(A free translation of the original report in Portuguese

on financial statements prepared in accordance

with accounting practices adopted in Brazil)

FURNAS - Centrais

Elétricas S.A.

Financial Statements at

December 31, 2002 and 2001

and Report of Independent Accountants

Abbreviations used:

ABRAGE-Brazilian Association of Major Power Generators

ANEEL-National Agency for Electric Energy

BTNF-Daily Federal Treasury Bonds

CCE -Council for the Coordination and Control of State Companies

CGCE -Energy Crisis Management Chamber

CND -National Privatization Council

COFINS-Tax for Social Security Financing

CRC-Compensation Account to compensate for shortfall in minimum operating income

CSLL -Social Contribution on Net Income

CVM -Brazilian Securities Commission

DNAEE-National Department of Water and Electricity

EGM-Extraordinary General Meeting

FGTS-Government Severance Indemnity Fund for Employees

FRG -Fundação Real Grandeza

IBRACON-Institute of Independent Auditors of Brazil

ICMS -Value-added tax on sales and services

IGP-M-General Market Price Index

INSS-National Institute of Social Security

IPC-Consumer Price Index

IRPJ-Corporate Income Tax

ITR -Rural Land Tax

MAE -Wholesale Energy Market

MCSPE -Accounting Manual for the Public Electric Power Service

MRE -Energy Reallocation Mechanism

OGM-Ordinary General Meeting

ONS -National Grid Operator

PASEP- Public Service Employee Savings Program

PERCEE-Emergency Energy Reduction Program

PIS-Employee's Profit Participation Program

PMAE -Wholesale Energy Market Price

PND -National Privatization Program

REFIS -Federal Tax Recovery Program

RTE -Extraordinary Tariff Recomposition

SPC -Secretariat for Supplementary Social Welfare

TJLP -Long-term Interest Rate

UC -Registration Unit

(A free translation of the original opinion in Portuguese

expressed on financial statements prepared in accordance

with accounting practices adopted in Brazil)

Report of Independent Accountants

February 15, 2003

To the Board of Directors and Stockholders

FURNAS - Centrais Elétricas S.A.

1We have audited the accompanying balance sheets of FURNAS - Centrais Elétricas S.A. as of December 31, 2002 and 2001 and the related statements of income, of changes in stockholders' equity and of changes in financial position for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements.

2We conducted our audits in accordance with approved Brazilian auditing standards which require that we perform the audit to obtain reasonable assurance about whether the financial statements are fairly presented in all material respects. Accordingly, our work included, among other procedures (a) planning our audits taking into consideration the significance of balances, the volume of transactions and the accounting and internal control systems of the Company, (b) examining, on a test basis, evidence and records supporting the amounts and disclosures in the financial statements and (c) assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

3In 2000, the Company did not provide for the costs arising from the energy produced by the Angra II Power Plant and made available to the wholesale energy market from September to December 2000, of approximately R$ 99 million, net of income tax and social contribution charges. This provision was recorded in 2001 and, consequently, net income for that year was understated by the same amount.

4In our opinion, except for the effects arising from the matter mentioned paragraph 3, the financial statements referred to in paragraph 1 present fairly, in all material respects, the financial position of FURNAS - Centrais Elétricas S.A. at December 31, 2002 and 2001, and the results of its operations, the changes in stockholders' equity and the changes in its financial position for the years then ended, in accordance with accounting practices adopted in Brazil.

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5As mentioned in Notes 3, 12, 28 and 29, the financial statements at December 31, 2002 and 2001 include the accounting effects arising from the adoption of Law No. 10438 (in 2001 - Provisional Measure No. 14) and additional regulations issued by the Energy Crisis Management Chamber (CGCE) and by the National Agency for Electric Energy (ANEEL), as a result of the General Agreement of the Electric Power Sector. In compliance with these regulations, the Company accounted for net sales of freely-traded energy and for sales in the spot market in the amount of R$815 million, R$716 million of which represent sales within the Wholesale Energy Market (MAE) in 2001. The Company recorded these amounts in accordance with calculations prepared and disclosed by the MAE and instructions issued by ANEEL. These amounts are subject to change, depending on judicial decisions on unsettled claims brought by energy companies arising from the interpretation of current market regulations and the result of audit work to be carried out, relating specifically to operations carried out within the MAE.

6As mentioned in Note 1, in accordance with Law No. 9648, the Company must reduce by 25% per year, as from 2003, the amount of energy established in the initial contracts still in force in 2002, and this freely-traded energy is to be traded at public auctions or in the spot market. Additionally, Law No. 10438 transferred the responsibility for the acquisition and transfer of ITAIPU energy to ELETROBRÁS as from 2003, FURNAS being responsible only for this energy relay.

7As mentioned in Note 1, the Company is still included in the National Privatization Program. However, its corporate restructuring as well as the privatization process depend upon authorization from the National Privatization Council.

PricewaterhouseCoopers

Auditores Independentes

CRC-SP-000160/O-5-S-RJ

Luiz Márcio Malzone

Partner

Contador CRC-RJ-31.376/O-2

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