MESSRS. SHAREHOLDERS

The Administration of FURNAS – Centrais Elétricas S.A., in compliance with the legal and statutory provisions, submits to your appreciation the Financial Statements related to the fiscal year ended on December 31, 2002, along with the reports of the Independent Auditors and Audit Committee, as well as a brief report on the most important aspects observed in the period.

ELECTRIC ENERGY MARKET

In 2002, still under the effects of the rationing program, the total consumption of electric power in the area where FURNAS traditionally acts – Southeast and Midwest regions of the Country – was of 173,7 TWh, which corresponded to a small expansion of 0.2% in relation to the previous year, and frustrated the expectations of a more vigorous resumption of the electricity market after the end of the contingency period. This behavior can be explained, among other factors, by the conjugation of the tariff increases and the fall of the average income of the families, associated to the practices of the efficient use of electric power, acquired in the rationing period.

Among the main consumption categories, the industrial sector was responsible for the largest portion of that expansion, accumulating a consumption of about 74 TWh in the year 2002, which meant a 0.7% growth in relation to the value registered in the previous year. This behavior was the reflection of the good performance of the industrial production in the second semester, chiefly in the typically exporting sectors and oriented to agribusiness, coupled with the recovery of the industrial segments, which are more dedicated to the internal market, verified in the last two months of 2002.

The commercial segment closed 2002 with a consumption of about 29 TWh, which represented an expansion of 0.6% in relation to the value recorded in the previous year, still a reflection, less intense though, of the effects assimilated in the rationing period.

In the residential class, the expressive growths in the monthly indicators, verified after the month of July, were not enough to neutralize the retraction occurred in the rationing period. The category closed the year 2002 with a negative evolution, having registered a consumption of about 45 TWh, which corresponded to a reduction of 2.2% in relation to the value verified in 2001, not having been able to return to the pre-rationing level of consumption. It is important to highlight, also, the significant fall of the average consumption per residential consumer, a reflection of the new and more rational consumption habits acquired during the rationing period and already incorporated by the consumers.

EXPANSION

Generation

In the year 2002, proceeding with the actions undertaken by the Federal Government for overcoming the energy offer crisis, FURNAS carried on with its work program for expansion of its generating park, with emphasis on the expansion of the capacity and conversion of Units 1 and 2 of the Santa Cruz Thermoelectric Unit into natural gas burning, in combined cycle, which will add 350 MW to the 600 MW already installed. This enterprise was included in the Thermoelectricity Priority Program – PPT, and authorized by the National Agency of Electric Energy – ANEEL, in May 2002.

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The works related to the implementation of combined cycle at the Campos and São Gonçalo Thermoelectric Units, also included in the PPT and conceived in partnership with the private sector, obtained their authorizations from ANEEL only in May and June 2002, respectively. Such fact postponed the negotiations with the eventual partners.

Equally important are the works for modernization of units 5 to 8 of the Mascarenhas de Moraes Power Plant, with optimization of the aspects concerning operation and maintenance, as well as the technical requirements of engineering, which will add safety and reliability to the plant.

As far as the feasibility of new generation projects are concerned, the highlights are:

The approval, by ANEEL, of the inventory study of the Madeira River, accomplished in the Porto Velho – Abunã segment, Brazil/Bolivia international boundary, which identified the hydroelectric projects of Santo Antonio (3.580 MW) and Jirau (3.900 MW);

The inventory studies of the Hydrographic Basin of the Teles Pires River and its tributaries, in the States of Mato Grosso and Pará, on the segment that stretches from its fountainhead to immediately downstream the estuary of the São Benedito River. The studies are being accomplished in partnership with ELETROBRÁS and ELETRONORTE;

The feasibility studies of the MIrador Hydroelectric Projects, situated on the Tocantinzinho River, in the State of Goiás, developed by FURNAS and approved by ANEEL. This project integrates the fall division selected in the inventory study of the hydrographic basins of the Tocantinzinho, Maranhão and Almas Rivers, in Goiás, which form the Tocantins River;

The pre-feasibility study for the implementation of Thermoelectric Plants powered by natural gas in the Midwest region, elaborated in partnership with local companies, which was accomplished in December 2002;

The participation of FURNAS in the appraisal works of the feasibility and development studies of the basis for the Institutional/Financial Model for implementation of the Belo Monte Hydroelectric Complex, on the Xingu River, in Pará, conducted in compliance with the determinations of the National Council of Energy Policy – CNPE, and accomplished under the a coordination of ELETROBRÁS, with the support of ELETRONORTE, CHESF, ELETROSUL and CEPEL.

Transmission

In order to increase the energetic interchanges among the geo-electrical regions, aiming to expand its transmission system, in addition to preserving its operation and maintenance conditions, FURNAS invested R$ 808 million in 2002. As highlights, we may pinpoint the following energizing undertakings:

Series 750-kV, 1242-MVAr capacitor of the Itaberá Substation in order to supply the receiving system of São Paulo, in September 2002;

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947 1.016 1.074

1.669

1.137

1998 1999 2000 2001 2002

MillionMillion ReaisReaisInternalInternal CashCash GenerationGeneration

6th, 7th, 8th and 9th 345-kV capacitor banks, (4 x 200 MVAr), at the Tijuco Preto Substation, in May 2002;

2nd 500/440-kV transformer bank, (4 x 250 MVA), at the Água Vermelha Substation, in January 2002, which constitutes an important interconnection link between the extra – high voltage systems, responsible for the power transmission from the plants situated on the Paraná, Grande and Paranaíba Rivers, which supply most of the energy consumed in the Country;

Line span at the Poços de Caldas Substation, for the Municipal Department of Energy of Poços de Caldas, in November 2002.

Moreover, FURNAS carried on with the simultaneous development of various transmission projects, which are very important for the improvement of the electric system performance, of which the highlights are:

The works associated to the Bateias (PR) – Ibiuna (SP) transmission system, which consists of the 330-km long, double circuit 500-kV transmission line, dimensioned to transmit up to 2,500 MW of power and the respective substations. This Transmission Line has expressive importance for the Brazilian interconnected electric system, since it enables an increase in the interchange between the South and Southeast regions, in both directions, exploiting the hydrological diversity existing between these regions. FURNAS carried out the works related to this enterprise aiming to energize it in March 2003, as defined in the concession contract;

The expansion of the Tijuco Preto Substation, through the installation of the 3 rd 750/500-kV – 1650 MVA transformer bank. This emergency undertaking was considered high priority by the Electric Energy Crisis Management Chamber – GCE. The date established for its energization is in April 2003;

The construction of the 3rd circuit of the 178-km 500-kV Cachoeira Paulista (SP) – Adrianópolis (RJ) Transmission Line, which can only be initiated after the emission of the Installation License by the IBAMA, which occurred in November 2002. Therefore, the new date established for the energization of this enterprise, considered an emergency undertaking by GCE, is in September 2003;

The continuity of the works related to the implantation of the 4th 345/230-kV 225-MVA-transformer bank, at the Bandeirantes Substation. The energization date was postponed to the beginning of 2003, due to problems in the equipment supply process;

The continuity of the works related to the installation of the serial capacitor bank – Circuits 1, 2 and 3, at the 500-kV – 774-MVA Samambaia Substation, which should be energized in the first semester of 2003;

The continuity of the acquisitions related to the construction of the Ouro Preto 2 – Vitória Transmission Line. The Installation License, necessary for beginning the construction of this emergency enterprise, considered high priority by GCE, was scheduled to be issued in 2002, which fact did not occur and postponed the original schedule of this project.

It is important to highlight that FURNAS remains responsible for the coordination of the Technical Committee for Transmission Expansion – CTET as well as for the Coordinating Committee of the Electric System Expansion Planning – CCPE.

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ENERGY TRADE

In the year 2002, a total amount of 139.166 GWh, traveled along the FURNAS System, of which 19.51% represented its own generation (27.157 GWh) and 80.49% received energy (112.009 GWh), with emphasis on the energy produced by the Itaipu Plant (76.897 GWh), of which 53.74% correspond to the energy produced in Brazil (41.322 GWh), and 46.26% correspond to the energy produced in Paraguay and transmitted to Brazil (35.575 GWh).

In relation to the previous year, the energy transported by the FURNAS System, including its own generation and received energy, presented a decrease of 0.23%.

In the current model, the basic network is operated by the National Operator of the System – ONS, whose losses are quantified by the Electric Energy Wholesale Market – MAE and prorated by the agents of each sub-market.

Of the 144,327 GWh sold by FURNAS, 11,459 GWh were supplied to companies in the Midwest, 2,602 GWh to those in the Northeast, and 115,527 GWh to companies in the Southeast region. FURNAS also transferred to ELETROSUL 14,739 GWh, referring to the energy associated to the ITAIPU quota of the South region concessionaires.

The ITAIPU energy (76,897 GWh) delivered by FURNAS to the Brazilian System presented a 5.26% increase in relation to the year 2001 (72,849 GWh).

The total power of the FURNAS plants is 9,292 MW. FURNAS own generation amounted to 27,157 GWh, showing a 0.66% growth against the previous year.

FURNAS thermal generation, in relation to its own production, represented 7.27% in 2002, against 5.15% in 2001.

The maximum simultaneous power of the total generation of the System was 17,975 MWh/h, which occurred on 17.SEP.2002, at 3:00 p.m., presenting a 5.00% decrease in relation to the maximum power registered in 2001, which was 18,922 MWh/h.

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CONSULTANCY AND SERVICES

Capanda Hydroelectric Projects

The inspection, management, technical advice and consulting activities related to the construction of the hydroelectric project of Capanda are going on, in conformity with the 2 (two) contracts executed between FURNAS and the Mid-Kwanza Project Cabinet – GAMEK, of the Republic of Angola, of which one is a Technical Advice and Consulting Contract and the other is a Personnel Assignment Contract.

In March 2002, an agreement was signed between GAMEK and FURNAS, pursuant to the Technical Assistance and Consulting Contract, aiming at the operation and maintenance of the Capanda Hydroelectric Project. Consequently, the Operation and Maintenance Management - GOM was created, of which the main scope is the implementation of the operation and maintenance structure of the Capanda Hydroelectric Project, the transfer of technology in the field of operation and maintenance of hydroelectric power plants and the formation of Angolan engineers and technicians.

In August 2002 the deviation tunnel was closed, with the use of the largest water gate of that type in the world, leading off the filling of the reservoir.

It is important to highlight the accomplishment, in record time, of the concreting of the final closure of the deviation tunnel.

On the other hand, this year, the “Pungo Andongo” operation was initiated, which, with the help of FURNAS environmental team rendering services to GAMEK, aims at the collection of animals in the reservoir area, as well as the chemical analysis of the water upstream from the dam and other environmental impact studies.

Conclusion of the implementation of the SSB – Instrumentation Data Managing System, for performance control of the Capanda Hydroelectric Project structures

As far as the Transmission Area is concerned, the highlights were:

Conclusion, in December 2002, of the construction of the 120-km long, 220-kV Capanda – Cambambe Transmission Line;

Conclusion of the basic and executive projects of the 110-kV Capanda – Cacuso – Malange Transmission Line, as well as the expansion of Cacuso and Malange Substations, which services shall be accomplished in 2003, as per the authorization of the Angolan Government;

Accomplishment of various planning and behavioral studies as well as simulations concerning the Angolan Electric System, especially the transmission system associated to the Capanda Hydroelectric Project.

Finally, we would like to stress that the amendment to the currently effective Credit Agreement was signed, approved between Banco do Brasil and the Angolan Government, for completion of the Capanda works. The value of the previous Agreement, plus the amount of the amendment, totals US$ 279.4 million, and FURNAS will be entitled to US$ 53.1 million of this total, that is, approximately 19%.

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Other Contracted Services

Execution of services in the areas of concrete technology, soil mechanics, rock mechanics and geology, for several companies and electric power concessionaires;

Provision of technical advice to ENE, in Angola, in the inspection of the works for “revamping the Biópio Hydroelectric Project”;

Implementation of the Macaé–Merchant Plant Switching Substation, of El Paso Energy;

Provision of services necessary for implementation of the connection to the transmission system of the first machine of the Termorio Thermoelectric Plant;

Studies and replacement of FURNAS Corumbá Plant / Brasília Sul Substation transmission lines, to enable the filling of the Corumbá IV Plant reservoir, currently under construction;

Accomplishment of hydrologic activities in the basins of the Tocantins, Paranaíba, Grande, Paraíba do Sul and Manso Rivers, for the National Waters Agency – ANA;

Inspection, supervision and quality control of the services related to the implantation of the facilities for interconnection of the new Transmitting and/or Generating agents to FURNAS Electric System;

Hydraulic trials, on Reduced Models, of the following Hydroelectric Plants: Capim Branco I, Capim Branco II and Monte Claro.

TARIFF SCENARIO

The average tariff of its own energy, practiced in the year 2002, was about R$ 54.31/MWh, 16.30% higher than that registered in the previous year, which was approximately R$ 46.70/MWh. This average tariff resulted from the energy exchanges defined among the companies and from the contractually established tariff readjustments.

In January 2002, the base date for the ITAIPU readjustment, the tariff remained unchanged, in relation to the previous year, at the level of US$ 20.1988/kW. In October, however, the valuation of the American currency in relation to the Real caused a considerable cost increase for the dealers, passed on to the consumers, inducing the Government to reduce the sale tariff to US$ 17.5374/kW.

The total transmission revenue, in the year 2002, reached the value of R$ 911 million, which was decomposed in three parts: Basic Network, Connection and Itaipu Transport.

On the Basic Network, the old assets (RBSE) had their readjustment in the month of July 2002, due to the variation of the accumulated IGP-M in the period between June 2001 and May 2002 and, along with the new assets (RBNI), generated revenue of R$ 630 million.

As far as Connection is concerned, the concatenation of the dealers' readjustments proceeded, a process that begun with the Light readjustment, in November 2001. Such fact resulted in a revenue increment of approximately 12.98%. New contracts with Alcoa Alumínio S.A., Companhia Energética Meridional – CEM, and the Municipal Department of Electricity of Poços de Caldas – DME, generated an additional R$ 1,7 million, totaling R$ 27,5 million in this mode.

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The Itaipu Transport had its readjustment in the month of July 2002, at the amount of 10.06%, a reflection of the IGP-M accumulated between June 2001 and May 2002, in addition to the portion related to the Technological Research and Development – R&D – of the Brazilian Electric Sector.

CORPORATE MANAGEMENT

Personnel Policy

Taking into account the authorization granted by the Ministry of Planning, Budget and Administration, so that FURNAS could proceed with the administration of its own personnel, in compliance with the limit of 4,143 employees, 346 approved candidates were admitted in the year 2002. In the same period there were 563 withdrawals, wherein 531 employees were enrolled in FURNAS Personnel Programmed Withdrawal Plan – PDP, and 32 cases of contractual termination for various reasons. The Company counted on 3,453 employees at the end of 2002.

Aiming to supply an eventual lack of labor, fundamentally motivated by the stimulated withdrawals, FURNAS began a personnel selection process, by engaging a specialized public institution, seeking the accomplishment of public contests for formation standby personnel for several positions.

As far as FURNAS personnel are concerned, studies were initiated in 2002 aiming to adapt, to the current work market, the Company’s Plan of Positions and Salaries, which was conceived on May 01, 1992.

Work Force DEC 1990 DEC 2002Effective Personnel 9.435 3.453Outsourced Services 1.175 2.092TOTAL 10.610 5.545

Personnel Training and Development

With several withdrawals occurring in the Company, through FURNAS Personnel Programmed Withdrawal Plan – PDP, the accomplishment of specific training programs for qualification of the substitutes in various positions (technical and managerial functions) became indispensable, seeking to maintain the quality and reliability of the services provided by FURNAS.

Among the employees qualification programs, chiefly focused on the Basic Competences Development Plan – CRESCER, it is important to highlight the completion of 588 training courses in the computer science area (Word, Excel, Access and Internet), 1,372 foreign language courses (970 participants in English courses and 402 participants in Spanish courses) and 32 Portuguese/composition courses.

Still in the professional qualification field, a remote training system was made available through the Internet (Portuguese/composition courses, basic Word, basic and intermediate PowerPoint).

The Company also carried on with the Corporate Management Specialization Program – masters’ degree level – with participation of 121 employees, and made a survey of the professional profile of 512 superior level employees, for identification of potential supervision and management capabilities.

For the professionals acting in the operation and maintenance areas of FURNAS, technical-professional courses were given (electronics and telecommunications, electric-electronic appliance repairs and power system, plant equipment and transmission lines, operation, protection and

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control, mechanics and administration), and new processes were initiated for professional formation of operators (for hydroelectric power plants and substations, electric and telecommunications system and thermoelectric plants) as well as for transmission line electricians.

With the purpose of keeping the employees participating in the Quality of Life at Work and Citizenship improvement process, the Company also carried on with the Labor Gymnastics Program, Training Adolescent Educational Program and Occupational Initiation Program for People with Hearing Impairment.

Corporate Re-structuring, Business Modeling and Strategic Planning

Based on the legislative authorization granted by the provisions of article 5 of Act No. 9.648, of May 27, 1998, the National Privatization Council – CND, published, on December 19, 2001, Resolution CND No. 35, which instituted new bases for the corporate re-structuring of FURNAS, aiming at its privatization.

This Resolution established:

FURNAS split-off, with the creation of a new business corporation dedicated to electric energy generation;

the corresponding ELETROBRÁS split-off, with the creation of a new corporation that would incorporate the generation company resulting from FURNAS split-off; and

the pulverization of the capital stock, on a timely date, of the latter, resulting from the incorporation operation.

This position substantiated the Government's decision, announced by the Honorable Mr. President, in the middle of 2000, of adopting a new modeling for the privatization of FURNAS, from which a national “public corporation” would result, whose capital would be democratized upon the pulverized sale of the shares under control of the State, to a great number of investors, preferably Brazilian.

As previously registered, since the year 2000 the need for development of a new business modeling and organizational architecture for FURNAS had already been verified, which would contemplate the incorporation of more modern practices of corporate governance and management, and which would be properly supported by an integrated information system, even as a manner of ensuring the indispensable transparency of the managerial actions and their consequences in the Company for its shareholders, for the market and for society as a whole.

The Business Modeling and Strategic Planning Project of FURNAS, whose international bid for engagement of consultants was launched in December 2000, was developed in the second semester of 2001, with full involvement of the Administration, managerial body, as well as of technicians and specialists of the Company.

This Project was completed at the end of 2001 and its results, validated by the international expertise of the Accenture-Engevix Consortium (winner of the international bidding process), point out to “profitability” and “focalization by business” as the main vectors of the new Brazilian sectorial model, and consign the synergy among the various segments and their potential generation of better results.

In brief, form the reflections for construction of the strategic planning of the Company, the following directives and propositions emerged:

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for the transmission area: expand with profitability, seeking efficiency in the investments, and optimize costs as well as the operation and maintenance processes;

for the generation area: grow focused on the attractive Brazilian market, seeking new international markets whenever it adds value. Be focused on the expansion of hydroelectric power plants, with priority for large-size units, whose requisites are suited for the qualifications of the Company;

in the energy trade: position as a trading company aiming at the maximization of margins, evaluating a more aggressive future performance, managing its risk as a market maker, and offering hedge as well as energy products to the market.

Consolidated in a Plan of Action and an Agenda of Changes based on three pillars: people, processes and technology, these recommendations design an organization ready to act in the national and foreign energy markets, with profitability, ethics as well as social and environmental responsibility, competing with excellence and innovation and participating in the human and economic development.

In conformity with this strategic planning project, FURNAS published a bid notice aiming at the engagement of an Integrated Management System (ERP – Enterprise Resource Planning), which shall be effected at the beginning of 2004.

REAL GRANDEZA – Social Security and Assistance Foundation

In the group of propositions and measures that represent the guarantee of a stable and durable balance to REAL GRANDEZA, of which FURNAS is a Sponsoring Institution, and whose process began in the middle of 1998, the creation of two new Social Security Plans is included, namely, a Paid-off Plan of Benefits, whose approval by the Complementary Social Security Department – SPC, occurred in April 2001, and a Defined Contribution Plan, approved in March 2002, which 357 new employees of the Company joined in the year 2002.

In the period between June 1 and August 31, 2002, the option of migrating to the two new Plans was offered to the participants of the existing Defined Benefits Plan. The active participants could opt for the simultaneous migration to the Paid-off and of Defined Contribution Plans, or for the exclusive migration to the DC Plan. On the other hand the assisted participants could only opt for migrating, exclusively, to the Paid-off Plan.

The migration to the two new Plans reached about 68% of the 11,000 participants of REAL GRANDEZA. Nevertheless, the validity and effectiveness of the option to the same are conditioned to the review, by May 31, 2003, of a judicial decision awarded by the Judge of the 28th Federal Court of the Judiciary Section of Rio de Janeiro, whose tenor determined, provisionally, that REAL GRANDEZA shall not promote the transfer of any portion of the Defined Benefit Plan Assets to constitute quotas or portions of the new ones, as long as the obligations of the Sponsors in relation to the aforementioned DB Plan are not verified, before the express authorization of that Court.

The overcoming of the judicial obstacle will render valid and effective the migration option of the participants to the two new Social Security Plans, whose structuring is in compliance with the current labor and employment relationships, allowing for conditions that will guarantee the economic- financial balance of REAL GRANDEZA.

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FURNAS, HIGHLIGHTS AND QUALIFICATION

The Total Quality System (SQT), which acts in two strategic focuses: the employee and his job, is an instrument that combines and unifies the means and resources so that the organization will achieve its improvement objectives, through programs that form awareness as to quality management.

In 2002, the Quality and Productivity Supervising Group (GSQP) gave priority to the work of sensitization of the FURNAS Excellence Program, especially to the organizations that had not participated in the FURNAS Excellence Award (PFE). In the period of 2001/2002, the Company reached the maturity stage with the adhesion of several areas to the Program.

PFE – Results

Adhesion by Department 1998 1999 2000 2001/2002Presidency 33% 17% 17% 17%Planning, Engineering and Construction Department 69% 64% 59% 71%Electric Energy Production and Trade Department 63% 79% 72% 67%Administration and Supplies Department 53% 74% 68% 63%Financial Department 22% 22% 11% 11%

RecognitionBronze 14 15 14 8Silver 7 19 18 31Gold 0 0 2 3

Average Number of Points 250 180 230 284

Awards and Recognitions

In relation to external awards, in 2002 the Company was recognized, for the second consecutive year, with the Gold trophy, of the Federal Government's Quality Award (PQGF), leading this type of award. It was also awarded in the Silver and Bronze categories of the Rio Quality Award (PQRio) and with bronze medals of the São Paulo Management Quality Award (PPQG). The numbers presented below show the main results obtained by the Company:

Award Gold Silver Bronze

PQGF 02 01 -

PQRio - 03 09

PPQG - - 04

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Certifications and Accreditations

In 1985, FURNAS obtained its first accreditation (ISO 17025). The evolution of the issued certificates demonstrates a growing tendency of the certifications. Today, the Company has 38 ISO certificates and one OHSAS.

DepartmentsISO 9001Quality

Management

ISO 14001Environmental Management

ISO 17025Requisites for Trail

and Calibration Laboratories

OHSAS 18001Safety and

Occupational Health

DT 22 - 02 -DO 08 02 01 -DG 03 - - 01

TOTAL = 39 Organizations

DT = Planning, Engineering and Construction DepartmentDO = Electric Energy Production and Trade DepartmentDG = Administration and e Supplies Department

ECONOMIC-FINANCIAL MANAGEMENT

Investments

In the year 2002, FURNAS invested a total of R$ 1,224.7 million, of which R$ 345 million originated from third-party resources (28,2%).

The highlights are the investments in the following projects: implantation of the Bateias-Ibiúna transmission system, R$ 260.8 million; implantation of the Santa Cruz Thermoelectric Plant Combined Cycle, R$ 216.2 million; and expansion of the São Paulo Transmission System (Tijuco Preto / Itaberá), R$ 94.6 million.

Investments (R$ million)

Activity 2000 2001

2002

Generation 215 175 342Transmission 438 440 808Others 39 49 75TOTAL 692 664 1.225

Operating Revenue

The net operating revenue, in 2002, was R$ 10,223 million, presenting an increase of 10.5% in relation to the year 2001, which was R$ 9,252 million.

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106

708

474562

11

681

62

602

345

880

0

200

400

600

800

1000

1998 1999 2000 2001 2002

Third-Party Resources Own ResourcesTotal Total 814814 1.0361.036 692692 664664 1.2251.225Total Total 814814 1.0361.036 692692 664664 1.2251.225

MillionMillion ReaisReais

Investments in SystemExpansionInvestmentsInvestments in in SystemSystem ExpansionExpansion

The Transmission segment also contributed for the increase in the net operating revenue of the Company, having increased from R$ 718 million, in 2001, to R$ 911 million, in 2002, mainly as a result of the update applied to the Allowed Transmission Revenue.

The operating expenses recorded in 2002 totaled R$ 9,042 million, presenting an increase of 14.61% in relation to the 2001 value (R$ 7,890 million). This increase results chiefly from the variation of the US dollar exchange rate, which reflects on the purchase of energy from the Itaipu Plant.

Operating Income

As a consequence, the operating income was R$ 665 million, 52.7% lower than the value recorded in 2001 (R$ 1,212 million).

Tax Payment

In the year 2002, FURNAS paid, as taxes, fees and contributions, the amount of R$ 729 million, which, in addition to the quotas of the Global Reversion Reserve, represent total payment of R$ 818 million.

Income in the Period

The net profit of the Company, accumulated in the period from 1998 to 2002, reached the amount of R$ 2,698 million.

Shareholders’ Remuneration

The distribution of profits, to remunerate the Shareholders, totaled R$ 158 million in the year, distributed as interests on its own capital. Between 1998 and 2002, the shareholders of the Company received total remuneration of R$ 1,483 million, as dividends and interests on its own capital. This profit sharing corresponded to an average equivalent to 55.0% of the Company's net income.

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Net Net ProfitProfit EvolutionEvolution

453334

540

831

540

0

150300

450600

750900

1998 1999 2000 2001 2002

MillionMillion ReaisReais

SOCIAL BALANCE

FURNAS Social Commitment

Along the years, FURNAS has been acting way beyond its legal obligations and compensatory actions resulting from its performance. Nowadays, the Company generates energy and also citizenship, and it has been working in the combat against exclusion, in citizenship promotion and in the social development of the communities where it acts.

Everything began in 1993. Sociologist Herbert de Souza, Betinho, posed a challenge that involved society and it mobilized CAVERNS, one of the first companies to support the initiative, through the participation in the COEP – Committee of Entities in the Combat against Hunger and for Life – and through the incentive to the employees' citizen performance.

Since then FURNAS has been the headquarters of the Executive Secretariat of the COEP, a national network of social mobilization, which gathers approximately 700 organizations in 26 States of the Country.

Aware of the dimension of its social responsibility, the Company is developing several initiatives in behalf of the communities where it acts, from reforms, paving, donations of goods and permissions for use of machines and lands for production of food, to the implantation of community vegetable gardens and permission for use of the waters of the reservoirs for fish raising, thus contributing for the combat against hunger and poverty. FURNAS also supports countless cultural, educational and sporting incentive projects, as well as patronage and actions for preservation of local cultures and national wealth.

Regarding its internal public, FURNAS invests in medical care programs, as well as in accident and work diseases prevention programs, in addition to training and professional development.

Emphasizing to the use of its qualifications, FURNAS has also been promoting projects related to conservation and rational use of energy, accomplishing educational actions, implementing methodologies in schools and qualifying environmental education multipliers.

Another point that deserves to be highlighted in this social performance is the employees' voluntary action in partnership with the Company. Through campaigns and donations, basic baskets, clothes, toys, school and cleaning materials as well as medicines are collected. In order to improve the quality of life of the neighboring communities, the volunteers and Citizenship Action Committees spread throughout the Company also develop solidarity actions, such as collective efforts for reforms and construction of homes for the needy population, adoption of day care centers and asylums, selective collection and recycling of garbage and professional qualification courses.

FURNAS Corporate Citizenship and Social Responsibility Policy

Released in 2002, FURNAS Corporate Citizenship and Social Responsibility Policy seeks to consolidate the concept of excellence of the Company in the corporate citizenship field, committed with the combat against poverty and promotion of citizenship, as well as to the incorporation of the new conception of Corporate Responsibility into the organizational culture.

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Thus, FURNAS commitment is to contribute, in an innovative way, to improve the human condition, articulating employees, consumers, communities, shareholders, suppliers, as well as the electrical

sector and the government, around actions and initiatives that promote citizenship and human development, in the pursuit for a fair, solidarity and sustainable society, in balance with nature.

FURNAS Voluntary in Action

Besides the official performance of the Company in the social area, many employees have already developed voluntary actions, which count on the partnership of FURNAS in the infrastructure segment – through the loan of vehicles for distribution of donations, reuse of spare resources, as well as assignment of physical space for courses and meetings, among others.

With the FURNAS Voluntary in Action – generating citizenship, released in 2002, all this voluntary work has been even more valued and optimized, allowing FURNAS and its employees to become more socially responsible and contributing to improve everyone's lives.

The main objectives of the program are mobilizing, qualifying and valuing the employees' voluntary actions in partnership with the Company. In order to enable this initiative, a Contest of Projects of the Program known as FURNAS Voluntary in Action – generating citizenship – was accomplished, also in 2002.

The Contest gathered projects voluntarily developed and implemented by the employees, in partnership with the Company, which meet the performance focus defined in the Corporate Citizenship and Social Responsibility Policy of FURNAS: promote the sustainable development of the communities, considering their various aspects and needs, such as: education, health, sanitation, housing, sports, arts, culture and leisure.

Conservation and Rational Use of Energy

The energy conservation programs, both in the technical and human segments, enabled an economy of 499,50 GWh/year in 2002, equivalent to the annual consumption of 212,553 residences.

We highlight the granting of the FURNAS Excellence Award 2001/2002, Silver category, conceded to the Energy Conservation Studies and Programs Consulting Department - ACE.T.

The following accomplishments also deserve to be highlighted:

– Technical Segment

In partnership with the Federal University of Santa Catarina – UFSC, we initiated the project known as ENERGETICALLY EFFICIENT HOUSE (CEE) in Lambari, MG, which aims at the construction of a residence of approximately 80m2, where all the conception is oriented to energetic efficiency.

The EFFICIENT CITY Project (Elói Mendes/MG and Marília/SP) - aims to open a new age in Energy Conservation through technological and educational actions, as well as to create an aware society and consolidate the concept of Energy Conservation, promoting sustainable growth in these cities.

- 14 -

Among the actions undertaken the highlights are:

o 18 courses providedo 15 technical lectures o 215 energetic diagnoses (in Industries, Commerce, Public Buildings and Residences)o 4 contestso 270 qualified multipliers o 50 qualified monitorso 4,000 lamps distributed to the residenceso 1,274 studies for optimization of illumination pointso 27 schools participating in the project, reaching 7,000 studentso 29 energy patrols created

69 energetic diagnoses were accomplished in schools, 2 in external facilities (INMET and Cerâmica Argibem) and 32 in FURNAS internal facilities, such as:

1. Peixoto Plant2. Estreito Plant3. Furnas Plant including the Minas Production Department and the Furnas Training Center4. Marimbondo Plant5. Porto Colômbia Plant6. Campos Thermoelectric Plant7. Jacarepaguá Substation (already optimized)8. Mogi das Cruzes Substation (already optimized)9. Rio Verde Substation10. Rocha Leão Substation11. São José Substation (already optimized)12. Brasília Geral Substation13. Samambaia Substation14. Brasília Sul Substation15. Tijuco Preto Substation (already optimized)16. Adrianópolis Substation17. Bandeirantes Substation18. Cachoeira Paulista Substation19. Campinas Substation (already optimized)20. Campos Substation21. Grajaú Substation (already optimized)22. Guarulhos Substation (already optimized)23. Itutinga Substation24. Poços de Caldas Substation25. Ivaiporã Substation (already optimized)26. Construction Department and Transmission Center / Brasília Construction Office27. Ivaiporã Construction Office28. Rio Supply Division (already optimized)29. Technical Support and Control Department30. Residence Works / Samambaia Substation31. Mogi Construction Office32. Nova Iguaçu Production Department (already optimized)

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Optimization Studies of the Public Illumination Systems for 23 cities:

1. Praia Grande Resort (SP)2. Municipal Administration of Mococa (SP)3. Municipal Administration of Votorantim (SP)4. Itumbiara (GO)5. Corumbaíba (GO)6. Cumari (GO)7. Nova Aurora (GO)8. Marzagão (GO)9. Goiatuba (GO)10. Rio Verde (GO)11. Montividiu, GO.12. Caldas Novas (GO)13. Piracanjuba (GO)14. Pires do Rio (GO)15. Aparecida de Goiânia (GO)16. Senador Canedo (GO)17. Abadiânia (GO)18. Alexânia (GO)19. Cocalzinho de Goiás (GO)20. Padre Bernardo (GO)21. Santa Rita do Novo Destino (GO)22. Minaçu (GO)23. Santo Antônio do Descoberto (GO)

– Human Segment

With the educational methodology known as “Nature of the Landscape - Energy: Resource of Life”, 3,210 teachers were qualified, benefiting a contingent of 1,098,300 students in 141 municipalities (MG/GO/RJ/SP).

With the methodology “FURNAS / PROCEL – Mônica at School”, training courses for 1,390,771 students, totaling 37 municipalities served (MG/GO/RJ/SP).

Promotion of the theme and the Company, in 55 inserts in the televised media, 166 in the spoken media and 188 in the written media.

The “Energy Bulletin – Conserve to Grow” counted on 75,000 copies, in three issues published. The “Energy of the Professor” reached 15,000 copies.

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258335

520 597

818

0

200

400

600

800

1000

1998 1999 2000 2001 2002

MillionMillion ReaisReais

Taxes, Taxes, FeesFees andand ComtribuitionsComtribuitions

Environment

The need to reconcile its business activities with environmental conservation, as well as the need to act in harmony with the demands of society, motivate FURNAS to develop actions of an

environmental nature, involving all its physical, biotic, socioeconomic and cultural variables, as well as to seek partnerships with universities and research centers of renowned technical qualification.

In the environmental preservation field, FURNAS carried on with its useful partnership with the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) and with environmental control organizations of the states where the Company acts, in behalf of the consolidation of 23 protected areas, instituted by law in the national territory, among National, State and Ecological Parks, Ecological Stations, Biological Reservations and Environmental Protection Areas, as well as of the creation of two new conservation units. FURNAS participated, once again, in actions of combat against the illegal trade of the Brazilian biodiversity, which has been developed by the National Network of Combat against the Traffic of Wild Animals (RENCTAS), in partnership with the IBAMA and the Federal Police.

With the “Tom da Mata” project, elaborated in partnership with IBAMA, Antonio Carlos Jobim Institute and Roberto Marinho Foundation, FURNAS continues pursuing the objective of making students aware of the preservation of the Atlantic Forest.

The social actions have become more important and currently require more attention on the part of the Company, with emphasis on the dimensioning of solutions for the multiple aspects involved in the reestablishment of families directly affected by the formation of the reservoir of the Manso Multiple Project, as well as on the continuity of the compensatory actions planned for the Avá-Canoeiro Indians, located in the area of influence of the Serra da Mesa Plant, and for the Guarani Indians that inhabit a region close to the Itaberá/Tijuco Preto III Transmission Line.

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As far as Brazilian Standard ISO 14001 is concerned, the certification of the Roberto da Silveira Thermoelectric Plant is under way (Campos).

SOCIAL BALANCE 2002 2001

1. Calculation Base R$ thousand R$ thousand1.1. Net Revenue (RL) 10.223.170 9.252.4551.2. Operating Income (RO) 665.358 1.212.2451.3. Gross Payroll (FPB) 492.276 340.396

2. Internal Social IndicatorsValue

R$ thousand

% on FPB % on RLValue

R$ thousand

% on FPB % on RL

2.1. Food 16.235 3,30 0,16 15.601 4,58 0,172.2. Compulsory Social Charges 149.921 30,45 1,47 04.404 30,67 1,132.3. Private Social Security 33.010 6,71 0,32 28.214 8,29 0,302.4. Health 29.110 5,91 0,28 28.233 8,29 0,312.5. Safety and Labor Medicine 1.299 0,26 0,01 900 0,26 0,012.6. Education 990 0,20 0,01 951 0,28 0,012.8. Qualification and Development 4.270 0,87 0,04 5.250 1,54 0,062.9. Daily Care Center & Bonus 263 0,05 0,00 243 0,07 0,002.10. Profit Sharing 31.109 6,32 0,30 20.662 6,07 0,222.11. Other Benefits 14.867 3,02 0,15 49.790 14,63 0,54Totals 281.074 57,10 2,75 254.248 74,69 2,75

3. External Social IndicatorsValue

R$ thousand

% on RO % on RLValue

R$ thousand

% on RO % on RL

3.1. Contributions for Society (education, culture, health and sanitation, housing, sports, leisure, day care centers, food, energy conservation and donations)

15.258 1,53 0,15 9.909 1,01 0,11

3.1. Taxes (excluding Social Fees) 720.935 108,35 7,05 496.378 51,59 5,363.2. Investments in Environment 19.672 3,88 0,19 24.617 2,56 0,27

3.3. Compensation by Use of Hydric Resources 55.382 10,92 0,54 47.843 4,97 0,52

Totals 811.247 124,68 7,93 578.747 60,15 6,26

4. Environmental Indicators Value

R$ thousand

% on RO % on RLValue

R$ thousand

% on RO % on RL

4.1. Related to the Company’s Operation 4.891 0,01 0,05 7.042 0,58 0,08

4.2. In External Programs and/or Projects 14.781 2,22 0,14 17.575 1,45 0,19

Totals 19.672 2,96 0,19 24.617 2,03 0,27

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SOCIAL BALANCE 2002 2001

5. Functional Body Indicators

5.1 Number of employees at year end 3.453 3.6705.2 Number of admissions during the year 346 215.3 Number of outsourced employees 2.092 2.1315.4 Number of trainees 199 2175.5 Number of employees over 45 years old 1.615 1.8685.6 Number of women working in the company 428 4405.7 % of head positions held by women 5,54 7,115.8 Number of physically handicapped employees 24 4

6. Relevant Information as to the Exercise of Corporate Citizenship

6.1 Relation between highest and lowest remuneration in the Company 17,78

19,27

6.2 Total number of Work Accidents 88 86

6.3 The Social and Environmental Projects developed by the Company were defined

(_)by the

directors

(X)directors & managers

(_)all

employees

(_)by the

directors

(X)directors & managers

(_)all

employees6.4 The Safety and Salubrity

Standards at the Work Place were defined

(_)by the

directors

(X)directors & managers

(_)all

employees

(_)by the

directors

(X)directors & managers

(_)all

employees6.5 The Private Social security

contemplates(_)

by the directors

(_)directors & managers

(X)all

employees

(_)by the

directors

(_)directors & managers

(X)all

employees6.6 The Profit Sharing

contemplates(_)

by the directors

(_)directors & managers

(X)all

employees

(_)by the

directors

(_)directors & managers

(X)all

employees6.7 In supplier selection, the same

Ethical, Social Responsibility and Environmental Standards adopted by the Company

(X)are not

considered

(_)are

suggested

(_)are

required

(X)are not

considered

(_)are

suggested

(_)are

required

6.8 As to the participation of the employees in Voluntary Work Programs the Company

(_)does not

get involved

(X)supports

(_)organizes & stimulates

(_)does not

get involved

(X)supports

(_)organizes & stimulates

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The Added Value Statement is presented below:

ADDED VALUE STATEMENT 2002R$ Thousand

2001R$ Thousand

1. ADDED VALUE GENERATIONEnergy Sales and Service Revenue 10.770.655 9.707.176Non-Operating Revenue 3.224 1.570Less:Inputs

Cost of Purchased Energy (7.365.772) (6.773.657) Materials (29.944) (28.863) Third-Party Services (237.300) (204.729) Other Operating Costs (281.917) (206.279) Other Non-Operating Costs (22.745) (131.512)2. GROSS ADDED VALUE 2.836.201 2.363.706

Reintegration Quotas (472.026) (456.839)Constitution/Reversal of Provisions (269.157) 31.210

3. NET ADDED VALUE GENERATED 2.095.018 1.938.077Financial Revenue (Transfers) 1.047.492 341.741

4. ADDED VALUE TO DISTRIBUTE 3.142.510 2.279.8185. ADDED VALUE DISTRIBUTION

Work Remuneration 385.923 251.633Governments (Taxes and Contributions) 454.715 577.595Financial Charges and Monetary Variation 1.563.265 491.161Profit Sharing 31.109 20.662Interest on its Own Capital/Dividends 158.000 250.000Others 167.184 108.081Earned Profit 382.314 580.686

TOTAL 3.142.510 2.279.818

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The Cash Flow Statement is presented below:

CASH FLOW STATEMENT OF YEARS ENDED ON DECEMBER 31(in thousand reais)

OPERATING ACTIVITIES 2002 2001

Net profit in the year 540.314 830.686Expenses (revenue) that do not affect the net working capital Depreciation and amortization 472.026 456.839 Long-term monetary and exchange variation 357.457 31.524 Generator reimbursement right – MAE – LT estimate (906) (524.601) Provision for programmed withdrawal plan 67.993 Provision for coverage of FRG insufficient reserves 21.090 64.864 Financial charges – REFIS 56.438 65.806 Others 3.516 (15.704) 909.621 146.721CURRENT ASSETS VARIATION Consumers and Concessionaires (1.179.010) (1.456.481) Provision for doubtful debtors 322.816 Warehouse (4.210) (3.424) Compensable taxes and contributions 16.555 (32.022) Conceded loans (73.702) 38.608 Other operating assets (63.398) 5.376

(980.949) (1.447.943)CURRENT LIABILITIES VARIATION Suppliers 391.472 1.050.221 Payroll 17.241 4.999 Taxes and social contributions (59.361) 424.479 Sundry creditors 350.412 226.950 Provision for contingencies 1.284 (197.726) Consumer charges 69.938 7.519 Other operating liabilities 22.108 16.788

793.094 1.533.230TOTAL OPERATING ACTIVITIES 1.262.080 1.062.694INVESTMENT ACTIVITIES Investments in property, plant and equipment (1.220.985) (679.529) Others (59.040) (116.430)

(1.280.025) (795.959)FINANCING ACTIVITIES Long-term loans and financing 375.237 95.391 Securitization – CRC 421.954 Long-term liabilities transferred into current (355.584) (556.798) Interest on its own capital (485.046) (357.048) Others 120.010 388.263

76.571 (430.192)TOTAL CASH EFFECTS 58.626 (163.457) Cash and cash equivalents at the beginning of the period 289.377 452.834 Cash and cash equivalents at the end of the period 348.003 289.377

CASH VARIATION 58.626 (163.457)

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FURNAS IN NUMBERS

Operating Data 2002 2001 ∆Plants in Operation 12 12 0,0%Hydraulic 10 10 0,0%Thermal 2 2 0,0%Installed Capacity (MW) 9.292 9.292 0,0%Transmission Lines (km) 18.039 17.932 + 0,6%750 kV 2.698 2.698 0,0%600 kV 1.612 1.612 0,0%500 kV 3.596 3.637 -1,1%345 kV 5.784 5.800 -0,3%Below 345 kV 4.349 4.185 +4,0%Substations (including plant substations) 43 43 0,0%Transforming Capacity 86.012 84.978 + 1,2%Optical Fiber (km) 3.924 4.082 -3,9 %Technical Losses ONS ONS N.A.

Efficiency and ProductivitySold Energy (GWh) / Number of Employees 41,8 34,1 +22,6 %Net Operating Revenue / Personnel Expenses 33,5 36,8 -9,0%

FURNAS IN NUMBERS

Economic-Financial Indicators 2002 2001 ∆Operating Income (R$ million) 665,4 1.212,2 - 54,9%Net Operating Revenue (R$ million) 10.223,2 9.252,5 + 10,5%Investments (R$ million) 1.224,7 663,9 + 84,5%

CostTotal Cost of Personnel / Total Structural Cost 5,0 4,0 + 1,0%Total Cost of Personnel / Own Revenue 9,8 6,8 + 3,0%

Performance / ProfitabilityReturn of Own Capital in Service 5,9 9,1 - 3,2%Gross Operating Margin 11,6 14,7 - 3,1%Net Operating Margin 6,5 13,1 - 6,6%Capital StructureDebt / Equity 16,7 15,3 + 1,4%Debt (Loans and Financing) / Permanent Assets 14,1 9,4 + 4,6%

IncomeNet Profit / Total Sales Revenue 5,0 8,6 - 3,6%Operating Income / Total Sales Revenue 6,2 12,5 - 6,3%

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ACKNOWLEDGEMENTS

FURNAS acknowledges the constituted authorities, as well as its partners, suppliers and clients, and especially its employees, sure of having accomplished its mission.

José Pedro Rodrigues de OliveiraChief Executive Officer

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