contents Composition of the Board of Directors in Message from management 7 Report features 14 Report features 15 Report creation process 16

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2 contents REPORT PRESENTATION 5 Composition of the Board of Directors in Message from management 7 features 14 features 15 creation process 16 THE COMPANY 20 We are ISAGEN 21 Our higher purpose 22 Our strategy 23 Our business model 24 We believe in the future 25 And we do things right 27 We work so everyone gains 28 BUSINESS PERFORMANCE 31 Growth management 32 Energy production 45 Sale and productive solutions 57 Financial management Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 2 performance actions and results statements documents

3 MANAGEMENT PRACTICES, ACTIONS AND RESULTS 85 Corporate governance, ethics and transparency 86 Stakeholder relations 98 Environmental protection 109 Community development 122 Supplier relations 130 Employee Wellbeing 143 Global initiatives and human rights 157 FINANCIAL STATEMENTS 172 Independent Auditor s report 173 Company s legal representative and accountant certification 174 Balance sheet statements 175 Income statements 176 Statement of changes in the financial situation 177 Statement of cash flow 179 Statement of changes in equity 181 Financial statement notes 182 Distribution of value to stakeholders 212 OTHER DOCUMENTS 218 Risks associated with business sustainability 219 Environmental mangement indicators 223 GRI application level 241 GRI statement 242 External verification of compliance with GRI 244 Table of contents of the Global ing Initiatives 247 G3.1 Content index electric utilities sector supplement 269 Table leadership model in corporate sustainability Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 3 performance actions and results statements documents

4 2012 Management / ISAGEN S.A. E.S.P. Editorial committee ISAGEN Graphic design and layout ArangoVieira Info graphics and ilustrations ArangoVieira José Luis Upegui Photos Slide Depot 123RF Fotoeditores Julkastro.com Augusto Cartagena Cámara Lúcida Archivo ISAGEN Testimonial collection Táctica & Estrategia Business Management practices, Financial Other 4 performance actions and results statements documents

5 Composition of the Board of Directors in 2012 Management Message from management Management in numbers features creation process Business Management practices, Financial Other 5 performance actions and results statements documents

6 Composition of the Board of Directors in 2012: Primary GERMÁN ARCE ZAPATA Ministry of Finance and Public CreditPublic Credit and National Treasury Vice Minister General FEDERICO ALONSO RENGIFO VÉLEZ Ministry of Mines and Energy Minister of Mines and Energy MARCELA MONROY TORRES* LUIS ERNESTO MEJÍA CASTRO Alternate MARÍA FERNANDA SUÁREZ LONDOÑO Ministry of Finance and Public Credit Public Credit and National Treasury General Director TOMÁS GONZÁLEZ ESTRADA Ministry of Mines and Energy Vice-Minister of Energy NICOLÁS ECHAVARRÍA MESA JORGE HUMBERTO BOTERO ANGULO Management LUIS FERNANDO RICO PINZÓN Chief Executive Officer ARMANDO GÓMEZ CORREA Internationalization Manager JUAN FERNANDO VÁSQUEZ VELÁSQUEZ Chief Financial Officer LILIANA MARÍA ZAPATA MADRID Chief Commercial Officer 2012 Management / ISAGEN S.A. E.S.P. JUAN ESTEBAN CALLE RESTREPO Empresas Públicas de Medellín Chief Executive Officer JOSÉ FERNANDO ISAZA DELGADO GONZALO RESTREPO LÓPEZ JESÚS ARTURO ARISTIZÁBAL GUEVARA Empresas Públicas de Medellín Director of Energy ANDRÉS FELIPE MEJÍA CARDONA ALEJANDRO GAVIRIA URIBE** ALFONSO SALAZAR TRUJILLO Director of Energy Production MARÍA LUZ PÉREZ LÓPEZ Director of Generation Projects LUIS FERNANDO LONDOÑO MEJÍA Chief Operating Officer * Ms. Marcela Monroy Torres was a member of the Board of Directors from March 27 to December 20, 2012, on which date she resigned on account of her practice. ** Mr. Alejandro Gaviria Uribe was a member of the Board of Directors in 2012 from January 1 to September 1, on which date he submitted his letter of resignation on account of his appointment as the Minister of Health. Mr. Mauricio Cárdenas Santamaría was also a member of the Board of Directors from January 1 to September 3, 2012, when he was appointed as the Minister of Finance and Public Credit. GLORIA MARÍA ÚSUGA YEPES Organizational Auditor SHEILLA NAMEN CHAVARRO Secretary General MARGARITA ROSA GIRALDO GALLÓN Director of Corporate Brand Management Business Management practices, Financial Other 6 performance actions and results statements documents

7 Message from Management Business Management practices, Financial Other 7 performance actions and results statements documents

8 Preparing this management report has been an excellent opportunity to reflect on the contribution that companies, as human groups, can make to society if we are motivated to offer increasingly better responses to its needs and expectations and if we can make the most of our leadership and organizational capacity to join forces with others that have the same goal. In this report we present the Company s financial statements as well as the economic, social and environmental implications of the corporate activity Management / ISAGEN S.A. E.S.P. After 17 years of big challenges and achievements we uphold our belief that business excellence goes beyond profitability and economic growth. It is clear that society and clients increasingly demand that energy companies ensure access for all to their valuable resource. Equally, this generation demands that energy production will cause less environmental damage so as to ensure a livable planet for future generations. Aspects such as reducing poverty, lowering greenhouse gas emissions and maintaining the planet s biodiversity require a clear stand and clear answers. Luis Fernando Rico Pinzón ISAGEN Chief Executive Officer With this in mind we conducted a strategic thinking exercise within our Company, and from this we defined a higher purpose which reflects our essence. It is based on the ISAGEN vision and the main strategic directive for the future: Generating intelligent energy for society y prosperidad prosperity para la sociedad for society This ambitious goal challenges us to generate efficient energy that contributes to climate change mitigation and maintains our competitiveness in the industry. We use collaborative networks and practices in line with sustainable human development that generate shared value for our stakeholders. Business Management practices, Financial Other 8 performance actions and results statements documents

9 Without doubt the adoption of this declaration is the first and biggest of ISAGEN S achievements in Our commitment is linked to global initiatives like Global Compact, the Millennium Development Goals and United Nations Climate Protection. We adhered to these when we defined the strategy and we incorporated these practices in all of our operations. Comprehensive accountability for our stakeholders is therefore very natural and is a chance to assess ourselves and establish new goals. The following are the main management aspects of 2012: In development of our expansion plan, and in order to reinforce our growth and attend the country s energy demand, we continued with the construction of the Amoyá and Sogamoso hydroelectric projects which registered progress of 97.6% and 71.5% respectively. These two construction projects will allow ISAGEN to increase its installed capacity to 900 megawatts by 2014 and to increase annual power generation by up to 60%. We also invested in a portfolio of renewable energy projects which includes hydroelectric projects in various stages of development like Cañafisto in the department of Antioquia and the Rio Patía Hydroelectric Plant in the departments of Cauca and Nariño, among others. We also invested in geothermal projects in the department of Caldas and the Tufiño-Chiles-Cerro Negro bi-national project on the Ecuadorian border. 97.6% Amoyá River Hydroelectric Project 71.5% Sogamoso Hydroelectric Project 2012 Management / ISAGEN S.A. E.S.P. In international business, we made progress on several asset assessment and valuation processes although due to our interests no acquisitions were finalized. Furthermore, we were ready to participate in the auction of rights for the Colombia - Panama interconnection and the Energy and Power Market Competition in order to commercialize energy in the neighboring country. However, the initiative was suspended by the international interconnection s current developer. Exports which picked back up in 2011 attained the highest electrical energy transfer ever during 2012 to Venezuela, reaching GWh, 350 GWh of which were transferred through the Corozo - San Mateo line and GWh by the Cuestecitas - Cuatricentenario line. International interconnections will optimize and complement our energy resources, the energy integration and the development of Colombia s massive hydroelectric potential. Solid financial strategy is needed in order to carry out these investment initiatives and to ensure access to national and international funding. This is how we obtained the AAA rating for our internal public debt bonds from the BRC firm and the Baa3 international rating from Moody s. Credit contracts were also signed with the Japan Bank for International Cooperation and the Bank of Tokyo for up to USD 66 million, and with Banco Santander of Spain and the Hermes agency for USD 73 million, to optimize the Sogamoso Hydroelectric Project debt GWh Historic energy transfer to Venezuela Business Management practices, Financial Other 9 performance actions and results statements documents

10 With regard to the 2012 financial results, we would like to point out that total revenues amounted to $1, trillion, a 3% increase in comparison to those of the previous year. Operating profit reached $ billion with a 16% decrease and a 29% margin. The EBITDA was $ billion with a 14% decrease and 35% margin. Net profit was therefore $ billion with a 4% decrease and 27% net margin. Decreases in comparison with 2011 are due to: (i) excellent results obtained last year, which also allowed distribution of extraordinary dividends; and (ii) the presence of certain difficulties in 2012 which are described below. Despite the above, the results were the same as those forecast in the 2012 budget. We reinforced our position in the financial and capital markets. We went from 43 international shareholders to 210, and in line with the local and international stock market trends our share had an annual variation of 20.43% going from $2,080 to $2,505. Furthermore, in order to remain a leader in global trends and to use a common international accounting language, in 2012, we became the first Colombian company to voluntarily publish its Financial Statements in line with International Financial ing Standards (IFRS). In the Reliability Premium Auction, firm energy (ENFICC, in Spanish) of 1,440 GWh per year were awarded to the Sogamoso Hydroelectric Project for the , in addition to that received in the 2008 auction, which represents an additional annual revenue of USD 22.6 million for ISAGEN. In the Reliability Charge Sale Reconfiguration Auction between December 1, 2012, and November 30, 2013, Amoyá was assigned 587,031 kwh/day. Accordingly, a serious breach shall only exist if the power station begins operation after November 30 of The long-term reliability charge obligations remain. With regards to energy production, 2011 resulted in atypical climate conditions in the country which allowed us to obtain the highest energy generation level in our history due to the abundance of water resources. In 2012 this was lower, mainly due to low water levels. With generation of 9, GWh we provided 16.31% of the energy delivered to Colombia s National Electrical Grid. Our power generation stations had 94.1% availability, 3.73% greater than in 2011, which resulted in efficient operation, maintenance and modernization management. Another important milestone is implementation of the JetA1 liquid fuel supply and logistics scheme to cover half of the Termocentro Thermal Power Plant capacity until November 2017, as well as securing of gas for the other half of the plant s capacity until November Management / ISAGEN S.A. E.S.P. Total revenues Operating profit EBITDA Net profit $1,731,539 $501,455 $610,462 $ Million Million Million Million Business Management practices, Financial Other 10 performance actions and results statements documents

11 On the other hand, we continue to serve comprehensive energy solutions to a significant group of the country s large industry. This allows us to position ourselves as the reseller with the highest participation in the non-regulated market. At the same time we supply electricity to wholesale market distributors throughout Colombia. In line with our commitment to environmental protection and contribution to climate change mitigation, we calculated our carbon footprint and continued to prepare our candidate projects for the Clean Development Mechanism. We have made progress in our Comprehensive Energy Management Strategy, which is now linked to 50 industrial end clients to increase productive process efficiency, decrease greenhouse gas emissions and increase their competitiveness. We concluded construction of our new administrative headquarters, fulfilling the LEED criteria (Leadership in Energy and Environmental Design) established by the United States Green Building Council (US GBC). We therefore expect to obtain silver category certification during the building s first year of operation. We also published the book Reservoir Flora - An Illustrated Guide to pass on scientific knowledge and support research on flowers that grow in the woodlands around the reservoirs of Eastern Antioquia. Furthermore, institutional and community relations were strengthened in various territories which allows articulation of efforts and trust building between the Company and the public, private and community sector. 9, GWh Energy generation in % Energy delivered 2012 Management / ISAGEN S.A. E.S.P. Other achievements that strengthen corporate development include implementation of a flexible work policy which allows our workers to change their workplace and working hours to reconcile work with personal life; and implementation of our Provider Relations Policy which explains the principles on which we base our relations with these stakeholders in terms of ethics, work, human rights and the environment. In 2012, our corporate governance and corporate ethics practices were recognized by the Código País and Transparencia por Colombia initiatives. For the third time, ISAGEN has not been allowed to participate in the ANDESCO Award for Corporate Responsibility in the Large Company category due to its exceedingly excellent practices in terms of corporate performance sustainability, work environment, market practices, environmental performance and corporate governance. Additionally, we would like to point out our full compliance with applicable legislation. Consequently, according to Article 47 of Law 222 / 1995, amended by Law 603 / 2000, all software used by our management is licensed pursuant to the Intellectual Property and Copyright Law. We also had difficulties and we shared them with you. These difficulties challenge us to move forward and create new styles of management which become opportunities to learn and improve. Business Management practices, Financial Other 11 performance actions and results statements documents

12 The Preventative Measure to suspend start-up of the Manso Diversion Project remains in place, as imposed by ANLA (The National Authorities of Environmental Licenses) through Resolutions No. 300 of 2011 and 901 of November During 2011 we worked with ANLA to lift the preventative measure, but we did not reach the agreement needed in line with the actions and the measures that must be applied. In 2012 ISAGEN again formally requested this authority to lift the preventative measure imposed on the project in order to act not only in accordance with the principles of reason, proportionality and due process, but also in line with current environmental regulations. We hope to find a definitive solution to this impasse in the next few months. Elsewhere, the public order circumstances that surround construction of the Río Amoyá Hydroelectric Project continued to hinder implementation and extended the construction period. Nevertheless, we keep our firm commitment to overcome difficulties, complete the project and contribute to community development in the areas of influence. Depending on progress of the works, during the first half of 2013 we will be able to start commercial operation and give the country a new cleanenergy hydroelectric power station. This is the biggest project in the country to comply with the requirements of the Clean Development Mechanism (MDL), using a renewable energy resource and facilitating the reduction of greenhouse gases. Jaguas Hydroelectric power plant 2012 Management / ISAGEN S.A. E.S.P. On the other hand, there was an unexpected decrease in water abundance throughout the country during the second half of 2012, including in the areas of influence of our power stations and in particular of the Miel Power Plant. This added to the previously mentioned difficulties, decreasing our chance of improving generation. Also due to the deficient water conditions and the probability of an El Niño event, the energy prices increased on the stock market. This situation impacted our 2012 operating results, given our need to purchase energy from the market at a higher price to fulfill commercial operations. Facing these difficulties and as a preventative action, it is important to highlight that we have extended the local bank credit availability period in the amount of $1.57 trillion until May 31, We adjusted some of the conditions of that credit and we are doing the same with other financial creditors. This will give us greater financial flexibility during the period remaining until the commercial start-up of the Sogamoso Hydroelectric Project. The positive outcome of this management reflects the trust held in ISAGEN by the financial market for our good corporate governance, workplace, technical, economic and environmental practices. Río Amoyá Hydroelectric Project Business Management practices, Financial Other 12 performance actions and results statements documents

13 In regard to the Annulment Appeal filed by ISAGEN to the Arbitral Award issued in the process initiated by the Consortium comprised of Constructora Norberto Odebrecht et al against ISAGEN, originating in the construction of the Miel I Hydroelectric Power Plant, ISAGEN was notified in December 2012 of the Council of State s ruling by edict to only annul one of the claims granted in the Arbitral Award. ISAGEN respects the decision, but does not agree with it. Nevertheless, the Company asked the Council to clarify and add a statement regarding, among other things, some aspects of a programming nature inherent to said ruling (sentence). These aspects bear a close relationship to the full annulled claim and may affect other claims. We remind you that the economic consequences of this Arbitral Award are fully provisioned in the ISAGEN financial statements since 2011 and such adjustments continue in the 2012 financial statements. A summary of our most important management figures in 2012 have been provided below for our stakeholders. You can consult the full report for specific information that may interest you. We look forward to hearing your thoughts and suggestions. Thank you very much, 2012 Management / ISAGEN S.A. E.S.P. We learned important lessons in this stage of our corporate evolution. Nevertheless, the achievements made and the difficulties experienced impose big challenges on us, particularly for the next two years: (i) to make progress in our expansion plan, fulfilling the current construction schedule for the Sogamoso Hydroelectric Project and achieve start-up of the Manso Diversion and Río Amoyá Hydroelectric Projects; (ii) to optimize and strengthen of our financing structure; and (iii) to commence and make progress in a organizational transformation process to respond and move towards the Higher Purpose defined through skill development to create shared value, exploration and technological monitoring of renewable energy sources, implementation of integral water management and strengthening of collaboration networks. ORIGINAL DOCUMENT SIGNED LUIS FERNANDO RICO PINZÓN Chief Executive Officer ORIGINAL DOCUMENT SIGNED GONZALO RESTREPO LÓPEZ Chairman of the Board Business Management practices, Financial Other 13 performance actions and results statements documents

14 Unit Variation % MANAGEMENT IN NUMBERS Financial Management Profitability of equity % Operating profit $ Millions 501, ,084 (-16) Operating margin % EBITDA millions $ Millions 610, ,900 (-14) EBITDA Margin % Net profit $ Millions 460, ,112 (-4) Net margin % Financial leverage Times Financial debt / EBITDA Times Sales Management Total Income $ Millions 1,731,539 1,682,700 3 Customer satisfaction indicator Points Number of wholesale customers Number of customers Participation in the non-regulated market % Industrial End Clients Number of customers Energy Production Total Generation GWh 9, , (-11.99) Hydroelectric generation GWh 9, ,671 (-14.08) Thermal generation GWh Availability % Contribution to Colombia's National Electrical Grid % (-2.35) Project Management Sogamoso Hydroelectric Project Progress % Amoyá Hydroelectric Project Progress % Manso Diversion Project Progress % Other indicators Legal Transfers $ Millions 35,885 39,897 - Environmental management plan contributions $ Millions 251, ,160 - Social and biophysical investment $ Millions 18,436 16,824 - Job creation in areas of influence Number of jobs 9,051 7, Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 14 performance actions and results statements documents

15 Features Business Management practices, Financial Other 15 performance actions and results statements documents

16 The following is our integrated management report for Although we have been carrying out this exercise in communication and transparency since 2005, this is the second time we have published just one annual report on our business performance that, in addition to presenting the financial results, includes our management practices and the way we relate to our stakeholders to generate economic value and contribute to social development and environmental protection, which are commitments we have made based on our Corporate Concept. Who is it intended for The company s groups with which we relate, because they have a direct or indirect impact on our management or are beneficiaries thereof: employees, investors, clients, suppliers, communities in the areas of influence, the energy market, the media, knowledge communities, the State and society in general. What is it for It is meant to be a mechanism of accountability that transcends supplying income statements and allows us to: Present our management in a comprehensive manner. Ensure our practices are consistent with the corporate goals. Monitor and evaluate our behavior based on the commitments established with stakeholders. Strengthen our ties with the society through dialog and feedback. Identify challenges and opportunities for improvement. Promote best practices. What does it cover Most significant aspects of business management, pointing out actions and results in the construction of projects, the generation and sale of energy, sustainability practices and relations with stakeholders. It includes data from the headquarters in Medellín, regional offices, projects and electric power plants. How are the topics selected We first considered the strategic objectives that we set in the Institutional Development Plan and took the G3.1 Version of the international Sustainability ing Guidelines of the Global ing Initiative (GRI), which guides organizations in providing quality, comprehensive information on business performance. We also followed the recommendations of readers of previous reports who helped us, through meetings and surveys, to choose the issues that are relevant to the company. clic here For more information on this topic Information relating to the financial statements meets the legal requirements, is duly audited and has been approved by the Board of Directors. Considering that, according to the GRI, this report is supposed to include data regarding gender equality, we would like to point out that we have not done so explicitly because ISAGEN focuses people management on the competencies of workers as people and professionals, without distinction. However, since it is a relevant topic to the Organization, in 2012, we adjusted and defined declarations on 2012 Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 16 performance actions and results statements documents

17 diversity and inclusion, and formulated lines of work to be developed in this regard. clic here for more information on this topic How is it structured The report is presented in three thematic blocks: 1. which covers the business model and strategic management. 2. Business Performance which includes each line of business with the respective achievements from the economic, social and environmental standpoints. 3. Management Practices, Actions and Results in the Company s cross-cutting topics such as Corporate Governance, commitments to global and regional initiatives, environmental protection and management with stakeholders, among others. It also includes the message from management, an executive summary that complies the most relevant information of the year 2012 and our outlook on the future. The Financial Statements and GRI Indicators are presented in the appendices, along with their respective relationship with global initiatives. To review them clic here What s new We are presenting the data in a more integrated manner than last year, making it easy for the reader to measure financial, social and environmental management, the articulation thereof with the setting and its contribution to the company s wellbeing. We have aligned the content with parameters of the Blueprint Corporate Sustainability Leadership Model developed by the Global Compact Office. To learn more about this initiative clic here What methodology was used Este informe es elaborado por profesionales de This report has been prepared by ISAGEN professionals from all processes who make up a team that not only knows how the Company is managed, but is also familiar with the GRI guide and the importance and meaning of each of the indicators that are reported, so in addition to providing information, they ensure that it is complete and reliable. We used the measurement techniques and calculation basis suggested by the methodology to compile the information. In the event of a variation, it is reported in the GRI indicators table. In addition, the data is stored in our information systems, to facilitate monitoring and reliability. If our stakeholders would like to learn the details of the measurement techniques employed, they can contact us through our corporate media. The Management Team conducted a review for the final approval of this report before submitting it for audit by the Statutory Auditor and for review by the Instituto Colombiano de Normas Técnicas y Certificación (ICONTEC - Colombian Institute of Technical Standards and Certification), which verified the content thereof and confirmed that it complies with the GRI principles. We have reached application level A+ for including the greatest number of indicators applicable to the Company and the electricity sector. In addition, the Chief Audit Executive and external entities evaluated the practices contained in the Corporate Control System, which was the input for the preparation of the report. It is important to point out that the Audit practices meet the international standards of the Internal Auditors Institute and have been certified by said entity. Click for further information: Application Levels of the Global ing Initiative External Verification Statutory Auditor GRI Indicators Table 2012 Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 17 performance actions and results statements documents

18 What international standards does it meet In addition to the G3.1 Version of the international Sustainability ing Guidelines of the Global ing Initiative (GRI), with the respective supplement for the electricity sector, we have followed the guidelines of the Global Compact for the of the Progress, which is the annual report in which member organizations announces the most significant advances in the application of the ten principles of the initiative and the contribution thereof to the UN Development Goals. ISAGEN S 2012 Management fulfills this objective. Where is it published On ISAGEN S official website in PDF format and on the web to avoid using paper and to protect the environment, facilitate access to content and encourage dynamics of exchange with readers. It can also be referred to on the official website of the Global ing Initiative and the Global Compact Management / ISAGEN S.A. E.S.P. Who can I contact For further information or to send comments or suggestions regarding the report, you can contact María del Socorro Patiño Arcila, Director of Company Development, at consultas-re@isagen.com.co or webmaster@ isagen.com.co Business Management practices, Financial Other 18 performance actions and results statements documents

19 creation process 6. Evaluation and Adjustments An action plan is defined so that the design and report's content respond to the observations and recommendations from the previous phase. 5. Feedback * Socialization of the with stakeholders: Observations and recommendations. * Monitoring of good practices in the sustainability report. * Consultations with experts. * Recognizing Third Parties. creation process Dialog and learning dynamics 1. Information Gathering Those in charge of commitments with stakeholders, turn in preliminary reports using GRI methodology to an integral team. They receive accompaniment and training. 4. Communication Disclosure strategies, socialization and feedback are defined in order to adjust the report for the expectations, needs and possibilities of each group of stakeholders. 2. Creation It is structured and written with based on the principles and guidelines of the GRI. 3. Verification Information is always corroborated in each process by an internal and external audit. GRI Principles Contents The report discloses matters important to stakeholders, the industry and its environment. Comparability In order to visualize the Company's progress in sustainability, comparable data is presented. Participation Stakeholder representatives participated in the definition of the content and design. Balance Positive aspects and those which need to be managed better were reported, as were the challenges to sustainability. Clarity Information is presented via graphics and tables, making them easier to read and understand. Sustainability Context The commitment to sustainability is clear; it is an integral aspect of operations and strategy. Thoroughness Effects on the economy, society and the environment are included. Reliability Sources of all the information to maintain traceability and avoid breaches are registered. Veracity We believe that the readers will be the main supervisors. When possible, feedback will be requested Management / ISAGEN S.A. E.S.P. GRI ISO Global Compact Millennium Development Goals Business Management practices, Financial Other 19 performance actions and results statements documents

20 2012 Management / ISAGEN S.A. E.S.P. We are ISAGEN Our higher purpose Our strategy Our business model We believe in the future And we do things right We work so everyone gains features Business performance Management practices, actions and results Financial statements Other documents 20

21 WE ARE ISAGEN 2012 Management / ISAGEN S.A. E.S.P. We are a Colombian mixed public utility company, both public and private, that builds generation projects, and produces and sells energy. We do business based on ethics and transparency, in an economic and socially and environmentally responsible manner, fostering the joint creation of value with our stakeholders. In 2012, we carried out a strategic reflection exercise in order to make our essence more visible and we defined our higher purpose. features Business performance Management practices, Financial Other 21 actions and results statements documents

22 our higher purpose... We generate intelligent energy and prosperity for society We generate efficient energy that contributes to climate change mitigation and maintains the Company s competitiveness in the industry by using collaborative networks and practices in line with sustainable human development and generating shared value for our stakeholders Management / ISAGEN S.A. E.S.P. Our Shareholders 10.09% Minority Shareholders 14.24% Pension Funds 5.06% Foreign Shareholders 57.66% Ministry of Finance and Public Credit 12.95% EPM features Business performance Management practices, Financial Other 22 actions and results statements documents

23 OUR STRATEGY In 2020, we will be recognized in Latin America for the generation and sale of energy based on clean technologies through the co-creation of value and prosperity for our stakeholders. ISAGEN IN THE ENERGY MARKET 2012 Management / ISAGEN S.A. E.S.P. Project Constructor Generator Reseller Industrial End Clients: those who belong to the non-regulated market because they consume less than 55,000 kwh or reach demands lower than 100 kw. Wholesale Clients: those distributors who sell their energy to the end-user. Transportation Companies Distributors (Wholesale Clients) Industrial End Clients features Business performance Management practices, Financial Other 23 actions and results statements documents

24 We are The third largest energy generator in Colombia, with a 16.45% share of the National Electrical Grid. One of the main participants in the electricity market Management / ISAGEN S.A. E.S.P. Representatives of the electric interconnection with Venezuela. OUR BUSINESS MODEL We own and operate five power plants % of our capacity comes from hydroelectric power plants, and 14.07% comes from a thermoelectric power plant. This gives us operational flexibility in adverse hydroelectric conditions. We have reached a large part of the country by supplying energy to reseller clients that provide energy to the regulated market, and by serving our end industrial clients and major consumers. We have contributed to their productivity with: Energy solutions in line with their needs. Personalized attention through a high-level production team. A wide range of related services with the support of the Technology Partner Network (engineering companies that provide their skills to integrate solutions). Comprehensive energy management programs for increased efficiency in consumption and reduction of CO2 emissions. Our regional offices to serve our clients are located in Bogotá, Cali, Barranquilla and Medellín. features Business performance Management practices, Financial Other 24 actions and results statements documents

25 WE BELIEVE IN THE FUTURE In the spirit of strengthening our growth, meeting the expectations of our clients and contributing to meeting the future energy demand, we have defined an expansion plan in a framework in which we have opted to invest in the generation projects we are carrying out in the departments of Caldas, Tolima and Santander. We completed work for the diversion of the Manso River to the Miel I Power Plant, and the Amoyá and Sogamoso hydroelectric projects are underway. By 2014, our installed capacity will increase by 900 megawatts and will allow us to increase our annual power generation by up to 60%. In our goal of internationalization, we have evaluated various growth opportunities in Latin America by developing business options to add value to the Company by diversifying our energy matrix, the contribution of additional cash flows, the expansion of the strategic business portfolio, and organizational and cultural enrichment. To protect the environment, we are working on using renewable energies. Therefore, in 2012, we moved forward in conducting technical and environmental studies to harness geothermal, wind and hydroelectric energy. Coal gasification and biofuel production are also being researched Management / ISAGEN S.A. E.S.P. features Business performance Management practices, Financial Other 25 actions and results statements documents

26 Power plants 1 Jaguas Hydroelectric power plant MW 2 San Carlos Hydroelectric power plant - 1,240 MW 3 Calderas Hydroelectric power plant - 26 MW 4 Miel I Hydroelectric power plant MW 5 Termocentro Thermal power plant MW Diversions 6 Manso Diversion 7 Guarinó Diversion C Atlántico Guajira Management / ISAGEN S.A. E.S.P. 8 Projects under construction 8 Sogamoso Hydroelectric Project MW 9 Río Amoyá Hydroelectric Project - 80 MW Projects being studied 10 A Antioquia Caldas Santander B Cundinamarca 10 Cañafisto Hydroelectric Project 11 Piedra del Sol Hydroelectric Project 12 Samaná Hydroelectric Project 13 Macizo Nevado del Ruiz Geothermal Project Valle del Cauca D Tolima 9 14 La Guajira Wind Project 15 Binacional Tufiño - Chiles, Cerro Negro Geothermal Project on the border with Ecuador Offices A Head office Medellín B Regional office Bogotá C Regional office Barranquilla D Regional office Cali 15 Business Management practices, Financial Other features 26 performance actions and results statements documents

27 We experience ethics as the foundation of our business, thus ensuring consistency between what we think, say and do as an Organization. The attitude of good faith and doing things right, favoring common good over individual gain, translates into good results that support our permanence and growth on the market, contributing to the development of society in general Management / ISAGEN S.A. E.S.P. AND WE DO THINGS RIGHT... Our duty is to be profitable and create economic value, but not in just any way because corporate success is measured by more than figures. This is why we have taken on Corporate Responsibility as an ethical commitment with our stakeholders to establish harmonious, productive and responsible relationships, based on transparency to contribute to social development, environmental protection and the joint creation of value. Business Management practices, Financial Other features 27 performance actions and results statements documents

28 WE WORK SO EVERYONE GAINS 2012 Management / ISAGEN S.A. E.S.P. We have defined certain commitments with our stakeholders, and these commitments are reviewed and updated in the framework of strategic planning to guide our business practices for mutual benefit. Business Management practices, Financial Other features 28 performance actions and results statements documents

29 COMMITMENTS TO STAKEHOLDERS Investors Increase corporate value, maintain good governance practices and ensure the company's sustainability. Employees Create more opportunities to support the strengthening of its family and its impact on society; and promote its participation for the comprehensive development in harmony with the Company. Communities Develop in harmony with the environment, accomplish MDGs, strengthen institutions, and respect and promote human rights. Media Provide timely and relevant information, promote responsible journalism. Society Contribute to the sustainability of the surrounding area in terms of: Economic growth Social Development Environmental Protection Government Help build and develop public policies and strengthen institutions. Clients Build customized energy solutions that create value today and for the future. Market Maintain loyalty and transparency and contribute to its development. Providers Create and strengthen mutually beneficial relationships, promote their development. Communities of Knowledge Transfer knowledge, contribute to research, and train competent professionals Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other features 29 performance actions and results statements documents

30 SUSTAINABILITY: A GLOBAL COMMITMENT OF COMPANIES AND CITIZENS We understand that economic development committed to social development and the environment is not just a responsibility of the State; it is also a responsibility of companies. That is why we follow the global initiatives that promote good practices of sustainability and collaboration between different actors for the construction of a more just, transparent and fair society. The Global Compact, the Millennium Development Goals and the ISO are three such initiatives that we promote with our stakeholders Management / ISAGEN S.A. E.S.P. To learn more about these initiatives click here Business Management practices, Financial Other features 30 performance actions and results statements documents

31 The Magic of Energy in Motion 2012 Management / ISAGEN S.A. E.S.P. BUSINESS PERFORMANCE Growth management Energy production Sale and productive solutions Financial management Business Management practices, Financial Other 31 performance actions and results statements documents

32 From among the great forms of energy that rule the universe, nature has revealed to us the magic of electricity to help us put our human creations in motion. In the energy of our consciousness lies the desire to make the natural and artificial move in perfect balance. Growth management Sogamoso Hydroelectric Project Amoyá River Hydroelectric Project Manso Diversion Project Projects being studied Our international business Challenges Business Management practices, Financial Other 32 performance actions and results statements documents

33 We build power generation projects with the conviction of strengthening corporate competitiveness and providing the energy required for the country s development. Our current expansion plan includes the construction of the Amoyá and Sogamoso hydroelectric plants (80 MW and 820 MW respectively). In addition, the work on the Manso diversion to the Miel I Power Plant was completed. These projects will increase our installed capacity in 2014 by 900 megawatts and our annual power generation by approximately 6,000 GWh per year, which is a growth of nearly 60% compared to the average generation of We have continued to develop a portfolio of projects based on renewable energies that will contribute to the sustainable development of the country. In this chapter, we have highlighted some of our achievements in sustainability and stakeholder relations for each of the projects under construction. We present the construction progress of the Environmental Management Plan projects, which are part of our Environmental Management System to evaluate, prevent, minimize, correct, mitigate and offset negative effects and foster positive social, physical and biotic effects Construction progress Biophysical Social Suppliers 2012 Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 33 performance actions and results statements documents

34 Sogamoso Hydroelectric Project Betulia - Santander Location 820 MW Power GWh-year Average annual energy 3,4 billones Investment in pesos Job Creation Local Regional National 2012 Management / ISAGEN S.A. E.S.P Expected start-up date 71,5 % Physical progress as at December 2012 We built the concrete structure inside the machine and transformer rooms and we started up two main bridge cranes to assemble the generators, which were manufactured and transported to the work site. We began to assemble the turbines in the underground plant and completed the work corresponding to the 1 km tunnel on the road that was necessary to continue work on the construction of the dam Total Business Management practices, Financial Other 34 performance actions and results statements documents

35 Environmental Management Plan - Biophysical Component We connected seven weather stations by satellite to record the micro-climatic changes associated with the dam. We began the ecological restoration of 4,000 acres in the buffer zone around the reservoir and signed an agreement with National Parks for the restoration of 4,000 acres inside the Serrania de los Yariguíes National Park. took measures to control the felling and illegal trafficking of wood and provided support for the borrowers of the properties acquired for forest use. We carried out basic sanitation activities to improve water quality in the watersheds and to improve water sources with problems of deforestation and erosion in the reservoir area. We built 200 sanitary facilities and signed an agreement with FEDECACAO to serve 199 more families and several schools in the area. We carried out participatory ecological restoration activities in streams and rivers as a strategy to improve the habitats of migratory fish. We took six samples of physical, chemical, microbiological and aquatic biota variables at 18 sites of the Sogamoso River. We found high levels of sediment and bacteria from the upper watershed and flood plains, which are vulnerable during the rainy season and affect the land used for farming and livestock. There was migration of fish observed during Q1. We produced 80,000 trees, 56,000 of which were planted along the ecological buffer zone around the reservoir. As a protective measure and restoration strategy, we installed 10,00 linear meters of hedges. We planted 6,300,000 young bocachico and tilefish in an agreement with the San Silvestre Fish Farm. In addition, work was done to improve the fish farm infrastructure, and we conducted research projects on the reproductive biology of native species to protect and preserve the fishing resources. To learn more about our environmental planning, click here Serranía de los Yariguíes National Natural Park Photo: Parques Nacionales Naturales de Colombia- Giovanny Pulido Jaguar. Serranía de los Yariguíes National Natural Park. Photo: Parques Nacionales Naturales de Colombia- Giovanny Pulido 2012 Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 35 performance actions and results statements documents

36 Social Management Plans - Social Component As part of the Program for the restitution of the affected infrastructure, we have moved forward in the construction of replacement roads and we are doing simultaneous work on 15 bridges, 2 of which are more than 500 meters long. With the Program for Reestablishing Living Conditions, we began the construction of 75 of the 84 homes to be built to relocate the families settled in the reservoir area, the implementation of 76 productive projects and psycho-social support was provided for all the families that are going to be moved. There is a total of 172 families: 160 meet the criteria to be resettled, 2 will be resettled on the same lot, 27 will be subject to purchase and payment of improvements, 77 opted for group resettlement, 52 opted for individual resettlement and 32 for direct negotiation. 50% of the families have already been moved, 63 families were moved permanently and 23 temporarily. We made 98% progress in the negotiation of the lots required. The Proposal for psychosocial care and sexual and reproductive healthcare in the area of the project benefited 1,245 people through the following activities: campaigns to prevent HIV and family violence, creation of the Women s Network with the participation of 162 people from eight sectors, consolidation of the art workshops with the participation of 286 children and young people, and the implementation of the program for sex education and citizenship building. They took part in the Program for Development and Peace in the Middle Magdalena Region, the United Nations Population Fund and the Barrancabermeja Diocese. With the Program for the uses and users of the Sogamoso River, we continued to monitor fishing, small-scale mining and large-scale mining downstream from the dam; we also carried on with the agrieconomic diagnosis of water-meadows and islands. We provided the communities with 17 training courses in an alliance with the SENA, in which 503 people were trained in aquaculture, processing fish and plant products, livestock, and community group administration, among others. With the people s participation, we formulated School Environmental Projects for 13 educational institutions, which include 81 schools. There are Five Citizen Projects for Environmental Education underway and 10 district agendas were established to prioritize environmental problems by sectors. To learn more about our management practices with communities, click here Relations with Suppliers 5,901 suppliers are covered by the accident insurance we took out in 2010 to compensate them in the event of accidental death or disability while providing their services. With the goal of improving the business conditions of direct and indirect suppliers, we carried out a Supplier Development Program in Bucaramanga in 2012 with the participation of 6 of the 13 suppliers invited. To learn more about our management practices with providers, click here 2012 Management / ISAGEN S.A. E.S.P. Business Management practices, Financial Other 36 performance actions and results statements documents