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Endesa Chile’s Simplified Organizational Structure (1)

As of December 31, 2010

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GLOSSARY

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PART I

Item 1.   Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.   Offer Statistics and Expected Timetable

Not applicable.

Item 3.   Key Information

A.            Selected Financial Data.

The following summary of consolidated financial data should be read in conjunction with our audited Consolidated Financial Statements included in this report.  Our audited Consolidated Financial Statements as of and for the year ended December 31, 2010, 2009 and 2008 are prepared in accordance with International Financial Reporting Standards (IFRS), as issued by the IASB.  For further detail on the adoption of IFRS, please see “Introduction — Financial Information.”  The financial data as of and for each of the three years ended December 31, 2010 in the table below are presented in pesos.

Amounts are expressed in millions except for ratios, operating data, shares and ADS (American Depositary Shares) data.  For the convenience of the reader, all data presented in dollars in the following summary, as of and for the year ended December 31, 2010, are translated at the Observed Exchange Rate of Ch$ 468.01 per $ 1.00.  No representation is made that the peso or dollar amounts shown in this report could have been or could be converted into dollars or pesos, at such rate or any other rate.  For more information concerning historical exchange rates, see —“Exchange Rates” below.

The following table sets forth the selected consolidated financial data of Endesa Chile in accordance with IFRS for the periods indicated:

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(1)              Energy production is defined as total generation minus energy consumption and technical losses within our own power plants.

Exchange Rates

Fluctuations in the exchange rate between the peso and the dollar will affect the dollar equivalent of the peso price of our shares of common stock, without par value (the Shares or the Common Stock), on the Bolsa de Comercio de Santiago (the Santiago Stock Exchange), the Bolsa Electrónica de Chile (the Chilean Electronic Exchange) and the Bolsa de Corredores de Valparaíso (the Valparaíso Stock Exchange) (collectively, the Chilean Exchanges).  These exchange rate fluctuations will likely affect the price of the Company’s ADS and the conversion of cash dividends relating to the Shares represented by ADS from pesos to dollars.  In addition, to the extent that significant financial liabilities of the Company are denominated in foreign currencies, exchange rate fluctuations may have a significant impact on earnings.

The Ley Orgánica del Banco Central de Chile 18,840 (the Central Bank Act), provides that the Central Bank may require that certain purchases and sales of foreign currency be carried out in the Mercado Cambiario Formal (the Formal Exchange Market), a market comprised of banks and other entities explicitly authorized by the Central Bank.  Purchases and sales of foreign currency, which can take place outside the Formal Exchange Market, can be carried out in the Mercado Cambiario Informal (the Informal Exchange Market), which is a recognized currency market in Chile.  Free market forces drive both the Formal and Informal Exchange Markets.  Foreign currency for payments and distributions with respect to the ADS may be purchased in either the Formal or the Informal Exchange Market, but such payments and distributions must be remitted through the Formal Exchange Market.  The Central Bank publishes the dólar observado (the Observed Exchange Rate) daily, and it is computed by taking the weighted average of the previous business day’s transactions in the Formal Exchange Market.

Since 1993, the Observed Exchange Rate and the Informal Exchange Rate have typically been within less than 1% of each other.  The Informal Exchange Rate means the average rate at which transactions are made in the Informal Exchange Market.  On December 31, 2010, the Informal Exchange Rate was Ch$ 468.00, or virtually the same as the published Observed Exchange Rate of Ch$ 468.01 per $ 1.00.  On April 30, 2011, the informal exchange rate was Ch$ 460.35 per $ 1.00, 0.1% higher than the Observed Exchange Rate corresponding to such date of Ch$ 460.09 per $ 1.00.  Unless otherwise indicated, amounts translated to dollars were calculated based on the exchange rates prevailing as of December 31, 2010.

The following table sets forth, for the periods and dates indicated, certain information concerning the Observed Exchange Rate reported by the Central Bank.

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Source: Chilean Central Bank.

(1)   Reflects pesos at historical values rather than in constant pesos.

(2)   The average of the exchange rates on the last day of each month during the yearly period.  This is not applicable to monthly data.

Calculation of the appreciation or devaluation of the Chilean peso against the U.S. dollar in any given period is made by determining the percent change between the reciprocals of the Chilean peso equivalent of $ 1.00 at the end of the preceding period and the end of the period for which the calculation is being made.  For example, to calculate the appreciation of the Chilean peso in 2010, one determines the percent change between the reciprocal of Ch$ 507.10 (the value of one dollar as of December 31, 2009) and the reciprocal of Ch$ 468.01 (the value of one dollar as of December 31, 2010).  In this example, the percentage change between 0.001971 (the reciprocal of 507.10) and 0.002136 (the reciprocal of 468.01) is 8.4%, which represents the appreciation of the Chilean peso against the dollar in 2010.  A positive percentage change means that the Chilean peso appreciated against the dollar, while a negative percentage change means that the peso devaluated against the dollar.

The following table sets forth the period-end rates for U.S. dollars for the years ended December 31, 2006 through December 31, 2010 and through the date indicated in the table below, based on information published by the Chilean Central Bank.

(1) Calculated based on the variation of period-end exchange rates.

Source:  Chilean Central Bank.

B.            Capitalization and Indebtedness.

Not applicable.

C.            Reasons for the Offer and Use of Proceeds.

Not applicable.

D.            Risk Factors.

A financial crisis in any region worldwide can have a significant impact in the countries in which we operate, and consequently, may adversely affect our operations, as well as our liquidity.

The five countries in which we operate are vulnerable to external shocks, which could cause significant economic difficulties and affect their growth.  In case any of these economies experience a lower economic growth or a recession, it is likely that our customers will demand less electricity, which could affect our results of operations and financial condition adversely.  Furthermore, some of our customers may experience difficulties in paying their electricity bills, and an increase in uncollectible accounts would also affect our results adversely.

In addition, a financial crisis and its disruptive effect on the financial industry can have an adverse impact on our ability to obtain new bank loans under normal terms and conditions.  Our ability to tap the capital markets in the five countries where we operate, as well as the international capital markets for other sources of liquidity, may also be diminished, or such financing may be available only at higher interest levels.  Reduced liquidity could, in turn, affect our capital expenditures, our long-term investments and acquisitions, our growth prospects, and our dividend payout policy.

South American economic fluctuations are likely to affect our results from operations and financial condition, as well as the value of our securities.

All of our operations are located in five South American countries.  Accordingly, our consolidated revenues are sensitive to the performance of South American economies as a whole.  If local, regional or worldwide economic trends adversely affect the economy of any of the five countries in which we have investments or operations, our financial condition and results from operations could be adversely affected.  Moreover, we have investments in relatively risky countries such as Argentina.  Generation and distribution of cash from subsidiaries located in this country have proven to be volatile.

A substantial portion of our assets and operations are located in Chile, making our financial condition and results of operations particularly dependent on the performance of the Chilean economy.  In 2010, the Chilean GDP increased by 5.2% compared to a 1.7% decrease in 2009.  The latest estimate from the Chilean Central Bank forecast growth for 2011, is in the 5.5% - 6.5% range.  However, such growth may not be achieved and the growth trend may not be sustainable in the future.  Future developments in the Chilean economy may impair our ability to proceed with our strategic plans and adversely impact our financial condition or results of operations.

In addition, the South American financial and securities markets are, to varying degrees, influenced by economic and market conditions in other countries.  Although economic conditions are different in each country, investor reaction to developments in one country may have a significant contagion effect on the securities of issuers in other countries, including Chile.  Chilean financial and securities markets may be adversely affected by events in other countries and such effects may affect the value of our securities.

Certain South American economies have been characterized by frequent and occasionally drastic intervention by governmental authorities, which may adversely affect our business.

Governmental authorities have changed monetary, credit, tariff and other policies to influence the course of the economies of Argentina, Brazil, Colombia and Peru.  To a lesser extent, the Chilean government has also exercised and continues to exercise a substantial influence over many aspects of the private sector, which may result in changes to economic or other policies.  These governmental actions, intended to control inflation and affect other policies, have often involved wage, price and tariff rate controls as well as other interventionist measures, which in Argentina included freezing bank accounts and imposing capital restrictions in 2001, the nationalization of the private sector pension funds in 2008, and the use of Central Bank reserves of the Argentine Treasury in order to pay down indebtedness maturing in 2010.  Changes in the policies of these governmental authorities with respect to tariff rates, exchange controls, regulations and taxation could adversely affect our business and financial results, reducing our profitability, as could inflation, devaluation, social instability and other political, economic or diplomatic developments, including the response by governments in the region to these circumstances.

Our electricity business is subject to risks arising from natural disasters, catastrophic accidents and acts of terrorism, which could adversely affect our operations, earnings and cash flow.

Our primary facilities include power plants and their associated transmission lines, pipelines, LNG terminals and re-gasification plants, storage and chartered LNG tankers.  Our facilities may be damaged by earthquakes, flooding, fires, other catastrophic disasters arising from natural or accidental human causes, as well as acts of terrorism.  We could experience severe business disruptions, significant decreases in revenues based on lower demand arising from catastrophic events, or significant additional costs to us not otherwise covered by business interruption insurance.  There may be an important time lag between a major accident or catastrophic event and the final reimbursement from our insurance policies, which typically carry non-recoverable deductible amounts, and in any event are subject to caps per event.

We are subject to refinancing risk and to debt covenants that could affect our liquidity.

As of December 31, 2010, our debt in financial terms was $ 3,775 million while, for accounting purposes, it totaled $ 3,828 million.  These amounts differ since financial debt, unlike accounting debt, does not include accrued interest.

Our financial debt had the following maturity timetable:

·                  $ 521 million in 2011;

·                  $ 336 million in 2012;

·                  $ 1,222 million in the 2013-2015 period; and

·                  $ 1,696 million thereafter.

Set forth below is a breakdown by country of financial debt maturing in 2011:

·                  $ 61 million - Chile;

·                  $ 148 million - Argentina;

·                  $ 232 million - Colombia; and

·                  $ 80 million - Peru.

Our debt agreements are subject to certain debt to EBITDA and debt-to-equity financial covenant ratios, among others.  They also contain common affirmative and negative covenants, as well as events of default, and in some cases, mandatory prepayment events.

As is customary for certain credit and capital market debt facilities, a significant portion of Endesa Chile’s financial indebtedness is subject to cross default provisions, with different definitions, criteria, materiality thresholds, and applicability as to the subsidiaries that could give rise to a cross default.

In the event that any of our cross default provisions is triggered and our existing creditors demand immediate repayment, a portion of our indebtedness could become due and payable.

We may be unable to refinance our indebtedness or obtain such refinancing on terms acceptable to us.  In the absence of such refinancing, we could be forced to dispose of assets in order to make up for any shortfall in the payments due on our indebtedness under circumstances that might not be favorable to obtaining the best price for such assets.  Furthermore, assets may not be sold quickly enough or for amounts sufficient to enable us to make such payments.

As of the date of this report, Argentina continues to be the country with the highest refinancing risk.  As of December 31, 2010, the third-party financial debt of our Argentine subsidiaries amounted to $ 298.4 million.  As a matter of policy for all of our Argentine subsidiaries as long as fundamental issues concerning the electricity sector remain unresolved, we are rolling over our Argentine outstanding debt.  If our creditors do not continue to accept rolling over debt principal when it becomes due and we are unable to refinance such obligations, we may default on such indebtedness.  For more information on covenants, cross default and relevant provisions of these credit facilities, see “Item 5. Operating and Financial Review and Prospects — B. Liquidity and Capital Resources.”

Since our generation business depends heavily on hydrological conditions, drought conditions may hurt our profitability.

Approximately 58% of our consolidated installed generation capacity in 2010 was hydroelectric.  Accordingly, extreme hydrological conditions may affect our business, and may have an adverse effect on our results.

During periods of drought, thermal plants, such as ours that use natural gas, fuel oil or coal as a fuel, are dispatched more frequently.  Operating costs of thermal plants might be considerably higher than those of hydroelectric plants.  Our operating expenses increase during these periods, and depending on our commercial obligations, we may have to buy electricity from the spot market in order to comply with our contractual supply obligations.  The cost of these electricity purchases may exceed the price at which we sell contracted electricity, thus producing losses from those contracts.

Governmental regulations may impose additional operating costs which may reduce our profits.

We are subject to extensive regulation of tariffs and other aspects of our business in the countries in which we operate, and these regulations may adversely affect our profitability.  For example, the Chilean government can impose electricity rationing during drought conditions or prolonged failures in power facilities.  On February 9, 2011, the Ministry of Energy promulgated a rationing decree that will be in effect from February 17, 2011 to August 31, 2011.  If, during rationing, we are unable to generate enough electricity to comply with our contractual obligations, we may be forced to buy electricity in the pool market at the spot price, since even a severe drought does not constitute a force majeure event.  The spot price may be significantly higher than our costs to generate the electricity and can be as high as the “cost of failure” set by the National Energy Commission, or the CNE.  This “cost of failure,” which is updated semiannually by the CNE, is a measurement of how much final users would pay for one extra MWh under rationing conditions.  If we are unable to buy enough electricity in the pool market to comply with all of our contractual obligations, then we would have to compensate our regulated customers for the electricity we failed to provide at the rationed price.  If material rationing policies are imposed by regulatory authorities in Chile, our business, financial condition and results from operations may be affected adversely in a material way.

Similarly, if material rationing policies are imposed by the local regulatory authority in the other countries in which we operate, as a result of adverse hydrological conditions, our business, financial condition and results from operations may be affected adversely in a material way.  Rationing periods may occur in the future, and consequently our generation subsidiaries may be required to pay regulatory penalties if such subsidiaries fail to provide adequate service under such conditions.

In addition, changes in the regulatory framework, including changes that if adopted would significantly affect our operations, are often submitted to the legislators and administrative authorities in the countries in which we operate and, if approved, could have a material adverse impact on our business.  For instance, in 2005 there was a change in the water rights law in Chile that requires us to pay for unused water rights.

Regulatory authorities may impose fines on our subsidiaries.

Our electricity businesses may be subject to regulatory fines for any breach of current regulations, including energy supply failure, in the five countries in which we operate.  In Chile, such fines may range from 1 Unidad Tributaria Mensual (UTM), or $ 80, to 10,000 Unidades Tributarias Anuales (UTA), or $ 9.6 million, in each case using the UTM, UTA and foreign exchange rate as of December 31, 2010.  In Peru, fines can reach a maximum of 1,300 Unidad Impositiva Tributaria (UIT) or $ 1.7 million as of December 31, 2010; in Colombia, fines may range from $ 2,900 to $ 0.6 million; in Argentina there is no maximum limit for the fines and in Brazil fines may range from $ 0.1 to $ 35.3 million.

Our electricity generation subsidiaries, supervised by their local regulatory entities, may be subject to these fines in cases where, in the opinion of the regulatory entity, operational failures that affect the regular energy supply to the system are the fault of the company; for instance, when the agents are not coordinated with the system operation.  Also, our subsidiaries may be required to pay fines or to compensate customers if those subsidiaries are unable to deliver electricity to them even if such failure is due to forces outside of our control.

For example, in Chile in 2005, the Superintendencia de Electricidad y Combustibles (Chilean Superintendence of Electricity and Fuels), or SEF, imposed fines of 1,260 UTA, or $ 1.1 million, on Endesa Chile due to a blackout that occurred in the Metropolitan Region in 2003.  On February 17, 2009, the SEF imposed fines on Endesa Chile, Pehuenche and San Isidro for 200 UTA, 200 UTA and 100 UTA, respectively, or $ 0.4 million in total.  In the case of our foreign subsidiaries, for example, in 2006 in Peru the Comité de Operación Económica del Sistema (Peruvian Economic Operating Committee of the Interconnected System), or COES-SINAC, ordered Edegel to pay approximately $ 1.3 million to other generating companies that were forced to compensate their clients due to an alleged failure of Edegel to comply with certain quality parameters.

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We depend in part on payments from our subsidiaries, jointly-controlled entities and associates to meet our payment obligations.

In order to pay our obligations, we rely partly on cash from dividends, loans, interest payments, capital reductions and other distributions from our subsidiaries and equity affiliates, as well as cash from proceeds of the issuance of new securities.  Our ability to pay our obligations will depend on the receipt of distributions from our subsidiaries.  The ability of our subsidiaries and equity affiliates to pay dividends, interest payments, loans and other distributions to us is subject to legal constraints such as dividend restrictions, fiduciary duties, contractual limitations and foreign exchange controls that may be imposed in any of the countries where they operate.

Historically, we have been able to access the cash flows of our Chilean subsidiaries, but we have not been similarly able to access at all times the cash flows of our non-Chilean operating subsidiaries due to government regulations, strategic considerations, economic conditions and credit restrictions.

Our future results from operations outside Chile may continue to be subject to greater economic and political uncertainties than what we have experienced in Chile, thereby reducing the likelihood that we will be able to rely on cash flows from operations in those entities to repay our debt.

Dividend Limits and Other Legal Restrictions.  Some of our non-Chilean subsidiaries are subject to legal reserve requirements and other restrictions on dividend payments.  Also, other legal restrictions, such as foreign currency controls, may limit the ability of our non-Chilean subsidiaries and equity affiliates to pay dividends and make loan payments or other distributions to us.  In addition, the ability of any of our subsidiaries which are not wholly-owned to distribute cash to us may be limited by the fiduciary duties of the directors of such subsidiaries to their minority shareholders.  Furthermore, some of our subsidiaries may be forced by local authorities, according to applicable regulation, to diminish or eliminate dividend payments.  As a consequence of such restrictions, our subsidiaries could, under certain circumstances, be prevented from distributing cash to us.

Contractual Constraints.  Distribution restrictions included in some credit agreements of our subsidiaries Endesa Costanera and El Chocón, may prevent dividend distributions and other distributions to shareholders if they are not in compliance with certain financial ratios.  Generally, companies are not allowed to make any kind of distribution in case of default on credit agreements.

Operating Results of Our Subsidiaries.  The ability of our subsidiaries and equity affiliates to pay dividends or make loan payments or other distributions to us is limited by their operating results.  To the extent that the cash requirements at any of our subsidiaries exceed available cash, such subsidiary will not be able to make cash available to us.

Foreign exchange risks may adversely affect our results, and the dollar value of dividends payable to ADS holders.

Most South American currencies in which we and our subsidiaries operate have been subject to large devaluations and appreciations against the dollar and may be subject to significant fluctuations in the future.

Historically, a significant portion of our consolidated indebtedness has been denominated in dollars and, although a substantial portion of our revenues are linked to dollars, we generally have been and will continue to be materially exposed to fluctuations of our local currencies against the dollar because of time lags and other limitations to peg our tariffs to the dollar.

Because of this exposure, the cash generated by our subsidiaries can decrease substantially when local currencies devalue against the dollar.  Future volatility in the exchange rate of the currencies in which we receive revenues or incur expenditures, may affect our financial condition and results from operations.  For more information on the risks associated with foreign exchange rates, see “Item 11.  Quantitative and Qualitative Disclosures About Market Risk.”

As of December 31, 2010, using financial rather than accounting conventions, Endesa Chile’s total consolidated financial debt was $ 3,775 million (net of currency hedging instruments).  Of this amount $ 2,162 million, or 57.3%, was denominated in dollars and $ 452 million in pesos.  In addition to the dollar and the peso, our foreign currency denominated consolidated indebtedness included the equivalent of:

·      $ 113 million in Argentine pesos;

·      $ 955 million in Colombian pesos; and

·      $ 93 million in soles.

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This totals an aggregate of $ 1,161 million in currencies other than dollars or pesos.

For the twelve-month period ended December 31, 2010, our operating revenues amounted to $ 5,206 million (before consolidation adjustments) of which:

·      $ 1,007  million, or 19.3%, was denominated in dollars; and

·      $ 2,434 million, or 46.8%, was linked in some way to the dollar.

In the aggregate, 66.1% of our operating revenues (before consolidation adjustments) was either denominated in dollars or linked to dollars through some form of indexation, while 2.5% was in pesos.

Revenues, before consolidation adjustments, in other currencies for the year ended December 31, 2010, included the equivalent of:

·      $ 753 million in Argentine pesos;

·      $ 824 million in Colombian pesos; and

·      $ 59 million in soles.

Although we generate revenues and incur debt in these same currencies, we believe that we are subject to risk in terms of our foreign exchange exposure to these four currencies.  The most material case is that of Argentina, where most of our debt is denominated in dollars while our revenues are mostly in Argentine pesos.

Furthermore, trading of our common stock underlying ADS is conducted in pesos.  Our depositary bank will receive cash distributions that we make with respect to the shares underlying the ADS in pesos.  The depositary bank will convert such pesos to dollars at the then-prevailing exchange rate to make dividend and other distribution payments in respect of ADS.  If the peso depreciates against the dollar, the value of the ADS and any dollar distributions ADS holders receive from the depositary bank will decrease.

We are involved in litigation proceedings.

We are currently involved in various litigation proceedings, which could result in unfavorable decisions or financial penalties against us, and we will continue to be subject to future litigation proceedings, which could have material adverse consequences to our business.

We are a party to a number of legal proceedings, some of which have been pending for several years.  Some of these claims may be resolved against us.  Our financial condition or results from operations could be adversely affected if certain material claims are resolved against us.  See Note 20.2 of our audited Consolidated Financial Statements.

The values of our subsidiaries’ long-term energy supply contracts are subject to fluctuations in the market prices of certain commodities.

We have economic exposure to fluctuations in the market prices of certain commodities as a result of the long-term energy sales contracts we have entered into.  We and our subsidiaries have material obligations as selling parties under long-term fixed-price electricity sales contracts.  Prices in these contracts are indexed according to different commodities, exchange rate, inflation and the market price of electricity.  During 2010, we did not carry out transactions in commodity derivative instruments to manage our exposure to commodity price fluctuations.  For further discussion, please refer to “Item 11-Quantitative and Qualitative Disclosures about Market Risk-Commodity Price Risk.”

Our controlling shareholders may have conflicts of interest relating to our business.

Enel beneficially owns 92.1% of Endesa Spain, which in turn owns 60.6% of Enersis’ share capital, and Enersis beneficially owns 60.0% of Endesa Chile’s outstanding capital stock.  Our controlling shareholders have the power to determine the outcome of most material matters that require shareholders’ votes, such as the election of the majority of our board members and, subject to contractual and legal restrictions, the distribution of dividends.  Our controlling shareholders also can exercise influence over our operations and business strategy.  Their interests may in some cases differ from those of our other shareholders.  Enel and Endesa Spain conduct their business in South America through us as well as through entities in which we do not have an equity interest.

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Environmental regulations in the countries in which we operate and other factors may cause delays or impede the development of new projects, as well as increase our costs of operations.

Our operating subsidiaries are also subject to environmental regulations which, among other things, require us to perform environmental impact studies for future projects and obtain permits from both local and national regulators.  Approval of these environmental impact studies may take longer than originally planned, and also, may be withheld by governmental authorities.  Also, local communities, ethnic or environmental activists may intervene during the approval process in order to prevent the project’s development.  They may also seek injunctive or other relief, with negative implications for us if they should succeed with their claims.

In addition to the environmental matters, there are other factors that may adversely affect our ability to build new facilities, including delays in obtaining regulatory approvals, shortages or increases in the price of equipment, materials or labor, strikes, adverse weather conditions, natural disasters, accidents or other unforeseen events, and the inability to obtain financing at affordable rates.

In addition, delays or modifications to any proposed project and laws or regulations may change or be interpreted in a manner that could adversely affect our operations or our plans for companies in which we hold investments.  See “Item 4.  Information on the Company — B. Business Overview — Electricity Industry Regulatory Framework.”

The relative illiquidity and volatility of Chilean securities markets could adversely affect the price of our common stock and ADS.

Chilean securities markets are substantially smaller and less liquid than the major securities markets in the United States.  In addition, Chilean securities markets may be affected materially by developments in other emerging markets.  The low liquidity of the Chilean market may impair the ability of holders of ADS to sell shares of our common stock withdrawn from the ADS program into the Chilean market in the amount and at the price and time they wish to do so.

Lawsuits against us brought outside of Chile or complaints against us based on foreign legal concepts may be unsuccessful.

All of our assets are located outside of the United States.  Almost all of our directors and officers reside outside of the United States and most of their assets are located outside the United States as well.  If any shareholder were to bring a lawsuit against our directors, officers or experts in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce against them, in United States or Chilean courts, judgments obtained in United States courts based upon the civil liability provisions of the federal securities laws of the United States.  In addition, there is doubt as to whether an action could be brought successfully in Chile on the basis of liability based solely upon the civil liability provisions of the United States federal securities laws.

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Item 4.   Information on the Company

A.          History and Development of the Company.

Incorporation and Contact Information of the Company

Empresa Nacional de Electricidad S.A. (Endesa Chile) is a publicly held limited liability stock company incorporated under the laws of the Republic of Chile on December 1, 1943.  Since 1943, the Company has been registered in Santiago with the SVS under Registration No. 0114.  The Company is commercially referred to as both Endesa and Endesa Chile.

The Company’s contact information in Chile is:

The Company’s authorized representative in the United States of America is Puglisi & Associates, whose contact information is:

Development of the Company

The Chilean government owned Endesa Chile from its incorporation in 1943 until we began a privatization process through a series of public offerings between 1987 and 1989.

In May 1992, Endesa Chile began its international expansion program with the following developments:

·      we acquired a stake in Endesa Costanera in 1992 and later, in August 1993, we acquired a controlling equity interest in El Chocón, both in Argentina; in March 2007 we increased our equity interest in El Chocón from 47.4% to 65.4% and in Endesa Costanera from 64.3% to 69.8%.

·      we acquired Edegel in Peru in October 1995; in June 2006, Edegel and Etevensa merged, after which Endesa Chile’s equity interest in Edegel increased to 33.1%.  In October 2009, we purchased an additional 29.4% of Edegel from Generalima, a Peruvian indirect subsidiary of Endesa Spain.  With this transaction, we increased our economic interest in Edegel to 62.5%.

·      we acquired Betania and Emgesa, both in Colombia, in December 1996 and in October 1997, respectively. In September 2007, these subsidiaries were merged into Betania, which then adopted the name of “Emgesa S.A. E.S.P.”; as of December 2010 Endesa Chile’s equity interest in Emgesa was 26.9%.  Due to a transfer of rights from another subsidiary of Endesa Spain, Endesa Chile controls and, therefore, consolidates Emgesa.

·      we acquired Cachoeira Dourada in Brazil in September 1997, and in 1998 we and Endesa Spain invested in CIEN, which operates an international transmission line connecting Brazil and Argentina.  Since October 2005, Cachoeira Dourada and CIEN have been subsidiaries of our affiliate, Endesa Brasil.

On March 26, 2007, Spanish company Acciona, S.A. (Acciona) and Italian company Enel, executed an agreement for the joint management of Spanish company, Endesa Spain.  The latter, through its Spanish subsidiary Endesa Latinoamérica, holds 60.6% of the share capital of Enersis, which in turn holds 60% of the share capital of Endesa Chile.

On February 20, 2009, Acciona and Enel reached an agreement whereby Acciona would transfer directly and indirectly to Enel Energy Europe S.L.U., a wholly owned subsidiary of Enel, its 25.0% shareholding in Endesa Spain.

On June 25, 2009, the transaction was completed, making Enel the ultimate controller of Endesa Chile by virtue of its 92.1% shareholding in Endesa Spain.  This transaction was reported to the Spanish National Securities Market Commission (CNMV in its Spanish acronym) as material information on the same date.

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Enel is a publicly-traded company headquarted in Italy. primarily engaged in the energy sector, with presence in 40 countries over 4 continents, and has around 95,000 MW of net installed capacity. It provides service to more than 61 million clients through its electricity and gas businesses.

As of December 31, 2010 we had 13,846 MW of installed capacity, with 186 generation units in the five countries in which we operate, consolidated assets of Ch$ 6,035 billion and operating revenues of Ch$ 2,398 billion.

Investments, Capital Expenditures and Divestitures

We coordinate the overall financing strategy including terms and conditions of borrowings by, and intercompany advances to, our subsidiaries to optimize debt and liquidity management.  Our operating subsidiaries independently plan capital expenditure financed by internally generated funds or direct financings.  Additionally, by focusing on Endesa Chile as a whole and seeking to provide services across the group of companies, we aim to reduce the level of investment necessary at the individual subsidiary level in items such as procurement, telecommunication and information systems.  Although we have considered how these investments will be financed as part of the Company’s budget process, we have not committed to any particular financing structure, and investments will depend on the market conditions at the time the cash flows are needed.

Our investment plan is flexible enough so as to adapt to changing circumstances by giving different priorities to each project in accordance with profitability and strategic fit.  Investment priorities are currently focused on developing the capacity plan in Chile and Colombia, to guarantee adequate levels of quality of supply and to manage environmental issues.

For the period between 2011 and 2015, we expect to make capital expenditures of Ch$ 1,310 billion in our controlled subsidiaries, of which Ch$ 687 billion relates to investments currently in progress (Bocamina II and El Quimbo).  We also plan to invest Ch$ 533 billion in the maintenance of existing installed capacity and Ch$ 90 billion in the studies needed to develop other potential generation projects that are in different stages of maturity, including Los Cóndores, Neltume, Choshuenco, HidroAysén, Punta Alcalde and Piruquina in Chile and Curibamba in Perú.  For further detail regarding these projects, please see “Item 4. D. Property, Plants and Equipment. Projects under Development.”

The table below sets forth the capital expenditures made in 2008, 2009 and 2010 and the expected capital expenditures for the 2011-2015 period.

(1)   Capex figures represent accrued investments for each year, except for future projections.

Capital Expenditures 2008, 2009 and 2010

Our capital expenditures totaled Ch$ 184 billion in 2010, of which Ch$ 116 billion were incurred in Chile and Ch$ 68 billion abroad.  In 2009, these expenditures aggregated Ch$ 386 billion, of which Ch$ 313 billion were incurred in Chile and the rest abroad.  In 2008, these expenditures aggregated Ch$ 358 billion, of which Ch$ 252 billion were incurred in Chile and the rest abroad.

Investments in Chile

In 2010, we incurred total capital expenditures of Ch$ 116 billion.  The main investment during 2010 related to the construction of the Bocamina II project, which is still in progress.  Ch$ 70 billion was accrued in 2010 in connection with this project.  It is estimated that the total investment will be Ch$ 400 billion.  We also invested Ch$ 27 billion in maintenance of existing installed capacity and Ch$ 19 billion in other minor projects.

In 2009, we incurred total capital expenditures of Ch$ 313 billion.  The main investments carried out during 2009 were: the construction of the 60 MW Canela II wind farm, (Ch$ 44 billion was accrued in 2009 and the total investment was Ch$ 90 billion); the Quintero thermal plant project (Ch$ 33 billion was accrued in 2009, and the total investment was approximately Ch$ 90 billion); and the partial construction of Bocamina II, which is still in progress (Ch$ 152 billion was accrued in 2009, and the total investment is estimated at Ch$ 400 billion).  We also invested Ch$ 48 billion in maintenance of existing installed capacity and Ch$ 35 billion in other minor projects.

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In 2008, we incurred total capital expenditures of Ch$ 252 billion. The main investments carried out during 2008 were: the construction of the Canela II wind farm (Ch$ 45 billion was accrued in 2008); the Quintero thermal plant project (Ch$ 41 billion accrued in 2008); the construction of Bocamina II (Ch$ 94 billion was accrued in 2008); and the construction of the Ojos de Agua pass-through hydroelectric plant that has an installed capacity of 9 MW (Ch$ 5 billion was accrued in 2008, and the total investment was Ch$ 15 billion). We also invested Ch$ 35 billion in maintenance of existing installed capacity and Ch$ 32 billion in other minor projects.

Investments Abroad

In 2010, we incurred total capital expenditures abroad of Ch$ 68 billion.  Our main investment during 2010 related to commencement of construction of our 400 MW El Quimbo hydroelectric power plant in Colombia.  Ch$ 16 billion was accrued in 2010 for this project.  It is estimated that the total investment will be Ch$ 630 billion.  We also invested Ch$ 50 billion in maintenance of existing installed capacity, in Argentina, Colombia and Peru, and Ch$ 1 billion in other minor projects.

In 2009, we incurred total capital expenditures of Ch$ 72 billion.  Our main investment during 2009 was the installation of a 189 MW turbine at the Santa Rosa plant in Peru.  Ch$ 10 billion was accrued in 2009 for this project.  The total estimated investment was Ch$ 55 billion.  We also invested Ch$ 57 billion in maintenance of existing installed capacity, mainly in Argentina and Peru, and Ch$ 5 billion in other minor projects.

In 2008, we incurred total capital expenditures of Ch$ 106 billion.  Our main investment during 2008 was the installation of the new turbine at the Santa Rosa power plant.  Ch$ 45 billion was accrued in 2008.  We also invested Ch$ 55 billion in maintenance of existing installed capacity mainly in Argentina and Colombia, and Ch$ 5 billion in other minor projects.

Investments currently in progress

In general terms, projects are expected to be financed with resources to be provided by external financing as well as internally generated funds for each of the companies described.

Investments in Chile

Our main investment currently in progress in Chile is the construction of the Bocamina II steam/coal-fired power plant, which is the second unit of our Bocamina power plant.  This project is located in the Coronel district in the Bío-Bío region.  Its installed capacity is estimated to be 370 MW and the start-up is planned for the second half of 2011.  The total estimated investment is approximately Ch$ 400 billion.

Investments in Other Countries

Our main project being developed outside Chile is our 400 MW El Quimbo hydroelectric plant in Colombia.  The principal civil works and equipment supply and assembly contracts have been awarded.  The total estimated investment is approximately Ch$ 630 billion.

B.            Business Overview.

We are a publicly held limited liability stock company with consolidated operations in Chile, Argentina, Colombia and Peru and an equity interest in a Brazilian company.  Our core business segment is electricity generation.  We also participate in the engineering services industry and have a tunnel concession in Chile.  The low amount of revenues from non-generation activities, less than 1.0% in terms of our 2010 revenues, does not justify the breakdown of revenues per activity.  Additionally, we do not report them as a separate business segment for purposes of this discussion, or under IFRS.

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(1)   The differences in Generation and Other business in Chile compared to last year’s Form 20-F are explained by accounting reclassifications.

For further information related to operating revenue and total income by business segment, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results” and Note 30 to our Consolidated Financial Statements.

Our consolidated installed capacity, as of December 31, 2010, was 13,845 MW, with 57.8% hydroelectric capacity, 41.6% thermal electric and 0.6% wind power generation capacity.  Total installed capacity is defined as the maximum power capacity (measured in MW generation units) under specific technical conditions and characteristics.

We own and operate 28 generation facilities in Chile with an aggregate installed capacity, as of December 31, 2010, of 5,611 MW, 0.7% lower compared to the 5,650 MW in 2009.  The difference in 39 MW in the 2010 figure is explained by the retirement of the Huasco ST Unit in July 2010 and a 23 MW decrease of the installed capacity of the Diego de Almagro in April 2010.

We accounted for 35.4% of Chile’s total generation capacity as of December 31, 2010, measured by the maximum capacity calculated by CDEC-SIC.  Hydroelectric installed capacity represents 61.7% of Endesa Chile’s total installed capacity in Chile, thermoelectric installed capacity represents 36.9% and wind power represents 1.4%.  The CDEC is the electricity dispatch center in the corresponding electric system.  See “Item 4  B. Business Overview — Electricity Industry and Regulatory Framework.”

As of December 31, 2010, we also had stakes in 26 generation facilities outside of Chile with an aggregate installed capacity of 8,235 MW, 0.2% higher compared to 8,214 MW in 2009.  The only change in our total installed capacity outside Chile was in Colombia with the incorporation of the 19.5 MW mini hydro unit San Antonio, which started operations in May 2010.  For additional detail on capacity increase of these units see “Item 4 D. Property, Plants and Equipment.”  Hydroelectric installed capacity outside Chile represents 57.8% of Endesa Chile’s total installed capacity outside Chile.  Based on 2010 figures, the Company’s installed generation capacity in Argentina, Colombia and Peru represents approximately 13%, 22% and 26% of total capacity in each country, respectively.

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ENDESA CHILE’S CONSOLIDATED HYDRO/THERMAL GENERATION (GWh)(1)

Our consolidated electricity production reached 51,603 GWh in 2010, 6.2% lower than the 55,030 GWh produced in 2009.  Peru was the only country in which we increased our generation from 8,163 GWh in 2009 to 8,466 GWh in 2010, an increase of 3.7%.  In Colombia, Chile and Argentina, we decreased our generation by 1,390 GWh, 1,325 GWh and 1,014 GWh, respectively, decreases of 11.0%, 6.0% and 8.5% compared to our 2009 generation.   Hydroelectric generation in 2010 in the four countries in which we consolidate results from operations was 13.2% lower than in 2009 and thermal generation in 2010 was 5.7% higher than in 2009.

Our consolidated physical energy sales for 2010 were 56,641 GWh, 5.4% lower than our consolidated physical energy sales of 59,859 GWh in 2009.  The main decreases in sales were in Colombia and Argentina, and the only increase was in Peru, as illustrated in the following table:

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Table of Contents

ENDESA CHILE PHYSICAL DATA PER COUNTRY

(1)          For details on generation facilities, see “ Item 4 D. Property Plants and Equipment.”

(2)          Total installed capacity is defined as the maximum MW capacity in generation units, under specific technical conditions and characteristics, in most cases confirmed by satisfaction guarantee tests performed by equipment suppliers.  Figures may differ from installed capacity declared to governmental authorities and customers in each country, according to criteria defined by such authorities and relevant contracts.

(3)          Energy generated defined as total generation minus own power plant consumption and technical losses.

(4)          Quintero and Canela II generation in Chile have been consolidated since July and December 2009, respectively; Santa Rosa TG8’s generation in Peru since November 2009; and San Antonio mini hydro plant in Colombia since May 2010.

We segment our sales to customers using two different categories.  First, we distinguish between regulated and unregulated customers.  Regulated customers are distribution companies who mainly serve residential clients.  Unregulated customers, on the other hand, may freely negotiate the price of electricity with generators or they may purchase electricity in the pool market at the spot price.  The second criterion we use to segment our customer sales is by contracted sales and non-contracted sales.  This method is useful because it provides a uniform way for us to compare our customers from country to country.  The countries in which we operate have varying classifications for what constitutes a regulated customer.  In contrast, contracted sales are defined uniformly throughout.

In general, in the countries in which we operate, the potential for contracting electricity is related to the volume of electricity demand.  Customers identified as small volume regulated customers, such as residential customers, subject to government regulated electricity tariffs, must purchase electricity directly from a distribution company.  These distribution companies, which purchase large amounts of electricity for small volume residential customers, generally enter into contractual agreements with generators at a regulated tariff price.  Those identified as large volume industrial customers also enter into contractual agreements with energy suppliers.  However, such large volume industrial customers are not subject to the regulated tariff price.  Instead, these customers are allowed to negotiate the price of energy with generators based on the characteristics of the service required.  Finally, the pool market, where energy is normally sold at the spot price, is not carried out through contractual agreements, but instead complies with pool market operations.

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The following table contains information regarding Endesa Chile’s consolidated sales of electricity by type of customer for each of the periods indicated:

ENDESA CHILE CONSOLIDATED PHYSICAL SALES BY TYPE OF CUSTOMER (GWh)