AES CORPORATION. City or location Month XX, 20XX. AES Brazil Business Review. Eduardo Bernini Britaldo Soares

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1 AES CORPORATION AES CORPORATION AES Brazil Business Review Eduardo Bernini Britaldo Soares CEO CFO City or location Month XX, 20XX June 28, 2006

2 Safe Harbor Disclosure Certain statements in the following presentation regarding AES s business operations may constitute forward looking statements. Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-looking statements are not intended to be a guarantee of future results, but instead constitute AES s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal or better levels of operating performance and electricity demand at our distribution companies and operational performance at our contract generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth from investments at investment levels and rates of return consistent with prior experience. For additional assumptions see the Appendix to this presentation. Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. Important factors that could affect actual results are discussed in AES s filings with the Securities and Exchange Commission including but not limited to the risks discussed under Item 1A Risk Factors in the Company s 2005 Annual Report on Form 10-K as well as our other SEC filings. AES undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 1

3 AES Brazil Strategic Overview Contains Forward Looking Statements AES Goals AES 2008 Target AES Brazil Role Financial Goals Revenue Growth Gross Margin Growth Earnings per Share Growth ROIC Improvement (1) Cash Flow Growth Subsidiary Distributions (1) Restructuring Opportunities Growth Goals Platform Expansion Greenfield Investment Privatization/M&A (1) Non-GAAP financial measure. See Appendix. -- $3.5 Billion 13-19% per Year 11% $ Billion Above Average Above Average Above Average Average Below Average Limited Until Restructuring In Process Limited Until Restructuring Limited Until Restructuring Limited Until Restructuring 2

4 Brazil Highlights Brazil at a Glance Currency Exchange Rate (6/23/2006) Per Capita GDP (2005) Inflation Rate (2005 est.) Economic Drivers Capital Largest City Population (July 2006 est.) Sovereign Credit Rating (Foreign Currency) Sources: IBGE; IPEA; BACEN; S&P; Moody s. Brazilian real (BRL, R$) US$1 = R$2.24 US$4, % Agriculture, Steel and Mining, Services Brasilia São Paulo 188 MM S&P: BB Stable Moody s: Ba3 Positive 3

5 Brazil Electricity Market Characteristics Generation Transport Distribution Free Clients 124 companies 25 companies 64 companies 535 free clients 16% private sector 1,520 plants 99GW installed capacity 74% hydroelectric 24% thermal 2% nuclear Two contracting environments - free market and regulated market Mostly state owned High voltage transmission (>230 kv) 82,995 km of lines 859 transformers 321 substations Regulated public service with open access Regulated transmission tariff (updated every year by inflation IGP-M) 335 TWh distributed in MM customers 1,851,934 km network 122 thousand people employed 73% private sector (nº of companies) Tariff adjustment every year Tariff reset every four or five years Regulated public service Conventional sources: Above 3 MW Alternative sources: At least 500 kw Large users can purchase energy directly from a generator Free contracting environment Exclusive geographic area Regulated contracting environment Sources: ANEEL; CCEE; ONS; ABRADEE. 4

6 Brazil Electricity Demand Growth % % GDP (R$ Billion) % 4.4% -7.9% 1.3% 3.5% 4.7% 1.9% 0.5% 4.9% 2.3% Consumption (TWh) Consumption GDP % Change from Prior Year 240 Sources: IBGE; EPE. 5

7 Brazil Electric Sector Ministry of Mines and Energy (MME) National Council of Energy Policy (CNPE) Implements policies Formulates policies Electricity Sector Surveillance Committee (CMSE) Monitors energy supply Brazilian Electricity Regulatory Agency (ANEEL) Regulates and supervises Energy Research Enterprise (EPE) Planning Electric Energy Commercialization Chamber (CCEE) Coordinates energy commercialization Generating Companies Transport Companies Distribution Companies Free Clients Electric Systems National Operator (ONS) Coordinates and controls interconnected national system 6

8 Brazil Regulatory Framework Annual Tariff Adjustment (IRT) Primarily adjusts for inflation and sharing of market growth gains with consumers Part A costs Non-manageable costs Energy Purchase Energy Transmission Sector Charges Part B costs Manageable costs O&M Depreciation Capital Remuneration Part B is adjusted by inflation less an X Factor in order to share market growth gains with consumers Tariff Resets Eletropaulo tariff reset occurs every four years next July 2007 Sul tariff reset occurs every five years next April 2008 Revision % change equals: Required revenue Part A + Part B Depreciation Capital Remuneration Verified revenue MWh x tariff Gross Base x Depreciation Net Base x Pre-tax WACC Energy Contracting Two environments for energy contracting Regulated contracting Applies to distcos Descending price auctions Government stipulates Total Demand based on distcos forecasted needs Government indicates new power plants to be auctioned PPAs executed between each seller and all the buyers (pool) Free contracting Applies to free customers and marketers Freely negotiated bilateral agreements Reference Company O&M 7

9 AES Brazil: Distribution and Generation Eletropaulo Concession area 4,526 km MM customers 4,377 employees 34% AES ownership 2005 Consumption: 36,499 GWh Sul Concession area 99,512 km MM customers 771 employees 100% AES ownership (1) 2005 Consumption: 7,011 GWh Other (46% AES ownership) InfoEnergy (1) AES Communications Eletropaulo Telecom Tietê Eletropaulo Uruguaiana. Gas Uruguaiana 639MW, 1 plant 47 employees 46% AES ownership Hydro Tietê 2,650MW, 10 plants 272 employees 24% AES ownership Brasilia Rio de Janeiro Sao Paulo Hydroelectric Porto Alegre Natural gas Utility Sul (1) Reflects recently announced termination of Sul Option and swap of InfoEnergy to Brasiliana. 8

10 AES Brazil History AES starts Uruguaiana project Operations commence at Uruguaiana AES restructures BNDES debt Tietê secondary offering AES acquires Sul 1998 Privatization of Eletropaulo Formation of AES Rio Com and Eletropaulo Telecom 1999 Privatization of Tietê AES Transgas acquires 64% of Eletropaulo s nonvoting shares 2001 AES increases ownership of Tietê Formation of InfoEnergy 2002 Brasiliana Energia holding company created First Eletropaulo and Sul tariff reset since privatization 2004 Reprofiling of Eletropaulo debt Eletropaulo prepaid 72% of reprofiled debt 2006 Brasiliana restructuring launched Eletropaulo reprofiled debt 100% replaced Sul restructuring announced AES increases ownership of Eletropaulo 9

11 Brazil Distribution Market Share 2005 Revenues Others 30% AES Eletropaulo 15% CEMIG 10% AES Sul 2% Piratininga 3% AMPLA 3% COELBA 4% ELEKTRO 5% CELESC 6% COPEL 6% LIGHT 8% CPFL 8% Eletropaulo and Sul represented approximately 17% of sector revenues in 2005 Source: Abradee. 10

12 Eletropaulo Overview Largest electricity distribution company in Latin America by revenues 30 year concession expires in 2028 Concession area covers Sao Paulo and 23 municipalities that make up greater metropolitan area Attractive concession area Area (thousand km 2 ) Population (MM) Consumption (TWh/year) Brazil 8, Eletropaulo % 0.1% 8.9% 10.9% Solid economic base and high population purchasing power Consumption density: 8,065 MWh/km 2 Sources: IBGE; EPE; ABRADEE. 11

13 Eletropaulo Customers 2005 Consumption 36,499 GWh 40 Consumption Public / Other 7% Free Clients 13% Residential 33% TWh Commercial 26% 2005 Revenues Before Eliminations US$3,116 MM Public / Other 7% Industrial 21% Free Clients 4% Residential 41% Free Consumption Captive Consumption Average Tariff (R$/MWh) Change Residential % Industrial % Commercial % Others % Commercial 30% Industrial 18% Total % 12

14 Eletropaulo Energy Supply 100% 80% 60% 40% 20% Auctions Other bilateral contracts Bilateral contract with Tiete Initial contracts Itaipu 0% energy supply Hydro: 98% Thermal: 2% Contracting strategy: 100% to 103% of total demand 13

15 Eletropaulo Tariff Evolution 11.2% 13.9% 7.6% 16.6% 12.1% 14.3% 18.6% 16.9% Net adjustment 2.1% 7.5% 11.8% 11.7% 6.3% 3.7% 4.5% 2.5% 1.7% (1) 6.4% 1.6% 4.8% -4.3% Part B Part A Pis/Cofins Tariff Reset IGP-M 2005: Pis/Cofins taxes begin to be charged directly to customer. (1) Revenue is recalculated at the tariff reset. 14

16 Sul Overview 30 year concession expires in 2027 Concession area represents one third of Rio Grande do Sul State (RS) RS is one of the largest producers and exporters of grains Industrial base: 40.6% of economy concentrated in the industrial sector Income per capita: Area (thousand km 2 ) Population (MM) Brazil 8, AES Sul % 1.2% 2.3% 39% higher than Brazilian average Consumption density: 70 MWh/km 2 Consumption (TWh/year) % Sources: IBGE; EPE; ABRADEE. 15

17 Sul Customers 2005 Consumption 7,011 GWh 10 Consumption Public / Other 23% Free Clients 2% Residential 25% TWh Commercial 13% Industrial 37% Free Consumption Captive Consumption 2005 Revenues Before Eliminations US$536 MM Public / Other 15% Free Clients 1% Residential 38% Average Tariff (R$/MWh) Change Residential % Industrial % Commercial % Others % Commercial 17% Industrial 29% Total % 16

18 Sul Energy Supply 100% 80% 60% 40% 20% Auctions Other bilateral contracts Bilateral contracts with Uruguaiana Initial contracts Itaipu 0% energy supply Hydro: 73% Gas: 20% Coal: 7% Contracting strategy: 100% to 103% of total demand 17

19 Sul Tariff Evolution 10.3% 4.3% 6.7% 1.9% 2.4% 3.6% 20.7% 12.0% 11.1% 17.2% 6.0% 7.7% 6.0% 3.5% 3.4% 15.9% (1) 7.1% 6.0% 1.1% 4.2% 1.5% 2.7% -5.1% Net adjustment -0.9% 3.9% 3.5% 0.4% Part B Part A Pis/Cofins Tariff Reset IGP-M 2005: Pis/Cofins taxes begin to be charged directly to customer. (1) Revenue is recalculated at the tariff reset. 18

20 Brazil Generation Market Share 2005 Installed Capacity Cemig 7% Duke Energy 2% CESP 8% AES Tietê Itaipu 3% 7% Eletronorte 8% Copel 5% Others 31% Furnas 10% Tractebel 7% AES Uruguaiana 1% CHESF 11% Tietê is the 9 th largest generator in Brazil and the 2 nd largest private generator. Uruguaiana is the 7 th largest thermal plant in Brazil. Source: ANEEL; Gasnet. 19

21 Tietê Overview 30 year concession expires in hydro plants on the Tietê, Pardo, and Mogi Guaçu rivers 100% of assured energy is sold under long-term contract PPA with Eletropaulo through December 2015 Price adjusted annually for inflation (IGP-M) 20

22 Tietê Hydrology Stored Energy Southeast (% of Max) Annual Generation MW Average 100% 109% 107% 115% 75% 50% 1,392 1,363 1,467 25% 0% Jan Apr Jul Oct Generation - MW Average Generation / Assured Energy During the last 20 years, AES Tietê has generated, on average, 18% above its Assured Energy 21

23 Uruguaiana Overview 2005 Revenues by Customer Combined cycle natural gas fired thermal plant AES Sul 31% AES Eletropaulo 10% Exports 7% CEEE 27% RGE 25% Installed capacity of 640MW 554MW sold under long-term contracts PPAs expire: Eletropaulo 2009 AES Sul 2020 CEEE 2020 RGE 2020 Opportunistic exports mainly to Uruguay and Argentina 22

24 Uruguaiana Gas Supply Long-term gas supply agreement with Sulgas, a Brazilian company that sources gas from YPF Argentina However, Argentina began rationing gas supply in 2004 Currently no gas available from May to September due to curtailments Uruguaiana meets its PPA commitments by purchasing energy Spot market (CCEE) Short and medium term bilateral agreements Energy Sold versus Generation Energy Sold - TWh Generation - TWh 23

25 AES Brazil KPIs Contains Forward Looking Statements Key Performance Indicators (KPI) Safety Safety Excellence Excellence Accident frequency rate Accident severity rate Operational Excellence Technical and commercial losses rates Collection rate Equivalent availability factor (EAF) Service Excellence System average interruption duration index (SAIDI) System average interruption frequency index (SAIFI) 24

26 AES Brazil Safety Performance Accident Severity Rate Accident Frequency Rate Getting Better Getting Better 0.6 Safety Initiatives Acceleration of collective learning through knowledge sharing and interactions across companies Implementation of OHSAS Completion of regular audits and improvements; corrective action plans put in place Focus on leadership training and continuous improvements in work procedures Implementing behavior-based safety programs for AES people and contractors

27 AES Brazil Service Excellence 12.6 Eletropaulo Getting Better Sul SAIDI (hours) SAIFI (times) SAIDI ANEEL Standard SAIFI ANEEL Standard 26

28 AES Brazil Operating Excellence Losses (%) Getting Better Collection Rate As % of Gross Revenues 98.5% 97.5% 99.0% Eletropaulo 7.3% 5.6% 7.6% 5.6% 7.9% 5.6% 7.3% 5.6% Eletropaulo Technical Losses Commercial Losses 97.2% 97.3% 98.3% Sul 1.2% 4.4% 0.8% 4.6% 1.1% 6.1% 0.8% 5.5% Sul Technical Losses Commercial Losses 27

29 AES Brazil Operating Excellence Equivalent Availability Factor Tietê Uruguaiana (1) 96.1% 90.9% 92.6% 88.9% 93.8% 78.6% (1) Not considering gas supply interruptions. 28

30 AES Brazil Structure 100% V 100% E AES 50.1% V 46.2% E BNDES 49.9% V 53.8% E Holding company Intermediary holding co. Operating company 100% V 100% E Brasiliana 71.3% V 52.5% E 100% V 100% E 100% V 100% E 98.3% V 98.3% E Transgas Elpa 0% V 37.8% E 77.8% V 31.0% E Sul (1) Eletropaulo Tietê Uruguaiana 100% V 100% E 100% V 100% E 38.2% V 31.5% E 35.7% V 24.3% E 50.1% V 46.2% E 100% V 100% E InfoEnergy (1) Eletropaulo Telecom AES Communication 50.1% V 46.2% E 50.1% V 46.2% E 49.2% V 45.4% E V = Voting E = Economic Net AES ownership (1) Reflects recently announced termination of Sul Option and swap of InfoEnergy to Brasiliana. 29

31 AES Brazil Debt Structure Functional Currency BRL USD Principal as of December 31, 2005 Brasiliana $553 MM 100% USD, 0% BRL Sul (1) $318 MM 30% USD, 70% BRL AES Tietê Empr. No debt Energia Paulista $79 MM 0% USD, 100% BRL IHB $294 MM 100% USD, 0% BRL Eletropaulo $1,155 MM 11% USD, 89% BRL Tietê $616 MM 0% USD, 100% BRL Uruguaiana No debt InfoEnergy (1) No debt Telecom $2 MM 0% USD,100% BRL Average life: 3.1 years Average cost: 16.9% p.a. 60% denominated in local currency (1) Reflects recently announced termination of Sul Option and swap of InfoEnergy to Brasiliana. 30

32 AES Brazil Current Debt Profile Amortization Schedule as of December 31, 2005 $574 USD Millions $ $405 $360 $367 $344 $310 $ Local Currency Foreign Currency Fixed rate debt 37% Floating rate debt 41% Tied to Brazilian interest rates and Libor 22% Tied to inflation index (IGP-M and IGP-DI) 31

33 AES Brazil Maintenance Capital Expenditures Maintenance Capital Expenditures USD Millions 2005 Maintenance Capital Expenditures $217 Distribution 90.3% $143 $ Telecom 4.9% Generation 4.8% Commercialization 0.01% 32

34 AES Brazil Currency Effects Monthly Average BRL/USD /99 6/00 12/00 6/01 12/01 6/02 12/02 6/03 12/03 6/04 12/04 6/05 12/05 Translation Impacts Effect of the conversion of the financial statements of Eletropaulo, Sul, and Tietê to USD (average rate) Approximate contribution of FX translation to 2005 financial results: Revenue: US$590 MM Gross margin: US$146 MM IBT&MI: US$56 MM Transaction Gain/Loss Impacts Effect of USD transactions on companies with BRL as functional currency USD-denominated debt at Eletropaulo and Sul Tietê: investment in USD Effect of FX rate on BRL assets and liabilities of companies with USD as functional currency Brasiliana and Uruguaiana Breakdown of 2005 FX transaction losses of US$96 MM 80% USD-denominated debt 16% companies with USD functional currency 4% USD-denominated investments 33

35 AES Brazil Financial Overview (US$ Million) Revenue $2,528 $2,925 $3,823 Gross Margin $511 $722 $913 Income Before Tax & Minority Interest $195 $282 $552 Distributions to AES Corporation $40 $3 $3 Note: Information is presented on an AES basis and is unaudited. Certain intercompany transactions may not be eliminated. 34

36 AES Brazil 2005 Financial Detail (US$ Million) Regulated Utilities (1) Contract Generation (2) Brasiliana Eliminations Total Revenue $3,735 $ ($627) $3,823 Gross Margin $489 $423 $1 -- $913 Income Before Tax & Minority Interest $288 $338 ($74) -- $552 Note: Information is presented on an AES basis and is unaudited. Certain intercompany transactions may not be eliminated. (1) Regulated Utilities includes Eletropaulo, Sul, InfoEnergy, AES Communications and Eletropaulo Telecom. (2) Contract Generation includes Tietê and Uruguaiana. 35

37 AES Brazil Scenario Planning Strategic Issues Future energy supply & demand Regulatory relations Strategic Opportunities Brazilian macroeconomic scenario Strengthen capital structure Brasiliana restructuring Investments in new generation plants will determine if the future energy supply will meet the growing demand Environmental licenses and adequate returns on investments (new energy auctions) are essential to support demand growth 2007 and 2008 tariff resets Assures dividend flow to shareholders Simplifies structures Minimizes FX exposure Contains Forward Looking Statements GDP growth is closely linked to Eletropaulo s and Sul s demand growth Declining interest rates and inflation in Brazil should decrease the companies cost of debt Eletropaulo replaced 100% of the reprofiled debt, reducing the average cost and increasing the average life of debt AES Sul s debt restructuring being concluded 100% BRL Minimizes FX exposure 36