become effective on April 22, 2002.

F-40

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 6. Transactions with Related Companies

Balances of accounts receivable and payable are as follows at December 31, 2001 and 2002:

(a) Notes and accounts receivable:

	As of December 31,
	Short-term				Long-term
Company	2001		2002		2001		2002
	ThCh$		ThCh$		ThCh$		ThCh$
Aguas Santiago Poniente S.A.		2,496,548		257,796		—		—
Atacama Finance Co.		4,297,348		182,046,895		169,196,652		—
Central Geradora Term. de Fortaleza		11,383		3,861		—		—
Cía. Interconexión Energética  S.A.		3,004,871		4,101,221		—		37
Com. de Energía del Mercosur		3,369,682		4,422,881		—		—
Consorcio Energetico Punta Cana-Macao		967		939		—		—
Distrilec Inversora S.A.		6,810		7,257		—		—
Edenor S.A.		187,117		—		—		—
Elesur S.A.		20,379		24,217		—		—
Empresa Eléctrica de Bogotá S.A.		133,978		171,747		—		—
Empresa Eléctrica Piura S.A.		100,180		279,542		—		—
Endesa España		364,605		322,122		—		—
Endesa Internacional S.A.		2,387,673		1,632,089		—		—
Etevensa		190,584		220,020		—		—
Fundación Endesa		—		165,273		—		—
Gasoducto Atacama Generación		49,224		570,445		—		—
Gasoducto Tal Tal Ltda.		313,819		144,871		—		—
Ingendesa Do Brasil Ltda.		—		—		—		16,021
Inversiones Electrica Quillota S.A.		1,030		1,000		—		—
Sacme S.A.		175,047		101,097		—		—
Smartcom S.A.		896,261		619,403		—		—
Soc. de Inv. Chispa Uno S.A.		830		1,937		—		—
Transmisora Eléctrica de Quillota Ltda.		11,242		304,222		1,471,140		882,109
Total		18,019,578		195,398,835		170,667,792		898,167

F-41

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(b) Notes and accounts payable:

	As of December 31,
	Short-term				Long-term
Company	2001		2002		2001		2002
	ThCh$		ThCh$		ThCh$		ThCh$
Aguas Santiago Poniente S.A.		8		631		—		—
Com. de Energía del Mercosur		7,175,604		760,170		—		—
Compañía Transmisión del Mercosur S.A.		339,240		107,045		—		—
Electrogas S.A.		—		233,837		—		—
Elesur S.A.		17,289,294		11,465,695		984,980,016		987,371,066
Empresa Eléctrica de Bogotá S.A.		3,629,114		1,226,667		—		920,539
Empresa Eléctrica Piura S.A.		720,573		857,426		—		—
Endesa Internacional S.A.		342,658		1,109,741		16,727,143		—
Endesa Inversiones Generales S.A.		—		8,589		—		—
Endesa Servicios		—		116,041		—		—
Etevensa S.A.		1,116,904		—		—		—
Gasoducto Tal Tal Ltda.		213,599		160,559		—		—
Mundivia S.A.		76		—		—		—
Sacme S.A.		185,803		101,720		—		—
Smartcom S.A.		65,236		55,189		—		—
Transmisora Eléctrica de Quillota Ltda.		42,540		82,402		—		—
Total		31,120,649		16,285,712		1,001,707,159		988,291,605

F-42

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(c) Effects in income (expense) in each year are as follows:

			Income (expense)
Company	Nature of Transaction		2000			2001			2002
			ThCh$			ThCh$			ThCh$
Atacama Finance Co.		Interest		11,022,442			10,056,288			6,659,856
		Monetary correction		5,061,400			4,575,344			498,688
		Exchange difference		3,790,297			17,033,254			11,107,652
Central Geradora Term. de Fortaleza		Services		—			473,819			—
		Exchange difference		—			(21,636	)		—
Com. de Energía del Mercosur		Sale of energy		—			22,810,613			19,152,859
		Purchase of energy		—			(15,347,195	)		(1,958,213	)
		Interest		—			(62,519	)		—
		Services		—			73,855			—
Com. Transmisión del Mercosur S.A.		Purchase of energy		—			(3,985,903	)		(1,397,696	)
		Exchange difference		—			450			—
		Monetary correction		—			210			—
Cía. Interconexión Energética  S.A.		Sale of energy		39,696,963			46,839,739			26,990,992
		Exchange difference		—			(3,523	)		—
		Services		471,433			903,382			272,906
Inversiones Eléctrica Quillota S.A.		Interest		132,335			134,407			144,050
		Services		(475,445	)		—			5,066
		Monetary correction		—			43,994			—
Gasoducto Atacama Generación Ltda.		Services		(1,630,310	)		325,374			585,878
Empresa Eléctrica Piura S.A.		Sale of energy		2,472,161			938,354			1,457,382
		Purchase of energy		—			(9,812,046	)		(9,619,648	)
		Services		(1,211,356	)		1,213,149			175,914
		Exchange difference		—			(809	)		—
Gasoducto Tal Tal Ltda.		Services		629,818			—			40,494
Elesur S.A.		Interest		(73,502,634	)		(51,512,360	)		(43,408,831	)
		Services		8,916			20,478			15,919
		Monetary correction		(51,798,765	)		(30,547,186	)		(29,082,684	)
		Exchange difference		—			(753,213	)		—
Etevensa S.A.		Sale of energy		(10,603,289	)		3,063,312			5,757,877
		Services		(46,175	)		3,247,425			153,617
		Exchange difference		—			(563	)		—
Electrogas S.A.		Services		(2,319,147	)		(2,449,634	)		(2,978,702	)
Edenor S.A.		Services		2,838,831			4,434,499			—
		Sales of energy		38,725,328			—			—
Smartcom S.A.		Services		848,613			4,093,653			3,407,292
Aguas Santiago Poniente S.A.		Interest		—			209,426			70,757
		Services		—			29,798			32,060
Endesa Internacional S.A.		Services		(8,389	)		242,914			182,716
		Interest		(3,013,636	)		(2,193,466	)		(1,026,534	)
Sacme S.A.		Services		(772,147	)		(823,528	)		(364,396	)
Gasoducto Atacama y Cía. Ltda.		Services		124,963			—			—
Empresa Propietaria de la Red		Services		—			—			346,994
Mundivía S.A.		Services		—			61,157			—
Soc. de Inv. Chispa Uno S.A.		Services		17,788			6,582			8,432
Total				(39,540,005	)		3,317,895			(12,769,303	)

F-43

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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 period and settlement in line with cash flows.

Conditions of the long-term payables / receivables are as follows:

Company	Type		Due date		Currency		Capital		Interest rate
Elesur S.A.		Account payable		May 2004		UF		35,827,780		4.57	%
		Account payable		May 2004		UF		22,873,999		1.46	%
		Account payable		Aug 2004		UF		266,448		2.95	%
Transmisora Eléctrica de Quillota Ltda.		Account receivable		2006		UF		70,242		9.00	%
Atacama Finance Co.		Account receivable		2003		US$		250,872,179		3.33	%

Note 7. Inventories

Inventories include the following items and are presented net of an allowance for obsolescence amounting to ThCh$4,104,724 and ThCh$4,342,197 as of December 31, 2001 and 2002, respectively:

	As of December 31,
	2001		2002
	ThCh$		ThCh$
Real estate under development		27,262,972		23,804,228
Materials in transit		499,963		1,104,204
Operation and maintenance materials		41,944,252		32,051,573
Other		7,716,887		3,422,648
Total		77,424,074		60,382,653

Note 8. Deferred Income Taxes

(a) Income taxes (recoverable) payable as of each year-end are as follows:

	As of December 31,
	2001			2002
	ThCh$			ThCh$
Income tax provision – current		77,283,022			27,532,029
Recoverable tax credits		(57,510,102	)		(54,435,976	)
Total		19,772,920			(26,903,947	)

F-44

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(b)	The Company and its subsidiaries incurred taxable losses of ThCh$113,749,137, ThCh$422,072,497 and ThCh$573,346,119 for the years ended December 31, 2000, 2001 and 2002, respectively.
	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, for amount to ThCh$54,887,432 in 2002, expire after five years.
(c)	The balance of taxed retained earnings and the related tax credits are as follows:

Year	Amount of loss			Credit
	ThCh$			ThCh$
2001		(18,159,574	)		—
2002		23,698,947			4,524,557

(d)	The net effect of temporary differences resulted in a net charge to income of ThCh$13,870,328 and a net credit of ThCh$18,862,491 and ThCh$9,072,273 during the years ended December 31, 2000, 2001 and 2002, 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, 2001 and 2002 as follows:

	As of December 31, 2001												As of December 31, 2002
	Asset						Liability						Asset						Liability
	Short-term			Long-term			Short-term			Long-term			Short-term			Long-term			Short-term			Long-term
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$
Allowance for doubtful accounts		26,027,011			12,307,740			—			—			24,128,592			8,089,173			—			—
Deferred income		684,649			1,822,685			—			—			921,547			1,824,544			—			—
Vacation accrual		1,395,215			—			—			—			1,211,297			—			—			—
Intangibles		—			—			24,954			—			—			—			—			—
Leasing assets		—			3,475,357			—			—			—			2,301,708			—			—
Depreciation		—			3,500,985			115,620			388,240,574			—			3,730,312			63,991			425,486,736
Severance indemnities		—			4,166			—			1,954,040			—			5,248			—			814,241
Other		1,507,717			1,859,468			6,603,676			3,707,977			4,211,789			2,083,015			4,376,406			9,391,056
Contingencies		4,325,818			39,102,316			—			—			6,594,295			38,042,633			—			—
Bond discount		—			—			421,131			1,704,883			—			—			154,508			1,717,127
Cost of studies		—			—			—			4,675,640			—			—			—			7,972,554
Finance costs		—			194,771			—			8,304,618			—			117,034			—			13,755,855
Imputed interest on construction		—			—			—			4,830,117			—			—			—			4,863,433
Deferred charges		—			—			—			1,510,731			—			—			—			—
Actuarial deficit (companies in Brazil)		7,487,563			—			1,230,644			4,339,981			6,766,431			—			—			2,301,708
Withholdings		566,417			1,597,733			5,659			—			2,391,794			860,956			5,494			193,144
Regulated assets		—			—			—			—			—			—			3,828,000			—
Derivative contracts		2,775			1,000,985			—			512,289			350,818			234,174			—			—
Provision real estate projects		—			—			—			—			2,656,047			—			—			—
Materials used		—			—			—			3,349,399			—			—			—			1,086,289
Salaries for construction-in-progress		—			5,843,294			—			—			—			3,926,807			—			—
Tax losses		2,905,532			77,167,379			—			—			15,305,920			101,162,303			—			—
Hid. El Chocón investment		—			—			—			119,374			—			—			37			2,897,754
Capitalized expenses		—			—			552,418			4,506,944			—			—			770,801			3,112,269
Provision for labor benefits		306,354			192,678			559			—			447,462			1,179,874			517			516
Differences between the financial and
tax value of Río Maipo S.A.		—			—			—			—			—			—			1,475,222			—
Exchange difference -subsidiaries		—			—			—			—			1,288,870			3,866,610			—			—
Complementary account, net		(12,121,039	)		(49,272,564	)		(28,750	)		(296,221,936	)		(3,647,280	)		(42,168,372	)		(3,187	)		(290,044,693	)
Valuation allowance		—			(3,322,326	)		—			—			—			(3,448,901	)		—			—
Total		33,088,012			95,474,667			8,925,911			131,534,631			62,627,582			121,807,118			10,671,789			183,547,989

F-45

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(f) Income tax benefits (expense) for the years ended December 31, 2000, 2001 and 2002 is as follows:

	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Tax expense
Income tax provision		(160,193,593	)		(114,099,337	)		(74,581,690	)
Adjustment for tax expense-prior year		(240	)		3,111,691			(507,568	)
Subtotal		(160,193,833	)		(110,987,646	)		(75,089,258	)
Deferred taxes
Deferred taxes		(26,988,959	)		(36,891,994	)		24,471,978
Benefits for tax losses		28,053,730			13,509,821			5,043,185
Amortization of complementary accounts		22,425,461			6,143,861			(15,501,218	)
Change in valuation allowance		(1,192,554	)		(1,607,004	)		(126,575	)
Other charges or credits		(8,427,350	)		(17,175	)		(4,815,097	)
Total		(146,323,505	)		(129,850,137	)		(66,016,985	)

Note 9. Other Current Assets

Other current assets as of each year-end are as follows:

	As of December 31,
	2001		2002
	ThCh$		ThCh$
Forward contracts and swaps (1)		110,734,637		72,800,589
Guarantees and indemnities		1,785,077		1,183,406
Deferred expenses		3,115,540		5,709,113
Post-retirement benefits		884,210		908,669
Deposits for commitments and guarantees (2)		1,656,844		26,098,519
Other accounts receivable		3,303,579		8,399,481
Fair value-derivative contracts		—		11,603,424
Reverse repurchase agreements		1,909,395		—
Other		3,851,947		5,318,407
Total		127,241,229		132,021,608

(1)	See detail in Note 27.
(2)	Infraestructura 2000 S.A. Th$25,342,941 of time deposits in 2002.
	The balance included under this item corresponds to time deposits invested with funds from the issuance of bonds and that are to be kept in reserve accounts as agreed in the corresponding finance contracts.  At consolidated level, these time deposits are not restricted.

F-46

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 10. Property, Plant and Equipment

The composition of property, plant and equipment as of each year-end is as follows:

	As of December 31,
	2001			2002
	ThCh$			ThCh$
Land		123,257,963			129,904,787
Buildings and infrastructure		6,305,284,319			6,605,971,611
Distribution and transmission lines and public lighting		4,702,594,096			5,061,388,676
Less: third party contributions		(55,731,873	)		(45,056,759	)
Sub-total		10,952,146,542			11,622,303,528
Machinery and equipment		1,823,140,358			1,978,358,503
Work in progress		351,183,870			364,506,933
Construction materials		63,882,077			56,458,627
Leased assets		2,552,754			715,141
Furniture and fixtures,  tools, and computing equipment		82,938,365			79,254,829
Vehicles		15,595,644			13,097,921
Equipment in transit		8,193,631			7,462,991
Other assets		13,938,603			13,364,422
Sub-total		538,284,944			534,860,864
Technical appraisal		697,624,932			740,645,407
Total property, plant and equipment		14,134,454,739			15,006,073,089
Less: accumulated depreciation		(4,509,405,080	)		(5,126,614,906	)
Total property, plant and equipment, net		9,625,049,659			9,879,458,183

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.  This analysis is motivated by the appearance of negative circumstances in the economies of various countries and by the fact that the property, plant and equipment in these countries are measured in US dollars.  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.

F-47

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

The property, plant and equipment recoverability analysis, as explained in Note 2 h, was carried out considering that when there is evidence that the company’s operations do not permanently have sufficient earnings to cover 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, except for adjustments for this concept recorded in the subsidiaries Centrais Electrica Cachoeira Dourada S.A. and Inmobiliaria Manso de Velasco Limitada, which are includes in Other non-operating expenses (See Note 23).

Note 11. Investment in Related Companies

(a) Investments as of each year-end are as follows:

							Carrying Value				Equity in net  income (losses)
Related Companies	Number of shares		Percentage Owned		Related Equity		2001		2002		2000			2001			2002
				%		ThCh$		ThCh$		ThCh$		ThCh$			ThCh$			ThCh$
Aguas Santiago Poniente S.A. (1)		1,031,949		55.00		2,270,319		—		1,248,675		—			—			—
Cía. de Interconexión Energética S.A.		128,270,527		45.00		118,325,971		50,667,801		53,246,687		(1,563,219	)		(5,826,850	)		7,230,684
Gas Atacama Generación		—		50.00		67,770,629		36,300,892		33,885,315		(2,595,232	)		(3,441,037	)		(4,793,334	)
Gasoducto Atacama Argentina Ltda.		—		50.00		64,226,451		27,899,622		32,113,226		287,536			(4,686,666	)		2,386,141
Gasoducto Atacama Chile Ltda.		—		50.00		55,859,069		23,197,393		27,929,534		2,953,252			3,303,780			3,212,680
Inversiones Eléctricas Quillota S.A.		608,676		50.00		17,127,364		7,602,220		8,563,682		615,927			(29,794	)		1,310,128
Inversiones Electrogas S.A.		425		42.50		15,712,743		6,037,668		6,677,916		300,236			34,091			638,377
Com. de Energía del Mercosur S.A.		6,305,400		45.00		7,614,035		4,680,261		3,426,316		196,295			48,872			(1,524,596	)
Transquillota Ltda.		—		50.00		5,032,660		2,389,373		2,516,330		96,666			87,840			126,529
Atacama Finance Co.		3,150,000		50.00		5,179,023		2,555,396		2,589,511		90,809			120,819			(133,267	)
Endesa Market Place		210		15.00		3,199,945		602,376		479,992		(312,241	)		(336,407	)		(281,264	)
Sacme S.A.		12,000		50.00		78,684		41,818		39,342		3,001			(7,335	)		15,523
Consorcio ARA - Ingendesa Ltda..		—		—		105,854		—		52,883		3,556			—			56,927
Electrogas S.A.		85		0.02		11,190,123		2,038		2,378		167			37			339
Distrilec Inversora S.A.		4,416,141		51.50		—		11,288		—		—			11,289			—
Consorcio Ingendesa – Minmetal Ltda.		—		50.00		3,676		23,623		1,838		—			22,564			18,916
Central Geradora Termelectrica Fortaleza S.A.		20,246,908		48.82		—		5,386,640		21,333,090		—			—			—
Ingendesa do Brasil Limitada (1)		—		100.00		—		49,599		57,442		—			—			—
Total								167,448,008		194,164,157		76,753			(10,698,797	)		8,263,783

(1) There subsidiaries were in development stage for the years shown and accordingly, were not consolidated under Chilean GAAP.

(b) Income and (losses) recognized by Enersis S.A. based on the participation in the related companies as of December 31, 2002, amounted to ThCh$14,996,244 (ThCh$6,732,461), ThCh$14,328,089 (ThCh$3,629,292) in 2001 and ThCh$4,547,446 (ThCh$4,470,693) in 2000.

F-48

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(c) In accordance with Technical Bulletin No.64 of the Chilean Association of Accountants for the years ended December 31, 2001 and 2002, 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, 2002 the corresponding amounts are as follows:

Company	Country of origin		Investment		Reporting currency		Liability
			ThCh$				ThCh$
Central Hidroeléctrica Betania		Colombia		600,762,975		US$		336,577,165
Cachoeira Dourada		Brasil		430,106,204		US$		530,228,953
Edegel S.A.		Peru		220,917,766		US$		243,486,508
Cía. Interconexión Energética S.A.		Brasil		53,246,687		US$		62,574,905
Atacama Finance Co.		Islas Caymán		2,589,511		US$		1,854,668
Hidroeléctrica El Chocón S.A.		Argentina		212,761,767		US$		121,855,669
Com. de Energía del Mercosur S.A.		Argentina		3,426,316		US$		3,952,377
Central Costanera S.A.		Argentina		89,044,456		US$		65,498,672
Edesur S.A.		Argentina		482,071,599		US$		392,146,648
Edelnor S.A.		Peru		52,786,427		US$		23,385,019
Cía. do Electricidade do Río do Janeiro		Brasil		362,673,182		US$		385,080,177
Codensa S.A.		Colombia		276,586,841		US$		306,287,700
Coelce		Brasil		93,034,182		US$		116,004,085
Total				2,880,007,913				2,588,932,546

The investments made by Enersis S.A. and it affiliates during the year ended December 31, 2002, amounted to ThCh$23,465,277, which are detailed as follows:

	ThCh$
Acquisitions:
Luz de Río Ltda.		61,469
Central Termoléctrica Fortaleza S.A.		15,480,376
Compañía Eléctrica del Río Maipo S.A.		1,134
Cachoeira Dourada S.A.		58,931
Aguas Santiago Poniente S.A.		1,633,280
Pangue S.A.		4,998,894
Inversiones Distrilima S.A.		1,190,289
Other		40,904
Total		23,465,277

• In May of 2002, Enersis S.A. acquired 6,824,495 Sociedad Inversiones Distrilima S.A. shares equivalent to 1.14% of issued capital for US$1,767,761,22 increasing its direct interest from 14.79% to 15.93%.

F-49

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

•	In February and April of 2002 Enersis S.A. made contributions of US$22,773,195.87 to Central Geradora Termelétrica Fortaleza S.A. for a capital increase, maintaining its 48.82% interest equivalent to 20,246,908 shares.
•	During 2002, Lajas Inversora (Endesa subsidiary) acquired 753,627 (0.0803%) Central Eléctrica Cachoeira Dourada S.A. (Brasil) shares for Th$58,931, increasing its interest to 99.59% in said company.
•	On September 13, 2002, Endesa acquired 7,275,433 (2.51%) Pangue S.A. (Chile) shares for Th$4,998,894, increasing its interest to 94.97% in said company.
•	Debenture capitalization in Cerj
	On July 11, 2002, the company Luz de Río Ltda. and Endesa Internacional Energía Ltda., holders of convertible bonds issued by Companhía de Electricidade do Río de Janeiro, exercised the option to capitalize their investment. To that effect, 420,705,127,532 no par value shares were issued.

Said capitalization resulted in a net increase of the consolidated interest in the company to 61.95%.

Note 12. Investments in Other Companies

Investments in other companies at December 31, 2001 and 2002 are as follows:

	Number of shares		Percentage owned		As of December 31,
Company					2001		2002
				%		ThCh$		ThCh$
Distasa S.A. E.S.P.		1		—				6
Emgesa S.A. E.S.P.		1		—				3
Club de la Banca y Comercio		2		0.001		2,572		2,699
Club Empresarial		2		0.001		6,328		6,150
Edegas		1		0.010		2,616		3,422
Empresa Eléctrica de Aysen S.A		2,516,231		—		1,978,031		1,978,031
Inmobiliaria España S.A.		1		—		98		98
Inverandes S.A.		1,011,899		—		3,420		3,420
Cooperativa Eléctrica de Chillán		—		—		12,907		12,907
CDEC-SIC Ltda.		—		30.770		153,100		223,114
Empresa Eléctrica de Bogotá S.A.		12,818,264		11.000		147,160,783		156,799,970
Autopista del Río Maipo S.A.		25		0.200		4,827		4,827
Financiera Eléctrica Nacional		—		0.100		124,006		353,555
Saelpa		—		—		1,036		725
Teleceara		—		—		738		516
Supra CCVM Lltda.		—		—		37,906		26,525
Banco Destak		—		—		61,376		42,947
Menescal Produções Artisticas		—		—		8,344		5,838
Termocartagena		22		—		—		6
Coger		—		—		2,909		2,035
Total						149,560,997		159,466,785

F-50

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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, 2001 and 2002, as follows:

	As of December 31,
	Amortization									Net balance
Company	2000			2001			2002			2001		2002
	ThCh$			ThCh$			ThCh$			ThCh$		ThCh$
Central Costanera S.A. (1)		(1,477,224	)		(1,635,472	)		(24,019,065	)		22,542,503
Chilectra S.A.		(1,040,007	)		(6,178,814	)		(6,244,383	)		112,424,542		106,276,518
Cía. de Electricidade do Río de Janeiro (1)		(6,144,427	)		(6,802,644	)		(109,374,320	)		102,650,570		—
C. Hidroeléctrica Cachoeira Dourada (1)		(3,685,680	)		(4,080,506	)		(69,564,545	)		65,288,089		—
Coelce (1)		(10,994,059	)		(12,171,789	)		(213,989,455	)		200,834,527		—
Codensa		(1,515,697	)		(1,677,992	)		(1,787,998	)		26,569,990		26,522,265
Distrilec Inversora S.A. (1)		(596,749	)		(660,678	)		(11,642,227	)		10,926,526		—
Edegel S.A.		(34,232	)		(37,900	)		(41,020	)		609,554		608,459
Edesur S.A. (1)		(577,694	)		(639,580	)		(9,483,835	)		8,900,820		—
Emgesa S.A.		(1,369,908	)		(1,516,659	)		(1,615,435	)		24,013,765		23,970,674
Empresa Eléctrica de Colina S.A.		(185,188	)		(185,188	)		(185,188	)		2,731,517		2,546,329
Empresa Eléctrica de Pangue S.A.		—			—			(69,692	)		—		3,275,515
Endesa (Chile)		(42,958,280	)		(42,958,281	)		(42,958,280	)		710,600,834		667,642,554
Gasoducto Atacama y Cía Ltda.		(4,772	)		(4,772	)		(4,772	)		81,927		77,154
Hidroeléctrica El Chocón S.A. (1)		(507,513	)		(810,026	)		(10,069,320	)		9,450,309		—
Hidroinvest S.A. (1)		(70,177	)		(77,694	)		(1,379,722	)		1,294,904		—
Inversiones Distrilima S.A.		(1,272	)		(1,408	)		(1,500	)		18,301		18,000
Investluz S.A. (1)		(56,270	)		(62,297	)		(1,095,242	)		1,027,913		—
Lajas Inversora S.A. (1)		(95,269	)		(105,474	)		(1,798,130	)		1,687,590		—
Luz de Bogotá S.A.		(363,754	)		(402,719	)		(445,628	)		6,376,384		6,348,417
Cía. Eléctrica del Río Maipo S.A.		(35,635	)		(566,455	)		(574,414	)		10,802,028		10,227,614
Total		(71,713,807	)		(80,576,348	)		(506,344,171	)		1,318,832,593		847,513,499

(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, 2001 and 2002 as follows:

	As of December 31,
	Amortization				Net balance
Company		2000	2001	2002		2001	2002
		ThCh$	ThCh$	ThCh$		ThCh$	ThCh$
Inversiones  Destrilima S.A.		—	—	18,366		—	611,346
Hidroeléctrica El Chocón S.A. (1)		—	248,147	3,613,468		3,391,331	—
Synapsis Soluciones y Servicios IT Ltda.		15,314	15,315	15,315		156,983	141,668
Edelnor S.A.		1,054,693	1,167,676	1,244,160		3,696,809	2,694,795
Central Hidroeléctrica Betania S.A.		30,582,139	33,765,719	34,886,018		56,035,189	24,819,551
Cía. Eléctrica Cachoeira Dourada (1)		1,773,475	1,996,761	36,869,705		34,362,010	—
Edegel S.A.		8,564,986	9,661,331	10,294,161		68,866,610	63,083,303
Empresa de Energía de Bogotá S.A.		215,999	239,139	254,803		3,826,225	3,822,287
Cía. de Electricidade do Río de Janeiro (1)		—	118,238	15,874,719		2,246,500	—
Coelce (1)		440,352	487,523	9,177,059		8,612,903	—
Total		42,646,958	47,699,849	112,247,774		181,194,560	95,172,950

F-51

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(1) To carry out the analysis of the recoverability of goodwill and negative goodwill on investments abroad, as explained in Note 2 u, the Company used International Accounting Standard (IAS) No.36.

The analysis determined that the impairment of goodwill and negative goodwill in the companies, related to investments in Argentina and Brazil, is 100%, as, when comparing cash flows generated by the companies in said countries, such flows do not cover the recorded goodwill and negative goodwill.  Thus, these balances have been fully amortized, resulting in a higher net charge to income for the period of ThCh$236,434,558, net of minorities, which is included in goodwill and negative goodwill amortization in the income statement.

Note 14. Other Assets

Other assets as of each year-end are as follows:

	As of December 31,
	2001		2002
	ThCh$		ThCh$
Bond discount		23,317,438		20,817,166
Bond issuance cost		2,227,309		11,513,319
Forwards contracts and swaps		6,778,289		9,363,825
Deferred expenses		29,372,305		32,395,491
Deferred commissions on foreign currency loans		8,504,753		10,428,709
Post-retirement benefits		50,753,635		19,278,057
Security deposits for judicial obligations		17,219,611		23,650,617
Recoverable - taxes		16,938,241		14,575,779
Reimbursable contributions		1,644,724		1,445,742
Argentinean Goverment bond (Edesur)		6,744,337		793,976
Regulated assets		28,334,477		36,046,501
Fair value-derivative contracts		—		51,900,113
Others		6,700,336		6,546,301
Total		198,535,455		238,755,596

F-52

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 15. Due to Banks and Financial Institutions

(a) Short-term debt due to banks and financial institutions:

	Foreign Currency
	US$				Other foreign currencies				Ch$				Total
Financial Institution	2001		2002		2001		2002		2001		2002		2001		2002
		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$
Short-term:
ABN Amro Bank		—		6,557,278		—		—		—		—		—		6,557,278
Banco Alfa		—		—		9,978,137		2,914,580		—		—		9,978,137		2,914,580
Banco Banrisul		—		—		2,943,626		2,033,821		—		—		2,943,626		2,033,821
Banco Bayernische Landes		3,900		8,744,459		—		—		—		—		3,900		8,744,459
Banco BBVA Argentaria		19,383,881		15,389,863		—		7,176,274		—		—		19,383,881		22,566,137
Banco BBVA BHIF		11,690,051		14,868,221		—		—		260		20,387,682		11,690,311		35,255,903
Banco Beal		—		14,077,559		—		—		—		—		—		14,077,559
Banco Brasiletros		—		—		325,235		—		—		—		325,235		—
Banco Granahorrar		—		—		—		5,058,544		—		—		—		5,058,544
Banco Continental - Perú		—		8,967		15,050,838		3,688,212		—		—		15,050,838		3,697,179
Banco Continental - Soles		6,091,898		—		—		20,734,860		—		—		6,091,898		20,734,860
Banco Crédito (Perú)		—		—		20,726,463		20,534,043		—		—		20,726,463		20,534,043
Banco Crédito Inversiones		6,249		—		4,401,289		—		—		5,677,901		4,407,538		5,677,901
Banco de Bogotá		—		—		—		12,605,923		—		—		—		12,605,923
Banco de Chile		—		1,395,421		—		53,818		94		7,074,827		94		8,524,066
Banco de Occidente		—		—		—		5,024,251		—		—		—		5,024,251
Banco Davivienda		—		—		—		2,297,651		—		—		—		2,297,651
Banco Europeu de Investimentos		—		986,292		—		—		—		—		—		986,292
Banco Ganadero		—		—		8,328,537		884,609		—		—		8,328,537		884,609
Banco HBSC		—		14,966,456		—		—		—		—		—		14,966,456
Banco Itau		14,868,328		17,336,064		—		—		—		—		14,868,328		17,336,064
Banco Lloyds		12,725,024		11,001,720		—		962,348		—		—		12,725,024		11,964,068
Banco Nationale de Paris		5,451,346		—		—		—		—		—		5,451,346		—
Banco Nazionale del Lavoro		25,998		—		—		—		—		—		25,998		—
Banco Real		3,285,690		—		—		—		—		—		3,285,690		—
Banco Río		15,773,388		5,169,358		22,748		4,638,644		—		—		15,796,136		9,808,002
Banco Safra		4,621,310		—		—		—		—		—		4,621,310		—
Banco Santander		1,505,541		10,494,702		8,441,260		11,236,876		—		116		9,946,801		21,731,694
Banco Santander Central Hispano		—		88,495		—		6,756,148		—		—		—		6,844,643
Banco Santiago		1,407,374		944,155		—		—		2,363,855		30,047,885		3,771,229		30,992,040
Banco Wiese		36,542		—		23,274		—		—		—		59,816		—
Bank Boston		22,883,118		21,573,421		12,840,183		7,617,506		—		—		35,723,301		29,190,927
Bank of América		18,039,049		—		—		—		—		—		18,039,049		—
Bank of Tokio		129,569		12,207,873		—		—		—		—		129,569		12,207,873
Barings		6,767,943		5,034,740		—		—		—		—		6,767,943		5,034,740
Bndes		—		—		—		3,797,550		—		—		—		3,797,550
BNP Paribas		—		—		—		1,728,888		—		—		—		1,728,888
Brandesco		11,929,665		4,069,600		6,643,422		—		—		—		18,573,087		4,069,600
Caixa General de Depósitos		—		—		—		4,488,965		—		—		—		4,488,965
Chase Manhattan Bank		578		—		2,943,675		—		—		—		2,944,253		—
Citibank		22,932,354		17,080,123		7,618,861		10,622,525		—		—		30,551,215		27,702,648
Deutsche Bank		3,510,307		—		173		723,970		—		—		3,510,480		723,970
Interbank		—		24		—		—		—		—		—		24
San Paolo IMI Bank		—		40,312,584		—		—		—		—		—		40,312,584
Santander Overseas Bank		10,119,892		—		—		—		—		—		10,119,892		—
Unibanco		5,169,139		3,973,468		—		—		—		—		5,169,139		3,973,468
Total		198,358,134		226,280,843		100,287,721		135,580,006		2,364,209		63,188,411		301,010,064		425,049,260
Total Principal		161,053,463		172,781,954		66,462,707		122,203,397		2,364,209		63,024,860		229,880,379		358,010,211
Weighted average annual interest rate		10.98%		8.14%		11.28%		14.84%		4.62%		2.48%		10.99%		9.42%

	As of December 31,
	2001 %		2002 %
Percentage of debt in foreign currency:		99.21		85.13
Percentage of debt in local currency:		0.79		14.87
Total		100.00		100.00

F-53

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(b) Current portion of long-term debt due to banks and financial institutions:

	Foreign Currency
	US$						Euros						Yen						Other foreign currency
Financial Institution	2001			2002			2001			2002			2001			2002			2001			2002
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$
Current portion of long -term:
ABN Amro Bank		4,641,206			2,636,765			—			—			—			—			—			—
Corporación Fin. del Valle		—			55,827			—			—			—			—			—			—
Banco Bayernische Landes		21,333,470			5,622,544			—			—			—			—			—			—
Banco BBVA Bhif		586,366			1,447,394			—			—			—			—			—			—
Banco Beal		15,484,073			—			—			—			—			—			—			—
Banco de Chile		—			—			—			—			—			—			—			—
Banco do Brasil		147,266			152,837			—			—			—			—			916,285			—
Banco do Estado  de Ceará		—			—			—			—			—			—			6,865			882,985
Banco do Nordeste do Brasil		—			—			—			—			—			—			185,154			1,987
Banco Estado		1,654,097			931,318			—			—			—			—			—			42,548
Bancolombia		—			107,119			—			—			—			—			—			—
Banco HBSC		21,590			10,824,955			—			—			—			—			—			—
Banco Hermes		6,577,752			5,391,528			—			—			—			—			—			—
Banco Lloyds		—			7,219,445			—			—			—			7,067,648			—			—
Banco Medio Crédito		4,214,536			—			—			—			—			—			—			—
Banco Nacional Desarrollo Soc.		—			—			—			—			—			—			651,402			2,019,382
Banco Real		—			—			—			—			—			—			—			470,332
Banco Rio		—			—			—			—			—			—			1,896			—
Banco Nacional del Lavoro		—			171,165			—			—			—			3,365,645			—			2,409
Banco San Paolo		67,508,298			—			—			—			—			—			—			—
Banco Santander		3,744,556			768,636			—			—			—			—			2,178,745			—
Banesto		4,292,992			4,601,056			—			—			—			—			—			—
Bank Boston		—			600,561			—			—			—			14,637,719			—			—
Bank of América		69,521,918			97,779,555			—			—			—			—			—			—
Bank of Tokio - Mitsubishi		56,082,775			46,988,580			—			127,292			395,184			14,585,777			496,814			—
Banque Nationale París		4,626,119			11,861,505			—			—			—			—			—			456,684
Birf		—			—			—			—			—			—			1,066,471			—
Chase Manhattan Bank		57,741,816			596,408			—			—			—			—			—			1,195,763
BNP Paribas		—			—			—			—			—			—			—			6,615,690
Citibank N.A.		22,631,820			24,295,402			—			—			—			—			—			—
Dresner B. Luxemburg		232,752			82,932,830			—			—			—			—			—			—
Electrobras - Brasil		—			—			—			—			—			—			2,969,352			—
Eximbank		—			—			—			—			—			—			—			459,473
Export Develop. Corp.		1,681,533			2,506,978			—			—			—			—			—			—
J.P.Morgan Chase Bank		—			408,710			3,624,390			4,545,759			—			—			—			—
Kreditanstal Fur Weideraubau		403,235			424,774			—			—			—			—			—			—
Midland Bank		5,085,611			5,668,452			—			—			—			—			—			—
Santander Central Hispano		—			215,947,206			—			—			—			6,481,411			—			—
Santander Inv. Bank		5,063,018			6,349,226			—			—			—			—			—			—
Scotiabank		559,807			—			—			—			—			—			—			—
Skandinaviska Enskildabnken		2,229,111			2,375,122			—			—			—			—			—			—
Societe Generale		1,740,953			1,845,522			—			—			—			—			—			—
Unibanco		—			—			—			—			—			—			73,033			52,797
Total		357,806,670			540,511,420			3,624,390			4,673,051			395,184			46,138,200			8,546,017			12,200,050
Total principal		307,836,499			513,485,849			3,624,390			4,647,499			395,184			45,826,512			8,544,119			8,884,706
Weighted average annual interest rate		6.03	%		3.24	%		4.26	%		3.79	%	z	0.90	%		2.08	%		8.60	%		8.53	%

	Foreign Currency
	UF				Total
Financial Institution	2001		2002		2001		2002
Current portion of long -term:	ThCh$		ThCh$		ThCh$		ThCh$
ABN Amro Bank		—		—		4,641,206		2,636,765
Corporación Fin. del Valle		—		—		—		55,827
Banco Bayernische Landes		—		—		21,333,470		5,622,544
Banco BBVA Bhif		—		—		586,366		1,447,394
Banco Beal		—		—		15,484,073		—
Banco de Chile		17,742,450		—		17,742,450		—
Banco do Brasil		—		—		1,063,551		152,837
Banco do Estado  de Ceará		—		—		6,865		882,985
Banco do Nordeste do Brasil		—		—		185,154		1,987
Banco Estado		19,679,568		1,739,232		21,333,665		2,713,098
Bancolombia		—		—		—		107,119
Banco HBSC		—		—		21,590		10,824,955
Banco Hermes		—		—		6,577,752		5,391,528
Banco Lloyds		—		—		—		14,287,093
Banco Medio Crédito		—		—		4,214,536		—
Banco Nacional Desarrollo Soc.		—		—		651,402		2,019,382
Banco Real		—		—		—		470,332
Banco Rio		—		—		1,896		—
Banco Nacional del Lavoro		—		—		—		3,539,219
Banco San Paolo		—		—		67,508,298		—
Banco Santander		17,742,450		—		23,665,751		768,636
Banesto		—		—		4,292,992		4,601,056
Bank Boston		—		—		—		15,238,280
Bank of América		—		—		69,521,918		97,779,555
Bank of Tokio - Mitsubishi		—		—		56,974,773		61,701,649
Banque Nationale París		—		—		4,626,119		12,318,189
Birf		—		—		1,066,471		—
Chase Manhattan Bank		—		—		57,741,816		1,792,171
BNP Paribas		—		—		—		6,615,690
Citibank N.A.		—		—		22,631,820		24,295,402
Dresner B. Luxemburg		—		—		232,752		82,932,830
Electrobras - Brasil		—		—		2,969,352		—
Eximbank		—		—		—		459,473
Export Develop. Corp.		—		—		1,681,533		2,506,978
J.P.Morgan Chase Bank		—		—		3,624,390		4,954,469
Kreditanstal Fur Weideraubau		—		—		403,235		424,774
Midland Bank		—		—		5,085,611		5,668,452
Santander Central Hispano		—		—		—		222,428,617
Santander Inv. Bank		—		—		5,063,018		6,349,226
Scotiabank		—		—		559,807		—
Skandinaviska Enskildabnken		—		—		2,229,111		2,375,122
Societe Generale		—		—		1,740,953		1,845,522
Unibanco		—		—		73,033		52,797
Total		55,164,468		1,739,232		425,536,729		605,261,953
Total principal		55,164,468		1,554,097		375,564,660		574,398,663
Weighted average annual interest rate		7.50%		8.73%		6.27%		3.30%

	As of December 31,
	2001 %		2002 %
Percentage of debt in foreign currency:		87.04		99.71
Percentage of debt in local currency:		12.96		0.29
Total		100.00		100.00

In order to develop their investment plans, Enersis S.A., Endesa S.A. (Enersis subsidiary) and Pehuenche S.A. (Endesa S.A. subsidiary), have obtained financing from banks and financial institutions or through issuance of financial instruments, both in the local market and abroad which contain financial and non-financial covenants.

F-54

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 16. Long-Term Portion of Debt Due to Banks and Financial Institutions

	As of December 31, 2002
Financial Institution	Currency		After 1 year but within 2 years		After 2 year but within 3 years		After 3 year but within 5 years		After 5 year but within 10 years
			ThCh$		ThCh$		ThCh$		ThCh$
ABN Amro Bank		US$		10,060,540		—		—		—
		US$		71,861,000		—		—		—
		US$		348,727		348,727		697,454		697,457
Banco Bayernische Landes		US$		—		—		—		—
Banco BBVA		US$		467,096,500		—		—		—
Banco Estado		$ Reaj.		14,644,588		39,055,660		2,936,985		—
		US$		4,604		—		—		—
Banco Europeo de Investimentos		US$		—		—		11,976,834		23,953,666
Banco do Brasil		Rs		1,612,832		806,416		1,612,832		4,032,080
		US$		666,812		310,166		543,906		1,223,757
Banco Medio Crédito		US$		—		—		—		—
		$ Arg		1,843,524		1,843,524		1,843,524		6,440,033
Banco Nacional Desarrollo Soc.		Rs		924,558		462,279		—		—
Banco Nacional del Lavoro		US$		—		—		—		—
Banco Nacionale  de Paris		US$		10,624,361		10,624,361		21,248,722		16,661,934
		US$		1,927,400		1,927,400		3,854,800		5,895,808
Bancolombia		US$		—		—		484,743		—
Banco Santander		US$		—		—		—		—
		US$		—		—		—		—
		US$		—		—		—		—
Scotiabank		US$		—		—		—		—
Banco Santander Central His.		US$		—		—		—		—
		US$		287,444,000		—		—		—
		Yen		6,979,153		—		—		—
Banesto		US$		3,545,818		3,545,818		7,091,636		14,183,276
Bank Boston		US$		—		—		—		—
Bank of America		US$		—		—		—		—
Bank Tokio - Mitsubishi		US$		6,895,050		6,895,050		—		—
		US$		—		—		—		—
		US$		—		—		—		—
		Lira		—		—		—		—
		Pound		438,973		438,973		—		—
		Yen		462,018		462,018		—		—
		Euros		122,980		122,980		—		—
Bco. do Estado  de Ceará		Rs		145,548		—		—		—
Bco. do Nordeste do Brasil		Rs		83,792		34,914		—		—
BIRF		U.P.		1,189,530		—		—		—
BNDES		Rs		—		49,049,488		—		—
		Rs		21,350,096		7,116,699		—		10,519,313
J.P.Morgan Chase Bank		US$		—		—		—		—
		US$		—		39,523,550		17,965,250		—
		US$		—		—		—		—
		Euros		—		—		—		—
Citibank N.A.		US$		—		—		—		—
Citibank N.Y.		US$		22,584,885		11,292,443		—		—
		US$		359,305,000		—		—		—
Corfinsura		US$		—		—		32,609,567		—
Electrobas - Brasil		Rs		—		—		—		—
Export Develop. Corp.		US$		987,113		987,113		1,974,226		4,935,565
		US$		1,043,482		1,043,482		2,086,964		2,608,704
HBSC Bank		US$		—		—		—		—
Kreditanstal Fur Weideraubau		US$		393,104		393,104		786,208		589,654
Lloyd’s Bank		US$		1,135,176		—		—		—
		US$		—		—		—		—
		Yen		1,077,915		—		—		—
Midland Bank		US$		—		—		—		—
Santander Investment		US$		3,664,911		—		—		—
Skandinaviska Enskildabnken		US$		2,375,122		2,375,122		2,375,007		—
Dresdner Bank		US$		—		—		—		—
Societe Generale		US$		1,378,048		—		—		—
Unibanco		Rs		78,528		—		—		—
Total				1,304,295,688		178,659,287		110,088,658		91,741,247

	As of December 31, 2002								Annual interest rate average			Total Long-term portion - 2001
Financial Institution	Currency		After 10 years				Total Long-term portion
			years		ThCh$		ThCh$					ThCh$
ABN Amro Bank		US$		—		—		10,060,540		2.75	%		1,963,737
		US$		—		—		71,861,000		2.81	%		67,443,370
		US$		—		—		2,092,365		2.70	%		—
Banco Bayernische Landes		US$		—		—		—		0.00	%		2,085,128
Banco BBVA		US$		—		—		467,096,500		2.66	%		406,852,130
Banco Estado		$ Reaj.		—		—		56,637,233		4.32	%		58,028,908
		US$		—		—		4,604		6.50	%		864,034
Banco Europeo de Investimentos		US$		—		—		35,930,500		1.37	%		—
Banco do Brasil		Rs		—		201,601		8,265,761		19.13	%		10,016,239
		US$		—		1,802,494		4,547,135		4.05	%		4,363,330
Banco Medio Crédito		US$		—		—		—		0.00	%		35,267,772
		$ Arg		—		—		11,970,605		1.75	%		—
Banco Nacional Desarrollo Soc.		Rs		—		—		1,386,837		9.04	%		2,548,105
Banco Nacional del Lavoro		US$		—		—		—		0.00	%		3,303,104
Banco Nacionale  de Paris		US$		—		—		59,159,378		4.35	%		65,648,923
		US$		—		2,575,466		16,180,874		4.70	%		7,477,621
Bancolombia		US$		—		—		484,743		3.00	%		7,327,862
Banco Santander		US$		—		—		—		0.00	%		7,729,276
		US$		—		—		—		0.00	%		708,728
		US$		—		—		—		0.00	%		20,680
Scotiabank		US$		—		—		—		0.00	%		130,840,138
Banco Santander Central His.		US$		—		—		—		0.00	%		366,386,108
		US$		—		—		287,444,000		2.64	%		—
		Yen		—		—		6,979,153		2.09	%		—
Banesto		US$		—		—		28,366,548		4.30	%		32,850,615
Bank Boston		US$		—		—		—		0.00	%		14,247,345
Bank of America		US$		—		—		—		0.00	%		27,584,337
Bank Tokio - Mitsubishi		US$		—		—		13,790,100		2.66	%		14,785,268
		US$		—		—		—		0.00	%		8,138,664
		US$		—		—		—		0.00	%		19,413,538
		Lira		—		—		—		0.00	%		293,321
		Pound		—		—		877,946		4.81	%		1,115,357
		Yen		—		—		924,036		0.89	%		1,173,625
		Euros		—		—		245,960		4.13	%		—
Bco. do Estado  de Ceará		Rs		—		—		145,548		9.83	%		166,106
Bco. do Nordeste do Brasil		Rs		—		—		118,706		8.04	%		221,316
BIRF		U.P.		—		—		1,189,530		5.32	%		2,056,583
BNDES		Rs		—		—		49,049,488		10.00	%		9,441,620
		Rs		—		—		38,986,108		26.00	%		—
J.P.Morgan Chase Bank		US$		—		—		—		0.00	%		74,113
		US$		—		—		57,488,800		8.53	%		53,954,696
		US$		—		—		—		0.00	%		5,395,470
		Euros		—		—		—		0.00	%		3,589,264
Citibank N.A.		US$		—		—		—		0.00	%		52,991,219
Citibank N.Y.		US$		—		—		33,877,328		3.88	%		36,311,511
		US$		—		—		359,305,000		2.56	%		362,170,897
Corfinsura		US$		—		—		32,609,567		12.38	%		—
Electrobas - Brasil		Rs		—		—		—		0.00	%		524,017
Export Develop. Corp.		US$		—		1,974,229		10,858,246		2.90	%		6,478,693
		US$		—		—		6,782,632		2.75	%		7,552,397
HBSC Bank		US$		—		—		—		0.00	%		10,116,506
Kreditanstal Fur Weideraubau		US$		—		—		2,162,070		4.85	%		2,398,095
Lloyd’s Bank		US$		—		—		1,135,176		5.75	%		6,744,337
		US$		—		—		—		0.00	%		1,011,651
		Yen		—		—		1,077,915		2.09	%		—
Midland Bank		US$		—		—		—		0.00	%		12,525,197
Santander Investment		US$		—		—		3,664,911		7.25	%		9,307,185
Skandinaviska Enskildabnken		US$		—		—		7,125,251		0.65	%		8,916,338
Dresdner Bank		US$		—		—		—		0.00	%		77,627,317
Societe Generale		US$		—				1,378,048		1.62	%		3,017,776
Unibanco		Rs		—		—		78,528		6.54	%		180,353
Total				—		6,553,790		1,691,338,670					1,971,249,920

	As of December 31,
	2001		2002
	%		%
Percentage of debt in foreign currency:		97.06		97.13
Percentage of debt in local currency:		2.94		2.87
Total		100.00		100.00

F-55

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 17. Other Current Liabilities

Other current liabilities at each year-end are as follows:

	As of December 31,
	2001		2002
	ThCh$		ThCh$
Advances and guarantee on construction		6,803,215		601,997
Taxes payable		4,293,154		2,482,871
Contingencies - third party claims		11,142,417		15,212,625
Customer advances		4,341,372		3,293,578
Losses in excess of insurance settlement		—		2,336,683
Acrued employes benefits - other		3,187,555		2,228,103
Forward contracts and swaps		114,377,655		5,729,893
Fair value - derivative contracts		—		11,251,521
Emergency energy provision (Brazil)		1,319,668		10,708,453
Other current liabilities		4,918,722		5,696,233
Total		150,383,758		59,541,957

Note 18. Promissory Notes

							As of December 31,
	Face value		Maturity date		Interest rate
Financial Instrument							2001		2002
	ThCh$				%		ThCh$		ThCh$
2001-029		42,328,262		May 13, 2002		18.13		43,598,110		—
Commercial paper		10,456,868		Feb 01, 2002		8.48		11,032,138		—
Commercial paper		3,030,678		May, 2003		5.00		—		3,089,607
Commercial paper		2,081,801		Aug, 2003		5.25		—		2,124,305
Promissory note-AFR		—		Dec, 2003		10.00		—		122,129
OPP-027/2002		1,000		June, 2003		—		—		3,465,944
Promissory note - Banco Santander		286,299		Jan, 2003		5.00		—		286,299
OPP-058/2002		1,000		Sep, 2003		—		—		4,101,230
Total								54,630,248		13,189,514

F-56

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 19. Bonds Payable

(a) Details of the current portion of bonds payable is as follows at each year-end:

											Par Value
					Face value outstanding		Interest rate		Maturity Date
Instrument	Series		Currency								2001		2002
					ThCh$		%				ThCh$		ThCh$
Bonds – Distrilima		1		Soles		49,919,000		9.61		Feb 01, 2011		5,827		5,946
Bonds – Distrilima		1st Prog		Soles		15,104,316		7.50		Jul 01, 2006		577,643		595,057
Bonds – Distrilima		1st Prog		Soles		6,134,974		6.50		Jan 01, 2004		—		178,340
Bonds – Distrilima		1st Prog		Soles		4,089,983		6.34		Jan 01, 2004		—		49,009
Bonds – Distrilima		1st Prog		Soles		3,859,972		7.50		Jan 01, 2004		—		43,787
Bonds – Distrilima		1st Prog		Soles		18,949,365		6.90		Oct 10, 2006		273,062		289,297
Bond No.269		B1 – B2		UF		2,945,863		5.63		Jun 15, 2009		7,338,014		7,707,332
Yankee Bonds – Enersis		1		US$		300,000,000		6.90		Nov 21, 2006		1,124,617		1,198,281
Yankee Bonds – Enersis		2		US$		350,000,000		7.45		Nov 21, 2016		1,004,024		1,069,787
Yankee Bonds – Enersis		3		US$		150,000,000		6.63		Nov 21, 2026		537,860		573,091
Bonds Endesa		1		US$		230,000,000		7.88		Feb 01, 2027		4,559,675		4,858,340
Bonds Endesa		2		US$		220,000,000		7.33		Feb 01, 2037		4,528,542		4,825,168
Bonds Endesa		3		US$		200,000,000		8.13		Feb 01, 2097		947,084		1,009,124
Bonds Endesa		1		US$		400,000,000		7.75		July 15, 2008		9,582,578		10,210,249
Bonds Endesa		1		US$		400,000,000		8.50		Apr 01, 2009		5,732,686		6,108,185
Bonds Endesa		E-1, E-2		UF		6,000,000		6.20		Aug 01, 2006		2,557,305		2,556,325
Bonds Endesa Internacional		C		US$		150,000,000		7.20		Apr 01, 2006		1,820,971		1,940,247
Bonds Endesa		B-1, B-2		UF		750,000		6.00		Oct 01, 2001		—		—
Bonds Endesa		C2; D1, D2		UF		1,315,960		6.80		Nov 01, 2010		2,332,264		2,448,643
Bonds Pehuenche		1		US$		170,000,000		7.30		May 01, 2003		1,394,954		123,650,025
Bonds Edegel		1		US$		30,000,000		8.75		June 13, 2007		139,657		148,805
Bonds Edegel		2		US$		30,000,000		8.41		Feb 14, 2007		648,384		690,620
Bonds Edegel		3		US$		30,000,000		8.75		Jun 03, 2006		91,499		97,493
Bonds Edegel		4		US$		20,000,000		8.44		Nov 21, 2005		123,910		135,327
Bonds Edegel		5		US$		10,000,000		11.50		Feb 22, 2003		280,254		7,450,131
Bonds Emgesa		B-1		$ Col.		85,000,000		15.80		Jun 01, 2006		1,721,866		—
Bonds Emgesa		B-5		$ Col.		12,750,006		14.95		Oct 09, 2004		119,042		74,909
Bonds Emgesa		B-7		$ Col.		19,500,010		15.27		Oct 09, 2006		186,358		118,162
Bonds Emgesa		B-10		$ Col.		229,825,122		15.60		Oct 09, 2009		2,247,058		1,435,070
Bonds Emgesa		C-10		$ Col.		19,777,918		10.25		Oct 09, 2009		136,358		43,693
Bonds Emgesa		B-10 2nd		$ Col.		273,130		15.78		Nov 09, 2009		336,523		220,970
Bonds Emgesa		A-5		$ Col.		172,858		8.35		Oct 12, 2010		228,550		70,046
Bonds Emgesa		B-3		$ Col.		31,525,018		14.79		Feb 08, 2002		9,461,897		10,162,475
Bonds Emgesa		A-1		$ Col.		15,000,006		13.95		July 09, 2006		108,833		1,426,838
Bonds Endesa		F		UF		1,500,000		6.20		Aug 01, 2022		639,327		639,081
Bonds Emgesa		C-10		$ Col.		1,245,298		9.88		Oct 10, 2010		—		80,679
Eurobonds		First		Euro		400,000,000		3.34		July 24, 2003		2,061,700		303,740,866
Bonds Autopista del Sol S.A.		A-1		UF		3,466,160		5.80		Oct 18, 2018		—		1,632,119
Bonds Autopista del Sol S.A.		A-2		UF		861,540		5.80		Oct 19, 2018		—		408,030
Bonds Autopista del Sol S.A.		B-1		UF		964,372		5.80		Oct 20, 2018		—		486,834
Bonds Autopista del Sol S.A.		B-2		UF		243,578		5.80		Jan 01, 2018		—		122,963
Total												62,848,322		498,501,344

F-57

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(b) Details of the long-term portion of bonds payable is as follows at each year-end:

											Par Value
			Face value outstanding				Interest rate		Maturity Date
Instrument	Series				Currency						2001		2002
				ThCh$				%				ThCh$		ThCh$
Bonos Edelnor		Uno		825,918		Soles		9.61%		01.02.11		957,975		1,000,390
Bonos Edelnor		I°Prog.		15,104,316		Soles		VAC + 7,5%		01.07.06		15,557,445		16,482,681
Bonos Edelnor		I°Prog.		18,949,365		Soles		VAC + 6,9%		10.10.06		19,517,846		20,677,950
Bonos Edelnor		I°Prog.		6,134,974		Soles		6.5%		01.01.04		—		6,134,974
Bonos Edelnor		I°Prog.		4,089,983		Soles		6.34%		01.01.04		—		4,089,983
Bonos Edelnor		I°Prog.		3,859,972		Soles		VAC + 7.5%		01.03.07		—		3,859,972
Yankee Bonds - Enersis		Uno		300,000,000		US$		0.069		21.11.06		202,330,110		215,583,000
Yankee Bonds - Enersis		Dos		350,000,000		US$		0.0745		21.11.16		168,429,026		179,461,350
Yankee Bonds - Enersis		Tres		150,000,000		US$		0.0663		21.11.26		101,165,055		107,791,500
Bono N° 269		B1		2,928,543		U.F.		0.055		15.06.09		56,523,126		49,035,877
Bono N° 269		B2		2,500,000		U.F.		0.0575		15.06.22		41,876,350		41,860,300
Bonos Endesa		Uno		230,000,000		US$		0.0788		01.02.27		138,853,085		147,948,145
Bonos Endesa		Dos		220,000,000		US$		0.0733		01.02.37		148,375,414		158,094,200
Bonos Endesa		Tres		200,000,000		US$		0.0813		01.02.97		27,257,913		29,043,342
Bonos Endesa		Uno		400,000,000		US$		0.0775		15.07.08		269,773,480		287,444,000
Bonos Endesa		Unica		400,000,000		US$		0.085		01.04.09		269,773,480		287,444,000
Bonos Endesa		E-1 y E-2		6,000,000		U.F.		0.062		01.08.06		100,503,239		100,464,720
Bonos Endesa		C2; D1 Y D2		1,439,153		U.F.		0.068		01.11.10		22,043,038		19,831,566
Bonos Endesa		F		1,500,000		U.F.		0.062		01.08.22		25,125,810		25,116,180
Bonos Pehuenche		Unica		170,000,000		US$		0.073		01.05.03		114,653,729		—
Bonos Edegel		Uno		30,000,000		US$		0.0875		13.08.07		20,233,011		21,558,300
Bonos Edegel		Dos		30,000,000		US$		0.0841		14.02.07		20,233,011		21,558,300
Bonos Edegel		Tres		30,000,000		US$		0.0875		13.06.06		20,233,011		21,558,300
Bonos Edegel		Cuatro		20,000,000		US$		0.0844		21.11.05		13,488,674		14,372,200
Bonos Edegel		Cinco A		10,000,000		Soles		0.1154		22.08.03		6,854,001		—
Bonos Edegel		Cinco B		30,000,000		Soles		0.06		22.02.04		—		6,134,974
Bonos Emgesa		A-1		15,000,006		$ Col.		0.1343		09.07.06		4,415,413		3,762,632
Bonos Emgesa		B-1		85,000,000		$ Col.		0.1575		01.07.06		25,020,672		21,321,580
Bonos Emgesa		B-5		12,750,006		$ Col.		0.1495		09.10.04		3,753,101		3,198,237
Bonos Emgesa		B-7		19,500,010		$ Col.		0.1527		09.10.06		5,740,037		4,891,422
Bonos Emgesa		B-10		229,825,122		$ Col.		0.156		09.10.09		67,651,483		57,649,691
Bonos Emgesa		C-10		19,777,918		$ Col.		0.1025		09.10.09		5,821,842		5,279,069
Bonos Emgesa		B-10 2° emision		60,000,031		$ Col.		0.1578		08.11.09		17,661,651		15,050,527
Bonos Autopista del Sol S.A		A-1		3,446,160		U.F.		0.058		15.01.18		—		57,702,917
Bonos Autopista del Sol S.A		A-2		861,540		U.F.		0.058		15.01.18		—		14,425,729
Bonos Autopista del Sol S.A		B-1		964,372		U.F.		0.058		15.01.18		—		16,147,555
Bonos Autopista del Sol S.A		B-2		243,578		U.F.		0.058		15.01.18		—		4,078,505
Eurobono		Unica		400,000,000		Euro		0.0334		24.07.03		236,481,576		—
Bonos Endesa Internacional		Unica		150,000,000		US$		0.072		01.04.06		101,165,055		107,791,500
Total												2,271,468,659		2,097,845,568

(c) Bonds payable are comprised of the following:

i.	Enersis S.A. Series B1-B2
	On September 11, 2001, Enersis S.A. registered two series of bearer bonds as of June 14, 2001, as follows:

Series	Total amount In UF		No.of bonds per series		Face value in UF
B1		1,000,000		1,000		1,000
B1		3,000,000		300		10,000
B2		1,000,000		1,000		1,000
B2		1,500,000		150		10,000

F-58

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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.

ii. 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:

Series	Total amount In US$		Years to maturity		Stated annual interest rate
1		300,000,000		10		6.90	%
2		350,000,000		20		7.40	%
3		150,000,000		30		6.60	%

Interest is payable on a semi-annual basis and principal is due upon maturity.  The Series 3 bond holders have an option to require the Company to redeem all or any US$1,000 portion thereof on December 31, 2003 at a redemption price equal to face value.

Repurchase of Yankee Bonds

During November 2001, the Company made a tender offer to repurchase all or a portion of the Series 2 Yankee Bonds.  The offer expired November 21, 2001 and the Company repurchased a total of US$100,266,000 in bonds with accrued interest, at a price of US$95,536,000, resulting in a gain of US$8,201,000 (ThCh$5,531,051), which is included in other non-operating income (see Note 23a).

iii. Edelnor Bonds (Subsidiary of Distrilima S.A.)

First issue
Date of Issue	:	March 1, 1996
Number of bonds subscribed	:	49,919
Face value	:	100 soles each
Redemption term	:	15 years
Interest rate	:	9.6136% annual
Interest payment	:	Annually, on coupon maturity
Principal amortization	:	Amortization of total principal upon maturity

F-59

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Second issue
Date of Issue	:	November 10, 1998
Number of bonds subscribed	:	146,300
Face value	:	1000 soles each
Redemption term	:	4 years
Interest rate	:	14.396%
Interest payment	:	Accrued and paid within 90 days
Anticipated redemption option	:	Early redemption option
Third issue
Date of Issue	:	August 7, 1998
Number of bonds subscribed	:	15,000
Face value	:	US$1,000 each
Redemption term	:	3 years
Interest rate	:	7.7%
Interest payment	:	Accrued and paid within 90 days
First program of Corporate Bonds
First issue
Date of Issue	:	October 29, 2001
Face value	:	30,000 new soles each
Redemption term	:	2 years
Interest rate	:	7.5%
Interest payment	:	Semi – annual
Second issue
Date of Issue	:	October 19, 2001
Number of bonds subscribed	:	20,000
Face value	:	5,000 new soles each
Redemption term	:	5 years
Interest rate	:	6.9%
Interest payment	:	Semi – annual
Third issue:
Date of issue	:	January 24, 2002
Number of bonds subscribed	:	6,000
Face value	:	5,000 (new soles each)
Redemption term	:	2 years
Interest rate	:	6.5% annual
Interest payment	:	Semi – annual
Fourth issue:
Date of issue	:	April 24, 2002
Number of bonds subscribed	:	4,000
Face value	:	5,000 (new soles each)
Redemption term	:	2 years
Interest rate	:	6.34% annual
Interest payment	:	Semi – annual

F-60

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

iv.	Endesa Chile S.A.
I	Risk rating of the issued bonds is a follows as of the date of December 31, 2002:

	Category
- Comisión Clasificadora de Riesgo	AA
- Fitch IBCA Chile Clasificadora de Riesgo Ltda.	AA
- Clasificadora de Riesgo Humphreys Ltda.	AA

F-61

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

ISSUANCE TERMS

Third Issuance

Issuer	:	Empresa Nacional de Electricidad S.A.
Securities issued	:	Bearer bonds in local currency, denominated in Unidades de Fomento
Issuance 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 each
Indexation	:	Based on variations in Unidad de Fomento index
Amortization period	:	Series C-1 and C-2:  15 years (5-year grace period and 10 years to amortize capital).
		Series D-1 and D-2:  20 years (5-year grace period and 15 years to amortize capital).
Capital amortization	:	Series C-1 and C-2:  20 consecutive installments payable semi-annually, starting April 1, 1996. Series D-1 and D-2: 30 consecutive installments payable semi-annually, starting May 1, 1996.  Amortization installments are incremental
Early 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 capital, 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 at the end of the period amounts to ThCh$245,619 (ThCh$268,716 in 2001), and is shown under current liabilities.
Guarantee	:	There is no specific guarantee, however, a general guarantee covers all the issuer’s assets.
Placement period	:	48 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance.

F-62

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Fourth Issuance

Issuer	:	Empresa Nacional de Electricidad S.A.
Securities issued	:	Bearer bonds in local currency, denominated in Unidades de Fomento
Issuance 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 UF
Amortization period	:	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 capital 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, 2002 amounts to ThCh$3,195,406 (ThCh%3,196,631 in 2001) which is shown under current liabilities.
Guarantee	:	There is no specific guarantee; however, a general guarantee covers all the issuer’s assets
Placement period	:	36 months from the registration date in the Chilean Securities Register of the Superintendency of Securities and Insurance

(1) Through a currency swap, the UF debt was changed to US dollars, leaving a net position of ThCh$2,192,610 as of December 31, 2002 which is included in other assets.

II The Company has issued and placed three public offerings of bonds in the international market as follows:

First Issuance

Issuer	:	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$230,000,000
		Series 2: US$220,000,000
		Series 3: US$200,000,000
Readjustment	:	Variation in the US Dollar

F-63

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Amortization period	:	Series 1 matures on February 1, 2027:  Series 2 matures on February 1, 2037 (Put Option on February 1, period 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% annually
		Series 2:  7.325% annually
		Series 3:  8.125% annually
Interest 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$15,114,018 (ThCh$14,184,888 in 2001), which is shown under current liabilities.

Second Issuance

Issuer	:	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 Dollar
Capital amortization	:	Series 1 matures on July 15, 2008 period
Nominal interest rate	:	Series 1:  7.75% annually
Interest 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$10,210,249 (ThCh$9,582,578 in 2001), which is shown under current liabilities.

Third Issuance

Issuer	:	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 Dollar
Capital amortization	:	Series 1 matures on April 1, 2009.
Nominal interest rate	:	Series 1:  8.502% annually
Interest 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$6,108,185 and ThCh$5,732,686 in 2002 and 2001, respectively, which is shown under current liabilities.

F-64

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

The risk rating of these bonds is as follows as of the date of these financial statements:

	Category
- Standard & Poor’s	BBB
- Moodys Investors Services	Baa3
- Fitch	BBB+

Repurchase of Yankee Bonds

Endesa 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, resulting in a non-operating gain of ThUS$27,551 (ThCh$18,581,792), which is included in other non-operating income. (See Note 23 (a)).

v.	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, 2002:

	Category
- Standard & Poor’s	BBB
- Moodys Investors Services	Baa3

ISSUANCE TERMS

First Issuance

Issuer	:	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, 2006
Nominal 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$1,940,247 (ThCh$1,820,971 in 2001) 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-65

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

ISSUANCE TERMS

First Registration

Securities registered	:	1,000 million Euros
Issuance value	:	Euros 400,000,000 (*)
Capital amortización	:	Principal due July 24, 2003
Nominal interest rate	:	Euribor + 0.80
Interest payments	:	Quarterly beginning October 24, 2000 in arrears.  Accrued interest as of the year end amounts to ThCh$2,310,497 (ThCh$2,061,701 in 2001) and is shown in current liabilities.
Guarantee	:	Empresa Nacional de Electricidad S.A.

(*) By way of a swap operation, the debt in Euro was changed to US dollars.

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, 2003
Nominal interest rate	:	7.3% annually
Interest payments	:	Interest will be paid semi-annually in arrears, starting November 1, 1996.  Accrued interest as of the year end amounts to ThCh$1,486,325 (ThCh$1,394,954 in 2001) and is shown in Current Liabilities.

III Edegel S.A. issued bonds on June 4, 1999, February 15, 2000, June 14, 2000 and November 27, 2000 and August 22, 2001 as per the following:

First Issuance

Issuer	:	Edegel S.A.
Securities issued	:	Marketable securities denominated in US$(120,000 bonds).
Issuance value	:	US$120,000,000
Capital amortization	:	June 3, 2006, February 14, 2007, June 13, 2007, November 26, 2005 and August 22, 2003, respectively.
Nominal interest rate	:	8.75%, 8.41%, 8.75%, 8.4375% and 11.50% annually
Interest payments	:	Interest will be paid semi-annually, starting December 3, 1999.  Accrued interest as of the year-end amounts to ThCh$1,367,515 ThCh$1,283,703 in 2001) and is shown in other current liabilities.

F-66

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

IV Emgesa S.A. issued bonds on October 8, 1999 and July 9, 2001 as per the following:

First Issuance

Issuer	:	Emgesa S.A.
Securities issued	:	Marketable securities denominated in Colombian pesos
Issuance Value	:	$Col 530,000,000
Capital amortization	:	Maturities as of 2002, 2004, 2006, 2007, 2009 and 2010 for $Col 1,525,000; $Col 15,000,000; $Col 85,000,000; $Col 81,407,744; $Col 19,500,000;  $Col 297,567,256 and $Col 30,000,000 respectively
Interest nominal rate	:	15.5% annual average rate
Interest payment	:	Interest will be paid semi-annually. Accrued interest as of the year end amounts to ThCh$5,385,981 (ThCh$5,715,660 in 2001) and is shown under current liabilities.

V Sociedad Concesionaria Autopista del Sol S.A. issued bonds on March 8, 2002.

First Issuance

Issuer	:	Sociedad Concesionaria Autopista del Sol S.A.
Securities issued	:	Bearer bonds in local currency, denominated in Unidades de Fomento
Issuance Value	:	U.F. 5,540,000 divided into:
		Series A – 1  U.F.3,460,000
		Series A – 2  U.F.865,000
		Series B – 1  U.F.970,000
		Series B – 1  U.F.245,000
Indexation	:	Variation in the U.F.
Amortization period	:	16 years
Capital amortization	:	Semi - annually and consecutive
Interest nominal rate	:	5.8% annually in arrears, compounded semi - annually on outstanding capital, readjusted for the value of the Unidad de Fomento.  The applicable semi-annual rate will be equal to 2.8591%
Interest payment	:	Interest will be paid semi-annually each January 15 and July 15 starting January 15, 2003.  Accrued interest at the year end amounts to ThCh$2,427,752 and is show in current liabilities

Bond discounts of Enersis S.A. and its affiliates of ThCh$23,317,438 and ThCh$20,817,166 as of December 31, 2001 and 2002, respectively are included in Other Assets (see Note 14).

F-67

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 20. Accrued Expenses

(a) Short-term accruals:

Accrued expenses included in current liabilities as of each year-end are as follows:

	As of December 31,
	2001		2002
	ThCh$		ThCh$
Bonus and other employee benefits		29,586,443		26,911,641
Litigation and contingencies		21,817,851		21,256,038
Construction and other		7,757,541		7,173,039
Energy purchases and other		10,004,985		14,461,761
Income tax installments and other taxes		192,034		198,643
Pension accruals		1,282,688		1,793,090
Suppliers and services		2,891,319		6,294,182
Other accruals		6,387,468		6,841,927
Total		79,920,329		84,930,321

During the 2002 period, bad debts write-offs for an amount of ThCh$1,297,010 (ThCh$6,340,092 in 2001) were made.

(b) Long-term accruals:

	As of December 31,
	2001		2002
	ThCh$		ThCh$
Provision for contingencies and lawsuits		143,903		1,131,005
Advance monthly corporate and other taxes		10,659,029		7,000,596
Post-retirement benefits-Chilean subsidiaries		8,686,281		10,352,416
Severance indemnity		7,091,909		8,589,109
Labour contingencies (Cerj)		83,342,951		87,993,076
Post-retirement benefits (Cerj Coelce)		80,089,342		38,637,287
Post-retirement benefits-foreign subsidiaries		44,375,523		71,228,212
Others		—		1,990,916
Total		234,388,938		226,922,617

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,
	2001			2002
	ThCh$			ThCh$
Opening balance as of January 1		6,396,342			7,377,430
Increase in accrual		2,352,065			2,072,912
Transfer to short-term		(276,711	)		82,969
Payments during the year		(1,379,787	)		(944,202	)
Total		7,091,909			8,589,109

F-68

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 21. Minority Interest

(a) Minority shareholders’ participation in the shareholders’ equity of the Company’s subsidiaries as of each year-end is as follows:

	As of December 31, 2001									As of December 31, 2002
Company	Equity			Participation			Total			Equity			Participation			Total
	ThCh$			%			ThCh$			ThCh$			%			ThCh$
Autopista Los Libertadores S.A.		25,296,795			0.05	%		12,648			25,213,021			0.05	%		12,607
Cam Argentina S.A. (Ex - M.Velasco Arg.)		687,066			0.10	%		687			545,460			0.10	%		545
Cam Colombia S.A.		1,081,791			0.001	%		14			1,864,792			0.001	%		25
Capital de Energía S.A.		534,797,609			49.10	%		262,585,626			566,223,719			49.10	%		278,015,846
Central  Hidroeléctrica Betania S.A.		494,429,051			14.38	%		71,088,020			519,458,738			14.38	%		74,686,738
Central Cachoeira Dourada		499,191,115			0.49	%		2,452,676			486,715,435			0.41	%		1,982,200
Central Costanera S.A.		137,706,613			48.07	%		66,192,075			171,461,783			48.07	%		82,417,327
Cía. do Electricidade do Río do Janeiro		489,488,446			41.25	%		201,912,651			579,561,108			37.42	%		216,887,924
Chilectra S.A.		498,295,654			1.76	%		8,770,774			421,691,742			1.76	%		7,366,481
Cía. Eléctrica San Isidro S.A.		30,362,233			50.00	%		15,181,116			34,217,794			50.00	%		17,108,897
Cía. Peruana de Electricidad S.A.		39,939,117			49.00	%		19,565,417			43,202,088			49.00	%		21,169,023
Codensa S.A.		1,112,677,346			51.52	%		573,222,783			1,009,464,988			51.52	%		520,777,588
Companhia Energetica Do Ceara - Coelce		658,685,746			43.41	%		285,937,346			694,587,778			43.41	%		301,522,520
Compañía Eléctrica del Río Maipo S.A.		22,260,807			1.26	%		279,942			22,623,680			1.26	%		284,505
Constructora y Proyectos Los Maitenes S.A.		936,792			45.00	%		421,556			349,958			45.00	%		157,481
Edegel S.A.		661,672,216			36.44	%		241,138,499			680,564,639			36.44	%		248,023,616
Edelnor S.A.		272,154,844			40.00	%		108,861,938			292,048,556			40.00	%		116,819,422
Edesur S.A.		677,251,928			34.11	%		230,997,210			729,817,969			34.11	%		248,926,444
Emgesa S.A.		919,463,877			51.52	%		473,679,287			963,653,136			51.52	%		496,444,223
Empresa Eléctrica Pangue S.A.		59,573,673			7.52	%		4,479,940			74,436,633			5.01	%		3,729,275
Endesa		1,446,549,434			40.02	%		578,895,713			1,430,635,320			40.02	%		572,527,032
Endesa Argentina S.A.		30,646,605			0.01	%		3,064			21,798,627			0.01	%		2,180
Generandes Perú S.A.		351,973,200			40.37	%		142,088,131			369,454,446			40.37	%		149,145,139
Hidroeléctrica El Chocón S.A.		237,400,257			34.81	%		82,639,029			227,177,787			34.81	%		79,080,588
Hidroinvest S.A.		111,674,081			30.07	%		33,580,396			92,470,425			30.07	%		27,805,857
Inecsa 2000 S.A.		25,510,699			2.68	%		683,687			25,412,375			2.68	%		681,052
Infraestructura 2000 S.A.		63,589,515			40.00	%		25,435,806			64,002,478			40.00	%		25,600,991
Ingendesa S.A.		2,480,040			2.36	%		58,591			2,266,772			2.36	%		53,552
Inmobiliaria Centro Nuevo Ltda.		(12,043	)		0.08	%		(9	)		(13,327	)		0.08	%		(10	)
Inmobiliaria y Constructora Stgo. 2000 Ltda.		74,764			7.50	%		5,607			80,994			7.50	%		6,075
Inversiones Distrilima S.A.		159,715,296			32.75	%		52,306,760			172,793,816			31.61	%		54,620,126
Investluz S.A.		532,119,077			37.55	%		199,810,714			357,552,300			37.55	%		134,260,889
Luz de Bogotá S.A.		643,243,838			55.00	%		353,784,118			600,529,806			55.00	%		330,291,399
Empresa Eléctrica Pehuenche S.A.		177,950,062			6.34	%		11,282,034			182,901,476			7.35	%		13,443,258
Soc. Agrícola de Cameros Ltda.		6,066,690			42.50	%		2,578,343			6,936,375			42.50	%		2,947,959
Soc. Agrícola Pastos Verdes Ltda.		52,532,429			45.00	%		23,639,595			52,902,360			45.00	%		23,806,062
Túnel El Melón S.A.		(1,313,139	)		0.05	%		(656	)		(4,230,882	)		0.05	%		(2,115	)
Total								4,073,571,128									4,050,602,721

F-69

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

(b) Minority shareholders’ participation in the net (income) or loss of the Company’s subsidiaries as of each year-end is as follows:

	As of December 31, 2000									Year-ended December 31, 2001									Year-ended December 31, 2002
Company	Net income			Participation			Total			Net income			Participation			Total			Net income			Participation			Total
	ThCh$			%			ThCh$			ThCh$			%			ThCh$			ThCh$			%			ThCh$
Autopista Los Libertadores S.A.		139,949			0.050			70			(45,093	)		0.05	%		(23	)		83,773			0.05	%		42
Cam Argentina S.A. (Ex - M.Velasco Arg.)		202,967			0.100			203			1,428,756			0.10	%		1,429			186,609			0.10	%		187
Cam Colombia S.A.		(56,653	)		0.001			(40,934	)		(414,777	)		0.001	%		(5	)		(712,142	)		0.001	%		(9	)
Capital de Energía S.A.		20,837,378			49.000			10,210,316			(8,602,334	)		49.10	%		(4,223,747	)		(23,671,013	)		49.10	%		(11,622,467	)
Central  Hidroeléctrica Betania S.A.		(6,921,376	)		14.380			(995,142	)		8,666,017			14.38	%		1,245,983			7,354,973			14.38	%		1,057,483
Central Cachoeira Dourada		24,007,006			1.160			279,281			(25,841,820	)		0.49	%		(126,969	)		35,501,840			0.41	%		144,585
Central Costanera S.A.		16,524,363			48.320			7,984,572			11,567,900			48.07	%		5,560,396			(24,735,275	)		48.07	%		(11,889,619	)
Central Termoeléctrica Buenos Aires S.A.		978,864			22.170			217,014			—			0.00	%		—			—			0.00	%		—
Inm. Centro Nuevo		—			0.00	%		—			—			—			—			1,285			0.08	%		1
Cía. do Electricidade do Río do Janeiro		(5,078,215	)		41.250			(3,548,717	)		3,400,351			41.25	%		1,402,635			9,012,430			37.42	%		3,372,704
Chilectra S.A.		66,966,267			2.030			18,070,116			(73,185,248	)		1.76	%		(1,382,051	)		31,001,664			1.76	%		541,744
Cía. Eléctrica San Isidro S.A.		2,476,112			50.000			1,238,057			101,281			50.00	%		50,641			(5,250,225	)		50.00	%		(2,625,113	)
Cía. Peruana de Electricidad S.A.		1,974,335			49.000			967,424			(3,074,599	)		49.00	%		(1,506,554	)		(3,258,139	)		49.00	%		(1,596,488	)
Codensa S.A.		21,605,936			51.520			12,306,264			(22,798,893	)		51.52	%		(11,745,404	)		6,655,951			51.52	%		3,429,146
Companhia Energetica Do Ceara - Coelce		18,918,834			43.410			8,212,719			(13,440,399	)		43.41	%		(5,834,514	)		(20,351,782	)		43.41	%		(8,834,766	)
Compañía Eléctrica del Río Maipo S.A.		10,165,435			1.610			1,508,429			(9,261,986	)		1.26	%		(133,933	)		(11,727,292	)		1.26	%		(147,477	)
Constructora y Proyectos Los Maitenes S.A.		(46,357	)		45.000			(20,861	)		494,907			45.00	%		222,708			586,836			45.00	%		264,076
Edegel S.A.		33,815,692			30.160			10,197,629			(28,636,179	)		36.44	%		(10,436,112	)		(4,554,496	)		36.44	%		(1,659,831	)
Edelnor S.A.		11,511,204			40.000			4,604,481			(18,672,139	)		40.00	%		(7,468,855	)		(19,759,294	)		40.00	%		(7,903,718	)
Edesur S.A.		60,280,290			34.110			21,734,633			(83,679,490	)		34.11	%		(28,541,415	)		(8,205,141	)		34.11	%		(2,798,611	)
Emgesa S.A.		37,682,800			51.520			19,412,352			(18,796,538	)		51.52	%		(9,683,394	)		(56,168,714	)		51.52	%		(28,936,380	)
Empresa Eléctrica Pangue S.A.		(2,073,199	)		7.520			(155,905	)		(6,568,538	)		7.52	%		(493,954	)		(18,850,842	)		5.01	%		(944,427	)
Endesa S.A.		114,924,893			40.020			45,991,879			(72,160,018	)		40.02	%		(28,877,772	)		9,319,056			40.02	%		3,729,400
Endesa Argentina S.A.		3,695,025			0.010			370			10,823,292			0.01	%		1,083			10,781,159			0.01	%		1,078
Generandes Perú S.A.		35,191,253			45.740			16,095,423			(27,929,472	)		40.37	%		(11,274,854	)		(13,105,328	)		40.37	%		(5,290,492	)
Hidroeléctrica El Chocón S.A.		10,022,417			34.810			3,488,804			(8,929,943	)		34.81	%		(3,108,513	)		25,772,502			34.81	%		8,971,408
Hidroinvest S.A.		2,916,610			30.070			877,024			(2,636,004	)		30.07	%		(792,647	)		26,502,276			30.07	%		7,969,234
Inecsa 2000 S.A.		101,580			2.680			2,722			(32,301	)		2.68	%		(865	)		98,323			2.68	%		2,635
Infraestructura 2000 S.A.		450,056			40.000			180,022			(996,272	)		40.00	%		(398,509	)		(412,963	)		40.00	%		(165,185	)
Ingendesa S.A.		931,578			2.360			22,008			(873,679	)		2.36	%		(20,640	)		(923,250	)		2.36	%		(21,812	)
Inmobiliaria Centro Nuevo Ltda.		2,685			7.500			203			(1,449	)		0.08	%		—			—			—			—
Inmobiliaria y Constructora Stgo. 2000 Ltda.		(1,449	)		0.080			(1	)		(2,763	)		7.50	%		(207	)		(6,231	)		7.50	%		(468	)
Inversiones Distrilima S.A.		7,932,094			32.750			2,597,761			(12,342,281	)		32.75	%		(4,042,097	)		(13,071,302	)		31.61	%		(4,131,839	)
Investluz S.A.		(7,276,872	)		37.550			(2,732,466	)		11,720,860			37.55	%		4,401,183			198,253,211			37.55	%		74,444,081
Luz de Bogotá S.A.		10,536,326			55.000			5,794,979			(11,524,049	)		55.00	%		(6,338,227	)		4,512,003			55.00	%		2,481,602
Empresa Eléctrica Pehuenche S.A.		(6,344,120	)		7.450			(472,637	)		(4,963,596	)		6.34	%		(314,692	)		(20,012,133	)		7.35	%		(1,470,892	)
Soc. Agrícola de Cameros Ltda.		(1,860	)		42.470			(790	)		165,481			42.50	%		70,329			(104,616	)		42.50	%		(44,462	)
Soc. Agrícola Pastos Verdes Ltda.		(57,795	)		45.000			(26,006	)		(3,031,153	)		45.00	%		(1,364,019	)		(98,333	)		45.00	%		(44,250	)
Túnel El Melón S.A.		(2,315,999	)		0.050			(1,068	)		1,932,383			0.05	%		966			2,917,743			0.05	%		1,459
Total								184,000,228									(125,152,619	)								16,282,559

F-70

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 22. Shareholders’ Equity

(a) Dividends

There are no restrictions on the payment of dividends.  The following dividends were paid as of each year-end:

Dividend Number	Payment date	Historical value	Type of dividend	Related to
		Ch$ per share
71	April 2001	1.806391	Final	2000

(b) Number of shares

	As of December 31, 2000, 2001 and 2002
	Number of shares
Series		Subscribed	Paid	With vote
First		8,291,020,100	8,291,020,100	8,291,020,100

(c) Subscribed and paid capital is as follows as of the year-end:

	As of December 31, 2000, 2001 and 2002
Series	Capital subscribed		Capital paid
	ThCh$		ThCh$
First		751,208,197		751,208,197

(d) Other reserves

Other reserves are composed of the following as of December 31, 2000, 2001 and 2002:

	2000		2001			2002
	ThCh$		ThCh$			ThCh$
Accumulated net losses of development-stage subsidiaries		—		(308,094	)		(4,937,110	)
Reserve for transaction entities using remeasurement method		2,337,516		2,318,686			1,177,508
Reserve for accumulated conversion differences		4,929,205		24,373,947			45,702,079
Total (historical Chilean pesos)		7,266,721		26,384,539			41,942,477
Total, as restated (1)		7,716,749		27,176,075			41,942,477

(1) Restated in thousands of constant Chilean pesos as of December 31, 2002.

F-71

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Detail of changes in the reserve for accumulated conversion differences is as follows for the year ended December 31, 2001 and 2002:

	Initial balance		Reserve for assets		Reserve for liabilities			Final balance
	ThCh$		ThCh$		ThCh$			ThCh$
2001
Cumulative translation adjustment		5,234,472		133,093,729		(113,223,032	)		25,105,169
2002
Cumulative translation adjustment		25,105,169		96,536,552		(75,939,638	)		45,702,079

The detail of the accumulated conversion difference reserve at December 31, 2000, 2001 and 2002 is as follows:

	As of December 31,
	2000		2001			2002
	ThCh$		ThCh$			ThCh$
Enersis Energía de Colombia S.A.		—		—			19,753
Distrilec Inversora S.A.		303,852		1,230,145			2,494,214
Inversiones Distrilima S.A.		845,972		2,048,579			3,034,207
Cía. Peruana de Electricidad S.A.		1,853,416		3,755,485			5,027,002
Edesur S.A.		1,236,498		7,936,100			13,222,829
Cía. de Electricidade do Río de Janeiro		935,165		4,205,754			10,996,981
Luz de Bogotá S.A.		—		1,407,698			2,370,986
Investluz S.A.		59,569		4,579,207			7,012,529
Endesa Market Place S.A.		—		103,883			280,302
Endesa-Chile Subsidiary		—		(161,682	)		—
Central Geradora Termoelétrica Fortaleza S.A.		—		—			1,243,276
Total		5,234,472		25,105,169			45,702,079

(e) Net losses from operations and accumulated net income (losses) of development-stage subsidiaries are as follows:

	As of December 31, 2002 Net income (losses)
Company	Of the period			Accumulated
	ThCh$			ThCh$
Compañía Eléctrica Taltal Ltda.		—			146,371
Central Geradora Termoelectrica Fortaleza S.A.		(939,553	)		(1,302,505	)
Aguas Santiago Poniente S.A.		(111,586	)		(111,586	)
Infraestructura 2000 S.A.		—			347,252
Gas Atacama Generación		—			811,149
Ingendesa (Ingendesa do Brasil)		1,451			(46,306	)
Enigesa (Ingendesa do Brasil)		19			(642	)
Cía. Eléctrica Conosur S.A. (CIEN)		(4,780,843	)		(4,780,843	)
Total		(5,830,512	)		(4,937,110	)

F-72

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 23. Other Income and Expenses

a. The detail of other non-operating income in each year is as follows:

	Year ended December 31,
	2000		2001		2002
	ThCh$		ThCh$		ThCh$
Adjustments to investments in related companies		11,545,770		3,253,049		512,200
Gain on sale of property, plant and equipment		98,540,540		12,845,817		6,131,310
Gain on forward contracts and swaps		7,744,183		17,822,984		4,815,297
Services - proyects and inspections		31,360,163		9,251,066		14,382,141
Penalties charged to contractors and suppliers		6,106,866		15,141,355		10,129,602
CDEC-SING power settlement gain		8,334,080		6,487,257		11,153,158
Public lighting and telephone lines		—		13,963,267		13,525,674
Gain on sale of investments		208,107,787		3,163,324		—
Cost recoveries		12,778,359		6,349,126		5,112,788
Recoverable taxes		4,203,502		8,116,807		6,387,623
Effect of application of BT 64 (1)		44,329,990		62,673,747		210,813,735
Comahue fourth line income		13,032,224		411,352		337,450
Gain on repurchase of bonds		—		24,112,843		—
Dividend from investees		—		5,425,032		10,732,246
Other		17,417,878		5,676,555		14,110,663
Total		463,501,342		194,693,581		308,143,887

b. Other non-operating expenses in each year are as follows:

	Year ended December 31,
	2000		2001		2002
	ThCh$		ThCh$		ThCh$
Adjustments to investments in related companies		11,068,850		2,181,904		4,166,463
Cost of sales – materials		5,480,701		14,806,557		11,254,237
Cost of projects, inspections and other		22,901,666		8,290,316		5,255,189
Effect of application of BT 64 (1)		4,826,202		39,426,469		30,767,763
Contingencies and litigation		9,937,236		35,163,985		48,293,521
Deferred expense amortization		29,667,643		1,224,252		9,133,401
SIC power settlement loss		9,771,881		9,450,051		16,978,444
Loss on forward contracts		3,254,625		23,575,152		—
Pension plan expense		6,205,758		22,407,456		5,745,126
Penalties and fines		2,672,151		15,663,147		13,018,169
Sales tax adjustment (Brazil)		—		—		6,731,332
Argentinean Government bond-market value adjustment		—		—		5,103,764
Provision for real estate projects		—		—		16,600,195
Provision for write off-work in progress		—		—		46,311,933
Other		13,103,336		11,739,955		21,837,067
Total		118,890,049		183,929,244		241,196,604

(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-73

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 24. Price-level Restatement

The (charge) credit to income for price-level restatement as of each year-end is as follows:

	As of December 31,
	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Assets
Inventory		289,029			679,797			1,081,801
Current assets		13,397,412			86,825			6,108,070
Accounts receivable from subsidiaries		5,061,400			4,575,344			5,032,682
Property, plant and equipment		102,746,124			69,607,844			71,181,494
Investment in subsidiaries		10,754,175			30,582,762			35,860,652
Amortization of goodwill		36,887,897			27,626,882			25,787,859
Other assets		21,363,984			25,101,509			2,282,536
Net credit - assets		190,500,021			158,260,963			147,335,094
Liabilities and Shareholders’ equity
Shareholders’ equity		(38,425,168	)		(34,756,513	)		(35,375,590	)
Current and long-term liabilities		(128,254,204	)		(95,013,142	)		(86,890,351	)
Minority interest		15,247,338			6,517,278			5,418,099
Accounts payable to subsidiaries		(51,798,765	)		(30,547,186	)		(24,050,002	)
Non-monetary liabilities		210,397			(679,233	)		(51,951	)
Net charge-liabilities and shareholders’ equity accounts		(203,020,402	)		(154,478,796	)		(140,949,795	)
Price-level restatement of the income statement		(2,731,612	)		(1,607,092	)		(1,420,409	)
Net credits to income		(15,251,993	)		2,175,075			4,964,890

F-74

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 25. Exchange Differences

The (charge) credit to income for foreign currency translation as of each year-end is as follows:

	As of December 31,
Assets		Currency	2000			2001			2002
			ThCh$			ThCh$			ThCh$
Current assets
Cash		US$		(65,615	)		1,495,922			2,671,496
		Other		(268	)		(56,291	)		(13,698	)
Time deposits		US$		—			202,284			264,124
		Other		—			(77,389	)		(31,054	)
Marketable securities		US$		—			11,797,767			6,855,639
		Other		—			(1,886	)		—
Accounts receivable, net		US$		25,951			104,099			489,200
		Other		—			(48,663	)		—
Other accounts receivable, net		US$		21,741			1,124,688			218,125
		Other		81,745			52,495			42,536
Inventory		Other		—			(11,824	)		—
Prepaid expenses		US$		156,908			168,986			29,442
		Other		—			(2,365	)		—
Other current assets		US$		285,338			11,521,079			(136,043	)
		Other		9,696			(264,455	)		(140,837	)
Non-current assets				—
Long-term receivables		US$		(18,507	)		1,054,144			599,944
		Other		1,569			277,166			202,009
Amounts due from related companies		US$		6,387,947			17,033,254			11,082,499
Deferred expenses		US$		1,044,069			246,859			228,059
Other assets		US$					28,336,082			6,541,035
Forward contracts and swaps		US$		28,122,985			36,011,211			16,037,562
Total gain				36,053,559			108,963,163			44,940,038

	As of December 31,
Liabilities	Currency		2000			2001			2002
			ThCh$			ThCh$			ThCh$
Current liabilities
Short-term debt due to banks and financial institutions		US$		(368,116	)		(6,823,954	)		(2,633,314	)
		Other		(245,995	)		(1,890	)		—
Current portion of long-term debt due to banks and financial institutions		US$		(299,187	)		(2,346,817	)		3,552,078
		Yen		—			26,250			(71,707	)
		Other		—			(63,570	)		(242,103	)
		Euro		—			—			(26,128	)
Current portion of bonds payable		US$		—			(3,831,594	)		(2,102,419	)
		US$		(479,233	)		(1,426,092	)		(856,727	)
Current portion of notes payable		Other		—			19,127			—
Dividends payable		Other		—			101			1,840
Accounts payable		US$		—			284,714			472,907
		Other		—			193,407			(861,657	)
Notes payable		US$-		—			(307,780	)		—
		Other		—			(81,896	)		—
Miscellaneous payables		US$		(544,449	)		(430,288	)		(649,158	)
		Other		(39,597	)		195,405			—
Other current liabilities		US$		—			(921,658	)		83,986
		Other		—			(11,922	)		—
Accrued expenses		US$		(3,441	)		37,716			(103	)
		Other		—			(29,947	)		—
Deferred income		US$		—			(56,780	)		(362,291	)
Long-term liabilities
Due to banks and financial institutions		US$		(13,949,405	)		(42,070,677	)		(22,646,874	)
		Yen		29,438			22,840			(180,770	)
		Euro		—			—			(60,487	)
		Other		925			(246,923	)		(368,719	)
Bonds payable		US$		(13,294,614	)		(52,035,450	)		(24,995,100	)
Notes payable		US$		(2,236,806	)		(6,734,909	)		(2,814,391	)
Accounts payable		US$		(223,869	)		(995,614	)		358,233
Other long-term liabilities		US$		(5,648,107	)		(21,897,139	)		(6,647,384	)
		Other		(2,825	)		29,525			3
Total loss				(37,305,281	)		(139,505,815	)		(61,050,285	)
Exchange difference - net loss				(1,251,722	)		(30,542,652	)		(16,110,247	)

Note 26. 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, the subsidiaries paying this tax and the corresponding amounts are as follows:

Company	ThCh$
Central Hidroeléctrica de Betania S.A.		2,025,115
Capital de Energía S.A.		67,124
Emgesa S.A.		8,837,853
Cam Colombia S.A.		33,540
Codensa S.A.		11,412,008
Total		22,375,640

F-75

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Note 27. Financial Derivatives

As of December 31, 2002 the Company and its subsidiaries held the following financial derivative contracts with financial institutions with the object of decreasing exposure to interest rate and foreign currency risk, as follows:

						As of December 31, 2002
Type(1)	Nominal amount	Date of Maturity	Item	Sales/ Purchase	Hedged Item	Initial hedged amount	Closing hedged amount
	US$					ThCh$	ThCh$
COLLAR	50,000,000	II quarter 2004	Interest rate	P/S	Bank obligations	35,930,500	35,930,500
COLLAR	400,000,000	III quarter 2004	Interest rate	P/S	Bank obligations	287,444,000	287,444,000
COLLAR	50,000,000	III quarter 2005	Interest rate	P/S	Bank obligations	35,930,500	35,930,500
COLLAR	250,000,000	I quarter 2006	Interest rate	P/S	Bank obligations	179,652,500	179,652,500
COLLAR	850,000,000	II quarter 2006	Interest rate	P/S	Bank obligations	610,818,500	610,818,500
FR	7,000,000	I quarter 2003	Exchange rate	P	Accounts payable	5,030,270	5,030,270
FR	88,000,000	I quarter 2003	Exchange rate	P	Bank obligations	293,192,880	293,192,880
FR	77,755,000	I quarter 2003	Exchange rate	P	Bank obligations	48,413,946	53,869,310
FR	154,600,000	II quarter 2003	Exchange rate	P	Yankee Bonds/Bank obligation	111,096,962	111,096,962
FR	68,400,000	II quarter 2003	Exchange rate	P	Bank obligations	49,153,068	49,153,068
FR	93,000,000	II quarter 2003	Exchange rate	P	Bank obligations	788,315,170	788,315,170
FR	15,000,000	lI quarter 2003	Exchange rate	P	Accounts payable	10,779,150	10,779,150
FR	108,000,000	IV quarter 2003	Exchange rate	P	Bank obligations	78,783,930	78,783,930
FR	23,084,000	I quarter 2004	Exchange rate	P	Bank obligations	13,945,714	16,086,072
S	100,000,000	I quarter 2003	Interest rate	P/S	Bonds	71,861,000	71,861,000
S	100,000,000	I quarter 2003	Interest rate	P/S	Bank obligations	71,861,000	71,861,000
S	4,253,031	I quarter 2003	Interest rate	P	Accounts payable	3,056,270	3,056,270
S	44,229,017	I quarter 2003	Exchange rate	P	Bank obligations	31,783,414	31,783,414
S	95,000,000	II quarter 2003	Exchange rate	P	Bank obligations	68,267,950	61,703,496
S	20,150,000	II quarter 2003	Interest rate	P	Bonds	14,479,992	14,479,992
S	58,453,199	II quarter 2003	Interest rate	P	Bank obligations	42,005,053	42,005,053
S	381,200,000	III quarter 2003	Exchange rate	P/S	Bonds	273,934,132	273,934,132
S	1,708,667	III quarter 2003	Exchange rate	P	Bank obligations	1,227,865	1,227,865
S	6,668,000	IV quarter 2003	Interest rate	P	Bank obligations	4,545,759	4,545,759
S	17,520,000	IV quarter 2003	Interest rate	P	Bank obligations	12,590,047	12,590,047
S	94,696,298	I quarter 2004	Interest rate	P	Bank obligations	68,049,707	68,049,707
S	50,000,000	I quarter 2004	Interest rate	P/S	Bank obligations	35,930,500	35,930,500
S	41,932,249	II quarter 2004	Exchange rate	P	Bank obligations	30,132,934	30,132,934
S	50,000,000	II quarter 2004	Interest rate	P/S	Bank obligations	35,930,500	35,930,500
S	50,000,000	III quarter 2004	Interest rate	P/S	Bank obligations	35,930,500	35,930,500
S	33,600,000	II quarter 2005	Interest rate	P	Bank obligations	24,145,296	24,145,296
S	50,000,000	II quarter 2006	Interest rate	P	Bank obligations	35,930,500	35,930,500
S	144,470,000	III quarter 2006	Currency	P	Bonds	103,021,045	103,021,045
S	50,000,000	III quarter 2006	Currency	S	Bonds	35,529,359	35,529,359
S	81,905,702	II quarter 2009	Exchange rate	P	Bonds	56,637,729	56,637,729

(1) Fr = Forward, S = Swap

F-76

ENERSIS S.A. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements – (Continued)

Note 28. Commitments and Contingencies

Direct guarantees held by third parties:

Garantías Directas

			Committed assets
Guarantee	Subsidiary	Type of guarantee	Type	Currency	Accounting value
Cía. de Telecomunicaciones de Chile	Enersis S.A.	Pledge	Promissory note UF	ThCh$	1,675
Public Works Bureau	Autopista del Sol	Complian. Operat. ctto. Conc		ThCh$	654,208
Banco Estado de Chile	Pehuenche S.A.	Chat. Mortg. Whithout conveyan	Equipment	ThCh$	12,030,211
Director Customs Office of Chile	Pehuenche S.A.	Bank bond		ThCh$	—
Director Customs Office of Chile	Pangue S.A.	Bill of exchange		ThCh$	64,675
Creditors Banks	Pangue S.A.	Mortgage and pledge	Real estate prop. and Equip.	ThCh$	83,976,230
Mitsubishi Corp.	San Isidro S.A.	Chattel mortgage	Facilities	ThCh$	76,193,289
Public Works Bureau	Autop. Los Libertadores	Construction compliance concession contract	Invest. Works of concession	ThCh$ ThCh$	—
Public Works Bureau	Autop. Los Libertadores	Construction compliance concession contract	Operation of concession	ThCh$ ThCh$	2,632,804
Tax Authorities of Chile	Celta S.A.	Bond	Bond	ThCh$	172,681
Banco  Estado de Chile	Tunel el Melón	Pledge over 45% of income minim. guaranteed		ThCh$ ThCh$	1,351,074
FSA Inc	Infraestructura 2000 S.A.	Pledge	Shares	ThCh$	35,476,728
FSA Inc	Autopista del Sol	Pledge		ThCh$	22,580,871
Soc. de Energía de la Rep.Arg. S.A.	EASA	Pledge	Shares	ThCh$ ThCh$	68,033,383

			Pending balance at December 31,			Release of guarantees
Guarantee	Subsidiary	Type of guarantee	Currency	2001	2002	2003	2004	2005
Cía. de Telecomunicaciones de Chile	Enersis S.A.	Pledge	ThCh$	1,675	—	—	—	—
Public Works Bureau	Autopista del Sol	Complian. Operat. ctto. conc	ThCh$	654,208	654,208	—	—	—
Banco Estado de Chile	Pehuenche S.A.	Chat. Mortg. Whithout conveyan	ThCh$	2,518,131	935,922	—	12,030,211	—
Director Customs Office of Chile	Pehuenche S.A.	Bank bond	ThCh$	46,536	49,584	—	—	—
Director Customs Office of Chile	Pangue S.A.	Bill of exchange	ThCh$	60,699	64,675	—	64,675	—
Creditors Banks	Pangue S.A.	Mortgage and ledge	ThCh$	23,032,252	20,231,494	3,811,708	3,811,708	3,811,708
Mitsubishi Corp.	San Isidro S.A.	Chattel mortgage	ThCh$	—	71,509,333	—	—	—
Public Works Bureau	Autop. Los Libertadores	Construction compliance concession contract	ThCh$ ThCh$	822,752	—	—	—	—
Public Works Bureau	Autop. Los Libertadores	Construction compliance concession contract	ThCh$ ThCh$	2,632,804	2,632,804	2,632,804	—	—
Tax Authorities of Chile	Celta S.A.	Bond	ThCh$	—	—	Según Op	—	—
Banco  Estado de Chile	Tunel el Melón	Pledge over 45% of income minim. guaranteed	ThCh$ ThCh$	—	—	—	—	—
FSA Inc	Infraestructura 2000 S.A.	Pledge	ThCh$	—	—	—	—	—
FSA Inc	Autopista del Sol	Pledge	ThCh$	—	—	—	—
Soc. de Energía de la Rep.Arg. S.A.	EASA	Pledge	ThCh$ ThCh$	—	—	—	—	—

Indirect guarantees held by third parties:

			Committed assets
Guarantee	Subsidiary	Type of guarantee	Type	Currency	Accounting value
Chase Manhattan Bank	Endesa Chile International	Subsidiary	Guarantor	ThCh$	—
CitbanK N.A.	Endesa Chile International	Subsidiary	Guarantor	ThCh$	359,688,633
CitbanK N.A.	Endesa Chile International	Subsidiary	Guarantor	ThCh$	—
Midlanbank	Endesa Chile International	Subsidiary	Guarantor	ThCh$	5,668,452
B. Santander C. Hispano	Endesa Chile International	Subsidiary	Guarantor	ThCh$	110,922,308
J.P. Morgan and CSF Boston	Endesa Chile International	Subsidiary	Guarantor	ThCh$	109,731,747
Banco San Paolo	Endesa Chile International	Subsidiary	Guarantor	ThCh$	—
BNP	Endesa Chile International	Subsidiary	Guarantor	ThCh$	151,870,433
BBVA	Endesa Chile International	Subsidiary	Guarantor	ThCh$	151,870,433
Mitsubishi Co.	Cía. Eléctrica San Isidro S.A.	Subsidiary	Guarantor	ThCh$	49,098,687
B. Santander C. Hispano	Cía. Eléctrica Tarapacá S.A.	Subsidiary	Guarantor	ThCh$	768,635
Chase Manhattan Bank	Cía. Eléctrica Tarapacá S.A.	Subsidiary	Guarantor	ThCh$	—
Banco Español de Crédito	Cía. Eléctrica Tarapacá S.A.	Subsidiary	Guarantor	ThCh$	32,967,603
ABN Amro Bank	Cía. Eléctrica Tarapacá S.A.	Subsidiary	Guarantor	ThCh$	4,267,923
B. Estado de Chile and Santander	Autopista Del Sol S.A.	Subsidiary	Guarantor	ThCh$	—
Chase Manhattan Bank	Endesa Colombia S.A.	Subsidiary	Guarantor	ThCh$	205,521,266
B. Santander C. Hispano	Cía. Eléctrica Conosur S.A.	Subsidiary	Guarantor	ThCh$	137,655,836
Banco de Santiago y de Chile	Autopista Del Sol S.A.	Subsidiary	Guarantor	ThCh$	—

			Pending balance at December 31,			Liberación de  garantías
Guarantee	Subsidiary	Type of guarantee	Currency	2001	2002	2003	2004	2005	2006
Chase Manhattan Bank	Endesa Chile International	Subsidiary	ThCh$	39,711,918	—	—	359,688,633	—	—
CitbanK N.A.	Endesa Chile International	Subsidiary	ThCh$	337,769,295	359,688,633	—	—	—	—
CitbanK N.A.	Endesa Chile International	Subsidiary	ThCh$	25,177,959	—	—	—	—	—
Midlanbank	Endesa Chile International	Subsidiary	ThCh$	17,610,807	5,668,452	5,668,452	—	—	—
B. Santander C. Hispano	Endesa Chile International	Subsidiary	ThCh$	131,241,462	110,922,308	110,922,308	—	—	—
J.P. Morgan and CSF Boston	Endesa Chile International	Subsidiary	ThCh$	102,986,026	109,731,747	—	—	109,731,747	—
Banco San Paolo	Endesa Chile International	Subsidiary	ThCh$	67,508,298	—	—	—	—	—
BNP	Endesa Chile International	Subsidiary	ThCh$	129,594,668	151,870,433	151,870,433	—	—	—
BBVA	Endesa Chile International	Subsidiary	ThCh$	129,561,158	151,870,433	151,870,433	—	—	—
Mitsubishi Co.	Cía. Eléctrica San Isidro S.A.	Subsidiary	ThCh$	53,760,423	49,098,687	—	—	—	49,098,687
B. Santander C. Hispano	Cía. Eléctrica Tarapacá S.A.	Subsidiary	ThCh$	2,197,072	768,635	768,635	—	—	—
Chase Manhattan Bank	Cía. Eléctrica Tarapacá S.A.	Subsidiary	ThCh$	2,744,283	—	—	—	—	—
Banco Español de Crédito	Cía. Eléctrica Tarapacá S.A.	Subsidiary	ThCh$	37,143,610	32,967,603	—	—	—	32,967,603
ABN Amro Bank	Cía. Eléctrica Tarapacá S.A.	Subsidiary	ThCh$	6,090,065	4,267,923	—	4,267,923	—	—
B. Estado de Chile and Santander	Autopista Del Sol S.A.	Subsidiary	ThCh$	53,417,472	—	—	—	—	—
Chase Manhattan Bank	Endesa Colombia S.A.	Subsidiary	ThCh$	182,078,243	205,521,266	205,521,266	—	—	—
B. Santander C. Hispano	Cía. Eléctrica Conosur S.A.	Subsidiary	ThCh$	124,119,900	137,655,836	—	—	—	37,655,836
Banco de Santiago y de Chile	Autopista Del Sol S.A.	Subsidiary	ThCh$	65,796,196	—	—	—	—	—

F-77

Litigation and other legal actions:

Enersis S.A. Individual

i.	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 are terminated.  Based on the provisional estimates made by PECOM, the Arbitration Court determined that the amount of the process is between US$180-200 million.  The parties have presented their arguments, evidence and final allegations.  The Arbitration Court issued and 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 Epsom’s claim for a 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 period and is working on the final judgment.  This final judgment is expected in the second semester of 2003.
ii.	In 1992, Enersis, which was at that time principally engaged in electricity distribution through Chilectra, became subject to an antitrust claim relating to its acquisition of an interest in Endesa-Chile because of alleged anticompetitive integration of distribution and generation businesses purportedly resulting from that acquisition.  In June 1992, the Chilean Supreme Court ruled in favor of Enersis, holding that its ownership of Endesa-Chile did not violate antitrust laws.  The Supreme Court also permitted Enersis to increase its ownership percentage of Endesa-Chile to the maximum permitted by Endesa-Chile’s by-laws, which was then 26%.  The Court recommended that the Fiscal Nacional Económico (the “Fiscal”), a semi-autonomous prosecutor for antitrust matters, monitor the activities of companies involved in the electricity sector to ensure free competition.
	In 1995, as a consequence of Enersis’ acquisition of additional shares of Endesa-Chile, the Fiscal submitted a request to the Comisión Resolutiva, a judicial and administrative body having jurisdiction over compliance with Chile’s antitrust laws, for an evidentiary review of the generation, transmission and distribution businesses of Chilectra, Endesa-Chile and Endesa-Chile’s transmission subsidiary, Transelec.  In September 1995, the Fiscal requested that the Comisión Resolutiva commence discovery on the two issues the Fiscal deemed relevant:

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Notes to Consolidated Financial Statements – (Continued)

•	whether, in the then current structure of the SIC, there was a vertical and/or horizontal integration of companies participating in generation, transmission and distribution activities that had a restrictive effect on electricity markets; and
•	whether divestiture of one or more of the businesses was advisable.
	On December 26, 1995, the Comisión Resolutiva notified Enersis that the Fiscal had added Enersis as a party because of its acquisition of additional shares of Endesa-Chile although Enersis had not previously been notified of this antitrust process.  The Fiscal contended that Enersis’ ownership interests in Chilectra and Endesa-Chile increased the vertical integration of companies participating in the electricity market.  On June 11, 1997, the Comisión Resolutiva unanimously ruled in favor of Enersis and refused the request of the Fiscal.  The matter was not appealed and the period during which an appeal before the Chilean Supreme Court could have been brought expired.
	Notwithstanding this favorable outcome, the Comisión Resolutiva issued the following prescriptions, which were required to be implemented within a reasonable time:
•	that the government issue rules under the Chilean Electricity Law to enhance competition and to decrease ambiguity of the rules governing the electricity sector;
•	that Transelec be transformed into a sociedad anónima abierta, or a publicly held limited liability stock company subject to public reporting requirements under the supervision of the SVS, that the stockholder base of Transelec be broadened to include other parties, and that Transelec become the owner, rather than the lessee, of the assets it operates; and
•	that distribution companies submit their power and energy contracts to public bidding.
	On September 10, 1998, the Reglamento de Servicios Eléctricos was enacted, which together with DFL No. 1, regulates the Chilean electricity sector.  Among other things, these regulations now require that distribution companies submit their power and energy contracts to public bidding.
	In 1998, Endesa-Chile transferred approximately US$300 million of transmission assets to Transelec pursuant to a capital increase of Transelec.  During 2000, Endesa-Chile divested itself of Transelec (see “Item 4.  Information on the Company—A. History and development of the company —Description of Business—Introduction—Sale of Transelec”).
	On April 27, 1999, the Fiscal submitted a third request to the Comisión Resolutiva seeking to prohibit Enersis from increasing its share ownership in Endesa-Chile from the then current 25.3%.  He also requested an injunction to halt the Chilean auction related to the cash tender offers by Enersis to purchase an incremental stake in Endesa-Chile (the “Cash Tender Offers”).  The Fiscal asserted, among other things, that control of Endesa-Chile by Enersis would be contrary to Chilean antitrust law since it would create a monopolistic cartel in the electricity sector of the Chilean economy that would hinder competition.  The Comisión Resolutiva, initially decided to issue an injunction to halt the purchase of shares of Endesa-Chile by Enersis, and to prohibit Enersis, directly or indirectly through any related party, from increasing its 25.3% stake in Endesa-Chile for so long as the injunction was in effect or until the Comisión Resolutiva decided otherwise.

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Notes to Consolidated Financial Statements – (Continued)

	On May 10, 1999, the Comisión Resolutiva reversed its April 1999 decision, lifted the injunction, and issued new precautionary measures to replace prior resolutions.  The new precautionary measures will remain in effect until a final decree is issued or until the Comisión Resolutiva decides otherwise.  These precautionary measures include:
•	the shares of Endesa-Chile sold in excess of our then current 25.3% could be acquired solely and exclusively by Enersis and could only be registered in our name;
•	we are prohibited from transferring, pledging, disposing or agreeing to accept any type of action that could restrict the disposition of, in any manner, any shares of Endesa-Chile acquired in excess of our then current 25.3% stake unless authorized by the Comisión Resolutiva; and
•	Enersis and Endesa-Chile were prohibited from having common members on their respective boards of directors and not only from having common or related independent auditing firms, but also from having common or related accounting supervisors.
	In September 2001, the parties presented their final allegations.  The final resolution was issued in October 30, 2002 under Resolution No. 667.  According to such final resolution, the Comisión Resolutiva ruled in favor of Enersis and rejected the request of divestiture formulated by the Fiscal.  Nonetheless, the aforesaid resolution incorporated as permanent restrictions to Enersis, Chilectra and Endesa-Chile some of the precautionary measures which were imposed on May 10, 1999.  Chilectra, which was not formerly contemplated in the precautionary measures, was included among such permanent restrictions.  Those permanent restrictions are the following:  Enersis, Chilectra and Endesa-Chile are prohibited from having common members on their respective board of directors, from having common or related independent auditing firms, and from having common or related accounting supervisors.  The resolution also established, among others, restrictions such as a prohibition of merging certain companies controlled by Enersis which are, respectively, dedicated to activities of generation and distribution without the approval of the Comisión Resolutiva, and the obligation for Enersis, Endesa-Chile and Chilectra to stay registered before the Superintendency of Securities and Insurance.
iii.	Accusation filed by Empresa Nacional de Telecomunicaciones S.A. (ENTEL) before the Resolutive Commission against Enersis S.A., started by presentment dated May 13, 2002.  The aim was to inform the Commission about the data transmission services provided through the electric networks by Compañía Americana de Multiservicios Limitada, Enersis S.A.’s subsidiary, so as to take the necessary protection measures to guarantee free competition.
	The Commission requested the Telecommunications Under-department some information, which was provided through a report dated May 31, 2002.
	On June 5, 2002, Enersis S.A. answered ENTEL’s presentment, requesting that the precautionary measures requested by ENTEL be rejected because they are contrary to law and unnecessary and, also, because if they were accepted they would establish an entry barrier to the industry and postpone the investments necessary for rendering the aforementioned services.

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Notes to Consolidated Financial Statements – (Continued)

	The issuance of a report by the Economic National Legal Department is pending, as well as the resolution of the precautionary measures requested by ENTEL.
	On July 19 of the current year, the Resolutive Commission acknowledged the Economic Legal National Department report, resolving to thoroughly investigate the matter and rejecting the precautionary measure requested.
	On September 25, 2002, the case was heard and the trial turned into a judicial decision.
iv.	Other Lawsuits
	As of December 31, 2002 there are others certain complaints against the Company for damage, labor lawsuits, economic protection appeals and Internal Revenue Service review, and in the management’s opinion and that of in-house legal counsel, the risk of the Company being ordered to pay indemnities in the amounts claimed in the above mentioned lawsuits is remote.  Therefore no provision has been set up for the indemnities being claimed.
	Enersis’ Distribution Electricity Subsidiaries
	As of December 31, 2002, there are certain complaints against the Enersis’ Subsidiaries Chilectra S.A., Compañía Eléctrica del Río Maipo S.A. e Inmobiliaria Manso de Velasco Limitada for damages, which management believes are not significant based on reports from its legal counsel or for which same of the Company’s has made provisions up to the corresponding insurance coverage deductibles.
	Cerj S.A.
	On the basis of management estimates and of the legal counsel’s opinion, Cerj established a provision of ThCh$87,670,420 of which ThUS$25,013,377 corresponds to labor lawsuits related to overtime, unjustified layoffs, hardship pay jobs, ThCh$15,817,325 to civil lawsuits filed by former clients, for interest and penalties charged on late payments of energy bills; ThCh$47,162,374 to tax lawsuits, related to collection of taxes and penalties.
	Endesa-Chile Individual
	Pending litigation
	There is litigation pending against Endesa-Chile, for which defenses have been filed, totaling ThCh$2,242,254 and ThCh$1,895,083 as of December 31, 2001 and 2002, respectively.
	Other litigation

i.	Court : Supreme Court of Argentina
	Process number : 2753-4000/97
	Cause : Dirección Provincial de Rentas, Provincia de Neuquén versus TGN (Transportadora de Gas del Norte S.A.).  Resolution regarding Stamp Tax sum that eventually should be paid jointly by TGN and ENDESA.
	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$3,054,897 ($Arg 13,943,572.54) (Includes tax, interest and fines).

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

ii.	Court : Arbitration Court
	Process number : N/A
	Cause : On December 27, 2001, Empresa Nacional de Electricidad S.A. was notified of an arbitration to resolve controversies related to insurance policy 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 : Claimant and the Insurance Company have a period of 20 days to corroborate the complaint.
	Amounts involved: ThCh$22,995,520 (ThUS$32,000).

iii.	A severe and protracted drought during 1998 and the first half of 2000 affected the operations in Chile adversely.  The severity of the drought coupled with delays in the planned operation of a large gas-fired plant belonging to 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 a “failure cost” to be imposed on generators who do not fulfill their contractual obligations during rationing periods.  Failure cost is calculated and set by the 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 cost of failure 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 1968-69 constituted “force majeure.” Because the drought in 1998 was the worst in recorded history, Endesa-Chile argued that the “force majeure” exemption should be applied and disputed the applicability of failure cost during the first rationing period.  The dispute was settled on March 26, 1999 by the Ministry of Economy, which held that those transactions carried out in the spot market between generation companies in those node locations and during the hours when the energy supplied was not enough to satisfy the demand had to be calculated based on failure costs.  However, the Ministry of Economy did not establish the appropriate procedures to calculate these failure costs but instead left the matter to be resolved by the SIC’s dispatch center.  As of the date of this annual report, no such procedures have been established.
	The second rationing decree period began on April 30, 1999 and was eventually superseded by a third rationing decree which began on June 12, 1999 and was extended to August 31, 1999.  In the interim, on June 8, 1999, the Electricity Law was amended and, as a result, extreme hydrological conditions were no longer deemed to constitute “force majeure.”  In addition, the amended Electricity Law provided for the compensation (there is no maximum level of compensation) of customers in the event of rationing occurring as a result of any

F-82

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

	hydrological event.  It also provided for the payment of fines by electricity generators of up to a maximum amount of approximately US$5 million per breach resulting from inadequate supply to the electricity system.  In respect of the third rationing decree period Endesa-Chile paid US$2.3 million by way of compensation to customers in 1999.  The amount paid was based on the days and hours in which rationing actually occurred.  Endesa-Chile contested the payments on the grounds that their power purchase agreements with the distribution companies, who in turn provide the electricity to the final clients, were executed prior to the enactment of the amendment to the Electricity Law and that the amendment could not be applied retroactively to pre-existing contracts.  The Chilean courts are currently reviewing this case.
	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.
	Endesa-Chile Subsidiaries
	Pehuenche S.A.
i.	Court : 20th Civil Courthouse of Santiago
	Process number : 5863-2001
	Cause : Empresa Eléctrica Pehuenche S.A. versus Empresa Eléctrica Colbún S.A.  This complaint is for services rendered by Pehuenche S.A. to Colbún during the drought period.
	Process status : Currently in the evidence term
	Amounts involved: ThCh$1,437,200 (ThUS$2,000).
ii.	Court : Court of Appeals of Talca
	Process number : 39945
	Cause : Asociación del Canal Maule versus DGA Resolution 1768 dated November 1984 related to the approval of reservoir works and building of the Colbún power plant.  Pehuenche also filed a complaint to reinforce the claim of the irrigation subscribers that it is the obligation of Colbun S.A. to operate a reservoir above an elevation of 425 meters above sea level.
	Process status : Resolution was passed rejecting the complaint.
	Amounts involved: Undeterminable.
iii.	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.

F-83

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

iv.	Court : 24th Civil Court of Santiago
	Process number : 3908-99
	Cause : A precautionary prejudicial measure was presented and was 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 pending notification of verdict.
	Amounts involved: Undeterminable.
v.	Court : 17th Civil Courthouse of Santiago
	Process number : 3940-99
	Cause : Pehuenche versus Chilectra S.A. A precautionary prejudicial measure was presented and denied by the Tribunal.  Pehuenche presented in the same case, an ordinary demand to annul public right against Chilectra S.A.
	Process status : Pending judgment of the court.
	Amounts involved: Undeterminable.
vi.	Court : 20th Civil Courthouse of Santiago
	Process number : 4005-99
	Cause :  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 : Judgment pronouncement pending.
	Amounts involved: Undeterminable.
vii.	Court : Santiago Court of Appeals
	Process number : 6515-99
	Cause : 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 : Expert Appraisal.
	Amounts involved: Five fines for a total of 1,610 Units of Tax Measurement (“UTM”) or ThCh$47,316.
viii.	Court : 5th Civil Courthouse of Santiago
	Process number : 2272-99
	Cause : Resolution 631 dated April 27, 1999, for not establishing Dispatch Center before January 1, 1999.  The court informed a resolution that it received the case for trial.  Pending official letter to the Superintendency of Electricity and Fuels (SEC).
	Process status : Verdict notification pending.
	Amounts involved: Fine of ThCh$14,695 (500 UTM).
ix.	Court : 16th Civil Courthouse of Santiago
	Process number : 4164-97
	Cause : Claim against Resolution 856, resulting in a fine imposed on October 16, 1997, for failure on May 11, 1997.
	Process status : Rejected recourse, pending appeal.
	Amounts involved: Fine of ThCh$13,225 (450 UTM).

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

x.	Court : 16th Civil Courthouse of Santiago
	Process number : 1928-98
	Cause : 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$8,817 (300 UTM).
xi.	Court : SEC
	Process number : N/A
	Cause : 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$141,067 (400 UTA).
xii.	Court : 3rd Local Police Court of Santiago
	Process number : 50419-AGO
	Cause : SERNAC with Pehuenche, claim for lack of electrical supply
	Process status : Pending sentence.
	Amounts involved: Undeterminable.
xiii.	Court : 5th Labor Court of Santiago
	Process number : 2923-2001
	Cause : Labor lawsuit for work accident.  There are incidents of former adjudication and prescription pending verdict.  Second petition verdict confirming First Petition verdict.  Pending confirmation of appeal for dismissal.
	Process status : Pending confirmation of appeal for dismissal.
	Amounts involved:  Undeterminable.

Empresa Eléctrica Pangue S.A.

i.	Court: 1st Civil Court of Santiago
	Process number : 1294-99
	Cause : 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 customer consumption 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 : Pending hearing.
	Amounts involved: Fine of ThCh$294 (10 UTM).
ii.	Court: 1st Civil Court of Santiago
	Process number : 2273-99
	Cause : 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$14,695 (500 UTM).

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

iii.	Court: 23rd Court
	Process number : 4293-97
	Cause : Claim against SEC Resolution N°856 dated October 16, 1997, which fined for a blackout on May 1, 1997.
	Process status : Verdict notification pending.
	Amounts involved: Fine of ThCh$13,225 (450 UTM).
iv.	Court: 23rd Court
	Process number : 1910-98
	Cause : 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$14,695 (500 UTM).
v.	Court: Superintendency of Energy and Fuels (SEC)
	Process number : N/A
	Cause : Appeal to set aside before the SEC by SEC Resolution N°740 dated April 26, 2000 which fined Pangue for blackout on July 14, 1999.
	Process status : Pending resolution.
	Amounts involved: Fine of ThCh$105,800 (300 UTA).
vi.	Court: 18th Civil Court of Santiago
	Process number : 3886-99
	Cause : 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 pending
	Amounts involved: Undeterminable.
vii.	There are 37 administrative oppositions presented by Pangue S.A. before the Provincial Government of Malleco, to the corresponding requests of diverse individuals to regularize water use rights in the Commune of Lonquimay.

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: Pending judgment of the Court.
	Amounts involved: Fine of ThCh$14,695 (500 UTM).

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

ii.	Court: Superintendency of Energy and Fuels (SEC)
	Process number : N/A
	Cause : Appeal to set aside before the SEC for SEC Resolution N°719 dated April 24, 2000, which fined San Isidro ThCh$52,900 (150 UTA), for blackout on July 14, 1999.
	Process status : Pending administrative resolution.
	Amounts involved: Fine of ThCh$52,900 (150 UTA).

Compañía Eléctrica de Tarapacá S.A. - Celta

i.	Court: Superintendency 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.
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.
	Amounts involved: If a forfeiture of the marine concession is declared, the dock installation would be affected, which has a value of US$15,000,000 and would become the property of the government, seriously affecting the operation of Celta’s thermal power plant.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

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.
	Process status: Court resolution pending regarding pleas filed by the defendants that the case is without merit. Outcome of the lawsuit if taken to trial is not determinable.
	Amounts involved: ThCh$64,269.

Infraestructura Dos Mil S.A.

Court: 18th Civil Court of Santiago

Process number: 6504-2002

Cause:  There is a public law motion to nullify public right filed on December 23, 2002 by Infraestructura Dos Mil S.A. against the Chilean government,

Process status: Pending resolution by the State Defense Council.

Amounts involved: N/A

Sociedad Concesionaria Autopista del Sol S.A.

There are lawsuits pending against the company, for which the corresponding defense has been filed.  The total amount is for ThCh$447,800.

Inecsa Dos Mil S.A.

On July 17, 2000, the Chilean Ministry of Public Works filed suit to annul the public right to bidding for the Northeast Santiago Access project.  As of December 31, 2002 the courts have suspended this lawsuit and any contingent payouts are undeterminable.

Sociedad Concesionaria Autopista Los Libertadores S.A.

There are pending lawsuits against the company, for which the corresponding defense has been filed, in the aggregate amount of ThCh$2,200,830.

Hidroeléctrica El Chocón S.A.

On December 28, 2000 the Federal Public Revenues Administration – General Tax Services (FPRA-GTS) notified Hidroeléctrica El Chocon S.A. that it owed ThCh$374,218 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$850,224 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

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

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$261,953 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 period from December 1993 to July 1995 amounting to ThCh$169,331 as of December 11, 2000, as well as an imposed fine of ThCh$213,771.  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 interests, for obligations or infractions committed before July 31, 1995.

On 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$335,636.  Additionally, on September 27, 2000, the Company was notified of a new complaint from the province of Neuquén against the State and hydroelectric generators of Comahue to obtain royalties earned on accumulated funds in the Salex Account.  The complaint does not state the precise amount or date as of which the sums claimed are considered as owed, but seeks charges from each generator equal to 12% of the funds contributed to the account.

On December 28, 2001 Hidroeléctrica El Chocón S.A.  received notification from the Provincial Revenue Services of Buenos Aires that it owed ThCh$229,520 for tax on gross income for the fiscal periods from February 1995 to December 1998 and that the fine was 10% of the allegedly unpaid amount.  On January 15, 2002, Hidroeléctrica El Chocón S.A. filed an appeal citing erroneous computation of the amount owed and other reasons as to why the taxes were not applicable.

Hidroinvest S.A.

On December 27, 2000 Hidroinvest S.A. was notified that it owed tax of ThCh$831,397 for gains realized in 1993 on the difference between the acquisition cost and transfer price of bonds, accrued interest of ThCh$1,788,336 and related fines of ThCh$581,978. On February 19, 2001, Hidroinvest S.A. filed an appeal to the notice.

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 one peso equal to one US dollar in accordance with applicable laws. However, certain laws have exempted certain obligations from this fixed exchange rate, and should the Secretary of Energy rule that the obligations of Central Costanera S.A be exempted, an appeal would be filed.  Central Costanera S.A. would to have to pay an additional ThCh$26,228,000 in the event of an unfavorable ruling.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Edegel S.A.

i.	Court: Peruvian Federal Court
	Process number: N/A
	Cause:  From November 2000 to October 2001, the Peruvian tax authority, the National Superintendency of Tax Administration (SUNAT) audited the income taxes and general sales taxes of Edegel S.A. from 1995 to 1999.  As a result of the audits, in December 2001, SUNAT imposed back taxes and related fines.
	Process status: In November 2002, the Government Court issued its verdict indicating that:  SUNAT would have to once again audit Edegel S.A. related to rejected expenses for amortization of negative goodwill.
	Amounts involved : As of December 31, 2002, provisions for these contingencies have been made amounting to ThCh$11,354,000 (US$15.8 million).

ii.

Lawsuits have been filed by ESSALUD for payment of contributions amounting to ThCh$3,025,000 (US$4.21 million).  In the opinion of Management and their external legal counsel, it is probable that these proceedings will be resolved in favor of the Edegel S.A.; thus no liabilities have been recorded as of December 31, 2002 and 2001.

Claims have been filed against Talleres Mayopampa S.A. amounting to ThCh$417,512 (US$581,000).  The subsidiary has filed the corresponding countersuits and appeals, which have not yet been settled.  In the opinion of Management and external legal counsel, these actions neither independently nor jointly will have a significant adverse effect on the financial position, results of operations or liquidity of Edegel S.A.

iii. A lawsuit has been filed by Edegel S.A.’s workers’ union, which seeks an increase in revenue sharing from the current 5%, as required by law, to 10%, which would mean doubling the payments already made in 1994, 1995 and 1996, meaning additional aggregate payments of ThCh$3,353,753 (US$4,667,000).  On August 24, 2000, the lawsuit was ruled unfounded, but on December 12, 2000 a second ruling reversed that ruling.  In the opinion of Management and external legal counsel, the final resolution will be favorable to Edegel S.A., and therefore no liabilities have been recorded related to this lawsuit as of December 31, 2002 and 2001.

Central Hidroeléctrica de Betania S.A.

Tax contingencies

i.

- Presumptive income tax contingency – In 1997, 1998 and 1999 Betania was exempted from paying taxes under the presumptive income tax system – a system which calculates taxes payable on concepts other than net income – due to a regulation passed by the Administration of National Taxes (DIAN) in 1995. Since Betania had tax losses for those years, no taxes were paid.  That regulation was modified in 1999, which resulted in Betania qualifying for the presumptive income tax system, which means that according the DIAN it should have paid taxes in 1997 and 1998 amounting to ThCh$25,118,828 (including interest in the amount of ThCh$10,524,298 and sanctions of ThCh$8,987,422).  Betania

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

believes that the conclusions of DIAN were unfounded and, therefore on September 13, 2002 filed a complaint before the Administrative Court of Huila. Since then, DIAN has ruled against the petition to reconsider the income tax payable for 1997, while for the 1998 period, DIAN has yet to respond.  As of December 31, 2002 Betania recorded a provision amounting to ThCh$6,521,895 to cover this contingency.

ii. DIAN reviewed Betania’s calculation of its ordinary income tax payable for 1997 and 1998 and declared that Betania owes ThCh$12,174 and ThCh$47,836 for 1997 and 1998, respectively, including tax, sanctions and estimated overdue interest. In 1997 and 1998 the Company has been audited both in the calculation of its ordinary income as well as presumptive income, therefore it should be noted that only the greater of the two becomes taxable net income on which the corresponding taxes, sanctions and interest must be paid.

iii. DIAN notified Betania that it owes ThCh$19,399 related to the incorrect calculation of income for 1999. Betania has requested that DIAN reconsider the validity of its calculation.

	Other contingencies:
iv.	As of December 31, 2002, amounts demanded in lawsuits relating to administrative, civil and labor litigations amounted to ThCh$5,590,769, and there exist other lawsuits for undetermined amounts.  Based on the evaluation of the probability of success in the defense of these suits, ThCh$1,005,512 has been provisioned as of December 31, 2002, to cover probable losses due to these contingencies.

Restrictions:

Enersis S.A.

The Company’s loan agreements establish an obligation to comply with the following financial ratios, on a consolidated level:

• The ratio between debt and debt plus equity, is not to exceed 0.7;

• The ratio between operational cash flow and payment of debt interest, is not to be less than 2.4;

• Net tangible equity is not to be less than ThCh$753,485,400 (UF45 million);

• Assets corresponding to companies whose business is regulated, is not to be less than 50% of total consolidated assets.

As of December 31, 2001 and 2002 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, 2001 and 2002.

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 2002, in order to ensure its supply and corresponding cost.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements – (Continued)

Compañía Eléctrica del Río Maipo S.A.

The Company holds signed energy purchase contracts with Chilectra S.A. and Gener S.A., in order to assure its supply and corresponding cost.

The Company does not have any management restrictions or financial covenants during the years ended December 31, 2001 and 2002.

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: 

• Must have gross Cash Flows equal to or greater than 13% of the average consolidated financial debt for terms beyond one year, plus short-term bank debt if its term is extendable to more than one year, obtained according to the debt reflected in the consolidated financial statements at the closing date of the last four quarters. 

• Must have gross Cash Flow equal to or greater than 1.9 times the consolidated financial expenses, obtained according to the expenses reflected in the consolidated financial statements at the closing date of the last four quarters.

• The financial debt for terms greater than one year, plus short-term bank debt if its term is extendable to more than one year, cannot exceed 58% of the sum of shareholders’ equity, plus minority interests, plus the financial debt for terms greater than one year and short-term bank debt.

As of December 31, 2001 and 2002 al these obligations have been met.

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$159,069,140 (UF9,500,000).

Infraestructura Dos Mil S.A.

With the bond placement by the subsidiary, concession holder Autopista Del Sol S.A., Infraestructura Dos Mil S.A., concurred as “Sponsor” to the contracts of said transaction, committing itself to comply with the restrictions to the transfer of its interest in the bond issuer. Also, Infraestructura Dos Mil S.A., is not able to carry out major changes in its assets without the written authorization of the insurance company guaranteeing the issuance (FSA Inc). Likewise, the shares of the concession holding company Autopista de Sol S.A. owned by Infraestructura Dos Mil S.A. were pledged in favor of FSA Inc.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Sociedad Concesionaria Autopista del Sol S.A.

In virtue of the bond issuance contract, Sociedad Concesionaria Autopista del Sol S.A. must meet certain financial ratios based on the generation of operating cash flows.  Additionally, the Company must request authorization from the insurer to obtain additional financing.

Other restrictions

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 Endesa-Chile or of its subsidiaries, if not corrected in time (as to those specific provisions allowing a period 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, some sixty percent of Enersis S.A.’s consolidated liabilities might eventually become on demand. On the other hand, certain failures of a distribution subsidiary, if not corrected in time, would not affect Endesa-Chile, and the amount at risk of Enersis S.A.’s consolidated liabilities would decrease by thirty percent. 

Loan agreements include clauses should the risk category of the debt expressed in US dollars fall below the “investment grade” level, according to the risk classification agency determining the applicable margin of the interest rate (which, for practical purposes hereof, is S & P).  Should the long-term US dollar unsecured debt fall into a “non-investment grade” category, or below BBB – according to the nomenclature used by S & P, then, the obligation to prepay all the outstanding principal existing under these loans within the following sixty days, unless agreed upon otherwise by the parties, arises. At December 31, 2002, ThCh$1,052,045,040 (US$1,464 million) of the Company’s borrowings and ThCh$515,961,980 (US$718 million) of Endesa-Chile’s loan agreements, include compulsory prepayment clauses under the mentioned circumstances.

There exist no clauses in the loan agreements for additional penalties if the Company if it is ranked below the “Investment Grade” level.  Because of the above, no provisions have been recorded for said item.

At December 31 2002, these obligations and restrictions have been fully met.

Note 29. Sureties Obtained from Third Parties

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$44,929 and ThCh$126,805 at December 31, 2002 and 2001, respectively.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Inmobiliaria Manso de Velasco Ltda.

The Company has received guarantees from third parties to guarantee obligations incurred in the acquisition of assets of ThCh$27,544,077 (MUF1,645) as of December 31, 2002.

Compañía Americana de Multiservicios Ltda.

The Company has delivered bank bonds for ThCh$734,870 and has received bank bonds for ThCh$1,511,865.

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$24,799,372 as of December 31, 2002 (ThCh$29,321,593 in 2001).

The Company has delivered performance bonds in favor of third parties to guarantee compliance with works, and contracts for ThCh$1,122,609.

San Isidro S.A.

Documents in guarantee received for ThCh$4,676,984 as of December 31, 2002 (ThCh$4,386,107 in 2001).

Compañía Eléctrica de Tarapacá S.A.

The Company has received documents in guarantee for ThCh$287,026 as of December 31, 2002 (ThCh$920,761 in 2001).

Sociedad Concesionaria Autopista Los Libertadores S.A.

The Company has deposits and performance bonds for UF25,495 as of December 31, 2002.

Sociedad Concesionaria Autopista del Sol S.A.

The Company has deposits and performance bonds for UF27,395 as of December 31, 2002.

Pangue S.A.

The Company has received bank issued performance bonds from contractors for ThCh$8,879 as of December 31, 2002 (ThCh$4,386,107 in 2001).

Synapsis, Soluciones y Servicios IT Limitada

At December 31, 2002, bank bonds issued amount to ThCh$1,018,136 (ThCh$1,806,488 in 2001). The documents received as guarantees in 2002 amount to ThCh$102,417 (ThCh$479,225 in 2001).

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 30. Foreign Currencies

As of December 31, 2001 and 2002, foreign currency denominated assets and liabilities are as follows:

(a) Current assets

		As of December 31,
Account	Currency	2001		2002
		ThCh$		ThCh$
Cash	UF		498,849		45,990
	Ch$		6,954,506		—
	US$		2,348,900		5,731,512
	Euro				2,139,191
	Yen		285		326
	$ Col.		12,631,156		12,399,246
	Soles		1,884,656		1,273,600
	$ Arg.		2,243,026		4,467,055
	Reales		11,087,418		22,127,958
Time deposits	US$		115,975,839		75,154,206
	$ Col.		47,474,350		31,582,158
	Soles		852,201		4,856,855
	$ Arg.		3,289,380		9,413,216
	Reales		10,521,464		24,620,459
Marketable securities	Ch$		4,823		4,822
	US$		198,249		1,264,075
	$ Col		—		274,393
Accounts receivable, net	UF		7,521,141		6,605,028
	Ch$		95,627,381		105,038,323
	US$		10,419,409		6,738,638
	$ Col.		103,526,327		79,625,850
	Soles		30,682,183		35,764,701
	$ Arg.		70,062,837		42,172,533
	Reales		232,409,714		182,894,651
Notes receivable	Ch$		3,037,324		2,125,118
	US$		763,309		1,108,267
	$ Arg.		54,956		25,028
	Reales		1,827,741		1,872,936
Other receivables	UF		3,638,662		57,647
	Ch$		10,826,719		11,843,434
	US$		8,885,323		3,413,113
	$ Col.		19,294,694		14,381,770
	Soles		7,008,783		10,462,278
	$ Arg.		2,985,430		1,256,478
	Reales		18,544,773		20,201,788
	U.C.		1,036,335		1,159,588
Subtotal			844,118,143		722,102,231

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

		As of December 31,
Account	Currency	2001		2002
		ThCh$		ThCh$
Amounts due from related companies	Ch$		3,768,124		1,899,674
	US$		7,265,042		184,198,792
	$ Col.		133,978		171,747
	Soles		477,881		499,562
	$ Arg.		6,374,553		4,523,978
	Reales		—		4,105,082
Inventories, net	Ch$		44,895,120		35,357,403
	$ Col.		12,827,697		8,864,940
	Soles		13,479,412		12,534,464
	$ Arg.		4,913,469		1,958,287
	Reales		1,308,376		1,667,559
Income taxes recoverable	Ch$		33,613,125		27,521,833
	$Col.		1,359,672		473,718
	Soles		214,438		229,625
	$ Arg.		13,763,334		10,743,267
	Reales		8,559,533		15,467,533
Prepaid expenses and other	UF		810		—
	Ch$		668,627		928,209
	US$		3,372,247		2,570,012
	$ Col.		167,469		124,219
	Soles		1,227,529		553,358
	$ Arg.		962,081		479,327
	Reales		7,572,804		3,010,893
Deferred income taxes	Ch$		5,005,415		22,814,199
	$ Col		—		1,151,172
	$ Arg.		1,722,188		7,429,959
	Reales		17,434,498		20,560,463
Other current assets	UF		127,694		693,297
	Ch$		15,498,661		43,131,732
	US$		110,876,213		38,147,413
	$ Col.		—		888,202
	Soles				400,509
	$ Arg.		472,013		3,001,474
	Reales		266,648		45,758,981
Subtotal			318,328,651		501,860,883
Total current assets			1,162,446,794		1,223,963,114

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(b) Property, plant and equipment

		As of December 31,
Account	Currency	2001			2002
		ThCh$			ThCh$
Land	Ch$		42,596,302			41,451,908
	$ Col.		31,886,463			34,137,051
	Soles		9,523,636			10,210,210
	$ Arg.		9,540,763			9,940,165
	Reales		29,710,800			34,165,453
Buildings, infrastructure and work in progress	Ch$		3,647,155,601			3,750,803,720
	$ Col.		3,012,920,159			3,259,152,642
	Soles		1,107,370,586			1,176,938,743
	$ Arg.		1,539,453,777			1,643,686,859
	Reales		1,645,246,419			1,791,721,564
Machinery and equipment	Ch$		53,173,353			55,260,210
	$ Col.		24,566,761			15,475,472
	Soles		419,732,507			457,417,069
	$ Arg.		736,699,370			781,090,841
	Reales		588,968,367			669,114,911
Other plant and equipment	Ch$		85,747,968			119,396,976
	$ Col.		8,340,278			4,099,024
	Soles		49,196,813			59,948,689
	$ Arg.		159,950,550			161,835,159
	Reales		235,049,335			189,581,016
Technical appraisal	Ch$		26,643,651			25,917,954
	$ Col.		64,759,545			73,406,012
	Soles		475,304,698			505,989,949
	Reales		130,917,038			135,331,492
Accumulated depreciation	Ch$		(1,493,173,888	)		(1,570,010,403	)
	$ Col.		(563,059,689	)		(709,129,647	)
	Soles		(886,968,669	)		(974,745,107	)
	$ Arg.		(880,473,038	)		(1,213,704,900	)
	Reales		(685,729,796	)		(659,024,849	)
Total property, plant and equipment			9,625,049,660			9,879,458,183

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(c) Other assets

		As of December 31,
Account	Currency	2001			2002
		ThCh$			ThCh$
Investments in related companies	Ch$		103,502,429			113,436,968
	US$		63,903,764			80,687,847
	$ Arg.		41,815			39,342
Investments in other companies	Ch$		2,152,383			2,222,396
	$ Col.		147,284,788			157,153,540
	Soles		11,516			12,271
	Reales		112,310			78,587
Goodwill, net	Ch$		840,970,393			790,045,684
	US$		247,066,350			6,974,876
	$ Col.		26,569,990			50,492,939
	Soles		—			—
	$ Arg.		—			—
	Reales		204,225,860			—
Negative goodwill, net	Ch$		(156,983	)		(141,668	)
	US$		(36,608,510	)		(611,346	)
	$ Col.		(59,861,413	)		(28,641,838	)
	Soles		(72,563,419	)		(2,694,795	)
	Reales		(12,004,235	)		(63,083,303	)
Long-term accounts receivable	UF		8,228,092			1,522,452
	Ch$		2,963,790			2,049,474
	US$		25,698,682			7,137,749
	$ Col.		4,283,328			6,552,426
	Soles		2,456,197			1,744,678
	$ Arg.		2,016,092			2,098,185
	Reales		54,310,825			103,634,188
	U.C.		1,946,556			1,111,361
Amounts due from related companies	Ch$		1,471,140			882,109
	US$		169,196,652			—
	Reales		—			16,058
Other assets	UF		3,661,762			2,961,502
	Ch$		37,004,148			92,875,289
	US$		44,408,302			23,091,955
	$ Col.		43,811,194			38,697,375
	Soles		4,202,184			4,614,807
	$ Arg.		921,919			8,899,892
	Reales		111,074,956			113,882,379
Total other assets			1,972,302,857			1,517,743,379

F-98

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(d) Total assets

		As of December 31,
Account	Currency	2001		2002
		ThCh$		ThCh$
Total assets by currency	UF		23,677,010		11,291,688
	Ch$		3,569,950,112		3,582,702,998
	US$		742,529,646		526,451,759
	Euro		—		525,982
	Yen		285		326
	$ Col.		2,938,572,897		3,052,761,648
	Soles		1,165,780,722		1,306,348,863
	$ Arg.		1,704,890,900		2,400,792,004
	Reales		2,611,414,848		1,738,018,459
	U.C.		2,982,891		2,270,949
Total assets			12,759,799,311		12,621,164,676

(e) Current liabilities

		Within 90 days										91 days to 1 year
		As of December 31,2001					As of December 31,2002					As of December 31,2001					As of December 31,2002
	Currency	Amount		Avg Rate			Amount		Avg Rate			Amount		Avg Rate			Amount		Avg Rate
Account		ThCh$		%			ThCh$		%			ThCh$		%			ThCh$		%
	$ Reaj.		—		—			—		—			—		—			—		—
Short-term debt due to banks and financial institutions	$ no Reaj.		2,364,209		4.62	%		60,842,208		2.48	%		—		—			2,346,203		2.48	%
	US$		112,879,158		10.98	%		113,666,867		8.14	%		85,478,976		10.98	%		112,613,976		8.14	%
	Euro		2,943,675		4.35	%		4,542,783		4.38	%		—		—			—		—
	Yen		—		—			—		—			—		—			—		—
	$ Col.		—		—			7,602,894		14.35	%		11,282,293		15.00	%		43,699,361		14.75	%
	Soles		24,696,590		12.20	%		37,190,394		8.68	%		29,199,298		12.20	%		14,525,801		4.07	%
	$ Arg.		22,748		6.80	%		16,254,518		6.00	%		—		—			3,018,304		6.00	%
	Reales		32,143,117		15.50	%		8,745,951		9.24	%		—		—			—		—
	$ no Reaj.		—		—			—		—			—		—			—		—
	$ no Reaj.		—		—			—		2.21	%		—		—			—		—
Current portion of long-term debt due to banks and financial institutions	$ Reaj.		53,549,447		7.50	%		313,051		8.73	%		1,615,021		7.50	%		1,426,181		8.73	%
	US$		44,023,022		5.17	%		207,929,156		3.24	%		313,783,648		6.15	%		332,582,264		3.24	%
	Euro		—		—			—		—			3,624,390		4.26	%		4,673,051		3.79	%
	Yen		—		—			39,191,269		2.08	%		395,184		0.90	%		6,946,931		2.08	%
	Soles		—		—			—		—			—		—			—		—
	$ Arg.		1,896		8.60	%		1,365,862		22.75	%		—		—			655,929		1.75	%
	Reales		5,638,384		15.50	%		2,136,708		11.23	%		1,342,452		15.50	%		5,154,483		11.23	%
	U.P.		—		—			—		—			1,066,471		5.32	%		1,195,763		5.32	%
	Pound		—		—			—		—			394,123		5.38	%		456,684		4.81	%
	Other		—		—			—		—			102,691		4.44	%		1,234,621		—
Promissory notes	$ Reaj.		5,086,095		10.00	%		122,129		10.00	%		5,946,043		6.92	%		—		—
	Soles		—		—			5,603,166		4.50	%		—		—			7,464,219		4.50	%
	Other		—		—			—		—			43,598,110		18.13	%		—		—
Current portion of bonds payable	$ Reaj.		—		—			—		—			12,866,910		5.80	%		16,001,327		5.80	%
	US$		—		—			—		—			32,236,441		7.06	%		156,514,742		7.06	%
	Euro		2,061,700		3.34	%		—		—			—		—			303,740,866		3.34	%
	$ Col.		—		—			—		—			14,546,485		13.70	%		13,501,963		13.70	%
	Other		856,532		10.00	%		1,161,436		7.28	%		280,254		11.50	%		7,581,010		13.70	%
Current portion of long-term notes payable	$ no Reaj.		—		—			—		—			90,293		—			—		—
	US$		18,039,328		7.40	%		29,756,019		9.00	%		8,450,719		7.20	%		11,872,895		9.00	%
	$ Arg.		—		—			—		—			—		—			—		—
	Other		—		—			—		—			—		—			—		—
Dividends payable	$ no Reaj.		484,283		—			428,445		—			1,426,171		—			972,422		—
	$ Col.		—		—			8,285,187		—			—		—			—		—
	Soles		36,707		—			18,529		—			—		—			—		—
	$ Arg.		1,444		—			—		—			—		—			—		—
	Reales		5,060,346		—			—		—			—		—			4,122,352		—
	Other		—		—			727,268		—			—		—			—		—

F-99

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

		Within 90 days										91 days to 1 year
		As of December 31,2001					As of December 31,2002					As of December 31,2001				As of December 31,2002
	Currency	Amount		Avg Rate			Amount		Avg Rate			Amount		Avg Rate		Amount		Avg Rate
Account		ThCh$		%			ThCh$		%			ThCh$		%		ThCh$		%
Accounts payable	$ no Reaj.		48,354,696		—			54,262,880		—			4,328,842		—		5,812,077		9.00	%
	US$		14,703,322		—			12,342,737		—			1,740,700		—		1,123,669		—
	Euro		137,924		—			—		—			—		—		—		—
	$ Col.		20,517,413		—			27,173,942		—			8,982,460		—		—		—
	Soles		19,275,090		—			23,788,231		—			2,026,856		—		—		—
	$ Arg.		44,832,831		—			26,949,437		—			—		—		—		—
	Reales		93,916,602		—			59,659,028		—			—		—		—		—
	Other		—		—			10,963,983		—			138,564		—		—		—
	$ no Reaj.		—		—			—		—			—		—		—		—
Short-term notes payables	$ no Reaj.		216		—			571		—			—		—		—		—
	Reales		45,428,854		—			1,056,663		16.89	%		—		—		3,775,840		16.89	%
	U.P.		—		—			—		—			—		—
Miscellaneous payables	$ Reaj.		—		—			—		—			84,334		—		—		—
	$ no Reaj.		15,105,006		—			9,244,324		—			156,864		—		416,874		—
	US$		11,929,531		—			8,228,015		—			71,993		—		8,648,943		—
	$ Col.		9,077,611		—			22,549,403		—			71,686		—		—		—
	Soles		3,185,984		—			5,838,886		—			—		—		11,338,473		—
	$ Arg.		105,397		—			3,054		—			4,395		—		—		—
	Reales		13,531,642		—			6,773,826		—			—		—		—		—
	Other		—		—			375,753		—			—		—		—		—
Amounts payable to related companies	$ Reaj.		17,289,294		—			11,465,695		—			—		—		—		—
	$ no Reaj.		321,383		9.14	%		532,618		—			—		—		—		—
	US$		528,537		8.49	%		1,234,371		—			—		—		—		—
	$ Col.		—		—			1,226,667		—			3,629,114		—		—		—
	Soles		1,837,477		—			857,426		—			—		—		—		—
	$ Arg.		7,514,844		—			968,935		—			—		—		—		—
Accrued expenses	$Reaj.		—		—			14,153		—			8,375		—		8,372		—
	$ no Reaj.		16,211,086		—			12,393,170		—			20,763,097		—		28,578,032		—
	US$		—		—			101,572		—			186,815		—		89,246		—
	$ Col.		5,127,068		—			13,279,185		—			3,219,760		—		—		—
	Soles		1,649,379		—			2,315,644		—			1,708,400		—		2,228,091		—
	$ Arg.		4,531,574		—			2,133,800		—			—		—		—		—
	Reales		26,514,775		—			23,708,069		—			—		—		—		—
	Other		—		—			80,987		—			—		—		—		—
Withholdings	$ no Reaj.		5,881,699		—			7,127,750		—			978,146		—		1,427,600		—
	$ Col.		1,830,706		—			1,872,570		—			—		—		—		—
	Soles		2,534,964		—			5,113,011		—			—		—		—		—
	$ Arg.		17,117,232		—			10,827,560		—			—		—		—		—
	Reales		25,614,845		—			29,114,712		—			—		—		—		—
	Other		—					2,556		—			—				—		—
Income tax payable	$ no Reaj.		430,473		—			537,181		—			9,038,936		—		—		—
	$ Col.		15,582,792		—			19,911,919		—			2,948,539		—		—		—
	Soles		158,987		—			683		—			5,765,990		—		2,638,436		—
	$ Arg.		10,192,095		—			3,332,909		—			—		—		—		—
	Reales		33,165,210		—			1,110,901		—			—		—		—		—
Deferred income	$ Reaj.		252,972		—			—		—			—		—		—		—
	$ no Reaj.		1,497,876		—			5,816,007		—			3,680,493		—		2,856,011		—
	US$		411,679		—			—		—			5,471,544		—		—		—
	$ Col.		—		—			413,656		—			—		—		—		—
Other current liabilities	$ Reaj.		108,399,353		2.70	%		3,317		—			7,108		—		5,769		—
	$ no Reaj.		69,101		—			456,200		—			5,817,634		—		5,473,134		—
	US$		1,193,328		—			15,111,509		—			—		—		287,973		—
	$ Col.		2,621,386		—			1,996,817		—			1,029,544		—		—		—
	Soles		45,345		—			50,146		—			5,718,123		—		—		—
	$ Arg.		13,478,269		—			15,875,558		—			79		—		—		—
	Reales		12,004,488		—			20,281,534		—			—		—		—
Total current liabilities by currency	$ Reaj.		184,577,161					11,918,345					20,527,792				17,441,649
	$ no Reaj.		90,720,028					151,641,354					46,280,476				47,882,353
	US$		203,707,905					653,397,898					447,701,090				366,156,187
	Euro		5,143,299					4,542,783					3,624,390				308,413,917
	Yen		—					39,191,269					395,184				6,946,931
	$ Col.		69,303,461					104,312,240					31,163,396				57,201,324
	Soles		54,277,055					81,937,552					44,418,667				38,325,899
	Reales		293,018,263					152,587,392					44,940,561				13,052,675
	$ Arg.		97,798,330					77,711,633					4,474				3,674,233
	U.P.		—					—					1,066,471				1,195,763
	Libra		—					—					394,123				456,684
	Others		—					12,150,547					241,255				1,234,621
Total current liabilities			998,545,502					1,289,391,013					640,757,879				861,982,236

F-100

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(f) Long-term liabilities, December 31, 2002

		1 to 3 years					3 to 5 years					5 to 10 years					More than 10 years
Account	Currency	Amount		Avg Rate			Amount		Avg Rate			Amount		Avg Rate			Amount		Avg Rate
		ThCh$		%			M$		%			ThCh$		%			ThCh$		%
Due to banks and financial institutions	$ Reaj.		53,700,248		3.66	%		2,936,985		3.66	%		—		—			—		—
	US$		1,332,607,989		3.19	%		103,695,317		3.19	%		70,749,821		3.19	%		6,352,189		3.19	%
	Euro		245,960		4.13	%		—		—			—		—			—		—
	Yen		8,981,104		1.96	%		—		—			—		—			—		—
	$ Arg.		3,687,048		1.75	%		1,843,524		1.75	%		6,440,033		1.75	%		—		—
	Reales		81,665,150		17.11	%		1,612,832		11.23	%		14,551,393		11.23	%		201,601		11.23	%
	U.P.		1,189,530		5.32	%		—		—			—		—			—		—
	Libra		877,946		4.81	%		—		—			—		—			—		—
Bonds payable	$ Reaj.		—		—			100,464,720		6.20	%		68,867,443		6.00	%		159,331,186		6.00	%
	US$		337,746,700		7.00	%		352,118,900		8.06	%		287,444,000		8.50	%		622,338,537		8.06	%
	Euro		—		—			—		—			—		—			—		—
	$ Col.		—		—			33,173,871		14.35	%		77,979,287		14.35	%		—		—
	Soles		53,520,562		7.19	%		3,859,972		7.19	%		1,000,390		7.19	%		—		—
Long-term notes payable	US$		44,459,671		7.50	%		41,870,347		7.50	%		59,468,978		7.50	%		—		—
	Reales		61,538,872		9.50	%		4,601,606		9.50	%		8,700,083		9.50	%		247,133		9.50	%
Accounts payable	$ Reaj.		—		—			—		—			—		—			161,781		—
	$ no Reaj.		2,130,335		—			—		—			—		—			50,546		—
	US$		7,144,040		—			—		—			10,535,563		9.48	%		—		—
	Reales		2,584,264		—			—		—			—		—			—		—
Amounts payable to related companies					—					—					—					—
	$ Reaj.		988,291,605		3.33	%		—		—			—		—			—		—
	$ Col.		—		—			—		—			—		—			—		—
Accrued expenses	$ Reaj.		—		—			57,281		—			—		—			—		—
	$ no Reaj.		3,496,393		—			3,256,075		—			7,608,279		—			7,451,115		—
	US$		3,732,305		—			—		—			—		—			—		—
	$ Col.		—		—			—		—			—		—			67,686,226		—
	Reales		839,764		—			81,582,060		—			2,099,410		—			49,113,709		—
Deferred income taxes	$ no Reaj.		9,390,063		—			3,745,511		—			13,997,687		—			28,873,945		—
	$ Col.		—		—			—		—			—		—			3,588,783		—
	Soles		—		—			1,224,714		—			—		—			—		—
	$ Arg.		197,179		—			131,452		—			591,537		—			—		—
	Reales		—		—			—		—			—		—			—		—
Other long-term liabilities	$ Reaj.		10,805		—			10,015		—			467,614		10.10	%		—		—
	$ no Reaj.		4,264,255		4.55	%		14,800,247		4.55	%		4,683,227		—			13,681,297		4.55	%
	US$		38,021,057		—			—		—			—		—			—		—
	Soles		4,611,282		—			256,932		—			2,213,674		—			—		—
	$ Arg.		7,456,475		—			114,044		—			—		—			—		—
	Reales		13,384,938		—			—		—			—		—			—		—
Total long-term liabilities by currency	$ Reaj.		1,042,002,658					103,469,001					69,335,057					159,492,967
	$ no Reaj.		19,281,046					21,801,833					26,289,193					50,056,903
	US$		1,763,711,762					497,684,564					428,198,362					628,690,726
	Euro		245,960					—					—					—
	Yen		8,981,104					—					—					—
	$ Col.		—					33,173,871					77,979,287					71,275,009
	Soles		58,131,844					5,341,618					3,214,064					—
	$ Arg.		11,340,702					2,089,020					7,031,570					—
	Reales		160,012,988					87,796,498					25,350,886					49,562,443
	U.P.		1,189,530					—					—					—
	Libra		877,946					—					—					—
	Other		—					—					—					—
Total long-term libilities			3,065,775,540					751,356,405					637,398,419					959,078,048

F-101

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(g) Long-term liabilities, December 31, 2001

		1 to 3 years				3 to 5 years				5 to 10 years				More than 10 years
Account	Currency	Amount		Avg Rate		Amount		Avg Rate		Amount		Avg Rate		Amount		Avg Rate
		ThCh$		%		ThCh$		%		ThCh$		%		ThCh$		%
Due to banks and financial institutions	UF		37,847,407		7.44		20,181,502		6.93		—		—		—		—
	US$		1,627,504,159		4.01		137,113,532		4.01		82,407,322		4.04		20,913,779		1.75
	Yen		782,417		0.90		391,208		0.90		—		—		—		—
	Reales		15,012,070		12.00		2,521,157		12.00		4,409,782		10.93		1,154,746		10.93
	U.P.		2,056,583		5.32		—		—		—		—		—		—
	Libra		743,571		5.38		371,786		5.38		—		—		—		—
	Other		195,548		4.44		97,774		4.44		—		—		—		—
Bonds payable	UF		19,905,268		6.30		123,534,041		6.30		54,429,823		6.30		48,202,431		6.30
	US$		196,325,358		7.90		249,540,469		7.90		242,796,132		7.90		934,156,095		7.90
	Euro		257,094,126		3.34		—		—		—		—		—		—
	$ Col.		—		—		130,064,199		13.70		—		—		—		—
	Soles		—		—		36,033,266		7.50		—		—		—		—
Notes payable	US$		55,606,642		7.13		42,364,204		7.13		71,079,080		7.13		14,706,614		7.13
	Reales		35,644,558		10.27		4,590,609		10.27		9,974,947		10.27		—		—
Accounts payable	UF		77,590		—		—		—		—		—		181,599		—
	Ch$		2,122,540		—		—		—		—		—		18,406		—
	US$		23,496,465		6.50		—		—		—		—		—		—
	$ Col.		443,215		—		—		—		—		—		—		—
	Reales		8,407,133		—		—		—		—		—		—		—
Amounts payable to related parties	UF		984,980,016		4.90		—		—		—		—		—		—
	US$		16,727,142		7.07		—		—		—		—		—		—
Accrued expenses	Ch$		2,466,172		—		2,499,291		—		4,888,461		—		6,405,087		9.50
	$ Col.		—		—		16,984,432		—		—		—		40,734,446		—
	Reales		8,935,898		10.00		143,792,604		10.00		1,785,890		10.00		5,896,656		10.00
Deferred income taxes	Ch$		10,254,481		—		5,471,684		—		13,704,756		—		6,629,043		—
Reimbursabe employee taxes	UF		7,527		—		9,108		—		480,589		10.00		—		—
	Ch$		4,368,898		—		2,133,845		—		886,535		—		2,388,266		—
	Soles		3,112,468		—		362,744		—		2,022,283		—		—		—
Other liabilities	UF		507		—		—		—		—		—		—		—
	Ch$		10,664,329		—		1,116,412		—		2,473,437		—		—		—
	Soles		3,053,568		—		—		—		—		—		—		—
	$ Arg.		8,743,924		—		1,494,952		—		1,637,101		—		—		—
	Reales		751,115		—		—		—		—		—		—		—
Total long-term liabilities By currency	UF		1,042,818,315				143,724,651				54,910,411				48,384,031
	Ch$		29,876,420				11,221,232				21,953,189				15,440,802
	US$		1,919,659,972				429,018,205				396,282,535				969,776,488
	Euro		257,094,126				—				—				—
	Yen		782,417				391,208				—				—
	$ Col.		443,215				147,048,631				—				40,734,446
	Soles		6,166,036				36,396,010				2,022,283				—
	$ Arg.		8,743,924				1,494,952				1,637,101				—
	Reales		68,750,774				150,904,370				16,170,620				7,051,403
	U.P.		2,056,583				—				—				—
	Libra		743,571				371,786				—				—
	Other		195,548				97,774				—				—
Total long-term liabilities			3,337,330,901				920,668,819				492,976,139				1,081,387,170

F-102

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 31. Sanctions

Endesa Chile

On February 22, 2002, the Superintendency of Securities and Insurance, through Executive Resolution N°044, censured Mr. Héctor López Vilaseco, the company’s Chief Executive Office, for infringement of what is provided in Section III of Form Letter N°1,481, dated May 25, 2000, for having tardily submitted to the Superintendency of Securities and Insurance the list of the company’s shareholders at December 31, 2001.

Neither the Company nor its Board of Directors has been fined by the Superintendency of Securities and Insurance or any other administrative authority.

Note 32. Subsequent Events

Enersis S. A.

On December 10, 2002, a Special General Shareholders’ Meeting of Cerj, an Enersis S.A. subsidiary, was held, where a capital increase was approved for Cerj, in an amount of ThUS$105,000, approximately.

This increase took place on January 10, 2003, through the issuance and subscription of 770,833,333,333 new ordinary shares, at a value of R$0.48 in one thousand-share batches, totaling the ThUS$100,000 approved at the Meeting, with the Company’s capital amounting to ThUS$259,085.

With this operation, the percentage of direct participation held by Enersis S.A., through its agency, will increase from 20.38% to 40.03%.

As a relevant event on January 15, 2003, it was reported that Enersis S.A.’s Board of Directors, at a special meeting held on that day, agreed to take note that the Company will make accounting adjustments and special charges in its balance sheet for its investments in its Chilean and foreign subsidiaries for a total amount of US$387 million, in its equivalent in Chilean pesos.  These special adjustments are reflected in income for 2002.

Such special adjustments and charges have no impact on the Company’s cash flow and will be reflected in Enersis’ 2002 financial statements.  The special adjustments and charges made as well as the provisions made at November 30, 2002, are detailed as follows: (the figures shown correspond to the impact on Enersis S.A.’s financial statements):

Generation:
Brazil	US$ 60 million
Argentina	US$ 23 million
Total Generation	US$ 83 million

F-103

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Distribution:
Brazil	US$ 255 million
Argentina	US$ 26 million
Total distribution	US$ 281 million

Services:
Chile	US$ 23 million
Total services:	US$ 23 million
Total adjustment	US$ 387 million

It must be noted that, of the US$387 million, US$329 million will be from the acceleration of the amortization of the net balance of negative goodwill and goodwill of investments made in Brazil and Argentina in generation and distribution.

Subtracted from the figure above are the provisions made at November 30, 2002, as shown below:

Brazil	US$81 million
Argentina	US$l6 million
Total Provisions	US$97 million

In view of the above, and having considered these provisions, the effect of the adjustments and special charges on the company’s income will amount to the equivalent in Chilean pesos of US$290 million, approximately.

In the period between January 1, 2003 and the date of presentation of these financial statements, no other significant event that might affect their presentation has occurred. 

Note 33. Environment

Edesur S.A.

As of December 31, 2002, the Company incurred environmental expenses of ThCh$59,645 and investments of ThCh$15,809.

Endesa S.A.

During the period from January 1 to December 31, 2002, the Company and its subsidiaries have made disbursements for a value of ThCh$3,786,874, which mainly correspond to:

• Operating expenses: corresponding to studies, follow-up procedures and laboratory analysis (ThCh$323,387 expenses in 2002), Environment Law N°99 (Colombia) and ISO 14,001 certification in Central Costanera and El Chocón (US$955,245).

• Investments related to the following projects:

• Central Ralco’s environmental program.

• Central San Isidro, Pangue, Tal Tal, Pehuenche, Loma Alta and Curilligue environmental management system (EMS) installation and its ISO 14,001 certification.

F-104

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Note 34. 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.

(a) Inflation accounting

The cumulative inflation rate in Chile as measured by the Consumer Price Index for the three-year period ended December 31, 2002 was approximately 11.2%.  Pursuant to Chilean GAAP, the Company’s financial statements recognize certain effects of inflation.  The inclusion of price-level adjustments in the accompanying consolidated financial statements is considered appropriate under the prolonged inflationary conditions affecting the Chilean economy even though the cumulative inflation rate for the last three years does not exceed 100%.  As allowed pursuant to Form-20-F the reconciliation included herein of consolidated net income, comprehensive income and shareholders’ equity, as determined in accordance with 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 (bb) below.

(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 a part a property, plant, and equipment, the primary assets of Edesur S.A.

F-105

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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 (bb) below.

(d) Intangibles

Under Chilean GAAP, the Company has recorded intangible assets 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 not have been recorded as the assets would have been recorded at the Predecessor Company’s carrying values.  The effects of adjusting shareholders’ equity for the intangible asset net of accumulated amortization, inclusive of accumulated price-level restatement, and net income statement for the annual amortization expense are included in paragraph (bb) below.

(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.

F-106

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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 (bb) below.

(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 and average service life of each employee.  The Company and certain of its subsidiaries used a real discount rate of 9.5% for the years ended December 31, 2001 and 2002, and assumed an average service life which varies based upon years of service with the Company.  The real annual discount rate does not include a projection of inflation and, accordingly, future salary increases are also excluded from the calculation of the obligation, because all such future increases are expected to approximate the increase in inflation over a long-term period. 

Under US GAAP, 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 by projecting future expected payments using an assumed salary progression rate and discounting the resulting amounts to their present value.  In practice, the Company believes that the salary progression rate will not differ significantly from the general inflation rate.  The application of U.S. GAAP would no have produced results materially different from the acceptable method under Chilean GAAP.

F-107

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(g) Pension and post-retirement benefits

The Company has obligations related to complementary pension plan benefits and other post-retirement benefits as stipulated in collective bargaining agreements.  Under U.S. GAAP, post-retirement employee benefits have been accounted for in accordance with SFAS No. 87 and SFAS No. 106.  The effects of accounting for post-retirement benefits under U.S. GAAP have been presented in paragraph (bb).

(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 (bb) below.  The principal U.S. GAAP adjustments affecting the Company’s equity investees are as follows:

(a)	The recording of pension benefits in accordance with SFAS No. 87.
(b)	Reversal of complementary accounts (asset or liability) recorded as a transitional provision as of January 1, 2000.
(c)	Organizational costs deferred under Chilean GAAP that, under U.S. GAAP, should have been included in income.
(d)	For the year beginning January 1, 2001, the recording of derivative instruments in accordance with SFAS No. 133.
(e)	The deferred income tax effects of adjustments (a), (c) and (d).

(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 discounted 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 (bb) below.
(ii)	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-108

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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$236,434,558 net minority interest, to write-off all amounts of goodwill and negative goodwill, see Note 13.

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 (bb) 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 amortization goodwill which is different in amount because of goodwill basis differences in 2000 and 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,
	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Adjustment of goodwill amortization		(7,541,119	)		(1,099,881	)		53,928,310
Reversal of impairment record under Chilean GAAP								452,415,861
Impaiment of goodwill under US GAAP								(600,380,013	)
Totals		(7,541,119	)		(1,099,881	)		(94,035,842	)

F-109

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Had we adopted SFAS No 142 effective January 1, 2000 and accordingly not amortized goodwill for the years ended December 31, 2001 and 2000 our net gain (loss) and basic income (loss) per share should have been as follows:

	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Net income (loss) under US GAAP		74,431,407			3,088,583			(329,910,417	)
Goodwill amortization under US GAAP		(79,254,926	)		(81,676,229	)		—
Adjusted net income (loss) under  US GAAP		153,686,333			84,764,812			(329,910,417	)

	2000			2001			2002
	Ch$			Ch$			Ch$
Basic earnings per share:
Reported net income (loss)		10.4			0.4			(39.8	)
Goodwill amortization		(11.0	)		(9.9	)		—
Adjusted net income (loss)		21.4			10.3			(39.8	)

(iii)	The company has considered important factors, which could trigger an impairment review, such 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 2000 and 2001, which was superceded by SFAS No.144, “Accounting for the Impairment or Disposa1 of Long-Lived Assets” beginning in 2002, the Company eva1uates 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, 2000, 2001, and 2002, 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 amount are reclassified to operating income for US GAAP purposes.

F-110

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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 conforming depreciation methods are included in paragraph (bb) 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.

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.  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 (bb) 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 (bb) below.

(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 has been made in the reconciliation in paragraph (bb) below to reflect the unrecorded dividend liability

F-111

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

for 2001, whenever and to the extent the recorded interim dividends do not reach to 30% minimum dividend.

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 (bb).

(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, 2002, this requirement had not been met.  The effect of eliminating the accrued liability recognized is presented in paragraph (bb) 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 IntemationaI 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 that will be eliminated after the impairment charge is recorded.  The effects of the adjustments to conform to U.S. GAAP are included under paragraph (bb) below.

F-112

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(q) Elimination of capitalized legal reserve

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.  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 (bb) 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 (bb) below.

(s) 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 included in income that is attributable to operations in unstable countries because these amounts have been remeasured into US dollars was ThCh$39,503,788, ThCh$23,247,278 and ThCh$180,045,972 for the years ended December 31, 2000, 2001 and 2002, respectively (See Note 23 (a)).

In the opinion of the Company, the foreign currency translation procedures described above are part of the comprehensive basis of preparation of price-level adjusted financial statements required by Chilean GAAP.  Inclusion of inflation and translation effects in the financial statements is considered appropriate under the inflationary conditions that have historically affected the Chilean

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

economy, and accordingly, are not eliminated in the reconciliation to U.S. GAAP as permitted by 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 assets 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 is amortized over the life of the contract as interest expense.  However, contracts not designated or effective as hedges 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 (bb) 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 that receive hedge accounting.

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.”  Statement 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.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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 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 (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$21,015,046 net of deferred taxes for ThCh$46,575,921 and minority interest for ThCh$62,621,442, which is presented under the caption “Cumulative effect of changes in

F-115

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

accounting principles”, the effects of the adjustment with respect to financial derivatives, commodity derivatives, and embedded derivatives for the year ended December 31, 2002 is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (bb) 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 (bb) below.

(v) Sale of subsidiaries

This corresponds to the reversal of the December 31, 1999 accumulated adjustments to U.S. GAAP which under U.S. GAAP would have been included in the determination of any gain or loss on sale made in connection with the subsidiaries Compañía Nacional de Transmisión Eléctrica S.A. (Transelec), Aguas Cordillera S.A., and Aguas Puerto S.A., as these subsidiaries were sold during 2000.

(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, this item, the amount was deferred and amortize over the life of the related service contract.  This adjustment reverses the gain under Chile GAAP and records the amortization of the deferred income under U.S. GAAP.  The effect on shareholders’ equity and net income for the years presented is included in (bb) 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.

F-116

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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 (Coalce), 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 costs will be recovered over a period estimated to be three years (as described in Note 5).

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 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 (bb) 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 is recorded as goodwill. The effect on shareholders’ equity is included in (bb) below.

F-117

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(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 segments, 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.

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, no impairment was required to these assets as of December 31, 2002.  The effect of these adjustments is included in the net income and shareholders’ equity reconciliation to U.S. GAAP under paragraph (bb) 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. does meet the conditions for discontinued operations 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 it is sold.  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 must the criteria to be classified as a discontinued operations as of the 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 (bb) below.

F-118

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(bb) Effect of conforming to U.S. GAAP

The reconciliation of reported net income required to conform with U.S. GAAP is as follows:

	For the year ended December 31,
	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Net income (loss) in accordance with Chilean GAAP		95,661,404			42,154,033			(223,748,087	)
Reversal of amortization of revaluation of property, plant and equipment (paragraph b)		2,597,035			1,899,779			3,336,808
Depreciation of property, plant and equipment and difference in fixed assets value at acquisition date (paragraph c)		(1,459,538	)		(1,845,429	)		(5,455,684	)
Amortization of intangibles (paragraph d)		1,373,576			191,035			121,840
Deferred income taxes (paragraph e)		(69,517,707	)		(28,618,834	)		(21,149,128	)
Pension and post-retirement benefits (paragraph g)		(11,014,880	)		3,738,634			23,130,027
Investments in related companies (paragraph h)		—			(18,119,651	)		20,860,935
Amortization and impairment of goodwill (paragraph i)		(7,541,119	)		(1,099,881	)		(94,035,842	)
Amortization of negative goodwill (paragraph j)		(19,035,079	)		(26,903,634	)		(82,314,299	)
Capitalized interest and exchange differences (paragraph k)		34,392,221			4,887,915			(32,529,417	)
Accumulated deficit during the development stage (paragraph l)		156,769			(411,369	)		(5,830,512	)
Capitalized general and administrative expenses (paragraph n)		(1,614,199	)		(126,967	)		1,958,425
Involuntary employee termination benefits (paragraph o)		(2,693,048	)		(8,797	)		(347,089	)
Adjustment in selling price of investment (paragraph p)		133,953			(76,429	)		4,491,313
Elimination of amortization of capitalized legal reserve (paragraph q)		(3,338,239	)		591,479			903,367
Amortization of organizational and start-up costs (paragraph r)		821,187			3,960,274			5,365,083
Derivative instruments (paragraph t)		—			65,189,655			(78,076,325	)
Fair value of long-term debt assumed (paragraph u)		133,411			(174,229	)		(91,559	)
Sale of subsidiaries (paragraph v)		21,574,004			—			—
Deferred income (paragraph w)		(3,212,407	)		165,419			274,829
Regulated assets (paragraph x)		—			(41,903,240	)		(51,237,932	)
Reorganization of subsidiaries (paragraph y)		—			—			(319,781	)
Asset held for sale (paragraph z)		—			—			(887,241	)
Reclassification of discontinued operations (paragraph aa)		(161,966	)		(358,538	)		(148,617	)
Effects of minority interest on the U.S. GAAP adjustments		58,059,875			(4,203,667	)		127,629,376
Deferred tax effects on the U.S. GAAP adjustments		(21,143,846	)		(17,138,430	)		78,023,974
Reclassification extraordinary gain		—			(24,112,843	)		—
Net income (loss) in accordance with U.S. GAAP before effect of discontinued operations, extraordinary gain and cumulative effect of change in accounting principle		74,171,407			(42,323,715	)		(330,075,536	)
Income from discontinued operations net of taxes and minority interest (paragraph aa)		260,000			284,410			165,119
Net income (loss) in accordance with U.S. GAAP before effect of extraordinary gain and cumulative effect of change in accounting principle		74,431,407			(42,039,305	)		(329,910,417	)
Extraordinary gain (net of taxes)					24,112,843
Net income (loss) in accordance with U.S. GAAP before cumulative effect of change in accounting principle		74,431,407			(17,926,462	)		(329,910,417	)
Cumulative effect of change in accounting principle, net of the tax and minority interest		—			21,015,045			—
Net income (loss) in accordance with U.S. GAAP		74,431,407			3,088,583			(329,910,417	)
Other comprehensive income (loss):
Cumulative translation adjustment determined under Chilean GAAP		1,336,996			19,459,326			20,596,914
Cumulative translation adjustment related to U.S GAAP adjustments		(4,410,079	)		(3,494,198	)		(12,536,493	)
Comprehensive income (loss) in accordance with U.S.GAAP		71,358,324			19,053,711			(321,849,996	)

F-119

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

	As of December 31,
	2001			2002
	ThCh$			ThCh$
Shareholders’ equity in accordance with Chilean GAAP		1,214,561,981			1,005,580,294
Reversal of revaluation of property, plant and equipment net of accumulated amortization revaluation of property, plant and equipment (paragraph b)		(17,254,120	)		(14,150,945	)
Depreciation of property, plant and equipment and difference in fixed asset value at acquisition date (paragraph c)		763,072			(3,065,017	)
Intangibles (paragraph d)		(1,218,399	)		(1,096,559	)
Deferred income taxes (paragraph e)		(244,411,924	)		(277,953,317	)
Pension and post-retirement benefits (paragraph g)		(48,110,011	)		(29,532,561	)
Investments in related companies (paragraph h and paragraph z)		(17,385,748	)		4,286,240
Goodwill (paragraph i)		326,090,688			236,394,374
Negative goodwill (paragraph j)		(205,876,773	)		(298,291,399	)
Capitalized interest and exchange differences (paragraph k)		44,949,920			16,939,438
Minimum dividend (paragraph m)		(12,646,210	)		—
Capitalized general and administrative expenses (paragraph n)		(27,225,414	)		(25,675,535	)
Reversal of accrual of certain involuntary employee termination benefits (paragraph o)		412,753			92,700
Adjustment in selling price of investment (paragraph p)		(4,215,211	)		—
Elimination of capitalized legal reserve (paragraph q)		(9,378,001	)		(9,362,051	)
Amortization organizational and start-up costs (paragraph r)		(39,325,555	)		(37,681,753	)
Derivative instruments (paragraph t)		210,367,650			149,900,318
Fair value of long-term debt assumed (paragraph u)		1,357,440			1,265,881
Reorganization of subsidiaries (paragraph y)		5,997,065			6,070,100
Asset held for sale (paragraph z)		—			(887,241	)
Deferred income (paragraph w)		(3,391,114	)		(3,437,112	)
Regulated assets (paragraph x)		(41,903,240	)		(97,106,372	)
Effects of minority interest on the U.S. GAAP adjustments		96,667,003			225,171,613
Elimination of result of discontinuing operations		—			724,763
Deferred tax effects on the U.S. GAAP adjustments		(74,152,019	)		(2,715,812	)
Shareholders’ equity in accordance with U.S. GAAP		1,154,673,833			845,470,047

The changes in shareholders’ equity in U.S. GAAP as of each year-end are as follows:

	As of December 31,
	2001			2002
	ThCh$			ThCh$
Shareholders equity in accordance with U.S. GAAP - January 1,		1,131,339,028			1,154,673,833
Dividends paid during the year		(15,426,129	)		—
Reversal of  dividends payable as of previous balance sheet date		28,698,421			12,646,210
Minimum dividend (paragraph m)		(12,646,210	)		—
Cumulative translation adjustment		15,965,128			8,060,421
Reorganization of subsidiaries (paragraph y)		3,655,011			—
Net income (loss) in accordance with U.S. GAAP for the year		3,088,584			(329,910,417	)
Shareholders equity in accordance with U.S.GAAP-December 31,		1,154,673,833			845,470,047

F-120

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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, 2001 and 2002, respectively:

	As of December 31,
	2001			2002
	ThCh$			ThCh$
Goodwill		1,652,861,416			1,235,470,632
Less: accumulated amortization		(334,028,823	)		(387,957,133	)
Goodwill, net		1,318,832,593			847,513,499
Negative goodwill		(382,125,693	)		(342,816,906	)
Less: accumulated amortization		200,931,133			247,643,956
Negative goodwill, net		(181,194,560	)		(95,172,950	)

(b) Basis and diluted earnings per share:

	For the year ended December 31,
	2000		2001			2002
	Ch$		Ch$			Ch$
Chilean GAAP (loss) earnings per share		13.32		5.08			(26.99	)
U.S. GAAP (loss) earnings per share:
U.S. GAAP (loss) earnings per share before effect of discontinued operations, extraordinary gain and cumulative effect of change in accounting principle		10.33		(5.10	)		(39.81	)
Discontinued operations (net of tax)		0.04		0.03			0.02
U.S. GAAP (loss) earnings per share before effect of  extraordinary gain and cumulative effect of change in accounting principle		10.37		(5.07	)		(39.79	)
Extraordinary gain (net of tax)		—		2.91			—
U.S. GAAP (loss) earnings per share before cumulative effect of change in accounting principle		10.37		(2.16	)		(39.79	)
Cumulative effect of change in accounting principle (net of tax)		—		2.53			—
Basic and diluted U.S. GAAP (loss) earnings per share		10.37		0.37			(39.79	)
Weighted average number of common shares outstanding (000’s)		7,180,409		8,291,020			8,291,020

(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 equity securities.  Consequently, there are no potentially dilutive effects on the earnings per share of the Company.

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ENERSIS S.A. AND SUBSIDIARIES

Notes to 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:

	2000
	Chile			Argentina			Perú		Brazil			Colombia			Other		Total
	ThCh$			ThCh$			ThCh$		ThCh$			ThCh$			ThCh$		ThCh$
Income tax provision under Chilean GAAP
Current income taxes as determined under Chilean GAAP (1)		65,016,882			38,213,657			1,288,064		21,480,003			33,103,382			321,727		159,423,715
Deferred income taxes as determined under Chilean GAAP		(8,963,932	)		661,396			16,646,200		(23,941,812	)		(1,705,564	)				(17,303,712	)
Total income tax provision under Chilean GAAP		56,052,950			38,875,053			17,934,264		(2,461,809	)		31,397,818			321,727		142,120,003
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS No. 109		9,209,924			(5,563,761	)		10,295,909		54,698,116			877,519			—		69,517,707
Deferred tax effect of adjustments to U.S. GAAP		(331,518	)		5,685,557			78,602		15,804,001			—			—		21,236,642
Total U.S. GAAP adjustments		8,878,406			121,796			10,374,511		70,502,117			877,519			—		90,754,349
Total Income tax provision under U.S. GAAP		64,931,356			38,996,849			28,308,775		68,040,308			32,275,337			321,727		232,874,352

	2001
	Chile			Argentina		Perú			Brazil			Colombia		Other		Total
	ThCh$			ThCh$		ThCh$			ThCh$			ThCh$		ThCh$		ThCh$
Income tax provision under Chilean GAAP
Current income taxes as determined under Chilean GAAP (1)		12,794,860			45,203,098		8,212,337			22,660,803			31,499,043		71,781		120,441,922
Deferred income taxes as determined under Chilean GAAP		6,062,958			2,397,955		13,173,620			(13,678,191	)		172,468		—		8,128,810
Total income tax provision under Chilean GAAP		18,857,818			47,601,053		21,385,957			8,982,612			31,671,511		71,781		128,570,732
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS No. 109		994,832			23,387,331		690,007			3,382,515			164,149		—		28,618,834
Deferred tax effect of adjustments to U.S. GAAP		(2,963,740	)		3,033,510		(776,899	)		(6,378,222	)		24,355,649		—		17,270,298
Deferred tax effect of comulative effect of change in accounting principle		(1,841,380	)		41,529,856		214,348			(203,244	)		6,876,341		—		46,575,921
Total U.S. GAAP adjustments:		(3,810,288	)		67,950,697		127,456			(3,198,951	)		31,396,139		—		92,465,053
Total Income tax provision under U.S. GAAP		15,047,530			115,551,750		21,513,413			5,783,661			63,067,650		71,781		221,035,785

	2002
	Chile			Argentina			Perú			Brazil			Colombia			Other		Total
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$		ThCh$
Income tax provision under Chilean GAAP
Current income taxes as determined under Chilean GAAP		13,292,208			(62,123	)		12,661,339			2,602,883			45,248,145			—		73,742,452
Deferred income taxes as determined under Chilean GAAP		3,214,739			(34,075,899	)		30,322,409			(5,879,658	)		(1,307,058	)		—		(7,725,467	)
Total income tax provision under Chilean GAAP		16,506,947			(34,138,022	)		42,983,748			(3,276,775	)		43,941,087			—		66,016,985
U.S. GAAP adjustments:
Deferred tax effect of applying SFAS No. 109		2,298,780			(30,426,372	)		21,488,911			24,299,705			3,488,104			—		21,149,128
Deferred tax effect of adjustments to U.S. GAAP		(13,217,783	)		13,786,982			(21,585,415	)		(20,363,366	)		(36,644,392	)		—		(78,023,974	)
Total U.S. GAAP adjustments:		(10,919,003	)		(16,639,390	)		(96,504	)		3,936,339			(33,156,288	)		—		(56,874,846	)
Total Income tax provision under U.S. GAAP		5,587,944			(50,777,412	)		42,887,244			659,564			10,784,799			—		9,142,139

(1) The income tax provisions under Chilean GAAP for the years ended December 31, 2000 and 2001 are stated net of income tax recovery of ThCh$4,207,583 and ThCh$8,116,807.

F-122

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

Deferred tax assets (liabilities) as of balance sheet dates are summarized s follows:

	As of December 31, 2001									As of December 31, 2002
	SFAS No. 109 Applied to Chilean GAAP Balances			SFAS No. 109 applied to U.S. GAAP Adjustments			Total Deferred Taxes under SFAS No. 109			SFAS No. 109 Applied to Chilean GAAP Balances			SFAS No. 109 applied to U.S. GAAP Adjustments			Total Deferred Taxes under SFAS No. 109
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$
Deferred income tax assets
Property, plant and equipment		6,976,342			4,386,013			11,362,355			6,032,020			13,837,806			19,869,826
Regulated assets and related deferred cost (conpanies in Brazil)					14,247,101			14,247,101						33,016,167			33,016,167
Negative goodwill					8,406,250			8,406,250						22,148,453			22,148,453
Allowance for doubtful accounts		38,334,751						38,334,751			32,217,765						32,217,765
Actuarial deficit (companies in Brazil)		7,487,563						7,487,563			6,766,431						6,766,431
Deferred income		2,507,334			1,152,980			3,660,314			2,746,091			1,168,618			3,914,709
With-holdings		2,164,150						2,164,150			3,252,750						3,252,750
Provision real estate projects		—						—			2,656,047						2,656,047
Derivative contracts		1,003,760			7,555,125			8,558,885			584,992			8,998,383			9,583,375
Severance indemnities		4,166						4,166			5,248			415,266			420,514
Vacation accrual		1,395,215						1,395,215			1,211,297						1,211,297
Post retirement benefits		499,032			16,365,659			16,864,691			1,627,336			10,850,823			12,478,159
Tax loss carryforwards (1)		80,072,911						80,072,911			116,468,223						116,468,223
Contingencies		46,795,319						46,795,319			50,931,732						50,931,732
Finance costs		194,771						194,771			117,034						117,034
Salaries for construction-in progress		5,843,294						5,843,294			3,926,807			5,583,440			9,510,247
Exchange difference -subsidiaries		—						—			5,155,480						5,155,480
Valuation allowance		(3,322,326	)					(3,322,326	)		(3,448,901	)					(3,448,901	)
Total deferred income tax assets		189,956,282			52,113,128			242,069,410			230,250,352			96,018,956			326,269,308
Deferred income tax liabilities
Negative goodwill					1,927,532			1,927,532									—
Property, plant and equipment		388,356,194			6,019,514			394,375,708			459,271,816			5,229,011			464,500,827
Severance indemnities		1,954,040						1,954,040			814,241						814,241
Intangibles		24,954						24,954			—						—
Regulated assets		—						—			3,828,000						3,828,000
Deferred charges		1,510,731						1,510,731			—						—
Actuarial deficit (companies in Brazil)		5,570,625						5,570,625			2,301,708						2,301,708
Finance costs		8,304,618						8,304,618			13,755,855						13,755,855
Derivative contracts		512,289			86,306,393			86,818,682			—			69,744,951			69,744,951
Bond discount		2,126,014						2,126,014			1,871,635						1,871,635
Cost of studies		4,675,640						4,675,640			7,972,554						7,972,554
Imputed interest on construction		4,830,117						4,830,117			4,863,433						4,863,433
With-holdings		5,659						5,659			198,638						198,638
Materials used		3,349,399						3,349,399			1,086,289						1,086,289
Hid. El Chocón investment		119,374						119,374			2,897,791						2,897,791
Capitalized expenses		5,059,362						5,059,362			3,883,070						3,883,070
Capitalized interest					26,738,515			26,738,515						20,896,091			20,896,091
Post retirement benefits		559			8,255			8,814			1,033			525,304			526,337
Contingencies		10,311,653						10,311,653			13,767,462						13,767,462
Others					229,961			229,961						2,339,411			2,339,411
Differences between the financial and tax value of Río Maipo S.A.		—						—			1,475,222						1,475,222
Total deferred income tax liabilities		436,711,228			121,230,170			557,941,398			517,988,747			98,734,768			616,723,515
Net deferred assets (liabilities)		(246,754,946	)		(69,117,042	)		(315,871,988	)		(287,738,395	)		(2,715,812	)		(290,454,207	)

(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-123

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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:

	2000
	Chile			Argentina			Perú		Brazil			Colombia			Other			Total
	ThCh$			ThCh$			ThCh$		ThCh$			ThCh$			ThCh$			ThCh$
Statutory Chilean tax		42,274,015			20,326,388			12,194,040		6,526,106			16,240,891			(32,646,249	)		64,915,191
Effect of higher foreign tax rates		—			18,710,018			8,064,200		1,091,686			8,940,850			(3,439,430	)		33,367,324
Increase (decrease) in rates resulting from:
Price-level restatement not accepted for tax purposes		8,795,897			(305,904	)		2,898,307		(5,955,061	)		4,666,333			—			10,099,572
Non-taxable items		(24,795,443	)		267,276			4,808,544		2,240,689			5,065,308			36,085,678			23,672,052
Non-deductible items		40,180,413			6,590,676			—		(8,077,733	)		(887,189	)					37,806,167
Prior years income tax		(1,575,934	)		(6,157,565	)		343,646		69,386,194			—						61,996,341
Other		52,408			(434,042	)		39		2,828,427			(1,750,855	)		321,727			1,017,704
Tax expense at effective tax rate		64,931,356			38,996,847			28,308,776		68,040,308			32,275,338			321,726			232,874,351

	2001
	Chile			Argentina			Perú			Brazil			Colombia			Other			Total
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$
Statutory Chilean tax		35,207,167			33,046,613			8,262,496			(750,031	)		19,766,103			(32,573,861	)		62,958,487
Effect of higher foreign tax rates		—			63,649,632			16,461,874			1,640,641			30,099,172			(6,560,221	)		105,291,098
Increase (decrease) in rates resulting from:
Price-level restatement not accepted for tax purposes		10,831,171			(471,398	)		(472,813	)		(1,154,998	)		14,976,551			—			23,708,513
Non-taxable items		(21,005,978	)		12,895,204			4,689,412			94,672			—			39,134,083			35,807,393
Non-deductible items		(24,172,189	)		20,330,824			(7,574,107	)		(316,500	)		(719,668	)		—			(12,451,640	)
Prior years income tax		1,986,643			—			401,288			(2,163,759	)		—			—			224,172
Effect of Chilean tax rate increase		8,212,618			—			—			—			—			—			8,212,618
Other		3,988,096			(13,899,124	)		(254,737	)		8,433,636			(1,054,508	)		71,781			(2,714,856	)
Tax expense at effective tax rate		15,047,528			115,551,751			21,513,413			5,783,661			63,067,650			71,782			221,035,785

	2002
	Chile			Argentina			Perú			Brazil			Colombia			Other		Total
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$		ThCh$
Statutory Chilean tax		(66,503,282	)		165,774			12,985,063			(74,011,455	)		6,766,510					(120,597,390	)
Effect of higher foreign tax rates		426,279			196,856			14,202,414			(57,760,020	)		(6,900,286	)				(49,834,757	)
Increase (decrease) in rates resulting from:
Price-level restatement not accepted for tax purposes		6,829,025			(23,354,798	)		565,546			1,932,546			13,543,094					(484,587	)
Non-taxable items		(1,268,782	)		7,828,561			8,312,037			43,976,453			(199	)				58,848,070
Non-deductible items		64,855,138			(35,286,731	)		6,987,296			87,266,915			(4,057,934	)				119,764,684
Prior years income tax		2,669,791						1,354,580						(509,651	)				3,514,720
Other		(1,420,225	)		(327,074	)		(1,519,692	)		(744,875	)		1,943,265					(2,068,601	)
Tax (benefit) expense at effective tax rate		5,587,944			(50,777,412	)		42,887,244			659,564			10,784,799			—		9,142,139

F-124

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(d) Acquisitions

In May of 2002, Enersis S.A. acquired 6,824,495 Sociedad Inversiones Distrilima S.A. shares equivalent to 1.14% of issued capital for US$1,767,761.22 increasing its direct interest from 14.79% to 15.93%.

In February and April of 2002 Enersis S.A. made contributions of US$22,773,195.87 to Central Generadora Termelétrica Fortalez S.A. for a capital increase, maintaining its 48.82% interest equivalent to 20,246,908 shares.

During 2002, Lajas Inversora (Endesa subsidiary) acquired 753,627 (0.0803%) of Central Eléctrica Cachoeira Dourada S.A. (Brasil) shares for Th$58,931, increasing its interest to 99.59% in said Company.

On September 13, 2002, Endesa acquired 7,275,433 (2.51%) Pangue S.A. (Chile) shares for Th$4,998,894, increasing its interest to 94.97% in said Company.

Debenture capitalization in Cerj

On July 11, 2002, the Company Luz de Río Ltda. and Endesa International Energía Ltda., holders of convertible bonds issued by Companhía de Electricidade do Río de Janeiro, exercised the option to capitalize their investment.  To that effect, 420,705,127,532 no par value shares were issued.

During the year ended December 31, 2001, the Company did not have significant acquisitions.

For acquisitions accounted as a business combination using the purchase method, assets and liabilities have been consolidated as of the purchase date and earnings from the acquisitions have been included in consolidated earnings of the Company from to the purchase date.

(e) Segment disclosures

The Company is primarily engaged in the distribution, generation and transmission 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 State

• Corporate and other

F-125

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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-126

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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:

2000	Generation		Distribution		Engineering services and real estate		Corparate and other			Eliminations			Consolidated
	ThCh$		ThCh$		ThCh$		ThCh$			ThCh$			ThCh$
Sales to unaffilated customers		700,831,148		1,972,978,680		47,820,038		35,417,231						2,757,047,097
Intersegment sales		236,819,167		29,428,862		32,294,269		25,803,150			(324,345,448	)
Total revenues		937,650,315		2,002,407,542		80,114,307		61,220,381			(324,345,448	)		2,757,047,097
Operating income		266,929,009		271,970,486		14,955,921		(8,807,981	)		7,702,184			552,749,619
Participation in net income of affialate companies						3,556		73,197						76,753
Depreciation and amortization		169,553,126		243,552,307		1,264,335		49,658,881			(266,434	)		463,762,215
Identifiable assets including investment in related companies		6,016,567,836		6,005,278,026		143,109,885		4,729,152,140			(5,138,754,125	)		11,755,353,762
Capital expenditures		89,662,770		250,520,763		1,028,999		1,796,973						343,009,505

2001	Generation			Distribution			Engineering services and real estate			Corparate and other			Eliminations			Consolidated
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$
Sales to unaffilated customers		836,144,871			2,126,128,164			35,046,655			62,061,071						3,059,380,761
Intersegment sales		209,134,449			43,705,715			28,336,648			30,562,731			(311,739,543	)
Total revenues		1,045,279,320			2,169,833,879			63,383,303			92,623,802			(311,739,543	)		3,059,380,761
Operating income		347,975,163			386,500,673			10,133,274			(4,545,293	)		14,479,950			754,543,767
Participation in net income of affialate companies		(10,355,056	)								(343,742	)					(10,698,798	)
Depreciation and amortization		150,091,696			260,276,949			1,241,298			56,491,985			(266,433	)		467,835,495
Identifiable assets including investment in related companies		6,361,571,367			6,310,062,578			135,386,583			4,945,729,831			(4,992,951,048	)		12,759,799,311
Capital expenditures		(52,972,422	)		(287,990,889	)		(415,494	)		(174,931	)					(341,553,736	)

2002	Generation		Distribution		Engineering services and real estate		Corparate and other			Eliminations			Consolidated
	ThCh$		ThCh$		ThCh$		ThCh$			ThCh$			ThCh$
Sales to unaffiliated customers		724,708,753		1,712,052,829		34,157,580		14,954,058						2,485,873,220
Intersegment sales		213,390,398		50,057,741		71,166,328		42,859,584			(377,474,051	)
Total revenues		938,099,151		1,762,110,570		105,323,908		57,813,642			(377,474,051	)		2,485,873,220
Operating income		336,622,006		183,495,124		13,379,302		(111,044	)		(741,027	)		532,644,361
Participation in net income of affiliate companies		8,541,745						(277,962	)					8,263,783
Depreciation and amortization		221,359,385		512,547,464		1,411,217		110,822,164			12,816,588			858,956,818
Identifiable assets including investment in related companies		6,524,201,396		6,105,423,113		140,950,745		4,294,946,364			(4,444,356,942	)		12,621,164,676
Capital expenditures		134,858,115		181,859,234		755,092		443,002						317,915,443

F-127

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

A summary of activities by geographic area is as follows:

	Chile		Argentina		Perú		Brazil		Colombia		Total
	ThCh$		ThCh$		ThCh$		ThCh$		ThCh$		ThCh$
2000
Total revenues		699,239,131		759,355,551		233,989,079		634,011,382		430,451,955		2,757,047,098
Long lived assets (net) (1)		2,803,069,054		1,440,626,633		1,064,776,614		1,254,692,103		2,381,648,403		8,944,812,807
2001
Total revenues		805,112,327		827,352,863		265,489,142		691,658,117		469,768,312		3,059,380,761
Long lived assets (net) (1)		2,365,838,917		1,562,886,168		1,173,962,317		1,944,053,053		2,578,309,204		9,625,049,659
2002
Total revenues		799,462,080		297,634,006		292,427,127		624,290,007		472,060,000		2,485,873,220
Long lived assets (net) (1)		2,374,734,591		1,551,821,292		1,235,792,237		2,039,631,354		2,677,478,709		9,879,458,183

(1) Long-lived assets include property, plant and equipment.

(f) 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 and 2002.

(g) Schedule of debt maturity:

Following is a schedule of debt maturity in each of the next five years and thereafter:

	ThCh$
2003		1,558,378,097
2004		2,355,368,823
2005		177,943,497
2006		611,688,751
2007		155,949,924
Thereafter		1,518,063,448
Total		6,377,392,540

F-128

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(h) Disclosure regarding interest capitalization:

	Year ended December 31,
	2000		2001		2002
	ThCh$		ThCh$		ThCh$
Interest cost incurred		520,328,589		457,221,298		446,064,039
Interest capitalized under Chilean GAAP		21,323,611		24,250,320		19,467,730
Interest capitalized under U.S. GAAP		55,715,832		29,138,235		23,656,508

(i) 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,
	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Cash provided by operating activities under Chilean GAAP		538,690,847			662,920,609			627,782,332
Development stage companies					1,303,896
Cash provided by (used in) operating activities under U.S. GAAP		538,690,847			664,224,505			627,782,332
Cash provided by (used in) financing activities under Chilean  GAAP		(814,290,090	)		(61,414,127	)		(285,039,864	)
Development stage companies					(985,718	)
Repurchase of Yankee Bonds					(177,168,871	)
Cash provided by (used in) financing activities under U.S. GAAP		(814,290,090	)		(239,568,716	)		(285,039,864	)
Cash provided by (used in) investing activities under Chilean GAAP		176,616,070			(503,639,589	)		(336,878,757	)
Development stage companies					(310,893	)
Repurchase of Yankee Bonds					177,168,871
Time deposits (1)								(10,176,847	)
Cash provided by (used in) investing activities under U.S. GAAP		176,616,070			(326,781,611	)		(347,055,604	)

(1) Time deposits with maturities longer than 90 days

(ii) Cash and cash equivalents includes all highly liquid debt instruments purchased with a maturity of three months or less:

	Year ended December 31,
	2000		2001		2002
	ThCh$		ThCh$		ThCh$
Cash		28,073,249		37,648,796		48,184,878
Time deposits		79,697,694		178,113,234		135,450,047
Marketable securities				198,248		1,543,290
Other current assets		12,264,761		1,867,323		25,836,618
Total cash and cash equivalents		120,035,704		217,827,601		211,014,833

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ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(iii) Additional disclosures required under U.S. GAAP are as follows:

	Year ended December 31,
	2000		2001		2002
	ThCh$		ThCh$		ThCh$
Interest paid during the year		381,782,050		405,238,393		455,550,047
Income taxes paid during the year		154,341,501		132,198,412		136,413,682
Assets acquired under capital leasing		2,314,164		238,590		—

(j) 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, 2001 and 2002 for which it is practicable to estimate that value:

•	Cash
	The fair value of the Company’s cash is equal to its carrying value.

•	Time deposits
	The fair value of time deposits approximates carrying value due to the relatively short-term nature.

•	Marketable securities
	The fair value of marketable securities is based on quoted market prices of the common stock held and approximates carrying value.

•	Long-term accounts receivable
	The fair value of long-term accounts receivable was estimated using the interest rates that are currently offered for loans with similar terms and remaining maturities.

•	Long-term debt
	The fair value of long-term debt was based on rates currently available to the Company for debt with similar terms and remaining maturities.

•	Derivative instruments
	Estimates of fair values of derivative instruments for which no quoted prices or secondary market exists have been made using valuation techniques such as forward pricing models, present value of estimated future cash flows, and other modeling techniques.  These estimates of fair value include assumptions made by the Company about market variables that may

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Notes to Consolidated Financial Statements - (Continued)

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:

	As of December 31,
	2001						2002
	Carrying amount			Fair Value			Carrying amount			Fair Value
	ThCh$			ThCh$			ThCh$			ThCh$
Cash		37,648,796			37,648,796			48,184,878			48,184,878
Time deposits		178,113,234			178,113,234			145,626,894			145,626,894
Marketable securities		203,072			203,072			1,543,290			1,543,290
Accounts receivable		550,248,992			550,248,992			458,839,724			458,839,724
Notes receivable, net		12,018,206			12,018,206			5,131,349			5,131,349
Other accounts receivable, net		65,885,843			65,885,843			62,776,096			62,776,096
Amounts due from related companies		188,687,370			188,687,370			196,297,002			196,297,002
Long-term accounts recievable		101,903,562			101,903,562			125,850,513			125,850,513
Accounts payable and other		(265,964,525	)		(265,964,525	)		(236,630,187	)		(236,630,187	)
Notes payable		(279,395,725	)		(279,395,725	)		(225,719,764	)		(225,719,764	)
long-term debt		(6,232,523,988	)		(6,191,284,245	)		(6,377,392,540	)		(6,342,731,573	)
Derivatives instruments		(79,982,358	)		130,385,292			128,686,537			128,686,537

(k) 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 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.

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Notes to Consolidated Financial Statements - (Continued)

The following is a summary of the Company’s adjustment to fair values for all identified derivative contracts at the date of implementation of SFAS No. 133 on January 1, 2001 and as the year-ended December 31, 2001 and 2002.

	As of January 1, 2001
	Distribution			Generation			Total
	ThCh$			ThCh$			ThCh$
Commodity derivatives		16,330,955			127,914,469			144,245,424
Embedded derivatives		25,266			(8,631,797	)		(8,606,531	)
Financial derivatives		(1,650,130	)		(3,776,374	)		(5,426,504	)
		14,706,091			115,506,298			130,212,389
Effects of minority interest		(7,947,755	)		(54,673,667	)		(62,621,422	)
Deferred tax effects		(5,185,287	)		(41,390,634	)		(46,575,921	)
Cumulative change in accounting principle		1,573,049			19,441,997			21,015,046

	As of December 31, 2001
	Distribution			Generation			Total
	ThCh$			ThCh$			ThCh$
Commodity derivatives		80,927,204			135,782,017			216,709,221
Embedded derivatives		(23,089,669	)		(3,876,022	)		(26,965,691	)
Financial derivatives		352,726			(19,026,564	)		(18,673,838	)
		58,190,261			112,879,431			171,069,692
Investment in related companies					39,297,958			39,297,958
Derivative instruments U.S.GAAP Shareholders equity adjustment		58,190,261			152,177,389			210,367,650

	As of December 31, 2002
	Distribution			Generation			Total
	ThCh$			ThCh$			ThCh$
Commodity derivatives		(11,240,489	)		218,474,062			207,233,573
Embedded derivatives		262,190			(12,209,854	)		(11,947,664	)
Financial derivatives		(28,432,901	)		(16,952,690	)		(45,385,591	)
		(39,411,200	)		189,311,518			149,900,318
Investment in related companies					7,649,226			7,649,226
Derivative instruments U.S.GAAP Shareholders equity adjustment		(39,411,200	)		196,960,744			157,549,544

F-132

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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) do not have a net settlement provision have has 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 as derivatives that under SFAS No.133.

The Company’s Argentine generation entities have access to the Brazilian energy market through an interconnection system between the two markets.  In order to calculate the fair values of the purchase and sale contracts related to the energy to be sold in the Brazilian market, the Argentine market prices were used.  The Company believes this is the best measure for fair value, because in the event that the Brazilian market prices are below the cost to produce the energy in Argentina, the Company will sell the energy in Argentina and purchase the energy from the spot market in Brazil.  Additionally, the interconnection line was established to sell energy generated in Argentina in the Brazilian market, as the Brazilian energy market heavily relies on hydro-electric generation and has historically had significant problems with meeting its energy needs economically due to lack of rainfall.

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

F-133

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

of these interconnection related contracts using the Argentine market prices has a significant effect on the Company’s net income and shareholder equity.

If Brazilian market prices had been used instead of Argentine prices estimated fair values of the related energy contracts a significantly different fair value would result.  The Company considers the Argentine prices to be the correct benchmark to value the fair value of the interconnection contracts because the Company does not have concessions to sell the Argentine generated energy in the Brazilian market to any parties other than those currently contracted.  Therefore the Company views the interconnection as an extension of the Argentine market and as a more appropriate measure of the fair value of energy.

Such values are included in the reconciliation to U.S. GAAP in paragraph (bb).

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 financia1 instrument and it requires payments denominated in either: (1) the functional currency of any substantial patty 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.

Financia1 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 financia1 instruments for trading or speculative purposes.

Net lnvestment 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

F-134

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

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 ll (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.

(l) 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.  The gain from the repurchase of Yankee bonds by Enersis S.A. and Endesa Chile S.A. included in non-operating income under Chilean GAAP would be presented as an extraordinary gain according to 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:

	Year ended December 31, 2000
	Chilean GAAP						U.S. GAAP
	ThCh$			ThCh$			ThCh$
Operating income		552,749,621			258,352,632			811,102,252
Non-operating expense, net		(169,411,441	)		(219,985,929	)		(389,397,370	)
Income taxes		(146,323,505	)		4,203,502			(142,120,003	)
Minority interest		(184,000,228	)		—			(184,000,228	)
Equity participation in income of related companies, net		—			76,753			76,753
Amortization of negative goodwill		42,646,957			(42,646,957	)		—
Net income		95,661,405			—			95,661,405

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Notes to Consolidated Financial Statements - (Continued)

	Year ended December 31, 2001
	Chilean GAAP						U.S. GAAP
	ThCh$			ThCh$			ThCh$
Operating income		754,543,767			(84,016,035	)		670,527,732
Non-operating expense, net		(498,001,278	)		109,936,884			(388,064,394	)
Income taxes		(136,687,539	)		8,116,807			(128,570,732	)
Minority interest		(125,152,619	)		—			(125,152,619	)
Equity participation in income of related companies, net		—			(10,698,797	)		(10,698,797	)
Amortization of negative goodwill		47,451,702			(47,451,702	)		0
Net income before extraordinary gain		42,154,033			(24,112,843	)		18,041,190
Extraordinary gain		—			24,112,843			24,112,843
Net income		42,154,033			—			42,154,033

	Year ended December 31, 2002
	Chilean GAAP						U.S. GAAP
	ThCh$			ThCh$			ThCh$
Operating income		532,644,361			(443,002,361	)		89,642,000
Non-operating expense, net		(796,530,156	)		540,598,729			(255,931,427	)
Income taxes		(66,016,985	)		(15,988,017	)		(82,005,002	)
Minority interest		16,282,559			—			16,282,559
Equity participation in income of related companies, net		—			8,263,783			8,263,783
Amortization of negative goodwill		112,247,774			(112,247,774	)		—
Net loss before extraordinary items		(201,372,447	)		(22,375,640	)		(223,748,087	)
Extraordinary items		(22,375,640	)		22,375,640			—
Net loss		(223,748,087	)		—			(223,748,087	)

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-136

ENERSIS S.A. AND SUBSIDIARIES

Notes to 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:

	Year ended December 31, 2001
	Chilean GAAP		Reclassification			U.S. GAAP
	ThCh$		ThCh$			ThCh$
Current assets		1,162,446,794		(211,305,194	)		951,141,600
Property, plant an equipment, net		9,625,049,659		27,262,972			9,652,312,631
Other assets		1,972,302,858		(52,706,143	)		1,919,596,715
Total assets		12,759,799,311		(236,748,365	)		12,523,050,946
Current liabilities		1,639,303,381		(110,607,126	)		1,528,696,255
Long-term liabilities		5,832,362,823		(126,141,239	)		5,706,221,584
Minority interest		4,073,571,128		—			4,073,571,128
Shareholders’s equity		1,214,561,979		—			1,214,561,979
Total liabilities and shareholders’ equity		12,759,799,311		(236,748,365	)		12,523,050,946

	Year ended December 31, 2002
	Chilean GAAP		Reclassification			U.S. GAAP
	ThCh$		ThCh$			ThCh$
Current assets		1,223,963,114		(84,691,477	)		1,139,271,637
Property, plant an equipment, net		9,879,458,183		23,804,228			9,903,262,411
Other assets		1,517,743,379		(24,600,329	)		1,493,143,050
Total assets		12,621,164,676		(85,487,578	)		12,535,677,098
Current liabilities		2,151,373,249		(28,554,145	)		2,122,819,104
Long-term liabilities		5,413,608,412		(56,933,433	)		5,356,674,979
Minority interest		4,050,602,721					4,050,602,721
Shareholders’s equity		1,005,580,294					1,005,580,294
Total liabilities and shareholders’ equity		12,621,164,676		(85,487,578	)		12,535,677,098

(m) 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

F-137

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

rate of 9.5% for the years ended December 31,1999,2000 and 2001, 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 Worker’s compensation insurance in prior years for work related accidents receive benefits from the Company as such insurance has expired.  This benefit continues at the time of death of the pensioner, to cover the surviving-spouse.

The Company has recognized liabilities related to complementary pension plan benefits and other 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 financia1 statement presentation.  The effects of accounting for post-retirement benefits under U.S. GAAP have been presented in paragraph (bb), above.  The following data are presented under U.S. GAAP for Company’s post-retirement benefit plans.

F-138

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

	Pension Benefits						Other Benefits
	2001			2002			2001			2002
		ThCh$			ThCh$			ThCh$			ThCh$
Changes in benefit (obligations)
Benefit (obligations) at January 1		(127,276,623	)		(158,318,450	)		(5,630,758	)		(18,790,555	)
Price-level restatement		3,826,939			4,141,331			136,056			468,722
Foreign exchange effect		(15,743,272	)		(2,514,206	)		—
Net periodic expense		(14,783,599	)		(13,649,465	)		(12,326,341	)		(18,982,900	)
Benefits paid		1,130,278			14,647,166			906,077			(170,245	)
Company contributions		8,250,286			32,554,873			—			4,029,429
Benefit (obligations) at December 31		(144,595,992	)		(123,138,751	)		(16,914,966	)		(33,445,549	)
Funded Status of the Plans
Proyected Benefit Obligation		(224,243,937	)		(208,863,000	)		(19,442,624	)		(33,293,198	)
Fair value of the plan’s assets		93,527,895			93,196,829
Funded Status		(130,716,041	)		(115,666,171	)		(19,442,624	)		(33,293,198	)
Unrecognized loss		(30,531,801	)		(17,138,790	)		—			(13,056,708	)
Unrecognized net transition obligation		16,651,850			9,666,203			2,527,658			12,904,357
Net liability recorded under U.S. GAAP		(144,595,992	)		(123,138,758	)		(16,914,966	)		(33,445,549	)
Adjustment required to reflect minimum liability:
Additional minimum liability		(291,282	)		(2,299,601	)
Intangible asset		291,282			2,299,601
Balance of additional liability		—			—

Change in the plan assets	Pension Benefits 2002
	ThCh$
Fair value of plans assets, January 1		86,445,632
Foreign exchange effect		(19,338,142	)
Actual return on the plan assets		28,063,671
Employer contributions		13,665,577
Plan participant contributions		4,110,398
Benefits paid		(19,750,307	)
Fair value of plans assets, December 31		93,196,829

F-139

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

	Pension Benefits									Other Benefits
Assumptions as of December 31	2000			2001			2002			2000			2001			2002
	ThCh$			ThCh$			ThCh$			ThCh$			ThCh$			ThCh$
Discount rate		15.0	%		12.2	%		12.97	%		9.5	%		11.8	%		11	%
Salary increase		9.6	%		7.0	%		6.86	%		—			—			—
Return on plan assets		10.4	%		10.4	%		10.96	%		—			—			—
Components of net periodic
Benefits expenses
Service cost		(748,873	)		(697,719	)		(905,752	)		1,272,083			(11,129,179	)		(4,407,258	)
Interest cost		(16,106,429	)		(23,595,153	)		(13,605,434	)		(716,812	)		(986,524	)		(2,586,994	)
Expected return on assets		1,026,865			15,826,320			6,541,907			—			—
Amortization gain (loss)		6,101,489			(3,838,806	)		(4,040,437	)		—			—			(10,120,907	)
Amortization of transition asset		(1,482,653	)		(2,478,241	)		(1,639,750	)		217,167			(210,638	)		(1,867,741	)
Net periodic expenses		(11,209,601	)		(14,783,599	)		(13,649,466	)		772,438			(12,326,341	)		(18,982,900	)

(n) 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, 2000, 2001 and 2002 (in thousands of constant Chilean pesos as of December 31,2002).

	2000
	Chilean GAAP cumulative translation adjustment		Effect of U.S. GAAP adjustments on cumulative translation adjustment			Accumulated other comprehensive income (loss)
	ThCh$		ThCh$			ThCh$
Beginning balance		8,454,732		4,135,642			12,590,374
Credit (charge) for the period		1,336,996		(4,410,079	)		(3,073,083	)
Ending balance		9,791,728		(274,437	)		9,517,291

	2001
	Chilean GAAP cumulative translation adjustment		Effect of U.S. GAAP adjustments on cumulative translation adjustment			Accumulated other comprehensive income (loss)
	ThCh$		ThCh$			ThCh$
Beginning balance		9,791,728		(274,437	)		9,517,291
Credit (charge) for the period		19,459,327		(3,494,199	)		15,965,128
Ending balance		29,251,055		(3,768,636	)		25,482,419

F-140

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

	2002
	Chilean GAAP cumulative translation adjustment		Effect of U.S. GAAP adjustments on cumulative translation adjustment			Accumulated other comprehensive income (loss)
	ThCh$		ThCh$			ThCh$
Beginning balance		29,251,055		(3,768,636	)		25,482,419
Credit (charge) for the period		20,596,914		(12,536,493	)		8,060,421
Ending balance		49,847,969		(16,305,129	)		33,542,840

(o) 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-141

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

The net sales from discontinued operations for the years 2000, 2001 and 2002 were ThCh$15,081,812, 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,
	2001		2002
	ThCh$		ThCh$
Assets:
Cash		543,989		190,065
Account receivable, net		7,276,944		14,769,412
Other current assets		2,556,811		35,355,119
Property, plant and equipment, net		177,536,030		168,496,330
Intangibles		21,445		34,420
Other assets		2,517,470		18,055,721
Total assets of discontinued operations		190,452,689		236,901,067
Liabilities:
Current liabilities		122,970,123		74,178,107
Long term liabilities		2,621,183		97,156,269
Income taxes payable (including deferred)		536,942		835,078
Minority interest		734,927		729,136
Total liabilities and minority interest of discontinued operations		126,863,175		172,898,590

The major classes of consolidated revenues and expenses included in the Chilean GAAP Enersis consolidated Income Statement are as follows:

	As of December 31,
	2000			2001			2002
	ThCh$			ThCh$			ThCh$
Sales		15,081,812			20,150,123			20,202,007
Costs of sales		(8,689,379	)		(10,457,778	)		(9,961,732	)
Gross profit		6,392,433			9,692,345			10,240,275
Administrative and selling expenses		(985,710	)		(1,291,432	)		(1,309,638	)
Operating income		5,406,723			8,400,913			8,930,637
Non operating (loss) income		(4,836,751	)		(7,003,803	)		(7,501,002	)
Income before taxes and minority interest		569,972			1,397,110			1,429,635
Income tax		155,745			(605,137	)		(972,455	)
Minority interest		(465,717	)		(507,563	)		(292,061	)
Net income for the year		260,000			284,410			165,119

F-142

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(p) Goodwill and intangible assets

As discussed in 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.  Upon adoption of SFAS 142 in 2002, the Company has 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 were 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, by country of operation is as follows:

	Goodwill
	January 1, 2002 (1)		Acquisitions		Translation adjustment		Impairment			December 31, 2002
	ThCh$		ThCh$		ThCh$		ThCh$			ThCh$
Chile		998,343,122		3,333,940		—		(1,713,130	)		999,963,932
Argentina		83,196,029		—		6,624,271		(89,820,300	)		—
Brazil		482,974,835		—		25,871,748		(508,846,583	)		—
Colombia		60,415,564		—		2,225,133		—			62,640,697
Peru		19,993,731		—		1,309,513		—			21,303,244
Total		1,644,923,281		3,333,940		36,030,665		(600,380,013	)		1,083,907,873

(1) In thousands of constant Chilean pesos as of December 31, 2002, using exchange rate of Ch$ 718,61 per US$

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-143

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(q) Recent accounting pronouncements

In January 2003, the Chilean Association of Accountants issued Technical Bulletin No. 72, “Combinación de Negocios Inversiones Permanentes y Consolidación de Estados Financieros”. This standard complements or replaces existing accounting literature for business combinations under Chilean GAAP, and requires all acquisitions initiated after January 1, 2003 to be accounted for using the purchase method based on fair values of assets acquired and liabilities assumed. In addition, in exceptional cases, the pooling-of-interest method may be used in reorganizations between related parties or for those transactions, where there is no clear acquirer. Technical Bulletin No. 72 continues to require the amortization of goodwill, and specifies the requirement for an impairment test. Notwithstanding any future transactions, the adoption of Technical Bulletin No. 72 is not expected to have a significant effect on the results of operations, financial position or cash flows of the Company.

In June 2001 the Financia1 Accounting Standards Board issued Statement of Financia1 Accounting Standards No. 143, “Accounting for Asset Retirement Obligations” (“SFAS No. 143”).  This standard requires that obligations associated with the retirement of tangible long-lived assets be recorded as liabilities when those obligations are incurred, with the amount of the liability initially measured at fair value.  Upon initially recognizing a liability for an asset retirement obligation, an entity must capitalize the cost by recognizing an increase in the carrying amount of the related long-lived asset.  Over time, this liability is accreted to its present value, and the capitalized cost is depreciated over the useful life of the related asset.  Upon settlement of the liability, an entity either settles the obligation for its recorded amount or incurs a gain or loss upon settlement.  If the Company reported in accordance with U.S. GAAP, the Company would be required to adopt SFAS No. 143 effective January 1, 2003.  The Company expects that the adoption of this statement will not result in a significant difference between Chilean GAAP and US GAAP in future periods, however the Company is still assessing the impact.

In April 2002, the FASB issued Statement of Financia1 Accounting Standards No. 145, “Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections”.  This statement rescinds FASB Statement No. 4, “Reporting Gains and Losses from Extinguishments of Debt”, and an amendment of that Statement, Statement No. 64, “Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements”  This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions.  The provisions of SFAS 145 related to the rescission of SFAS No. 4 shall be applied in fiscal years beginning after May 15, 2002, although early application is encouraged.  Any gain or loss on extinguishments of debt that was classified as an extraordinary item in prior periods presented that does not meet the criteria in APB Opinion 30, “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions” for classification as an extraordinary item shall be reclassified.  Debt extinguishments used as part of an entity’s risk management strategy represent one example of debt extinguishments that do not meet the criteria for classification as extraordinary items in APB Opinion No. 30.  The Company will apply SFAS 145 beginning January 1, 2003.  The Company’s application of SFAS 145 will require the reclassification of the extraordinary gain on early retirement of Yankee bonds of

F-144

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

ThCh$23,410,527 (as presented in Note 34 l(l) to other non-operating income, so upon application there will be no presentational difference between Chile and U.S. GAAP for the early extinguishments of debt.

In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, “Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred, not when it is “planned”. The Company is required to adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 and does not expect the adoption to have a material impact on the Company’s results of operations or financial position.

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement N°149 (SFAS N°149), Amendment of Statement 133 on Derivative Instruments and Hedging Activities.  FAS N° 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS N°133.  SFAS N°149 is applied prospectively and is effective for contracts entered into or modified after June 30, 2003, except for SFAS N°133 implementation issues that have been effective for fiscal quarters that began prior to June 15, 2003, and certain provisions relating to forward purchases or sales of when-issued securities or other securities that do not yet exist.  Enersis is evaluating the effect, if any, that SFAS N°149 will have on its results of operating its financial position and its cash flows.

In June, 2003, the Financial Accounting Standards Board (“FASB”)issued Statement  of Financial Accounting Standards No. 150 (“SFAS No. 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.”  This Statement clarifies classification and measurement of certain financial instruments with characteristics of both liabilities and equity.  It requires classification of financial instruments within a company’s scope as liabilities.  Such financial instruments may include mandatorily redeemable shares, financial instruments which embody an obligation to repurchase shares or require issuer to settle the obligation by transferring assets, or financial instruments that embody an unconditional obligation, or, in certain circumstances, an unconditional obligation.  The Company believes that the adoption of this pronouncement will not have an impact on its statements of financial condition, its statements of operations or cash flows. 

In January, 2003, Emerging Issues Task Force (“EITF”) 00-21, “Revenue Arrangements with Multiple Deliverables,” was issued , which is applicable for all revenue arrangements of this nature entered into after June 15, 2003.  This EITF applies to all deliverables within contractually binding arrangements in all industries in which a vendor will perform multiple revenue-generating activities with certain exceptions.  The application guidance contains guidance on 1) how these arrangements should be measured; 2) whether the arrangement should be divided into separate units of accounting, and 3) how the arrangement consideration should be allocated among the separate units of accounting.  The Company believes that the issuance of this EITF will have no impact on its statements of financial condition, its statements of operations or cash flows.

F-145

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”  (FIN 45). The Interpretation will significantly change current practice in the accounting for, and disclosure of, guarantees. In general, the Interpretation applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. Guarantees meeting the characteristics described in the Interpretation, are required to be initially recorded at fair value, which is different from the general current practice of recording a liability only when a loss is probable and reasonably estimable, as those terms are defined in FASB Statement No. 5, “Accounting for Contingencies”. The Interpretation also requires a guarantor to make significant new disclosures for virtually all guarantees even when the likelihood of the guarantor’s having to make payments under the guarantee is remote. The Interpretation’s disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Interpretation’s initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, irrespective of the guarantor’s fiscal year-end. The Company has implemented FIN 45 during December 31, 2002, noting no adjustments to US GAAP were necessary as the fair values of all direct and indirect guarantees were zero, see Note 28 for a detail of the Company’s guarantees.

In January 2003, the FASB issued Interpretation No. 46, “Consolidation of Variable Interest Entities-an interpretation of ARB 51,” to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity.  Many variable interest entities have commonly been referred to as special-purpose entities or off-balance sheet structures, but the guidance applies to a larger population of entities.  In general, a variable interest entity is a corporation, partnership, trust, or any other legal structure used for business purposes that either (a) does not have equity investors with voting rights or (b) has equity investors that do not provide sufficient financial resources for the entity to support its activities. The Company must apply Interpretation No. 46 immediately to variable interest entities created after January 31, 2003 and apply it to existing variable interest entities in the first fiscal year or interim period beginning after June 15, 2003.  The Company does not expect the interpretation to have a material impact on the Company’s results of operation or financial position.

(r Subsequent events

(1) During January 2003, the governor of the State of Paraná in Brazil suspended payment and announced its intention to cancel or renegotiate the long-term energy contracts between Copel and Endesa-Chile’s equity method investment, CIEN.  The 20-year long-term contracts were negotiated during almost two years of negotiations and aim to relieve the energy-suppy shortages in Brazil, and were complied with through December 31, 2002.  An investment of more than US$700 million was made to build the Interconnection-line between Brazil and Argentina.  During 2002, approximately R$1.2 billion (or approximately US$340 million) of energy was sold by CIEN to Copel through the long-term energy contracts.  CIEN has notified the Ministry of Mines and Energy and the Electric Energy Regulatory Agency (“ANEEL”) of Copel’s default. CIEN has 20-year long-term energy purchase commitments in Argentina to satisfy the supply contracts with Copel.  Additionally, the estimated fair value of these long-

F-146

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

	term energy contracts with Copel was US$350 million as of December 31, 2002, and any changes or cancellation of the contracts would likely have a material impact in the Company’s consolidated net income and shareholders’ equity.
(2)	On March 28, 2003, Enersis announced that the board of directors awarded the sale of its 98.7% equity stake in Río Maipo to CGE Distribución S.A. for US$ 203 million.  Enersis’ shareholders approved the sale of Río Maipo at a March 31, 2003 Extraordinary Shareholders’ Meeting. Enersis estimates that the sale of Río Maipo will contribute US$ 126 million before taxes to its income statement for the year ended December 31, 2003, and expects to apply the proceeds of this sale to reduce its debt. On April 30, 2003, Río Maipo was sold for US$ 203 million, including US$ 33 million in debt.
(3)	On March 31, 2003, at an Extraordinary Shareholders’ Meeting, Enersis’ management approved a capital increase for the equivalent of up to US$ 2 billion.  The capital increase, which commenced on May 31, 2003, already allowed for the capitalization of all of Endesa-Spain’s loan to Enersis (with a face value of approximately US$ 1.37 billion), and will allow the capitalization of Enersis’ local bonds (with a face value of approximately US$ 151 million), as well as the subscription of shares for cash.  All existing shareholders, other than Endesa-Spain, will have two pre-emptive rights periods in which they are allowed to subscribe their pro rata equity shares, or sell their rights in the market.  Endesa-Spain exercised its rights on June 2, 2003, and has voluntarily excluded itself from the second pre-emptive rights period.  The new shares to be offered in the capital increase will not be registered with the Securities and Exchange Commission (the “SEC”), and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the U.S. Securities Act of 1933, as amended.  Enersis’ shareholders approved the removal of the 65% maximum limit that a single shareholder was permitted to own in Enersis.
(4)	In April 2003, CELG initiated legal proceedings against Cachoeira Dourada and ANEEL demanding the annulment of the energy sale contract signed with Cachoeira Dourada in 1998, alleging, among other things, that the contract is extremely onerous and damaging to the financial stability of CELG, causing it supposed damages of approximately US$ 250 million from 1997 to 2003.
	CELG obtained a preliminary and provisional judgment that suspends the effects of the contract and authorizes CELG to stop payments, also provisionally, of the amounts contractually due to Cachoeira Dourada which correspond to the energy sale price.
	Both Cachoeira Dourada and ANEEL presented their defenses and legal argument against the decision to suspend the contract.  All parties are waiting for the judge to decide whether or not to confirm the preliminary decision of suspending the effects of the contract.  Should the judge confirm the decision to suspend the effects of the contract, Cachoeira Dourada and ANEEL will have the opportunity to appeal to an appropriate authority.
	Both Cachoeira Dourada and its lawyers believe that there is a high probability of obtaining a favorable final decision.

F-147

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

(5)	On April 8, 2003 Endesa Chile (Enersis Subsidiary) sold 285 kilometers of 220 kV transmission lines to Transelec for US$ 32 million (approximately ThCh$ 22,400,000). The carrying value of net assets under Chilean GAAP sold amounted to ThCh$21,562,962 as of December 31, 2002.  Additionally, GasAtacama Generación Limitada, of which Endesa Chile has a 50% participation, sold 673 kilometers of 220 kV line transmission lines for approximately US$ 78 million (ThCh$54,600,000 approximately). The carrying value of net assets under Chilean GAAP sold amounted to ThCh$53,458,465 as of December 31, 2002.  In both cases, the transaction included the transfer of the respective substations.
(6)	On April 25, 2003, Enersis, Endesa-Chile, Enersis Internacional, Chilectra Internacional, and Chilectra filed an action before the Centro Internacional de Arreglo de Diferencias relativas a Inversiones (“CIADI”) in Washington, D.C., requesting an arbitration for resolving a dispute with the Republic of Argentina.  The grounds of this action are the damages suffered by the investments of Enersis and our subsidiaries in Argentina, as a consequence of the approval of Economic Emergency Law, Decree N°214/2002, Decree N°293/2002 and Resolution N°38/2002 of the Ministry of Economy.  The outcome of these new rules has been a complete new legal framework for the Argentine investments of Enersis and its subsidiaries, which originally date back to September 1992.  The original commitments assumed by the Republic of Argentina regarding these investments have not been met.  The arbitration action argues that the Republic of Argentina’s failure to comply with its commitments in relation to our investments by the part of the Republic of Argentina is against the letter and the spirit of the Treaty.
(7)	On April 30, 2003 Endesa Chile (Enersis Subsidiary) sold Canutillar Plant to Cenelca S.A. for US$ 174 million (approximately ThCh$121,800,000). The carrying value of net assets sold under Chilean GAAP amounted to ThCh$ 125,925,381 as of December 31, 2002 and its installed capacity was 172 MW.
(8)	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.  Its interest in Coelce in Brazil was also indirectly increased, through Cerj, from 12.8% to 14.4%. Chilectra also owns a 9.9% interest in Codensa in Colombia and a 15.6% interest in Edelnor in Peru.
(9)	On May 15, 2003, Enersis and Endesa-Chile refinanced US$ 2.33 billion in syndicated loans and bilateral credit agreements structured as:
	•	a US$ 200 million Senior Secured Syndicated Term Loan Facility for Enersis and a US$ 1,388 billion Senior Secured Syndication Term Loan Facility for Enersis, acting through its Cayman Islands Branch (the “Enersis Facility”) each for five years; and
	•	a US$ 743 million Senior Guaranteed Syndicated Term Loan Facility for Endesa-Chile, acting through its Cayman Islands Branch (the “Endesa-Chile Facility”, and together with the Enersis Facility, the “Facilities”).

F-148

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Continued)

The refinancing of bank obligations with the Facilities has allowed Enersis and Endesa-Chile to: (a) make payments for the bond maturities and put option coming due in 2003 for a total of US$ 701 million, (b) lengthen the maturity profile of our debt, (c) allow a greater period of time before amortizing principal payments on our debt and (d) provide better conditions for the planned capital increase process.

The following table shows the effects that would have been recognized under Chilean GAAP from the refinancing of liabilities mentioned before.

	As of December 31, 2002
	Before refinancing		After refinancing
	ThCh$		ThCh$
CURRENT LIABILITIES:
Short-term debt due to banks and financial institutions		425,049,260		384,736,676
Current portion of long-term debt due to banks and financial institutions		605,261,953		226,914,211
Other current liabilities		1,121,062,036		1,121,062,036
Total current liabilities		2,151,373,249		1,732,712,923
LONG-TERM LIABILITIES:
Due to banks and financial institutions		1,691,338,670		2,109,998,996
Other long-term liabilities		3,722,269,742		3,722,269,742
Total long-term liabilities		5,413,608,412		5,832,268,738

(10)

On May 15, 2003 the Supreme Court of Chile made its final verdict as a consequence of an appeal against Resolution No. 667, ruling in favor of Enersis and confirming Resolution No. 667 from Comisión Resolutiva.

On May 28, 2003, a private complaint against Enersis was filed with the Comisión Resolutiva alleging that Enersis has failed to comply with Resolution No. 667 since Enersis, Endesa-Chile and Chilectra have supposedly shared finance, auditing and communication departments.  The complaint alleges that by joining these departments, Enersis is frustrating the Comisión Resolutiva’s objective of preventing energy companies from sharing essential information and keeping the electricity business of generation and distribution independent.  Enersis believes that the Comisión Resolutiva’s investigation will not lead to a prohibition of Enersis’s control over the energy distribution and generation markets, because we believe this matter was clearly resolved by Resolution No.667.

F-149

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Concluded)

(11)

The Sixth Civil Court of Santiago recently issued its ruling in relation to a lawsuit opposing the Ralco Project filed by a group of people belonging to the Pehuenche ethnic group.  The lower court’s sentence concludes that the voluntary procedure undertaken by Endesa-Chile for the assessment of the environmental impact of the Ralco Project is null since, in the court’s opinion, CONAMA, the Environmental Government Agency, was not legally entitled to assess the environmental impact study presented by the Company to CONAMA.  Both defendants, the Company and CONAMA, consider this questioning of the legitimacy of the process is unjustified.  The resolution dictated by the Sixth Civil Court of Santiago does not imply the penalization of the project, which to date has achieved more than 80% completion.

On May 30, 2003, the plaintiffs requested the suspension of the Ralco Project, which was rejected by the court.  Instead, of suspending the entire project, the judge ruled that the flooding of the dam should not proceed.  Endesa plans to appeal this ruling before the Appeals Court of Santiago.

F-150

ENERSIS S.A. AND SUBSIDIARIES

Notes to Consolidated Financial Statements - (Concluded)

Schedule II – Valuation and Qualifying Accounts

	Balance at beginning of period		Additions charged to costs and expenses		Deductions			Others			Balance at end of period
	ThCh$		ThCh$		ThCh$			ThCh$			ThCh$
December 31, 2000
Allowance for doubtful accounts receivable		78,303,154		64,414,380		(10,600,402	)		(10,783,848	)		121,333,284
December 31, 2001
Allowance for doubtful accounts receivable		121,333,284		42,858,379		(6,340,092	)		(11,474,437	)		146,377,134
December 31, 2002
Allowance for doubtful accounts receivable		146,377,134		18,798,815		(1,297,010	)		(48,529,408	)		115,349,531

F-151

Item 19. Exhibits

Exhibit	Description
1.1	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 Interocean Development Inc. (Spanish version) (incorporated by reference to Exhibit 10.1 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 Interocean Development Inc. (English version) (incorporated by reference to Exhibit 10.2 of our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June 30, 2000).
4.3	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).
4.4	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).
4.5	Assignment of Rights Contract, dated June 25, 1999, between Endesa Internacional S.A. and Empresa Eléctrica de Panamá S.A. (Spanish version) (incorporated by reference to Exhibit 10.5 of our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June 30, 2000).
4.6	Assignment of Rights Contract, dated June 25, 1999, between Endesa Internacional S.A. and Empresa Eléctrica de Panamá S.A. (English version) (incorporated by reference to Exhibit 10.6 of our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June 30, 2000).
4.7	Credit Agreement among ENERSIS S.A, Banco Bilbao Vizcaya Argentaria, S.A., Citigroup Global Markets Inc., Dresdner Kleinwort Wasserstein Securities LLC, Santander Central Hispano Investment Securities Inc., various lenders and Citibank N.A., as administrative agent, dated May 12, 2003.
8.1	List of Subsidiaries.

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.

147

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/ ENRIQUE GARCÍA
		Name:   Enrique García
		Title:     Chief Executive Officer
Date:  June 30, 2003

148

I, Enrique García, certify that:

1.    I have reviewed this annual report on Form 20-F of ENERSIS S.A.;

2.    Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.    Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.    The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)    designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)    evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

(c)    presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.    The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.    The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	By:	/s/ ENRIQUE GARCÍA
		Name:   Enrique García
		Title:    Chief Executive Officer
Date:  June 30, 2003

149

I, Mario Valcarce, certify that:

1.    I have reviewed this annual report on Form 20-F of ENERSIS S.A.;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

(a)     designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

(b)     evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

(c)     presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

(a)     all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

(b)     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officer and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

	By:	/s/ MARIO VALCARCE
		Name:   Mario Valcarce
		Title:    Chief Financial Officer
Date:  June 30, 2003

150

EXHIBIT INDEX

Exhibit	Description
1.1	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 Interocean Development Inc. (Spanish version) (incorporated by reference to Exhibit 10.1 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 Interocean Development Inc. (English version) (incorporated by reference to Exhibit 10.2 of our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June 30, 2000).
4.3	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).
4.4	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).
4.5	Assignment of Rights Contract, dated June 25, 1999, between Endesa Internacional S.A. and Empresa Eléctrica de Panamá S.A. (Spanish version) (incorporated by reference to Exhibit 10.5 of our Annual eport on Form 20-F filed with the Securities and Exchange Commission on June 30, 2000).
4.6	Assignment of Rights Contract, dated June 25, 1999, between Endesa Internacional S.A. and Empresa Eléctrica de Panamá S.A. (English version) (incorporated by reference to Exhibit 10.6 of our Annual Report on Form 20-F filed with the Securities and Exchange Commission on June 30, 2000).
4.7	Credit Agreement among ENERSIS S.A, Banco Bilbao Vizcaya Argentaria, S.A., Citigroup Global Markets Inc., Dresdner Kleinwort Wasserstein Securities LLC, Santander Central Hispano Investment Securities Inc., various lenders and Citibank N.A., as administrative agent, dated May 12, 2003.
8.1	List of Subsidiaries.

     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.

EX-1.1

                                                                     EXHIBIT 1.1

                             ESTATUTOS ENERSIS S.A.


TITULO I
                      Nombre, Domicilio, Duracion y Objeto


Articulo Primero: Se establece una Sociedad Anonima que se denominara "ENERSIS
S.A.", la que se regira por los presentes Estatutos y, en el silencio de estos,
por las normas legales y reglamentarias que se aplican a este tipo de
Sociedades.

Articulo Segundo: El domicilio de la Sociedad sera la ciudad de Santiago,
pudiendo establecer agencias o sucursales en otros puntos del pais o en el
extranjero.

Articulo Tercero:  La duracion de la Sociedad sera indefinida.

Articulo Cuarto: La Sociedad tendra como objeto realizar, en el pais o en el
extranjero, la exploracion, desarrollo, operacion, generacion, distribucion,
transmision, transformacion y/o venta de energia en cualquiera de sus formas o
naturaleza, directamente o por intermedio de otras empresas, como asimismo,
actividades en telecomunicaciones y la prestacion de asesoramiento de
ingenieria, en el pais y en el extranjero. Tendra tambien como objeto invertir y
administrar su inversion en sociedades filiales y coligadas, que sean
generadoras, transmisoras, distribuidoras o comercializadoras de energia
electrica o cuyo giro corresponda a cualesquiera de los siguientes: (i) la
energia en cualquiera de sus formas o naturaleza, (ii) al suministro de
servicios publicos o que tengan como insumo principal la energia, (iii) las
telecomunicaciones e informatica, y (iv) negocios de intermediacion a traves de
Internet. En el cumplimiento de su objeto principal la Compania desarrollara las
siguientes funciones:

a) Promover, organizar, constituir, modificar, disolver o liquidar sociedades de
cualquier naturaleza, cuyo objeto social sea relacionado a los de la Compania.

b) Proponer a sus empresas filiales las politicas de inversiones, financiamiento
y comerciales, asi como los sistemas y criterios contables a que estas deberan
cenirse.

c) Supervisar la gestion de sus empresas filiales.



       d) Prestar a sus empresas filiales o coligadas los recursos financieros
       necesarios para el desarrollo de sus negocios y, ademas, prestar a sus
       empresas filiales servicios gerenciales; de asesoria financiera,
       comercial, tecnica y legal; de auditoria y, en general, los servicios de
       cualquier indole que aparezcan como necesarios para su mejor desempeno.


Ademas de su objeto principal y actuando siempre dentro de los limites que
determine la Politica de Inversiones y Financiamiento aprobada en Junta General
de Accionistas, la Sociedad podra invertir en:

Primero. La adquisicion, explotacion, construccion, arrendamiento,
administracion, intermediacion, comercializacion y enajenacion de toda clase de
bienes muebles e inmuebles, sea directamente o a traves de sociedades filiales o
coligadas.

Segundo. Toda clase de activos financieros, incluyendo acciones, bonos y
debentures, efectos de comercio y, en general, toda clase de titulos o valores
mobiliarios y aportes a sociedades, sea directamente o a traves de sociedades
filiales o coligadas.


                                    TITULO II
Capital y Acciones


"Articulo Quinto: El capital de la sociedad es la suma de dos billones
doscientos veinticuatro mil cuatrocientos treinta y tres millones seiscientos un
mil cuatrocientos noventa y seis pesos, dividido en treinta y dos mil
seiscientos setenta y cuatro millones catorce mil quinientas ochenta y ocho
acciones nominativas, todas ellas de una sola serie y sin valor nominal, el que
se entera y paga en la forma senalada en el articulo segundo transitorio"

Articulo Sexto: Las acciones seran nominativas y su suscripcion debera constar
por escrito en la forma que determinen las disposiciones legales y
reglamentarias vigentes. Su transferencia y transmision se hara de conformidad a
dichas disposiciones. El pago de las acciones suscritas podra ser en dinero o en
otros bienes sean estos corporales o incorporales.

Articulo Septimo: La Sociedad no reconocera fracciones de accion. En el caso que
una o mas acciones pertenezcan en comun a varias personas, los coduenos estaran
obligados a designar un apoderado de todos ellos para actuar ante la Sociedad.


                                       2


Articulo Octavo: Los saldos insolutos de las acciones suscritas y no pagadas,
seran reajustados en la misma proporcion en que varie el valor de la Unidad de
Fomento.

Articulo Noveno: Los accionistas solo son responsables del pago de sus acciones
y no estan obligados a devolver a la caja social las cantidades que hubieren
percibido a titulo de beneficio. En caso de transferencia de acciones suscritas
y no pagadas, el cedente respondera solidariamente con el cesionario del pago de
su valor, debiendo constar en el titulo las condiciones de pago de la accion.

Articulo Decimo: Los pactos particulares entre accionistas relativos a cesion de
acciones, deberan ser depositados en la Compania a disposicion de los demas
accionistas y terceros interesados y se hara referencia a ello en el Registro de
Accionistas. Si asi no se hiciere, tales pactos se tendran por no escritos.

Articulo Decimo Primero: El Registro de Accionistas, las menciones que deben
tener los titulos de acciones y el procedimiento en caso de perdida o extravios
de titulos, debera cumplir con las normas legales y reglamentarias pertinentes.


                                   TITULO III
                              De la Administracion


Articulo Decimo Segundo: La Sociedad sera administrada por un Directorio
compuesto por 7 miembros reelegibles que podran o no ser accionistas de la
Sociedad.

Articulo Decimo Tercero: Los miembros del Directorio seran elegidos por la Junta
General Ordinaria de Accionistas. El Directorio durara un periodo de tres anos,
al final del cual debera renovarse totalmente o reelegirse.

Articulo Decimo Cuarto: Las reuniones de Directorio se constituiran con la
mayoria absoluta del numero de Directores y los acuerdos se adoptaran por la
mayoria absoluta de los Directores asistentes con derecho a voto. En caso de
empate, decidira el voto del que presida la sesion.


                                       3


Articulo Decimo Quinto: El Directorio debera reunirse a lo menos una vez al mes
y en cada oportunidad que los intereses sociales asi lo requieran. Habra
sesiones ordinarias y extraordinarias. Las primeras se celebraran en las fechas
preestablecidas por el propio Directorio. Las segundas, cuando las cite
especialmente el Presidente, por si, o a peticion de uno o mas Directores. En
las sesiones extraordinarias, solo podran tratarse aquellos asuntos que
especificamente se senalen en la convocatoria. En la primera sesion que celebre,
despues de su designacion por la Junta General Ordinaria de Accionistas, el
Directorio debera elegir de entre sus miembros a un Presidente y a un
Vicepresidente que reemplazara a este en caso de ausencia.

Articulo Decimo Sexto: Los Directores seran remunerados. El monto de la
remuneracion sera fijado anualmente por la Junta Ordinaria de Accionistas. El
Presidente tendra derecho al doble de lo que corresponda percibir a cada
Director.

Articulo Decimo Septimo: El Directorio de la Sociedad la representa judicial y
extrajudicialmente y para el cumplimiento del objeto social, lo que no sera
necesario acreditar a terceros, esta investido de todas las facultades de
administracion y disposicion que la Ley o el Estatuto no establezcan como
privativas de la Junta General de Accionistas, sin que sea necesario otorgarle
poder especial alguno, inclusive para aquellos actos o contratos respecto de los
cuales las leyes exijan esta circunstancia. Lo anterior no obsta a la
representacion que compete al Gerente General. El Directorio podra delegar parte
de sus facultades en el Gerente General, Gerentes y Abogados de la Sociedad, en
un Director o en una Comision de Directores y, para objetos especialmente
determinados, en otras personas.

Articulo Decimo Octavo: La Sociedad tendra un Gerente General, que sera
designado por el Directorio y estara premunido de todas las facultades propias
de un factor de comercio y de todas aquellas que expresamente le otorgue el
Directorio. El cargo de Gerente General es incompatible con el de Presidente,
Director, Auditor o Contador de la Sociedad.


                                    TITULO IV
                                  De las Juntas

Articulo Decimo Noveno: Los accionistas se reuniran en Juntas Ordinarias y
Extraordinarias. Las primeras se celebraran una vez al ano dentro del
cuatrimestre siguiente al Balance General para decidir respecto de las materias
propias de su conocimiento sin que sea necesario senalarlas en la respectiva
citacion. Las segundas podran celebrarse en cualquier tiempo, cuando asi lo
exijan las necesidades sociales, para decidir respecto de cualquier materia que
la Ley o estos Estatutos entreguen al conocimiento de las Juntas de Accionistas
y siempre que tales materias se senalen en la citacion correspondiente. Las
citaciones a Juntas Ordinarias y Extraordinarias no seran necesarias cuando en
la respectiva Asamblea este representada el total de las acciones validamente
emitidas. Cuando una Junta Extraordinaria deba pronunciarse sobre materias
propias de una Junta Ordinaria, su funcionamiento y acuerdo se sujetaran, en lo
pertinente, a los quorum aplicables a esta ultima clase de Junta.


                                       4


Articulo Vigesimo: Son materia de Junta Ordinaria: Uno) El examen de la
situacion de la Sociedad y de los informes de los inspectores de cuentas y
auditores externos y la aprobacion o rechazo de la memoria, del balance, de los
estados y demostraciones financieras presentados por los administradores o
liquidadores de la Sociedad; Dos) La distribucion de las utilidades de cada
ejercicio y, en especial, el reparto de dividendos; Tres) La eleccion o
renovacion de los miembros del Directorio, de los liquidadores y de los
fiscalizadores de la administracion; y, Cuatro) En general, cualquier materia de
interes social que no sea propia de una Junta Extraordinaria. Las Juntas
Ordinarias deberan nombrar anualmente auditores externos independientes con el
objeto de examinar la contabilidad, inventario, balance y otros estados
financieros, debiendo informar por escrito a la proxima Junta Ordinaria sobre el
cumplimiento de su mandato.

Articulo Vigesimo Primero: Son materia de Junta Extraordinaria: Uno) La
disolucion de la Sociedad; Dos) La transformacion, fusion o division de la
Sociedad y la Reforma de sus Estatutos; Tres) La emision de bonos o debentures
convertibles en acciones; Cuatro) La enajenacion del activo fijo y pasivo de la
Sociedad o del total de su activo; Cinco) El otorgamiento de garantias reales o
personales para caucionar obligaciones de terceros, excepto si estos fueren
Sociedades filiales, en cuyo caso, la aprobacion del Directorio sera suficiente
y, Seis) Las demas materias que por la Ley o por estos Estatutos, correspondan a
su conocimiento o a la competencia de las Juntas de Accionistas. Las materias
referidas en los numeros Uno, dos, tres y cuatro solo podran acordarse en Juntas
celebradas ante Notario, quien debera certificar que el Acta es expresion fiel
de lo ocurrido y acordado en la reunion.

Articulo Vigesimo Segundo: Las Juntas seran convocadas por el Directorio de la
Sociedad y la citacion se efectuara por medio de un aviso destacado que se
publicara, a lo menos, por tres veces en dias distintos en el periodico que la
Junta senale. Ademas, debera enviarse una citacion por correo a cada accionista,
con una anticipacion minima de quince dias a la fecha de la celebracion de la
Junta, la que debera contener una referencia a las materias a ser tratadas en
ellas. La omision de esta obligacion no afectara la validez de la citacion, pero
los Directores, Liquidadores y Gerentes de la Sociedad infractora responderan de
los perjuicios que causaren a los accionistas, no obstante las sanciones
administrativas que la Superintendencia pueda aplicarles. Sin embargo, podran
celebrarse validamente aquellas Juntas a las que concurran la totalidad de las
acciones emitidas con derecho a voto, aun cuando no se hubieren cumplido las
formalidades requeridas para su citacion. La celebracion de toda Junta de
Accionistas debera ser comunicada a la Superintendencia de Valores y Seguros con
una anticipacion no inferior a quince dias.


                                       5


Articulo Vigesimo Tercero: Las Juntas se constituiran en primera citacion, con
la mayoria absoluta de las acciones emitidas con derecho a voto; y, en segunda
citacion, con las que se encuentren presentes o representadas, cualquiera que
sea su numero, y los acuerdos se adoptaran por la mayoria absoluta de las
acciones presentes o representadas con derecho a voto. Los avisos de la segunda
citacion solo podran publicarse una vez que hubiere fracasado la Junta a
efectuarse en primera citacion, y en todo caso, la nueva Junta debera ser citada
para celebrarse dentro de los cuarenta y cinco dias siguientes a la fecha fijada
para la Junta no efectuada. Las Juntas seran presididas por el Presidente del
Directorio o por el que haga sus veces y actuara como Secretario el titular de
este cargo, cuando lo hubiere, o el Gerente, en su reemplazo.

Articulo Vigesimo Cuarto: Los acuerdos de la Junta Extraordinaria de Accionistas
que digan relacion con la modificacion de los Estatutos, requeriran de las dos
terceras partes de las acciones emitidas con derecho a voto.

Articulo Vigesimo Quinto: Solamente podran participar en Juntas y ejercer sus
derechos de voz y voto, los titulares de acciones inscritas en el Registro de
Accionistas con cinco dias de anticipacion a aquel en que haya de celebrarse la
respectiva Junta. Los titulares de acciones sin derecho a voto, asi como los
Directores y Gerentes que no sean accionistas, podran participar en las Juntas
Generales con derecho a voz.

Articulo Vigesimo Sexto: Los accionistas podran hacerse representar en las
Juntas por medio de otra persona aunque esta no sea accionista. Lo anterior, sin
perjuicio de lo establecido en el articulo cuarenta y cinco bis del Decreto Ley
numero tres mil quinientos. La representacion debera conferirse por escrito por
el total de las acciones de las cuales el mandante sea titular a la fecha
senalada en el articulo precedente.

Articulo Vigesimo Septimo: Los accionistas tendran derecho a un voto por accion
que posean o representen, pudiendo acumularlos o distribuirlos en las elecciones
como lo estimen conveniente.

                                    TITULO V
                          Balance, Fondos y Utilidades


Articulo Vigesimo Octavo: Al treinta y uno de diciembre de cada ano, se
practicara un Balance General de las operaciones de la Sociedad, que el
Directorio presentara a la Junta Ordinaria de Accionistas, acompanado de una
memoria razonada acerca de la situacion de la Sociedad y del estado de ganancias
y perdidas y del informe que al respecto presenten los inspectores de cuentas y
auditores externos. Todos estos documentos deberan reflejar con claridad la
situacion patrimonial de la Sociedad al cierre del respectivo ejercicio y los
beneficios obtenidos o las perdidas sufridas durante el mismo.


                                       6


Articulo Vigesimo Noveno: En una fecha no posterior a la del primer aviso de
convocatoria para la Junta Ordinaria, el Directorio debera enviar a cada uno de
los accionistas inscritos en el respectivo Registro una copia del Balance y de
la Memoria de la Sociedad, incluyendo el dictamen de los auditores y sus notas
respectivas. El Balance General y estados de ganancias y perdidas debidamente
auditados y las demas informaciones que determine la Superintendencia de Valores
y Seguros se publicaran, por una sola vez, en un diario de amplia circulacion en
el lugar del domicilio social, con no menos de diez ni mas de veinte dias de
anticipacion a la fecha en que se celebre la Junta que se pronunciara sobre los
mismos. Ademas, los documentos senalados deberan presentarse dentro de ese mismo
plazo, a la Superintendencia de Valores y Seguros en el numero de ejemplares que
esta determine. La memoria, balance, inventario, Actas de Directorio y Junta,
libros e informes de los fiscalizadores, deberan estar a disposicion de los
accionistas en las oficinas de la Sociedad durante los quince dias anteriores a
la fecha indicada para la Junta. Si el Balance General y estado de ganancias y
perdidas fueren alterados por la Junta, las modificaciones, en lo pertinente, se
enviaran a los accionistas dentro de los quince dias siguientes a la fecha de la
Junta y se publicaran en el mismo diario en que se hubieren publicado dichos
documentos, dentro de igual plazo.

Articulo Trigesimo: Salvo acuerdo diferente adoptado en la Junta respectiva,
acordado por la unanimidad de las acciones emitidas, se distribuiran anualmente,
como dividendo en dinero a sus accionistas, a prorrata de sus acciones, a lo
menos el treinta por ciento de las utilidades liquidas de cada ejercicio. En
todo caso, el Directorio podra, bajo la responsabilidad personal de los
Directores que concurran al acuerdo respectivo, distribuir dividendos
provisionales durante el ejercicio con cargo a las utilidades del mismo, siempre
que no hubiere perdidas acumuladas. La parte de las utilidades que no sea
destinada por la Junta a dividendos, podra en cualquier tiempo, ser
capitalizada, previa reforma de Estatutos, por medio de la emision de acciones
liberadas o por el aumento del valor nominal de las acciones, o ser destinadas
al pago de dividendos eventuales en ejercicio futuros.


                                    TITULO VI
                            Disolucion y Liquidacion


Articulo Trigesimo Primero: La disolucion de la Sociedad se verificara en los
casos previstos por la Ley. La disolucion anticipada solo podra ser acordada en
Junta General Extraordinaria de Accionistas con el voto conforme de las dos
terceras partes de las acciones emitidas.


                                       7


Articulo Trigesimo Segundo: Disuelta la Sociedad, la liquidacion sera practicada
por una Comision Liquidadora formada por tres personas, accionistas o no,
elegidas por la Junta General de Accionistas, quienes tendran las facultades,
deberes y obligaciones establecidas en la Ley o en el Reglamento. En caso de
disolucion decretada por sentencia judicial ejecutoriada, la liquidacion se
practicara en la forma establecida en la Ley. Si la Sociedad se disolviere por
reunirse las acciones en una sola mano, no sera necesaria la liquidacion.

Articulo Trigesimo Tercero: Los liquidadores convocaran a Junta General
Ordinaria de Accionistas en el mes de abril de cada ano, para darles cuenta del
estado de la liquidacion. Si en el plazo de dos anos no estuviere terminada la
liquidacion, se procedera a nueva eleccion de liquidadores, pudiendo ser
reelegidos los mismos. El cargo de liquidadores es remunerado y corresponde a la
Junta General Ordinaria de Accionistas fijar su remuneracion. El cargo de
liquidador es revocable por la Junta Ordinaria o Extraordinaria de Accionistas.
Los liquidadores cesaran en su cargo por incapacidad legal sobreviniente o por
su declaracion de quiebra.


                                   TITULO VII
                             Disposiciones Generales


Articulo Trigesimo Cuarto: Las diferencias que se produzcan entre los
accionistas en su calidad de tales, o entre estos y la Sociedad o sus
administradores, sea durante su vigencia o liquidacion, seran resueltas por un
arbitro nombrado de comun acuerdo por las partes, quien tendra el caracter de
arbitrador en cuanto al procedimiento, pero debera fallar conforme a Derecho. De
no existir tal consenso, el arbitro sera designado por la Justicia Ordinaria a
peticion de cualquiera de ellas, en cuyo caso el nombramiento solo podra recaer
en abogados que se hayan desempenado como profesores titulares de las catedras
de Derecho Civil o Comercial en las Universidades de Chile, Catolica de Chile y
Catolica de Valparaiso. Lo anterior es sin perjuicio de que al producirse un
conflicto, el demandante pueda sustraer su conocimiento de la competencia del
arbitro y someterlo a la decision de la Justicia Ordinaria.


                                       8


Articulo Trigesimo Quinto: En el silencio de estos Estatutos y en todo lo que no
este previsto expresamente en ellos, regiran las disposiciones de la Ley numero
dieciocho mil cuarenta y seis, sus modificaciones y Reglamentos.


                           DISPOSICIONES TRANSITORIAS


Articulo Primero Transitorio: Para los efectos del Articulo Vigesimo Segundo de
estos Estatutos, la Junta acuerda que las publicaciones para llamar a Juntas
Ordinarias o Extraordinarias de Accionistas se efectuaran en el Diario El
Mercurio de Santiago.

"Articulo Segundo Transitorio: El capital social ascendente a dos billones
doscientos veinticuatro mil cuatrocientos treinta y tres millones seiscientos un
mil cuatrocientos noventa y seis pesos, dividido en treinta y dos mil
seiscientos setenta y cuatro millones catorce mil quinientas ochenta y ocho
acciones nominativas, todas de una sola serie y sin valor nominal, se ha
enterado y se enterara, suscribira y pagara de la siguiente manera:

A.- Capital Suscrito y Pagado. En primer lugar, se acordo dejar constancia que
en la Junta General Extraordinaria de accionistas celebrada con fecha treinta de
abril de mil novecientos noventa y nueve, reducida a escritura publica con fecha
veintiseis de mayo de mil novecientos noventa y nueve ante el Notario Publico de
Santiago don Patricio Zaldivar Mackenna, se acordo aumentar el capital social de
Enersis S.A. de la suma de trescientos ochenta y ocho mil quinientos veintidos
millones novecientos ochenta y ocho mil trescientos ochenta y tres pesos
dividido en seis mil ochocientas millones de acciones nominativas de una sola
serie y sin valor nominal a la suma de ochocientos sesenta y ocho mil
cuatrocientos dos millones novecientos ochenta y ocho mil trescientos ochenta y
tres pesos dividido en nueve mil trescientos ochenta millones de acciones
nominativas de una sola serie y sin valor nominal. Esto es, en esa oportunidad,
se aumento el capital en la suma de cuatrocientos setenta y nueve mil
ochocientos ochenta millones que correspondian a dos mil quinientos ochenta
millones de acciones de pago, todas de una misma serie y sin valor nominal. Este
aumento de capital no fue suscrito en su totalidad dentro del periodo de tres
anos en que dichas acciones debian suscribirse, pagarse y enterarse, quedando,
en consecuencia, por ministerio de la ley, reducido a la cantidad efectivamente
pagada. De ello se dejo expresa constancia por escritura publica extendida con
fecha veinticinco de junio de dos mil dos, en la Notaria de Santiago de don
Patricio Zaldivar Mackenna, declarandose en dicha escritura que el capital
social habia quedado reducido de pleno derecho a la cantidad efectivamente
pagada al dia treinta de abril de dos mil dos, esto es, a la suma de setecientos
veintinueve mil trescientos veintiocho millones trescientos cuarenta y siete mil
quinientos ocho, dividido en ocho mil doscientos noventa y un millones veinte
mil cien acciones nominativas, de una misma serie y sin valor nominal.


                                       9


B.- Revalorizacion de Capital Propio. El capital actual de la Sociedad, incluida
la revalorizacion del capital propio al treinta y uno de diciembre de dos mil
uno y al treinta y uno de diciembre de dos mil dos, conforme a lo dispuesto en
el articulo decimo de la Ley numero dieciocho mil cuarenta y seis, asciende a la
suma de setecientos cincuenta y un mil doscientos ocho millones ciento noventa y
siete mil novecientos treinta y tres pesos dividido en ocho mil doscientos
noventa y un millones veinte mil cien acciones nominativas, de una misma serie y
sin valor nominal.

C.- Nuevo Capital Social. Con un billon cuatrocientos setenta y tres mil
doscientos veinticinco millones cuatrocientos tres mil quinientos sesenta y tres
pesos, que se enterara mediante la emision de veinticuatro mil trescientos
ochenta y dos millones novecientos noventa y cuatro mil cuatrocientos ochenta y
ocho acciones de pago, conforme al aumento acordado en la Junta Extraordinaria
de Accionistas celebrada con fecha treinta y uno de marzo de dos mil tres. Estas
acciones se emitiran por el directorio de una sola vez para ser pagadas al
contado, al momento de su suscripcion ya sea: (a) en dinero efectivo, cheque o
vale vista, o bien (b) mediante la capitalizacion, ya sea en su totalidad o en
parte, de: (i) Creditos de Elesur S.A., provenientes de dos prestamos otorgados
a la Compania, que de conformidad con la estimacion pericial aprobada en la
Junta Extraordinaria de Accionistas antes citada, ascienden a la fecha, en
capital e intereses al dia de la presente escritura al 86,84% de su valor par.
Actualmente dicho valor par es de cincuenta y ocho millones setecientas un mil
setecientas setenta y ocho, con noventa y nueve U.F. (los "Prestamos"); y (ii)
mediante la capitalizacion, ya sea en su totalidad o en parte, de Bonos numero
doscientos sesenta y nueve, Series B uno y B dos cuyo valor, de conformidad con
la estimacion pericial aprobada en la Junta Extraordinaria de Accionistas antes
citada, sera su equivalente a su respectivo valor par, multiplicado por los
siguientes porcentajes: (i) ochenta y siete coma veintitres por ciento para los
Bonos de la Serie B uno; y (ii) setenta y uno coma cincuenta y nueve por ciento
para los Bonos de la Serie B dos.

El Directorio queda expresamente facultado para emitir de una sola vez la
totalidad de las veinticuatro mil trescientos ochenta y dos millones novecientos
noventa y cuatro mil cuatrocientos ochenta y ocho acciones de pago, quedando
ampliamente facultado para ofrecer y colocar estas acciones al precio que
resulte de calcular el promedio ponderado de las transacciones bursatiles que se
hayan realizado entre el nonagesimo dia habil bursatil y el trigesimo dia habil
bursatil anteriores a la fecha de la presente Junta General Extraordinaria de
Accionistas, en cada uno de los siguientes periodos de suscripcion:


                                       10


a) Primer Periodo de Suscripcion Preferente


Se ofrecera a cada accionista de la Compania, en conformidad con la Ley numero
dieciocho mil cuarenta y seis, sobre Sociedades Anonimas, suscribir aquel numero
de acciones de nueva emision que les corresponda, de acuerdo a su prorrata. El
primer periodo de opcion preferente permanecera abierto por un plazo de treinta
dias. Las acciones de nueva emision se podran pagar por los accionistas, en este
periodo, en dinero efectivo o bien mediante los creditos financieros que Elesur
S.A. ostenta contra Enersis S.A.


b) Rescate Voluntario de Bonos Locales


La Compania hara una oferta de rescate voluntario de todos los Bonos Locales, en
condiciones identicas para todos sus tenedores, en virtud de lo dispuesto por el
articulo ciento treinta de la Ley del Mercado de Valores, entre el 1o y
quince de noviembre del presente ano.


Se ofrecera a todos los tenedores de Bonos Locales canjear sus titulos por
acciones de Enersis segun el siguiente procedimiento: a la fecha de la efectiva
capitalizacion de los Bonos Locales se considerara el valor nominal de cada bono
mas los intereses correspondientes y se aplicara el factor que para cada Serie y
valor nominal respectivo ha determinado el Perito senor Eduardo Walker
Hitschfeld en su ya mencionado informe de fecha seis de marzo ultimo. La
cantidad resultante se dividira por el precio de colocacion aprobado por esta
Junta, que asciende a sesenta coma cuatro mil doscientos dos pesos por accion
para calcular de este modo el numero de acciones de Enersis que finalmente se
entregara a cada tenedor de bonos.


El aviso de rescate voluntario de los Bonos Locales mediante el cual se ofrezca
su canje por acciones se publicara en el diario El Mercurio de Santiago.


c) Segundo Periodo de Suscripcion Preferente


En vista del compromiso asumido por el accionista controlador en cuanto a que no
enajenara ninguna de las acciones de su propiedad entre la fecha de esta junta y
el momento en que concluya el segundo periodo preferente de suscripcion se
acuerda llevar cabo el mismo entre el veinte de noviembre y el veinte de
diciembre del presente ano, y al objeto de permitir la total suscripcion de las
acciones emitidas, a estos efectos el Directorio abrira un nuevo periodo de
suscripcion preferente, destinado exclusivamente a aquellas personas que sean
accionistas de la Sociedad cinco dias habiles antes del momento de darse inicio
a esta nueva oferta preferente, con excepcion del Controlador y sus miembros, y
de acuerdo a la prorrata de acciones que cada uno de los accionistas
destinatarios de la oferta tenga a esa fecha. Durante este periodo, que tendra
una duracion de treinta dias, se ofrecera, a aquellos accionistas que lo deseen,
suscribir el remanente de acciones de nueva emision que hayan quedado sin
suscribir luego de finalizados el primer periodo de opcion preferente referido
en la letra a) anterior y el rescate voluntario de los Bonos Locales referido en
la letra b) anterior.


                                       11


En este periodo, las acciones de nueva emision se podran pagar por los
accionistas solamente en dinero efectivo.

d) Plazo del Aumento de Capital:

El plazo de vigencia del presente aumento de capital vencera el treinta de
diciembre de dos mil tres. Vencido que sea el plazo senalado, sin que se haya
enterado el aumento de capital, este quedara reducido al monto efectivamente
suscrito y pagado."

Articulo Tercero Transitorio: Se establece el dia primero de agosto de mil
novecientos ochenta y ocho como fecha a partir de la cual entrara en vigor la
razon social "ENERSIS S.A.", contenida en el Articulo Primero Permanente,
debiendo la Sociedad en el intertanto seguir usando la antigua razon social.

TERCERO: Se faculta al portador para solicitar al Conservador de Bienes Raices
pertinente, las inscripciones, subinscripciones y anotaciones marginales que
procedan en conformidad a la Ley. En comprobante y previa lectura firma el
compareciente. Di copia. Doy fe.




                                       12

EX-1.2

                                                                     EXHIBIT 1.2

                                STATUTES [BYLAWS]
                                  ENERSIS S.A.

PART ONE. NAME, DOMICILE, DURATION AND OBJECTS.

FIRST CLAUSE: A corporation is hereby established that shall be called "Enersis
S.A.", governed by these statutes [bylaws] and, where these are silent, by the
legislation and regulation applicable to this type of corporation.

SECOND CLAUSE: The Company's address shall be in the city of Santiago and
agencies or branches may be opened in other parts of the country or abroad.

THIRD CLAUSE: The life of the Company is indefinite.

FOURTH CLAUSE: The objects of the Company shall be the exploit in Chile or
abroad the exploration, development, operation, generation, distribution,
transmission, transformation, and/or energy sale in any of its forms or nature,
directly or through other companies, as well as telecommunication activities and
the provision of engineering consultancy services in the country and abroad. It
shall also be its object to invest and manage its investments in its subsidiary
and affiliate generation, transmission, distribution or electricity trading
companies, or any other subsidiary and affiliate companies whose business is
related to any of the following: (i) energy in any of its forms or nature; (ii)
supply of public utilities or which have electric energy as their main
component; (iii) telecommunications and computer science, and (iv)
intermediation business through the Internet. In meeting its main objects, the
Company shall carry out the following functions:

a)       Promote, organize, constitute, modify, dissolve or liquidate companies
         of any kind whose objects are allied or related to those of the
         Company.




b)       Propose the investment, financing and trading policies to its
         subsidiary companies, as well as the accounting systems and criteria to
         be followed.

c)       Supervise the management of its subsidiary companies.

d)       Provide its subsidiary and affiliate companies with financial resources
         necessary for their businesses and provide management services for its
         subsidiaries; financial, commercial, technical and legal advice;
         auditing services and generally any kinds of service seeming necessary
         for their best performance.

         Apart from its main objects and acting always within the limits set out
         in the Investment and Financing Policy approved by a shareholders
         general meeting, the company may invest in:

1.       The acquisition, exploitation, construction, rental, management,
         commercialization and disposal of all kinds of properties [real estate]
         directly or through subsidiary or affiliate companies.

2.       All kinds of financial assets including shares, bonds and debentures,
         trade papers and in general all kinds of securities and holdings in
         companies, directly or through susbsidiary of affiliate companies.

PART TWO. CAPITAL AND SHARES.

FIFTH CLAUSE: The capital of the Company amounts to Ch$ 2.224.433.601.496
divided into 32.674.014.588 nominative shares, all of an only series and of no
par value, which is paid up in the manner described in the Second Transitory
Clause of these statutes [bylaws].

SIXTH CLAUSE: Shares shall be nominative and their subscription shall be
recorded in writing in the manner determined under current legislation and
regulations. Their transfers and


                                                                               2


transmission shall be in accordance with those regulations. Payment for
subscribed shares may be in cash or other tangible or intangible assets.

SEVENTH CLAUSE: The Company shall not recognize fractions of shares. Should one
or more shares belong jointly to various parties, the co-owners shall all be
obliged to provide a power of attorney to act before the Company.

EIGHTH CLAUSE: Unpaid balances of subscribed shares shall be adjusted in the
same proportion as changes in the value of the Unidad de Fomento.

NINTH CLAUSE: Shareholders are only responsible for the payment of their shares
and are not obliged to return to the Company the amounts of any benefits they
might have received. In the case of the transfer of subscribed but unpaid
shares, the transferor shall be liable severally with the transferee for its
payment, and notice must be recorded on the certificate of the share payment
conditions.

TENTH CLAUSE: Private agreements between shareholders relating to disposals of
shares, shall be registered with the Company and made available to other
shareholders and interested third parties and reference shall be made to them in
the Shareholders Register. Such agreements shall be treated as un-written if the
above procedure is not followed.

ELEVENTH CLAUSE: The Shareholders Register, the details to be stated on share
certificates and the procedure in the case of lost or mislaid certificates,
shall comply with the pertinent legal rules and regulations.

PART THREE. ADMINISTRATION.

TWELFTH CLAUSE: The Company shall be administered by a Board of Directors
comprising 7 re-eligible members who may or may not be shareholders of the
Company.


                                                                               3


THIRTEENTH CLAUSE: Members of the Board of Directors shall be elected by the
ordinary shareholders general meeting. The Board of Directors shall remain for a
period of three years at the end of which it shall be completely renewed or
re-elected.

FOURTEENTH CLAUSE: Board of Directors' meetings shall be constituted with the
absolute majority of the Directors and decisions shall be taken by the absolute
majority of the Directors present with voting rights. In the case of a tied
vote, the person presiding the meeting shall decide.

FIFTEENTH CLAUSE: The Board of Directors shall meet at least once every month
and whenever the Company's business so requires. There shall be ordinary and
extraordinary meetings. The former shall be held on dates pre-established by the
Board of Directors itself; the latter when especially convened by the Chairman
himself or at the request of one or more Directors. Extraordinary meetings may
only deal with those matters specifically included in the meeting notification.
In the first session following the appointment of the Directors at a
shareholders general meeting, the Board of Directors shall elect a Chairman and
Vice-chairman to replace him in his absences, from amongst its members.

SIXTEENTH CLAUSE: The directors shall be remunerated. The amount of the
remuneration shall be set annually by the ordinary shareholders general meeting.
The Chairman shall be entitled to receive twice that paid to each Director.

SEVENTEENTH CLAUSE: The Board of Directors of the Company represents it
judicially and extra-judicially and to comply with its objects which it shall
not be necessary to demonstrate to third parties, has all the powers of
administration and disposal which the Law or the statutes [bylaws] do not
reserve for the shareholders general meeting, without the necessity to give it
any special powers, even for those acts or contracts for which the law demands
such. This does not impede actions appropriate to the Chief Executive Officer.
The Board of Directors may delegate part of its powers to the Chief Executive
Officer, Officers and Lawyers of the Company, to one Director or to a Committee
of Directors and to other persons for especially defined objectives.


                                                                               4


EIGHTEENTH CLAUSE: The Company shall have a Chief Executive Officer who shall be
appointed by the Board of Directors and shall be granted all the powers of a
commercial agent and those expressly agreed by the Board of Directors. The
position of Chief Executive Officer is incompatible with that of Chairman,
Director, Auditor or Accountant of the Company.

PART FOUR. MEETINGS.

NINETEENTH CLAUSE: Shareholders shall meet in ordinary and extraordinary
meetings. The former shall be held once each year within four months following
the balance sheet date to decide on matters of mutual interest without
necessarily being mentioned in the respective meeting notification. The latter
may be held at any time as required by the business to decide on any matter
which the Law or these statutes [bylaws] reserves for consideration by a
shareholders meeting and provided these matters are stated in the respective
meeting notification. Notifications of ordinary and extraordinary meetings shall
not be necessary when the whole number of validly issued shares is represented
at the respective meeting. When an extraordinary meeting has to resolve on
matters appropriate to an ordinary shareholders meeting, its procedures and
resolutions shall be subject, where appropriate, to the quorums applicable to
the latter class of meetings.

TWENTIETH CLAUSE: The following are matters for an ordinary meeting: 1)
Examination of the situation of the Company and of the reports of accounting
inspectors and external auditors and the approval or rejection of the annual
report, balance sheet, financial statements and presentations prepared by the
managers or liquidators of the Company; 2) The distribution of profits
[earnings] for each year and, especially, the dividend distribution; 3) The
election or renewal of the members of the board, of liquidators and of
management inspectors; and 4) Generally, any matter of general interest which is
not reserved for an extraordinary meeting. Ordinary meetings shall appoint
independent external auditors annually to examine the accounts, inventories,
balance sheet and other financial statements, and to inform the following
ordinary meeting in writing of its findings.


                                                                               5


TWENTY-FIRST CLAUSE: The following
are matters for an extraordinary shareholders meeting: 1) The dissolution of the
Company; 2) Transformation, merger or division of the Company and changes to its
statutes [bylaws]; 3) The issue of bonds or debentures convertible into shares;
4) The disposal of fixed assets and liabilities of the Company or of all its
assets; 5) The provision of charges or guarantees [collateral] to cover the
obligations of third parties, unless these be subsidiary companies in which case
the approval of the Board of Directors is sufficient; and 6) any other matters
which the Law or these statutes [bylaws] reserve for the knowledge or consent of
shareholders meetings. The matters referred to in Nos. 1, 2, 3 and 4 may only be
agreed at meetings held in the presence of a notary public who must certify that
the minutes record faithfully what occurred and was agreed at the meeting.

TWENTY-SECOND CLAUSE: Meetings shall be convened by the Board of Directors of
the Company and notifications shall be effected by means of a conspicuous advice
which shall be published at least 3 times on different days in the newspaper
which the meeting shall nominate. It shall also send a notification by mail to
every shareholder at least 15 days prior to the date of the meeting, which
should mention the matters for consideration at the meeting. The omission of
this obligation shall not affect the validity of the notification, but the
Directors, Liquidators and Managers of the Company at fault shall be responsible
for any damage suffered by shareholders, irrespective of the administrative
sanctions which the Superintendency may apply. However, those meetings attended
by the whole of the issued shares with voting rights may be convened validly
even when the required formalities for notifications have not been complied
with. All shareholder meetings must be advised to the Superintendency of
Securities and Insurance at least 15 days in advance.


                                                                               6


TWENTY-THIRD CLAUSE: Meetings are constituted with an absolute majority of
shares with voting rights on the first notification, and with those present or
represented, whatever their number, on the second notification, and resolutions
shall be adopted by the absolute majority of the shares present or represented
with voting rights. Notices of the second notification may only be published
once the meeting subject to the first notification fails to convene, and in any
case the new meeting should be convened within 45 days following the date fixed
for the meeting not held. Meetings shall be presided by the Chairman of the
Board of Directors or the person taking his place and the person so appointed,
or the Chief executive Officer in his absence, shall act as Secretary.

TWENTY-FOURTH CLAUSE: Resolutions of extraordinary shareholders' meetings which
relate to modifications of the statutes [bylaws] shall require the vote of
two-thirds of the shares with voting rights.

TWENTY-FIFTH CLAUSE: Only those shareholders registered in the shareholders
register 5 days before the date for which the respective meeting is convened,
may participate in meetings and exercise their rights to speak and vote.
Shareholders without voting rights, as well as the Directors and Managers who
are not shareholders, may participate in general shareholders meetings with a
right to speak.


                                                                               7


TWENTY-SIXTH CLAUSE: Shareholders may be represented at meetings by another
person even if such person is not a shareholder, notwithstanding that
established in Clause 45 bis of Decree Law No.3,500. Proxies for such
representations shall be given in writing for all the shares held by the owner
on the date stated in the preceding Clause.

TWENTY-SEVENTH CLAUSE: Shareholders shall have a right to one vote for each
share they own or represent, and may accumulate or distribute them as they wish
in any election.

PART FIVE. BALANCE SHEET, FUNDS AND PROFITS [EARNINGS].

TWENTY-EIGHTH CLAUSE: On December 31st of each year, a balance sheet of the
business of the Company shall be prepared, and the Board of Directors shall
present this to the shareholders ordinary meeting together with a reasoned
report on the situation of the Company and the statement of income and the
related report provided by the inspectors of accounts and external auditors. All
these documents must reflect clearly the equity position of the Company at the
close of the respective year and the profits [earnings] obtained or losses
suffered during the year.

TWENTY-NINTH CLAUSE: On a date no later than the first notification convening
the ordinary meeting, the Board of Directors should send to each shareholder
registered in the respective register a copy of the duly audited balance sheet
and annual report of the Company, including the auditors report and their
respective notes. The duly audited balance sheet and statement of income and
other information which the Superintendency of Securities and Insurance
requires, shall be published once in a widely-circulating newspaper in the
location of the registered address, no less than 10 nor more than 20 days before
the date on which the meeting to approve them is to be held. These documents
should also be presented within the same time period to the Superintendency of
Securities and Insurance with the requested number of copies. The annual report,
balance sheet, inventories, minutes of board and shareholders meetings, books
and reports of inspectors, must be available to shareholders in the offices of
the Company for 15 days prior to the date advised for the meeting. Should the
balance sheet and statement of income be altered by the meeting, the amendments,
where corresponding, shall be sent to shareholders within 15 days from the date
of the meeting and shall be published in the same newspaper in which these
documents had been published, and within the same time period.


                                                                               8


THIRTIETH CLAUSE: Unless otherwise approved at the respective meeting with the
unanimous vote of the shares issued, a cash dividend shall be distributed
annually to shareholders, pro rata to their shares, for at least 30% of the net
profits [net income] for each year. In any event, the Board of Directors may,
under the personal responsibility of the Directors present at the respective
approval, distribute interim dividends during the year as a charge against the
profits [earnings] of that year, provided that there are no accumulated losses.
That portion of profits [earnings] not appropriated by the meeting to dividends,
may be capitalized at any time, subject to amending the statutes [bylaws]
through the issue of free shares or by increasing the nominal value of the
shares, or be retained to meet possible dividend payments in following years.

PART SIX. DISSOLUTION AND LIQUIDATION.

THIRTY-FIRST CLAUSE: The dissolution of the Company shall occur in the cases
foreseen in the Law. Dissolution in advance shall only be agreed at an
extraordinary shareholders' meeting with the consenting vote of two-thirds of
the issued shares.


                                                                               9


THIRTY-SECOND CLAUSE: Once the Company is dissolved, the liquidation shall be
performed by a Liquidation Committee formed by three people, shareholders or
not, chosen by the shareholders general meeting, and who shall have the powers,
duties and obligations established in the law or regulations. In the case of a
dissolution decreed by judicial executive sentence, the liquidation shall be
carried out in the manner established in the law. If the Company is dissolved
through all the shares being held by one person, liquidation shall be
unnecessary.

THIRTY-THIRD CLAUSE: The liquidators shall convene an ordinary general
shareholders meeting in the month of April each year to report on the state of
the liquidation. Should the liquidation not be completed within 2 years, a new
election of liquidators shall be made, the same persons being re-eligible. The
position of liquidators is remunerated and the shareholders ordinary meeting
shall set the remuneration. The position of liquidator is revocable by a
shareholders ordinary or extraordinary meeting. Liquidators shall be suspended
from their positions by overriding legal incapacity or by their declaration of
bankruptcy.

PART SEVEN. GENERAL PROVISIONS.

THIRTY-FOURTH CLAUSE: Any disputes which arise between shareholders in that
capacity, or between these and the Company or its management, whether during its
life or liquidation, shall be resolved by an arbitrator appointed by mutual
consent by the parties, who shall have the character of arbitrator regarding
process but must give judgement according to law. If such consensus does not
exist, the arbitrator shall be appointed by the Ordinary Justice at the request
of either party, in which case such appointment may only be of lawyers who are
titular professors in civil or commercial law at the University of Chile,
Catholic University of Chile or Catholic University of Valparaiso. However,
should there be a dispute, the claimant may take the matter away from the
arbitrator and submit to the judgement of the ordinary courts of justice.


                                                                              10


THIRTY-FIFTH CLAUSE: Where these bylaws remain silent and in any matter not
expressly foreseen in them, the provisions of Law No.18,046 shall apply,
together with its amendments and regulations.

TRANSITORY PROVISIONS.

FIRST TRANSITORY CLAUSE: For the purposes of the Twenty-Second Clause of these
statutes [bylaws], the meeting agrees that publications for convening ordinary
and extraordinary shareholders meetings shall be effected in the "El Mercurio"
newspaper of Santiago.

SECOND TRANSITORY CLAUSE: ENERSIS TO COMPLETE


THIRD TRANSITORY CLAUSE: The use of the name ENERSIS S.A. contained in the First
Clause shall come into force on 1 August 1988 and the Company shall continue to
use the old name until then.

                                                                              11

EX-4.7

                                                                    EXHIBIT 4.7



                                                                 EXECUTION COPY

                             U.S.$ 1,387,504,578.16

                                CREDIT AGREEMENT

                                      among

             ENERSIS S.A., acting through its Cayman Islands Branch,
                                  as Borrower,

                         VARIOUS FINANCIAL INSTITUTIONS,
                                   as Lenders,

                                       and

                      BANCO BILBAO VIZCAYA ARGENTARIA S.A.,
                         CITIGROUP GLOBAL MARKETS INC.,
                  DRESDNER KLEINWORT WASSERSTEIN SECURITIES LLC
                                       and
              SANTANDER CENTRAL HISPANO INVESTMENT SECURITIES INC.,
                   as Mandated Lead Arrangers and Bookrunners,

                                       and

              SANTANDER CENTRAL HISPANO INVESTMENT SECURITIES INC.,
                             as Documentation Agent,

                                       and

                         CITIGROUP GLOBAL MARKETS INC.,
                              as Syndication Agent,

                                       and

                      BANCO BILBAO VIZCAYA ARGENTARIA S.A.
                                       and
                         DRESDNER BANK LUXEMBOURG S.A.,
                            as Administrative Agent,

                                       and

                             BANCO SANTANDER-CHILE,
                               as Collateral Agent

                        ---------------------------------

                            Dated as of May 12, 2003

                       ----------------------------------





                                                                                                         
Section 1.        Definitions and Principles of Construction.....................................................1

         1.1.     Defined Terms..................................................................................1

         1.2.     Principles of Construction....................................................................22

Section 2.        Amount and Terms of Credit....................................................................22

         2.1.     Agreement to Lend.............................................................................22

         2.2.     General Purpose...............................................................................23

         2.3.     Notice of Borrowing...........................................................................23

         2.4.     Making of Loans; Repayment of Refinanced Debt.................................................23

         2.5.     Notes.........................................................................................24

         2.6.     Default by Lender.............................................................................24

         2.7.     Interest......................................................................................25

         2.8.     Increased Costs, Illegality, Etc..............................................................26

         2.9.     Compensation..................................................................................28

         2.10.    Change of Lending Office......................................................................28

         2.11.    Replacement of Lenders........................................................................28

Section 3.        Security......................................................................................28

         3.1.     The Collateral................................................................................28

         3.2.     Release of Security...........................................................................28

         3.3.     Application of Proceeds.......................................................................29

Section 4.        Fees; Termination of Commitments..............................................................29

         4.1.     Fees..........................................................................................29

         4.2.     Mandatory Termination of Commitments..........................................................29

Section 5.        Prepayments; Payments.........................................................................29

         5.1.     Scheduled Repayments..........................................................................29

         5.2.     Voluntary Prepayments.........................................................................30

         5.3.     Mandatory Prepayments.........................................................................30

         5.4.     Method and Place of Payment...................................................................31

         5.5.     Net Payments..................................................................................31

Section 6.        Conditions Precedent to the Borrowing.........................................................32

         6.1.     Elesur Loan...................................................................................32

         6.2.     Effectiveness; Execution of Loan Documents; Notes.............................................32

         6.3.     No Default; Representations and Warranties....................................................33

         6.4.     No Default; Indebtedness......................................................................33





                                                                                                         
         6.5.     Endesa-Chile Credit Agreement Closing.........................................................33

         6.6.     Notice of Borrowing...........................................................................33

         6.7.     Opinions of Counsel to the Borrowers..........................................................33

         6.8.     Opinions of Counsel to the Lenders, the Administrative Agent and the
                  Collateral Agent..............................................................................33

         6.9.     Corporate Documents; Proceedings..............................................................34

         6.10.    Governmental and Other Approvals..............................................................34

         6.11.    Appointment of Agent for Service of Process...................................................34

         6.12.    No Change in Condition........................................................................35

         6.13.    Market Conditions.............................................................................35

         6.14.    Payments......................................................................................35

         6.15.    Perfection of Security Interest in Collateral.................................................35

         6.16.    Delivery of Financial Statements..............................................................35

         6.17.    Funding of 2003 Bond Escrow Account...........................................................35

         6.18.    Commitment by Endesa Spain....................................................................35

         6.19.    Central Bank Notification.....................................................................36

Section 7.        Representations and Warranties................................................................36

         7.1.     Corporate Status..............................................................................36

         7.2.     Corporate Power and Authority.................................................................36

         7.3.     No Immunity...................................................................................37

         7.4.     No Violation..................................................................................37

         7.5.     Governmental Approvals........................................................................37

         7.6.     Subsidiaries..................................................................................37

         7.7.     Collateral....................................................................................38

         7.8.     Intercompany Indebtedness.....................................................................38

         7.9.     Ranking.......................................................................................38

         7.10.    Financial Statements..........................................................................38

         7.11.    Voluntary Prepayments.........................................................................40

         7.12.    Litigation....................................................................................40

         7.13.    True and Complete Disclosure..................................................................40

         7.14.    Use of Proceeds...............................................................................40

         7.15.    Tax Returns and Payments......................................................................40

         7.16.    Compliance with Law; Environmental Laws.......................................................40



                                      iii


                                                                                                         
         7.17.    Properties....................................................................................41

         7.18.    Employee Benefit Plans........................................................................41

         7.19.    Investment Company Act; PUHCA.................................................................41

         7.20.    Withholding Taxes.............................................................................41

         7.21.    Form of Documentation.........................................................................42

         7.22.    Indebtedness..................................................................................42

         7.23.    Secured Debt..................................................................................43

         7.24.    Sale Lease-Back Transactions..................................................................43

         7.25.    Foreign Exchange Regulations..................................................................43

         7.26.    Insurance.....................................................................................43

Section 8.        Affirmative Covenants.........................................................................43

         8.1.     Four Point Business Plan......................................................................43

         8.2.     Upstreaming...................................................................................44

         8.3.     Intercompany Indebtedness.....................................................................44

         8.4.     Information Covenants.........................................................................44

         8.5.     Books, Records and Inspections................................................................47

         8.6.     Corporate Privileges..........................................................................47

         8.7.     Performance of Obligations....................................................................48

         8.8.     Compliance with Law; Environmental Law........................................................48

         8.9.     Taxes.........................................................................................48

         8.10.    Maintenance of Property and Insurance.........................................................48

         8.11.    Ranking.......................................................................................49

         8.12.    Further Assurances............................................................................49

         8.13.    Central Bank Notification.....................................................................49

         8.14.    Endesa-Chile 2003 Liquidity Facility..........................................................49

Section 9.        Financial Covenants...........................................................................50

         9.1.     Debt to Adjusted Operating Cash Flow..........................................................50

         9.2.     Debt to EBITDA................................................................................50

         9.3.     Adjusted Operating Cash Flow to Interest Expense..............................................50

         9.4.     Adjusted Consolidated Leverage Test...........................................................50

         9.5.     Calculations..................................................................................50

Section 10.       Negative Covenants............................................................................50

         10.1.    Transfer of Operating Assets..................................................................50




                                       iv


                                                                                                         
         10.2.    Permitted Capital Expenditures................................................................51

         10.3.    Indebtedness..................................................................................51

         10.4.    Investments...................................................................................51

         10.5.    Repurchase or Redemption of Capital Stock, Etc................................................52

         10.6.    Consolidations, Mergers, Etc..................................................................52

         10.7.    Sales of Assets...............................................................................53

         10.8.    Liens.........................................................................................54

         10.9.    Limitations on Prepayments of Indebtedness....................................................56

         10.10.   Transactions with Affiliates..................................................................57

         10.11.   Sale of Certain Assets........................................................................57

         10.12.   Upstreaming...................................................................................57

         10.13.   Limitation on Sale Lease-Back Transactions....................................................57

         10.14.   Business......................................................................................57

Section 11.       Events of Default.............................................................................58

         11.1.    Payments......................................................................................58

         11.2.    Representations, Etc..........................................................................58

         11.3.    Covenants under these Agreements..............................................................58

         11.4.    Other Covenants...............................................................................58

         11.5.    Cross-Default.................................................................................58

         11.6.    Bankruptcy, Etc...............................................................................59

         11.7.    Judgments.....................................................................................59

         11.8.    Currency Restrictions.........................................................................59

         11.9.    Denial of Liability...........................................................................59

         11.10.   Governmental Action...........................................................................60

         11.11.   Security Documents............................................................................60

         11.12.   Endesa Spain Equity Contributions or Subordinated Loan........................................60

         11.13.   Net Proceeds..................................................................................60

         11.14.   Capitalization/Pledge of Elesur Loan..........................................................61

Section 12.       The Administrative Agent and the Collateral Agent.............................................61

         12.1.    Appointment; Acceptance of Appointment........................................................61

         12.2.    Nature of Duties..............................................................................62

         12.3.    Lack of Reliance on the Administrative Agent or the Collateral Agent..........................63

         12.4.    Certain Rights of the Administrative Agent and the Collateral Agent...........................63




                                       v


                                                                                                         
         12.5.    Reliance......................................................................................64

         12.6.    Indemnification...............................................................................64

         12.7.    The Administrative Agent and the Collateral Agent in their Individual
                  Capacities....................................................................................64

         12.8.    Holders.......................................................................................64

         12.9.    Succession....................................................................................65

         12.10.   Power of Attorney from the Lenders............................................................65

Section 13.       Miscellaneous.................................................................................65

         13.1.    Payment of Expenses, Etc......................................................................65

         13.2.    Right of Setoff...............................................................................66

         13.3.    Notices.......................................................................................66

         13.4.    Benefit of Agreement; Syndication or Assignment of Loan.......................................67

         13.5.    No Waiver; Remedies Cumulative................................................................68

         13.6.    Payments Pro Rata.............................................................................69

         13.7.    Calculations, Computations....................................................................70

         13.8.    Governing Law; Submission to Jurisdiction; Venue..............................................71

         13.9.    Obligation to Make Payments in Dollars........................................................72

         13.10.   Counterparts..................................................................................72

         13.11.   Effectiveness.................................................................................72

         13.12.   Headings Descriptive..........................................................................72

         13.13.   Amendment or Waiver...........................................................................72

         13.14.   Survival......................................................................................73

         13.15.   Domicile of Loans; Regulation D...............................................................73

         13.16.   Waiver of Jury Trial..........................................................................73

         13.17.   The Mandated Lead Arrangers and Bookrunners; Documentation Agent and
                  Syndication Agent.............................................................................73

         13.18.   Register......................................................................................74

         13.19.   Confidentiality...............................................................................74

         13.20.   Severability..................................................................................75



SCHEDULE A        Refinanced Debt
SCHEDULE B        Commitments
SCHEDULE C        Santa Rosa Property
SCHEDULE D        Relevant Subsidiaries; Chilean Subsidiaries; Foreign
                  Subsidiaries
SCHEDULE E        Intercompany Indebtedness
SCHEDULE F        Existing Indebtedness


                                       vi



SCHEDULE G        Secured Debt
SCHEDULE H        Contractual Restrictions
SCHEDULE I        Financial Covenant Ratios
SCHEDULE J        Permitted Capital Expenditures
SCHEDULE K        Liens
EXHIBIT A         Notice of Borrowing
EXHIBIT B         Note
EXHIBIT C         Elesur Recognition of Debt
EXHIBIT D         Form of Recognition of Debt
EXHIBIT E         Chilectra Pledge Agreement
EXHIBIT F         Chilectra Cayman Pledge Agreement
EXHIBIT G         Chilectra Recognition of Debt
EXHIBIT H         Chilectra Cayman Recognition of Debt
EXHIBIT I         Share Pledge Agreement
EXHIBIT J         Endesa-Chile 2003 Liquidity Facility Letter Agreement
EXHIBIT K         Endesa-Chile 2003 Liquidity Facility Recognition of Debt
EXHIBIT L         Endesa-Chile 2003 Liquidity Facility Pledge Agreement
EXHIBIT M         Elesur Pledge Agreement
EXHIBIT N         Elesur Intercreditor Agreement
EXHIBIT O         Amended and Restated Elesur Intercreditor Agreement
EXHIBIT P         Escrow Agreement
EXHIBIT Q         Endesa Internacional Support Agreement
EXHIBIT R         Form of Intercreditor Agreement
EXHIBIT S         Additional Endesa Internacional Support Agreement
EXHIBIT T         Opinion of New York Counsel to the Borrowers
EXHIBIT U         Opinion of Chilean Counsel to Enersis
EXHIBIT V         Opinion of Chilean Counsel to Enersis Cayman
EXHIBIT W         Opinion of Chilean Counsel to Elesur
EXHIBIT X         Opinion of Chilean Counsel to Chilectra
EXHIBIT Y         Opinion of Chilean Counsel to Endesa-Chile
EXHIBIT Z         Opinion of Cayman Islands Counsel to Enersis Cayman,
                  Chilectra Cayman and Endesa-Chile
EXHIBIT AA        Opinion of Spanish Counsel to Endesa Internacional
EXHIBIT BB        Officer's Certificate-- Borrowers
EXHIBIT CC        Officer's Certificate-- Elesur
EXHIBIT DD        Officer's Certificate-- Endesa Internacional
EXHIBIT EE        Consent Letter from Agent for Service of Process
EXHIBIT FF        Endesa Spain Commitment
EXHIBIT GG        Four Point Business Plan
EXHIBIT HH        Assignment and Assumption Agreement
EXHIBIT II        Power of Attorney


                                      vii





         These CREDIT AGREEMENTS (each a "Credit Agreement" and collectively,
these "Agreements"), dated as of May 12, 2003, among ENERSIS S.A. a corporation
(sociedad anonima) organized and existing under the law of Chile ("Enersis" and,
in its capacity as a Borrower under its Credit Agreement, a "Borrower"),
Enersis, acting through its Cayman Islands Branch ("Enersis Cayman" and, in its
capacity as a Borrower under its Credit Agreement, a "Borrower" and together
with Enersis in its capacity as Borrower, the "Borrowers"), the lenders party to
each Credit Agreement from time to time (each, a "Lender" and collectively, the
"Lenders"), Banco Bilbao Vizcaya Argentaria S.A. and Dresdner Bank Luxembourg
S.A., acting in the capacity described in Section 12, as Administrative Agent
under each Credit Agreement, Banco Santander-Chile, acting in the capacity
described in Section 12, as Collateral Agent under each Credit Agreement,
Santander Central Hispano Investment Securities Inc., as documentation agent
(the "Documentation Agent"), Citigroup Global Markets Inc., as syndication agent
(the "Syndication Agent"), and Banco Bilbao Vizcaya Argentaria S.A., Citigroup
Global Markets Inc., Dresdner Kleinwort Wasserstein Securities LLC, and
Santander Central Hispano Investment Securities Inc., as mandated lead arrangers
and bookrunners (each, a "Mandated Lead Arranger and Bookrunner" and
collectively, the "Mandated Lead Arrangers and Bookrunners").

                              W I T N E S S E T H:

         WHEREAS, the parties to each Credit Agreement make the following
recitals (see Article I for definitions):

         (A)      Each Lender under such Credit Agreement has previously
extended one or more credits to the Borrower the principal amount outstanding of
which is set forth for each Lender in Schedule A, which collectively constitute
the Refinanced Debt under such Credit Agreement.

         (B)      Each Borrower has requested each Lender to refinance, on the
terms and conditions of such Credit Agreement, any such outstanding credit
previously extended to it by such Lender.

         (C)      Each Lender is willing to refinance, on the terms and
conditions of such Credit Agreement, each credit identified opposite such
Lender's name on Schedule A hereto.

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in these Agreements, the parties to each Credit Agreement
agree as follows:

         Section 1. Definitions and Principles of Construction.

         1.1.     Defined Terms. As used in these Agreements, the following
terms shall have the following meanings (such meanings to be equally applicable
to both the singular and plural forms of the terms defined, except as otherwise
provided):

         "2003 Bond Escrow Account" shall mean the 2003 Bond Escrow Account to
be established pursuant to the Escrow Agreement.




         "5.50% Notes" shall mean the UF4,000,000 5.50% notes due June 15, 2009,
issued by Enersis pursuant to that certain indenture dated June 14, 2001 with
Banco Santiago as trustee.

         "5.75% Notes" shall mean the UF2,500,000 5.75% notes due June 15, 2022,
issued by Enersis pursuant to that certain indenture dated June 14, 2001 with
Banco Santiago as trustee.

         "6.60% Notes" shall mean the U.S.$150,000,000 6.60% notes due December
1, 2026, with a put option exercisable on December 1, 2003, issued by Enersis
Cayman pursuant to that certain indenture dated November 1, 1996 with The Chase
Manhattan Bank as trustee.

         "6.60% Liquidity Facility" shall mean a liquidity facility established
by Enersis Cayman to provide funds from time to time through December 1, 2003
not to exceed U.S.$150,000,000, the proceeds of which must be applied solely to
pay the outstanding principal amount of any 6.60% Notes that are required by the
holders of the 6.60% Notes to be redeemed by Enersis Cayman on December 1, 2003
in accordance with the terms of the 6.60% Notes.

         "6.90% Notes" shall mean the U.S.$300,000,000 6.90% notes due December
1, 2006 issued by Enersis Cayman pursuant to that certain indenture dated
November 1, 1996 with The Chase Manhattan Bank as trustee.

         "6.90% Notes Escrow Account" shall mean the 6.90% Notes Escrow Account
to be established pursuant to the Escrow Agreement.

         "7.20% Notes" shall mean the U.S.$150,000,000 7.20% notes due April 1,
2006, issued by Endesa-Chile Internacional pursuant to that certain indenture
dated April 1, 1996 with The Chase Manhattan Bank, N.A. as trustee.

         "7.40% Notes" shall mean the U.S.$350,000,000 7.40% notes due December
1, 2016 issued by Enersis Cayman pursuant to that certain indenture dated
November 1, 1996 with The Chase Manhattan Bank as trustee.

         "Additional Endesa Internacional Support Agreement" shall mean a
Support Agreement between Endesa Internacional and the Administrative Agent, in
substantially the form attached hereto as Exhibit S.

         "Adjusted Operating Cash Flow" shall mean, for any period, (i) the sum,
without duplication, of (A) sales of Enersis and its Chilean Subsidiaries on an
individual basis for such period, (B) dividends received by Enersis and its
Chilean Subsidiaries from Endesa-Chile, any Foreign Subsidiaries and any
Non-Subsidiary Affiliates during such period, (C) interest income on
intercompany loans paid by Endesa-Chile, any Foreign Subsidiaries and any
Non-Subsidiary Affiliates to Enersis and its Chilean Subsidiaries during such
period, (D) cash distributions paid during such period by Endesa-Chile, any
Foreign Subsidiaries and any Non-Subsidiary Affiliates to Enersis and its
Chilean Subsidiaries in respect of equity and (E) management fees paid by
Endesa-Chile, any Foreign Subsidiaries and any Non-Subsidiary Affiliates to
Enersis and its Chilean Subsidiaries during such period, less (ii) the sum,
without duplication, of operating expenses (including costs of sales and selling
and general and administrative expenses (but excluding depreciation and
amortization, if any)) of Enersis and its Chilean Subsidiaries on an individual
basis for such period, in each case in conformity with Chilean GAAP.


                                       2


         "Administrative Agent" shall mean (i) from the Effective Date up to and
including November 30, 2005, Dresdner Bank Luxembourg S.A., and shall include
any successor appointed pursuant to Section 12.9, and (ii) from December 1, 2005
up to and including the Maturity Date, Banco Bilbao Vizcaya Argentaria S.A., and
shall include any successor appointed pursuant to Section 12.9.

         "Affiliate" shall mean, with respect to any Person, any other Person
(other than an individual) directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such Person; provided, however,
that, for purposes of Section 10.10 an Affiliate of Enersis shall also include
any Person that directly or indirectly owns 15% or more of any class of voting
securities of Enersis and any officer or director of Enersis or any such Person,
or of which Enersis directly or indirectly owns 15% or more of any class of
voting securities. A Person shall be deemed to control another Person if such
Person possesses, directly or indirectly, the power to direct or cause the
direction of the management and policies of such other Person, whether through
the ownership of voting securities, by contract or otherwise.

         "Agreements" shall mean these Agreements, as modified, supplemented or
amended from time to time.

         "Alternative Rate" shall mean, for any day, a rate per annum equal to
the higher of (i) the Prime Rate for such day and (ii) the sum of 0.5% and the
Federal Funds Rate for such day.

         "Amended and Restated Elesur Intercreditor Agreement" shall mean the
Amended and Restated Elesur Intercreditor Agreement between Elesur and the
Administrative Agent that may be executed and delivered in accordance with
Section 11.14, in substantially the form attached hereto as Exhibit O.

         "Applicable Margin" shall mean 3.50% per annum.

         "Asset Sale" shall mean any sale, lease, transfer or other disposition
(including, without limitation, by way of a Sale Lease-Back Transaction or
merger) of, or grant of any option or other right to purchase, lease or
otherwise acquire, any asset, revenue (present or future) or other property
(including, without limitation, any right to receive income), tangible or
intangible, real or personal, other than inventory sold or disposed of in the
ordinary course of business; provided that, solely for purposes of Section 10.7,
obsolete or worn out equipment or material with an individual fair market value
of less than U.S.$1,000,000 disposed of in the ordinary course of business shall
not be considered an Asset Sale.

         "Asset Sale Reserve Escrow Account" shall mean the Asset Sale Reserve
Escrow Account to be established pursuant to the Escrow Agreement and into which
amounts reserved as described in the definition of Net Asset Sale Proceeds may
be deposited from time to time.


                                       3


         "Assignment and Assumption Agreement" shall mean an agreement in
substantially the form of Exhibit HH hereto.

         "Availability Expiry Date" shall mean the date that is ten Business
Days after the Effective Date.

         "Borrower" and "Borrowers" shall have the meanings specified in the
first paragraph hereof.

         "Borrowing" shall mean a borrowing of Loans under any Credit Agreement.

         "Business Day" shall mean (i) with respect to any interest rate
determination for Loans, a day (other than a Saturday or Sunday) on which banks
generally are open in London, England and The City of New York, United States
for the conduct of substantially all of their commercial lending activities and
on which dealings in Dollars are carried on in the London interbank market and
(ii) for all other purposes, a day (other than a Saturday or Sunday) on which
banks generally are open in Luxembourg City, Luxembourg, London, England, The
City of New York, United States, Santiago, Chile and, at all times on and after
December 1, 2005, Madrid, Spain for the conduct of substantially all of their
commercial lending activities.

         "Canutillar" shall mean the 172-megawatt hydroelectric power plant
known as "Canutillar" located 60 kilometers east of Puerto Montt in the Tenth
Region of Chile, together with all related and associated facilities and assets
(including, without limitation, all water and land rights and contractual rights
related to its operation).

         "Capital Expenditures" shall mean, for any period, expenditures
(including, without limitation, the aggregate amount of Capitalized Lease
Obligations required to be paid during such period, but excluding any
Capitalized Lease Obligations in respect of (a) any Sale-Leaseback Transaction
of the Santa Rosa Property, (b) any Sale Leaseback Transaction of any existing
real property of any Foreign Subsidiary and (c) any Sale Leaseback Transaction
of any existing real property of Manso de Velasco) incurred by any Person to
acquire or construct fixed assets, plant and equipment (including, without
limitation, renewals, improvements, replacements, repairs and maintenance)
during such period, that are or would be required to be capitalized on the
balance sheet of such Person in accordance with Chilean GAAP.

         "Capitalized Lease Obligations" shall mean, with respect to any Person,
all rental or other obligations of such Person which are or would be required to
be capitalized on the balance sheet of such Person in accordance with Chilean
GAAP, in each case taken at the amount thereof accounted for as Indebtedness in
accordance with Chilean GAAP.

         "Central Bank" shall mean Banco Central de Chile, the central bank of
Chile.

         "Cerj" shall mean Companhia de Eletricidade do Rio de Janeiro, S.A., a
corporation (sociedad anonima) organized and existing under the Law of Brazil.


                                       4


         "Change of Control" shall mean the occurrence of any one or more of the
following: (a) the failure, at any time, of Endesa Spain directly or indirectly
to (i) own more than 50% of each class of outstanding voting securities of
Enersis, (ii) have effective power to elect a majority of the board of directors
of Enersis and (iii) have an economic interest of more than 50% in Enersis; or
(b) the merger or consolidation of Enersis with or into another Person or the
merger of another Person with or into Enersis, or the sale, lease, transfer or
other disposition of all or substantially all of the assets of Enersis to
another Person, in a single transaction or a series of transactions, the effect
of which is that Endesa Spain does not, directly or through any of its
Subsidiaries, meet each of the tests set forth in (i), (ii) and (iii) above with
respect to the surviving or transferee corporation, as the case may be.

         "Chile" shall mean the Republic of Chile.

         "Chilean GAAP" shall mean generally accepted accounting principles in
Chile, applied on a basis consistent with those applied in the preparation of
the most recent financial statements furnished to the Lenders and described in
Section 7.10.

         "Chilean Subsidiary" shall mean any Enersis Subsidiary whose principal
place of business is within Chile.

         "Chilectra" shall mean Chilectra S.A., a corporation (sociedad anonima)
organized and existing under the Law of Chile.

         "Chilectra Cayman" shall mean Chilectra acting through its Cayman
Islands Branch.

         "Chilectra Cayman Pledge Agreement" shall mean the Prenda Mercantil
Sobre Derechos, to be dated on or prior to the Closing Date, between Enersis
Cayman and the Collateral Agent, in substantially the form attached hereto as
Exhibit F, the terms of which have been acknowledged therein by Chilectra
Cayman.

         "Chilectra Cayman Recognition of Debt" shall mean the Recognition of
Debt executed by Chilectra Cayman acknowledging Indebtedness of Chilectra Cayman
to Enersis Cayman having a principal amount of U.S.$494,709,027, in
substantially the form of Exhibit H hereto.

         "Chilectra Pledge Agreement" shall mean the Prenda Mercantil Sobre
Derechos, to be dated on or prior to the Closing Date, between Enersis and the
Collateral Agent, in substantially the form attached hereto as Exhibit E, the
terms of which have been acknowledged therein by Chilectra.

         "Chilectra Recognition of Debt" shall mean the Recognition of Debt
executed by Chilectra acknowledging Indebtedness of Chilectra to Enersis having
a principal amount of U.S.$148,324,472, in substantially the form of Exhibit G
hereto.

         "Closing Date" shall have the meaning provided in Section 6.


                                       5


         "Collateral" shall mean the Equity Collateral, all rights of Enersis
Cayman under all Indebtedness of Chilectra Cayman acknowledged pursuant to the
Chilectra Cayman Recognition of Debt, all rights of Enersis under all
Indebtedness of Chilectra acknowledged pursuant to the Chilectra Recognition of
Debt, all rights of Enersis Cayman with respect to all Indebtedness of
Endesa-Chile, acting through its Cayman Islands Branch, acknowledged pursuant to
the Endesa-Chile 2003 Liquidity Facility Recognition of Debt (but only at such
time as such rights are required to be pledged pursuant to Section 8.14 and the
Endesa-Chile 2003 Liquidity Facility Letter Agreement), all rights of Elesur
under the Elesur Recognition of Debt (if and when pledged in accordance with
Section 11.14) and all other property of any kind constituting collateral for
the Obligations under any of the Security Documents from time to time.

         "Collateral Agent" shall mean Banco Santander-Chile, a corporation
(sociedad anonima) organized and existing under the Law of Chile, and shall
include any successor Collateral Agent appointed pursuant to Section 12.9.

         "Commitment" shall mean, for each Lender with respect to any Borrower,
the amount set forth opposite such Lender's name with respect to such Borrower
in Schedule B under the heading "Commitment."

         "Consolidated Assets" shall mean, as to any Person and as of any date,
the assets of such Person and its Consolidated Subsidiaries on such date, as
determined on a consolidated basis in accordance with Chilean GAAP.

         "Consolidated EBITDA" shall mean, for any period, an amount, determined
on a consolidated basis for Enersis and its Consolidated Subsidiaries, and
calculated in accordance with Chilean GAAP, equal to the sum of (i) operating
income (before interest expense and interest income) for such period, plus (ii)
the consolidated depreciation and amortization expenses for such period;
provided, however, that in determining Consolidated EBITDA, there shall be
excluded therefrom (to the extent otherwise included therein) (a) extraordinary
gain or loss, including any income or expense attributable to acquisitions, (b)
Interest Expense (net of interest income), (c) any gain or loss attributable to
accounting for inflation or accounting for foreign exchange fluctuations, each
as required by Chilean GAAP, and (d) any gain or loss attributable to changes in
Chilean GAAP.

         "Consolidated Indebtedness" shall mean, as of any date, the
Indebtedness of Enersis and its Consolidated Subsidiaries on such date, as
determined on a consolidated basis in accordance with Chilean GAAP.

         "Consolidated Intangible Assets" shall mean, as of any date, the amount
(to the extent reflected in Enersis' Stockholder's Equity) of (i) all write-ups
(other than write-ups resulting from foreign currency translations and write-ups
of assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to December 31, 2002 in the book value
of any asset owned by Enersis or a Consolidated Subsidiary thereof, and (ii) all
unamortized debt discount and expense, unamortized deferred charges, goodwill,
patents, trademarks, service marks, trade names, anticipated future benefit of
tax loss carryforwards, copyrights, organization or developmental expenses and
other intangible assets, all as determined on a consolidated basis in accordance
with Chilean GAAP.


                                       6


         "Consolidated Subsidiaries" shall mean, as to any Person and as of any
date, all Subsidiaries of such Person and other entities the accounts of which
are or would be consolidated with those of such Person for financial reporting
purposes as of such date, in accordance with Chilean GAAP.

         "Consolidated Tangible Net Worth" shall mean, as of any date, the
Stockholder's Equity of Enersis less its Consolidated Intangible Assets on such
date.

         "Contingent Obligation" shall mean, as to any Person as of any date,
any obligation of such Person guaranteeing any Indebtedness ("Primary
Obligations") of any other Person (the "Primary Obligor") in any manner, whether
directly or indirectly, including, without limitation, any obligation of such
Person, whether or not contingent, (i) to purchase any such Primary Obligation
or any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (x) for the purchase or payment of any such Primary
Obligation or (y) to maintain working capital or equity capital of the Primary
Obligor or otherwise to maintain the net worth or solvency of the Primary
Obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the holder of any such Primary Obligation of the ability of
the Primary Obligor to make payment of such Primary Obligation, or (iv)
otherwise to assure or hold harmless the holder of such Primary Obligation
against loss in respect thereof; provided, however, that the term "Contingent
Obligation" shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the Primary Obligation in respect of which such Contingent Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such Person is required to perform
thereunder) as determined by such Person in good faith.

         "Debt Service" shall mean, for any period, the sum, without
duplication, of (i) Interest Expense of Enersis and its Chilean Subsidiaries on
an individual basis for such period, (ii) all principal paid during such period
in respect of Indebtedness for borrowed money of Enersis and its Chilean
Subsidiaries on an individual basis (excluding any such principal amount (A)
paid with the proceeds of any new Indebtedness or (B) paid pursuant to Section
5.3(a), (b) or (d) of these Agreements), (iii) all fees paid in respect of
Indebtedness for borrowed money of Enersis and its Chilean Subsidiaries on an
individual basis during such period and (iv) all other amounts paid in respect
of Indebtedness for borrowed money of Enersis and its Chilean Subsidiaries on an
individual basis during such period (including, by way of example only,
increased costs, breakage costs and additional amounts in respect of withholding
taxes).

         "Default" shall mean any event, act or condition which, with notice or
lapse of time, or both, would constitute an Event of Default.

         "Default Prevention Amount" shall mean, with respect to any Subsidiary
of Enersis, an amount of funds (in excess of funds otherwise available to such
Subsidiary) that if transferred or otherwise made available to such Subsidiary
will prevent the occurrence of a default under any Indebtedness of such
Subsidiary that would be an Event of Default.


                                       7


         "Dividend Reinvestment Proceeds" shall mean with respect to any
dividend payment or other distribution made by Enersis to Endesa Spain (or any
of its Affiliates), (i) if made prior to such time as at least 66-2/3% of the
aggregate principal amount of Loans outstanding as of the Closing Date shall
have been repaid, the aggregate amount of such dividend and/or distribution in
excess of the minimum dividend required by Chilean Law and (ii) if made
thereafter, zero.

         "Documentation Agent" shall have the meaning provided in the first
paragraph hereof.

         "Dollar" and the sign "U.S.$" shall each mean freely transferable
lawful money of the United States of America.

         "Effective Date" shall have the meaning provided in Section 13.11.

         "Elesur" shall mean Elesur S.A., a corporation (sociedad anonima)
organized and existing under the Law of Chile.

         "Elesur Intercreditor Agreement" shall mean the Intercreditor
Agreement, to be dated on or prior to the Closing Date, between Elesur and the
Administrative Agent, in substantially the form attached hereto as Exhibit N.

         "Elesur Loan" shall mean the loans from Elesur to Enersis in an
aggregate principal amount of approximately UF58,700,000.

         "Elesur Pledge Agreement" shall mean the Prenda Mercantil Sobre
Derechos between Elesur and the Collateral Agent that may be executed and
delivered in accordance with Section 11.14, in substantially the form attached
hereto as Exhibit M, the terms of which will be separately acknowledged therein
by Enersis.

         "Elesur Recognition of Debt" shall mean the Recognition of Debt that
may be executed and delivered by Enersis in accordance with Section 11.14
acknowledging the Indebtedness of Enersis to Elesur, in substantially the form
attached hereto as Exhibit C.

         "Eligible Transferee" shall mean a Person that is an "accredited
investor" (as defined in Regulation D of the U.S. Securities Act of 1933, as
amended).

         "Endesa-Chile" shall mean Empresa Nacional de Electricidad S.A., a
corporation (sociedad anonima) organized and existing under the Law of Chile.

         "Endesa-Chile 2003 Liquidity Facility" shall mean a liquidity facility
pursuant to which Enersis Cayman may make available to Endesa-Chile, acting
through its Cayman Islands Branch, on any single Business Day on or prior to
July 31, 2003 borrowings not to exceed U.S.$300,000,000, the proceeds of which
must be applied solely to repay any amounts outstanding under the Medium-Term
Notes.


                                       8


         "Endesa-Chile 2003 Liquidity Facility Letter Agreement" shall mean the
letter agreement, to be dated on or prior to the Closing Date, by Enersis Cayman
and Endesa-Chile, acting through its Cayman Islands Branch, to the
Administrative Agent, in substantially the form attached hereto as Exhibit J.

         "Endesa-Chile 2003 Liquidity Facility Pledge Agreement" shall mean the
Prenda Mercantil Sobre Derechos between Enersis Cayman and the Collateral Agent
that may be required to be executed and delivered pursuant to Section 8.14and
the Endesa-Chile 2003 Liquidity Facility Letter Agreement, in substantially the
form attached hereto as Exhibit L, the terms of which will be acknowledged
therein by Endesa-Chile, acting through its Cayman Islands Branch.

         "Endesa-Chile 2003 Liquidity Facility Recognition of Debt" shall mean
the Recognition of Debt (in substantially the form attached hereto as Exhibit K)
that may be required to be executed and delivered by Endesa-Chile, acting
through its Cayman Islands Branch, pursuant to Section 8.14 and the Endesa-Chile
2003 Liquidity Facility Letter Agreement, which Recognition of Debt acknowledges
the Indebtedness of Endesa-Chile, acting through its Cayman Islands Branch, to
Enersis Cayman under the Endesa Chile 2003 Liquidity Facility.

         "Endesa-Chile Credit Agreement" shall mean the Credit Agreement, dated
as of the date hereof, among Endesa-Chile, acting through its Cayman Islands
Branch, as borrower, various financial institutions, as lenders, Citibank N.A.,
as administrative agent and certain other parties.

         "Endesa-Chile Internacional" shall mean Endesa-Chile Internacional, a
corporation organized and existing under the Law of the Cayman Islands.

         "Endesa Internacional" shall mean Endesa Internacional S.A., a
corporation (sociedad anonima) organized and existing under the Law of Spain.

         "Endesa Internacional Support Agreement" shall mean the Support
Agreement, to be dated on or prior to the Closing Date, between Endesa
Internacional and the Administrative Agent, in substantially the form attached
hereto as Exhibit Q.

         "Endesa Spain" shall mean ENDESA, S.A., a corporation (sociedad
anonima) organized and existing under the Law of Spain, or any Permitted Endesa
Spain Successor.

         "Enersis" shall have the meaning specified in the first paragraph
hereof.

         "Enersis Cayman" shall have the meaning specified in the first
paragraph hereof.

         "Enersis Group Company" shall mean the Borrowers, Endesa Internacional,
Elesur, Chilectra, Chilectra Cayman, Endesa-Chile, acting through its Cayman
Islands Branch, and any other Person (other than the Administrative Agent) that
executes and delivers an Intercreditor Agreement from time to time.


                                       9


         "Enersis Subsidiary" shall mean any Subsidiary of Enersis other than,
until such time as all amounts under the Endesa-Chile Credit Agreement shall
have been paid, Endesa-Chile or any of its Subsidiaries.

         "Environmental Laws" shall mean, at any time, any and all Laws and any
and all rules and bases of liability regulation or standards of conduct, in each
case concerning pollution or protection of human health or the environment, as
are in effect at such time.

         "Equity Collateral" shall mean the 98.23% of the outstanding capital
stock of Chilectra that is to be pledged to the Collateral Agent for the benefit
of the Lenders pursuant to the Share Pledge Agreement.

         "Equity Release Date" shall have the meaning specified in Section 3.2.

         "Escrow Agent" shall mean Banco Santander-Chile, as escrow agent under
the Escrow Agreement, and shall include any successor escrow agent appointed
pursuant to the terms of the Escrow Agreement.

         "Escrow Agreement" shall mean the Escrow Agreement, to be dated on or
prior to the Closing Date, among the Borrowers, the Administrative Agent and the
Escrow Agent, in substantially the form attached hereto as Exhibit P.

         "Event of Default" shall have the meaning provided in Section 11.

         "Excess Cash" shall mean, for any period, (i) the sum, without
duplication, of (A) Adjusted Operating Cash Flow for such period, (B) the
decrease, if any, in working capital of Enersis and its Chilean Subsidiaries on
an individual basis (other than any such decrease resulting from the periodic
reclassification of long-term Indebtedness as short-term Indebtedness as a
result of the passage of time), excluding cash or cash equivalents, from the
opening of business on the first day, to the close of business on the last day,
of such period and (C) the excess, if any, of the aggregate unrestricted cash on
hand (including cash equivalents) of Enersis and its Chilean Subsidiaries at the
close of business on the last day prior to the beginning of such period over
U.S.$1,000,000 (or its equivalent in other currencies) minus (ii) the sum,
without duplication, of (A) Permitted Capital Expenditures and Permitted
Investments of Enersis and its Chilean Subsidiaries made during such period (but
only to the extent not paid from the proceeds of Asset Sales or Indebtedness or
otherwise financed), (B) the increase, if any, in working capital of Enersis and
its Chilean Subsidiaries on an individual basis (taking into account any
decrease in working capital resulting from the periodic reclassification of
long-term Indebtedness as short-term Indebtedness as a result of the passage of
time), excluding cash or cash equivalents, from the opening of business on the
first day, to the close of business on the last day, of such period, (C) taxes
paid by Enersis and its Chilean Subsidiaries on an individual basis during such
period, (D) any dividend paid by Enersis during such period (but only to the
extent required to be paid under the Law of Chile) and (E) Debt Service for such
period. Notwithstanding the foregoing, to the extent otherwise included in
calculating Excess Cash, all amounts that qualify as Net Proceeds and have been
applied in accordance with Section 5.3(a) shall be excluded from the calculation
of Excess Cash.


                                       10


         "Excluded Debt" shall mean (i) any Indebtedness incurred on or after
January 1, 2006 and maturing after the Maturity Date, to the extent the proceeds
thereof (but in no event more than the then outstanding principal amount of the
6.90% Notes) are deposited into the 6.90% Notes Escrow Account under the Escrow
Agreement on or prior to November 22, 2006 and used solely to repay on December
1, 2006 the outstanding principal amount of the 6.90% Notes, (ii) all or such
portion of any Indebtedness incurred by any Chilean Subsidiary which is applied
solely to refinance third-party financial Indebtedness of such Subsidiary
outstanding on the Closing Date, (iii) Indebtedness incurred by any Foreign
Subsidiary which has (after giving effect to the application of proceeds of such
Indebtedness) paid in full all of the intercompany Indebtedness (if any) of such
Foreign Subsidiary outstanding on the Closing Date, other than the amount of
such Indebtedness applied to the payment of such intercompany Indebtedness, (iv)
all or such portion of any Indebtedness incurred by any Foreign Subsidiaries
which (x) the Borrowers elect to treat as Excluded Debt, in amounts not to
exceed U.S.$15,000,000 (or its equivalent in other currencies) in the aggregate
at any time outstanding for any single such Foreign Subsidiary and
U.S.$50,000,000 (or its equivalent in other currencies) in the aggregate at any
time outstanding for all such Foreign Subsidiaries or (y) is applied by any such
Foreign Subsidiary solely to refinance its third-party financial Indebtedness
(if any) outstanding on the Closing Date, (v) working capital Indebtedness of
Enersis and its Chilean Subsidiaries owed to any third-party other than
Endesa-Chile, in an amount not to exceed U.S.$125,000,000 (or its equivalent in
other currencies) in the aggregate from time to time outstanding, (vi)
Indebtedness of Enersis to Endesa-Chile in an amount not to exceed
U.S.$100,000,000 (or its equivalent in other currencies) in the aggregate at any
time outstanding, provided that while any such amount described in this clause
(vi) is outstanding Endesa-Chile shall have no Indebtedness outstanding to
Enersis (including, without limitation, under the Endesa-Chile 2003 Liquidity
Facility), (vii) Indebtedness incurred by a Subsidiary pursuant to a Permitted
Investment, and (viii) Indebtedness incurred by the Borrowers hereunder.

         "Existing Indebtedness" shall have the meaning provided in Section
7.22.

         "Fair Market Value" shall mean, with respect to any asset or property,
a price for such asset or property (taking into account any purchase price
adjustment paid or payable in connection with the sale of such asset or
property) that could be negotiated in an arms-length free market transaction,
for cash, between a willing seller and a willing buyer, neither of whom is under
pressure or compulsion to complete the transaction.

         "Federal Funds Rate" shall mean, for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the United States
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.

         "Fees" shall mean all amounts payable pursuant to or referred to in
Section 4.1.


                                       11


         "Ficha Estadistica Codificada Uniforme" or "FECU" shall mean the form
set forth in Circular No. 1501 of 2000, as amended from time to time, issued by
the Superintendencia de Valores y Seguros of Chile under which the Persons
subject to its supervision shall file their quarterly and annual financial
statements.

         "Foreign Subsidiary" shall mean any Enersis Subsidiary whose principal
place of business is outside of Chile.

         "Government Agency" shall mean any ministry, administrative department,
agency, regulatory authority, instrumentality, corporation, or other
governmental body or entity, including taxing authorities.

         "Governmental Approval" shall mean any authorization, approval,
consent, license, opinion (concepto) of, or registration, filing or recording
with, any Government Agency.

         "Hazardous Materials" shall mean any hazardous or toxic substances,
materials or wastes, defined, listed, classified or regulated as such in or
under any Environmental Laws, including, without limitation, asbestos, petroleum
or petroleum products (including gasoline, crude oil or any fraction thereof),
polychlorinated biphenyls and ureformaldehyde insulation.

         "Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person (a) evidenced by any notes, bonds, debentures or similar instruments made
or issued by such Person, (b) for borrowed money, or (c) for the deferred
purchase price of property or services, except for current trade accounts
payable incurred in the ordinary course of business of such Person which are to
be repaid in full not more than one year after the date on which such trade
accounts payable are originally incurred, (ii) the face amount of all letters of
credit issued for the account of such Person and all drafts drawn thereunder,
(iii) all liabilities secured by any Lien on any property owned by such Person,
whether or not such liabilities have been assumed by such Person, (iv) the
aggregate amount of Capitalized Lease Obligations of such Person, (v) all
Contingent Obligations of such Person and (vi) solely for purposes of Section
11.5, the aggregate amount of all net obligations under any Interest Rate
Protection or Other Hedging Agreement or under any similar type of agreement
entered into by such Person.

         "Indemnified Costs" shall have the meaning provided in Section 12.6.

         "Infraestructura 2000" shall mean Infraestructura Dos Mil S.A., a
corporation (sociedad anonima) organized and existing under the Law of Chile.

         "Initial Deposit" shall have the meaning specified in the Escrow
Agreement.

         "Intercreditor Agreement" shall have the meaning provided in the
definition of "Qualifying Endesa Spain Loan".

         "Interest Determination Date" shall mean, with respect to the Loans,
the second Business Day prior to the commencement of any Interest Period
relating to the Loans.


                                       12


         "Interest Expense" shall mean, for any period, all cash interest
expense (including imputed interest with respect to Capitalized Lease
Obligations and fees) with respect to any Indebtedness for borrowed money
(including, without limitation, the Obligations) of Enersis and its Chilean
Subsidiaries on an individual basis during such period pursuant to the terms of
such Indebtedness, all as calculated in accordance with Chilean GAAP.

         "Interest Period" shall mean with respect to any Loan (i) initially,
the period commencing on the Closing Date and ending on the last day of the
period selected by the Borrowers pursuant to the provisions set forth below and
(ii) thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the period
selected by the Borrowers pursuant to the provisions set forth below. The
duration of each such Interest Period shall be one, two, three or six months, as
the Borrowers may select (so long as no Default or Event of Default shall have
occurred and be continuing), upon notice received by the Administrative Agent
not later than 9:00 a.m. (New York City time) on the third Business Day prior to
the first day of such Interest Period; provided, however, that:

                  (a)      all Loans shall have the same Interest Period;

                  (b)      if any Interest Period would otherwise expire on a
         day that is not a Business Day, such Interest Period shall expire on
         the next succeeding Business Day unless the result of such extension
         would be to carry such Interest Period into another calendar month, in
         which event such Interest Period shall expire on the immediately
         preceding Business Day;

                  (c)      any Interest Period that begins on the last Business
         Day of a calendar month (or on a day for which there is no numerically
         corresponding day in the calendar month at the end of such Interest
         Period) shall, subject to clause (d) below, expire on the last Business
         Day of the calendar month which is the specified number of months after
         the commencement of such Interest Period; and

                  (d)      no Interest Period shall be selected if it extends
         beyond the last day of a calendar month containing a Principal Payment
         Date.

If, upon the expiration of any Interest Period, the Borrowers shall have failed
to select, or are not permitted to select, a new Interest Period as provided
above, the Administrative Agent shall select a new Interest Period in accordance
with the criteria set forth above; provided, however, that such Interest Period
may, at the discretion of the Administrative Agent, have a duration of one day
or one week with respect to any overdue amounts bearing interest as determined
pursuant to Section 2.7(b) hereof.

         "Interest Rate Protection or Other Hedging Agreements" shall mean any
interest rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedging agreement or other similar agreement or
arrangement, or any foreign exchange contracts, currency swap agreements,
commodity agreements or other similar agreements or arrangements designed to
protect against fluctuations in currency values or interest rates.


                                       13


         "Investments" shall mean, with respect to any Person, any direct or
indirect advance, loan, or other extension of credit (including, without
limitation, by means of any guarantee or similar arrangement) or any capital
contribution to (by means of transfers of property to others, payments for
property or services for the account or use of others, or otherwise), any
conversion into equity of intercompany Indebtedness, any entry into any limited
partnership or joint venture as a general partner or any other purchase or
ownership of any stocks, bonds, notes, debentures, limited liability company or
limited partnership interests or other securities of any other Person.
Investments shall not include accounts receivable arising in the ordinary course
of business.

         "Law" shall mean any constitution, treaty or convention, any statute,
law, code, ordinance, decree, order, rule, regulation, directive, guideline,
interpretation, direction, policy or request (whether or not having the force of
law), or any judicial, administrative or arbitral decision.

         "Lender" shall have the meaning provided in the first paragraph hereof.

         "Lending Office" shall mean, with respect to each Lender, the office of
such Lender specified opposite its name on the signature pages below, or such
other office as such Lender may from time to time specify as such to the
Borrowers or the Administrative Agent.

         "LIBOR" shall mean, with respect to an Interest Period, (a) the average
of the rates per annum which appear on Telerate Page 3750 for deposits in
Dollars, for a period approximately equal to such Interest Period, as of 11:00
a.m. (London time) on the date which is two Business Days prior to the
commencement of such Interest Period, divided (and rounded, if necessary, upward
to the next whole multiple of 1/32 of 1%) by a percentage equal to 100% minus
the then stated maximum rate of all reserve requirements, if any (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) applicable on the date two Business Days prior to the commencement of
such Interest Period to (i) any member bank of the United States Federal Reserve
System in respect of Eurocurrency liabilities (as defined in Regulation D) or
(ii) any Lender lending from a Lending Office in a member state participating in
the European Monetary Union by virtue of regulations of the European Central
Bank or (b) if applicable, such rate as is determined pursuant to Section
2.7(d).

         "Lien" shall mean any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), preference,
priority or other security agreement of any kind or nature whatsoever
(including, without limitation, any conditional sale or other title retention
agreement, any financing or similar statement or notice filed under any
recording or notice statute, and any lease having substantially the same effect
as any of the foregoing).

         "Loan" shall have the meaning provided in Section 2.1.


                                       14


         "Loan Documents" shall mean these Agreements, the Security Documents,
the Escrow Agreement, the Elesur Intercreditor Agreement, the Endesa-Chile 2003
Liquidity Facility Letter Agreement, the Endesa Internacional Support Agreement,
the Notes and other documentation required hereby or thereby to be executed and
delivered by a Borrower or any other Enersis Group Company from time to time
pursuant to the terms hereof or thereof (including, without limitation, any
Intercreditor Agreement, the Amended and Restated Elesur Intercreditor
Agreement, the Elesur Recognition of Debt, the Elesur Pledge Agreement, the
Endesa-Chile 2003 Liquidity Facility Recognition of Debt, the Endesa-Chile 2003
Liquidity Facility Pledge Agreement and any Additional Endesa Internacional
Support Agreement, in each case only from and after such time, and to the
extent, executed and delivered pursuant to the terms hereof), in each case as
modified, supplemented or amended from time to time pursuant to the terms hereof
or thereof.

         "Mandated Lead Arranger and Bookrunner" shall have the meaning provided
in the first paragraph hereof.

         "Manso de Velasco" shall mean Inmobiliaria Manso de Velasco Ltda., a
limited liability company (limitada) organized and existing under the Law of
Chile.

         "Material Adverse Effect" shall mean any material adverse effect on (i)
the business, operations, property, assets, condition (financial or otherwise)
or prospects of the Borrowers and the Relevant Subsidiaries, taken as a whole,
(ii) the ability of any Enersis Group Company to perform its obligations under
any Loan Document, (iii) the legality, validity, binding effect or
enforceability of any material provision of any of the Loan Documents, or (iv)
the rights and remedies of any of the Administrative Agent, the Collateral Agent
and the Lenders under any Loan Document; provided that in no event shall the
failure to comply with any financial covenant in the Refinanced Debt be deemed
by itself to give rise to a Material Adverse Effect.

         "Maturity Date" shall mean the date that is the last Principal Payment
Date.

         "Medium-Term Notes" shall mean the (euro)400,000,000 floating rate
notes due July 24, 2003 issued by Endesa-Chile Internacional pursuant to that
certain trust deed dated June 15, 2000 with Citicorp Trustee Company Limited as
trustee.

         "Minority Interests" shall mean, as of any date, the minority interests
of Enersis in other Persons (as calculated in accordance with Chilean GAAP and
as set forth in line item 5.23.00.00, titled INTERES MINORITARIO, or any
successor line item, of Enersis' most recently filed FECU).

         "Moody's" shall mean Moody's Investors Service, Inc., and its
successors.


                                       15


         "Net Asset Sale Proceeds" shall mean (i) (A) the Proceeds with respect
to Enersis in connection with any Asset Sale by Enersis, but excluding any such
Proceeds received from the sale of machinery or equipment and reinvested within
180 days of receipt in replacement machinery or equipment for the same line of
business and (B) any insurance proceeds (excluding any portion of such proceeds
corresponding solely to loss of profits) received by Enersis in respect of any
assets of Enersis to the extent not applied to replace or repair such assets
within 180 days of receipt, and (ii) all such Proceeds with respect to any
Enersis Subsidiary in connection with any Asset Sale or insurance proceeds in
respect of any assets of any Enersis Subsidiary, except to the extent such
Proceeds are not required to be made available to Enersis pursuant to Section
8.2; provided that after such time as at least 66-2/3% of the aggregate
principal amount of Loans outstanding as of the Closing Date shall have been
repaid, Net Asset Sale Proceeds shall not include Proceeds from any Asset Sale
to the extent such Proceeds are reinvested within 180 days of receipt in
Regulated Assets or properties and assets directly related thereto; provided
further that any proceeds that would otherwise constitute Net Asset Sale
Proceeds but for their potential reinvestment within 180 days in accordance with
this definition shall not be excluded from Net Asset Sale Proceeds unless such
proceeds are either promptly (x) applied to such reinvestment or (y) deposited
into the Asset Sale Reserve Escrow Account and utilized within 180 days of
receipt for such reinvestment or, to the extent not so utilized, promptly
applied by the Borrowers, no later than the day following the 180th day after
receipt (or, if not a Business Day, on the next succeeding Business Day), to
prepay, ratably, the Loans outstanding on such date in accordance with Section
5.3(a).

         "Net Debt Issuance Proceeds" shall mean (i) the Proceeds with respect
to a Borrower in connection with any issuance of Indebtedness (other than
pursuant to a cuenta corriente mercantil with a term no longer than 30 days),
other than Excluded Debt, by any Borrower, and (ii) the Proceeds with respect to
any Enersis Subsidiary in connection with any issuance of Indebtedness (other
than pursuant to a cuenta corriente mercantil with a term no longer than 30
days), other than Excluded Debt, by such Enersis Subsidiary, except to the
extent such Proceeds are not required to be made available to Enersis pursuant
to Section 8.2.

         "Net Equity Issuance Proceeds" shall mean (i) the Proceeds with respect
to Enersis in connection with the sale of any capital stock or other issuance of
equity securities by Enersis (excluding any Dividend Reinvestment Proceeds and
the proceeds of any equity issued to Endesa Spain or an Affiliate of Endesa
Spain solely to provide for the repayment of the Elesur Loan), provided that,
after Enersis has received in the aggregate U.S.$500,000,000 of such Proceeds,
"Net Equity Issuance Proceeds" shall mean 50% of any additional Proceeds from
such sale or issuance, and (ii) the Proceeds with respect to any Enersis
Subsidiary in connection with any sale of capital stock or other issuance of
equity securities by such Enersis Subsidiary (other than pursuant to a Permitted
Investment), except to the extent such Proceeds are not required to be made
available to Enersis pursuant to Section 8.2.

         "Net Proceeds" shall mean any Net Asset Sale Proceeds, Net Equity
Issuance Proceeds, Net Debt Issuance Proceeds and all amounts repaid by
Endesa-Chile to Enersis from time to time under the Endesa-Chile 2003 Liquidity
Facility.

         "Net Proceeds Escrow Account" shall mean the Net Proceeds Escrow
Account to be established pursuant to the Escrow Agreement.

         "Non-Subsidiary Affiliate" shall mean any Affiliate of Enersis or an
Enersis Subsidiary that is not also a Subsidiary of Enersis or an Enersis
Subsidiary, respectively.


                                       16


         "Noon Buying Rate" shall mean the noon buying rate in New York City for
cable transfers in foreign currencies as certified for customs purposes by the
Federal Reserve Bank of New York.

         "Note" and "Notes" shall have the meanings provided in Section 2.5(a).

         "Notice of Borrowing" shall have the meaning specified in Section 2.3.

         "Obligations" shall mean all present and future obligations,
liabilities and other amounts owing to the Lenders, the Administrative Agent and
the Collateral Agent pursuant to the terms of these Agreements or any other Loan
Document.

         "Observed Dollar Rate" shall mean the official exchange rate for
converting Pesos into Dollars (dolar observado) published by the Central Bank
pursuant to Paragraph No. 6 of Chapter I of Title I of the Compendium of Foreign
Exchange Regulations issued by the Central Bank on the date on which a Dollar
equivalent is to be determined.

         "Office" shall mean the office of the Administrative Agent, located at
(i) with respect to Dresdner Bank Luxembourg S.A., 26, rue du Marche-aux-Herbes,
L-2097, Luxembourg or such other office as it may hereafter designate as such to
the other parties hereto, or (ii) with respect to Banco Bilbao Vizcaya
Argentaria S.A., Via de los Poblados s/n, 4th Floor, 28033 Madrid, Spain or such
other office as it may hereafter designate as such to the other parties hereto.

         "Ownership Percentage" shall mean the percentage of a Subsidiary's
equity that is directly or indirectly owned by Enersis or Endesa Spain (other
than through Enersis), as the case may be; provided that, in the case of a
Permitted Investment in Cerj, the Ownership Percentages of Enersis (including
its ownership through Chilectra) and Endesa Spain shall be calculated as though
Enersis, Chilectra and Endesa Spain were the only shareholders of Cerj.

         "Payment Date" shall mean (i) the last day of any Interest Period and
(ii) with respect to any six-month Interest Period, the date which would be the
last day of a three-month Interest Period beginning on the same day as such
six-month Interest Period (determined in accordance with the definition of
Interest Period).

         "Payoff Certificate" shall have the meaning provided in Section 2.4(b).

         "Pehuenche" shall mean Empresa Electrica Pehuenche S.A., a corporation
(sociedad anonima) organized and existing under the Law of Chile.

         "Permitted Asset Swap" shall mean any Asset Sale the consideration for
which is Regulated Assets or properties and assets directly related thereto.

         "Permitted Capital Expenditures" shall have the meaning provided in
Section 10.2.


                                       17


         "Permitted Cash Equivalents" shall mean any investments in cash
equivalents but only to the extent such investments are permitted pursuant to
the policy of a Borrower in effect from time to time and approved by the board
of directors of such Borrower.

         "Permitted Endesa Spain Successor" shall mean any Person into which
Endesa Spain shall merge or to which it shall transfer all or substantially all
of its assets, provided that after giving effect to such transaction, the
unsecured long-term foreign currency debt rating of such Person by each of S&P
and Moody's shall be at least equal (including with respect to outlook) to the
unsecured long-term foreign currency debt rating of Endesa Spain immediately
prior to giving effect to such transaction.

         "Permitted Investment" shall mean an Investment by Enersis in a
Subsidiary of Enersis in an amount not to exceed Enersis' Ownership Percentage
of the Default Prevention Amount in respect of such Subsidiary; provided that
such Investment in fact prevents the occurrence of an Event of Default
hereunder.

         "Person" shall mean any individual, partnership, limited partnership,
joint venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or any agency, department or instrumentality
thereof.

         "Pesos" shall mean the freely transferable lawful money of Chile.

         "Prime Rate" shall mean the rate which Citibank N.A. announces from
time to time as its prime lending rate, the Prime Rate to change when and as
such prime lending rate changes. The Prime Rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any customer
by Citibank N.A., which may make commercial loans or other loans at rates of
interest at, above or below the Prime Rate.

         "Principal Payment Date" shall mean each of (i) the date that is 30
months after the Closing Date and (ii) each of the next five six-month
anniversaries thereof; provided that if any Principal Payment Date would fall on
a day that is not a Business Day, such Principal Payment Date shall be the next
succeeding Business Day, unless the result of such extension would be to cause
such Principal Payment Date to occur in another calendar month, in which event
such Principal Payment Date shall be the immediately preceding Business Day;
provided further that if any Principal Payment Date would fall on a day that is
not a Payment Date, such Principal Payment Date shall be the next succeeding
Payment Date in the same calendar month.

         "Pro Rata Portion" shall mean, with respect to any incurrence of
Qualifying Indebtedness, a portion of the Equity Collateral of Chilectra equal
to the proportion that the initial principal amount of the relevant Qualifying
Indebtedness represents to the aggregate principal amount of the Loans on the
Closing Date.


                                       18


         "Proceeds" shall mean, with respect to any Person in connection with
any transaction, the aggregate amount of cash proceeds received from time to
time (whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf, or on account of, such Person in
connection with the relevant transaction after deducting therefrom only (without
duplication) (i) reasonable and customary brokerage commissions, underwriting
fees and discounts, legal fees, finder's fees and other similar fees and
commissions and reasonable and documented out-of-pocket expenses and (ii) in the
case of an Asset Sale, (A) the taxes paid or payable in respect thereof after
taking into account any reduction in tax liability due to available tax credits
or deductions and any tax sharing arrangements and (B) the amount of any
Indebtedness secured by a Lien on any asset subject to such Asset Sale that, by
the terms of such transaction, is required to be repaid upon such disposition,
in each case to the extent, but only to the extent, that the amounts so deducted
are, at the time of receipt of such cash, actually paid or payable to a Person
that is not an Affiliate of such Person or Enersis or any Affiliate of Enersis
and are properly attributable to such transaction or to the property that is the
subject thereof. If there shall occur any reduction in the amount of taxes
payable referred to in clause (ii)(A) of the preceding sentence, the amount of
such reduction (to the extent deducted pursuant to such clause (ii)(A)) shall
then be deemed to be Proceeds.

         "Qualifying Endesa Spain Loan" shall mean any loan made by Endesa Spain
or any of its Affiliates to either Borrower, the terms of which provide that no
principal or interest is payable thereunder at any time prior to the date that
is one year after the Maturity Date, and in connection with which (and no later
than the time such loan is made) (i) the lender thereunder and the
Administrative Agent duly authorize, execute and deliver an intercreditor
agreement, in substantially the form attached hereto as Exhibit R (an
"Intercreditor Agreement"), and the lender thereunder delivers a letter from the
Person appointed as the process agent for such lender in substantially the form
attached hereto as Exhibit AA and indicating such Person's consent to its
appointment by such lender as its agent to receive service of process in
connection therewith, (ii) to the extent such loan is not made by Endesa Spain
or Endesa Internacional, Endesa Internacional and the Administrative Agent duly
authorize, execute and deliver an Additional Endesa Internacional Support
Agreement guaranteeing all payment obligations of such lender under such
Intercreditor Agreement and (iii) the Borrowers shall have delivered (or caused
to be delivered) to the Administrative Agent opinions addressed to the
Administrative Agent, the Collateral Agent and the Lenders of legal counsels to
the lender party to the intercreditor agreement and Endesa Internacional (to the
extent an Additional Endesa Internacional Support Agreement is required to be
delivered pursuant to clause (ii)), in each case in form and substance and from
such counsels and in such jurisdictions reasonably satisfactory to legal counsel
or counsels to the Administrative Agent and the Collateral Agent.

         "Qualifying Indebtedness" shall mean any Indebtedness (i) having an
average life at least equal to that of the Loans at the time such Indebtedness
is incurred and (ii) all of the Proceeds of which are applied to prepay amounts
outstanding under the Loans.

         "Recognition of Debt" shall mean a reconocimiento de deuda, executed by
the borrower of the Indebtedness acknowledged in such instrument, in
substantially the form attached hereto as Exhibit D.

         "Reference Banks" shall mean the principal London offices of four major
banks in the London interbank market, as reasonably selected by the
Administrative Agent.

         "Refinanced Debt" shall have the meaning provided in Section 2.2.


                                       19


         "Register" shall have the meaning provided in Section 13.18.

         "Regulated Assets" shall mean, with respect to any Person, the assets
of such Person, the sole or principal use (or, in the case of shares of capital
stock or other ownership interests, the sole or principal business of the
issuer) of which consists of (i) the generation, transmission, trading,
distribution and/or supply of electric energy, (ii) activities related to the
production, distribution and/or supply of potable water, and (iii) all other
for-profit activity regulated by a Government Agency.

         "Regulation D" shall mean Regulation D of the Board of Governors of the
United States Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.

         "Relevant Subsidiary" shall mean, with respect to Enersis as of any
date, Chilectra and any other Subsidiary that meets any of the following
conditions:

         (a)      Enersis' and any Enersis Subsidiaries' Investments in and
                  advances to the Subsidiary exceed 5% of the Consolidated
                  Assets of Enersis (it being understood that, for a proposed
                  business combination to be accounted for as a pooling of
                  interests, this condition is also met when the number of
                  common shares exchanged by Enersis exceeds 5% of its total
                  common shares outstanding at the date the combination is
                  initiated); or

         (b)      Enersis' and any Enersis Subsidiaries' proportionate share of
                  the total assets (after intercompany eliminations) of the
                  Subsidiary exceeds 5% of the Consolidated Assets of Enersis;
                  or

         (c)      after the Effective Date, Enersis has made a Permitted
                  Investment in the Subsidiary;

         provided, however, that in the case of Central Costanera S.A., a
         corporation (sociedad anonima) organized and existing under the Law of
         the Republic of Argentina and Empresa Distribuidora Sur S.A., a
         corporation (sociedad anonima) organized and existing under the Law of
         the Republic of Argentina, such entities shall be considered Relevant
         Subsidiaries only if they meet any of the conditions set forth in
         clauses (a) or (b) above using in each case a 10% threshold in lieu of
         5%; and provided further that a Subsidiary that becomes and is, at the
         time in question, a Relevant Subsidiary solely as a result of clause
         (c) above will cease to be a Relevant Subsidiary once all Permitted
         Investments in that Subsidiary have been repaid or otherwise returned
         to Enersis. All determinations set forth in clauses (a) and (b) above
         shall be made by reference to the most recent consolidated financial
         statements of Enersis prepared in accordance with U.S. GAAP and
         furnished to the Lenders and described in Section 7.10(a)(v) or
         required to be furnished to the Lenders pursuant to Section 8.4(c).


                                       20


         "Required Lenders" shall mean (i) at any time prior to the Closing
Date, Lenders holding more than 66-2/3% of the Total Commitment under both
Agreements (on an aggregate basis) and (ii) at any time on or after the Closing
Date, the holders of more than 66-2/3% of the then aggregate unpaid principal
amount of all of the Loans under both Agreements (on an aggregate basis).

         "Sale Lease-Back Transaction" shall have the meaning provided in
Section 10.13.

         "Santa Rosa Property" shall mean the real properties listed on Schedule
C hereto which are located at Santa Rosa 76, in Santiago, Chile.

         "Security Documents" shall mean the Chilectra Pledge Agreement, the
Chilectra Cayman Pledge Agreement, the Share Pledge Agreement, the Endesa-Chile
2003 Liquidity Facility Pledge Agreement (but only from and after such time, and
to the extent, required to be executed and delivered pursuant to Section 8.14
and the Endesa-Chile 2003 Liquidity Facility Letter Agreement), the Elesur
Pledge Agreement (but only from and after such time, and to the extent, executed
and delivered in accordance with Section 11.14) and any and all contracts,
instruments and other documents now or hereafter executed and delivered in
connection with these Agreements pursuant to which any security interest in
Collateral is granted to the Collateral Agent for the benefit of the Lenders.

         "S&P" shall mean Standard & Poor's Rating Services, a division of The
McGraw-Hill Companies, Inc., and its successors.

         "Share Pledge Agreement" shall mean the Prenda Comercial Sobre
Acciones, to be dated on or prior to the Closing Date, between Enersis and the
Collateral Agent, in substantially the form attached hereto as Exhibit I, the
terms of which have been acknowledged therein by Chilectra.

         "Spain" shall mean the Kingdom of Spain.

         "Stockholder's Equity" shall mean, as of any date and without
duplication, the sum of all items which in conformity with Chilean GAAP would be
included in stockholders' equity in the consolidated balance sheet of Enersis as
of such date plus, to the extent not included, the aggregate principal amount
outstanding under any Qualifying Endesa Spain Loans plus Minority Interests of
Enersis and its Consolidated Subsidiaries as of such date, as determined on a
consolidated basis in accordance with Chilean GAAP.

         "Subsidiary" shall mean, as to any Person, any corporation or other
entity of which securities or other ownership interests having by the terms
thereof ordinary voting power to elect a majority of the board of directors or
other persons having similar functions of such corporation or other entity
(irrespective of whether or not at the time securities or other ownership
interest of such corporation or other entity shall have or might have voting
power by reason of the happening of any contingency) are at the time directly or
indirectly owned by such Person.


                                       21


         "SVS" shall mean Superintendencia de Valores y Seguros, an agency of
the Chilean government.

         "Syndication Agent" shall have the meaning provided in the first
paragraph hereof.

         "Taxes" shall have the meaning provided in Section 5.5.

         "Telerate Page 3750" shall mean the display designated as page "3750"
on the BRIDGE Telerate Service (or such other page as may replace page "3750" on
such service).

         "Total Commitment" shall mean, with respect to each Credit Agreement,
the sum of the Commitments to make Loans to the Borrower thereunder, which sum
shall not exceed U.S.$200,000,000 in the case of Enersis, and
U.S.$1,387,504,578.16 in the case of Enersis Cayman.

         "UF" shall mean Unidad de Fomento, an inflation adjusted unit of
account having a Peso equivalent published monthly by the Central Bank for each
day in the immediately following month.

         "United States" and "U.S." shall each mean the United States of
America.

         "U.S. GAAP" shall mean generally accepted accounting principles in the
United States, consistently applied.

         "Winding-up" shall mean, as to any Person, any case, proceeding or
action relating to bankruptcy, winding-up, dissolution, liquidation,
amalgamation, reconstruction, reorganization, administration, insolvency,
conservatorship or relief of debtors, or any other similar case, proceeding or
action under the Law of any jurisdiction in which such Person is incorporated,
domiciled or resident or carries on business or has property or assets.

         1.2.     Principles of Construction.

         (a)      All references to Sections, Schedules and Exhibits are to
Sections, Schedules and Exhibits in or to these Agreements unless otherwise
specified. The words "hereof," "herein" and "hereunder" and words of similar
import when used in these Agreements shall refer to each Credit Agreement as a
whole and not to any particular provision thereof.

         (b)      All accounting terms not specifically defined herein shall be
construed in accordance with Chilean GAAP.

         Section 2. Amount and Terms of Credit.

         2.1.     Agreement to Lend. Subject to and upon the terms and
conditions set forth herein, each Lender severally and not jointly agrees to
lend to the Borrower or Borrowers specified opposite its name on Schedule B
hereto on the Closing Date the amount of its Commitment to such Borrower (each
such loan, a "Loan" and Loans made by a Lender or all the Lenders to the
Borrowers, as the context requires, the "Loans"). Once repaid or prepaid, the
Loans may not be reborrowed.


                                       22


         2.2.     General Purpose. Each Loan made under each Credit Agreement
shall be used in each case solely to repay, to the Lender making such Loan, the
outstanding Indebtedness of the Borrower to such Lender listed in Schedule A
hereto (the "Refinanced Debt").

         2.3.     Notice of Borrowing. The Borrowers shall request the
Borrowings under the Agreements in the full amount of the Commitments by a
single written notice in substantially the form attached hereto as Exhibit A,
appropriately completed to specify the Closing Date (which shall be a Business
Day) and the initial Interest Period, and irrevocably instructing each Lender to
apply the full amount of each Borrowing to the repayment of the Refinanced Debt
in the manner described in Section 2.4. Such notice and instruction (the "Notice
of Borrowing") shall be irrevocable and given to the Administrative Agent at its
Office not later than 9:00 a.m. (New York City time) on the third Business Day
prior to the proposed Closing Date. The Administrative Agent shall promptly
transmit such Notice of Borrowing to each Lender.

         2.4.     Making of Loans; Repayment of Refinanced Debt.

         (a)      No later than 11:00 a.m. (New York City time) on the Closing
Date, each Lender will make available in Dollars, through such Lender's Lending
Office, the full amount of such Lender's Commitment to each Borrower, and credit
the amount so made available to such Borrower. Each Borrower hereby irrevocably
instructs each Lender making a Loan to it immediately to apply such amount to
the payment in full of the aggregate principal amount of the Refinanced Debt
owed to such Lender. The transaction contemplated by this Section 2.4(a) shall
be deemed to have taken effect unless one or more Lenders shall have provided to
the Administrative Agent written notice by no later than 9 a.m. (New York City
time) on the date set forth in the Notice of Borrowing as the date of the
"Proposed Borrowing" (as defined therein) stating that it will not make the
Loans in the full amount of its Commitment or apply such amount to the payment
of the Refinanced Debt owed to such Lender (as such amount is set forth in the
Payoff Certificate).

         (b)      On the Closing Date, simultaneously with the making of the
Loans and the repayment of the Refinanced Debt, each Borrower shall pay to each
Lender making a Loan to it (either directly or through the administrative agent
with respect to such Refinanced Debt, in each case in accordance with the terms
of the applicable Refinanced Debt), in immediately available funds in Dollars,
any and all interest accrued and unpaid in respect of the Refinanced Debt to,
but excluding, the Closing Date, together with premium, taxes, breakage costs
(to the extent such breakage costs are known at such time) and other amounts
then due and owing to such Lender in respect of such Refinanced Debt in
accordance with the terms thereof and in the amounts set forth in a certificate
(a "Payoff Certificate") provided by such Lender to the relevant Borrower no
later than two days prior to the Closing Date.


                                       23


         (c)      Each Lender agrees that (x) it shall, upon payment in full of
the principal outstanding thereunder and all other amounts owing thereunder (in
each case as set forth in the Payoff Certificate), deliver to the relevant
Borrower such documentation, cancelled notes or other instruments required to be
delivered upon satisfaction of the Refinanced Debt owing to such Lender, in
accordance with the terms of such Refinanced Debt and (y) upon payment in full
of the principal outstanding thereunder and all other amounts owing thereunder
(in each case as set forth in the Payoff Certificate), all claims of the Lenders
in respect of the Refinanced Debt shall be released in full and all arrangements
in respect of the Refinanced Debt (except for any breakage costs not set forth
in the Payoff Certificate and any provisions of such documents intended to
survive such payment) shall be terminated.

         2.5.     Notes.

         (a)      Each Borrower's obligation to pay the principal of, and
interest on, each Loan made by a Lender to such Borrower shall be evidenced by a
promissory note duly executed and delivered by such Borrower, substantially in
the form of Exhibit B, with blanks appropriately completed in conformity
herewith (each, a "Note" and, collectively, the "Notes"). Each Note issued to
each Lender (i) shall be payable to the order of such Lender and be dated the
Closing Date, (ii) shall be in a stated principal amount equal to the amount
borrowed from such Lender and be payable in the principal amount of the Loan
evidenced thereby, (iii) shall be payable on each Principal Payment Date in the
amounts specified for each such date in Section 5.1, (iv) shall bear interest as
provided in Section 2.7, (v) shall be entitled to the benefits of these
Agreements and the other Loan Documents and (vi) shall qualify as a titulo
ejecutivo in Chile subject, in the case of the Notes issued by Enersis Cayman,
to compliance with certain procedural and tax requirements under Chilean Law.
Each Lender will note on its internal records the amount of each Loan made by it
and each payment in respect thereof and will, prior to any transfer of its Note,
endorse on the reverse side thereof the outstanding principal amount of the Loan
evidenced thereby. Failure to make any such notation, however, shall not affect
the Borrower's obligations in respect of such Loan.

         (b)      No Lender shall, in connection with the enforcement of any
Note, be required to introduce into evidence or prove the existence of any
Credit Agreement or the other Loan Documents (other than such Note) or the
making of Loans. In addition, each Borrower shall, from time to time at its
expense, execute and/or deliver to each Lender that has made Loans to such
Borrower, such amendments to the Notes that may, in the reasonable judgment of
such Lender, be necessary and desirable, in order to ensure that the Notes duly
reflect the terms of these Agreements. Each of the Lenders agrees that it shall
not exercise its right under Section 2(b) of its Note to declare the full amount
of all obligations under such Note to be due and payable prior to the stated
maturity and shall not make demand for payment with respect thereto unless and
until the principal of all Loans shall have become due and payable (whether by
acceleration or otherwise).

         2.6.     Default by Lender. No Lender shall be responsible for any
default by any other Lender in respect of its obligation to make any Loan
hereunder. In the event that any Lender shall for any reason fail to make any
Loan required hereunder on the Closing Date and to provide the notice to the
Administrative Agent in accordance with the last sentence of Section 2.4(a), and
such failure shall continue past 11:00 a.m., New York City time, on the Business
Day immediately following the Closing Date, such defaulting Lender shall be
liable for any and all costs, losses and expenses incurred by the Administrative
Agent, the Collateral Agent and the Lenders in connection with the failure of
the Borrowings to occur and the Refinanced Debt to be repaid; provided that the
Borrowers shall pay the amount of such costs, losses and expenses to the Lenders
(other than the defaulting Lender), the Administrative Agent and the Collateral
Agent to the extent not promptly paid by the defaulting Lender; provided further
that no such payment by the Borrowers shall relieve the defaulting Lender of its
obligations hereunder, and the Borrowers shall be subrogated to the rights of
the Administrative Agent, the Collateral Agent and the Lenders with respect
thereto.


                                       24


         2.7.     Interest.

         (a)      Each Borrower shall pay interest in respect of the unpaid
principal amount of each Loan made to such Borrower from the Closing Date until
the maturity thereof (whether by acceleration or otherwise) at a rate per annum
which shall, during each Interest Period applicable thereto, be equal to LIBOR
for such Interest Period plus the Applicable Margin.

         (b)      Overdue principal and, to the extent permitted by applicable
Law, overdue interest in respect of any Loan and any other overdue amount
payable by any Borrower hereunder shall bear interest at a rate per annum equal
to LIBOR as determined by the Administrative Agent plus the sum of (i) the
Applicable Margin and (ii) 2%; provided, however, that the interest rate after
maturity shall not be less than the rate of interest applicable thereto at
maturity plus 2%.

         (c)      Accrued (and theretofore unpaid) interest shall be payable (i)
on each Payment Date, (ii) upon any prepayment (on the amount prepaid), (iii) at
maturity (whether by acceleration or otherwise) and (iv) after such maturity, on
demand.

         (d)      On each Interest Determination Date, the Administrative Agent
shall determine the interest rate and shall promptly notify the Borrowers and
the Lenders thereof. Each such determination shall, absent manifest error, be
final and conclusive and binding on all parties hereto. If, on the Interest
Determination Date, the Telerate Page 3750 is not being displayed, the
Administrative Agent will request the Reference Banks to provide the
Administrative Agent with their offered quotations for deposits in Dollars, for
a period substantially equal to the applicable Interest Period and in an amount
substantially equal to the outstanding principal amount of the Loans, to prime
lenders in the London interbank market at approximately 11:00 a.m., London time,
on such Business Day. If at least two such quotations are provided, LIBOR shall
be calculated using the average of such quotations, and divided (and rounded, if
necessary, upward to the next whole multiple of 1/32 of 1%) by a percentage
equal to 100% minus the then stated maximum rate of all reserve requirements, if
any (including, without limitation, any marginal, emergency, supplemental,
special or other reserves) applicable on the Interest Determination Date to any
member bank of the United States Federal Reserve System in respect of
Eurocurrency liabilities (as defined in Regulation D). If (A) fewer than two
Reference Banks provide quotations to the Administrative Agent to determine
LIBOR, or (B) the Administrative Agent is advised by the Reference Banks that
deposits in Dollars are not offered to the Reference Banks in the London
interbank market for such Interest Period, the Administrative Agent shall
forthwith give notice thereof to the Borrowers and the Borrowers and the
Administrative Agent shall negotiate in good faith to determine LIBOR or a
substitute rate. Pending such determination, the Interest Rate shall be computed
on the basis of LIBOR as determined for the immediately preceding Interest
Period. If the Borrowers and the Administrative Agent reach agreement as to the
determination of LIBOR or a substitute rate within 15 calendar days after the
giving of notice by the Administrative Agent, the Loans shall bear interest at
an interest rate equal to the sum of LIBOR or such substitute rate as agreed by
the Borrowers and the Administrative Agent and the Applicable Margin. If the
Borrowers and the Administrative Agent do not reach agreement within such
period, the Loans shall bear interest at an interest rate equal to the sum of
the Alternative Rate in effect from time to time and the Applicable Margin until
such time as LIBOR can be determined.


                                       25


         2.8.     Increased Costs, Illegality, Etc.

         (a)      In the event that any Lender shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
on all the parties hereto):

         (i)      at any time, that such Lender shall incur increased costs or
                  reductions (other than Taxes, which are governed by Section
                  5.5) in the amounts received or receivable or become liable to
                  make any payment or forego any interest or other return
                  hereunder with respect to any Loan because of (x) any change
                  on or after the Effective Date in any applicable Law (or in
                  the interpretation or administration thereof by any Government
                  Agency charged with the administration thereof and including
                  the introduction of any new Law) such as, for example, but not
                  limited to, a change in official reserve requirements, but, in
                  all events, excluding reserves required under Regulation D or
                  under any applicable regulations of the European Central Bank,
                  in each case, to the extent included in the computation of
                  LIBOR and/or (y) other circumstances affecting such Lender or
                  the relevant London interbank market, or the position of such
                  Lender in such market; or

         (ii)     at any time, that the making or continuance of any Loan (x)
                  has been made or is asserted to be unlawful by any Law, (y)
                  has been made impossible by compliance by such Lender with any
                  Law or (z) has been made impracticable as a result of a
                  contingency occurring on or after the Effective Date which
                  materially and adversely affects the relevant London interbank
                  market;

then, and in any such event, such Lender shall promptly give notice (by
telephone confirmed in writing) to each Borrower to which it has made a Loan and
to the Administrative Agent of such determination (which notice the
Administrative Agent shall promptly transmit to each other Lender). Thereafter,
(x) in the case of clause (i) above, the relevant Borrower shall pay to the
Lender, upon written demand therefor, such additional amounts (in the form of an
increased rate of, or a different method of calculating, interest or otherwise
as such Lender in its sole discretion shall determine) as shall be required to
compensate such Lender for such increased costs or reductions in amounts
received or receivable hereunder (a written notice as to the additional amounts
owed to such Lender, showing in reasonable detail the basis for the calculation
thereof, submitted to such Borrower by such Lender shall, absent manifest error,
be final and conclusive and binding on all the parties hereto), and (y) in the
case of clause (ii) above, the relevant Borrower shall take one of the actions
specified in Section 2.8(b) as promptly as possible and, in any event, within
the time period required by Law.


                                       26


         (b)      At any time that any Loan is affected by the circumstances
described in Section 2.8(a)(i) or (ii), the relevant Borrower may (and in the
case of the circumstances described in Section 2.8(a)(ii), the relevant Borrower
shall) (x) if no Loans have then been made, cancel all Borrowings by the
Borrowers by giving the Administrative Agent notice by telephone (confirmed in
writing) of cancellation on the same date that the relevant Borrower receives
notice of such circumstance pursuant to Section 2.8(a)(ii) above, or (y) if any
Loan is outstanding hereunder upon at least three Business Days' written notice
to the Administrative Agent, (A) if, but only if, the affected Lender notifies
the relevant Borrower that use of the Alternative Rate would remedy such
circumstances, require that the interest rate applicable to such Loan be the
Alternative Rate in effect from time to time plus the Applicable Margin or (B)
prepay such Loan pursuant to Section 5.2; provided, however, that if more than
one Lender is affected at any time, then all affected Lenders must be treated
the same pursuant to this Section 2.8(b).

         (c)      If any Lender determines at any time that the adoption of any
applicable Law concerning capital adequacy on or after the Effective Date, or
any change on or after the Effective Date in any applicable Law concerning
capital adequacy, or any change on or after the Effective Date in the
interpretation or administration thereof by any Government Agency, will have the
effect of increasing the amount of capital required or expected to be maintained
by such Lender or any corporation controlling such Lender based on the existence
of such Lender's obligations or loans hereunder, including, without limitation,
any increased costs resulting from the implementation of the proposed revised
Basel Capital Accord as outlined in the Consultative Document issued by the
Basel Committee on Banking Supervision in January 2001 (or any superseding
version of the Basel Capital Accord released by the Basel Committee on Banking
Supervision) or resulting from the application of any capital adequacy formula
implemented under such proposed revised Basel Capital Accord in combination with
any subsequent events relating to the Borrowers, then each Borrower to which
such Lender has made a Loan shall pay to such Lender, upon its written demand
therefor, such additional amounts as shall be required to compensate such Lender
or such corporation for the increased cost to such Lender or such corporation or
the reduction in the rate of return to such Lender or such other corporation as
a result of such increase of capital. In determining such additional amounts,
such Lender will act reasonably and in good faith and will use averaging and
attribution methods which are reasonable, provided that such Lender's
determination of compensation owing under this Section 2.8(c) shall, absent
manifest error, be final and conclusive and binding on all the parties hereto.
Each Lender, upon determining that any additional amounts will be payable
pursuant to this Section 2.8(c), will give prompt written notice thereof to the
relevant Borrower, which notice shall show in reasonable detail the basis for
calculation of such additional amounts, although the failure to give any such
notice shall not release or diminish any of the relevant Borrower's obligations
to pay additional amounts pursuant to this Section 2.8(c).


                                       27


         (d)      Notwithstanding anything contained in this Section 2.8 to the
contrary, no Borrower will be required to pay any additional amount allocable to
any period more than one year prior to the date a demand in respect thereof was
made under Section 2.8(a) or (c), as the case may be, unless the change giving
rise to such demand is retroactive.

         2.9.     Compensation. Each Borrower shall compensate any Lender making
a Loan to it, upon such Lender's written request (which request shall set forth
in reasonable detail the basis for requesting such compensation and shall,
absent manifest error, be final and conclusive and binding on all the parties
hereto), for all reasonable costs, losses, expenses and liabilities (including,
without limitation, any cost, loss, expense or liability incurred by reason of
the liquidation or reemployment of deposits or other funds required by such
Lender or the Administrative Agent to fund, maintain or make any Loan) which
such Lender may sustain: (i) if for any reason (other than a default by such
Lender or the Administrative Agent) the Borrowings do not occur on the Closing
Date; (ii) if any repayment (including any prepayment made pursuant to Section
5) is made on a date which is not the last day of an Interest Period; (iii) if
any prepayment is not made on any date specified in a notice of prepayment given
by such Borrower; or (iv) as a consequence of (x) a default by such Borrower to
repay the Loans when required by the terms of these Agreements or the Notes or
(y) any action taken pursuant to Section 2.8(b).

         2.10.    Change of Lending Office. Each Lender agrees that, upon the
occurrence of any event giving rise to the operation of Section 2.8(a)(i) or
(ii), Section 2.8(c) or Section 5.5, it will, if requested by the relevant
Borrower, use reasonable efforts (subject to overall policy considerations of
such Lender) to designate another Lending Office for any Loan affected by such
event, provided that such designation would not, in such Lender's determination
(which shall, absent manifest error, be final and conclusive and binding on all
parties hereto), cause the Lender to suffer any material economic disadvantage
or any legal or regulatory disadvantage. Nothing in this Section 2.10 shall
affect or postpone any obligations of such Borrower or the right of such Lender
provided in Section 2.8 or Section 5.5.

         2.11.    Replacement of Lenders. If, upon the occurrence of an event
giving rise to the operation of Sections 2.8 or 5.5 which results in the
affected Lender charging to a Borrower increased costs or taxes in excess of
those being generally charged by the other Lenders, such Borrower shall have the
right to cause such Lender to assign its Loans and Notes pursuant to Section
13.4 to one or more other Eligible Transferees (including another Lender)
identified by such Borrower; provided that such assignment shall be acceptable
to the Administrative Agent and shall not (in the judgment of the affected
Lender), be disadvantageous (economically or in any other respect) to the
affected Lender.

         Section 3. Security.

         3.1.     The Collateral. The Loans shall be secured by a perfected
first-priority security interest in the Collateral.


                                       28


         3.2.     Release of Security. No Collateral other than the Equity
Collateral shall be released at any time until all Obligations have been paid in
full. No Equity Collateral shall be released until the date (the "Equity Release
Date") on which (x) 66-2/3% or more of the aggregate principal amount of the
Loans outstanding on the Closing Date shall have been repaid and (y) no
Qualifying Indebtedness shall be secured on such date by a Lien on any Equity
Collateral, at which time all Equity Collateral shall be released; provided
that, if any Borrower or any of its Subsidiaries incurs Qualifying Indebtedness
prior to such date, the Collateral Agent shall release a Pro Rata Portion of the
Equity Collateral, but only in such amounts so that (i) prior to the Equity
Release Date, the Collateral Agent retains a first-priority security interest in
at least 51% of the outstanding capital stock of Chilectra and (ii) prior to
such time as 33 1/3% or more of the aggregate principal amount of the Loans
outstanding on the Closing Date shall have been repaid, such release is in
connection with an incurrence of Qualifying Indebtedness having an aggregate
principal amount of at least U.S.$150,000,000 (or its equivalent in other
currencies).

         3.3.     Application of Proceeds. The proceeds of any sale or
disposition of all or any part of the Collateral pursuant the Security Documents
shall be applied as follows:

         (a)      First, to the reimbursement of sums expended by the Lenders
and/or the Administrative Agent and/or the Collateral Agent pursuant to the
Security Documents and to the payment of the costs and expenses of such sale or
disposition, or any other enforcement action pursuant to the Security Documents,
including any fees, reasonable attorney's fees, and all other expenses incurred
in connection therewith, with a reasonable reserve for any liabilities incurred
in connection therewith;

         (b)      Second, to the Administrative Agent to be applied ratably to
the payment in full of other Obligations; and

         (c)      Third, to the pledgor or as a court of competent jurisdiction
otherwise directs.

         Section 4. Fees; Termination of Commitments.

         4.1.     Fees. The Borrowers shall pay to the Administrative Agent such
fees as have been agreed to in writing by the Borrowers and the Administrative
Agent. The Borrowers shall pay to each Mandated Lead Arranger and Bookrunner
such fees as have been agreed to in writing by the Borrowers and such Mandated
Lead Arranger and Bookrunner.

         4.2.     Mandatory Termination of Commitments. The Total Commitment
(and the Commitment of each Lender) shall, if the Closing Date has not occurred
on or prior to such date, terminate in its entirety on the Availability Expiry
Date.

         Section 5. Prepayments; Payments.

         5.1.     Scheduled Repayments. Subject to adjustment pursuant to
Sections 5.2 and 5.3(e), each Borrower shall repay the Loans on each Principal
Payment Date in an aggregate principal amount (for each such Loan on each such
date) equal to one-sixth of the aggregate principal amount of such Loan
outstanding on the Closing Date.


                                       29


         5.2.     Voluntary Prepayments. The Borrowers shall have the right to
prepay the Loans, without premium or penalty, in whole or in part from time to
time on the following terms and conditions: (i) the Borrowers shall give the
Administrative Agent at its Office at least three Business Days' prior written
notice (which shall be irrevocable) of each Borrower's intent to prepay its
Loans and the amount of such prepayment; (ii) such prepayment shall be in an
aggregate principal amount of not less than U.S.$25,000,000 and integral
multiples of U.S.$5,000,000 in excess thereof; (iii) each Borrower shall have
received all required Governmental Approvals with respect to such prepayment;
(iv) each Borrower shall prepay the same percentage of the outstanding amount of
its Loans; and (v) each prepayment by a Borrower in respect of its Loans shall
be applied pro rata among such Loans, in inverse order of the scheduled
repayments of such Loans to be made pursuant to Section 5.1; provided that the
Borrowers shall reimburse the Lenders for any amounts that may be due to such
Lenders pursuant to Section 2.9 in connection with such prepayment.

         5.3.     Mandatory Prepayments.

         (a)      All Net Proceeds shall be promptly applied by the Borrowers as
follows: (i) if the Net Proceeds are realized or received on or prior to
November 20, 2003, either deposited into the 2003 Bond Escrow Account or the Net
Proceeds Escrow Account in accordance with, and for application as provided in,
the Escrow Agreement; or (ii) if the Net Proceeds are realized or received after
November 20, 2003, deposited into the Net Proceeds Escrow Account for
application as provided in the Escrow Agreement; provided that, in each case, if
the Net Proceeds are realized or received no more than three Business Days prior
to a Payment Date and are not deposited into the 2003 Bond Escrow Account or the
Net Proceeds Escrow Account, the Borrowers shall pay such Net Proceeds directly
to the Administrative Agent on such Payment Date to be applied to prepay,
ratably, the Loans outstanding on such Payment Date; and provided further that
the Borrowers may, at their option, pay any Net Proceeds realized or received
immediately to the Administrative Agent to be applied to prepay, ratably, the
Loans outstanding at such time. To the extent amounts are deposited by the
Borrowers into the 2003 Bond Escrow Account or the Net Proceeds Escrow Account
in accordance with the preceding sentence, the Borrowers shall promptly give
notice of the same to the Administrative Agent and, to the extent such amounts
are (i) deposited into the Net Proceeds Escrow Account or (ii) deposited into
the 2003 Bond Escrow Account and to be used to prepay the Loans, the
Administrative Agent shall promptly give notice to the Escrow Agent of the next
Payment Date on which such funds shall be released to the Administrative Agent.
Any funds released to the Administrative Agent under the Escrow Agreement
(including, without limitation, from the 6.90% Notes Escrow Account and the
Asset Sale Reserve Escrow Account) shall be applied to prepay, ratably, the
Loans outstanding on the date so released. Notwithstanding the foregoing, (A) in
no event shall the amount deposited in the 2003 Bond Escrow Account exceed (in
the aggregate) U.S.$300,000,000 plus the amount necessary to pay the outstanding
principal amount of any 6.60% Notes that may be put by the holders of the 6.60%
Notes to Enersis Cayman on December 1, 2003 and (B) unless otherwise requested
by the Required Lenders, no funds shall be required to be released by the
Administrative Agent under the Escrow Agreement on a Payment Date until all
amounts to be applied pursuant to this Section 5.3(a) on such Payment Date
exceed U.S.$1,000,000.


                                       30


         (b)      On the first Payment Date to occur after April 20 of each year
after December 31, 2003, the Loans then outstanding shall be prepaid by the
Borrowers, ratably, in an aggregate amount equal to 75% of Excess Cash for the
immediately preceding fiscal year (as determined by reference to the audited
financial statements of Enersis referenced in Section 8.4(b) and prepared in
accordance with Chilean GAAP for such fiscal year).

         (c)      On the first Payment Date to occur at least 31 days after the
date of any dividend payment or distribution by Enersis to Endesa Spain (or any
of its Affiliates), the Loans then outstanding shall be prepaid by the
Borrowers, ratably, in an amount equal to 100% of the Dividend Reinvestment
Proceeds corresponding to such dividend payment or distribution.

         (d)      All amounts owed to each Lender under these Agreements shall
become immediately due and payable at the option of such Lender upon the
occurrence of a Change of Control. Each Lender electing such prepayment shall,
not later than 30 Business Days after receipt of written notice from the
Borrowers of the occurrence of a Change of Control, require a prepayment of all
amounts owed to such Lender hereunder and provide written notice thereof to the
relevant Borrower.

         (e)      All mandatory prepayments required to be made pursuant to
clauses (a), (b) and (c) of this Section 5.3 shall be applied by each Borrower
to prepay the same percentage of the outstanding principal amount of the Loans
under its Credit Agreement. All mandatory prepayments required to be made
pursuant to (a) and (c) of this Section 5.3 shall be applied by each Borrower to
pay ratably its outstanding Loans in direct order of the scheduled repayments of
such Loans to be made pursuant to Section 5.1. All mandatory prepayments
required to be made under clause (b) of this Section 5.3 shall be applied by
each Borrower to pay ratably its outstanding Loans in inverse order of the
scheduled repayments of such Loans to be made pursuant to Section 5.1. Each
prepayment made under this Section 5.3 shall be made by the relevant Borrower in
immediately available funds in Dollars and shall be made together with all
interest accrued and unpaid in respect of the amount of such prepayment to, but
excluding, the date of such payment, together with any and all amounts described
in Sections 2.9 and 5.5 in respect thereof.

         5.4.     Method and Place of Payment. Except as otherwise specifically
provided herein, all payments under these Agreements or the Notes shall be made
to the Administrative Agent for the account of the Lender or Lenders entitled
thereto not later than 11:00 a.m. (New York time) on the date when due and shall
be made in Dollars and in immediately available funds to the Administrative
Agent's Office, or to any other account designated by the Administrative Agent
to the Borrowers for such purpose. Except as otherwise provided for herein,
whenever any payment to be made under these Agreements or under any Note shall
be stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension.


                                       31


         5.5.     Net Payments. All payments made by the Borrowers under these
Agreements or under any Note will be made without setoff, counterclaim or other
defense. All such payments will be made free and clear of, and without deduction
or withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction (or any political subdivision or taxing authority thereof or
therein) and all interest, penalties or similar liabilities with respect thereto
(but excluding (i) any tax imposed on or measured by the net income or net
profits of a Lender or its Lending Office, or any branch or Affiliate thereof,
and (ii) all franchise taxes, branch taxes, taxes on doing business or taxes on
the overall capital or net worth of each Lender or its Lending Office, or any
branch or Affiliate thereof, imposed by the applicable taxing authority pursuant
to an express statutory provision, rule, regulation or administrative
pronouncement which specifically provides that such tax is imposed in lieu of a
tax imposed on or measured by net income or net profits of each Lender, Lending
Office, branch or Affiliate thereof, in each case pursuant to the Law of the
jurisdiction in which such Lender, Lending Office, branch or Affiliate is
organized or located, or in which its principal executive office is located, or
any political subdivision thereof or therein) (collectively, "Taxes"). If any
Taxes are so levied or imposed, each Borrower agrees to pay the full amount of
such Taxes and such additional amounts as may be necessary so that every payment
of all amounts due in respect of a Loan to such Borrower hereunder or under any
Note, after withholding or deduction for or on account of any Taxes, will not be
less than the amount provided for herein or in such Note. Each Borrower will
furnish to the Administrative Agent or any Lender, promptly following request
thereof, certified copies of tax receipts evidencing such payment by such
Borrower. Each Borrower shall indemnify and hold harmless the Administrative
Agent and each Lender, and reimburse the Administrative Agent and each Lender
upon its written request, for the amount of any Taxes so levied or imposed and
paid by the Administrative Agent or such Lender.

         Section 6. Conditions Precedent to the Borrowing.

         The obligations of the Lenders to make the Loans shall become effective
on the date that all of the following conditions shall have been satisfied (or
waived in accordance with Section 13.13) (the "Closing Date"):

         6.1.     Elesur Loan. Either (a) Elesur shall have capitalized all
amounts outstanding under the Elesur Loan (including by prepayment with the
proceeds from an equity issuance to Endesa Spain or one of its Affiliates or
with the proceeds of any payment made by Enersis under the Elesur Loan) in a
manner reasonably satisfactory to the Lenders or (b) to the extent not so
capitalized, (i) Elesur and the Administrative Agent shall have duly executed
and delivered the Elesur Intercreditor Agreement and (ii) Endesa Internacional
and the Administrative Agent shall have duly executed and delivered the Endesa
Internacional Support Agreement.

         6.2.     Effectiveness; Execution of Loan Documents; Notes. The
Effective Date shall have occurred, each of these Agreements, the Security
Documents, the Escrow Agreement, the Elesur Intercreditor Agreement, the
Endesa-Chile 2003 Liquidity Facility Letter Agreement and the Endesa
Internacional Support Agreement shall have been duly executed and delivered by
each of the parties thereto and each Borrower shall have delivered to the
Administrative Agent for the account of each of the Lenders making Loans to such
Borrower the appropriate Notes duly executed by such Borrower in the amount,
with the maturity and as otherwise provided herein.


                                       32


         6.3.     No Default; Representations and Warranties. At the time of the
Borrowing and after giving effect thereto in accordance with Section 2.4(a), (i)
there shall exist no Default or Event of Default and (ii) all representations
and warranties contained herein and in the other Loan Documents shall be true
and correct in all material respects with the same effect as though such
representations and warranties had been made on and as of the Closing Date
(except for such representations and warranties which by their terms are made as
of a specified date, which shall be true and correct in all material respects as
of such date).

         6.4.     No Default; Indebtedness. At the time of the Borrowing and
after giving effect thereto in accordance with Section 2.4(a), no event, act or
condition shall have occurred in respect of any Indebtedness of Enersis or any
of its Subsidiaries in an outstanding principal amount in excess of
U.S.$30,000,000 (or its equivalent in other currencies) that with the giving of
notice or the lapse of time or both would permit the holders of such
Indebtedness to declare such Indebtedness due and payable prior to its stated
maturity.

         6.5.     Endesa-Chile Credit Agreement Closing. The disbursement of the
loans under the Endesa-Chile Credit Agreement shall occur simultaneously with
the disbursement of the Loans hereunder.

         6.6.     Notice of Borrowing. The Administrative Agent shall have
received a Notice of Borrowing meeting the requirements of Section 2.3.

         6.7.     Opinions of Counsel to the Borrowers. The Administrative Agent
shall have received from each of (i) Davis Polk & Wardwell, special New York
counsel to the Borrowers, (ii) Domingo Valdes Prieto, internal Chilean counsel
to Enersis, (iii) Domingo Valdes Prieto, internal Chilean counsel to Enersis
Cayman, (iv) Gonzalo Vial Vial, internal Chilean counsel to Elesur, (v) Gonzalo
Vial Vial, internal Chilean counsel to Chilectra, (vi) Carlos Martin Vergara,
internal Chilean counsel to Endesa-Chile, (vii) Maples and Calder, special
Cayman Islands counsel to Enersis Cayman, Chilectra Cayman and Endesa-Chile, and
(viii) Alfonso Arias Canete, internal Spanish counsel to Endesa Internacional,
an opinion addressed to the Administrative Agent, the Collateral Agent and each
of the Lenders and dated the Closing Date, each in form and substance
satisfactory to the Lenders, the Administrative Agent and the Collateral Agent,
covering the matters set forth in Exhibits T, U, V, W, X, Y, Z and AA,
respectively, and such other matters incident to the transactions contemplated
herein as any Lender, the Administrative Agent or the Collateral Agent may
reasonably request.

         6.8.     Opinions of Counsel to the Lenders, the Administrative Agent
and the Collateral Agent. The Administrative Agent shall have received from each
of (i) Cleary, Gottlieb, Steen & Hamilton, special New York counsel to the
Lenders, the Administrative Agent and the Collateral Agent, (ii) Barros y
Errazuriz Abogados, special Chilean counsel to the Lenders, the Administrative
Agent and the Collateral Agent, (iii) Hunter & Hunter, special Cayman Islands
counsel to the Lenders, the Administrative Agent and the Collateral Agent, and
(iv) Clifford Chance S.C., special Spanish counsel to the Lenders, the
Administrative Agent and the Collateral Agent, an opinion addressed to the
Administrative Agent, the Collateral Agent and each of the Lenders and dated the
Closing Date, each in form and substance satisfactory to the Lenders, the
Administrative Agent and the Collateral Agent.


                                       33


         6.9.     Corporate Documents; Proceedings.

         (a)      The Administrative Agent shall have received a certificate
from the Borrowers, dated the Closing Date, signed by the Chief Executive
Officer (Gerente General) or Chief Financial Officer (Gerente de Finanzas) of
the Borrowers and attested to by the Secretary to the board of directors of the
Borrowers, in substantially the form attached hereto as Exhibit BB with
appropriate insertions, together with copies of (i) the estatutos sociales of
Enersis, (ii) in the case of Enersis Cayman, its Certificate of Registration and
Certificate of Good Standing in the Cayman Islands and (iii) the resolutions of
the Borrowers referred to in such certificate.

         (b)      The Administrative Agent shall have received a certificate
from Elesur, dated the Closing Date, signed by the Chief Executive Officer
(Gerente General) or Chief Financial Officer (Gerente de Finanzas) of Elesur,
and attested to by the Secretary to the board of directors of Elesur in
substantially the form attached hereto as Exhibit CC with appropriate
insertions, together with copies of (i) the constituent documents of Elesur and
(ii) the resolutions of Elesur referred to in such certificate.

         (c)      The Administrative Agent shall have received a certificate
from Endesa Internacional, dated the Closing Date, signed by the Secretary or
Deputy Secretary to the board of directors of Endesa Internacional and attested
to by the President of the board of directors of Endesa Internacional, in
substantially the form attached hereto as Exhibit DD with appropriate
insertions, together with copies of (i) the by-laws of Endesa Internacional and
(ii) the resolutions of Endesa Internacional referred to in such certificate.

         (d)      All corporate and legal proceedings and all instruments and
agreements in connection with the transactions contemplated in the Loan
Documents delivered on the Closing Date shall be reasonably satisfactory in form
and substance to the Lenders.

         6.10.    Governmental and Other Approvals. All necessary Governmental
Approvals and third party approvals and/or consents in connection with the
transactions contemplated herein and in the other Loan Documents or otherwise
referred to herein or therein, shall have been obtained and remain in effect,
and all applicable waiting periods with respect hereto or thereto shall have
expired without any action being taken by any competent authority which
restrains, prevents or imposes materially adverse conditions upon the
consummation of the transactions contemplated herein and in the other Loan
Documents or otherwise referred to herein or therein. Additionally, there shall
not exist any judgment, order, injunction or other restraint issued or filed or
a hearing seeking injunctive relief or other restraint, pending or notified,
prohibiting or imposing materially adverse conditions upon the transactions
contemplated herein and in the other Loan Documents or otherwise referred to
herein or therein.

         6.11.    Appointment of Agent for Service of Process. The
Administrative Agent shall have received a letter from each Person appointed as
the process agent for each party to each Loan Document that is required by such
Loan Document to appoint a process agent in substantially the form attached
hereto as Exhibit EE and indicating its consent to its appointment by such
Person as its agent to receive service of process in connection with the
transactions contemplated in such Loan Document.


                                       34


         6.12.    No Change in Condition. There shall not have occurred since
December 31, 2002, any material adverse change in the business, operations,
property, assets, condition (financial or otherwise) or prospects of the
Borrowers and the Relevant Subsidiaries, taken as a whole; provided that in no
event shall the failure to comply with any financial covenant in the Refinanced
Debt be deemed by itself to give rise to any such material adverse change.

         6.13.    Market Conditions. There shall not have occurred any material
disruption or material adverse change or any development involving a prospective
material adverse change, in United States, Cayman Islands, Chilean or
international financial, banking or capital markets (including, without
limitation, market conditions for securities of or loan transactions involving
Latin American or Chilean issuers or borrowers), or financial, political or
economic conditions, or currency exchange rates or exchange controls applicable
to Dollars or Pesos.

         6.14.    Payments. All amounts required to be paid under these
Agreements and the other Loan Documents (including, without limitation, all fees
and expenses payable under these Agreements and all accrued interest, premium,
taxes and other amounts in respect of the Refinanced Debt) shall have been paid
to the extent then due; provided that, in the case of any payments (other than
principal) in respect of the Refinanced Debt, such payments shall be deemed paid
for purposes of this Section 6.14 to the extent received by the administrative
agent, if applicable, with respect to such Refinanced Debt.

         6.15.    Perfection of Security Interest in Collateral. The Collateral
Agent shall have received (i) certificates evidencing the Equity Collateral and
(ii) all instruments and documents evidencing intercompany Indebtedness owing
from Chilectra or Chilectra Cayman to any Borrower (including, without
limitation, the Chilectra Recognition of Debt and the Chilectra Cayman
Recognition of Debt), the Collateral shall be free and clear of any Lien (other
than Liens permitted under Section 10.8), all documents and instruments shall
have been properly prepared for filing and/or recording in all applicable
jurisdictions, in form and substance satisfactory to the Lenders, as required by
Law (or reasonably requested by any Lender) to perfect the first priority Liens
created by the Security Documents, and the Collateral Agent shall be satisfied
that all such filings and recordings will be completed promptly following the
Closing Date and that all taxes, fees and other charges payable in connection
with the filing and/or recording of all such documents and instruments will be
paid in full by the Borrowers.

         6.16.    Delivery of Financial Statements. The audited financial
statements described in Section 7.10 shall have been delivered to the Lenders.

         6.17.    Funding of 2003 Bond Escrow Account. The Borrowers shall have
delivered to the Administrative Agent evidence satisfactory to the Lenders of
the funding of the Initial Deposit into the 2003 Bond Escrow Account in
accordance with the Escrow Agreement.

         6.18.    Commitment by Endesa Spain. The Lenders shall have received
written confirmation by Endesa Spain as set forth in Exhibit FF hereto of its
commitment with respect to the matters specified therein.


                                       35


         6.19.    Central Bank Notification. The Administrative Agent shall have
received a copy (satisfactory to the Lenders) of the notice that the Borrowers
will deliver to the Central Bank of the existence of these Agreements in
accordance with Chapters VIII and XIV of the Compendium of Foreign Exchange
Regulations.

         The acceptance of the benefits of the Loans by the Borrowers shall
constitute a representation and warranty by each Borrower to each of the Lenders
extending a Loan to such Borrower that all the conditions specified in Sections
6.3 and 6.10 have been satisfied as of that time. The Notes, certificates, legal
opinions and other documents and papers referred to in this Section 6, unless
otherwise specified, shall be delivered to the Administrative Agent at its
Office for the account of each of the Lenders and in sufficient counterparts for
each party to the Loan Documents (except for the Notes) and shall be
satisfactory in form and substance to the Lenders.

         Section 7. Representations and Warranties.

         In order to induce each Lender to enter into these Agreements and to
make the Loans, each of the Borrowers makes the following representations and
warranties as of the Effective Date, which shall survive the execution and
delivery of these Agreements and the Notes and the making of the Loans:

         7.1.     Corporate Status.

         (a)      Each of the Borrower and the Relevant Subsidiaries (i) is a
duly organized and validly existing corporation in good standing under the Law
of the jurisdiction of its incorporation, (ii) has the power and authority to
own its property and assets and to transact the business in which it is engaged,
and (iii) is duly qualified as a foreign corporation and in good standing in
each jurisdiction where the ownership, leasing or operation of property or the
conduct of its business requires such qualification and where the failure to be
so qualified would have a Material Adverse Effect.

         (b)      No meeting has been convened or is planned for the Winding-up
of the Borrower or any of the Relevant Subsidiaries or, in the case of Enersis
Cayman, for the removal of the Borrower's name from the Register of Companies
maintained in the Cayman Islands Register pursuant to Part IX of the Companies
Law (2002 Revision), and, to the best knowledge of the Borrower, there is no
petition, application or similar proceeding outstanding for the Winding-up of
the Borrower or any of the Relevant Subsidiaries.

         7.2.     Corporate Power and Authority. Each of the Borrower and the
Relevant Subsidiaries has the power and authority to execute, deliver and
perform the terms and provisions of each of the Loan Documents to which it is a
party and has taken all necessary corporate action to authorize the execution,
delivery and performance by it of each such Loan Document. Each of the Borrower
and the Relevant Subsidiaries has, or, in the case of the Borrower with respect
to each Note, by the Closing Date of the Loan evidenced thereby will have, duly
executed and delivered each of the Loan Documents which is required to be
delivered on or prior to the Closing Date to which it is a party, and each such
Loan Document constitutes or will constitute such Person's legal, valid and
binding obligation enforceable in accordance with its terms.


                                       36


         7.3.     No Immunity. Neither the Borrower, nor any of the Relevant
Subsidiaries, nor any of their respective properties or revenues has any right
of immunity on the grounds of sovereignty or otherwise from jurisdiction of any
court or from setoff or any legal process (whether through service or notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise) under the Law of any jurisdiction. The execution and delivery by each
of the Borrower and the Relevant Subsidiaries of the Loan Documents to which it
is a party and the performance by such Person of its obligations thereunder
constitute commercial transactions.

         7.4.     No Violation. Neither the execution, delivery or performance
by any of the Borrower and the Relevant Subsidiaries of the Loan Documents to
which it is a party, nor compliance by any of them with the terms and provisions
thereof, nor the use of the proceeds of the Loans (i) will contravene any
provision of any Law or any order, writ, injunction or decree of any court or
Government Agency binding on any of them, (ii) will conflict or be inconsistent
with or result in any breach of any of the terms, covenants, conditions or
provisions of, or constitute a default in respect of, or result in the creation
or imposition of (or the obligation to create or impose) any Lien upon, any of
the property or assets of the Borrower or any of the Relevant Subsidiaries
pursuant to the terms of any indenture, mortgage, deed of trust, credit
agreement, loan agreement or any other agreement, contract or instrument to
which the Borrower or any of the Relevant Subsidiaries is a party or by which
any such Person or its properties or assets is bound or to which it may be
subject, except to the extent that such conflicts, inconsistencies, defaults or
Liens could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect or (iii) will violate any provision of the estatutos sociales or
other constituent documents of the Borrower or any of the Relevant Subsidiaries.

         7.5.     Governmental Approvals. No Governmental Approval is required
to authorize, or is required in connection with, (i) the execution, delivery and
performance by the Borrower or any of the Relevant Subsidiaries of any Loan
Document to which it is a party or (ii) the legality, validity, binding effect
or enforceability of any such Loan Document except, in each case, as have been
obtained and are in full force and effect.

         7.6.     Subsidiaries.

         (a)      The Relevant Subsidiaries, the Chilean Subsidiaries and the
Foreign Subsidiaries and the direct and indirect ownership thereof by Enersis as
of the Effective Date are as set forth on Schedule D hereto.

         (b)      To the extent any Relevant Subsidiary is a corporation, the
issued and outstanding shares of such Relevant Subsidiary have been duly
authorized and issued and are fully paid and nonassessable. The ownership
interest in each of the Relevant Subsidiaries represents a direct or indirect
controlling interest by Enersis for purposes of directing or causing the
direction of the management and policies of each Relevant Subsidiary.


                                       37


         7.7.     Collateral. (a) The Security Documents create valid and
enforceable security interests in the Collateral purported to be covered thereby
for the benefit of the Collateral Agent (on behalf of the Lenders), which
security interests secure the Obligations. Upon receipt by the Collateral Agent
of (i) certificates evidencing the Equity Collateral and (ii) all instruments
and documents evidencing intercompany Indebtedness owing from Chilectra or
Chilectra Cayman to any Borrower, the security interests created by the Security
Documents will be perfected, prior to all other Liens. The Liens created by the
Security Documents are enforceable as security for the Obligations in accordance
with their terms with respect to the Collateral.

         (b)      No Governmental Approvals or other approvals are required for
the sale, lease, transfer or disposition by the Collateral Agent or the Lenders
of the Collateral, except as have been obtained and are in effect.

         (c)      There are no Liens on the Collateral, no Person has the right
to acquire the Collateral and the Collateral is freely transferable (subject in
each case to the provisions of the Security Documents).

         7.8.     Intercompany Indebtedness. Schedule E sets forth a true and
complete list of all intercompany Indebtedness (other than pursuant to a cuenta
corriente mercantil with a term no longer than 30 days) among any of the
Borrowers and any of its Subsidiaries (including Chilectra and Chilectra Cayman)
outstanding as of the Effective Date (including the amounts thereof).

         7.9.     Ranking. The Loans rank at least pari passu in priority of
payment with all other present and future senior unsubordinated Indebtedness of
the Borrowers, except for certain statutory preferences such as withholding
taxes and claims for employee benefits, which, in any event, are not material to
the Borrowers.

         7.10.    Financial Statements. (a)

         (i)      The consolidated statements of financial condition of Enersis
                  and its Consolidated Subsidiaries at December 31, 2002, and
                  the related consolidated statements of income and retained
                  earnings and changes in financial position of Enersis and its
                  Consolidated Subsidiaries for the periods then ended
                  heretofore furnished to the Lenders, present fairly in all
                  material respects the consolidated financial condition of
                  Enersis and its Consolidated Subsidiaries at the date of such
                  statements of financial condition and the consolidated results
                  of the operations of Enersis and its Consolidated Subsidiaries
                  for such period.

         (ii)     The statements of financial condition of Enersis at December
                  31, 2002, and the related statements of income and retained
                  earnings and changes in financial position of Enersis for the
                  periods then ended heretofore furnished to the Lenders,
                  present fairly in all material respects the financial
                  condition of Enersis at the date of such statements of
                  financial condition and the results of the operations of
                  Enersis for such periods.


                                       38


         (iii)    The consolidated statements of financial condition of
                  Chilectra and its Consolidated Subsidiaries at December 31,
                  2002, and the related consolidated statements of income and
                  retained earnings and changes in financial position of
                  Chilectra and its Consolidated Subsidiaries for the periods
                  then ended heretofore furnished to the Lenders, present fairly
                  in all material respects the consolidated financial condition
                  of Chilectra and its Consolidated Subsidiaries at the date of
                  such statements of financial condition and the consolidated
                  results of the operations of Chilectra and its Consolidated
                  Subsidiaries for such period.

         (iv)     The statements of financial condition of Chilectra at December
                  31, 2002, and the related statements of income and retained
                  earnings and changes in financial position of Chilectra for
                  the periods then ended heretofore furnished to the Lenders,
                  present fairly in all material respects the financial
                  condition of Chilectra at the date of such statements of
                  financial condition and the results of the operations of
                  Chilectra for such periods.

         (v)      The consolidated statements of financial condition of Enersis
                  and its Consolidated Subsidiaries at December 31, 2001, and
                  the related consolidated statements of income and retained
                  earnings and changes in financial position of Enersis and its
                  Consolidated Subsidiaries for the periods then ended
                  heretofore furnished to the Lenders, present fairly in all
                  material respects the consolidated financial condition of
                  Enersis and its Consolidated Subsidiaries at the date of such
                  statements of financial condition and the consolidated results
                  of the operations of Enersis and its Consolidated Subsidiaries
                  for such period.

All such financial statements have been prepared in accordance with Chilean GAAP
and have been audited and certified by independent certified public accountants
of recognized international standing. The U.S. GAAP reconciliation heretofore
furnished to the Lenders of the financial statements provided for in clause (v)
above has been prepared in accordance with U.S. GAAP and has been audited and
certified by independent certified public accountants of recognized
international standing. Since December 31, 2002, there has been no change or
development which has had or could reasonably be expected to have a Material
Adverse Effect.

         (b)      Except as fully reflected in such financial statements, there
are no liabilities or obligations with respect to the Borrower or any of the
Relevant Subsidiaries of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether or not due) which, either individually or in
aggregate, could reasonably be expected to have a Material Adverse Effect. There
is no basis for the assertion against the Borrower or any of the Relevant
Subsidiaries of any liability or obligation of any nature whatsoever that is not
fully reflected in such financial statements, which, either individually or in
the aggregate, is likely to be material to the Borrower and the Relevant
Subsidiaries, taken as a whole.


                                       39


         7.11.    Voluntary Prepayments. The Borrower has not made any voluntary
prepayment of any Indebtedness since December 31, 2002.

         7.12.    Litigation. There are no actions, suits, investigations or
proceedings, legal or administrative, pending or, to the best knowledge of the
Borrower, threatened (i) with respect to the Loans or any Loan Document or (ii)
that are reasonably likely to have a Material Adverse Effect.

         7.13.    True and Complete Disclosure. All information heretofore or
contemporaneously furnished by or on behalf of the Borrower in writing to the
Administrative Agent or any Lender (including, without limitation, all
information contained in the Loan Documents) for purposes of or in connection
with these Agreements or any transaction contemplated herein is, and all other
such information hereafter furnished by or on behalf of the Borrower in writing
to the Administrative Agent or any Lender, when taken as a whole, will be, true
and accurate in all material respects on the date as of which such information
is dated or certified and not incomplete by omitting to state any fact necessary
to make such information not misleading in any material respect at such time in
light of the circumstances under which such information was provided. The
Borrower has disclosed to the Lenders any and all facts (other than those of a
general economic or political nature which are not related to the business of
the Borrower and its Subsidiaries) which could reasonably be expected to have a
Material Adverse Effect.

         7.14.    Use of Proceeds. The Borrower will use all of the proceeds of
the Loans solely to repay the Refinanced Debt of the Borrower listed in Schedule
A next to its name. Neither the making of any Loan nor the use of the proceeds
thereof will violate or be inconsistent with the provisions of Regulations T, U
or X of the Board of Governors of the United States Federal Reserve System.

         7.15.    Tax Returns and Payments. Each of the Borrower and the
Relevant Subsidiaries has filed all tax returns required to be filed by it and
has paid all taxes payable by it which have become due pursuant to such tax
returns and all other taxes and assessments payable by it which have become due,
other than those not yet delinquent and except for those contested in good faith
and for which adequate reserves have been established in accordance with Chilean
GAAP. Each of the Borrower and the Relevant Subsidiaries has paid, or has
provided adequate reserves (if necessary and in such an amount as is determined
in each case in the good faith judgment of its management) for the payment of,
all applicable income taxes for all prior fiscal years and for the current
fiscal year.

         7.16.    Compliance with Law; Environmental Laws.

         (a)      Each of the Borrower and its Subsidiaries is in compliance
with all applicable Law (including applicable Law relating to environmental
standards and controls) except such noncompliance as would not, individually or
in the aggregate, have a Material Adverse Effect.

         (b)      Each of the Borrower's and the Relevant Subsidiaries'
properties and all operations at such properties are in compliance and at all
times during the last two years have been in compliance with all applicable
Environmental Laws, except such noncompliance as would not, individually or in
the aggregate, have a Material Adverse Effect. None of the Borrower or any
Relevant Subsidiary has assumed any liability of any Person under any
Environmental Laws, except as would not, individually or in the aggregate, have
a Material Adverse Effect.


                                       40


         (c)      There are no actions, suits, investigations or proceedings,
legal or administrative, pending or, to the best knowledge of the Borrower,
contemplated or threatened under any applicable Environmental Laws to which the
Borrower or any of the Relevant Subsidiaries is or will be named as a party with
respect to its or their properties, nor are there any consent decrees or other
decrees, consent orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any applicable
Environmental Law with respect to such properties, in each case except as would
not, individually or in the aggregate, have a Material Adverse Effect.

         7.17.    Properties.

         (a)      Each of the Borrower and the Relevant Subsidiaries has good
and marketable title to all property owned by it and necessary to its business.
Each of the Borrower and the Relevant Subsidiaries holds all material licenses,
certificates and clearances of municipal and other authorities necessary to own
and operate its properties in the manner and for the purposes currently operated
by it. There are no actual or, to the best knowledge of the Borrower, threatened
or alleged defaults which, individually or in the aggregate, could have a
Material Adverse Effect with respect to any leases of real property under which
the Borrower or any of its Subsidiaries is lessor or lessee.

         (b)      Schedule C hereto contains a true, correct and complete
description of the Santa Rosa Property.

         7.18.    Employee Benefit Plans. Each of the Borrower and the Relevant
Subsidiaries is in compliance with its obligations relating to all employee
benefit plans established, maintained or contributed to by such Person, and
neither the Borrower nor any of the Relevant Subsidiaries has any outstanding
liabilities with respect to any such employee benefit plan, except such
noncompliance as would not, individually or in the aggregate, have a Material
Adverse Effect.

         7.19.    Investment Company Act; PUHCA.

         (a)      The Borrower is not required to register as an "investment
company" within the meaning of, and pursuant to, the Investment Company Act of
1940, as amended.

         (b)      The Borrower is not a holding company, a public utility
company or a subsidiary company, affiliate or associate company of a holding
company or a public utility company, in each case within the meaning of the U.S.
Public Utility Holding Company Act of 1935, as amended.


                                       41


         7.20.    Withholding Taxes.

         (a)      No withholding or other taxes are required to be paid in
respect of, or deducted from, any payment required to be made by Enersis Cayman
under its Agreement, its Notes, or any other Loan Document. Enersis Cayman is
permitted under applicable Law to pay any additional amounts payable under
Section 5.5 as will result in receipt by the Lenders of such amounts as would
have been received by the Lenders had no such withholding been required.

         (b)      No withholding or other taxes are required to be paid in
respect of, or deducted from, any payment required to be made by Enersis under
its Agreement, its Notes, or any other Loan Document except (i) payments of
interest made to a resident of a country other than Chile that is a foreign or
international banking or financial institution are subject to a 4% withholding
tax and (ii) all other payments made, other than payments of principal, to a
resident of a country other than Chile may be subject to a 35% withholding tax.
Enersis is permitted under applicable Law to pay any additional amounts payable
under Section 5.5 as will result in receipt by the Lenders of such amounts as
would have been received by the Lenders had no such withholding been required.

         7.21.    Form of Documentation. Each of the Loan Documents is in proper
legal form under the Law of New York, the Law of Chile, the Law of the Cayman
Islands and the Law of Spain for the enforcement thereof under such Laws;
provided, however, as of the Effective Date, (i) in order for these Agreements
and the other Loan Documents to be admissible in evidence in judicial
proceedings in a Chilean court, these Agreements and such other Loan Documents
would first have to be translated into the Spanish language by a licensed public
translator who certifies as to the accuracy thereof (unless executed in Spanish
by all the parties thereto), (ii) in order for these Agreements and the other
Loan Documents to be admissible in evidence in judicial proceedings in a Spanish
court, these Agreements and such other Loan Documents would first have to be
translated into the Spanish language, and if any objection were raised about any
such Spanish translation, these Agreements and such other Loan Documents would
then have to be translated by a licensed public translator who certifies as to
the accuracy thereof (unless executed in Spanish by all the parties thereto) and
(iii) in the case of Enersis Cayman, if the Credit Agreement relating to its
Loans or any of the Loan Documents relating to its Loans is brought into Chile
or such Loans are accounted for in Chile, payment of a stamp tax of up to 1.608%
of the aggregate face value of the principal amount thereof and capitalized
interest thereon would be required. The Borrower is permitted under applicable
Law to pay such stamp taxes or pay such amounts under Section 13.1(ii) as would
indemnify the Lenders in full against any and all such stamp taxes.

         7.22.    Indebtedness. Schedule F sets forth a true and complete list
of all Indebtedness (excluding the Loans) of Enersis and the Relevant
Subsidiaries in an outstanding principal amount in excess of U.S.$30,000,000 as
of the Effective Date (the "Existing Indebtedness"). After giving effect to the
occurrence of the Closing Date and the Borrowings hereunder in accordance with
Section 2.4(a), no event, act or condition will have occurred in respect of any
Indebtedness of Enersis or any of its Subsidiaries in an outstanding principal
amount in excess of U.S.$30,000,000 (or its equivalent in other currencies) that
with the giving of notice or the lapse of time or both would permit the holders
of such Indebtedness to declare such Indebtedness due and payable prior to its
stated maturity.


                                       42


         7.23.    Secured Debt. Schedule G sets forth a true and complete list
of all Indebtedness of Enersis and the Relevant Subsidiaries (excluding the
Loans) that is secured by a Lien in an outstanding principal amount of
U.S.$5,000,000 or more as of the Effective Date.

         7.24.    Sale Lease-Back Transactions. There are no Sale Lease-Back
Transactions of Enersis and the Relevant Subsidiaries having outstanding payment
obligations of U.S.$5,000,000 or more as of the Effective Date.

         7.25.    Foreign Exchange Regulations. (i) After Enersis notifies the
Central Bank of the existence of these Agreements pursuant to Section 8.13 in
accordance with Chapters VIII and XIV of the Compendium of Foreign Exchange
Regulations, there are no foreign exchange restrictions in effect in the Cayman
Islands or in Chile which would adversely affect any payment to be made under
these Agreements or the Notes and (ii) with respect to payments which might be
made under the Loan Documents, the Borrower is permitted under applicable
Chilean Law and under Central Bank regulations currently in effect in Chile to
make such payments in Dollars acquired in the formal exchange market pursuant
to, and in compliance with, the Compendium of Foreign Exchange Regulations of
the Central Bank of Chile, at the Office of the Administrative Agent, and
Enersis Cayman is permitted under applicable Cayman Islands Law to make such
payments in Dollars at the Office of the Administrative Agent.

         7.26.    Insurance.

         (a)      Each of the Borrower and the Relevant Subsidiaries maintains
insurance including, but not limited to, business interruption coverage and
public liability coverage insurance from responsible companies in such amounts
and against such risks to the Borrowers and each Relevant Subsidiary as is
consistent and in accordance with industry practice for companies similarly
situated owning similar properties in the same general areas in which the
Borrower or such Relevant Subsidiary operates.

         (b)      Each of the Borrower and the Relevant Subsidiaries keeps its
assets insured by insurers against loss or damage by fire, theft, burglary, loss
in transit, explosions and hazards insured against by extended coverage, in
amounts which are reasonable and customary for companies similarly situated
owning similar properties in the same general areas in which the Borrower or
such Relevant Subsidiary operates, except where the failure to maintain any such
property or insurance could not, individually or in the aggregate, have a
Material Adverse Effect.

         Section 8. Affirmative Covenants.

         Each of the Borrowers covenants and agrees that on and after the
Effective Date and until the Loans and the Notes, together with all accrued
interest, and all other Obligations incurred hereunder and thereunder, are paid
in full:


                                       43


         8.1.     Four Point Business Plan. Enersis shall actively pursue and
shall use commercially reasonable efforts to carry out the four-point business
plan attached hereto as Exhibit GG.

         8.2.     Upstreaming. Enersis shall cause the Enersis Subsidiaries to
make available to it as soon as is possible, but in any event within 60 days
after received by or on behalf or on account of such Enersis Subsidiary (first
by repayment of intercompany Indebtedness, second by dividend or otherwise), to
the maximum extent permitted by applicable Law (including fiduciary duties to
minority shareholders) and by the contractual provisions in effect on the date
hereof and described in Schedule H hereto, an amount equal to any Proceeds with
respect to such Enersis Subsidiary that, if such proceeds were with respect to a
Borrower, would constitute Net Proceeds.

         8.3.     Intercompany Indebtedness.

         (a)      Enersis shall, as soon as practicable (after using its
reasonable best efforts to do so) and in any event within 30 days, cause all
intercompany Indebtedness existing on the Effective Date (other than pursuant to
a cuenta corriente mercantil with a term no longer than 30 days) among any of
the Borrowers or any of their Subsidiaries to be evidenced (and thereafter to be
evidenced at all times) by a note, agreement or Recognition of Debt duly
executed and delivered by the borrower under such Indebtedness, which instrument
(A) shall be a legal, valid and binding obligation of the borrower thereunder,
enforceable against such borrower in accordance with its terms, and (B) in the
case of Indebtedness of a Chilean Person, shall qualify as a titulo ejecutivo in
Chile.

         (b)      Enersis shall cause all intercompany Indebtedness (other than
(i) Indebtedness existing on the Effective Date (which is covered by clause (a)
above) or (ii) pursuant to a cuenta corriente mercantil with a term no longer
than 30 days) among any of the Borrowers or any of their Subsidiaries to be
evidenced at all times by a note, agreement or Recognition of Debt duly executed
and delivered by the borrower under such Indebtedness, which instrument (A)
shall be a legal, valid and binding obligation of the borrower thereunder,
enforceable against such borrower in accordance with its terms, and (B) in the
case of Indebtedness of a Chilean Person, shall qualify as a titulo ejecutivo in
Chile.

         (c)      Promptly after any note, agreement or Recognition of Debt
evidencing any intercompany Indebtedness is executed in accordance with the
requirements of clauses (a) and (b) above, the Borrower shall furnish or cause
to be furnished to the Administrative Agent a true and correct copy of such
note, agreement or Recognition of Debt.

         8.4.     Information Covenants. Enersis shall furnish or cause to be
furnished to the Administrative Agent for distribution to each Lender (and in
sufficient copies for each Lender):

         (a)      Quarterly Financial Statements. As soon as available, and in
any event within 60 calendar days after the close of each of the first three
quarterly accounting periods in each fiscal year of Enersis, the statements of
financial condition of (i) Enersis and its Consolidated Subsidiaries on a
consolidated basis, (ii) Enersis on a stand-alone basis, (iii) Chilectra and its
Consolidated Subsidiaries on a consolidated basis and (iv) Chilectra on a
stand-alone basis, in each case at the end of such quarterly period and the
related statements of income and changes in financial position for such
quarterly period and for the elapsed portion of the fiscal year ended with the
last day of such quarterly period, in each case setting forth comparative
figures for the related periods in the prior fiscal year, all of which shall be
prepared in accordance with Chilean GAAP and certified by the chief financial
officer of Enersis, subject to normal recurring year-end audit adjustments.


                                       44


         (b)      Annual Financial Statements. As soon as available, and in any
event within 120 calendar days after the close of each fiscal year of Enersis,
the statements of financial condition of (i) Enersis and its Consolidated
Subsidiaries on a consolidated basis, (ii) Enersis on a stand-alone basis, (iii)
Chilectra and its Consolidated Subsidiaries on a consolidated basis and (iv)
Chilectra on a stand-alone basis, in each case as at the end of such fiscal year
and the related statements of income and changes in financial position for such
fiscal year, in each case setting forth comparative figures for the preceding
fiscal year, all of which shall be prepared in accordance with Chilean GAAP and
audited and certified by independent certified public accountants of recognized
international standing in Chile. In addition, such independent certified public
accountants shall, at the time of the delivery of the financial statements
referenced in this clause (b), certify the calculations required to establish
compliance with Section 9 as of the end of the fiscal year to which such
financial statements relate.

         (c)      U.S. GAAP Reconciliation. As soon as available, and in any
event no later than the date on which such reconciliation is required to be
filed with the United States Securities and Exchange Commission (or, if not so
required, 180 calendar days after the close of each fiscal year of Enersis), the
reconciliation to U.S. GAAP of the financial statements delivered pursuant to
Section 8.4(b) above, which shall be prepared in accordance with U.S. GAAP and
audited and certified by independent certified public accountants of recognized
international standing in Chile.

         (d)      Officer's Certificate. (i) At the time of the delivery of the
financial statements provided for in Section 8.4(a) in respect of the quarter
ended March 31, 2003, a certificate of the chief financial officer of each of
the Borrowers stating that such financial statements have been prepared in
accordance with Chilean GAAP and present fairly in all material respects the
consolidated (if applicable) financial condition of the Persons covered thereby
and the consolidated (if applicable) results of the operations of such Persons
for the period covered thereby, (ii) at the time of the delivery of the
financial statements provided for in Section 8.4(a) (other than in respect of
the quarter ended March 31, 2003) and (b) above, a certificate of the chief
financial officer of each of the Borrowers, (A) stating that such financial
statements have been prepared in accordance with Chilean GAAP and present fairly
in all material respects the consolidated (if applicable) financial condition of
the Persons covered thereby at the date of the statements of financial condition
and the consolidated (if applicable) results of the operations of such Persons
for the period covered thereby, (B) stating that, to the best knowledge of such
chief financial officer, no Default or Event of Default has occurred and is
continuing or, if any Default or Event of Default has occurred and is
continuing, specifying the nature and extent thereof, and (C) setting forth in
reasonable detail and in a form reasonably satisfactory to the Lenders the
calculations (if any) required to establish compliance with Sections 9, 10.1,
10.2, 10.3 and 10.7, (iii) at the time of the delivery of the financial
statements provided for in Section 8.4(b) above, a certificate of the chief
financial officer of each of the Borrowers (A) setting forth in reasonable
detail and in a form reasonably satisfactory to the Lenders the calculations
required to determine the amount of Excess Cash with respect to the fiscal year
covered in such financial statements, (B) listing all intercompany Indebtedness
(other than pursuant to a cuenta corriente mercantil with a term of less than 30
days) among any of Enersis and any of its Subsidiaries outstanding as of the
last day of such fiscal year, and certifying compliance with Section 8.3 with
respect to all such intercompany Indebtedness, and (C) listing separately the
Foreign Subsidiaries and Chilean Subsidiaries as at the end of the fiscal year
covered in such financial statements and (iv) at the time of the delivery of the
U.S. GAAP reconciliation of the financial statements provided for in Section
8.4(c) above, a certificate of the chief financial officer of each of the
Borrowers (A) stating that such reconciliation has been prepared in accordance
with U.S. GAAP, (B) stating that, to the best knowledge of such chief financial
officer, no Default or Event of Default has occurred and is continuing or, if
any Default or Event of Default has occurred and is continuing, specifying the
nature and extent thereof, (C) setting forth in reasonable detail and in a form
reasonably satisfactory to the Lenders the calculations required to establish
compliance with Sections 10.4 and 10.6 and (D) listing the Relevant Subsidiaries
as at the end of the fiscal year covered in such financial statements, setting
out in reasonable detail and in a form reasonably satisfactory to the Lenders
the computations necessary to justify either the inclusions in or exclusions
from (at the option of the Borrowers) such list.


                                       45


         (e)      Notice of Discussions, Default or Litigation. Promptly, and in
any event within one Business Day after an officer of the Borrower obtains
knowledge thereof, (i) notice (together with reasonable detail of the substance)
of any meetings, negotiations or discussions by the Borrower or a Relevant
Subsidiary or any of their respective Subsidiaries or Affiliates or any of such
Persons' directors, officers, employees, agents or representatives with any
other Person (or such Person's directors, officers, employees, agents or
representatives) concerning (x) any actual or potential default, event of
default or the like (however described) under any Indebtedness of the Borrower
or any of the Relevant Subsidiaries in a principal outstanding amount in excess
of U.S.$30,000,000 or its equivalent in other currencies (on an individual
basis) or (y) any waiver, amendment or modification with respect to any event
described in clause (x) under any Indebtedness of the Borrower or any of the
Relevant Subsidiaries in a principal outstanding amount in excess of
U.S.$30,000,000 or its equivalent in other currencies (on an individual basis),
(ii) notice of the occurrence of any event which constitutes a Default or Event
of Default and (iii) notice of any litigation or governmental proceeding pending
with respect to any Loan Document.

         (f)      Other Reports and Filings. Promptly upon the reasonable
request of the Administrative Agent or any Lender, copies of all financial and
other information relating to the Borrower or a Relevant Subsidiary which the
Borrower or any of the Relevant Subsidiaries (i) shall file with any securities
regulatory authority or (ii) shall send or be required to send to its
shareholders (including, without limitation, regular, periodic and special
reports).

         (g)      Notice of Proceeds. Promptly upon the deposit of funds in the
2003 Bond Escrow Account, the Asset Sale Reserve Escrow Account or the Net
Proceeds Escrow Account or, to the extent not so deposited first therein,
promptly upon the repayment of the Loans in accordance with Section 5.3(a), a
certificate of the chief financial officer of each of the Borrowers setting
forth in reasonable detail and in a form reasonably satisfactory to the Lenders
the calculations required to establish compliance with Section 5.3(a)
(including, without limitation, the calculation of Net Proceeds).


                                       46


         (h)      Notice of Change in Control. Promptly, and in any event within
three calendar days after an officer of the Borrower obtains knowledge thereof,
notice of a (i) Change in Control or (ii) any action taken or the occurrence of
an event that could reasonably be expected to result in a Change of Control.

         (i)      Other Information. From time to time, such other information
or documents (financial or otherwise) relating to the business, affairs and
financial condition of the Borrower and its Subsidiaries as any Lender to such
Borrower may reasonably request.

         8.5.     Books, Records and Inspections. The Borrower shall, and shall
cause each of the Relevant Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with generally
accepted accounting principles in the jurisdiction in which such Person is
located and all requirements of applicable Law shall be made of all dealings and
transactions in relation to its business and activities. Upon reasonable notice
(and at any time if an Event of Default has occurred and is continuing), the
Borrower shall, and shall cause each of the Relevant Subsidiaries to, permit
officers and designated representatives of the Administrative Agent or any
Lender to visit and inspect, under the guidance of officers of the Borrower or
such Relevant Subsidiary, as the case may be, at the expense of the
Administrative Agent or such Lender (unless a Default or an Event of Default has
occurred and is continuing, in which case such expense shall be borne by the
Borrower), any of the properties of such Person, and, except to the extent
prohibited by Law, to examine the books of record and account of such Person and
discuss the affairs, finances and accounts of such Person with, and be advised
as to the same by, its officers and accountants, all at such reasonable times
and intervals and to such reasonable extent as the Administrative Agent or such
Lender may request (and at any time designated by the Administrative Agent or
the Lender if an Event of Default has occurred and is continuing).

         8.6.     Corporate Privileges.

         (a)      The Borrower shall do or cause to be done, all things
necessary to preserve and keep in full force and effect (i) its existence and
(ii) its material rights, privileges and licenses; provided, however, that
nothing in this Section 8.6(a) shall prevent the withdrawal by the Borrower of
its qualification as a foreign corporation in any jurisdiction in which such
withdrawal could not have a Material Adverse Effect.

         (b)      The Borrower shall cause each of the Relevant Subsidiaries to
do or cause to be done all things necessary to preserve and keep in full force
and effect (i) its existence and (ii) its material rights, privileges and
licenses; provided, however, that nothing in this Section 8.6(b) shall prevent
(x) the withdrawal by any of the Relevant Subsidiaries of its qualification as a
foreign corporation in any jurisdiction in which such withdrawal could not have
a Material Adverse Effect or (y) any other transaction otherwise permitted under
Section 10.6(ii) or (iii).


                                       47


         8.7.     Performance of Obligations. The Borrower shall, and shall
cause each of the Relevant Subsidiaries to, perform all of its obligations under
the terms of each mortgage, indenture, security agreement, loan agreement,
credit agreement and each other agreement, contract or instrument by which it is
bound, except where the failure to do so could not, individually or in the
aggregate, have a Material Adverse Effect.

         8.8.     Compliance with Law; Environmental Law.

         (a)      The Borrower shall comply with all applicable foreign exchange
regulations (including, without limitation, the Compendium of Foreign Exchange
Regulations of the Central Bank of Chile) and similar Law and make, or cause to
be made, all necessary filings, the failure of which might affect any payment to
be made under these Agreements and the other Loan Documents. The Borrower shall,
and shall cause each of the Relevant Subsidiaries to, comply in all material
respects with all applicable Law.

         (b)      The Borrower shall, and shall cause each of the Relevant
Subsidiaries to, (A) comply with all applicable Environmental Laws and obtain
and comply with and maintain any and all licenses, approvals, registrations or
permits required by applicable Environmental Laws except where failure to so
obtain, comply with and maintain could not, individually or in the aggregate,
have a Material Adverse Effect and (B) not permit or allow (i) any release or
discharge by the Borrower or any of its Relevant Subsidiaries of any Hazardous
Material required to be reported under applicable Environmental Laws to any
Governmental Authority, (ii) any condition, circumstance, occurrence or event
that could result in a liability under applicable Environmental Laws or could
result in imposition of any Lien or other restriction on the title, ownership or
transferability of any property and (iii) any proposed action to be taken by the
Borrower or any of the Relevant Subsidiaries that could subject the Borrower or
any of the its Relevant Subsidiaries to any additional or different requirements
or liabilities under applicable Environmental Laws, in the case of each of
(B)(i), (ii) and (iii) above, which release, discharge, condition, circumstance,
occurrence, event or action could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect.

         8.9.     Taxes. The Borrower shall, and shall cause each of the
Relevant Subsidiaries to, pay and discharge or cause to be paid and discharged
all applicable taxes, assessments and governmental charges or levies imposed
upon it or upon its income or profits or upon any of its property, real,
personal or mixed or upon any part thereof, when due, as well as all lawful
claims for labor, materials and supplies which, if unpaid, might by Law become a
Lien upon such property; provided, however, that none of the Borrower or any of
the Relevant Subsidiaries shall be required to pay any such tax, assessment,
charge, levy or claim if the amount, applicability or validity thereof shall
currently be contested in good faith by appropriate proceedings and for which
adequate reserves have been established in accordance with Chilean GAAP.

         8.10.    Maintenance of Property and Insurance. The Borrower shall, and
shall cause each of the Relevant Subsidiaries to, (i) keep all property
necessary to its business in reasonably good working order and condition,
ordinary wear and tear excepted and (ii) maintain insurance on all such property
in at least such amounts and against at least such risks as is consistent and in
accordance with industry practice for companies similarly situated owning
similar properties in the same general areas in which the Borrower or such
Relevant Subsidiary operates, except where the failure to maintain any such
property or insurance could not, individually or in the aggregate, have a
Material Adverse Effect.


                                       48


         8.11.    Ranking. The Borrower shall ensure that the Indebtedness
incurred by the Borrower under its Credit Agreement shall at all times rank at
least pari passu in priority of payment with all other present and future senior
unsubordinated Indebtedness of the Borrower, except for certain statutory
preferences such as withholding taxes and claims for employee benefits, which,
in any event, are not material to such Borrower.

         8.12.    Further Assurances. Each of the Borrowers shall, promptly
after receiving notice (or otherwise becoming aware) thereof, cure, or cause to
be cured, any defects in the creation and issuance of any of the Notes, defects
in the creation, attachment and perfection of a first-priority security interest
in the Collateral and the execution and delivery of the Loan Documents
(including, without limitation, its Agreement), resulting from any acts or
failure to act by any Borrower or any of the Relevant Subsidiaries or any
employee or officer thereof. Each Borrower at its expense shall promptly execute
and deliver to the Administrative Agent, the Collateral Agent and its Lenders,
or cause to be executed and delivered to the Administrative Agent, the
Collateral Agent and its Lenders, all such other and further documents,
agreements and instruments in compliance with or to achieve compliance with the
covenants and agreements in the Loan Documents (including, without limitation,
its Credit Agreement) or to correct any omissions in the Loan Documents, or to
obtain any consents, all as may be necessary in connection therewith or as may
be reasonably requested by the Administrative Agent, the Collateral Agent or any
Lender to such Borrower in connection therewith.

         8.13.    Central Bank Notification. Promptly, and in any event within 5
days after the Closing Date, the Borrowers shall notify the Central Bank of the
existence of these Agreements in accordance with Chapters VIII and XIV of the
Compendium of Foreign Exchange Regulations and provide written confirmation
thereof to the Administrative Agent.

         8.14.    Endesa-Chile 2003 Liquidity Facility. If and at the time
Enersis Cayman makes an advance to Endesa-Chile, acting through its Cayman
Islands Branch, in respect of the Endesa-Chile 2003 Liquidity Facility, the
Borrowers (a) shall cause Endesa-Chile, acting through its Cayman Islands
Branch, to duly execute and deliver the Endesa-Chile 2003 Liquidity Facility
Recognition of Debt acknowledging the Indebtedness incurred by such advance, (b)
shall pledge all rights of Enersis Cayman with respect to all Indebtedness under
the Endesa-Chile 2003 Liquidity Facility Recognition of Debt to the Collateral
Agent for the benefit of the Lenders (and shall cause Endesa-Chile, acting
through its Cayman Islands Branch, to acknowledge such pledge) and (c) shall
deliver or cause to be delivered to the Administrative Agent an opinion of
counsel or counsels to Enersis Cayman and Endesa-Chile, acting through its
Cayman Islands Branch, addressed to the Administrative Agent, the Collateral
Agent and the Lenders, in form and substance and from such counsels and in such
jurisdictions reasonably satisfactory to legal counsel or counsels to the
Administrative Agent and the Collateral Agent. Without limiting the foregoing,
Enersis shall, simultaneously with any advance in respect of the Endesa-Chile
2003 Liquidity Facility take all actions necessary or reasonably requested by
the Collateral Agent (including executing and delivering all documents and
instruments necessary or appropriate for the filing and/or recording thereof in
all applicable jurisdictions) to perfect the first priority Lien in each such
advance and any other rights of Enersis under the Endesa-Chile Liquidity
Facility Letter Agreement, pursuant to the Endesa-Chile 2003 Liquidity Facility
Pledge Agreement and shall pay all taxes, fees and other charges then payable in
connection therewith.


                                       49


         Section 9. Financial Covenants.

         Each of the Borrowers covenants and agrees that on and after the
Effective Date and until the Loans and the Notes, together with all accrued
interest, and all other Obligations incurred hereunder and thereunder, are paid
in full:

         9.1.     Debt to Adjusted Operating Cash Flow. Enersis shall not permit
the ratio of total Indebtedness of Enersis and its Chilean Subsidiaries on any
day of a fiscal quarter to Adjusted Operating Cash Flow for the four consecutive
prior fiscal quarters to exceed the amount for the relevant quarter set forth on
Schedule I hereto.

         9.2.     Debt to EBITDA. Enersis shall not permit the ratio of
Consolidated Indebtedness on any day of a fiscal quarter to Consolidated EBITDA
for the four consecutive prior fiscal quarters to exceed the amount for the
relevant quarter set forth on Schedule I hereto.

         9.3.     Adjusted Operating Cash Flow to Interest Expense. Enersis
shall not permit the ratio of Adjusted Operating Cash Flow to Interest Expense
for any period of four consecutive fiscal quarters to be less than the amounts
set forth on Schedule I hereto.

         9.4.     Adjusted Consolidated Leverage Test. Enersis shall not permit
Consolidated Indebtedness on any day of a fiscal quarter as a percentage of
Stockholders Equity on the last day of the prior fiscal quarter to exceed the
amount for such quarter set forth on Schedule I hereto.

         9.5.     Calculations. Solely for purposes of the calculations set
forth in Sections 9.1, 9.2 and 9.4, Indebtedness and Consolidated Indebtedness
on any day, as the case may be, shall not include that portion of Indebtedness
outstanding hereunder that would otherwise be included in Indebtedness or
Consolidated Indebtedness on such day, as the case may be, equal to Net Debt
Issuance Proceeds that have been deposited in the Net Proceeds Escrow Account
and remain on deposit therein on such day for application on the next Payment
Date to repay the Loans in accordance with Section 5.3(a).

         Section 10. Negative Covenants.

         Each of the Borrowers covenants and agrees that on and after the
Effective Date and until the Loans and the Notes, together with interest and all
other Obligations incurred hereunder and thereunder, are paid in full:

         10.1.    Transfer of Operating Assets. Enersis shall not, and shall not
permit any of its Subsidiaries to, sell, assign, transfer, contribute or
alienate in any form, with or without consideration, operating assets that are
essential for the efficient conduct of its operations or business. For the sole
purpose of this Section 10.1, it is understood that each of Enersis and its
Subsidiaries will be in compliance with this obligation as long as at least 50%
of the Consolidated Assets of Enersis and its Consolidated Subsidiaries are
Regulated Assets.


                                       50


         10.2.    Permitted Capital Expenditures. The aggregate amount of
Capital Expenditures made by (i) Enersis and its Chilean Subsidiaries and (ii)
the Foreign Subsidiaries in any fiscal year shall not exceed the amount set
forth for such year for Enersis and its Chilean Subsidiaries and for the Foreign
Subsidiaries, respectively, in Schedule J hereto ("Permitted Capital
Expenditures").

         10.3.    Indebtedness. No Chilean Subsidiary shall incur any
Indebtedness (other than any amounts advanced by a Borrower or another Chilean
Subsidiary pursuant to a cuenta corriente mercantil with a term no longer than
30 days) other than (A) Indebtedness the outstanding amount of which does not,
in the aggregate, exceed the total amount of third-party Indebtedness for
borrowed money and intercompany Indebtedness of such Chilean Subsidiary
outstanding on the Closing Date, and the Proceeds of which are applied solely to
repay or refinance such third-party Indebtedness for borrowed money and/or
intercompany Indebtedness, (B) other third-party Indebtedness that, together
with Indebtedness of all other Chilean Subsidiaries (including all Indebtedness
described under clause (A) hereof, but excluding Indebtedness of Chilectra
incurred under clause (C) hereof), the outstanding amount of which does not
exceed at any time U.S.$125,000,000 in the aggregate, (C) in the case of
Chilectra, Indebtedness with a principal amount not to exceed U.S.$300,000,000
in the aggregate (i) raised in the capital markets, (ii) having no scheduled
payment of principal prior to the date that is one year after the Maturity Date
and (iii) the Proceeds of which are applied solely to repay intercompany
Indebtedness to Enersis.

         10.4.    Investments.

         (a)      Except as contemplated by Section 8.2 or permitted by this
Section 10.4, Enersis shall not, and shall not permit the Relevant Subsidiaries
to, make any Investments, other than (i) the capitalization of up to
U.S.$250,000,000 of existing intercompany Indebtedness owed by Cerj, (ii) the
making of a loan or loans to Endesa-Chile under the Endesa-Chile 2003 Liquidity
Facility, (iii) the making of a loan to Endesa-Chile in an amount not to exceed
U.S.$100,000,000 in the aggregate from time to time outstanding, provided that
while any such amount is outstanding Enersis shall have no Indebtedness owing to
Endesa-Chile, (iv) Permitted Investments in an amount not to exceed
U.S.$25,000,000 in any fiscal year or an aggregate amount of U.S.$75,000,000 at
any time existing or outstanding, (v) the making of a loan or loans by
Endesa-Chile to Endesa-Chile Internacional on any single Business Day on or
prior to July 24, 2003, the proceeds of which are applied by Endesa-Chile
Internacional solely to repay on July 24, 2003 any amounts outstanding under the
Medium-Term Notes, (vi) the making of a loan or loans by Endesa-Chile to
Endesa-Chile Internacional at any time after April 1, 2005 until April 1, 2006
the proceeds of which are applied by Endesa-Chile Internacional solely to repay
on April 1, 2006 any amounts outstanding under the 7.20% Notes, (vii) the making
of a loan or loans by Endesa-Chile to Enersis in an amount not to exceed
U.S.$100,000,000 in the aggregate from time to time outstanding, provided that
while any such amount is outstanding Endesa-Chile shall have no Indebtedness
owing to Enersis (including, without limitation, under the Endesa-Chile 2003
Liquidity Facility), (viii) amounts advanced by Enersis or any Enersis
Subsidiary to Enersis or any Enersis Subsidiary that is a Chilean Subsidiary
pursuant to a cuenta corriente mercantil with a term no longer than 30 days,
(ix) amounts advanced by Endesa-Chile or any Subsidiary of Endesa-Chile to
Endesa-Chile or any Subsidiary of Endesa-Chile whose principal place of business
is within Chile pursuant to a cuenta corriente mercantil with a term no longer
than 30 days and (x) Permitted Cash Equivalents; provided that no Investment
described in clauses (i) through (ix) shall be made if a Default or Event of
Default exists or would result therefrom. Notwithstanding the foregoing, if
Endesa Spain holds an ownership interest in a Subsidiary of Enersis (other than
through Enersis), Enersis shall not make any Permitted Investment in that
Subsidiary unless Endesa Spain shall have simultaneously invested its Ownership
Percentage of the Default Prevention Amount.


                                       51


         (b)      Permitted Investments shall be made as intercompany loans and
shall comply with Section 8.3 except to the extent an Investment made as equity
is the only means available to prevent the occurrence of an Event of Default.

         10.5.    Repurchase or Redemption of Capital Stock, Etc. Enersis shall
not redeem, repurchase, retire or otherwise acquire any of its capital stock,
and Enersis shall not permit any of the Relevant Subsidiaries to redeem,
repurchase, retire or otherwise acquire any of its capital stock or other
ownership interest in it (or options or warrants in respect thereof) or make a
dividend or distribution with respect to its capital stock or other ownership
interest in it (or options or warrants in respect thereof) other than a
redemption, repurchase, retirement, acquisition, dividend or distribution by a
Relevant Subsidiary to the extent the capital stock or other ownership interest
held by Enersis or another Subsidiary of Enersis is not treated in a manner less
favorable than that held by another Person (including, without limitation, by
redeeming, repurchasing, retiring or acquiring a greater portion of the capital
stock or other ownership interest held by such other Person).

         10.6.    Consolidations, Mergers, Etc. Enersis (a) shall not, and shall
not permit any of the Relevant Subsidiaries to, wind-up, liquidate or dissolve
its affairs or enter into any transaction of merger or consolidation, and (b)
shall not, and shall not permit any of the Relevant Subsidiaries to, convey,
sell, lease or otherwise dispose of, or enter into any Sale Lease-Back
Transaction with respect to (or agree to do any of the foregoing at any future
time), all or substantially all of their respective property or assets, except
that:

         (i)      subject to the provisions of Section 5.3(d), Enersis may enter
                  into any transaction of merger or consolidation, provided that
                  (A) immediately after giving effect to any such transaction,
                  no Default or Event of Default shall have occurred and be
                  continuing, (B) Enersis shall be the surviving entity of the
                  merger, and (C) Enersis' Consolidated Tangible Net Worth
                  immediately after giving effect to such transaction shall be
                  at least equal to Enersis' Consolidated Tangible Net Worth
                  immediately before giving effect to such transaction;

         (ii)     any Relevant Subsidiary may enter into any transaction of
                  merger or consolidation, provided that (A) immediately after
                  giving effect to any such transaction, no Default or Event of
                  Default shall have occurred and be continuing, (B) either
                  Enersis or another Relevant Subsidiary shall be the surviving
                  entity of the merger and (C) if the surviving entity is a
                  Relevant Subsidiary, Enersis' direct or indirect ownership
                  interest in the surviving Relevant Subsidiary immediately
                  after giving effect to such transaction shall be at least
                  equal to Enersis' direct and indirect ownership interest in
                  the Relevant Subsidiary merging into the surviving Relevant
                  Subsidiary immediately prior to giving effect to such
                  transaction; and


                                       52


         (iii)    any Relevant Subsidiary may make dispositions of all or
                  substantially all of its properties or assets to Enersis or to
                  any other Relevant Subsidiary of Enersis to the extent such
                  disposition is permitted under Section 10.10, provided that,
                  with respect to any such disposition to a Relevant Subsidiary,
                  Enersis' direct and indirect ownership interest in the
                  transferee is at least equal to Enersis' direct and indirect
                  ownership interest in the transferor.

         10.7.    Sales of Assets. Enersis shall not, and shall not permit its
Subsidiaries to, conduct any Asset Sale, except to the extent that:

         (i)      no Default or Event of Default exists or would result
                  therefrom;

         (ii)     such Asset Sale is on arm's-length terms and for Fair Market
                  Value;

         (iii)    all consideration received by Enersis or any such Subsidiary
                  is in cash and is paid at the time of such Asset Sale or
                  within 30 days thereafter (other than (A) in the case of the
                  sale of Infraestructura 2000 (in which case all consideration
                  must be received by December 31, 2004), (B) in the case of any
                  sale in the ordinary course of business by Manso de Velasco
                  and (C) at any time after 66-2/3% of the aggregate principal
                  amount of the Loans outstanding as of the Closing Date shall
                  have been repaid, in the case of a Permitted Asset Swap);

         (iv)     any Net Asset Sale Proceeds in respect of such Asset Sale are
                  applied in accordance with Section 5.3;

         (v)      any other Proceeds that would qualify as Net Asset Sale
                  Proceeds in respect of such Asset Sale are applied in the
                  manner specified in the definition of Net Asset Sale Proceeds;
                  and

         (vi)     Enersis is in compliance with the provisions of Section 9 upon
                  giving pro forma effect to the Asset Sale (assuming that (A)
                  for purposes of such calculation with respect to Sections 9.1
                  and 9.2, such Asset Sale was consummated on the first day of
                  the prior fiscal quarter and (B) for purposes of such
                  calculation with respect to Section 9.3, such Asset Sale was
                  consummated on the first day of the current fiscal quarter),


                                       53


provided that clauses (iv) and (v) above shall not be applicable to any Asset
Sale conducted by Endesa-Chile or any of its Subsidiaries until such time as all
amounts under the Endesa-Chile Credit Agreement shall have been paid.

         10.8.    Liens. Enersis shall not, and shall not permit any of its
Subsidiaries to, create, agree to create, incur, assume or suffer to exist any
Lien upon or with respect to any of its property or assets (real, personal or
mixed, tangible or intangible, including, without limitation, shares of the
capital stock of any Subsidiary), whether now owned or hereafter acquired;
provided that nothing in this Section 10.8 shall prevent the creation,
incurrence, assumption or existence of the following Liens:

         (i)      Liens in existence on the Closing Date that, to the extent
                  they secure Indebtedness or exist in respect of any individual
                  property or asset with a book value in excess of
                  U.S.$1,000,000, are listed on Schedule K;

         (ii)     Liens created under the Security Documents;

         (iii)    Liens in respect of property or assets of Enersis or any of
                  its Subsidiaries imposed by Law which were incurred in the
                  ordinary course of their business, such as carriers',
                  warehousemen's, materialmen's, landlords' and mechanics' liens
                  and other similar Liens arising in the ordinary course of
                  their business, and which (x) do not in the aggregate
                  materially detract from the value of such property or assets
                  or materially impair the use thereof in the operation of the
                  business of Enersis or such Subsidiary or (y) are being
                  contested in good faith by appropriate proceedings, which
                  proceedings have the effect of preventing the forfeiture or
                  sale of the property or assets subject to any such Lien;

         (iv)     Liens created for the purpose of financing the acquisition or
                  construction of any property or asset as part of a project if,
                  in the event of a failure to repay amounts advanced in
                  connection therewith or any interest thereon, the Person or
                  Persons providing such financing are, at all times during
                  which such Liens are in existence, entitled to have recourse
                  only to such property or asset and the revenues derived from
                  the operation of, or loss or damage to, such property or
                  asset;

         (v)      Liens (other than those of the type described in clause (iv)
                  above) on any property or asset acquired or constructed by
                  Enersis or any of its Subsidiaries which are created, incurred
                  or assumed contemporaneously with or within 90 days after such
                  acquisition (or, in the case of any such property constructed
                  after the completion or commencement of commercial operation
                  of such property or asset, whichever is later) to secure or
                  provide for the payment of any part of the purchase price of
                  such property or the costs of such construction (including
                  costs such as escalation, interest during construction and
                  finance costs), provided that any such Lien shall (x) apply
                  only to the property or asset so acquired or constructed, and
                  (y) secure a principal, capital or nominal amount not
                  exceeding 85% of the cost of acquiring or constructing such
                  property or asset;


                                       54


         (vi)     Liens existing on any property or asset prior to the
                  acquisition thereof by Enersis or any of its Subsidiaries or
                  existing on any property or asset of any Person that becomes a
                  Subsidiary after the Effective Date prior to the time such
                  Person becomes a Subsidiary; provided, however, that (x) any
                  such Lien is not created in contemplation of or in connection
                  with such acquisition or such Person becoming a Subsidiary, as
                  the case may be, (y) any such Lien shall not apply to any
                  other property or assets of Enersis or any of its Subsidiaries
                  and (z) any such Lien shall secure only those obligations
                  which it secures on the date of such acquisition or the date
                  on which such Person becomes a Subsidiary, as the case may be;

         (vii)    Liens arising out of title retention provisions in the
                  standard conditions of supply of goods acquired from Enersis
                  or its Subsidiaries by the relevant Person in the ordinary
                  course of its business;

         (viii)   Liens arising solely by virtue of any statutory provision
                  relating to banker's liens, rights of set-off or similar
                  rights and remedies as to deposit accounts or other funds
                  maintained with a creditor depository institution; provided,
                  however, that (x) such deposit account is not a dedicated cash
                  collateral account and is not subject to restrictions against
                  access by Enersis or any of its Subsidiaries, and (y) such
                  deposit account is not intended by Enersis or any of its
                  Subsidiaries to provide collateral to the depository
                  institution;

         (ix)     Liens for taxes, assessments or governmental charges or levies
                  not yet due, or Liens for taxes, assessments or governmental
                  charges or levies being contested in good faith and by
                  appropriate proceedings for which adequate reserves have been
                  established in accordance with Chilean GAAP;

         (x)      pledges or deposits to secure obligations under workers'
                  compensation Law or similar legislation or to secure public or
                  statutory obligations (including obligations incurred relating
                  to a privatization);

         (xi)     pledges or deposits to secure the performance of bids,
                  concession contracts (or similar instruments relating to an
                  acquisition), trade contracts (other than for borrowed money)
                  or leases, surety bonds, appeal bonds, performance bonds and
                  other obligations of a like nature incurred in the ordinary
                  course of business;


                                       55


         (xii)    easements, rights of way and other encumbrances on title to
                  real property that do not render title to such property
                  unmarketable or materially and adversely affect the uses of
                  such property for its present purposes;

         (xiii)   any extension, renewal or replacement of the foregoing Liens;
                  provided, however, that the aggregate principal amount of the
                  Indebtedness, if any, secured by such Liens does not increase
                  from the amount outstanding at the time of any such renewal,
                  replacement or extension and such renewal, replacement or
                  extension does not encumber any additional assets or
                  properties; and

         (xiv)    any additional Liens securing Indebtedness, provided that (x)
                  the aggregate principal amount of Indebtedness of Endesa-Chile
                  and its Subsidiaries secured by such Liens does not exceed
                  U.S.$30,000,000 at any time, (y) the aggregate principal
                  amount of Indebtedness of Enersis and its Subsidiaries
                  (excluding Endesa-Chile and its Subsidiaries) secured by such
                  Liens does not exceed U.S.$30,000,000 at any time and (z) the
                  aggregate principal amount of Indebtedness secured by all such
                  Liens does not exceed U.S.$60,000,000 at any time,

provided, however, that, notwithstanding the foregoing, (a) no Lien whatsoever
shall be created, incurred, assumed or suffered to exist in respect of the
Collateral and no Person shall have the right to purchase the Collateral, other
than as imposed by the Security Documents and (b) no Lien whatsoever shall be
created, incurred, assumed or suffered to exist in respect of any portion of the
Equity Collateral that has been released from the Collateral pursuant to Section
3.2 and no Person shall have or be granted the right to acquire the Equity
Collateral, other than any Lien permitted pursuant to clauses (i) through (xiv)
above and, prior to the Equity Release Date, any Lien to secure the Qualifying
Indebtedness for which such Equity Collateral was released pursuant to Section
3.2.

         10.9.    Limitations on Prepayments of Indebtedness. Enersis shall not,
and shall not permit any of the Relevant Subsidiaries to, make any voluntary or
optional payment or prepayment on or redemption or acquisition for value of any
Indebtedness prior to the date such Indebtedness is scheduled to mature in
accordance with its original terms (including, without limitation, by way of
depositing with the trustee or Person fulfilling a similar function with respect
to such Indebtedness money or securities prior to the date such Indebtedness is
scheduled to mature in accordance with its original terms for the purpose of
paying it when due) or make any payment in violation of any subordination terms
of any Indebtedness, other than in respect of (w) the Loans, (x) to the extent
permitted pursuant to the relevant documentation relating to such Indebtedness
and by applicable Law, a purchase or prepayment of up to U.S.$50,000,000 in
respect of any 6.60% Notes, 6.90% Notes or 7.40% Notes and a purchase or
prepayment of up to U.S.$120,000,000 in respect of any 5.50% Notes or 5.75%
Notes, in each case only to the extent (i) such Indebtedness is held at the time
of such purchase or prepayment by a non-Affiliate shareholder of Enersis, (ii)
all of the proceeds paid to such shareholder in respect thereof are
simultaneously (or as soon as practicable, but in any event within seven
Business Days) applied by or on behalf of or irrevocably committed by such
shareholder to purchase shares of common stock of Enersis (provided that if such
proceeds are not simultaneously so applied, such proceeds must be deposited into
a segregated escrow account for the benefit of Enersis until so applied) and
(iii) the Required Lenders consent to such transactions, such consent not to be
withheld if the Required Lenders in their sole judgment are satisfied that such
transactions pose no risk that any funds so used will not be reinvested in
Enersis as described above within seven Business Days, (y) the Elesur Loan
(including by prepayment with proceeds from an equity issuance to Endesa Spain
or an Affiliate of Endesa Spain), but solely in connection with a capitalization
of any amounts so paid through the issuance of shares of common stock of
Enersis, or (z) any intercompany Indebtedness.


                                       56


         10.10.   Transactions with Affiliates. Enersis shall not, and shall not
permit any of its Subsidiaries to, enter into any transaction or series of
related transactions with any Affiliate of Enersis or its Subsidiaries
(including, without limitation, any cuenta corriente mercantil) other than in
the ordinary course of business and on terms and conditions as favorable to
Enersis or such Subsidiary as would be obtained by Enersis or such Subsidiary at
the time in a comparable arm's-length transaction with a Person other than an
Affiliate.

         10.11.   Sale of Certain Assets. Prior to January 1, 2004, Enersis
shall not, and shall not permit any of its Subsidiaries to, sell, transfer,
lease or otherwise convey to Endesa Spain or any of its Affiliates any capital
stock or other ownership interest in, or assets of, any of Infraestructura 2000
or Canutillar.

         10.12.   Upstreaming. Other than to the extent required by applicable
Law (including fiduciary duties to minority shareholders), Enersis shall not,
and shall not permit the Enersis Subsidiaries to, take any action limiting the
ability of any Enersis Subsidiary to make funds available to Enersis pursuant to
Section 8.2 (whether by repayment of intercompany Indebtedness, by dividend or
otherwise), including, for the avoidance of doubt, any such action in the event
that any restriction in place on the Closing Date no longer applies.

         10.13.   Limitation on Sale Lease-Back Transactions. Other than in
connection with any Lien permitted under Section 10.8(iv) or (v) or in respect
of (i) the Santa Rosa Property, (ii) any existing real property of any Foreign
Subsidiary or (iii) any existing real property of Manso de Velasco, Enersis
shall not, and shall not permit any Subsidiary to, enter into any arrangement,
directly or indirectly, with any third party whereby any of Enersis or any
Subsidiary shall sell or transfer any property or asset (real or personal),
whether now owned or hereafter acquired, and whereby any of Enersis or any
Subsidiary shall then or thereafter rent or lease as lessee such property or
asset or any part thereof or other property or asset which any Borrower or such
Subsidiary intends to use for substantially the same purpose or purposes as the
property or asset sold or transferred (a "Sale Lease-Back Transaction").

         10.14.   Business. Enersis shall not permit any material change in the
nature of its principal business or that of itself and the Relevant Subsidiaries
taken as a whole (whether through one or a series of transactions, whether at
one time or over a period of time and whether by disposition, acquisition or
otherwise).


                                       57


         Section 11. Events of Default.

         Upon the occurrence of any of the following specified events (each, an
"Event of Default"):

         11.1.    Payments. Any Borrower shall (i) default in the payment when
due of any principal of any Loan or any Note, (ii) default in the payment when
due of any interest on any Loan or any Note and such default shall continue
unremedied for three or more Business Days or (iii) default in the payment when
due of any other amounts owing hereunder or under any other Loan Document and
such default in the case of any such other amounts shall continue unremedied for
five or more Business Days; or

         11.2.    Representations, Etc. Any representation, warranty or
statement made by or on behalf of a Borrower or any other Enersis Group Company
herein or in any other Loan Document or in any certificate delivered pursuant
hereto or thereto shall prove to be incorrect, untrue or misleading in any
material respect on the date as of which made or deemed made; or

         11.3.    Covenants under these Agreements. Any Borrower shall (i)
default in the due performance or observance by it of any term, covenant or
agreement contained in Sections 5.3, 8.2, 8.3(a), 8.4(e), 8.6(a)(i), 8.13, 8.14,
9, 10.5, 10.11 and 10.14, (ii) default in the due performance or observance by
it of any other term, covenant or agreement contained in Section 10 and such
default shall continue unremedied for a period of 21 calendar days after the
earlier of the date on which either Borrower becomes aware of such default or
written notice thereof is delivered by the Administrative Agent or any Lender to
the Borrowers, or (iii) default in the due performance or observance by it of
any term, covenant or agreement (other than those referred to in Section 11.1,
11.2 and clauses (i) and (ii) of this Section 11.3) contained in these
Agreements and such default shall continue unremedied for a period of 30
calendar days after the earlier of the date on which either Borrower becomes
aware of such default or written notice thereof is delivered by the
Administrative Agent or the Lenders to the Borrowers; or

         11.4.    Other Covenants. Any Borrower or any other Enersis Group
Company shall default in the due performance or observance by it of any term,
covenant or agreement contained in any of the Loan Documents (other than these
Agreements) to which it is a party and such default shall continue unremedied
for a period of 30 calendar days (or any shorter grace period applicable thereto
set forth in the relevant Loan Document) after the earlier of the date on which
either such party becomes aware of such default or written notice thereof is
delivered by the Administrative Agent or the Lenders to the Borrowers; or

         11.5.    Cross-Default. Any Indebtedness (x) under the Endesa-Chile
Credit Agreement or (y) of any Borrower or any of the Relevant Subsidiaries
(other than the Indebtedness incurred hereunder) is not paid when due or within
any applicable grace period in any instrument or agreement relating to such
Indebtedness, or any such Indebtedness is declared to be or becomes, or any
Person becomes entitled to declare such Indebtedness to be, due and payable
before its stated maturity by reason of any default, event of default or the
like (however described); provided, that no Event of Default shall occur under
this Section 11.5 unless the outstanding amount of Indebtedness in respect of
which one or more of the events mentioned above in this Section 11.5 has or have
occurred equals or exceeds U.S.$30,000,000 (on an individual basis, without
taking into account any other Indebtedness in respect of which one or more
events may have occurred) or its equivalent in other currencies (as reasonably
determined by the Administrative Agent); or


                                       58


         11.6.    Bankruptcy, Etc. Enersis or any of the Relevant Subsidiaries
shall commence a voluntary case concerning itself under any bankruptcy Law; or
an involuntary case under any such Law is commenced against Enersis or any of
the Relevant Subsidiaries, and the petition is not controverted within 30
calendar days, or is not dismissed within 45 calendar days, after commencement
of the case and, to the extent any such case is commenced in Chile, in
accordance with any applicable Chilean Law; or a custodian is appointed for, or
takes charge of, all or substantially all of the property of Enersis or any of
the Relevant Subsidiaries, or Enersis or any of the Relevant Subsidiaries
commences any other proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar
Law of any jurisdiction whether now or hereafter in effect relating to such
Person, or there is commenced against Enersis or any of the Relevant
Subsidiaries any such proceeding which remains undismissed for a period of 45
calendar days, or Enersis or any of the Relevant Subsidiaries is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any such
case or proceeding is entered; or Enersis or any of the Relevant Subsidiaries
suffers any appointment of any custodian or the like for it or any substantial
part of its property to continue undischarged or unstayed for a period of 45
calendar days; or Enersis or any of the Relevant Subsidiaries makes a general
assignment for the benefit of creditors; or Enersis or any of the Relevant
Subsidiaries shall admit in writing its inability, or shall be unable, to pay
its debts as they become due; or any action is taken by Enersis or any of the
Relevant Subsidiaries to indicate its consent to, approval of, or acquiescence
in, any of the acts described in this Section 11.6; or

         11.7.    Judgments. (i) One or more judgments or decrees shall be
entered against Enersis or any of the Relevant Subsidiaries involving in the
aggregate a liability (not paid or fully covered by a valid and binding policy
of insurance issued by a reputable insurer, which insurer shall have been
notified of, and not disputed, the claim made for payment of such judgment or
decree) equivalent to U.S.$30,000,000 (or its equivalent in other currencies) or
more or (ii) one or more non-monetary judgments or decrees shall be entered
against Enersis or any of the Relevant Subsidiaries that, individually or in the
aggregate, could have a Material Adverse Effect, which shall remain undischarged
or unstayed for a period of at least 10 calendar days; or

         11.8.    Currency Restrictions. Any Government Agency of Chile shall
impose restrictions on the availability of freely transferable Dollars to
Persons outside Chile or Dollars shall be unavailable at all or at a
commercially reasonable rate of exchange, and as a direct or indirect result
thereof, any Borrower or Elesur shall not have the ability or could not
reasonably be expected to be able to perform its obligations under any of the
Loan Documents; or

         11.9.    Denial of Liability. (a) A Borrower shall deny its obligations
under its Credit Agreement or any Note, or any Borrower or any other Enersis
Group Company shall deny its obligations under any other Loan Document to which
it is a party, (b) any Law shall render invalid, or preclude enforcement of, any
provision of these Agreements or any other Loan Document or shall impair the
performance of the obligations of any Borrower or any other Enersis Group
Company hereunder or under any other Loan Document to which it is a party, (c)
any Loan Document shall otherwise cease to be in full force and effect or (d)
any Government Agency shall, by moratorium Laws or otherwise, cancel or suspend
the obligation of any Borrower or any other Enersis Group Company to pay any
amount required to be paid hereunder or under any other Loan Document; or


                                       59


         11.10.   Governmental Action. Any Government Agency shall condition,
nationalize, seize or otherwise expropriate all or a substantial part of the
property or assets of Enersis or any of the Relevant Subsidiaries or shall
assume custody or control of such property or assets or of the business or
operations of Enersis or any of the Relevant Subsidiaries, or shall have taken
any action for the dissolution or disestablishment of Enersis or any of the
Relevant Subsidiaries, or shall have taken any action that would prevent Enersis
or any of the Relevant Subsidiaries from carrying on its business or any
substantial part thereof; or

         11.11.   Security Documents.

         (a)      The Security Documents (together with any other documents

delivered or to be delivered thereunder) shall for any reason fail to create or
for any reason (other than to the extent resulting solely from the Collateral
Agent's failure to maintain possession of any promissory notes, stock
certificates or other instruments delivered to it pursuant to the Security
Documents or hereto) cease to maintain a valid and duly perfected first priority
security interest in and Lien upon any of the Collateral until such Collateral
is released in accordance with the terms hereof or of any of the Security
Documents; or

         (b)      Any Collateral shall become subject to any Lien other than a
Lien permitted under Section 10.8 or any beneficiary of any Lien on any
Collateral takes any action to foreclose on such Collateral or takes any action
inconsistent with the security interest held by the Collateral Agent, in each
case which could have a Material Adverse Effect; or

         (c)      The enforceability of the Collateral Agent's security interest
in any Collateral, or any obligations of any Borrower, Elesur, Chilectra, or
Chilectra Cayman under any of the Security Documents shall be contested or
denied by any Borrower, Elesur, Chilectra or Chilectra Cayman under any of the
Security Documents; or

         11.12.   Endesa Spain Equity Contributions or Subordinated Loan. Endesa
Spain (or one or more of its Affiliates) shall fail to make, within 31 days of
receipt by it or any of its Affiliates of any dividend or other distribution
from Enersis, one or more investments in the form of equity contributions or a
Qualifying Endesa Spain Loan to Enersis, if applicable, or equity contributions
in the case of any Chilean Subsidiary, at least equal in the aggregate to the
Dividend Reinvestment Proceeds corresponding to such dividend payment or
distribution, if any; or

         11.13.   Net Proceeds. Enersis shall not have received (a) on or prior
to June 30, 2004, Net Asset Sale Proceeds in an amount at least equal to the
aggregate amount of any Net Debt Issuance Proceeds previously applied (i) to
repay principal amounts outstanding under the 6.60% Notes that are put to
Enersis on December 1, 2003 or to repay principal amounts outstanding under any
6.60% Liquidity Facility and/or (ii) to fund loan amounts under the Endesa-Chile
2003 Liquidity Facility or (b) on or prior to December 31, 2003, March 31, 2004
and June 30, 2004, repayment from Endesa-Chile of at least 50%, 25% and the
balance, respectively, of the aggregate amount loaned to Endesa-Chile under the
Endesa-Chile 2003 Liquidity Facility; or


                                       60


         11.14.   Capitalization/Pledge of Elesur Loan. All amounts outstanding
under the Elesur Loan shall not have been capitalized by July 31, 2003 solely
through the issuance of shares of common stock of Enersis unless, to the extent
not so capitalized, (A) Elesur and Enersis shall have duly executed and
delivered the Elesur Recognition of Debt, (B) Elesur and the Collateral Agent
shall have duly executed and delivered the Elesur Pledge Agreement, (C) Elesur
and the Administrative Agent shall have duly executed and delivered the Amended
and Restated Elesur Intercreditor Agreement, (D) Enersis shall have delivered
(or caused to be delivered) to the Administrative Agent opinions addressed to
the Administrative Agent, the Collateral Agent and the Lenders of legal counsels
to Elesur and Enersis in form and substance and from such counsels and in such
jurisdictions reasonably satisfactory to legal counsel or counsels to the
Administrative Agent and the Collateral Agent and (E) the Collateral Agent shall
have a valid and duly perfected first priority security interest in and Lien
upon all rights of Elesur under the Elesur Recognition of Debt;

then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent may, with the consent of the
Required Lenders and shall, upon the written request of the Required Lenders, by
written notice to the Borrowers, take any and all of the following actions
without prejudice to the rights of any holder of any Note to enforce its claims
against any Borrower (provided that, if an Event of Default specified in Section
11.6 shall occur with respect to a Borrower, the result which would occur upon
the giving of written notice by the Administrative Agent to the Borrowers as
specified in clause (i) below shall occur automatically without the giving of
such notice): (i) declare the principal of and any accrued interest in respect
of all Loans and the Notes of the Borrowers, any Fees and all obligations owing
hereunder and thereunder to be, whereupon the same shall become, forthwith due
and payable without presentment, demand, protest or other notice of any kind,
all of which are hereby waived by the Borrowers; and (ii) exercise any other
rights available under the Loan Documents or other document or instrument
entered into in connection therewith. It is understood that the action described
in clause (i) above may be taken only with the written approval or upon the
written request of the Required Lenders.


                                       61


         Section 12. The Administrative Agent and the Collateral Agent.

         12.1.    Appointment; Acceptance of Appointment.

         (a)      The Lenders under both Agreements hereby designate Dresdner
Bank Luxembourg S.A. and Banco Bilbao Vizcaya Argentaria S.A. as Administrative
Agent (for the periods specified in the definition thereof) and Banco
Santander-Chile as Collateral Agent to act as specified herein and in the other
Loan Documents. For the avoidance of doubt, Banco Bilbao Vizcaya Argentaria S.A.
is executing these Agreements as of the Effective Date, but such execution shall
be for purposes of Banco Bilbao Vizcaya Argentaria S.A. becoming Administrative
Agent on the date specified in the definition thereof and, on such date, Banco
Bilbao Vizcaya Argentaria S.A. shall assume and perform all the duties of the
Administrative Agent hereunder and under any other Loan Document to which the
Administrative Agent is a party. Each Lender hereby irrevocably authorizes, and
each holder of any Note by the acceptance of such Note shall be deemed
irrevocably to authorize, each of the Administrative Agent and the Collateral
Agent to take such action on its behalf under the provisions of the relevant
Credit Agreement, the other Loan Documents and any other instruments and
agreements referred to herein or therein and to exercise such powers and to
perform such duties hereunder and thereunder as are specifically delegated to or
required of each of the Administrative Agent and the Collateral Agent by the
terms hereof and thereof and such other powers as are reasonably incidental
thereto. Each of the Administrative Agent and the Collateral Agent may perform
any and all its duties and exercise its rights and powers hereunder by or
through its officers, directors or employees, or any one or more sub-agents
appointed by the Administrative Agent or the Collateral Agent as the case may
be, and each of the Administrative Agent and the Collateral Agent and any such
sub-agent may perform such duties and exercise such rights and powers through
their respective Affiliates. All such officers, directors, employees, sub-agents
and Affiliates shall, for purposes of this Section 12, be deemed to be included
in all references to each of the Administrative Agent and the Collateral Agent.

         (b)      Each of the Administrative Agent and the Collateral Agent, for
itself and its successors, hereby accepts its appointment as such upon the terms
and conditions hereof, including those contained in this Section 12.

         12.2.    Nature of Duties. None of the Administrative Agent and the
Collateral Agent shall have any duties or responsibilities except those
expressly set forth in these Agreements and the other Loan Documents. Other than
in accordance with these Agreements no Lender shall have any right to direct the
Collateral Agent to take any action in respect of the Collateral and no Lender
shall have any right to take action with respect to the Collateral independently
of the Collateral Agent. Neither the Administrative Agent, the Collateral Agent,
nor any of the Administrative Agent's or the Collateral Agent's officers,
directors, agents or employees shall be liable for any action taken or omitted
by any of them hereunder or under any other Loan Document or in connection
herewith or therewith, unless caused by its or their gross negligence or willful
misconduct. The duties of the Administrative Agent shall be mechanical and
administrative in nature; each of the Administrative Agent and the Collateral
Agent shall not have by reason of these Agreements or any other Loan Document a
fiduciary relationship with any Lender or the holder of any Note; and nothing in
these Agreements or any other Loan Document, expressed or implied, is intended
to or shall be so construed as to impose upon the Administrative Agent or the
Collateral Agent any obligations in respect of these Agreements or any other
Loan Document except as expressly set forth herein or therein. Each of the
Administrative Agent and the Collateral Agent shall be deemed not to have
knowledge of any Default or Event of Default unless and until written notice
thereof is given to each of the Administrative Agent and the Collateral Agent by
a Borrower or a Lender. The Administrative Agent shall promptly transmit to each
Lender and the Collateral Agent a copy of such notice pursuant to the terms of
these Agreements. Each of the Administrative Agent and the Collateral Agent
shall take such action with respect to the Loan Documents to which it is a party
(including with respect to any Event of Default) as may be directed by the
Required Lenders in accordance with the terms of these Agreements; provided,
however, that unless and until the Administrative Agent or the Collateral Agent,
as the case may be, has received any such direction, subject to Section 13.13,
the Administrative Agent or the Collateral Agent, as the case may be, may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Loan Document (including with respect to any Event of
Default) as it shall deem in its sole discretion advisable or in the best
interest of the Lenders.


                                       62


         12.3.    Lack of Reliance on the Administrative Agent or the Collateral
Agent. Independently and without reliance upon the Administrative Agent or the
Collateral Agent, each Lender and each holder of any Note, to the extent it
deems appropriate, has made and shall continue to make (i) its own independent
investigation of the financial condition and affairs of the Borrowers in
connection with the making and the continuance of the Loans and the taking or
not taking of any action in connection herewith and (ii) its own appraisal of
the creditworthiness of the Borrowers and, except as expressly provided herein,
none of the Administrative Agent and the Collateral Agent shall have any duty or
responsibility, either initially or on a continuing basis, to provide any Lender
or the holder of any Note with any credit or other information concerning the
business, operations, property, assets, condition (financial or otherwise),
prospects or creditworthiness of the Borrowers, whether coming into its
possession before the making of the Loans or at any time or times thereafter.
Neither the Administrative Agent nor the Collateral Agent shall be responsible
to any Lender or the holder of any Note for any recitals, statements,
information, representations or warranties herein or in any document,
certificate or other writing delivered in connection herewith or for the
execution, effectiveness, genuineness, validity, enforceability, perfection,
collectibility, priority or sufficiency of these Agreements or any other Loan
Document or the condition (financial or otherwise) of the Borrowers or be
required to make any inquiry concerning either the performance or observance of
any of the terms, provisions or conditions of any Credit Agreement or any other
Loan Document, or the financial condition of the Borrowers or the existence or
possible existence of any Default or Event of Default.

         12.4.    Certain Rights of the Administrative Agent and the Collateral
Agent. If either the Administrative Agent or the Collateral Agent shall request
instructions from the Required Lenders with respect to any act or action
(including failure to act) in connection with any Credit Agreement or any other
Loan Document, each of the Administrative Agent and the Collateral Agent shall
be entitled to refrain from such act or taking such action unless and until each
of the Administrative Agent and the Collateral Agent shall have received
instructions from the Required Lenders; and neither the Administrative Agent nor
the Collateral Agent shall incur liability to any Person by reason of so
refraining. Without limiting the foregoing, neither the Administrative Agent nor
the Collateral Agent shall be required to take any action that exposes the
Administrative Agent or the Collateral Agent to personal liability or that is
contrary to these Agreements or applicable Law, and no Lender or holder of any
Note shall have any right of action whatsoever against either the Administrative
Agent or the Collateral Agent as a result of the Administrative Agent's or the
Collateral Agent's acting or refraining from acting hereunder or under any other
Loan Document in accordance with the instructions of the Required Lenders.


                                       63


         12.5.    Reliance. Each of the Administrative Agent and the Collateral
Agent shall be entitled to rely, and shall be fully protected in relying, upon
any note, writing, resolution, notice, statement, certificate, facsimile, order
or other document or telephone message signed, sent or made by any Person that
the Administrative Agent or the Collateral Agent believed to be the proper
Person, and, with respect to all legal and other matters pertaining to these
Agreements and any other Loan Document and its duties hereunder and thereunder,
upon advice of legal counsel (including, without limitation, the Borrowers'
counsel), independent public accountants and other experts.

         12.6.    Indemnification. To the extent the Administrative Agent or the
Collateral Agent is not reimbursed and indemnified by the Borrowers, the holders
of the Notes will reimburse and indemnify the Administrative Agent and the
Collateral Agent, in proportion to the principal amount, determined at the time
indemnification is sought hereunder, of their Notes (or if no Notes are then
outstanding, in proportion to the principal amount, determined at the time
indemnification is sought hereunder, of their Commitments), for and against any
and all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses or disbursements (including, without
limitation, all costs and expenses referred to in Section 13.1) of whatsoever
kind or nature which may be imposed on, asserted against or incurred by the
Administrative Agent and the Collateral Agent in performing its duties hereunder
or under any other Loan Document (collectively, the "Indemnified Costs");
provided, however, that no such holder shall be liable for any portion of the
Indemnified Costs to the extent that such portion results from the
Administrative Agent's or the Collateral Agent's gross negligence or willful
misconduct. In the case of any investigation, litigation or other proceeding
giving rise to any Indemnified Costs, this Section 12.6 shall apply whether or
not the Administrative Agent, the Collateral Agent or any Lender is a party
thereto.

         12.7.    The Administrative Agent and the Collateral Agent in their
Individual Capacities. With respect to its obligation to make Loans under these
Agreements, each of the Administrative Agent and the Collateral Agent shall have
the rights and powers specified herein for a "Lender" and may exercise the same
rights and powers as though it were not performing the duties specified herein;
and the term "Lenders," "Required Lenders," "holders of Notes" or any similar
terms shall, unless the context clearly otherwise indicates, include the
Administrative Agent and the Collateral Agent in its individual capacity. Each
of the Administrative Agent and the Collateral Agent, or any branch or Affiliate
thereof, may accept deposits from, lend money to, act as trustee under
indentures of, accept advisory and investment banking engagements from, and
generally engage in any kind of banking, trust or other business with the
Borrowers or any Affiliate of the Borrowers as if it were not performing the
duties specified herein, and may accept fees and other consideration from the
Borrowers for services in connection with these Agreements and otherwise without
having to account for the same to any Lender.

         12.8.    Holders. Each of the Administrative Agent and the Collateral
Agent may deem and treat the payee of any Note as the owner thereof for all
purposes hereof unless and until the assignment, transfer or endorsement
thereof, as the case may be, shall have been recorded in the Register in
accordance with Section 13.18. Any request, authority or consent of any Person
who, at the time of making such request or giving such authority or consent, is
the holder of any Note shall be conclusive and binding on any subsequent holder,
transferee, assignee or endorsee, as the case may be, of such Note or of any
Note or Notes issued in exchange therefor.


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         12.9.    Succession.

         (a)      Each of the Administrative Agent and the Collateral Agent may
resign from the performance of all its functions and duties hereunder and/or
under the other Loan Documents at any time by giving 15 Business Days' prior
written notice to the Borrowers and the Lenders and may be removed at any time
by the Required Lenders; provided that such resignation or removal must be in
respect of both Agreements. Such resignation or removal shall only take effect
upon the appointment of a successor Administrative Agent or Collateral Agent, as
the case may be, pursuant to clauses (b) and (c) below or as otherwise provided
below.

         (b)      Upon any such notice of resignation or removal, the Required
Lenders shall, upon notice to each of the Lenders, appoint a successor
Administrative Agent or Collateral Agent (to act as a successor under both
Agreements) which shall be a commercial bank or trust company that is (to the
extent no Event of Default shall have occurred and be continuing) reasonably
acceptable to the Borrowers.

         (c)      If a successor Administrative Agent or Collateral Agent shall
not have been so appointed within such 15 Business Day period, the
Administrative Agent or Collateral Agent, as the case may be, with the consent
of the Borrowers, may, upon notice to each of the Lenders, then appoint a
successor Administrative Agent or Collateral Agent which shall serve as
Administrative Agent or Collateral Agent, as the case may be, hereunder or
thereunder until such time, if any, as the Required Lenders appoint a successor
Administrative Agent or Collateral Agent as provided above.

         12.10.   Power of Attorney from the Lenders. Each Lender agrees for the
benefit of each other Lender to deliver and maintain in full force and effect a
power of attorney in substantially the form attached hereto as Exhibit II. In no
event shall the foregoing power of attorney confer rights to the Collateral
Agent that are not otherwise granted to the Collateral Agent herein and in the
other Loan Documents.


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         Section 13. Miscellaneous.

         13.1.    Payment of Expenses, Etc. The Borrowers shall: (i) whether or
not the transactions herein contemplated are consummated, pay (x) all reasonable
and documented out-of-pocket costs and expenses (other than Taxes which are
governed by Section 5.5) of the Administrative Agent, the Collateral Agent and
each Mandated Lead Arranger and Bookrunner (including, without limitation, the
reasonable documented fees and disbursements of a single special Chilean, New
York, Spanish and Cayman Islands counsel to the Lenders, the Administrative
Agent, the Collateral Agent and the Mandated Lead Arrangers and Bookrunners) in
connection with the preparation, execution and delivery of these Agreements and
the other Loan Documents and the documents and instruments referred to herein
and therein and any amendment, waiver or consent relating hereto or thereto and
(y) all documented costs and expenses of the Administrative Agent, each Mandated
Lead Arranger and Bookrunner, the Collateral Agent and each Lender in connection
with the enforcement of these Agreements and the other Loan Documents and the
documents and instruments referred to herein and therein (including, without
limitation, the fees and disbursements of counsel for the Administrative Agent,
each Mandated Lead Arranger and Bookrunner, the Collateral Agent and each
Lender); (ii) pay and hold each of the Lenders harmless from and against any and
all present and future stamp and other similar taxes with respect to the
foregoing matters and save the Administrative Agent and each of the Lenders
harmless from and against any and all liabilities with respect to or resulting
from any delay or omission (other than to the extent attributable to such
Person) to pay such taxes; and (iii) indemnify the Administrative Agent and each
Lender, and their respective officers, directors, employees, representatives,
partners, members, shareholders and agents from and hold each of them harmless
against any and all liabilities, obligations, losses, damages, penalties,
claims, actions, judgments, suits, costs, expenses and disbursements (other than
Taxes which are governed by Section 5.5) incurred by any of them as a result of,
or arising out of, or in any way related to, or by reason of, any investigation,
litigation or other proceeding (whether or not the Administrative Agent or any
Lender is a party thereto) related to the entering into and/or performance of
these Agreements or any other Loan Document or the use of the proceeds of any
Loans hereunder or the consummation of any transactions contemplated herein or
in any other Loan Document, including, without limitation, the reasonable and
documented fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (but excluding any such
liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, suits, costs, expenses and disbursements, to the extent incurred by
reason of the gross negligence or willful misconduct of the Person to be
indemnified).

         13.2.    Right of Setoff. In addition to any rights now or hereafter
granted under applicable Law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, the Administrative
Agent and each Lender are hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to the relevant
Borrower or to any other Person, any such notice being hereby expressly waived,
to set off and to appropriate and apply any and all deposits (general or
special) and any other Indebtedness at any time held or owing by the
Administrative Agent or such Lender (including, without limitation, by branches
and agencies of the Administrative Agent or such Lender wherever located) to or
for the credit or the account of either Borrower against and on account of the
Obligations of either Borrower to the Administrative Agent or such Lender under
these Agreements or under any of the other Loan Documents, including, without
limitation, all claims of any nature or description arising out of or connected
with these Agreements or any other Loan Document, irrespective of whether or not
the Administrative Agent or such Lender shall have made any demand hereunder and
although said Obligations or any of them, shall be contingent or unmatured.

         13.3.    Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in English and
in writing and mailed (via express or overnight mail), delivered by hand or by
overnight courier or sent by facsimile: if to a Borrower, the Administrative
Agent, or the Collateral Agent at its address specified opposite its signature
below; if to any Lender, at its Lending Office; or, as to any Borrower, the
Administrative Agent or the Collateral Agent, at such other address as shall be
designated by such party in a written notice to the other parties hereto and, as
to each other party, at such other address as shall be designated by such party
in a written notice to the Borrowers, the Administrative Agent and the
Collateral Agent. All such notices and communications shall, when mailed,
delivered or sent by facsimile, be effective when deposited in the mails,
delivered to any nationally recognized overnight courier, as the case may be, or
sent by facsimile, except that notices and communications to the Administrative
Agent shall not be effective until received by the Administrative Agent.



                                       66


         13.4.    Benefit of Agreement; Syndication or Assignment of Loan.

         (a)      These Agreements shall be binding upon and inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto (and, in the case of the Lenders, the Administrative Agent and
the Collateral Agent under any Credit Agreement, by the Lenders, the
Administrative Agent and the Collateral Agent under the other Credit Agreement);
provided, however, that no Borrower may assign or transfer any of its rights,
obligations or interest hereunder or under any other Loan Document without the
prior written consent of all of the Lenders under both Agreements; provided
further that no Lender may assign or transfer all or any portion of its Loans
hereunder except as provided in Sections 13.4(b) or 13.4(c); provided further
that, although any Lender may grant participations in its rights hereunder in
accordance with this Section 13.4, such Lender shall remain a "Lender" for all
purposes hereunder and the participant shall not constitute a "Lender"
hereunder; and, provided further, that no Lender shall grant any participation
under which the participant shall have rights to approve any amendment to or
waiver of these Agreements or any other Loan Document except to the extent such
amendment or waiver would require the consent of all the holders of the Notes as
described in Section 13.13. In the case of any such participation, the
participant shall not have any rights under any Credit Agreement or any of the
other Loan Documents (the participant's rights against such Lender in respect of
such participation to be those set forth in the agreement executed by such
Lender in favor of the participant relating thereto) and all amounts payable by
a Borrower hereunder shall be determined as if such Lender had not sold such
participation, except that the participant shall be entitled to the benefits of
Sections 2.8, 2.9 and 5.5 of these Agreements to the extent that such Lender
would be entitled to such benefits if the participation had not been
transferred, granted or assigned.

         (b)      Notwithstanding the foregoing, any Lender (or any Lender
together with one or more other Lenders) may (i) upon written notice to the
relevant Borrower, assign all or a portion of its outstanding Loans hereunder to
(x) its parent company and/or any Affiliate of such Lender which is an Eligible
Transferee at least 50% owned by such Lender or its parent company or to one or
more Lenders or (y) in the case of any Lender that is a fund that invests in
bank loans, any other fund that invests in bank loans and is an Eligible
Transferee managed by the same investment advisor of such Lender or by an
Affiliate of such investment advisor or (ii) with five Business Days' written
notice to the relevant Borrower, assign all, or if less than all, a portion
equal to (x) for the first 90 days immediately following the Closing Date at
least U.S.$1,000,000 in the aggregate (and integral multiples of U.S.$1,000,000
in excess thereof) and (y) thereafter at least U.S.$5,000.000 in the aggregate
(and integral multiples of U.S.$1,000,000 in excess thereof) for the assigning
Lender or assigning Lenders, of such outstanding Loans hereunder to one or more
Eligible Transferees (treating any fund that invests in bank loans and any other
fund that invests in bank loans and is managed by the same investment advisor of
such fund or by an Affiliate of such investment advisor as a single Eligible
Transferee), each of which assignees shall become a party to these Agreements as
a Lender by execution of an Assignment and Assumption Agreement, provided that
(A) at such time Schedule B shall be deemed modified to reflect the outstanding
Loans of such new Lender and of the existing Lenders, (B) upon the surrender of
the relevant Notes by the assigning Lender (or, upon such assigning Lender's
indemnifying the relevant Borrower for any lost Note pursuant to a customary
indemnification agreement), new Notes will be issued, at the Borrowers' expense,
to such new Lender and to the assigning Lender upon the request of such new
Lender or assigning Lender, such new Notes to be in conformity with the
requirements of Section 2.5 (with appropriate modifications) to the extent
needed to reflect the revised outstanding Loans, (C) the consent of the
Administrative Agent and, so long as no Default or Event of Default shall have
occurred and be continuing, the consent of the relevant Borrower (which consent
shall not be unreasonably withheld and shall have been deemed to have been given
if the relevant Borrower does not expressly notify the assigning Lender and the
Administrative Agent otherwise within 10 Business Days after such consent has
been requested in writing from the relevant Borrower) shall be required in
connection with any assignment to an Eligible Transferee pursuant to clause (ii)
above, (D) the Administrative Agent shall receive at the time of each such
assignment, other than an assignment pursuant to clause (i) above or to another
Lender or any of its Affiliates, from the assigning or assignee Lender the
payment of a non-refundable assignment fee of U.S.$3,000, (E) no such transfer
or assignment will be effective until recorded by the Administrative Agent on
the Register pursuant to Section 13.18, and (F) the Collateral Agent shall
receive from such new Lender the power of attorney referenced in Section 12.10
hereof. To the extent of any assignment pursuant to this Section 13.4(b), the
assigning Lender shall be relieved of its obligations hereunder with respect to
its assigned Loans and any reference to such Lender in these Agreements or the
other Loan Documents shall thereafter refer to the assigning Lender and the
assignee Lender to the extent of their respective interests.


                                       67


         (c)      Nothing herein shall prevent or prohibit any Lender from
pledging its Loans and Notes hereunder to secure obligations of such Lenders,
including any pledge to a United States Federal Reserve Bank in support of
borrowings made by such Lender from such United States Federal Reserve Bank and,
with the consent of the Administrative Agent, any Lender which is a fund may
pledge all or any portion of its Loans and Notes to its trustee in support of
its obligations to its trustee. No pledge pursuant to this clause (c) shall
release the transferor Lender from any of its obligations hereunder.

         (d)      Except as otherwise provided herein, all costs and expenses of
any Lender associated with any assignment or transfer of, or of the granting of
any participation interest in, such Lender's outstanding Loans shall be borne by
such Lender or its assignee, transferee or participant; provided, however, that
in the case of an assignment occurring as a result of the exercise by a Borrower
of its rights under Section 2.11, the Borrowers shall bear all such costs and
expenses.

         13.5.    No Waiver; Remedies Cumulative. No failure or delay on the
part of the Administrative Agent, the Collateral Agent, any Lender or the holder
of any Note in exercising any right, power or privilege hereunder or under any
other Loan Document and no course of dealing between the Borrowers and the
Administrative Agent, the Collateral Agent, any Lender or the holder of any Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right, power or privilege hereunder or under any other Loan Document
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder or thereunder. The rights, powers and
remedies herein or in any other Loan Document expressly provided are cumulative
and not exclusive of any rights, powers or remedies which the Administrative
Agent, the Collateral Agent, any Lender or the holder of any Note would
otherwise have. No notice to or demand on any Borrower in any case shall entitle
the Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the rights of the Administrative Agent,
the Collateral Agent, any Lender or the holder of any Note to any other or
further action in any circumstances without notice or demand.


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         13.6.    Payments Pro Rata.

         (a)      The Administrative Agent agrees that promptly after its
receipt of each payment from or on behalf of any Borrower in respect of any
Obligations of the Borrowers hereunder, it shall distribute such payment to the
holders of the Notes under both Agreements pro rata based upon their respective
shares, if any, of the Obligations with respect to which such payment was
received. Notwithstanding the foregoing, unless the Administrative Agent shall
have been notified by a Borrower at least one Business Day prior to the date on
which any payment is due to the Administrative Agent for the account of the
holders of the Notes hereunder that a Borrower does not intend to make such
payment, the Administrative Agent may assume that such Borrower has made such
payment to the Administrative Agent on such date and the Administrative Agent
may (in its sole discretion and without obligations to do so), in reliance upon
such assumption, distribute to each holder of such Notes its pro rata share of
such payment. If such payment has not in fact been made by a Borrower to the
Administrative Agent and the Administrative Agent has made a corresponding
amount of such payment available to each holder of such Notes, the
Administrative Agent shall be entitled to recover such corresponding amount from
such holder of the Notes on demand. The Administrative Agent shall also be
entitled to recover on demand from each holder of the Notes interest on such
corresponding amount in respect of each day from the date such corresponding
amount was distributed by the Administrative Agent to such holder of the Notes
until the date such corresponding amount is recovered by the Administrative
Agent, at a rate per annum equal to the cost to the Administrative Agent of
acquiring overnight funds.

         (b)      Each holder of the Notes under both Agreements agrees that, if
it should receive any amount under any Credit Agreement (whether by voluntary
payment, by realization upon security, by the exercise of the right of setoff or
banker's lien, by counterclaim or cross action, by the enforcement of any right
under the Loan Documents, or otherwise) which is applicable to the payment of
the principal of, or interest on, the Loans, of a sum which with respect to the
related sum or sums received by other holders of the Notes under both Agreements
is in a greater proportion than the total amount of such Obligation then owed
and due to such holder bears to the total amount of such Obligation then owed
and due to all holders of the Notes under both Agreements immediately prior to
such receipt, then the holder receiving such excess payment shall purchase for
cash without recourse or warranty from the other holders of the Notes an
interest in the Obligations of the Borrowers to such holders of the Notes in
such amount as shall result in a proportional participation by all the holders
of the Notes in such amount; provided, that if all or any portion of such excess
amount is thereafter recovered from such holder, such purchase shall be
rescinded and the purchase price restored to the extent of such recovery, but
without interest.


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         13.7.    Calculations, Computations.

         (a)      The financial statements to be furnished to the Lenders
pursuant hereto shall be made and prepared in accordance with Chilean GAAP
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by Enersis to the Lenders);
provided that such financial statements shall also be accompanied by convenience
translations pursuant to which all Peso amounts will be converted into Dollars
both (i) using the Observed Dollar Rate as in effect on the last day of the
respective fiscal quarter or year of Enersis, as the case may be, and (ii) on
the basis provided in Section 13.7(b). The Borrowers shall deliver to the
Lenders at the same time as the delivery of any quarterly or annual financial
statements required pursuant to Section 8.4(a) and 8.4(b) hereof, as applicable,
(x) a description in reasonable detail of any material variation between the
application of Chilean GAAP employed in the preparation of such statements and
the application of Chilean GAAP employed in the preparation of the next
preceding quarterly or annual financial statements, as applicable, and (y)
reasonable estimates of the differences between such statements arising as a
consequence thereof. If, within 30 days after the delivery of the quarterly or
annual financial statements referred to in the immediately preceding sentence,
the Required Lenders shall object in writing to the Borrowers' determining
compliance hereunder on the basis of such variation in Chilean GAAP,
calculations for the purposes of determining compliance hereunder shall be made
on a basis consistent with those used in the preparation of the latest financial
statements as to which no such notification or objection shall have been made,
until either (1) such notification or objection is withdrawn or (2) if requested
by the Borrowers, the Required Lenders will negotiate in good faith to amend the
covenants herein to give effect to the changes in Chilean GAAP in a manner
consistent with these Agreements.

         (b)      Notwithstanding anything to the contrary contained in clause
(a) of this Section 13.7, (i) for purposes of determining compliance with any
financial covenant or a restriction stated in Dollars in these Agreements, the
Dollar equivalent amount of any amounts (x) in Pesos shall be converted on the
basis of the Observed Dollar Rate and (y) in any foreign currency other than
Pesos shall be converted on the basis of the Noon Buying Rate, in each case as
in effect on the date of determination and (iii) except as otherwise
specifically provided herein, all computations determining compliance with
Sections 8, 9 and 10 shall utilize accounting principles and policies in
conformity with those used to prepare the historical financial statements
delivered to the Lenders but shall be made in accordance with the requirements
of this Section 13.7(b).

         (c)      All computations of interest and Fees on the Loans hereunder
shall be made on the basis of a year of 360 days for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest and Fees are payable.


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         13.8.    Governing Law; Submission to Jurisdiction; Venue.

         (a)      These Agreements and the rights and obligations of the parties
hereunder shall be construed in accordance with and be governed by the Law of
the State of New York. Any legal action or proceeding against a Borrower with
respect to these Agreements or any other Loan Document may be brought in the
courts of the State of New York sitting in the Borough of Manhattan, The City of
New York or of the United States for the Southern District of New York, and, by
execution and delivery of these Agreements, each of the Borrowers hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of such courts. Each Borrower
hereby further irrevocably waives any claim that any such courts lack personal
jurisdiction over it, and agrees not to plead or claim, in any legal action or
proceeding with respect to these Agreements or any of the other Loan Documents
brought in any of such courts, that such courts lack personal jurisdiction over
it. Each Borrower hereby irrevocably appoints CT Corporation System, with
offices on the Effective Date at 111 Eighth Avenue, New York, New York, 10011,
USA as its agent to receive, accept and acknowledge for and on its behalf, and
in respect of its property, service of any and all legal process, summons,
notices and documents which may be served in any such action or proceeding. If
for any reason such agent shall cease to be available to act as such, such
Borrower agrees promptly to designate a new agent satisfactory to the
Administrative Agent in the Borough of Manhattan, The City of New York to
receive, accept and acknowledge for and on its behalf, and in respect of its
property, service of any and all legal process, summons, notices and documents
which may be served in any such action or proceeding pursuant to the terms of
this Section 13.8(a). In the event that such Borrower shall fail to designate
such new agent, service of process in any such action or proceeding may be made
on the Borrower by the mailing of copies thereof by express or overnight mail or
overnight courier, postage prepaid, to the Borrower at its address set forth
opposite its signature below. To the fullest extent permitted by Law, each
Borrower hereby irrevocably waives any objection to such service of process and
further irrevocably waives and agrees not to plead or claim in any action or
proceeding commenced hereunder that service of process was in any way invalid or
ineffective. Nothing herein shall affect the right of any Lender or the holder
of any Note to serve process in any other manner permitted by applicable Law or
to commence legal proceedings or otherwise proceed against a Borrower in any
other jurisdiction.

         (b)      Each Borrower hereby irrevocably waives any objection which it
may now or hereafter have to the laying of venue of any actions or proceedings
arising out of or in connection with these Agreements or any other Loan Document
brought in the courts referred to in clause (a) above and hereby further
irrevocably waives and agrees not to plead or claim in any such court that any
such action or proceeding brought in any such court has been brought in an
inconvenient forum.

         (c)      Each Borrower hereby irrevocably waives, to the fullest extent
permitted by Law, all immunity (whether on the basis of sovereignty or
otherwise) from jurisdiction, attachment (both before and after judgment) and
execution to which it or its properties might otherwise be entitled in any legal
action or proceeding in the courts of Chile, of the State of New York, of the
United States or of any other country or jurisdiction, and agrees not to raise
or claim or cause to be pleaded any immunity at or in respect of any such
actions or proceedings.


                                       71


         (d)      Each Borrower hereby irrevocably waives any right it may now
or hereafter have to claim or recover, in any action or proceeding arising out
of or in connection with these Agreements or any other Loan Document, any
indirect, special, exemplary, punitive or consequential damages or any damages
other than, or in addition to, actual direct damages. This Section 13.8 is a
material inducement for the Administrative Agent, the Mandated Lead Arrangers
and Bookrunners, the Collateral Agent and each Lender to enter into these
Agreements and to make the Loans.

         13.9.    Obligation to Make Payments in Dollars. The Borrowers'
obligations to make payments in Dollars of the principal and interest on the
Notes and any other amounts due hereunder or under any other Loan Document shall
not be discharged or satisfied by any tender, or any recovery pursuant to any
judgment, which is expressed in or converted into any currency other than
Dollars, except to the extent such tender or recovery shall result in the actual
receipt by the Administrative Agent at its Office on behalf of the Lenders or
the holders of the Notes of the full amount of Dollars expressed to be payable
in respect of the principal and interest and all other amounts due hereunder or
under any other Loan Document. The obligation of the Borrowers to make payments
in Dollars as aforesaid shall be enforceable as an alternative or additional
cause of action for the purpose of recovery in Dollars of the amount, if any, by
which such actual receipt shall fall short of the full amount of Dollars
expressed to be payable in respect of the principal of and interest on the Notes
and any other amounts due hereunder or under any other Loan Document, and shall
not be affected by judgment being obtained for any other sums due under these
Agreements or under any other Loan Document.

         13.10.   Counterparts. These Agreements may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument. A set of
counterparts executed by all the parties hereto shall be lodged with the
Borrowers and the Administrative Agent.

         13.11.   Effectiveness. These Agreements shall become effective on the
date (the "Effective Date") on which the Administrative Agent shall have
received at its Office executed copies of these Agreements from each of the
Lenders and the Borrowers (whether the same or different copies).

         13.12.   Headings Descriptive. The headings of the several sections and
subsections of these Agreements are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of these
Agreements.


                                       72


         13.13.   Amendment or Waiver. Neither these Agreements nor any other
Loan Document nor any terms hereof or thereof may be changed, waived, discharged
or terminated unless such change, waiver, discharge or termination is in writing
signed (or, in the case of any Loan Documents executed by the Administrative
Agent or the Collateral Agent for the benefit of the Lenders, consented to) by
the Required Lenders; provided, however, that no such change, waiver, discharge
or termination shall, without the consent of each holder of the Notes under both
Agreements, (i) extend any Principal Payment Date, or reduce the rate or extend
the time of payment of interest or Fees on any Loan or Note, or reduce the
principal amount thereof, or increase the Commitment of any Lender (it being
understood that a waiver of any Default or Event of Default or of a mandatory
termination of the Commitment shall not constitute a change in the terms of any
Commitment of any Lender), (ii) amend, modify or waive any provision of the
Endesa Internacional Support Agreement, the Elesur Intercreditor Agreement, the
Amended and Restated Elesur Intercreditor Agreement or any Intercreditor
Agreement or Additional Endesa Internacional Support Agreement executed and
delivered from time to time pursuant to the terms hereof (other than amendments
or modifications of a ministerial nature or intended to correct a manifest
error), (iii) amend, modify or waive any provision of this Section 13.13 or
Sections 5.1, 5.3(d), 6, 12.6, 13.1, 13.2, 13.4(a), 13.6 or 13.7(c), (iv) reduce
the percentage specified in the definition of Required Lenders, (v) release any
Collateral except as expressly contemplated herein or in the Security Documents,
or (vi) consent to the assignment or transfer by a Borrower of any of its rights
and obligations under its Agreement; provided further, that no such change,
waiver, discharge or termination shall, without the consent of the
Administrative Agent or the Collateral Agent, as the case may be, amend, modify
or waive any provision of Section 12 as it applies to the Administrative Agent
or the Collateral Agent, as the case may be, or any other provision as it
relates to the rights or obligations of the Administrative Agent or the
Collateral Agent, as the case may be.

         13.14.   Survival. All indemnities set forth herein, including, without
limitation, in Sections 2.8, 2.9, 5.5, 12.6, 13.1, 13.9 and 13.18, shall survive
the execution and delivery of these Agreements and the Notes and the making,
assignment and repayment of the Loans.

         13.15.   Domicile of Loans; Regulation D. Each Lender may transfer and
carry any Loan at, to or for the account of any office, Subsidiary or Affiliate
of such Lender. Certain of the Refinanced Debt was, and certain of the Loans
will be, "IBF loans" within the meaning of Regulation D, and therefore the
proceeds of the Refinanced Debt and the Loans can be used by the relevant
Borrower only to finance operations outside of the United States as specified in
Section 204.8(a)(3)(vi) of Regulation D.

         13.16.   Waiver of Jury Trial. THE ADMINISTRATIVE AGENT, THE LENDERS,
THE DOCUMENTATION AGENT, THE SYNDICATION AGENT, THE MANDATED LEAD ARRANGERS AND
BOOKRUNNERS, THE COLLATERAL AGENT AND THE BORROWERS EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE TO THE FULLEST EXTENT PERMITTED BY LAW THE
RIGHT ANY OF THEM MAY HAVE TO A TRIAL BY JURY OF, UNDER OR IN CONNECTION WITH
THESE AGREEMENTS, THE NOTES ISSUED PURSUANT TO THESE AGREEMENTS, OR ANY OTHER
LOAN DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO OR THERETO. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT, THE
DOCUMENTATION AGENT, THE SYNDICATION AGENT, THE MANDATED LEAD ARRANGERS AND
BOOKRUNNERS, THE COLLATERAL AGENT AND EACH LENDER TO ENTER INTO THESE AGREEMENTS
AND TO MAKE THE LOANS.



                                       73


         13.17.   The Mandated Lead Arrangers and Bookrunners; Documentation
Agent and Syndication Agent. The Mandated Lead Arrangers and Bookrunners, in
such capacity, shall have no rights or obligations under these Agreements other
than the rights set forth in Sections 4.1 and 13. Each of the Documentation
Agent and Syndication Agent, in such capacity, shall have no rights or
obligations under these Agreements other than the rights set forth in Section
13.

         13.18.   Register. Each Borrower hereby designates the Administrative
Agent to serve as its agent, solely for purposes of this Section 13.18, to
maintain a register (the "Register") on which it will record the Loans made by
each of the Lenders and each repayment in respect of the principal amount of the
Loans of each Lender. Failure to make any such recordation, or any error in such
recordation, however, shall not affect a Borrower's obligations in respect of
such Loans. Any transfer of any Loan made pursuant hereto, and the rights to the
principal of and interest on such Loan, shall not be effective until such
transfer is recorded on the Register and, prior to such recordation, all amounts
owing to the transferor with respect to such Loan shall remain owing to the
transferor. The registration of assignment or transfer of all or part of any
Loan shall be recorded by the Administrative Agent on the Register only upon the
acceptance by the Administrative Agent of a properly executed and delivered
Assignment and Assumption Agreement pursuant to Section 13.4, which acceptance
shall not be unreasonably withheld and shall be deemed to have been given if not
expressly refused within 14 calendar days after receipt by the Administrative
Agent. Coincident with the delivery of such Assignment and Assumption Agreement
to the Administrative Agent for acceptance and registration of assignment or
transfer of all or part of a Loan, or as soon thereafter as practicable, the
assignor or transferor shall surrender the Note evidencing such Loan, and
thereupon one or more new Notes in the same aggregate principal amount shall be
issued to the assignor or transferor and/or the assignees or transferees. The
Borrowers agree to indemnify the Administrative Agent from and against any and
all losses, claims, damages and liabilities of whatsoever nature which may be
imposed on, asserted against or incurred by the Administrative Agent in
performing its duties under this Section 13.18, provided, however, that the
Borrowers shall not be liable for any such losses, claims, damages and
liabilities to the extent such losses, claims, damages and liabilities result
from the Administrative Agent's or the Collateral Agent's gross negligence or
willful misconduct.

         13.19.   Confidentiality. Each of the Lenders, the Administrative
Agent, the Collateral Agent, the Documentation Agent, the Syndication Agent and
the Mandated Lead Arrangers and Bookrunners agrees (on behalf of itself and each
of its Affiliates, directors, officers, employees, representatives, partners,
members and shareholders) to keep confidential, in accordance with its customary
procedures of handling confidential information of the same nature and in
accordance with safe and sound banking practices, any non-public information
supplied to it by Enersis or any of its Subsidiaries pursuant to these
Agreements; provided, however, that nothing herein shall limit the disclosure of
any such information (i) to the extent required by Law, (ii) to counsel for the
Administrative Agent, the Collateral Agent, the Documentation Agent, the
Syndication Agent, the Mandated Lead Arrangers and Bookrunners or any Lender so
long as such counsel confirms to such Person that it shall keep the non-public
information confidential in accordance with these provisions, (iii) to bank
examiners, auditors or accountants or to any other regulatory agency or body
with proper authority (including non-governmental regulatory agencies or bodies
and self-regulatory agencies), (iv) to the Lenders, the Collateral Agent, the
Documentation Agent, the Syndication Agent, the Administrative Agent or the
Mandated Lead Arrangers and Bookrunners, (v) if disclosure of such information
is, in the opinion of counsel for any of the Lenders, the Collateral Agent, the
Administrative Agent, the Documentation Agent, the Syndication Agent, or the
Mandated Lead Arrangers and Bookrunners, necessary or advisable in connection
with any action, claim, suit or proceeding, directly or indirectly, involving or
potentially involving the Lenders, the Collateral Agent, the Documentation
Agent, the Syndication Agent, the Mandated Lead Arrangers and Bookrunners or the
Administrative Agent and arising out of, based upon, relating to or involving
these Agreements or any other Loan Document, or any transactions contemplated
herein or arising hereunder, (vi) to a Subsidiary or Affiliate of any Lender or
the Administrative Agent in connection with a transfer permitted by Section
13.4, (vii) to any assignee, participant or swap counterparty (or prospective
assignee, participant or swap counterparty) so long as the Person making such
assignment, selling such participation or entering into such swap transaction
shall procure that such assignee, participant or swap counterparty (or
prospective assignee, participant or swap counterparty) first executes and
delivers to the Person making such assignment, selling such participation or
entering into such swap transaction, as the case may be, an acknowledgment to
the effect that it is bound by the provisions of this Section 13.19, or (viii)
to any credit rating agency that rates the financial condition of the Lender or
the claims paying ability of any Lender or the financial condition of the
Borrowers; provided further, that in no event shall any Mandated Lead Arranger
and Bookrunner, any Lender, the Documentation Agent, the Syndication Agent, the
Collateral Agent or the Administrative Agent be obligated or required to return
any materials furnished by Enersis or any of its Subsidiaries. The obligations
of any assignee that has executed an acknowledgment pursuant to this Section
13.19 shall be superseded by this Section 13.19 upon the date of assignment.


                                       74


         Notwithstanding anything herein to the contrary, except as reasonably
necessary to comply with applicable securities laws, each of the Lenders, the
Administrative Agent, the Collateral Agent, the Documentation Agent, the
Syndication Agent, and the Mandated Lead Arrangers and Bookrunners (and each
employee, representative or other agent of such Lenders, Administrative Agent,
Collateral Agent, or Mandated Lead Arranger and Bookrunner) may disclose to any
and all persons, without limitation of any kind, the tax treatment and tax
structure of the transactions contemplated in the Loan Documents and all
materials of any kind (including opinions or other tax analyses) that are
provided to the Lenders, the Administrative Agent, Collateral Agent, the
Documentation Agent, the Syndication Agent, or Mandated Lead Arrangers and
Bookrunners relating to such tax treatment and tax structure. For this purpose,
"tax structure" means any facts relevant to the federal income tax treatment of
the transactions contemplated in the Loan Documents but does not include
information relating to the identity of the Borrowers.

         13.20.   Severability. Any provision of these Agreements which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective and severable from the rest f these Agreements to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.



                                       75


                                                                      Schedule D

                         SUBSIDIARY                                OWNERSHIP (%)
                         ----------                                -------------
Relevant Subsidiary
- -------------------
Companhia de Eletricidade do Rio de Janeiro (CERJ)                    58.16
Chilectra S.A.                                                        98.24
Empresa Nacional de Electricidad S.A. (Endesa-Chile)                  59.98

Chilean Subsidiary
- ------------------
Aguas Santiago Poniente (Ex Barranca)                                 55.00
Chilectra S.A.                                                        98.24
Compania Americana de Multiservicios Ltda.                             100
Construcciones y Proyecto Los Maitenes                                55.00
Empresa Electrica de Colina Ltda.                                     98.24
Inmobiliaria Manso de Velasco Ltda.                                    100
Luz Andes Ltda.                                                       98.24
Sociedad Agricola de Cameros Ltda.                                    57.50
Sociedad Agricola Pastos Verdes Ltda.                                 55.00
Synapsis Soluciones y Servicios IT Ltda.                              99.99

Foreign Subsidiaries
- --------------------
CAM Argentina                                                          100
CAM Brasil                                                             100
CAM Colombia                                                           100
CAM Peru                                                               100
Companhia de Eletricidade do Rio de Janeiro (CERJ)                    58.16
CERJ Overseas Inc.                                                    58.16
Chilectra Internacional                                               98.24
CODENSA                                                               48.48
Companhia Energetica do Ceara (COELCE)                                56.59
Compania Peruana de Electricidad                                      50.10
Distrilec Inversora                                                   51.50
EDELNOR S.A.                                                            60
Empresa Distribuidora Sur S.A. (EDESUR)                               65.09
Enersis Internacional                                                  100
Inversiones Distrilima (EDELNOR) S.A.                                 54.54
Investluz (COELCE) S.A.                                               47.02
Luz de Bogota (CODENSA) S.A.                                          44.66
Luz de Panama                                                         47.02
Luz de Rio                                                            99.00
Synapsis Argentina                                                     100
Synapsis Brasil                                                        100
Synapsis Colombia                                                      100
Synapsis Peru                                                          100




                                                                      Schedule H
                                                                      ----------


                            Contractual Restrictions
                            ------------------------



         Enersis                                                                                                       Outstanding
        Subsidiary               Country       Lender / Type              Start Date               Maturity Date          Debt
        ----------               -------       -------------              ----------               -------------          ----
                                                                                                       
Empresa de Distribucion                                               Various issuances        Various between
Electrica de Lima Norte S.A.A.                                        between July 6, 2001     January 24, 2004 and
- -  Edelnor                        Peru        Local Bonds             and April 26, 2002       April 26, -07           250,000,000

Empresa de Distribucion
Electrica de Lima Norte S.A.A.
- -  Edelnor                        Peru        Commercial Paper        August 13, 2002          August 8, 2003           25,000,000





Cerj                              Brazil      Citibank                February 13, 2003        August 13, 2004          60,580,000



         Enersis                     Currency         Outstanding                                                 Location In
        Subsidiary                 Denomination      Debt In U.S.$        Restrictions / Observations              Contract
        ----------                 ------------      -------------        ---------------------------              --------
                                                                                                
Empresa de Distribucion                                                 Dividend distribution
Electrica de Lima Norte S.A.A.                                          is prohibited in case of
- -  Edelnor                        Peruvian Soles       71,346,154       Default thereunder                   Clause 7.1, page 18

Empresa de Distribucion                                                 Dividend distribution
Electrica de Lima Norte S.A.A.                                          is prohibited in case of
- -  Edelnor                        Peruvian Soles        7,180,000       Default thereunder                   Clause 6.1, page 18

                                                                        Dividend distributions, capital
                                                                        reductions, inter-company
                                                                        interest and amortization of
                                                                        principal are prohibited while
Cerj                              Brazilian Reais      17,161,473       the operation is outstanding.        Clause 4.1.16, page 4




                                                                      Schedule I
                                                                      ----------


                           Financial Covenant Ratios
                           -------------------------



                                                   2003        2004        2005       2006        2007        2008
                                                                                          
Section 9.1 (Debt to Adjusted Operating
     Cash Flow)
         First quarter......................        --        11.15x      9.25x       6.00x      5.50x       4.50x
         Second quarter.....................      11.40x      10.50x      9.00x       6.00x      5.00x       4.50x
         Third quarter......................      11.40x      10.00x      6.25x       6.00x      4.75x        --
         Fourth quarter.....................      11.40x       9.50x      6.00x       6.00x      4.50x        --
Section 9.2 (Debt to EBITDA)
         First quarter......................        --         6.50x      6.00x       5.00x      4.00x       3.50x
         Second quarter.....................       6.50x       6.25x      5.75x       4.75x      3.75x       3.50x
         Third quarter......................       6.50x       6.25x      5.25x       4.50x      3.50x        --
         Fourth quarter.....................       6.50x       6.00x      5.00x       4.00x      3.50x        --
Section 9.3 (Adjusted Operating Cash
     Flow to Interest Expense)
         Four consecutive quarters prior
             to first quarter...............        --         1.25x      1.25x       1.85x      1.85x       2.00x
         Four consecutive quarters prior
             to second quarter..............       1.25x       1.25x      1.25x       1.85x      1.85x       2.00x
         Four consecutive quarters prior
             to third quarter...............       1.25x       1.25x      1.85x       1.85x      1.85x        --
         Four consecutive quarters prior
             to fourth quarter..............       1.25x       1.25x      1.85x       1.85x      2.00x        --
Section 9.4 (Adjusted Consolidated
     Leverage Test)
              First quarter.................        --        85.00%     80.00%      65.00%     60.00%      60.00%
              Second quarter................      85.00%      85.00%     77.50%      65.00%     60.00%      60.00%
              Third quarter.................      85.00%      82.50%     65.00%      62.50%     60.00%        --
              Fourth quarter................      85.00%      80.00%     65.00%      60.00%     60.00%        --




                                                                       EXHIBIT Q
                                                                       ---------


                     ENDESA INTERNACIONAL SUPPORT AGREEMENT


         This SUPPORT AGREEMENT dated as of May 15, 2003 (this "Agreement")
between Endesa Internacional S.A., a corporation (sociedad anonima) duly
organized and validly existing under the Law of Spain ("Endesa Internacional"),
and Dresdner Bank Luxembourg S.A., as Administrative Agent for the benefit of
the Lenders under the Credit Agreements referred to below (the "Administrative
Agent").

         WHEREAS, this Agreement is being entered into in connection with (i)
the Credit Agreement, dated as of May 12, 2003 (as modified, amended or
supplemented from time to time, the "Enersis Credit Agreement"), by and among
ENERSIS S.A., a corporation (sociedad anonima) duly organized and validly
existing under the Law of Chile ("Enersis"), as borrower, the Lenders named
therein, the Administrative Agent, Banco Santander-Chile, as collateral agent,
and certain other parties, (ii) the Credit Agreement, dated as of May 12, 2003
(as modified, amended or supplemented from time to time, the "Enersis Cayman
Credit Agreement", together with the Enersis Credit Agreement, the "Credit
Agreements"), by and among Enersis, acting through its Cayman Islands Branch
("Enersis Cayman"), as borrower, the Lenders named therein, the Administrative
Agent, Banco Santander-Chile, as collateral agent, and certain other parties,
and (iii) the Elesur Intercreditor Agreement, dated as of May 15th, 2003 (as
modified, amended or supplemented from time to time (including without
limitation any such amendment as may be required by July 31, 2003 in accordance
with the Credit Agreements), the "Elesur Intercreditor Agreement") by and among
Elesur S.A., a corporation (sociedad anonima) duly organized and validly
existing under the Law of Chile (the "Company") and the Administrative Agent for
the benefit of the Lenders under the Credit Agreements;

         WHEREAS, the Company has provided a loan to Enersis in an aggregate
principal amount of UF58,700,000 (as modified, amended or supplemented from time
to time, the "Company Loans");

         WHEREAS, the Company has entered into the Elesur Intercreditor
Agreement to provide certain rights to, and evidence other agreements with, the
Administrative Agent and the Lenders with respect to the Company Loans;

         WHEREAS, as a condition to extending loans to Enersis and Enersis
Cayman pursuant to the Credit Agreements, the Lenders have required that Endesa
Internacional agree to provide a guarantee of all payment obligations of the
Company under the Elesur Intercreditor Agreement;

         WHEREAS, Endesa Internacional directly owns substantially all of the
shares of stock of the Company, and the Company is a significant shareholder of
Enersis, and Endesa Internacional, the Company, Enersis and Enersis Cayman are
members of the same consolidated group of companies and are engaged in related
businesses, and Endesa Internacional will receive adequate consideration for the
guarantee provided by Endesa Internacional herein and is thus willing to
guarantee the payment obligations of the Company under the Elesur Intercreditor
Agreement.



         NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

         Section 1. Definitions. Unless otherwise defined herein, terms defined
in the Credit Agreements are used herein as defined therein. In addition, the
following terms shall have the meanings set forth below:

         "Endesa Internacional Material Adverse Effect" shall mean any material
adverse effect on (i) the business, operations, property, assets or condition
(financial or otherwise) or prospects of Endesa Internacional, (ii) the ability
of Endesa Internacional to perform its obligations under this Agreement, (iii)
the legality, validity, binding effect or enforceability of any material
provision of this Agreement, or (iv) the rights and remedies of any of the
Administrative Agent and the Lenders under this Agreement.

         "Guaranteed Obligations" shall have the meaning provided in Section
2.01.

         Section 2. The Guarantee.

         2.01.    The Guarantee. (a) Endesa Internacional hereby irrevocably and
unconditionally guarantees (as primary obligor and not merely as surety) the
prompt payment in full when due of all obligations, liabilities and other
amounts now or hereafter payable or becoming payable to the Lenders and the
Administrative Agent under the Elesur Intercreditor Agreement (the "Guaranteed
Obligations"). Endesa Internacional hereby further agrees that if the Company
shall fail to pay in full when due any of the Guaranteed Obligations, Endesa
Internacional will promptly pay the same without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due in accordance with the terms of such extension or renewal. This
Agreement is a continuing guaranty and is a guaranty of payment and is not
merely a guaranty of collection and shall apply to all Guaranteed Obligations
whenever arising.

         (b)      For the avoidance of doubt and for purposes of the Law of
Spain, the guarantee provided by Endesa Internacional herein shall be deemed to
be a first demand guarantee (garantia a primera demanda) independent and
autonomous from the Guaranteed Obligations. Endesa Internacional irrevocably and
unconditionally waives any right to use any defenses arising from or relating to
the Guaranteed Obligations and any benefits pertaining to guarantors (fiadores)
under the Law of Spain.

         2.02.    Acknowledgments, Waivers and Consents. Endesa Internacional
agrees that the obligations of Endesa Internacional under Section 2.01 shall, to
the fullest extent permitted by applicable Law, be primary, absolute,
irrevocable and unconditional under any and all circumstances and that the
guarantee therein is made with respect to any Guaranteed Obligations now
existing or in the future arising. Without limiting the foregoing, Endesa
Internacional agrees that:

         (a)      The occurrence of any one or more of the following shall not
affect the enforceability or effectiveness of this Agreement in accordance with
its terms or affect, limit, reduce, discharge or terminate the liability of
Endesa Internacional, or the rights, remedies, powers and privileges of the
Administrative Agent or any Lender under this Agreement:

                  (i)      any modification or amendment (including without
         limitation by way of amendment, extension, renewal or waiver), or any
         acceleration or other change in the time for payment or performance of
         the terms of all or any part of the Guaranteed Obligations or the
         Elesur Intercreditor Agreement, or any other agreement or instrument
         whatsoever relating thereto;

                  (ii)     any release, termination, waiver, abandonment, lapse
         or expiration, subordination or enforcement of any other guarantee of,
         or liability with respect to, all or any part of the Guaranteed
         Obligations (other than the termination of the Elesur Intercreditor
         Agreement in accordance with its terms);

                  (iii)    any settlement, compromise, release, liquidation or
         enforcement, on such terms and in such manner as the Administrative
         Agent may determine or as applicable Law may dictate, of all or any
         part of the Guaranteed Obligations;

                  (iv)     the giving of any consent to the merger or
         consolidation of, the sale of substantial assets by, or other
         restructuring or termination of the corporate existence of the Company
         or any other Person or any disposition of any shares of Endesa
         Internacional;

                  (v)      any proceeding against the Company or any collateral
         securing the same provided by any other Person or the exercise of any
         rights, remedies, powers and privileges of the Lenders or the
         Administrative Agent under the Elesur Intercreditor Agreement or
         otherwise in such order and such manner as the Administrative Agent may
         determine, regardless of whether the Lenders or the Administrative
         Agent shall have proceeded against or exhausted any collateral, right,
         remedy, power or privilege (including under any other guarantee of all
         or any part of the Guaranteed Obligations) before proceeding to call
         upon or otherwise enforce this Agreement;

                  (vi)     the entering into such other transactions or business
         dealings by the Administrative Agent or any Lender with the Company,
         any Subsidiary or Affiliate of the Company; or

                  (vii)    all or any combination of any of the actions set
         forth in this Section 2.02(a).

         (b)      The enforceability and effectiveness of this Agreement and the
liability of Endesa Internacional, and the rights, remedies, powers and
privileges of the Lenders and the Administrative Agent under this Agreement
shall not be affected, limited, reduced, discharged or terminated, and Endesa
Internacional hereby expressly waives to the fullest extent permitted by Law any
defense now or in the future arising, by reason of:



                  (i)      the illegality, invalidity or unenforceability of all
         or any part of the Guaranteed Obligations, the Elesur Intercreditor
         Agreement or any other agreement or instrument whatsoever relating to
         all or any part of the Guaranteed Obligations;

                  (ii)     any disability or other defense with respect to all
         or any part of the Guaranteed Obligations, including the effect of any
         statute of limitations that may bar the enforcement of all or any part
         of the Guaranteed Obligations;

                  (iii)    the illegality, invalidity, unenforceability, taking,
         modification, impairment, enforcement or release of any security for or
         the lack of perfection or continuing perfection or failure of the
         priority of any Lien or security interest on any collateral for all or
         any part of the Guaranteed Obligations or the failure to protect or
         maintain any security, or any other act or omission with respect to any
         security or guarantee;

                  (iv)     the cessation, for any cause whatsoever, of the
         liability of the Company with respect to all or any part of the
         Guaranteed Obligations (other than by reason of the full payment of all
         Guaranteed Obligations, but subject to any reinstatement thereof if all
         or any part of the payment is rescinded or avoided or must otherwise be
         returned);

                  (v)      any failure of the Administrative Agent or any Lender
         to marshal assets in favor of the Company or any other Person, to
         exhaust any collateral for all or any part of the Guaranteed
         Obligations, to pursue or exhaust any right, remedy, power or privilege
         it may have against the Company or any other Person or to take any
         action whatsoever to mitigate or reduce such Person's liability with
         respect to the Guaranteed Obligations, the Lenders and the
         Administrative Agent being under no obligation to take any such action
         notwithstanding the fact that all or any part of the Guaranteed
         Obligations may be due and payable and that the Company may be in
         default of its obligations under the Elesur Intercreditor Agreement;

                  (vi)     any counterclaim, set-off or other claim which the
         Company has;

                  (vii)    any failure of the Administrative Agent or any Lender
         or any other Person to file or enforce a claim in any bankruptcy or
         other proceeding with respect to any Person;

                  (viii)   any bankruptcy, insolvency, reorganization,
         winding-up, dissolution or adjustment of debts, or appointment of a
         custodian, sindico, liquidator or similar officer, or similar
         proceedings commenced by or against any Person, including any discharge
         of, or bar or stay against collecting, all or any part of the
         Guaranteed Obligations (or any interest on all or any part of the
         Guaranteed Obligations) in or as a result of any such proceeding;



                  (ix)     any Law of any jurisdiction, or any event, affecting
         any term of any Guaranteed Obligation or the rights of the
         Administrative Agent or any Lender with respect thereto, including
         without limitation: (A) the application of any such Law, including any
         prior approval, which would prevent the exchange of a currency other
         than Dollars for Dollars or the remittance of funds outside of such
         jurisdiction or the unavailability of Dollars in any legal exchange
         market in such jurisdiction in accordance with normal commercial
         practice; or (B) a declaration of a banking moratorium or any
         suspension of payments by banks in such jurisdiction or the imposition
         by such jurisdiction or any Governmental Agency thereof of any
         moratorium on, the required rescheduling or restructuring of, or
         required approval of payments on, any indebtedness in such
         jurisdiction; or (C) any expropriation, confiscation, nationalization
         or requisition by any country or any Governmental Agency that directly
         or indirectly deprives any Person in such country otherwise entitled
         thereto of any claim for payment under all or any part of the
         Guaranteed Obligations; or (D) any war (whether or not declared),
         insurrection, revolution, hostile act, civil strife or similar events
         occurring in such jurisdiction which has the same effect as the events
         described in clause (A) (B) or (C) above (in each of the cases
         contemplated in clauses (A) through (D) above, to the extent occurring
         or existing on or at any time after the date of this Agreement);

                  (x)      any action taken by the Administrative Agent or any
         Lender that is referred to in this Section 2.02 or otherwise in this
         Agreement or in any other provision of the Elesur Intercreditor
         Agreement or any omission to take any such action; or

                  (xi)     any right of Endesa Internacional of "division" (as
         defined in article 1837 of the Codigo Civil of Spain, as in effect on
         the date hereof).

         (c)      To the fullest extent permitted by Law, Endesa Internacional
expressly waives, for the benefit of the Lenders and the Administrative Agent,
all diligence, presentment, demand for payment or performance, notices of
nonpayment or nonperformance, protest, notices of protest, notices of dishonor
and all other notices or demands of any kind or nature whatsoever, and any
requirement that the Administrative Agent or any Lender exhaust any right, power
or remedy or proceed against the Company under the Elesur Intercreditor
Agreement or other agreement or instrument referred to herein or therein, or
against any other Person under any other guarantee of, or security for, any of
the Guaranteed Obligations, and all notices of acceptance of this Agreement, of
proof of reliance on this Agreement or of the existence, creation, incurring or
assumption of new or additional Guaranteed Obligations. Endesa Internacional
further expressly waives the benefit of any and all statutes of limitation and
of any Law that exonerates or limits the liability of guarantors or sureties,
and any defenses provided by these Laws, to the fullest extent permitted by
applicable Law.

         2.03.    Reinstatement. The obligations of Endesa Internacional under
this Section 2 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or avoided or must otherwise be restored or
returned by any holder of any of the Guaranteed Obligations, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise.

         2.04.    Subrogation. Endesa Internacional hereby agrees that, until
all Guaranteed Obligations have been indefeasibly paid in full, it shall not
exercise any right or remedy arising by reason of any performance by it of its
guarantee in Section 2.01, whether by subrogation, reimbursement, contribution
or otherwise, against the Company or any security for any of the Guaranteed
Obligations.



         2.05.    Payments. All payments made by Endesa Internacional under this
Agreement will be made without setoff, counterclaim or other defense. All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future Taxes. If any Taxes are so levied or imposed, Endesa
Internacional agrees to pay the full amount of such Taxes and such additional
amounts as may be necessary so that every payment of all amounts due hereunder,
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein. Endesa Internacional will furnish to the
Administrative Agent or any Lender, promptly following request thereof,
certified copies of tax receipts evidencing such payment by Endesa
Internacional. Endesa Internacional will indemnify and hold harmless the
Administrative Agent and each Lender, and reimburse the Administrative Agent and
each Lender upon its written request, for the amount of any Taxes so levied or
imposed and paid by the Administrative Agent or such Lender.

         Section 3. Representations and Warranties. Endesa Internacional hereby
represents and warrants to the Lenders and Administrative Agent that:

         3.01.    Corporate Status.

         (a)      Endesa Internacional (i) is a duly organized and validly
existing corporation (sociedad anonima) in good standing under the Law of Spain,
(ii) has the power and authority to own its property and assets and to transact
the business in which it is engaged, and (iii) is duly qualified as a foreign
corporation and in good standing in each jurisdiction where the ownership,
leasing or operation of property or the conduct of its business requires such
qualification and where the failure to be so qualified would have a Endesa
Internacional Material Adverse Effect.

         (b)      No meeting has been convened or is planned for the Winding-up
of Endesa Internacional, and, to the best knowledge of Endesa Internacional,
there is no petition, application or similar proceeding outstanding for the
Winding-up of Endesa Internacional.

         3.02.    Corporate Power and Authority. Endesa Internacional has the
power and authority to execute, deliver and perform the terms and provisions of
this Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of this Agreement. Endesa
Internacional has duly executed and delivered this Agreement, and this Agreement
constitutes Endesa Internacional's legal, valid and binding obligations
enforceable in accordance with its terms.

         3.03.    No Violation. None of the execution, delivery or performance
of this Agreement by Endesa Internacional, or compliance by it with the terms
and provisions hereof or thereof (i) will contravene any provision of any Law or
any order, writ, injunction or decree of any court or Government Agency binding
on it, (ii) will conflict or be inconsistent with or result in any breach of any
of the terms, covenants, conditions or provisions of, or constitute a default in
respect of, or result in the creation or imposition of (or the obligation to
create or impose) any Lien upon, any of the property or assets of Endesa
Internacional pursuant to the terms of, any indenture, mortgage, deed of trust,
credit agreement, loan agreement or any other agreement, contract or instrument
to which Endesa Internacional is a party or by which it or its properties or
assets is bound or to which it may be subject, except to the extent that such
conflicts, inconsistencies, defaults or Liens could not, in the aggregate,
reasonably be expected to have a Endesa Internacional Material Adverse Effect,
or (iii) will violate any provision of the estatutos sociales or other
constituent documents of Endesa Internacional.



         3.04.    Governmental Approvals. No Governmental Approval is required
to authorize, or is otherwise required in connection with, (i) the execution,
delivery and performance by Endesa Internacional of this Agreement or (ii) the
legality, validity, binding effect or enforceability of this Agreement.

         3.05.    Ranking. The obligations of Endesa Internacional hereunder
rank at least pari passu in priority of payment with all other present and
future unsubordinated, unsecured obligations of Endesa Internacional resulting
from any Indebtedness of Endesa Internacional, other than obligations having
priority by operation of law (including, but not limited to, obligations in
relation to those whose claims (a) have been raised to escritura publica or
poliza intervenida in Spain, or (b) are preferred by paragraphs (1), (2), (3)
and (4) of Article 913 and Article 914 of the Spanish Commercial Code (Codigo de
Comercio) or the Estatuto de los Trabajadores and related legislation), which,
in any event, are not material to Endesa Internacional.

         3.06.    Litigation. There are no actions, suits, investigations or
proceedings, legal or administrative, pending or, to the best knowledge of
Endesa Internacional, threatened (i) with respect to this Agreement or (ii) that
are reasonably likely to have a Endesa Internacional Material Adverse Effect.

         3.07.    Withholding Taxes. To the best of our knowledge, payments
required to be made by Endesa Internacional under this Agreement are to be
characterized as payments of an indemnity. As of the date hereof, no withholding
or other taxes are required to be paid in respect of, or be deducted from, any
indemnity. In the event that payments to be made by Endesa Internacional under
this Agreement were characterized in a different way and withholding taxes were
to be imposed, Endesa Internacional is permitted under applicable Law to pay any
additional amounts payable under Section 2.05 as will result in receipt by the
Lenders of such amounts as would have been received by the Lenders had no
withholding been required.

         3.08.    Form of Documentation. This Agreement is in proper legal form
under the Law of New York and Spain for the enforcement thereof under such Law;
provided, however, that, as of the date hereof, in order for this Agreement to
be admissible in evidence in judicial proceedings in a Spanish court, this
Agreement would first have to be translated into the Spanish language, and if
any objection were raised about any such Spanish translation, this Agreement
would then have to be translated by a licensed public translator who certifies
as to the accuracy thereof (unless executed in Spanish by all the parties
thereto).

         3.09.    Foreign Exchange Regulations. As of the date hereof, there are
no foreign exchange restrictions in effect in Spain which would adversely affect
any payment to be made under this Agreement, and any actions to be taken in
order to make such payment in Dollars by its remittance at the Office of the
Administrative Agent have been taken or will be taken by Endesa Internacional.



         3.10.    Ownership by Endesa Internacional. On the date hereof, Endesa
Internacional owns, beneficially, at least 99% of the issued and outstanding
shares of stock of the Company.

         3.11.    Solvency. After giving effect to this Agreement and the
incurrence of the Guaranteed Obligations, (a) the fair value of the property of
Endesa Internacional is greater than the total amount of its liabilities
(including without limitation contingent liabilities), (b) the present fair
saleable value of the property of Endesa Internacional is not less than the
amount that will be required to pay its probable liability on its debts as they
become absolute and matured, (c) Endesa Internacional does not intend to, and
does not believe that it will, incur debts or liabilities beyond its ability to
pay as such debts and liabilities mature and (d) Endesa Internacional is not
engaged in a business and is not about to engage in a business for which its
property would constitute unreasonably small capital.

         3.12.    Endesa Internacional's Credit Decision, Etc. Endesa
Internacional has, independently and without reliance on the Lenders or the
Administrative Agent and based on such documents and information as Endesa
Internacional has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement. Endesa Internacional has adequate means to obtain
from the Company on a continuing basis information concerning the financial
condition, operations and business of the Company, and Endesa Internacional is
not relying on the Lenders or the Administrative Agent to provide such
information now or in the future. Endesa Internacional acknowledges that it will
receive adequate consideration for the guarantee provided herein.

         3.13.    Investment Company Act. Endesa Internacional is not required
to register as an "investment company" within the meaning of, and pursuant to,
the Investment Company Act of 1940, as amended.

         Section 4. Covenants. Endesa Internacional covenants and agrees with
the Lenders and the Administrative Agent that, so long as the Elesur
Intercreditor Agreement is outstanding and until indefeasible payment in full of
all Guaranteed Obligations:

         4.01.    Compliance with Law; Authorizations. Endesa Internacional
shall comply in all material respects with all provisions of applicable Law and
regulations, except to the extent that any non-compliance could not reasonably
be expected to have a Endesa Internacional Material Adverse Effect, and obtain,
comply with the terms of and do all that is necessary to maintain in full force
and effect all authorizations, approvals, licenses and consents required in or
by the Law and regulations of Spain to enable Endesa Internacional lawfully to
enter into and perform its obligations under this Agreement or to ensure the
legality, validity, enforceability and admissibility in evidence (other than the
translation of this Agreement into Spanish referred to in Section 3.08) in Spain
of this Agreement.

         4.02.    Pari Passu Obligations. Endesa Internacional shall ensure that
its obligations hereunder at all times rank at least pari passu in priority of
payment with all other present and future senior unsubordinated, unsecured
obligations of Endesa Internacional resulting from any Indebtedness of Endesa
Internacional (other than Indebtedness having priority by operation of law as
set forth in Section 3.05).



         Section 5. Miscellaneous.

         5.01.    Waiver. No failure or delay on the part of the Administrative
Agent or any Lender in exercising any right, power or privilege under this
Agreement and no course of dealing between Endesa Internacional and the
Administrative Agent or any Lender shall operate as a waiver of any such right,
power or privilege, nor shall any single or partial exercise of any right, power
or privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder. The rights,
powers and remedies herein expressly provided are cumulative and not exclusive
of any rights, powers and remedies which the Administrative Agent or any Lender
or the holder of any Note would otherwise have. No notice to or demand on Endesa
Internacional in any case shall entitle Endesa Internacional to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or any Lender to any other or
further action in any circumstances without notice or demand.

         5.02.    Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing and
mailed (via express or overnight mail), delivered by hand or by overnight
courier or sent by facsimile: if to Endesa Internacional or the Administrative
Agent, at the address set forth opposite its name on the signature pages hereof;
if to any Lender, at its Lending Office; or, as to any party, at such other
address as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall, when mailed,
delivered or sent by facsimile be effective when deposited in the mails,
delivered personally or to any nationally recognized or overnight courier, as
the case may be, or sent by facsimile, except that notices and communications to
the Administrative Agent or the Lenders shall not be effective until received by
the Administrative Agent or the Lenders.

         5.03.    Amendments, Etc. Except as otherwise expressly provided
hereunder, neither this Agreement nor any terms hereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by Endesa Internacional and the Administrative Agent (acting
with the consent of the requisite Lenders as required by Section 13.13 of the
Credit Agreements).

         5.04.    Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and each holder of any of the
Guaranteed Obligations and their respective successors and assigns, provided,
however, that Endesa Internacional may not assign or transfer any of its rights,
obligations or interest under this Agreement without the prior written consent
of the Administrative Agent (which shall be granted only with the requisite
consent of the Lenders required under Section 13.13 of the Credit Agreements).

         5.05.    Captions. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.

         5.06.    Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.



         5.07.    Governing Law. This Agreement shall be governed by and
construed in accordance with the Law of the State of New York.

         5.08.    Jurisdiction, Service of Process and Venue.

         (a)      Any legal action or proceeding against Endesa Internacional
with respect to this Agreement or the Guaranteed Obligations may be brought in
the courts of the State of New York sitting in the Borough of Manhattan, The
City of New York or of the United States for the Southern District of New York,
and, by execution and delivery of this Agreement, Endesa Internacional hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of such courts. Endesa
Internacional hereby further irrevocably waives any claim that any such courts
lack personal jurisdiction over it, and agrees not to plead or claim, in any
legal action or proceeding with respect to this Agreement or the Guaranteed
Obligations brought in any of such courts, that such courts lack personal
jurisdiction over it. Endesa Internacional hereby irrevocably appoints CT
Corporation System, with offices on the Effective Date at 111 Eighth Avenue, New
York, New York, 10011, USA as its agent to receive, accept and acknowledge for
and on its behalf, and in respect of its property, service of any and all legal
process, summons, notices and documents which may be served in any such action
or proceeding. If for any reason such agent shall cease to be available to act
as such, Endesa Internacional agrees promptly to designate a new agent
satisfactory to the Administrative Agent in the Borough of Manhattan, The City
of New York to receive, accept and acknowledge for and on its behalf, and in
respect of its property, service of any and all legal process, summons, notices
and documents which may be served in any such action or proceeding pursuant to
the terms of this Section 5.08(a). In the event that Endesa Internacional shall
fail to designate a new agent, service of process in any such action or
proceeding may be made on Endesa Internacional by the mailing of copies thereof
by express or overnight mail or overnight courier, postage prepaid, to Endesa
Internacional at its address set forth opposite its signature below. To the
fullest extent permitted by Law, Endesa Internacional hereby irrevocably waives
any objection to such service of process and further irrevocably waives and
agrees not to plead or claim in any action or proceeding commenced hereunder
that service of process was in any way invalid or ineffective. Nothing herein
shall affect the right of the Administrative Agent or any Lender to serve
process in any other manner permitted by applicable Law or to commence legal
proceedings or otherwise proceed against Endesa Internacional in any other
jurisdiction (including, without limitation, the courts sitting in Spain).

         (b)      Endesa Internacional hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any actions or
proceedings arising out of or in connection with this Agreement or the
Guaranteed Obligations brought in the courts referred to in clause (a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.

         5.09.    Waiver of Jury Trial. EACH PARTY HERETO HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO. EACH PARTY HERETO ACKNOWLEDGES
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND
EACH LENDER TO ENTER INTO THE CREDIT AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.



         5.10.    Waiver of Immunity. Endesa Internacional hereby irrevocably
waives, to the fullest extent permitted by Law, all immunity (whether on the
basis of sovereignty or otherwise) from jurisdiction, attachment (both before
and after judgment) and execution to which it or its properties might otherwise
be entitled in any legal action or proceeding in the courts of Spain, of the
State of New York, of the United States or of any other country or jurisdiction,
and agrees not to raise or claim or cause to be pleaded any immunity at or in
respect of any such actions or proceedings.

         5.11.    Use of English Language. This Agreement has been negotiated
and executed in the English language. All certificates, reports, notices and
other documents and communications given or delivered pursuant to this Agreement
(including, without limitation, any modifications or supplements hereto) shall
be in the English language, or accompanied by a certified English translation
thereof. In the case of any document originally issued in a language other than
English, the English language version of any such document shall for purposes of
this Agreement, and absent manifest error, control the meaning of the matters
set forth therein.

         5.12.    Set-Off. Subject to Section 13.6 of the Credit Agreements, in
addition to any rights and remedies of the Administrative Agent and Lenders
provided by Law, the Administrative Agent and each Lender shall have the right,
without presentment, demand, protest or other notice of any kind to Endesa
Internacional, any such notice being expressly waived by Endesa Internacional to
the extent permitted by applicable Law, upon any amount being due and unpaid by
Endesa Internacional hereunder (whether at stated maturity, by acceleration, by
mandatory prepayment or otherwise) to set off and appropriate and apply against
such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the
Administrative Agent or such Lender (including, without limitation, by branches
and agencies of the Administrative Agent or such Lender wherever located) to or
for the credit or the account of Endesa Internacional against and on account of
the Guaranteed Obligations of Endesa Internacional to the Administrative Agent
or such Lender under this Agreement, including, without limitation, all claims
of any nature or description arising out of or connected with this Agreement,
irrespective of whether or not the Administrative Agent or such Lender shall
have made any demand hereunder.

         5.13.    Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective and severable from the rest of this Agreement to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.



         5.14.    Administrative Agent. Each reference herein to any right
granted to, benefit conferred upon or power exercisable by the Administrative
Agent shall be a reference to the Administrative Agent for the benefit of the
Lenders under the Credit Agreements.

         5.15.    Indemnity. Endesa Internacional shall indemnify the
Administrative Agent and each Lender, and their respective officers, directors,
employees, representatives, partners, members, shareholders and agents from and
hold each of them harmless against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (other than Taxes which are governed by Section 2.05) incurred by
any of them as a result of, or arising out of, or in any way related to, or by
reason of, any investigation, litigation or other proceeding (whether or not the
Administrative Agent or any Lender is a party thereto) related to the
performance of this Agreement or the Elesur Intercreditor Agreement, including,
without limitation, the reasonable and documented fees and disbursements of
counsel incurred in connection with any such investigation, litigation or other
proceeding (but excluding any such liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses and disbursements,
to the extent incurred by reason of the gross negligence or willful misconduct
of the Person to be indemnified).

         5.16.    Term; Effectiveness. This Agreement shall have the same term
as the Elesur Intercreditor Agreement as set forth in Section 4.15 thereof.



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.


26, rue du Marche-aux-Herbes, L-2097         Dresdner Bank Luxembourg S.A.,
Luxembourg                                   as Administrative Agent for the
Attention: Ms. Prellwitz/Ms. Mohnen,         benefit of the Lenders under the
   Agencies                                  Credit Agreements
Telephone:  352-4760-864/851
Facsimile:  352-4760-3222
                                             By:
                                                 -------------------------------
                                                 Name:
                                                 Title:


                                             By:
                                                 -------------------------------
                                                 Name:
                                                 Title:


Ribera del Loira, 60                         ENDESA INTERNACIONAL S.A.
28042 Madrid, Spain
Attention: Mr. Luis Rivera
Telephone:  34-91-213-9970
Facsimile:  34-91-213-9967
                                             By:
                                                 -------------------------------
                                                 Name:
                                                 Title:

With a copy to:
Ribera del Loira, 60
28042 Madrid, Spain
Mr. Alfonso Arias
Telephone:  34-91-213-1810
Facsimile:  34-91-213-1870
                                             By:
                                                 -------------------------------
                                                 Name:
                                                 Title:



                                                                       EXHIBIT S
                                                                       ---------


                ADDITIONAL ENDESA INTERNACIONAL SUPPORT AGREEMENT

         This SUPPORT AGREEMENT dated as of [___] [__], 200[_] (this
"Agreement") between Endesa Internacional S.A., a corporation (sociedad anonima)
duly organized and validly existing under the Law of Spain ("Endesa
Internacional"), and [_____________],1 as Administrative Agent for the benefit
of the Lenders under the Credit Agreements referred to below (the
"Administrative Agent").

         WHEREAS, this Agreement is being entered into in connection with (i)
the Credit Agreement, dated as of May 12, 2003 (as modified, amended or
supplemented from time to time, the "Enersis Credit Agreement"), by and among
ENERSIS S.A., a corporation (sociedad anonima) duly organized and validly
existing under the Law of Chile ("Enersis"), as borrower, the Lenders named
therein, the Administrative Agent, Banco Santander-Chile, as collateral agent,
and certain other parties, (ii) the Credit Agreement, dated as of May 12, 2003
(as modified, amended or supplemented from time to time, the "Enersis Cayman
Credit Agreement", together with the Enersis Credit Agreement, the "Credit
Agreements"), by and among Enersis, acting through its Cayman Islands Branch
("Enersis Cayman"), as borrower, the Lenders named therein, the Administrative
Agent, Banco Santander-Chile, as collateral agent, and certain other parties,
and (iii) the Intercreditor Agreement, dated as of [_____] [_], 200[_] (as
modified, amended or supplemented from time to time, the "Intercreditor
Agreement") by and among [________], a [_____] duly organized and validly
existing under the Law of [____] (the "Company") and the Administrative Agent
for the benefit of the Lenders under the Credit Agreements;

         WHEREAS, the Company will be providing a loan to Enersis [Cayman]2 in
an aggregate principal amount of U.S.$[_____] (as modified, amended or
supplemented from time to time, the "Company Loans");

         WHEREAS, in consideration for the Lenders agreeing to enter into the
Credit Agreements and as a condition to permitting the Company Loans to be
incurred by Enersis [Cayman], Enersis [Cayman] has agreed to request that the
Company enter into, and the Company has agreed to enter into, the Intercreditor
Agreement for the benefit of the Lenders; and

         WHEREAS, in consideration for the Lenders agreeing to enter into the
Credit Agreements and as an additional condition to permitting the Company Loans
to be incurred by Enersis [Cayman], Enersis [Cayman] also has agreed to request
that Endesa Internacional enter into, and Endesa Internacional has agreed to
enter into, this support agreement for the benefit of the Lenders.

- ----------
1        Insert name of the Administrative Agent at time of execution.

2        References should be to Enersis or Enersis Cayman throughout as
appropriate to reflect the borrower of the Company Loans.



         NOW, THEREFORE, based upon the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

         Section 6. Definitions. Unless otherwise defined herein, terms defined
in the Credit Agreements are used herein as defined therein. In addition, the
following terms shall have the meanings set forth below:

         "Endesa Internacional Material Adverse Effect" shall mean any material
adverse effect on (i) the business, operations, property, assets or condition
(financial or otherwise) or prospects of Endesa Internacional, (ii) the ability
of Endesa Internacional to perform its obligations under this Agreement, (iii)
the legality, validity, binding effect or enforceability of any material
provision of this Agreement, or (iv) the rights and remedies of any of the
Administrative Agent and the Lenders under this Agreement.

         "Guaranteed Obligations" shall have the meaning provided in Section
2.01.

         Section 7. The Guarantee.

         7.01.    The Guarantee. (a) Endesa Internacional hereby irrevocably and
unconditionally guarantees (as primary obligor and not merely as surety) the
prompt payment in full when due of all obligations, liabilities and other
amounts now or hereafter payable or becoming payable to the Lenders and the
Administrative Agent under the Intercreditor Agreement (the "Guaranteed
Obligations"). Endesa Internacional hereby further agrees that if the Company
shall fail to pay in full when due any of the Guaranteed Obligations, Endesa
Internacional will promptly pay the same without any demand or notice
whatsoever, and that in the case of any extension of time of payment or renewal
of any of the Guaranteed Obligations, the same will be promptly paid in full
when due in accordance with the terms of such extension or renewal. This
Agreement is a continuing guaranty and is a guaranty of payment and is not
merely a guaranty of collection and shall apply to all Guaranteed Obligations
whenever arising.

         (b)      For the avoidance of doubt and for purposes of the Law of
Spain, the guarantee provided by Endesa Internacional herein shall be deemed to
be a first demand guarantee (garantia a primera demanda) independent and
autonomous from the Guaranteed Obligations. Endesa Internacional irrevocably and
unconditionally waives any right to use any defenses arising from or relating to
the Guaranteed Obligations and any benefits pertaining to guarantors (fiadores)
under the Law of Spain.

         7.02.    Acknowledgments, Waivers and Consents. Endesa Internacional
agrees that the obligations of Endesa Internacional under Section 2.01 shall, to
the fullest extent permitted by applicable Law, be primary, absolute,
irrevocable and unconditional under any and all circumstances and that the
guarantee therein is made with respect to any Guaranteed Obligations now
existing or in the future arising. Without limiting the foregoing, Endesa
Internacional agrees that:



         (a)      The occurrence of any one or more of the following shall not
affect the enforceability or effectiveness of this Agreement in accordance with
its terms or affect, limit, reduce, discharge or terminate the liability of
Endesa Internacional, or the rights, remedies, powers and privileges of the
Administrative Agent or any Lender under this Agreement:

                  (i)      any modification or amendment (including without
                           limitation by way of amendment, extension, renewal or
                           waiver), or any acceleration or other change in the
                           time for payment or performance of the terms of all
                           or any part of the Guaranteed Obligations or the
                           Intercreditor Agreement, or any other agreement or
                           instrument whatsoever relating thereto;

                  (ii)     any release, termination, waiver, abandonment, lapse
                           or expiration, subordination or enforcement of any
                           other guarantee of, or liability with respect to, all
                           or any part of the Guaranteed Obligations (other than
                           the termination of the Intercreditor Agreement in
                           accordance with its terms);

                  (iii)    any settlement, compromise, release, liquidation or
                           enforcement, on such terms and in such manner as the
                           Administrative Agent may determine or as applicable
                           Law may dictate, of all or any part of the Guaranteed
                           Obligations;

                  (iv)     the giving of any consent to the merger or
                           consolidation of, the sale of substantial assets by,
                           or other restructuring or termination of the
                           corporate existence of the Company or any other
                           Person or any disposition of any shares of Endesa
                           Internacional;

                  (v)      any proceeding against the Company or any collateral
                           securing the same provided by any other Person or the
                           exercise of any rights, remedies, powers and
                           privileges of the Lenders or the Administrative Agent
                           under the Intercreditor Agreement or otherwise in
                           such order and such manner as the Administrative
                           Agent may determine, regardless of whether the
                           Lenders or the Administrative Agent shall have
                           proceeded against or exhausted any collateral, right,
                           remedy, power or privilege (including under any other
                           guarantee of all or any part of the Guaranteed
                           Obligations) before proceeding to call upon or
                           otherwise enforce this Agreement;

                  (vi)     the entering into such other transactions or business
                           dealings by the Administrative Agent or any Lender
                           with the Company, any Subsidiary or Affiliate of the
                           Company; or

                  (vii)    all or any combination of any of the actions set
                           forth in this Section 2.02(a).

         (b)      The enforceability and effectiveness of this Agreement and the
liability of Endesa Internacional, and the rights, remedies, powers and
privileges of the Lenders and the Administrative Agent under this Agreement
shall not be affected, limited, reduced, discharged or terminated, and Endesa
Internacional hereby expressly waives to the fullest extent permitted by Law any
defense now or in the future arising, by reason of:



                  (i)      the illegality, invalidity or unenforceability of all
                           or any part of the Guaranteed Obligations, the
                           Intercreditor Agreement or any other agreement or
                           instrument whatsoever relating to all or any part of
                           the Guaranteed Obligations;

                  (ii)     any disability or other defense with respect to all
                           or any part of the Guaranteed Obligations, including
                           the effect of any statute of limitations that may bar
                           the enforcement of all or any part of the Guaranteed
                           Obligations;

                  (iii)    the illegality, invalidity, unenforceability, taking,
                           modification, impairment, enforcement or release of
                           any security for or the lack of perfection or
                           continuing perfection or failure of the priority of
                           any Lien or security interest on any collateral for
                           all or any part of the Guaranteed Obligations or the
                           failure to protect or maintain any security, or any
                           other act or omission with respect to any security or
                           guarantee;

                  (iv)     the cessation, for any cause whatsoever, of the
                           liability of the Company with respect to all or any
                           part of the Guaranteed Obligations (other than by
                           reason of the full payment of all Guaranteed
                           Obligations, but subject to any reinstatement thereof
                           if all or any part of the payment is rescinded or
                           avoided or must otherwise be returned);

                  (v)      any failure of the Administrative Agent or any Lender
                           to marshal assets in favor of the Company or any
                           other Person, to exhaust any collateral for all or
                           any part of the Guaranteed Obligations, to pursue or
                           exhaust any right, remedy, power or privilege it may
                           have against the Company or any other Person or to
                           take any action whatsoever to mitigate or reduce such
                           Person's liability with respect to the Guaranteed
                           Obligations, the Lenders and the Administrative Agent
                           being under no obligation to take any such action
                           notwithstanding the fact that all or any part of the
                           Guaranteed Obligations may be due and payable and
                           that the Company may be in default of its obligations
                           under the Intercreditor Agreement;

                  (vi)     any counterclaim, set-off or other claim which the
                           Company has;

                  (vii)    any failure of the Administrative Agent or any Lender
                           or any other Person to file or enforce a claim in any
                           bankruptcy or other proceeding with respect to any
                           Person;

                  (viii)   any bankruptcy, insolvency, reorganization,
                           winding-up, dissolution or adjustment of debts, or
                           appointment of a custodian, sindico, liquidator or
                           similar officer, or similar proceedings commenced by
                           or against any Person, including any discharge of, or
                           bar or stay against collecting, all or any part of
                           the Guaranteed Obligations (or any interest on all or
                           any part of the Guaranteed Obligations) in or as a
                           result of any such proceeding;



                  (ix)     any Law of any jurisdiction, or any event, affecting
                           any term of any Guaranteed Obligation or the rights
                           of the Administrative Agent or any Lender with
                           respect thereto, including without limitation: (A)
                           the application of any such Law, including any prior
                           approval, which would prevent the exchange of a
                           currency other than Dollars for Dollars or the
                           remittance of funds outside of such jurisdiction or
                           the unavailability of Dollars in any legal exchange
                           market in such jurisdiction in accordance with normal
                           commercial practice; or (B) a declaration of a
                           banking moratorium or any suspension of payments by
                           banks in such jurisdiction or the imposition by such
                           jurisdiction or any Governmental Agency thereof of
                           any moratorium on, the required rescheduling or
                           restructuring of, or required approval of payments
                           on, any indebtedness in such jurisdiction; or (C) any
                           expropriation, confiscation, nationalization or
                           requisition by any country or any Governmental Agency
                           that directly or indirectly deprives any Person in
                           such country otherwise entitled thereto of any claim
                           for payment under all or any part of the Guaranteed
                           Obligations; or (D) any war (whether or not
                           declared), insurrection, revolution, hostile act,
                           civil strife or similar events occurring in such
                           jurisdiction which has the same effect as the events
                           described in clause (A) (B) or (C) above (in each of
                           the cases contemplated in clauses (A) through (D)
                           above, to the extent occurring or existing on or at
                           any time after the date of this Agreement);

                  (x)      any action taken by the Administrative Agent or any
                           Lender that is referred to in this Section 2.02 or
                           otherwise in this Agreement or in any other provision
                           of the Intercreditor Agreement or any omission to
                           take any such action; or (xi) any right of Endesa
                           Internacional of "division" (as defined in article
                           1837 of the Codigo Civil of Spain, as in effect on
                           the date hereof).

         (c)      To the fullest extent permitted by Law, Endesa Internacional
expressly waives, for the benefit of the Lenders and the Administrative Agent,
all diligence, presentment, demand for payment or performance, notices of
nonpayment or nonperformance, protest, notices of protest, notices of dishonor
and all other notices or demands of any kind or nature whatsoever, and any
requirement that the Administrative Agent or any Lender exhaust any right, power
or remedy or proceed against the Company under the Intercreditor Agreement or
other agreement or instrument referred to herein or therein, or against any
other Person under any other guarantee of, or security for, any of the
Guaranteed Obligations, and all notices of acceptance of this Agreement, of
proof of reliance on this Agreement or of the existence, creation, incurring or
assumption of new or additional Guaranteed Obligations. Endesa Internacional
further expressly waives the benefit of any and all statutes of limitation and
of any Law that exonerates or limits the liability of guarantors or sureties,
and any defenses provided by these Laws, to the fullest extent permitted by
applicable Law.



         7.03.    Reinstatement. The obligations of Endesa Internacional under
this Section 2 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Company in respect of the
Guaranteed Obligations is rescinded or avoided or must otherwise be restored or
returned by any holder of any of the Guaranteed Obligations, whether as a result
of any proceedings in bankruptcy or reorganization or otherwise.

         7.04.    Subrogation. Endesa Internacional hereby agrees that, until
all Guaranteed Obligations have been indefeasibly paid in full, it shall not
exercise any right or remedy arising by reason of any performance by it of its
guarantee in Section 2.01, whether by subrogation, reimbursement, contribution
or otherwise, against the Company or any security for any of the Guaranteed
Obligations.

         7.05.    Payments. All payments made by Endesa Internacional under this
Agreement will be made without setoff, counterclaim or other defense. All such
payments will be made free and clear of, and without deduction or withholding
for, any present or future Taxes. If any Taxes are so levied or imposed, Endesa
Internacional agrees to pay the full amount of such Taxes and such additional
amounts as may be necessary so that every payment of all amounts due hereunder,
after withholding or deduction for or on account of any Taxes, will not be less
than the amount provided for herein. Endesa Internacional will furnish to the
Administrative Agent or any Lender, promptly following request thereof,
certified copies of tax receipts evidencing such payment by Endesa
Internacional. Endesa Internacional will indemnify and hold harmless the
Administrative Agent and each Lender, and reimburse the Administrative Agent and
each Lender upon its written request, for the amount of any Taxes so levied or
imposed and paid by the Administrative Agent or such Lender.

         Section 8. Representations and Warranties. Endesa Internacional hereby
represents and warrants to the Lenders and Administrative Agent that:

         8.01.    Corporate Status.

         (a)      Endesa Internacional (i) is a duly organized and validly
existing corporation (sociedad anonima) in good standing under the Law of Spain,
(ii) has the power and authority to own its property and assets and to transact
the business in which it is engaged, and (iii) is duly qualified as a foreign
corporation and in good standing in each jurisdiction where the ownership,
leasing or operation of property or the conduct of its business requires such
qualification and where the failure to be so qualified would have a Endesa
Internacional Material Adverse Effect.

         (b)      No meeting has been convened or is planned for the Winding-up
of Endesa Internacional, and, to the best knowledge of Endesa Internacional,
there is no petition, application or similar proceeding outstanding for the
Winding-up of Endesa Internacional.



         8.02.    Corporate Power and Authority. Endesa Internacional has the
power and authority to execute, deliver and perform the terms and provisions of
this Agreement and has taken all necessary corporate action to authorize the
execution, delivery and performance by it of this Agreement. Endesa
Internacional has duly executed and delivered this Agreement, and this Agreement
constitutes Endesa Internacional's legal, valid and binding obligations
enforceable in accordance with its terms.

         8.03.    No Violation. None of the execution, delivery or performance
of this Agreement by Endesa Internacional, or compliance by it with the terms
and provisions hereof or thereof (i) will contravene any provision of any Law or
any order, writ, injunction or decree of any court or Government Agency binding
on it, (ii) will conflict or be inconsistent with or result in any breach of any
of the terms, covenants, conditions or provisions of, or constitute a default in
respect of, or result in the creation or imposition of (or the obligation to
create or impose) any Lien upon, any of the property or assets of Endesa
Internacional pursuant to the terms of, any indenture, mortgage, deed of trust,
credit agreement, loan agreement or any other agreement, contract or instrument
to which Endesa Internacional is a party or by which it or its properties or
assets is bound or to which it may be subject, except to the extent that such
conflicts, inconsistencies, defaults or Liens could not, in the aggregate,
reasonably be expected to have a Endesa Internacional Material Adverse Effect,
or (iii) will violate any provision of the estatutos sociales or other
constituent documents of Endesa Internacional.

         8.04.    Governmental Approvals. No Governmental Approval is required
to authorize, or is otherwise required in connection with, (i) the execution,
delivery and performance by Endesa Internacional of this Agreement or (ii) the
legality, validity, binding effect or enforceability of this Agreement.

         8.05.    Ranking. The obligations of Endesa Internacional hereunder
rank at least pari passu in priority of payment with all other present and
future unsubordinated, unsecured obligations of Endesa Internacional resulting
from any Indebtedness of Endesa Internacional, other than obligations having
priority by operation of law (including, but not limited to, obligations in
relation to those whose claims (a) have been raised to escritura publica or
poliza intervenida in Spain, or (b) are preferred by paragraphs (1), (2), (3)
and (4) of Article 913 and Article 914 of the Spanish Commercial Code (Codigo de
Comercio) or the Estatuto de los Trabajadores and related legislation), which,
in any event, are not material to Endesa Internacional.

         8.06.    Litigation. There are no actions, suits, investigations or
proceedings, legal or administrative, pending or, to the best knowledge of
Endesa Internacional, threatened (i) with respect to this Agreement or (ii) that
are reasonably likely to have a Endesa Internacional Material Adverse Effect.

         8.07.    Withholding Taxes. To the best of our knowledge, payments
required to be made by Endesa Internacional under this Agreement are to be
characterized as payments of an indemnity. As of the date hereof, no withholding
or other taxes are required to be paid in respect of, or be deducted from, any
indemnity. In the event that payments to be made by Endesa Internacional under
this Agreement were characterized in a different way and withholding taxes were
to be imposed, Endesa Internacional is permitted under applicable Law to pay any
additional amounts payable under Section 2.05 as will result in receipt by the
Lenders of such amounts as would have been received by the Lenders had no
withholding been required.



         8.08.    Form of Documentation. This Agreement is in proper legal form
under the Law of New York and Spain for the enforcement thereof under such Law;
provided, however, that, as of the date hereof, in order for this Agreement to
be admissible in evidence in judicial proceedings in a Spanish court, this
Agreement would first have to be translated into the Spanish language, and if
any objection were raised about any such Spanish translation, this Agreement
would then have to be translated by a licensed public translator who certifies
as to the accuracy thereof (unless executed in Spanish by all the parties
thereto).

         8.09.    Foreign Exchange Regulations. As of the date hereof, there are
no foreign exchange restrictions in effect in Spain which would adversely affect
any payment to be made under this Agreement, and any actions to be taken in
order to make such payment in Dollars by its remittance at the Office of the
Administrative Agent have been taken or will be taken by Endesa Internacional.

         8.10.    Solvency. After giving effect to this Agreement and the
incurrence of the Guaranteed Obligations, (a) the fair value of the property of
Endesa Internacional is greater than the total amount of its liabilities
(including without limitation contingent liabilities), (b) the present fair
saleable value of the property of Endesa Internacional is not less than the
amount that will be required to pay its probable liability on its debts as they
become absolute and matured, (c) Endesa Internacional does not intend to, and
does not believe that it will, incur debts or liabilities beyond its ability to
pay as such debts and liabilities mature and (d) Endesa Internacional is not
engaged in a business and is not about to engage in a business for which its
property would constitute unreasonably small capital.

         8.11.    Endesa Internacional's Credit Decision, Etc. Endesa
Internacional has, independently and without reliance on the Lenders or the
Administrative Agent and based on such documents and information as Endesa
Internacional has deemed appropriate, made its own credit analysis and decision
to enter into this Agreement. Endesa Internacional has adequate means to obtain
from the Company on a continuing basis information concerning the financial
condition, operations and business of the Company, and Endesa Internacional is
not relying on the Lenders or the Administrative Agent to provide such
information now or in the future. Endesa Internacional acknowledges that it will
receive adequate consideration for the guarantee provided herein.

         8.12.    Investment Company Act. Endesa Internacional is not required
to register as an "investment company" within the meaning of, and pursuant to,
the Investment Company Act of 1940, as amended.

         Section 9. Covenants. Endesa Internacional covenants and agrees with
the Lenders and the Administrative Agent that, so long as the Intercreditor
Agreement is outstanding and until indefeasible payment in full of all
Guaranteed Obligations:



         9.01.    Compliance with Law; Authorizations. Endesa Internacional
shall comply in all material respects with all provisions of applicable Law and
regulations, except to the extent that any non-compliance could not reasonably
be expected to have a Endesa Internacional Material Adverse Effect, and obtain,
comply with the terms of and do all that is necessary to maintain in full force
and effect all authorizations, approvals, licenses and consents required in or
by the Law and regulations of Spain to enable Endesa Internacional lawfully to
enter into and perform its obligations under this Agreement or to ensure the
legality, validity, enforceability and admissibility in evidence (other than the
translation of this Agreement into Spanish referred to in Section 3.08) in Spain
of this Agreement.

         9.02.    Pari Passu Obligations. Endesa Internacional shall ensure that
its obligations hereunder at all times rank at least pari passu in priority of
payment with all other present and future senior unsubordinated, unsecured
obligations of Endesa Internacional resulting from any Indebtedness of Endesa
Internacional (other than Indebtedness having priority by operation of law as
set forth in Section 3.05).

         Section 10. Miscellaneous.

         10.01.   Waiver. No failure or delay on the part of the Administrative
Agent or any Lender in exercising any right, power or privilege under this
Agreement and no course of dealing between Endesa Internacional and the
Administrative Agent or any Lender shall operate as a waiver of any such right,
power or privilege, nor shall any single or partial exercise of any right, power
or privilege under this Agreement preclude any other or further exercise thereof
or the exercise of any other right, power or privilege hereunder. The rights,
powers and remedies herein expressly provided are cumulative and not exclusive
of any rights, powers and remedies which the Administrative Agent or any Lender
or the holder of any Note would otherwise have. No notice to or demand on Endesa
Internacional in any case shall entitle Endesa Internacional to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the rights of the Administrative Agent or any Lender to any other or
further action in any circumstances without notice or demand.

         10.02.   Notices. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing and
mailed (via express or overnight mail), delivered by hand or by overnight
courier or sent by facsimile: if to Endesa Internacional or the Administrative
Agent, at the address set forth opposite its name on the signature pages hereof;
if to any Lender, at its Lending Office; or, as to any party, at such other
address as shall be designated by such party in a written notice to the other
parties hereto. All such notices and communications shall, when mailed,
delivered or sent by facsimile be effective when deposited in the mails,
delivered personally or to any nationally recognized or overnight courier, as
the case may be, or sent by facsimile, except that notices and communications to
the Administrative Agent or the Lenders shall not be effective until received by
the Administrative Agent or the Lenders.

         10.03.   Amendments, Etc. Except as otherwise expressly provided
hereunder, neither this Agreement nor any terms hereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by Endesa Internacional and the Administrative Agent (acting
with the consent of the requisite Lenders as required by Section 13.13 of the
Credit Agreements).



         10.04.   Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and each holder of any of the
Guaranteed Obligations and their respective successors and assigns, provided,
however, that Endesa Internacional may not assign or transfer any of its rights,
obligations or interest under this Agreement without the prior written consent
of the Administrative Agent (which shall be granted only with the requisite
consent of the Lenders required under Section 13.13 of the Credit Agreements).

         10.05.   Captions. The captions and section headings appearing herein
are included solely for convenience of reference and are not intended to affect
the interpretation of any provision of this Agreement.

         10.06.   Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall together constitute one and the same instrument.

         10.07.   Governing Law. This Agreement shall be governed by and
construed in accordance with the Law of the State of New York.

         10.08.   Jurisdiction, Service of Process and Venue.

         (a)      Any legal action or proceeding against Endesa Internacional
with respect to this Agreement or the Guaranteed Obligations may be brought in
the courts of the State of New York sitting in the Borough of Manhattan, The
City of New York or of the United States for the Southern District of New York,
and, by execution and delivery of this Agreement, Endesa Internacional hereby
irrevocably accepts for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of such courts. Endesa
Internacional hereby further irrevocably waives any claim that any such courts
lack personal jurisdiction over it, and agrees not to plead or claim, in any
legal action or proceeding with respect to this Agreement or the Guaranteed
Obligations brought in any of such courts, that such courts lack personal
jurisdiction over it. Endesa Internacional hereby irrevocably appoints CT
Corporation System, with offices on the Effective Date at 111 Eighth Avenue, New
York, New York, 10011, USA as its agent to receive, accept and acknowledge for
and on its behalf, and in respect of its property, service of any and all legal
process, summons, notices and documents which may be served in any such action
or proceeding. If for any reason such agent shall cease to be available to act
as such, Endesa Internacional agrees promptly to designate a new agent
satisfactory to the Administrative Agent in the Borough of Manhattan, The City
of New York to receive, accept and acknowledge for and on its behalf, and in
respect of its property, service of any and all legal process, summons, notices
and documents which may be served in any such action or proceeding pursuant to
the terms of this Section 5.08(a). In the event that Endesa Internacional shall
fail to designate a new agent, service of process in any such action or
proceeding may be made on Endesa Internacional by the mailing of copies thereof
by express or overnight mail or overnight courier, postage prepaid, to Endesa
Internacional at its address set forth opposite its signature below. To the
fullest extent permitted by Law, Endesa Internacional hereby irrevocably waives
any objection to such service of process and further irrevocably waives and
agrees not to plead or claim in any action or proceeding commenced hereunder
that service of process was in any way invalid or ineffective. Nothing herein
shall affect the right of the Administrative Agent or any Lender to serve
process in any other manner permitted by applicable Law or to commence legal
proceedings or otherwise proceed against Endesa Internacional in any other
jurisdiction (including, without limitation, the courts sitting in Spain).



         (b)      Endesa Internacional hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any actions or
proceedings arising out of or in connection with this Agreement or the
Guaranteed Obligations brought in the courts referred to in clause (a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.

         10.09.   Waiver of Jury Trial. EACH PARTY HERETO HEREBY KNOWINGLY,
VOLUNTARILY, INTENTIONALLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF ANY PARTY RELATING HERETO. EACH PARTY HERETO ACKNOWLEDGES
THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE ADMINISTRATIVE AGENT AND
EACH LENDER TO ENTER INTO THE CREDIT AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.

         10.10.   Waiver of Immunity. Endesa Internacional hereby irrevocably
waives, to the fullest extent permitted by Law, all immunity (whether on the
basis of sovereignty or otherwise) from jurisdiction, attachment (both before
and after judgment) and execution to which it or its properties might otherwise
be entitled in any legal action or proceeding in the courts of Spain, of the
State of New York, of the United States or of any other country or jurisdiction,
and agrees not to raise or claim or cause to be pleaded any immunity at or in
respect of any such actions or proceedings.

         10.11.   Use of English Language. This Agreement has been negotiated
and executed in the English language. All certificates, reports, notices and
other documents and communications given or delivered pursuant to this Agreement
(including, without limitation, any modifications or supplements hereto) shall
be in the English language, or accompanied by a certified English translation
thereof. In the case of any document originally issued in a language other than
English, the English language version of any such document shall for purposes of
this Agreement, and absent manifest error, control the meaning of the matters
set forth therein.



         10.12.   Set-Off. Subject to Section 13.6 of the Credit Agreements, in
addition to any rights and remedies of the Administrative Agent and Lenders
provided by Law, the Administrative Agent and each Lender shall have the right,
without presentment, demand, protest or other notice of any kind to Endesa
Internacional, any such notice being expressly waived by Endesa Internacional to
the extent permitted by applicable Law, upon any amount being due and unpaid by
Endesa Internacional hereunder (whether at stated maturity, by acceleration, by
mandatory prepayment or otherwise) to set off and appropriate and apply against
such amount any and all deposits (general or special, time or demand,
provisional or final), in any currency, and any other credits, indebtedness or
claims, in any currency, in each case whether direct or indirect, absolute or
contingent, matured or unmatured, at any time held or owing by the
Administrative Agent or such Lender (including, without limitation, by branches
and agencies of the Administrative Agent or such Lender wherever located) to or
for the credit or the account of Endesa Internacional against and on account of
the Guaranteed Obligations of Endesa Internacional to the Administrative Agent
or such Lender under this Agreement, including, without limitation, all claims
of any nature or description arising out of or connected with this Agreement,
irrespective of whether or not the Administrative Agent or such Lender shall
have made any demand hereunder.

         10.13.   Severability. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective and severable from the rest of this Agreement to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

         10.14.   Administrative Agent. Each reference herein to any right
granted to, benefit conferred upon or power exercisable by the Administrative
Agent shall be a reference to the Administrative Agent for the benefit of the
Lenders under the Credit Agreements.

         10.15.   Indemnity. Endesa Internacional shall indemnify the
Administrative Agent and each Lender, and their respective officers, directors,
employees, representatives, partners, members, shareholders and agents from and
hold each of them harmless against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (other than Taxes which are governed by Section 2.05) incurred by
any of them as a result of, or arising out of, or in any way related to, or by
reason of, any investigation, litigation or other proceeding (whether or not the
Administrative Agent or any Lender is a party thereto) related to the
performance of this Agreement or the Intercreditor Agreement, including, without
limitation, the reasonable and documented fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding (but excluding any such liabilities, obligations, losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses and disbursements,
to the extent incurred by reason of the gross negligence or willful misconduct
of the Person to be indemnified).



         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.

[address]                               [_________________________]
Attention:                              as Administrative Agent for the benefit
Telephone:                              of the Lenders under the Credit
Facsimile:                              Agreements

                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

Ribera del Loira, 60                    ENDESA INTERNACIONAL S.A.
28042 Madrid, Spain
Attention: Mr. Luis Rivera
Telephone:  34-91-213-9970
Facsimile:  34-91-213-9967
                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

With a copy to:
Mr. Alfonso Arias
Ribera del Loira, 60
28042 Madrid, Spain
Telephone:  34-91-213-1810
Facsimile:  34-91-213-1870
                                        By:
                                            ------------------------------------
                                            Name:
                                            Title:

EX-8.1

                                                                     EXHIBIT 8.1


Our economic interest in the subsidiaries listed in the following table 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 December 31, 2002.




- ----------------------------------------------------------------------------------------------------------------------
                                                                                                 % Economic
                                                                                                 Ownership of
                                                  Name under which                               Principal
                                                  Principal                Jurisdiction of       Subsidiary by
Legal name of Principal Operating Subsidiary      Subsidiary operates      Incorporation         Enersis
- ----------------------------------------------------------------------------------------------------------------------
                                                                                        
Electricity Generation
- ----------------------------------------------------------------------------------------------------------------------
Empresa Nacional de Electricidad S.A.             Endesa                   Chile                 60.0%
- ----------------------------------------------------------------------------------------------------------------------
Electricity Distribution
- ----------------------------------------------------------------------------------------------------------------------
Chilectra S.A.                                    Chilectra                Chile                 98.2%
- ----------------------------------------------------------------------------------------------------------------------
Compania Electrica del Rio Maipo S.A (1)          Rio Maipo                Chile                 98.7%
- ----------------------------------------------------------------------------------------------------------------------
Empresa Distribuidora Sur S.A                     Edesur                   Argentina             65.1%
- ----------------------------------------------------------------------------------------------------------------------
Companhia de Electricidade do Rio de Janeiro      Cerj                     Brasil                62.0%
- ----------------------------------------------------------------------------------------------------------------------
Companhia Energetica do Ceara                     Coelce                   Brasil                27.4%
- ----------------------------------------------------------------------------------------------------------------------
Codensa S.A. E.S.P.                               Codensa                  Colombia              21.7%
- ----------------------------------------------------------------------------------------------------------------------
Empresa de Distribucion Electrica de Lima         Edelnor                  Peru                  33.4%
Norte S.A.A.
- ----------------------------------------------------------------------------------------------------------------------
Other Businesses
- ----------------------------------------------------------------------------------------------------------------------
Inmobiliaria Manso de Velasco Limitada            Manso de Velasco         Chile                 100%
- ----------------------------------------------------------------------------------------------------------------------
Synapsis Soluciones y Servicios IT Ltda           Synapsis                 Chile                 100%
- ----------------------------------------------------------------------------------------------------------------------
Compania Americana de Multiservicios Ltda         Cam                      Chile                 100%
- ----------------------------------------------------------------------------------------------------------------------


(1) Rio Maipo was sold on April 30, 2003.