Energy of Minas Gerais Co (CIG) 2009 Q2 法說會逐字稿

Very good afternoon, everyone. We are now beginning the (inaudible) webcast of our results of the second quarter 2009 for CEMIG, counting on the presence of our CEO Djalma Bastos de Morais, our financial CFO Dr. Luiz Fernando Rolla. This transmission can be followed on our website, http//:ri.cemig.com.br and also over the phone 011 4688 6341.

We now give the floor to our CEO Dr. Djalma Bastos de Morais.

Good afternoon, ladies and gentlemen.

I would initially like to apologize for the absence of our development secretary because today we have in Minas Gerais the visit of [NL]. And I was recently with him about an hour ago. And I greeted him. And our secretary is now at the Federation of Industries together with the NL President, who is visiting our state.

My friends, in this permanent search for sustainable growth, we continue trying to make viable a long-term focus in energy, electric energy industry. We are seeking sustainable growth with environmental and social responsibility as a key strategy, a strong corporate governance policy in the given transparency [in effort to the] decision making process, and as a main strategy the alignment of long-term interests among all of our investors.

We have had a result which we consider very good in spite of the problems that the country and the world are going through and this crisis. We had in addition to our net revenues of approximately 26% an EBITDA of 33% added to the first quarter and mainly our net income with an additional 56% vis-a-vis the first quarter.

It's important to note in this increasing of our EBITDA that we today have BRL1.035 billion. Our company--the similar company in the industry probably is in the area of BRL700 million. So it is important for us that our investors perceive the situation, the comfortable situation of our company, the objectives of our company, and the robust and continuous growth during the crisis.

Commercial strategy, making CEMIG the outstanding on the free market, we don't have a single megawatt. Our acquisitions are propelling the leadership of the Company and the consolidation of this sector.

And this allows this business portfolio to [defeat] this situation we are having today. You're going to observe in Dr. Rolla's presentation (inaudible - microphone inaccessible) a decrease in our distribution profits. But the portfolio of our business has guaranteed us a singular situation, a [particular] situation in this sector in the industry.

Social and environmental responsibility--as comparison, we can site (inaudible - microphone inaccessible) the [current being recommended] as a great investment, as an investment grade among the sustainable companies. And finally, by [Apineck] we have received a title of "Best Opened Company," "Best Public Company." And we have "Professional of the Year" here represented by Dr. Rolla.

I would like to add we are on the 20th going to (inaudible) to dedicate the wind farm park, wind farms, not only as concern about our energy project but the seeking of other alternative forms of energy. To have a wind farm of 100 megawatts, it's not that it's going to change the energy situation of this country. But it's going to make us able and to give us culture so that we can in the future participate in this type of energy.

We have been working with some companies prospecting for areas which may receive maybe a commission and even participate in the wind energy auction now in October together with the project partner.

I'd like to greet publicly Dr. Rolla for the award he received as an [II] professional and to give the floor to Dr. Rolla. Thank you very much. And unfortunately, I have another commitment. I will have to leave.

But please, Dr. Rolla, congratulations.

Thank you, Mr. President. Thank you.

Good afternoon, everyone. It's always a matter of happiness and joy for us to evolve together with you to a deeper analysis of our results. We have certainly very good news to impart to you. And we believe that this result derives straight from our strategy that we have adopted for some time.

As you know very well that CEMIG established a few years ago a strategic plan, a master plan with extremely ambitious results in what has to do with growth, a growth that is founded upon a view, a vision of sustainability in the long run. And what we are presenting today is the result of such a strategy.

It is a growth even as our CEO has mentioned that, even in a situation of world crisis with a substantial reduction of economic activity, we have had a result that is extremely favorable and encouraging and which enables us to trust that in the next semesters, next quarters will be meeting all of our--the predictions that were publicized to the market and on the last--in the last month of May.

We all know that we had the impact--an extremely strong impact--caused by the tariff revision of our distributor. And this impact naturally is reflected upon this quarter's results because we are still comparing that with the quarter that was with a full tariff, that had a full tariff. And so we are still going to have the tariff, the impact. And the reason for the reduction of net income that was verified, has exactly to go do with this, the tariff revision.

We had some adjustments that we made because of the definitive tariff revision in the first quarter. We had a tariff revision of the transmitter--transmission company--also in the second quarter. And in order to adapt our industry with the Company to the conditions established by [NL]. We have carried out a program, as you all know. For some time, we have been working on our human capital in the way of adapting the Company to conditions that were set by NL. And this resulted in a program of redundancy, which demanded an investment of BRL191 million.

In comparison with last year, we had an impact, also positive impact--negative, that is--impact, negative in comparison, but positive last year because light had exceptional profit based on some reversions of provisions relative to fiscal issues. But in the comparison with 2009, we had a 2009 negatively affected.

However, the results that we are making public now does not still consolidate the results of all the companies that we recently acquired, especially TBE, which is going to be reflected on the whole in the second quarter of 2009--second semester of 2009--in which there will be an effective contribution to the increase in performance not only of net income, but also our EBITDA.

The acquisition of TERNA, which you all know is going to be to take awhile longer is going to be reflected only in the fourth quarter. But those are additions to the results that we are presenting today that are extremely positive and makes us confident that we will be meeting exactly our guidance that we presented in the last analyst meeting.

On the next page, as a highlight there, I'd like only to comment a little on--we have made a comparison of the results of our distributor with the results of last year. And this result as a function--everything that I said about the revision, the results are not good.

We had an EBITDA reduction of 25% and a reduction of net income of almost one-third. And that is practically the first year in the cycle we have already made some initiatives to recompose the results of the distributor through the reduction of operational cost in which the VDP, the voluntary dismissal program, is the most--the strongest program.

And by the end of the period, we will be with a superior performance in such a way that when we have the next revision, we will practically have an adequate level. So the result of the distributor naturally has to do with the regulation that is in effect. And we are already making the necessary or taking the necessary steps in order to make this result to be recovered in the short term.

On the next page, I have the results of our generator, CEMIG GT. It has an expressive growth in revenues, almost 27%. And the verified value--and 49% if we--49% that is in a verified value. And when we take out the nonrecurring items, it goes back to 27% growth, but this in a condition that is extremely negative. That is because of the economic situation, the world which had its reflections, especially upon the fourth 2008--fourth quarter 2008, first quarter 2009.

And we are already presenting a growth of 27% without nonrecurrent--recurrent items, that is--and larger with the nonrecurrent items. So it is extremely positive coming from our trade-in policy, as you can see, and which naturally makes us very confident to say that CEMIG GT is coming close to being the benchmark of the sector, the industry. We have worked very hard on our generator company so as to maximize its results and add additional value for our stockholders.

I also highlight for the tariff revision of transmission, which was a revision also due by--owed by the regulator for some time. We have performed this first tariff revision, which resulted into an additional revenue for us of BRL158 million, which is a nonrecurrent effect because it does include revenues since 2005. But it has brought, as you're going to see shortly, an extremely positive impact.

Moving along to the next page, page nine, we have the commercial strategy as an exceptional foundation for the growth of the results of our transmission company, of our generator. That is the main price which we sell our energy for. The capacity has grown on average in the last years. And today, we've reached BRL113 per megawatt hour on average in the second quarter. And this shows that we are reaching a standard or a level that is quite close to the benchmark.

And very brief, we're going to be on par with this benchmark, very solid growth, and growth that comes from the ability of the Company to sign contracts that add value to the investments that were done. We have explored all of the--and exploited--all of the possibilities to maximize the value of this company through the contracts that we have signed with our free customers.

On the following slide, we have some information about the transmission revision. It was an extremely positive gain for our transmission company. Today, the allowed annual revenue, what we call RAP, reached BRL475 million, which means tariff repositioning or replacement of about 5%. That is a reasonable figure. And it's going to increase the performance of our transmission. Of course, it does not compare to the assets of TBE and TERNA, which we have acquired, because it has a contract structure that is entirely different. It is not as protected against risk as the contracts are for TBE and TERNA.

But at any rate, it brings us quite attractive return to the stockholders. And as it has reasonable predictability in its cash flow, it contributes substantially toward our sustainability in the long term.

The next slide, number 11, we present here the details of our business, the business portfolio that CEMIG presents at present. And this is a point which we have emphasized strongly as a strategic factor for CEMIG. We have sought a balance between the several businesses, generation, transmission, and distribution, in such a way that we can reduce the risk that is inherent to each one of those segments.

We strive for stability that I would say gives us a profile of 40% of results coming from our generator, 20% from the transmission, and the remainder 40% coming from our distributor. It is an extremely positive number with extremely low risk, which produces a cash flow that is quite predictable enough for us to be able to publicize our guidances without fear.

So we in the long term try to maintain these percentages. And as you can see, by 2008, we were a little unbalanced exactly because we hadn't been so competitive in the transmission segment in the last five years. But by means of the acquisition of TERNA and parcel of Brookfield's and TBE, we're going to rebalance about 18% with a tendency towards reaching the 20% in the next quarters.

We also--it's good to stress that we had a performance, a strong performance, in the generator so that in the second quarter results it has a participation of almost 60%. Naturally with the entrance of investments of TERNA and Brookfield's, we are going to recompose close to 18% the transmission.

And this reduces the 60% of the generator. But this is the expectation for the year that is the [greatest] majority or most part of our EBITDA coming from our generator, exactly as a function of the reduction of our EBITDA from the distributor.

In the next slide, number 12, we make some comments about the strategy of purchasing or acquiring transmission assets, as you all know. It is the regulatory risk. And the segment is quite low because of the simplicity of the operation and investments.

This makes the regulation in effect to remain almost unchanged. And this has been so for the recent years. And these contracts produce an extremely stable cash flow and predictable cash flow in such a way that we can establish a growth strategy. But we have elected the transmission segments as priority in the short term because of the availability of those investments.

Today, we're not celebrating the acquisition of the Brookfield's parcel and TBE apart and TBE and TERNA as well. And this is a strategy that we understand is going to substantially increase the predictability of our cash flow. Of course, those results still do not reflect--are not reflected in the second quarter. But it already gives a good dimension to our transmission portfolio.

Today, we have 5,700 kilometers of transmission lines. And due to the acquisition, we're going to reach almost 10,000 kilometers. That is, we're practically going to be the second largest transmission agent in this industry. And by means of that, our market participation goes to 12%.

Now naturally, we have had because of the decision, the strategic decision, to invest in transmission, we had some opportunities. And the first one of them is the acquisition of Brookfield's--the Brookfield's parcel participation to be. This is a combination of strategies that was successful.

You also know our strategy to invest in partnerships with investors that, throughout the development of the project, can decide not to continue in the project. And then we would purchase or acquire the additional parcel, which would allow us to make programmed growth of our participation in the market.

And that is exactly what we did in TBE. Today, we are exercising our right to acquire this parcel from Brookfield's. This has added a value that is twice as much as we had before so that today we have a relevant participation in this company that has today 3,115 kilometers of lines. And also, as a function of such a participation, a joint participation, we could make this company grow at a speed that is also quite good.

And we practically left 2,000 kilometers of lines when we acquired it. And now we're close to 3,115 kilometers of lines, which goes to show that our strategy of transforming those assets into a vehicle for growth is also coming through, which goes to show the correctness of this strategy, so the strategy to invest in transmission or in partnership with investors, also the utilization of those assets as a platform for growth.

On the next page, you can see the gain that we had in participation due to the acquisition. Those are respectable figures. Now we're going to have a substantially larger percentage of the results in this company, of the whole of the group of companies. And this is going to be reflected by the third quarter, this additional gain whether of revenues or EBITDA or our net income.

Also, on the next page, page 15, we have shown the rationale for the acquisition of TERNA. But all those foundations that I have mentioned before, we--in a way that was quite compliant with our strategic plan and our long-term view trying to meet the principle of adding predictable cash flow, we have negotiated with the owners of TERNA. And we have been able to purchase that participation in this investment which we consider maybe together with TBE the best investment in transmission in this country, in Brazil. Those are extremely attractive contracts.

We are going to together with our participation in TBE have a cash generation that is going to allow us to transform the combination of these two companies into a speedy vehicle for growth with self-sustainability and its financing. And this is--you're going to be able to appreciate in the next quarters, in the upcoming quarters, the gains that we're going to obtain from this investment. We have many synergies to share with the existing assets.

And we're going to have an improvement, operational improvement in such a way that cash generation is going to be a little stronger than what it is today. Today, it has a performance close to 87% of EBITDA margin. We are now introducing another strategy, a partnership strategy, which is the utilization of FIP, the Front for Investments and Participations. This FIP -- partnering FIP is going to allow us to release resources for us to be able to proceed with our strategic plan by adding new assets to our results.

It is a strategy that we had announced before and which are now being able to make feasible in this event of TERNA's acquisition. So we are now adding a little bit more value to our stockholders.

On the next page, what you have there is the acquisition structure for TERNA with the participation of the FIP. It is called a FIP coliseum or coliseu. And we are now in negotiation with some pension funds, inviting them to participate in this investment. In the end, we're going to have a participation practically on equal terms with investment funds, naturally with smaller parcels, so estimate the Company a private company.

The OPA, which we're going to realize after we conclude this transaction of the deal, and naturally the decision of minority shareholders is entirely sovereign. We decide--we understand that TERNA is going to become a vehicle for speedy growth.

If the minority stockholders decide to exercise their rights, the tagalong rights, we're going to buy all shares or to buy the shares. But I'm pretty certain that we're going to open up new opportunities for this company to go back to or come back to be an extremely attractive investment for these minority stockholders.

On the next page, you have our investment program. And this investment program follows our trends. We have publicized only an investment program that includes projects and other investment, the regular investments of the concessions and the construction work that is on the way. In the case of generation, we are now commissioning some of the projects that we began awhile--some time ago, for example, the hydroelectric plant of [Bagwanee] and the wind farms that we recently bought also. Today, we've [done] for this investment. And also it's going to be reflected in the second semester the interest of new resources for CEMIG.

Now let us focus on the results of the second quarter on page 19. You can see the growth of the net income, which is the confirmation of both--of what our CEO and myself have reiterated at the beginning of our presentation. Revenues have grown substantially, especially because of the good performance of CEMIG GT, coming from all the commercialization, a trade-in strategy of our installed capacity.

Even if we consider some of these nonrecurrents because of the gains from the tariff revision of our transmission, this is still positive. As a result, it makes us extremely confident about our risk management strategy. Our portfolio really produces a result that is above risks that are inherent to maybe economic risks coming from crises. We can in a certain way share all of those risks among our companies, which gives us quite positive average in the end.

On the very next page, slide number 20, we have our volume of consolidated sales. And this volume of sales in spite of having remained [rightfully invariant], there's a small decrease of 0.5% or 5% because of the additions that we make and the consolidation that we make. We are sort of making up for this in order to avoid double counting. And this sort of conceals the real growth.

But even considering that is that remain practically stable, we are comparing a result against 2008, which I'd say was--in the first quarter--was going to be the best year of performance of the economy of Brazil. So the volume of our sales was quite accelerated. And we in the first semester--the second quarter that is--already leaving an economic crisis. And this demonstrates that our strategy, sales strategy has been extremely positive.

Moving along to page 21, we now have CEMIG GT sales. CEMIG GT also had very good growth of 5%. Naturally, the regulated market was the largest contributor to this, some movement among the several markets. But on the whole, we had a growth of 5% in our sales in our generator GT. When we present the results of revenues, the revenue grew substantially much more than that because also we had great success in the selling of our capacity.

On the next slide, page 22, we show the results of the distributor. The results of the distributor is not as big as the generator was--is because there was some impact or quite a large impact upon the industrial consumption of the distributor. This was made up for largely by the residential growth, which reached 8.4%, and the commercial, but not enough to compensate for the reduction of the industrial consumption. At any rate, even considering those values we had and performance that we consider quite good because of the crisis that we had.

On page 23, we make an analysis of the consolidated expenses of the group expenditures that is. And we announced by 2008 that we would carry out a program of operational efficiency, trying to add more value to the assets operated by CEMIG. And this operational efficiency program would add about BRL200 million of savings, which would raise our debt a few more points.

And now we're going--we are implementing such a program. Unfortunately, the 16 percentage really covers up the results that we had with the efficiency program. And you know that the increase that we had was BRL296 million, which represents the sum of two items--one nonrecurrent item, which is the voluntary resignation program, and the purchase of energy, which has to do with biddings and auctions. So it is entirely [exit best] onto the tariff because of the regulation that is in effect.

So this means that our measures of operational efficiency are being effective. And you can see as a result of our VDP--that is the voluntary resignation program--we had a reduction of BRL36 million just on our personnel expenses. And such a reduction is going to be multiplied because of the investments that we have made even this year and are going to yield some more savings to our operational expenses.

We had some items that went up more than forecast. And the forecast was saying like outsourcings, third-party services. We had some services that went up because of impositions of the conceding power. NL has determined the inclusion of cell phone calls on our customer service. And this made the telephone expenditures to increase by BRL18 million in the quarter. We had some additional maintenance. But largely, this--our increase in the third-party services had to do with the decision by NL to include cell phone calls to our automatic customer service.

On the next page, we had some details about the resignation program, the voluntary program. We had some information. We're just confirming such information. The total investment that we made was BRL191 million on this chart. On the right, you can see the impact by company. Of course, the largest one is our distributor because of the larger number of employees. But at any rate, this investment is going to be recovered in practically two years because of the savings to be obtained from the BRL100 million per year.

Now moving along on page 25, we have the evolution of the EBITDA also very good compared with the first quarter. We have surpassed the mark of BRL1 billion. Very few companies can boast of such robust EBITDA. And I warn that we still have not included investments that we have made, for example, TBE. This is going to be incorporated included beginning the third quarter. So you may expect performance even more robust than the one that is being presented currently. That is we are now very enthusiastic about this growth, which shows the correctness of our strategy. And this, again, is reflected upon the results. This is going to guarantee to us additional free cash so that we can continue searching for opportunities to add value for our stockholders.

On the next page, we have the EBITDA per quarter exactly to show the trend. Today, we have a margin of 38%, which is a very good one, a performance that was quite strong. It's not the best performance because in the third quarter of 2008, we had a margin of 40%. But we're going to reach this margin, probably surpass the 40% as we add these investments that have been made already.

Now on the next page, 27, we have the evolution of the net income, contribution of each company. We had a reduction of CEMIG because of the tariff revision compensated by the best--the performance of our generator. And so this total performance coming from our--the nonrecurrent, we had a gain of 16% there. We can see the new one has to do with the net income. The gains coming from the generator reached almost 80%, showing the good times that our generators live in now.

On the next page, slide number 28, you have the evolution of the net income with the EBITDA margin showing substantial growth for the first--for the next quarters.

On page 29, what you have is the cash flow. The cash flow continues quite robust. It's worth remembering that we have paid the first installment of the dividends, the first part of installments now last June and also the TBE investments. And even then, we have a cash level around BRL2.2 billion, 10% above the level that we had a year ago. So this cash generation is going to be--to speed up with the inclusion of the new investments.

On the next question, we have the debt profile. What you can see is that the situation today at CEMIG is extremely comfortable or enough--comfortable enough in order to support all of the investments that we have announced. And we're going to procure--capture more resources from the market. And investments that you see here makes us really confident, makes me confident, makes investors confident that they can participate with us.

Mean interest rates is going down. We are on the level of 5.8% of real costs for debt. We have an [inundated] profile without any short-term pressure. Practically two-thirds of our debt is indexed in a [CBI]. And therefore, it does not reflect the CBI reduction coming from the reduction of CEMIG, the CEMIG rate. So it's still going to capture a little bit more gains from there. The financial indicators are also with a very comfortable profile. CEMIG consolidated has a debt of about 35% with an interest coverage of almost five times and a net debt over EBITDA about 1.4.

Our generator, which is going to buy TERNA, has a debt, an income debt below one. That is a net debt below one and an interest coverage of more than six times. So it makes us really tranquil and at ease so that we can capture the resources from the market so as to continue investing.

By the way, this is our objective to continue growing, to continue adding value to our stockholders. You can see that we have relevant position in this country, not only in the electric sector but in the global economy of the country. We are now with a strong growth. We're displaying strong growth. We are among the 50 largest companies in Brazil. And [on] the electric industry, we have a relevant participation, not only in distribution, but also transmission and generation. So we now participate in every--we are present in almost every state in this country. And this makes us very solidly supportive so as to grow sustainably.

So we are adding value not only through the investments that we make but also by means of the efficient management of those assets. And this is what we're trying to reflect in our results. As you can see, the net profit from the existing assets--and you're going to perceive the growth coming from investments that we made. This combination--positive combination coming from the strategies that we adopted adds substantial value for our stockholders as we try to demonstrate in these results here.

This is what we had to bring to you all. And we can now begin the questions and answers conducted by our Superintendent of Investor Relations Agostinho Faria Cardoso. And we can elaborate more on some other issues that you may be interested in. Thank you.

So we'll now begin the Q&A session through telephone.

Zero operator 11 4688 6341 or send your email to ri@cemig.com.br. We, like during the presentation last quarter, we're going to try and reduce a little the total time of this meeting for about--with about half an hour for questions, trying to close around 2:15 p.m.

Our first question comes from Felipe Leal from Merrill Lynch.

Good afternoon, everyone. I have two questions, the first one related to TERNA.

My doubt is whether with this new proposal of the acquisition structure the expectation is to spend about BRL900 million in cash to pay for the acquisition and also whether in the future growth strategy in transmission the strategy's to use TERNA or TAESA, which is going to be the growth vehicle or this still under discussion.

Second doubt is related to CEMIG distribution, CEMIG D. We saw there was a provision of BRL27 million. So this--the [TFDR], that is the use of our road-side territory. I'd like to know what this cost is and if it's included in your tariff. Or is this still under dispute with the state or whether this can be included in your tariff by NL or if this is the case?

Thank you, Felipe, for your questions.

As for the TERNA investment, naturally independent or regardless of the structure that we are applying, part of the resources are coming from our cash. We're going to--we are capturing BRL2.7 billion. Naturally, we have the need to invest BRL3.6 billion in TERNA. And the complementation of this and the resources will be from our own cash flow.

Now with the inclusion of the FIP, we--our need for resources is reduced by BRL1.2 billion. But those resources are going to be utilized at the present time to roll the debt, which we're going to be doing in the short term.

And then after that, with the release of those resources, with the freeing of these resources, we can use them in some investments that are under negotiation. This is the strategy that we understand is solid and sound and successful and is going to give additional gains to our investment in TERNA.

Naturally, we're going to have to change TERNA's name. TERNA in accordance with the contract that we have signed and with the owners of TERNA, Participation TERNA SpA, one of the commitments is to change the Company's name because TERNA is a name that is already known throughout. So we cannot use this name. And [so] we're going to find another name.

TAESA is our vehicle for acquisition. It was made up exactly in order to allow for the flexibility to acquire that in partnership with the FIPs. And we're going to later include or incorporate this TAESA in the TERNA investment, which is going to have a differentiated name. It could even be TAESA itself. We haven't made that decision yet. We are still seeking inspiration to find a very motivating name to this project.

We want this project to represent exactly what our strategy is but is [maybe] of our sustainable growth and growth at a lower risk and with a cash generation capacity to finance all of the investments. Whoever can help us with their inspiration by suggesting some name, we would like to receive your suggestions.

As for the expenses for the road-side terrain, this is a tax that is charged--levied by state governments. We have already challenged that in court, the payment of this tax. NL has made a decision not to include that into the tariff. Therefore, we have to have some judicial decision about this.

We always pay it by making the judicial deposit because this is still under litigation. So we're going against the covenant of the state in this matter. So every time there is a bill, we have to make this provision because we have to make the deposit judicially.

Thank you very much.

Excuse me.

Our next question comes from Marcus Sequeria from Deutsche Bank.

Good afternoon, everyone.

Could you comment briefly about your possible targets in terms of new business for acquisition or greenfield projects up to the end of the year, 12 months?

And a question about TERNA--I hope that the conclusion of the acquisition is that by the end of September. What is the type of authorization or approval that is still pending?

Thank you.

I understood two questions from you, one having to do with the new businesses, what is coming up in the next quarters. And the second one has to do with the conclusion of the TERNA transaction. The easiest one is the conclusion of the TERNA transaction. It's going to be September the 30th. We

(inaudible - technical difficulties with audio)

--exercising without any need. So I'd like to have some more information about that. Also, if possible, I'd like to--CEMIG has publicized some [very solid] trajectory (inaudible) therefore TERNA's debt, not [DNDS], the debt being purchased by or acquired by CEMIG. Is this what CEMIG was already seeing and the possibility within the risk balance or the acquisition. Is that--was that considered? I'd like to understand the story in the last six months.

Let us begin with the sell option, selling option, DNDS. When we put this structure together, we did it with a view to have in a partner, which would allow us to capture 100% of the synergy of the assets that we were acquiring. Of course, we have every interest in developing projects and partnership with operating partners as well as specific projects. But in this case, we understood that with the investor, financial investor, (inaudible) that institutional investors, we would be--we'd have more freedom to capture those synergies and increase--go a little beyond--take our operational efficiency a little beyond if we had an operator share in the management.

The selling option that was given to the investors was simply an alternative, a short-term alternative. That is, we want them to remain--to continue with us in the long term. We want those--them to share with us all the growth that the Company's going to experience in the next--in the coming years. And it's a strategy, as I said, that is extremely positive for CEMIG because it's going to allow us to find other alternatives for acquisition without compromising 100% of our cash.

The partnership with institutions that we are negotiating with is going to allow us--is going to allow for sustainability in this growth. And we would like to present and we're going to do so as of the first date--actually take over the management of TERNA, the project for growth and value-added cost reduction that's governance, [complete] governance best practices, so that we can have an effective vehicle for growth.

This is the objective that we have on the participation of the fund. Eventually, according to the stockholders' convenience, we're going to have this exiting mechanism, but this exiting mechanism to be exercised and by their own criteria. If they are pressed for cash, they can leave in a short year. But [evidently], as our strategy is to keep our partners. In this case, we're going to look for other partners if we understand that the [marble] is not exhausted. If the marble's exhausted, we may simply acquire the participation from these investors. But the objective is to have long-term growth and opportunity to keep those investors, institutional investors that is, together with us in the growth project that is going to be beneficial to CEMIG as well as TERNA.

The Brookfield's option was slightly different because Brookfield's is a mix of institutional investors and operators. And naturally, we were purchasing a minority part of a company that is extremely attractive. And they had the ambition to sell, to buy the larger parcel. As the strategy didn't come through, they chose to sell their participation to CEMIG, as was already provided for in the agreement. So we won without much dispute this investment, which is also very positive and is going to add enormous leverage to CEMIG in the next years and in the future.

And now as for DNDS, of course, when they chose to acquire TERNA, 100% of our participation in TERNA SpA and participations, we did a risk evaluation. And the interpretation was that DNDS was going to feel compelled to change the financing conditions of the companies that were being acquired as a fraction of our condition of a state-owned company.

Because of that, we have already put together a strategy for CEMIG, which we call CEMIG 100% in TERNA, which we're going to allow us to make a negotiation--strike a negotiation with DNDS so as to make the financing instrument adequate to the legislation in effect. So in the more extreme case, we could liquidate the (inaudible) and acquire new [decks] on the market. But this was a strategy that we had already structured and thought about and started early, which functions, which works. And if by chance we had to proceed with the acquisition of 100%, we already had all the structure put together. Some of (inaudible) could be done in about--and [assess] the need of any stress with the DNDS.

So the advent of FIP has met other requirements, a larger growth strategy, and also help solve this DNDS issue in a quicker way without so much controversy. Okay?

Thank you.

We have a question coming from Ricardo Cavanagh.

Hello. Good afternoon, everyone. I have a question about the level of activities that was sent--visibility as a recovery of the demand from the investor segment.

Don't you have any perspective of a recovery of the industrial segment?

Thank you, Ricardo.

The prospects are very good. We had reasonable performance in the second quarter and with some signs that by the third quarter we would have better performance.

If you look at the past, performance the third quarter has always been very strong. Our biggest demand for energy occurs during this period in the third quarter. And comparatively with the previous quarters, we should have better performance compared with the same period last year.

We're still going to feel the impact, the strong impact on the reduction of economic activity because you remember in the third quarter 2008 we were at the peak of our economic activity. So the comparison with the third quarter 2009 is going to look a little negative.

But at any rate, it is going to be a good result. And we are--we expect a more vigorous recovery until the end of the year, which is going to result in a bigger sales volume, not only for our generator, but also especially for CEMIG D.

Thank you.

We have another question from Vinicius Canheu from Credit Suisse.

Good afternoon. Hello. Good afternoon.

I have two questions. The first has to do with FIP coliseum or coliseu. Could you tell us how much the FIP fund could capture--the idea was BRL2.7 billion--and whether this structure of absorption of TAESA in the acquisition of TERNA assets? Does this somehow affect the present value of goodwill that you imagine that could amortize? That is, you would have--you could save on taxes in the process of acquisition. Does this affect the initial expectation?

And lastly, we have seen that the government has become more optimist about the [Bellamonte] bid option until the end of the year. But to have--to give us an idea, what would the maximum that CEMIG would be willing to spend on this project? And this appetite for other acquisitions, does it affect Bellamonte?

Thank you, Vinicius.

As for FIP coliseum fund, our investment in participation is still under negotiation with the institutional investors. Our aim is to obtain at least BRL1.2 billion by the end of the whole process. The FIP, the fund was designed for BRL1.8 billion. But the final objective's going to be resources of BRL1.2 billion because we have an acquisition process. We have [OPA].

And so there is some flexibility to participate in (inaudible) manner. But in the end, we want the fund to have a 50% plus one ordinary stock [alternative]. This means in case OPA is--entirely happens, BRL1.2 billion. This is the objective we are still [leading] with--negotiating with these institutional investors. And until the end of the month, we should have a definition as to this.

In what concerns TAESA, TAESA is our acquisition vehicle. It was a strategy that we understood was the most becoming in order to continue or to be able not only to follow in the design of this structure or participation in the fund, but also in terms of the operation, nonpersonalization, that is, of our acquisition. That is, we have expenses to be covered that are going to be shared with our partners for you to be able to make the costs all very transparent. TAESA's structure is quite helpful in that respect.

In fact, coming from the participation of TAESA and what has to do with the fiscal effect, we're going to study that with our auditors, a possibility to capture some benefits. But the objective--the initial objective that is--and the final objective of TAESA is exactly that of allowing the acquisition to be made of TERNA participation stock and through a partnership with those institutional investors and as--and then, of course, it is necessary to be very clear and transparent about costs and the costs that we are incurring.

In what concerns Bellamonte, Bellamonte still is unclear. We have no definition. The government hopes to hold this auction until the end of the year. And we are negotiating. We have been negotiating with partners. Of course, we cannot disclose who they are. But we have expectations to participate in the way that is a little higher, better than what we had in [St. Antonio]. The investments are rather large in this project. The risks are also proportionately higher. And the strategy, of course, is to share those risks with other investors in such a way that we do not have too strong a pressure on us.

Now as for the cash flow, there is not a big pressure because it's a long-term investment and counting on the--and even with the relevant participation, our cash flow is enough sufficient to pay for these investments. We understand that there is effective participation of DNDS and the financing of this project. Therefore, we shouldn't suffer any cash pressure or any pressure as to our financial indicators.

However, that interest persists. The percentage still cannot be publicized because, of course, we are still being negotiated. Okay?

Okay. Thank you.

We're going to try and answer two more questions. But please be very brief. We're going to try and answer two more questions. I would request that the questions be very brief.

Excuse me. We have a question from (inaudible).

Good afternoon, everyone. (inaudible) my question. You are capturing BRL2.7 billion. Is that debt? And that is the question. And the covenants, is that--if this is a debt, what are the covenants that are connected to this capture? And another question that has to do with the Bellamonte project is [to] starting that if there is any possibility of changing the original consortium, if you are establishing partnership for this auction.

Thank you, [Selilini]. We are--actually the BRL2.7 billion debt is a debt, of course, BRL2.7 billion debt. We started the impact that is going to help on our covenant. And there will be no impact that will bring any closer. That is not a matter of concern. One of the most important goals that we have in our strategic plan is to keep some financial indicators within certain limits. These limits are already recorded there in our bylaws. And the net debt over EBITDA is less than 2.5. And eventually, over two always eventually could be superior to almost 2.5 [most tops], so [involvement] 40%, maybe reaching 50%.

We try to make all the management to manage all of our investments and keep within those limits so that we can obtain the approval of our board, in this case even capturing those BRL2.7 billion. We are going to have by 2009 already the limits will be respected without any pressure. The only indicator that goes beyond that is the investment that because of the volume of investments that we made. And we have already obtained our--the approval for going beyond that. The stockholders' assembly has already granted us their approval. So we don't consider that to be a great problem.

Bellamonte, well, we can participate in a partnership. So we're not--we don't have a defined partnership yet--the question--so we still do not know who the partners are. It's still premature. It's not that we don't believe that the government's not able to hold the auction in 2009. But a project of such magnitude really demands a discussion, a big discussion. Okay?

And our next question comes from Gustavo Gattass of Spinelli.

(inaudible) good afternoon (inaudible). I have many questions. But I'm going to keep to one.

The first one, just to hear from you is if you could give us a view what exactly the covenants you just mentioned, the net debt over EBITDA and the debt over capital and the situation in which you complete the acquisition [by means] of the FIP. All--but considering all the acquisitions that you have thus far--that is the (inaudible) and all of the ones, the wind farms and additional parcel of TBE which had come in at the [other] quarter. Could you update that on what you made, what you said in the previous quarter?

The other thing I just wanted to understand, looking at the results that you classified as nonrecurrent, now just the accounting part of it--that is the 158 that you mentioned--is that everything that (inaudible)? This is a figure that is adjusted for what you would have in terms of gain in the previous quarter if by chance the resolution had taken place between and not retroactively.

Gustavo, okay. Let us do it by parts.

Your second question, as for the impact of tariff revision in the (inaudible) in CEMIG D, the impact represented in the first quarter, because of the tariff revision, of course, we had part of 2008 revenues that were actually questioned by--challenged by NL. This is reflected in the first quarter. But from now on, we're going to have the amortization of this liability with the revenues that we're going to obtain. So on the basis of that, you can compare that with 2008. I don't know if this is a concern that you have if you [like] the 2008 figures, deduct it from the revenue that was acquired, we're going to have some figures to provide you with.

With some [key], we had about the impact upon the net revenues were--was BRL264 million the first quarter. And these BRL264 million largely reflect 2008--refer to 2008--adjusted that BRL264 million from the 2008 revenues. But this year, we are--we have been amortizing this liability through revenues per quarter. This is (inaudible).

In what has to do with the covenants, when we published acquisition, we made this presentation. And we made a simulation of acquisition of 100% of TERNA and its impact upon our covenants. So by acquiring 100% of participation in TERNA, we would be in what has to do with the net debt over EBITDA within the 2.5 limit that is within the--a limit that was approved by the board. And in terms of debt, we would be close to 49.99%, which would also be within what was allowed by the board.

Now as for the participation of--with the participation of the FIP of the fund, we're going to free those resources for new acquisitions. But an interesting thing would be to keep 100% of information that we have publicized. So even if we do make new investments, we will always be below the upper limits that were established by our bylaws. So we do not have--it's not a measure of great concern. Now as for the next year, 2010, consider the guidance, those published by Dr. Agostinho, we're going to have a significantly better performance. Okay?

Very well then. We are now closing the webcast conference, the presentation of the results of second quarter of CEMIG, now giving the floor back to our Director, back to Luiz Fernando Rolla for his final remarks.

Very well. I would only like to stress that [also] some facts that are extremely important to us managers of CEMIG. Our management staff, which has engendered all the strategic planning that you are--whose results you are witnessing today, I tried during my presentation to show for each result and each slide the reflects--the impacts from these strategies that we have adopted. We consider that to be the great benefit that CEMIG is bringing to its stockholders.

It's extremely positive strategic management. It's also beneficial and value adding. And every point that we have been making public in this quarter, you can see the correctness of those strategies. And this strategy guarantees us not only ways of facing the prices as the one we're facing in international market, but also allows us to identify growth opportunities that can be quicker and speedier and to add more value for our stockholders.

The results of the second quarter are extremely positive already with the base of the--the foundations launched to ensure better results, even better results in the next quarters. This is the take-home message I'd like to leave with you. In CEMIG, we break a few paradigms. We show that we can be efficient, not only in the management of our assets, the existing assets, but also in the acquisition of new assets.

The very criteria, rigorous selection of those assets, the adequate structure of financing, which allows us to keep our credit quality within acceptable limits so that we can have access to investor resources, all of this we are fully confident that it's going to produce extremely attractive results for our stockholders. And those who are not stock--do not have stock from us should have their own--should review their--revise their own criteria [and have a way] to the bigger manner the result of those strategies so that in the next decision to make investments they can join us on this road to growth that we have traveled on.

And finally, I'd like to thank publicly to make the--for the--thank you (inaudible) I'd like to make my thanks to [thank] we have obtained the recognition as the public company of the year. This makes us very proud. And we're very joyful and very happy because it is the result of our investor relations policy, which is conducted prudently by our Superintendent of Investor Relations Agostinho Faria Cardoso. He has an extremely competent and dedicated staff, which allows him to in a very tranquil way to exercise his functions. He has with him a high-level team, which has given our investors expressive gains in terms of market value.

I publicly would like to make this recognition clear to the area of our Investor Relations. And I'd like to leave you confident that we're going to continue working with the same diligence and dedication and that this is going to, regardless of the awards that we win, we will continue providing all of the information and this transparency and this policy of relations with investors that is extremely differentiated in Brazil. So I'd like to record this, my thanks, to Apineck International and Apineck [the person oversea] that's President and all of the regional presidents for such a recognition. Thank you very much. And I wish you all a good afternoon.

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.