F-1 1 y78797fv1.htm FORM F-1 fv1
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As filed with the Securities and Exchange Commission on August 18, 2009
Registration No. 333-      
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
AEI
(Exact name of Registrant as specified in its charter)
 
         
Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  4931
(Primary Standard Industrial
Classification Code Number)
  98-0405613
(I.R.S. Employer
Identification Number)
AEI
Clifton House
75 Fort Street
P.O. Box 190GT
George Town, Grand Cayman
Cayman Islands
(345) 949-4900
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
AEI Services LLC
700 Milam, Suite 700
Houston, TX 77002
Attn: General Counsel
(713) 345-5200
(Name, address, including zip code, and telephone number, including area code, of agent for service)
Copies to:
 
     
G. David Brinton
Jonathan Zonis
Clifford Chance US LLP
31 West 52nd
Street
New York, New York 10019
(212) 878-8000
  Robert B. Williams
Milbank, Tweed, Hadley & McCloy LLP
1 Chase Manhattan Plaza
New York, New York 10005
(212) 530-5000
 
Approximate date of commencement of proposed sale to the public:  As soon as practicable after the effective date of this registration statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o
 
CALCULATION OF REGISTRATION FEE
 
         
    Proposed
   
    Maximum
   
    Aggregate
  Amount of
Title of Each Class of Securities to be Registered        Offering Price(1)(2)   Registration Fee
 
Ordinary shares $0.002 par value
  $862,500,000   $48,127.50
 
(1) Includes offering price of shares which the underwriters have the option to purchase.
(2) Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) of the Securities Act of 1933, as amended.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
SUBJECT TO COMPLETION, DATED AUGUST 18, 2009
 
              Ordinary Shares
 
(COMPANY LOGO)
 
 
This is an initial public offering of the ordinary shares of AEI. We are offering          ordinary shares, and the selling shareholders are offering           ordinary shares. We will not receive any of the proceeds from the ordinary shares sold by the selling shareholders.
 
Prior to this offering, there has been no public market for our ordinary shares. The initial public offering price of the ordinary shares is expected to be between $      and $      per share. We intend to apply to list our ordinary shares on the New York Stock Exchange under the symbol “AEI.”
 
Our ordinary shares are registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as amended, pursuant to a registration statement on Form 20-F which became effective on March 31, 2009.
 
The underwriters have the option to purchase up to an additional     shares from the selling shareholders at the initial public offering price less the underwriting discounts and commissions.
 
Investing in our ordinary shares involves risks. See “Risk Factors” on page 11.
 
                                 
          Underwriting
          Proceeds to
 
          Discounts and
    Proceeds to
    Selling
 
    Price to Public    
Commissions
    Issuer     Shareholders  
 
Per Share
  $                             $                           
Total
  $               $          
 
Delivery of the ordinary shares will be made on or about          , 2009.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
 
                         Joint Global Coordinators    Joint Bookrunners             
 
Goldman, Sachs & Co.     Credit Suisse Citi J.P. Morgan
 
 
The date of this prospectus is          , 2009


 

 
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 EX-23.1
 
 
 
 
You should rely only on the information contained in this document or to which we have referred you. We have not authorized anyone to provide you with information that is different. This document may only be used where it is legal to sell these securities. The information in this document may only be accurate on the date of this document.
 
 
 
 
The distribution of this prospectus and the offering and sale of the ordinary shares in certain jurisdictions may be restricted by law. We and the underwriters require persons into whose possession this prospectus comes to inform themselves about and to observe any such restrictions. This prospectus does not constitute an offer of, or an invitation to purchase, any of the ordinary shares in any jurisdiction in which such offer or invitation would be unlawful.


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PROSPECTUS SUMMARY
 
This summary highlights selected information about us and our ordinary shares that we and the selling shareholders are offering. Before investing in the ordinary shares, you should read this entire prospectus carefully for a more complete understanding of our business and this offering, including our audited consolidated financial statements and the related notes, and the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus. In this prospectus, the terms “AEI,” “we,” “us,” “our” and “our company” means AEI and its subsidiaries, unless otherwise indicated. Capitalized terms are defined in the “Glossary of Defined Terms” and technical terms are defined in the “Glossary of Technical Terms” included elsewhere in this prospectus.
 
Our Business
 
We own and operate essential energy infrastructure assets in emerging markets. We operate in 19 countries in Latin America, Central and Eastern Europe and Asia in Power Distribution, Power Generation, Natural Gas Transportation and Services, Natural Gas Distribution and Retail Fuel. We operate or have joint control of more than 50 businesses and have investments in more than ten others. As of June 30, 2009, our businesses included approximately:
 
  •        4.9 million electric power customers;
 
  •        2.4 million natural gas customers;
 
  •        119,985 miles of power distribution and transmission lines;
 
  •        2,181 MW of electric power generation capacity;
 
  •        4,834 miles of natural gas and gas liquids transportation pipelines;
 
  •        20,933 miles of natural gas distribution pipeline networks; and
 
  •        1,826 owned and affiliated gasoline and compressed natural gas, or CNG, service stations.
 
We exclusively focus on emerging markets because they have higher rates of GDP growth as well as low base levels of per capita energy consumption compared to developed economies. We believe that growth in our markets will drive increases in overall and per capita energy consumption and require significant additional investments in energy infrastructure assets creating investment opportunities with attractive rates of return.
 
For the year ended December 31, 2008, we generated consolidated operating income of $813 million, net income attributable to AEI of $158 million and Adjusted EBITDA of $1,044 million. For the six months ended June 30, 2009, we generated consolidated operating income of $413 million, net income attributable to AEI of $168 million and Adjusted EBITDA of $552 million. The following 2008 Adjusted EBITDA charts by country and by segment are based on our 2008 audited financial statements, included elsewhere in this prospectus.
 
     
(PIE CHART)   (PIE CHART)
 
 
(1) As a percentage of 2008 Adjusted EBITDA excluding Headquarters and Other. See “Non-GAAP Financial Measures” for the definition of Adjusted EBITDA and “Selected Financial Data” for the reconciliation of Adjusted EBITDA to GAAP measures.


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Our Power Distribution businesses distribute and sell electricity primarily to residential, industrial and commercial customers. This segment contributed 51% of our Adjusted EBITDA in 2008. Most of the businesses in this segment operate in a designated service area defined in a concession agreement. All of the concession agreements and/or associated regulations include tariffs that are periodically reviewed by regulators and are designed to provide for a pass-through to customers of the main non-controllable cost items (mainly power purchases and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return. As of June 30, 2009, this segment included approximately 119,985 miles of distribution and transmission lines, 4.9 million customers and 6,073 employees and in 2008 sold 24,116 GWh of electricity.
 
Our Power Generation businesses generate and sell wholesale capacity and energy primarily to power distribution businesses and other large off-takers. This segment contributed 6% of our Adjusted EBITDA in 2008. Most of the businesses in this segment sell substantially all of their generating capacity and energy under long-term power purchase agreements, or PPAs. Our PPAs generally are structured to minimize both our exposure to fluctuations in commodity fuel prices and are dollar denominated. As of June 30, 2009, this segment included approximately 2,181 MW of installed capacity and 828 employees, and in 2008 sold 9,147 GWh of electricity.
 
Our Natural Gas Transportation and Services businesses sell natural gas transportation capacity and related services to oil and gas producers, natural gas distribution companies and other large off-takers. This segment contributed 13% of our Adjusted EBITDA in 2008. Most of the businesses in this segment operate either through regulated concessions or long-term contracts that provide for recovery of reasonable operating and administrative costs, incentives to continue cost reductions and make needed capital investments and a regulated rate of return. As of June 30, 2009, this segment included approximately 4,834 miles of pipelines and 907 employees, and in 2008 had average throughput of 3,784 mmcfd.
 
Our Natural Gas Distribution businesses distribute and sell natural gas primarily to residential, industrial and commercial customers. This segment contributed 11% of our Adjusted EBITDA in 2008. Most of the businesses in this segment operate in a designated service area defined in a concession agreement. All of the concession agreements and/or associated regulations include tariffs that are periodically reviewed by regulators and are designed to provide for a pass-through to customers of the main non-controllable cost items (mainly natural gas purchases), recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return. Most of these concession agreements are structured to minimize our exposure to fluctuations in commodity prices. As of June 30, 2009, this segment included approximately 20,933 miles of pipeline, 2.4 million customers and 3,042 employees, and in 2008 had average throughput of 367 mmcfd.
 
Our Retail Fuel businesses distribute and sell liquid fuels and CNG primarily to wholesale and retail customers. This segment contributed 19% of our Adjusted EBITDA in 2008. In addition to owning, licensing and operating retail outlets, these businesses own fleets of bulk-fuel distribution vehicles. The businesses in this segment operate in a combination of regulated and unregulated markets. Retail fuel is a non-core business for us. As of June 30, 2009, this segment included approximately 1,826 gas stations and 3,875 employees, and in 2008 had average sales of approximately 4.5 million gallons per day of liquid fuels and 33 mmcfd of CNG.
 
Our Competitive Strengths
 
We believe that the following competitive strengths distinguish us from our competitors and are critical to the continued successful execution of our strategy.
 
Exclusive focus in emerging markets
 
We operate exclusively in emerging markets. We focus on these markets because they have greater growth in energy demand and related infrastructure requirements as compared to more developed economies. We believe that our proven track record as investors exclusively focused on these markets, together with our significant existing local operations, allows us to recognize opportunities, mitigate risks, and grow our business. This dedication of our capital to emerging markets on a long-term basis gives us credibility with a wide range of stakeholders, including governments, non-governmental organizations, regulators, customers and employees.


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Well positioned and diversified across multiple countries, regions and segments of the energy infrastructure industry
 
We are diversified across multiple countries, regions and segments of the energy infrastructure industry. We have an established and locally branded presence in our existing markets. As a result, we are positioned to benefit from the above-average growth of our markets, while at the same time, diversifying our risks. We also believe that our ability to identify and consider investments in multiple countries and segments continuously presents us with a robust set of investment opportunities irrespective of challenges that may occur in any one country or segment.
 
Stable and flexible financial profile to support growth
 
We generate the vast majority of our earnings from our regulated and contracted businesses. Most of these businesses benefit from mid- to long-term indexation to the U.S. dollar through foreign exchange and inflation adjustments and historically have generated stable cash flow. Our financial stability is further enhanced by geographic and segment diversification of our businesses. Well over half of our earnings are derived from countries with investment grade ratings. This stable operating profile is also enhanced by our moderate debt level. The combination of our stable cash flow and moderate debt level provides us with rapid and efficient access to capital when we identify compelling growth opportunities.
 
Demonstrated capability to grow in a disciplined manner
 
We have successfully demonstrated our ability to grow our company in a disciplined manner. For example, our diluted earnings per share increased from $0.42 in 2007 to $0.73 in 2008. For the first six months of 2009, our diluted earnings per share were $0.72. We have improved the operational and financial performance of our existing businesses, delivered organic growth from existing businesses, including the on-going build-out of our natural gas distribution business in China, Colombia and Peru, demonstrated an ability to integrate multiple acquisitions of new businesses and captured valuable brownfield and greenfield development opportunities.
 
Operational excellence
 
We are committed to the reliable, responsible, efficient and safe operations of our businesses with a disciplined focus on high operating, health, safety and environmental standards. We have a recognized record for operational excellence and many of our businesses are leaders in their markets, surpassing both local and U.S. standards and their contractual requirements. We had company-wide power distribution line losses of 7.9%, power plant reliability of 97.58%, natural gas pipeline reliability of 99.99% and natural gas processing reliability of 99.72% in 2008. Additionally, our Lost Time Incident Rate, or LTIR, for all our businesses was 0.30 in 2007 and 0.35 in 2008, well below the U.S. industry average of over 1.1 according to the U.S. Bureau of Labor Statistics. Our commitment to operational excellence is critical to achieving compliance with regulations and contracts and to maintaining credibility and generating trust with our key stakeholders, including governments, regulators, off-takers, employees and local communities. Our focus on operational excellence enhances our financial performance and is essential to the execution and sustainability of our strategy.
 
Experienced management team with strong local presence
 
Our management team, including the executives in each of the markets in which we operate, has extensive experience operating, developing and acquiring businesses in the energy industry, with an average of approximately 18 years of experience. We believe that this overall level of experience contributes to our ability to effectively manage existing businesses, identify and evaluate high quality growth opportunities and integrate new businesses that are acquired or developed. The management teams of our businesses consist primarily of local executives who have significant experience working in the local energy industry and with government regulators. We believe that the market specific experience of our local management provides us with visibility into the local regulatory, political and business environment that gives us a greater ability to manage risk and identify new opportunities.
 
Our Strategy
 
Our strategy is to own and operate essential energy infrastructure assets diversified across our existing lines of business in key emerging markets. We generally focus on businesses that are regulated and/or contracted that produce stable cash flows with strong local branding and management. We seek to grow our company by investing capital at attractive rates of return into organic expansion of existing businesses, acquisitions of new businesses or incremental interests in existing businesses and brownfield and greenfield development of new assets. We prefer investments that provide operational control or the ability to exert significant influence, or strategic non-control


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positions that offer the opportunity to gain control or significant influence over the investment in the future. We target opportunities that will reinforce our existing business lines or result in synergies with existing operations and seek to consolidate our significant presence in certain countries, build upon our early stage presence in other countries and enter key new countries. Since January 2007, we have deployed capital in excess of $1.5 billion in pursuit of acquisition and greenfield development opportunities.
 
In executing our strategy, we seek to:
 
  •        maximize the financial performance of our businesses;
 
  •        apply technical, environmental and health and safety best practices to maximize the operational performance of our businesses;
 
  •        develop and maintain strong relationships with local regulators, governments, employees and communities through active involvement in the regulatory process and the maintenance of open communication channels;
 
  •        maintain a flexible capital structure through moderate levels of debt which allows us to take advantage of growth opportunities and reinvest cash flow to enhance growth;
 
  •        leverage our strong management teams and their relationships and market knowledge to effectively manage our businesses and pursue growth opportunities; and
 
  •        integrate new businesses and share and employ best practices, both financial and operational, to maximize performance.
 
Our Markets
 
We currently operate in emerging markets in Latin America, Central and Eastern Europe and Asia. Growth in emerging markets, as measured by gross domestic product, or GDP, has consistently outpaced growth in developed markets in the last 15 years. Global Insight, a leading global source of economic information, expects this trend to continue predicting annual growth of 5.8% for countries which are not members of the Organization for Economic Cooperation and Development, or OECD, for the period 2010-2019 versus 2.3% for OECD countries over the same period. Emerging markets growth is primarily driven by industrialization and urbanization. The correlation between GDP growth and energy consumption such as electricity is high and we expect the growth in emerging markets to drive energy consumption and the associated infrastructure needs. Moreover, the low base consumption level of energy in emerging markets as compared to developed markets provides for more growth potential in emerging markets and will continue to drive overall energy and infrastructure demand. According to the CIA World Factbook, U.S. electricity consumption per capita is currently more than four times Chile’s, more than five times China’s, more than five times Brazil’s, more than 14 times Colombia’s and more than 15 times Peru’s. Natural gas consumption growth in non-OECD countries is also expected to be stronger than that of OECD countries (46% vs. 16% growth from 2006 to 2020) according to the Energy Information Administration’s 2009 International Energy Outlook. We believe this increased consumption growth is primarily driven by increased gas penetration in these countries. Due to the constraints on many of the governments in emerging markets and limitations on their ability to complete large-scale projects in a timely, cost-effective manner, we believe that a significant portion of this new investment capital will need to be provided by private, non-governmental entities. This expected growth provides us with a significant opportunity to further expand and diversify our existing energy infrastructure assets and to grow through new brownfield and greenfield development opportunities.
 
Summary Risk Factors
 
You should carefully consider the matters described under “Risk Factors,” including that our business, results of operations and financial condition are related to and may be adversely affected by weaknesses in the general economy, the overall macroeconomic and political environment, the energy sector or other conditions. One or more of these factors could negatively impact our results of operations and financial condition and our ability to implement our business strategy successfully.
 
Among the challenges and key risks we face in our businesses and in implementing our strategy are the following:
 
  •        our revenues are dependent on the efficient and safe operation of our assets;


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  •        our ability to increase our revenues is dependent upon economic growth in the markets where we operate and growth in our energy demand and in our customer base in particular;
 
  •        we are exposed to overall macroeconomic, political and regulatory risks, including the possibility of volatility in exchange rates and inflation, reduction in tariffs and nationalization of our assets;
 
  •        we are affected by trends in energy consumption and fluctuations in availability and cost of energy, fuel, labor, and supplies;
 
  •        our growth is dependent on the expansion of existing businesses, our ability to acquire and integrate new businesses and to develop greenfield projects; and
 
  •        we may not be able to raise sufficient capital to fund our growth strategy.
 
Our Segments and Businesses
 
The following summary table generally sets forth our subsidiaries and affiliates that operate as holding or primary operating companies by segment.(1)
 
         
        AEI Ownership % as of
Business   Country   June 30, 2009(2)
 
Power Distribution
       
Chilquinta
  Chile   50.00%
Delsur
  El Salvador   86.41%
EDEN(3)
  Argentina   90.00%
Elektra
  Panama   51.00%
Elektro
  Brazil   99.68%
EMDERSA(4)
  Argentina   19.91%
Luz del Sur
  Peru   37.97%
Power Generation
       
Amayo
  Nicaragua   12.72%
Corinto
  Nicaragua   57.67%
DCL
  Pakistan   60.22%
ENS
  Poland   100.00%
EPE(5)
  Brazil   50.00%
Emgasud(6)
  Argentina   37.00%
Fenix(7)
  Peru   85.00%
Jaguar(8)
  Guatemala   100.00%
JPPC
  Jamaica   84.42%
Luoyang
  China   50.00%
PQP
  Guatemala   100.00%
San Felipe
  Dominican Republic   100.00%
Trakya
  Turkey   59.00%
Tipitapa
  Nicaragua   57.67%
Natural Gas Transportation and Services
       
Accroven
  Venezuela   49.25%
Centragas(9)
  Colombia   13.03%
Emgasud(6)
  Argentina   37.00%
GBS(9)
  Colombia   49.37%
GOB(5)
  Bolivia   50.00%
GOM(5)
  Brazil   50.00%
GTB
  Bolivia   17.65%
Promigas Pipeline(9)
  Colombia   52.13%
PSI(9)
  Colombia   50.46%
TBG
  Brazil   4.21%
TBS(5)
  Brazil   50.00%
Transmetano(9)
  Colombia   50.34%
Transoccidente(9)
  Colombia   35.96%
Transoriente(9)
  Colombia   13.73%


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        AEI Ownership % as of
Business   Country   June 30, 2009(2)
 
Natural Gas Distribution
       
BMG
  China   70.00%
6 businesses in Hunan Province
       
3 businesses in Qinghai Province
       
3 businesses in Zhenjiang Province
       
1 business in Jiangxi Province
       
1 business in Liaoning Province
       
1 business in Heibei Province
       
1 business in Jilin Province
       
Cálidda
  Peru   80.85%
Emgasud(6)
  Argentina   37.00%
Gases de Occidente(9)
  Colombia   46.97%
Gases del Caribe(9)
  Colombia   16.16%
Surtigas(9)
  Colombia   52.08%
Tongda
  China   100.00%
5 businesses in Jiangsu Province
       
3 businesses in Zhejiang Province
       
2 businesses in Jiangxi Province
       
2 businesses in Shandong Province
       
2 businesses in Guangdong Province
       
Retail Fuel
       
SIE(9)(10)
  Colombia, Ecuador, Panama, Chile, Mexico, Peru   24.96%
 
 
(1) The foregoing table does not include investments in companies we do not consider material, including in companies that do not operate in one of our reporting segments.
(2) Represents AEI’s net interest via direct and indirect ownerships.
(3) We acquired our 90.00% interest in EDEN in 2007. The transaction remains subject to local anti-trust approval.
(4) EMDERSA is the holding company of the power distribution companies EDESAL, EDELAR and EDESA.
(5) Part of the Cuiabá Integrated Project.
(6) Emgasud is the holding company for five Power Generation businesses, one Natural Gas Transportation and Services and one Natural Gas Distribution business. The acquisition of special minority rights under Emgasud’s shareholder’s agreement remains subject to local anti-trust approval.
(7) Fenix is the holding company for our power generation development project in Peru. As of the date hereof, construction on this project has not commenced.
(8) Jaguar is the holding company for our power generation development in Guatemala. As of the date hereof, construction on this project has not commenced.
(9) Interest is held through Promigas.
(10) SIE operates two lines of business under the brand names Terpel and Gazel.
 
Our Significant Shareholders
 
As of June 30, 2009, funds that have, directly or indirectly, appointed Ashmore Investment Management Limited, or Ashmore, as their investment manager owned approximately 55% of our ordinary shares, GIC owned approximately 23% and funds managed by Eton Park Capital Management, LP, or Eton Park, owned approximately 6%. Ashmore is one of the world’s leading emerging market investment managers. Ashmore Group plc, the parent company of Ashmore, listed on the London Stock Exchange in October 2006. Based in London, Ashmore was founded by members of its team in 1992 as part of the Australia and New Zealand Banking Group. In 1999, the firm became independent with majority ownership by its employees. As of June 30, 2009, Ashmore managed over $24.9 billion in pooled funds, segregated accounts and structured products. GIC is the private equity investment arm of Government of Singapore Investment Corporation (Ventures) Pte Ltd., a global investment management company established in 1981 to manage Singapore’s foreign reserves. Eton Park is a global, multi-strategy investment firm with offices in New York, London and Hong Kong.
 
Our Corporate Information
 
We were incorporated in the Cayman Islands in June 2003. Our registered offices are located at Clifton House, 75 Fort Street, P.O. Box 190GT, George Town, Grand Cayman, Cayman Islands and our telephone number is 345-949-4900. The principal executive offices of our wholly owned affiliate AEI Services LLC, which provides management services to us, are located at 700 Milam, Suite 700, Houston, TX 77002, and its telephone number is 713-345-5200. Our website is www.aeienergy.com. Information contained on, or accessible through, our website is not incorporated by reference in, and shall not be considered part of, this prospectus and shall not be relied upon in determining whether to invest in our ordinary shares.

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THE OFFERING
 
The following is a brief summary of the terms of this offering. For a more complete description of our ordinary shares, see “Description of Share Capital” in this prospectus.
 
Issuer AEI
 
Selling Shareholders Some of our shareholders, who may include affiliates of the underwriters, may sell shares in this offering. The selling shareholders will be identified prior to this offering. See “Underwriting” and “Principal and Selling Shareholders.”
 
Primary Offering We are offering           ordinary shares.
 
Secondary Offering The selling shareholders are offering           ordinary shares.
 
Offering Price $      per share.
 
Option to Purchase Additional Ordinary Shares The underwriters have the right to purchase from the selling shareholders an additional           ordinary shares within 30 days from the date of this prospectus.
 
Use of Proceeds We estimate that the net proceeds to us in this offering (based on the midpoint of the range set forth on the cover page of this prospectus), after deducting the underwriters’ discounts and commissions and estimated expenses incurred in connection with this offering, will be $      million.
 
We intend to use the net proceeds from this offering for general corporate purposes. See “Use of Proceeds” and “Underwriting.”
 
We will not receive any proceeds from the sale of our ordinary shares by the selling shareholders or from the exercise of the underwriters’ option to purchase additional ordinary shares.
 
Share Capital Before and After Offering
Our issued and outstanding share capital consists of 234,219,996 ordinary shares as of the date of this prospectus. Immediately after the offering, we will have           ordinary shares issued and outstanding.
 
Voting Rights Holders of our ordinary shares are entitled to one vote per ordinary share in all shareholders’ meetings. See “Description of Share Capital — Voting Rights.”
 
Dividends We currently have no plans to pay dividends following the completion of this offering because we expect to retain our earnings for use in the development and expansion of our business. See “Dividend Policy.”
 
Lock-up Agreements We have agreed with the underwriters, subject to certain exceptions, not to sell or dispose of any ordinary shares or securities convertible into or exchangeable or exercisable for any ordinary shares during the period commencing on the date of this prospectus until 180 days after the completion of this offering. Our selling shareholders, members of our board of directors, our executive officers and certain non-selling shareholders have agreed to substantially similar lock-up provisions, subject to certain exceptions. See “Underwriting.”
 
Proposed New York Stock Exchange Symbol
AEI
 
Unless otherwise indicated, all information contained in this prospectus assumes no exercise of the over-allotment option granted to the underwriters.


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SUMMARY HISTORICAL FINANCIAL DATA
 
The following table presents summary financial data for the periods indicated below. We have derived the historical earnings and cash flow data for the years ended December 31, 2006, 2007 and 2008, and the summary historical balance sheet data as of December 31, 2007 and 2008, from our audited consolidated financial statements included elsewhere in this prospectus. The summary historical balance sheet data as of December 31, 2006 has been derived from our audited balance sheet as of December 31, 2006 which is not included in this prospectus. The summary historical data as of and for the six months ended June 30, 2008 and 2009 are derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected for any future period.
 
The summary consolidated financial data for the periods and as of the dates indicated should be read in conjunction with “Use of Proceeds,” “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, located elsewhere in this prospectus.
 
                                         
    For the Year
    For the Year
    For the Year
    For the
    For the
 
    Ended
    Ended
    Ended
    Six Months
    Six Months
 
    December 31,     December 31,     December 31,     Ended June 30,     Ended June 30,  
    2006(1)     2007     2008     2008     2009  
                      (Unaudited)  
    (In millions of $)  
 
Statement of Operations Data:
                                       
Revenues
  $        946     $        3,216     $        9,211     $        4,604     $        3,703  
Cost of sales
    566       1,796       7,347       3,642       2,816  
Operations, maintenance, general and administrative expenses
    193       630       894       449       364  
Depreciation and amortization
    59       217       268       132       129  
Taxes other than income
    7       43       43       26       21  
Other charges
          50       56              
(Gain) loss on disposition of assets
    7       (21 )     (93 )     (53 )     10  
Equity income from unconsolidated affiliates
    37       76       117       68       50  
                                         
Operating income
    151       577       813       476       413  
Interest income
    71       110       88       41       35  
Interest expense
    (138 )     (306 )     (378 )     (193 )     (159 )
Foreign currency transaction gain (loss), net
    (5 )     19       (56 )     23       6  
Gain (loss) on early retirement of debt
          (33 )                 3  
Other income (expense) — net
    7       (22 )     9       2       50  
                                         
Income before income taxes
    86       345       476       349       348  
Provision for income taxes
    (84 )     (193 )     (194 )     (119 )     (127 )
                                         
Income from continuing operations
    2       152       282       230       221  
Income from discontinued operations, net of tax
    7       3                    
Gain from disposal of discontinued operations
          41                    
                                         
Net income
    9       196       282       230       221  
Less: Net income-noncontrolling interests
    (20 )     (65 )     (124 )     (124 )     (53 )
                                         
Net income (loss) attributable to AEI shareholders
  $ (11 )   $ 131     $ 158     $ 106       168  
                                         
Cash Flow Data:
                                       
Net cash flows provided by (used in):
                                       
Operating activities
  $ 155     $ 686     $ 508     $ 172     $ 296  
Investing activities
    (1,729 )     (1,151 )     (414 )     (275 )     (104 )
Financing activities
    2,395       88       173       90       (412 )
Capital expenditures
    (76 )     (249 )     (372 )     (140 )     (166 )
Other Financial Data:
                                       
Adjusted EBITDA(2)
    217       823       1,044       555       552  
 


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    As of
    As of
    As of
    As of
 
    December 31,
    December 31,
    December 31,
    June 30,
 
    2006     2007     2008     2009  
          (In millions of $)        
 
Balance Sheet Data:
                               
Property, plant and equipment, net
  $ 2,307     $ 3,035     $ 3,524     $ 3,842  
Total assets
    6,134       7,853       8,953       9,309  
Long-term debt
    2,390       2,515       3,415       2,915  
Total debt
    2,677       3,264       3,962       3,549  
Net debt(2)
    1,591       2,525       3,094       2,912  
Total equity attributable to AEI
    1,441       1,858       1,830       2,437  
 
 
(1) Includes Elektra on a consolidated basis for the entire year and PEI on the equity method basis from May 25, 2006 to September 6, 2006 and on a consolidated basis from September 7, 2006 to December 31, 2006. See “History and Development.”
(2) See “Non-GAAP Financial Measures” and “Selected Consolidated Financial Data.”

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Presentation of Information
 
This prospectus is based on information provided by us and by third party sources that we believe are reliable. This prospectus summarizes certain documents and other information and we refer you to them for a more complete understanding of what we discuss in this prospectus.
 
This prospectus includes information regarding corporate and country ratings from ratings agencies. Ratings are not a recommendation to buy, sell or hold securities. Any rating can be revised upward or downward or withdrawn at any time by a rating agency if it decides that the circumstances warrant the change. Ratings reflect the views of the rating agencies only. An explanation of the significance of these ratings may be obtained from the rating agency.
 
In this prospectus, unless otherwise specified or if the context so requires references to:
 
  •        Argentine pesos” or “AR$” are to the lawful currency of Argentina;
 
  •        Brazilian real,” “Brazilian reais” or “R$” are to the lawful currency of Brazil;
 
  •        Chilean peso” are to the lawful currency of Chile;
 
  •        Chinese renminbi” or “CNY” are to the lawful currency of China;
 
  •        Colombian pesos” or “COP” are to the lawful currency of Colombia;
 
  •        Dominican pesos” or “DOP” are to the lawful currency of the Dominican Republic;
 
  •        Guatemalan quetzales” or “GTQ” are to the lawful currency of Guatemala;
 
  •        Pakistani rupees” or “PKR” are to the lawful currency of Pakistan;
 
  •        Panamanian balboas” are to the lawful currency of Panama;
 
  •        Peruvian nuevos soles” are to the lawful currency of Peru;
 
  •        Polish zlotys” or “PLN” are to the lawful currency of Poland;
 
  •        Turkish lira” or “TL” are to the lawful currency of Turkey;
 
  •        Dollars,” “U.S. dollars,” “$” or “U.S.$” are to the lawful currency of Ecuador, El Salvador, Panama and the United States; and
 
  •        Venezuelan bolívares” are to the lawful currency of Venezuela.
 
For additional defined terms, see “Glossary of Technical Terms” and “Glossary of Defined Terms,” included elsewhere in this prospectus.
 
Market Data and Forecasts
 
This prospectus also contains data related to the economic conditions and energy industry in the markets in which we operate. Unless otherwise indicated, information in this prospectus concerning economic conditions and the energy industry is based on publicly available information from third party sources which we believe to be reasonable. The economic conditions and/or energy industry in the markets in which we operate may deteriorate and not grow at the rates projected by market data, or at all. The deterioration of the economic conditions and/or the failure of the energy industry in the markets in which we operate to grow at the projected rates may have a material adverse effect on our business, results of operations, financial condition and the market price of our ordinary shares. In addition, the rapidly changing nature of the economic conditions and energy industry subjects any projections or estimates to significant uncertainties. You should not place undue reliance on these forward looking statements.


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RISK FACTORS
 
You should carefully consider each of the following risks and all of the information set forth in this prospectus before deciding to invest in our ordinary shares. Our business, results of operations, financial condition or prospects could be adversely affected if any of these risks actually occurs, and as a result, the market price of our ordinary shares could decline and you could lose all or part of your investment. The risks described below are those known to us and that we currently believe could materially affect us. Additional risks not currently known to us or that we currently believe are immaterial also may impair our business, results of operations and financial conditions.
 
Risks Associated with the Countries in which We Operate
 
Our businesses are in emerging markets. Our results of operations and financial condition are dependent upon economic conditions in those countries in which we operate, and any decline in economic conditions could harm our results of operations or financial condition.
 
All of our operations and/or development activities are in emerging markets. We expect that in the future we will have additional operations in these or other countries with similar political, economic and social conditions. We derive our revenue primarily from the sale, distribution and transportation of electricity, natural gas and liquid fuels. Energy demand is largely driven by economic conditions in the countries in which we operate. Many of these countries have a history of economic instability. Our results of operations and financial condition are to a large extent dependent upon the overall level of economic activity and political and social stability in these emerging markets. Should economic conditions deteriorate in these countries or in emerging markets generally, our results of operations and financial condition may be adversely affected.
 
Governments have a high degree of influence in the economies in which we operate. This influence could harm our result of operations or financial condition.
 
Governments in many of the markets in which we operate frequently intervene in the economy and occasionally make significant changes in monetary, credit, industry and other policies and regulations. Government actions to control inflation and other policies and regulations have often involved, among other measures, price controls, currency devaluations, capital controls and limits on imports. We have no control over, and cannot predict, what measures or policies governments may take in the future. The results of operations and financial condition of our businesses may be adversely affected by changes in governmental policy or regulations in the jurisdictions in which they operate that impact factors such as:
 
  •        consumption of electricity and natural gas;
 
  •        supply of electricity and natural gas;
 
  •        energy policy;
 
  •        subsidies and incentives;
 
  •        regulated returns and associated tariffs;
 
  •        labor laws;
 
  •        economic growth;
 
  •        currency fluctuations;
 
  •        inflation;
 
  •        exchange and capital control policies;
 
  •        interest rates;
 
  •        liquidity of domestic capital and lending markets;
 
  •        fiscal policy;


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  •        tax laws, including the effect of tax laws on distributions from our subsidiaries;
 
  •        import/export restrictions; and
 
  •        other political, social and economic developments in or affecting the country where each business is based.
 
Uncertainty over whether governments will implement changes in policy or regulation affecting these or other factors in the future may contribute to economic uncertainty and heightened volatility in the securities markets.
 
Due to populist political trends that have become more prevalent in Latin America over recent years, some of the administrations in countries where we operate might seek to promote efforts to increase government involvement in regulating economic activity, including the energy sector, which could result in the introduction of additional political factors in economic decisions. For example, as described later, Bolivia has nationalized natural gas and petroleum assets, and Venezuela has nationalized parts of its key infrastructure, including the hydrocarbon and electricity industries.
 
The uncertainty of the legal and regulatory environment in certain countries in which we operate, develop, or construct infrastructure assets may make it difficult for us to enforce our rights under agreements relating to our businesses.
 
Newly formed or evolving energy regulatory regimes create an environment of uncertainty with respect to the rules and processes that govern the operation of our businesses. In addition, policy changes resulting from changes in governments or political regimes cannot be predicted and could potentially impact our businesses in a negative way.
 
Although we may have legal recourse to enforce our rights under agreements to which we are a party and recover damages for breaches of those agreements, those legal proceedings would be costly and may not be successful or resolved in a timely manner, and if successful, may not be enforced. Areas in which we may be affected include:
 
  •        forced renegotiation or modification of concession, supply and sales agreements,
 
  •        termination of permits or concessions, and
 
  •        withdrawal or threatened withdrawal of countries from international arbitration conventions.
 
Currency exchange rate fluctuations relative to the U.S. dollar in the countries in which we operate our businesses may adversely impact our results of operations or financial condition or results of operations.
 
We operate exclusively outside the United States and our businesses may be impacted by significant fluctuations in foreign currency exchange rates. Our exposure to currency exchange rate fluctuations results from the translation exposure associated with the preparation of our consolidated financial statements, and from transaction exposure associated with generating revenues and incurring expenses in different currencies and devaluation of local currency revenues impairing the value of the investment in U.S. dollars. While our consolidated financial statements are reported in U.S. dollars, the financial statements of some of our subsidiaries are prepared using the local currency as the functional currency and translated into U.S. dollars by applying an exchange rate. Where possible, we match external indebtedness in the functional currency of the subsidiary. There may be instances where this is not possible or is uneconomical. Fluctuations in exchange rates and currency devaluations also affect our cash flow as cash distributions received from those of our subsidiaries operating in local currencies might be different from forecasted distributions due to the effect of exchange rate movements. Most countries in which we operate have currencies which have fluctuated significantly against the U.S. dollar in the past. Accordingly, changes in exchange rates relative to the U.S. dollar could have a material adverse effect on our results of operations and financial condition.
 
Future fluctuations in the value of the local currencies relative to the U.S. dollar in the countries in which we operate may occur, and if such fluctuations were to occur in one or a combination of the countries in which we


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operate, our results of operations or financial condition could be adversely affected. For additional information regarding currency fluctuations, see “Exchange Rates.”
 
Existing and new exchange rate controls and/or restrictions on transfers to foreign investors of proceeds from their investments and/or measures to control the proceeds that enter into the country would restrict or impair our ability to receive distributions from our subsidiaries or could affect our ability to access the international capital markets and adversely affect our results of operations or financial condition.
 
The governments of several countries in which we operate, such as Argentina, Brazil and China, have periodically implemented policies imposing restrictions on the remittance to foreign investors of proceeds from their investments and/or restricting the inflow of funds to such countries in order to control inflation, limit currency volatility and improve local economic conditions. Furthermore, restrictions on transfers of funds abroad can also impair the ability of our subsidiaries to access capital markets, prevent them from servicing debt obligations that are denominated in U.S. dollars or other non-local currencies and prevent them from paying dividends to us. If a significant number of our operating subsidiaries are unable to make distributions to us because of restrictions on the transfers of currencies, we may not have sufficient profits to declare dividends to our shareholders or liquidity to meet our operational and financial obligations.
 
We may be affected by terrorism, border conflict, or civil unrest in the countries in which we operate, which could affect our assets, our ability to operate and our personnel.
 
A number of the countries in which we operate are subject to internal or border conflicts or civil unrest, which could negatively affect our assets, our ability to operate and our personnel. In the past, we occasionally experienced attacks on our assets. No material loss has occurred as a result of any of the attacks or incidents. The possibility of an attack on infrastructure that will directly affect the operation of our businesses is an ongoing threat, the timing and impact of which cannot be predicted and which will likely continue for the foreseeable future. A terrorist act against our facilities in any country in which we operate could cause disruptions in our operations, and significant repair costs and delays.
 
Inflation in some of the countries in which we operate, along with governmental measures to combat inflation, may have a significant negative effect on the economies of those countries and, as a result, on our financial condition or results of operations.
 
In the past, high levels of inflation have adversely affected the economies and financial markets of some of the countries in which we operate and the ability of their governments to create conditions that stimulate or maintain economic growth.
 
Moreover, governmental measures to curb inflation and speculation about possible future governmental measures have contributed to the negative economic impact of inflation and have created general economic uncertainty. Our results of operations and financial condition have been affected from time to time to varying degrees by these conditions.
 
Future governmental economic measures, including interest rate increases, restrictions on tariff adjustments to offset inflation, intervention in foreign exchange markets and actions to adjust or fix currency values, may trigger or exacerbate increases in inflation, and consequently have an adverse impact on us. In an inflationary environment, the value of uncollected accounts receivable, as well as of unpaid accounts payable, declines rapidly. If the countries in which we operate experience high levels of inflation in the future and price controls are imposed, we may not be able to adjust the rates we charge our customers to fully offset the impact of inflation on our cost structures, which could adversely affect our results of operations or financial condition.
 
The Bolivian and Venezuelan governments have nationalized energy industry assets, and our remaining businesses in Bolivia and Venezuela may also be nationalized.
 
Bolivia has experienced political and economic instability that has resulted in significant changes in its general economic policies and regulations. On May 1, 2006, the Bolivian government nationalized the hydrocarbons industry pursuant to a Supreme Decree. Several subsequent decrees were issued and ultimately


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the Bolivian government registered 100% of our interest in Transredes, a gas distribution company of which we owned 50%, in the name of Yacimientos Petrolíferos Fiscales Bolivianos, or YPFB, the Bolivian state-owned energy company. In October 2008, we reached a settlement with the Bolivian government pursuant to which the Bolivian government paid us $120 million in two installments. The developments in Bolivia may increase the risk that our other assets in Bolivia, including Gas Transboliviano S.A., or GTB, and GasOriente Boliviano Ltda., or GOB, will be subject to nationalization without fair compensation.
 
Venezuela has nationalized a significant part of its hydrocarbon and electricity industries and changed its operation agreements to joint ventures with the state-owned oil company Petróleos de Venezuela, S.A., or PDVSA. On November 15, 2007, we sold our interests in Vengas S.A., or Vengas, to PDVSA Gas, S.A., a wholly-owned subsidiary of PDVSA, or PDVSA Gas. PDVSA has recently indicated that it would like to own and operate Accroven, our Venezuelan Natural Gas Transportation and Services business. Accroven is currently in discussions with PDVSA to negotiate the terms of this transaction. It is possible that we may not receive adequate compensation for our investment in Accroven.
 
Lack of transparency, threat of fraud, public sector corruption and other forms of criminal activity involving government officials increases risk for potential liability under anti-bribery legislation, including the U.S. Foreign Corrupt Practices Act.
 
We are subject to the U.S. Foreign Corrupt Practices Act, or the FCPA, and other anti-bribery laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. and other business entities for the purpose of obtaining or retaining business, or otherwise receiving discretionary favorable treatment of any kind and requires the maintenance of internal controls to prevent such payments. In particular, we may be held liable for actions taken by our local partners and agents, even though such parties are not always subject to our control. Any determination that we have violated the FCPA or other anti-bribery laws (whether directly or through acts of others, intentionally or through inadvertence) could result in sanctions that could have a material adverse effect on our results of operations and financial condition.
 
Risks Relating to the Industries in which We Operate
 
Most of our businesses are subject to significant governmental regulations and our results of operations and financial condition could be adversely affected by changes in the law or regulatory schemes.
 
We operate energy businesses in 19 countries and, therefore, we are subject to significant and diverse government regulation. Our inability to forecast, influence or respond appropriately to changes in law or regulatory schemes could adversely impact our results of operations and financial condition. Furthermore, changes in laws or regulations or changes in the application or interpretation of regulatory provisions in jurisdictions in which we operate, particularly our regulated utilities where tariffs are subject to regulatory review or approval, could adversely affect our results of operations and financial condition. Such changes may include:
 
  •        changes or terminations of key permits, operating licenses, or concessions;
 
  •        changes in the determination, definition or classification of costs to be included as controllable or non-controllable pass-through costs;
 
  •        changes in the methodology of calculating or the timing of tariff revisions and changes in the tariff’s regulated returns;
 
  •        changes in the definition of events which may or may not qualify as changes in economic equilibrium under the terms of concession agreements;
 
  •        changes in rules governing energy supply and purchase contracts;
 
  •        changes in subsidies and/or incentives provided by governments;
 
  •        changes in rules governing dispatch order;


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  •        changes in methodology of calculating firm capacity payment charges and frequency of adjustment of those charges;
 
  •        changes in market rules for the calculation of energy marginal costs and spot prices;
 
  •        changes in calculation of transportation/transmission rates; and
 
  •        other changes in the regulatory determinations under the relevant concessions or licenses.
 
Any of these factors, by itself or in combination with others, could materially and adversely affect our results of operations or financial condition.
 
The tariffs of most of our business segments are regulated and periodically revised by regulators. Reductions in tariffs could result in the inability of our businesses to recover operating costs, including commodity costs, and/or investments and maintain current operating margins.
 
Most of our businesses are subject to tariff regulation by the regulators in the countries in which they operate. Those tariffs are reviewed on a periodic basis and may be reset or reduced. In most of these businesses, to the extent capital expenditures are incurred above the approved amount for a tariff period, the businesses bear the risk of not having the investment recognized during the next rate case review and consequently may not be able to recover the investment. In addition, to the extent that operating costs rise above the level approved in the tariff, the businesses typically bear the risk. Our future tariffs may not permit us to maintain our current operating margins. In addition, to the extent that tariff adjustments are not granted by regulators in a timely manner, our results of operations or financial condition may be adversely affected.
 
Some of our markets may face power rationings, which could lead to a reduction in the level and/or growth in electricity consumption and sales.
 
Some of our Power Distribution companies operate in markets that are highly dependent on hydroelectric generation of electricity, which may significantly affect supply under unfavorable hydrology conditions. Supply may also be affected by other factors limiting investments in new generation capacity and/or the ability of the existing power grid to provide reliable electricity to end users. The volatility of hydroelectric generation and the lack of new generation investment may lead local governments to adopt measures, including rationing, in an attempt to reduce consumption levels. While power rationing may, in most cases, involve government efforts to avoid material impacts on the financial results of electric distribution companies, conservation efforts and efficiencies achieved during rationing may result in changes in consumption patterns following the rationing, leading to a reduction in the level and/or growth in electricity consumption and sales.
 
Many of our businesses operate under concessions granted by the various countries in which we operate and we are subject to penalties, including termination of the concession agreements, if we do not comply with the terms of the concession agreements.
 
We conduct many of our activities pursuant to concession agreements with governmental and regulatory bodies. If we do not comply with the provisions in our concession agreements, regulatory authorities may enforce penalties. Depending on the gravity of the non-compliance, these penalties could include the following:
 
  •        warning notices;
 
  •        fines for breaches of concessions based on a percentage of revenues for the year immediately before the violation date;
 
  •        temporary suspension from participating in bidding processes for new concessions;
 
  •        injunctions prohibiting investments in new facilities and equipment;
 
  •        restrictions to the operations of existing facilities and equipment;
 
  •        intervention by the authority granting our concession; and
 
  •        possible termination or non-renewal of our concession.


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In addition, governments have the power to terminate our businesses’ concessions prior to the end of the applicable concession term in the case of our bankruptcy or dissolution, by means of expropriation in the public interest or in the event our businesses fail to comply with applicable regulation. In this regard, we may not be able to renew our concessions at the end of the term of the concessions.
 
One or more of our businesses may be penalized for breaching its concession agreement and a business’s concession may be terminated in the future. If a business’s concession agreement were terminated, that business would not be able to operate and sell to its customers in the area covered by its concession. In addition, the compensation to which a business would be entitled upon termination of its concession may not be sufficient for it to realize the full value of its assets, and the payment of that compensation could be delayed for many years.
 
Any of the foregoing penalties, the intervention of regulatory authorities in our concessions, or termination of our concessions could have a material adverse effect on our results of operations or financial condition.
 
Our results of operations or financial condition may be adversely affected if we are unable to address various operating risks typically faced by companies in the energy business.
 
We face a number of operating risks applicable to companies in the energy business including:
 
  •        periodic service disruptions and variations in power quality in our Power Distribution businesses, which may result in significant revenue loss and potential liabilities to third parties;
 
  •        fluctuations or a decline in aggregate customer demand for energy in line with prevailing economic conditions, which could result in decreased revenues;
 
  •        equipment or other failures at our facilities causing unplanned outages;
 
  •        the dependence of our Power Generation facilities on a specified fuel source, including the quality and transportation of fuel, which could impact the operation of those facilities;
 
  •        breakdown or failure of one of our Power Generation or Natural Gas Transportation and Services facilities may prevent the facility from performing under applicable power sales agreements or gas transportation agreements which, in certain situations, could result in termination of the agreement or incurring liability for liquidated damages;
 
  •        service disruptions in our Natural Gas Transportation and Natural Gas Distribution businesses, reductions in customer demand or reductions in throughput could result in reduced revenues from these businesses;
 
  •        failures and faults in the electricity transmission system or in the electricity generation facilities of Power Generation companies due to circumstances beyond our control;
 
  •        system failure affecting our information technology systems or those of other energy industry participants, which could result in loss of operational capacities or critical data;
 
  •        environmental costs and liabilities arising from our operations, which may be difficult to quantify and could affect our results of operations;
 
  •        underground storage tank leaks which could result in a contamination of our gas facilities;
 
  •        energy losses, whether arising from technical reasons inherent in the normal operation of electricity and liquids distribution systems or arising from non-technical reasons (such as theft, fraud and inaccurate billing), resulting in revenue losses which we are unable to pass through to customers; and
 
  •        injuries to third parties or our employees in connection with our businesses, which may result in liabilities, higher insurance costs or denial of insurance coverage.
 
Any of these factors, by itself or in combination with others, could materially and adversely affect our results of operations or financial condition.


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Additionally, under some of our contracts, a breakdown or failure of one of our facilities preventing the facility from performing under those agreements could, in certain situations, result in the termination of the agreement or incurring liability for liquidated damages.
 
We are dependent on external parties and other factors for consumables, energy and fuel and our inability to obtain these materials could adversely affect our financial condition or results of operations.
 
Supplies of consumables, energy and fuel for our plants, distribution systems or pipelines could be affected by a number of possible factors:
 
  •        existing upstream energy reserves need to be available and new reserves developed in order to efficiently utilize the capacity of our gas and liquids pipelines; any prolonged interruption in our ability to access upstream reserves would affect our financial condition or results of operations;
 
  •        if upstream reserves are depleted, and no new fields or wells are developed, the amount of natural gas available for consumption will be reduced, and so will the volumes of liquids and associated gas transported by our pipelines, and the availability of fuel for our power plants or for resale by our Natural Gas Distribution and Retail Fuel businesses, which could materially and adversely affect our results of operations or financial condition;
 
  •        in the event that our local suppliers become unwilling or unable to supply fuel or energy to our businesses, we may not have any remedies under our supply contracts, or such remedies may not be sufficient to offset the potential incremental costs or reduction in revenues;
 
  •        service disruptions, stoppages, or variations in power quality contracted or transmitted by third parties to our Power Distribution businesses could cause us to be unable to distribute power to the end users of electricity. In that case, we would be unable to receive revenues for power distribution, and may be subject to claims for damages from end users, fines from regulators and the possible loss of our concessions; and
 
  •        should a neighboring government decide, for political reasons or otherwise, to curtail or interrupt the transportation of fuel or energy required by our businesses to operate, an alternate source for that fuel or energy may not be available, or become available, in sufficient time to preclude an interruption of our operations. For example, EPE, our Brazilian Power Generation business, has been unable to obtain a gas supply due to a lack of supply combined with a sharp increase in regional demand and has generally not been operational since August 2007. For additional information, see “Business — Power Generation — Cuiabá — Empresa Produtora de Energia Ltda. (EPE)” and “Business — Natural Gas Transportation and Services — Cuiabá — GasOcidente do Mato Grosso Ltda. (GOM), GasOriente Boliviano Ltda. (GOB) and Transborder Gas Services Ltd. (TBS).”
 
Our equipment, facilities and operations are subject to numerous environmental, health and safety laws and regulations that are expected to become more stringent in the future, which may result in increased liabilities, compliance costs and increased capital expenditures.
 
We are subject to a broad range of environmental, health and safety laws and regulations which require us to incur on-going costs and capital expenditures and expose us to substantial liabilities in the event of non-compliance. These laws and regulations require us to, among other things, minimize risks to the natural and social environment while maintaining the quality, safety and efficiency of our facilities.
 
These laws and regulations also require us to obtain and maintain environmental permits, licenses and approvals for the construction of new facilities or the installation and operation of new equipment required for our businesses. All of these permits, licenses and approvals are subject to periodic renewal and challenge from third-parties. We expect environmental, health and safety rules to become more stringent over time, making our ability to comply with the applicable requirements more difficult. Government environmental agencies could take enforcement actions against us for any failure to comply with applicable laws and regulations. Such enforcement actions could include, among other things, the imposition of fines, revocation of licenses,


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suspension of operations or imposition of criminal liability for non-compliance. Environmental laws and regulations can also impose strict liability for the environmental remediation of spills and discharges of hazardous materials and wastes and require us to indemnify or reimburse third parties for environmental damages. Compliance with changed or new environmental, health and safety regulations could require us to make significant capital investments in additional pollution controls or process modifications. These expenditures may not be recoverable and may consequently divert funds away from planned investments in a manner that could adversely affect our results of operations or financial condition.
 
Risks Related to Our Businesses
 
The operation of our businesses involves significant risks that could adversely affect our results of operations or financial condition.
 
The operation of our business involves many risks, including:
 
  •        the inability to obtain or renew required governmental concessions, permits and approvals;
 
  •        fuel spillage, seepage or release of hazardous materials;
 
  •        the unavailability of critical equipment or parts;
 
  •        the unavailability or interruptions of fuel or energy supply;
 
  •        work stoppages and labor unrest;
 
  •        social unrest;
 
  •        operation and critical equipment failures;
 
  •        increases in line losses, including technical and commercial losses;
 
  •        forecasting errors for price and volume projections;
 
  •        decreases in energy consumption;
 
  •        severe weather and seasonal variations;
 
  •        natural disasters or catastrophic events that affect our physical assets or cause interruptions in our ability to provide our services and products, particularly ones that cause damage in excess of our insurance policy limits;
 
  •        injuries to people and damages to property resulting from transportation and handling of electricity, natural gas, liquid fuels or hazardous materials;
 
  •        the possibility of material litigation and regulatory proceedings being brought against us or our businesses;
 
  •        working capital constraints;
 
  •        operating cost overruns;
 
  •        construction and operational delays or unanticipated cost overruns; and
 
  •        performance of services from subcontractors.
 
If we experience any of these or other problems, we could experience an adverse effect on our financial condition or results of operations.
 
A failure to attract and retain skilled people could have a material adverse effect on our operations.
 
Our operating success depends in part on our ability to retain executives and to attract and retain additional qualified personnel who have experience in our industry and in operating a company of our size and complexity,


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including people in our international businesses. The inability to attract and retain qualified personnel could have a material adverse effect on our business, because of the difficulty of promptly finding qualified replacements.
 
Our proposed acquisitions and development projects may not be completed or, if completed, may not perform as expected. Our acquisition and development activities may consume a portion of our management’s focus, increase our leverage, and if not successful, reduce our profitability.
 
We plan to grow our business through acquisitions and greenfield and brownfield development. Development projects and acquisitions require us to spend significant sums for engineering, permitting, legal, financial advisory and other expenses in preparation for competitive bids we may not win or before we determine whether a development project is feasible, economically attractive or capable of being financed. These activities consume a portion of our management’s focus and could increase our leverage or reduce our profitability.
 
Future acquisitions or development projects may be large and complex, and we may not be able to complete them. There can be no assurance that we will be able to negotiate the required agreements, overcome any local opposition, obtain the necessary licenses, permits and financing or satisfy ourselves that the target company has not engaged in activities that would violate laws and regulations that are applicable to us, including without limitation, the Foreign Corrupt Practices Act, or the FCPA.
 
Although acquired businesses may have significant operating histories at the time we acquire them, we will have no history of owning and operating these businesses and possibly limited or no experience operating in the country or region where these businesses are located. In particular:
 
  •        acquired businesses may not perform as expected;
 
  •        we may incur unforeseen obligations or liabilities;
 
  •        acquired business may not generate sufficient cash flow to support the indebtedness incurred to acquire them or the capital expenditures needed to operate them;
 
  •        the rate of return from acquired businesses may be lower than anticipated in our decision to invest our capital to acquire them; or
 
  •        we may not be able to expand as planned or to integrate the acquired company’s activities and achieve the economies of scale and any expected efficiency gains that often drive such acquisitions.
 
In addition, when we acquire a new business, we may be required to implement measures to ensure its compliance with the FCPA if the new business has not been previously subject to anti-bribery legislation.
 
Competition to acquire energy assets is strong and could adversely affect our ability to grow.
 
The market for acquisition of energy assets is characterized by numerous strong and capable competitors, many of whom may have extensive and diversified developmental or operating experience (including both domestic and international experience) and financial resources similar to or greater than us. The high level of competition for energy infrastructure assets has caused higher acquisition prices for existing assets through competitive bidding practices which could cause us to pay more for energy assets or otherwise be precluded from buying assets. The foregoing competitive factors could have a material adverse effect on our ability to grow.
 
Our businesses are dependent on and we are exposed to credit risks and, in some instances, the impact of credit concentration, arising out of the creditworthiness of customers who, for some of our businesses, are limited in number. Therefore, if one of our businesses’ large customers were to default on their obligations to us, it could adversely affect our financial condition or results of operations.
 
All of our Power Generation businesses, except PQP and Corinto, and all of our Natural Gas Transportation and Services businesses, except the Promigas Pipeline, have one or very few customers, and therefore we are exposed to credit risks of those customers in those businesses. A default by any of our key customers in our Power Generation or Natural Gas Transportation and Services businesses could materially and adversely affect our


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financial condition or results of operations. Our Power Distribution and Natural Gas Distribution businesses are impacted by the creditworthiness of our governmental, wholesale and retail residential customers.
 
Some of our businesses have experienced and currently are experiencing payment delays from large customers. In particular, San Felipe and Accroven are currently experiencing significant payment delays from their sole customers. In some regions, the suspension of electricity or gas supply to address unpaid accounts receivable or theft is prohibited by law, and our tariffs may not sufficiently compensate us for this indirect subsidy.
 
Our insurance policies may not fully cover damage or we may not be able to obtain insurance against certain risks, and our results of operations may be adversely affected if we incur liabilities that are not fully covered by our insurance policies.
 
We maintain insurance policies intended to mitigate our losses due to customary risks. These policies cover our assets against loss for physical damage, loss of revenue and also third-party liability. However, we cannot assure that the scope of damages suffered in the event of a natural disaster or catastrophic event would not exceed the policy limits of our insurance coverage. We maintain all-risk physical damage coverage for losses resulting from, but not limited to, fire, explosions, floods, windstorms, strikes, riots and mechanical breakdowns. For our Power Generation companies, we also maintain business interruption insurance. We also have civil liability insurance covering physical damage and bodily injury to third parties. In addition, we carry war, civil disorder and terrorism insurance in those markets in which we operate where we believe the political situation merits it. Our level of insurance may not be sufficient to fully cover all liabilities that may arise in the course of our business or insurance covering our various risks may not continue to be available in the future. In addition, we may not be able to obtain insurance on comparable terms in the future. Our results of operations or financial condition may be adversely affected if we incur liabilities that are not fully covered by our insurance policies.
 
We are strictly liable for any damages resulting from the inadequate rendering of electricity services by our Power Distribution businesses, and any such liabilities could result in significant additional costs to us and may adversely affect our financial condition or results of operations.
 
We are strictly liable for direct damages to end users resulting from the inadequate rendering of electricity distribution services, such as abrupt supply interruptions or disturbances arising from the generation, transmission, or distribution systems. The liabilities arising from these interruptions or disturbances that are not covered by our insurance policies or that exceed our insurance policies’ limits may result in significant additional costs to us and may adversely affect our financial condition or results of operations. We may be required to pay regulatory penalties related to the operation of our business which may adversely affect our Power Distribution businesses if the regulator concludes that we did not contract enough generation to adequately cover this risk.
 
Under Brazilian law, Elektro may be held liable for up to 35.7% of the damages caused to others as a result of interruptions or disturbances arising from the interconnected system, if these interruptions or disturbances are not attributed to an identifiable electric energy agent or the National System Operator (Operador Nacional do Sistema), irrespective of whether or not we are at fault.
 
We make non-controlling investments in projects which may limit our ability to control the development, construction, acquisition or operation of such investments and future acquisitions.
 
Some of our or our subsidiaries’ current investments consist of non-controlling interests in affiliates (i.e., where we beneficially own 50% or less of the ownership interests). Additionally, a portion of our future investments may also take the form of non-controlling interests. As a result, our ability to control the development, construction, acquisition or operation of such investments and future acquisitions may be limited. As a result, we may be dependent on our co-venturers to construct and operate such businesses, and the approval of co-venturers also may be required for distributions of funds from projects to us.


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Our businesses may incur substantial costs and liabilities and be exposed to commodity price volatility, as a result of risks associated with the wholesale electricity markets, which could have a material adverse effect on our financial condition or results of operations.
 
Some of our Power Generation and Power Distribution businesses buy and sell electricity in the wholesale spot markets. As a result, we are exposed to the risks of rising and falling prices in those markets. Additionally, we may be required to pay regulatory penalties for our Power Distribution businesses if regulators conclude that we did not contract for enough electricity. Typically, the open market wholesale prices for electricity are volatile and often reflect the fluctuating cost of coal, natural gas, oil or conditions of hydro reservoirs, which price fluctuations have previously been cyclical. Consequently, any changes in the supply and cost of coal, natural gas, and oil or conditions of hydro reservoirs may impact the open market wholesale price of electricity. Volatility in market prices for fuel and electricity may result from many factors which are beyond our control and we may not always engage in hedging transactions. In addition, businesses that engage in hedging transactions remain subject to market risks, including market liquidity and counterparty creditworthiness, and may also have exposure to market prices if counterparties do not produce volumes or otherwise comply with contractual obligations in accordance with the terms of the applicable hedging contracts.
 
We are subject to risks associated with climate change.
 
There is a growing belief that emissions of greenhouse gases may be linked to climate change. Climate change and the costs that may be associated with its impacts and the regulation of greenhouse gases have the potential to affect our business in many ways, including negatively impacting the costs we incur in providing our products and services, the demand for and consumption of our products and services (due to change in both costs and weather patterns), and the economic health of the regions in which we operate, all of which can create financial risks.
 
Financial Risks
 
A downgrade in our credit ratings or that of our subsidiaries or those of the countries in which we operate could adversely affect our ability to access the capital markets which could increase our interest costs or adversely affect our financial condition or results of operations.
 
From time to time, we rely on access to capital markets as a source of liquidity for capital requirements not satisfied by our operating cash flows. If our credit ratings, or those of our subsidiaries or those of the countries in which we operate, were to be downgraded, our ability to raise capital on favorable terms could be impaired and our borrowing costs would increase.
 
Our below-investment grade rating indicates that our debt is regarded as having significant speculative characteristics, and that there are major ongoing uncertainties or exposure to financial or economic conditions which could compromise our capacity to meet our financial commitments on our debt. Due to our current below-investment grade rating, we may be unable to obtain the financing we need to pursue our business plan, and any future financing or refinancing received may be on less favorable terms than our current arrangements.
 
As a result of our below-investment grade rating, counterparties may also be unwilling to accept our general unsecured commitments to provide credit support. Accordingly, for both new and existing commitments, we may be required to provide a form of assurance, such as a letter of credit, to backstop or replace our credit support. We may not be able to provide adequate assurances to such counterparties. In addition, to the extent we are required and able to provide letters of credit or other collateral to such counterparties, this will reduce the amount of credit available to us to meet our other liquidity needs.
 
We may not be able to raise sufficient capital to fund greenfield development in certain less developed economies which could change or in some cases adversely affect our growth strategy.
 
Part of our strategy is to grow our business by developing our core businesses in less developed economies. Commercial lending institutions sometimes refuse to provide financing in certain less developed economies, and in these situations we may seek direct or indirect (through credit support or guarantees) financing from a limited


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number of multilateral or bilateral international financial institutions or agencies. As a precondition to making such financing available, the lending institutions may also require sponsor guarantees for completion risks and governmental guarantees of certain business and sovereign related risks. However, financing from international financial agencies or governmental guarantees required to complete projects may not be available when needed, and if they are not, we may have to abandon these projects or invest more of our own funds which may not be in line with our investment objectives and would leave less funds for other investments and development projects.
 
Current financial market developments may adversely affect our financial condition, results of operations or access to capital.
 
Dramatic declines in asset values held by financial institutions over the past two years have resulted in significant write-downs. These write-downs, from mortgage-backed securities to credit default swaps and other derivative securities, in turn have caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and investors have ceased to provide funding to even the most credit worthy borrowers or to other financial institutions. The resulting lack of available credit and lack of confidence in the financial markets could materially and adversely affect our financial condition, results of operations or our access to capital. In connection with these events, our ability to borrow from financial institutions on favorable terms or at all could be adversely affected by continuing or further disruptions in the capital markets or other events.
 
Risks Associated with our Structure
 
We are a holding company and therefore are dependent upon the receipt of funds from our subsidiaries by way of dividends, fees, interest, loans or otherwise. Failure to receive such funds could impact our ability to pay our interest and other expenses at the parent company or to pay dividends.
 
We are a holding company, as are many of our subsidiaries, with no material assets other than the stock of our subsidiaries. All of our revenue-generating operations are conducted through our subsidiaries. Accordingly, almost all of our cash flow is generated by our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to make any funds available to us, whether by dividends, fees, loans or other payments. Accordingly, our ability to pay dividends, fund our obligations and make expenditures at the parent company level is dependent not only on the ability of our subsidiaries to generate cash, but also on the ability of our subsidiaries to distribute cash to us in the form of dividends, fees, principal, interest, loans or otherwise.
 
Our subsidiaries may be obligated, pursuant to loan agreements, indentures, project financing arrangements or guarantees, to satisfy certain obligations or other conditions before they may make distributions to us. Under our credit agreements, indentures, guarantees and project finance arrangements, if a debtor subsidiary defaults on its indebtedness, it will only be permitted to pay dividends or make other similar distributions to us to the extent permitted under its relevant financing arrangement. In addition, the payment of dividends or the making of loans, advances or other payments to/from us may be subject to legal or regulatory restrictions. Our subsidiaries may also be prevented from distributing funds to us as a result of restrictions imposed by governments on repatriating funds or converting currencies. Any right we have to receive any assets of any of our subsidiaries upon any liquidation, dissolution, winding up, receivership, reorganization, assignment for the benefit of creditors, marshaling of assets and liabilities or any bankruptcy, insolvency or similar proceedings (and the consequent right of the holders of our indebtedness to participate in the distribution of, or to realize proceeds from, those assets) will be effectively subordinated to the claims of those subsidiaries’ creditors (including trade creditors and holders of debt issued by such subsidiary).
 
Our businesses are separate and distinct legal entities in different jurisdictions and, unless they have expressly guaranteed any of our indebtedness, have no obligation, contingent or otherwise, to pay any amounts due pursuant to such debt or to make any funds available therefore, whether by dividends, fees, loans or other payments. Changes in tax policies, or the interpretation of those policies, of or within the jurisdictions in which we operate could materially adversely affect our tax profile, significantly increase our future cash tax payments and adversely affect our financial condition or results of operations.


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We are a Cayman Islands company and may not receive the diplomatic and treaty protections that a U.S. company would receive in some of the countries where we do business, which could adversely affect our ability to enforce our rights under our concessions and contracts.
 
As a Cayman Islands company, we may not have the benefit of bi-lateral investment treaties, diplomatic assistance, foreign service offices, or influence through our jurisdiction’s distribution of foreign aid. One or all of these factors may affect our ability to enforce our rights in the countries where we do business.
 
If ownership of our ordinary shares continues to be highly concentrated, it may prevent you and other minority shareholders from influencing significant corporate decisions and policies.
 
As of June 30, 2009, the Ashmore Funds owned approximately 55% of our ordinary shares. GIC and funds managed by Eton Park owned approximately 23% and 6%, respectively, as of such date and other institutional investors, and members of management, directors and our employees and former employees owned the remaining ordinary shares. Consequently, the Ashmore Funds individually, and the Ashmore Funds, GIC and Eton Park or any combination of the three collectively, have significant influence over the determination of matters submitted to a vote of our shareholders, including in the election of our directors, the appointment of new management and the adoption of amendments to our Memorandum and Articles of Association. The ability of other shareholders to influence our management and policies may be severely limited, including with respect to mergers, amalgamations, consolidations or acquisitions, our acquisition or disposition of our ordinary shares or other equity securities and the payment of dividends or other distributions on our ordinary shares. Additionally, this concentration of ownership may delay, deter or prevent acts that would be favored by our other shareholders, such as change of control transactions that would result in the payment of a premium to our other shareholders.
 
The interests of the group of shareholders that control us may be adverse to your interests.
 
Through their ownership of our ordinary shares, the Ashmore Funds are entitled to elect a majority of the members of our board of directors. Furthermore, one of our directors, Brent de Jong, who is actively involved in business development and strategy for us, is affiliated with the Ashmore Funds. As a result of this relationship, when conflicts between the interests of the Ashmore Funds and the interests of our other shareholders arise, Mr. de Jong may not be disinterested.
 
We have granted to our current institutional shareholders certain rights to have their securities registered in accordance with the U.S. securities laws pursuant to the terms of our existing Amended and Restated Registration Rights Agreement.
 
Our shareholders may compete with us for investment opportunities which could impair our ability to consummate transactions.
 
Our shareholders and their affiliates may compete with us for investment opportunities, may invest in entities that directly or indirectly compete with us or companies in which they currently invest may begin competing with us. This could impair our ability to consummate transactions. We have no ability to control, nor will we necessarily be aware of, whether any of our shareholders currently compete with us or will in the future acquire interests in companies that will compete with us.
 
Risks Relating to this Offering
 
There is no existing market for our shares, and we do not know whether one will develop to provide you with adequate liquidity. If our stock price fluctuates after this offering, you could lose a significant part of your investment.
 
Prior to this offering, there has not been a public market for our shares. If an active trading market does not develop, you may have difficulty selling any of our shares that you buy. We cannot predict the extent to which investor interest in our company will lead to the development of an active trading market on the New York Stock Exchange, or the NYSE, or otherwise or how liquid that market might become. The initial public offering price for the shares will be determined by negotiations between us and the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently, you may not be able to sell our shares at


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prices equal to or greater than the price paid by you in this offering. In addition to the risks described above, the market price of our shares may be influenced by many factors, some of which are beyond our control, including:
 
  •        the failure of financial analysts to cover our shares after this offering or changes in financial estimates by analysts;
 
  •        actual or anticipated variations in our operating results;
 
  •        changes in financial estimates by financial analysts, or any failure by us to meet or exceed any such estimates, or changes in the recommendations of any financial analysts that elect to follow our ordinary shares or the ordinary or common shares of our competitors;
 
  •        announcements by us or our competitors of significant contracts or acquisitions;
 
  •        future sales of our shares; and
 
  •        investor perceptions of us and the industries in which we operate.
 
In addition, the stock market in general has experienced substantial price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of particular companies affected. These broad market and industry factors may materially harm the market price of our shares, regardless of our operating performance. In the past, following periods of volatility in the market price of certain companies’ securities, securities class-action litigation has been instituted against these companies. Such litigation, if instituted against us, could adversely affect our financial condition or results of operations.
 
The initial public offering price per ordinary share is substantially higher than our net tangible book value per ordinary share immediately after the offering and you will incur immediate and substantial dilution.
 
The initial public offering price per ordinary share is substantially higher than our net tangible book value per ordinary share immediately after the offering. As a result, you may pay a price per share that substantially exceeds the tangible book value of our assets after subtracting our liabilities. Investors who purchase ordinary shares in the offering will be diluted by $      per share after giving effect to the sale of ordinary shares in this offering. See “Dilution.” If we grant options in the future to our employees, and those options are exercised, or if other issuances of ordinary shares are made, there will be further dilution.
 
Sales of substantial amounts of our shares in the public market, or the perception that these sales may occur, could cause the market price of our shares to decline.
 
Sales of substantial amounts of our shares in the public market, or the perception that these sales may occur, could cause the market price of our shares to decline. This could also impair our ability to raise additional capital through the sale of our equity securities. Under our Amended and Restated Memorandum and Articles of Association, we are authorized to issue up to five billion shares, of which           shares will be outstanding following this offering. Certain shareholders, our directors and executive officers and certain employees will enter into lock-up agreements, pursuant to which they are expected to agree, subject to certain exceptions, not to sell or transfer, directly or indirectly, any shares for a period of 180 days from the date of this prospectus. We cannot predict the size of future issuances of our shares or the effect, if any, that future sales and issuances of shares would have on the market price of our shares. In addition, we have granted to our current institutional shareholders certain rights to have their securities registered in accordance with the U.S. securities laws pursuant to the terms of our existing Amended and Restated Registration Rights Agreement. 230,557,696 shares are subject to these rights. See “Ordinary Shares Eligible for Future Sale.”
 
We are a Cayman Islands company. As such, you may face difficulties in protecting your interests, and it may be difficult for you to enforce judgments against us and our directors and executive officers.
 
We are incorporated under the laws of the Cayman Islands. Half of our current directors are not residents of the United States, and all of our operating assets (and we believe some of the assets of our directors and officers) are located outside the United States. As a result, it may be difficult for you to effect service of process on us or those


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persons in the United States, or to enforce in the U.S. judgments obtained in U.S. courts against us or those persons based on civil liability provisions of the U.S. securities laws.
 
Our corporate affairs will be governed by our Amended and Restated Memorandum and Articles of Association, the Companies Law (as the same may be supplemented or amended from time to time) and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from judicial precedent in the Cayman Islands and from English common law, the decisions of whose courts are of highly persuasive authority, but are not technically binding, on a court in the Cayman Islands. The Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection to investors. Moreover, it is doubtful whether courts in the Cayman Islands or the jurisdictions in which we operate will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in the Cayman Islands or the jurisdictions in which we operate against us or our directors or officers under the securities laws of other jurisdictions.
 
We have been advised by Walkers, our legal advisers as to Cayman Islands law, that the U.S. and the Cayman Islands do not currently have a treaty providing for the reciprocal recognition and enforcements of judgments in civil and commercial matters and that while a judgment for the payment of money rendered by any federal or state court in the U.S. based on civil liability may be enforceable at common law in the Cayman Islands, such enforcement will not be automatic or available in all circumstances. In particular, there is doubt as to the enforceability in the Cayman Islands, in original actions or in actions for enforcement of judgments of the U.S. courts, of liabilities predicated solely upon U.S. securities laws.


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NON-GAAP FINANCIAL MEASURES
 
The body of generally accepted accounting principles is commonly referred to as “GAAP.” For this purpose, a non-GAAP financial measure is generally defined by the Securities and Exchange Commission, or the SEC, as one that purports to measure historical or future financial performance, financial position or cash flows but excludes or includes amounts that would not be so adjusted in the most comparable U.S. GAAP measure. From time to time we disclose non-GAAP financial measures, primarily Adjusted EBITDA and net debt. The non-GAAP financial measures described herein or in other documents we issue are not a substitute for the GAAP measures of earnings and liquidity.
 
We sometimes use Adjusted EBITDA in our communications with investors, financial analysts and the public. We define Adjusted EBITDA as net income (loss) excluding the impact of disposal of discontinued operations, income (loss) from discontinued operations, noncontrolling interests, provision (benefit) for income taxes, gain (loss) on early retirement of debt, interest expense and depreciation and amortization, interest income, foreign currency transaction gain (loss), net, gain (loss) on disposition of assets and other income (expense), net, excluding other charges. Adjusted EBITDA is a basis upon which we assess our financial performance. Adjusted EBITDA is generally perceived as a useful and comparable measure of operating performance. For example, interest expense, interest income and gain (loss) on early retirement of debt are dependent on the capital structure and credit rating of a company. However, debt levels, credit ratings and, therefore, the impact of interest expense, interest income and gain (loss) on early retirement of debt on earnings vary significantly between companies. Similarly, the tax positions of individual companies can vary because of their differing abilities to take advantage of tax benefits, with the result being that their effective tax rates and tax expense can vary considerably. Likewise, different ownership structures among companies can cause significant variability in the impact of noncontrolling interest on earnings. Companies also differ in the age and method of acquisition of productive assets, and thus the relative costs of those assets, as well as in the depreciation (straight line, accelerated, units of production) method, which can result in considerable variability in depreciation and amortization expense between companies. Certain other items that may fluctuate over time as a result of external factors over which management has little to no control, such as foreign currency transaction gain (loss) and other charges, can vary not only among companies but within a particular company across time periods, and thus significantly impact the comparability of earnings both externally and from period to period. Finally, the effects of discontinued operations can distort comparability as well as expectations of future financial performance. Thus, for comparison purposes with other companies, management believes, based on discussions with financial analysts and other users of the financial statements, that Adjusted EBITDA can be useful as an objective and comparable measure of operating profitability because it excludes these elements of earnings that may not consistently provide information about the current and ongoing operations of existing assets. Accordingly, although Adjusted EBITDA and other non-GAAP measures as calculated by us may not be comparable to calculations of similarly titled measures used by other companies, management believes that disclosure of Adjusted EBITDA can provide useful information to investors, financial analysts and the public in their evaluation of our operating performance.
 
We sometimes report net debt in our communications with investors, financial analysts and the public. We define net debt as total debt less cash and cash equivalents, current restricted cash and non current restricted cash. Net debt, both on a consolidated basis and for our individual operating companies, is perceived as a useful and comparable measure of our liquidity. Debt levels, credit ratings and, therefore, the impact of interest expense on earnings vary in significance between companies. Thus, for comparison purposes, management believes that net debt can be useful as an objective and comparable measure of our liquidity because it recognizes the net cash position of the current operations. Accordingly, management believes that disclosure of net debt can provide useful information to investors, financial analysts and the public in their evaluation of our liquidity.
 
Management utilizes the non-GAAP measures of Adjusted EBITDA and net debt as key indicators of the financial performance and liquidity of our reporting segments and the underlying businesses. Adjusted EBITDA and net debt are calculated for the annual budgeting process and are reported upon in our monthly and quarterly internal reporting processes. Our key valuation multiples are computed using Adjusted EBITDA and net debt. In addition, one of the factors for determining the level of our investment capacity utilizes Adjusted EBITDA and net debt as inputs. Finally, these metrics are analyzed and summarized for discussions or presentations to our equity and debt investors and financial analysts.
 
For the reconciliation of Adjusted EBITDA and net debt to GAAP measures, see “Selected Consolidated Financial Data” below. For additional non-GAAP information and reconciliations to GAAP measures, see Annex I and Annex II.


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FORWARD-LOOKING STATEMENTS
 
This prospectus contains forward-looking statements that are based on our current expectations, assumptions, estimates and projections about us and our industry. These forward-looking statements can be identified by words or phrases such as “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “is/are likely to,” “may,” “plan,” “should,” “would,” or other similar expressions. The forward-looking statements included in this prospectus relate to, among others:
 
  •        general economic and business conditions in the countries where we operate;
 
  •        our goals and strategies;
 
  •        our future business development, financial condition and results of operations;
 
  •        relevant government policies and regulations relating to the energy industry;
 
  •        our ability to expand our production, our sales and distribution network and other aspects of our operations;
 
  •        our ability to stay abreast of market trends and technological advances;
 
  •        acquisitions and the integration of acquisitions;
 
  •        development of greenfield projects;
 
  •        fuel, energy and commodity prices and availability;
 
  •        currency exchange rate fluctuations;
 
  •        weather;
 
  •        future energy demand;
 
  •        trends in environmental regulations; and
 
  •        trends in energy supply and green energy.
 
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may turn out to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and other sections in this prospectus.
 
The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. We undertake no obligation to update any forward-looking statements to reflect events or circumstances after the date on which the statements are made or to reflect the occurrence of unanticipated events.


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USE OF PROCEEDS
 
We expect to receive $      million of gross proceeds from the sale of shares by us in this offering, based on an assumed offering price of $      per share, the mid-point of the range set forth on the cover page of this prospectus. An increase (decrease) of $1.00 in the price per share of $     would increase (decrease) the gross proceeds in connection with this offering by $      million. We will not receive any proceeds from the sale of our ordinary shares by the selling shareholders or from the exercise of the underwriters’ option to purchase additional shares. We intend to use the net proceeds from this offering for general corporate purposes.


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DIVIDEND POLICY
 
We currently have no plans to pay dividends following the completion of this offering because we expect to retain our earnings for use in the development and expansion of our business. Any future determination to pay dividends would be at the discretion of, and require the approval of, our board of directors, depending on our financial condition, results of operations, future prospects, capital requirements, restrictions contained in future financing instruments and other factors our board of directors deems relevant.
 
Under Cayman Islands law, we may declare cash dividends or make other distributions only out of profits lawfully available for the purpose, or out of our share premium account, which is the same as additional paid in capital, if we will thereafter have the ability to pay our debts in the ordinary course as they fall due. Cash dividends, if any, will be paid by us in U.S. dollars.
 
We are a holding company with no material assets other than the stock of our subsidiaries. All of our revenue-generating operations are conducted through our subsidiaries. Accordingly, almost all of our cash flow is generated by our subsidiaries. Our subsidiaries are separate and distinct legal entities and have no obligation to make any funds available to us, whether by dividends, fees, loans or other payments. Accordingly, our ability to pay dividends is dependent on the ability of our subsidiaries to distribute cash to us in the form of dividends, fees, principal, interest, loans or otherwise. Our subsidiaries may be obligated, pursuant to loan agreements, indentures or project financing arrangements, to satisfy certain obligations or other conditions before they may make distributions to us.
 
Our credit agreement prohibits us from paying dividends if an event of default has occurred under the agreement and if we cease to be in compliance with certain financial ratios as a result of making the dividend payment. Therefore, our ability to pay dividends on our ordinary shares will depend upon, among other things, our level of indebtedness at the time of the proposed dividend and whether we are in compliance with the covenants under our credit agreement. Our future dividend policy will also depend on the requirements of any future financing agreements to which we may be a party and other factors considered relevant by our board of directors. For a discussion of our cash resources and needs, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Resources and Liquidity.”


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CAPITALIZATION
 
The following table sets forth our combined cash, cash equivalents and capitalization as of June 30, 2009 on an actual basis and as adjusted to give effect to the completion of this offering.
 
The table below should be read in conjunction with “Use of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and related notes included elsewhere in this prospectus.
 
                 
    As of June 30, 2009  
    Actual     As Adjusted  
    (In millions of $)  
 
Cash and cash equivalents
  $       524     $             
                 
Restricted cash(1)
    113       113  
                 
Long-term debt, including current portion:
               
Debt held by parent company:
               
Senior credit facility
    914       914  
Revolving credit facility
    53       53  
Synthetic revolving credit facility
    105       105  
PIK note
    246       246  
Debt held by consolidated subsidiaries:(2)
               
Cálidda
    43       43  
Cuiabá
    97       97  
DCL
    79       79  
Delsur
    69       69  
EDEN
    25       25  
Elektra
    119       119  
Elektro
    507       507  
ENS
    55       55  
Luoyang
    116       116  
PQP
    80       80  
Promigas
    987       987  
Other
    54       54  
                 
Total long-term debt, including current portion
    3,549       3,549  
Equity:
               
Ordinary shares, $0.002 par value: actual:
               
5,000,000,000 shares authorized and 234,230,825 issued and outstanding
               
Additional paid-in-capital
    1,899              
Retained earnings
    448       448  
Accumulated other comprehensive income
    90       90  
                 
Total equity attributable to AEI(3)
    2,437              
                 
Total capitalization(3)
  $ 5,986              
                 
 
 
(1) Includes $56 million of noncurrent restricted cash. As of June 30, 2009, our current restricted cash balance was $57 million.
(2) Not guaranteed by AEI. See “Management’s Discussion and Analysis of Financial Condition and Result of Operations — Capital Resources and Liquidity — Subsidiaries’ Long-Term Debt Schedule.”
(3) An increase (decrease) of $1.00 in the price per share of $     , which is the mid-point of the price range for the price per share, would represent an increase (decrease) of $      million in total equity and total capitalization in the “As Adjusted” column.


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DILUTION
 
As of the date of this prospectus, we have a net tangible book value of $      per ordinary share. Our net tangible book value represents the amount of our total assets (excluding only goodwill) less our total liabilities and noncontrolling interests, calculated at June 30, 2009, divided by          , the total number of our ordinary shares outstanding as of the date of this prospectus.
 
After giving effect to the sale of           ordinary shares in this offering at an assumed initial public offering price of $      per share, the mid-point of the range set forth on the cover page of this prospectus, and after deduction of the estimated discounts and commissions and estimated offering expenses payable by us, our net tangible book value estimated as of the date of this prospectus would have been approximately $      million, or $      per ordinary share. This represents an immediate increase in net tangible book value of $      per ordinary share to our existing shareholders and an immediate pro forma dilution of $      per ordinary share to purchasers of ordinary shares in this offering. Dilution for this purpose represents the difference between the price per ordinary share paid by these purchasers and net tangible book value per ordinary share immediately after the completion of the offering.
 
The following table illustrates this dilution to new investors purchasing ordinary shares, on a per share basis:
 
                 
Assumed offering price per ordinary share
  $             
Net tangible book value per ordinary share as of the date of this prospectus
  $            
Increase in net tangible book value per ordinary share attributable to new investors
  $            
Net tangible book value per ordinary share after the offering
  $            
Dilution per ordinary share to new investors
  $            
Percentage of dilution in net tangible book value per ordinary share
            %
 
The following table sets forth, as of December 31, 2008, the total number of ordinary shares owned by existing shareholders and the average price per share paid by existing shareholders of common stock and new investors purchasing shares in this offering.:
 
                                         
    Shares Owned/Purchased     Total Consideration     Average Price  
    Number     Percent     Amount     Percent     Per Share  
    (In millions of $, except % and per share data)  
          %     $       %     $       
 
Existing shareholders
                                       
New investors
                                       
                                         
Total
            100.0 %   $          100.0 %   $        
                                         
 
Each $1.00 increase (decrease) in the offering price per ordinary share would increase (decrease) the net tangible book value after this offering by $      per ordinary share.


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EXCHANGE RATES
 
A significant portion of our operating income is exposed to foreign currency exchange fluctuations. We are primarily exposed to fluctuation in the exchange rate between the U.S. dollar and the Brazilian real, the Colombian peso, the Polish zloty and the Chilean peso. The following table sets forth the annual high, low, average and period-end exchange rates for U.S. dollars for the periods indicated, expressed in Brazilian reais, Colombian pesos, Polish zlotys and Chilean pesos, per U.S. dollar, respectively, and not adjusted for inflation. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Quantitative and Qualitative Analysis of Market Risk — Foreign Exchange Rate Risk.”
 
Brazilian reais
 
                                 
          Average for
             
    Period-End     Period     Low     High  
    (R$ per U.S. dollar)  
 
Year ended December 31,
                               
2004
    2.65       2.93       2.65       3.21  
2005
    2.34       2.43       2.16       2.76  
2006
    2.14       2.18       2.06       2.37  
2007
    1.77       1.95       1.73       2.16  
2008
    2.34       1.84       1.56       2.50  
 
                 
    Low     High  
    (R$ per U.S. dollar)  
 
Month ended
               
January 2009
    2.19       2.38  
February 2009
    2.24       2.39  
March 2009
    2.24       2.42  
April 2009
    2.17       2.29  
May 2009
    1.97       2.15  
June 2009
    1.93       2.01  
July 2009
    1.87       2.01  
 
 
Source: Central Bank of Brazil.
 
The exchange rate on August 14, 2009 was 1.84.
 
Colombian pesos
 
                                 
    Period-End     Average for Period     Low     High  
    (COP per U.S. dollar)  
 
Year ended December 31,
                               
2004
    2,390       2,628       2,316       2,779  
2005
    2,284       2,321       2,273       2,397  
2006
    2,239       2,359       2,225       2,634  
2007
    2,015       2,076       1,878       2,261  
2008
    2,234       1,965       1,652       2,392  
 
                 
    Low     High  
    (COP per U.S. dollar)  
 
Month ended
               
January 2009
    2,198       2,387  
February 2009
    2,420       2,596  
March 2009
    2,335       2,591  
April 2009
    2,283       2,544  
May 2009
    2,190       2,289  
June 2009
    2,015       2,189  
July 2009
    1,953       2,145  
 
 
Source: Central Bank of Colombia.
 
The exchange rate on August 14, 2009 was 2,015.


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Polish zlotys
 
                                 
          Average for
             
    Period-End     Period     Low     High  
    (PLN per U.S. dollar)  
 
Year ended December 31,
                               
2004
    2.99       3.65       2.97       4.06  
2005
    3.26       3.23       2.91       3.45  
2006
    2.91       3.10       2.86       3.30  
2007
    2.44       2.77       2.43       3.04  
2008
    2.96       2.41       2.02       3.13  
 
                 
    Low     High  
    (PLN per U.S. dollar)  
 
Month ended
               
January 2009
    2.88       3.46  
February 2009
    3.47       3.90  
March 2009
    3.33       3.79  
April 2009
    3.19       3.52  
May 2009
    3.15       3.33  
June 2009
    3.12       3.27  
July 2009
    2.92       3.19  
 
 
Source: National Bank of Poland.
 
The exchange rate on August 14, 2009 was 2.92.
 
Chilean pesos
 
                                 
          Average for
             
    Period-End     Period     Low     High  
    (CLP per U.S. dollar)  
 
Year ended December 31,
                               
2004
    559.83       609.55       559.21       649.45  
2005
    514.21       559.86       509.70       592.75  
2006
    534.43       530.26       511.44       549.63  
2007
    495.82       522.69       493.14       548.67  
2008
    629.11       521.79       431.22       676.75  
 
                 
    Low     High  
    (CLP per U.S. dollar)  
 
Month ended
               
January 2009
    610.09       643.87  
February 2009
    583.32       623.87  
March 2009
    572.39       614.85  
April 2009
    575.12       601.04  
May 2009
    558.95       580.10  
June 2009
    529.07       568.71  
July 2009
    531.33       551.70  
 
 
Source: Central Bank of Chile.
 
The exchange rate on August 14, 2009 was 551.65.


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HISTORY AND DEVELOPMENT
 
Overview
 
Our largest shareholders are investment funds, the Ashmore Funds, directly or indirectly managed by Ashmore, an emerging markets investment manager. Ashmore is part of Ashmore Group plc, a company whose shares are traded on the London Stock Exchange. Ashmore is a specialist fund manager focusing on emerging markets globally and looks at many investment opportunities in various industries. Although a number of investors own interests in the Ashmore Funds, the investment decisions of the Ashmore Funds are controlled by Ashmore and the Ashmore Funds are considered entities under common control.
 
Formation of AEIL
 
On October 12, 2005, AEIL, a Cayman Islands company, was formed by Ashmore to act as the holding vehicle for the energy-related assets owned at that time by the Ashmore Funds and to act as a platform to acquire PEI.
 
In March 2006, certain Ashmore Funds transferred their previously acquired interest in Elektra to AEI LLC (formerly known as Ashmore Energy International LLC), or AEI Delaware, a Delaware limited liability company, in return for 100.0% of the membership interests in AEI Delaware. All the membership interests in AEI Delaware were in turn contributed to AEIL by the Ashmore Funds in return for ordinary shares of AEIL.
 
Interests in certain debt instruments related to a number of Argentine energy companies were also contributed by certain Ashmore Funds to AEIL in exchange for AEIL shares. These contributions occurred immediately after the contribution of Elektra was made.
 
Acquisition of PEI by AEIL
 
In 2006, AEIL acquired PEI from Enron Corp. and certain of its subsidiaries for a purchase price of approximately $1.8 billion in two stages as follows:
 
  •        Stage 1 (completed May 25, 2006): AEIL acquired 24.26% of the voting capital and 49.0% of the economic interest in PEI;
 
  •        Stage 2 (completed September 7, 2006): AEIL acquired the remaining 75.74% of the voting capital and 51.0% of the economic interests.
 
The transaction was designed as a two-step transaction because of the need to obtain certain regulatory approvals and lender/partner consents, which approvals and consents were obtained between the completion of Stage 1 and Stage 2.
 
AEIL’s Acquisition of a Controlling Interest in Promigas S.A. ESP
 
Prior to the completion of the first stage of AEIL’s acquisition of PEI, PEI held, through one of its wholly owned subsidiaries, 42.94% of the outstanding shares of Promigas.
 
At the time of the Stage 1 closing, under Colombian securities laws, transfers, direct or indirect, of 10% or more of the outstanding shares of a listed Colombian company had to be made pursuant to certain mandated offering/sale procedures. These procedures required the making of, among other things, certain applications and publications in Colombia. To avoid delaying the Stage 1 closing of the acquisition of PEI immediately prior to such closing, in May 2006, PEI caused its wholly owned subsidiary to transfer, via a spin off, 33.04% of the outstanding shares of Promigas, or the Subject Promigas Shares, to EMHC Ltd.
 
In September 2006, after the completion of the second stage of the acquisition of PEI by AEIL, EMHC solicited the Colombian Stock Exchange (Bolsa de Valores de Colombia) to conduct a public offer of the Subject


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Promigas Shares pursuant to a public auction procedure called a “Martillo.” The auction occurred on December 22, 2006 and PEI, through its wholly owned subsidiary AEI Colombia Ltd., bid $350 million for the Subject Promigas Shares in the auction and was successful in such bid.
 
On December 27, 2006, PEI, through its wholly owned subsidiary AEI Colombia Ltd., subsequently acquired an additional 9.94% stake in Promigas from another holder of shares of Promigas pursuant to another Martillo.
 
Merger of AEIL and PEI
 
On December 29, 2006, AEIL and PEI were amalgamated under Cayman law, with PEI being the surviving entity. On the same date, PEI changed its name to Ashmore Energy International, and thereafter to AEI.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following tables present summary financial data for AEI, the successor entity, and for both of our predecessor companies Elektra and PEI. We have derived the historical successor AEI earnings and cash flow financial data for the years ended December 31, 2006, 2007 and 2008, and historical balance sheet data as of December 31, 2007 and 2008, from our audited consolidated financial statements included elsewhere in this prospectus. We have derived historical balance sheet data as of December 31, 2006 and 2005 from our audited balance sheets not included in this prospectus. We have derived the historical predecessor Elektra financial data for the year ended December 31, 2004 and the 275-day period ended October 2, 2005 and the historical successor AEI financial data for the 90-day period ended December 31, 2005 from the audited consolidated financial statements which are not included in this prospectus. We have derived the historical predecessor PEI information for the years ended December 31, 2004 and 2005, and the 249-day period ended September 6, 2006 from the audited consolidated financial statements, of which only the 2006 audited consolidated financial statements are included in this prospectus. The summary historical data as of and for the six months ended June 30, 2008 and 2009 are derived from the AEI unaudited condensed consolidated financial statements included elsewhere in this prospectus. Our historical results for any prior period are not necessarily indicative of results to be expected for any future period.
 
The selected consolidated financial data for the periods and as of the dates indicated should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes, both of which are located elsewhere in this prospectus:
 
AEI and Elektra
 
The following table sets forth the financial results for AEI and the historical predecessor Elektra.
 
                                                                 
    Elektra Noreste, S.A. (Predecessor)     AEI (Successor)  
          For the
                                     
          275-Day
                                     
          Period
                                     
          from
    For the 90-Day
                               
    For the Year
    January 1,
    Period from
    For the Year
    For the Year
    For the Year
             
    Ended
    2005 to
    October 3, 2005
    Ended
    Ended
    Ended
    For the Six
    For the Six
 
    December 31,
    October 2,
    to December 31,
    December 31,
    December 31,
    December 31,
    Months Ended
    Months Ended
 
    2004     2005     2005     2006(1)     2007     2008     June 30, 2008     June 30, 2009  
    (In millions of $)     (In millions of $ and shares, except per share data)     (Unaudited)  
 
Statement of Operations Data:
                                                               
Revenues
  $ 225     $ 200     $ 72     $ 946     $ 3,216     $ 9,211     $ 4,604     $ 3,703  
Cost of sales
    152       140       53       566       1,796       7,347       3,642       2,816  
Operating expenses:
                                                               
Operations, maintenance, general and administrative expenses
    31       22       7       193       630       894       449       364  
Depreciation and amortization
    10       9       3       59       217       268       132       129  
Taxes other than income
          1             7       43       43       26       21  
Other charges
                            50       56              
(Gain) loss on disposition of assets
          1             7       (21 )     (93 )     (53 )     10  
Equity income from unconsolidated affiliates
                      37       76       117       68       50  
                                                                 
Operating income
    32       27       9       151       577       813       476       413  
Interest income
          1             71       110       88       41       35  
Interest expense
    (4 )     (6 )     (3 )     (138 )     (306 )     (378 )     (193 )     (159 )
Foreign currency transactions gain (loss), net
                      (5 )     19       (56 )     23       6  
Gain (loss) on early retirement of debt
                            (33 )                 3  
Other income (expense), net
                      7       (22 )     9       2       50  
                                                                 
Income before income taxes
    28       22       6       86       345       476       349       348  
Provisions for income tax
    (8 )     (7 )     (2 )     (84 )     (193 )     (194 )     (119 )     (127 )
                                                                 
Income from continuing operations
    20       15       4       2       152       282       230       221  
Income from discontinued operations, net of tax
                      7       3                    
Gain from disposal of discontinued operations, net of tax
                            41                    
                                                                 
Net income
  $ 20     $ 15       4       9       196       282       230       221  
Less: Net income — non-controlling interests
                (2 )     (20 )     (65 )     (124 )     (124 )     (53 )
Net income attributable to Elektra Noreste S.A. shareholders
    20       15                                                  
                                                                 
Net income (loss) attributable to AEI shareholders
                  $ 2     $ (11 )   $ 131     $ 158     $ 106     $ 168  
                                                                 


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    Elektra Noreste, S.A. (Predecessor)     AEI (Successor)  
          For the
                                     
          275-Day
                                     
          Period
                                     
          from
    For the 90-Day
                               
    For the Year
    January 1,
    Period from
    For the Year
    For the Year
    For the Year
             
    Ended
    2005 to
    October 3, 2005
    Ended
    Ended
    Ended
    For the Six
    For the Six
 
    December 31,
    October 2,
    to December 31,
    December 31,
    December 31,
    December 31,
    Months Ended
    Months Ended
 
    2004     2005     2005     2006(1)     2007     2008     June 30, 2008     June 30, 2009  
    (In millions of $)     (In millions of $ and shares, except per share data)     (Unaudited)  
 
Cash Flow Data:
                                                               
Net cash provided by (used in):
                                                               
Operating activities
  $ 28     $ 19     $ 12     $ 155     $ 686     $ 508       172       296  
Investing activities
    (16 )     (13 )     (6 )     (1,729 )     (1,151 )     (414 )     (275 )     (104 )
Financing activities
    (7 )     (12 )     (5 )     2,395       88       173       90       (412 )
Capital expenditures
    (18 )     (13 )     (6 )     (76 )     (249 )     (372 )     (140 )     (166 )
Other Financial Data:
                                                               
Adjusted EBITDA(2)
                            217       823       1,044       555       552  
Basic and diluted earnings per share:
                                                               
Income (loss) from continuing operations attributable to AEI Shareholders
                            (0.09 )     0.42       0.73       0.50       0.73  
Net income (loss) attributable to AEI Shareholders
                            (0.05 )     0.63       0.73       0.50       0.72  
Weighted average shares outstanding
                            202       209       218       214       229  
 
                                                 
    Elektra Noreste, S.A. (Predecessor)     AEI (Successor)  
    As of
    As of
    As of
    As of
    As of
    As of
 
    December 31,
    December 31,
    December 31,
    December 31,
    December 31,
    June 30,
 
    2004     2005     2006     2007     2008     2009  
          (In millions of $)                 (Unaudited)  
 
Balance Sheet Data:
                                               
Property, plant and equipment (net)
  $ 221     $ 228     $ 2,307     $ 3,035     $ 3,524     $ 3,842  
Total assets
    282       568       6,134       7,853       8,953       9,309  
Long-term debt
    95       90       2,390       2,515       3,415       2,915  
Total debt
    100       100       2,677       3,264       3,962       3,549  
Net debt(2)
    91       91       1,591       2,525       3,094       2,912  
Total equity attributable to AEI
    110       327       1,441       1,858       1,830       2,437  
 
 
(1) Includes Elektra on a consolidated basis for the entire year and PEI on the equity method basis from June to August and on the consolidated basis from September to December.
(2) See “Non-GAAP Financial Measures” and the reconciliation table below.
 
Net debt as indicated in the table above is reconciled below:
 
                                                 
    Elektra Noreste, S.A. (Predecessor)     AEI (Successor)  
    As of
    As of
    As of
    As of
    As of
    As of
 
    December 31,
    December 31,
    December 31,
    December 31,
    December 31,
    June 30,
 
    2004     2005     2006     2007     2008     2009  
          (In millions of $)                 (Unaudited)  
 
Total debt
  $      100     $      100     $      2,677     $      3,264     $      3,962       3,549  
Less
                                               
Cash and cash equivalents
    (7 )     (6 )     (830 )     (516 )     (736 )     (524 )
Current restricted cash
                (117 )     (95 )     (83 )     (57 )
Non-current restricted cash
    (2 )     (3 )     (139 )     (128 )     (49 )     (56 )
                                                 
Net debt
  $ 91     $ 91     $ 1,591     $ 2,525     $ 3,094     $     2,912  
                                                 

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Table of Contents

The following table sets forth the reconciliation of net income to Adjusted EBITDA for AEI for the year ended December 31, 2008 on a consolidated basis and by segment.
 
                                                         
                Natural Gas
                         
    Power
    Power
    Transportation
    Natural Gas
    Retail
             
    Distribution     Generation     and Services     Distribution     Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to AEI
  $     209     $     (16 )   $     53     $     26     $     17     $     (131 )   $     158  
Depreciation and amortization
    138       24       21       18       61       6       268  
Net income (loss) — noncontrolling interests
    12       (49 )     21       30       93       17       124  
Provision for income taxes
    110       43       25       28       21       (33 )     194  
Interest expense
    134       45       44       19       53       83       378  
Subtract:
                                                       
Interest income
    54       14       6       2       9       3       88  
Foreign currency transaction gain (loss), net
    (5 )     (25 )     (1 )     (3 )     (28 )     6       (56 )
(Gain) loss on disposition of assets
    (19 )                       69       43       93  
Other charges
          (44 )                       (12 )     (56 )
Other income (expense), net
    (11 )     19       10       (1 )     (15 )     7       9  
                                                         
Adjusted EBITDA
    584       83       149       123       210       (105 )     1,044  
                                                         
 
The following table sets forth the reconciliation of net income to Adjusted EBITDA for AEI for the year ended December 31, 2007 on a consolidated basis and by segment.
 
                                                         
                Natural Gas
                         
    Power
    Power
    Transportation
    Natural Gas
    Retail
             
    Distribution     Generation     and Services     Distribution     Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to AEI
  $      227     $      83     $      53     $      22     $      55     $      (309 )   $      131  
Depreciation and amortization
    139       42       20       8       3       5       217  
Net income (loss) — noncontrolling interests
    11       10       15       31       13       (15 )     65  
Provision for income taxes
    105       (16 )     29       20       12       43       193  
Interest expense
    90       41       42       14       12       107       306  
Subtract:
                                                       
Income from discontinued operations
                            3             3  
Gain from disposal of discontinued operations
                            41             41  
Interest income
    58       27       7       2       2       14       110  
Foreign currency transaction gain (loss), net
    3       19       (3 )     2             (2 )     19  
(Gain) loss on disposition of assets
    (10 )     21       6       3       1             21  
Other charges
          (50 )                             (50 )
Loss on early retirement of debt
                                  (33 )     (33 )
Other income (expense), net
    (2 )     (5 )     6       (2 )     (2 )     (17 )     (22 )
                                                         
Adjusted EBITDA
  $ 523     $ 148     $ 143     $ 90     $ 50     $ (131 )   $ 823  
                                                         


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Table of Contents

The following table sets forth the reconciliation of net income to Adjusted EBITDA for AEI for the year ended December 31, 2006 on a consolidated basis and by segment.
 
                                                         
                Natural Gas
                         
    Power
    Power
    Transportation
    Natural Gas
    Retail
             
    Distribution     Generation     and Services     Distribution     Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to AEI
  $      93     $      18     $      15     $      1     $      2     $      (140 )   $      (11 )
Depreciation and amortization
    47       9       2             1             59  
Net income — noncontrolling interests
    9       8       3                         20  
Provision for income taxes
    40       32       4             5       3       84  
Interest expense
    27       18       5             2       86       138  
Subtract:
                                                       
Income from discontinued operations
                            7             7  
Interest income
    20       11                         40       71  
Foreign currency transaction loss, net
    (4 )     (1 )                             (5 )
Gain on disposition of assets
    (7 )                                   (7 )
Other income (expense), net
    2       5       7                   (7 )     7  
                                                         
Adjusted EBITDA
  $ 205     $ 70     $ 22     $ 1     $ 3     $ (84 )   $ 217  
                                                         
 
The following table sets forth the reconciliation of net income to Adjusted EBITDA for AEI for the six months ended June 30, 2009 on a consolidated basis and by segment.
 
                                                         
                Natural Gas
                         
    Power
    Power
    Transportation
    Natural Gas
    Retail
             
    Distribution     Generation     and Services     Distribution     Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to AEI
  $      135     $      47     $      28     $      23     $      5     $      (70 )   $      168  
Depreciation and amortization
    61       22       10       11       22       3       129  
Net income (loss) — noncontrolling interests
    6       (8 )     18       21       17       (1 )     53  
Provision for income taxes
    66       29       6       14       19       (7 )     127  
Interest expense
    41       24       20       9       25       40       159  
Subtract:
                                                       
Interest income
    21       7       2       1       3       1       35  
Foreign currency transaction gain (loss), net
    (2 )     4             2       4       (2 )     6  
(Gain) on disposition of assets
    (10 )                                   (10 )
Gain on early retirement of debt
                                  3       3  
Other income (expense), net
    46       4       9             (8 )     (1 )     50  
                                                         
Adjusted EBITDA
  $ 254     $ 99     $ 71     $ 75     $ 89     $ (36 )   $ 552  
                                                         
 
The following table sets forth the reconciliation of net income to Adjusted EBITDA for AEI for the six months ended June 30, 2008 on a consolidated basis and by segment.
 
                                                         
                Natural Gas
                         
    Power
    Power
    Transportation
    Natural Gas
    Retail
             
    Distribution     Generation     and Services     Distribution     Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to AEI
  $      87     $      51     $      22     $      17     $      27     $      (98 )   $      106  
Depreciation and amortization
    72       11       11       9       26       3       132  
Net income (loss) — noncontrolling interests
    6       (8 )     9       17       98       2       124  
Provision for income taxes
    54       4       20       14       27             119  
Interest expense
    75       20       22       11       26       39       193  
Subtract:
                                                       
Interest income
    26       8       3       1       1       2       41  
Foreign currency transaction gain (loss), net
    4       9       (3 )     (1 )     14             23  
(Gain) loss on disposition of assets
    (11 )                       78       (14 )     53  
Other income (expense), net
    (8 )     9       6       (2 )     (3 )           2  
                                                         
Adjusted EBITDA
  $ 283     $ 52     $ 78     $ 70     $ 114     $ (42 )   $ 555  
                                                         


- 39 -


Table of Contents

PEI
 
The following table sets forth the financial results for the historical predecessor, Prisma Energy International, Inc.
 
                         
    Prisma Energy International Inc. (Predecessor)  
                For the 249-Day
 
    For the Year Ended
    For the Year Ended
    Period Ended
 
    December 31, 2004     December 31, 2005     September 6, 2006  
    (In millions of $)  
 
Statement of Operations Data:
                       
Revenues
  $        1,187     $        1,901     $        1,414  
Cost of sales
    575       930       750  
Operating expenses
                       
Operations, maintenance, general and administrative
    233       387       233  
Depreciation and amortization
    77       101       63  
Taxes other than income
    20       31       32  
Loss on disposition of assets
    3       14       6  
Equity income from unconsolidated affiliates
    111       109       35  
                         
Operating income
    390       547       365  
Interest income from unconsolidated affiliates
          4       2  
Interest income
    41       97       80  
Interest expense
    (65 )     (104 )     (96 )
Foreign currency transaction gain, net
    74       95       17  
Other income, net
    82       71       26  
                         
Income before income taxes
    522       710       394  
Provision for income taxes
    112       181       209  
                         
Net income
    410       529       185  
Less: Net income — noncontrolling interests
    16       79       21  
                         
Net income attributable to PEI shareholders
  $ 394     $ 450     $ 164  
                         
Cash Flow Data:
                       
Net cash provided by (used in):
                       
Operating activities
  $ 304     $ 507     $ 448  
Investing activities
    9       186       (448 )
Financing activities
    (169 )     (169 )     (580 )
Capital expenditures
    (53 )     (97 )     (72 )
Other Financial Data:
                       
Adjusted EBITDA(1)
            662       434  
 
                 
    Prisma Energy International Inc. (Predecessor)  
    As of December 31,
    As of December 31,
 
    2004     2005  
    (In millions of $)  
 
Balance Sheet Data:
               
Property, plant and equipment (net)
  $        1,673     $        1,629  
Total assets
    4,145       4,759  
Long-term debt
    622       748  
Total debt
    838       870  
Net debt(1)
    174       (375 )
Total equity attributable to PEI
    2,080       2,471  
 
 
(1) See “Non-GAAP Financial Measures.”


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Table of Contents

 
Net debt as indicated in the table above is reconciled below:
 
                 
    Prisma Energy International Inc. (Predecessor)  
    As of
    As of
 
    December 31, 2004     December 31, 2005  
    (In millions of $)  
 
Total debt
  $        838     $        870  
Less
               
Cash and cash equivalents
    (489 )     (1,046 )
Current restricted cash
    (144 )     (150 )
Non-current restricted cash
    (31 )     (49 )
                 
Net debt
  $ 174     $ (375 )
                 
 
The following table sets forth the reconciliation of net income to Adjusted EBITDA for PEI for the 249-day period ended September 6, 2006 on a consolidated basis and by segment:
 
                                                         
                Natural Gas
                         
    Power
    Power
    Transportation
    Natural Gas
                   
    Distribution     Generation     and Services     Distribution     Retail Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to PEI
  $       142     $       29     $       18     $       3     $       12     $       (40 )   $       164  
Depreciation and amortization
    25       29       5             3       1       63  
Net income — noncontrolling interests
          13       8                         21  
Income tax expense
    81       120       7             (2 )     3       209  
Interest expense
    59       34       15             6       (18 )     96  
Subtract
                                                       
Interest income from unconsolidated affiliates
                2                         2  
Interest income
    48       19       2                   11       80  
Foreign currency transaction, gain (loss), net
    5       13       (1 )                       17  
Loss on disposition of assets
    (6 )                                   (6 )
Other income (expense), net
    2       37       1                   (14 )     26  
                                                         
Adjusted EBITDA
  $ 258     $ 156     $ 49     $ 3     $ 19     $ (51 )   $ 434  
                                                         
 
The following table sets forth the reconciliation of net income to Adjusted EBITDA for Prisma Energy International for the year ended December 31, 2005 on a consolidated basis and by segment.
 
                                                         
                Natural Gas
                         
    Power
    Power
     Transportation 
    Natural Gas
                   
     Distribution      Generation     and Services     Distribution     Retail Fuel     Other     Total  
    (In millions of $)  
 
Net income (loss) attributable to PEI
  $       215     $       116     $       58     $       23     $       19     $       19     $       450  
Depreciation and amortization
    33       56       8             4             101  
Net income — noncontrolling interests
    1       61       17                         79  
Provision for income taxes
    102       72       9                   (2 )     181  
Interest expense
    99       63       18             12       (88 )     104  
Subtract:
                                                       
Interest income from unconsolidated affiliates
          1       2       1                   4  
Interest income
    34       50       4             1       8       97  
Foreign currency transaction, gain (loss), net
    83       6       4             2             95  
Loss on disposition of assets
    (5 )                 (9 )                 (14 )
Gain on early retirement of debt
    32       21                               53  
Other income (expense), net
    5       31                         (18 )     18  
                                                         
Adjusted EBITDA
  $ 301     $ 259     $ 100     $ 31     $ 32     $ (61 )   $ 662  
                                                         


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Table of Contents

 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
 
This discussion should be read together with the “Selected Consolidated Financial Data,” the consolidated financial statements and PEI’s consolidated financial statements included elsewhere in this prospectus. Unless otherwise indicated, the financial data contained in this prospectus have been prepared in accordance with U.S. GAAP. See “Forward-Looking Statements” and “Risk Factors” for a discussion of factors that could cause future financial condition and results of operations to be different from those discussed below.
 
Interests in certain companies are accounted for under the equity method, which means that their net income or losses are included into consolidated profit and loss accounts in proportion to the ownership interest that is owned of the relevant company or entity during the respective periods. See Note 11 to the consolidated financial statements for the year ended December 31, 2008 and Note 10 to the unaudited condensed consolidated financial statements for the six months ended June 30, 2009.
 
Overview
 
Our Business
 
We own and operate essential energy infrastructure assets in emerging markets. We group our businesses into five reporting segments: Power Distribution, Power Generation, Natural Gas Transportation and Services, Natural Gas Distribution and Retail Fuel.
 
For the years ended December 31, 2008, 2007 and 2006, we generated consolidated operating income of $813 million, $577 million and $151 million, respectively, net income attributable to AEI of $158 million, $131 million and net loss attributable to AEI of ($11 million), respectively and Adjusted EBITDA of $1,044 million, $823 million and $217 million, respectively. For the six months ended June 30, 2009, we generated consolidated operating income of $413 million, net income attributable to AEI of $168 million and Adjusted EBITDA of $552 million.
 
Our Reporting Segments
 
Our businesses consist of five reporting segments:
 
Our Power Distribution businesses distribute and sell electricity primarily to residential, industrial and commercial customers. Most of the businesses in this segment operate in a designated service area defined in a concession agreement. All of the concession agreements and/or associated regulations include tariffs that are periodically reviewed by regulators and are designed to provide for a pass-through to customers of the main non-controllable cost items (mainly power purchases and transmission charges), recovery of reasonable operating and administrative costs, incentives to reduce costs and make needed capital investments and a regulated rate of return.
 
Our Power Generation businesses generate and sell wholesale capacity and energy primarily to power distribution businesses and other large off-takers. Most of the businesses in this segment sell substantially all of their generating capacity and energy under long-term PPAs. Our PPAs generally are structured to minimize both our exposure to fluctuations in commodity fuel prices and are dollar denominated.
 
Our Natural Gas Transportation and Services businesses sell natural gas transportation capacity and related services to oil and gas producers, natural gas distribution companies and other large off-takers. Most of the businesses in this segment operate either through regulated concessions under a cost of service regulatory model or long-term contracts that provide for recovery of reasonable operating and administrative costs, incentives to continue cost reductions and make needed capital investments and a regulated rate of return.
 
Our Natural Gas Distribution businesses distribute and sell natural gas primarily to residential, industrial and commercial customers. Most of the businesses in this segment operate in a designated service area defined in a concession agreement. All of the concession agreements and/or associated regulations include tariffs that are periodically reviewed by regulators and are designed to provide for a pass-through to customers of the main non-controllable cost items (mainly natural gas purchases), recovery of reasonable operating and administrative costs, incentives to continue to reduce costs and make needed capital investments and a regulated rate of return. Most of these concession agreements are structured to minimize our exposure to fluctuations in commodity prices.


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Our Retail Fuel businesses distribute and sell liquid fuels and CNG primarily to wholesale and retail customers. In addition to owning, licensing and operating retail outlets, these businesses own fleets of bulk-fuel distribution vehicles. The businesses in this segment operate in a combination of regulated and unregulated markets. Retail fuel is a non-core business for us.
 
Trends and Factors Affecting our Business
 
Our business has historically been affected by, and we expect our business to continue to be affected by, the following key trends:
 
Energy Demand Growth in Our Markets.  We currently operate in emerging markets in Latin America, Central and Eastern Europe and Asia. Growth in emerging markets, as measured by GDP growth, has consistently outpaced growth in developed markets in the last 15 years. Global Insight expects this trend to continue predicting annual growth of 5.8% for countries which are not members of the OECD for the period 2010-2019 versus 2.3% for OECD countries over the same period. Emerging markets growth is primarily driven by industrialization and urbanization. The correlation between GDP growth and energy consumption such as electricity is high and we expect the growth in emerging markets to drive energy consumption and the associated infrastructure needs. Moreover, the low base consumption level of energy in emerging markets as compared to developed markets provides for more growth potential in emerging markets and will continue to drive overall energy and infrastructure demand. According to the CIA World Factbook, U.S. electricity consumption per capita is currently more than four times Chile’s, more than five times China’s, more than five times Brazil’s, more than 14 times Colombia’s and more than 15 times Peru’s. Natural gas consumption growth in non-OECD countries is also expected to be stronger than that of OECD countries (46% vs. 16% growth from 2006 to 2020) according to the Energy Information Administration’s 2009 International Energy Outlook. We believe this increased consumption growth is primarily driven by increased gas penetration in these countries. Due to the constraints on many of the governments in emerging markets and limitations on their ability to complete large-scale projects in a timely, cost-effective manner, we believe that a significant portion of this new investment capital will need to be provided by private, nongovernmental entities. This expected growth provides us with a significant opportunity to further expand and diversify our existing energy infrastructure assets and to grow through new brownfield and greenfield development opportunities.
 
The following table summarizes the electricity consumption growth rate in some of our principal markets:
 
                                                 
    2006     2007     2008  
          Electricity
          Electricity
          Electricity
 
          Consumption
          Consumption
          Consumption
 
    Real GDP
    Growth
    Real GDP
    Growth
    Real GDP
    Growth
 
    Growth(1)     Rate(2)     Growth(1)     Rate(2)     Growth(1)     Rate(2)  
 
Brazil
    4.0 %     3.9 %     5.7 %     5.8 %     5.1 %     3.8 %
Colombia
    6.9 %     4.1 %     7.5 %     4.0 %     2.5 %     1.6 %
Turkey
    6.9 %     9.7 %     4.7 %     9.5 %     1.1 %     5.5 %
Chile
    4.6 %     5.8 %     4.7 %     4.7 %     3.2 %     0.1 %
Peru
    7.7 %     8.5 %     8.9 %     13.1 %     9.8 %     8.7 %
 
 
(1) International Monetary Fund World Economic Outlook Database, April 2009 (includes IMF Staff Estimates)
(2) Global Insight and Instituto Nacional de Estadística.
 
Macroeconomic Developments in Emerging Markets.  We generate nearly all of our revenue from the production and delivery of energy in emerging markets. Therefore, our operating results and financial condition are directly impacted by macroeconomic and fiscal developments, including fluctuations in currency exchange rates, in those markets. In recent years, emerging markets have generally experienced significant macroeconomic and fiscal improvements. We expect these macroeconomic improvements to increase energy consumption by new industries and households as industrialization increases and standards of living improve.
 
Foreign Currency Changes.  The local currencies in many emerging markets in which we operate fluctuate against the U.S. dollar. Depreciation and appreciation of the currencies relative to the U.S. dollar result in volatility in earnings and cash flows (measured in U.S. dollars) from some of our subsidiaries, particularly Elektro in Brazil and Promigas in Colombia. Future fluctuations in exchange rates relative to the U.S. dollar may have a material effect on our earnings and cash flows. In the first six months of 2009, we have seen a general appreciation of emerging market currencies against the U.S. dollar.


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Acquisitions and Future Greenfield Development.  We have historically grown our business through acquisitions. This growth has resulted in material year-over-year changes in our financial condition and changes from equity method accounting to consolidation for certain subsidiaries, which affect the period comparison of our financial statements. We intend to continue growing our business through organic growth and additional acquisitions as well as through greenfield development. As a result of these growth initiatives, our future financial results will continue to reflect substantial changes compared to historical results. In addition, due to the significant costs incurred to develop greenfield energy projects and the fact that revenues are not generated until commercial operations begin, our financial ratios may also be adversely affected due to timing mismatches between our investments and the incremental revenues and cash flows generated by them.
 
Regulatory Developments in Emerging Markets.  In many of our markets, the regulatory frameworks have been and continue to be restructured in an attempt to create conditions that will foster investment and growth in energy supply to meet expected future energy requirements. The development and timing of this process varies across our markets. In some markets, such as Brazil and Colombia, major regulatory changes were implemented in the 1990s or early 2000s, and, in those countries, the regulatory framework is now relatively settled. In other markets, such as Turkey and China, the regulatory process is less evolved, with major changes continuing to take place, and it is unclear what the ultimate regulatory structure will be. In most of these markets, the common trend has been to establish conditions that foster and rely on the participation of the private sector in providing the needed infrastructure to support the current growth pattern of energy consumption. We believe that this trend will continue in most of the markets that we serve.
 
Tariff Reviews.  The tariffs of our regulated businesses, particularly those in the Power Distribution, Natural Gas Transportation and Services and Natural Gas Distribution segments, are periodically reviewed by regulators. These tariffs are reset periodically and are generally based on forward looking parameters such as energy sales and purchases, capital expenditures, operations and maintenance expenses and selling general and administrative expenses. A business’ returns in the period following a tariff reset may exceed those defined in the regulation depending on the business’ performance following a tariff review, as well as on factors out of the business’ control, such as the level of electricity or natural gas consumption. As a result, tariff reviews may result in tariff reductions to reset the business’ returns back to the regulated return levels.
 
Current market developments.  Material declines in asset values held by financial institutions over the past two years have resulted in significant write-downs of financial assets. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and investors ceased to provide funding to even the most credit worthy borrowers or to other financial institutions. If lack of available credit and lack of confidence in the financial markets, there may be a material and adverse effect on our financial condition and results of operations and our access to capital.
 
Commodity Price Changes.  There have been substantial changes in commodities prices in the last few years. Most of our revenue depends directly or indirectly, on fuel prices in the local markets we serve. In most cases, we are able to pass on the higher or lower fuel costs to our customers, which increases or decreases our revenue and costs of sales, but does not necessarily affect our operating income. These commodity price changes also affect our operations in several other ways; for example, steel and copper prices affect the costs of our capital investments.
 
Political Developments.  Political events in the markets in which we operate now or in the future could significantly impact our business and results of operations. For example, as energy demand in many emerging markets continues to grow, we may be presented with increased opportunities to expand and diversify our business as governments seek to encourage investment in the energy sector. Conversely, the political trends in certain countries, notably Venezuela and Bolivia, have resulted in the nationalization of certain infrastructure assets and businesses, particularly in the energy sector.
 
Environmental Concerns.  Many areas of the world are becoming more environmentally conscious, and in many emerging markets, environmental concerns are an important element in the definition of energy infrastructure policies and goals. We attach great importance to being environmentally and socially responsible in the markets in which we operate, identifying within the available and practical alternatives, energy solutions that have the least negative impact on the community.


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Recent Developments in 2009
 
  •        In January 2009, AEI and Centrans, a local Central American investment group, contributed their respective interests in various Nicaraguan power generation businesses to a common holding company, Nicaragua Energy Holdings. Currently, we own 57.67% and Centrans owns 42.33% of Nicaragua Energy Holdings, which indirectly owns 100.00% of Corinto and Tipitapa and a 22.05% interest in Amayo. Subject to obtaining consent from the other shareholder of Amayo, Centrans intends to contribute to Nicaragua Energy Holdings an additional interest indirectly representing 22.95% of Amayo. Following that contribution, we will own 51.6% and Centrans will own 48.40% of Nicaragua Energy Holdings. In addition, Centrans was given a call option that may be exercised at any time prior to December 8, 2013 to increase its interest in Nicaragua Energy Holdings up to 50.00%.
 
  •        In January 2009, we terminated our restructuring agreement with CIESA, an Argentine distribution company. Pursuant to this agreement, the debt that we held in CIESA was to be converted into equity of CIESA, subject to the receipt of various regulatory approvals prior to an agreed deadline. After extending this deadline twice, we terminated this agreement due to the fact that the requested approvals were not obtained. Following the termination, CIESA brought an action in New York against us seeking to avoid their payment obligations under the debt. Separately, in February 2009, we filed a petition in Argentina for the involuntary bankruptcy liquidation of CIESA, and this process is ongoing. See “Business — Legal Proceedings” for additional information.
 
  •        The BOT agreement between Subic and NPC expired on schedule in February 2009 and the plant was turned over to NPC.
 
  •        On May 1, 2009, we signed an agreement to purchase an additional 31.00% of Trakya. The closing of this transaction is subject to a number of conditions, including obtaining regulatory and third party consents. If these consents are obtained, we anticipate this transaction will be completed in 2009 and will result in an AEI ownership level of 90.00%.
 
  •        On May 20, 2009, we acquired a 19.91% interest in EMDERSA, an Argentine power distribution holding company, in exchange for a combination of cash and ordinary shares of AEI.
 
  •        On June 17, 2009, we made a third capital contribution to Emgasud of $15 million, which increased our ownership interest in Emgasud to 37.00%. In addition, the agreement pursuant to which we acquired our interest in Emgasud provides for the acquisition by us or our affiliates of up to a total 63.10% interest in Emgasud through our contribution of certain assets to Emgasud, subject to certain conditions including local regulatory and antitrust approvals.
 
  •        In August 2009, we purchased $15 million in principal amount of 19% senior unsecured convertible note due in July 2012 from Emgasud. The proceeds of this note are to be used to complete the development of the Energía Distribuida power generation project and related investments. The note is unsecured and is structurally subordinate to the senior secured bonds of Emgasud, but our consent is required for Emgasud to incur any additional debt.
 
Critical Accounting Policies and Estimates
 
This “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon AEI’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or U.S. GAAP, and require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Accounting policies are applied that management believes best reflect the underlying business and economic events, consistent with U.S. GAAP. The more critical accounting policies include those related to the basis of presentation, acquisition accounting, long-lived assets, valuation and impairment of goodwill and indefinite-lived intangibles, revenue recognition, recognition of regulatory assets and liabilities, accruals for income taxes, accruals for long-term employee benefit costs such as pension and other postretirement costs, foreign currency translation and


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measurement and contingencies. Inherent in such policies are certain key assumptions and estimates made by management. Although these estimates are based on management’s best available knowledge of current and expected future events, actual results could be different from those estimates, which by their nature bear the risk of change related to the ability to accurately forecast a future event and its potential impact. Management periodically updates its estimates used in the preparation of the consolidated financial statements based on its latest assessment of the current and projected business and general economic environment. These critical accounting policies have been discussed with the Audit Committee of the Board of Directors. Significant accounting policies are summarized in Note 2 to the consolidated financial statements for the year ended December 31, 2008.
 
Basis of Presentation
 
The consolidated financial statements include the accounts of all wholly-owned companies, majority-owned subsidiaries and controlled affiliates. Furthermore, we consolidate variable interest entities where it is determined that we are the primary beneficiary. Investments in entities where we hold an ownership interest of at least 20%, and which we neither control nor are the primary beneficiary but for which we exercise significant influence, are accounted for under the equity method of accounting. Other investments, in which we own less than a 20% interest, unless we can clearly exercise significant influence over operating and financing policies, are recorded at cost. The consolidated financial statements are presented in accordance with U.S. GAAP.
 
Acquisition Accounting
 
The purchase method of accounting is used for accounting for acquired businesses and requires that the assets acquired and liabilities assumed be recorded at the date of acquisition at their respective fair values. The application of the purchase method requires estimates and assumptions, in particular concerning the determination of the fair values of the acquired property, plant and equipment and intangible assets, as well as the liabilities assumed at the date of the acquisition. Additionally, the useful lives of the acquired property, plant and equipment and intangibles have to be determined. The judgments made in the context of purchase price allocation can materially impact future results of operations, as reported under U.S. GAAP. For example, if it were determined that the allocated fair value of the acquired property, plant and equipment were lower than the actual fair value by $100 million, goodwill would be higher by a corresponding after-tax amount, and depreciation expense would be reduced by approximately $5 million annually, based on an estimated average remaining useful asset life of approximately 19 years. Accordingly, for significant acquisitions, we utilize valuations based on information available at the acquisition date.
 
Significant judgments and assumptions made regarding the purchase price allocation for acquisitions include the following:
 
For acquired entities with regulated operations, primarily Elektro and Promigas, management determined the fair values which reflected the regulatory framework of the specific country in which the assets reside. For non-regulated facilities, which do not conform to a regulatory framework, management utilized appraisals, in part, to determine asset and liability fair values. These appraisals were typically based on either a depreciated replacement cost method to value property, plant and equipment or a discounted cash-flow analysis, to value, for example, long-term contracts, impairments of property plant and equipment and to determine enterprise value.
 
Appraisals using the depreciated replacement cost approach considered the replacement value taking into consideration market reports and technology, as well as, adjusting for an estimated remaining useful life considering new construction. These appraisals used an indirect cost approach considering replacement costs. These replacement costs were depreciated on a straight-line basis over the assets’ economic useful life according to an age analysis.
 
For Power Distribution and Power Generation intangible assets associated with concession rights, the valuation is based on the expected future cash flows and earnings. This method employs a discounted cash flow analysis using the present value of the estimated cash flows expected to be generated from the contract using risk adjusted discount rates and revenue forecasts as appropriate. The period of expected cash flows was based on the term of the concession agreements taking into account regulatory stability and the ability to renew these agreements.


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Long-Lived Assets
 
With respect to long-lived assets, key assumptions include the estimates of useful asset lives and the recoverability of carrying values of fixed assets and other intangible assets, as well as the existence of any obligations associated with the retirement of fixed assets. Such estimates could be significantly modified and/or the carrying values of the assets could be impaired by such factors as the relative pricing of wholesale electricity by region, the anticipated costs of fuel, changes in legal factors or in the business climate, including an adverse action or assessment by regulators, or a significant change in the market value, operation or profitability of an asset.
 
For long-lived assets, impairment would exist when the carrying value exceeds the sum of estimates of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. For regulated assets, an impairment charge could be offset by the establishment of a regulatory asset, if rate recovery was probable. The best information available is used to estimate fair value of long-lived assets and more than one source may be used.
 
The estimated useful lives of long-lived assets range from three to 50 years. Depreciation and amortization expense of these assets under the straight-line method over their estimated useful lives totaled $268 million in 2008 and $129 million for the six months ended June 30, 2009. If the useful lives of the assets were found to be shorter than originally estimated, depreciation and amortization charges would be accelerated over the revised useful life.
 
Goodwill and Indefinite Life Intangible Assets
 
Goodwill and intangible assets with indefinite useful lives are tested annually for impairment and whenever events or circumstances make it more likely than not that impairment may have occurred, such as a significant adverse change in the business climate or a decision to sell or dispose of all or a portion of a business unit. Determining whether an impairment has occurred requires valuation of the respective business unit, which is estimated using a discounted cash flow method based on actual operating results, future business plans, economic projections and market data. If this analysis indicates goodwill is impaired, measuring the impairment requires a fair value estimate of each identified tangible and intangible asset.
 
Revenue Recognition
 
Revenues are attributable to sales and other revenues associated with the transmission and distribution of power and natural gas; sales from the generation of power; and the wholesale and retail sale of gasoline and CNG.
 
Revenues from the sale of energy are recognized in the period in which the energy is delivered. The calculation of revenues earned but not yet billed is based on the number of days not billed in the month, the estimated amount of energy delivered during those days and the estimated average price per customer class for that month. The revenues from the Power Generation segment are recorded in each period based upon output delivered and capacity provided at rates specified under contract terms or prevailing market rates. Additionally, when the underlying contract meets the requirements of a lease, the associated revenues are recognized over the term of the lease. In addition, some contracts contain decreasing rate schedules, which results in revenue being levelized and recognized based upon the energy delivered rather than on customer billings.
 
Power Distribution sales to final customers are recognized when power is provided. Billings for these sales are made on a monthly basis. Revenues that have been earned but not yet billed are accrued based upon the estimated amount of energy delivered during the unbilled period and the approved or contractual billing rates for each category of customer. Revenues received from other power distribution companies for use of the basic transmission and distribution network are recognized in the month that the network services are provided.
 
Revenue on net investments in direct financing leases is recognized over the term of the PPA based on a constant periodic rate of return. Contingent rentals are recognized as received. Further information on the accounting for direct financing leases can be found in Note 13 to the consolidated financial statements. All other revenues are recognized when products are delivered.
 
An allowance for doubtful accounts for estimated uncollectible accounts receivable is determined based on the length of time the receivables are past due, economic and political trends and conditions affecting customers, significant events, and historical experience. Established reserves have historically been sufficient, and are based on


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specific customer circumstances, historical experience and current knowledge of the related political and economic environments. The balance of AEI’s allowance for doubtful accounts totaled $77 million at June 30, 2009.
 
Regulatory Assets and Liabilities
 
For regulated entities, assets and liabilities that result from the regulator rate-making process are recorded, which would not be recorded under U.S. GAAP in the case of non-regulated entities. We capitalize incurred allowable costs as deferred regulatory assets if it is probable that future revenue at least equal to the costs incurred will be billed and collected through approved rates. If future recovery of costs is not considered probable, the incurred cost is recognized as an expense. Regulatory liabilities are recorded for amounts expected to be passed to the customer as refunds or reductions on future billings. Regulatory assets totaled $120 million and regulatory liabilities totaled $116 million at June 30, 2009.
 
Income Taxes
 
We operate through various subsidiaries in many countries throughout the world. Deferred tax assets and liabilities are recognized based on the estimated future tax effects of differences between the financial statement and tax bases of assets and liabilities given the enacted tax laws. Income taxes have been provided based upon the tax laws and rates of the countries in which operations are conducted and income is earned. The need for a deferred tax asset valuation allowance is evaluated by assessing whether it is more likely than not that deferred tax assets will be realized in the future. The assessment of whether or not a valuation allowance is required often requires significant judgment, including the forecast of future taxable income and the evaluation of tax planning initiatives. Adjustments to the deferred tax valuation allowance are made to earnings in the period when such assessment is made.
 
On January 1, 2007, we adopted the provisions of the FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes, or FIN 48. Pursuant to FIN 48, the tax benefit from an “uncertain tax position” is only recognized when it is more-likely-than-not that, based on the technical merits, the position will be sustained by taxing authorities or the courts. When a tax position meets the more-likely-than-not recognition threshold, the recognized tax benefit is measured as the largest amount of tax benefit having a greater than fifty percent likelihood of being sustained upon ultimate settlement with a taxing authority that has full knowledge of the relevant information.
 
AEI and certain subsidiaries are under examination by relevant taxing authorities for various tax years. The potential outcome of these examinations in each of the taxing jurisdictions is regularly addressed when determining the adequacy of the provision for income taxes. Tax reserves have been established, which management believes to be adequate in relation to the potential for additional assessments. In the preparation of the consolidated financial statements, management exercises judgments in estimating the potential exposure to unresolved tax matters. While actual results could vary, in management’s judgment, accruals with respect to the ultimate outcome of such unresolved tax matters are adequate.
 
Pension and Other Postretirement Obligations
 
Through Elektro, two supplementary retirement and pension plans are sponsored for Elektro employees. Pension benefits are generally based on years of credited service, age of the participant and average earnings. The measurement of pension obligations, costs and liabilities depends on a variety of actuarial assumptions. These assumptions include estimates of the present value of projected future pension payments to all plan participants, taking into consideration the likelihood of potential future events such as salary increases, return on plan assets and demographic experience. These assumptions may have an effect on the amount and timing of future contributions. The plan actuary conducts an independent valuation of the fair value of pension plan assets.
 
The assumptions used in developing the required estimates include the discount rates, expected return on plan assets, retirement rates, inflation, salary growth and mortality rates. The effects of actual results differing from assumptions are accumulated and amortized over future periods and, therefore, generally affect recognized expense in such future periods. A variance in the assumptions listed above could have an impact on the December 31, 2008 funded status. A one percentage point reduction in the assumed discount rates would increase our benefit obligation for pensions and other postretirement benefits by approximately $33 million, and would reduce our net income by


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approximately $3 million. Based on the market value of plan assets at December 31, 2008, a one percentage point decrease in the expected rate of return on plan assets assumption would decrease our net income by approximately $2 million.
 
In certain countries, including Colombia, El Salvador, Guatemala, Nicaragua and Panama, local labor laws require us to pay severance indemnities to employees when their employment is terminated. In Argentina, EDEN is required to pay certain benefits to employees upon retirement. We accrue these benefits based on historical experience and third party evaluations.
 
Foreign Currency
 
We translate the financial statements of our international subsidiaries from their respective functional currencies into the U.S. dollar. An entity’s functional currency is the currency of the primary economic environment in which it operates and is generally the currency in which the business generates and expends cash. Subsidiaries whose functional currency is other than the U.S. dollar translate their assets and liabilities into U.S. dollars at the exchange rates in effect as of the balance sheet date. The revenues and expenses of such subsidiaries are translated into U.S. dollars at the average exchange rates for the year. Translation adjustments are included in accumulated other comprehensive income (loss), a separate component of equity. Foreign exchange gains and losses included in net income result from foreign exchange fluctuations on transactions denominated in a currency other than the subsidiary’s functional currency.
 
We have determined that the functional currency for some subsidiaries is the U.S. dollar due to their operating, financing, and other contractual arrangements. For the periods presented, the businesses that are considered to have their local currency as the functional currency are EDEN, Emgasud S.A., or Emgasud, and EMDERSA in Argentina; Tongda Energy Private Limited, or Tongda, BMG and Luoyang in China; Elektro in Brazil; DHA Cogen Limited, or DCL, in Pakistan; Elektrocieplownia Nowa Sarzyna Sp.z.o.o., or ENS, in Poland; Chilquinta in Chile; Luz del Sur in Peru; and certain operating companies of Promigas in Colombia.
 
Intercompany notes between subsidiaries that have different functional currencies result in the recognition of foreign currency exchange gains and losses unless we do not plan to settle or are unable to anticipate settlement in the foreseeable future. All balances eliminate upon consolidation.
 
Contingencies
 
Estimates of loss contingencies, with respect to legal, political and environmental issues, including estimates of legal defense costs, when such costs are probable of being incurred and are reasonably estimable and related disclosures are updated when new information becomes available. Estimating probable losses requires an analysis of uncertainties that often depend upon judgments about potential actions by third parties, status of laws and regulations and the information available about conditions in the various countries. Accruals for loss contingencies are recorded based on an analysis of potential results, developed in consultation with outside counsel and consultants when appropriate. The range of potential liabilities could be significantly different than amounts currently accrued and disclosed, with the result that our financial condition and results of operations could be materially affected by changes in the assumptions or estimates related to these contingencies. Further information related to contingencies can be found in Note 21 to the unaudited condensed consolidated financial statements for the six months ended June 30, 2009.
 
Recent Accounting Policies
 
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements, or SFAS No. 157. SFAS No. 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Certain requirements of SFAS No. 157 are effective for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The effective date for other requirements of SFAS No. 157 has been deferred for one year by the FASB. We adopted the sections of SFAS No. 157 which are effective for fiscal years beginning after November 15, 2007 and there was no impact on our consolidated statements of operations. We adopted the remaining requirements of SFAS No. 157 on January 1, 2009 and the adoption will impact the recognition of nonfinancial assets and liabilities in future business combinations and the future determinations of impairment for nonfinancial assets and liabilities.


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In February 2007, the FASB issued Statement No. 159, The Fair Value Option for Financial Assets and Financial Liabilities, or SFAS No. 159, effective for fiscal years beginning after November 15, 2007. SFAS No. 159 permits entities to choose, at specified election dates, to measure eligible items at fair value and requires unrealized gains and losses on items for which the fair value option has been elected to be reported in earnings. We adopted SFAS No. 159 on January 1, 2008 and have elected not to adopt the fair value option for any eligible assets nor liabilities.
 
In December 2007, the FASB issued Statement No. 141 (Revised 2007), Business Combinations, or SFAS No. 141R, that must be applied prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. SFAS No. 141R establishes principles and requirements on how an acquirer recognizes and measures in its financial statements identifiable assets acquired, liabilities assumed, noncontrolling interests in the acquiree, goodwill or gain from a bargain purchase and accounting for transaction costs. Additionally, SFAS No. 141R determines what information must be disclosed to enable users of the financial statements to evaluate the nature and financial effects of the business combination. We adopted SFAS No. 141R on January 1, 2009 and are applying the provisions to business combinations entered into subsequent to that date.
 
In December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51, or SFAS No. 160. SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary in an effort to improve the relevance, comparability and transparency of the financial information that a reporting entity provides in its consolidated financial statements. SFAS No. 160 is effective for fiscal years beginning after December 15, 2008. We adopted SFAS No. 160 on January 1, 2009 and have incorporated the changes in our financial statement presentation for all periods presented.
 
In November 2008, the FASB issued EITF Issue No. 08-6, Equity Method Investment Accounting Considerations, or EITF Issue No. 08-6. EITF Issue No. 08-6 establishes that the accounting application of the equity method is affected by the accounting for business combinations and the accounting for consolidated subsidiaries, which were affected by the issuance of SFAS No. 141R and SFAS No. 160. EITF Issue No. 08-6 is effective for fiscal years beginning on or after December 15, 2008, and interim periods within those fiscal years, consistent with the effective dates of SFAS No. 141R and SFAS No. 160. We adopted EITF Issue No. 08-6 on January 1, 2009 and are applying the provisions to any future equity method investments.
 
Although past transactions would have been accounted for differently under SFAS No. 141R, SFAS No. 160 and EITF Issue No. 08-6, application of these statements in 2009 will not affect historical amounts.
 
In March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (“SFAS No. 161”), which amends SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS No. 133”). SFAS No. 161 requires enhanced disclosures about how derivative and hedging activities affect an entity’s financial position, financial performance, and cash flows. SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November 15, 2008. We adopted SFAS No. 161 on January 1, 2009 and we incorporated the changes in our financial statements.
 
In April 2009, the FASB issued FASB Staff Position (“FSP”) FAS 107-1 and APB 28-1,Interim Disclosures about Fair Value of Financial Instruments,” which requires disclosures about fair value of financial instruments in interim reporting periods of publicly traded companies that were previously only required to be disclosed in annual financial statements. The provisions of FSP FAS 107-1 and APB 28-1 are effective for interim and annual periods ending after June 15, 2009. We have incorporated the additional disclosure requirements in our financial statements for the quarter ended June 30, 2009.
 
In April 2009, the FASB issued FSP FAS 157-4,Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly.” This FSP provides additional guidance on estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for an asset or liability have significantly decreased in relation to normal market activity for the asset or liability. FSP FAS 157-4 also provides guidance on identifying circumstances that indicate a transaction is not orderly. FSP FAS 157-4 is effective for interim and annual periods ending after June 15, 2009 and we have


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incorporated the additional disclosure requirements in our consolidated financial statements beginning with the quarter ended June 30, 2009.
 
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments,” which amends current other-than-temporary impairment guidance for debt securities to make it more operational and to improve the presentation and disclosure of other-than-temporary impairments on debt and equity securities in the financial statements. This FSP does not amend existing recognition and measurement guidance related to other-than-temporary impairments of equity securities. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual periods ending after June 15, 2009. We have incorporated the additional disclosure requirements in our consolidated financial statements beginning with the quarter ended June 30, 2009.
 
In May 2009, the FASB issued Statement No. 165, “Subsequent Events” (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. The provisions of SFAS No. 165 are effective for interim and annual periods ending after June 15, 2009. We adopted SFAS No. 165 as of June 30, 2009 and there was no significant impact on our consolidated financial statements.
 
In June 2009, the FASB issued Statement No. 166, “Accounting for Transfers of Financial Assets — an amendment of FASB Statement No. 140” (“SFAS No. 166”). SFAS No. 166 amends FASB Statement No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities”, to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. The provisions of SFAS No. 166 are effective for interim and annual reporting periods beginning after November 15, 2009. We will adopt this Statement on January 1, 2010 and apply this Statement and related disclosure provisions to transfers occurring on or after the effective date.
 
In June 2009, the FASB issued Statement No. 167, “Amendments to FASB Interpretation No. 46(R)” (“SFAS No. 167”). SFAS No. 167 amends certain requirements of FASB Interpretation No. 46 (Revised December 2003), “Consolidation of Variable Interest Entities” to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. The provision of SFAS No. 167 are effective for interim and annual reporting periods beginning after November 15, 2009. We will adopt this Statement on January 1, 2010 and have not determined the impact, if any, on our consolidated financial statements.
 
In June 2009, the FASB issued Statement No. 168, “The FASB Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162” (“SFAS No. 168”). SFAS No. 168 replaced FASB Statement No. 162, “The Hierarchy of Generally Accepted Accounting Principles” and identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United States. SFAS No. 168 is effective for financial statements issued for interim and annual periods ending after September 15, 2009. We will adopt this Statement for the interim period ending September 30, 2009 and incorporate the new codification in its consolidated financial statements. While the adoption of SFAS No. 168 will not have an impact on our consolidated financial statements, SFAS No. 168 will impact the reference to authoritative and non-authoritative accounting literature within the notes.
 
Discussion of Results of Operations
 
As discussed in “History and Development,” AEI was formed by a series of transactions that began with the contribution of Elektra shares to AEI in March 2006. Subsequently, in 2006, PEI was acquired in two stages, accounted for as a purchase step acquisition, as follows:
 
  •        Stage 1 (completed May 25, 2006) — AEIL acquired 24.26% of the voting capital and 49% of the economic interest in PEI.


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  •        Stage 2 (completed September 7, 2006) — AEIL acquired the remaining 75.74% of the voting capital and the remaining 51% economic interest.
 
In addition, during 2007, 2008 and the first six months of 2009, we completed a series of acquisitions and divestitures (see Notes 1 and 3 to the consolidated financial statements for the year ended December 31, 2008 and the unaudited condensed consolidated financial statements for the six months ended June 30, 2009).
 
As a result, our historical consolidated financial statements are not directly comparable because:
 
  •        the timing of AEI’s step acquisitions of PEI resulted in AEI accounting for PEI on an equity basis from May 25, 2006 to September 6, 2006 and on a consolidated basis thereafter; and
 
  •        we completed additional acquisitions throughout 2007, 2008 and 2009.
 
Included below is a discussion comparing AEI’s 2008, 2007 and 2006 audited results, as well as a discussion comparing the six months ended June 30, 2009 and 2008 unaudited results.
 
Management reviews the results of operations using a variety of measurements including an analysis of the statement of operations, and more specifically, revenues, cost of sales and operating expenses and operating income line items. These measures are important factors in our performance analysis. In order to better understand the discussion of operating results, detail regarding certain line items has been provided below.
 
A significant portion of our businesses’ revenues are related either to regulated tariffs or to long-term contracts, most of which include pass-through provisions for the cost of energy, fuel and gas. Our revenues and cost of sales may be significantly affected by the volatility in energy and fuel prices. Because of these pass-through provisions, fluctuations in revenues and cost of sales taken in absolute terms may themselves not be meaningful in the analysis of our financial results.
 
Revenues
 
  •        Power Distribution revenues are derived primarily from contracts with retail customers in the residential, industrial and commercial sectors. These revenues are based on tariffs which are reviewed by the applicable regulator on a periodic basis, and recognized upon delivery. In addition to a reasonable rate of return on regulatory assets and other amounts, tariffs include a pass-through of nearly all wholesale energy costs included in our Power Distribution cost of sales. Power Distribution revenues are significantly impacted by wholesale energy costs. Upon each periodic regulatory review, tariffs are reset to the appropriate level, which might be higher or lower than the current level, to align the business’ revenue to the authorized pass-through of costs and the applicable return on the business asset base. Therefore, revenues for a specific business may vary substantially from one period to the next if there has been a tariff reset in between.
 
  •        Power Generation revenues are generated from the sale of wholesale capacity and energy primarily under long-term contracts to large off-takers. Certain contracts contain decreasing rate schedules, which results in revenues being deferred due to differences between the amounts billed to customers and the average revenue stream over the life of the contract.
 
  •        Natural Gas Transportation and Services revenues are primarily service fees received based on regulated rates set by a government controlled entity, and the capacity volume allocated for natural gas transportation in pipelines. Additional revenues are recognized for other natural gas related services, such as compression or liquefaction. As with the Power Distribution segment, businesses in this segment are subject to periodic regulatory review of their tariffs.
 
  •        Natural Gas Distribution revenues are primarily generated from service fees received based on regulated rates, set by a government controlled entity, and the volume of natural gas sold to retail customers in the residential, industrial and commercial sectors. Similar to the Power Distribution segment, businesses in this segment are subject to periodic regulatory review of their tariffs.


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  •        Retail Fuel revenues represent primarily the distribution and retail sale of gasoline and CNG. Gasoline prices are normally regulated, whereas CNG prices are normally free of regulation, but tend to correlate with gasoline prices.
 
Cost of sales
 
Power Distribution cost of sales relates directly to the purchase of wholesale energy either under long-term contracts or in the spot market. The Power Distribution businesses are permitted to pass on nearly all wholesale energy costs to the customers, although there may be a lag in time as this pass through takes place through the tariff process. Therefore, increases and decreases in Power Distribution cost of sales directly impact Power Distribution revenues. The Power Generation segment cost of sales consists primarily of purchases of natural gas and other fuels for generation. Natural Gas Distribution and Retail Fuel cost of sales represents the cost of wholesale purchasing of the natural gas and other fuels that are resold to the final customers. Generally, significant costs are not incurred in the Natural Gas Transportation and Services businesses because we do not purchase the commodities being transported.
 
Operating expenses
 
Operating expenses include the following line items: operations, maintenance and general and administration expenses, depreciation and amortization, taxes other than income, other charges and (gain) loss on disposition of assets. Operations, maintenance and general and administration expenses include primarily direct labor, insurance, repairs and maintenance, utilities and other contracted expenses. These expenses are usually independent of the volumes of energy produced or distributed through the systems, but may fluctuate on a period to period basis. In the case of the principal executive offices, which are included as part of Headquarters/Other Eliminations, these expenses include the salaries and benefits of the personnel in that office as well as professional services contracted on behalf of the entire organization that do not pertain or relate to a particular business or group of businesses.
 
Foreign Currency
 
Our financial statements are reported in U.S. dollars. The financial statements of some of our subsidiaries are prepared using the local currency as the functional currency and translated into U.S. dollars. Period-end and average foreign currency rates impact our financial position and results of operations.
 
The following table presents the period-end and average exchange rates of the U.S. dollar into the local currency where we are primarily exposed to fluctuations in the exchange rate.
 
                                         
    June 30,     December 31,  
    2009     2008     2008     2007     2006  
 
Period-end exchange rates:
                                       
Brazilian real
    1.96       1.61       2.40       1.77       2.14  
Chilean peso
    550       513       648       498       533  
Colombian peso
    2,090       1,903       2,253       2,044       2,240  
Polish zloty
    3.21       2.13       2.97       2.45       2.91  
 
                 
    For the Six Months Ended June 30,  
    2009     2008  
 
Average period exchange rates:
               
Brazilian real
    2.18       1.70  
Chilean peso
    579       467  
Colombian peso
    2,350       1,862  
Polish zloty
    3.40       2.29  
 
                         
    For the Year Ended December 31  
    2008     2007     2006  
 
Average period exchange rates:
                       
Brazilian real
    1.83       1.95       2.18  
Chilean peso
    527       22       539  
Colombian peso
    1,990       2,120       2,424  
Polish zloty
    2.42       2.77       3.11  
 
 
Source: Bloomberg financial website for June 2009 and December 2008; OANDA Corporation financial website for other periods presented.


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AEI Results of Operations
 
The results of the following businesses are reflected in the results of continuing operations in the periods indicated. For additional information, see “— Critical Accounting Policies and Estimates — Basis of Presentation.”
 
                     
    For the Six Months Ended June 30,   For the Year Ended December 31,
    2009   2008   2008   2007   2006
 
Power Distribution
                   
Chilquinta
  Equity Method   Equity Method   Equity Method   Equity Method(7)  
Delsur
  Consolidated   Consolidated   Consolidated   Consolidated(7)  
EDEN
  Consolidated   Consolidated   Consolidated   Consolidated(7)  
Elektra
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated
Elektro
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
EMDERSA
  Equity Method(10)        
Luz del Sur
  Equity Method   Equity Method   Equity Method   Equity Method(7)  
Power Generation
                   
Amayo
  Equity Method(10)(11)        
BLM(2)
          Consolidated(1)
Corinto
  Consolidated(11)   Consolidated   Consolidated   Consolidated(3)   Equity Method(1)
Cuiabá — EPE
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
DCL
  Consolidated     Consolidated(8)    
ENS
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
Emgasud
  Equity Method(12)     Equity Method(8)    
Fenix
  Consolidated   Consolidated   Consolidated(8)    
Jaguar
  Consolidated   Consolidated   Consolidated(8)    
JPPC
  Consolidated   Consolidated   Consolidated   Consolidated(7)  
Luoyang
  Consolidated   Consolidated   Consolidated(8)    
PQP
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
San Felipe
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
Subic
    Equity Method   Equity Method   Equity Method   Equity Method(1)
Tipitapa
  Consolidated(11)   Consolidated   Consolidated(8)    
Trakya
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
Natural Gas Transportation and Services
                   
Accroven
  Equity Method   Equity Method   Equity Method   Equity Method   Equity Method(1)
Centragas(5)
  Equity Method   Equity Method   Equity Method   Equity Method   Equity Method(4)
Cuiabá — GOB/GOM/TBS
  Consolidated   Consolidated   Consolidated   Consolidated   Consolidated(1)
GBS(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
GTB
  Cost Method   Cost Method   Cost Method(6)   Equity Method   Equity Method(1)
Promigas
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
PSI(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
TBG
  Cost Method   Cost Method   Cost Method   Cost Method   Cost Method(1)
Transmetano(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
Transoccidente(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
Transoriente(5)
  Equity Method   Equity Method   Equity Method   Equity Method   Equity Method(4)
Transredes
  Cost Method   Cost Method   Cost Method(6)   Equity Method   Equity Method(1)
Natural Gas Distribution
                   
BMG
  Consolidated   Consolidated   Consolidated   Cost Method(7)  
Cálidda
  Consolidated   Consolidated   Consolidated   Consolidated(7)  
Gases de Occidente(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
Gases del Caribe(5)
  Equity Method   Equity Method   Equity Method   Equity Method   Equity Method(4)
Surtigas(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
Tongda
  Consolidated   Consolidated   Consolidated   Consolidated(7)  
Retail Fuel
                   
Gazel(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
SIE(5)
  Consolidated   Consolidated   Consolidated(9)   Equity Method   Equity Method(4)


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    For the Six Months Ended June 30,   For the Year Ended December 31,
    2009   2008   2008   2007   2006
 
Other
                   
Promitel(5)
  Consolidated   Consolidated   Consolidated   Consolidated   Equity Method(4)
 
 
(1) Acquired in 2006 as part of the step acquisition of PEI.
(2) AEI divested its interests in BLM on March 14, 2007.
(3) In August and September 2007, through a series of transactions, AEI acquired an additional net 15% interest in Corinto and began consolidating Corinto’s results as of September 2007.
(4) Acquired as part of the 2006 step acquisition of PEI. Promigas is reflected in AEI’s results under the equity method during 2006. A controlling interest in Promigas was purchased on December 27, 2006 and as a result, only its balance sheet is consolidated with AEI at December 31, 2006. These entities were accounted for under the equity method for the year ended December 31, 2006.
(5) AEI ownership interest is held through its ownership in Promigas.
(6) The Company’s ownership in Transredes, and therefore GTB, changed during June 2008 as explained further in Note 3 to the consolidated financial statements for the year ended December 31, 2008.
(7) The Company’s initial interest was acquired during 2007.
(8) The Company’s initial interest was acquired during 2008.
(9) On January 2, 2008, Promigas contributed its ownership interests in Gazel to SIE in exchange for additional shares of SIE. As a result of this transaction, Promigas’ ownership in SIE increased from 37.19% as of December 31, 2007 to 54% with SIE owning 100% of Gazel. See Note 3 to consolidated financial statements for year ended December 31, 2008.
(10) The Company’s initial interest was acquired during 2009.
(11) During the first quarter of 2009, as part of the Nicaragua Energy Holdings (“NEH”) transaction, AEI’s ownership in Corinto increased from 50% to 57.67% and AEI’s ownership in Tipitapa decreased from 100% to 57.67%. See Note 3 to the unaudited condensed consolidated financial statements for the six months ended June 30, 2009.
(12) In June 2009, the Company increased its ownership in Emgasud S.A. from 31.89% to 37.00%. See Note 3 to the unaudited condensed consolidated financial statements for the six months ended June 30, 2009.
 
Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008
 
The following discussion compares AEI’s results of continuing operations for the six months ended June 30, 2009 to the six months ended June 30, 2008.
 
Revenues
 
The table below presents our consolidated revenues by significant geographical location for the six months ended June 30, 2009 and 2008. Revenues are reported in the country in which they are earned. Intercompany revenues between countries have been eliminated in Other.
 
                 
    For the Six Months Ended June 30,  
    2009     2008  
    (In millions of $)  
 
Colombia
  $      1,612     $      1,970  
Brazil
    598       732  
Chile
    415       709  
Panama
    279       410  
Turkey
    202       161  
El Salvador
    107       82  
Guatemala
    87       110  
China
    71       46  
Dominican Republic
    70       122  
Argentina
    59       56  
Other
    203       206  
                 
Total revenues
  $   3,703     $   4,604  
                 
 
The following table reflects revenues by segment:
 
                 
    For the Six Months Ended June 30,  
    2009     2008  
    (In millions of $)  
 
Power Distribution
  $   917     $   1,055  
Power Generation
    507       557  
Natural Gas Transportation and Services
    99       102  
Natural Gas Distribution
    302       271  
Retail Fuel
    1,925       2,663  
Headquarters/Other/Eliminations
    (47 )     (44 )
                 
Total revenues
  $   3,703     $   4,604  
                 

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Revenues decreased by $901 million to $3,703 million for the six months ended June 30, 2009 compared to $4,604 million for the six months ended June 30, 2008. The decrease was primarily due to the decrease in revenues at SIE ($749 million), Elektro ($116 million), San Felipe ($52 million), Elektra ($50 million) and PQP ($23 million) as described below, partially offset by acquisitions ($31 million) made in 2008 and the increase in revenues at Trakya ($41 million) and Delsur ($25 million) as described below.
 
Power Distribution
 
Revenues from the Power Distribution segment decreased by $138 million to $917 million for the six months ended June 30, 2009 compared to $1,055 million for the six months ended June 30, 2008. The decrease was primarily due to decreased revenues at Elektro ($116 million) and Elektra ($50 million), partially offset by the increased revenues at Delsur ($25 million). The decreased revenues at Elektro were primarily due to the devaluation of the Brazilian real relative to the U.S. dollar ($154 million), partially offset by higher pricing ($33 million) as a result of both a favorable tariff adjustment that occurred in August 2008 and an unfavorable 2007 tariff adjustment that was implemented in 2009. The decreased revenues at Elektra were primarily due to lower pricing ($53 million) as a result of the monthly and bi-annual tariff adjustments to the energy cost component of its customer tariff as a result of lower fuel costs. The increased revenues at Delsur were primarily due to higher pricing ($25 million) as a result of the elimination of the government subsidy to power generators.
 
Power Generation
 
Revenues from the Power Generation segment decreased by $50 million to $507 million for the six months ended June 30, 2009 from $557 million for the six months ended June 30, 2008. The decrease was primarily due to decreased revenues at San Felipe ($52 million), PQP ($23 million), ENS ($13 million), Corinto ($12 million) and JPPC ($12 million), partially offset by additional revenues from the acquisition of interests in Luoyang ($11 million) and Tipitapa ($15 million) and the increased revenues at Trakya ($41 million). The decreased revenues at San Felipe and Corinto were primarily due to lower fuel prices which were passed on to their customers and lower generation volume as a result of lower dispatch orders primarily due to higher availability of hydro generation. The decreased revenues at PQP and JPPC were primarily due to lower fuel prices which were passed on to their customers, partially offset by higher generation volume as a result of higher dispatch orders primarily due to unavailability of other generation units. The decreased revenues at ENS were primarily due to the devaluation of the Polish zloty relative to the U.S. dollar, partially offset by the stranded cost and fuel cost compensation obtained from the Polish government as a result of the voluntary termination of its Power Purchase Agreement (“PPA”) effective on April 1, 2008. The increased revenues at Trakya were primarily due to higher generation volume compared to the second quarter of 2008 which was lower due to major plant maintenance.
 
Natural Gas Transportation and Services
 
Revenues from the Natural Gas Transportation and Services segment decreased by $3 million to $99 million for the six months ended June 30, 2009 compared to $102 million for the six months ended June 30, 2008. The decrease was primarily due to lower revenues generated at Promigas as a result of lower transportation volume primarily due to lower industrial and generation demand for gas, partially offset by higher revenues generated at the ancillary service business at Promigas as a result of a favorable tariff increase in June and December of 2008.
 
Natural Gas Distribution
 
Revenues from the Natural Gas Distribution segment increased by $31 million to $302 million for the six months ended June 30, 2009 compared to $271 million for the six months ended June 30, 2008. The increase was primarily due to increased revenues at Promigas’ subsidiaries ($12 million), Cálidda ($9 million) and BMG ($11 million). The increased revenues at Promigas’ subsidiaries were primarily due to higher distribution volumes as a result of higher customer demand and higher distribution tariffs, partially offset by the devaluation of the Colombian peso relative to the U.S. dollar. The increased revenues at Cálidda were primarily due to the higher volume distributed as a result of an increased customer base. The increased revenues at BMG were primarily due to our acquisition of an additional interest in BMG on January 30, 2008 ($5 million) and the increased revenues as a result of the increased connection fee and construction fee revenues ($6 million).


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Retail Fuel
 
Revenues from the Retail Fuel segment decreased by $738 million to $1,925 million for the six months ended June 30, 2009 compared to $2,663 million for the six months ended June 30, 2008. The decrease was primarily due to the devaluation of the Colombian and Chilean pesos based on the average rates for the first six months of each year relative to the U.S. dollar and lower retail fuel prices passed on to customers and generally lower aviation fuel prices which are based on regulatory set rates.
 
Cost of Sales
 
The following table reflects cost of sales by segment:
 
                 
    For the Six Months Ended June 30,  
    2009     2008  
    (In millions of $)  
 
Power Distribution
  $        563     $        648  
Power Generation
    371       438  
Natural Gas Transportation and Services
    7       7  
Natural Gas Distribution
    191       173  
Retail Fuel
    1,735       2,428  
Headquarters/Other/Eliminations
    (51 )     (52 )
                 
Total cost of sales
  $   2,816     $   3,642  
                 
 
Cost of sales decreased by $826 million to $2,816 million for the six months ended June 30, 2009 compared to $3,642 million for the six months ended June 30, 2008. The decrease was primarily due to the decrease in cost of sales at SIE ($700 million), San Felipe ($66 million), Elektro ($56 million), Elektra ($50 million) and PQP ($20 million) as described below, partially offset by the increase in cost of sales at Trakya ($29 million) and Delsur ($25 million) as described below.
 
Power Distribution
 
Cost of sales for the Power Distribution segment decreased by $85 million to $563 million for the six months ended June 30, 2009 compared to $648 million for the six months ended June 30, 2008. The decrease was primarily due to decreased cost of sales at Elektro ($56 million) and Elektra ($50 million), partially offset by increased cost of sales at Delsur ($25 million). The decreased cost of sales at Elektro was primarily due to the devaluation of the Brazilian real relative to the U.S. dollar ($82 million), partially offset by higher energy prices and transportation charges ($23 million). The decreased cost of sales at Elektra was primarily due to a lower average price of purchased electricity ($56 million) as a result of decreased fuel costs. The increased cost of sales at Delsur was primarily due to the higher average price of purchased electricity ($25 million) as a result of the elimination of the government subsidy to power generators.
 
Power Generation
 
Cost of sales for the Power Generation segment decreased by $67 million to $371 million for the six months ended June 30, 2009 compared to $438 million for the six months ended June 30, 2008. The decrease was primarily due to the decreased cost of sales at San Felipe ($66 million), PQP ($20 million), Corinto ($12 million), ENS ($8 million) and JPPC ($7 million), partially offset by the increased cost of sales at Trakya ($29 million) and the additional cost of sales from the acquisition of interests in Tipitapa ($11 million) and Luoyang ($8 million) during June and February 2008, respectively. The decreased cost of sales at San Felipe and Corinto was primarily due to lower fuel prices and reduced generation volume due to lower dispatch orders primarily due to higher availability of hydro generation. The decreased cost of sales at PQP and JPPC was primarily due to the lower fuel prices, partially offset by higher generation volume primarily due to unavailability of other generation units. The decreased cost of sales at ENS was primarily due to the devaluation of the Polish zloty relative to the U.S. dollar ($14 million), partially offset by higher gas prices ($6 million). The increased cost of sales at Trakya was primarily due to higher generation volume compared to the second quarter of 2008 which was lower due to major plant maintenance.


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Natural Gas Transportation and Services
 
Cost of sales for the Natural Gas Transportation and Services segment were $7 million for the six months ended June 30, 2009 and 2008 associated with Promigas and TBS which incur marginal costs for the purchase of gas and management services.
 
Natural Gas Distribution
 
Cost of sales for the Natural Gas Distribution segment increased by $18 million to $191 million for the six months ended June 30, 2009 compared to $173 million for the six months ended June 30, 2008. The increase was primarily due to the increased cost of sales at Promigas subsidiaries ($9 million) and Cálidda ($7 million). The increased cost of sales at Promigas’ subsidiaries was primarily due to higher customer demand and higher natural gas wellhead prices, partially offset by the devaluation of the Colombian peso relative to the U.S. dollar. The increased cost of sales at Cálidda was primarily due to higher distribution volume as a result of an increased customer base.
 
Retail Fuel
 
Cost of sales for the Retail Fuel segment decreased by $693 million to $1,735 million for the six months ended June 30, 2009 compared to $2,428 million for the six months ended June 30, 2008. The decrease was primarily due to the decreased cost of sales at SIE ($700 million) as a result of the devaluation of the Colombian and Chilean pesos relative to the U.S. dollar and a decrease in fuel prices.
 
Operating Expenses
 
Operations, Maintenance and General and Administrative Expenses
 
The following table reflects operations, maintenance and general and administrative expenses by segment:
 
                 
    For the Six Months Ended June 30,  
    2009     2008  
    (In millions of $)  
 
Power Distribution
  $        130     $        160  
Power Generation
    38       67  
Natural Gas Transportation and Services
    28       32  
Natural Gas Distribution
    39       35  
Retail Fuel
    92       109  
Headquarters/Other/Eliminations
    37