Elektra Noreste, S.A. · Plaza 2000 Building, 16th Floor 50th Street Panama, Republic of Panama Telephone: 507-250-7000 Facsimile: 507-205-7001 Email: [email protected] Panama stock

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Subject to completion, dated June 29, 2006Preliminary offering memorandum

Elektra Noreste, S.A.US$100,000,000 7.60% Senior Notes due 2021Interest payable January 12 and July 12Elektra Noreste, S.A. (“Elektra Noreste” the “Company” or the “Issuer”) is a sociedad anónima organizedunder the laws of the Republic of Panama (“Panama”), through public deed number 143 of January 19, 1998of the Second Notary Public of the Circuit of Panama, domiciled in the Republic of Panama, registered injacket 340439, roll 57983, image 56 of the Merchantile Section of the Public Register, since January 22, 1998.The 7.60% senior notes offered hereby (the “Notes”) will mature on July 12, 2021. We will pay interest onthe Notes on January 12 and July 12 of each year, beginning January 12, 2007. We may redeem the Notes,in whole or in part, at any time prior to their maturity at the redemption price described herein. See“Description of the Notes—Redemption.”See “Risk Factors” beginning on page 17 for a discussion of certain risks that you should consider inconnection with an investment in the Notes.The Notes are registered in Panama, as described below. The Notes have not been registered under theU.S. Securities Act of 1933, as amended (the “Securities Act”), any securities laws of any state located in theUnited States (“U.S.”), or laws of any other U.S. jurisdiction. The Notes are being offered and sold in theU.S. only to qualified institutional buyers within the meaning of Rule 144A under the Securities Act(“Rule 144A”) and outside the U.S. in accordance with Regulation S under the Securities Act (“RegulationS”) to persons other than U.S. persons as defined in Regulation S. Prospective investors that are qualifiedinstitutional buyers are hereby notified that the seller of the Notes may be relying on the exemption fromthe provisions of Section 5 of the Securities Act provided by Rule 144A. For a description of certainrestrictions on transfers of the Notes, see “Notice to Investors.”

Price to investors(1)(2) Expenses Net proceeds to company

Per note US$ 10,000.00 US$ 250.00 US$ 9,750.00Total US$100,000,000.00 US$2,500,000.00 US$97,500,000.00(1) Plus accrued interest from July 10, 2006, if settlement occurs after that date.(2) Price to investors is subject to change. See “Plan of Distribution.”

The Notes being offered in accordance with 144A are expected to be ready for delivery in book-entry formthrough the facilities of The Depository Trust Company on or about July 10, 2006. Notes being offered inaccordance with Regulation S are expected to be ready for delivery in book-entry form through thefacilities of Euroclear Bank S.A./N.V., as the operator of the Euroclear System, or Euroclear, or ClearstreamBanking, société anonyme, or Clearstream, on or about July 10, 2006. Beneficial interests in the RegulationS Global Note (as defined herein) may be held in Panama through Central Latinoamericana de Valores, S.A.,or Latinclear, which is a participant in Clearstream.It is a condition to the issuance of the Notes that the Notes be rated at least “BBB” by Fitch, Inc. or Fitch. A ratingis not a recommendation to buy, sell or hold a Note and is subject to revision or withdrawal by Fitch in the future.The listing and sale of the Notes has been authorized by the Bolsa de Valores de Panamá, S.A. (PanamaStock Exchange). This authorization does not imply any recommendation or opinion regarding the Notes orthe Company.THESE NOTES HAVE BEEN AUTHORIZED FOR PUBLIC OFFERING IN PANAMA BY THE COMISIÓN NACIONALDE VALORES OF PANAMA (THE PANAMANIAN NATIONAL SECURITIES COMMISSION). THIS AUTHORIZATIONDOES NOT IMPLY A RECOMMENDATION ON THE PART OF COMISIÓN NACIONAL DE VALORES TO INVEST INTHE NOTES, NOR A FAVORABLE OR UNFAVORABLE OPINION REGARDING THE BUSINESS OF THE COMPANY.THE COMISIÓN NACIONAL DE VALORES SHALL NOT BE LIABLE FOR THE ACCURACY OR ADEQUACY OF THEINFORMATION IN THIS OFFERING MEMORANDUM OR THE REPRESENTATIONS CONTAINED IN THEREGISTRATION STATEMENT.

Lead manager and bookrunner

JPMorganJune , 2006

The issuer

Mr. Javier ParienteElektra Noreste, S.A.

Edificio Hatillo, Torre AAve. Justo Arosemena y Ave. Cuba

Plaza Panama 0833-0202Panama City, Republic of Panama

Telephone: 507-207-0008Facsimile: 507-227-5540

Email: [email protected]

Initial purchaser

J.P. Morgan Securities Inc.270 Park Avenue

New York, New York 10017Telephone: 877-217-2484Facsimile: 212-834-6618


Independent auditors Local broker

Ms. Aurora DiazPricewaterhouseCoopers

Avenue Samuel Lewis y Calle 55 EPanama, Republic of Panama



Mr. Carlos SamaniegoWall Street Securities, S.A.

Calle Aquilino de la Guardia y Rogelio AlfaroApartado Postal 0819-09280Panama, Republic of Panama



Indenture trustee, registrar,paying agent, authenticating and transfer agent

Ms. Lici ZhuThe Bank of New York

101 Barclay StreetFloor 21W

New York, NY 10286Telephone: 212-815-5381Facsimile: 212-815-5802


Legal advisors

To Elektra Noreste, S.A. as to U.S. law To the Initial Purchaser as to U.S. law

Richard M. Kosnik, Esq.Jones Day

222 East 41st StreetNew York, New York 10017

United StatesTelephone: 212-326-3939Facsimile: 212-755-7306


Stuart K. Fleischmann, Esq.Shearman & Sterling LLP599 Lexington Avenue

New York, New York 10022United States



To Elektra Noreste, S.A. as to Panamanian law To the Initial Purchaser as to Panamanian law

Arturo Gerbaud, Esq.Aleman, Cordero, Galindo & Lee

Swiss Bank Building, 2nd FloorPanama, Republic of Panama



Ricardo Arango, Esq.Arias Fabrega & Fabrega

Plaza 2000 Building, 16th Floor50th Street

Panama, Republic of PanamaTelephone: 507-250-7000Facsimile: 507-205-7001


Panama stock exchangeBolsa de Valores de Panamá, S.A.

PO Box 87-0878, Zone 7Panama 7, Republic of Panama

You should rely only on the information contained in this offering memorandum. NeitherElektra nor J.P. Morgan Securities Inc. as the Initial Purchaser (the “Initial Purchaser”) hasauthorized anyone to provide you with different information. Neither Elektra nor the InitialPurchaser is making an offer of the Notes in any U.S., Panamanian or other jurisdiction wherethe offer is not permitted. You should not assume that the information contained in thisoffering memorandum is accurate as of any date other than the date on the front of thisoffering memorandum.

Table of contentsNotice to New Hampshire residents . . . . . iii

Notice to prospective investors in theUnited Kingdom . . . . . . . . . . . . . . . . . . . . iii

Notice to prospective investors inPanama . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Market data . . . . . . . . . . . . . . . . . . . . . . . . . iv

Service of process and enforcement ofcivil liabilities . . . . . . . . . . . . . . . . . . . . . . . iv

Presentation of financial and otherinformation . . . . . . . . . . . . . . . . . . . . . . . . v

Forward-looking statements . . . . . . . . . . . v

Available information . . . . . . . . . . . . . . . . . vi

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Risk factors . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Use of proceeds . . . . . . . . . . . . . . . . . . . . . . 29

Capitalization . . . . . . . . . . . . . . . . . . . . . . . . 30

Selected historical financial data . . . . . . . . 31

Management’s discussion and analysisof financial condition and results ofoperations . . . . . . . . . . . . . . . . . . . . . . . . 33

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Overview of the Panamanian electricityindustry . . . . . . . . . . . . . . . . . . . . . . . . . . 96

Management . . . . . . . . . . . . . . . . . . . . . . . 117

Principal shareholders . . . . . . . . . . . . . . . . 124

Related party transactions . . . . . . . . . . . . 125

Description of other indebtedness . . . . . 126

Description of the notes . . . . . . . . . . . . . . 128

Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156

Plan of distribution . . . . . . . . . . . . . . . . . . 162

Notice to investors . . . . . . . . . . . . . . . . . . . 165

Legal matters . . . . . . . . . . . . . . . . . . . . . . . 168

Independent accountants . . . . . . . . . . . . . 169

Index to financial statements . . . . . . . . . . F-1

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In this offering memorandum, all references to “Elektra,” “we,” “our,” “ours” and “us” refer toElektra Noreste, S.A., except as otherwise provided. In this offering memorandum, all referencesto the “Initial Purchaser” refer to J.P. Morgan Securities Inc.

Having made all reasonable inquiries, we confirm that, to the best of our knowledge, theinformation that is material in the context of the issue and offering of the Notes and containedherein regarding us and the Notes is true and accurate and not misleading, and the opinions andintentions expressed herein are honestly held. Having made all reasonable inquiries, we furtherconfirm that, to the best of our knowledge, there are no other facts, the omission of whichwould make this offering memorandum as a whole or any of the information or the expressionof any these opinions or intentions materially misleading. We accept responsibility for theinformation contained herein. This offering memorandum has been prepared by us solely for usein connection with the proposed offering of the Notes described herein.

For purposes of the Offering of the Notes under Rule 144A and in accordance with Regulation S,this offering memorandum is personal to each offeree and does not constitute an offer to anyother person or to the public generally to subscribe for or otherwise acquire the Notes.Distribution of this offering memorandum to any person other than a prospective investor andany person retained to advise such prospective investor with respect to its purchase isunauthorized, and any disclosure of any of its contents is prohibited. Each prospective investor,by accepting delivery of this offering memorandum, agrees to the foregoing and to make nophotocopies of this offering memorandum or any documents referred to in this offeringmemorandum.

We, and not the Initial Purchaser, have furnished the information in this offering memorandum.To the best of our knowledge, the information in the offering memorandum is in accordancewith the facts and contains no material misstatements or omissions. The Initial Purchaser cannotassure you that the information in this offering memorandum is accurate or complete. Nothingcontained in this offering memorandum is, or shall be relied upon as, a promise orrepresentation by the Initial Purchaser or its affiliates as to the past or future.

You should rely only on the information contained in this offering memorandum. We have not,and the Initial Purchaser has not, authorized any person to provide you with differentinformation or to make any representation not contained in this offering memorandum. Ifanyone provides you with different or inconsistent information, you should not rely on it. Youshould assume that the information contained in this offering memorandum is accurate only asof the date on the front cover of this offering memorandum. Our business, financial condition,results of operations and prospects may have changed since that date.

The contents of our website do not form part of this offering memorandum and are notincorporated herein.

Neither the U.S. Securities and Exchange Commission (the “SEC”), any U.S. state securitiescommission nor any other U.S. regulatory authority has approved or disapproved the Notes norhave any of the foregoing authorities passed upon or endorsed the merits of this offering or theaccuracy or adequacy of this offering memorandum. Any representation to the contrary is acriminal offense.

The Notes are subject to restrictions on transferability and resale and may not be transferred orresold in the U.S. except as permitted under the Securities Act and the applicable state securitieslaws pursuant to registration or an exemption therefrom. As a prospective investor, you should

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be aware that you may be required to bear the financial risk of this investment for an indefiniteperiod of time. See “Plan of Distribution” and “Notice to Investors.”

In making an investment decision, prospective investors must rely on their own examination of usand the terms of the offering, including the merits and risks involved. Prospective investorsshould not construe anything in this offering memorandum as legal, business or tax advice. Eachprospective investor should consult its own legal, business, accounting or tax advisors as neededto make its investment decision and to determine whether it is legally permitted to purchase theNotes under applicable legal investment or similar laws or regulations including, withoutlimitation, the treatment of the acquisition of the Notes provided hereunder under FinancialAccounting Standards Board Interpretation Number 46. In connection with this offering, theInitial Purchaser, or any person acting on its behalf, may over-allot or effect transactions with aview to supporting the market price of the Notes at a level higher than that which mightotherwise prevail for a limited period after the issue date. However, there may be no obligationon the Initial Purchaser to do this. Such stabilizing, if commenced, may be discontinued at anytime, and must be brought to an end after a limited amount of time.

This offering memorandum contains summaries believed to be accurate with respect to certaindocuments, but reference is made to the actual documents for complete information. All suchsummaries are qualified in their entirety by such reference. Copies of documents relating to theNotes referred to herein will be made available to prospective investors upon request to theTrustee described herein. See “Description of the Notes.”

Notice to New Hampshire residentsNEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE HASBEEN FILED UNDER RSA 421-B WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT ASECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEWHAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENTFILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH FACTNOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR ATRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THEMERITS OR QUALIFICATIONS OF OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANYPROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITHTHE PROVISIONS OF THIS PARAGRAPH.

Notice to prospective investors in the United KingdomThe content of this communication has not been approved by an authorized person within themeaning of the United Kingdom Financial Services and Markets Act 2000 (as amended) (the“FSMA”). No Notes are being offered to the public for the purposes of the FSMA and noapplication has been or will be made for the admission of the Notes to the official list of the UKListing Authority or to trading on any other recognized investment exchange.

This communication is directed only at (i) persons outside the United Kingdom, (ii) persons whoare investment professionals for the purposes of Article 19(5) of The Financial Services andMarkets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (iii) persons falling withinany of paragraphs (a) to (d) of Article 49(2) of the Order (“high net worth companies,

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unincorporated associations etc.”) (all such persons together being referred to as “relevantpersons”). This communication must not be acted on or relied on by persons who are notrelevant persons. Any investment or investment activity to which this communication relates isavailable only to relevant persons and will be engaged in only with relevant persons.

Notice to prospective investors in PanamaThe Notes have been authorized for public offering in Panama by the Comisión Nacional deValores (National Securities Commission), or the CNV, and the listing and sale of the Notes hasbeen authorized by the Bolsa de Valores de Panamá, S.A. (Panama Stock Exchange). Neither theregistration with the CNV nor the listing of the Notes on the Panama Stock Exchange implies anycertification as to the investment quality of the Notes, the solvency of the Company, or theaccuracy or completeness of the information as contained in this offering memorandum. Thisdocument shall be known as the Prospecto Informativo in Spanish for purposes of theregistration of the offering of Notes with the CNV, and as the offering memorandum in Englishfor purposes of the offering of the Notes outside of Panama. This offering memorandum hasbeen drafted in the English language. All parties who participated in its drafting are fluent inand understand the English language. Although a certified Spanish translation of this offeringmemorandum and documents relating to this offering has been submitted for purposes of theregistration of the offering of Notes with the CNV, and although a certified Spanish translationof this offering memorandum and documents relating to this offering may be submitted asevidence in a court of law or governmental agency in Panama, in case of a conflict between theEnglish version and the certified Spanish translation, the English version will prevail.

Market dataThis offering memorandum contains and refers to information and statistics regarding thePanamanian electricity industry. This market data was obtained from independent public sources,including publications and materials from participants in the electricity industry and fromgovernmental entities such as the Republic of Panama, the Ministerio de Economía y Finanzas,the Comisión de Política Energética, the Contraloría General de la República, the Centro Nacionalde Despacho, Empresa de Transmisión Eléctrica , or ETESA, and Ente Regulador de los ServiciosPúblicos, or the ERSP, among others. Some data are also based on our estimates, which arederived from our review of internal reports, as well as independent sources. Although thesesources are believed to be reliable, we have not independently verified, and do not guaranteethe accuracy and completeness of this information.

Service of process and enforcement of civil liabilitiesWe are a corporation with limited liability (sociedad anónima) organized under the laws ofPanama. Substantially all of our directors, officers, controlling persons and certain of the expertsnamed herein reside outside the U.S. and all or a substantial portion of our assets are locatedoutside the U.S. As a result, it may not be possible for investors to effect service of process withinthe U.S. upon such persons, including with respect to matters arising under the federal securitieslaws of the U.S., or to enforce against such persons or against us, judgments of courts of the U.S.predicated upon the civil liability provisions of the federal securities laws of the U.S. We havebeen advised by our Panamanian legal counsel, Alemán, Cordero, Galindo & Lee, that there isdoubt as to the enforceability, in original actions in Panamanian courts of liabilities predicated

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solely on the U.S. federal securities laws and as to the enforceability in Panamanian courts ofjudgments of U.S. courts obtained in actions predicated upon the civil liability provisions of theU.S. federal securities laws of the U.S.

We have appointed CT Corporation System, with offices currently at 111 Eighth Avenue, NewYork, New York 10011, as our authorized agent upon which process may be served in any actionwhich may be instituted in any U.S. federal or state court having subject matter jurisdiction in theBorough of Manhattan, the City of New York, New York, arising out of or based upon theindenture governing the Notes or the Notes. See “Description of the Notes.”

Presentation of financial and other informationWe maintain our books and records in balboas, the monetary unit of the Republic of Panama,however, we prepare our financial statements in U.S. dollars and in conformity withU.S. generally accepted accounting principles (“U.S. GAAP”). Included elsewhere in this offeringmemorandum are our audited balance sheets at December 31, 2005 and 2004 and the auditedstatements of income, changes in shareholders’ equity and cash flows for the years endedDecember 31, 2005, 2004 and 2003. The financial information for the years ended December 31,2005, 2004 and 2003, and as at December 31, 2005 and 2004, included elsewhere in this offeringmemorandum has been derived from these audited financial statements. Also included elsewherein this offering memorandum is our unaudited balance sheet at March 31, 2006 and theunaudited statements of income, changes in shareholders’ equity and cash flows for the threemonths ended March 31, 2006 and 2005. The financial information for the three months endedMarch 31, 2006 and 2005, and as at March 31, 2006 and 2005, included elsewhere in this offeringmemorandum has been derived from these unaudited financial statements. Unless otherwisespecified, references herein to “U.S. dollars,” “dollars,” “$” or “US$” are to U.S. dollars.

References herein to “Balboas” or “Bs.” are to the official currency of Panama, which serves onlyas coinage and as a unit of account, and has been pegged at parity with the U.S. dollar since1904. The U.S. dollar is used as legal tender in Panama.

Rounding adjustments have been made to some of the figures included in this offeringmemorandum. As a result, numerical figures shown as totals in some tables may not be anarithmetic aggregation of the figures that preceded them.

Forward-looking statementsThis offering memorandum contains “forward-looking statements,” as defined in Section 27A ofthe Securities Act and Section 21E of the U.S. Securities Exchange Act of 1934 (the “ExchangeAct”), relating to our business. These statements are subject to change and uncertainty whichare, in many instances, beyond our control and have been made based upon management’scurrent expectations, estimates and projections. Words such as “believes,” “expects,” “intends,”“plans,” “projects,” “estimates,” “anticipates” and similar words and expressions are used toidentify such forward-looking statements. These statements are not guarantees of futureperformance and involve risks and uncertainties that are difficult to predict. Forward-lookingstatements are only our current expectations and are based on our management’s belief andassumptions and on information currently available to our management. Therefore, actualoutcomes and results may differ materially from these expressed or implied in suchforward-looking statements.

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By their very nature, forward-looking statements are subject to risks and uncertainties, andactual results may differ materially from those expressed or implied in the forward-lookingstatements as a result of various factors, including, but not limited to, those identified under thecaption “Risk Factors.” These factors include:

• extensive government legislation and regulations that apply to us and the electricitydistribution business;

• our ability to adapt to changes in governmental regulations, including tariff adjustments thatapply to the electricity distribution business;

• adverse changes in applicable laws, regulations, rules, principles or practices governing tax,accounting and environmental matters;

• future economic conditions in the regional, national and international markets, including butnot limited to regional and national wholesale electricity markets;

• extraordinary events affecting our operations, including unexpected system failures, strikes,emergency safety measures, military or terrorist attacks and natural disasters;

• ability to carry out marketing and sales plans, as well as manage changes in business strategy,operations or development plans;

• our ability to attract and retain qualified management and other personnel;

• political, economic, regulatory and demographic developments in Panama;

• market perception of the energy industry and us;

• financial market conditions and performance including, but not limited to, changes in interestand inflation rates and in availability and costs of capital;

• effectiveness of risk management policies and procedures and the ability of counterparties tosatisfy their contractual commitments; and

• other risk factors as set forth under “Risk Factors.”

Forward-looking statements speak only as of the date they are made, and we do not undertakeany obligation to update them in light of new information or future developments or to releasepublicly any revisions to these statements in order to reflect later events or circumstances or toreflect the occurrence of unanticipated events. You should consider these cautionary statementstogether with any written or oral forward-looking statements that we may issue in the future.

Available informationWe are not subject to the information requirements of the Exchange Act. To preserve theexemption for resales and transfers under Rule 144A under the Securities Act, we have agreedthat we will promptly provide any holder or any prospective purchaser of the Notes who isdesignated by that holder and is a “qualified institutional buyer,” as defined under Rule 144A,upon the request of such holder or prospective purchaser, information meeting the requirementsof Rule 144A(d)(4), unless we either furnish information to the SEC in accordance withRule 12g3-2(b) under the Exchange Act or file information with the SEC pursuant to Section 13 or15(d) of the Exchange Act. Any such request should be directed to Elektra Noreste, S.A., EdificioHatillo, Torre A, Ave. Justo Arosemena y Ave. Cuba, Panama City, Republic of Panama,Telephone: 507-207-0008, Attn: Javier Pariente. Following completion of this offering, except asdescribed below under the caption “Description of the Notes—Certain Covenants—Provision of

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Financial Statements and Reports,” we are not otherwise obligated to furnish holders of theNotes or any other person with any supplemental information, discussion or analysis of ourbusiness or financial reports.

We have filed with the Panamanian National Securities Commission a registration statement, ofwhich this offering memorandum forms a part. We will also file with the Panamanian NationalSecurities Commission and the Panama Stock Exchange our audited annual financial statements,each prepared in accordance with U.S. GAAP. This information can be obtained by investors uponrequest at the Panama Stock Exchange, located at Edificio Bolsa de Valores de Panama, Calle 49 yAv. Federico Boyd, Panama, Republic of Panama, or upon request at the Comisión Nacional deValores located at Avenida Balboa, Edificio Bay Mall, Piso 2, Oficina 206, Panama, Republic ofPanama.

You can find additional information regarding Panama’s political and economic conditions in thedocuments filed by Panama with the SEC, which are available at www.sec.gov. These documentsinclude a registration statement on Schedule B (File No. 333-120098) and an annual report onForm 18-K (File No. 333-07558). We expressly do not incorporate the contents of these documentsinto this offering memorandum. Neither we nor the Initial Purchaser shall have any liability orresponsibility with respect to the information contained therein. Furthermore, neither we northe Initial Purchaser have investigated or confirmed nor do either accept any responsibility forthe veracity of any statements contained in any such documents.

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SummaryYou should read the following summary together with the more detailed information regardingus and our financial statements and Notes appearing elsewhere in this offering memorandum.This summary highlights selected information from this offering memorandum and may notcontain all the information that is important to you. For a more complete understanding of ourbusiness and the Notes offered pursuant to this offering memorandum, you should read thisentire offering memorandum, including the risk factors and the financial statements anddescription of the terms of the Notes appearing elsewhere herein.

Overview

We are the second largest electricity distribution company in Panama in terms of electricityvolume distributed, number of customers and area served. We hold an exclusive concession undera concession contract with the Panamanian Government, or the Concession Contract, to operatethe electricity distribution network in the northern and eastern part of Panama, including theeastern part of Panama City, the port city of Colón and the Gulf of Panama. As of March 31,2006, our operations covered a territory of approximately 29,200 square kilometers that includedapproximately 1.3 million inhabitants, or 41% of Panama’s total population including three ofPanama’s main economic centers. As of the same date, we had a market share of approximately43% of the customers and approximately 40% of total energy sales in Panama. In 2005, we hadtotal energy sales of 1,916 GWh to an average of 288,321 customers. Of our 2005 customersapproximately 92.2% were residential customers, 7.1% were commercial and industrial customersand substantially all of the remaining were government customers. Of our total 2005 energysales (1,916 GWh), approximately 34.9% of our sales were to residential customers,approximately 50.1% were to commercial and industrial customers and approximately 14.8%were to government customers. For the three months ended March 31, 2006, we had totalenergy sales of 485 GWh to an average of 299,233 customers. As of March 31, 2006,approximately 92.2% of our customers were residential customers, 7.0% were commercial andindustrial customers and substantially all of the remaining were government customers. For thethree months ended March 31, 2006, approximately 34.0% of our 485 GWh gross energy saleswere to residential customers, approximately 52.0% were to commercial and industrial customersand approximately 14.0% were to government customers.

As of December 31, 2005, our electricity distribution network was comprised of approximately7,212 kilometers of distribution and transmission lines, twelve key substations, approximately19,000 transformers and related equipment. We own 7,212 kilometers of distribution lines, whichare composed of approximately 7,030 kilometers of overhead cable circuits and 182 kilometers ofunderground cable circuits. Our service territory is relatively dense with twelve key substationsand a load factor, which is the ratio of average load to peak load, of approximately 74%,reflecting a good balance between residential load profile and the daytime air conditioning andlighting requirements of the commercial sector.

As of December 31, 2005 and March 31, 2006, we had, respectively, a peak demand of345.24 MW and 342.38 MW, revenues of US$272.5 million and US$71.2 million and earningsbefore interest, taxation, depreciation and amortization, or EBITDA, of US$47.3 million andUS$9.5 million.

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History and ownership structure

In connection with the process of privatizing the Panamanian electricity sector, we wereincorporated on January 22, 1998 and, through a Sale and Purchase Agreement (Contrato deCompraventa de Acciones) dated October 30, 1998, 51% of our common stock was sold to thePanama Distribution Group, S.A., or PDG with the remaining 49% retained by the PanamanianGovernment.

PDG was and remains a holding company incorporated in Panama. At the time of sale,Constellation Power International Investments, Ltd., or CPII, a Cayman Islands exempted companywith limited liability, owned 80% of the outstanding shares of common stock of PDG and PrimerGrupo Energético, a Panamanian company, owned the remaining outstanding shares. InSeptember 2005, CPII purchased Primer Grupo Energético’s minority interest in PDG, and CPII’sparent, Constellation Power, Inc., sold its 100% interest in CPII to certain investment fundsmanaged by Ashmore Investment Management Limited, or Ashmore. This resulted in theseinvestment funds owning, through their ownership of CPII, all of the outstanding shares of thecommon stock of PDG. At the time of this sale, CPII underwent a name change and is now knownas CPI, Limited. At present, 51% of our common stock is owned by PDG, 48.25% is owned by thePanamanian Government, and the remaining amount is owned by employees or held as treasurystock. The shares of our common stock held in treasury are shares that were originally sold to ouremployees, which we have since repurchased at their fair value.

As part of a corporate restructuring at the Ashmore level, the investment funds that own CPI,Limited and that are managed by Ashmore have contributed their collective ownership of CPI,Limited to Ashmore Energy International LLC, or AEI Delaware, a Delaware limited liabilitycompany and a wholly-owned subsidiary of Ashmore Energy International Limited, or AEI, aCayman Islands exempted company with limited liability. In exchange for their contribution,these funds have been issued shares in AEI. These investment funds are the controllingshareholders of AEI, which now owns 100% of PDG, through AEI’s indirect ownership of CPI,Limited. See “Principal Shareholders.”

Pursuant to a Management Consulting Agreement dated November 16, 1998, as amended (the“Management Consulting Agreement”), CPI, Limited provides us with management and consultingservices, including, but not limited to, strategic and operating advice, preparation of an annualbusiness plan, business development and contract review. Under the Management ConsultingAgreement, CPI, Limited is entitled to a management fee of 4% of our earnings before interest,taxation, depreciation and amortization. See “Related Party Transactions—ManagementAgreements.”

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The diagram below summarizes our ownership following the privatization.

Primer GrupoEnergético, S.A.

(20% ownership ofPDG)

Republicof

Panama(48.25%).

Employees(0.43%).

Elektra Noreste, S.A.

ConstellationPower Inc.

(100% ownershipof CPI, Limited)

ConstellationPower InternationalInvestments, Ltd.

(CPII n/k/a CPI, Limited)(80% ownership of

PDG)

PanamaDistributionGroup, S.A.

(PDG)(51.0%)

TreasuryStock

(0.32%)

3

The diagram below summarizes our current ownership structure.

CPI Limited(100% ownership

of PDG)

Employees(0.43%)

TreasuryStock

(0.32%)

Elektra Noreste, S.A.

AshmoreEnergy

International LLC(AEI DE)

(100% ownershipof CPI, Limited)

PanamaDistributionGroup, S.A.

(PDG)(51.0%)

Republic ofPanama(48.25%)

Panamanian electricity regulatory framework

Panama has an established regulatory structure for the electricity industry, which is based onlegislation introduced between 1996 and 1998 in preparation for the privatization of thedistribution and generation sectors in the latter part of 1998. This framework provides for anindependent regulator, the Ente Regulador de los Servicios Públicos, or the ERSP (whose namechanged in April 2006 to Autoridad Nacional de los Servicios Publicos or the National Authorityof Public Service or the NAPS), and for a transparent tariff setting process to regulate the use ofsystem charges and tariff structures for the sale of energy to those who purchase directly fromelectricity distributors, or regulated customers. The tariff structure has two components: theenergy cost component and the maximum distribution tariff component. The energy costcomponent of tariffs charged by distribution companies to their regulated customers areestablished as a pass-through of energy costs and are set to allow distributors to recover the costof energy, transmission tolls and public lighting consumption. The maximum distribution tariffcomponent, or the Value Added by Distribution (Valor Agregado de Distribución), or the VAD,charged by distribution companies is set to allow these companies to recover their efficientinvestments, operating, maintenance, administrative and commercial expenses, standard energylosses and a reasonable return on their invested capital. Each of these costs and return on capitalis determined by the ERSP based on the expenses and returns of comparable companies. Anyoperating and investing amounts that exceed those of comparable companies are consideredinefficient and are not recoverable.

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Under the regulatory framework originally established by the ERSP, VAD tariff formulas aredetermined every four years and charges are adjusted every six months based on the Panamanianconsumer price index, or CPI, while the energy cost component had been adjusted every sixmonths to reflect fluctuations in energy costs. However, on March 27, 2006, the Energy Savingand Rationing National Commission, or the Energy Commission, composed of, among others, theMinister of the Presidency, the Minister of Finance and Economy and the Comptroller General ofthe Republic of Panama, issued a report containing formal recommendations on the tariff rateincreases and the electricity industry. Based on these recommendations, the Executive Branchissued Cabinet Resolution No. 22, dated March 29, 2006, adopting the Energy Commissionrecommendations and requesting that the ERSP implement these recommendations. As aconsequence thereof, the ERSP issued Resolution No. JD-5930, dated March 31, 2006, or theMarch 2006 Resolution, adopting several of the Energy Commission recommendations. Inaccordance with this March 2006 Resolution, starting July 1, 2006, the ERSP will use a newmethodology to adjust the energy cost component of our tariffs to reflect fluctuations in energycosts. We expect that this new method will consider monthly adjustments rather than semi-annual adjustments and, beginning July 1, 2006, the energy cost component of our customertariffs will be adjusted to include our actual costs during the third month prior to the month inwhich the adjustment is made. The result is that our actual costs for April 2006 will be included inthe July 2006 adjustment. We also expect that beginning January 1, 2007, the procedure foradjusting the fuel component in the tariff will return to the previous procedure that includes sixmonths of actual fuel costs, plus six months of estimated fuel costs.

Additionally, in this March 2006 Resolution, the ERSP established that the VAD tariffs, whichwere last set on July 1, 2002, and scheduled to be reset on July 1, 2006, will be extended beyondthis expiration date. The current VAD tariffs will remain in effect until December 31, 2006. As aconsequence, the new formulas for the VAD tariff reset period are expected to become effectiveJanuary 1, 2007 and remain in place for a four-year period. On June 9, 2006, the ERSP issuedResolution No. AN-065-Elec. announcing its initial proposal for the permitted pre-tax rate ofreturn to be applied during the next four-year regulatory period and commencing the publicprocess for interested parties to respond to the proposal before the ERSP issues its finalresolution. Furthermore, in its March 2006 Resolution, the ERSP approved, as of April 1, 2006,that the demand charge to regulated customers cover those customers with a demand greaterthan 15 kW, instead of the previous level of 12 kW, and that the demand charge will be appliedto the actual demand meter reading, rather than the average of the highest three demand meterreadings over the previous six-month period.

For the last several years, increases in rates resulting from the semi-annual rate adjustmentprocess were not fully passed through to distribution company customers in the form of tariffincreases but were passed through directly to customers, in part, with the remaining amountsubsidized by the Panamanian Government. In January 2006, the ERSP announced that thepreviously approved rate increases for the period of January 1, 2006 to June 30, 2006 would besuspended during a 90-day moratorium while the Energy Commission studied the tariff rateincreases and the electricity industry. In its March 27, 2006 report, the Energy Commissionrecommended that a new rate be implemented for the period from April 1, 2006 throughDecember 31, 2006.

The ERSP, in its March 2006 Resolution, established that the tariff increase to our regulatedcustomers for this new rate period should not exceed 10.7%, which is lower than the 20.5%

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increase we had submitted. However, the ERSP at the same time recognized that we shouldreceive a government subsidy of US$25.2 million, which would include a US$0.5 million creditfrom previous subsidies granted, in order to avoid a rate increase for all our customers withconsumption levels under 200 kWh and limit the 10.7% rate increase to those customers abovethis consumption level. Together, the ERSP established rate increase and the US$25.2 millionsubsidy will compensate us for the increased energy costs in our original 20.5% rate increaseproposal. See “Overview of the Panamanian Electricity Industry — Recent Developments.”

Unlike prior rate adjustments in which we included both the difference between our projectedand actual energy costs incurred during the previous tariff revision period and our projectedenergy costs for the following six-month period, the new rate adjustment only includes ourprojected energy costs for the nine-month period through the end of 2006. This change hasmeant that we have been unable to pass through to customers and recover our accumulatedenergy cost component adjustments from prior tariff revision periods through these new tariffs.The Minister of the Presidency and the Minister of Finance and Economy have indicated to usthat our recovery of our accumulated energy cost component adjustments for the twelve-monthperiod from April 1, 2005 through March 31, 2006 will be recovered from the PanamanianGovernment in the form of cash or a debt instrument rather than through our regulated tariffs.

Although we have been informed by the Minister of the Presidency and the Minister of Financeand Economy that we will recover our unpaid accumulated energy cost component adjustmentsfor the April 1, 2005 to March 31, 2006 period directly from the Panamanian Government, onMarch 31, 2006, in order to preserve our rights relating to this matter, we filed a complaint in theThird Chamber of the Supreme Court of Justice seeking a declaration of illegality of the ERSP’sResolution No. JD-5806 issued on January 23, 2006, which ordered us to suspend the previouslyapproved tariff adjustments for the first six months of 2006, which were scheduled to becomeeffective January 1, 2006. The Third Chamber of the Supreme Court of Justice is reviewing theadmissibility of this complaint for procedural compliance. On April 11, 2006, the ERSP stated inResolution No. JD-5956 that, aside from the maximum allowable income we were permitted torecover during the four-year regulatory period from July 2002 to June 2006, we receivedadditional income in excess of our actual costs. The ERSP attributed this supposed excess incometo variations in our projected and actual number of customers and our sales in the different ratecategories during this tariff period and has ordered us to credit or reimburse our customers anaggregate of approximately US$4.0 million beginning May 1, 2006 until December 31, 2006. Weare currently challenging this determination as we believe that the Concession Contract and theresolutions instituting the VAD do not permit the ERSP to modify previously approved tariffswhere our actual income exceeds our projected maximum allowable income charged tocustomers, and the methods used to determine our maximum allowable income is favorable tous. These customer credits have been suspended while our motion for reconsideration is pending.See “Business — Legal Proceedings” and “Overview of the Panamanian Electricity Industry —Recent Developments.”

6

Our business strategy

Overall, we seek to maintain strong cash flow generation and profitability by ensuring highlyefficient operations, increasing service quality and improving customer satisfaction. Key elementsof our strategy include:

Providing our customers with affordable, high-quality service. Electricity distribution companiesin Panama are monitored by the ERSP to assure compliance with concession contracts based onservice quality parameters such as the frequency and duration of service interruptions andcustomer satisfaction. We monitor compliance with, and meet or exceed, the establishedregulatory benchmarks for network reliability and quality of service. To continue improving ourservice quality and customer satisfaction levels, we plan to expand current systems to enhanceremote monitoring of our network performance, improve customer relationships through ourcall center operations, improve responsiveness to customers’ demands and inquiries, and enhancepreventive maintenance efforts to reduce risks and electricity failures.

Cost-effectively operating and maintaining our distribution network. Since December 1999,employee productivity has increased from 255 customers to 526 customers per employee, and ourenergy sales per employee have also increased from 2,092 MWh per employee to 3,398 MWh peremployee through December 2005. As of March 31, 2006, the number of customers per employeeincreased to 549 and, for the three months ended March 31, 2006, the energy sales per employeewere 883 MWh. We intend to continue maintaining high levels of operating efficiencies byimproving employee productivity through additional training, process improvement, furtherupgrading and automating our operations and information systems and improving our billingand collection processes. In total, we have invested over US$151.2 million in our facilities andsystems since our privatization in 1998, US$57.5 million of which was made from January 2003through March 2006.

Training and developing our team. We believe that enhanced employee technical training notonly improves employee skills and the efficiency of our maintenance and repair crews, but alsosupports our philosophy of promoting and providing an accident-free environment for ouremployees, contractors and customers, and the public at large. We have developed, and intendto continue to develop, training programs for our employees in a variety of areas includingvehicular safety, electric utility operations and repairs, customer service, and administrative andfinancial expertise.

Making strategic and precise capital expenditures. We closely coordinate and evaluate allproposed capital expenditures across our operations in order to allocate available resources forprojects associated with service expansion, specific improvement and line extension projects, andenhancements of the reliability and quality of service. We also consider on an ongoing basis,specific improvement and line extension projects. Prior to undertaking any capital expenditure,we model the impact of each proposed capital expenditure and only make those expendituresthat we believe will most enhance network reliability and quality of service while maintainingcosts within our budget. The potential improvement in network reliability and quality of servicethat results from each capital expenditure is also modeled and analyzed to improve capitalperformance throughout our distribution networks.

Keeping electricity losses at or below current low levels. Our loss reduction program hasresulted in a decrease of total electricity losses from approximately 24% in 1998 to approximately

7

12.5% in 2005. Since the privatization in 1998, we have converted approximately 101,000 illegalconnections into regulated customers, approximately 80,500 of which were converted fromJanuary 2003 through March 2006. Even though the cost associated with electricity loss is part ofour electricity distribution cost, only a standard electricity loss level is recognized as apass-through to our customers. We intend to improve upon our current levels of electricity lossesby continuously updating our distribution network, performing regular targeted inspections andmeter replacements, strengthening our internal meter reading and billing processes, anddeveloping a strong corporate communications program directed at users with illegalconnections so that losses can be lowered and revenues increased by converting such users intoregulated customers.

Insulating our customers from fluctuations in the cost of electricity through an actively managedpower purchase program. In accordance with the 1997 Electricity Law, we are required to enterinto power purchase agreements with electricity generators to cover the demands of ourregulated customers. In order to mitigate the volatility of these agreements (and limit anyassociated energy costs), we have developed a comprehensive purchasing program thatanticipates possible electricity capacity problems over the next several years, higher energy costssuch as the limited generating capacity to cover increasing demand, the availability ofhydroelectric and efficient thermal generating plants and the expected availability of water topower hydroelectric plants. Our power purchasing program, which favors medium and long-termpower supply arrangements with electricity generators, supports existing electricity distributorsto develop additional capacity and encourages new generators to enter into the market in orderto meet our projected electricity needs.

Competitive strengths

We believe we owe our success in growing and developing our business to our competitivestrengths. The combined effect of these competitive strengths have resulted in predictable cashflows from year to year and strong operating results.

Disciplined, forward-looking strategy. Our strategy is focused on providing our customers withaffordable, high-quality service, cost-effectively operating and maintaining our installations,keeping electricity losses at or below current low levels, training and developing our team,protecting our customers from fluctuations in the cost of electricity through an actively managedpower purchase program, and making strategic and precise capital expenditures.

Established and transparent regulatory regime with incentives for efficiency gains. The 1997Electricity Law created a market-oriented framework for the country’s electricity distributors,which allows us to retain the financial benefits derived from efficiency gains during eachfour-year regulatory period. The VAD portion of our tariffs relating to our permitted rate ofreturn is subject to maximum amounts set every four years by the ERSP in consultation with usand based on our future operating and capital expenditures as estimated by the ERSP. Under the1997 Electricity Law, we are able to pass through to our customers the cost of electricity andcapacity we purchase from electricity generators. Additionally, we are allowed to retain thebenefit from operating and capital efficiencies, which provides incentives to earn higher returnsthrough efficient operating and capital expenditures.

8

Attractive service area and strong market position. Our service area encompasses some of themost densely populated and economically active regions in Panama, including a significantportion of Panama City, the Canal Area and the port city of Colón, three of Panama’s maineconomic centers. As of March 31, 2006, our operations covered a territory of approximately29,200 square kilometers that included close to 41% of Panama’s population and representedapproximately 40% of all energy sales in Panama.

Stable economic environment. Panama has experienced low inflation and strong growth in itsGross Domestic Product, or GDP, averaging approximately 6.1% per year since 2003 with the GDPin 2005 reaching 6.4%. As a result of the combined effect of reducing our technical andnon-technical losses of electricity and Panama’s growing GDP, our sales have increased from1,714 GWh in 2003 to 1,916 GWh in 2005. Expectations are that Panama’s GDP growth andinflation rates will continue at these approximate levels during 2006. In addition, Panama’smonetary system recognizes the U.S. dollar as legal tender, which eliminates foreign exchangecontrols and foreign exchange risks.

Controlling shareholder assistance and experienced management team. Our controlling shareholderis indirectly owned by AEI. AEI, through CPI, Limited, provides management and technical expertiseand assistance to us. In addition, our management team includes executives with extensiveexperience in electricity distribution, the wholesale energy market, electricity industry regulation andthe business sector in Panama. See “Related Party Transactions—Management Agreements.”

9

Summary of the offeringThe following summary contains basic information about the Notes and is not intended to becomplete. It does not contain all the information that is important to you. For more completeunderstanding of the Notes, please refer to the section of this document entitled “Description ofthe Notes.” For purposes of the description of the Notes included in this offering memorandum,references to the “Company,” “Issuer,” “us,” “we” and “our” refer only to Elektra Noreste, S.A.

Issuer . . . . . . . . . . . . . . . . Elektra Noreste, S.A.

Securities . . . . . . . . . . . . . US$100,000,000 aggregate principal amount of 7.60% Notes.

Closing Date . . . . . . . . . . July 10, 2006

Maturity . . . . . . . . . . . . . . July 12, 2021.

Use of Proceeds . . . . . . . The proceeds from the offering of the Notes will be used:

• to repay the principal and interest on our existing long-termindebtedness, which totaled approximately US$95.2 million as ofMarch 31, 2006, of which US$93.8 million is principal and US$1.4million is interest, under our US$100.0 million syndicated long-termloan agreement, dated October 19, 2004, among us, BancoContinental de Panama, S.A., Primer Banco del Istmo, S.A., Citibank,N.A., Panama Branch and Banco Bilbao Vizcaya Argentaria(Panama), S.A. with Banco Continental de Panama as administrativeagent, or the Syndicated Long-Term Loan;

• to pay the expenses of the offering of the Notes described herein;and

• to the extent there are amounts remaining after (i) and (ii) to payour outstanding short-term indebtedness and for general corporatepurposes.

The following four lenders under our Syndicated Long-Term Loan willbe paid in the following amounts:

• approximately US$32.8 million due 2014, bearing an interest rate ofLIBOR plus 3.5%, which is owed to Banco Continental de Panama,S.A.;

• approximately US$32.8 million due 2014, bearing an interest rate ofLIBOR plus 3.5%, which is owed to Primer Banco del Istmo, S.A.;

• approximately US$18.8 million due 2014, bearing an interest rate ofLIBOR plus 3.5%, which is owed to Citibank, N.A., Panama Branch;and

• approximately US$9.4 million due 2014, bearing an interest rate ofLIBOR plus 3.5%, which is owed to Banco Bilbao Vizcaya Argentaria(Panama), S.A.

See “Use of Proceeds.”

10

Principal Amount . . . . . . The principal amount of the Notes will be due and payable in full,together with accumulated and unpaid interest and other amounts, ifany, on the maturity date stated above, to the extent the Notes havenot been redeemed or repurchased prior thereto.

Interest . . . . . . . . . . . . . . . The Notes will bear interest from July 10, 2006 at a fixed rate of 7.60%per annum, payable semiannually in arrears on January 12 and July 12of each year and on the stated maturity date, or, if such date is not abusiness day, the next succeeding business day, commencing onJanuary 12, 2007. Interest on the Notes will be computed on the basisof a 360-day year of twelve 30-day months.

Ranking . . . . . . . . . . . . . . The Notes will be our direct unsecured and unsubordinatedobligations and will rank pari passu amongst themselves and equal inright of payment with all other present and future unsecured andunsubordinated obligations of ours that are not, by their terms,expressly subordinated in right of payment to the Notes.

However, the Notes will rank junior to statutory preferred obligationsdescribed under “Risk Factors—Risks Relating to the Notes—Ourobligations under the Notes are subordinate to payment of certainstatutory liabilities.”

Ratings . . . . . . . . . . . . . . . It is a condition to the issuance of the Notes that the Notes be rated atleast “BBB” by Fitch, Inc. or Fitch. A rating is not a recommendation tobuy, sell or hold a Note and is subject to revision or withdrawal byFitch in the future.

Indenture . . . . . . . . . . . . . The Notes will be issued pursuant to an indenture (the “Indenture”)between Elektra Noreste, S.A., as issuer, and The Bank of New York, astrustee, registrar, New York paying agent and transfer agent.

Redemption . . . . . . . . . . . We may redeem the Notes in whole, or in part, at our option, at anytime and from time to time prior to the maturity thereof uponsatisfaction of certain conditions including, without limitation, thepayment of a specified make-whole premium. See “Description of theNotes—Redemption.

We also may redeem the Notes in whole but not in part at 100% oftheir principal amount, plus accrued and unpaid interest, if any, to thedate of redemption and any additional amounts then due andpayable, at our option in the event of specified changes affectingtaxation of the Notes. See “Description of the Notes—Redemption.”

Other than in accordance with the foregoing, the Notes will nototherwise be redeemable by us or by the holders of the Notes prior tomaturity.

11

Covenants . . . . . . . . . . . . The terms of the Indenture will require us, among other things, to:

• pay all amounts owed by us under the Indenture and the Noteswhen such amounts are due;

• perform all our obligations under the Indenture and the Notes;

• maintain our corporate existence;

• use reasonable best efforts to comply with all applicable laws;

• use reasonable best efforts to maintain all necessary governmentapprovals;

• use reasonable best efforts to pay all material taxes and otherclaims;

• use reasonable best efforts to maintain insurance;

• maintain independent auditors;

• maintain our books and records;

• maintain an office or agency in Borough of Manhattan, the City ofNew York for the purpose of service of process; and

• give notice to the trustee of any defaults and events of defaultunder the Indenture.

In addition, the terms of the Indenture will restrict our ability to:

• undertake certain mergers, consolidations or similar transactions;

• incur certain indebtedness; and

• create liens on our assets.

These covenants are subject to a number of important qualificationsand exceptions. See “Description of the Notes—Certain Covenants.”

Events of Default . . . . . . The Notes and the Indenture will contain certain events of defaultrelating to us and, in some instances, our material subsidiaries,including, among others, the following:

• failure to pay principal when due, whether on the maturity date,upon redemption or otherwise;

• failure to pay interest and other amounts within fifteen calendardays of the due date thereof;

• breach of covenants as set forth under the section “Description ofthe Notes.”

• certain events of bankruptcy, liquidation, reorganization,dissolution, winding up or insolvency;

12

• failure to pay debts as such debts become due;

• defaults under certain debt instruments that, in the aggregate,equal or exceed certain specified amounts;

• the unenforceability of the Indenture or the Notes or our contestingthe enforceability of the Indenture or the Notes;

• breach of a covenant or agreement in the Indenture, the Notes orthe Concession Contract relating to the operation of our electricitybusiness;

• the Concession Contract is suspended, revoked, terminated,materially amended in a manner that reasonably can be expected tohave a material adverse effect or ceases to be in full force and effectin any material respect;

• certain events of nationalization, condemnation, expropriation,attachment or seizure of specified assets by the PanamanianGovernment;

• the Panamanian Government’s suspension of payments on specifiedindebtedness;

• certain judgments that, in aggregate, equal or exceed certainspecified amounts;

• the Indenture or the Notes, shall cease to be in full force and effector binding and enforceable; and

• the destruction or irreparable damage of the electrical distributionfacilities we operate, which is not covered by insurance.

Withholding Taxes;Additional Amounts . . . All payments of principal, redemption amount and interest in respect

of the Notes will be made without withholding or deduction for anypresent or future taxes, duties, assessments or other governmentalcharges imposed by Panama and any political subdivision orgovernmental authority of Panama and any jurisdiction throughwhich payments are made by a paying agent, unless such withholdingor deduction is required by law. In that event, subject to certainexceptions, we will pay such additional amounts as are necessary toensure that the holders of the Notes receive the same amounts as theywould have received without such withholding or deduction. See“Description of the Notes—Payment of Additional Amounts.”

Listing . . . . . . . . . . . . . . . . Application has been made for the Notes to be listed on the PanamaStock Exchange.

13

Transfer Restrictions;Trading . . . . . . . . . . . . . . . The Notes have not been and will not be registered under the

Securities Act or the securities laws of any state in the U.S. and aresubject to certain restrictions on transfer and resale in the U.S. There iscurrently no market for the Notes, and there can be no assurance as tothe development or liquidity of a market for the Notes. See “RiskFactors—Risks Relating to the Notes—No market for the Notescurrently exists in the U.S.” and “Notice to Investors.”

Governing Law . . . . . . . . The Indenture and the Notes will be governed in all respects by thelaws of the State of New York.

Clearance andSettlement . . . . . . . . . . . . The Restricted Global Note will be issued in book-entry form and

registered in the name of a nominee of DTC and deposited on behalfof the purchasers of the Notes represented thereby with a custodianof DTC and will trade in DTC’s Same-Day Funds Settlement System.The Regulation S Global Note will be issued in book-entry form andregistered in the name of a nominee of a common depository ofEuroclear or Clearstream and will be settled in accordance with theirrespective rules and operating procedures. Owners of beneficialinterests in Notes held in book-entry form will not be entitled toreceive physical delivery of certificated notes except in certain limitedcircumstances. For a description of certain factors relating to clearanceand settlement, see “Description of the Notes.”

Form andDenomination . . . . . . . . . The Notes will be issued in fully registered form without interest

coupons attached. Any Notes sold outside the U.S. to non-U.S. personsin reliance on Regulation S under the Securities Act will be issued indenominations of US$10,000 and integral multiples of US$1,000 inexcess thereof. Any Notes sold pursuant to Rule 144A under theSecurities Act will be issued in denominations of US$100,000 andintegral multiples of US$1,000 in excess thereof.

Risk Factors . . . . . . . . . . . You should carefully consider the risk factors discussed under thecaption “Risk Factors” on page 17 before purchasing any Notes.

14

Summary historical financial dataThe following summary historical financial data of the Company with respect to the years endedDecember 31, 2005, 2004 and 2003 has been derived from, and should be read together with,“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and“Selected Historical Financial Data” and our audited financial statements and the accompanyingnotes included elsewhere in this offering memorandum. The following summary historical financialdata of the Company with respect to the three months ended March 31, 2006 and 2005 has beenderived from, and should be read together with, “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and “Selected Historical Financial Data” and ourunaudited financial statements and the accompanying notes included elsewhere in this offeringmemorandum. In the opinion of management, all adjustments considered necessary for a fairpresentation of our 2006 and 2005 interim results and financial position have been included inthose results and financial position. Interim results and financial position are not necessarilyindicative of the results financial position that can be expected for a full fiscal year.

Year Ended December 31, Three Months Ended March 31,

(US$ in millions) 2005 2004 20032006

(Unaudited)2005

(Unaudited)

Income Statement Data:Total revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 272.5 $ 225.4 $ 211.5 $ 71.2 $ 61.2Total operating costs and expenses . . . . . . . . 237.2 193.5 187.8 64.7 53.6Operating income . . . . . . . . . . . . . . . . . . . . . . . 35.3 31.9 23.7 6.4 7.5Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . 7.6 4.4 3.9 2.1 1.6Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.2 $ 19.6 $ 14.0 $ 3.1 $ 4.0Shares (in millions) . . . . . . . . . . . . . . . . . . . . . . 49.8 49.8 49.9 49.8 49.8Operating income per share(1) . . . . . . . . . . . . . $ 0.71 $ 0.64 $ 0.48 $ 0.13 $ 0.15

Balance Sheet Data:Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 303.7 $ 282.7 $ 279.9 $ 313.1 $ 278.0Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . 124.4 110.1 155.3 129.8 114.1Current portion of bank debt . . . . . . . . . . . . . 10.0 5.0 16.9 12.0 5.3Long-term bank debt . . . . . . . . . . . . . . . . . . . . 90.0 95.0 37.8 88.8 95.0Capitalization(2) . . . . . . . . . . . . . . . . . . . . . . . . . $ 224.4 $ 210.1 $ 210.0 $ 230.6 $ 214.4

Cash Flow Statement Data:Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.2 $ 19.6 $ 14.0 $ 3.1 $ 4.0Net cash from operations . . . . . . . . . . . . . . . . . $ 31.2 $ 27.8 $ 25.7 $ 1.0 $ 10.8Net cash used in investing activities . . . . . . . . $ (19.3) $ (15.7) $ (17.2) $ (3.3) $ (4.1)Net cash used in financing activities . . . . . . . . $ (16.9) $ (7.1) $ (8.3) $ 0.8 $ (12.2)

Operating Data:Energy purchases in GWh . . . . . . . . . . . . . . . . . 2,277 2,193 2,135 570 546Energy sales in GWh . . . . . . . . . . . . . . . . . . . . . 1,916 1,800 1,714 485 455Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 564 568 563 549 575Average number of customers . . . . . . . . . . . . 288,321 266,837 247,019 299,223 280,371Number of customers at end of period . . . . . 296,681 276,560 255,960 301,316 282,518Customer per employees(3) . . . . . . . . . . . . . . . . 526 487 455 549 491Sales MWh per employees . . . . . . . . . . . . . . . . 3,398 3,168 3,044 883 791

Other Data:EBITDA(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47.3 $ 42.9 $ 34.1 $ 9.5 $ 10.5

(1) Operating income per share is calculated by dividing operating income for the period by the total amount of sharesoutstanding at the end of the reporting period.

(2) This represents our outstanding long-term bank debt, the current portion of bank debt and shareholders’ equity.

(3) Based on the number of customers at the end of the period.

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(4) EBITDA represents earnings before interest, taxation, depreciation and amortization. EBITDA is not a financial measurementof our financial performance under U.S. GAAP. EBITDA is presented because we believe that some investors find it to be auseful tool for measuring a company’s financial performance. EBITDA should not be considered as an alternative to, inisolation from, or a substitution for analysis of our financial condition or results of operations, as reported under U.S. GAAP.Other companies in our industry may calculate EBITDA differently than we have for purposes of this offering memorandum,limiting EBITDA’s usefulness as a comparative measure. The definition of EBITDA in this section differs in certain respects fromthe definition of “EBITDA” for purposes of the indenture which will govern the Notes being offered herein. See “Descriptionof the Notes.”

Reconciliation of EBITDA to net income

The following table provides a reconciliation of EBITDA to net income. For additionalinformation regarding the use of EBITDA, see “Selected Historical Financial Data.”

Year Ended December 31, Three Months Ended March 31,

(US$ in millions) 2005 2004 20032006

(Unaudited)2005

(Unaudited)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . $19.2 $19.6 $14.0 $3.1 $ 4.0Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.6 8.0 6.0 1.3 2.0Interest expense . . . . . . . . . . . . . . . . . . . . . . 7.6 4.4 3.9 2.1 1.6Depreciation and amortization . . . . . . . . . 11.9 10.9 10.2 3.0 2.9

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47.3 $42.9 $34.1 $9.5 $10.5

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Risk factorsYou should carefully consider the risks and uncertainties described below and the otherinformation in this offering memorandum before making an investment in the Notes. The risksdescribed below are not the only ones facing us or investments in Panama in general. Ourbusiness, financial condition or results of operations could be materially adversely affected byany of these risks. There are a number of factors, including those described below, which mayadversely affect our ability to make payment on the Notes. Additional risks not presently knownto us or that we currently deem immaterial may also impair our business operations. See“Forward-Looking Statements.”

This offering memorandum also contains forward-looking statements that involve risks anduncertainties. Our actual results could differ materially from those anticipated in theseforward-looking statements as a result of certain factors, including the risks faced by us describedbelow and elsewhere in this offering memorandum.

Risks relating to Panama

Panama’s economic and political situation may adversely affect our financial results and ourability to repay the Notes.

All of our operations and all of our current customers are located in Panama. Accordingly, ourfinancial condition and results of operations, including our ability to meet our obligations underthe Notes, are substantially dependent on economic and political conditions prevailing from timeto time in Panama. The discussion of recent developments in Panama that follows was derived inpart from information recently filed by the Panamanian Government with the Securities andExchange Commission. We have not independently verified this information.

According to official Panamanian Government figures, Panama’s GDP grew by 4.2% in 2003,7.6% in 2004 and 6.4% in 2005. Sectors having a high growth in 2005 included cargotransportation with a 10.9% increase, wholesale and retail commerce with an 8.9% increase andfinancial services with a 13.4% increase. Lower growth occurred in 2005 compared to 2004primarily due to an implemented tax reform as well as the changes in the Social Security law.

The Panamanian economy is small and relatively undiversified, being largely focused on theservice sector (which represented approximately 76.3% of GDP in 2004), a significant portion ofwhich consists of businesses linked to Panama Canal activities, a large free-trade zone, and aninternational banking center. Since our operations are focused on the Panamanian domesticmarket, our results of operations and financial condition are necessarily dependent on the localeconomy and the effect the economy has on our customers. Due to the small size and limitedfocus of the Panamanian economy, adverse developments in Panama could have a morepronounced effect than would be the case if the developments occurred within the context of alarger, more diversified economy.

We may be adversely affected by future political crises in Panama.

Panama’s economy has experienced different types of government and governmental policies.Prior to 1968, Panama generally had a constitutional democracy and a growing economy. In1968, the military secured control over the government and military rule continued until 1987,

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when a political crisis erupted among the then ruling military dictator, General Manuel AntonioNoriega, civilian organizations, political parties and the business community, which had beenagitating for a return to democratic rule. In December 1989, Mr. Noriega was deposed, largely asa result of U.S. military intervention, and Guillermo Endara, who had been elected by anoverwhelming majority of Panama’s population in a popular vote earlier in the year, was swornin as President. Since the end of 1989, the Panamanian Government has maintained political andeconomic stability under successive democratically elected governments, and favorable relationswith the U.S. have been fully restored. However, in view of the past instability of thePanamanian Government, there can be no assurance that our operations would not be adverselyaffected in the event of any future political crisis in Panama.

We may be adversely affected by governmental policies.

The Panamanian Government has exercised, and continues to exercise, significant influence overthe Panamanian economy through and among other means, its ownership of certain publicutilities and other enterprises. The Panamanian Government also has had a significant impact onthe economy through various statutory and other governmental initiatives, includingenforcement of a rigid labor code, subsidies, tariff policies and price controls. Accordingly, thePanamanian Government’s actions regarding the economy could have significant adverse effectson private sector entities in general and on us in particular. It is not possible to determine whateffect such plans or actions or the implementation thereof will have on the Panamanianeconomy or on our financial condition or results of operations.

We could also be affected by changes in economic or other policies of the PanamanianGovernment, which has exercised and continues to exercise substantial influence over manyaspects of the private sector, or other political or economic developments in Panama, such aschanges in import and export practices, changes in the electric regulatory policy and taxation,over which we have no control. Accordingly, there can be no assurance that the recent growth inPanama’s economy will continue in the future or that future developments in Panamanianpolitical, economic or regulatory situations will not adversely affect us.

Since the Panamanian monetary system is dependent on the U.S. dollar, any downturns in theU.S. economy may adversely affect us.

Since 1904, Panama has used the U.S. dollar as legal tender and its sole paper currency, using theBalboa only as coinage and as a unit of account with an exchange rate set at parity with theU.S. dollar. Panama’s monetary system is unique in the emerging markets in that it is limited in itsability to conduct a stimulative monetary policy and can finance public sector deficits onlythrough borrowing. As a result, Panama has enjoyed low inflation commensurate with levels ofinflation generally prevailing in the U.S. Panama had no inflation in 2003, a 0.5% increase in2004 and a 3.3% increase in 2005. However, there is no assurance that these relatively low ratesof inflation will continue. In addition, given the relationship of the Panamanian monetary systemto the U.S. dollar and, indirectly, Panama’s dependence on the U.S. economy, there can be noassurance that appreciation or depreciation of the U.S. dollar against other Euro-coveredcurrencies or the existence of sustained higher levels of inflation in the U.S. economy (and theresultant effect on the value of the U.S. dollar) or increases or decreases in interest rates in theU.S. will not adversely affect the Panamanian monetary system or, indirectly, us.

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The planned expansion of the Panama Canal or a delay in the Panama Canal’s expansion mayadversely affect the economy and our customers and, as a result, our financial condition.

In 2006, a proposed public referendum is planned to authorize a planned expansion of thePanama Canal to accommodate a significant number of Post-Panamax vessels (vessels too large totransit the Canal at present), which represent the fastest growing type of vessels in the globalshipping business.

Research conducted by the Panama Canal Authority, or the PCA, indicates that Panama’seconomy is heavily dependent on Canal-related activities, both directly and indirectly. The PCAestimates that as of December 2004, such activities generated approximately 8.6% of Panama’sGDP, 41% of services exports, 34.7% of government revenues and 20% of direct and indirectemployment. In addition, the PCA estimates that US$1.00 of Canal-related output generates, onaverage, US$1.27 in the rest of the economy. Depending on technical specifications still to bedetermined, the planned expansion of the Panama Canal is expected to require a totalinvestment ranging from US$4 billion to US$5 billion, or between approximately 30% to 59% ofPanama’s 2004 GDP. Financial models used by the PCA suggest that the Panama Canal’soperating cash flow will provide funding for most of the required investment over the project’sexecution period, which is expected to last from seven to eight years.

The proposed expansion signifies a much anticipated short-term economic stimulus for Panamaand is vital for the preservation of the Canal’s competitive position as a key route for globalshipping in the medium and long-term, thus enabling the PCA to sustain revenue growth andremain a significant source of income for the Panamanian Government. The anticipatedeconomic stimulus from the proposed expansion of the Canal could offset the potential adverseimpact of the Panamanian Government’s recently enacted tax and social security reforms and afree trade agreement between Panama and the U.S. A negative outcome in the upcomingreferendum or a delay in the implementation of the expansion project, could result in lowerlevels of trade in Panama and could adversely affect the economy; the delay could adverselyaffect the growth of our industry as well as our customers’ ability to meet their financialobligations to us, thereby potentially impacting our ability to repay the Notes.

Since Panama is a service-based economy, fluctuation of prices in basic goods and commoditiessuch as oil, may have a significant impact on the Panamanian economy and us.

Panama is an importer of goods and commodities and, particularly, a net importer of crude oil.Several other Panamanian industries are directly affected by high crude oil prices, includingtransportation, maritime (Panama Canal), energy, manufacture, agriculture, products andservices. Increases in the price of crude oil have contributed to higher costs of electricity, whichhas become a source of economic instability that has affected the competitiveness of Panamanianbusinesses.

With respect to public consumption, according to data from the Ministry of Economy andFinance, the price in 2004 for basic consumption goods (comprised of a basket of 50 basic goodsfor a three-member family) increased 2.1% (US$3.94) to reach US$193.16, the largest increase ofits kind since 1996. During August 2005, the price of the basket rose to US$202.8, a 2.5% increasecompared to 2004. If prices continue to increase, the country runs the risk of deceleration ofdemand, consumption and employment. This, in turn, may adversely affect the growth of ourindustry as well as our customers’ ability to meet their financial obligations to us, therebypotentially impacting our ability to repay the Notes.

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Adverse political and economic conditions in other Latin American countries may adverselyaffect us.

From time to time, the economies of other Latin American countries, particularly those in CentralAmerica, Brazil, Mexico and Argentina, have suffered from high rates of inflation, currencydevaluation and/or other developments that have had an adverse effect not only on theireconomies but also on the economies of other countries in the region. Although all of ouractivities are concentrated in Panama, we may still be affected by adverse developments in otherLatin American economies.

Following the currency devaluation crises and the ensuing financial and economic crises in the1990s in Mexico, Russia, Argentina and Asia, the economies of certain Latin American countriesexperienced reduced levels of economic activity, which adversely affected our international tradetransaction business with Colón Free Trade Zone customers. As a result, there can be noassurances that high inflation rates, volatility in exchange rates or declines in economic activity inother Latin American countries or world markets in general will not have an adverse effect onthe Panamanian economy, on our customers, on us or on the trading values of the Notes.

It may be difficult to enforce civil liabilities against us or our directors and executive officers andcontrolling persons.

We are a sociedad anónima, or stock corporation, organized under the laws of Panama. Some ofour directors, executive officers and controlling persons reside in Panama or outside of the U.S. Inaddition, all or a substantial portion of the assets of these persons and of our assets are locatedoutside the U.S. As a result, it may not be possible for investors to effect service of process withinthe U.S. upon such persons, or to enforce against them in U.S. courts judgments predicated uponthe civil liability provisions of the federal securities laws of the U.S. or otherwise obtained inU.S. courts. Because a substantial portion of our assets are located outside the U.S., any judgmentobtained in the U.S. against us may not be fully collectible in the U.S. We have been advised byAlemán, Cordero, Galindo & Lee, our Panamanian counsel, that no treaty exists between the U.S.and Panama for the reciprocal enforcement of foreign judgments. However, subject to theissuance of a writ of exequatur by the Supreme Court of the Republic of Panama, a finaljudgment rendered in a foreign court (including the U.S.) against us could be recognized andenforceable in the Courts of the Republic of Panama without reconsideration of the merits,provided that (i) such foreign court grants reciprocity to the enforcement of judgments of Courtsof the Republic of Panama, (ii) the party against whom the judgment was rendered, or its agent,was personally served in such action within such foreign jurisdiction, (iii) the judgment arises outof a personal action against the defendant, (iv) the obligation in respect of which the judgmentwas rendered is lawful in the Republic of Panama and does not contradict the public policy of theRepublic of Panama, (v) the judgment is properly authenticated by diplomatic or consular officersof the Republic of Panama or pursuant to the 1961 Hague Convention on the legalization ofdocuments and (vi) a copy of the final judgment is translated into Spanish by a licensedtranslator. We have been advised by our Panamanian legal counsel, Alemán, Cordero, Galindo &Lee, that there is doubt as to the enforceability, of original actions in Panamanian courts ofliabilities predicated solely on the U.S. federal securities laws and as to the enforceability inPanamanian courts of judgments of U.S. courts obtained in actions predicated upon the civilliability provisions of the U.S. federal securities laws of the U.S. Under Article 43 of Law No. 24 ofJune 30, 1999 of the Republic of Panama, the administration of our Concession Contract datedOctober 22, 1998 between us and the ERSP and regulated by the ERSP may not be subject toprovisional remedies prior to judgment (medidas cautelares).

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The Panamanian Government’s recently enacted tax reform may slow the economy’s growthand negatively affect our financial condition and our ability to repay the Notes.

In February 2005, the Panamanian Government enacted a fiscal reform package consisting ofboth revenue raising and expenditure reduction measures. The revenue raising measures include:an expansion of the definition of taxable income, covering certain individual income sourcespreviously not fully taxable; a narrower definition of offshore income (which is tax exempt); theintroduction of an alternative minimum tax for individuals and corporations; the elimination of atax exemption on capital gains derived from public tender offers; and the elimination of certaintax incentives to manufacturing and construction activities. In addition, tax authorities weregranted increased enforcement powers and tax evasion became a criminal offense. As part of thisfiscal reform effort, the Panamanian Government has committed to reduce public sectorheadcount to 1999 levels (which implies a 18% reduction over four years), cap currentexpenditure growth at the rate of current sovereign revenue growth and extract savings fromprofessional fees paid of approximately US$25.0 million per year.

Analysts estimate that this program, if fully implemented, may, among other things, reduce thenon-financial public sector deficit from 5% of GDP in 2004 to approximately 1% in 2009. Webelieve fiscal reform is a high priority of the current Panamanian Government and itsimplementation will be actively pursued. Nevertheless, there can be no assurances that this fiscalreform package will achieve its objectives or that additional revenue raising measures may not benecessary to preserve or reestablish fiscal balance in the near future.

Fiscal measures aimed at reducing Panama’s non-financial public sector deficit may result inhigher taxes and other obligations payable by us to the Panamanian Government. Higher fiscalobligations from us to the Panamanian Government may adversely impact us, including ourability to repay the Notes.

Risks relating to our business

Early termination of our concession contract could impair our ability to repay our indebtedness.

We operate our distribution network pursuant to a Concession Contract with the PanamanianGovernment. This Concession Contract, which expires in October 2013, contains severalrequirements regarding our distribution of electricity and compliance with applicablePanamanian laws and regulations. Violation of the Concession Contract could result in sanctionsor termination of the Concession Contract. In certain cases, including repeated non-compliancewith laws and regulations, a material breach of the Concession Contract, and/or certainbankruptcy proceedings, and/or dissolution or suspension of payments by us, the PanamanianGovernment would be entitled to exercise the performance guarantee we have provided andacquire our network assets at their fair market value minus a 10% reduction. The PanamanianGovernment may unilaterally terminate our Concession Contract in case of war, seriousdisturbance of the public order or urgent social interest and, if it so terminates, must pay us thefair market value for our network assets plus a 10% premium. See “Business—Our Concession.”

We may be adversely affected by the application and interpretation of regulations that couldaffect our revenues.

As an electricity distribution company, we are subject to extensive regulation by the PanamanianGovernment through the ERSP. Accordingly, the results of our operations depend upon the

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applicable regulatory framework and its interpretation by the ERSP. The regulatory frameworkgoverning electric utility businesses was implemented in 1997 and, therefore, we have had onlyone experience with the ERSP and its administration of the regulated tariff structure with respectto a rate reset in July 2002. We are generally required to obtain and comply with a wide varietyof licenses, permits and other approvals in order to operate our facilities. Currently, we are incompliance with existing regulations, but we may incur significant additional costs as a result ofour compliance with future requirements. If we fail to comply with these regulations, we couldbe subject to penalties such as the imposition of liens or fines without any attendant criminal orcivil liability, the termination of the Concession Contract and the exercise of the performancebond we have granted to the Panamanian Government under our Concession Contract. Inaddition, existing regulations may be revised or reinterpreted, new laws and regulations may beadopted or become applicable to us or to our facilities, and future changes in laws andregulations including changes to rules and regulations with respect to transmission charges andprice regulations for distributors may have a detrimental effect on our business and financialresults.

Recently, through the empaneled Energy Commission, the Panamanian Government undertook areview of the regulated tariff structure and the electricity industry, as a whole, in connectionwith the marked increase in energy costs experienced by electricity distributors. The distributioncompanies’ right to recover their energy costs through tariff adjustments was not questioned;however, the Energy Commission concluded in its report that: electricity prices are distorted andhave resulted in a disproportionate rate increase for customers; this distortion is partially due toelectricity distribution companies’ failure to timely contract its electricity energy supply therebyexposing customers to the volatility of spot market prices; there are distortions in the pricesoffered by the electricity generators; and there are anomalies in the calculation of the demandcharges paid by customers. On the basis of these findings, the Energy Commission made variousrecommendations adjusting the tariff increases, the dates on which these tariffs are to beeffective and how often they are to be adjusted. Based on these recommendations, the ExecutiveBranch issued Cabinet Resolution No. 22, dated March 29, 2006, adopting the Energy Commissionrecommendations and requesting that the ERSP implement these recommendations. As aconsequence thereof, the ERSP issued Resolution No. JD-5930 adopting many of theserecommendations into our regulatory framework. See “Overview of the Panamanian ElectricityIndustry—Recent Developments.”

We cannot assure you that future developments in the establishment and interpretation ofregulations will be favorable to us or that there will not be decisions affecting the regulatoryregime that will adversely affect our operations or financial results.

The ERSP regulates our tariffs and, therefore, we may not be able to obtain tariff increasesnecessary to cover projected capital expenditures.

Every four years, the ERSP establishes the VAD charge for distributors’ cost of purchasing andtransmitting electricity from generators that we are allowed to include in our tariff to ourregulated customers. Our last tariff reset was on July 1, 2002, which was set to expire June 30,2006, but has been postponed by the ERSP until December 31, 2006. As a consequence, we expectthe new formulas for the VAD tariff reset period to become effective January 1, 2007 and remainin place for a four-year period. See “Overview of the Panamanian Electricity Industry—TariffStructure” and “—Recent Developments.” However, if the ERSP sets the VAD at a rate that isinsufficient to cover our costs, or if the ERSP categorizes certain of our investments as

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“inefficient,” thereby lowering the asset base to which we can apply the permitted rate ofreturn, then revenues received by us may not be sufficient to implement our capital expenditureplans or may reduce the amount of revenue we could generate in that four-year tariff period.Furthermore, if our projected VAD is set at an amount greater than our actual costs for that VADtariff reset period, we could be subject to customer credits. These events could have an adverseaffect on our business, liquidity and profitability and may affect our ability to meet ourobligations under the Notes.

Any failure by the ERSP to timely revise our tariff could adversely affect our liquidity.

Historically, the ERSP had adjusted semi-annually the electricity cost component of the tariff thatwe may charge to our regulated customers on the basis of our expected versus our actual energycosts incurred during the previous six-month tariff period and our projected energy costs over thefollowing six-month period. However, the ERSP will use a new methodology to the electricity costcomponent of our tariff to reflect fluctuation in energy costs. Beginning July 1, 2006, we expectthis new method will consider monthly adjustments rather than semi-annual adjustments and,the energy cost component of our customer tariffs will be adjusted to include our actual costsduring the third month prior to the month in which the adjustment is made. The result is thatour actual costs for April 2006 will be included in the July 2006 adjustment. We also expect thatbeginning January 1, 2007, the procedure for adjusting the fuel component in the tariff willreturn to the previous procedure that includes six months of actual fuel costs, plus six months ofestimated fuel costs. See “Overview of the Panamanian Electricity Industry—Tariff Structure” and“—Recent Developments.” If the ERSP fails to adjust our base tariff in any future one-monthperiod, and in any case we are unable to pass on our cost of electricity to regulated customersthrough the base tariff or recover the cost in the form of a subsidy from the PanamanianGovernment, our liquidity may be adversely impacted by any significant increase in our electricitycosts. Additionally, the ERSP had ordered a 90-day suspension of the tariff adjustment of thepower distribution companies for the first six months of 2006 that was scheduled to becomeeffective on January 1, 2006 and has recently ordered that a new adjusted tariff rate be put intoeffect for the period from April 1, 2006 to December 31, 2006. This original 90-day suspension hasaffected the timing of our recognition of cash flows from our operations, as we have not beenable to pass the full amount of our increased cost on to our customers. Accordingly, during thefirst quarter of 2006, we have had to use some of our short-term financing as a source ofliquidity. We cannot assure you that the amount of allowable pass-through energy costs willcover our actual costs incurred during any applicable rate adjustment period.

Substantial rate increases for our customers, or a failure by the Panamanian Government tocontinue to provide subsidy payments to us for required rate increases we are not allowed topass along to our customers, could adversely affect our business, liquidity and profitability.

For the past several years and through the most recent tariff adjustment period which will endDecember 31, 2006, increases in electricity distribution companies’ rates charged to customersdue to the semi-annual rate adjustment process required under the regulatory structure for theelectricity industry, were not fully passed through but were partially passed through to customersin the form of tariff increases with the remaining amount subsidized by the PanamanianGovernment. The Panamanian Government’s failure to provide subsidy payments to us forrequired rate increases that we are not allowed to pass along to our customers would result in usnot fully recovering certain increased costs as permitted by existing regulations. In addition, a

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decision by the ERSP to pass future substantial rate increases entirely through to customers mayresult in the inability of some of our customers to make required payments to us. Either of theseevents could adversely affect our ability to pay electricity generators and negatively impact ourbusiness, liquidity and profitability and may affect our ability to meet our obligations under theNotes. See “Overview of the Panamanian Electricity Industry—Tariff Structure.”

Public pressure could result in changes to the regulatory framework in Panama.

Because electricity is a utility with high social impact, there may be public debate and pressure tomodify the existing regulatory framework for the electricity industry. For example, since 2002 thedramatic rise in the energy costs of electricity distribution companies resulted in significantincreases in the rates that those companies were allowed to charge their customers. During thisperiod, the amounts that electricity distribution companies were allowed to recover were eitherpassed through to their customers or paid to them in the form of subsidies from the PanamanianGovernment. Continued increases in the rates charged to electricity distribution companycustomers, or in the amounts of subsidies paid by the Panamanian Government, could increasepressure to modify the regulatory framework for the electricity industry. Any proposals to modifythe electricity regulatory framework may inhibit investments in the electricity sector in thefuture. We cannot predict what future changes may be made to the regulatory framework or theeffect of any changes on our business or results of operations. See “Overview of the PanamanianElectricity Industry—Tariff Structure” and “—Recent Developments.”

Our business performance may be affected by the nature of our response to various operatingrisks typically faced by electricity distribution companies.

We face a number of operating risks applicable to electricity distribution companies including:

• periodic service disruptions and variations in power quality in our electricity distributionnetwork, which may result in significant revenue loss and potential liabilities to third parties;

• fluctuations or a decline in aggregate consumer demand for electricity in line with prevailingeconomic conditions, which could result in decreased revenues;

• the inability of electricity generation licensees to generate sufficient electricity for transmissionto us, and in turn for distribution by us to our electricity distribution customers, which wouldaffect the availability of electricity supply over our electricity distribution networks;

• failures and faults in the electricity transmission system in Panama or in the electricitygeneration facilities of electricity generation companies in Panama, neither of which wecontrol;

• system failure affecting our information technology systems or those of other electricityindustry participants, which could result in loss of certain operational capacities or critical data;

• environmental costs and liabilities arising from our operations, which may be difficult toquantify and could affect our results of operations;

• certain levels of energy loss, whether arising from technical reasons inherent in the normaloperation of electricity distribution systems or arising from non-technical reasons (such astheft, fraud and inaccurate billing), which results in lost revenues;

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• injuries to third parties or our employees in connection with our electricity distribution services,which may result in higher insurance costs or denial of insurance coverage; and

• any failure by us to successfully negotiate and enter into future collective bargainingagreements with the union representing their employees, which may result in work stoppages.

As we engage only in the electricity distribution business, our results of operations may also beexposed to a greater degree of fluctuation as compared to electricity companies that have morediversified operations, such as those that vertically integrate electricity generation, transmissionsand distribution.

Failure of transmission lines owned by Empresa de Transmisión Eléctrica S.A. (ETESA) mayadversely affect our operating results.

Damage to either the connection line linking us to Panama’s national interconnected electricitysystem, or the National Interconnected System, or to the National Interconnected System itself,could prevent us from receiving electricity we have contracted to purchase. A failure to deliverelectricity to our regulated customers could result in the imposition of certain penalties andwould affect our financial results.

We are subject to environmental and health and safety laws and regulations.

We are subject to a broad range of environmental, health and safety laws and regulations inPanama which expose us to the risk of substantial costs and liabilities. These laws and regulationsrelate to, among other things, limits on emissions, water and air quality, noise, the forest habitat,minimizing risks to the environment while maintaining the quality, safety and efficiency of theelectricity sector and the use and handling of hazardous materials and waste disposal practices.In July 1998, the Panamanian Government enacted environmental legislation creating anenvironmental protection agency (ANAM) and imposing new environmental standards affectingour operations with which we believe we are in compliance. Failure to comply with applicableenvironmental standards, stricter laws and regulations, or stricter interpretation of existing lawsor regulations, may impose new liabilities, resulting in the need for additional investments oradversely impact our ability to complete future projects. This may adversely affect our business,financial condition and results of operations in the future. See “Overview of the PanamanianElectricity Industry—Environmental Regulation.”

Our property may be damaged and our business interrupted or impaired by the occurrence of anatural disaster.

Although we build our electricity infrastructures to withstand natural forces, and we haveadopted procedures to follow in the event of a natural disaster, a natural disaster could severelyimpact our physical assets or cause an interruption in our ability to deliver electricity. Althoughwe maintain an “all risk” insurance policy covering physical damage and business interruption,there can be no assurance that the scope of damages suffered by us in the event of a naturaldisaster would not exceed the policy limits of our insurance. In addition, the effects of a naturaldisaster on Panama’s economy could be severe and prolonged, leading to a decline in demandfor the electricity services that we provide. The occurrence of a natural disaster, particularly onethat causes damages in excess of our insurance policy limits, could have a material adverse effecton our business, financial condition and results of operations.

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Drought may result in shortages in the water supply that support the hydroelectric generators,reducing the electricity available for purchase in Panama.

Panama experiences decreases in rainfall from time to time causing drought. During periods ofdrought, the level of water in the reservoirs behind Panama’s hydroelectric dams falls and thehydroelectric generators are not able to operate at full capacity. Because approximately 62% ofPanama’s installed generating capacity consists of hydroelectric plants, periods of droughtrequire the distribution system to increase the volume of electricity purchased fromthermoelectric plants or abroad, generally at higher cost than the electricity generated byhydroelectric generators. In the event of severe drought, if the National Dispatch Center, or CND,is unable to import sufficient amounts of electricity, the Panamanian Government may instituterationing of electricity, rolling blackouts or other measures to suspend the services of distributioncompanies. A drought could materially adversely affect our ability to distribute electricity and,accordingly, our business and results of operations.

We may not succeed in countering an attitude of non-payment among certain of our residentialcustomers.

Some of our smaller residential customers tend to pay their invoices late with some frequency.There can be no assurance that we will succeed in countering an attitude of non-payment amongcertain of our customers and that we will collect revenues for all of the electricity that wedistribute. Collecting from smaller residential clients, particularly those who were previouslyillegal consumers, may prove difficult, especially if rates increase beyond their ability to payamounts due.

Labor relations could affect our business.

As of March 31, 2006, we employed 549 people, approximately 43% of whom are represented bythe Sindicato de Trabajo de la Industria Eléctrica y Similares de la República de Panamá, or theElectricity Industry Labor Union, a national labor union representing electricity industry workers.See “Business—Employees.” Under applicable labor regulations, utility workers are not allowedto engage in work stoppages or strikes that affect the delivery of utilities services. However, ifour employees were to engage in strikes or other work stoppages, including sabotage, we couldexperience a significant disruption of our operations and higher ongoing labor costs, which couldhave an adverse effect on our business, financial position or results of operations.

Risks related to the Notes

The Notes may not be freely transferred in the U.S.

We have not registered, and will not register, the Notes under the Securities Act or any otherapplicable U.S. securities laws. Rather, the offering of the Notes in the U.S. will be made pursuantto exemptions from, and in transactions not subject to, the registration provisions of theSecurities Act and from state securities laws that limit who may own the Notes. Accordingly, theNotes are subject to certain restrictions on resale and other transfer thereof in the U.S. See“Notice to Investors.” Consequently, a holder of Notes and an owner of beneficial interests inthose Notes must be able to bear the economic risk of their investment in the Notes for the termof the Notes.

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No market for the Notes currently exists in the U.S.

The Notes are a new issue of securities in the U.S., and there is currently no market in the U.S. forthe Notes we are offering for sale. We cannot assure you that a public market for the Notes willdevelop or that you will be able to sell your Notes or of the price at which you may be able to sellyour Notes. If a market for the Notes were to develop, the Notes could trade at prices that maybe higher or lower than their initial offering price depending on many factors, including somebeyond our control. The liquidity of, and trading market for, the Notes may be adversely affectedby changes in interest rates and declines and volatility in the market for similar securities, as wellas by any changes in our financial condition or results of operations and by declines in the marketfor high-yield and emerging market securities generally.

Investors in our Notes may not receive the same level and type of disclosure that they wouldreceive from issuers in the U.S.

Panama’s securities laws governing publicly-traded debt or equity securities impose disclosurerequirements that differ from those in the U.S. in certain important respects. As a regulatedindustry, we are required to submit to the ERSP a statement of our compliance with theconditions under the Concession Contract, legislation and regulations governing the electricitysector, our audited financial statements, and technical, commercial and statistical informationabout our operations. We will also be required to submit to the CNV information that must bemade available to all holders of the Notes, specifically, audited financial statements on an annualbasis accompanied by the report of independent accountants and an annual report of ouractivities and developments, and unaudited financial statements on a quarterly basis along witha quarterly report of our activities and developments. As a result, investors in the Notes may notobtain information equivalent to that which is generally available from issuers subject toU.S. securities laws.

Our credit ratings may not reflect the potential impact of all risks relating to the value of thenotes and changes to the credit ratings could affect the value of the notes.

The credit ratings of our Notes may not reflect the potential impact of all risks relating to thevalue of the Notes. In addition, real or anticipated changes in our credit ratings or the creditratings of the Notes will generally affect the market value of the Notes. Thus, even though weare making interest payments when due, the price of our Notes in the secondary market thatmay develop may be considerably less than the price you paid for your Notes. A credit rating isnot a recommendation to buy, sell or hold securities and may be subject to suspension, reductionor withdrawal at any time by the assigning rating agency.

Our obligations under the Notes are subordinated to our payment of certain statutory liabilities.

The Notes will be our direct unsecured unsubordinated obligations. Under Panamanian law, suchunsecured obligations are subordinated to certain statutory preferences. In the event of ourbankruptcy, insolvency or liquidation, such statutory preferences, such as claims for salaries,wages and credits guaranteed over assets (but up to the value of such assets), social securitycontributions, taxes, court fees and expenses, will have preference over any other unsecuredclaims, including the claims by any investor in respect of the Notes.

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The Notes will be structurally junior to the indebtedness and other liabilities of futuresubsidiaries we may establish.

We conduct all of our operations directly and currently have no subsidiaries or joint ventures. Wemay, however, establish subsidiaries in the future and engage in additional operations throughthose new subsidiaries. The Notes will be structurally subordinated to any outstandingindebtedness and other liabilities of these subsidiaries. If a future subsidiary were to beliquidated, the creditors of that subsidiary would be paid in full from the assets of the liquidatedsubsidiary before holders of the Notes would be paid from those assets.

We are controlled by our controlling shareholders, which have the power to take unilateralaction and may have conflicts of interest with us or you in the future.

The Panamanian Government beneficially owns approximately 48.25% of our common stock andCPI, Limited, which is indirectly owned by AEI, owns 100% of the shares of PDG, which owns 51%of our common stock. As a result, these controlling shareholders control our affairs and policiesand our decision to enter into any corporate transaction that requires approval of equity holders.Circumstances may occur in which the interests of our controlling shareholders conflict with theinterests of the holders of the Notes. In addition, our controlling shareholders may have aninterest in pursuing acquisitions, divestitures or other transactions that, in their judgment, couldenhance their equity investment in us, even though such transactions might involve risks toholders of the Notes.

Other risks.

We may also be affected by certain market risks including those described in pages 61 to 63 ofthis offering memorandum, relating to liquidity, interest rates, regulatory tariff resets, customercredit, foreign currency and inflation. See “Management’s Discussion and Analysis of FinancialCondition and Results of Operations.”

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Use of proceedsThe net proceeds received by us from the offering of the Notes are estimated to beapproximately US$97.5 million after payment of the Initial Purchaser’s underwriting fee. Weestimate that the expenses in connection with the offering will be US$2.5 million.

We intend to use the net proceeds of the offering: (i) to repay the principal and interest on ourexisting long-term indebtedness, which totaled approximately US$95.2 million as of March 31,2006, consisting of US$93.8 million in aggregate principal and US$1.4 million in interest; (ii) topay the expenses of the offering of the Notes described herein; and, (iii) to the extent there areamounts remaining after (i) and (ii), to pay our outstanding short-term indebtedness and forgeneral corporate purposes.

Our current outstanding long-term indebtedness as of March 31, 2006, totaled an aggregateprincipal amount of US$93.8 million, which includes approximately US$88.8 million of long-termindebtedness and US$5.0 million of the current portion of maturities on this long-termindebtedness, under our Syndicated Long-Term Loan. All of our existing long-term indebtednessunder our Syndicated Long-Term Loan will be repaid by the net proceeds of this offering to thefollowing four lenders in the following amounts: (i) approximately US$32.8 million due 2014,bearing an interest rate of LIBOR plus 3.5%, which is owed to Banco Continental de Panama,S.A.; (ii) approximately US$32.8 million due 2014, bearing an interest rate of LIBOR plus 3.5%,which is owed to Primer Banco del Istmo, S.A.; (iii) approximately US$18.8 million due 2014,bearing an interest rate of LIBOR plus 3.5%, which is owed to Citibank, N.A., Panama Branch; and(iv) approximately US$9.4 million due 2014, bearing an interest rate of LIBOR plus 3.5%, which isowed to Banco Bilbao Vizcaya Argentaria (Panama), S.A.

Our current outstanding short-term indebtedness as of March 31, 2006, totaled an aggregateprincipal amount of US$7.0 million, of which US$5.0 million are borrowings under our short-termcredit facility between us and Banco Bilbao Vizcaya Argentaria (Panama) bearing an interest rateof one month’s LIBOR plus 1.25%, or the Banco Bilbao Credit Facility, and US$2.0 million areborrowings under our short term credit facility between us and Citibank, N.A., Panama Branchbearing an interest rate of one month’s LIBOR plus 1.20%, or the Citibank Credit Facility.

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CapitalizationThe following table sets forth our short-term debt, long-term debt and shareholders’ equity,computed on the basis of U.S. GAAP, at March 31, 2006, as adjusted to give effect to the issuanceof the Notes offered hereby and to application of the proceeds from the sale of the Notes, as ifthe issuance of the Notes and the application of the proceeds had occurred on March 31, 2006.Other than giving effect to the application of the net proceeds as described herein, there hasbeen no material change in our capitalization since March 31, 2006. See “Use of Proceeds.” Foradditional information, see the audited and unaudited financial statements and notes theretoincluded elsewhere in this offering memorandum.

At March 31, 2006

(US$ in millions except share and per share data)Actual

(Unaudited)As Adjusted(1)

(Unaudited)

EquityShareholders’ equity:

Common stock, no par value, 50,000,000 shares authorized, issuedand outstanding, actual; 50,000,000 shares, issued andoutstanding, as adjusted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $106.1 $106.1

Retained earnings(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.8 20.3Other comprehensive income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 1.9

Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $129.8 $128.3

DebtShort-term debt:

Short-term borrowings(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 7.0 $ 2.2Current portion of maturities of long-term debt(4) . . . . . . . . . . . . . . . . 5.0 0.0Interest payable on Syndicated Long-Term Loan . . . . . . . . . . . . . . . . . 1.4 0.0

Long-term debt:Syndicated Long-Term Loan(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88.8 0.0Notes offered hereby(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 100.0

Total debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $102.2 $102.2

Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $232.0 $230.5

(1) Reflects the issuance of US$100.0 million of Notes and the application of estimated net proceeds therefrom.

(2) Includes amortization of the debt issuance costs net of deferred income tax relating to costs incurred with our SyndicatedLong-Term Loan.

(3) Represents the principal amount outstanding under our short-term credit facilities, of which US$5.0 are borrowings under theBanco Bilbao Credit Facility and US$2.0 million are borrowings under our Citibank Credit Facility. Following this offering andthe repayment of the Syndicated Long-Term Loan and the interest due under that loan, we will have had returned to us theUS$2.5 million currently held in trust by our lenders as collateral for amounts due under the Syndicated Long-Term Loan. Theas-adjusted amount of our short term borrowings estimates repaying US$4.8 million of our outstanding short-termborrowings and paying an estimated US$2.5 million in issuance fees.

(4) Represents the principal amount outstanding under the Syndicated Long-Term Loan. This Syndicated Long-Term Loan, plusthe current portion of maturities on such long-term debt, will be repaid with the proceeds of this offering.

(5) The US$100.0 million offered hereby represents approximately 94.3% of our paid-in capital.

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Selected historical financial dataThe following selected historical financial data of the Company with respect to the years endedDecember 31, 2005, 2004 and 2003 has been derived from, and should be read together with,“Management’s Discussion and Analysis of Financial Condition and Results of Operations” andour audited financial statements and the accompanying notes included elsewhere in this offeringmemorandum. The following selected historical financial data of the Company with respect tothe three months ended March 31, 2006 and 2005 has been derived from, and should be readtogether with, “Management’s Discussion and Analysis of Financial Condition and Results ofOperations” and our unaudited financial statements and the accompanying notes includedelsewhere in this offering memorandum. In the opinion of management, all adjustmentsconsidered necessary for a fair presentation of our interim 2006 and 2005 results and financialposition have been included in those results and financial position. Interim results and financialposition are not necessarily indicative of the results financial position that can be expected for afull fiscal year.

Year Ended December 31,Three Months Ended

March 31,

(US$ in thousands) 2005 2004 20032006

(Unaudited)2005

(Unaudited)

Income Statement Data:Total revenue . . . . . . . . . . . . . . . . . . . . . . . $272,486 $225,388 $211,506 $ 71,159 $ 61,158Total operating costs and expenses . . . . . 237,234 193,468 187,769 64,743 53,608Operating income . . . . . . . . . . . . . . . . . . . 35,252 31,920 23,737 6,416 7,550Interest expense . . . . . . . . . . . . . . . . . . . . . 7,640 4,441 3,887 2,082 1,578Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,237 $ 19,574 $ 13,963 $ 3,073 $ 3,990

Balance Sheet Data:Total assets . . . . . . . . . . . . . . . . . . . . . . . . . $303,729 $282,725 $279,878 $313,067 $278,020Shareholders’ equity . . . . . . . . . . . . . . . . . 124,389 110,110 155,324 129,775 114,100Current portion of bank debt . . . . . . . . . . 10,000 5,000 16,900 12,000 5,250Long-term bank debt . . . . . . . . . . . . . . . . . 90,000 95,000 37,800 88,750 95,000Capitalization(1) . . . . . . . . . . . . . . . . . . . . . . $224,389 $210,110 $210,024 $230,525 $214,350

Cash Flow Statement Data:Net income . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,237 $ 19,574 $ 13,963 $ 3,073 $ 3,990Net cash from operations . . . . . . . . . . . . . $ 31,228 $ 27,821 $ 25,689 $ 1,027 $ 10,753Net cash used in investing activities . . . . $ (19,279) $ (15,688) $ (17,218) $ (3,264) $ (4,055)Net cash used in financing activities . . . . $ (16,917) $ (7,068) $ (8,312) $ 750 $ (12,167)

Operating Data:Energy purchases in GWh . . . . . . . . . . . . . 2,277 2,193 2,135 570 546Energy sales in GWh . . . . . . . . . . . . . . . . . . 1,916 1,800 1,714 485 455Employees . . . . . . . . . . . . . . . . . . . . . . . . . . 564 568 563 549 575Average number of customers . . . . . . . . . 288,321 266,837 247,019 299,223 280,371Number of customers at end of

period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 296,681 276,560 255,960 301,316 282,518Customer per employees(2) . . . . . . . . . . . . 526 487 455 549 491Sales MWh per employees . . . . . . . . . . . . 3,398 3,168 3,044 883 791

Other Data:EBITDA(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 47,339 $ 42,969 $ 34,019 $ 9,493 $ 10,519

(1) This represents our outstanding long-term bank debt, the current portion of bank debt and shareholders’ equity.

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(2) Based on the number of customers at the end of the period.

(3) EBITDA represents earnings before interest, taxation, depreciation and amortization. EBITDA is not a financial measurementof our financial performance under U.S. GAAP. EBITDA is presented because we believe that some investors find it to be auseful tool for measuring a company’s financial performance. EBITDA should not be considered as an alternative to, inisolation from, or a substitution for analysis of our financial condition or results of operations, as reported under U.S. GAAP.Other companies in our industry may calculate EBITDA differently than we have for purposes of this offering memorandum,limiting EBITDA’s usefulness as a comparative measure. The definition of EBITDA in this section differs in certain respects fromthe definition of “EBITDA” for purposes of the indenture which will govern the Notes being offered herein. See “Descriptionof the Notes.”

Reconciliation of EBITDA to net income

The following table provides a reconciliation of EBITDA to net income.

Year Ended December 31,Three Months Ended

March 31,

(US$ in millions) 2005 2004 20032006

(Unaudited)2005

(Unaudited)

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . $19,237 $19,574 $13,963 $3,073 $ 3,990Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,572 8,044 5,986 1,317 2,028Interest expense . . . . . . . . . . . . . . . . . . . . . . 7,640 4,441 3,887 2,082 1,578Depreciation and amortization . . . . . . . . . 11,890 10,910 10,183 3,021 2,923

EBITDA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $47,339 $42,969 $34,019 $9,493 $10,519

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Management’s discussion and analysisof financial condition and results of operations

The following discussion should be read in conjunction with our historical financial statementsand the notes thereto included elsewhere in this offering memorandum. The following discussionincludes certain forward-looking statements. For a discussion of important factors, including thecontinuing development of our business, actions of regulatory authorities and competitors andother factors which could cause actual results to differ materially from the results referred to inthe forward-looking statements, see “Forward-Looking Statements” and “Risk Factors.”

General

The discussion and analysis of our financial condition and results of operations have beenorganized to present the following:

• a brief overview and the principal factors that influence our results of operations, financialcondition and liquidity;

• a review of our critical accounting policies;

• a discussion of the principal macroeconomic factors that influence our results of operations;

• a discussion of our results of operations for the years ended December 31, 2005, 2004 and 2003and for the three months ended March 31, 2006 and 2005;

• a discussion of our liquidity and capital resources as of December 31, 2005 and as of March 31,2006 and the cash flows for the years ended December 31, 2005, 2004 and 2003, and for thethree months ended March 31, 2006 and 2005 and our material short-term and long-termindebtedness for the three months ended March 31, 2006;

• a discussion of our capital expenditures and contractual commitments; and

• a discussion of our risk management policies.

Overview

We are the second largest electricity distribution company in Panama in terms of electricityvolume distributed, number of customers and area served. We hold an exclusive concession tooperate the electricity distribution network in the northern and eastern part of Panama,including the eastern part of Panama City, the port city of Colón and the Gulf of Panama. As ofMarch 31, 2006, we had a market share of approximately 43% of the customers andapproximately 40% of total energy sales in Panama. For the three months ended March 31, 2006,we had total energy sales of 485 GWh to an average of 299,223 customers.

Our results of operations, financial condition and liquidity have been influenced and willcontinue to be influenced by a variety of factors, including:

• the growth rate of our customers, the Panamanian GDP and demographic trends in Panama, allof which affect the demand for and usage of electricity and consequently, the amount ofelectricity that we sell;

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• the periodic re-setting of the VAD component of our regulated tariffs, both the initial reset inJuly 2002 and the expected reset in January 2007, which directly affects our gross margin andearnings;

• our ability to fully recover from our customers or, as has been the case in recent years, thePanamanian Government, the fuel component adjustment within our regulated tariffs;

• our level of electricity losses, including technical losses during the transmission andtransformation process and non-technical losses, resulting from theft, fraud or inaccuratebilling;

• the ongoing costs of our quality of service improvements;

• our ability to generate cash flows from operations through sales of electricity;

• the timing of the recovery of our cost of electricity through increases in the electricity tariffsapproved by the ERSP and payments received in respect of fuel adjustments, which affects ourcash flows from operations; and

• our capital expenditure requirements, which consist primarily of maintenance, compliance withreliability, quality of supply and customer service standards, the extension of our distributionsystems and upgrades of our information systems.

Critical accounting policies

The accounting policies described below are significant to our business operations and theunderstanding of our results of operations, financial condition and liquidity. A critical accountingpolicy is one that is both important to the presentation of our financial condition and results ofoperations and requires management to make difficult, subjective or complex accountingestimates and assumptions. By their nature, these judgments are subject to an inherent degree ofuncertainty. These judgments are based on our historical experience, our observance of trends inthe industry, information with respect to our consumers, terms of existing contracts, andinformation available from other independent sources, as appropriate. There can be no assurancethat our judgments will prove correct or that actual results reported in future periods will notdiffer from our expectations reflected in our accounting treatment of certain items.

We believe that the following accounting policies involve the application of critical accountingestimates. In order to provide an understanding about how we form our judgments andestimates about certain future events, including the variables and assumptions underlying theestimates of those judgments to different variables and conditions, we have included commentsrelated to the following critical accounting policies under U.S. GAAP. For a more completesummary of our significant accounting policies, see our audited financial statements includedelsewhere in this offering memorandum.

Electric utility regulation

We are subject to regulation by the ERSP. This agency regulates and makes the finaldetermination regarding the tariffs we charge to our customers. We also maintain our accountsin accordance with the Uniform System of Accounts prescribed for electric utilities by the ERSP.As a result, we apply FASB Statement No. 71, “Accounting for the Effects of Certain Types ofRegulation,” which requires the financial statements to reflect the effects of tariff regulation.Through the tariff-making process, the regulators may require the inclusion of costs or revenues

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in periods different than when they would be recognized by a non-regulated company. Thistreatment may result in the deferral of expenses and the recording of related regulatory assetsbased on anticipated future recovery through tariffs or the deferral of gains or creation ofliabilities and the recording of related regulatory liabilities. The application of Statement No. 71has a further effect on our financial statements as a result of the estimates of allowable costsused in the tariff-making process. These estimates may differ from those actually incurred by us.

Fuel component adjustment

The regulated system under which we operate provides that any excess or shortfall between theestimated energy costs reflected in the applicable tariff and the actual costs incurred be includedas a compensation adjustment to be recovered or refunded in the next tariff revision period.Accordingly, any excess in energy costs that was charged to our regulated customers results in areduction of the tariff to be recovered from our regulated customers during the next tariffrevision period. Alternatively, where there is a deficiency in energy cost charged to customers, atariff increase will occur in the next tariff revision from customers. Any excess in energy costscharged to customers is accrued in the accounts payable on the balance sheet and leads to areduction in the next tariff revision to be applied to our customers. Alternatively, any deficit inenergy cost charged to customers is accrued in the account receivable on the balance sheet andleads to an increase in the next tariff revision to be recovered from our customers. There is nofuel component adjustment with respect to our unregulated customers, as they only pay us adistribution tariff. This methodology operates to pass through to our regulated customers theassociated costs related to the increase or decrease in the fuel component index that is found inour thermal power purchase agreements and the purchases in the spot markets. The refund orrecovery of these differentials occurs over the tariff revision period. Prior to January 1, 2006, thefuel component adjustment in the tariff included six months with actual fuel costs, plus sixmonths of estimated fuel costs. In January 2006, the ERSP announced that the previouslyapproved rate increases for the period of January 1, 2006 to June 30, 2006 would be suspendedduring a 90-day moratorium while the Energy Commission studied the tariff rate increases andthe electricity industry. Starting April 1, 2006, unlike prior rate adjustments in which we includedboth the difference between our projected and actual energy costs incurred during the previoustariff revision period and our projected energy costs for the following six-month period, the newrate adjustment only includes our projected energy costs for the nine-month period through theend of 2006. This change has meant that we have been unable to pass through to customers andrecover our accumulated energy cost component adjustments from prior tariff revision periodsthrough these new tariffs. We expect to recover these costs from the Panamanian Government.Beginning July 1, 2006, we expect that the energy cost component of our customer tariffs will beadjusted monthly rather than semi-annually to include our actual costs during the third monthprior to the month in which the adjustment is made. The result is that our actual costs for April2006 will be included in the July 2006 adjustment. We also expect that beginning January 1,2007, the procedure for adjusting the fuel component in the tariff will return to the previousprocedure that includes six months of actual fuel costs, plus six months of estimated fuel costs. Toassist us, we routinely prepare a forecast of the fuel price, based on the international fuel pricemarket and our estimates could vary depending on external fluctuations which are outside ourcontrol.

Unbilled energy revenues

Our revenues related to the distribution of electricity are generally recorded when energy isconsumed by our customers. However, the determination of energy actually distributed to

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individual customers is based on the reading of their meters, which is performed on a systematic(reading cycles) basis throughout the month. At the end of each quarter, amounts of energydelivered to customers since the date of the last meter reading are estimated and thecorresponding unbilled revenue is calculated. Unbilled electricity delivered revenue is estimatedbased on the daily average energy consumption and applicable tariff rates for our customers. Asadditional information about our customers becomes available, or actual amounts of electricityare determinable, the calculated estimates are revised monthly. Consequently, our operatingresults can be affected by revisions to our prior accounting estimates.

Impairment of long-lived assets

We are required to periodically evaluate our long-lived assets, such as our substations, ourunderground conductors and ducts, our overhead conductors and accessories, our electrictransformers, as well as our poles, towers, accessories, and other fixed assets, for impairment inaccordance with the Financial Accounting Standard Board issued Statements of FinancialAccounting Standards No. 144, or SFAS No. 144, “Accounting for the Impairment or Disposal ofLong Lived Assets,” to determine whether any events or circumstances indicate that the carryingamount of the assets may not be recoverable. Examples of such events include a significantdecrease in the market price, a significant adverse change in the manner an asset is being used orits physical condition and an accumulation of cost significantly in excess of the amount originallyexpected for the construction or acquisition of an asset, among others. SFAS No. 144 providesthat an impairment loss shall only be recognized if the carrying amount of an asset is notrecoverable and exceeds its fair value. The carrying amount is considered not recoverable if thecarrying amount exceeds the sum of the undiscounted future cash flows expected to result fromthe use and eventual disposition of the asset.

Therefore, when a triggered event occurs as defined in SFAS No. 144, we are required to estimatethe undiscounted future cash flows associated with a long-lived asset or group of long-livedassets. This necessarily involves judgment surrounding the inherent uncertainty of future cashflows. If we determine that the undiscounted cash flows from an asset to be held and used areless than the carrying amount of the asset, we must estimate the fair value to determine theamount of any impairment loss. The estimate of fair value under SFAS No. 144 also involvesmanagement’s judgment. We may consider prices of similar assets or employ valuationtechniques, such as using a single interest rate that is commensurate with the risk involved withthe investment to discount the estimated future cash flows associated with the asset. The use ofthis method involves the same inherent uncertainty of future cash flows as discussed above withrespect to undiscounted cash flows. As of March 31, 2006, no asset impairments were recorded.

Contingencies

We are involved in several legal proceedings and our management has been required to assessthe magnitude of each individual case and we provide an estimate of potential damages in thecases where there is a reasonably likelihood that we will be affected. Our pending legal mattersare reviewed on a quarterly basis and any provision we make is adjusted, depending on thespecific developments or changes in each case. Our legal department, in conjunction with ourexternal legal counsel, submits a status report which serves as the basis for calculating theprovision. Based on our consultation with our legal counsel, the liability, if any, under theseproceedings would not have a material adverse effect on our overall financial condition, resultsof operations or cash flows.

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Principal factors affecting the results of operations

A number of principal factors affected our financial performance during fiscal years 2003, 2004and 2005 and for the first quarter of fiscal 2006. These factors continue to affect our results ofoperations and financial performance and are discussed below.

Growth of Panama’s GDP, our customer base and demand for electricity

Sales of electricity in Panama represented approximately all of our revenue in 2003, 2004 and2005 and for the first quarter of fiscal 2006. The remainder of our revenue for these periodsincluded income received from wheeling charges, pole rentals to third party commercialenterprises, connection and reconnection charges and electrical infrastructure contributions fromreal estate developers. As a Panamanian company with all of our assets and operations inPanama, we are significantly affected by economic conditions in Panama. Our results ofoperations and financial condition have been, and will continue to be, affected by the growthrate of GDP in Panama because the levels of use of electricity by our customers is correlated tothe level of economic activity in Panama as well as the demands of our customer base.

The actual amount of electricity distributed across our distribution network, in combination withthe tariffs charged by us, significantly determines the amount of revenues that we earn.However, the volume of electricity distributed over our network is essentially a function ofmarket demand for and usage of electricity by our customers within our concession area, and ourability to affect such demand is quite limited. Changes in demand for electricity are driven largelyby general factors outside of our control, including changes in the level of economic activity inPanama, changes in the level of usage of electricity by our customers, our provision of electricityto new distribution customers and changes in the nature and mix of economic activity andindustries in Panama. The level of utilization of our distribution network, and therefore therevenue we derive from our distribution network, varies from period to period in response tovariations in such general factors. Electricity demand in Panama does not vary significantly on aseasonal basis.

We added approximately 25,099, 19,818, 21,484 and 10,902 additional customers in 2003, 2004,2005 and the first quarter of 2006 respectively. GDP in Panama grew at a compound average rateof 3.9% from 1999 through 2005. GDP in Panama increased by 4.2% in 2003, 7.6% in 2004 and6.4% in 2005. Overall consumption in Panama of electricity increased by 4.5% in 2002, 4.7% in2003 and 6.7% in 2004. The official electricity consumption for 2005 has not yet been published.Our customers’ consumption of electricity increased 5.6% in 2003, 5.0% in 2004 and 6.5% in2005. The increase in the consumption of electricity from 2002 through 2004 was primarily due toeconomic growth in the commercial sector in Panama.

Panamanian GDP has grown due to increased activities in the Colón Free Zone, construction andfinancial services sectors, ports, shipping and related canal operations; we anticipate that thisgrowth will continue in the future. We believe that economic growth in Panama will positivelyaffect our future revenues and results of operations. However, lack of growth or a recession inPanama will likely reduce our future revenue and is likely to have a negative impact on ourresults of operations.

Regulatory tariff (VAD) resets

Our revenues are dependent on our tariff structure, which establishes the rates we charge ourregulated customers for distributing and selling electricity across our distribution network. The

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ERSP establishes the maximum distribution tariff, or VAD, that we may charge our customers. TheVAD is set at a level which, based on estimates at the beginning of the four-year tariff period,will allow us to generate revenues to cover for our efficient investments, operating,maintenance, administrative and commercial expenses (including metering, billing and customerservice), a standard level of loss and a reasonable return on invested capital. Due to ourregulated tariff structure, our ability to generate revenue is effectively limited by these maximumtariff amounts, as we must abide by these maximum allowable tariffs under our ConcessionContract.

Every four years, the VAD component of our tariff rate is reset, however, based on CabinetResolution No. 22 dated March 29, 2006, the ERSP postponed the four-year VAD reset scheduled forJuly 1, 2006. The current VAD tariffs will remain in effect until December 31, 2006. The newformulas for the VAD tariff reset period are expected to become effective January 1, 2007 andremain in place for a four-year period. The proper setting of the VAD is central to our businessbecause the VAD sets a ceiling for the revenues we can generate from the distribution network. OnJune 9, 2006, the ERSP issued Resolution No. AN-065-Elec. announcing its initial proposal for thepermitted pre-tax rate of return to be applied during the next four-year regulatory period andcommencing the public process for interested parties to respond to the proposal before the ERSPissues its final resolution. See “Overview of the Panamanian Electricity Industry — RecentDevelopments.”

During the first four-year regulatory period after privatization (between July 1998 and June2002), the ERSP underestimated certain key components to the tariff calculations, such asoperating and maintenance expenses, standard level of losses and depreciation, our base assetsand a level of investment for the four-year period to which we applied the permitted rate ofreturn. Due to these low estimates, during the first rate period, we were not able to generaterevenues that completely covered our level of investment and improvements to our distributionnetwork. These low estimates were corrected by the ERSP in connection with the VAD rate reseton July 1, 2002, and contributed to the noticeable difference in our results of operations fromthe first four-year rate period and the second four-year rate period since July 2002. At the timeof the VAD rate reset on July 1, 2002, the ERSP categorized certain of our investments madeduring the initial four-year regulatory period as “inefficient,” which lowered the asset base towhich we could apply the permitted rate of return, thereby reducing the maximum amount ofrevenues we could generate during that four-year tariff period. Certain investments originallyinitiated by Recursos Hidráulicos y Electrificacion, or IHRE, before the privatization, which weassumed with the privatization and made during the initial four-year regulatory period, weredeemed to be “inefficient” because the international unit costs for these investments based oncomparable companies were less than our actual unit cost. This resulted in our July 1, 2002 ratereset using the “efficient” international unit costs rather than our actual costs, when the ERSPconsidered the value of our base assets. We are currently challenging the ERSP’s ability tocategorize such investments as “inefficient” under the 1997 Electricity Law. We believe thiscategorization by the ERSP is not permitted within the tariff reset process which provides thatthe value of a distributors’ base assets are to be set at the original book value of those assets atthe beginning of each rate period.

On April 11, 2006, the ERSP stated in Resolution No. JD-5956 that, aside from the maximumallowable income we were permitted to recover during the four-year regulatory period from July2002 to June 2006, we received additional income in excess of our actual costs. The ERSPattributed this supposed excess income to variations between our projected and actual number

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of customers and our sales in the different rate categories during this tariff period and hasordered us to credit or reimburse our customers an aggregate of approximately US$4.0 millionbeginning May 1, 2006 until December 31, 2006. We are currently challenging this determinationas we believe that the Concession Contract and the resolutions instituting the VAD do not permitthe ERSP to modify previously approved tariffs where our actual income exceeds our projectedmaximum allowable income charged to customers, and the methods used to determine ourmaximum allowable income is favorable to us. These customer credits have been suspendedwhile our motion for reconsideration is pending.

The distribution and commercial components of the VAD are adjusted every six months to reflectchanges in the CPI. See “Business—Distribution Tariffs” for more information on our tariffstructure.

Pass-through of energy costs

In addition to the VAD tariff component, the tariffs for our regulated customers have a separatecomponent that include the weighted average cost of energy we purchase from generators andin the spot market, transmission tolls paid to ETESA and public lighting energy consumption. Thisenergy component is established by the ERSP as a pass-through of our energy costs to ourcustomers and is adjusted every six months to reflect the actual costs of energy due to thefluctuation in fuel costs and energy prices in the spot market.

In accordance with procedures, on November 1, 2005, we published our six-month tariffadjustments for the period beginning January 1, 2006. This adjustment included an increase ofapproximately 30% from the prior period to take into account the increase in our energy costsfor the period of April-September 2005, primarily due to the increase in fuel and spot marketprices and the projected cost of energy for the next six-month period. After implementing thetariff increase, the ERSP suspended the implementation of this adjustment on January 23, 2006for a 90-day period expiring on March 31, 2006. On March 27, 2006, the Energy Commissionrecommended that a new adjusted tariff rate be implemented for the period from April 1, 2006to December 31, 2006. The ERSP, in its March 2006 Resolution adopting many of therecommendations of the Energy Commission, approved a rate adjustment for this nine-monthperiod based on our projected energy costs through December 31, 2006. The ERSP, in itsMarch 2006 Resolution, established that the tariff increase to our regulated customers for thisnew rate period should not exceed 10.7%, which was lower than the 20.5% increase we hadsubmitted. However, the ERSP at the same time recognized that we should receive a governmentsubsidy of US$25.2 million, which would include a US$0.5 million credit from previous subsidiesgranted, in order to avoid a rate increase for all our customers with consumption levels under200 kWh and limit the 10.7% rate increase to those customers above this consumption level.Together, the ERSP established rate increase and the US$25.2 million subsidy will compensate usfor the increased energy costs in our original 20.5% rate increase proposal. While this new rateadjustment only includes our projected energy costs, we have been prohibited from passingthrough to customers our accumulated energy cost component adjustment from prior tariffrevision periods. However, the Minister of the Presidency and the Minister of Finance andEconomy have indicated to us that our recovery of our accumulated energy cost componentadjustments for the twelve-month period from April 1, 2005 through March 31, 2006 will berecovered from the Panamanian Government in the form of cash or a debt instrument ratherthan through our regulated tariffs. Nevertheless, this suspension has affected the timing of ourrecognition of cash flows from our operations, as we have not been able to pass the full amount

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of our increased cost on to our customers. Accordingly, during the first quarter of 2006, we havehad to use some of our short-term financing, in the form of unsecured credit line facilities, as asource of liquidity. See “Overview of the Panamanian Electricity Industry—RecentDevelopments.”

Energy losses

Our ability to maintain and improve on our energy losses is an important factor to our financialperformance. As a distributor, we suffer from both technical losses, those that occur in theordinary course of the distribution of electricity or those resulting from the specific characteristicsof our distribution network, and non-technical losses, those that result from illegal connections,fraud or billing errors. Since privatization, we have reduced our total energy losses from 24.0% in1998 to 12.5% (7.7% technical and 4.8% non-technical) in 2005. By minimizing our level ofenergy loss, we are able to generate more net income. We intend to reach a sustainable level ofenergy loss by 2006, within the range of 11.0% to 12.0%, where the expenditures for lossreduction initiatives are equal to the benefits we receive. In order to be able to reach this goaland maintain our level of energy loss, we have allocated approximately US$10.5 million to energyloss related capital expenditure projects over the past six years, such as installing specialconductors, protecting meters from tampering and replacing transformers and cables.

Capital and operating efficiencies

We operate within a publicly open regulatory framework, which takes into account a number offactors in setting the tariffs we charge our customers during each four-year tariff period. Everyfour years, the ERSP sets the maximum tariff level for our VAD, which is a significant determinantof our operating results. Because our network tariffs are subject to these maximum levels, andthe VAD component is based on our future operating and capital expenditures, as assumed bythe ERSP at the start of each such four-year period, we can increase our profitability if we areable to increase our operating and capital efficiencies during each four-year period beyond thelevels assumed by the ERSP. In its March 31, 2006 resolution, the ERSP extended the currentfour-year tariff period scheduled to expire on June 30, 2006 until December 31, 2006, with thenext four-year period commencing January 1, 2007. This regulatory framework allows us to retainthe benefit of the operating and capital efficiency gains we achieve during each four-year tariffperiod and provides incentives to earn higher returns through efficient operating and capitalexpenditures. Since December 1999, employee productivity has increased from 255 customers peremployee to 526 customers per employee at year end 2005. For the same period, our energy salesper employee have also increased from 2,092 MWh per employee to 3,398 MWh per employee. Ifwe do not meet the ERSP’s assumed future operating and capital expenditures or our maximumtariffs are set too low, then our actual costs may exceed the revenues permitted to be collectedpursuant to our maximum allowable tariffs and we may see our profitability decrease or fall intoa net loss position if our capital and operating expenditures exceed the level of expendituresassumed by the ERSP.

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Results of operations

Three months ended March 31, 2006 compared to the three months ended 2005

Revenues

The following table depicts revenues for the three months ended March 31, 2006 and March 31,2005 for the indicated categories:

Three Months Ended March 31,2006

(Unaudited)2005

(Unaudited)

Net energy sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $69,145,279 $59,044,679Other revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,013,852 2,113,142

Total revenues, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $71,159,131 $61,157,821

Purchase of energy and transmission charges, net . . . . . . . . . . . . . . . 53,648,896 42,792,909Gross distribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $17,510,235 $18,364,912

Net energy sales. Our net energy sales, which consist of revenues we obtain from sales ofelectricity to our regulated customers, increased US$10.1 million for the three months endedMarch 31, 2006, or approximately 17.1%, as compared to net energy sales for the same period of2005. This increase was due to a growth in the number of customers we provided electricity toand the larger volume of units of energy invoiced to our customers for the three months endedMarch 31, 2006, which were 485 GWh in this period, compared to 455 GWh in the same period of2005. In these three months of 2006, our average number of customers increased by 18,852, orapproximately 6.7%, to 299,223 average number of customers, as compared to the 280,371average number of customers in the three months of 2005. This increase was primarily due to thegrowth in the Panamanian economy and the expansion of our distribution network. Lastly,approximately 89.0% of the increase in our net energy sales in the first quarter of 2006 ascompared to the same period in 2005, was due to the higher energy purchases and transmissioncharges included in the tariff. This approved pass-through tariff increased due to greater spotmarket energy purchases, purchases from thermal electricity generators, and higher fuel costsand spot market prices.

Other revenues. Other revenues, which include wheeling, pole rental, connection andreconnection charges, collections from uncollectible accounts and other income, decreased forthe three months ended March 31, 2006 by approximately US$99 thousand, or approximately4.7%, down from US$2.1 million in the first quarter of 2005 to US$2.0 million, in the same periodin 2006. This decrease was primarily due to US$81 thousand in revenue from public lightingconsumed by large unregulated customers that was not recovered in the first quarter of 2006once these unregulated customers became regulated. The decrease in our other revenue for thefirst quarter of 2006 was offset by the increased net energy sales for the same period as theseunregulated customers became our regulated customers.

Purchase of energy and transmission charges, net. In the first three months of 2006, ourpurchase of energy and transmission charges, which are net of our fuel component adjustment,increased US$10.9 million, or 25.4%, to US$53.6 million compared to US$42.8 million in the firstthree months of 2005. The increase in purchase of energy and transmission charges was primarilydue to an increase in the average overall cost of energy during the first quarter of 2006, which

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increased to US$96.73 per MWh, or approximately 18.2%, from US$81.81 per MWh in the sameperiod in 2005. This increase in the average overall cost of energy in the first quarter of 2006 wasdue to our purchasing approximately 64.0% of our energy needs from thermal electricitygenerators and in the spot market as compared to purchases in the first quarter in 2005 when wepurchased approximately 56% from thermal electricity generators and in the spot market. Thisincrease to 64.0% of dependency on thermal electricity generators and the spot market was dueto our hydroelectric contracts expiring at the end of fiscal 2005. An additional factor in theincrease in purchase of energy and transmission charges was due to the increased amount of ourenergy purchases (570 GWh in the first quarter of 2006, up from 546 GWh in the same period of2005), which was due to both the expansion of our network through the connection of newregulated customers, which expands the reach of our network to other future customers, and anincrease in customers from the prior period.

Gross distribution margins. Our gross distribution margins, based on our total revenues less ourpurchase of energy and transmission charges, decreased US$0.9 million, or 4.7%, to US$17.5million in the first quarter of 2006 as compared to US$18.4 million in 2005. This decrease wasmainly the result of a reduction in the other income invoicing and the increase of the energy losscosts which were considerably higher during the first quarter of 2006.

Operating expenses

The following table reflects our operating expenses for the three months ended March 31, 2006and March 31, 2005:

Three Months Ended March 31,2006

(Unaudited)2005

(Unaudited)

Labor and other personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,083,611 $ 2,138,652Severance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,987 72,061Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,936 604,116Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610,665 550,936Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,079,057 1,887,099Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,000 451,000Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,020,668 2,922,680Administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,015,956 2,055,171Loss on sales and disposal of fixed assets, net . . . . . . . . . . . . . . . . . . . 178,186 133,305

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $11,094,066 $10,815,020

Labor and other personnel. Our labor and other personnel expenses decreased slightly byapproximately US$55 thousand, or 2.6%, to $2.1 million for the first quarter of 2006, fromslightly more incurred during the same period in 2005. The decrease in our labor and otherpersonnel expenses was attributable primarily to an increase in the estimated amount of laborcosts reclassified as a capital expense for various projects, which represented an additional creditof US$54 thousand.

Severance expenses. Our severance expenses increased approximately US$36 thousand, orapproximately 50.0%, for the first quarter of 2006 from US$72 thousand for the same period in2005. This increase was primarily due to the expected reduction of personnel that occurred inconnection with our reorganization of our Engineering and Information Technologydepartments.

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Provision for doubtful accounts. In the first quarter of 2006, our provision for doubtful accountsfor non-payment of electricity sales was stable compared to the same period in 2005. We believethat our provision for doubtful accounts is adequate to cover our customers’ portfolioreceivables.

Repair and maintenance. Repair and maintenance expense increased slightly by US$60thousand, or 10.8%, for the first quarter of 2006 to US$610 thousand compared to US$551thousand for the same period in 2005. These increases were primarily due to the expansion ofour distribution network in the first quarter of 2006 and the growth in the number of customerswe service.

Professional services. For the three months ended March 31, 2006, our professional servicesexpenses (i.e., payments to third parties) relating to connection and reconnection, gridmaintenance crew, security, meter reading, customer service, legal consultants and wholesaleelectricity market consultants increased by approximately US$191 thousand, or 10.2%, to US$2.1million compared to US$1.9 million for the same period in 2005. The increase in our professionalservice expenses was attributable primarily to legal fees, inspection services and other services forcustomers’ connections.

Management fees. Management fees paid to CPI, Limited in the first quarter of 2006 decreasedslightly by US$58 thousand, or 12.9%, to US$0.4 million compared to US$0.5 million in the firstquarter of 2005. This decrease in management fees was due to the decrease in EBITDA, which isthe benchmark used to calculate this fee. See “Related Party Transactions—ManagementAgreements.”

Depreciation and amortization. Depreciation and amortization expense increasedUS$98 thousand to US$3.0 million in the first quarter of 2006 compared to US$2.9 million in thesame period in 2005. This increase was attributable primarily to an increase in our property andequipment as a result of capital acquisitions associated with the expansion of the electricity gridand increased customer growth. In the first quarter of 2006, investment in capital expendituresincluded $2.2 million for expansion of our network (including construction of our Tinajitassubstation), US$0.6 million for meter installation, US$0.1 million for improvements to the qualityof our distribution network, US$0.1 million for systems and other information technologies,US$0.1 million for installation of public lighting and US$0.3 million for capitalized labor andinterest costs.

Administrative and other expenses. Administrative and other expenses for the first quarter of2006 were slightly less than those for the same period in 2005. The US$39 thousand decrease inthe first quarter of 2006 was primarily due to decrease in our provision for removal of obsoleteinventory and decreased spending on television and radio advertising.

Loss on sale of fixed assets, net. Our loss on sale of fixed assets in the first quarter of 2006 wasUS$178 thousand compared to approximately US$133 thousand in the same period in 2005. ThisUS$45 thousand increase related to the disposal of some of our meter reading equipment, poles,conductors, lamps and transformers that are replaced periodically to maintain our distributionnetwork.

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Other income (expense)

The following table reflects other income (expense) for the three months ended March 31, 2006and March 31, 2005:

Three Months Ended March 31,2006 2005

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,831 $ 47,092Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,082,158) (1,578,482)

Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,026,327) $(1,531,390)

Interest income. In the first quarter of 2006, our interest income relating to interest received onour treasury management increased slightly by approximately US$9 thousand to approximatelyUS$56 thousand as compared to approximately US$47 thousand in the same period in 2005.Consistent with our policy to mitigate against interest risk, we place our surplus funds ininterest-bearing bank deposits with prime financial institutions in Panama.

Interest expense. Our interest expense for the first quarter of 2006 was US$2.1 millioncompared to US$1.6 million in the same period in 2005. The increase of US$0.5 million wasprimarily related to our increased use of our short-term credit facilities which, at March 31, 2006,had US$7.0 million outstanding, compared to the same period in 2005, which had US$3.8 millionoutstanding. Additionally, the LIBOR interest rate applicable in the first quarter of 2006 underthese facilities and under our Syndicated Long-Term Loan increased to 4.7%, compared to the2.8% interest rate applicable during the same period in 2005.

Income taxes

Our effective income tax rate was 30.0% in the first quarter of 2006 and 33.7% in the sameperiod of 2005. In the first quarter of 2006, our total income tax expense amounted to US$1.3million compared to US$2.0 million in the same period of 2005. This US$0.8 million decrease intaxes related to a lower gross distribution margin in 2006 of US$0.8 million and US$0.3 millionand US$0.5 in higher operating expenses and interest expenses, respectively, compared to thethree months ended March 31, 2005. In addition, the effect of a US$0.2 million income tax isincluded as part of the income tax expense in the first quarter of 2005, due to a change in thepreviously enacted rate.

Net income

As a result of the above, we recorded net income of US$3.1 million, or 4.3% of revenues, in thefirst quarter of 2006, compared to net income of US$4.0 million, or 6.5% of revenues in the sameperiod in 2005.

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Year ended December 31, 2005 compared to the year ended December 31, 2004

Revenues

The following table depicts revenues for the years ended December 31, 2005 and December 31,2004 for the indicated categories:

Year Ended December 31,2005 2004



Purchase of energy and transmission charges, net . . . . . . . . . . . . . . . 193,905,488 151,822,767Gross distribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 78,580,203 $ 73,565,436

Net energy sales. Our net energy sales, which consist of revenues we obtain from sales ofelectricity to our regulated customers, increased US$45.9 million for the year ended December 31,2005, or approximately 21.1%, as compared to net energy sales for 2004. This increase was due toan increase in the number of customers we provided electricity to and the larger volume of unitsof energy invoiced to our customers for the year ended December 31, 2005, which were1,916 GWh in 2005, compared to 1,800 GWh in 2004. In 2005, our average number of customersincreased by 21,484, or approximately 8.1%, to 288,321 average number of customers, ascompared to the 266,837 average number of customers in 2004 primarily due to the growth inthe Panamanian economy and the expansion of our distribution network. Another factor for thisincrease was that our distribution margin, or the VAD component of our tariff, for the yearended 2005 increased from US$48.52 per MWh in 2004 up to US$49.87 per MWh due to inflationas well as an adjustment in the charges for distribution loss. Lastly, our net energy sales increasedapproximately 82% due to an increase in the energy component of our tariff through which wepass through to our customers the increase in energy costs, which in 2005 were mainly due toboth the rising prices in bunker fuel under our power purchase agreements with thermalelectricity generators and our spot market purchases.

Other revenues. Other revenues, which include wheeling, pole rental, connection andreconnection charges, collections from uncollectible accounts and other income, increased in2005 by approximately US$1.2 million, or approximately 15.6%, to US$9.0 million, as comparedto 2004. This increase was due in large part to the increase in wheeling charges, those fees wereceive from electricity generators and other electricity distributors who use our distributionnetwork to deliver electricity to their customers, which increased approximately US$0.5 million,or 19.6%, to US$3.3 million, as compared to 2004. Our wheeling charges also increased in 2005due to increased use by Metro Oeste, another Panamanian electricity distributor, and otherunregulated customers of our network. Additionally, in 2005, we rented out more of our poles tothird-party commercial enterprises, which generated moderately higher revenues than 2004, andwe received approximately US$0.3 million in additional revenue from fees charged to real estatedevelopers for infrastructure inspection services.

Purchase of energy and transmission charges, net. In 2005, our purchase of energy andtransmission charges, which are net of our fuel component adjustment, increasedUS$42.1 million, or 27.7%, to US$193.9 million compared to US$151.8 million in 2004. Theincrease in purchase of energy and transmission charges was primarily due to an increase in theaverage overall cost of energy in 2005, which increased to US$87.98 per MWh, or approximately

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22.0%, from US$72.09 per MWh in 2004. This increase in the average overall cost of energy in2005 was due to our purchasing approximately 60% of our energy needs from hydroelectricgenerators (whose prices are fixed) and 40% from thermal electricity generators and in the spotmarket as compared to purchases in 2004. In 2004, we purchased approximately 25% fromthermal electricity generators and in the spot market. This 40% dependency on thermalelectricity generators and the spot market resulted in greater expenses to us due to the fact thatcontracted prices under these agreements were higher due to the rising bunker fuel prices in2005. An additional factor in the increase in purchase of energy and transmission charges wasdue to the increased amount of our energy purchases (2,204 GWh in 2005, up from 2,106 GWh in2004), which was due to both the expansion of our network through the connection of newregulated customers, which expands the reach of our network to other future customers, and anincrease in customers from the prior period.

Gross distribution margins. Our gross distribution margins, based on our total revenues less ourpurchase of energy and transmission charges, increased US$5.0 million, or 6.8%, toUS$78.6 million in 2005 as compared to US$73.6 million in 2004. This increase was the result ofmore units of energy invoiced to our customers for the year ended December 31, 2005 as well asour improved energy loss recovery program. In 2005, we reduced our total percentage of energyloss to 12.5%, down from 13.9% in 2004.

Operating expenses

The following table reflects our operating expenses for the years ended December 31, 2005 andDecember 31, 2004:


Labor and other personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 8,218,840 $ 9,115,038Severance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195,942 358,756Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,483,867 524,429Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,575,193 2,237,051Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,499,148 8,506,837Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,943,000 1,756,246Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,890,034 10,909,897Administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,517,199 8,180,320Loss on sales and disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,214 56,989

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $43,328,437 $41,645,563

Labor and other personnel. Our labor and other personnel expenses decreased approximatelyUS$0.9 million, or 9.8%, to US$8.2 million in 2005 from US$9.1 million in 2004. The decrease inour labor and other personnel expenses was attributable primarily to employee reductionsassociated with the reorganization and merging of our customer service and loss reductiondepartments, which lowered our number of employees by 0.7%.

Severance expenses. In 2005, our severance expenses decreased approximately US$0.2 million,or approximately 45%, from US$0.4 million in 2004. This decrease in severance expenses wasprimarily due to the expected reduction of personnel that occurred in connection with ourreorganization and merging of the customer service and loss reduction departments in 2004, thatwas not duplicated in 2005.

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Provision for doubtful accounts. Our provision for doubtful accounts for non-payment ofelectricity sales increased approximately US$1.0 million, to US$1.5 million in 2005 fromUS$0.5 million in 2004 due to an increase in the number of our terminated customers, whichinclude those customers for whom, after 90 days of being disconnected, a full provision foroverdue amounts is made in our books.

Repair and maintenance. Repair and maintenance expense increased US$0.3 million, or 15.1%,to US$2.6 million for the year ended December 31, 2005 compared to US$2.2 million for the priorperiod in 2004. Increases in repair and maintenance expense were primarily due to the expansionof our distribution network in 2005 from that in 2004 and our growth in the number ofcustomers we service.

Professional services. In 2005, our professional services expenses (i.e., payments to third parties)relating to connection and reconnection, grid maintenance crew, security, meter reading,customer service and wholesale electricity market consultants remained relatively stable in 2005from that in 2004. Our expenses related to these third-party service providers remained at thesame level in 2005 and 2004 because our costs that increased due to our expanded customer baseand our network were offset by lower legal fees in 2005 and the realization of synergies fromour reorganization and merging completed in 2004.

Management fees. Management fees paid to CPI, Limited in 2005 increased US$0.2 million, or10.6%, to US$1.9 million compared to US$1.7 million in 2004. This increase in management feesexpense was due to the increase in EBITDA, which is the benchmark used to calculate this fee. See“Related Party Transactions—Management Agreements.”

Depreciation and amortization. Depreciation and amortization expense increasedUS$1.0 million to US$11.9 million in 2005 compared to US$10.9 million in 2004. This increase wasattributable primarily to an increase in our property and equipment base (of US$13.2 million toUS$317.0 million in 2005 from US$303.8 million in 2004), which resulted from the US$19.5 millioncapital expenditure program we implemented in 2005 which included US$10.8 million forexpansion of our network (including construction of our Geehan substation), US$3.9 million formeter installation, US$2.1 million for improvements to the quality of our distribution network,US$0.9 million for information technologies, US$0.7 million for installation of public lighting andUS$1.1 million for capitalized labor and interest costs.

Administrative and other expenses. Administrative and other expenses for 2005 wereUS$7.5 million compared to US$8.2 million in 2004. The decrease of US$0.7 million is primarilyattributable to non-personnel related expenses associated with our reorganization and mergingof our customer service and loss reduction departments in 2004. In 2005, we also increased ouroperating efficiencies as evidenced by our ratio of dollar per kWh invoiced, which was 1.46 cents/kWh in 2005, compared with 1.58 cents/kWh in 2004. The decline in this ratio is the result of bothimproved controls over our expenses and an increase in the volume of energy invoiced to ourcustomers.

Loss on sale of fixed assets. Our loss on sale of fixed assets in 2005 was US$1.0 million comparedto approximately US$57,000 in 2004. This US$0.9 million increase from the prior period related toour disposal of meter reading equipment received from IRHE, the government-owned electricitycompany prior to privatization of the Panamanian electricity industry, which we eliminated inorder to comply with the quality requirements of the ERSP regulations.

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The following table reflects other income (expense) for the years ended December 31, 2005 andDecember 31, 2004:


Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 196,350 $ 138,630Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,639,719) (4,440,820)

Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(7,443,369) $(4,302,190)

Interest income. In 2005, our interest income relating to interest received on our treasurymanagement increased approximately US$57,720 to approximately US$196,350 as compared toapproximately US$138,630 in 2004. Consistent with our policy to mitigate against interest risk,we place our surplus funds in interest-bearing bank deposits with prime financial institutions inPanama. In 2005, due to a greater amount deposited into our severance fund for employees asrequired by law, as well as amounts in our US$2.5 million reserve account/collateral accountestablished in connection with our Syndicated Long-Term Loan, we generated the additionalamount of interest income reflected in 2005.

Interest expense. Our interest expense for 2005 was US$7.6 million compared to US$4.4 millionin 2004. The increase of US$3.2 million was primarily related to the costs associated with ourSyndicated Long-Term Loan, which was incurred during the fourth quarter of 2004 to refinancean earlier credit facility. See “—Indebtedness—Long-Term Indebtedness.” The interest under ourSyndicated Long-Term Loan increased to US$7.0 million in 2005 from US$4.0 million in 2004, dueto the fact that our prior loan was for an aggregate principal amount of US$40.0 million.Additionally, the interest rate applicable to our interest payments in 2005 increased to 6.8%under our Syndicated Long-Term Loan, compared to an interest rate of 5.5% applicable to ourearlier loan due to the increase in the LIBOR rate.

Income taxes

Our effective income tax rate was 30.8% in 2005 and 29.1% in 2004. In 2005, our total incometax expense amounted to US$8.6 million compared to US$8.0 million in 2004. This US$0.6 millionnet increase reflects a US$5.9 million decrease in current income tax and a US$6.5 million increasein deferred income tax. Our income taxes in 2005 were primarily affected by an increase in thefuel component adjustment of US$15.6 million, which decreased current income tax expense byUS$4.7 million and increased deferred income tax expense by US$4.7 million when compared tofiscal 2004. See Note 9 to our audited financial statements included elsewhere in this offeringmemorandum for additional information related to our current and deferred income taxes.

Net income

As a result of the above, we recorded net income of US$19.2 million, or 6.7% of revenues, in2005, compared to net income of US$19.6 million, or 9.0% of revenues in 2004.

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Year ended December 31, 2004 compared to the year ended December 31, 2003

Revenues

The following table depicts revenues for the years ended December 31, 2004 and December 31,2003 for the indicated categories:




Purchase of energy and transmission charges, net . . . . . . . . . . . . . . . 151,822,767 147,830,142Gross distribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 73,565,436 $ 63,675,658

Net energy sales. Our net energy sales increased to US$217.6 million in 2004 fromUS$204.3 million in 2003. This increase was due in part to an increase in the number of customerswe provided electricity to and the larger volume of units of energy invoiced to our customers forthe year ended December 31, 2004, which were 1,800 GWh in 2004, compared to 1,714 GWh in2003. In 2004, the average number of customers increased by 19,818, or approximately 8.0%, to266,837 average customers, as compared to 247,019 average customers in 2003 primarily due tothe growth in the Panamanian economy and the expansion of our distribution network. Anotherfactor for this increase was that the distribution margin, or the VAD component of our tariff, forthe year ended 2004 increased an average of only US$0.34 per MWh, to US$48.52 per MWh,compared to the VAD in 2003.

Other revenues. Other revenues, which include wheeling, pole rental, connection andreconnection charges, collections from uncollectible accounts and other income, increased in2004 by approximately US$0.6 million, or approximately 7.9%, to US$7.8 million, as compared to2003. This increase was due in large part to the increase in wheeling charges we received fromelectricity generators and other electricity distributors who use our distribution network toservice their customers, which increased approximately US$0.5 million, or 19.7%, toUS$2.7 million, as compared to 2003, primarily due to increased use by Metro Oeste and otherunregulated customers of our network. In 2004, we also rented out more of our poles, whichgenerated moderately higher revenues than 2003.

Purchase of energy and transmission charges, net. In 2004, our purchase of energy andtransmission charges, which are net of our fuel component adjustment, increased US$4.0 million,or 2.7%, to US$151.8 million compared to US$147.8 million in 2003. The increase in purchase ofenergy and transmission charges was primarily due to the increase in our energy purchases in2004 to 2,106 GWh from 2,065 GWh in 2003, which were due to both the expansion of ourdistribution network and an increase in customers from the prior period. The average overall costof energy in 2004 was US$72.09 per MWh, an increase of 0.7% from US$71.59 per MWh in 2003.This stability in our average overall cost of energy in 2004 was due to our purchasing 75% of ourenergy needs from hydroelectric generators (whose prices are fixed) and only 25% from thermalelectricity generators and in the spot market as compared to our purchases in 2003. In 2003, withapproximately 51% of our contracted electricity coming from thermal electricity generators andfrom the spot market, our expenses were greater due to the fact that contracted prices underthese arrangements were higher due to the rise in bunker fuel prices.

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Gross distribution margins. Our gross distribution margins, based on our total revenues less ourpurchase of energy and transmission charges, increased US$9.9 million, or 15.5%, toUS$73.6 million in 2004 as compared to US$63.7 million in 2003. This increase resulted from moreunits of energy invoiced to our customers in 2004 than in 2003, as well as our improved energyrecovery program. In 2004, we reduced our total percentage of energy loss to 13.9%, down from16.4% in 2003.

Operating expenses

The following table reflects our operating expenses for the years ended December 31, 2004 andDecember 31, 2003:


Labor and other personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,115,038 $ 8,510,224Severance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,756 223,759Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 524,429 1,561,358Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,237,051 1,833,165Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,506,837 7,751,629Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,756,246 2,012,000Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,909,897 10,182,773Administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,180,320 7,937,159Loss (gain) on sale and disposal of fixed assets . . . . . . . . . . . . . . . . . . . . . 56,989 (73,152)

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $41,645,563 $39,938,915

Labor and other personnel. Our labor and other personnel expenses increased approximatelyUS$0.6 million, or 7.1%, to US$9.1 million in 2004 from US$8.5 million in 2003. The increase inour labor and other personnel expenses was attributable primarily to an increase in salaryadjustments made in 2004 in order to bring local wages in line with market levels as well as aslight increase in headcount in 2004.

Severance expenses. In 2004, our severance expenses increased approximately US$0.2 million, orapproximately 60%, to US$0.4 million from US$0.2 million. This increase in severance expenseswas primarily due to a headcount replacement in 2004, which was implemented to improve ouroperating quality standards and efficiencies.

Provision for doubtful accounts. Our provision for doubtful accounts for non-payment ofelectricity sales decreased approximately US$1.1 million, to US$0.5 million in 2004 fromUS$1.6 million in 2003. In 2004, based on the analysis of our delinquent customer portfolio, webelieved that our provision for doubtful accounts was sufficient.

Repair and maintenance. Repair and maintenance expense increased US$0.4 million, or 22.0%,to US$2.2 million for the year ended December 31, 2004 compared to US$1.8 million for the sameperiod in 2003. Increases in repair and maintenance expense were primarily due to the expansionof our distribution network in 2004 from that in 2003 and our growth in the number ofcustomers we service.

Professional services. In 2004, our professional services expenses related to connection andreconnection, grid maintenance crew, security, meter reading, customer service and wholesale

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electricity market consultants increased approximately US$0.8 million, or 9.7%, to US$8.5 millioncompared to US$7.8 million in 2003. This increase in 2004 was primarily the result of an increaseduse of third-party service providers, an increase in the number of customer inspections to lowerenergy losses as well as legal expenses to prosecute fraud cases.

Management fees. Management fees paid to CPI, Limited in 2004 decreased US$0.3 million, or12.7%, to US$1.7 million compared to US$2.0 million in 2003. This decrease in management feeswas due to our decrease in EBITDA, which is the benchmark used to calculate this fee. See“Related Party Transactions—Management Agreements.”

Depreciation and amortization. Depreciation and amortization expense increasedUS$0.7 million to US$10.9 million in 2004 compared to US$10.2 million in 2003. This increase wasattributable primarily to an increase in our property and equipment base (of US$8.8 million toUS$303.0 million in 2004 from US$295.0 million in 2003), which resulted from the US$17.8 millioncapital expenditure program we implemented in 2004 which included US$8.2 million forexpansion of our network, US$3.8 million for meter installation, US$3.5 million for improvementsto the quality of our distribution network, US$0.6 million for information technologies, US$0.7million for installation of public lighting, US$0.9 million for capitalized labor and interest costsand US$0.1 million for loss reduction.

Administrative and other expenses. Administrative and other expenses for 2004 wereUS$8.2 million compared to US$7.9 million in 2003. The increase of US$0.3 million is primarilyattributable to the US$0.2 million we invested and fees associated with the implementation ofour voluntary enhanced internal controls program.

Loss on sale of fixed assets. Our loss on sale of fixed assets in 2004 was approximately US$57,000compared to a gain in 2003 of approximately US$73,000. The loss in 2004 was primarily the resultof costs related to the disposition of deteriorating fixed assets.


The following table reflects other income (expense) for the years ended December 31, 2004 andDecember 31, 2003:


Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 138,630 $ 98,656Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,440,820) (3,886,642)

Total other income (expense) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(4,302,190) $(3,787,986)

Interest income. In 2004, our interest income relating to interest received on our investmentsincreased approximately US$40,000 in 2004 to approximately US$140,000 from US$100,000 in2003. Consistent with our policy to mitigate against interest risk, we place our surplus funds ininterest-bearing bank deposits with prime financial institutions in Panama. In 2004, due to agreater amount deposited into our severance fund for employees, as well as amounts in ourUS$4.3 million reserve account/collateral account as of October 2004, which we later reduced toUS$2.5 million in fiscal 2004 in connection with our Syndicated Long-Term Loan, we generatedthe additional amount of interest income reflected in 2004.

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Interest expense. Our interest expense remained relatively stable in 2004 from that in 2003. Atthe end of 2004, we refinanced our prior loan with our Syndicated Long-Term Loan. Debtissuance costs of US$0.7 million relating to our then existing syndicated long-term loan waswritten off in fiscal 2004 due to this refinancing. The interest payments on our earlier loan in2004 and 2003 were stable during this two-year period.

Income taxes

Our effective income tax rate was 29.1% in 2004 and 30% in 2003. In 2004, our overall incometax expense amounted to US$8.0 million compared to US$6.0 million in 2003. Our income taxexpense in 2004 was comprised of current income tax of US$8.7 million and a deferred incometax benefit of US$0.6 million. Our deferred income taxes were primarily associated with theinvestment tax credit that represented a benefit of US$2.8 million and the fuel componentadjustment that represented a negative effect of US$2.2 million. See Note 9 to our auditedfinancial statements included elsewhere in this offering memorandum for additional informationrelated to our current and deferred income taxes.

Net income

As a result of the above, we recorded net income of US$19.6 million, or 9.0% of revenues, in2004, compared to net income of US$14.0 million, or 6.5% of revenues in 2003.

Liquidity and capital resources

Our primary source of liquidity are funds generated from operations, and to a lesser extent,short-term financing lines with prime financial institutions in Panama. Our primary use of cash isto purchase electricity from electricity generation companies for sale and distribution to ourelectricity distribution customers and to invest in fixed assets for our distribution network. Webelieve that our sources of liquidity are sufficient to satisfy our requirements.

We intend to use the net proceeds of this offering to repay our current indebtednessoutstanding. See “Use of Proceeds.”

As of March 31, 2006, we had cash and cash equivalents of US$89 thousand and outstandingaggregate long-term indebtedness of US$93.8 million. As of December 31, 2005, we had cash andcash equivalents of US$1.5 million and outstanding aggregate long-term indebtedness ofUS$100.0 million. As of December 31, 2004, we had cash and cash equivalents of US$6.5 millionand outstanding aggregate indebtedness of US$100.0 million. As of December 31, 2003, we hadcash and cash equivalents of US$1.5 million and outstanding aggregate indebtedness ofUS$54.7 million.

We currently have short-term credit facilities with an availability of up to US$50.3 million, whichwe recorded an average usage of US$11.8 million in 2003, US$7.7 million in 2004 andUS$11.0 million in 2005. For these three years, our largest aggregate amount outstanding underthese facilities at any one point reached to US$15.0 million in 2005. In the first quarter of 2006,we had an average usage of US$12.1 million under these short-term credit facilities, and thelargest aggregate amount outstanding under these facilities for this three-month period at anypoint did not exceed US$20.0 million.

We paid no dividends in the first quarter of 2006 and US$12.4 in the first quarter of 2005.

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More detailed information regarding our cash flow is set forth below.

Cash flows

The following table sets forth certain information about our cash flows for the years endedDecember 31, 2005, 2004 and 2003 and for the three months ended March 31, 2006 and 2005:

Year EndedDecember 31,

Three Months EndedMarch 31,

(US$ in millions) 2005 2004 20032006

(Unaudited)2005

(Unaudited)

Cash flows from operating activitiesNet Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19.2 $ 19.6 $ 14.0 $ 3.1 $ 4.0Non-cash adjustments to net income . . . . . . . 4.7 18.7 9.1 (2.4) 4.2Changes in working capital . . . . . . . . . . . . . . . 7.3 (10.5) 2.6 0.3 2.5

Net cash provided by operating activities . . . . . 31.2 27.8 25.7 1.0 10.7

Cash flows from investing activitiesAcquisition of fixed assets . . . . . . . . . . . . . . . . (19.5) (17.8) (16.8) (3.4) (4.1)Proceeds from sales of fixed assets . . . . . . . . . 0.2 0.3 0.3 0.1 0.1Withdrawal from trust fund . . . . . . . . . . . . . . . — 1.8 (0.7) — —

Net cash used in investing activities . . . . . . . . . . (19.3) (15.7) (17.2) (3.3) (4.1)

Cash flows from financing activitiesNet (repayment) issuance of long-term

debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5.0) 55.0 (7.7) (1.3) (1.3)Net (repayment) issuance of short-term

debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 (9.7) — 2.0 1.5Capital reduction . . . . . . . . . . . . . . . . . . . . . . . . — (35.5) — — —Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (16.9) (16.3) — 0.0 (12.4)Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (0.6) (0.6) — —

Net cash used in financing activities . . . . . . . . . . (16.9) (7.1) (8.3) 0.8 (12.2)

Net (decrease) increase in cash . . . . . . . . . . . . . $ (5.0) $ 5.1 $ 0.2 $(1.5) $ (5.5)

Cash flows from operating activities

Cash flows provided from operating activities was US$1.0 million for the three months endedMarch 31, 2006 compared to US$10.8 million in same period in 2005. Our net income in the firstquarter of 2006 was US$3.1 million, or a US$0.9 million decrease, compared to the same period in2005. Non-cash adjustments to net income were negative US$2.4 million in the first quarter 2006compared to the US$4.2 million increase in the same period in 2005. This US$6.6 million decreasein non-cash adjustments to net income was primarily due to a US$8.4 million deferred cost forthe fuel component adjustment that reflected changes in the cost of fuel in the first quarter of2006 and an US$1.8 million increase in deferred income taxes that also related to the fuelcomponent adjustment.

Changes in operating assets and liabilities contributed US$0.3 million to our cash flows fromoperating activities for the three months ended March 31, 2006 compared to the US$2.5 millioncontributed in the same period of 2005. This US$2.2 million decrease in the amount of operatingassets and liabilities in the first quarter of 2006 was primarily due to a US$4.6 million decrease of

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net in accounts payable obtained primarily from generation and transmission companies, aUS$0.8 million net increase on income tax payable or prepaid and a US$1.6 million increase inaccounts receivable from customers as a result of our collections on past due accounts.

Cash flows provided from operating activities was US$31.2 million in 2005 compared to US$27.8million in 2004. Our net income in 2005 was US$19.2 million, or a US$0.4 million decrease,compared to 2004. Non-cash adjustments to net income were US$4.7 million in 2005 compared toUS$18.7 in 2004. This US$14.1 million decrease in non-cash adjustments to net income wasprimarily due to a US$15.6 million increase in the fuel component adjustment, for which arelated US$5.0 million deferred income tax liability was recorded. See Note 2 to our auditedfinancial statements included elsewhere in this offering memorandum for information related tothe fuel component adjustment.

Changes in operating assets and liabilities contributed US$7.3 million in 2005 to our cash flowsfrom operating activities compared to a negative impact of US$10.5 million in 2004. This increasein the amount of operating assets and liabilities in 2005 was primarily due to an increase ofUS$17.4 in accounts payable to generation and transmission companies due to increased fuelprices in our power purchase agreements with thermal electricity generators, higher spot marketprices, consumption growth and new customers added to the distribution network. The increasein accounts payable was partially offset by both a US$7.2 million increase in accounts receivableand a US$5.0 million decrease in income taxes payable.

Cash provided from operating activities was US$27.8 million in 2004 compared to US$25.7 millionin 2003. Our net income in 2004 was US$19.6 million, or a US$5.6 million increase, compared to2003. Non-cash adjustments to net income were US$18.7 million in 2004 compared to US$9.1million in 2003. The increase in non-cash adjustments to net income in 2004 was primarily due tothe fuel component adjustment, which decreased by US$7.5 million compared to 2003. See Note2 to our audited financial statements included elsewhere in this offering memorandum forinformation related to the fuel component adjustment.

Changes in operating assets and liabilities had a negative impact of US$10.5 million on our cashflows from operating activities in 2004 compared to a contribution of US2.6 million in 2003. Thisdecrease in operating assets and liabilities in 2004 was primarily the result of a US$3.8 millionincrease in accounts receivable associated with increased customer consumption and growth, adecrease in prepaid expenses primarily related to the US$0.8 million write-off in debt issuancecosts under our prior syndicated loan, a US$1.2 million increase in materials, supplies and spareparts inventory, a US$2.9 million decrease in trade accounts payable and other liabilities, aUS$1.3 million decrease in net income tax and a US2.5 million decrease in related companyaccounts payable related to fees paid to CPI.

Cash flows from investing activities

Cash used in investing activities was US$3.3 million for the three months ended March 31, 2006compared to US$4.1 million in the same period in 2005. This decrease of US$0.8 million wasprimarily due to less investment on information technology office automation software ofapproximately US$0.4 million and fewer meter reading equipment installations of approximatelyUS$0.4 million.

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Cash used in investing activities was US$19.3 million in 2005 compared to US$15.7 million in 2004.This increase of US$3.6 million was primarily due to the acquisition of fixed assets toaccommodate customer growth, the expansion of our distribution network as part of our capitalexpenditure plan and substation construction. See Note 3 to our audited financial statementsincluded elsewhere in this offering memorandum for additional details related to the acquisitionof property, plant and equipment.

Cash used in investing activities was US$15.7 million in 2004 compared to US$17.2 million in 2003.The US$1.5 million decrease was primarily the result of US$1.0 million of fixed assets acquisitionsrelated to our customer growth and the expansion of our distribution network, as well as aUS$1.8 million refund from the trust account under our Syndicated Long-Term Loan, which waspaid upon the refinancing of our prior syndicated loan which had required a greater fundingthen our Syndicated Long-Term Loan.

Cash flows from financing activities

Cash used by financing activities was US$0.8 million for the three months ended March 31, 2006compared to negative position of US$12.2 million for the same period in 2005. ThisUS$13.0 million increase was primarily due to a US$12.4 million dividend payment made to thePanamanian Government in the first quarter of 2005 and our receipt of US$0.5 million under ourshort-term credit facilities.

Cash used by financing activities was US$16.9 million in 2005 compared to US$7.1 million in 2004.The US$ 9.8 million increase in 2005 was primarily due to the US$16.9 million dividend paymentto our shareholders. We also received proceeds of US$5.0 million from the Nova Scotia CreditFacility and repaid US$5.0 million of long-term debt associated with our Syndicated Long-TermLoan.

Cash used by financing activities was US$7.1 million in 2004 compared to US$8.3 million in 2003.The US$2.1 million variance in 2004 was due to the:

• repayment of the old syndicated long-term loan balance of US$45.0 million;

• receipt of US$100.0 million in proceeds from the Syndicated Long-Term Loan;

• net decrease of US$9.7 million in the usage of our short-term credit facilities;

• capital reduction of US$35.5 million to the accumulated value of our common stock;

• payment of US$16.3 million in dividends; and

• and payment of US$0.6 million for the 4% tax payable on undistributed corporate profits asrequired by Panamanian law as well as the repurchase of our common stock held by ourcurrent and former employees.

The above-mentioned capital reduction occurred in October 2004, whereby the majority of ourshareholders resolved to reduce the accumulated value of our common stock by US$35.0 million.Prior to this reduction, the accumulated value of our common stock was US$142.0 million. Ourshareholders considered the US$100.0 million minimum tangible net worth covenant within ourSyndicated Long-Term Loan and decided, based on the equity then outstanding, to leverage ourstockholders’ equity by reducing the share capital to a approximately US$106.6 million.

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Indebtedness

Our principal sources of liquidity are available cash, cash flows from operations and borrowingsunder our (i) Syndicated Long-Term Loan and (ii) revolving credit facilities that we have withBanco Bilbao Vizcaya Argentaria (Panama), S.A., Citibank, N.A., Bank of Nova Scotia and BancoGeneral, S.A., which total to an aggregate credit line of US$50.3 million. Our Board of Directors,in December 2003, limited our ability to use our revolving credit lines up to an aggregate amountof US$26.4 million, which was an amount set by our Board based on our working capital needs atthat time.

As of March 31, 2006, our total outstanding indebtedness, excluding related party debt withrespect to accounts payable and operational expenses owed to CPI, Limited, wasUS$102.2 million, consisting of US$7.0 million of short-term indebtedness, US$5.0 millionrepresenting the current portion of long-term indebtedness, US$88.8 million of long-termindebtedness and US$1.4 of interest payable on that long-term indebtedness.

Short-term indebtedness

Our short-term indebtedness, including the current portion of long-term indebtedness, increasedto US$12.0 million for the three months ended March 31, 2006 from US$10.0 million as ofDecember 31, 2005, primarily as a result of the US$2.0 million increased borrowings under ourshort-term credit facilities for an aggregate principal amount of US$7.0 million andUS$5.0 million in amortization payments due under the Syndicated Long-Term Loan in the firstquarter of 2006.

We maintain revolving credit lines with prime local banks. We have an aggregate credit line ofUS$50.3 million under our four revolving credit facilities. In the three months ended March 31,2006, our short-term indebtedness totaled US$7.0 million, which consisted of US$2.0 millionunder the Citibank Credit Facility and US$5.0 million under the Banco Bilbao Credit Facility. InJanuary 2006 we increased our Banco Bilbao Credit Facility to US$10.0 million, and in November2005, we renewed our credit facility with the Bank of Nova Scotia, which allows us to borrowUS$20.0 million. We also maintain a credit line with Banco General, S.A., in the amount of US$7.8million. As of March 31, 2006, we had no borrowings outstanding with the Bank of Nova Scotiaor with Banco General, S.A. As of March 31, 2006, each of these credit lines applied interest ofLIBOR plus rates ranging between 1.20% and 1.50%, and our borrowings under each these fourcredit facilities are unsecured.

We use our short-term credit facilities for the issuance of promissory notes or the issuance,negotiation and refinancing of letters of credit with a maximum tenor of up to one year. As ofMarch 31, 2006, we had US$7.0 million in borrowings under our short-term credit facilities andapproximately US$5.0 million in letters of credit to guarantee our payment obligations to ETESA.

Certain of our short-term credit facilities contain customary affirmative and negative covenantsfor unsecured credit facilities of this type, including, but not limited to, the provision of financialstatements and compliance certificates, limitations on granting guarantees and the transfer ofour stock.

In addition, certain of our credit facilities require that we meet and maintain certain financialratios and tests, including a funded debt to EBITDA ratio of no higher than 3.0 to 1; a debtservice coverage ratio of at least 1.2 to 1; an interest coverage ratio of at least 5 to 1 through the

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fiscal year ending December 31, 2014; a leverage ratio of at least 1.5 to 1 through December 31,2013; and a minimum tangible net worth of at least US$100.0 million. The definition of EBITDAfor purposes of our short-term credit facilities’ financial tests is different from our definition ofEBITDA that is used elsewhere in this offering memorandum. There are also limitations, includinga limitation that no dividends may be paid whenever the debt service coverage ratio immediatelypreceding the date of the proposed dividends and immediately following the proposed dividendpayment, as estimated by us, is projected to be less than 1.5 to 1, and a limitation that dividendsnot be declared or paid more than semi-annually.

Since January 1, 2003, we have been in compliance with all of our financial covenants under ouroutstanding indebtedness. Our ability to comply with these covenants and to meet and maintainsuch financial ratios and tests may be affected by events beyond our control, such as thosedescribed under “Risk Factors.” If we do not meet and maintain these financial ratios, we maynot be able to borrow and the lenders could accelerate all amounts outstanding to beimmediately due and payable which could also trigger a similar right under other agreements,including our Syndicated Long-Term Loan.

Certain of our short-term credit facilities contain customary events of default, including, but notlimited to, failure to pay principal, interest or fees, failure to observe any covenant, failure of anyrepresentation or warranty to be true in all material respects when made or deemed made,defaults under other debt instruments, changes in the regulatory environment that materiallyhinder our ability to make payments on time, loss of a permit or license required to do business,and government seizure of substantially all of our assets.

We believe that both the funds available under our short-term credit facilities, as approved byour Board of Directors, and the funds generated by our operations will be sufficient to financeour working capital needs based on current market conditions.

Long-term indebtedness

On October 19, 2004, we entered into our Syndicated Long-Term Loan in an aggregate principalamount of US$100.0 million. We used part of the proceeds to fully repay the outstanding balanceof our previous syndicated long-term loan agreement.

To guarantee our obligations under our Syndicated Long-Term Loan, we have granted thelenders a first mortgage for an amount up to US$65.0 million consisting of specified property andreal estate we currently own, as well as future real and personal property we may acquire. Themortgaged property consists of distribution substations, land, building, vehicles, technologyhardware and other related fixed assets, which, as of March 31, 2006, comprised approximately10.8% of our total fixed assets, and the mortgaged real estate consists of land and buildings. Wehave also granted the lenders a lien on our pending and future receivables. As to the mortgagedreal property, we have entered into a trust agreement assigning to a trustee certain assetsincluding our reserve cash account, account for payments received, customer accounts receivable,lessee accounts receivable and our insurance policies. Both the mortgage and the trustagreement will terminate upon the satisfaction or repayment of all our obligations under ourSyndicated Long-Term Loan as contemplated in connection with the issuance of the Notes.

Borrowings bear interest at base, plus an interest rate equal to sum of the Eurodollar Rate, assuch term is defined in the Syndicated Long-Term Loan, plus 3.5% per annum and, beginning inthe first quarter of fiscal 2005, the Syndicated Long-Term Loan must be repaid in quarterly

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installments. Voluntary payments of principal amounts outstanding are permitted at any timeupon the giving of proper notice, and no premium or penalty will apply except that paymentsmade before October 19, 2006 are subject to a prepayment penalty of 1% of the amount of suchprepayment. All prepayments require covering any losses of the lenders.

Our Syndicated Long-Term Loan requires that we meet and maintain certain financial ratios andtests, including, a funded debt to EBITDA ratio to be no higher than 3.0 to 1; a debt servicecoverage ratio to be at least 1.2 to 1; an interest coverage ratio of at least 5 to 1, through thefiscal year ending December 31, 2014; a leverage ratio to be at least 1.5 to 1 after December 31,2005 through December 31, 2013; our consolidated tangible net worth must be no less thanUS$100.0 million. The definition of EBITDA for purposes of our Syndicated Long-Term Loan’sfinancial tests is different from our definition of EBITDA that is used elsewhere in this offeringmemorandum. There are also limitations on our ability to pay dividends including, a limitationthat no dividends may be paid whenever the debt service coverage ratio immediately precedingthe date of the proposed dividends and immediately following the proposed dividend payment isprojected to be less than 1.5 to 1; and dividends may not be declared or paid more thansemi-annually.

Our Syndicated Long-Term Loan contains customary events of default, including, but not limitedto, non payment of principal or interest when due, failure to meet certain financial ratios, certaincross-defaults, violation of other covenants subject to a grace period, failure of anyrepresentation or warranty to be true in all material respects when made or deemed made,commencement of a bankruptcy or similar proceeding by or on behalf of a credit party,judgments not discharged or stayed within a grace period; and material adverse changes in ourfinancial condition.

We will use the proceeds of this offering to repay all outstanding amounts due under ourSyndicated Long-Term Loan and, to the extent there are amounts remaining, our short-termcredit facilities and for general corporate purposes. See “Use of Proceeds.”

Contractual commitments and capital expenditures

Contractual commitments

The following table summarizes significant contractual obligations and commitments as ofDecember 31, 2005:

Payments Due by Period

(US$ in millions)

LessthanOneYear

One toThreeYears

Threeto FiveYears

MorethanFive

Years Total

Long-term debt(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5.0 $10.0 $20.0 $ 60.0 $ 95.0Operating leases(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.2 0.2 0.0 0.0 0.4Management fee(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.5 0.0 0.0 0.0 0.5Purchase obligations(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.1 69.2 31.7 112.7 254.7Other long-term liabilities(5) . . . . . . . . . . . . . . . . . . . . . . . . . 2.6 0.0 0.0 0.0 2.6Interest expense(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8 14.6 12.8 13.3 48.5Total contractual obligations . . . . . . . . . . . . . . . . . . . . . . . . $57.2 $94.0 $64.5 $186.0 $401.7

(1) Represents principal indebtedness under our Syndicated Long-Term Loan.

(2) Operating leases related to our vehicle fleet and our information technologies hardware.

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(3) Pursuant to the Management Consulting Agreement with CPI, Limited, CPI, Limited receives a management fee of 4% of ourearnings before interest, taxation, depreciation and amortization until 2008, at which time the rate will be negotiated. See“Related Party Transaction—Management Agreements.”

(4) Represents purchase commitments for electricity capacity pursuant to binding obligations with electricity generators. Theapplicable purchase prices for purchases of capacity under our power purchase agreements include “take-or-pay” provisions.The amount of our obligations above do not include our commitments for energy purchased from these generators, as theseamounts depend on customer consumption as well as the then current fuel price. Due to our ability to pass through energycosts to our customers, we have consistently met our obligations to pay electricity generators, whether pursuant to our powerpurchase agreements or when we purchase electricity in the spot market.

(5) Other long-term obligations include the amount of customer deposits plus accrued interest to be refunded to thosecustomers with eligible accounts based on good payment records as defined by the ERSP.

(6) Represents estimated interest expense related to our Syndicated Long-Term Loan. These amounts are based on an estimatedLIBOR rate ranging from 4.9% to 5.5% plus a fixed spread of 3.5% per annum.

On a pro forma basis, after giving effect to our proposed offering and the application ofproceeds from our proposed offering, long-term debt obligations would have totaled US$100.0million, which would have been payable in more than five years. Estimated interest payments onthis long-term debt would have totaled US$107.6 million, US$3.6 million of which would havebeen payable in less than one year, US$14.9 million of which would have been payable in one tothree years, US$14.9 million of which would have been payable in three to five years and US$74.2million of which would have been payable in more than five years. Interest expenses listed abovewill be cancelled. All other contractual commitments would have remained the same as shown inthe table above.

Capital expenditures

Capital expenditures are primarily comprised of projects to expand our distribution network tomeet the demand for additional customer connections and reduce energy losses and, to a lesserextent, distribution network reinforcement projects intended to improve network reliability andquality of service.

Prior to undertaking any capital expenditures, we model the impact that each proposed capitalexpenditure would have on network reliability and quality of service measures and make thosecapital expenditures that would most enhance network reliability and quality of service at theleast cost. All our capital expenditures are individually analyzed and assessed and are reviewedand approved by our controlling shareholder, PDG, prior to being undertaken.

Our capital expenditures for the three months ended March 31, 2006 and March 31, 2005 wereUS$3.4 million and US$4.1 million, respectively. Our capital expenditures were US$19.5 million,US$17.8 million and US$16.8 million for the years ended December 31, 2005, 2004 and 2003,respectively. Our principal capital expenditures projects during 2003 through 2005 and for thethree months ended March 31, 2006 and 2005 were:


Three Months EndedMarch 31,

(US$ in millions) 2005 2004 2003 2006 2005

Loss reduction(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0.0 $ 0.1 $ 1.0 $ 0.0 $ 0.0Expansion(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.8 8.2 7.4 2.2 1.6Reliability improvements(3) . . . . . . . . . . . . . . . . . . . . . . . . 2.1 3.5 2.5 0.1 0.5Safety and public lighting(4) . . . . . . . . . . . . . . . . . . . . . . . 0.7 0.7 1.1 0.1 0.2Billing and management systems(5) . . . . . . . . . . . . . . . . . 0.9 0.6 0.4 0.1 0.5Meter installation and relocation(6) . . . . . . . . . . . . . . . . . 3.9 3.8 3.5 0.6 1.1Capitalized labor and interest . . . . . . . . . . . . . . . . . . . . . 1.1 0.9 0.9 0.3 0.2Total Capital Expenditure . . . . . . . . . . . . . . . . . . . . . . . . . $19.5 $17.8 $16.8 $ 3.4 $ 4.1

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(1) Represents projects focused on recovering non-technical energy losses, such as installing special conductors, protecting metersfrom tampering, and replacing transformers and cables.

(2) Represents investments associated with the addition of new customers (residential, commercial or industrial) and newsubstations.

(3) Represents investments targeted at improving the quality of our distribution network.

(4) Represents installation of new streetlights as consequence of new projects and customers within our concession area and alsoincludes the replacement of damaged streetlights.

(5) Represents investment in information technologies, such as new hardware and software.

(6) Represents installation of meters for new customers, as well as the relocation of pre-existing meters.

The Concession Contract does not require us to make any specific level of capital expenditures orinvestments other than for remedial environmental work and for certain electrification projects.The remedial work is described in the environmental report by the Panamanian Government’sconsultants, Golder Associates, or Golder. Although not required, a significant proportion of ourcapital expenditure program is designed to improve the service quality required under theConcession Contract and related regulations. Expenditures are also focused on expanding ourdistribution grid at a pace that accommodates the increasing customer base.

We have spent US$3.4 million in capital expenditures during the first quarter of 2006 and haveUS$15.0 million budgeted for the remainder of 2006 primarily for the expansion of ourdistribution network and meter installations and relocations. We have budgeted US$18.3 millionin 2007 for capital expenditures. The capital expenditure budget for 2006 and 2007 includesapproximately US$21.1 million for the expansion of the distribution system, approximatelyUS$5.3 million for modernization of our distribution system, and approximately US$1.4 millionfor upgrades to our information technology systems.

Our business plan calls for capital expenditures of approximately US$18.4 million in each of theyears between 2008 and 2010. The business plan includes more than US$10.7 million in each ofthese years for the expansion of our distribution system, US$3.6 million in each year forrenovation of our distribution system and substations, and US$0.2 million in each year forinvestments in information systems.

Off-balance sheet arrangements

In the normal course of business, we are a party to certain off-balance sheet arrangements. Thesearrangements include guarantees and financial instruments with off-balance sheet risk, such asbank letters of credit and performance guarantees. No liabilities related to these arrangementsare reflected in our balance sheets, and we do not expect any material adverse effects on ourfinancial condition, results of operations or cash flows to result from these off-balance sheetarrangements.

Our Concession Contract requires us to secure our obligations with a US$8.0 million performanceguarantee in favor of the ERSP throughout the term of our concession. We typically secure theseobligations by using yearly renewable performance guarantees, each an off-balance sheetinstrument because they are from third-party providers as required by our Concession Contractunder unsecured reimbursement obligations. The use of performance guarantees is less expensivefor us than the alternative of posting an all cash guarantee. As of March 31, 2006, we had anoutstanding performance guarantee totaling US$8.0 million in favor of the PanamanianGovernment to comply with our Concession Contract. Under our power purchase agreements, weare required to provide an annual performance guarantee equal to the value of our averagemonthly consumption at the contracted average overall price. As of March 31, 2006, we had an

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outstanding performance guarantee totaling US$14.9 million in favor of the generators tocomply with our PPAs. We also use letters of credit to guarantee payments for the transmissioncharges to ETESA and to guarantee payment of our regional and spot market energy purchases.As of March 31, 2006, we had US$5.0 million in letters of credit to guarantee our paymentobligations to ETESA.

Quantitative and qualitative disclosure about market risk

We are exposed to specific risks in the conduct of our business and the business environment inwhich we operate. These risks include, or have historically included, exposure to derivative,liquidity, interest rate, inflation, regulatory tariff reset, and customer credit risks arising in thenormal course of our business. Generally, our overall objective is to ensure that we understand,measure and monitor these various risks and take appropriate actions to minimize our exposureto such risks. Our policies for managing each of these risks are described below.

Derivative transactions

It has been our practice not to enter into or trade in derivatives or hedging contracts forspeculative purposes. Since privatization we had never entered into a derivative type oftransaction until the fourth quarter of 2005 when we entered into a hedging arrangementexclusively as a tool to lock in an interest rate for the issuance of bonds in this offering in orderto minimize our interest rate risk. This “T-Lock” was entered into with Citibank, N.A. for a120-day period. We renewed this arrangement in April 2006 for another 90-day period.

Liquidity risk

We have adopted liquidity risk management practices that are intended to maintain sufficientcash and liquid financial assets. We maintain short-term financing lines with prime financialinstitutions in Panama that provide us with the required operational flexibility to comply withour electricity purchase and other obligations. For more information see “—Liquidity and CapitalResources.”

Because we reinvest our operating funds to support our yearly capital expenditure program, wedo not have significant amounts of cash on a surplus basis for additional investments.

Interest rate risk

In order to minimize the impact of interest rate movements on our cash flows, we have a practiceof negotiating spreads with our preferred banking institutions. Over the past two years, we havebeen able to reduce the spreads with respect to our short-term unsecured credit facilities from1.50% to 1.20%. Historically, we have not used interest rate swaps and similar derivatives tohedge our exposure to interest rate risks.

The interest rate on our Syndicated Long-Term Loan is a floating Euro Dollar-based three monthinterest rate plus a fixed 3.5% spread. The Syndicated Long-Term Loan is our only significantborrowing with a floating interest rate. It is our policy to invest surplus funds in interest-bearingbank deposits with prime financial institutions in Panama at overnight rates. We estimate that, ifthe average yearly variable interest rate under our Syndicated Long-Term Loan increased by 1.0%during the year ended December 31, 2005, without hedging this exposure, we would incur anadditional US$1.0 million of interest expense over a one-year period.

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Regulatory tariff reset risk

Our maximum permitted tariff levels for our distribution and customer service charges, which area significant determinant of our operating results, are set by the ERSP, every four years in atransparent process with participation of the electricity distributors. Our current tariff wasoriginally scheduled to expire on June 30, 2006 but, as a result of the ERSP’s recent resolution,will be extended beyond this expiration date. The current VAD tariffs will remain in effect untilDecember 31, 2006. As a consequence, we expect the new formulas for the VAD tariff resetperiod will become effective January 1, 2007 and remain in place for a four-year period. OnJune 9, 2006, the ERSP issued Resolution No. AN-065-Elec. announcing its initial proposal for thepermitted pre-tax rate of return to be applied during the next four-year regulatory period andcommencing the public process for interested parties to respond to the proposal before the ERSPissues its final resolution. Our maximum tariff levels include amounts for operating, maintenance,administrative and commercial expenses, a standard level of distribution energy losses and areasonable return on our invested capital. Each of these costs and rate of return is determined bythe ERSP based on the expenses and returns of comparable companies. If we exceed the ERSP’sassumptions and our future operations and maintenance expenses and capital expenditures arelower than the amount included in the tariff charges, we may generate a higher return on ournet fix assets but, if our future cost is higher, then we may generate a lower return on our net fixassets. Furthermore, if our projected VAD is set at an amount greater than our actual costs forthat VAD tariff reset period, we could be subject to customer credits. See “Overview of thePanamanian Electricity Industry—Recent Developments.”

We minimize our regulatory risk by working with the Panamanian Government and ourregulators to ensure that the regulatory framework is transparent and allows full cost recoveryand a satisfactory return on our investments to the greatest extent possible. To achieve favorableregulatory outcomes, we promote efficiency and work closely with our regulator on pricing andconsumer-related issues. We also proactively manage our consumers and seek their feedback onpricing and services.

We meet regularly with Panamanian Government officials and regulators to share informationwith respect to our business. The objective of this close working relationship with thePanamanian Government is to encourage the adoption of policies that allow us to earn areasonable return on invested capital and maintain predictable cash flows. We intend tocontinue to work with the ERSP to attain reasonable maximum tariffs for our distribution andcustomer service charges upon each regulatory reset of the maximum tariffs.

Customer credit risk

Our customer credit risks are managed in large part by requesting the equivalent of one month’sinvoicing as a security deposit for all new clients. Existing clients with good payment history mayopen additional accounts without this security deposit. We have no significant concentration ofcredit risk with respect to non-governmental third parties.

Our industrial, commercial and temporary customers generally provide deposits or bankguarantees equivalent to one month of estimated service cost in order to connect to electricityservices. These deposits or guarantees can be offset against past due accounts for this group ofcustomers. Government past due accounts vary depending on the budget approval processes ofeach government entity. These accounts tend to be paid after the initial due date, usually due toprocedural complications within the government’s account payable process. We collect interest

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during these payment delays. However, once these budgets are approved and the process iscompleted, we are generally able to collect all past due government receivables. In 2005,approximately 12.2% of our net energy sales were to government customers and such customersrepresented 16.5%, or US$5.7 million, of our account receivables. As of March 31, 2006,approximately 11.6% of our net energy sales were to government customers and such customersrepresented 20.7%, or US$8.0 million, of our account receivables.

The 1997 Electricity Law permits electricity distribution companies to terminate service to anycustomer whose bill is not paid within 60 days after invoicing. Our policy is to actively contactcommercial, institutional and industrial clients whose bills are past due. If no satisfactoryarrangement can be made, service is suspended until payment or satisfactory arrangements areobtained. We routinely order cut-offs for our smaller clients after they have been given atermination notice in a subsequent invoice, a letter of notification, a phone call or any othermeans of notification available to us to inform them of their pending termination of service.

The majority of cut-offs are reconnected after the customer pays the past due bill or signs afinancing agreement. The 1997 Electricity Law permits electricity distribution companies tocharge interest on outstanding amounts starting 30 days after invoicing. We currently charge aregulated interest rate based upon the average rate available in local banks. We restore serviceupon payment of the amount and interest expense due, with a reconnection charge being addedto the next invoice. Regular monitoring of accounts receivable and daily service cuts are used tolimit the risk of continuing service to non-paying clients.

Foreign currency risk

Our audited financial statements are expressed in U.S. dollars. Our revenues and borrowings andother obligations are denominated in U.S. dollars. We do not face any foreign currency risk dueto the adoption of the U.S. dollar as legal tender in and the functional currency of Panama andthe use by us of the U.S. dollar in all of our operations and transactions. We do not use foreigncurrency swaps to hedge against foreign currency risks.

Inflation risk

Inflation in Panama is measured by the CPI, which is computed by the National Bureau ofStatistics and Census (Direccíon General de Estadistica y Censos) a specialized unit within theComptroller General office, using a standard basket of goods and services. The basket uses theDecember 1992 price level as the basis for determining the CPI and is affected by the prices offood staples (fruits and vegetables, basic grains such as corn, rice and beans and others), whichcomprise 31.8% of the total weight of the basket.

The following table sets forth the rate of inflation in Panama as measured by the CPI for theperiods presented.

Inflation

For the year endedDecember 31,

2003 2004 2005

Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0% 0.5% 3.3%

We believe that these levels of inflation do not materially affect our results of operations orfinancial position.

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BusinessOverview

We are the second largest electricity distribution company in Panama in terms of electricityvolume distributed, number of customers and area served. We hold an exclusive concession undera concession contract with the Panamanian Government, or the Concession Contract to operatethe electricity distribution network in the northern and eastern part of Panama, including theeastern part of Panama City, the port city of Colón and the Gulf of Panama. As of March 31,2006, our operations covered a territory of approximately 29,200 square kilometers that includedapproximately 1.3 million inhabitants, or 41% of Panama’s total population including three ofPanama’s main economic centers. As of the same date, we had a market share of approximately43% of the customers and approximately 40% of total energy sales in Panama. In 2005, we hadtotal energy sales of 1,916 GWh to an average of 288,321 customers. Of our 2005 customers,approximately 92.2% were residential customers, 7.1% were commercial and industrial customersand substantially all of the remaining were government customers. Of our total 2005 energysales (1,916 GWh), approximately 34.9% of our sales were to residential customers,approximately 50.1% were to commercial and industrial customers and approximately 14.8%were to government customers. For the three months ended March 31, 2006, we had totalenergy sales of 485 GWh to an average of 299,233 customers. As of March 31, 2006,approximately 92.2% of our customers were residential customers, 7.0% were commercial andindustrial customers and substantially all of the remaining were government customers. For thethree months ended March 31, 2006, approximately 34.0% of our 485 GWh gross energy saleswere to residential customers, approximately 52.0% were to commercial and industrial customersand approximately 14.0% were to government customers.

As of December 31, 2005, our electricity distribution network was comprised of approximately7,212 kilometers of distribution and transmission lines, twelve key substations, approximately19,000 transformers and related equipment. We own 7,212 kilometers of distribution lines, whichare composed of approximately 7,030 kilometers of overhead cable circuits and 182 kilometers ofunderground cable circuits. Our service territory is relatively dense with twelve key substationsand a load factor, which is the ratio of average load to peak load, of approximately 74%,reflecting a good balance between residential load profile and the daytime air conditioning andlighting requirements of the commercial sector.

As of December 31, 2005 and March 31, 2006, we had, respectively, a peak demand of345.24 MW and 342.38 MW, revenues of US$272.5 million and US$71.2 million and earningsbefore interest, taxation, depreciation and amortization, or EBITDA, of US$47.3 million andUS$9.5 million.

We have achieved significant operational improvements and productivity gains since ourprivatization in 1998 through the implementation of improved industry best practices and ourcapital investment of over US$151.2 million in our facilities and systems, US$57.5 million of whichwas made from January 2003 through March 2006. Our investments were mainly concentrated inmodernizing and optimizing our distribution network and improving our information technologyand billing and collection systems.

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Our business strategy

Overall, we seek to maintain strong cash flow generation and profitability by ensuring highlyefficient operations, increasing service quality and improving customer satisfaction. Key elementsof our strategy include:

Providing our customers with affordable, high-quality service. Electricity distribution companiesin Panama are monitored by the ERSP to assure compliance with concession contracts based onservice quality parameters such as the frequency and duration of service interruptions andcustomer satisfaction. We monitor compliance with, and meet or exceed, the establishedregulatory benchmarks for network reliability and quality of service. To continue improving ourservice quality and customer satisfaction levels, we plan to expand current systems to enhanceremote monitoring of our network performance, improve customer relationships through ourcall center operations, improve responsiveness to customers’ demands and inquiries, and enhancepreventive maintenance efforts to reduce risks and electricity failures.

Cost-effectively operating and maintaining our distribution network. Since December 1999,employee productivity has increased from 255 customers to 526 customers per employee, and ourenergy sales per employee have also increased from 2,092 MWh per employee to 3,398 MWh peremployee through December 2005. As of March 31, 2006, the number of customers per employeehas increased to 549 and, for the three months ended March 31, 2006, the energy sales peremployee were 883 MWh. We intend to continue maintaining high levels of operatingefficiencies by improving employee productivity through additional training, processimprovement, further upgrading and automating our operations and information systems andimproving our billing and collection processes. In total, we have invested over US$151.2 million inour facilities and systems since our privatization in 1998, US$57.5 million of which was made fromJanuary 2003 through March 2006.

Training and developing our team. We believe that enhanced employee technical training notonly improves employee skills and the efficiency of our maintenance and repair crews, but alsosupports our philosophy of promoting and providing an accident-free environment for ouremployees, contractors and customers, and the public at large. We have developed, and intendto continue to develop, training programs for our employees in a variety of areas includingvehicular safety, electric utility operations and repairs, customer service, and administrative andfinancial expertise.

Making strategic and precise capital expenditures. We closely coordinate and evaluate allproposed capital expenditures across our operations in order to allocate available resources forprojects associated with service expansion, specific improvement and line extension projects, andenhancements of the reliability and quality of service. We also consider on an ongoing basis,specific improvement and line extension projects. Prior to undertaking any capital expenditure,we model the impact of each proposed capital expenditure and only make those expendituresthat we believe will most enhance network reliability and quality of service while maintainingcosts within our budget. The potential improvement in network reliability and quality of servicethat results from each capital expenditure is also modeled and analyzed to improve capitalperformance throughout our distribution networks.

Keeping electricity losses at or below current low levels. Our loss reduction program hasresulted in a decrease of total electricity losses from approximately 24% in 1998 to approximately12.5% in 2005. Since the privatization in 1998, we have converted approximately 101,000 illegalconnections into regulated customers, approximately 80,500 of which were converted from

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January 2003 through March 2006. Even though the cost associated with electricity loss is part ofour electricity distribution cost, only a standard electricity loss level is recognized as apass-through to our customers. We intend to improve upon our current levels of electricity lossesby continuously updating our distribution network, performing regular targeted inspections andmeter replacements, strengthening our internal meter reading and billing processes, anddeveloping a strong corporate communications program directed at users with illegalconnections so that losses can be lowered and revenues increased by converting such users intoregulated customers.

Insulating our customers from fluctuations in the cost of electricity through an actively managedpower purchase program. In accordance with Law No. 6 dated February 3, 1997, or the 1997Electricity Law, we are required to enter into power purchase agreements with electricitygenerators to cover the demands of our regulated customers. In order to mitigate the volatilityof these agreements (and limit any associated energy costs), we have developed a comprehensivepurchasing program that anticipates possible electricity capacity problems over the next severalyears, higher energy costs such as the limited generating capacity to cover increasing demand,the availability of hydroelectric and efficient thermal generating plants and the expectedavailability of water to power hydroelectric plants. Our power purchasing program, which favorsmedium and long-term power supply arrangements with electricity generators, supports existingelectricity distributors to develop additional capacity and encourages new generators to enterinto the market in order to meet our projected electricity needs.

Competitive strengths

We believe we owe our success in growing and developing our business to our competitivestrengths. The combined effect of these competitive strengths have resulted in predictable cashflows from year to year and strong operating results.

Disciplined, forward-looking strategy. Our strategy is focused on providing our customers withaffordable, high-quality service, cost-effectively operating and maintaining our installations,keeping electricity losses at or below current low levels, training and developing our team,protecting our customers from fluctuations in the cost of electricity through an actively managedpower purchase program, and making strategic and precise capital expenditures.

Established and transparent regulatory regime with incentives for efficiency gains. The 1997Electricity Law created a market-oriented framework for the country’s electricity distributors,which allows us to retain the financial benefits derived from efficiency gains during eachfour-year regulatory period. The VAD portion of our tariffs relating to our permitted rate ofreturn is subject to maximum amounts set every four years by the ERSP in consultation with usand based on our future operating and capital expenditures as estimated by the ERSP. Under the1997 Electricity Law, we are able to pass through to our customers the cost of electricity andcapacity we purchase from electricity generators. Additionally, we are allowed to retain thebenefit from operating and capital efficiencies, which provides incentives to earn higher returnsthrough efficient operating and capital expenditures.

Attractive service area and strong market position. Our service area encompasses some of themost densely populated and economically active regions in Panama, including a significantportion of Panama City, the Canal Area and the port city of Colón, three of Panama’s maineconomic centers. As of March 31, 2006, our operations covered a territory of approximately29,200 square kilometers that included close to 41% of Panama’s population and representedapproximately 40% of all energy sales in Panama.

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Stable economic environment. Panama has experienced low inflation and strong growth in itsGross Domestic Product, or GDP, averaging approximately 6.1% per year since 2003 with the GDPin 2005 reaching 6.4%. As a result of the combined effect of reducing our technical andnon-technical losses of electricity and Panama’s growing GDP, our sales have increased from1,714 GWh in 2003 to 1,916 GWh in 2005. Expectations are that Panama’s GDP growth andinflation rates will continue at these approximate levels during 2006. In addition, Panama’smonetary system recognizes the U.S. dollar as legal tender, which eliminates foreign exchangecontrols and foreign exchange risks.

Controlling shareholder assistance and experienced management team. Our controllingshareholder is indirectly owned by AEI. AEI, through CPI, Limited, provides management andtechnical expertise and assistance to us. In addition, our management team includes executiveswith extensive experience in electricity distribution, the wholesale energy market, electricityindustry regulation and the business sector in Panama. See “Related Party Transactions—Management Agreements.”

History and background

In connection with the process of privatizing the Panamanian electricity sector, we wereincorporated on January 22, 1998 and, through a Sale and Purchase Agreement (Contrato deCompraventa de Acciones) dated October 30, 1998, 51% of our common stock was sold to thePanama Distribution Group, S.A., or PDG with the remaining 49% retained by the PanamanianGovernment.

PDG was and remains a holding company incorporated in Panama. At the time of the sale,Constellation Power International Investments, Ltd., or CPII, a Cayman Islands exempted companywith limited liability, owned 80% of the outstanding shares of common stock of PDG and PrimerGrupo Energético, a Panamanian company, owned the remaining outstanding shares. InSeptember 2005, CPII purchased Primer Grupo Energético’s minority interest in PDG, and CPII’sparent, Constellation Power, Inc., sold its 100% interest in CPII to certain investment fundsmanaged by Ashmore Investment Management Limited, or Ashmore. This resulted in these fundsowning, through their ownership of CPII, all of the outstanding shares of the common stock ofPDG. At the time of this sale, CPII underwent a name change and is now known as CPI, Limited.At present, 51% of our common stock is owned by PDG, 48.25% is owned by the PanamanianGovernment, and the remaining amount is owned by employees or held as treasury stock. Theshares of our common stock held in treasury are shares that were originally sold to ouremployees, which we have since repurchased at their fair value.

As part of a corporate restructuring at the Ashmore level, the investment funds that own CPI,Limited and that are managed by Ashmore contributed their collective ownership of CPI, Limitedto Ashmore Energy International LLC, or AEI Delaware, a Delaware limited liability company anda wholly-owned subsidiary of Ashmore Energy International Limited, or AEI, a Cayman Islandsexempted company with limited liability. In exchange for their contribution, these funds havebeen issued shares in AEI. These investment funds are the controlling shareholders of AEI, whichnow owns 100% of PDG, through AEI’s indirect ownership of CPI, Limited. See “PrincipalShareholders.”

Pursuant to a Management Consulting Agreement dated November 16, 1998, as amended (the“Management Consulting Agreement”), CPI, Limited provides us with management and

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consulting services, including, but not limited to, strategic and operating advice, the preparationof an annual business plan, business development and contract review. Under the ManagementConsulting Agreement, CPI, Limited is entitled to a management fee of 4% of our earningsbefore interest, taxation, depreciation and amortization. See “Related Party Transactions—Management Agreements.”

Our business

General

Our business consists of the distribution of electricity in Panama to regulated and unregulatedcustomers within our concession area. Regulated customers purchase their electricity through ourdistribution network and pay a regulated tariff to us. Unregulated customers purchase theirelectricity directly through electricity generators and pay only a regulated distribution charge tous. The electricity that we distribute is generated by unrelated third party electricity generationcompanies and transmitted to us by ETESA, a government-owned transmission company. Ourelectricity distribution network serves Panamanian industrial, commercial and residentialcustomers in our concession area.

We are the second largest distributor of electricity in Panama in terms of electricity volumedistributed, number of customers, and area served. In 2005, we distributed 1,916 GWh ofelectricity to our customers, representing approximately 40% of the total electricity distributed inPanama during the year. As of March 31, 2006, we provided electricity distribution services toapproximately 43% of the total electricity distribution customers in Panama. In 2005, wedistributed electricity to an average of 288,321 Panamanian customers consisting of regulatedand large users and, during the first three months of 2006 we distributed electricity to anaverage of 299,223 customers. Our service area covers 29,200 square kilometers, comprising 39%of the geographic area of Panama.

Our distribution network is comprised of network control centers, poles, distribution cables(overhead or underground), distribution substations and switching equipment, distributiontransformers, meters, and interconnections with ETESA transmission network. As of December 31,2005, our distribution network included facilities comprising 7,212 kilometers of distributionlines, twelve key substations and 1,244 MVA of transforming capacity.

The table below provides a summary of our operational information for the periods and as of thedates indicated:

Three MonthsEnded March 31, Year Ended December 31,

2006 2005 2004 2003

Energy Purchases (GWh)(1) . . . . . . . . . . . . . . . . . . . . . 570 2,277 2,193 2,135Energy Sales (GWh)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . 485 1,916 1,800 1,714Employees(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 564 568 563Average number of customers(2) . . . . . . . . . . . . . . . . 299,223 288,321 266,837 247,019Customers at end of period . . . . . . . . . . . . . . . . . . . . 301,316 296,681 276,560 255,960Customers/Employee(2) . . . . . . . . . . . . . . . . . . . . . . . . . 549 526 487 455Sales (MWh)/Employee(1) . . . . . . . . . . . . . . . . . . . . . . . 883 3,398 3,168 3,044Energy losses (%)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.0 12.5 13.9 16.4

(1) Represents the number as of the date indicated.

(2) Represents the average for the period ended as of the date indicated.

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Our concession

Our distribution operations are governed by our Concession Contract with the ERSP. Pursuant tothis contract, we have a defined concession zone in Panama and have exclusive rights to provideelectricity distribution services to regulated and unregulated customers within this area. With theexception of certain sections along the border of Empresa de Distribución Eléctrica Metro Oeste,S.A.’s concession area and our concession area in Panama City and the Panama Canal area, ourconcession zone extends 500 meters to 3 kilometers from our existing distribution network andfrom any new lines under construction. Apart from the Panama Canal Authority, only we havethe right to build or operate electricity distribution lines within the concession area, although theConcession Contract also authorizes Metro Oeste (Union Fenosa from Spain) to operate certainhigh-tension lines serving its concession zone, which pass through ours. The Panama CanalAuthority only distributes electricity to canal operations and does not distribute to any othercustomers.

Pursuant to terms of the Concession Contract, we are obligated to provide electricity distributionservice to any end user within 100 meters of our existing network at our fixed connection tariffswith no contribution from the end user. Those end users located farther than 100 meters fromour existing network that seek electricity distribution service may be required to cover theadditional connection costs. Within the limits of our concession area there, is an additional “zoneof influence,” that extends between 5 and 10 kilometers beyond the concession zone, withinwhich we have certain preferential rights with respect to new electrification projects in ruralareas where, without government subsidies, distribution projects would not be developed. Whennew electrification projects arise outside our concession zone, the right to provide service isawarded through a competitive bid process by the ERSP. In the case of rural electrificationprojects supported by subsidies from the Office for Rural Electrification, the distributor with theclosest network is given the initial opportunity to provide service where such service can beachieved at the lowest price through the extension and development of an existing network.Otherwise, when no subsidies are provided, such projects are awarded through a competitive bidprocess. Since the privatization in 1998, we have connected 14 communities to our distributionnetwork for a total of 912 customers and received a total subsidy of US$770,000.

Our concession has a 15-year term and expires in October 2013. One year prior to the expirationof the concession period, the ERSP will hold an open competitive tender offer for the sale of the51% of our shares currently owned by PDG. PDG has the right to set the asking price for theshares it owns (to reflect, among other things, capital improvements made during theconcession), by making its own bid, and will only be required to sell its shares if a higher offer ismade, in which case PDG will be entitled to retain the sale proceeds. If no higher offer is made,PDG will retain the concession for another 15-year term, subject to the same renewal procedurethereafter with no requirement to make any payment to the Panamanian Government. PDG doesnot have the ability to match a subsequent bid if a higher offer is submitted by another party.

The Concession Contract requires that we abide by service obligations contained in Article 90 ofthe 1997 Electricity Law, such as maintaining and monitoring the quality of supply, installing andmaintaining equipment for public lighting, allowing third-party access to our distribution lines,promoting energy efficiency, complying with all applicable standards, legislation and regulations,and submitting annual compliance, technical and financial reports to the ERSP. In addition, wemaintain an annually renewable US$8.0 million performance guarantee with the ERSPthroughout the concession period. We are also required to give the ERSP notice of certain

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outages, our emergency action plan, and verification of our compliance with the ERSP’s meteringstandards. The Concession Contract requires us to comply with Panamanian environmentalregulations, take the necessary measures for effective environmental monitoring, and complywith the findings of the Golder environmental report prepared as part of the privatizationprocess.

The Concession Contract permits us to grant a lien over the concession with the ERSP’s and ourmajority shareholders’ prior consent. We have not granted and do not plan on granting such alien over our Concession Contract. We are also permitted to suspend service to regulatedcustomers whose unpaid bills are more than 60 days old or who have committed fraud bystealing electricity through illegal connections or otherwise.

The Panamanian Government retains the right to rescind the concession in case of war, grave civilunrest, or other urgent public interest. In these circumstances, it will follow the expropriationprocedures of the Judicial Code and pay our shareholders compensation at a 10% premium of itsmarket value as agreed between the parties, determined by independent experts or set byarbitration. The ERSP can terminate the concession if we declare bankruptcy, enter into a generalassignment for the benefit of our creditors, suspend payments, go into liquidation, or in theevent of repeated, material breaches of legal obligations governing public electricity distributionor if the terms of the concession are not remedied within 150 days after notice from the ERSP. Inthe event of termination, our shareholders are entitled to receive compensation at a discount of10% to the market value as determined above.

Following the recent developments regarding the Energy Commission, the CommerceCommission and the ERSP, we have not received any information to indicate that any suchrecommendations or actions will directly affect our concession or any of our existing contractsrelating to the operation of our electricity distribution business. In addition, we believe that ifany additional changes are made to the regulatory structure or operation of the electricityindustry, they would likely be made effective only after notice to and consultation with theparticipants in the electricity sector.

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Concession area

Our concession area lies within an area of approximately 29,200 square kilometers that coversapproximately 39% of Panama’s territory and includes approximately 1.3 million inhabitants, or41% of its total population. The area includes the eastern side of Panama City (including ElDorado, Santa María, Río Abajo, Parque Lefevre, Panamá Viejo, Chanis, Costa del Este, Tocumen,Chepo and parts of Betania), the province of Colón, and the isolated distribution systems servingDarién, San Blas and the Gulf of Panama (including the resort islands of Contadora and Taboga).Approximately 58% of the population of Panama City lives within our concession area. Thefollowing map illustrates the location of the concession area within Panama.

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For commercial purposes, our concession area is divided into 12 districts. Details with respect tonumber of customers and energy sales for the three months ended March 31, 2006 and the yearended December 31, 2005 are set forth below:

Three Months Ended March 31, 2006 Year Ended December 31, 2005Total Customers Unit Sales Total Customers Unit Sales

District Average % Average % Average % MWh %

Panamá . . . . . . . . . . . . . . . . . 161,651 54.0 228,174 59.4 154,374 53.5 1,122,248 58.6San Miguelito . . . . . . . . . . . . 73,522 24.6 85,029 17.5 71,280 24.7 352,533 18.4Colón . . . . . . . . . . . . . . . . . . . 46,062 15.4 89,317 18.4 45,335 15.7 352,193 18.4Chepo . . . . . . . . . . . . . . . . . . 6,620 2.2 5,847 1.2 6,091 2.1 22,054 1.1Portobelo . . . . . . . . . . . . . . . 2,086 0.7 1,378 0.3 1,986 0.7 5,273 0.3Chagres . . . . . . . . . . . . . . . . . 971 0.3 525 0.1 989 0.3 2,176 0.1Santa Isabel . . . . . . . . . . . . . . 807 0.3 290 0.1 815 0.3 1,161 0.1Donoso . . . . . . . . . . . . . . . . . 334 0.1 99 0.0 304 0.1 385 0.0

Sub-Total . . . . . . . . . . . . . . . . 292,053 97.6 470,659 97.1 281,174 97.5 1,858,023 97.0

Isolated Systems(1) . . . . . . . . 7,170 2.4 4,618 1.0 7,147 2.5 19,391 1.0Public Lighting(2) . . . . . . . . . — — 9,644 1.9 — — 38,888 2.0

Total . . . . . . . . . . . . . . . . . . . . 299,223 100.0 484,921 100.0 288,321 100.0 1,916,302 100.0

(1) Isolated systems service those customers who are not connected to the National Interconnected System for the transmissionand distribution of electricity. The isolated systems include data for Taboga, Balboa, Pinogana, Chepigana and San Blas. Allare districts in our concession area except for San Blas.

(2) Public lighting represents the provision of electricity to the public lighting within our concession area.

Distribution network

Distribution cables. Our distribution network comprises approximately 7,212 kilometers of high,medium and low tension lines distributed in overhead and underground lines with 1,249 MVA oftransforming capacity, of which 590 MVA is provided by three-phase transformers and 659 MVAby pole-mounted single-phase transformers. The standard primary voltage is 13.2 kV, especially inthe more densely populated areas of our concession zone. In the northern part of our concessionarea, in particular the reverted areas around Colón, the distribution voltages are 12 kV, 4.16 kVand 2.4 kV. The isolated systems in which we distribute electricity also have a limited amount ofthree-phase and single-phase 34.5 kV (i.e., 19.92 kV) lines. Our electricity distribution cables arecomprised of copper, aluminum or steel cored aluminum conductors supported by poles (wood,steel and concrete). Our distribution cables, as of December 31, 2005, were segmented intoapproximately 131 circuits, which are further segmented into 1,813 sections. Segmentation of ourdistribution networks into greater numbers of circuits and sections results in enhanced networkstability by containing the scope of any service outages to small portions of a network.

In addition, our network includes 53.7 kilometers of aerial 115 kV transmission lines, both singleand double circuit, and 11.4 kilometers of underground transmission lines feeding thesubstations in Panama City. The 115 kV lines include a 15 kilometer link between ETESA’s PanamaII substation and our Cerro Viento substation which is used by electricity generators to supplyenergy to customers outside of our concession area, for which we receive wheeling charge fees.In addition, we own 8.1 kilometers of 44 kV line connecting our France Field substation with ourMount Hope Colón substation. We also own 10.7 kilometers of 44 kV lines from our Bahía LasMinas substation to support the ring formed by the Mount Hope and Colón substations. Theselines were shortened by 24.6 kilometers in 2004.

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The table below provides a summary of the aggregate cable circuit length in kilometers of ourdistribution cables by nature of line as of October 31, 1998 and December 31, 2005:

October 31, 1998 December 31, 2005Line Overhead Underground Overhead Underground

115kV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.4 — 53.7 11.444 kV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.9 — 18.5 0.334.5/19.9kV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94.8 — 192.5 —13.8kV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,345.4 18.0 2,655.0 55.8<13.8kV-2.4kV . . . . . . . . . . . . . . . . . . . . . . . . . . . . 878.9 39.6 59.8 4.6Up to 600V . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,945.8 — 4,050.8 109.5

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,301.2 57.6 7,030.3 181.6

Distribution substations. Substations are facilities that step down electricity voltage betweentransmission lines and distribution lines or among distribution lines. At distribution substations,various circuits of an electricity distribution network are grouped together by high voltageswitching equipment. In the event of a network fault, this switching equipment automaticallydisconnects transmission or distribution equipment in order to isolate and minimize damage tonetwork assets. The high voltage switchgear found at substations also permits the division of anelectricity distribution network into smaller sections, enabling maintenance to be carried out orsupply to be restored locally following a fault. As of December 31, 2005, our distribution networkincluded a total of twelve key substations.

Our electricity load is served from ETESA’s transmission system with three 115 kV substations. InPanama City, the Panama and Panama II substations serve our distribution substations CerroViento, Santa María, Monte Oscuro, Tocumen, Chilibre and Calzada Larga. On the northern sideof the concession area, our distribution substations at Bahía Las Minas, France Field, Colón andMount Hope are served from the Bahía Las Minas generator substations No. 1 and No. 2, theconnecting point for the larger thermal generating capacity located in the Atlantic Port City ofColón. Our newly inaugurated Geehan substation is served from the Pedregal Power generatingfacility. We are now developing several new distribution lines to satisfy an increasing demand forpower and a new 115/13.8 kV substation, the Tinajitas substation, in the San Miguelito area, thatwill to accommodate five new 13.8 kV feeders, which became operational in the second quarterof 2006.

Interconnections with ETESA’s transmission network. The transmission network operated byETESA interconnects to our distribution network at a total of four interconnection pointsoperating at various voltages.

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The table below indicates the level of our energy off-takes by our 12 key distribution substationsfor the three months ended March 31, 2006 and year ended December 31, 2005.

Three Months Ended March 31, 2006Year Ended December 31,

2005

SubstationEnergy

Off-Take (GWh)(1)% of Total

Off-TakeEnergy

Off-Take (GWh)(1)% of Total

Off-Take

Santa María . . . . . . . . . . . . . . . . . . 112 20.4 458 21.1Cerro Viento . . . . . . . . . . . . . . . . . 102 18.6 413 19.0Monte Oscuro . . . . . . . . . . . . . . . . 80 14.6 329 15.1Tocumen . . . . . . . . . . . . . . . . . . . . 55 10.0 284 13.1France Field . . . . . . . . . . . . . . . . . . 78 14.3 326 15.0Chilibre . . . . . . . . . . . . . . . . . . . . . . 71 13.0 252 11.6Colón . . . . . . . . . . . . . . . . . . . . . . . 0 0.0 0 0.0Bahía Las Minas . . . . . . . . . . . . . . 31 5.6 102 4.6Mount Hope . . . . . . . . . . . . . . . . . 0 0.0 0 0.0Calzada Larga . . . . . . . . . . . . . . . . 09 0.0 0 0.0Bayano . . . . . . . . . . . . . . . . . . . . . . 1 0.1 3 0.1Geehan . . . . . . . . . . . . . . . . . . . . . . 18 3.4 8 0.4

Total . . . . . . . . . . . . . . . . . . . . . . . . 547 100.0 2,174 100.0

(1) Energy off-take amounts do not include transmission losses, isolated systems-service B.

Distribution transformers. A transformer is a device used to change electrical voltage level fromone to another to suit customers’ requested supply voltage. As of December 31, 2005, ourdistribution network included approximately 19,000 transformers, primarily ranging from 1 kVAto 2,500 kVA with a total of 1,249 MVA.

Meters. We own and maintain all of the meters used to measure the amount of electricityconsumed by our consumers. These meters are located at customers’ premises and are readmanually by our employees or by our contractors. As of March 31, 2006, we had more than300,000 meters in place across our distribution networks. Most of our meters within our networkare electromechanical and some are digital. For larger customers, our meters take measurementsof capacity (kW), reactive power (kVAr) and energy consumption (kWh). In December 2004, ourmeter shop obtained the formal certification ISO 9001-2000.

Public lighting. In addition to servicing the regulated and unregulated customers, we areresponsible for installing and operating all public lighting (alumbrado público) within ourconcession area. Since the privatization of the electricity industry, public lighting has increased byapproximately 23,750 new units and we have replaced 19,709 streetlights for a total of 43,459units installed as of March 31, 2006. From January 2003 through March 2006, we have installed12,693 new units and replaced 9,694 streetlights for a total of 22,387 units. We will continue toexpand and upgrade public lighting on a gradual basis to meet and exceed the illuminationstandards established by ERSP’s public lighting regulations. As of December 31, 2005, we were incompliance with the ERSP’s requirements with respect to the number of new streetlights whichhad to be installed by that date. We have fully complied with the ERSP requirements to installand renovate streetlights within our concession area by April 2006.

Customer categories

As of December 31, 2005, our energy sales were 1,916 GWh, 6.5% higher than those of last yearand equivalent to approximately 40% of the total energy sales in Panama. During 2005, we had

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an average of 288,321 customers consisting of regulated customers and large users, an 8.0%increase over the previous year and representing approximately 41% of the Panamanian market.During the first three months of 2006, we had an average number of 299,223 customers.

Regulated customer categories. Our regulated customer base is divided into four categories:residential, commercial (i.e., retailers), industrial (i.e., plants and manufacturing facilities) andgovernment. Government agencies, such as municipalities and the Panamanian Government, aswell as public water plants and public lighting, are included in the “government” category. As ofMarch 31, 2006, regulated customers represented 100% of our total first quarter electricity sales,and no single customer represented more than 10.0% of our business. The following table setsforth the average number of our regulated consumers by category for the periods indicated.

Customer Type

ThreeMonths

EndedMarch 31,

2006


2005


2004


2003

2003-2005AverageAnnual

Growth (%)

Residential . . . . . . . . . . . . . . . . . 276,142 265,963 245,799 227,039 8.2Commercial . . . . . . . . . . . . . . . . 20,827 20,149 18,911 17,918 6.0Industrial . . . . . . . . . . . . . . . . . . 196 204 205 212 (1.9)Government . . . . . . . . . . . . . . . 2,058 2,005 1,923 1,850 4.1

Total . . . . . . . . . . . . . . . . . . . . . . 299,223 288,321 266,837 247,019 8.0

The following table sets forth the aggregate electricity sales to our regulated customers bycategory for the periods indicated.

Customer Type

ThreeMonths

EndedMarch 31,

2006


2005


2004


2003

2003-2005AverageAnnual

Growth (%)(GWh)

Residential . . . . . . . . . . . . . . . . . 165 668 632 596 5.8Commercial . . . . . . . . . . . . . . . . 193 754 702 670 6.1Industrial . . . . . . . . . . . . . . . . . . 59 206 188 198 2.2Government . . . . . . . . . . . . . . . 57 245 235 213 7.4Public lighting . . . . . . . . . . . . . . 10 39 39 34 6.7Internal consumption . . . . . . . 1 4 4 4 6.8

Total . . . . . . . . . . . . . . . . . . . . . . 485 1,916 1,800 1,714 5.7

Certain of our customers are serviced by our isolated systems, which are those distributionsystems not connected to the National Interconnected System for the transmission anddistribution of electricity. As of December 31, 2005, we served over 8,301 customers in theisolated systems with a total consumption of 20,605 MWh, equivalent to 1.1% of totalconsumption within our concession area.

Large (and potentially unregulated) customers. We also sell electricity to large users, which arethose customers with peak demand higher than 100 kW. Large users can choose whether to be aregulated or unregulated customer. Large users are not obligated to purchase energy from thedistribution companies and become unregulated customers by purchasing energy directly fromgenerators. We are obligated to provide electricity generators with access to our network to

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permit delivery to these customers provided the generators and unregulated customers pay usregulated distribution charges known as wheeling charges. At year end, only 513 of ourcustomers qualified as large users, which represented approximately 38% of our totalconsumption in 2005, and, as of March 31, 2006, a total of 530 of our customers qualified as largeusers, which represented approximately 46% of our total consumption in the first quarter of2006. As of March 31, 2006, only two of our large customers were unregulated and purchasedenergy directly from generators. Initially, large users were those with peak demand higher than500 kW but, since 2002, this requirement was gradually reduced. As of January 2005, large usersare those with peak demand greater than 100 kW. The following table sets forth the number oflarge users and the aggregate electricity sold by us to these customers for the periods indicated.

Three MonthsEnded March 31,


2006 2005 2004 2003

Number of large users . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 513 230 123Amount of electricity sold (in GWh) . . . . . . . . . . . . . . . . . . . . . . 190 724 528 433

Others that use our distribution network. In addition, we are entitled to receive wheelingcharge fees from generators or distributors using our distribution networks to deliver energy tounregulated customers purchasing directly from generator or the spot market. We also receiverental income from the telephone company Cable & Wireless (Panama) S.A. and from the cableTV company Cable Onda S.A. for their use of our poles. These two companies use our existingdistribution network to carry their respective services to their respective customers. We have alsoentered into contracts with other companies and smaller Internet providers that rent pole spacefrom us.

Distribution tariffs

Network access charges are designed to be set at a level that allow distributors to achievesufficient revenues to cover the costs of their efficient investments, operating, maintenance(including metering, billing and customer service), administrative and commercial expenses,standard level of losses and a reasonable return on investment. Each of these costs and return oncapital is determined by the ERSP based on the expenses and returns of comparable companies.Under the current tariff structure, all distribution system users and all regulated customers pay aseparate consumption-based charge within the tariff to cover the capital, energy and operationalcosts of public lighting. Retirees (men age 62 or older and women age 57 or older) receive a 25%discount on charges applied for the first 600 kWh of consumption. For any consumption abovethe 600 kWh threshold, retirees pay full charges.

The permitted pre-tax rate of return, as determined by the ERSP, must be within a 2% rangeabove or below the average yield on the 30-year U.S. Treasury Bond in the year preceding thesetting of the tariff plus an 8% risk premium. For the current tariff structure, which will remain inforce until December 31, 2006 due to the recent resolutions by the ERSP, the pre-tax rate ofreturn was set at 13.24%. This rate is applied to the distributor’s net fixed assets in operationduring the tariff period based on historic accounting values at the start of the tariff period plusthe distributor’s efficient investment requirements during the tariff period. Once this rate isapplied to the assets and efficient investments, the distributor determines its maximum allowablerate to charge customers.

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Tariff options for customers include: (i) a simple kilowatt hour based tariff, restricted toresidential and other customers with an electricity demand of 15 kW or less, which demand levelwas previously set at 12 kW or less; (ii) a demand-based tariff; and (iii) a time-of-day based tariff.This last type is supplied to customers at any tension. As of March 31, 2006, only 53 customerswere supplied on a time-of-day tariff, including those who changed from a demand-based tariffto a time-of-day tariff during the last year. Customers are allowed to change their tariff optiontwice in a twelve month period without incurring a penalty. After the second change, thecustomer will pay a penalty in the amount of 50% of the connection fee.

The VAD tariff structure remains in full force and effect for a four-year period. Historically, everysix months during the tariff period, the capacity and energy cost-components of the tariff areadjusted to account for variances in actual and expected energy costs, and only 45% of thedistribution and commercial charges are adjusted for inflation based on the Panamanian CPI forthe prior two semesters. These energy-related component adjustments are applied starting thefollowing semester. Beginning July 1, 2006, we expect that these adjustments will occur on amonthly basis, rather than semi-annual basis and will be applied to the next month’s bill. Thegeneration and transmission components of the tariff are adjusted based on the actual energypurchased and the actual cost of transmission. Each of our customers agrees to purchaseelectricity from us at one of several tariff rates offered.

Simple tariff (“BTS”). The simple tariff is a energy per kW hour tariff restricted to customerswith low tension lines (600 V or less) and with a demand of 15 kW or below, which demand levelwas previously set at 12 kW or below. The simple tariff applies to all customers unless thecustomer enters into an agreement to pay a specialized tariff. As of March 31, 2006, the simpletariff applied to 98.5% of our customers. Consumption of electricity by customers under thesimple tariff accounted for 43.3% of the electricity we sold to our customers during the firstthree months of 2006.

Low tension maximum demand tariff (“BTD”) and low tension time of use tariff (“BTH”). Thelow tension maximum demand tariff and low tension time of use tariff are available to ourregulated commercial, industrial and residential customers that are connected at a voltage levelat or below 600 V and also have a predictable level of demand higher than 15 kW, whichdemand level was previously set at 12 kW or above. These tariffs include a capacity or demandcomponent, an energy component and a fixed customer charge. The capacity and energycomponents include a generation, transmission and distribution component. Prior to April 1,2006, the capacity charge had been applied to the average of the three highest demand amountsregistered on a monthly basis during the prior six-month period, and the energy charge had beenapplied to the electricity consumed. Under the ERSP’s March 31, 2006 resolutions, the capacitycharge is now based on the customer’s actual energy consumption.

Medium tension maximum demand tariff (“MTD”) and medium tension time of use tariff(“MTH”). The medium tension maximum demand tariff and the medium tension time of usetariff are available to customers that take delivery of electricity at a voltage level higher than600 V and lower than 115 kV. These tariff charges have the same structure and operate in thesame manner as the low tension maximum tariff and the low tension time of use tariff.

High tension maximum demand tariff (“ATD”) and high tension time of use tariff (“ATH”). Thehigh tension maximum demand tariff and the high tension time of use tariff are available tocustomers that take delivery of electricity at a voltage level higher than 115 kV. These tariffcharges have the same structure and operate in the same manner as the low and medium tensionmaximum tariff and the low and medium tension time of use tariff.

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Wheeling charges at low, medium and high tension. For unregulated customers purchasingenergy in the wholesale market directly from the generators or in the spot market, they must paythe distribution company serving their location a capacity and energy charge, or a wheelingcharge, for the distribution and commercial tariff component.

Public lighting charges. Charges for public lighting, including a return on capital, operating andmaintenance expenses and energy consumption costs are built in to the customers’ regulatedtariff.

The following table sets forth the average number of our customers by applicable tariff for theperiods indicated.

Average NumberThree Months

EndedMarch 31, Year Ended December 31,

2006 2005 2004 2003

Low tensionBTS—Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275,956 265,806 245,660 226,935BTS—Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,904 18,246 16,884 15,847BTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,106 4,078 4,180 4,148BTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 29 10 3

Medium tensionMTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200 157 100 84MTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 3 3

High tensionATD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 2 0 0

Public lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299,223 288,321 266,837 247,019

The following table sets forth the aggregate electricity sales to our customers by applicable tarifffor the periods indicated.

Three MonthsEnded

March 31, Year Ended December 31,2006 2005 2004 2003

(GWh)Low tension

BTS—Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 662 628 594BTS—Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 186 172 160BTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 609 642 640BTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 3 1

Medium tensionMTD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106 392 318 287MTH . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 1 1

High tensionATD . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Public lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 39 38 34

Total 485 1,916 1,800 1,714

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The following table sets forth each of our applicable energy tariffs for the periods indicated.April 1,2006 to

December 31,2006

January 1,2006 to

March 31,2006

July 1,2005 to

December 31,2005

January 1,2005 to

June 30,2005

July 1,2004 to

December 31,2004

January 1,2004 to

June 30,2004

July 1,2003 to

December 31,2003

January 1,2003 to

June 30,2003

LOW TENSION TARIFFSSimple Tariff (BTS)Fixed charge for first 10 kWh . . . . . . . . . . . . . . B/. Client /month 1.58 1.56 1.56 1.55 1.53 1.50 1.50 1.50Energy charge for following 490 kWh . . . . . . B/. kWh 0.16360 0.15163 0.15163 0.13510 0.12663 0.12285 0.12285 0.12285Energy charge for following kWh . . . . . . . . . . B/. kWh 0.18008 0.16795 0.16795 0.15004 0.13840 0.13146 0.13146 0.13146Maximum Demand Tariff (BTD)Fixed charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. Client /month 3.02 2.98 2.98 2.96 2.93 2.88 2.88 2.88Energy charge . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. kWh 0.12609 0.11709 0.11709 0.10313 0.09514 0.09261 0.09261 0.09261Maximum Demand charge . . . . . . . . . . . . . . . . B/. kW / month 12.78 12.31 12.31 11.35 9.93 8.24 8.24 8.24Time of Use Tariff (BTH)Fixed charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. Client /month 3.02 2.98 2.98 2.96 2.93 2.88 2.88 2.88Energy charge on Peak Period . . . . . . . . . . . . . B/. kWh 0.12645 0.12241 0.12241 0.10891 0.09309 0.08408 0.08408 0.08408Energy charge off Peak Period . . . . . . . . . . . . B/. kWh 0.10051 0.09018 0.09018 0.07653 0.07212 0.07272 0.07272 0.07272Maximum Demand charge on Peak

Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. kW / month 19.11 18.61 18.61 17.65 16.22 14.49 14.49 14.49Maximum Demand charge off Peak

Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. kW / month 3.06 3.04 3.04 3.03 3.02 3.01 3.01 3.01MEDIUM TENSION TARIFFS

Maximum Demand Tariff (MTD)Fixed charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. Client /month 5.02 4.96 4.96 4.92 4.87 4.79 4.79 4.79Energy charge(1) . . . . . . . . . . . . . . . . . . . . . . . . B/. kWh 0.10396 0.09526 0.09526 0.08215 0.07559 0.07408 0.07408 0.07408Energy charge for following hours . . . . . . . . . B/. kWh 0.10336 0.09473 0.09473 0.08170 0.07519 0.07369 0.07369 0.07369Maximum Demand charge . . . . . . . . . . . . . . . . B/. kW /month 13.65 13.14 13.14 12.14 10.63 8.78 8.78 8.78Time of Use Tariff (MTH)Fixed charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. Client /month 5.02 4.96 4.96 4.92 4.87 4.79 4.79 4.79Energy charge on Peak Period . . . . . . . . . . . . . B/. kWh 0.11924 0.11535 0.11535 0.10266 0.08760 0.07937 0.07937 0.07937Energy charge off Peak Period . . . . . . . . . . . . B/. kWh 0.09593 0.08614 0.08614 0.07301 0.06884 0.06941 0.06941 0.06941Maximum Demand charge on Peak


Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. kW / month 2.17 2.16 2.16 2.15 2.14 2.12 2.12 2.12HIGH TENSION TARIFFS

Maximum Demand Tariff(ATD)Fixed charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. Client /month 5.02 4.96 4.96 4.92 4.87 4.79 4.79 4.79Energy charge(1) . . . . . . . . . . . . . . . . . . . . . . . . B/. kWh 0.08576 0.07720 0.07720 0.06425 0.05756 0.05601 0.05601 0.05601Energy charge for following hours . . . . . . . . . B/. kWh 0.08243 0.07426 0.07426 0.06174 0.05534 0.05382 0.05382 0.05382Maximum Demand charge . . . . . . . . . . . . . . . . B/. kW / month 12.73 12.26 12.26 11.38 10.01 8.34 8.34 8.34Time of Use Tariff (ATH)Fixed charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. Client /month 5.02 4.96 4.96 4.92 4.87 4.79 4.79 4.79Energy charge on Peak Period . . . . . . . . . . . . . B/. kWh 0.09947 0.09574 0.09574 0.08376 0.06929 0.06177 0.06177 0.06177Energy charge off Peak Period . . . . . . . . . . . . B/. kWh 0.07746 0.06827 0.06827 0.05570 0.05181 0.05241 0.05241 0.05241Maximum Demand charge on Peak


Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B/. kW / month

-1 Reflects 255 hours of use.* Billing corresponding to customers of these tariffs with a consumption between 0 and 200 kWh/month will receive a credit in the Fondo de Estabilización Tarifaria in this

period.

Source: ERSP.

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For the last several years, increases in rates resulting from the semi-annual rate adjustmentprocess were not fully passed through to distribution company customers in the form of tariffincreases, but were passed through directly to customers, in part, with the remaining amountpaid for by the Panamanian Government. In January 2006, the ERSP announced that thepreviously approved rate increases for the period of January 1, 2006 to June 30, 2006 would besuspended during a 90-day moratorium while the Energy Commission studied the tariff rateincreases and the electricity industry. In its March 27, 2006 report, the Energy Commissionrecommended that a new rate be implemented for the period from April 1, 2006 throughDecember 31, 2006. The ERSP, in its March 31, 2006 resolution adopting many of therecommendations of the Energy Commission, approved a rate adjustment for this nine-monthperiod based on our projected energy costs through December 31, 2006. The ERSP, in itsMarch 2006 Resolution, established that the tariff increase to our regulated customers for thisnew rate period should not exceed 10.7%, as opposed to the 20.5% increase we had submitted.However, the ERSP at the same time recognized that we should receive a subsidy of US$25.2million which would include a US$0.5 million credit from previous subsidies granted, in order toavoid a rate increase for all our customers with consumption levels under 200 kWh and limit the10.7% rate increase to those customers above this consumption level. Together, the ERSPestablished rate increase and the US$25.2 subsidy will compensate us for the increased energycosts in our original 20.5% rate increase proposal. While this new rate adjustment only includesour projected energy costs, we have been prohibited from passing through to customers ouraccumulated energy cost component adjustment from prior tariff revision periods. However, theMinister of the Presidency and the Minister of Finance and Economy have indicated to us that ourrecovery of our accumulated energy cost component adjustments for the twelve-month periodfrom April 1, 2005 through March 31, 2006 will be recovered from the Panamanian Governmentin the form of cash or a debt instrument rather than through our regulated tariffs. See“Overview of the Panamanian Electricity Industry—Recent Developments.”

The following table illustrates the approved rate increases and the amount of governmentsubsidy we have received for the periods listed below.

Tariff adjustments applied to customer rates

Periods

IncreaseRequested

(%)(1)

IncreaseRequested

(US$ inMM)(1)

GovtSubsidy

Received(%)

GovtSubsidy

Received(US$ in MM)

IncreasePassed to

Customers(%)

IncreasePassed to

Customers($)(2)

January 1, 2003 to June 30,2003 . . . . . . . . . . . . . . . . . . . . . . . . . 6.0% $ 6.0 1.0% $ 1.0 5.0% $ 5.0

July 1, 2003 to December 31,2003 . . . . . . . . . . . . . . . . . . . . . . . . . 6.8% $ 6.9 6.8% $ 6.9 0.0% $ 0.0

January 1, 2004 to June 30, 2004 . . . 6.2% $ 6.2 6.2% $ 6.2 0.0% $ 0.0July 1, 2004 to December 31,

2004 . . . . . . . . . . . . . . . . . . . . . . . . . 5.2% $ 5.2 0.6% $ 0.6 4.6% $ 4.6January 1, 2005 to June 30 2005 . . . 8.3% $ 8.8 1.0% $ 1.1 7.3% $ 7.7July 1, 2005 to December 31,

2005 . . . . . . . . . . . . . . . . . . . . . . . . . 12.2% $ 16.1 12.2% $16.1 0.0% $ 0.0January 1, 2006 to March 31,

2006(3) . . . . . . . . . . . . . . . . . . . . . . . . 29.7% $ 19.3 12.2% $ 8.7(4) 0.0% $ 0.0April 1, 2006 to December 31,

2006(5) . . . . . . . . . . . . . . . . . . . . . . . . 20.5% $ 44.6 11.5% $25.2(6) 9.0% $19.4

TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . $102.5 $65.6 $36.7

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(1) This is the total percentage and dollar increase the Company requested be passed through to customers under the existingregulatory structure.

(2) Dollar amount charged to the customer through an increase in rates.

(3) Rate increase for this six-month period was not implemented and was suspended by the ERSP until March 31, 2006. For the90-day suspension, we applied the tariff rates from the previous semester (July 1, 2005 to December 31, 2005) and alsoreceived a subsidy of US$8.7 million from the Panamanian Government.

(4) We paid the US$10.6 million difference that was not subsidized by the Panamanian Government and not passed through toour customers.

(5) Based on recommendations of the Energy Commission, a new rate increase was approved for the period April 1, 2006through December 31, 2006.

(6) This amount includes a US$0.5 million credit from subsidies granted to us from prior periods. We have received our firstmonthly government subsidy payment of US$2.7 million for April 2006.

Power purchases

We are required by law to provide contract coverage for our regulated customers’ contributionto the peak demand of the system, Demanda Máxima de Generación, or DMG, and the associatedenergy costs for the following 24-month period to limit fluctuations in energy costs. This requiresthat we accurately estimate our customers’ needs while limiting the possibility of overcontracting. Our power purchase strategy of entering into medium and long-term contracts isdesigned to protect our customers from fluctuations in the energy cost component of their tariffand to avoid a strong dependence on the electricity spot market, whose prices can be subject togreater fluctuation. Historically, we contract annually approximately 79% to 85% of our totalenergy requirements through purchase agreements in the energy contract market. For the yearended December 31, 2005, we purchased approximately 79% of our total energy requirementsthrough power purchase agreements, and we have contracted 100% of our energy needsthrough the end of 2006. The initial power purchase contracts that were assigned to us duringthe privatization process expired between September 2000 and December 2004 and, sinceFebruary 2002, we have been contracting our electricity needs through competitive biddingprocesses. Purchase prices for these contracts are based on competitive bidding processes, and wesatisfy the balance of our energy requirements, including during peak demand periods, bypurchasing our additional electricity needs in the spot market.

Recent ERSP resolutions will change the way we calculate our contract coverage requirements. InResolution No. JD-5864, dated March 8, 2006, the ERSP modified its definition of regulatedcustomer to include large users, such customers were previously excluded from the calculation ofregulated customers. Additionally, in Resolution No. JD-5830, dated January 27, 2006, the ERSPhas proposed to change the criteria for determining the required periods of contract coveragefor future energy purchases. Under this resolution, we would be obligated to contract 100% ofthe demand of our regulated customers (including large users) for the next two years, 90% forthe following third year, 85% for the following fourth and 80% for the following fifth year.

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We currently have proposals extended to generators to purchase 100% of our expected 2007 and2008 energy requirements. Prior to March 2006, we were not required to contract for our largeregulated customers, who are able to become unregulated and purchase directly fromgenerators. Currently, we must include large customers in our contract coverage, however, if alarge regulated customer elects to become unregulated, all of our purchase agreements allow usto exclude from our contract the proportionate amount represented by that customer. Thefollowing table summarizes the main features of our power purchase agreements as of March 31,2006.

CapacityPrice

O&MPrice

Energy Price

GeneratorInitial

MonthExpiryMonth

CapacityMW

Fuel O&M TotalUS$/kW/month US$/kWh

Térmica del Noreste,S.A. . . . . . . . . . . . . Jun 19, 2000 Jul 19, 2010

Output ofFacility 36.74 — 0.08072 0.11180 0.19252

ESTI—AES . . . . . . . . . Nov 20, 2003 Nov 1, 2013 48.7 7.95 — — 0.04000 0.04000Bahía Las Minas . . . . Jan 1, 2005 Dec 31, 2008 80.0 12.70 — 0.03475 — 0.03475AES Panamá . . . . . . . Jan 1, 2006 Dec 31, 2006 40.0 17.00 — — 0.02301 0.02301AES Panamá . . . . . . . Jan 1, 2006 Dec 31, 2006 40.0 2.80 — — 0.05700 0.05700AES Panamá . . . . . . . Jan 1, 2006 Dec 31, 2006 20.0 2.80 — — 0.05550 0.05550AES Panamá . . . . . . . Jan 1, 2007 Dec 31, 2007 20.0 2.80 — — 0.05700 0.05700AES Panamá . . . . . . . Jan 1, 2007 Dec 31, 2007 40.0 2.80 — — 0.05550 0.05550La Mina Hidro

Power . . . . . . . . . . . Jan 1, 2008 Dec 31, 2015 28.0 6.65 — 0.01536(2) 0.02304 0.03840AES Panamá . . . . . . . Jan 1, 2008 Dec 31, 2008 60.0 2.80 — — 0.05550 0.05550Bontex . . . . . . . . . . . . Jan 1, 2008 Dec 31, 2015 19.8 6.00 0.04179 0.04179Paso Ancho . . . . . . . . Jan 1, 2008 Dec 31, 2015 4 6.65 0.04056 0.04056PANAM . . . . . . . . . . . Jan 1, 2006 Dec 31, 2008 60 12.00 0.03719 0.01874 0.05593Pedregal . . . . . . . . . . Jan 1, 2006 Dec 31, 2008 30 12.00 0.04122 0.01209 0.05331Pedregal . . . . . . . . . . Jan 1, 2006 Dec 31, 2008 12, 5, 15 12.00 0.05797 0.01329 0.07126Fortuna . . . . . . . . . . . Jan 1, 2009 Dec 31, 2012 80 7.53 0.05487 0.05487Fortuna . . . . . . . . . . . Jan 1, 2013 Dec 31, 2018 120 7.53 0.05487 0.05487ACP(1) . . . . . . . . . . . . . Apr 1, 2006 Dec 31, 2006 0 0 — 0.05667 0.05667Fortuna(1) . . . . . . . . . . Apr 1, 2006 Dec 31, 2006 0 0 — 0.06500 0.06500AES Panamá(1) . . . . . . Apr 1, 2006 Dec 31, 2006 0 0 — 0.06500 0.06500ACP(1) . . . . . . . . . . . . . Apr 1, 2006 Dec 31, 2006 0 0 0.05780 0.3006 0.08786Pedregal(1) . . . . . . . . . Apr 1, 2006 Dec 31, 2006 0 0 0.05780 0.3620 0.09400

(1) Following the Energy Commission’s March 31, 2006 recommendations, we replaced all of our spot market energy purchaseswith contracts awarded through a competitive bid process to cover our energy needs from April 1, 2006 throughDecember 31, 2006. These contracts include the energy component but exclude the capacity component of our distributionneeds as our capacity requirements had already been assigned by the CND to certain generators.

(2) Price was adjusted for purchases made in the spot market.

The energy we purchased during 2004 had an average overall cost of US$72.10 per MWh. For2005 and for the first quarter of 2006, our average overall cost of energy was US$87.90 per MWhand US$97.24 per MWh, respectively, principally due to an increase in the amount ofthermoelectric and spot market energy purchased as a percentage of our total energy purchasesand also due to higher fuel costs.

We measure the energy delivered to us by the generators at our connection points to thetransmission grid. Once metered, the purchased energy is allocated to each contract on an hourlybasis in the proportion of the capacity contracted with each generator and our DMG. The ERSPhas recently ruled that energy supplied directly to large unregulated customers through ournetwork should be excluded from this allocation.

If any generator is unable to fulfill its capacity commitments to us, we are entitled tocompensation from the generator for the associated energy not supplied at three times its

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contract value. Payment of this penalty does not exempt the generator from a compensationclaim by us for any fines that we may incur as a result of the capacity shortfall.

Payment for the purchased energy is due 30 days from invoicing, which, under our contracts, isrequired to take place within the first five days of each month. As a guaranty for payment, eachof our power purchase contracts requires an annual performance bond equal to the value of ouraverage monthly consumption at the contracted average overall price. Likewise, generators issueperformance bonds in our favor to guarantee the supply of the contracted energy.

During the 90-day period ended March 31, 2006 during which our rates were suspended by theERSP, we have continued to pay the electricity generators under our power purchase agreements.However, we have notified these electricity generators that the suspension of the tariffadjustment by the ERSP is a force majeur event under our agreements and that the suspensionmay impact our ability to pay our invoices as they become due.

The table below summarizes the composition of our energy purchases, including allocatedtransmission losses, in the three months ended March 31, 2006 and the years ended December 31,2004 and 2005:

Three MonthsEnded

March 31,2006


GWh % GWh % GWh %

AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . 136.8 24.0 709.1 31.1 970.6 44.3Bahía Las Minas . . . . . . . . . . . . . . . . . . . . . . . 118.7 20.8 704.2 30.9 119.5 5.4Spot Market . . . . . . . . . . . . . . . . . . . . . . . . . . 80.0 14.0 467.4 20.5 314.6 14.3EGE Chiriquí-Bayano . . . . . . . . . . . . . . . . . . . 0.0 0.0 5.9 0.3 305.7 13.9Transmission Losses . . . . . . . . . . . . . . . . . . . . 15.8 2.8 72.6 3.2 86.9 4.0ESTI—AES Panamá . . . . . . . . . . . . . . . . . . . . . 65.2 11.4 286.8 12.6 303.9 13.9Isolated Systems—Service B . . . . . . . . . . . . . 7.7 1.4 31.2 1.4 29.2 1.3Panam . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86.6 15.2 0.0 0.0 62.4 2.8Pedregal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59.6 10.5 0.0 0.0 0.0 0.0

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 570.4 100.0% 2,277.2 100.0% 2,191.8 100.0%

Under our Concession Contract, we are permitted to engage in generation activities, but suchactivities cannot exceed 15% of our aggregate customer demand within our concession zone.Currently we do not generate any of the distributed energy, although management is currentlyevaluating possible opportunities to develop or acquire generation capabilities. In July 2000, wedivested all of our isolated system generating assets and replaced them with a power purchaseagreement. This enabled us to pass through the full cost associated with the isolated systemgeneration through the regulated customer tariff. The distribution system in the isolated areasand associated commercial operations remain part of our obligation.

Construction, maintenance and operations

We are responsible for constructing and maintaining the electrical distribution grid within ourconcession area. We perform these operations through existing outsourcing contracts with highlyexperienced third parties. Grid construction requirements may originate from system expansion,load increases within the served areas, reliability improvements, or quality of service relatedimprovements. All contracts with third parties are renegotiated upon expiration to guaranteecost efficient execution of all construction projects.

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System maintenance is similarly performed through qualified and experienced third partycontractors. We determine the scope, material and skills required, and the execution time for allplanned preventive and required corrective maintenance within the system.

We monitor our system operation on a 24-hour basis from a centralized load dispatch centerlocated in the Cerro Viento facility where we also maintain and dispatch necessary emergencycrews. We are currently working on upgrading our radio communication and supervisory controland data acquisition system, or SCADA, used for controlling field operations and dispatch withmodern SCADA-DMS and distribution automation systems. Customers’ calls are received at a24-hour call center. Service outages and emergency requirements are registered in the outagemanagement system and are immediately attended to by the dispatch center and third-partyservice crews in order restore the electricity service within the shortest possible time.

Data processing systems

We are currently in full compliance with all applicable software licensing laws and regulations.The main information systems are Oracle-based and include Oracle Financial and Oracle Spatial.Our customer information system was provided and installed by Synergia, a well-knownspecialized company in software applications for the energy industry, and our outagemanagement system was developed and installed by UTE, a public and fully integrated powercompany in Uruguay. We also use, among others, AutoCAD-based applications. Ourstate-of-the-art technology allows us to have a highly efficient operation, providing us with real-time monitoring of our deployed network and allowing us to reduce our energy losses.

We have a combination of company-owned and third-party owned fiber optic and datatransmission systems designed to support all of our operations. These include technicaloperations for data communication between and among distribution substations and thedispatch center, customer service center communications with the customer information system,communications between company headquarters and various regional offices, third-partycontracted call center, and external collection agents (banks, supermarkets, hardware stores andspecialized collection companies). We have also entered into agreements local companies toprovide alternate processing centers, backup capabilities in the event of a system interruption,remote data warehousing and critical information backup systems.

Metering and meter reading

All of our clients are currently metered through a company-certified electricity meter laboratoryin compliance with local, company and ANSI standards.

Our meter laboratory, meter reading and invoicing process all operate under an ISO9001-2000certified quality control system and have been audited by local authorities, certifying agenciesand internal quality control personnel. All meters in service have been certified either by us or bythe manufacturer as meeting or exceeding required precision levels. All clients with demandrates (low, mid-to-high tension), are metered with current generation electronic meters while allmajor clients have advanced metering equipment that guarantees precise metering, qualitycontrol data and provide time of use, load profile and other data useful to the client, systemplanners and customer service personnel. All meters are read monthly, with data being registeredin hand held computers on the field and processed nightly for immediate invoicing.

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Billing and collection procedures

One of our main priorities is to streamline invoicing and collection procedures in order toimprove our customers payment record and collection time. At the time of privatizationapproximately 69% of our customers’ accounts had overdue bills by 60 days or more. As ofMarch 31, 2006, this number was reduced to 28% with a 76% larger customer base. We have theright to suspend service when our customers’ accounts are more than 60 days overdue.

Following the privatization, new criteria were introduced for receivables provisioning. Currently,we apply a 100% provision for all inactive accounts (150 days without any consumption), a 50%provision to disconnected customers (more than 60 days without payment by customers whoseservice has been disconnected), a 47% provision against overdue accounts (more than 60 dayswithout payment by customers whose service has not been disconnected), and a 25% provision toaccounts subject to payment settlements. For all other accounts (60 days or less withoutpayment), a 1% provision is applied. In accordance with these criteria, we made a US$15.1 millionprovision against our receivables outstanding at the time of privatization as part of the closingaudit.

During 2005, we wrote off some doubtful accounts that were considered uncollectible and madea provision in order to represent on the balance sheet the necessary allowance for doubtfulaccounts based on the analysis of the accounts receivable at year end and using the criteriadescribed above.

We continue to adopt new measures in order to improve billing and collection efficiencies,including the installation of a new commercial management system, use of external collectionagents such as supermarkets and financial institutions, and stricter enforcement of disconnection.The reading and billing cycles have been re-engineered in order to make them much moreefficient and to further reduce the commercial cycle. We are also promoting lower cost paymentmechanisms including electronic funds transfer and direct debit, where appropriate.

Our customers incur interest charges at an average rate equal to the previous six months’ rate forcommercial deposits on all amounts outstanding after 30 days from the billing date. We requirethat customers provide security deposits for an amount equal to the estimated consumption forone month. These customer deposits held by us accrue interest at an average rate equal to theapplicable six-month commercial deposit rate for the previous six-month period and are refundedto the customer after one year, if by then, the customer has established a good payment recordaccording to the ERSP’s criteria. As of March 31, 2006, the balance related to customer’s depositswas US$11.5 million, net of US$0.4 million that was reimbursed in fiscal 2005 to those customerswho met the ERSP’s good payment record criteria.

Customer service

As of March 31, 2006, we operated six customer service agencies distributed throughout PanamaCity and the City of Colón. These agencies collect payments, set up new contracts, disconnectservice, address customer complaints and provide general information services to the generalpublic and to our clients.

We also offer a 24-hour call center to address most commercial services, outage reports, invoicinginquires, general information requests, public lighting requests and other services. This operationhas been outsourced to an experienced call center operator with international experience andhigh level knowledge.

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Additionally, as part of the loss reduction campaign, our crews and trained personnel are sent tothe field to identify illegal consumers, advise them as to the dangers and risks inherent withenergy theft, and allow them to contract as a paying customer on the spot. These measures havesignificantly improved our relations with the community and provided significant results in ourefforts to reduce illegal connections within our service area.

Electricity losses

We experience technical and non-technical electricity losses. Technical electricity losses are thosethat occur in the ordinary course of our distribution operations, or those resulting from thespecific characteristics of our distribution network. Non-technical electricity losses are those thatresult from illegal connections, fraud or billing errors. In 2003, electricity losses wereapproximately 16.4% of our total distributed electricity, of which 8.8% was technical and 7.6%was non-technical. At the time of our privatization in 1998, energy losses within our concessionarea were approximately 24%. Our average losses in 2005 were 12.5%, of which 7.7% wasconsidered technical losses and the remaining 4.8% theft or fraud from regular customers(mostly residential and commercial) and illegal connections in economical marginal sectors. Sincethe privatization in 1998, we have reduced our total overall losses by approximately 48.0%.

We continue to implement a well-defined and thorough loss reduction program which includesreplacing obsolete consumer meters, improving of customer consumption monitoring as well asimproving our internal process, using power loggers to identify illegal connections, migratingillegal users into regulated clients in new low income urban developments, installing shieldedcable to reduce theft and improving error detection through the installation of digital meteringat the substation and grid connection level.

Additionally, we have implemented a strong corporate communications program aimed atmigrating illegally connected residential users to regular paying customers and seeking to raiseawareness within the community about the safety hazards generated by illegal connections.During the last two years, energy theft has been gradually recognized as an act punishable bylaw. Under this new interpretation of the law, we have brought before the Panamanian courts asignificant number of energy theft cases, primarily against commercial and residential customers.The combination of a strong corporate communication program and the prosecution ofcommercial and residential customers has contributed to changing the perception that energytheft is acceptable, especially among low income residential consumers. Since the privatization,approximately 101,000 illegal connections have become regulated customers, of whichapproximately 80,500 were converted from January 2003 through March 2006.

Migration of illegal connections into regulated customers

The following table summarizes the total number of customers that were converted from illegalconnections into regulated customers during the periods indicated.


2006 2005 2004 2003 Total

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,133 24,843 23,209 26,249 80,434

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Our technical division has also undertaken specific programs, including replacing and installingadditional transformer capacity known as the TLM program with 776 pole-mounted transformersinstalled during 2004 and 2005 (this program also contributes to improve the quality of voltage).Overloaded feeders are being re-arranged and new feeders are being installed to distribute theload in an efficient way. A new substation, Geehan, commenced operations in the fourth quarterof 2005 and a second substation, Tinajitas, will be in operation in the second quarter of 2006. Webelieve that these substations will not only contribute to reduce technical losses, but will alsoimprove our service quality and the continuous distribution of electricity.

The following table summarizes our technical and non-technical losses for the periods indicated.


2006 2005 2004 2003

Technical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6% 7.7% 8.15% 8.80%Non-technical . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.4% 4.8% 5.75% 7.60%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.0% 12.5% 13.90% 16.40%

Minimum service requirements

We are required to comply with reliability, quality of supply and customer service standards setout in regulations published by the ERSP, in accordance with a timetable included in theConcession Contract.

System reliability. The main indicators used to measure reliability are frequency and durationof service interruptions. The regulatory timetable for reliability improvements included twostages of implementation. During the first stage, July 2000 to June 2004, all indicators were to bemeasured on a “global” or system-wide basis in terms of the average annual frequency ofinterruptions per customer (SAIFI), total annual interruption time per customer (SAIDI), averagelength of interruption (CAIDI) and average system availability (ASAI). During the second stage ofthis timetable, July 2004 to June 2008, all indicators are to be measured on an individual basis.Different requirement have to be met with respect to urban and rural areas within ourconcession area. Urban and rural areas are determined by the National Comptrolling Office basedon density of population and availability of public service. The following table shows thereliability level that distributors had to meet for each indicator on a global basis for urban areas.

Regulatory timetable for reliability improvements in urban areas

July 2005 toMarch 2006

July 2004 toJune 2005



SAIFI (number per year) . . . . . . . . . . . . . . . . . . . 4.5 6 6 8SAIDI (hours per year) . . . . . . . . . . . . . . . . . . . . . 6.57 8.76 8.76 17.52

We installed an Incident Management System in April 1999 to improve outage management andto facilitate performance measurement in this area. The system known as the MGI (Módulo deGestión de Incidencias) was completely upgraded in June of 2004 in order to allow performancemeasurements for the distribution grid on an individual customer basis.

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The following table summarizes the average annual frequency and duration of interruptions percustomer under the parameters in urban areas of our concession area for the periods indicated.

Urban SAIFI statistics





(number of interruption per year)Cumulative 12 Months . . . . . . . . . . . . . . . . . . 2.21 3.28 4.48 6.61Last Month . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.28 0.41 0.32 0.80Regulatory Target . . . . . . . . . . . . . . . . . . . . . . 0.50/month 0.50/month 0.50/month 0.67/month

Urban SAIDI statistics





(number of interruption per year)Cumulative 12 Months . . . . . . . . . . . . . . . . . . 2.82 3.98 5.99 9.03Last Month . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.37 0.62 0.46 1.08Regulatory Target . . . . . . . . . . . . . . . . . . . . . . 0.73/month 0.73/month 0.73/month 1.46/month

Since July 2004, similar reliability metrics are applied on an individual basis. From July 2004 toJune 2005, we had 3.28 average interruptions per customer in urban areas compared to the 6average interruptions per customer, the maximum allowable urban SAIFI level for the 12-monthperiod. The total time of interruptions, on a per average customer basis, was 3.98 hours,compared to 8.76 hours average per customer, the maximum urban SAIDI level.

Quality of Supply. Other efficiency parameters apply to voltage levels, harmonic distortions andother aspects of technical service quality.

As an incentive for distributors to invest in improving system reliability, the ERSP imposespenalties for supply interruptions that exceed regulatory limits based on a deemed cost forenergy not supplied of US$1.50 per kWh. These penalties are paid in the form of discounts onsubsequent invoices. Our power purchase agreements with generators typically specifycorresponding penalties at 3 to 5 times the contract price of energy for supply interruptionsattributable to that distributor. In addition to these recoverable penalties, we are also allowed toclaim from that generator additional compensation to cover penalties payable to our customersas a result of supply interruptions attributable to the generator. Distributors are obligated toperform voltage reading to 1% of their customer base every semester and report such results tothe regulators. The regulator has set targets that more than 95% of readings must be within thevoltage deviation regulated range. Since deregulation and through March 31, 2006, our globalquality of supply indexes have been maintained under regulatory targets as shown in the tablebelow.

Voltage—% within the allowed range

July 1, 2005to March 31,

2006

January 1, 2005to June 30,

2005

July 1, 2004to December 31,

2004

January 1, 2004to June 30,

2004

July 1, 2003to December 31,

2003

Actual . . . . . . . . . 96.8% 96.7% 97.6% 99.0% 98.5%Regulatory . . . . . 95.0% 95.0% 95.0% 95.0% 95.0%

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Customer service. Separate regulations cover standards of metering and customer service,including connection and reconnection speed, information on planned outages, percentage oftotal billing based on estimated consumption and response times for dealing with billingquestions and/or claims. In addition to the penalties under ERSP’s supply quality and customerservice regulations, we can also be found liable and must pay compensation when a customer’spersonal equipment, such as computers, televisions, refrigerators or stereo systems, is damagedas a result of defects and sudden changes in the electricity supply. The following table shows theoverall compliance with the principal customers service regulated indicators, specifically,connection time, reconnection time and estimated bills:

Customer service indicators

ThreeMonths

EndedMarch 31,


2006 2005 2004 2003

Modification Connection (Working Days)Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4 1.9 1.6 2.5Regulatory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.0 3.0 3.0 6.0

Reconnection (Hours)Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.5 14.5 12.0 20.9Regulatory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.0 24.0 24.0 36.0

Estimated Bills (Percentage)Actual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.9 0.9 1.2 1.9Regulatory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.0 5.0 5.0 9.0

Non-compliance with technical and customer service regulated indicators is compensated to theindividual customer effected by such non-compliance. Our compensation payments from 2003through March 2006 are shown in the following table:

Three MonthsEnded March 31, Year Ended December 31

2006 2005 2004 2003

Damaged Equipment . . . . . . . . . . . . . . . . . . . . . . 11,057 131,452 130,933 112,749Voltage Level Fluctuations . . . . . . . . . . . . . . . . . . 13,719 62,297 10,706 209,803Interruptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,060 71,302 30,783 9,216Public Lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 3,910 11,283Commercial(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,488 10,363 6,883 19,829

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $37,324 $275,414 $183,215 $362,880(1) Includes compensation for claims of delay on connection and reconnection, meter malfunctioning and other.

We are engaged in investments and improvements aimed at minimizing future exposure toservice penalties. In addition to the incidence management system referred to above, otherinitiatives include investment in network upgrades, installation of a new SCADA system, andstreamlining operating and management structures and procedures in operational areas.

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Employees

The following table shows the composition of our employees by functional area at the end ofeach year through 2005 and at the end of the first quarter 2006.

As ofMarch 31, As of December 31,

2006 2005 2004 2003

Distribution Engineering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 147 138 135Customer Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302 303 315 268Finance and Administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 32 55 56Information Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 18 20 17Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 13 14 11Loss Reduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 0 0 47Purchase & Logistics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 25 0 0Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 26 26 29

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 564 568 563

We also employ independent contractors to perform many of our activities not related to ourcore business, such as providing equipment maintenance and security for our internalcommunication network.

As of March 31, 2006, 236 of our 549 employees were unionized as members of the Sindicato deTrabajadores de la Industria Eléctrica y Similares de la República de Panamá, or SITIESPA. Termsand conditions of employment are governed by the Panamanian Labor Code as supplemented bya collective bargaining agreement (convención colectiva) between us and SITIESPA. A new four-year collective bargaining agreement with the SITIESPA was successfully negotiated and signed inOctober of 2003 and will remain valid through October 2007 or until a new collective bargainingagreement is negotiated and signed replacing the existing arrangement. We believe we have apositive relationship with our employees and have not been affected by any work stoppages.According to Panamanian labor law, employees serving in the public utility sector are prohibitedfrom work stoppages or strikes that affect the delivery of utilities services.

The annual average cost per employee for the year ended December 31, 2005, excludingseverance payments, was US$16,623, of which US$536 was attributable to overtime. The maincomponents included in this cost, in addition to normal monthly salary and related overtime, are:

• A thirteenth month additional salary payable in three installments in April, August andDecember, as required under the Panamanian Labor Code;

• A supplementary payment under our collective bargaining agreement increasing theDecember portion of the thirteenth month entitlement so employees receive an amount equalto two months’ salary in December; and

• Statutory employer contributions at the following rates:

• Social Security (Caja de Seguro Social, or CSS) at 11.0%;

• Education tax (seguro educativo) at 1.5%;

• Accident insurance (riesgos profesionales) at 3.64%;

• Non-contributory life insurance coverage of US$1,000 per employee plus additional lifeand accident coverage for those working in high risk areas; and

• Medical insurance for managerial and other non-unionized employees.

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In addition, under Law 44 dated August 14, 1995, we make contributions every three months intoan independently managed trust to finance future severance liabilities. The contribution rate is1.92% of the total salary to cover length of service entitlements and 0.327% of the total salary tocover compensation payments for unjustified terminations or justified resignations.

In 2005, overtime rates averaged 5.7% of an employee’s base salary depending on the amount ofovertime worked within a particular period and include a premium rate for working onweekends.

Under the most recent agreement with SITIESPA, all of our employees are entitled to a 50%discount in their electricity bills. Similar discounts are granted to employees in other privatizedelectricity companies. We are entitled to collect the amount of the discount received by otherelectric companies’ employees living within our concession area. Likewise, we must reimburseother distributors for the 50% discount granted to employees living within their concessionzones.

Since the privatization of the electricity industry, we have implemented several programs toincrease our productivity levels such as changing our organizational structure and increasingoutsourcing to provide services and activities such as maintaining street lights and trimmingtrees, delivering customer invoices, performing connections and reconnections, and providingpersonnel at payment agencies.

Under the Panamanian Labor Code, upon termination of employment, with or without cause,employees are entitled to an amount reflecting length of service (prima de antigüedad), which iscalculated by according to such employee’s average weekly salary over the previous five years, orthe period of employment if less, and on the basis of one week’s salary for every year of service.If termination is without cause, the employee is also entitled to an amount for indemnificationbased on the employee’s commencement date, length of service and the greater of the averageweekly salary for the previous six-month period or the previous one-month period.

Under the October 2003 collective bargaining agreement with SITIESPA, any employee whoseemployment is terminated without cause, in addition to receiving the indemnificationcontemplated under the Labor Code, is entitled to receive a special indemnification paymentbased on the employment commencement date, as summarized below:

Years of Service Special Indemnity Amount

Workers with two to three years of services . . . . . . . . . . . . . . . . . . . . . . . . 1.5 weeks of salaryWorkers with four to five years of services . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5 weeks of salaryWorkers with five or more years of services . . . . . . . . . . . . . . . . . . . . . . . . . 3.5 weeks of salary

The following table sets forth the evolution of the customer-to-employee ratio resulting fromthe measures that we have already taken to reduce employment levels:

As ofMarch 31, As of December 31,

2006 2005 2004 2003

Number of Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301,316 296,861 276,560 255,960Number of Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 549 564 568 563Customers per Employee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548 526 487 455

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Property

Our principal properties consist of transmission lines and distribution lines, poles, distributionsubstations, transformers, and rights of way located in the northern and eastern part of Panamaincluding the eastern part of Panama City, the port city of Colón and the Gulf of Panama. Apartfrom the distribution and distribution lines, no single asset produces a significant impact on ourtotal revenues. Our corporate headquarters building is approximately 2,099 square meters and islocated in Panama City. We also own five administrative and operational properties located inPanama and Colón. We own all of the real property used in our operations except for ourcorporate office building, the building where our head of commercial operations is located andtwo parcels of land where two of our substations are located. See “Business—DistributionNetwork.”

As of December 31, 2005 and March 31, 2006, respectively, our property, plant and equipmentconsisted of:

As ofDecember 31,

2005As of March 31,

2006

Poles, towers and accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 77,431,920 US$ 77,248,000Electric transformers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,336,355 36,506,901Underground conductors and ducts . . . . . . . . . . . . . . . . . . . . . . . 48,493,512 48,884,218Consumer services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,279,049 25,231,666Overhead conductors and accessories . . . . . . . . . . . . . . . . . . . . . 21,020,729 21,946,085Substation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,373,192 43,527,968Consumer meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,412,171 19,233,986Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,789,783 11,931,055Public lighting equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,153,615 11,110,103Transportation and communication equipment . . . . . . . . . . . . . 7,386,476 7,288,983Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 13,189,788 13,718,596Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,303,688 2,308,092Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,706,536 2,706,536Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,840,455 14,427,850

US$333,717,269 US$336,070,039

To guarantee our obligations under our Syndicated Long-Term Loan, we have granted thelenders a first mortgage for an amount up to US$65.0 million consisting of specified property andreal estate we currently own, as well as future real and personal property we may acquire. Themortgaged property consists of distribution substations, land, building, vehicles, technologyhardware and other related fixed assets, which, as of March 31, 2006, comprised approximately10.8% of our total fixed assets, and the mortgaged real estate consists of land and buildings. Wehave also granted the lenders a lien on our pending and future receivables. As to the mortgagedreal property, we have entered into a trust agreement assigning to a trustee certain assetsincluding our reserve cash account, account for payments received, customer accounts receivable,lessee accounts receivable and our insurance policies. Both the mortgage and the trustagreement will terminate upon the satisfaction or repayment of all our obligations under ourSyndicated Long-Term Loan as contemplated in connection with the issuance of the Notes.

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Insurance

We face the risk of losses in our operations arising from a variety of sources, including, amongothers, risks arising from the failure of assets to operate and perform properly, intentionalvandalism, and risks related to catastrophic events (such as a major accident or incident at a thirdparty’s electricity generation plant, a major incident affecting a third party’s transmissionnetwork to which our distribution network is connected, or major natural disasters such as fires,earthquakes or floods). Although constructed, operated and maintained to withstand certain ofthese occurrences, our network assets may not operate and perform adequately in allcircumstances. We carry adequate insurance against certain of these risks for a fixed amount,including third-party property liability.

Our insurance policies are underwritten by an established Panamanian insurer, CompañiaPanameña de Seguros, S.A and Assicurazioni Generali S.p.A. Sucursal de Panamá. We currentlycarry a broad range of insurance policies designed to protect our assets against a range of perilsduring their construction and operational periods, as well as in the event of certain businessinterruptions. Our key assets are insured at their replacement value.

Competition

We are the only company licensed to operate an electricity distribution system in the northernand eastern part of Panama, including the eastern part of Panama City, the port city of Colónand the Gulf of Panama. As a result, we do not compete for regulated customers in our servicearea. Clients that choose to participate in the wholesale market must use our distributionnetwork to access the generators or the transmission grid, and these clients must pay thedistribution component of the corresponding regulated tariff.

The ERSP has granted a permit to a large customer within our concession area to construct atransmission line to connect directly to the transmission grid. We believe that the capital cost ofconstructing such line will prevent other customers from bypassing the distribution system. Wehave filed an appeal with the Supreme Court contesting this permit granted by the ERSP.

Capital expenditures

Prior to the privatization, our assets and our overall system condition reflected the low levels ofcapital expenditure and inadequate maintenance. We took early action to correct thesedeficiencies and, between 2003 through the first quarter of 2006, invested US$57.5 million togrow and maintain our network and other system improvements, of which approximatelyUS$3.2 million corresponds to capitalized labor expenses and interest expense. See“Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Commitments and Capital Expenditures.”

Environmental matters

The Panamanian legal framework governing environmental matters was enacted through the1998 Environmental Law, which created a national environmental authority, Autoridad Nacionaldel Ambiente, or ANAM. Since entering into the Concession Contract, we have been incompliance with applicable existing environmental regulations and have not been subject to anypenalty or sanction.

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Under the Sale and Purchase Agreement governing the privatization, PDG is also required tocomply with the recommendations of an environmental audit that was conducted by Golder onbehalf of the Panamanian Government as part of the privatization process. Similar obligationsapply to us under our Concession Contract.

Golder was commissioned to produce a baseline environmental study for each of the generationand distribution companies being privatized and identify corrective measures to be undertakenwithin two years of the privatization. In the case of sites allocated to us under the privatization,Golder recommended corrective measures with an estimated cost between US$560,000 andUS$935,000, of which, a high percentage related to the isolated systems generation units. Underthe Sale and Purchase Agreement, the Panamanian Government has indemnified PDG against thecost of any additional corrective measures that may be required by ANAM or any othergovernmental entity in Panama for issues that took place before the privatization.

In addition to expenditures for corrective measures, we have developed and implemented ourown environmental management program and adopted our own environmental health andsafety policies. In particular, we have established procedures for hazardous waste control and oilmanagement, identified and audited local recycling facilities, eliminated the use of chlorinatedsolvents, implemented an identification, labeling and control program for polychlorinatedbiphenyls, or PCB’s, and expanded facilities for hazardous waste storage. We also contracted aFrench company to package and transport materials containing PCB to France for final treatmentand disposition.

Since the Golder report was based on site visits covering only a portion of our assets, PDGcommissioned Environmental Consulting and Technology, Inc., or ECT, to conduct a morecomprehensive baseline study involving environmental site assessments for all of our locations.We provided ANAM with a copy of sampling data from the ECT site visits identifying oil and PCBcontamination and risk data so that ANAM can determine any action to be taken. Although wehave received no notification from ANAM of any requirement for additional remedial efforts,any such requirement in relation to site contamination existing prior to privatization would besubject to the indemnification provisions under the Sale and Purchase Agreement.

We undergo periodic environmental audits performed by the consulting firm ECT and ourenvironmental officer and related personnel in our operations units.

Legal proceedings

We are involved in routine litigation and other proceedings in the ordinary course of business. Inthe opinion of our management, based on consultation with legal counsel, the liability, if any,under these proceedings is either adequately covered by insurance or would not have a materialadverse effect on our overall financial condition, results of operations or cash flows.

In connection with the ERSP’s suspension of the approved tariff rate adjustment for thesix-month period starting January 1, 2006, on March 31, 2006, in order to preserve our rightsrelating to this matter, we filed a complaint in the Third Chamber of the Supreme Court ofJustice seeking a declaration of illegality of the ERSP’s Resolution No. JD-5806 issued onJanuary 23, 2006, which ordered us to suspend the previously approved tariff adjustments for thefirst six months of 2006, which were scheduled to become effective January 1, 2006. The ThirdChamber of the Supreme Court of Justice is reviewing the admissibility of this complaint forprocedural compliance.

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On April 11, 2006, the ERSP stated in Resolution No. JD-5956 that, aside from the maximumallowable income we were permitted to recover during the four-year regulatory period from July2002 to June 2006, we received additional income in excess of our actual costs. The ERSPattributed this supposed excess income to variations in our projected and actual number ofcustomers and our sales in the different rate categories during this tariff period and has orderedus to credit or reimburse our customers an aggregate of approximately $4.0 million beginningMay 1, 2006 until December 31, 2006. We are currently challenging this determination as webelieve that the Concession Contract and the resolutions instituting the VAD do not permit theERSP to modify previously approved tariffs where our actual income exceeds our projectedmaximum allowable income charged to customers, and the methods used to determine ourmaximum allowable income is favorable to us. These customer credits have been suspendedwhile our motion for reconsideration is pending.

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Overview of the Panamanian electricity industryIntroduction of Panamanian electricity usage

Panama has a mixed hydro-thermal electricity system with a current installed generating capacityof approximately 1,253.7 MW (62% hydro and 38% thermal), with a peak demand of 946 MW,supplying approximately 680,162 customers as of December 31, 2005, an increase of 33,810customers from December 31, 2004. In 2005, with an average hydrology, approximately 70% ofgross generation output came from hydroelectric capacity. Over 41% of the generating capacityis located in the west of the country, close to the Costa Rican border, where the majority ofPanama’s hydroelectric resources are located. A 430-kilometer transmission line links these plantsto the load center in the Panama City-Colón corridor. Panama’s thermal generating plantscurrently rely on imported oil, although the possibility of using natural gas and/or coal fromColombia to supply the Panamanian electricity market is currently under evaluation.

The electricity system in Panama is interconnected with that of Costa Rica, and plans exist forincreased regional energy exchanges by establishing what is known as the Central Americaninterconnection system, Sistema de Interconexión de los Países de Central America, or SIEPAC.

Since 2002, electricity sales have been growing at an average of approximately 5.7% per year andin 2004 totaled 4,595 GWh, of which 31% is residential, 45% is commercial, 5% is industrial, 16%is used by the public sector including street lighting and 2% is from unregulated customerconsumption. This is equivalent to a monthly consumption rate of approximately 592 kWh percustomer (208 kWh for residential customers only). Over 76.1% of the population in 2004 wasserved by electricity, including approximately 1% supplied by isolated systems in the Darienregion between Panama City and the Colombian border and in other remote areas (Archipielagode Las Perlas and San Blas Islands).

Regulatory entities

The organizations that participate in the regulation of the electricity sector in Panama are:

Ministerio de Economía y Finanzas (the Ministry of Economy and Finances). The electricity sectoris under the jurisdiction of the Ministry of Economy and Finances. Within the Ministry ofEconomy and Finances, the Comisión de Política Energética, or the Energy Policy Commission,establishes the Panamanian Government’s policies for the energy sector. Such policies areformulated with the collaboration of other government agencies, such as the Public ServicesRegulator, the Asamblea Nacional, or the National Assembly, and the ETESA Planning Unit.

Ente Regulador de Servicios Públicos (the Public Services Regulator or ERSP, whose name changedin April 2006 to Autoridad Nacional de los Servicios Publicos or the National Authority of PublicService). The Public Services Regulator regulates power generation, transmission,interconnection and distribution activities in the electric power sector; approves generation andtransmission programs; and promotes competition within the different areas of the energy sectorso that economically efficient and high quality energy services are provided. Its responsibilitiesinclude: (i) evaluating the efficiency of the provision of services; (ii) establishing the tariffstructure for services; (iii) establishing the tariff structure for access to and use of the grids anddispatch charges; (iv) classifying which consumers of electricity are subject to tariff regulation;and (v) determining the rules for the planning and coordination of the National InterconnectedSystem.

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Unidad de Planificación de ETESA (the ETESA Planning Unit). The ETESA Planning Unit is aspecial administrative unit of ETESA and is responsible for the National Energy Plan and NationalReference Expansion Plans. The ETESA Planning Unit is also responsible for forecasting the overallenergy requirements of Panama and determining ways to satisfy such energy requirements,including developing alternative sources of energy and establishing programs to conserve andoptimize the use of energy. Utility companies are required to prepare and submit business plansto the ETESA Planning Unit.

Centro Nacional de Despacho (the National Dispatch Center or CND). The CND is operated byETESA. The CND is responsible for the planning, supervising and controlling the integratedoperation of the National Interconnected System and for ensuring its safe and reliable operation.The CND is also responsible for (i) coordinating the operation of the National InterconnectedSystem with regional dispatch centers; (ii) compiling information and defining generationprograms for each generator; (iii) receiving offers from generators that participate in the energyexchange market; (iv) developing daily demand forecasts and managing dispatch; (v) determiningthe hourly energy spot prices in the exchange market and the amounts of electricity sold;(vi) managing the transmission network and the auxiliary services required for the properoperation of the National Interconnected System; and (vii) providing settlement values on amonthly basis with respect to the division of energy between suppliers and producers.

History

Prior to the 1998 privatization of the Panamanian generation and distribution sectors, theelectricity sector in Panama was under the management of the state-owned integrated electricalutility, Instituto de Recursos Hidráulicos y Electrificación, or IRHE. IRHE was created in 1961,initially to provide service in areas not served by the existing private sector utilities and, ingeneral, to promote the development of electricity services in Panama.

Thereafter, IRHE gradually took over the assets and operations of the existing private sectorutilities. Beginning in the mid-1970s, it significantly expanded the capacity of the system with thecommissioning of new hydroelectric plants, particularly in the west of Panama, and introduced anational dispatch center to optimize system operation and allow electricity interchange with thePanama Canal Commission and other Central American countries.

Re-introduction of private capital into the sector followed the enactment in 1995 of legislationpermitting private electricity generation. This was followed by the Public Services RegulatoryAgency Law in January 1996 and the 1997 Electricity Law in February 1997. Modifications to the1997 Electricity Law were made in February 1998 under Decree Law No. 10 of February 26, 1998,and ancillary regulations were introduced by presidential decree in the form of the ExecutiveDecree No. 22 of June 19, 1998.

In 1998, the Panamanian Government divided IRHE’s assets and operations, other thantransmission, into four generation companies and three distribution companies for purposes ofprivatization. The 51% shareholdings in the distribution companies, including Elektra, were soldby the Panamanian Government in September 1998. This was followed in November 1998 by thesale of 49% shareholdings in the hydroelectric and thermal generation companies and a 51%shareholding in the main thermal generation company. Under the parameters established by thePanamanian Government, at least 25% of each bidding consortium had to be held, either directlyor through an affiliate, by a company with the required level of generation or distribution

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experience. In the case of generation this included having an equity base of at leastUS$500 million, over five years of generating experience and control of at least 500MW ofgenerating capacity. In the case of distribution, it included a minimum equity base ofUS$250 million, over three years of distribution experience and at least 350,000 distributioncustomers. In each case, the minimum equity base could include that of other consortiummembers in proportion to their shareholdings. The results of these privatizations were as follows:

Privatization of IRHE’s distribution and generation businesses

Distribution

Company

1997 UnitSales

(GWh)1997

Customers%

SoldAmount

Bid* Buyer (Principal Investors)

Metro Oeste and EDE Chiriquí . . . 1,993 260,066 51 $212 Unión FenosaElektra . . . . . . . . . . . . . . . . . . . . . . . 1,282 166,375 51 $ 89 Panama Distribution

Group (Constellation)

* US$ in millions. Excluding post-bid adjustments.

Generation

Company Type

InstalledCapacity

(MW)%

SoldAmount

Paid* Buyer (Principal Investors)

EGE Fortuna . . . . . . . . . . . . . . Hydro 300 49% $118 Americas GenerationGroup(Coastal/Hydro-Quebec)

EGE Bahía Las Minas . . . . . . . Thermal 253 51% 92 EnronEGE Chiriquí and EGE

Bayano . . . . . . . . . . . . . . . . Hydro-Thermal 283 49% 92 AES

* US$ in millions.

Twelve months before the date of privatization, the Government reserved up to 10% of theshares of the privatized companies for sale to employees at a discount of 6% to the privatizationprice. Under the 1997 Electricity Law, the government can sell its remaining shares by publicauction or through the stock exchange, subject in each case, to each purchaser being limited toacquiring no more than 5% of the company concerned.

The ERSP

Established under the 1996 Public Services Regulatory Agency Law, the ERSP is an autonomousgovernment agency with responsibility for regulating water, telecommunications, electricity andnatural gas. It is headed by a three-member Board of Directors, whose appointment is subject toratification by the Legislative Assembly.

The Board elects one of its members as President for a two-year term, which may be renewed.The current President of the Board of Directors of the ERSP is José Galán Ponce, who wasappointed in October 2004 and is scheduled to remain in office until December 2008. The twoother members are Carlos Rodríguez, appointed in January 2002, scheduled to remain in officeuntil December 2006, and Nilson Espino, appointed in October 2004, and remained in office until

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December 2005. The ERSP, now known as the National Authority of Public Service, has beenrestructured, and Dr. Victor Urrutia has been appointed as the General Administrator. Mr. Espinowill remain in office until the Executive appoints his replacement.

ERSP’s responsibilities include:

• Ensuring compliance with sectoral laws and regulations and applying sanctions;

• Issuing concessions and licenses;

• Monitoring quality of service standards;

• Verifying fulfillment of expansion and system improvement targets as required by law,regulation or under the terms of specific concessions or licenses;

• Promoting competition and investigating monopolistic or anti-competitive practices;

• Determining efficiency criteria for evaluating the performance of regulated companies;

• Establishing the principles and methodologies for tariff regulation;

• Determining information to be provided by public service providers;

• Arbitrating conflicts between operators, government agencies, municipalities and consumers;and

• Authorizing land expropriation and rights of way for service expansion.

The ERSP is financed from various sources, including a fee payable by all providers of electricityservices. This fee, which is payable monthly and is not recoverable from consumers, may notexceed on an annual basis 1% of gross sector revenues in the preceding year. On an individualcompany basis the applicable percentage is applied to revenues from regulated andnon-regulated customers less amounts paid by the company to other service providers to coverenergy or transmission costs. The fee for 2003, 2004 and 2005, was set at 0.96%, 0.98% and0.79%, respectively. In 2006, this fee has been set at 0.67%.

The Energy Commission and the Commerce Commission of the Panama National Assembly havebeen studying the possible restructuring of the Energy Policy Commission and of the ERSP. Basedon these recommendations, by Decree Law No. 10 of February 22, 2006, the ERSP wasrestructured and renamed and, as of April 25, 2006, is now known as the National Authority ofPublic Service. The National Energy Authority, is responsible for establishing policies to be usedby the ERSP. See “Overview of the Panamanian Electricity Industry—Recent Developments.”

The 1997 electricity law

The 1997 Electricity Law was introduced to improve operation efficiencies, reach reliable qualityof service, guarantee a good quality of supply through the promotion of competition and privatesector participation and to keep the cost of the service at reasonable prices. Key provisionsinclude:

• Establishing a ministerial Energy Policy Commission (Comisión de Política Energética) withresponsibility for the development of energy policy;

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• Defining the duties and obligations of electricity service providers including continuity ofsupply and provision of open access in transmission and distribution;

• Dividing the generation, transmission and distribution operations of IRHE into separatecompanies and the establishment of requirements for management and accounting separationof generation, transmission and distribution activities;

• Restricting participation by distribution companies in generation and in transmission and bygeneration companies in the control of distribution companies;

• Establishing procedures for privatization of the sector other than ETESA, the company formedto hold IRHE’s transmission assets, which was to remain wholly state-owned;

• Establishing procedures for the granting of concessions and licenses subject to limitations onthe market shares of individual generators and distributors;

• Defining the role of ETESA and procedures for management of central dispatch;

• Providing for large customers with maximum demand of over 500 kW to purchase directly fromgenerators and other suppliers. For 2005, the regulating entity reduced this limit to 100 kW.

• Establishing principles of tariff-setting for price-regulated services.

The Energy Commission has no authority to amend the 1997 Electricity Law or to adoptadditional laws or regulations relating to the electricity industry. However, the CommerceCommission does have the authority to initiate for the consideration of the Panama NationalAssembly, changes in existing legislation or the adoption of new legislation relating to theelectricity industry. This initiation and support could lead the Panama National Assembly toamend the 1997 Electricity Law or adopt new legislation relating to the electricity industry. Inaddition, the Executive Branch can also promote legislative changes.

Concessions and licenses

Under the 1997 Electricity Law, concessions are required for the construction and operation ofhydroelectric or geothermal plants and for the provision of transmission or distribution services.Concessions are awarded by the ERSP and have the following time limits:

• Hydroelectric and geothermal generation 50 years

• Transmission 25 years

• Distribution 15 years

When a distribution concession reaches the end of its term, the ERSP is required to conduct acompetitive bid process for the sale of a minimum 51% shareholding in the company holding theexisting concession, following which a new 15-year concession is granted. The owner of theshareholding can participate in the bidding and will only be required to sell (and transfer controlof the concession) if its price is below that of another bidder. In the absence of a higher bid theowner can retain the shares without making any payment. If outbid, the owner receives theproceeds and the successful bidder takes over control of the concession. Thermal generationplants must be licensed by the ERSP but do not require a concession.

Under its concession contract, each distributor has a defined concession zone within which it hasexclusive rights both to install, own and operate a distribution network and the obligation to

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supply energy to end customers other than large customers who opt not to be served asregulated customers. Large customers are currently defined as those with peak demand on asite-by-site basis of over 100 kW, and can choose to buy energy directly from other sourcesincluding generators, other distributors or from the spot market (mercado ocasional).

Apart from certain sections of the border between Metro Oeste and Elektra in Panama City andthe Canal Area, each distributor’s concession zone extends for a distance of between 500 metersand 3 kilometers from its existing network and from any new lines under construction.Distributors are obliged to provide service to any end user within 100 meters of their existinglines on the basis of their standard connection tariffs. Anyone located further from the existingnetwork can be required to make a contribution to cover the additional costs of connectionbased on amounts per meter subject to approval by the ERSP. In addition to the concession zone,each distributor is granted a zone of influence extending between 5 kilometers and 10kilometers beyond its concession zone.

When new electrification projects arise outside the concession zone, the right to provide serviceis awarded on a competitive basis by the ERSP. Where this arises within the zone of influence, thecompetition is conducted on a basis granting preferential rights to the existing distributor. In thecase of rural electrification projects supported with subsidies from the Office for RuralElectrification, or OER, the nearest distributor has a first option to provide service where this canbe achieved at least cost through an extension of an existing line. Otherwise, projects areawarded by competitive tender to the bidder requiring the lowest subsidy.

Under their concession contracts distributors are required to comply with the standards andtechnical requirements established by the ERSP and the CND, in particular those relating toquality and reliability of supply and customer service parameters, customer metering and theoperation of the national integrated system. In addition, distributors are required to providepublic lighting within the concession area in accordance with standards defined by the ERSP.Under the 1997 Electricity Law, the cost of this service is recoverable from end customers inproportion to their consumption.

The concession contracts contain timetables for achieving improvements in quality of service,metering and public lighting. If required standards are not met, customers are entitled to tariffrebates at levels defined by the ERSP. Concession contracts may also impose obligations to extendcontinuity of supply within isolated systems and complete designated rural electrificationprojects.

No distributor or its shareholders may participate, directly or indirectly, in the control ofgeneration assets with an aggregate capacity representing more than 15% of its total customerdemand within its concession zone. Within this limit distributors may only engage in generationactivities on condition that there is adequate management and accounting separation. Similarrequirements apply to involvement in transmission.

System operation

The Electricity Law provides for the operation of the system and administration of the wholesalemarket to be managed by the CND, a unit within ETESA with separate accounting records. Thewholesale market consists of a bilateral contract market between operators for the provision ofcapacity and/or energy with competitive prices from bid processes; and a balancing spot market

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with hourly prices (mercado ocasional) for settling transfers of electricity for uncontractedcapacity and energy.

Distributors are required to obtain long-term contracts to cover the capacity requirements oftheir regulated customer base and the associated energy. The amount of contract cover requiredis based on a month-by-month analysis submitted to the ERSP by the CND each year usingforecasts supplied by the distributors (Informe Indicativo de Demanda). The amount of contractcover provided by an individual generator may not exceed its own firm capacity and any suchcapacity acquired from other generators under reserve contracts. For hydroelectric plants firmcapacity is calculated by the CND based on the characteristics of the plant after taking account ofhydrological risks.

The CND dispatches plants in merit order by reference to their variable costs subject to systemsecurity, operating constraints and the operational regulations approved by the ERSP(Reglamento de Operación), using a dispatch model incorporating stochastic dynamicprogramming to calculate the opportunity cost of water. The hourly spot price is based on thevariable cost of the marginal plant dispatched. Transmission losses are valued at the spot priceand charged separately to distributors based on loss factors applicable to their connection pointson the ETESA grid.

Variances between a generator’s actual dispatch and contracted energy volumes are settledthrough the spot market. Out of merit plants dispatched by CND to maintain real time systemstability (generación obligada) receive an additional payment to cover the difference betweentheir variable costs and the hourly spot price. The CND is also responsible for the coordination ofauxiliary services (servicios auxiliares) and their remuneration through additional charges to thesystem.

Details of the average monthly spot price in the mercado ocasional since January 1999, excludingcapacity costs, are set out below.

Average monthly spot price (energy only)—January 1999—March 2006

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Industry segments

Generation

At present, installed generating capacity in Panama is 1,253.7 MW. Initially, the system wasmostly thermal but became gradually more mixed with the commissioning of the hydro plants atBayano, La Estrella, Los Valles and Fortuna between 1976 and 1984 and Esti in November 2002.Panama has substantial undeveloped hydroelectric resources with potential projects identified byIRHE totaling approximately 2,400 MW. The composition of its current generating capacity is setout below.

Generating capacity on the interconnected system in Panama (December 2005)

Plant

MaximumEffective

Capacity (MW)Operation

StartedDate

CommissionedOwner

(Principal Investors)

Fortuna . . . . . . . . . . . . . . . . . . 300.0 1984 /1993 Sept. 18, 1998 Hydro Quebec/Gobeleq

Bayano . . . . . . . . . . . . . . . . . . 260.0 1976 Sept. 18, 1998 AES PanamaLa Estrella . . . . . . . . . . . . . . . . 42.0 1979 Sept. 18, 1998 AES PanamaLos Valles . . . . . . . . . . . . . . . . 48.0 1979 Sept. 18, 1998 AES PanamaAntón . . . . . . . . . . . . . . . . . . . 2.8 Oct. 4, 2002 Hidro Panama, S.A.Others(1) . . . . . . . . . . . . . . . . . 11.0ESTI . . . . . . . . . . . . . . . . . . . . . 120.0 2003 Nov. 1998 AES Panama

Total Hydro . . . . . . . . . . . . . . 783.8

Bahía Las MinasBLM—2 . . . . . . . . . . . . . . . . . . 40.0 1968 Dec. 14, 1998 PrismaBLM—2 . . . . . . . . . . . . . . . . . . 40.0 1970 Dec. 14, 1998 PrismaBLM—2 . . . . . . . . . . . . . . . . . . 40.0 1973 Dec. 14, 1998 PrismaCombined Cycle . . . . . . . . . . 160.0 1999 Dec. 14, 1998 Prisma

Pan Am . . . . . . . . . . . . . . . . . . 96.0 1998 July 19, 1998 IGC-ERI Pan-AmTerminals GeneratingLimited

Petroeléctrica . . . . . . . . . . . . 0.0 April 24, 1998 Petroeléctrica dePanama, S.A.

Copesa . . . . . . . . . . . . . . . . . . 44.0 1998 March 17, 1998 ProquimsaPanama substation . . . . . . . . 0.0 Dec. 14, 1998 AES PanamaPedregal . . . . . . . . . . . . . . . . . 49.9 2003 Sep. 28, 2001 Globeleq

Total Thermal . . . . . . . . . . . . 469.9

Total . . . . . . . . . . . . . . . . . . . . 1,253.7(2)

(1) Others include Union Fenosa Self-Genration, La Yeguada, Macho de Monte and Dolega.

(2) Amount does not include 42.8 MW of generation capacity of TG Panama.

The Panama Canal Authority, or PCA, formerly the Panama Canal Commission, also has 173.5 MWof installed capacity with connections to the transmission system including a 58.5 MWhydroelectric plant, a 59 MW steam turbine plant, a 38 MW gas turbine plant and a 18 MW

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Bunker C fuel-fired plant. This capacity is primarily used to serve the needs of the Panama Canal,but in conditions of high hydrology surplus, energy may be available to supply the nationalsystem.

Under the 1997 Electricity Law, generation companies will not be granted new concessions if theywould thereby account, directly or indirectly, for more than 25% of national electricityconsumption. The percentage may be increased by the Government, subject to the opinion of theERSP, where justified by competitive conditions. The percentage was increased to 40% as ofNovember 2005. This provision does not apply to licenses for thermal generation.

The following table sets out the gross and net generation by type of generation in thePanamanian system for each year from 2002 to 2005.

Generation by type (GWh)

2005 2004 2003 2002

AnnualGrowth

(2002-2005)

HydroelectricGross generation . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,875.5 3,891.7 2,915.6 3,291.6 8.5%% of total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69.9% 71.7% 55.5% 66.4%

ThermalGross generation . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,670.9 1,533.8 2,336.0 1,668.4 0.1%% of total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.1% 28.3% 44.5% 33.6%

TotalGross generation . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,546.4 5,425.5 5,251.6 4,960.0 5.7%Own consumption . . . . . . . . . . . . . . . . . . . . . . . . . . (4.8) (6.8) (4.9) (5.8)

Net generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,541.6 5,418.7 5,246.7 4,954.2 5.8%

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Transmission

Set forth below is a map of ETESA’s transmission system showing the location of the principalgenerating plants and substations.

In 2005, the transmission system in Panama, comprised approximately 601 kilometers of singleand double circuit 230 kV lines linking the main generation facilities to the system load center atPanama City, 288 kilometers of single and double circuit 115 kV lines and a total of twelvesubstations with a total capacity of 1,504 MVA.

Transmission system

Source: ETESA.

The system is owned and operated by ETESA, which is responsible for expanding and upgradingthe network to meet the requirements of demand growth and system stability. It is currentlyengaged in an investment program, the main components of which are:

• Approximately 391 kilometers of additional double circuit 230 kV lines between Chiriquí andPanama City in support of the Estí project with associated substation capacity, which willsupport the SIEPAC project; and

• A new substation (Panamá II) to receive the load from Estí that was built and inaugurated in2002.

Under the 1997 Electricity Law, ETESA is responsible for producing an annual expansion plan forthe interconnected system in line with quality and reliability standards and developmentobjectives set by the Energy Policy Commission. This is based on projections of expected growthin demand and energy consumption over the next 20 years, which market participants arerequired to submit by June 30 each year. The plan is mandatory for Transmission projects and anindicative purpose for Generation projects. ETESA is obliged to carry out all projects included inthe Transmission Expansion Plan, as approved by the ERSP, and all related construction workmust be contracted on the basis of competitive bidding. The network expansion must be

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financed by ETESA, however ETESA can choose whether or not to financed the connection ofgenerators or distributors to the transmission network in return for a reimbursable contribution.Average losses of energy in transmission over the period from 2002 to 2005 have been as follows:

2005 2004 2003 2002

Annual . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.8% 3.4% 2.9% 3.7%

The changes in the percentage of the transmission losses reflect, in part, the configuration of thesystem with over 41% of installed capacity located approximately 430 kilometers from the loadcenter. Losses drop due to the installation of new thermal generating plants (PanAm andPedregal) very close to system load center (Panama City) and occasionally increase with thehydrology that drives the actual hydroelectric generation. Transmission losses in 2005 dropped inpart due to the integration of the double circuit 230 kV between Chiriquí and Panama City. Thecost of transmission losses is allocated directly to distributors on the basis of loss factors reflectingtheir location on the system. At present, almost 84% of transmission losses are charged todistributors taking delivery at Panama City and Colón substations.

The 1997 Electricity Law provides for open access to transmission subject to a regulated tariff forconnection and use of system charges. The current tariff, which was approved by the ERSP inResolution JD-5351 and JD-5352 in June 2005, is due to remain in force until June 30, 2009.

The transmission tariff is designed to cover the capital, administrative and operational costs ofthe system on an economically efficient basis so as to provide an expected rate of return beforetax on net fixed assets that is within a 2% range above or below the average yield on the 30-yearU.S. Treasury Bond in the year preceding the setting of the tariff, plus a risk premium of 7%. Forthe initial tariff in 1998, the rate of return for transmission was set at 13.45% based on a 6.45%average for the 30-year U.S. Treasury Bond. The rate of return for the second tariff period was setat 12.24% and the actual tariff period was set at 9.98%. Every year within the tariff periodone-third of the transmission charges are inflation-adjusted and revised for compliance withauthorized investment programs. Delays in such investment programs lead to a reduction in thetransmission charges.

ETESA’s use of system charges are differentiated by zone and may be positive or negative foreach zone depending on the extent to which the user is increasing or reducing network load.Generator charges are calculated by reference to installed capacity available for use in thesystem, while distributor and large customer charges are determined by reference to their peakdemand. ETESA’s tariff for 2005 is summarized below.

Zonal use of system charges (US$/kW/Year)

Zone (with approximate description)Geographical

AreaGenerator

ChargesDistributor

Charges

1. From the Costa Rican border to Progreso andConcepción West 27.91 (35.63)

2. From Mata de Nance to Concepción, San Juan, Dolegaand Pozos Termales de Gualaca West 48.18 0.71

3. From Caldera to Dolega and from Fortuna to PozosTermales de Gualaca West 51.49 3.35

4. From the Chiriquí-Veraguas border to San Juan andthe area between Sona and Santiago Central 25.65 (20.51)

5. From Llano Sánchez to the Coclé-Panama border andthe area between Sona and Santiago Central 10.55 3.64

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Zonal use of system charges (US$/kW/Year)

Zone (with approximate description)Geographical

AreaGenerator

ChargesDistributor

Charges

6. From Chorrera to the Coclé-Panama border andwhere the 230 kV line crosses the Canal Central (0.16) 6.19

7. From Panama City to where the 230 kV line crossesthe Canal, the Colón-Panama border and Chepo Metropolitan (4.17) 16.33

8. From Bayano to Chepo and the Panama-Dariénborder East 0.59 1.08

9. From Bahía Las Minas to the Colón-Panama border Colón (0.93) 11.8510. From the Chiriquí-Bocas del Toro to

Chiriquí-Changuinola West 0.0 0.0

In addition, ETESA levies monthly charges to cover the cost of system operation, including centraldispatch and hydro-meteorology. These are currently set at US$0.1835/kW for generators andUS$0.2402/kW for distributors and large customers.

Distribution

Following the privatization of the distribution operations of IRHE and subsequent corporatemodifications, the Panamanian distribution network was split between Elektra and two othercompanies under common management, Metro Oeste and Empresa de Distribución Chiriquí S.A.,or EDE Chiriquí. Metro Oeste serves the western side of Panama City and the central region ofthe country and EDE Chiriquí serves the area close to the Costa Rican border. Further details oftheir number of customers and business mix are contained in the following table.

Distribution companies—2004 summary information

AnnualAverage

CustomersMarket

ShareUnit Sales

(GWh)

Consumption Supplied at

DistributorHigh

TensionMediumTension Low Tension(2)

Metro Oeste . . . . . . . . . . . . . . . 284,111 43.9 2,312 0.0% 13.6% 86.3%EDE Chiriquí . . . . . . . . . . . . . . . 86,110 13.3 385 4.7% 20.8% 74.5%Elektra . . . . . . . . . . . . . . . . . . . 276,560(1) 42.8 1,800 0.0% 17.7% 82.3%

(1) The Ministry of Economy calculated our annual average number of customers based on our number of customers at year end.

(2) Public lighting is included in low tension consumption.

Demand

Maximum peak demand in the Panamanian system in 2004 was 925 MW. In 2004, the averageload factor for the system, inclusive of transmission losses, is estimated to have beenapproximately 70.1%. Set forth below is a table showing the development of annual maximumdemand in the system from 2002 to 2005.

Demand

2005 2004 2003 2002

Maximum Demand (MW) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 946 925 882 857Annual Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.27% 4.87% 2.92% 2.14%

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Consumption

Electricity sales to end consumers in Panama was 4,595 GWh for 2004, an increase of 6.7% over2003. Over the last two years growth in sales has averaged 5.7% annually compared to anaverage of 5.9% annual growth in GDP. The most recent Informe Indicativo de Demanda issuedby the CND contains a forecast of 3.4% average annual sales growth for the period 2006-2014.

Electricity demand growth vs. GDP growth

2004 2003 2002Average Annual

Growth (2002-2004)

Consumption Growth . . . . . . . . . . . . . . . . . . . . . 6.7% 4.7% 4.5% 5.7%GDP Growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6% 4.2% 2.2% 5.9%

The table below shows electricity sales by customer category over the same period.

Sales to end consumers by customer category (GWh)


Growth (2002-2004)

Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,437.8 1,341.2 1,261.0 6.8%Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,065.2 1,947.9 1,733.6 9.1%Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 336.8 321.7 438.7 (12.4)%Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 635.8 589.9 581.3 4.6%Public lighting . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.8 94.9 79.2 16.1%Internal consumption . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.0 —Block sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.0 0.0 0.0 —

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,595.1 4,306.9 4,113.1 5.7%

The table below shows the number of end consumers by customer category over the sameperiod.

Number of end consumers by customer category (annual average)


Growth (2002-2004)

Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 575,133 543,583 512,436 5.9%Commercial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61,681 59,916 59,305 2.0%Industrial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,391 1,406 1,369 0.8%Government . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,147 7,926 7,865 1.8%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 646,352 612,831 580,975 5.5%

The table below summarizes the energy balance for the Panamanian electricity industry for theperiod from 2002-2004.

NetGeneration

NetInternational

ExchangeOther

Generation

EnergySupplied

To GridLosses Sales to End

ConsumersYear Transmission Distribution

2002 . . . 4,954 (10) 81 5,025 3.7% 15.1% 4,1132003 . . . 5,247 (178) 99 5,168 2.9% 14.2% 4,3072004 . . . 5,419 (129) 95 5,385 3.4% 11.8% 4,595

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International interconnections

Panama has agreements with the electricity companies in Costa Rica (Instituto Costarricense deElectricìdad), Nicaragua (Empresa Nicaragüense de Electricidad) and Honduras (Empresa Nacionalde Energia Electrica) for the exchange of electricity using the existing 230 kV link betweenProgreso in Panama and Río Claro in Costa Rica. The following table summarizes import andexport activity from 2002 to 2005.

Electricity exchanges with Central American countries (GWh)

2005 2004 2003 2002

Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54.93 78.0 2.3 35.1% net generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.99 1.4 0.0 0.7Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.29 206.6 180.2 45.2% net generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.9 3.8 3.4 0.9

Generators may enter into import and export contracts with counterparts in other countriessubject to appropriate disclosure of contract information to the CND and its equivalent in thecountry concerned.

SIEPAC

The SIEPAC project, sponsored by the Governments of Panama, Costa Rica, Nicaragua, Honduras,El Salvador and Guatemala, envisages the gradual creation of a Central American regionalelectricity market. This is intended to promote the development and growth of the regionalelectricity industry, encourage greater private sector participation in the sector, improveinterconnection between the national grids of the sponsor countries and establish a transparentand non-discriminatory regulatory framework for the operation of the regional market.

A framework treaty, providing for the establishment of a regulatory entity and operatingstructure for the regional network, was ratified by the participating countries in 1998. Ascurrently defined, the project involves the establishment of a single circuit 230 kV transmissionlink from Panama (Veladero, Chiriquí) to Guatemala (1,800 kilometers) with 15 substations with apeak transfer capability, following reinforcement of the existing national networks, of 300 MW(240 MW from Costa Rica to Panama). The project is estimated to cost approximatelyUS$320 million and is likely to require approximately four years to complete. The project is to befunded by the Inter-American Development Bank (IDB), the Spanish Government’sQuincentennial Fund and the Empresa Propietaria de la Red, the entity designated to be theowner and operator of the network by the six regional governments, shares in which may also beoffered to private investors. Currently, the bids placed by the prequalified companies for theconstruction of the network are under evaluation. The notice to proceed with the construction isexpected to be given by July 2006 at the latest. Construction is scheduled to begin the line by theend of 2005 and the project is expected to be completed by March of 2008. Depending on thedevelopment of the market, regional transmission capacity could be increased to 600 MW withinfive years of the completion of the initial project through the construction of a second 230 kVline.

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Electric energy rationing

The Commercial Rules provide that energy rationing should be simulated on a daily basis duringthe planning sessions with the SDDP and the resources scheduling models. Programmed rationing(unidad de falla 1) is simulated as a demand of 5% of the total national demand with a price 1.15times the highest thermal plant; the second step of energy rationing (unidad de falla 2) issimulated as a demand of 10% of the total national demand with a price 1.45 times the highestthermal plant; and the third step of energy rationing is simulated as a demand of 30% of thetotal national demand with a price 2.35 times the highest thermal plant and a maximum ofUS$600 per MWh for the balance.

If emergency rationing occurs, the CND will determine the amount of energy to be rationedaccording to the characteristics and implications of the emergency. The Commercial Rules providethe methodology for calculating the amount of energy to be withheld in the case ofprogrammed and emergency rationing, and set forth the parameters for the distribution of therationed energy to consumers. While energy rationing is in effect, the spot market ceases tofunction and generators are only required to satisfy their contractual obligations, unless theCommercial Rules then in effect provide otherwise. Once emergency rationing ends, the spotmarket is reactivated and to the extent that certain contract provisions were temporarilysuspended pursuant to the Commercial Rules they will be reinstated.

Environmental regulation

In July 1998, the Panamanian Government enacted Law 41, which created ANAM. Law 41 alsosets out the legal framework for the protection of the environment through the sustainable useof natural resources. ANAM is responsible for implementing Panama’s environmental policy withthe collaboration of other government entities created by, and which are under the supervisionof, ANAM, such as the Consejo Nacional del Ambiente and the Comisión Consultativa Nacionaldel Ambiente, among others. ANAM has the ability to impose all applicable environmentalsanctions and fines. Under Law 41, ANAM may impose fines of up to US$10.0 million for anyviolation of Law 41, including the improper use of water concessions or water resources withouthaving the applicable concession.

Investments stability act

The Panamanian Government enacted Law No. 54 of July 22, 1998, which is further regulated byExecutive Decree No. 9 of February 22, 1999 (the “Investments Stability Act”). The InvestmentsStability Act provides for certain stability measures in favor of companies engaged in electricitygeneration, distribution and transmission activities, among others, that meet certainqualifications and register with the Ministry of Commerce and Industry.

Tariff structure

Under the 1997 Electricity Law, the ERSP is required to establish tariff methodologies to regulateconnection, use of system charges for distribution services and to approve tariff structures for thesale of energy to regulated customers. In general, the 1997 Electricity Law provides that tariffsshould be set sufficiently high to cover the costs of providing the required level of service on theassumption that anticipated productivity gains are shared between distributors and theircustomers.

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The 1997 Electricity Law states that distribution charges should be set at a level which, based onestimates at the start of the tariff period, should allow the distributor to achieve revenues tocover its recognized costs of distribution or VAD. These are defined as the costs which anefficient distributor operating in that concession area would incur in terms of administration,operation and maintenance (including metering, billing and customer service), standard lossesand depreciation plus a reasonable return on investment.

The allowed rate of return before tax for each distributor is set by the ERSP, taking into accountsuch factors as efficiency levels, quality of service and expected investment requirements. Underthe 1997 Electricity Law, this rate of return must be within a 2% range of the average yield onthe 30-year U.S. Treasury Bond in the year preceding the setting of the tariff, plus a risk premiumof 8%. For purposes of the prevailing tariffs that were established in 2002 and that will remain ineffect until December 31, 2006, the rate of return used was 13.24%. This rate of return is appliedto the distributor’s net fixed assets in operation during the tariff period based on historicaccounting values at the start of the tariff period and the ERSP’s estimate of the distributor’sefficient investment requirements during the tariff period.

Under the 1997 Electricity Law, for the purpose of determining appropriate levels of efficiency,the ERSP is required to analyze each distributor’s concession zone in terms of up to threerepresentative areas according to density, based on the recent performance of actual companiesin Panama or elsewhere operating in similar areas. The ERSP determines efficiency parameters byselecting comparable companies for each representative area.

The ERSP published its detailed tariff methodology for distribution and commercialization inDecember 2001 (Resolution JD-3116) based on research performed by its external consultants onthe performance of selected distribution companies in the U.S. This research identified onehundred separate companies operating in areas with different levels of consumption density andestablished target cost and standard loss parameters for each density level. These were then usedto establish ideal performance parameters for the Panamanian distributors using weightedaverages reflecting the density profile within their concession zones.

Based on these parameters, on the Panamanian distributors’ perceived cost structure andinvestment requirements and on an assumed period of transition towards improved efficiency,the ERSP calculated a maximum permitted income in net present value terms as a basis for thedistribution and commercialization charges of each distributor (Resolution JD-3230). This wasthen used to calculate each distributor’s distribution access and use of system charges andregulated customer tariffs, after incorporating expected costs of generation and transmission,together with an allowance for standard energy losses.

The current tariff structures, which we developed, include a simple low tension tariff based onkilowatt-hour metering only, limited to customers with estimated demand of 15 kW or below,which demand level was previously 12 kW or below, together with demand-based andtime-of-day tariffs for customers with demand metering. Once a customer selects a particulartariff option, it must give 30 days notice for any intended change and is subject to additionalcharges if changes more than twice within 12 months after selecting a particular tariff option.

Distributors’ energy cost is calculated based on the weighted average of the distributor’spurchase costs under competitively awarded contracts and those of its spot market purchases.

The VAD tariff structure remains in force for four years and the current tariff will expire onDecember 31, 2006, as a result of a recent resolution of the ERSP extending the application of

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this current tariff past its scheduled expiration date of June 30, 2006. As a consequence,electricity distributors will be required to publish their proposed new tariffs by November 1, 2006based on maximum permitted income levels set by the ERSP. On June 9, 2006, the ERSP issuedResolution No. AN-065-Elec. announcing its initial proposal for the permitted pre-tax rate ofreturn to be applied during the next four-year regulatory period and commencing the publicprocess for interested parties to respond to the proposal before the ERSP issues its initialresolution. In setting these new levels for maximum permitted income, the ERSP will review theoriginal efficiency parameters based on the performance of the distributors’ current tariff periodand on forecasts for the next four years. The ERSP is free to select different comparisoncompanies from those used for the initial tariff. See “Overview of the Panamanian ElectricityIndustry — Recent Developments.”

Currently, during each semester within the tariff period the capacity and energy cost componentsof the tariff are adjusted to account for variances in actual and expected energy costs, and only45% of the distribution and commercial charges are adjusted for inflation based on thePanamanian CPI for the prior two semesters. Beginning July 1, 2006, we expect that these energy-related components will be adjusted on a monthly basis rather than on a semi-annual basis toinclude our actual costs during the third month prior to the month in which the adjustment ismade. The result is that our actual costs for April 2006 will be included in the July 2006adjustment. We expect that beginning January 1, 2007, the procedure for adjusting the fuelcomponent in the tariff will return to the previous procedure that includes six months of actualfuel costs, plus six months of estimated fuel costs. Under the Reglamento de Operación, the CNDis required to provide a regular analysis for the ERSP of the actual and expected generation andtransmission costs of each distributor for use in the tariff calculation. Since January 1, 2000,customers with low levels of consumption (below 100 kWh) have a discount of 20% in their bills.This discount is charged to customers with consumption above 500 kWh. Approximately 74,000 ofour customers received this benefit.

Under the current tariff structure, all users of the distribution system and all regulated andunregulated customers pay a separate consumption based charge within the tariff to cover thecapital and operational costs of public lighting. The energy costs associated with public lightingare recoverable as part of the overall generation costs passed through to regulated customersunder the tariff.

From January 1, 2003 through December 31, 2005, increases in rates for customers of electricitydistribution companies resulting from the semi-annual rate adjustment process required underthe regulatory structure for the electricity industry were not fully passed through to customers inthe form of tariff increases. Rather, the rate adjustment process during this period, as approvedby the ERSP, resulted in a portion of the allowed rate increases being passed through directly tocustomers and the remaining amount being paid to the distribution companies in the form ofsubsidy payments from the Panamanian Government. In January 2006, the ERSP announced thatthe previously approved rate increases for the six-month period of January 1 to June 30, 2006would be suspended for 90 days ending on March 31, 2006. In its March 27, 2006 report, theEnergy Commission recommended that a new rate be implemented for the period from April 1,2006 through December 31, 2006. The ERSP, in its recent resolution, approved a rate adjustmentfor this nine-month period based on our projected energy costs through December 31, 2006. See“— Recent Developments.”

Each month, retirees’ first 600 kWh consumption are entitled to a 25% discount. Discounts of 5%and 50% also apply to farmers and the provincial offices of political parties, respectively. The

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1997 Electricity Law and the Regulations set limits on the provision of tariff subsidies by theGovernment and require distributors to provide the Government with details of those customersmeeting the Government’s eligibility criteria.

Retiree discounts were taken into account for the purposes of calculating the maximum incomeallowances underlying the current distribution use of system tariff.

In the absence of acceptable credit references distributors are entitled to require customers toprovide deposits equivalent to the amount of one monthly invoice. These deposits must bereturned after one year provided that the customer has established a good payment record.During the term of the deposit the distributor must pay interest every six months at the averagerate of commercial fixed term deposits over the previous six months as documented by theSuperintendence of Banks. Interest is chargeable at the same rate on customer invoices thatremain unpaid 30 days or more after the invoice date.

Distributors are required to submit reports to the ERSP on a regular basis concerning outagelevels and other aspects of technical service quality and customer service, including metering andpublic lighting. In addition, they must prepare and submit their financial accounts in accordancewith the ERSP’s regulatory accounting standards. These involve accounting separation withineach company activity such as generation, distribution and commercialization and betweenregulated and unregulated customers.

Recent developments

The Energy Commission

On September 21, 2005, by Executive Decree No. 27, the Energy Commission was created topresent and implement a saving and rationing plan of energy in the public sector.

In December 2005, due to a marked increase in electricity distributors’ energy costs, the ERSPapproved, effective January 1, 2006 through June 30, 2006, a substantial increase in the ratescharged to customers of those distributors. Due to this high rate increase, on January 23, 2006,the President of Panama issued Executive Decree No. 11 requesting that the ERSP suspend for 90days the authorized rate increase of approximately 24% and directing the Ministers of theEnergy Commission to:

• present recommendations to the President of Panama to lower rates to the greatest extentpossible; and

• present recommendations to modify the law that creates the ERSP, within the authority givento the President by the Panama National Assembly in Law No. 1 of January 3, 2006, to makeuse of executive decrees to unilaterally adopt laws. This Law No. 1 was effective untilFebruary 28, 2006 and, under this authority, the President adopted Decree Law No. 10restructuring and renaming the ERSP.

On March 27, 2006, the Energy Commission issued a report of its findings relating to theelectricity industry and the tariff rate increases. The Energy Commission concluded that electricityprices are distorted and have resulted in a disproportionate rate increase for customers. TheEnergy Commission stated that this distortion is partially due to electricity distributioncompanies’ failure to timely contract its electric energy supply thereby exposing customers to thevolatility of electricity spot market prices. The Energy Commission also detected distortions in theprices offered by the electricity distributors and that there are anomalies in the calculation of thedemand charges paid by customers.

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As set out in its report, the Energy Commission specifically recommended that:

• the previously approved rate increase scheduled to be effective January 1, 2006 be replacedwith a new rate effective April 1, 2006 (we requested an increase of 20.5% to the ERSP);

• the demand usage charge within the regulated tariff should be billed monthly to existing andnew customers with a demand greater than 15 kW, previously set at 12 kW, and that thedemand charge be applicable on actual demand meter reading, rather than the average of thehighest three demand meter readings over the previous six-month period.

• the ERSP demand that electricity distributors’ comply with their legal obligation to timelycontract their electricity consumption requirements;

• the electricity rate be based on justifiable costs such as the price of fuel used in generatingthermal energy, but in no event, should such costs for the period between April 1, 2006 andDecember 31, 2006, be higher than 15%;

• the Panamanian Government should continue to subsidize the semi-annual rate adjustmentsfor those customers whose monthly consumption does not exceed 200 kWh;

• to avoid market speculation and energy shortages, the ERSP and the ANAM should demandcompliance with the periods established by law for existing hydroelectric concessions and, fortheir failure to comply, the ERSP may proceed to cancel these concessions; and

• the President establish greater incentives for investors to develop energy projects based onrenewable natural resources.

Based on these recommendations, the Executive Branch issued Cabinet Resolution No. 22, datedMarch 29, 2006, adopting the Energy Commission recommendations, and requesting the ERSPimplement these recommendations. As a consequence thereof, the ERSP issued Resolution No.JD-5930, dated March 31, 2006, or the March 2006 Resolution, adopting several of the EnergyCommission recommendations. In accordance with this March 2006 Resolution, starting July 1,2006, the ERSP will use a new methodology to adjust the energy cost component of our tariffs toreflect fluctuations in energy costs. We expect that this new method will consider monthlyadjustments rather than semi-annual adjustments and, beginning July 1, 2006, the energy costcomponent of our customer tariffs will be adjusted to include our actual costs during the thirdmonth prior to the month in which the adjustment is made. The result is that our actual costs forApril 2006 will be included in the July 2006 adjustment. We also expect that beginning January 1,2007, the procedure for adjusting the fuel component in the tariff will return to the previousprocedure that includes six months of actual fuel costs, plus six months of estimated fuel costs.The ERSP also established that the VAD tariffs, which were last set on July 1, 2002, and scheduledto be reset on July 1, 2006, will be extended beyond the expiration date. The current VAD tariffswill be in effect until December 31, 2006. As a consequence, we expect the new formulas for theVAD tariff reset period will become effective January 1, 2007 and remain in place for a four-yearperiod. Furthermore, in its Resolution, the ERSP approved, as of April 1, 2006, that the demandcharge to regulated customers cover those customers with a demand greater than 15 kW, insteadof the previous level of 12 kW, and that the demand charge will be applied to the actual demandmeter reading, rather than the average of the highest three demand meter readings over theprevious six-month period.

In its March 27, 2006 report, the Energy Commission recommended that a new rate beimplemented for the period from April 1, 2006 through December 31, 2006. The ERSP, in its

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Resolution, established that the tariff increase to our regulated customers for this new rateperiod should not exceed 10.7%, which is less than the 20.5% increase we had submitted.However, the ERSP at the same time recognized that we should receive a government subsidy ofUS$25.2 million, which would include a US$0.5 million credit from previous subsidies granted, inorder to avoid a rate increase for all our customers with consumption levels under 200 kWh andlimit the 10.7% rate increase to those customers above this consumption level. Together, theERSP established rate increase and the US$25.2 million subsidy will compensate us for theincreased energy costs in our original 20.5% rate increase proposal.

Unlike prior rate adjustments in which we included both the difference between our projectedand actual energy costs incurred during the previous tariff revision period and our projectedenergy costs for the following six-month period, the new rate adjustment only includes ourprojected energy costs for the nine-month period through the end 2006. This change has meantthat we have been unable to pass through to customers and recover our accumulated energy costcomponent adjustments from prior tariff revision periods through these new tariffs. The Ministerof the Presidency and the Minister of Finance and Economy have indicated to us that ourrecovery of our accumulated energy cost component adjustments for the twelve-month periodfrom April 1, 2005 through March 31, 2006 will be recovered from the Panamanian Governmentin the form of cash or a debt instrument rather than through our regulated tariffs.

On June 9, 2006, the ERSP issued Resolution No. AN-065 Elec. whereby the electricity distributioncompanies and the general public were informed of the ERSP’s initial proposal for the permittedpre-tax rate of return to be applied during the next four-year regulatory period, set to begin onJanuary 1, 2007. The ERSP has initially proposed that the electricity distribution companies bepermitted to recover a pre-tax rate of return of 10.59%. Based on this rate of return, whenapplied to our net fixed assets and what we believe to be our efficient investments, ourmaximum allowable income over the four-year period to begin January 1, 2007 would totalUS$284.7 million. This would be an approximate 11.87% decrease from the maximum allowableincome we collected through the VAD component of our existing customer tariffs for the 2002through 2006 VAD tariff reset period.

We intend to submit our responses to the ERSP’s initial proposal by July 10, 2006, the regulatorydeadline for providing comments. It is expected that public comments will be accepted duringthe sixty-day period following the ERSP’s June 9, 2006 resolution. The final ERSP resolution forthe VAD rates for the four-year period set to begin January 1, 2007 must be published byNovember 2006. While we believe it is possible that the ERSP may increase our maximumallowable income above the rate initially proposed by them, the VAD rate reset process isunpredictable and there can be no assurance that the ERSP will revise its initial proposal.

The Commerce Commission of the Panama National Assembly

Since 2003, the Commerce Commission has been reviewing and investigating, with input fromregulators, market participants and consumer organizations, matters relating to the generation,rationing, cost, importation and tariffs in the electricity sector. On October 11, 2005, the NationalAssembly issued Resolution No. 12 directing that the President of the Commerce Commissionpresent recommendations to address the high energy costs in the electricity sector. OnFebruary 14, 2006, the Commerce Commission presented a written recommendation to amendthe current 1997 Electricity Law to replace the Commission of Energy Policy with the NationalEnergy Authority and integrate this entity with the Ministers of Economy, the Ministers of

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Commerce, the Ministers of Justice, the Comptroller, the ERSP, ETESA, the CND, the Comision deLibre Competencia y Asuntos del Consumidor, or CLICLAC, ANAM, and an executive director. TheNational Energy Authority would be responsible for:

• establishing policies for the electricity sector;

• establishing criteria for the long-term contracting of capacity and energy;

• establishing procedures for the approval of concessions and licenses;

• reviewing energy dispatching processes and the CND’s structure and responsibilities; and

• promoting the construction of generation plants by the Panamanian Government.

The National Authority of Public Service

On February 22, 2006, by Decree Law No. 10, the ERSP was restructured and renamed and, as ofApril 2006, is known as the National Authority of Public Service. The National Authority of PublicService has the same responsibilities and functions as was held by the ERSP but has one GeneralAdministrator and one Executive Director, each appointed by the President of Panama andratified by the National Assembly, and has three National Directors under the Authority of theGeneral Administrator: one for the electricity and water sector, one for the telecommunicationsector and one for the customer service sector. National Directors are responsible for issuingresolutions relating to their respective industry, and appeals from these resolutions are taken tothe General Administrator as the final stage of the administrative process.

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ManagementOur Board of Directors consists of five members: two elected by the Panamanian Governmentand three elected by PDG. If a vacancy occurs, a new director is elected, thereby preservingrepresentation of each constituent shareholder. As of March 31, 2006, the directors, officers andexecutives listed below held the positions indicated opposite their names as of the date of thisoffering memorandum. The most recent election of directors was held on October 3, 2005. Ourexecutive officers are appointed by the Board of Directors and hold office at the discretion of theBoard of Directors.

Under our Articles of Incorporation, so long as it retains at least a 25% shareholding, theRepublic of Panama has the right to (i) appoint two of our five board members and (ii) vetoamendments to the Articles of Incorporation and by-laws, any merger, proposed merger, ordissolution, a change of domicile, the granting of security over the concession or any decision toengage in activities not strictly connected to the distribution or sale of electricity.

The executive management team members supervise and coordinate the activities of theCompany in their respective areas of expertise.

Name Age Position

K. George Wasaff . . . . . . . . . . . . 52 Director, President and Chief Executive Officer

Ubaldino A. Real . . . . . . . . . . . . . 42 Director

Dilio Arcia . . . . . . . . . . . . . . . . . . . 57 Director and Treasurer

Johan C. Hattingh . . . . . . . . . . . . 52 Director

Robert B. Barnes . . . . . . . . . . . . . 53 Director

Carlos G. Cordero . . . . . . . . . . . . 57 Secretary

Javier Pariente . . . . . . . . . . . . . . . 50 Executive Vice President and Chief Operating Officer/General Manager

Jaime A. Lammie . . . . . . . . . . . . . 52 Director of Wholesale Market Operations

Ramiro Troitiño . . . . . . . . . . . . . . 54 Director of Distribution and Engineering

Victor M. Inchausti . . . . . . . . . . . 35 Director of Customer Service

Eric Morales . . . . . . . . . . . . . . . . . 48 Director of Finance

Roque Ledesma . . . . . . . . . . . . . . 40 Director of Purchase and Logistics

Edwin R. Bustavino . . . . . . . . . . . 52 Information Systems Director

Beryl Bartoli . . . . . . . . . . . . . . . . . 44 Human Resources Manager

Margarita Aguilar . . . . . . . . . . . . 48 Quality Assurance Manager

Lorena V. Fabrega . . . . . . . . . . . . 34 Corporate Communications Manager

Mariel Jovane . . . . . . . . . . . . . . . . 28 Manager of the Legal Department

The following are summarized biographies of our directors, officers and executives.

K. George Wasaff (Director, President and Chief Executive Officer). Mr. Wasaff joined Elektra inhis current capacity in October 2005 concurrent with Ashmore’s acquisition of CPI, Limited fromConstellation Power, Inc. Mr. Wasaff is also currently a senior officer and executive with AshmoreEnergy Service Corp. (“Service Corp.”), and certain of its affiliates, where he has profit and loss

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accountability for energy investments and operations for companies affiliated with Service Corp.Prior to joining us, from March 1986 to October 2005, Mr. Wasaff worked at Enron Corp. where,during his tenure, was a senior executive and oversaw various aspects of expenditures andrestructuring during Enron’s bankruptcy. Mr. Wasaff was responsible for restructuring the supplychain, property and facility services, real estate, aviation, corporate risk management, anddisposition of certain domestic and international holdings. Mr. Wasaff joined Enron Corp.’sTranswestern Pipeline Company in 1986 as a senior marketing representative and has heldpositions of increasing responsibility including, among others, Vice President of Marketing forTranswestern Pipeline Company, Vice Chairman of the Board and Chief Executive Officer ofTransportadora de Gas de Sur S. A., a natural gas transportation company in Argentina, InterimPresident of Elektro—Eletricidade e Servicos S.A., an electric distribution company in Brazil, andSenior Vice President of Enron South America’s wholesale operations with profit and lossaccountability for natural gas transportation and power generation in Bolivia, Brazil, andArgentina. Mr. Wasaff began his career in the energy industry in 1978 with El Paso Natural GasCompany. Mr. Wasaff is a native of El Paso, Texas, holds a Bachelors degree in BusinessAdministration from the University of Texas at Austin and is licensed to practice publicaccountancy in the State of Texas. Mr. Wasaff currently serves on the boards of directors of CPI,Limited, PDG, AEI, and Ashmore International Utilities S.L. (Spain), the board of managers of AEI(Luxembourg) S.a.r.l. and is the President of PDG. He is a U.S. citizen, and his e-mail address [email protected].

Ubaldino A. Real (Director). Mr. Real was appointed Minister of the Presidency in September2004 where he serves as the Chief of Staff and Executive Authority overseeing the operation ofall public institutions. Prior to this appointment, from 1999 to 2004, Mr. Real was the Presidentand a Director of Millennium Holdings and was responsible for managing a portfolio ofbusinesses that includes real estate development projects, construction, reforestation andfinancial consulting. From 1998 to 1999, Mr. Real was a Partner at KPMG Peat Marwick, and from1995 to 1997, Mr. Real served as the Chief Financial Officer of Coral Gables Consulting Group.Prior to joining Coral Gables Consulting Group, from 1989 to 1995, Mr. Real worked at IBM (USA).Mr. Real has a Bachelors of Science degree in Industrial Engineering, a Masters of Science degreein Industrial Engineering and an M.B.A. each from the University of Texas A&M. Mr. Realcurrently serves on the boards of directors of Fortuna S.A., Empresa de Distribución de Chiriquí,Empresa de Transmision Electrica S.A. and Cable & Wireless Panama, S.A. He is both aPanamanian and U.S. citizen, and his e-mail address is [email protected].

Dilio Arcia (Director and Treasurer). Mr. Arcia has served as the Vice Minister of the Presidency.From 2001 to 2004, Mr. Arcia served as Deputy Director of the Legal Advisory Office, and from1995 to 1998, he served as the General Director of the National Lottery. Mr. Arcia has been ourTreasurer since September 2004. Mr. Arcia is an attorney and graduated from the UniversidadComplutense, Madrid, Spain with a Ph.D. in law. He currently serves on the boards of directors ofseveral other companies including Bahía Las Minas, Tocimer, S.A. and Cable & Wireless Panama,S.A. He is a Panamanian citizen, and his e-mail address is [email protected].

Johan Hattingh (Director). Since 1999, Mr. Hattingh has served as an independent managementconsultant and non-executive officer of various companies, providing advice on business strategy,corporate growth and governance. Mr. Hattingh has over 20 years’ experience in globalmerchant and investment banking having worked at institutions including Daiwa Europe Bankplc and the Industrial Bank of Japan where he served as Head of Derivatives and FinancialEngineering, at NatWest Markets where he served as Managing Director of Fixed Income and

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Futures, and at the Australia and New Zealand Bank as Head of Global Capital Markets.Mr. Hattingh holds Bachelors degrees in Industrial Psychology from the University ofJohannesburg and in Economics from the University of South Africa, a Master’s degree inInternational Economics from the University of South Africa and a Ph.D. in Financial Managementfrom the University of Johannesburg. Mr. Hattingh currently serves on the boards of directors ofIntergrum, Ltd., Bradley & Kent Ltd. and Ticaret Menkul Degerler. He is a U.K. citizen, and hise-mail address is [email protected].

Robert B. Barnes (Director). Mr. Barnes is a founding member and partner of Alchemy Partners,LLP, a private equity advisory firm formed in 1997. Prior to his work with Alchemy Partners,Mr. Barnes worked as a financial manager for financially distressed companies and as a SeniorManager at Coopers and Lybrand, London. Mr. Barnes has a Chemical Engineering degree fromthe University of Leeds, England and is a chartered accountant qualified both in the U.K. andCanada. Mr. Barnes currently serves on the boards of directors of Blagden Group NV, C2C PteLtd., Avingmen Ltd., New Horizon Youth Centre Ltd. and Alchemy Venture Partners Ltd. He is aU.K. citizen, and his e-mail address is [email protected].

Carlos G. Cordero (Secretary). Mr. Cordero is a founding partner of Alemán, Cordero, Galindo & Lee,our local Panamanian counsel, where he has been a practicing member since 1985. Mr. Corderocurrently serves as Secretary on our Board of Directors and has served in this capacity since October1998. Mr. Cordero graduated from the University of Panama with a Bachelors of Law degree and aPolitical Science degree. Mr. Cordero currently serves on the boards of directors of several othercompanies including Cable & Wireless Panama, S.A., Alcogal International Management, Inc.,Alemán, Cordero, Galindo & Lee Trust (BVI) Limited, Alemán, Cordero, Galindo & Lee (Bahamas)Limited, Alemán, Cordero, Galindo & Lee Trust (Panamá), S.A., Alemán, Cordero, Galindo & Lee(Belize) Limited, Parkdale Investment Inc., Meridional Properties, S.A., and Lansburg International,S.A. He is a Panamanian citizen, and his e-mail address is [email protected].

Javier Pariente (Executive Vice President and Chief Operating Officer/General Manager).Mr. Pariente joined us in October 1999 as Director of Finance and Administration and, inApril 2002, was promoted to Deputy General Manager as part of a corporate restructuring. InDecember 2003, he was appointed as our General Manager, also known as the Chief OperatingOfficer. Mr. Pariente is responsible for developing and overseeing the implementation of theCompany’s business plan, business mission and objectives in a profitable manner, ensuring theCompany’s economic and financial growth and quality service standards, and administering theCompany’s code of conduct and code of ethics. Mr. Pariente facilitates team integration, mentorssenior management and regularly evaluates management’s performance. Mr. Pariente’s is alsoresponsible for informing CPI, Limited and our Board of Directors of major developments,including changes in laws and regulations that may affect the present and future of theconcession. He is also responsible for preparing and presenting quarterly reports to the Board ofDirectors. Mr. Pariente is Elektra’s representative in civic organizations and when appearingbefore governmental authorities and the ERSP. Before joining us, from June 1995 to October1999, Mr. Pariente was the Executive Vice President of Importadora Ricamar, S.A., an importerand wholesale supermarket chain. Prior to that time, Mr. Pariente worked as Finance Managerfor Productos Avícolas Fidanque, performing credit analyses for Chase Manhattan Bank and as acredit officer for Citibank. During his professional career, he has participated in several civicorganizations and has served on the boards of directors of several local companies. Mr. Parienteholds a Bachelor’s degree in Business Administration from Universidad Santa María La Antigua.He is a Panamanian citizen, and his e-mail address is [email protected].

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Jaime A. Lammie (Director of Wholesale Market Operations). Mr. Lammie has been our Directorof Wholesale Market Operations since November 1998 and is responsible for managing ourcontractual obligations in the wholesale energy market, tariff issues and various aspects ofregulatory compliance and negotiations with large customers. Before joining us in 1998, he wasan Industrial Engineer and Total Quality Advisor for the Engineering and Housing of the UnitedStates Armed Forces—Panama Canal. Mr. Lammie also has 10 years of experience with IRHEwhere he worked as the Manager of the Tariff Department, Tariff Analyst and Chief of the TariffDivision. He has lectured for more than 20 years on finance and project evaluation at theUniversidad Tecnológica de Panamá and was a consultant for PDG during the privatizationprocess. Mr. Lammie holds a Master’s degree in Industrial Engineering from the University ofPanama. He is a Panamanian citizen, and his e-mail address is [email protected].

Ramiro Troitiño (Director of Distribution and Engineering). Mr. Troitiño has been our Directorof Distribution and Engineering since August 2002 and is responsible for our substations, thedistribution network’s operation and maintenance, capital expenditures, system optimization,technical service quality and system reliability. Before joining us in August 2002, Mr. Troitiño wasthe Project Manager at Sistemas Energéticos de Panama, S.A., an engineering and constructioncompany that specializes in mechanical and electrical works. Over the course of 16 years, he hasworked as the Commercial Manager for Guyana Electricity Company under a consulting contractwith the International Development Bank and at IRHE in various engineering and managerialpositions. Mr. Troitiño has a Bachelor of Science degree in Electromechanical Engineering fromthe University of Panama and has additional training from the Advance School in Power SystemEngineering in Pittsburgh, sponsored by Westinghouse Electric Corporation and PennsylvaniaState University. Mr. Troitiño currently serves on the boards of directors of Electrobras, S.A. andCorp. Jorama, S.A. He is a Panamanian citizen, and his e-mail address is [email protected].

Victor M. Inchausti (Director of Customer Service). Mr. Inchausti has been our Director ofCustomer Service since February 2002. Mr. Inchausti is responsible for providing proper andtimely attention to our existing and new customers’ requirements. He also supervises the designand implementation of the meter reading cycle plan, customers’ monthly invoices, billing analysisand validation, customer claims, commercial operations (inspections, new connections,disconnections, reconnections), the loss program and the call center. His department assures thatthe quality of service satisfies commercial regulations. From August 2000 to January 2002,Mr. Inchausti was the Administrative Manager of Comercial Jaar S. de R. L, an automobiledistributor, where he supervised all operations. Mr. Inchausti holds a Bachelor of Science degreein Civil Engineering from the University of Florida, Gainesville, and a Master’s degree in CivilEngineering and a Master’s of Industrial Engineering from Texas A&M University. He is both aPanamanian and U.S. citizen, and his e-mail address is [email protected].

Eric Morales (Director of Finance). Mr. Morales has been our Director of Finance since January 2003.Mr. Morales is responsible for all aspects of our finance department including cash flow, ourrelationship with financial institutions, capital and operational expenditures, budgets, financialmodels, accounting, and premises management. Mr. Morales is also responsible for implementingand testing financial reporting of internal controls. Before joining us, Mr. Morales was the FinanceManager of Maersk Panama, S.A., the shipping agent representative of Maersk Sealand. During histen-year career at Maersk, he had the opportunity to work in Brazil and Mexico, occupying a similarposition. Previously, he worked as Finance Manager for DHL Panama and Venezuela and as anauditor for KPMG. Mr. Morales holds a Bachelor’s degree in Accounting from Universidad Nacional dePanama. He is a Panamanian citizen, and his e-mail address is [email protected].

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Roque Ledesma (Director of Purchase and Logistics). Mr. Ledesma has been our Director ofPurchase and Logistics since June 2005. He is responsible for procuring and our efficient use ofresources and services needed for our operations. Mr. Ledesma has also served as our Director ofCommercial Operations, overseeing the loss reduction program and commercial operations, aspart of our strategy to increase efficiency, and as our Director of Loss Reduction, Director ofDistribution and Engineering, and Director of Process Improvement. Before joining us,Mr. Ledesma worked for Electroingeniería, an electromechanical construction company, as theProject Coordinator for the La Rioja transformer station and the Aucayacu-Tingo Maríatransmission line in northeast Peru. Mr. Ledesma also served as the Chief of Technical QualityControl for EDEFOR, S.A., the electricity distributor serving the province of Formosa, and EDECAT,S.A., the electricity distributor serving the province of Catamarca. Mr. Ledesma studied electricaland electronic engineering at the Universidad Nacional de Córdoba in Argentina and is currentlycompleting a managerial degree at the Universidad Latinoamericana de Ciencias y Tecnología inPanama. He is an Argentine citizen, and his e-mail address is [email protected].

Edwin R. Bustavino (Information Systems Director). Mr. Bustavino has been our InformationSystems Director since November 1998. He is responsible for planning, organizing and developingall aspects of automation and corporate information systems. He is also responsible foroverseeing our Business Continuity Program. Mr. Bustavino has an Industrial Engineering degreefrom the University of Panama and postgraduate qualification in Industrial Administration fromthe Universidad Santa María La Antigua. He is a Panamanian citizen, and his e-mail address [email protected].

Beryl Bartoli (Human Resources Manager). Ms. Bartoli has been our Manager of HumanResources since July 2003 and is responsible for recruiting and training, performance evaluationsand salary administration. Ms. Bartoli also oversees our Industrial Safety, Health and EnvironmentDepartment. Before joining us, from January 1993 to June 2003, Ms. Bartoli was the HumanResources Manager for Franquicias Panameñas, S.A., a fast-food franchise company. Ms. Bartolihas also worked as a human resources official for Administración de Seguros (ASSA), a leadinglocal insurance company, and Cervecería Nacional, the largest local brewing company. Ms. Bartoliholds a Bachelor’s degree in Psychology from Universidad Santa María La Antigua and, for severalyears, has lectured on the subject at the Universidad Latina. She is a Panamanian citizen, and here-mail address is [email protected].

Margarita Aguilar (Quality Assurance Manager). Ms. Aguilar has been our Quality AssuranceManager since June 2000. She is responsible for the Process Improvement Department andInformation Technology Security Administration, ensuring continuous improvement and processredesigns and information technology security with a focus on logical, technical and physicalsystem information protection and its related infrastructure. The Quality Assurance Unit alsoparticipates in risk evaluation and testing of our financial reporting on internal controls. Beforejoining us in June 2000, Ms. Aguilar worked for the Autoridad de la Región Interoceánica (ARI) asthe Director of Organization and Information Systems. Before joining ARI, Ms. Aguilar workedfor 13 years at IRHE in its Human Resources, Planning, Information Technology andAdministration & Development departments. Ms. Aguilar has an Industrial Engineering degreefrom Universidad Tecnológica de Panama and has studied public management postgraduate atUniversidad de Panama. Ms. Aguilar is currently completing her MBA in organizationalcommunications at the Universidad Santa Maria La Antigua. She is a Panamanian citizen, and here-mail address is [email protected].

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Lorena V. Fabrega (Corporate Communications Manager). Ms. Fabrega has been our CorporateCommunications Manager since December 2002. She is responsible for customer and publicrelations and community service programs. She is also responsible for our public image and is theprimary contact with the media and is responsible for the Crisis Management Manual. Prior tojoining us, from September 2000 to November 2002, Ms. Fabrega worked as the AdministrativeManager for Airesistemas, S.A., supervising its Accounting, Finance and Human Resourcesdepartments. Prior to September 2000, Ms. Fabrega was the Executive Director for the LatinAmerican Journalism Center (CELAP), a nonprofit organization that conducts workshops,conferences and other educational forums for professional journalists in the Latin Americaregion. While working for Airesistemas and CELAP, she was also co-anchor on a weeklyeducational television show “De Mujeres y de Todo,” and a Latin American consultant for theMedia Development Loan Fund, a nonprofit organization based in Prague, Czech Republic, thatprovides capital to promising mass media communication companies to promote strong andindependent press in the former Soviet Union, Central and Eastern Europe, Africa, Asia and LatinAmerica. Ms. Fabrega is currently a member of the Panama Sur Rotary Club and the PanamanianAssociation of Business Executives. She holds a Bachelor’s degree in Journalism, having minoredin Marketing, from Texas A&M University. She is both a Panamanian and U.S. citizen, and here-mail address is [email protected].

Mariel Jovane (Manager of the Legal Department). Ms. Jovane has been the Manager of ourLegal Department since October 2004 and, from February 2004 to September 2004, was our Chiefof the Legal Department. From 2002 until September 2004, Ms. Jovane served as our legaladvisor. Ms. Jovane is responsible for coordinating all legal and contractual matters and advisingthe Company about regulatory and compliance issues. She is also responsible for providing legalsupport to the Human Resources department regarding labor and union issues. Prior to joining usin 2002, Ms. Jovane worked as a legal advisor for the ERSP. Ms. Jovane is an attorney admitted topractice in Panama and holds an undergraduate degree in Political Science from ULACIT.Ms. Jovane has a post-graduate degree in Strategic Administration and an MBA in finance fromULACIT. Ms. Jovane is also a member of the Colegio Nacional de Abogados de Panama. She is aPanamanian citizen, and her e-mail address is [email protected].

Each of the Company’s directors, officers and executives can be reached through Elektra Noreste,S.A., at Edificio Hatillo, Torre A, Ave., Justo Arosemena y Ave. Cuba, Panama City, Republic ofPanama. The telephone number of Elektra Noreste, S.A. is 507-207-0008.

Board composition

We currently have a five member board of directors, three of whom are appointed by PDG andtwo by the Republic of Panama. The board’s present membership is listed below.

Name Elected or Appointed By Member of the Board Since

Ubaldino A. Real . . . . . . . . . . . . Republic of Panama September 2004Dilio Arcia . . . . . . . . . . . . . . . . . . Republic of Panama September 2004K. George Wasaff . . . . . . . . . . . . PDG October 2005Robert B. Barnes . . . . . . . . . . . . . PDG October 2005Johan C. Hattingh . . . . . . . . . . . PDG October 2005

The Articles of Incorporation requires that at least 51% of the voting shares be present to have aquorum necessary for a valid shareholder’s meeting. The Board of Directors manages our

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day-to-day business operations and has been given full authority to manage our affairs, exceptfor those items that must be decided upon by the shareholders by law or pursuant to the Articlesof Incorporation.

Committees of the board of directors

Our Board of Directors has an Audit Committee, which currently consists of Mr. Robert B. Barnes,as President, Mr. K. George Wasaff and Mr. Ubaldino A. Real. Our audit committee oversees ourfinancial reporting process and reviews; the effectiveness of our internal financial control riskmanagement system; the effectiveness of our internal audit function; our independent auditprocess including recommending the appointment and assessing the performance of the externalauditor; and our process for monitoring compliance with laws and regulations affecting financialreporting and, if applicable, our code of conduct. Starting in February 2006, our audit committeemembers receive a fixed fee of US$750 for each meeting attended.

Compensation

Directors’ compensation

During 2005, directors each received a fixed fee of US$750 for each meeting attended, plusreimbursement of their out-of-pocket expenses.

Executive officers’ compensation

The aggregate compensation earned by our 11 executive officers listed above, for 2005 wasUS$1.1 million. This compensation consists of a base salary of US$0.8 million and annual bonus ofUS$0.2 million. Our annual bonus plan considers both company performance, throughcomparison to established targets and financial performance of our peers, and individualperformance.

Corporate governance

Although we currently do not have a corporate governance policy, we have adopted certaincorporate governance practices including (i) establishing an audit committee whose functions aredescribed above, (ii) adopting a code of ethics and an antifraud program, (iii) performingvoluntary internal control testing, (iv) using certified systems for our billing and metering systemsand (v) providing a third-party customer and employee whistle-blower complaint line.

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Principal shareholdersAt March 31, 2006, our issued and outstanding share capital consisted of 50,000,000 shares ofcommon stock, without par value, having one vote per share.

The following table sets forth our shareholders, the respective number of our shares owned bythem and their percentage shareholdings as of March 31, 2006.

Title of Class Name of beneficial owner

Amount and natureof beneficial

ownershipPercent of

class(1)

Common Stock . . . . . Panama Distribution Group 25,500,000 51.00%Common Stock . . . . . The Republic of Panama 24,127,549 48.25%Common Stock . . . . . Elektra’s Employees 212,420 00.43%

(1) The remaining 0.32% is held in treasury stock. The shares held in treasury are shares that were initially purchased by Elektraemployees, which were repurchased by us. We have no present intention to cancel or reissue these treasury shares.

Under our Articles of Incorporation (Pacto Social), PDG, as the majority shareholder, may not sellpart of its shares while the Concession Contract remains in force and has no preferential rights ofacquisition in relation to the Panamanian Government’s remaining shares. PDG has thepre-emptive right to purchase its pro rata share of any newly issued shares.

Our majority shareholder, PDG, is owned by CPI, Limited. CPI, Limited has been owned by certaininvestment funds managed by Ashmore. However, due to a corporate restructuring at theAshmore level, these investment funds have contributed their collective ownership of CPI,Limited to a wholly-owned subsidiary of AEI and have been issued shares in AEI following thiscontribution. These investment funds are the controlling shareholders of AEI, which owns 100%of PDG, through AEI’s indirect ownership of CPI, Limited.

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Related party transactionsConcession contract

Our distribution concession is governed by the Concession Contract dated October 22, 1998,between us and the ERSP. See “Business—Concession Contract.”

Management agreements

Pursuant to a Management Consulting Agreement dated November 16, 1998 (the “ManagementConsulting Agreement”) between Constellation Power, Inc. and us, as amended and assigned toCPII, a holding company that owns PDG, our majority shareholder, and which is now known asCPI, Limited, on March 4, 2002, CPI, Limited provides management and consulting services to usin exchange for an annual fee equal to 6% of our earnings before interest, taxation, depreciationand amortization for the relevant fiscal year for the first five years of the Concession Contractand 4% of our earnings before interest, taxation, depreciation and amortization for the relevantfiscal year beginning with the sixth year of the Concession Contract. The Management ConsultingAgreement was for an initial term of five years and is now automatically renewed annually solong as CPI, Limited or an affiliate owns at least 25% of PDG.

Pursuant to a management agreement dated October 30, 1998 (the “Management Agreement”)between CPII, a holding company that owns PDG, our majority shareholder, and which is nowknown as CPI, Limited, and Panama Distribution Group, CPI, Limited provides managementservices to PDG in exchange for reimbursement of its costs and expenses, up to US$25,000annually. The Management Agreement was for an initial term of five years and is now renewedannually so long as CPI, Limited or an affiliate owns at least 25% of PDG.

Neither the Management Consulting Agreement nor the Management Agreement may beassigned by either party thereto without the consent of the other party, except that CPI, Limitedmay assign its agreement to any of its controlled affiliates.

Legal services

Alemán, Cordero, Galindo & Lee is our local Panamanian counsel, and Mr. Carlos Cordero, apartner of that firm, serves as our corporate Secretary.

Energy sales and purchases

In the normal course of business, we purchase electricity from the generating and otherdistribution companies, sell energy to governmental institutions and make payments to thetransmission company. These transactions are made and under the terms and conditions of thepower purchase agreements and transmission fees are paid as discussed elsewhere in thisoffering memorandum and in our audited financial statements and notes thereto.

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Description of other indebtednessSyndicated long-term loan agreement

On October 19, 2004, we entered into a syndicated long-term loan agreement in an aggregateprincipal amount of US$100.0 million with a bank syndicate composed of Banco Continental dePanama, S.A., Citibank, N.A., Panama Branch, Primer Banco del Istmo, S.A., and Banco BilbaoVizcaya Argentaria (Panama), S.A. and Elektra Noreste, S.A., or the Syndicated Long-Term Loan.At the time we entered into this Syndicated Long-Term Loan, using part of the proceeds, wesatisfied our obligations under our existing loan and fully repaid the outstanding balance. TheSyndicated Long-Term Loan agreement provides for borrowings of up to US$100.0 million andhas a term of ten years.

As of March 31, 2006, our outstanding indebtedness under our Syndicated Long-Term Loanagreement was US$95.2 million of which, US$5.0 million is short-term indebtedness and US$1.4million is interest payable on that long-term indebtedness. See “Management’s Discussion andAnalysis of Financial Condition and Results of Operation—Indebtedness.”

We will use the proceeds of this offering to repay all outstanding amounts under the SyndicatedLong-Term Loan, including principal and interest. See “Use of Proceeds.”

Short-term credit facilities

Our short-term indebtedness, including the current portion of long-term indebtedness wasUS$12.0 million as of March 31, 2006 from US$10.0 million as of December 31, 2005, primarily asa result of the US$2.0 million increased borrowings under our short-term credit facilities for anaggregate principal amount of US$7.0 million and amortization payments due under theSyndicated Long-Term Loan in the first quarter of 2006 of US$5.0 million.

We use our short-term credit facilities for the issuance of promissory notes or the issuance,negotiation and refinancing of letters of credit with maximum tenor of up to one year. As ofMarch 31, 2006, we had US$2.0 million in borrowings under our Citibank Credit Facility, US$5.0million in borrowings under our Banco Billbao Credit Facility and approximately US$5.0 million inletters of credit to guarantee for our payment obligations to ETESA. See “Management’sDiscussion and Analysis of Financial Condition and Results of Operation—Indebtedness—Short-Term Indebtedness.”

To the extent there are amounts remaining, we will use the proceeds of this offering to repayoutstanding amounts under our short-term credit facilities. See “Use of Proceeds.”

AEI credit agreement

Ashmore Energy International Limited (“AEI”) has entered into credit facilities among variousfinancial institutions (the “AEI Facilities”). Under the terms of the AEI Facilities, AEI and itssubsidiaries, including us, are subject to certain covenants, including covenants that limit ourability to:

• incur additional indebtedness;

• incur, repay or prepay amounts under our short-term credit facilities in an aggregate amountgreater than US$50.0 million outstanding at any one time;

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• incur additional liens;

• make certain investments;

• make distributions on a non-ratable basis to our shareholders;

• issue capital stock (other than to AEI or other wholly owned subsidiaries of AEI);

• make voluntary payments of our indebtedness (other than in the context of a refinancing);

• engage in liquidations, dissolutions and mergers (other than into or with another AEIsubsidiary);

• dispose of certain of our assets;

• enter into transactions with affiliates, unless on fair and reasonable terms no less favorablethan could be obtained in arm’s length transaction with a person who is not an affiliate;

• enter into certain agreements that prohibit us from creating or assuming any lien upon ourproperty or making any payment to AEI;

• enter into sale and leaseback transactions;

• change our line of business; and

• modify our organizational documents or the Indenture governing these Notes (other than inthe context of a refinancing) .

In each case, the limitations are subject to a number of exceptions, materiality qualifiers andbaskets. We believe that the above covenants will not impact our ability to conduct our currentoperations and implement our business plan going forward.

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Description of the notesThe following summary describes the material provisions of the Notes and the Indenture underwhich the Notes will be issued. This summary does not purport to be complete and is subject to,and qualified in its entirety by reference to, the provisions of the Indenture and the Notes. In thissummary, all references to “Elektra,” “we,” “our,” “ours” and “us” refer to Elektra Noreste, S.A.,except as otherwise provided. Capitalized terms used in the following summary and nototherwise defined herein shall have the meanings ascribed to them in the Indenture.

General

We will issue US$100,000,000 Notes due July 12, 2021 under an Indenture to be dated as ofJune 15, 2006 (the “Indenture”) between us and The Bank of New York, as trustee, registrar, NewYork paying agent and transfer agent (the “Trustee”).

The Notes will have the following basic terms:

• The Notes will be in an aggregate principal amount of US$100,000,000. The principal amountof the Notes will be payable in full in a single payment upon maturity unless the Notes areredeemed earlier pursuant to the terms of the Indenture.

• The Notes will bear interest from July 10, 2006 at the rate of 7.60% per annum (such rate, the“Note Rate”) until the maturity of the Notes on July 12, 2021 payable semiannually in arrearson January 12 and July 12 of each year, commencing on January 12, 2007, to the holders of theNotes registered as such as of the close of business on a record date being the tenth businessday preceding each such payment date. Interest on the Notes will be computed on the basis ofa 360-day year of twelve 30-day months. Default interest will accrue at the Note Rate plus1% per annum.

Ranking

The Notes will be our direct unsecured unsubordinated obligations and will rank pari passu inright of payment with each other and with all other present and future unsecured andunsubordinated obligations of ours that are not, by their terms, expressly subordinated in rightof payment to the Notes. However, the Notes will rank junior to statutory preferred obligationsas described under “Risk Factors—Risks Relating to the Notes—Our obligations under the Notesare subordinated to our payment of certain statutory liabilities.”

The Notes will effectively be subordinated to our secured unsubordinated debt to the extent ofthe value of the assets collateralizing such indebtedness.

All of our operations are conducted by us. We currently have no subsidiaries. We may establishsubsidiaries in the future and engage in additional operations through those new subsidiaries.The claims of creditors of our subsidiaries will have priority over our equity rights and the rightsof our creditors, including holders of the Notes, to participate in the assets of any of oursubsidiaries upon the subsidiary’s liquidation. See “Risk Factors—Risks Relating to the Notes—TheNotes will be structurally junior to the indebtedness and other liabilities of future subsidiaries wemay establish.”

Listing

Application has been made to list the Notes on the Bolsa de Valores de Panama, S.A. (the“Panama Stock Exchange”). We will not list the Notes on any other exchange outside of Panama.

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Further issuances

The Indenture by its terms does not limit the aggregate principal amount of Notes that may beissued thereunder and permits the issuance, from time to time, of additional Notes of the sameseries as is being offered hereby; provided, however, that: (i) no default or event of defaultunder the Indenture shall have occurred and then be continuing or shall occur as a result of suchadditional issuance (ii) such additional Notes rank pari passu and have equivalent terms andbenefits as the Notes offered in this offering memorandum and (iii) the then current rating onthe Notes is reconfirmed in writing by the applicable rating agencies after giving effect to suchadditional issuance of Notes. Any additional Notes will be part of the same series as the Notesthat we are offering hereby and holders of such additional Notes will vote on all matters relatingto the Notes as a single class with holders of the Notes offered hereby.

Calculation of interest amounts

The Notes will bear interest on the principal amount thereof at a fixed interest rate 7.60% perannum (the “Note Rate”), until all required amounts due in respect thereof have been paid.Interest on the Notes will be paid semiannually in arrears on January 12 and July 12, in each yearcommencing January 12, 2007. Interest for the first interest period will accrue from July 10, 2006.

Payments of interest on a Note, other than the last payment of principal and interest or paymentin connection with a redemption of the Notes prior to maturity, will be made on each paymentdate to the person in whose name the Note is registered at the close of business, New York Citytime, on the record date, which shall be the date ten business days prior to such payment date,immediately preceding each such payment date.

Payments of principal and interest

If requested by the Trustee or pursuant to any applicable DTC rules, payment of the principal ofthe Notes at maturity, together with accrued and unpaid interest thereon at the Note Rate, orpayment upon redemption prior to maturity, will be made only:

• following the surrender of the Notes at the office of the Trustee or any paying agent; and

• to the person in whose name the Note is registered as of the close of business, New York Citytime, on the due date for such payment.

• Payments of principal and interest shall be made by depositing immediately available funds inU.S. dollars into an account maintained by the Trustee, acting on behalf of the holders of theNotes.

The Notes will initially be represented by one or more global notes, as described below under“—Global Notes.” Payments of principal and interest on the global Notes will be made to DTC orits nominee, as the case may be, as registered holder thereof. It is expected that such registeredholder of global Notes will receive the funds for distribution to the holders of beneficial interestsin the global Notes. Neither we nor the Trustee shall have any responsibility or liability for any ofthe records of, or payments made by, DTC or its nominee or Euroclear, Clearstream or Latinclear.

If any date for a payment of principal or interest or redemption is not a business day in the city inwhich the relevant paying agent is located, we will make the payment on the next business dayin the respective city. No interest on the Notes will accrue as a result of this delay in payment.

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We have appointed the Trustee as New York paying agent to receive payment of the principalamount of and interest on the Notes. We will be required to make all payments of principal ofand interest and other amounts on the Notes to the principal paying agent by 1:00 p.m. (NewYork City time) on the business day prior to the applicable payment date and otherwise inaccordance with the terms of the Indenture.

Payments in respect of the Notes will be made in the coin or currency of the United States ofAmerica as at the time of payment shall be legal tender for the payment of public and privatedebts.

In the case of amounts not paid by us under the Notes when due, interest will continue to accrueon such amounts at a rate equal to the default rate (i.e., 1% in excess of the Note Rate), fromand including the date when such amounts were due (after giving effect to any applicable graceperiod therefor), and through but excluding the date of payment by us.

Subject to applicable law, the Trustee and the paying agents will pay to us upon request anymonies held by them for the payment of principal or interest that remains unclaimed for twoyears. Thereafter, holders of the Notes entitled to these monies must seek payment from us.

Payment of additional amounts

Except as provided below, we will make all payments of principal, redemption amount, andinterest on the Notes without withholding or deducting any present or future taxes, duties,assessments or other governmental charges (including any interest or penalties with respectthereto) of any nature imposed by the Republic of Panama or any political subdivision orgovernmental authority of the Republic of Panama and any jurisdiction through which paymentsare made by a paying agent (each a “Taxing Jurisdiction”). If we are required by law to withholdor deduct any such taxes, duties, assessments or other governmental charges, except as providedbelow, we will pay the holders of the Notes any additional amounts necessary to ensure that theyreceive the same net amount as they would have received had no such withholding or deductionbeen required.

We will not, however, pay any additional amounts in connection with any tax, duty, assessmentor other governmental charge solely to the extent that such tax, duty, assessment or othergovernmental charge is imposed due to any of the following:

(i) the holder of the Notes or beneficial owner has some connection (present or former) withthe Taxing Jurisdiction other than merely holding (or owning) the Notes, receiving principalor interest payments on the Notes or enforcing rights under the Notes (such as, withoutlimitation, citizenship, nationality, residence, domicile, or existence of a business, apermanent establishment, a dependent agent, a place of business or a place of managementpresent or deemed present within a Taxing Jurisdiction);

(ii) the holder of the Notes or beneficial owner fails to comply with any certification,identification or other reporting requirements concerning its nationality, residence, identityor connection with the Taxing Jurisdiction, if (x) such compliance is required by applicablelaw, regulation, administrative practice or treaty as a precondition to exemption from all ora part of the tax, duty, assessment or other governmental charge, (y) at least 60 calendardays prior to the relevant payment date with respect to which such requirements under theapplicable law, regulation, administrative practice or treaty shall apply, we or the Trusteehave notified all holders of the Notes that they will be required to comply with such

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requirements (except that such 60 calendar day period shall be shortened to 30 calendar dayswhere there is a change in a relevant certification, identification or other reportingrequirement within the 60 calendar days prior to such relevant payment date), and (z) thecompletion of such forms is not materially onerous and does not require the disclosure ofmaterial confidential information;

(iii) the holder of the Notes fails to present (where presentation is required) its Note within 30calendar days after we have made available to the holder of the Notes a payment ofprincipal or interest; provided, however, that we will pay additional amounts which suchholder of the Notes would have been entitled to had the Note owned by such holder of theNotes been presented on any day (including the last day) within such 30-day period; or

(iv) except as otherwise provided, any estate, inheritance, gift, use, transfer, sales, personalproperty or any similar taxes, assessments or other governmental charges.

We will also (i) make such withholding or deduction and (ii) remit the full amount withheld ordeducted to the relevant taxing authority in accordance with applicable law. Upon writtenrequest from the Trustee, we will furnish to the Trustee, within 30 business days after the date ofpayment of any such taxes, certified copies of tax receipts or, if such receipts are not obtainable,documentation reasonably satisfactory to the Trustee evidencing such payment by us. Uponwritten request of the holders of the Notes to the Trustee, copies of such receipts or otherdocumentation, as the case may be, will be made available to the holders of the Notes. At least10 business days prior to each date on which any payment under or with respect to the Notes isdue and payable, if we have actual knowledge that we are then obligated to pay additionalamounts with respect to such payment, we will deliver to the Trustee an officer’s certificatestating that additional amounts will be payable, the amounts so payable and setting forth suchother information as the Trustee may reasonably require for tax purposes.

To give effect to the foregoing, we will, upon the written request of any holder of the Notes,indemnify and hold harmless and reimburse such holder of the Notes for the amount of anytaxes, duties, assessments or other governmental charges of any nature imposed by any TaxingJurisdiction (other than any such taxes, duties, assessments or other governmental charges forwhich the holder of the Notes would not have been entitled to receive additional amountspursuant to any of the conditions described in the second paragraph of this section titled“Payment of Additional Amounts”) so imposed on, and paid by, such holder of the Notes as aresult of such payment of principal or interest on the Notes, so that the net amount received bysuch holder of the Notes after such reimbursement would not be less than the net amount theholder of the Notes would have received if such taxes, duties, assessments or other governmentalcharges had not been imposed or levied and so paid. Holders of the Notes will be obligated toprovide reasonable documentation and to cooperate with us in connection with the foregoing.

We will also pay any stamp, administrative, court, documentary, excise or similar taxes arising in aTaxing Jurisdiction in connection with the Notes and will indemnify the holders of the Notes forany such taxes paid by holders of the Notes. The Notes are deemed “bonos” for Panamanian taxpurposes.

All references to principal, interest, or other amounts payable on the Notes shall be deemed toinclude any additional amounts payable by us under the Notes or the Indenture in respectthereof as and to the extent described above. The foregoing obligations shall survive anytermination, defeasance or discharge of the Notes and the Indenture.

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If we shall at any time be required to pay additional amounts to holders of the Notes pursuant tothe terms of the Notes and the Indenture, we will use our reasonable endeavors to obtain anexemption from the payment of (or otherwise avoid the obligation to pay) the tax, duty,assessment or other governmental charge which has resulted in the requirement that we paysuch additional amounts.

Certain covenants

For as long as any of the Notes are outstanding or any amount remains unpaid on such Notes andwe have obligations under the Indenture and the Notes, we will, and (as applicable) will causeeach of our subsidiaries to, comply with the terms of the covenants, among others, set forthbelow:

Performance of obligations under the notes and the indenture

We shall duly and punctually pay all amounts owed by us, and comply with all of our otherobligations, under the terms of the Notes and the Indenture.

Maintenance of corporate existence

We will, and will cause each of our subsidiaries to, maintain in effect our and their respectivecorporate existence (subject to our ability to consummate certain transactions as described belowunder “—Limitation on Consolidation, Merger, Sale or Conveyance”) and all registrationsnecessary therefor and take all actions to maintain all rights, privileges, titles to property,franchises and the like necessary for or required in connection with the normal conduct of ourconsolidated business, activities or operations; provided, however, that this covenant shall notrequire us or any of our subsidiaries to maintain any such right, privilege, title to property,franchise or the like or require us to preserve the corporate existence of such subsidiary, if wereasonably believe that the failure to do so does not and will not have a material adverse effecton either (i) our consolidated business, activities, operations, financial condition and results ofoperation, or (ii) the rights of the holders of the Notes in respect of the Notes and the Indenture(each, a “Material Adverse Effect”).

Compliance with laws

We will use our reasonable best efforts, and will cause our subsidiaries to use their respectivereasonable best efforts, to comply at all times with all applicable laws, rules, regulations, ordersand directives of any government or government agency or authority having jurisdiction over us,our business or any of the transactions contemplated herein, except (i) when in our reasonablebelief the failure by us or such subsidiary to comply would not have a Material Adverse Effect or(ii) where the necessity of compliance therewith is being contested by us in good faith byappropriate proceedings.

Maintenance of government approvals

We will use our reasonable best efforts, and will cause our subsidiaries to use their respectivereasonable best efforts, to obtain and maintain in full force and effect all governmentalapprovals, consents or licenses of any government or governmental agency or authority or any

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third party under the laws of Panama or any other jurisdiction having jurisdiction over us, in allcases which are necessary for us to perform our obligations under the Notes and the Indenture(including, without limitation, any authorization required to obtain and transfer U.S. dollars orany other currency which at that time is legal tender in the United States out of Panama inconnection with the Notes and the Indenture) or for the validity or enforceability thereof, exceptwhen in our reasonable belief the failure to do so would not have a Material Adverse Effect.

Payments of taxes and other claims

We will use our reasonable best efforts, and will cause our subsidiaries to use their respectivereasonable best efforts, to pay or discharge or cause to be paid or discharged, before the sameshall become delinquent, (i) all taxes, assessments and governmental charges levied or imposedupon us or any subsidiary, as the case may be, and (ii) all lawful claims for labor which, if unpaid,would by law become a lien upon the property of us or any subsidiary, as the case may be;provided, however, that neither we nor any subsidiary will be required to pay or discharge orcause to be paid or discharged any such tax, assessment, charge or claim for which appropriatereserves as required by U.S. GAAP have been made and whose amount, applicability or validity isbeing contested in good faith and, if appropriate, by appropriate legal proceedings or where thefailure to pay or discharge or cause to be paid or discharge would not have a Material AdverseEffect.

Maintenance of insurance

We will use our reasonable best efforts, and will cause each of our subsidiaries to use theirrespective reasonable best efforts, to maintain adequate insurance coverage with insurancecompanies that we and our subsidiaries reasonably believe to be financially sound in suchamounts and covering such risks as are usually carried by companies engaged in similar businessesand owning and/or operating properties or facilities similar to those owned and/or operated byus or our subsidiaries, as the case may be, in the same general locations in which we and oursubsidiaries own and/or operate our properties or facilities, except where the failure to maintainsuch insurance would not have a Material Adverse Effect.

Independent auditors

For so long as the Notes are outstanding, we shall engage an internationally recognizedindependent accounting firm to audit our financial statements and otherwise provide necessaryaccounting services to us in connection therewith.

Maintenance of books and records

We shall maintain books, accounts and records in relation to our business and activities in allmaterial respects as required by applicable law.

Maintenance of office or agency

We shall maintain an office or agency in the Borough of Manhattan, the City of New York, wherenotices to and demands upon us in respect of the Indenture and the Notes may be served.Initially this office will be at CT Corporation System, and we will agree not to change thedesignation of such office without prior notice to the Trustee and designation of a replacementoffice in the Borough of Manhattan, the City of New York.

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Ranking

We will use our reasonable best efforts to ensure that the Notes are direct, unsecuredunsubordinated obligations of ours and rank pari passu, in right of payment with each other andwith all other present and future direct, unsecured and unsubordinated obligations of ours thatare not, by their terms, expressly subordinated in right of payment to the Notes other thanstatutory preferred obligations as described in “Risks Relating to the Notes” above.

Notice of certain events

We will promptly give notice to the Trustee after our senior executive officers become aware ofthe occurrence of any (i) event of default or an event which with the passage of time or giving ofnotice may become an event of default (a “default”), accompanied by a certificate of a seniorexecutive officer of ours setting forth the details of such event of default or default and statingwhat action we propose to take with respect thereto, and (ii) any communication received by usfrom, or sent by us to, ESRP or any other applicable Panamanian governmental or regulatoryauthority in connection with any material noncompliance with the terms of the ConcessionContract, or threatened early termination of the Concession Contract.

Certificate of compliance

At the time we provide the Trustee with our annual financial statements, and in any event notlater than 180 days after the end of our fiscal year (or at any other time as reasonably requestedby the Trustee), we will provide the Trustee with an officer’s certificate in English certifying thatup to a specified date no earlier than seven days prior to the date of such certificate, we havecomplied with our obligations under the Notes and the Indenture (or, if such is not the case,giving the details of the circumstances of such non-compliance) and that as of such date there didnot exist nor had there existed at any time prior thereto since the date of delivery of the previoussuch certificate (or, in the case of the first such certificate, the date of the Indenture) any defaultor event of default under the Notes or the Indenture.

Limitation on Liens

So long as any Note remains outstanding, we will not, and will not permit any subsidiary to,directly or indirectly, create, assume, incur or suffer to exist any Lien on any of our or its propertyor assets whether now owned or hereafter acquired whether arising in connection with theincurrence of any Indebtedness or otherwise (“Other Indebtedness”), unless at such time wecontemporaneously create or permit such Lien to secure equally and ratably the Indebtednessrepresented by the Notes until such time as the Other Indebtedness shall no longer be secured byany such Lien. Notwithstanding the foregoing, we and our subsidiaries may create, assume, incuror suffer to exist Permitted Liens.

As used in this covenant, the following terms have the meanings set forth below:

“Consolidated Net Worth” means the sum of stockholder’s equity, preferred stock and minorityinterest as set forth in our consolidated financial statements.

“Fair Market Value” means, with respect to any property or asset, the price, which could benegotiated in an arm’s length free market transaction, for cash, between a willing seller and awilling buyer, neither of whom is under undue pressure or compulsion to complete the

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transaction. Fair Market Value will be determined, except as otherwise provided, (a) if suchproperty or asset has a Fair Market Value of less than US$10.0 million, by any of our officers or(b) if such property or asset has a Fair Market Value in excess of US$10.0 million, by a majority ofour board of directors and evidenced by a resolution of our board of directors, dated within 30days of the relevant transaction, delivered to the Trustee; provided that, if such property or assethas a Fair Market Value equal to or greater than US$25.0 million and the seller or buyer of suchproperty or asset is our affiliate, the Fair Market Value of such property or asset will bedetermined by a majority of the directors on our board who are not representatives of suchaffiliate (so long as there must be at least one such director) in their reasonable good-faithjudgment based on full disclosure of all relevant facts and circumstances.

“Guarantee” means, as to any person, (a) any obligation contingent or otherwise, of such personguaranteeing or having the economic effect of guaranteeing any Indebtedness or otherobligation payable or performable by another person (the “Primary Obligor”) in any manner,whether directly or indirectly, and including any obligation of such person, direct or indirect,(i) to purchase or pay (or advance or supply funds for the purchase or payment of) suchIndebtedness or other obligation, (ii) to purchase or lease property, securities or services for thepurpose of assuring the obligee in respect of such Indebtedness or other obligation of thepayment or performance of such Indebtedness or other obligation, (iii) to maintain workingcapital, equity capital or any other financial statement condition or liquidity or level or income orcash flow of the Primary Obligor so as to enable the Primary Obligor to pay such Indebtedness orother obligation, or (iv) entered into for the purpose of assuring any other manner the obligee inrespect of such Indebtedness or other obligation of the payment of performance thereof or toprotect such obligee loss in respect thereof (in whole or in part), it being understood that in noevent shall a Guarantee include (x) our obligation under applicable law to return to any customeramounts deposited by such customer with us as security for payment for its purchases ofelectricity or other services provided by us or (y) our contingent reimbursement or indemnityobligation in respect of any payments made by third parties pursuant to any performance bondor similar instrument arranged for by us in connection with the operation of our business,(b) Lien on any asset of such person securing any Indebtedness or other obligation of any otherperson whether or not such Indebtedness or other obligation is assumed by such person (or anyright contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien) and(c) the amount of any Guarantee shall be deemed to be an amount equal to the stated ordeterminable amount of the related primary obligation, or portion thereof, in respect of whichsuch Guarantee is made or, if not stated or determinable, the maximum reasonably anticipatedliability in respect thereof as determined by the guaranteeing person in good faith.

“Indebtedness” means any obligation (including arising in connection with any Guarantee) forthe payment or repayment of money, which has been borrowed or raised (including moneyraised by acceptances and all leases which, under generally accepted accounting principles in thecountry of incorporation of the relevant obligor, would constitute a capital lease obligation), itbeing understood and agreed that Indebtedness shall not include any obligation of a subsidiaryfor borrowed money incurred in connection with a project financing or similar transaction in allcases relating to the construction, development, or acquisition of tangible assets or facilities (andany intangible assets necessary in connection with the operation thereof) used in the ordinarycourse of such subsidiary’s business so long as there shall expressly be no recourse in respect ofany such obligation to us or any of our other subsidiaries (or any of their respective assets andproperties) and we and our other subsidiaries shall expressly have no liability with respectthereto.

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“Lien” means any mortgage, deed of trust, lien (statutory or otherwise), pledge, assignment(including any assignment of rights to receive payments of money other than in connection withthe sale of such rights), adverse claim charge, security interest or charge or encumbrance of anykind (including any conditional sale or other title retention agreement or capital lease havingsubstantially the same economic effect), and any agreement to give any of the foregoing.

“Permitted Liens” means:

(i) any Lien securing taxes, assessments and other governmental charges or levies, the paymentof which is not yet due or payable, to the extent that nonpayment thereof shall bepermitted, or is being contested in good faith by appropriate proceedings promptlyinitiated and diligently conducted and for which such reserves or other appropriateprovision, if any, as is required by U.S. GAAP shall have been made;

(ii) any Lien created by or resulting from any litigation or legal proceeding which is currentlybeing contested in good faith by appropriate proceedings promptly initiated and diligentlyconducted and for which such reserves or other appropriate provision, if any, as is requiredby U.S. GAAP shall have been made;

(iii) any statutory Lien or Lien of a carrier, warehouseman, mechanic, materialman incurred inthe ordinary course of business for a sum not yet due or the payment of which is beingcontested in good faith by appropriate proceedings promptly initiated and diligentlyconducted and for which such reserves or other appropriate provision, if any, as is requiredby U.S. GAAP shall have been made or any easements, rights of use or way, restrictions,irregularities and other imperfections of title that do not, individually or in the aggregate,render title on the related property or asset unusable for the intended purpose of suchproperty or asset;

(iv) Liens securing performance of bids, tenders, leases and contracts in the ordinary course ofbusiness, statutory or regulatory obligations, surety or appeal bonds, performance bondsand other obligations of like nature incurred in the ordinary course of business and notsecuring Indebtedness for borrowed money;

(v) any Liens securing intercompany Indebtedness between us or any of our subsidiaries or anyperson or entity that, directly or indirectly (including beneficially) controls more than 51%of any class of our outstanding equity securities or securities entitled to the payment ofdividends or similar distributions provided that all such Indebtedness is expresslysubordinated to our liability in respect of the Notes for so long as the Notes shall beoutstanding (an “Intercompany Lien”);

(vi) (a) any Lien on property or on rights relating thereto created to secure any rights grantedwith respect to such property in connection with the provision of all or a part of thepurchase price or cost of the construction of such property created contemporaneouslywith, or within 150 days after, such acquisition or the completion of such construction, or(b) any Lien on property existing on such property at the time of acquisition thereof,whether or not the indebtedness secured thereby is assumed by us or any of oursubsidiaries, or (c) any Lien existing in the property of a corporation at the time suchcorporation is merged into or consolidated with us or any of our subsidiaries or at the timeof a sale, lease or other disposition of the properties of a corporation or firm as an entiretyor substantially as an entirety to us or any of our subsidiaries; provided, however, that suchLiens either individually or in the aggregate, shall not secure indebtedness having anaggregate principal amount in excess of 100% of the Fair Market Value of the relatedproperty;

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(vii) pledges or deposits by us or our subsidiaries required of us under workers’ compensationlaws, unemployment insurance law or similar legislation, or leases to which we and oursubsidiaries are a party, or deposits that we are required to pledge to secure our public orstatutory obligations, or deposits for the payment of rent, in each case incurred in theordinary course of business;

(viii) any Lien that replaces, renews or extends one or more Liens in clauses (i) through(vii) above, so long as such replacement Lien (a) must be created within 120 days after theearliest expiration of the Lien or Liens being replaced, renewed or extended, (b) must notsecure Indebtedness in an amount exceeding the amount of Indebtedness secured by theLien or Liens being replaced, renewed or extended and (b) must not attach to property orassets other than those to which the Lien or Liens being replaced, renewed or extended isor are attached;

(ix) Liens originally taken in connection with our existing US$100,000,000 syndicated bank loan(the “Existing Bank Loan”) with Banco Continental de Panamá S.A., Banco Bilbao VizcayaArgentaria (Panamá), S.A., Citibank, N.A. and Primer Banco del Istmo, S.A., as agreedthereunder, which are to be released in connection with the issuance of the Notes andwhich thereafter shall not be Permitted Liens hereunder; and

(x) Liens not otherwise permitted by clauses (i) through (ix) above encumbering propertyhaving an aggregate Fair Market Value not in excess of 5% of the Consolidated Net Worth,as determined based on our consolidated balance sheet as of the end of the most recentfiscal quarter ending at least 45 days prior to the date any such Lien shall be incurred.

Limitation on consolidation, merger, sale or conveyance

We or any subsidiary will not merge into or consolidate or amalgamate with any person or sell,assign, transfer or otherwise convey or dispose of all or substantially all of our or its respectiveassets, whether by one transaction or a series of transactions, to any person unless:

(1) the resulting surviving or transferee person, which we refer to as the “surviving entity,” is(a) an affiliate of us or (b) a sociedad anónima organized under the laws of Panama;

(2) if we are not the surviving entity, the surviving entity shall have expressly assumed, by adocument executed and delivered to the Trustee in form and substance reasonablysatisfactory to the Trustee all of our obligations under the Notes;

(3) immediately after giving effect to such transaction or series of transactions on a pro formabasis, no default or Event of Default shall have occurred and be continuing;

(4) immediately after giving effect to such transaction or series of transactions on a pro formabasis, including any Indebtedness incurred or anticipated to be incurred in connection withor in respect of the transaction or series of transactions either the surviving entity could incurat least US$1.00 of indebtedness under “—Limitations on Indebtedness”; and

(5) the surviving entity shall have delivered to the Trustee an officer’s certificate and an opinionof counsel, each stating that such merger, consolidation, sale, assignment, transfer or otherconveyance or disposition complies with this covenant and the Indenture and that allconditions precedent herein provided for relating to such transaction have been compliedwith.

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Upon the occurrence of any of the transactions permitted by the preceding paragraph, thesurviving entity will succeed to and become substituted for us, and may exercise every right andpower of us, with the same effect as if it had been named in the Notes and the Indenture.Following such transaction, we will be released from our liability as obligor on the Notes andunder the Indenture.

Notwithstanding anything to the contrary (i) any of our subsidiaries may merge or consolidatewith or into, or convey, transfer, lease or otherwise dispose of all or substantially all of its assetsas an entirety to, us provided, we are the surviving entity in such a transaction, and (ii) any of ourwholly owned subsidiaries may merge or consolidate with or into, or convey, transfer, lease orotherwise dispose of all or substantially all of its assets as an entirety to, any of our other whollyowned subsidiaries, provided, however, that as a result of the foregoing no event or conditionthat, with the giving of notice, the lapse of time or failure to satisfy certain conditions, or anycombination thereof, would constitute an Event of Default under the Notes or the Indenture, oran Event of Default shall have occurred and be continuing at the time of such proposedtransaction or would result therefrom.

Limitation on incurrence of indebtedness

We will not, and will not permit any subsidiary to, directly or indirectly, create, incur, issue,assume, guarantee, or otherwise become directly or indirectly liable for, contingently orotherwise, any Indebtedness, except for the following Indebtedness:

(i) the Notes (and the extension, renewal, or replacement of the Notes so long as the aggregateprincipal amount of the Notes shall not be increased);

(ii) subordinated Indebtedness;

(iii) Indebtedness, so long as based on the most recent available quarterly or annual balancesheet date next preceding the incurrence of such Indebtedness, and after giving pro formaeffect to the incurrence of such Indebtedness (and any other Indebtedness incurred or repaidor equity securities issued by us since the date of such balance sheet), the ratio of ourIndebtedness to EBITDA shall not exceed 3.25 to 1.0.

For purposes of this covenant, the following terms have the following meanings:

“EBITDA” means, for the four consecutive fiscal quarters ending on or most recent availablequarterly or balance sheet date, our operating profit/loss on a consolidated basis for such periodplus, without duplication and to the extent deducted in determining such operating profit/loss,the sum of (a) amortization of intangible assets for such periods and (b) depreciation of fixedassets for such periods.

Transactions with affiliates

We shall not, and shall not permit any of our subsidiaries to, enter into or carry out (or agree toenter into or carry out) any transaction or arrangements with any affiliate, except for anytransaction or arrangement entered into or carried out on terms no less favorable to us or suchsubsidiary, than those which could have been obtained on an arm’s-length basis with a personthat is not an affiliate; provided, however, that the foregoing shall not apply to transactions or

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arrangements between us and any of our respective subsidiaries not involving any other personso long as consummation of any such transaction would not have a Material Adverse Effect. Theforegoing will not limit and shall not apply to (a) any transaction or arrangement arising underany agreement, contract, instrument or arrangement with an affiliate in existence on the date ofissuance of the Notes and any modifications, extensions or renewals thereto that do notmaterially affect the economic impact to us or any of the foregoing, and (b) any merger into orconsolidation or amalgamation with an affiliate which is permitted under the covenant describedunder “—Limitation on Consolidation, Merger, Sale or Conveyance.”

Provision of financial statements and reports

We will provide or cause to be provided to the Trustee any financial statements which we mayfile with the National Securities Commission of Panama, with any other securities or regulatoryauthority in Panama or otherwise make available to the public in such language or form as suchfinancial statements are prepared. In addition to the foregoing (and without duplication), wewill cause to be provided to the Trustee in English, or accompanied by an English translationthereof, (i) as soon as available and in any case within 60 calendar days after the end of eachfiscal quarter (other than the fourth quarter), our unaudited consolidated balance sheet,statement of income, statement of changes in stockholders’ equity and statement of cash flowscalculated in accordance with U.S. GAAP, or, to the extent not available, the InternationalFinancial Reporting Standards, or IFRS, and (ii) as soon as available and in any case within 90calendar days after the end of each fiscal year, our audited and consolidated balance sheet,statement of income, statement of changes in stockholders’ equity and statement of cash flowscalculated in accordance with U.S. GAAP, or, to the extent not available, IFRS, accompanied by areport thereon by an independent public accountant of recognized international standing.

In the event we shall file any financial statements or reports with the U.S. Securities andExchange Commission, or shall publish or otherwise make such statements or reports (other thanthe statements and reports referred to in the preceding paragraph) publicly available in Panama,the United States or elsewhere, we shall furnish a copy of such statements or reports to theTrustee within 30 calendar days of the date of filing or the date the information is published orotherwise made publicly available, as the case may be.

Further actions

We will, at our own cost and expense, satisfy any condition or take any action (including theobtaining or effecting of any necessary consent, approval, authorization, exemption, filing,license, order, recording or registration) at any time required, as may be necessary or as theTrustee may reasonably request, in accordance with applicable laws and/or regulations, to betaken, fulfilled or done in order to (i) enable us to lawfully enter into, exercise our rights andperform and comply with our obligations under the Notes and the Indenture, (ii) ensure that ourobligations under the Notes and the Indenture are legally binding and enforceable, (iii) make theNotes and the Indenture admissible in evidence in the courts of the State of New York or Panamafollowing an Event of Default, (iv) preserve the enforceability of, and maintain the Trustee’srights under, the Indenture and the Notes and (v) respond to any reasonable requests receivedfrom the Trustee to enable the Trustee to facilitate the Trustee’s performance of its rights andobligations under the Notes and the Indenture, including exercising and enforcing its rightsunder and carrying out the terms, provisions and purposes of the Notes and the Indenture.

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Reports to holders

For as long as the Notes are outstanding, we will, to the extent required, furnish to any holder ofthe Notes issued under Rule 144A, or to any prospective purchaser designated by such holder ofthe Notes, upon written request of such holder of the Notes, financial and other informationdescribed in and meeting the requirements of paragraph (d)(4) of Rule 144A with respect to us tothe extent required in order to permit such holder of the Notes to comply with Rule 144A withrespect to any resale of its Note, unless during that time, we are subject to the reportingrequirements of Section 13 or 15(d) of the Exchange Act, or are exempt from reporting pursuantto Rule 12g3-2(b) under the Exchange Act and no such information about us is otherwiserequired pursuant to Rule 144A.

Appointment to fill a vacancy in the office of the trustee

We, whenever necessary to avoid or fill a vacancy in the office of the Trustee, will appoint in themanner set forth in the Indenture, a successor Trustee, so that there shall at all times be a Trusteewith respect to the Notes.

Listing

These Notes have been authorized for public offering in Panama by the Comisión Nacionalde Valores of Panama (the Panamanian National Securities Commission), and the listing and saleof the Notes has been authorized by the Panama Stock Exchange. We will at all times usereasonable efforts to maintain the Notes registered with the Panamanian National SecuritiesCommission and listed on the Panama Stock Exchange or, if we are unable to do so having usedall reasonable efforts or if the maintenance of such registration and listing is agreed by theTrustee to be unduly burdensome or impractical, use reasonable efforts to obtain and maintain aquotation or listing of the Notes on such other stock exchange or exchanges or securities marketor markets as we (with the approval of the Trustee) decide and will give notice of the identity ofsuch other stock exchange or exchanges or securities market or markets to the holders of theNotes. Beneficial interests in the Regulation S Global Note may be held in Panama throughLatinclear, a participant in Clearstream. See “—Book-Entry System; Delivery and Form.”

Rating agency

For so long as the Notes shall be outstanding, we shall use our reasonable best efforts to complywith the requirements of each rating agency that has rated the Notes in order for each ratingagency to maintain its rating of the Notes and: (i) so far as permitted by applicable law, at alltimes give each such rating agency such information as it shall reasonably request in order that itmay perform its function as a rating agency in respect of the Notes, (ii) inform each such ratingagency as soon as reasonably practicable of any amendments or modifications that have been orare proposed to be made to the Indenture and (iii) in addition to copies of notices specificallyreferred to herein, send a copy to each such rating agency of all material notices sent by us to theTrustee under the terms of the Indenture.

Redemption

Mandatory redemption at maturity

Unless previously redeemed, or purchased and cancelled, the Notes shall be redeemed at theirprincipal amount in U.S. dollars on the final maturity date. The redemption price payable at such

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time shall be the original principal amount of the Notes plus accrued and unpaid interest thereonat the Note Rate and all other amounts due and payable under the terms of the Notes and theIndenture.

Our right to cause early redemption for taxation reasons

We may redeem the Notes in whole, but not in part, upon giving not less than 30 nor more than90 calendar days’ notice to the holders of the Notes if (i) we would otherwise become obligatedto pay additional amounts based on any taxes assessed by a Taxing Jurisdiction as a result of anygenerally applicable change in or amendment to the laws or regulations of such TaxingJurisdiction, or any generally applicable change in the official application or officialinterpretation of such laws or regulations (including a determination by a court of competentjurisdiction), in each case, which change or amendment becomes effective after the date of theoriginal issuance of any of the Notes and (ii) we cannot avoid our obligations to pay suchadditional amounts by taking reasonable measures available to us (including, without limitation,the use of a different paying agent). However, any such notice of redemption shall be givenwithin 90 calendar days of the earliest date on which we would be obligated to pay suchadditional amounts if a payment in respect of the Notes were then due. Prior to the giving of anynotice of redemption described in this paragraph, we will deliver to the Trustee (A) an opinion ofcounsel of recognized standing stating that such additional amounts are payable due to a changein, or amendment to, the laws or regulations of the relevant Taxing Jurisdiction, and (B) anofficer’s certificate stating that (i) we are entitled to redeem the Notes in accordance with theterms in the Indenture and stating the facts relating to such redemption, (ii) we have becomeobligated to pay such additional amounts as a result of a change or amendment described above,and (iii) we reasonably believe that we cannot avoid payment of such additional amounts bytaking reasonable measures available to us and that all governmental approvals necessary for usto effect such redemption have been obtained and are in full force and effect or specifying anynecessary approvals that have not been obtained. In any such redemption, we shall pay thetrustee on the date fixed for redemption an amount in U.S. dollars equal to the sum of (i) 100%of the then outstanding principal amount of the Notes (including any additional amountspayable with respect thereto), (ii) all unpaid interest on the Notes accrued to the date fixed forredemption (including any additional amounts payable with respect thereto) and (iii) all otheramounts owed to holders of the Notes under the terms of the Indenture or the Notes, but wewill not be obligated to pay any premium or other similar amount in connection therewith.

Our right to cause optional early redemption

The Notes will be redeemable, in whole or in part, at our option, at any time and from time totime at a redemption price equal to the sum of (x) the greater of (i) 100% of the thenoutstanding principal amount of the Notes and (ii) the present values of the remaining scheduledpayments on the Notes (not including interest accrued to the date of redemption) discounted tothe redemption date on a semi-annual basis at the Adjusted Treasury Rate (as defined below),plus 50 basis points plus, (y) all unpaid interest on the Notes accrued to the date fixed forredemption and (z) all other amounts owed to the holders of the Notes and then due under theterms of the Indenture or the Notes.

As used herein, the following terms have the respective meanings set forth below:

“Adjusted Treasury Rate” means, with respect to any redemption date, the rate per annum equalto the semi-annual equivalent yield to maturity or interpolated (on a day count basis) of the

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Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as apercentage of its principal amount) equal to the Comparable Treasury Price for that redemptiondate.

“Comparable Treasury Issue” means the United States Treasury security selected by theIndependent Investment Banker as having an actual or interpolated maturity comparable to theremaining term of the Notes to be redeemed that would be utilized, at the time of selection andin accordance with customary financial practice, in pricing new issues of corporate debt securitiesof comparable maturity to the remaining term of the Notes.

“Comparable Treasury Price” means the average of the Reference Treasury Dealer Quotations forsuch redemption date, after excluding the highest and the lowest of such Reference TreasuryDealer Quotations.

“Independent Investment Banker” means the Reference Treasury Dealer appointed by theTrustee after consultation with us or if such firm is unwilling or unable to select the ComparableTreasury Issue, an independent investment banking institution of national standing in the UnitedStates appointed by the Trustee after consultation with us.

“Reference Treasury Dealer” means JPMorgan Securities Inc., or its affiliates which are primaryU.S. government securities dealers, and their respective successors, and two other firms that areprimary U.S. Government securities dealers in the City of New York (a “Primary Treasury Dealer”);provided, however, that if any of the foregoing ceases to be a Primary Treasury Dealer we willsubstitute for it another Primary Treasury Dealer.

“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealerand any redemption date, the average, as determined by the Reference Treasury Dealer, of thebid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage ofits principal amount) quoted by the Reference Treasury Dealer at 3:30 p.m. (New York time) onthe third business day preceding the redemption date.

Unless we default in payment of the redemption price, on and after the redemption date,interest will cease to accrue on the Notes or portions of the Notes called for redemption.

If less than all of the Notes are to be redeemed, the Trustee shall select, pro rata by lot, theparticular Notes to be redeemed or any portion thereof that is an integral multiple of US$1,000.

No Notes of less than US$1,000 will be redeemed in part. Notices of redemption will be mailed byfirst class mail at least 30 but not more than 60 days before the date of redemption to eachholder of Notes to be redeemed at its registered address. Notices of redemption may not beconditional.

If any Note is to be redeemed in part only, the notice of redemption that relates to that Note willstate the portion of the principal amount of that Note that is to be redeemed. A new Note inprincipal amount equal to the unredeemed portion of the original Note will be issued in thename of the holder thereof upon cancellation of the original Note at our expense. Notes calledfor redemption become irrevocably due and payable on the date fixed for redemption. On andafter the redemption date, interest will cease to accrue on Notes or portions of them called forredemption, provided that the redemption price has been paid or set aside as provided in theIndenture.

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Open market purchases; no cancellation

Any Notes repurchased or redeemed by us may, at our option be cancelled or, continue to beoutstanding and may be reissued or resold if we (i) procure a person who purchases the Notes tobe redeemed on the relevant date of redemption and at the relevant redemption price (in whichevent the Notes may be so resold and need not be cancelled) or (ii) notify the Trustee in writingon or prior to the relevant date of redemption that the Notes so redeemed by us will not becancelled (in which event the Notes may be held by us pending resale as provided in (i) aboveand need not be cancelled).

Purchases of notes by us

We and our subsidiaries or affiliates may at any time purchase any Notes in the open market orotherwise at any price; provided, however, that, in determining whether holders of the Notesholding any requisite principal amount of Notes have given any request, demand, authorization,direction, notice, consent or waiver under the Indenture, Notes owned by us and our subsidiariesor affiliates shall be deemed not outstanding for purposes thereof. All Notes purchased by us orour subsidiaries or affiliates may, at our option, continue to be outstanding or be cancelled but ifoutstanding will not be considered to be outstanding for purposes of any vote or action to betaken from time to time by the holders of the Notes.

Events of default

The following events will each be an “Event of Default” under the terms of the Notes and theIndenture:

(i) We shall fail to make any principal payment on any of the Notes when due in accordancewith the terms of the Notes and the Indenture, whether on the maturity date, uponredemption or otherwise;

(ii) We shall fail to make any interest payment or other amounts due on or with respect to theNotes (including additional amounts) in accordance with the terms of the Notes and theIndenture, and this non-payment continues for fifteen calendar days from its scheduled duedate;

(iii) We fail to perform or observe any of the covenants set forth under “—Certain Covenants—Limitation on Consolidation, Merger, Sale or Conveyance” and “—Certain Covenants—Limitation of Incurrence of Indebtedness,” not otherwise expressly included as an Event ofDefault;

(iv) We shall fail to perform, or breach, any term, covenant, agreement or obligation containedin the Indenture (other than the covenant listed in (iii) above) and such failure (other thanany failure to make any payment contemplated in clauses (i) and (ii) above) is eitherincapable of remedy or continues for a period of 45 calendar days (inclusive of any timeframe contained in any such term, covenant, agreement or obligation for compliancethereunder) after written notice of such failure has been received by us from the Trustee;

(v) We or any of our Material Subsidiaries defaults under any mortgage, indenture or instrumentunder which there may be issued or by which there may be secured or evidenced anyIndebtedness for money borrowed by us or any Material Subsidiary (or the payment of whichis guaranteed by the us or any Material Subsidiary) whether such Indebtedness or Guarantee

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now exists, or is created after the date of the Indenture, which default (a) is caused by failureto pay principal of or premium, if any, or interest on such Indebtedness after giving effect toany grace period provided in such Indebtedness on the date of such default (a “PaymentDefault”) or (b) results in the acceleration of such Indebtedness prior to its express maturityand, in each case, the principal amount of any such Indebtedness, together with the principalamount of any other such Indebtedness under which there has been a Payment Default or thematurity of which has been so accelerated, totals US$12,000,000 (or the equivalent thereof atthe time of determination) or more in the aggregate;

(vi) One or more final nonappealable judgments or decrees for the payment of money ofUS$7,000,000 (or the equivalent thereof at the time of determination) or more in theaggregate are rendered against us or any Material Subsidiary and are not paid (whether infull or in installments in accordance with the terms of the judgment) or otherwiseirrevocably discharged through insurance or payments by a third party;

(vii) Any of (a) the Concession Contract is suspended, revoked, terminated or amended in amanner that reasonably can be expected to have a Material Adverse Effect or ceases to bein full force and effect in any material respect, (b) we receive written notice from the ERSPor any other applicable government or regulatory authority of Panama, that the ConcessionContract has been or will be suspended, revoked, terminated or amended in a manner thatreasonably can be expected to have a Material Adverse Effect (each, a “Concession Action”)and, in the case of either (a) or (b), the we have not, within a period of 30 days hereafter,obtained a waiver, stay or injunction against of any such Concession Action, but only for aslong as such waiver stay or injunction shall remain in effect;

(viii) Any government or governmental authority shall have condemned, nationalized, seized, orotherwise expropriated all or any substantial portion of our consolidated assets or property(including that of any Material Subsidiary) or our share capital (including the share capitalof any Material Subsidiary), or shall have assumed custody or control of such consolidatedassets or property or of our business or operations or our share capital, or shall have takenany action that would prevent us or our officers (or those of any Material Subsidiary) fromcarrying on a substantial portion of our business or operations for a period of longer than60 consecutive days and the result of any such action shall materially prejudice our ability toperform our obligations under the Notes and, in each case, we shall have received writtennotice thereof from the Trustee at the request of any holder of a Note as to which suchevent shall, upon such notice, constitute an event of default;

(ix) Any Panamanian government or governmental authority thereof shall declare and madeeffective a general suspension of payment or a moratorium on the payment of ourIndebtedness (which does not expressly exclude the Notes);

(x) An attachment, execution, seizure before judgment or other legal process is levied orenforced upon any part of our property or that of any Material Subsidiary that reasonablycan be expected to have a Material Adverse Effect and (i) such attachment, execution,seizure before judgment or other legal process shall not have been discharged within 30days thereof or (ii) if such attachment, execution, seizure before judgment or other legalprocess shall not have been discharged within said 30-day period, we or our MaterialSubsidiary, as the case may be, shall not have within said 30-day period contested suchattachment, execution, seizure before judgment or other legal process in good faith byappropriate proceedings upon stay of execution of the enforcement thereof or upon

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posting a bond in connection therewith; provided, however, that in no event shall the graceperiod provided by subclause (ii) of this subparagraph extend beyond the 180th day afterthe initiation of such proceedings;

(xi) A resolution is passed or adopted by our directors or stockholders or by any Panamaniangovernmental or regulatory authority or a judgment of a court of competent jurisdiction ismade, that we or any of our Material Subsidiaries be wound up or dissolved otherwise thanfor the purposes of, or pursuant to, or in connection with a merger, consolidation oramalgamation (within the meaning of these words under the laws of Panama) and anywinding up, dissolution or liquidation proceedings resulting from the taking of suchcorporate action remains undismissed for 30 days;

(xii) We or any of our Material Subsidiaries shall generally not pay our debts as such debtsbecome due, or shall admit in writing our inability to pay our or their debts generally, orshall make a general assignment for the benefit of creditors; a resolution by anyPanamanian governmental or regulatory authority shall have declared and made effectivean intervention or any similar action against us and the same shall have continuedundischarged for a period of 60 days;

(xiii) Any proceeding shall be instituted by or against us or any of our Material Subsidiariesseeking to adjudicate us or any of our Material Subsidiaries bankrupt or insolvent, orseeking liquidation (other than for the purposes of or pursuant to a merger, consolidationor amalgamation, within the meaning of such terms under the laws of Panama), windingup, reorganization, arrangement, adjustment, protection, relief or composition of anyIndebtedness under any law relating to bankruptcy, insolvency or reorganization or relief ofdebtors, or seeking the entry of an order for relief or the appointment of a receiver,Trustee, or other similar official for us or for any substantial part of our property or that ofany of our Material Subsidiaries and, in the case of any of the foregoing actions institutedagainst us or any of our Material Subsidiaries, such proceeding or action shall not have beendismissed or discharged and shall remain in effect for 60 days; or we shall take corporateaction to authorize any of the actions set forth above in this subsection (xiii);

(xiv) Any material provision of the Notes or the Indenture (a) shall cease to be in full force andeffect or binding and enforceable against us (which has not been replaced by alternativeprovisions satisfactory to the Trustee within (or otherwise if such default continues for) aperiod of 30 days after the Trustee shall have given written notice thereof to us except forsuch provision, the invalidity, illegality or unenforceability of which could not, individuallyor in the aggregate, have a Material Adverse Effect), (b) cease to be admissible in evidencein the courts of Panama, or (c) it becomes unlawful for us to perform any materialobligation under any of the Notes or the Indenture or we shall contest the enforceability ofthe Notes or the Indenture or we deny that we have liability under any of the Notes or theIndenture; or

(xv) The occurrence of certain events that result in irreparable damage or destruction to theelectrical distribution facilities that we operate and maintain and that is not fully coveredby insurance, resulting in Material Adverse Effect.

As used herein, “Material Subsidiary” means any subsidiary of ours, which, on any given date ofdetermination, accounts for more than 5% of our total consolidated assets, as such totalconsolidated assets are set forth on, the most recent consolidated financial statements of oursprepared in accordance with the Indenture.

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Remedies upon occurrence of an event of default

Upon the occurrence of an event of default, the Trustee shall, upon the request of holders of theNotes holding not less than 25% in principal amount of the Notes then outstanding, by writtennotice to us and provided that such event of default is continuing, declare all of the Notesimmediately due and payable; provided, however, that in the case of any of the events of defaultdescribed in paragraphs (xi),(xii) or (xiii) above, all of the Notes shall, without any notice to us, orany other act by any holder of the Notes, become immediately due and payable.

The holders of a majority in aggregate principal amount of the outstanding Notes may rescind adeclaration of acceleration if any amount has been paid to or deposited with the Trusteesufficient to pay the amounts set forth in the applicable provisions of the Indenture and allevents of default, other than the failure to pay principal due solely because of the declaration ofacceleration, have been cured or waived.

The holders of a majority in aggregate principal amount of the outstanding Notes shall have theright to direct the time, method and place of conducting any proceeding for any remedyavailable to the Trustee or exercising any trust or power conferred on the Trustee, subject to thelimitations specified in the Indenture. Subject to the provisions of the Indenture relating to theTrustee’s duties, the Trustee shall be under no obligation to exercise any of its rights and powersunder the Indenture unless it has been offered an indemnity to its reasonable satisfaction againstthe costs, expenses and liabilities it may reasonably incur.

No holder of the Notes will have any right to institute any proceeding with respect to theIndenture or the Notes or for any remedy thereunder unless the holder of the Notes haspreviously given written notice to the Trustee of a continuing event of default under the Notesor the continuing breach of a covenant contained in the Indenture, the holders of the Notes ofnot less than 25% in aggregate principal amount of the outstanding Notes have made a writtenrequest to the Trustee to institute proceedings in respect of the event of default or breach in itsown name as Trustee, the holders of the Notes have offered to the Trustee indemnity satisfactoryto it, the Trustee for 60 days thereafter has failed to institute any such proceeding and nodirection inconsistent with that request has been given to the Trustee during that 60-day periodby the holders of a majority in aggregate principal amount of the outstanding Notes. However,the right of any holder of the Notes institute a suit for the enforcement of the payment ofprincipal or interest on the due date therefor may not be impaired without its consent.

The holders of a majority in aggregate principal amount of the outstanding Notes may waive anypast default under the Indenture except an uncured default in the payment of principal of orinterest on the Notes or an uncured default relating to a covenant or provision of the Indenturethat cannot be modified or amended without the consent of each affected holder of the Notes.

Modification of the indenture

We and the Trustee may, without the consent of the holders of the Notes, amend, waive orsupplement the Indenture for certain specific purposes, including, among other things, curingambiguities, defects or inconsistencies, or making any other provisions with respect to matters orquestions arising under the Indenture or the Notes or making any other change that will notadversely affect the interest of any holder of the Notes.

In addition, with certain exceptions, the Indenture may be modified by us and the Trustee withthe consent of the holders of a majority of the aggregate principal amount of the Notes thenoutstanding. Any amendment, waiver or supplement to the Indenture, with or without the

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consent of the holders of a majority of the aggregate principal amount of the Notes thenoutstanding, may be subject to prior approval or filing requirements of the Comisión Nacional deValores of Panama pursuant to agreement, or acuerdo, 4-2003. However, no modification may,without the consent of the holder of the Notes of each outstanding Note:

(i) change the maturity of any payment of principal of or any installment of interest on anyNote whether at maturity or earlier redemption or otherwise;

(ii) reduce the principal amount or the rate of interest, or change the method of computingthe amount of principal or interest payable on any date;

(iii) change any place of payment where the principal of or interest on Notes is payable;

(iv) change the coin or currency in which the principal of or interest on the Notes is payable;

(v) impair the right of the holders of the Notes to institute suit for the enforcement of anypayment on or after the date due;

(vi) reduce the percentage in principal amount of the outstanding Notes, the consent of whoseholders of the Notes is required for any modification or the consent of whose holders of theNotes is required for any waiver of compliance with certain provisions of the Indenture orcertain defaults under the Indenture and their consequences provided for in the Indenture;or

(vii) modify any of the provisions of certain sections of the Indenture, including the provisionssummarized in “—Modification of the Indenture,” except to increase any percentage or toprovide that certain other provisions of the Indenture cannot be modified or waivedwithout the consent of each holder of the Notes.

Defeasance and covenant defeasance

We may, at our option, elect to be discharged from our obligations with respect to the Notes. Ingeneral, upon a defeasance, we will be deemed to have paid and discharged the entireindebtedness represented by the Notes and to have satisfied all of our obligations under theNotes and the Indenture except for (i) the rights of the holders of the Notes to receive paymentsin respect of the principal of and interest and additional amounts, if any, on the Notes when thepayments are due, (ii) certain provisions of the Indenture relating to ownership, registration andtransfer of the Notes, (iii) the covenant relating to the maintenance of an office or agency inNew York and (iv) certain provisions relating to the rights, powers, trusts, duties and immunitiesof the Trustee.

In addition, we may, at our option, and at any time, elect to be released with respect to theNotes from the covenants described above under the caption “—Certain Covenants.” We refer tothis as “covenant defeasance.” Following such covenant defeasance, the occurrence of a breachor violation of any such covenant with respect to the Notes will not constitute an event ofdefault under the Indenture, and certain other events (not including, among other things,non-payment or bankruptcy and insolvency events) described under “—Events of Default” alsowill not constitute event of default.

In order to exercise either defeasance or covenant defeasance, we will be required to satisfy,among other conditions, the following requirements:

(i) we must irrevocably deposit with the Trustee, in trust, for the benefit of the holders of theNotes, cash in U.S. dollars or U.S. government obligations, or a combination thereof, in

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amounts sufficient, in the opinion of an internationally recognized firm of independentpublic accountants, to pay and discharge the principal of and each installment of interest onthe Notes on the stated maturity of such principal or installment of interest in accordancewith the terms of the Indenture and the Notes;

(ii) in the case of an election to fully defease the Notes, we must deliver to the Trustee anopinion of counsel stating that (i) we have received from, or there has been published by,the U.S. Internal Revenue Service a ruling or (ii) since the date of the Indenture there hasbeen a change in the applicable U.S. federal income tax law or the interpretation thereof,in either case to the effect that, and based thereon, the opinion of counsel shall confirmthat, the holders of the Notes will not recognize gain or loss for U.S. federal income taxpurposes as a result of such deposit, defeasance and discharge and will be subject to U.S.federal income tax on the same amount, in the same manner and at the same time aswould have been the case if such deposit, defeasance and discharge had not occurred;

(iii) in the case of a covenant defeasance, we must deliver to the Trustee an opinion of counselto the effect that the holders of the Notes will not recognize gain or loss for U.S. federalincome tax purposes as a result of such deposit and covenant defeasance and will be subjectto U.S. federal income tax on the same amount, in the same manner and at the same timeas would have been the case if such deposit and covenant defeasance had not occurred;

(iv) no event of default, or event or condition that with the giving of notice, the lapse of timeor failure to satisfy certain specified conditions, or any combination thereof, would becomean event of default, including, with respect to certain events of bankruptcy or insolvency,has occurred and is continuing with respect to the Notes, at any time during the periodending on the 121st day after the date of such deposit (it being understood that thiscondition shall not be deemed satisfied until the expiration of such period);

(v) we must deliver to the Trustee an opinion of counsel to the effect that payment of amountsdeposited in trust with the Trustee will not be subject to future taxes, duties, fines,penalties, assessments or other governmental charges imposed by a Taxing Jurisdiction,except to the extent that additional amounts in respect thereof shall have been depositedin trust with the Trustee;

(vi) we must deliver to the Trustee an opinion of counsel to the effect that such defeasance orcovenant defeasance shall not result in a breach or violation of, or constitutes a defaultunder, any other agreement or instrument to which we are a party or by which we arebound; and

(vii) such defeasance or covenant defeasance shall not result in the trust arising from suchdeposit constituting an investment company as defined under the Investment Company Actof 1940, as amended.

The trustee

The Bank of New York is the Trustee under the Indenture and has been appointed by us asregistrar and paying agent with respect to the Notes. We may have normal banking relationshipswith The Bank of New York in the ordinary course of business. The address of the Trustee is 101Barclay, 21W, New York, New York 10286, Attn: Global Finance Unit.

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Paying agents; transfer agents; registrar

We have initially appointed the Trustee as paying agent, registrar and transfer agent. We may atany time appoint new paying agents, transfer agents and registrars. However, we will at all timesmaintain a paying agent in New York City until the Notes are paid.

Notices

We will mail notices to the registered address of the holders of the Notes as provided in theregister. So long as DTC, or its nominee, is the registered holder of the Global Notes, as definedbelow, each person owning a beneficial interest in a Global Note, as defined below, must rely onthe procedures of DTC to receive notices provided to DTC. Each person owning a beneficialinterest in a Global Note who is not a participant in DTC must rely on the procedures of theparticipant through which the person owns its interest in the Global Note to receive noticesprovided to DTC.

Governing law

The Indenture and the Notes are governed in all respects by the laws of the State of New York.

Jurisdiction

We have consented to the non-exclusive jurisdiction of any court of the State of New York or anyU.S. Federal court sitting, in each case in the Borough of Manhattan in the City of New York, NewYork, United States, and any appellate court from any thereof. We have appointed CTCorporation System as our authorized agent upon which service of process may be served in anyaction or proceeding brought in any court of the State of New York or any U.S. Federal courtsitting, in each case in the Borough of Manhattan in the City of New York in connection with theIndenture or the Notes.

Waiver of immunities

To the extent that we may in any jurisdiction claim for ourselves or our assets immunity from asuit, execution, attachment, whether in aid of execution, before judgment or otherwise, or otherlegal process in connection with the Indenture and the Notes and to the extent that in anyjurisdiction there may be immunity attributed to us or our assets, whether or not claimed, wehave irrevocably agreed for the benefit of the holders of the Notes not to claim, and irrevocablywaive, the immunity to the full extent permitted by law. See “Risk Factors—Risks Relating toPanama—It maybe difficult to enforce civil liabilities against us or our directors and executiveofficers and controlling persons.”

Currency rate indemnity

We have agreed that, if a judgment or order made by any court for the payment of any amountin respect of any Notes is expressed in a currency other than U.S. dollars, we will indemnify therelevant holder of the Notes against any deficiency arising from any variation in rates ofexchange between the date as of which the denomination currency is notionally converted intothe judgment currency for the purposes of the judgment or order and the date of actualpayment. This indemnity will constitute a separate and independent obligation from our otherobligations under the Indenture, will give rise to a separate and independent cause of action,

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will apply irrespective of any indulgence granted from time to time and will continue in full forceand effect notwithstanding any judgment or order for a liquidated sum or sums in respect ofamounts due under the Indenture or the Notes.

Form, denomination and registration

The Notes will be issued in registered form without interest coupons. No Notes will be issued inbearer form. Any Note issued in exchange for the Regulation S global Note or the Restrictedglobal Note will be issued in registered form only in minimum denominations of US$10,000 andintegral multiples of US$1,000 in excess thereof; provided, however, that each qualifiedinstitutional buyer, or QIB, purchasing a beneficial interest in the Notes from the initialpurchasers in reliance on Rule 144A under the Securities Act will be required to purchase theNotes in a minimum aggregate principal amount of US$10,000 and in integral multiples ofUS$1,000 in excess thereof.

We have agreed to maintain a paying agent, registrar and transfer agent in the Borough ofManhattan, the City of New York. We have initially appointed the Trustee at its corporate trustoffice as principal paying agent. The Trustee, acting as transfer agent, will keep a register,subject to such reasonable regulations as we may prescribe.

Book-entry; delivery and form

Notes offered and sold to QIBs in reliance on Rule 144A under the Securities Act will berepresented by a single, permanent Global Note in definitive, fully registered book-entry form(the “Restricted Global Note”) which will be registered in the name of a nominee of DTC anddeposited on behalf of the purchasers of the Notes represented thereby with a custodian forDTC.

Notes offered and sold in reliance on Regulation S will be represented by a single, permanentglobal Note in definitive, fully registered book-entry form (the “Regulation S Global Note” and,together with the Restricted Global Note, the “Global Notes”) which will be registered in thename of a nominee of a common depositary of Euroclear Bank S.A./ N.V., as the operator of theEuroclear System, or Euroclear, or Clearstream Banking, société anonyme, or Clearstream, anddeposited on behalf of the purchasers of the Notes represented thereby with a custodian forEuroclear or Clearstream. Beneficial interests in the Global Notes will be represented throughbook-entry accounts of financial institutions acting on behalf of owners as direct and indirectparticipants in DTS Euroclear or Clearstream.

Beneficial interests in the Regulation S Global Note may be held in Panama through CentralLatinoamericana de Valores, S.A. (“Latinclear”). Latinclear is a participant in Clearstream. Subjectto the transfer restrictions discussed below, transfers of beneficial interests in the Regulation SGlobal Note may be made (i) among Latinclear participants or (ii) from a Latinclear participant toa non-Latinclear participant through Clearstream.

Each Global Note (and any Notes issued in exchange therefor) will be subject to certainrestrictions on transfer set forth therein as described under “Notice to Investors.” Except in thelimited circumstances described below, owners of beneficial interests in a Global Note will not beentitled to receive physical delivery of certificated Notes.

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Global notes

We expect that pursuant to procedures established by DTC, Euroclear and Clearstream (a) upondeposit of the Global Notes, DTC, Euroclear or Clearstream or their custodian will credit on itsinternal system portions of the Global Notes to the respective accounts of persons who haveaccounts therewith and (b) ownership of the Notes will be shown on, and the transfer ofownership thereof will be effected only through, records maintained by DTC, Euroclear orClearstream or their nominee (with respect to interests of participants as defined below) and therecords of participants (with respect to interests of persons other than participants). Suchaccounts will initially be designated by or on behalf of the Initial Purchaser and ownership ofbeneficial interests in the Global Notes will be limited to persons who are participants and haveaccounts with DTC, Euroclear or Clearstream or persons who hold interests through participants.Except as otherwise described herein, investors may hold their interests in a Global Note directlythrough DTC, Euroclear or Clearstream only if they are participants in such system, or indirectlythrough organizations which are participants in such system.

Investors may hold their interests in the Regulation S Global Note directly through Clearstream,Euroclear or Latinclear if they are participants in such systems, or indirectly throughorganizations, which are participants in such systems. Clearstream, Euroclear or Latinclear willhold such interests in the Regulation S Global Note on the books of their respective depositories,which in turn will hold such interests in the depositories’ names on the books of the Bank of NewYork.

So long as DTC, Euroclear or Clearstream or their nominee are the registered owner or holders ofany Global Notes, DTC, Euroclear or Clearstream or such nominee will be considered the soleowner or holder of the Notes represented by the Global Notes for all purposes under theIndenture and the Notes. No beneficial owner of an interest in any Note will be able to transfersuch interest except in accordance with the applicable procedures of DTC, Euroclear, Clearstreamor Latinclear, in addition to those provided for under the Indenture.

Payments of principal of and interest (including additional amounts) on the Global Notes will bemade to DTC, Euroclear or Clearstream or their nominee, as the case may be, as the registeredowner thereof. None of us, the Trustee or any paying agent under the Indenture will have anyresponsibility or liability for any aspect of the records relating to, or payments made on accountof, beneficial ownership interests in the Global Notes, or for maintaining, supervising orreviewing any records relating to such beneficial ownership interests representing any Notes heldby DTC, Euroclear or Clearstream or their nominee.

We expect that DTC, Euroclear or Clearstream or their nominee, upon receipt of any payment ofprincipal of or premium and interest (including additional amounts) on a Global Note, will creditparticipants’ accounts with payments in amounts proportionate to their respective beneficialinterests in the principal amount of such Global Note as shown on the records of DTC, Euroclearor Clearstream or their nominee.

Payment to owners of beneficial interests in a Global Note held through such participant will begoverned by standing instructions and customary practice, as is now the case with securities heldfor the accounts of customers registered in the names of nominees for such customers. Suchpayments will be the responsibility of such participants.

Transfers between participants in DTC will be effected in the ordinary way in accordance withDTC rules and will be settled in same day funds. Transfers between participants in Euroclear,

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Clearstream or Latinclear will be effected in the ordinary way in accordance with their respectiverules and operating procedures. If a holder requires physical delivery of a certificated note forany reason, including to sell Notes to persons in jurisdictions, which require physical delivery ofsuch securities, or to pledge such securities, such holder must transfer its interest in the applicableGlobal Note in accordance with the normal procedures of DTC, Euroclear, Clearstream orLatinclear and those procedures set forth in the Indenture. Consequently, the ability to transferinterests in a Global Note to such persons may be limited.

Before the 40th calendar day after the later of the commencement of the offering of the Notesand the issue date, transfers by an owner of a beneficial interest in the Regulation S Global Noteto a transferee who takes delivery of such interest through the Restricted Global Note will bemade only in accordance with the applicable procedures and upon receipt by the Trustee of awritten certification from the transferor in the form provided in the Indenture to the effect thatsuch transfer is being made to a person whom the transferor reasonably believes is a QIB in atransaction meeting the requirements of Rule 144A.

Transfers by an owner of a beneficial interest in the Restricted Global Note to a transferee whotakes delivery of such interest through the Regulation S Global Note, whether before, on or afterthe 40th day referred to above, will be made only upon receipt by the Trustee of a certificationto the effect that such transfer is being made in accordance with Regulation S.

Transfers of Physical Notes to a person who will hold through a Global Note will be made only inaccordance with the applicable procedures and upon receipt by the Trustee of a writtencertification in the form provided in the Indenture (i) in the case of a transfer into the RestrictedGlobal Note before the 40th day referred to above, to the effect that such transfer is being madeto a person whom the transferor reasonably believes is a QIB in a transaction meeting therequirements of Rule 144A and (ii) in the case of a transfer into the Regulation S Global Note, tothe effect that such transfer is being made in accordance with Regulation S.

Any beneficial interest in a Global Note that is transferred to a person who takes delivery in theform of an interest in the other Global Note will, upon transfer, cease to have an interest in thefirst Global Note and become an interest in the other Global Note and, accordingly, willthereafter be subject to all transfer restrictions, if any, and other procedures applicable tobeneficial interests in such other Global Note.

Subject to compliance with the transfer restrictions applicable to the Notes, we understand thatcrossmarket transfers between DTC participants, on the one hand, and directly or indirectlythrough Euroclear, Clearstream, or Latinclear participants, on the other, will be effected in DTC,Euroclear or Clearstream in accordance with DTC, Euroclear or Clearstream rules by its respectivedepositary; however, such crossmarket transactions will require delivery of instructions toClearstream or Euroclear, as the case may be, by the counterparty in such system in accordancewith its rules and procedures and within its established deadlines (Brussels or Luxembourg time,respectively). We understand that Clearstream or Euroclear, as the case may be, will, if thetransaction meets its settlement requirements, deliver instructions to its depositary to take actionto effect final settlement on its behalf by delivering or receiving interests in the relevant GlobalNote in DTC and making or receiving payment in accordance with normal procedures forsame-day funds settlement applicable to DTC. Clearstream participants and Euroclear participantsmay not deliver instructions directly to the depositaries of Euroclear or Clearstream.

Because of time zone differences, the securities account of a Euroclear or Clearstream participantpurchasing an interest in a Global Note from a DTC participant will be credited during the

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securities settlement processing day immediately following the DTC settlement date, and suchcredit will be reported to the relevant Euroclear or Clearstream participant on such business dayfollowing the DTC settlement date. Cash received in Euroclear or Clearstream as a result of salesof interests in a Global Note by or through a Euroclear or Clearstream participant to a DTCparticipant will be received with value on the DTC settlement date but will be available in therelevant Euroclear or Clearstream cash account only as of the Business Day following settlementin DTC.

We expect that DTC and Clearstream will take any action permitted to be taken by a holder ofNotes (including the presentation of Notes for exchange) only at the direction of the participantto whose interests in the applicable Global Notes are credited and only in respect of theaggregate principal amount of Notes as to which such participant has given such direction.However, if there is an event of default under the Indenture, DTC and Clearstream will exchangethe applicable Global Note for Physical Notes (as defined below), which it will distribute toparticipants and which will be legended to the extent set forth under “Notice to Investors.”

DTC has provided us with the following information: DTC, the world’s largest depository, is alimited-purpose trust company organized under the New York Banking Law, a “bankingorganization” within the meaning of the New York Banking Law, a member of the FederalReserve System, a “clearing corporation” within the meaning of the New York UniformCommercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17Aof the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 2.2 millionissues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money marketinstruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit withDTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and othersecurities transactions in deposited securities, through electronic computerized book-entrytransfers and pledges between Direct Participants’ accounts. This eliminates the need for physicalmovement of securities certificates. Direct Participants include both U.S. and non-U.S. securitiesbrokers and dealers, banks, trust companies, clearing corporations, and certain otherorganizations.

DTC is a wholly owned subsidiary of The Depository Trust & Clearing Corporation, or DTCC. DTCC,in turn, is owned by a number of Direct Participants of DTC and Members of the NationalSecurities Clearing Corporation, Fixed Income Clearing Corporation and Emerging MarketsClearing Corporation (NSCC, FICC, and EMCC, also subsidiaries of DTCC), as well as by the NewYork Stock Exchange Inc., the American Stock Exchange LLC and the National Association ofSecurities Dealers, Inc.

Access to the DTC system is also available to others such as both U.S. and non-U.S. securitiesbrokers and dealers, banks, trust companies, and clearing corporations that clear through ormaintain a custodial relationship with a Direct Participant, either directly or indirectly (“IndirectParticipants”). DTC has Standard & Poor’s highest rating: AAA. The DTC rules applicable to itsparticipants are on file with the SEC. More information about DTC can be found atwww.dtcc.com. and www.dtc.org.

Clearstream advises that it is incorporated under the laws of Luxembourg as a bank. Clearstreamholds securities for its customers, and facilitates the clearance and settlement of securitiestransactions between Clearstream customers through electronic book-entry transfers betweentheir accounts. Clearstream provides to Clearstream customers, among other things, services forsafekeeping, administration, clearance and settlement of internationally traded securities

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markets in over 30 countries through established depository and custodial relationships. As abank, Clearstream is subject to regulation by the Luxembourg Commission for the Supervision ofthe Financial Sector. Clearstream customers are recognized financial institutions around theworld, including underwriters, securities brokers and dealers, banks, trust companies, clearingcorporations and certain other organizations. Clearstream’s U.S. customers are limited tosecurities brokers, dealers and banks. Indirect access to Clearstream is also available to otherinstitutions such as banks, brokers, dealers and trust companies that clear through or maintain acustodial relationship with a Clearstream customer.

Latinclear advises that it is incorporated under the laws of Panama as a corporation. Latinclearholds securities deposited with it by its participants and facilitates the settlement of transactionsamong its participants in such securities through electronic computerized book-entry changes inaccounts of the participants, thereby eliminating the need for physical movement of securitiescertificates. Latinclear’s participants include securities brokers-dealers and banks. Access toLatinclear’s book-entry system is also available to others, such as banks, brokers, dealers, trustcompanies and individual investors that clear through or maintain a custodial relationship with aparticipant, either directly or indirectly. Latinclear’s book-entry system is also used by otherorganizations such as securities brokers and dealers, banks and trust companies that workthrough a direct participant. The rules that apply to Latinclear and its participants are on filewith the Panamanian National Securities Commission. Latinclear is owned by a number of itsPanamanian direct participants and by the Panama Stock Exchange.

Although DTC, Euroclear, Clearstream and Latinclear are expected to follow the foregoingprocedures in order to facilitate transfers of interests in the Global Notes among the DTCparticipants, Euroclear, Clearstream and Latinclear, they are under no obligation to perform suchprocedures, and such procedures may be discontinued or modified at any time. None of us, theTrustee or the paying agent will have any responsibility for the performance by DTC, Euroclear,Clearstream and Latinclear, the participants or indirect participants of their respective obligationsunder the rules and procedures governing their operations.

Physical notes

Interests in the Global Notes will be exchangeable or transferable, as the case may be, forphysical notes (“Physical Notes”) if (i) DTC, Euroclear or Clearstream notifies us that it is unwillingor unable to continue as depositary for the Global Notes, or DTC, Euroclear or Clearstream ceasesto be a “clearing agency” registered under the Exchange Act, and a successor depositary is notappointed by us within 90 calendar days, (ii) we, at our option, elect to terminate the book-entrysystem through a depositary or (iii) an event of default has occurred and is continuing withrespect to the Global Notes.

Replacement, exchange and transfer of notes

If a Note becomes mutilated, destroyed, lost or stolen, we may issue, and the Trustee willauthenticate and deliver, a substitute Note in replacement. In each case, the affected holder ofthe Notes will be required to furnish to us, the Trustee and certain other specified parties anindemnity under which it will agree to pay us, the Trustee and certain other specified parties forany losses they may suffer relating to the Note that was mutilated, destroyed, lost or stolen. Weand the Trustee may also require that the affected holder of the Notes present other documentsor proof. The affected holder of the Notes will be required to pay all expenses and reasonablecharges associated with the replacement of the mutilated, destroyed, lost or stolen Note.

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Under certain limited circumstances, beneficial interests in the Global Note may be exchanged forPhysical Notes. If we issue Physical Notes, a holder of the Notes of such Physical Note may presentits Notes for exchange with Notes of a different authorized denomination, together with awritten request for an exchange, at our office or agency designated for such purpose in the Cityof New York.

We would issue the Physical Notes for such beneficial interests in the Global Note in initialdenominations of US$10,000 or any larger amount that is an integral multiple thereof, andwould issue them in registered form only, without interest coupons. Any Physical Note issued inexchange for an interest in the Global Note will bear the legend restricting transfer that is borneby such Global Note. In connection with any such exchange, an appropriate adjustment will bemade in the records of the registrar to reflect a decrease in the principal amount of the relevantGlobal Note. The procedures for payment and registration of transfer applicable to anycertificated note that may be issued in the future are set forth in the Indenture.

In addition, the holder of the Notes of any Physical Note may transfer such Physical Note, inwhole or in part, by surrendering it at any such office or agency together with an executedinstrument of assignment. Each new Physical Note issued in connection with a transfer of one ormore Physical Notes will be available for delivery from the Trustee within five business days afterreceipt by the Trustee of the relevant original Physical Note or Physical Notes and the relevantexecuted instrument of assignment. Transfers of the Physical Notes will be effected withoutcharge by or on behalf of us, the Trustee, but only upon payment (or the giving of suchindemnity as the registrar or such transfer agent may require in respect) of any tax or othergovernmental charges, which may be imposed in relation thereto.

We will not charge the holders of the Notes for the costs and expenses associated with theexchange, transfer or registration of transfer of the Notes. We may, however, charge the holdersof the Notes for any tax or other governmental charges. We may reject any request for anexchange or registration of transfer of any Note (i) made within 15 calendar days of the mailingof a notice of redemption of Notes or (ii) made between any regular record date and the nextinterest payment date.

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Taxation

General

The following discussion summarizes certain material Panamanian tax and U.S. federal incometax consequences to beneficial owners arising from the purchase, ownership and disposition ofthe Notes. The summary does not purport to be a comprehensive description of all potentialPanamanian tax and U.S. federal income tax considerations that may be relevant to a decision topurchase, own or dispose of the Notes and is not intended as tax advice to any particularinvestor. This summary does not describe any tax consequences arising under the laws of anystate, locality or other taxing jurisdiction other than Panama and the U.S.

Prospective purchasers of the Notes should consult their own tax advisors as to the Panamanian,U.S. or other tax consequences of the purchase, ownership and disposition of the Notes,including, in particular, the application of the tax considerations discussed below to theirparticular situations, as well as the application of state, local, foreign or other tax laws.

Panamanian taxation

THE FOLLOWING IS A SUMMARY OF THE PRINCIPAL PANAMANIAN INCOME TAX CONSEQUENCESRESULTING FROM THE BENEFICIAL OWNERSHIP AND DISPOSITION OF THE NOTES BY CERTAINPERSONS. THIS SUMMARY IS BASED ON THE PANAMANIAN TAX CODE OF 1956, AS AMENDED,OTHER APPLICABLE TAX LAWS, DECREES AND REGULATIONS ISSUED THEREUNDER, ANDJUDICIAL AND ADMINISTRATIVE INTERPRETATIONS THEREOF, ALL AS IN EFFECT ON THE DATEHEREOF, AND IS SUBJECT TO ANY CHANGES IN THESE OR OTHER LAWS, DECREES, REGULATIONSAND INTERPRETATIONS OCCURRING AFTER SUCH DATE, POSSIBLY WITH RETROACTIVE EFFECT.THIS SUMMARY IS INTENDED AS A DESCRIPTIVE SUMMARY ONLY AND IS NOT A COMPLETEANALYSIS OR LISTING OF ALL POTENTIAL PANAMANIAN INCOME TAX CONSEQUENCES TOHOLDERS OF THE NOTES. THE SUMMARY DOES NOT ADDRESS THE TAX TREATMENT OFPOTENTIAL INVESTORS THAT MAY BE SUBJECT TO SPECIAL INCOME TAX AND WITHHOLDINGRULES. THE SUMMARY IS NOT INTENDED AS TAX ADVICE TO ANY PARTICULAR INVESTOR, NORDOES IT PURPORT TO FURNISH INFORMATION IN THE LEVEL OF DETAIL OR WITH ATTENTION TOAN INVESTOR’S SPECIFIC TAX CIRCUMSTANCES THAT WOULD BE PROVIDED BY AN INVESTOR’SOWN TAX ADVISOR. PROSPECTIVE PURCHASERS OF THE NOTES ARE URGED TO CONSULT THEIROWN TAX ADVISORS AS TO THE PRECISE PANAMANIAN AND OTHER TAX CONSEQUENCES OFACQUIRING, OWNING AND DISPOSING OF THE NOTES.

Taxation of interest

Interest payable on the Notes will be exempt from income tax or withholding requirements inPanama, provided that the Notes are registered with the Panamanian National SecuritiesCommission and are initially placed on an exchange or through an organized market in Panama.The Notes have been registered with the Panamanian National Securities Commission and will beinitially placed on the Panama Stock Exchange. Accordingly, interest payments made on theNotes will be exempt from income tax or withholding requirements in Panama. Should the Notesnot be initially placed on the Panama Stock Exchange, interest payments will be subject to a 5%income tax, which would have to be withheld by Elektra.

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Taxation of dispositionsUnder current Panamanian tax law, because the Notes have been registered with thePanamanian National Securities Commission, any capital gains realized by a holder of the Noteson the sale or other disposition of Notes will be exempt from income tax in Panama, providedthat the sale or disposition of the Notes is made through an exchange or another organizedmarket. The Notes will be listed on the Panama Stock Exchange. Thus, any gains realized on thesale of the Notes on this exchange will be exempt from income tax in Panama.

If the Notes are not sold through an exchange or another organized market, pursuant to LawNo. 18 of June 19, 2006, (i) the seller will be subject to income tax in Panama on capital gains onthe sale of the Notes calculated at a fixed rate of ten percent (10%); (ii) the buyer will beobligated to withhold from the seller an amount equal to five percent (5%) of the aggregateproceeds of the sale, as a withholding in respect of the capital gains income tax payable by theseller, and the buyer will be required to send to the fiscal authorities the withheld amount withinten (10) days following the date of withholding; (iii) the seller will have the option of consideringthe amount withheld by the buyer as payment in full of the seller’s obligation to pay income taxon capital gains; and (iv) in the event the amount withheld by the buyer is greater than theamount of capital gains income tax payable by the seller, the seller will be entitled to recover theexcess amount as a tax credit by filing a special sworn income tax declaration with the fiscalauthorities. The capital gains income tax provisions of Law No. 18 of June 19, 2006 do not exceptfrom income tax in Panama capital gains on sales of Notes outside Panama by holders notresident in Panama and, therefore, such provisions would apply, for example, to sales of Notes by“qualified institutional buyers” in the United States, including sales through the facilities of DTC.

Notwithstanding Law No. 18 of June 19, 2006, based on Tax Opinion No. 201-01-706 of June 27,2006 issued by the Bureau of Revenue, any capital gains realized by a holder of Notes who is notresident in Panama on the sale or other disposition of Notes that is executed and effectedoutside of Panama, and which payment thereof is made outside of Panama, will not be deemedPanamanian source income and therefore will not be subject to income tax in Panama. Lossesrecognized on the sale or disposition of Notes will likewise be disallowed as a deduction forincome tax purposes in Panama. Regulations implementing the June 2006 tax law are expectedto be promulgated in the next few months and, while the Company will monitor developments,it expects that such regulations will be generally consistent with the position taken by the Bureauof Revenue in Tax Opinion No. 201-01-706 of June 27, 2006.

Stamp and other taxesAs the Notes have been registered with the Panamanian National Securities Commission, theNotes are not subject to stamp, registration or similar taxes. There are no sales, transfer orinheritance taxes applicable to the sale or disposition of the Notes.

Foreign investorsA person domiciled outside of Panama is not required to file a tax return in Panama, solely byreason of his or her investment in the Notes, provided that gains realized on the sale anddisposition of the Notes are exempt from income tax as indicated above.

United States taxationTHE FOLLOWING DISCUSSION OF U.S. FEDERAL INCOME TAX CONSEQUENCES TO HOLDERS OFNOTES IS A GENERAL SUMMARY ONLY AND IS BASED ON PRESENT LAW, WHICH IS SUBJECT TOPROSPECTIVE AND RETROACTIVE CHANGE. THE DISCUSSION IS NOT INTENDED AS TAX ADVICE,DOES NOT CONSIDER ANY INVESTOR’S PARTICULAR CIRCUMSTANCES, AND DOES NOT CONSIDERTAX CONSEQUENCES OTHER THAN THOSE ARISING UNDER U.S. FEDERAL INCOME TAX LAW.

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TO ENSURE COMPLIANCE WITH U.S. TREASURY DEPARTMENT CIRCULAR 230, HOLDERS OF NOTESARE HEREBY NOTIFIED THAT THE FOLLOWING DISCUSSION IS WRITTEN IN CONNECTION WITHTHE PROMOTION OR MARKETING OF THE TRANSACTIONS DESCRIBED IN THIS OFFERINGMEMORANDUM. SUCH DISCUSSION OF TAX ISSUES WAS NOT INTENDED TO BE USED, AND ITCANNOT BE USED (BY ANY PERSON) FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BEIMPOSED UNDER THE U.S. INTERNAL REVENUE CODE. EACH PROSPECTIVE PURCHASER OF NOTESSHOULD CONSULT ITS OWN TAX ADVISORS TO DETERMINE THE PARTICULAR TAXCONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES.

The following discussion summarizes certain material U.S. federal income tax consequences tobeneficial owners arising from the purchase, ownership, and disposition of the Notes. Thediscussion which follows is based on the U.S. Internal Revenue Code of 1986, as amended (the“Code”), its legislative history, judicial authority, administrative rulings and practice, andTreasury regulations promulgated thereunder, all as in effect and current on the date hereof.Such authorities may be repealed, revoked or modified and could result in U.S. federal incometax consequences different from those discussed below, possibly with retroactive effect.

For purposes of this summary, the term “U.S. Holder” means a beneficial owner of a note that is,for U.S. federal income tax purposes (a) an individual who is a U.S. citizen or resident, (b) acorporation or other entity taxable as such created or organized under the laws of the U.S. or anystate thereof, or the District of Columbia, (c) an estate that is subject to U.S. federal income taxon a net basis with respect to its worldwide income, or (d) a trust if a court within the U.S. is ableto exercise primary supervision over the administration of the trust, and one or more U.S. personshave the authority to control all substantial decisions of the trust, or if the trust has validlyelected to be treated as a U.S. person under applicable U.S. Treasury Regulations. The term“Non-U.S. Holder” means a beneficial owner of a note that is neither a U.S. Holder nor apartnership. If a partnership holds Notes, the tax treatment of a partner will depend upon thestatus of the partner and the activities of the partnership. Partners of partnerships holding Notesshould consult their tax advisors.

This discussion is intended as a summary only and is not intended as tax advice to any particularinvestor. This summary is not a complete analysis or listing of all potential U.S. federal income taxconsequences to U.S. Holders and Non-U.S. Holders relating to the Notes, and does not addressthe effect of any U.S. gift, estate, state or local tax law or foreign tax law on a potential investorin the Notes. This summary does not address the tax treatment of U.S. Holders andNon-U.S. Holders that may be subject to special income tax rules, including, without limitation,insurance companies, tax-exempt organizations, banks, U.S. Holders whose functional currency isnot the U.S. dollar, U.S. Holders subject to the alternative minimum tax, U.S. Holders andNon-U.S. holders that are broker-dealers in securities, U.S. Holders and Non-U.S. Holders that holdthe Notes as a hedge against currency risks, as a position in a “straddle” for tax purposes, or aspart of an “integrated transaction” within the meaning of Section 1.1275-6 of the U.S. TreasuryRegulations. This summary is generally limited to investors who will hold the Notes as “capitalassets” within the meaning of Section 1221 of the Code, and who are initial investors whopurchase the Notes at the issue price within the meaning of Section 1273 of the Code.

U.S. holders

Taxation of interest and additional amounts. Interest paid on a note will be included in thegross income of a U.S. Holder as ordinary income at the time it is treated as received or accrued,in accordance with the U.S. Holder’s regular method of tax accounting. A U.S. Holder will also be

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required to include in gross income as interest any withholding tax paid and additional amountspaid with respect to withholding tax on the Notes, including withholding tax on payments ofsuch additional amounts. The repayment of principal amount on a note is not taxable.

Interest received or accrued on the Notes (including additional amounts, if any (see “Descriptionof the Notes—Payment of Additional Amounts”)) will constitute income from sources outside theU.S. If Panamanian or other withholding taxes are imposed, U.S. Holders will be treated as havingactually received an amount equal to the amount of such taxes and as having paid such amountto the relevant taxing authority. As a result, the amount of interest income included in grossincome by a U.S. Holder will be greater than the amount of cash actually received by theU.S. Holder. A U.S. Holder may be able, subject to certain generally applicable limitations, toclaim a foreign tax credit or, alternatively, a deduction for Panamanian withholding taxesimposed on payments of interest (including additional amounts). Interest income (includingadditional amounts) generally will constitute “passive income” or, in the case of certainU.S. Holders, “financial services income” for U.S. foreign tax credit purposes (or “highwithholding tax interest,” if the Panamanian withholding tax is ever imposed at a rate of 5% ormore). U.S. Holders should note that recently enacted legislation eliminates the “highwithholding tax interest” category with respect to taxable years beginning after December 31,2006. Under this new legislation, the foreign tax credit limitation categories would be limited to“passive category income” and “general category income.” The calculation of U.S. foreign taxcredits and, in the case of a U.S. Holder that elects to deduct foreign taxes, the availability ofdeductions involves the application of complex rules that depend on a U.S. Holder’s particularcircumstances. U.S. Holders should, therefore, consult their own tax advisors regarding theapplication of the U.S. foreign tax credit rules to interest income (including additional amounts)on the Notes.

Possible Original Issue Discount. It is possible that the Notes will be treated as issued withoriginal issue discount (“OID”). If the Notes are treated as issued with OID, a U.S. Holder will berequired to accrue OID on a constant yield basis and include such accruals in gross in income (inaddition to stated interest received on its Note) over the term of the Notes.

A Note has OID to the extent that its stated redemption price at maturity exceeds its issue price,provided that such excess equals or exceeds a de minimis amount (generally defined as 0.25% ofthe Note’s stated redemption price at maturity multiplied by the number of complete years to itsmaturity). The issue price of a Note is the first price at which a substantial amount of such issueof Notes has been sold (ignoring sales to bond houses, brokers, or similar persons ororganizations acting in the capacity of underwriters, dealers, or wholesalers).

Generally, if the excess of a Note’s stated redemption price at maturity over its issue price is deminimis, a U.S. Holder such a Note will recognize capital gain with respect to such de minimis OIDwhen principal payments on the Note are made. U.S. Holders should consult their own taxadvisors in the event that the Notes are issued with OID.

Possible Premium. It is also possible that the issue price of the Notes will exceed their statedredemption price at maturity, in which case the Notes will be considered to have been issued at apremium. In such case, a U.S. Holder may elect to amortize the amount of such premium on aconstant yield basis as an offset to interest income. U.S. Holders should consult their own taxadvisors in the event that the Notes are issued at a premium.

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Sale, redemption, retirement and other disposition of the notes. In general, a U.S. Holder willgenerally recognize gain or loss on the sale, redemption, retirement or other taxable dispositionof a note in an amount equal to the difference between (i) the amount of cash and the fairmarket value of property received by such U.S. Holder on such disposition (less any amountsattributable to accrued but unpaid interest which will be taxable as such at the time ofpurchase), and (ii) the U.S. Holder’s adjusted tax basis in the note. A U.S. Holder’s adjusted taxbasis in a note will generally equal the acquisition cost of such note (less any amountsattributable to accrued interest) to the U.S. Holder decreased by the amount of any principalpayments made on the note (i) increased by any amount includable in income by the U.S. Holderas OID and (ii) reduced by any amortized premium. Such gain or loss will be capital gain or loss.Net capital gains derived with respect to capital assets held for more than one year are eligiblefor taxation at a maximum rate of 15% for non-corporate U.S. Holders (including individuals),although U.S. Holders should be aware that this reduced rate is currently scheduled to increase to20% for taxable years after 2010. Certain limitations exist on the deductibility of capital lossesunder the Code.

Gain or loss recognized by a U.S. Holder on the sale, redemption, retirement or other taxabledisposition of a note will generally be U.S.-source gain or loss. Generally, U.S. foreign tax creditsmay not be used to offset U.S.-source gain. Prospective investors should consult their own taxadvisors as to the U.S. tax and foreign tax credit implications of such sale, redemption, retirementor other disposition of a note, particularly if a Panamanian tax is imposed on a sale, redemption,retirement or other disposition of a note.

Non-U.S. holders

Except as otherwise described below, a Non-U.S. Holder of a note will not be subject toU.S. federal income tax by withholding or otherwise on payments of interest (includingadditional amounts) on a note or gain realized in connection with the sale, redemption,retirement or other disposition of a note, unless the Non-U.S. Holder is (a) in the case of gainrealized by a Non-U.S. Holder who is an individual present in the U.S. for 183 days or more in thetaxable year of disposition and certain other conditions are satisfied; or (b) engaged in a trade orbusiness in the U.S. and the interest or gain on the note, as the case may be, is effectivelyconnected with the conduct of such trade or business (and, if an income tax treaty applies,through a permanent establishment in the U.S.). In addition, if such Non-U.S. Holder is a foreigncorporation, it may be subject to a branch profits tax equal to 30% (or such lower rate providedby an applicable treaty) of its effectively connected earnings and profits for the taxable year,subject to certain adjustments.

Backup withholding and information reporting

For non-corporate U.S. Holders, information reporting requirements generally will apply to(a) payments of principal and interest on a note within the U.S., including payments made bywire transfer from outside the U.S. to an account such non-corporate U.S. Holder maintains in theU.S., and (b) the payment of the proceeds from the sale of a note effected at a U.S. office of abroker. Additionally, backup withholding will apply to such payments to a non-corporateU.S. Holder that (a) fails to provide an accurate taxpayer identification number, (b) is notified bythe U.S. Internal Revenue Service that it has failed to report all interest required to be shown onits U.S. federal income tax returns, or (c) in certain circumstances, fails to comply with applicablecertification requirements.

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Backup withholding and information reporting will not apply to payments made by us or ourpaying agents, in their capacities as such, to a Non-U.S. Holder of a note if the holder hasprovided the required certification that it is not a “U.S. person” within the meaning of the Code,provided that neither we nor our paying agent has actual knowledge that the holder is aU.S. person. Payments of the proceeds from a disposition by a Non-U.S. Holder of a note made toor through a foreign office of a broker will not be subject to information reporting or backupwithholding, except that information reporting and backup withholding may apply to thosepayments if the broker is:

1. a U.S. person;

2. a controlled foreign corporation for U.S. federal income tax purposes;

3. a foreign person, 50% or more of whose gross income is effectively connected with aU.S. trade or business for a specified three-year period; or

4. a foreign partnership, if at any time during its tax year, one or more of its partners areU.S. persons, as defined in Treasury regulations, who in the aggregate hold more than 50%of the income or capital interest in the partnership or if, at any time during its tax year, theforeign partnership is engaged in a U.S. trade or business.

Payment of the proceeds from a disposition by a Non-U.S. Holder of a note made to or throughthe U.S. office of a broker is likely subject to information reporting and backup withholdingunless the holder or beneficial owner certifies as to its taxpayer identification number orotherwise establishes an exemption from information reporting and backup withholding.

Non-U.S. Holders should consult their own tax advisors regarding application of backupwithholding in their particular circumstance and the availability of and procedure for obtainingan exemption from backup withholding under current Treasury regulations. Any amountswithheld under the backup withholding rules from a payment to a Non-U.S. Holder will beallowed as a refund or as a credit against the holder’s U.S. federal income tax liability, providedthe required information is timely furnished to the U.S. Internal Revenue Service.

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Plan of distributionUnder the terms and subject to the conditions contained in the Purchase Agreement datedJune 15, 2006, the Initial Purchaser has agreed to purchase all of the Notes being sold pursuant tothe Purchase Agreement that are not purchased by investors through the Local Brokers, asdefined below and in the Purchase Agreement, in Panama, and we have agreed to sell the Notesto the Initial Purchaser.

The Purchase Agreement provides that the obligations of the Initial Purchaser to pay for andaccept delivery of the Notes are subject to the approval of certain legal matters by its counseland to certain other conditions. The Initial Purchaser is committed to take and pay for all of theNotes offered hereby if any are taken.

The Purchase Agreement provides that we will indemnify the Initial Purchaser against certainliabilities, including liabilities under the Securities Act.

The Notes will constitute a new class of securities with no established trading market. We do notintend to list the Notes, or have the Notes authorized for trading, on any exchange other thanthe Panama Stock Exchange. The Initial Purchaser has advised us that it currently intends to makea market in the Notes. However, the Initial Purchaser is not obligated to do so and anymarket-making activities with respect to the Notes may be discontinued at any time withoutnotice. Accordingly, we cannot give any assurance as to the liquidity of, or the trading marketfor, the Notes.

It is anticipated that the Notes will be listed on, and offered by us through, the Panama StockExchange. The annual interest rate on the Notes will be announced by us prior to thedetermination of the price of the Notes. Additionally, potential investors may contact JPMorganto obtain the interest rate on the Notes.

On the date that the price of the Notes is determined, between 9:30 a.m. and 10:00 a.m. Panamatime, each person registered as a member of the Panama Stock Exchange (a “Local Broker”) willbe permitted to submit bids for the Notes. At 10:00 a.m. Panama time, JPMorgan will submit itsbid for the Notes through Wall Street Securities, S.A., a Local Broker. We anticipate that theaggregate principal amount of the bids for the Notes that we accept from Local Brokers andJPMorgan will equal the aggregate principal amount of the Notes set forth on the cover page ofthis preliminary offering memorandum. Bids accepted from Local Brokers may be at prices equalto or higher than the price at which the Notes will be offered to investors, which will bedetermined by us and JPMorgan. The price at which we expect to offer the Notes to investors isset forth on the front cover page of the final offering memorandum. Nevertheless, this price issubject to change as determined by us and JPMorgan.

Subject to the satisfaction of certain conditions, on the settlement date for the Notes, LocalBrokers whose bids were accepted by us will receive beneficial interests in the Regulation SGlobal Note directly from us, through Latinclear. JPMorgan will receive beneficial interests in theNotes directly from us, through Latinclear, and JPMorgan will subsequently transfer suchbeneficial interests to subsequent purchasers through such subsequent purchaser’s participantaccounts in DTC, Euroclear or Clearstream, as the case may be.

The Initial Purchaser has advised us that it proposes initially to offer the Notes at the price listedon the cover page of the final offering memorandum. After the initial offering, the price toinvestors, concessions and discounts may be changed.

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The Local Broker through whom JPMorgan will submit its bid for the Notes, will receive a fee ofUS$75,000 in connection with this offering.

The expenses of the offering, not including the Initial Purchasers’ structuring fee, are estimatedto be approximately US$2.5 million and are payable by us.

In connection with this offering, the Initial Purchaser, or any person acting for it, may over-allotor effect transactions with a view to supporting the market price of the Notes at a level higherthan that which might otherwise prevail for a limited period after the issue date. However, thereis no obligation for the Initial Purchaser, or any person acting for either of it, to do this. Suchstabilizing, if commenced, may be discontinued at any time, and must be brought to an end aftera limited period.

We have been advised by the Initial Purchaser that the Initial Purchaser proposes to resell theNotes initially at the price set forth on the cover page hereof (a) within the U.S. to QIBs inreliance on Rule 144A under the Securities Act and (b) outside the U.S. to certain persons inreliance on Regulation S under the Securities Act. See “Notice to Investors.” After the initialoffering, the offering price and other selling terms of the Notes may from time to time be variedby the Initial Purchaser.

The Notes have not been and will not be registered under the Securities Act and may not beoffered or sold within the U.S. or to, or for the account or benefit of, U.S. persons except asdescribed in the immediately preceding paragraph. For a description of certain restrictions onresale or transfer, see “Notice to Investors.”

In connection with sales outside the U.S., the Initial Purchaser has agreed that except for salesdescribed in the second preceding paragraph, it will not offer, sell or deliver the Notes to, or forthe account of, U.S. persons (i) as part of their distribution at any time or (ii) otherwise until 40days after the later of the commencement of the offering and the closing date, and it will sendto each dealer to whom it sells such Notes during such period a confirmation or other noticesetting forth the restrictions on offers and sales of the Notes within the U.S. or to, or for theaccount or benefit of, U.S. persons. Resales of the Notes are restricted as described below under“Notice to Investors.”

In addition, until 40 days after the later of the commencement of the offering and the closingdate, an offer or sale of the Notes within the U.S. by a dealer (whether or not participating in theoffering) may violate the registration requirements of the Securities Act if such offer or sale ismade otherwise than in accordance with Rule 144A under the Securities Act or pursuant toanother valid exemption therefrom.

As used herein, the terms “United States” and “U.S. person” have the meaning given to them inRegulation S under the Securities Act.

We expect to deliver the Notes on or about July 10, 2006. Under Rule 15c6-1 of the Exchange Act,trades in the secondary market generally are required to settle within three business days, unlessthe parties to any such trade expressly agree otherwise. Accordingly, if you wish to trade Noteson any day prior to the third business day before the date of delivery of the Notes, you and yourcounterparty will be required, by virtue of the fact that the Notes initially will settle on a delayedbasis, to agree to a delayed settlement cycle at the time of any such trade to prevent a failedsettlement.

163

The Notes may be offered by the Company to the public in Panama, either directly or through anagent.

Any investor purchasing the Notes in the global offering is solely responsible for ensuring thatany offer or resale of the Notes it purchased in the global offering occurs in compliance withapplicable laws and regulations.

The Initial Purchaser or its affiliates may from time to time provide investment banking andgeneral financing and banking services to us. In addition, the Initial Purchaser and certain of itsaffiliates are lenders to the Company.

Wall Street Securities, S.A., as a Local Broker acting on behalf of the Issuer, will hold the Notes onbehalf of the Issuer, prior to the offering of the Notes on the Panama Stock Exchange. WallStreet Securities, S.A. is a company incorporated under the laws of the Republic of Panama as asociedad anónima, and is located at Calle Aquilino de la Guardia y Rogelio Alfaro, ApartadoPostal 0819-09280, Republic of Panama, and may be contacted at the above address, bytelephone at 507-205-1700 and by fax at 507-264-0111.

Wall Street Securities, S.A. is a wholly owned Subsidiary of Banco Continental de Panama, S.A.,and a shareholder of both the Panama Stock Exchange and Latinclear.

164

Notice to investorsThe following information relates to the form and transfer of the Notes. Because of thefollowing restrictions, purchasers of Notes offered in the U.S. in reliance on Rule 144A andoutside the U.S. in reliance on Regulation S are advised to consult legal counsel prior to makingany offer, resale, pledge or transfer of the Notes.

The Notes have not been registered under the Securities Act, any securities laws of any statelocated in the U.S., or laws of any other U.S. jurisdiction and may not be offered or sold in theU.S. or to, or for the account or benefit of, U.S. persons except in accordance with an applicableexemption from the registration requirements thereof. Accordingly, the Notes are being offeredand sold only (1) to qualified institutional buyers in compliance with Rule 144A, or (2) outside theU.S. to non-U.S. persons in reliance upon Regulation S under the Securities Act.

Each purchaser of Notes offered hereby, by its acceptance thereof, will be deemed to haveacknowledged, represented to and agreed with us and the Initial Purchaser as follows:

1. It understands and acknowledges that the Notes have not been registered under theSecurities Act, any securities laws of any state located in the U.S., or any other U.S. jurisdiction,are being offered for resale in transactions not requiring registration under the Securities Act orto any other securities laws, including sales pursuant to Rule 144A under the Securities Act, and,unless so registered, may not be offered, sold or otherwise transferred except in compliance withthe registration requirements of the Securities Act, or any other applicable securities law,pursuant to an exemption therefrom or in a transaction not subject thereto and in each case incompliance with the conditions for transfer set forth in paragraph (4) below. It also understandsthat we and our affiliates are permitted to repurchase the Notes and, thus, each purchaser mayneed to hold the Notes for more than two years to be freely tradable under Rule 144 of theSecurities Act.

2. It is not an affiliate (as defined in Rule 144 under the Securities Act) of ours or acting onour behalf and it is either:

a. a “qualified institutional buyer” within the meaning of Rule 144A and is aware thatany sale of the Notes to it will be made in reliance on Rule 144A. Such acquisition willbe for its own account or for the account of another qualified institutional buyer; or

b. a person who, at the time the buy order for the Notes was originated, was outside theU.S. and was not a U.S. person (and was not purchasing for the account or benefit of aU.S. person) within the meaning of Regulation S under the Securities Act.

3. It acknowledges that neither us nor the Initial Purchaser or any person representing us orthe Initial Purchaser has made any representation to it with respect to us or the offering or saleof any Notes, other than the information contained or incorporated by reference in this offeringmemorandum, which has been delivered to it and upon which it is relying in making itsinvestment decision with respect to the Notes. It acknowledges that no representation orwarranty is made by the Initial Purchaser as to the accuracy or completeness of such materials. Ithas had access to such financial and other information concerning us and the Notes as it hasdeemed necessary in connection with its decision to purchase the Notes, including an opportunityto ask questions of and request information from us or the Initial Purchaser.

4. It is purchasing the Notes for its own account, or for one or more investor accounts forwhich it is acting as a fiduciary or agent, in each case for investment, and not with a view to, or

165

for offer or sale in connection with, any distribution thereof in violation of the Securities Act,subject to any requirements of law that the disposition of its property or the property of suchinvestor account or accounts be at all times within its or their control and subject to its or theirability to resell such Notes pursuant to an effective registration statement under the SecuritiesAct, Rule 144A, Regulation S or any exemption from registration available under the SecuritiesAct. It agrees on its own behalf and on behalf of any investor account for which it is purchasingthe Notes and each subsequent holder of the Notes by its acceptance thereof will agree (I) tooffer, resell, pledge or otherwise transfer such Notes only in accordance with the Securities Actand any applicable securities law and, prior to the expiration of the holding period applicable tosales of the Notes under Rule 144(k) under the Securities Act (or any successor provision) (the“resale restriction termination date”) only (a) to us or an affiliate of ours, (b) pursuant to aregistration statement which has been declared effective under the Securities Act, (c) for so longas the Notes are eligible for resale pursuant to Rule 144A to a person it reasonably believes is aQIB that purchases for its own account or for the account of a QIB in a principal amount of notless than US$ 10,000 for the purchaser and each such account to whom notice is given that thetransfer is being made in reliance on Rule 144A, (d) pursuant to offers and sales that occuroutside the U.S. within the meaning of Regulation S or (e) pursuant to another availableexemption from the registration requirements of the Securities Act; (II) in connection with anytransfer of any Note in certificated form, to check the box provided on the reverse thereofrelating to the manner of such transfer and surrender such Note to the trustee; (III) if anyproposed transfer is being made in accordance with (I)(d) or (e) above prior to the resalerestriction termination date, to acknowledge that we reserve the right, prior to such transfer, torequire the delivery of such certifications, legal opinions or other information satisfactory to usto confirm that the proposed transfer is being made pursuant to an exemption from, or in atransaction not subject to, the registration requirements of the Securities Act; (IV) toacknowledge that the trustee will not be required to accept for registration of transfer anyNotes, except upon presentation of evidence satisfactory to us and the trustee that the foregoingrestrictions on transfer have been complied with; and (V) to agree to provide to any personacquiring any of the Notes from it a notice advising such person that resales of the Notes arerestricted as stated herein and that certificates representing the Notes may bear a legend to thateffect.

5. Each purchaser acknowledges that each Global Note will contain a legend substantially tothe following effect unless we determine otherwise in compliance with applicable law:

The following is the form of restrictive legend which will appear on the face of the Rule 144Aglobal note, and which will be used to notify transferees of the foregoing restrictions ontransfer:

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, ASAMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEENREGISTERED WITH THE PANAMANIAN NATIONAL SECURITIES COMMISSION. THE HOLDERHEREOF, BY PURCHASING THIS NOTE, AGREES THAT THIS NOTE OR ANY INTEREST ORPARTICIPATION HEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERREDONLY (I) TO THE ISSUER, (II) SO LONG AS THIS NOTE IS ELIGIBLE FOR RESALE PURSUANT TORULE 144A UNDER THE SECURITIES ACT, AS AMENDED (“RULE 144A”), TO A PERSON WHOTHE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED INRULE 144A) IN ACCORDANCE WITH RULE 144A, (III) IN AN OFFSHORE TRANSACTION INACCORDANCE WITH RULE 903 OR 904 OF REGULATION S UNDER THE SECURITIES ACT, AS

166

AMENDED, (IV) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIESACT AFFORDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE) OR (V) PURSUANTTO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND IN EACH OFSUCH CASES IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OFTHE UNITED STATES OR OTHER APPLICABLE JURISDICTION AND IN ACCORDANCE WITH THETRANSFER RESTRICTIONS CONTAINED IN THE INDENTURE UNDER WHICH THIS NOTE WASISSUED. THE HOLDER HEREOF, BY PURCHASING THIS NOTE, REPRESENTS AND AGREES THATIT SHALL NOTIFY ANY PURCHASER OF THIS NOTE FROM IT OF THE RESALE RESTRICTIONSREFERRED TO ABOVE. IN VIEW OF THE ABILITY OF THE ISSUER AND ITS AFFILIATES TOREPURCHASE THE NOTES, THE HOLDER HEREOF MAY NEED TO HOLD NOTES FOR MORETHAN TWO YEARS TO BE FREELY TRADABLE IN THE UNITED STATES UNDER RULE 144 OFTHE SECURITIES ACT.

THE FOREGOING LEGEND MAY BE REMOVED FROM THIS NOTE ON SATISFACTION OF THECONDITIONS SPECIFIED IN THE INDENTURE REFERRED TO HEREIN.”

The following is the form of restrictive legend which will appear on the face of the Regulation Sglobal note and which will be used to notify transferees of the foregoing restrictions on transfer:

“THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, ASAMENDED (THE “SECURITIES ACT”), OR ANY STATE SECURITIES LAWS. THIS NOTE HAS BEENREGISTERED WITH THE PANAMANIAN NATIONAL SECURITIES COMMISSION. THE HOLDERHEREOF, BY PURCHASING THIS NOTE, AGREES THAT NEITHER THIS NOTE NOR ANY INTERESTOR PARTICIPATION HEREIN MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISETRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS SUCH TRANSACTION ISEXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.

THE FOREGOING LEGEND MAY BE REMOVED FROM THIS NOTE AFTER 40 DAYS BEGINNINGON AND INCLUDING THE LATER OF (A) THE DATE ON WHICH THE NOTES ARE OFFERED TOPERSONS OTHER THAN DISTRIBUTORS (AS DEFINED IN REGULATION S UNDER THESECURITIES ACT) AND (B) THE ORIGINAL ISSUE DATE OF THIS NOTE.”

6. It acknowledges that we and the Initial Purchaser will rely upon the truth and accuracy ofthe foregoing acknowledgments, representations and agreements and agrees that, if any of theacknowledgments, representations or warranties deemed to have been made by its purchase ofNotes are no longer accurate, it shall promptly notify us and the Initial Purchaser. If it is acquiringany Notes as a fiduciary or agent for one or more investor accounts, it represents that it has soleinvestment discretion with respect to each such account and that it has full power to make theforegoing acknowledgments, representations and agreements on behalf of each such account.

7. With respect to the purchase and holding of any Note or Notes, either (a) the purchaserand holder is not (i) an “employee benefit plan” (as defined in Section 3(3) of ERISA that issubject to Title I of ERISA, (ii) a “plan” described in Section 4975 of the Code, (iii) an entity whoseunderlying assets include “plan assets” (within the meaning of ERISA) or (iv) a governmental planwhich is subject to any federal, state or local law that is substantially similar to the provisions ofSection 406 of ERISA or Section 4975 of the Code; or (b) its purchase and holding of any Note orNotes will not result in a prohibited transaction under Section 406 of ERISA or Section 4975 of theCode (or, in the case of a governmental plan, any substantially similar federal, state or local law)for which an exemption is not available.

167

Legal mattersCertain matters of Panamanian law will be passed upon for us by Alemán, Cordero, Galindo &Lee, our special Panamanian counsel, and by Arias, Fábrega & Fábrega, special Panamaniancounsel to the Initial Purchaser. The validity of the Notes offered and sold pursuant to thisoffering and certain other matters will be passed upon for us by Jones Day, and for the InitialPurchaser by Shearman & Sterling LLP.

168

Independent accountantsThe financial statements of Elektra as of December 31, 2005 and 2004 and for the three yearsended December 31, 2005, 2004 and 2003, included in this offering memorandum, have beenaudited by PricewaterhouseCoopers, independent accountants, as stated in their reportappearing herein. With respect to the unaudited financial information of Elektra Noreste, S.A forthe three-month period ended March 31, 2006 and 2005, included in this offering memorandum,PricewaterhouseCoopers reported that they have applied limited procedures in accordance withprofessional standards for a review of such information. However, their separate report datedMay 11, 2006 appearing herein, states that they did not audit and they do not express an opinionon that unaudited financial information. Accordingly, the degree of reliance on their report onsuch information should be restricted in light of the limited nature of the review proceduresapplied.

169

Elektra Noreste, S. A.Index for financial statements

December 31, 2005, 2004 and 2003

Pages

Report of independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2

Financial statements:

Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3

Statements of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5

Statements of stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-6

Statements of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7

Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-9

Elektra Noreste, S. A.Index for financial statements

March 31, 2006 and December 31, 2005

Pages

Review report of independent auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-31

Financial statements:

Balance sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-32

Statements of income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-34

Statements of stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-35

Statements of cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36

Notes to financial statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-37

F-1

Report of independent auditorsTo the Board of Directors and Stockholders ofElektra Noreste, S. A.

We have audited the accompanying balance sheets of Elektra Noreste, S. A. as of December 31,2005 and 2004, and the related statements of income, stockholders’ equity, and cash flows foreach of the three years in the period ended December 31, 2005. These financial statements areresponsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of material misstatement.An audit includes examining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statementspresentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects,the financial position of Elektra Noreste, S. A. at December 31, 2005 and 2004, and the results ofits operations and its cash flows for each of the three years in the period ended December 31,2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers

January 27, 2006Panama, Republic of Panama

F-2

Elektra Noreste, S. A.Balance sheets

December 31, 2005 and 2004(in US Dollars)

2005 2004

Assets

Property, plant, and equipment:Property, plant, and equipment, net of accumulated

depreciation (Notes 3 and 12) . . . . . . . . . . . . . . . . . . . . . . . . US$213,997,316 US$208,838,150Construction in progress (Notes 3 and 12) . . . . . . . . . . . . . . . . 13,840,455 12,615,408

Total property, plant, and equipment . . . . . . . . . . . . . . 227,837,771 221,453,558

Current assets:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576,063 6,544,514

Accounts receivable (Note 12):Trade, net (Notes 4 and 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,232,827 33,897,011Fuel component adjustment (Note 2) . . . . . . . . . . . . . . . . . . 16,724,807 1,165,006Generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 569,495 433,208Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,601,477 1,307,496

Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . 58,128,606 36,802,721

Inventory (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,050,919 8,554,205Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131,029 166,142Prepaid income tax (Notes 9 and 10) . . . . . . . . . . . . . . . . . . . . 1,468,470 —Deferred income tax (Notes 9 and 10) . . . . . . . . . . . . . . . . . . . — 630,589Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 398,614 501,222

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,753,701 53,199,393

Other assets:Debt issuance cost (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,597,611 1,789,849Severance fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 911,843 723,244Security deposits on facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,138 60,119Trust fund for long-term loan debt (Note 12) . . . . . . . . . . . . . 2,500,000 2,500,000Deferred income tax (Notes 9 and 10) . . . . . . . . . . . . . . . . . . . 2,069,550 2,998,342

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,137,142 8,071,554

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$303,728,614 US$282,724,505

The accompanying notes are an integral part of these financial statements.

F-3

Elektra Noreste, S. A.Balance Sheets — (continued)December 31, 2005 and 2004

(in US Dollars)

2005 2004

Liabilities and Stockholders’ EquityStockholders’ equity:

Common stock authorized, issued and outstanding:50,000,000 shares without par value; 160,031 held intreasury (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$106,098,875 US$106,098,875

Accumulated other comprehensive loss (Note 13) . . . . . . . . . (457,493) —Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,748,041 4,011,196

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . 124,389,423 110,110,071

Current liabilities:Accounts payable:

Generation and transmission (Notes 5 and 8) . . . . . . . . . . . 41,228,848 24,216,754Suppliers (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,226,889 10,109,571Advances, retentions and deposits on construction

contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,674,630 6,334,477Related company (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . 512,700 20,000Income tax payable (Notes 9 and 10) . . . . . . . . . . . . . . . . . . — 3,551,472Deferred income tax (Notes 9 and 10) . . . . . . . . . . . . . . . . . 4,115,573 —Customer deposits (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . 2,665,177 2,630,584Witholding taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,885 218,659

Total accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 65,681,702 47,081,517

Current portion of bank debt (Notes 12 and 18) . . . . . . . . . 10,000,000 5,000,000Interest payable on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,396,934 1,042,220Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,533 12,423,698Derivative Instrument (Note 13) . . . . . . . . . . . . . . . . . . . . . . . 653,561 —Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 655,386 883,296

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,394,116 66,430,731

Long-term bank debt (Notes 12 and 18) . . . . . . . . . . . . . . . . . . . 90,000,000 95,000,000

Customer deposits and other liabilities:Customer deposits (Note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,923,025 9,546,696Provision for seniority premium and severance payments . . 703,156 682,769Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,318,894 954,238

Commitments and contingencies (Note 18)Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,339,191 172,614,434

Total liabilities and stockholders’ equity . . . . . . . . . . . . US$303,728,614 US$282,724,505


F-4

Elektra Noreste, S. A.Statements of income

For the years ended December 31, 2005, 2004 and 20032005 2004 2003

RevenuesNet energy sales (Note 5) . . . . . . . . . . . . . . US$263,501,949 US$217,615,046 US$204,302,420Other income (Note 15) . . . . . . . . . . . . . . . . 8,983,742 7,773,157 7,203,380

Total revenues . . . . . . . . . . . . . . . . . . . . . . 272,485,691 225,388,203 211,505,800

Purchase of energy and transmissioncharges, net (Notes 5 and 14) . . . . . . . . . . . 193,905,488 151,822,767 147,830,142

Gross distribution margin . . . . . . . . . . . . . . . . 78,580,203 73,565,436 63,675,658

Operating ExpensesLabor and other personnel . . . . . . . . . . . . . 8,218,840 9,115,038 8,510,224Severance expenses . . . . . . . . . . . . . . . . . . . 195,942 358,756 223,759Provision for doubtful accounts . . . . . . . . . 1,483,867 524,429 1,561,358Repair and maintenance . . . . . . . . . . . . . . . 2,575,193 2,237,051 1,833,165Professional services . . . . . . . . . . . . . . . . . . . 8,499,148 8,506,837 7,751,629Management fees (Note 5) . . . . . . . . . . . . . 1,943,000 1,756,246 2,012,000Depreciation and amortization . . . . . . . . . 11,890,034 10,909,897 10,182,773Administrative and other . . . . . . . . . . . . . . 7,517,199 8,180,320 7,937,159Loss (gain) on sale and disposal of fixed

assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,214 56,989 (73,152)

Total operating expenses . . . . . . . . . . . . 43,328,437 41,645,563 39,938,915

Operating income . . . . . . . . . . . . . . . . . . . . . . 35,251,766 31,919,873 23,736,743

Other Income (Expense)Interest income . . . . . . . . . . . . . . . . . . . . . . . 196,350 138,630 98,656Interest expense (Note 16) . . . . . . . . . . . . . (7,639,719) (4,440,820) (3,886,642)

Total other expense . . . . . . . . . . . . . . . . . (7,443,369) (4,302,190) (3,787,986)

Income before income taxes . . . . . . . . . . . . . . 27,808,397 27,617,683 19,948,757

Income taxes (Notes 9 and 10):Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700,530 8,658,265 3,768,520Deferred expense (benefit) . . . . . . . . . . . . . 5,871,022 (614,466) 2,217,480

Total income taxes . . . . . . . . . . . . . . . . . . 8,571,552 8,043,799 5,986,000

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 19,236,845 US$ 19,573,884 US$ 13,962,757


F-5

Elektra Noreste, S. A.Statements of stockholders’ equity

For the years ended December 31, 2005, 2004 and 2003

CommonStocks

TreasuryStock

AdvanceDividends

RetainedEarnings

OtherComprehensive

Income (loss)

TotalStockholders’

Equity

Balance as ofDecember 31,2002 . . . . . . . . . . . . . . US$142,142,962 US$(330,557) US$(8,791,392) US$ 8,622,999 US$ — US$141,643,922

Net income 2003 . . . . . . — — — 13,962,757 — 13,962,757Reacquisition of

stock . . . . . . . . . . . . . . — (165,396) — — — (165,396)Complementary

dividend tax paid . . . — — — (117,416) — (117,416)

Balance as ofDecember 31,2003 . . . . . . . . . . . . . . 142,142,962 (495,953) (8,791,392) 22,468,250 — 155,323,867

Net income 2004 . . . . . . — — — 19,573,884 — 19,573,884Capital reduction . . . . . (35,500,000) — — — — (35,500,000)Reacquisition of

stock . . . . . . . . . . . . . . — (48,134) — — — (48,134)Dividends declared . . . . — — 8,791,392 (38,268,213) — (29,476,821)Accredited

complementarydividend tax . . . . . . . . — — — 773,128 — 773,128

Complementarydividend tax paid . . . — — — (535,853) — (535,853)

Balance as ofDecember 31,2004 . . . . . . . . . . . . . . 106,642,962 (544,087) — 4,011,196 — 110,110,071

Net income 2005 . . . . . . — — — 19,236,845 — 19,236,845Other comprehensive

income netunrealized loss onhedging instruments,net of taxes ofUS$196,068 . . . . . . . . — — — — (457,493) (457,493)

Dividends declared . . . . — — — (4,500,000) — (4,500,000)

Balance as ofDecember 31,2005 . . . . . . . . . . . . . . US$106,642,962 US$(544,087) US$ — US$ 18,748,041 US$(457,493) US$124,389,423


F-6

Elektra Noreste, S. A.Statements of cash flows


Cash flows from operating activitiesNet income . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 19,236,845 US$ 19,573,884 US$ 13,962,757Adjustments to reconcile net income to net

cash provided by operating activities:Depreciation and amortization . . . . . . . . . 11,890,034 10,909,897 10,182,773Loss (gain) on sale and disposal of fixed

assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,005,214 56,989 (73,152)Provision for doubtful accounts . . . . . . . . 1,483,867 524,429 1,561,358Provision for severance payments net of

contribution to severance fund . . . . . . . (4,739) 369,284 60,986Deferred income tax . . . . . . . . . . . . . . . . . . 5,871,022 (614,466) 2,217,480Fuel component adjustment . . . . . . . . . . . (15,559,801) 7,523,994 (4,831,000)

Changes in operating assets and liabilities:Accounts receivable . . . . . . . . . . . . . . . . . . (7,249,951) (3,852,198) (4,530,308)Accounts receivable – related

company . . . . . . . . . . . . . . . . . . . . . . . . . . — 36,132 (25,142)Prepaid expenses . . . . . . . . . . . . . . . . . . . . . 221,051 (780,457) 1,378,858Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,503,286 (1,204,350) 999,132Advances to suppliers . . . . . . . . . . . . . . . . . 115,358 (335,685) 200,350Deposits on facilities . . . . . . . . . . . . . . . . . . 1,981 834 (2,950)Trade accounts payable and other

liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 17,404,723 (2,925,856) 791,850Accounts payable – related company . . . . 492,700 (2,508,825) 1,751,775Income tax, net . . . . . . . . . . . . . . . . . . . . . . (5,019,942) 1,302,322 2,249,150Seniority premium payments . . . . . . . . . . . (163,473) (255,088) (204,438)

Net cash provided by operatingactivities . . . . . . . . . . . . . . . . . . . . . . . . 31,228,175 27,820,840 25,689,479

Cash flows from investing activitiesAcquisition of fixed assets . . . . . . . . . . . . . . . (19,473,247) (17,836,936) (16,806,673)Proceeds from sales of fixed assets . . . . . . . . 193,786 317,458 274,152Withdrawal from trust fund . . . . . . . . . . . . . — 1,831,627 (685,794)

Net cash used in investing activities . . . (19,279,461) (15,687,851) (17,218,315)

Continued…

F-7

Elektra Noreste, S. A.Statements of cash flows — continued


Cash flows from financing activitiesRepayment of long-term debt . . . . . . . . . . . US$ (5,000,000) US$ (45,000,000) US$(48,305,000)Proceeds from long-term debt . . . . . . . . . . . — 100,000,000 40,630,000Bonds payments . . . . . . . . . . . . . . . . . . . . . . . — — (349,322)Short-term debt, net . . . . . . . . . . . . . . . . . . . 5,000,000 (9,700,000) —Capital reduction . . . . . . . . . . . . . . . . . . . . . . — (35,500,000) —Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (16,917,165) (16,284,503) (4,577)Acquisition of treasury stock . . . . . . . . . . . . — (48,134) (165,396)Complementary dividend tax paid . . . . . . . — (535,853) (117,416)

Net cash used in financing activities . . . . (16,917,165) (7,068,490) (8,311,711)

Net (decrease) increase in cash . . . . . . . . . . . . (4,968,451) 5,064,499 159,453Cash at beginning of the year . . . . . . . . . . . . . 6,544,514 1,480,015 1,320,562

Cash at end of the year . . . . . . . . . . . . . . . . . . . US$ 1,576,063 US$ 6,544,514 US$ 1,480,015

Supplementary disclosuresCash payments for interest . . . . . . . . . . . . . . US$ 7,034,743 US$ 2,279,000 US$ 3,275,572

Cash payments for income taxes . . . . . . . . . US$ 7,472,155 US$ 7,357,217 US$ 340,354

Non-cash investing and financing activitiesDividends declared but not paid . . . . . . . . . US$ — US$ 21,983,710 US$ —


F-8

Elektra Noreste, S. A.Notes to financial statements

December 31, 2005, 2004 and 20031. Description of business

Elektra Noreste, S. A. (the Company) is a corporation formed as a result of the privatization ofthe Institute for Hydraulic Resources and Electricity (Instituto de Recursos Hidraúlicos yElectrificación (“IRHE”) in Spanish). The Company was incorporated by means of Public DeedNo.143, dated January 19, 1998, and began operations in January 1998. The authorized capitalstock of the Company consists of fifty million common shares without par value. At present,Panama Distribution Group, S. A (“PDG”) owns 51% of the authorized, issued and outstandingshares of common stock of the Company, while the Panamanian Government and employeesown 48.25% and 0.43%, respectively. The remaining amount of shares is held as treasury stock.

The activities of the Company include the purchase of energy in blocks and its transportationthrough the distribution network to customers. The Company performs voltage transformation,delivers the power to end consumers, and performs meter reading, billing and collections. TheCompany is also responsible for installing, operating, and maintaining public lighting in theconcession zone (as defined in the following paragraph), according to the lighting levels andcriteria established by the Public Services Regulator (Ente Regulador de los Servicios Públicos(“ERSP”) in Spanish). Additionally, the Company is authorized to perform power generationactivities up to a limit of 15% of the maximum demand and energy in the concession zone.

According to the concession contract described in Note 18, the Company has exclusivity for thedistribution and marketing of electric power to customers located in the geographical areas ofPanama East, Colón, Panama Bay, and the Comarca of San Blas and Darien (indigenous reserve).In regard to “large customers,” defined by Law 6, dated February 3, 1997, as customers with amaximum demand over 100 KW per site that have the option to purchase energy directly fromother agents of the electricity market, the Company has exclusivity for only the distribution ofelectricity.

2. Summary of accounting policies

The financial statements are prepared in accordance with accounting principles generallyaccepted in the United States of America (“US GAAP”).

Use of estimates

Preparation of the financial statements in conformity with US GAAP requires management tomake estimates and assumptions that affect the amounts reported in the financial statementsand accompanying notes. These estimates include but are not limited to the useful lives fordepreciation and amortization, allowances for doubtful accounts receivable, estimates of futurecash flows associated with asset impairments, loss contingencies, collectibility of the fuelcomponent adjustment receivable and estimated unbilled revenue. The estimates andassumptions used are based upon management’s evaluation of the relevant facts andcircumstances as of the date of the financial statements. Actual results could differ materiallyfrom those estimates.

F-9

Elektra Noreste, S. A.Notes to financial statements — (continued)

December 31, 2005, 2004 and 2003

Functional currency

The financial statements are expressed in United States dollars (US $); however, the books of theCompany are maintained in balboas, the monetary unit of the Republic of Panama. The balboa iscurrently, and has been since prior to the inception of the Company, valued at par with theUnited States dollar.

Utility regulation

The Company is subject to regulation by the ERSP. This agency regulates and makes the finaldetermination regarding the rates the Company charges to its customers. The Companymaintains its accounts in accordance with the Uniform System of Accounts prescribed for electricutilities by the ERSP.

The Company is subject to the provisions of Financial Accounting Standards Board (FASB)Statement No.71, “Accounting for the Effects of Certain Types of Regulation”. Regulatory assetsrepresent probable future revenues associated with certain costs that are expected to berecovered from customers through the ratemaking process. Regulatory liabilities representprobable future reductions in revenues associated with amounts that are expected to be creditedto customers through the ratemaking process.

Regulatory assets and (liabilities) reflected in the Company’s balance sheets at December 31relate to the following:

2005 2004 Note

Fuel component adjustment . . . . . . . . . . US$16,724,807 US$1,165,006 See “fuel componentadjustment” herein

Deferred income tax . . . . . . . . . . . . . . . . . (5,017,440) (337,850) See Note 9

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$11,707,367 US$ 827,156

In the event that a portion of the Company’s operations is no longer subject to the provisions ofStatement No.71, the Company would be required to write off related regulatory assets andliabilities that are not specifically recoverable through regulated rates. In addition, the Companywould be required to determine if any impairment to other assets, including plant, exists and, ifimpaired, write down the assets to their fair value. All regulatory assets and liabilities arereflected in rates.

Revenue recognition

Energy sales

Elektra recognizes its revenues for energy sales when service is delivered to and consumed bycustomers. The Company bills customers based on meter readings that are performed on asystematic basis throughout the month. The applicable rates used to bill the customers includeenergy cost and distribution components. The energy cost component operates as a pass-through

F-10


December 31, 2005, 2004 and 2003

for the energy purchased and transmission charges while the distribution components in thetariff are set by the ERSP to allow distributors to recover the cost of operating, maintenance,administration and commercial expenses, depreciation, standard energy losses and also to obtaina fair return on their investment. The energy cost component is adjusted every six months toreflect fluctuations in energy costs and the distribution components are adjusted based on theconsumer price index.

At the end of the year, the Company recognizes revenue for energy sales that have not yet beenbilled, but where electricity has been consumed by customers. This revenue is recorded asunbilled revenue within the trade receivables on the balance sheet and is calculated based onestimates of daily average energy consumption and applicable rates to the customers of theCompany. The Company believes that it is unlikely that subsequent bills will be materiallydifferent from accruals.

Other income

The Company recognizes connection and reconnection charges, pole rentals, and wheelingcharges as service is rendered. These charges are included in other operating income in thestatements of income.

Accounts receivable

Accounts receivable are recorded at the invoiced amount and bear interest on past due amounts.It is the Company’s policy to review outstanding accounts receivable on a monthly basis andadjust the corresponding allowance for doubtful accounts. Bad debt accounts are written offagainst this allowance when management determines the receivable is uncollectible.

The Company has established its provision percentages based on the collection experience asfollows:

• To cover 100% of the account balances classified as inactive or terminated.• To cover 50% of the account balances classified as disconnected.• To cover 47% of the account balances classified as active aged over 60 days.• To cover 1% of the account balances classified as active aged less than 60 days.• To cover 25% of the account balances with payment settlements.

Purchased energy and transmission charges

The Company records the annual cost of purchased energy obtained under long-term and short-term contracts in the statements of income. These contracts are considered executory in nature,since they do not convey to the Company the right to use the related property, plant orequipment. The Company also engages in short-term hourly purchases in the wholesale markets,which is administered by the National Dispatch Center (Centro Nacional de Despacho (CND) inSpanish).

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December 31, 2005, 2004 and 2003

The Company also pays a regulated tariff to ETESA, a company fully-owned by the PanamanianGovernment for connecting to and for use of the transmission system. ETESA is responsible forexpanding and upgrading the interconnecting transmission system to meet the requirements ofdemand growth and system stability. The current transmission tariff is due to remain in forceuntil June 30, 2009.


The regulated system under which the Company operates provides that any excess or deficiencybetween the estimated energy costs included in the tariff and the actual costs incurred by theCompany be included as a compensation adjustment to be recovered from or refunded tocustomers in the next tariff revision. Any excess in energy costs charged to customers is accrued inthe accounts payable on the balance sheet and leads to a reduction in the next tariff revision tobe applied to the customers. Conversely, any deficit in energy cost charged to customers isaccrued in the account receivable on the balance sheet and leads to an increase in the next tariffrevision to be recovered from customers.

Changes in the under/over collection of these energy costs are reflected under net energypurchased and transmission costs in the statements of income. The cumulative amount receivableis presented as a fuel component adjustment receivable on the balance sheet until these amountsare billed to customers. The fuel component adjustment includes six months with actual fuelprice information, plus six months of estimated of fuel price information. At December 31, 2005and 2004, there was a receivable balance of US$16,724,807 and US$1,165,006, respectively, forthis account resulting from a deficiency in energy costs that need to be charged to customers.

For the last several years, the fuel adjustment component has not been fully passed through todistribution company customers in the form of a tariff increase; the amount not billed tocustomers has been subsidized by the Panamanian Government. Refer to Note 20.

Property, plant, and equipment

Upon the Company’s formation, the IRHE transferred a portion of its productive assets stated athistorical cost net of the associated accumulated depreciation. New asset acquisitions andconstruction in progress are recorded at their original cost which includes materials, contractorcosts, construction overhead and financing costs. The Company reports property, plant andequipment on the balance sheet net of accumulated depreciation.

Costs associated with improvements made to property, plant and equipment are capitalized aswell as major disbursements for renewals. Costs associated with repairs, minor replacements andmaintenance which do not improve the asset or prolong its useful life are expensed as incurred.The Company also capitalizes interest during construction in accordance with SFAS 34,“Capitalization of Interest Costs”.

Long-lived assets are reviewed for impairment whenever events or changes in circumstancesindicate the carrying amount of an asset may not be recoverable through operations, in

F-12


December 31, 2005, 2004 and 2003

accordance with SFAS No.144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”If the carrying amount of the asset exceeds the expected undiscounted future cash flowsgenerated by the asset or group of assets, an impairment loss is recognized and the asset iswritten down to its fair value. Fair value can be determined by the use of quoted market prices,appraisals or other valuation techniques, such as expected discounted future cash flows.Management judgment is involved in both deciding whether testing for recoverability isnecessary and estimating undiscounted cash flows. As of December 31, 2005, no write-downs oflong-lived assets were required.

Gains or losses on property, plant and equipment are recognized when the assets are retired orotherwise disposed of. The difference between the net book value of the property and anyproceeds received for the property is recorded as a gain or loss.

Depreciation and amortization

Depreciation and amortization are calculated on the straight-line method over the estimateduseful lives of the assets. Estimated useful lives used for each fixed asset category are shownbelow:

Years of EstimatedUseful Life

Poles, towers and accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 to 40Electric transformers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Underground conductors and ducts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Overhead conductors and accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 to 35Substation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Consumer meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 to 40Public lighting equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Transportation and communications equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 and 15Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 to 20

Cash and cash equivalents

All highly liquid investments with original maturities of three months or less are classified as cashequivalents.

Inventory

Inventory consists primarily of materials and supplies for the Company’s consumption. Inventoryis accounted for at the lower of cost or market. Cost is determined using the average costmethod.

F-13


December 31, 2005, 2004 and 2003

Debt issuance costs

The Company defers all costs related to the issuance of long-term debt. These costs includeborrowers’ commissions and other costs such as legal, registration and stamp costs. Debt issuancecosts are amortized over the term of the debt instrument using the effective interest method.

Derivatives

The Company accounts for derivatives under SFAS No.133 “Accounting for DerivativesInstruments and Hedging Activities”, which recognizes all derivatives as either assets or liabilitiesin the balance sheet and measures those instruments at fair value. Gains and losses on derivativesthat qualify as cash flow hedges are recorded net of tax within other comprehensive income. Thegains or losses within accumulated other comprehensive income related to cash flow hedges ofdebt instruments are reclassified into earnings during the period that interest expense on thedebt is recognized.

Related parties

As a result of the restructuring of the electricity sector of Panama, three distribution companies,four generating companies and one transmission company were formed. The PanamanianGovernment retains an approximate fifty-one percent (51%) interest in the hydraulic generatingcompanies, a forty-nine percent (49%) interest in the thermal generating company anddistribution companies, and a one hundred percent (100%) interest in the transmission company.The Panamanian Government retained 48.25% of the Company’s stock and 0.43% is owned bypresent and former IRHE employees.

In the normal course of business, the Company purchases electricity from the generating andother distribution companies, sells energy to governmental institutions and makes payments tothe transmission company. The Company recognizes these activities as related party transactions.

The Company entered into a Management Consulting Agreement with CPI, Ltd., which owns100% of the PDG shares. PDG owns 51% of the Company’s authorized issued and outstandingshares of common stock. The Company records the related fees derived from the agreement asmanagement fees within the statements of income and any outstanding unpaid balance withCPI, Ltd. is shown in the balance sheet as a related company payable.

Seniority premium and severance fund

According to the Panamanian Labor Code, upon the termination of any employee contracted foran indefinite period of time, regardless the cause, the employee is entitled to a senioritypremium at the rate of one week’s salary for every year of work, since they were first employed,seniority premiums represent 1.92% of total salaries paid.

Law 44 of 1995 introduced reforms to the Panamanian Labor Code by requiring all employers tomake a cash contribution to a severance fund that would cover the payment to employees of a

F-14


December 31, 2005, 2004 and 2003

seniority premium and severance for unjustified dismissal. The Company maintains a trust fundthrough an authorized private entity, Progreso, S. A., who acts as trustee to secure the severancefund liability.

Income taxes

Income taxes are accounted for under the asset-liability method as prescribed by SFAS No.109,“Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the futuretax consequences attributable to temporary differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the yearsin which those temporary differences are expected to be recovered or settled. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized in income in the periodthat includes the enactment date.

Investment Tax Credit

The Company accounts for Investment Tax Credit (ITC) as a reduction of the current income taxunder the flow-through accounting method.

Customer deposits

The Company requires customers to provide cash deposits as a guarantee of payment for energyconsumed, according to the legislation set forth by the ERSP. The ERSP has issued resolutionsJD-219 (March 31, 1998) and JD-761 (June 8, 1998) which provide that in those cases where thecustomer has established a good payment record, defined as no more than three late paymentsin a twelve-month period, the deposit shall be returned.

Comprehensive income

Comprehensive income (loss) is represented by the net income for the period plus the effect ofthe net unrealized gain (loss) on hedging instruments, net of tax.

Comprehensive income for the years ended December 31, 2005, 2004 and 2003, is as follows:

2005 2004 2003

Net income for the year . . . . . . . . . . . . . . . . . . . . . US$19,236,845 US$19,573,884 US$13,962,757Net unrealized loss on hedging instruments,

net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (457,493) — —

Comprehensive income for the year . . . . . . . . . . US$18,779,352 US$19,573,884 US$13,962,757

Environmental matters

The Company is subject to a broad range of environmental, health and safety laws andregulations. In July 1998, the Panamanian Government enacted environmental legislation

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December 31, 2005, 2004 and 2003

creating an environmental protection agency (Autoridad Nacional del Ambiente in Spanish) andimposing new environmental standards affecting the Company’s operations. Failure to complywith these applicable environmental standards, stricter laws and regulations may requireadditional investments or may adversely affect the Company’s financial results.

Accruals for environmental matters are recorded when it is probable that a liability has beenincurred and the amount of the liability can be reasonably estimated based on current law.

Established accruals are adjusted periodically due to new assessments and remediation efforts oras additional technical and legal information become available.

Environmental costs are capitalized if the costs extend the life of the property, increase itscapacity and mitigate or prevent contamination from future operations. Costs related toenvironmental contamination treatment and clean-up are charged to expense.

Reclassifications

Certain reclassifications have been made to the financial statements and footnotes of prior yearsto conform to current-year presentation. These reclassifications had no effect on the Company’snet income or to the total stockholders’ equity.

Contingencies

In the normal course of business, the Company is subject to various regulatory actions,proceedings, and lawsuits related to tax or other legal matters. The Company establishes reservesfor these potential contingencies when they are deemed probable and reasonably estimable. Forfurther discussion of contingencies, see Note 18.

Application of recent accounting pronouncements

In May 2005, the FASB issued SFAS No.154, “Accounting Changes and Error Corrections—areplacement of APB Opinion 20 and FASB Statement 3”, or SFAS No.154. SFAS No.154 requiresretrospective application to prior periods’ financial statements for changes in accountingprinciple, unless it is impracticable to determine either the period-specific effects or thecumulative effect of the change. SFAS No.54 also requires that a change in depreciation,amortization or depletion method for long lived, non-financial assets be accounted for as achange in accounting estimate effected by a change in accounting principle. SFAS No.154 iseffective for accounting changes and corrections of errors made in fiscal years beginning afterDecember 14, 2005. The implementation of SFAS No.154 is not expected to have a materialimpact on the Company’s operations.

In March 2005, the FASB issued Interpretation No.47, “Accounting for Conditional AssetRetirement Obligations.” The Interpretation clarifies the accounting for a conditional assetretirement obligation as identified in SFAS No.143, “Accounting for Asset RetirementObligations.” Interpretation No.47 is effective for the 2006 fiscal year. The Company believes

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December 31, 2005, 2004 and 2003

there will be no material effect on the results of operations or the financial statements uponadoption of this Interpretation.

3. Property, plant, and equipment

At December 31, 2005 and 2004, property, plant and equipment are as follows:

2005 2004

Poles, towers and accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 77,431,920 US$ 76,853,692Electric transformers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,336,355 34,423,533Underground conductors and ducts . . . . . . . . . . . . . . . . . . . . . . 48,493,512 48,138,866Consumer services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,279,049 23,962,729Overhead conductors and accessories . . . . . . . . . . . . . . . . . . . . . 21,020,729 18,267,885Substation equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,373,192 40,597,381Consumer meters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,412,171 18,315,052Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,789,783 11,165,697Public lighting equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,153,615 10,936,768Transportation and communication equipment . . . . . . . . . . . . 7,386,476 7,397,963Office furniture and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 13,189,788 11,831,455Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,303,688 2,077,398

317,170,278 303,968,419Less: Accumulated depreciation and amortization . . . . . . . . . . (105,879,498) (97,818,382)

211,290,780 206,150,037Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,706,536 2,688,113

US$ 213,997,316 US$208,838,150

Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 13,840,455 US$ 12,615,408

During 2005, the Company incurred a loss of US$1,005,214 on the disposal of equipment, which isreflected in the Company’s statements of income.

The Company has pledged property, plant and equipment as collateral for bank debt atDecember 31, 2005 and 2004. The amount pledged includes certain property, plant andequipment at December 31, 2005 and 2004 as well as future additions up to a total value ofUS$65,000,000.

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December 31, 2005, 2004 and 2003

4. Accounts receivable – trade

At December 31, 2005 and 2004, accounts receivable – trade, are as follows:

2005 2004

Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$28,993,323 US$24,010,376Government and municipal entities . . . . . . . . . . . . . . . . . . . . . . . . . 5,668,078 8,028,934

34,661,401 32,039,310Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,624,154 6,187,522Government subsidy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,914,640 200,004

44,200,195 38,426,836Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,967,368) (4,529,825)

US$39,232,827 US$33,897,011

5. Related party transactions

Energy sales and purchasesIn the normal course of business, the Company purchases electricity from the generating andother distribution companies, sells energy to governmental institutions and makes payments tothe transmission company. These transactions are made under the terms and conditions of thepower purchase agreements and the transmission fees discussed in Notes 2 and 18. A summary ofthe balances and amounts derived from the purchase and sale of energy with related parties is asfollows:

Balances

Description 2005 2004

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 5,628,499 US$ 7,874,851Accounts receivable – government subsidy . . . . . . . . . . . . . . . . . . . 2,914,640 200,004Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,798,414 21,304,203

Transaction amounts 2005 2004 2003

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 22,637,049 US$ 18,280,185 US$ 16,186,833Purchases of energy . . . . . . . . . . . . . . . . . . . . . 173,187,346 118,364,655 134,862,739Transmission costs . . . . . . . . . . . . . . . . . . . . . . 8,343,175 8,375,965 3,046,435

Management Consulting AgreementThe Company entered into a Management Consulting Agreement in 1998 with CPI, Ltd., thesuccessor to Constellation Power, Inc. (“the Operator”).

Under this agreement, CPI, Ltd’s employees, agents, consultants, contractors or affiliates shallperform the following services:

• Review the business plan of the Company and make the necessary recommendations to theboard of directors;

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December 31, 2005, 2004 and 2003

• Provide on-going advice concerning day-to-day operations of the Company, includingaccounting, billing, quality control, environmental matters, and safety;

• Prepare the annual business plan of the Company in cooperation with senior management;• Investigate and make recommendations to the board, from time to time, regarding business

development opportunities and corporate strategic planning, including potential expansion;and

• Review all contracts with third parties exceeding an annual value of US$100,000.

The Company pays the Operator an annual fee as compensation for the performance of itsobligations under this agreement in an amount equal to six percent (6%) of earnings beforeinterest, taxes, depreciation and amortization for the first five years of the concession contractand four percent (4%) of earnings before interest, taxes, depreciation and amortizationbeginning November 1, 2003.

At December 31, 2005 and 2004, the Company had the following balances and transactions withCPI, Ltd.:

2005 2004

Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$512,700 US$20,000

2005 2004 2003

Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$1,943,000 US$1,756,246 US$2,012,000

6. Inventory

At December 31, 2005 and 2004, inventory is composed of the following:

2005 2004

Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$6,362,665 US$8,064,684Tools and spare parts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,254 489,521

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$7,050,919 US$8,554,205

7. Debt issuance costs

At December 31, 2005 and 2004, deferred costs are as follows:

2005 2004

Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$1,293,643 US$1,472,705Debt legal fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144,750 133,224Debt registration cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,218 183,920

US$1,597,611 US$1,789,849

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December 31, 2005, 2004 and 2003

The debt issuance costs, legal fees, and registration costs correspond to a syndicated long-termloan granted by four banks as discussed in Note 12. These prepaid fees are being amortizedunder the effective interest method over the repayment period of the loan.

8. Accounts payable

Generation and transmission

At December 31, 2005 and 2004, accounts payable to generation and transmission companies areas follows:

2005 2004

AES Panamá, S. A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$14,176,444 US$15,408,864Empresa de Generación Eléctrica Fortuna, S. A. . . . . . . . . . . . . . . . 2,496,879 1,557,431Empresa de Generación Eléctrica Bahía Las Minas Corp. . . . . . . . . 13,590,812 1,327,041Empresa de Transmisión Eléctrica, S. A. . . . . . . . . . . . . . . . . . . . . . . 3,652,844 2,068,105PanAM Generating Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,432,429 1,125,001Corporación Panameña de Energía, S. A. . . . . . . . . . . . . . . . . . . . . . 163,791 63,033Autoridad del Canal de Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 881,435 942,762Térmica del Noreste, S. A. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,832,273 1,444,355Pedregal Power Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930,919 —Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,022 280,162

US$41,228,848 US$24,216,754

Suppliers

At December 31, 2005 and 2004, accounts payable to suppliers are as follows:

2005 2004

Construction contractors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 3,746,370 US$ 2,046,082Maintenance and repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,491,582 1,949,069Materials and inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,572,013 2,374,090Outsourcing and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,307,722 793,116Telecommunication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,380 338,003Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,850,822 2,609,211

US$10,226,889 US$10,109,571

9. Income tax

The provision for income tax is determined based on book income before income taxes, adjustedfor any non-taxable income and non-deductible expenses. The actual income tax rate is 30%.Deferred income tax is recognized for the effects of all temporary differences between the bookand tax basis of assets and liabilities. A valuation reserve is recorded to reduce the value ofdeferred tax assets when it is not probable that tax benefits can be totally realized.

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December 31, 2005, 2004 and 2003

The difference between the provision for income tax for the years-ended December 31, 2005,2004 and 2003, and the income tax calculated using the enacted statutory corporate tax rate(30% for 2005, 28% to 30% in 2004, and 30% in 2003) for income before income tax reported inthe financial statements is attributable to the following:

2005 2004 2003

Income tax:Computed at expected statutory rate . . . . . . . . . . US$8,342,519 US$8,285,305 US$5,984,627Decrease in income tax due to non-taxable

income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (198,163) (337,738) —Increase in income tax due to non-deductible

expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,697 96,232 1,373Effect of change on enacted rate . . . . . . . . . . . . . . 388,499 — —

Total income tax . . . . . . . . . . . . . . . . . . . . . . . . . . US$8,571,552 US$8,043,799 US$5,986,000

Deferred income tax assets and liabilities recognized on temporary differences that will bereversed in future periods, are as follows:

2005 2004

Non-current deferred income tax assets:Investment tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$5,075,988 US$5,976,165Provision for contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,688 276,364

Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,409,676 6,252,529Non-current deferred income tax liability—depreciation expense

applicable to future periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,340,126 3,254,187

Non-current deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . US$2,069,550 US$2,998,342

2005 2004

Current deferred income tax assets:Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 358,177 382,614Treasury lock derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 196,068 —Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347,622 585,825

Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 901,867 968,439

Current deferred income tax liabilities—fuel componentadjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 5,017,440 US$337,850

Current deferred income tax (liabilities) assets, net . . . . . . . . . . . . . . . US$(4,115,573) US$630,589

The Company estimates that is more likely than not that there will be enough income taxpayable in future years to allow for the use of the deductible temporary differences included inthe balance sheet as of December 31, 2005.

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December 31, 2005, 2004 and 2003

In accordance with tax regulations, the income tax returns of companies in Panama are open forexamination by the tax authorities for three years. Companies are also subject to examination bythe Panamanian tax authorities regarding compliance with stamp tax regulations.

In February 2005, the Panamanian Government enacted a fiscal reform package consisting ofboth revenue raising and expenditure reduction measures. The revenue raising measures includean expansion of the definition of taxable income to include certain individual income sourcespreviously not fully taxable, a narrower definition of offshore income (which is tax exempt), theintroduction of an alternative minimum tax for individuals and corporations, the elimination of atax exemption on capital gains derived from public tender offers and the elimination of certaintax incentives to manufacturing and construction activities. The effect of this tax reform was toincrease current and deferred income tax by US$120,023 and US$388,499 for the years endedDecember 31, 2005 and 2004, respectively.

10. Investment tax credit

During 2001, the Company received an investment tax credit of US$13,673,745 which wasgranted by the Panamanian Government under an incentive law that promoted investments ininfrastructure to enhance the energy distribution network. The tax credit can be used as areduction of up to 25% of the income tax incurred in any given year, until 100% of the amountpending to be realized in future years is consumed.

Due to the benefit received, the Company is not allowed to deduct for tax purposes, thedepreciation on the US$13,673,745 of infrastructure invested. The tax effect of this isUS$4,102,123 (US$13,673,745 x 30%).

11. Customer deposits

At December 31, 2005 and 2004, the Company estimated that the amount of deposits to bereturned to customers during fiscal year 2006 and 2005 will be US$2,665,177 (including accruedinterest of US$165,177) and was US$2,630,584 (including accrued interest of US$130,584), in fiscalyear 2005.

The activity in the customer deposits accounts for the years 2005 and 2004 is as follows:

2005 2004

Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$12,177,280 US$12,950,005Deposits received from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,409,362 1,715,342Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 257,779 220,424Deposits returned to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,033,033) (2,459,168)Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (223,186) (249,323)

Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$11,588,202 US$12,177,280

Current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 2,665,177 US$ 2,630,584Long-term portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 8,923,025 US$ 9,546,696

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December 31, 2005, 2004 and 2003

12. Bank debt

At December 31, 2005 and 2004, bank debt is as follows:

2005 2004

Short-Term Facilities:The Bank of Nova Scotia

Authorized credit facility in the amount of US$20,000,000and US$10,000,000 in 2005 and 2004, respectively . . . . . US$ 5,000,000 US$ —

Long-Term Bank Facilities:Syndicated long-term loan, with an annual eurodollar rate

of 3 months + 3.50%, assigned as follows:Banco Continental de Panamá, S. A. . . . . . . . . . . . . . . . . . . . 33,250,000 35,000,000Primer Banco del Istmo, S. A. . . . . . . . . . . . . . . . . . . . . . . . . . 33,250,000 35,000,000Citibank, N.A., Panama Branch . . . . . . . . . . . . . . . . . . . . . . . 19,000,000 20,000,000Banco Bilbao Vizcaya Argentaria (Panamá), S. A. . . . . . . . . 9,500,000 10,000,000

Total long-term facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95,000,000 100,000,000

Total bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000,000 100,000,000Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000 5,000,000

Long-term bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 90,000,000 US$ 95,000,000

The Company has available short-term facilities with Bank of Nova Scotia, Banco Bilbao VizcayaArgentaria (Panamá), S. A., Banco General, S. A., Citibank, N. A. Total short-term facilities ofUS$43,300,000 in 2005 and US$39,500,000 in 2004 had annual interest rates ranging between 6months Libor + 1.40% and 1.75%.

On October 19, 2004, the Company signed a US$100,000,000 new Syndicated Long-Term LoanAgreement (“Loan Agreement”) due in October 2014. The loan was offered by a bank syndicatecomposed of Banco Continental de Panamá, S. A., Citibank, N.A., Panama Branch, Primer Bancodel Istmo, S. A., and Banco Bilbao Vizcaya Argentaria (Panamá), S. A. On that date, the Companyfully repaid the outstanding balance of the previous Syndicated Long-Term Loan Agreement.

The following are the aggregate amounts of maturities of the long-term debt, including currentmaturities for the next five years and in total thereafter:

Year Principal Amount

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 5,000,0002007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,0002008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,000,0002009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,0002010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000,000Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000,000

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$95,000,000

F-23


December 31, 2005, 2004 and 2003

Some of the principal conditions within the new Syndicated Long-Term Loan Agreement aredescribed below:

Affirmative and negative covenants:

(a) Preservation of concession and government approvals.(b) Restriction on mergers consolidations, liquidations and dissolution and investments in

subsidiaries and/or affiliates.(c) Limitation on sales, transfers or other disposal of assets.(d) Limitation on investments and capital expenditures.(e) Limitation on making any payment under the Management Agreement if there is a default

under this Agreement or the other loan documents.(f) Prohibition on granting any lien upon any of property, assets or revenues.

Repayment of loan principal

The Company repays the principal amount of the outstanding loans in quarterly installmentsthrough a step-up fashion repayment plan.

Financial covenants

The Company is committed to comply with seven key financial covenants calculated for anyperiod of four consecutive fiscal quarters (taken as one accounting period), as follows:

(a) Funded Debt to EBITDA (as defined) Ratio is not to be higher than 3.0-to-1.(b) Debt Service Coverage Ratio is not to be less than 1.2-to-1.(c) Interest Coverage Ratio is not to be less than 2-to-1 through the fiscal year ending

December 31, 2005. This ratio will increase gradually up to 5-to-1, up to fiscal year endingDecember 31, 2014.

(d) Leverage Ratio is to be less than 1.75-to-1 through the fiscal year ending December 31, 2005and 1.5-to-1 after December 31, 2005 through December 31, 2013.

(e) Minimum Tangible Net Worth of the Borrower is not to be less than US$100,000,000.(f) Dividends are to be paid whenever the debt service coverage ratio immediately preceding

the date of the proposed dividends and immediately following the proposed dividendpayment, as estimated by the Company to be no less than 1.5-to-1.

(g) Dividend Payouts where the declaration and payment of any dividend is more than semi-annually are not allowed.

Security and guarantees

To guarantee the Company’s obligations under the Loan Agreement and related agreements, theCompany has granted the lenders a first mortgage (the “Mortgage”), recorded at the PublicRegistry of Panama, for an amount up to US$65 million with respect to specified property andreal estate. The mortgaged property consists of distribution substations, land, building, vehicles,

F-24


December 31, 2005, 2004 and 2003

technology hardware and other related fixed assets. The mortgaged real estate consists of landand buildings. The Company has also granted the lenders a lien on pending and futurereceivables. These receivables (including existing and future receivables) have been legally andvalidly assigned and transferred to the Trustee (BNP Paribas, Panama Branch) and constitute theproperty of the Trustee in accordance with the terms and conditions of the Trust Agreement. Inaddition, the Company assigned various insurance policies to the Trustee and created a debtservice reserve account assigned to the Trustee.

Trust Agreement

In connection and in compliance with the terms and conditions of the Syndicated Long-TermLoan Agreement, a Trust Agreement was signed on October 25, 2004 through which theCompany has agreed to maintain a bank reserve account of US$2,500,000 assigned to BNPParibas, Panama Branch in its position as of trustee. The Company has also pledged the followingspecific assets to be maintained by the trustee in the event of default:

(a) The collection accounts in several banks and the funds deposited there in;(b) The receivables related to the rental of properties;(c) The customer accounts receivables portfolio;(d) The insurance policies and the indemnity paid by the insurance companies;(e) Proceeds earned by the trust related to capital earnings, interest income, indemnity or any

other related income resulting from the sale, exchange, transfer, disposal, usage, collectionor any other activity performed by the trustee on the Company’s behalf; and

(f) Any other type of assets that from time to time are incorporated in the Trust in accordancewith the Trust terms and conditions.

13. Derivative instrument

The Company entered into a derivative transaction in order to hedge its exposure to interest raterisk. To qualify for hedge accounting, derivatives must be designated as a hedge (for example, anoffset of interest rate risks) and must be effective at reducing the risk associated with the hedgeditem. The Company is using a treasury lock (an agreement that fixes the yield on a specifictreasury security for a specific period, which is used in connection with the issuance of a fixedrate debt) to manage its exposure to fluctuations in interest rates. The Company does not enterinto derivative transactions for trading or speculative purposes.

On December 22, 2005, the Company entered into a hedging arrangement exclusively as a tool tolock in an interest rate for an upcoming issuance of bonds in order to minimize the Company’sinterest rate risk. This treasury lock was entered into with Citibank N.A., New York, for a 120-dayperiod and a notional amount of US$100,000,000, which was designated as a cash flow hedge ofthe forecasted interest payments on the expected debt offering. Given the use of cash flowhedge accounting, this transaction is reflected as of December 31, 2005 within othercomprehensive income as an after-tax loss in the amount of US$457,493. The Company expects toexecute this treasury lock at maturity date.

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December 31, 2005, 2004 and 2003

14. Purchase of energy and transmission chargers, net

The Company recorded purchase of energy and transmission charges as follows:

2005 2004 2003

Purchase of energy . . . . . . . . . . . . . . . . . . . . . . US$201,130,024 US$135,922,802 US$149,614,707Transmission chargers . . . . . . . . . . . . . . . . . . . 8,343,175 8,375,965 3,046,435Fuel component adjustment . . . . . . . . . . . . . . (15,567,711) 7,524,000 (4,831,000)

Total net purchase of energy andtransmission chargers . . . . . . . . . . . . . . . . . . US$193,905,488 US$151,822,767 US$147,830,142

15. Other income

Other income is composed of the following:

2005 2004 2003

Connection/Reconnection charges . . . . . . . . . . . . . . . US$ 853,227 US$ 884,200 US$ 941,245Pole rentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,484,195 2,410,408 2,321,534Wheeling charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,264,329 2,728,647 2,280,202Collections of uncollectible accounts and related

interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799,167 672,261 570,986Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,582,824 1,077,641 1,089,413

Total other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$8,983,742 US$7,773,157 US$7,203,380

16. Interest costs

The Company capitalizes the portion of interest costs associated with construction in progress.The following is a summary of interest costs incurred:

2005 2004 2003

Interest costs capitalized . . . . . . . . . . . . . . . . . . . . . . . US$ 249,974 US$ 217,828 US$ 150,096Interest costs charged to expenses . . . . . . . . . . . . . . . 7,639,719 4,440,820 3,886,642

Total interest costs incurred . . . . . . . . . . . . . . . . . . . . US$7,889,693 US$4,658,648 US$4,036,738

17. Dividends and treasury stocks

Advance dividends

During 2004, the Board of Directors declared dividends for the amount of US$38,268,213. Out ofthe total dividends paid to stockholders, US$8,791,392 was applied against the outstandingbalance of the advance dividends account as of December 31, 2003.

F-26


December 31, 2005, 2004 and 2003

Dividend tax

Dividends are paid to shareholders net of withholding taxes that the Company pays on behalf ofit shareholders. The complementary dividend tax payments are recorded as a reduction tostockholders’ equity.

Treasury stocks

In 1998, as consequence of the privatization process, the Company’s employees had the option topurchase, at a discount price, a portion of the common stock of the Company. In the event thatemployees wish to sell their previously acquired stock, the Company is no longer required torepurchase the stock.

18. Commitments and contingencies

At December 31, 2005, the Company had contingent liabilities from claims originating in theordinary course of business. The ultimate outcome of these contingencies is not expected to havea material impact on the Company’s financial condition or operating results. Following are themost representative matters:

During 2005, a labour complaint was filed with a labour court by the Electricity Industry WorkersUnion of the Republic of Panama against the Company and the other seven electricity companiesthat originated from the privatization of the IRHE. The complaint seeks the payment ofUS$7,191,852.59 from the Company, plus additional amounts from the other defendants,claiming that, due to calculation errors, the Panamanian Government did not pay in full thelabour rights and severance compensation of the IRHE employees who at that time agreed toterminate their existing employment, as required for the privatization of the new electriccompanies. This complaint has been opposed by the Company. Legal counsel of the Company isof the opinion that such complaints are groundless, since under Executive Decree No.42 of 1998,the Panamanian Government assumed full liability for the payment of any compensation orcalculation adjustment due to IRHE workers terminated as part of the privatization.

The Company challenged the Regulator regarding the order to reimburse power generatingcompanies for public lighting charges. The Company based its argument on the fact that theRegulator had previously authorized the distribution company to include public lighting chargeswithin the wheeling charges billed to the generating companies. When the generatingcompanies challenged these charges, the Regulator changed its previous instructions to theCompany and through several resolutions, ordered the Company to not only to stop charging forpublic lighting but to reimburse to the generators all of the previous charges applied and alreadycollected. The Company appealed the decision, and the Supreme Court decided to stop anyreimbursement to the generating companies. All of these cases are open and most of them arewaiting for evidence submission. Management considers that the outcome of these cases will nothave a material negative impact on the financial statements.

F-27


December 31, 2005, 2004 and 2003

As of December 31, 2005, the Company had energy and long-term firm capacity purchasecontracts with the following generation companies:

Company MW Begin End

Térmica del Noreste, S. A. . . . . . . . . . . . . . June 19, 2000 July 19, 2010Bahía Las Minas . . . . . . . . . . . . . . . . . . . . . . 80 January 1, 2005 December 31, 2008ESTI – AES . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.72 November 20, 2003 November 2013Bahía Las Minas . . . . . . . . . . . . . . . . . . . . . . 40 January 17, 2005 January 16, 2006AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . 40 January 1, 2006 December 31, 2006La Mina Hidro-Power . . . . . . . . . . . . . . . . . 28 January 1, 2008 December 31, 2015AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . 40 January 1, 2006 December 31, 2006AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . 20 January 1, 2007 December 31, 2007AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . 20 January 1, 2006 December 31, 2006AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . 40 January 1, 2007 December 31, 2007AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . 60 January 1, 2008 December 31, 2008Bontex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8 January 1, 2008 December 31, 2015Paso Ancho Hidro-Power . . . . . . . . . . . . . . 4 January 1, 2008 December 31, 2015Pedregal Power Co. . . . . . . . . . . . . . . . . . . . 30 January 1, 2006 December 31, 2008PanAm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 January 1, 2006 December 31, 2008Pedregal Power Co. . . . . . . . . . . . . . . . . . . . 12; 5; 15 January 1, 2006 December 31, 2008

In accordance with the 1997 Electricity Law, the Company enters into long-term power purchaseagreements with electricity generators that cover most of its regulated customers’ contributionsto the total peak customer demand of electricity and work towards limiting any associatedenergy costs. Historically, the Company contracts annually for approximately 79% to 85% of itstotal energy requirements via purchase agreements on the contract market. For the year endedDecember 31, 2005, the Company purchased approximately 79% of its total energy requirementsvia power purchase agreements on the contract market. These purchase agreements include botha fixed charge based on energy capacity requirements and a variable charge based on energyuse.

The Company has several unconditional long-term contracts obligations related to the purchaseof energy capacity. The aggregate amount of payments required under such obligations atDecember 31, 2005, is as follows:

Year Payment Obligation

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 41,703,8882007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,535,8882008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,955,0882009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,855,8882010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,855,888Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,812,340

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$267,718,980

F-28


December 31, 2005, 2004 and 2003

The Company has provided limited guarantees to generating companies in order to provide forcredit assurance and performance obligations under the power purchase agreements. Theseguarantees are not recognized on the balance sheet, because the Company believes that it is ableto perform under these contracts and that is not probable that payments will be required. Theguaranteed amounts are limited to a month’s estimate of energy capacity and associated energyconsumption and are established for a twelve month period with automatic renewals as long asthe power purchase agreement is in place. The aggregate guarantee amount for theperformance obligation is US$11,051,057. The Company has also issued a guarantee in favor ofthe ERSP for US$8,000,000 in compliance with clause 53 of the Concession Contract.

As of December 31, 2005 and 2004, the Company has on-going construction contracts forimprovements and developments of the distribution system. Future commitments on thesecontracts amount to US$762,669 and US$1,963,228, respectively.

The Company has a standby letter of credit for US$3,352,360 in favor of ETESA to guarantee thepayment of the energy purchase in the spot market.

On October 20, 2003, the Company and the workers’ union signed a second Labor CollectiveAgreement for a four-year term that will expire on October 20, 2007.

Concession contract

The Company has exclusive rights to install, own and operate an energy distribution network,and to supply energy to end customers other than large customers, currently defined as thosewith peak demand on a site-by-site basis of over 100kW. Large customers can choose to buyenergy directly from generators or from the spot market.

The Company’s concession contract is valid for 15-years. One year prior to the end of the 15-yearperiod, the ERSP will hold a competitive bid for the sale of the majority stake in the Companycurrently held by PDG. The majority shareholder has the right to set the reserve price for thetender (by making its own bid) and will only be required to sell its share of the Company ifanother higher offer is made, in which case it will be entitled to the sale proceeds. If no higheroffer is made, the majority shareholder will retain its ownership for another 15-year term subjectto the same renewal procedures. Resulting from this bidding process, the new majorityshareholder will be granted rights to the new 15 year concession contract with no requirement tomake any payments to the Panamanian Government.

The concession contract establishes provisions related to the Concessionaire’s obligation in servicesupply issues, the non separation of the majority shares package, the delivery of periodic,technical and financial information to the ERSP, compliance with the technical quality standards(quality standards, measurement standards and operation regulations of the CND), and paymentof the control, supervision and monitoring tariff of the ERSP, which may not be transferred tothe users through the tariff.

F-29


December 31, 2005, 2004 and 2003

19. Fair value of financial instruments

The estimated fair values of financial instruments as of December 31, 2005 and 2004 are based onthe information available at the date of the balance sheet. The Company has no knowledge ofany factors that may significantly affect the estimated fair values of the most common financialassets and liabilities such as cash and trade receivables, severance funds, accounts payable, long-term debt and customer deposits.

20. Subsequent events

On January 23, 2006, the Panamanian Government announced that the substantial tariff increaseauthorized on January 1, 2006 would be suspended for 90 days while the Energy Commission,established by Executive Decree No.27 on September 21, 2005, studied the approved rate increaseand the electricity industry. The Company has not received any information to indicate that thesuspension will directly affect its concession contract or any existing contracts relating to theoperations of its electricity distribution business. The Company considers that all amountsrecorded under “Fuel Component Adjustment” will be recovered and that this temporarysuspension will not have a negative impact on the Company’s operations or financial position.

F-30

Review report of independent auditorsTo the Board of Directors and Stockholders ofElektra Noreste, S. A.

We have reviewed the accompanying condensed balance sheet of Elektra Noreste, S.A. as ofMarch 31, 2006, and the related condensed statements of income, stockholders’ equity and cashflows for each of the three-month periods ended March 31, 2006 and March 31, 2005. Theseinterim financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with standards established by the American Institute ofCertified Public Accountants. A review of interim financial information consists principally ofapplying analytical procedures and making inquiries of persons responsible for financial andaccounting matters. It is substantially less in scope than an audit conducted in accordance withgenerally accepted auditing standards, the objective of which is the expression of an opinionregarding the financial statements taken as a whole. Accordingly, we do not express such anopinion.

Based on our review, we are not aware of any material modifications that should be made to theaccompanying condensed interim financial statements for them to be in conformity withaccounting principles generally accepted in the United States of America.

/s/ PricewaterhouseCoopers

May 11, 2006Panama, Republic of Panama

F-31

Elektra Noreste, S. A.Balance sheets

March 31, 2006 and December 31, 2005March 31,

2006December 31,

2005

Assets

Property, plant, and equipment:Property, plant, and equipment, net of accumulated

depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$213,475,431 US$213,997,316Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,427,850 13,840,455

Total property, plant, and equipment . . . . . . . . . . . . . . 227,903,281 227,837,771

Current assets:Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,763 1,576,063

Accounts receivable:Trade, net (Notes 3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,908,067 39,232,827Fuel component adjustment (Note 2) . . . . . . . . . . . . . . . . . . 25,132,807 16,724,807Generators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530,549 569,495Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,393,014 1,601,477

Accounts receivable, net . . . . . . . . . . . . . . . . . . . . . . . . . 64,964,437 58,128,606

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,232,157 7,050,919Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263,620 131,029Prepaid income tax (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,468,470 1,468,470Derivative instrument (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 2,650,500 —Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939,470 —Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,713 398,614

Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77,993,130 68,753,701

Other assets:Debt issuance cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,524,648 1,597,611Severance fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 984,743 911,843Security deposits on facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 58,282 58,138Trust fund for long-term loan debt . . . . . . . . . . . . . . . . . . . . . . 2,500,000 2,500,000Deferred income tax (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,103,734 2,069,550

Total other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,171,407 7,137,142

Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$313,067,818 US$303,728,614


F-32

Elektra Noreste, S. A.Balance sheets — (continued)

March 31, 2006 and December 31, 2005March 31,

2006December 31,

2005

Liabilities and Stockholders’ Equity

Stockholders’ equity:Common stock authorized, issued and outstanding:

50,000,000 shares without par value less; 160,031 heldin treasury . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$106,098,875 US$106,098,875

Accumulated other comprehensive gain (loss) (Note 5) . . . . . 1,855,350 (457,493)Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,820,930 18,748,041

Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . 129,775,155 124,389,423

Current liabilities:

Accounts payable:Generation and transmission . . . . . . . . . . . . . . . . . . . . . . . 38,572,538 41,228,848Suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,701,981 10,226,889Advances, retentions and deposits on construction

contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,738,535 6,674,630Related company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384,000 512,700Deferred income tax (Note 4) . . . . . . . . . . . . . . . . . . . . . . . 7,397,397 4,115,573Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,569,428 2,665,177Witholding taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 225,476 257,885

Total accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 69,589,355 65,681,702

Current portion of bank debt (Note 6) . . . . . . . . . . . . . . . 12,000,000 10,000,000Interest payable on debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,376,111 1,396,934Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,533 6,533Derivative Instrument (Note 5) . . . . . . . . . . . . . . . . . . . . . . — 653,561Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 609,454 655,386

Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,581,453 78,394,116

Long-term bank debt (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,750,000 90,000,000

Customer deposits and other liabilities:Customer deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,923,025 8,923,025Provision for seniority premium and severance payments . . 726,220 703,156Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,311,965 1,318,894

Commitments and contingencies (Notes 8 and 9)Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 183,292,663 179,339,191

Total liabilities and stockholders’ equity . . . . . . . . . . . . US$313,067,818 US$303,728,614


F-33

Elektra Noreste, S. A.Statements of income

For three months ended March 31, 2006 and 20052006 2005

RevenuesNet energy sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$69,145,279 US$59,044,679Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,013,852 2,113,142

Total revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,159,131 61,157,821

Purchase of energy and transmission charges, net (Note 7) . . . . . 53,648,896 42,792,909

Gross distribution margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,510,235 18,364,912

Operating ExpensesLabor and other personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,083,611 2,138,652Severance expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107,987 72,061Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,936 604,116Repair and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610,665 550,936Professional services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,079,057 1,887,099Management fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 393,000 451,000Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,020,668 2,922,680Administrative and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,015,956 2,055,171Loss on sale and disposal of fixed, net . . . . . . . . . . . . . . . . . . . . . 178,186 133,305

Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,094,066 10,815,020

Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,416,169 7,549,892

Other Income (Expense)Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,831 47,092Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,082,158) (1,578,482)

Total other expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,026,327) (1,531,390)

Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,389,842 6,018,502Provision from income taxes (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . 1,316,953 2,028,227

Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 3,072,889 US$ 3,990,275


F-34

Elektra Noreste, S. A.Statements of stockholders’ equity

For three months ended March 31, 2006 and 2005

CommonStocks

TreasuryStock

RetainedEarnings

OtherComprehensive

Income (loss)

TotalStockholders’

Equity

Balance as ofDecember 31, 2005 . . US$106,642,962 US$(544,087) US$18,748,041 US$ (457,493) US$124,389,423

Net income for threemonths endedMarch 31, 2006 . . . . . . — — 3,072,889 — 3,072,889

Other comprehensiveincome netunrealized gain onhedging instruments,net of taxes ofUS$991,218 . . . . . . . . . — — — 2,312,843 2,312,843

Balance as of March 31,2006 . . . . . . . . . . . . . . . US$106,642,962 US$(544,087) US$21,820,930 US$1,855,350 US$129,775,155

Balance as ofDecember 31, 2004 . . US$106,642,962 US$(544,087) US$ 4,011,196 US$ — US$110,110,071

Net income for threemonths endedMarch 31, 2005 . . . . . . — — 3,990,275 — 3,990,275

Balance as of March 31,2005 . . . . . . . . . . . . . . . US$106,642,962 US$(544,087) US$ 8,001,471 US$ — US$114,100,346


F-35

Elektra Noreste, S. A.Statements of cash flows

For three months ended March 31, 2006 and 20052006 2005

Cash flows from operating activitiesNet income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 3,072,889 US$ 3,990,275Adjustments to reconcile net income to net cash provided by

operating activities:Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . 3,020,668 2,922,680Loss on sale and disposal of fixed assets, net . . . . . . . . . . . . . . 178,196 133,305Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . 604,936 604,116Provision for severance payments net of contribution to

severance fund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (18,182) 221,321Deferred income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,256,422 386,837Fuel component adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,408,000) (13,000)

Changes in operating assets and liabilities:Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 953,544 (715,276)Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (59,772) (101,165)Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (181,238) 15,683Advances to suppliers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,901 115,509Trade accounts payable and other liabilities . . . . . . . . . . . . . . 680,845 5,129,276Accounts payable – related company . . . . . . . . . . . . . . . . . . . . (128,700) 90,000Income tax, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (939,470) (1,675,835)Seniority premium payments . . . . . . . . . . . . . . . . . . . . . . . . . . . (17,965) (350,711)

Net cash provided by operating activities . . . . . . . . . . . . . . 1,027,074 10,753,015

Cash flows from investing activitiesAcquisition of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,375,787) (4,125,461)Proceeds from sales of fixed assets . . . . . . . . . . . . . . . . . . . . . . . . 111,413 70,562

Net cash used in investing activities . . . . . . . . . . . . . . . . . . . (3,264,374) (4,054,899)

Cash flows from financing activitiesRepayment of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,250,000) (1,250,000)Short-term debt, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 1,500,000Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (12,417,165)

Net cash provided by (used in) financing activities . . . . . . . 750,000 (12,167,165)

Net decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,487,300) (5,469,049)Cash at beginning of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,576,063 6,544,514

Cash at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 88,763 US$ 1,075,465

Supplementary disclosuresCash payments for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 2,038,141 US$ 1,504,118

Cash payments for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . US$ — US$ 3,317,225


F-36

Elektra Noreste, S. A.Notes to financial statements


1. Description of business

Elektra Noreste, S. A. (the Company) is a corporation formed as a result of the privatization ofthe Institute for Hydraulic Resources and Electricity (Instituto de Recursos Hidraúlicos yElectrificación (“IRHE”) in Spanish). The Company was incorporated by means of Public DeedNo.143, dated January 19, 1998, and began operations in January 1998. The authorized capitalstock of the Company consists of fifty million common shares without par value. At present,Panama Distribution Group, S. A (“PDG”) owns 51% of the authorized, issued and outstandingshares of common stock of the Company, while the Panamanian Government and employeesown 48.25% and 0.43%, respectively. The remaining amount of shares is held as treasury stock.

The activities of the Company include the purchase of energy in blocks and its transportationthrough the distribution network to customers. The Company performs voltage transformation,delivers the power to end consumers, and performs meter reading, billing and collections. TheCompany is also responsible for installing, operating, and maintaining public lighting in theconcession zone (as defined in the following paragraph), according to the lighting levels andcriteria established by the Public Services Regulator (Ente Regulador de los Servicios Públicos(“ERSP”) in Spanish). Additionally, the Company is authorized to perform power generationactivities up to a limit of 15% of the maximum demand and energy in the concession zone.

According to the concession contract described in Note 8, the Company has exclusivity for thedistribution and marketing of electric power to customers located in the geographical areas ofPanama East, Colón, Panama Bay, and the Comarca of San Blas and Darien (indigenous reserve).In regard to “large customers,” defined by Law 6, dated February 3, 1997, as customers with amaximum demand over 100 KW per site that have the option to purchase energy directly fromother agents of the electricity market, the Company has exclusivity for only the distribution ofelectricity.

2. Summary of accounting policies

The financial statements are prepared in accordance with accounting principles generallyaccepted in the United States of America (“US GAAP”).

Use of estimates

Preparation of the financial statements in conformity with US GAAP requires management tomake estimates and assumptions that affect the amounts reported in the financial statementsand accompanying notes. These estimates include but are not limited to the useful lives fordepreciation and amortization, allowances for doubtful accounts receivable, estimates of futurecash flows associated with asset impairments, loss contingencies, collectibility of the fuelcomponent adjustment receivable and estimated unbilled revenue. The estimates andassumptions used are based upon management’s evaluation of the relevant facts andcircumstances as of the date of the financial statements. Actual results could differ materiallyfrom those estimates.

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Utility regulation

The Company is subject to regulation by the ERSP. This agency regulates and makes the finaldetermination regarding the rates the Company charges to its customers. The Companymaintains its accounts in accordance with the Uniform System of Accounts prescribed for electricutilities by the ERSP.

The Company is subject to the provisions of Financial Accounting Standards Board (FASB)Statement No.71, “Accounting for the Effects of Certain Types of Regulation”. Regulatory assetsrepresent probable future revenues associated with certain costs that are expected to berecovered from customers through the ratemaking process. Regulatory liabilities representprobable future reductions in revenues associated with amounts that are expected to be creditedto customers through the ratemaking process.

Regulatory assets and (liabilities) reflected in the Company’s balance sheets at March 31, 2006and December 31, 2005 relate to the following:

March 31, 2006December 31,

2005 Note

Fuel component adjustment . . . . . . . . . US$25,132,807 US$16,724,807 See “fuel componentadjustment” herein.

Deferred income tax . . . . . . . . . . . . . . . . (7,539,840) (5,017,440) See Note 4

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$17,592,967 US$11,707,367

In the event that a portion of the Company’s operations is no longer subject to the provisions ofStatement No.71, the Company would be required to write off related regulatory assets andliabilities that are not specifically recoverable through regulated rates. In addition, the Companywould be required to determine if any impairment to other assets, including plant, exists and, ifimpaired, write down the assets to their fair value. All regulatory assets and liabilities arereflected in rates.

Revenue recognition

Energy sales

Elektra recognizes its revenues for energy sales when service is delivered to and consumed bycustomers. The Company bills customers based on meter readings that are performed on asystematic basis throughout the month. The applicable rates used to bill the customers includeenergy cost and distribution components. The energy cost component operates as a pass-throughfor the energy purchased and transmission charges while the distribution components in thetariff are set by the ERSP to allow distributors to recover the cost of operating, maintenance,administration and commercial expenses, depreciation, standard energy losses and also to obtaina fair return on their investment. The energy cost component is adjusted every six months toreflect fluctuations in energy costs and the distribution components are adjusted based on theconsumer price index.

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On a quarterly basis, the Company recognizes revenue for energy sales that have not yet beenbilled, but where electricity has been consumed by customers. This revenue is recorded asunbilled revenue within the trade receivables on the balance sheet and is calculated based onestimates of daily average energy consumption and applicable rates to the customers of theCompany. The Company believes that it is unlikely that subsequent bills will be materiallydifferent from accruals.

Other Income

The Company recognizes connection and reconnection charges, pole rentals, and wheelingcharges as service is rendered. These charges are included in other operating income in thestatements of income.


The regulated system under which the Company operates provides that any excess or deficiencybetween the estimated energy costs included in the tariff and the actual costs incurred by theCompany be included as a compensation adjustment to be recovered from or refunded tocustomers in the next tariff revision. Any excess in energy costs charged to customers is accrued inthe accounts payable on the balance sheet and leads to a reduction in the next tariff revision tobe applied to the customers. Conversely, any deficit in energy cost charged to customers isaccrued in the account receivable on the balance sheet and leads to an increase in the next tariffrevision to be recovered from customers.

Changes in the under/over collection of these energy costs are reflected under net energypurchased and transmission costs in the statements of income. The cumulative amount receivableis presented as a fuel component adjustment receivable on the balance sheet until these amountsare billed to customers. At March 31, 2006, December 31, 2005, and as of March 31, 2005 therewas a receivable balance of US$25,132,807, US$16,724,807, and US$1,178,006, respectively, forthis account resulting from a deficiency in energy costs that need to be charged to customers.

The account receivable as of March 31, 2006 includes deficit in energy cost accrued from April 1,2005 through March 31, 2006. Based on Resolution JD-5930 from March 31, 2006 issued by theRegulator, the distribution companies were order not to include in the rate adjustment appliedstarting April 1, 2006 through December 31, 2006 the accrued amount of energy cost deficit as ofMarch 31, 2006. It is expected, as indicated by Government officials, that this amount will berecognized as a subsidy.

For the last several years, the fuel adjustment component has not been fully passed through todistribution company customers in the form of a tariff increase; the amount not billed tocustomers has been subsidized by the Panamanian Government. Refer to Note 9.

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Derivatives

The Company accounts for derivatives under SFAS No.133 “Accounting for DerivativesInstruments and Hedging Activities”, which recognizes all derivatives as either assets or liabilitiesin the balance sheet and measures those instruments at fair value. Gains and losses on derivativesthat qualify as cash flow hedges are recorded net of tax within other comprehensive income. Thegains or losses within accumulated other comprehensive income related to cash flow hedges ofdebt instruments are reclassified into earnings during the period that interest expense on thedebt is recognized.

Income taxes

Income taxes are accounted for under the asset-liability method as prescribed by SFAS No.109,“Accounting for Income Taxes.” Deferred tax assets and liabilities are recognized for the futuretax consequences attributable to temporary differences between the financial statement carryingamounts of existing assets and liabilities and their respective tax bases. Deferred tax assets andliabilities are measured using enacted tax rates expected to apply to taxable income in the yearsin which those temporary differences are expected to be recovered or settled. The effect ondeferred tax assets and liabilities of a change in tax rates is recognized in income in the periodthat includes the enactment date.

Investment tax credit

The Company accounts for Investment Tax Credit (ITC) as a reduction of the current income taxunder the flow-through accounting method.

Comprehensive income

Comprehensive income (loss) is represented by the net income for the period plus the effect ofthe net unrealized gain (loss) on hedging instruments, net of tax.

Comprehensive income for three months ended March 31, 2006 and 2005, is as follows:

March 31, 2006 March 31, 2005

Net income for three months ended . . . . . . . . . . . . . . . . . . . . . . . US$ 3,072,889 US$ 3,990,275Net unrealized gain on hedging . . . . . . . . . . . . . . . . . . . . . . . . . .instruments, net of taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,855,350 —

Comprehensive income for the period . . . . . . . . . . . . . . . . . . . . . US$ 4,928,239 US$ 3,990,275

Contingencies

In the normal course of business, the Company is subject to various regulatory actions,proceedings, and lawsuits related to tax or other legal matters. The Company establishes reservesfor these potential contingencies when they are deemed probable and reasonably estimable. Forfurther discussion of contingencies, see Note 8.

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Application of recent accounting pronouncements

In May 2005, the FASB issued SFAS No.154, “Accounting Changes and Error Corrections—areplacement of APB Opinion 20 and FASB Statement 3”, or SFAS No.154. SFAS No.154 requiresretrospective application to prior periods’ financial statements for changes in accountingprinciple, unless it is impracticable to determine either the period-specific effects or thecumulative effect of the change. SFAS No.54 also requires that a change in depreciation,amortization or depletion method for long lived, non-financial assets be accounted for as achange in accounting estimate effected by a change in accounting principle. SFAS No.154 iseffective for accounting changes and corrections of errors made in fiscal years beginning afterDecember 14, 2005. The implementation of SFAS No.154 is not expected to have a materialimpact on the Company’s operations.

In March 2005, the FASB issued Interpretation No.47, “Accounting for Conditional AssetRetirement Obligations.” The Interpretation clarifies the accounting for a conditional assetretirement obligation as identified in SFAS No.143, “Accounting for Asset RetirementObligations.” Interpretation No. 47 is effective for the 2006 fiscal year. The Company believesthere will be no material effect on the results of operations or the financial statements uponadoption of this Interpretation.

3. Accounts receivable – trade

At March 31, 2006 and December 31, 2005 accounts receivable – trade, are as follows:

March 31,2006

December 31,2005

Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$30,452,625 US$28,993,323Government and municipal entities . . . . . . . . . . . . . . . . . . . . . . . . . 7,994,919 5,668,078

38,447,544 34,661,401

Unbilled revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,872,864 6,624,154Government subsidy (advance) receivable . . . . . . . . . . . . . . . . . . . . (840,097) 2,914,640

43,480,311 44,200,195Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,572,244) (4,967,368)

US$37,908,067 US$39,232,827

4. Income tax

The provision for income tax is determined based on book income before income taxes, adjustedfor any non-taxable income and non-deductible expenses. The actual income tax rate is 30%.Deferred income tax is recognized for the effects of all temporary differences between the bookand tax basis of assets and liabilities. A valuation reserve is recorded to reduce the value ofdeferred tax assets when it is not probable that tax benefits can be totally realized.

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Deferred income tax assets and liabilities recognized on temporary differences that will bereversed in future periods, are as follows:

March 31,2006

December 31,2005

Non-current deferred income tax assets:Investment tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$5,075,988 US$5,075,988Provision for contingencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 333,688 333,688

Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . 5,409,676 5,409,676Non-current deferred income tax liability—depreciation expense

applicable to future periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,305,942 3,340,126

Non-current deferred income tax assets, net . . . . . . . . . . . . . . . . . . . . US$2,103,734 US$2,069,550

March 31,2006

December 31,2005

Current deferred income tax assets:Provision for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 513,740 US$ 358,177Treasury lock derivative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (795,150) 196,068Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423,853 347,622

Total deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . 142,443 901,867

Current deferred income tax liabilities—fuel componentadjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 7,539,840 US$ 5,017,440

Current deferred income tax liabilities, net . . . . . . . . . . . . . . . . . . . . US$(7,397,397) US$(4,115,573)

The Company estimates that is more likely than not that there will be enough income taxpayable in future years to allow for the use of the deductible temporary differences included inthe balance sheet as of March 31, 2006.

In accordance with tax regulations, the income tax returns of companies in Panama are open forexamination by the tax authorities for three years. Companies are also subject to examination bythe Panamanian tax authorities regarding compliance with stamp tax regulations.

5. Derivative instrument

On December 22, 2005, the Company entered into a hedging arrangement exclusively as a tool tolock in an interest rate for an upcoming issuance of bonds in order to minimize the Company’sinterest rate risk. This treasury lock was entered into with Citibank N.A., New York, for a 120-dayperiod. The instrument was negotiated for a notional amount of US$100,000,000, which wasdesignated as a cash flow hedge of the forecasted interest payments on the expected debtoffering. Given the use of cash flow hedge accounting, this transaction is reflected as ofMarch 31, 2006 and December 31, 2005 within other comprehensive income as an after-tax gain

F-42



(loss) in the amount of US$2,312,843 and (US$457,493), respectively. The Company expects toexecute this treasury lock at maturity date. The Company does not enter into derivativetransactions for trading or speculative purposes.

6. Bank debt

At March 31, 2006 and December, 31 2005, bank debt is as follows:

March 31,2006

December 31,2005

Short-term facilities:Banco Bilbao Viscaya Argentaria (Panamá), S. A. . . . . . . . . . . US$ 5,000,000 US$ —Citibank, N.A., Panama Branch . . . . . . . . . . . . . . . . . . . . . . . . . 2,000,000 —The Bank of Nova Scotia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 5,000,000

Total short-term facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,000,000 5,000,000

Long-term bank facilities:Syndicated long-term loan, with an annual eurodollar rate

of 3 months + 3.50%, assigned as follows:Banco Continental de Panamá, S. A. . . . . . . . . . . . . . . . . . . . 32,812,500 33,250,000Primer Banco del Istmo, S. A. . . . . . . . . . . . . . . . . . . . . . . . . . 32,812,500 33,250,000Citibank, N.A., Panama Branch . . . . . . . . . . . . . . . . . . . . . . . 18,750,000 19,000,000Banco Bilbao Vizcaya Argentaria (Panamá), S. A. . . . . . . . . . 9,375,000 9,500,000

Total long-term facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,750,000 95,000,000

Total bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,750,000 100,000,000Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,000,000 10,000,000

Long-term bank debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 88,750,000 US$ 90,000,000

The Company has available short-term facilities with the Bank of Nova Scotia, Banco BilbaoVizcaya Argentaria (Panamá), S. A., Banco General, S. A., Citibank, N. A., Panama Branch. Totalshort-term facilities of US$50,300,000 in March 31,2006 and US$43,300,000 in December 31, 2005had annual interest rates ranging between 6 months Libor + 1.20% and 1.50%.

7. Purchase of energy and transmission chargers, net

The Company recorded purchase of energy and transmission charges as follows:

March 31,2006

December 31,2005

Purchase of energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$59,303,316 US$40,413,643Transmission charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,753,580 2,392,266Fuel component adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,408,000) (13,000)

Total net purchase of energy and transmission chargers . . . . . . . . US$53,648,896 US$42,792,909

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8. Commitments and contingencies

At March 31, 2006, the Company had contingent liabilities from claims originating in theordinary course of business. The ultimate outcome of these contingencies is not expected to havea material impact on the Company’s financial condition or operating results. Following are themost representative matters:

During 2005, a labour complaint was filed with a labour court by the Electricity Industry WorkersUnion of the Republic of Panama against the Company and the other seven electricity companiesthat originated from the privatization of the IRHE. The complaint seeks the payment ofUS$7,191,852.59 from the Company, plus additional amounts from the other defendants,claiming that, due to calculation errors, the Panamanian Government did not pay in full thelabour rights and severance compensation of the IRHE employees who at that time agreed toterminate their existing employment, as required for the privatization of the new electriccompanies. This complaint has been opposed by the Company. Legal counsel of the Company isof the opinion that such complaints are groundless, since under Executive Decree No.42 of 1998,the Panamanian Government assumed full liability for the payment of any compensation orcalculation adjustment due to IRHE workers terminated as part of the privatization.

The Company challenged the Regulator regarding the order to reimburse power generatingcompanies for public lighting charges. The Company based its argument on the fact that theRegulator had previously authorized the distribution company to include public lighting chargeswithin the wheeling charges billed to the generating companies. When the generatingcompanies challenged these charges, the Regulator changed its previous instructions to theCompany and through several resolutions, ordered the Company to not only to stop charging forpublic lighting but to reimburse to the generators all of the previous charges applied and alreadycollected. The Company appealed the decision, and the Supreme Court decided to stop anyreimbursement to the generating companies. All of these cases are open and most of them arewaiting for evidence submission. Management considers that the outcome of these cases will nothave a material negative impact on the financial statements.

F-44



As of March 31, 2006, the Company had energy and long-term firm capacity purchase contractswith the following generation companies:

Company MW Begin End

Térmica del Noreste, S. A. . . . . . . . . . . . . . . . . June 19, 2000 July 19, 2010Bahía Las Minas . . . . . . . . . . . . . . . . . . . . . . . . . 80 January 1, 2005 December 31, 2008ESTI – AES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.72 November 20, 2003 November 2013AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 January 1, 2006 December 31, 2006La Mina Hidro-Power . . . . . . . . . . . . . . . . . . . . 28 January 1, 2008 December 31, 2015AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 January 1, 2006 December 31, 2006AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 January 1, 2007 December 31, 2007AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 January 1, 2006 December 31, 2006AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 January 1, 2007 December 31, 2007AES Panamá . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 January 1, 2008 December 31, 2008Bontex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.8 January 1, 2008 December 31, 2015Paso Ancho Hidro-Power . . . . . . . . . . . . . . . . . 4 January 1, 2008 December 31, 2015Pedregal Power Co. . . . . . . . . . . . . . . . . . . . . . . 30 January 1, 2006 December 31, 2008PanAm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 January 1, 2006 December 31, 2008Pedregal Power Co. . . . . . . . . . . . . . . . . . . . . . . 12; 5; 15 January 1, 2006 December 31, 2008Fortuna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 January 1, 2009 December 31, 2012Fortuna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 January 1, 2013 December 31, 2018

In accordance with the 1997 Electricity Law, the Company enters into long-term power purchaseagreements with electricity generators that cover most of its regulated customers’ contributionsto the total peak customer demand of electricity and work towards limiting any associatedenergy costs. Historically, the Company contracts annually for approximately 79% to 85% of itstotal energy requirements via purchase agreements on the contract market. For three monthsended March 31, 2006, the Company purchased approximately 84.2% of its total energyrequirements via power purchase agreements on the contract market. These purchaseagreements include both a fixed charge based on energy capacity requirements and a variablecharge based on energy use.

The Company has several unconditional long-term contracts obligations related to the purchaseof energy capacity. The aggregate amount of payments required under such obligations atMarch 31, 2006, is as follows:

Year Payment Obligation

2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$ 41,088,6912007 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,920,6912008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,339,8912009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,855,8882010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,855,888Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123,812,340

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . US$265,873,389

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The Company has provided limited guarantees to generating companies in order to provide forcredit assurance and performance obligations under the power purchase agreements. Theseguarantees are not recognized on the balance sheet, because the Company believes that it is ableto perform under these contracts and that is not probable that payments will be required. Theguaranteed amounts are limited to a month’s estimate of energy capacity and associated energyconsumption and are established for a twelve month period with automatic renewals as long asthe power purchase agreement is in place. The aggregate guarantee amount for theperformance obligation is US$11,051,057. The Company has also issued a guarantee in favor ofthe ERSP for US$8,000,000 in compliance with clause 53 of the Concession Contract.

As of March 31, 2006 and December 31, 2005, the Company has on-going construction contractsfor improvements and developments of the distribution system. Future commitments on thesecontracts amount to US$508,871 and US$762,669, respectively.

The Company has a standby letter of credit for US$4,994,650 as of March 31, 2006, in favor ofETESA to guarantee the payment of the energy purchase in the spot market.

On October 20, 2003, the Company and the workers’ union signed a second Labor CollectiveAgreement for a four-year term that will expire on October 20, 2007.

Concession contract

The Company has exclusive rights to install, own and operate an energy distribution network,and to supply energy to end customers other than large customers, currently defined as thosewith peak demand on a site-by-site basis of over 100kW. Large customers can choose to buyenergy directly from generators or from the spot market.

The Company’s concession contract is valid for 15-years. One year prior to the end of the 15-yearperiod, the ERSP will hold a competitive bid for the sale of the majority stake in the Companycurrently held by PDG. The majority shareholder has the right to set the reserve price for thetender (by making its own bid) and will only be required to sell its share of the Company ifanother higher offer is made, in which case it will be entitled to the sale proceeds. If no higheroffer is made, the majority shareholder will retain its ownership for another 15-year term subjectto the same renewal procedures. Resulting from this bidding process, the new majorityshareholder will be granted rights to the new 15 year concession contract with no requirement tomake any payments to the Panamanian Government.

The concession contract establishes provisions related to the Concessionaire’s obligation in servicesupply issues, the non separation of the majority shares package, the delivery of periodic,technical and financial information to the ERSP, compliance with the technical quality standards(quality standards, measurement standards and operation regulations of the CND), and paymentof the control, supervision and monitoring tariff of the ERSP, which may not be transferred tothe users through the tariff.

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9. Subsequent events

Through Resolution JD-5956 from April 11, 2006 the ERSP order the Company to returnUS$4,033,188 to the customers as a monthly credit on their bills starting May 2006 untilDecember 2006 due to an excess of the authorized “Maximum Allowed Income”, charged by theCompany from July 2002 through June 2006. According to the ERSP, this alleged excess wasgenerated from the difference between the breakdown by tariff type of the forecast used todetermine the tariff structure and the actual breakdown.

The Company filed a reconsideration recourse on this decision due to a lack of legal grounds andalso presented a revision of the study developed by the ERSP in which the difference in the“Maximum Allowed Income” caused by tariff type of the forecast used to determine the tariffstructure and the actual breakdown is favorable to the Company. In the opinion of theCompany’s legal counselors, this reconsideration recourse should be decided in favor of theCompany.

On April 21, 2006 the Company renewed the derivative financial instrument with Citibank, N.A.,New York for another 90-day period. Refer to Note 5.

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Documents

Elektra Noreste, S.A. · Plaza 2000 Building, 16th Floor 50th Street Panama, Republic of Panama Telephone: 507-250-7000 Facsimile: 507-205-7001 Email: [email protected] Panama stock