DE LOS FONDOS DE APORTACIONES FEDERALES CAPITULO UNICO

Recognition of over- or underfunded status of retirement plans In September 2006 the FASB issued Statement of Financial Accounting Standards No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” This standard is an amendment of FASB Statements No. 87, 88, 106 and 132 (R). The standard requires an employer to recognize the overfunded or underfunded status of a defined benefit postretire- ment plan as an asset or liability in its statement of financial posi- tion. Changes in the funded status are to be recognized through comprehensive income in the year in which changes occur. In ac- cordance with SFAS 158 Hydro is initially applying the requirement to recognize the funded status of a benefit plan and the additional disclosure requirements as of 31 December 2006. The impact of this requirement on the statement of financial position is material, see note 19 for additional information.

SFAS 158 also mandates measurement of the funded status of a plan as of year-end, thus eliminating the previously allowed possibility for measurement within the last three months of the fiscal year. Adoption of a year-end measurement date is required by SFAS 158 for fiscal years ending after 15 December 2008, with early application encouraged. Hydro is adopting the year- end measurement date requirement as of 31 December 2006. The impact of adopting the measurement date provisions is nil, as Hydro’s policy for the measurement date for funded employee retirement plans has always been as of 31 December.

For N GAAP, the overfunded or underfunded status of defined benefit plans is not recognized in the balance sheet.

Inventory counterparty purchases and sales

During 2005 the FASB ratified the consensus reached by the EITF on Issue No. 04-13 “Accounting for Purchases and Sales of Inventory with the Same Counterparty.” The issue arose specifical- ly related to buy/sell arrangements within the oil and gas industry. The EITF concluded that inventory purchase and sale transactions with the same counterparty that are entered into in contempla- tion of one another should be combined for purposes of applying Opinion 29 (nonmonetary exchanges). The EITF also concluded that exchanges of inventory should be recognized at carryover basis except for exchanges of finished goods for either raw mate- rials or work-in-process, which would be recognized at fair value. Effective 1 April 2006 Hydro implemented Issue No. 04-13 with no material impact. Issue No. 04-13 applies to any new arrange- ments entered into after the implementation date.

Accounting changes and error corrections

In May 2005, the FASB issued Statement of Financial Accounting Standards No. 154 “Accounting Changes and Error Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3” (SFAS 154). The standard applies to all voluntary changes in accounting principle, error corrections and required changes due to new accounting pronouncements that do not specify a certain transition method. It generally requires retrospective application to prior periods’ financial statements for changes in accounting principles. Hydro adopted SFAS 154 as of 1 January 2006. Hydro did not have any accounting changes or error corrections within the scope of SFAS 154 during 2006.

The implementation of SFAS 154 eliminates a prior difference between US GAAP and N GAAP.

Altersteilzeit (atz) early retirement programs

In June 2005 the EITF reached a consensus on Issue No. 05-05 “Accounting for the Altersteilzeit Early Retirement Programs and Similar Type Arrangements.” An Altersteilzeit Type II program is an early retirement program supported by the German govern- ment. This Issue addresses the accounting treatment of the an- nual bonus and additional pension contributions. The EITF con- sensus is that employee benefits provided under a Type II ATZ arrangement should be accounted for as a termination benefit under the FASB Statement of Financial Accounting Standards No. 112 “Employers’ Accounting for Postemployment Benefits.” Recognition of the cost of the benefits begins at the time individual employees enroll in the ATZ arrangements (e.g., sign a contract). The German government provides a subsidy to an employer re- lated to the early retirement benefit payments if the employer has hired replacement employees. The EITF concluded that subsidies received under the ATZ arrangements should be accounted for when the employer meets the criteria necessary to receive the subsidy. Hydro has adopted EITF No. 05-05 as of 1 January 2006 with no material effect.

Share-based payment

In December 2004 the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment.” SFAS 123 (R) requires all share-based payment plans to be recognized in the financial statements at fair value. Hydro adopted SFAS 123 (R) as of 1 January 2006. The impact of adopt- ing SFAS 123 (R) on Hydro’s financial statements for 2006 is not material and the income statement cumulative effect of change in accounting principle is nill.

For N GAAP, Hydro adopted NRS 15A Share-Based Payment effective for 2005. The Norwegian standard is the same as Inter- national Financial Reporting Standards 2 Share-based Payment (IFRS 2). The standard requires all share-based payment plans to be recognized in the financial statements at fair value. Although differences exist between the US GAAP and N GAAP accounting standards for share-based payments, as all stock options granted by Hydro are cash settled the accounting treatment is the same under US GAAP and N GAAP.

Asset retirement obligations

In March 2005, the FASB issued FASB Interpretation (FIN) No. 47 “Accounting for Conditional Asset Retirement Obligations.” This Interpretation is a clarification of the term “Conditional Asset Retirement Obligation” as used in Statement of Financial Accounting Standards No. 143 “Accounting for Asset Retirement Obligations” and requires an entity to recognize a liability for a le- gal obligation to perform asset retirement activities even though the retirement of the asset is conditional on a future event. Hydro adopted FIN 47 as of 31 December 2005. The cumulative effect of the change in accounting principle related to FIN 47 is an after-tax decrease in net income of NOK 78 million.

For N GAAP, the change in accounting principle was imple- mented on a retrospective basis, with the effect recorded to eq- uity. Comparable figures are restated for N GAAP purposes; see note 27.

Inventory cost

In November 2004, the FASB issued Statement of Financial Accounting Standards No. 151 “Inventory Cost, an amendment of ARB 43, Chapter 4” (SFAS 151). The standard clarifies that abnor- mal amounts of idle facility expense, freight, handling costs and spoilage should be recognized as current period charges rather

than as a portion of the inventory cost. Hydro adopted SFAS 151 as of 1 July 2005. The impact of adopting SFAS 151 on Hydro’s financial statements has not been material.

For N GAAP the adoption of SFAS No. 151 does not represent any difference in the measurement of inventory.

Exchanges of nonmonetary assets

In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153 “Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29” (SFAS 153). The statement amends APB 29 “Accounting for Nonmonetary Transactions”, FASB Statement of Financial Accounting Standards No. 19 “Financial Accounting and Reporting by Oil and Gas Producing Companies” and certain other standards. Hydro im- plemented the provisions of SFAS 153 for nonmonetary exchange transactions as of 1 January 2005 with no material effect.

For N GAAP the adoption of SFAS 153 has not represented differences in the measurement of nonmonetary exchange trans- actions.

Suspended well cost

Effective for reporting periods beginning after the issuance date of 4 April 2005, the FASB Staff Position No. FAS 19-1 “Accounting for Suspended Well Costs” provides guidance in the account- ing for exploratory well costs. Paragraph 19 of FASB Financial Accounting Standards Statement No. 19 “Financial Accounting and Reporting by Oil and Gas Producing Companies” (SFAS 19) requires the cost of drilling exploratory wells to be capitalized pending determination of whether the well has found proved re- serves. FSP FAS 19-1 amended SFAS 19 to allow suspended well costs to remain capitalized beyond one year from drilling if cer- tain specific criteria are met and additional disclosures provided. Hydro has not recognized any changes to the amounts previously capitalized. See note 26 for additional information.

Consolidation of variable interest entities

Effective 1 January 2004, Hydro adopted FASB Interpretation 46 (revised December 2003) “Consolidation of Variable Interest Entities” (FIN 46 (R)), which is an interpretation of Accounting Research Bulletin No. 51 “Consolidated Financial Statements”, relating to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have suf- ficient equity at risk for the entity to finance its activities without ad- ditional subordinated financial support. These entities are referred to as variable interest entities or VIEs. FIN 46 (R) provides guidance for determining which party retains the controlling financial inter- est in VIEs when such interest is achieved through arrangements other than voting rights. Implementation of the new requirements depended on when a company became involved with such enti- ties. Because Hydro did not become involved with any new VIEs during the period 31 January to 31 December 2003 or have any interests in Special Purpose Entities (SPEs) as of 31 December 2003, implementation of the Interpretation was required as of 31 March 2004.

Applying the guidance of FIN 46 (R), Hydro has consolidated one VIE (Slovalco) since the implementation date of FIN 46 (R) until August 2006. See note 2 for additional information.

Application of FIN 46 (R) may result in differences between US GAAP and N GAAP, depending on the relevant facts and circum- stances for units required to be consolidated, or not consolidated, under FIN 46 (R). As of 31 December 2006 Hydro does not have any entities consolidated under FIN 46 (R).

Contractual mineral rights

The FASB issued FSP FAS 142-2 “Application of FASB Statement No. 142, Goodwill and Other Intangible Assets (SFAS 142), to Oil- and Gas-Producing Entities” on 2 September 2004. This FSP is effective for the first reporting period beginning after the issuance date and clarifies that the costs for acquiring contractual mineral rights in oil and gas properties would continue to be recorded as those for tangible assets. It also addresses whether the scope ex- ception within SFAS 142 for the accounting as prescribed in SFAS 19 extends to the balance sheet classification and disclosures for drilling and mineral rights of oil- and gas-producing entities. The FSP concluded that the scope exception in SFAS 142 extends to the balance sheet classification and disclosure provisions for such assets. The FSP confirms Hydro’s current practice.

Intangible assets

Effective from 1 January 2004, NRS (F) Intangible assets was re- vised to require that intangible assets are recognized at cost if, and only if, (a) it is probable that the future economic benefits that are attributable to the asset will flow to the enterprise; and (b) the cost of the asset can be measured reliably. The standard requires all expenditure on research to be recognized as an expense when incurred. This does not represent a difference between US GAAP and N GAAP at transition, however, for future periods the standard may represent differences for development activities compared to US GAAP.