0405_0448_IBNA_AD1

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0405_0448_IBNA_AD1

Key highlights of the North American power sector

Retreat from unsuccessful growth strategies

Year of “cleanup” Focused on core businesses, principally

domestic Strengthened balance sheets

Increasing presence of financial sponsors Excess capital from institutional

investors Institutional investors consider that

investments in utilities could provide more stable returns than those in the stock or bond markets

Earnings stabilized and credit rating downgrades mostly completed The utility and merchant generation

sectors enjoyed improved liquidity and greater access to capital markets

“Back to basics” was credit driven and will not serve as growth strategy going forward

Regulators are being cautious to allow utilities competitive returns

Growth utilities will attract a disproportionate share of new capital Strategics and sponsors positioning for

potential regulatory changes Large European utilities looking for growth Cost driven consolidation

Private equity sponsors will continue to challenge corporate buyers Several sponsors already own assets to

compete on a strategic basis Demonstrated willingness to invest long-

term and wait for developing business fundamentals and regulatory outcomes

2003 recap 2004 market dynamics

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The power M&A market has become more robust with financial sponsors continuing to make meaningful acquisitions

Source: Thompson Financial

Source: Thompson Financial Source: SDC

82,910 87,470

19,120 24,030

2000 2001 2002 2003

171

97 105136

2000 2001 2002 2003

Value of M&A transactions in the North American power sector (US$ mm)

# of M&A transactions in the NorthAmerican power sector

Selected Investments

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0%

50%

100%

150%

200%

250%

300%

Jan-99 Dec-99 Nov-00 Oct-01 Sep-02 Aug-03 Jul-04

UTY

Integrated

Merchant

T&D

Stock prices for utilities have recovered over the last 18 months; however, increasing interest rates could slow this trend

Source: TradelineNote: Integrated: AEP, Cinergy, CMS Energy, Dominion, Duke, DTE Energy, Entergy, Exelon, FirstEnergy, FPL, PG&E, PPL, Progress Energy, Public Service Enterprise Group, Southern Co.,

TXUMerchant: AES, Calpine, Dynegy, El Paso, Reliant Resources, WilliamsT&D: Consolidated Edison, Energy East, Northeast Utilities, NSTAR

Source: Bloomberg

1H 99 2H 99 1H 00 2H 00 1H 01 2H 01 1H 02 2H 02 1H 03 2H 03 1Q 04

Integrated companies

Merchants & traders

T & D

50%

70%

90%

110%

130%

150%

Jan-99 Dec-99 Nov-00 Oct-01 Sep-02 Aug-03 Jul-04

Relative stock price performance (% change)

Year forward price-to-earnings ratio

Source: TradelineU.S. 10-year treasury (% change)

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Key highlights of the European power sector

Limited and volatile demand growth

Natural gas replacing coal as fuel source

Declining reserve margins

Prices making generation uneconomic

Ownership consolidation

Emissions restrictions and CO2

trading

Asset values declining

High number of assets for sale

EU Directive, unbundling and third-party access for transmission assets Limited enforceability mechanisms

Implementation of RAB-based regulation

Transmission bottlenecks

Introduction of third party equity/debt

Equity investors appetite for regulated assets

Restructuring and unbundling

Privatizations

Generation Transmission and distribution

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The Latin American investment environment has significantly improved over the last 18 months

Stock exchange indicesExchange rate

GDP growth (%, annual change)EMBI+ SOT Indices per country

0

2,000

4,000

6,000

8,000

Dec-99 Feb-01 Apr-02 May-03 Jul-04

Argentina Brazil Chile

Colombia Ecuador Peru

75%

200%

325%

450%

Dec-99 Feb-01 Apr-02 May-03 Jul-04

Argentina Brazil Chile

Colombia Ecuador Peru

0100200300400500

Jan-01 Nov-01 Oct-02 Aug-03 Jul-04

Argentina Peru Brazil

Chile Colombia Ecuador

(15)%

(10)%

(5)%

0%

5%

10%

1997—2001 2002 2003E 2004F 2005F

Argentina Brazil Chile

Colombia Ecuador Peru

Source: Global Economic Data as of July 13, 2004

Source: Global Economic Data as of July 13, 2004 Source: JPMorgan research

Source: Global Economic Data as of July 13, 2004

Bps

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Less favorable

More favorable Brazil Mexico Argentina Venezuela Chile Peru Ecuador Bolivia

Credit rating B2/B+ Baa2/BBB- Caa1/SD Caa1/B- Baa1/A Ba3/BB Caa1/CCC+ B3/B-

Regulatory Outlook

Local ECM

Local DCM

Valuation level

Buyers' appetite

Investment environment

The power sector is particularly affected by political uncertainty, social problems and economic volatility

However, investment conditions in the Latin American power sector differ significantly across countries

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Finding the “right” risk/reward balance will continue to be the challenge for power sector players

Argentina84,800 GWh

Brazil342,300 GWh

Chile43,700 GWhPeru

22,000 GWh

Venezuela95,700 Gwh

DR¹5,400 GWh

Panama²3,800 GWh

Colombia45,200 GWh

Mexico160,200 GWh

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

020040060080010001200

EMBI + SOT (bp)

Ele

ctr

icit

y c

on

su

mp

tio

n

19

95

—2

00

25

CA

GR

(%

)

Country risk versus electricity consumption growth

Source: CIER, SENER, OLADE, ARIAE; electricity consumption data as of 2002; EMBI+ data as of July 14, 20041 DR growth from 1999 to 20022 Panama growth from 1995 to 2001

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6000

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Country/ regulatory risk is the main factor affecting implied multiples across countries

Illustrative comparison based on theoretical company with different domicile Theoretical company Country 1 Country 2 Country 3 Country 4

Sales 100.0 100.0 100.0 100.0

EBITDA 45.0 45.0 45.0 45.0

Depreciation 12.0 12.0 12.0 12.0

= EBIT 33.0 33.0 33.0 33.0

Tax rate 40.0% 17.0% 33.5% 35.0%

Capex 12.0 12.0 12.0 12.0

= FCF 19.8 27.4 21.9 21.5 Fundamental valuation

FCF expected growth1(g) 2.0% 3.0% 3.0% 4.0%

Country risk2 0.0% 1.0% 4.9% 7.1%

Discount rate (WACC)3 7.1% 9.1% 11.5% 13.4%

Firm value: FCFt+1/ (WACC - g) 397 466 265 238 Implied FV/ EBITDA multiple

EBITDA 45 45 45 45 FV/ EBITDA 8.8x 10.3x 5.9x 5.3x

1 JPMorgan estimates for perpetuity growth rates2 SOT over UST103 Calculated based using a 0.8 unlvered beta, 40% debt/total capital. Pre-tax costs of debt calculated using a 100bp spread

over each adjusted risk free rate

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Valuations have gradually recovered driven by the improved external perception of the region and increasing local investor’s appetite

Valuation drivers during 2002 -

2003 Valuation drivers for 2004

Strategic playersfacing liquidity

crisis

Depressedassetprices

Increased country risk/FX volatility

Limited number of

buyers

New strategies focused on domestic markets

Market signaling of plans to reduce emerging market’s exposure

Restructuring of portfolios

Balance sheet impairment through FX and goodwill adjustments

Limited number of M&A transactions due to significant bid/offer price gap

Renewed focus on portfolio optimization strategies

“Wait and See” approach in general

Increasing willingness to take advantage of highly liquid local markets

Optionality approach towards non-core investments with tough exit alternatives

Highly liquid local markets become an important alternative to reduce exposure to the region

Strategic players’ improved financial

condition

Increasing asset prices

Reduced country risk/FX appreciation

More balanced supply/deman

d of assets

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Strategic players response Strategic players response

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Local groups, financial sponsors and the public market are becoming important players in the utility sector

Selected transactions

Date Acquiror Target Seller Sector Country %

acquired Purchase price

(US$mm) EBITDA multiple

Apr-04 CDC Cobee NRG Generation Bolivia 99% N/A N/A Mar-04 Market CGE PPL Global Distribution Chile 9% 122 10.9x Mar-04 Dolphin

Management Transener National Grid Transmission Argentina 28% 14 N/A

Mar-04 Sebastian Pinera & other

Costanera Southern Cone

Generation Argentina 7% 10 N/A

Feb-04 Darby Overseas Termobarranquilla First Energy Generation Colombia 29% N/A N/A Feb-04 Enersur

(Tractebel) Yuncan (under construction)

Peruvian government

Generation Peru 100% 53 N/A

Dec-03 Pacific Hydro Coya/Pangal Codelco Generation Chile 100% 76 N/A Nov-03 Quiñenco ESSAN Government

(CORFO) Water Chile 100% 188 7.6x

Dec-03 Hurtado ESSCO Government (CORFO)

Water Chile 100% 86 8.1x

Dec-03 Hidrosan EMSSAT Government (CORFO)

Water Chile 100% 26 5.9x

Nov-03 SNPower Cahua/Pacasmayo NRG Generation Peru 100% N/A N/A Oct-03 Grupo Hurtado ESVAL Anglian Water Water Chile 45% 82 8.6x May-03 JPMPartners /

HSBC Power fund Emdersa First Energy Distribution Argentina 100% N/A N/A

Mar-03 Grupo Matte Canutillar Endesa Generation Chile 100% 174 7.8x Mar-03 CGE Rio Maipo Enersis Distribution Chile 100% 170 12.0x Mar-03 Hydro Quebec SING Transmission lines Endesa Transmission Chile 100% 110 N/A

Source: Publicly available information

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Growth potential is not necessarily the only key driver of investment decisions

Key considerations when assessing the attractiveness of the Latin American power sector

Political stability

Macroeconomic stability

Treatment of foreign investment

Contract enforceability and creditors’ rights

Financing availability

Regulatory stability

Growth prospects

Availability of investment opportunities

Opportunity cost

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Current trends in the Latin American power sector

Strong outlook for power consumption

Strong performance of companies under tough operating and financial conditions World class assets and strong management

Companies with financial difficulties addressed them in a manner satisfactory to investors

Certain international companies implementing exit strategies Capital allocated to non-core markets Companies with no hurry to exit could pursue optimization strategies in the interim Unwillingness to take significant write-offs Waiting for a better time to sell given depressed assets’ valuation

Players with uncertain strategies following a “wait and see” approach Not sure of pursuing an exit strategy Believe that “the worst” has already happened in the region Pursue optimization of portfolio Still attracted by the growth potential of the market

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Current trends in the Latin American power sector (cont’d)

Companies with a long-term strategy Potential to become sector “consolidators” Restructure and refinance their portfolios Divest non-controlling positions Partner with local companies IPO/Secondary offerings

Increasing participation of local players Different risk-reward profile vis-a-vis that of international players

Increasing interest of financial sponsors High return expectations To-date, mainly focus on distressed assets requiring low upfront investments

Increasing role of the local capital markets Significant liquidity in some markets Attractive conditions for raising both equity and debt

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Key challenges for the Peruvian power sector

Maintain a positive political and macroeconomic outlook

Attract private capital to fund significant infrastructure requirements

Continue privatization/concession processes

Develop and maintain a reliable regulatory framework Independent regulatory entities Political and social agendas should not interfere with the development of the sector

Importance of a transparent and fair setting of tariffs, attractive enough to promote further investment Address challenging social concerns through well structured measures

Importance of attracting foreign investment Company’s cost of opportunity Why Peru vis-à-vis other countries? Leverage on companies already present in the country

Continue supporting the development of the local capital markets

Become a reliable player in energy integration with other countries

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