Fitch Ratings Affirms AES Clesa's Ratings.

Business Editors

CHICAGO-(BUSINESS WIRE)--March 26, 2002--Fitch Ratings has affirmed the 'BB+' foreign currency rating and 'BBB-' local currency rating of AES Clesa y Compania, S. en C. de C.V. (AES Clesa). The 'BB+' and 'BBB-' ratings also apply to AES Clesa's outstanding US$25 million senior notes (unenhanced) and US$40 million senior notes enhanced by political risk insurance provided by Zurich U.S. Political Risk, respectively.

AES Clesa's local currency rating is based on its low business risk profile, efficient operations, stable cash flow generation, and constructive regulatory environment. AES Clesa's regulated electricity distribution operations provide the company with a stable, predictable cash flow stream that lowers business risk and cash flow volatility.

AES Clesa's electric distribution business is essentially operated as natural monopoly in El Salvador. Although the concession is not exclusive, competition from other distributors has been and is expected to be limited. Customers are eligible to choose their electricity supplier, however any switching of suppliers should not materially impact the company's cash flow as distribution tariffs would continue to be collected if the distribution grid is used. Management's strategy is to improve customer service, lower costs, and enhance revenues, which should help improve the company's competitive and business positions.

The company's service territory is located in the rapidly growing western portion of El Salvador. However, during 2001, electricity demand actually contracted by 1.8% compared to growth of 6.9% in 2000. The temporary change in growth was primarily due to a slowdown in economic activity following two severe earthquakes in January and February 2001 and the high volatility of electricity prices, which drove some companies to switch to co-generation or self-generation. Also, actual consumption by AES Clesa's customers declined due to an inability to supply some large clients in the free zones because of problems with the replacement of a damaged transformer. The effects of the earthquake are past and the problem with the transformer has been resolved.

AES Clesa operates in a constructive, yet new and untested regulatory environment. Distribution tariffs were originally set by the El Salvador regulators in 1998 and were to be reset every four years. The distribution tariffs are designed to provide a return on investment based on the expected cost structure of a model distribution company. The four-year reset was recently postponed by one year, until January 2003, due to the earthquakes in 2001. The tariff reset will be based on a new methodology in El Salvador, but is the same as is used in Chile, Peru, Argentina, and Panama.

In addition to the four-year reset, tariffs are adjusted annually based on changes in inflation and exchange rate, and more frequently for changes in electricity prices. The government also recently changed the electricity law to allow for monthly adjustment of electricity prices to better reflect fluctuations of hydrology and fuel prices. The monthly adjustment should better match tariffs with costs, limiting the lag effect and providing a more stable gross operating income level.

AES Clesa seeks to limit its exposure to the volatile spot market by covering the majority of anticipated demand through supply contracts with generators and imports from Guatemala. Going into 2001, the company had contracted for 95% of its expected demand. However, this strategy negatively affected the company in 2001 due to the effects of the earthquake, which left the company in a temporary over-contracted position at various times. Since supply contract prices are directly referenced to the tariffs, not spot prices, AES Clesa was forced to sell its over contracted energy into the spot market at lower prices. AES Clesa expects to purchase an average of 85% of anticipated demand under contract going forward to reduce its exposure to future potential drops in demand.

Consolidated EBITDA-to-interest coverage ratios have been pressured recently reflecting lower demand in 2001, increased energy purchase costs related to its over contracted position and an inability to import the normal amount of energy from Guatemala resulting in supplemental purchases from the Salvadorian spot market at higher prices. Credit protection measures should improve to levels consistent with the rating category based on more normal operating conditions and a more conservative power purchasing strategy. AES Clesa is also expected to benefit in 2002 from higher distribution tariffs, which were adjusted effective January 2002. The company estimates that the tariff increase should add approximately US$2 million to annual revenues and cash flow. A tariff reduction may result at the time of the 5-year reset, effective January 2003. Total debt-to-capital is moderately leveraged at 60% and is expected to be relatively stable reflecting constant debt levels and equity base.

The ratings of AES Clesa incorporate the economic, political and other sovereign risks inherent in investments in El Salvador. While the local currency rating on the transaction is based on the credit strength of AES Clesa, the foreign currency rating is constrained by El Salvador's 'BB+' foreign currency rating.