Fitch Places CGE's Local Currency 'A' Rating on Watch Negative.

Business Editors

CHICAGO--(BUSINESS WIRE)--April 16, 2003

Fitch Ratings has placed the 'A' international local currency rating of Compania General de Electricidad (CGE) on Rating Watch Negative following its announced agreement to acquire Chilean electricity distributor, Rio Maipo, from Enersis S.A. and reflecting the resulting increase in consolidated debt. The foreign currency rating of 'A-' has been affirmed. The 'AA+' national scale rating of CGE has also been placed on Rating Watch Negative.

The rating action reflects the anticipated addition of approximately US$185 million of new debt (US$170 million to finance the purchase plus approximately US$15 million net at Rio Maipo) related to the acquisition. While the inclusion of Rio Maipo should provide CGE with increased low risk cash flow, Fitch expects a slightly negative impact on consolidated credit measures. The new debt is expected to increase leverage and result in minor erosion in interest coverages. Recent credit protection measures had been previously considered weak for the current local currency rating category. The financial consolidation of Metrogas with Gasco, and thus with CGE, since 2000 has also pressured CGE's consolidated credit quality reflecting the higher debt levels at Metrogas resulting from the buildout of the distribution pipelines.

Positively, the acquisition of Rio Maipo will expand the company's core business of Chilean electricity distribution and allow the company to build on the inherent strengths of its electricity and, to a lesser degree, natural gas distribution businesses. Although the company participates in other minor businesses, operating income (based on percentage ownership of investments) has been derived primarily from the electricity (76%) and gas (20%) sectors. CGE benefits from strong and growing service territories in Chile for both electricity and natural gas, though long-term electricity demand growth is projected to be approximately 6% annually.

CGE distributes and transmits electricity to consumers in Chile. Through subsidiaries and affiliates, CGE distributes liquid gas in Chile and natural gas in Chile and Argentina, distributes electricity in Argentina, conducts real estate transactions and produces software. CGE's Chilean electricity companies include CGE, Empresa Electrica Emec S.A. (EMEC), Compania Nacional de Fuerza Electrica S.A. (Conafe), Empresa Electrica de Magallanes S.A. (Edelmag) and CGE Transmision. In Argentina, the company participates in the sector through ESJ (San Juan), Edet (Tucuman), and Ejesa (Jujuy). Through affiliates, the company also has interests in other industries including telecommunications and cement production. In January 2001, PP&L increased its ownership position in CGE to 7.4% through a purchase option the company had with Grupo Claro, giving PP&L a seat on the board of directors.