A N N U A L R E P O R T
V O L U M E I
05
WE LINK COUNTRIES WITH ENERGY
A N N U A L R E P O R T
05V I S I O N
M I S S I O N
A N N U A L R E P O R T
05V I S I O N
M I S S I O N
CONTENTS
7
11
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Board of Directors and Management
Report from the Board of Directors and the General Manager
ISA’s Financial Statements
Balance Sheets/Statements of Income/Statement of Changes in Shareholders’ EquityStatement of Changes in the Financial Position/Statements of Cash Flows
Notes to ISA’s Financial Statements
Statutory Auditor’s Report/Special Report on Transactions with Affiliate CompaniesCertification of Compliance with Intellectual Property and Copyright Regulations
BOARD OF DIRECTORS
AND MANAGEMENT
M A N A G E M E N T
PRINCIPAL MEMBERS ALTERNATE MEMBERS
VICE-MINISTER OF MINES AND ENERGY
MINISTRY OF MINES AND ENERGY
Manuel Fernando Maiguashca Olano
LEGAL COUNSEL TO THE MINISTER
MINISTRY OF FINANCE AND PUBLIC CREDIT
Nhora Abuchar Chamie
Luis Fernando Uribe Restrepo
Jorge Hernan Cardenas Santamaria
ENERGY DISTRIBUTION MANAGER
EMPRESAS PUBLICAS DE MEDELLIN
Gabriel Jaime Betancourt Mesa
MARIA ISABEL PATIÑO OSORIO
ANDRES FELIPE MEJIA CARDONA.
ADMINIST
B O A R D O F D I R E C T O R S
2 0 0 5 - 2 0 0 6
MINISTER
MINISTRY OF MINES AND ENERGY
Luis Ernesto Mejia Castro
VICE-MINISTER GENERAL
MINISTRY OF FINANCE AND PUBLIC CREDIT
Gloria Ines Cor tes Arango
Isaac Yanovich Farbaiarz
Luis Fernando Alarcon Mantilla
ENERGY GENERATION MANAGER
EMPRESAS PUBLICAS DE MEDELLIN
Jesus Aristizabal Guevara
HERNAN MARTINEZ TORRES
ORLANDO CABRALES MARTINEZ
GENERAL MANAGER
Javier G. Gutierrez Pember thy
ENERGY TRANSPORT SERVICES MANAGER
Ana Mercedes Villegas Mejia
SOUTH AMERICAN REGION MANAGER
Fernando Rojas Pinto
CONSTRUCTION AND MATERIALS MANAGER
Jorge Rodriguez Ortiz
ADMINISTRATIVE MANAGER
Carlota Maria Nicholls Estrada
CORPORATE STRATEGY MANAGER
Cesar Augusto Ramirez Rojas
CORPORATE FINANCE MANAGER
Alba Luz Hoyos Naranjo
Juan Guillermo Chica Ramirez (A)
Rocio Idarraga Or tiz
CORPORATE COMPTROLLER
Sergio Alber to Gomez Franco
SECRETARY GENERAL
Juan David Bastidas Saldarriaga
Alber to Mauricio Bernal Latorre (A)
CORPORATE IMAGE DIRECTOR
Carmen Elisa Restrepo Velez
• Information about positions correspondsto the restru cturing of the Company,in force as of June 2005.
• Pablo Corredor Avella, Operations and MarketAdministration Manager until September 1st 2005when the affiliate XM, Compañia deExper tos en Mercados was established.
M A N A G E M E N T
PRINCIPAL MEMBERS ALTERNATE MEMBERS
VICE-MINISTER OF MINES AND ENERGY
MINISTRY OF MINES AND ENERGY
Manuel Fernando Maiguashca Olano
LEGAL COUNSEL TO THE MINISTER
MINISTRY OF FINANCE AND PUBLIC CREDIT
Nhora Abuchar Chamie
Luis Fernando Uribe Restrepo
Jorge Hernan Cardenas Santamaria
ENERGY DISTRIBUTION MANAGER
EMPRESAS PUBLICAS DE MEDELLIN
Gabriel Jaime Betancourt Mesa
MARIA ISABEL PATIÑO OSORIO
ANDRES FELIPE MEJIA CARDONA.
ADMINIST
B O A R D O F D I R E C T O R S
2 0 0 5 - 2 0 0 6
MINISTER
MINISTRY OF MINES AND ENERGY
Luis Ernesto Mejia Castro
VICE-MINISTER GENERAL
MINISTRY OF FINANCE AND PUBLIC CREDIT
Gloria Ines Cor tes Arango
Isaac Yanovich Farbaiarz
Luis Fernando Alarcon Mantilla
ENERGY GENERATION MANAGER
EMPRESAS PUBLICAS DE MEDELLIN
Jesus Aristizabal Guevara
HERNAN MARTINEZ TORRES
ORLANDO CABRALES MARTINEZ
GENERAL MANAGER
Javier G. Gutierrez Pember thy
ENERGY TRANSPORT SERVICES MANAGER
Ana Mercedes Villegas Mejia
SOUTH AMERICAN REGION MANAGER
Fernando Rojas Pinto
CONSTRUCTION AND MATERIALS MANAGER
Jorge Rodriguez Ortiz
ADMINISTRATIVE MANAGER
Carlota Maria Nicholls Estrada
CORPORATE STRATEGY MANAGER
Cesar Augusto Ramirez Rojas
CORPORATE FINANCE MANAGER
Alba Luz Hoyos Naranjo
Juan Guillermo Chica Ramirez (A)
Rocio Idarraga Or tiz
CORPORATE COMPTROLLER
Sergio Alber to Gomez Franco
SECRETARY GENERAL
Juan David Bastidas Saldarriaga
Alber to Mauricio Bernal Latorre (A)
CORPORATE IMAGE DIRECTOR
Carmen Elisa Restrepo Velez
• Information about positions correspondsto the restru cturing of the Company,in force as of June 2005.
• Pablo Corredor Avella, Operations and MarketAdministration Manager until September 1st 2005when the affiliate XM, Compañia deExper tos en Mercados was established.
REPORT FROM THE
BOARD OF DIRECTORS
AND THE GENERAL MANAGER
Report from the Board of Directors and the General Manager 13
CERTIFICATION OF FINANCIAL STATEMENTS
AND OTHER RELEVANT REPORTS
Medellin,February12,2006
TothestockholdersofInterconexionElectricaS.A.E.S.P.
InconnectionwiththeannualreportofGrupoISA,theundersignedLegalAgent
andChiefAccountantofInterconexionElectricaS.A.E.S.P.,herebycertifythat:
1.AsprovidedinArticle37ofLaw222of1995,beforedisclosingtoyouandto
thirdpartiesthefinancialstatementsoftheCompanyasofDecember31st2005
and2004,theyhavepreviouslyverifiedtheassertionsthereincontained,andthat
theyhavebeenfaithfullytakenfromthebooks.
2. That in compliance with article 46 of Law 964 of 2005, the financial
statements and other reports relevant to the public related to the fiscal years
endedonDecember31st2005and2004,donotcontaindefects,inaccuraciesor
errorsthatpreventascertainingthetruefinancialpositionandoperationsofthe
Company.
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. GeneralManager ChiefAccountant
T.P.8671-T
14 Report from the Board of Directors and the General Manager
REPORT FROM THE BOARD OF DIRECTORS AND THE GENERAL MANAGER
A LETTER FROM THE MANAGEMENT
It is a great honor to present the Management Results of 2005, and theprospectsforboththeGrupoISAandInterconexionElectricaS.A.E.S.P.
Inageneralmanner,wepresentsomeoutstandingresults:
• Net income was $187,179 million for ISA and $200,258 million for theGroup,allowingdividendstokeeptheirgrowingtrend.
• Share quote showed considerable increase (170%), highly correlated tothebehaviorofColombia’ssecuritiesmarket.
• Servicedeliveryavailabilityindexesoutdidminimalregulatorylevels.• Customersatisfactionshowedinhigherperformanceratings.• Construction of 1,051-km transmission lines in Colombia continued in
ordertoincreasetransportcapacitytothecountry’scentralandnorthernregions.
• AnewGroupaffiliatewascreated:XM,CompañiadeExpertosenMercados,thatstartedoperationsonOctober1st.
• AffiliateISABoliviacommissionedthelinessubjectofconcessionaheadofdeadline.
• ISA became the eighth partner of Empresa Propietaria de la Red -EPR-,with12.5%participation.
On the other hand, the issue of Corporate Governance was a permanentsourceofcoherentresponsetothediverseinterestgroups,andtowarduniformdirectionoftheGroup’saffiliates.ConstructionofsynergyamongalltheaffiliateswasdecisiveinthecontextoftheEconomicGroup’sconsolidationstrategy.
Availingofourpeople’scapabilities,werespectfullyadvancealongthegrowthpath. We hope our effort will allow us to benefit from new and outstandingopportunities to add value to the Corporation and to the Economic Group,helpedbyprofitableinvestment,competitivecostsofcurrentbusiness,andhighsatisfactionlevelsamongourcustomers.
Volume1of theManagementandResultsReport2005 reflects theactionsof the Economic Group and Interconexion Electrica S.A. E.S.P. -ISA- to meetour commitments and advance in the pursuit of our Corporate Vision, and itcontains:
Report from the Board of Directors and the General Manager 15
• ReportsoftheBoardofDirectors.OperationoftheBoardofDirectorsandcompliancewiththeGoodGovernanceCode.
• ExecutiveSummary.AsynthesisofthemostrelevantactionsforboththeGroupandISA.
• Management Report of the Group. It is a detailed presentation of theGroup’smainachievements,andofthoseofeachaffiliate.
• Management Report of Interconexion Electrica S.A. E.S.P. -ISA-. It is adetailed registerofgoalsachieved, resultsandcommitments in servicedelivery,managementresults,andfinancialstatements.
• Prospectsandcommitments.
Volume 2 includes the Consolidated Financial Statement and theircorrespondingNotes.
AlsoincludedistheReportonCorporateSocialResponsibility–ISA2005,withaReportonFulfillmentoftheGlobalPactCommitments.
Finally,wewanttoexpressourgratitudetoourworkersfortheirdedicationandcontributiontotheachievementofresults,toourcustomers,forpermittingustointerprettheiraspirationsandsoimproveourservices,andtooursuppliers,forcontributingwiththeirefforttothefulfillmentofgoals.
Thanksaregiventotheshareholders for theirconfidence in ISA’scorporatecapabilities, that commits us to the continued generation of value for theirinvestment; to thefinancialcommunity, forsupportingourbusiness initiatives;to the State, for allowing us to work by its side in the daily quest for a betterfuture; to the governments and societies of the different countries where weare conducting our entrepreneurial activity, for their welcoming trust, that hasallowedusthedeliveryofservicesindispensablefortheirdevelopment.
Thankstoourarmedforcesfortheircommittedanddevotedworkaimedatpreservingsecurityconditions,withoutwhich,servicecouldnotcontinue.
Andofcourse,wethankGod,whoseperennialpresencebestowsonushope,peace,andoptimismtoserenelyfindourdailypath.
We reiterate our commitment to continued and enthusiastic work for the
future,establishedinourcorporatevision.
LuisFernandoAlarcónM. JavierG.GutiérrezP.PresidentoftheBorradofDirectors GeneralManager
16 Report from the Board of Directors and the General Manager
REPORTS FROM THE BOARD OF DIRECTORS
It is ISA’s Good Governance Practice to present an annual report on the
operationoftheBoardofDirectorsandoncompliancewithanddevelopmentof
theGoodGovernanceCode;see Volume 1 page 106.
In compliance with the rulings of the Securities Commission through
Resolution 0275 of May 23rd 2001, and with the provisions of the Articles of
Incorporation, the Board of Directors of ISA approved the Good Governance
CodepresentedbyManagement.ItsfirstamendmenttookplaceinSeptember
2003tomodifycompositionanddenominationoftheControlCommittee,which
changeditsnametoCorporateAuditingCommittee.ISAiscurrentlypreparinga
secondamendmenttoupdatethecontentsoftheCodeinviewofthesecurities
market’slatestdispositionsandtheCorporation’sstructure.Oncefinished,such
amendmentwillbedisclosedtotheshareholdersandinvestorsthroughamass
communicationmedium.
CompliancewiththeprovisionsoftheGoodGovernanceCodeisverifiedwith
theaidofevaluationmechanismsbytheCorporateComptrollerOfficeandthe
StatutoryAuditor,anditismonitoredbymeansoftheMechanismforCompliance
withtheCodeofGoodGovernance,whosereportscanbeviewedonlineatthe
Corporation’sWebpage.
Report from the Board of Directors and the General Manager 17
EXECUTIVE SUMMARY
Grupo ISA
Ithasinvestmentsinthepowerandtelecommunicationssectors,anditscore
business istransportofelectricpower inColombia,Peru,andBolivia,countries
whereithasaconsiderablepercentageparticipationinthetotaltransportgrid.
With16,836kmoflines,GrupoISAisoneofSouthAmerica’smaininternational
powercarriers,presentinallthecountries intheAndeanCommunityofNations.
InColombia,with ISAandTRANSELCA, theGrouphas84%participation ingrids
at220kVorabove. InPeru,throughReddeEnergiadelPeru-REP-,andISAPeru,
participationamountsto79%;andinBolivia,withISABolivia,participationis51%.
It also has international connections between Colombia and Venezuela,
ColombiaandEcuador,andPeruandEcuador.
Transport of electric energy andoperation of the power system in the
Atlantic Coast region of Colombia.
Administration, operation and transport services inpower markets, as well as telecommunications
Transport of electric energy and operationof transmission systems in Peru.
Operation of the National InterconnectionSystem and Administration of the
Wholesale Energy Market
Transport of electric energyand operation of transmission
lines (concession)
Transport of electric energyand operation of transmission
lines (concession)
Carrier service.
Transnexa
Value added services through wirelessLMDS technology for broad band
local access.
[30.00%][99.73%] 30.00% 54.86%[65.00%] [28.07%] [51.00%] [99.99%]
[50%]
[75.04%]
48.99% 0.01%
2002 1998 2002 2003
1967
2001 2002
POWER COMMUNICATIONS
18 Report from the Board of Directors and the General Manager
On September 1st 2005, the Group established the new affiliate, XM,
CompañiadeExpertosenMercadosS.A.E.S.P.,whosepurposeistocarryoutthe
OperationoftheNationalInterconnectedSystem,aswellastheAdministration
oftheWholesaleEnergyMarket,whichInterconexionElectricaS.A.-ISA-wasin
chargeofuntilSeptember30ofthatsameyear.
In the power sector, advancement of the internationalization process,
consolidationasLatinAmerica’smaincarrier,andmaterializationofitsaspiration
tostandoutasmarketsoperatorandadministrator,continued.
Inthetelecommunicationssector,itremainstheleaderascarrierofcarriers,
shownby its56%participation in thedomestic transportmarketand42.6% in
Internettransport.Besides,itsucceededinpositioningFLYCOMCOMUNICACIONES
as Colombia’s first wireless broadband operator. Participation in the domestic
value-addedmarketis1.85%.
GrupoISA’sparticipationinthecountriesofthetargetmarket
GrupoISA
Othertransporters
GrupoISA’sinternationalinterconnections
Othertransporters’internationalinterconnections
SIEPACProject(underconstruction)
Report from the Board of Directors and the General Manager 19
In this sector, besides its leverage in electric infrastructure development,
theGroupownsColombia’smostreliablegrid,itiscarrierofcarriersatboththe
nationalandthe international levels through INTERNEXA,and itdeliversvalue-
addedservicesinthecountry’smaincities,throughFLYCOMCOMUNICACIONES.
ItsfutureplansaretoenterthecountriesoftheAndeanCommunityofNations
asacarrierofcarriers.
Results in 2005
GrupoISAsawoutstandingresultsduringtheperiod:
• Netincometotaled$200,258million(41.3%over2004).
• Consolidatedoperatingrevenuesreached$1,076,495million.
• RiskratingsforbondissuesforISA,TRANSELCAandREPweremaintained.
• It commissioned the Santivanez-Sucre, Sucre-Punutuma and Carrasco-
UrubolinesinBolivia.
• ItparticipatedinbiddingsfortransmissionprojectsinColombia,Ecuador,
Brazil,Chile,andBolivia.
• ItsnewsubordinateISABoliviastartedoperationsonSeptember17th.
• ItcreatedXM,CompañiadeExpertosenMercadosS.A.E.S.P.,whichstarted
operationsOctober1st.
• It incorporatedsubordinate ISACapitalDoBrasilLtda.,headquarteredin
SaoPaulo.
Datatransmissionnetwork
20 Report from the Board of Directors and the General Manager
• IthomologatedServiceandSocialPoliciesforalloftheGroup’saffiliates.
• ItimplementedCustomerSatisfactionevaluationwithWalkerInformation
inalloftheGroup’scompanies.
• ItadvancedrestructuringofISAasanEconomicGroup,andapprovedits
corporatecontrolscheme.
• It implemented a new remuneration system for the senior managerial
groupofeachofitsaffiliates.
• It renewed ISO-9001 certification, version 2000 for ISA,TRANSELCA and
REP.
• ItimplementedMySAPERPinISABolivia,TRANSELCAandXM.
TheGroup’snet income rose41.3% (from$141,676million in2004, itwent
upto$200,258millionin2005),thankstoconstructionofsynergiesamongthe
affiliates,tojoinedeffortsforcostandexpensesoptimization,tohomologationof
policies,aswellastostandardizationofaccountingproceduresandpractices.
Assets growth reached $330,702 million with the start of operations of ISA
Bolivia,andduetotheadvancementinconstructionofthePrimavera-Bacataand
Primavera-Bolivarprojects. See Table 1.
Grupo ISA Income Statement
$ Million 2004 2005 Variation Var. %
Revenues 1,072,581 1,076,495 3,914 0.4
Costsandexpenses 575,787 588,428 12,641 2.2
EBITDA 705,095 700,049 -5,046 -0.7
Operatingincome 496,794 488,067 -8,727 -1.8
Non-operatingresults -246,386 -195,664 50,722 -20.6
Pre-taxincome 250,408 292,403 41,995 16.8
Incometaxprovision 103,554 69,475 -34,079 -32.9
Netincomebeforeminorityinterest 146,854 222,928 76,074 51.8
Minorityinterest 5,178 22,670 17,492 337.8
Netincome 141,676 200,258 58,582 41.3
EBITDAmargin 65.7% 65.0%
Operatingmargin 46.3% 45.3%
Netmargin 13.2% 18.6%
Grupo ISA Balance Sheet
Assets 5,542,341 5,873,043 330,702 6.0
Liabilities 2,578,435 2,712,415 133,980 5.2
Minorityinterest 320,733 374,398 53,665 16.7
Equity 2,643,173 2,786,230 143,057 5.4
TotalLeverage 46.5% 46.2%
Report from the Board of Directors and the General Manager 21
Where are we headed?
In2006,andbasedonthestrategicdirection,GrupoISAwillchannelitsefforts
towardactivitiessuchas:
• Ensurevaluegeneration.
• Widenparticipationintargetmarket.
• Consolidate unity of purpose and direction, and ensure construction of
synergy.
• Develop organizational capital and implement technological
preparedness.
In the energy sector, its growth strategy will allow the Group to widen its
presenceandparticipation intheelectricmarket,venture intothetransportof
gas,andcontributetotheintegrationofenergymarketsinLatinAmerica.
Inordertobecompetitive,thepowercompanieswillfocustheiractionstoward
generation of value with an emphasis on higher productivity in management
of regulated revenues, increased ancillary services, asset management,
improvement of operational cost structure, and optimization of financial and
fiscalmanagement.
Interconexion Electrica S.A. E.S.P. -ISA-
An energy transmission company with national coverage. It has 8,941
kilometers of transmission lines above 110kV, 46 substations, 10,105 MVA of
transformation,and3,285MVARofcompensation. Itowns70%of theNational
TransmissionSystem-STN-,anditiscurrentlyconstructing1,051kilometersintwo
projectsthatwillallowreinforcementofenergyexchangebetweenColombia’s
central and northern regions: Primavera-Bacata at 500kV, to be commissioned
onDecember31st2006;andPrimavera-Bolivar,at500kV,toenteroperationon
March31st2007.
22 Report from the Board of Directors and the General Manager
Results in 2005
AmongISA’ssatisfactoryresults,thefollowingstandout:
• Itsnetincomeincreased33.7%to$187,179million.
• ItbecameapartnerofEPR-EmpresaPropietariadelaRed-.
• Itsstockappreciated170%.
• Itreached99.942%totalaverageavailability,outdoingthegoalestablished
bytheEnergyandGasRegulatoryCommission-CREG-at99.651%.
• It saw 55.66% advancement of the Primavera-Bacata (UPME 01) Project,
and47.07%advancementofthePrimavera-Bolivar(UPME02)Project.
• Itreceived83%customersatisfactionrating.
• Itobtained91%generalreputationrating.
• ItimplementedtheCorporation’srestructuringtorespondtotherolesof
powercarrier,strategicoperator,andEconomicGroup’sParentCompany.
• Itnegotiatedthecollectivelaborpactcovering86.7%ofworkers,untilthe
year2010.
• ItjoinedtheGlobalPact.
As of December 31st, ISA showed solid financial standing, ratified by Duff
& Phelps de Colombia S.A AAA rating for its Domestic Debt Bonds; and BBB
internationalratingindomesticcurrencyandBBinforeigncurrency(equaltothe
ElectricenergytransmissiongridinColombia
Companies
ISA
TRANSELCA
Others
Report from the Board of Directors and the General Manager 23
sovereignceilingoftheRepublicofColombia,withapositiveoutlook),forlong-
termloans,grantedbyStandard&Poor’s.
Net income grew by 33.7%, from $140,015 million in 2004 to $187,179
millionin2005.Operatingrevenuestotaled$708,281million,andOperatingand
EBITDAmarginsstoodat50.9%and67.8%,respectively.Thegoodresultsofthe
subordinates,lowerfinancialcosts,andutilizationofspecialdeductionforasset
investment,withitsresultinglowerincometaxprovision,standout.See Table 2.
ItmustbepointedoutherethatwhereasactivitiesrelatedtoboththeNational
DispatchCenter -CND-andtheWholesaleEnergyMarket -MEM- for thewhole
periodareincludedinthe2004Report,fortheperiodof2005,onlytheactivities
developedalongninemonthsare registered,due to the startofoperationsof
XM,CompañiadeExpertosenMercados,asanaffiliateofISAonOctober1st.
Where are we heading?
Based on the strategic direction, and with an approved cash budget of
$1,534,074 million to fund operations and commitments, ISA will focus its
activitiesonthefollowingactions:
ISA Income Statement $ Million 2004 2005 Variation Var. % Revenues 712,206 708,281 -3,925 -0.6
Costsandexpenses 341,406 347,515 6,109 1.8
EBITDA 497,804 480,037 -17,767 -3.6
Operatingincome 370,800 360,766 -10,034 -2.7
Non-operatingresults -154,268 -120,310 33,958 -22.0
Pre-taxincome 216,532 240,456 23,924 11.0
Incometaxprovision 76,517 53,277 -23,240 -30.4
Netincome 140,015 187,179 47,164 33.7
EBITDAmargin 69.9% 67.8%
Operatingmargin 52.1% 50.9%
Netmargin 19.7% 26.4%
ISA Balance Sheet Assets 4,525,552 4,529,459 3,907 0.1
Liabilities 1,869,653 1,742,757 -126,896 -6.8
Equity 2,655,899 2,786,702 130,803 4.9
TotalLeverage 41.3% 38.5%
24 Report from the Board of Directors and the General Manager
• Ensuregenerationofvalueandachieveappreciationofthecompaniesby
thecapitalmarkets.
• Widenparticipationinthetargetmarket,deliverexcellentqualityservices,
andgainrecognitioninthetargetmarket.
• Reachefficiencythroughcostoptimization,ensurequality,anddevelopa
modeltorelatetothecorporatemilieu.
• Developorganizationalcapital, and implementbothhumancapitaland
technologicalpreparedness.
ISA will keep on centering its business strategy on generation of value,
emphasizinggrowth;onmanagementofnon-regulatedrevenues;onastructure
bybusinessthatwillboosttheareasofcostsandefficiency;ontrainingpersonnel
for assuming the new challenges; on development and strengthening of
competenciesandknowledgeinthemidandlongterm;onthesuccessionplan
forpersonnelabouttoretire,andwhoholdcriticalpositions;andonoptimization
ofoccupationalhealthmanagement,throughOSHAScertificationprocess.
1 ECONOMIC GROUP’S MANAGEMENT RESULTS
1.1 International context
The year 2005 saw a favorable performance of the world economy,
characterized by Gross Domestic Product growth -GDP- nearing 3.3%, a figure
slightlybelowthatfor2004,whichwasanexceptional4%.
This slight deceleration in production and trade was due to the incentive
policiesapplied in theUnitedStatesby theFederalReserveasof2001,andto
measuresaimedatcounteringChina’sinvestmentboom.
Variable growth levels were observed in the world’s main economies: The
UnitedStatesandChinakeptrelativelystablegrowthratesalongtheyear(3.5%
and 9.5% respectively), the European Union showed 1.2% deceleration, Japan
showed2.8%rebound,andSouthAmerica’sgrowthreached4.0%.
InColombia,Peru,andBolivia,GDPgrewby4.3%,5.6%and3.6%,respectively;
demand showed significant recovery signals; investment was on the rise; and
improvementswereobservableinthetermsoftradeduetotheeffectofworld
growthandvariationsininternationalgoodsandservicesmarketsderivedfrom
increasedparticipationofChinaandIndia
Report from the Board of Directors and the General Manager 25
Withrespecttopricelevels(ProducerPriceIndex-PPI-,ConsumerPriceIndex
-CPI-),itisimportanttohighlightthefollowing:
IntheUnitedStates, inflationexperiencedan importantvariation,bygoing
from3.3%in2004to4.3%in2005,explainedbysustainedfuelpricerise.
CPIinPeruandBoliviawas1.5%and4.9%higher,respectively;andPPIrisein
Peruwas2%,accountedforbyefficientpricecontrol.
The preceding cases show figures lower than the goals set in agreements
withtheInternationalMonetaryFund-IMF-.
South America’s macroeconomic conditions: stable prices, low interest
rates,exchangeratestability,andbettergrowthprospectsdueto international
demand,areanimportantmagnetforpublicandprivate investment,andthey
generateexpectationsonexpansionandstrengtheningofelectricandenergy
sectors, a crucial factor in any country’s economic development.This situation
has made initiatives to increase electric and energy integration of the Andean
andSouthernregionsofthecontinentpossible,asasolidproposalforreinforcing
regionalcompetitiveness.
1.2 Main results
The Economic Group’s management achieved meaningful results, among
whichthefollowingstandout:
• Netincomeof$200,258million(41.3%above2004figures)
• Consolidatedoperatingrevenuesstoodat$1,076,495million:85%from
theColombianaffiliatesand15%fromthoseinPeruandBolivia.
• SteadyriskratingsforbondissuesforISA,TRANSELCAandREP.
Initsintenttoparticipateasapartnerorshareholderinthecapitalofother
corporations, associations, joint ventures, consortiums, or any other type of
association,theGroup’sgrowthstrategiesadvanced:
• Itsnewsubordinate,ISABolivia,startedoperationsonSeptember17th;it
contributed$365milliontotheconsolidatednetincome,$193,020million
toassetsand$134,516milliontoliabilities.
26 Report from the Board of Directors and the General Manager
• InBolivia, the248kmSantivañez (Cochabamba)-Sucre (Chuquisaca) line,
the 176km Sucre (Chuquisaca)-Punutuma (Potosi) line, and the 164km
Carrasco(Cochabamba)-Urubo(SantaCruz)lines,startedoperations.
• It established XM, Compañia de Expertos en Mercados S.A. E.S.P. on
September1st.With$160,142millionassetsand$142,879millionliabilities,
thiscompanybrought$2,223milliontotheconsolidatednetincome.
• In November, it incorporated subordinate ISA Capital Do Brasil Ltda.,
headquarteredinSaoPaulo.Atclosingdateof2005,nocontributionhad
beenmadebyISA.
• Itparticipatedin12biddings:
– TunalCompensation,inColombia.
– Colombia-EcuadorInterconnection,inColombia.
– ANEEL2005biddings(6groupsofpowerlinestretches),inBrazil.
– Charrua-NuevaTemuco,inChile.
– AbengoaAssets,inBrazilandChile.
– Tarija-PunutumaInterconnection,inBolivia.
– PurchaseofSchahinassetsinBrazil(solutionwithECTEpending).
• It carried out ISA’s organizational restructuring aimed at improving
processesandguaranteeingefficientperformanceastheGroup’sParent
Company.
• ItapprovedacorporatecontrolschemefortheEconomicGroupandthe
functionsofevaluationofthecompanies’controlsystem,assignedtothe
CorporateComptroller.
• ItdefinedaCorporategovernanceModelforISA,encompassingrelations
amongtheCorporation’smanagement,itsBoardofDirectors,shareholders,
andallothereconomicagentswithaninterestintheCompany.
• It defined the Economic Group’s direction, coordination, and control
mechanisms,soastoestablishinterrelationchannels.
• Itadvancedconstructionofoperatingsynergyandcarriedoutevaluation
ofaSharedServicesCenterfortheEconomicGroup.
• Ithomologatedinvestment,social, integratedriskmanagement,service,
andhumanmanagementpoliciesforalltheaffiliates.
• It implemented Integrated Risk Management to guarantee business
continuity,increasecompetitiveedge,andpreserveintegrityofcorporate
resources in the face of different risks. Additionally, it homologated risk
identification, evaluation, consolidation and financing proceedings and
standardsineveryprocess.
Report from the Board of Directors and the General Manager 27
• ItrenewedISO-9001certification,version2000,forISA,TRANSELCA,andREP.
• It implemented a new remuneration system for the senior managerial
group, with two components: fixed remuneration as an integral salary,
and variable, results-based remuneration, related to compliance with
corporateindicators.
• Itimplementedorganizationalcapitalmeasuringinstruments.
• It carriedout simultaneousmigration toMySAP in ISA,REP, INTERNEXA,
andFLYCOMCOMUNICACIONES.
• ItimplementedMySAPERPinTRANSELCA,ISABolivia,andXM.
• It put into operation the Operative Management System -SIGO- for ISA
Bolivia,sostandardizingoperation.
1.3 Power sector1
Three fundamental factors have an impact on delivery of electric energy
servicesinLatinAmerica:
Advancesinenergyintegration.Atthepoliticallevel,rulerskeepshowingan
interestnotonlyinpromotingandmaterializingenergyintegrationagreements,
aspartofawiderregionalintegrationagenda,butalsoinconstructionofelectrical
integrationinfrastructure,asisthecasewiththePeru-Ecuadorinterconnection,
whose commercial outline has been the subject of steady work in order to
facilitateexchangebetweenthetwocountries.
Increasing importanceofthe issueofutilities inthepoliticalagenda. Inthe
region,utilitycompaniesvie forpredictablemarketpricesandsubsidies,while
thecommunitiesinsistonsustainedordecreasedtariffs,andgovernmentstryto
overcomehurdlestobalancetheneedforsubsidiesandthefiscalsituation.
Atmosphereofcompetition.Inthepowersector,GrupoISAfocusesitsactivity
oncompetitiveness,whichdemandsefficiency,commitment,andadaptabilityin
therationaluseofresourcesandimprovementofquality.
1.3.1 TRANSELCA
Thiscompany,inwhichISAhas64,9983%stake,isColombia’ssecondlargest
transmission company. ECOPETROL has 34,9998% share in it, and minority
shareholdershave0.0028%participation.
1 Financial information of affiliates, both Colombian and international, is homologated under the rules, policies and accounting practices of the Parent Company.
28 Report from the Board of Directors and the General Manager
Theactivitiesitdevelopsarerelatedtohigh-voltageelectricpowercarrying
services,andthoseofconnectiontotheNationalInterconnectedSystem-SIN-in
theCaribbeanCoastRegionofColombia.
Itsinfrastructureconsistsof1,517.4kmoflinesat220kV(9.729%participation
intheSTN),and13.98kmoflinesat110and34.5kV.
Alongtheyear,averageavailabilityofitsgridwas99.86%,afigurehigherthan
theregulatorygoalandthanthatsetinternallybythecompany.
On the other hand, it maintained its AAA certification by Duff & Phelps de
Colombia for the first and second bond issues conducted in 2002 and 2004,
worth$113,000and$100,000millionrespectively.See Table 3.
Net income increase of $27,715 million for the period is explained by the
followingfactors:higheroperatingrevenues(permitting13.0%EBITDAincrease),
increasedfinancialrevenuesgeneratedbyloanstosubordinatecompanies,lower
lossesarisingfromadjustmenttonationalcurrencyof investmentsabroadand
collectionofreceivables,allofwhichimprovednetandEBITDAmargins.
Investmentinassetswas$9,693million,andexecutionofrevenues,expenses
andinvestmentbudgetwas101%,97%and90%respectively.
Income Statement
$ Million 2004 2005 Variation Var. %
Revenues 123,158 132,640 9,482 7.7
Costsandexpenses 78,106 85,190 7,084 9.1
EBITDA 76,483 86,389 9,906 13.0
Operatingincome 45,052 47,450 2,398 5.3
Non-operatingresults -33,082 -21,055 12,027 -36.4
Netincome 9,563 37,278 27,715 289.8
EBITDAmargin 62.1% 65.1%
Operatingmargin 36.6% 35.8%
Netmargin 7.8% 28.1%
Balance Sheet
Assets 908,224 984,873 76,649 8.4
Liabilities 341,677 348,578 6,901 2.0
Equity 566,547 636,295 69,748 12.3
TotalLeverage 37.6% 35.4%
Table3
Report from the Board of Directors and the General Manager 29
Along2005,TRANSELCApaidISAdividendsworth$5,594million,andmade
loansamountingto$45,498million.SeeCharts1,2and3.
Other milestones at TRANSELCA
• It started new constructive units for improved electric power service
qualityinthecitiesofValledupar,SantaMarta,andCartagena.
• TogetherwiththeCentroNacionaldeConsultoria-CNC-,itconducteda
CustomerSatisfactionResearch,utilizingWalkerInformationmethodology.
Itobtained82%overallqualityindicator(comparedto74%for2004),the
resultofimprovementopportunitiesimplementedduringtheperiodto
solvecustomers’needs.
• ItobtainedagaintheISO9001certification,version2000,fromInstituto
ColombianodeNormasTecnicas-ICONTEC- inJune2005,whichattests
tothecompany’ssteadyimprovement.
• It obtained 10/10 rating upon auditing conducted by the National
GeneralAuditingOffice,fornationalqualificationofcompaniesunderthe
supervisionofthiscontrolentity.
• WithsupportfromCNCandparticipationof80%ofworkers,theCompany
evaluatedtheorganizationalclimateandobtained4.5rating(twopoints
aboveratinguponlateststudyof2003).
• ItsignedtheCollectiveLaborAgreement,validfortheperiod2004-2007.
• It introduced SAP R/3 as the new platform forTRANSELCA’s Integrated
InformationSystem-SIIT-.
For 2006, TRANSELCA expects $133,804 million revenues, $85,114 million
EBITDA,(or63.6%EBITDAmargin),and$23,022millionnetincome.Additionally,it
estimatesinvestmentat$9,912million,andpaymentofdividendsworth$21,808
millionplusextensionofan$11,798-millionloan,toISA.
1.3.2 ReddeEnergiadelPeru-REP-
ISA has 30% direct participation in this company, and 30% indirect
EBITDA
15.4%
8.5% 3.8%13.0%
0
20,000
40,000
60,000
80,000
$ Million
86,389
2005
76,483
2004
73,661
2003
67,888
2002
58,848
2001
Balance Sheet
$ Million
8.4%8.7%2.5%
40.9%
-
200,000
400,000
600,000
800,000
1,000,000
578,754
2001
815,498
2002
835,632
2003
908,224
2004
984,873
2005
Liabilities Equity Assets
464,139
114,615 262,410
553,088
253,837
581,795
341,677
566,547
348,578
636,295
464,139
114,615 262,410
553,088
253,837
581,795
341,677
566,547
348,578
636,295
Operating revenues
103,887
-0.3% 11.8%
6.0% 7.7%
0
20,000
40,000
60,000
80,000
100,000
120,000
$ Million
132,640
2005
123,158
2004
116,160
20032002
104,192
2001
30 Report from the Board of Directors and the General Manager
participation through TRANSELCA; Empresa de Energia de Bogota -EEB-, has
40%stake.
REPowns45substations;5,329.9kmoflinesat220kV,138kVand60kV,plus
50.1kmat220kV,implementedfortheinterconnectionwithEcuador.
InthePeruvianmarket,REPparticipateswith56.5%ofcircuitsat220kV,and
with66.0%addingthecircuitsat220kVand138kV.
Alongtheyear,averagegridavailabilitywas99.37%,See Table 4.
Executionofrevenuesbudgetwas101%,thatofexpenditureswas101%,and
forinvestmentsitwas81%.Netincomeincreasewithrespectto2004isexplained
mainly: 1) by significant appreciation of the Sol with respect to the US Dollar,
affectingexchangedifference,and2)bya lowertaxburdenduringtheperiod,
a result of accounting recording in dollars for fiscal effects as of 2005, which
eliminatestheeffectsofinflationadjustments.
REP paid ISA dividends worth US$6,600,000 and US$710,000,000
corresponding to reimbursement of capital contributions given in excess, it
made investmentsworthUS$8,528,000,andmetcontractual indicatorsagreed
uponwithbondholdersandfinancialentities.
Income Statement
US$ Thousand 2004 2005 Variation Var. %
Revenues 59,107 58,372 -735 -1.2
Costsandexpenses 28,913 31,420 2,506 8.7
EBITDA 43,478 38,091 -5,387 -12.4
Operatingincome 30,193 26,952 -3,242 -10.7
Non-operatingresults -17,825 -10,294 7,531 -42.2
Netincome 4,140 11,166 7,026 169.7
EBITDAmargin 73.6% 65.3%
Operatingmargin 51.1% 46.2%
Netmargin 7.0% 19.1%
Balance Sheet
Assets 287,675 313,614 25,939 9.0
Liabilities 174,381 166,371 -8,010 -4.6
Equity 113,294 147,243 33,949 30.0
TotalLeverage 60.6% 53.0%
Table4
Report from the Board of Directors and the General Manager 31
ForitsbondissuesinthePeruviancapitalmarket,REP’sAAAratingfromcredit
riskratingagenciesApoyo&AsociadosInternacionalesS.A.C.(associatesofFitch
Ratings),andEquilibriumClasificadoradeRiesgosS.A.,wasmaintained.
EBITDA decrease is explained by the drop in operating revenues, resulting
from the annual settlement scheme of yearly guaranteed remuneration. See
Charts4,5,and6.
Other milestones at REP
• It carried out projects for reinforcement and modernization of
the transmission system: renovation of protective relays; uprating
and installation of two 50MVA, 220/60/10kV Itatralfo transformers;
implementation of main and backup Control Centers scheme; and
renovation of the operating management system and second circuit
conductorsoftheChimbote-Trujillo220kVtransmissionline.
• TogetherwiththeMinistryofEnergyandMines,itcoordinatedinvestments
totalingUS$80milliontostartnewelectricitygenerationprojectssouth
of Lima, reinforce the Lima-Paramonga-Chimbote lines, and expand
transformationinIca,Juliaca,Moquegua,andMarcona.
• Itkeptavailabilityoftheelectric interconnectionlineat220kVbetween
PeruandEcuador,whichitownsinassociationwithEcuadoriancompany
Transelectric.Thislineoperatedunloadedmostofthetime,andontwo
occasions itoperatedwith loadforoneweektomeetanemergencyat
Machalasubstation.EventhoughissuingoftheRegulationofElectricity
Import and Export -RIEE- is an important step toward regulation of
internationalenergyexchanges,commercialagreementsarestillpending
tostartoperationofthatline.
• It obtained 71.4% customer satisfaction rating, which places it within
a normal performance range, according to Walker Information
methodology.
• It controlled 91% of cases of new territorial invasions affecting the
easementzone,thankstopreventionmeasuresimplementedtoimprove
thecompany’sproceedings.
Income Statement
US$ Thousand 2004 2005 Variation Var. %
Revenues 59,107 58,372 -735 -1.2
Costsandexpenses 28,913 31,420 2,506 8.7
EBITDA 43,478 38,091 -5,387 -12.4
Operatingincome 30,193 26,952 -3,242 -10.7
Non-operatingresults -17,825 -10,294 7,531 -42.2
Netincome 4,140 11,166 7,026 169.7
EBITDAmargin 73.6% 65.3%
Operatingmargin 51.1% 46.2%
Netmargin 7.0% 19.1%
Balance Sheet
Assets 287,675 313,614 25,939 9.0
Liabilities 174,381 166,371 -8,010 -4.6
Equity 113,294 147,243 33,949 30.0
TotalLeverage 60.6% 53.0%
EBITDA
272.7%
12.0% -12.4%
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
US$ Thousand
38,812
2003
10,415
2002
43,478
2004
38,091
2005
Balance Sheet
US$ Thousand
Liabilities Equity Assets
5.9% -0.3% 9.0%
-
50,000
100,000
150,000
200,000
250,000
300,000272,429
2002
288,732
2003
287,675
2004
313,614
2005
170,260
102,169
179,333
109,398
174,381
113,294
166,371
147,243
170,260
102,169
179,333
109,398
174,381
113,294
166,371
147,243
Operating revenues
216.5%
0.2% -1.2%
0
10,000
20,000
30,000
40,000
50,000
60,000
US$ Thousand
58,372
2005
59,107
2004
58,976
2003
18,633
2002
32 Report from the Board of Directors and the General Manager
• It renewed certification for the period 2005-2008, awarded by Bureau
VeritasQualityInternational-BVQI-.
• Itobtained labor-climateratingof4.3,outdoingtheestablishedgoalof
4.2.
• Itreducedaccident-frequencyindexto1.15forevery240,000workhours,
throughorganizationallearningandhumandevelopmentactions.
For2006,REPexpectsrevenuesofUS$59,813,000plusUS$39,075,000EBITDA
(or65%EBITDAmargin)andUS$11,003,000netincome.Itsinvestmentplantotals
US$7,324,000,anditestimatesthatUS$3,900,000willbehandedtoISA.
1.3.3 ISAPeru
In ISA Peru, ISA has 28.07% direct participation, with 54.86% indirect
participationthroughTRANSELCA;ACCapitalesownsremaining17.07%.
Its transmissionnetwork ismadeupof six substations (allof thempartially
attended),262kmoflinesat220kV,and131kmoflinesat138kV.Itstransformation
capacityis235MVA,anditsreactivecompensationis8MVAR.
The company’s infrastructure represents 4.4% of Peru’s National
Transmission System; and the grid’s average availability level for the period
was99.81%.See Table 5.
Report from the Board of Directors and the General Manager 33
Reductionby7.8%ofoperatingincomewasduetodiminishedrevenuesalong
theperiod,theresultofsettlementadjustmentsmadebytheHigherAgencyof
Investment inElectricity -OSINERG-, incompliancewithregulation. In turn,net
income13.8%raiseisaccountedforbylowerincometaxin2005,withrespectto
2004,theconsequenceoftheaccountingrecordingindollarsforfiscaleffectsas
of2005,whicheliminatestheeffectsofadjustmentsbyinflationandexchange
ratedifferenceonincometaxexpenses.
Along the period, ISA Peru registered revenues, expenses and net income
budgetexecutionof100%,103%,and104%,respectively,assumingbothbudget
andexecutionaccordingtoColombianregulation.
Inthesamemanner,ithonoreditsfinancialobligationsandthedebt-service
coverage indicator agreed with the lending institutions, which allowed it to
deliverISAdividendsforUS$41thousand.See Charts 7,8, and 9.
Assetvalue increase isexplainedbytheaccountingchangetodollarsasof
2005,duetothefactthatexchangeratetoobtaininitialbalancesofthatperiod
wasmadetakingintoaccountthefinalbalancesinsolesonDecember31st2004,
which include theeffectsofadjustmentby inflationandexchangedifferences
accumulatedonthatdate.
Operating revenues
242.3%
0.6% -1.3%
0
2,000
4,000
6,000
8,000
10,000
US$ Thousand
9,506
2005
9,631
2004
9,578
2003
2,798
2002
Income Statement
US$ Thousand 2004 2005 Variation Var. %
Revenues 9,631 9,506 -126 -1.3
Costsandexpenses 3,823 4,152 329 8.6
EBITDA 7,956 7,754 -202 -2.5
Operatingincome 5,808 5,353 -455 -7.8
Non-operatingresults -3,042 -3,185 -143 4.7
Netincome 1,404 1,598 193 13.8
EBITDAmargin 82.6% 81.6%
Operatingmargin 60.3% 56.3%
Netmargin 14.6% 16.8%
Balance Sheet
Assets 57,669 63,075 5,406 9.4
Liabilities 37,901 34,259 -3,642 -9.6
Equity 19,768 28,816 9,048 45.8
TotalLeverage 65.7% 54.3%
Table5
34 Report from the Board of Directors and the General Manager
It is important topointout that theNationalFundforFinancingtheState’s
Entrepreneurial Activity -FONAFE-, the owner of 17.07% of ISA Peru’s shares,
sold itsstaketothe Infrastructure InvestmentFund,PublicUtilitiesandNatural
Resources,runbyACCapitalesSAFIS.A.,throughpublicauction.
Other milestones at ISA Peru
• ItdistributeddividendsamountingtoUS$146,159,000.
• It met the minimal level required by the Debt Service Coverage Ratio
indicatoragreeduponwiththecreditorbanksandnecessarytodistribute
dividendsandextendloanstoshareholders.
• The Regulation of Electricity Import and Export -RIEE- was published,
whichconstitutesa regulatoryadvancement foroperationofelectricity
exportlines.
• ItfinishedrepairsworksontheAguaytia-Pucallpa linewithoutaffecting
eitherserviceoravailabilitylevels.
• It obtained 67% customer satisfaction rating for the general service
quality level upon evaluation conducted through application ofWalker
Informationmethodology.
• Itobtainedascoreof4.7onmeasurementoforganizationalclimateand
zeroaccidentindex.
For2006,ISAPeru’sprojectionsare:US$9,739,000forrevenues;US$7,990,000
for EBITDA, 82% for EBITDA margin; and US$2,057,000 for net income. On the
otherhand,thecompanyplanstodeliverfundstoISAtotalingUS$511,000.
1.3.4 ISA-BOLIVIA
ISAhasdirect51%participationinthisCompany,48.99%indirectparticipation
throughTRANSELCA,and0.01%throughINTERNEXA.
EBITDA
260.3%
0.5% -2.5%
0
2,000
4,000
6,000
8,000
US$ Thousand
7,754
2005
7,956
2004
7,920
2003
2,198
2002
Balance Sheet
US$ Thousand
Liabilities Equity Assets
-9.0% -4.0% 9.4%
-
10,000
20,000
30,000
40,000
50,000
60,000
66,517
2002
60,084
2003
57,669
2004
63,075
2005
48,160
18,357
40,539
19,546
37,901
19,768
34,259
28,816
48,160
18,357
40,539
19,546
37,901
19,768
34,259
28,816
Report from the Board of Directors and the General Manager 35
Asoneofthemajorelectricitycarriersinitscountry,with53%ofthegridat
220kVandabove,ISABoliviahadthefollowingresultsduringtheperiod:
It commissioned the 248km Santivanez (Cochabamba)-Sucre (Chuquisaca),
176km Sucre (Chuquisaca)-Punutuma (Potosi), and 164km Carrasco
(Cochabamba)-Urubo (Santa Cruz) lines and five associated substations. Such
lines entered commercial operation in the last quarter of the year, within the
deadline established in the License Contract signed with Bolivia Electricity
Superintendency.
It obtained financial closing for loans with multilateral organisms Inter-
AmericanDevelopmentBank-IDB-,andCorporacionAndinadeFomento-CAF-
, financiers of ISA Bolivia, for a total US$ 54 million. Its indebtedness level was
72.4%.
It obtained operating revenues for US$2,232,000, above the budget for
2005,duetoanticipatedcommissioningoftheprojects,whichpermittedgood
operatingresults,asshownby35.7%EBITDAmargin,aswellas33.2%operating
margin.See Table 6.
Income Statement
US$ Thousand 2005 (*)
Revenues 2,232
Costsandexpenses 1,492
EBITDA 797
Operatingincome 740
Non-operatingresults -606
Netincome 134
EBITDAmargin 35.7%
Operatingmargin 33.2%
Netmargin 6.0%
Balance Sheet
Assets 84,502
Liabilities 61,159
Equity 23,343
TotalLeverage 72.4%
(*)Resultscorrespondingto3monthsofoperation
Table6
36 Report from the Board of Directors and the General Manager
Tomeetcashflowneeds,ISAandTRANSELCAgrantedtransitoryloansworth
US$43million to ISABoliviaduring thefirst semesterof theyear,whichwhere
paidbackintheirentiretywithfundingfromthemultilateralbanks.
Other milestones at ISA Bolivia:
• ItconsolidatedtheCorporation’sorganizationalstructure.
• Itconductedthefirstorganizationalclimateevaluation,with3.71scoring.
For2006,ISABoliviaexpectsoperatingrevenuesofUS$8,382,000,EBITDAof
US$5,590,000,andnetlossesofUS$-1,693,000.Ontheotherhand,thecompany
willinvestapproximatelyUS$1,200,000inadditionalworksrelatedtoexpansion
ofPunutumasubstation,notinitiallyforeseenintheLicenseContract,andwhich
willberemuneratedbytheElectricitySuperintendency.
1.3.5 XM,CompañiadeExpertosenMercados.
Complying with Decree 848 of March 28th 2005, which authorizes ISA to
establish a mixed-ownership public utilities commercial corporation of the
national order, the incorporation meeting of XM, Compañia de Expertos en
MercadosS.A.E.S.P.asanaffiliateofGrupoISA,washeldonSeptember1st2005;
XMstartedoperationsonOctober1st.
In XM, Compañia de Expertos en Mercados, ISA has 99.73% direct
participation,andtheColombianStockMarket-BVC-,theTechnologyResearch
and Development Center Corporation -CIDET-, Financiera Energetica Nacional
-FEN-, and ISA’s Employees’ Fund -FEISA- participate with 0.067% stake each.
Shareholders’contributionstotaled$14,829million.
XMhastakenoverthefunctionsformerlypertainingtotheNationalDispatch
Center: operation planning and coordination of the resources of the National
Interconnected System -SIN-, Administration of the Commercial Settlement
System-ASIC-intheWholesaleEnergyMarket-MEM-,andsettlingandclearing
ofchargesforuseoftheSIN’sgrids-LAC-
Report from the Board of Directors and the General Manager 37
XM reached $3,020 million EBITDA, five times over estimate, the result of
executionofrevenuesandexpensesof113%and96%respectively.
Other milestones at XM:
• Out-of-range-voltageeventstotaled36,ascomparedtoamaximumgoal
establishedof40;slow-frequencyvariationstotaledfour,ascomparedto
agoalof10.
• Marketadministrationindicatorsshowedcollectionlevelsabovethelimit
of96%:100%forSettlementandClearingofAccountsoftheSIN’sgrids,
and98.7%fortheCommercialSettlementSystem.
• Unattendeddemandrepresented0.25%ofSIN’sdemand,andthevalue
ofconstraintsshrankby20.5%,foradailyaverageof$528million,anda
total$192,790millionyearly.
• Customer satisfaction survey showed 82% for service quality, an
outstanding performance rating, according to Walker Information
methodology.
Income Statement
$ Million 2005 (*)
Revenues 14,140
Costsandexpenses 13,023
EBITDA 3,020
Operatingincome 1,117
Non-operatingresults 173
Netincome 29
EBITDAmargin 21.4%
Operatingmargin 7.9%
Netmargin 0.2%
Balance Sheet
Assets(**) 160,477
Liabilities(**) 145,619
Equity 14,858
TotalLeverage 58.8%
(*) ResultscorrespondingtotheperiodOctober-December.(**) Includesthirdparty’scollectionsfor$124,380million,whicharepartofassets(cash)asrestricted
funds.Itdoesnotaffectleverage..
Table7
38 Report from the Board of Directors and the General Manager
• NTC-ISO-9001/2000qualitycertificationoftheCorporation’sserviceswas
ratified,thusmaintainingqualitystandards.
• Itobtained4.4scoringonthefirstorganizationalclimatemeasurement.
The following are the Corporation’s projections for 2006: revenues, $60,038
million;EBITDA,$13,148million, for22%EBITDAmargin;andnet income,$941
million.
In the same manner, it will continue the actions undertaken by Grupo ISA
related to internationalization of Latin American markets for construction of
regional integration not only through physical infrastructure, but also through
operation and management of power markets on high quality and efficiency
standards. It will also contribute to the sector’s structural strengthening and
marketdevelopment.
1.4 Telecommunications sector2
Even though the Colombian sector of telecommunications operators was
deregulatedover tenyearsago,competitionhas takenplaceonly in thevalue
added,carriage,andInternetaccessservices,anditcangrowwithopeningofthe
localloopanddeliveryofIP(VoIP)telephonyservices.
Entrance of Telmex and Telefonica to the market segments with the most
growth, namely, mobile telephony and value added, contrasts with the high
dependencyonrevenuesfromfixedtelephonyservicesonthepartofTelecom,
EmpresasPublicasdeMedellin-EEPPM-andEmpresadeTelecomunicacionesde
Bogota-ETB-.
DecisionbyTelmexandTelefonicatoenterlocalandeventuallylong-distance
services,ontheotherhand,makesnationaloperatorsdoublechecktheirmerger
opportunities,theirinternalorganization(likeEEPPMisdoing),andtheirventure
inneighboringcountriesaswaystosuccessfullyfacecompetition.
Thevalueaddedsector,ontheotherhand, facescontinuoustechnological
changes: Wi-Max and Wi-Fi wireless technologies, voice over IP (VoIP), and
televisionoverIP(TvoIP),thatconstituteafastwaytooperate“TriplePlay”(Internet,
CableTVandVoIP),broadbandservicesonThirdGeneration(3G)mobilenetwork
orUMTS,andevolutionofcommunicationoverelectricgrids(PLC).
2 Financial information of affiliates, both Colombian and international, is homologated under the rules, policies and accounting practices of the Parent Company.
Report from the Board of Directors and the General Manager 39
Inthisintensedynamics,theflexibility,aswellasthefinancialandtechnological
capacitiesofthecompetitors,addedtothepermanentfightformarketsegments
and tariffs, make business and business opportunities change in a rapid and
complexmanner.
Grupo ISA advances with strategies that will allow it to offer high-quality
services,andtogainrecognition.
1.4.1 INTERNEXA
In this Company, ISA has 99.99% direct participation, and the minority
shareholdershave0.01%.
INTERNEXAhasexpertise incarryingnationalandinternationalsignalsfrom
leading telecommunicationscompaniesdelivering long-distance,valueadded,
Internet,mobilecommunications,andcabletelevisionservices,amongothers.
Asoperatorof the largestandwith thebestcapacitynetwork (fiberoptics,
microwave, and satellite) system in the country, this is the only one on the
Colombian market exclusively dedicated to the business of Carrier of Carriers,
which allows it to offer total coverage and high availability and reliability
indexes.
Income Statement
$ Million 2004 2005 Variation Var. %
Revenues 63,066 63,845 779 1.2
Costsandexpenses 57,785 68,502 10,717 18.5
EBITDA 16,611 16,395 -216 -1.3
Operatingincome 5,281 -4,657 -9,938 -188.18
Non-operatingresults -153 -1,232 -1,079 705.2
Netincome 1,897 -5,889 -7,786 -410.4
EBITDAmargin 26.3% 25.7%
Operatingmargin 8.4% -7.3%
Netmargin 3.0% -9.2%
Balance Sheet
Assets 152,988 131,033 -21,955 -14.4
Liabilities 36,661 32,420 -4,241 -11.6
Equity 116,327 98,613 -17,714 -15.2
TotalLeverage 24.0% 24.7% Table8
40 Report from the Board of Directors and the General Manager
Thenetlossfortheperiodisexplainedbytheaccountingeffectofamortization
ofdeferredusufructintheamountof$15,794million.
Thecompanymadeinvestmentsfor$12,521million,andbudgetaryexecution
was95%ininvestment,93%inrevenues,and94%inexpenses.See Charts 10,11,
and 12.
In the face of the sector’s challenges, and to ensure future revenues, this
companyhasre-focuseditstradestrategytowardsthesellingofnetworkrights
to large operators, on long-term contracts. On the other hand, and as part of
itsgrowthstrategy, itadvancescorrespondingstudiestoenternewmarkets in
VenezuelaandPeru.
Its projections for the year 2006 are: $69,247 million for revenues; $18,391
million for EBITDA, representing 26.5% EBITDA margin; and $26 million net
income.Inthesamemanner,itestimatesinvestmentat$24,679million.
INTERNEXAisashareholderofTRANSNEXAS.A.ofEcuador,atelecommunications
companythatsharesitsstockownershipwithTRANSELECTRICofEcuador(50%),
and whose purpose is delivery to that country’s main telecommunications
operatorsofcapacitytransportandaccesstointernationalcables.
Alongtheperiod,TRANSNEXAobtained intheEcuadorianmarketrevenues
totaling US$5,890,000, representing for INTERNEXA revenues of US$2,051,000.
Thesefiguresequal80%and26%increaseofTRANSNEXA’sandINTERNEXA’stotal
revenues,respectively,withrespecttotherevenuesfor2004.
IntheEcuadorianmarket,TRANSNEXAcontinuesonthepathofconsolidation
and for2006, itprojectsservicedelivery in theSouthernregionof thecountry
throughthegridofitsshareholderTRANSELECTRIC.
TRANSNEXA currently interconnects Pasto (Colombia) and Quito (Ecuador),
andforthesecondsemester, itexpectstohaveafiber-opticnetworkbetween
QuitoandMachala,thislatteracityfromwhereitwillbeinapositiontoprovide
connectivitytothePeruvianborderregion,thankstothesystemdevisedonthe
electricinterconnectionbetweenthetwocountries.
Finally,itmustbehighlightedthattheoperationdevelopedbyINTERNEXAin
NorthernPeruistheBogota-Lima-Quitoinformationtransmissioncorridor.
EBITDA
-1.3%-29.2%316.0%
70.2%
0
5,000
10,000
15,000
20,000
$ Million
16,395
2005
16,611
2004
23,475
2003
5,643
2002
3,315
2001
Balance Sheet
$ Million
Liabilities Equity Assets
-14.4%-2.6%1.2%24.4%
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000124,696
2001
155,183
2002
157,107
2003
152,988
2004
131,033
2005
22,522
102,174
41,069
114,114
42,410
114,697
36,661
116,327
32,420
98,612
22,522
102,174
41,069
114,114
42,410
114,697
36,661
116,327
32,420
98,612
Operating revenues
35.5%
39.4%
13.1% 1.2%
0
10,000
20,000
30,000
40,000
50,000
60,000
$ Million
63,845
2005
63,066
2004
55,752
2003
40,008
2002
29,524
2001
Report from the Board of Directors and the General Manager 41
Other milestones at INTERNEXA
• Itcontinued its technologicalupdatingandnetworkexpansionprocess
to optimize utilization of assets, keep not only service delivery quality
standards,butalsoleadershipasColombia’sCarrierofCarriers.
• It started development of a DWDM ringed system (signal transmission
technique through high-capacity fiber optics), expected to enter
operation in the second quarter of 2006, on the Atlantic Coast region
network,allowinglargerinformationtransportcapacitythroughexisting
networks.
• TheDWDNsystemonthecentralnetworkstartedoperationsin2005.
• It expanded network capacity above growth projections, which allows
betterattentiontocustomers’requirements.
• It obtained 66% customer evaluation rating and 4.3 scoring on the
organizationalclimatemeasurement,keepinghistoriclevels.
INTERNEXA’s strategic position in the market depends on its network
provision to operators under consolidation process, and on the company’s
internationalizationprocess.
INTERNEXA’sfocuswillcontinueonbeingacarrier;onpromotingthemarket
through theunderstandingof its customersandcreationofproducts thatwill
permititcompetitiveness;andoncontinuingthedevelopmentofentrepreneurial
competenciestoachievedifferentiationintheattentiontocustomer’sneeds.
1.4.2 FLYCOMCOMUNICACIONESS.A.
Grupo ISA has direct 75.04% stake in this company, while FirstMark
CommunicationsLatinAmerica(FMCLA)has24.95%,andminorityshareholders
have0.01%.
FLYCOMCOMUNICACIONESdeliversvalueaddedandIP-basedservicesand
offersanampleportfoliotothebusinesssector:transmissionofcorporatedata,
Internetconnection,streaming,videoconferencing,anddatacenterservices.
42 Report from the Board of Directors and the General Manager
Foritsoperation,ithasitsownaccessnetworkinthecitiesofBogota,Medellin,
Cali, Barranquilla, Bucaramanga, and Cartagena, supported on LMDS (Local
MultipointDistributionSystem)wirelesstechnology.Itsnetworkinfrastructureis
supplementedbypoint-to-pointradiolinks,andbyasatelliteplatformoperated
andmanagedbyINTERNEXA.
Comparedto2004,thecompanysaw61%revenuerise,andmadeinvestments
for$7,003million.See Charts 13, 14, and 15.
Inordertoreestablishnetequityover50%ofsubscribedcapitalandtothwart
the legal cause for dissolution because of losses, the Shareholders’ Meeting of
FLYCOMCOMUNICACIONES’heldonDecember2005approved$12,906-million
decreaseof subscribedandpaidcapital toabsorb lossesaccumulated in2004
andpartof2005.
GradualEBITDAimprovementresults fromgrowthofrevenues(higherthan
expenses)andtransferofcustomersfromINTERNEXA’spowersectortoFLYCOM
inAugust2004,whichcontributedtotheCompany’soperatingperformance.
Operating revenues
739.6%
120.4%
61.0%
0
5,000
10,000
15,000
$ Million
17,911
2005
11,123
2004
5,046
2003
601
2002
Income Statement
$ Million 2004 2005 Variation Var. %
Revenues 11,123 17,911 6,788 61.0
Costsandexpenses 21,215 27,004 5,789 27.3
EBITDA -4,717 -1,052 3,665 -77.7
Operatingincome -10,092 -9,093 999 -9.9
Non-operatingresults -2,251 -3,553 -1,302 57.9
Netincome -13,055 -13,197 -142 1.1
EBITDAmargin -42.4% -5.9%
Operatingmargin -90.7% -50.8%
Netmargin -117.4% -73.7%
Balance Sheet
Assets 58,614 55,464 -3,150 -5.4
Liabilities 38,021 48,070 10,049 26.4
Equity 20,593 7,394 -13,199 -64.1
TotalLeverage 64.9% 86.7% Table9
Report from the Board of Directors and the General Manager 43
Other milestones at FLYCOM COMUNICACIONES
• ItstartedcommercialoperationofFLYCOMStreaming.
• It launched a new product on the Colombian market: “Flymeeting-
Videoconferencingtotallyinvented”.
• ItimprovedDataCenter’sautonomyandsafety.
• Itclosedyearwith18DataCentercustomers,whohaveattheirdisposal
dedicatedHosting,sharedHostingandCollocationservices.
• Itincreasedby80%DataCentersales.
• Itaugmentedcustomerbaseby41%.
• Itfocusesonobtainingexcellentresultsinthemarketnichesofcorporate
Internetanddatatransmissionservices,onsatisfyingcustomers,andon
developingproductsaccordingtothemarket’snecessities.
• Itimprovednotonlyrelationswithoperators,butalsotheirrecognitionof
thecompany’sagilityandflexibility.
• Itobtained67.9%customerevaluationrating,whichdescribesanormal
performance.
• Itreached4.4scoreonmeasurementoforganizationalclimate,whichis
consideredanexcellentresult.
To successfully face market consolidation and packaging of services, this
companywillcontinueworkonoptimizingitsinvestmentsandenhancingitscosts
and expenses structure. Additionally, and with increased market participation
in mind, it will undertake two simultaneous strategies: Connectivity andValue
Added.
Withtheseadditions,FLYCOMCOMUNICACIONESexpectsrevenuesof$23,491
million in 2006 (31% higher than in 2005) that will translate into 8% EBITDA
margin. Itprojects investmentworth$3,266million tostrengthen itsdomestic
coverageandtheprovisionofnewvalueaddedservices.
1.5 Results of the Integral Management Chart -CGI- for the Group
Goalsforintegralchartindicators(balancedscorecard)aredelineatedsoas
to improve lastyear’sperformance,bothforupperand lower limits.Results for
every perspective are calculated by averaging the achievements in each of its
componentgoals.
EBITDA
-139.2%19.8%
77.7%
-6,000
-4,000
-2,000
0
$ Million
-5,878
2003
-2,457
2002
-4,717
2004
-1,052
2005
Balance Sheet
$ Million
Liabilities Equity Assets
2.1% 1.8%-5.4%
-
10,000
20,000
30,000
40,000
50,000
60,000 56,342
2002
57,552
2003
58,614
2004
55,464
2005
21,442
34,900
23,491
34,061
38,023
20,591
48,070
7,394
21,442
34,900
23,491
34,061
38,023
20,591
48,070
7,394
44 Report from the Board of Directors and the General Manager
Achievement for the financial perspective was 43.78% (above the lower
expectedlevel).See Table 10.
Financial Perspective($ Billion)
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: grow profitably Specific goal: grow profitably through new regional business
Consolidated operating revenues $ Billion Monthly 1,109.8 1,125.0 1,076.49Consolidated operating expenses $ Billion Monthly 723.6 738.1 588.43Consolidated EBITDA $ Billion Monthly 723.6 738.1 700.05Sum of all companies’ EBITDA $ Billion Monthly 719.4 749.2 703.00Consolidated EVA $ Billion Semiannually -75.7 -56.0 -84.57Increase in Economic Group’s EVA $ Billion Semiannually 82.5 102.1 73.58Total return of Economic Group’s % in Current $ Semiannually 16.77% 16.77% 8.50%investment portfolio
Strategic goal: ensure optimal business operation Specific goal: operating optimization of energy business
AOM Costs/ homologated km $ Million Monthly 9,29 8,94 8,00Power companies’ EBITDA margin % Monthly 66.6% 68.4% 67.53%
Specific goal: operating optimization of telecommunications business
Effective AOM costs/E1 $ Million Monthly 29,51 29,22 14,00Effective AOM costs/link $ Million Monthly 20,55 20,44 21,00Telecommunications companies’ EBITDA margin % Monthly 25.1% 25.3% 18.77%
Specific goal: optimization of economic group’s financial resources
Cash flow available to shareholders $ Billion Quarterly 566,8 >566,8 633
Strategic goal: Grupo ISA consolidation in capital marketSpecific goal: gain and preserve investors’ trust
Share’s average yield % Monthly 20.0% 25.0% 96.49%(Shareholders Interest Group) Credit risk rating in the Group’s companies % Annually 100.0% 100.0% 100.00%
Table10
Report from the Board of Directors and the General Manager 45
Forthecustomerandmarketperspectiveachievementwas53.5%(abovethe
lowerexpectedlevel).See Table 11
Customer and market perspective
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: effective market and customer managementSpecific goal: develop market direction and customer fidelity
Compliance with total availability % Monthly 0.0% 100% 100% of energy transport network in the companies. ISA 99.7% 99.9% 99.94% TRANSELCA 99.6% 98.8% 99.86% REP 98.9% 99.2% 99.37% ISA Perú 99.0% 99.4% 99.81%
Compliance with customer satisfaction % Annually 74.5% 77.8% 79.71%evaluation (measured through TTB) by each company (Customers Interest Group). ISA 79.5% 82.0% 83.0% TRANSELCA 65.0% 74.0% 82.0% REP 68.3% 74.0% 71.4% XM 65.0% 70.0% 82.0% INTERNEXA 70.0% 72.0% 66.0% FLYCOM 65.0% 70.0% 67.9%
Strategic goal: consolidate market Specific goal: business growth (energy and telecommunications)
Annual increase of the Economic Group’s future revenues (next three years) US$ Million Semiannually 30 40 0.0E1 increase in not self-servednational market (Colombia) No. of E1s Semiannually 2,040 2,495 3,339.50E1 increase in Internetaccess market (Colombia) No. of E1s Semiannually 262 461 480.50Participation in revenues from Value Added Services en Colombia % Semiannually 1.8% 2.0% 1.85%
Table11
46 Report from the Board of Directors and the General Manager
Achievementfortheproductivityandefficiencyperspectivewas60%(above
thelowerexpectedlevel).See Table 12
Fortheperspectiveoforganizationallearningandhumantalentdevelopment,
achievementwas59.52%(abovethelowerexpectedlevel).See Table 13
Productivity and efficiency perspective
Monitoring indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: implement Corporate Governance Specific goal: develop and implement direction mechanisms
Degree of implementation of % Monthly 95% 100% 100%direction mechanisms inside the Economic Group
Specific goal: monitor strategic management
Degree of implementation of % Monthly 95% 100% 91.40%strategic management processTable12
Organizational learning and human talent development perspective
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: develop knowledge assets to reach organizational goalsSpecific goal: develop organizational capital
Compliance with program to % Monthly 95% 100% 83.36%develop Group culture and identityCompliance with minimum value Rating Annually 4.0 4.5 4.3set for evaluation oforganizational climate (Team-workers Interest Group). ISA 4.0 4.5 4.2 TRANSELCA 4.0 4.5 4.5 REP 4.0 4.2 4.3 ISA Perú 4.0 4.5 4.7 ISA Bolivia 4.0 4.5 3.7 XM 4.0 4.5 4.4 INTERNEXA 4.2 4.5 4.3 FLYCOM 4.2 4.3 4.3
Specific goal: implement technological preparedness (technological capital)
Degree of technological readiness % Monthly 95% 100% 100%
Table13
Report from the Board of Directors and the General Manager 47
1.6 The Group’s Development Plan
FortheGroup,theDevelopmentPlanwasfulfilledat94.6%.Ofthe35relevant
actions proposed, 26 were 100% executed, three registered 90% achievement,
andsixhadlessthan90%accomplishment.
1.7 Consolidated financial results
Consolidated results include the information of all the Group’s companies;
major balances and transactions among them are deleted. Consolidation is
carriedoutbytheglobalintegrationmethodologyaccordingtowhichminority
interest corresponding to equity and results are recognized and presented in
the consolidated financial statements. Financial information of investments in
subordinate companies abroad is homologated according to the accounting
principles applicable to the parent company and translated into Colombian
pesos.
In line with its investment policy and growth perspectives, the Economic
Groupstartedcommercialoperationoftwocompanies:
• ISABolivia,inchargeofelectricpowertransmission,andofconstructing,
operating,andmaintainingelectricitygridsinBolivia.
• XM,CompañiadeExpertosenMercados,inchargeofoperationplanning
andcoordinationoftheresourcesoftheNationalInterconnectedSystem,
and of administration of the Commercial Settlement System in the
wholesaleenergymarket.
Since2005,theGroup’saffiliatesinPerukeeptheiraccountingrecordsinUS
dollars, as permitted by the corresponding fiscal regulations, and decrees and
lawsthatregulatethem.
48 Report from the Board of Directors and the General Manager
1.7.1Operatingresults
Consolidatedoperatingresults
$Million 2004 2005Variation Var.%
Revenues 1,072,581 1,076,495 3,914 0.4%
Costsandexpenses 575,787 588,428 12,641 2.2%
EBITDA 705,095 700,049 -5,046 -0.7%
Operatingincome 496,794 488,067 -8,727 -1.8%
EBITDAmargin 66% 65%
Operatingmargin 46.3% 45.3%
1.7.1.1 Operating revenues
Consolidated operating revenues grew by 0.4% from $1,072,581 in 2004
to $1,076,495 in 2005. Of the total, 92% comes from energy services, 7% from
telecommunicationsservices,and1%fromotherrevenues.
TheincreaseintheGroup’srevenuesfromenergyservicesduringtheperiod
isexplainedmainlybythebehaviorofmacroeconomicvariables. Inthissector,
significantincreasesareobtainedbyventuringintonewprojectsorbyacquiring
companies.
Oftotalconsolidatedrevenues,85%comesfromcompanieslocatedinColombia,
while15%fromaffiliatesinPeruandBolivia.Thepowersectorcontributed93%of
revenuesandthetelecommunicationssector7%.See Chart 17
Consolidated operating results
662,251 756,297
1,008,377 1,072,581 1,076,4950.4%6.4%
33.3%
14.2%
100,000
300,000
500,000
700,000
900,000
1,100,000
1,300,000
2001 2002 2003 2004 2005
US$ Million
US$ M
illio
n
289.0 264.0 363.0 449.0 471.3
Operating revenuesparticipation by company
ISA Colombia64.7%
Flycom1.1%
XM1.3%
Transelca12.3%
Internexa5.6%
REP12.5%
ISA Perú2.0%
ISA Bolivia0.5%
Report from the Board of Directors and the General Manager 49
1.7.1.2 Operating costs and expenses
Operating costs and expenses increased 2.2% from $575,787 in 2004 to
$588,428in2005.Ofthetotal,86.4%correspondstocompaniesinColombiaand
13.6%tothoseinPeruandBolivia.
Power companies account for 88% of operating expenditures, while
telecommunicationscompaniesaccountfor12%.Alargepercentagecorresponds
tothecompaniesinPeruduetotheimpactofthechangefromsolestodollars
asthecurrencyofpresentationoffinancialinformationineffectasofJanuary1st
2005. See Chart 19.
EBITDA and EBITDA margin
ConsolidatedEBITDAfellby$5,046million(0.7%)asaresultof$9,730million
expensesincurredinstudiesandpreparationofbidsoftheparentcompany.To
thepowersectorcorresponds97%,whiletothetelecommunicationssector,3%.
Colombian companies participate with 84% and foreign companies with 16%.
SeeChart20.
Consolidated operating income
Consolidatedoperatingincomefell1.8%asaresultoftheparentcompany’s
operatingresults.Foreignsubordinatesparticipatedwith17%,whileColombian
affiliateswith83%.Thepowersectorcontributed100.2%andtelecommunications
-0.2%.See Chart 21.
Consolidated costs and expenses
362,476 410,151
579,718 575,787 588,428
2.2%-0.7%41.3%
13.2%
100,000
200,000
300,000
400,000
500,000
600,000
700,000
2001 2002 2003 2004 2005
158.2 143.2 208.7 240.9 257.6US$ Million
US$ M
illio
n
Operating expendituresparticipation by company
ISA Colombia57.6%
Flycom3.2%XM
1.8%
Transelca14.7%
Internexa9.1%
REP12.5%
ISA Perú0.5%
ISA Bolivia0.6%
50 Report from the Board of Directors and the General Manager
Consolidated EBITDA
-0.7%
15.3%
32.1%
2.4%
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
-1
9
19
29
39
49
59
69
79
%US$ Million
US$ M
illio
n
EBITDA EBITDA margin
700,049
2005
306.5
705,095
2004
292.7
688,573
2003
246.1
521,197
2002
181.9
452,196
68% 69%
2001
197.4
68% 65.7% 65%68% 65.7% 65%
Consolidated operating income
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
0
5
10
15
20
25
30
35
40
45
50
%US$ Million
US$ M
illio
n
Operating income Operating margin
2005
213.7
2004
207.9
496,794496,794428,659
2003
154.3
337,934
2002
118.0
293,194
44% 45%
43%
46.3%45.3%
46.3%45.3%
2001
128.0
488,067488,067
Report from the Board of Directors and the General Manager 51
1.7.2 Non-operatingresults
Consolidatednon-operatingresults
$Million 2004 2005 Variation Var.%
Financialresults-net -187,693 -176,316 11,377 -6.1
Exch.difference-net -41,800 -24,140 17,660 -42.2
Otherrevenuesandexpend. -16,893 4,792 21,685 -128.4
Non-operatingresults -246,386 -195,664 50,722 -20.6
Non-operatingresultswere$50,722millionhigherduemainlytothe$36,358
million reduction in interest rates and debt amortization, and to the $37,105
million increase from recovery of costs and expenses from previous years.
Of this total, 84% corresponds to companies in Colombia and the remaining
16% to affiliates in Peru and Bolivia. Power companies contributed 97%, while
telecommunicationscompanies,3%.
1.7.3 Incometaxprovision
Income tax provision dropped 32.9% or $34,079 million as a result of the
specialdeductionforinvestmentinfixedassetsallowedtotheparentcompany.
Oftotalprovision,83%correspondstoColombianaffiliatesand17%tothosein
Peru.Powercompaniesaccountfor99%andtelecommunicationscompaniesfor
1%.See Chart 22.
Consolidated income tax provision
29,94822,054
89,880 103,554
69,475
-26.4%
307.5%
15.2% -32.9%
0
20,000
40,000
60,000
80,000
100,000
120,000
2001 2002 2003 2004 2005
13.1 7.7 32.4 43.3 30.4US$ Million
US$ M
illio
n
52 Report from the Board of Directors and the General Manager
1.7.4 Netincome
Withrespectto2005,in2006netincomewas$58,582millionhigher(41.3%).
Tothisresultnationalcompaniescontributewith89%whileforeigncompanies
with11%.Thepowersectoraccountsfor102%andtelecommunicationsfor-2%.
SeeChart23
1.8 Consolidated balance sheet
Consolidatedbalancesheet
$Million 2004 2005 Variation Var.%
Assets 5,542,341 5,873,043 330,702 6.0
Liabilities 2,578,435 2,712,415 133,980 5.2
Minorityinterest 320,733 374,398 53,665 16.7
Equity 2,643,173 2,786,230 143,057 5.4
Totalleverage 46.5% 46.2%
The increase of $330,702 million in assets, equivalent to 6%, is explained
primarilybythestartofoperationsofsubordinateISABoliviaandbytheongoing
constructionofUPMEprojectsPrimavera-BacataandPrimavera–Bolivar.
Colombian companies participate with 82% of total assets and foreign
companieswith18%.To thepowersectorcorresponds97%ofassets,while to
telecommunications,3%.
Consolidated net income
95,272
8,274
83,001
141,676
200,258
41.3%70.7%
903.2%
-91.3%
0
50,000
100,000
150,000
200,000
250,000
2001 2002 2003 2004 2005
41.6 2.9 29.9 59.3 87.7US$ Million
US$ M
illio
n
Report from the Board of Directors and the General Manager 53
Inturn,the$143,057millionincreaseinliabilitiesisaccountedfor,toalarge
extent,bythe$134,516millionindebtednesslevelofISABolivia.
Of$2,712,415milliontotalliabilities,79%belongstonationalcompaniesand
21%toforeigncompanies,while98%correspondstothepowersectorand2%to
telecommunications.SeeChart25.
Financial liabilities totaled $1,898,277 million, of which 73.8% corresponds to
Colombiancompaniesand26.2%toforeignaffiliates.Thepowersectoraccounts
for99.4%ofthetotal,whilethetelecommunicationssectorfor0.6%.See Chart 26.
Consolidated balance sheet
1,877,393 2,720,848 2,757,058 2,578,435 2,712,415
2,002,155
2,292,654 2,382,591 2,643,173 2,786,230
329,455 343,243 320,733 374,398
1,877,393 2,720,848 2,757,058 2,578,435 2,712,415
2,002,155
2,292,654 2,382,591 2,643,173 2,786,230162,458162,458
329,455 343,243 320,733 374,398 4,042,006
5,342,957 5,482,892 5,542,341 5,873,043
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2001 2002 2003 2004 2005
1,764.2 1,865 1,973.5 2,319.1 2,571.4US$ Million
US$ M
illio
n
Liabilities Equity Minority Interest Assets
Participation intotal liabilities
ISA59.1%
Flycom0.5%XM
5.3%
Transelca12.8%
Internexa1.1%
REP13.6%
ISA Perú2.7%
ISA Bolivia5.0%
Participation infinancial liabilities
ISA59.1%
Flycom0.2%
Transelca14.1%Internexa
0.4%
REP15.7%
ISA Perú4.0%
ISA Bolivia6.5%
54 Report from the Board of Directors and the General Manager
2 MANAGEMENT RESULTS OF INTERCONEXION ELECTRICA S.A. E.S.P. -ISA-
2.1 Macroeconomic context
The Colombian economy continued along the growth path during 2005.
Performanceduringthelastquarters(III5.8%andIV5.1%)supportconsolidated
4.3%projectionfortheyear,outdoingexpectationsofboththeGovernmentand
theproductivesector,whichwas4%.
Thetermsoftradehavebeenfavorablefortheeconomy:RealExchangeRate
Index-ITCR-reboundedupto119.51points,despiterevaluation,whichstoodat
4.42%atyearclosing.
TheCentralBankmet inflationgoal:between4.5%and5.5%.Atyear’send,
consumerpricesshowed4.8%variation,whereasPPIaccumulated2.10%variation
alongtheyear.For2006,CPIiscalculatedtoclosewithinestablishedrangeof4%
-5%,with4.46%goalprojectedbytheBank,alevelthatwilldependonexchange
ratestabilityandglobaldemand.
Positive growth is expected for 2006, with a projected 4.4%, based on
continuityofmostfundamentalboostingfactors,albeitwithslightmoderation,
asisthecasewithinternationalprices.
2.2 Main results
ISA’s corporate management had significant results, among which the
followingstandout:
• Itachieved$187,179millionnetincome(33.7%upon2004).
• It succeeded in maintaining AAA rating awarded by Duff & Phelps for
domesticdebt,andBBratingbyStandard&Poor’sforinternationalcredit,
correspondingtothesovereignriskoftheRepublicofColombia.
• AsthenewpartnerofEmpresaPropietariadelaRed-EPR-,itmadeacash
capital contribution of US$4.5 million, and it will guarantee a US$40.0-
milliondebt.
Report from the Board of Directors and the General Manager 55
• Its share appreciated 170%, amply outdoing appreciation registered by
theGeneralIndexoftheColombianStockExchange(whichwas119%).
• It traded 161.6 million shares, thus reaching fifth place in market
capitalization.
• It conducted technical feasibility studies for development of electric
interconnectionprojectbetweenColombiaandPanama.
• It reached the following quality indicators: 99.942% total average
availability(above99.651%goalestablishedbyCREG);and83%customer
satisfactionrating,whichputstheCorporationonasuperiorperformance
scale.
• It received91%ratingona reputationsurveyconductedamongall the
interest groups, on the scales of excellent and very good, and 78% on
image,accordingtoWalkerInformationmethodology.
• It advanced 55.66% on the Primavera-Bacata Project (UPME 01) and
47.07%onthePrimavera-Bolivar(UPME02)project,thepurposeofwhich
istoincreasetransportcapacitytowardtheColombianAtlanticCoastand
Centralregions.
• It renewed the ISO-9001 certification, version 2000, for the Energy
Transport service, awarded by the Instituto Colombiano de Normas
Tecnicas-ICONTEC-.
• It received 4.2 rating for its organizational climate, which keeps the
Corporationwithininternationalstandards.
• Itnegotiatedthecollectivelaborpact,covering86.7%ofworkersandvalid
untiltheyear2010,exceptforsalaries,tobereviewedeverytwoyears.
• It implementedthenewremunerationsystemfortheseniormanagerial
group (5.7% of staff ), with two components: fixed remuneration as an
integral salary and results-based bonus associated to achievement of
entrepreneurialandcorporateindicators.
• It joined the Global Pact, a United Nations-promoted initiative to
consolidateanetworkofsociallyresponsibleenterprises.
56 Report from the Board of Directors and the General Manager
2.3 Participation and advancement in project development.
2.3.1 EmpresaPropietariadelaRed-EPR-
This company, established on October 16th 1998 under the laws of the
RepublicofPanama,andheadquarteredinSanJosedeCostaRica,isresponsible
forthedesign,construction,set-up,servicestart-up,operationandmaintenance
oftheSIEPAC4Project,whichconsistsof1,830kmoftransmissionlineat230kV,
withtheirrespectiveconnectionmodulesinnewandexistingsubstations.
EPR partner corporations are responsible for energy transmission in each
membercountry,anditsshareparticipationisidentical(12,5%):
• InstitutoNacionaldeElectrificacionS.A.-INDE-(Guatemala).
• Commision Ejecutiva Hidroelectrica del Rio Lempa S.A. -CEL- (El
Salvador).
• EmpresaNacionaldeEnergiaElectricaS.A.-ENEE-(Honduras).
• EmpresaNacionaldeTransmisionElectricaS.A.-ENTRESA-(Nicaragua).
• InstitutoCostarricencedeElectricidadS.A.-ICE-(CostaRica).
• EmpresadeTransmisionElectricaS.A.-ETESA-(Panama).
• ENDESAInternacionalS.A.(Spain).
• InterconexionElectricaS.A.E.S.P.-ISA-(Colombia).
The Company’s capital is US$40 million, and up to date, each partner has
contributedUS$4,5million.Theremainingcontributionsareprojectedfor2006.
2.3.2 Colombia–PanamaElectricInterconnection
Startingin2001,InterconexionElectricaS.A.-ISA-andEmpresadeTransmision
Electrica S.A. -ETESA- of Panama, acting as energy market promoters, carried
outtechnicalfeasibilitystudiesfordevelopmentoftheelectricinterconnection
between Colombia and Panama, a fundamental step in consolidating a supra-
regionalmarkettakingadvantageofpositiveaspectsandpotentialsofthetwo
regions.
The respective governments have declared their strong will to promote
sustainableeconomicdevelopmentandregionalintegrationofCentralAmerica,
byconsolidatingenergy interconnectionprojectsanda regionalmarket in the
frameofthePanama-PueblaPlan.4 Sistema de Interconexion Electrica de los Paises de America
Central.
Report from the Board of Directors and the General Manager 57
Through the studies showing technical and environmental viability of the
interconnection, ISAreinforcestheactionsoftheMinistryofMinesandEnergy
towardimprovementoftheregion’scompetitivenesslevels,adequatedeliveryof
energyserviceandwellbeingofthepopulation.
2.3.3 Primavera-BacataandPrimavera-BolivarProjects
Incompliancewiththecommitmentsofthebidding,ISAstartedconstruction
ofthePrimavera-BacataandPrimavera-Bolivarprojectsin2005.
Projects Totalvalue Primavera-Bacatá500kV US$92,690(*)Project(UPME01). thousandConstruction. Primavera–Bolívar500kV US$165,441(*)Project(UPME02). thousandConstruction. *ValuesasofDecember31st2005
2.4 Results and commitments in service delivery
During the period, the Company updated the “Service Promise”, where it
expressesitscommitmenttorespondtotheCustomers’needsandexpectations
of theservicesdelivered to them:Useof theSTN,Connection to theSTN,and
Energy-TransportAncillaryServices.
2.4.1 Energytransportservice
ISAiscurrentlytheownerof70%oftheNationalTransmissionSystem,afact
thatmakesitColombia’slargestenergytransportcompany,andtheonlyonewith
nationalcoverage.Itowns8,941kmoftransmissionlinesatvoltagesover110kV,
46substations,10,105MVAoftransformation,and3,285MVARofcompensation,
all of which is at the disposal of the market agents for trading of energy and
interconnectionofregionalelectricsystems.
ISAisalsotheownerofthefollowinginternationalinterconnections:
• Colombia-Venezuela Interconnection: Cuestecitas-Cuatricentenario and
SanMateo-ElCorozo230kVlines.
58 Report from the Board of Directors and the General Manager
• Colombia-EcuadorInterconnection:138kVIpiales-Tulcanand230kVPasto-
Quitolines,makingphysicalenergyexchangepossible,withintheframe
ofInternationalEnergyTransactions-TIE-.
Comparedto2004,Colombia’simportssaw23.51%decrease:itimportedfrom
Venezuela20.91GWhthroughtheCuestecitas-Cuatricentenarioconnection,and
fromEcuador,itimported15.79GWh(98.5%throughthePamasqui-Jamondino
230kV connection); and exports to Ecuador increased by 4.77%: equivalent to
1,758 GWh, (4.9% more than in 2004), exports levels that brought the country
revenuesofUS$151,73million.
In STN’s As-New-Replacement Value -VRN-, ISA has 69.74% participation
(US$1,553.79million);remaining30.26%correspondstotheothertenownersof
thegrid.
2.4.1.1 Grid operation management
FromtheSupervisionandManeuverCenter-CSM-andundertheschemeof
centralized remote operation, ISA carried out more than 19,200 maneuvers on
theassetswiththequalityandopportunityrequiredbytheSIN.
Assetavailabilitywas99.942%,whichoutdidgoalsetbyCREGat99.651%.See
Chart27.
Percentage of assets that complied with availability goal set by CREG was
95.41%:ofa total501assets,23werebelowsuchgoal,andonly15paid$50.6
millionascompensation.
Report from the Board of Directors and the General Manager 59
The fact that its transmission grid is spread all over the country makes ISA
particularly vulnerable to attacks against its infrastructure, attacks that have
becomepartofthestrategyoftheillegalarmedgroupstodestabilizetheState.
Between2001and2005, therewere1,447attacksontheSIN,ofwhich863
affectedISA’sassets.
Total SIN’s destroyed towers 2001-2005
194
88
258225 209
12080
47
122104
282
483
329
127
226
0
100
200
300
400
500
600
2001 2002 2003 2004 2005
Number of towers
ISA OTHERS TOTAL
Availability
99.946 99.954 99.935 99.934 99.942
98.326 98.317
98.812
99.739 99.657
97.00
97.50
98.00
98.50
99.00
99.50
100.00
2001 2002 2003 2004 2005
Porcentaje (%)
Excluding attacks Including attacks
60 Report from the Board of Directors and the General Manager
Duringtheyear,122towerswereaffectedbyattacks:39.34%corresponding
tolinesat500kVand60.66%tolinesat230kV.Thenumberofattacksagainstthe
Corporation’sinfrastructureincreasedby52.5%withrespectto2004.
Thanks to thesupport fromthearmed forces forcoverageandsecuringof
theregionswhererecoveryworkisunderway,95.9%ofinfrastructureaffectedby
attackswasrecoveredduringtheperiod.
In the last few years, ISA has improved its methods for recovery of towers
affected by attacks, by using emergency structures, adequate materials, and
trained work crews, and by constructing specialized tools for recovery and
assemblingof thesestructures. In2005, theaveragerecovery time foraffected
infrastructurewas10.5dayspertower(2.6daysshorterthanin2004).
Sincetheyear2001,corporate lossesrelatedtorepairof infrastructuretotal
$87,971million;in2005,repaircostsrepresentedonly1.99%($15,342million)of
theCompany’soperatingrevenues,19%upon2004($12,433million).
With respect to 2004, unattended demand increased 31.8% to 120.1 GWh
(0.25% of SIN demand) due to increased demand for non-scheduled reasons,
whichwas66.9%.See Chart 29.
Power demand unattended because of terrorist attacks increased with respect to 2004 from
0.06% of total SIN demand to 0.14% in 2005.The previous was due to 78% increase of attacks on
electricinfrastructure(127attacksin2004,and226in2005).
0.10
0.06
0.18 0.18
0.06
0.14
0.19
0.14
0.22
0.13
0.12 0.11
0.29
0.20
0.40
0.31
0.17
0.25
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
2000 2001 2002 2003 2004 2005
Attacks Other Causes Total
% of
SIN’
s Dem
and
SIN’s unattended demand 2000-2005
Report from the Board of Directors and the General Manager 61
2.4.1.2 Maintenance management
Toimproveserviceandprolongusefullifeofequipmentandrelatedsystems,
ISAexecutedthefollowingactions:
• Itrenovatedsubstationequipmentatacostof$6,000million.
• It performed general maintenance on 35 circuit breakers of four 230kV
substations,throughacquisitionandappropriationofnewtechnologies,
includingnationaldevelopmentsthatmeantsavingsfortheCorporation
of$1,400million.
• It devised on-line maintenance technology (maintenance without
disconnection)forwashandrepairofsubstationsequipment.
• It acquired a new atmospheric electric discharge monitoring system
worth US$850,000, which will allow, in 2006, detailed monitoring of
lightning descending on the national territory, capable of affecting the
Corporation’stransmissionlines.
2.4.1.3 Social management
IntheEnergyTransportservice,ISAtakesitsresponsibilityshareonsocialand
environmentalimplicationsofconstructionandoperationofanational-coverage
energy transport network. Part of this is the development of the Community
CoexistenceProgram,whichstartingin2005definedthreeactionfocuses:
1)Institutionalpresenceinlocalandregionalevents;2)Supporttocommunity
works and projects; and 3) Education for community coexistence with energy
transport.In85,outofthetotal339municipalitieswhereISAispresent,itcarried
outthefollowingactivities:
• Itinvested$26.4milliontosupportvariousevents.
• Incommunityworksandprojectsitinvested:$212.6millionineducational
projects;$59.4millioninproductiveprojects;$71.3millionincommunity
services; and $136.5 million in construction and repair of community
infrastructure.
• In the education program for community coexistence with energy
transmission lines, it has implemented actions tending to creation and
strengthening of links with the communities located in the influence
areasofISA’stransmissiongrid:
62 Report from the Board of Directors and the General Manager
• Let’s learn with Eloisa Latorre.This program, which includes delivery of
school supplies, increased its coverage along the year: from 11,.205
childrenin2004,itbenefited22,870in2005.
• ChristmaswithEloisaLatorre.Schoolsupplieswithdidacticcontentswere
deliveredto13,618children.
2.4.1.4 Environmental management
During theperiod, ISAhonored itscommitmentsacquiredunder theplans
of environmental management of lines and substations in operation: forest
compensationandbasicsanitation,hydrocarbonmanagement,andattentionto
maintenancenoticestosolveclaimsfromeasementowners.
Additionally,itpresentedthefollowingachievements:
• Ittripledthenumberofhousingsolutions(from20in2004to67in2005)
alonglineeasementsthroughthefamilyresettlementprogramassociated
totheoperatinggrid.
• It finalized technological research and development project for design
andproductionofBirdFlightDiverters,49,000ofwhicharetobeinstalled
inthePrimavera-BacataandPrimavera-Bolivarprojects.
Thesediverters,firstevertobemadeinthecountry,andthefirstdesignfor
whichtheCompanyhasfiledforapatent,willallowcreationofanetwork
of national suppliers to substitute their import, with an estimated cost
reductionofupto80%(aroundUS$400,000).
Other activities that will demand great attention during 2006 are the
following:
• Answer Decree 1220/05 of the Ministry of the Environment, which
definesanddecidesonapplicationofamethodologyforEnvironmental
ManagementPlans-PMA-oflinesforwhichenvironmentallicenseswere
notrequired.Foritsanswer,ISAhasample-scopesatelliteinformationand
digitalaerialphotography.
• AvailofthebenefitsoftheKyotoProtocol,throughidentificationofClean
Development Mechanisms -MDL- for energy transmission projects, and
forwardproceedingstoapplythemtothe interconnectionprojectwith
Panama.
Report from the Board of Directors and the General Manager 63
• Applyresolutionsanddecreesissuedbylocalandnationalenvironmental
authorities, dealing with solid and hazardous waste generated by the
Company, through design and implementation of ISA’s Waste Integral
ManagementSystem.
• EndowtheEnvironmentalCommitteeattheCompany’sheadquarterswith
enoughtoolstomeetcommitmentswithMedellin’sMetropolitanArea.
2.4.2 STNconnectionservice
To deliver its connection service, ISA has 71 km of lines at 230 kV and 114
km at lower voltages, 3,272 MVA transformation capacity in operation, and
1,305 MVA in reserve, distributed along 66 connection points to STN, utilized
forservicing21customers(4generators,13distributors,3largeconsumers,and
1 carrier). Connection assets also include two points related to international
interconnection.
ISA’sparticipationinconnectionpointsforthisserviceis35.29%.
In2005,theCorporationcommissionedtheCañoLimonSubstationexpansion
forOccidentalofColombia.
Connection revenues rose to $55,415 million for the January-December
period(5.32%upon2004),duetotwofactors:1)revenuesfromexpansionworks
ofCañoLimonSubstationto230kV,whichstartedtoshowinaccountingasof
February 2005; and 2) updating of PPI along the December 2004 - December
2005period.See Chart 30.
Connection revenues
0
10,000
20,000
30,000
40,000
50,000
60,000
$ Mill
ion
2001
33,980
2002
38,263
2003
48,124
2004
52,618
2005
55,415
64 Report from the Board of Directors and the General Manager
2.4.3 Energy-transport-relatedservices
Operatingrevenues,madeupofAdministration,OperationandMaintenance
services -AOM-, technical and consulting services, and studies rose to $4,050
millionfortheJanuary-September2005period(13.26%upon2004).Forrightsof
useofinfrastructure,revenueswere$2,690million.SeeChart31.
In furtherance of the Ancillary Services Export Plan designed by ISA as a
strategy for opening international markets, and targeting initially the Andean
CommunityofNations,aTradeAgendawasdevelopedinEcuador,andanother
onewaspreparedforPeru;injoinedeffortswithXM,andaspartofitspurposeto
enterCentralAmericanmarkets,aTradeAgendawasconductedinElSalvador.
Revenues from ancillary services
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
$ Million
6,740
2005
6,424
2004
5,758
2003
2,701
2002
2,215
2001
Report from the Board of Directors and the General Manager 65
2.4.4 Fiberoptics
Forthisitem,operatingrevenueswentupto$5,082millionfortheJanuary-
December 2005 period (21.60% up on past year), coming from closing of five
usufructagreementswithINTERNEXA,andfromthesigningofanewfiber-optics
capacityavailabilityagreementunderthelayoutofdifferentialtariff.
Additionally,ISAconductedthefollowingactions:
• It continued with rental and maintenance of fiber-optic networks with
TRANSNEXAinEcuador.
• Itkept29.17%ownershipofthefiber-opticnetworkofAlianza,facilitating
commercialexploitationbyINTERNEXA.
• It negotiated and signed contracts worth $1,200 million for delivery of
services related to fiber-optic cable and infrastructure owned by the
Alianza.
• Itobtainedrevenuesof$2,500millionfromtheAlianzacompanies,from
rights of use for installation of fiber-optic cable on ISA’s transmission
lines.
2.4.5 Constructionofinfrastructureprojects
ISAalsoconstructsprojectsforthirdparties,whichbroughtit$4,135million
operatingrevenuesfortheJanuary-December2005period.Nextisadetailedlist
ofprojectsundertakenbytheCompany:
66 Report from the Board of Directors and the General Manager
Projects Totalvalue
Customer:MinistryofMinesandEnergy
ProjectFAERFAZNI $12,995,489(*)
Construction. thousand
ProjectConstruction $548,376(*)
Caño-Limonsubstation’s thousand
third34.5kVfeeder.
Customer:DISPAC
ProjectImprovement US$6,905(*)
DISPACsubstations. thousand
Customer:CEDELCA
Project‘Plan $705,000(*)
Macizo’.Engineering. thousand
Customer:ISABoliviaS.A
ProjectBOOT US$69,589(*)
Bolivia.Construction. thousand *ValuesasofDecember31st2005
Customersatisfactionrating
ISAhasdevotedeffortstowardtimelysolutionofthecustomers’needs,and
standardizationofservicelevelsaccordingtotheirexpectations.
Inordertoevaluate itsperformance, itconductsayearlystudyofcustomer
satisfaction,soastoknowandmeasuretheirlevelofloyaltyandsatisfactiontoward
the services provided by the Company, identify their needs and expectations,
and determine most impacting factors. Based on the results of this study, an
improvementplanispreparedforthecomingyear,toenhanceservicesandmeet
commitments.
In2005,itobtainedan83%GeneralQualityrating,correspondingtoasuperior
performance (Top Two Boxes – excellent or very good ratings), according to
WalkerInformationmethodology.
Report from the Board of Directors and the General Manager 67
2.5 ISA’s corporate management: Results and commitments
2.5.1 Corporategovernance
It is the array of values, principles, policies, rules, means, practices, and
processes through which the Corporation is run, operated, and controlled,
lookingforcorporateefficiency,transparency,andcoherenceofactions,respect
forthosewhoinvestinit,andcompliancewiththecommitmentstothedifferent
interestgroups.
TheobjectiveoftheGoodGovernanceCodeistocompileandstructureGood
GovernancePracticesobservedintheCorporationthatwillallowgenerationof
competitiveness,transparency,andtrust.
ISA understands Good Governance Practices to be the commitments and
measures adopted by the Corporation as to its governance, conduct, and
information,sothattheactionsoftheshareholders,managers,andworkersbe
focused on guaranteeing integral corporate ethics, adequate handling of its
affairs,respectforthosewhoinvestinit,deliveranceonthecommitmentstoits
interestgroups,andpublicdisclosureofitsmanagement.
ISAiscurrentlypreparingasecondreformtoupdatethecontentsoftheCode,
in the light of the new rulings of the securities market and the Corporation’s
structure.
2.5.2 Humanresourcesmanagement
TheCompanybasesitsbusinessgrowth,processimprovement,competitiveness
enhancement, and construction of corporate viability on learning, production,
andapplicationofknowledge.
Inthissense,ithasdesignedandimplementedtheIntegralFormationPlan-
PFI-,focusedontwodirections:1)accompanythedevelopmentofcompetencies
required for efficient process development by the workers, 2) accompany the
processofculturaltransformation,throughcorporateeducationalactions.
68 Report from the Board of Directors and the General Manager
ToachievethegoalsproposedbythePFI, ISA invested$840millionduring
2005, with 92.6% worker coverage. Likewise, it implemented 204% of total
traininghoursplanned.
Additionally,thefollowingactivitiesweredeveloped,focusedondevelopment
andmobilityoftheseniormanagementgroup:
• Identificationofmanagerialpotentialsin42incumbentmanagers,and60
professionalswithmanagerialprospects.
• Identificationofpossiblesuccessorsformanagers.
• Rotation and appointment of six executives for management, deputy
management,andsection-headpositions.
• Promotionoffivepeopletomanagementpositions.
• MobilityofthreemanagerswithintheaffiliatesofGrupoISA.
• Externalhiringoffournewmanagers.
In spite of the changes produced as a result of the organizational
restructuringprocess,organizationalclimateratingwas4.2(onepointbelow
that of 2004), which allows the Corporation to stay within international
standards. See Chart 32.
ISA guarantees its workers’ right to association, through its two collective
contract modalities: at year’s end, 86.7% of its 661 workers were covered by
CollectiveLaborPact,and7.6%,byCollectiveLaborAgreement.Itisimportant
to point out that, during the period, Collective Pact was negotiated, reaching
totalanddefinitiveagreementvaliduntil2010.
Organizational Climate
Rating
4.2
4.4
4.2 4.2
4.3
4.2
4.1
4.15
4.2
4.25
4.3
4.35
4.4
4.45
2000 2001 2002 2003 2004 2005
Report from the Board of Directors and the General Manager 69
In the same way, a new remuneration layout became operational for the
seniormanagementgroup(5.7%ofpersonnel),withtwocomponents:1)fixed
remuneration as integral salary; and 2) variable, results-based remuneration,
relatedtocompliancewithcorporateindicators.
Actionsfocusedonpreservationofpersonnel’shealthcenteredoncontrolof
cardio-cerebral-vasculardisease,andimprovementofsafetyinmaintenanceand
operationactivities.
In the area of prevention of occupational accidents, procedures were
standardized, new safety elements were acquired, and workers exposed to
electricriskduringoperationandmaintenanceoftheSTNreceivedtraining.
2.5.3 Technologyandprocessmanagement
Duringtheperiod, ISA reaffirmed itsdecisiontowork towardbecomingan
adaptable organization, as dynamic as its trade, and to that end, it carried out
projectsinthefollowingfronts:
• It implementedtheneworganizationalstructureapprovedin2004,and
adaptedinformationsystemstoenableit.Throughthisproject,structure
andstrategybecomealigned,communicationamongareasisimproved,
mobilityofresourcesisstrengthened,andeffectivenessisheightenedby
operationfoundedonprocessesandinformationtechnology.
• It developed the restructuring program to respond to the changes
in both milieu and corporate strategy. Internal adjustments assigned
responsibilities in each area in order to achieve compliance with ISA’s
threeroles:economicgroupparentcompany,energy-transportcompany,
andoperatorofconcessioncontractsallocated.
• It developed the innovative change-management process, part of the
restructuringscheme,whichdemandedahighlevelofcommitmenton
thepartoftheseniormanagementgrouptoensureunderstandingofthe
Organization’sstrategyandobjectives.Thisprocesshashadparticipation
ofaround250people.
• Itimplantedanorganizational-capitalmeasuringinstrumenttodetermine
theCorporation’sgapswithrespecttothebestpractices,andtodefine
andimplementpriorityactions.Measuringcoveredtheareasofalignment
andintegration,organizationaldesign,leadership,learning,anddecision-
making.
70 Report from the Board of Directors and the General Manager
Withrespecttothebestpractices,thefollowingadvancesstandout:
• Acquisition of technological infrastructure under operating leasing,
achieving16%costreductionversusassetpurchasing.
• Completion of second phase of information technology assimilation
evaluation, covering the entire Company, with 73% general indicator
results;goalsetwas70%.
• Ratingof“zeronon-conformities” forthequalitymanagementsystemof
theenergytransportservice(ISO9001/2000managementsystemsofISA’s
servicequality),conductedbyICONTEC.
• PreparationofdiagnosestostartISO-14001certificationprocessesforthe
environmentalmanagementsystem,andOSHAS18001forthesafetyand
occupationalhealthmanagementsystem.
2.5.4 Riskmanagement
ISA’sCorporateRiskMap,with22internalandexternalrisks,allowsevaluation
ofnotonlytheirlikelihoodofoccurrence,andtheirimpactontheCorporation’s
resources, but also priority for their timely management, and identification of
residualriskfacedbytheCorporation.
External origin1. Insecurity and legal instability2. Effect of application of operation regulations on third parties and market agents3. Regulatory instability4. Electric power market structural problems5. Competition6. Reputation risk 7. Macroeconomic variables volatility 8. Nature phenomena9. Political decisions10. Armed conflict11. Social conflict
Risk Map
Internal Origin18. Inadequate information management19. Human and/or procedure failures20. System and equipment unavailability21. Loss or decrease in competitiveness 22. Inadequate human resources management
Internal and External Origin12. Quality of accounts receivable 13. Contracts default14. Inadequate exercise of Corporate Governance15. Inadequate decision making regarding new business16. Corruption17. Noncompliance with corporate ethics.
Report from the Board of Directors and the General Manager 71
During the period, the Corporation progressed in construction of the Risk
Mapforsomeoftheaffiliatesandapplicationofrisk-managementcycletoevery
ISA and XM process, which allowed identification of processes with the most
exposure to risk, and gathering of relevant information concerning mitigating
measures.
Italsocontinuedmanagementofitsmainrisks:
Volatility risk of macroeconomic variables
ThemainmacroeconomicvariableswithanimpactonISA’sfinancialresults
are: Consumer Price Index -CPI-, Exchange Rates, Producer Price Index -PPI-,
DTF,andLibor.Tocountertheeffectsofexchange-rateuncertaintyandstabilize
debt-service cash flow in foreign currency, the Corporation executes hedging
operations,maintainsdebt-portfoliodiversification,andcontinuouslystudiesthe
bestoptionsofferedbynationalandinternationalmarketstomitigatethistype
ofrisks.
Italsohasnaturalhedgingfordebtindollarsandinvestmentsabroad,which
balance the effect of exchange rate variation; with respect to impact from PPI
variation,ithascontractedCPI-indexeddebt,giventhecloseIPC-IPPcorrelation
Furthermore,theCorporationisdevelopinganAssetandLiabilityManagement
Project-GAP-fortheGroup’saffiliates,whichallowsidentification,alongaone-
yearhorizon,ofEarningsatRisk(EaR)andCashFlowatRisk(CFaR),astheresultof
thechangesinthemacroeconomicvariablesthatthecompaniesareexposedto.
Thisanalysisbecomesanimportantmanagementtooltoshoreupthedecision-
makingprocessofGrupoISA’saffiliates.
Armed conflict risk
ISA keeps on developing its Viability Strategy Amidst the Conflict. In the
areaofrecoveryofinfrastructureaffectedbyattacks,theCompanyhasahighly
qualified technical and human team, as well as an infrastructure specialized in
implementingrecoveryandreestablishmentofenergytransmissiontowersand
lines,thatallowedit,during2005,toreach96%effectivenessrate,byrecovering
117outof122towersaffected.
72 Report from the Board of Directors and the General Manager
The effects of the attacks on service delivery do not mean fewer revenues
for the Corporation, because they are considered force majeure events (CREG
Resolution061of2000).
Legal uncertainty and instability risk
Upon follow-up and analysis of bill preparation processes and application
and interpretation of legal ruling, especially fiscal ruling, ISA has established
mechanismsformanagementofitsinterests,throughinter-institutionalrelations,
consulting and assessment by experts, and active participation in inter-sector
committees.
Regulatory instability risk
Inthecaseofenergytransportservice,regulatoryinstabilityriskcomesfrom
regulation changes, which, according to the regulatory agenda for 2006, will
focusonremunerationschemesandservicequalitydemands.Thisriskishandled
byISAthroughpermanentmonitoring,analysisandevaluationofresolutionsand
resolutionprojects,forulteriorpresentationoftechnicalrecommendationsand
proposalsthatreflectservicedeliveryconditions.
Aspartofthereviewingprocessofremunerationandqualityschemes,CREG
issued Resolution 007 of 2005 to establish the foundations for remuneration
formulae for energy transmission activities for the 2007-2011 period. Among
the changes proposed, variations are expected in remuneration rate, AOM
percentages,andindividualcostofconstructiveunits.
Onapermanentbasis,theCorporationchecksoutevolutionoftheseparameters
through exercises and analyses specific to each of them, and through actions
conductedinsidetheOrganizationandwiththeANDESCOEnergyChamberand
theTransmissionCommitteeoftheNationalOperationCouncil-CNO-.
Risk of new national and international business decisions and of
exercise of Corporate Governance, related to growth of the Economic
Group
Decisions regardingnationaland internationalbusinessandtheexerciseof
CorporateGovernanceoftheEconomicGroupareconductedbyISAthrougha
Report from the Board of Directors and the General Manager 73
structuredcatalogueoropportunitiespreparedaccordingtotheguidelinesofits
CorporateGrowthStrategyandthecriteriaestablishedbytheInvestmentPolicy.
Inthesamemanner,andintheinterestofeffectivelyhandlingthisrisk,during
theperiodISAdefinedtheCorporateGovernanceModel,withtwocomponents:
1)relationsamongtheCorporation,theBoardofDirectors,theshareholders,and
theothereconomicagentswith interests in theCompany;and2) structure to
defineitsobjectives,themeanstoreachsuchobjectives,andfollow-upprocedure
ofitsperformancetofacilitateunityofpurposeanddirection,andtosupportthe
EconomicGroup’scompetitiveandcorporatestrategies.
Justasitdidwiththepreviouslymentionedrisks,ISAhandledcorporaterisks,
even though theydonothave themost impacton theOrganization, through
implementation of mitigation measures and identification of other potential
actionsthathelptotheirreduction.
ItisimportanttopointoutthatISA’sIntegratedRiskManagementmodelwas
presentedtothe“IIIInternationalGeneration&TransmissionMeetingCIER-Risk&
Productivity”,obtainingrecognitionamongthepapersreceivingawards.
2.5.5 Legalaffairsmanagement
Duringtheperiod,ISAwasnotaffectedbyanyadministrativeaction,litigation
orcontingencythatmightundermineitsstability.
Judicialandadministrativeactionsfiledagainst itwere takencareof in the
sakeoftheCorporation’sinterests,andincompliancewithcorrespondingduties
andresponsibilities.At thesametime,and in itsownname, ISApromotedthe
judicialandadministrativeactionsneededforthedevelopmentofitscorporate
purposeanddefenseofitsinterests,respectingbindingregulationandtheother
parties’righttocontradictionandequality
TheCorporationcontinuedattendingclaimsrelatedtoapplicationofCREG
resolutions 077 and 111 of 2000, and 034, 038, and 094 of 2001, related to its
dutiesastheAdministratoroftheCommercialSettlementSystem.
ThedefendantsaretheMinistryofMinesandEnergy,andtheCREG,andasof
December31st,thenumberofclaimswas124.
74 Report from the Board of Directors and the General Manager
It is important to point out that ISA is accountable for the events taking
placeuntilSeptember30th2005,andasofOctober1st,thatresponsibilityisthe
competenceofXM,CompañiadeExpertosenMercados,astheAdministratorof
theCommercialSettlementSystem-ASIC-.
LegalandtechnicalanalysisgivesISAgoodreasontoconsiderthatthesuits
willbedecidedinitsfavorforthefollowingreasons:
• As the Administrator of the Commercial Settlement System, ISA must
applyCREGregulation(whichithas),beingamandatoryfunction.
• TheinvoicesandtheresolutionsissuedbyISAtosolvethelegalresources
filedbytheagentsstrictlycomplywiththeabovementionedregulations;
therefore,theycannotbethesourceofthedamageallegedbytheplaintiff
corporations.
Theargumentsallegedby ISAareexpectedtoresult in favorabledecisions.
Eventually, results could end up in compensation or settlement of accounts
amongthemarketagentsparticipatinginsuchtransactions,whichwouldnotbe
indetrimentoftheCorporation’sassets.
Ontheotherhand,theCorporationcompliedwithallregulationsregarding
intellectualpropertyandcopyrights,utilizedlegalsoftwareuponcorresponding
payment of rights, and abided by legal regulations in force when undertaking
operationswithrelatedparties.
Besides, additional information disclosure, demanded by Article 446 of the
CommercialCode,detailedintheFinancialStatements,isatthedisposalofthe
shareholders.
2.5.6 Managementcontrol
The Corporation has an internal control modeled after the Committee of
SponsoringOrganizationsoftheTreadwayCommission-COSO-,involvingseveral
hierarchicallevels.
The Corporate Auditing Committee, as a Board Committee, had quarterly
meetings along 2005. In such meetings, it approved the work plan of the
CorporateComptrollerOffice;itmonitoredtheareaperformance;andcompiled
Report from the Board of Directors and the General Manager 75
informationoncompliancelevelswiththeGoodGovernanceCode,andonthe
performanceoftheStatutoryAuditor,amongothers.
In the day-to-day management, the administration and the workers,
as accountable for and executors of internal control, contributed to its
strengthening.
On the other hand, and in order to ensure an independent and objective
process inevaluating theGroup’s internalcontrol system,andtocontribute to
directionunitythroughstandardizationofprocesses, theManagementControl
UnitbecametheCorporateComptrollerOffice.
In complying with its functions, the area handled 10 processes key to the
Corporationduringtheperiod,anditissued179recommendations,65ofthemof
highsignificance.Additionally,itobtainedcertificationbytheInstituteofInternal
Auditors-IIA-forthreeofitsinternalauditors.
Applyingtheself-evaluationmethodologyofthecorporatecontrolsystem,ISA
obtained80.6%scoringoneffectiveness;andonimplementationofimprovement
plansresultingfrominternalandexternalauditing,scoringwas99.41%.
2.5.7 Positioning,imageandbrandname
The Corporation’s general reputation continued along an interesting rising
trend, shown by its 91% scoring among its different interest groups (a figure
higherthanthatof2004,of86%).
ISAoutdoestheratingofnationalcompaniesinthepowerandfinancialsectors
itwascomparedwith,itisabovetheinternationalaverage,andnearstheupper
levelof93%establishedbyWalkerInformationGlobalNetworkmethodology.
Thegroupssurveyed, (shareholders,State,customers,suppliers,societyand
workers),assigntheCompanyratingsrangingbetween80%and100%inareas
suchasISA’sfocusonitsshareholders,financialperformance,sectorleadership,
servicequality,effectivemanagement,andbrandname.
2.5.8 Socialentrepreneurialresponsibilitymanagement
Intheconstructionofcorporateidentity,thedefinitionofacommonconcept
ofsocialresponsibilitystandsout,understoodas“thebalancedframeofrelations
among theGrupo ISA’saffiliatesand their interestedparties, constitutedbyan
76 Report from the Board of Directors and the General Manager
array of values, practices and commitments, aimed at aggregation of value,
generationoftrust,andcontributiontosustainabledevelopmentofthesocieties
wheretheyhadapresence.”
Inthisrespect,ISArevieweditscommitmentstotheinterestgroups,suppliers,
andState,intheframeoftheGoodGovernanceCode;itadvancedhomologation
ofcommitmentswiththeinterestgroupsinthemilieuoftheEconomicGroup;it
soughtalignmentamongcommitments,practicesandindicators;itparticipated
in construction of consensus related to social responsibility; and it joined the
GlobalPact,promotedbytheUnitedNations.
Withthesuppliers,itwentfromtheconceptofabest-negotiatedagreement
for acquisition of goods and services, to a decision to construct trust through
transparent institutional actions, equity, and clear rules for all purchasing
processes.
Incompliancewith legalandconstitutionalduties, theCorporation started
definitionofamodelthatcontributestoimprovedpublicmanagement,soasto
fulfillitscommitmenttostrengthentheRuleofLaw.
Continuityofcommitments toall interestgroups isunderscored,except to
thosewiththecustomers,whereitwentform“identifyingprioritiesandoutdoing
expectations”to“sustainablerelationsandservicewithquality,opportunity,and
competitivepricing”.
Inthelookoutforcoherenceamongcommitments,practicesandindicators,
since late 2004, and along 2005, and in joined efforts with the Instituto
Pensar,ofUniversidadJaveriana, theCompanyconductedastudyon its social
responsibility focus. Its results include international references on conceptual
and methodological issues, comparison with enterprises similar to ISA, and
recognizingofthevaluationbyinterestedpartiesoftheexerciseoftheCompany’s
socialresponsibility.
InjoiningtheGlobalPactpromotedbytheUnitedNationsasexerciseofSocial
EntrepreneurialResponsibility,inordertoestablishthedegreeofcorrespondence,
and to define current and potential practices to progressively account for its
compliance,ISAanalyzedtheprinciplesstructuringsuchPact,andthecorporate
referenceframework.
Report from the Board of Directors and the General Manager 77
Compliance with commitments to interest groups
In compliance with its commitments to its interest groups, and as part of
thedevelopmentof itsmanagementmodel, ISAconsiders that itsworkersare
the foundation for socially responsible actions, and that optimal relations with
suppliers, theState,andsocietyareonecondition fordeliveryof serviceswith
high competitiveness, and a high level of customer satisfaction, all of which
resultsinhigheryieldsfortheshareholders.
Duringtheperiod,ISAsawthefollowingresults:
• Toward the workers, the foundation of its deeds, it assumed the
commitment to value and compensate their knowledge and ideas, to
helptheirgrowth,asevidencedbytheaverageformationtimeperworker,
standingat56.4hours,abovetheinternationalaverageof43hours,and
by 4.2 Organizational Climate rating. Recognition, one of the climate
dimensions,continuesataround3.5.
• With the suppliers, its relations showed transparency, equity, and clear
rules, reflected by 91.3% scoring (4 points up on 2004), awarded to the
Corporationbysuchgroup.
• Withsociety,itassumedthefollowingcommitments:
– Deliverqualityservices,whichisshownby99.657%averageavailability
fortotalassets,countinginattacks,andaboveregulatorylimit.
– Contributetosustainabledevelopment.Incompliancewithregulation,
and upon $3,750-million investment, ISA preventively handled
environmental impact coming from construction and operation
processes. The period saw neither sanctions from environmental
authorities,norconflictwithcommunitiesaffectedbytheprojects.
– Contribute to the construction of peace in Colombia, and gain
legitimacy. Social investment totaled $2,992.5 million, 17.3% up on
2004, permitting promotion of 16 development and peace regional
initiatives, with an influence on 428 municipalities and presence in
169.Italsodevelopedcommunalactivitiesin85municipalities
78 Report from the Board of Directors and the General Manager
• ThefollowingfactsreflecttheCorporation’scommitmenttostrengthening
the Rule of Law: zero penalties from fiscal authorities or control and
supervision organisms; support for the Government in general interest
matters,suchastheFreeTradeAgreement-FTA-withtheUSA;promotion
of the Colombia-Panama interconnection; and participation in inter-
institutional mechanisms for the protection of the Nation’s energy
infrastructure.
• Toidentifyprioritiesandoutdocustomers’expectations,theCorporation
scheduledaPlanofVisits (50customersoutof150), implemented in its
entirety,toidentifytheirexpectations,introducenecessaryimprovements,
andagreeonapromiseofservice.Theseactionstranslatein83%scoring
ontheAnnualSatisfactionSurvey(oneandahalfpercentagepointsabove
pastyear).
• Complyingwiththecommitmenttoaddvaluefortheshareholders,EBITDA
positionedat$480,037million,$5,853millionbelowthegoal,duetoIPP
behavior, increased actuarial estimate, expenses related to preparation
of proposals for international bids, and lower revenues from delivery of
ancillary services. Despite the above, ISA maintained its AAA credit risk,
andBBinternationalratings.
SpecificresultsofinterestgroupsmanagementcanbefoundintheRSE2005
Reportandatwww.isa.com.co.
2.6 Management results
2.6.1 Integralmanagementchart
AggregatedresultsintheIntegralManagementChartare58.90%abovelower
limit.Nextisapresentationofachievementsbyperspectives:
Financial perspective: 34.59% (above expected lower level). Indicators that
did not reach lower improvement goal were EVA, EVA increase, non-regulated
revenues, revenues regulated from connection services, and total returns. See
Table 14.
Report from the Board of Directors and the General Manager 79
Financial perspective
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: Add value through our growth Specific goal: Grow profitably through new investments or by improving current business
EBITDA Million Monthly 485,890 510,185 488,548 (*)EVA Million Semiannually -9,815 5,127 -15,579Increase In EVA Million Semiannually 81,025 95,966 75,261(Shareholders Interest Group)Total return % Semiannually 16.16% 16.97% 14.44%
Strategic goal: Ensure optimal business operationSpecific goal: Operational optimization of energy business
Connection service regulated revenues Million Monthly 55,632 55,633 55,415Non-regulated revenues Million Monthly 25,095 38,680 23,489EBITDA margin % Monthly 70.9% 73.0% 71.90%STE actual AOM costs/ homologated km Million Monthly 9.59 8.94 8.61
Specific goal: Optimize financial resources and tax burden
Cash flow available to shareholders Million Quarterly 405,873 429,866 488,452EBITDA/ operating interest Times Monthly 2.5 3.8 3.8FCL/ debt service Times Monthly 1.0 1.2 1.56Actual tax rate % Semiannually 42.69% 28.50% 27.11%
Strategic goal: Achieve Company recognition in the capital market Specific goal: Gain and maintain investors’ trust
Compliance with commitments to investors % Monthly 95% 100% 100%
(*) EBITDA refined to exclude non-feasible studies.
80 Report from the Board of Directors and the General Manager
Customerandmarketperspective:52.32%(aboveexpectedlowerlimit).See
Table 15.
Ofthesixindicatorsagreed,fivegotratingsof100%,theupperimprovement
limit.Physicalexecutionof investmentprojectsdidnotachievetheupper limit
duetodelaysinUPMEprojectsstemmingfromfabricationofcurrenttransformers
andinsulators,substationauxiliaryservices,substationcivilworks,negotiationof
landforlines,deliverydateforthelines’foundationsandstructures,fabricationof
conductingcable,andlinesconstructionanderection.
Customer and market perspective
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: Satisfy customersSpecific goal: Compliance with objective service elements
Availability of energy transport service % Monthly 99.652% 99.928% 99.94%Physical execution of investment projects (UPMES) % Quarterly 31% >=39% 51.5%
Specific goal: Excellent service attitude
Evaluation of External Customer Satisfaction % Annually 80% >=82% 83%(Customers Interest Group).
Strategic goal: Be recognized in target market Specific goal: Develop value proposal for target markets
General reputation (Measured by T3B) % Annually 80% >=86% 91%Corporate image % Annually 75% >=79% 78%Advancement in defined and deployed % Monthly 95% 100% 100%business’ value proposal.
Report from the Board of Directors and the General Manager 81
Productivityandefficiencyperspective:100%. See Table 16.
Productivity and efficiency perspective
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: Quality assurance Specific goal: Continuous improvement of operating processes
Number of minor non-conformities No. Annually 10 0 0in ISO-certification audit for services.
Strategic goal: Govern costs to become efficient Specific goal: Achieve operating efficiency for AOM components
Degree of identification, homologation, classification and % Monthly 95% 100% 97.66%implementation of best practices (strategic operator role).
Strategic goal: Manage process risks Specific goal: Implement risk integral management measures
Degree of identification, evaluation, valuation and % Monthly 95% 100% 100%administration of Company risks.
Strategic goal: Build viability through socially responsible management Specific goal: Articulate and/or develop management around commitments to interest groups
Social investment index (Society Interest Group) % Monthly 0.67% 0.72% 0.82%Results of suppliers annual survey % Annually 80% 87% 91.30%(Suppliers interest group).
82 Report from the Board of Directors and the General Manager
Organizationallearningandhumantalentdevelopmentperspective:79.90%
(abovethelowerlevelexpected).See Table 17.
2.6.2 Developmentplan
Altogether,compliancewiththeplanwas98.4%.Ofthe25relevantactions
plannedfor ISA,19achieved100%compliance,fivesawover90%compliance,
andonewasbelow90%.
Organizational learning and human talent development perspective
Monitoring Indicator Unit Periodicity Goal 2005 Lower Limit Upper Limit Score
Strategic goal: Build up knowledge assets to achieve organization’s goals Specific goal: Implement human capital preparedness
Human capital preparedness degree, % Annually 40% 30% 28.19%deviation of technical and human competences (work teams).Human capital preparedness degree, % Annually 40% 30% -12.65%deviation of technical and human competencies (supervisors).
Specific goal: Build up organizational capital
Appreciation of organizational climate Rating Annually 4.0 4.5 4.2(Team-workers Interest Group).Occupational safety. Accident index No. of incapacitating Quarterly 2.00 1.94 1.66(frequency) accidents / No. of man-hours worked
Specific goal: Implement technological capital preparedness (technological capital)
Technological preparedness degree: % Monthly 95% 100% 99%Compliance with technological plan.
Report from the Board of Directors and the General Manager 83
2.7 Financial results of Interconexion Electrica S.A. E.S.P.
2.7.1 Operatingresults
$Million 2004 2005 Variation Var.%
Operatingresults
Revenues 712,206 708,281 -3,925 -0.6%
Costsandexpenses 341,406 347,515 6,109 1.8%
EBITDA 497,804 480,037 -17,767 -3.6%
Operatingincome 370,800 360,766 -10,034 -2.7%
EBITDAmargin 69.9% 67.8%
Operatingmargin 52.1% 50.9%
2.7.1.1 Operating revenues
ISA earned revenues of $708,281 million (0.6% less than in 2004); revenues
forUseandConnection,correspondingto92.6%oftotalrevenues,grewby3.3%
andthoseoftelecommunicationsby21.6%;ancillaryactivitiesfellby36.4%due
mainlytodecreaseinprojectsmanagement;andto35%reductioninCND-MEM
revenues,explainedbystartofcommercialoperationofXMasaGroupaffiliate.
See Charts 33 and 34.
Operating revenues
537,748 570,635
657,148 712,206 708,281
6.1% 15.2%
8.4% -0.6%
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
2001 2002 2003 2004 2005
$ Million
Participation inoperating revenues
USO84.8%
AncillaryActivities
2.4%
Telecommunications0.7%
CND and MEM4.2%
Connection7.8%
84 Report from the Board of Directors and the General Manager
2.7.1.2 Operating costs and expenses
Operatingcostsandexpenses totaled$347,515million (1.8%upon2004).
See Chart 35.
Administrationandoperationexpendituresincreasedby7.2%,duetofactors
suchas:effectofinflationappliedtopersonalservices,highertaxesforpayments
of stamps charged by Empresas Municipales de Cali -EMCALI- ($1,661 million),
andstudiesandbiddingpreparationexpenses($9,730million).See Chart 36.
Operating costs and expenses
270,659263,544
330,701 341,406 347,515
1.8%3.2%
25.5%-2.6%
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2001 2002 2003 2004 2005
$ Million
Operating costs and expenses
227,917
98,120
13,238 2,131
244,225
97,048
3,485 2,7570
50,000
100,000
150,000
200,000
250,000
300,000
Administ. and operation Deprec. and amort. Provisions Transfers
$ Million
2004 2005
Report from the Board of Directors and the General Manager 85
EBITDA and operating income
Reduction in EBITDA and operating income is accounted for by operating
revenuesandoperatingcostsandexpenses.
For the purpose of comparison, historic EBITDA is recalculated, excluding
pension and actuarial items, due to the treatment given by the Company to
liabilities.
EBITDA and EBITDA margin
394,261
423,812
497,804 480,037
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
550,000
2001 2002 2003 2004 2005
$ Million
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
%
73.3% 74.3%71.5% 69.9% 67.8%
73.3% 74.3%71.5% 69.9% 67.8%
470,044
Operating income and operating margin
267,089
307,092326,447
370,800360,766
14.98% 6.30% 13.59% -2.71%
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
2001 2002 2003 2004 2005
$ Million
0.0
10.0
20.0
30.0
40.0
50.0
60.0
70.0
80.0
%
49.7%53.8%
49.7% 52.1% 50.9%49.7%53.8%
49.7% 52.1% 50.9%
86 Report from the Board of Directors and the General Manager
2.7.2 Non-operatingresults
$Million 2004 2005 Variation Var.%
Non-operatingresults
Financialresults-net -126,299 -119,463 6,836 -5.4
Exchangedifference-net -8,498 -18,457 -9,959 117.2
Participationinsubordinates 2,348 20,606 18,258 777.6
Otherrevenuesandexpenditures -21,819 -2,996 18,823 -86.3
Non-operatingresults -154,268 -120,310 33,958 -22.0
Non-operating losses decreased by $33,958 million, as a result of the good
performanceofthesubordinates,recoveryofprovisionsofpreviousfiscalyears,
anddecreasedfinancialexpensesforpaymentofobligationsinlocalandforeign
currency.
Expensesduetoattacks, inturn,wentupby23.4%(from$12,433million in
2004to$15,342millionin2005).See Chart 39.
Hedging operations
Balanceof rightsassociated tohedgingoperations:Swap,withBNPParibas
and Bancolombia for US$77 million (US$75,9 million of capital hedging, and
US$1,1 of interest hedging).This allows 61.5% coverage of debt contracted in
foreign currency with Multilateral Banking, and stabilizes the Company’s debt
servicecashflows.
Non-operating revenues and expenses
-126,299
-8,498 -21,819
2,348
-119,463
-18,457 -2,996
20,606
-200,000
-150,000
-100,000
-50,000
-
50,000
100,000
Financial Exch. Difference net Other Part. in Subordinates
$ Million
2004 2005
Report from the Board of Directors and the General Manager 87
Participation in subordinates
Participationinsubordinatesshowednetpositiveresultsof$20,606million:
$17,440 million corresponding to ISA subordinates and $3,166 million to
investment in FEN. Participation method is applied to this latter starting 2005.
See Table 18.
Incomeofenergysectorsubordinateswas$33,232million(216.1%morethan
in2004),andlossesofthetelecommunicationssectorcorporationswere$15,792
million(93.4%lessthanin2004).
2.7.3 Incometaxprovisionandnetincome
$Million 2004 2005 Variation Var.%
ISAResults
Pre-taxIncome 216,532 240,456 23,924 11.0
IncomeTaxProvision 76,517 53,277 -23,240 -30.4
NetIncome 140,015 187,179 47,164 33.7
2.7.3.1 Income tax provision
This item showed 30.4% reduction with respect to 2004, due to utilization
ofspecialdeductionforinvestmentinproductive,fixedassetsmadeduringthe
year. See Chart 40.
$Million Part.%InvestmentBalance 2004 2005 Variation Var.%
Company Dec.31st2005
TRANSELCA 65.00 413,578 6,216 24,230 18,014 289.8
REP 30.00 100,996 3,261 1,041 -2,220 -68.1
ISAPerú 28.07 18,493 1,035 7,774 6,739 651.1
ISABolivia 51.00 27,201 - 159 159 N.A.
XM 99.73 14,818 - 28 28 N.A.
Totalpowersector 575,086 10,512 33,232 22,720 216.1
INTERNEXA 99.99 98,613 1,632 -5,889 -7,521 -460.9
FLYCOM 75.04 5,550 -9,796 -9,903 -107 1.1
Totaltelecommunicationssector 104,163 -8,164 -15,792 -7,628 93.4
Totalaffiliates 679,249 2,348 17,440 15,092 642.9
FEN 9,045 - 3,166 3,166 N.A.
Totalparticipation 688,294 2,348 20,606 18,258 777.6
Non-operating revenues and expenses
-126,299
-8,498 -21,819
2,348
-119,463
-18,457 -2,996
20,606
-200,000
-150,000
-100,000
-50,000
-
50,000
100,000
Financial Exch. Difference net Other Part. in Subordinates
$ Million
2004 2005
Participation
88 Report from the Board of Directors and the General Manager
2.7.3.2 Net income
ISArecorded$187,179millionnetincome(or33.7%riseover2004),equivalent
to26.4%netmargin.See Chart 41.
Income tax provision
28,158
9,096
64,47876,517
53,277
-67.7%608.9%
18.7%-30.4%
010,00020,00030,00040,00050,00060,00070,00080,00090,000
100,000
2001 2002 2003 2004 2005
$ Million
Net income
101,109
23,919
81,453
140,015
187,179
33.7%
71.9%
240.5%-76.3%
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
2001 2002 2003 2004 2005
$ Million
Report from the Board of Directors and the General Manager 89
2.8 Balance sheet
2.8.1 Assets
Total assets reached $4,529,459 million (see Chart 43): 72.2% corresponds
to property, plant, equipment and reappraisals; 2.6% to cash and temporary
investments;5.0% to receivables;0.7% to inventories;3.6% tootherassetsand
deferredcharges;and15.9%topermanentinvestments.Theselatterbreakdown
asfollows:$679,249millionforsubordinatesinColombia,PeruandBolivia;$19,329
millionforFENandEPR;and$22,878millionforengineeringofUPMESandtrust
rightsinshareliquidityfunds,tobeliquidatedthefirstsemesterof2006.
Balance Sheet
3,764,9794,209,505 4,314,980
4,529,4594,525,552
0500,000
1,000,0001,500,0002,000,0002,500,0003,000,0003,500,0004,000,0004,500,0005,000,000
2001 2002 2003 2004 2005
$ Million
Patrimonio Pasivo Activo total
2,007,992 2,308,298 2,397,107 2,655,899 2,786,702
1,756,987 1,901,2071,917,873 1,869,653 1,742,757
2,007,992 2,308,298 2,397,107 2,655,899 2,786,702
1,756,987 1,901,2071,917,873 1,869,653 1,742,757
Total assets
3,764,979 4,209,505 4,314,9804,525,552 4,529,459
11.8% 2.5% 4.9%
0.1%
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
2001 2002 2003 2004 2005
$ Million
Income tax provision
28,158
9,096
64,47876,517
53,277
-67.7%608.9%
18.7%-30.4%
010,00020,00030,00040,00050,00060,00070,00080,00090,000
100,000
2001 2002 2003 2004 2005
$ Million
Net income
101,109
23,919
81,453
140,015
187,179
33.7%
71.9%
240.5%-76.3%
020,00040,00060,00080,000
100,000120,000140,000160,000180,000200,000
2001 2002 2003 2004 2005
$ Million
90 Report from the Board of Directors and the General Manager
2.8.2 Liabilities
Total liabilities reached $1,742,757 million (6.8% down on 2004): 64.3%
financial liabilities, 6.3% liabilities with related parties, 8.9% long-and-short
term labor liabilities, and20.4% inaccountspayable to suppliers, and taxes.
See Chart 44.
As of December 31st, the financial debt portfolio, consisting of loans in
domesticcurrency,foreigncurrencyandbonds,totaled$1,038,563million(11.5%
lessthanin2004,whenitwas$1,173,121million).Theimpactfromtheexchange
ratedifferenceontheforeign-currencydebtwaspositive,theresultofColombian
pesorevaluationalongtheyear,whichloweredtotalliabilitiesbalance.
TheCompany’stotalleveragewas38%.
2.8.2.1 Financial liabilities
AsofDecember31st,totaldebtwas$1,038,563million.Indomesticcurrency,
$744,061million,andinforeigncurrency,$294,502million,equivalentto71.6%
and28.4%,respectively.
Foreign-currencyfinancialliabilitiesshrankby17.8%(fromUS$157millionin
2004, to US$129 million in 2005), explained by amortizations of foreign loans.
Likewise,hedgingoperationswentfromUS$91millionin2004toUS$76million
in2005,duetopaymentsagreedonintheseoperations.
Total liabilities
1,756,9871,901,207 1,917,873 1,869,653
1,742,757-6.8%-2.5%0.9%8.2%
0
500,000
1,000,000
1,500,000
2,000,000
2001 2002 2003 2004 2005
$ Million
Report from the Board of Directors and the General Manager 91
Bonds70.1%
Domesticloans1.5%
Foreignloans28.4%
Debt breakdownby financing source
Debt portfolio breakdown by currencies and financing sources, with and
withouthedgingoperations,isasfollows:(See Charts 45 and 46)
Bondparticipationintotaldebtportfoliowas70.1%,equivalentto$728,061
million.See Chart 47.
Forclosureoftreasury loans,theCorporationdesignedandimplementeda
newmethodology,consistingoftwoauctionsviaInternettocontractloanswith
one-yearterms, inwhich12financialsectorentitiesparticipated:April18th,for
$25,000million,andJuly19th,for$16,000million.Throughthistransactions,the
Corporationsaved$232million,sinceitobtainedDTF+0.85%rates,vis-à-visthe
ceilingratewithwhichtheauctionsstarted,whichwasDTF+1.5%.
Ontheotherhand,ExternalResolutionNº2739ofNovember3rd2005,issued
bytheMinistryofFinanceandPublicCredit,authorizesISAtosubscribeaforeign
loanagreementwithBNPParibas,foruptothefollowingsums:a)US$33,949,000
andb)theequivalentinUSdollarsof€3,252,950.Eventhoughthetwoentities
subscribedtheloanagreement,nodisbursementshavebeenmadesofar.
Those resources will be earmarked for financing goods and supplies for
theUPMEprojectsof2003.TheycomefromGermanyandBrazilandtheyhave
politicalandeconomicriskhedgingfromGermanECAEulerHermes.
2.8.2.2 Labor liabilities
In accordance with actuarial estimates projected for 2005, the Corporation
has$97,484million liabilities, ($28,594million lessthan in2004),duemainlyto
LegislativeAct001of2005,whicheliminatesspecialregimes.
Atperiodclosing,83.3%($81,186million)hasbeenamortized.
2.9 Cash flow
2.9.1 Sources
TheCorporationhadtotalcashflowof$1,278,185million: initialavailability
was$123,726million,current revenuesstoodat$771,637million,whilecapital
revenuesreached$382,822million.
Total liabilities
1,756,9871,901,207 1,917,873 1,869,653
1,742,757-6.8%-2.5%0.9%8.2%
0
500,000
1,000,000
1,500,000
2,000,000
2001 2002 2003 2004 2005
$ Million
Breakdown by currencyexcluding hedging operations
Peso71.7%
US Dollar23.5%
Unit of account3.4%
EURO1.3%
Breakdown by currencyincluding hedging operations
Peso89.0%
US Dollar9.5%
Unit of account0.1%
EURO1.3%
92 Report from the Board of Directors and the General Manager
2.9.2 Uses
Thepreviousresourceswereusedin:
• $142,543millionforinvestments.
• $336,882millionfordebtservice.
• $301,531 million for running expenses (personal services, general
expenses,taxes,insuranceanddestroyedtowers,amongothers).
• $99,395 million for payment of dividends and loans to subordinates
$70,237.
• $4,756 million for construction of third parties’ projects (delegated
administration).
Ending cash availability was $137,297 million, of which $73,713 million
remainedasISA’savailableresources,afterdiscountingspecific-destinationfunds:
delegated administration, $33,487 million; UPMES trust estate, $10,621 million;
shareliquidityfund,$8,451million;andrisk-withholdingfunds,$11,025million.
Cashbudgetshowed99%executionintheareaofcurrentrevenues,85%in
expenditures(expenses,debtservice,delegatedadministrationandpaymentof
dividends)and52%ininvestment.
2.10 Credit risk rating
AAAratingwasratifiedforthethreebondissuesandthedomesticdebtbonds
programofISA.Suchrating,thehighestawardedbyDuff&PhelpsdeColombia
S.A,meansissueswiththehighestcreditquality,whereriskfactorsarepractically
nonexistent.
Standard&Poor’sratifiedISA’sBBBinternationalratingindomesticcurrency,
andBBinforeigncurrency(sameassovereignceilingoftheRepublicofColombia,
withastableoutlook),forlong-termcorporatecredit.
ThepreviousconfirmsthegoodmomenttheCorporationisgoingthrough,
itshighoperatingcapacityanditssolidfinancialstructure.
Report from the Board of Directors and the General Manager 93
2.11 Share performance in the capital market
2.11.1 Colombia’sstockmarket
Once again, the Colombian Stock Exchange took the first places among
the stock markets with the largest growth worldwide, according to theWorld
Federation of Exchanges (WFE). It occupied the second place, among the
securitiesmarketswiththemostgrowth,outdoneonlybySriLanka.
What happened in the securities market is undoubtedly a reflection of the
behavior of the rest of the economy: growth outdid the expectations; interest
rates were relatively low; investment resources saw an increase on the part of
foreign and institutional agents; the Colombian peso gained strength, making
investmentindollarslessattractive;andmajorbusinessdeals,suchasthesalesof
Bavaria,Coltabaco,andDiaco,materializedthroughtheStockExchange.
Figures tell the story loud and clear: average share appreciation outdid
100% goal set along the year; index averaging quote of shares listed on the
stockexchange-IGBC-wentfrom4,350pointsinJanuaryto9,513inDecember
(119%rise);andvolumetradedinthestockrounds,grewsignificantly,bytrading
$21,960,000million(afigureequivalenttomorethantwicethevaluetradedin
2004).
2.11.2 ISA’sstockinthemarket
Forsecondconsecutiveyear,ISA’sstockwasamongthemostprofitableofthe
market.Theyearstartedwithaquoteof$2,090andendedat$5,650(thehighest
everinitshistory),whichcorrespondstoanappreciationof170%during2005,
highabovethatrecordedbytheIGBC.Thestock’sintrinsicvalueatyear’sendwas
$2,902(4.9%upon2004).
AsofDecember31,marketcapitalizationwas$5,400,000million,almostthree
timesthatofthepastyearof$2,000,000million.
Thestockwastradedat244Exchangerounds.Alongtheyear,161.6million
shares were traded equivalent to 60% of the Corporation’s free float capital,
placing ISA’s shares among those with highest liquidity and tradability in the
market.See Chart 48.
94 Report from the Board of Directors and the General Manager
2.11.3 LevelIADRs(AmericanDepositaryReceipts)
In2005,39,723ADRswereissuedcorrespondingto993,075shares(1ADR=
25shares).Ontheotherhand,28,699ADRswerecancelled,theresultofshares
soldinthedomesticmarket.
Since the registration of the shares in the United States in March 2004,
anduntilDecember31st2005,ADRsaccumulated total182,424,equivalent to
4,560,600sharesandto0.48%oftheCompany’sshareownership.
At the beginning of the year, ADR’s reference price was US$21.86; closing
pricewasUS$61.84(see Tables).
Month Days Priceperformance Variation VolumeTraded quoted %Monthly Maximum Minimum Average Closing Shares Million$January 19 2,120 2,030 2,058 2,120 1.4 6,572,773 13,520February 20 2,415 2,180 2,276 2,410 13.7 16,012,263 36,883March 20 2,330 2,020 2,188 2,180 -9.54 6,827,621 15,015April 21 2,390 2,125 2,231 2,390 9.6 10,694,935 23,728May 20 2,425 2,375 2,401 2,410 0.8 6,092,932 14,353June 21 2,810 2,465 2,648 2,810 16.6 16,430,086 43,412July 19 3,340 2,900 3,127 3,300 17.4 15,535,456 50,410August 22 4,000 3,400 3,721 3,820 15.8 25,161,701 93,223September 22 3,960 3,605 3,738 3,740 -2.09 14,316,298 53,331October 20 3,890 3,600 3,806 3,850 2.9 12,184,609 46,538November 20 4,925 3,900 4,421 4,890 27.0 20,977,113 92,851December 20 5,650 4,880 5,138 5,650 15.5 10,769,017 54,808Total 244 5,650 2,020 3,154 5,650 170 161.574.804 538,073
Evolution of ISA’s quote and daily volume
-200
20406080
100120140160180
Jan-
05
Feb-
05
Mar
-05
Apr-0
5
Apr-0
5
May
-05
Jun-
05
Jul-0
5
Aug-
05
Sep-
05
Oct-0
5
Nov-
05
Dec-
05
0
1
2
3
4
Shared Traded (millions) ISA IGBC
Return(appreciation %)
Volume (million of shares)
Report from the Board of Directors and the General Manager 95
Month ADRs ADRs ADRs
Issue Cancellation Acumulated
Balance
June-04 21,119 - 21,119
July-05 84,381 - 105,500
October-04 37,200 - 142,700
November-04 28,700 - 171,400
TotalYear2004 171,400 - 171,400
June-05 - (17,200) (17,200)
July-05 6,640 - (10,560)
August-05 26,763 (5,399) 10,804
September-05 - (6,000) 4,804
November-05 4,972 (100) 9,676
December-05 1,348 - 11,024
TotalYear2005 39,723 (28,699) 11,024
Totalaccumulated 211,123 (28,699) 182,424
Totalaccumulated Dec.31st2004 Dec.31st2005 Variation
No.ofADRs 171,400 182,424 11,024
No.ofShares 4,285,000 4,560,600 275,600
3. PERSPECTIVES AND COMMITMENTS FOR 2006
Both ISA and the Economic Group have set ambitious challenges for
themselves:
TheEconomicGroup,availingofthestrengthsofitsaffiliates,ofconsolidated
unityofpurposeanddirection,of thesynergyconstructedamongtheGroup’s
affiliates, of homologated policies and guidelines, and of implementation
of the best operating and managerial practices, will channel its efforts in two
directions:
• Generatevalue,expandingitsparticipationinthetargetmarket,bothin
transportandadministrationofenergymarkets,andefficientlyconducting
itscommercialmanagement.
• Enter other activities related to transport of energy products, for which
itwillfindanoptimalorganizationthatwillmakeitpossibletoreachthe
goalsexpected.
96 Report from the Board of Directors and the General Manager
Onitspart,ISA,asanenergy-transportcompany:
• Willseekpermanentaggregationofvalue,byincreasingitsmarketshare
andimprovingitscustomers’satisfactionthroughhigh-qualityservices.
• Will continue working in the search of efficiency, to offer services at
competitiveprices.
• Will focus efforts on reaching goals related to compliance with the
commitments to its interest groups, in the communities where it has a
presence.
3.1 Growth
Target markets for the Group’s growth continue to be the countries of the
AndeanCommunityofNations,MERCOSURandSICA,withoutrulingoutsome
opportunitiesthatmayariseinsomeregionsoftheUnitedStates.
Growth strategy will continue its focus on investment in assets, promotion
of energy markets, delivery of energy-transport ancillary services, as well as
operationandadministrationofenergymarkets.
Withtheideainmindtowidenitsinvestmentportfolio,theGroupisexploring
itsgrowthopportunitiesinthegassub-sector,givenitsimportantpotentialfor
constructionofsynergywiththeelectricitybusiness.
It is important to point out the growing attractiveness of Latin American
markets for new investors, thanks to increased stability, and to the region’s
economicgrowth,thathasgivenrisetoaneverhighernumberofinfrastructure
developmentopportunitiesinthesectorsofenergyandtelecommunications.
The challenge for growth of the Grupo ISA is competing with market
participantswithsubstantialfinancial resourcesandhightechnicalcapabilities,
whichcallsfornovelassociationandfinancinglayouts.
Report from the Board of Directors and the General Manager 97
3.1.1 Energy
During2006,GrupoISAwillseekcapitalparticipationintheenergy-transport
companies with regional relevance, and which are starting a sales process; it
willparticipateinbiddingsforconstructionoftransmissionnetworks;anditwill
increaseparticipationindeliveryofrelatedservicesinLatinAmerica.
Additionally, itwillcontinuepromoting integrationofmarkets, inparticular
Peru-EcuadorandColombia-Venezuelamarkets;anditwillcontinueadvancing
studiestoachieveregulatoryharmony,thatwillallowintegrationoftheAndean
RegionandCentralAmerica.
3.1.2 Telecommunications
INTERNEXA will focus on development of projects on the Grupo ISA’s grid
infrastructure, nationally and internationally, to offer voice and data transport
capacitytotelecommunicationsoperators.Anditwillfocuseffortstoventurein
thePeruandVenezuelamarkets.
FLYCOM COMUNICACIONES will continue consolidating its participation in
thenationalmarketwithafocusonconnectivityandvalueadded.
98 Report from the Board of Directors and the General Manager
3.2 Management instruments for 2006
3.2.1IntegralManagementChartforGrupoEmpresarialISAFinancial perspective
Monitoring Indicator Unit Periodicity Budget Goal Comments 2006 Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Ensure value generationIncrease in Group’s EVA $ Billion Semiannually 120,267 108,433 130,655 Lower Limit Total Upper Limit Total Companies’ CGI Companies’ CGIGroup’s total return % in Current $ Semiannually 11.94% 11.94% > 11.94% Based on each company’s capital costSum of companies’ EBITDA $ Billion Monthly 724,126 707,994 738,883 Based on the companies’ CGI limits
Market perspective Monitoring Indicator Unit Periodicity Goal Comments Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Increase participation in target marketAnnual increase in Group’s Million US$ Quarterly 30 40 Minimum acceptable 30% growthfuture revenues in 5 years Number of deals won in the gas sub-sector Number Annually 1 1 One deals won
Productivity and efficiency perspective Monitoring Indicator Unit Periodicity Goal Comments Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Consolidate unit of purpose and direction Level of incorporation of Corporate Governance Rating Annually 50 70 Minimum Achievement acceptable of purpose
Strategic goal: Ensure construction and availing of synergyDegree of identification, homologation, % Monthly 95% 100% Minimum Complianceclassification and implementation of best acceptable and achievement practices (strategic operator role). advancement of results
Organizational learning and human talent development perspective Monitoring Indicator Unit Periodicity Goal Comments Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Develop organizational capitalPreparedness degree of organizational development % Annually 50 70 Minimum Achievement acceptable of purpose
Strategic goal: Implement technological preparednessCompliance with technological plan for the Group % Semiannually 95% 100% Minimum Compliance acceptable and achievement advancement of results
Report from the Board of Directors and the General Manager 99
3.2.1.1 TopLevelIntegralManagementChart-ISA.
Financial perspective
Monitoring Indicator Unit Periodicity Budget Goal Comments 2006 Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Ensure value generation
ISA’s EBITDA Million Monthly 487,554 477,803 497,305 2% budget 2% budget decrease increase Increase in EVA Million Semiannually 107,511 101,514 113,508 Impact of Impact of 2% decrease 2% increase in EBITDA in EBITDA Total return % Semiannually 12.1% 12.1% >= 12.1% WACC 2006 > WACC 2006Dividends and loans Million Semiannually 55,413 49,872 56,521 10% budget 2% budget decrease increase Debt balance + guarantees/EBITDA Times Monthly 3.28 >2.5 <4.5 >Budget < BudgetCompliance with investment plan % Monthly 90% 100% Investment: $151,919 MillionUPME 01 Primavera-Bacata acceptable mobility during the year for payments between 90% and 110%. Compliance with investment plan % Monthly 90% 100% Investment: $306,986 MillionUPME 02 Primavera-Bolivar. acceptable mobility during the year for payments between 90% and 110%.
Strategic goal: Achieve Company recognition in the capital market Share appreciation / IGBC appreciation Times Monthly 1 > 1 Share appreciation above IGBC’s
100 Report from the Board of Directors and the General Manager
Customer and market perspective
Monitoring Indicator Unit Periodicity Goal Comments Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Increase participation in target market
Annual increase of future revenues Million US$ Quarterly 15 30 Minimum 30% Growthmanaged by the Company. acceptable in 5 years
Strategic goal: Provide outstanding quality services
Non-supplied energy (500kV and 230kV) MWh Monthly 4,800 2,500 Better than Better than 2001-2005 lower 2001-2005 upperInterruption rate Interruptions / 100 km Monthly 0.40 0.31 Better than Better than (500 kV y 230 kV) / 100 km 2001-2006 lowest 2001-2006 highestEvaluation of external customer satisfaction % Annually 80% 84% Performance 4% increase upper level on lower goal
Strategic goal: Achieve recognition in target market
General reputation (T3B) % Annually 80% 91% Performance Past year upper level compliance
Productivity and efficiency perspective
Monitoring Indicator Unit Periodicity Goal Comments Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Govern costs to become efficient
STE Effective AOM Costs / revenues % Monthly 105% 101% 1% Increase 3% Savingsrecognized for AOM AOM expenses AOM expenses
Strategic goal: Quality assurance
Maneuvers and maintenance errors No. Monthly 0 0 Zero errors commitmentcausing unattended demand.Number of minor non-conformities No. Annually 5 0 Maximum number Excellencein ISO-certification audit.Actions implemented as result of % Monthly 95% 100% Minimum Compliance internal and external audits, Statutory Auditor acceptable and achievementand National General Auditing Office. advancement of results
Strategic goal: Develop a model for relations with the environment
Social investment Million Monthly 2,578 2,714 95% of Budget budget value 2006
Report from the Board of Directors and the General Manager 101
Organizational learning and human talent development perspective
Monitoring Indicator Unit Periodicity Goal Comments Lower Limit Upper Limit Lower Limit Upper Limit
Strategic goal: Develop organizational capital
Preparedness degree of organizational capital % Annually 60% 70% Minimum Achievement acceptable of purposeOrganizational climate appreciation Rating Annually 4.0 4.5 Minimum International requirement standardAccident index (frequency) Accidents /240.000 m-h Quarterly 2.00 1.00 Minimum acceptable Level of excellence
Strategic goal: Implement human capital preparedness
Human capital preparedness degree: % Annually 40% 20% Maximum deviation ExcellenceDeviation of technical competencies in work teams. allowedHuman capital preparedness degree: % Anual 40% 20% Maximum deviation ExcellenceDeviation of personal competencies in work teams.Human capital preparedness degree: % Annually 40% 20% Maximum deviation ExcellenceDeviation of technical competencies in senior management. allowedHuman capital preparedness degree: % Annually 40% 20% Maximum deviation ExcellenceDeviation of personal competencies in senior management.
Strategic goal: Implement technological preparedness
Technological preparedness degree: % Monthly 95% 100% Minimum AchievementCompliance with technological plan acceptable of purpose
102 Report from the Board of Directors and the General Manager
3.2.2 Cashflowbudget2006
For conducting its operations, ISA has a cash budget of $1,534,074 million
(seeTable19),consistingof:
• An initialcashbalanceof$140,275million,ofwhich$63,584millionare
specific-purposefunds(delegatedadministrations,$33,487million;stock
liquidity fund, $8,451 million; risk withholding fund, $11,025 million;
UPMES fund, $10,621 million); the remaining $76,691 million constitute
availableresources.
• Currentrevenuesfor$696,741million(fromexploitation,$693,393million;
othercurrentrevenues,$3,347million).
• Capital revenues for $690,632 million (capital and financial market
financing,$616,804million;loansfromaffiliates,$24,419million;dividends,
$30,994 million; amortization of loans to affiliates, $6,991 million; and
interest,$11,424million).
Theseresourceswillbeearmarkedasfollows:
– $346,549millionforrunningexpenses.
– $33,979millionfordelegatedadministrations.
– $516,142 million for debt service (amortization and interest of the
period).
– $3,955millionforloanstosubordinates.
– $109,414millionfordividendpayments.
– $475,951millionforinvestment.
– $23,694millionforVAToncapitalassets.
Forclosingoffiscalyear,a$24,390millioncashbalanceisestimated,ofwhich,
$3,237millioncorrespondtoavailableresources,and$21,153milliontospecific-
purpose funds ($3,958 million for delegated administration contracts, $11,589
millionforriskwithholdingfund,and$5,606millionforUPMESfund).
Report from the Board of Directors and the General Manager 103
Cashbudget-2006
MillionsofPesos 2005 2006 Variation%
2005-2006
INITIALBALANCE 123,726 140,275 13
Delegatedadministration 19,735 33,487 70
Stockliquidityfund 8,500 8,451 -1
Riskwithholdingfund 10,500 11,025 5
UPMESfund 13,164 10,621 -19
Totalnon-availablefunds 51,899 63,584 23
AVAILABLEBALANCE 71,827 76,691 7
Revenues
Currentrevenues 745,706 696,741 -7
Capitalrevenues 208,201 690,632 232
Delegatedadministration 15,008 6,426 -57
TOTALREVENUES 968,915 1,393,799 44
TOTALREVENUES+INITIALBALANCE 1,092,641 1,534,074 40
Expenditures
Operatingexpenses 301,531 346,549 15
Delegatedadministration 4,756 33,979 614
Dividends 99,395 109,414 10
Totaldebtservice 336,882 516,142 53
Totalloanstosubordinates 70,237 3,955 -94
Investment 117,296 475,951 306
VAToncapitalassets 25,247 23,694 -6
TOTALEXPENDITURES 955,344 1,509,684 58
Endingcashbalance 137,297 24,390 -82
Non-availablefunds
Delegatedmanagement 33,487 3,958 -88
Stockliquidityfund 8,451 -100
Riskwithholdingfund 11,025 11,589 5
UPMESfund 10,621 5,606 -47
Totalnon-availablefunds 63,584 21,153 -67
AvailableBalance 73,713 3,237 -96
104 Report from the Board of Directors and the General Manager
3.2.3 Incomestatement2006
For year’s end, ISA expects $206,608 million net income (10% up on 2005),
duemainlytothe36%decreaseinincometaxresultingfromthetaxdeduction
onfixedassetspurchasedfortheUPMEprojects.
Incomestatement Real Budget$Million 2005 2006Operatingrevenues
Networkuse 563,708 569,260
Connection 55,415 56,333
CND 17,893 -
MEM 11,922 -
Darkfiber 4,816 9,560
FAER 37,305 39,560
Operatingrevenues 691,060 674,712Operationcosts
-AOMexpenses 195,176 168,774
-FAER 37,277 39,560
-Depreciationandamortization 97,048 90,533
-Provisions 3,485 870
-UPMETransfer 2,757 3,278
Operatingexpenses 335,744 303,016Grossoperatingincome 355,316 371,697Ancillaryactivities
Revenues 17,221 19,291
Salescost 11,771 12,203
Incomefromancillaryactivities 5,449 7,087Operatingincome 360,765 378,784Total
Operatingrevenues 708,280 694,003
Operatingexpenditures 347,515 315,219
Operatingincome 360,765 378,784Non-operatingrevenues/expenditures
Financial -119,464 -101,621
Exchangedifference -18,455 -19,876
Participationinsubordinates 20,606 13,466
OtherRevenues/Expenditures -2,997 -30,217
Non-operatingRevenues/Expenditures -120,310 -138,248Pre-taxincome 240,455 240,536
Incometax 53,277 33,928
Netincome 187,179 206,608
Report from the Board of Directors and the General Manager 105
3.2.4 Balancesheetbudget2006
Theincreaseinassetsisexplainedbytheincreaseinassetsunderconstruction
oftheUPMEprojectsandtheacquisitionoflong-termdebtfortheirfinancing.
Balancesheet 2005 2006
$Million
ASSETS
Currentassets 305,524 232,703
Netfixedassets 3,271,465 3,730,332
Long-terminvestments 722,517 601,204
Otherassets 229,953 214,144
TOTALASSETS 4,529,459 4,778,383
LIABILITIES
Currentfinancialliabilities 230,959 76,709
Currentnon-financialliabilities 238,487 253,925
Long-termliabilities 1,273,311 1,565,812
TOTALLIABILITIES 1,742,757 1,896,447
TOTALEQUITY 2,786,702 2,881,937
TOTALEQUITYANDLIABILITIES 4,529,459 4,778,383
106 Report from the Board of Directors and the General Manager
REGULAR STOCKHOLDERS’ MEETING
REPORT OF THE CHAIRMAN OF THE BOARD OF DIRECTORS
REGARDING OPERATION OF THE BOARD
ComplyingwithprovisionsoftheArticlesof IncorporationandtheCodeof
GoodGovernance,asChairmanofISA’sBoardofDirectors,Ipresentthefollowing
report on the operation of the Board during the period April 2005 to March
2006:
I. COMPOSITION OF THE BOARD OF DIRECTORS
TheShareholders’MeetingofMarch29th2005designated for theBoardof
Directors of ISA positions and persons knowledgeable and experienced in the
fieldsofmanagement,finance,corporationsandstockmarketfields:
As principal members, it appointed the Minister of Mines and Energy for
thefirstposition,whichhasbeenheldbyMr.LuisErnestoMejiaCastro; forthe
second,theGeneralVice-ministerofFinanceandPublicCredit,positionheldby
Ms.GloriaInesCortesArango;forthethird,Mr. IsaacYanovichFarbaiarz;forthe
fourth,theEnergyGenerationManagerofEmpresasPublicasdeMedellinE.S.P.(or
thepositionsubsequentlycreatedunderthatcompany’srestructuringprocess),
positionthathasbeenheldbyMr.JesusAristizabalGuevara;forthefifth,Mr.Luis
FernandoAlarconMantilla;forthesixth,Mr.HernanMartinezTorres,andforthe
seventh,Mr.OrlandoCabralesMartinez.
Asalternatemembers, theMeetingappointed, in thesameorder, theVice-
ministerofMinesandEnergy,positionheldbyMr.ManuelFernandoMaiguashca
Olano; theLegalCounsel totheMinistryofFinanceandPublicCredit,position
heldbyMs.NhoraAbucharChamie;Mr.LuisFernandoUribeRestrepo;theEnergy
DistributionManagerofEmpresasPublicasdeMedellinE.S.P.,positionheldbyMr.
GabrielJaimeBetancourtMesa;Mr.JorgeHernanCardenasSantamaria;Ms.Maria
IsabelPatiñoOsorio,andMr.AndresFelipeMejiaCardona.
The persons elected are recognized for their moral soundness, are
knowledgeableaboutpublicutilitiesandthepowersector,andhavespecialization
andgraduatestudiesinColombiaandabroad.
Except for their condition as shareholders of Messrs. Orlando Cabrales
MartinezandJorgeHernanCardenasSantamaria,nolaborrelationexistsbetween
the members of the Board of Directors and the Company, nor are there any
Report from the Board of Directors and the General Manager 107
commerciallinksbetweentheCompanyandtherelativesbymarriageorkinship
withinthefirstdegreeofconsanguinityorin-lawofthemembersoftheBoard.
Messrs. Luis Ernesto Mejia Castro, as the Minister of Mines and Energy, and
ManuelFernandoMaiguashcaOlano,asVice-ministerofMinesandEnergy;Ms.
Gloria Ines Cortes Arango as the General Vice-minister of Finance and Public
Credit, Ms. Nhora Abuchar Chamie, as the Legal Counsel to the Ministry of
FinanceandPublicCredit,andMr. IsaacYanovichFarbaiarz,astheChairmanof
ECOPETROL,haveaworklinktoISA’sMajorityShareholder,theState,asholders
ofpublicpositionsinthecentraladministration.
Messrs.JesusAristizabalGuevaraandGabrielJaimeBetancourtMesa,asEnergy
GenerationManagerandEnergyDistributionManagerofEmpresasPublicasde
MedellinE.S.P.,respectively,haveaworkrelationwithISA’sshareholderwiththe
secondlargestparticipation.
II. OPERATION OF THE MEETINGS
1. Schedule
In session 622 of April 2005, the Board of Directors approved schedule of
meetingsfortheperiodApril2005–March2006,includingsubjectstoconsider
andpresentationperiodicity.
Withinthementionedperiod,theBoardcompliedwithonehundredpercent
meeting schedule. The Meeting convened on thirteen occasions along such
period,ofwhichtwelvewereregular,andonewasspecial.Tenofthemtookplace
inBogota,andthreeinMedellin.
All the meetings took place with all members present in person, with an
averagedurationoffivehours.Duringthemeetings,aspreviouslyagreedbythe
Board,agendaitemsonwhichadecisionwastobemade,wereconsideredfirst,
followedbystrategicissuesandlastlybymonitoringissues.
2. Convening
TheSecretaryoftheMeetingattheendofeachsession,remindedparticipants
ofthedateandplaceofthenextmeeting,andbymeansofwrittennotices,he
convenedalltheBoardmembers,principalandalternate,nolessthansix(6)days
inadvanceofeachmeeting.
108 Report from the Board of Directors and the General Manager
3. Availability of Information
TheSecretaryoftheMeeting,throughasiteatISA’sWebpagecreatedforsuch
purpose,accessibleonlywithapersonalpassword,andnolessthanthreedays
beforethesession,madeavailabletotheBoard’smembersthedocumentation
covering the topics to be dealt with at the meeting, including the meeting
minutesthatweresubmittedforapproval.Alladditionalinformationrequested
bytheBoardmemberswasdeliveredthroughthesamemeans.Additionally, in
eachmeeting,theBoardmemberswerehandedareportcontainingthesubjects
to be presented at the meeting, plus a compact disc containing the same
information.
4. Agenda
Atthebeginningofeachsession,oncethequorumwasverified,thepreviously
disclosedagendawassubmittedtotheBoardofDirectorsforapproval.
5. Attendance
The Board meetings were attended by at least the number of members
necessarytoformaquorum.
Attendancebyprincipalmembersatthirteenmeetingswasasfollows:
• The Minister of Mines, Mr. Luis Ernesto Mejia Castro, attended 11
meetings
• The General Vice-minister of Finance and Public Credit, Ms. Gloria Ines
CortesArango,attended12meetings.
• Mr.IsaacYanovichattended11meetings.
• Mr.LuisFernandoAlarconattended13meetings.
• TheEnergyGenerationManagerofEmpresasPublicasdeMedellinE.S.P,
Mr.JesusAristizabal,attended12meetings.
• Mr.HernanMartinezattended12meetings.
• Mr.OrlandoCabralesattended10meetings.
Attendance by the alternate members at thirteen (13) meetings was as
follows:
• TheVice-ministerofMinesandEnergy,Mr.ManuelFernandoMaiguashca,
attended 12 meetings, two of them as Acting Minister of Mines and
Energy.
Report from the Board of Directors and the General Manager 109
• TheLegalCounseltotheMinistryofFinanceandPublicCredit,Ms.Nhora
Abuchar,attended13meetings.
• Mr.LuisFernandoUribeattended11meetings.
• Mr.JorgeHernanCardenasattended12meetings.
• TheEnergyDistributionManagerofEmpresasPublicasdeMedellinE.S.P,
Mr.GabrielJaimeBetancourt,attended12meetings.
• Ms.MariaIsabelPatiñoattended9meetings.
• Mr.AndresFelipeMejiaattended9meetings.
6. Quorum
At the beginning of the meetings and when items considered were to be
approved,theSecretaryoftheBoardofDirectorsverifiedquorumrequiredbythe
ArticlesofIncorporation.
It is a common practice at ISA that both the principal and the alternate
membersattendthemeetings;however,onlythevoteoftheprincipalmember
wascountedinwhencomputingmajoritiesrequired.
7. Pending Topics of the Board of Directors
In 2004, the Board instituted a simple and efficient procedure, under the
responsibilityoftheGeneralManager,forhandlingofpendingmatters.Through
this procedure the Board discloses inside the Company the issues subject to
special follow-up and the proposed recommendations, as well as the matters
determined by the members to be considered in the following meetings.The
BoardinstructstheSecretarywhenamattercanbetakenoffthependinglist.
2. Approval of Minutes
TheminutesoftheBoardofDirectorswerepreparedbytheBoard’sSecretary,
submitted to the Board for approval, and signed by the Chairman and the
Secretary.They are kept in consecutive order in books duly numbered by the
MedellinChamberofCommerceforAntioquia,andtheyremainundercustody
oftheCompany’sCentralFiles.
III. CHAIRMAN OF THE BOARD OF DIRECTORS
The members of the Board of Directors unanimously appointed Mr. Luis
Fernando Alarcon Mantilla as their Chairman in their session 622 of April 29th
2005.
110 Report from the Board of Directors and the General Manager
IV. PREPARATION OF TOPICS TO BE CONSIDERED AT THE MEETING
ThemembersoftheBoardofDirectorshavepresentedtheirconcerns,made
observations, and supplemented the matters under consideration evidencing
the time devoted to their analysis and study, all of which leads to the making
ofacollectivedecisionunderthecriteriaofobjectivityandbusinessinterestfor
managingtheCompany’saffairs.
V. BOARD OF DIRECTORS’ COMMITTEES
The following institutional committees operate at ISA as workgroups
integrated by Board members on the basis of their knowledge, formation and
experience:CorporateAuditingCommittee,BoardCommitteeandNewBusiness
Committee.
1. Corporate Auditing Committee
It is in charge, among other functions, of approving the Economic Group’s
controlpolicy,andsupervisingitscompliance;reportingtotheBoardofDirectors
orShareholders’Meetingaboutriskandcontrolsituationsthatcallforit;presenting
totheShareholders’Meetingtheresultsoftheevaluationofoffersfortheposition
ofStatutoryAuditor;supervisingcompliancewithISA’sGoodGovernanceCode,
andlearningaboutmattersrelatedtoitseffectivecompliance,arisingfromclaims
broughttotheBoardofDirectorsbyshareholdersandinvestors,asprovidedin
theArticlesofIncorporationandtheCodeitself.
The members of the Auditing Committee are Mr. Luis Fernando Alarcon,
Mr. Luis Fernando Uribe, Ms. Nhora Abuchar and Ms. Maria Isabel Patiño. This
CommitteemetfivetimesintheperiodbetweenApril2005andMarch2006.
2. Board Committee
Its functionsareassistingManagementand follow-upofmatters related to
compliancewiththeGoodGovernanceCode,evaluationoftheGeneralManager,
and financial and human talent matters, and any other function or activity
assignedto itbytheBoardofDirectors,aswellasevaluationof functioningof
theBoarditself.
Report from the Board of Directors and the General Manager 111
ThisCommitteeismadeupofMessrs.LuisFernandoAlarcon,HernanMartinez
andtheVice-ministerofMinesandEnergy,whometeleventimesintheperiod
betweenApril2005andMarch2006.
3. New Business Committee
The New Business Committee has as its functions analysis of investment
initiativesandmonitoringofbusinessunderexecution.ThisCommitteedoesnot
include those Board members who, by reason of their duties or the company
theyworkfor,mayhaveconflictsofinterest,arisingfromthebusinessanalyzed
ormonitored.
This Committee is made up of Messrs. Orlando Cabrales, Jorge Hernan
Cardenas, Andres Felipe Mejia, Gabriel Jaime Betancourt, and Luis Fernando
Alarcon; theVice-ministerofMinesandEnergy,alsoparticipateswhendealing
withinternationalbusinesses.ThisCommitteemetonthirteenoccasions.
VI. REMUNERATION
The Board of Directors’ members have received the remuneration set by
the Shareholders’ Meeting for attending the Board and Committee meetings
establishedatthree(3)monthlystatutoryminimumwagespermeeting.
VII. CONFLICTS OF INTEREST
WhenevertheBoardmembersconsideredthatconflictofinterestcouldhave
arisenregardingsomespecificmatterunderdiscussion,theyexpressedsotothe
other members, and abstained from participating in discussion and decision-
making,exitingthepremiseswheretheBoardmet.
VIII. RELATIONS OF THE BOARD WITH THE GRUPO ISA’S COMPANIES
AsManagersoftheparentcompanyofGrupoISA,membersoftheBoardof
DirectorsofISAparticipateintheboardsofdirectorsoftheaffiliatecompanies:
Mr.HernanMartinezTorresinTRANSELCA;Mr.LuisFernandoAlarconMantillain
INTERNEXA;Mr. JorgeHernanCardenasSantamaria inReddeEnergiadelPeru
-REP-;Mr.AndresFelipeMejiaCardonaandMs.Maria IsabelPatiño inFLYCOM;
andMr.OrlandoCabralesMartinezinISABOLIVIAandXMCompañiadeExpertos
enMercados.
112 Report from the Board of Directors and the General Manager
IX. SELF-EVALUATION OF THE BOARD OF DIRECTORS
ThemembersoftheBoardofDirectorsassessedtheirwork,bothindividually
andasagroup,throughaqualitativeself-evaluationwithasamplesizeoffourteen
people,orhundredpercentofprincipalandalternateBoardmembers.
With information gathered between January 27th and February 16th 2006
membersevaluatedtheissueslistedbelow;nexttoeachistherespectivescore
obtainedthroughtheTTB(TopTwoBoxes)scale:
• Individualperformance-99.4%
• Groupperformance-87.9%
• Pertinenceanddepthoftopics-98.1%
• Management’sperformanceandparticipation-84.5%
WorkontwoissueswasproposedtotheBoard’smembersinordertoimprove
performance:enhancemeetings’efficiencyandemphasizestrategicissues.
Additionally to self-evaluation, the Board is evaluated according to the
indicators obtained for theTop Level Integral Management Chart approved in
meetings 618 of December 17th 2004 and 620 of February 25th 2005. Results
foreachoftheperspectiveswere:FortheFinancialPerspective,34.59%;forthe
Customers and Market Perspective, 52.32%; for the Productivity and Efficiency
Perspective, 100%; and for the Organizational Learning and Human Talent
DevelopmentPerspective,79.90%.
Report from the Board of Directors and the General Manager 113
X. EVALUATION OF THE GENERAL MANAGER
The accomplishments of the General Manager are evaluated according to
theresultsoftheFirstLevel IntegralManagementChart.Achievementlevelfor
each perspective was as follows: Financial Perspective, 59.47%; Customers and
MarketPerspective,79.83%;ProductivityandEfficiencyPerspective,96.16%,and
OrganizationalLearningandHumanTalentDevelopmentPerspective,90.88%.
Additionally,aqualitativeassessmentoftheGeneralManager’sachievements
wasconducted,highlightinghisleadershipandperformance,sodeterminingof
thecompany’scurrentstanding.
Finally,IwanttoletMessrs.ShareholdersknowthateachmemberoftheBoard
ofDirectorshascontributedhisknowledge,experience,dedication,andpositive
criticalattitudetothegrowthandsustainabilityof INTERCONEXIONELECTRICA
S.A.E.S.P.
LUIS FERNANDO ALARCÓN MANTILLA
President of the Board of Directors
Medellín,march2006
114 Report from the Board of Directors and the General Manager
REGULAR STOCKHOLDERS’ MEETING
REPORT OF THE CHAIRMAN OF BOARD OF DIRECTORS AND THE
GENERAL MANAGER ON COMPLIANCE WITH AND ADVANCEMENT OF
THE GOOD GOVERNANCE CODE
IncompliancewithprovisionsoftheArticlesofIncorporationandtheCode
ofGoodGovernance,inmycapacityasChairmanoftheBoardofDirectors,and
onbehalfoftheGeneralManager,Ipresentthefollowingreportoncompliance
withtheGoodGovernanceCode.
I. REFORM OF THE GOOD GOVERNANCE CODE
In meetings of November 25th 2005 and February 24th 2006, the Board of
Directors of ISA approved an amendment to the Good Governance Code as
follows:
The Preamble includes a definition of Corporate Governance and Good
GovernancePracticesandestablishesthepurposeoftheCode
Title II, “Action Framework”, includes ISA’s adhesion to the United Nations
GlobalPact.
Title III, “On the Corporation and its Governance, Stockholders’ Meeting”,
includeswhatisacustomarypracticeatISA:1)remindinginnewspaperadsthe
date of the meeting the weekend prior to it; 2) reminding by fax or email the
date of the meeting; 3) sending by fax or email the notice of the meeting to
shareholdersresidingabroad;and4)publishingonISA’sWebsite,atleastthree(3)
daysinadvance,thepropositionstobeconsideredattheMeeting.
Regarding the solution of disputes between the corporation and its
shareholders, or between the latter and its managers, it provides a term of 60
businessdays togo to the regularcourts,or to resort toanalternativewayof
conflictresolution,incasenoagreementisreachedduringthedirectsettlement
stage.
Regarding the Company’s administration, it defines who are considered
administrators.
WithregardtotheBoardofDirectors,itgivesdefinitionsaboutindependent
members,committees,hiringofexperts,disclosureofitsdecisions,andspecific
Report from the Board of Directors and the General Manager 115
dutiesof itsmembers.Additionally, itprovides thatBoardmemberscannotbe
employeesoftheCompany.
Title IV, “On the Behavior of Management”, includes the restriction on the
IndependentAuditortoprovideconsultingservicestotheCompany,apractice
thatispresentlyobservedbuthadnotbeenincludedintheCode.
Regardinginternalcontrol,itdefinesthebodiesinchargeofitsimplementation
andtheirmainduties.
This chapter also includes provisions regarding the Corporate Auditing
Committee.
TitleV,“TradingofSecurities”,stipulatestheprohibitiononISA’smanagersand
employeestotradewiththeCorporation’ssecuritieswhentheyareinpossession
ofmaterialinformationandincludesadefinitionofmaterialinformation.
It also establishes the criteria for acquisition of the Company’s own stock
anditssubsequenttransfer,aswellastheauthorityoftheBoardofDirectorsto
approveoperationswithsubordinatedcompanieswhentheyamount tomore
thanfivepercent(5%)ofmarketcapitalization.
TitleVI,“OntheShareholdersandInvestors”, includestheBoardofDirectors’
additionaldutytoanswertherequestsofshareholders,aswellasthecorresponding
answeringprocedure.
TitleXII,“CompliancewiththeCode”,includestheMechanismforCompliance
withtheCodeofGoodGovernanceimplementedbyISAandtheauditconducted
bytheInternalControlarea.
ThissecondamendmentadaptstheCode’scontentstotheCompany’snew
circumstancesandstructure,andincorporatesthechangesderivedfromthenew
LawoftheSecuritiesMarket,aswellasnewgoodgovernancepractices,withthe
intention of generating transparency in the Company’s acts and trust from its
interestgroups,especiallythosewhoareinvestinginit.
116 Report from the Board of Directors and the General Manager
II. THE SHAREHOLDERS’ MEETING
The notice for the Regular Shareholders’ Meeting of March 29th 2005 was
published in two newspapers of nationwide circulation on February 27th of
that year, including the day’s agenda as well as the detail of the proposals to
besubmittedto theconsiderationof theshareholders.Anewreminderof the
meeting’sdatewaspublishedtheweekendpriortoit.
In its capacity as controlling shareholder, the State ordered publication on
ISA’sWebsite of the list of candidates for the Board of Directors that it would
submittotheconsiderationoftheMeeting.
TheMeetingwasbroadcastasareal-timevideoconferenceviaInternet,with
total3,561netconnectionsbyshareholders.Onceconcluded,anabstractofthe
meetingwaspostedontheCompany’sWebpage.
All items in the approved day’s agenda were dealt with at the Meeting of
March29thof2005.TheshareholderselectedtheBoardofDirectorsandStatutory
Auditor, they approved the reports and accounts rendered by the managers,
andexpressedtheiropinionsandconcernsregardingthecorporationandtheir
expectations.TheRegularShareholders’Meetingof2005
Minutes93,signedbytheChairmanandtheSecretaryof theMeeting,and
bytherespectiveCommissionrecounttheissuespresented,andtheapprovals,
authorizations,andobservationsbytheshareholders.
TheMinuteswereincludedinthePublicDeedthatformalizedtheamendment
tothearticlesofincorporationfiledwiththeChamberofCommerce;respective
copiesoftheMinutesweresenttotheColombianSecuritiesCommission(today
the Colombian Financial Superintendency and to the Superintendency of
DomiciliaryPublicUtilities.
III. THE ADMINISTRATION
The Stockholders’ Meeting of 2005 elected the Board of Directors for the
period of April 2005 to March 2006. All members designated expressed their
acceptanceinwriting,afactthatwasalsofiledwiththeChamberofCommerce
oftheCorporation’sdomicile.
The report on the operation of the Board of Directors, also submitted to
the Stockholders’ Meeting, recounts the Board’s meetings scheduled and held,
members’attendanceandself-evaluationoftheBoard.
Report from the Board of Directors and the General Manager 117
Additionally to self-evaluation, the Board is evaluated according to the
indicatorsobtainedfortheTopLevelManagementChartapprovedinmeetings
618ofDecember17th2004and620ofFebruary25th2005.Resultsforeachof
theperspectiveswere:FortheFinancialPerspective,34.59%;fortheCustomers
andMarketPerspective,52.32%;fortheProductivityandEfficiencyPerspective,
100%; and for the Organizational Learning and Human Talent Development
Perspective,79.90%.
Partof theadministration is theGeneralManager,whowithhisdedication,
commitment and managerial abilities has enormously contributed to the
achievement of the results obtained during 2005. The General Manager is
evaluatedaccordingtotheresultsoftheFirstLevelIntegralManagementChart.
Achievement level for each perspective was as follows: Financial Perspective,
59.47%;CustomersandMarketPerspective,79.83%;ProductivityandEfficiency
Perspective,96.16%,andOrganizationalLearningandHumanTalentDevelopment
Perspective,90.88%.
As well a part of the administration, Area Managers, Deputy Managers and
Directorsalsocontributedtoachievementofcorporategoalsthroughstrategic
directionoftheirrespectiveareasandexecutionofstrategies.
ManagersandworkersareevaluatedaccordingtotheIntegralManagement
Chart indicators corresponding to their respective level. Results are disclosed
insidetheorganizationandusedtopreparetheImprovementPlanforthenext
period.
Tonegotiatesharesof ISA,administratorsmusthaveauthorizationfromthe
Board of Directors. Which is why, Mr. Orlando Cabrales and Mr. Jorge Hernan
Cardenasinsession626ofAugust5th2005,andMr.AndresFelipeMejia,insessions
627ofAugust26thand630ofNovember25th2005,requestedauthorizationto
buyandsellISAshares,authorizationsthatweregrantedbytheBoard,without
thevoteoftheinterestedparties.
Resumes of members of the Board of Directors, the General Manager and
AreaManagersarepublishedontheCompany’sWebsite.
IV. CONTROL
Thefollowinginformationwaspresentedduring2005totheexternalcontrol
bodies:
118 Report from the Board of Directors and the General Manager
• National General Accounting Office: 18 reports with varied accounting
information, non-performing debtors, and information for the Debt
UnifiedStatisticsSystem-SEUD-.
• National General Auditing Office: 20 reports related to rendering of
accounts,advancementofimprovementplans,andinformationregarding
cashbudgetfortheFiscalStatisticsInformationSystem-SIDEF-.
• ColombianFinancialSuperintendency:18reportsonplacementofbonds,
pre-andpost-Stockholders’Meetinginformation,accountinginformation
andfinancialinformation.43recordswerepostedonINFOEVENTUALwith
informationrelevanttotheCompany.
• Superintendency of Domiciliary Public Utilities: 12 reports with general
informationtoupdateSingleRegisterofPublicUtilitiesProviders-RUPS-
; financial, administrative, commercial, and accounting information;
investmentininfrastructure;andinformationrelatedtotheStockholders’
Meeting.
• EnergyandGasRegulatoryCommission-CREG-:4reportswithshareholder
structureandaccountinginformation.
• National Planning Department: 2 reports regarding budget follow-up,
shareholderstructure,andprojectforearningsdistribution.
• Ministry of Mines and Energy: 8 reports on ISA’s equity and input
informationfortheMinistry’sManagementInformationSystem.
• Duff&Phelps:4financial reports. In Juneof2005Duff&Phelps ratified
ISA’sAAArating(highestcredit-qualityissues)forthe2001bondissue.
• Higher Council for Fiscal Policy -CONFIS-: 4 reports regarding cash
operations.
• ChamberofCommerce:FinancialstatementsandrenewaloftheMercantile
RegisterandSingleRegisterofProponents.
Aftercorrespondingevaluationfor2005,Standard&Poor’sratifiedISA’sBBB
internationalratingforcorporatecreditindomesticcurrencyandBBforcorporate
creditinforeigncurrency,equaltosovereignceiling.
InthesecondquarterDeloitteandTouch,ISA’sExternalAuditorofManagement
and Results, presented to the Superintendency of Public Utilities a report on
the administration and management of the Corporation, whose results were
publishedontheWebsiteandinanewspaperofnationwidecirculation.
Report from the Board of Directors and the General Manager 119
PriceWaterhouseCoopersLtda.,StatutoryAuditorsfortheApril2005–March
2006periodhavereceivedallinformationanddocumentsrequestedinexecution
of their duties.Their recommendations have been analyzed and the measures
suggested by them have been taken. The firm presented to the Meeting the
reportontheCorporation’smanagementcorrespondingtotheperiod
No request for special audits or investigation related to the Company was
madein2005bycontrolandinspectionentities.
TheStatutoryAuditor’sreportandtheratingsbyratingagenciesarepublished
ontheCompany’sWebsiteforinformationofstockholdersandinvestors.
Regarding internal control bodies the following acts deserve to be
mentioned:
TheAuditingCommitteemetonfiveoccasionsduringtheApril2005–March
2006 period. Among other issues presented for its consideration, analysis and
approval, it examined the Statutory Auditor’s report, the reports for control
and inspection entities, the financial statements for 2005, and the Corporate
ComptrollerOffice’sworkplan.
TheCorporateComptrollerOfficeconducted31evaluationson issuessuch
as cash and banks management, traveling allowances, physical inspection of
inventories, payroll, taxes, information technology, pensions, contracting, and
compliance with the Good Governance Code, and based upon the results of
theseaudits,preparedimprovementplans.
Also, day-to-day activities are controlled through instruments such as
the Integral Management Chart, Development Plans, budget control, and
improvementofprocesses.
V. THE INTEREST GROUPS
In 2005, ISA and another 35 Colombian public utilities companies joined
the Global Pact of the United Nations, which is consistent with a continued
adaptationoftheircorporatebehaviortothenewdemandsofthemarketand
thoseofcontemporarysociety.
ThecommitmentswiththeSuppliersandtheState,twooftheInterestGroups,
wereredefinedin2005:
120 Report from the Board of Directors and the General Manager
• ThecommitmenttotheSuppliersistheconstructionoftrustfulrelations
throughtransparent,equitableandclearlymanagedpurchaseprocesses
ofgoodsandservices.
• ThecommitmenttotheStateisthestrengtheningoftheRuleofLaw.
TheindicatorsthroughwhichcommitmenttotheInterestGroupsarehonored
were also updated. The report on Social Corporate Responsibility includes a
detailedpresentationofeachofthem.
Shareholders
As of December 31st, the number of subscribed and paid-in shares,
(978,161,805) and the number of outstanding shares (960,341,683) remained
unaltered;thenumberofshareholderswas68.484.
ISA’ssharesarecommonsharesandarelistedontheColombianStockExchange
andontheNationalRegistryofSecurities.Theycirculateinadematerializedway
andtheiradministrationandcustody,aswellasthekeepingofShareRegisterare
theresponsibilityofDepositoCentraldeValores-DECEVAL-.
During 2005, ISA’s stock was traded in all the 244 rounds held at the Stock
Exchange; itsappreciationwas170%; total161.6millionsharesor60%of free-
floatcapitalwerenegotiated; total return (appreciationplusdividend)equaled
175%;allofwhichagainplacedISA’sstockasoneofthemostliquidandwiththe
highestmarketcapitalization.
Sincetheir initialdeposit inMarchof2004,181,176ADRshavebeen issued
correspondingto4,529,000shares;oneADRequals25commonshares.
Asasecurityissuerandinbenefitofshareholders,ISAabidesbytherulesof
GoodGovernanceestablishedinLaw964of2005(LawoftheSecuritiesMarket),
which among other issues regulates the inclusion of independent members
in boards of directors, the conditions to be considered an independent board
member,theauditingcommittee,andthetransferofshareslistedonthestock
exchangewithoutasuccessionsuittobringagilityanddynamismtothestock
market.
Report from the Board of Directors and the General Manager 121
Dividend Policy
ThedividendpolicystipulatedintheStatementoftheStateasISA’sControlling
Shareholderprovidesforadistributionofatleast70%ofdistributableincomein
every period. Accordingly, on March 29th of 2005, ISA’s Stockholders’ Meeting
approvedthepropositionoftheBoardofDirectorsregardingappropriationand
distributionofearningsoftheyear2004andthechangeofdestinationofreserves
to pay dividends worth $101,796 million, equivalent to 72.7% of net income;
thus,shareholdersreceiveddividendsof$106persharepaidinfourinstallments
of$26.50each,onthedatesdeterminedbytheMeeting(April19th,July19th,
October19thof2005andJanuary19thof2006).
Shareholders’InformationCenter.
During the year 2005, ISA’s shareholders utilized the mechanisms made
availablebythecorporationforattentionandsolutiontotheirrequests:
• Along2005,278shareholderscametothepersonalizedattentionoffices
inMedellinandBogota,and781phonecallsfromthemwereanswered.
• Toll-free shareholder service number 01 8000115000 and local line
3602472, serviced by representatives capable of solving their concerns,
dispatchedatotal55,292callsalongtheyear2005,oradailyaverageof
219calls.
• E-mailbox [email protected] received 1,348 messages during the
year,withrequestsfromshareholders.
• Altogether,theshareholders’InformationCenterhandled105,509contacts;
themainreasonswhyshareholderscontacteditwere:33.41%sharequote
update; 18.76% dividend information; 13.83% updating of shareholders’
basicdata;6.67%requestforincometaxcertificates,and5.92%inquiries
onprocedurestosellshares.
Additionally, and consistent with the efforts to build trustful relations with
shareholdersandinvestors,onthepremiseofsupplyingtransparent,sufficientand
timelyinformationonthecorporation,thefollowingactivitieswereconducted:
• Restructuring of the Shareholders’ page on ISA’s Internet site to allow a
highervolumeofinformationandcontents,higherflexibilityinlanguages
and currencies (English-Spanish, pesos/dollars). Along the year 2005,
12,238visitswereregisteredatthesite.
122 Report from the Board of Directors and the General Manager
• Shareholders’Newsletter,deliveredeachsemester.
• Sending of 276,110 e-mails, of which 263,008 were addressed to
shareholders,and4,102tostockbrokersandstockexchangeanalysts.
• Design of 15 publications: 9 monthly reports on financial results and 6
relevantnewsstories,wereissued.
• Threemeetingswithstockbrokersandinstitutionalinvestmentcompanies
were held in Bogota, Cali, and Medellin, where the Corporation’s
managementandfinancialresultsweredisclosedindetail.
You,asashareholderorinvestor,canreachusatourWebsitewww.isa.com.co
toreferyourgeneralclaims,suggestions,requestsandinquiries.
Suppliers
To its Suppliers, ISA is committed to building trustful relations through
transparent,equitable,andclearprocessesofpurchaseofgoodsandservices.
Intheyear2005,ISAsigned2,462contracts,worth$525.955million,including
VAT,with1,111suppliers.
Aimingtobuildatwo-waycommunicationchannelwithsuppliers,anannual
meetingwasheld,attendedby44companies,todiscussissuesrelatedtoStrategic
Direction of the Supply Chain, evolution of the Supplier Management Model,
SupplierPerformanceEvaluation,newFinancialIndexes,andtheHomologation
andElectronicAuctionProjects.
InJuly,anewInternetservicewasmadeavailabletosuppliers,atthesection
“PersonalizedInformation”,tobeusedwithapersonalizedpassword,containing
information on registration and classification of suppliers, and payments
effected.
Since December of 2005, ISA conducts its registration and classification
process in the suppliers catalogue, through Contractors’ Information System -
5INCO-,administeredbytheMedellinChamberofCommerceforAntioquia.
This tool, designed for ISA suppliers of goods and services indispensable
for high-voltage Energy Transport Service, has as its purpose the improved
management of information pertaining to the corporation’s suppliers, keeping
up-to-dateinformation,forabettersupplyprocessatISA.
Report from the Board of Directors and the General Manager 123
InOctoberof2005,theCompanystartedevaluationofsuppliers’performance
fortheEnergyTransportService,aproceduredesignedforcontinuedimprovement
ofthatinterestgroup’sperformance.
ISA’sContractingRegulations,asetofcriteriaforsupplierclassification,aswell
astheCorporation’scommitmenttoitssuppliers,areavailabletothepublicon
theCorporation’sWebsite.
VI. THE ECONOMIC GROUP
On September 1st 2005, in compliance with the provisions of Law 142 of
1994, Decree 848 of that same year, and the authorization from the Regular
Shareholders’Meetingof2004,ISA’snewaffiliate,XMCompañiadeExpertosen
Mercados S.A. E.S.P., was incorporated; its purpose is the development of the
activitiesassignedtotheEnergyControlCenter-CND-,theAdministratorofthe
FinancialSettlementSystem-SIC-,andAccountSettlingandClearing-LAC-
Likewise,affiliateISACAPITALDOBRASILLTDA,headquarteredinBrazil,was
incorporatedonOctober26thof2005; itspurpose istheparticipation inother
companiesinthatcountry.
In October of 2005, affiliate ISA BOLIVIA S.A. started operation of the Sucre
–Santivañez,Santivañez–Punutuma,andCarrasco–Urubolines,socomplying
withitscommitmentstothepeopleofBolivia,andcontributingtothatcountry’s
betteringandgrowth.
VII. RELATIONS WITH THE CONTROLLING SHAREHOLDER
ISA and the Nation, its majority shareholder, have executed the following
agreements:
• OnDecember28th2005foravalueof$879,305,961,includingVAT,Inter-
administrative Technical Assistance Agreement GSA –041 2005 – ISA
4000671betweentheState–MINMINASandISA,forpre-contractualand
worksengineeringofthefollowingprojects:1)expansion,modernization,
and improvement of Sarie-Bay and Back Road Sector North – End mid-
and low-voltage grids on San Andres Island; 2) uprating of 115/34.5 kV
Doncella substation; 3) construction of El Paujil – Cartagena del Chaira
interconnectionlineandassociatedsubstation.Theseworkswillbefunded
by the Financial Support Fund for Electrification of Non-Interconnected
Zones-FAZNI-.
124 Report from the Board of Directors and the General Manager
• Inter-administrativeTechnicalAssistanceAgreementGSA-0422005–ISA
4000670betweentheState–MINMINASandISA,forgeneraladministration
ofthe“Constructionofthemediumvoltagelineat34.5kVandenergized
at13.2kVtoPuertoConcordiafromtheSanJosedelGuaviareSubstation”
project,tobefundedbyFAZNI,underagreementNo.013CAofNovember
21st 2005. This Agreement was signed on December 28th 2005, and
accordingtoitMINMINAShastheobligationtopayISA$1,450millionon
accountofFAZNI.
• Inter-administrativeTechnicalAssistanceAgreementGSA-024-2005 - ISA
4000657 for general administration of the projects to be funded by the
Financial Support Fund for Electrification of Interconnected Rural Zones
-FAER-, signed on December 26th of 2005, amounting to $732,620,025
million.
VIII. THE RISKS
On the grounds of transparency, and in compliance with its obligation to
discloserisks, ISArecordsinitsannualbalancesheetsthecontingenciesitmay
face, makes known by the Colombian Stock Exchange and the Colombian
FinancialSuperintendence,throughotherrelevantinformation,relevantfactsin
such area, and discloses in the bond issuing and underwriting prospectus, as
well as in the reports issued by national and international risk-rating agencies,
thepossiblecontingenciesand risks thecorporation faces. In thesameway, it
postsontheWebsitethemostrelevantcorporaterisks,andthemeasurestaken
toavoidorreducetheiroccurrence,mitigatetheireffects,andtohandlethem,
ingeneral.
Risks of volatility of macroeconomic variables, the armed conflict, legal
insecurityandinstability,andrisksofdecisionsofnewnationalandinternational
businesses,andofexerciseofCorporateGovernance,associatedtothegrowthof
theeconomicgroupstoodasthemostrelevantrisksin2005.
IX. INFORMATION DISCLOSED TO THE PUBLIC
ISA’s investors, as well as the general public, found on the Company’sWeb
page financial information updated quarterly. This information is the same
that isprovidedtotheBoardofDirectorsanddealswithfinancialresults,debt,
grantingofguarantees,credit-riskratings,reportstotheSecurityandExchange
Commission-SEC-,stockholderstructure,shareperformance,dividendpayment
dates, attacks on the power towers, ongoing projects where ISA participates,
BoardofDirectors’composition,reportsfromtheStatutoryAuditor,andreports
fromrisk-ratingagencies.
Report from the Board of Directors and the General Manager 125
TokeepinvestorsabreastofeventspertainingtotheCorporation,theWebsite
providesdirectaccesstootherrelevantinformationreportedtotheColombian
FinancialSuperintendence.
Theinformationdisseminatedhasbeencompiledandissuedaccordingtothe
professionalprinciples,criteriaandpracticesusedintheproductionoffinancial
statements,anditisasreliable.
InformationnotpostedontheWebpagecanberequestedinwritingtothe
General Manager, stating the reasons and purpose. The Manager’s refusal to
discloseinformationcanbebroughttotheconsiderationoftheBoardofDirectors.
Norefusalof informationbytheManagerwasbroughttotheconsiderationof
theBoardofDirectorsintheperiodbetweenApril2005andMarch2006.
Itmustbetakenintoaccountthatnoreservedorconfidentialinformation,or
informationposingarisktotheCorporation’sbusiness,oraffectingthirdparties’
rights,canbedisclosedbyISA.
XI. COMPLIANCE WITH THE GOOD GOVERNANCE CODE
TheMechanismforVerificationofComplianceoftheGoodGovernanceCode,
presentedtotheMeetingof2005,followsupthecommitmentscontainedinthis
Codeandtherespectiveactionsbyeachresponsibleparty.
Thismechanismisoneoftheinputsusedinthepreparationofthisreport.The
year2006willseecontinuationofitsstreamliningandupdating,tomakethistool
agileandmoredynamic.
Additionally, the Corporate Comptroller Office conducts annual auditing
on the Good Governance Code, to assess compliance with it, and make
recommendations.Thisauditingiscarriedoutthroughdocumenttests,interviews
andsurveys,anditsrecommendationsareincorporatedinthereformtotheCode
anditsimprovementplans.
NobreachofthetermsoftheGoodGovernanceCodewasreportedin2005
through any of the lines available to the shareholders or the general public.
Messrs.Shareholders,ifyouwishtoreachusbyphone,youcandosoat:
ISA’s Toll-Free Line Suggestions and Claims: 01 8000 941341 open to the
complaints, claims, suggestions or comments of our shareholders, customers,
users,orgeneralcitizens.
126 Report from the Board of Directors and the General Manager
Toll-Free Line for Shareholder Attention to solve whatever concern from
shareholders:
Nationwide-018000115000,
FromMedellin-3602472.
EnergyTransportService:(57)43157143.
ForattentionofinquiriesrelatedtoEnergyTransportService.
Honorable Shareholders: ISA’s will continue to base its economic activity
on the implementation of Good Governance Practices that will contribute to
the growth and sustainability of the Company, generate trust among interest
groups, as well as transparency and assuredness to the securities market, and
developmentandwell-beingforourcountry.
Thankyouverymuch,
LUIS FERNANDO ALARCÓN MANTILLA JAVIER G. GUTIÉRREZ P.
President of the Board of Directors General Manager
High voltage transmission grid
Legend500kV transmission lines – ISA Group
220-230kV transmission lines – ISA Group
138kV transmission lines – ISA Group
500kv transmission lines under construction – ISA Group
Other transporter
Operational substation
Colombia
Perú
Bolivia
FINANCIAL
STATEMENTS
130 Financial Statements
INTERCONEXIÓNELÉCTRICAS.A.E.S.P.STATEMENTOFINCOME DECEMBER31,2004AND2005 (AmountsexpressedinmillionsofColombianpesos,exceptfornetincomepershareexpressedinColombianpesos)
Notas 2004 2005
OPERATINGREVENUES: (21) Energytransmissionservices 582,545 600,957Connectioncharges 52,618 55,415DispatchandcoordinationCND(CentroNacionaldeDespacho) 22,465 17,893Administrationservicesofthewholesalerenergymarket(STN-SIC) 23,650 11,922AvailabilityandleasingC.F.O 4,179 5,082Otheroperatingrevenue 26,749 17,012 712,206 708,281
OPERATINGCOSTSANDEXPENSES: Operatingcosts (22) 279,849 260,994Administrativeexpenses (23) 61,557 86,521 341,406 347,515 Operatingincome 370,800 360,766 NON-OPERATINGINCOME(EXPENSES) (24) Non-operatingincome 128,590 150,906Non-operatingexpenses (282,858) (271,216)Non-operatingloss (154,268) (120,310)Incomebeforeprovisionforincometax 216,532 240,456 Provisionforincometax (17) 76,517 53,277 Netincome 140,015 187,179 Netincomepershare 146 195 Seenotesthataccompanythefinancialstatements
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. CARLOSE.GORDILLOB. GeneralManager Accountant StatutoryAuditor T.P.8671-T T.P.33537-T PricewaterhouseCoopers (SeemyopinionofFebruary15,2006)
Financial Statements 131
INTERCONEXIÓNELÉCTRICAS.A.E.S.P.BALANCESHEETSATDECEMBER31,2004AND2005 (AmountsexpressedinmillionsofColombianpesos)
Notas 2004 2005ASSETS CURRENTASSETS Cash (5) 151,868 56,294Tradableinvestments (5) 44,478 62,049Accountsreceivable-net (7) 170,767 169,809Inventories (8) 737 1,381Deferredchargesandotherassets (10) 9,542 15,991 Totalcurrentassets 377,392 305,524
NON-CURRENTASSETS Permanentinvestments (6) 647,158 721,456Long-termaccountsreceivable (7) 83,460 56,326Inventories (8) 60,233 30,117Properties,plantandequipment,net (9) 2,065,646 2,138,565Deferredchargesandotherassets (10) 146,688 143,510Reappraisals (11) 1,144,975 1,133,961 Totalnon-currentassets 4,148,1604,223,935 TOTALASSETS 4,525,5524,529,459 Memorandumaccounts Debit (20) 1,148,907 1,411,011Credit (20) 1,199,358 1,062,629 Seenotesthataccompanythefinancialstatements
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. CARLOSE.GORDILLOB. GeneralManager Accountant StatutoryAuditor T.P.8671-T T.P.33537-T PricewaterhouseCoopers (SeemyopinionofFebruary15,2006)
132 Financial Statements
INTERCONEXIÓNELÉCTRICAS.A.E.S.P.BALANCESHEETSATDECEMBER31,2004AND2005 (AmountsexpressedinmillionsofColombianpesos) Notas 2004 2005LIABILITIESANDSHAREHOLDERS’EQUITY CURRENTLIABILITY: Outstandingbonds (12) - 142,434Financialobligations (13) 143,871 88,525Accountspayable (15) 163,707 149,087Laborliabilities (16) 6,297 4,821Accruedliabilitiesandprovisions (17) 67,694 49,881Otherliabilities (18) 129,154 34,698Totalcurrentliabilities 510,723 469,446 LONG-TERMLIABILITIES: Outstandingbonds (12) 724,602 585,627Financialobligations (13) 304,648 221,977Hedgingoperations (14) 72,290 82,588Relatedparties (15) 22,008 110,397Laborliabilities (16) 952 764Accruedliabilitiesandprovisions (17) 92,884 105,320Otherliabilities (18) 141,546 166,638Totallong-termliabilities 1,358,930 1,273,311 TOTALLIABILITIES 1,869,653 1,742,757 SHAREHOLDERS’EQUITY: (19) Subscribedandpaidcapital 32,084 32,084Capitalsurplus 350,540 350,545Reserves 228,088 266,308Netincome 140,015 187,179Equityrevaluation 652,539 652,539Surplusfromequitymethod 107,658 164,086Surplusfromreappraisals (11) 1,144,975 1,133,961TotalShareholder’sequity 2,655,899 2,786,702 Totalliabilitiesandshareholders’equity 4,525,552 4,529,459Memorandumaccounts: Credit (20) 1,199,358 1,062,629Debit (20) 1,148,907 1,411,011 Seenotesthataccompanythefinancialstatements
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. CARLOSE.GORDILLOB. GeneralManager Accountant StatutoryAuditor T.P.8671-T T.P.33537-T PricewaterhouseCoopers (SeemyopinionofFebruary15,2006)
Financial Statements133
INTERCONEXIÓNELECTRICAS.A.E.S.P.STATEMENTOFCHANGESINSHAREHOLDERS’EQUITY
YEAR-ENDEDDECEMBER31,2004AND2005(AmountsexpressedinmillionofColombianpesos,exceptforparvalueofsharesexpressedinColombianpesos)
CapitalSurplus Reserves
Subscribed Additional Received Total Legal From Reserveto Toreinforce Torehabilitate Topay Total Net Equity Surplus Surplusfrom Total andpaid paid-in for tax reacquire equity andreplace dividends profit revaluation fromequity reappraisals capital capital works regulations ownshares STNassets method
BalanceatDecember31,2003 32,084 332,744 17,381 350,125 16,042 0 51,706 133,162 37,435 0 238,345 81,453 652,539 111,484 931,077 2,397,107
TransferapprovedbytheGeneralShareholders’Meeting 53,227 (5,106) (58,378) 63,967 53,710 (53,227) 483
PaymentofdividendstotheNationat$96pershare,liquidatedover960,341,683ordinarysharespaidinfourquarterlyinstallmentsinApril,JulyandOctober2004andJanuary2005 (63,967) (63,967) (28,226) (92,193)
Collectionformtheadditionalpaid-incapital 415 415 415
Increase(decrease)ofsurplusfromequitymethod (3,826) (3,826)
Increaseofreappraisalsduringtheyear 213,898 213,898
Netincomefor2004 140,015 140,015
BalanceatDecember31,2004 32,084 333,159 17,381 350,540 16,042 53,227 46,600 74,784 37,435 0 228,088 140,015 652,539 107,658 1,144,975 2,655,899
TransferapprovedbytheGeneralShareholders’Meeting 86,673 (48,453) 48,453 86,673 (86,673)
PaymentofdividendstotheNationat$96pershare,liquidatedover960,341,683ordinarysharespaidinfourquarterlyinstallmentsinApril,JulyandOctober2005andJanuary2006 (48,453) (48,453) (53,342) (101,795)
Collectionformtheadditionalpaid-incapital 5 5 5
Increase(decrease)ofsurplusfromequitymethod 56,428 56,428
Decreaseofreappraisalsduringtheyear (11,014) (11,014)
Netincomefor2005 187,179 187,179
BalanceatDecember31,2005 32,084 333,164 17,381 350,545 16,042 139,900 46,600 26,331 37,435 0 266,308 187,179 652,539 164,086 1,133,961 2,786,702
Seenotesthataccompanythefinancialstatements
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. CARLOSE.GORDILLOB. GeneralManager Accountant StatutoryAuditor T.P.8671-T T.P.33537-T PricewaterhouseCoopers (SeemyopinionofFebruary15,2006)
134 Financial Statements
INTERCONEXIÓNELÉCTRICAS.A.E.S.P.STATEMENTOFCHANGESINTHEFINANCIALPOSITION DECEMBER31,2004AND2005 (AmountsexpressedinmillionsofColombianpesos) 2004 2005Financialresourcesgeneratedfortheyear’soperations: Netincome 140,015 187,179Expenses(income)notaffectingworkingcapital Depreciationofproperties,plantandequipment 91,803 88,570Amortizationofdeferredchargesandotherassets 7,003 2,692Amortizationofretirementpensions 14,099 18,327Expensesforexchangedifferencesinlong-termassetsandliabilities 8,345 15,595Lossfromsaleandretirementofproperties,plantandequipment 491 16Provisiónparainversionespermanentes Recoveryofprovisions (123) (568)Incomefromparticipationmethodinsubordinates (2,348) (20,462)Totalfinancialresourcesgeneratedfromtheyear’soperations 259,285 291,349Financialresourcesgeneratedbyothersources Increaseinlong-termfinancialobligations 358,865 -Interestscapitalizedtolong-termbondspayable 4,021 3,459Increaseinequity 898 5Increaseinaccountspayabletorelatedparties 22,008 88,389Increaseinotherliabilities 49,078 25,092Proceedsfromthesaleofproperties,plantandequipment - 1,428Decreaseinlong-termdebtors - 27,134Decreaseininventories - 1,129Totalfinancialresourcesgeneratedbyothersources: 434,870 146,636Totalfinancialresourcesgenerated 694,155 437,985
Financial Statements 135
INTERCONEXIÓNELÉCTRICAS.A.E.S.P.STATEMENTOFCHANGESINTHEFINANCIALPOSITION (Continued)DECEMBER31,2004AND2005 (AmountsexpressedinmillionsofColombianpesos) 2004 2005Financialresourcesused: Acquisitionofproperties,plantandequipment 22,493 144,472Acquisitionoflong-terminvestments 20,361 (10,791)Acquisitionofinventories 2,435 -Transferoftradablefinancialinvestments 246,092 62,406Transferofbondspayableatshort-term - 142,434Increaseinlong-trermaccountsreceivable 16,459Decreaseinhedgingoperations 18,327Increaseindeferredchargesandotherassets 45,160 3,854Dividendsdecreedincash 92,192 101,795Decreaseinlaborliabilitiesandlong-term retirementpensions 14,028 6,079Totalfinancialresourcesused 459,220 468,576Increase(decrease)inworkingcapital 234,935 (30,591) Decreaseoftheworkingcapitalvariance Increase(decrease)incurrentassets Cash 10,880 (95,574)Tradableinvestments 29,252 17,571Accountsreceivable-net (28,884) (958)Inventories 103 644Deferredchargesandotherassets (9,651) 6,449 1,700 (71,868)Increase(decrease)incurrentliabilities Outstandingbonds - 142,434Financialobligations (184,517) (55,346)Accountspayable 1,690 (14,620)Laborliabilities 314 (1,476)Accruedliabilitiesandprovisions 4,699 (17,813)Otherliabilities (55,421) (94,456) (233,235) (41,277)Increase(decrease)inworkingcapital 234,935 (30,591)
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. CARLOSE.GORDILLOB. GeneralManager Accountant StatutoryAuditor T.P.8671-T T.P.33537-T PricewaterhouseCoopers (SeemyopinionofFebruary15,2006)
136 Financial Statements
INTERCONEXIÓNELÉCTRICAS.A.E.S.P.STATEMENTSOFCASHFLOWS DECEMBER31,2004AND2005 (AmountsexpressedinmillionsofColombianpesos)
2004 2005Cashflowsfromoperatingactivities: Netincome 140,015 187,179Add(less)-Adjustmentstoreconcilenetincometonetcash providedbyoperatingactivities: Depreciationofproperties,plantandequipment 91,803 88,570Amortizationofdeferredchargesandotherassets 7,003 2,692Provisionfortheprotectionofaccountsreceivable 2,417 601Amortizationofretirementpensions 14,099 18,327Provisionfortheprotectionofinventories 1,202 750Provisionforotherassets - 1,299Provisionforincometax 76,517 53,277Lossfromthesaleandretirementofproperties,plantandequipment 491 16Expensesfromexchangedifferences 16,106 17,643(Income)lossfromequitymethodinsubordinates (2,348) (20,462)Recoveryofprovisions (18,559) (3,899)Accruedinterestsandcommissions 92,564 95,498Totalcashflowsfromoperatingactivities: 421,310 441,491Changesinoperatingassetsandliabilities: Accountsreceivable 23,220 31,530Inventories (3,740) (265)Deferredchargesandotherassets 3,111 (15,228)Accountspayable 70,737 114,768Laborliabilities (2,057) (7,914)Accruedliabilitiesandprovisions (74,314) (55,179)Otherliabilities (6,343) (69,364)Cashflowsfromotheroperations Paymentofretirementpensions (9,161) (10,581)Paymentoftaxes (59,597) (57,301)Netcashprovidedoperatingactivities 363,166 371,957 Cashflowsfrominvestmentactivities: Acquisitionofpermanentandlong-terminvestments (4,269) -Decreaseofpermanentandlong-terminvestments - 9,684Salespriceofproperties,plantandequipment - 1,428Acquisitionofproperties,plantandequipment (22,493) (141,422)Additionstodeferredchargesandotherassets (45,160) (3,854)Netcashusedininvestmentactivities (71,922) (134,164) Cashflowsfromfinancingactivities: Interestspaidincash (57,122) (80,279)Dividendspaid (106,731) (99,395)Increaseinfinancialobligations 416,865 48,995Decreaseoffinancialobligations (488,609) (166,747)Decreaseofhedgingoperations (15,930) (18,375)Increaseinequity 415 5Netcashusedinfinanciangactivities (251,112) (315,796)Netincrease(decrease)incashandcashequivalents 40,132 (78,003)Cashandcashequivalentsatbeginningofyear 156,214 196,346Cashandcashequivalentsatendofyear 196,346 118,343
JAVIERG.GUTIÉRREZP. JAIROA.ALZATEP. CARLOSE.GORDILLOB. GeneralManager Accountant StatutoryAuditor T.P.8671-T T.P.33537-T PricewaterhouseCoopers (SeemyopinionofFebruary15,2006)
ATDECEMBER31,2004AND2005
(AmountsexpressedinmillionsofCo-
lombianpesosandoriginalcurrencies)
I.NOTES
NOTE 1: REPORTING ENTITY
Interconexión Eléctrica S.A. E.S.P. -ISA,
was incorporated by Public Deed No
3057, granted by Notary 8 of Bogotá on
September14,1967.
By Public Deed 230, of Notary Public
office1ofSabaneta,datedApril4,1995,
theCompanywasspinned-off.
NOTESTOTHE
FINANCIAL
STATEMENTS
140 Notes to the Financial Statements
Then,ByPublicDeed808,ofNotaryPublicoffice1ofSabaneta,datedDecember1,1995,theCompanychangedits
legalnaturetosatisfytheprovisionsofLaw142/94.AsaresultISAbecameapublicutilitiesenterpriseintheofficialsector,
constitutedbypublicentitiesasastockcorporation,anationalorderorganizationaccountabletotheMinistryofMinesand
Energy,andsubjecttotheDomiciliaryPublicUtilitiesLaw(Law142/94).BasedonLaw142/94,theCompanyhasamended
itsArticlesofIncorporation,andchangeditsnametoInterconexionElectricaS.A.E.S.P.,andhastherighttolegallyuseISA
E.S.P.asitsshortname.
OnNovember22,1996,byPublicDeed746,ofNotaryPublicoffice1ofSabaneta,ISAtransformeditselffromanofficial
PublicUtilityCompanytoaMixedPublicUtilityCompany.ThisprocesswascompletedonJanuary15,1997,withprivate
investments.
Todate,andasaconsequenceofchangesmadetoitsregulations,InterconexionElectricaS.A.E.S.P.,hasbecomeaPublic
UtilityServiceCompany.ThecompanybecameanationwideCommercialCorporation,regulatedunderthejurisdictionof
theMinistryofMinesandEnergy,inaccordancewithLaw142/94.
ISA’smaincorporatepurposeis:1)theoperationandmaintenanceofitsowntransmissionnetwork,2)theexpansion
of the national interconnection network, 3) planning and coordination of the operation of the national grid resources,
4) administration of the system of exchange and sale of electricity in the wholesale market, 5) system development,
activitiesandtelecommunicationsservices,6)directlyorindirectlyparticipateinactivitiesandservicesrelatedwithenergy
transportation,expectforthoselimitedbylaw,7)providetechnicalservicesinactivitiesrelatedwiththegroupsobjects
andprofessionals.8)Developanyotheractivitiesforthirdpartiesrelatedwithrenderingenergyandtelecommunication
servicesunderregulationsinforce.
CreationXM
The General Shareholders’ Meeting of Interconexión Eléctrica S. A. E.S.P., held on March 29, 2004, authorized the
incorporationofanewCompanythatwouldassumeactivities relatedwithplanningandcoordinatingtheresourcesof
theinterconnectedsystemandtoadministratetheexchangesystemandthecommercializingofenergyinthewholesale
market.TheCompanywasincorporatedunderPublicDeedNo.1080ofSeptember1,2005,asXMCompañíadeExpertosen
MercadosS.A.E.S.P.,inwhichISAhasaparticipationof99.73%.ThecapitalofthisCompanywascomprisedbythetransfer
ofassetsandliabilitieslinkedtooperatingactivitiesandtheadministrationofthewholesalerenergymarket.AsofOctober
1,2005,theCompanybegantooperate,authorizedbyDecree848ofMarch28,2005.
Theappraisalof thebusinessofOperaciónyAdministracióndeMercadosde ISA,consideringasaharmoniousand
inseparablegroupofitsoperativeassets(tangibleandintangiblesassets)–madebyabankinvestmentfirmandapproved
by the foundingshareholders’, for$14,789,which,comparedwithassetsand liabilitiesaccountingbooks,generatedan
incomefor$462.
Otherinvestments
InNovember2005theaffiliateISACapitalDoBrasilLtda.wascreated,domiciledinSãoPaulo,anditscorporatepurpose
istheparticipationinothercompanies’orinotherprocesses,actingasapartnerorshareholder,jointventure,consortium
Notes to the Financial Statements 141
memberoranyotherformofentrepreneurialhelp.TheCompany’ssubscribedcapitalisforBRL500,000,dividedin500,000
installmentsofBRL1.00each.TheparticipationofInterconexiónEléctricaS.A.E.S.P.isfor499,999quotas,forBRL499.999.At
year-endcut-offthecontributionshavenotbeendisbursed.
NOTE 2: BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS
2.1 INDIVIDUALFINANCIALSTATEMENTS
TheindividualfinancialstatementsofISAarethebasisforthedividenddistributionsandotherappropriations.Therefore,
theassets,liabilities,equityandresultsofthesubsidiariesarenotconsolidated,eventhoughforlegalreasonstheCompany
isrequiredtopresentconsolidatedfinancialstatementsattheannualstockholder’smeetingforapproval.
2.2 CLASSIFICATIONOFASSETSANDLIABILITIES
Assetsandliabilitiesareclassified,dependingontheiruse,thedegreetowhichtheyhavebeenrealized,andthetime
atwhichtheyaretobepaidorliquidated.
Currentassetsandliabilitiesarethosewhichshouldbereceivedorpaidwithinoneyear
2.3 INFLATIONADJUSTMENTS
UntilDecember31,2000,non-monetaryassetsandliabilitiesandshareholders’equityaremonetarilyupdated,except
for the surplus from asset reappraisals and income statement accounts by means of using the general consumer price
index(orPorcentajesdeAjustedelAñoGravable-PAAG).AsofJanuary1,2001theColombianGeneralAccountingOffice,
bymeansofResolutionNo.364ofNovember29,2001,suspendedtheintegralinflationadjustmentsystemforaccounting
effectsforaccountingeffects,withoutrevertingtheinflationadjustmentsaccounteduntilDecember31,2000.
AccordingtoResolutionNo.041of2004andtoExternalCircularNo.056of2004, issuedby theColombianGeneral
AccountingOffice,inflationadjustmentaccountswereeliminatedfromtheGeneralPlanofPublicAccountingaspartof
thecost,therebyobligatingtoincorporateaccumulatedamountsforadjustmentsuntil2000.Inordertoattendregulations
in force,asof2001the inflationadjustmentsareappliedfortaxeffects,originatingdifferences inthetaxmemorandum
accounts.
2.4 MATERIALITY
Recognitionandpresentationoftransactionsaremadeaccordingtoitsrelativeimportance.
Atransactionismaterialwhen,byconsideringcircumstances,itsnatureoramount,itsknowledgeorunknowledgement,
whichmaysignificantlychangetheeconomicdecisionsoftheusersofthatinformation.
142 Notes to the Financial Statements
Whenfinancialstatementsareprepared,itwasdeterminedforpresentationpurposesthataneventwouldbematerial
ifitrepresented5%oftotalassets,currentassets,currentliabilities,workingcapital,equity,orincome.
NOTE 3: SUMMARY OF MAIN ACCOUNTING POLICIES AND PRACTICES
Foritsaccountingrecordsandforthepreparationofitsfinancialstatements,theCompany,asrequiredbylaw,observes
accountingprinciplesgenerallyacceptedinColombia,asdefinedbyColombianGeneralAccountingOffice,accounting
regulationsusedbytheSuperintendenceofPublicUtilities-SSPD,andotherapplicableregulations.
During the identification, classification, recording, reappraisal, preparation and disclosure process of its financial
statements,theCompanyappliesaccountingprinciplesestablishedbyCGNinResolution400ofDecember1,2000,thus
theGeneralPlanofPublicAccountingwasimplemented.
The principal accounting policies and practices which the Company has adopted in accordance with foregoing
legislationareasfollows:
3.1 FOREIGNCURRENCYTRANSLATION
Transactionsinforeigncurrencyareaccountedforattheapplicableratesofexchangeinforceontherelevantdates.
Atthecloseofeachyear,balancesofassetsandliabilitiesareadjustedtocurrentexchangerates(SeeNote4).Exchange
differencesresultingfromassetbalancesareincludedintheStatementofIncomeasfinancialincome.Forliabilityaccounts,
onlyexchangedifferences thatarenotattributable to thecostofacquiringassetsare transferred tofinancialexpenses.
Exchangedifferencesareattributabletotheacquisitioncostofassetswhilesuchassetsareunderconstructionorinstallation,
anduntiltheyareinaconditiontobeused.
3.2 CASHEQUIVALENTS
Forthepurposesofpresentationofthestatementsofcashflows,temporaryinvestmentsredeemablewithinthenext
90daysareconsideredtobecashequivalents.
3.3 INVESTMENTS
Investments are recognized at historic cost and are updated in accordance with the intention of realization, the
availabilityofthemarketsinformation,thequantityofcontrolheldovertheissuingentitybyapplyingmethodologiesthat
areclosetoitseconomicreality.Amongmethodsusedtoupdateitsvalue,thereisthestockexchange,currentnetvalueto
determinethemarket’spriceorthesecurity’sinternalprofitability,theequitymethodandcostmethod.
Temporaryinvestments
UntilApril2005, investmentsoffixed investmentsare recordedatmarketvalue,basedoncurrentamountof future
capital flows and interests discounted at a market interest. As of May 2005, these are initially recorded at cost and are
Notes to the Financial Statements 143
monthlyadjustedat the InternalReturnRate (TIR),chargedtothestatementof income inaccordancewithparameters
establishedbytheCGN.
Long-terminvestments
Long-terminvestmentsinsubsidiariesinwhich50%isdirectlyofindirectlyormoreofthecapitalisheld,arerecorded
undertheequitymethod.
Likewise, permanent investments in which the public sector has directly of indirectly more than 50%, are recorded
undertheequitymethodinaccordancewithResolution364of2001ofCGN.
Subsidiaryinvestmentsundertheequitymethodarerecordedatcostandareannuallyadjustedwith:
a) AchargeorcredittotheinvestmentfortheCompany’sshareofnetincomeorlossinthesubsidiary,withamatching
entrytotheStatementofIncome.
b) AchargeorcredittothecostoftheinvestmentfortheCompany’sshareinthevariationinequityofthesubsidiary,
withamatchingentry,wherethereisanincreasetoequityasasurplusparticipation,andwherethereisadecrease,
toequityasachargetosurplus,untilexhausted,andthentotheStatementofIncome.
c) Acredittothecostoftheinvestmentfortheamountofdividendsreceivedfromthesubsidiary,whichcorrespond
toperiodsinwhichtheCompanyappliedtheequitymethod.
Ifthemarketvalue,withrespecttothebookvalueoftheinvestmentrecordedonequitybasisis:
a) Excess:reappraisalofassetsisincreased,andtherevaluationsurplusincludedintheequityaccountsiscredited.
b) Shortage:reappraisalofassetsisreduced,byachargetotherevaluationsurplusuptotheamountavailable,andany
excessisrecordedasachargetoequitysurplus,untilitisexhausted.Ifthereisafurtherdeficit,achargeismadeto
theStatementofIncome.
InvestmentsinsubsidiariesarerecordedonthebasisoftheirfinancialstatementsatDecember31ofeachyear,converted
into Colombian pesos, using the United States dollar as the functional currency. Applying International Accounting
Standard21,jointlywithinterpretationSIC.—19.TheexpressionofUSDfinancialstatementsinColombianpesos,observed
thefollowingprinciples:
• Monetaryitemsarecalculatedusingtheexchangerateforthemonthreported;
• Non-monetaryitemsusedtheexchangerateforthedateofthetransactionconcerned;
• Profitandlossitemsarecalculatedattheaveragerateofexchangeforeachmonthreported
144 Notes to the Financial Statements
Forpurposesofapplyingtheequitymethod, theCompanyappliesGeneralAccountingOfficeCircular040,of2000,
External Circular 006 of 2005 issued by the Superintendency of Securities – Financial Superintendency of Colombia –
excludingfromthestatementof income,profitor lossoriginatedfromoperationsnotmadebetweensubordinatesand
HeadOffice.Therefore,theCompany’snetincomeislowerin$13,079in2005regardingtheconsolidation(representedin
non-homologatedtransactionswiththesubordinatesin2002,asfollows:$7,686forInternexausufructamortization,$5,159
preoperative amortization of ISA Peru and $234 amortization of the client cession premium from Internexa to Flycom;
adjustmentstotallyperformedattheclosingof2005;inferiorin$1,661in2004).
Theremaining long-terminvestmentsofvariablecompanieswherethere isnocontrolandthatarenot listed inthe
stockexchange,arerecordedatcostplusdividendsreceivedfromshares.Ifatyear-endtheinvestment’sintrinsicvalueis
superiororinferiortocarryingvalue,creditsarerecordedtoreappraisalswithacounterparttothesurplusofreappraisalsin
theequitystatement,orcreateanallowancechargedtothestatementofincome,respectively.
Financialderivativeinstruments
Inthenormalcourseofbusiness,theCompanyperformsvarioustransactionswithfinancialderivativeinstruments,for
commercialpurposesorforthepurposeofcoveringitsexposuretomarketfluctuationsofitsproductsorinvestments,and
interestrates.Theseinstrumentsrelatetoswaps.
Although, of exchange rates, Colombian accounting principles do not indicate specific accounting rules for these
transactions,theCompanyrecordstherightsandobligationsthatresultfromsuchcontractsinthebalancesheet;theright
relatestotheforeigncurrencyreceivedbytheCompanyandthatcompensatesthefinancialliabilityoftheexchangerate
effect,andtheobligationsisthecommitmentacquiredbyISAinlocalcurrency,forthehedgingoperations.
Duringthevaluation, theCompanyhasadoptedthefollowingpolicies inaccordancewith InternationalAccounting
standards,bywhichderivativecontractsobtainedtohedgeassets,liabilitiesorfuturecommitmentsareadjustedtotheir
marketvalueandtheresultistakentoincomeinsuchawaythatitadequatelycompensatesincome,costsorexpenses
generatedfromvariancesofexchangerates.
Atyear-endifthenetvalueisnegative,theaccountingcaptionofcoveredobligationsarereclassifiedintoanindependent
subaccount.
Notes to the Financial Statements 145
3.4 PROVISIONFORDOUBTFULACCOUNTS
Attheclosingdateofeachquarter,theassociatedriskoftheAccountsReceivableportfolio,andotherdebts,isexamined
inordertodeterminetherespectiveprovisions.Theyareshowninpercentagesof10to100percent,accordingtothetype
orageoftheaccount,andtotheindividualanalysisofrecovery,accordingtothefollowingcriteria:
Type Description Maturity %provision
A Lowriskaccountreceivable 90–180days 10%
181–360days 40%
>=360days 100%
B Doubtfulaccounts 31–90days 20%
91–180days 50%
>=180days 100%
3.5 INVENTORIES
Inventoriesarerecordedatcost,andtheirvalueisreducedtothemarketvalueifitislower,throughaprovisionchargedto
theStatementofIncome.Spareparts,materialsandotherconsumeritemsarevaluedonthebasisofweightedaverages.
At December 31, 2005, as part of the amendment process made by the Company to its financial statements, the
inventoriesmadetoproperties,plantandequipment,sparepartswerereclassifiedfor$28,987,whichasofJanuary1,2006,
fixedassetswillbedepreciatedfortheirremainingusefullifeassignedintheaforementionedinventories.
3.6 PROPERTIES,PLANTANDEQUIPMENT
Property,plantandequipmentarerecordedatcost,which,whererelevant,mayinclude(a)financingcostsandexchange
differencesonliabilitiesinforeigncurrencies,directoperatingcostsandadministrationcosts,capitalizationofexchange
differences iseffecteduntilassetsare inaconditiontobeused,and (b)untilyear2000, inflationadjustmentsoncosts,
excludingexchangedifferencescapitalizedandtheportionofcapitalizedinterest,whichcorrespondedtoinflation.
Saleanddisposaloftheseassetsarechargedagainsttheirnetadjustedcost,andthedifferencesbetweenthesales’price
andnetadjustedcostischargedorcreditedtotheStatementofIncome.
146 Notes to the Financial Statements
Depreciationischargedonastraight-linemethodbasedontheasset’scost,anditsestimatedusefullife.Forthepurpose
ofdepreciationcalculations,thefollowingistheestimatedusefullifeforassets:
Assets Usefullife
Buildings 50
Lines 40
Substations 30
Opticfiber 25
Machineryandequipment 15
Telecommunicationsequipment 15
Furniture,officeequipment,laboratoryequipment 10
Communicationequipment 10
Transport,tractionandliftingequipment 10
NationalDispatchCenterequipment(average) 8
Computerequipmentandaccessories 5
Repairsandmaintenanceoftheseassetsarechargedtoincome,whileimprovementsandadditionsareaddedtotheir
costs
Regarding repairs required from attacks to the electric infrastructure, these are recorded as extraordinary expenses
intheperiodwhentheattacksoccuranddonotincreasetheuseful lifeoriginallyassignedtotheassets.Regardingthe
aforementionedassets the insurancecompaniesdonotcover theseassets;accordingtotheabove, thesedamagesare
accruedinthefinancialstatementsastheyoccurandarenotrecordedoverestimatebasis.Theadministration,inaccordance
withtheirhistoricalexperienceoflossesandofpoliticalandsecurityissuesofthecountry,chargetotheannualbudgetthe
resourcesconsiderednecessarytocovertheselosses.
3.7 DEFERREDCHARGESANDOTHERASSETS
Deferred charges and other assets include prepaid expenses, deferred charges and other assets. Prepaid expenses
includemainlymonetaryitemssuchasinsurancepremiumsandinterests,whichareamortizedoverthetermofthepolicy
ortheloan.
Deferredchargesandotherassetsincludethecostofacquisitionofsoftwareandrights-of-way,thecostofpreliminary
studies and research, tax to preserve democratic security, commissions for the placement of bonds, and licenses, from
whichitisexpectedthatfutureeconomicbenefitswillbeobtained.Italsoincludesthedeferraloftaxes,thoseofwhich
originateduetotemporarytimingdifferencesbetweenaccountingprinciplesandlegalprovisions.
Software isamortizedonastraight-linebasisoveramaximumof3years,except for theSAPR3 IntegratedSystem,
whichisbeingamortizedover10years.ChargesforstudiesandresearcharetransferredtoConstructioninProgresswhen
aprojectisdeterminedtobeviable;otherwisetheyarefullyamortizedinthatyear.Rights-of-way,commissionsforbond
Notes to the Financial Statements 147
placementsandlicensesareamortizedonastraight-linebasisduringtheperiodsoverwhichtheirbenefitsareexpectedto
bereceived,inaccordancewithfeasibilitystudiesforrecovery.TheTaxtoPreserveDemocraticSecurityisamortizedover5
years,themaximumtermallowedbytheCGNinaccordancewithCircularSetter038of2003.
3.8 REAPPRAISALS
Reappraisalsthatcompriseequityinclude:
3.8.1 Theexcessofnetbookcostover thevaluationof themaincomponentsofproperty,plantandequipment,as
valued by independent appraisers for real property and transport equipment, for other assets it is based on
technicalstudiesconductedbyCompanyemployeesovernetbookcost.Thesevaluationsaremadeatleastevery
3years,exceptforrealestatethataremadeeach2years,orwhenmarketconditionsindicatethatsuchamounts
havemateriallychanged.(SeeNote11).
3.8.2 Theexcessofequityvalueofpermanentinvestmentsovernetcost.
3.9 INCOMETAXANDDEFERREDTAX
Theprovisionforincometaxisdeterminedbymakingthenecessaryclearingstocomputetaxableincome.
Thevaluerelatedwithaminorcurrenttaxcomputedduringtheyearisaccountedasadeferredtax,resultingfromthe
excessofdepreciationandoftaxamortizationoveraccounting,resultingfromapplyingusefullives,depreciationmethods
andtaxamortizationdifferenttoaccounting.
ThisdeferredtaxAssetrepresentsthetemporarydifferenceswhichgenerateahigheramountofthecurrenttaxliability
whenusinggenerallyacceptedaccountingprinciples.Basically,this isrepresentedbythelegal inflationadjustmentson
non-monetary depreciable assets and in the balance provisions for no collectable accounts receivable and retirement
pensions,amongothers.
According to theconceptNo.20061-57086ofCGNof January31,2006, regardingdeferred tax,everyCompany
hasautonomyindefiningtheaccountingprinciplesregardingdeferredtax.Accordingtotheabove,theCompanyhas
consideredinflationadjustmentsrecognizedonlyfortaxeffectsofdepreciablefixedassets,astemporarydifferences
thatresultintheaccrualofdeferredtax,asthesegenerateagreatermonetarycorrectionincometax,increasingthe
incometaxpayableandaresubsequently recoveredduring the followingyearsas the fixedassetsaredepreciated.
SeeNote10.
3.10 LABORLIABILITIES
Laborliabilitiesareadjustedattheendofeachperiodonthebasisofthelawandcurrentcollectiveagreements.An
148 Notes to the Financial Statements
actuarialstudyismadeeachyeartoestablishpensionliabilityandfuturebenefitsforhealth,educationandcontributions
forseniority.PensionPaymentsarechargeddirectlytotheStatementofIncome.
3.11 NETINCOMEPERSHARE
Netincomepershareiscalculatedonthebasisoftheweighted-averagenumberofsharesoutstandingduringtheyear,
whichwere960,341,683during2005and2004.
3.12 RECLASSIFICATIONTOTHEFINANCIALSTATEMENTS
Some figures included in the Financial Statements, as of December 31, 2004, were reclassified in order to properly
presentthemintheyear2005FinancialStatements.
3.13 MEMORANDUMACCOUNTS
Memorandumaccountsaremainlycomposedofloanscontractedbutnotdisbursed,theadministrationofthird-party
accounts (including in 2004 the administration of the Commercial Interchange System -SIC- and the administration of
charging accounts for the use of the STN-LAC, that as of October 2005 is in charge of XM Compañía de Expertos en
Mercados S.A. E.S.P.), contingencies originated from claims of lawsuits and guarantees granted for contracts agreed by
companies.These also include temporary and permanent differences between accounting and tax accounts, the first,
whicharereasonablyrevertedintime,andsecondallowtopreparereportswithspecificpurposes.
Non-monetarymemorandumaccountswereadjustedforinflationuntilDecember31,2000,andchargedtoamatching
memorandumaccount.
3.14 RECOGNITIONOFINCOME,COSTSANDEXPENSES
Income,costsandexpensesarerecordedonanaccrualbasis.Incomeresultingfromrenderingservicesisrecognized
duringthecontractualperiodorwhenservicesarerendered.
ForASICandLAC’sincome,regulatedbytheEnergyandGasRegulationCommission-CREG-,theremunerationconsiders,
amongotheraspects,costsincurredbytheCompanytorenderservices,determinedontheannualbudgetsapprovedby
thecontrolentity.Accordingtotheabove,andfortheeffectsofobtaininganadequateassociationbetweenincomeand
expensesfortheperiod,incomeamountsequivalenttounexecutedcostsandexpensesarerecordedasdeferredincome
andareamortizedduringthefollowingyear,oncecostsareincurred.
AsofOctober1,2005, incomeandexpensesassociatedwith thecoordinationanddispatchof theoperationof the
NationalInterconnectedSystem,ASICandLAC,aredevelopedbythenewaffiliateXMCompañíadeExpertosenMercados
S.A.E.S.P.,asmentionedinNote1tothefinancialstatements.
Notes to the Financial Statements 149
3.15 USEOFESTIMATES
For the preparation of the financial statements, and in accordance with generally accepted accounting principles,
certainestimatesmustbemadewhichaffectassets,liabilities,income,expensesandcostsreportedfortheperiod.Thefinal
resultmaybedifferentfromtheseestimates.
3.16 OPERATINGANDADMINISTRATIVETYPEOFLIMITATIONSORDEFICIENCIES
During2004and2005noOperatingorAdministrativelimitationsordefaultswerefoundthatwouldaffectthenormal
accountingprocesses,ortheconsistencyandreliabilityoftheaccountingfigures.
3.17 ACCOUNTINGCLEARANCE
In 2005, ISA finished the accounting clearance process that was established by a letter sent to the Congress of the
Republic.ThisprocessconsistsinclearingtheinformationinaccordancewithguidelinesestablishedinLaw716of2001,
Law901of2004andotherregulatorystandards.Effectsfor2005aredetailedinNote25tothefinancialstatements.
Il.SPECIFICNOTES
NOTE 4: VALUATION OF ACCOUNTING INFORMATION
FOREIGNCURRENCYOPERATIONS
Basicregulationspermitfreenegotiationofforeigncurrenciesthroughbanksandotherfinancialintermediaries,atfree
exchangeratesinaccordancewiththeexchangemarketofferanddemand.Debts,indebtednesstransactionsanddemand
intheforeignanddomesticcurrencymarketrequiretheapprovaloftheMinisteriodeHaciendayCréditoPúblico.
Operationsandbalancesinforeigncurrencyareconvertedattheexchangeratesinforce,ascertifiedbytheFinancial
Superintendency,previouslyknownasBankingSuperintendency,andusedforthepreparationofthefinancialstatements
atDecember31,2004and2005.Theexchangeratesused,expressedinColombianPesos,wereasfollows:
CURRENCY CODE 2004 2005
USDollar USD 2,389.75 2,284.22
Euro EUR 3,251.97 2.693,55
Unitofaccount* UAV 4,024.64 3,586.82
NuevoSol PEN 728.58 664.21
BrazilianReal BRL 899.42 980.77
*UnitofAccount:thisisthevariationinthetotalvalueoftheIDBbasketofcurrencies,originatinginmarketfluctuationsofexchangeratesinthe
currenciesinthebasket,withreferencetotheUSDollar.
150 Notes to the Financial Statements
AtDecember31,ISAhadthefollowingforeigncurrencyassetsandliabilities,expressedinthousandsofequivalentUS
Dollars:
2004 2005
Assets
Currentassets
Cash 543 4,038
Fixed-yieldinvestment 2 7,223
Accountsreceivable 30,192 15,590
Totalcurrentassets 30,737 26,851
Non-currentassets
Foreigncurrencyinvestments 52,811 62,821
Totalnon-currentassets 52,811 62,821
Totalassets 83,548 89,672
Liabilities
Currentliability
Currentportionoffinancialobligations 71,171 28,250
Accountspayable 4,210 22,688
Totalcurrentliabilities 75,381 50,938
Long-termliabilities 86,092 100,678
Totalnon-currentliabilities 86,092 100,678
Totalliabilities 161,473 151,616
Netliabilitymonetaryposition (77,925) (61,944)
Regarding foreign currency financial obligations, ISA has hedging operations for USD77,045,152.40, from which
USD75,943,419.40 relate to capital hedging and USD1,101,733 to hedging interests (2004: USD91,236,000 per capital
USD1,840,987perinterests),whicharerecordedasinvestmentsandfinancialobligationsasindicatedinNote3.3.
Theapplicationofaccountingregulationstoexchangedifferencesgaverisetothefollowingexchangeratedifferences
inColombianPesos,whichwereaccountedasshownbelow:
2004 2005
Financialincome 87,345 56,650
Financialexpenses (95,843) (75,107)
Totalnetgeneratedexchangedifference (8,498) (18,457)
Notes to the Financial Statements 151
NOTE 5: CASH AND TRADABLE INVESTMENTS
CashandtradableinvestmentsonDecember31werecomprisedasfollows:
Account 2004 2005 Rate
31.12.2005
Cash
Cashandbanks 122,243 15,211 4.4%(COP)
Commonandspecialtrustfunds 29,625 41,083 5.4%(COP)
Totalcash 151,868 56,294
Temporaryinvestments
Short-termfunding 42,797 45,533 6.0%(COP)
TimeDeposit 1,681 16,516 4.3%(USD)
Totaltradableinvestments 44,478 62,049
Totalcashandtradableinvestments 196,346 118,343
CashattrusteesatDecember31,2005,includesresourcesfor$33,487thatmayonlybeusedforthedelegateadministration
oftheIPSE,DISPAC,Caucheras,FAERandFAZNIprojects(For2004,thereareresourcesfor$48,425thatmayonlybeusedfor
theadministrationoftheNationalTransmissionSystem–STN–andfortheCommercialInterchangeSystem-SIC-,asaresult
of implementingResolutionCREG070of1999tohandleguarantees,thebalanceinthebankaccountforthecollection
ofthetaxofFinancialSupportFundtoEnergizeNon-InterconnectedZones–FAZNI-,FinancialSupportFundtoEnergize
InterconnectedRuralZones–FAER–andtheSocialEnergyFund–FOES–destinedtosupporttheelectrificationofnon-
interconnectedzones,thebankaccountbalancetohandleInternationalEnergyTransactions-TIES-).
In2005,all theaccountsof theAdministratoraccountsweretransferredtotheaffiliateXM,affectingtheCompany’s
balancestructure,especiallyincash,otherliabilitiesandmemorandumaccounts.
152 Notes to the Financial Statements
NOTE 6: PERMANENT INVESTMENTS
PermanentinvestmentsatDecember31,werecomprisedby:
2004(*) 2005
Investmentsinshares
FENS.A. (1) 5,878 9,045
TranselcaS.A.E.S.P. 368,243 413,578
InternexaS.A.E.S.P. 108,845 98,613
FlycomComunicacionesS.A.E.S.P. 15,453 5,550
ISAPerúS.A. 13,353 18,493
REPS.A. 81,517 100,996
ISABoliviaS.A. (2) 31,336 27,201
XMCompañíadeExpertosenMercadosS.A.E.S.P. - 14,818
EPRS.A. - 10,284
Totalinvestmentsinshares 624,625 698,578
Otherinvestments
Intrustrights (3) 22,533 22,878
Totalpermanentinvestments 647,158721,456
(*)Reclassifiedforcomparativeeffects.SeeNote3.12.
(1) Theinvestmentisrepresentedin33,160sharesequivalenttoaparticipationof0.7884%intheCompany.FENisa
national-orderfinancialentityincorporatedbyLaw11/82,apublicstockcorporationaccountabletotheMinistry
ofMinesandEnergy,whoseprincipalbusinessistoactasthefinancialandcreditarmoftheenergysector.
(2) DecreaseintheinvestmentofISABoliviaS.A.relatestoexchangedifferences.
(3) Includes, among others, $8,481 of autonomous equity to provide greater profitability to the privileged shares
issued by the Company (2004 - $8,481), $8,993 of autonomous equity to ensure the payment of the audit of
theUPMEproject1and2of2003(2004-$11,728)andyieldstocollectthisequity$5,136(2004:$2,019).Yields
generatedduring2005forthisequityamountedto$4.005and$726,respectively.
Notes to the Financial Statements 153
ThefollowingfinancialinformationcorrespondstothesubsidiariesandtheISA’sparticipationineach:
2004
Company ISAParticipation Financialinformation
Shares % Assets Liability Equity Income
(Loss)
TranselcaS.A.E.S.P. 1,956,265,582 64.9978 908,224 341,677 566,547 9,563
ISAPerúS.A. 18,586,446 28.0700 137,814 90,574 47,240 3,688
REPS.A. 21,648,000 30.0000 687,471 416,728 270,743 10,871
InternexaS.A.E.S.P. 25,647,620 99.9998 152,988 36,661 116,327 1,897
FlycomComunicacionesS.A.E.S.P. 32,280,066,573 75.0400 58,614 38,021 20,593 (13,055)
ISABoliviaS.A. 95,638 51.0000 99,817 47,410 52,407 -
2005
Company ISAParticipation Financialinformation
Shares % Assets Liability Equity Income
(Loss)
TranselcaS.A.E.S.P. 1,956,265,582 64,9978 984,873 348,578 636,295 37,278
ISAPerú 18,586,446 28,0700 144,077 78,255 65,822 3,708
REP 21,648,000 30,0000 716,363 380,027 336,335 25,915
InternexaS.A.E.S.P. 25,647,620 99,9998 131,033 32,420 98,613 (12,714)
FlycomComunicacionesS.A.E.S.P. 32,280,066,573 75,0400 55,464 48,070 7,394 (13,197)
ISABoliviaS.A. 95,638 51,0000 193,020 139,700 53,320 312
XMCompañíadeExpertos
enMercadosS.A.E.S.P. 14,789,000 99,7300 160,477 145,619 14,858 29
The corporate purpose and other information regarding the affiliate companies that are recorded under the equity
methodandothersignificantinvestmentsareasfollows:
Investmentsintheelectricalsector
TranselcaS.A.E.S.P.
In1998,theCompanyacquired65%ofTranselcaS.A.E.S.P.,MixedUtilityCompany,incorporatedonJuly6,1998,which
rendersenergytransmissionservices,coordinationandcontroloftheRegionalDispatchCenter,connectiontotheNational
TransmissionSystemandrenderingoftelecommunicationservices.
InterconexiónEléctricaISAPerúS.A.
OnFebruary16,2001,thePeruvianGovernmentgrantedtoInterconexiónEléctricaS.A.E.S.P,theconcessionfor32years
inordertoconstruct,supplyandoperatetheOroya-Carhuamayo-Paragsha-Vizcarraelectrictransmissionlinesat220kVand
theAguaytía-Pucallpaat138kV,withtheirrelatedsubstations.Inordertocomplywiththispurpose,InterconexiónEléctrica
154 Notes to the Financial Statements
ISAPerúS.A.was incorporatedwith thecapitalofTranselcawith54.86%, ISAwith28.07%andFondode inversionesen
infraestructura,serviciospúblicosyrecursosnaturalesadministratedbyACCapitalesSAFIwith17.07%.Theprojectbegan
tooperateinAugust2002,beforethedateestablishedintheconcessioncontractagreedwiththePeruvianGovernment.
OnSeptember4,2002,ISAcreatedaBranchinPerutoexecutetheoperationandmaintenancecontractbetweenISA
and ISAPerúS.A., the life termof thebranch isundefined, itdoesnothavea legal representation,nordoes itdevelop
activitiesindependentfromISA.ItisanextensionofthePeruvianCompany.
ReddeEnergíadelPerú-REP-
OnJune5,2002,ISAassociatedwithTranselca,wasgrantedbythePeruvianGovernment,byinternationalpublicbidding
fortheconcessionof30yearsoftheenergytransmissionsystemofEtecenandEtesur.TheCompanyReddeEnergíadel
Perú-REPwascreatedwiththepurposetoexploit,operate,renderservicesanditsmaintenance;theshareparticipationin
thisCompanyis:ISA30%,Transelca30%andEEB40%.
ISABoliviaS.A
OnJune27,2003,theSuperintendencyofElectricityofBoliviagrantedfor30years,bymeansofResolutionSSDENo
086/2003,toISA,thebiddingfortheconstruction,operationandmaintenanceoftheSantivañez-Sucre,Sucre-Punutuma
and Carrasco-Urubó lines and the associated substations, as of the date of its commercial establishment. According to
thebidterms,onJuly14,2003,thestockcompanyInterconexiónEléctricaISABoliviaS.A.-ISABOLIVIA,wasincorporated.
TheparticipationinthisCompanyiscomprisedby:ISA51%anditsaffiliatesTranselcaS.A.E.S.P.with48.99%andInternexa
S.A.E.S.P.with0.01%.TheCompanybegancommercialoperationsonSeptember17,2005,withtheenergysupplyatthe
Santiváñez-SucreandSucre–Punutumalines;subsequently,theCarrasco-UrubólinewasenabledonOctober10,2005.
EmpresaPropietariadelaRed-EPR-
InFebruary2005,ISAwasacceptedasapartnerofEmpresaPropietariadelaRed–EPR-,incorporatedinPanamain1998.
TheparticipationofISAisfor12.5%.EPRisacompanyundertheprivaterightgrantedby“TreatyoftheCentralAmerican
ElectricMarket“anditsprotocol,bywhicheachGovernmentgrantstherelatedpermit,authorizationorconcession,asthe
casemightbe,fortheconstructionandexploitationofthefirstregionalelectricinterconnectionsystem,whichwillunite
Honduras,Guatemala,ElSalvador,Nicaragua,CostaRicaandPanama.
XMCompañíadeExpertosenMercadosS.A.E.S.P.-XM-
On October 1, 2005, XM Compañía de Expertos en Mercados S.A. E.S.P., affiliate of ISA, began operations for the
operationofNationalColombianInterconnectedSystemandfortheadministrationoftheWholesalerEnergyMarket.ISA’s
participationisfor99.73%.
Notes to the Financial Statements 155
InvestmentsinTelecommunications
FlycomComunicacionesS.A.E.S.P.
Firstmark Communications Colombia S.A. - FMCCo – was incorporated in November 1999. In May 2002, the affiliate
changed its name to Flycom Comunicaciones S.A. E.S.P. The corporate purpose of this Company is the rendering of
communication services, aggregated value services and telematic services, by their own risk or by third parties. The
Company,toprovideitsservice,basicallyusestheLMDS(LocalMultipointDistributionSystem)technology,thatallowsto
simultaneouslydistribute:voice,video,dataandinternetthroughwirelessnetworks.TheparticipationofISAinthisaffiliate
isfor75,04%.
InternexaS.A.E.S.P
OnJanuary4,2000,ISAincorporatedInternexaS.A.E.S.P.,whichcorporatepurposeistheorganization,administration,
commercializingandrenderingoftelecommunicationservicesoractivities.Itcurrentlyisdedicatedtodevelopandpromote
nationalandinternationaltelecommunicationservices.ISA’sparticipationinInternexaisfor99,99%,mainlyforthetransfer
oftelecommunicationassets.
Applicationeffectoftheequitymethod
Theeffectoftheapplicationoftheequitymethodgeneratedvariationsintheinvestmentswhicharereflectedinthe
resultsandtheequity,aslossorincomebythesamevaluefortheyear2004and2005,asfollow:
2004 2005
Incomefromequitymethod (1)
FENS.A. (2) - 3,166
TranselcaS.A.E.S.P. 6,216 24,230
InternexaS.A.E.S.P. (3) 1,632 (5,889)
FlycomComunicacionesS.A.E.S.P. (9,796) (9,903)
ISAPerúS.A. 1,035 1,041
REPS.A. 3,261 7,774
ISABoliviaS.A. - 159
XMCompañíadeExpertosenMercadosS.A.E.S.P. - 28
Netincomefromequitymethod 2,348 20,606
(1) Torecordtheequitymethod,incomeandexpensesareeliminatedfromthereciprocaltransactionsoriginatedwith
theaffiliate.(SeeNote27)
(2) In2004,ISA’sinvestmentinFENwasaccountedbythecostmethod,asofOctober2005,itisrecordedunderthe
equitymethodinaccordancewithCGN;accordingtoResolution364of2001,whichalsoconsidersthatthereare
oneorvariousentitiesofthepublicsectorthathaveadirectorindirectparticipationequaltoorsuperiorto50%.
Asaconsequenceoftheabove,incomewasrecognizedfromtheresultsoftheCompanyduring2005,for$3,166.
156 Notes to the Financial Statements
(3) VariancerelatestotheusufructamortizationandtothedevaluationhomologationofassetswithInternexa,fora
netvalueof$6,824.(Usufructamortizationof2002for$8,969andrecoveryofassetdevaluationfor$2,145).
NOTE 7: ACCOUNTS RECEIVABLE, NET
Net,accountsreceivableatDecember31wascomprisedasfollows:
2004 2005Clients Energyservice 126,940 120,807DispatchandcoordinationCNDandCRD 3,883 142Liquidation,invoicing,STNandSICcollection 4,638 363Telecommunications (1) 42,159 28,721Accountsreceivablefromtechnicalservices 967 894Totalclients 178,587 150,927Interestsreceivable Toclients 1,551 791Overloans 340 120Loanswithrelatedparties 1,706 4,644Totalinterestsreceivable 3,597 5,555Loansgrantedtoemployees (2) 15,440 15,135Prepaymentsandadvances Taxes (3) 15,365 1,855Suppliers 525 3,727Contractors 643 10,795Forfuturesubscriptionofshares 202 -Other 3 22Totalprepaymentsandadvances 16,738 16,399Otheraccountsreceivable AccountsreceivablefromFAZNI,FAERandFESI 8,630 -Relatedparties 17,480 39,138Montelíbanomunicipality 6,102 4,533Documentsreceivable 22,988 6,780Variousaccountsreceivable 2,744 2,310Totalotheraccountsreceivable 57,944 52,761TOTALACCOUNTSRECEIVABLE 272,306 240,777Less–Allowancefordoubtfulaccounts (4) (18,079) (14,642)TOTALNETACCOUNTSRECEIVABLE 254,227 226,135LONG-TERMACCOUNTSRECEIVABLE Telecommunicationclients (1) 37,098 28,210Loansgrantedtoemployees 13,882 11,171Relatedparties - 10,165SalesVATfavorablebalancewithoneyearmaturity 9,290 -Prepaymentsandadvancesforinvestment–other 202 -Documentsreceivable 22,988 6,780TOTALLONG-TERMACCOUNTSRECEIVABLE 83,460 56,326TOTALSHORT-TERMACCOUNTSRECEIVABLE 170,767 169,809
Notes to the Financial Statements 157
(1) In1997 ISAformedanalliancewithtelecommunicationscompaniestoundertake jointdevelopmentofafiber
optic network between Bogota, Cali and Medellin, to improve the national telecommunications system. Two
phasesoftheprojectwereimplemented,thefirstphasebegantooperatein1998andthesecondphasein2000.
AhighpercentageofthisinstallationwasimplementedwiththeuseofISA´sexistinginfrastructure,billingtothe
othermembersofthealliancetheinstallationanduse.PaymentstoISAfortherightsofuseweredeferredduring
10matureyears,withathreeyeargrace.Therefore,thealliancecompanieshavepaidtoISA,fouryearsofphase1
andtwoofphase2.
(2) Employeereceivablescorrespondtohousingloans,vehicle-purchaseloansandotherloans,grantedat5%and8%
(2004-6%y8%)fortermsof13and15years(2004–10and12years).
(3) Includes$65(2004-$11,295)forsalestaxpaidonthenationalizationofgoodsassociatedwithenergytransport,
whichwerediscountedfromincometaxasestablishedbyArticle258-2oftheTaxStatute;in2005,$7,784were
accumulated,whichweretransferredtotheincometaxliabilityatyear-end.Theprepaidincometaxfor2005for
$3,486wastransferredtotheliabilityfor(2004-$2,331).
Besidesitincludes$876(2004-$876)relatedwiththeAdministrativeMinutesissuedbytheDIANperconceptof
the1995and1996incometax,whicharebeingdiscussedattheadministrativecontentiousjurisdiction;and$914
(2004-$863)relatedwithprepaidmunicipaltax.
(4) ThedecreaseintheprovisionfordoubtfulaccountswasmadeinaccordancewiththepoliciesestablishedbyISA.
During2005theprovisionfordoubtfulaccountswasaffectedbysomeadditionswhichwerechargedtothefinal
resultsfortheyear,for$601(2004-$2,417)representedbasicallybydoubtfulaccountsofsomecompaniesofthe
energysector.Additionally,accountsreceivablewerewritten-offduring2005for$3,331(2004-$18,436).
ThecompositionandduedateforreceivablesfromcustomersonDecember31(capitalonly)isasfollows:
2004 2005
Shareholders
EmpresasPúblicasdeMedellín(EEPPM) 10,778 9,535
EmpresadeEnergíadeBogotá(EEB) 27 6
Totalshareholders’ 10,805 9,541
Otherclients 167,782 141,386
Totalaccountsreceivablefromclients 178,587 150,927
158 Notes to the Financial Statements
Theclassificationoftheaccountsreceivablefromclientsaccordingtomaturitydateare:
2004 2005
Current 166,740 142,413
Maturity
Maturitybetween1and90days 89 827
Maturitybetween91and180days 874 9
Maturitybetween181and360days 63 6
Maturitygreaterthan360days 10,821 7,672
Totalmaturity 11,847 8,514
Totalaccountsreceivablefromclients–byages 178,587 150,927
AccountsreceivablearemostlyfromelectricdistributionsectorcompaniestowhomISAmainlyprovidesaconnection
service and the use of the NationalTransmission System.The Company invoices for interest on the past due accounts
of itscustomersatthehighestrateallowedby law;atDecember2004and2005therateswerefor29.24%and26.24%,
respectively.
The electricity companies Electribolivar, Caucasia and Electrotolima, are in the process of liquidation with the
SuperintendenceofPublicUtilities.AsofDecember312005$5,568(2004-$7,394–includingElectrochocó,whichdefinite
liquidationwasdeclaredinNovember2005,andwhichdebtwaswritten-offfor$1,461).Termocartagena,hadadebtfor
$1,650(2004-$1,303)andisinRestructuringLaw550of1999,authorizedandperformedbySSPD.Theseobligationsare
provisionedin100%.
Cedelca and Emcali were intervened by the Superintendent of Public Utilities SSPD and have agreements signed
throughwhichobligationsarebeingpaidtotheCompanyfor$5,428(2004-$7,296).However,thependingobligationsare
provisionedin100%.
NOTE 8: INVENTORIES
InventoriesatDecember31werecomprisedasfollows:
2004 2005
Short-terminventories
Materialtorenderservices 1,179 1,583
Constructionsinprocess 235 88
Provision (677) (290)
Totalshort-terminventories 737 1,381
Long-terminventories
Materialtorenderservices 60,233 30,117
Totallong-terminventories (1) 60,233 30,117
TOTALINVENTORIES 60,970 31,498
Notes to the Financial Statements 159
(1) BecauseofthenatureofISA’sassets,manysparepartsarenecessarytomaintainthem.Someofthesespareparts
arenoteasytogetinthemarketandhavealongtermdelivery.Therefore,itisnecessarytohavealargestockof
inventoryinordertoguarantycontinuityofserviceandforthecomplianceofsystemavailabilityindicators.
In2005,duringtheaccountingclearanceprocess,fixedassetinventorieswerereclassifiedfor$28,987relatedwith
exclusivematerialsforfixedassetuse(seenote25).
NOTE 9: PROPERTIES, PLANT AND EQUIPMENT, NET
Thenetbalanceofproperties,plantandequipmentatDecember31,werecomprisedasfollows:
2004 2005
Properties,plantandequipment
Networks,linesandcables 1,659,642 1,683,632
Plantsandducts 1,136,255 1,153,046
Buildings 65,451 65,451
Machineryandequipment 53,929 29,054
Computerandcommunicationequipment 29,203 25,553
Depositedmaterialandequipmentandstoredgoods 566 -
Transport,tractionandliftingmaterial 1,385 1,385
Furniture,fixtureandofficeequipment 11,212 11,727
Lands 19,925 19,924
Subtotalproperties,plantandequipment 2,977,568 2,989,772
Less–accumulateddepreciation 939,081 1,001,631
Less–provisions 1,906 1,340
Totalproperties,plantandequipmentinoperation 2,036,581 1,986,801
Constructionsincourse 17,670 144,003
Machinery,plantandequipmentinassembly 11,395 7,761
Totalproperties,plantandequipment,net 2,065,646 2,138,565
Retirementandsalesofproperties,plantandequipmentduringtheyeargeneratedanet loss for$16(2004-$491).
Themovementoftheaccumulateddepreciationduring2005consistedintheaccrualofdepreciationfor$88,570(2004
-$91,903),chargedtoincome(In2004,constructionsincoursewerecapitalizedfor$100).Besides,depreciationwasretired
for$26,021(2004-$13,042).
Assetshavenorestrictions,norpledgesordeliveriesasguaranteeforobligations.
160 Notes to the Financial Statements
NOTE 10: DEFERRED CHARGES AND OTHER ASSETS
ThebalanceofdeferredchargesandotherassetsatDecember31werecomprisedasfollows:
2004 2005
Deferredchargesandothershort-termassets
Prepaidexpenses 6,956 4,660
Deferredtaxes 2,586 11,331
Totaldeferredchargesandothershort-termassets 9,542 15,991
Deferredchargesandotherlong-termassets
Deferredcharges
Studiesandinvestigations (1) 4,627 3,671
Taxtopreservethedemocraticsecurity 9,774 6,516
Commissionfromplacementofbonds 6,883 4,191
Civicactions 6,778 -
Deferredtax 54,728 73,492
Totaldeferredcharges 82,790 87,870
Intangibleassets
Software 25,588 25,915
Goodwill 3,482 4,152
Licenses 8,468 7,834
Rightsofway 19,112 23,855
Rights 27,914 27,914
Inflationadjustedintangibleassets (2) 11,505 -
Less–Amortizationofintangibleassets (40,520) (41,224)
TotalIntangibleassets 55,549 48,446
Goodsreceivedaspayment (3) 8,286 7,135
Miscellaneous 63 59
Totaldeferredchargesandotherlong-termassets 146,688 143,510
Totaldeferredchargesandotherassets 156,230 159,501
(1) Includes designs and studies for the construction of the UPME Primavera-Bacatá and Primavera-Ocaña-Copey-
Bolívarprojects.Withtheseprojects,theinterconnectionofthecountryisimprovedandhastensthedevelopment
of the domestic electric market in the Andean Nations Community (CAN), with future developmental goals
towardsCentralAmerica. Inyear2004,CREGacceptedISA’sbidtodesign,purchasesupplies,construct,operate
andmaintaintheseprojects.
(2) In2005,inflationadjustmentswereincorporatedtothecostsofassetsasaresultofinstructionsfromCGN.
(3) RelatestothevalueofsharesofElectricaribeandElectrocostareceivedascashpayment,whichwereappraised
onthebasisofequityintrinsicvalueandprovisionswererecordedasaresultofcomparisonwithequityvalue.At
December31,2005,theprovisionamountedto$5,126(2004-$3,827).
Notes to the Financial Statements 161
NOTE 11: REAPPRAISALS
ReappraisalsatDecember31werecomprisedby:
2004 2005
Investments 1,657 1,061
Properties,plantandequipment (*) 1,143,318 1,132,900
Totalreappraisals 1,144,975 1,133,961
In2005,economicappraisalsweremadetothemaincomponentsofproperties,plantandequipment,exceptforreal
estate,whichwereappraisedin2004incompliancewithexternalCircular045of2001fromCGNandupdatedin2005.
Technicalappraisalsin2005weremadebyusingtheDepreciatedLinealReplacementCostmethod,whichconsistsin
determiningthecurrentvalueoftheequipmentinuse,basedonthecurrentcostofanassetthatprovidesthesameservice
(sotosay,thenewreplacementvalue-VRN),proportionallyaffectedbytheremainingtimeofservice(remainingusefullife)
relatedwiththeusefullifeestablished.ThiscriterionisappliedforallspecializedassetsthatISAhasoperating,sotosay,in
transmission(useandconnection).
(*) thefollowingchartdetailstheappraisalofproperties,plantandequipment:
2004 2005 Assets Appraisal Net Reappraisal Appraisal Net Reappraisal accounting accounting balance balance
Transmissionlines 1,665,874 1,053,331 612,543 1,677,420 1,039,575 637,845
Transmissionsubstations 1,274,428 808,880 465,548 1,228,512 787,974 440,538
Land 55,793 19,925 35,868 55,750 19,924 35,826
Buildings 59,962 51,501 8,461 58,550 50,163 8,387
Usufructtelecommunications 92,486 82,874 9,612 87,842 78,686 9,156
NationalDispatchCenter 14,551 4,033 10,518 - - -
Vehicles 956 188 768 1,288 140 1,148
Totals 3,164,050 2,020,732 1,143,318 3,109,362 1,976,462 1,132,900
Decreaseinthe2005appraisal,basicallyrelatestotheassetsoftheNationalDispatchCentertransferredtoXMCompañía
deExpertosenMercadosS.A.E.S.P.
162 Notes to the Financial Statements
NOTE 12: OUTSTANDING BONDS
OutstandingbondcharacteristicsandbalancesatDecember31aredetailedasfollows:
Issuance Series Term Interest 2004 2005 Maturity (years) rates
First B 7 DTF+3.4% 35,000 35,000 19-Jan-06
Second A 7 DTF+2.4% 72,250 72,250 13-Apr-06
Second B 7 IPC+10% 29,312 29,312 13-Apr-06
Second C 10 DTF+2.5% 59,700 59,700 13-Apr-09
Second D 10 IPC+10% 30,879 30,879 13-Apr-09
Third A 10 IPC+8.10% 130,000 130,000 16-Jul-11
Programsection1 7 IPC+7.0% 100,000 100,000 20-Feb-11
Programsection2 12 IPC+7.3% 150,000 150,000 20-Feb-16
Programsection3 15 IPC+7.19% 108,865 108,865 7-Dec-19
Capitalizedinterests 8,596 12,055
Totaloutstandingbonds 724,602 728,061
Totallong-termoutstandingbonds 724,602 585,627
Totalshort-termoutstandingbonds 142,434
Bondsaccruedinterestsduring2005for$88,218(2004-$73,956),whichwererecordedasfinancialexpense.
Thefollowingisthedetailofmaturitydatesfortheoutstandingbonds::
Year Capital Interests Total
2006 136,562 5,872 142,434
2009 90,579 6,183 96,762
2011onwards 488,865 - 488,865
716,006 12,055 728,061
Thefirst issuancemadefor$130,000 in1998,whichatDecember31,2005,hadabalancefor$35,000, isdestinedto
executetheinvestmentplanandtoattendcorporaterequirements.
Thesecondissuancefor$180,000,seriesA,B,CandD,destined50%forthecashflowsof1999andtheremaining50%for
theInvestmentPlan.Atyear-end2005thebalanceisfor$204.196,asaresultofthecapitalizationoftheissuedseriesIPC.
Thirdissuancefor$130,000,wasdestinedtoreplacelocalandforeigncurrencyloans,thustoreducetheriskinexchange
andtoextendtheaveragelifeoftheportfolio.
Thebondprogramfor$450,000,fromsection1,2and3for$358,865,whichdestined50%tohandlingdebtoperations
andtheremaining50%tofinancecashflowsandtomakeinventories.
Notes to the Financial Statements 163
NOTE 13: FINANCIAL OBLIGATIONS
ThebalanceoffinancialaccountsatDecember31wascomprisedasfollows:
Creditlines Currency Interestrates 2004 2005 Lastdate Guarantees ofpayment
Domesticfinancialobligations
FEN10514 COP DTF+4.1% 20,400 - 21-Oct-05 (2)
Lloyds COP DTF+2.75% 11,000 - 23-Jan-05 (2)
BancoPopular COP DTF+3.0% 10,300 - 13-Feb-05 (2)
Santander COP DTF+2.5% 5,000 - 18-Feb-05 (2)
Davivienda COP DTF+1.72% 26,000 - 16-Mar-05 (2)
ABN_AMRO COP DTF+0.85% - 16,000 19-Jul-06 (2)
Totaldomesticfinancialobligations 72,700 16,000
Foreignfinancialobligations
BID195IC/CO. UAV 7.42% 65,955 35.709 18-Dec-06 (1)
BIRF-3954-CO. USD Sectionfixed 44,820 26.952 15-Feb-11 (1)
rate(6.32%)
BIRF-3955-CO. USD Libor6M 243,348 209.143 15-Oct-12 (1)
+Spread
BancoCentraldePerúSuc.Panamá USD Libor - 7,994 30-Dec-06 (2)
6M+1%
MEDIOCREDITOCENTRALES ITL Fixedrate 21,696 14,704 19-Jun-10 (1)
1.75%
Totalforeignfinancialobligations 375,819 294,502
Totalfinancialobligations 448,519 310,502
Less–Short-termportion 143,871 88,525
Totallong-termfinancialobligations 304,648 221,977
1) LoansinforeigncurrencyareguaranteedbytheNation.
2) Unsecured.
Financial obligations accrued interests in 2005 for $23,468 (2004 - $41,011), which were registered as financial
expenses.
164 Notes to the Financial Statements
AtDecember31,financialobligationswereinthefollowingcurrencies:
Balancein Balancesindomestic originalcurrency(1) currency(million)
Currency Interestrates 2004 2005 2004 2005
USDollar Libor+SpreadBIRF 120,585 106,859 288,168 244,089
Unitofaccount Fixedrate7.42% 16,388 9,955 65,955 35,709
Euros(liras) Fixedrate1.75% 6,672 5,459 21,696 14,704
Colombianpesos DTF+3.15%aDTF+4.1% 72,700 16,000 72,700 16,000
448,519 310,502
(1)Amountsinoriginalcurrency,differenttotheColombianpesoareexpressedinthousands.
Thematurityofthelong-termobligationsatDecember31,2005isthefollowing:
Years Valor
2007 50,408
2008 35,560
2009 33,727
2010 33,481
2011 33,419
2012onwards 35,382
Totallong-termobligations 221,977
COMMITMENTSREGARDINGLOANS
TheCompanyhasagreedtocomplywiththefollowingcovenantsandindicatorsduringthelifeoftheloans:
InternationalDevelopmentBank-IDB-:
• ISAwillnotassume,withouttheBank’sapproval,newfinancialobligationswithamaturitygreaterthanoneyear,
as a result of which; a)The ratio between its own internal rate of return plus the set aside contribution of its
shareholdersforthedebtsisnotlowerthan(1.2)and;b)theratiobetweenlongtermdebts,excludingthosethat
havetobecoveredbyitsshareholders,andequitycapitalexceeds1.2times,and
• ISAshort-termbankandcommercialindebtednessarependingeachyear’spaymentandwillnotexceed45%of
theyear’scurrentasset.
InternationalBankforReconstructionandDevelopment-IBRD-:
AccordingtotheletteroftheWorldBankatJune30,2005,contractualfinancialobligationsexpiredatthisdate.
Notes to the Financial Statements 165
FinancieraEnergéticaNacional-FEN-:
TheloanwithFENwaspaidinOctober2005,butduringthefirsthalfof2005,thefollowingrestrictionswereheldtothe
financialindicators:
• EBITDA/Operatingfinancialexpensesnotlessthan2.0times
• EBITDA/Long-termdebtbalancenotlessthan0.17times.
• AOMcashexpenses/incomefromnetexploitations,excludingFAER:Notgreaterthan23%.Thedecisiontoexclude
FAERfromthecalculationoftheAOMcashexpense/incomeindicatorfromnetexploitationwasmadeofficialby
FEN,inthecommunicationP-02829ofOctober23,2003.
• Servicecollections(overdue+periodmaturity):notlessthan0.90
AtDecember31,2005and2004,theCompanysatisfactorilycompliedwiththementionedcommitments.
NOTE 14: HEDGING OPERATIONS
ThebalanceofhedgingoperationsatDecember31wascomprisedby:
2004(*) 2005
Exchangedifference 59,591 70,231
Interests 12,699 12,357
Totalhedgingoperations 72,290 82,588
(*)Reclassifiedinvestmentsforcomparativeeffects.Seenote3.12.
TheamountrecordedrelatestointerestsandexchangedifferencesrecordedasaresultofswapsinforceheldwithBNP
andBancolombia.
At December 31, 2005 the Company had two swap contracts of exchange rates with Bancolombia, with rights for
USD32,750,483,fromwhichUSD31,648,750relatetothecoverageofcapitalandUSD1,101,733forthecoverageofinterests,
(2004: USD46,941,331 per capital and USD1,840,987 per interests) and obligations for $129,747 (2004: $185,380) and a
CrossCurrencySwapcontract(ofinterestrate)withBNPParibaswitharightofUSD44,294,669(2004:USD44,294,669)and
obligationsfor$125,000(2004:$125,000),underthiscontract,theCompanyreceivedafixedinterestrateof13.7%andpays
floatingratesbasedonLIBOR+0.265%,determinedwithsixmonthsofinterval.
Hedgingoperationsgenerateinterestsduringtheyearfor$14,422(2004:$15,162)andexchangedifferencefor$28,625
(2004:$57,188).
166 Notes to the Financial Statements
NOTE 15: ACCOUNTS PAYABLE
ThebalanceofaccountsreceivableatDecember31werecomprisedby:
2004 2005
Relatedparties (1) 89,447 139,939
Suppliers 28,829 55,383
Contractors 5,595 6,205
Dividends (2) 23,049 25,449
Financialexpenses 28,002 23,394
Otheraccountspayable 5,323 4,478
Othertaxes 5,470 4,636
Totalaccountspayable 185,715 259,484
Lesslong-termsaccountspayable(Relatedparties) 22,008 110,397
Totalshort-termaccountspayable 163,707 149,087
(1) Includes$132,405(2004-$86,907)relatedtoloansreceivedfromTranselca,withthefollowingconditions:
Finalmaturitydate Typeofinterest Capital Netbalance balance interests
18-mar-06 Fixedrate(7.71%) 12,000 674
30-mar-06 Fixedrate(7.71%) 10,008 540
30-dic-08 DTF+1.5% 28,500 2,293
27-oct-08 DTF 36,399 3,138
26-dic-09 DTF 45,498 36
Total 132,405 6,681
(2) TheGeneralShareholders’Meetingof2005decreeddividends for$101,795. In2005dividendswerepaid for$
99,395.
NOTE 16: LABOR LIABILITIES
LaborliabilitiesatDecember31werecomprisedasfollows:
2004 2005
Laborliabilities
Severancepaymentsandinterests 2,815 2,170
Vacations 1,437 1,260
Vacationbonus 2,993 2,142
Other 4 13
Totallaborliabilities 7,249 5,585
Less–short-termportion 6,297 4,821
Long-termlaborliabilities 952 764
Notes to the Financial Statements 167
NOTE 17: ACCRUED LIABILITIES AND PROVISIONS
AccruedliabilitiesandprovisionsatDecember31wereasfollows:
2004 2005
Provisionfortax 130 454
Provisionforrecoveryoftowers (1) 358 611
Provisionforincometax (2) 42,455 34,723
Provisionforcontingencies 644 1,164
Otherprovisionforconventionalbenefits (3) - 24,134
Retirementpensions (4) 103,824 81,186
Otheraccruedliabilitiesandprovisions (5) 13,167 12,929
Totalaccruedliabilitiesandprovisions 160,578 155,201
Less–short-termportion (6) 67,694 49,881
Totalaccruedliabilitiesandlong-termprovisions 92,884 105,320
(1) Relates to the provision for the repair of collapsed towers that could not be repaired at the end of 2004 and
2005.
(2) Thisamount relates to thecurrentyear incometax–note17.2-,plus theBranchofPeru for$176, less the tax
discountforpaidVATof$7,784,withholdingtaxfor$18.390andprepaidtaxesfor$3,487.
(3) In2005,theestimatedaccruedliability,startedtoberecognized,whichdisclosesthecurrentvalueofthefuture
paymentsforhealthandeducationandsenioritybenefitsrecognizedtopensionedpersons,computedwiththe
samemethodologyofthepensionalliabilityandrecognizedinthesamepercentasamortized.
(4) Decreasein2005regarding2004explains,amongotheraspects,fortheeffectoftheLegislativeAct001of2005,
whicheliminatedspecialregimensofretirementpensions.SeeNote24.
(5) 2005includes$4,122(2004-$6,737)relatedto2.5%ofthecommissionoverguaranteescreatedwithBancolombia
andBBVAGanadero,todevelopoffersandthegrantingoftheUPME01and02projectsof2003,whichshould
bepaidduringitsconstruction.Additionally,aprovisionfor$5,800isincludedforFAER(2004-$5,357),and$781
relatedtothebonusfordirectives,asaresultofthechangeofordinarysalarytoanintegralone,renouncingfrom
thesenioritypremiumthatwillberecognizedfor3years.
(6) 2004 includes an accrued liability for the actuarial computation. In 2005, the accrued liability from actuarial
computationiscompletelyclassifiedaslong-term,inaccordancewithCircularNo.044of2003ofCGN.
17.1RETIREMENTPENSIONSANDCONVENTIONALBENEFITS
Retirementpensions
UndertheLaborCode,theCompanyisrequiredtopaypensionstoemployeeswhosatisfycertainconditionsofage
168 Notes to the Financial Statements
andlengthofservice.However,theSocialSecurityInstitute(ISS)andthePensionManagementFundshaveassumedthe
greaterpartofthisobligation.
ThepresentvalueforretirementpensionsasofDecember31,2004,and2005,wasdeterminedusingactuarialcalculations
whichcomplywiththelawandspecificallywiththeactuallaborsettlementagreements(agreementandconvention).The
estimatesusedwereasfollows:
2004 2005
Actualinterestrate 4.80% 4.80%
Futureincreaseofpensionsandsalaries 6.85% 6.08%
Numberofpersonscoveredbytheplan 926 525
OnDecember31,2005,theCompanyhad661(2004-784)activeemployees,ofwhom138(2004-501)arecoveredby
thepensionplanprovidedinthecollectiveagreements,whiletheremaining523(2004-283)areunderthejurisdiction
ofLaw100/93.Theactuarial calculationcoversactivepersonnel (138), retiredpersonnel (272), lumpsumdeathbenefit
payments and surviving spouse or pensional substitutions (34), quotes by parts of ISA (12) and contingent personnel:
retiredwithmorethan10yearsofservice(63),retiredpersonnelwithmorethan20yearsofservice(6).
Atyear-end2005,thenumberofworkersthatwouldbepensionedinISAdecreasedin363persons,passingfrom501
(in2004)to138(in2005),becauseof57workersweretransferredasaresultofemployersubstitutiontotheaffiliateXM
CompañíadeExpertosenMercadosand306workersofISAthatcomplywithpensionextralegalbenefitswithISAafterJuly
31,2010,resultinginexclusioninaccordancewithlegislativeminuteN°01ofJuly22,2005.
AsofDecember31,2005,ISAamortized83.28%(2004–82.35%)oftheprojectedobligation;increaseintheamortization
percentwasfor0.93%,inaccordancewithDecree051of2003,whichallowstodistributetheamortizablepercentofthe
actuarialcomputationofDecember31,2002,until2023inastraight-lineform.
ThemovementsoftheactuarialcalculationandthedeferredliabilityatDecember31areasfollows:
Projected Deferred Net liability cost liability
BalanceatDecember31,2003 124,498 23,132 101,366
Add–increaseoftheactuarialcomputation 5,559 427 5,132
LessrecoveryformconstitutionalsentenceC754/04C. (3,979) (1,305) (2,674)
BalanceatDecember31,2004 126,078 22,254 103,824
Add–increaseoftheactuarialcomputation 8,371 828 7,543
LessRecoveryoffuturepensionsLegislativeAct001/05 (31,990) (6,784) (25,206)
TransferofliabilitytoXMprojectedobligation (4,975) (4,975)
BalanceatDecember31,2005 97,484 16,298 81,186
Pensionpaymentsweremadeduringtheyearfor$10,581(2004-$9,161).
Notes to the Financial Statements 169
ConventionalBenefits
OnDecember31,2005, theCompanyprudently tookmeasuresbeforeapplying InternationalAccountingStandards
–IAS,inwhichtheypreparedacalculationwithActuariosAsociadosS.A.,inordertodeterminetheCompany’sliabilities
regardingconventionalbenefitsreceivedbypensioners,differenttothoserequiredbylegalregulations.
Inordertopreparethecomputation,extralegalaidsandbenefitswereincludedforpresentvalueof$28,979,included
intheunionlaborcontracttowhichthepensionershaveright,suchas:educationandhealth(complementaryplansand
aidforhealthexpenses)aidandpensioncontributions;theamountandamortizationwas:
Totaly Non-operating Operating Total2005 liability expenses expenses expense
Seniorityquote 6,015 4,953 56 5,009
Studyaid 1,762 1,451 17 1,468
Healthaid 21,202 17,460 197 17,657
Total 28,979 23,864 270 24,134
Percentofamortization 82.35% 0.93% 83.28%
Theamortizationforthisliabilitywasestimatedin82.35%(amortizedpercentoftheactuarialcomputationatDecember
31, 2004) and recorded as non-operating expenses because of are related with prior years and 0.93% (increase of the
amortizationpresentinaccordancewithDecree051of2003)ofthecurrentperiodasanoperatingexpenseinindependent
accountstotheactuarialcomputation.
Pendingamortizablevaluewillberecognizedbythestraight-linemethoduntil2023,inaccordancewiththeCompany’s
amortizationplanofthepensionliability.
170 Notes to the Financial Statements
17.2 INCOMETAX
Thereconciliationbetweenaccountingincomeandtaxableincomefor2004and2005areasfollows:
2004(*) 2005
Incomebeforetax 216,532 240,456
Add–Itemsthatincreasenetincome:
Taxmonetarycorrection 76,147 56,456
Non-deductibleprovisions 6,865 18,925
LossonForwardvaluation 7,871 13,136
Dividendsrecivedincash(TRANSELCAparticipation) 12,974 21,321
Incomefromsaleoffixedassets 3,032 -
ResultsfromCANoperations 10,026 -
Non-deductiblecostsandexpenses 45,372 23,692
Less–Itemsthatdecreasenetincome:
Excessofdepreciationandamortization (123,868) (59,473)
AdditionaldepreciationexpenseandamortizationforAxIFiscal (56,546) (53,533)
Write-offandtaxprovisionforaccountsreceivable (5,873) (2,904)
Recoveryofprovisions (3,075) (10,483)
Incomefromequitymethod (2,348) (20,634)
Non-taxabledividendsandparticipations: (12,963) (5,691)
Costofsoldfixedassets (4,818) -
Incomefromappraisaloffixedincomesecurities (323) 323
Specialdeductionofrealproductivefixedassets - (31,216)
Other (3,286) (1,862)
Netincome 165,719 188,513
Less–Taxexempt (5,097) (19,717)
Nettaxableincome 160,621 168,796
Incometaxrate 35% 35%
Currentincometax 56,217 59,079
10%surtax(1) 4,969 5,129
Totalcurrenttaxes 61,186 64,208
(*)Reclassifiedforcomparativeeffects.Seenote3.12.
(1) DeterminingSurtax:
2004 2005
Currentincometax 56,217 59,079
Taxdiscounts (6,531) (7,784)
Netincometax 49,686 51,295
Surtax10% 4,969 5,129
Notes to the Financial Statements 171
Nettaxeffectintheyear’sresultsisasfollows:
2004 2005
Currentincometax 56,217 59,079
surtaxexpense 4,969 5,129
Debitdeferredtax (28,242) (31,350)
Creditdeferredtax 42,102 19,447
CANcountrytaxes 1,471 972
Netchargetoincome 76,517 53,277
ReconciliationbetweenaccountingandtaxableequityatDecember31isasfollows:
2004 2005
Accountingequity 2,655,899 2,786,702
Add:
Non-deductibleprovisions 93,087 105,525
Creditdeferredtax 90,983 110,429
Monetarycorrectioneffect 533,620 605,387
Less:
Accountingreappraisals 1,144,975 1,133,961
Equityparticipation 134,907 -
Debitdeferredtax 57,314 84,823
Taxtopreservedemocraticsecurityandothers 9,774 6,516
Excessoftaxdepreciationoffixedassets 192,602 260,671
Excessofamortizationofdeferredcharges
andintangibleassets 49,238 36,731
Totaltaxableequity 1,784,779 2,085,341
The followingtemporarydifferencesgeneratedadeferred tax liability for taxyearsendedDecember31,2004
and2005:
2004 2005
Creditdeferredtax
Excessoftaxdepreciation 192,602 260,671
Excessoftaxamortization 49,238 36,731
Equitymethod 18,111 18,111
Totaldeferredtaxbasis 259,951 315,513
Incometaxrate 35% 35%
Creditdeferredtaxamount 90,983 110,429
172 Notes to the Financial Statements
2004 2005
Debitdeferredtax
Provisionforaccountsreceivable 21,000 7,165
Accruedliabilities 1,334 26,387
Retirementpensions 35,690 24,606
Inflationadjustments 88,212 153,539
Forwards 17,351 30,487
Totaldeferredtaxbasis 163,587 242,184
Taxrate 35% 35%
Deferredtax 57,255 84,764
Branch’sdeferredtax 59 59
Debitdeferredtaxamount 57,314 84,823
TaxregulationsapplicabletotheCompanystipulatethefollowing:
a) Taxableincomeissubjecttoa35%incometaxrate.Asof2004anduntil2006,suchregulationssetforthasurtax
equivalentto10%ofthenetincometaxdeterminedforeachofthesetaxableyears.
b) Thebasistodetermineincometaxcannotbelowerthan6%oftheCompany’snettaxequityonthelastdayof
priortaxableyear,clearedasestablishedbytaxregulationsinforce(imputedtaxable).
c) Asof2004, incometaxpayersperformingtransactionswith foreign relatedorassociatedpartiesareobligated,
for income taxpurposes, todetermine theirordinaryandextraordinary revenues, costsanddeductions, assets
and liabilities, considering for these transactions the prices and profit margins that would have been used in
comparabletransactionswithorbetweennon-relatedparties.AtthistimetheCompany’smanagementsandits
legaladvisorshaveconcludedthestudyfor2004,whichdidnotrequireadjustmentstothefinancialstatements.
Likewise,asaresultofthecontinuedstudyfor2005,theCompany’smanagementsanditslegaladvisorsconsider
thatnoadjustmentisrequiredasaresultofthementionedstudy.
d) Law863of2003establishedthatincometaxpayerscoulddeduce30%oftheeffectivecashinvestmentsmade
only from productive real fixed assets. After applying this regulation and based on investments made by the
Companyin2005,theperiodsnettaxableincomewasdecreasedin$31.216.
f ) During2005,Decision578oftheAndeanNationsCommunity(CAN)wasset-forth,whichseekstoavoiddouble
taxationoftheincomeobtainedinanyofthecountrymembers,byusinganexonerationmechanism;basedon
thisdecisionandontheconceptsissuedbytaxauthorities,theincomeobtainedincountriesthataremembersof
theAndeancommunityaretaxexempt.
Notes to the Financial Statements 173
In2004and2005,ISArecognizedthedeferredtaxcredittoreflectthetemporarydifferencesintheinflationadjustments
ofnon-monetaryassetswhichweresubjecttodepreciation.Thisisanapplicationofaccountingprinciplesandnotatax
accountingmethodology.Thisprocessgeneratedlowertaxexpensefortheperiod,resultinginadecreaseintaxes,inthe
amountof$22.864(2004-$30,874).
Theincometaxreturnfor2003issubjecttothereviewandapprovalofthetaxauthorities.
NOTE 18: OTHER LIABILITIES
ThebalanceofotherliabilitiesatDecember31wascomprisedasfollows:
Othershort-termliabilities 2004 2005
Collectionfromthirdparties–FAZNI,FAERandFESI 33,160 -
Depositsinguarantee–MEM 40,657 -
Collectionfromthirdparties–TIES 21,346 -
Delegatedadministration 21,303 33,974
CollectionfromapplyingMEM 7,817 -
Incomereceivedfromadvancedsales 5,240 884
Otherminor (369) (160)
Totalothershort-termliabilities 129,154 34,698
2004 2005
Otherlong-termliabilities
Deferredtaxes 90,983 110,429
Deferredincome 46,356 50,351
Depositsreceived–withholdingcontracts 437 2,636
Otherminor 3,770 3,222
Totalotherlong-termliabilities 141,546 166,638
174 Notes to the Financial Statements
NOTE 19: SHAREHOLDERS’ EQUITY
SUBSCRIBEDANDPAIDCAPITAL
SubscribedandpaidcapitalatDecember31wasdistributedasfollows:
2004Shareholders’ Number Amount % ofshares $Millions Participation
Ordinaryshares
Government 569,472,561 18,679 59.2990%
EmpresasPúblicasdeMedellín–EEPPM- 102,582,317 3,365 10.6819%
EmpresadeEnergíadeBogotá-EEB- 17,535,441 575 1.8261%
CentralHidroeléctricadeCaldasS.A.-CHEC- 1,460,366 48 0.1521%
FondodePensionesObligatoriasProtección 28,177,314 924 2.9340%
FondodePensionesObligatoriasColfondos 12,509,059 410 1.3026%
Foreigninvestors 18,152,265 595 1.8902%
ISAADRPROGRAM 4,285,000 141 0.446%
Othershareholders’ 206,167,360 6,762 21,4682%
Outstandingsubscribedcapital 960,341,683 31,499 100.0000%
Reacquiredownshares 17,820,122 585
Totalsubscribedandpaidcapital 978,161,805 32,084
2004Shareholders’ Number Amount % ofshares $Millions Participation
Ordinaryshares
Government 569,472,561 18,679 59.2990%
EmpresasPúblicasdeMedellín–EEPPM- 102,582,317 3,365 10.6819%
EmpresadeEnergíadeBogotá-EEB- 17,535,441 575 1.8261%
FondodePensionesObligatoriasProtección 39,441,754 1,294 4.1071%
FondodePensionesHorizonte 14,256,324 468 1.4845%
FondodePensionesObligatoriasColfondos 13,537,750 444 1.4097%
Foreigninvestors 12,035,460 395 1.2532%
ISAADRPROGRAM 4,560,600 150 0.47621%
Othershareholders’ 186,919,476 6,129 19,46229%
Capitaloutstandingshares 960,341,683 31,499 100.0000%
Ownreacquiredshares 17,820,122 585
Totalsubscribedandpaidshares 978,161,805 32,084
Notes to the Financial Statements 175
CAPITALSURPLUS
• ADDITIONALPAID-INCAPITAL
Theadditionalpaid-incapitalistheexcessofthesalespriceovertheparvalueofthesubscribedshares.
• RECEIVEDFORPROJECTS
ThisaccountrepresentsamountsthattheGovernmenthasdeliveredfortheconstructionofthefirstcircuitofthe500-
kWlinetotheCaribbeanCoast.
RESERVES
• LEGALRESERVE
ThelawrequirestheCompanytoappropriate10%ofannualnetincomeasalegalreserveuntilthebalanceofthe
reserveisequalto50%ofsubscribedcapital.Thismandatoryreservemaynotbedistributedpriortotheliquidationofthe
Company,butmaybeusedtoabsorborreducenetlosses.Anybalanceofthereserveinexcessof50%ofsubscribedcapital
isatthedisposaloftheshareholders.
• RESERVEFORPROVISIONSOFTAXLAW
TheGeneralMeetingapprovedthisreservefromnetincome,incompliancewithArticle130oftheTaxCode,in
ordertoobtaintaxdeductionsfordepreciationinexcessofbookdepreciation.Accordingtotheregulations,thisreserve
maybereleasedas,andwhen,thedepreciationsubsequentlybookedexceedsthedepreciationchargedeachyearfortax
purposes,ortheassetswhichgeneratedthehigherallowancesaresold.
• RESERVEFORREACQUISITIONOFOWNSHARES
Shareholders´ meeting of March 22, 2001 approved a special reserve for the repurchase of own shares, held by the
ClosedValueFund,whichwascreatedtoaddliquiditytoISAshares,forPs8,500Thisisaspecialfundtorepurchaseshares
heldbyEEPPMfor$38,100.
• RESERVETOREINFORCEEQUITY
On March 26, 1999, the General Meeting approved this as a voluntary reserve in accordance with Article 47 of the
Bylaws.ThisvoluntaryreservewasorderedsothattheCompanycouldretainitssolidfinancialposition,andmaintainthe
financial indicators requiredbytheratingagencies, inorder toobtainthe investmentgraderating,andtocomplywith
contractualcommitmentsmadewithlenders.OnMarch2005,adividendfor$48,453(2004-$58,378)wasapprovedtobe
distributedfromthisreserve.
176 Notes to the Financial Statements
• RESERVEFORREHABILITATIONANDREPLACEMENTOFNATIONALTRANSMISSIONSYSTEMASSETS
TheannualShareholdersmeeting,heldonMarch30,2000,approvedareserveofPs24,933fortherehabilitationand
replacementofall thedomestictransmissionsystemassets,andasofMarch18,2002,theyhadapprovedanadditional
reserveofPs12,502.
EQUITYREVALUATION
Inflationadjustmentsonequityaccountshavebeencreditedtothisaccount,andchargedtotheincomestatement,
theywererecognizeduntilDecember31,2000.ThisamountwillnotbedistributedtoShareholders,butcanbeusedto
increasethenetcapital.
SURPLUSFROMEQUITYMETHOD
Relatestothecounterpartof investmentsequityvariancesmade insubordinates,asaconsequenceofapplyingthe
equitymethod.SeeNote3.3.
Thevarianceintheequitymethodin2005,regarding2004,includesthetranslationeffectofsolcurrencytoUSDollars
for$61,061,madebytheaffiliateinPeru.
NOTE 20: MEMORANDUM ACCOUNTS
ThebalanceofmemorandumaccountsatDecember31wascomprisedasfollows:
2004 2005
Debtors
Othercontingentrights 54,138 54,443
Otherdebtorcontrolmemorandumaccounts (1) 460,803 -
Taxdebtors (2) 633,966 1,356,568
Totaldebtormemorandumaccounts 1,148,907 1,411,011
Creditors
Claimsandlawsuits 858,523 841,184
Taxmonetarycorrections 480 -
Loansreceivable 6 6
Hedgingoperations - 6,213
Othercontingentliabilities 183,483 177,546
Taxcreditors (3) 154,121 36,243
Othercreditorcontrolmemorandumaccounts 2,745 1,437
Totalcreditormemorandumaccounts 1,199,358 1,062,629
(1) BalancestransferredtoXM
Notes to the Financial Statements 177
(2) Representsdifferenceswithaccounting,whichresultsfromapplyingtheinflationadjustmentsystemfortaxeffects
anddifferencesinaccountingandtaxdeductionstodeterminenetincome.In2005,thetaxcostfor$673,552was
includedforlong-terminvestments.
(3) Disclosestheneteffectoftheyear’smonetarycorrectionintheperiod’snetincomeandtheaccountingandtax
differenceinliabilities.
20.1 CLAIMSANDLAWSUITS
ISAcurrentlyappearsaspart,asadefendant,plaintifforasaninterveningthirdparty,ofjudicialprocessesofadministrative,
civilandlabornature.IthasbeennotedthatanyoftheprocessesinwhichtheCompanyappearsasadefendantorasan
interveningthirdpartythatcouldaffecttheCompany’sstability.Likewise,underitsnametheCompanyhasperformedthe
necessarylegalactionstodevelopitscorporatepurposeandtodefenditsinterests.
WeproceedtodetailtheinformationrelatedwithlegalactionsinwhichtheCompanyiscurrentlyinvolved:
a) At December 31, 2005, ISA has lodged a lawsuit against: Electrificadora del Atlántico, Electrificadora de Bolívar
andEmpresadeEnergíadeMaganguéfordelayinterestsofaccountsfortheuseofSTNandBolsadeEnergía,for
$14,854(2004-$14,854).
b) ISAhaslodgedacivillawsuitagainstSistepLtdaandAseguradoradeFianzasS.A.,Trust,attheCivilCourtNo.10°of
Medellín,forUSD1,936,618plus$1,175(2004-$1,175),asaresultoftheincomplianceinthedeliveryofequipment
totheYumboandLaEsmeraldasubstations,andtotheprejudicethatresultedfromthisandtotheTrustofpaying
thecompliancepolicytoISA.
c) Cundinamarca AdministrativeTribunal, first Section.The Superintendency of Public Utilities has been sued for
Ps1,424asaresultofissuingadministrativeactswhichimpedeISA(ASIC)fromexercisingitsrightstolimitpower
suppliesandthecollectionofbillingsfortheaccountofEMPRESASPUBLICASDECAUCASIA.
d) Administrative Tribunal of Antioquia, ISA has lodged a Nullity and Reestablishment lawsuit against the Tax
authoritiesDireccióndeImpuestosyAduanasNacionales-DIAN,for$4.780,relatedwithdelayinterestsinfavorof
ISA,giventhattheydidnottimelyreceivetheincometaxpaidinexcessin1995.Theprocessiscurrentlyawaiting
sentencefromtheTribunal.
e) ISAlodgedalawsuitattheAdministrativeTribunalofAntioquia,byResolutions1233and1234of2001,bywhich
theMunicipalityofSanCarlosrequestedthepaymentofthepublicspaceoccupationanddisturbancefor$1.839
and$554of2000and2001,respectively.ThefirstprocessisawaitingsentenceattheTribunalandthesecondis
inthesecondphaseattheStateCouncil,afteraresourcewaslodgedbytheMunicipalityagainstthefavorable
sentenceawardedtoISAduringthefirstphase.
f ) Flores III LTDA & CIA. S.C.A. E.S.P. lawsuit. Case 064, Nullity and reestablishment right process, plaintiff Flores III
Ltda.andCia.S.C.A-E.S.P,defendants:TheNation-MinistryofMinesandEnergy,CREG,ISAandElectrificadoradel
178 Notes to the Financial Statements
CaribeS.A.E.S.P.Pretensions:DeclarenullityofResolution031ofJuly22,1999ofCREG,bywhichtheappealof
ElectricaribeS.A.wasaccepted,exoneratingthecompanyfrompayingamountsinvoicedbyISAfortherestriction
that resulted in theautotransformer220-110kV,andof thepresumptiveadministrativewrit resulting fromthe
administrativesilence,regardingthedirectrevocationrequestoftheaboveResolution,andsentencestheamount
of$2,343(2004-$2,343).
g) TERMOCANDELARIA is currently taking legal action against ISA in the Administrative Court of Antioquia.
AdministrativelawsuitsofNullityandredressofRightsagainstISA,theNation,theMinistryofMinesandEnergy
theCREG,intheamountofPs20,794(2004-$20,794),byapplicationofresolutionsCREG077and111of2000,have
beenfiled
h) CENTRAL HIDROELECTRICA DE BETANIA S.A.E.S.P. is taking legal action against ISA in the Administrative Court
of Antioquia. Administrative lawsuits of Nullity and redress against ISA, the Nation, the Ministry of Mines and
EnergyandtheCREG,intheamountof$54,598(2004-$54,598)andUSD15,373,890,forchargesofcapacity,by
applicationofresolutionsCREG077and111of2000,havebeenfiled.
i) EMGESAS.A.E.S.P.istakinglegalactionsagainstISAintheAdministrativeCourtofAntioquia.Administrativelawsuits
ofNullityandredressagainstISA,theNation,theMinistryofMinesandEnergyandtheCREG,intheamountof
Ps193,662(2004-$193,662)andUSD82.4million,byapplyingResolutionsCREG077and111of2000.
j) CHIVORS.A.E.S.P.hassuedintheAdministrativeTribunalofAntioquiaforAdministrativelawsuitsofNullityand
redressagainstISA,theNation,theMinistryofMinesandEnergy,intheamountof$89,008(2004-$89,008)and
USD32.5million,forcapacitycharges,ResolutionsCREG077and111of2000.
k) PROELECTRICA&CiaS.C.A.E.S.P.hassuedintheAntioquiaAdministrativeTribunalfornullityandredressagainst
ISA,theNation,theMinistryofMinesandEnergyandCREGintheamountof$9,207(2004-$9,207),byapplying
Resolutions034and038of2001.
l) TERMOTASAJERO S.A. E.S.P. is taking legal actions in the Administrative Court of Antioquia for administrative
lawsuits of Nullity and redress against ISA, the Nation, the Ministry of Mines and Energy and the CREG, in the
amountof$128,848(2004-$128,848),byapplyingResolution034and038of2001ofCREG.
ThelawsuitsforapplicationandchargesagainstISAastheAdministratoroftheCommercialSettlementSystem
(ASIC)ofCREG’sResolutionsNo077andNo111of2000,correspondtothechangeinmethodologybyCREGfor
itscalculation,whichaccordingtotheplaintiffcompanies,willprejudicethem.ThesamehappenswithResolution
No034and038of2001,theagentsconsiderthatthisactconsiderablylowerstheirincome.Asaresultoftheabove
andISA,asrepresentativeofthirdpartiesinthesetransactions,whichinprincipal,itsequitywillnotbeatstake
in those legalprocesses.According to the legaland technicalanalysis, ISAhasenougharguments toconsider
that it will be exonerated from these processes, given that as Administrator of the Commercial Interchange
SystemitshouldhaveappliedtheCREGregulations,functionofwhichitcouldnotbeexonerated.Invoicesand
resolutionsissuedbyISAinordertosolvethereplacementresourceslodgedbybrokers,strictlycomplywiththe
aforementioned resolutions; therefore, these may not be the causes of the supposed allegations made by the
Notes to the Financial Statements 179
plaintiffs.Eventually,incasetherearenegativeresults,ISAcouldrequestcompensationormatchingofaccounts
betweenthetransactionsofthemarketbrokers,whichwouldnotaffecttheCompany’sequity.
m) GomezCajiaoyAsociados,hasacontractuallawsuit,requestingthenullityofgrantingwritandofpublicbidding
C002andthenullityofcontractBL98andtoreestablishtherightasproponentfor$2,000(2004:$2,000),
n) EmpresasPublicasdeMedellin,nullityandreestablishmentrightagainsttheNation–MinistryofMines–CREG,for
theregistrationofcommercialfrontiersandhavepretensionsfor$947(2004:947).
o) ClaudiaAndreaCórdobaandFabianaZanínCórdoba,havelodgedacivilcontractualliabilitylawsuitduetothe
accidentofafamilymemberduringacontractfor$4,000(2004:4,000).
Thereareother labor,civilandadministrative lawsuits, relatedwiththenormalcourseofoperations,whichare
pendingtobesentencedatDecember31,2005,forapproximately$295(2004-$295).
The Company’s management and its legal advisors consider that the possibility of loss from these lawsuits is
remote.
20.2 GUARANTEESINFORCE
Atyear-end2005thefollowingbankguaranteeswereinforce:
a)Guaranteescreatedin2003,asasupportfortheaffiliatesofISAPeru,andREPinordertocontractloansandtocomply
withconcessioncontracts.
Ensured Beneficiary AMOUNT COMMISION ANNUAL Corresp. ANNUUAL INITIAL MATURITY OBJECT affiliate ofthe (USD) COLOMBIAN COMIS.(%) Bank CORRESP DATE guarantee ENTITY COMMIS(%)
ISAPerú CitibankPerú 852,973 Corfivalle 1.80% UBSAG 1.50% 29/8/05 29/8/06 Compliancewithdebt (Stamford) serviceofIFCand FMOcredit
REP Banco 734,129 Bancolombia 1.50% Banco 1.25% 15/9/05 15/9/06 Continental deCrédito delPerú
Ensure compliance forthe payment of thethird quarter ’s debtwiththeUnionofBancoContinental and BancodeCréditodelPerú
180 Notes to the Financial Statements
b)GuaranteesincorporatedindevelopmentoftheofferandgrantingoftheUPME01and02projectsof2003:
Ensured Beneficiary AMOUNT COMMISION ANNUAL MATURITY OBJECT affiliate ofthe (USD) COLOMBIAN COMIS.(%) guarantee ENTITY
ISA(UPME1) UPME 13,720,000 Bancolombia 2.50% oct-07 ComplianceguaranteeUPME1
ISA(UPME2) UPME 21,660,000 BBVA 2.50% oct-07 ComplianceguaranteeUPME2
Additionally,therewasaguaranteeinforcethatwasincorporatedin2004inwhichISAsupportsFlycomComunicaciones
S.A. E.S.P.’s obligations of payments of the financial leasing operations and infrastructure leasing granted by Leasing de
Crédito.Theamountisfor$1.568MM,relatedwith75.04%ofthecompleteoperation.Thisguaranteewillbeinforceuntil
September17,2013.
GuaranteesthatrequiredauthorizationswerepreviouslyapprovedbyISA’sBoardofDirectorsandbytheentitiesthat
regulatePublicDebt.
20.3DELEGATEDADMINISTRATIONFORTHECOMMERCIALSETTLEMENTSYSTEM
AccordingtoResolution024of1995,theEnergyandGasRegulationCommittee–CREG-,madeISAresponsibleforthe
AdministrationoftheCommercialInterchangeSystem–ASIC.Therefore,theCompanyhastheresponsibilityofregistering
long-termenergycontracts;liquidation,invoicing,collectionandpaymentofenergytransactionsmadeatstockexchange
by the generators and traders; maintenance of required system information and software; and of the development of
financialguaranteesandforapplyingthesupplylimitationprocedure.
As remuneration for theseactivities, ISA invoices,avalue regulatedby theCommission, to thegeneratorandtrader
brokers of the wholesale energy market. Resolution 116 of December 18, 2003, sets-forth the Regulated Income per
conceptofservicesrenderedbyCND,ASICandLACfor2004.ISAisnotresponsibleforthecreditriskofstockexchange
transactions.
AsofOctober1,2005,thesefunctionsaremadethroughsubordinateXM,CompañíadeExpertosenMercadosS.A.ESP.
Notes to the Financial Statements 181
NOTE 21: OPERATING INCOME
IncomefromservicesgrantedbytheCompanyperconceptof:TransmissionofElectricEnergy(useofSTN),connection
totheNationalTransmissionSystemandofservicesrelatedwithServiceofTransportingEnergy(administrationofoperation
andmaintenance,specializedtechnicalservices,specialstudies,availabilityofinfrastructureandprojectmanagement)that
comefromthefollowingclients:
2004 2005CODENSA 90,766 92,880
EPM. 90,599 86,665
ELECTRICARIBE 51,733 54,857
ELECTROCOSTA 46,203 50,134
EMCALI 34,278 38,593
ISAGEN 36,647 37,443
EMGESA 34,562 36,335
CORELCA 15,907 16,003
Otherclientswithinvoicinglessthan5%ofthetotal 311,511 295,371
Totaloperatingincome 712,206 708,281
NOTE 22: OPERATING COSTS
Operatingcostsfortheyears-endedDecember31aredetailedasfollows:
2004(*) 2005Personnelexpenses 51,150 47,691
Fees 1,945 2,090
Taxes 59,075 60,440
Rentals 713 817
Insurance 11,829 10,124
Utilities 13,370 12,379
Materialsandmaintenance 20,468 23,755
Environmentandsocial 3,571 2,720
Communications 3,105 2,508
Advertising,printsandpublications 394 527
Miscellaneous (1) 16,543 6,813
Operatingcostsbeforedepreciation,amortizationsandtransfers 182,163 169,864
Depreciation 89,917 82,589
Amortization 5,638 5,784
Transfers 2,131 2,757
Depreciations,amortizationsandtransfers 97,686 91,130
Totaloperatingcosts 279,849 260,994
(*) Reclassifiedforcomparativeeffects.SeeNote3.12
182 Notes to the Financial Statements
(1) For 2004 miscellaneous includes sales costs of Energy Transporting services for $11,617, which in 2005 are
distributedindifferentitemsforatotalof$11,771.
Thefollowingchartdetailsasummaryofthetotaloperatingcostsdetailingcapitalizationexpenses:
2004 2005 Total Capitalized/ Net Total Capitalized/ Net assigned(1) /assigned(1)
Operatingcostsbeforedepreciation,
amortizationandtransfers 186,474 (4,311) 182,163 174,814 (4,950) 169,864
Depreciationandamortization 95,907 (352) 95,555 88,373 - 88,373
Transfers 2,131 - 2,131 2,757 - 2,757
Totaloperatingcosts 284,512 (4,663) 279,849 265,944 (4,950) 260,994
(1) Amountcapitalizedtostudies,projectsandthoseassignedfortherecoveryoftowers
NOTE 23: ADMINISTRATIVE EXPENSES
AdministrativeexpensesatDecember31werecomprisedasfollows:
2004(*) 2005
Personnelexpenses 31,659 46,453
Fees 3,103 3,327
Taxes 405 1,480
Rentals 50 164
Insurance 601 708
Utilities 2,528 4,881
Materialandmaintenance 534 1,263
Communications 246 287
Advertising,printsandpublications 2,881 2,932
Miscellaneous (1) 3,747 12,866
Administrativeexpensesbeforedepreciation,
amortizationandtransfer 45,754 74,361
Provisions 13,238 3,485
Depreciations 1,494 5,981
Amortizations 1,071 2,694
Totalprovisions,depreciations,amortizations 15,803 12,160
TotalAdministrativeexpenses 61,557 86,521
(*) Reclassifiedforcomparativeeffects.SeeNote3.12
Notes to the Financial Statements 183
(1) For2004,miscellaneousincludessalescostsforservicesofAgreementswithaffiliatesfor$1,943,whichfor2005
are distributed in different items for a total of $2,668. 2005 includes amortization studies ($9,730) due to the
participationininternationalbiddings.
Thefollowingchartdetailsasummaryofthetotaladministrativecostsdetailingcapitalizationexpenses:
2004 2005 Total Capitalized/ Net Total Capitalized/ Net assigned(1) /assigned(1)
Administrativeexpensesbeforeprovisions,
depreciationandamortization 45,754 45,754 75,694 (1,333) 74,361
Provision,depreciation,amortization 15,803 15,803 12,160 12,160
TotalAdministrativeexpenses 61,557 61,557 87,854 (1,333) 86,521
(1) Amountcapitalizedforstudies,projectsandassignedtorecovercollapsedtowers.
TOTALOPERATINGCOSTSANDEXPENSES
Thefollowingchartdetailsthetotaloperatingcostsandexpensesfor2004and2005:
2004(*) 2005
Personnelexpenses 82,809 94,144
Fees 5,048 5,417
Taxes 59,480 61,920
Rentals 763 981
Insurance 12,430 10,832
Utilities 15,898 17,260
Materialandmaintenance 21,002 25,018
Environmentandsocial 3,571 2,720
Communications 3,351 2,795
Advertising,printsandpublications 3,275 3,459
Miscellaneous 20,290 19,679
Costsandexpensesbeforeprovisions,
depreciationsandtransfers 227,917 244,225
Provisions 13,238 3,485
Depreciations 91,411 88,570
Amortizations 6,709 8,478
Transfers 2,131 2,757
Totalprovisions,depreciations,
amortizationandtransfers 113,489 103,290
Totaloperatingcostsandexpenses 341,406 347,515
(*) Reclassifiedforcomparativeeffects.SeeNote3.12
184 Notes to the Financial Statements
TheCompanyin2005,torecordoperatingorproduction(Class7)costsandsalescosts(Class6),usedcostingmethods
andproceduresestablishedinResolution001417of1997set-forthbytheSuperintendencyofDomicilaryUtilities.
Costingsystemisknownas“CostingBasedonActivities”,whichtendstohaveacorrectrelationofoperatingorproduction
costs,withaspecificservice,orgroupofservicesoraBusinessUnit,byidentifyingeachactivity,theuseofaconstructoror
distributionbasisanditsreasonablemeasure.
ThissystemconsidersthateachadministrativeresponsibilityaccruedexpenseshouldbeassignedtotheBusinessor
ServiceUnitinaccordancewiththeactivities(supportprocess)developedfortheseareas.
NOTE 24: NON-OPERATING INCOME (EXPENSES)
Non-operatingincome(expenses)atDecember31wascomprisedby:
2004 2005Financialincome
Interests
Overmatureaccountsreceivable 4,788 466
Overloans 3,055 7,287
Monetaryreadjustmentyields 2,298 2,984
Investmentreappraisal 5,342 5,023
Commercialdiscounts 389 500
Miscellaneous 619 645
Totalinterestsandother 16,491 16,905Exchangedifference
Assets 759 1,351
Cash 8,673 910
Foreigninvestments 411 633
Accountspayable 1,097 612
Financialobligations 76,405 31,389
Hedgingoperations - 21,755
Totalexchangedifference 87,345 56,650Totalfinancialincome 103,836 73,555Extraordinaryincome
Indemnities 45 779
Subordinateparticipation 12,144 36,398
Recoveries (1) 4,853 36,715
Incomefromprioryear 4,567 944
Excessofinventoriesandprojects 2,308 -
Other 837 2,515
Totalextraordinaryincome 24,754 77,351TOTALNON-OPERATINGINCOME 128,590 150,906
Notes to the Financial Statements 185
(1) 2005 includes $25,206 per effect of LegislativeWrit 001 of 2005, which eliminated special retirement pension
regimesand$9,775fortherecoveryoftheprovisionforincometax2004.
Non-operatingexpensesforyears-endedDecember31werecomprisedby:
2004 2005
FINANCIAL
Interestsandcommissions
Overfinancialobligations 41,011 23,468
Interestsandcommissionsoverbonds 73,956 88,218
Hedgingoperations 15,162 14,422
Overotherobligations 602 145
Administrationofsecurityissuance 8,626 7,696
Lossfromvaluationandsaleofinvestments 1,651 771
Miscellaneous 1,782 1,648
Totalinterests,commissionandother 142,790 136,368
Exchangedifference
Assets 21,680 5,424
Foreigninvestment 15,111 7,235
Accountspayable 675 342
Financialobligation 1,189 11,727
Hedgingoperation 57,188 50,379
Totalexchangedifference 95,843 75,107
TOTALFINANCIALEXPENSES 238,633 211,475
OTHEREXPENSES
Lossfromtowerdamagesandotherextraordinaryrepairs (1) 12,433 15,342
Lossfromparticipationinsubsidiaries 9,796 15,792
Lossfromdecreaseofshares 491 477
OtherexpensesassociatedtoLPinvestments 2,066 1,227
Other 1,734 1,596
Totalextraordinaryexpenses 26,520 34,434
Prioryearadjustments (2) 17,705 25,307
TOTALOTHEREXPENSES 44,225 59,741
TOTALNON-OPERATINGEXPENSES 282,858 271,216
(1) During2005and2004,theCompanywasaffectedbyterroristattacksmadetotheelectricinfrastructure,which
impliestoassumeextraordinaryexpensesforitsrecovery,includingpersonnelexpensesrelatedwiththiswork.
186 Notes to the Financial Statements
(2) 2004includes$12,536,equivalentto40%ofthegreaterincometaxoftaxableyear2002.2005includes$23,864
relatedwiththepercentvalue for futurepaymentsofhealth,educationbenefitsandsenioritycontributionsto
pensionedemployeesthathavenotbeenprovisionedinpreviousyears(SeeNote16.1).
NOTE 25: ACCOUNTING CLEARANCE EFFECTS
Thefollowingchartsdetailstheaccountingclearanceeffectsfor2005:
TOPIC COMPLIANCE VALUE OBSERVATION
INVENTORIESWITHFIXEDASSET Dec-05 28,987 Inventoriesrelatedwithfixedassetsin
CHARACTERISTICS operation.Implicatedaccounting
reclassification:Fixedassets/Inventories.
(ClearanceCommittee,MinuteNo6
ofDecember27/05).
DISCOUNTABLEVATWITHASSET Dec-05 3,049 Transferassociatedassetsasgreater
CHARACTERISTICS expense(Minuteofagreementto
recordaccountingreclassification
atDecember-05).
INTERVENEDCOMPANIES(Client INPROCESS 9,995 Totalmenteprovisioned(Capital
accountreceivable) andInterests).BoardofDirectors
decisionregardingELECTROCHOCÓ
andELECTRIBOL,accordingto
MinuteNo631ofDecember16-05.
IMPRODUCTIVEASSETS INPROCESS 2,323 AppraisalValue$1,664million.
Directors,MinuteNo631ofDecember16-05.
PENSIONALPARTQUOTAS INPROCESS 1,469 Totallydepreciated.Contractexternal
attorneywhohandlesprocesses
ofrecovery.
PENDINGRESPONSIBILITIES Dec-05 12 Damagedreturneditemsfrom
(Administrativeinvestigations). contractors.TheAdministrative
investigationprocessendedas
informedinthelegalrepresentation
letterofDecember15-05.
OTHERACCOUNTSRECEIVABLE Dec-05 271 Lands,equipmentandlicenses
deliveredtoISAGÉNregarding
thespin-offprocess.Boardof
DirectorsMinuteNo631ofDecember16,
2005,authorizatedtheaccounting
clearanceofthisaccountreceivable.
OTHERACCOUNTSPAYABLE INPROCESS 27 Mortgagedsuppliers
Notes to the Financial Statements 187
NOTE 26: FINANCIAL INDICATORS
SomefinancialindicatorsatDecember31areasfollows:
2004 2005
ASSETSPROFITABILITY 11.66% 11.27%
Operatingincome/netaverageoffixedassetsinservice(%)
EQUITYPROFITABILITY 5.54% 6.88%
Income/averageequity(Accountingincome)(%)
EBITDA/operatinginterests(times) 3.76 3.81
EBITDA/long-termdebts(times) 0.42 0.43
DETAILOFEXPENSESAOM-STE(%) 21.42% 24.35%
(AOMexpenses/netexploitationincome)*100
LIQUIDITY 73.89% 65.08%
Currentasset/currentliabilities
INDEBTEDNESS 41.31% 38.48%
Liabilities/Assets
188 Notes to the Financial Statements
NOTE27:TRANSACTIONSWITHRELATEDPARTIES
Themainbalancesandtransactionswithrelatedpartiesduring2004and2005are:
2004 2005Balances Equityinvestments Transelca 368,243 413,578 Internexa 108,845 98,613 Flycom 15,453 5,550 ISAPerú 13,353 18,493 REP 81,517 100,996 ISABolivia 31,336 27,201 XMCompañíadeExpertosenMercados - 14,818 EPR - 10,284Debtors Transelca 136 34 Internexa 6,518 1,116 Flycom 13,289 34,825 ISAPerú 81 495 REP 9,512 7,614 ISABolivia 6,197 4,391 XM - 2,756Accountspayable Transelca 88,737 139,221 Flycom 648 356 ISAPerú 3 9 REP 82 60 XM - 293Equitytransactions Dividendsreceived Transelca 12,196 5,594 REP - 15,642 ISAPerú 766 94 2004 2005Transactionsrelatedwithresults Income Transelca 288 827 Internexa 5,662 7,016 Flycom 1,452 3,626 ISAPerú 1,353 2,851 ISABolivia - 1,435 REP 3,240 3,263 XM - 584Expenses Transelca 2,412 7,264 Internexa 4,347 8 Flycom 2,310 5,740 XM - 2 ISAPerú 62 13 REP 370 1,090 ISABolivia - 62Administrators BoardofDirector’sFees 186 285
Notes to the Financial Statements 189
SinceJanuary1,2004,theapplicationoftransferpricing,introducedbyLawNo788,ofDecemberof2002,wasinitiated.
Thislawstatesthattransactionswithsubsidiariesorrelatedpartsbroughtintothecountryfromabroad,shouldbepriced
atfairmarketvalue,thesameasiftheyweredealingwiththirdorindependentsparties.
NOTE 28: SUBSEQUENT EVENTS
NorelevantissueswerediscoveredfromthetimeoftheclosingoftheFinancialStatementsonDecember31,2004,that
wouldmateriallyaffectthefinancialsituationoftheCompany.
190
STATUTORYAUDITOR’SREPORT
TotheShareholdersof
InterconexiónEléctricaS.A.E.S.P.
February 15, 2006
IhaveauditedtheaccompanyingbalancesheetsofInterconexiónEléctricaS.A.E.S.P.asofDecember31,2005andthe
relatedstatementsofincome,ofchangesinshareholders’equity,ofchangesinthefinancialpositionandofcashflowsfor
theyearthenended.ThesefinancialstatementsaretheresponsibilityoftheCompany’smanagement,sincetheyreflect
itsperformance;myresponsibilitiesincludeauditingthemandexpressinganopinionthereon.Thefinancialstatementsof
InterconexiónEléctricaS.A.E.S.P.for2004wereauditedbyanotherstatutoryauditor,whointheirreportofFebruary25,
2005,expressedanunqualifiedopinionofthesame.
Iobtainedthe informationnecessarytocomplywithmystatutoryaudit functionand Iconductedmyexaminations
inaccordancewithauditingstandardsgenerallyacceptedinColombia.ThosestandardsrequirethatIplanandperform
theaudittoobtainreasonableassuranceaboutwhetherthefinancialstatementspresentfairlythefinancialpositionand
theresultsoftheoperations.Anauditincludes,amongothersthings,examining,onatestbasis,evidencesupportingthe
amount and disclosures in the financial statements, assessing the accounting principles used and significant estimates
madebymanagement,aswellasevaluatingtheoverallfinancialstatementspresentation.Ibelievethatmyauditsprovide
areasonablebasisfortheopiniononthefinancialstatementswhichIexpressinthefollowingparagraph.
Inmyopinion,theaforementionedfinancialstatementsauditedbyme,whichwerefaithfullytakenfromtheaccounting
books,presentfairlythefinancialpositionofInterconexiónEléctricaS.A.E.S.P.atDecember31,2005andtheresultsofits
operations,thechangesinitsfinancialpositionanditscashflowsfortheyearthenended,inconformitywithaccounting
principlesgenerallyaccepted inColombia forcompaniesunder the surveillanceof theColombianGeneralAccounting
OfficeandofregulationsofthePublicDomicileUtilitiesSuperintendency,asindicatedinNote3tothefinancialstatements,
appliedonaconsistentbasiswiththeprioryear.
Sattutory Auditor’s Report
191
Basedontheresultsofmyremainingstatutoryauditwork,itisalsomyopinionthatduring2005theCompany’sbooks
werekeptinconformitywithlegalrequirementsandsoundaccountingtechniques;thetransactionsrecordedinthebooks
andtheactsofadministratorscompliedwiththebylawsandthedecisionsof theShareholders’MeetingandtheBoard
ofDirectors;thecorrespondence,theaccountingvouchersandtheminutesbooksandshareregisterwereproperlykept
andsafeguarded;adequatemeasureswereobservedwithrespecttointernalcontrolandthepreservationandcustodyof
theCompany’sassetsandthoseofthirdpartiesinitspossession;thecontributionstotheIntegralSocialSecuritySystem
wereproperlycomputedandpaidonatimelybasis;thefinancialinformationcontainedinthemanagementreportagrees
withthat included intheaccompanyingfinancialstatements.Likewise, I informthattheCompany isnotsubjecttothe
compliance of regulations established in External Circular No. 0010 of 2005, by which the Financial Superintendency
established mandatory mechanisms to prevent and control money laundry resulting from illicit activities through the
securitiesmarket,giventotheplacementofpublicdebtbondsandtheissuanceofsharesweremadebybrokersunderthe
surveillanceoftheFinancialSuperintendency,whoareresponsibleforapplyingtheseregulations.
Carlos Enrique Gordillo B. Statutory Auditor Tarjeta Profesional N°. 33537-T
Sattutory Auditor’s Report
192
SPECIALREPORTONTRANSACTIONSWITHAFFILIATECOMPANIES
Inmillionsofpesos
IncompliancewithArticle29ofLaw222of1995andgiventheexistenceoftheEconomicGroup,wepresenttothe
Stockholders’MeetingthespecialreportontheeconomicrelationshipswiththeGroup’scompaniesduring2005thathave
beenguidedandcoordinatedbytheParentCompany,InterconexionElectricaS.A.E.S.P.
TheCompanywasregisteredasEconomicGroupintheMercantileRegisteroftheMedellinChamberofCommercein
October2001.Forsucheffects,theParentCompanyisInterconexionElectricaS.A.E.S.P.andthesubordinatecompaniesare
TRANSELCAS.A.E.S.P.,InterconexionElectricaISAPeruS.A.,ReddeEnergiadePeruS.A.,InterconexionElectricaISABolivia
S.A.E.S.P.,XMCompañiadeExpertosenMercadosS.A.E.S.P.,INTERNEXAS.A.andFLYCOMComunicacionesS.A.E.S.P.
Commercial transactions carried out during 2004 and 2005 among the Economic Group companies, either directly
or indirectly, abide by the provisions of Law 788 regarding transfer prices in application since January 1st 2004.These
transactionscorrespondmostlytosalesandpurchasesofservices,andloansamongrelatedparties.
TheParentCompanyupdatesinvestmentsinthesubordinatesbyapplicationoftheequitymethod,afterhomologating
accountingrulesandpracticesapplicabletotheParentCompanyandtranslatingoffinancialstatementsintoColombian
pesoswiththeUnitedStatesDollarasreferencecurrency.
The Group’s financial information is consolidated through the global integration methodology, according to which,
significant balances and transactions between the Parent Company and the subordinates are eliminated, and minority
interestscorrespondingtoequityandtheresultsoftheperiodarerecognizedandpresentedintheconsolidatedfinancial
statements.
Mainbalancesandtransactionswithaffiliatesduring2004and2005were:
2004 2005
FromtheBalanceSheet
EquityInvestments
TRANSELCA 368,243 413,578
INTERNEXA 108,845 98,613
FLYCOM 15,453 5,550
ISAPerú 13,353 18,493
REP 81,517 100,996
ISABolivia 31,336 27,201
XMCompañíadeExpertosenMercados - 14,818
EPR - 10,284
Receivables
TRANSELCA 136 34
INTERNEXA 6,518 1,116
Special Report on Transactions with Affiliate Companies
193
FLYCOM 13,289 34,825
ISAPerú 81 495
REP 9,512 7,614
ISABolivia 6,197 4,391
XM - 2,756
Accountspayable
TRANSELCA 88,737 139,221
FLYCOM 648 356
ISAPerú 3 9
REP 82 60
XM - 293
Equitytransactions
Dividendsreceived
TRANSELCA 12,196 5,594
REP - 15,642
ISAPerú 766 94
2004 2005
Transactionsrelatedtotheincomestatement
Revenues
TRANSELCA 288 827
INTERNEXA 5,662 7,016
FLYCOM 1,452 3,626
ISAPerú 1,353 2,851
ISABolivia - 1,435
REP 3,240 3,263
XM - 584
Expenses
TRANSELCA 2,412 7,264
INTERNEXA 4,347 8
FLYCOM 2,310 5,740
XM - 2
ISAPerú 62 13
REP 370 1,090
ISABolivia - 62
Managers
BoardofDirectorsFees 186 285
Special Report on Transactions with Affiliate Companies
194
CERTIFICATIONOFCOMPLIANCEWITHINTELLECTUALPROPERTYANDCOPYRIGHTREGULATIONS
The undersigned Legal Agent and Information Director of INTERCONEXION ELECTRICA S.A. E.S.P., in
compliancewithArticle1ofLaw603of2000,
Certify:
a. Thatthecorporationcomplieswithallregulationsregardingintellectualpropertyandcopyright,and
thatallsoftwareusedis legalandtherightstouse ithavebeenpaidfor,eitherthroughpurchases,
usagelicenses,orassignments.SupportingdocumentscanbefoundatourCentralArchives.
b. ThattheInformationDirectionoftheCorporationcarriesaninventoryofallsoftwareusedandcontrols
itsinstallationaccordingtothelicensepurchased.
c. That in accordance with corporate policies and institutional guidelines, employees are bound to
observeallregulationsregardingintellectualpropertyandcopyrights.
Javier G. Gutiérrez P. Olga Lucía López M. General Manager Information Director
Certification of Compliance with Intellectual Property and Copyright Regulations
195
REFERENCES
ACOLGEN: AsociacionColombianadeGeneradores(Colombianassociation
ofgenerators)
AOM: Administration,OperationandMaintenanceExpenses
ASIC: AdministratoroftheCommercialSettlementSystem
BRL: BrazilianReal
CAN: AndeanCommunityofNations
CGN: ColombianGeneralAccountingOffice
CND: NationalDispatchCenter
COP: Colombianpesos
CRD: RegionalDispatchCenter
CREG: EnergyandGasRegulatoryCommission
CFO: DarkFiberCable
DIAN: ColombianCustomsandTaxAdministration
EPR: EmpresaPropietariadelaRed
ETECEN: EmpresadeTransmisionElectricaCentroNorteS.A.
FAER: FinancialSupportFundfortheElectrificationofInterconnected
RuralAreas
FAZNI: FinancialSupportFundforNon-InterconnectedAreas
FOES: SocialEnergyFund
JPY: JapaneseYen
LAC: SettlingandClearingofAccounts
MEM: WholesaleElectricityMarket
REP: ReddeEnergiadelPeru
SAC: SouthAmericanCrossing
SIC: CommercialSettlementSystem
STE: EnergyCarrierServices
STN: NationalTransmissionSystem
UAV: UnitofAccount
UPME: MiningandEnergyPlanningUnit
US$: UnitedStatesdollar
References
A N N U A L R E P O R T
V O L U M E I
05
WE LINK COUNTRIES WITH ENERGY