愛依斯電力 (AES) 2006 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the AES third quarter 2006 financial results conference call. [OPERATOR INSTRUCTIONS] Thank you. It is now my pleasure to turn the floor over to your host, Mr. Scott Cunningham. Sir, you may begin your conference.

Thanks and good morning, everyone. Joining me today as our principal speakers are Paul Hanrahan, President and Chief Executive Officer; Victoria Harker, Executive Vice President and Chief Financial Officer; and Andres Gluski, Executive Vice President and President, Latin America. The press release and the financial review presentation we'll refer to is available on our website at AES.com.

Included in the presentation our usual quarterly financial review, our updated 2006 financial guidance, and other supporting information together with definitions and reconciliations for all of the non-GAAP measures we will refer to today. Certain statements regarding our business operations and strategies may constitute forward-looking statements as defined by the SEC. Such statements are not historical facts, but are predictions about the future that inherently involve risks and uncertainties. These risks and uncertainties could cause our actual results to differ from those contained in the forward-looking statements. In addition, AES disclaims any obligation to update any forward-looking statement to reflect events or circumstances after the date here of. We urge investors to read our descriptions and discussions of these risks that are contained under item 1a risk factors in our 2005 Form 10-K as well as our other SEC filings. This morning, Victoria will review our third quarter performance and updated financial guidance. Andres is then going to discuss the successful restructuring of our Brazilian business. Paul then has some comments on the state of the business. Please turn to page 3 in the presentation and welcome Victoria.

Thanks, Scott, and good morning, everyone. We're pleased to report continued strong operating results this quarter with record revenues, gross margin, and cash flows from operating activities in both the third quarter and year to date. As had been previously discussed during the third quarter, we successfully completed the first step in a broad financial restructuring in Brazil by selling a portion of our interest on Eletropaulo, a regulated utility there. Proceeds from the share sale were used to fully repay $608 million in principal and accrued interest owed to the Brazilian National Development Bank in early October, eliminating the restriction on dividends paid to AES. The restructuring resulted in a $500 million after tax, non cash charge that impacted the third quarter. This charge is consistent with the preliminary range that we presented in our second quarter earnings call in early August.

Before I get into the details, I'd also like to remind you that prior period results to reflect our decision during the second quarter to sell two businesses, Indian Queens and Eden which are now reflected in discontinued operations. During the third quarter, revenue and gross margin showed strong growth driven by higher prices in all segments, as well as higher volume in our Contract Generation and Regulated Utilities segments, the consolidation of Itabo, a business in the Dominican Republic and favorable foreign currency rates in Brazil. During the quarter, revenue grew 14%. Specifically, 2% was attributable to favorable currency impacts and another 2% to the full consolidation of Itabo and the contribution of Buffalo Gap one. In addition, sales of excess and emission allowances totalled just $5 million, which was $3 million more than the third quarter of 2005. This is much lower than the $73 million of sales recorded in the first half of 2006, which were largely in the U.S. and above current price levels.

Gross margin increased 9% in the quarter, led by favorable demand, the contribution of Itabo, and foreign currency translation in Brazil. As a percentage of revenue, gross margin did decline 160 basis points, which was primarily due to higher fuel and maintenance costs at some businesses. Given that changes in fuel costs are typically pass-through to our customer, rising fuel costs are generally neutral to gross margin dollars, but due to results and decline in gross margin on a percentage basis.

As previously predicted, G&A costs increased $17 million in the quarter to $66 million, primarily due to a higher level of business development activity and increased corporate staffing, largely related to strengthening our finance infrastructure. Interest expense, net of interest income increased 5% in the quarter, reflecting higher mark to market impacts of interest rate derivatives, partially offset by lower debt balances. Year-to-date, nonrecourse debt at our subsidiaries has decreased by $47 million. Debt reduction at existing businesses is somewhat offset as new investment projects like those in Spain and Bulgaria draw down on project financing to fund their construction. Note that these figures do not yet reflect the October repayment of $568 million of U.S. dollar denominated debt principal in Brazil in connection with our restructuring there.

Let me take a moment now to talk about the impacts related to the Brasiliana holding company restructuring in the quarter. First, we recorded a $537 million loss on the sale of subsidiary stock as a result of the write-off of previously deferred currency translation losses. Second, we recognized an $18 million hedge loss related to repayment of holding company debt, which was recorded in foreign currency transaction losses. Third, we recognized the $121 million of income tax benefit related to Brazilian tax loss on the sale of Eletropaulo shares and the release of a valuation allowance against transgas deferred tax assets. Fourth, we recognized $66 million in additional minority interest expense. In total, the restructuring resulted in a $500 million after-tax non-cash charge to net income in the third quarter. AES's net economic ownership in Eletropaulo has reduced by roughly half, but given that the share of sale occurred late in the quarter, it had a negligible impact on the current earnings. Excluding the effects of the Brasiliana restructuring and a $20 million return to accrual adjustment due to the recent identification and correction of an error on the 2004 tax return, our effective tax rate was 36%, which is the same as it was in the third quarter last year.

Minority interest expense net of tax increased $115 million from the prior period to $212 million. Aside from the $66 million in incremental expense related to the Brasiliana restructuring, the increase is primarily due to higher after-tax earnings in Brazil. Weighted average shares outstanding were flat in the third quarter compared to the second quarter and were up slightly from the prior year period, primarily due to compensation-related share issuances. Diluted shares declined versus the share issuances. Diluted shares declined versus the prior year period because stock options and restricted stock did not have a dilutive impact in the current quarter.

In the presentation, you will find that we summarized the drivers of earnings from a quarter over quarter standpoint. As expected, the non-cash financial impacts related to the Brasiliana restructuring that I mentioned earlier have large impact on the comparisons. We reported a diluted loss from continuing operations per share of $0.54 versus diluted earnings per share of $0.32 in the third quarter of 2005. However, the current quarter results include $500 million in after-tax non-cash charges related to the restructuring, which had a $0.76 dilutive loss per share impact.

Setting aside the restructuring impact, the quarter over quarter numbers reflect strong operating results offset by higher income taxes related to the return to accrual adjustment, higher G&A expenses, and several accrual related adjustments such as increased reserves for labor contingencies in Brazil. Adjusted earnings per share were $0.34 and include $0.07 of earnings per share favorable impact primarily from the tax benefits of the Brasiliana restructuring. As a reminder, our adjusted EPS definition does not include asset sale impacts, but not impacts related to subsidiary refinancing. Adjusted earnings per share were $0.31 in the third quarter of 2005. Overall, we estimate that foreign currency translation had a $0.03 unfavorable impact on both diluted EPS from continuing operations and adjusted EPS. On a year-to-date basis, foreign currency translations have been neutral to earnings per share.

Here are some additional financial highlights from the third quarter. Net cash provided by operating activities increased 35% to $837 million. This was a result of higher earnings and settlement proceeds offset by higher income tax payments and pension contributions in Brazil, slightly lower working capital balances, and long-term compensation benefits. Depreciation and amortization expense from continuing operations decreased to $179 million versus $233 million in the prior year quarter due to a favorable depreciation adjustment at Eletropaulo. Free cash flow for the quarter increased 75% to $664 million to higher net cash from operating activities and lower maintenance capital expenditures. Maintenance capital expenditures decreased by $66 million to $173 million. This decline is mostly related to the timing of spending and we expect to continue to see higher trending in maintenance capital expenditure for the remainder of the year.

Growth capital expenditures were $306 million in the quarter. These expenditures principally relate to projects under construction, including our Maritza East 1 the project in Bulgaria, our Cartagena project in Spain, the expansion of our Texas wind generation project. Return on invested capital, an important metric for us as an evaluation of our internal investment returns increased 190 basis points to 10.6%, but with significantly impacted by the Brasiliana restructuring. Notably, excluding the restructuring impacts, ROIC for the quarter would have been 13.1%. Subsidiary cash distributions were on-track for the quarter at $352 million, bringing year-to-date distributions to $661 million, which is in-line with our overall target of $1 billion for the year. Third quarter distributions include the receipt of dividends from EDC, our regulated utility in Venezuela that were declared and paid locally in April of this year.

During the quarter, we continued our progress on our credit improvement goals at both the subsidiary level as well as at AES overall. There are a number of positive rating actions at our subsidiaries since our last call and I would like to highlight a few of them now. Moody's upgraded the senior secured debt of two Contract Generation businesses in the U.S., ironwood and red oak to be one. Fitch upgraded the issuer rating for our El Salvador businesses to investment grade in mid-August. Last month Fitch upgraded this year on senior unsecured ratings for Eletropaulo from B plus to BB minus. At the Parent, Moody's upgraded our senior secured bank facility o Ba1 in September. Our goal remains strong BB and BA ratings. To accomplish this, we target coverage ratios in the rake of 4.5 to 5.0 for recourse debt relative to subsidiary distributions and 2.0 to 2.5 for subsidiary distributions as a multiple of Parent interest expense. As of September 30, we performed well within these ratio targets at 4.7 times and 2.4 times respectively for the last 12 months.

Let's now turn to third quarter operating performance by business segment. Our Regulated Utilities continued to benefit from higher demand favorable foreign currency effects, as well as lower transmission costs at Eletropaulo with gross margin increasing 29% versus the prior year period and gross margin as a percentage of revenue rising by 360 basis points. During the quarter, we also recorded within gross margin an increase in labor claim contingencies at Eletropaulo due to a change in estimation of requirements there, which was offset by a correction to depreciation expense to conform with U.S. GAAP requirements. As a reminder, reported segment income before income taxes and minority interest includes a $550 million in charges related to the Brasiliana restructuring.

Contract generation revenues also increased 20% versus the prior-year period, primarily due to the consolidation of Itabo and higher volume in Pakistan and at our Hydro Electric businesses in Brazil. Segment gross margin was equal to the prior year as higher gross margin in our Europe and Africa region was offset by lower gross margin in our other region, primarily due to higher maintenance expenses. Lower segment income before income taxes and minority interest was primarily attributable to higher interest expense in Latin America and North America and increase in the legal contingency in North America and liquidated damages due to the delays in the construction of Cartagena in Spain.

Competitive Supply revenues grew 3%, primarily due to higher price in Argentina and New York. Gross margin and income before taxes and minority interest for the segment decreased largely due to outage-related costs in New York resulting from the flooding at Westover during a record storm in June. As a result of some very hard work by the team there, the Westover plant has already returned to service within the quarter, a truly remarkable effort by the team.

I'd now like to turn to our outlook for the remainder of 2006. As described in the presentation and the press release, we have increased our guidance for adjusted earnings per share from $1.01 to $1.09. Our updated adjusted EPS guidance includes an estimated $0.05 per share nonrecurring benefit from the Brasiliana restructuring. This includes the $0.07 per share favorable benefit I've already noted in the third quarter adjusted EPS results. The benefit is partially offset by an estimated $0.02 per share in the fourth quarter from premiums on some of the Brasiliana holding company debt prepayments that are only partially offset by the remaining tax benefits that will be recorded. These are not adjusted EPS factors under our definition, but the overall impact is large enough to note in both quarters.

Our guidance for diluted earnings per share from continuing operations is now $0.28 and includes the non-cash impacts related to the Brasiliana restructuring as well as expected costs associated with certain fourth quarter debt refinancing transactions. We also increased our guidance for both free cash flow from operation as well as free cash flow. Our updated earnings guidance reflects our expectation that fourth quarter earnings will be lower than the prior-year period. This is partly driven by non-cash impacts related to the Brasiliana restructuring as well as ongoing lower ownership in Eletropaulo as I previously noted.

In addition, there are several other factors that I've mentioned on previous quarterly calls that continues to be relevant drivers in the shifts that we're seeing in the timing of quarterly results. These include--the timing of emission sales, for reverence we recorded $15 million in sales in the fourth quarter of 2005; increased business development activity with a continued ramp throughout this year; shifts in the business mix, which impact both taxes and minority interest; tougher foreign currency comparisons, compared to last year; and several portfolio management transactions. As I mentioned last quarter, the Brasiliana restructuring will have a dilutive affect on recurring earnings.

We estimate that the restructuring would have had a $0.04 to $0.06 dilutive impact on the full-year 2006 results if it had occurred at the beginning of the year. This estimate is based on internal projections of full-year 2000 results of operations at Brasiliana and its subsidiaries. It also includes the estimated after-tax impact at the 34% statutory rate of the restructuring of debt held at Brasiliana and related holding companies. Further, this estimate does not reflect the potential for any incremental affects transaction gains or losses associated with the reduction of U.S. dollar debt levels at businesses for the Brazilian real is the currency. It's important for investors to recognize the dilutive impact in their future earnings estimates for this transaction.

I'd like to take a moment to update you on our expectations for environmental capital spending as well. We mentioned earlier this year that our guidance for 2006 maintenance capital expenditures of 800 to $900 million is above the long term trend line. Primarily due to higher spending on environmental projects. We estimate our capital spending projections for environmental projects in the range of 200 to $300 million for 2006 and in the range of 175 to $250 million for 2007.

Our environmental spending in North America is limited thanks to our early adoption of environmental controls at many of our North America plants. We typically see a positive economic return on investment in environmental projects as well. For example, we receive an environmental tracker as part of our tariff in Indian, and environmental projects are extending the lives of our plants in New York and Texas.

Finally, I would like to update you on our continued financial infrastructure development and material weakness remediation efforts. We've made significant progress in many key areas over the quarter. Indeed, over the last nine months, we have expanded our accounting and tax departments in our headquarter as well as businesses around the world to provide improved technical support and oversight of our global financial processes. We're also in the midst of performing skill set assessments of our finance personnel around the world to determine where additional resources may be needed. In addition, we have been and will continue to provide increased financial training to our businesses globally. For example, we have developed an in-depth finance training plan hosted for alliance with the Darden Business School at the University of Virginia and have held several sessions so far with 90 finance leaders from across our businesses. Additional sessions are planned for later this year and 2007.

In addition, significant progress has been made on the remediation of our material weaknesses, most notably in the areas of tax and accounting. We have also made significant strides in enhancing the controls around U.S. GAAP reporting in our Brazilian businesses. We continue to close steps on our remediation efforts and all of our identified weaknesses with some of them now in final stages of testing. This is being done with the support and engagement from operations as well as the finance areas across the businesses worldwide. This is detailed and time consuming work, but we will continue to improve our controls around the globe, identifying what has worked and where we can make further improvements to maintain the highest quality and transparency in our financial reporting. We take this commitment very seriously. I will now turn the call over to Andres Gluski who heads our Latin America region and will discuss the Brasiliana restructuring.

Thanks, Victoria, and good morning, everyone. Let me begin by providing some context for the restructuring of Brasiliana. Over the past two years, we have been working to optimize the capital structures of our businesses in Latin America by first extending maturities. Two, converting debt into local currencies. Three, refinancing debt with high interest rates or restricted covenant. And four, increasing the free flow of our Latin America businesses. All of these efforts have increased our financial flexibility in the region.

The Brasiliana restructuring represents a significant milestone in our Latin American strategy. It follows a number of other important transactions this year, such as the sale of shares in Gener, our Chilean business where we increased the free flow from 1% to 9%, thereby reducing the liquidity discount. The listing of EDC shares on the the exchange in Madrid, the offering of shares to EDC employees, and the debt refinancing of our businesses in Brazil, the Dominican Republic, and El Salvador. In total we have refinanced about $2.6 billion in debt at our Latin America subsidiaries since the end of 2004. The restructuring of Brasiliana consisted of several steps. I'll review them briefly, and they are also summarized in the appendix of the earnings call slide and will be reported in detail in our third quarter 10-Q.

The most important part of the restructuring was the repayment of the debt at the Brasiliana holding company with the Brazilian national development bank, BNDES. This U.S. dollar denominated debt had a cash sweep provision, which effectively precluded the payment of dividends from Brasiliana to AES Corp. The debt was paid in full, eliminating the limitation on dividends. The debt repayment was funded by the sale of a portion of Brasiliana's preferred shares of Eletropaulo. It was a successful offering with total proceeds of $612 million. This was the largest secondary offering to date of a Brazilian private sector utility, it was also one of the top ten secondary offerings in the history of Brazilian capital markets. The offering increased the public float from 18% to 56% and the share has traded well since the offering. We're also refinancing the remaining holding company debt to local currency. We will now have about R$800 million in holding company debt. We're in the process of completing several mergers of various intermediary holding companies, which will simplify the structure of the Brasiliana chain.

We're completing this restructuring with the support of our partners in Brasiliana, BNDES. Like the Sul restructuring completed earlier this year, this series of transactions is a result of working together to create value for all shareholders. To summarize, as a result of the Brasiliana restructuring, we have reduced debt by approximately $600 million, extended the average life of the debt in Brasiliana -- in the Brasiliana chain to 3.4 years and increased the proportion of local currency debt to 98%. We continue to control and consolidate all of the businesses on the Brasiliana. Now we will have have the ability to dividend cash to AES Corp. from Brazil. AES [Chilte] currently pays dividends and we are hopeful that Eletropaulo will begin to pay dividends next year. Financial flexibility has increased significantly for the whole Latin American region since the end of 2004. The average life on our Latin America debt has increased from four years to almost five years. The proportion of local currency debt has increased from 43% to 59% and the percentage of fixed rate debt has increased from 42% to 47%. Dollar debt credit ratings have improved across the board and AES MS and others are now investment grade. We will continue to evaluate opportunities to optimize the capital structures of our businesses, but with the completion of the Brasiliana restructuring, much of the heavy lifting is done. I will now turn the call over to Paul Hanrahan.

Thank you, Andres. I would first like to introduce John McLaren who is joining us for the first time on this call. John has just assumed the role as the regional President for the Europe CIS and Africa regions. John's a ten-year veteran with AES and has led our generation businesses in that region in the past. We're pleased to have him in that role. I would like to provide an update in two areas.

The first would be the portfolio management activities and second would be the developments in our growth investments. First, portfolio management. This is when we're either selling or buying all or part of businesses in our portfolio. Andres has covered the activities in Brazil where we sold shares to buy back debt. He also touched on our activities in Chile and Venezuela where we sold more shares to broaden the distribution of the equity and also to increase liquidity of those shares. Last quarter we talked about two pending sales.

The first was Indian Queens which is a 140 megawatt peaking plant which is really used for stability of the U.K. system. International Power -- we completed the sale of that to International Power for $58 million, which resulted in proceeds to AES of $28 million. The other pending sale is Eden, a distribution company in Argentina and that sale is still pending the approval of the government.

But in addition, portfolio management isn't just selling assets, it's buying assets, particularly where we see undervalued assets and we would like to buy more where we only own a partial interest. A good example of that is the Itabo plant in the Dominican Republic. It's a plant where we added an additional 25% to our ownership which gave us control of that facility. That allowed us to take some steps to restructure the operations which we felt were important. It's resulted in increased availabilities. We're seeing good improvements in the plant financials as a result of that. You're likely going to see more of that portfolio management going forward, particularly when we can buy or sell a partial interest in different companies or assets.

Let me talk about -- give you an update on the growth investments. First, on the construction -- of our construction portfolio. The first one is Cartagena. It's a 1200 megawatt combined cycle plant uses LNG in self-center long-term contracts. As Victoria mentioned, this plant has experienced delays predominantly with the civil works associated with drilling through a tunnel for the cooling water supply. We currently have the first unit of three in commercial operations. The others are in start-up but expected to be operational by year end.

The second project in construction is Los Vientos, this is a 120 megawatt peaker in Chile which can burn either diesel or gas. This is an important plant because it provides reliability to the system where they've had problems due to gas shortages coming from Argentina. We expect this one to be in commercial operations by year end and that will increase our generating capacity in Chile to roughly 2500 megawatts when that's in operation.

Let me talk a little bit about new development. Victoria had mentioned that our BD expenditures are up. Just a couple general themes I would like to highlight in this call. The first is, as we mentioned before, we're finding greenfield investments more attractive than acquisitions. There's currently lots of capital chasing acquisitions and that's been driving returns down. We're still looking at some acquisitions selectively, but we're putting more emphasis in terms of our development efforts on greenfield. Greenfield is providing more attractive returns, predominantly because it's harder -- it's much more difficult to permit the plants, develop those plants, construct the plants, then and operate. And we're seeing that that's where we're going to be putting a lot more effort in terms of our development spending going forward.

The second theme is that much of the market demand is for coal-based electricity. The economics of coal depend a lot on the cost of greenhouse gas offsets where those are applicable and that's really a nice fit with our alternative energy business where we've gotten into the business effectively of producing greenhouse gas offsets. That allows us to, in some cases, offer hedged products we can not only offer coal fired electricity but also the offsets that would come with it. It's our belief based on what we think the production costs are of greenhouse gas offsets that coal will be competitive going forward.

Give you a couple examples of some of our greenfield developments that are coal-based. We've mentioned in the past 184 megawatt coal and biomass fired facility in British Columbia and we have this past quarter signed a power purchase agreement for that. We're also developing coal projects in India. These are mine mouth projects and Vietnam where we have another mine mouth project, 1200 megawatts. We also just last week bid for two coal projects in Chile, which would come with long-term contracts. We expect to get the results of those sometime in the next several weeks. These kinds of projects really play to our strengths in terms of developing, constructing, and operating coal plants.

A third theme is that we're also placing more emphasis on our alternative energy effort. I talked about the greenhouse gas offset projects, but also wind we're seeing some good progress. A platform expansion for us was to expand our Buffalo Gap 1 project with the 233 megawatt expansion in Texas where we're selling the output under a ten-year PPA. We're also expanding our development activity and we just announced we're investing in some development efforts in both France and Bulgaria. When you look at that now where we are, the total -- our total Pipeline of worldwide for wind development is roughly 3,000 megawatts. So we're encouraged by the opportunities we see in greenfield projects. They're complicated and take time, primarily due to the permitting efforts that go along with those, but we do think the economics are attractive. You'll probably see more efforts in this going forward and we'll keep you posted and updated on the progress we see in these various projects. I would like to begin the Q&A portion of the call and I'll turn it over to the Operator at this point to conduct the Q&A.

[OPERATOR INSTRUCTIONS] Our first question is coming from Craig Shere with Calyon Securities. Please go ahead.

Hi, good quarter. Two questions. One is, third quarter obviously even without the $0.07 one-time items was pretty good, but it seems like for fourth quarter, you're effectively guiding lower than the Street. I know you all kind of commented about a number of general potential drivers, but can you add any more color on what could be going on fourth quarter? And also, I think that you all had said that you intended before the end of the year to update your long-term guidance which originally was through 2008 and which was originally a five-year plan. Are you still planning to update that guidance before the end of the year and should we expect an update through '08, or something that's a new five-year plan.

This is Victoria, Craig. I'll go ahead and address the fourth versus third quarter in terms of the current forecast that we're looking at. And we've touched upon this generally as well, but the largest impact at this point appears to be tax. We've had some previous quarters that were low giving our catch-up in the last quarter and for implementations and legislative changes. We're expecting a more normalized tax rate for the fourth quarter, which would be higher than what we had seen in the previous two quarters. And we also expect in the fourth quarter, some of the changes in the business mix and the timing of some of our distributions from subsidiaries to drive a higher tax expense in the quarter. So both of those contribute to a higher tax rate. And we're also presuming just based on what we're starting to see, some increased, in terms of the FX head winds. We saw the beginnings of that in the third quarter and we don't see anything to change that outlook from a fourth quarter perspective. And we also mentioned we've got a couple of different refinancings that we're looking at in various parts of the business. So that will have some expense in the fourth quarter associated assuming we go forward.

Can you put any range on the refinancing expenses, because a lot of us might take that out?

This is Scott, Craig. I think we've made very clear that the transgas transaction as Andres has discussed does have some affects. That part of it you can imply from our guidance, is a couple of pennies. If there's any other subsidiaries financing, that would also be a consideration, but we wouldn't want to comment specifically on that.

Thanks, Scott.

Craig, too, this is Paul, to address your second question, on long-term guidance, we're this week going into our 2007/2008 budget meetings and we'll review those with the Board in December. What we're going to do is just push that off until probably our first quarter call. We thought we'd do it by the end of year, but we think it is going to make more sense to wait until then and we'll give a five-year look ahead at that point in time.

When you say first quarter call, you mean the early '07 call that would be for fourth quarter '06?

Yes, that's correct. I think that's in the February time frame.

And the five-year plan will take us to the end of the decade?

Yes.

Great. Thanks a lot.

Thank you. Our next question is coming from Brian Chin with Citigroup. Please go ahead.

Hi. On the Latin American results, we've had some other companies comment on how hydrology out in Brazil was a little bit difficult. Did that impact your numbers to a positive degree in the third quarter?

Basically we've had favorable hydrology in the third quarter in Brazil, but we do have significant dams so it's a question of water management.

When you say favorable hydrology, you mean hydrological conditions were low, so your fossil fuel fired plants fired up a little bit more favorably? Is that sort of the right way to think about that?

No, no, the opposite. We had water in the dams and were able to run our plants.

Great. Then one question for you, Paul, when you commented on coal acquisitions, or coal greenfield projects, have you felt any sort of strategic value in terms of doing any sort of coal acquisitions directly?

In the past, we've actually acquired some coal mines. We did this once in Hungary because it gave us a reliable supply for our plants there. Same thing in Kazakhstan, we've done that. We've just recently opened up a coal mine in Oklahoma. When you look at the fact that many of these projects are going to be mine mouth projects, we do think it's an interesting area. We think when you combine them, you actually get some synergies because you're able to not just have a power plant where you've got to rely on a single supplier, but you can put the two together. India is a case where now the government will allow you to open up a coal mine in addition to build a power plant. They've lumped those two together because they see some benefits for that also. That's an area that's interesting to us, for sure.

I guess I take from your comments that basically it's a mine mouth per plan that we should be thinking about and not any other sort of large scale coal mine type acquisitions?

We just never talk about, as a rule, don't talk about any M&A activity, but I do think we see the benefits of, particularly where we have power plants to be involved in the coal side of things.

Great. Thank you.

Thank you. Our next question is coming from Clark Orsky from KDP Investments. Please go ahead.

Can you comment on the situation at EDC perhaps?

Sure, I'll have Andres Gluski, who's actually from Venezuela. He's probably the best one to comment on that.

Sure. The supreme court has decided to review a case which dates back to the year 2000 in which it was alleged that the purchase of shares of EDC, a controlling interest by AES required congressional approval. We have, at the time, complied with all the regulations of the Venezuelan government, Securities and Exchange Commission, and also of the electric sector, and we believe we have meritorious elements to defend ourselves in this case. I really don't have much to add to what Julian Nebreda, the President of EDC said last week.

Okay. And -- I'm sorry?

I think that's basically -- that was the -- we think we've got strong defenses to these claims.

Okay. I just wanted to ask another question, as far as Brazil goes, do you want to venture a guess at what kind of distributions you might see coming out of there over time?

I believe in the past, AES has given a certain range of what these distributions could be. As a public company, you know what it's been distributing and the hope is electric filing will begin next year to pay distributions as well. What I would refer you to is the distributions that [Chape] has paid. The last full year was about $250 million for all shareholders and we own approximately about 26% of Chape.

Okay. And the refinancing transactions you mentioned in the release, is that primarily at subsidiaries?

The refinancing transactions -- the bulk of the refinancing transaction was the Brasiliana debt with BNDES. The sale of the Eletropaulo preferred shares was by Brasiliana, so actually, we own half of it roughly and BNDES owns half of it. There are a series of mergers within the Brasiliana chain and refinancing that will occur there as well. The net-net result will be a much simplified chain, more tax efficient chain and with about 800 million of debt at Brasiliana. We have done a number of refinancings, Eletropaulo et cetera which are in that $2.6 billion figure that I gave in my talk.

One thing I'll also add, this is Paul. In terms of refinancings, we've got a number of people looking at how we can refinance our activities both at the subsidiaries and at the corporate levels to be more efficient where we see opportunities, that's something I think you'll see continuing where we see opportunities like that.

Thank you.

Thank you. Our next question is coming from [Annie Tsao] from Alliance Bernstein. Please go ahead.

Good morning. I just want to clarify some numbers. First, you mention your CapEx, the growth is 800, 900 million and also the maintenance 800, 900 million, right?

Correct.

And then within the maintenance, there will be environmental CapEx, which is 200 to $300 million; is that correct or is that separate?

Yes.

All right. Paul, when you mentioned the greenfield project looks more attractive than the acquisition, do you mean mostly out of the U.S. or is including the U.S. as well?

I think it's -- I include the U.S. in that also. We're seeing concerns about new capacity and particularly if it's going to be coal fired capacity, the lead times to get those permitted are much longer. We think there are some good opportunities here in the U.S. in addition to other parts of the world where there is going to be additions to capacity. The big issue for people I think has been the volatility in gas prices around the world and what that means for the competitiveness of coal. Again, as I mentioned, it really will depend on what do you think the cost of any kind of greenhouse gas limitations might be. Any kind of cap and trade programs, the cost of those. Even when you factor those in, it does appear that coal is going to be competitive. Our experience has been based on our investments in this area where we're producing greenhouse gas offsets, is that they can be produced fairly economically. Particularly when you can do it under a cap and trade program. That's where I think it's probably going to make coal more competitive when, in those places where they are going to require greenhouse gas offsets and we think we'll be able to put things together that are competitive and at the same time meet the requirements where there are issues associated with the greenhouse gases being restricted in some way or form.

Thank you.

[OPERATOR INSTRUCTIONS] I'm showing no further questions. I would like to turn the call back over to management.

Thanks. This is Scott Cunningham. For those of you on the call, just so you're aware, there is an EEI Utilities sector conference today and tomorrow, so I expect the number of people who would normally be participating on the call are involved in meetings there, so for those people that have not had an opportunity to listen to the call live, certainly, Kelly Huntington and I will be available this afternoon for any follow-up questions. Any media inquiries should be directed to Robin Penn, Vice President of Communications. Thanks, everyone, for participating on the call today. Bye-bye.