CORPORATE GOVERNANCE REPORT

Transcription

1 CORPORATE GOVERNANCE REPORT

2 CORPORATE GOVERNANCE REPORT For second consecutive year, ISA won ALAS20 award as Leading Company in Corporate Governance, in recognition of its good practices related to how the company communicates to its stakeholders, and particularly to investors, the adoption of the best practices of corporate governance, beyond legal and regulatory compliance. For ISA, corporate governance is the set of values, principles, policies, rules, means, practices and processes by which it is governed, operated, and controlled, always looking for corporate efficiency, promoting growth and fostering investor s reliability in national and international contexts. For this purpose, ISA is regulated by transparency and coherence practices in their actions. It also obtains better funding conditions by the perception of lower risk from creditors and investors, respects those who invest in ISA, and fulfills commitments with its stakeholders. By complying with the provisions of Bylaws and the new Good Corporate Governance Code, ISA s Board presents the corresponding report for the 2016 period, which describes the compliance with the corporate governance practices adopted by the Company, following the structure recommended by Country Code. In addition, ISA conducted and remitted in a timely manner to the Financial Superintendence the report of implementation of best corporate practices corresponding to 2016, which is published on the corporate website. See Country Code detailed report PROPERTY S STRUCTURE ISA is a Public Utility Mixed Company with state and private shareholders. The Nation, by means of the Ministry of Finance and Public Credit is the ISA s major shareholder or comptroller by being the holder of 51,41% of the share capital. Shareholder structure (Dec ) Shareholders Shares % State investors 682,078, The Nation 569,472, Empresas Públicas Medellín 112,605, Companies with mixed capital 18,448, Empresas de Energía de Bogotá 18,448, Private investments 407,151, Institutional 240,925, Foreign investment funds 92,307, Natural persons 56,364, Legal persons 17,222, ISA ADR Program 332, Subscribed and paid-up outstanding capital 1,107,677, ( 2 )

3 Authorized capital Subscribed capital Paid-up capital Repurchased shares SHARE CAPITAL COP 45,000,000,000 divided into 1,371,951,219 shares. COP 36,916,334,931 divided into 1,125,498,016 shares. COP 36,916,334,931 divided into 1,125,498,016 shares. COP 584,500,002 divided into 17,820,122 shares. In the corporate website, the list of the 20 main shareholders is published. See ISA s shareholder structure Structure of the corporate group s property Interconexión Eléctrica S.A. E.S.P. is the parent company of ISA s Corporate Group, made up by affiliates and subsidiaries present in Colombia and abroad, which mainly develop businesses on Energy Transmission, Road Concession, Information Technology and Telecommunication, and Real-Time Systems Management. Direct, indirect, and effective participation of ISA and its companies SECTOR COMPANY COUNTRY ENERGÍA ISA'S DIRECT % INDIRECT % OF OTHER SUBSIDIARIES ISA'S EFFECTIVE PARTICIPATION THROUGH THE SUBSIDIARY TRANSELCA S.A. E.S.P. Colombia RED DE ENERGIA DEL PERÚ REP Peru TRANSELCA S.A. E.S.P. CONSORCIO TRANSMANTARO SA Peru ISA PERU S.A. Peru TRANSELCA S.A. E.S.P. ISA BOLIVIA S.A. Bolivia TRANSELCA S.A. E.S.P INTERLIGACAO ELETRICA NORTE E NORDESTE S.A. IENNE Brazil ISA CAPITAL DO BRASIL S.A. INTERLIGACAO ELETRICA DE MINAS GERAIS S.A. IEMG Brazil INTERLIGAÇÃO ELETRICA PINHEIROS S.A. - IEPINHEIROS Brazil INTERLIGAÇÃO ELETRICA SUL S.A. - IESUL Brazil INTERLIGAÇÃO ELETRICA DO MADEIRA S.A. - IEMADEIRA - Brazil INTERLIGAÇÃO ELÉTRICA SERRA DO JAPI Brazil INTERLIGAÇÃO ELÉTRICA SERRA DO JAPI Brazil 0, ,3 ( 3 )

4 SECTOR COMPANY COUNTRY ENERGY FINANCIAL TELECOMMU- NICATIONS INFRASTRUC- TURE ISA'S DIRECT % INDIRECT % OF OTHER SUBSIDIARIES ISA'S EFFECTIVE PARTICIPATION THROUGH THE SUBSIDIARY INTERLIGAÇÃO ELÉTRICA GARANHUNS S.A. Brazil EVRECY Brazil INTERLIGAÇÃO ELÉTRICA PARAGUAÇU S.A. Brazil INTERLIGAÇÃO ELÉTRICA AIMORÉS S.A. Brazil INTERLIGAÇÃO ELÉTRICA ITAÚNAS S.A. Brazil INTERCONEXIÓN ELÉCTRICA COLOMBIA-PANAMA S.A. Panama Control compartido INTERCONEXIÓN ELÉCTRICA COLOMBIA-PANAMA S.A.S ESP Colombia INTERCONEXIÓN ELÉCTRICA COLOMBIA-PANAMA S.A. EMPRESA PROPIETARIA DE LA RED S.A. - EPR Central America INTERCHILE S.A. Chile ISA INVERSIONES CHILE LTDA INTERNEXA S.A. INTERCOLOMBIA S.A. E.S.P. Colombia 0.00 ISA PERU S.A PROYECTOS DE INFRAESTRUCTURA DEL PERÚ.A.C INTERVIAL COLOMBIA S.A.S ISA CAPITAL DO BRASIL S.A. Brazil , INTERNEXA PARTICIPAÇÕES S.A. Brazil INTERNEXA S.A INTERNEXA S.A. (PERU) ISA INVERSIONES CHILE LTDA. Chile INTERNEXA S.A. ISA INVERSIONES MAULE Chile INTERNEXA S.A. ISA INVERSIONES TOLTEN Chile ISA INVERSIONES CHILE LTDA Intervial Chile Financiera de Desarrollo Nacional S.A. Colombia CAMARA DE RIESGO CENTRAL DE CONTRAPARTE DE COLOMBIA S.A. -CRCC- Colombia XM S.A. E.S.P. Linear Systems RE LTD Bermudas 100, INTERNEXA S.A. Colombia TRANSELCA S.A. E.S.P. INTERNEXA S.A. (PERÚ) Peru INTERNEXA S.A. INTERNEXA CHILE S.A. Chile INTERNEXA S.A. INTERNEXA BRASIL OPERADORA DE TELECOMUNICAÇOES S.A. Brazil INTERNEXA PARTICIPAÇÕES S.A. Transamerican Telecomunication S.A. (INTERNEXA ARGENTINA S.A.) Argentina INTERNEXA S.A INTERNEXA PERU REDCA Central America INTERNEXA S.A TRANSNEXA S.A. E.M.A. Ecuador 0, INTERNEXA S.A INTERNEXA PERU PROYECTOS DE INFRAESTRUCTURA DEL PERU S.A.C. Peru TRANSELCA S.A. E.S.P. ( 4 )

5 SECTOR COMPANY COUNTRY SMART MA- NAGEMENT OF REAL-TIME SYSTEMS VIAS ISA'S DIRECT % INDIRECT % OF OTHER SUBSIDIARIES ISA'S EFFECTIVE PARTICIPATION THROUGH THE SUBSIDIARY XM S.A. E.S.P. Colombia DERIVEX S.A XM S.A. E.S.P. Colombia INTERNEXA S.A. Sistemas Inteligentes en Red S.A.S. Colombia XM S.A. E.S.P ISA INVERSIONES CHILE LTDA. INTERVIAL CHILE S.A. Chile ISA INVERSIONES MAULE LTDA INTERNEXA S.A. Ruta del Maipo Sociedad Concesionaria S.A. Chile INTERVIAL CHILE S.A ISA Tolten Ruta del Maule Sociedad Concesionaria S.A. Chile INTERVIAL CHILE S.A ISA Tolten Ruta del Bosque Sociedad Concesionaria S.A. Chile INTERVIAL CHILE S.A ISA Tolten Ruta de los Rios Sociedad Concesionaria S.A. Chile INTERVIAL CHILE S.A. Ruta de la Araucanía Sociedad Concesionaria S.A. Chile INTERVIAL CHILE S.A ISA Tolten INTERVIAL Colombia S.A Colombia NOTA: From 31 March 2015, there was a merger through absorption by INTERNEXA BRASIL OPERADORA DE TELECOMUNICAÇOES S.A. regarding the following companies: ITX CAPITAL PARTICIPACOES LTDA, INTERNEXA INVESTIMENTOS GLOBAIS LTDA (NQIG), INTERNEXA RJ OPERADORA DE TELECOMUNICACOES LTDA (Internexa Rio) and INTERNEXA RJ SVA LTDA (IPNET) Information of shares belonging to Board Members and the voting rights they represent None of the Board Members is owner of ISA s shares. Family, commercial, contractual, or corporate relationships that exist between the holders of significant share participations and the company, or between the holders of significant share participations with respect to each other At the end 2016, the Inter-Administrative Contract GSA 57 of ISA between the State (Ministry of Mines and Energy) and ISA, which includes technical assistance for general administration and execution of FAZNI funds to construct the 115 kv Popayan-Guapi line and associated substations was signed on October 13, 2009, and extended until March 31, 2017 to reach a total value of COP 305,622 million. Negotiations that the Board Members, Senior Managers, and other Administrators have carried out with the shares and other securities issued by the company ISA s administrators are prohibited from negotiating, either directly or through an intermediary, Company s shares based on speculation and, in any case, they require authorization of the Board, granted with the favorable vote of two thirds of its members, excluding the petitioner, or the General Assembly of Shareholders, with the favorable vote of the regular majority provided in Bylaws, excluding the petitioner, as it is enshrined in the Code of Good Corporate Governance and Agreement 60 of 2006 of the Board. During the term, no administrator requested authorization to negotiate ISA s shares. Synthesis of agreements between known shareholders The Company has not been notified of any agreement entered into among shareholders. Own shares held by the Company The number of own shares held by ISA is 17,820,122 ( 5 )

6 ISA S BOARD OF DIRECTORS [G4-56] [G4-38] [G4-39] 78% OF INDEPENDENT MEMBERS 15 ASSEMBLIES HELD DURING THE YEAR Board s Committees Compensation COP3,06 million per meeting attended Board and Corporate Governance Board Committee and Corporate Governance s President Business Business Committee s President Corporate Audit Corporate Audit Committee s President Independent members 96% average attendance to assemblies Santiago Montenegro Trujillo Board s President Nominated by Pension and Severance Fund No labor link with the company Camilo Zea Gómez Nominated by Pension and Severance Fund Carlos Felipe Londoño Álvarez Nominated by the Ministry of Finance and Public Credit María Ximena Cadena Nominated by the Ministry of Finance and Public Credit Jesús Aristizábal Guevara Nominated by Empresas Públicas de Medellin Carlos Mario Giraldo Moreno Nominated by the Ministry of Finance and Public Credit Carlos Caballero Argáez Nominated by the Ministry of Finance and Public Credit Henry Medina González Nominated by ECOPETROL Ana Milena López Nominated by the Ministry of Finance and Public Credit ( 6 )

7 The General Assembly of Shareholders annually elects ISA s Board, which is comprised of nine core members, seven of whom are independent in accordance with the provisions of Law 964 of 2005 and the Good Governance Code of the Company. None of the board members can hold a senior position in the Company. Also, to execute a better job as administrator of the parent company, some Board members of ISA participate in the assemblies of subordinated companies. In addition, no employee of ISA can be a member of the Board and no employment ties must exist between the members of the Board of Directors and the members of the Company. The following members of the Board hold public positions within the central administration, and therefore, they have a relationship with the Nation, the major shareholder of ISA: Vice Minister General of Ministry of Finance and Public Credit. Director of Public Credit and of the National Treasury and Ministry of Finance and Public Credit. Competences of ISA s Board [G4-34] [G4-38] Description Line 1 Line 2 Line 3 Line 4 Line 5 Line 2 Line 7 Line 8 Line 9 Name Carlos Caballero Argáez María Ximena Cadena Ordónez Ana Milena López Rocha Carlos Mario Giraldo Moreno Carlos Felipe Londoño Alvaréz Jesús Aristizábal Guevara Henry Medina González Santiago Montenegro Trujillo Camilo Zea Gómez Company where he/she works Universidad de Los Andes Ministry of Finance and Public Credit Ministry of Finance and Public Credit Grupo Éxito Engineering School of Antioquia Independent / Business Consultant Vitol Inc Colombian Association of Administrators of Pension and Severance Funds Pronus Position Professor Vice-Minister General Director of Public Credit and National Treasury CEO University President Colombia y Desarrollo Latino América's CEO (Colombia and Latin American Development's CEO) Seniority on the Board of Directors Since 2016 Since 2015 Since 2015 Since 2013 Since 2011 Since 1999 Since 2014 Since 2007 Since 2013 CEO Partner Skills and experience related to economic, environmental, and social impacts Skills and experience related to risk management YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES YES Participation in other Boards Shareholder of an important supplier or client NO NO NO NO NO NO NO NO NO Member or affiliate to social groups with under-representation (minorities) NO NO NO NO NO NO Global Council for the Responsible Mineral Resource Management of the World Economic Forum Advisory Council for Science, Technology, and innovation (Colombia) Andes University Superior Council NO ( 7 )

8 When the Board members realize that there could be a conflict of interest on a specific topic discussed, they must disclose it and abstain from participating in the discussion and decision. During the period, there were no conflicts. The definition of conflict of interest is included in the Bylaws, Code of Good Governance, and Code of Ethics. For the management of conflicts of interest arising from Board members and other ISA s managers, the Board approves the procedures to adopt. As of December 31, 2016, there were no trade links either between the Company and the Board members, their relatives to the second degree of consanguinity or affinity, or first civil degree, nor their spouses or permanent partner, and legal entities in which they have participation or perform management positions. Changes in the Board during the period From April 2016 to March 2017, no changes were made to the Board of Directors. Policies approved by the Board of Directors during the period reported In 2006, no new policies were approved. Board members nomination process For nominating candidates to be part of the Board of Directors and aiming at having a balance, complementarity, and diversity, to assure a suitable performance, it is assured that candidates are not under any of the inabilities or incompatibilities set forth in the law and that they have the knowledge, expertise, academic background, skills, strengths, independent criteria, and enough availability to be candidates for the board of directors. In the Succession Policy of the Board of Directors approved by the General Assembly of Shareholders, the principles applied to postulate the best candidates to form the Board of Directors of ISA, as well as the knowledge and experience required to guarantee their proper functioning and contribution to the goals, are set. The corporate website includes the whole text. See Succession Policy of the Board of Directors Before the meeting of the General Assembly of Shareholders where the Board of Directors was appointed, the corresponding proposals that included candidates and their resumes were published in the corporate website, indicating the shareholder that nominated each candidate and his independent of non-independent status. Extract of Minutes 106 of the Ordinary General Assembly of Shareholders of March 31, 2016, published in the corporate website, includes the lists sent by the Ministry of Finance and Public Credit to the Legal Vice Presidency of ISA to designate the Board of Directors. The Board of Directors was elected by means of the electoral quotient system by considering criteria related to professional, suitability and recognized moral solvency, according to the provisions of the Board s Succession Policy. Member s resumes can be consulted on the corporate website. See Board s resumes After designation, the members expressed in writing their acceptance and that they have not inabilities or incompatibilities to be members of the Board. This event was registered before Medellin s Chamber of Commerce for Antioquia where the Company has its seat. The independent members responded the questionnaire attached to Decree 2555 of 2010 previously submitted to Pension Funds, ISA s shareholders. ( 8 )

9 The members of the Board of Directors designated for the first time received a proper training in which they were informed to have a vast specific knowledge of ISA, its businesses, and sectors in which it participates, responsibilities, obligations, and attributions as Board members, as well as the Company s documents. It is essential to know all these aspects so members can perform their position. Board s remuneration policy The Remuneration Policy of the Board approved by the General Assembly of Shareholders, reviewed each year, and published on the website of the Company, establishes the criteria for adequate remuneration of its members. Moreover, the Ordinary General Meeting of Shareholders is responsible for approving each year the fees expressed in terms of Unit Tax Value (UVT), consistent with the duties and responsibilities of the members, characteristics of the Company, among other criteria. Board s Quorum To deliberate validly, the Board of Directors requires a quorum of at least five members (deliberation quorum) and decisions are made by most the votes present (decision-making quorum). All meetings had deliberation and decision-making quorums. Attendance data regarding Board meetings and its Committees From April 2016 to March 2017, the Board met 15 times (12 ordinary meetings, 2 extraordinary meetings and 1 voting session in writing). The average of each meeting was 5 hours. The agenda scheduled for each session was always fulfilled. See Remuneration Policy of the Board Remuneration of the Board of Directors and Senior Management members ISA does not implement special payment or remuneration mechanisms in the Company s shares for Board members. For negotiating these shares, it should have authorization from the Board. To attend Board meetings and its committees, members received in 2016 a remuneration of 103 UVT per meeting, equivalent to COP 3,064,559. The remuneration of the Senior Management members is revealed in the Financial Statements, according to the provisions of the Code of Commerce and the applicable accounting standards. ISA does not use special mechanisms of payment or remuneration in Company s shares or share options for Board and Senior Management members. ( 9 )

10 ISA s Board of Directors Attendance to Board Committees Members Carlos Caballero Argáez (*) Ministry of Finance and Public Credit Vice Minister General Ministry of Finance and Public Credit. Director of Public Credit and National Treasury Carlos Mario Giraldo Moreno (*) Carlos Felipe Londoño Álvarez (*) Jesús Aristizábal Guevara (*) Nominated by Ministry of Finance and Public Credit Ministry of Finance and Public Credit Ministry of Finance and Public Credit Ministry of Finance and Public Credit Ministry of Finance and Public Credit Empresas Públicas de Medellín Attendance (15 meetings 14/15 14/15 14/15 15/15 15/15 15/15 Henry Medina González (*) ECOPETROL 15/15 Santiago Montenegro Trujillo (*) Camilo Zea Gómez (*) Pension and Severance Funds Pension and Severance Funds 13/15 15/15 (*) Independent members according to the provisions of the Code of Good Governance and Law 964 of Board Members Board and Corporate Governance Board Committees Businesses Carlos Caballero Argáez (*) 7/12 Ministry of Finance and Public Credit Vice Minister General Ministry of Finance and Public Credit. Director of Public Credit and National Treasury Carlos Mario Giraldo Moreno (*) 11/11 10/11 11/12 10/11 9/12 Corporate Audit Carlos Felipe Londoño Álvarez (*) 11/11 10/10 Jesús Aristizábal Guevara (*) 10/10 Henry Medina González (*) 12/12 Santiago Montenegro Trujillo (*) 10/11 8/12 Camilo Zea Gómez (*) 10/10 (*) Independent members according to the provisions of the Code of Good Governance and Law 964 of ( 10 )

11 Agreements, policies, and procedures approved by the Board of Directors during the period To perform updates in the standards and practices of ISA s corporate governance, the Board of Directors approved the following Agreements, policies, and procedures: Agreement 105 of November 25, 2016, by which the Operating Regulations of the Board was established. Agreement 106 of November 25, 2016, by which the Board Committee and the Corporate Governance were regulated. Agreement 107 of November 25, 2016, by which the Business Committee is regulated. Agreement 108 of December 16, 2016, by which the Regulation for Acquiring Goods and Services was amended and its compilation was authorized. These documents can be verified on the corporate website. Board s Secretary According to Bylaws, the Legal Vice President of the Company is the Board s Secretary. The Secretary s duties are those provided in Article 28 of the Bylaws and Agreement 105 of November 25, 2016, which regulate the Board s operations, and can be found on the corporate website. See Duties of the Board s Secretary Relationships during the year of the Board of Directors and the Statutory Auditor, financial analysts, investment banks and rating agencies During the last period, the Statutory Auditor presented before the Corporate Audit Committee the results related to the review of relevant controls for preparing and submitting financial statements, as well as his opinion regarding their reasonableness. In Board sessions, priority was given to topics related to comprehensive risk management, corporate strategy, sustainability, financial statements, share s behavior, growth opportunities, human management talent and their remuneration, among others. Board s President The Board, in Session 774 of April 29, 2016, appointed Santiago Montenegro Trujillo (an independent member) as President. The President s duties are provided in Article 28 of the Bylaws and Agreement 105 of November 25, 2016, which regulate the Board s operations, and can be consulted on the corporate website. See Duties of the Board s President. External advice received by the Board of Directors No external advice was hired in Management of information by the Board of Directors The Board s Secretary, no later than five (5) days in advance to each meeting, provided (by means of an exclusive access server for the Board members) the documents related to the topics to be addressed in the Board sessions, as well as the additional information requested. Board s Committees According to the Operating Regulation of the Board, in ISA, the Board Committee and Corporate Governance, the Business Committee and the Corporate Audit Committee operate in an institutional manner. ( 11 )

12 Board Committee and Corporate Governance The main responsibilities of this committee consist of assisting the Management on strategic, sustainability, risk, and human talent matters. In addition, in the corporate governance aspect, its responsibility is to study reforms to the Corporate Bylaws and recommend the appointment and remuneration of the Board and Senior Management members, as well as ensuring compliance with the Code of Good Governance, the action framework, and assessing the Company s CEO. There were 12 meetings during Business Committee Its functions are to analyze and recommend investment initiatives included in the growth strategy of ISA and its companies, and monitoring businesses under execution. There were 12 meetings during Corporate Audit Committee This body guides and facilitates internal control. It aims at ensuring availability to the organization of an effective corporate control system, which includes the evaluation of the accounting procedures, the relationship with the Statutory Auditor, the audit to the risk management system, among others. Its recommendations are related to the improvement of controls established in governance, administrative, financial, technical and information technology issues; as well as topics on ethical management and the Risk Management System of Money Laundering and Financing of Terrorism. In 2016, it met ten (10) times. Individual performance of Board members, 94% Individual performance of committee members, 94% Group performance of Board, 95% Group performance of Board, 95% Performance and participation of management, 87% In relation to individual performance, the following strengths of the Board members were highlighted: knowledge, rigor, commitment, and active participation. In relation to group performance, the following is highlighted: diversity of opinions and knowledge, capacity to reach agreements, respect for other members and management, and adequate spaces for the participation of independent members. In relation to improvement opportunities, it is highlighted the need to address strategic and innovation topics at more frequent intervals and improve timeliness of their members. Board s Assessment The Company conducts an annual evaluation of the Board of Directors to measure its effectiveness as a collegiate body, and welcoming the recommendation of best practices in this field, to alternate between methodologies such as self-assessment and evaluation by external consultants. In 2016, a qualitative self-assessment was executed. The following results were obtained with a sample of nine (9) persons: ( 12 )

13 Senior Management According to the bylaws, the Chief Executive Officer and the Vice Presidents are part of the Senior Management. The website shows the professional quality and experience of ISA s directors. Senior Management DEPENDENCY CEO Vice Presidency of Energy Transmission Vice Presidency of Finance Vice Presidency of Strategy Vice Presidency of Legal Affairs Senior Management Vice Presidency of Growth and Business Development Vice Presidency of Corporate Audit Vice Presidency of Organizational Talent Vice Presidency of Information Technology Corporate Directorate of Road Concessions Corporate Directorate of Communications NAME Bernardo Vargas Gibsone César Augusto Ramírez Rojas Carlos Alberto Rodríguez López Olga Patricia Castaño Díaz Sonia Margarita Abuchar Alemán Andrés Baracaldo Sarmiento Carlos Ignacio Mesa Medina Carlos Humberto Delgado Galeano Diana Cristina Posada Zapata Olga Lucía López Marín Jorge Iván López Betancur Carmen Elisa Restrepo Vélez According to the Board Committee and Corporate Governance s regulation, this committee aims to annually evaluate the management of the Company s CEO, which was held at a session on February 23, 2017, and approved by the Board of Directors at Session 786 on February 24, During the 2016 management evaluation for Bernardo Vargas Gibsone, ISA s CEO, a leader of the corporate group, several aspects regarding his responsibility in the guidance of the corporate group were considered: Management results. Transformative action. Bernardo Vargas, together with the Board of Directors, continues advancing according to the established in the strategy planning process of ISA. In 2016, in-depth strategic analyses were carried out with the Group Committee and the Board of Directors, which allowed ratifying the countries initially selected as focus of the strategy; the current businesses of ISA and the aspirations in the search of greater profitability; and establishing the additional emphasis that reflects the ongoing concern of ISA about the sustainability of their businesses. Outstanding management results are showed below: The compensation risk by the early renewal of the CTEEP Concession in Brazil was favorably resolved. The award of projects in Brazil and Colombia for USD 300 million in the Energy Transmission business. A favorability index of 78% was reached in the measurement of organizational environment in ISA and its Companies with an increase of 6% in respect of the measurement from previous year. ISA s evaluation as a company led to a result of 83%, improving by 4% the measurement in The leadership index of ISA and its companies showed an increase of 5% respect of the previous year (from 75% to 80% favorability). For ISA, the result was 88% with an increase of 8% in relation to the previous year ( 13 )

14 The Board of Directors showed its satisfaction due to the solid financial results, whose main indicators present a behavior far higher than the estimated budget: Net income had an increase of 205% respect previous year and a budget compliance of 291% The operating margin indicators and the net margin also had outstanding increases; the operating revenue achieved 195% compliance and an increase of 130% respect Operating costs and expenses presented 99% compliance and an increase of 29% compared to previous year. Results for 2016 were positive and favored by the recognition to the subsidiary in Brazil CTEEP of the value regarding the Basic Network of the Existing System (RBSE). However, if such effect was discounted, then results will exceed the budgetary goals. Consequently, operating revenue would reach COP 6,610,534 million with 106% budgetary compliance and 25% growth. EBITDA will increase to COP 3,396,106 million, with 116 budgetary compliance and 18% growth. Finally, net income would amount to COP 763,887 million with 104% budgetary compliance and 9% growth compared to previous year. Some outstanding transformational actions are as follow: Purchase and sale contract of shares to acquire 14,9% TAESA s share capital in Brazil, by an approximate amount of BRL 1,056 million. This is equivalent to 41% of the control block and involves a shareholders agreement with the majority shareholder (CEMIG) which gives ISA Group characteristics related to the joint political control, despite being a minority partner. ISA was selected in the Dow Jones Sustainability Index list for the second consecutive year. Likewise, ISA has promoted a promising sustainability strategy that will be executed through the Conexión Jaguar program. Strengthening of risk management, as the high-level management case to decrease the occurrence of tax risk in Peru by interpretation of the SUNAT regarding depreciation rates used in Consorcio Transmantaro CTM. The strategic and organizational transformation of INTERNEXA: to move from a product focus to a value offer, commercial and market perspective, change in leadership style. New initiatives to optimize and generate value in existing assets. ALAS20 Award to ISA, for second consecutive year, due to its management of corporate governance and transparency. Connection to the MIT as a strategic ally in innovation. In general, there is an increasing emphasis in innovation that reflects the management of the group s companies, particularly in Peru. In short, the advancement in compliance with the strategy, the vision of current and new business development, the management of human talent and outstanding financial results of 2016, are evidence of the managerial capabilities, the focus on achievements, the strategic vision, and the leaderships of Dr. Vargas, who, with his energy, proactivity, and commitment, leads the ISA Group. In view of the ratings obtained in Dow Jones surveys, Stakeholders and Reputation, the Board of Directors expresses its confidence that efforts to strengthen areas related to human talent management and innovation will continue. In addition, it highlights the importance of maintaining a right balance between results-oriented success and how such results are obtained, so it is possible to maximize the spirit of coexistence, good treatment, cordiality, and respect for differences. Finally, recognition is given to all directors and, in general, to all the ISA s work team, as a human group characterized by its commitment, dedication, and sense of co-responsibility to contribute in an effective way to fulfill the mission and the corporate goals. ( 14 )

15 TRANSACTIONS WITH RELATED PARTIES Board s attributions related to this type of transactions and situations of conflicts of interest Title 6 of the Code of Good Corporate Governance establishes the Related Parties of ISA, according to the international standards and regulations applicable to ISA. Likewise, transactions required to be approved by the Board of Directors are defined. Detail of transactions with the most important Related Parties under the criterion of the Company, including operations between companies of the Conglomerate The description of the transactions with ISA s Related Parties is found in the Financial Statements. Due to the legal nature of the Mixed Public Utility Company, ISA is subject to a regime of inabilities and incompatibilities applicable to state contracting, which prohibits entering into contracts between the Company and the Board members, their relatives to the second degree of kinship or first civil status, their spouses or permanent couples, and legal persons where they have participation or perform management positions, according to the terms provided by Law. Conflicts of interest presented and actions taken by the Board members No conflicts of interest were caused within the operational framework with Related Parties. RISK MANAGEMENT SYSTEM Sistema de Control Interno (SCI) de la Sociedad o Conglomerado y sus modificaciones durante el ejercicio The company, along its continued inspection and control process, answered efficiently and timely the requests for information and/or documents presented by government control bodies and it obtained credit ratings from authorized agencies. Durante el último período, la organización fortaleció su Sistema de Control Interno con la incorporación de nuevas prácticas de gobierno las cuales estuvieron implementadas en las últimas reformas de estatutos, así como el ajuste a las políticas corporativas y la definición de directrices para el nuevo modelo de auditoría corporativa. External control entities ISA provided the reports requested by the following external entities: General Accounting Office of the Nation. Comptroller General of the Republic. Colombian Financial Superintendence. Superintendence of Domiciliary Public Services. Ministry of Finance and Public Credit. National Administrative Department of Statistics. The Gestión y Auditoría Especializada firm served as external auditor of management and results for the period and in its report published in national press on July 14, 2016, it expressed: The internal control system is strong, qualified as low risk. Also, for the period between January 01 and December 31, 2015, it effectively complied with the control objectives provided by the Management and fulfills the aspects set out in Law 142 of 1994 and Resolution 053 of 2000, issued by The Energy and Gas Regulation Commission (CREG). The report was submitted to the Superintendence of Domiciliary Public Services. Between April 2016 and March 2017, the Ernst & Young firm held the statutory audit. In fact, by complying with its legal duty, the firm will submit to the General Assembly of Shareholders, an opinion concerning management, financial statements, and management of the Company. Ratings for corporate risk and local and international bond issues, granted by specialized agencies, ratified the strength and financial soundness of ISA ( 15 )

16 and its companies, the stability and predictability of their cash flows, the prominent position as energy transporter in Latin America, and its role as participant in the Chilean road concession business. Standard & Poor s S&P maintained ISA s rating in BBB and Fitch Ratings raised to BBB+ the long-term international rating of local and foreign currency, with stable perspective on May However, the rating agencies, in the first half of 2016, adjusted the ratings perspective of Colombia from stable to negative, which directly affected ISA s perspective from stable to negative. Moody s kept the rating in Baa2 with stable perspective. This way, the three most important international rating agencies worldwide have the company rated in investment grade. To the knowledge and analysis of shareholders and investors, the Statutory Auditor s report, the opinion of the External Auditor and the evaluation of risk rating agencies are published on the Company s website. The following procedures were carried out at the Chamber of Commerce of Medellin: presentation of financial statements, renewal of the mercantile register and single roster of proponents, filing of the minutes of the Ordinary and Extraordinary Shareholders Meeting, election and acceptance of the Board of Directors members, statutory auditor and legal representatives and their alternates, and updating of ISA s shareholding participation in its companies. It is important to add that no requests for special audits were made by shareholders or investors during the period and no investigations that compromised ISA were conducted by control and inspection entities. Órganos de control interno The internal control system of ISA and its companies is based on the international standard of the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Through this standard, the company seeks to: reasonably guarantee achievement of corporate objectives; strengthen trust on integrity of information delivered to stakeholders; adequately monitor corporate governance instruments, transparency practices and business inherent risks and timely answer them. According to the annual plan, the Vice-Presidency of Corporate Audit performs, for ISA and its companies, evaluations of their prioritized processes with the impartiality, objectivity, and independence necessary to comply with its duties as established by international auditing principles and practices. To this end, and together with the individual audit committees of each company, it designs work plans, which according to the individual risk levels and particularities of each company, provide guidelines and strategies to follow. In 2016, audits on operational processes pertaining to business units, as well as evaluations of administrative, technological, and financial processes, were conducted to strengthen the Internal Control System. Evaluations conducted by the Corporate Audit office confirmed abidance by internal and external regulations and did not find any evidence of significant or material deviation that may jeopardize the business continuity of ISA and its companies; this opinion goes in line with the evaluations of external control bodies who issued favorable opinions about the internal control system. Additionally, instruments such as the Code of Ethics, the Antifraud Code, and the Money Laundering and Terrorism Financing Risk Administration System (SARLAFT, for its Spanish initials), allow increased security levels at ISA and its companies for risks related to the principles they refer to. Risk Management ISA and its companies abide by the Policy for Comprehensive Risk Management identifying, evaluating, and implementing measures to manage the risks they are exposed to. Each company has its own risks map and evaluates risks according to their likelihood of occurrence and severity of consequences on its fundamental resources giving priority to the most relevant for its operations and achievement of strategy. Likewise, it monitors its status and defines and implements ( 16 )

17 measures to improve its management. Periodically, the companies present advances in their management and the major events that have been executed. On the website and in the 2016 Integrated Report, ISA publishes its risks map, the most significant events and the main administration measures implemented to prevent and mitigate their impact. Materialization of risks during the period This information is described in the 2016 Comprehensive Management Report, in section Comprehensive Risk Management, available at the Company s website. Response plan and supervision of main risks This information is described in the 2016 Comprehensive Management Report, in section Comprehensive Risk Management, available at the Company s website. GENERAL ASSEMBLY OF SHAREHOLDERS Differences in the functioning of the Board between the minimum scheme of the current regulation and the scheme defined by the Bylaws and the regulations of the Company s Assembly. In two newspapers, one of wide national circulation and a local newspaper, on February 28, 2016, the call for the Ordinary General Assembly of Shareholders of March 31, 2016 was published. This summon was made with a longer term than the one provided by Law. Additionally, to facilitate the exercise of the right of information of shareholders and promote their participation, ISA revealed through its corporate website the call notices, the agenda, the proposals that were submitted for consideration during the Assembly, and the candidates lists and resumes to form the Board. Moreover, information related to the grant of powers to be represented in the Board was published. Through the national press, the Company reminded shareholders that the Ordinary Assembly will be held on March 27, For the ordinary Assembly, shareholders received the documents provided by the Bylaws and Law for the execution of the right of inspection during the fifteen (15) working-day term. The Ordinary Assembly had a quorum demanded by Law (88,66% attendance). Topics in the agenda were submitted for consideration of shareholders and decisions were made according to the majorities demanded in the Bylaws. The attendance data related to each meeting of the General Assembly of Shareholders are included in the minutes extracts. The Ordinary General Assembly was broadcasted on real-time streaming by internet. The Corporate Bylaws, the Operating Regulation of the General Assembly of Shareholders, and the Code of Good Corporate Governance establish good practices addressed to consolidate and facilitate the right to information and participation of its shareholders at the Assembly s meetings, such as: For ordinary meetings of the General Assembly of Shareholders, a summon should be communicated at least thirty (30) calendar days in advance. For extraordinary meetings, a summon should be communicated at least fifteen (15) calendar days in advance. Use electronic means of communication such as the corporate website and electronic messaging systems. among others, to disclose all the information related to the General Assembly of Shareholders, from the summon to the Agenda, the proposals and the decisions made after it its carried out. The points of the Agenda will be expressed in a clear and precise manner to facilitate the understanding and analysis thereof by shareholders. It will be intended to perform a joint vote of topics or proposals only if topics are relevant and directly related to each other. The right of shareholders (regardless of their shareholding participation) ( 17 )

18 to request (within at least five (5) business days in advance before the General Assembly of Shareholders is carried out) information or explanations deemed necessary, through traditional channels and/or if required, related to new technologies and regarding issues included in the Agenda of the General Assembly of Shareholders. The right of shareholders (regardless of their shareholding participation) to propose the introduction of one or more points of debate in the Agenda of the General Assembly of Shareholders, within the following five (5) calendar days to the publication of the summon and provided that the request of new points is supported by a justification. To minimize the use of delegations of blank votes, without voting instructions, ISA promotes the use of model powers available on the corporate website. The model includes the Agenda points and the corresponding proposals of the Agreement that will be submitted to the shareholders consideration, so the shareholder (if necessary) indicates the meaning of its vote to its proxy or legal representative. The Board members and the Company s CEO will attend the Assembly to respond to the concerns of the shareholders. The right that a number of shareholders (representing at least 20% of the total subscribed shares of the Company) request the Company s CEO or the Statutory Auditor to call extraordinary meetings of the General Assembly of Shareholders. Information and communication with shareholders The Good Governance Code adopted by the Board of Directors establishes communication channels dedicated to the attention of its shareholders, through which it resolves requests and requirements, such as telephone hotline and the service center to the shareholder. Additionally, on the website Investor Relations section, we may found everything related to the mechanisms of relationship with shareholders and investors. Number of requests and matters upon which the shareholders have required information to the Company Report of cases by source. Requirements of management unit and call center between and Source Number of cases % Línea de servicio ,14 Chat , ,69 Llamada de salida 179 1,08 Visita Oficina Medellín 162 0,98 Llamada Oficina Medellín 102 0,62 Internet 97 0,59 Buzón Telefónico 94 0,57 Carta-fax 55 0,33 Contacto Fiduciaria 25 0,15 Depositantes Directos 2 0,01 Requerimiento Supervalores 1 0,01 Tramite Interno 1 0,01 Total general ( 18 )

19 Attendance data to the General Assembly of Shareholders Attendance to the Ordinary General Assembly of Shareholders was 88,66%. Description of main agreements made Besides considering and deciding own issues of ordinary meetings indicated in the Bylaws and Law, the Ordinary General Assembly of Shareholders approved the reform of Bylaws, Board s Remuneration Policy, and Board s fees. This is executed by means of the adoption of recommendations of the Country Code in relation to the good practices of corporate governance, addressed to generate value and foster trust of investors. The Ordinary Assembly s minutes was signed by the President and the Secretary of the Assembly and by the corresponding commission, in which the topics addressed, approvals and authorizations granted by the Assembly were submitted, as well as the remarks and comments of shareholders. In addition, the minutes was registered in the Medellin s Chamber of Commerce and its copy was sent to the Financial Superintendence of Colombia and to the Superintendence of Domestic Public Utilities. Shareholders can access the corporate website to verify the extract published regarding Minutes 106 corresponding to the Ordinary General Assembly of Shareholders of March 31, In the Ordinary General Assembly of Shareholders of March 31, 2016, the Board of Directors was elected for the April March 2017 period. timely and reliable information ISA conducted the following activities: General Shareholders Meeting: 831 represented shareholders reaching 88,6% participation. Quarterly, ISA published financial statements, which were presented to the financial community through face-to-face meetings and webcast. ISA held face-to-face meetings with market analysts in Bogota and Medellin. ISA participated in four international events. ISA used relationship marketing strategies: s, newsletters, and delivery of tax certificates and extracts. ISA has a service center for shareholders that received 16,562 cases, from which 100% cases were resolved through the service line, shareholders chat, and . The service center to institutional investors received 200 interactions with an average response of one day. Commitments to the Majority Shareholders At the end of 2016, the Inter-Administrative Contract GSA 57 of ISA between the State (Ministry of Mines and Energy) and ISA, which includes technical assistance for general administration and execution of Fondo de Apoyo Financiero para la energización de las Zonas No Interconectadas FAZNI (Financial Support Fund for the energization of Non-Connected Zones) to construct the 115 kv Popayan-Guapi line and associated substations. This contract was signed on October 13, 2009, and extended until March 31, 2017 to reach a total value of COP 305,622 million. STAKEHOLDERS In this report, ISA publishes its commitments to stakeholders and presents in detail the mechanisms for compliance and key aspects of the relationship. The website shows news and relevant information for these groups. To keep shareholders and investors with relationships based on the provision of GOOD GOVERNANCE CODE During 2016, the company monitored compliance. The central pillars for the verification of this Code are the supply of information through the website, report to control and surveillance organisms and reports presented to the Board of Directors. ( 19 )

20 Verifications annually executed upon compliance of the Good Governance Code by Transparencia por Colombia and the Statutory Auditor did not suggest findings that would compromise compliance with commitments. In addition, shareholders and the public did not report any non-compliance with the Code through telephone hotlines or s available: Ethics Line (toll-free): Shareholders Support Line (toll-free): National: Medellin: (574) It must be pointed out that in addition to the above; the Colombian Financial Superintendence is available to shareholders, especially, minority shareholders. This entity has the power to implement measures to avoid the violation of rights, ensure the return to balance, and the principle of equal treatment to all shareholders. Santiago Montenegro Trujillo Board s President ( 20 )