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Risk Management

Risk Management. Risk Management. The Company’s risk management is consistent with the general guidelines defined by its ultimate controlling shareholder, the AES Corporation. Our risk management strategy seeks to achieve the following goals:

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Risk Management

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  1. Risk Management

  2. Risk Management The Company’s risk management is consistent with the general guidelines defined by its ultimate controlling shareholder, the AES Corporation. Our risk management strategy seeks to achieve the following goals: • Establish, manage and govern the Company’s risk management policies and procedures, seeking that they are consistent with the risk management policies of its parent, AES Corporation. • Implement guidelines and standards to identify, study, measure, manage, and report all inherent and residual risks of the business and markets where it operates. • Establish the necessary controls to regularly anticipate any variation of expected earnings and be able to make the decisions necessary to mitigate any impact.

  3. Risk Management Our risk management strategy seeks to achieve the following goals: • Set the risk management roles and responsibilities of each business and in every market where it operates. • Promote a risk culture where the understanding of and manner of mitigating such risks is part of our daily work, with discipline and excellence in each of the businesses. • Manage the company’s risk management program (Enterprise Risk Management) • Manage the Andes Risk Management Committee (ARMC), whose purpose is to govern, establish and implement the risk management.

  4. MainRisks Technological Change Risk The Company is exposed to the development of new technologies that can reduce the sales prices or make fundamental changes to the generation business.   Regulatory Risks The industry where the Company operates is subject to multiple regulations governing the business operation. These regulations are likely to suffer changes in the future or to be interpreted in a different manner, an event that could have effects on the transactions of the Company.

  5. MainRisks Risk of Natural Disasters The occurrence of natural disasters can damage the electricity generation assets of the Company, thus decreasing their generation capacity and/or increasing production costs. If these events occur, the Company could be in the need to buy energy to other generators to meet its contractual commitments, which could have a negative impact on its financial results. Foreign Exchange Risk The financial results of the Company can become affected by variations in the exchange rate, particularly of the Chilean Peso, the Colombian Peso and the Argentine Peso. Exposure to this type of risk arises when the Company faces revenues, costs, investments and financial debt denominated in currencies other than the functional currency of Company (United States Dollars).

  6. MainRisks Interest Rate Risk The interest rate risk is the risk that the fair value or future cash flows of financial instruments will fluctuate because of changes in market interest rates. The Company’s exposure to the risk of changes in market interest rates relates primarily to its long-term debt obligations at variable interest rates. Commodity Risk The AES Gener Group is affected by the volatility of prices of certain fuels. The fuels used by the Company, mainly coal, diesel and liquefied natural gas (LNG), are “commodities” with international prices fixed by market factors beyond the control of the Company. It should be noted that, in Argentina, Termoandes purchases natural gas under fixed price short-term agreements that are reflected at the time of setting the sales price of energy under the contract. The price of fuels is a key factor for the dispatch of plants and spot prices both in Chile and Colombia. Given that AES Gener is a company with a mixture of mainly thermal generation, the fuel cost represents an important portion of the sales costs.

  7. MainRisks Credit Risk The credit risk is associated with the credit quality of the commercial partners of AES Gener and its subsidiaries. These risks are mainly reflected in the trade debtors and financial assets, including deposits with banks and other financial institutions and other financial instruments. Liquidity Risk Liquidity risk is related to the need for funds to meet payment obligations. The Company's goal is to maintain the necessary liquidity and financial flexibility through normal operating flows, bank loans, public bonds, short term investments, committed and non-committed credit lines. Construction Risk In the various development phases of our projects there is the risk of failing to fully meet the goals proposed, of differences between the execution plans and the actual progress of the works due to adverse situations or challenges that have not been foreseen or quantified in detail.

  8. EmergingRisks Technological Change Risk Strong and increasing competition mostly driven by: drop in the cost of renewables generation, disruptive technologies (i.e.demand response, distributed energy resources, incorporation of Batteries) and very low prices long term Power Purchase Agreement in the market. Potentialbusinessimpactoftherisk are: Abilitytoobtain new power sales agreementsforexistingassets as thecompetitionisveryhigh. Reduction in expectedlongtermcontractenergypricesforexistingassets. Ability to build and acquire new generation assets, and develop new technologies to compete

  9. EmergingRisks Technological Change Risk Mitigatingactions: Mitigation consists in entering into Long Term Power Purchase Agreements (PPA) to have enough cash flows to cover its financial obligations. The company is continuously monitoring new technologies and its prices to evaluate their impact on the business. Reshape our business mix: taken steps to lessen our carbon intensity (increasing focus on renewables) and merchant exposure to reduce operational and financial risk capitalizing on our advantaged position as a low-cost provider with locational advantages.

  10. EmergingRisks Regulatory Risk Change in legislation, regulators, politicians, non-governmental organizations, other private parties have expressed concern about green house gas, CO2 emissions and the potential risks associated with climate change and are taking actions. Potential business impact of the risk; The business in which the company operates is subject to multiple regulations governing the operation of the business. Thereis a possibilitythattheseregulationsmaychange in thefutureor be interpreted in a differentway, whichcouldhaveaneffectontheconsolidatedresultsofoperationsofthecompany, financialconditions and cash flows. In addition, the Company is subject to multiple environmental regulations associated to current operations and the development of new projects.

  11. EmergingRisks Regulatory Risk Mitigatingactions: Strong regulatory team that monitor regulatory changes, review impacts on the Company and promote changes to regulations. Developmentof new tools (models) toevaluate and determine impactofdifferentregulatorychanges. Other way to mitigate this risk is to create a diversified portafolio including renewables, distributed energy and energy storage.

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