愛依斯電力 (AES) 2007 Q1 法說會逐字稿

Good day. My name is Jackie and I will be your conference operator today. At this time, I would like to welcome everyone to the AES first quarter 2007 financial results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. (OPERATOR INSTRUCTIONS).

It is now my pleasure to turn the floor over to your host, Ahmed Pasha, Vice President of Investor Relations. Sir, you may begin your conference.

Good morning and welcome to our 2007 first quarter earnings conference call. Joining me today are principal speakers Paul Hanrahan, President and CEO and Victoria Harker, Executive Vice President and Chief Financial Officer. Victoria will provide an overview of our performance for the first quarter.

Let me remind you that our comments today will include forward-looking statements within the meanings of the Private Securities Litigation Reform Act of 1995. Any comments made herein about future operating results or other future events are forward-looking statements under the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from such forward-looking statements. A discussion of factors that could cause actual results or events to [recur] is contained in the filings and in the investor section of our web site, www.AES.com. And now I would like to turn the call over to Victoria.

Thanks, Ahmed, and good morning everyone.

During the first quarter, we delivered strong results while continuing to successfully pursue our growth strategy. Before I dive into the details of our financials, let me touch upon a few milestones achieved during the quarter.

In February, we acquired [Sister Cay] and TEP facilities in Mexico through a negotiated transaction. These two power plants added funded 460 megawatts of fully contracted generating capacity to our portfolio. We also announced a partnership with GE Energy Financial Services during the quarter to develop greenhouse gas emission offsets in the United States. Through this partnership, we intend to produce then 10 million greenhouse gas offsets annually by 2010. Because we do not anticipate selling these offsets on the European market, they will be fully incremental to the target of 26 million offsets per year we presented in our long-term guidance just a few weeks ago.

At this juncture, I would also like to remind you that our first results reflect the agreement with PDVSA for the sale of our Venezuelan subsidiary, EDC, which closed on May 16th. As a result, EDC has been classified in discontinued operations for the first quarter.

As anticipated and previously disclosed, we recognized a non-cash impairment charge of $638 million, or $0.94 impact on diluted loss per share net of taxes. First quarter and prior period results also reflect our decision to sell two businesses, Central Valley and Eden, which are now also reflected in discontinued operations.

So let's now begin with an overview of the quarter's financials. During the first quarter, revenue grew 11%. Specifically, 2% of that growth was attributable to favorable foreign currency rates in Brazil and Europe. After adjusting for foreign currency, the remaining 9% increase was primarily due to higher prices and volumes in the generation businesses in Latin America and from the newly acquired TEG and TEP plants in Mexico as well as the consolidation of Itabo in the Dominican Republic into our results.

On a year-over-year basis, importer gross margins decreased by $49 million to $868 million. This decrease was primarily due to a reduction in emissions sales of $39 million when compared to the first quarter of 2006. As we mentioned in the fourth quarter earnings call, we do not anticipate emissions sales to be a driver of earnings in 2007 as we have largely brought our portfolio now into balance. To remind you, our most significant emission sales during 2006 were in the first and second quarters which included $47 million and $26 million on emission sales, respectively. First quarter gross margin when compared to last year was also negatively impacted by a $32 million cost recovery through a tariff increase at Eletropaulo during the first quarter of 2006 that did not recur in 2007. Excluding the impacts of these first quarter 2006 events, our gross margin in first quarter 2007 increased by $22 million.

As previously forecasted, G&A cost increased by $28 million when compared to last year to $85 million primarily due to increased staffing associated with the strengthening of our financial infrastructure worldwide. The costs associated with the recent resentment and higher levels of business development activity. Year-over-year importer interest expense net of interest income increased by $18 million largely driven by lower interest income due to a onetime benefit in first quarter 2006 and the acquisition of debt at TEG and TEP, offset by the positive impacts of several debt retirements and refinancings we accomplished in 2006. Net other expense decreased by $57 million from the prior period primarily due to the absence of charges of $62 million related to debt retirements at the parent and at our El Salvador subsidiary that occurred in first quarter 2006. This is partially offset by a $22 million reserve related to an adverse court ruling in our subsidiary in Kazakhstan regarding pricing disputes. We do not agree with this decision and will pursue an appeal through the appropriate label channels.

In addition, gains on sales of investments decreased by $86 million compared to first quarter 2006 due to the recognition of a onetime gain of $87 million in the first quarter of 2006 related to the sale of Kingston as we have previously discussed. Of note, in the first quarter of 2007, we recognized a non-cash impairment of $35 million in our investments in the marketable equity securities of AgCert, a United Kingdom-based producer of emission reduction credits. This appears on our income statement in other nonoperating expense. We own less than 10% of the outstanding shares of AgCert, and under FAS-115, this form of investment is recorded at fair value based on the traded stock price. During the first quarter of 2007, AgCert's stock price declined and we concluded that the decrease met the FAS-115 criteria for being other than temporary. We recorded the fair value adjustment through this impairment charge accordingly.

Our effective tax rate for the quarter was 41% versus 31% last year. This difference in tax rate was driven in part by a change in tax law in China and unfavorable impacts related to the impairment of AgCert and the charge related to the court ruling in Kazakhstan. This compares negatively to the favorable impact to the tax rate due to a tax-free gain in Kingston recorded during the first quarter of 2006. These impacts were partially offset by a tax benefit through the release of a valuation allowance at one of our subsidiaries in Argentina.

That said, we believe our full-year guidance for an effective tax rate in the range of the low to mid 30s is on target.

As expected, minority interest expense net of tax increased by $60 million to $141 million primarily driven by our lower ownership, Eletropaulo in Brazil. Weighted average shares outstanding were 677 million for the quarter versus 688 million in first quarter 2006. This decrease is primarily due to the fact that our trust preferred securities were dilutive in first quarter 2006 but were not dilutive in first quarter 2007. In the online presentation, you will find that we have summarized the drivers of earnings for both quarter-over-quarter and consecutive quarters in 2006 and 2007. We believe that this will help provide greater clarity surrounding our ongoing operating results.

Now I will first discuss quarterly year-over-year comparisons. The largest drivers of quarterly year-over-year results were gross margin and changes in taxes and minority interest. The previously discussed lower emission sales and cost recoveries cut gross margin by $0.10. This was partially offset by a positive impact on gross margin of $0.03 primarily due to favorable foreign currency, the contribution of the new businesses acquired and improved operating performance at various subsidiaries. Negative changes in first quarter taxes and minority interest cause an impact of $0.08. The non-cash impairment charge in AgCert impacted GAAP comparisons by $0.05 while the charge in Kazakhstan caused an impact of $0.03. Higher G&A cost and higher interest expense also impacted the quarterly results as previously discussed. We reported diluted earnings from continuing operations per share of $0.18 compared to $0.49 in the first quarter of 2006. Adjusted earnings per share, which exclude the gain on the sale of Kingston in 2006 and the impairment of AgCert in 2007, were $0.24 for the first quarter 2007 and $0.39 for the first quarter 2006.

For the consecutive quarter comparisons, higher gross margin and lower G&A expense were the main drivers of the increase in earnings per diluted share from $0.03 in fourth quarter 2006 to $0.18 in first quarter 2007. Gross margin improvements contributed about $0.08, reflecting higher spot prices at our Eastern Energy business in New York and higher volumes at IPL in Indiana, as well as planned outages at several of our plants in fourth quarter 2006. Decreased development and G&A expense contributed a positive impact of $0.06. Higher income taxes and minority interest as well as the previously discussed AgCert impairment and Kazakhstan charge offset gains by $0.16 on a GAAP basis.

Now here are some additional financial highlights from the first quarter. Net cash from operating activities increased by 14% to $581 million primarily due to reductions in net working capital, decreases in tax payments and contributions from our new businesses. Depreciation and amortization expense from continuing operations was $290 million for the quarter. Total capital expenditures were $488 million with $276 million of this spent on growth capital expenditures related to projects under construction, principally Maritza and Buffalo Gap 2. Maintenance CapEx was $204 million for the first quarter with $38 million of that related to environmental projects primarily at IPL in Indiana and Kilroot in Northern Ireland. As a reminder, we do receive a positive economic return on the environmental projects at IPL and costs at Kilroot are on a pass-through basis.

Free cash flow increased by $68 million to $377 million, driven by the increase in cash from operations. Subsidiary cash distributions to the parent were also on track for the quarter at $137 million, consistent with the expected timing of distributions and in line with our overall target of $1.1 billion for the full year. I am happy to report that we did receive a dividend payment from EDC of $97 million on May 31. Parent liquidity remains strong at $878 million.

So let's now turn to some first-quarter segment highlights. In our Latin American Generation businesses, higher prices in Chile and Argentina as well as the consolidation of Itabo in the Dominican Republic led to an increase in revenues. However, gross margins decreased in comparison to first quarter 2006 primarily driven by higher prices of purchased electricity and higher fuel costs at our Uruguaiana plant in Brazil and higher fuel costs at Gener in Chile. In our Latin American Utility, revenues increased primarily due to favorable current foreign currency rates in Brazil and higher tariff rates, Eletropaulo and Sul in Brazil, and at our utilities in El Salvador. Gross margins decreased principally due to the previously discussed $32 million of tariff recoveries that occurred in first quarter 2006 comparatively. Excluding the impacts of these nonrecurring cost recoveries, gross margins would have improved by [$30] million in the quarter.

In our North American segment, generation revenues increased primarily due to the contribution from the TEG and TEP businesses in Mexico and higher spot prices in New York. Gross margin decreased mainly driven by a decrease of $30 million in emissions sales at Eastern Energy in New York. Excluding the impacts of lower emission sales, our gross margins would have increased by $10 million in North American generation. At IPL, our North American utility, revenues increased due to higher sales volumes which contributed to the increase in gross margin. Gross margin also benefited from lower maintenance costs compared to the same quarter of 2006.

In our Europe and Africa segment, which includes CIS, generation revenues increased principally due to higher prices and volumes in Kazakhstan and Hungary as well as favorable foreign currency trend. Gross margins also increased primarily driven by the increase in prices and volumes partially offset by lower emission sales at Bohemia and the Czech Republic.

Europe and Africa utility revenues increased mainly as a result of higher tariff rates in the Ukraine and favorable foreign currency trends. Gross margins decreased primarily due to higher fuel costs at SONEL caused by lower rainfall in Cameroon and a derivative mark-to-market loss as well as higher fixed costs, including increased staffing levels and higher depreciation also at SONEL.

In our Asia segment, which includes the Middle East, higher dispatch in Pakistan drove the increase in revenues while gross margins decreased primarily due to lower volumes in Sri Lanka and higher planned maintenance costs in Oman.

In summary, our financial outlook for 2007 has not changed from the guidance we shared with you on our year-end call, however the $0.05 non-cash impairment charge for AgCert was not included in our GAAP EPS estimate at the time. This charge does not affect our adjusted EPS guidance for continuing operations but does serve to lower GAAP EPS. We're confident in our ongoing business operations and I hope that the additional detail by segment provides greater clarity on that for you as well.

I would now like to turn the call over to Paul who will make a couple of brief comments.

Good morning. Since we spoke just a few weeks ago, I only have a couple of comments. First, the performance for the quarter as Victoria mentioned was in line with our expectations and is consistent with our guidance for the year with respect to adjusted EPS. The second point is our focus for the Company continues to be on building a strong finance organization and also building a long-term growth pipeline and we're also building the organization to allow us to build that pipeline.

The third point I would like to make is, many of you saw that we recently announced the addition of Jonathan Coles to our executive team and Jonathan will become the President of our Latin American region. Jonathan comes from a business school called [IASO], which is in Caracas. It's one of the top ranked business schools in Latin America, and he was the president of that institution. He also prior to that served as chairman of [Mavesa], which is one of the largest Venezuelan agricultural conglomerates, and also served as the Minister of Agriculture in Venezuela. We're very pleased that he's joining us. It's unusual for us to bring in an outsider at that level, but Jonathan served with Andres Gluski and me on the EDC Board of Directors. We invited him to join us on that board. I think both Andres and I were very impressed with his thinking, his strategic perspective and we think he's going to be a strong addition to the team, particularly as we think about growing our business globally going forward. So we're pleased to have him.

At this point, I will go ahead and open it up for questions. We will keep this Q&A session a little bit shorter, try and end by about 9:15 just because we have had a call fairly recently. Jackie, if you would open up the call for questions, please.

(OPERATOR INSTRUCTIONS) Greg Orrill, Lehman Brothers.

Thanks very much. I was wondering if you might be able to touch on, even though you just held a call a few weeks ago, any other updates or milestones on the growth strategy, including your thoughts on Brazil. And then also, just your thoughts on potential monetization opportunities around the world?

Yes, I think really, there's not a whole that's new with respect to the growth pipeline. We have various projects that are in construction and in development. That hasn't changed all that markedly. But they continue to look strong and we still feel pretty confident about those. The one business line which is I think I'm encouraged about is in Turkey. We have formed this joint venture with a company in Turkey called IC Energy and they're looking at a number of hydro projects. They've actually had some success recently with respect to bids. So that's actually looking slightly better than we thought it would.

Our project in Jordan is under construction and going well. Also, we are -- later this morning, I will be meeting with the Vietnamese government about our project in Vietnam. This is a 1200 MW coal project in the northern part of Vietnam. So I think we have a number of projects that are going well. The ones in India are doing well.

With respect to Brazil, I think the one item there that's of note is that the -- as we mentioned on the last call, our partner for Brasiliana, which owns the majority of our assets in Brazil, is the Brazilian National Development Bank. They are going to be selling their share, which is roughly half of Brasiliana towards the end of the year. We are going to be bidding on purchasing that share and we think it's going to be attractive. It's also one where it's set up where we get the right of first refusal to acquire -- to match any offers that do come in as well as having some tag-along rights if we were to decide to sell those assets. But as Andres Gluski mentioned in the last call, we continue to like those assets and feel good about Brazil and want to maintain a presence there.

In terms of monetization opportunities, we are constantly looking at places where we can monetize. We are doing that now with some of our small biomass facilities and we are looking around the globe to see where we may want to monetize some assets where we don't see any strong strategic rationale for maintaining in those locations. They're either selling it entirely or possibly selling down part of them. So we continue to see that as we look around and with strong asset prices, we think that's going to make sense.

Thanks a lot.

Elizabeth Parrella, Merrill Lynch.

Thank you. Could you update us on your AgriVerde JV? Has that been affected at all by the performance of AgCert's stock price? And maybe you can just give us an update on the status of that.

Yes, I think the -- I will ask Bill Luraschi if he would comment on that, but I think our alternative energy business broadly speaking is looking at renewables as a way to put capacity in place that's going to have low-carbon intensity and the climate change -- part of the alternative energy business was really set up to find ways to effectively reduce carbon emissions going into the environment. So broadly speaking, it doesn't affect it because we have a number of different avenues that we're pursuing along those lines. But maybe I will just turn it over to Bill and he could talk a little bit about how that business is going and his vision for how it's proceeding.

Thanks Paul. Elizabeth, to answer your first question, no, the buildout of AgriVerde is not affected at all by the accounting decision we took. That was more what we viewed as the required treatment under GAAP given what their stock price had done. Their contribution to AgriVerde is more on the technical side and some of the permitting side and that has been going well.

In general, not focusing just on AgriVerde but all of our climate change buildout, we're at the point, some of the milestones that we have hit so far this year is we're about at 3.5 million tons of CER production under aggregation contracts. The way to think about aggregation contracts is the same as a pipeline. So those are rights we have to build out facilities, but we're still in the more detailed technical and feasibility analysis to decide which ones we'll actually go forward with. We have finished our first construction of a biodigester in Malaysia with two more about go into construction for -- in association with palm oil mills. This year, we had our first sales of CERs, about 100,000 tons that were not produced by us, but we have entered into a few purchase arrangements. So that had a positive origin associated with it. And so I would think in general, the international efforts together with the U.S. efforts we started this year with GE, we are very optimistic about the continued buildout.

And the $26 million on the guidance is all in Europe, and those $10 million that you mentioned today with GE is all in the U.S., and that's incremental to the $26 million?

It is. Well you say Europe; though, just to be clear, the target market for the sales is Europe. The activities that generate the CER come from really the developing world. So it's primarily Asia and South America and a little bit of Eastern Europe is in our plans.

And then if I could just switch gears, could you remind us -- I think this come up on the last call -- but could you remind us Victoria what your -- is the dividends that have been declared by Eletropaulo at Tiete for this year, what your share of those is, how much have you received? Maybe you could give us a handle on what you expect for the full year 2007 from those two businesses.

Yes, [Victoria], we expect -- I think we've received about $(inaudible) million.

And we've received about half of that so far, about $21 million so far to date.

Yes, and we expect about $50 million I think for this year.

Okay, I'm sorry -- can you go through those numbers once again? You've got Eletropaulo and Tiete combined?

Yes, and they've declare $42 million, of which we've received about half so far.

And you expect a total of about $50 million versus the $42 million declared already?

Yes.

Thank you.

Mitchell Spiegel, Credit Suisse.

Two quick questions. What was D&A for first quarter '06? And second question -- for [fiscal] '06 in your 10-K, was EDC included in reported (technical difficulty)?

No.

D&A for first quarter '06 -- is that what your question was?

Yes.

206, compared to 219 for first quarter '07.

And then the restated 10-K, EDC was already pulled out of reported results?

In the first -- no. We're in the process of doing that now.

Fiscal '06, okay. Can you give us ballpark what the revenues and EBITDA were for EDC in fiscal '06?

Revenues from -- you said EDC? It's about $600 million.

And the EBITDA?

We don't disclose EBITDA.

The EBITDA margin for EDC, though, if you were to look at their publicly filed statements, it probably runs about for EBITDA margins 40%

Yes, I think what we disclose is the gross margin, and the gross margin we disclosed was roughly $200 million from EDC in 2006.

The gross margin was $200 million?

Yes.

Okay, thank you.

Brian Chin, Citigroup.

Just going back to AgCert and AgriVerde very quickly, what component of the guidance out in '011 related to AgCert or AgriVerde?

I will let Bill comment on that specifically, but it's really more of the underlying technology and learning from them that -- with an underpinning to our plan, they were not a specific component of the 2011 guidance.

Actually if I can rephrase my question. How much of the guidance -- how much earnings contribution did you expect from AgCert and AgriVerde in the '011 guidance?

Let me try to answer that, and I don't think we're breaking it out that way, Brian, but AgCert with the charge we recorded here relates to the equity ownership of AgCert and nothing was associated in our guidance with anything relating to that equity ownership interest. AgriVerde, which is a joint venture with those guys where we are the majority partner does have contribution. We are not breaking out the specific contribution between AgriVerde and our overall climate change business, but we see nothing changing from what we have said a month ago in our guidance. We feel confident in all of those targets.

And can you also give a little bit of color on why is it that AgCert's stock price took a large impairment in the first quarter?

They're a public company. I don't think it's appropriate for us to speculate as to why their investor base has resulted in the stock price performance they've had.

Just to clarify, this is Victoria. We didn't have a lot of interpretational room on this. We've from an accounting perspective given the FAS-115 requirements. There's a fairly short time frame in which we have to evaluate the impact to the stock price because we have a low ownership percentage. So we didn't have the opportunity to kind of watch and see what happens. We didn't make a decision as a permanent change, it's just not temporary because it has been more than a few months. So we're not making any postulations as to what's going to happen with AgCert as much as we had to take a charge relative to our particular holdings from an equity perspective. And we'll continue to obviously monitor that, but there wasn't any thought relative to what the future for the Company in particular was.

Right.

Let me just add one item to that. That is, one thing I think Bill and I are very cognizant, is we're learning from what AgCert is learning. We're getting some of the benefit of that. So as we embark on these various projects, we have taken what they have learned through the process into account. And as we gave our guidance in terms of how many times we think we can produce and what kind of earnings comes out of that, that was all factored into that. But it has really gotten us to focus on, and we knew this going in, that these are different types of projects. They're are small projects unlike a large capital-intensive project, you're doing many smaller projects, so you have a different model in terms of how you manage the construction to make sure these things get online. So it's something we're paying a lot of attention to. And just, if you are looking -- just to go back to the last call we had, we've provided a chart which gave you the earnings contributions from alternative energy, which may be helpful to you. That was, roughly if you eyeball it from the chart we gave you, it's probably in the range of $0.25 to $0.30 I think that will be coming from alternative energy by 2011.

But that did include our (inaudible) portfolio as well.

Great, thank you very much.

Lasan Johong, RBC Capital Markets.

I'm sorry if this question has been asked already, but I was temporarily cut off of the call. I was wondering if you could give us an update on some of the various projects, if there are any changes, particularly [Ocean Cay] and what's going on in Argentina.

Okay. Ocean Cay, no changes there. I think we're still -- we still think it's a good project, we're still optimistic that we will eventually get the final approval so we need to go forward. But we are not -- we've really gotten out of the business of predicting what that's going to happen. We think it should happen at some point. There's a need for the gas in Florida and we think there's -- this is a project that should happen.

Argentina, I'm not aware of anything particularly going on in Argentina that I can comment on. The businesses there are doing reasonably well, particularly for the coal-fired plant. There's a need for coal-fired generating capacity because there is not as much gas to go around. So the coal plant is being run quite a bit. Our hydro plant, Alicura, is also because of the gas shortages, is very much in demand. So from that perspective, it's going well, but no other updates other than that, unless there's something specific you wanted to ask about.

Well, I was thinking about exactly that. Natural has shortages [are abound] in that and there's a lot of deals going on between Bolivia, Chile, Argentina. I'm wondering how that is all panning out and affecting you guys down there.

Lasan, this is Bill Luraschi (MULTIPLE SPEAKERS).

On this question about -- I think it has affected us in Chile to some extent. We still continue, when there are gas shortages in Chile as a result of the cutoffs, we have to run higher-priced fuel. But by and large, it has had a slightly negative effect on Gener for the quarter, but nothing that is of major concern. Bill could make another comment on what's going on with Ocean Cay.

There's a new government now that was elected last month. As the cabinet has been filled out, I will be going down in a week or so to meet with the ministers responsible for the LNG businesses and we may know more at that time about the pace that we can expect the Bahamian government to act on. There have been several questions on milestones. I had mentioned just a few in the wind area and we announced this, but we did acquire about 200 MW from GE for some U.S. wind businesses. We're also about to complete the construction of our Buffalo Gap 2 project in Texas, so that will bring our total to about 1000 MW in operation. And we're now starting to take our renewable generation business, but specifically wind, to other parts of the world where we have an embedded infrastructure that can help us develop those projects, and so China is a target market for us at this point. Some of the businesses will now start to converge the way we have planned, which is wind projects in China and other developing countries will also generate carbon credits in addition to the electricity revenues. So we're starting to see good progress in those areas.

And then on Chile, there's been some time about putting an LNG plant in Chile. I'm wondering why AES is not participating in that, or is there something that prohibits you from doing so?

We look to participating [in that]. The government here requests that we consider the participation in that project. I think -- people have looked at the cost of LNG and compared it to the cost of other generation. Our decision was, given that we felt that the best economic alternative was to in fact look at coal-fired generation in hydro plants. We are actually -- we have two coal plants in construction right now and are developing a hydro plant. So, we see that there is a need for non-Argentine gas based projects, but we've elected to probably go down to a slightly different path and the entities that will most benefit from having gas brought in will probably be investing in that not because the LNG project in itself is going to be particularly economic, but it might be a way to fuel other gas-based projects in the region. So I think you're going to see Chile go forward with all of those different alternatives just because they want to have more diversity in their fuel mix.

Victoria, just quick question on the free cash flow. Shortly and long-term, what do you plan to do with that?

We are -- the position has not changed much in the last three of four weeks. Since we had our last call, we are obviously looking at the EDC proceeds in particular relative to our current investment pipeline. We have some also discussions in terms of what we have previously discussed and we had to wit upon our filings to complete some of the unsecured debt refinancing. So we are continuing to go down both paths, and now that we have our filings come current, we have a little bit more latitude in terms of proceedings.

Sergio Tomashiro, Banco [Ital].

Good morning, everyone. I have two quick questions related to Brazil. You mentioned that you like the country and you want to remain (inaudible) operations there. Therefore, I'm assuming that you will exercise the first refusal option for -- [to be in that state]. Therefore, my question is -- what would be the next steps? Do you want to just have one listed company, a very large one Brasiliana, and instead of having Eletropaulo and AES (inaudible), are minority shareholders migrating to Brasiliana? And the second question is related to the dividends. You mentioned the $50 million. Therefore, are you assuming a [nine-point] payout rate for both companies, for AES and also for Eletropaulo?

Good morning Sergio. Let me just first comment on -- in terms of what we do with Brasiliana if we were to exercise our right of first refusal, and it's going to depend. It's also very likely we would team up with other parties if we were going to exercise that right of first refusal or compete for that business. So exactly how much money would come from AES, we're not sure. And then, in terms of -- right now you have public companies TSA and Eletropaulo, I'm not sure what is the right way to go forward. I think we look at all those different options that you just highlighted, but we clearly cannot make any decisions until we get further along in terms of understanding what we have there. And of course we do everything that we're required to do in Brazil as part of that process. With respect to the dividends, Ahmed or Victoria, I'm not quite sure what the answer to that question is. (MULTIPLE SPEAKERS) you repeat the question of dividends just to make sure we understand that? Sergio, are you still there?

I'm sorry. Yes. I was just asking (inaudible) for the last couple of years, the [entity] has been paying 95% of the net income in the form of dividend -- if the same policy were to be applied to Eletropaulo.

I think at this point, we probably cannot comment on that because it has to be a decision really at the Eletropaulo level, and I just don't know enough about it to say whether we would change that or not. We could probably cover that more and we will try and get more information on that if we can give you that.

Okay, thank you.

Annie Tsao, AllianceBernstein.

Good morning. I have several questions. You mentioned, Victoria, the effective tax rate this quarter is 41%, right, versus last year's 31%?

Yes.

And what do you have for your tax rate in your model going forward in your guidance?

We have continued, and we're not revising that expectation at this point, as a mid of low 30s as an effective tax rate. I think as I mentioned in my discussion points, we had a number of items that boosted this particular quarter relative to the comparable quarter for last year. Last year was also preternaturally low given a couple of catch-up items relative to the [sub-part S] legislation that we detailed at the time. So we're not at this point concerned that the full-year effective tax rate of low to mid-30s is impacted by that, but the quarterly timing is different than we saw last year.

And a second question has to do with your dividends. You mentioned $50 million this year from (inaudible). Can you break it out -- how much is from AES Tiete?

I think it -- because we get the dividends from Brasiliana.

We get those dividends from Brasiliana, not from [TSA] or Eletropaulo.

And also, can you update me on your informal investigation status?

Why don't I have Brian Miller, our General Counsel, just give you the latest on that.

Sure. It's pretty much status quo from when we disclosed it on the 10-K. We do continue to talk to the SEC and we continue to provide them additional documents. After we filed the restatement with 10-K, we produce documents concerning that restatement. But there is no change in that.

What kind of things would change that would lead from informal investigation to formal investigation?

That would depend upon the SEC. As a Company, we continue to believe that the restatement was errors and there was no intentional wrongdoing involved. If the SEC disagrees with us at some point, they may change it to a formal investigation. But to date, we have fully cooperated with them and we will continue to fully cooperate to explain the issues.

Thank you.

Operator, Jackie, why don't we take one more question, then we can wrap it up for the day.

Brian Russo, Ladenburg Thalmann.

Good morning. I apologize if you addressed this issue earlier, I was a little late to the call. Could you just update us real quickly on the development pipeline? There's been some news flow maybe out of the local press regarding some expansion maybe at the Kilroot station in Ireland, and then maybe a quick update on the India development projects.

We talked about some of the other development. There's really not much of an update in terms of big changes, but just on the two you mentioned. Northern Ireland, we are looking at putting in another gas-fired plant in Northern Ireland. We think that's -- on our existing site there, the Kilroot site, and we think that looks fairly promising to put that in place. It has to go through various environmental permitting processes, but we think those are just a matter of time. But a project could be built there.

With respect to India, we have two projects we're looking at there. One is a follow-on project to our first project in Orissa. It's a coal-fired project that could be anywhere from 500 MW to 1000 MW. This would actually involve linking it with a coal mine, which we think will be important with respect to the security of supply for that plant. And again, it's building on a plant that we're already working with a partner called Orissa Power Generation Company. We would just move over and start building that second one. So we think that's encouraging. The initial steps to acquire the coal mine are there.

The second project is a 1000 MW project in a new state called Chhattisgarh, which is also in a cold-producing region of India. This is one where we have not yet secured the rights to mining coal. We are very interested if we can get those rights to mine to coal to build a project there. We think it's a good region and a good place to export from. And in that project, we'd essentially be selling power -- the new electricity law in India allows you to sell power directly to end-users utilizing the grid. So you bypass some of the problems you've had in India in the past with the creditworthiness of some of the state electricity boards, so there's a way to effectively work around that.

But if you look at the projects in India, the ones that have had problems have been very high-priced projects with high-priced gas or LNG. When you have a coal project, its price is actually low and you have high demand for electricity in India obviously, but it's also low-cost electricity. We're finding that we have not had payment problems, we have not had issues with respect to getting paid like some of the other high-priced projects have been having. So we're pretty encouraged by that, and I think of the two we're likely to see at least one go forward.

And is this a project that you would expect to be commercially available by 2011?

I don't think we've built that into the numbers for 2011. It would probably be in construction by 2011, but it's probably not commercially operating by 2011.

Okay, thank you very much.

This is Ahmed Pasha. I want to say thank you very much for everyone for participating today. If you have any follow-up questions, please don't hesitate to contact either Hilary Maxson or myself in investor relations. For any media concerns, please contact Robin Pence in our Communication Group. Thanks very much and have a nice day.

Thank you. This concludes today's AES conference call. You may now disconnect.