Annual Report 2009 - Isagen

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.2CONTENTSBoard of Directors 4Management Staff 4The CorporationMission 5Vision 5Values 5LETTER FROM THE CEO AND THE BOARD OFDIRECTORS TO THE SHAREHOLDERS’GENERAL ASSEMBLY 6EVALUATION OF COMPLIANCE WITH CORPORATEGOOD GOVERNANCE PRACTICES 16PROGRESS IN THE IMPLEMENTATION OFRECOMMENDATIONS OF 2008 EVALUATION 17CHANGES TO GOOD GOVERNANCE PRACTICES 182009 EVALUATION 191. IDENTIFICATION OF THE CORPORATION 192. FRAME OF ACTION 193. Handling conflict 204. Equitable treatment of shareholders 215. The corporation and its government 236. CONTROL MECHANISMS 267. Disclosure of information 29CONCLUSIONS 30CORPORATE MANAGEMENT 31PROJECT MANAGEMENT 33Expansion plan 33- Guarinó Inter Basin Diversion Project 33- Manso Inter Basin Diversion Project 34- Hydroelectric Project of the Amoya River 36- Sogamoso Hydroelectric Project 37Environmental management 38Studies Plan 38Climate change integrated management 39ENERGY PRODUCTION 40Installed capacity 40Energy Generation 41Availability 44Maintenance management 46Modernization management 46Operation management 47Environmental management 47ENERGY TRADING 48Market behavior during 2009 48System demand 49Spot market 50Trading in figures 52Long-term contracts 53Interconnection with Venezuela 54Energy pool transactions 55Transactions for frequency secondary regulationand AGC commercial liability 55Deviations 56Reliability charge 57Charges for taking part in the wholesale energymarket – mem, for its spanish initials 58Firm energy secondary market (reliability charge) 59Gas operation 60Productive solutions 62Regulatory development of the energy and gasindustry 63INTERNATIONALIZATION 65International Context 65Macroeconomic Setting 65Power Sector 71Development of the Internationalization Strategy 72ORGANIZATION MANAGEMENT 73Integral development of workers 73Organizational culture 74Corporate school 74Social well-being committee 75Safety and occupational health 75Information platform 76Management practices 77FINANCIAL MANAGEMENT 79Macroeconomic and financial conditions 80Relevant Figures 81Financial results 82Corporate value results 82Operating and non-operting results 83Balance sheet 85ISAGEN stock performance 86FINANCIAL STATEMENTS 87STATUTORY AUDITOR´S REPORT 88Certification of the legal representative and theaccountant of the Company 89Balance Sheets 90Income statements 91Statement of changes in financial position 92Statement of cash flows 93Statement of changes in shareholders’ equity 94NOTES TO FINANCIAL STATEMENTS 95GENERAL NOTES 951. Economic entity 952. Basis for presentation of financial statements 963. Operating and/or administrative limitationsand deficiencies 964. Main accounting policies and practices 965. Valuation rules 96SPECIFIC NOTES 1006. Foreign currency investments 100Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.37. Cash 1018. Investments, net 1029. Accounts receivable – net 10210. Inventories – Net 10511. Property, plant and equipment, net 10512. Prepaid expenses 10713. Deferred charges 10714. Other assets 10715. Reappraisals 10816. Financing Operations 10817. Accounts payable 10918. Taxes, imposts and duties 11019. Labor liabilities 11220. Other liabilities 11221. Capital stock 11322. Reserves 11323. Equity revaluation 11424. Effects of changes to the Public AccountingGeneral Plan 11425. Operating revenues 11426. Costs of sales and service delivery 11527. Administration expenses 11528. Non-operating revenues – miscellaneous 11529. Non-operating expenses – miscellaneous 11630. Memorandum accounts 11631. Transactions and balances betweenrelated parties 11732. Subsequent events 118REFERENCE TABLE FOR ACRONYMS 119INDEX OF TABLES AND FIGURESTABLESISAGEN’S power plants technical characteristics 41ISAGEN’S share in the national interconnectionsystem generation 42Net generation evolution (GWh) 42ISAGEN’S power plants availability evolution 44Water inflow by regions as a percentage of thehistorical mean value 48Energy and gas trading revenues 52Energy and gas trading expenditures 52ISAGEN energy trading through long-termcontracts (GWh) 53Energy pool transactions in millions of Colombianpesos AND GWh 55AGC services 56Deviation remuneration 56Reliability remuneration 57Charges for taking part in the wholesale energymarket 58Secondary market operation and third term of thereliability charge 2008-2009 59Fuel for Termocentro 61Revenues from natural gas trading 2009 61Natural gas trading expenditures 2009 62Technical services 63Hours of training 76Relevant figures 81Financial indicators 81Assets 85Debt breakdown 85Liabilities and equity 85FIGURESISAGEN’S power plants net generation evolution2000-2009 43Power plant percentage share in ISAGEN’Snet generation during 2009 44ISAGEN’S power plants availability evolution2000-2009 45Domestic demand evolution in gwh/year1995-2009 49GDP GROWTH vs. UNREGULATED DEMANDGROWTH 2008-2009 50Electricity exports in GWh/year 1999-2009 50Demand evolution and available generation2003-2009 51Pool price evolution 2003-2009 51Contract sales – revenues breakdown (%) 53Evolution of Ecopetrol top 2009 60Revenues from gas trading 2009 62Latin America GDP growth (%) 65Latin America inflation 66Latin American currencies 67Human development index (IDH) 68Population percentage living under the poverty line 69Country risk as of december 2009 69Doing Business 2009 inverted Ranking 70Installed capacity Latin America and the Caribbeanby plant type 71Energy generation 72Human Management Integral Model 74Asociates’ accident incidence rate 75Contractors’ accident incidence rate 76Workers by gender 76Associates educational level 76Delta EVA evolution 82Operating revenues evolution 83Operating income evolution 83EBITDA evolution 84Net income evolution 84Stock performance along 2009 86Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.4BOARD OF DIRECTORSMANAGEMENT STAFFPRINCIPAL MEMBERSGLORIA INÉS CORTÉS ARANGOGeneral Vice ministerMinistry of the Treasury and Public CreditHERNÁN MARTÍNEZ TORRESMinistry of Mining and EnergyRAMIRO VALENCIA COSSIOIndependentLUIS ERNESTO MEJÍA CASTROIndependentFEDERICO RESTREPO POSADAChief Executive Officer (CEO) - EPMJOSÉ FERNANDO ISAZA DELGADOIndependentLUIS FERNANDO URIBE RESTREPOIndependentDEPUTY MEMBERSVIVIANA LARA CASTILLADirector of Public Credit and of theNational TreasurySILVANA GIAMO CHÁVEZVice minister of Mining and EnergyMARÍA CONSUELO ARAÚJO CASTROIndependentGERMÁN JARAMILLO OLANOIndependentJESÚS ARTURO ARISTIZÁBAL GUEVARADirector of Energy - EPMANDRÉS FELIPE MEJÍA CARDONAIndependentALEJANDRO GAVIRIA CORREAIndependentLUIS FERNANDO RICO PINZÓNChief Executive Officer (CEO)RODRIGO TORO ESCOBARJUAN FERNANDO VÁSQUEZ VELÁSQUEZChief Financial Officer (CFO)LILIANA MARÍA ZAPATA MADRIDChief Markets Officer (CMO)JORGE IGNACIO CORREA ESCOBARALFONSO SALAZAR TRUJILLOChief Production Officer (COO)MARÍA LUZ PÉREZ LÓPEZChief Energy Projects Officer (CPMO)MANUEL HOMERO FAJARDO CUADRADOLUIS FERNANDO LONDOÑO MEJÍAChief Administrative Officer (CAO)Gloria María Úsuga YepesCompany Audit DivisionSheilla Marlenny Namén ChavarroChief CounselArmando Gómez CorreaChief International OfficerMargarita Rosa Giraldo GallónCorporate Brand ManagerContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.5THE CORPORATIONIt is ISAGEN’s belief that business concerns are human groups existing to meet the needsand expectations of other human groups that make up the fabric of society. Therefore, companiesare ethically committed to achieving good results, in terms of well-being for everybody,for those participating in it and for those affected and benefited by their activities.Consistent with this corporate notion, the creation of wealth and economic growth (return,share value, dividends and EVA, among others), can not happen as an isolated events, butmust consistently contribute to social development and responsible environmental management,as fundamental values. This is what Corporate Social Responsibility is about forISAGEN.Stock ownership StructureShareholders and their percentage holdingsin the Company are presented as followsDecember 31, 2009.Colombianworkersrepresentedby AFP13,66%Minority15,73%The Nation57,66%EPM12,95%MissionISAGEN develops the generation capacityand it produces and trades energy, so as tomeet its customers’ needs, while creatingcorporate value. Its corporate acts are developedin a frame of ethics, focus on thecustomer, economic sense, as well as socialand environmental responsibility.VisionISAGEN is a leading corporation in generationand real-time transactions of energy inColombia; it is the ally of its customers’ productivity,and it enjoys recognition for its electricenergy business in international markets.The integral development of the workersand corporate responsibility are the basis forunited creation of value for the shareholdersand for society.ValuesEthicsSocial and environmentalresponsibilityEconomic senseFocus on the customerTeamworkRespect for individuals Willingness tochangeHumblenessSelf-controlContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.6LETTER FROM THE BOARDOF DIRECTORS AND THE CEOTO THE SHAREHOLDERSMessrs. Shareholders:ISAGEN is celebrating its 15th year of corporate life in 2010, anexcellent opportunity to reiterate its commitment to becoming acompetitive company with capabilities to adapt and learn, wherehuman beings are valued, and find a way to invest their energyand potential in the type of work that makes them better persons,professionals, and individuals.The financial downturn that dominated the world scenario put tothe test the Corporation’s conviction in its strategy. ISAGEN canproudly say that it has overcome the juncture’s difficulties and ithas given a good start-up to construction of the SogamosoProject, its largest corporate challenge.The achievements reached by ISAGEN in 2009 werecharacterized by the efficiency of its corporate practices andcontribution to sustainability in terms of environmental protection,social development, and economic growth, which strengthenedits leading position in the power sector and ratified theconfidence of the shareholders, customers, workers, suppliers,and other stakeholders.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.7Financial ResultsISAGEN’s financial results for 2009 werehighly satisfactory, and they were reachedthanks to adequate operating, administrative,and commercial management, the pillarof the Corporation’s soundness. Total revenuesexceeded $1,400,000 million, a 14.5%increase on those for the previous year.Operating income totaled $519,038 million,EBITDA $622,513-million, and net income$385,752-million; corresponding marginswere 37%, 44% and 27%, respectively, outdoingthose of 2008 by 5 points.The world’s financial situation for the previousyear was one of contrasts: while theeconomy contracted, the securities marketsshowed important appreciations, andColombia was no exception. Until the thirdquarter of the year, GDP went down steadily,whereas ISAGEN’s shares and the GeneralIndex of the Colombian Stock Exchangeclosed the year with 24% and 53% respectiveappreciation. It is worth highlighting herethat the share had an average daily tradingvolume of $8,667 million, higher than thedaily figure of $620 million for 2008, closingthe year at $2,200.Commercial ManagementAs of the second semester of 2009, powerdemand reverted the downtrend it had beenshowing since 2008. Late 2009 saw monthlyincreases nearing 3.4% that allowed annualgrowth of 1.5%.All end industrial customers renovated theircontracts, a fact that evidences the effectivenessof the management plans offered tothem by ISAGEN to help their productivity, ina frame of competitive prices. This work isbased on a network of technological partnersfor delivery of technical services, which wasused by 99.4% of the customers’ productionfacilities, and showed in 31.3% incomegrowth in this area with respect to 2008, andcustomer satisfaction indicator of 97%.The amount of power exported to Venezuelawent 178.2% up on 2008 figures, an all-timeexport volume high for the Corporation. Withactive participation in the invitations to bidfor the Energy Wholesale Market, ISAGEN’senergy reached almost 100% of theColombian territory through regional distributors,consolidating the Corporation’s presencein the national regulated market.ISAGEN’s transactions in the Energy Poolalong the year 2009 are worth highlighting,where availing of the opportunities offeredby daily operation resulted in 150% revenueContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.8increase for this area with respect to 2008,and 27.4% participation in total results. Theabove were determining factors in totalcommercial revenues increase of 14.5% on2008 figures.In regulatory terms, the endeavors of theEnergy and Gas Regulatory Commission –CREG– regarding regional transmission andlocal distribution systems remunerationschemes, coordination of the gas-powersectors and operation of the WholesaleEnergy Market, stand out. These two latterpromote efficient operation and steady, reliableattention to demand, especially to facethe threat of energy crisis from natural gasrationing and the El Niño phenomenon, bothpresent along the last quarter of the year.ISAGEN conducted rigorous follow-up topresent pro-positive comments, avail of opportunities,make required adjustments, andmitigate the impact that the regulation analyzedposed for both the Corporation and itsIndustrial End Customers.Energy productionISAGEN’s energy production in 2009 wascharacterized by stably adequate availabilitylevels that allowed it to meet its commercialcommitments, the reliability charge, and thesupply in the energy pool. The unavailabilityof Termocentro Unit I, brought about by aninsulation failure, must be highlighted here,as well as the fact that the plant was repairedand available before onset of the dryseason, so it could effectively provide thecountry with electric power during the ElNiño phenomenon.Along the year, generation reached 9,259.8GWh, a level that could not have been reachedwithout the efficient operation managementand timely implementation of the plant’s maintenanceplans. Overhaul works at JaguasUnit 1 and San Carlos Unit 7 stand out.Plants updating processes continued along2009 with modernization of the supervisionand control systems of two units of SanCarlos plant, and modernization of the generatorwindings of San Carlos Unit 7 andJaguas Unit 1.Technological updating ofthese important assets prolongs their usefullives and helps ensure ISAGEN their futuregeneration of revenuesGeneration projectsGuarinó and Manso Projects that will allowbringing additional water to Miel powerplant’s Amani reservoir, progressed asplanned, and will start operations in the firstsemester of 2010 and 2011, respectively.Amoyá Project reached 45% advancement,lower than planned, due to area conditionsharsher than initially foreseen, and to decreasedproductivity of the contractor.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.9Corresponding measures have been taken,and the construction program has been adjusted,so that commissioning will take place beforeDecember 1 of 2011, the date set for commissioningaccording to the Reliability Charge.February of 2009 saw construction start-up ofthe Sogamoso Project, whose works progresson schedule. As of this date, contractsfor construction of main civil works and mainelectromechanical equipment have beenawarded at significantly lower cost than initiallyestimated. On the other hand, “All Risk”construction insurance for the project washired with world-class insurers.Also, the office for attention to the communityand the office for employment managementwere opened, and the three-party commissionfor land title management was established.This project stands as a big challengefor ISAGEN, given that its 820 megawattswill increase the Company’s installedgenerating capacity by around 38%, a bigstep in terms of demand attention and economicdevelopment of the Country.Environmental andsocial managementEnvironmental management was conductedaccording to regulation in force and to the principlesof ISAGEN’s Environmental Policy. Aspart of the legal commitments stipulated inArticle 45 of Law 99, Transfers from the ElectricSector to regional autonomous corporationsand to municipalities of the areas of influencetotaled $31,321 million, and the environmentalmanagement plans of every productivecenter and ongoing project were advanced,with an investment of $39,193 million. On theother hand, investment of $16,315 million alloweddevelopment of social investment andbiophysical programs aimed at formationand participation of communities in the areaof influence of its plants, the environmentalAs part of ISAGEN’s commitment to the environment,a three-million dollar non-refundablesum was obtained to forward pre-feasibilityenvironmental study for a geothermalproject in Colombia. Additionally, a portfolioof new hydroelectric projects consolidated,totaling over 3,500 MW.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.10improvement of the river basins feedingISAGEN’s reservoirs, as well as strengtheningof the Development and Peace Programsaided by the Corporation.In the environmental management efforts,the following must be highlighted: (i) Decisionof the National Operation Council concerningthe generation reduction ramp of Miel Iplant to reduce fish trapping downstream; (ii)design and startup of the Fishing OrderingPlan in the reservoirs of Punchina in SanCarlos and San Lorenzo in Jaguas, anddownstream of Miel I, and (iii) assessment ofthe Corporation’s carbon footprint, with definitionof actions to mitigate it, and contributeto the fight against climate change.Financial managementHonoring the commitment to its Shareholders,ISAGEN recorded creation of value amountingto $51,695 million along the year 2009,thanks to consolidation of the value managementsystem it has been developing forover 7 years.Also, risk rating agency Fitch Ratings ratedISAGEN’s corporate national and internationalobligations the AA+ and BB+, respectivelyAccording to this firm, “obligations rated intothis category have very high credit quality.Protection factors are very strong. Risk ismodest, though it can vary slightly because ofeconomic conditions”.According to the firm, the fact that these ratingsare lower than in 2008 is explained by twofactors: ISAGEN’s aggressive growth strategy,with which leverage, historically low, is expectedto significantly increase along the constructionphase of the Sogamoso Project, and onthe other hand, the expectations regardingsale of the State’s majority stake. Likewise, theagency rated AA+ the issue of public debtbonds the Corporation would underwrite.In September, the Financial Superintendencyauthorized issuance of bonds in the localmarket worth $850 thousand million. OnSeptember 15, the first tranche, worth $350thousand million was offered, with the possibilityto increase it up to $450 thousand millionin case of over demand of the bonds.Demand of ISAGEN’s bonds was approximately$650 thousand million, or 1.8 timesthe value of the initial offer, which made itpossible to allot $450 thousand million atmarket rates, and competitive terms. On theother hand, approval was obtained fromCAF for a loan of USD$140 million, and anagreement was reached with a group of localbanks for a loan totaling $1,500,000 million;the process of approval of these loans by theMinistry of Finance and Public Credit was underwayat closing of fiscal 2009. All these operationsrepresent an important advance forthe smooth development of the SogamosoProject, given that altogether, they representover 90% financing of its debt, showing theContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.11Corporation’s solidness, and the excellentcredit image it has reached in both nationaland international capital and credit markets.International businessThe international financial crisis and the hugedemand of resources for construction of theSogamoso Project caused activities relatedto the internationalization of the Corporationalong 2009 to center on study and researchof Latin American markets, and on identificationand selection of projects to be developedin other countries. This allowed definition of asystemic model for the continued study ofsuch markets, as well as selection of two hydroelectricprojects in Peru with a total capacityof 75 MW, whose respective prefeasibilitystudies have already started.Management of theOrganizationSince its inception, ISAGEN has been conceivedas a systemic organization that ensuresits competitiveness through the integral developmentof its workers, availability of an informationplatform that will back decision-making,and incorporation of practices designed tocontribute to sustainable development.With respect to the integral development ofworkers, in 2009 the concept of the IntegratedModel of Human Management was updated,aligning its elements and emphasizing theworker’s recognition as an integral person,in order to turn work into a true space for thedevelopment of the individual and theCorporation. Additionally, a diagnosis of thecurrent corporate culture was conducted,defining the target culture and a corporatetransformation plan for development andadoption of the new model.Information is a fundamental asset forISAGEN; therefore, last year, saw advancementof implementation of the informationsystem for strategy management and riskassessment of energy and gas commercialization,as well as implementation of new informationsystem for electronic managementof mail and correspondence.As to management practices, ISAGEN obtainedrenewal of certifications of Safety andOccupational Health Systems andEnvironmental Systems, as well as QualitySystem under ISO 9001:2008 standard, andinclusion of Calderas plant in every certifiedManagement SystemSo as to strengthen relations and deepen dialoguewith its stakeholders, ISAGEN invitedpersons representative of each group to evaluatethe Corporate Responsibility practicesand report; important evaluations and recommendationswere received from them. Wehighlight here the perception they showed ofthe conviction and integrated focus with whichISAGEN assumes its Corporate Responsibilitypractices, and their invitation to keep onstrengthening communication with the stakeholdersto facilitate their knowledge and understandingof the Corporation’s practices.Along 2009 the Development of Suppliersproject also started, seeking to promote andfacilitate the development of the suppliers’ administrativepractices and improve ISAGENsrelations with this stakeholder.Lastly, and as proof of its strengthening ofGood Governance practices in 2009,ISAGEN: (i) was granted First Place in thesurvey conducted by Transparencia porColombia for utilities in recognition to itsstandards in Transparency and Ethical Self-Regulation Policies; and (ii) it was votedFirst Real Sector and Utility in GoodGovernance Practices, according to the surveyof Colombia’s Financial Superintendency.Legal issuesIn accordance with its principles, ISAGENstrictly abides by regulation. In compliancewith Article 47 of Law 222 of 1995, amendedby Law 603 of 2000, all software availablefor ISAGEN’s operation is licensed accordingto the provisions of the IntellectualProperty and Copyright Law.The challenges of 2010Messrs. Shareholders, at last year’s Meeting,we pointed out that 2009 would be a crucialyear for ISAGEN’s future, a year to definitelyContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.12start the development stage of the strategiesdefined in 2008. The Management resultswe just shared with you fill us with satisfactionbecause they are evidence that whereasthe road ahead of us is long, the stage ofcorporate growth has started out with firmstep.Without any doubt, to keep in 2010 the goodresults of the previous years in every area ofcommercialization, production, management,finance, and application of practicesaimed at the well-being of its workers, stakeholders,and society in general, is one of ourmain challenges.Additionally, among the other challenges weface in 2010, we deem it fitting to highlight thefollowing: (i) consolidation and completion ofhiring of the total debt required for theSogamoso Project, clearing all uncertaintiesand risks involved; (ii) advancement onschedule of construction of every project includedin ISAGEN’s expansion plan, wheretwo milestones are expected to materialize:start of operation of the Guarinó river waterdiversion and deviation of the Sogamoso river;and (iii) an effective answer to the impactfrom El Niño phenomenon, as a result ofwhich net revenues budgeted for the yearare actually received, and a real contributionto the country’s recovery from the energyjuncture brought about by the dry spell.Messrs. Shareholders: two forces come togetherand boost ISAGEN’s firm grip of theabove challenges and those that may arise(i) our absolute commitment to you to be asolid, responsible corporation in permanentgrowth, and (ii) the efficiency, professionalism,and human quality of our workers, whosedaily work constructs the future ISAGEN.Looking in retrospect at these 15 years ofcorporate life, we want to express our feelingsof gratitude to you and to our workers,customers, suppliers, and communities livingin the influence areas of the plants andprojects, gratitude that becomes the fuel totake the challenges of 2010 with enthusiasmand decision, and the motivation to statewith the conviction and firmness of a workwell done, that you can count on an ISAGENcharacteristically bent on facing the futurechallenges with productivity and efficiency.Thank you very much.LUIS FERNANDO URIBE RESTREPOChairman of the BoardLUIS FERNANDO RICO PINZÓNChief Executive OfficerContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.13ACHIEVEMENTSAND RECOGNITIONS 2009The Corporation’s most relevant achievements along 2009 for each of the perspectivesdefined in the planning methodology are:Shareholder’s PerspectiveCreation of additional value of $51,695 million.Operating income of $519,039 million, EBITDA of $622,513 million, net incomeof $385,751 million, for 37%, 44% and 27% corresponding margins,respectively.Important financing advances for Sogamoso Project:Successful bond underwriting worth $450,000 million.Pre-agreement for syndicated loan in the domestic marketfor $1,570,000 million.Approval by CAF of a USD$140 million loan.Customer’s perspectiveExcellent results for the commercial operation, with revenues 8% higher thanbudget, and 14.5% higher with respect to 2009.Renewal of contract for export of energy to Venezuela until 2010.High levels of customer satisfaction, according to yearly survey.Every industrial end customer renewed their contracts with ISAGEN.Sale of services to over 99% of industrial end customers, outdoing 2008revenues from this area by 31.3%.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.14Internal perspectiveCompliance with Plans for Management ofCustomers and Wholesale Transactions.Adequate availability to meet commercialcommitments, for reliability charge andsupply in the energy pool.Modernization of the supervision andcontrol system of San Carlos units 3 and4, and modernization of the generatorwindings of San Carlos 7 and Jaguas 1.Agreement of the National OperationCouncil regarding generation reductionramp for Miel I to mitigate fish trappingdownstream.Design and startup of the Fishing OrderingPlan in the reservoirs of Punchina in SanCarlos and San Lorenzo in Jaguas, anddownstream of Miel.Structuring, publishing, and disclosurein the CIER of the guidelinesfor: “Communication for Participationin Environmental Management” and“Handling of Hazardous Waste”, withsupport from ISA and EPM.Start-up of two prefeasibility studies todevelop hydroelectric generation projectsin Peru.Assessment of the Corporation’s carbonfootprint.(54,000 CO2 E tons) and definition ofacts to mitigate it, and contribute to thefight against climatic change.Advance on schedule of the Guarinó andManso Projects.Advance of 45% in construction of AmoyáProject.Sogamoso Project advanced on scheduleProject started construction in Februaryand water transfer tunnels in August.Contract was awarded to start constructionof main works; biddings forelectro-mechanic equipment closed.Hiring of “All Risk” construction insurancefor the project.Office of community attention, and officefor employment managementstarted operation, and three-party commissionwas appointed for land titlemanagement.A three-million dollar non-refundable sumwas obtained to forward pre-feasibility environmentalstudy for a geothermal projectin ColombiaConsolidation of new hydroelectric projectsportfolio totaling over 3,500 MW.Learning PerspectiveHuman Capital:Updating of Integrated HumanManagement Model.Diagnosis of current corporate culture,identification of target culture, and definitionof corporate transformation plan.Reactivation of Corporate School withthe pilot module of “Enabling IntegralHiring”.Information Capital:Implementation of the information systemfor strategy management andrisk assessment of energy and gascommercialization.Implementation of new informationsystem for electronic management ofmail and correspondence.Organizational Capital:Updating of Management Model.Renewal of certifications of Safetyand Occupational Health Systems andEnvironmental Systems, as well asQuality System under ISO 9001:2008standard, and inclusion of Calderasplant in every certified ManagementSystem.Definition of relations with suppliersand start-up of 2 pilot models.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.15RECOGNITIONSFirst Place CIER Recognition:Report “Modernization of the San Carlosplant generators”, Elvis Rodríguez and LernerFerrer. Second International Power SectorMaintenance Seminar.Report “Volunteer Biophysical Investment.From compliance with legal commitments toshared environmental management”, AnaMaría Gómez. I CIER International Congressof Environment and Energy, Buenos Aires,Argentina.First Place in the second transparency indicatorsurvey for utilities conducted by TransparenciaColombia.First real sector and utility in Good GovernancePractices, according to the best practices surveyof Colombia’s Financial Superintendency.Low Risk Corporation, according to Colombia’sGeneral Accounting Office.Nomination to Best Large Corporation in the“Colombia en Linea” Award.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

PROGRESS IN THEIMPLEMENTATION OFRECOMMENDATIONS OF 2008EVALUATIONEvaluation ofCompliance withCorporate GoodGovernancePracticesCHANGES TO GOODGOVERNANCE PRACTICES2009EVALUATIONCONCLUSIONSContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.17ISAGEN considers that the existence of an adequate corporate governmentcrucially contributes to achievement of entrepreneurial goals in a transparentand objective way and guarantees the tranquility of and respect for theshareholders, investors, and other stakeholders.Well aware of such commitment, along 2009 ISAGEN carried out diverseactivities to give continuity to the Good Governance practices throughinstruments and tools that support its acts.Evaluation of the Good Corporate Governance practices permits the conclusionthat ISAGEN’s practices in the fields of Ethics, Corporate Responsibility, handlingof conflicts of interest, equitable treatment of shareholders, corporate control,risk management, and compliance with acquired obligations are adequate, andthat the shareholders and the market in general have had full and timely accessto the Company’s information.PROGRESS IN THE IMPLEMENTATION OFRECOMMENDATIONS OF THE EVALUATION OF 2008Actions taken and issues in need of strengthening identified along evaluation of the year2008 and related to:Good Governance Code and Conflicts of interest:Adjustment to definition of conflicts of interest, and revaluation of disclosure mechanismby managers, directors and associates, so as to allow traceability.Planning and implementation of a “Good Corporate Governance Campaign” that involvedthe whole Organization in the different issues of the Good Governance Code.Corporate EthicsThe associates signed the document “Commitment of the associates to the Declarationof Ethical Behavior” (DCE, for its Spanish initials) by means of which they formalized theirunderstanding of and commitment tocompliance of DCE and mechanismsdevised by the Company to guaranteeits application.Information disclosurePublication in a more detailed way ofreports of external control entities andthe Company’s risk management.Publishing of detailed information relatedto the satisfaction evaluation resultsby Linea Viva magazine.Communication strategy withShareholders and InvestorsDevelopment of strategy for investorrelations, so as to position theCompany in both the local and the internationalmarkets.The activities developed include: Onlinepresentation of quarterly corporateresults; publishing of quarterly financialresults in English and Spanish;market training to analysts of stockbrokeragefirms; review and update ofWeb page contents for shareholdersand investors, and English languagesection for investors; on-line communicationcampaign to keep permanentlyin touch with shareholders andinform them via electronic mail.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.18CHANGES TO GOODGOVERNANCE PRACTICESHandling conflicts of interestGiving heed to the recommendations of theevaluation conducted in 2008, which werereviewed by the Board’s Affairs Committee,the Board of Directors approved an adjustmentto the definition of conflicts of interestcontained in the Good Governance Code.The foundation for such change is that: (i)Conflict of interest does not only arise fromwork functions; (ii) Conflict of interest arisesnot only from decision-making, but also fromfactual circumstances that take away objectivity;(iii) Conflict of interest also arises whenacting through third parties.Additionally, the procedure for disclosure ofconflict was adjusted, including aspects notpreviously expressed, such as: (i) Whenevermanagement staff members are involved(CEO and Board of Directors Members), allowreporting of the conflict to the Boardthrough the General Secretary Office, andexclude involved Board Member from deliberationor decision-making regarding the solutionto conflict; (ii) When associates are involved,disclosure of conflict and reply fromthe superior by the same means (written evidence),to enable traceability; if the immediatesuperior is also involved in conflict, itmust be referred to the next higher superiorfor solution.Criteria applicable to trading of sharesUpon recommendation of the Board AffairsCommittee, the Board of Directors authorizedissuing of Resolution No. 112 of 2009revoking Resolution 102 of 2008, aimed atregulating trading of shares and otherISAGEN securities by its Managers andAssociates. The new Resolution adjustedthe following aspects:(i) Definition of the concept of “speculation”,specifying it and separating theconcept of insider information.(ii) Obligation of every associate to NOTspeculate, and for ISAGEN Managersand Management Team members torequest authorization from Board ofDirectors to trade ISAGEN shares.(iii) Ratification of the duty to refrain fromusing insider information for tradingISAGEN shares, applicable to everyassociate.(iv) Application of provisions of section (iii)above, whenever trading bonds or domesticdebt bonds, being understoodthat their trading is not subject to requestof previous authorization providedfor in (ii) above, except when tradingconvertible bonds, in which case, regulationin force for trading of shareswould be applicable.(v) Non-applicability of the Resolution duringsale processes when these latter involveexercising a Preemptive Right orare conducted under general and uniformconditions, as is the case withthe processes under Law 226 of 1995and the Tender Offer included in theShareholders’ Agreement.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.19EVALUATION 20091. IDENTIFICATIONOF THE CORPORATION2. FRAME OF ACTION3. HANDLING OFCONFLICTS OF INTEREST4. EQUITABLE TREATMENTOF SHAREHOLDERS5. THE CORPORATIONAND ITS GOVERNMENT6. CONTROL MECHANISMS7. DISCLOSURE OFINFORMATIONCONCLUSION1. IDENTIFICATION OF THE CORPORATION1.1. NATURE AND CORPORATE PURPOSEIn its Meeting No. 178 of January 29 of 2009, the Board of Directors approvedpresentation to the Shareholders’ Meeting of a proposal to reform the Bylaws,based on the legal need to widen the Company’s corporate purpose, to expresslyand specifically include mining exploration and exploitation, only in the normalcourse of activities required to develop and operate generation projects.Accordingly, the Shareholders’ Meeting of March 24 of 2009 decided to amendthe Bylaws by adding to the Corporate Purpose paragraph of Article 5, a numberwith the following wording: “Carry out mining exploration and exploitationactivities (mines and quarries) necessary for development and execution ofgeneration projects”.1.2. APPLICABLE REGULATIONAccording to the audits conducted along the year 2009, the Company carriedout its acts and contracts in accordance with applicable regulation.2. FRAME OF ACTION2.1. MANAGEMENT MODELAlong 2009, the most important changes to the Management Model were:Philosophy: Corporate Social Responsibility became explicit as a Companynotion and some adjustments were made with respect to principles.Corporate Foundations: Adjustments were made to the definitions of values,to make them more comprehensible and adequate to corporate declarations.Work Organization: As a result of the planning processes developed in theyears 2008 and 2009, the need became evident to adjust ISAGEN’s work organizationin order to make it fit the corporation’s reality. The most importantchanges include:Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.20Missions adjustment to: CorporateIntegration Management Process,Generation Projects ManagementUnit, Secretary General’s OfficeTeam, Maintenance Team, AssetsManagement Team and ProjectDevelopment Team.Elimination of Project Execution Teamand creation instead of individual executionteams for each project.Creation of the Environmental Teamas part of the Generation ProjectsManagement Unit.2.2. CORPORATE SOCIALRESPONSIBILITYThe Company continued working to preserveand strengthen its practices contributingto sustainability of stakeholders.ISAGEN’s Corporate Social Responsibilityreport for 2009 shows in detail the actionscarried out by the Company to contribute toenvironmental protection, social development,its own economic growth, and that ofits stakeholders.2.3. CORPORATE ETHICSStanding out among the activities carried outin 2009 are the official launch of the EthicalLine, and the operation startup of the NonethicalSituations Attention Committee.Through the Ethical Line, the Non-ethicalSituations Attention Committee learnt of andanalyzed reports of non-ethical situations,processed them, and reported biannual resultsto the Audit Committee.Additionally, the Ethical Committee continuedits activities related to disclosure and promotionof Corporate Ethics as well as workplaceharassment.Another aspect to highlight, which evidencesthe work carried out by ISAGEN as regardsto ethics and transparency, was its classificationonce again as the Utilities Corporationwith the highest standards of Transparencyand Ethical Self-Regulation Policies in thesecond survey conducted by Transparenciapor Colombia. The Company obtained a ratingof 95 points over 100, among 19 participatingorganizations.2.4. SELECTION CRITERIAOF MAIN SUPPLIERSAND PROCUREMENT OFGOODS AND SERVICESThe evaluations conducted by OrganizationalAuditing and external control entities allowconclusion that selection of suppliers takesplace within objective criteria, in observationof the provisions of the Internal ProcurementRuling.Reports from Auditors describe some observationsof specific situations not constitutingmaterial find with the potential to affect eitherthe normal development of theCompany’s activities or the objectivity ofprocurement processes of goods and services.Such situations are mainly related tosupporting documents of the different contractualprocesses. Improvement plans tocorrect situations spotted out were found.Follow-up of large contractsIn August of 2009, the Board of Directors acceptedone recommendation by the AuditCommittee for this latter to be informed bythe Management of the Company’s largecontracts, before they are granted. The purposeof such initiative was to report to theAudit Committee the advancement of everycontract with an estimated cost equal to orabove 20,000 monthly statutory minimumwages with the exception of the energy andgas sale contracts.As of that date, every contract that adjustedto such standard has been referred to theAudit Committee.3. HANDLING OFCONFLICTS OF INTERESTAs previously mentioned, the definition anddisclosure procedure for conflicts of interestwere adjusted during the year 2009.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.21As to Board of Directors members, they didnot report existence of any conflict of interest.In the case of the associates, self-evaluationwas applied to them.Even though the associates expressed theway to handle conflicts of interest in casethey arise, and who to turn to within theCompany was clear to them, it became evidentthat they are not utilizing the “conflictsof interest” mailbox, the official mechanismprovided by the Company to such end,which makes it necessary to insist on thesepractices.Additionally, and as a result of internal andexternal audits to the Internal Control System,no situations were observed evidencing anyinfraction of the Good Governance practicesin the area of conflicts of interest.4. EQUITABLE TREATMENTOF SHAREHOLDERS4.1. SHAREHOLDERS’ RIGHTSReview of compliance with Good Governancepractices leads to the conclusion that therights of the Company’s Shareholders havebeen complied with and respected, andshareholders were provided with informationrequired for decision-making along theyear 2009.Convening to the Shareholders’ Meeting tobe held at Teatro Metropolitano de Medellinat 10:00 a.m. of March 24 of 2009, wasmade through a first announcement publishedin El Tiempo and El Colombiano journalson March 1 of 2009, and a reminder onMarch 15 of 2009.The Shareholders’ Meeting, on its sessionNo. 028 of March 24 of 2009 approved themanagement report submitted according toarticle 47 of Law 222 of 1995; the financialstatements, together with their notes and theDecember 31 of 2008 proposal for earningsdistribution; the report of compliance withthe Good Governance Code; the appointmentof the Statutory Auditor; the amendmentto the Bylaws; the issue and underwritingof bonds in the domestic and/or internationalmarkets; and the composition of theBoard of Directors for the April 2009 – March2011 term.4.2. RULES FOR DISTRIBUTIONOF EARNINGSIn the same way, the Shareholders’ Meetingof March 24 of 2009 approved the proposalfor earnings distribution. Such proposal wasmade according to the Shareholders’Agreement where the earnings distributionpolicy is established.Authorization meant distribution of dividendsin cash worth $149,126,770,081, or $54.70per share, payable in two equal installments,the first on April 30 of 2009 and the secondon October 30 of 2009.Organizational Audit Unit verified compliancewith the Meeting’s decision as regardsto earnings distribution.4.3. SPECIALIZED AUDITSIn 2009, no requests for specialized auditingwere submitted by the shareholders orinvestors.4.4. ATTENTION TOSHAREHOLDERSFor attention to the shareholders’ requests,(information, petitions, complaints or claims),the Company has the following contactchannels: electronic mail box, office for personalizedattention to the shareholder, andcall center.Requests outstanding at closing of 2008 weresettled along 2009, with additional 63,260 requestssubmitted during the year by theshareholders to the Company (5.3% down on2008), and broken down as follows:Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.22TypeNumberClaim 30Information 29.782Petition 17.536Complaint 195Other (1) 15.717TOTAL 63.260Note (1) Corresponds to congratulations, thanks, misdirectedcalls, suggestions, and nanswered calls to shareholders.As of December 31 of 2009, only 79 casesof information requests were pending fromthe previous month.With respect to closing of 2008, the attentionlevel on the number of requests submitted in2009 showed 0.12% improvement goingfrom 99.76% in 2008 to 99.88% in 2009).The Audit Committee made biannual followupto attention given to petitions, complaints,and claims submitted by shareholders.Balances in shareholders’ favor:As a result of the process of transfer ofISAGEN shares in 2007, the post-sale processled to an execution of guarantees,meaning that when loans to purchase shareswere in default, corresponding guaranteeswere executed, with only the shares actuallypaid for keeping a firm standing, and the remainingbalances returned to the shareholders.Initially, such balances corresponded to2,654 application forms worth $1,979 mil-lion. As of this date, 214 shareholder applicationforms remain (8% of initial percentage)with balances in their favor worth $155million, which the Trustee is currently in theprocess of returning to the shareholders.4.5. DUTIES OF THESHAREHOLDERSAccording to the provisions of the GoodGovernance Code, the shareholders havethe duty of loyalty to the Company, and mustrefrain from participating in acts or behaviorswith respect to which there is a conflict of interest,as defined in Article Sixteen of theBylaws - Duties of the Shareholders.As of the preparation date of this report, therewas no known fact related to default on dutiesby the shareholders.4.6. OPERATIONS WITHAFFILIATES ORRELATED PARTIESThe Shareholders’ Agreement and the GoodGovernance Code established that ISAGENconducts operations with Affiliates on thebasis of the following criteriaFocusing on objective criteria.Under market conditions.Under the terms and conditions and atthe cost that ISAGEN usually agrees withnon-related third parties.Operations usually carried out with Affiliatesand Related Parties are:Purchase and sale of energy sources(energy and gas) and Secondary marketof Reliability Charge.Purchase of goods and services.Each semester, the CEO submitted to theAudit Committee the evaluation report on operationswith Affiliates and Related Parties.The Audit Committee concluded that operationscarried out along 2009 with Affiliatesand Related Parties were conducted underthe criteria defined in the Shareholders’Agreement and the Good Governance Code.4.7. DISPUTE RESOLUTIONAlong 2009, no evidence arose of the existenceof conflict in the development of theassociation agreement, between theCorporation and the shareholders, or amongshareholders.4.8. COMPLIANCE WITH THEGOOD GOVERNANCE CODEAlong 2009, no communications were submittedby shareholders reporting any type ofviolation of the rules contained in theCorporate Good Governance Code.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.234.9. CRITERIA APPLICABLETO TRADING OF SHARESAs previously mentioned, on October 28 of2009, the Board of Directors adjusted thecriteria for trading of ISAGEN shares andother securities by the associates and themembers of the Board of Directors, addressedin Resolution 102 of 2008, thesource of issuance of Resolution 112 of2009, the internal regulation now rulingthe matter.Compliance with the provisions of bothresolutions was examined in the GoodGovernance practices biannual evaluation,with the results being submitted to the AuditCommittee.In the Shareholders’ Meeting of March 24 of2009, the Company’s associates did notrepresent shares other than their own, withthe exception of some cases of legal representationas provided for in article 185 of theCode of Commerce.No case of repurchase of shares took placealong 2009.5. THE CORPORATIONAND ITS GOVERNMENT5.1. SHAREHOLDERS’ MEETINGAlong 2009, only the Regular Shareholders’Meeting was held, according to the provisionsof the Bylaws regarding convening,quorum, vote, minutes, and documents.The Regular Shareholders’ Meeting tookplace on March 24 of 2009, with representationof 78.24% of ISAGEN’s shares outstandingand paid for and therefore therewas a quorum to start deliberation anddecision-making.Information regarding the Shareholders’Meeting was made available to theShareholders with a minimum advance of 15business days, on the Web page, and at theShareholders Attention Office.5.2. BOARD OF DIRECTORSISAGEN’s current Board of Directors was appointedat the Shareholders’ Meeting ofMarch 24 of 2009. This directive body is madeup of seven principal members with their alternates,five of whom (principal and alternate)are independent. The term establishedby the Bylaws is two years, running betweenApril of 2009 and March of 2011. No ISAGENexecutive is part of the Board of Directors.Meetings, quorum, attendanceand informationDuring 2009, the Board of Directors metmonthly. Convening to meetings, supply ofinformation to the Members and, in general,operation of meetings, took place in accordancewith the provisions of the Bylawsand the Good Governance Code.Attendance of the Board of Directors membersto the meetings was 84.5%, taking intoaccount principal and alternate members,and 86.9,% if only attendance by principalmembers is considered.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.24In 2009, Board of Directors members wereprovided with timely access to relevant informationnecessary for decision-making,in accordance with the agenda contained ineach convening. At meetings, the Board ofDirectors made follow-up of the corporatemanagement, based on the informationsupplied by the Management. The above issufficiently documented in the minutes ofthe meetings.Likewise, new members received necessaryinformation regarding the Companyand their responsibilities as Board members.In May of 2009, concluded the Boardof Directors’ Updating Plan, dealing withthe Board’s operation, and which had startedin 2008.Inabilities and confidentialityof informationAccording to the definitions of the GoodGovernance Code regarding inabilities andconfidentiality of information (Number 5.2 –Board of Directors) whenever topics relatedto ISAGEN’s commercial strategy or othertopics that could give a competitive edge inthe market were debated at Board of Directorsmeetings, the Board of Directors membersrepresenting or belonging to competing companieswere restricted from participating anddeciding regarding such topics, and left themeeting temporarily. To this respect, the correspondingcertification was verified in theminutes whenever appropriate.Evaluation and remunerationThe results for 2009 of the self-assessmentof the Board of Directors’ members werepresented at meeting No. 190 of January of2010, together with the proposal for theImprovement Plan.Average results for each aspect evaluatedwere:Contribution and Commitment: 9.3Performance of the Board of Directorsand Committees: 8.9Knowledge of the Company: 8.9.According to the above, performance of theBoard of Directors remained very good inthe year 2009.Additionally, the following topics were consideredto have priority for 2010: (i) Advancein implementation and financing ofSogamoso Project; (ii) Structuring, financingand follow-up of generation projects; (iii)Internationalization, new business and investmentsoutside of Colombia; (iv) Financialindicators follow-up; (v) Market monitoring,tariffs, regulatory risk, and national as wellas international prospects of the electricsector; and (vi) Evolution of the sale processof the Nation’s stake in ISAGEN, and its impacton the Corporation.Board of Directors’ remuneration was madeas decided by the Shareholders Meeting.CommitteesBoard Committees acted according to regulationestablished regarding their composition,responsibilities and operation.In terms of their composition, the provisionsof the Good Governance Code and theBoard of Directors resolution, which regulatethem, were complied with. Additionally, themembers of these committees are Board ofDirectors’ members with the right formationand pertaining experience.As to their responsibilities and operation, asforeseen in the rulings, along 2009 theCommittees reviewed issues in more detailand made necessary recommendations tothe Board of Directors, in compliance withthe purpose of their creation.Board Affairs CommitteeAltogether, 7 meetings took place along theyear. The most relevant issues treated in themeetings were:Application of compensation policy.Self-evaluation of the Boardof Directors in 2008.CEO evaluation 2008.Updating of the Integrated Modelof Human Management.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.25Succession of Management Team.Board of Directors updatingoperationplan.Institutional DevelopmentPlan 2010-2014Corporate Governance Practices: conflictsof interest, Resolution regardingtrading of shares by Administrative andDirective staff.The commitments acquired by theManagement were verified. Compliance levelstood at 100%.Finance and NewBusiness CommitteeIt held 10 meetings along the year. The mostrelevant topics of the meetings were thefollowing:Budget and modificationsFinancing StrategySogamoso FinancingManagement of liquidity surplusesStudies-projects planLegal stability agreementInternationalization issuesLiquidity fundCommitments acquired by the Managementwere verified. Compliance was 100%.Audit CommitteeAlong the year, 12 meetings were held.Topics with utmost relevance were:Financial StatementsStatutory Auditor election proposal2009 - 2011Asset laundering and terrorism financingAccounting and Fiscal ManagementPlanningFinancial ProjectBusiness Continuity ModelRisk Management Strengthening ProjectGood Governance Code compliance reportReports from External Entities (StatutoryAuditor, Management and Results ExternalAuditor, National General Auditing Office,National General Accounting Office,Transparencia por Colombia)Annual Auditing Plan and its follow-upThe commitments acquired by theManagement were verified. Compliancewas 100%.5.3. CHIEF EXECUTIVEOFFICER –CEO–At meeting No. 178 of January 29 of 2009,the Board of Directors approved salary increaseof IPC + 1 point for the Chief ExecutiveOfficer. During the year, every decision of theBoard in this respect was complied with.Evaluation of the CEO’s activities during2009 was presented at Board of Directors’Meeting No. 190 of January 28 of 2010.Evaluation included the following topics:Compliance with Indicators of theInstitutional Development Plan, with a resultof 112.31 points.Compliance with responsibilities assignedin the Board Meetings along theyear, with 100% compliance.The CEO’s work, as well as that of his teamwas highlighted, as was attention to the mattersrelated to the Sogamoso Project and endeavorsto ensure Management Team successionby high-quality professionals. Also,timely and diligent attention to the issues andresponsibilities assigned by the Board ofDirectors and its Committees was underlined.5.4. DIRECTORSManagement team changes during 2009,because of retirement of some of its members,stood out. The selection process to replacethose positions was conducted on thebasis of established criteria and on the definitionsof the Board of Directors.Evaluation of Directors during the year wasconducted by means of the performanceevaluation mechanism existing in theCompany. Additionally, remuneration of directorswas in accordance with the marketcriteria approved by the Board of Directors.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.266. CONTROL MECHANISMS6.1. INTERNAL CONTROLAlong 2009, the Company’s CorporateControl System reasonably helped guaranteethe efficiency and efficacy of operations,protection and safeguarding of resources,reliability and opportunity of information,management improvement, and permanentfollow-up of compliance with policies, regulation,and internal rules.The Board of Directors, the Audit Committee,the Management Committee and theOrganizational Audit Unit were in charge ofmonitoring this system.The Organizational Audit team evaluatedand advised processes in the areas of risks,controls, and governance, conducting evaluations,coordinating external control entities,and participating in corporate committeesand projects.In 2009, the scope of the work program ofthe Organizational Audit covered all of theOrganization’s processes. Compliance withthe Annual Audit Plan to evaluate the corporatecontrol system was 99.62%.The indicator that measures compliancewith the improvement plans defined by theprocesses in response to the observationsand improvement opportunities resultingfrom the evaluations was 98%. Also, the in-dicator that measures effectiveness of improvementactions implemented was 96%according to its latest evaluation.6.2. INTEGRAL RISKMANAGEMENTThe year 2009 was one of reflection for theIntegral Risk Management System and eachone of its elements, aimed at guaranteeingoperating availability at its fullest, as well ascontinued business operation.The inventory of corporate risks included 60risks related to 17 strategic goals, which arein turn grouped in 4 perspectives, includingas well, not only risks related to theOrganization, but also external risks.Management of those risks involved implementationof 42 action plans defined sincethe 2009 – 2013 planning phase.Work during the year included a diagnosis ofRisk Management which produced an improvementplan so that the System will adopt“better practices” and contribute to productionof valuable information for decisionmakingby the Company as a fundamentalmaterial for implementation and focus of theaudits, among others. Implementation of theproject will take place in two stages, and itstarted out by late 2009. The full work plan isscheduled to finish in the first half of 2011.Additionally, work was done on the programscorresponding to emergency and contingencyplans as well as crisis management.As in the previous year, monitoring of IntegralRisk Management and the Continuity Planby the Audit Committee of the Board ofDirectors went on by semesters.Prevention and control of Assetlaundering and terrorism financingIn 2009, the Board of Directors approved anew version of the System for Preventionand Control of Asset Laundering andTerrorism Financing (SIPLA, for its Spanishinitials), which includes the latest decisionsby the Colombian Financial Superintendencyfor securities issuers like ISAGEN, andsome voluntary measures, all leading to preventionof asset laundering and terrorism financing(LA/FT, for its Spanish initials).Additionally, a clause was included in thecontract with the trustee administering theissue, establishing LA/FT control measureson operations conducted with securities bythe shareholders.Topics related to applicable measures, responsibilities,report proceedings, and legalconsequences of LA/FT were disclosed.The Audit Committee approved the WorkPlan for the year and followed it up alongthe period.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.276.3. EXTERNAL CONTROL6.3.1. Statutory AuditorThe Shareholders’ Meeting held on March 24of 2009 appointed audit firm Deloitte as theStatutory Auditor; it started functions on April1 of 2009.Along 2009, the Statutory Auditor exercisedits functions in an independent, autonomousway, according to the functions assigned toit by law; no situations of incompatibility orinability rose in relation to it.As a result of its evaluations conductedalong the year, the Statutory Audit Officefound no material deviation in the operationof the Corporation, nor in the course of itsbusiness.The Audit Committee, in compliance with itsresponsibilities, checked the Statutory Auditwork plan for the year 2009, the results of itsevaluations, and its independence. It alsoevaluated the delivery of its services, withpositive results.As a result of the work carried out during2009, the Statutory Auditor issued an unqualifiedopinion on the Financial Statements,saying that they reasonably reflect theCompany’s financial situation as ofDecember 31 of 2009.6.3.2. Superintendency ofDomiciliary Public UtilitiesAs result of the work conducted in 2009, theManagement and Results External Auditor,concluded:The degree of development of theCompany’s internal control system is adequate,corporate control is strong, andcompliance with the control objectivesestablished by the Management, andwith the aspects indicated by Law 142 of1994, as well as Resolution 053 of 2000issued by the Energy and Gas RegulatoryCommission –CREG–, was effective.The Company’s risk level as of Decemberof 2009 is low.ISAGEN has an adequate corporate riskmethodology that allows identification,assessment, treatment and monitoring ofthose events that represent an attemptagainst corporate objectives.No situations were observed that may jeopardizethe Company’s financial viability.The Company shows an adequate workstructure; its competitive strategy agreeswith its mission and vision; the Board ofDirectors and Management are well focusedon the Company’s growth strategy;the Company carried out its corporatepurpose abiding by the provisions of theBylaws and Laws 142 and 143 of 1994.The Company complies with the currentratio and the financial expenses coverageindicators. Operating margin indicatorsas well as accounts receivable andaccounts payable turnovers do not meetthe reference set by the Superintendencyof Domiciliary Public Utilities, althoughthey show adequate level according to theCompany’s management policies.6.3.3. National GeneralAuditing OfficeIn 2009, the Integrated Opinion of theNational General Auditing Office brought toa close the Company’s account for fiscalyear 2008. A favorable and unqualified opinionwas issued, just like the previous year.Management of processes was rated asfavorable.Mission management is duly developedin the strategic goals.The Company’s management of contractsadjusted to regulation in force.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.28Budget was assigned, approved, and executedaccording to regulation and policiesruling the Company, and also inaccordance with principles of efficacyand efficiencyAs to the environmental component,management endeavors are satisfactoryand with improvement thanks to theEnvironmental Management System.The Internal Control System is effective,with a rating of 0.06275, equivalent to alow risk level.The Financial Statements reasonably reflectISAGEN’s financial situation as ofDecember 31 of 2008.Some subjects evaluated required severalobservations, which were presented as auditingfindings. To that respect, an ImprovementPlan was established according to regulationin force; the plan was approved by theNational General Auditing Office and it is currentlyunder implementation. Progress of theplan was reported to the Board of Directorson a monthly basis and biannually to theNational General Auditing Office.6.3.4. Financial SuperintendencyThe legal information disclosed by ISAGENto the market is based on the guidelines ofthe Financial Superintendency and GoodGovernance practices, which are set forth inthe Good Governance Code and comply withthe requirements of the Single Circular Letterof Colombia’s Stock Exchange, the Bylaws,the Shareholders’ Agreement subscribed bythe State as Controlling Shareholder and theGood Governance practices adopted by theCompany. Such practices consist of postingon the Web page and reporting to theFinancial Superintendency, on a quarterly,annual and one-time basis, information includingrelevant facts.Compliance with the above practices ischecked by semesters, and results are submittedto the Audit Committee. From thereview conducted by OrganizationalAuditing of compliance with the commitmentsacquired by the Company, it couldbe concluded that ISAGEN complies with applicableregulation and Corporate GoodGovernance Practices adopted by it. Besides,the shareholders and the market in generalhave had full and timely access to ISAGEN’sinformation.6.3.5. Management systemscertifying entityThe audit conducted by ICONTEC inFebruary of 2009 evidenced efficacy of theManagement Systems for Quality,Environment, and Occupational Healthand Safety as well as compliance with therequirements of certifications under NTC-ISO 9001:2008, NTC-ISO 14001:2004 andNTC OHSAS 18001:2000 standards, respectively.Along its annual follow-up ofcertifications, ICONTEC’s auditing teamgave its favorable opinion and recommendedincluding Calderas power plant intheir scope.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.29As a product of the audit, some observationswere presented for which pertaining improvementplans were established.6.3.6. Other entitiesAccording to regulation in force, the NationalGeneral Accounting Office was informedabout the Internal Accounting ControlSystem, the evaluation of which is includedin the Organizational Audit Annual WorkPlan. The Office concluded that during 2009ISAGEN had an adequate InternalAccounting Control System.Additionally, it was seen that correct attentionwas given to visits and requirementsfrom other control entities like risk-ratingagencies, some regulators, ministries andautonomous regional corporations, whichexercise sporadic external control bymeans of information requests.7. DISCLOSURE OFINFORMATIONThe legal information that it disclosed to themarket is based on the requirements of theSingle Circular Letter of Colombia’s StockExchange, the guidelines of the FinancialSuperintendency, the Bylaws, theShareholders’ Agreement subscribed by theState as Controlling Shareholder and theGood Governance practices. Informationwas disclosed to the shareholders and thegeneral market through the followingmechanisms:ISAGEN’s Web pageManagement reportPublications in newspapers, brochures,and institutional magazinesMeetings with brokerage firms and pensionfundsPublication of Relevant InformationIn 2009, as a result of its intention totransfer its shares, the State, in its capacityas shareholder, requested confidentialinformation required for the appraisal ofthe Corporation. The request was madeabiding by the procedures provided in theGood Governance Code, Number 7.4 –Confidential Information.Résumés of the Board of Directors Members,the Legal Representative, and theOrganizational Auditor are at the disposal ofshareholders and the market, and they areavailable at the Web page www.isagen.com.co in the Information to Shareholders section.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.30CONCLUSIONAs a conclusion of this report, it can be stated, without any doubt, thatISAGEN’s Good Governance practices are coherent, they are applied in aconsistent manner, and adequate advance has been made in the processto interiorize them.In particular, along 2009 the following positive aspects stand out:Attention to requests, complaints and claims from shareholders;Guidelines for trading the Company’s securities; shares purchase-saleoperations by Administrators, Directors and Associates; Operationswith Affiliates and Related Parties; relevant Information disclosed tothe Market, and adequate follow-up made by the Board of Directors andthe Audit Committee.Commitment to the stakeholders, especially the Suppliers.Prevention of Asset Laundering and Terrorism Financing.Disclosure of information through the Web page, including external entitiesand risk management reports.Operation of the Board of Directors and its CommitteesCorporate Ethics: Ethical Line and Non-Ethical Situations AttentionCommittee.Corporate Control System adequacy facilitates Good Governancepractices.Results of the Codigo Pais Survey, voting ISAGEN First Place in theUtilities Sector and one of the two corporations with highest Real Sectormeasure implementation, are evidence of the steady and continued applicationof these measures.RECOMMENDATIONSThe above notwithstanding, continuationof and advancement in the followingis advisable:Publish information related to handlingof customers’ requests, complaints,and claims, biannually.As verification mechanism of the associates’commitment to compliancewith Good Governance practices, effectivelyformalize the “Declarationof Annual Compliance”, and insiston use of the “conflicts of interest”mailbox. Carry out the “Risk-managementstrengthening” project defined in2009 as a result of the diagnosis ofthe Company’s risk management.Specify in minutes of Board ofDirectors Meetings the reasons whythe Board of Directors Members whohave to temporarily leave the meeting,are bound to do it according tothe Good Governance Code.Continue with and disclose everypractice adopted by the Company.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

Corporate ManagementPROJECTMANAGEMENTENERGYPRODUCTIONENERGY TRADINGINTERNATIONALIZATIONORGANIZATIONMANAGEMENTContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.32CORPORATE MANAGEMENTIn looking for corporate excellence, ISAGEN travels all thecompetitiveness way towards a solid, productive and sociallyresponsible organization. Through its management, the Companylooks for uniting workers, customers, shareholders, suppliersand society efforts to achieve excellent results for the corporationand its stakeholders. In order to achieve these results, theCompany focuses its management in:Project management, in order to strengthen its own generationcapacity and help to supply the country’s energy demand.Energy production, in order to assuring energy availabilitywith the required quality levels.Energy trading, in order to be a partner for its customer’sproductivity.International businesses, in order to transcend borderssupplying productive energy to other countries.Corporate management, in order to help its workers integraldevelopment, to have access to an information platformfacilitating decision making and to incorporate practices thatsupport all the Company’s process management andcontribute to sustainable development.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.33PROJECT MANAGEMENTENVIRONMENTALMANAGEMENTSTUDIES PLANCLIMATE CHANGEINTEGRATED MANAGEMENTDuring 2009, ISAGEN advanced in the construction of generationprojects making part of the Company’s Expansion Plan up to year2014. The Plan includes the Guarinó Diversion and Manso Diversionprojects, which will increase Miel I Generation Plant generationcapacity; Amoyá River Hydroelectric Project with 80 MW installedcapacity and Sogamoso Hydroelectric Project with 820 MW installedcapacity.As a result of this Plan, ISAGEN will increase by 900 MW its generationcapacity and by 6,042 GWh-year the mean energy, which will increaseby 65% the energy produced during 2009.In the same way, the Company progressed consolidating an ElectricEnergy Generation Projects Portfolio, based on conventional andnon-conventional sources, and the definition of a Strategic Plan forthe Climate Change Management in the Company.EXPANSION PLANDuring 2009, the following accumulated progress was achieved for projects includedin the Company’s Expansion Plan: Guarinó Diversion Project, 88.5%; Amoyá RiverHydroelectric Project, 45.0%; Manso Diversion Project, 42.6% and SogamosoHydroelectric Project, 7.4%.Guarinó Inter Basin Diversion ProjectThe Guarinó Inter basin diversion Project is located in Caldas Province, near theborder with Tolima Province, over the eastern ridge of the Central Mountain Range,in the mid-lower of the Guarinó River, near Victoria municipality. This project will increasethe mean energy output of Miel I Power Plant by 308 GWh-year.Guarino Inter Basin Diversion Project’s works include a small concrete-built damon the Guarino River, intake structure, intake channel, low level desilting channel,intake structure for environmental minimum flow required, and a 3,371 m long diversiontunnel.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.34TGM Consortium, whose members areTermotécnica Coindustrial S.A., GeominasS.A. and Mincivil S.A., is in charge of projectconstruction. Estimated construction termfor the project is 40 months. Ingetec S.A. isin charge of technical and administrativeconsulting and engineering.Dam Works - Guarinó Inter Basin Diversion ProjectWater intake Works - Guarinó Inter Basin Diversion ProjectDuring 2009, water intake structures, intakechannel, low level desilting channel, and intakestructure for environmental minimumflow required were concluded. Mechanicalequipment for the water intake was assembled;progress was achieved in tunnel construction,excavating 3,069 m of it, and thedam construction started. Commissioningfor the diversion is scheduled for June 2010.Manso Inter Basin DiversionProjectManso Inter Basin Diversion Project is locatedin Caldas Province, in the borders of Samanáand Norcasia municipalities, on the easternridge of Central Mountain Range. This projectwill increase the mean energy output of Miel IPower Plant by 168 GWh-year.Project works include a small concrete-builtdam on the Manso River, intake structure, intakechannel, low level desilting channel, intakestructure for environmental minimum flowrequired, and a 4 km long diversion tunnel todrive Manso River excess flows to Amaní reservoirin Miel I Power Plant.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.35Manso - Amaní Consortium, whose membersare Conconcreto S.A., CSS ConstructoresS.A. and Estyma Estudios y Manejos S.A., isin charge of project construction. Estimatedconstruction term for the project is 1,000 calendardays. Ingetec S. A. is in charge of consultingand engineering.During 2009 the works on the access road tothe tunnel exit gateway continued, excavating83% of the total cutting volume and allowingequipment access to the exit gateway beforethe scheduled date. This allowed to completeexcavation and supporting works of theexit gateway and to start tunnel excavationon this side, six months in advance of thedate scheduled in the construction program.Two concrete-built bridges were constructedon this road, one of them, a 25 m long posttensionedconcrete bridge, and the other, a15 m long concrete-reinforced one. Diversioncommissioning is scheduled for June 2011.As far as water intake is concerned, during2009 civil work construction for low leveldesilting channel structure, intake structurefor environmental minimum flow required andflow reception tank, were completed.Construction of the intake channel to the tunnelstarted, excavating 1,158 m. A 35 m longpost-tensioned bridge was constructed overManso River.Intake structure for environmental minimum flow - Manso Inter Basin Diversion ProjectWorks on the access road to the tunnel exit gateway - Manso Inter Basin Diversion ProjectContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.38intake yard, started in August. ICT Group,whose members are Impregilo, Conalvíasand Técnica Vial, is in charge of the construction.Consortium Integral VQ is in charge ofsupervision of all construction works andIngetec I&D is in charge of technicalconsulting.Additionally, main contracting processes requiredfor the project were performed during2009 including: (i) signing the contract for theProject’s main works, involving the dam andassociated works, and the underground powerhouse; and (ii) evaluation of the proposalssubmitted in an international bid process forconstruction and supply of main generationequipment.At the end of the year, as part of the constructionwork progress, it is worth mentioning thebeginning of excavation of the access tunnelto the underground power house, the beginningof underground excavation of the diversionsystem as well as the required excavationfor the spillway and the water intake.Environmental managementProject environmental management wasdone according to in-force legal regulation, tothe internal Environmental Policies and to theGlobal Compact principles. The EnvironmentalManagement Report: Social and Biophysicalcan be found in www.isagen.com.co web site.STUDIES PLANDuring the last year, the Company progressedconsolidating an Electric EnergyGeneration Project Portfolio, based on conventionaland non-conventional energysources. In a special way, new hydroelectricprojects, with an estimated capacity of 3,500MW, located in different Colombian regions,were included.Additionally, progress was done in developinga geothermal project located in the impactarea of the Ruiz Volcanic Massif.COLCIENCIAS co-financed this activity inorder to undertake two research projects todevelop supplementary studies in geology,geophysics and geochemistry, required tocharacterize selected interest sites and tolower uncertainties associated with the exploratorydrilling. These studies are going tobe conducted by a team of scientific investigatorsbelonging to the Universidad Nacionalde Colombia (Bogota) and Ingeominas.During 2009, important progress wasachieved in the wind power generation fieldwith the studies for a Wind Farm, the first ofthis type for the Company, located in LaGuajira Province. CORPOGUAJIRA grantedthe environmental license for constructionand operation of this project, whose final designis going to be developed by an internationalconsulting company.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.39Climate change integrated managementDuring 2009 important progress was achieved in conforming theCompany’s Climate Change Integrated Management Strategic Plan,including items such as greenhouse effect gas emission source identification,the Company’s carbon footprint quantification and the identificationof some projects that will allow the Company to neutralize itscarbon footprint and actively take part in the international regulatedand voluntary carbon markets.Harnessing geothermal potentialWind measurement tower Harnessing wind power potentialContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.40ENERGY PRODUCTIONPRODUCCIÓN DE ENERGÍAENERGY GENERATIONAVAILABILITYMAINTENANCEMANAGEMENTMODERNIZATIONAn adequate operation and maintenance managementallowed ISAGEN to fulfill its annual generation goal, in ayear of special low hydrology inflows. In this context,Termocentro achieved a historical share of 6.1% ofISAGEN’s total generation.As part of the energy production process, it is worthmentioning the completion of upgrading works on generatorwindings of Unit No. 7 at San Carlos power plant and UnitNo. 1 at Jaguas power plant. This project will continueduring 2010, upgrading Unit No. 8 of San Carlos powerplant and Unit No. 2 of Jaguas power plant, works that willhelp keeping the Company’s market competitiveness inthe long term.Installed capacityAt the end of 2009, ISAGEN’s installed capacity was 2,132 MW, equivalentto 15.78% of National Interconnected System total capacity, distributedas 300 MW thermal and 1,832 MW hydraulic.OPERATION MANAGEMENTENVIRONMENTALMANAGEMENTContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.41TABLE 1ISAGEN’S POWER PLANTS TECHNICAL CHARACTERISTICSPlantInstalledCapacity(MW)EffectiveNet Capacity(MW)InstalledCapacity perUnitPlantType (1)Last UnitCommissioning YearSan Carlos I 620 620 4 X 155 P 1984San Carlos II 620 620 4 X 155 P 1987Jaguas 170 170 2 X 85 F 1988Miel I 396 396 3 X132 F 2002Calderas 26 19,9 2 X 13 P 2006Termocentro 300 280 1X100 (TG),CC 20001X100 (TG),1X100(TVTVCC 2000)Total 2.132 2.105,9(1) Plant Type: p : Hydraulic Pelton F : Hydraulic Francis CC : Thermal Combined CycleEnergy generationDuring 2009, ISAGEN generation was 9,259.8 GWh – 93.9% hydraulic and 6.1% thermal. Noimports from Venezuela took place during 2009. As a result of the El Niño event that developedat the end of the year, it is worth mentioning that the country generated during 200914,487 MW of thermal energy, an increase of 87.3% over 7,733 MW generated during 2008.ISAGEN, with Termocentro power plant generated 564.6 GWh, 3.9% of the total annual thermalgeneration of the Colombian System. This is an important share and means a considerableincrease compared to 31.3 GWh of thermal energy supplied to the System by ISAGENduring 2008, 0.4% of the country’s total.Compared to 2008, the Company’s energy generation decreased by 8.36% and its share inthe National Interconnection System – SIN– changed from 18.56% in 2008 to 16.54% in2009, due to the important increase in thermal generation during the last quarter of 2009caused by the onset of El Niño event.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.42TABLE 2ISAGEN’S SHARE IN THE NATIONAL INTERCONNECTION SYSTEM GENERATIONTypeSIN Generation(Gwh)SIN Generationdistribution (%)ISAGENGeneration(Gwh)ISAGENGenerationdistribution (%)Hydraulic 38.713,78 69,15 8.695,26 93,90Thermal 14.487,72 25,88 564,56 6,10Impor ts 20,76 0,04 0,00 0,00Other (*) 2.764,11 4,94 0,00 0,00Total 55.986,37 100,00 9.259,82 100,00(*) Includes cogeneration and smaller plantsTable 3 and Charts 1 and 2 depict the evolution of ISAGEN’s generation and each plant’s sharein the System’s net generation.TABLE 3NET GENERATION EVOLUTION (GWh)YearPlant2000 2001 2002 2003 2004 2005 2006 2007 2008 2009San Carlos 4.313,3 4.312,08 4.718,31 5.331,72 6.091,37 6.065,34 5.929,88 7.216,39 7.396,19 6.422,25Jaguas 553,96 500,23 573,65 724,35 717,97 681,59 716,75 848,16 978,63 769,09Miel I 0,0 0,0 265,51 1.227,12 1.021,86 1.576,69 1.492,2 1.461,81 1.600,48 1.420,43Calderas 0,0 0,0 0,0 0,0 0,0 0,0 47,83 92,32 98,52 83,49Total4.867,3 4.812,31 5.557,47 7.283,19 7.831,2 8.323,62 8.186,7 9.618,7 10.073,82 8.695,26HydraulicTermocentro 100,69 30,33 40,94 119,36 200,69 356,6 229,28 408,88 31,27 564,56Total100,69 30,33 40,94 119,36 200,69 356,6 229,28 408,88 31,27 564,56ThermalVenezuela 70,16 40,31 7,32 1,78 13,46 20,91 27,02 1,15 0,00 0,00ISAGEN 5.038,1 4.882,95 5.605,73 7.404,33 8.045,35 8.701,13 8.442,96 10.028,71 10.105,09 9.259,82TotalContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.43CHART 1.ISAGEN’S POWER PLANTS NET GENERATION EVOLUTION 2000-200912.00010.0008.0006.0004.313,294.867,255.038,14.312,084.812,314.882,954.718,315.557,475.605,735.331,727.283,197.404,336.091,377.831,28.045,356.065,348.323,628.701,135.929,888.186,78.442,967.216,399.618,710.028,717.396,1910.073,8210.105,096.422,258.695,269.259,824.0002.0000553,96100,6970,16500,2330,3340,31573,65265,5140,947,32724,351.227,12119,361,78717,971.021,86200,6913,462000 2001 2002 2003 2004 2005 2006 2007 2008 2009681,591.576,69356,620,91716,751.492,247,83229,2827,02848,161.461,8192,32408,881,15978,631.600,4898,5231,27769,091.420,4383,49564,56San Carlos Jaguas Miel I Calderas Total Hydraulic Termocentro Venezuela ISAGEN TOTALContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.44CHART 2.POWER PLANT PERCENTAGE SHAREIN ISAGEN’S NET GENERATIONDURING 2009Miel15,34%Jaguas8,31%Calderas0,90%Termocentro6,10%Venezuela0,00%San Carlos69,36%TABLE 4ISAGEN’S POWER PLANTS AVAILABILITY EVOLUTIONYear 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009San Carlos 94,07 81,62 93,53 91,82 94,21 96,13 81,42 85,83 90,14 90,21Jaguas 97,19 96,31 98,29 97,66 90,04 98,89 94,87 97,11 95,62 87,61Calderas 0,00 0,00 0,00 0,00 0,00 0,00 95,00 89,69 95,79 89,52Miel I 0,00 0,00 93,75 92,04 86,24 90,82 95,66 98,65 93,83 95,64Total94,40 83,39 94,03 92,42 92,07 95,23 85,86 89,70 91,92 91,14HydraulicTermocentro 94,70 75,33 88,11 94,06 94,43 84,72 95,77 90,11 84,82 57,02Total Thermal 94,70 75,33 88,11 94,06 94,43 84,72 95,77 90,11 84,82 57,02ISAGEN Total 94,49 82,04 93,22 92,64 92,39 93,80 87,19 89,76 90,97 86,60AvailabilityHydraulic availability during 2009 was91.14%, higher than scheduled 88.03%.Thermal availability was 57.02%, lower thanscheduled 93.31%, due to an insulation failurein Unit No. 1 of Termocentro. The failurewas repaired during the year, allowing theUnit to be available before the start of thedry season and comply with the plant availabilitytests required by regulation.Table 4 and Chart 3 show evolution ofISAGEN’s power plants availability.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.45CHART 3.ISAGEN’S POWER PLANTS AVAILABILITY EVOLUTION 2000-2009%100,0095,0090,0085,0080,0075,0070,0065,0060,0055,0050,0045,0040,0035,0030,0025,0020,0015,0010,005,000,0094,0797,1994,7081,6296,3175,3393,5398,2993,7588,1191,8297,6692,0494,0694,2190,0486,2494,4396,1398,8990,8284,7281,4294,8795,0095,6695,7785,8397,1189,6998,6590,1190,1495,6295,7993,8384,8290,2187,6189,5295,6457,022000 2001 2002 2003 2004 2005 2006 2007 2008 2009San Carlos Jaguas Calderas Miel ITotal ThermalContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.46Maintenance ManagementSo as to comply with availability commitments,ISAGEN carried out for all powerplants a preventive and predictive maintenanceplan under criteria of opportunity andcost optimization. The main maintenanceprojects performed were:San Carlos Power PlantUpgrading and overhauling of Unit 7 generator,general maintenance of Units 1, 5 and8, and partial intervention on all units. Groupmaintenance of Units 5 and 6; turbine wheelchange in Unit 6, overhaul of Units 3 and 4circuit breakers; predictive tests to turbinewheels of all units as well as inspection of allventilation blades. Additionally, updating of480 VAC circuit breakers of transformationunits and supervision system of 230 kV cablesoil pressure.Jaguas Power PlantPartial intervention on Units 1 and 2.Generator updating and overhaul of Unit 1and power cable porcelain recovery of Unit 2.Calderas Power PlantGeneral inspection of Units 1 and 2, as wellas partial intervention and general maintenanceof Unit 1. The groups maintenance ofUnits 1 and 2 was also performed.Miel I Power PlantGeneral inspection of Units 1 and 3.Termocentro Power PlantGeneral maintenance of Units 1, 2 and 3and general inspection of Units 1 and 3.As far as predictive maintenance is concerned,all routine inspections scheduled forgenerators, dams, turbines, boilers, transformersand substation equipment wereperformed.Modernization ManagementIn order to guarantee ISAGEN’s long termmarket sustainability and competiveness,the Company continued performing its powerplants Modernization Plan for the period2004-2013. Modernization is focused ontechnological updating of equipment andconstructions and seeks to increase powerplants productivity, lowering operating costsand to comply with the energy industry andenvironmental regulation changes.Following are the main modernization projectsdeveloped in power plants during 2009:Seismic register system modernization in SanCarlos, Jaguas and Calderas power plants.A total of eight seismic register systems wereinstalled, 3 in Punchiná dam, 3 in GuillermoCano dam, and 2 in Calderas dam. Thesesystems have a greater capacity and a GPSsystem to monitor its positioning, having thepossibility to be consulted in real time. ThisContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.47project strengthens dam monitoring by meansof geotechnical instrumentation.San Carlos power plantUnit 7 generator modernization was completedwith the supply, installation and testing ofthe stator winding.Modernization of total supervision and controlsystem of San Carlos power plant wasinitiated with the total Implementation of thissystem for Units 3 and 4, performing all thenecessary operation tests. This project,scheduled to be completed in 2010, will allowa better operation management, in compliancewith the requirements of the energyindustry regulation.Also, during 2009 the construction of a drainagesystem was initiated. This system takesinto account the water coming from the sidesor present in the central section of the LowZone Dam of Punchiná reservoir. This projectwill solve the high concentrations of humiditypresent in the dam foundations.Calderas power plantModernization of the wedging system of thecoils for the two generators was completed.Jaguas power plantThe winding modernization of Unit 1 generatorwas completed with the supply, installationand testing of the stator’s winding.Miel I power plantA generation reduction ramp for Miel I powerplant was established by National OperationCouncil’s decision. This ramp allows greateroperation flexibility for the power plantand guarantees better environmental conditionsfor hydraulic management of turbinedflow, reducing fish trapping downstream.Additionally, the curve “Reservoir’s Level versusPower Plant Capacity” was reported. Thisnew curve will be use for the availability testsaccording to CREG Resolution. The functionfor Reservoir’s Level versus HydraulicConversion Factor was also calculated.Termocentro power plantAfter finding low insulation on Unit 1 stator,the winding was replaced and installed andcommissioning tests performed, re-establishingthe power plant’s total availability. This allowedcomplying with the availability tests requiredby the Regulator.A mechanical slow-turn system to keep integrityof turbines shafts was designed, built andimplemented.Operation ManagementInformation stated for Reliability Charge wasreported and sustained before CREG’s designatedauditor.Environmental ManagementEnvironmental Management was conductedaccording to legal regulations in force, internalEnvironmental Policies and GlobalCompact principles. The EnvironmentalManagement Report: Social and Biophysicalcan be found on the Company’s webpage:www.isagen.com.coContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.48ENERGYTRADINGMarket behavior during 20092009 was a year signed by regulatory adjustments and a rough change in hydrologythat modified the behavior of the Colombian Power Sector variables and, obviously,ISAGEN’s results.As far as hydrology is concerned, it is worth mentioning that during the first fourmonths of 2009 high water inflows, caused by La Niña phenomenon, which startedin 2008, continued. However, from May 2009 the trend reverted: water inflow datastarted to be systematically lower than the historical mean values for all the country’sregions, until the end of July, when, not only IDEAM but international weatherresearch agencies, officially declared the presence of El Niño phenomenon.The following table depicts water inflow as a percentage of the historical mean valuefor each of the country’s regions. Highlighted fields depict contributions lowerthan historical mean.SYSTEM DEMANDSPOT MARKETCOMMERCIALIZATIONIN FIGURESPRODUCTIVE SOLUTIONSREGULATORYDEVELOPMENT OF ENERGYAND GAS INDUSTRYTABLE 5.WATER INFLOW BY REGIONS AS A PERCENTAGE OF THE HISTORICALMEAN VALUEHydrology (Mean %)Antioquia Central Eastern Valle SIN TotalJanuary 158,6 172,4 109,1 119,6 148,6February 153,1 119,1 112,5 121,7 138,5March 156,7 143,5 97,4 146,1 144,4April 115,8 119,0 99,2 107,4 111,6May 99,4 57,2 51,3 73,9 76,9June 108,6 56,3 70,5 90,9 84,7July 91,3 94,2 88,0 76,9 91,8August 102,0 99,7 82,3 73,1 92,3September 66,9 66,7 70,7 63,4 67,6October 70,2 50,3 70,6 50,9 66,2November 83,4 37,7 56,7 65,9 70,0December 68,2 21,7 35,9 71,4 56,7Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.49Regulation also experienced importantchanges during 2009. The regulatory agendaduring the first quarter was shaped byCREG Resolutions 006 and 015. This regulation,aimed at promoting and preservingfree competition in the Wholesale EnergyMarket, limited access to information of dispatchand bid prices, something that forcedto re-consider strategies for agent’s pricebids and, obviously, did impact marketresults.Through CREG Resolutions 051 and 076,price bids scheme, Ideal Dispatch and therules to determine pool price in the WholesaleEnergy Market were modified during the secondhalf of 2009. This regulation also introducedStart-up and Stop Prices bid for thermalgenerators.years, ISAGEN proactively took part, with proposals and comments, in regulation issued fromcompetent authorities.Another important aspect to mention during 2009 was the high thermal generation registered,especially during the last two quarters. Thermal generation was encouraged mainly by regulationfrom Resolutions 051 and 076 and, later, by low inflows and low water reserves, forcingthermal generation in order to supply energy demand from the national electric system.System demandDomestic demand during 2009 reached 54,679 GWh, an increase of 1.5% compared to lastyear’s. This growth is slightly bigger than 1.4% projected by UPME in its medium scenario ofNovember 2009. During the last two years, demand has decreased significantly in its growthrate, mainly due to the world economic crisis started in 2008, something that produced a significantnegative impact on the country’s economic growth, which, in turn, affected electricitydemand of unregulated customers as a consequence of a lower manufacturing activity. This isdepicted in Chart 5.CHART 4.DOMESTIC DEMAND EVOLUTION IN GWh/YEAR 1995-2009At the beginning of the fourth quarter of 2009,by means of Resolution 18 1654, the Ministryof Mines and Energy declared a natural gasscheduled rationing, in order to find the mostefficient possible way to assign available gasquantities for thermal generation and, in thisway, face the dry season caused by El Niñophenomenon. Upon issuing of this Resolution,a series of CREG (Energy and Gas RegulatoryCommission) and MME (Ministry of Minesand Energy) regulations were producedaimed at facing in the best possible way theclimate phenomenon. It is worth mentioningthat during 2009, as happened in previousDemandGrowthContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.50CHART 5.GDP GROWTH vs. UNREGULATED DEMAND GROWTH 2008-2009Jan. 2008Feb. 2008Mar. 2008Apr. 2008May. 2008Jun. 2008Jul. 2008Aug. 2008Sep. 2008Oct. 2008GDP Annual GrowthNov. 2008Dec. 2008Jan. 2009Feb. 2009Mar. 2009Apr. 2009May. 2009Jun. 2009Jul. 2009Aug. 2009Unregulated Demand Annual GrowthDuring 2009, electricity exports to Ecuador and Venezuela showed an important growth comparedto 2008 interchanges, as depicted in Chart 6.CHART 6.ELECTRICITY EXPORTS IN GWh/YEAR 1999-2009Sep. 2009Oct. 2009Nov. 2009Dec. 2009Exports to Ecuador totaled 1,076.7 GWh, agrowth of 111.2% compared to last year,while exports to Venezuela increased by175.5% to 281.6 GWh. It is worth mentioningthat low water inflows due to El Niñophenomenon forced to considerably lowerelectricity transfers to these countries duringthe last quarter of 2009. Through CREGResolutions 137 of 2009 and subsequent,special conditions for energy exports tothese markets were established, looking forpreserving not only fuel but water resourcesto attend Colombian energy demand.Spot Market2009 was a year of historically high prices,coming mainly from the narrowing marginbetween generation offer and electricity demandand to the diminishing water inflows tothe system from May 2009.Exports to EcuadorExports to VenezuelaContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.51CHART 7.DEMAND EVOLUTION AND AVAILABLE GENERATION 2003-2009Jan-03Apr-03Jul-03Oct-03Jan-04Apr-04Jul-04Oct-04Jan-05Apr-05Jul-05Oct-05Jan-06Apr-06Jul-06Oct-06Jan-07Apr-07Jul-07Oct-07Jan-08Apr-08Jul-08Oct-08Jan-09Apr-09Jul-09Oct-09Maximum Power Demand Hydraulic Availability Thermal AvailabilityThe average price during 2009 was 140.43 COP/kWh, 58.3% higher than the average priceof 2008 and 82.2% higher than the average price of the five-year period 2004 to 2008.CHART 8.POOL PRICE EVOLUTION 2003-2009199,9133,97123,76109,71116,79126,80 125,84128,54184,63191,53155,0389,42JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DECContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.52Trading In FiguresResults from ISAGEN’s trading operationTABLE 6.ENERGY AND GAS TRADINGREVENUESTABLE 7.ENERGY AND GAS TRADINGEXPENDITURES2009 2008 Difference Growth$Million $Million $Million %Local contracts 893.125,69 959.317,5 -54.300,1 -6,9International contracts 61.582,9 23.079,7 28.975,2 166,8Pool transactions 386.866,6 154.722,3 232.144.3 150,0Pool interconnection transactions - 53,7 -53,7 -100,0ACG 5.112,4 11.847,5 -6.735,2 -56,8Reliability Charge - 0,0 0,0 -Reliability Charge backup 2.363,8 414,3 1.949,5 470,6Deviations 594,1 331,9 262,2 79,0Technical services 6.396,7 5.104,2 917,0 25,3Gas 54.509,8 76.829,1 -22.319,2 -29,1Total Revenues 1.410.551,9 1.231.700,3 180.839,9 14,52009 2008 Difference Growth$Million $Million $Million %Local contracts 0,0 0,0 0,0 -International contracts (Venezuela) 78,9 93,8 -15,0 -15,9Pool transactions 177.571,8 85.930,0 91.641,8 106,6Pool interconnection transactions 0,0 0,0 0,0 -ACG 4.071,9 9.865,3 -5.793,4 -58,7Reliability Charge purchases 72.233,2 96.941,7 -24.708,4 -25,5Reliability Charge backup 110,4 15,7 94,8 605,5Deviations 202,7 80,8 121,9 150,9Constraints 17.642,90 23.516,50 -5.873,60 -25,0STN, STR and SDL use 144.525,22 155.585,80 -11.060,58 -7,1STN connection 14.644,08 11.047,50 3.596,58 32,6Administration services 7.497,04 6.304,60 1.192,44 18,9Law 99 contributions 31.318,31 33.193,00 -1.874,69 -5,6FAZNI contributionsI 10.128,83 10.133,70 -4,87 0,0Gas 56.083,39 43.881,80 12.201,59 27,8Total Expenditures 536.108,61 476.590,10 59.518,51 12,5Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.53Long-Term ContractsOf total Colombian electric energy demandduring 2009, (54,672 GWh) 13.1% was suppliedby ISAGEN sales under long-termcontracts.Compared to last year, contracted amount decreased19.9%. Commitments with wholesaletraders decreased 28.9% and commitmentswith unregulated end-customers decreased11% as a result of industrial demand drop infactories served by the Company, in turn dueto the negative impact that the low growth rateof the world economy produced in their manufacturingactivities.The total revenues from long-term contractsduring 2009 decreased 2.9%.During 2009, energy was supplied to a largepart of the Colombian territory through electricpower companies around the country,such as: Energía Empresarial de la Costa,Centrales Eléctricas de Norte de Santander,Electrificadora de Santander, Codensa,Empresa de Energía del Pacífico, Enertolima,Cedenar, Electricaribe, Electrocosta, Empresade Energía del Quindío, Empresa de Energíade Pereira, Empresa de Energía de Putumayo,as well as 223 industrial end-customers, consolidatingISAGEN as a generator and traderwith nationwide presence.From September 2008, the Company performs international sales, dispatching energy toVenezuela through the Corozo–San Mateo transmission line. Total energy transferred in2009 through this line was 281.6 GWh.TABLE 8.ISAGEN ENERGY TRADING THROUGH LONG-TERM CONTRACTS (GWh)2009 2008 Difference Growth$Millones GWh $Millones GWh $Millones GWh % %National sales 893.125,6 7.005,9 959.731,8 8.990,6 -66.606,2 -1.984,7 -6,9 -22,1Traders 444.661,7 3.944,5 484.745,9 5.550,5 -40.084,2 -1.606,0 -8,3 -28,9Large consumers 448.463,9 3.061,4 498.065,6 3.440,1 -49.601,7 -378,7 -10,0 -11,0International sales 61.582,9 281,6 23.079,7 103,4 38.503,2 178,2 166,8 172,3Total Sales through954.708,5 7.287,5 982.811,5 9.094,0 -28.103,0 -1.806,5 -2,9 -19,9contractsTotal Purchasesthrough contracts0 0 0 0 0 0 0 0* Revenues from contract sales include, additionally to generation and trading, pass-through charges, such astransport, distribution and constraints, among others.CHART 9.CONTRACT SALES – REVENUES BREAKDOWN (%)End customersInternationalTradersContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.56TABLE 10.AGC SERVICES2009 2008 Difference Growth$Million $Million $Million %AGC sales 30.957,4 35.965,2 -5.007,8 -13,9AGC Commercial Liability 29.916,8 33.919,8 -4.003,0 -11,8Net 1.040,5 1.982,2 -941,7 -47,5During 2009, ISAGEN earned $1,045.5 million in revenues from AGC, 47.5% lower than in2008. This result is due to the lower water inflows of 2009 compared to 2008.DeviationsPower plants dispatched to attend demand must comply with the assigned EconomicDispatch. The Colombian Electric System has determined that dispatch is met when powerplants generate the amount of energy assigned within a margin of 5%. If the generator’s margindiffers, either upwards or downwards, it incurs in a Deviation.During 2009, ISAGEN got revenues due to deviations for $594.1 million acting as a trader.However, as a generator, ISAGEN incurred in expenditures for $202.7 million, receiving apositive net income of $391.4 million.TABLE 11.DEVIATION REMUNERATION2009 2008 Difference Growth$Million $Million $Million %Deviation sales 594,1 331,9 262,2 79,0Deviation purchases 202,7 80,8 121,9 150,9Net 391,4 251,1 140,3 55,9Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.57Reliability ChargeFrom 2006, the new methodology to remunerate the Colombian Electric System reliability isin force as defined by CREG Resolution 076 of 2008. Its main objective is to remunerate generatoragents for the availability of their generation assets that comply with the characteristicsand parameters specified for calculating the Firm Energy for Reliability Charge – ENFICC, forits Spanish initials–.For the 2008-2009 period, Firm Energy Obligations allocations for power plants was performedin a centralized way, proportionally between system agents.Table 12 depicts revenues corresponding to periods of time when real generation was lowerthan the Firm Energy Obligation assigned to ISAGEN during 2009. Also shown are values ofobligations derived from periods of time when real generation was higher than Firm Energyassigned for the same period. During 2009, refunds for Reliability Charge are lower thanduring 2008, due to less generation and to the appraisal of the Colombian Peso against theUS Dollar.TABLE 12.RELIABILITY REMUNERATION2009 2008 Difference Growth$Million $Million $Million %Revenues 0,0 0,0 0,0 -Refunds 72.233,2 96.941,7 -24.708,5 -25,5Net -72.233,2 -96.941,7 24.708,5 -25,5Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.58Charges for taking part in the Wholesale EnergyMarket – MEM (for its Spanish initials)Payments made by ISAGEN during 2009 for taking part in the Market were 5.8% lower thanin 2008.No matter this result, connection charges were 32.6% higher than in 2008, mainly due to alarger amount of energy exported to Venezuela. On the other hand, charges for NationalTransmission System, Regional Transmission System and Local Distribution System usewere significantly lower than those of 2008, due to the lower demand of end-customers anddeflation of Producer Price Index –PPI–, because tariffs are indexed to this indicator.Constraints were 25% lower than those registered last year. It is worth mentioning this resultbecause during the second semester of 2009 a large amount of out-of-merit thermal generationwas required to meet System requirements and keep reservoir levels in order to face El Niñophenomenon. Constraints costs during 2008, on the other hand, were caused by out-of-meritgeneration due to system maintenance, especially in Chivor and San Carlos power plants.TABLE 13.CHARGES FOR TAKING PART IN THE WHOLESALE ENERGY MARKET2009 2008 Difference Growth$Million $Million $Million %STN use 69.409,8 73.234,5 -3.824,7 -5,2STR, SDL use 75.115,4 82.351,2 -7.235,8 -8,8Constraints 17.642,9 23.516,5 -5.873,6 -25,0STN Connection 14.644,1 11.047,5 3.596,6 32,6Administration services 7.497,0 6.304,6 1.192,4 18,9Law 99 contributions 31.318,3 33.193,1 -1.874,8 -5,6FAZNI contributions 10.128,8 10.133,7 -4,9 0,0Total MEM charges 225.756,4 239.781,1 -14.024,7 -5,8Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.59Firm Energy Secondary Market (Reliability Charge)Regulation provided a Firm Energy Secondary Market as a first security ring in order to easefulfillment of the Firm Energy Obligation assigned in an auction or an equivalentmechanism.This mechanism allows generators to comply with their Firm Energy Obligations while tradingwith other generators the Firm Energy for Reliability Charge –ENFICC– necessary to supporttheir requirements through Backup Contracts. This applies whenever ENFICC available forthis purpose (Reference Energy) is not enough to meet the needs by means of BackupStatements (firm energy backups supplied with own resources)Revenues from sales of Reliability Charge backup contracts during 2009 were significantlyhigher than those of 2008 for the same concept.TABLE 14.SECONDARY MARKET OPERATION AND THIRD TERM OF THE RELIABILITYCHARGE 2008-2009Secondary marketENFICC salesSecondary marketENFICC purchases2008-2009 2007-2008 Difference Growth$Million GWh $Million GWh $Million GWh % %2.363,8 126,4 414,8 48,2 1.949,0 78,2 469,9 162,2110,4 11,0 72,7 18,8 37,7 -7,8 51,9 -41,6Net 2.253,4 115,4 342,1 26,4 1.911,3 86,0 558,7 337,8Purchases for trading in the Secondary Market were $110.4 million, 38.9% higher than in2008. Management of this coverage mechanism allowed preserving revenues from theReliability Charge during its third term and not diminishing ENFICC for next terms, especiallyin Termocentro power plant.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.60Gas OperationDue to the low water inflows in ISAGEN’s and SIN’s reservoirs since May 2009, and to theofficial declaration of El Niño phenomenon in July, there was a larger use of natural gas ofTake-or-Pay –TOP– contract with Ecopetrol for generation in Termocentro power plant, reaching4,377,617 MBTU. This meant an increase of 1,410.6% compared to the fuel used for generationduring 2008.Available TOP gas during 2009, after discounting not-available gas due to excusable events(modified TOP) was 3,009,607 MBTU, 65.0% (1,956,891MBTU) used for Termocentro powerplant generation and 35.0% (1,052,716 MBTU) recovered in the secondary market.CHART 11.EVOLUTION OF ECOPETROL TOP 2009JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOVModified TOPExcusable Excusable CFI Recovery and WholesalersContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.61TABLE 15.FUEL FOR TERMOCENTRO2009 2008 Difference GrowthMBTU MBTU MBTU %TOP 2009 4.380,000 4.392,000 -12,000 -0,3Unavailable excusable events 1.370,393 850,482 519,911 61,1Ending TOP 2009 3.009,607 3.541,518 -531,911 -15,0Termocentro generation 1.956,891 289,789 1.667,102 575,3Secondary market recovery 1.052,716 2.817,464 -1.764,748 -62,6Deficit - 434,265 -434,265 -Revenues from natural gas trading during 2009 were $54,509.8 million, 23.7% lower comparedto gas sales during 2008, mainly due to gas use for Termocentro power plantgeneration.TABLE 16.REVENUES FROM NATURAL GAS TRADING 20092009 2008 Difference Growth$Million $Million $Million %Wholesalers 26.037,0 39.645,0 -13.608,0 -34,3Industrial end users 27.350,5 27.343,4 7,1 0,0Transport assignment 1.122,4 4.466,8 -3.344,4 -74,9Total sales 54.509,8 71.455,2 -16.945,4 -23,7Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.62CHART 12.REVENUES FROM GAS TRADING 2009$ millionJAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DECAccumulated Revenues Wholesalers’ Accumulated Revenues Transport assignment Accumulated RevenuesGas purchases for trading during 2009 to different gas producers were $56,083.4 million,which meant expenditures higher by 27.8% compared to last year. Transport purchases were2.2% lower.TABLE 17.NATURAL GAS TRADING EXPENDITURES 20092009 2008 Difference Growth$Million $Million $Million %Supply purchase expenditures 36.816,5 24.177,5 12.639,0 52,3Transport and distribution19.266,9 19.704,3 -437,4 -2,2purchase expendituresTotal expenditures 56.083,4 43.881,8 12.201,6 27,8Productive solutionsDuring 2009, industrial end-customers’ satisfactionwas evaluated in relation to each ofthe technical services provided by theTechnological Partners Network, receivingan average rating of 4.85 over 5.0. Aspectsas objectives fulfillment, on-time service provision,qualified personnel assignment, regulationcompliance and use of adequatetools were evaluated.With the aim of providing an integral solution toindustrial customer’s needs and keep high satisfactionlevels, a working plan for synchronizingthe service chain was continued. By meansof this plan, different actions were developed tointegrate the Technological Partners Network,established in 2009 by Anter, Cidet, Equitel,Esfera Ingeniería, Gecolsa, Genelec, Gensol,Gers, IEB, Imaicod, Indisa, Inelec, Insermat,Instelec, OAG, P&Q, Proing, Schneider,Siemens, Suntec, Tradelca, Transequipos,Tracol, Instituto de Energía y Termodinámica -Universidad Pontificia Bolivariana, Universidaddel Norte, Unión Eléctrica and APPLUS. In thesame way, and looking for the industrial customers’convenience, ISAGEN continuedworking on the web site Virtual Solutions foron-line sales of technical services associatedto energy supply, demonstrating innovation inthe use of tools to speed up service managementfor the big industry.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.63These activities, linked to a service promotion strategy, meant total service sales to industrialend-customers of $6,704 million during 2009, an increase of 31% over 2008, as a result ofproductive solutions delivery to almost all of its customers’ industrial facilities.ISAGEN continued developing services that could allow is customers to improve productivityand competitiveness, optimizing its energy and water consumptions as well as reducing pollutingemissions, helping to improve working places and neighboring environment quality,thus contributing to world sustainability.In order to fulfill this objective, during 2008 and 2009, ISAGEN designed a service namedIntegral Energy Management Program (PGEI, for its Spanish initials) and defined to performduring 2009 pilot programs for two industrial customers. These programs ended in a satisfactoryway, identifying improvements in the energy culture, the procedures and the process’stechnology in the companies where PGEI was implemented.TABLE 18.TECHNICAL SERVICES2009 2008 Difference Growth$Million $Million $Million %Services invoicing * 6.704,1 5.083,9 1.620,2 31,9Energy points investment 654,9 430,5 224 52,1Services delivered 7.358,9 5.514,4 2.444,5 33,4* Excludes technical services commissionsRegulatory development of the Energy and Gas IndustryDuring 2009, the Ministry of Mines and Energy and CREG, for its Spanish initials), issued a significantnumber of regulations modifying the operation rules of the Wholesale Energy Market,mainly due to El Niño phenomenon and the natural gas scheduled rationing, something that alteredthe regulatory development of the year.To ISAGEN it is of high importance to consider the impact regulatory issues have on theCompany and on its industrial end-customers. Accordingly, the Company confirmed its roleas the productive partner of its customers, studying each of the regulations issued by theregulator, making comments about all billsthat could affect them and making the appropriaterecommendations by means of formalstatements or even organizing meetingswith the corresponding entities.Finally, ISAGEN informed its industrial endcustomersand technological partnersabout regulatory changes, new rules issuedby the regulator and regulation billsthat could affect them.In aspects related to the electric sector, thefollowing regulations can be highlighted:The operation rules of the WholesaleEnergy Market.Confidentiality of information in orderto promote and preserve free marketcompetitiveness.Start-up costs in order to calculate remunerationof Out-of-merit Security Generation.Adjustments to the Reliability Chargescheme.The security ring of the Reliability Chargealso called Demand Response program.The Regulated Organized Market (MOR,for its Spanish initials) which is the mechanismto trade a large part of the energysold by the Company under contracts,changing the public bidding scheme foran auction scheme.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.64International Energy Transactions betweenColombia and Ecuador, accordingto the Transitory Regime adopted by CANDecision 720.The Auction of Financial Rights toCapacity Access of the Colombia-Panama Interconnection.Regional Transmission Systems (STR, forits Spanish initials) and Local DistributionSystems (SDL, for its Spanish initials)Annual Costs and Maximum Charges.Methodology and tariff formulas to remuneratethe electric energy transmissionactivity in the National TransmissionSystem (STN, for its Spanish initials).Technical requirements that must be fulfilledby co-generation processes in orderto regulate this activity.As far as natural gas is concerned, as statedearlier, part of the regulation was relatedto the rationing declaration, issued onSeptember 29 of 2009. The followingregulations can be highlighted and they arerelated to:A resolution supplementing the NaturalGas Transport Single Statute, inrelation to gas quality during energycrisis periods.The order of natural gas demandattention for agents with the samepriority level.A resolution draft to establish generalcriteria to define costs of natural gastransport services and the generalscheme of charges for the NationalTransmission System.Tariff basket methodology for the fuel gasdistribution activities through pipe networksand the associated administration,operation and maintenance -AOM- costsof transport activities.Contracts guaranteeing firm supply tothermoelectric plants, supplying naturalgas or its substitution for liquid fuels.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.65INTERNATIONALIZATIONPOWER SECTORDEVELOPING THEINTERNATIONALIZATIONSTRATEGYISAGEN is looking to transcend borders in Latin America by developingits energy business in different countries of the region. It has focusedits efforts on the creation of an International Reference BusinessPortfolio that will allow the Company to develop projects of new generatinggeneration capacities. This effort is an integral part of a MarketIntelligence that allows the maintenance and use of information to improveand assign priorities to the Company’s prospects in the differentmarkets defined within the Strategy.International ContextMacroeconomic SettingThe year 2009 was characterized by the crisis that affected the productive activitythroughout Latin America. After high growth indexes during 2008 across the wholeregion, generalized deceleration was the rule in all of the region’s countries,although more moderate than in other regions of the world.CHART 13. LATIN AMERICA GDP GROWTH (%)(%) versus last yearNote: GDP: Gross Domestic Product; 2009 projected; 2010 estimated / Source: BMI, Banco de laRepública; ISAGEN AnalysisContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

(%) Variation versus last yearANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.66CHART 14.LATIN AMERICA INFLATIONNote: 2009 projected; 2010 estimated / Source: BMI, Banco de la República; ISAGEN AnalysisIn general, Latin America shows rather controlled price variations. Despite the global crisis,and with the exception of Nicaragua and Venezuela, inflation rates are quite moderate, witha trend to remain in the single digits during 2010.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.67CHART 15.LATIN AMERICAN CURRENCIES(%) Variation versus last yearHNL Honduras - LempiraCLP Chile - PesoPEN Peru - Nuevo SolPYG Paraguay - GuaraniCOP Colombia - Peso NIO Nicaragua - CordobaBRL Brazil - Reais ARS Argentina - PesoMXN Mexico - Peso CRC Costa Rica - ColonVEF Venezuela - Bolivar FuerteUYU Uruguay - PesoGTQ Guatemala - QuetzalBOP Bolivia - BolivianoNote: El Salvador, Panamá and Ecuador are dollarized economies, or pegged to the US dollarSource: Bloomberg, Venezuela FX; ISAGEN AnalysisThis economic dynamic of moderate adjustment with respect to other world markets hasallowed the region’s currencies to maintain low devaluation levels in the last six months.Currencies in Brazil, Colombia, Uruguay, Chile and Peru have appreciated vis-à-vis the USdollar in this period.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.68CHART 16.HUMAN DEVELOPMENT INDEX (HDI)Variation in ratingHigh HDIRatingHigh HDINote (1) Rating normalized to 100Note (2) Based on life expectancy, literacy rate, and GDP Per Capita for 182 countries. Countries with a Very Highhuman development have an HDI over 90; HDI below 50 correspond to those with a Low human development.Source: United Nations Development Program –UNDP–; ISAGEN AnalysisThe region also boasts social progress. In the array of life expectancy, literacy rate, and GDPper capita, nowadays 11 countries of Latin America show a High human development index,according to the definition of the United Nations Development Program –UNDP–. In 2008,only 6 countries were at that level. In fact, all of the region’s countries showed improvementin this area in 2009, with the exception of Argentina and Nicaragua.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.69CHART 17.POPULATION PERCENTAGE LIVING UNDER THE POVERTY LINEAverageLatin America36%Assessment of the region’s human development advancement indicates that alarming povertylevels still exist that require more attention from governments. Poverty is comparable betweenSouth America and Central America, but Mexico, Costa Rica and Chile stand out fortheir low levels with respect to the Latin American region.CHART 18. COUNTRY RISK AS OF DECEMBER 2009Country Risk EMBILatin America Venezuela Ecuador ArgentinaCountry Bps Vs Latam31/Dic/09Venezuela 685Ecuador 413Argentina 304El Salvador -30Uruguay -118Colombia -158México -164Brasil -167Panamá -190Perú -192Chile -261From the investor’s perspective, perceptionof risk in Latin America diminished in thesecond semester of 2009. In this period, theaverage premium demanded from investmentsin the region, as reflected in theEmerging Markets Bond Index –EMBI–, fellfrom 455 to 348. Besides, for the majority ofLatin American countries, perceived risk decreased,staying consistently below the region’saverage. Chile is the most outstandingcase, showing at the end of 2009 a riskindex that is 261 bps below the region’s average.Argentina, Ecuador and Venezuelamaintain veryhigh risk premiums, essentiallybecause of previous public debt defaults,and because of expropriation and nationalizationprocesses implemented along theyear. This has undermined investors’confidence.Source: JP Morgan; ISAGEN AnalysisNote: BPS: Basic points; EMBI: Emerging Markets Bond IndexContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.70CHART 19.DOING BUSINESS 2009 INVERTED RANKINGInverted RankingNote (1): Rates 181 countries worldwide, and takes into account aspects like intellectualproperty, opening and closure of business, tax payment, among others.Note (2): The symbol stands for the trend to improve/worsen on previous year’s rating.Note (3): Inverted Ranking assigns a higher number to the best rating.Source: Doing Business; ISAGEN AnalysisColombia stands out as Latin Americas best-ranked country in the Doing Business Index.Chile, Mexico and Peru also show attractive levels of “easiness” to do business in theirmarkets. It must be highlighted here that Brazil has a very low rating, especially determinedby higher tax levels, and labor regulation which is perceived as restrictive.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.71Power SectorTaking into account the current situation of Latin America’s different markets, the powersector shows different business opportunities, although of a different nature in each market.CHART 20.INSTALLED CAPACITY LATIN AMERICA AND THE CARIBBEAN BY PLANT TYPEOther 1NuclearInstalled capacityThermalHydraulicGeneration Matrix %Hydraulic Thermal Other 1 NuclearNote (1): Other includes Geothermal + Solar + Wind.Source: OLADE; ISAGEN AnalysisLatin America’s power sector has been typified by a high participation of hydraulic andthermal generation. Thermal generation has especially high relevance in Central America,where, with the exception of Costa Rica, a high dependency exists on imported liquid fuel. Inall of Latin America, Mexico, El Salvador and Costa Rica have the highest geothermalgeneration installed capacity. Besides, Nicaragua has been making important developmentsin wind generation.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.72CHART 21.ENERGY GENERATIONParticipation in Energy Demand 2009 Projected Growth to 2018499Brazil235Mexico60Chile142Southern CommonMarket (Mercosur) 140223Andean Communityof Nations1.199Note (1) Mercosur excluding Brazil, shown separatelyNote (2) CAGR: Compound Annual Growth RateSource: OLADE; ISAGEN AnalysisCentral AmericaTotal19%3% 4,312%5%20%42%As a whole, Brazil and Mexico represent around 62% of all of Latin America’s energy demand;Mexico, together with Chile and Central America, project the region’s highest growth levels inthe next ten years, with over 6% annual estimated averages.Brazil6,6Mexico6,2Chile2,65Southern CommonMarket (Mercosur) 16,76Central America2,42Andean Communityof NationsDeveloping theInternationalization StrategyThe Internationalization Strategy encompassesassessment of diverse businessopportunities with dissimilar characteristics,in varied markets and contexts. It is foundedon a Reference Business Portfolio, and onthe construction of ISAGEN’s MarketIntelligence, structured around the StrategicInternationalization Model.The international financial crisis, togetherwith the large resource requirements of theSogamoso Project, led the activities during2009 to center on research and follow-upofindividual markets, as well as the identificationand selection of projects with a potentialfor development in other countries.So far, survey activities have been advancedin Central and South America, where severalconfidentiality agreements have been signed,together with other covenants. Such efforthas resulted in two prefeasibility studies ofhydroelectric generation projects in Peru.It is important to highlight that clean generation techniques, such as hydroelectric and wind,show opportunities for supplementing highly thermal matrices in some countries, especially takinginto account the rising tendencies of international prices for fuel used in power generation.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.73ORGANIZATIONMANAGEMENTSince its creation, ISAGEN has been conceived as a systemic organizationwhose competitiveness calls for development, consolidation and utilizationof its capabilities to manage three intangible assets: human, informationand organizational resources. To this end, the Company has defined as itsobjectives: facilitating the workers’ integral development, having aninformation platform to support decision-making processes, andincorporating management practices that boost the Company’ssustainability and that of its stakeholders.Integral Development of the WorkersISAGEN conceives human management as a systemic, dynamic process highly influencedby its setting, requiring periodic revision and adjusting, in order to adapt to thenew Company’s challenges.INTEGRALDEVELOPMENT OFWORKERSINFORMATIONPLATFORMMANAGEMENTPRACTICESIn 2009, ISAGEN pronounced its concept of company to be a human group that existsto meet the needs and expectations of other human groups, and has the ethical obligationto reach good results, in terms of well-being for everybody. On the basis of this pronouncement,added to recognition of the worker as an integral, unique, dynamic, responsibleand transcendental person, the human management system was reformulatedin such a way that work will become a real space of development for both workersand Company.This reformulating was achieved through a participative process that involved all of theCompany’s associates, and it will encompass adjustment of every administrative processrelated to people: Recruitment, Compensation Management, Perfomance Appraisal,Human and Professional development, career and succession, and knowledge management.It will also call for consolidated management of interactions, culture, labor relations,change management, organizational climate, and internal communications as aplatform that supports these processes.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.74Organizational cultureChart 26.HUMAN MANAGEMENT INTEGRAL MODELMANAGEMENT MODEL+ LIFE PROJECTRecruitmentCompensationManagementKnowledgeManagementOPPORTUNITIESINTEGRALPERSON(Management byCompetencies)PerfomanceAppraisalCareer andsuccessionHuman andProfessionalDevelopmentINTERRELATIONS, CULTURE, LABOR RELATIONSCHANGE MANAGEMENT, ORGANIZATIONAL CLIMATE, INTERNAL COMMUNICATIONSBUSINESS AND PEOPLEDEVELOPMENTUnderstanding that culture is a key elementthat intervenes in every aspect of corporatemanagement, ISAGEN conducted a study toidentify those traits that are characteristic ofthe Company, as well as those that needacting over the gaps identified on the road tothe target culture. The result of the studywas definition of a cultural transformationplan whose implementation must start out in2010.Corporate schoolThe concept of corporate school was retakenin 2009 as a mechanism that allows developmentof the knowledge every ISAGENworker must master. This school is designedin modules that respond to the particularneeds of people and their roles, with diverseand active learning methodologies.This new focus of corporate school was appliedas pilot to the “enabling integral hiring”,for which 8 modules with total duration of 48hours were designed, and which had theparticipation of 25 people from around theOrganization, who reported 92% satisfaction.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.75Social well-being committeeMade up of ISAGEN workers, the Social andCorporate Well-Being Committee consolidatedin 2009. Its purpose is to channel, structure,integrate, and propose guidelines andactions in programs aimed at materializingthe worker’s integral development andstrengthening the principle of participation.These programs include recreation, sports,cultural expression, as well as citizen-andfamily-lifeformation.Outstanding among the achievements of theWell-Being Committee is strengthening of theCitizen and Family Life Formation Schools,whose purpose is the promotion of the associateas a family role model and as a citizenwho constructs his country.These schools have been developed asworkshops that focus on different aspects offamily life and social-political context, andthey have become highly attended and appreciatedspaces for associates and families.Along 2009, more than 300 people attendedthese formation schools, which are perceivedby workers as spaces that contribute to theirpersonal growth.Safety and occupational healthTo favor conditions that allow preservationand promotion of well-being of the workers,ISAGEN has a Safety Management andOccupational Health System, with OHSAS18001 certification.These programs included: mental healthpromotion awareness efforts by means of 9workshops on drug addiction; diagnosis ofthe general psycho-social risk and updatingof 87% of the maintenance guides of thegeneration plants on the basis of identifiedrisks.In compliance with its commitment with theadvancement of contractors and their workers,in 2009 ISAGEN continued its safetyand occupational health awareness andguidance efforts favoring its contractors andtheir workers by means of training sessionsattended by 40 companies and 61 of theirmanagement staff members.As a result of ISAGEN’s safety and occupationalhealth programs, its declining accidentincidence rate continues below theColombian power sector’s average accidentincidence rate. Along 2009, three minorwork-related accidents were reported,generating 47 days of absence, withoutpermanent disabilities.The following chart shows associates’accident incidence rate in the last four yearsCHART 27.ASOCIATES’ ACCIDENTINCIDENCE RATEYearsOf the 22 work accidents reported amongcontractors supporting the Company’s operationin 2009, none were deadly or resulted inpermanent disability.The following chart shows the evolution of theaccident incidence rate among contractors inthe last four years:Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.76CHART 28.CONTRACTORS’ ACCIDENTINCIDENCE RATEYearsPayroll-related data for 2009:Número de trabajadores 498CHART 29.WORKERS BY GENDERFemale165Male333CHART 30ASSOCIATES EDUCATIONAL LEVELPhD 1Master’s38Graduate137TABLE 19.HOURS OF TRAININGElementary 4High school 36Vocational 14Junior College 99Professional 199Total hours of training 1.050Hours of training per21,70associatePercentage of workers that 93%underwent trainingen the attributes that reflect the businessmodel, is modeled on corporate systems, issafe in terms of availability, integrity and confidentiality,and is easy to use in terms of accessibilityfrom anywhere, at any time.In 2009, Strategy and Risk Assessment projectsfor energy and gas trading were completedto enable more accurate analysis for improvementof productivity and integrated management.The system for implementation ofInternational Financial Reporting Standards(IFRS) was also designed, and advancementwas reached in the projects of Safety of integratedInformation System and Payroll. Suchprojects resulted in 67% advancement in constructionof the information assets.For safe and permanent access to informationby the stakeholders, the communication channelswith each of the generation plants wereexpanded by 100% as well as the Internetchannel, which allows interaction with customers,shareholders, suppliers and society.Information PlatformSince the year 2004, ISAGEN has been developingits Strategic Information Project toconstruct its information assets, meaning thatinformation crucial for decision-making is giv-The computation platform was also widenedby 20% to improve response time of the systems,and to widen availability and safety ofinformation assets.Development of document electronic managementtools advanced in 2009, so as togain not only timely access to official informationof the Company regardless of geographiclocation, but also process standard-Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.77ization, paper use reduction and facilitatedcollaborative work.Management PracticesIn order to boost the Company’s developmentin 2009, the management model wasupdated, the competencies that ISAGENmust have in the future were identified, andadvancement was reached in developmentof practices that contribute to the improvementof internal services and sustainabilityof the stakeholders.Management modelThe management model describes the beliefsand values that govern the Company’sactions, what it does, where it is heading (itsmission and vision), and the way it works.In 2009, elements of ISAGEN’s managementthat have been applied to work, even thoughthey were not explicit in the declarations,were incorporated, and some definitions wereupdated according to the learning accomplishedby the Compan.Some changes are highlighted below:Corporate Social Responsibility wasmade explicit as a concept of Company.The following declarations were included:“Our organization is centered on thehuman being.We recognize the value of the differencein our relations.We build relations grounded on trust.”Adjustments were made to the definitionsor corporate values, so as to make themmore understandable and adequate tothe new corporate declarations. The mainchanges were made to Ethics as a fundamentalvalue:“Attitude to: (i) do things correctly, in goodfaith; (ii) keep consistency of thoughts,words, and actions, and (iii) favor commonwell-being over that of the individual,contributing to the sustainability of corporation,and the setting where it develops,in harmony with its principles and values.”Corporate competenciesIn 2009, the definition of ISAGEN’s currentcapabilities or competencies, and those requiredto be a successful player in a futurecontext, was updated. This work allowed theCompany better awareness as to what itsskills, knowledge, and resources are, to beable to manage them effectively.Practices to improve integrateddelivery of servicesAdvancement was achieved in developmentand utilization of a management tool that allowsthe display of the administrative servic-Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.78es portfolio within the Company, focusing onthe internal customer, standardizing workflows, allowing traceability, establishing servicelevels, optimizing resources, and pointingto productivity.Additionally, as a response to the Company’snew challenges and to have spaces accordingto corporate needs, the Board of Directorsapproved construction of a new building forthe administrative offices in Medellin City.Practices contributing to thesustainability of the stakeholdersBelow is a presentation of the main achievementsalong 2009, which reaffirm theCompany’s commitment to society as acontribution to environmental protection, socialdevelopment, and its own economicgrowth, and that of its stakeholders:Dialogue was established with the stakeholdersregarding ISAGEN’s focus,practices and corporate social responsibilityreport. This dialogue allowed theCompany to listen to the stakeholders’needs and expectations and identify mattersand opportunities of joined work.As part of the Suppliers’ DevelopmentProject, application of two pilots was startedout, one with the suppliers who sharespace in ISAGEN’s premises, and theother with community suppliers belongingto the area of influence of the generationplants. The purpose of these pilotswas to identify issues with the potential toimprove relations between the parties andsome management aspects that the suppliersmust strengthen.ISAGEN kept on strengthening its commitmentto the Global Compact and theMillennium Development Goals, UnitedNations initiatives, through promotionamong the stakeholders of respect forhuman rights and contribution to the developmentof a fairer, more equitable andinclusive society.ISAGEN’s Corporate Social Responsibilityreport can be found at www.isagen.com.coContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

FinancialManagementFINANCIALRESULTSFINANCIALSTATEMENTSNOTESTO THE FINANCIALSTATEMENTSContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.80FINANCIALRESULTSMACROECONOMIC AND FINANCIAL CONDITIONSThe beginning of 2009 was fraught with uncertainties: the end of the international financialcrisis and its real impact on Latin American economies kept Colombia’s economy in permanentrestlessness, in addition to the troubled trade relations with Venezuela that endedup restricting business flow with the neighboring nation.Inflation in the country closed the year at 2%, one of the lowest in the country’s history andproduct of lower demand, economic deceleration and revaluation of the Colombian Peso.The productive activity was affected not only by a diminished internal demand, but alsoby the fall in exports , in particular to Venezuela; however, it must be highlighted herethat the last two quarters of the year showed lower reduction of industrial output thanprojected by experts, with the last quarter even reaching significant growth.CORPORATEVALUE RESULTSOPERATINGAND NON-OPERATING RESULTSBALANCE SHEETISAGEN STOCKPERFORMANCEThe price of the US Dollar closed the year 2009 at $2,043 (9.4% revaluation), making itthe third Latin American currency with the highest appreciation after the Brazilian Realand the Chilean Peso, with monetization of the non-financial public sector, the expectedhigher flow of Dollars explained by the indebtedness of some entities, and the announcementof higher oil reserves standing out as the main reasons for revaluation.Banco de la República kept an expansive monetary policy along the year, and as a consequenceof such, the intervention interest rate reached an all-time low, closing at 3.5%,explaining to great extent the ample liquidity enjoyed by the economy, in particularColombia’s financial system, which showed solidness in spite of the financial crisis andeconomic deceleration.Despite the uncertainty of international markets, the Colombian Stock Exchange presentedexcellent results with the IGBC appreciating above 53%, a situation that was therule in the main exchanges in the region like Argentina, Brazil, Mexico and Chile.Likewise, the fixed-income market exhibited very good performance with the low interestrates and low inflation having a direct effect on the appreciation of Treasuries.As regards to issuance of securities in the Stock Exchange, underwriting of debt securitiesworth $13 trillion, a Stock Exchange all-time high, stands out as a reflection of theContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.81abundant liquidity enjoyed by the countryalong the year.There are high expectations for the year2010 when the world economy is supposedto enter a new expansion phase, and definitiverecovery will depend on the reaction ofthe USA economy as well as the behavior ofsome European countries whose fiscal situationis not well known. For Colombia, thebig challenges are: finding markets differentfrom with whom it has traditionally kept traderelations, a monetary policy that contributesto economic growth, and fiscal adjustmentby the Government.Relevant FiguresTABLE 20.RELEVANT FIGURES2009 2008 Variation(%)Revenues 1.410,552 1.231,700 14,5Costs of Sales 805,946 770,621 4,6Administration Expenses 85,568 73,191 16,9Operating Income 519,038 387,888 33,8EBITDA 622,513 493,986 26,0Income before Taxes 524,609 363,714 44,2Income Tax Provision 138,858 103,392 34,3Net Income 385,751 260,321 48,2TABLE 21.FINANCIAL INDICATORS2009 2008Profitability, return of EVA capital 9,93% 8,10%Profitability, return on equity 16,7% 12,4%Debt Service Ratio 9,02 5,83Leverage 0,77 0,50Financial Debt / EBITDA 1,57 1,09Delta EVA* 51,695 57,362* 2009 pricesContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.82FINANCIAL RESULTSThe year 2009 saw mixed behaviors: on onehand, there was the contraction of the worldeconomy, the result of the financial downturn,and on the other, the appreciation exhibitedby capital markets in advance to experts’projections. Colombia was no exceptionand even though, up to the third quarter,GDP contracted 0.2% with respect to 2008,the stock of companies listed in the StockExchange appreciated by an average 53%during 2009.In the mentioned scenario, besides marginalincrease in energy demand, lower generationlevels by ISAGEN and higher pool prices,operating, administrative and commercialmanagement had a determining role inthe financial results obtained, which translatedinto financial solidness that allowedISAGEN to continue its structured expansionplan and generation of more wealth forits shareholders.commitments to its stakeholders, as a profitableand lasting enterprise along time.The above shows in the results of the last 5years, evidencing steady improvement interms of Creation of Value, and reaching asum of $245,971 million and Delta EVA of$51,695 million, outdoing goals set.CHART 31.DELTA EVA EVOLUTIONCORPORATE VALUE RESULTSThe associates’ commitment and dedicationallowed the Company to reach and outdo thegoals set, once again. After more than 7years, ISAGEN has consolidated its efforts interms of Value Management .The challengeis then to keep and strengthen the Company’sContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.83OPERATING AND NON-OPERATING RESULTSIn 2009 ISAGEN’s operating revenues totaled $1,410,552 million,14.5% up on a year earlier. Of the total, 67.9% corresponds to energysales under contracts, 27.8% to Pool sales (2008: 13.6%), and4.3% to gas sales and others.CHART 32.OPERATING REVENUES EVOLUTIONSince 2006, ISAGEN’s operating revenues have maintained an upwardtrend with 12.6% annual average growth, as a result, mainly, ofthe improved behavior of market prices, and the Company’s commercialmanagement.In 2009, ISAGEN’s operating income totaled $519,038 million, 33.8%up on 2008, which reflects on 36.8% operating margin. EBITDA at$622,513 million increased 26.0%, while corresponding EBITDAmargin was 44.1%. Since 2004, operating income and EBITDA havegrown 16% and 12.3%, respectively, as shown in the charts below:Regulated C. Contracts Unregulated C. Contracts Energy Pool Gas Technical ServicesCHART 33.OPERATING INCOME EVOLUTIONOperating IncomeOperating MarginContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.84CHART 34.EBITDA EVOLUTIONEBITDAEBITDA MarginISAGEN’s operating costs and expenses in 2009 grew by 4.6% to$805,946 million, from $770,621 million in the past year. Such behaviorwas caused mainly by higher purchases in the Energy Pool associatedto increased participation in this market during the period.CHART 35.NET INCOME EVOLUTIONOperating costs and expenses have exhibited 11% average upwardvariation along the past five years, due mainly to energy purchasesin the Pool, gas purchases, and usage charges.Income tax provision grew from $103,392 million to $138,858, equivalentto 34.1% increase and explained by larger taxed revenuesearned with respect to 2008.ISAGEN’s net income increased 48.2% to $385,751 million during theyear 2009, compared to $260,321 million in 2008. Average growthsince 2004 is 21.9%. Net margin for the year was 27.3%, higher than21.1% recorded in 2008, as can be seen in the following chart:Net IncomeNet MarginContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.85BALANCE SHEETIn 2009, ISAGEN’s total assets amounted to $4,949,857 million, 18.2%up on 2008. Such positive variation is the result of a higher current assetsbalance, as a consequence of increased cash and investments, inturn explained by the revenues originated in the bond issues.TABLE 22.ASSETSAssets 2009 2008Current Assets 1.217,909 677,208Non-Current Assets 2.696,538 2.473,918Re-Appraisals 1.035,410 1.037,219Total Assets 4.949,857 4.188,345Likewise, total liabilities grew from $1,055,854 million in 2008 to$1,603,994, an increase of 51.9% due mainly to larger debt correspondingto the first ISAGEN bond issue in the Colombian capital market for$450,000. The bonds that were 1.8x overbooked, had terms rangingbetween 7 and 15 years, 12 years weighted average term, and competitiverates. ISAGEN’s final debt balance for the year was $965,454 million,equivalent to 79.3% positive variation in financial liabilities. The followingtable shows the breakdown of ISAGEN’s financial debt:TABLE 23.DEBT BREAKDOWNLoanDenominationOriginalamountDebtBalanceDisburst.DateInterestRate%TypeofRateTermYearsTRUST LIMITED 492,497 492,497 28-Dic-05 IPC+5,25 Variable 20(OPIC - INDEXED) *CITIBANK N.A.91,827 22,957 28-Dic-05 10,4 Fixed 5(INDEXED)BONDS DPI98,856 98,856 15-Sep-09 IPC+5,93 Variable 77 YEARSBONDS DPI149,394 149,394 15-Sep-09 IPC+6,48 Variable 1010 YEARSBONDS DPI201,75 201,75 15-Sep-09 IPC+6,99 Variable 1515 YEARSTOTAL COP(million)1.034.324 965.454(*) State-guaranteed.Additionally, it is important to highlight that 100% of ISAGEN’s debt isdenominated in Colombian Pesos, 97.6% at terms longer than 7 years,97.6% is tied to the CPI, and 2.4% is hired at fixed rate. The Company’sequity, in turn, increased 6.8%.TABLE 24.LIABILITIES AND EQUITYLiabilities and Equity 2009 2008Liabilities 1.603,994 1.055,854Equity 3.345,863 3.132,491Total Liabilities and Equity 4.949,857 4.188,345Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.86ISAGEN STOCK PERFORMANCEIn 2009, the crisis of 2008 hit bottom, promoting decrease of moneycost worldwide and injection of capital into the market by differentgovernments, and even though deterioration of most macroeconomicindicators was commonplace in the period, low inflation and improvedexpectations of the agents boosted the important appreciationsobserved in the stock markets worldwide.ISAGEN stock reached all-time highs in both quote and trading volumealong 2009, reaching a maximum price of $2,420 by early July,and a volume of 33.1 million shares per day on August 13, correspondingto $75,237 million. Along 2009 an average $8,667 millionwas traded daily, and daily average closing price per share stood at$2,084. Closing price for the year was $2,200 per share.CHART 36.STOCK PERFORMANCE ALONG 2009Market PriceTrading VolumeISAGEN share closed with 23% accumulated appreciation, lowerthan that of the IGBC, COLCAP and COL20, which appreciated by53%, 60.6% and 59.1%, respectively. The volume traded and priceper share may have been affected by the expectations arising fromthe announcement by the Ministry of Finance and Public Credit tosell its stake in the Company.Jan-09Feb-09Mar-09Apr-09May-09Jun-09VolumeJul-09Aug-09Sep-09Closing quoteOct-09Nov-09Dec-09Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

FINANCIAL STATEMENTSFISCAL AUDITOR REPORTCERTIFICATION OF THE LEGALREPRESENTATIVE AND THEACCOUNTANT OF THE COMPANYBALANCE SHEETSINCOME STATEMENTSSTATEMENTS OF CHANGES INFINANCIAL POSITIONSTATEMENTSOF CASH FLOWSSTATEMENT OFCHANGES INSHAREHOLDERS’ EQUITYContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

STATUTORY AUDITOR’S REPORTTo the shareholders ofISAGEN S.A. E.S.P.:I have audited the balance sheet of ISAGEN S.A. E.S.P. as of December 31, 2009 and thecorresponding statements of income, changes in stockholders’ equity, changes in the financialposition, and the cash flows for the years then ended, as well as a summary of the significantaccounting policies and other explanatory notes.Management is responsible for the preparation and accurate presentation of these financialstatements in accordance with instructions and accounting practices established by the GeneralAccountant’s Office of the Nation. This responsibility includes: designing, implementing andmaintaining an adequate internal control system for the preparation and presentation offinancial statements free from material misstatements, whether due to fraud or error; selectingand applying the appropriate accounting policies, as well as making accounting estimates thatare reasonable in the circumstances.My responsibility is to express an opinion on these financial statements based on my audits.The financial statements for the year ended on December 31, 2008 were examined by anotherStatutory auditor, who in his opinion dated February 13, 2009, expressed an opinion withoutqualifications on same.I obtained the information required to comply with my duties and carry out my work inaccordance with generally accepted auditing standards in Colombia. Such standards requirethat I plan and perform the audit to obtain reasonable assurance about whether the financialstatements are free from material misstatements. An audit of financial statements involvesexamining, on a selective basis, the evidence supporting the amounts and disclosures in thefinancial statements. The audit procedures selected depend on the auditor’s professionaljudgment, including the assessment of the risk of material misstatements in the financialstatements. In making that risk assessment, the auditor considers the Company’s internalcontrol relevant to the preparation and reasonable presentation of the financial statementsin order to design audit procedures that are appropriate in the circumstances. An audit alsoincludes assessing the accounting principles used and significant estimates made bytheincludes assessing the accounting principles used and significant estimates made by theadministration, as well as evaluating the overall financial statement presentation. I believe thatmy audits provide me a reasonable basis to express my opinion.As explained in note 1, significant accounting policies, these financial statements andnotes to financial statements were translated into English from statements originallyissued in Spanish. All amounts are stated in millions of Colombian Pesos (Col$). Thestatements are presented in accordance with instructions and accounting practicesestablished by the General Accountant’s Office of the Nation. Certain accountingprinciples applied by the Company that conform with instructions and accountingpractices established by the General Accountant’s Office of the Nation may not conformto generally accepted accounting principles applied in other countries.In my opinion, the financial statements referred to above, taken from the accountingbooks, reasonably present, in all material respects, the financial situation of the ISAGENS.A. E.S.P. as of December 31, 2009, the results of its operations, the changes in itsstockholders’ equity, the changes in its financial position, and its cash flows for the yearsthen ended, in conformity with instructions and accounting practices established by theGeneral Accountant’s Office of the Nation.As explained in note 1, significant accounting policies, these financial statements andnotes to financial statements were translated into English from statements originallyissued in Spanish. All amounts are stated in millions of Colombian Pesos (Col$). Thestatements are presented in accordance with instructions and accounting practicesestablished by the General Accountant’s Office of the Nation. Certain accountingprinciples applied by the Company that conform with instructions and accountingpractices established by the General Accountant’s Office of the Nation may not conformto generally accepted accounting principles applied in other countries.In my opinion, the financial statements referred to above, taken from the accountingbooks, reasonably present, in all material respects, the financial situation of the ISAGENS.A. E.S.P. as of December 31, 2009, the results of its operations, the changes in itsstockholders’ equity, the changes in its financial position, and its cash flows for the yearsthen ended, in conformity with instructions and accounting practices established by theGeneral Accountant’s Office of the Nation.Further, based on the scope of my audits, I inform that the Company has kept itsaccounting books in accordance with legal rules and accounting technique; the operationsrecorded in the accounting books and the acts of management conform to the bylaws andto the decisions of the General Stockholders¿ Meeting and the Board of Directors; thecorrespondence, account vouchers and the books of minutes and stockholders’ ledger areduly kept and preserved; the management report from the administrators is in dueconformity with the basic financial statements, and the Company is not in default in thepayment of contributions to the Integral Social Security System and the mechanisms formoney laundering prevention and control have been implemented in accordance with theprovisions of External Circular 60 of 2008, from the Financial Superintendence. Myevaluation of internal control, conducted with the purpose of establishing the scope of myaudit tests, did not indicate that the Company has failed to follow adequate internalcontrol and preservation and custody measures for its assets and those of third parties inits possession.JORGE ENRIQUE MÚNERA DURANGOStatutory AuditorProfessional Card 25295-TDesignated by Deloitte & Touche Ltda.February 12, 2010STATUTORYAUDITOR’S REPORTNote 1 (Explanation added for translation into English).The statements are presented in accordance with instructions and accounting practices established by the GeneralAccountant’s Office of the Nation. Certain accounting principles applied by the Company that conform with instructionsand accounting practices established by the General Accountant’s Office of the Nation may not conformto generally accepted accounting principles applied in other countries.Further, based on the scope of my audits, I inform that the Company has kept itsaccounting books in accordance with legal rules and accounting technique; the operationsrecorded in the accounting books and the acts of management conform to the bylaws andContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

CERTIFICATIONOF THE LEGALREPRESENTATIVEAND THEACCOUNTANT OFTHE COMPANYCertification of the legal representative and the accountant of the companyFebruary 12, 2010Messrs. / Madams Shareholders of ISAGEN S.A. E.S.P.The undersigned legal representative and accountant of ISAGEN S.A. E.S.P.certify that the financial statements of the Company as of December 31, 2009and 2008 have been taken faithfully from the books and that before suchstatements were placed at yours and third parties disposal, we have verified thefollowing statements contained in them:a) All assets and liabilities included in the financial statements of the Companyas of December 31, 2009 and 2008 do exist and all transactions included insuch statements have been performed during the years ending on those dates.b) All economic facts conducted by the Company during the years endingon December 31, 2009 and 2008, have been acknowledged on the financialstatements.c) Assets represent probable future economic benefits (rights), and liabilitiesrepresent probable future economic sacrifices (obligations), obtained by or incharge of the Company as of December 31, 2009 and 2008.d) All elements have been acknowledged for their appropriate values pursuantto the accounting principles generally accepted in Colombia.e) All economic facts that affect the Company have been properly classified,described, and disclosed on the financial statements.Luis Fernando Rico PinzónLegal RepresentativeElvia Luz Restrepo SaldarriagaAccountantProfessional Card No. 37982-TContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.90BALANCE SHEETS AT DECEMBER 31, 2009 AND 2008(In millions of Colombian Pesos)ASSETS NOTES 2009 2008CURRENT ASSETSCASH 7 499,210 291,408INVESTMENTS, NET 8 406,636 61,203ACCOUNTS RECEIVABLE, NET 9 263,112 270,155INVENTORIES, NET 10 23,842 15,938PREPAID EXPENSES 12 12,998 30,580OTHER ASSETS 14 12,111 7,924TOTAL CURRENT ASSETS 1.217,909 677,208NON-CURRENT ASSETSACCOUNTS RECEIVABLE, NET 9 91,837 81,468INVESTMENTS, NET 8 399 396PROPERTY, PLANT AND EQUIPMENT NET 11 2.519,584 2.353,398DEFERRED ASSETS 13 50,600 9,434OTHER ASSETS 14 34,118 29,222RE-APPRAISALS 15 1.035,410 1.037,219TOTAL NON-CURRENT ASSETS 3.731,948 3.511,737TOTAL ASSETS 4.949,857 4.188,345MEMORANDUM ACCOUNTS 30Debit 581.096 713.884Credit 7.117.175 4.906.925Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Jorge Enrique Múnera DurangoChief Executive Officer Chief Accounting Officer T.P. 37982-T Statutory Auditor T.P. 25295-T(See attached certification) (See attached certification) Designated by Deloitte & Touche Ltda.(See attached report)LIABILITIES AND EQUITY NOTES 2009 2008CURRENT LIABILITIESFINANCING OPERATIONS 16 22,957 22,958ACCOUNTS PAYABLE 17 189,110 168,236TAXES, IMPOSTS AND DUTIES 18 74,626 45,626LABOR LIABILITIES 19 21,154 16,000OTHER LIABILITIES 20 40,494 13,574TOTAL CURRENT LIABILITIES 348,341 266,394NON-CURRENT LIABILITIESFINANCING OPERATIONS 16 942,497 515,452LABOR LIABILITIES 19 56,113 52,747DEFERRED TAXES 18 252,609 220,010OTHER LIABILITIES 20 4,434 1,251TOTAL NON-CURRENT LIABILITIES 1.255,653 789,460TOTAL LIABILITIES 1.603,994 1.055,854EQUITYCAPITAL STOCK 21 68,152 68,152CAPITAL SURPLUS 49,344 49,344RESERVES 22 570,065 458,854YEAR INCOME 385,751 260,321REVALUATION SURPLUS 15 1.035,410 1.037,219EQUITY REVALUATION 23 1.256,540 1.278,000EFFECT OF PGCP CHANGES24 (19,399) (19,399)TOTAL EQUITY 3.345,863 3.132,491TOTAL LIABILITIES AND EQUITY 4.949,857 4.188,345MEMORANDUM ACCOUNTS 30Credit 7.117,175 4.906,925Debit 581,096 713,884The accompanying notes are an integral part of these financial statements.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.91INCOMESTATEMENTSfor the years ended december 31,2009 and 2008(In millions of Colombian Pesos)NOTES 2009 2008OPERATING REVENUES 25 1.410,552 1.231,700COST OF SALES AND SERVICE DELIVERY 26 805,946 770,621GROSS INCOME 604,606 461,079ADMINISTRATION EXPENSES 27 85,568 73,191OPERATING INCOME 519,038 387,888NON-OPERATING REVENUESINTEREST 39,147 33,504PORTFOLIO YIELDS 10,023 4,944EXCHANGE DIFFERENCE 50,848 52,273MISCELLANEOUS 28 29,888 18,832129,906 109,553NON-OPERATING EXPENSESINTEREST 44,986 63,349EXCHANGE DIFFERENCE 54,360 53,173MISCELLANEOUS 29 24,989 17,206124,335 133,728INCOME BEFORE TAXES 524,609 363,713INCOME TAX PROVISION 18CURRENT 104,578 69,457DEFERRED 34,280 33,935138,858 103,392NET INCOME 385,751 260,321NET INCOME PER SHARE (*) 142 95(*) In Colombian PesosThe accompanying notes are an integral part of these financial statements.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Jorge Enrique Múnera DurangoChief Executive Officer Chief Accounting Officer T.P. 37982-T Statutory Auditor T.P. 25295-T(See attached certification) (See attached certification) Designated by Deloitte & Touche Ltda.(See attached report)Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.92STATEMENTSOF CHANGESIN FINANCIALPOSITIONfor the years ended december31, 2009 and 2008(In millions of Colombian Pesos)2009 2008FINANCIAL RESOURCES GENERATED BY YEAR'S OPERATIONS:NET INCOME 385,751 260,321ADD (LESS) EXPENSES (REVENUES) NOT AFFECTING WORKING CAPITAL:Depreciation 99,258 103,176Amortization of deferred charges and other assets 4,238 2,946Amortization of retirement pensions actuarial calculation 15,113 18,524Deferred taxes 34,279 33,935Recovery of allowance for protection of long-term accounts receivable - (1,204)(Recovery) allowance for protection of property, plant and equipment (2,582) 26Loss on sale and retirement of property, plant and equipment and other assets 9,416 502Long-term investments value adjustment - (148)(Recovery) allowance for protection of investments (3) 52545,470 418,130FINANCIAL RESOURCES GENERATED BY OTHER SOURCES:Bond issues 450,000 -Liquidation of projects under admnistration - 10,779Increase in other liabilities 3,183 -Decrease in long-term accounts receivable - 701Decrease in other assets 2,078 -Product on the sale of property, plant and equipment 241 899455,502 12,379TOTAL FINANCIAL RESOURCES GENERATED ALONG THE YEAR 1.000,972 430,509FINANCIAL RESOURCES USED IN;Acquisition of property, plant and equipment 283,710 110,330Dividends 149,110 135,485Increase in other assets 42,867 1,667Increase in accounts receivable 10,369 -Equity tax 21,460 21,460Reclassification of short-term financial liabilities 22,955 22,957Decrease in labor liabilities 11,747 6,630Transfer of inventories to property, plant and equipment - 642TOTAL FINANCIAL RESOURCES USED ALONG THE YEAR 542,218 299,171INCREASE IN WORKING CAPITAL 458,754 131,338BREAKDOWN OF CHANGES IN WORKING CAPITALINCREASE (DECREASE) IN CURRENT ASSETSCash 207,802 105,855Investments 345,433 (5,015)Accounts receivable (7,043) 91,835Inventories 7,904 9,802Prepaid expenses (17,582) (413)Other assets 4,187 4,630540,701 206,694DECREASE (INCREASE ) IN CURRENT LIABILITIES:Financing operations 1 (59)Accounts payable (20,874) (60,448)Taxes, imposts and duties (29,000) (11,151)Labor liabilities (5,154) (643)Other liabilities (26,920) (3,055)(81,947) (75,356)INCREASE IN WORKING CAPITAL 458,754 131,338The accompanying notes are an integral part of these financial statements.Luis Fernando Rico PinzónChief Executive Officer(See attached certification)Elvia Luz Restrepo SaldarriagaChief Accounting Officer T.P.37982-T(See attached certification)Jorge Enrique Múnera DurangoStatutory Auditor T.P. 25295-TDesignated by Deloitte & Touche Ltda.(See attached report)Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.93STATEMENTSOF CASH FLOWSfor the years ended december31, 2009 and 2008(In millions of Colombian Pesos)2009 2008CASH FLOWS GENERATED BY YEAR'S OPERATIONS:NET INCOME 385,751 260,321ADD (LESS) EXPENSES (REVENUES) NOT AFFECTING WORKING CAPITAL:Depreciation 99,258 103,176Amortization of deferred charges and other assets 4,238 2,946Amortization of retirement pensions actuarial calculation 15,113 18,524Deferred taxes 34,279 33,935(Recovery) allowance for protection of accounts receivable (1,816) (684)(Recovery) allowance for protection of property, plant and equipment (2,582) 26(Recovery) allowance for protection of inventories (233) 4(Recovery) allowance for protection of investments (3) 52Loss on sale and retirement of property, plant and10,444 502equipment, inventories and other assetsLong-term investments adjustment - (148)544,449 418,654CHANGES IN ASSETS AND LIABILITIESAccounts receivable (18,014) (42,536)Prepaid expenses 17,582 (9,802)Inventories (8,699) (233)Other assets - (4,630)Accounts payable 2,485 38,085Taxes, imposts and duties 7,540 (10,309)Labor liabilities (6,593) (5,987)Other liabilities 30,103 3,055NET CASH PROVIDED BY OPERATING ACTIVITIES 568,853 386,297CASH FLOWS FROM INVESTMENT ACTIVITIES:Acquisition of property, plant and equipment (248,800) (126,248)Amortization of deferred charges (42,867) -Increase in other assets (2,109) (1,667)Product on the sale of property, plant and equipment 241 899NET CASH USED IN INVESTMENT ACTIVITIES (293,535) (127,016)CASH FLOWS FROM FINANCING ACTIVITIES:Bond issues 450,000 -Payment of financial liabilities (22,956) (22,956)Cash dividends (149,127) (135,485)NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 277,917 (158,441)NET INCREASE IN CASH AND CASH EQUIVALENTS 553,235 100,840CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 352,611 251,771CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 905,846 352,611Cash and cash equivalents at the end of the year include:Cash 499,210 291,408Marketable investments 406,636 61,203905,846 352,611The accompanying notes are an integral part of these financial statements.Luis Fernando Rico PinzónChief Executive Officer(See attached certification)Elvia Luz Restrepo SaldarriagaChief Accounting Officer T.P.37982-T.(See attached certification)Jorge Enrique Múnera DurangoStatutory Auditor T P No. 25295-TDesignated by Deloitte & Touche Ltda.(See attached report)Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.94STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITYfor the years ended december 31, 2009 and 2008(In millions of Colombian Pesos)Capital stock Additional Reserves Income ofthe periodRevaluationsurplusEquityrevaluationEffect ofPGCPBalances at December 31, 2007 68,152 49,344 386,444 207,895 1.044,103 1.299.460 (19,399) 3.035,999Appropriations made by the- - 72,410 (72,410) - - - -Shareholders’ MeetingDecrease in revaluations - - - - (6,884) - - (6,884)Cash dividends ($49.70* per share) - - - (135,485) - - - (135,485)Equity tax - - - - - (21,460) - (21,460)Year's income - - - 260,321 - - - 260,321Balances at December 31, 2008 68,152 49,344 458,854 260,321 1.037,219 1.278,000 (19,399) 3.132,491TotalAppropriations made by theShareholders’ Meeting - - 111,211 (111,211) - - - -Decrease in revaluations - - - - (1,809) - - (1,809)Cash dividends ($54.70* per share) - - - (149,110) - - - (149,110)Equity tax - - - - - (21,460) - (21,460)Year's income - - - 385.751 - - - 385,751Balances at December 31, 2009 68,152 49,344 570,065 385,751 1.035,410 1.256,540 (19,399) 3.345,863* In Colombian PesosThe accompanying notes are an integral part of these financial statements.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Jorge Enrique Múnera DurangoChief Executive Officer Chief Accounting Officer T.P. 37982-T Statutory Auditor T.P. 25295-T(See attached certification) (See attached certification) Designated by Deloitte & Touche Ltda.(See attached report)Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.95NOTES TO THEFINANCIALSTATEMENTSSPECIFIC NOTESAT DECEMBER 31, 2009 AND 2008(Amounts expressed in millions of Colombian Pesos – $– andthousands of US Dollars –USD–, except when noted otherwise)GENERAL NOTES1. Economic entityISAGEN S.A. is a mixed-ownership utility established ascorporation as attested by public deed No. 230 of theSingle Notary Public Office of Sabaneta of April 4, 1995,ascribed to the Ministry of Mines and Energy, withindefinite term.The core purpose of ISAGEN S.A. E.S.P. is the generationand trading of electric energy, the trading of natural gasthrough pipes, and the trading of coal, steam and otherenergy sources for industrial use.To carry out its corporate purpose, the Company has the followingenergy generation plants:San Carlos Hydroelectric PlantJaguas Hydroelectric PlantCalderas Hydroelectric PlantMiel I Hydroelectric Power PlantTerm Centro Combined Thermal PlantContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.962. Basis of presentation of financial statementsThe financial statements considered of general purpose, shall bepresented to the Shareholders’ Meeting for its approval and are thebasis for the distribution of dividends and other appropriations.a) Accounting periodAccording to the Company’s bylaws, annual closing date isDecember 31.b) Monetary unitAccording to legal provisions, the monetary unit used by theCompany is the Colombian Peso.c) Classification of assets and liabilitiesAssets and liabilities are classified into current and non-current,according to their use or degree of realization or demand, in termsof time and value. Accordingly, current assets and liabilities areunderstood as such amounts that will be realizable or demandablewithin a term not longer than one year; for terms longer thanone year, they are classified as non-current.d) Relative importance and materialityRecognition and presentation of economic facts are made accordingto their relative importance or materiality.An economic fact is material when due to its nature or amount,knowing or not knowing it, considering the circumstances, couldsignificantly affect the decisions or assessments of the users ofsuch information.In the preparation and presentation of the financial statements,materiality was determined in relation to, among others, total assets,current and non-current assets, total liabilities, current andnon-current liabilities, equity and income, as the case may be.In general terms, an entry would be considered material if it exceeds5% of any of the above.3. Operating and/or administrativelimitations and deficienciesDuring 2009 and 2008, no operating or administrative limitationsand/or or deficiencies were found that would affect the normal accountingprocesses, or the consistency and reasonability of the accountingfigures.4. Main accounting policies and practicesFor its accounting entries and preparation of its financial statements,the Company observes the accounting principles generally acceptedin Colombia, defined by accounting regulations issued by theColombian General Accounting Office –CGN– and theSuperintendency of Domiciliary Public Utilities, through applicationof information systems. Chart of accounts for utilities and costs andexpenses unified system.5. Valuation rulesFollowing is a description of the main accounting policies and practicesadopted by the Company in accordance with note 4:a) Foreign currency translation and balancesTransactions in foreign currency are recorded at the applicableexchange rates in force on the date of the transaction. At the closeof each month, balances of assets accounts are adjusted to currentexchange rates on such date and the differences are carriedto income statement accounts. With regard to liability accounts,only exchange differences not ascribable to the cost of acquisitionof assets, that is, differences originated during the time such as-Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.97sets are under construction or installation, and until they becomeoperational, are carried to the income statement.b) Cash equivalentsFor purposes of preparation of the statement of cash flows, marketableinvestments are considered to be cash equivalents, giventhat they can be easily converted into cash.The statement of cash flows is prepared using the indirect method.c) InvestmentsInvestments are recognized and recorded at their historic cost oracquisition price, and expressed at their actual value or at marketprices, depending on their classification.Investments are classified and recorded as follows:Debit or fixed-income investments are classified as tradable investments.These investments are initially recorded at cost value,and every month thereafter, are adjusted to reflect their marketvalue as a charge or credit, as the case might be, in the incomestatement. The market value of such investments is determinedby calculating the present value of their future capital and interestflows, discounted at a market interest rate calculated according toparameters determined by the Financial Superintendency.Investments in shares or equity considered of low or minimummarketability and those not quoted at stock exchanges are classifiedas non-tradable investments. Variable-income investmentsare recorded at cost value plus the value of stock dividends receivedin shares. If at year’s end, the intrinsic value of investmentsis greater or lower than the book value, a charge is recorded inthe re-appraisals account with a contra entry in re-appraisal surplusin equity, or a provision is charged to the income statement,respectively.d) Accounts receivableThey represent collection rights resulting from the execution ofthe Company’s financial, economic and social activities such asenergy and gas supplying, delivery of services, loans, and otherterm transactions.For energy accounts receivable, customers are classified accordingto risk assessment policies established by the Company.Debts not timely satisfied are reclassified as doubtful accountsand provisioned according to their age and default. Receivablesolder than 180 days are 100% provisioned.Provisions are presented in the balance sheet as a smaller valueof accounts receivable and include the amounts determined bythe Company to cover eventual losses.When payment agreements are subscribed for already provisionedreceivables, the doubtful account is reclassified as currentaccount. As payments are received, they are recorded as recoveriesand the provision is cancelled out.Once collection procedures are exhausted, receivables arewritten off and removed from the balance sheete) InventoriesInventories are recorded at cost value, adjusted to consider inflationuntil December 31, 1998.Regular consumables, including generic spare parts not correspondingto dependent technologies (exclusive supplier), materialsand other consumables are recorded as inventories.Parts, materials and other consumables are valued by the weightedaverage method; inventories in transit are valued by either thespecific value method or the net sale value, whichever the lowest.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.98Inventories considered obsolete by technical criteria are writtenoff with charge to the income statement.f) Property, plant, equipment and depreciationProperty, plant and equipment are recorded at cost, which, whererelevant, may include:Financing expenses and foreign exchange differences of foreigncurrencyliabilities incurred for their acquisition, until they becomeoperational.Until December 31, 2001, inflation adjustments.Sales and retirements are discharged at their respective net adjustedcost, and differences between sale price and net adjustedcost are recorded in the income statement.Depreciation is calculated over the asset’s adjusted cost by thestraight-line method, based on the estimated useful life of assets, asfollows:AssetUseful life - yearsConstructions and buildings 50Generation equipment 25Electronic equipment 25Furniture, office equipment, laboratory equipment,10tools, workshop equipment, construction andmaintenance machinery and storage equipmentComputer and communications equipment 5Transport equipment 5Any differences between per-books and fiscal depreciation are recordedas deferred depreciation.Expenditures that extend the asset’s useful life or use capacity justifiedby a technical opinion, as well as overhauls, are capitalized. Allother routine maintenance expenditures and repairs are charged tocosts and expenses as they are incurred.Generation equipment’s spare parts considered as dependent technology(single supplier) are considered property, plant and equipment,as warehouse assets, and are not subject to depreciation.Default differences between assets’ economic valuation, technicallydetermined, over their per-books net cost are recognized as a chargeto the income statement.G) Deferred chargesDeferred charges include:Indirect costs necessary for construction of projects, amortizedover a 5-year period from commissioning date. As described innote 13 to the financial statements, until December 31, 2008, suchitems were treated as expenses and therefore charged to the period’sresults. The above-mentioned accounting policy changegenerated lower amount of costs and expenses for $42,867.Costs of studies and research of projects in development stage. Ifthe project is subsequently cancelled or suspended, accumulatedbalance is written off against the period’s results.Deferred tax resulting from temporary differences betweenper-books and fiscal retirement pensions’ expense and provisions.H) Other assetsOther assets include, mainly:Actuarial financial reserve established to fund retirement pensionliabilities for which the Company is responsible. The Company’spolicy is to fund this reserve with approximately 50% of thepension liabilities established at the end of each year according toactuarial studies. Such funds are specific-purpose funds.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.99Intangibles such as licenses and software that are amortized on astraight-line basis along a useful life ranging between 3 and 6 years.Easements acquired to carry out productive projects. Suchassets are considered of finite useful life and are amortized overa 50-year period.I) ReappraisalsRe-appraisals that are part of assets and equity include:Any excess of the economic valuation, technically determined, ofassets over their per-books net cost, as of the date of valuation.The economic valuation of main components of property, plantand equipment took place in 2007. Update of property, plant andequipment shall be conducted every three years and recorded inthe respective accounting period, except when market conditionsindicate that recognized values may vary significantly.The excess of intrinsic value of equity investments over their netper-books cost.j) Financial liabilitiesThese include liabilities incurred by the Company with credit andfinancial institutions, or from underwriting of outstanding bonds.The amount recorded corresponds to that of the liability’s principalor to the bonds’ par value; financial expenses, which do not add tothe capital, are recorded separately.Interest on financial liabilities incurred to finance projects underconstruction is capitalized as increased value thereof, until theyare in conditions to be used or sold.k) Accounts and other documents payableThese represent liabilities incurred by the Company originated ingoods and services obtained.l) Deposits received under administrationThese are specific-purpose funds received from third parties. Theyare controlled separately and their returns recorded as increasedvalue of the liability.m) Income tax provisionPayable income tax is determined based on estimations.The effect of temporary differences between accounting and fiscalrecords resulting from recognition of revenues, costs and expensesin different periods is accounted as deferred tax.The Company records as credit deferred tax the value of temporarydifferences between per-books and fiscal depreciation ofbuildings, plants, ducts, machinery and equipment, that result inlower tax paid during the reporting period, calculated at currentrates, provided there is reasonable expectation such differenceswill subsequently revert.n) Labor liabilitiesLabor liabilities are adjusted at the end of each period on thebasis of legal provisions and labor agreements in force.Retirement pension liabilities payable by the Company are determinedbased on actuarial studies as provided by legal regulations.Retirement pension provision is adjusted systematically. TheCompany decided to fully amortize the retirement pension liabilityat December 31, 2005; accordingly, as of such date, any variationin pension liabilities is recognized directly in the period’s results.o) Net income per shareNet income per share is calculated on the number of outstandingshares – 2,726,072,000 as of December 31, 2009 and 2008.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.100p) Recognition of revenue, costs and expensesRevenue from sales is recognized during the contractual period orwhen services are rendered. Revenue and costs are recorded onan accrual basis.For cost management, the costing system used is the Activities-Based Costing (ABC) defined by the Superintendency ofDomiciliary Public Utilities in Resolution SSPD 001417 of April 18,1997 as Unified Costs and Expenses System (SUCG, its Spanishinitials), updated by Resolution No. SSPD - 20051300033635 ofDecember 28, 2005. Accordingly, direct costs of energy and gasservices are recorded directly in the process defined by SUCG,and administration expenses are distributed on the basis of revenue,number of people, assigned times and areas. Costs areclosed and reported to the Public Utilities Single InformationSystem (SUI).q) Memorandum accountsAgreements pending formalization and contingent rights or liabilities,such as loans not yet disbursed and the differences existing betweendebit and credit accounts used for accounting purposes and thoseused for tax matters, are recorded under memorandum accounts.r) ContingenciesOn the date financial statements are issued certain contingent conditionsmay exist which might result in a loss for the Company butare only resolved in the future when events actually take place.These contingencies are estimated by the Company’s managementand its legal counsels. The estimation of loss contingenciesis necessarily a matter of judgment and opinion. When estimatingcontingent losses in legal processes pending against the Company,legal counsels assess the merit of claims, related decisions, andthe current state of processes, among other issues. When a caseis decided against the Company in the trial court, it is recorded as aliability affecting the results of the year.If evaluation of the contingency indicates that loss is improbablebut the result is uncertain, or that it is probable but its amount isimpossible to estimate, then the nature of the contingency is recordedin a memorandum account and disclosed in a note to the financialstatements together with an estimate of the probable loss.Generally, loss contingencies estimated as remote are not recordednor disclosed.s) Use of estimatesThe preparation of financial statements according to accountingprinciples generally accepted in Colombia requires some estimatesthat affect the values of assets, liabilities, revenues, costsand expenses reported for such periods. The actual result of certainitems may differ from such estimates.t) Reclassifications of financial statementsSome figures in the financial statements of 2008 have been reclassifiedfor comparison purposes with the year 2009.SPECIFIC NOTES6. Foreign currency investmentsCurrent regulations in Colombia allow open foreign exchange tradingthrough banks and other financial institutions at non-controlled exchangerates. However, most foreign currency transactions still requireGovernment approval.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.101Foreign currency operations and balances are translated at the currentexchange rates certified by the Financial Superintendency.. ThePeso/US Dollar exchange rates used for the preparation of the financialstatements at December 31, 2009 and 2008, were $2,044.23*and $2,243.59*, respectively.The foreign currency position on December 31, in US dollars andColombian pesos, is:2009 2008USD $Col. USD $Col.ASSETSCash 375 767 496 1,113Accounts receivable 6,876 14,056 7,125 15,985Investments 4,162 8,508 500 1,12211,413 23,331 8,121 18,220LIABILITIESSuppliers 1,506 3,079 554 1,243Creditors 45 92 7,669 17,2061,551 3,171 8,223 18,449FOREIGN-CURRENCYASSET (LIABILITIES)POSITION9,862 20,160 (102) (229)* In Colombian pesos7. CashCash as on December 31 includes:2009 2008Cash in banks, other financial institutions and trusts:Cash 63 33Banks and savings institutionsColpatria 90,673 45,354Banco de Bogotá 35,319 21,468Bancolombia (1) 17,906 40,025BBVA (2) 13,550 6,950AV Villas ahorros 5,070 -Corfidiario de Corficolombiana 691 38,890J.P. Morgan Chase 526 861Bancolombia Miami 238 251Banco Agrario de Colombia 73 410HSBC ahorros 59 -Banco Santander 8 15,147Citibank ahorros - 9,398164,113 178,754TrustsFiducuenta and Fidurenta - Fiducolombia 54,933 16,322Sumar and Lazos - Fidubogotá 39,270 11,020Interés - Corredores Asociados 32,682 -Efectivo, FAM and Fonplazo 30 - Fiduciaria BBVA 41,979 -Renta ya and Renta 120 - Interbolsa 30,312 -Occirenta and Occitesoros - Fiduoccidente 18,259 10,584Renta vista, renta 30 and renta 90 - Valores Bancolombia 16,540 35,302Confianza Plus and Valor plus - Fiduciaria Corficolombiana 789 30,738Open FiduHSBC - 5,385Fidusantander - 3,270234,764 112,621REPOs – Term operationsFixed-income investments REPOs (3) 100,270 -499,210 291,408(1)Includes $299 (2008 - $165) of collections of Shareholding DemocratizationProgram. These funds are periodically transferred to the State.(2)In 2008 included $165 of collections of Shareholding Democratization Programtransferred to the State.(3)Liquidity operations to cover short-term liabilities. Securities received as collateraland valued at market prices.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.102Except as indicated in relation to collections of the ShareholdingDemocratization Program, there are no restrictions on cash.Yields for these accounts ranged between 2.50% and 4.50%, annualeffective (2008 - 8% and 9%).8. Investments – netInvestments as on December 31 include:Investments with liquidity purposeInterest 2009 2008rate A.E.Debt securities (1)Treasuries in Pesos 4,26% - 8,45% 174,371 60,081Foreign currency CD (2) 0,05% - 0,10% 8,177 1,122CD (3) 4,99% - 5,04% 224,088 -Current 406,636 61,203Equity investmentsEconomicactivityCommonsharesParticipation%2009 2008Equity securitiesStocksGensa S.A. E.S.P (4) Energy 154,270,818 0.0466 2,106 2,106ElectricaribeEnergy 7,623,656 0.0152 320 320S.A. E.S.P. (5)Less: Provision (3) (2,027) (2,030)Non-current 399 396Market prices valuation of fixed-yield investments brought in $8,786net income (2008 - $4,944). Variable-yield investments did not generateany dividend revenue. No restrictions or encumbrances affectinvestments.9. Accounts receivable – netBalance as of December 31 and their classification as short- andlong-term is as follows:Short term Long term Total2009 2008 2009 2008 2009 2008Accounts receivable252,366 264,623 11,164 13,921 263,530 278,544from customers (1)Doubtful accounts (2) 1,228 2,003 - 1,228 2,003Less: Provision (3) (3,985) (4,249) (11,164) (13,921) (15,149) (18,170)249,609 262,377 - - 249,609 262,377Advances and pre-paymentsTaxes 26 8 - - 26 8Suppliers (4) 5,000 4,480 64,285 53,145 69,285 57,6255,026 4,488 64,285 53,145 69,311 57,633Other accounts receivableMiscellaneous (5) 7,377 3,288 15,120 17,506 22,497 20,794Doubtful accounts (2) 112 135 - - 112 135Less: Provision (3) (112) (135) - - (112) (135)7,377 3,288 15,120 17,506 22,497 20,794262,012 270,153 79,405 70,651 341,417 340,804Deposits made (6) 1,100 2 12,432 10,817 13,532 10,819263,112 270,155 91,837 81,468 354,949 351,623(1)The balance of this account included:(1)Financial Superintendency guidelines used as valuation method.(2)Investment in J.P Morgan Chase Bank N.Y.(3)Certificates issued by Bancolombia and Banco de Bogotá.(4)Latest intrinsic value reported by Gensa S.A. E.S.P. is $0.598 per share thatgenerates $2,014 provision (2008 - $1,997).(5)Latest intrinsic value reported by Electricaribe S.A. E.S.P. is $40.28* per sharethat generates $13 provision (2008 - $33).* In Colombian PesosContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.1032009 2008Energy salesRegulated customers 124,169 152,457Unregulated customers 72,500 68,641Energy Pool 58,521 43,275255,190 264,373Gas salesRegulated customers 3,836 8,209Unregulated customers 3,077 4,2506,913 12,459Technical Services 1,427 1,712263,530 278,544(2)The balance of this account included:2009 2008Energy salesUnregulated customers 1,228 1,309Energy Pool - 693Regulated customers - 1Other accounts receivable 112 1351,340 2,138(3)The balance of this account included:2009 2008Energy salesEnergy contracts (*) 15,149 18,170Other accounts receivable 112 13515,261 18,305Less: Current portion (4.097) (4,384)Non-current portion 11,164 13,921(*) Includes mainly the following provisions: EMCALI, $13,921 (2008 - $16,167);Textiles Espinal, $973 (2008 - $973); Britilana Berrey, $77 (2008 - $77);Siderúrgica Colombiana, $190 (2008 - $209).Movements of allowance for doubtful accounts:2009 2008Initial balance 18,305 18,989Provision (*) 41 1,052Accounts receivable write-offs (**) (826) -Recoveries (***) (2,259) (1,736)Ending Balance 15,261 18,305(*) Former employees Beatriz Cortes and Ivan Dario Vargas provision for $28 and$13, respectively. In 2008, Texpinal $973 and Fatextol $78.(**) Mainly, write-offs of XM Compañía de Expertos en Mercado $693, correspondingto a Enerfinsa y C.I. Fábrica de Textiles del Tolima $78.(***) Recovery of EMCALI for $2,246 (2008; $1,736) and Ivan Dario Vargas for $13.(4)Includes mainly, $31,075 for construction of Amoyá Project (2008 - $42,845);$26,100 for construction of Sogamoso Project; $6,612 for construction of MansoProject (2008 - $8,404) ; $1,694 for gas purchases (2008 - $2,471); and $498 forconstruction of Guarinó Project (2008 - $1,896). In 2008, it also included $1,016 toSiemens Energy and $672 for construction of communal road in Amani reservoir.(5)Includes mainly, $11,993 for housing loans to employees (2008 - $10,938);$1,759 for car loans to employees (2008 - $1,739); $287 for other short-termloans to employees (2008 - $775). It also includes account receivable from theMunicipality of Yumbo for enforcement proceedings of turnover tax for $5,126.Bond was posted in this process and attached funds were refunded to theCompany in January of 2010.As of December 31, outstanding balance of loan to employees throughemployees fund FEISA, in order to promote their participation in theShareholding Democratization Program was $2,386 (2008 - $5,358).Interest rates agreed for loans to employees range between 6% and 8%annual effective.Maturities of long-term customers and miscellaneous accountsreceivable over the next years excluding allowance, is as follows:Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.104MaturityValue2011 5,0422012 5,0422013 4,5232014 3,1242015 onwards 8,553(6)The balance of this account included:26,2842009 2008Liquidity Fund (*) 11,519 9,997Convenio WESP Trust (**) 1,098 -Solidarity Fund (***) 913 820Capital Reduction Trust 2 213,532 10,819(*) The Liquidity Fund was established in December of 2007, through trust estateadministered by Fiducolombia with broker Valores Bancolombia as liquidity promoter.ISAGEN’s initial contribution totaled $10,000. The purpose is to promotethe liquidity of the share during five years, at the end of which, a decision for itsextension or liquidation will be made. The fund’s return and valuation results arerecorded as increased value of the fund charged to the income statement.(**) Commercial trust for administration and payment established withCorficolombiana for administering contributions made by Wayuú S.A. ESP andISAGEN as part of the agreement subscribed for construction of a wind farm inLa Guajira province.(***) Health Solidarity Fund established to take care of serious health conditionsof workers beneficiaries of the Labor Contract and the Collective BargainingAgreement, or their basic families, for which all other coverage has been exhausted.Initially the Company contributed $200; twice a year, in June andDecember, workers contribute 1% of their basic salary.Maturities of accounts receivable as of December 31, 2009:Debtor typeNotoverdue1 - 180daysoverdue181 -360 daysoverdueMore than360 daysoverdueTotalAccounts263,530 - - - 263,530receivable -clientsDoubtful- - - 1,340 1,340collectionaccountsAdvances and 69,311 - - - 69,311prepaymentsOther debtors 22,497 - - - 22,497Provision (13,921) (1,340) (15,261)341,417 - - - 341,417Guarantees granted by debtors:In general, accounts receivable from customers are guaranteedthrough blank promissory notes, pre-payment requests, bank guaranteesand pledges of funds (the customers’ own funds and subsidiesgranted by the Ministry of Mines and Energy).For EMCALI, a trust is in charge of collecting and receiving funds; thetrust acts as guarantee and payment source.For accounts receivable from employees, mortgages, pledges andpromissory notes are established.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.10510. Inventories – netInventories at December 31 included:2009 2008Parts 10,119 10,408Land and buildings (*) 8,304 -Materials and supplies 5,440 5,808Other inventories 366 34224,229 16,558Less: Provision (387) (620)23,842 15,938(*) Includes mainly, a land plot acquired in December to be subsequently sold to athird party who will build the Company’s new headquarters.11. Property, plant and equipment – netThe table below shows the breakdown of property, plant andequipment as of December 31:2009 2008Generation plants 3,367,332 3,325,452Constructions and buildings 91,985 91,508Machinery, furniture and equipment 107,602 105,089Land (1) 30,889 28,274TOTAL OPERATIONAL ASSETS 3,597,808 3,550,323Under construction and assembly (2) 392,736 174,518Personal property in warehouse 29,904 36,280Assets Out-of-service 23 23TOTAL FIXED ASSETS 4,020,471 3,761,144ACCUMULATED DEPRECIATIONGeneration plants (2,313,044) (2,101,349)Constructions and buildings (35,860) (30,236)Machinery, furniture and equipment (74,197) (67,697)Deferred depreciation 936,995 808,899TOTAL DEPRECIATION (1,486,106) (1,390,383)Less: Provision (3) (14,781) (17,363)PROPERTY, PLANT AND EQUIPMENT, NET 2,519,584 2,353,398During 2009, assets worth $283,710 (2008- $110,330) were purchased and assetswith net book value 8,272 (2008 -$605) were written off.During the year, depreciation for $99,258 (2008 - $103,176) was charged to theincome statement.(1) Following is a summary of the real property owned by the Company, its legal status,and corresponding actions undertaken:Legal status Observations Action Number ofpropertiesFull ownershipReal estate registerin ISAGEN’s nameProperties pendinglegal status definitionPossession -Inheritance rights oractual possessionProtected areas(Without registry data).Possession – DefectiveTitle (With registry data)Properties withno current legalproblems .Properties whereISAGEN purchasedand exercises actualpossession but donot appear in thePublic RegistryOffice because oflack of registry data.Properties whereISAGEN has actualpossession withdefective titleValueNone 606 25.689Ongoingprocedureswith competentauthoritiesfor obtainingownership titleOngoingclearing oftitle throughownershipactions$145 4.18731 1.013Subtotal 176 5.200Total number of782 30,889propertiesContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.10712. Prepaid expensesPrepaid expenses as of December 31 st include:2009 2008Combined material damages insurance (1) 6,534 20,309Opic loan guarantees (2) 4,285 4,679Surgery and hospital insurance 1,059 747Tort liability insurance 449 342Commercial general liability insurance 186 196Performance guarantee bond 168 -Fidelity and financial risks insurance 105 82Workers compensation 101 -Seguro de cumplimiento 168 -Amoyá all risk construction and- 3,313assembly insurance (3)Manso all risk construction and assembly insurance (3) - 636Guarinó all risk construction and- 276assembly insurance (3)Other policies 111 -12,998 30,580(1) The combined material damages insurance was renewed for 18 months at theend of 2008; thus, the amount accumulated during 2009 corresponds to amortizablebalance.(2) Amount paid for Opic counter guarantee $2,192 (2008 - 2,346) in force untilNovember of 2010, and $2,093 for Opic premium in force until May of 2010(2008 - $2,333).(3) Policy premiums for covering risks related to construction and assembly ofequipment for Amoya, Manso and Guarinó Projects. These items were reclassifiedin 2009 as deferred charges according to accounting policy change describedin notes 5 and 13 to the financial statements.13. Deferred chargesThe composition of deferred charges on December 31s was:2009 2008Projects’ deferred charges (1) 42.867 -Deferred taxes (2) 7.326 9.007Studies 407 407Others - 2050.600 9.434(1) Indirect costs associated to construction of Sogamoso, Manso, Amoyá andGuarinó Projects as described in letter g) of note 5 to the financial statements.Main items correspond to insurance premiums and cost of security.(2) Includes mainly software purchased along 2009 for the commercial strategyproject. Net value as of December 31, 2010 was $10,910.14. Other assetsOther assets as of December 31 include:2009 2008Actuarial financial reserve (1) 30.830 30.846Licenses 2.439 4.625Easements 1.349 1.245Software (2) 11.475 294Otros 136 13646.229 37.146Less current portion (12.111) (7.924)Non-current portion 34.118 29.222(1) Trust Estate administered by Sociedad Administradora de Fondos de Pensionesy Cesantias Porvenir S.A., to guarantee payment of pension liabilities ofISAGEN’s current and former workers. The maximum value of the fund will bethe actuarial estimate as of December 31st every year. In 2009 total $5,000were contributed by the Company to the fund.(2) Includes mainly software purchased along 2009 for the commercial strategyproject. Net value as of December 31, 2010 was $10,910.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.10815. ReappraisalsBalances in assets and equity as of December 31 include the followingreappraisals of property, plant and equipment as of December 31:2009 2008Generation plants 965,509 966,986Constructions and buildings 55,558 55,579Machinery, furniture and equipment 13,245 13,556TOTAL OPERATIONAL ASSETS 1,034,312 1,036,121Assets out-of-service 1,098 1,098TOTAL RE-APPRAISALS 1,035,410 1,037,219In 2007, economic valuation was conducted for the main componentsof property, plant and equipment technically determined by independentappraisers for generation-related assets and real-estateproperty, using the as-new replacement value and commercial value.In the case of IT assets, based on technical studies developed byemployees of the Company.According to regulations of the National General Accounting Office,appraisals are valid for 3 years.16. Financing operationsBalance of financial liabilities at December 31 included:Interestrate %2009 2008 MaturityPower FinanceCPI+ 5,25 s.v. 492,497 492,497 2025Trust Limited (1)Citibank N.A. E.U (2) 10,40 s.v. 22,957 45,913 2010Debt bonds 7 (3) CPI+5,93 s.v. 98,856 - 2016Debt bonds 10 (3) CPI+6,48 s.v. 149,394 - 2019Debt bonds 15 (3) CPI+6,99 s.v. 201,750 - 2024965,454 538,410Less non-current portion (942,497) (515,452)Current balance 22,957 22,958(1) Loan agreement with Power Finance Trust Limited hired in 2005 with 20-yearterm, 5-year grace period, and 30 semiannual amortization payments, guaranteedby the State and insured by OPIC.(2) Loan agreement with Citibank N.A. E.U., hired in 2005 with 5-year term, 1.5-year grace period, and 8 semiannual amortization payments. This amount correspondsto current portion for 2009.(3) The Financial Superintendency, through Resolution No. 1376 of September 10,2009, authorized filing with the National Registry of Securities and Issuers andoffer of domestic debt bonds issued by ISAGEN in the amount of $850,000.Placement of first tranche for $450,000 took place in September of 2009. Thesebonds are part of Sogamoso Project financing strategy.The issue had the following terms:Issue’s nominal value $450,000Book runnerDeceval S.A.RatingAA+ by FitchRaitings ColombiaContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.109TermYield7 CPI+5,93 s.v.10 CPI+6,48 s.v.15 CPI+6,99 s.v.(4) Maturities of non-current financial liabilities over the next years:Maturity yearAmount2011 23,8122012 23,8122013 23,8122014 23,8122015 onwards 847,249942,497During 2009, financial liabilities repaid totaled $22,956 (2008 - $22,957).The Company has obligations, pledges over assets, and pledgecommitments, as follows:Revenue pledge in favor of the State in the amount of $27,877semiannually, to guarantee payment of Power Finance TrustLimited loan.Promissory note in favor of Power Finance Trust Limited for$492,497until December 2025.USD 10,549 letter of credit with Citibank NA EU to guarantee debtservice payment during 2010 first semester of Power FinanceTrust Limited loan.Promissory note in favor of Citibank NA EU for $91,827 untilDecember 2010.The Company has agreed the following indicators under loan agreementwith Power Finance Trust Limited and Citibank N.A. U.S.A.Levels agreed for 2009 and corresponding results are:Indicator Level agreed Result for2009Result for2008Leverage (total liabilities/equity) Lower than 1 0,70 0,50Financial debt /EBITDA ratio Lower than 3.5 1,56 1,09Debt service coverage Greater than 1.3 8,99 5,62Short-term debt concentratio Lower than 0.25 0,02 0,05As is customary in this type of transactions, upon closing of OPIC-insuredfinancing, the Company acquired a series of commitments, mostly financialand environmental, which are defined in each contract subscribed.The loan agreement provides the mandatory prepayment of the loanupon any event of control loss by the State.By the end of 2009 and 2008, the Company was in compliance withall said commitments.17. Accounts payableThe balance of accounts payable at December 31 included:2009 2008Energy (1) 68,469 54,566Suppliers (2) 101,110 87,943Financing operations interest 12,963 1,696Creditors (3) 5,655 23,211Deposits received under administration (4) 913 820189,110 168,236(1) Includes $25,848 (2008- $24,549) of energy purchases, and $42,621 (2008 -$30,017) of purchases estimated for December of 2009.In order to guarantee transactions at the Energy Pool, reconciliations, ancillaryservices, use-of-STN charges, CND and CRD services, and in general,to guarantee any amount owed to the SIC Administrator, as provided byCREG Resolution No. 116 of 1998, the following guarantees were establishedwith BBVA in favor of XM Compañia de Expertos de Mercados S.A. E.S.P. for$63,000 (2008 - $60,000).Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.110Guarantees in the amount of USD 30,061 (2008 – USD 35,240) were establishedwith BBVA to cover reliability charge and in order to comply with CREGResolution 061 of 2007.(2) Includes: $10,895 of invoices for use of lines and grids in November of 2009(2008 - $12,653); $12,493 of estimated use, connection and SIC charges inDecember of 2009 (2008 - $14,133); $12,937 of estimated fuel gas purchasesand transport (2008 - $9,409); $685 of FAZNI estimated for December (2008 -$958); purchase of Project studies of Sogamoso $20,810 (2008 - $22,958) andAndaquí $9,170 (2008 - $9,170) ; balance pending for construction of Sogamosois $4,493, of Amoyá is $831, of Manso and Andaquí is $3,976; acquisition of othergoods and services $24,820 (2008 - $18,662).As of December 31, bank guarantees with Bancolombia in favor of BP ExplorationCompany, BP Santiago OIL and TEPMA for USD 959 (2008 – USD 918) to guaranteegas purchases, and with TGI for $4,744 (2008 - $3,576) to guarantee gastransport.(3) Drop with respect to 2008 is mainly due to the fact that in such year, payment of18 month-renewal of combined material damages policy was pending.(4) Resources of the employees Health Solidarity Fund administered by theCompany.18. Taxes, imposts and dutiesThe balance of taxes, imposts and duties at December 31 included:2009 2008Deferred taxes (*) 252,609 220,010Provision for income tax and surtax 61,640 29,708Imposts 7,308 10,818Withholding tax 6,101 4,652Value added tax payable (428) (94)Municipal taxes 5 542327,235 265,636Less current portion (74,626) (45,626)Deferred tax non-current portion 252,609 220,010(*) Credit deferred tax corresponds to the tax effect of positive difference betweenfiscal depreciation and per-books depreciation.Tax regulations applicable to the Company provide, among others,the following obligations:Income taxThe following criteria, among others, were taken into account to calculateincome tax provision:Taxable income is subject to 33% rate.Special 40% deduction on investments in real productive fixed assets;application of this deduction excludes availing of the auditbenefit.Energy generation utilities are not subject to the presumptive incomesystem.100% of turnover tax, tax on billboards and signs, and real estatetax, can be deducted as long as they are directly related to thetaxpayer’s economic activity.100% levy on financial transactions can be deducted.Equity taxImpuesto sobre el patrimonio líquido poseído el 1 0 de enero de 2007,a la tarifa del 1,2%. Este impuesto podrá imputarse contra la cuentade revalorización del patrimonio, según la Ley 1111 de 2006. En laEmpresa se optó por este tratamiento.Other taxesDiscount of VAT paid on import or acquisition of heavy machineryfor basic industries.Progressive decrease of stamp tax rate up to 0%, as follows: 1%in 2008, 0.5% in 2009, and 0% from 2010 on.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.111Tax Law AmendmentTax amendment Law 1370 of December 30 of 2009 contains issuesthat directly affect ISAGEN, as follows:The equity tax is established for year 2011, to be fully recorded andcalculated in 2011. It shall be paid in eight equal installments between2011 and 2014, and can be recorded against the equity revaluationaccount, that is without affecting the results of the year.Starting 2010, deduction for real productive fixed assets will be30% and not 40%, as was the rule.Following is the calculation of income tax as of December 31:2009 2008Earnings before income tax provision 524,609 363,713Plus non-deductible expenses and taxable revenues:Loss on the sale of real property 331 361Provisions 296 158Non-deductible taxes 1,478 6,379Levy on financial transactions - 2,521Other non-deductible expenses 13,571 4,762Revenues from investment valuation 1,112 -Presumptive interest 325 -Less non-taxable revenues and deductible expenses :Recovery non-taxable revenues 6,744 2,235Deductible provisions 1,825 80Bigger tax depreciation expense 128,247 133,863Inflation adjustment in retirement of inventories 1,483 343Productive real fixed assets deduction 86,521 30,897Taxable income 316,902 210,476Tax rate 33% 33%Current income tax 104,578 69,457Withholding tax and credit balances (41,301) (39,749)Tax discount (1,637) -61,640 29,708Charges to the income statement for income tax are detailed below:2009 2008Current income tax 104,578 69,457Deferred tax payable 32,599 33,927Deferred tax receivable 1,681 8138,858 103,392Reconciliation between per-books and taxable equity at December 31:2009 2008Accounting equity 3,344,153 3,132,491Plus:Allowance for protection of inventories, receivables,40,032 47,965investments, and property, plant and equipmentCredit deferred tax 252,609 220,010Fixed assets equity difference 232,788 234,985Less:Debit deferred tax 7,326 9,007Deferred depreciation 936,995 808,899Reappraisals 1,035,410 1,037,219Fiscal equity 1,889,851 1,780,326The income tax return for 2008 is subject to the review and approvalby the tax authorities. The Company’s management and its legalcounsels consider that no differences will arise in this respect.Management considers that the amount recorded as tax provision isenough to cover any liability that may arise with respect to 2009.Income tax returns for 2009 shall be filed by April 13, 2010.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.11219. Labor liabilitiesBalance of financial liabilities at December 31 included:2009 2008Retirement pensions (1) 68,224 60,671Severance payments and interest 3,663 3,152Vacations and vacation bonus 3,447 3,063Other provisions 1,933 1,86177,267 68,747Less current portion (21,154) (16,000)Non-current portion 56,113 52,747(1) The balance of labor liabilities as of December 31 includes:2009 2008Initial balance 60,671 48,777Year payments (7,560) (6,630)Year increase (*) 15,113 18,524Retirement pensions – Net 68,224 60,671(*) Since actuarial calculation is 100% amortized, any variation is recorded in theincome statement. See note 27.According to the Law, actuarial calculation includes 12 regular monthlypension payments plus additional monthly pension payments inJune and December.The main estimates used in the actuarial calculation were as follows:2009 2008Pension readjustment rate (1) 6.48% 5.15%Technical interest rate (2) 4.80% 4.80%Number of people covered (3) 148 147(1) Weighted average of inflation rates for 2006, 2007 and 2008, with the followingrelative importance weights: 2008, three points; 2007, two points; and 2006, onepoint, as provided by Number 1 of Article 1 of Decree 2783 of December 20 of2001.(2) Percentage established in Number 2 of Article 1 of Decree 2783 of December 20of 2001.(3) Includes 132 current pensioners; of them, 47 have pensions shared with the socialsecurity system, and 16 are expected to retire in July 31, 2010.20. Other liabilitiesBalance of other liabilities at December 31:2009 2008Advances received from customers (1) 38,960 11,574Contract withholding (2) 4,434 1,251Contingency provision (3) 525 522Collection shareholding democratization 299 770Customers loyalty bonus points (4) 536 525Other 174 18344,928 14,825Less: Current portion (40,494) (13,574)Non-current portion 4,434 1,251(1) crease explained by $17,039 advance payments received from VenezuelanElectrificadora de Caroni – Edelca. Such advance payment are required as wayof guarantee.(2) Accounts payable for contractual withholdings to contractors of productive projectsas way of guarantee. These withholdings shall be reimbursed upon satisfactorycompletion of the works $4,434 (2008 - $1,251).(3) Mainly, provision to cover contingent unfavorable decisions in the followingprocesses:Muncipality of Victoria:Nullity and Redress lawsuit against administrative decisions issued by the municipalityof Victoria, Caldas Province regarding payment of royalties for quarryexploitation for construction of Miel I power plant. Decision of November 23,2006 of Administrative Court of Caldas denied the Company’s claims. An appealwas filed with the Administrative Supreme Court. Estimated amount payable,including interest, totals $246 for 2009 and 2008.Rafael Gross Bohórquez:Administrative claim for damages suffered on occasion of construction of a generationplant. This claim was assigned to ISAGEN upon ISA’s split-off. The trialcourt decision was unfavorable to the Company. It is currently awaiting appealdecision by the Administrative Supreme Court. Amount claimed totals $176 for2009 and 2008.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.113(4) Provision to cover customer bonuses granted under loyalty program; bonuspoints given for energy purchases can be redeemed later for technical services.Points are valid for 2 years but can be cancelled upon payment default. TheCompany’s statistics show good use rate.21. Capital stockSubscribed and paid-in capital at December 31 was distributed asfollows:ShareholderNumber ofShares2009Value %The State 1,571,919,000 39,298 57.66Empresas Públicas de Medellín E.S.P. 352,960,000 8,824 12.95Fondo de Pensiones Protección 116,648,004 2,916 4.28Fondo de Pensiones Porvenir 89,744,079 2,244 3.29Minority shareholders * 594,800,917 14,870 21.82Total 2,726,072,000 68,152 100.00ShareholderNumber ofShares2008Valor %The State 1,571,919,000 39,298 57.66Empresas Públicas de Medellín E.S.P. 352,960,000 8,824 12.95Empresa de Energía del129,989,917 3,250 4.77Pacífico S.A. - E.S.P.Fondo de Pensiones Protección 99,911,500 2,498 3.67Fondo de Pensiones Porvenir 88,495,574 2,212 3.25Minority shareholders * 482,796,009 12,070 17.70Total 2,726,072,000 68,152 100.0022. ReservesBalance of reserves at December 31 included:2009 2008Legal reserve (1) 51,134 51,134Mandatory reserve for tax purposesArticle 130 of Tax Law (2) 480,485 407,161Article 272 of Tax Law (3) - 559Investment occasional reserve (4) 38,446 -570,065 458,854(1) The law requires the Company to appropriate 10% of annual net income as a legalreserve until the balance of the reserve is equal to 50% of subscribed capital.This mandatory reserve may not be distributed prior to the liquidation of theCompany, but may be used to absorb or reduce net losses of the year. Any balanceof the reserve in excess of 50% of subscribed capital is at the disposal ofthe shareholders.(2) Since 2004, the Shareholders’ Meeting in compliance with Article 130 of the TaxLaw, has appropriated this net income reserve equivalent to 70% of depreciationin excess of per-books depreciation. As legally provided, this reserve can bereleased whenever subsequently accounted depreciation exceeds tax depreciation,or when the assets giving rise to the incremental amount deducted are sold.(3) In compliance with Article 272 of Tax Law and Article 1 of Regulatory Decree2336 of 1995, a reserve was established with per-books income resulting fromapplication of special investment valuation systems at market values and not realizedaccording to tax regulations. Such reserve can only be affected whensuch income is capitalized or when the revenue is fiscally realized.(4) The Stockholders’ Meeting approved establishment of $38,446 occasional investmentreserve from net taxable after-dividend income of year 2008.(*) Minority shareholders are those owners, beneficial owners or administrators ofcommon shares together representing up to 3% of outstanding common shares.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.11423. Equity revaluationInflation adjustments to balances of equity accounts until December31, 2001 have been credited to this account. According to currentregulations, this balance cannot be distributed as earnings until theCompany is liquidated or capitalized; however, it may be used to recordequity tax. Such capitalization represents for the stockholdersrevenues not constituting income or excess profits.24. Effects of changes to the PublicAccounting General PlanBalance of this account at December 31, 2009 and 2008 included:Assets impairment 18,718Studies write-off 68119,39925. Operating revenuesBalances of operating revenue accounts for the years ended onDecember 31 included:2009 2008Energy sales through contracts (*) 957,069 982,811Energy Pool sales 392,578 166,955Gas sales 54,508 76,830Technical Services 6,397 5,1041.410,552 1.231,700(*) Sales of energy under contracts include: $447,025 for regulated companies(2008 - $484,745), $448,461 for non-regulated companies (2008 - $477,185),and sales to Venezuela for $61,583 (2008 - $20,881).Accumulated balance corresponds to the effect on equity of regulationchanges established in 2006 by the National General AccountingOffice in the Public Accounting General Plan (PGCP, for its Spanishinitials) for treatment of assets’ impairment and intangibles duringthe projects’ research stage.Such item is included in equity at the disposal of the Shareholders’Meeting.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.11526. Costs of sales and service delivery2009 2008Energy purchases 271,918 216,454STN use and connection charges 159,168 166,633Depreciation 96,019 100,306Fuel 88,680 88,446Personnel expenses 48,404 42,453Transfer (Law 99/93) 31,436 33,193Maintenance and repairs 26,911 24,792Insurance 13,958 15,817Security 11,145 17,737FAZNI Contribution 10,129 10,134CND, CRDs and SIC 7,497 6,305Customer attention 6,986 6,858Transport and freight 6,563 6,451Community relations 6,466 5,883Taxes and imposts 5,326 8,541Environmental management plan 4,450 7,689Janitorial and restaurant services 3,405 3,087Fees 1,455 4,169Rentals 1,338 1,602Studies and projects 1,230 838Other 3,462 3,233805,946 770,62127. Administration expenses2009 2008Personnel expenses (1) 43,130 43,281Taxes and imposts (2) 9,421 6,758Depreciation and amortization 7,374 5,738Fees 4,743 5,249Maintenance and repairs 4,436 4,154Advertising 1,191 753Legal expenses (3) 6,979 25Other general expenses 8,294 7,23385,568 73,191(1) Includes $15,113 (2008 - $18,524) of adjustment to pension liability for retirementpensions.(2) Includes mainly $1,594 (2008 – $1,326) National General Auditing Office fees;$1,388 (2008 - $1,086) Contribution for 2009 to the Superintendency of PublicUtilities; $602 (2008 - $510) Contribution to the Energy and Gas RegulatoryCommission – CREG; $712 (2008 - $369) Turnover Tax; $94 (2008 - $92) RealEstate Property Tax; $4,923 (2008 - $3,361) Levy on Financial Transactions.(3) Includes mainly $6,610 for procedures to discharge mortgage on Miel powerplant, established to guarantee FEN loan repaid in 2007.28. Non-operating revenues – MiscellaneousBalance of non-operating revenues at December 31 included:2009 2008Loss of revenue indemnities (1) 13,786 8,763Recoveries (2) 7,989 7,238Fines and penalties (3) 6,001 203Other extraordinary revenues 1,194 2,223Default interest 915 181Prior years adjustments 3 22429,888 18,832Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.116(1) In 2009 and 2008, includes payment from insurance company for losses in SanCarlos power plant.(2) Includes mainly: recovery of provision for doubtful accounts of EMCALI $2,246(2008 - $1,736); sale of land plot to Hidroeléctrica Pescadero Ituango $200; adjustmentfor increased value of income tax provision of 2008, $4,338; recoveryof administration costs of UPME studies $117 (2008 - $1,072). Also included in2008, recovery of provision for Tocancipa Municipality’s claim for $2,150.(3) Fine to Ecopetrol for default in gas supply.29. Non-operating expenses – Miscellaneous2009 2008Financial operations insurance(1) 7,963 7,228Extraordinary (2) 7,329 362Bank fees and expenses (3) 6,423 3,055Provisions (4) 1,424 1,693Early payment discounts 1,110 1,280Trusts administration 436 356Expenses from prior years 304 3,23224,989 17,206(1) Includes mainly, $5,631 (2008 - $7,228) for Opic insurance commission andcounter guarantee $2,332 (2008 - $3,055).(2) Mainly, loss in inventory valuation for $5,750.(3) Includes mainly: commission and consulting for Opic debt restructuring andSogamoso restructuring 2,970 (2008 - $307); guarantees $690 (2008 - $726);bank fees $685 (2008 - $348); dividend payment fees $2,084 (2008 - $1,633).(4) Includes mainly, provision for doubtful accounts for $430 (2008 - $1,051), provisionfor customer loyalty program for $875 (2008 - $485).30. Memorandum accountsThe balance of memorandum accounts at December 31 was:2009 2008DebitContingent rights (1) 66,603 60,786Tax debit memorandum accounts (2) 356,316 591,976Control debit memorandum accounts 158,177 61,122581,096 713,884CreditContingent liabilities (4) 3,673,418 1,751,059Tax credit memorandum accounts (5) 3,343,305 3,155,866Control credit memorandum accounts 100,452 -7,117,175 4,906,925(1) Contingent rights for 2009 and 2008 include mainly:Insurance claim for $9,920 (2008 - $11,085) against Mundial de Seguros forTermocentro Plant loss.Claim against the Ministry of Mines and Energy and Superintendency ofDomiciliary Public Utilities for damages resulting from taking over and liquidationof Electrochocó for $13,003 (2008 - $12,077).Rights over studies of the Pescadero – Ituango Project for $14,208 (2008- $13,930).Claim against Cimitarra Municipality regarding turnover tax and tax on billboardsand signs for $3,240 (2008 - $3,240).Claim against Electrificadora del Tolima for recognition of $1,471 default intereston liquidation estate for $1,917 (2008 - $1,780).Claim against Caloto Municipality for turnover taxes for $1,378.Counter claim for $8,908 against Consorcio Miel I for consequential damagesand loss of revenue in the same process in which Consorcio Miel I is suingthe Company.Rights over Ambeima Project studies for $214.Claim against Resolution No. 180436 of April 10, 2006 of the Ministry ofMines and Energy charging for the rights over Urra for $8,944.Claim against resolution of the Superintendency of Domiciliary Public Utilitiesestablishing $1,743 (2008 - $1,618) contribution for 2007.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.117(2) Reconciliation of per-books and fiscal differences for re-appraisals, non-deductibleexpense, fixed assets and debit deferred tax.(3) Securities under DECEVAL custody for $158,177 (2008 - $61,122).(4) Includes the following contingencies:Long-term energy sales for $3,422,775 (2008 - $1,446,151), approximately.No losses are foreseen for the Company regarding such sales.Arbitration claim by Consorcio Miel I under M-I100 contract for constructionof Miel I Hydroelectric Plant regarding extension of term and third party liability.Amounts claimed total $120,039 and USD 21,974. (2008 – sameamounts).Letter of credit to guarantee semiannual payment of OPIC debt for $21,565(2008 - $36,638).Claims for $5,088 (2008 - $5,187) regarding turnover taxes filed by theMedellin, Norcasia and Puerto Tejada municipalities. Claims have been filedagainst such taxes with each Province’s Administrative Tribunal. Also, claimsfiled by the San Carlos and San Rafael municipalities for $4,245 (2008 -$3,259) regarding turnover tax generated by AGC and capacity charge.Claim filed by Producciones Punch for $1,173 (2008 - $900) for damages resultingfrom energy rationing.Resolution No. 180436 of April 10, 2006 by which, the Ministry of Mines andEnergy demands payment of rights in Urra Project for $8,944 that had beenpreviously assigned under ISAGEN’s capital reduction process.(5) Reconciliation of per-books and fiscal differences that include provisions, nontaxablerevenue from investment portfolio, recoveries and credit deferred tax.(6) Mainly, securities received as guarantee for term or REPO operations, which arevalued at market prices.31. Transactions and balances between related partiesShareholders (*) AdministrationBoard ofDirectorsEPMNationalGovernment2009Balance sheetAccounts receivable - - 137 -Liabilities 1,919 2 - -Related transactions toincome statementLocal Distribution System Use 11,782 - - -Gas Trading Cost 621 - - -Energy, water and524 - - -telephone utilitiesFees - - - 362Salaries and labor benefits - - 3,970Other transactionsDividends 19,308 85,990 50 -2008Balance sheetAccounts receivable 4,696 - 377 -Liabilities 380 2 - -Related transactionsto income statementEnergy and gas sales 50,256 - - -Local Distribution System Use 4,430 - - -Gas Trading Cost 1,021 - - -Energy, water and189 - - -telephone utilitiesFees - - - 360Salaries and labor benefits - - 2,949 -Other transactionsDividends 17,542 78,124 38 -(*) Shareholders are those with more than 10% of outstanding shares (note 21).Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.118All operations carried out with shareholders, managers and theBoard of Directors were conducted under market conditions. No revenuefrom energy sales to shareholders was received in 2009. In2008, such sales amounted to 4.1% of operating revenue, whilecosts and expenses to 1% (2008 - 1%).Additionally, the Company carries out purchases and sales of serviceswith related companies in which the State has direct or indirectparticipation. Such operations are conducted under market criteria.32. Subsequent eventsNo relevant issues were discovered after closing of the financialstatements that might materially affect the financial situation of theCompany as reflected on the financial statements as on December31, 2009.Contents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.119ABBREVIATIONSABC:CND:CRD:Activity-Based CostingNational Dispatch CenterRegional Dispatch CenterCREG: Energy and Gas Regulatory CommissionE.A.:Annual effectiveFAZNI: Financial Support Fund for Electrification of Non-Interconnected RuralAreasFEN:CPI:Financiera Energética NacionalConsumer Price IndexOPIC: Overseas Private Investment CorporationSIC:STN:Commercial Settlement SystemNational Transmission SystemSUCG: Unified Costs and Expenses SystemUPME: Mining and Energy Planning UnitUSD:US DollarContents Letter from the CEO Achievements2009Good GovernancePractices EvaluationCorporateManagementFinancial Management

ANNUAL REPORT 2009 / ISAGEN S.A. E.S.P.120