Eletrobras in the World

Eletrobras in the World April, May e June de 2014 Nº 4 Year 2 News from Abroad Earnings in the 1st Quarter Investment through 2018 Alexandre Fillard Tonello, head of the Uruguay office, Saul Santana de Mendonça, head of operations in Lima, Peru, and Kleber Costa Correa, the lead officer in Panamá, are charged with the task of spearheading Eletrobras s campaign to expand the organization s activities to other countries...e+ Eletrobras posted earnings of R$ 986 million in the first quarter of 2014, 2,839% higher than the first quarter of 2013, when the company registered a R$ 36 million loss. The company also recorded a shortfall of R$ 5.5 million in the 4th quarter of last year, resulting in a year...e+ On March 28, the president of Eletrobras, José da Costa, unveiled the company s Business and Management Master Plan (Plano Diretor de Negócios e Gestão PDNG) for the period 2014-2018. According to the chief executive, the Plan provides for...e+ Eletrobras Win Belo Monte Transmission Line On March 7, a consortium composed of Eletrobras through its subsidiaries Eletrobras Furnas (24.5%) and Eletrobras Eletronorte (24.5%) and China s State Grid Brazil Holding (51%) were awarded a contract to operate the Belo Monte Hydroelectric Complex transmission system...e+ Eletrobras introduces Garabi-Panambi In a meeting at Piratini Palance, Rio Grande do Sul s statehouse, at which the state governor, Tarso Genro, was in attendance, Eletrobras s director of Power Generation, Valter Cardeal, reported to the mayors of localities within the area currently...e+

News from Abroad Eletrobras expats talk about current projects in Uruguay, Peru and Panama Kleber Costa Correa, head of the office in Panama, and Alexandre Fillard Tonello, head of the office in Uruguay, in front of the headquarters of Eletrobras Eletrosul before moving abroad A lexandre Fillard Tonello, head of the Uruguay office, Saul Santana de Mendonça, head of operations in Lima, Peru, and Kleber Costa Correa, the lead officer in Panamá, are charged with the task of spearheading Eletrobras s campaign to expand the organization s activities to other countries. Since November 14, 2013, when the three officers were appointed to head up Eletrobras s overseas offices, they have been immersed in the daily challenge of inhabiting and participating in foreign business environments. In Uruguay, where he took over as the financial director of the Specific Purpose Company Rouar S.A., a company acquired by Eletrobras, Tonello reports that the foundation work on the Artilleros wind farm, located 120 kilometers from Montevideo, is moving ahead and that the unit is scheduled to come on line in mid-september. Thirty-one wind towers have arrived in Montevideo and will be assembled in 50 days, says Tonello. Artilleros, a partnership between Eletrobras and Uruguay s State-owned UTE (each holds a 50% stake), will have 65.1 MW of installed capacity. The contracts have all been signed and 56% of the financing contracted explains Tonello.

The situation is Uruguay is similar to the Peruvian context, where, by virtue of the internationalization project put in place, which prioritizes the search for renewable energy sources, participation in a wind farm is also under study. We are looking into the possibility of building 60 MW and 80 MW units, says Saul Santana de Mendonça, head of the Lima office. At the same time, Eletrobras s office in Panama, headed by Kleber Costa Correa, is moving forward with an ambitious energy interconnection project designed to connect four countries in the northern corner of South America. The studies aimed at supporting Arco Norte (Northern Arch) project was signed in December with Italy s CESI, Argentina s Mercados Energéticos, and Brazil s PSR, which have already undertaken pre-feasibility studies with funding from the IDB. We are working with a 15 to 18 month timetable to complete the studies. We conducted a technical visit to Suriname at the beginning of the year to learn more about the country s energy landscape. Given that the hydrology regimes complement each other, the project will be highly advantageous for everyone involved, concludes Costa. While the core business continues to grow and the related projects move forward, Eletrobras s expat executives face the daily challenge of doing business in different countries, in a foreign language, with players from all corners of the globe. It s very different from Brazil. Here, we are a player looking to gain a foothold in the market, like so many others, notes Tonello. We work with two currencies, different economic indicators, banks, and financial agents. In addition, there are cultural differences; as small as the differences between Uruguay and Brazil may be, they end up having an influence. Mendonça emphasizes that the difficulties stemming from cultural differences are mitigated by the impressive internationalization of the business environment in Lima, a highly cosmopolitan capital city. Lima surprised me, with the wide variety of actors engaged in the market. This made adapting easier, he concludes. The multicultural setting is also dominant in Panamá City. Correa recounts that he arrived in the country at a time of exuberant economic effervescence and that it has been rewarding to witness firsthand society in full development. I think Panamá is in a similar place to Brazil, with the execution of large-scale projects. The country is growing at 7% per year; work is underway to widen the Panamá Canal; and the country s development is visible. Not to mention that Panamá has always been a hub, a place where all the leading utility companies in Latin America want to be because of its strategic location, says Correa. All of Eletrobras s overseas leaders agree that the mere experience of doing the business in a foreign setting will significantly benefit future executives assigned abroad. The rich experience we are incorporating centers on expertise, taking part in seminars with the representatives of various countries, learning how policy and business work. I ve participated in meetings with representatives from Spain, Venezuela, India, says Tonello. The expats who came before us helped to lay the groundwork, and now we are contributing to advance the effort to internationalize the company. We will return with experience, and, for the time we re here, feeding information to the holding company on our business prospecting activities, we re helping to develop our overseas expansion model, says Mendonça.

Earnings in the 1st Quarter The results are 2,839% superior to the figures registered at the first quarter last year Eletrobras posted earnings of R$ 986 million in the first quarter of 2014, 2,839% higher than the first quarter of 2013, when the company registered a R$ 36 million loss. The company also recorded a shortfall of R$ 5.5 million in the 4th quarter of last year, resulting in a year on year loss of R$ 6.3 billion for 2013. For its part, the company s consolidated Ebitda was R$ 1.688 billion. The primary factor for Eletrobras s earnings result was its subsidiary, Eletronorte, which posted a R$ 1.1 billion profit. Other important factors for the company s positive performance in the first quarter was the reversion of losses deriving from the company s investment in Cemat. Eletrobras created reserves for the outstanding amount owed by the Mato Grosso energy company, deemed of unlikely recovery while the unit was managed by Grupo Rede. As the company was sold with Energisa, Eletrobras reverted the provision in the amount of R$ 334 million. Another positive development for the organization s books was the reversion of onerous contracts mostly connected to energy sales from Jirau which helped boost earnings for the quarter by R$ 258 million. The most noteworthy event on the company s expenditure ledger involved the R$ 309 million set aside for the Employee Severance Plan (Plano de Incentivo ao Desligamento PID), instituted by Eletrobras Eletronuclear. Eletrobras s balance sheet was also affected in the 1st quarter of 2014 by the move to adjust the company s stake in Cesp to market value (2%) as the São Paulo energy company s shares were maintained below their historic value for some time, Eletrobras was forced to write off R$ 111 million. Also impacting the company was a R$ 119 million net negative variation in the exchange rate, due basically to energy sales from the Itaipu unit, which are tied to the dollar. Also of note, the company achieved a 43.7% reduction in Personnel, Materials, and Services (PMS) costs, from R$ 3.6 billion in the 4th quarter of 2013 to R$ 1.7 billion in the first three months of this year. Personnel costs accounted for the largest savings, falling 49.8%, primarily the product of a significant number of early departures through the Employee Severance Plan (PID) offered by the Eletrobras companies (not including Eletrobras Eletronuclear).

Investment through 2018 Plan estimates investments of R$ 60.8 billion for the five-year period On March 28, the president of Eletrobras, José da Costa, unveiled the company s Business and Management Master Plan (Plano Diretor de Negócios e Gestão PDNG) for the period 2014-2018. According to the chief executive, the Plan provides for R$ 60.8 billion in investments over five years in the company s three primary businesses: Power Generation R$ 35.4 billion; Power Transmission R$ 17.3 billion; and Power Distribution R$ 8.1 billion. The company s R$ 6.3 billion loss in fiscal year 2013 has not shaken the chief officer s confidence in Eletrobras s future. The balance sheet was affected by one-time events, among them the Employee Severance Plan (Plano de Incentivo ao Desligamento PID), says Costa. The PID accounted for R$ 1.7 billion in expenditures last year, although, according to Eletrobras s president, the liability will pay for itself in short order. The Plan will result in annual savings of R$ 1.2 billion on the balance sheet, said José da Costa, who believes this year s financial results will be very different than those posted in 2013. All of our analyses indicate that Eletrobras will turn a profit in 2014, he added. José da Costa stated that of the financial resources needed to fulfill PDNG-2014/2018, R$ 33.1 billion have been earmarked. The origin of the guaranteed financial resources are divided into R$ 14.2 billion secured from compensations received through advance concession renewals, R$ 13.5 billion from loans, and R$ 5.4 billion from the company cash flow. Eletrobras s president does not believe Standard & Poor s ratings cut, which is in line with the country s overall risk profile, will affect its ability to secure loans. Eletrobras is a solid company, a market leader in the Brazilian electric power sector, controlling 33% of the generating capacity and 52% of all transmission lines, and one of the world s 15 largest in sector. Given its portfolio, I do not believe we will have difficulty obtaining loans for our projects, argued the chief executive. It is estimated that U.S. $ 60.8 billion will be invested by 2018

In José da Costa s view, Eletrobras s scale is a decisive factor working in the organization s favor. As an example, he cites the participation of Furnas, an Eletrobras s subsidiary, in the consortium contracted to operate Três Irmãos, a plant held by Cesp in partnership with the Constantinopla Fund, the Eletrobras subsidiary was awarded the project contract, from which it will derive R$ 31.6 million over 30 years. The Três Irmãos project offers us an advantage because we have other plants in the region. We are making good use our scale, concludes Costa. According to José da Costa, the investments allocated to the PDNG will provide Eletrobras with an installed capacity of 56.4 GW in 2018, 13.4 GW (31.1%) more than in 2014, of which 12.8 GW have been contracted. We will then hold a 35% share in the country s power generation market, noted Costa. In the power transmission segment, Eletrobras expects to preserve its market share through expansion of its 57,300 kilometer transmission grid in 2014 to 76,500 kilometers in 2018 an additional 19,200 kilometers, of which 7,400 kilometers have been contracted. In the power distribution segment, the company s goal is to boost its customer base to 4.7 million, against 3.9 million in 2014 (a 20.5% increase). Restructuring of the Eletrobras System s business model will provide further cost savings, according to José da Costa. Since September, Eletrobras technicians have studied the issue, supported by the consulting services of Roland Berger, a German firm. The effort should be completed by the middle of the year, said the chief officer.

Eletrobras Win Belo Monte Transmission Line Investment is estimated in R$ 5 billion O n March 7, a consortium composed of Eletrobras through its subsidiaries Eletrobras Furnas (24.5%) and Eletrobras Eletronorte (24.5%) and China s State Grid Brazil Holding (51%) were awarded a contract to operate the Belo Monte Hydroelectric Complex transmission system, currently under construction on the Xingu River, Pará, through a power transmission auction held by the Brazilian Electric Energy Agency (Agência Nacional de Energia Elétrica ANEEL) on the BM&FBovespa in São Paulo. The winning bid for Lot AB, the sole block up for auction, which encompasses the construction, assembly, operation, and maintenance of the project, was R$ 434.647 million representing a 38% discount in relation to the Maximum Permitted Annual Earnings (Receita Anual Permitida Máxima) of R$ 701.04 million. The projected investment is R$ 5 billion. Eletrobras wins the Belo Monte transmission auction with Chinese partner, State Grid

Eletrobras s partnership with State Grid, the world s largest energy company in assets, has been a resounding success. The consortium s winning bid reveals that we remain highly competitive in the acquisition of energy generation and transmission assets. By bringing together the expertise of three large firms with recognized technological know-how in the construction, operation, maintenance, and development of projects, we were able to secure a sizable discount. The contract is a victory for the Eletrobras System, to the extent its financial requirements are met by the project, and, above all, Brazilian consumers, who will benefit from affordable utility rates, stressed president José da Costa. Josias Matos de Araujo, managing director of Eletrobras Eletronorte, said the outcome was of strategic importance to the company. The project involves pioneering technology for Brazil and will enable the transmission of energy generated at Belo Monte through the states of Pará, Tocantins, Minas Gerais and Goiás. The complex includes 2,092 kilometers of 800 kv lines. Eletronorte and Furnas will be at the forefront of the ± 800 kv continuous current extra-high voltage transmission system. To be sure, the project is replete with challenges, complex, but we believe in the technical capacity, the know-how of our teams, working in line with our partners at State Grid, which has extensive experience with this technology. For his part, Flávio Decat, president of Eletrobras Furnas, said the victory was highly significant for Furnas, which brings the expertise of the Itaipu Transmission System, to this point Brazil s only alternating current and continuous current scheme. It is an important project for meeting the growth in demand and enabling greater energy exchange between Brazil s various regions. The transmission system will make it possible to move energy from the Belo Monte Hydroelectric Complex to the National Interconnected System (Sistema Interligado Nacional SIN) through an ± 800 kv continuous current high-voltage system, a first for Brazil. The circuit is composed of two 500 kv alternating current converter stations. The first, with a conversion capacity of 4,000 MW, will be built at the Xingu substation (500 kv), located 17 kilometers from the plant, connecting to the Manaus-Tucuruí interconnection line; the second, with a conversion capacity of 3,850 MW, will be built in an area contiguous to the Estreito substation in Minas Gerais. The Xingu-Estreito transmission line (± 800 kv) will connect two states and run 2,092 kilometers, intersecting the states of Pará, Tocantins, Goiás, and Minas Gerais. The transmission system is scheduled to be completed in January 2018, while the respective concession term will run 30 years.

Eletrobras introduces Garabi-Panambi Cities participating in the project will leap forward in terms of quality of life In a meeting at Piratini Palance, Rio Grande do Sul s statehouse, at which the state governor, Tarso Genro, was in attendance, Eletrobras s director of Power Generation, Valter Cardeal, reported to the mayors of localities within the area currently under study for the construction of the Garabi and Panambi hydroelectric plants that the two power statios will be built only if they are sure to improve the lives of local inhabitants. According to Cardeal, all the cities involved in the project will see a significant bounce in their quality of life and infrastructure, similar to other Brazilian regions in which Eletrobras has undertaken hydroelectric projects. The technical and financial investment is feasible, yet, ultimately, it is the socio-environmental question that will determine whether the feasibility study will be carried forward, concluded Cardeal. Eletrobras s director was invited by the Council for Economic and Social Development of Rio Grande do Sul (Conselho de Desenvolvimento Econômico e Social do Rio Grande do Sul CDES-RS) to speak about the construction of the Garabi-Panambi Hydroelectric Complex, offering a detailed presentation and distributing material with comprehensive information on the project s current status. According to Cardeal, of greatest importance to Eletrobras is that a dialogue be fostered with the community, with a view to mitigating the associated environmental impacts and leveraging the economic and social benefits of the respective construction activities, which involve both the Brazilian and Argentine governments. I am aware of everyone s anxiety, but only now, in 2014, are the conditions ripe for undertaking the effort. We will listen to everyone, the state government, mayors, and the demands of the communities in the region affected by the project, emphasized Cardeal.

Governor Tarso Genro reported that a medium- and longterm process is in the process of being initiated, one with a significant impact on the region. The governor assured his audience that the state government will serve as an interlocutor for Eletrobras, in coordination with the target communities and local governments in the region. The complex According to Valter Cardeal, the Garabi-Panambi Hydroelectric Complex is projected to have a generating capacity of 2,200 MW, equally divided between Brazil and Argentina. The estimated cost of the project is US$ 5.2 billion. The completed inventory study forecasts the CEO José da Costa Carvalho Neto Interim Administrative Director Manoel Aguinaldo Guimarães Distribution Director Marcos Aurélio Madureira da Silva Power Generation Director Valter Luiz Cardeal de Souza Finance and Investor Relations Director Armando Casado Transmission Director José Antonio Muniz Regulation Director Josias Matos de Araujo Superintendent of Foreign Oprations Pedro Luiz de Oliveira Jatoba Chief Communication Officer Luiz Augusto P. A. Figueira creation of 12,500 jobs between the two units, 70% of which will be filled by local applicants. Garabi Dam will measure approximately 40 meters high by 3,200 meters long, while the Panambi Dam will stand about 40 meters high and run 1,000 meters in length. Eletrobras, in partnership with Argentina s Emprendimientos Energéticos Binacionales S.A. (Ebisa), is in the process of performing feasibility studies and preparing project designs for implementation of the enterprise on the Uruguay River, at the Missiones and Corrientes border crossing. In Rio Grande do Sul, the complex will be built in the municipalities of Garruchos and Alecrim. The exact location, however, will only be determined following geological studies at the respective sites. Based on the inventory studies the first step in the construction of a hydroelectric plant a decision was made to implement the Garabi dam approximately 6 kilometers downstream from Garruchos, while Panambi will be located about 9 kilometers upstream from the city of Porto Vera Cruz, in Brazil, and Panambi, in Argentina. On the Brazilian side, the Garabi reservoir will affect areas of the municipalities of Garruchos, Santo Antônio das Missões, São Nicolau, Pirapó, Roque Gonzales, Porto Vera Cruz, Porto Lucena and Porto Xavier. For its part, the Panambi reservoir will impact the municipalities of Alecrim, Doutor Maurício Cardoso, Novo Machado, Porto Mauá, Santo Cristo, Tucunduva, Tuparendi, Crissiumal, Derrubadas, Esperança do Sul, and Tiradentes do Sul. Construction work on the plants will only begin after approval of the feasibility studies, environmental impact studies, basic project designs, and issuance of the required environment licenses by the Brazilian and Argentine governments. Following approval, construction will extend for a period of five years. Produced by the Press and Communications Office