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Brazilian Electric Power (EBR)

Filed: 20 Jan 22, 7:00pm

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


 

FORM 6-K

 

Report of Foreign Private Issuer
Pursuant to Rule 13a-16 or 15d-16 of the

Securities Exchange Act of 1934

 

For the month of January, 2022

 

Commission File Number 1-34129

 


 

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRÁS

(Exact name of registrant as specified in its charter)




BRAZILIAN ELECTRIC POWER COMPANY

(Translation of Registrant's name into English)




Rua da Quitanda, 196 – 24th floor,
Centro, CEP 20091-005,
Rio de Janeiro, RJ, Brazil

(Address of principal executive office)



Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. 

Form 20-F ___X___ Form 40-F _______

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes _______ No___X____

 
 

 

 

Eletrobras_marca_p_cor_RGB

 

RELATED-PARTY TRANSACTION IDENTIFICATION FORM

This form identifies a transaction with a related party of the Eletrobras companies and provides guidance on the necessary procedures for accounting and/or capital market disclosure, under the terms of the TPR Policy of the Eletrobras companies.

 

In accordance with Technical Pronouncement CPC 05 (R1) which can be consulted at the link CPC_05_R1_rev06_Consolidado.pdf (cvm.gov.br)

 

A. OPERATION

 

1. Operation Amount:

 

Basically, these are the reimbursement amounts paid to Eletrobras for the provision of services related to government (sectoral) and BUSA programs. Each one has its details and specifics. These details can be seen in the table below.

 

ProgramsDirect laborSupport DepartmentsVolume
PROCEL26Legal; Hiring; Financial; IT; and Communication.Projects: 84 in progress; 30 in contracting; 32 predicted; and 57 closed.
Resources: BRL 10.0 MM (average 2018 to 2021).
Cost: BRL 10.2 MM (average 2018 to 2021)
LPT and MLA22Financial; IT; and PresidencyContracts: 19 contracts in progress; 19 in closing.
Programs: 4 under contract; 7 predicted; 4 under review;

Resources: BRL 13.7 MM (average 2017 to 2020)

Cost: BRL 13.4 MM (average 2017 to 2020)

PROINFA19 – Partial AllocationCommercialization; Financial; Accounting; Legal; and AuditPROINFA:  140 contracts
Estimated Revenue 2022 - R$ 6.5 billion
Estimated Expenses 2022 - R$ 6.5 billion
BUSA10 – Partial AllocationGeneration;BUSA: 1994 Goods
Accounting; IT; Legal; Treasury; and suppliesReimbursed Expenses: R$ 13.1 MM (17 to 21)
 To be reimbursed:  R$ 5.9 MM (2021/2022)
RGR5 – Partial AllocationTreasury; Accounting; Legal

Financing Agreements: 51

 

Administration fee received: 2% per year on the outstanding balance of the contracts.

 

Costs: Basically with personnel.

 

 

 Page 1 of 8
 

 

2. Type of Operation:

According to CPC 05 (R1), item 21, this transaction falls into the following category: “(c) provision or receipt of services”. In this case, it is about providing services.

 

It is important to note, however, that this is a corporate restructuring operation whose terms of the modeling were defined by Law No. 14,182, of 2021, and by CPPI Resolution No. 203, of 2021. In addition, it should also be noted that the present operation has extensive knowledge of the market and regulatory bodies, which are bound by its terms.

 

 

3. Will the operation be carried out with an individual, legal entity, government, company or entity related to the Eletrobras Related Parties List? (x) Yes ( ) No

[item 4.2.1 of the TPR Policy of the Eletrobras companies]

 

Case affirmative, the operation is characterized as a transaction with related parties, requiring accounting disclosure pursuant to item 4.8.1 of the TPR Policy of the Eletrobras companies. In this case, item C of this form does not need to be completed. If not, fill out the entire form.

 

 

B. PARTIES INVOLVED IN THE OPERATION

 

 

1. Eletrobras Company:

Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

 

I - Shareholding Composition:

See documentation on Eletrobras' investor relations website (ri.eletrobras.com).

 

 

II – Has affiliates? (x) Yes ( ) No Which:

All affiliated companies of the Eletrobras Group.

 

 Page 2 of 8
 

 

 

2. Related entity:

Federal Government, through the Ministry of Mines and Energy – MME, and Empresa Brasileira de Participações em Energia Nuclear e Binacional SA – ENBpar, a public company linked to the MME, authorized by Law No. 10,791 of 2021.

 

 

I - Shareholding Composition

As it is a public company, ENBpar is 100% (one hundred percent) controlled by the Union. It should be considered that the company's incorporation meeting is still awaited, which should take place in early January 2022.

 

 

II - Has affiliates? ( ) Yes ( x ) No Which:

After the capitalization of Eletrobras, ENBpar will have the majority of the common shares of Eletrobras Termonuclear S.A. – Eletronuclear.

 

 

C. IDENTIFICATION OF RELATIONSHIP BETWEEN THE PARTIES INVOLVED IN THE OPERATION

(Filling in any item that composes C.1 or C.2 identifies a transaction with related parties, requiring accounting disclosure, pursuant to item 4.8.1 of the TPR Policy of the Eletrobras companies)

 

1. Relationship with Individuals (A person, or a close family member, is related to the Eletrobras company if any of the conditions below are met.)

 

I - Does any person or family member of the entity that is related to the Eletrobras company have full or shared control of the Eletrobras company? [CPC 05 - item 9 (a)(i)] If so, specify:

 

 

(A family member means (a) the person's children, spouse or partner; (b) the children of the person's spouse or partner; and (c) dependents of the person, his or her spouse or partner).

( ) Yes

( ) No

II - Does any person or family member of the entity that is related to the Eletrobras company have significant influence over the Eletrobras company? [CPC 05 - item 9 (a)(ii)]

If so, specify:

 

(According to item 6.9 b of the TPR Policy, significant influence means having full or shared control of an Eletrobras company)

( ) Yes

( ) No

III - Is any person or family member of the entity that is related to the Eletrobras company a member of the key management personnel of the Eletrobras company or the parent company of the Eletrobras company? [CPC 05 - item 9 (a)(iii)] If so, justify:

If so, specify:

 

 

(Key management personnel are those persons who have authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (executive or otherwise) of that entity.)

( ) Yes

( ) No

IV - Is any person, or family member of the entity that is related to the Eletrobras company, a member of the fiscal council, the board of directors, and committees subordinate to it, or the executive board of the Eletrobras company? [item 6.18 of the TPR Policy of Eletrobras companies)]

If so, specify:

 

 

(spouses, partners and relatives, by blood or similar, up to the second degree are also included)

( ) Yes

( ) No

2. Relationship between Legal Entities (Two entities - the Eletrobras company and the company related to the Eletrobras company - are related if any of the conditions below are met.)

 

 Page 3 of 8
 

 

I - Are the two entities members of the same economic group? [CPC 05 - item 9 (b)(i)]

If so, specify:

 

 

(the parent company and each subsidiary are interrelated, and entities under common control are related to each other)

( ) Yes

( ) No

 

II - Is an entity an associate or joint venture of another entity or an economic group of which the other entity is a member? [CPC 05 - item 9 (b)(ii)]

If so, specify:

 

 

( ) Yes

( ) No

 

III - Are both entities under the joint control of a third entity? [CPC 05 - item 9 (b)(iii)]

If so, specify:

 

 

( ) Yes

( ) No

 

IV - Is one entity under the joint control of a third entity and the other entity is an affiliate of that third entity? [CPC 05 - item 9 (b)(iv)]

If so, specify:

 

 

( ) Yes

( ) No

 

V - Is the entity a post-employment benefit plan whose beneficiaries are the employees of both entities? [CPC 05 - item 9 (b)(v)]

If so, specify:

 

 

( ) Yes

( ) No

 

VI - Is the entity controlled, fully or under joint control, by a person identified in item I-a? [CPC 05 - item 9 (b)(vi)]

If so, specify:

 

 

( ) Yes

( ) No

 

VII - a person identified in letter I-a has significant influence over the entity, or is a member of the key management personnel of the entity (or the entity's parent company) [CPC 05 – item 9 (b)(vii)]

If so, specify:

 

 

( ) Yes

( ) No

 

VIII- Does the Federal Government (Public Power) have significant influence over the decision-making of the entity related to the Eletrobras company? [item 4.2.3 of the TPR Policy of the Eletrobras Companies].

If so, specify:

 

 

( ) Yes

( ) No

 
  
 Page 4 of 8
 

 

 

D. PREVIOUS ANALYSIS OF THE OPERATION BY THE AUDIT AND STATUTORY RISKS COMMITTEE OF ELETROBRAS (CAE)

 

 

 

 

1. Condições de Celebração da Transação com Partes Relacionadas

A análise vai ser realizada a partir do “Contrato de Transição da Gestão dos Programas Setoriais e dos BUSA”, desenvolvimento no âmbito da capitalização da Eletrobras, a ser assinado pela Eletrobras e ENBpar com anuência do Ministério das Minas e Energia.

(A área responsável pela transação com partes relacionadas deve encaminhá-la para análise prévia do CAE, nos termos do item 4.5.1 da Política de TPR das empresas Eletrobras, se a condição abaixo for observada)

 

 

 

I –If the authority for approval is the Board of Directors of the Eletrobras companies, in accordance with the Rules of Authority of the Eletrobras Companies [item 4.5.1 ) of the TPR Policy of the Eletrobras companies];

If so, specify: Note the contract referred to in the previous item must be submitted not only to the Eletrobras Board of Directors, but also to the General Meeting.

 

 

 

(x) Yes

( ) No

 
   
 Page 5 of 8
 

 

 

 

2. Transactions exempt from prior analysis by the CAE

 

 

I – Is the transaction with related parties of an operational and recurring nature, integrating the company's routine activities and requiring a short-term decision to close the transaction?

If so, specify:

 

(transactions of this nature are exempt from prior analysis by the CAE, as determined in item 4.6.1 of the Related Party Transactions Policy).

 

( ) Yes

(x) No

 

II –Is the transaction with related parties subject to specific regulation where there is no type of negotiation between the parties, with rules established for all companies?

If so, specify:

In the legal and infralegal rules of each of the government programs and the BUSAs now under development at Eletrobras, which, in the future, will be transferred to ENBpar.

 

(transactions of this nature are exempt from prior analysis and disclosure under ICVM 552/2014 and in the financial statement, as established in item 4.6.2 of the TPR Policy of the Eletrobras companies).

 

( ) Yes

( x ) No

 

E. VERIFICATION OF THE MATERIALITY AND COMMUTATIVENESS OF RELATED-PARTY TRANSACTIONS

(Transactions with related parties must meet the materiality and commutativity criteria under ICVM 552/2014, and must meet items 4.4.1, 4.4.2, 4.4.5 and 4.4.6 of the TPR Policy of the Eletrobras companies)

 

 

1. Transaction Materiality Analysis with Related Parties

 

 

I – Does the transaction with related parties meet the materiality criteria established in CVM Instruction 552/2014 and its amendments, under the terms of the TPR Policy of the Eletrobras companies? ( x ) Yes ( ) No

If so, specify:

 

 

Note: in fact, Eletrobras will continue to provide the services provided in the government programs (Procel, Luz para Todos, Mais Luz Amazônia, Proinfa, Remaining Accounts from RGR and BUSA) until its entire transfer to ENBpar within a period of up to 1 year.

 

 

[Item 6.11 of the TPR Policy of the Eletrobras companies]

 

2. Analysis of Commutativity of the Transaction with Related Parties

 Page 6 of 8
 

 

 

I – A transação com partes relacionadas atende aos critérios de comutatividade estabelecidos nos itens 4.4.2 e 4.4.3 da Política de TPR das empresas Eletrobras? Does the transaction with related parties meet the commutativity criteria established in items 4.4.2 and 4.4.3 of the TPR Policy of the Eletrobras companies? (x) Yes ( ) No

If so, specify:

 

Note: there is merely the temporary maintenance of a policy already provided by Eletrobras at present. On the other hand, it is important to inform that there is no comparability with the market, since it is about Eletrobras executing public policies on behalf of the government.

 

 

F. DISCLOSURE OF TRANSACTIONS WITH PARTIES RELATED TO THE CAPITAL MARKET

(The disclosure of transactions with parties related to the capital market must be carried out, pursuant to ICVM 552/2014 and item 4.8.2 of the TPR Policy of the Eletrobras companies, if any of the conditions below are observed)

 

 

I - Does the transaction with related parties, their set or related transactions, have a total value greater than BRL 50,000,000.00 (fifty million reais)? [Article 1 of ANNEX 30-XXXIII of ICVM 552/2014 and item 4.8.2.5, item a of the TPR Policy of the Eletrobras companies]

 

( x ) Yes

( ) No

 

II - Transactions with related parties, their set or related transactions, represent 1% (one percent) of the total assets of the Eletrobras company involved, considering the value of the asset calculated based on the latest financial statements or, when applicable, the latest financial statements consolidated statements disclosed by the company? [Annex 30-XXXIII, Art 1 of ICVM 552/2014 and item 4.8.2.5 item a of the TPR Policy of the Eletrobras companies]

 

( x ) Yes

( ) No

 

III- Despite the total amount being lower than the parameters provided for in items I and II above, management, at its discretion, decided to communicate the transaction or a set of related transactions, in view of the characteristics of the transaction, the nature of the related party's relationship with the issuer or the nature and extent of the related party's interest in the transaction? [Annex 30-XXXIII, Art 1 of ICVM 552/2014 and item 4.8.2.5 item b of the TPR Policy of Eletrobras companies] Note: Not applicable.

 

( ) Yes

( ) No

 

 

G. TRANSACTIONS WITH RELATED PARTIES EXEMPT FROM DISCLOSURE TO THE CAPITAL MARKET

(The transactions listed below are exempt from disclosure to the capital market)

 

 

I –This is a transaction between the issuer and its direct and indirect subsidiaries, except in cases in which there is a stake in the subsidiary's capital stock by the direct (Federal Government) or indirect controllers of the issuer, its managers or persons assigned to them. linked? [Annex 30-XXXIII, Art. 3, item II, item “a” of ICVM 552/2014]

 

(x) Yes

( ) No

 
II –] This is a transaction between the issuer's direct and indirect subsidiaries, except in cases where there is an interest in the subsidiary's capital stock by the direct (Federal Government) or indirect controllers of the issuer, its managers or persons related to them. ? [Annex 30-XXXIII Art. 3, item II, item “b” of ICVM 552/2014]

(x) Yes

( ) No

 

 

Local/Date: Conceição do Rio Verde, December 31, 2021.

 

 Page 7 of 8
 

 

 

_______________________________________________

Analyst Signature: Fernando Antônio Riberio Soares

Departament: Presidency

 

Transactions that must be disclosed in the Financial Statements, if made with a related party [CPC 05 (R1) - item 21]

(a)purchases or sales of goods (finished or unfinished); (b) purchases or sales of property and other assets; (c) provision or receipt of services; (d) leases; (e) research and development transfers; (f) transfers under license agreements; (g) transfers of a financial nature (including loans and contributions to CPC_05(R1) 9 capital in cash or equivalent); (h) provision of guarantees, sureties or guarantees; (i) making commitments to do something in case a particular event occurs or not in the future, including contracts to be performed1 (whether recognized or not); and (j) settlement of liabilities on behalf of the entity or by the entity on behalf of a related party.

 

 

 Page 8 of 8
 

 

 

 

 

 

Technical Note

 

 

 

 

Title:Transfer of Government Programs from Eletrobras to ENBpar
Subject:Risk Management
Authors:

Mauro Retto Lopes

Leonardo Frederico Reiter

Antonio João Queiroz Lima

Roberto Brigido do Nascimento

Company:Centrais Elétricas Brasileiras – Eletrobras

 

 

 

 

 

 

 

 

 

Page 1 of 15
 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

 

 

1.          Introduction........................................................................ 3

2.          Risk Assessment for the Transfer of the Government Programs... 5

3.          Final Considerations............................................................. 15

 

 

 

 

 

 

Page 2 of 15
 

 

 

1 – INTRODUCTION

 

This Technical Note (TN) is part of the documentation supporting the management of Eletrobras Holding in the assessment of the risks related to the Eletrobras capitalization process.

 

In this TN, we will consider the risks related to the process of transferring the management and implementation of the Federal Government programs and assets (National Program for Energy Conservation (PROCEL), LUZ PARA TODOS, MAIS LUZ PARA A AMAZÔNIA, Incentive Program for Alternative Energy Sources (PROINFA), and Properties of the Federal Government Managed by Eletrobras (BUSA)), currently managed and operated by Eletrobras, to Empresa Brasileira de Participações em Energia Nuclear e Binacional S.A. – ENBpar. The risks shall be considered from the Eletrobras’ point of view, in terms of how they may impact the schedule and effectiveness of the capitalization process. The risk-mitigating action plans, currently underway, or foreseen in the capitalization schedule, shall also be described.

 

Law 14,120/2021 established the guidelines, attributions, and rules for the capitalization process of Eletrobras. The creation of ENBpar (Decree nº 10,791 of September 10, 2021) was the way provided for in the law to, among other objectives, assimilate the Federal Government programs and assets currently managed by Eletrobras. Due to the nature of the activities, focused on the development of sector public policies, social development, and the use of sources of public funds, it is necessary that, after the transition period provided for by law, a public company, or another public agency, takes over these activities.

 

CPPI Resolution 203 of October 14, 2021 establishes the guidelines for the operational transition and assignment of contracts to ENBpar, sector policies, and the government programs managed by Eletrobras, through the execution of an agreement governing the transition, as well as the assumption by Eletrobras, free of charge, of a commitment to provide support and advice to ENBpar in the management of these activities, including personnel training, provision of databases and information.

 

The following public agencies and institutions may be required to promote management actions, decisions, and assessments during the process for transferring the government programs to ENBpar. We highlight below some duties of these agencies related to the government programs and sectoral policies.

 

– Ministry of Mines and Energy – MME: definition of guidelines, goals, and scope of the sectoral policies. Monitoring the implementation of policies and achievement of goals; support and guide social energy policy programs and projects; guide and define forms of relationship and coordination between social interests and those of the electricity market;

 

Page 3 of 15
 

 

– Brazilian Electricity Regulatory Agency – ANEEL: regulates the Brazilian energy sector, in compliance with public policies issued by the Ministry of Mines and Energy – MME; Regulation, management, and monitoring of changes in the energy sector, for which we promote sectoral programs; inspection of universalization goals with electric utilities and cooperatives;

 

– Electricity Trading Chamber – CCEE: manages the funds of the Global Reversal Reserve (RGR) and Energy Development Account (CDE), directly related to the financial flow of the government programs and sectoral policies, such as, for example, in the settlement of the payments provided for in credit facility, subsidy, and disbursement contracts under the Luz para Todos (LPT) and Mais Luz para a Amazônia (MLA) sectoral programs, and in the process of settlement and billing of payments, of the energy generated and supplied by generators related to the PROINFA;

 

– Federal Properties Management Office – SPU: is the entity that authorizes the occupation of federal public properties, establishing guidelines for use permits, promotion, donation, or free assignment, in case of public interest. Guides the incorporation and regularization of the title to the assets; their proper destination; in addition to the control and inspection of properties. They are described in art. 31 of Decree No. 9,035/2017. It has a relationship with Eletrobras due to the management of the Federal Government assets managed by Eletrobras.

 

– Brazilian Government Accountability Office – TCU: inspection and approval of the process for transferring the government programs to ENBpar. According to the current regulations, the model presented by MME and BNDES shall be approved by TCU.

 

– Brazilian Office of the Comptroller General – CGU: assessment of the compliance and governance of the process to transfer the programs to ENBpar;

 

Eletrobras, pursuant to the current regulations and observing its diligence duties, chose to monitor the main risks for the process to transfer the Federal Government programs and assets managed by Eletrobras.

 

Eletrobras Holding’s Superintendent’s Office for Risk Management, Internal Controls, and Information Security – DCR was asked to support the management of the risks of the process to transfer the government programs to ENBpar, together with the specialist areas, who work in the implementation and management of these programs and assets at Eletrobras.

 

Page 4 of 15
 

 

 

2 – RISK ASSESSMENT IN THE TRANSFER OF GOVERNMENT PROGRAMS

 

The risk related to the transfer to ENBpar of government programs, sector policies, and the Federal Government assets managed by Eletrobras can be described as potential deficiencies and delays in the transfer of management, operational processes, database and information technology systems, technical collection, and the several contractual and institutional relationships established by Eletrobras for the management of the programs.

 

The Technical Note of the Holding’s Management and Sustainability Office – DS (“Transition of the management of the government programs from Eletrobras to ENBpar”) analyzes the Sectoral Program and BUSA Management Transition and Transfer Agreement proposed by BNDES. Its main conclusion is that, considering the agreement and the risks identified to date, as well as compliance with laws and regulations applicable to the Eletrobras capitalization process, and the transfer of the sectoral programs and BUSA management to ENBpar, as well as aiming at maintaining the full operation of the Programs and activities included in the agreement, DS recommends the approval of the execution of the proposed transition and transfer agreement.

 

2.1 – Luz Para Todos (LPT) and Mais Luz para a Amazônia (MLA) Programs

 

The Luz Para Todos Program (LPT) was established by Decree 4,873/2003. The main objective is to accelerate the universalization of the access to and use of electrical energy in the country, mitigating the tariff impact through the use of sectoral funds, establishing subsidy and credit facility agreements with the executing agents. After several changes in the goals of universal access to electrical energy, the completion of the program was postponed to December 31, 2022.

 

The National Program for Universalization of the Access to and Use of Electric Energy in the Legal Amazon – Mais Luz para a Amazônia (MLA) was established by Decree 10,221/2020. The objective is to prioritize the service to the population who lives in places of difficult access in the region of the Legal Amazon, where, due to economic and technical reasons, it would be difficult to provide electrical energy service through the conventional means. The MLA Program is effective until December 31, 2022, with the possibility of extension until full universal access to electrical energy in remote regions of the nine states that make up the Legal Amazon.

 

ENBpar was designated as the operator of the LPT and MLA, through Ordinance 556/GM/MME. ENBpar shall assume the responsibility for the management and operation of these programs within twelve months of the date of the meeting to homologate the result of the increase in Eletrobras’ capital stock.

 

Page 5 of 15
 

 

In general, the external process, with the participation of Eletrobras, for the management and operation of the program takes place as follows: after the initial assessment by the State Management Committees of the demands for electrical energy in rural areas in each region, the Ministry of Mines and Energy approves the contracts that shall be signed between Eletrobras and the distributors for the execution of the works. Eletrobras signs the contracts and proceeds to the physical and financial inspections of the works carried out, issuing to CCEE the authorizations to release the CDE funds, according to the physical and financial progress of the works. The program’s State Management Committees monitor the services that were prioritized by that collegiate body. ANEEL, in turn, oversees the fulfillment of the contract targets, which are an integral part of the electric utilities’ Universalization Plans.

 

For the management and implementation of the Luz Para Todos and Mais Luz Para Amazônia programs, Eletrobras carries out the technical and budgetary assessment of the work programs sent by the executing agents (electric utilities and cooperatives), before the execution of the contracts. After the execution of the contracts, upon MME’s consent, and of the works by the Executing Agents, Eletrobras also carries out the financial inspection of the contracts, through proofs of the electric utilities’ expenditures with the program works. After the financial inspection, Eletrobras sends a specialized technical team to physically inspect the works on-site. For the physical inspection, a sample of works, representative of the characteristics and geographic distribution of the works in each contract, is considered. The physical inspections currently carried out by Eletrobras are highly complex in terms of logistics and engineering, requiring specialization and training of human resources. There are difficulties such as displacement and access to very remote locations in rural areas, aiming at the on-site inspection of the homes of consumers served by the program. Small power plants and substations in isolated areas are also inspected, especially in towns far from capital of the states in the northern region of the country.

 

After the physical inspections, the physical and financial progress of the contracts are calculated. The amounts are then informed to CCEE, for release of the funds to the Executing Agents. Eletrobras also closes the contract credit facilities at the end of the inspection of the works and the financial inspections.

 

Eletrobras is remunerated for the activities carried out in the implementation of these programs at a fixed percentage of the financial volume set forth in the contract, according to the current regulations of the program.

 

To identify the risks, DCR met with the managers of the Luz Para Todos Program and MLA at Eletrobras. Specific points of attention for the transfer of the operational duties and assignments from Eletrobras to ENBpar, to be contemplated in relation to these programs, are listed below:

 

Page 6 of 15
 

 

– Lack of external regulations for the transfer of current LPT/MLA contracts and those whose credit facility is being closed, to ENBpar;

 

– Very short deadlines for the issuance of regulations by MME and new Term Sheets (or amendments to the current ones) between MME and the Executing Agents (distributors and cooperatives that execute the program works), with the intervention of ENBpar, ANEEL, and CCEE;

 

– Delays in Eletrobras’ operational processes, due to a lack of specific regulations for the transfer to ENBpar of processes related to releases of funds to the Executing Agents, with the possibility of interrupting the financial flow of the LPT and MLA programs. As the entity responsible for the implementation of the programs, Eletrobras may be penalized for the interruptions in the phase of transition to ENBpar.

 

2.2 – National Program for Energy Conservation (PROCEL)

 

The PROCEL was established in 1985 by Interministerial Ordinance No. 1,877 to promote the efficient use of electrical energy and fight waste. PROCEL actions contribute to increasing the efficiency of consumer goods, services that use electricity and to the development of habits and knowledge on efficient energy consumption.

 

In 2016, with the enactment of Law No. 13,280/2016, the PROCEL started to have a source of funds. The Law provides for the definition of annual plans for the investment of funds, which are prepared and approved, after a public consultation process, by government representatives and players of the national energy sector (Energy Efficiency Management Committee – CGEE and Coordinating Group for Energy Conservation – GCCE), which provides transparency and credibility to the investments made. In this context, the PROCEL promotes energy efficiency actions in several segments of the economy that help the country to save electricity and generate benefits to the society. The main sectors in which it operates are efficient equipment and appliances, efficient buildings, efficient street lighting (Reluz), the government with the areas of sanitation and education, industry and commerce, and knowledge (quality information on energy efficiency).

 

In order to implement the program, Eletrobras has a representative in CGEE and participates in the elaboration of the Investment Plan (PAR). 3 cycles of assessment, implementation, and accountability under the PAR have already been carried out in 2018, 2019, and 2020.

 

Eletrobras has specific and complex duties in the different areas of PROCEL. Eletrobras is currently responsible for establishing partnerships and service agreements with several institutions, research centers, universities, and specialized companies, for the implementation of the objectives described in the PAR and the country’s energy efficiency policies. Through the management of contracts and agreements, Eletrobras invests the funds provided for in the PAR, as well as develops, together with the institutions, the entire chain of knowledge generation and expected results.

 

Page 7 of 15
 

 

 

To identify the risks, DCR met with the managers of the PROCEL at Eletrobras. Specific points of attention for the transfer of the operational duties and assignments from Eletrobras to ENBpar, to be contemplated in relation to these program, are listed below:

 

– Very short deadline for mapping the processes related to each PROCEL subprogram: Reluz, Selo Procel [Procel Seal], Education, Buildings, Industry, Sanitation, Procel Info, Municipal Energy Management (GEM), and Marketing;

 

– Very short deadline to update the non-statutory framework, so that representatives linked to ENBpar act in groups and managing committees of the Energy Efficiency Program – GCCE and CGEE – preserving the governance of the PROCEL, as well as in other committees and working groups, such as Buildings WG, Motors WG, among others;

 

– Possible delays in the release of funds to suppliers and partners regarding the complex internal processes for release and institutional relations (point of attention as a risk to the PROCEL program);

 

– Failure to meet the legal deadline to obtain the spending authorizations for projects under the following Investment Plans (point of attention as a risk for the PROCEL program).

 

The answers of Eletrobras’ managers are listed in the following item:

 

– Execution of amendments to the legal instruments in force (partnerships, agreements, and technical cooperation agreements, administrative contracts, and financial service agreements) to transfer the project management to ENBpar;

 

– Transfer of the title to the domains and hosting of the websites used by the PROCEL to ENBpar;

 

– Transfer to ENBpar of the PROCEL trademarks registered with the Brazilian National Institute of Industrial Property – INPI;

 

– Transfer of the PROCEL bibliographic collection to ENBpar;

 

– Implementation of a traceable and auditable ERP system at ENBpar, to carry out the disbursement operations from the PROCEL account to suppliers, and for the collection of funds from distributors.

 

Page 8 of 15
 

 

2.3 – Incentive Program for Alternative Energy Sources (PROINFA)

 

The PROINFA was established by Law No. 10,438/2002 and aims at increasing the participation of alternative renewable sources (small hydro power plants, wind farms, and biomass thermal power plants) in the production of electricity, prioritizing entrepreneurs who are not linked to generation, transmission, or distribution utilities.

 

The energy generated by the generation agents linked to the PROINFA is made available through quotas and sold directly to distributors and cooperatives in the country. The cost of the PROINFA is divided into monthly quotas, collected by authorized distributors, transmission companies, and cooperatives, and passed on to Eletrobras.

 

The calculation of quotas is based on the PROINFA Annual Plan (PAP) prepared by Eletrobras and forwarded to ANEEL. The cost of the program, whose energy is contracted by Eletrobras, is paid by all end consumers (free and captive) of the Brazilian National Interconnected System (SIN), except those classified as low income.

 

Eletrobras currently manages the contracts of 131 enterprises that trade their electricity through PROINFA. Law 14,182/2021 establishes the possibility of renewing concessions for another 20 years, through new contracts for the PROINFA generating agents, under certain conditions of economic and financial balance. The risks related to the renewal of the PROINFA contracts, during the transition period for ENBpar, shall be subject to risk analysis in the following items.

 

To identify the risks, DCR met with the managers of the PROINFA at Eletrobras. Specific points of attention for the transfer of the operational duties and assignments from Eletrobras to ENBpar, to be contemplated in relation to these program, are listed below:

 

– Uncertainty about the most appropriate type of contract, to be entered into for the transition period for ENBpar, with characteristics and scope of a service agreement or as a transition management contract. Potential penalties may be imposed on Eletrobras related to deadlines and regulatory compliance in the management of the PROINFA account, depending on the type of contract to be executed with ENBpar;

 

–Lack of a better understanding and specific regulations for the PROINFA on the responsibilities in the transition period; if only providing the service, Eletrobras has no responsibility as program manager; if it is a transition contract, Eletrobras shall have all responsibility for managing and operating services included.

 

Page 9 of 15
 

 

– New conditions for the extension of the PROINFA generation contracts may lead to legal proceedings involving Eletrobras on the electricity amounts and prices to be entered into in a contract with the generating agents;

 

– Uncertainties regarding the renewal of the PROINFA contracts provided for in Law 14,182/2021. Eletrobras shall have to implement the entire renewal, but it has no regulatory definition on whether it shall sign the contracts and subsequently make the assignment to ENBpar and how this shall be done.

 

– In possible lawsuits for the renewal of concessions for another 20 years, by the energy generating agents that contract with PROINFA, the manager/administrator is the liable party. According to the current understanding, Eletrobras shall be the manager and responsible for the implementation of the renewal of contracts, all of this occurring during the transition.

 

– Fund contribution by Eletrobras, for the commercialization of PROINFA, which shall be addressed in the contract with ENBPar. Eletrobras has to settle the differences against its cash, in case of differences between revenues and payments:

 

– The settlement of payments to the PROINFA power generators at CCEE is carried out by Eletrobras on a monthly basis. Annual estimates are made for electricity generation and for the amounts to be settled monthly at CCEE, with the regulatory authorities’ consent (ANEEL). Eletrobras has to settle the differences against its cash in case of differences. The reimbursement to Eletrobras for the differences is made in installments in the following year. For the transition period and after the transfer of the operation and management of the PROINFA to ENBpar, the allocation of funds of ENBpar should occur, considering the probability of the PROINFA’s energy settlement with CCEE;

 

– Inadequacy of current regulations and norms for the reimbursement cycle of differences settled at CCEE, after the transition to ENBpar. The treatment for reimbursement of settlement differences at CCEE shall be included in the contract, to be reimbursed month by month to Eletrobras or settled directly at CCEE by ENBpar. The reimbursement and/or settlement of accounts of these amounts for Eletrobras after the transition should be included in the transition contract.

 

The answers mentioned by Eletrobras managers are listed in the following items:

 

– Adequacy of the PROINFA regulations for the transition period;

 

Page 10 of 15
 

– Construction of specific norms and regulations for the evolution of legal protection and the process of renewal of contracts with the PROINFA electricity generators, including the transition and contractual assignment to ENBpar, after the period provided by law;

 

2.4 – Properties of the Federal Government Managed by Eletrobras (BUSA)

 

The Federal Government Assets Managed by Eletrobras (BUSA) are assets and facilities expropriated and taken over by the Federal Government against the RGR funds, and these assets are integrated into the same account as Federal Government assets under special regime for use in the public service, under the management of Eletrobras, as provided for in Decree-Law No. 1,383/1974.

 

Decree-Law No. 1,383/1974 attributed to Eletrobras the competence to manage the expropriated and taken over assets with funds from the Global Reversal Reserve (RGR). This decree also provides that Eletrobras, as an asset manager, is responsible for the registration, conservation, and operation of the collection of BUSA assets. This decree also authorizes Eletrobras to enter into partnership agreements with state electric utilities with the intervention of ANEEL. The agreements entered into include a specific clause on accounting bookkeeping as belonging to the assets of the Federal Government, with operating, maintenance, and any other costs arising from this exploration being recorded as expenses of the associated concessionaire for legal and tariff purposes.

 

There are currently 1,994 Federal Government assets registered in the Computerized System for Management of the Federal Government Assets Managed by Eletrobras (SIGBUSA). Of this total, 1,891 assets are considered usable and in operation and 17 usable assets are decommissioned. Another 78 assets are useless and 8 assets have already been sold.

 

Eletrobras currently has 60 partnership agreements signed with electric utilities and cooperatives, for the management and operation of these assets.

 

To identify the risks, DCR met with the managers of the BUSA at Eletrobras. Specific points of attention for the transfer of the operational duties and assignments from Eletrobras to ENBpar, to be contemplated in relation to these program, are listed below:

 

– Uncertainties about recent regulatory and normative changes by ANEEL, on the BUSA, with recent interactions and requests by ANEEL to Eletrobras (legislative change still in progress). These recent changes may increase the impacts and adversely affect the transition process for ENBpar;

 

Page 11 of 15
 

 

– A high number of assets managed by Eletrobras. The company currently manages a total of 1994 assets of the Federal Government, officially registered in the database and management systems – SIGBUSA – of Eletrobras.

 

– A high number of partnership agreements, totaling 60 agreements, for inspection and operational services for the BUSA, with local electric utilities in the states where the assets are located;

 

– Deficiencies in the external regulatory provision for the reimbursement of annual administrative costs during the transition period. Amount of approximately BRL13 million from 2017 to June 2021. The current process is carried out by budget forecast and settlement of accounts, with reimbursement of final costs made by CCEE to Eletrobras. There are past credits of historical values already paid, to be corrected, from 2017 to 2021. The uncertainties about the reimbursement of costs may adversely affect the transition process and make it difficult for Eletrobras to receive it;

 

– Short deadline for the transfer to ENBPar of the partnership agreements, contracts, and free use assignment agreements executed between the Federal Properties Management Office – SPU and the public administrations, with the intervention of Eletrobras.

 

– Deficiency in the external and internal normative forecast for the transfer of IT systems (SIGBUSA), to be transferred to ENBpar;

 

– Eletrobras is the intervening-consenting party to partnership agreements for the inspection of cases of disposal and donation of assets. It remains unclear how this procedure shall be carried out in the contract with ENBpar.

 

As a response listed by Eletrobras managers, we mention the construction of specific norms and regulations for the evolution of legal protection and the BUSA management process, including the transition and assignment of the management to ENBpar, after the period provided for in the decree.

 

2.5 – Global Reversal Reserve (RGR) – legacy contracts

 

The Global Reversal Reserve (RGR) was created by Law No. 5,655 of May 20, 1971, legally defined as an accounting fund intended to fund the reversion, taking over, expansion, and improvement of public services. The RGR is a concession charge, thus constituting a cost component of the electricity tariff itself. It was composed aiming at generating funds for the reversal of facilities used in the generation and transport of energy in favor of the electric utilities, in addition to financing the expansion and improvement of the electrical energy service.

 

Page 12 of 15
 

 

Until April 2017, Eletrobras managed the Global Reversal Reserve (RGR) account. In May 2017, with Law 13,360/2013, the Electricity Trading Chamber – CCEE took over the management of RGR. However, contracts signed before November 17, 2016, are still managed by Eletrobras, as defined in Decree No. 9,022/2017.

 

Law 14,182/2021 defined that all credit facility agreements that use RGR funds, entered into until November 17, 2016 and that is currently managed by Eletrobras, shall be transferred to ENBpar.

 

Eletrobras is a creditor in credit facility agreements with funds from the Global Reversal Reserve (RGR). It currently carries out the collection, collects the funds, and passes them on to CCEE (within five business days). Eletrobras monitors payments and informs CCEE in case of defaults. Nowadays, Eletrobras also performs debt collections and negotiations. Eletrobras receives an management fee on this service, between 1% and 3% of the operation value, depending on the contract. The risk of default on contracts is not Eletrobras’.

 

The average maturity of the remaining RGR contracts is 5 years. Only two contracts have longer maturities (CELPA in 2034 and ELETRONUCLEAR in 2038);

 

To identify the risks, DCR held a meeting with those responsible for managing the remaining RGR contracts at Eletrobras. Specific points of attention for the transfer of the operational duties and assignments from Eletrobras to ENBpar, to be contemplated are listed below:

 

– Operational risks, regarding compliance with deadlines, such as transfers of funds, collection measures, the deadline for responses to TCU, among others;

 

– Outdated legislation regulating the RGR, which was not updated or reviewed after the change in the management of funds to CCEE. Outdated regulations may hinder the transition to ENBpar;

 

– Uncertainties about the transition period provided for in the decree. Eletrobras is not obligated to accept the extension of the operation of RGR contracts after the stipulated period, according to current legislation;

 

– The total amount of contracts originating from the RGR is approximately BRL1,4 billion. This amount can make the risks material for Eletrobras, in case of difficulties in the transition to ENBpar;

 

– There is a historical default amount. Only a few specific companies have recidivism of default. On September 30, 2021 there were 4 defaulting companies. The total default amount is approximately BRL324 million. Of this total, approximately BRL232 million are debts that have already expired, which are still under judicial review for possible collection, based on assessments by TCU. The transition process should consider the amounts in a legal dispute, including the costs, duties, and possible benefits of who shall assume the contracts.

 

Page 13 of 15
 

 

 

2.6 – Main points of attention

 

DCR considers the following points of attention as relevant:

 

– Lack of regulatory provision for the management of social policies or government programs, even if temporarily, for Eletrobras as a private company, with possible consequences with external inspection and control bodies;

 

– Delays, on the part of ENBPar, in its internal structuring (governance, systems, technical expertise), with the private Eletrobras having the burden of conducting government programs beyond the 12 months of the public offering;

 

– Approval of the proposed transition to government programs and sectoral policy, by external regulatory authorities (TCU, CGU, among others);

 

– Possible evasion of specialized human resources with experience in the management and implementation of sectoral programs and policies, given the prospect of ending these activities at Eletrobras after its capitalization, causing unavailability of labor until the end of the transition period for ENBpar;

 

– Lack of forecasted funds to pay the PROINFA cost reimbursement cycle, with reflexes on ENBpar’s budget forecast;

 

– Normative and regulatory uncertainties about the transition process for ENBpar, specific to each government program or sectoral policy. Some of them, like the PROINFA, are submitted to complex contract renewal processes, which shall take place during the transition process;

 

– Unpredictability of the amount defaulted by the SIN consumption agents, which can affect the variation in revenues collected by distributors (PROINFRA);

 

– Penalties and fines by regulatory and supervisory bodies, due to the loss of deadlines for collection of funds from distributors and transfer the executing agents of government programs and public policies, as well as to energy-generating agents (PROINFRA). 

 

 

Page 14 of 15
 

 

3 – FINAL CONSIDERATIONS

 

The risks related to the process of transferring the management and implementation of Federal Government programs and assets (PROCEL, LUZ PARA TODOS, MAIS LUZ PARA A AMAZÔNIA, PROINFA, and BUSA), currently managed and operated by Eletrobras, to Empresa Brasileira de Participações em Energia Nuclear and Binacional S.A. – ENBpar were considered from the point of view of the future private Eletrobras, and from the point of view of how they may impact the schedule and effectiveness of the capitalization process.

 

The risks mapped so far were analyzed based on the best available information. The Sectoral Program Management Transition and Transfer Agreement is the main mitigating element, given that its objective is to define the rules that shall be observed throughout the Transition Period until the effective transfer, by Eletrobras to ENBPar, of services, duties, or responsibilities of each of the Sectoral Programs and the management of the BUSA. The Contract considers a specific attachment for each government program to be transferred. This mitigation measure reduces the residual exposure of risks to a level considered acceptable by Eletrobras, which starts to be aligned with its risk appetite statement. Even so, it is possible to note that there is a need for normative definitions and changes in specific regulations for each government program, internal and external, to mitigate certain described risks.

 

 

 

Prepared by:

 

 

Leonardo Frederico Reiter

Higher Analyst, Corporate Risk Department – DCRR

 

 

Mauro Retto Lopes

Corporate Risk Manager, DCRR

 

 

Antônio João Queiroz Lima

Advisor, Control Department – DC

 

 

I agree:

 

Roberto Brigido do Nascimento

Risk, Internal Control, and Information Security Superintendent, DCR 

 

 

Page 15 of 15
 

 

 

 

BRAZILIAN ELECTRICITY REGULATORY AGENCY

 

OFFICIAL LETTER NO. 594/2021-SCG/ANEEL

 

On October 19, 2021.

 

To Ms.

MARISETE FÁTIMA DADALD PEREIRA

Executive Secretary

Ministry of Mines and Energy

protocolo@mme.gov.br

 

Subject: New Generation Concession Agreement for the hydroelectric potentials covered by Law No. 14,182 of 2021, which provides for the privatization of Eletrobras.

Proceeding No. 48500.001427/2021-53

 

Madam Secretary,

 

1.       The following information is provided in compliance with Official Letter No. 109/2021/SE-MME of March 19, 2021, in which the Ministry of Mines and Energy – MME requests the draft concession agreement to be prepared following the guidelines of Provisional Measure (MP) No. 1,031 of 2021, which later became Law No. 14,182 of July 12, 2021.

 

2.       By means of Order No. 3,137 – published in the Official Gazette of October 8, 2021, section 1, page 68, v. 159, n. 192 –, the Collegiate Board of the Brazilian Electricity Regulatory Agency – ANEEL, on October 5, 2021, decided (i) to approve and forward to the Ministry of Mines and Energy – MME, the Draft Concession Agreements that shall regulate the exploitation of the hydroelectric potentials under Law No. 14,182 of 2021, which regulates the privatization of Eletrobras; (ii) to hear and, on the merits, not to grant the Administrative Appeal filed by the Union of the Workers of Urban Industries, Environmental Activities, and Entities that Inspect and Regulate Electricity, Sanitation, Gas, and Environmental Services in the Federal District – STIU-DF against Public Consultation No. 48 of 2021.

 

3.       The Reporting Member’s vote, Order No. 3,137/2021, and the draft concession agreement approved by the Agency’s Executive Board are attached hereto.

 

Very truly yours,

 

(DIGITALLY SIGNED)

CARLOS EDUARDO CABRAL CARVALHO

Superintendent of Generation Concessions and Authorizations

 

 

48524.009162/2021-00

 

\SCG\Ofício\87\Ofício_580TT1810

SCAN – Quadra 603/ Modulo “I” e “I”

 

 
 

 

CLP: 70830-110 – Brasília – DF – Brazil

Phone +55 61 2192-8600

www.aneel.gov.br

 

37- Public Ordinary Meeting of the Executive Board

Brasília, October 5, 2021

 

VOTE

 

PROCEEDING: 48500.001427/2021-53

 

INTERESTED PARTIES: Centrais Elétricas Brasileiras S.A. – Eletrobras, Furnas Centrais Elétricas S.A. – Furnas, Companhia Hidroelétrica do São Francisco – Chesf, Centrais Elétricas do Norte do Brasil S.A. – Eletronorte

 

REPORTING MEMBER: Director Sandoval Feitosa.

 

AREA IN CHARGE: Superintendent’s Office for Generation Concessions and Authorizations – SCG

 

SUBJECT: Result of Public Consultation No. 48 of 2021, established aiming at collecting supporting and additional information to improve the draft concession agreement that will govern the exploitation of the hydroelectric potentials under Law No. 14,182 of 2021, which provides for the privatization of Eletrobras.

 

1.       REPORT

 

On August 10, 2021, ANEEL’s Executive Board decided to initiate Public Consultation No. 48 of 2021, with a contribution period starting August 11 to August 31, 2021.

 

2.       On August 23, 2021, the Union of the Workers of Urban Industries, Environmental Activities, and Entities that Inspect and Regulate Electricity, Sanitation, Gas, and Environmental Services in the Federal District – STIU-DF filed a claim for reconsideration against the decision to initiate the Public Consultation.[1]

 

3.       On August 31, 2021, the National Council for Energy Policy – CNPE issued Resolution No. 15, which sets the value added by the new electricity generation concession agreements pursuant to Law No. 14,182 of 2021, which provides for the privatization of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

4.       During the period of Public Consultation No. 48 of 2021, 90 contributions were received through the form provided. Additionally, 1 contribution was sent by email. Of the total, the content of 48 contributions needs analysis, and the others were forwarded without any textual content.

 

5.       On September 16, 2021, through Memorandum No. 175/2021-SCG/ANEEL, the Office of Federal Prosecution at ANEEL was consulted regarding the legal issues raised in the contributions received.

 

6.       On September 29, 2021, Opinion No. 00284/2021/PFANEEL/PGF/AGU was approved. A single reservation is made about the approval Order, regarding the Extension Clause, which shall be detailed in the ratio decidendi.

 

 


1 According to information provided: 48513.022914/2021-00

 

 
 

 

 

7.       On October 1, 2021, Technical Note No. 675/2021-SCG/SRG/SRM/SFG/SFF/SGT/ANEEL was issued, containing the Superintendent’s Office analysis regarding the contributions to Public Consultation No. 48 of 2021.

 

8.       This is the report.

 

II.       RATIO DECIDENDI

 

9.       This proceeding deals with the draft concession agreements that shall regulate the exploitation of hydroelectric potentials under Law No. 14,182 of 2021, which provides for the privatization of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

10.       The decision I hereby forward is to APPROVE the Draft Concession Agreements to be forwarded to the Ministry of Mines and Energy – MME.

 

11.       Table 1 shows the 48 contributions analyzed in the Contribution Analysis Report (RAC), presented by 7 institutions and 1 consumer. Most contributions were presented by Eletrobras and the law firm Pinheiro Neto Advogados.

 

Despite making considerations on Eletrobras privatization process, 4 contributions are outside the scope of the Public Consultation.

 

Table 1: Contributions received

 

Interested PartiesContributions
Instituto Ilumina1
Individual (consumer)1
Associação de Empregados da Eletrobras – AEEL1
Eletrobras21
Engie Brasil Energia3
Furnas Centrais Elétricas S.A.1
Pinheiro Neto Advogados19
Energy Workers Union of the State of São Paulo – Sinergia CUT1
Total contributions48

 

12       The main contributions to the Public Consultation are analyzed below.

 

II.1       Individualization of the agreements

 

13.       Eletrobras understands that it would be convenient to individualize the concessions, adjusting all related contractual provisions.

 

14.       Although the idea is meritorious, the way Law No. 14,182 of 2021 was written hinders its implementation. Several obligations imposed by the laws and regulations, such as river revitalization and navigability programs, reduced generation costs in the Legal Amazon, and assignment of electricity to the Program for Transposition of the São Francisco River were attributed to the electric utilities Furnas, Chesf, and Eletronorte, without any possibility of segregating these obligations between each of plants of these subsidiaries of Eletrobras.

 

II.2       Waiver of pre-existing rights

 

 
 

 

15.       One of the contributions received inquired about the fact that the legislator, under Law No. 14,182 of 2021, did not condition the privatization upon the waiver of pre-existing rights. Therefore, the Granting Authority or ANEEL would not be responsible for establishing such condition. This contribution mentions, for example, that the right to extend the concession to offset the Generation Scaling Factor (GSF) effects (articles 2-A and 2-B of Law No. 13,203 of 2015) should be transferred to the new concession, which would be extended through new calculations to be carried out.

 

16.       Another contribution argued that those rights already acknowledged by ANEEL but not yet implemented shall be treated as exceptions, aiming to include the supplementary indemnification of plants that had their concessions extended under Law No. 12,783 of 2013, according to ANEEL Normative Resolution No. 942 of 2021.

 

17.       According to the Office of Prosecution’s Opinion, the provisions of art. 25 of Law No. 9,074 1995,[2] shall not be used as justification for such a Clause, given that such Law does not cover the concessions discussed herein.

 

18.       In any case, Law No. 14,182 of 2021 deals, mostly, with projects that have already been extended once or twice after Law No. 9,074 became effective. It is assumed, therefore, that to be entitled to such extensions, the waiver of any pre-existing rights has already been required. In this case, there is no reason to require a new waiver regarding a right that is already waived by the holder.

 

19.       It is also noteworthy that the concession agreements for generation projects under Law No. 14,182 and not extended under Law 12,783 have a waiver clause for any pre-existing rights that go against Law No. 8,987. This is what can be seen in the content of Section One, Subsection Three of Concession Agreements No. 006/2004 and 007/2004, as well as of Section One, Subsection Two of Concession Agreement No. 004/2004.

 

20.       In view of the foregoing, it can be concluded that the waiver of any preexisting rights that contravene Law No. 8,987 should be suppressed, whether because it is not an extension regulated by Law No. 9,074 or there was already a waiver of identical content signed by the electric utilities in past agreements.

 

21.       In any case, it is worth commenting on the specific cases mentioned in the contributions. CNPE, by calculating the Value Added to the Concession (VAC), has already considered the GSF concession extension, so that in the simulations, the term of the concessions currently effective was already deemed extended, reducing the Value Added to the Concessions and, consequently, the amounts to be reverted to the National Treasury and the Energy Development Account (CDE) due to the privatization of Eletrobras. In this regard, there would be no reason to talk about maintaining the right to compensation by the GSF.

 

22.       Likewise, with regard to indemnifications after the Basic Design referred to in Law No. 12,783, CNPE calculations also considered maintaining the Costs of Capital for Investments in Improvements (GAG Melhorias) until the end of the effective concessions, also reducing the Value Added to the Concessions. Therefore, consumers or taxpayers should not bear any additional indemnification regarding this topic. Resolution No. 15 of CNPE is clear on this topic, by providing in art. 1, ¶ 6, item II that, the CNPE calculation took into account the indemnifications referred to in REN 596, as amended by REN 942, mentioned in the contribution.

 

 


2 Art. 25. Term extensions dealt with in this Law shall only be effective with the execution of concession agreements providing a waiver clause for any pre-existing rights that go against Law No. 8,987 of 1995. 

 

 
 

 

 

II.3       Provisions for the extension of the concession

 

23.       Another controversial point refers to the provisions for the extension of new concessions to be governed by future agreements. Three contributions claim that the legislator did not establish the impossibility of extending the new concession agreement final term, thus, it would not be up to the Granting Authority or ANEEL to impose such restriction in the draft agreement.

 

24.       Regarding this topic, the concession agreement shall comply with the laws and regulations in force applicable to the particular case and, in this case, Law 14,182 of 2021 does not have an express provision prohibiting the extension. Express prohibition on extending concessions shall be clearly and explicitly provided for in a specific legal rule, as is the case, for example, in art. 1 of Law 12,783 (quotas system), which is not the case here.

 

25.       Likewise, when the legislator intends to allow the extension, there is a written mention of this possibility, for example, in art. 4, ¶¶ 2 and 3 of Law 9,074. Article 4, ¶ 9 of Law 9,074 and art. 1 of Law 14,182 are silent regarding the possibility of extending the concession agreement. Therefore, this demonstrates that the legislator deliberately chose not to decide on the extension possibility, so that the electric utilities shall amortize their investments within the time established in the concession. The bidding shall price this scenario.

 

26.       It is important to highlight that the absence of a concession agreement extension provision does not mean the agreement cannot be extended, if this right is ensured by a supervening law. The provisions of the contractual clause do not bind the legislator, who is sovereign to, in harmony with any hierarchically superior rules, provide for the possibility of extending the concession’s term in the future.

 

27.       Therefore, the Contractual Clause would not prevent a future extension of the concession as it simply clarified that, in light of current laws and regulations, there is no provision for extension. However, in order to avoid questions as to its interpretation thirty years from now, in the sense that any possibility to extend agreements would be forbidden, I consider its exclusion timely and convenient, as suggested by the Attorney General’s Order, which approves the Opinion but recommends the exclusion of this clause.

 

II.4       Obligations in art. 6, 7, and 8 of Law No. 14,182 of 2021

 

28.       Law No. 14,182 sets forth in arts. 6 to 8 obligations electric utilities Chesf, Eletronorte, and Furnas shall undertake. Nevertheless, the wording used left questions regarding the responsibilities for financial contributions. This is because the main section of these articles appoints the electric utilities as responsible for it, however, the paragraphs of the articles appoint responsibilities to Eletrobras.

 

29.       In this sense, 3 contributions were presented in the sense that the conciliation of legal provisions should provide that contributions shall be made by the electric utilities, and, vicariously, by Eletrobras.

 

30.       Regarding this topic, the Prosecutor’s Opinion confirms the contributions understanding presented in the sense that financial contributions legal obligation falls on the electric utilities signatories to the concession agreements, which are the main debtors. Thus, Eletrobras is vicariously liable and shall contribute only in the event the electric utilities signatory to the concession agreement fails to perform the obligation assumed. Art. 3, item VI, of Law 14,182 helps interpreting the matter by establishing that Eletrobras is vicariously liable for complying with the contributions’ programs.

 

 
 

 

 

31.       Another controversial topic concerns art. 6, ¶ 6, of Law 14,182, which deals with Chesf’s obligation to assign 85 avgMW to the São Francisco River Transposition Project. The Law foresees that the obligation begins on the date the Law is published. Nevertheless, it is an obligation to be undertaken by the new electric utilities and, therefore, after formalizing the new concession agreements.

 

32.       Regarding this point, the agreement may not go against the legal provisions. Thus, if there is a legally set date for the start of energy supply, this date shall be considered in the agreement. Nevertheless, it is possible to construe the legal text and conclude that the initial date for supplying energy to the São Francisco River Integration Project (PISF) shall not be on the Law enactment date. This is because the obligation is to be assumed by new electric utilities who shall only execute the new agreements after the Eletrobras capitalization process is completed.

 

33.       Furthermore, it is highlighted that the legislator was careful to respect the agreements in effect and the legal scenario established, promoting a slow and gradual transition from plants operating under the quota system to the independent energy production. In this regard, the interpretation that the legislator intended to bring about an abrupt breach of current agreements of quotas with guaranteed power output allocated to the electricity distribution company seems inadequate to enable the immediate energy supply to the PISF Federal Operator.

 

34.       Such understanding is confirmed by CNPE Resolution No. 15 of 2021, which provides that the obligation begins on January 1, 2023, when the process of termination of the quota system (descotização) begins, that is, part of the energy that is no longer allocated to distributors would be used in the Project for the Transposition of the São Francisco River.

 

35.       In this sense, the best interpretation for art. 6, ¶ 6 of Law 14,182 is that the expression “from the date of enactment of this Law” does not mean that the start date of energy supply shall occur on the same date, but from the date defined by CNPE, safeguarding the period of twenty years provided for in the laws and regulations.

 

II.5       Responsibilities in the operation and maintenance of locks

 

36.       Regarding this topic, two contributions were presented aiming to define the Electric Utilities’ responsibilities in projects with locks associated with the dam structure of the hydro power plant.

 

37.       The first contribution proposed the inclusion of a Subsection with the following wording: “The Electric Utility is not responsible for implementing, licensing, operating, and maintaining locks, according to the provisions of Law No. 13,081/2015, as well as the obligation provided for in art. 7 of Law No. 14,182/2021.

 

38.       Regarding this contribution, there is no legal conflict between the provisions of art. 7 of Law No. 14,182, regarding resources contribution for actions to ensure the navigability of the Madeira and Tocantins Rivers, and the provisions of Law No. 13,081, regarding the implementation of locks and other structures for river navigation.

 

39.       The Eletrobras Privatization Law sets forth the obligation to invest a minimum amount in actions to ensure the navigability of the Madeira and Tocantins Rivers, to be provided for in the concession agreements. The amount investment method and the navigability projects of the Madeira and Tocantins Rivers, which shall receive the financial contributions, shall be established by a management committee, chaired by a representative appointed by the Minister of State for Mines and Energy, to be created by a regulation issued by the Federal Executive Branch.

 

 
 

 

 

40.       Thus, it is not possible to define, ex-ante, whether the project to be established by the management committee shall comprise construction, licensing, operation, and maintenance of locks. By the way, it is quite plausible that the construction of these structures on the riverbeds is ordered, since they are essential to ensure river navigability. In this regard, even if it were argued that there could be conflict between the Laws, Law No. 14,182 would prevail, as it is more recent and deals with the specific situation of the Madeira and Tocantins Rivers. Based on the foregoing, the contribution should be refused.

 

41.       The second contribution regarding this topic proposed the inclusion of a Subsection providing for the delimitation of the infrastructure, as well as the rights and obligations of each electric utility related to dam safety, through an operating agreement and specific regulations.

 

42       On the matter, the Superintendent’s Office for Generation Concessions and Authorizations – SCG and the Superintendent’s Office for Inspection of the Generation Services – SFG are analyzing a similar topic, with a general scope, in the case of existing locks in dams of hydro power plants. SFG proposed to SCG the inclusion, through an addendum to the concession agreements of existing plants with implemented navigation structures, the following wording:

 

Subsection [XX]. If there is a lock for river navigation on the same dam as the hydro power plant, the Electric Utility remains responsible for the dam safety, pursuant to Law No. 12,334 of September 20, 2010.

 

Subsection [XX]. If the lock is operated by a third party, the Electric Utility shall execute an operating agreement with the entity maintaining the structure, in which the parties’ responsibilities and attributions shall be defined, aiming at the dam safety.

 

I – the operating agreement shall be signed between the Electric Utility and the National Department of Transport Infrastructure – DNIT or relevant state agency;

 

II – the agreement shall contain, at a minimum:

 

a) definition regarding the sharing of information on the structure safety;

 

b) notification for emergency cases;

 

c) provision on the taking out of insurance; and

 

d) system to implement the instruments under the National Dam Safety Policy (PNSB).

 

Subsection [XX]. The Electric Utility is subject to inspection and any penalties provided for in Law No. 12,334/2010 regarding shared structures related to river navigation, considering the dam main use for generating electricity, pursuant to art. 5, II, of Law No. 12,334/2010.

 

43.       The draft met the points listed in Opinion No. 102/2021/PFANEEL/PGF/AGU and also, in Opinion No. 00284/2021/PFANEEL/PGF/AGU, which is the subject matter of this proceeding. The Office of Prosecution only recommended that DNIT or the relevant state agency participation in the operating agreement to be executed should be made clearer. In this regard, the Superintendents’ Offices proposed to make it clear in the Concession Agreement Clause that, if DNIT or the relevant state agency subcontract the operation, their participation shall be as a intervening consenting party.

 

 

 
 

 

 

II.6       Intervention in the Concession

 

44.       As a general rule, concession agreements have a specific Clause on Intervention in the Concession. The contractual provisions proposed in the Public Consultation refer to Law No. 12,767/2012, which provides for the extinction of concessions of public electric utilities, the temporary provision of the service, and the intervention to adapt the public service.

 

45.       In this regard, a contribution was presented proposing the exclusion of the whole clause. It argues that “strictly speaking, in the case of exploitation under under an independent production regime, there would be no intervention, which is something typical of public services. Although an interpretation to maintain such possibility, it would not be appropriate to do so based on Law 12,767/2012.”

 

46.       On the matter, Decree No. 2,003 regulates Law No. 9,074 and sets forth, in art. 6, which addresses, as appropriate, the bidding process to grant a concession to an independent producers and self-producer, the provisions of Law No. 8,987, which set forth the concession and permission regime for public services provided for in art. 175 of the Federal Constitution. Under this legal regime, there is the intervention principle, as a measure the Granting Authority may use to ensure the adequacy of the service provided.

 

47.       A closer look into the regulation reveals the primacy of the public interest over the private one. At first, the National Electric System Operator – ONS defines the amount to be generated by the plants, aiming to optimize the energy resources of the National Interconnected System (SIN). Afterwards, ANEEL shall inspect the works related to the use of potential hydro power plants by an independent producer (art. 17 of Decree No. 2,003) and impose penalties (warnings and fines) in case the legal and regulatory rules are not complied with (art. 18 of the Decree No. 2,003).

 

48.       The agent is also not allowed to freely dispose of the assets, as the assets and facilities of the independent power producer (IPP) may only be removed or disposed of upon ANEEL’s prior and written authorization (art. 19 of Decree No. 2,003). In this sense, the IPP may not provide an asset as collateral if the burden compromises the continuity of the operation of power plant. Still regarding assets and facilities, at the end of the concession term, they become part of the Federal Government assets, being the independent producer’s entitled to indemnification for investments not yet amortized (art. 20 of Decree No. 2,003).[3] Note that the assets used in the generation activity by IPPs are treated identically to assignable assets of public service concessions.

 

49.       It is also foreseen the possibility of taking over the independent producer’s assets and facilities and the lapse of the concession act, very similarly to the connected principles of Law No. 8,987, regarding concessions of public services. Furthermore, pursuant to the provisions of art. 10 of Law 9,074, the areas necessary for the IPP to implement the power plant and transmission lines of restricted interest may be expropriated if ANEEL declares them as of public use, which also applies to utility companies.

 

50.       Nonconstitutional aspects of this regime are supported by the Constitution. Art. 21, XII, “b” of the Brazilian Federal Constitution provides for the Federal Government’s responsibility for electricity services, showing that, regardless of the exploitation regime, these economic activities are incumbent upon the government.

 


3 Art. 20, ¶ 1 provides that “provided they [previous investments] are approved and carried out, and are not provided for in the original project.”

 

 
 

 

51.       In view of the foregoing, considering the public nature of the electricity services, regardless of the exploitation regime, the Granting Authority and ANEEL shall count on all the necessary instruments to ensure that the service is provided in an adequate manner, in the interests of the society. Therefore, the clause stating the possibility to intervene in the concession should be maintained.

 

II.7       CNPE Resolution No. 15 of 2021

 

52.       At the time this Public Consultation was initiated, the draft Concession Agreement already mentioned the act by CNPE, which was taken during the contribution period. Thus, the provisions of CNPE Resolution No. 15 of 2021, were considered in the draft that is now approved, especially, the amounts related to the concession bonus, the amounts to the Energy Development Account (CDE) and the descotização period, which shall occur at 20% per year from 2023 on. Regarding the descotização, the Annual Generation Revenue (RAG) shall be reduced at the same proportion of the process of descotização.

 

53.       It is noteworthy that, the issuance of the act that may succeed Resolution CNPE No. 15 of 2021 shall be reflected in the draft agreement proposed, so that the obligations defined within the scope of that Board’s powers are correctly correlated with the obligations established in the contract, which, in turn, shall govern the concession.

 

II.8       Administrative Appeal filed against the Public Consultation

 

54.       Finally, it is worth commenting on the Letter sent by STIU-DF[4] filing an Administrative Appeal against the decision to initiate the Public Consultation. In short, they argue that: i) there are pending decisions such as definitions related to the quota system termination process, the Value Added to the Concession (VAC), the Guaranteed Power Outputs, and the extension of the concession for the Itumbiara HPP; ii) there is no Regulatory Impact Analysis (AIR); iii) failure to comply with the 45-day legal term for Public Consultation.

 

55.       First, ANEEL does not have jurisdiction to rule on the matters brought by the Administrative Appeal. The jurisdiction to set the speed of the quota system termination process and the Value Added to the Concession (VAC) was attributed, by Law, to CNPE, while the jurisdiction to rule on the guaranteed power outputs and the extension of the Itumbiara HPP is MME. In this regard, this discussion as to the opening of the Public Consultation was not necessary and would not change any decision, given that ANEEL would not have the legal capacity to analyze the contributions. CP No. 48 of 2021 is simply not the appropriate forum to debate the issues mentioned in the Administrative Appeal.

 

56.       Regarding the AIR, the Public Consultation goal is only to discuss how to include the issues determined by hierarchically superior rule in the concession agreements, in this case Law No. 14,182 of 2021, leaving ANEEL without any room for regulatory choices. The waiver of the AIR in this situation is provided for in art. 4 of Decree No. 10,411 of 2020. For this reason, in the vote I casted at the opening of the Public Consultation, I proposed the waiver of the AIR, to which ANEEL’s Executive Board seconded.

 

57.       Finally, although the General Law of Regulatory Agencies provides for a 45-day term for Public Consultations, it also provides for the possibility of reducing the term in cases of urgency and relevance, duly motivated. Official Letter No. 317/2021/SE-MME motivates the need to quickly discuss the matter, as detailed in the Public Consultation Opening Vote. Furthermore, it should be noted that there was no prejudice to the possibility of contribution, which is noted by the large number of contributions received.

 


4 According to information provided: 48513.022914/2021-00

 

 
 

 

58.       From the foregoing, I understand that the drafts of the New Concession Agreements regarding the plants listed in Table 2 shall be sent to MME in order to proceed as provided for in Law No. 14,182 of 2021.

 

Table 2 – Hydroelectric Potentials covered by art. 2 of Law No. 14,182 of 2021

PlantSingle Generation Development Code (CEG)Act/ContractExploitation RegimePower Output (MW)StateSubsidiary
Boa EsperançaUHE.PH.PI.0002674.01CC nº 06/2004 (1º TA)SP (Quotas)237.300PI/MAChesf
Apolônio SalesUHE.PH.BA.0020125.01CC nº 06/2004 (1º TA)SP (Quotas)400.000ALChesf
Paulo Afonso IUHE.PH.BA.0270482.01CC nº 06/2004 (1º TA)SP (Quotas)180.001BAChesf
Paulo Afonso IIUHE.PH.BA.0270490.01CC nº 06/2004 (1º TA)SP (Quotas)443.000BAChesf
Paulo Afonso IIIUHE.PH.BA.0270504.01CC nº 06/2004 (1º TA)SP (Quotas)794.200BAChesf
Paulo Afonso IVUHE.PH.AL.0015105.01CC nº 06/2004 (1º TA)SP (Quotas)2,462.400BAChesf
Luiz Gonzaga (Itaparica)UHE.PH.PE.0011746.01CC nº 06/2004 (1º TA)SP (Quotas)1,479.600BA/PEChesf
XingóUHE.PH.SE.0270539.01CC nº 06/2004 (1º TA)SP (Quotas)3,162.000SE/ALChesf
FunilUHE.PH.BA.0270466.01CC nº 06/2004 (1º TA)SP (Quotas)30.000BAChesf
PedraUHE.PH.BA.0270520.01CC nº 06/2004 (1º TA)SP (Quotas)20.007BAChesf
SobradinhoUHE.PH.BA.0027553.01CC nº 06/2004 (3º TA)SP (Quotas)1,050.300BAChesf
Coaracy NunesUHE.PH.AP.0007838.01CC nº 02/2012 (1º TA)SP (Quotas)78.000APEletronorte
TucuruíUHE.PH.PA.0028894.01CC nº 007/2004SP8,535.00PAEletronorte
Curuá-UnaUHE.PH.PA.027130-6.01CC nº 007/2004 (2º TA)SP42.800PAEletronorte
Corumbá IUHE.PH.GO.0008664.01CC nº 04/2004 (1º TA)SP (Quotas)375.00GOFurnas
Estreito (Luís Carlos B. de Carvalho)UHE.PH.SP.0009172.01CC nº 04/2004 (1º TA)SP (Quotas)1,104.00SP/MGFurnas
Funil – RJUHE.PH.RJ.0271187.01CC nº 04/2004 (1º TA)SP (Quotas)222.00RJFurnas
FurnasUHE.PH.MG.0010073.01CC nº 04/2004 (1º TA)SP (Quotas)1,312.00MGFurnas
MaribondoUHE.PH.MG.0014176.01CC nº 04/2004 (1º TA)SP (Quotas)1,488.00MG/SPFurnas
Porto ColômbiaUHE.PH.MG.0021172.01CC nº 04/2004 (1º TA)SP (Quotas)328.00MG/SPFurnas
ItumbiaraUHE.PH.MG.0011940.01CC nº 04/2004SP (Quotas)2,082.00MG/GOFurnas
Mal. Mascarenhas de Moraes (Peixoto)UHE.PH.MG.002038-9.01CC nº 04/2004SP476.00MGFurnas

 

III.       LAW

 

59. This decision is supported by the following legal and regulatory provisions: Law No. 8,987 of 1995; Law No. 9,074 of 1995; Law No. 11,943 of 2009; Law No. 13,182 of 2015; Law No. 13,848 of 2019; Law No. 14,182 of 2021; Decree No. 2003 of 1996; Decree No. 9,271 of 2018; Decree No. 10,411 of 2020; Normative Resolution No. 273 of 2007; CNPE Resolution No. 15 of 2021.

 

IV.       RULING

 

60.       In view of the foregoing and of Proceeding No. 48500.001427/2021-53, I hereby vote for:

 

I) APPROVING and FORWARDING them to the Ministry of Mines and Energy – MME, the Draft Concession Agreements that shall regulate the exploitation of the hydroelectric potentials under Law No. 14,182 of 2021, which provides for the privatization of Eletrobras.

 

II) HEARING and, on the merits, NOT GRANTING the Administrative Appeal filed by the Union of the Workers of Urban Industries, Environmental Activities, and Entities that Inspect and Regulate Electricity, Sanitation, Gas, and Environmental Services in the Federal District – STIU-DF against Public Consultation No. 48 of 2021.

 

 
 

 

Brasília, October 5, 2021

 

(Digitally signed)

SANDOVAL DE ARAÚJO FEITOSA NETO

Director

 

DOCUMENT DIGITALLY SIGNED BY:

Please verify the authenticity of this document at http://sicnet2.aneel.gov.br/sicnetweb/v.aspx, providing verification code 47ABFE0100615672.

SANDOVAL DE ARAUJO FEITOSA NETO

 

 

Number: 48575.005094/2021-00

 

BRAZILIAN ELECTRICITY REGULATORY AGENCY – ANEEL

 

ORDER NO. 3,137 OF OCTOBER 5, 2021

 

THE GENERAL DIRECTOR OF THE BRAZILIAN ELECTRICITY REGULATORY AGENCY – ANEEL, by using the regulatory powers vested in him according to the resolution of the Executive Board that can be found in Proceeding No. 48500.001427/2021-53, decides to: I) APPROVE and FORWARD them to the Ministry of Mines and Energy – MME, the Draft Concession Agreements that shall regulate the exploitation of the hydroelectric potentials under Law No. 14,182 of 2021, which provides for the privatization of Eletrobras; II) HEAR and, on the merits, NOT TO GRANT the Administrative Appeal filed by the Union of the Workers of Urban Industries, Environmental Activities, and Entities that Inspect and Regulate Electricity, Sanitation, Gas, and Environmental Services in the Federal District – STIU-DF against Public Consultation No. 48 of 2021.

 

ANDRÉ PEPITONE DA NÓBREGA

 

DOCUMENT DIGITALLY SIGNED BY:

ANDRE PEPITONE DA NOBREGA

Please verify the authenticity of this document at http://sicnet2.aneel.gov.br/sicnetweb7v.aspx, providing verification code AC18F32B00616032.

 

 

CONCESSION AGREEMENT No. .........../........- ANEEL – <COMPANY>

 

CONCESSION AGREEMENT FOR THE USE OF PUBLIC PROPERTY FOR ELECTRICITY GENERATION, BY AND BETWEEN THE FEDERAL GOVERNMENT AND <COMPANY>.

 

The FEDERAL GOVERNMENT, hereinafter referred to as Granting Authority, by the power granted by art. 21, item XII, sub-item “b”, of the Federal Constitution, through the Brazilian Electricity Regulatory Agency – ANEEL, hereinafter referred to as ANEEL, autarchy under the special regime, headquartered at SGAN, Quadra 603, Módulos I e J, Brasília, Federal District,

 

 
 

 

enrolled in the National Register of Legal Entities (CNPJ) under No. 02.270.669/0001-29, herein represented by its General Director, ANDRÉ PEPITONE DA NÓBREGA, appointed by Presidential Decree of August 13, 2018, published in the Federal Government’s Official Gazette on August 14, 2018, bearer of ID No. 0990374-7 SSP/AM and enrolled in CPF under No. 647.676.801-82, based on the competence delegated by means of Decree No. 10,272 of March 12, 2020, and <COMPANY>, enrolled in CNPJ under No. <CNPJ>, headquartered at <address>, <municipality>, <state>, an Independent Electrical Energy Generation Company, herein represented by its duly authorized representatives <Director’s name>, enrolled in CPF under No. <CPF No.>, and Director <Director’s name>, enrolled in CPF under No. <CPF No.>, hereinafter referred to as Electric Utility, with the intervention of CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS, enrolled in CNPJ under No. <CNPJ>, headquartered at <address>, <municipality>, <state>, herein represented by its duly authorized representatives <Director’s name>, enrolled in CPF under No. <CPF No.> as the Controlling Shareholder of the Electric Utilities, by this Agreement and the law, agree with this CONCESSION AGREEMENT FOR THE USE OF PUBLIC PROPERTY FOR ELECTRICITY GENERATION, hereinafter Agreement, which shall be governed by current and supervening laws, rules and regulations issued by the Granting Authority and ANEEL, as well as the conditions set forth as follows:

 

SECTION 1 – SUBJECT MATTER

 

Regulate hydraulic power potentials exploitation through the Hydro Power Plants, listed in Annex 1, hereinafter referred to in this Agreement as Hydro Power Plants, as well as their respective Restricted Interest Transmission Facilities to Hydro Power Plants, listed in Annex 2, whose concessions were granted through the privatization of CENTRAIS ELÉTRICAS BRASILEIRAS – Eletrobras, pursuant to Law No. 14,182 of July 12, 2021.

 

Subsection One – The concession of electricity generation to the Energy Utility is an individual concession for each of the Hydro Power Plants listed in Annex 1 of this Agreement, for all contractual and legal purposes, including any representation of lapse, intervention, take over, transfer, or extinction of concessions.

 

Subsection Two – The Restricted Interest Transmission Facilities to Hydro Power Plants are an integral part of the electricity generation concession referred to in this Agreement.

 

SECTION TWO – CONCESSION EFFECTIVENESS

 

The concession referred to in this Agreement is granted for a period of thirty (30) years, counted from the date of its execution.

 

SECTION THREE – PERFORMANCE

 

In exploiting Hydro Power Plants, the Electric Utility is free to conduct its business, including the necessary measures for making investments, hiring personnel, buying material and technology, subject to the provisions of this Agreement, specific legislation, regulations, and the instructions and determinations of the Granting Authority and ANEEL.

 

Subsection One – Pursuant to art. 4, item III, of Law No. 14,182 of July 12, 2021, the exploitation regime of the Plants in Annex 1 is the Independent Electric Energy Production with energy availability for the new Electric Utility as per the following items.

 

<ONLY FOR THE PLANTS REFERRED TO IN ITEMS I, II, AND III OF ART. 2 OF LAW No. 14,182 of 2021>

 

 
 

 

I – the termination of the electricity contracted pursuant to the provisions of art. 1 of Law No. 12,783 of January 11, 2013, to comply with the provisions of item III of the main section of art. 4 of Law No. 14,182 of July 12, 2021, shall happen under the terms of Resolution No. 15 of August 31, 2021, of the National Council for Energy Policy – CNPE, with the provisions of the <Amendment No.> Amendment to the Concession Agreement< CONCESSION AGREEMENT No.> for the respective portion of the plant.

 

II – The Electric Utility shall sell or use the energy produced by the Hydro Power Plants, up to the limit of the respective Hydro Power Plants Guaranteed Power Output, under the conditions established in this Agreement, at prices freely negotiated between the Electric Utility and the buyers, pursuant to art. 12 of Law No. 9,074 of 1995, and Law No. 10,848 of 2004, in their regulations and specific legal rules.

 

III – During the termination period referred to in item I, payments and reimbursements associated with: Annual Generation Revenue – RAG; hydrological risk; financial outcomes of the Energy Relocation Mechanism – MRE; inspection fee for electricity services; research and development of the Brazilian energy sector and energy efficiency; financial compensation for the use of water resources for electricity generation purposes, by quota distributors, shall be affected in the same proportion as the quota system termination process established by CNPE, through Resolution No. 15 of 2021.

 

Subsection TwoHydro Power Plants shall be operated in accordance with safety criteria and according to specific technical standards, in accordance with current legislation, subject to the reservoir operation conditions defined by the National Water Agency – ANA alongside the National Electric System Operator – ONS, and instructions they order, according to the operation modality, and observing the Grid Procedures approved by ANEEL.

 

Subsection ThreeHydro Power Plants shall be operated in the integrated type, subject to ONS orders instructions under the conditions provided for in the current regulations, and following the rules for access to the National Interconnected System – SIN approved by ANEEL.

 

Subsection FourHydro Power Plants shall participate in the MRE, with the Electricity Trading Chamber – CCEE, under the conditions provided for in the current regulation.

 

Subsection Five – Adherence to this Agreement implies assuming hydrological risk management, renegotiation being prohibited under Law No. 13,203 of December 8, 2015.

 

Subsection SixHydro Power Plants guaranteed power outputs were defined by Ordinance No. 544/GM/MME of the Ministry of Mines and Energy – MME of August 30, 2021.

 

I.       Hydro Power Plants guaranteed power output values were set considering the defining elements of the hydraulic potential that characterize the undertakings, as shown in Annex 1; and

 

II.       Hydro Power Plants guaranteed power output shall be revised and amended in accordance with current legislation.

 

Subsection SevenHydro Power Plants expansions and modifications shall comply with the specific legal procedures and the regulations of the Granting Authority and ANEEL and shall be incorporated into the respective concession, provided they are authorized by ANEEL after assessment, being governed by the provisions of this Agreement and the relevant legal rules.

 

 
 

 

I.       In order to carry out any expansion or modification of the Hydro Power Plants, the studies shall follow the applicable technical standards and be submitted to ANEEL for assessment and subsequent authorization, prior to construction.

 

II.       After approval, if there is an amendment to any provision in this Agreement, the Electric Utility shall sign an Amendment, aiming to consolidate the expansions and modifications that may have occurred.

 

If the Hydro Power Plants expansions imply changes in the conditions established in the respective concession for the right to use water resources, the Electric Utility shall, prior to the expansion, obtain the corresponding amendments to the concession for the right to use water resources from the agency responsible, as well as obtain the relevant licenses from the licensing environmental agency.

 

<ONLY FOR THE SOBRADINHO HPP, SUBJECT TO ITEM II DO ART. 2 OF LAW NO. 14,182 of 2021>

 

Subsection Eight – the obligations set forth in art. 22 of Law No. 11,943 of May 28, 2009, subject to the conditions and validity of the current Power Purchase Agreements referred therein, as regulated by the Third Amendment to the Concession Agreement No. 006/2004-ANEEL – CHESF, noticing that the energy from the obligations established in art. 22 of Law No. 11,943 of 2009, may not be subject to resale, sale, or assignment in the Free Market Environment (ACL), and its use shall be restricted to consumers who are part of the Power Sales Agreements referred to in the aforementioned articles.

 

<ONLY FOR THE ITUMBIARA HPP, SUBJECT TO ITEM III OF ART. 2 OF LAW No. 14,182 of 2021>

 

Subsection Eight – the obligations set forth in art. 10 of Law No. 13,182 of November 3, 2015, are preserved subject to the conditions and validity of the current Power Purchase Agreements referred therein, as regulated by the <Amendment No.> Amendment to the Concession Agreement No. 004/2004-ANEEL – FURNAS, noticing that the energy from the obligations established in art. 10 of Law No. 13,182 of 2015, may not be subject to resale, sale, or assignment in the Free Market Environment (ACL), and its use shall be restricted to consumers who are part of the Power Sales Agreements referred to in the aforementioned articles.

 

SECTION FOURELECTRIC UTILITY OBLIGATIONS AND CHARGES

 

To enable hydraulic potential exploitation referred to in Section One, the Electric Utility takes on all responsibilities and charges related to the operation and maintenance of the Hydro Power Plants, complying with the applicable technical standards and legal requirements.

 

Subsection One – Without prejudice to the provisions in the other Sections of this Agreement, the Electric Utility’s general charges in exploiting the Hydro Power Plants are the following:

 

I.       Meet all the requirements of this Agreement, the Privatization Process that gave rise to the concession regulated by it, the current and supervening legislation that regulates the hydraulic potentials exploitation, answering before the Granting Authority and ANEEL, users, and third parties, for any losses arising from the Hydro Power Plants exploitation;

 

II.       Immediately report the discovery of materials or objects foreign to the Hydro Power Plants exploitation, which are of geological or archaeological interest, as they belong to the Federal Government;

 

 
 

 

 

III.       Maintain technical and administrative personnel, whether own or from third parties, legally qualified and trained, in a quantity compatible with the activity/service performance, in order to ensure the undertaking’s operation continuity, regularity, efficiency, and safety;

 

IV.       Keep the registration and inventory of assets linked to the concession up to date and ensure their integrity, ensuring they are always insured correctly, and the Electric Utility shall not dispose or assign them, in any capacity, without ANEEL’s prior and written authorization;

 

V.       Respect and comply with environmental and water resources legislation, adopting all the necessary measures along the environmental and water resources agencies to obtain the necessary licenses and permits, at its own risk, complying with all their requirements, meeting the legal terms for the project analysis by the environmental and water resources management agencies, and committing to the quality of information that may be requested by the competent environmental and water resources management agencies, which shall be provided by the Electric Utility on time, being liable for the consequences that may arise from any non-compliance;

 

VI.       Keep, during the entire execution of the Agreement, consistently with the obligations undertaken, all eligibility and qualification conditions required by the bidding process that gave rise to the concession governed by this Agreement;

 

VII.       Send ANEEL reports on technical information, the physical situation of facilities and maintenance, whenever requested or when so provided for in specific regulation; and

 

VIII.       Make available, on official websites of the world wide web (internet), for consultation by any interested party, data, and information regarding environmental programs arising from environmental licenses requirements in all of their stages.

 

Subsection Two – The Electric Utility shall adhere to CCEE and become a member of ONS, under the conditions provided for in CCEE’s Electricity Trading Convention and in the ONS’ Statute, submitting to these institutions’ rules and procedures, including, but not limited to, the following obligations:

 

I.       Respect the maximum and minimum limits of restriction flows, downstream the Hydro Power Plants, following ONS operating rules;

 

II.       Maintain a data acquisition and measurement system for the purposes of electricity trading and the system’s operational supervision, as well as adjusting the necessary means to make this information available;

 

III.       Subsidize or participate in the electricity sector planning, in accordance with art. 174 of the Federal Constitution, as established by regulation; and

 

IV.       Enter into agreements for the transmission and/or distribution systems use and connection, paying the respective charges, in accordance with specific legislation.

 

Subsection Three – The Electric Utility shall adopt the following procedures with regard to the assignment of the right to use marginal areas and islands of the reservoir to be formed by the Hydro Power Plants:

 

I.       Permanently inspect and maintain an annual updated diagnosis of the marginal areas of the reservoir and islands situation with the identification and registration of occupations, available to ANEEL and any interested party, being mandatory its disclosure on official websites of the World Wide Web (Internet);

 

 
 

 

 

II.       Prepare, alongside the communities involved and other management bodies, a Master Plan for the reservoir, aiming at regulating, preserving, and implementing a plan for multiple uses, in particular those of public and social interest, such as Watershed Plans, Regional Development Plans, Master Plans, and/or Plans for the use and occupation of municipal land;

 

III.       Enter into, at its own expense and risk, Assignment Agreements of the right to use marginal areas to the reservoir, the term of which shall respect the term of the concession referred to in Section Two of this Agreement;

 

IV.       Ensure, in the case of a concession for water catchment and effluent discharge, that the sanitation utility responsible for these services has free access and use of the necessary area marginal to the reservoir, without prejudice to the responsibilities described in sub-items (i), (ii), and (iii) of item V and item VII of this Subsection;

 

V.       Clearly establish, in the concession agreements for right to use areas on the margins of the reservoirs, the Hydro Power Plants safety and operating conditions, and the restrictions and responsibilities to be observed by users, especially:

 

i)       The obligation to comply with relevant legislation relating to environmental protection, use of water resources, mining rights, and the Forest Code;

 

ii)       Restrictions on the installation of permanent or temporary buildings, land use, untreated effluents discharge, sanitary landfills, or refuse of any kind;

 

iii)       Term conditions, as well as the extension criteria, not being allowed to exceed the term of the concession for the use of the public property to generate electricity.

 

VI.       Establish that Electric Utility is responsible for the areas within its concession, in its strict competence, not holding users harmless from their responsibilities;

 

VII.       Determine that the activities arising from remunerated assignment contracts are mandatorily accounted for separately and even if:

 

(i)       The possible positive net value calculated, resulting from the remunerated assignments, is mandatorily reinvested by Electric Utility for the benefit of the watershed water resources and environmental conservation where the Hydro Power Plants are, or according to specific procedures to be defined by ANEEL;

 

ii)       The activities agreements, statements, and records are maintained by the Electric Utility, making them available to ANEEL Inspection Office;

 

iii)       These activities are controlled in a linked bank account, opened for this purpose, recorded accounting at a supplementary level, until the resources final application.

 

VIII.       ANEEL shall previously authorize that the Electric Utility itself uses the Hydro Power Plants reservoir marginal areas and islands for purposes other than the one of the concession granted and the regulation established in this Agreement.

 

 
 

 

Subsection Four – Comprise specific charges imposed on the Electric Utility regarding the Hydro Power Plants operation and maintenance:

 

I.       Obtain from the water resources management responsible agency, the concession of the right to use water resources, in accordance with Joint Resolution ANA-ANEEL No. 1,305 of November 20, 2015;

 

II.       Install, operate, and maintain, where determined, the hydrometric stations’ facilities for the monitoring of rainfall, limnimetric, river flows, metric sediment, and water quality, associated with the Hydro Power Plants reservoirs, pursuant to Joint Resolution ANEEL-ANA No. 3 of August 10, 2010, or in the regulation that may replace it;

 

III.       Permanently maintain in perfect operating condition the Hydro Power Plants equipment and facilities, through an adequate operation, maintenance, and conservation structure, including stock of spare material;

 

IV.       Allow free access to Restricted Interest Transmission Facilities at Hydro Power Plants in accordance with current legislation;

 

V.       Keep updated the technical documentation related to equipment and facilities associated with Hydro Power Plants and Transmission Facilities of Interest Restricted to Hydro Power Plants;

 

VI.       Keep available in the plant facilities, the “as built” or “executive” design, aiming to record what was actually carried out in the works, from which ANEEL, at its discretion, may request a copy.

 

Subsection Five – The Electric Utility shall fully implement the expansions, modernizations, or improvement of any nature, provided for or already being carried out on the date of execution of this Agreement.

 

Subsection Six – The Electric Utility shall comply with the obligations arising from the PNSB, under Law No. 12,344 of September 20, 2010, especially, but not limited to, preparing the Dam Safety Plan and the Emergency Response Plan and carrying out Safety Inspections under the legal and regulatory deadlines, containing, at a minimum, the information and activities set out in Arts. 8 and 9 of said Law and in ANEEL Normative Resolution No. 696 of December 15, 2015, or in the regulation that may replace it.

 

Subsection Seven – The Electric Utility is requited to annually apply the amount of, at least, one percent (1%) of its net operating revenue in research and development of the Brazilian energy sector and energy efficiency as provided by Law No. 9,991 of July 24, 2000 and the specific regulations.

 

Subsection Eight – The Electric Utility shall collect the amounts corresponding to financial compensation for the use of water resources for electricity generation purposes under Law No. 7,990 of December 28, 1989, and other specific rules about this topic.

 

Subsection Nine – The Electric Utility shall collect the inspection fee for electricity services, based on the relevant regulations.

 

Subsection Ten – The Electric Utility shall sign the required use and connection agreements, in accordance with the specific regulations, and it shall pay the charges related to the electric power transmission and distribution system use and connection.

 

 
 

 

 

<FOR ELECTRICITY GENERATION ELECTRIC UTILITIES LOCATED AT THE SÃO FRANCISCO RIVER BASIN>

 

Subsection Eleven – Pursuant to art. 6 of Law No. 14,182 of July 12, 2021, to comply with the measure referred to in sub-item “a” of item V of the main section of art. 3 of Law No. 14,182 of July 12, 2021, the Electric Utility shall contribute with three hundred and fifty million Reais (BRL350,000,000.00) annually, for a period of ten (10) years, adjusted by the Extended National Consumer Price Index (IPCA), released by the Brazilian Institute of Geography and Statistics – IBGE, or by another index that replaces it, as of the month this Agreement is executed.

 

I. How to invest the value referred to in the main section of this Subsection and the projects that shall make up the program for the water resources revitalization in the São Francisco River and Parnaíba River basins that shall receive the contribution of resources to comply with the measure referred to in sub-item “a” of item V of the main section of art. 3 of Law No. 14,182 of July 12, 2021, shall be established by a managing committee, chaired by a representative appointed by the Minister of State for Regional Development, to be established in regulation of the Federal Government, focusing on actions that generate recharge of tributary flows and expand the operational flexibility of reservoirs, without prejudice to the priority use and multiple uses of water resources.

 

II.       The Electric Utility shall annually contribute the full amount referred to in the main section to a specific account in a financial institution authorized to operate by the Central Bank of Brazil.

 

III.       The account referred to in item II of this Subsection does not comprise the Electric Utility assets for any purpose.

 

IV.       Pursuant to Law No. 9,427 of December 26, 1996, ANEEL shall regulate and supervise the obligations to pay the amount referred to in the main section of this Subsection and the effective implementation of the projects established by the management committee.

 

V.       At the end of fifteen (15) years, counted from the month of execution of this Agreement, the funds of the account referred to in item II of this Subsection not compromised to projects the management committee contracted or approved shall be reverted in favor of the Energy Development Account (CDE), under art. 13 of Law No. 10,438 of April 26, 2002, without prejudice to the administrative penalties imposed by ANEEL.

 

VI.       In addition to the contribution specified in the main section, the electricity generation Electric Utilities located in the basins of the São Francisco River, whose concession agreements are governed by Law No. 14,182 of July 12, 2021, shall make electricity available in an annual amount of eighty-five average megawatts (85 avgMW), for a period of twenty (20) years, as of January 1, 2023, for the price of eighty Reais per megawatt-hour (BRL80.00/MWh), on the base date of January 1, 2022, to be adjusted by the IPCA, or by another index that replaces it, through a specific agreement executed with the Federal Operator of the São Francisco River Integration Project to the Hydrographic Basins of the Northern Northeast (PISF).

 

VII.       The annual amount provided for in item VI of this Subsection may be modulated over the months of each year, in order to optimize the use of water operation by the state operators of the receiving basins supplied by the PISF.

 

VIII.       The PISF Facilities Federal Operator may set the energy delivery profile referred to in item VI, in accordance with ¶ 7, art. 6 of Law No. 14,182 of 2021.

 

 
 

 

 

<FOR THE ELECTRIC UTILITY SIGNATORY TO THE CONCESSION AGREEMENT No. 007/2004-ANEEL- ELETRONORTE, PURSUANT TO ART. 1 OF LAW 14,182 of 2021>

 

Subsection Eleven – Pursuant to art. 7 of Law No. 14,182 of July 12, 2021, to comply with the measure referred to in sub-item “b” of item V of the main section of art. 3 of Law No. 14,182 of July 12, 2021, the Electric Utility shall contribute two hundred and ninety-five million Reais (BRL295,000,000.00) per year, for a period of ten (10) years, adjusted by the IPCA, published by IBGE, or by another index that may replace it, as of the month this Agreement is executed, to apply in the structural energetic generation cost reduction program in the Legal Amazon and at least twenty percent (20%) in actions to ensure the navigability of the Madeira River and ten percent (10%) in actions to guarantee the navigability of the Tocantins River.

 

I.       How to invest the amount referred to in the main section of this Subsection and the projects that will comprise the structural energetic generation cost reduction program in the Legal Amazon and the navigability of the Madeira and the Tocantins Rivers that shall receive the contribution of resources to comply with sub-item “b” of item V of the main section of art. 3 of Law No. 14,182 of July 12, 2021, shall be established by a management committee, chaired by a representative appointed by the Minister of State for Mines and Energy, to be instituted in the Federal Government regulation, considering, the energetic generation in the Legal Amazon, the renewable energy or renewable fuel projects development, and the interconnections of isolated and remote locations.

 

II.       The Electric Utility shall annually contribute the full amount referred to in the main section to a specific account in a financial institution authorized to operate by the Central Bank of Brazil.

 

III.       The account referred to in item II of this Subsection does not comprise the Electric Utility assets for any purpose.

 

IV.       Pursuant to Law No. 9,427 of December 26, 1996, ANEEL shall regulate and supervise the obligations to pay the amount referred to in the main section of this Subsection and the effective implementation of the projects established by the management committee.

 

V.       At the end of fifteen (15) years, counted from the month of execution of this Agreement, the funds of the account referred to in item II of this Subsection not compromised to projects the management committee contracted or approved shall be reverted in favor of the Energy Development Account (CDE), under art. 13 of Law No. 10,438 of April 26, 2002, without prejudice to the administrative penalties imposed by ANEEL.

 

<ELECTRIC UTILITIES LOCATED IN THE FURNAS HYDRO POWER PLANT RESERVOIR INFLUENCE AREA>

 

Subsection Eleven – Pursuant to art. 8 of Law No. 14,182 of July 12, 2021, to comply with the measure referred to in sub-item “c” of item V of the main section of art. 3 of Law No. 14,182 of July 12, 2021, the Electric Utility shall contribute with two hundred and thirty million Reais (BRL230,000,000.00) annually, for a period of ten (10) years, adjusted by the IPCA, released by IBGE, or by another index that replaces it, as of the month this Agreement is executed.

 

I.       How to invest the value referred to in the main section of this Subsection and the projects that will make up the program for the revitalization of water resources in watersheds in the Furnas Hydro Power Plants reservoir influence area, whose agreements are under Law No. 14,182 of July 12, 2021, that shall receive the contribution of resources to comply with the measure referred to in sub-item “c” of item V of art. 3 of Law No. 14,182 of July 12, 2021, shall be established by a management committee, chaired by a representative appointed by the Minister of State for Regional Development, to be established in a Federal Government regulation, focusing on actions that generate recharge of tributary flows and expand the reservoirs operational flexibility, without prejudice to the priority use and multiple uses of water resources.

 

 
 

 

 

II.       The Electric Utility shall annually contribute the full amount referred to in the main section to a specific account in a financial institution authorized to operate by the Central Bank of Brazil.

 

III.       The account referred to in item II of this Subsection does not comprise the Electric Utility assets for any purpose.

 

IV.       Pursuant to Law No. 9,427 of December 26, 1996, ANEEL shall regulate and supervise the obligations to pay the amount referred to in the main section of this Subsection and the effective implementation of the projects established by the management committee.

 

V.       At the end of fifteen (15) years, counted from the month of execution of this Agreement, the funds of the account referred to in item II of this Subsection not compromised to projects the management committee contracted or approved shall be reverted in favor of the CDE, under art. 13 of Law No. 10,438 of April 26, 2002, without prejudice to the administrative penalties imposed by ANEEL.

 

VI.       The revitalization program referred to in item I of this Subsection shall contemplate the performance of derocking works of the navigation channel downstream of the Nova Avanhandava HPP, which shall be carried out by the first half of 2024.

 

Subsection Twelve – The Electric Utility shall pay an annual fee to the Energy Development Account (CDE), referred to in Law No. 10,438 of April 26, 2002, pursuant to the conditions regulated by art. 3 of Resolution No. 15, of 2021 of CNPE.

 

I.       The payment referred to in the main section shall be made as follows: an initial contribution in up to thirty days of the execution of this Agreement and annual contributions, beginning in 2023, to be made in April of each year, for the period of twenty-five years, based on the disbursement schedule set forth in Annex III of Resolution No. 15 of 2021 of CNPE.

 

II.       The amounts referred to in item I shall be adjusted by the IPCA, or whichever index that may replace it, as of the base date of January 1, 2022, and shall be fully credited in favor of the Electric Utilities and licensees of electric power distribution, for tariff moderation purposes in the Regulated Market Environment (ACR), distributed in a proportional way to the uncontracted amounts as a result of the change of the exploration regime for independent power production, to the terms of ¶¶ 9 and 10, of art. 2, of Resolution No. 15 of 2021 of CNPE.Subsection Thirteen – The Electric Utility undertakes to pay the concession bonus of the concession arising from the Privatization Process, in a single installment, within thirty days from the performance of this Agreement, according to CNPE Resolution No. 15 of 2021, pursuant to Law No. 14,182 of July 12, 2021, being aware that the default of this obligation constitutes the condition subsequent of this Agreement.I.       The termination of this Agreement by operation of law in the event of non-payment of the concession bonus, without prejudice to the application of penalties provided in the respective Privatization Process and under this Agreement.Subsection Fourteen – The following are specific responsibilities related to the concessions of the Hydro Power Plants by the Electric Utility: 

I.       Submit the following to the prior and subsequent controls of ANEEL, as provided for in a specific regulation:

 

 
 

 

i)       Amendment to the bylaws or articles of association of the Electric Utility;

 

ii)       Transactions for the transfer of the concession or spin-off, consolidation or merger of the Electric Utility;

 

iii)       Transfer of corporate control;

 

iv)       Execution of contracts, agreements, or arrangements with Controlling Shareholders, whether direct or indirect, and controlled companies or affiliates, especially those dealing with supervision, management, engineering, accounting, consulting, procurement, construction, loans, disposal of shares, as well as with individuals or legal entities forming part, directly or indirectly, of a same controlled company or having officers or managers in common with the Electric Utility; and

 

v)       Disposal, assignment, or pledge as a guarantee of the assets linked to the concession.II.

Complying and enforcing the legal and regulatory rules of the service;III.       Provide annual accounts to the Granting Authority, as provided for in item XIII of art. 23 of Law No. 8,987 of 1995; 

 

IV.       Comply with the rules for accounting, inventory of assets and asset control, accountability, disclosure of accounting and financial statements, as provided for in specific regulations;

 

V.       Keep separate accounting records of the complementary activities to the concession, or constitute another company; and VI.       Disclose its Financial Statements annually, as provided for in item XIV of Art. 23 of Law 8,987 of 1995, and to the terms of the laws and regulations in effect. 

Subsection Fifteen – The Electric Utility shall perform the tax, labor, and social-security obligations and pay the charges arising from the laws and regulations and regulatory standards established by the Granting Authority and ANEEL, as well as any other obligations related or resulting from the exploitation of the Hydro Power Plants;

 

Subsection Sixteen – it does not apply to the Electric Utility the payment for the Use of Public Property due to the change of the legal regime for the Independent Power Production, provided for in art. 7 of Law No. 9,648 of 1998 under ¶ 2, of art. 4 of Law No. 14,182 of 2021.

Subsection Seventeen – in the event there are locks intended for river navigation sharing the same structure of the Hydro Power Plant, the Electric Utility’s responsibility for the dam’s safety is maintained, as provided by Law No. 12,334 of 2010.

Subsection Eighteen – when the lock is operated by a third party, the Electric Utility is obligated to maintain an operating agreement, during the effectiveness of the concession, with the structure maintainer, in which the responsibilities and attributions of the parties shall be defined, aiming at dam safety.I.       The operating agreement shall be signed between the Electric Utility and the National Department of Transport Infrastructure – DNIT or competent state agency;II.       When there is subcontracting for lock operation and maintenance by the institutions described in item I, the operating agreement shall be signed between the Electric Utility and the Subcontracted Third Party Company, with the intervention and consent of DNIT or the competent state agency;III.       The agreement shall contain, at least: 

i)       definition regarding the sharing of information on the structure safety;

 

ii)       notification for emergency cases;

 

iii)       provision on the taking out of insurance; and

 

iv)       a system to implement the instruments under the National Dam Safety Policy (PNSB).

 

 

 
 

 

Subsection Nineteen – the Electric Utility shall be subject to the inspection and eventual penalties provided for in Law No. 12,334 of 2010, regarding the shared structures related to river navigation, in view of the preponderant use of the dam for the electricity generation, pursuant to art. 5, II, of Law No. 12,334 of 2010.

SECTION FIVE – ELECTRIC UTILITY RIGHTS AND PREROGATIVES

The concession for the exploitation of the Hydro Power Plants referred to in Annex 1 of this Agreement grants the Electric Utility the prerogatives set forth in this Section Five, among others, and may not affect the rights of third parties and users of electricity, which are expressly reserved. 

Subsection One – The Electric Utility shall be free to manage its business, investments, personnel, materials, and technology, pursuant to the terms of this Agreement, the specific laws and regulations, the regulatory standards, and instructions and determinations of the Granting Authority and ANEEL.

 

Subsection Two – The Electric Utility may promote the release, amicably with the owners, of the land areas required for the operation of the Hydro Power Plants, including, without limitation, to the areas required for the constitution of the reservoir, the permanent preservation area, and the Restricted Interest Transmission Facilities to the Hydro Power Plants.

I.       ANEEL may promote, at the request of the Electric Utility and pursuant to the specific laws and regulations, the declaration of public use for these areas, for expropriation purposes or the institution of administrative easements over private assets, being the Electric Utility responsible for taking the necessary measures for its execution and the payment of the pertinent indemnifications; and

II.       For public properties, the declaration of public use denotes specific allocation for electricity purposes, being the Electric Utility responsible for postulating instruments that allow the intended use.

Subsection Three – The Electric Utility may implement telecommunications systems, for exclusive use in the exploration of the granted service, respecting the relevant laws and regulations about the subject, without prejudice to third parties.

Subsection Four – Subject to the specific laws and regulations, the Electric Utility may offer, as guarantees for financing agreements, the rights arising from the concession, including, among others, the electricity to be produced and the revenue resulting from the purchase and sale agreements of this power, as well as the rights and facilities used for its production.

I.       The eventual foreclosure of the financing agreement guarantee may not compromise the operationalization and continuity of the Hydro Power Plants exploration;

II.       The eventual foreclosure resulting from a guarantee signed by the pledge of the Electric Utility’s shares, which implies the transfer of corporate control, shall be preceded by the prior consent of ANEEL; and

 

III.       Pursuant to the provisions in art. 27 of Law No. 8,987 of 1995, as amended by Law No. 11,196 of November 21, 2005, the credit facility agreements executed by the Electric Utility may provide for a clause granting the lenders, in compliance with applicable private law rules, the right to assume control of the Electric Utility in the event of default on such credit facility agreements, subject to the following:i)       ANEEL shall consent to the assumption of control of the Electric Utility by its lenders, after the regular establishment of the corresponding administrative proceeding, upon request, in order to promote the financial restructuring of the Electric Utility and ensuring continuity of the operation of the Hydro Power Plants;ii)     ANEEL’s consent shall depend on the lenders’ proof that they meet the legal and fiscal regularity requirements set forth in the Privatization Process;iii)        Lenders may be exempted from proving that they have the technical capacity, pursuant to Art. 27-A of Law No. 8,987 of 1995;iv)       The pertinent authorization to act as a financial institution in Brazil exempts the demonstration of financial standing;v)       The assumption of control of the Electric Utility pursuant to the caption of this Subsection shall not alter the obligations of the Electric Utility and its controllers before the Granting Authority;vi)        The compliance with the provisions of Law No. 14,182 of 2021, especially the provisions of art. 3. Subsection Five – The Electric Utility may freely access the transmission and distribution systems, upon payment of the respective use and connection charges, when due, in order to transmit the electricity produced to the delivery or consumption points that result from its operations.

Subsection Six – Through prior consent of ANEEL, the concession or the corporate control of the Electric Utility may be transferred to the company that proves the technical and economic and financial qualification conditions, as well as the legal and fiscal regularity provided for in the Privatization Process that originated this Agreement and that commits to execute it pursuant to the clauses of this instrument and the legal and regulatory rules in force, observing the limits and conditions for the participation of the economic agents foreseen in specific regulations, pursuant to the provisions in art. 3 of Law No. 14,182 of 2021.

 

 
 

 

 

SECTION SIX – INSPECTION

The operation of the Hydro Power Plants shall be inspected by ANEEL. 

Subsection One – The inspection by ANEEL shall encompass the monitoring and control of the Electric Utility’s administrative, accounting, technical, and economic and financial actions business, and ANEEL may establish procedure guidelines and cancel actions that it deems incompatible with the requirements to exploit Hydro Power Plants.

 

Subsection Two – The inspection by ANEEL does not diminish nor exempt the responsibilities of the Electric Utility as to the adequacy of its works and installations, the correctness and legality of its accounting records, and its financial and commercial transactions.

Subsection ThreeANEEL’s employees and its agents shall have free and unrestricted access to the documents, works, facilities, and equipment related to the Hydro Power Plants, including its accounting records, being able to request, from any sector or person of the Electric Utility, in the way it deems necessary, information, and clarifications which allow the assessment of the correct performance of this Agreement, as well as data considered necessary for the statistical control and planning of the national electric system, being the Electric Utility prohibited from restricting, under any allegation, the provisions in this Subsection.

Subsection Four – The technical supervision shall comprise:I.       The execution of the construction and installation projects;II.       Compliance with the schedule;III.       The exploitation of the Hydro Power Plants and their respective Transmission Facilities of Restricted Interest;IV.       Compliance with legal and contractual rules;V.       Compliance with contract clauses;VI.       The use and destination of energy;VII.       The operation of the reservoir; andVIII.       The quality and commercialization of the product.Subsection Five – The economic and financial inspection shall comprise the analysis and follow-up of the financial transactions, of the records in the books of the Electric Utility, of the balance sheets, of the reports and financial statements, of the annual rendering of accounts, and any other documents deemed necessary for the perfect evaluation of the concession management.Subsection Six – ANEEL may determine to the Electric Utility the termination of any Agreement entered into by it when it verifies that it may result in damage to the concession.Subsection Seven – The non-compliance with the inspection requests shall result in the application of penalties provided for in ANEEL Normative Resolution No. 846 of June 11, 2019, or in the regulation that may succeed it, as well as those set forth in this Agreement.SECTION SEVEN – PENALTIESThe Electric Utility shall be subject to the penalties, pursuant to the prevailing laws and regulations, especially those established in ANEEL Resolutions, without prejudice to the provisions of items III and IV of art. 17 of ANNEX I of Decree No. 2,335 of October 6, 1997, as a result of failure to comply with the legal, regulatory, or contractual provisions, pertinent to the operation of the Hydroelectric Power Plants.Subsection One – Among other sanctions, the Electric Utility shall be subject to penalty, applied by ANEEL, in the maximum amount, for each infraction incurred, of two percent (2%) of the value of the annual turnover of the Electric Utility or the estimated amount of the energy produced, corresponding to the last twelve months prior to the issuance of the notice of infraction or estimated for these twelve months.I.       When the penalty consists of a fine for non-compliance with legal, regulatory, or contractual provisions and the respective amount is not paid within the established term, ANEEL shall promote its judicial collection, by means of execution, pursuant to the specific laws and regulations.Subsection Two – The penalties shall be applied by means of an administrative proceeding, in proportion to the seriousness of the infraction, with the Electric Utility assured the right to a legal defense and the right to adversary proceedings.Subsection Three – In the event of non-compliance with the penalties imposed for infractions, or non-compliance with the notification or determination of the Granting Authority to regularize the provision of services, the termination of the concession may be decreed, as provided by law and this Agreement, without prejudice to the verification of the responsibilities of the Electric Utility before the Granting Authority, ANEEL, users, and third parties. SECTION EIGHT – INTERVENTION IN THE CONCESSION 

Without prejudice to the applicable penalties and responsibilities, ANEEL may intervene in the concession, as provided by Law No. 12,767 of December 27, 2012, at any time, to ensure the proper operation of the Hydro Power Plants or compliance, by the Electric Utility, with the legal, regulatory, and contractual rules.

 

 

 
 

 

 

Subsection One – The intervention shall be determined by ANEEL Resolution, which shall appoint the Intervening Party, the amount of their compensation, the term of the intervention, and the objectives and limits of the measure.Subsection Two – The period of intervention shall be up to one (1) year, extendable once, for up to two (2) more years, at ANEEL’s discretion.Subsection Three – Once the intervention in the concession of use of the public property is declared, ANEEL shall initiate, within thirty (30) days of the date of publication of the Resolution, the corresponding administrative proceeding, in order to prove the determining causes of the measure and the responsibilities involved, assuring the Electric Utility the right to legal defense and adversary, to be concluded within one (1) year. 

Subsection Four – If it is proved that the intervention did not observe the legal and regulatory requirements, it shall be deemed null, and the concession shall be promptly returned to the Electric Utility, without prejudice to its right to indemnification.

 

Subsection Five – The intervention in the use concession of a public asset implies the suspension of the mandate of the managers and members of the fiscal council, being assured to the Intervening Party full management powers over the operations and assets of the Electric Utility and the exclusive prerogative to call the general meeting in the cases it deems convenient. 

Subsection Six – Once the intervention is interrupted, if the concession is not cancelled, the management of the Hydro Power Plants shall be returned to the Electric Utility, preceded by the rendering of accounts by the Intervening Party, which shall be held liable for the acts performed during its management.

 

Subsection Seven – The provisions of Chapter II of Law No. 12,767 of 2012 and supervening laws and regulations apply, as appropriate.

SECTION NINE – CONCESSION TERMINATION AND BOUND ASSETS’ AND FACILITIES’ REVERSION 

The concession for the exploitation of the Hydro Power Plants regulated by this Agreement shall be extinguished by the Granting Authority, which shall previously hear ANEEL, upon the following events:I.       arrival of the final term of the Agreement; 

II.        taking over;

 

III.       expiration;

 

IV.       termination;

 

V.       annulment resulting from defect or irregularity verified in the concession procedure or act; or

 

VI.       bankruptcy or winding-up of the Electric Utility.

 

 

 
 

  

Subsection One – The assets of the concession herein granted are all those exclusively and permanently used in the electricity generation activity, and they shall be recorded and controlled in accordance with the accounting and asset control manuals, and other accounting and asset control instructions and guidelines issued by ANEEL.Subsection Two – In the arrival of the final term of this Agreement, all assignable assets and facilities linked to the Hydro Power Plants shall become an integral part of the Federal Government’s patrimony.I.       In the terms of ¶ 7 of Art. 2 of Resolution No. 15 of 2021 of CNPE, the Electric Utility shall not be entitled to compensation for non-amortized investments related to the Basic Projects of the Hydro Power Plants, as well as those related to investments linked to assignable assets of the Hydro Power Plants, not yet amortized or non-depreciated, whose concessions were extended or not, pursuant to art. 1 of Law No. 12,783 of January 11, 2013 whose criteria and procedures for the calculations of these investments were defined in ANEEL Resolution No. 596 of December 19, 2013, pursuant to Art. 2 of Decree No. 7,850 of November 30, 2012.II.       The assignable assets linked to the concession of the Hydro Power Plants, not framed in item I of Subsection Two of Section Nine, may be indemnified as to the non-amortized investments, provided they have been approved, when applicable, by the Granting Authority.III.       The amount of the indemnification due to the Electric Utility shall be calculated according to the rules in force; andIV.       In order to allow the full continuity of the electricity generation, the assets and the installations linked to the Hydro Power Plants, to be reverted as a result of the concession termination, shall be in proper operating conditions, in compliance with the characteristics and the basic technical requirements.Subsection Three – In the event of termination of the Concession, ANEEL or the Granting Authority may allow the Electric Utility to continue with the operation of the Hydro Power Plants, as well as with the possession of the assignable assets as trustee until the new Electric Utility takes over, pursuant to article 13 of Decree No. 1,717 of November 24, 1995.Subsection Four – To meet the public interest, by means of a specific authorizing law, the Granting Authority may take over the assets and installations, after prior payment of compensation for the portions of the investments linked to the assets and installations, not yet amortized or depreciated, as determined in an audit.Subsection Five – Once any of the default events set forth in the specific laws and regulations and in this Agreement are verified, the Granting Authority may declare the concession termination if the Electric Utility, notified, does not correct the faults pointed out and does not reestablish the normality of the performance of the Agreement, within the term established.I. The declaration of forfeiture shall be preceded by an administrative proceeding to verify the violations or failures of the Electric Utility, observing the adversary and the legal defense, assuring the Electric Utility any indemnification for investments made and not yet amortized or depreciated, as long as they are determined in an audit and authorized by the Granting Authority, after discounting the amounts of the fines imposed by ANEEL and compensation for any losses and damages caused by the Electric Utility;II.       The administrative proceeding mentioned in the caption of this Subsection shall not be initiated until the Electric Utility has been made aware of the breaches of contract, as well as given enough time to correct them;III.       The decree of forfeiture shall not entail, to the Granting Authority or ANEEL, any liability in relation to the burdens, charges, or commitments to third parties that have been contracted by the Electric Utility or regarding its employees.Subsection Six – The Electric Utility may submit a plan for the transfer of corporate control as an alternative to the extinction of the grant, in cases of forfeiture, as regulated by ANEEL, as provided for in art. 4-C of Law No. 9,074 of 1995, included by Law No. 13,360 of November 17, 2016.I.       The corporate control transfer plan shall demonstrate the feasibility of the change of control and the benefit of this measure for the adequate continuity of electricity generation;II.       The approval of the corporate control transfer plan by ANEEL shall suspend the concession termination process; andIII.       The corporate control transfer, within the term defined by ANEEL, shall cause the concession extinction process to be filed for forfeiture.Subsection Seven – By means of a lawsuit especially filed for this purpose, the Electric Utility may promote the termination of this Agreement, in case of non-compliance, by the Granting Authority, with the rules established herein. In this case, the Electric Utility may not interrupt or stop the generation of electricity while the court decision ordering the termination of this Agreement does not become final and become final and unappealable.

 

 
 

 

Subsection Eight – In case of termination or adjudication of bankruptcy of the Electric Utility, this Agreement shall be considered terminated at the date of the final and unappealable decision that decreed the bankruptcy.I.       The bankrupt may continue to manage the assignable assets, as trustee, until the new Electric Utility takes over, to be defined by the Granting Authority.Subsection Nine – In the extinction of the concession based on the provisions of items III and VI of this Section, the Granting Authority shall observe the provisions of Law No. 12,767 of 2012, and supervening laws and regulations.SECTION TEN – COMMITMENT BY THE CONTROLLER(S)The Controller(s) declare(s) to accept and submit to the conditions and clauses of this Agreement, undertaking to introduce, in the Bylaws or Articles of Association of the Electric Utility, a provision that prohibits the transfer, assignment or any form of alienation, directly or indirectly, free of charge or on payment, of shares or quotas that result in the transfer of corporate control of the Electric Utility without the prior consent of ANEEL, pursuant to the laws and regulations in force. 

Subsection One: The commitments expressly provided for in Law No. 14,182 of July 12, 2021 are also commitments by the controlling shareholders.

 

SECTION ELEVEN – FRIENDLY SETTLEMENT OF DISPUTES AND JURISDICTION

 

The Electric Utility undertakes to use all efforts as to amicably settle any and all disputes or controversies arising from this Agreement or related thereto.

 

Subsection One – The Electric Utility may request ANEEL to hold hearings in case of divergences in the interpretation or execution of the provisions of this Agreement, with the purpose of harmonizing the understandings. 

Subsection Two – In order to settle doubts or disputes that could not be friendly settled, as indicated in the main section of this Section, the parties elect the Federal Courts of the Judiciary Section of Distrito Federal, to the exclusion of any other courts, however privileged they may be.

 

SECTION TWELVE – FINAL PROVISIONS

 

For the Hydro Power Plants listed in Annex 1 of this Agreement, the clauses and conditions of the <PREVIOUS AGREEMENT>, and their respective amendments, except for those expressly cited herein, are hereby revoked, also pursuant to the provisions in Subsection One and Subsection Eight <only for the Itumbiara and Sobradinho HPPs> of Section Three of this Agreement.

 

SECTION THIRTEEN – PUBLICATION AND REGISTRATION OF THE AGREEMENT

 

This Agreement shall be registered and filed with ANEEL, which shall procure, within twenty (20) days of its signature, the publication of its summary in the Official Gazette.

 

IN WITNESS WHEREOF, the parties had this instrument drawn up, which is signed by the representatives of ANEEL, the Electric Utility, and the Controlling Shareholder, together with witnesses, for the relevant legal effects.

 

Brasília, DF, on <date of signature in words>.

 

BY ANEEL

 

<NAME OF THE GENERAL DIRECTOR>

General Director

 

 

 
 

 

BY THE ELECTRIC UTILITY
  
NAMENAME
TitleTitle

 

 

 

 

BY THE CONTROLLING SHAREHOLDER NAME
  
NAMENAME
TitleTitle

 

 

 

WITNESSES
  
NAMENAME
TitleTitle

 

 

 

ANNEX 01

 

LIST OF PLANTS

 

Hydro Power PlantTypeCEG1Installed Capacity (kW)# of Generating UnitsRIVERCity/StateFinal Term of the Concession
        
        

1 Single Generation Development Code (CEG)

 

 

 

 

 

ANNEX 02

 

TRANSMISSION FACILITIES OF RESTRICTED INTEREST

 

a) SUBSTATIONS

 

 
 

 

Hydro Power PlantSubstation (SE)City / State
   
   

 

 

b) TRANSMISSION LINES

 

 

Hydro Power PlantTL – Power PlantVoltage (kV)OriginEndExtension (km)State
       
       

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

Technical Information Report

 

 

 

CLASSIFICATION: Confidential

TitlePreliminary Analysis of the Method used in the Model for Calculation of the Added Value and Concession Bonus under art. 4 of Law No. 14,182/2021, prepared by the Consulting Firm Upside Finanças Corporativas Ltda. - Upside.
SubjectCapitalization; Model; Method; Value Added; Concession; Hydro Power Plant.
Authors

Marcos Barreto de Faria Pinho – DFPA;

Flávia Xavier Cirilo de Sá – DFPA;

Leonardo Michelsem Monteiro de Barros – DFPA;

Leonardo Alves Pereira – DFPA;

Tiago Rinaldi Meyer – DFPA;

Vinícius Brito da Fonseca – DFPA.

CompanyEletrobras, Upside.
CategoryTechnical Information Report.

Classification: Confidential

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Keywords

Model, Method, Capitalization, Value Added, Law No. 14,182/2021, Concession, Hydro Power Plant, Quota System, IPP, Eletrobras, Upside.

 

Table of Contents

 

1.PURPOSE3

 

2.Disclaimer3

 

3.BACKGROUND3

 

4.METHODOLOGY APPLIED BY UPSIDE7

 

 4.1TAXES8

 

 4.2AMORTIZATION OF ADDED VALUE8

 

 4.3CONCESSION BONUS REBATES9

 

5.CONSIDERATIONS9

 

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1.       PURPOSE

This Technical Information Report aims to present the result of the preliminary analysis, from a strictly economic and financial point of view, of the methodology for calculating the Added Value and the Concession Bonus pursuant to arts. 4 and 5 of Law No. 14,182 of July 12, 2021 applied by Upside in its economic and financial model in order to calculate such amounts.

 

2.       Disclaimer

It is worth mentioning that the Economic and Financial Analysis Department – DFPA is not responsible for analyzing and validating the technical and regulatory assumptions used in the Upside model, which is the responsibility of the Generation Division

 

It is highlighted that this Technical Information Report shall analyze only the calculation method presented by Upside, not addressing yet the merits of the results obtained and assumptions used., as these are still being discussed by the technical areas. Finally, it is important to highlight that the analysis performed by DFPA was based on the report “Economic and Financial Study of the Grant Amount” from Upside, from October 16, 2021, and on the modeling entitled “GT_1.00_UHE Eletrobras_1.62v – Base Case p90,” available on September 30, 2021, and in the modeling versions with the corrections appointed by DFPA entitled “GT_1.00_UHE Eletrobras_1.65v – Base Case p90,” available on October 8, 2021, and “GT_1.00_UHE Eletrobras_1.70v – Base Case p90,” available on October 16, 2021.

3.       BACKGROUND

Provisional Measure No. 1,031/2021, which provided for the privatization of Eletrobras and other measures, was enacted on February 23, 2021. Such Provisional Measure, as amended, after passing the House of Representatives and the Federal Senate, was converted into Law No. 14,182 of July 12, 2021.

Law No. 14,182/2021 established that the privatization of Eletrobras is subject to the granting of new generation concessions for thirty (30) years in the Independent Power Producer (IPP) regime for the following plants:

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have been extended pursuant to art. 1 of Law No. 12,783 of January 11, 2013;

 ·are covered by the provisions in item II of ¶ 2 of art. 22 of Law No. 11,943 of May 28, 2009;
 ·are covered by the provisions of ¶ 3 of art. 10 of Law No. 13,182 of November 3, 2015;
 ·have been authorized by Concession Agreement No. 007/2004-Aneel-Eletronorte;
 ·have been granted through Concession Contract No. 004/2004-Aneel-Furnas, specifically for the Mascarenhas de Moraes HPP.

The granting of new generation concessions is conditioned to:

 ·payment by Eletrobras or its subsidiaries, as defined by the National Council for Energy Policy – CNPE, to the Energy Development Account (CDE), referred to in Law No. 10,438/2002 of April 26, 2002, corresponding to fifty percent (50%) of the added value to the concession by the new contracts;
 ·payment by Eletrobras or its subsidiaries of concession bonus of new concession agreements for electricity generation corresponding to fifty percent (50%) of the added value to the concession by the new contracts deducted from the following installments:
 a)expenses related to the revitalization of water resources in the São Francisco and Parnaíba river basins, pursuant to subparagraph an of item V of the main section of art. 3 of Law 14,182/2021;
 b)expenses related to the development of projects in the Legal Amazon with a view to structurally reducing energy generation costs and for the navigability of the Madeira River and the Tocantins River, as provided for in subparagraph b of item V of the main section of art. 3 of Law No. 14,182/2021;
 c)expenses related to projects in the area of influence of the reservoirs of the Furnas hydro power plants, whose concession agreements are affected by this Law, pursuant to paragraph c of item V of the main section of art. of Law No. 14,182/2021; and
 d)expenses to reimburse the economic value of the supply of electricity for the São Francisco River Integration Project (PISF) with North Northeast Drainage Basins, as dealt with in ¶ 6 of art. 6 of Law No. 14,182/2021;

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 ·the alteration of the exploration regime for independent production, as provided by Law No. 9,074/1995, including the conditions for the extinction of grants, expropriation of facilities and indemnities;
 ·the assumption of hydrological risk management, renegotiation being prohibited as provided by Law No. 13,203/2015; and
 ·compliance with the provisions of item II of ¶ 2 of art. 22 of Law No. 11,943/2009 and ¶ 3 of art. 10 of Law No. 13,182/2015, preserving the established obligations, conditions, and validity of current electricity sales contracts referred to in the aforementioned articles.

Law No. 14,182/2021 also defines the calculation of the Value Added to the concession, which shall consider:

 ·changing the exploitation regime from quota regimes to independent production;
 ·the deduction of credits related to reimbursement for verified fuel expenses, incurred until June 30, 2017, by the concessionaires that were controlled by Eletrobras and holders of the concessions referred to in art. 4-A of Law No. 12,111 of December 9, 2009, which have been proven, but not reimbursed, due to the requirements of economic and energy efficiency referred to in ¶ 12 of art. 3 of the aforementioned Law, including monetary restatements, in which case the compensation shall be limited to three billion and five hundred million Reais (BRL3,500,000,000.00); and
 ·the decontracting of the electricity contracted pursuant to art. 1 of Law No. 12,783/2013, to comply with the provisions of item III of the caput of art. 4 of Law 14,182/2021, gradually and uniformly, at least five (5) years and a maximum of ten (10) years.

While the Provisional Measure was in force, Eletrobras contracted, through electronic auction, Upside to support the decision of the top management of Eletrobras in defining the concession amount in the possible Company privatization process, establishing scenarios, evaluating the positive impacts and negative relating to Provisional Measure No. 1,031/2021 converted into Law No. 14,182/2021.

The Resolution of the National Council for Energy Policy - CNPE No. 15 of August 31, 2021, established the Value Added by new concession agreements for electricity generation as provided by Law No. 14,182/2021, which is equal to BRL62,479,656,370.10, according to art. 1 of the aforementioned Resolution. From this amount, the amount of BRL2,906,498,547.37 shall be deducted, referring to the reimbursement for verified expenses with the purchase of fuel incurred until June 30, 2017 by the distributors controlled at the time by Eletrobras.

Classification: Confidential

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The aforementioned Resolution also defined the amount to be paid as concession bonus of new concession agreements, which is equal to BRL23,218,488,754.73 already deducted from the installments related to (i) the revitalization of water resources in the river basins São Francisco and the Parnaíba River; (ii) the development of projects in the Legal Amazon; (iii) the projects in the area of influence of the Furnas hydro power plants reservoirs; (iv) reimburse the economic value of the supply of electricity to the PISF; and (v) the indemnification of non-amortized or non-depreciated reversible assets of the hydro power plants subject to the granting of a new concession

CNPE Resolution No. 15/2021 also established the amount to be paid to the CDE by Eletrobras at BRL29,786,578,911.55, with an initial contribution of BRL5 billion within thirty (30) days of signing the new concession agreements. The remaining amount shall be paid as follows.

YearPayment to the CDE (BRL)
Initial contribution5,000,000,000.00
2023526,098,864.13
20241,052,197,728.26
20251,578,296,592.39
20262,104,395,456.52
2027 - 20472,630,494,320.65

 

Also, according to the Resolution, all values shall be updated until the effective date of payment by the IPCA, having as base date January 1, 2022.Only the concession bonus shall be updated by Selic through the base date.

On August 26, 2021, DFPA received the first version of the model for calculating the concession amount prepared by Upside, which was forwarded by the Generation Division, responsible for hiring Upside. A second version of the template was forwarded to DFPA on September 14, 2021, together with a tutorial. It is important to note that the second version considered only the premises defined by CNPE, which were disclosed on August 31, 2021. We were provided with the third version of the modeling on September 30, 2021 and the fourth version on October 8, 2021.

Classification: Confidential

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Finally, the last version of the Upside model and its corresponding Economic and Financial Study Report – Calculation of the Concession Amount were forwarded on October 16, 2021.

4.       METHODOLOGY APPLIED BY UPSIDE

To determine the added value and consequently the concession amount, Upside considered the Marginal Cash Flow methodology.

In this method, the Total Added Value of the capitalization (𝑉𝐴𝑡𝑜𝑡𝑎𝑙) is equal to the aggregate individual Added Values (𝑉𝐴i) of each plant, and each plant is deemed a cash-generating unit (CGU). So, you have:

The Added Value (VA), in its turn, shall be calculated by the Discounted Cash Flow method using the difference of the net present value of the free cash flows for the firm (FCFF) of the Capitalization Scenario (FCFFpie) and the Current Scenario (FCFFcotas), quota system.

 

Where i= 1, 2, ..., 18, as there are eighteen plants that shall have a new concession grant under the IPP regime.

Upside chose to use a single discount rate (WACC) for all cash generating units, in both scenarios, the Capitalization, and Quotas. Thus, it was assumed that the risks due to the change of the electricity trading regime according to the new concession agreements shall be accounted for throughout the cash flow of the Capitalization Scenario, excluding the need for two forecasted cash flows.

The cash flow in the quota system and IPP was calculated as follows:

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+ Annual Generation Revenue (RAG)

- Operating Expenses (Opex)

- Investments (d)

- Sectorial Charges

- TAXES

= FCFFquotas

+ Revenue from the Sale of Energy

- Operating Expenses (Opex)

- Investment (Capex)

- Short-Term Market Exposure (MCP)

- Sector Charges

- Taxes

= FCFFIPP

Upside considered that, in the periods in which both energy trading regimes (Quotas and IPP) occur concurrently, some assumptions may be disregarded from the Marginal Cash Flow assuming that there is no change in its forecast from the change in the trading regime applied. These assumptions are Operating Expenses (Opex), Investment (Capex), and Sector Charges.

Moreover, Upside’s method considers, for the period during which the trading system of a plant is the same in both scenarios, that there is no Value Added and the Marginal Cash Flow assumes null values. That is, if a Cash Generating Unit (CGU) is currently under the independent power producer (IPP) system, the Marginal Cash Flow shall be null for the whole period during which the concession agreement of the Current Scenario co-exists with the new concession agreement to be executed in the Capitalization Scenario, because, for that period, the CGU is under the same trading system in both scenarios. This applies to the Tucuruí, Curuá-Una, and Mascarenhas de Moraes plants.

 4.1TAXES

Regarding taxes, Upside adopted that the tax contribution is also marginal, that is, the taxable base shall be equal to the difference in operating income obtained from the difference between the Capitalization Scenario and the Current Scenario. This conclusion, therefore, excludes the need to include the discount of BRL20,000 per month for calculating the additional income tax, which is projected at the amount of 10% on a taxable basis.

With respect to the tax benefit obtained by each one of the CGUs, it was not being originally considered in Upside’s modeling, and the tax base was equal to thirty-four percent (34%). Nonetheless, after a meeting of the Economic and Financial Analysis Department – DFPA team with Upside, the application of the tax benefit was settled, as several plants had this benefit recently extended.

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 4.2AMORTIZATION OF ADDED VALUE

Upside’ method considers the calculated Added Value Added Value shall be amortized over the term of the new concession agreement, that is, over 30 years.

The amortization of this amount shall affect the tax base calculated for the Marginal Cash Flow. By decreasing the tax base, the lower amount spent to pay taxes affects future cash flows, which in turn affects the calculated Added Value. Thus, the Upside model makes an iterative calculation until reaching a null economic gain for the analysis period.

 4.3CONCESSION BONUS REBATES

The methodology considered the rebates from the granted bonus as established in item II, art. 4 of Law No. 14,182/2021, namely:

 ·expenses related to the revitalization of water resources in the São Francisco and Parnaíba river basins;
 ·expenses related to the development of projects in the Amazon;
 ·expenses related to projects in the area of influence of the Furnas hydro power plants reservoirs;
 ·expenses to reimburse the economic value of the electricity supply for the São Francisco River Integration Project with North Northeast Drainage Basins (PISF).

In addition to these deductions, the need for indemnification of non-depreciated or non-amortized assets was also considered, given that the concession of some plants, currently under the IPP regime, shall have its early termination. This amount was estimated according to the Complete Financial Statements of Eletrobras as of 12/31/2020. The indemnities related to the plants under the aegis of Law No. 12.783/2013, regulated by art. 10of Decree No. 7.805/2012 and art. 2 of Decree No. 7.850/2012, have a balance recorded in December 2012, being corrected by IPCA up to the base date of the Upside modeling.

5.       CONSIDERATIONS

DFPA analyzed the calculation model of the Added Value and Concession Bonus, which used the Marginal Cash Flow method.

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Regarding the Marginal Cash Flow methodology, it is understood that there is no obstacle to its use, however, one should pay attention to the implicit premise that the two flows have the same risk, which allows, as a consequence, the use of a one-time discount rate. This effectively materializes if the additional risks that the IPP regime incurs are being addressed in their cash flow. Accordingly, upon assessment of the final modeling, it should be verified if the risks are being properly treated, aiming at mitigating the additional risks of the new regime.

Additionally, as indicated, the method adopted considers that, in the periods in which both electricity trading systems (Quotas and IPP) occur simultaneously, the Opex and Capex values may be excluded from the calculation of the Marginal Cash Flow, as they were considered to be equal in the FCCFPIEand FCCFCotas. In their turn, the Sector Charges were calculated by reference to the difference of revenues between the Current Scenario and the Capitalization Scenario.

Regarding this point, DFPA warned Upside that after the end of the effectiveness of the current agreements (2042), the capex and the opex for the maintenance of the plants shall be considered. The post-2042 capex and opex values for maintenance were provided by the Generation Division – DG on October 1, 2021.

It is important to highlight that, on Upside’s report, the capex and opex values were amended as requested by DFPA, which is possible to verify in the latest version of the modeling provided on October 8, 2021.

Regarding the depreciation of these values, Upside’s final report states that: (i) the post-2042 values were depreciated on a straight-line basis to the rate of 2.486% per annum; (ii) due to the difficulties of uniting capex for purposes of starting the depreciation charge only after the effective completion of the fixed asset and its low impact on the cash flow, the simplification of applying depreciation to the entire fixed balance of the immediately preceding month since the beginning of the first costing with capex; and (iii) the remaining amounts of the balance of fixed assets were reversed by their historical residual book value, without application of monetary adjustments. In this regard, DFPA emphasizes that these considerations were not included in the modeling submitted on October 16, 2021.

Classification: Confidential

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Upside’s method originally, considered, for the periods during which the trading system of a plant is the same in both scenarios, i.e., the cases in which the plant is already under the IPP system, there is no Added Value, with the Marginal Cash Flow assuming null values. This applies to the Tucuruí, Curuá-Una, and Mascarenhas de Moraes plants. However, after meetings between Eletrobras and Upside, the latter volunteered to rectify this point, considering the difference of the guaranteed power output in the two agreements, given that, in the new concession agreements, the guaranteed power outputs shall be redefined (note that, in case there is no execution of new agreements, there shall have no change in the guaranteed power output). It is important to highlight that the modeling presented on October 8, 2021, contemplates these changes. In addition to the abovementioned points, some general assumptions, listed below, were analyzed by DFPA, as follows, and Upside took into account in its final report and the modeling provided on October 8, 2021, the considerations made by this Department:

 ·Base Date: Upside calculated the value of the concession bonus on the base date of January 2023, such date being corrected according to DFPA guidance for January 2022;
 ·Allocation of the guaranteed power output of the Sobradinho HPP and Itumbiara HPP: Upside initially did not consider the maintenance of the conditions and validity of contracts signed with free consumers (CL) as provided by Law No. 11,943/2009 and Law No. 13,182/2015, which according to ¶ 1, art. 4 of Law No. 14,182/2021 shall be complied with, with the Consultancy having allocated, both in the Current Scenario and in the Capitalization Scenario, one hundred percent (100%) of the guaranteed power output of the Sobradinho HPP under the IPP regime from January 2023 and different percentages from those recommended in Law No. 13,182/2015 were used for the Itumbiara HPP.

After the DFPA guidance, Upside considered in its report and modeling of October 8, 2021 the allocation of the guaranteed power output of the Sobradinho HPP and the Itumbiara HPP, as established in the Law:

 oCurrent Scenario:
SobradinhoIPPQuotas ItumbiaraIPPQuotas
2023 – Feb-203290%10% 2023 – Feb-203080%20%
Feb-2032 – Feb-203375%25% Feb-2030 – Feb-203167%33%
Feb-2033 – Feb-203460%40% Feb-2031 – Feb-203253%47%
Feb-2034 – Feb-203545%55% Feb-2032 – Feb-203340%60%
Feb-2035 – Feb-203630%70% Feb-2033 – Feb-203427%73%

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Feb-2036 – Feb-203715%85% Feb-2034 – Feb-203513%87%
Feb-2037 – Feb-20520%100% Feb-2035 – Feb-20500%100%
Feb-2052 – Feb-2059100%0% Feb-2050 – Feb-2057100%0%

 

 oCapitalization Scenario:
SobradinhoIPPQuotas ItumbiaraIPPQuotas
2023 – Feb-203290%10% 2023 – Feb-203080%20%
Feb-2032 – Feb-203375%25% Feb-2030 – Feb-203167%33%
Feb-2033 – Feb-203460%40% Feb-2031 – Feb-203253%47%
Feb-2034 – Feb-203545%55% Feb-2032 – Feb-203340%60%
Feb-2035 – Feb-203630%70% Feb-2033 – Feb-203427%73%
Feb-2036 – Feb-203715%85% Feb-2034 – Feb-203513%87%
Feb-2037 – Feb-2052100%0% Feb-2035 – Feb-2052100%0%

 

 

 ·Extension of concessions: The initial report did not consider the extension of the concession for the Tucuruí HPP due to the renegotiation of the hydrological risk. After meetings with DFPA, Upside amended its report in order to take into account the aforementioned extension, pursuant to REH ANEEL No. 2,932/2021, and consequently the modeling;
 ·Taxes: Upside rectified the report and the modeling, after annotations by DFPA, as it was considering the full amounts of Income Tax (IR) for the Chesf and Eletronorte plants that benefit from the tax benefit of Sudene and Sudam, with a 75% deduction of the IR;
 ·CDE payment flow: In Upside’s original report, it had considered only the CDE amount informed in the main section of art. 3 of CNPE Resolution No. 15/2021. Upon request of DFPA, Upside considered the present value of the CDE payment flow, as defined in Annex III of such Resolution. It is important to note that this point shall be contemplated by the modeling as of the analysis of the advantage;
 ·Contributions to sectorial funds: After being alerted by DFPA, Upside rectified, in the modeling, the projection that initially considered monthly contributions and now considers annual contributions in January, as established in CNPE Resolution No. 15/2021;

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 ·Rebates from the calculation of the concession bonus: DFPA, initially, had not identified in the modeling the rebates from the concession bonus to the expense related to the supply of electricity for the São Francisco River Integration Project (PISF) with North-Northeast Drainage Basins, as dealt with in ¶ 6, art. 6 of Law 14,182/2021. Upside informed that such rebate is being deducted from the energy of the Paulo Afonso Complex and detailed this in its report;
 ·Indemnity: In the beginning, Upside considered only the indemnification of the Tucuruí HPP. After being alerted by DFPA and considering the provisions of art. 2 of CNPE Resolution No. 15/2021, Upside corrected its report and modeling so as to consider indemnities for investments in the calculation of the concession bonus:
 onot yet amortized related to the Basic Projects of the HPPs listed in Annex I of CNPE Resolution No. 15/2021; and
 olinked to assignable assets of the HPPs listed in Annex I of CNPE Resolution No. 15/2021, not yet amortized or not depreciated, of concessions covered by Law No. 12/783/20213, extended or not, whose calculation criteria and procedures were defined through ANEEL Resolution No. 596/2013, pursuant to art. 2 of Decree No. 7,850/2012.

 

DFPA emphasized that, until the indemnification amounts are published by the Ministry of Mines and Energy – MME, the amounts published in Eletrobras’ Financial Statements of December 31, 2012, subject to inflation adjustment by the Extended National Consumer Price Index (IPCA), should be considered. The modeling of October 8, 2021, considered such amounts, but without the proper adjustment. DFPA requested these amounts to be adjusted until the base date of the studies, January 2022, which shall be subject to analysis in a further stage.

In general, both the methodology applied by Upside for calculating the Added Value and Concession Bonus and the model used are satisfactory.

In the due course, it should be noted that, although the amounts referring to the expenses mentioned in items “a,” “b,” and “c” of item II, art. 4º of Law No. 14,182/2021 (revitalization of water resources in the São Francisco and Parnaíba river basins, development of projects in the Legal Amazon and projects in the area of influence of the reservoirs of the Furnas hydro power plants) have been deducted from the calculation of the concession bonus, they shall be paid accordingly by Eletrobras for ten (10) years.

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Finally, it is highlighted that DFPA did not analyze the coherence and timeliness of the technical and regulatory assumptions used in the Upside model, nor the advantage of the business, which shall be assessed in the future. In such stage, the advantage of the execution of new concession agreements shall be analyzed, as well as the results considering the rate calculated by Upside (market insights) and the rate that shall be calculated by Eletrobras (internal insight) shall be presented.

 

________________________________

Marcos Barreto de Faria Pinho

________________________________

Leonardo Pereira Alves

________________________________

Flávia Xavier Cirilo de Sá

________________________________

Leonardo Michelsem M. de Barros

 

________________________________

Tiago Rinaldi Meyer

________________________________

Vinícius Brito da Fonseca

I agree:

_____________________________

Rodrigo Vilella Ruiz

 

 

 

 

 

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Eletrobras_marca_h_cor- aplicacao word 

 

01/14/2022

 

IT DFP-002/22

 

 

 

Technical Information Report

 

Classification: Confidential

TitleAnalysis of the Method used in the Model for Calculation of the Added Value and Concession Bonus under art. 4 of Law No. 14,182/2021, prepared by the Consulting Firm Upside Finanças Corporativas Ltda. – Upside.
SubjectCapitalization; Model; Method; Value Added; Concession; Hydro Power Plant.
Authors

Rodrigo Ruiz - DFP

Marcos Barreto de Faria Pinho – DFPA;

Flávia Xavier Cirilo de Sá – DFPA;

Leonardo Alves Pereira – DFPA;

Tiago Rinaldi Meyer – DFPA;

 

CompanyEletrobras, Upside.
CategoryTechnical Information Report.
KeywordsModel, Method, Capitalization, Value Added, Law No. 14,182/2021, Concession, Hydro Power Plant, Quota System, IPP, Eletrobras, Upside.

 

 

 

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Table of Contents

1.   Purpose3
2.   Disclaimer3
3.   Background3
4.   Methodology aplied by Upside10
4.1   Tax12
4.2   Investments Assumptions12
4.3   Operations Assumptions13
4.4   Amortization of added value14
4.5   Advantage Analysis14
4.6   Conession Bonus Rebate14
5.   Considerations15

 

 

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 1.PURPOSE

This Technical Information Report aims to present the analysis, from a strictly economic and financial point of view, of the methodology for calculating the Added Value and the Concession Bonus pursuant to arts. 4 and 5 of Law No. 14,182 of July 12, 2021 applied by Upside in its economic and financial model in order to calculate such amounts.

 2.Disclaimer

It is worth mentioning that the Economic and Financial Analysis Department – DFPA is not responsible for analyzing and validating the technical and regulatory assumptions used in the Upside model, which is the responsibility of the Generation Division, if applicable.

It is highlighted that this Technical Information Report shall analyze the calculation methodology presented by Upside, not entering into the merits of the results obtained and assumptions used.

Finally, It is important to highlight that the analysis performed by DFPA was based on the report “Economic and Financial Study of the Grant Amount” from Upside, from December 2021, and on the modeling entitled “GT_1.00_UHE Eletrobras 5 BASE CASE,” available on December 16, 2021.

 3.BACKGROUND

Provisional Measure No. 1,031/2021, which provided for the privatization of Eletrobras and other measures, was enacted on February 23, 2021. Such Provisional Measure, as amended, after passing the House of Representatives and the Federal Senate, was converted into Law No. 14,182 of July 12, 2021.

Law No. 14,182/2021 established that the privatization of Eletrobras is subject to the granting of new generation concessions for thirty (30) years in the Independent Power Producer (IPP) regime for the following plants:

 ·have been extended pursuant to art. 1 of Law No. 12,783 of January 11, 2013;
 ·are achieved by the provisions in item II of ¶ 2 of art. 22 of Law No. 11,943 of May 28, 2009;
 ·are achieved by the provisions of ¶ 3 of art. 10 of Law No. 13,182 of November 3, 2015;
 ·have been authorized by Concession Agreement No. 007/2004-Aneel-Eletronorte;

 

 

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 ·have been authorized by Concession Contract No. 004/2004-Aneel-Furnas, specifically for the Mascarenhas de Moraes HPP.

The granting of new generation concessions is conditioned to:

 ·payment by Eletrobras or its subsidiaries, as defined by the National Council for Energy Policy – CNPE, to the Energy Development Account (CDE), referred to in Law No. 10,438/2002 of April 26, 2002, corresponding to fifty percent (50%) of the added value to the concession by the new contracts;
 ·payment by Eletrobras or its subsidiaries of concession bonus of new concession agreements for electricity generation corresponding to fifty percent (50%) of the added value to the concession by the new contracts deducted from the following installments:
 a)expenses related to the revitalization of water resources in the São Francisco and Parnaíba river basins, pursuant to subparagraph an of item V of the main section of art. 3 of Law 14,182/2021;
 b)expenses related to the development of projects in the Legal Amazon with a view to structurally reducing energy generation costs and for the navigability of the Madeira River and the Tocantins River, as provided for in subparagraph b of item V of the main section of art. 3 of Law No. 14,182/2021;
 c)expenses related to projects in the area of influence of the reservoirs of the Furnas hydro power plants, whose concession agreements are affected by this Law, pursuant to paragraph c of item V of the main section of art. of Law No. 14,182/2021; and
 d)expenses to reimburse the economic value of the supply of electricity for the São Francisco River Integration Project (PISF) with North Northeast Drainage Basins, as dealt with in ¶ 6 of art. 6 of Law No. 14,182/2021;
 ·the alteration of the exploration regime for independent production, as provided by Law No. 9,074/1995, including the conditions for the extinction of grants, expropriation of facilities and indemnities;
 ·the assumption of hydrological risk management, renegotiation being prohibited as provided by Law No. 13,203/2015; and
 ·compliance with the provisions of item II of ¶ 2 of art. 22 of Law No. 11,943/2009 and ¶ 3 of art. 10 of Law No. 13,182/2015, preserving the established obligations, conditions, and validity of current electricity sales contracts referred to in the aforementioned articles.

 

 

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Law No. 14,182/2021 also defines the calculation of the Value Added to the concession, which shall consider:

 ·changing the exploitation regime from quota regimes to independent production;
 ·the deduction of credits related to reimbursement for verified fuel expenses, incurred until June 30, 2017, by the concessionaires that were controlled by Eletrobras and holders of the concessions referred to in art. 4-A of Law No. 12,111 of December 9, 2009, which have been proven, but not reimbursed, due to the requirements of economic and energy efficiency referred to in ¶ 12 of art. 3 of the aforementioned Law, including monetary restatements, in which case the compensation shall be limited to three billion and five hundred million Reais (BRL3,500,000,000.00); and
 ·the decontracting of the electricity contracted pursuant to art. 1 of Law No. 12,783/2013, to comply with the provisions of item III of the caput of art. 4 of Law 14,182/2021, gradually and uniformly, at least five (5) years and a maximum of ten (10) years.

While the Provisional Measure was in force, Eletrobras contracted, through electronic auction, Upside to support the decision of the top management of Eletrobras in defining the concession amount in the possible Company privatization process, establishing scenarios, evaluating the positive impacts and negative relating to Provisional Measure No. 1,031/2021 converted into Law No. 14,182/2021.

The Resolution of the National Council for Energy Policy – CNPE No. 15 of August 31, 2021, amended by CNPE No. 30 of December 21, 2021, established the Value Added by new concession agreements for electricity generation as provided by Law No. 14,182/2021, which is equal to BRL67,052,502,399.86, according to art. 1 of the aforementioned Resolution. From this amount, the amount of BRL2,906,498,547.37 shall be deducted, referring to the reimbursement for verified expenses with the purchase of fuel incurred until June 30, 2017 by the distributors controlled at the time by Eletrobras.

 

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The aforementioned Resolution also defined the amount to be paid as concession bonus of new concession agreements, which is equal to BRL 25,379,079,917.76 already deducted from the installments related to (i) the revitalization of water resources in the river basins São Francisco and the Parnaíba River; (ii) the development of projects in the Legal Amazon; (iii) the projects in the area of influence of the Furnas hydro power plants reservoirs; (iv) reimburse the economic value of the supply of electricity to the PISF; and (v) the indemnification of non-amortized or non-depreciated reversible assets of the hydro power plants subject to the granting of a new concession. The table below shows the bonus amount defined by the CNPE per subsidiary of Eletrobras:

 Bonificação
ChesfUHE cotistas9.808.762.666,22
UHE Sobradinho312.352.795,34
Total Chesf10.121.115.461,56
FurnasUHE cotistas5.621.402.955,30
UHE Itumbiara1.111.200.834,88
UHE M. Moraes930.102.923,80
Total Furnas7.662.706.713,98
EletronorteUHE cotista208.305.870,65
UHE Tucuruí e
UHE Curuá-Una
7.386.951.871,57
Total Eletronorte7.595.257.742,22
Total Eletrobras25.379.079.917,76

 

CNPE Resolution No. 15/2021 also established the amount to be paid to the CDE by Eletrobras at BRL32,073,001,926.43 , with an initial contribution of BRL5 billion within thirty (30) days of signing the new concession agreements. The remaining amount shall be paid as follows, in April of each year, for a period of 25 years.

 

CDEAté 30 dias da assinatura dos novos contratos de concessão20232024202520262027 -2047
ChesfUHE cotistas1.693.238.071,24237.629.744,54475.259.489,08712.889.233,62950.518.978,161.188.148.722,70
UHE Sobradinho186.024.418,372.624.415,825.248.831,637.873.247,4510.497.663,2613.122.079,08
Total Chesf1.879.262.489,61240.254.160,36480.508.320,71720.762.481,07961.016.641,421.201.270.801,78
FurnasUHE cotistas950.737.256,91132.903.649,81265.807.299,63398.710.949,44531.614.599,25664.518.249,07
UHE Itumbiara385.832.941,1915.262.074,4730.524.148,9445.786.223,4061.048.297,8776.310.372,34
UHE M. Moraes121.901.903,0117.091.986,9034.183.973,8051.275.960,7168.367.947,6185.459.934,51
Total Furnas1.458.472.101,11165.257.711,18330.515.422,37495.773.133,55661.030.844,73826.288.555,92
EletronorteUHE cotista25.291.188,683.871.082,747.742.165,4911.613.248,2315.484.330,9719.355.413,71
UHE Tucuruí e UHE Curuá-Una1.636.974.220,59165.245.582,11330.491.164,22495.736.746,33660.982.328,44826.227.910,55
Total Eletronorte1.662.265.409,27169.116.664,85338.233.329,71507.349.994,56676.466.659,41845.583.324,26
Total Eletrobras5.000.000.000,00574.628.536,391.149.257.072,781.723.885.609,172.298.514.145,572.873.142.681,96

 

 

 

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Also, according to the Resolution, all values shall be updated until the effective date of payment by the IPCA, having as base date January 1, 2022. Only the concession bonus shall be updated by Selic through the base date.

The CNPE resolution also established that: (i) the energy decontracting will be 20% per year, starting on January 1, 2023; and (ii) the energy sales contracts of UHE Itumbiara and UHE Sobradinho, signed with free consumers, pursuant to Law No. 13,182/2015, must be respected.

On August 26, 2021, DFPA received the first version of the model for calculating the concession amount prepared by Upside, which was forwarded by the Generation Division, responsible for hiring Upside. A second version of the template was forwarded to DFPA on September 14, 2021, together with a tutorial. It is important to note that the second version considered only the premises defined by CNPE, which were disclosed on August 31, 2021. We were provided with the third version of the modeling on September 30, 2021 and the fourth version on October 8, 2021. On October 16, 2021 another version of the Upside model was sent with the respective Economic and Financial Study Report – Calculation of the Concession Amount, which was used as the basis for the production of Technical Information Report IT-DFPA-017/21, in which several critical notes were made by the DFPA team. Subsequently, Upside sent a new version of the economic and financial model “GT_1000_UHE_Eletrobras_1.72v – Resultados” and the respective Economic and Financial Study Report “Resultados_Eletrobras_Calculo_de_Outorga_01.42v” on December 6, 2021 and December 4, 2021 respectively. Finally, on December 16, 2021 DFPA received the latest version of the financial modeling “GT_1.00_UHE_Eletrobras 5 BASE CASE” and the Report “Resultados_Eletrobras_Calculo_de_Outorga_ 01.48v.”

It is worth mentioning that Upside considered in the updated versions the points contained in IT-DFPA-017/2021. Such as:

 ·Consider the investment assumptions (capex and opex) for the maintenance of the plants provided by Eletrobras Generation Division;

 

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 ·Consider the remaining amounts of the balance of fixed assets, not depreciated, at the end of the analysis;
 ·Consider the difference in the guaranteed power output when the plant’s trading regime is the same in both scenarios, that is, cases where the plant is already under the IPP regime. This applies to the Tucuruí, Curuá-Una, and Mascarenhas de Moraes plants.

In addition to the abovementioned points, some general assumptions, listed below, were analyzed by DFPA and Upside considered in its final report and the most current modeling the considerations carried out by this Department:

 ·Base Date: Upside calculated the value of the concession bonus on the base date of January 2023, such date being corrected according to DFPA guidance for January 2022;
 ·Allocation of the guaranteed power output of the Sobradinho HPP and Itumbiara HPP: Upside initially did not consider the maintenance of the conditions and validity of contracts signed with free consumers (CL) as provided by Law No. 11,943/2009 and Law No. 13,182/2015, which according to ¶ 1, art. 4 of Law No. 14,182/2021 shall be complied with, with the Consultancy having allocated, both in the Current Scenario and in the Capitalization Scenario, one hundred percent (100%) of the guaranteed power output of the Sobradinho HPP under the IPP regime from January 2023 and different percentages from those recommended in Law No. 13,182/2015 were used for the Itumbiara HPP.

After the DFPA guidance, Upside considered in its report and modeling of October 8, 2021 the allocation of the guaranteed power output of the Sobradinho HPP and the Itumbiara HPP, as established in the Law:

 oCurrent Scenario:
SobradinhoIPPQuotas ItumbiaraIPPQuotas
2023 – 02/203290%10% 2023 – 02/203080%20%
02/2032 – 02/203375%25% 02/2030 – 02/203167%33%
02/2033 – 02/203460%40% 02/2031 – 02/203253%47%
02/2034 – 02/203545%55% 02/2032 – 02/203340%60%
02/2035 – 02/203630%70% 02/2033 – 02/203427%73%
02/2036 – 02/203715%85% 02/2034 – 02/203513%87%
02/2037 – 02/20520%100% 02/2035 – 02/20500%100%
02/2052 – 02/2059100%0% 02/2050 – 02/2057100%0%

 

 

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 oCapitalization Scenario:
SobradinhoIPPQuotas ItumbiaraIPPQuotas
2023 – 02/203290%10% 2023 – 02/203080%20%
02/2032 – 02/203375%25% 02/2030 – 02/203167%33%
02/2033 – 02/203460%40% 02/2031 – 02/203253%47%
02/2034 – 02/203545%55% 02/2032 – 02/203340%60%
02/2035 – 02/203630%70% 02/2033 – 02/203427%73%
02/2036 – 02/203715%85% 02/2034 – 02/203513%87%
02/2037 – 02/2052100%0% 02/2035 – 02/2052100%0%
 ·Extension of concessions: Upside’s initial report did not consider the extension of the concession for the Tucuruí HPP due to the renegotiation of the hydrological risk. After meetings with DFPA, Upside amended its report in order to take into account the aforementioned extension, pursuant to REH ANEEL No. 2,923/2021, and consequently the modeling;
 ·Taxes: Upside rectified the report and the modeling, after annotations by DFPA, as it was considering the full amounts of Income Tax (IR) for the Chesf and Eletronorte plants that benefit from the tax benefit of Sudene and Sudam, with a 75% deduction of the IR;
 ·CDE payment flow: Both the report and the Upside modeling do not consider the CDE payment flow, as defined in Annex III of CNPE Resolution No. 15/2021.
 ·Contributions to sectorial funds: After being alerted by DFPA, Upside rectified, in the modeling, the projection that initially considered monthly contributions and now considers annual contributions in January, as established in CNPE Resolution No. 15/2021;
 ·Rebates from the calculation of the concession bonus: DFPA, initially, had not identified in the modeling the rebates from the concession bonus to the expense related to the supply of electricity for the São Francisco River Integration Project (PISF) with North-Northeast Drainage Basins, as dealt with in ¶ 6, art. 6 of Law 14,182/2021. Upside informed that such rebate is being deducted from the energy of the Paulo Afonso Complex and detailed this in its report;
 ·Indemnity: In the beginning, Upside considered only the indemnification of the Tucuruí HPP. After being alerted by DFPA and considering the provisions of art. 2 of CNPE Resolution No. 15/2021, Upside corrected its report and modeling so as to consider indemnities for investments in the calculation of the concession bonus:

 

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 onot yet amortized related to the Basic Projects of the HPPs listed in Annex I of CNPE Resolution No. 15/2021; and
 olinked to assignable assets of the HPPs listed in Annex I of CNPE Resolution No. 15/2021, not yet amortized or not depreciated, of concessions covered by Law No. 12/783/20213, extended or not, whose calculation criteria and procedures were defined through ANEEL Resolution No. 596/2013, pursuant to art. 2 of Decree No. 7,850/2012.

 

 

 4.METHODOLOGY APPLIED BY Upside

To determine the added value and consequently the concession amount, Upside considered the Marginal Cash Flow methodology.

In this methodology, the Total Added Value of capitalization (𝑉𝐴𝑡𝑜𝑡𝑎𝑙) is equal to the aggregate individual Added Values (𝑉𝐴i) of each plant, with each plant deemed as a cash generating unit (CGU). So, you have:

The Added Value (VA), in turn, shall be calculated by the Discounted Cash Flow method using the difference of the net present value of the free cash flows for the firm (FCFF) of the Capitalization Scenario (𝐹𝐶𝐹𝐹IPP), the regime of IPP, and the Current Scenario (𝐹𝐶𝐹𝐹Quotas), quota system.

 

 

Where i= 1, 2, ..., 18, as there are eighteen plants that shall have a new concession grant under the IPP regime.

 

 

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Upside chose to use a single discount rate (WACC) for all cash generating units, in both scenarios, the Capitalization, and Quotas. Thus, it was assumed that the risks arising from the change in the energy trading regime in compliance with the new concession agreements shall be accounted for along the cash flow of the Capitalization Scenario, excluding the need to project two cash flows. Thus, several envelopes associated with different constraints were created, generating scenarios ordered in terms of Total Added Value, so that the greater their associated p-values, the more conservative the generated scenarios shall be. According to Upside, adopting a more conservative and smaller NPV would be equivalent to a bolder flow discounted at a higher discount rate.

The cash flow in the quota system and IPP was calculated as follows:

+ Annual Generation Revenue (RAG)

- Operating Expenses (Opex)

- Investments (Capex)

- Sector Charges

- Taxes

= FCFFquotas

+ Revenue from the Sale of Energy

- Operating Expenses (Opex)

 

- Investments (Capex)

- Short-Term Market Exposure (MCP)

- Sector Charges

- Taxes

= FCFFIPP

Upside considered that, in the periods in which both energy trading regimes (Quotas and IPP) occur concurrently, some assumptions may be disregarded from the Marginal Cash Flow assuming that there is no change in its forecast from the change in the trading regime applied. These assumptions are Operating Expenses (Opex), Investment (Capex), and Sector Charges.

For the period in which there are no convergence of flows, that is, periods in which there shall only be a cash flow determination for one of the two scenarios (Current Scenario or Capitalization Scenario), the complete cash flow is considered.

When the trading regime is the same between the two scenarios, as there is a difference in energy traded between the regimes, as the flow of the Capitalization Scenario is applied to the new guaranteed power output, there is Value Added, which causes the Marginal Cash Flow does not assume null values. This case applies to the Tucuruí, Curuá-Una, and Mascarenhas de Moraes plants.

 

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Thus, as the CGUs (Cash Generating Units) in the object of analysis is, in the Current Scenario, under specific energy trading regimes, and with different concession terms, the definition of the added value for each CGU is carried out separately.

For periods in which the Value Added is the difference between the Net Present Value of the Independent Energy Producer for the capitalization flow and the Net Present Value of the Independent Energy Producer of the current flow, the cash generation shall be deemed the marginal flow free from the firm resulting from the difference between the revised and current Guaranteed Power Output.

The analysis period for determining the Added Value is from January 2023 to December 2059. In other words, it is deemed that the new concession contracts shall be executed in December 2022 from the payment of the Grants, these contracts shall last until December 2052.

The additional period (from January 2053 to December 2059) refers to the extension of the concession of the Sobradinho and Itumbiara HPPs, which exceed the period of contracts signed in compliance with the Capitalization Scenario. These flows of the additional period, therefore, are considered in order to reduce the Concession amount.

 4.1TAXES

Regarding taxes, Upside adopted that the tax contribution is also marginal, that is, the taxable base shall be equal to the difference in operating income obtained from the difference between the Capitalization Scenario and the Current Scenario. This conclusion, therefore, excludes the need to include the discount of BRL20,000 per month for calculating the additional income tax, which is projected at the amount of 10% on a taxable basis.

The SUDENE/SUDAM benefit is taking into account the plants that hold the benefit, taking into account as free for the firm, that is, the 75% reduction in IRPJ is reported as in the marginal flow, directly impacting the calculation of the Total Added Value. The term of the benefits of 75% reduction of the IRPJ (Corporate Income Tax) is 10 years after the beginning of its enjoyment.

 

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 4.2INVESTMENT ASSUMPTIONS

Upside assumed that the investment assumptions should be treated in marginal terms, that is, the differences between the investments foreseen in the current concession agreements and after the new concession agreements.

For investments in the period of extension of the capitalization contract compared to the contract currently in force, data sent by the subsidiaries: CHESF, FURNAS, and ELETRONORTE were considered. According to official letters DE.E.017.2021, DG-01777-2021, CE-DO-0040/2021, CE-DE-027/2021, and CE-DO-083/2021.

The straight-line depreciation rate used was 2,486%, calculated by the projective weighted average expense for the period 2022 per asset according to the Impairment model of the Eletrobras group with an analysis dated September 2021. The effects of depreciation in the economic modeling are: (i) the tax savings caused by the reduction of the tax base on the marginal cash flow; and (ii) the calculation of the balance of fixed assets arising from these capitalizations at the end of the analysis horizon.

Due to the difficulties of uniting Capex for purposes of starting the depreciation charge only after the effective completion of the fixed asset and due to its low impact on the cash flow (equivalent to the product of the fixed balance by the monthly depreciation rate and the tax rate on the profit), the modeling considered the simplification of applying depreciation to the entire fixed balance of the immediately preceding month since the beginning of the first costing with Capex.

The remaining amounts of property, plant, and equipment at the end of the analysis were conservatively reversed by their historical residual book value, without application of monetary restatements.

 4.3OPERATING ASSUMPTIONS

The operating assumptions for the CGUs used in the model are: operating and administrative costs and expenses, sector charges, working capital, and technical losses of electricity generation.

For the operating costs of the period of extension of the capitalization contract compared to the contract currently in force, data sent by the subsidiaries: CHESF, FURNAS, and ELETRONORTE, according to official letters DE.E.017.2021, DG-01777-2021, CE -DO-0040/2021, CE-DE-027/2021, and CE-DO-083/2021 were considered. For the Tucuruí HPP, the impairment model with analysis date September 21 was considered. These costs, however, shall only be projected for the period in which there is no convergence or coexistence between the two flows (Capitalization Scenario and Current Scenario). For the convergence period, it is assumed that there is no change in costs and expenses.

 

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 4.4AMORTIZATION OF ADDED VALUE

The calculated Added Value shall be amortized over the term of the new concession agreement, that is, over 30 years from the base date.

The amortization of this amount shall affect the tax base calculated for the Marginal Cash Flow. By decreasing the tax base, the lower amount spent to pay taxes affects future cash flows, which in turn affects the calculated Added Value. Thus, the amount that shall be effectively paid for the grant shall be used for calculating the amortization.

 4.5ADVANTAGE ANALYSIS

After verifying the Total Added Value, based on the assumptions defined by Upside, and comparing with the results published by CNPE, an analysis of the advantage of the capitalization process shall be carried out, which shall be presented as results and awareness.

For the analysis of the advantage, the annual payments to the CDE shall be considered, as per Annex III of CNPE Resolution No. 15 of August 31, 2021, as well as the amounts that shall be paid to the funds (item II, article 4 of Law No. 14,182/2021), then the Marginal Flow shall be deducted from such annual payments, and the Total Added Value resulting from this analysis shall be the advantage of the implementation of Law 14,182 of July 2021 compared to the proposed base scenario.

 4.6concession bonus REBATES

The methodology considered the rebates from the granted bonus as established in item II, art. 4 of Law No. 14,182/2021, namely:

 

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 ·expenses related to the revitalization of water resources in the São Francisco and Parnaíba river basins;
 ·expenses related to the development of projects in the Amazon;
 ·expenses related to projects in the area of influence of the Furnas hydro power plants reservoirs;
 ·expenses to reimburse the economic value of the electricity supply for the São Francisco River Integration Project (PISF) with North Northeast Drainage Basins.

In addition to these deductions, the need for indemnification of non-depreciated or non-amortized assets was also considered, given that the concession of some plants, currently under the IPP regime, shall have its early termination. This amount was estimated in accordance with Eletrobras’ Complete Financial Statements of December 31, 2020. The indemnities related to the plants under the aegis of Law No. 12,783/2013, regulated by art. 10 of Decree No. 7,805/2012 and art. 2 of Decree No. 7,850/2012, have a balance recorded in December 2012, being corrected by IPCA up to the base date of the Upside modeling.

 

 5.ConsideraTIONS

DFPA (Economic and Financial Analysis Department) analyzed the Added Value and Concession Bonus calculation model, which used the Marginal Cash Flow methodology.

Regarding the Marginal Cash Flow methodology, it is understood that there is no obstacle to its use, however, one should pay attention to the implicit premise that the two flows have the same risk, which allows, as a consequence, the use of a one-time discount rate. This effectively materializes if the additional risks that the IPP regime incurs are being addressed in your cash flow. Thus, it should be noted whether the assumptions used by Upside are effectively giving adequate treatment to the additional risks of the new regime.

The concession of the Itumbiara HPP should have been extended on February 27, 2020 under the terms of Law No. 12,783/2013 and Law No. 13,182/2015, for thirty (30) years, which had not occurred.

 

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Furnas applied for an extension of the concession within the contractual term. ANEEL, through Dispatch No. 3,108/2020 published on November 10, 2020 recommended to MME the extension of the concession of the Itumbiara HPP under the terms of such laws.

It is important to highlight that Technical Note No. 756/2020-SCG/ANEEL of October 16, 2020, which supported ANEEL’s decision, defined the revenue value of the Itumbiara HPP as equal to BRL267 million, referenced to July 2020.

 

Source: Technical Note n° 756/2020-SCG/ANEEL of October 16, 2020

 

ANEEL’s technical staff, also through the aforementioned Technical Note, warned of the need to reassess the plant’s guaranteed power output amounts, in order to reflect the real parameters and operating conditions of the enterprise.

In this sense, the Ministry of Mines and Energy, through Ordinance No. 1,102/SPE/MME of December 8, 2021 defined the value of the guaranteed power output of the Itumbiara HPP at 948.9 averageMW, a value to be considered in the extension of the concession pursuant to Laws No. 12,783/2013 and No. 13,182/2015.

On December 13, 2021, the MME issued a Dispatch granting the request for extension of the concession of the Itumbiara HPP.

I – grant, pursuant to art. 1 of Law No. 12,783 of January 11, 2013 and of art. 10 of Law No. 13,182 of November 3, 2015 the Request for Extension of the Concession Term of the Hydro Power Plant named Itumbiara HPP, part of Concession Agreement No. 04/2004-ANEEL, for Electricity Generation, entered into between the Federal Government and Furnas Centrais Elétricas S.A., for thirty years, starting on February 27, 2020, ending on February 26, 2050; and

 

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II – summon, by Official Letter, the Concessionaire to sign the Fourth Amendment to the Concession Agreement No. 04/2004-ANEEL, for Electricity Generation, within two hundred and ten days, counted from the call, sending it a copy of said Addendum.

 

Therefore, the recent change made by the Granting Authority, both in the guaranteed power output and in the revenue of the Itumbiara HPP, shall impact the value added calculated by Upside for this HPP and the total value added, bringing changes in the concession amount to be paid and the capitalization of Eletrobras.

It is important to note that both the financial modeling and the Upside Report considered the extension of the concession of said HPP based on the guaranteed power output in force at the time of 964.9 MW average and on the estimated revenue of BRL513 million obtained from the impairment test of Furnas, which should be adjusted in light of the new information posted above.

In general, both the methodology applied by Upside for calculating the Added Value and Concession Bonus and the model used are satisfactory.

Finally, it is highlighted that DFPA continued to analyze the methodology for calculating the Added Value and the Concession Bonus and did not analyze the coherence and timeliness of the technical and regulatory assumptions used in the Upside model, nor the advantage of the business.

 

 

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________________________________

Marcos Barreto de Faria Pinho

________________________________

Leonardo Pereira Alves

 

________________________________

Flávia Xavier Cirilo de Sá

________________________________

 

________________________________

Tiago Rinaldi Meyer

________________________________

 

I agree:

_____________________________

Rodrigo Vilella Ruiz

 

 

 

 

 

 

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SIGNATURE

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: January 20, 2022

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRÁS
   
By:

/SElvira Baracuhy Cavalcanti Presta


 
 

Elvira Baracuhy Cavalcanti Presta

CFO and Investor Relations Officer

 

 

 

FORWARD-LOOKING STATEMENTS

 

This press release may contain forward-looking statements. These statements are statements that are not historical facts, and are based on management's current view and estimates offuture economic circumstances, industry conditions, company performance and financial results. The words "anticipates", "believes", "estimates", "expects", "plans" and similar expressions, as they relate to the company, are intended to identify forward-looking statements. Statements regarding the declaration or payment of dividends, the implementation of principal operating and financing strategies and capital expenditure plans, the direction of future operations and the factors or trends affecting financial condition, liquidity or results of operations are examples of forward-looking statements. Such statements reflect the current views of management and are subject to a number of risks and uncertainties. There is no guarantee that the expected events, trends or results will actually occur. The statements are based on many assumptions and factors, including general economic and market conditions, industry conditions, and operating factors. Any changes in such assumptions or factors could cause actual results to differ materially from current expectations.