ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Notes of specific nature 1116. Transactions in foreign exchange 1117. Available cash 1128. Investments, net 1139. Debtors, net 11410. Inventory, net 11711. Property, plant and equipment, net 11712. Prepaid expenses 12013. Deferred charges 12014. Other assets 12115. Valorizations 12116. Financial obligations 12217. Accounts payable 12418. Taxes, contributions and rates 12419. Deposits received in administration 12820. Labor obligations 12821. Other liabilities 12922. Corporate equity 13023. Reserves 13024. Equity revalorization 13125. Effect of changes in the General Planof Public Accounting 13126. Operational income 13127. General, personnel and other expenses 13228. Administrative expenses 13229. Non-operational - diverse income (expenses), net 13230. Memorandum accounts 13331. Transactions and balances among related parties 13532. Subsequent events 136Legal Representative Report 137Reference table for acronyms 139Chart and graph indexChartsBusiness Management & PerformanceChapter 1 / Energy trading1. Evolution of Energy Exchange price 392. Income for energy and gas trading 403. Expenditures for energy and gas trading 414. ISAGEN’s energy trading throughlong-term contracts 425. Transactions with Venezuela 426. Energy Exchange transactions 437. AGC services 448. Remuneration of deviations 449. Remuneration of reliability 4510. Charge for reliability remuneration and obligations2007 - 2008 4611. Charges for participating in MEM 4712. Natural gas trading income 4813. Natural gas trading expenditures 4814. Technical services 49Chapter 2 / Energy production1. Technical characteristics of ISAGEN’s powergeneration plants 532. ISAGEN’s share in SIN generation 543. Net generation evolution (GWh) 544. Evolution of ISAGEN’s power plants availability 56Financial Management & PerformanceChapter 1 / Financial results1. Relevant figures 812. Operational income 833. Financial conditions of debt 87GraphsCorporate Management & PerformanceChapter 1 / Energy trading1. Average price of ISAGEN & MEM’s contractsand Exchange price ($/kWh) 402. Sales breakdown of contracts - revenue (%) 423. Charge breakdown for participating in MEM 47Chapter 2 / Energy production1. Generation evolution of ISAGEN’s power plants2000 - 2007 (GWh) 552. Power plants share in ISAGEN’s net generation(%) - 2007 553. ISAGEN’s availability evolution (%) 2000 - 2007 56Chapter 4 / Management & Performance of the Organization1. Accidents rate 2003 - 2007 71Financial Management & PerformanceChapter 1 / Financial results1. Corporate value results 822. Operational income 833. Operational costs and expenses 844. Evolution of operational profit, operationalmargin and EBITDA margin 845. Income tax provision 856. Margin and net profit 857. Balance sheet 868. Debt 869. Debt breakdown by rate and currency 8710. Debt maturity profile 8711. Behavior of ISAGEN’s stock 88ISAGEN S.A. E.S.P. ANNUAL REPORT 20073

BOARD OF DIRECTORSBoard of Directors between April 1, 2007 and November 26, 2007.PRINCIPAL MEMBERMinistry of Mining and EnergyMinister of Mining and EnergyHERNÁN MARTÍNEZ TORRESMinistry of the Treasury and Public CreditGeneral Director of Public Creditand the National TreasuryJULIO ANDRÉS TORRES GARCÍARAMIRO VALENCIA COSSIOEnergy DirectorEmpresas Publicas de MedellínJESÚS ARTURO ARISTIZÁBAL GUEVARALUIS FERNANDO URIBE RESTREPODEPUTY MEMBERMinistry of Mining and EnergyVice-Minister of Mining and EnergyMANUEL FERNANDO MAIGUASHCA OLANOMinistry of the Treasury and Public CreditPrivate Participation Group CoordinatorCARLOS CAYCEDO FRANCOALEJANDRO GAVIRIA URIBECommercial Sub-Manager of GenerationEmpresas Publicas de MedellínRAFAEL PÉREZ CARDONAGERMÁN JARAMILLO OLANOBoard of Directors elected as of November 26, 2007.PRINCIPAL MEMBERGeneral Vice-MinisterMinistry of the Treasury and Public CreditGLORIA INÉS CORTÉS ARANGOMinister of Mining and EnergyHERNÁN MARTÍNEZ TORRESRAMIRO VALENCIA COSSIOLUIS ERNESTO MEJÍA CASTROEnergy DirectorEmpresas Publicas de MedellinJESÚS ARTURO ARISTIZÁBAL GUEVARAANDRÉS FELIPE MEJÍA CARDONALUIS FERNANDO URIBE RESTREPODEPUTY MEMBERGeneral Director of Public Creditand the National TreasuryMinistry of the Treasury and Public CreditJULIO ANDRÉS TORRES GARCÍAVice-Minister of Mining and EnergyMANUEL FERNANDO MAIGUASHCA OLANOMARÍA CONSUELO ARAÚJO CASTROGERMÁN JARAMILLO OLANOCommercial Sub-Manager of GenerationEmpresas Publicas de MedellínRAFAEL PÉREZ CARDONAÓSCAR ELADIO PAREDES ZAPATAALEJANDRO GAVIRIA URIBE4 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

MANAGEMENTLuis Fernando Rico PinzónGeneral ManagerRodrigo Toro EscobarFinancial ManagerLiliana María Zapata MadridTrading ManagerJorge Ignacio Correa EscobarEnergy Production ManagerMarÍa Luz Pérez LópezGeneration Projects ManagerManuel Homero Fajardo CuadradoAdministrative ManagerGloria María Úsuga YepesOrganizational AuditingJairo Alberto Sierra LoperaGeneral SecretaryMargarita Rosa Giraldo GallónCorporate Image DirectorISAGEN S.A. E.S.P. ANNUAL REPORT 20075

MISSIONISAGEN develops generation capacity, produces,and trades energy in order to satisfy their customers’needs and create corporate value. The companyperformance is carried out with ethics, customerfocus, economic sense and social and environmentalresponsibility.VISIONISAGEN is the Colombian leader in generation andreal-time energy transactions. The Company is thecustomer’s productivity allied, and it is recognizedfor their energy businesses in the internationalmarkets.The integral development of its employees and itscorporate responsibility are the cornerstones for thejoint value creation for shareholders and society ingeneral.VALUESEthicsRespect for peopleDisposition for changeHumilityTeamworkSelf-controlSocial and environmental responsibilityEconomic senseCustomer focus6 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

LETTER FROM THE BOARD OF DIRECTORSAND THE GENERAL MANAGER TO THE GENERALASSEMBLY OF SHAREHOLDERSMessrs Shareholders:2007 will be remembered as the year that marked a new stage in the history of ISAGEN,thanks to the stock democratization of 19,22% of the Nation’s property in the Company,which allowed to involve more than 72 thousand Colombians as new Shareholders. Inthe current scenario, production and trading energy activities and project developmentcarried out by ISAGEN are oriented towards fulfilling the commitment contracted withall of you in terms of solidity, responsibility, and growth.The outstanding behavior of the Colombian economy during 2007 drove the electricindustry in an important fashion, which, together with the effective performancedeveloped by ISAGEN, allowed the Company to register outstanding facts such asthe substantial increase in its revenue for energy and gas sales, advances in theshort-term expansion plan, definition of its generation capacity growth strategy forthe 2010-2020 period, consolidation of the human management model, and thestrengthening of the corporate responsibility practices.The results of these and other important facts for ISAGEN are presented in thefollowing summary.Financial resultsIn 2007, ISAGEN’s operational income amounted to $1.070.018 million, presentinga positive variation of 20,1% against the value obtained the previous year mainlybecause of an 18.78%- increase in the Company’s generation and the incrementin energy demand of the country. The operational profit was $326.929 million, foran operational margin of 30,6%, while the EBITDA margin was 40,5%. By year-end,the Company obtained a $207.895-million net profit, 21,9% higher than the profitregistered in 2006.LETTER FROM THE BOARD OF DIRECTORS AND THE GENERALMANAGER TO THE GENERAL ASSEMBLY OF SHAREHOLDERS7

Commercial management & performanceThe sustained growth of the industrial activity was one of the most outstanding trendsduring 2007. The effect of such situation upon the marketing strategy performance ofservicing customers oriented toward manufacturing produced satisfactory commercialresults during this period.As a consequence of the marketing deployment for taking advantage of the internalstrengths and the market opportunities, the Company’s revenue for electricity andgas sales increased 20,1% with respect to 2006.Regarding electricity sale contracts, a 22,2% increase was obtained in comparisonwith the previous term, mainly because of demand growth represented by bothcommercialized quantities by contracts and their prices, thus generating $850.866million revenue.Regarding natural gas sale contracts, a 25,1% increase was obtained in relation to2006, because of the income growth in wholesaler sales and business promotion oftransport cession. Income for gas trading in 2007 was $39.851 million.The Energy Exchange also grew both in quantities and in price, particularly becauseof the price pressure generated at the beginning of the year by the occurrenceexpectation of a dry climatic phenomenon and by the increase of ISAGEN’s powerplants generation. In 2007, income for such concept was $175.980 million, representinga 9,5% increase with respect to 2006.Thanks to the combination of the above mentioned commercial mechanisms, theCompany was able to maintain its commercial operational margin at the same levelsof the previous year, in spite of the normative changes originated in the Charge forReliability new methodology, which pressed expenditure increment for commercialoperation. In the year cumulative, the total rebate for this concept was $99.713,5million representing 453,4% increase for the expenditure.Among other concepts, technical services sales to industrial customers for $3.297,9million are highlighted, representing an increase of 95,03% over the previous years.On the other hand, the solution portfolio continues consolidating ISAGEN’s positionin front of the large industry, signifying a preference guarantee from the customers.During 2007, 99% of the commercial agreements of energy and gas sales to largecustomers were renewed and a 79% penetration with the service portfolio in industrialinstallations of customers was achieved, representing nine points above the proposedgoal.Energy productionThanks to the effective operation and maintenance management, a 10.028,71 GWhgeneration was achieved during this term constituting the highest generation ever8 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

achieved in the history of ISAGEN, widely contributing to the commercial resultachievement registered in 2007.Maintenance and modernization plans were achieved at all power plants thuspropitiating that their availability reached 89,76%, representing 2,87% increase abovethe expected value for the year.Two milestones should be highlighted during the year, the completion of the SanCarlos’ power plant generator modernization of units Nos. 1, 2, 3 and 4 and theTermocentro’s power plant No. 1 gas turbine major maintenance.Additionally, and in compliance with ISAGEN’s commitment with sustainabledevelopment, Law 99-transfers were effected to autonomous corporations andmunicipalities of their area of influence for the amount of $31.273,5 million. Moreover,a $4.598,9 million voluntary investment was made for developing the social andbiophysical investment programs directed towards communal participation andformation in the power plants’ area of influence and to the environmental improvementof the contributing basins to their dams. Likewise, the environmental managementplans were executed with a $3.493,8 million investment.Energy generation projectsIn an effort for attending the country’s increasing energy demand and the Company’sgrowth and competitiveness, significant advances were achieved in the Short-TermExpansion Plan execution. The plan comprises the Guarino, Manso and Amoyaprojects.A 28%-progress level was achieved regarding the execution of the Guarino Riverdiversion project to the Amani dam. Such project will enable increasing Miel Ipower plant’s generation in 238 GWh-year by 2010. Likewise, progress has beenaccomplished in the pre-construction activities of the Manso river diversion project.A request for modifying the Environmental Licensed of the project has been filed inorder to improve its efficiency.Regarding the Amoya River hydro electrical project the Company highlights thetransparency and ample participation in the information and concentration processconducted with the communities located on its area of influence, and with theauthorities of the Chaparral Municipality and the Tolima Department. The creation ofthe “Transparency Table” for the human rights surveillance in Chaparral stands outas part of the process. The “Transparency Table” is constituted by representativesof the United Nations, the delegates of the Vice-presidency for Human Rights, theAttorney General, the People’s Defender (Ombudsperson), the Public Prosecutor, theCTI (Technical Body of Investigation), the Army’s Fifth Division for Human Rights, theGovernorship of Tolima, the Secretary’s office for Government and Peace Advisory,the Mayor and the Municipal Controller, five representatives of the community, andthe National Police. Likewise, progress was achieved for contracting of civil works,electromechanical equipment, and delivery in operation.LETTER FROM THE BOARD OF DIRECTORS AND THE GENERALMANAGER TO THE GENERAL ASSEMBLY OF SHAREHOLDERS9

Concerning the Studies Plan, the analysis for project selection was completedenabling the expansion strategy definition of ISAGEN’s generation capacity for the2012-2020 period, which includes, among others, the Sogamoso hydro electricalproject. Contracting of the public bidding’s updating of designs and updating of thecorresponding Environmental Management Plan were carried out for such project.Regarding development and application of clean energy sources in Colombia,foreseen in the Studies Plan, a Subsidy Agreement was subscribed with the USTDAfor conducting a geothermal project, which initiates with contracting technical prefeasibilitystudies during 2008. Likewise, progress was made in activities included inthe Renewable Iberdrola agreement whose object is identifying the country’s aeolianpotential and developing the corresponding projects.Moreover, through a technical cooperation agreement subscribed with Colcienciasand different Colombian universities, the “Normative for motivating alternative sourcesand distributed generation” study was completed, identifying policies, norms, andinstruments that have made the commercial development of these technologiesfeasible in other countries around the world, thus enabling the establishment ofdifferences and the evaluation of potential impacts on the Colombian system. The“Energy generation utilizing tides, swells, and sea currents in the Colombian coastalregion” study was also completed, obtaining an estimate of the existing energeticpotential on the Colombian seashores.Financial management & performanceThe year 2007 presented great challenges for ISAGEN. One of the most significantchallenges was the Stock Democratization Program, which brought 72.344 newstockholders to the Company by acquiring 19,22% of the outstanding shares thatbelonged to the Nation.The Program results surpassed expectations achieving a more than a five-fold demandof the amount offered to the public, thus reflecting a confidence vote deposited by alarge number of Colombians in the Company solidity and the future of the Colombianelectric industry.It is also worth highlighting that for the second consecutive year Duff & Phelps ofColombia ratified ISAGEN’s local credit risk rating as AAA. Likewise, Fitch Ratingsgranted the Company a BB+ rating. Such ratings constitute the maximum gradinggranted to a company in relation to its corporate debt, and reflect ISAGEN’s positionin the market, its solid marketing strategy, and its credit quality.10 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Management and performance of the organizationDuring 2007, the Organization continued implementing practices with internationalmanagement standards for supporting its corporate productivity, achieving theManagement Systems in Safety and Occupational Health certification and maintainingthe Quality Management System and Environmental Management certificates.Regarding employee development, the most important achievement of the year wasestablishing a competency state baseline for all people involved and the individualdevelopment plan definition required for facing the organizational challenges.The National Association of Public Domiciliary Utilities Companies - ANDESCO(for its acronym in Spanish) - declared ISAGEN as out-of-contest in the ANDESCOSecond Award to Corporate Social Responsibility for its outstanding practices in theenvironmental, social, labor, Good Government, and market scopes. Likewise, theWorld Pact featured as “Remarkable” the progress report presented by the Company,considering it as an illustrative example for communicating practices in compliancewith the initiative principles.By the end of 2007, a statutory reform was approved by the General Assembly ofShareholders, and the Good Government Code was updated. Such changes pursuedthe inclusion of provisions ensuring Shareholders rights, contained in the ShareholderAgreement subscribed by the Nation before the Democratization process took place.Moreover, modifications based on the Best Corporate Practices Code issued by theColombian Financial Superintendence were carried out.Control entities supervising the Company’s performance were unanimous in ratingthe Internal Control System as effective, and for the fifth consecutive year, the GeneralControllership of the Republic rated ISAGEN as a low-risk corporation, improving evenits rating with respect to previous years.Legal mattersIt is pertinent to point out that all software available for carrying out ISAGEN’smanagement activity is licensed based on provisions established by the Law ofIntellectual Property and Copyrights.During 2007, regarding the arbitration proceedings being processed under theInternational Chamber of Commerce of Paris’ rules, summoned by the Miel Consortiumrelating the Miel I power plant construction, the evidence reception stage wascompleted, and between February 4 and 15, 2008, the second evidence hearing tookplace. The Company is proceeding with the preparation of conclusive allegations thatshall be presented to the court in the second semester of 2008.Regarding the proceedings corresponding to the lawsuit presented by EmpresasPublicas de Medellin against the majority decision of the General Assembly ofShareholders for the capital reduction in 2000, which was at court for sentencingLETTER FROM THE BOARD OF DIRECTORS AND THE GENERALMANAGER TO THE GENERAL ASSEMBLY OF SHAREHOLDERS11

since October 15, 2004, the above-mentioned entity presented on January 28, 2008an abandonment of action motion, which was seconded by the Company.Messrs Shareholders, the invitation made to you for becoming part of the Companywas supported on the solidity, growth, and responsibility of ISAGEN’s managementand performance. We are convinced that the results being delivered today to youdemonstrate our high sense of commitment for consolidating the efficiency standards,which have distinguished us, and for ratifying to you with facts that your decision ofinvesting in our Company was a success.The near futureFor the years to come, ISAGEN has a defined path fundamentally oriented towardsincreasing your value through utilizing the opportunities offered by the current modelof the energy industry. If the previous years were featured by achievements regardingthe financial restructuring and the democratization of the Company, 2008 becomesthe year for the definitions of ISAGEN’s development. In such sense, the Companywill focus on solidifying its growth through the participation in the May auctions, whichis foreseen as part of the new scheme for Charge for Reliability, the pursue of newinternational business opportunities, and through the active participation in innovativetransactional mechanisms such as the Regulated Organized Market - MOR (for itsacronym in Spanish).The materialization of the corporate purposes defined for 2008 and the years to come,will enable the Company to make a significant contribution to the sustainability andvalue creation of its stakeholders and to drive the country with the productive energydelivered each day.Finally, we make public acknowledgment to ISAGEN employees for facilitating theachievement of the results we share with you today and to our Shareholders fortheir trust, which compel us each day more to continue generating value for youinvestments.Thank you very much,LUIS FERNANDO URIBE RESTREPOPresident - Board of DirectorsLUIS FERNANDO RICO PINZÓNGeneral Manager12 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

INTRODUCTIONDuring 2007, ISAGEN strengthened its Good Corporate Government practices asconsidering them decisive for the Company’s sustainability and growth, and takinginto account the new challenges imposed by the Stock Democratization Programregarding this subject matter.In addition to complying with legal requirements, ISAGEN’s fundamental purposewith the Good Corporate Government practices is to solidify the trust of the 72thousand new Stockholders and of all of its stakeholders. In such sense, precisions,improvements and clarifications were introduced to the following aspects ofthe Good Government Code: performance or behavior framework, equitabletreatment to Shareholders, officers of governmental bodies, General Assemblyof Shareholders, Board of Directors, information disclosure to Shareholders, themarket, and control mechanisms.Adjustments made to the Good Government Code and to the internal normativecomply with the Stock Democratization Program’s promise and with theSuperintendence’s Circular Letter 028 of 2007. It is worth highlighting the Company’svoluntary adoption and execution of practices that transcend legality.The following report presents a compliance summary of commitments establishedin the Good Government Code, and it describes relevant aspects of ISAGEN’sCorporate Government, in particular, adjustments made during 2007. All of theabove-mentioned is framed within the purpose of strengthening an ethics-basedcorporate culture.ASSESSMENT METHODOLOGYComplying with what ISAGEN Statutes establish, the Organizational Auditing teamand the Fiscal Auditing assessed the state and compliance of the Good CorporateGovernment practices during 2007.The assessment methodology was based on the following tools:Self-evaluation questionnaireThe application of such questionnaires had as objective the assessment of compliancewith Good Corporate Government practices regarding conflict of interests, behavioralguidelines, and commitments with stakeholders. Questionnaires were directed towardsa sample of the Company employees.AssessmentsInternal and external auditing was conducted by the Organizational Auditing teamand by the external control entities.Result follow-up of the Company’s management toolsFollow-up was conducted to the Indicator Balanced Scorecard, the corporateresponsibility report, requests, and shareholders’ claims and complaints, amongothers.COMPLIANCE ASSESSMENT OF GOOD CORPORATE GOVERNMENT PRACTICES 15

Perception survey of Good Corporate Government practicesIn the ISAGEN’s reputation perception measurement, carried out by the Centro Nacionalde Consultoria (National Center of Consultancy), questions regarding complianceperception of Good Corporate Government practices in the Company were included.Such questions were formulated to Shareholders, customers, suppliers, workers,regulation and surveillance bodies, and the StateCHANGES PRESENTED IN THE GOODCORPORATE GOVERNMENT CODEThe Good Corporate Government Code modification was performed based on Circular028 of 2007 of the Superintendence, the Shareholder Agreement, and changes in theCorporate Statutes, product of the Stock Democratization Program. Such modificationswere approved in the Board of Directors’ meeting of December 14, 2007.Main changes were as follows:Performance or behavior frameworkElements that define the Company’s performance or behavior before its stakeholderswere specified.Equitable treatment to ShareholdersRules for profit distribution: profit distribution was clarified.Shareholder Attention: new mechanisms for attending Shareholders wereestablished.Shareholders Duties: duties of Shareholders with the Company were specified.Compliance with the Good Corporate Government Code: the way by whichShareholders can formulate complaints on noncompliance of the Good CorporateGovernment practices was defined. Operations with affiliated or economically involved companies: some practicesregarding goods and services purchases and sales with affiliated or economicallyinvolved companies were specified, as per definition of the ShareholderAgreement.Prohibition for acquiring or disposing of the Company stock, prohibition for stockrepresentation in the General Assembly of Shareholders, and stock repurchasepolicy: applicable criteria to stock purchase and sale by the Board of Directors’members and ISAGEN’s management, stock representation and stock repurchasewere defined.The Company and its GovernmentThis chapter was structured determining exactly Good Corporate Governmentpractices of the General Assembly of Shareholders, the Board of Directors andtheir committees, and the General Manager.16 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

ASSESSMENT OF 20071. PERFORMANCE AND BEHAVIOR FRAMEWORKThe performance and behavior framework of the Good Corporate Governmentpractices describes the scheme and rules that will guide the Company’s performanceand behavior before its stakeholders.Management modelThe corporate values promotion continued throughout different activities of theOrganization.Statement of Ethical BehaviorsLaunching of the Statement of Ethical Behaviors for the Company’s employees wascarried out. Moreover, as a product of such Statement, the Ethics Committee wasestablished. The Committee’s objective is to advise, promote, and guide employeesand the Company, regarding the Statement’s understanding, follow-up, and updating,and to prevent issues contemplated in the Labor Harassment Law. During 2007, thecommittee performance was focused on reviewing once again the Statement andtraining employees regarding the Labor Harassment Law by means of workshops.Corporate responsibilityDuring 2007, ISAGEN continued working in corporate responsibility as a basicperformance principle guiding relationships with society.As an outcome of the Centro Nacional de Consultoria’s survey on commitmentcompliance with certain stakeholders (Shareholders, customers, suppliers, employees,and regulation and surveillance entities, and the State) a positive perception of suchcompliance was demonstrated by the following acceptance figures:Shareholders 96%Customers 100%Suppliers 100%Employees and their families 98%Ninety six percent of the respondents perceive as favorable the assessment mechanismsused by ISAGEN for measuring compliance of its own commitments withdifferent stakeholders.18 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The corporate responsibility report, published as a complement to the annualperformance report, specifies in a detailed fashion, the most important actions carriedout during 2007. Such actions seek to maintain commitments defined with differentstakeholders in environmental, social and economic terms.Selection criteria for major suppliers - goods and services acquisition.Internal and external auditing has established that the major suppliers’ selection hasobeyed to objective criteria for goods and services acquisition and that it is based onthe Internal Contracting Rules and Regulations. Deviations to such norms have notbeen material weaknesses that could have affected the process, and improvementplans have been implemented for remedying deviations found.2. CONFLICT OF INTERESTRegarding conflict of interest, a self-evaluation process was applied to certainemployees for enabling the Company to conclude that the established procedure forhandling situations, which may generate conflict of interest is being complied with aswell as with the defined behavioral guidelines.The self-evaluated employees expressed that they had informed their immediatesupervisor of any participation in personal or professional activities that might haveplaced them in an actual or apparent conflict of interest position. Moreover, there isclarity as to how to handle conflict of interest in the event of its appearance and towho consult with inside the Company.Additionally, the respondents stated that they had not conducted businesses withcompanies whose ethical, social and corporate behavior is contrary to the law, ethics,and good customs, for which internal and external verification mechanisms havebeen utilized.Moreover, as an outcome of internal and external auditing, situations evidencingany noncompliance of Good Corporate Government practices regarding conflict ofinterest were not observed.Regarding the Board of Directors’ members, when ISAGEN’s marketing strategysubject matters have been discussed in their meetings or decisions have been maderegarding issues that might generate conflict of interest with any of its members, suchmembers have temporarily withdrawn themselves from the meeting leaving due recordin the meeting’s minute.3. EQUITABLE TREATMENT OF SHAREHOLDERSShareholders RightsFrom the revision effected to the Good Government practices, the Company concludedthat Shareholders rights, such as being able to participate in the Assembly discussions,COMPLIANCE ASSESSMENT OF GOOD CORPORATE GOVERNMENT PRACTICES 19

vote, receive profits, negotiate stocks, and inspect the books, have been compliedwith and respected.The Centro Nacional de Consultoria’s survey yielded that 95% of the surveyedShareholders perceives an equitable treatment from ISAGEN.The General Assembly of Shareholders conducted in its ordinary session No. 025 ofMarch 29, 2007, approved the performance report submitted in conformity with article47 of Law 222 of 1995. Such performance report contained the financial statements ofgeneral purpose, along with their notes, the profit distribution proposition on December31, 2006, the Good Government Code compliance report, reform of Social Statutes,the Board of Directors’ member election, and the Fiscal Auditor’s appointment.The Company informed its Shareholders through its Web page www.isagen.com.cothe available procedure concerning infractions and administrative sanctions for makingeffective their rights’ protection before the Financial Superintendence, according toarticles 49 and 53 of Law 964 of 2005.Rules for profit distributionIn 2007, $86.460 million were distributed and paid representing a dividend pershare of $31,715738, corresponding to results of the previous year. Additionally,$21.555 million were distributed and paid as privileged dividend, as part of the StockDemocratization Program’s promise. Such amount represented a dividend per shareof $31,62731270.In conclusion, ISAGEN distributed and paid its profits in 2007 in accordance withwhat was established by the General Assembly of Shareholders and the ShareholdersAgreement.Specialized auditingShareholders did not requested specialized auditing during 2007.Attention to ShareholdersDuring 2007, ISAGEN strengthened its Good Corporate Government practices asa product of the Stock Democratization Program and for attending Shareholders’requirements the Company defined the following mechanisms: a Shareholderattention line, a Shareholder attention office, and virtual attention through ISAGEN’s“Contactenos” (Contact us) Web page.After the process of stock assignation took place, ISAGEN received 60.981requirements from the Stockholders. On December 31, 2007, 60.865 requirementshad been resolved, representing 99,8% of the total received. One hundred and sixteencases were still pending, for which a goal of resolving them before the OrdinaryAssembly of 2008 was set.In January 2008, the Auditing Committee followed up such process and as anoutcome of reviewing requests, claims or complaints, the Committee concluded thefollowing:20 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The report’s outcome evidences the efficiency of mechanisms defined by theCompany for attending its Stockholders.Requests, claims, and complaints presented by the Shareholders are consideredas normal for such programs and the number of Stockholders involved. It shouldbe taken into account that the process, contrary to others, handled surpluses forrebates or refunds generating a large number of complaints on the Stockholders’part.Performance has been adequate and 99% of all requirements and requestsreceived have been processed.Operations with affiliated and economically involved entitiesISAGEN’s Good Government Code establishes that operations and relationshipscarried out with affiliated and economically involved entities for acquiring and sellinggoods and services will be performed attending to objective criteria, at marketconditions, under defined terms and conditions, and at costs that ISAGEN negotiateswith unrelated third parties.The report presented by the General Manager on the subject matter was reviewed bythe Auditing Committee, concluding that ISAGEN celebrated operations with affiliatedand economically involved entities with objective criteria and at market conditions;major operations correspond to energy and gas purchase and sale contracts.Solution of controversiesDuring 2007, there were no conflicts in the corporate contract development, betweenthe Company and its Shareholders, or among Shareholders.Compliance with the Good Corporate Government CodeDuring 2007, there were no complaints on the Shareholders part regardinglack of recognition or violation of a Good Corporate Government Code norm.Prohibition for acquiring or disposing of the Company’s stockAs per Minute No. 23 of June 1, 2006, the Extraordinary Assembly of Shareholdersauthorized corporate management (Members of the Board of Directors and GeneralManager) for acquiring stocks in the Stock Democratization Program in conditionsstipulated by the law.ISAGEN’s management group, made up by the Board of Directors and the Managementstaff, held on December 31, 2007, 0,066% of the Company’s total stock as aresult of the adjudication effected in the Democratization Program.Such group did not registered any activity (purchase and sale) of stock from theadjudication date until December 31, 2007, as per record on the Shareholders bookprovided by Deceval at the end of the year.The Auditing Committee in its meeting No. 029 of January 23, 2008, reviewed complianceof the norm and concluded that the defined procedure should be disclosedEVALUACIÓN AL CUMPLIMIENTO PRÁCTICAS DE BUEN GOBIERNO CORPORATIVO21

in order that the Board of Directors’ members and the management team inform ofany transaction related with the Company’s stock on a timely basis.Prohibition of representing stock at the General Assembly of ShareholdersBefore the extraordinary meeting of the Shareholders Assembly held on November26, 2007, all ISAGEN employees were informed about the prohibition of representingstock in the Shareholders Assembly.During the above-mentioned meeting, the Company’s employees did not representstocks other than their own, except in cases relating to their underage children, acase which is permitted by the law.Stocks repurchase policyThere were no cases of stocks repurchase.4. GENERAL ASSEMBLY OF SHAREHOLDERSRules and Regulations - General Assembly of ShareholdersThe General Assembly, in its extraordinary meeting held on November 26, 2007,approved the Assembly’s Rules and Regulations, which completed the statutoryprovisions regarding its summoning and development. Its objective is to facilitatedebate and decision-making within a framework of respect and participation.Such rules are at the Shareholders’ disposal on the Web page of the Companywww.isagen.com.co, section, Information for Shareholders/Corporate Government.Meetings, summoning, and disclosure of informationDuring 2007, three meetings of the General Assembly of Shareholders were held:Extraordinary Meeting - February 19. Major subjects addressed were progressand budget of the Stocks Democratization Program and Shareholders AgreementOffer.Ordinary Meeting - March 29. Subjects addressed were Report of the Boardof Directors and General Manager, Compliance Report of Good GovernmentPractices, financial statements consideration, Fiscal Auditor report, statutoryreform, profit distribution, election of the Board of Directors, and appointment ofthe Fiscal Auditor.Extraordinary Meeting - November 26. This was the first meeting held after theStock Democratization Program and the subjects addressed were approval ofthe Assembly’s Rules and Regulations, statutory reform, words of the Ministry ofMining and Energy, words of the General Manager, and election of the Board ofDirectors.The Assembly meetings were held according to Statutes concerning summoning,quorum, voting, minutes, and documents.22 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Information related to subjects that would be addressed in the ordinary meeting ofMarch 2007, was placed at the Stockholders’ disposition on the days foreseen bythe Corporate Statutes for holding such meeting.Information for the November 26 General Assembly of Shareholders, which includedthe order of the day and documents regarding subjects that would be addressed,including proposal for the Board of Directors’ constitution, was published on theCompany’s Web page on the Information for Shareholders section, fifteen days beforethe meeting was held. Additionally, such information was available for consultation inthe shareholders attention office located at the Company headquarters. The Assemblywas video-broadcasted through the Company’s Web page, www.isagen.com.co.5. BOARD OF DIRECTORSConstitution, functions and responsibilitiesIn the ordinary meeting of the General Assembly of Shareholders, the Board ofDirectors was constituted by five members with their respective deputies. Afterthe Stock Democratization Program, a new Board was elected integrated byseven members with their respective deputies, five of whom have the character ofindependent members.The new Shareholders are represented in the new Board of Directors; one seatis occupied by the pension funds representative and the other, by the minorityshareholders representative (individually they do not exceed 3% of the outstandingstocks).From the Centro Nacional de Consultoria’s survey, 96% of the respondents(Shareholders, customers, vendors, employees, surveillance and regulatory entities,and the State) perceived as favorable the criteria and procedures by which the Boardof Directors is elected and operates.In the Board of Directors’ meeting No. 157 of April 26, 2007, Mr. Luis FernandoUribe Restrepo, an independent member, was appointed as president of the Board,thus setting a principle of transparency and independence. Mr. Uribe Restrepo wasreelected as president in the Board meeting No. 165, of December 14, 2007.According to the Corporate Statutes, the Board of Directors’ term was one year. In theGeneral Assembly of November 26, with the Statutes reform, the term was extendedto two years, exception made for the current Board whose term will be 16 months.The Board of Directors fulfilled the functions mandated by the Corporate Statutes.Quality of the Board membersThe Board of Directors’ members, elected in Ordinary and Extraordinary Assemblies,were selected in accordance to their professional and human qualities and accordingCOMPLIANCE ASSESSMENT OF GOOD CORPORATE GOVERNMENT PRACTICES 23

to provisions established in the Good Government Code. This was evidenced by thecurricula vitae placed at the Shareholders’ disposal.Meetings and quorumDuring the 2007 exercise, the Board of Directors met on a monthly basis. Meetingsummoning, disclosure of information to its members, and, in general, its functioningwas conducted according to the Statutes and the Good Corporate Government Code.Principal and deputy members have attended the Board of Directors’ meetings.An annual planning of the Board’s meeting was determined. The members’ attendanceis described as follows:Considering attendance of all principal and deputy members, the attendancepercentage was 90,8% for 2007 against 85,35% for 2006.If only the principal members’ attendance is considered, the participationpercentage is 95% for 2007 against 84,61% for 2006.Committees of the Board of DirectorsDuring 2007, the Board’s permanent committees included the Matters of the BoardCommittee, the Finance and Investments Committee, and the Auditing Committee.Additionally, two committees functioned occasionally, Democratization Committeeand Internationalization Committee.Committees performed in accordance to established provisions regarding composition,responsibilities, and functioning.Regarding composition, provisions established by the Good Corporate GovernmentCode and the Board of Directors’ Rules and Regulations were fulfilled. Such provisionsestablish that each member of the Board of Directors should not belong to more thantwo committees and that such committees should be constituted by suitable membersin order to carry out their responsibilities.All committees have at least one independent member and the Auditing Committeeis made up by the independent members.The Finance and Investments Committee changed its denomination to Committeeof Finance and New Businesses because its responsibilities are extended to revisethe Company’s investments and to the incursion in new businesses and internationalmarkets.Below a summary of activities carried out by the permanent committees ispresented.24 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

COMMITTEE OF MATTERS OF THE BOARDAttended aspects related with:Compensation Policy 2007Board of Directors’ Self-evaluationGeneral Manager’s AssessmentCollective bargainingPensions mattersGeneral Assembly of Shareholders’ mattersPersonnel staffInstitutional Development Plan 2008-2012Succession PlanTarget market for salary studyAdjustment to the 2007 TBIModifications to the Good Corporate GovernmentCodeBoard of Directors’ Rules and RegulationsConstitution:Mr. Luis Fernando Uribe RestrepoPresidentMr. Manuel Fernando Maiguashca OlanoMr. Jesús Arturo Aristizábal GuevaraSix meetings were held during the year.FINANCE AND NEW BUSINESS COMMITTEEAttended aspects related with:Project selection for the short and long-term expansionplanFollow-up of the investments portfolioInstitutional Development Plan - ShareholderPerspectiveBudget Project – 2008Cost of capitalFour meetings were held during the year.Constitution:Mr. Ramiro Valencia CossioPresidentMr. Julio Andrés Torres GarcíaMr. Rafael Pérez CardonaMr. Germán Jaramillo OlanoAUDITING COMMITTEEAttended aspects related with:Corporate Control System: Statutes, OrganizationalAuditing per formance, compliance with GoodCorporate Government practices, status of theCompany’s legal proceedings, procedure forcontrolling compliance with the law and regulations,tax planning, IT security.Corporate risks: Measurement of corporate risk.External control entities: Process of Fiscal Auditorselection, work plan and control entities’ reports,improvement plan of the General Controllership ofthe Republic.Financial results assessmentOthers: Integral System of Assets Laundry, PorvenirPortfolio, Sarbanes Oxley Law.Nine meetings were held during the year.Constitution:Mr. Germán Jaramillo OlanoPresidentMr. Carlos Caycedo FrancoMr. Alejandro Gaviria UribeMr. Andrés Felipe Mejía Cardona (Adviser)COMPLIANCE ASSESSMENT OF GOOD CORPORATE GOVERNMENT PRACTICES 25

Information for decision-makingDuring 2007, the necessary information for decision-making was provided to theBoard of Directors on a timely basis. Members had access to relevant informationaccording to the order of the day contained in the summoning and the Web pagewas enabled with the required security measures for querying preparation documentsfor the Board’s meetings.New Board members received induction about the Company and its environment.Inabilities and confidentiality of informationInabilities and confidentiality of information were handled in accordance with the GoodCorporate Government practices established by the Company.Assessment and compensationAs an outcome of the self-evaluation conducted by the Board of Directors’ memberat the end of 2006, regarding matters such as contribution and commitment,performance of the Board and its committees, and knowledge of the Company, anaction plan for 2007 was established. Such plan included spending sufficient time formeeting’s preparation, electronic access to documents for meetings, avoidance ofduplicity between committees and the Board, presentations focused on priorities, andpresentation of Organizational matters by a member of the Board, when required. Ingeneral, the action plan was accomplished and effective, with the exception of avoidingduplicity of committees and the Board, which was evaluated as ineffective.Outcomes of the self-evaluation conducted by the Board’s member on their 2007performance yielded a general consolidation of 83,89% of the matters evaluated.Conclusions of such assessment are:The following matters are highlighted: Independence of the Board, collaboration,protection of Shareholders’ interest, constitution of the Board, contribution of theindependent members, and quality of information delivered.Specific comments were presented on matters that could improve the Board’sfunctioning and performance, including emphasizing strategic subjects andcontinuous improvement of the committees-Board relationship.Within the action plan derived from the Boards’ 2007 assessment, it was concludedthat an updating to the members will be conducted regarding their functions andresponsibilities related to the Good Corporate Government standards, given theconscious leadership of the Board of Directors and their responsibility in the contextof the country derived from the Stock Democratization Program.The General Assembly of Shareholders, in its ordinary session, ratified as compensationof the principal and deputy members for attending the Board of Directors’ meetingsthe amount of three current monthly legal minimum salaries. Likewise, the Assembly26 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

atified the payment of such compensation for attending permanent or occasionalcommittee meetings.A sample of payments made to the Board of Directors’ members and to the membersof the Boards’ committees was verified, arriving to the conclusion that such paymentswere made according to the definition of the General Assembly of Shareholders.Reglamento de la Junta DirectivaSe cuenta con un Reglamento de la Junta Directiva y de sus comités que contienelas reglas para la convocatoria y celebración de las reuniones. La última modificacióna este documento fue aprobada en la reunión de la Junta Directiva del 14 dediciembre de 2007, con el fin de adaptarlo a los cambios realizados al Código deBuen Gobierno Corporativo.Este reglamento se divulgó a los Accionistas mediante la página web de la Empresawww.isagen.com.co, en la sección Información para Accionistas/GobiernoCorporativo.6. GENERAL MANAGER AND MANAGEMENT STAFFResponsibilities, assessment, and compensationThe General Manager complied with the functions and responsibilities established byarticle 35 – Functions of the General Manager – of the Corporate Statutes.The General Manager’s compensation for 2007 was approved by the Board ofDirectors as per the Company’s provision.In the Board of Directors’ meeting held on January 28, 2008, the General Managerevaluation’s results for 2007 and his salary increase were presented for approval.The assessment and salary increase proposal were conducted by the Matters of theBoard Committee. The results of the evaluation were:Compliance with the indicators of the Institutional Development Plan: 101,69% asaverage result of indicators.Compliance with commitments assigned by the Board of Directors: 100% as averageresult of commitments.The Committee highlighted the diligence and efficiency in compliance of commitmentsand follow-up of the General Manager and the Management staff that were performedwithin the established term and with the foreseen outcomes.Selection, assessment, and compensation of management staffFrom the Centro Nacional de Consultoria’s survey, 96% of the respondents(Shareholders, customers, vendors, employees, surveillance and regulation entities,and the State) perceived as favorable the criteria and procedures upon which thelegal representative and the executives are elected and operate.COMPLIANCE ASSESSMENT OF GOOD CORPORATE GOVERNMENT PRACTICES 27

The selection of management positions conducted by the Company in 2007 wasbased on the established criteria of the Integral Model of Human Management,which takes into account needs and position profile. The process was carried outthrough internal and external summoning indicating that it was performed under ameritocracy criterion.In 2007, the assessment of the management staff was conducted applying thePerformance Management mechanism. Moreover, management compensation wasin accordance with market criteria approved by the Board of Directors.7. CONTROL MECHANISMSInternal controlRegarding internal auditing, it was concluded that the work performed contributedto strengthening the Corporate Control System through assessment and advicein matters relating risks, controls, and Government. Likewise, the OrganizationalAuditing advanced towards the compliance with international standards of auditingby incorporating into their performance professional best practices and through thepreparation and international certification of its auditors’ team.Regarding the Annual Auditing Plan, it had a compliance rate of 99,62% and enabledto carry out the Corporate Control System assessment focusing on the Company’smajor risks and allowing a continuous improvement of the business performance.According to the Organizational Auditing outcome, the Corporate Control Systemwas adequate.Integral Risk ManagementISAGEN has available a Business Continuity Model containing the followingelements: Risk management- Identification- Analysis- Assessment- Risk treatmentEmergency responseCrisis managementContingency plansIn each of the above-mentioned elements, ISAGEN carried out permanent activitiesaiming to achieve development and integral management.In Risk Management, the Company’s risk inventory and map was revised starting fromplanning and measurement of the risk acceptance level of the Organization.28 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Additionally, measurement of new factors for assessing the risk map different fromthe economic factor was consolidated. Such new factors were human lives, image,environmental issues, and information. Today, ISAGEN has available an inventory ofappraised business risks, with defined action plans and indicators for conductingfollow-up.Regarding emergency response, the Company has available procedures related withpossible emergencies, trained personnel for their attention, and a simulation plan.The defined plan was executed in 2007.In 2007, progress was made in the preparation of a strategic plan for managingcommunications in a crisis situation, which is one of the fundamental componentsof the crisis management plan and whose objective is to ensure an immediate andefficient response for avoiding or decreasing affectation to ISAGEN’s image.Regarding contingency plans in 2007, hypothetical disaster scenarios were determinedbeforehand for Jaguas and Miel I power plants in order to reduce the most theirunavailability through the implementation of contingency and recovery actions. In 2006,such process was performed for Termocentro power plant, and it will be conductedin San Carlos and Calderas power plants in 2008. ISAGEN has developed its ownmethodology for performing the process.The continuity model, as in the previous year, was monitored periodically by theAuditing Committee of the Board of Directors.External controlFiscal Auditing was executed by the firm KPMG Ltd., appointed by the GeneralAssembly of Shareholders complying with the criteria required by the law and theGood Government Code. No requests were presented to carry out services differentfrom Fiscal Auditing by KPMG Ltd.Fiscal Auditing was independent and autonomous in developing the functionsassigned by the law and such auditing did not present any of the incompatibilities orinabilities foreseen in such law.As an outcome of the assessment conducted by the Fiscal Auditing in 2007, nomaterial deviations in the Company performance or in the development of its corporatebusiness were evidenced.The Auditing Committee reviewed its work plan, results of evaluations, andindependence for 2007.Likewise, the Fiscal Auditing presented to the Auditing Committee and the Boardof Directors its verdict on the 2007 financial statements, which was subsequentlypresented to the Shareholders Assembly.EVALUACIÓN AL CUMPLIMIENTO PRÁCTICAS DE BUEN GOBIERNO CORPORATIVO29

ISAGEN’s Internal Control System was assessed by the General Controllership of theRepublic, the external auditors of Performance and Results for the Superintendence ofDomiciliary Public Utilities and the Fiscal Auditing. As a result of the different evaluationscarried out, the control entities concluded that the Company has an adequateInternal Control System.The auditing results of the control entities and their respective improvement planswere reviewed by the Auditing Committee.8. DIVULGACIÓN DE INFORMACIÓNISAGEN has maintained an information policy that not only seeks to apply the norm,but also to fulfill the responsibility that the Company has taken on as issuer in thestock market.The legal information disclosed to the market is based on requirements dictated by theSole Circular Letter of the Colombian Stock Exchange, the Financial Superintendenceguidelines, the Company’s Statutes, the Stockholders Agreement subscribed by theNation as Major Shareholder, and the Good Government Practices. Such informationwas disclosed to stockholders and the market in general by means of the followingmechanisms: ISAGEN’s Web page, annual report, printed publications in newspapers,brochures, institutional magazines, and meetings with stakeholders.As a result of the General Assembly held on November 26, 2007, 41 queries orcommentaries from the Shareholders were received, representing 0,045% of totalattendants to the meeting. Forty four percent of these queries corresponded todissatisfaction concerning information provided by the Company. Taking into accountthe latter, a communications strategy was defined in order to maintain the Shareholdersinformed and closer to the Company, and to generate a culture about the stock marketoperation, the proactive role that each Stockholder has regarding their investment,and the information sources that can be utilized.In the Centro Nacional de Consultoria survey, 92% of the respondents (Shareholders,customers, vendors, employees, surveillance and regulation entities, and the State)stated their favorable perception to the criteria and procedures utilized by the Companyfor providing information to its stakeholders.The Auditing Committee conducted follow-up to such practice and found that theinformation that must be disclosed according to the norms, has been available forall Shareholders in a complete fashion and on a timely basis.Confidential informationDuring 2007, no confidential information compromising the Company’s strategieswas requested by the Shareholders30 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Positive AspectsCONCLUSIONSISAGEN adopts and executes Good Corporate Governmentpractices that are coherent with external norms, the StockholdersAgreement, and the Company Statutes, among others.As a result of the Stock Democratization Program, the GoodGovernment practices have been strengthened, particularlythose related with Shareholders rights, the General Assembly ofShareholders, and information disclosureThe governing entities of the Company (the General Assembly, theBoard of Directors, and the General Manager) have interiorizedand fulfilled the established Good Government practices.The Company continues with an adequate Business ControlSystem.The stakeholders’ perception on the fulfillment of commitmentsmade to them and the compliance with Good CorporateGovernment practices is quite positive.The Company strives to interiorize the Good CorporateGovernment practices at all levels of the Organization, in sucha fashion that these practices are naturally incorporated in theday-to-day activities.Aspects to be strengthenedIn 2008, the Company should continue working on the definitionand procedures of technological developments that facilitatemanaging requirements presented by Shareholders, as well asthe solution of the same.In order to strengthen the information provided to Shareholders,the Company must continue with the communications strategyand measure its effectiveness.The Company must disclose the procedure defined for informingon timely basis, transactions effected with ISAGEN’s stocks bythe Board of Directors’ members and the management staff.Taking into account that the Good Corporate Government Codewas only modified by the end of last year, an updating plantargeted to stakeholders must be defined and applied.31

34 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The year 2007 was influenced by expectations of climatic phenomena occurrenceand a sustained growth of demand, which originated an increase in market pricesof approximately 13,7%. Taking into account market characteristics, ISAGEN yieldedsatisfactory results represented in a 20,1%- increase in total revenues.The beginning of the year was marked by the occurrence possibility of a dry phenomenon,which did not appeared with the expected impact. The climate was more humidthan normal during the second semester of the year. Such aspects were reflected inthe Exchange’s price trend, as will be explained later on in this chapter.Energy demand maintained the growth path shown over the last few years, with anincrement of 4% with respect to 2006. ISAGEN responded to such situation by maintainingits market share by means of servicing and supplying the country’s demand.Likewise, ISAGEN had an ample participation in structuring commentaries and proposalsregarding normative developments carried out by the regulation and controlentities.NORMATIVE DEVELOPMENT OF THE ENERGYAND GAS INDUSTRYDuring 2007, the regulator entity continued structuring regulatory norms and proposalsaimed at improving conditions of competitiveness, transparency, and growth in theelectricity and gas markets.The most relevant matters in which ISAGEN actively participated were related toadjustments to the normative for executing the first Charge for Reliability auction andthe assignation of Firm Energy Obligations in the long-term, structuring of marketmechanisms for energy purchase and sale framed within the Regulated OrganizedMarket - MOR - (for its acronym in Spanish), and market development and contractingof natural gas.Normative definitions developed during 2006 for remunerating expansion reliabilityand promotion in generation were widely complemented and adjusted during2007. One of the modifications consisted in assigning in advance Obligations forFirm Energy - OEF - (for its acronym in Spanish) for the 2010-2011 and 2011- 2012periods. For adequately managing its resources, ISAGEN followed-up regulatorymodifications and presented value proposal for the Regulation Commission of Energyand Gas - CREG - (for its acronym in Spanish), including the inclusion of normativemodifications for promoting project execution that increases available firm energy inexisting power plants.Afterward, activities were focused on the regulatory evolution for defining requirementsand procedures for participating in the Firm Energy Obligation auction - OEF - whosefirst execution is foreseen for May 2008. Among matters developed and on whichBUSINESS MANAGEMENT & PERFORMANCE37

ISAGEN presented contributions and commentaries to CREG, are the norm forparticipating in auctions and participation of power plants with construction periodshigher than the planning period. Likewise, the Organization carried out technologyadaptation actions and training of professional staff for adequately attending ISAGEN’sparticipation in the new transactional mechanism.The Regulation Commission of Energy and Gas - CREG - continued developingpolicies established by the National Government for promoting competitiveness inelectric energy contracting and the universalization of the service. Consequently, theCommission continued working on structuring the Regulated Organized Market’s-MOR- operative conditions, matter in which ISAGEN made a proposal for pursuinga liquid and efficient market that enables to evolve to modern financial schemes suchas the one proposed by CREG with the Electronic System of Contracts - SEC - (for itsacronym in Spanish). Additionally, ISAGEN intervened in the proposal and definitionprocess of norms related with the application of a new rate formula for regulated users,implementation of regional distribution schemes, and voltage level changes.On the other hand, regarding the natural gas industry, ISAGEN actively participated informulating proposals and contributions concerning important matters such as marketscheme definition for natural gas supply and transportation, contracting conditionsand prices, and coordination between the natural gas and the electric industries.Proactive performance on the normative scheme analysis and follow-up allowedISAGEN to continue offering support and knowledge to its industrial end-customersand Technological Partners on the major impacting matters.TRADING IN FIGURESComparativoThe Colombian Wholesale Energy Market – MEM – (for its acronym in Spanish) hastwo transactional mechanisms, the spot market (Energy Exchange) and the longtermmarket (contracts). ISAGEN’s participation in MEM during 2007 is shown bythe following figures:Of the total energy sold through contracts in the domestic market, ISAGEN had amarket share of 15,8%. Regarding energy sold in the Exchange, ISAGEN represented11,5%. The Company represented 5,8% of the total electric energy purchases madein the spot market, and 0,1% of the total long-term contract purchases.38 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Below detailed figures and analysis are presented.Spot marketThe occurrence possibility of a climatic event and the increase in domestic demand 1produced an upward trend in the average annual Exchange price. The indicatoradvanced from 73,7 $/kWh in 2006 to 83,8 $/kWh in 2007, registering a 13,7%-increment. Such situation, added to the increase of 18,78% in proprietary generation,had a positive impact in ISAGEN’s operational income.The average spot market price during 2007, decreased in volatility in nearly 30% withrespect to 2006. In 2007, the maximum price reached was 107,5 $/kWh in February,and the minimum price of 63,6 $/kWh, appeared in November. The difference betweenthese extremes values is less for 2007 compared with 2006, as shown in the chartbelow.Chart 1PRICE EVOLUTION IN THE ENERGY EXCHANGEPrice inJan Feb March April May June July Aug Sep Oct Nov Dec AverageExchange2006 79,3 74,7 65,6 54,5 54,3 53,4 59,0 66,8 102,5 128,8 80,6 65,4 73,72007 87,7 107,5 100,4 92,1 74,9 76,4 79,8 84,1 74,0 80,3 63,6 85,4 83,8Ppto 2007 94,5 100,3 95,2 87,3 70,1 63,8 64,2 65,3 71,1 72,1 73,5 77,8 77,9Regarding ISAGEN’s long-term contract prices, the average price for the year was78,4 $/kWh, 3,4% higher than the previous year price.Figure 1 illustrates the monthly evolution of ISAGEN and MEM’s contracts averageselling prices in the Exchange.1 ISAGEN’s average contribution to the energy necessary for supplying domestic demand was 18,7%.39

Figure 1AVERAGE PRICE OF CONTRACTS - ISAGEN, MEM& EXCHANGE PRICE ($/KWh)Commercial operation resultsChart 2REVENUES FOR ENERGY AND GAS TRADING (COP Millions)2007 2006 VariationMillions % Millions % %Domestic contracts 850.866,2 79,5 696.493,4 78,2 22,2Transactions in Exchange 166.967,9 15,6 134.271,6 15,1 24,4Transaction in interconnection Exchange 328,2 0,0 4.705,0 0,5 -93,0Frequency regulation (AGC) 8.515,2 0,8 11.869,4 1,3 -28,3Charge for Reliability income* 0,0 0,0 9.576,4 1,1 -100,0Charge for Reliability support 0,0 0,0 0,0 0,0 0,0Deviations 169,0 0,0 283,4 0,0 -40,4Technical services 2.682,3 0,3 1.652,8 0,2 62,3Gas 39.851,3 3,7 31.853,9 3,6 25,1Total Revenues 2 1.070.018,0 100 890.706,0 100 20,1* Revenues for generation lower than Firm Energy assigned for Charge for Reliability.2 For information purposes for maintaining correspondence with the Company’s source of income, this amountincludes $639 million for Project Administration.40 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Chart 3EXPENDITURES FOR ENERGY AND GAS TRADING2007 2006 VariationMillions % Millions % %International Contracts (EDELCA) 235,6 0,1 3.683,0 1,2 -93,6Transactions in Exchange 73.955,1 18,0 58.425,3 19,1 26,6Transactions in interconnectionExchange0,0 0,0 19,2 0,0 -100,0Frequency regulation (AGC) 2.830,1 0,7 2.039,9 0,7 38,7Charge for Reliability rebates * 99.713,5 24,2 27.594,2 9,0 261,4Charge for Reliability support 453,9 0,1 0,0 0,0 0,0Deviations 181,9 0,0 113,8 0,0 59,9Charges for participating in MEM 200,442.1 48.7 179,273.2 58.6 11.8Gas 33.761,7 8,2 27.607,0 9,0 22,3Total Expenditures 411.573,9 100 306.174,4 100,0 34,4* Rebates for generation greater than Firm Energy assigned for Charge for Reliability.Long-term contractsFor 2007, energy quantities sold by ISAGEN in long-term contracts corresponded toa 16,8%- share with respect to the total domestic demand (52.848,9 GWh).The Company presented during the year an important increase in long-term commitmentswith a positive variation of 20,6% in committed quantities, representing a22,2%-revenue increase for this item. Increase in wholesaler sales reached 19%, whilethe increment in end-users was 23,5%.During the year, contracts with the following seventeen wholesalers’ customersfrom all over the country were executed: Codensa, Empresas Públicas de Medellin,Centrales Eléctricas de Nariño, Empresa de Energía del Putumayo, Electrificadorade la Costa Atlántica, Electrificadora del Caribe, Empresa de Energía del Valle delSibundoy, Electrificadora de Santander, Empresade Energía del Quindío, CentralesEléctricas del Cauca, Compañía de Electricidad de Tuluá, Centrales Eléctricas delNorte de Santander, Empresa Distribuidora del Pacífico, Energía Empresarial de laCosta, Empresa de Energía del Bajo Putumayo, Energía Social de la Costa, andEmpresa de Energía de Pereira. Likewise, the Company completed the year with209 industrial end-users.In order to carry out coverage operations, energy exchange contracts with other generatorswere registered, representing purchases for 73,1 GWh during 2007.BUSINESS MANAGEMENT & PERFORMANCE41

Chart 4ISAGEN’S ENERGY TRADING THROUGHLONG-TERM CONTRACTS (GWh)2007 2006 Variation %GWh $ Millions GWh $ Millions GWh $ MillionsDomestic sales 8.877,2 850.866,2 7.361,3 696.493,4 20,6 22,2Traders (brokers) 5.590,8 448.094,9 4.699,4 369.233,2 19,0 21,4Large consumers 3.286,4 402.771,4 2.662,0 327.260,3 23,5 23,1International sales 0,0 0,0 0,0 0,0 - -Total contract sales 8.877,2 850.866,2 7.361,3 696.493,4 20,6 22,2Domestic purchases 73,1 0,0 92,2 7.418,9 -21 -100Figure 2CONTRACT SALES COMPOSITION – REVENUE (%)Interconnection with VenezuelaThe quantity of energy traded in the spot market through the interconnection withVenezuela decreased in 2007 with respect to 2006. Detailed information is presentedin the following chart.Chart 5TRANSACTIONS WITH VENEZUELA2007 2006 Variation %GWh $ Millions GWh $ Millions GWh $ MillionsTransactional purchases 0,0 0,0 0,1 19,2 -100,0% -100,0%Purchases from EDELCA 10,3 235,6 26,3 3.683,0 -61% -94%42 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The entry into operation of the second circuits, San Carlos-Primavera and Primavera-Cerromatoso, at 500 kV, increased reliability and security of the Atlantic Coast’selectric system. This situation enables from now on, to satisfy the northern part of thecountry’s demand with resources from the National Interconnected System - SIN - (forits acronym in Spanish), thus avoiding security generation, and accounting for thedecrease experienced in transactions via interconnection with VenezuelaTransactions in energy ExchangeSales in the spot market increased 7,7% mainly because of the increase in domesticdemand, larger generation with propriety plants, and higher energy average pricesin the Exchange.The evolution for the 2007-Exchange prices presented two defined trends. In thefirst block, comprising January to April and December, corresponding to periods oflower levels of hydrological contribution, prices had an upward trend, positioning ataround 94 $/kWh. The second trend occurred from May to October, months of highhydrological contribution, in which prices tended downwards - around 78 $/kWh -below the average price of the year. It is worth noticing that price volatility is greaterwhen there is an upward trend in prices.ISAGEN’s total annual generation from its own power plants increased with respectto 2006. Nevertheless, generation was considerably diminished in February andJuly because of lower affluences in the Antioquia region. November is highlightedas the month of highest generation during the year (1.011,1 GWh) because of highaffluences.The aggregated impacts of the Exchange operations can be observed in the followingchart, as well as the decrease in energy quantities purchased in such market.Chart 6TRANSACTIONS IN THE EXCHANGE2007 2006 Variación %GWh $ Millions GWh $ Millions GWh $ MillionsSale transactions 1.922,5 166.967,9 1.784,9 134.271,6 7,7% 24,4%Purchase transactions 954,8 73.955,1 1.043,5 58.425,3 -8,5% 26,6%Transactions for Secondary Regulation services of AGC’sFrequency and commercial ResponsibilityThe San Carlos, Jaguas and Miel I power plants are ISAGEN’s eligible resources forsupplying the Service of Secondary Frequency Regulation. The service consists inan automatic adjustment of the generator power in a time interval greater than theBUSINESS MANAGEMENT & PERFORMANCE43

Primary Regulation response, as a response to a disruption in the system’s powerbalance for restoring the nominal frequency to the Interconnected System.For ISAGEN, Jaguas was the largest service resource of AGC throughout the year. Miel Iwas the ISAGEN’s plant that least supplied AGC because of the Amani dam levelduring 2007. Such service can also be supplied with the Cuesitas Cuatricentenariointerconnection; however, it was not required by the System Operator during 2007.Chart 7AGC SERVICES2007$ Millions2006$ MillionsVariation%AGC Sales 8.515,2 11.869,4 -28,2AGC Purchases 2.830,1 2.039,9 38,7Net 5.685,0 9.829,6 -42,2ISAGEN obtained $5.685,0 million of net revenues for AGC, discounting costs forcommercial responsibility in proportion to the obtained generation. This amount waslower than the 2006 AGC’s net sales, which were $9.829,65 million.DeviationsIn 2007, ISAGEN obtained by deviation a $169,0 million income in its role as trader.As generator, the Company presented expenditures for $181,9 million, obtaining anegative net of $12,8 million.Chart 8REMUNERATION OF DEVIATIONS2007$ Millions2006$ MillionsVariation%Deviation - sales 169,0 283,4 -40,4Deviation - purchases 181,9 113,8 59,9Deviations net -12,8 169,6 -107,6Charge for reliability - 2006 - 2007 TermDuring 2006, entities such as the Ministry of Mining and Energy - MME - (for its acronymin Spanish) and the Energy and Gas Regulation Commission - CREG - impartedmomentum focused on defining and implementing the new formula for remuneratingreliability. It is expected that such new market mechanism, denominated Charge forReliability, stimulate new investors for developing the expansion projects required by44 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

the electric industry. In this way, the CREG issued Resolution 071 of 2006, initiatingthe Charge for Reliability scheme, which became operative starting December 1,2006, with indefinite duration.The main objective of the new scheme is to remunerate the generating agents for thegeneration assets availability with declared features and parameters for the calculationof the Charge for Reliability’s Firm Energy - ENFICC - (for its acronym is Spanish),which guarantees the fulfillment of the Firm Energy Obligation that was assigned in aauction designed for such end or the mechanism that replaces it, which, in its threefirst years corresponds to a proportionality.Chart 9 depicts income corresponding to times when actual generation was lowerthan Firm Energy assigned to ISAGEN by the Charge for Reliability regulatory schemefor 2006 and 2007. Likewise, the chart shows rebates corresponding to times whenactual generation was higher than Firm Energy assigned to ISAGEN by the Chargefor Reliability regulatory scheme of those same years.Chart 9RELIABILITY REMUNERATION2007$ Millions2006$ MillionsVariation%Charge for Reliability Income 0,0 9.576,4 -100,0Charge for Reliability Rebates 99.713,5 27.594,2 261,4Charge for Reliability Net -99.713,5 -18.017,8 453,4Sales Support of Charge for Reliability 0,0 - -Purchases Support of Charge for Reliability 453,9 - -Given that all of participant generators in the Charge for Reliability scheme mustguarantee the fulfillment of the assigned Firm Energy Obligation, the regulationdisposed a Secondary Market for Firm Energy in order to facilitate compliance withsuch obligations.Such mechanism enables generators who detect that their availability is not sufficientfor fulfilling their Firm Energy Obligations, to negotiate with other generators FirmEnergy Support Contracts for attending their requirements, as long as their availableENFICC (Reference Energy) is not sufficient for covering such needs by means ofSupport Declarations. In the development of the secondary market, generators cansell, purchase, or exchange Charge for Reliability Support. The previous chart depictsISAGEN’s 2007 results for these operations.The Charge for Reliability will compensate 56.734 GWh for the period comprisedbetween December 1, 2007, and November 30, 2008, equivalent to $740,1 milliondollars. Hydraulic generators will participate with 46,10% equivalent to 26.151 GWh/yearBUSINESS MANAGEMENT & PERFORMANCE45

of the assigned Firm Energy, while the thermal generators will share 51,32% (29.116GWh/year), and non-centrally dispatched plants, with 2,58% (1.466 GWh/year).ISAGEN’s share in such compensation will be equivalent to 12,61% without takinginto account the Calderas power plant that, being a non-centrally dispatched plant,will receive the total of its generation for the Charge for Reliability Price – PCC – (forits acronym in Spanish), which was updated to 13,212 USD/MWh for the completeperiod.Chart 10 shows variations in compensation assignation for Charge for Reliability withrespect to the previous term.Chart 10CHARGE FOR RELIABILITY REMUNERATION & COMPENSATION 2007-2008ISAGENCharge for ReliabilityRemuneration2006-07 (MUSD)Charge for ReliabilityRemuneration2007-08 (MUSD)ODEFR*2007-08(GWh/day)San Carlos 46,03 55,27 11,58Jaguas 4,48 4,52 0,95Miel I 7,00 7,05 1,48Termocentro 26,24 26,45 5,54Total 83,75 93,29 19,54Total 83,7593,29 19,54* ODEFR: Daily Obligation of Firm Energy by Resource (for its acronym in Spanish), supported by plant or generationunit.Charges for participating in the Energy Wholesale Market - MEM -(for its acronym in Spanish)Charges paid by ISAGEN for participating in this market showed an 11,8% increasewith respect to 2006, reaching a cost of $ 200.442,1 million.The most significant variations are explained for the increase in charges for the useof the National Transmission System - STN - (for its acronym in Spanish) and theLocal Distribution System - STR - (for its acronym in Spanish), due to the annual rateadjustment and to the significant increment in the end-users demand. Additionally,there was a reduction in the restrictions value because of lower unavailability due toattacks against the National Transmission System - STN - and thanks to the circuits’entry, San Carlos - Primavera and Primavera - Cerromatoso, at 500 kV.46 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Chart 11CHARGES FOR PARTICIPATING IN MEM2007$ Millions2006$ MillionsVariation%STN use 56.816,6 45.490,5 24,9STR, SDL use 79.964,6 69.792,3 14,6Restrictions 7.422,6 13.339,0 -44,4STN connection 8.707,8 8.622,6 1,0Administration Services 6.321,0 5.598,3 12,9Contributions of Law 99 31.273,1 25.353,0 23,4FAZNI contributions 9.936,4 11.077,4 -10,3Total MEM charges 200.442,1 179.273,2 11,8Figure 3CHARGES FOR PARTICIPATION IN MEM COMPOSITIONGAS TRADINGIn the energetic solution consolidation for natural gas trading, ISAGEN sold $39.851,3million in 2007, representing an increase in gas sales of 25,1% with respect to theprevious year mainly because of an increase in sales to wholesalers and to thetransport capacity cession business development.BUSINESS MANAGEMENT & PERFORMANCE47

Chart 12REVENUES FOR NATURAL GAS TRADING - 2007Natural gastrading2007 2006VARIATION%MBTU $ Millions MBTU $ Millions MBTU $ MillionsWholesalers 1.111.622,0 7.509,5 80.303,00 483,81 1284 1452,2Industrial end-users 4.219.149,8 30.991,7 3.885.179,04 31.370,09 9 -1,2Transport cession 736.009,0 1.350,0 - - 100,0 100,0Total sales 6.066.780,8 39.851,3 3.965.482,0 31.853,9 53,0 25,1In 2007 ISAGEN purchased for trading purposes $18.919,9 million worth of gas todifferent gas producers, representing a 41,1%-increase over purchases made theprevious year in order to cover higher sales. Likewise, transport purchases increased4,5% for enabling gas delivery at the different consumption points of the industrialend-users.Chart 13EXPENDITURES FOR NATURAL GAS TRADINGNatural gas trading2007$ Millions2006$ MillionsVariation%Expenditures supply purchases 18.919,9 13.404,8 41,1Expenditures transport and contributionspurchases14.841,9 14.202,2 4,5Total expenditures 33.761,7 27.607,0 22,3Net income in gas trading increased 43,4% with respect to 2006, mainly due to surplussale optimization, reflecting itself in an operative margin increase represented by13,3% in 2006 and 15,2% in 2007CUSTOMER SERVICESWith the objective of offering an integral response to our industrial customer needs,ISAGEN continued with the work plan of synchronizing the service chain, which consistsin developing different actions for the Technological Partners Network integrationaround procedures and methodologies that standardize the supply of technicalservices to customers.Such activities, linked to the impact of a service marketing strategy, produced a totalincome of $3.297,9 million for service sales to industrial end-users during 2007, representinga 95,03%-increase with respect to the previous year.48 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

During 2007, the Company supplied services of the energetic solution portfolio to79% of the customers’ industrial facilities, increasing in 22% the number of servicesprovided, which went from 875 services in 2006 to 1.064 in 2007.Such services were provided by the Technological Partners Network, which in 2007,counted with participation of the following companies: Anter, Equitel, Esfera Ingeniería,Gecolsa, Genelec, Gensol, GERS, IEB, Imaicod, Indisa, Inelec, Insermat, Instelec,OAG, P&Q, PROING, Schneider, Siemens, Suntec, Tradelca, Transequipos, Institutode Energía y Termodinámica-UPB, Universidad del Norte, and Unión Eléctrica.The service portfolio appraisal, as well as the Partners Network competency, werereflected in the increase of the average service invoiced, which raised from $1,9 millionin 2006 to $3,6 million in 2007, representing an 85% increase. It is worth mentioningthat the highest amount invoiced for services in 2006 was $50 million, while in 2007,more than ten of the services supplied exceeded that amount and the highest-valueproject recorded a cost of $615 million.Within the service rendering setting, the satisfaction evaluation conducted by theindustrial customer was quite positive, recording average ratings of 4,84 over5,00, indicating a customer satisfaction of 97% with the attention received from theTechnological Partners Network.Additionally, ISAGEN developed programs, which enabled industries to improve theutilization of their energetics, and increase security in their facilities and reliability intheir systems.As part of the 2007-plans for orienting industries towards more efficient energenticsconsumption, ISAGEN followed-up the pre-auditing performed in 76 customer facilitiesobtaining business opportunities and significant savings in energetics consumptionof thermal and electrical systems of each plant.With the follow-up of the energetics auditing, the Company constituted a Project Bank,which hosts 409 improvement opportunities related with the rational use of energeticsand 58 opportunities related with electrical and thermal systems maintenance. In 2008,the Company plans to execute 10% of such opportunitiesChart 14TECHNICAL SERVICES2007$ Millions2006$ MillionsVariation2007 vs 2006Service billing 3.297,90* 1.691,0 95,03%Energy Points Investment 213,16 286,4 -25,57%Services supplied 3.511,06 1.977,4 77,56%*This amount includes income corresponding to the mandate contract without representation for service sale ofTechnological Partners; for such reason, this amount in higher in $615,6 million to the $2.682,3 million detailed in theincome summary. .BUSINESS MANAGEMENT & PERFORMANCE49

Management and performance of human teams and operations made possible thatISAGEN achieved the largest generation in the history of the Company, in a yearcharacterized by high hydrological affluence.Likewise, it is worth highlighting the completion of the modernization process ofSan Carlos power plant generators’ first four units. Such project, which will continuemodernizing the remaining units of the Power Plants during 2008 and 2009, willcontribute to the Company’s competitiveness in the market for the next 30 years.INSTALLED CAPACITYISAGEN’s installed capacity by the end of the year was 2.132 MW equivalent to 15,9%of the total capacity of the National Interconnected System, distribute in 300 thermalMW and 1.832 hydraulic MW.Chart 1TECHNICAL FEATURES OF ISAGEN’S GENERATION POWER PLANTSSan Carlos Hydroelectric Power PlantPower PlantGrosseffectivecapacity(MW)Neteffectivecapacity(MW)Grosseffectivecapacityper unitType ofpower plant(1)Year of lastunit’s entrySan 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 280Total 2.132 2.105,91X100 (TG),1X100 (TG),1X100(TV)CC 2000(1) Type of power plant:P: Pelton hydraulicF: Francis hydraulicCC: Thermal - Combined CycleENERGY PRODUCTIONISAGEN’S energy generation during 2007 was 10.028,71 GWh, 95,91% of whichcorrespond to hydraulic generation, 4,08% to thermal generation, and 0,01% to importsfrom Venezuela. With respect to 2006, the Company’s energy generation increasedin 18,78%, and its share in the National Interconnected System – SIN – varied from16,12% in 2006 to 18,7% in 2007. The San Carlos, Calderas and Termocentro powerBUSINESS MANAGEMENT & PERFORMANCE53

plants recorded their largest generation in their history. San Carlos power plant standsout as the largest generator in the system.Chart 2ISAGEN’S SHARE IN SIN GENERATIONTYPE OFRESOURCESIN’sgenerationSIN’sgenerationdistributionISAGEN’sgenerationISAGEN’sgenerationdistribution(GWh) (%) (GWh) (%)Hydraulic 41.822,55 77,99 9.618,69 95,91Thermal 9.041,53 16,86 408,88 4,08Imports 1,1 0,00 1,15 0,01Others* 2.759,99 5,15 0,00 0,00Total 53.625,22 100,00 10.028,71 100,00*Includes co-generation and minor plants.The following chart and figures 1 and 2 depict ISAGEN’s generation evolution andthe net generation share of each one of its power plants.Chart 3NET GENERATION EVOLUTION (GWh)Power plant 2000 2001 2002 2003 2004 2005 2006 2007San Carlos 4.313,29 4.312,08 4.718,31 5.331,72 6.091,37 6.065,34 5.929,88 7.216,39Jaguas 553,96 500,23 573,65 724,35 717,97 681,59 716,75 848,16Miel I - - 265,51 1.227,12 1.021,86 1.576,69 1492,2 1.461,81Calderas - - - - - - 47,83 92,32Total Hydraulic 4.867,25 4.812,31 5.557,47 7.283,19 7.831,2 8.323,62 8.186,7 9.618,7Termocentro 100,69 30,33 40,94 119,36 200,69 356,6 229,28 408,88Total Thermal 100,69 30,33 40,94 119,36 200,69 356,6 229,28 408,88Venezuela 70,16 40,31 7,32 1,78 13,46 20,91 27,02 1,15TOTALISAGEN5.038,1 4.882,95 5.605,73 7.404,33 8.045,35 8.701,13 8.442,96 10.028,71Calderas Hydroelectric Power Plant54 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Figure 1ISAGEN’S POWER PLANTS GENERATION EVOLUTION2000-2007Miel I Hydroelectric Power PlantFigure 2POWER PLANT SHARE IN ISAGEN’SNET GENERATION (%) - 2007AVAILABILITYThe availability of ISAGEN’s power plants was 89,9% during 2007. The Companyachieved 90,1% of thermal availability and 89,7% of hydraulic availability.BUSINESS MANAGEMENT & PERFORMANCE55

Chart 4AVAILABILITY EVOLUTION OF ISAGEN’S POWER PLANTSYear 2000 2001 2002 2003 2004 2005 2006 2007San Carlos 94,1 81,6 93,5 91,8 94,2 96,1 81,4 85,8Jaguas 97,2 96,3 98,3 97,7 90,0 98,9 94,9 97,1Calderas - - - - - - 95,0 89,7Miel I - - 93,8 92,0 86,2 90,8 95,7 98,7Total Hydraulic 94,5 83,4 94,1 92,4 92,1 95,2 85,9 89,7Termocentro 94,2 75,3 88,3 94,1 94,4 84,7 95,8 90,1Total Thermal 94,2 75,3 88,3 94,1 94,4 84,7 95,8 90,1Total ISAGEN 94,4 82,0 93,1 92,6 92,4 93,8 87,2 89,8Figure 3ISAGEN’S AVAILABILITY EVOLUTION 2000 - 2007Termocentro - Combined CycleMAINTENANCE PERFORMANCEISAGEN executed 100% of its power plants’ predictive and preventive maintenanceplan on a timely basis, with a cost optimization criterion. The main maintenance worksperformed are as follows:San Carlos power plant: Major maintenance works were performed to Nos. 1 and2 units. Total intervention to main systems and equipments was performed to Nos.1, 2, and 3 units. General maintenance was also performed to Nos. 5, 6, and 7 units,partial intervention to all units, and block maintenance to Nos. 5 and 6 units.56 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Predictive tests were performed to the Pelton’s runners of all generating units. Bladesof generator rotors were also inspected.Jaguas power plant: General revision of Nos. 1 and 2 units was performed.Miel I power plant: Partial intervention and general revision of Nos. 1, 2, and 2 unitswere performed.Calderas power plant: General maintenance, partial intervention, and generalrevision of Nos. 1 and 2 units were performed. Likewise, the wedging of No. 2 unit’sstator winding was changedTermocentro power plant: General maintenance to the three generating units andmajor maintenance to No. 1 unit’s turbine were performed.AOM’S TECHNICAL SERVICESDuring 2007, the Company completed the retrofitting of Leticia’s (Amazonas) thermalplant and the improvement of the electric generation system of Santa Bárbara deIscuandé (Nariño), La Macarena (Meta) and Unguía (Chocó)’s municipal seats.Delivery of the new generation capacity for these locations improves the service qualityand enables to increase its future coverage.Jaguas Hydroelectric Power PlantGESTIÓN DE MODERNIZACIÓNIn order to preserve long-term availability and competitiveness in the market, ISAGENcontinued with the power plants’ Modernization Plan for the 2004 - 2013 time horizons.Modernization is focused on technological updating of equipments and works andseeks to increase the power plants’ productivity, decrease operational costs, andcomply with the energy industry regulations and the environmental legislation. Thefollowing projects are highlighted during 2007:San Carlos Power PlantModernization of the first four generators of the power plant was completed bymeans of supplying, installing, and testing the stator’s windings. Likewise, retrofittingof No. 3 unit and its transformer bank - damaged in the June 2, 2006 sinister - werecompleted.The Company concluded the process for the manufacture and supply of four statorwindings in order to modernized the remaining generators of the Power Plant in 2008and 2009.BUSINESS MANAGEMENT & PERFORMANCE57

ISAGEN signed the supply contract for two powerhouse’s main transformers, thushaving available a complete spare transformer bank and increasing the Power Plantreliability..Calderas Power PlantThe Company completed the engineering study for equipping the Power Plant witha strainer grid cleaning system in the reservoir intake.Jaguas Power PlantISAGEN signed the supply contract for two stator windings and its setup supervisionin order to update technologically both generators of the Power Plant. Windings willbe received in 2008 and setup will be executed in 2009.The flat joint seal system of the turbine’s No. 1 unit was modernized.Termocentro Power PlantThe Plant’s auxiliary cooling water system was modernized and the measurementsystem of natural gas flow - city gate - was technologically updated.58 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

During 2007, ISAGEN continued with the execution of its 2005-2011 short-termExpansion Plan, and conducting studies and actions focused on the consolidationof its generation options portfolio and the expansion strategy definition of theCompany’s generation capacity for the 2012-2020 periods, as indicated below.SHORT-TERM EXPANSION PLANThe Short-term Expansion Plan has had the objective of increasing the Company’sinstalled capacity in 106 MW and the mean annual energy in 1.014 GWh. The Planis made up by the Calderas’ 26 MW Retrofitting project, which initiated commercialoperation on June 30, 2006, the Guarino and Manso projects that will increasegeneration in Miel I Power Plant, and the Amoya River hydro electrical project.Guarino River Diversion ProjectThe Guarino River Diversion project is located in the Caldas Department, borderlinewith the Tolima Department, on the eastern slope of the Central Mountain Range,on the mid low basin of the Guarino River. With such project, ISAGEN will be able toincrease the Miel I Power Plant’s mean energy production in 238 GWh/year.Works are made up of a small concrete dam over the Guarino River, intake structures,adduction channel, cleaning channel, ecological flow derivation structure, and adiversion tunnel.The TGM Consortium is in charge of construction. The Consortium is constituted bythe firms, Termo-técnica Coindustrial, Geominas, Mincivil and Latinco. The executionterm is 40 months and the project’s startup is foreseen by mid-2010.During the year, progress has been made in adapting temporary installations, sanitaryfill construction, and adapting the materials warehouse. The access road to the tunnelportal, which has a 3,5-km length, has been completed. Some landscaping worksare still pending.On December 31, 2007, the Project’s construction reported a physical progress of28%BUSINESS MANAGEMENT & PERFORMANCE61

Environmental management was targeted on complying with the Project’sEnvironmental License requirements granted by the Ministry of the Environment,Housing and Territorial Development - MAVDT - (for its acronym in Spanish), and tothe application of ISAGEN’s Environmental Policy.In the development of the Communal Information and Participation Program, numerousfollow-up meetings with the communities and authorities of the area of influence wereheld, in order to maintain them aware with first-hand information of the Project status.It is worth highlighting the creation of 180 jobs and the prioritizing given to locallabor, with 55% of the workers coming from the area as compared to the urban andregional participation. Such initiative complies with the Employment Policy, which hasbeen designed and agreed upon with the community representatives for effects ofsummoning, selecting, and hiring labor.Proyecto Trasvase MansoThe Manso River Diversion Project is located in the Caldas Department. The Projectconsists in diverting part of the Manso River waters towards the Amani dam of theMiel I hydroelectric power plant. The Project will increase the Plant’s generation in179 GWh/year.The MAVDT issued Resolution No. 1723 of September 21, 2007, which ratified theecological flows defined in the Environmental License.Because of the latter, it was necessary therefore, to adjust the project scheme in orderto optimize it by taking into account the ecological flow defined in the EnvironmentalLicense. Consequently, the Company requested the MAVDT to modify the EnvironmentalLicense accordingly. Main variations against the original design consist inchanges in the tunnel slope and section to operate it in a free flow, the intake scheme,and discharge works.Amoya River Hydro electrical ProjectThe Amoya River hydro electrical project is located on the southern area of the TolimaDepartment, in the Chaparral municipality jurisdiction, 150 km. from Ibague.62 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The project consists in a small bottom intake located downstream from the Davis Riveroutlet into the Amoya River. Conduction and powerhouse are underground. The loadtunnel will be 8,7-km long, with a powerhouse cavern where two generator groupswill be installed, as well as, vertical - 6-jets - Pelton-type turbines, power transformerswith 80 MW installed capacity, and a 2,8-km long discharge tunnel.The Project will have an estimated annual mean generation of 510 GWh/year, withEnvironmental License issued by the Autonomous Regional Corporation of Tolima- Cortolima - (for its acronym in Spanish), through Resolutions Nos. 1858 of 1999,and 0911 of 2006.During 2007, several activities required previously to construction were carried out,in addition to the agreement and cooperation process with the communities of theProject’s area of influence in the Chaparral municipality.An inter-institutional agreement with Empresa de Servicios Públicos Domiciliarios (PublicDomiciliary Utilities Services) of Chaparral was subscribed for the aqueduct worksintervention. By the end of 2007, and according to the agreement and cooperationprocess with the communities, such activities were initiated for achieving a permanentwater supply to the treatment plant that supplies the Chaparral municipality.In the process carried out for contracting the Project’s main civil works construction,including design, manufacturing, setup, setup supervision, tests, and delivery in operationof metallic linings, and distributor, three consortiums presented offers and ISAGENand the firm, SEDIC, initiated the corresponding assessment.Likewise, the public bidding process for contracting design, manufacturing, supply,setup, setup supervision, electromechanical equipment tests, and delivery in operationof the power plant was initiated.Cortolima issued a favorable concept about ISAGEN’s proposal for the one-percentinvestment program execution for water use, in compliance with the project’s EnvironmentalLicense and Decree 1900 of 2006.Another activity initiated in 2007, was the contract formalization with the Real EstateExchange of Tolima for procuring the properties required for the Plant construction.BUSINESS MANAGEMENT & PERFORMANCE63

The Project counted with the Department of Tolima Governorship support. During theagreement and cooperation process with the communities and, given the historic lawand order situation in the zone, the importance of developing the project in a peacefulenvironment was highlighted. The Transparency Table was created in the Chaparralmunicipality with the objective of watching over the fulfillment for human rights respectand of constituting the Observatory for Coexistence and the Environment.During the agreement and cooperation process, meetings with the indigenous towncouncils were held. Such councils are in an acknowledgement process before theDirection of Ethnic Groups of the Ministry of the Interior and Justice.Other meetings held included the Real Estate Exchange of Tolima for updating the processof properties negotiations, and with the contractors of preliminary works requiredfor the Plant’s construction with whom activities to be carried out, works timetables,required labor’s profile, and personnel hiring management were discussed.The acceptance minute of the document prepared by the communities was signed inDecember. Such document covers the benefits derived from the Project constructionframed within the Environmental Management Plan and the Social Investment of theCompany. The minute includes commitments of ISAGEN, the Governorship of Tolima,the Mayor’s Office of Chaparral, and Asohermosas, entity representing the entire areaof influence of the community.STUDIES PLANSogamoso Hydro electrical ProjectThe 800 MW Sogamoso Hydro electrical Project is located in the Department ofSantander and uses waters from the Sogamoso River.During 2007, the Project’s studies of revision and construction timetable optimizationwere completed. The studies for design updating of bidding and environmental impactwere contracted. Likewise, the study of the Project’s connection with the NationalInterconnected System - SIN - was initiated, and the study for defining areas of publicutility for the Project was completed.64 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Andaqui Hydro electrical ProjectThe 687 MW Andaqui hydro electrical project is located in the border of the Caucaand Putumayo Departments, using the Caquetá River waters.During the year, the Project’s studies of optimization and updating of the technical andeconomic characteristics were completed, thus confirming its viability. Consequently,during 2008, progress will be made in updating the Project’s viability.Geothermal projectOn September 19, 2007, ISAGEN subscribed a Subvention Agreement with the UnitedStates Trade and Development Agency - USTDA - through which such Agency willsupport the Company in developing a geothermal project in Colombia. The technicaleconomicsupport considers a US$ 599.310 contribution that will be dedicated to theprefeasibility studies required for establishing the optimal location of the project.The contracting process for starting studies during the first quarter of 2008 wasinitiated.ISAGEN - COLCIENCIAS AgreementBy means of a technical cooperation agreement subscribed with COLCIENCIASand through different Colombian universities, the study, “Normative for promotingalternative energy sources and distributed generation,” was completed. Such studyidentifies policies, normative, and instruments that have made viable the commercialdevelopment of non-conventional renewable energy sources in countries aroundthe world, thus enabling to establish differences and assessing potential impacts onregional and national transmission networks, in the event of important utilization ofdistributed generation sources.The study, “Energy generation using tides, swells, and sea currents in the Colombiancoastal region” was also completed. Such study yielded an estimative of the energeticpotential exiting in the Colombian coasts, considering energetic, technical andenvironmental factors applicable to a generation project, and identified locations forfuture development of a pilot project utilizing such resource.ISAGEN – Iderdola Renewable AgreementThe purpose of the agreement is to evaluate the country’s eolian potential and establishdevelopment viability of projects using such technology.BUSINESS MANAGEMENT & PERFORMANCE65

During the year, identification activities of potential sites for developing eolian generationprojects in the Guajira, Bolivar, and Atlantico Departments were conducted,determining sites for carrying out specific evaluations of eolian potential. The processfor acquiring and installing towers and the corresponding measurement equipmentwas initiated.Likewise, the required steps for conducting studies were taken before the AutonomousRegional Corporation and the MAVDT.MDL Calderas hydro electrical power plantAn agreement with the Irish firm, AgCert, was signed in order to pursue the sale ofemission reduction certificates generated in the Calderas hydro electrical powerstation.66 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

ISAGEN has the firm intention of maintaining a solid competitive position and considersthat in order to achieve it the Company must develop distinctive management abilities,which is only possible if the Organization works in the intangible assets consolidation,i.e., human capital, information capital, and organizational capital.During 2007, organizational management was focused on the following matters:HUMAN CAPITALCompetencies developmentThe Integral Model of Human Management represents variables around which thehuman and professional development of ISAGEN’s employees is encouraged inharmony with the Company.During 2007, the Company worked on strengthening the selection, compensation,leadership, and performance management sub-processes for assuring the availabilityof required competencies for achieving its objectives. Perhaps, the most importantinitiative carried out during 2007 was establishing the competencies baseline statusof all of the employees and preparing their individual development plan.The leadership development program, initiated in 2004, maintains its objective ofdeveloping a superior leadership capability and forming a group of employees withhigh personal and professional qualities in order to take on, in a competent fashion, thedirection of the Company, and facilitate and ensure business continuity. During 2007,results in terms of development plan mobilization, strategy portfolio effectiveness, andcompetency deployment were assessed. Additionally, new potential leaders wereincluded, thus completing a group of 32.It is worth highlighting the successful execution of a special cooperation agreementwith SENA for continuous training, which included a workshop for developing teamworkcompetencies of the entire workforce, and workshops for developing leadershipcompetencies and strategic business understanding, targeted at management staffand potential leaders.Knowledge management in ISAGEN comprises inclusion, development, and diffusionof required knowledge for performing the job by means of diverse strategies. During2007, 97,59% of the educational preference plan was executed; the plan is definedannually in order to close gaps of required knowledge. Ninety seven percent of theCompany’s workers participated in some educational strategy, with an averageintensity of 36 hours per employee.BUSINESS MANAGEMENT & PERFORMANCE69

The collective knowledge indicator shows how much of the required knowledge forthe job the Organization has. It is estimated that 85% is a possible and sufficient valuefor the Company’s needs. In 2007, 87% was obtained, that is to say, the goal wasachieved in 102%, exceeding the 99% mark attained in 2006Change management modelIn 2007, ISAGEN introduced a change management model that enables to conductan effective mobilization towards the necessary habits, attitudes, and behaviors forcomplying with the business objectives. The process includes the identification ofcharacteristics that facilitate or hinder change and execution of the communications,sponsorship, training, contingency and coaching plans.In addition to achieving the methodology’s maturity and standardization, and theorganizational change management model, other important result achieved was thewillingness and administration of the Learning Center for facilitating self-learning,experience capitalization, and solutions of concerns.Such objectives were achieved through the publication of 77 virtual lessons, 90 FAQ,and 579 simulations conducted in SAP information systems, to which workers mayaccess from any place, at any time, from the Corporate Portal.Participation modelISAGEN defined a participation model that constitutes a mechanism, whichallows building jointly with the employee, his/her own development and that of theOrganization.In 2007, participative initiatives were conducted in three sub-processes of the IntegralModel of Human Management, leaders’ development, performance management,and knowledge management. Additionally, structure, roles, responsibilities, andmechanisms of the Corporate Social Welfare Committee were defined; the Committeewill initiate activities in 2008.Labor accidentsDuring 2007, three labor accidents occurred, all of them minor and none directlywork-related with the injured persons. The accident rate presented a small decreasediminishing from 0,9% in 2006, to 0,6% in 2007. Thanks to efforts carried out by theCompany and its employees, the labor accident rate continues to be in control withlow frequency and severity.Severity measurement is based on the number of days of leave of absence the accidentgenerates, which were 13; such figure represents a great improvement withrespect to 2006, when the absence was 61 days.70 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The following figure depicts the frequency trend and the labor accident rate in thelast five years.Figure 1LABOR ACCIDENT RATE 2003 - 2007ISAGEN also defines standards for conducting activities in appropriate conditions forthe contractor personnel. In 2007, the Company structured a procedure for sensitizingand directing contractor companies so that their workers work in dignified conditionsand high standards of safety and occupational health. The contractors’ labor accidentrate with respect to 2006, showed a slightly downward trend, passing from 3,5% to3,3% in 2007. There were no severe accidents that generated death or permanentdisability.INFORMATION CAPITALSince 2004, ISAGEN executes the Strategic Information Project for supportinginformation management as an asset of the Company, in such a way that stakeholdersare able to make decisions that are more informed, more rapidly, and based on onlyone version of information, from any place, at any time.During 2007, ISAGEN initiated execution of projects that contributed to constructinginformation assets related to energetic solution negotiations. Additionally, the Companycontinued with the development of the finance project, which will strengthen its shorttermfinancial planning.With the above-mentioned projects, the construction of information assets reached51,4%.BUSINESS MANAGEMENT & PERFORMANCE71

On the other hand, mechanisms for facilitating systems interaction from any place,at any time, and in a secure fashion were enabled. With such purpose, controlsfor avoiding any attack from the Internet were improved, and other initiatives, inaccordance with the ISO 27001 and ISO 27002, were developed.Corporate responsibilityORGANIZATIONAL CAPITALIn order to have a more inclusive approach towards society, in 2007, ISAGEN, besidesconsolidating sustainability practices that have characterized the Company, reviewedits corporate definition and the stakeholders with who the Organization interacts. Asa result, the Company reconsidered its commitments in terms of value proposals,and defined, as a challenge in such matter, maintaining harmonious and productiverelationships with society and integrating competencies, practices, and resources fordetermining and undertaking actions that create value and contribute to the developmentof all the parties involved.ISAGEN, being coherent with its principles of performance, responsibility with society,and adhesion to the World Pact, defined in 2007, a human rights policy, which explicitlystates the fundamental guidelines related to rights and liberties of all people, in orderto encourage the respect of the Organization for their business activities and amongits stakeholders. On the other hand, in the Company’s strategic planning process,the relationship with stakeholders was included as input for defining the 2008-2012Institutional Development Plan.The efforts taken on by ISAGEN as a civic organization for contributing to the sustainabledevelopment of society were acknowledged by the Asociación Nacional deEmpresas de Servicios Públicos Domiciliarios – ANDESCO – (National Associationof Public Domiciliary Utilities Companies), declaring the Company “Out-of-contest”in 2007, in the Second Award to Corporate Responsibility for considering that itspractices in matters of work environment, market, environmental performance, socialperformance, and Good Government are a benchmark for the industry. Likewise, theWorld Pact highlighted as “Notable” the progress report prepared by ISAGEN, byconsidering that it represents an illustrative example for communicating practices incompliance with the principles of the World Pact initiative.Statements of Ethical BehaviorsIn 2007, the Company carried out the internal launching of the Statement of EthicalBehaviors, which have become a guideline detailing the ethical framework in whichISAGEN and its employees establish labor, personal and institutional relationships,both internally and externally.72 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Likewise, the Ethics Committee was constituted. The Committee has as its mainobjective to establish a link between management and workers, facilitating the activeparticipation of employees and third parties in complying with the Statement of EthicalBehaviors, and the prevention, mediation, and reconciliation in labor harassmentrelatedmatters.The major activities conducted by the Ethics Committee during 2007, were the revisionof the Statement of Ethical Behaviors constructed by the workers in 2006, and trainingat the Organizational level on the Laws of Labor Harassment.Certificates Management SystemISAGEN maintained the Quality Management System with ISO 9001 Norm and theEnvironmental Management System with ISO 14001 Norm certificates. Likewise, theCompany certified under the OHSAS 18001 version 1999 norm its OccupationalHealth System, whose objective is to provide safe, healthy and comfortable workconditions that enable preserving and promoting people’s well-being, health, andintegrity and that of the company’s infrastructure. The System essence consists inidentifying and valuating labor risks, and developing programs for their monitoringand control.During 2007, the Company implemented programs for controlling risks, such as public,ergonomic, cardiovascular, electrical, mechanical, chemical, and special work-relatedrisks, as well as, epidemiological surveillance for auditory and visual preservation.Internal customer serviceIn order to improve supply of the Organization’s administrative services, during2007, the Company developed a management system for the internal customersdenominate SPOC - Single Point of Contact - through which employees access theservice portfolio.SPOC enables, among other functionalities, request traceability, feedback, improveservice supply processes, integrate collaborators, and measure compliance withcommitments and standards agreed upon with internal customers.BUSINESS MANAGEMENT & PERFORMANCE73

Values expressed in Colombian pesos - million $MACRO ECONOMICAL REPORTThe year 2007 presented excellent results for the country in economic matters.Economic growth reached a figure higher than 6%, through which Colombiaconsolidates its development path in the last few years, in spite of the recession thatbegan to accentuate itself in the United States, mainly during the second semesterof the year.Regarding the Internal Gross Product, multiple factors pointed towards maintaininggrowth at above average levels compared to neighboring economies. Privateinvestment and investment in public infrastructure, increase in exports, consumptionlevels, credit and industry expansion, are the factors that contributed the most toeconomic growth.The Colombian peso revaluated itself against the US dollar in 9,33%, a situation thatis not exclusive of Colombia, but in most Latin American countries. Dollar influx isthe main element accounting for such phenomenon, since the country situation haspromoted direct foreign investment, and the difference in interest rates with the UnitedStates has encouraged the influx of portfolio capital to the extent that such capitalhad to be controlled by the Central Bank (Banco de la Republica).The increase in the consumer price level during the year was 5,69%, a figure thatexceeded the Banco de la Republica’s goal. Although increases in oil prices anda strong rainy season impacted the price level, the most determining factor in theconsumer price index behavior was the high demand level, which forced Banco dela Republica to increase interest rates.Interest rates presented increases along the year due, in good measure, to raises inthe Banco de la Republica’s reference rate for controlling inflation. The DTF (Fixed TermDeposits - for its acronym in Spanish) rate had a positive variation slightly over 30%along the year, and the Banco de la Republica’s repo rate suffered eight increases.FINANCIAL MANAGEMENT & PERFORMANCE79

For the stock market, 2007 was a contrasting year; on one end, the Exchange indexsuffered a devaluation of 4%, a situation that does not corresponds to the good resultsof most companies traded in the Exchange. However, on the supply end, results aremore than satisfactory, since thousands of investors entered into the stock market afterthe successful democratization processes of Grupo Aval, ISAGEN, and Ecopetrol.The National Government did not encounter any difficulty in fulfilling the internal andexternal debt placement that had budgeted along the year. At the domestic level, thesubprime market crisis in the United States affected the local Treasuries secondarymarket, while the external debt was benefited by the decrease in the FED’s rate, and theupgrading of the country granted by Standard & Poor’s rating from BB+ to BBB-.During the first semester of the year, the international market was subjected tothe downfall of the Asian Stock Exchanges because of the relative indications ofoverheating in the Chinese economy, while during the second semester, the subprimedebt crisis generated great volatility and uncertainty in the world markets. Such assetslost enormous liquidity and value causing that financial institutions, which had suchassets in their portfolio, suffered the worst losses in their history.It is estimated that 2008 will be a year of great volatility and will move accordingto the effectiveness of measurements taken for controlling recession in the UnitedStates. For Colombia, 2008 will be a year of moderate growth, since, even thoughthe fundamentals of the economy remain strong, situations such as relations withVenezuela, the Free Trade Agreement approval, and the economy of the United States,may affect the behavior of the country’s major macro economic variables.80ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Chart 1RELEVANT FIGURES2003 2004 2005 2006 2007OPERATIONSOperational income 718.957 785.775 902.112 890.706 1.070.018Sales costs 422.650 484.350 557.101 552.161 680.842Administration expenses 40.586 50.246 56.806 52.299 62.247Operational profit 255.721 251.179 288.205 286.246 326.929EBITDA 353.822 352.893 394.721 386.592 433.405Income tax provision 35.790 143.597 103.763 67.303 77.521Net profit 126.016 168.621 117.760 170.582 207.895BALANCE SHEETCurrent assets 365.371 464.081 521.824 485.305 546.581Non-current assets 3.370.465 3.225.496 3.158.859 3.213.636 3.447.051Total assets 3.735.836 3.689.577 3.680.683 3.698.941 3.993.632Financial liability 1.285.012 936.918 801.247 631.456 563.004Other liabilities 155.716 325.491 345.888 331.514 394.629Total liabilities 1.440.728 1.262.409 1.147.135 962.970 957.633Equity (Capital) 2.295.108 2.427.168 2.533.548 2.735.971 3.035.999INDICATORSAssets profitability 4,4% 4,1% 5,4% 5,5% 6,8%Equity profitability 8,2% 9,9% 6,6% 8,8% 10,4%Operational margin 35,6% 32,0% 31,9% 32,1% 30,6%EBITDA margin 49,2% 44,9% 43,8% 43,4% 40,5%Net margin 17,5% 21,5% 13,1% 19,2% 19,4%Intrinsic value of stock (1) 3.410.574 3.561.414 3.717.507 1.003 1.114Interest coverage – EBITDA 2,54 2,86 4,40 6,80 6,85Debt service coverage – EBITDA 0,90 1,05 2,07 1,60 3,25Leverage 0,94 0,74 0,64 0,50 0,48Debt concentration 0,16 0,11 0,23 0,11 0,04Debt over EBITDA ratio 3,63 2,65 2,03 1,63 1,30EVA -264.001 -240.558 -177.415 -161.901 -115.866Delta EVA 76.660 23.443 63.143 15.514 46.036Price Earnings Ratio (P. E.R) N.A N.A N.A 17,94 27,11Price/Book Value N.A N.A N.A 1,13 1,85(1) Amounts in COP. In 2006, the nominal price of stock was modified from $100.000 to $25, implying an increase innumber of outstanding shares from 681.518 to 2.726.072.FINANCIAL MANAGEMENT & PERFORMANCE81

CORPORATE VALUE RESULTSIn 2007, ISAGEN moved one-step forward in the consolidation of value-based managementin order to convert such initiative in a fundamental tool for driving businessdecisions.In this way, the Company has incorporated in its business management model thenecessary elements enabling the development of economic sense, thus seeking valuemaximization for its shareholder and stakeholders.Such efforts are reflected in the results obtained in last five years, which evidence acontinuous improvement in value creation, achieving the amount of $224.796.For 2007, ISAGEN achieved a Delta EVA of $46.036, which is supported by the resultspresented in this chapter.Figure 1CORPORATE VALUE RESULTS82ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

OPERATIONAL RESULTSIn 2007, ISAGEN’s operational revenues presented a 20,1%-positive variation against2006, amounting to $1.070.018. The increase in quantities and prices of energy soldin contracts and in the Exchange account for the increase in total income, whichwas supported in turn, by an 18,78%-increment in generation in 2007 with respectto 2006.Income composition is presented in the following chart:Chart 2OPERATIONAL REVENUES (Millions $)Energy 1.026.847Gas 39.851Others 3.320Total 1.070.018Since 2003, ISAGEN’s income has presented an upward trend with an average annualvariation of 10,7% mainly because of increase in energy generated, increase in marketprices, and efficient and effective commercial management.Figure 2OPERATIONAL REVENUESIn 2007, operational costs and expenses were $743.089, mainly represented by higherenergy purchases in the Exchange for covering contracts, charge for reliability, andcosts for using STN and STR-SDL, because of greater long-term energy sales toindustrial end-users. Likewise, ISAGEN incurred in larger fuel purchases associatedto the increase in trading of this energetic and greater generation in the Termocentropower plant.During the last five years, likewise income, costs and expenses have gradually increasedbecause of increase in the commercial operation costs, fundamentally associated tohigher energy sales and charges for the National Transmission System use.FINANCIAL MANAGEMENT & PERFORMANCE83

Figure 3OPERATIONAL COSTS AND EXPENSESISAGEN obtained in 2007, an operational profit of $326.929, 14,2% higher than profitregistered in 2006. The Company’s EBITDA was $433.405, with a positive variationof 12,1% with respect to 2006.Figure 4EVOLUTION OF OPERATIONAL PROFIT,OPERATIONAL MARGIN & EBITDA MARGINIncome Tax provision was $77.521, 15,2% higher compared to 2006 provision,mainly because of higher income obtained in 2007 and to adjustments made in theaccounting treatment of deferred tax. In spite of a higher income tax provision madein the beginning 2007, an also higher deduction in the acquisition of real productivefixed assets applies, as well as a decrease in the Income Tax rate, which diminishedfrom 35% to 34%.84ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Figure 5INCOME TAX PROVISIONISAGEN’S net profit presented a 21,9%-growth increasing from $170.582 in 2006 to$207.895 in 2007, thanks to operational income increment and to higher revenuesderived from non-operational financial returns and in portfolio investments. Net marginwas 19,4%.Figure 6NET MARGIN AND PROFITFINANCIAL MANAGEMENT & PERFORMANCE85

GENERAL BALANCE SHEETDuring 2007, ISAGEN’s assets presented an 8%-growth because of an increase inthe current assets balance originated by higher accounts receivable from energycustomers. Liabilities did no present significant variations, while the net worth increasedin 11% accounted for adjustments in valorization and profit during the fiscal year.Figure 7BALANCE SHEETThe Company amortized during the year $65.037 for a final debt balance of$561.367, which implicated an 11,1% negative variation in the financial liability. It isworth highlighting ISAGEN’s new debt composition because 100% of it is expressedin Colombian pesos, thus eliminating foreign exchange risk exposure.Figure 8DEBT86ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Chart 3CFINANCIAL CONDITIONS OF DEBTDECEMBER 31, 2007Loan NameOriginalamountDebtbalanceDisbursementdateInterestrateRatetypeTermyears1. Debt in COP (million)Trust Ltd. (OPIC -Indexed (*)Citibank N.A. (Indexed)492.49791.827492.49768.87128/12/0528/12/05IPC+5,2510,4000FijaVariable205Total 584.324 561.368*Loan with the Nation’s collateral.Figure 9DEBT COMPOSITION BY RATE & CURRENCYFigure 10DEBT MATURITY PROFILEFINANCIAL MANAGEMENT & PERFORMANCE87

ISAGEN’S STOCK BEHAVIORISAGEN’s stock was first traded in the Colombian Stock Exchange - BVC - (for itsacronym in Spanish) on August 15, 2007. In the first trading sessions, the stockexperienced an important valorization mainly because of the high liquidity availablein the market, thus evidencing an over- demand for the security in its second stageof placement.In the period elapsed between August 15 and December 28, 2007, the maximumclosing price of the stock was COP $2.150, and the average trading volume wasapproximately $490 million. Likewise, the highest daily volume traded was over $3.000,on November 15.Year’s end-results identify ISAGEN among the stocks that constitute the General Indexof the Colombian Exchange - IGBC - (for its acronym in Spanish). The stock hadthe highest valorization in the market in 2007, with an 82,3% return without includingprivileged and ordinary dividends of COP $63,34 per share.Thanks to capitalization levels, liquidity, and volume traded, ISAGEN forms part of thenew Stock Exchange indexes, COLCAP and COL20, which measure behavior of thetwenty stocks with the largest capitalization and liquidity respectively.Figure 11ISAGEN’S STOCK BEHAVIORAUGUST - DECEMBER. 200788ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

FISCAL AUDITOR REPORTMessrs Shareholders Isagen S. A. E.S.P.I have examined the general balance sheets of ISAGEN S.A. E.S.P. on December31, 2007 and 2006, and the corresponding result statements, changes in net worth,changes in the financial situation, and cash flow, for the years ending on the abovementioneddates. These financial statements are the responsibility of the Companymanagement; one of my functions consists in examining them and expressing anopinion about such statements.I obtained the necessary information for fulfilling my functions and I carried out myexaminations according to auditing norms generally accepted in Colombia. Suchnorms require that I plan and execute the auditing in order to satisfy myself of thereasonability of such statements. An auditing comprises, among other things,examination based on selective tests of the evidences that support the amounts andthe corresponding disclosures of the financial statements. Moreover, the auditingincludes the analysis of the accounting norms utilized and the estimations made bythe management of the Company, as well as the assessment of the presentation ofthe financial statements as a whole. I consider that my auditing provides a reasonableground for basing the following opinion.In my opinion, such financial statements, taken faithfully from the books and attachedto this report, reasonably present the financial situation of ISAGEN S.A. E.S.P. onDecember 31, 2007 and 2006, the results of its operation, changes in financial situationand cash flows for the years ended on those dates, according the accounting principlesestablished by the General Accountancy of the Nation. As per indication of notes 5(j),11 and 18 to the financial statements:a) According to resolution 354 of September 5, 2007 of the General Accountancy ofthe Nation, starting in 2007, the amount of interest on financial obligations destinedto financing construction projects are capitalized as a greater value of the sameuntil such projects are in a condition of utilization or sale. The change in accountingpolicy generated a lower charge to 2007 results of $2.677 for interest expenses.FINANCIAL MANAGEMENT & PERFORMANCE91

) Until December 31, 2006, negative differences between book value of assets andtheir commercial value were directly recognized against the valorization and surplusfor valorization accounts, without prejudice that their balance would become ofan opposite nature. According with Resolution 354 of September 5, 2007 of theGeneral Accountancy of the Nation, starting in 2007, variations against valuesregistered until December 31 of the previous year are registered in the resultsstatement. The latter change generated an effect in 2007 results of $1.380 netincome for recoveries.c) According to law 1111 of December 26, 2006, it is allowed to register the amountcorresponding to net worth tax against the net worth revalorization account.Due to the above-mentioned changes, the comparability of the 2007 financialstatements is affected with respect to the 2006 statements.Based on the results of my tests, it is my opinion that:a) The accounting of the Company has been recorded in conformity with the legalnorms and the accounting technique.b) Operations registered in the books and administrative actions are adjusted to thestatutes and to the Assembly’s decision.c) Correspondence, account vouchers, and the books of minutes and stock recordsare duly processed and preserved.d) There are in place adequate measures of internal control, prevention, and controlof assets laundering, and of preservation and custody of the Company goods andthose in its care.e) There exists concordance between the attached financial statements and theperformance report prepared by management.f) Information contained in declarations of self-liquidation contributions to the IntegralSocial Security System, in particular those related to affiliates and their baseincomeof quotation, has been taken from the accounting records and vouchers.The Company is not in arrears for contributions to the Social Security System.Claudia Patricia Cardona CadavidFiscal Auditor of Isagen S.A. E.S.P.Professional Card 64047-TMember of KPMG Ltda.February 12, 200892ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

CERTIFICATION OF THE LEGALREPRESENTATIVE AND ACCOUNTANTOF THE COMPANYFebruary 12, 2008Messrs Shareholders of ISAGEN S.A. E.S.P.The undersigned legal representative and accountant of ISAGEN S.A. E.S.P. certify thatthe financial statements of the Company on December 31, 2007 and 2006 have beentaken faithfully from the books and that before being placed at your and third partiesdisposal, we have verified the following statements contained in such statements:a) All assets and liabilities included in the financial statements of the Company onDecember 31, 2007 and 2006 exist and all transactions included in such statementshave been conducted during the years ended on those dates.b) All economic facts performed by the Company during the years ended on December31, 2007 and 2006, have been acknowledged in the financial statements.c) Assets represent probable future economic benefits (rights) and liabilities, probablefuture economic sacrifices (obligations), obtained or in charge of the Companyon December 31, 2007 and 2006.d) All elements have been acknowledged for their appropriate values according tothe accounting principles generally accepted in Colombia.e) All economic facts that affect the Company have been properly classified,described, and disclosed in the financial statements.Luis Fernando Rico PinzónElvia Luz Restrepo SaldarriagaGeneral Manager Accountant P.C. No. 37982-TFINANCIAL MANAGEMENT & PERFORMANCE93

GENERAL BALANCE SHEETSON DECEMBER 31, 2007 AND 2006(Amounts in millions of Colombian pesos)ASSETS NOTES 2007 2006CURRENT ASSETSAVAILABLE 7 185.553 220.192INVESTMENTS, NET 8 66.218 29.446DEBTORS, NET 9 231.465 179.938PREPAID EXPENSES 12 20.778 16.929OTHER ASSETS 14 26.216 25.023INVENTORIES, NET 10 16.351 13.777TOTAL CURRENT ASSETS 546.581 485.305NON-CURRENT ASSETSDEBTORS, NET 9 27.820 13.444INVESTMENTS, NET 8 300 292PROPERTY, PLANT &EQUIPMENT, NET 11 2.343.494 2.361.206DEFERRED 13 25.487 27.320OTHER ASSETS 14 5.847 8.278TOTAL NON-CURRENT ASSETS 2.402.948 2.410.540VALORIZATIONS 15 1.044.103 803.096TOTAL ASSETS 3.993.632 3.698.941MEMORANDUM ACCOUNTS 30Debtor 1.881.599 1.933.898Creditor 2.743.774 2.591.34494ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

ON DECEMBER 31, 2007 AND 2006(Amounts in millions of Colombian pesos)LIABILITIES AND NET WORTH NOTES 2007 2006CURRENT LIABILITIESFINANCIAL OBLIGATIONS 16 24.595 70.088ACCOUNTS PAYABLE 17 93.718 71.140TAXES, CONTRIBUTIONS, AND RATES 18 34.475 26.605LABOR OBLIGATIONS 20 7.433 5.937DEPOSIT RECEIVED IN ADMINISTRATION 19 12.374 13.581OTHER LIABILITIES 21 11.770 8.338TOTAL CURRENT LIABILITIES 184.365 195.689NON-CURRENT LIABILITIESFINANCIAL OBLIGATIONS 16 538.409 561.368LABOR OBLIGATIONS 20 48.777 48.724DEFERRED TAX 18 186.082 157.189TOTAL NON-CURRENT LIABILITIES 773.268 767.281TOTAL LIABILITIES 957.633 962.970NET WORTHCORPORATE CAPITAL 22 68.152 68.152SURPLUS CAPITAL 49.344 49.344RESERVES 23 386.444 323.876PROFIT OF PERIOD 207.895 170.582SURPLUS FOR VALORIZATIONS 15 1.044.103 803.096NET WORTH REVALORIZATION 24 1.299.460 1.320.921FOREIGN EXCHANGE EFFECT PGCP 25 (19.399) -TOTAL NET WORTH 3.035.999 2.735.971TOTAL LIABILITIES & NET WORTH 3.993.632 3.698.941COUNTER MEMORANDUM ACCOUNTS 30Creditor 2.743.774 2.591.344Debtor 1.881.599 1.933.898Notes attached are integral part of financial statements.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Claudia Patricia Cardona CadavidGeneral Manager Accountant P.C. No. 379282-T Fiscal Auditor P.C. No. 64047-T(See attached certification) (See attached certification) Member of KPMG Ltda.(See report of February 12, 2008)FINANCIAL MANAGEMENT & PERFORMANCE95

RESULTS STATEMENTSFOR THE YEARS ENDING ON DECEMBER 31, 2007 AND 2006(Amounts in millions of Colombian pesos)NOTES 2007 2006OPERATIONAL INCOME 26 1.070.018 890.706COST OF SALESENERGY PURCHASES 185.017 112.635CHARGES FOR USE AND CONNECTION 146.872 124.563SERVICE DISPATCH CENTERS &COMMERCIAL EXCHANGE SYSTEM 6.321 5.598ELECTRIC SECTOR TRANSFERS (LAW 99/93) 31.273 25.353FAZNI CONTRIBUTION (LAW 633, 2000) 9.936 11.077DEPRECIATION 100.561 96.791FUELS 70.879 57.321GENERAL, PERSONNEL & OTHERS 27 129.983 118.823680.842 552.161GROSS PROFIT 389.176 338.545OPERATIONAL ADMINISTRATIVE EXPENSES 28 62.247 52.299OPERATIONAL PROFIT 326.929 286.246NON-OPERATIONAL INCOMEINTEREST 20.074 13.736PORTFOLIO RETURNS, NET 7.616 2.661FOREX DIFFERENCE, NET 816 -MISCELLANEOUS, NET 29 - 1.79428.506 18.191NON-OPERATIONAL EXPENSESINTEREST 63.304 56.881FOREX DIFFERENCE, NET - 9.671MISCELLANEOUS, NET 29 6.715 -70.019 66.552PROFIT BEFORE TAXES 285.416 237.885INCOME TAX PROVISION 18CURRENT 47.502 52.780DEFERRED 30.019 14.52377.521 67.303NET PROFIT 207.895 170.582NET PROFIT PER SHARE (*) 76 63(*) Expressed in Colombian pesos.Notes attached are integral part of financial statements.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Claudia Patricia Cardona CadavidGeneral Manager Accountant P.C. No. 379282-T Fiscal Auditor P.C. No. 64047-T(See attached certification) (See attached certification) Member of KPMG Ltda.(See report of February 12, 2008)96ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

CHANGES IN FINANCIAL SITUATION STATEMENTSFOR THE YEARS ENDING ON DECEMBER 31, 2007 AND 2006(Amounts in millions of Colombian pesos)2007 2006CASH FLOW GENERATED FOR YEAR’S OPERATION:NET PROFIT 207.895 170.582PLUS (MINUS) EXPENSES (INCOME) NOT AFFECTING WORKING CAPITAL:Depreciation 102.877 98.995Deferred charges & other assets amortization 3.625 1.351Increase (recovery) actuarial calculation - pensions 53 (135)Forex difference in financial obligations - 25.139Deferred tax 30.019 14.523Provision (recovery) of long-term debtors protection (1.149) 4.338Provision recovery of property, plant & equipment provision (1.380) -Loss in sales or retirement of properties, plant & equipment and other assets 1.929 127Provision (recovery) for investment protection (8) 34343.861 314.954FINANCIAL RESOURCES GENERATED BY OTHER SOURCES:Liquidation of projects in administration 2.389 -Transfer of properties, plant & equipment and inventories 4.514 -Retirement of properties, plant & equipment - 621Retirement of other assets - 4.875Sale proceeds of properties, plant, & equipment 48 116.951 5.507TOTAL FINANCIAL RESOURCES GENERATED IN THE YEAR 350.812 320.461FINANCIAL RESOURCES UTILIZED IN:Acquisition of properties, plant & equipment 111.422 59.180Transfer of inventories to properties, plant & equipment - 37.197Increased in deferred charges - 69Increase in other assets 1.129 306Increase in debtors 13.227 8.656Increase in net worth 21.461 -Reclassification short-term financial obligations 22.959 80.839Decrease in labor obligations - 755Dividends 108.014 28.999TOTAL FINANCIAL RESOURCES UTILIZED IN THE YEAR 278.212 216.001INCREASE IN WORKING CAPITAL 72.600 104.460BREAKDOWN OF WORKING CAPITAL CHANGESINCREASES (DECREASES) IN CURRENT ASSETSAvailable (34.639) 34.880Investments, net 36.772 (30.721)Debtors, net 51.527 (15.402)Prepaid expenses 3.849 7.866Other assets 1.193 644Inventories, net 2.574 (33.786)61.276 (36.519)DECREASES (INCREASES) IN CURRENT LIABILITIES:Financial obligations 45.493 114.091Financial obligations (22.578) 27.991Taxes, contributions, duties (7.870) 3.240Labor obligations (1.496) (2.137)Deposits received in administration 1.207 (4.949)Other liabilities (3.432) 2.74311.324 140.979INCREASE IN WORKING CAPITAL 72.600 104.460Notes attached are integral part of financial statements.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Claudia Patricia Cardona CadavidGeneral Manager Accountant P.C. No. 379282-T Fiscal Auditor P.C. No. 64047-T(See attached certification) (See attached certification) Member of KPMG Ltda.(See report of February 12, 2008)FINANCIAL MANAGEMENT & PERFORMANCE97

CASH FLOW STATEMENTSFOR THE YEARS ENDING ON DECEMBER 31, 2007 AND 2006(Amounts in millions of Colombian pesos)2007 2006CASH FLOW GENERATED BY YEAR’S OPERATION:NET PROFIT 207.895 170.582PLUS (MINUS) EXPENSES (INCOME) NOT AFFECTINGWORKING CAPITAL:Depreciation 102.877 98.995Amortization of deferred charges and other assets 3.625 1.351Amortization (recovery) actuarial calculation - pensions 53 (135)Forex difference in financial obligations (3.343) 25.139Deferred taxes 30.019 14.523Provision (recovery) debtors protection (927) 4.338Provision recovery for properties, plant & equipment protection (1.380) -Provision inventories protection 616 -Provision (recovery) for investments protection (8) 34Loss in sale or retirement of properties, plant & equipment and other assets 1.929 127Coverage valorization 4.993 -346.349 314.954CHANGES IN ASSETS AND LIABILITIESDebtors (64.976) 12.242Prepaid expenses (3.849) (7.866)Other assets (1.193) (644)Inventories 1.324 (3.411)Accounts payable 22.506 6.327Taxes, contributions, duties (13.591) (3.240)Labor obligations 1.496 1.382Deposits received in administration 1.182 4.949Other assets 3.432 (2.743)NET CASH PROVIDED FOR OPERATIONAL ACTIVITIES 292.680 321.950INVESTMENT ACTIVITIES CASH FLOWS:Acquisition of properties, plant & equipment, net (111.422) (59.180)Increase in deferred charges - (69)Increase in other assets (1.129) (306)Sale proceeds of properties, plant & equipment 48 11NET CASH UTILIZED IN INVESTMENT ACTIVITIES (112.503) (59.544)CASH FLOWS OF FINANCING ACTIVITIES:Decrease in financial obligations & coverage payment (70.030) (195.526)Dividends paid in cash (108.014) (62.721)NET CASH UTILIZED IN FINANCING ACTIVITIES (178.044) (258.247)NET INCREASE IN CASH & EQUIVALENTS 2.133 4.159CASH & EQUIVALENTS AT BEGINNING OF YEAR 249.638 245.479CASH & EQUIVALENTS AT END OF YEAR 251.771 249.638Notes attached are integral part of financial statements.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Claudia Patricia Cardona CadavidGeneral Manager Accountant P.C. No. 379282-T Fiscal Auditor P.C. No. 64047-T(See attached certification) (See attached certification) Member of KPMG Ltda.(See report of February 12, 2008)98ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

CHANGES IN SHAREHOLDERS’ EQUITY STATEMENTFOR THE YEARS ENDING ON DECEMBER 31, 2007 AND 2006(Amounts in millions of Colombian pesos)Subscribed& paidcapitalCapitalsurplusReservesNet profitof periodSurplus forvalorizationsEquityrevalorizetionsForexeffectPGPCTotalBalances on December 31, 2005 68.152 49.344 235.115 117.760 742.256 1.320.921 - 2.533.548Appropriations effectedby Assembly - - 117.760 (117.760) - - - -Increase in valorizations - - - - 60.840 - - 60.840Dividends in cash ($42.549,87per share*) - - (28.999) - - - - (28.999)Profit of the period - - - 170.582 - - - 170.582Balances on December 31, 2006 68.152 49.344 323.876 170.582 803.096 1.320.921 - 2.735.971Appropriations effectedby Assembly - - 84.123 (84.123) - - - -Increase in valorizations - - - - 222.289 - - 222.289Dividends in cash ($31,63per share*) - - (21.555) - - - - (21.555)Dividends in cash ($31,72per share*) - - - (86.459) - - - (86.459)Tax on equity - - - - - (21.461) - (21.461)Forex effect on PGCP - - - - 18.718 - (19.399) (681)Profits of exercise - - - 207.895 - - - 207.895Balances on December 31, 2007 68.152 49.344 386.444 207.895 1.044.103 1.299.460 (19.399) 3.035.999(*)Expressed in COP.Notes attached are integral part of financial statement.Luis Fernando Rico Pinzón Elvia Luz Restrepo Saldarriaga Claudia Patricia Cardona CadavidGeneral Manager Accountant P.C. No. 379282-T Fiscal Auditor P.C. No. 64047-T(See attached certification) (See attached certification) Member of KPMG Ltda.(See report of February 12, 2008)FINANCIAL MANAGEMENT & PERFORMANCE99

NOTES TO FINANCIAL STATEMENTSON DECEMBER 31, 2006 AND 2007(Amounts expressed in millions of Colombia pesos - COP -and in thousands of American dollars – USD -)NOTES OF GENERAL CHARACTER1. Economic EntityISAGEN S.A. E.S.P. is a mixed public utilities services Company, constituted in theform of a public corporation, as per public deed No. 230 of the Sole Notary’s Officeof Sabaneta, of April 4, 1995, assigned to the Ministry of Mining and Energy, and withan unlimited term of duration.The main purpose of ISAGEN S.A. E.S.P. is to generate and to trade electric energy,to trade natural gas by networks, as well as to trade coal, steam, and other industrialuse energentics.For the development of its corporate purpose, the Company counts on with thefollowing electrical generation plants: San Carlos hydro electrical plantJaguas hydro electrical plantCalderas hydro electrical plantTermocentro hydro electrical plantMiel I hydro electrical plantOn November 25, 2005, the General Extraordinary Assembly of Shareholders,authorized ISAGEN or any of its shareholders to subscribed management agreementswith the Nation - Ministry of Public Finance (Treasury) and Credit - in order to enablethe Company for organizing, managing, and executing the Stock DemocratizationProgram under the supervision of the Public Assets Uses Committee - CAAP - (for itsacronym in Spanish), and the Ministry of Public Finance and Credit, for carrying outthe Nation’s decision of partially selling its share in ISAGEN’s equity, as per CONPES’document 3281.On March 4, 2007, the execution of the Stock Democratization Program was initiatedwith the sale of shares to the Solidarity Sector, which consisted in the sale of theNation’s privileged stock, corresponding to 19,22% of the Company’s total outstandingshares. The operation was approved by the National Government through Decree4482 of December 15, 2006.The total amount offered was $592.089 and more than 72.000 new shareholders wereattracted to the Company.FINANCIAL MANAGEMENT & PERFORMANCE103

2. Financial statements bases of presentationThe financial statements that are considered of general purpose should be presentedto the General Assembly of Shareholders for their approval and such statements areused as baseline for dividend distribution and other appropriations.a. Accounting periodAs per the Company’s statutes, the accounting cycle concludes on December31, of each year.b. Assets and liabilities classificationAssets and liabilities are classified according to their destination or degree ofrealization or liability in terms of time, as current or non-current. For such effect,it is understood as current assets or liabilities those records that are realizable orliable in a term no longer than one year, and further in time then, they are classifiedas non-current..c. Relative importance and materialityEl reconocimiento y presentación de los hechos económicos se hace de acuerdocon su importancia relativa o materialidad.For effects of disclosure, a transaction, fact or operation is material, when accordingto their amount or nature, knowledge or ignorance, considering their surroundingcircumstances, impact or influence decisions or assessments that may be madeby users of the accounting information.In preparing and presenting the financial statements, amount materiality wasdetermined in relation to, among others, total assets, current and non-currentassets, total liabilities, current and non-current liabilities, net worth, or to theaccounting term results, as corresponding. In general terms, it is considered asmaterial any transaction that exceeds 5% with respect to a determined total of theabove-mentioned.3. Limitations and/or deficiencies of operativeor administrative typeDurante los ejercicios 2007 y 2006 no se presentaron limitaciones y/o deficienciasde tipo operativo o administrativo que afectaran el normal desarrollo del procesocontable, la consistencia o razonabilidad de las cifras.4. Major accounting policies and practicesThe Company observes accounting principles generally accepted in Colombiafor its accounting records and financial statements preparation, established in the104ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

normative issued by the General Accountancy of the Nation and the Superintendenceof Domiciliary Public Utilities Services, through the application of information systems,Accounting plan for public utility services and unified system of costs and expenses.During 2007, changes in the General Plan of Public Accounting were effected, whosemajor impacts are describe in note 5 of the financial statements.5. Valuation normsMajor policies and practices that ISAGEN has adopted in conformity with what it isestablished in norm 4 are described below:a. Adjustments for inflationUntil December 31, 2001, the Company adjusted its non-monetary registries fortaking into account inflation effects. The amount recorded in the correspondingassets’ adjustment for inflation subaccounts was reclassified to the pertinentsubaccounts at historic cost.The net worth revalorization account’s balance will be maintained until the decisiveorganism resolves its capitalization. However, such account may be affected bythe net worth tax of each year, according to what it is established in Law 1111,2006.b. Conversion of transactions and balances in foreign exchangeTransactions in foreign exchange are registered at valid applicable exchanges rateson their respective dates. At each month’s closing, balances in assets accountsare adjusted at the valid exchange rates on the applicable date, and differencesare taken to results. Regarding liabilities accounts, only those differences thatare not imputable to assets acquisition costs are taken to results, i.e., those thatare originated during the time in which those assets are under construction orinstallation, and until they are in conditions to be utilized.c. Cash equivalentsFor the cash flow statement presentation purpose, redeemable temporaryinvestments in a period of less than three months are considered as equivalentto cash.d. InvestmentsLas inversiones se reconocen y registran por su costo histórico o precio de adquisicióny se expresan a su valor actual o a precios de mercado atendiendo asu clasificación.Investment classification and accounting is conducted as follows:Debt investments or those that incorporate debt rights (fixed income) are classifiedas negotiable investments. Such investments are initially registered at cost, andFINANCIAL MANAGEMENT & PERFORMANCE105

they are adjusted to their market value with credit or debit to results, accordingto the case, on a monthly basis. The investments’ market value is determined bycalculating their present value of their future flows of capital and interest discountedat an interest market rate, calculated as per the Financial Superintendenceprovisions.Investments in stocks or equity interest of low or minimum market capitalization,or those not quoted in the Stock Exchange, are classified as non-negotiableinvestments. Variable income investments are registered at cost plus the amount ofdividends received in stock. If at the accounting period closing date, the investmentintrinsic value is greater or lower than their book value, a credit is made in thevalorization account with a counter-entry to surplus by valorization in the equity,or a provision with charge to the result statement, respectively.e. DebtorsRepresent collection rights originated in the development of the financial, economic,and corporate activities of the Company, such as supply of energy and gas,provision of services, loans, and other credit operations.For the energy debtors’ case, risk measurement policies are in place in order toclassify customers.Debts that have not been attended to on a timely basis are reclassified as ofdoubtful or difficult collection and they are provisioned according to the noncollectabilitydegree originated by factors such as age or non-compliance. Anydebt aged more than 180 days is provisioned at 100%.Provisions are presented in the General Balance Sheet as a lower value of debtorsand they represent amounts established by the Company to cover possiblelosses.After having provisioned an account and reached a payment agreement withthe corresponding debtor, the account is reclassified from difficult to currentcollection. As the agreed value is recovered, the provision made is cancelled andthe corresponding income is registered as recovery.Once the pertinent collection process has been exhausted without reaching acollection agreement, previous authorization from the Board of Directors, thoseaccounts are then penalized by writing them off from the Balance sheet.f. InventoriesInventories are accounted at cost, which was adjusted for inflation until December31, 1998.Elements of regular consumption are registered as inventories, including genericspare parts that do not correspond to dependant technology, materials, and otherconsumption elements.106ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

Spare parts, materials, and other consumption elements are valued based onthe weighted average method, and in-transit inventory is appraised based on thespecific value method.g. Property, plant, equipment, and depreciationProperties, plant, and equipment are recorded at cost, which includes:Financing expenses and foreign exchange differences over foreignexchange liabilities contracted for their acquisition, until they reach utilizationconditions.Adjustments for inflation until December 31, 2001.Sales and retirements of such assets are discharged at the corresponding adjustednet cost, and differences between sale price and adjusted net cost are taken toresults.Depreciation is calculated based on the adjusted by inflation cost until December31, 2001, as per the straight-line method, based on the following probable usefulassets life:Asset classUseful lifein yearsStructures, buildings, and civil works 50Generation equipment 25Electronic equipment 25Furniture, office equipment, laboratory, tools, shop equipment, machineryfor construction and maintenance, and warehouse equipment10Communications and computation equipment 5Transportation equipment 5When differences between accounting and fiscal depreciation arise, these are recordedas deferred depreciation.Repairs and maintenance of such assets are charged to results, as long asimprovements made add value to their costs.Spare parts of generation equipment classified as of dependant technology areconsidered property, plant and equipment, as goods and chattels (movable goods)in warehouse and they are not object of depreciation.It is recognized with charge to results defects between economic valuations of assetstechnically determined over their net cost in books. Until 2006, these defects wereregistered against surplus for valorizations. The former change generated a net incomefor recoveries of $1.380 in 2007 results.FINANCIAL MANAGEMENT & PERFORMANCE107

h. DeferredDeferred charges include all costs for project’s studies and preliminary research, whichare transferred to in-process construction when the project execution is initiated. Ifthe project feasibility is rejected, the study balance is penalized against the period’sresults.Environmental expenses from which it is expected to obtain economic benefits inmore than one accounting periods are registered as deferred expenses.During 2007 - as per the General Plan of Public Accounting’s modifications - $681registered as deferred and associated to projects in research stage and environmentalexpenses were withdrawn from Assets for not complying with the acknowledgementcriteria. The former effect was directly acknowledged in the net worth.Likewise, the deferred account includes deferred tax generated by the temporarydifferences between the accounting and fiscal expense of retirement pensions andreceivables provisions.i. ValorizationsValorizations that form part of assets and net worth include:Surplus of assets’ economic valorization technically determined over its net bookcost.During 2007, the Company carried out an economic valuation of property, plant andequipment’s major components. Such valuations have a three-year validity, exceptif market conditions indicating that those acknowledged values may have sufferedsignificant changes are observed. The US dollar component of the correspondingvaluations is updated annually based on the exchange rate variations (see note15).Excess of intrinsic value of equity investments over their net book cost.j. Financial obligationsCorrespond to obligations contracted by the Company originating from credit entitiesor other domestic or foreign financial institutions. The recorded valued correspondsto the obligation’s principal. Financial expenses do not increase capital because theyare registered separately.The interest amount over financial obligations destined to projects in constructionfinancing is capitalized as a greater value of those projects until they are in useful orsaleable condition. Until December 31, 2006, these financial expenses were chargedto results. The former change in the accounting policy generated a lesser charge toresults of $2.677 for interest expenses.108ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

k. Financial derivativesThe Company performs operations with financial derivative instruments in order toreduce its exposure to exchange rate fluctuations of foreign exchange obligations.The Company records rights and obligations arising from contracts and show themnet in the Balance Sheet within the current liabilities accounts. Such contracts areadjusted on a monthly basis to their market value using methodologies established bythe Financial Superintendence. The resulting adjustment is taken to results accountscompensating income or expenses generated by variations with the exchange ratesof the corresponding entries.l. Accounts and documents payableRepresent obligations in charge of the Company, originated in received goods orservices.m. Deposits received in administrationResources received from third parties with a specific destination are registered againstthis account. Such resources are controlled in a separate fashion and returns generatedare recorded as a greater amount of the obligation.n. Income taxIncome tax payable is determined based on estimations.Registered as deferred tax, are the temporary difference effect between the accountingand fiscal entries as a product of the acknowledgement of income, costs, andexpenses in different periods. Such account can be of a debit or credit nature.The Company registers credit deferred tax over the temporary differences generatedbetween the accounting and fiscal bases of the depreciation expense of buildings,plants, ducts, machinery, and equipment, whose effect implies paying less tax in thecurrent year, calculated at current rates, as long as there exists a reasonable expectancythat such differences will be reverted.o. Labor obligationsLabor obligations are adjusted at the end of each period based on current legaldispositions and labor agreements.The determination of liabilities for retirement pensions in charge of the Company isbased on actuarial studies abided to the legal norms.Annual provision for retirement pensions is adjusted rationally and systematically.The Company finished amortizing the entire obligation for retirement pensions onDecember 31, 2005, and therefore, starting from that date on any variation in thepensions’ liabilities is directly acknowledged in the exercise results.FINANCIAL MANAGEMENT & PERFORMANCE109

p. Net profit per shareNet profit per share is calculated over the outstanding shares that on December 31,2007 and 2006, were 2.726.072.000 shares.q. Income, costs, and expenses acknowledgementIncome coming from sales is acknowledged during the contractual period or whenservices are provided. Costs and expenses are registered based on causation.For cost management, the Company has implemented the Activity Based-CostSystem - ABC - defined by the Superintendence of Public Utilities Domiciliary Servicesin Resolution SSPD 001417 of April 18, 1997, as the Unified System of Costs andExpenses - SUCG - (for its acronym in Spanish. In this sense, energy and gasservices costs are directly recorded in the processes defined by the SUGC and theadministrative expenses are allocated based on income, number of people, assignedtimes, and areas. Cost closing is carried out and reported to the Unified System ofPublic Utilities Services - SUI - (for its acronym in Spanish).r. Memorandum accountsUnder memorandum accounts, commitments pending of formalization and contingentrights or liabilities are recorded. Such accounts include, among others, non-usedcredits in favor, and existing differences between accounting and entries of the samenature used for tax statements purposes.s. ContingenciesCertain contingent conditions may exist at the issuance date of the financial statements,which may result in losses for the Company but such losses can only be resolved in thefuture when one or more facts occur or may occur. Such contingencies are estimatedby the Company management and its legal advisors. Contingency estimation of lossesnecessarily involves a judgment exercise and it is a matter of opinion. In estimatingloss contingency of legal proceedings pending against the Company, legal advisorsassess, among other matters, merit of complaints, pertinent court jurisprudence,and present status of proceedings. When a proceeding is sentenced in first instanceagainst the Company, it is recorded as a liability affecting the results of the period.If the contingency assessment indicates that a potential loss is not probable but theresult is uncertain or probable, and its amount cannot be estimated, then the contingencynature is registered in memorandum accounts and disclose as a note to thefinancial statements with an estimation of the probable loss range. Contingencies oflosses estimated as remote are not generally registered or disclosed.110ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

t. Reclassification of financial statementsCertain figures on the 2006 financial statements have been reclassified for comparativepurposes with 2007.u. Use of estimationsFor the preparation of financial statements, according to accounting principles generallyaccepted in Colombia, it is required to make certain estimations that affect the amountof assets, liabilities, income, and expenses reported on such periods. The outcome ofcertain matters may differ from such estimations.NOTES OF SPECIFIC CHARACTER6. Transactions in foreign exchangeBasic norms existing in Colombia allow foreign exchange free negotiations throughbanks and other financial institutions, at free exchange rates. Nevertheless, mostforeign exchange transactions still require official approval.Foreign exchange operations and balances are converted at valid exchange ratescertified by the Financial Superintendence. Exchange rates peso - US dollar used forpreparing financial statements on December 31, 2007 and 2006 were COP $2.014,76y $2.238,79, respectively.Foreign exchange position on December 31, in US dollars is as follows:2007 2006USD $Col. USD $Col.ASSETSCash & Banks 514 1.036 35 78Debtors 437 880 660 1.478Investments 3.500 7.052 11.396 25.5134.451 8.968 12.091 27.069LIABILITIESFinancial obligations - - 12.980 29.059Suppliers 452 911 259 580Financial expenses - - 60 134452 911 13.299 29.773ASSET (LIABILITY) POSITION INFOREIGN EXCHANGE 3.999 8.057 (1.208) (2.704)FINANCIAL MANAGEMENT & PERFORMANCE111

7. AvailableAvailable on December 31, is constituted as follows:Cash, banks, financial corporations & collective2007 2006Cash 20 19Banks in domestic & foreign currencyCorfidiario de Corficolombiana 38.412 11.551BBVA (1) 17.756 68.925Colpatria 10.521 25.403Bancolombia (2) 5.821 8.526Citibank Ahorros 4.525 -J.P. Morgan Chase 909 49Banco Agrario de Colombia (3) 232 488Bancolombia Miami 126 2978.302 114.971Collective portfoliosRenta y renta 30, 90 y 180 de Valores Bancolombia 36.587 33.665Multiplicar de Fiducorficolombiana 27.379 15.095Fiduoccidente 5.473 5.116Valor Plus de Fiducorficolombiana 5.379 4.232Sumar Fidubogotá 4.757 60Open FiduHSBC 2.079 56Fiducuenta y Fidurenta de Fiducolombia 459 10.38482.113 68.608Repo operations (4) 25.118 36.594185.553 220.192(1)On December 31, 2007, the Company had the following resources with special destination received from thirdparties deposited in Banco BBVA:FAZNI Resources: The Company is managing resources of the Financial Support Fund for the Energizing Non-Interconnected Zones - FAZNI - (for its acronym in Spanish). Currently, an agreement for developing the LeticiaProject has been subscribed. During the year the Macarena - Meta, Unguia - Choco, and Iscuande - Nariño projectswere completed. Resources with exclusive destination for the current project in the available item are $1.580. In2007, corresponding entry showed $8.095.Resources from the Stock Democratization Program for $630 on December 31, 2007. These resources are periodicallytransferred to the Nation.(2)Includes collections for $1.431 from the Stock Democratization Program. These resources are periodically transferredto the Nation.(3)Includes $27 from the Stock Democratization Program, pending of being transferred to the Nation.(4)Operations conducted with Corficolombiana for covering payment commitments in January 2008.112ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

8. Investments, netInvestments on December 31 comprise:CurrentFixed income investments (1)Interest Rate % 2007 2006COP Treasuries 10 59.166 26.311Foreign Exchange CD (2) 4 7.052 3.13566.218 29.446Non-currentEconomic Ordinary%activity stock Particip.2007 2006Investments in variable incomeIn stocksGensa S.A. E.S.P (3) Energy 154.270.818 0,0682 2.106 2.106Electricaribe S.A. E.S.P. (4) Energy 7.623.656 0,02 172 172Provision (3) (1.978) (1.986)300 292(1)Valuation method used, as per Financial Superintendence guidelines.(2)Investment made in J. P. Morgan Chase Bank N.Y.(3)Last intrinsic value reported by Gensa S.A. E.S.P. is COP $0,83 / share generating the indicated provision.(4) Last intrinsic value reported was COP $69, 43 / share generating valorization (see note 15). On December 27, 2007,the Company was notified of Resolution 630-000436 of December 19, 2007, through which the Superintendence ofCorporations approved the merger of Electificadora del Caribe S.A. E.S.P. and Electrificadora de la Costa S.A. E.S.P.,constituting a new corporation denominated Electricaribe S.A. E.S.P., merger that was formalized through PublicDeed 3049 of December 31, 2007. Consequently, the number of shares the Company had in Electrificadora de laCosta S.A. E.S.P. of 4.355.961 shares increased to 7.623.656 in the new company, and the participation percentagevaried from 0,0608% to 0,02%.Fixed income investments generated a net profit for valorization at market pricesof $7.616 (2006 -$2.661). Variable income investments did not generated dividendrevenue.There is no restriction or encumbrance on the investments.FINANCIAL MANAGEMENT & PERFORMANCE113

9. Debtors, netDebtors’ balances on December 31 and their classification in short and long termare as follows:Short-term Long-term Total2007 2006 2007 2006 2007 2006Accounts receivable - customers (1) 217.775 166.816 16.167 17.929 233.942 184.745Doubtful collection accounts (2) 952 742 - - 952 742Provision - capital (3) (2.687) (1.865) (16.167) (17.929) (18.854) (19.794)216.040 165.693 - - 216.040 165.693Prepaid and advance paymentsTaxes 72 96 - - 72 96Prepaid and advance payments (4) 5.396 6.748 - - 5.396 6.7485.468 6.844 - - 5.468 6.844Other debtorsReturns on energyReceivables 1.119 807 - - 1.119 807Contribution Decree 847/2001 3.906 3.956 - - 3.906 3.956Various (5) 4 .930 2.532 17.025 12.769 21.955 15.301Doubtful collection accounts 135 5.010 - - 135 5.010Provision (3) (135) (5.010) - - (135) (5.010)9.955 7.295 17.025 12.769 26.980 20.064231.463 179.832 17.025 12.769 248.488 192.601Delivered deposits (6) 2 106 10.795 675 10.797 781231.465 179.938 27.820 13.444 259.285 193.382(1)The balance of this account is made up as follows:2007 2006Energy salesRegulated 158.242 119.552Non-regulated 53.705 42.247Energy sales in Exchange 16.045 17.704Technical services 702 198Total for energy sales 228.694 179.701Gas salesRegulated 1.652 849Non-regulated 3.596 4.195Total for gas sales 5.248 5.044233.942 184.745114ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

(2)The balance of this account if made up as follows: : 2007 2006Energy salesRegulated 1 1Non-regulated 288 78Energy sales in exchange 663 663952 742(3)The balance of this account is made up as follows:2007 2006Energy salesEnergy contracts (*) 18.191 19.131“Enerfinsa” Energy Exchange 663 663Other provisions 135 5.01018.989 24.804(*) Includes provisions of EMCALI for $17.902 - ($19.052 - 2006), Britalana Berrey for $77 ($77 - 2006), SiderurgicaColombiana for $209, and others.The provision account activity comprises the following:2007 2006Initial balance 24.804 20.466Provision for the year (*) 222 4.989Receivables (**) (4.888) (25)Provision recovery (***) (1.149) (626)Final balance 18.989 24.804(*) Provision from Sicolsa S.A. for $209 and Energen $13.(**) Receivables penalizations of Centrales Electricas de Caldas for $4.875 and $13, Energen.(***) Recovery from Emcali, $1.149.(4) Mainly contains of $804 for gas purchases ($1.619 - 2006), $3.984 for the Guarino Project construction, $137for the Leticia plant retrofitting ($1.163 - 2006), $125 for arbitration proceeding, and $63 for Termocentro’smaintenance.(5) Mainly includes $9.942 for employees’ housing loans ($8.877 - 2006), $1.127 for employees’ vehicle loans($819 - 2006), $669 for other employees’ loans, CENS’ $3.533 for balance owed of the transaction contractthrough which the lawsuit corresponding to Contract 078 was terminated ($3.195 – 2006).2007 includes $6.338 of employees’ loan for promoting their participation in the Stock Democratization program.The corresponding disbursement was effected through the Employee Fund - FEISA - (for its acronym in Spanish),which acts as the employees’ creditor and ISAGEN’s debtor, with a one-year capital grace period; amortization isconducted on a biannual basis.Agreed interest rate for employee loans varies between 6% and 7% e. a.FINANCIAL MANAGEMENT & PERFORMANCE115

Maturity dates for long-term debtors for the following years are as follows, withoutincluding receivables provision:Maturity YearAmount2009 3.2962010 5.0742011 5.3802012 5.3802013 Onwards 14.062(6)The balance of this account is made up as follows:33.1922007 2006Liquidity Fund (*) 10.053 -Solidarity Fund (**) 742 675Capital Reduction Trust (***) 2 10610.797 781(*) EOn December 2007, the Liquidity Fund was constituted through an autonomous equity managed by Fiducolombia,and in which the brokerage firm, Valores Bancolombia, acts as liquidity promoter. ISAGEN’s initial contribution was$10.000. The Fund’s objective is to supply liquidity to the stock for a five-year term, at the end of which a decisionwill made to expand its validity or liquidate the fund. Returns are recorded as greater value of the fund.(**) The Solidarity Fund for Health was constituted with the purpose of attending serious issues of health affecting theworker beneficiaries of the Pact and Collective Labor Agreement or their basic family group who have exhausted theall-existing alternatives for their coverage. The Fund’s additional resources to the Company’s initial contribution of$200, come from the weekly contributions of the employees, settled on June and December of each year, in equalproportions, and equivalent to 1% of the worker’s basic salary.(***) Balance of fiduciary trust constituted with Fiducolombia, for managing resources that are being collected from theEnergy Exchange’s account receivables, which corresponded to the Nation in the capital reduction. Returns areregistered as a greater value of the fund.Age breakdown of the debtors’ balance on December 31, 2007 is as follows:Type of debtorCurrent1 to 180daysoverdue181 to 360daysoverdueMore than360 daysoverdueTotalAccount receivables -customers233.942 - - - 233.942Doubtful collection accounts - - 210 877 1.087Advance payments 5.468 - - - 5.468Other debtors 26.980 - - - 26.980Provision (17.902) - (210) (877) (18.989)248.488 - - - 248.488Collateral granted by debtors:In general terms, for guaranteeing customer debts the following instruments areconstituted, blank promissory notes, advance payment requests, bank guarantees,resource pledges (owned by customer and subsidies granted by the Ministry ofMining and Energy).116ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

In the specific case of Emcali, a fiduciary trust has been constituted that is in chargeof collecting and receiving their income, which functions as collateral and paymentsource.For employee’s debts, mortgages or pledges are constituted in favor of theCompany.10. Inventories, netOn December 31, inventories included:2007 2006Spare parts 11.149 8.982Materials and supplies 5.494 4.489Other inventories 324 30616.967 13.777Provision (616) -16.351 13.77711. Property, plant and equipment, netThe following chart shows the property, plant, and equipment breakdown on December31:2007 2006Generation Plants 3.314.294 3.281.704Constructions and buildings 91.558 89.035Machinery, furniture, and equipment 97.361 92.610Land (1) 28.048 28.203TOTAL OPERATING ASSETS 3.531.261 3.491.552In construction and setup (2) 73.894 25.235Goods and chattels in warehouse 38.703 37.649Projects in administration (3) 9.900 6.453Out-of-service assets 23 23TOTAL FIXED ASSETS 3.653.781 3.560.912ACCUMULATED DEPRECIATIONGeneration Plants (1.884.401) (1.668.633)Constructions and buildings (24.758) (20.480)Machinery, furniture, and equipment (58.947) (51.532)Deferred depreciation 675.157 540.939TOTAL DEPRECIATION (1.292.949) (1.199.706)Provision (4) (17.338) -PROPERTY, PLANT & EQUIPMENT, NET 2.343.494 2.361.206FINANCIAL MANAGEMENT & PERFORMANCE117

During 2007, the Company acquired assets and undertook construction works foran amount of $111.422 (2006 - $59.180) and retired assets for a net book value of$1.240 (2006 - $759).Debit to results for depreciation during the year was $102.877 (2006 - $98.995).(1)A summary of the entire real estate owned by Company is presented below, detailing its legal situation and actionsthat have been undertaken according to such situation:Legal situation Remarks ActionsNo. ofpropertiesCompleteproprietorshipPossession- hereditaryrights ormaterialpossessionProperties that currently do no presentany legal issues.Properties purchased by the Company,over which it is currently exercisingmaterial possession, but that do notappear in the Public Instruments Officebecause of lack of registration data.None 588The process of148property adjudicationis being conductedbefore theINCODER (*)Possession -false traditionProperties materially possessed bythe Company, but that correspondedto sales of hereditary rights and therefore,they were inscribed as false traditionin the Registration Office of PublicInstrumentsClearance of titleswith processof ownershipproceedingsor successionproceedings55Propertiespending oflegalizationProperties to be clarified with someMunicipalities and the Registration Officeof Public InstrumentsTotal properties 7932(*) Adjudication requests of properties without recordable data are currently in process before the INCODER.(2) The main in-construction and setup projects correspond to the Sogamoso hydro electrical project for $26.289,San Carlos Phase II modernization for $16.397 (2006 - San Carlos Phase I modernization $19.903), Guarino RiverDiversion $9.913 and the Strategic Information Project for $5.385.(3)Corresponds to third party in-construction projects in the agreement development with the Ministry of Mining andEnergy for executing works debited to FAZNI’s resources. On December 31, 2007 and 2007, executed costs andexpenses corresponded to the Leticia’s thermal plant retrofitting project.(4)Detail of property, plant, and equipment’s provision for 2007 is made up as follows:2007CommercialvalueAccountingnet valueProvisionLand 15.672 28.048 12.376Communications and computationequipment15.754 17.905 2.151Goods and chattels in warehouse 35.892 38.703 2.811TOTAL PROVISIONS 67.318 84.656 17.338As indicated in note 5 of the financial statements until December 31, 2006, these118ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

negative differences in assets’ book value and their commercial value were directlyacknowledged against the valorization and surplus for valorization accounts, withoutprejudice that balances would become of an opposite nature. Starting from 2007,variations registered in front of recorded values until December 31 of the previousyear, were registered in the result statement.For the protection of its assets, ISAGEN S.A. E.S.P. has contracted different insurancespolicies, among which are the following:InsuredAssetRiskCoveredInsuredAmountMaturitya) Civil works, buildings,equipments, contents,warehouses, and lossof profitsAll risk material damage 604.428 January 13,2009b) The Company’snet worthc) The Company’snet worthd) The Company’snet worthManagement staffand directors’ civilresponsibilityInfidelity and financialrisksGeneral civilresponsibility40.295 December 21,200810.073 December 21,200820.000 December 21,2008e) Machinery (loaders,levelers, bulldozers, etc.)All risk machinery 2.509 July 1, 2008f) Vehicles Total loss for damagesand theft, civilresponsibilityg) Ship hull Losses and C.R. ofproductive centers’vessels2.281 March 30,20081.878 March 30,2008h) Life insurance debtbalance employeesi) Housing of employeeswith loanDebtors’ life group 9.568 July 1, 2008Fire 8.599 July 1, 2008The Company has adequate insurance policies for protecting its productive assets.The Company has collateralized some assets in third party obligations. See note 16of the financial statements.FINANCIAL MANAGEMENT & PERFORMANCE119

12. Prepaid expensesPrepaid expenses on December 31 comprise:2007 2006Insurance combined material damages 14.467 10.619Counter guarantee OPIC (*) credit (*) 4.317 4.450Surgery and hospitalization insurance 674 574All Risk and Construction Insurance - Guarino 513 749Extra contractual civil responsibility insurance 360 278Civil responsibility insurance 287 90Infidelity and financial risk insurance 160 16920.778 16.929(*) Corresponds to amount paid for OPIC’s Counter guarantee $2.166 (2006 - $2.125) valid until November 2008, and$2.582 for OPIC premium valid until May 2008 (2006 - $2.325).13. Deferred chargesDeferred charges breakdown on December 31, is as follows:2007 2006Studies (1) 16.428 17.110Deferred tax (2) 8.810 10.142Others 249 6825.487 27.320(1) Mainly includes $2.717 for the Guarino River Diversion study (2006 - $2.438), $3.121 for the Manso project (2006- $3.121), $9.500 for the Amoya project (2006 - $8.952). During 2007, studies for $681 related mainly to projectsin research stage according to new norms established the General Accountancy of the Nation, as per note 5, werewithdrawn.The Third Administrative Court of Caldas within a Popular Action proceeding issued a suspension measure ofResolution No. 359 of March 25, 2004 effects, through which granted Environmental License for the Diversionproject of the Guarino River to La Miel River.Based on the above-mentioned, by the end of 2006, constructions activities were suspended excepting those activitiesaiming to avoid or mitigate the occurrence of environmental or physical risks derived from the inopportune suspensionof works. Activities were reinitiated on April 2007, due to the repeal issued by the Contentious Administrative Courtof Caldas on March 9, 2007, which revoked the preventive measure.(2) Corresponds to $6.235 for deferred tax over receivables provision (2006 - $6.828) and $2.575 for deferred taxover retirement pensions and other provisions (2006 - $3.314) generating a greater value of these expenses in thefiscal deduction.120ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

14. Other assetsOther assets on December 31 correspond to the following:2007 2006Actuarial financial reserve (*) 26.216 25.023Licenses 5.550 8.040Software 106 101Others 191 13732.063 33.301Minus - Current portion (26.216) (25.023)Non-current portion 5.847 8.278(*) Autonomous Equity managed by the Sociedad Administradora de Fondos de Pensiones y Cesantias Provenir S.A.(Porvenir Pension Fund), in order to warrant payment of pension obligations to ISAGEN’s workers and ex-workers.The fund’s maximum amount will be equivalent to the actuarial calculation determined on December 31 of eachyear. During 2007, the Company contributed $7.000 to such fund.15. ValorizationsAssets and net worth valorization balance on December 31 comprises:2007 2006Property, plant & equipment 1.043.972 802.959Investments 131 1371.044.103 803.096During 2007, economic appraisal of property, plant, and equipment main componentsrelated to generation and real estate was technically determined by independentasset experts, using the reposition to new methodology and commercial value. Forappraising information technology assets, technical studies were utilized and werecarried out by the Company’s own employees.Detail of property, plant, and equipment is as follows:Commercialvalue2007 2006AccountingValorizationCommercial Accountingnet valuevalue net valueValorizationGenerations Plants 3.061.128 2.087.251 973.877 2.913.431 2.138.748 774.683Constructions &Buildings 135.443 80.055 55.388 117.356 79.300 38.056Machinery, furniture& equipment 38.665 25.056 13.609 52.031 45.595 6.436Land (*) - - - 10.662 28.203 (17.541)TOTAL OPERATINGASSETS 3.235.236 2.192.362 1.042.874 3.093.480 2.291.846 801.634Out-of-service assets 1.121 23 1.098 1.348 23 1.325TOTAL PROPERTY,PLANT &EQUIPMENT 3.236.357 2.192.385 1.043.972 3.094.828 2.291.869 802.959FINANCIAL MANAGEMENT & PERFORMANCE121

(*) As indicated in financial statements’ note 5, starting 2007 negative differences between technical appraisals and bookvalue of assets are not acknowledged as devaluations but as provision with charge to results. Based on the formerand by instructions of the General Accountancy of the Nation, the negative balances existing on December 31, 2006,were reclassified to the asset provision and “Change effects in the General Plan of Public Accounting” accounts ascounter-entry in the net worth. The former reclassification did not affect either the Company’s assets or net worth. Theeffects of the updating conducted during 2007 relating provisioned assets affected the period’s results.16. Financial obligationsThe financial obligations balance on December 31 comprises the following:Interest rate % 2007 2006 MaturityPower Finance Trust Limited (1) IPC+ 5,25 SV 492.497 492.497 2025Citibank N.A. E.U (2) 10,40 SV 68.870 91.827 2010Financiera Energética Nacional 9,75 SV - 29.059Bancolombia DTF + 4,75TV - 10.909BBVA Colombia DTF + 5 TV - 5.455Interest 1.637 1.709563.004 631.456Minus – Non-current portion (3) (538.409) (561.368)Current Balance (4) 24.595 70.088IPC: Consumer Price IndexSV: Semester DueDTF: Fixed Term DepositsTV: Quarter Due(1) Corresponds to loan contract with the Power Finance Trust Limited with a 20-year maturity term, a 5-year graceperiod, amortization of 30 biannual installments, warranted by the Nation and OPIC policy. Credit resourcesshould be destined to finance the investment plan, understood as the execution of new projects approved byOPIC, modernization and maintenance of existing plants, prepayment of debt associated with Termocentro, andoperational expenses.(2) Corresponds to loan contract with Citibank N.A. USA, with a 5-year maturity term, 1,5-year grace period, andamortization of 8 biannual installments. Resources can be used for general corporate purposes.(3) Maturities for non-current financial obligations are as follows:Maturity yearAmount2009 22.9572010 22.9572011 23.8122012 23.8122013 and onwards 444.871(4)Current balance corresponds to the following obligations:538.409AmountCitibank N.A. E.U 22.958Interest 1.63724.595122ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

During 2007, financial obligations for $65.037 (2006 - $195.526) were cancelled.The Company has obligations, pledges on assets, and commitments of incomepledges, as follows:Revenue pledges for $27.877 / semester as counter-guarantee in favor of theNation for its credit warranty with the Power Finance Trust Limited. This amount isannually adjusted according the credit amortization and interest conditions.Promissory note in favor the Power Finance Trust Limited for $492.497 untilDecember 2025.Letter of credit for USD 17.599 for guaranteeing the debt service payment of thePower Finance Trust Limited credit for the first semester of 2008.Signed promissory note in favor of Citibank N.A. USA for $91.827 until December2010.Revenue pledge in favor of Financiera Energetica Nacional - FEN - USD 3.410/ month with maturity April 2008, for guaranteeing Gecelca S.A. E.S.P. in theirTermoflores project commitments; Gecelca, in turn, is counter-guaranteeingISAGEN with a pledge without tenancy on the Termoguajira I plant.Mortgage on Miel I power plant in favor of the Miel I Trust for guaranteeing FENcredit payment whose payment was completed on December 15, 2007.Through authorization granted by the General Direction of Public Credit and NationalTreasury, the Company carried out coverage operations for USD 17.000 (2006 - USD63.000) in order cover foreign exchange risk exposure derived from dollar credits. Theeffect in results was an expense for $4.993 (2006 - $12.534 income).In the development of the credit contract with the Power Finance Trust Limited andCitibank N.A. USA, the Company agreed to comply with the following indicators for2007:Leverage (total liabilities/net worth) less than 1Financial debt / EBITDA ratio less than 3,5Debt service coverage greater than 1,3Short-term debt concentration less than 0,25As customary in such operations, by closing the OPIC financing with insurance contract,the Company contracted an array of commitments in financial and environmentalmatters mainly, which are specified in each financing contract.By the end of 2007, the Company has complied with such commitments.FINANCIAL MANAGEMENT & PERFORMANCE123

Fiscal provisions applicable to the Company stipulate, among others, the followingobligations:Income taxFiscal income is taxed at a rate of 34% for the 2007 fiscal year, and 33% for 2008and subsequent years. For 2006, the rate was 35%.Special deduction of 30% for the 2006 fiscal year and 40% for the 2007 andsubsequent fiscal years from the amount of investments made in real productivefixed assets, even if they have been acquired through financial leasing withirrevocable purchase option. Utilization of such deduction does not allow adheringto the auditing benefit.Auditing benefit: For fiscal 2006 and 2007, tax statements will become firm if netincome tax is increased with respect to the previous year, as follows:2,5 times inflation 18 months of firmness3 times inflation 12 months of firmness4 times inflation 6 months of firmnessEnergy generation companies are not subjected to the presumptive incomesystem.Deductibility of 100% of industry and commerce, billboards, and real estate taxeseffectively paid during the fiscal year or period, as long such taxes have causationrelationship with the taxpayer’s economic activity. The deduction was 80% for2006.Deductibility of 25% of the financial activity tax. In 2006, it was not deductible.Elimination of integral adjustment for inflation system for fiscal purposes, starting2007.Elimination of remittance tax, starting 2007.Net worth taxTax in liquid net worth possessed on January 1, 2007, at 1,2% rate. Such tax can beimputed against the net worth revalorization account, as per Law 1111 of 2006. TheCompany opted for such treatment.For 2006, the valid rate was 0,3%, calculated over the liquid net worth amountpossessed on January 1 of each fiscal year, excluding the stocks’ net equity value.Other taxesVAT discount for importing or acquiring industrial machinery carried out until April30, 2007, inclusive.FINANCIAL MANAGEMENT & PERFORMANCE125

Account reconcilement between accounting and fiscal net worth on December 31is as follows:2007 2006Accounting net worthPlus:Provision for protection of inventories, debtors, investments& property, plant, and equipmentCredit deferred taxDevaluationsNet worth difference fixed assetsMinus:Debit deferred taxDeferred depreciationValorizations3.035.99950.060186.082-233.7999.014675.1601.044.1032.735.97139.443157.18916.939238.97510.141540.940820.035Fiscal net worth 1.777.663 1.817.401Account reconcilement between accounting and fiscal monetary correction onDecember 31 is as follows:2006Accounting monetary correctionPlus:Adjustment for inflation property, plant, equipment & intangibles174.472Adjustment for inflation inventories2.499Adjustment for inflation investments130Minus:Adjustment for inflation intangibles depreciation & amortization80.896Adjustment for inflation fiscal net worth76.893Fiscal monetary correction 19.3122006-tax reform derogated the integral adjustment for inflation system starting2007.Tax statement corresponding to fiscal year 2006 is subject to revision by tax authorities.However, the Company’s management and its legal advisor consider that there willnot be differences regarding the same. Management considers that the accountedamount as tax provision is sufficient for attending any liability that could be establishedregarding 2007.FINANCIAL MANAGEMENT & PERFORMANCE127

19. Deposits received in administrationBalance of deposits received in administration comprises the following:2007 2006Ministry of mining projects (1) 11.632 12.834Solidarity in health Fund (2) 742 675SENA agreement - 7212.374 13.581(1)The Company carries out energetic project administrations commissioned by the Ministry of Mining and Energyusing resources from the Fund of Financial Support for Energizing Non-interconnected Zones. On December 31 thefollowing resources were available for project execution.• Leticia thermal plant’s retrofitting $11.632 (2006- $11.444).• Electric energy generation system improvement in the urban seat of La Macarena (Meta) and Santa Barbarade Iscuande (Nariño)’s municipal seat, $1.175 in 2006.• Improvement of electrical generation capacity in Unguia’s municipal seat (Choco), $215 in 2006.(2) Corresponds to resources of the Solidarity for Workers Health Fund managed by the Company.20. Labor obligationsLabor obligations balance on December 31 corresponds to the following:2007 2006Retirement pensions (*) 48.777 48.724Severance (unemployment) & interest on severance 2.673 2.186Vacations and vacation bonus 2.051 2.188Salaries 932 -Other provisions 1.777 1.56356.210 54.661Minus - Non-current portion (7.433) (5.937)Non-current balance 48.777 48.724(*)The actuarial calculation activity for retirement pensions is as follows:2007 2006Actuarial calculationInitial balance 48.724 48.859Plus (minus) - Net increase (decrease) 53 (135)48.777 48.724Deferred liabilityInitial balance - -Plus (minus) - net increase (decrease) in calculation 53 (135)Minus - Amortization of period (53) -Plus – Pensions recovery - 135- -Retirement pensions - Net 48.777 48.724128ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

The actuarial calculation includes payment of 12 ordinary stipends and additionalstipends in June and December, according to the Law.Main estimations utilized for actuarial calculation were as follows:2007 2006Pension readjustment rate (1) 4,77% 5,34%Actual technical interest rate (2) 4,80% 4,80%Number of people covered (3) 145 145(1) Corresponds to weighted average inflation for 2004, 2005, and 2006 with a weighting factor as follows: 2006with 3 points, 2005 with 2 points, and 2004 with 1 point, according to Numeral 1, Article 1 of Decree 2783 ofDecember 20, 2001.(2)Percentage established by Numeral 2, Article 1, of Decree 2783 of December 20, 2001.(3) Includes 103 current pensioners, 29 of which are shared with the Social Security System, and 42 employeeswho are expected to be pensioned until July 31, 2010.21. Other liabilitiesOther liabilities balance on December 31 comprises the following:2007 2006Advances received from customers 6.044 5.506Provision for contingencies (1) 2.676 2.320Stock democratization collection 2.087 -Customers’ loyalty points (2) 541 340Others 422 17211.770 8.338(1)Corresponds mainly to provision for loss contingencies of the following proceedings:Municipality of Tocancipa:Discussion with the Municipality of Tocancipa over Industry and Commerce Tax for 1992 through 1995. TheMunicipality pretends payment under Law 14/83 regime for energy generation.The proceeding continues in the State Council because the Company interposed appeal for reversal since previoussentences were partially against ISAGEN.Amount provisioned for $2.150 (2006 - $1.956) corresponds to taxes in discussion, interest for arrears, andpenalties.Municipality of Victoria:Nullity and Reestablishment of Right proceeding against administrative acts dictated by the Municipality of Victoria(Caldas) over royalty contribution collection for exploitation of construction materials for the Miel I power plantconstruction. In sentence 23 of November 2006 uttered in first instance by the Administrative Court of Caldas,the Company’s pretentions were refused. An appeal for reversal motion has been filed before the Council of State.The estimated amount payable including interest is $246 (2006 - $188).Rafael Gross BohorquezA contentious administrative proceeding of direct redress of damages caused by a generation plant construction.ISAGEN received this proceeding as an outcome of ISA’s spin off. The first instance sentence was against theCompany. Such proceeding is in the Council of State pending second sentencing. The amount pretended is$176.(2) Corresponds to provision for covering benefits granted to customers through the loyalty program, which consists ingranting energy purchase points that later on customers can redeem through services use or meter purchases.FINANCIAL MANAGEMENT & PERFORMANCE129

22. Share capitalOn December 31 subscribed and paid capital was constituted as follows:ShareholderNumberof shares2007Value %The Nation 1.571.919.000 39.298 57,66Empresas Públicas de Medellín - E.S.P. 352.960.000 8.824 12,95Empresa de Energía del Pacífico S.A. - E.S.P. 137.464.000 3.437 5,04Minority Shareholders * 663.729.000 16.593 24,35Total 2.726.072.000 68.152 100,00ShareholderNumberof shares2006Value %The Nation 2.095.892.000 52.397 76,88Empresas Públicas de Medellín - E.S.P. 352.960.000 8.824 12,95Empresa de Energía del Pacífico S.A. - E.S.P. 137.464.000 3.437 5,04Minority Shareholders * 139.756.000 3.494 5,13Total 2.726.072.000 68.152 100,00(*)Minority shareholders are all those proprietors, real beneficiaries, or ordinary stock managers that as a grouprepresent 3% maximum of outstanding ordinary stocks.23. ReservesReserves balance on December 31 comprises the following:2007 2006Legal reserve (1) 51.134 34.076Reserves by legal provisionsArticle 130 of the Tax Statute (2) 335.310 268.246Occasional reserve (3) - 21.554386.444 323.876(1) According to the Law, the Company is obliged to appropriate 10% of its annual net profits as legal reserve until thebalance of such reserve is equal to 50% of the subscribed capital. The obligatory legal reserve is not distributablebefore the Company liquidation, but may be used for absorbing or reducing annual net losses. Balances exceedingthe above-mentioned 50% of subscribed capital are of free disposal for shareholders.(2) The General Assembly of Shareholders, complying with article 130 of the Tax Statute, has appropriated since2004 such reserve from net profits, in an amount equivalent to 70% of excess value of the fiscal depreciationover the accounting depreciation. As per legal provisions, such reserve may be released long as depreciationslater on accounted, exceed depreciation annually requested for fiscal effects, or assets generating the greaterdeducted value are sold.(3) On October 16, 2007, privileged dividends were paid to 25% of ISAGEN’s total stock, equivalent to 681.518.000privileged share at COP 31,62731270 / share, for a total of $21.554.582.900 that correspond to the total occasionalreserve constituted for one time only.130ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

24. Net worth revalorizationAccumulated balance of adjustments for inflation on net worth accounts, applieduntil December 31, 2001. According to currently valid norms, this balance cannotbe distributed as profit until the Company is either liquated or capitalized. However,such balance may be used to pay net worth tax. Capitalization represents revenue forshareholders, which does not constitute taxable income or occasional earnings.25. Change effects in the General Plan of Public AccountingAccount balance on December 31 comprises the following:2007Devaluation in assets (1) 18.718Studies penalization (2) 68119.399(1) Accumulated balance of asset devaluation recorded until December 31, 2006, due to provision accountingtreatment of assets described in notes 5 and 11 of financial statements(2) Withdrawal of studies associated to projects in research stage, as per notes 5 and 13 of financial statements.26. Operational incomeBalances for operational income accounts on December 31, 2006 and 2007, comprisethe following:2007 2006Energy sales to companies (*) 850.866 696.493Energy sales in Exchange 175.980 160.706Gas sales 39.851 31.854Technical services 2.682 1.653Project administration (**) 639 -1.070.018 890.706(*)Energy sales for companies are made up for $448.096 (2006 – 369.233) for Regulated and $402.772 (2006 -$369.233) for Non-regulated.(**)Income generated by third parties’ project administration. In 2007, the Company received proceeds from projectexecution commissioned by the Ministry of Mining and Energy. Among these projects were the following:• Electric energy generation improvement in the urban seat of La Macarena (Department of Meta) and municipalseat of Santa Barbara de Iscuande (Nariño).• Electric generation capacity improvement of the Unguia’s (Department of Choco) municipal seat.• Retrofitting of Leticia’s thermal power plant.FINANCIAL MANAGEMENT & PERFORMANCE131

27. General, personnel, and other expenses2007 2006Personnel expenses 36.635 32.012Maintenance and repairs 24.414 18.593Insurance 19.076 20.355Surveillance 12.921 11.071Taxes and contributions 7.274 9.577Transportation and freight 5.653 5.757Relations with the community 4.622 3.416Fees 4.387 2.455Environmental management plan 4.111 2.776Customer PR 3.293 2.867Cleanliness and cafeteria 3.129 2.827Rent 1.342 1.281Others 3.126 5.836129.983 118.82328. Administration expenses2007 2006Personnel expenses 26.948 24.233Advertising 9.490 1.611Depreciation 5.868 3.498Fees 4.650 3.412Taxes and contributions (*) 3.945 9.957Maintenance and repairs 3.128 2.657Other general expenses 8.218 6.93162.247 52.299(*) Includes, $1.438 (2006 -1.579) for fiscal supervision charge of the General Controllership of the Republic, 2007contribution for $388 (2006 - 452) to the Superintendence of Public Utilities, $466 (2006 - $362) for contributionto Regulation Commission - CREG, $292 (2006 - 296) Industry and Commerce tax, $88 (2006 - $82) real estatetax, $893 (2006 - $2.105) Financial Activity tax, $4 (2006 - $5) stamp tax.Additionally, 2006 included net worth tax for $5.071, which for 2007 was registered in the net worth revalorizationaccount.29. Non-operationalBalance of net non-operational income (expenses) - miscellaneous, comprises thefollowing:2007 2006Recoveries (1) 9.533 3.535Provisions (2) (4.875) (7.212)Financial, net (3) (19.233) (6.526)Loss in asset retirement (869) (129)Others (4) 8.729 12.126Income (expense) (6.715) 1.794132ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

(1) Mainly includes provision recovery for assets protection for $4.625, EMCALI’s receivables provision recoveryfor $1.123 (2006- $497), fiscal 2006 Income Tax adjustment for $198 (2006 - $1.052 for fiscal 2005), Tolima’sreceivables recovery for $2.602, OPIC’s premium recovery for $140, variable compensation recovery 2006 for$257, and materials sale recovery for $569. Additionally, 2006 included pension recognition by the ISS (SocialSecurity Institute) for $675 and expense recovery in UPME’s project execution for $465.(2) Mainly includes $59 for the royalty process of quarry exploitation in Victoria municipality, $195 adjustment forthe Industry and Commerce Tax proceeding with the Tocancipa municipality, $430 for customer loyalty programprovision (2006 - $370), $209 provision for Siderurgica Colombiana provision, $616 provision of materialsfor service supply, $434 provision for computation and communications equipment, and $2.811 provision formachinery and equipment. Additionally, 2006 included $1.629 of industry and commerce tax proceeding withCaloto Municipality, and $4.875 provision for receivables from CHEC for diversion study of the Guarino River.(3)Mainly includes $7.557 for OPIC’s insurance commission, and counter-guarantee (2006 - $2.958), $4.993 forloss in derivate valorization, $5.861 for commission and other banking expenses for the Stock DemocratizationProgram, $702 for customer discount (2006 - $786), and $336 Pension Fund Commission (2006 - $416).Additionally, 2006 included $1.087 commission to Citibank for the indexation operation of credits with OPICinsurance, and $776 for obligation prepayment compensation with FEN.(4)Mainly comprises $1.282 income for supply of other services (2006 - $1.282), $1.496 income for setup leftovers(2006 - $2.333), $6.482 income for loss of profit indemnification (2006 - $1.680 for emergent damages andloss of profit), $348 income for penalizations and sanctions (2006 - $1.453), $500 for lawsuit against Seguros ElCondor. Moreover, $1.270 in net expenses of previous periods, mainly for gas purchases and energy adjustments(2006 - $870), $1.765 for previous period’s adjustments (2006 - $1.109).Additionally, 2006 included $6.390 income for transaction contract subscribed with CENS.30. Memorandum accountsBalances of memorandum accounts on December 31 comprise the following:2007 2006DebtorsContingent rights (1) 45.203 45.428Fiscal debtors (2) 1.706.020 1.791.618Debtors of control (3) 130.376 96.8521.881.599 1.933.898CreditorsContingent liabilities (4) 1.855.408 1.762.076Creditors of control (5) 63.574 60.221Fiscal creditors (6) 824.792 769.0472.743.774 2.591.344(1) Contingent rights for 2007 and 2006 mainly including the following:• Claim to Compañia Mundial de Seguros for indemnification for loss occurred in Termocentro power plant for$11.085.• Damages claim for $9.983 to the Ministry of Mining and Energy and the Superintendence of Public Utilitiesfor possession and liquidation of Electrochoco.• Rights over real estate and studies of the Pescadero - Ituango project for $7.956.• $3.240 lawsuit against the Cimitarra Municipality for ICA.• $1.471 lawsuit against Electrificadora del Tolima for ACR acknowledgement.• $1.378 lawsuit against the Caloto Municipality for Industry and Commerce tax.• Reconversion lawsuit for $8.908 against the Miel I Consortium for emergent damage and loss of profit withinthe same proceeding carried out by the Consortium against the Company.• Rights over the Ambeima Project’s studies for $214.FINANCIAL MANAGEMENT & PERFORMANCE133

(2) Corresponds to reconcilements between fiscal and accounting differences for valorizations, net worth taxes,non-deductible expenses, fixed assets, and debit-deferred tax.(3) Titles handed in custody to Deceval for $94.552 (2006 - $68.522). Additionally, 2007 includes the amount ofwholly depreciated assets for $35.824 (2006 – 28.330).(4)Mainly includes the following contingencies:• Long-term energy sale negotiations for an approximate amount of $1.633.389 (2006 - $1.537.144). No lossis expected for the Company.• Lawsuit by arbitration Miel I Consortium regarding Contract M-I 100 relative to the construction of the hydroelectrical power plant Miel I for extension of the works term and civil responsibility. The Consortium pretentionsamount to $120.039 and USD 21.974 (same for 2006).• Letter of credit for guaranteeing biannual payment of OPIC’s debt $36.638 (2006 - $30.369).• Lawsuits of the Municipalities of Medellin, Tocancipa, Victoria, and Norcasia for Industry and CommerceTax amounting to $4.887 (2006 - $4.887). Lawsuits before the Administrative Contentious Court of eachDepartment have filed. Additionally, lawsuits of San Carlos and San Rafael for Industry and Commerce forAGC and capacity charge have been filed, amounting to $3.259 for both years.• Lawsuit against Producciones Punch for $900 in both years.• Account payable to the Ministry of Mining and Energy for Urra project rights for $7.344 for both years.• Account payable to the Superintendence of Public Utilities for $1.274 corresponding to 2007 contribution.(5) Corresponds to goods received from UPME as per Inter-administrative Agreement No. 46/1162. In December2007, in compliance with clause 3 of such agreement, the pertinent account was adjusted based on the totalnational CPI published by DANE.(6) Corresponds to reconcilements between accounting and fiscal differences that include provisions, non-taxablerevenues generated in the investment portfolio, recoveries, devaluations, adjustment for fiscal inflation of networth, and credit deferred tax.On September 11, 2000, the Company was notified of the impugnation lawsuitinterposed by Empresas Publicas de Medellin to the General Assembly ofShareholders’ decision, held on February 22, 2000, which approved by majority thecapital reduction for $337.929. On November 2004, such proceeding entered theoffice of the judge for sentencing. On June 22, 2005, the Fourth Civil Court of theMedellin Circuit certified that there is no clear date due to the large volume of pendingto resolve records and protection of fundamental rights writs. There was no progressmade in this proceeding during 2007 (see note 32).134ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

31. Transactions and balances among related parties2007Shareholders (*)EPMNationalGovernmentManagementBoard ofDirectorsBalances in balance sheetAccounts receivable 4.208 - 65 -Obligations 949 2 - -Transactions related with resultsEnergy and gas sales 18.564 - - -Use of Local Distribution System 4.056 - - -Gas trade cost 1.187 - - -Energy, aqueduct, and telephone services 410 - - -Fees - - - 235Salaries and social benefits - - 2.493 -Other transactionsDividends 13.985 49.855 114 12006Balances in balance sheetAccounts receivable 12.115 - 74 -Obligations 609 106 - -Transactions related with resultsEnergy and gas sales 24.270 - - -Use of Local Distribution System 3.548 - - -Gas trade cost 32 - - -Energy, aqueduct, and telephone services 378 - - -Fees - - - 224Salaries and social benefits - - 1.658 -Other transactionsDividends 3.755 22.295 - -(*)Shareholders refers to those who have more than 10% of the outstanding stocks (See note 22).All operations carried out with Shareholders, management staff, and Board of Director’smembers were performed at market conditions. Income for energy sales to relatedFINANCIAL MANAGEMENT & PERFORMANCE135

parties represent 1,7% (2006 - 2,7%) of operational revenues and costs and expenses,1% (2006 – 1%).Additionally, the Company conducts services purchase and sale operations withrelated companies, in which the Nation, directly or indirectly, has stakes. Suchoperations are performed at market criteria32. Subsequent eventsOn February 11, 2008, the Company was notified through writ No. 2000-6100 ofFebruary 6, 2008, of the termination by abandonment declaratory corresponding tothe lawsuit interposed by Empresas Publicas de Medellin that impugned the GeneralAssembly of Shareholders decision of February 22, 2000, in which capital reductionwas approved by majority, as per note 30 of the financial statements.136ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

REPORT OF THE LEGAL REPRESENTATIVEArticle 446 of the Commerce Code and Law 964 of 2005Medellin, February 28, 2008Messrs Shareholders of ISAGEN S.A. E.S.P.The undersigned Legal Representative of ISAGEN S.A. E.S.P.1. Complying with the numeral third of Article 446 of Law 964, 2005, informs thataccording to the accounting and financial records:a) For 2007, expenditures for salaries, fees, travel allowances, public relationsexpenses, bonuses, benefits in money and specie, expenditures fortransportation, and any other kind of compensation received by the Corporatemembers, correspond to the amount of $2.742.844.442.b) During 2007, the Company did not effected expenditures to advisors or lobbyistsfor conducting matters before public or private entities, or for processing,advising or preparing studies for carrying out such processes.c) During 2007, the Company made donations for $189.755.637, each one of themwas duly authorized by the Retirement Committee, which is the organism incharge of analyzing that retired goods have a destination according to criteriaand norms that internally regulate such activity. The former stipulate that inany event, the donation procedure will be used if the cost of the administrativeprocess for commercializing such goods does not exceed it or the benefit foreducational, or non-profit social entities, or neighboring communities near theproductive centers of the Company is entirely justified.d) For 2007, publicity and advertising expenses were $9.940 million, andexpenditures effected for public relations were $37.199.000. It is worth noticingthat during the same year, the Stock Democratization Program took place,accounting for the significant publicity and advertising expenditures.e) Note six of the financial statements on December 31, 2007, clearly details themoney that the Company has in offshore accounts and its obligations in foreignexchange.f) f) Note eight of the financial statements discriminates ISAGEN investments inother domestic or foreign corporations.ISAGEN S.A. E.S.P. ANNUAL REPORT 2007137

2. Likewise, it is informed, regarding Article 47 of Law 964, 2005 that the Companycounts with an accounting internal control system in order to provide reasonablesecurity about the financial information and its disclosures. Such system enablesto determine how adequate the control environment is, identify and monitor risksand controls, information and communication systems, and verify that follow-upactivities for the operation of the system are duly conducted. The Managementteam, the Organizational Auditing Committee and the Board of Directors monitorsuch system. The Organizational Auditing team of ISAGEN, the Fiscal Auditing, andother control entities, have examined the accounting internal control system andhave concluded that it is adequate for complying with the proposed objectives.For 2007, to the best knowledge and understanding of the Legal Representative,there is no evidence of material findings or frauds in the activities performed thatwould affect the financial information supplied to the Auditing Committee, theBoard of Directors, and the Shareholders.3. Additionally, and complying with Article 46 of Law 964, 2005, the Legal Representativecertifies the relevant reports for the public that are related with the accounting periodsfinalized on December 31, 2007, which do not contain any vices, imprecision, ormistakes that prevent from knowing the truthful equity situation or operations ofthe Company.Luis Fernando Rico PinzónLegal Representative138 ISAGEN S.A. E.S.P. ANNUAL REPORT 2007

REFERENCE TABLE FOR ACRONYMSABCCAAPCENSCNDCRDCREGCXCDANEENFICCFAZNIFenINCODERIpcOEFopicSENASICSTNSUCGUPMEUSDActivity-based cost systemPublic Assets Utilization CommitteePower Plants of Norte de SantanderNational Center of DispatchRegional Center of DispatchEnergy and Gas Regulation CommissionCharge for ReliabilityNational Administrative Department of StatisticsFirm Energy of the Charge for ReliabilityFinancial Support Fund for Non-interconnected ZonesNational Energetic Financial InstitutionColombian Institute of Rural DevelopmentConsumer Price IndexFirm Energy ObligationsOverseas Private Investment CorporationNational Service of LearningCommercial Exchange SystemNational Transmission SystemUnified System of Costs and ExpendituresUnit of Mining and Energy PlanningDollarISAGEN S.A. E.S.P. ANNUAL REPORT 2007139