Governance Challenges in Latin America
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Governance Challenges in Latin America. Corporate Innitiatives. Government Innitiatives. Participation of different sectors. Institutions monitor Corporate Governance. Score. Score. Score. Legal Framework. Creation : Institute of Organization -A rgentine Gov. (IAGO) - 2002.

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Corporate Innitiatives

Government Innitiatives

Participation of

different sectors

Institutions monitor

Corporate Governance

Score

Score

Score

Legal Framework

Creation: Institute of

Organization-Argentine Gov.(IAGO) - 2002

Private sector

participation

(FUNDECE-IDEA)

  • ReformCapital

    Markets Law

2

2

2

Argentina

  • Bill for incor-

    porated companies

0

0

1

No News

No News

Bolivia

  • Reform Corp. law

  • Participation in Capital market (BOVESPA)

Creation:Brazilian Inst. of Corporate Gov. (IBGC)-1995

Private sector

Participation

(IBGC-BNDES)

Brasil

2

3

3

Private sector

participation

(CONFECAMARAS)

  • Bill for Securities

    Law

Colombia

0

3

No News

1

Source: White Paper on Corporate Governance in Latin America. World Bank OCDE 2004


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Government Innitiatives

Corporate Innitiatives

Institutions that monitor

Corporate G.

Participation of

different sectors

Score

Score

Legal Framework

Score

Private sector

participation

(CCE)

Creation in 2003 of the

Mexican Institute for

Corporate Governance

(IMGC)

  • Reform of the

    Securities Market Law

México

3

1

2

Creation in 2003 of the

Peruvian Committee on

Corporate Governance

Private and Public sector

participation

(CONFIEP-ASBANC)

0

2

1

Perú

No News

Private & academic

sector participation

(Pontificia Univ.

Catolica)

  • Approvalpublic offer

    law &Corp governance

  • Participation of

    Superintendent of

    Securities & Insurance

Planned establishment

of theChilean Institute

of Directors

Chile

1

3

3

Private and Public

Sector participation

(IESA-CEDICE-AVE-CAF)

Creation in 2003 of the

Executive Committee

of Good Corporate Practices

Venezuela

No News

0

2

1

Source: White Paper on Corporate Governance in Latin America. World Bank (OCDE) 2004


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Chile

Brazil

Argentina

México

Colombia

Bolivia

Venezuela -

Perú

Latin American Rating - Empirical Overview (*)

High

Government Innitiatives

Medium

Low

High

Medium

Corporate Innitiatives

(*) This diagram is not intended to be exhaustive, rather to represent the latest developments in C.G. in a comparative analysis



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EDC, a Century of Experience

  • Founded 110 years ago

  • Largest private power utility in Venezuela

  • Serves 20% of the Venezuelan population (~6 MM people)

  • Total assets: US$ 2.8 Billion

  • Energy sales of US$ 655 MM by 2004

  • Listed in the Caracas Stock Exchange since 1947 (ticker: EDC)

  • Level 1 ADRs traded ¨OTC¨ in NYC since 1998 (ticker: ELDAY)


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EDC Shareholder Structure

86.05% of the Shares

  • AES Corporation

    Minority Shareholders

13.95% of the Shares (43,500)

Any agreement between AES and EDC, whether contractual or otherwise, has to be “at arms length.”


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Fundamental Players in EDC’s Corporate Governance

Protecting Minority Shareholders

Reporting Information

Corporate Structure

Privileged Information

Emphasizing Ethical Values

Board of Directors:ExternalAudit Committee

Management

CorporateGovernance

Investor Relations

AES

Compliance

External Audit Committee

InternalAuditors

ExternalAuditors


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Sarbanes - Oxley

2003

2004

2005

DESCRIPTION

1Q

2Q

3Q

4Q

1Q

2Q

3Q

4Q

1Q

Application of “ internal control best practices” to each business unit

Updating EDC Standards and Procedures together with process owners

Internal Audit tests

406/407-6 Code of Ethics

806 Whistleblower- Corporate and Criminal Fraud

404 Control Self Assessment questionnaire focused on key controls related to activities normally performed

Completed the SOX 404 assessment process and did not identify any material weaknesses

Deloitte concluded: assessment process was effective and no material weaknesses was identified


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EDC’s Organization

Board of Directors

Audit

Committee

AES

CEO

Auditor

Investor Relations

Compliance

VP Finance

VP Industry Association Affairs

VP Legal Affairs

VP External Relations

Chief Operating Officer


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Board of Directors

Consists of:

Nine (9) Main Directors

Six (6) Alternative Directors

One (1) Counselor

From them, a “Committee of External Directors” is designated, consisting of:

Three (3) Main Members

Two (2) Alternative Members

Their term is for one (1) year and they are eligible for reelection.


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Board of Directors – Principal Functions

  • Names the CEO and Chairman.

  • Names a Judicial Representative and Secretary.

  • Comprises different Committees.

  • Approves any decision of over US$ 500,000.

  • Proposes dividend payments.

  • Decides on capital increases.

  • Is accountable for all important investments.

  • Each member should deposit 20,000 company shares as a guarantee of their administration.


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Auditing Committee – Principal functions

  • Approves External Auditor and evaluates its staff.

  • Approves the scope of the annual audit plan.

  • Evaluates Internal Auditor performance.

  • Approves the annual plan for Internal Audit.

  • Approves financial statements.

  • Approves the effectiveness of the internal control procedures.

  • Approves policies and practices, identifying and managing risk.

  • Evaluates the Compliance Officer performance.


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Compliance – Principal functions

  • Emphasize company's values and maintain ethical standards:

    • Code of Conduct adoption and application

    • Employeesattention: ethics, work-related situations/ harassment.

  • Locally responsable for the whistleblower for employees

  • Approval commercial transactions exceeding $ 25,000.

In EDC


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Investor Relations – Main functions

  • Earnings Release (quarterly & annually).

  • Timely Public Releases.

  • Quarterly Q&A (paripassu).

  • Updates IR web-page.

  • SEC information forms.

  • Financial Community presentations.

  • Shareholder meetings.


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Adoption of International Accounting Standard

EDC Internally

EDC Externally

  • Adoption of International Accounting Standard (IAS) and International Accounting for Financial Information (IAFI) is anticipated for December 31, 2005.

  • Evaluation of each Standard and revelations of it throughout the EDC Group.

  • Evaluation of both financial and economic opportunities.

  • Promoting the Adoption of the International Accounting Standard (IAS) and International Accounting for Financial Information (IAFI) in Venezuela.

  • Assist the Venezuelan Business Sector in understanding, aligning, leading and prioritizing concerns in order to obtain effective solutions.


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Good Corporate Governance from the

Perspective of the CNV

  • Transparency.

  • Opportune Information.

  • Independence of External Auditors.

  • Supervise Control Groups.

  • Voting Rights – Delegation of the Vote.

  • Minority Shareholders.

  • Avoid Manipulation, Fraud, etc.


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Venezuelan Securities Commission (CNV)

Strategic Objectives by Year 2004 (voluntary by the Companies):

  • Adoption of International Accounting Norms.

  • Adoption of Principles of Good Corporate Governance.

Resolution of 02-17-05

Order issuing organizations to present an annual report in Ordinary Shareholder Meetings to indicate their degree of compliance with the principles of good corporate governance.

  • The principles foreseen in this resolution are:

  • Independent Directors

  • Audit Committee


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EDC role in the Capital Market & Financial Community


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2004 Placement of EDC Bonds

Characteristics:

  • October 2004

  • US$260 MM (oversubscribed)

  • 10-Year Senior Notes

  • Refinancing of existing debt

  • 10.25% Coupon (at par value)

  • Approved by CADIVI

  • Ratings: Standard & Poor’s "B" and Fitch "B+“

  • Offered by ABN AMRO

Turning Good Corporate Governance into a Competitive Advantage

Best High-Yield Bond by:



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Chile

Brazil

Argentina

México

EDC

Colombia

Bolivia

Venezuela -

Perú

EDC Vs. Latin American Countries (*)

High

Source: White Paper on Corporate Governance in Latin America. OCDE 2004

Government Innitiatives

Medium

Low

High

Medium

Corporate Innitiatives

(*) This diagram is not intended to be exhaustive, rather to represent the latest developments in C.G. in a comparative analysis