Company Quick10K Filing
Enel Generacion Chile
20-F 2019-12-31 Filed 2020-04-29
20-F 2018-12-31 Filed 2019-04-30
20-F 2017-12-31 Filed 2018-04-27
20-F 2016-12-31 Filed 2017-04-27
20-F 2015-12-31 Filed 2016-05-02
20-F 2014-12-31 Filed 2015-04-30
20-F 2013-12-31 Filed 2014-04-01
20-F 2012-12-31 Filed 2013-03-21
20-F 2011-12-31 Filed 2012-04-05
20-F 2010-12-31 Filed 2011-05-31
20-F 2009-12-31 Filed 2010-06-11

EOCC 20F Annual Report

Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16. Reserved
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant’S Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-1.1 eocc-20191231ex11c990484.htm
EX-2.1 eocc-20191231ex210343bef.htm
EX-8.1 eocc-20191231ex81b5f4ef8.htm
EX-12.1 eocc-20191231ex1212475b5.htm
EX-12.2 eocc-20191231ex122cae1eb.htm
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EX-15.1 eocc-20191231ex151b3a5a8.htm

Enel Generacion Chile Earnings 2019-12-31

Balance SheetIncome StatementCash Flow

20-F 1 eocc-20191231x20f.htm 20-F eocc_Current_Folio_20F

  

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to

OR

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report. . . . . . . . . . . . . . . . . . .

Commission file number: 1-13240

 

ENEL GENERACIÓN CHILE S.A.

(Exact name of Registrant as specified in its charter)

 

ENEL GENERACIÓN CHILE S.A.

(Translation of Registrant’s name into English)

CHILE

(Jurisdiction of incorporation or organization)

Santa Rosa 76, Santiago, Chile

(Address of principal executive offices)

  

 

Nicolás Billikopf, phone: (56-9) 9343 5500, nicolas.billikopf@enel.com, Av. Santa Rosa 76, Comuna de Santiago, Santiago, Chile

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

 

 

 

 

Title of each class

Trading Symbol(s)

 

Name of each exchange on which registered

None

 

 

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

American Depositary Shares Representing Common Stock
Common Stock, no par value*

_______________________

*Not for trading, but only in connection with the registration of American Depositary Shares, each representing 30 shares of common stock, pursuant to the requirements of the Securities and Exchange Commission.

 

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

 

 

 

US$ 205,881,000

7.875%

Notes due February 1, 2027

US$ 70,780,000

7.325%

Notes due February 1, 2037

US$ 40,416,000

8.125%

Notes due February 1, 2097

US$ 400,000,000

4.250%

Notes due April 15, 2024

(Title of Class)

 

 

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

Shares of Common Stock:  8,201,754,580

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

 Yes      No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 Yes      No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days:

 Yes      No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

 Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

 

 

Large accelerated filer 

Accelerated filer

Non-accelerated filer

Emerging growth company

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards † provided pursuant to Section 13(a) of the Exchange Act.  

† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.      ☒

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

 

 

 

U.S. GAAP

International Financial Reporting Standards as issued

by the International Accounting Standards Board

            Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow  Item 17      Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes      No

 

Enel Generation Chile’s Simplified Organizational Structure (1)

As of the date of this Report

 

 

 

 

 

 

 

 

 

 

Picture 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


(1)

Only principal operating subsidiaries are presented here.

(2)

As of December 31, 2019 and the date of this Report, Enel S.p.A. owned 61.9% of Enel Chile. Upon the termination and settlement on May 13, 2020 of a swap transaction entered into by Enel S.p.A. with respect to Enel Chile’s American Depositary Shares, Enel S.p.A.’s beneficial ownership interest in Enel Chile is expected increase to 62.4%.

 

 

1

 

TABLE OF CONTENTS

 

 

 

 

 

 

Page

 

 

 

GLOSSARY 

 

3

 

 

 

INTRODUCTION 

 

7

 

 

 

PRESENTATION OF INFORMATION 

 

8

 

 

 

FORWARD-LOOKING STATEMENTS 

 

10

 

 

 

PART I 

 

 

 

 

 

 

 

Item 1. 

Identity of Directors, Senior Management and Advisers

 

11

 

 

 

 

Item 2. 

Offer Statistics and Expected Timetable

 

11

 

 

 

 

Item 3. 

Key Information

 

11

 

 

 

 

Item 4. 

Information on the Company

 

23

 

 

 

 

Item 4A. 

Unresolved Staff Comments

 

51

 

 

 

 

Item 5. 

Operating and Financial Review and Prospects

 

51

 

 

 

 

Item 6. 

Directors, Senior Management and Employees

 

72

 

 

 

 

Item 7. 

Major Shareholders and Related Party Transactions

 

78

 

 

 

 

Item 8. 

Financial Information

 

80

 

 

 

 

Item 9. 

The Offer and Listing

 

82

 

 

 

 

Item 10. 

Additional Information

 

84

 

 

 

 

Item 11. 

Quantitative and Qualitative Disclosures About Market Risk

 

101

 

 

 

 

Item 12. 

Description of Securities Other Than Equity Securities

 

105

 

 

 

 

PART II 

 

 

 

 

 

 

 

Item 13. 

Defaults, Dividend Arrearages and Delinquencies

 

107

 

 

 

 

Item 14. 

Material Modifications to the Rights of Security Holders and Use of Proceeds

 

107

 

 

 

 

Item 15. 

Controls and Procedures

 

107

 

 

 

 

Item 16. 

Reserved

 

108

 

 

 

 

Item 16A. 

Audit Committee Financial Expert

 

108

 

 

 

 

Item 16B. 

Code of Ethics

 

108

 

 

 

 

Item 16C. 

Principal Accountant Fees and Services

 

109

 

 

 

 

Item 16D. 

Exemptions from the Listing Standards for Audit Committees

 

109

 

 

 

 

Item 16E. 

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

 

109

 

 

 

 

Item 16F. 

Change in Registrant’s Certifying Accountant

 

109

 

 

 

 

Item 16G. 

Corporate Governance

 

110

 

 

 

 

Item 16H. 

Mine Safety Disclosure

 

110

 

 

 

 

PART III 

 

 

 

 

 

 

 

Item 17. 

Financial Statements

 

111

 

 

 

 

Item 18. 

Financial Statements

 

111

 

 

 

 

Item 19. 

Exhibits

 

111

 

2

GLOSSARY

 

 

 

 

 

AFP

 

Administradora de Fondos de Pensiones

 

A legal entity that manages one of the private sector Chilean pension funds in a fully funded capitalization system implemented in 1980..

 

 

 

 

 

CDEC

 

Centro de Despacho Económico de Carga

 

The autonomous entity in charge of coordinating the efficient operation and dispatch of generation units to satisfy demand in the SIC and SING that was replaced by CEN in November 2017.

 

 

 

 

 

Celta

 

Compañía Eléctrica Tarapacá S.A.

 

Celta was a former Chilean generation subsidiary of Enel Generation that operated plants in the SING and the SIC. Celta merged into GasAtacama in November 2016.

 

 

 

 

 

CEN

 

Coordinador Eléctrico Nacional

 

An autonomous entity in charge of coordinating the efficient operation of the SEN, dispatching generation units to satisfy demand and known as the National Electricity Coordinator. It replaced the CDEC for both the SIC and SING in November 2017.

 

 

 

 

 

Chilean Stock Exchanges

 

Chilean Stock Exchanges

 

The two principal stock exchanges located in Chile: the Santiago Stock Exchange and the Electronic Stock Exchange.

 

 

 

 

 

CMF

 

Comisión para el Mercado Financiero

 

Chilean Financial Market Commission, the governmental authority that supervises the financial markets. Formerly known as the Chilean Superintendence of Securities and Insurance or SVS in its Spanish acronym.

 

 

 

 

 

CNE

 

Comisión Nacional de Energía

 

Chilean National Energy Commission, governmental entity with responsibilities under the Chilean regulatory framework.

 

 

 

 

 

DCV

 

Depósito Central de Valores S.A.

 

Chilean Central Securities Depositary.

 

 

 

 

 

EGP Chile

 

Enel Green Power Chile S.A.

 

The successor by merger to Enel Green Power Chile Ltda., a subsidiary of Enel Chile engaged in non-conventional renewable electricity generation. On March 1, 2020, Enel Green Power Chile Ltda. merged into Enel Green Power del Sur SpA. On April 14, 2020, the name of Enel Green Power del Sur SpA was changed to Enel Green Power Chile S.A.

 

 

 

 

 

3

EGPL

 

Enel Green Power Latin America S.A.

 

Formerly a Chilean closely held limited liability stock corporation that held Enel Green Power Chile Ltd. and that merged with Enel Chile on April 2, 2018. As a result, Enel Chile now consolidates EGP Chile.

 

 

 

 

 

Enel

 

Enel S.p.A.

 

An Italian energy company with multinational operations in the power and gas markets. A 61.9% beneficial owner of Enel Chile and our ultimate parent company.

 

 

 

 

 

Enel Américas

 

Enel Américas S.A.

 

An affiliated Chilean publicly held limited liability stock corporation, headquartered in Chile, with subsidiaries engaged primarily in the generation, transmission and distribution of electricity in Argentina, Brazil, Colombia, and Perú, and which is controlled by Enel.

 

 

 

 

 

Enel Chile

 

Enel Chile S.A.

 

Our parent company, a Chilean publicly held limited liability stock corporation, with subsidiaries engaged primarily in the generation and distribution of electricity in Chile, and which is controlled by Enel. Formerly known on an interim basis as Enersis Chile S.A. Owner of 93.6 % of our shares as of December 31, 2019.

 

 

 

 

 

Enel Distribution

 

Enel Distribución Chile S.A.

 

An affiliated Chilean publicly held limited liability stock corporation owned by Enel Chile, engaged in the electricity distribution business with operations in the Santiago Metropolitan Region. Formerly known as Chilectra S.A.

 

 

 

 

 

Enel Generation

 

Enel Generación Chile S.A.

 

Our company, a Chilean publicly held limited liability stock corporation, engaged in the electricity generation business with operations in Chile. Registrant of this Report. Formerly known as Empresa Nacional de Electricidad S.A. or Endesa Chile.

 

 

 

 

 

GasAtacama

 

GasAtacama Chile S.A.

 

Formerly a subsidiary of Enel Generation engaged in gas transportation and electricity generation in northern Chile that was merged into Enel Generation  on October 1, 2019.

 

 

 

 

 

GasAtacama Holding

 

Inversiones GasAtacama Holding Ltda.

 

Formerly a holding company subsidiary that previously held GasAtacama. GasAtacama Holding merged into Celta during 2016, which later merged into GasAtacama.

4

 

 

 

 

 

Gener

 

AES Gener S.A.

 

A Chilean generation company and our competitor in Chile.

 

 

 

 

 

GNL Quintero

 

GNL Quintero S.A.

 

A company created to develop, build, finance, own and operate a LNG regasification facility at Quintero Bay at which LNG is unloaded, stored and regasified. We sold our 20% stake in this company to Enagas Chile S.p.A., an unaffiliated company, in September 2016.

 

 

 

 

 

GSM

 

General Shareholders’ Meeting

 

General Shareholders’ Meeting.

 

 

 

 

 

HidroAysén

 

Centrales Hidroeléctricas de Aysén S.A.

 

A company created to develop a hydroelectric project in the Aysén region, southern Chile. We owned 51% of HidroAysén and Colbún, an unaffiliated company, owned the remaining 49%. The company terminated its activities in 2017.

 

 

 

 

 

IFRS

 

International Financial Reporting Standards

 

International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB).

 

 

 

 

 

LNG

 

Liquefied Natural Gas.

 

Liquefied natural gas.

 

 

 

 

 

NCRE

 

Non-Conventional Renewable Energy

 

Energy sources that are continuously replenished by natural processes, such as wind, biomass, mini-hydro, geothermal, wave, solar or tidal energy.

 

 

 

 

 

Pehuenche

 

Empresa Eléctrica Pehuenche S.A.

 

A Chilean publicly held limited liability stock corporation engaged in the electricity generation business, owner of three power stations in the Maule River basin and our subsidiary.

 

 

 

 

 

SEF

 

Superintendencia de Electricidad y Combustible

 

Chilean Superintendence of Electricity and Fuels, the governmental authority that supervises the Chilean electricity industry.

 

 

 

 

 

SEN

 

Sistema Eléctrico Nacional

 

The National Electricity System is the Chilean national interconnected electricity system formed in November 2017 through the integration of the SIC and SING.

 

 

 

 

 

SIC

 

Sistema Interconectado Central

 

Chilean central interconnected electricity system that was integrated with the SING in November 2017 to form a single interconnected system, the SEN.

 

 

 

 

 

5

SING

 

Sistema Interconectado del Norte Grande

 

Chilean interconnected electric system operating in northern Chile that was integrated with the SIC in November 2017 to form a single interconnected system, the SEN.

 

 

 

 

 

UF

 

Unidad de Fomento

 

Chilean inflation-indexed, Chilean peso-denominated monetary unit equivalent to Ch$ 28,309.94  as of December 31, 2019.

 

 

 

 

 

UTA

 

Unidad Tributaria Anual

 

Chilean annual tax unit. One UTA equals 12 Unidades Tributarias Mensuales (“UTM”), a Chilean inflation-indexed monthly tax unit used to define fines, among other purposes. For December 2019, one UTM was equivalent to Ch$ 49,623 and one UTA was equivalent to Ch$ 595,476.

 

 

 

6

INTRODUCTION

 

As used in this Report on Form 20-F (“Report”), first-person personal pronouns such as “we”, “us” or “our”, as well as “Enel Generación Chile”, “Enel Generation” or the “Company”, refer to Enel Generación Chile S.A. and our consolidated subsidiaries unless the context indicates otherwise. Unless otherwise noted, our interest in our principal subsidiaries and jointly-controlled companies and associates is expressed in terms of our economic interest as of December 31, 2019.

 

We are a Chilean company engaged in electricity generation businesses in Chile through our subsidiaries and jointly-controlled entities. We are the surviving company spun off from Empresa Nacional de Electricidad S.A. (“Endesa Chile”).

 

We are a publicly held limited liability stock corporation organized on December 1, 1943, under the laws of the Republic of Chile. During 2016, we completed a corporate reorganization to separate our Chilean businesses from our non-Chilean businesses. On October 18, 2016, and as part of this process, (i) our subsidiary Empresa Nacional de Electricidad S.A. changed its name to “Enel Generación Chile S.A.”; (ii) our subsidiary Chilectra Chile S.A. changed its name to “Enel Distribución Chile S.A.”; and (iii) we changed our name from “Enersis Chile S.A.” to “Enel Chile S.A.”

 

As of the date of this Report and after giving effect to the 2018 Reorganization (i) our direct controlling entity, Enel Chile S.A. (“Enel Chile”), owns 93.6% of our shares and (ii) Enel S.p.A. (“Enel”), an Italian energy company with multinational operations in the power and gas markets, beneficially owns 61.9% of Enel Chile as of December 31, 2019, and is our ultimate controlling shareholder with an economic interest of 57.9% in our Company. Upon termination and settlement on May 13, 2020 of a swap transaction entered into by Enel with respect to Enel Chile’s ADSs, Enel’s beneficial ownership of Enel Chile is expected to increase to 62.4% and its economic interest in our Company will increase to  58.4%.  For additional information relating to the 2018 Reorganization, see “Item 4. Information on the Company – A. History and Development of the Company – The 2018 Reorganization”.

 

7

PRESENTATION OF INFORMATION

 

In this Report, unless otherwise specified, references to “U.S. dollars” or “US$”, are to dollars of the United States of America (“United States”); references to “pesos” or “Ch$” are to Chilean pesos, the legal currency of Chile; and references to “UF” are to Unidades de Fomento. The UF is a Chilean inflation-indexed, peso-denominated monetary unit that is adjusted daily to reflect changes in the official Consumer Price Index (“CPI”) of the Chilean National Institute of Statistics (Instituto Nacional de Estadísticas or “INE”). The UF is adjusted in monthly cycles. Each day in the period beginning on the tenth day of the current month through the ninth day of the succeeding month, the nominal peso value of the UF is indexed in order to reflect a proportionate amount of the change in the Chilean CPI during the prior calendar month. As of December 31, 2019, one UF was equivalent to Ch$ 28,309.94. The U.S. dollar equivalent of one UF was US$ 37.81 as of December 31, 2019, using the Observed Exchange Rate reported by the Central Bank of Chile (Banco Central de Chile) as of December 31, 2019 of Ch$ 748.74 per US$ 1.00. The U.S. dollar observed exchange rate (dólar observado) (the “Observed Exchange Rate”), which is reported by the Central Bank of Chile and published daily on its webpage, is the weighted average exchange rate of the previous business day’s transactions in the Formal Exchange Market. Unless the context specifies otherwise, all amounts translated from Chilean pesos to U.S. dollars or vice versa, or from UF to Chilean pesos, have been made at the rates applicable as of December 31, 2019.

 

The Central Bank of Chile may intervene by buying or selling foreign currency on the Formal Exchange Market to maintain the Observed Exchange Rate within a desired range.

 

Our consolidated financial statements and, unless otherwise indicated, other financial information concerning us included in this Report are presented in Chilean pesos. We have prepared our consolidated financial statements in accordance with International Financial Reporting Standards (“IFRS”), as issued by the International Accounting Standards Board (“IASB”).

 

All our subsidiaries are integrated and all their assets, liabilities, income, expenses and cash flows are included in the consolidated financial statements after making the adjustments and eliminations related to intra-group transactions. Our participation in associated companies over which we exercise significant influence is included in our consolidated financial statements using the equity method. For detailed information regarding consolidated entities, jointly controlled entities and associated companies, see Appendices 1, 2, and 3 to the consolidated financial statements.

 

This Report contains translations of certain Chilean peso amounts into U.S. dollars at specified rates. Unless otherwise indicated, the U.S. dollar equivalent for information in Chilean pesos is based on the Observed Exchange Rate for December 31, 2019, as defined in “Item 3. Key Information — A. Selected Financial Data — Exchange Rates.” The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. No representation is made that the Chilean peso or U.S. dollar amounts that are shown in this Report could have been or could be converted into U.S. dollars or Chilean pesos, at such rate or at any other rate. See “Item 3. Key Information — A. Selected Financial Data — Exchange Rates.”

 

Technical Terms

 

References to “TW” are to terawatts (1012 watts or a trillion watts); references to “GW” and “GWh” are to gigawatts (109 watts or a billion watts) and gigawatt hours, respectively; references to “MW” and “MWh” are to megawatts (106 watts or a million watts) and megawatt hours, respectively; references to “kW” and “kWh” are to kilowatts (103 watts or a thousand watts) and kilowatt hours, respectively; references to “kV” are to kilovolts, and references to “MVA” are to megavolt amperes. References to “BTU” and “MBTU” are to British thermal unit and million British thermal units, respectively. A “BTU” is an energy unit equal to approximately 1,055 joules. References to “Hz” are to hertz, and references to “mtpa” are to metric tons per annum. Unless otherwise indicated, statistics provided in this Report with respect to the installed capacity of electricity generation facilities are expressed in MW. One TW equals 1,000 GW, one GW equals 1,000 MW and one MW equals 1,000 kW. The installed capacity we are presenting in this Report corresponds to the gross installed capacity, without considering the MW that each power plant consumes for its own operation.

 

8

Statistics relating to aggregate annual electricity production are expressed in GWh and based on a year of 8,760 hours, except for leap years, which are based on 8,784 hours. Statistics relating to installed capacity and production of the electricity industry do not include electricity of self-generators.

 

Energy losses experienced by generation companies during transmission are calculated by subtracting the number of GWh of energy sold from the number of GWh of energy generated (excluding their own energy consumption and losses on the part of the power plant), within a given period. Losses are expressed as a percentage of total energy generated.

 

Calculation of Economic Interest

 

References are made in this Report to the “economic interest” of Enel Generation in its related companies. We could have direct and indirect interest in such companies. In circumstances in which we do not directly own an interest in a related company, our economic interest in such ultimate related company is calculated by multiplying the percentage of economic interest in a directly held related company by the percentage of economic interest of any entity in the ownership chain of such related company. For example, if we directly own a 6% equity stake in an associate company and 40% is directly held by our 60%-owned subsidiary, our economic interest in such associate would be 60% times 40% plus 6%, equal to 30%.

 

Rounding

 

Certain figures included in this Report have been rounded for ease of presentation. It is possible, due to rounding, that sums shown in tables do not exactly equal the sums of the entries.

 

 

 

9

FORWARD-LOOKING STATEMENTS

 

This Report contains statements that are or may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements appear throughout this Report and include statements regarding our intent, belief or current expectations, including but not limited to any statements concerning:

 

our capital investment program;

 

trends affecting our financial condition or results of operations;

 

our dividend policy;

 

the future impact of competition and regulation;

 

political and economic conditions in the countries in which we or our related companies operate or may operate in the future;

 

any statements preceded by, followed by, or that include the words “believes,” “expects,” “predicts,” “anticipates,” “intends,” “estimates,” “should,” “may,” or similar expressions; and

 

other statements contained or incorporated by reference in this Report regarding matters that are not historical facts.

 

Because such statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to:

 

demographic developments, political events, social unrest, economic fluctuations, public health crises and pandemics, and interventionist measures by authorities in Chile;

 

water supply, droughts, flooding, and other weather conditions;

 

changes in Chilean environmental regulations and the regulatory framework of the electricity industry;

 

our ability to implement proposed capital expenditures, including our ability to arrange financing where required;

 

the nature and extent of future competition in our principal markets; and

 

the factors discussed below under “Risk Factors.”

 

You should not place undue reliance on such statements, which speak only as of the date that they were made. Our independent registered public accounting firm has not examined or compiled the forward-looking statements and, accordingly, does not provide any assurance with respect to such statements. You should consider these cautionary statements together with any written or oral forward-looking statements that we may issue in the future. We do not undertake any obligation to release publicly any revisions to forward-looking statements contained in this Report to reflect later events or circumstances or the occurrence of unanticipated events, except as required by law.

 

For all these forward-looking statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

10

PART I

Item 1.   Identity of Directors, Senior Management and Advisers

Not applicable.

Item 2.   Offer Statistics and Expected Timetable

Not applicable.

Item 3.   Key Information

A.    Selected Financial Data.

The following selected consolidated financial data should be read in conjunction with our consolidated financial statements included in this Report. The selected consolidated financial data as of December 31, 2019, and 2018 and for each of the years in the three-year period ended December 31, 2019 , are derived from our audited consolidated financial statements included in this Report. The selected consolidated financial data as of December 31, 2017, 2016 and 2015, and for the years ended December 31, 2016, and 2015 are derived from our consolidated financial statements not included in this Report. Our consolidated financial statements were prepared in accordance with IFRS, as issued by the IASB.

 

Amounts in the tables are expressed in millions, except for ratios, operating data and data for shares and American Depositary Shares (“ADS”). For the convenience of the reader, all data presented in U.S. dollars in the following summary, as of and for the year ended December 31, 2019, has been converted at the U.S. dollar Observed Exchange Rate (dólar observado) for that date of Ch$ 748.74 per US$ 1.00. The Observed Exchange Rate, which is reported and published daily on the Central Bank of Chile’s web page, corresponds to the weighted-average exchange rate of the previous business day’s transactions in the Formal Exchange Market. For more information concerning historical exchange rates, see “Item 3. Key Information — A. Selected Financial Data — Exchange Rates” below.

 

11

The following tables set forth our selected consolidated financial data and operating data for the years indicated:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the year ended December 31, 

 

    

2019 (1)

    

2019

    

2018

    

2017

    

2016

    

2015

 

 

(US$ millions)

 

 

 

(Ch$ millions)

Consolidated Statement of Comprehensive Income Data

 

 

 

 

 

 

 

 

 

 

 

 

Revenues and other operating income

 

 2,188

 

 1,638,374

 

 1,521,054

 

 1,634,937

 

 1,659,727

 

 1,543,810

Operating costs(2)

 

 (1,813)

 

 (1,357,456)

 

 (1,056,671)

 

 (1,171,077)

 

 (1,228,341)

 

 (1,141,991)

Operating income

 

 375

 

 280,919

 

 464,383

 

 463,860

 

 431,386

 

 401,819

Financial results(3)

 

 (78)

 

 (58,362)

 

 (47,947)

 

 (36,610)

 

 (35,679)

 

 (114,252)

Other gains(4)

 

 2

 

 1,681

 

 3,435

 

 113,089

 

 121,491

 

 4,015

Share of profit (loss) of associates and joint ventures accounted for using the equity method

 

 1

 

 546

 

 3,281

 

 (2,697)

 

 7,878

 

 8,905

 

 

 

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

 300

 

 224,784

 

 423,152

 

 537,642

 

 525,077

 

 300,487

Income tax expense

 

 (31)

 

 (23,458)

 

 (104,947)

 

 (112,100)

 

 (83,217)

 

 (76,656)

Net income

 

 269

 

 201,326

 

 318,205

 

 425,542

 

 441,860

 

 223,831

Profit after tax from discontinued operations

 

 —

 

 —

 

 —

 

 —

 

 79,572

 

 411,190

Net income for the year

 

 269

 

 201,326

 

 318,205

 

 425,542

 

 521,432

 

 635,021

Net income attributable to the parent Company

 

 262

 

 196,343

 

 309,029

 

 418,454

 

 472,558

 

 392,868

Net income attributable to non-controlling interests

 

 6.66

 

 4,983

 

 9,176

 

 7,088

 

 48,874

 

 242,153

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted earnings per share (Ch$/US$ per share)

 

0.03

 

23.9

 

37.7

 

51.0

 

 52.8

 

 25.9

Basic and diluted earnings per share (Ch$/US$ per ADS)

 

0.96

 

718

 

1,130

 

1,531

 

 1,583

 

 777

Total Basic and diluted earnings per share (Ch$/US$ per share)

 

0.03

 

23.9

 

37.7

 

51.0

 

 57.6

 

 47.9

Total Basic and diluted earnings per ADS (Ch$/US$ per ADS)

 

0.96

 

718

 

1,130

 

1,531

 

 1,729

 

 1,437

Cash dividends per share (Ch$/US$ per share)

 

0.04

 

29.0

 

22.6

 

28.1

 

 14.6

 

 20.4

Cash dividends per ADS (Ch$/US$ per ADS)(5)

 

1.16

 

871

 

678

 

842

 

 437

 

 612

Number of shares of common stock (millions)

 

 8,202

 

8,202

 

8,202

 

8,202

 

 8,202

 

 8,202

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement of Financial Position Data

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets and disposal groups held for sale or distribution to owners

 

 —

 

 —

 

 —

 

4,205

 

 12,993

 

 3,889,706

Total assets

 

 4,791

 

 3,587,199

 

 3,669,228

 

 3,554,462

 

 3,399,682

 

 7,278,770

Non-current liabilities

 

 1,503

 

 1,125,161

 

 1,077,856

 

 1,022,092

 

 1,114,145

 

 1,207,005

Liabilities associated with disposal groups held for sale or distribution to owners

 

 —

 

 —

 

 —

 

 —

 

 —

 

 1,851,784

Equity attributable to the parent company

 

 2,623

 

 1,963,775

 

 1,970,521

 

 1,961,518

 

 1,700,962

 

 2,648,190

Equity attributable to non-controlling interests

 

 13

 

 10,079

 

 26,970

 

 27,496

 

 28,798

 

 895,700

Total equity

 

 2,636

 

 1,973,854

 

 1,997,491

 

 1,989,014

 

 1,729,760

 

 3,543,890

Capital stock(6)

 

 852

 

 638,289

 

 638,289

 

 638,289

 

 638,289

 

 1,537,723

Other Consolidated Financial Data

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures (CAPEX)(7)

 

 271

 

 202,745

 

 222,327

 

 206,776

 

 194,880

 

 537,805

Depreciation, amortization and impairment losses(8)

 

 519

 

 388,824

 

 117,866

 

 117,282

 

 163,386

 

 115,042


(1)Solely for the convenience of the reader, Chilean peso amounts have been converted into U.S. dollars at the exchange rate of Ch$ 748.74 per U.S. dollar, as of December 31, 2019.

12

(2)Operating costs represent raw materials and supplies used, other work performed by the entity, employee benefits expenses, depreciation and amortization expenses, impairment losses recognized in the period’s profit or loss and other expenses.

(3)Financial results represent (+) financial income, (-) financial costs, (+/-) foreign currency exchange differences and net gains/losses from indexed assets and liabilities.

(4)Please refer to Note 31 of the Notes to our consolidated financial statements.

(5)One ADS = 30 shares of common stock. Please refer to Item 9.

(6)Capital stock represents issued capital plus share premium.

(7)CAPEX figures represent cash flows used for purchases of property, plant and equipment and intangible assets for each year.

(8)For further detail please refer to Notes 29 of the Notes to our consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the year ended December 31, 

 

    

2019

    

2018

    

2017

    

2016

    

2015

OPERATING DATA

 

 

 

 

 

 

 

 

 

 

Installed capacity (MW)

 

 6,114

 

 6,274

 

 6,351

 

 6,351

 

 6,351

Generation (GWh)

 

 17,548

 

 17,373

 

 17,073

 

 17,564

 

 18,294

 

Exchange Rates

 

Fluctuations in the exchange rate between the Chilean peso and the U.S. dollar will affect the U.S. dollar equivalent of the price in Chilean pesos of our shares of common stock on the Santiago Stock Exchange (Bolsa de Comercio de Santiago) and the Chilean Electronic Stock Exchange (Bolsa Electrónica de Chile). These fluctuations in the exchange rate affect the price of our American Depositary Shares (“ADSs”) and the conversion of cash dividends relating to the common shares represented by ADSs from Chilean pesos to U.S. dollars. In addition, to the extent that significant financial liabilities are denominated in foreign currencies, fluctuations in the exchange rate may have a considerable impact on our earnings.

 

In Chile, there are two currency markets, the Formal Exchange Market (Mercado Cambiario Formal) and the Informal Exchange Market (Mercado Cambiario Informal). The Formal Exchange Market consists of banks and other entities authorized by the Central Bank of Chile. The Informal Exchange Market includes entities that are not expressly permitted to operate in the Formal Exchange Market, such as foreign currency exchange houses and travel agencies, among others. The Central Bank of Chile has the authority to require that certain purchases and sales of foreign currencies be made on the Formal Exchange Market. Free market forces drive both the Formal and Informal Exchange Markets. Current regulations require that the Central Bank of Chile be informed of transactions that must be effected through the Formal Exchange Market.

 

The U.S. dollar Observed Exchange Rate, which is reported by the Central Bank of Chile and published daily on its web page, is the weighted-average exchange rate of the previous business day’s transactions in the Formal Exchange Market. Nevertheless, the Central Bank of Chile may intervene by buying or selling foreign currency on the Formal Exchange Market to attempt to maintain the Observed Exchange Rate within a desired range.

 

The Informal Exchange Market reflects transactions effected at an informal exchange rate. There are no limits imposed on the extent to which the exchange rate in the Informal Exchange Market can fluctuate above or below the U.S. dollar Observed Exchange Rate. Foreign currency for payments and distributions with respect to the ADSs may be purchased either in the Formal or the Informal Exchange Market, but such payments and distributions must be remitted through the Formal Exchange Market.

 

The Federal Reserve Bank of New York does not report a noon buying rate for Chilean pesos. As of December 31, 2019, the U.S. dollar Observed Exchange Rate was Ch$ 748.74 per US$ 1.00. As of April 27, 2020, the U.S. dollar Observed Exchange Rate was Ch$ 856.76 per US$ 1.00.

 

Calculation of the appreciation or devaluation of the Chilean peso against the U.S. dollar in any given period is made by determining the percent change between the reciprocals of the Chilean peso equivalent of US$ 1.00 at the end

13

of the preceding period and the end of the period for which the calculation is being made. For example, to calculate the devaluation of the year-end Chilean peso in 2019, one determines the percentage of change between the reciprocal of Ch$ 694.77, the value of one U.S. dollar as of December 31, 2018, or 0.0014393, and the reciprocal of Ch$ 748.74, the value of one U.S. dollar as of December 31, 2019, or 0.0013356. In this example, the percentage change between the two periods is -7.2%, which represents the 2019 year-end devaluation of the Chilean peso against the 2018 year-end U.S. dollar. A positive percentage change means that the Chilean peso appreciated against the U.S. dollar, while a negative percentage change means that the Chilean peso devaluated against the U.S. dollar.

 

The following table sets forth the period-end rates for U.S. dollars for the years ended December 31, 2015, through December 31, 2019, based on information published by the Central Bank of Chile.

 

 

 

 

 

 

 

Ch$ per US$(1)

 

    

Period End

    

Appreciation (Devaluation)

 

 

(in Ch$)

 

(in %)

Year ended December 31, 

 

 

 

 

2019

 

748.74

 

( 7.2 )

2018

 

694.77

 

( 11.5 )

2017

 

614.75

 

8.9

2016

 

669.47

 

6.1

2015

 

710.16

 

(14.6)

Source: Central Bank of Chile.

(1)

Calculated based on the variation of the reciprocals of the period-end exchange rates.

B.   Capitalization and Indebtedness.

Not applicable.

C.   Reasons for the Offer and Use of Proceeds.

Not applicable.

D. Risk Factors.

Fluctuations in the Chilean economy, economic interventionist measures by governmental authorities, political and financial events, or other crises in Chile and worldwide may affect our results of operations, financial condition, liquidity, and the value of our securities.

All our operations are in Chile. Accordingly, our revenues are affected by the performance of the Chilean economy. Chile is also vulnerable to external shocks, such as financial and political events, that could cause significant economic difficulties and affect economic growth. If Chile experiences lower than expected economic growth or a recession, it is likely that our customers will demand less electricity and that some of our customers may experience difficulties paying their electric bills, possibly increasing our uncollectible accounts. Any of these situations could adversely affect our results of operations and financial condition. Since 2018, the U.S. and China have been involved in a trade war involving protectionist measures that has increased the volatility of financial markets worldwide due to the uncertainty of political decisions. Instability in the Middle East or in any other major oil-producing region could also result in higher fuel prices worldwide, increasing the operating cost for our thermal generation plants and unfavorably affecting our results of operations and financial condition.

 

An international financial crisis and its disruptive effects on the financial industry could negatively affect our ability to obtain new financings under the same historical terms and conditions that we have benefited from to date. Political events or financial or other crises could also diminish our ability to access Chilean and international capital markets or increase the interest rates available to us. Reduced liquidity, in turn, could adversely affect our capital expenditures, long-term investments and acquisitions, growth prospects and dividend payout policy. Insufficient cash flows could

14

result in the inability to meet our debt obligations and the need to seek waivers to comply with restrictive debt covenants, resulting in increased costs for subsequent financings.

 

Future negative developments in Chile, including political events, financial or other crises, changes to policies regarding foreign exchange controls, regulations, and taxation, may impair our ability to execute our business plan and could adversely affect our results of operations and financial condition. Inflation, devaluation, social instability, and other political, economic or diplomatic developments could also reduce our profitability. Chilean financial and securities markets are influenced by economic and market conditions in other countries and may be affected by international events, which could unfavorably affect the value of our securities.

 

We are exposed to economic and political volatility, including civil unrest in Chile due to the challenges arising from changes in economic conditions, regulatory policies, laws governing foreign trade, manufacturing, development and investments, as well as various crises and uncertainties.  These factors, either individually or in the aggregate, could severely impact Chilean economic growth and our business, results of operations and financial condition. Starting in October 2019, Chile began to experience social turmoil throughout the country, starting initially because of a public transportation fare hike.  Almost immediately, increasingly violent student and civil protests brought about widespread and severe tensions, indiscriminate violence and vandalism, significant public and private sector property damage and disruption to institutions, commerce, general safety, civilian welfare and peace. The government initially declared a 90 day state of emergency, extendable as necessary.  At the same time, it launched various political, social, and economic reforms, including a guaranteed minimum wage, an increase in government-subsidized pensions, stabilization of electricity costs, a higher tax bracket for high-income earners, new health insurance programs, a pay cut for the members of the Chilean Congress and certain civil servants.

 

In this context, the Chilean government approved calling for a national referendum, now rescheduled for October 2020, to decide whether to create a new Chilean constitution, and if so, whether a popularly elected assembly or a combination of current legislators and a popularly elected assembly would draft the new constitution. The existing constitution has been in place since 1980 and any new constitution could alter the Chilean political situation, affect the Chilean economy and the country’s business outlook.  A new constitution may also change existing rights, including rights to exploit natural resources, and water and property rights, any of which could adversely affect our business, results of operations, and financial condition.

 

We are subject to the adverse effects of worldwide pandemics.

 

An international public health crisis, such as the one attributable to the COVID‑19 pandemic that has become an increasing worldwide source of distress since December 2019, could significantly affect Chile, as well as our trading partners.

 

In March 2020, due to the COVID‑19 pandemic, Chilean President Sebastián Piñera decreed a state of emergency (Estado de Excepción Constitucional de Catástrofe) for 90 days, and such emergency measure may be subsequently extended beyond June 2020. Under such executive authority, President Piñera has instituted nighttime military curfews, selective mandatory quarantines in affected areas, control of entrance, exit and traffic within specified zones, the prohibition of mass gatherings, the closing of public schools, among other measures. The private sector has voluntarily taken further measures, such as adopting telecommuting wherever possible and the closing commercial offices. Many businesses, such as restaurants and retail stores, have temporarily closed, either voluntarily or by executive decree, and companies associated with travel, transportation, and tourism have been severely affected and many may go bankrupt.

 

The cumulative effect of measures of this kind will likely lead to a recession, high unemployment levels, and perhaps a decline in electricity demand. If the COVID-19 pandemic is not adequately contained in 2020, our ability to generate income and maintain liquidity levels to allow for normal operations may diminish. We are not presently able to quantify the expected negative effects of the COVID‑19 pandemic on our 2020 results; however, we expect them to be adverse.

 

15

Our business depends heavily on hydrology and is affected by droughts, flooding, storms, ocean currents, and other inclement weather conditions.

Approximately 57% of our installed generation capacity in 2019 was hydroelectric. Accordingly, arid hydrological conditions could negatively affect our business, results of operations, and financial condition. Our results have been adversely affected when hydrological conditions in Chile have been significantly below average.

 

We have entered into certain agreements with the Chilean government and local irrigators regarding the use of water for hydroelectric generation purposes during periods of low water levels. However, if droughts persist, we may face increased pressure from the Chilean government or other third parties to further restrict our water use.

 

Our operating expenses increase during these drought periods when thermal power plants, which have higher operating costs relative to hydroelectric power plants, are dispatched more frequently. We may need to buy electricity at higher spot prices in order to comply with our contractual supply obligations. The cost of these electricity purchases may exceed our contracted electricity sale prices, thus, potentially producing losses from those contracts. For further information with respect to the effect of hydrology on our business and financial results, please refer to “Item 5. Operating and Financial Review and Prospects — A. Operating Results —1. Discussion of Main Factors Affecting Operating Results and Financial Condition of the Company —a. Generation Business.”

 

Droughts also indirectly affect the operation of our thermal power plants, including our facilities that use natural gas, fuel oil, or coal, in the following manner:

 

·

Our thermal power plants require water for cooling, and droughts in extreme situations may reduce the availability of water and increase the cost of transportation. As a result, we have had to purchase water for our San Isidro power plant from agricultural areas that are also experiencing water shortages. These water purchases may increase our operating costs and may require us to negotiate with the local communities.

·

Thermal power plants generate emissions such as nitrogen oxide (NO), carbon dioxide (CO2), carbon monoxide (CO), sulfur dioxide (SO2), and particulate matter into the atmosphere. Therefore, greater use of thermal power plants during droughts generally increases the risk of producing higher levels of greenhouse gas emissions, which also decreases our operating income due to the payment of so-called “green taxes.”

A full recovery from the drought that has been affecting the regions where most of our hydroelectric power plants are located may last for an extended period, and new drought periods may recur in the future. Prolonged droughts may exacerbate the risks described above and have a further negative effect upon our business, results of operations, and financial condition.

 

We are subject to potential financial risks resulting from climate change legislation and regulation to limit greenhouse gas (GHG) emissions.

 

Future climate change legislation and regulation restricting or regulating GHG emissions could result in increased operating costs and have a material adverse effect on our business, results of operations, and financial condition. The adoption and implementation of any international treaty or any legislation or regulations imposing new or additional reporting obligations on, or limiting emissions of, GHGs from our operations could require us to incur additional costs to comply with such requirements and possibly require the reduction or limitation of GHG emissions associated with our operations. These higher compliance standards may involve additional costs to operate and maintain our equipment and facilities, install emission controls, or pay taxes and fees relating to GHG emissions, which could have a material adverse effect on our business, results of operations and financial condition.

 

Governmental regulations may unfavorably affect our business, cause delays, impede the development of new projects, or increase the costs of operations and capital expenditures.

Our business and the tariffs that we charge to our customers are subject to extensive regulation that may negatively affect our profitability. For example, governmental authorities might impose rationing policies during droughts or

16

prolonged failures of power facilities, which may adversely affect our business, results of operations, and financial condition.

 

Some aspects of the Chilean electricity law have been subject to significant regulatory changes, and any such changes may unfavorably affect our future operations and profitability. For example, in the context of the social crisis that began in October 2019, the government established a transitional mechanism for stabilizing electricity prices for customers under the regulated price system. The mechanism eliminates the price increase of 9.2% that would have been applied to regulated customers as of July 2019 and defers the price increase for the sale of electricity under contracts between generation and distribution companies that start before 2021. A price stabilization funding program was implemented by the CNE and is effectively financed by companies in the generation industry, including us, through accounts receivable that are generated from the differences between the contractual rates and the stabilized rates, which are expected to enable the generation companies to recover the lost revenues by December 31, 2027. We expect to suffer a financial loss as a result of this revenue deferral because generation companies are being asked to finance such deferral. Other Chilean electricity sector regulations may also affect the ability of our generation companies to collect revenues sufficient to cover their operating costs and adversely affect our future profitability.

 

Our operating subsidiary is also subject to environmental regulations that, among other things, require us to perform environmental impact studies on future projects and obtain construction and operating permits from local and national regulators. Governmental authorities may withhold or delay the approval of these permits until the completion of environmental impact studies. Therefore, their processing time may be longer than expected. Environmental regulations for existing and future generation capacity have become stricter and require increased capital investments. Any delay in meeting the required emission standards may constitute a violation of the environmental regulations. Failure to certify the original implementation and ongoing emission standard requirements of such monitoring systems may result in significant penalties and sanctions or legal claims for damages. We expect that more restrictive emission limits will be established in the future. We are also subject to an annual “green tax,” based on our greenhouse gas emissions in the previous year. Such taxes may increase in the future and discourage thermal electricity generation.

 

Changes in the regulatory framework are often submitted to legislators and administrative authorities, and some of these changes could have a material adverse effect on our business, results of operations, and financial condition.

 

Our business faces risks from the promotion of decarbonization efforts both on a global and on a national scale.

In June 2019, the Chilean government announced its plan to phase out coal entirely from its energy mix by 2040 and achieve carbon neutrality by 2050. Under this plan, we and GasAtacama Chile S.A (“GasAtacama,” now merged into us) signed an agreement with the Chilean Ministry of Energy. The protocol defines the process for the progressive closure of our coal-fired power plants Tarapacá (158 MW), Bocamina I (128 MW), and Bocamina II (350 MW). Under this agreement, we are irrevocably obligated to close Bocamina I and II, and Tarapacá’s coal plant. The Tarapacá coal plant was closed in December 2019. The deadlines for closing Bocamina I and II are December 31, 2023, and December 31, 2040, respectively.

 

Even though the Chilean government’s plan to achieve decarbonization may overlap with our companies’ sustainability strategy, the actual implementation of the governmental targets may exert considerable pressure on us and on our ability to satisfy our contractual obligations with other cleaner sources. In turn, this may increase our expenses, decrease our profitability, and limit our ability to satisfy electricity demand fully.

 

Regulatory authorities may impose fines on our subsidiaries due to operational failures or any breaches of regulations.

Our electricity business is subject to regulatory fines for any breach of current regulations, including failures to supply energy. We and our subsidiaries are supervised by local regulatory entities and may be subject to fines in cases where, the regulator determines that the we are responsible for the operational failures that affected the regular energy supply to the system, including coordination issues. Regulations establish a compensation fee to end customers when energy is interrupted more than the standard allowed time due to events or failures affecting transmission facilities.

 

17

We depend on payments from our subsidiary to meet our payment obligations.

In order to pay our obligations, we rely on cash from dividends, loans, interest payments, capital reductions, and other distributions from our subsidiary Pehuenche. Such payments and distributions to us may be subject to legal constraints, such as dividend restrictions and fiduciary obligations. The ability of Pehuenche to pay dividends or make loan payments or other distributions to us is limited by their operating results. To the extent that the cash requirements of Pehuenche exceed its available cash, it will not be able to make cash available to us.

 

Any of the situations described above could adversely affect our business, results of operations, and financial condition.

 

We are involved in litigation proceedings.

We are involved in various litigation proceedings that could result in unfavorable decisions or financial penalties against us. We will continue to be subject to future litigation proceedings, which could cause material adverse consequences to our business.

 

Our financial condition or results of operations could be unfavorably affected if we are unsuccessful in defending lawsuits and proceedings against us. For further information on litigation proceedings, please see Note 34.3 of the Notes to our consolidated financial statements.

 

Construction and operation of power plants may encounter significant delays, stoppages, cost overruns, and stakeholder opposition that may damage our reputation and result in impairment of our goodwill with stakeholders.

Our power plant projects may be delayed in obtaining regulatory approvals or may face shortages and increases in the price of equipment, materials, or labor. They may be subject to construction delays, strikes, accidents, and human error. Any such event could negatively affect our business, results of operations, and financial condition.

 

Market conditions may change significantly between the approval and completion of a project, which, in some cases, may decrease a project’s profitability or render it impracticable. This has been the case with many of our past projects that were initially planned under very different market conditions when energy prices were higher, and there was less competition. Deviations in market conditions, such as estimates of timing and expenditures, may lead to cost overruns and delays in project completion that widely exceed our initial forecasts. In turn, this may have a material adverse effect on our business, results of operation, and financial condition.

 

The operation of our thermal power plants, especially those that are coal fired, may affect our goodwill with stakeholders due to greenhouse gas emissions that could unfavorably affect the environment and nearby residents. Furthermore, outside stakeholders may influence the interests and perceptions communities have of our company. If we fail to address all relevant stakeholders appropriately, we may face opposition, which could negatively affect our reputation, stall operations, or lead to litigation threats or actions. Our reputation is the foundation of our relationship with key stakeholders and other constituencies. If we do not effectively manage these sensitive issues, our business, results of operations, and financial condition could be adversely affected.

 

Damage to our reputation may exert considerable pressure on regulators, creditors, and other stakeholders, possibly leading to the abandonment of projects and operations. This could cause our share prices to drop and hinder our ability to attract and retain valuable employees. Any of these outcomes could result in an impairment of our goodwill with stakeholders.

 

Political events or financial or other crises in any region worldwide can have a significant impact on Chile, and consequently, may unfavorably affect our operations and liquidity.

Chile is vulnerable to external shocks that could cause significant economic difficulties and affect growth. If Chile experiences lower than expected economic growth or a recession, it is likely that consumer demand for electricity will

18

decrease and that some of our customers may have difficulties paying their electric bills, possibly increasing our uncollectible accounts. Any of these situations could adversely affect our results of operations and financial condition.

 

Financial and political events in other parts of the world could also negatively affect our business. For example, since 2018, the U.S. and China have been involved in a trade war involving protectionist measures that increased volatility in financial markets worldwide due to the uncertainty of political decisions. In addition, instability in the Middle East or any other major oil-producing region could result in higher fuel prices worldwide, which would increase the operating costs for our thermal generation power plants and unfavorably affect our results of operations and financial condition. An international financial crisis and its disruptive effects on the financial industry could adversely affect our ability to obtain new bank financings under the same historical terms and conditions that we have benefited from to date.

 

Political events or financial or other crises could also diminish our ability to access capital markets in Chile and international capital markets as sources of liquidity, or increase interest rates available to us. Reduced liquidity could negatively affect our capital expenditures, long-term investments and acquisitions, growth prospects, and dividend payout policy.

 

The U.S. federal government has experienced shutdowns in recent years. The 2018-2019 U.S. government shutdown, the longest in U.S. history, lasted 35 days and affected many federal agencies, including the SEC. Even temporary or threatened U.S. government shutdowns could have a material adverse effect on the timing, execution, and increased expense associated with our international financing and M&A activities.

 

Our business and profitability could be unfavorably affected if water rights are denied or if water concessions are granted with limited duration.

We own water rights granted by the Chilean Water Authority (Dirección General de Aguas) for the supply of water from rivers and lakes near our production facilities. Currently, these water rights are (i) for unlimited duration, (ii) absolute and unconditional property rights, and (iii) not subject to further challenge. Chilean generation companies must pay an annual license fee for unused water rights. New hydroelectric facilities are required to obtain water rights and the conditions of such water rights may affect the design, timing, or profitability of a project.

 

The Chilean Congress has discussed proposed amendments to the Water Code since 2014 to prioritize the use of water by defining its access as a basic human need that must be guaranteed by the state. The amendments would give precedence to water use for human consumption, domestic subsistence, and sanitation in both the granting and limiting of the exercise of rights of exploitation. Restrictions enacted to preserve environmental flows would also reduce water availability for generation purposes. To date, no resolutions regarding these amendments have been approved by the Chilean Congress.

 

Any limitations on our water rights, the granting of additional water rights, or on the duration of our water concessions could have a material adverse effect on our hydroelectric development projects and profitability.

 

Foreign exchange risks may unfavorably affect our results and the U.S. dollar value of dividends payable to ADS holders.

The Chilean peso has been subject to devaluations and appreciations against the U.S. dollar and may be subject to significant fluctuations in the future. For example, the Chilean peso depreciated by 7.2% against the U.S. dollar in 2019. The Chilean peso continues to devalue against the U.S. dollar in 2020 and the U.S. dollar Observed Exchange Rate peaked at Ch$ 867.83 per US$ 1.00 on March 19, 2020. We pay our dividends in Chilean pesos. Historically, a significant portion of our consolidated indebtedness has been in U.S. dollars. Although a substantial portion of our operating cash flows is linked to the U.S. dollar, we are exposed to fluctuations in the Chilean peso against the U.S. dollar because of time lags and other limitations to pegging our tariff rates to the U.S. dollar. This exposure can substantially decrease the value of the cash we generate in U.S. dollars due to the devaluation of the peso. Future volatility in the exchange rate of the currency in which we receive revenues or incur expenditures may adversely affect our business, results of operations, and financial condition.

 

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Our long-term electricity sales contracts are subject to fluctuations in the market prices of certain commodities, energy, and other factors.

We have exposure to fluctuations in the market prices of certain commodities that affect our long-term electricity sales contracts. These contracts commit us to material obligations as selling parties and contain prices that are indexed to different commodities, exchange rates, inflation, and the market price of electricity. Unfavorable changes to these indices would reduce the rates we charge under these contracts, which could adversely affect our business, results of operations, and financial condition.

 

Our controlling shareholder may exert influence over us and may have a different strategic view for our development from that of our minority shareholders.

Enel, our controlling shareholder, has an indirect equity interest of 57.9% of our share capital as of the date of this Report through its 61.9% ownership of Enel Chile and has announced an intention to acquire an additional 3% stake of Enel Chile by the end of 2020 which, if successful, would increase its indirect equity interest in us to 60.7%. Under Chilean corporate law, Enel has the power to determine the outcome of substantially all material matters that require a simple majority of shareholders’ votes, such as the election of the majority of the seats on our board and, subject to contractual and legal restrictions, the adoption of our dividend policy. Enel also exercises significant influence over our business strategy and operations. However, in some cases, its interests may differ from those of our minority shareholders. Certain conflicts of interest affecting Enel in these matters may be resolved in a manner that is different from the interests of our company or our minority shareholders.

 

Our electricity business is subject to risks arising from natural disasters, catastrophic accidents, and acts of terrorism, which could unfavorably affect our operations, earnings and cash flow.

Our primary facilities include power plants that are exposed to damage from catastrophic natural disasters, such as earthquakes and fires, human causes, as well as acts of vandalism, protests, riots, and terrorism. A catastrophic event could cause prolonged unavailability of our assets, disruptions in our business, significant decreases in revenues due to lower demand, or significant additional costs to us not covered by our business interruption insurance. There may be lags between a significant accident or catastrophic event and the final reimbursement from our insurance policies, which typically carry a deductible and are subject to per event policy maximum amounts.

 

In mid-October 2019, widespread street demonstrations and protests erupted in Santiago and quickly spread throughout the rest of Chile. These actions have since become commonplace, and, at times, have been accompanied by looting, arson, and severe vandalism. Violent confrontations between protesters and the police and armed forces have resulted in a significant loss of human lives and severe injuries. The accumulated damage to public and private property could amount to billions of dollars. Damage to Chile’s economy, prospects for growth, perception of risk, and immediate repercussions in terms of unemployment and loss of productivity are also significant. Our corporate headquarters in Santiago suffered a severe arson attack on October 18, 2019, resulting in the dislocation of our management and headquarters employees for an extended period. An electricity substation belonging to an unrelated company in the northern city of Copiapó was set on fire on November 28, 2019. Chilean public authorities have voiced their concern for the country’s strategic electricity infrastructure, including power stations, transmission lines and distribution substations. It is not possible to estimate when such violence will come to an end or the final effects on our business, but there may be material long-term negative effects resulting from this social crisis.

 

Any natural or human catastrophic disruption to our electricity assets in Chile could lead to significant adverse effects on our operations and financial condition.

 

We are subject to financing risks, such as those associated with funding our new projects and capital expenditures or refinancing existing obligations.

As of December 31, 2019, our consolidated debt totaled Ch$ 858 billion. As of December 31, 2019, our most material debt obligation was the US$ 717.5 million principal amount of SEC‑registered bonds issued in the U.S. under the law of the State of New York. We also have debt associated with local bonds that totaled Ch$ 312 billion.

20

 

Our debt agreements are subject to several of the following provisions including (1) financial covenants, (2) affirmative and negative covenants, (3) events of default, (4) mandatory prepayments for contractual breaches, (5) change of control clauses for material mergers and divestments, and (6) bankruptcy and insolvency proceeding covenants, among others.

 

A significant portion of our financial indebtedness is subject to cross default provisions, which have varying definitions, criteria, materiality thresholds, and applicability concerning subsidiaries that could result in cross default. Our debt may also become immediately due and payable in cases involving bankruptcy or insolvency proceedings of a significant or material subsidiary. Likewise, some of our debtholders may decide to accelerate our debt in events of cross default dealing with significant or material subsidiaries, among other potential covenant defaults.

 

We may be unable to refinance our debt or obtain such refinancing on terms acceptable to us. In the absence of such refinancing, we could be forced to liquidate assets at unfavorable prices in order to make payments due on our debt. Furthermore, we may be unable to sell our assets at opportune moments or sufficiently high prices to obtain proceeds that would enable us to make such payments.

 

We may also be unable to raise the necessary funds required to finish our projects under development or construction. Market conditions or unforeseen project costs prevailing when we need funds could compromise our ability to finance these projects and expenditures.

 

Our inability to finance new projects or capital expenditures, refinance our existing debt, or comply with our covenants could negatively affect our results of operation and financial condition.

 

If third party electricity transmission facilities, gas pipeline infrastructure, or fuel supply contracts fail to provide us with adequate service, we may be unable to deliver the electricity we sell to our final customers.

We depend on transmission facilities owned and operated by other companies to deliver the electricity we sell. This dependence exposes us to several risks. If the transmission is disrupted, or transmission capacity is inadequate, we may be unable to sell and deliver our electricity. If a region’s power transmission infrastructure is inadequate, our recovery of sales costs and profits may be insufficient. If restrictive transmission price regulations are imposed, transmission companies we rely on may not have sufficient incentives to invest in expanding their infrastructure, which could unfavorably affect our results of operations and financial condition or affect our ability to deploy our portfolio of projects under development. The construction of new transmission lines may take longer than in the past, mainly because of sustainability, social, and environmental requirements that create uncertainties as to the timing of project completion. In addition, our thermal power plants connected to natural gas pipelines are subject to stoppages should material disruptions in the pipeline occur. Stoppages could force us to purchase electricity at spot market prices, which could be higher than the contracted fixed sale price to customers. This scenario could adversely affect our business, results of operations, and financial condition.

 

We may be unable to reach satisfactory collective bargaining agreements with our unionized employees or retain key employees in cases of labor conflict.

A large percentage of our employees are members of unions and have collective bargaining agreements that must be renewed regularly. Our business, results of operations, and financial condition could be unfavorably affected by a failure to reach a collective bargaining agreement with any labor union or by an agreement with a labor union that contains terms we view as unfavorable. Chilean law provides legal mechanisms for judicial authorities to impose a collective bargaining agreement if the parties are unable to come to an agreement. This is particularly true for some of our subsidiaries because these agreements may materially increase our costs.

 

We employ many highly specialized employees, and specific actions such as strikes, walkouts, or work stoppages by these employees could negatively affect our business, results of operations, financial condition, and reputation.

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The Chilean legislative branch is currently analyzing proposed bills that could increase our labor costs for the Company, such as a reduction in the workweek from 45 to 40 hours, and an increase of 6% in employer contributions to employee pension funds. If enacted, these measures could lead to reduced productivity and higher expenses.

 

The illiquidity of our ADSs and common stock could unfavorably affect the prices of our securities, the ability to maintain a favorable tax status in Chile, and registration with the U.S. SEC.

Following the completion of the 2018 Reorganization, only 6.4% of our common stock was held by minority shareholders. As of the end of 2019, ADSs comprised only 0.3% of the total outstanding shares of our common stock. Accordingly, our common stock and ADSs are not widely held, and the volume of trading has been low and sporadic. Our common stock and ADSs are subject to increased price volatility and reduced trading liquidity. This lack of liquidity increases the difficulty of selling our securities in large blocks without adversely affecting their price.

 

The insignificant level of ADS participation, in turn, may influence us to deregister from the SEC in the future if we satisfy the deregistration requirements. A deregistration from the SEC would lead to the discontinuation of annual reporting on Form 20‑F, and current reporting on Form 6‑K, and, consequently, a reduction in the amount of disclosure that is currently available to ADS holders.

 

At the end of 2018, we voluntarily delisted our ADSs from trading on the NYSE. Our ADSs are now quoted in the over-the-counter market on the OTC Pink. Quotation of our ADSs on the OTC Pink may limit the liquidity and price of our ADSs more than if our ADSs were listed and traded on a national securities exchange. Trading in securities quoted in the OTC Pink is often thin, volatile, and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our operations or business prospects. Some investors may perceive our ADSs to be less attractive because they are traded on the OTC Pink. We may not have the analyst coverage that accompanies companies listed on national securities exchanges. Furthermore, institutional and other investors may have investment guidelines that restrict or prohibit investing in securities quoted on the OTC Pink. These factors may have an adverse effect on the trading, liquidity, and price of our ADSs, and holders of ADSs may have difficulty selling their securities.

 

Following the 2018 Reorganization, the primary market for our shares of common stock is now the Santiago Stock Exchange. However, our shares may be unable to meet the criteria for continued listing on the Chilean stock exchanges, and our common stock could be delisted from these exchanges. Our common stock may also lose the “sufficient stock market liquidity” (presencia bursátil) status on the Chilean stock exchanges, which would result in loss of a capital gains tax exemption for certain holders of our shares under Chilean law.

 

All these factors relating to low stock trading liquidity and a small minority shareholder base may adversely affect the price of our securities.

 

Lawsuits against us brought outside of Chile, or complaints against us based on foreign legal concepts may be unsuccessful.

All our operations are located outside of the United States. All our directors and officers reside outside of the United States, and substantially all their assets are located outside the United States. If any investor were to bring a lawsuit against our directors and officers in the United States, it may be difficult for them to effect service of legal process within the United States upon these persons or to enforce judgments obtained in the U.S. courts based on civil liability provisions of U.S. federal securities laws against them in U.S. or Chilean courts. There is also doubt as to whether an action could be brought successfully in Chile for liability based solely on the civil liability provisions of U.S. federal securities laws.

 

Interruption in or failure of our information technology, control, and communications systems or cyberattacks to or cybersecurity breaches of these systems could have a material adverse effect on our business, results of operations, and financial condition.

We operate in an industry that requires the continued operation of sophisticated information technology, control, and communications systems (“IT Systems”) and network infrastructure. We use our IT Systems and infrastructure to create,

22

collect, use, disclose, store, dispose of, and otherwise process sensitive information, including company and customer data and personal information regarding customers, employees and their dependents, contractors, shareholders, and other individuals. In our generation business, IT Systems are critical to controlling and monitoring our power plants’ operations, maintaining generation and network performance, generating invoices to bill customers, achieving operating efficiencies, and meeting our service targets and standards. The operation of our generation system is dependent not only on the physical interconnection of our facilities with the electricity network infrastructure but also on communications among the various parties connected to the network. The reliance on IT Systems to manage information and communication among and between those parties has increased significantly since the deployment of intelligent grids in Chile.

 

Our generation facilities, IT Systems, and other infrastructure, as well as the information processed in our IT Systems, could be affected by cybersecurity incidents, including those caused by human error. Our industry has begun to see an increased volume and sophistication of cybersecurity incidents from international activist organizations, nation states, and individuals, and are among the emerging risks identified in our planning process. Cybersecurity incidents could harm our business by limiting our generation capabilities, delaying our development and construction of new facilities or capital improvement projects to existing facilities, disrupting our customer operations, or exposing us to liability. Our business systems are part of an interconnected system. Therefore, a disruption caused by the impact of a cybersecurity incident in the electric transmission grid, network infrastructure, fuel sources, or our third-party service providers’ operations could also unfavorably affect our business.

 

Our business requires the collection and retention of personally identifiable information of our customers, employees, and shareholders, who expect that we will adequately protect the privacy of such information. Cybersecurity breaches may expose us to a risk of loss or misuse of confidential and proprietary information. Significant theft, loss, or fraudulent use of personally identifiable information may lead to potentially large costs to notify and protect the impacted persons and could cause us to become subject to significant litigation, losses, liability, fines, or penalties, any of which could materially and adversely affect our results of operations and reputation with customers, shareholders, and regulators, among others. We may also be required to incur significant costs associated with governmental actions in response to such intrusions or to strengthen our information and electronic control systems.

 

The cybersecurity threat is dynamic and evolving, and is increasing in sophistication, magnitude, and frequency. We may not be able to implement adequate preventive measures or accurately assess the likelihood of a cybersecurity incident. We are unable to quantify the potential impact of cybersecurity incidents on our business and reputation. These potential cybersecurity incidents and corresponding regulatory action could result in a material decrease in revenues and high additional costs, including penalties, third party claims, repair costs, increased insurance expense, litigation costs, notification and remediation costs, security costs, and compliance costs.

Item 4.   Information on the Company

A.    History and Development of the Company.

We are a publicly held limited liability stock corporation organized initially on December 1, 1943, under the laws of the Republic of Chile. Since 1943, we have been registered with the CMF in Santiago under Registration No. 0114. We have also been registered with the SEC under the commission file number 001-13240 since 1994. Our full name is Enel Generación Chile S.A. and we are also known commercially as “Enel Generación Chile” or “Enel Generación.” Our shares are listed and traded on the Chilean Stock Exchanges under the trading symbol “ENELGXCH,” and our ADSs were listed and traded on the NYSE until December 28, 2018. Following the 2018 Reorganization (described below), Enel Chile owns 93.6% of our shares of common stock and ADSs comprised 0.3% of the total outstanding shares of common stock as of December 31, 2019. We determined that the costs associated with continuing the listing of our ADSs on the NYSE exceeded the benefits received by us, as our primary market for the shares is now the Santiago Stock Exchange. As a result, we applied for voluntary delisting from the NYSE as part of our effort to reduce operational expenses.

 

23

Our contact information in Chile is:

 

 

 

 

Contact Person:

 

Nicolás Billikopf

Street Address:

 

Av. Santa Rosa 76 piso 15

Comuna de Santiago

Santiago, Chile

Email:

 

nicolas.billikopf@enel.com

Telephone:

 

(56-9) 9343 5500

Website:

 

www.enel.cl, www.enelgeneracion.cl

 

The information contained on or linked from our website is not included as part of, or incorporated by reference into, this Report. The SEC maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, such as our company, at http://www.sec.gov.

 

We are an electric utility company engaged, directly and through our subsidiaries and affiliates, in the generation businesses in Chile. As of December 31, 2019, we had 6,114 MW of installed capacity, with 28 generation facilities and a total of 110 generation units. Of our total installed capacity, 57% consists of hydroelectric power plants and includes, among others, Ralco with 689 MW, Pehuenche with 568 MW, El Toro with 449 MW, Rapel with 376 MW, and Antuco with 319 MW. Approximately 82% of our thermoelectric installed capacity is gas/fuel oil power plants (2,104 MW), and the remaining is coal-fired steam power plants (474 MW). As of December 31, 2019, we had consolidated assets amounting to Ch$ 3,587 billion and operating revenues of Ch$ 1,638 billion.

 

The Chilean government owned Enel Generation from our incorporation in 1943 until 1987, when a privatization process through a series of public offerings commenced. The privatization process was completed in 1989.

 

In June 2019, Enel Generation and its subsidiary GasAtacama Chile (now merged with and into Enel Generation), signed an agreement with the Ministry of Energy that complements our sustainability strategy and strategic plan and defines how to proceed with the progressive closure of our coal-fired power plants Tarapacá, Bocamina I and Bocamina II, which have a gross installed capacity of 158 MW, 128MW and 350 MW, respectively.

 

The agreement is subject to the condition that the Power Transfer Regulation be fully implemented. The regulation defines the Strategic Reserve State and establishes, among others, the essential conditions that ensure non-discriminatory treatment between generation companies. Under the agreement, we are formally and irrevocably obligated to close Bocamina I and Tarapacá, respectively. The deadline for closing Tarapacá is May 31, 2020; however, the Company closed the plant in December 2019 upon receiving authorization from the National Energy Commission (“CNE” in its Spanish acronym) to move up the date of the closure of Tarapacá to December 31, 2019. As per the agreement, the deadline for closing Bocamina I is December 31, 2023. Concerning Bocamina II, the deadline for its closure is December 31, 2040, but we expect to close the plant before the deadline to help meet our decarbonization goals. These steps are subject to the authorization established in the General Law of Electrical Services.

 

The 2018 Reorganization

 

On August 25, 2017, Enel Chile proposed a corporate reorganization (the “2018 Reorganization”) to consolidate Enel’s conventional and non-conventional renewable energy (“NCRE”) businesses in Chile under one company, Enel Chile, which became Enel’s only vehicle to invest in Chile. The 2018 Reorganization involved the following transactions:

 

·

a cash tender offer by Enel Chile for all outstanding shares of our common stock, including ADS. The tender offer was subject to the condition that the tendering holders of Enel Generation shares and ADSs use Ch$236 of the Ch$590 tender offer consideration for each Enel Generation share and Ch$7,080 of the Ch$17,700 tender offer consideration for each Enel Generation ADS to subscribe shares of our common stock at a subscription price of Ch$82 per Enel Chile share (or Ch$2,460 per Enel Chile ADS) (the “Enel Chile U.S. Share/ADS Subscription Condition”);

24

·

a capital increase to make available a sufficient number of shares of common stock of Enel Chile to deliver to tendering holders of Enel Generation shares and ADSs to satisfy all conditions precedent; and

·

a merger in which Enel Green Power Latin América S.A. (“EGPL”) merged into Enel Chile. EGPL was a closely held stock corporation organized under the laws of the Republic of Chile. Before the 2018 Reorganization, EGPL was a member of the Enel Green Power group of companies. Enel Green Power is a transnational company dedicated to electricity generation with renewable resources, which in turn is controlled by Enel. EGPL was a renewable energy generation holding company engaged in the electricity generation business in Chile through its wholly owned subsidiary Enel Green Power Chile Ltda. (“EGP Chile”).

 

The respective shareholders of Enel Chile, Enel Generation, and EGPL approved the different steps of the 2018 Reorganization at their extraordinary shareholders’ meetings held on December 20, 2017. The tender offer occurred between February 16, 2018, and March 22, 2018, the preemptive rights offering in connection with the capital increase took place between February 15, 2018, and March 16, 2018, and the 2018 Reorganization was completed and effective on April 2, 2018.

 

As a result of the 2018 Reorganization, Enel Chile remains our major shareholder. Currently, Enel Chile consolidates the Chilean electricity generation business under us, the Chilean electricity distribution business under Enel Distribution and the Chilean NCRE generation business under EGP Chile. Enel remains as the majority shareholder of Enel Chile, owning 61.9% of the company as of December 31, 2019, and, through its majority ownership of Enel Chile, also remains our majority owner and ultimate parent company.  Enel has announced its intention to purchase an additional equity interest of up to 3% stake of Enel Chile during 2020.

 

During the last few years, our business strategy has focused on increasing our shareholdings in subsidiaries, selling certain non-strategic assets, and reducing the number of companies by simplifying our corporate structure, mainly through mergers.

 

We have conducted the following sales of non-core assets over the past few years:

 

On September 14, 2016, we sold our 20% equity interest in GNL Quintero S.A. (“GNL Quintero”), to Enagás Chile S.p.A. We obtained a 20% interest in GNL Quintero in 2007 as part of a consortium we formed with ENAP, Metrogas and British Gas to build an LNG regasification facility in Quintero Bay. Partial commercial operations of the facility began in September 2009 and full commercial operations started on January 1, 2011.

 

On December 16, 2016, we sold our 42.5% equity interest in Electrogas S.A. (“Electrogas”). Electrogas was dedicated to the transportation of natural gas and other fuels and serves our San Isidro and Quintero power plants, among others. We received the proceeds of this sale, amounting to US$ 180 million (Ch$ 115 billion at that time) on February 7, 2017.

 

To simplify our corporate structure, we have continued to reduce the number of our companies over the last several years:

 

·

During 2016, Inversiones GasAtacama Holding Ltda. merged into Celta, which in turn merged into GasAtacama, the surviving company, on November 1, 2016. Celta was our investment vehicle through which we owned the San Isidro thermal power plants, the Pangue hydroelectric power plant, and the Tarapacá thermal generation facility, in addition to our interest in Central Eólica Canela S.A, which owns the Canela wind farms.

 

·

On November 9, 2017, GasAtacama purchased the remaining 25% minority interest in Central Eólica Canela S.A., which was later dissolved on December 22, 2017. Our economic interest in GasAtacama was 97.4% as of December 31, 2018.

 

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·

In September 2019, we completed the intercompany acquisition of the 2.6% stake that Enel Chile owned in GasAtacama. On October 1, 2019, GasAtacama vertically merged into us as a wholly owned subsidiary. This operation reorganized and simplified the corporate structure of the entities that comprised the GasAtacama Group, all being our subsidiaries, to achieve corporate and operational efficiencies for the Company. This merger did not have a significant economic or financial effect on our results and financial situation due to our high ownership in GasAtacama before the merger.

 

Capital Investments, Capital Expenditures and Divestitures

 

We coordinate our overall financing strategy, including the terms and conditions of loans and intercompany advances entered into by our subsidiaries to optimize debt and liquidity management. Generally, our operating subsidiaries independently plan capital expenditures financed by internally generated funds or direct financings. Although we have considered how these investments will be financed as part of our budget process, we have not committed to any particular financing structure, and investments will depend on the prevailing market conditions at the time the cash flows are needed.

 

Our investment plan is flexible enough to adapt to changing circumstances by giving different priorities to each project considering profitability and strategic fit, which includes sustainability considerations. We are currently focused on developing additional hydroelectric and thermal capacity to guarantee adequate levels of reliable supply while remaining attentive to the environment.

 

For the 2020-2022 period, we expect to make capital expenditures of Ch$ 225 billion, related to investments currently in progress, maintenance of generation plants and in studies required to develop other potential generation projects. For further detail regarding these projects, please see “Item 4. Information on the Company — D. Property, Plant and Equipment — Projects Under Development.”

 

The table below sets forth the expected capital expenditures for the 2020-2022 period and the capital expenditures incurred in 2019, 2018, and 2017:

 

 

 

 

 

 

 

 

 

 

 

    

Estimated
2020-2022

    

2019

    

2018

    

2017

 

 

(in millions of Ch$)

Capital Expenditure(1)

 

 225,196

 

 202,745

 

 222,327

 

 206,776


(1)

Capital Expenditure amounts listed in this table represent cash flow used for purchases of property, plant and equipment and intangible assets for each year, except for future projections.

While our planned investments go beyond the three years highlighted in this table, we are reporting three years to be aligned with Enel’s three-year industrial plan disclosed in December 2019. For further information, please refer to “Item 4. Information on the Company — D. Property, Plant and Equipment — Project Investments” and “Item 5. Operating and Financial Review and Prospects — F. Tabular Disclosure of Contractual Obligations.”

 

 

Capital Expenditures in 2019, 2018, and 2017

 

Our capital expenditures in the last three years were principally related to the optimization of the 350 MW Bocamina II power plant, improvements to the Tarapacá coal-fired power plant, the construction of the 150 MW Los Cóndores power plant, and maintenance of our current power plants. Investments related to the Bocamina II and Tarapacá power plants focused on making improvements to reduce environmental impact.  These improvements were the consequence of environmental injunctions in the case of Bocamina II and new environmental regulations in the case of Tarapacá. We completed the upgrades to Bocamina II in 2018 and Tarapacá in 2017. We subsequently decided to shut down our coal‑fired Tarapacá plant in December 2019, in anticipation of the deadline for its closure under our decarbonization plan with the Ministry of Energy.

 

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Material plans in progress include the Los Cóndores project, which began construction in 2014 with completion expected during 2021. For further detail of the Los Cóndores project, please see “Item 4. Information on the Company — D. Property, Plant, and Equipment. — Projects Under Construction.”

 

We reserve a portion of our capital expenditures for maintenance and the assurance of quality and operational standards of our facilities. Projects in progress will be financed with resources provided by external financing as well as internally generated funds.

 

 

B.Business Overview.

 

We are a publicly held limited liability stock corporation that operates in Chile. Our core business is electricity generation. We also participate in other activities but that are not core businesses and represent less than 1% of our 2019 revenues. We do not report them as separate business segment in this Report nor in our consolidated financial statements.

 

The table below presents our revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

Change

 

Revenues

    

2019

    

2018

    

2017

    

2019 vs. 2018

 

 

 

(in millions of Ch$)

 

(in %)

 

Generation

 

 1,638,374

 

 1,521,054

 

 1,634,937

 

 7.7

 

Other businesses and intercompany transaction adjustments

 

 —

 

 —

 

 —

 

 —

 

Total revenues

 

 1,638,374

 

 1,521,054

 

 1,634,937

 

 7.7

 

 

For further financial information related to our revenues, see “Item 5. Operating and Financial Review and Prospects — A. Operating Results” and Note 26 of the Notes to our consolidated financial statements.

 

We are a generation company in the SEN, representing 31% of the electricity market share in 2019.

 

As of December 31, 2019, we accounted for 24.9% of SEN’s total generation capacity, measured by the installed capacity, according to figures published by the National Electricity Coordinator (“CEN” in its Spanish acronym). Hydroelectric, thermal and wind power represent 57%, 42% and 1% of our total installed capacity in Chile, respectively.

 

For additional detail on our historical capacity, see “Item 4. Information on the Company — D. Property, Plant and Equipment.”

 

The following tables summarize the information relating to our capacity, electricity generation and energy sales:

 

ELECTRICITY DATA

 

 

 

 

 

 

 

 

 

Year ended December 31, 

 

    

2019

    

2018

    

2017

Number of generating units