2008 Annual Report Energy that becomes energy 2008 Annual Report The largest integrated electricity company in Argentina Distribution Transmission Generation CREATE It generates 8% of the total electricity in Argentina and the current installed capacity of its five power plants amounts to 2000MW. Distribution Transmission Generation 2008 Annual Report www.pampaenergia.com 2008 Annual Report Energy that becomes energy The largest integrated electricity company in Argentina We generate We transmit Pampa Energía, a Company dedicated to people. We distribute CREATE Generation It generates 8% of the total electricity in Argentina and the current installed capacity of its five power plants amounts to 2000 MW. TRANSMIT Transmission It transports 95% of the total electricity in Argentina through its national network of extra high voltage power transmission, which consists of 16,263 km of transmission lines. REACH It distributes electricity to more than 2,500,000 customers including Distribution residential, commercial and corporate customers. DistribuciónDistribution Transmission 2008 Annual Report www.pampaenergia.com 2008 Annual Report Energy that becomes energy The largest integrated electricity company in Argentina We generate We transmit Pampa Energía, a Company dedicated to people. We distribute CREATE Generation It generates 8% of the total electricity in Argentina and the current installed capacity of its five power plants amounts to 2000 MW. TRANSMIT Transmission It transports 95% of the total electricity in Argentina through its national network of extra high voltage power transmission, which consists of 16,263 km of transmission lines. REACH It distributes electricity to more than 2,500,000 customers including Distribution residential, commercial and corporate customers. Distribution Contents 01. Our Goal and Strategy 12 02. Corporate Governance 13 03. Our Shareholders / Stock Price Development 17 04. Macroeconomic Context 18 05. The Argentine Electricity Market 20 06. Relevant Events of the Fiscal Year 27 07. Description of Our Assets 30 Hidroeléctrica Nihuiles S.A. (“HINISA”) 35 Hidroeléctrica Diamante S.A. (“HIDISA”) 37 Central Térmica Güemes S.A. (“Güemes” o “CTG”) 39 Central Térmica Loma de la Lata S.A. (“CTLLL”) 41 Central Piedra Buena S. A. (“CPB”) 43 Summary of Expansion Projects 45 Compañía de Transporte de Energía Eléctrica en alta Tensión TRANSENER S.A. 47 Empresa Distribuidora y Comercializadora Norte S.A. (“Edenor”) 53 08. Human Resources 56 09. Corporate Social Responsibility 57 10. Information Technology 59 11. Environmental Management 60 12. Fiscal Year Results 61 13. Dividend Policy 65 14. Proposal by the Board of Director 66 Financial Statements 67 10 Pampa Energía 2008 ANNUAL REPORT To the Shareholders of Pampa Energía S.A. (“Pampa” or “the Company”): In accordance with statutory and by- laws provisions currently in force, we submit to your consideration the Annual Report and the Financial Statements as of December 31, 2008 and for our sixty-fifth fiscal year then-ended. 1. Our Goal and Strategy Our deepest aspiration is to become Argentina’s leading energy company, in terms of market share, operational excellence and profitability. In the course of fiscal year 2008, and with our electricity generation assets having been integrated into a centralized service unit, we focused our efforts to: • Position the Company as the leader in the supply of Energía Plus. In September 2008 we completed the expansion of Central Térmica Güemes’ installed capacity through the installation of a 100MW General Electric LMS-100 turbine. This expansion required a total investment of US$69 million. It is important to note that during 2008 this capacity was fully commercialized at an average price of over US$60 per MWh and now Pampa is the company with the highest volume of Energía Plus contracts sold in the market. • Raise our administrative and control standards. To attain this goal, in the course of the fiscal year we implemented the SAP system in all our electricity generation subsidiaries in record time and with an ambitious scope. Thanks to the implementation of this project, the Com- pany now has in place administrative procedures common to many of its areas and improved operations control, which raises the Company’s standards to international levels. In this respect, the implementation of SAP laid down the foundations for orderly management geared towards compliance with international standards (SOX). • Finance new expansions of our installed generation capacity. On September 8, 2008 we issued bonds, through our subsidiary Central Térmica Loma de la Lata, for US$178 million maturing in 2015 whose proceeds shall be applied to financing the works required to expand capacity at Central Térmica Loma de la Lata, in the Province of Neuquén. The project consists in converting such thermal station to a combined cycle station through a steam turbine and three recovery boilers which shall result in a 178 MW increase in its current capacity and require an investment of approximately US$205 million. • Increase our interests in energy assets by repurchasing shares. As a consequence of the international financial crisis which had an adverse impact on the price of our shares and as a part of our strategy to focus on energy assets and to dispose of non-strategic assets, in 2008 we began a process to repurchase our own shares. As of December 31, 2008, we had repurchased 8.3% of our capital stock at an average price of AR$0.96 per share, which in the aggregate amounted to AR$120.8 million. Moreover, during 2009 we continued with the repurchases of shares, which as of March 6 amounted to an additional 4.7% of Pampa’s capital stock, at an average price of AR$0.98 per share, which totals AR$70.5 million. • Take advantage of current financial markets conditions to repurchase our debt at a discount. During 2008, and due to the drop in the value of the notes of our subsidiaries, Pampa and its subsidiaries have repurchased bonds of Edenor, EASA, Transener and Central Térmica Güemes as of December 31, 2008 for a total amount in nominal value of US$127.2 million at an average price equivalent to 55% of nominal value. Besides, in the period starting January 1, 2009 and ending March 6, 2009, Pampa and its subsidiaries have repurchased a total of US$79.3 million in nominal value of bonds of those companies at an average price of 46%. • Continue developing of one of the most experienced management teams in the electricity sector, thanks to the recruitment of pro- fessionals who are highly renowned in the industry. Looking forward, our strategy focuses on: • Developing new Generation to take advantage of the benefits of the Energía Plus program. We have selected our generation assets based on their potential to expand its installed capacity so that we can increase our market share. • Improving our operating efficiency. A major portion of our resources is devoted to improving efficiency through the containment of costs associated to failures in our transmission segment, the improvement of service quality and the reduction of losses in the distribution segment. We are optimizing our commercial, administrative and technical resources, which are shared with our generation segment, and we are also reaping the benefits of synergies amongst our various businesses. • Taking advantage of improvements in tariff schemes. We continue negotiating the recomposition of the tariff structures in our distribution and transmission segments and working for the recognition of the costs and margins related to our generation assets. • Identifying and developing new opportunities in the electricity and energy sectors. Given our expertise and leadership in the Argentine electricity sector, we believe that we are in a favorable position to pursue new opportunities in those sectors. • Optimizing our capital structure. Within the new financial and economic environment at the local and international levels, we continue to seek the financial resources that will contribute to optimize our capital structure and allow us to make new investments in the energy sector. 14 Pampa Energía 2. Corporate Governance In Pampa we believe that the best way of retaining and protecting our investors is to adopt and im- plement the best corporate governance practices which enable us to consolidate our position as one of the most transparent and reliable companies in the market. In this sense, we work at all times to incorporate these practices taking into account the international market trends and the local and international regulations in force which are applicable in terms of cor- porate governance. The Board of Directors The power to adopt decisions in the Company is vested in the Board of Directors. The Board of Directors is composed of nine directors and seven alternate directors, of whom three directors and one alternate director are independent. All our directors are elected for a term of three years and can be successively reelected, except for our independent directors, who cannot be reelected for successive terms. An internal control system has been set up according to the delegation of administration and arrangement powers for directors and senior managers, in accordance with differentiated authority degrees. The directors who perform executive functions are entitled to a compensation that must be approved by the Audit Committee, and they are required to sign exclusivity and non-competition agreements and to be holders of 45 million shares of the Company in order to exercise the warrants (“Warrants”) granted to them. These provisions are designed to ensure a strong alignment of interests of our management with those of the rest of Pampa’s shareholders. However, it is important to highlight that due to the international financial crisis which had a negative impact on the market value of Pampa’s shares, as of December 31, 2008 the average exercise price of warrants granted to executive officers was 130% above the market value of our shares.