Governance Challenges in Latin America

1. Governance Challenges in Latin America

2. Corporate Innitiatives Government Innitiatives Participation of different sectors Institutions monitor Corporate Governance Score Score Score Legal Framework Creation: Institute of Organization-Argentine Gov.(IAGO) - 2002 Private sector participation (FUNDECE-IDEA) • ReformCapital Markets Law 2 2 2 Argentina • Bill for incor- porated companies 0 0 1 No News No News Bolivia • Reform Corp. law • Participation in Capital market (BOVESPA) Creation:Brazilian Inst. of Corporate Gov. (IBGC)-1995 Private sector Participation (IBGC-BNDES) Brasil 2 3 3 Private sector participation (CONFECAMARAS) • Bill for Securities Law Colombia 0 3 No News 1 Source: White Paper on Corporate Governance in Latin America. World Bank OCDE 2004

3. Government Innitiatives Corporate Innitiatives Institutions that monitor Corporate G. Participation of different sectors Score Score Legal Framework Score Private sector participation (CCE) Creation in 2003 of the Mexican Institute for Corporate Governance (IMGC) • Reform of the Securities Market Law México 3 1 2 Creation in 2003 of the Peruvian Committee on Corporate Governance Private and Public sector participation (CONFIEP-ASBANC) 0 2 1 Perú No News Private & academic sector participation (Pontificia Univ. Catolica) • Approvalpublic offer law &Corp governance • Participation of Superintendent of Securities & Insurance Planned establishment of theChilean Institute of Directors Chile 1 3 3 Private and Public Sector participation (IESA-CEDICE-AVE-CAF) Creation in 2003 of the Executive Committee of Good Corporate Practices Venezuela No News 0 2 1 Source: White Paper on Corporate Governance in Latin America. World Bank (OCDE) 2004

4. Chile Brazil Argentina México Colombia Bolivia Venezuela - Perú Latin American Rating - Empirical Overview (*) High Government Innitiatives Medium Low High Medium Corporate Innitiatives (*) This diagram is not intended to be exhaustive, rather to represent the latest developments in C.G. in a comparative analysis

5. Corporate Governance in EDC

6. EDC, a Century of Experience • Founded 110 years ago • Largest private power utility in Venezuela • Serves 20% of the Venezuelan population (~6 MM people) • Total assets: US$ 2.8 Billion • Energy sales of US$ 655 MM by 2004 • Listed in the Caracas Stock Exchange since 1947 (ticker: EDC) • Level 1 ADRs traded ¨OTC¨ in NYC since 1998 (ticker: ELDAY)

7. EDC Shareholder Structure 86.05% of the Shares • AES Corporation Minority Shareholders 13.95% of the Shares (43,500) Any agreement between AES and EDC, whether contractual or otherwise, has to be “at arms length.”

8. Fundamental Players in EDC’s Corporate Governance Protecting Minority Shareholders Reporting Information Corporate Structure Privileged Information Emphasizing Ethical Values Board of Directors:ExternalAudit Committee Management CorporateGovernance Investor Relations AES Compliance External Audit Committee InternalAuditors ExternalAuditors

9. Sarbanes - Oxley 2003 2004 2005 DESCRIPTION 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q Application of “ internal control best practices” to each business unit Updating EDC Standards and Procedures together with process owners Internal Audit tests 406/407-6 Code of Ethics 806 Whistleblower- Corporate and Criminal Fraud 404 Control Self Assessment questionnaire focused on key controls related to activities normally performed Completed the SOX 404 assessment process and did not identify any material weaknesses Deloitte concluded: assessment process was effective and no material weaknesses was identified

10. EDC’s Organization Board of Directors Audit Committee AES CEO Auditor Investor Relations Compliance VP Finance VP Industry Association Affairs VP Legal Affairs VP External Relations Chief Operating Officer

11. Board of Directors Consists of: Nine (9) Main Directors Six (6) Alternative Directors One (1) Counselor From them, a “Committee of External Directors” is designated, consisting of: Three (3) Main Members Two (2) Alternative Members Their term is for one (1) year and they are eligible for reelection.

12. Board of Directors – Principal Functions • Names the CEO and Chairman. • Names a Judicial Representative and Secretary. • Comprises different Committees. • Approves any decision of over US$ 500,000. • Proposes dividend payments. • Decides on capital increases. • Is accountable for all important investments. • Each member should deposit 20,000 company shares as a guarantee of their administration.

13. Auditing Committee – Principal functions • Approves External Auditor and evaluates its staff. • Approves the scope of the annual audit plan. • Evaluates Internal Auditor performance. • Approves the annual plan for Internal Audit. • Approves financial statements. • Approves the effectiveness of the internal control procedures. • Approves policies and practices, identifying and managing risk. • Evaluates the Compliance Officer performance.

14. Compliance – Principal functions • Emphasize company's values and maintain ethical standards: • Code of Conduct adoption and application • Employeesattention: ethics, work-related situations/ harassment. • Locally responsable for the whistleblower for employees • Approval commercial transactions exceeding $ 25,000. In EDC

15. Investor Relations – Main functions • Earnings Release (quarterly & annually). • Timely Public Releases. • Quarterly Q&A (paripassu). • Updates IR web-page. • SEC information forms. • Financial Community presentations. • Shareholder meetings.

16. Adoption of International Accounting Standard EDC Internally EDC Externally • Adoption of International Accounting Standard (IAS) and International Accounting for Financial Information (IAFI) is anticipated for December 31, 2005. • Evaluation of each Standard and revelations of it throughout the EDC Group. • Evaluation of both financial and economic opportunities. • Promoting the Adoption of the International Accounting Standard (IAS) and International Accounting for Financial Information (IAFI) in Venezuela. • Assist the Venezuelan Business Sector in understanding, aligning, leading and prioritizing concerns in order to obtain effective solutions.

17. Good Corporate Governance from the Perspective of the CNV • Transparency. • Opportune Information. • Independence of External Auditors. • Supervise Control Groups. • Voting Rights – Delegation of the Vote. • Minority Shareholders. • Avoid Manipulation, Fraud, etc.

18. Venezuelan Securities Commission (CNV) Strategic Objectives by Year 2004 (voluntary by the Companies): • Adoption of International Accounting Norms. • Adoption of Principles of Good Corporate Governance. Resolution of 02-17-05 Order issuing organizations to present an annual report in Ordinary Shareholder Meetings to indicate their degree of compliance with the principles of good corporate governance. • The principles foreseen in this resolution are: • Independent Directors • Audit Committee

19. EDC role in the Capital Market & Financial Community

20. 2004 Placement of EDC Bonds Characteristics: • October 2004 • US$260 MM (oversubscribed) • 10-Year Senior Notes • Refinancing of existing debt • 10.25% Coupon (at par value) • Approved by CADIVI • Ratings: Standard & Poor’s "B" and Fitch "B+“ • Offered by ABN AMRO Turning Good Corporate Governance into a Competitive Advantage Best High-Yield Bond by:

21. EDC Debt Average Life

22. Chile Brazil Argentina México EDC Colombia Bolivia Venezuela - Perú EDC Vs. Latin American Countries (*) High Source: White Paper on Corporate Governance in Latin America. OCDE 2004 Government Innitiatives Medium Low High Medium Corporate Innitiatives (*) This diagram is not intended to be exhaustive, rather to represent the latest developments in C.G. in a comparative analysis

23. Governance Challenges in Latin America