2. 1 Argentine Power Sector Market operation - facing stress situations CAMMESA Compañía Administradora del Mercado Mayorista Eléctrico APEX Conference October 2006 Seoul, Korea

3.  WEM – Basic Rules - Global Figures – Key Indicators  Macroeconomic changes - Impacts  Fuel Supply  Pre financing Maintenance  Expectations - Concerns Outline

4.  Market established in 1992  Spot Market (80%) SHORT-TERM MARGINAL-COST BASED STABILISED SEASONAL PRICES FOR DISTRIBUTORS (regulated) HOURLY PRICES IN SPOT MARKET (capped to gas prices) ADDITIONAL PAYMENT FOR CAPACITY (12 $/Mwh; 90 hours per week) REMUNERATION FOR ANCILLIARY SERVICES  Contract Market (20%) CONDITIONS AGREED BETWEEN PARTIES Basic Market Operating Rules

5. Installed Capacity 24 GW Peak LOAD 18 GW Generation 2005 98 TWh 500 kV 9.100 km 220/132 kV 12.000 km WEM - Participants Generators 53 Distributors 63 Large Consumers Ma302 Large Consumers Mi 2006 Transmission COs 10 Traders 4 Wholesale Electrical Market - 2005

6.  Dic 2001 => political crisis with deep recession in economy led to the fall of the government; social instability  Austral summer 2002  New transition government  Debt default; end of the fixed exchange rate (1$=1u$S) and devaluation  economic emergency law => pesification of economy  Profound economic crisis; inflation Macroeconomic Changes

7.  Since July 2002 => conditions begin to stabilize; relative normalization of the behaviour of economy  May 2003 => new elected government Macroeconomic Changes Evolution of exchange rate=> Increase of industrial demand due to greater competitiveness to export and import substitution Exchange rate => 200% Inflation => about 80%

8.  Tariffs to end consumers => social impossibility to increase tariffs due to economic crisis and people impoverishment  Pesification of natural gas, energy and capacity prices on the WEM  Increase of imported fuel and maintenance costs  Uncertainty related with exchange rate evolution and expected performance of the generation units Electricity Sector Scenario - Transition

9. % GDP vs Demand exchange rate 1$/u$s about 3 $/u$s

10. % GDP vs Demand

11.  Strong recovery – four years in a row (03/06) with GDP rates above 8%  Fiscal Surplus due to the increase of economic activity and a high exchange rate  Meaningful decrease of unemployment rate (from 20% to 11%)  Gain of political power and support Economics

12.  Political => less confidence in markets; energy as an strategic sector => more state participation  WEM Energy Prices => Maintain short term marginal cost system, with a cap price related with gas cost (less than 100 $/MWh (30 u$s/MWh). Differences recovered through uplift costs.  WEM tariffs => average below cost; residential and small consumers subsidised; industrial consumers adjusted partially Electricity Sector – Scenario - Decisions

13. Spot Price Evolution Definanciation of stabilization fund

14.  GDP - Strong recovery => demand increase  Focus => security of supply  Usage of thermal reserves => fuel supply (liquid) and maintenance (older plants)  Short term => cover the increasing demand => extensive use of thermal plants – increase of liquid fuel consumption  Additional problem => dramatic change in oil cost (from 30 to 60 U$S/bbl) and uncertainty Electricity Sector – Situation

15. Fuel Consumption

16. Thermal Dispatch – older plants  After three years without dispatch, need to use older plants extensively => increase of maintenance requirements and fuel supply

17.  Marginal signals smoothed & uncertainty related with evolution of oil price  Main problem => financing => fuel supply & maintenance  Mechanisms adopted – Fuel Supply  direct fuel oil supply (agreement with Venezuela +contracts) through CAMMESA. Centralised coordination of fuel supply  anticipation of money to the generators  Total consumption Fuel Oil =>  2003 => 0,1 M ton; 2006 => 1,6 Mton => more than 60 shipment Electricity Sector Scenario

18. Annual - Fuel Oil Consumption - Mton

19.  Mechanisms adopted – Maintenance  Anticipation of money to the generators to finance major maintenances  Generators require the amount of money related with the maintenance cost  CAMMESA evaluates the cost – benefit relation (impact in operation costs of losing the group during a year) and informs to the Energy Secretariat  In case the amount required is authorised, CAMMESA anticipates the money to Genco  Genco gives it back in 12/24 months, beginning 1 year after the finishing of the maintenance Electricity Sector Scenario

20.  Short term => cover the increasing demand => ensure availability of thermal capacity and fuel; optimise the use of hydro plants to minimise the risk of supply  new generation => an agreement was reached where the Treasure ensures payments of variable costs (including capacity) and 35 % of marginal rent; rest of it => derived to a Fund (FONINVEMEM) created to finance the installation of new generation. Recent tender=> Siemens will provide 2 x 800 MW CC plants (2008). Gencos will own shares of them.  diversification => increase of fossil fuels costs make hydro/alternative generation more competitive, but require a kick off from national government. The completion of Atucha II (750 MW nuclear) and of the level of Yacyretá reservoir (+700 MW hydro) to be available by 2009/11  Demand side management, energy savings and emergency imports as resources to diminish supply risks. Expectations – Concerns

21. ¡Thanks for your attention! Seoul, November 2006 Doubts => jluchilo@cammesa.com.ar More info => www.cammesa.com.arjluchilo@cammesa.com.arwww.cammesa.com.ar Quality, Technology & Transparency