On account its managerial efforts, the Company was able to revert some unsatisfactory figures. By reviewing some contracts that were hurting the Company, COPEL sought to improve its economic and financial performance, while striving for transparency and for the promotion of its social mission, as shown below.

In 2003, the Company achieved an income of R$ 171 million, against losses of R$ 320 million in 2002. The 13.7% increase in gross revenues (from R$ 3,792 million in 2002 to R$ 4,279 million in 2003) was due mostly to the increase in:

1) revenues from sales to final customers (13%), which reflects a 1.2% market expansion, a 10.96% rate increase granted in June 2002, and overdue bills issued after June 2003, which include a 25.27% increase for overdue customers; and

2) revenues from sales to distributors (72.5%), which resulted from increased power sales under bilateral agreements, particularly those with Elektro (511 GWh in 2002 and 1,190 GWh in 2003) and Celesc (43 GWh in 2002 and 1,139 GWh in 2003).

COPEL's operating expenses increased by 23% over 2002 (R$ 2,895 million against R$ 2,353 million), due mostly to increases in: Materials and Supplies (57%), resulting from the accounting of gas purchased for the Araucária Thermal Power Plant; Charges for the Use of the Transmission System (45%); Electricity Purchased for Resale (36%), particularly that acquired from Cien; Regulatory Charges (27%), such as the Energy Development Account, created to promote the competitiveness of energy sources such as wind, small hydropower facilities, biomass, natural gas and coal, and the universalization of electricity services; and Pension and Health Plans (20%).

The Company's EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) reached R$ 387.9 million, a figure 35.1% smaller than that of 2002 (R$ 597.8 million), as shown below:

The financial result was positively influenced by R$ 561 million resulting mostly from the U.S. dollar exchange rate variation of -18.2% during the year.
Profitability (net income divided by shareholders' equity) in 2003 was 3.52%, against -6.77% in 2002.

Hedge

In order to reduce its exposure to exchange rate variations, COPEL, with the support of Banco do Brasil S/A, hedged its U.S.$ 150 million Eurobond debt due on May 2 nd 2005.

The operation consisted on trading 100% of the exchange rate variation for an average of 75.19% of the Interbank Deposit Rate ("CDI").

Value Added

Total Value Added (TVA) in 2003 was 11.5% greater than in 2002, for a total of R$ 242.0 million, which represents 54.7% of gross revenues. This result attests to the Company's performance in generating wealth internally.

COPEL's 2003 Value Added Distribution injected R$ 1.5 billion in the State economy through taxes (VAT in particular), wages, retained earnings, and the State's interest in the Company. This value was R$ 601.3 million greater than that recorded in 2002 and represents 63.8% of the total value distributed by the Company.

Evolution of Value Added Distribution - in millions of R$

Rates

In sync with the strategic goal of the State Government of offering one of the lowest power rates in Brazil, COPEL has provisionally suspended the 25.27% rate increase granted by ANEEL in June 2003 to customers who pay their bills in time.

As of January 2004, COPEL decided to reduce the discount afforded to those customers. This decision resulted in a 15% average rate increase. However, COPEL's customers still benefit from one of the lowest electricity costs in Brazil, since the 8.9% discount (on average) still in effect will continue to translate into significant savings for our customers.

Overdue Bills

In 2003, COPEL started to calculate the rate of overdue electricity bills by applying the following formula:

I = Rate of overdue bills in 2003;
A bill is considered overdue if not paid for over 15 days, in accordance with the Reception Notice term (ANEEL Resolution no. 456/00).
Losses recorded by the Company are excluded from overdue bills.

Overdue Bills - 2003 (R$ MILLIONS)

The subsequent events refer to the payments made by the State of Paraná, in February 2004, of its overdue bills up to September 2003.

Market Relations

The Investor Relations Office received throughout the year a significant number of visiting investors and capital market analysts from Brazil and abroad. It also promoted guided tours of the Company's facilities. In addition, COPEL participated in conferences, seminars, and meetings, and took a road show to the main financial centers in Brazil, Europe, and the United States.

Committed to greater transparency in disclosing information, COPEL restructured its investor relations unit and set up new channels of communications with capital market analysts and investors.

As a result, COPEL was awarded in 2003 as the Best Brazilian Company in Investor Relations (small and mid cap). This award is sponsored by the United States' Investor Relations - IR Magazine comprising companies listed in the New York Stock Exchange (NYSE) and reflects the opinion of capital market analysts and investors. Being granted this award attests to the emphasis placed by COPEL on good market relations, as well as to its continuous efforts towards better stock price performance, and greater transparency and improved Corporate Governance practices.

In addition, COPEL was acclaimed as the most respected utility in Brazil, ranking third overall worldwide, according to the 2003 World's Most Respected Companies Survey, conducted by PriceWaterhouse Coopers in association with the Financial Times, the renowned business newspaper published in England. This survey comprised over one thousand interviews with corporate CEOs and senior managers in 20 countries. In the utilities category, COPEL is the only Brazilian company listed in the survey, behind France's EDF and Germany's RWE.

COPEL was also chosen by the United States' Global Finance Magazine as the Best Latin-American Electric Utility. This was the third time COPEL was honored in the six years of this award.

Stock Price Performance

From January through December 2003, COPEL's common shares (ON) were traded on 100% of the São Paulo Stock Exchange (BOVESPA) trading sessions, having recorded a closing price on the last trading day of the year of R$ 8.70 per lot of one thousand shares (an 8.75% increase compared with the previous year). The Company's class B preferred shares (which are part of the virtual portfolio of the Bovespa index - "Ibovespa"), were also traded on 100% of the trading sessions and recorded a closing price at the end of the period of R$ 13.60 (a 36% increase).

On the New York Stock Exchange (NYSE), COPEL's class B preferred shares, represented by American Depositary Shares (ADSs), were traded on 100% of the trading sessions and recorded a closing price of US$ 4.73 (a 70.14% increase) on the last trading day of the year.

On LATIBEX (The Euro Market for Latin-American Securities), linked to the Madrid Stock Exchange, COPEL's Class B preferred shares were traded, under the symbol XCOP, on 99% of the trading sessions, having recorded a closing price of 3.77 euros (a 43.89% increase).

Statement of Economic Value Added - EVA

EVA represents the economic profit after deducting all operational expenses, including the cost of capital employed in the operation.

Even considering that the Company had greater turnover in 2003 than in 2002, the reduction in operating margin, due to increased revenue deductions, was the main reason for a negative EVA in 2003. Although revenues increased by 13.7%, this performance was not sufficient to offset an enlarged tax burden, thus causing the rate of return on investment to drop to 4.67% in 2003 from 6.47% in 2002. The 12% rate of return on own capital was maintained for being adequate to the standards of the Brazilian power sector and for a "beta" of 0.95. The reduction of debt charges in 2003, however, caused an increase in the Capital Weighted Average Cost, which was R$ 631.4 million in 2002 and R$ 665.3 million in 2003, due to a larger proportion of shareholders' equity, which also contributed to the EVA reduction.