FORM 6-K

 

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.  20549

 

REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934

 

For the month of March 2008

 

Commission File Number 1-15224

 

Energy Company of Minas Gerais

(Translation of Registrant’s Name Into English)

 

Avenida Barbacena, 1200

30190-131 Belo Horizonte, Minas Gerais, Brazil

(Address of Principal Executive Offices)

 

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

 

Form 20-F x Form 40-F o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): o

 

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

 

Yes o No x

 

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b):  N/A

 

 



 

Index

 

Item

 

Description of Item

 

 

 

1.

 

Summary of Decisions of the 428th Meeting of the Board of Directors, March 6, 2008

 

 

 

2.

 

CEMIG Distribuição S.A., Summary of Principal Decisions, March 6, 2008

 

 

 

3.

 

CEMIG Gereção e Transmissão S.A., Summary of Principal Decisions, March 6, 2008

 

 

 

4.

 

Notice to Stockholders, March 6, 2008

 

 

 

5.

 

Ordinary and Extraordinary General Meetings of Stockholders Convocation, March 6, 2008

 

 

 

6.

 

CEMIG Distribuição S.A., Ordinary and Extraordinary General Meetings of Stockholders Convocation, March 6, 2008

 

 

 

7.

 

CEMIG Gereção e Transmissão S.A., Ordinary and Extraordinary General Meetings of Stockholders Convocation, March 6, 2008

 

 

 

8.

 

2007 Management Report

 

 

 

9.

 

2007 Earnings Release

 

 

 

10.

 

Notice to Shareholders, March 7, 2008

 

1



 

 

ITEM 1

 

Summary of Decisions of the 428th Meeting

of the Board of Directors, March 6, 2008

 

 

2



 

 

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS - CEMIG
Listed company
CNPJ 17.155.730/0001-64
NIRE 31300040127

 

SUMMARY OF DECISION OF THE 428TH MEETING OF THE BOARD OF DIRECTORS

 

At its meeting held on March 6, 2008 the Board of Directors of Companhia Energética de Minas Gerais decided on the following matters:

 

1.               Technical feasibility study for the purpose of accounting recording of tax credits.

 

2.               Report of Management and Financial Statements for the year ended December 31, 2007.

 

3.               Proposal for allocation of the net profit for 2007.

 

4.               Proposal for increase in the registered capital.

 

5.               Proposal by a board member for the members of the Board of Directors to authorize their Chairman to call the Ordinary and Extraordinary General Meetings of Stockholders for 2008, and if necessary make second convocations.

 

6.               Orientation for vote by representative of Cemig in the Ordinary and Extraordinary General Meetings of Stockholders of Cemig D and Cemig GT for 2008.

 

7.               Declaration of vote in the Extraordinary General Meeting of Stockholders of Gasmig.

 

8.               Technical cooperation agreement between Cemig, Minas Gerais State, the Minas Gerais Development Bank (BDMG), Codemig, Indi and Jucemg.

 

9.               Voluntary Retirement Program (PPD).

 

1.               Election of Mr. Djalma Bastos de Morais to be Vice-Chairman as well as CEO, to serve the period of office that remains for the other current Board Members.

 

2.               Submission to the General Meeting of Stockholders of an alteration to the bylaws.

 

3.               Proposal by a board member that the members of the Board of Directors should authorize their Chairman to call an Extraordinary General Meeting of Stockholders in first and, if necessary, second convocation, to deal with alterations to the Bylaws.

 

3



 

 

ITEM 2

 

CEMIG Distribuição S.A., Summary of
Principal Decisions, March 6, 2008

 

 

4



 

 

 

CEMIG DISTRIBUIÇÃO S/A

 

Listed company

 

CNPJ 06.981.180/0001-16

 

Summary of principal decisions

 

At its 66th meeting, held on March 6, 2008, the Board of Directors of Cemig Distribuição S.A. approved the following matters:

 

1.               Technical feasibility study for the purpose of accounting recording of tax credits.

 

2.               Report of Management and Financial Statements for the year ended December 31, 2007.

 

3.               Proposal for allocation of the net profit for 2007.

 

4.               Proposal by a board member for the members of the Board of Directors to authorize their Chairman to call the Ordinary and Extraordinary General Meetings of Stockholders for 2008, and if necessary make second convocations.

 

5.               For 30 days, delegation of powers to enter into contracts for sale of electricity, retail supply of electricity and reserve of demand, use of the distribution system, use of the transmission system with the National System Operator (ONS), connection to the distribution system, sharing of distribution infrastructure, and other agreements.

 

6.               Voluntary Retirement Program (PPD).

 

7.               Agreement with the Municipality of Belo Horizonte.

 

8.               Project: Oil separation chambers in the Sub-transmission substations.

 

9.               Election of Mr. Djalma Bastos de Morais to be Vice-Chairman as well as CEO, to serve the period of office that remains for the other current Board Members.

 

5



 

 

ITEM 3

 

CEMIG Geração e Transmissão S.A., Summary of
Principal Decisions, March 6, 2008

 

 

6



 

 

 

CEMIG GERAÇÃO E TRANSMISSÃO S/A

 

Listed company – CNPJ 06.981.176/0001-58.

 

Summary of principal decisions

 

At its 64th meeting, held on March 6, 2008, the Board of Directors of Geração e Transmissão S.A. approved the following matters:

 

1.               Technical feasibility study for the purpose of accounting recording of tax credits.

 

2.               Report of Management and financial statements for the year ended December 31, 2007.

 

3.               Proposal for allocation of the net profit for 2007.

 

4.               Proposal by a board member for the members of the Board of Directors to authorize their Chairman to call the Ordinary and Extraordinary General Meetings of Stockholders for 2008, and if necessary make second convocations.

 

5.               Contracting of insurance for equipment of the Pai Joaquim Hydroelectric Plant.

 

6.               Cemig GT-Aneel Research and Development Program – 2005-6 cycle: signing of working agreement.

 

7.               Cemig GT-Aneel Technological Research and Development Program – 2005-6 cycle: Approval of project.

 

8.               Working Agreement with the Minas Gerais State Environmental Military Police: Igarapé thermal generation plant.

 

9.               Working Agreements with the Minas Gerais State Environmental Military Police: Nova Ponte, Jaguara, Volta Grande, Igarapava and Pai Joaquim hydroelectric generation plants.

 

10.         Agreement with the Minas Gerais State Education Department granting use of sites and buildings.

 

11.         Budget supplementation for acquisition of fuel oil for the Igarapé Plant.

 

12.         Indicative non-binding proposal for acquisition of a company holding generation assets.

 

13.         Voluntary Retirement Program (PPD).

 

7



 

14.         Delegation of powers, for 30 days, to sign electricity sale contracts.

 

15.         The Santo Antônio Hydroelectric Complex.

 

16.         Filing of legal action against Ecom Energia Ltda.

 

17.         Agreement for cancellation of contract with Ecom Energia Ltda.

 

18.       Election of Mr. Djalma Bastos de Morais to be Vice-Chairman as well as CEO, to serve the period of office that remains for the other current Board Members.

 

8



 

ITEM 4

 

Notice to Stockholders, March 6, 2008

 

 

9



 

 

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

 

LISTED COMPANY

 

CNPJ 17.155.730/0001-64

 

NOTICE TO STOCKHOLDERS

 

We advise our stockholders that the Board of Directors, at a meeting held on March 6, 2008, decided to propose the following to the General Meeting of Stockholders to be held on April 25, 2008:

 

1.              INCREASE IN REGISTERED CAPITAL AND STOCK BONUS:

 

1.1. Increase of the registered capital by R$ 2,432,307,280.00, to R$ 2,481,507,565.00, through the issue of 9,840,057 new shares, of which 4,300,891 would be nominal common shares and 5,539,166 would be nominal preferred shares, each with nominal unit value of R$ 5.00 (five Reais), through capitalization of R$ 49,200,285.00 upon the incorporation of the amounts paid as principal under Clause 5 of the Contract for Assignment of Credit of the Outstanding Balance on the CRC (Results Compensation) account. As a consequence, a stock bonus in the proportion of 2.022782458% will be distributed to stockholders in new shares, of the same type as those held, also with nominal unit value of R$ 5.00 (five Reais).

 

1.2. All stockholders whose names are on the company’s Nominal Share Register on the date of the General Meeting of Stockholders will be entitled to this benefit. These shares will trade “ex-” the right to this bonus on the day immediately subsequent to the holding of that meeting.

 

1.3. Under §1 of Article 25 of Federal Revenue Service Normative Instruction 25/2001, the unit cost of acquisition attributed to shares in the bonus is R$ 5.00.

 

1.4. According to CVM (Securities Commission) Normative Instruction 168/91, the amount obtained in Reais on sale of any fractions resulting from the calculation of the bonus will be paid to the holders of those fractions jointly with the payment of the first installment of the dividend for the 2007 business year.

 

10



 

We reiterate that this bonus is conditional upon homologation by the General Meeting of Stockholders to be held on April 25, 2008.

 

2.              DIVIDENDS

 

In accordance with sub-clause “b” of the sole sub-paragraph of Article 28 of our bylaws, the amount of R$ 867,725,000, corresponding to R$ 1.749127683 per share after stock bonus, will be distributed in the form of dividend, in view of the net profit of R$ 1,735,449,000 for 2007, as follows:

 

a.               Stockholders whose names are on the company’s Nominal Share Register on the date on which the General Meeting of Stockholders is held will be entitled to this benefit.

 

The shares will be traded “ex-dividend” on the day immediately following that meeting.

 

b.              We emphasize that this payment is conditional upon homologation by the General Meeting of Stockholders to be held on April 25, 2008.

 

We remind stockholders of the importance of updating their details with us, since payment of proceeds of corporate action can be made only to stockholders whose information is up to date or who have a current account, with any bank, registered with Bradesco S.A. (the institution that manages Cemig’s Nominal Share Registry. For this purpose they should visit any branch of Bradesco, with their personal documents.

 

Belo Horizonte, March 6, 2008

 

Luiz Fernando Rolla
Chief Officer for Finance, Investor Relations and Control of Holdings

 

11



 

 

ITEM 5

 

Ordinary and Extraordinary General Meetings of

Stockholders Convocation, March 6, 2008

 

 

12



 

 

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS-CEMIG
LISTED COMPANY
CNPJ 17.155.730/0001-64 - NIRE 31300040127
ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS
CONVOCATION

 

Stockholders are hereby called to the Ordinary and Extraordinary General Meetings of Stockholders to be held on April 25, 2008 at 10.30 a.m. at the company’s head office, Av. Barbacena 1200, 18th floor, B1 wing, in the city of Belo Horizonte, de Minas Gerais, to decide on the following matters:

 

1                                          Examination, discussion and voting on the report of management and the financial statements for the year ended December 31, 2007, and the respective complementary documents.

 

2                                          Allocation of the net profit for 2007, in the amount of R$ 1,735,449,000, in accordance with Article 192 of Law 6404 of December 15, 1976 as amended.

 

3                                          Decision on the form and date of payment of the obligatory dividend, in the amount of R$ 867,725,000.

 

4                                          Decision on the allocation to be adopted between the amount capitalized and the amount corresponding to the payments relating to the first to eighth installments of the amortization of the principle of the said Agreement for assignment of credit.

 

5-                                    Approval of the increase of the registered capital from R$ 2,432,307,280.00 to R$ 2,481,507,565.00 through the issue of 9,840,057 new shares, upon capitalization of the amount of R$ 49,200,285.00 referring to the incorporation of the installments paid as updated principal until December 1995 under Clause 5 of the Contract for Assignment of Credit of the Outstanding Balance on the CRC (Results Compensation) Account, signed between the State of Minas Gerais and the Company, distributing, as a consequence, to the stockholders a stock bonus of 2.022782458% in new shares, of the same type as those held, with nominal unit value of R$ 5.00.

 

6                                          Authorization to the Executive Board to take measures relating to the stock bonus of 2.022782458%, in new shares, of the same type as those held, with nominal unit value of R$ 5.00, to stockholders of the shares making up the capital of R$ 2,432,307,280, whose names are in the Nominal Share Registry on the date that these General Meetings of Stockholders are held, including: attribution of this bonus; sale on a securities exchange of amounts of whole numbers of nominal shares resulting from the sum of the remaining fractions, arising from the said bonus and division of the net proceeds of the sale, proportionately, to the holders of the fractions traded; decision on the date and form of payment of this sale; all the shares resulting from this bonus having the same rights as those shares from which they originate.

 

7                                          Subsequent redrafting of the head paragraph of Clause 4 of the bylaws, as a result of the increase of the registered capital mentioned above.

 

8                                          Election of sitting members and substitute members of the Audit Board and setting of their remuneration.

 

9                                          Alteration in the composition of the board of Directors, as a result of resignation or dismissal of members, as requested by the stockholder Southern Electric Brasil Participações Ltda., in correspondence filed at the company.

 

13



 

10                                    Setting of the remuneration of the managers of the company.

 

11                                    Authorization for the representative of Companhia Energética de Minas Gerais to vote in favor of the following matters at the Ordinary and Extraordinary General Meetings of Cemig Distribuição S.A. to be held, jointly, on April 5, 2008:

 

a.                                       Examination, discussion and voting of the report of management and financial statements, for the business year ended December 31, 2007, and the respective complementary documents.

 

b.                                      Allocation of the net profit for 2007, in the amount of R$ 771,208,000, in accordance with Article 192 of Law 6404 of December 15, 1976, as amended.

 

c.                                       Decision on the form and date of payment of the Interest on Equity, and complementary dividends, in the amount of R$ 680,648,000.

 

d.                                      Change in the composition of the Board of Directors as a result of resignation, if there is an alteration in the composition of the Board of Directors of Cemig.

 

e.                                       Election of sitting members and substitute members of the Audit Board.

 

12                                    Authorization for the representative of Companhia Energética de Minas Gerais to vote in favor of the following matters at the Ordinary and Extraordinary General Meetings of Cemig Geração e Transmissão S.A. to be held, jointly, on April 25, 2008:

 

a.                                       Examination, discussion and voting of the report of management and financial statements, for the business year ended December 31, 2007, and the respective complementary documents.

 

b.                                      Allocation of the net profit for 2007, in the amount of R$ 747,024,000, in accordance with Article 192 of Law 6404 of December 15, 1976, as amended.

 

c.                                       Decision on the form and date of payment of the Interest on Equity, and complementary dividends, in the amount of R$ 709,673,000.

 

d.                                      Change in the composition of the Board of Directors as a result of resignation, if there is an alteration in the composition of the Board of Directors of Cemig.

 

e.                                       Election of sitting members and substitute members of the Audit Board.

 

Under Article 3 of CVM Instruction 165 of December 11, 1991, adoption of the multiple voting system for election of members of the company’s Board requires the vote of stockholders representing a minimum percentage of 5% (five per cent) of the voting stock.

 

Any stockholder who wishes to be represented by proxy in General Meetings of Stockholders should obey the terms of Article 126 of Law 6406/76, as amended, and the sole paragraph of Clause 9 of the Company’s Bylaws, depositing, preferably by April 22, 2008, proofs of ownerships of the shares issued by a depositary financial institution, and a power of attorney with special powers, at the General Secretariat of the Company at Av. Barbacena 1200, 19th floor, B1 wing, Belo Horizonte, Minas Gerais, or showing them at the time of the meeting.

 

Belo Horizonte, Brazil, March 6, 2008.

 

Marcio Araujo de Lacerda
Chairman of the Board of Directors

 

14



 

PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, TOGETHER, ON APRIL 25, 2008.

 

To the Stockholders:

 

The Board of Directors of Companhia Energética de Minas Gerais (Cemig) –

 

— in view of:

 

·                  Article 192 of Law 6404, of December 15, 1976, as amended, and Clauses 20, 21 and 22 of the Bylaws, and the Financial Statements for 2007, presenting net profit of R$ 1,735,449,000;

 

·                  Clause Five – Incorporation of capital – of the Agreement for Assignment of the Outstanding Balance on the CRC (Results Compensation) Account, signed on May 31, 1995, between the State of Minas Gerais and Companhia Energética de Minas Gerais – Cemig, stating that the amounts effectively paid by the State of Minas Gerais as principal shall be incorporated into the Company’s registered capital;

 

·                  the payments made by the State of Minas Gerais in relation to installments number 1 to 8 of amortization of the principal, adjusted in accordance with the Fifth Amendment to the Agreement for Assignment of the Outstanding Balance of the CRC (Results Compensation) Account, total R$ 49,200,286.26 (forty nine million, two hundred thousand, two hundred and eighty six Reais and twenty-six centavos), after discounting of the amounts incorporated into the capital in 2002, in the form of a bonus, in new shares, in the amount of R$ 31,543,205.93 (thirty one million, five hundred and forty three thousand, two hundred and five Reais and ninety-three centavos), according to the said Clause Five;

 

·                  Sub-clause “g” of paragraph 4 of Clause 21 of the Company’s Bylaws;

 

— now proposes to you the following:

 

I)              That the net profit for 2007, in the amount indicated, should be allocated as follows:

 

1)              R$ 86,772,000, or 5% of the net profit, should be allocated to the Legal Reserve, in accordance to sub-clause “a” of the sole sub-paragraph of Clause 28 of the Bylaws.

 

2)              R$ 305,573,00 should be allocated to the Retained Earnings account, for use in investments and payment of expenses, taxes and service of debt, as per the Cash Budget approved CRCA-081/2007, of December 29, 2007.

 

3)              R$ 867,725,000 should be allocated as an obligatory dividend to the stockholders of the company, in accordance with sub-clause “b” of the sole sub-paragraph of Article 28 of the Bylaws and the applicable legislation.

 

4)              R$ 475,379,000 should be kept in Stockholder’s Equity in the account reserved under the Bylaws specified in sub-clause “c”, sole sub-paragraph of Article 28 and Article 30 of the Bylaws.

 

 

15



 

 

— the payments of dividends to be made in two installments, by June 30 and December 30, 2008, and may be brought forward, depending on the availability of cash and decision by the Executive Board;

 

and the decision on extraordinary dividends may take place over the business year of 2008, after decision on the plan for acquisition of assets specified in the Strategic Plan.

 

Appendix 1 summarizes the cash budget of Cemig for 2008, approved by the Board of Directors, characterizing the inflows of funds and disbursements for compliance with the allocations of the profit for the year.

 

Appendix 2 summarizes the calculation of the dividends proposed by the Management, in accordance with the Bylaws.

 

II)            Approval of the increase of the registered capital from R$ 2,432,307,280.00 (two billion, four hundred and thirty two million, three hundred and seven thousand, two hundred and eighty Reais) to R$ 2,481,507,565.00 (two billion, four hundred and eighty one million, five hundred and seven thousand, five hundred and sixty-five Reais) through the issue of 9,840,057 (nine million, eight hundred and forty thousand and fifty seven) new shares, of which 4,300,891 (four million, three hundred thousand, eight hundred and ninety-one) are common, nominal shares of nominal unit value R$ 5.00 (five Reais) each, and 5,539,166 (five million, five hundred and thirty nine thousand, one hundred and sixty-six) are preferred shares, with nominal value of R$ 5.00 (five Reais) each, upon capitalization of the amount of R$ 49,200,285.00 (forty nine million, two hundred thousand, two hundred and eighty five Reais), referring to the incorporation of the installments paid as updated principal until December 1995 under Clause 5 of the Contract for Assignment of Credit of the Outstanding Balance on the CRC (Results Compensation) Account, signed on May 31, 1995 between the State of Minas Gerais and Companhia Energética de Minas Gerais – Cemig, distributing, as a consequence, to the stockholders a stock bonus in the proportion of 2.022782458% in new shares, of the same type as those held, with nominal unit value of R$ 5.00 (five Reais).

 

·                  The difference between the amount capitalized and the amount corresponding to the payments made by the State of Minas Gerais in relation to the installments numbers 1 to 8 of amortization of the principal of the said Contract for Assignment of Credit, adjusted in accordance with the Fifth Amendment to that Contract for Assignment of Credit, that is to say R$ 1.26 (one Real and twenty-six centavos) shall be maintained in the balance for future incorporations in view of the minimum value for incorporation being the nominal value of one share.

 

III)        Consequent redrafting of the head paragraph of Article 4 of the Bylaws, which shall now read as follows:

 

“Clause 4: The company’s registered capital is R$ 2,481,507,565.00 (two billion, four hundred and eighty one million, five hundred and seven thousand, five hundred and sixty-five Reais) represented by:

a)                        216,923,394 (two hundred and sixteen million, nine hundred and twenty three thousand, three hundred and ninety-four) nominal common shares each with nominal value of R$ 5.00 (five Reais);

b)                       279,378,119 (two hundred and seventy nine million, three hundred and seventy-eight thousand, one hundred and nineteen) nominal preferred shares each with nominal value of R$ 5.00 (five Reais).”

 

IV)       That the Executive Board be authorized to take the following measures in relation to the bonus:

 

16



 

1)              To attribute a bonus of 2.022782458%, in new shares, of the same type as those held, and of nominal value R$ 5.00 (five Reais), to the holders of the shares making up the capital of R$ 2,432,307,280.00 (two billion, four hundred and thirty two million, three hundred and seven thousand, two hundred and eighty Reais), whose names are in the Nominal Share Register on the date that the General Meeting that decides on this proposal is held.

 

2)              To sell on a securities exchange the whole numbers of nominal shares resulting from the sum of the fractions remaining arising from the said bonus, and to divide the net proceeds of the sale proportionately between the stockholders holding the respective fractions traded.

 

3)              To pay to the stockholders, proportionately, the product of the sum of the remaining fractions together with the first installment of the dividends for the business year 2007.

 

4)              To establish that all the shares resulting from the said bonus shall have the same rights as the shares from which they arose.

 

V)           That the representatives of Cemig in the Ordinary and Extraordinary General Meetings of Stockholders of Cemig Distribuição S.A. and of Cemig Geração e Transmissão S.A., to be held jointly, on April 25, 2008, vote in favor of the agenda, that is to say:

 

Cemig D:

·                  Examination, discussion and voting on the report of management and the financial statements for the year ended December 31, 2007, and the respective complementary documents.

·                  Allocation of the net profit for 2007, in the amount of R$ 771,208,000, in accordance with Article 192 of Law 6404 of December 15, 1976 as amended.

·                  Decision on the form and date of payment of the obligatory dividend, in the amount of R$ 680,648,000.

·                  Alteration in the composition of the board of Directors, if there is a change in the composition of the Board of Directors of Cemig.

·                  Election of sitting members and substitute members of the Audit Board.

 

Cemig GT:

·                  Examination, discussion and voting on the report of management and the financial statements for the year ended December 31, 2007, and the respective complementary documents.

·                  Allocation of the net profit for 2007, in the amount of R$ 747,024,000, in accordance with Article 192 of Law 6404 of December 15, 1976 as amended.

·                  Decision on the form and date of payment of the obligatory dividend, in the amount of R$ 709,673,000.

·                  Alteration in the composition of the board of Directors, if there is a change in the composition of the Board of Directors of Cemig.

·                  Election of sitting members and substitute members of the Audit Board.

 

Belo Horizonte, Brazil, March 6, 2008.

 

Marcio Araujo de Lacerda – Chairman

Djalma Bastos de Morais – Vice-Chairman

Aécio Ferreira da Cunha – Member

Alexandre Heringer Lisboa – Member

Andréa Paula Fernandes Pansa – Member

Antônio Adriano Silva – Member

 

17



 

Carlos Augusto Leite Brandão – Member

Evandro Veiga Negrão de Lima – Member

Francelino Pereira dos Santos – Member

Haroldo Guimarães Brasil – Member

José Augusto Pimentel Pessôa – Member

Maria Estela Kubitschek Lopes – Member

Wilson Nélio Brumer – Member

Wilton de Medeiros Daher – Member

 

18



 

APPENDIX 1 TO THE PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, JOINTLY, BY APRIL 30, 2008

 

CASH BUDGET FOR 2008

COMPANHIA ENERGÉTICA DE MINAS GERAIS - CEMIG

In current R$ ’000

 

Description

 

Total 2008 (*)

 

AV %

 

 

 

 

 

 

 

A - INITIAL BALANCE

 

15.396

 

 

 

 

 

 

 

 

B - FUNDS

 

1.489.227

 

100,0

 

Raised

 

 

 

Capital resources

 

1.399.270

 

94,0

 

Other (Infovias)

 

89.957

 

6,0

 

 

 

 

 

 

 

C - DISBURSEMENTS

 

1.173.298

 

100,0

 

Capital expenditure program

 

131.581

 

11,2

 

Expenses budget

 

66.893

 

5,7

 

Taxes

 

 

 

Debt Servicing

 

107.099

 

9,1

 

Dividends

 

867.725

 

74,0

 

Extraordinary dividends

 

 

 

 

 

 

 

 

 

D - FINAL BALANCE (A+B-C)

 

331.325

 

 

 


(*) Approved by CRCA-081/2007, of 29-12-20/07, with the following adjustments:

Adjustment to the item Capital resources: Dividends arising from allocation of profit of CEMIG GT - R$ 541,718,000, CEMIG D - R$ 675,008,000 and Subsidiaries - R$ 182,544,000.

Capital  Expenditure Program: 1st Portion of injection of capital into GASMIG of R$ 93,737,000, decided by the Board of Directors on March 6, 2008.

 

19



 

APPENDIX 2 TO THE PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, TOGETHER, BY APRIL 30, 2008.

 

STATEMENT OF CALCULATION OF DIVIDENDS PROPOSED

COMPANHIA ENERGÉTICA DE MINAS GERAIS – CEMIG

 

 

 

31.12.2007

 

 

 

R$ ’000

 

Calculation of the minimum dividends for the preferred shares under the bylaws

 

 

 

Nominal value of preferred shares

 

1,369,195

 

Percentage on nominal value of preferred shares

 

10.0

%

Dividends in accordance with the 1st payment criterion

 

136,920

 

 

 

 

 

Stockholders’ equity

 

8,390,177

 

Proportion of stockholders’ equity represented by the preferred shares (net of shares in Treasury)

 

56.27

%

Value of preferred shares in terms of stockholders’ equity

 

4,721,153

 

Percentage applied to stockholders’ equity value of preferred shares

 

3.00

%

Dividends by the 2nd criterion

 

141,635

 

 

 

 

 

Minimum Obligatory Dividend for the Preferred Shares under the Bylaws

 

141,635

 

 

 

 

 

Obligatory dividend

 

 

 

Net profit for the year

 

1,735,449

 

Obligatory dividend – 50.00% of net profit

 

867,725

 

 

 

 

 

Net dividend proposed –

 

867,725

 

 

 

 

 

Total of the dividend for the preferred shares

 

488,269

 

Total of the dividend for the common shares

 

379,456

 

 

 

 

 

Dividend per share – R$

 

 

 

Minimum Obligatory Dividend for the Preferred Shares under the Bylaws

 

0.52

 

Obligatory dividend

 

1.78

 

Dividends proposed

 

1.78

 

 

20



 

 

ITEM 6

 

CEMIG Distribuição S.A., Ordinary and Extraordinary General

Meetings of Stockholders Convocation, March 6, 2008

 

 

21



 

 

 

CEMIG DISTRIBUIÇÃO S.A.
CNPJ 06.981.180/0001-16 – NIRE 31300020568
ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS
CONVOCATION

 

The stockholder Companhia Energética de Minas Gerais is hereby called to the Ordinary and Extraordinary General Meetings of Stockholders to be held jointly on April 25, 2008 at 4 p.m. at Av. Barbacena 1200, 17th floor, A1 wing, in the city of Belo Horizonte, Minas Gerais, to decide on the following matters:

 

1                                          Examination, discussion and voting on the report of management and the financial statements for the year ended December 31, 2007, and the respective complementary documents.

 

2                                          Allocation of the net profit for 2007, in the amount of R$ 771,208,000, in accordance with Article 192 of Law 6404 of December 15, 1976 as amended.

 

3                                          Decision on the form and date of payment of the obligatory dividend, in the amount of R$ 680,648,000.

 

4                                          Election of sitting members and substitute members of the Audit Board.

 

5                                          Alteration in the composition of the board of Directors, if there is a change in the composition of the Board of Directors of Cemig.

 

Belo Horizonte, Brazil, March 6, 2008.

 

Marcio Araujo de Lacerda
Chairman of the Board of Directors

 

22



 

PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, TOGETHER, ON APRIL 25, 2008.

 

To the Stockholder Companhia Energética de Minas Gerais:

 

The Board of Directors of Cemig Distribuição S.A. –

 

in accordance with Article 192 of Law 6404, of December 15, 1976 as amended, and Clauses 20, 21 and 22 of the Bylaws, and considering the financial statements for 2007, presenting profit of R$ 771,208,000,

 

— proposes to you that the net profit for 2007, in the amount indicated, should be allocated as follows:

 

1)              R$ 38,560,000, or 5% of the net profit, to the Legal Reserve, in accordance with sub-clause “a” of the sole sub-paragraph of Clause 21 of the Bylaws.

 

2)              R$ 680,648,000 to payment of dividends, as follows:

 

2.1)     R$ 149,809,000 in Interest on Equity:

 R$ 75,172,000, under Board Payment Decision (CRCA) 041/2007, of June 29, 2007;

 R$ 37,035,000, under CRD 535/2007, of September 25, 2007; and

 R$ 37,602,000, under CRD 846/2007, of December 18, 2007;

 

2.2)     R$ 530,839,000 in complementary dividends.

 

3)              R$ 52,000,000 to Retained Earnings, for use in investments, according to the Cash Budget approved by CRCA 098/2007, of December 29, 2007.

 

        the payments of dividends and Interest on Equity to be paid in two installments, 50% by June 30 and 50% by December 30, 2008, and may be brought forward depending on availability of cash as decided by the Executive Board.

 

Appendix 1 summarizes the Cash Budget of Cemig Distribuição S.A. for 2008, approved by the Board of Directors, characterizing inflow of funds and disbursements for compliance with the allocations of the profit for the year.

 

Appendix 2 summarizes the calculation of the dividends proposed by Management, according to the Bylaws.

 

Belo Horizonte, March 6, 2008.

 

Marcio Araujo de Lacerda – Chairman

 

Djalma Bastos de Morais – Vice-chairman

 

Aécio Ferreira da Cunha – Member

 

Alexandre Heringer Lisboa- – Member

 

Andréa Paula Fernandes Pansa – Member

 

Antônio Adriano Silva – Member

 

Carlos Augusto Leite Brandão – Member

 

Evandro Veiga Negrão de Lima – Member

 

Francelino Pereira dos Santos – Member

 

Haroldo Guimarães Brasil – Member

 

José Augusto Pimentel Pessôa – Member

 

Maria Estela Kubitschek Lopes – Member

 

Wilson Nélio Brumer – Member

 

Wilton de Medeiros Daher – Member

 

23



 

APPENDIX 1 TO THE PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, JOINTLY, BY APRIL 30, 2008

 

CASH BUDGET FOR 2008

CEMIG DISTRIBUIÇÃO S.A

In current R$ ’000

 

Description

 

Total 2008 (*)

 

AV %

 

 

 

 

 

 

 

A - INITIAL BALANCE

 

571.448

 

 

 

 

 

 

 

 

B - FUNDS

 

11.197.570

 

100,0

 

Raised

 

10.510.183

 

93,9

 

Capital resources / assistance

 

687.387

 

6,1

 

 

 

 

 

 

 

C - DISBURSEMENTS

 

11.579.327

 

100,0

 

Capital expenditure program

 

1.421.313

 

12,3

 

Expenses budget

 

4.363.144

 

37,7

 

Expenses

 

1.498.424

 

12,9

 

Bought energy

 

2.317.728

 

20,0

 

Transport of power

 

546.992

 

4,7

 

Taxes

 

4.449.548

 

38,4

 

Debt servicing

 

670.314

 

5,8

 

Dividends / Interest on Equity

 

675.008

 

5,8

 

 

 

 

 

 

 

D - FINAL BALANCE (A+B–C)

 

189.691

 

 

 


(*) Approved by CRCA-098/2007, of 29-12-20/07, with the following adjustments:

· Substitution of the initial cash balance by the actual amount on 31-12-2007;

· Substitution of Dividends and Interest on Equity by the amount proposed for payment of dividends to stockholders.

 

24



 

APPENDIX 2 TO THE PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, TOGETHER, BY APRIL 30, 2008.

 

STATEMENT OF CALCULATION OF DIVIDENDS PROPOSED
CEMIG DISTRIBUIÇÃO S/A

 

 

 

31/12/2007

 

 

 

R$ mil

 

Obligatory dividend

 

 

 

Net profit for the year

 

771,208

 

Obligatory dividend – 50.00% of net profit

 

385,604

 

 

 

 

 

Dividends Proposed –

 

 

 

Interest on Equity

 

149,809

 

Complementary dividends

 

530,839

 

Total

 

680,648

 

 

 

 

 

Dividend per thousand shares - R$

 

 

 

Dividend under the Bylaws

 

170.47

 

Dividends proposed

 

300.91

 

 

 

25



 

 

ITEM 7

 

CEMIG Gereção e Transmissão S.A., Ordinary and Extraordinary

General Meetings of Stockholders Convocation, March 6, 2008

 

 

26



 

 

CEMIG GERAÇÃO E TRANSMISSÃO S.A.
CNPJ 06.981.176/0001-58 – NIRE 31300020550
ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS
CONVOCATION

 

The stockholder Companhia Energética de Minas Gerais is hereby called to the Ordinary and Extraordinary General Meetings of Stockholders to be held jointly on April 25, 2008 at 5 p.m. at Av. Barbacena 1200, 12th floor, B1 wing, in the city of Belo Horizonte, Minas Gerais, to decide on the following matters:

 

1              Examination, discussion and voting on the report of management and the financial statements for the year ended December 31, 2007, and the respective complementary documents.

 

2              Allocation of the net profit for 2007, in the amount of R$ 747,024,000, in accordance with Article 192 of Law 6404 of December 15, 1976 as amended.

 

3              Decision on the form and date of payment of the obligatory dividend, in the amount of R$ 709,673,000.

 

4              Alteration in the composition of the board of Directors, if there is a change in the composition of the Board of Directors of Cemig.

 

5              Election of sitting members and substitute members of the Audit Board.

 

Belo Horizonte, Brazil, March 6, 2008.

 

Marcio Araujo de Lacerda

Chairman of the Board of Directors

 

27



 

 

PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, TOGETHER, ON APRIL 25, 2008.

 

To the Stockholder Companhia Energética de Minas Gerais:

 

The Board of Directors of Cemig Geração e Transmissão S.A. –

 

in accordance with Article 192 of Law 6404, of December 15, 1976 as amended, and Clauses 20, 21 and 22 of the Bylaws, and considering the financial statements for 2007, presenting profit of R$ 747,024,000,

 

proposes to you that the net profit for 2007, in the amount indicated, should be allocated as follows:

 

1)   R$ 37,351,000, or 5% of the net profit, to the Legal Reserve, in accordance with sub-clause “a” of the sole sub-paragraph of Clause 21 of the Bylaws.

 

2)   R$ 709,673,000 to payment of dividends, as follows:

 

2.1)

R$ 188,118,000 in Interest on Equity:

 

R$ 94,394,000, under Board Payment Decision (CRCA) 043/2007, of June 29, 2007;

 

R$ 46,506,000, under CRD 400/2007, of September 26, 2007; and

 

R$ 47,218,000, under CRD 562/2007, of December 18, 2007;

 

 

2.2)

R$ 521,555,000 in complementary dividends.

 

 

the payments of dividends and Interest on Equity to be paid in two installments, 50% by June 30 and 50% by December 30, 2008, and may be brought forward depending on availability of cash as decided by the Executive Board.

 

Appendix 1 summarizes the Cash Budget of Cemig Distribuição S.A. for 2008, approved by the Board of Directors, characterizing inflow of funds and disbursements for compliance with the allocations of the profit for the year.

 

Appendix 2 summarizes the calculation of the dividends proposed by Management, according to the Bylaws.

 

Belo Horizonte, Brazil, March 6, 2008.

 

Marcio Araujo de Lacerda – Chairman

 

Djalma Bastos de Morais – Vice-chairman

 

Aécio Ferreira da Cunha – Member

 

Alexandre Heringer Lisboa – Member

 

Andréa Paula Fernandes Pansa – Member

 

Antônio Adriano Silva – Member

 

Carlos Augusto Leite Brandão – Member

 

Evandro Veiga Negrão de Lima – Member

 

Francelino Pereira dos Santos – Member

 

Haroldo Guimarães Brasil – Member

 

José Augusto Pimentel Pessôa – Member

 

Maria Estela Kubitschek Lopes – Member

 

Wilson Nélio Brumer – Member

 

Wilton de Medeiros Daher – Member

 

28



 

APPENDIX 1 TO THE PROPOSAL BY THE BOARD OF DIRECTORS

TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS

TO BE HELD, JOINTLY, BY APRIL 30, 2008

 

CASH BUDGET FOR 2008

CEMIG GERAÇÃO E TRANSMISSÃO S.A.

In current R$ ’000

 

Description

 

Total 2008

 

AV %

 

 

 

 

 

 

 

A - INITIAL BALANCE

 

846.078

 

 

 

 

 

 

 

 

B - FUNDS

 

3.476.165

 

100,0

 

Raised

 

3.475.141

 

100,0

 

Capital resources / assistance

 

1.024

 

0,0

 

Other

 

 

 

 

 

 

 

 

 

C - DISBURSEMENTS

 

3.476.668

 

100,0

 

Capital expenditure program

 

337.660

 

9,7

 

Expenses budget

 

865.080

 

24,9

 

Expenses

 

625.083

 

18,0

 

Transport of power

 

239.997

 

6,9

 

Taxes

 

1.210.524

 

34,8

 

Debt servicing

 

521.686

 

15,0

 

Dividends / Interest on Equity

 

541.718

 

15,6

 

 

 

 

 

 

 

D - FINAL BALANCE (A+B-C)

 

845.575

 

 

 


(*) Approved by CRCA - 098/2007, of 29-12-20/07, with the following adjustments:

· Substitution of the initial cash balance by the actual amount on 31-12-2007;

· Substitution of Dividends and Interest on Equity by the amount proposed for payment of dividends to stockholders.

 

29



 

APPENDIX 2 TO THE PROPOSAL BY THE BOARD OF DIRECTORS TO THE ORDINARY AND EXTRAORDINARY GENERAL MEETINGS OF STOCKHOLDERS TO BE HELD, TOGETHER, BY APRIL 30, 2008.

 

STATEMENT OF CALCULATION OF DIVIDENDS PROPOSED
CEMIG GERAÇÃO E TRANSMISSÃO S.A

 

 

 

31/12/2007

 

 

 

R$ ’000

 

 

 

 

 

Obligatory dividend

 

 

 

Net profit for the year

 

747,024

 

Obligatory dividend – 50.00% of net profit

 

373,512

 

 

 

 

 

Dividends proposed -

 

 

 

Interest on Equity

 

188,118

 

Complementary dividends

 

521,555

 

Total

 

709,673

 

 

 

 

 

Dividend per thousand shares - R$

 

 

 

Dividend under the Bylaws

 

128.94

 

Dividends proposed

 

244.99

 

 

30



 

ITEM 8

 

2007 Management Report

 

 

31



 

 

 

CONTENTS

 

 

Page

REPORT OF MANAGEMENT FOR 2007

 

Message from management

34

The economic context

36

Our business

36

Value of the Cemig brand

38

Strategic planning

39

Capital expenditure

40

Electricity sales

45

Economic - Financial Performance

49

Liquidity and cash flow

54

Funding and debt management

54

Corporate governance

57

Capital markets

58

Dividend policy

60

Profit allocation proposal

61

Relationship with external auditors

61

Risk management

61

Technology

64

Social responsibility

67

Final remarks

76

Consolidated Social statement

77

Cemig in numbers

78

Members of Cemig’s boards

79

 

 

Fs

 

Balance sheets

80

Income statements

82

Statements of changes in stockholder´s equity

83

Statements of sources and uses of funds

84

 

 

Explanatory Notes to the financial statements

 

1) Operational context

85

2) Presentation of the financial statements and principal accounting practices

87

3) Principles of consolidation

92

4) Concessions

93

5) Cash and cash equivalents

95

6) Consumers and traders

95

7) Regulatory assets and liabilities

96

8) The extraordinary tariff recomposition, and portion “a”

97

9) Traders – transactions in free energy

99

10) Anticipated expenses and regulatory liabilities – cva

100

11) Taxes subject to offsetting

100

12) Tax credits

101

13) Deferred Tariff Adjustment

102

14) Accounts receivable from the state of Minas Gerais

103

 

32



 

Contents—continued

 

 

Page

15) Regulatory asset – PIS, Pasep and Cofins

105

16) Investments

106

17) Assets and intangible assets

113

18) Suppliers

115

19) Taxes, charges and contributions

115

20) Loans, financings and debentures

116

21) Regulatory charges

119

22) Post-employment obligations

119

23) Regulatory liabilities - review of transmission revenue

124

24) Contingencies for legal proceedings

125

25) Stockholder’s equity and remuneration to stockholders

130

26) Gross retail supply of electricity

133

27) Revenue for use of the network – free consumers

134

28) Other operational revenues

134

29) Deductions from operational revenue

135

30) Operational costs and expenses

135

31) Net financial revenue (expenses)

137

32) Non-operational revennue (expenses)

138

33) Employees’ profit shares

138

34) Related party transactions

139

35) Exposure and management of risks

139

36) Financial instruments

141

37) Insurance

143

38) Contractual obligations

143

39) Periodic tariff review of cemig distribuição – material event

144

40) Financial statements separated by company

145

 

 

Appendices

 

I - Statements of cash flows

148

II - Statements of added value

150

III - Income statements separated by activity

151

 

 

Independent auditors’ report

153

 

33



 

REPORT OF MANAGEMENT FOR 2007

 

Dear Stockholders,

 

Cemig submits for your consideration the report of management and the financial statements and opinions of the audit board and the external auditors on the business year ended December 31, 2007. The principal information in this report refers to the activities of the holding company and the companies in which the company has 100% control, principally Cemig Distribuição S.A. (Cemig Distribution) and Cemig Geração e Transmissão S.A. (Cemig Generation and Transmission).

 

MESSAGE FROM MANAGEMENT

 

After the first wave of consolidation in Brazil’s electricity sector, which we led with the acquisition of the distributor Light S.A. and of TBE, a group of companies operating five transmission lines, we began 2007 preparing to face greater competition due to the success achieved in 2006.

 

With the positive perception of the investments that we made, the investor market to some extent woke up to the opportunities for growth through acquisitions. As a result, the difficulty of acquiring good assets increased significantly, principally for us, who have specifically-established targets for returns to our stockholders, based on our Long-term Strategic Plan, which are part of our strategy for ensuring sustainability in the growth of our business.

 

For us, the great challenge for 2008 is to re-establish our position of leadership in the process of consolidation of the Brazilian sector – and to achieve this it has been necessary to make some changes in the way we manage our Strategic Plan.

 

Firstly, we made some changes in our Bylaws, aiming to make the decision process faster, and to adapt the organizational structure better to the new competitive context.

 

We restructured the process of strategic planning to enable the structural changes to be incorporated as soon as they are identified. This aspect will add a new dynamic in evaluation of the impacts caused by changes, and commit a larger number of executives to re-directing strategic initiatives to achieve the targets established in our Strategic Plan.

 

We have created the Chief New Business Officer’s Department, and the Chief Trading Officer’s Department, aiming to give more flexibility and competitiveness to the two segments that are most exposed to the investor market and electricity trading. We believe that this new structure will enable us to identify opportunities in both markets faster, principally those related to acquisition of new assets, and capturing of the benefits arising from these acquisitions.

 

At the same time, we continue to seek operational excellence in our assets – which will also be submitted to a process of review to make them more efficient and economic. For this process we will contract a consultancy company with international reputation, able to bring us new practices which, jointly with our present practices, will provide a reduction of costs that will add not only great value for our stockholders, but also benefits to the consumers served by our distribution company.

 

We continue to implement our human capital management policy with a view to definitively achieving a better remuneration practice for our employees linked to their performance. This will materialize efficiency gains obtained by the review of plans to increase productivity and profitability.

 

In 2007 we achieved net profit of R$ 1.7 billion, with cash flow as measured by Ebitda totaling R$ 4.1 billion. The cash flow ensures we have the funds necessary for our expansion. In the period 2004–2007 we have exceeded the net profit target set in our Long-Term Strategic Plan by 2.9%.

 

These results – in line with our forecasts disclosed to the market – have placed our performance among the best in the Brazilian electricity sector. Meanwhile, as our published reports show, all our indicators are in line with the targets of our Plan, and with the limits specified in our bylaws – preserving one of the pillars of our growth strategy, which is the company’s financial health.

 

34



 

We highlight investments we have made that will provide additional gains when they mature. In the last five years, we have invested more than R$ 6.2 billion in our electricity generation, transmission and distribution activities. The Light for Everyone program alone – to provide universal access to public electricity service – has represented investment of R$ 1.6 billion over the last two years. The immediate material outcome of these investments has been connection of 279,000 new consumers in 2007, making an enormous reduction in the number of people who live in the rural areas of Minas Gerais State without access to electricity.

 

As well as the investments in distribution we have made accentuated investment in transmission and generation projects. One highlight is our participation in the winning consortium at the auction for implementation of the Santo Antônio hydroelectric plant, the first plant of the Madeira river complex. This auction took place in December 2007. The plant, with installed capacity of 3,150 MW, in scheduled to start operating in 2012, and is thus expected to make a significant contribution to guaranteeing Brazil’s electricity supply in the next decade. A presence in the Amazon region is an essential element in our strategy in generation, because that region holds 60% of Brazil’s potential for new hydroelectric generation projects.

 

We are continuously seeking to improve our relationship with stockholders and investors, and have now further facilitated their access to our securities with the launch of ADRs for our common (ON) shares on New York stock exchange, on June 12, 2007. In 2007 we also made a reverse split, bringing the unit basis for trading on the São Paulo stock exchange exactly into line with that of the ADRs in New York and the unit trading price on Madrid’s Latibex exchange.

 

On average over the year, our shares had the second highest market capitalization in the Brazilian Electricity Sector in 2007. Our market cap. at year-end was R$ 16 billion, reflecting uncertainties on the credit market in the United States, the risks of the tariff review, and uncertainty on the return from the Santo Antonio project. For the latter, we reaffirm our secure confidence in the decision to invest, because we are strongly confident that we will obtain a return compatible with our investment policy. Unfortunately, due to the existence of a confidentiality agreement, it has not been possible to give the required transparency to the investor market. As soon as the confidentiality agreement permits, we will provide information complementary to that published so far, and this will enable everyone to deduce that our decision is in line with our investment policy.

 

We are confident that, through responsible and sustainable corporate practices, allied to our commitment to add value over the long term, our stockholders will continue to have an adequate return for their investments.

 

This positioning has placed us, once again, among the world leading companies according to the Dow Jones Sustainability World Index. We have also been recognized as the best company in the utility sector worldwide (the “supersector” including electricity, gas, water, and other public utility services all over the world).

 

As well as international recognition – which once again reaffirms our status as a world-class company – we have been recognized by our clients as “the Best Electricity Concession in the Brazilian Southeast” (in the category of companies with more than 400,000 consumers), by the IASC (Aneel Consumer Satisfaction Index) for 2006.

 

35



 

We are aware of the challenges of 2008, in which the economic environment will be one of considerable uncertainty and instability, led by the growing concern on Brazil’s ability to ensure that it has enough supply of electricity in the coming years. In this scenario, Cemig presents itself as a leading company, investing with rigid financial discipline, which guarantees creation of value, with solid fundamentals in its electricity generation, transport and distribution businesses, guided by permanent updating in accordance with the demands of the electricity sector, and best corporate management practices.

 

Finally, we thank our stockholders for their trust in our work, and especially our majority stockholder the State of Minas Gerais, represented by Governor Aécio Neves. We also thank our employees for their commitment and dedication, and our clients, suppliers, and all those who have played a role in our successful 55-year history.

 

THE ECONOMIC CONTEXT

 

2007 was a year of improvement in practically all the indicators of the Brazilian economy.

 

The economy grew significantly in the year, with GDP posting growth of 5%, according to financial market estimates, led by the strength of the domestic market.

 

The gradual and continuous reduction in interest rate contributed to the growth of the Brazilian economy in the year – the Selic rate was reduced from 13.25% p.a. at the end of 2006 to 11.25% at the end of 2007.

 

Continuation of the process of reduction of interest rates in 2008 will mainly depend on the behavior of inflation, which the increase has caused some concern at the end of the year. Even with this increase, the inflacion acumulated from January to December, measured by IPCA - Índice Nacional de Preços ao Consumidor Amplo was 4.46%, within the target established by the country’s monetary authorities.

 

Brazil continues to achieve a significant trade surplus – among the largest in the world: R$ 40 billion in 2007, although this was 14.1% less than in 2006. Exports grew 17% in the year, boosted by the increase in prices of exported basic products, while imports increased faster, by 32%, from 2006.

 

This reduction in the trade balance partly reflects the strengthening of the Brazilian Real against the US dollar. The dollar depreciated against the Real by more than 17% in the year – from R$ 2.1380 / US$ at the end of December 2006 to R$ 1.7713 / US$ at the end of December 2007.

 

Further significant growth in the Brazilian economy is expected in 2008 and, as a counterpart, greater concern on the part of the monetary authorities to maintain inflation within targets – a factor which could mean a slowing of the fall in interest rates.

 

The growth that is expected in the Brazilian economy in 2008 will have a direct impact on consumption of electricity, and this makes it even more necessary to increase investments in expansion of electricity supplies significantly, and also to maintain a regulatory environment that stimulates the entry of new investors into the sector.

 

OUR BUSINESS

 

Cemig is an operator of significant scale in the electricity sector, having set up numerous companies to manage its assets.

 

36



 

Geographical coverage

 

As shown in the map below, Cemig operates in various regions of Brazil, primarily concentrated in the Southeast, and also outside Brazil in Chile, where it is working on construction of the Charrúa–Nueva Temuco transmission line, scheduled for startup in the second half of 2008.

 

 

37



 

Stockholding structure

 

 


(1)   Has also electricity transmission activity

(2)   The RME - Rio Minas Energia has 54.20% interest of Light S.A.

(3)   Subsidiaries of Cemig Geração e Transmissão S.A. (jointly controlled) of generation and sale of electricity. They are at development phase.

 

VALUE OF THE CEMIG BRAND

 

At present, in the information age, products, machines and equipment can mean less for companies than image, know-how, brand, technological development capacity and even intellectual capital – intangible assets, which when measured can often have market value much greater than that of the tangible assets recorded in the accounts.

 

In this context Cemig, in a pioneering move in the electricity market, decided to value its brand, in relation to strategic objectives of management and mitigation of risk. A panel of Cemig brand indicators was included in the company’s Balance Scorecard, and also an internal process of brand management.

 

The strength of the brand can be seen in the relationship with clients, stockholders, opinion formers (such as specialized media, environmentalists, NGOs, prefectures, etc), investors and employees.

 

The value of the Cemig brand was calculated by the method based on Economic Use, by Brand Finance, one of the world’s leadings specialists in brand valuation. Brand Finance’s method seeks to recognize the future value of profit flows generated by the brand as a result of the “pact” made with its clients and other stakeholders. Hence it is based on discounted value of future profits generated by the brand, with the profit attributed to tangible and intangible assets being valued separately.

 

38



 

 

Based on indicators or drivers of value of the brand in the relationship with stakeholders, the brand’s contribution to the business was determined on the basis of a quantitative survey of its publics, assessing the performance of the Cemig brand in the following value drivers: credibility, the company’s trust and solidity, innovation and technology, ethics and transparency, quality, management practices, development attitudes, image, prices and contractual conditions, technical support and service, social and environmental responsibility, association with the State.

 

The resulting of the Cemig brand can be summarized in this diagram of two different scenarios:

 

 

STRATEGIC PLANNING

 

Cemig’s strategy seeks to maximize value for its stockholders, in a sustainable manner, and in obedience to its long-term Strategic Plan (for 2005-2035), which establishes the financial basis for the strategic planning.

 

To execute the strategy focus is directed to expansion of the area of operation (electricity and gas) in the whole of the territory of Brazil, within the limits set by the regulatory environment; and initial investments in international projects. In 2007 an example of our growth strategy was our participation in the Madeira Energia consortium, which won the auction to operate the Santo Antônio hydroelectric complex on the Madeira River in the Amazon region.

 

The strategy also seeks constantly to add value for stockholders and the public, through a dividend policy that is recognized as attractive; through commitment to social and environmental responsibility; profitability of the businesses; integrated risk management, operational efficiency; and an agreeable environment to work in.

 

Another important step for Cemig was the implementation of a new management strategy model, based on a structured flow of meetings that makes greater alignment and focus possible, and makes the process of strategy planning and management a continuous one. The proposed model includes the possibility of structured strategic planning, and also immediate repositioning, when necessary, through a system of strategic alerts that can be activated for any need or opportunity. Senior management is the focus and principal user of the model, which can also activate any area of the corporation. Strategy management is the concept adopted, which incorporates traditional strategic planning into management best practices.

 

In 2006 the process of implementation of this tool focused strongly on translation of the corporate strategy into operational terms, with our strategic “maps” for our businesses being updated and validated and corporate maps and strategic panels of the support processes also being built, each one with their strategic objectives and performance indicators, so as to meet the principal indicator directly derived from the Long- Term Strategic Plan.

 

39



 

In 2007 efforts were centered on alignment between the strategy and decision on targets for all the company’s business areas for the next five years, and decisions on initiatives that will achieve the corporate strategy.

 

All these efforts aim to make Cemig one of the largest companies in the Brazilian electricity sector. For this, Cemig is seeking and will seek opportunities for acquisition of existing assets and increase of competitiveness in the auctions for expansion of generation and transmission in which it takes part, as well as constantly seeking operation efficiency and alignment to the overall strategy.

 

With the current phase of consolidation in this sector, growth becomes a challenge for Cemig – and above all a condition for successful survival.

 

CAPITAL EXPENDITURE

 

As well as the permanent focus on generation, transmission and distribution of electricity, Cemig has been developing various synergies to its principal business, taking its brand into other sectors such as telecommunications, energy efficiency services, and others, aiming always to increase profitability and strengthen its market position.

 

The Works Prioritization Committee was organized in the late 1990s and analyses the expansion projects contained in the Five-year Business Plan, recommending execution to the Executive Board and ensuring that there is the minimum return demanded by the Board of Directors.

 

The mainly investiments of CEMIG, net of divestiture, were as follow:

 

 

 

2007

 

2006

 

Change, %

 

Generation

 

279

 

206

 

35.44

 

Distribution

 

861

 

1,130

 

(23.81

)

Transmission

 

78

 

359

 

(78.27

)

Sale of the Way Tv

 

(49

)

 

 

Other

 

22

 

25

 

(12.00

)

 

 

1,189

 

1,720

 

(30.87

)

 

Generation

 

Cemig and its subsidiaries own 62 power plants, of which 57 are hydroelectric, four are thermal and one is a wind power plant, with total installed capacity of 6,678MW.

 

Expansion in electricity generation

 

The main electricity projects under construction are:

 

Project

 

Power

 

Cemig stake

 

Startup expected

 

Baguari plant

 

140MW

 

34.00

%

2nd half 2009

 

Cachoeirão “PCH” (Small Hydro Plant)

 

20MW

 

49.00

%

2nd half 2008

 

PCHs of Guanhães, Senhora do Porto, Fortuna II and Jacaré

 

44MW

 

49.00

%

1st half 2009

 

 

A highlight in the year was Cemig’s participation in the auction for the Santo Antônio hydroelectric plant on the Madeira River, in the Amazon region, in December 2007, as a member of the winning consortium. This 3,150MW plant, in the basin of the Madeira River, will be built in partnership with other companies. Cemig Geração e Transmissão S.A. (Cemig Generation and Distribution) has 10.0%. Startup is scheduled for the year 2012.

 

40



 

Hydroelectric inventory surveys:

 

The following partnerships were entered into for hydroelectric inventory studies to obtain information on the energy potential of the state of Minas Gerais:

 

River

 

Partners

 

Power

 

Partnership started

 

São Francisco

 

Chesf

 

1,400MW

 

Jan 07

 

Paracatu

 

Engevix

 

47MW

 

Jan 07

 

Jequitinhonha and Araçuaí

 

Neoenergia and Furnas

 

990MW

 

Aug 07

 

 

Feasibility studies of hydroelectric and thermal plants:

 

Partnerships were entered into with important agents of the Brazilian hydroelectric generation sector for joint development of technical, economic, financial and environmental feasibility studies of hydroelectric and thermal plants, respectively totaling some 1300MW and 70MW of installed capacity.

 

The Minas Small Hydro Plant (PCH) Program

 

The aim of the Minas PCH Program is to increase Cemig’s generation capacity through building of small hydro plants (“PCHs”) in Minas Gerais state, developing alternative energy sources and also generation from within the locations in the network, contributing to development of regional markets in the state.

 

Consumers of the energy generated by the PCHs will benefit also from tax and other benefits applicable to consumers of electricity from renewable sources. Renewable-source generation projects are eligible under the Clean Development Mechanism (CDM) concept, involving obtaining of carbon credits.

 

PCHs are built and operated through special-purchase companies whose stockholders are companies authorized by Aneel, investors and Cemig (with 49% stake). Sales are made through sales contracts signed between the special-purpose company and the consumer.

 

As well as the projects with construction currently contracted or under way, the Minas PCH program has 15 other PCHs registered – a total of 209.4MW of installed capacity, of which Memorandums of Understanding have been signed for 68.5MW, 64.9MW is the subject of confidentiality agreements, and 76.0MW has an analysis of documents completed.

 

Modernization and revitalization of plants:

 

Cemig has been carrying out a broad-based program of modernization and revitalization of some of its plants, with capital expenditure approximately R$ 250 million in the period of 2002-2009.

 

Three major projects on progress:

 

·                  Modernization of the Três Marias Plant (396MW) with investment of R$ 53 million, for completion in 2008, which includes technological updating of the various control systems and refurbishment of its generating units, making automation of the whole facility possible.

·                  Modernization of the generating units of the Jaguara plant (424MW) with investment of R$ 60 million. This plant started operating in 1971, was totally modernized between 2004 and 2007, and the current modernization project includes technological updating of the regulation, startup and protection systems, as well as partial refurbishment of the generators. Modernization of the generating units has resulted in gains in operational reliability, more efficient physical and electrical protection, and a better response to system oscillations.

·                  General refurbishment of the four generating units of the Salto Grande hydroelectric plant (102MW). Investment is estimated at R$ 17 million, for conclusion in 2009, including refurbishment of the generators and rotors, with significant gains in the plant’s efficiency and reliability.

 

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The sugar and alcohol sector

 

Under the Minas Gerais Program to Stimulate Development of the Sugar and Alcohol Sector, letters of intent are being signed by Cemig and various bodies of the state government with sugar and alcohol mills planned for construction in Minas Gerais.

 

Cemig has been holding meetings with groups that plan to set up new sugar/alcohol mills or modernize their existing plant, so as to map the potential for co-generation and sale of new electricity, and to present a proposal for partnership by Cemig in co-generation and/or sale of electricity.

 

45 sugar/alcohol operations to be built in Minas Gerais have been identified, with potential co-generation capacity of the order of 2,200MW by 2015 providing excess energy for sale of 1,300MW during the harvest.

 

Transmission

 

The main projects in progress are:

 

                The 75-km 345kV Furnas–Pimenta transmission line, to be built by Companhia de Transmissão Centroeste de Minas, in which Cemig has (51%) and Furnas (49%). The investment is R$ 47.7mn, Cemig participating with R$ 24.3mn. Startup is planned for January 2009.

 

                Construction of the Charrúa–Nueva Temuco transmission line in Chile: This is a double-circuit, 220kV line with total length of 205km, and two sections between the Charrúa and Nueva Temuco substations, in the Central Region of Chile. Cemig has a stake of 49%, and Alusa 51%. They have formed the company Transchile Charrúa Transmisión S.A. to implement, operate and maintain the facility, with startup date scheduled for January 2008. The investment is US$63.4mn, Cemig participating with US$31.1mn.

 

The main projects that started operation in 2007 were:

 

                The 140-km, 345kV Itutinga–Juiz de Fora transmission line, being built by Companhia Transudeste de Transmissão, in which Cemig has 24%, Alusa 41%, Furnas 25% and Orteng 10%. The total cost of works was R$ 68 million.

 

                The 65-km, 230kV Irapé–Araçuaí transmission line, and the Irapé and Araçuaí substations, being built by Companhia Transirapé de Transmissão, in which Cemig has 24.5%, Alusa 41%, Furnas 24.5% and Orteng 10%.<0} The total cost of works was R$ 59 million.

 

Distribution

 

The Light for Everyone Program – universal access to electricity

 

Provision of access to electricity for all Brazilians throughout the country became an obligation under Law 10438 of April 26, 2002, amended by Law 10762 of 11 November, 2003. Aneel has the task of establishing targets for “universalization” of access to public electricity service, for consuming units with load of up to 50 KW served at secondary voltage, and without any charge whatsoever for the party applying for service.

 

The Light for Everyone (“Luz para Todos”) program instituted by the federal government in 2003 aims to bring forward the target for “universalization”, initially set for 2015, to the year 2008.

 

The total cost of the program up to December 31, 2007 was R$ 1,599 million. Funds came from the federal and state governments
(R$ 593mn and R$ 79mn respectively), and the remaining R$ 927mn was financed from the company’s own funds.

 

Approximately 56,000km of networks, corresponding to 22% of the entire rural network built by Cemig in the state in its 55 years of existence, was constructed between 2004 and December 2007, with installation of 106,000 transformers and 476,000 cable posts. Further, 1,700 photovoltaic panels were installed in those places where it was not possible to establish conventional networks, due to obstacles such as environmental issues, distance, and physical barriers.

 

42



 

The market served by the program, as well as rural producers and establishments, includes populations affected by dams, municipal and state schools, community water supply wells, rural settlements, communities remaining from “quilombos” (ancient minority settlements) and racial minorities.

 

Approximately 180,000 rural properties were connected to electricity by the end of 2007, benefiting a population of approximately 840,000. There is at least one beneficiary in all of the 774 municipalities of Cemig’s concession area, and in 475 of these municipalities the original potential market was even exceeded. This performance makes Cemig a “champion of new connections” in the program, among Brazilian concession holders.

 

With the continuous increase in the potential market arising from splitting up of properties, construction of new homes and normal vegetative growth, it is estimated that there are still 92,000 new consumers to be benefited by the program throughout the state. As a result Cemig Distribuição is dealing with the Federal Government to include new access to electricity inside the program to be executed in 2008 and 2009.

 

Public illumination improvement projects – the Reluz program

 

Throughout the state, we are improving and modernizing public illumination systems – introducing more efficient technologies, to reduce consumption at the peak times of the distribution system, and also to reduce operational costs, while increasing safety conditions and quality of life in the state’s cities.

 

Projects for improvement and expansion of public illumination were carried out at some 52,000 points in 2007, for investment of the order of R$ 14 million mainly in the metropolitan region of Belo Horizonte.

 

The Cresce Minas Program

 

This program, approved by the Board of Directors and the Executive Board, to be executed in 4 years over the period 2006-2010, in the amount of R$ 759 million, aims to improve the quality of electricity supply to meet the new demand in the Minas Gerais market caused by the resumption of growth, expansion of the markets associated with irrigation and agribusiness; and recovery and maintenance of the levels of service quality within the regulatory parameters.

 

The Cresce Minas program is made up of works to reinforce distribution substations, lines and networks in the state of Minas Gerais, including 687 km of distribution lines, 11 new substations and 101 works of expansion of various existing substations.

 

This group of works will benefit approximately 340 municipalities (41% of the total), a population of approximately 4.1 million, and some 1.1 million consumers throughout the state.

 

Natural gas

 

Brazil’s natural gas industry suffered its first supply crisis in 2007, obliging Petrobras, the country’s main supplier, to seek alternative sources, under various types of contract.

 

The events in Bolivia led to a change in compliance with the levels of supply previously contracted with that country, and showed the importance of reducing dependence of the Brazilian gas market on supply from the Brazil-Bolivia gas pipeline (“Gasbol”). The action taken by Petrobras to contract imports of liquefied natural gas (LNG) are part of the medium-term response to this situation – supply will begin in 2008.

 

Over a longer horizon, it is still necessary to speed up projects for gas exploration and production in Brazilian deposits, and also to apply policies that aim for a greater integration of Brazil with other Latin American countries in terms of energy, as well as expanding gas transport infrastructure for delivery of the natural gas produced domestically, and to be imported.

 

In 2007 Brazil consumed an average of 42 million m3/day, of natural gas, led by the Southeastern region with 2/3 of this volume. The most important consumer, industry, consumed 59% of the total volume followed by the thermal electricity distribution industry with 26%, the automobile industry with 13%, and other sectors with 2%.

 

43



 

Expansion of Gasmig’s network has made it possible to distribute natural gas to a higher number of clients: 276 at the end of 2007 (169 companies, 90 vehicle natural gas stations, and 2 thermal electricity plants, 7 compressed natural gas distribution bases, and 8 clients consuming liquefied natural gas). This was an increase of 5.75% in the number of clients from 2006. There was a reduction of 13.47% in the total volume of sales, led by the reduction of consumption by thermal plants, where there was a significant fall of 60.77%. However, considering only the market for conventional gas, the volume of gas sold increased 3.51%, reflecting increased consumption, mainly by industrial clients.

 

Telecoms

 

2007 was a positive year for the telecoms sector, with continuation of the expansion in mobile telephony in recent years. Voice services, currently the main generator of revenue for the mobile operators, are estimated to provide 80% of total sales. This trend is expected to continue in 2008 but the sector is looking for a way of reversing this trend, in which clients would use other services.

 

A highlight is the launch of the first 3G network, offering broadband services. Following the trend in the telecoms market, Empresa de Infovias expanded the Ethernet technology network initially to meet the demand of the mobile operator TIM in the “3G Project”. This project consists of a third generation network able to offer clients broadband service by mobile phone at high transmission speeds.

 

Infovias was classified by the Anuário Telecom 2007 as the second most efficient company in the category Services – Network Infrastructure. This was based on the company’s results for 2006. Speed and quality in service to clients and competitive prices were vital factors in the company’s performance in 2007.

 

Even greater growth in the telecom sector is expected in 2008 than in 2007, led by broadband access. It is clear that there will be intense construction of both 3G and Wimax networks in Latin America in 2008, to increase broadband penetration, which is currently between 3% and 5% – compared to approximately 20% in more developed regions.

 

The outlook for Infovias this year is for investment in important projects for consolidation in the sector, and growth of its revenue. The Board of Directors has approved the SIM (Integrated Services) Project to provide telecom services (including voice, IP telephony, telemetry and internet) in 50 cities of Minas Gerais state – initially for Cemig, and potentially for the local corporate market. Total planned investment in 2008 is R$ 59.5 million.

 

Other businesses

 

In partnership with Concert Technologies S.A., Nansen S.A. Instrumentos de Precisão, Leme Engenharia Ltda. and FIR Capital Partners Ltda, Cemig created Focus Soluções Tecnológicas S.A., the name of which will be changed to Axxiom Soluções Tecnológicas S.A., to offer solutions in technology and systems for operational management of public service concession holders, including electricity, gas, water, and sewerage and other public utility companies, offering the following:

 

·

·                  Integration of new solutions, developed by it or by other companies, into existing systems;

·                  development and implementation of specific solutions;

·                  offer of hardware or consultancy contract services for integrated solutions; and

·                  development, supply and sale of the equipment, software and systems necessary for the solutions offered.

 

44



 

ELECTRICITY SALES

 

Electricity auctions

 

In 2007 Cemig took part in several auctions in the Regulated Market and Free Market, as follows:

 

Trading in the Regulated Market

 

DATE

 

Auction

 

Power bought by Cemig
Distribution

 

Average Price
(MWh)

 

Power sold by Cemig
Generation and
Transmission

 

Average price
(R$ /MWh)

 

6/18/2007

 

Alternative sources

 

61MW average (15 years)

 

R$

138.85

 

 

 

6/18/2007

 

Alternative sources

 

20MW average (30 years)

 

R$

134.99

 

 

 

7/26/2007

 

A-3

 

431,173MW average (15 years)

 

R$

134.67

 

 

 

9/27/2007

 

6th Adjustment Auction

 

3,5MW average (1 year)

 

R$

138.74

 

60MW average (1 year)

 

R$

139.04

 

10/16/2007

 

A-5

 

56MW average (30 years)

 

R$

128.73

 

43MW average (30 years)

 

R$

125.90

 

10/16/2007

 

A-5

 

126MW average (15 years)

 

R$

128.73

 

 

 

12/10/2007

 

Santo Antonio

 

30,002,603.786 MWh (30 years)

 

R$

78.87

 

 

 

 

Auctions in the Free Market

 

Cemig Generation and Transmission sold 32,323 GWh, and acquired 3,879 GWh from Free Clients and traders in auctions held in the Free Market (“ACL”) held by Cemig Generation and Distribution itself or by third parties.

 

Development of the energy market

 

Cemig’s consolidated market consists of the markets of the companies Cemig Distribuição S.A. and Cemig Geração e Transmissão S.A., and also of other subsidiary companies, mainly Light S.A.. Through the various companies in its group, Cemig operates in all the sectors of the electricity industry and, with a diversified portfolio, serves captive and free final clients, as well as trading energy with other agents that operate in this market.

 

After the strong migration of captive clients to the free contracting environment that took place in 2005, in the following years some consumer units opted for free acquisition of energy, but less frequently. In 2007, twelve consumers migrated from the captive market to the free contracting environment, representing 0.8% of the energy supplied by Cemig Distribuição S.A. Of these, four units contracted energy from sources benefiting from tax and other incentives, with subsidiaries of the Cemig group, and one unit with Cemig Geração e Transmissão.

 

The good performance of the Brazilian economy, sustained by the dynamism of the domestic and external markets, associated with the sales strategies adopted by Cemig in the free market and the acquisition of Light, in August 2006, through the RME (Rio Minas Energia S.A. consortium), contributed to the growth of sales of electricity in 2007.

 

45



 

Retail supply of electricity

 

Total electricity sold – GWh

 

Type

 

2003

 

2004

 

2005

 

2006

 

2007

 

Change, %
2007/2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial

 

21,715

 

23,071

 

23,472

 

23,973

 

24,686

 

2.97

 

Residential

 

6,529

 

6,526

 

6,590

 

7,430

 

8,649

 

16.41

 

Commercial

 

3,402

 

3,537

 

3,754

 

4,439

 

5,549

 

25.01

 

Rural

 

1,783

 

1,846

 

1,941

 

1,942

 

2,212

 

13.90

 

Others

 

2,478

 

2,499

 

2,573

 

2,970

 

3,507

 

18.08

 

Total sold to final consumers

 

35,907

 

37,479

 

38,330

 

40,754

 

44,603

 

9.44

 

Wholesale supply

 

621

 

364

 

1,255

 

11,472

 

13,236

 

15.38

 

Own consumption

 

55

 

54

 

29

 

37

 

53

 

43.24

 

Total

 

36,583

 

37,897

 

39,614

 

52,263

 

57,892

 

10.77

 

 

As shown, the volume of Cemig’s energy sales increased from 2006 in all consumer classes. The sales of Light, which are taken into account in proportion to Cemig’s stockholding in the RME consortium (25%), add 5,791 GWh to total consolidated sales in 2007.

 

The highest relative growth was in the commercial and residential user categories: 25.01% and 16.41%, respectively. The growth in those categories reflects the stake in Light, which added 1,836GWh to the residential category and 1,439GWh to the commercial category. Together these two categories correspond to 56.55% of Light’s total retail supply of 5,791 GWh.

 

The main variations in the consumer categories, as well as the effect arising from the consolidation of Light in the 12 months of 2007 – compared to 5 months in 2006 – reflects the following factors:

 

·                  Consumption grew in the Residential user class grew due to the increase in the number of consumers billed, and the good performance of conditioning factors such as increasing employment and real income, abundant supply of credit and growth in the volume of sales of household appliances.

 

·                  The Industrial category grew 3.0%, reflecting sales to free clients, in turn reflecting greater use of contractual flexibility and also the company’s efforts to make contracts with new clients, including clients outside the company’s concession area.

 

·                  The commercial category grew by 25.0% from 2006, also reflecting the increase of consumption by the main commercial activities in Minas Gerais, such as: retailing (5.2%), accommodation and food (4.5%) and communication services (8.7%).

 

·                  In the rural category, the growth in new conventional consumer units connected by the Light For Everyone program, and the growth in consumption for irrigation, reflecting lower rainfall and higher temperatures, led to an increase of 13.9% in consumption, from 2006.

 

Breakdown by category, %

 

Breakdown by revenue, %

 

 

 

 

 

46



 

Tariff adjustment and review

 

Tariff adjustment

 

The tariff adjustment in effect from April 8, 2007 applied different rates of increase by category of consumption, aiming to gradually eliminate the cross-subsidies existing between the consumer groups. The average increase in electricity bills was 5.16%; low-voltage users paid an increase of 6.50%, while high-voltage users had an increase of 2.89%.

 

The Tariff Review

 

Aneel, the Brazilian electricity regulator, is in the process of review of retail supply tariffs and the Charge for Use of the Distribution System (TUSD) of Cemig Distribution, this being the second cycle of review corresponding to the period 2008–13. The public hearing was set for March 5, 2008, and the new tariffs will come into effect on April 8, 2008. The average percentage of adjustment, disclosed on a provisional basis by Aneel, corresponds to a reduction of 9.72%. To arrive at this value, parameters were taken into account for the first cycle, which are also being adjusted, such as indicators of productivity, the value of the asset base to be remunerated, and the company’s average cost of capital. This provisional percentage may yet be altered as a result of contributions be received at the public hearing, and decision by Aneel on the actual value of the asset base to be remunerated in the second tariff review cycle.

 

Revision of permitted transmission revenue

 

On June 26, 2007, the date for annual readjustment of permitted revenues of transmission concession holders, Aneel published the various adjustments, by Homologation Resolution 496, to come into effect from July 1, 2007 up to June 30, 2008 for Cemig Geração e Transmissão.

 

The annual transmission revenue was increased by 3.07%, resulting from application of the IGP-M inflation index up to May, in the amount of 4.40%, and in counterpart, the effects of the first Periodic Review of the Assets of the Basic Network – New Installations (RBNI) were incorporated, resulting in a reduction of 24.58% in the revenue from these assets, backdated to July 2005.

 

This resulted in calculation of an excess revenue for the previous periods, giving rise to a liability in the amount of R$ 31 million, which is being amortized in two portions, the first in the 2007-8 cycle and the second in the 2008-9 cycle.

 

Protection of revenue – management of losses

 

Cemig Distribution is among the distributors with the lowest indices of commercial losses in Brazil, although there have been increases in recent years.

 

At present, the company’s level of commercial losses is around 2.78% of the total amount of energy that enters the distribution system, this index being comparable to those of the best companies in the electricity sector worldwide. The Brazilian average is around 6%.

 

The results of identification and recovery of commercial losses total 147.8 GWh in 2007, an increase of 11.5% in relation to 2006. This corresponds to approximately R$ 108.7 million (increase of 20.8% from 2006), and also, approximately, R$ 91.4 million in losses avoided or increases of consumption by consumer units that were regularized.

 

47



 

In 2007, aiming further to increase the company’s capacity for reaction to the increase in the practice of irregularities, several actions were taken, including:

 

Implementation of analysis of probability and risk of loss for each consumer unit where there is suspicion of irregularity, associated to the Web Inspection Orders Management system (WGOI), seeking greater efficiency in identification of units with irregularities, and strengthening the potential for results from the process.

 

 

Improvement in the corporate system for control of seals and meters made available, and also general rules for control of seals, seeking to ensure traceability of these devices and equipment.

 

 

 

Implementation and execution of the Value Addition Project (PAV) for protection of revenue, which showed the economic viability of actions to combat losses and default, providing a greater input of funds into these activities, with consequent addition of revenue.

 

 

Approval of the Revenue Protection Plan, focused on metering, to be put in place starting in 2008, aiming to focus on the question and treatment of commercial losses of Cemig Distribution, adding, to form a major project, technologies and actions to “bulletproof” the revenue from medium-sized and large consumers, and application of complementary technologies to the other consumers.

 

 

Development and incorporation of the system for management of losses in the new Clients Management System (SGC/SAP) acquired by Cemig which is in the process of being put in place, making the information fully traceable and available to all the those involved.

 

Retail supply quality

 

The charts below show the changes in Cemig Distribution’s quality indicators.

 

 

Consumer outages: minutes/month

 

Consumer outages: hours/year (DEC)

 

Consumer outage frequency (FEC)

 

 

 

 

Number of outages/year

 

Approximately 18% of the DEC and 13% of the FEC is for programmed outages effected to improve the network. These are preceded by notice to consumers, reducing the impact of temporary suspension of supply.

 

Service policy

 

Cemig has consolidated a group of Commercial Relationship Practices with its clients based principally on quality of its products and services, preservation of credibility with clients, stockholders and the public, and in the strength of its brand and its effective participation in social and economic development over the whole of its area of operation.

 

The company offers channels of relationship that enable clients to carry out transactions, complain, suggest and request services, efficiently and fast. the main channels available are: Speak to Cemig “Fale com a Cemig”); Service Branches (“Agências de Atendimento”); Relationship Agents (“Agentes de Relacionamento”); Simplified Service Posts (“Postos de Atendimento Simplificado (PAS)”); Cemig Fácil (“Cemig Easy Access”); and the “Virtual Branch” (Agência Virtual) which is available on Cemig’s web portal: www.cemig.com.br.

 

 

48



 

 

As well as continuous investment in improvement of the existing channels Cemig seeks new forms of relationship to offer more convenient and fast options for contact with the company.

 

The client also has available, periodically, other relationship options through the Mobile Branch trailer and the Cemig na Praça (“Cemig in the Main Square”) program. Both aim to take Cemig to the client. The Mobile Branch trailer visits municipalities of some regions of the state providing services and orientation to the public. The Cemig na Praça program covers municipalities of all the regions, taking services, information and orientation to clients in a personalized marquee.

 

ECONOMIC – FINANCIAL PERFORMANCE

 

In thousands of Reais, except where otherwise stated.

 

Net profit

 

Cemig’s net profit in 2007 was R$ 1,735 million, which compares with net profit of R$ 1,719 million in 2006.

 

As shown by the table below, the largest contribution to Cemig’s result comes from Cemig Geração e Transmissão (Cemig Generation and Transmission) and Cemig Distribuição (Cemig Distribution):

 

 

 

2007

 

%

 

2006

 

%

 

Cemig – parent company

 

(176

)

(10.14

)

124

 

7.21

 

Cemig Distribuição S.A.

 

771

 

44.44

 

770

 

44.79

 

Cemig Geração e Transmissão S.A.

 

747

 

43.05

 

614

 

35.72

 

Gasmig

 

46

 

2.65

 

44

 

2.56

 

Rio Minas Energia (Light)

 

148

 

8.53

 

35

 

2.04

 

Other

 

199

 

11.47

 

132

 

7.68

 

 

 

 

 

 

 

 

 

 

 

Consolidated net profit

 

1,735

 

100.00

 

1,719

 

100.00

 

 

OPERATIONAL REVENUE

 

OPERATIONAL REVENUE – R$ million

 

 

 

2007

 

2006

 

Change, %

 

Gross revenue from retail supply of electricity

 

13,285

 

11,135

 

19.30

 

Revenue for use of the network – free consumers

 

1,946

 

1,789

 

8.78

 

Other

 

558

 

507

 

10.06

 

 

 

15,789

 

13,431

 

17.56

 

 

Gross revenue from retail supply of electricity

 

Final consumers

 

The main impacts on 2007 revenues arose from the following factors:

 

·

An increase of 8.69% in the average tariff, from R$ 245.73 in 2006 to R$ 267.08 in 2007, as a result of tariff increases allowed to Cemig Distribuição on April 8, 2006 (full effect in the 2007 business year) and April 8, 2007.

·

9.44% increase in the volume of energy invoiced to final consumers – comments on the variations are in the item on Sales of electricity.

 

 

49



 

 

This chart shows quarterly and annual variations in retail supply:

 

GWh billed to final consumers

 

Quarterly

Annual

 

There are more comments on retail supply and the tariff adjustment in the item on Sales of electricity.

 

Other concession holders

 

The volume of energy sold to other concession holders in 2007 was 13,236 GWh, which compares with 11,472 GWh in 2006 – corresponding to R$ 1,210 million and R$ 709 million, respectively. This significant increase arises basically from the start up of the Irapé plant, in the second half of 2006, higher volume of electricity traded through contracts with electricity traders, and better prices negotiated by Cemig Generation and Transmission in 2007. We also highlight the exportation of electricity to Argentina in Uruguay in 2007, providing revenue of R$ 64 million. The average sale tariff in 2007 was 91.40/MWh compared to R$ 61.79/MWh in 2006, an increase of 47.92%.

 

Revenue from use of the grid

 

The increase in revenue from use of the network was 8.78% in 2007: R$ 1,946 in 2007, vs. R$ 1,789 in 2006.

 

The major item under this heading is the revenue from the TUSD (Tariff for Use of the Distribution System), charged by Cemig Distribution and Light to free consumers. This was 9.23% higher in 2007 than 2006 (R$ 1,313 miliions in 2007 vs. R$ 1,202 miliions. The increase primarily represents higher volume of electricity transported in 2007, reflecting the increase in industrial production and the migration of clients from the captive market to the free market, in 2007.

 

Additionally there was a reduction in revenue from the basic grid in 2007, of R$ 31 million, due to the review of the annual permitted revenues linked to the new facilities of the basic grid and other transmission facilities for electricity transmission concession holders, in obedience to Aneel decisions. There are more explanations in Explanatory Notes 23 and 27 to the Consolidated Financial Statements.

 

Non-controllable costs

 

The differences between the sums of non-controllable costs (also referred to as “CVA”) used as a reference in the calculation of the tariff adjustment and the disbursements actually made are offset in the subsequent tariff adjustments, and are registered in Current assets and Non-current assets. As a function of the change in Aneel’s accounting plan, some items were transferred to the item “Deductions from Operational Revenues”. There are more explanations in Explanatory Notes 2 and 8 to the Consolidated Financial Statements.

 

 

50



 

Deductions from operational revenues

 

Deductions from operational revenues amounted to R$ 5,544 million in 2007, compared to R$ 4,965 million in 2006, an increase of 11.66%. The principal changes in these expenses are as follows:

 

Fuel Consumption Account – CCC

 

This relates to the operational costs of thermal plants in the Brazilian grid and isolated systems, split among electricity concession holders as specified by an Aneel Resolution. This is a non-controllable cost, and the amount recorded for electricity distribution service corresponds to the amount actually passed through to the tariff. For the amount recorded in relation to electricity transmission services the company merely passes through the CCC charge – it is charged to free consumers on their invoice for us of the grid and passed onto Eletrobrás.

 

The total deduction from revenue for the CCC in 2007 was R$ 407mn vs. R$ 554mn in 2006, 26.53% lower – mainly reflecting backdated charging in 2006 to some consumers, after homologation of the Contracts for Use of the Transmission System (CUST) by the National System Operator (ONS).

 

Energy Development Account – CDE

 

The deduction from revenue for the CDE in 2007 was R$ 391 million, vs. R$ 334 in 2006, an increase of 17.0%. The payments are specified by an Aneel Resolution. This is a non-controllable cost. The amount posted for electricity distribution services corresponds to the amount actually passed through to the tariff. For the amount posted in relation to electricity transmission services the company merely passes through the charge since the CCC is charged to free consumer on the invoice for the use of the grid and passed onto Eletrobrás.

 

RGR – Global Reversion Reserve

 

The provision for RGR in 2007 was R$ 145 million, vs. R$ 30 million in 2006. This reflects a positive adjustment in 2006 for the provision for 2004, in the amount of R$ 66 million, due to homologation of this expense by Aneel in a lower amount than was estimated by the company, and also an increase in 2007 of the accounting value of fixed assets in service, which is the basis for calculation of the expense.

 

The other deductions from revenue are for taxes calculated as a percentage of billing, and their variations thus substantially arise from the changes in revenue.

 

Operational costs and expenses

 

 

 

2007

 

2006

 

Change,

 

 

 

 

 

 

 

%

 

Non-controllable costs

 

 

 

 

 

 

 

Electricity purchased for resale

 

2,794

 

2,113

 

32.23

 

Financial compensation for use of water resources

 

137

 

139

 

(1.44

)

Charges for use of the national transmission grid

 

650

 

664

 

(2.11

)

 

 

3,581

 

2,916

 

22.81

 

Controllable costs

 

 

 

 

 

 

 

Personnel and managers expenses

 

968

 

1,088

 

(11.03

)

Post-employment obligations

 

123

 

170

 

(27.65

)

Materials

 

94

 

82

 

14.63

 

Raw materials and inputs for production

 

59

 

37

 

59.46

 

Outsourced services

 

620

 

504

 

23.02

 

Operational provisions

 

291

 

52

 

459.62

 

Gas purchased for resale

 

154

 

158

 

(2.53

)

Depreciation and amortization

 

778

 

672

 

15.77

 

Other expenses, net

 

284

 

238

 

19.33

 

 

 

3,371

 

3,001

 

12.33

 

 

 

6,952

 

5,917

 

17.49

 

 

 

51



 

Operational costs and expenses (excluding Financial revenue (expenses)) totaled R$ 6,952 million in 2007, compared to R$ 5,917 million in 2006, an increase of 17,49%. This mainly reflects the change in the amount of energy bought through for resale, and operational provisions, partly offset by the reduction in the expense on personnel.

 

The principal changes in expenses are:

 

Electricity purchased for resale

 

The expense on this account in 2007 was R$ 2,794 million, 32.23% higher than the figure of R$ 2,113 million for this account in 2006. This is a non-controllable cost, with the expense recognized in the income statement corresponding to the value effectively passed through to the tariff. For more information please see Explanatory Note 30 to the financial statements.

 

Charges for Use of the Basic Transmission Grid

 

The expense on charges for use of the transmission network in 2007 was R$ 650 million, vs. R$ 664 million in 2006, a reduction of 2.11%. These charges are payable by distribution and generation agents for use of the facilities and components of the basic grid, and are set by Aneel resolution. This is a non-controllable cost, with the deduction from revenue recorded corresponding to the value effectively passed through to the tariff.

 

Personnel expenses

 

Personnel expenses in 2007 totaled R$ 968 million, vs. R$ 1,088 million in 2006, a reduction of 11.03%. This lower figure is primarily because of the provision made in June 2006 for indemnity to employees for their future “anuênio” rights, in the amount of R$ 178 million, partially offset by the 4% and 5% wage adjustment given to employees in November of 2006 and 2007, respectively, and the 1.50% increase in the number of employees of the Cemig Holding Company, Cemig Generation and Transmission and Cemig Distribution, which totaled 10,658 in December 2006, and 10,818 in December 2007. There is a breakdown of personnel expenses in Explanatory Note 30 to the Consolidated Financial Statements.

 

Depreciation and amortization

 

Deductions from operational revenues totaled R$ 778 million in 2007, compared to R$ 672 million in 2006, an increase of 15.77%.

 

This variation arises mainly from investments in the Light for Everyone program and the startup of the Irapé plant, in the second half of 2006. We also highlight the consolidation of RME, which added an expense of R$ 82 million in 2007 (vs. R$ 33 million in 2006) – because RME was consolidated for the whole of 2007, but only five months of 2006.

 

Post-employment obligations

 

Expenses on post-employment obligations in 2007 were R$ 123 million compared to R$ 170 million in 2006, a reduction of 27.65%. These expenses basically represent interest on the actuarial liabilities of Cemig Distribution, net of the expected return on plan assets, as estimated by an external actuary. The reduction reflects higher growth of the assets of the pension plan than the growth in obligations to the participants.

 

 

52



 

Ebitda (earnings before interest, tax, depreciation and amortization)

 

Reflecting the above variations, Ebitda adjusted for non-recurring items is as follows:

 

 

 

2007

 

2006

 

Change,

 

 

 

 

 

 

 

%

 

Net profit

 

1,735

 

1,719

 

0.93

 

+ Provision for current and deferred income tax and Social Contribution

 

623

 

527

 

18.22

 

+ Non-operational revenue (expenses)

 

10

 

37

 

(72.97

)

+ Financial revenues (expenses)

 

356

 

50

 

612.00

 

+ Amortization and depreciation

 

778

 

672

 

15.77

 

+ Employees’ profit shares

 

455

 

210

 

116.67

 

+ Minority interest

 

116

 

7

 

1.557.14

 

EBITDA

 

4,073

 

3,222

 

26.41

 

 

 

 

 

 

 

 

 

Non-recurring items (*)

 

 

 

 

 

 

 

Cost of Energy Efficiency programs from previous years

 

 

85

 

 

Indemnity for the “anuênio”

 

 

178

 

 

+ CVA re-composition - TUSD

 

 

93

 

 

+ Review of transmission revenue – Homologation Resolution 496

 

31

 

 

 

- Reversal of provision for RGR

 

 

(66

)

 

- CVA energy – adjustments set by ANEEL

 

(29

)

 

 

 

 

 

 

 

 

 

 

ADJUSTED EBITDA

 

4,075

 

3,512

 

16.03

 

 

The non-recurring adjustments correspond to the company’s interpretation on events which it deems to be extraordinary, not related to current operations.

 

As can be seen, Cemig’s Ebitda increased significantly in 2007 – and has increased by approximately 127% over the last five years – reflecting the growing operational performance over that period.

 

 

Financial revenues (expenses)

 

The company posted net financial expenses of R$ 356 million in 2007, which compares with net financial expenses of R$ 50 million in 2006. The main factors in this financial result are:

 

·

Reversal of the provision for losses on accounts receivable from the state of Minas Gerais, of R$ 99 million in 2006, due to the creation of a Credit Receivables Fund (FIDC) and signature of the 4th contractual amendment for renegotiation of the debt. For more information please see Explanatory Note 14 to the financial statements.

 

 

53



 

·

Revenue for monetary variation arising from the General Agreement for the Electricity Sector in 2007 of R$ 405mn, compared to R$ 322mn in 2006, an increase of 25.77% – arising mainly from accounting in the second half of 2007 of financial revenue of R$ 100mn in accordance with criteria for updating set by Aneel for the assets relating to transactions in free energy in the period of rationing. This change did not affect Net financial revenue (expenses) since there is a corresponding increase in the provision for losses in free energy (R$ 175 million in 2007, compared to R$ 86 million in 2006).

 

 

·

Revenue from monetary variation and interest on the deferred tariff adjustment in 2007 was R$ 131 million, 34.17% less than its total of R$ 199 million in 2006. This mainly reflects the reduction of the size of the asset due to receipt of some of the values receivable into electricity accounts paid by clients. For more information please see Explanatory Note 13 to the financial statements.

 

 

·

Net gain of R$ 110 million on currency variations in 2007, compared to a net gain of R$ 86 million in 2006, reflecting effects on foreign currency loans and financings. The appreciation of the Real against the dollar in 2007 was 17,15%, versus appreciation of 8.66% in 2006.

 

For a breakdown of financial revenues and expenses, see Explanatory Note 31 to the financial statements.

 

Income tax and Social Contribution

 

Cemig’s expenses on income tax and the Social Contribution in 2007 totaled R$ 622 million, on profit of R$ 2,928 million before tax effects, a percentage of 21.24%. Cemig’s expenses on income tax and the Social Contribution in 2006 totaled R$ 527 million on profit of R$ 2,463 million before tax effects, a percentage of 21.40%. These effective rates are reconciled with the nominal rates in Explanatory Note 12 to the financial statements.

 

Employees’ profit shares

 

In accordance with the 2007 Collective Labor Agreement Cemig allocated profit shares to its employees totaling R$ 455 million (R$ 210 million in 2006). For further information see Explanatory Notes 2 and 33 to the Consolidated Financial Statements.

 

LIQUIDITY AND CASH FLOW

 

At the end of 2007 Cemig’s cash position was R$ 2,066 million (vs. R$ 1,402 million in 2006), an increase of R$ 664 million and 47.36% of growth.

 

Cash generated by operations in 2007 was R$ 3,213 million, compared to R$ 2,185 million in 2006. This increase of 47.05% in cash generated by operations mainly reflects the higher amount received in relation to regulatory assets and also the greater profit in 2007, adjusted for items that do not affect cash.

 

Financing activities represented outflow of cash of R$ 1,359 million, compared to outflow of R$ 532 million in 2006. This significant change primarily reflects the lower volume of loans and financings obtained in 2007 (R$ 1,855 million in 2007 vs. R$ 3,466 million in 2006), partially offset by lower distribution of dividends and Interest on (R$ 1,360 million in 2007 vs. R$ 2,072 million 2006).

 

The company’s capital expenditure in 2007 was R$ 1,189 million, which compares with R$ 1,720 million in 2006, an increase of 32.0%. This result was principally due to the higher volume of funds invested in distribution activities, with the launch of the Light for Everyone (Luz Para Todos) program.

 

FUNDING AND DEBT MANAGEMENT

 

Cemig’s debt management policy is focused on preserving credit quality. This concern translates into an express obligation in the bylaws to maintain certain financial indicators limited to numbers that denote the company’s financial health.

 

 

54



 

Breakdown by Company

Cemig is a mixed private-sector/public-sector company, with the majority interest held by the Brazilian State of Minas Gerais, and as such is subject to rules for containment of public sector borrowing, which limit its financing alternatives. These limitations apply also to its subsidiaries which, indirectly, are also state-controlled.

 

Raising of funds from third parties in 2007 consisted mainly of transactions in the capital markets in the form of issues of promissory notes and debentures, supported by firm guarantees of placement of the securities from financial institutions. These transactions were to pay debt becoming due and to rebuild cash for the debts paid over the year. The high liquidity favored contracting of transactions on very favorable conditions.

 

In 2007 Cemig made its second public issue of non-convertible, unsecured debentures (in a single series): 40,000 debentures with nominal unit value of 10,000 issued on December 15, 2007, and subscribed and paid in full, for a total R$ 400mn. These debentures are indexed to the IPCA inflation index and return annual interest to 7.96% p.a. The principal is to be repaid in three equal portions in December 2015, 2016 and 2017, and interest is paid annually.

 

Banco do Brasil Investimentos S.A. gave a firm guarantee of placement and subscribed 46% of the issue. We highlight the total tenor of ten years for maturity, which was considered notable in the current situation: comparison with the remuneration on public securities of similar tenor and index (NTN-Bs) indicates that Cemig Distribuição S.A. raised funds at a cost very close to that of a risk-free asset. The combination of tenor and cost of this issue reflects the financial market and investors’ confidence in the company’s credit capacity and its potential for growth.

 

On December 21, 2007 Cemig Generation and Transmission issued its 2nd issue of Promissory Notes in the total amount of R$ 200 million, maturing in 180 days, for interest at 101.5% of the CDI rate, with no guarantee from Cemig. Cemig Distribution also raised a total of R$ 159 million (excluding funds from the CDE) from Eletrobrás to finance the Light for Everyone program and the Reluz project.

 

Other highlights of 2007 are two project financings transactions by subsidiaries of Cemig for specific investment projects in transmission and generation:

 

·

Transchile Charrúa Transmisión S.A a signed financing contract for 20 years for approximately US$51 million with the inter-American Development Bank on July 18, 2007. These funds will be used in construction of the 220 kV, 205-km Charrúa–Nueva Temuco transmission line.

 

 

·

The Cachoeirão Hydro Plant, a subsidiary of Cemig Generation and Transmission in partnership with Santa Maria Energética S.A., signed a financing contract for onlending of funds from the National Development Bank (BNDES) with Banco do Brasil on November 1, 2007 for R$ 71,3mn with tenor of 11 years.

 

Use of the banking market to meet financing needs has helped, in recent years, to increase the share represented by the CDI rate in the profile of Cemig’s debt. With the issuance by Cemig Distribution of debentures indexed to ICPA inflation at the end of 2007, refinancing promissory notes indexed to the CDI, the resulting breakdown of Cemig’s debt by indexor is now as follows:

 

Breakdown by Company

 

Breakdown of debt by indexor at December 2007

 

 

55



 

As shown in the next chart, the debt amortization timetable now has a satisfactory profile, with average tenor of five years, meeting the company’s policy directive of avoiding concentration of debt coming due in the short term, mitigating the risk of refinancing and eliminating any pressure on cash flow that could reduce availability of funds for investment.

 

Debt Amortization Timetable – Consolidated

December 2007, R$ million

 

 

Another of the company’s directive guidelines, reduction of the average cost of debt, has been complied with: at the end of the year the average cost of debt was 7.94% p.a., at constant prices, also reflecting the federal government’s policy of reduction of interest rates.

 

Average cost of the Consolidate

 

 

Our position of 6% of debt in foreign currency does not represent a material financial risk for the company, since a good part of it is contractually protected by indexor swap transactions. There is also a natural protection provided by energy sale contracts indexed to the US dollar.

 

In March 2007 Moody’s Investors Service gave Cemig corporate rating of Ba2 on the global scale, and Aa3.br on the Brazilian national scale, an increase of five levels. This reflects Moody’s view of improvement in the company’s corporate governance and in its credit indicators on a consolidated basis, reflecting Cemig’s strong cash flow, which Moody’s believes to be sustainable in the short term, and also its improved profile and robust liquidity position.

 

Hedging policy

 

Our policy on hedging is primarily to give predictability to the cash flow and to the budget, over a moving horizon of 12 months, through transactions that reduce exposure and minimize negative impacts resulting from relative price variations.

 

 

56



 

The derivative instruments contracted by the company have the purpose of protecting operations against the risks arising from foreign exchange variation and are not used for speculative purposes. Transactions entered into take into account market liquidity, relative price of assets and concentration of debt servicing.

 

The Company has given priority to coverage of its FX liabilities through a natural hedge: contracting of electricity sales for prices indexed to the exchange rate, with some of its major consumers.

 

CORPORATE GOVERNANCE

 

Our corporate governance model is based on principles of transparency, equity and reporting, focusing on clear definition of roles and responsibilities in the Board of Directors and the Executive Board for formulation, approval and execution of policies in guidelines in conduct, approving and executing policies and guidelines for managing the company’s business.

 

We seek sustainable development of the company through equilibrium between the economic, financial, environmental and social aspects of our undertakings, aiming to improve the relationship with our stockholders, clients, and employees, the public at large and other stakeholders.

 

Cemig’s preferred and common shares have been listed under Corporate Governance Level 1 on the São Paulo stock exchange since 2001. This represents a guarantee of the best possible reporting of information, and also that stockholdings are as widely dispersed as possible. Since Cemig has ADRs (American Depository Receipts) listed on the New York Stock Exchange, representing PN (preferred) and ON (common) shares, we are also subject to the regulations of the US Securities and Exchange Commission (SEC) and to the New York Stock Exchange Listed Companies Manual.

 

Our material procedures related to preparation of the Consolidated Financial Statements have been compliant since the end of 2006with the requirements of Section 404 of the Sarbanes-Oxley law of the US.

 

Our Board of Directors has 14 members, appointed by the stockholders. All have a period of office of 3 (three) years, and may be reelected. To increase their efficiency, the Board has constituted 5 (five) committees that operate in specific issues related to Strategy, Governance, Finance, Audit and Risks, and Human Resources. In 2007, 25 meetings were held to decide on various subjects from strategic planning to investment projects.

 

The Audit Board is permanent and made up of 5 (five) members, appointed by stockholders. All the members meet the requirements for independence in accordance with international practices. As presently constituted the Audit Board meets the requirements for exemption from constitution of an audit committee under the Securities Act and the Sarbanes-Oxley Law. The Audit Board met twelve times in 2007.

 

Also, the structure of committees made up of executives of various areas ensures that strategic decisions are taken based on support by technical criteria.

 

Every year we hold our meeting with capital market analysts and investors to disclose information about the economic and financial situation, plans and outlook as well as carrying out various meetings with regional analysts’ associations.

 

Our bylaws include targets of the Strategic Plan, and the dividend policy:

 

·

to keep consolidated indebtedness equal to or less than 2 times Ebitda (Earnings before interest, taxes, depreciation and amortization);

·

consolidated (Net debt) / (Net debt + Stockholders’ equity) limited to 40%;

·

consolidated funds in Current assets limited to 5% of Ebitda;

·

consolidated funds destined to capital expenditure in each business year limited to 40% of Ebitda (this varies, exceptionally to 65% in 2006 and 55% in 2007);

 

 

57



 

·                  to invest only in distribution, generation and transmission projects which offer real minimum internal rates of return equal to or more than those specified in the company’s Long-Term Strategic Plan, subject to the legal obligations; and

·                  to limit the expenses of the subsidiary Cemig Distribuição S.A., and of any subsidiary which operates in distribution of electricity, to amounts not greater than the amounts recognized in the tariff adjustments and reviews.

 

The Board of Directors may authorize numbers in excess of these standards, in response to temporary needs, up to the following limits: consolidated debt: maximum 2.5 times Ebitda;

consolidated (Net debt) / (Net debt + Stockholders’ equity): maximum 50%;

consolidated funds in Current assets: maximum 10% of Ebitda;

 

Stockholders’ agreement

 

The stockholders’ agreement signed between the government of Minas Gerais and Southern Electric Brasil Ltda. (SEB) in 1997 has been annulled by the courts. Appeals filed by SEB are before the federal courts.

 

CAPITAL MARKETS

 

Cemig’s shares were listed for the first time, on the stock exchange of the State of Minas Gerais, on October 14, 1960. On January 14, 1972 our common (ON) and preferred (PN) shares were listed on the São Paulo stock exchange (Bovespa), and currently trade under the tickers CMIG3 (ON) and CMIG4 (PN). Since October 2001, we have been part of the Level 1 Corporate Governance listing of the Bovespa. Our shares have been traded on the New York Stock Exchange since 1993, where we have Level 1 ADRs (ticker: CIG) representing our preferred shares, which were transferred into Level 2 in 2001. Subsequently, in June 2007, we launched ADR’s on the NYSE representing our common shares (ticker: CIG.C). Our preferred shares have been listed on the Latibex of the Madrid Stock Exchange since 2002 (ticker: XCMIG).

 

Stockholding structure

 

On December 31, 2007 the Company’s registered capital was R$ 2,432 million, as shown in the following chart:

 

 

At Ordinary and Extraordinary General Stockholders’ Meetings held on April 26, 2007, Cemig decided a capital increase in the registered capital of R$ 810,769 thousand, or 50%, using funds from the Profit reserve. This resulted in a bonus of 500 new shares, of the same type, with nominal value of R$ 0.01, for each group of thousand shares. The bonus shares were then grouped in a reverse split at 500 shares with nominal value of R$ 0.01 to 1 share with the nominal value of R$ 5.00. The diagram above reflects these changes.

 

 

58



 

Share prices

 

The following were the closing prices of our shares on the stock exchanges of São Paulo (Bovespa), New York (NYSE) and Madrid (Latibex) at the end of 2006 and 2007:

 

Name

 

Ticker

 

Currency / unit

 

Close of 2006

 

Close of 2007

 

 

 

 

 

 

 

 

 

 

 

Cemig PN

 

CMIG4

 

R$

 

32.70

 

32.50

 

Cemig ON

 

CMIG3

 

R$

 

28.36

 

33.79

 

ADRs for PN

 

CIG

 

US$

 

15.14

 

18.46

 

ADRs for ON

 

CIG.C

 

US$

 

 

18.50

 

Cemig PN on (Latibex)

 

XCMIG

 

Euro

 

12.46

 

12.75

 

 

A total of R$ 13,866 million in our preferred shares was traded in 2007 with daily average of R$ 56.6 millions in 2007 and R$ 39.3 millions in 2006. This places CMIG4 as the sixteenth largest-volume share, and the share with largest volume in the electricity sector, on the São Paulo stock exchange.

 

Market capitalization

 

Our market capitalization was relatively unchanged from 2006 to 2007, with a small change of 0.3%. Over the last five years it has increased by 116.1%:

 

Market Capitalization – R$ billion

 

 

These charts show the changes in our share prices over recent years, comparing with other indicators.

 

CEMIG PN X CEMIG ON X IBOVESPA

CEMIG ADR X DOW JONES

Adjusted to / US$

 

 

Dividend yield and return to stockholders

 

 

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The total return to stockholders, defined as the increase in share price plus dividend distributed, over the last 5 years, has been as follows:

 

Dividend yield, %(*)

 

 

Investor relations

 

In accordance with best corporate governance practices, we seek to disseminate a policy of transparency with the capital markets, so as to add value to the investments of our stockholders.

 

In 2007, Cemig was present, worldwide, at 84 seminars, conferences and investor meetings; 10 congresses; 11 roadshows; and video conference calls with capital markets analysts and investors. In our national and international events, we held more than 490 one-on-one meetings.

 

We also highlight our 12th Annual Cemig Meeting with the Association of Capital Markets Analysts and Investment Professionals (Apimec) in the city of Tiradentes, in Minas Gerais, which included a technical visit to the Itutinga Hydroelectric Plant, on the border between the counties of Itutinga and in Minas Gerais.

 

DIVIDEND POLICY

 

Cemig, through its bylaws, assumes the undertaking to distribute a minimum dividend of 50% of the net profit for each year. Additionally, extraordinary dividends are distributed each two years, or more frequently, if cash availability permits.

 

The dividends are then paid in two equal installments, by June 30 and December 30 of the year subsequent to the year they refer to. Dividends paid in 2007 totaled R$868 million. Dividends paid in 2006 totaled R$ 1,382 million, of which R$ 497 million was an extraordinary dividend.

 

 

 

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PROFIT ALLOCATION PROPOSAL

 

The Board of Directors will propose to the Annual General Meeting, to be held on April 28, that the net profit of R$ 1.735 billion for 2007 should be allocated as follows:

 

·      R$ 868 million (50% of net profit) for payment ;

 

·      R$ 87 million for constitution of the Legal Reserve; and

 

·      R$ 780 million: held in Stockholders’ equity in the Profit reserve.

 

RELATIONSHIP WITH EXTERNAL AUDITORS.

 

We change external auditors every five years, in accordance with rules of the CVM (Brazilian Securities Commission). Up to first quarter 2007 our accounts were audited by Deloitte Touche Tohmatsu, when we changed to KPMG Auditores Independentes.

 

The services provided by independent auditors to Cemig and the majority of its subsidiaries were as follows:

 

Service

 

2007
R$ ’000

 

%
vs. audit

 

2006
R$ ’000

 

%
vs. audit

 

 

 

 

 

 

 

 

 

 

 

Auditors

 

 

 

 

 

 

 

 

 

Deloitte

 

32

 

4.69

 

502

 

100.00

 

KPMG

 

650

 

95.31

 

 

 

Total, auditing services

 

682

 

100.00

 

502

 

100.00

 

Other services:

 

 

 

 

 

 

 

 

 

Compliance with SOX requirements – Sections 302 and 404

 

 

 

 

 

 

 

 

 

Deloitte

 

 

 

2,080

 

314.34

 

KPMG

 

290

 

42.52

 

 

 

 

 

Overall total

 

940

 

142.52

 

2,582

 

414.34

 

 

The additional services shown were approved by the Board of Directors since in the view of management they do not result in loss of independence by the external Auditors and are not included in the items prevented by Article 23 of the Sarbanes-Oxley Law or CVM Instruction 308 of May 14, 1999.

 

RISK MANAGEMENT

 

Cemig’s principal assumption for management of corporate risks is that every company exists to provide value to its stockholders. This results in the permanent challenge of determining how much the corporation will be prepared to guarantee its sustainable development, taking into account the risks and opportunities involved

 

Cemig’s principal objective is not to eliminate risks, but to be proactive in their identification, analysis, assessment, treatment and continuous monitoring, with a view to obtaining competitive advantages. Success in corporate management depends on a culture of management of risks being disseminated, serving as a basis for sustaining of the following 3 ‘pillars’:

 

·      Management processes: Awareness of the processes of the company with a view to improvement in operational efficiency.

·      Management of more severe risks: Identification of the imminent risks that require short-term decisions with a view to reduction of volatility in results, higher predictability of returns to the stockholders and decision on treatment of risks.

·      Management of risks and measurement of cost of capital: Optimal allocation of capital, sensitivity analysis, use of comprehensible modeling systems with well-grounded assumptions.

 

 

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Thus corporate risk management is a management tool that is part of our corporate governance practices. To be more efficacious, and so as to be included more easily in the organization’s culture, we aim to align it with Cemig’s Strategic Planning Process, which defines the strategic objectives of the company’s business.

 

Other instances of management involved with corporate risk management are: The Corporate Governance Committee, Compliance with the Sarbanes Oxley Law, the Budget Prioritization Committee, Internal Auditing, the Energy Risks Management Committee, the Insurable Risks Committee, the Control and Management Committee, and other functions and processes.

 

Cemig’s corporate risks management structure was put in place in 2003. The risks matrix was revised for the first time in 2004, and a second time in 2005-6, aiming to identify changes in relation to the level of performance expected for each process. The result has been improvement in the effectiveness of controls, commitment to implementation of the proposed mitigating action plans and, consequently, reduction of the impact and the probability of occurrence of innumerable risks.

 

The corporate risk management activities gives rise to various products which are of great value in the decision process, as follows:

 

1- The corporate risk matrix: This presents all the corporate risks mapped and classified as follows: a) Financial Exposure – product of the impact on the business and the probability of occurrence of the risk; and b) Final Exposure, result of the association of the Financial Exposure of the risk weighted by the analysis of its intangible impact.

 

2 – Matrix of risk factors from the stakeholders’ point of view: This is an analysis of the risk factors circumstances or events which may (or may not) give rise to risks for the corporation taking into account the factors that influence value from the point of view of these agents. The objective is to make possible an improvement in management based on what interested parties see as a strategic threat and the identification of risks that have so far not been mapped in the corporate risk matrix.

 

This process was developed during 2007. In the first stage, the risk factors were identified from the point of view of each stakeholder. In the second stage, we thought to identify whether the corresponding risks had been mapped in the corporate risk matrix, which signaled to us that the company was on the right path in relation to a wide-ranging perception of risk management, in view of the fact that more than 90% of the risks were already mapped. Since this is an improvement tool, the risks identified that had not been mapped in the corporate risk matrix are now being analyzed and included.

 

The charts below show the risks with high, medium and low final exposure in the companies Cemig Distribution (D), Cemig Generation and Transmission (GT) and the Cemig Holding Company (H), and the risks by category.

 

 

In Cemig Distribution the high percentage of risks with high Final Exposure represents the fact that the risks of sales revenue and collection, and market risks, including the risks of trading of electricity in the wholesale and retail markets, are mapped as being in this company.

 

 

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In Cemig Generation and Transmission the highlight is on risks of operation and maintenance of the hydroelectric plants, operation and maintenance of the electricity system and expansion of the generation and transmission facilities.

 

In the holding company the composition of the risks with high Final Exposure is diversified, since in this company they are located in all the process of support to the business areas of the company, including IT, HR, logistics, transport, material and services and finances.

 

It can be seen that the participation of high Final Exposure risks in the distribution business is higher than in the generation and transmission business. However, the financial exposure of the significant risk of the Generation and Transmission business is greater than in the Distribution business (highly regulated), which reflects the fact that the requirement for minimum return demanded from projects in the electrical system is greater.

 

Certification of internal controls

 

Cemig obtained certification of its internal controls for mitigation of risks involved in the preparation and disclosure of the financial statements, in accordance with an opinion by the external auditors, Deloitte Touche Tohmatsu Auditores Independentes, issued in accordance with Section 4 of the Sarbanes-Oxley Law and the rules of the Public Company Accounting Oversight Board (PCAOB), which is a part of the annual 20-F report relating to the business year ending December 31, 2006, filed with the US Securities and Exchange Commission (SEC).

 

Since the activities related to the Certification of Internal Controls are permanent and need to be constantly monitored, Cemig’s management, in compliance with the new orientation with the SEC and based on the PCAOB criteria, of the Committee of Sponsoring Organizations of the Treadway Commission (Coso) and Control Objectives for Information and Related Technology (Cobit), based on review of the existing controls structure, documented the controls in the terms of the processes of the business and of the entity, including the controls that are supported by information technology.

 

It was established between the potentially significant controls and accounting records in the financial statements for 2007, and the design of the key processes in controls for ensuring mitigation of the risks associated with the preparation and disclosure of the financial statements for the year ended December 31, 2007 was validated with our new external auditors, KPMG Auditores Independentes.

 

The Ethics Committee and the Reporting Channel

 

The Ethics Committee was created on August 12, 2004, and is responsible for assessment of and decision on possible non-compliances, and also for assessing the need for reviews of the Statement of Ethical Principles and Code of Professional conduct. This is one more element of alignment with best Corporate Governance practices, and is also an instrument that meets the orientation of the Sarbanes-Oxley Law of the US (SOX).

 

After the creation of the Reporting Channel, in December 2006, the Ethics Committee began to receive anonymous accusations of irregular practices contrary to the company’s interest, such as: 1) financial frauds, including adulteration, falsification or suppression of financial, tax or accounting documents; 2) improper appropriation of assets or funds; 3) receipt of undue advantages by managers and employees; and 4) irregular contracting, via the anonymous accusation channel created on Cemig’s intranet.

 

Accusations of an ethical nature are accepted only where there is identification of the accuser, and are processed by the committee itself. Accusations which qualify under items 1 to 4 above are submitted to the Chairman of the Audit Board for measures to be taken.

 

 

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TECHNOLOGY

 

Telecoms and IT

 

Up to date with IT Security

 

In 2007 the “Up to Date with IT Security” project was held, with 941 people participating, to disseminate the classification and treatment of Cemig’s information, improve the level of the company’s security, and to ensure certification in the SOX 2008 Audit.

 

We also highlight the “Fun with Security” project, which aimed to raise the awareness of the children of Cemig employees on the importance of the adoption of information security measures in home use of the computer, and in dealing with the family and professional data of parents.

 

Classification of Information

 

This project aims to establish criteria for classification and treatment of information of interest to Cemig, aiming to protect it from undue access and/or alteration, prohibitive disclosure and unavailability, taking into account the estimate of the losses that can be caused to the company’s business or image by unauthorized access, modification, exclusion and/or disclosure, lack of control and registry or non-availability of information.

 

The benefits resulting from this include compliance with the legal requirements; protection of Cemig’s business; the giving of proper value to information; compliance with the requirements of SOX; and dissemination of the degrees of secrecy and forms of treatment of the company’s information to employees, contractors and interns.

 

Digital certification

 

Studies were carried out for feasibility of a project to identify opportunities for use of digital certification and information cryptography within the needs of the processes of the company’s business, thus defining the technical standards to be used and a plan for projects for their implementation.

 

The main benefits of this type of project are knowledge of opportunities for use of the technology within the company; identification of an opportunity to reduce cost and speed up some processes; definition of technical standards (offering of a structured surface) and security in the storage and transmission of critical information.

 

Client Management System

 

In April 2006 a project was begun to implement the new Client Management System (the “evolution’ project). This project aims to replace some of the company’s principal systems involved in the processing of billing, collection, service, accounting, field services, management of measuring equipment, and issuance and printing of electricity tax invoices and reports. It has a team of 240 professionals including Cemig employees and external consultants.

 

The aims of this program include greater control and security in the processes of billing and collection, with precise and integrated information to support the control and management of clients.

 

This project is scheduled to be concluded in the first half of 2008, with investment of R$ 178 million.

 

Technology and alternative energy sources.

 

Cemig has always considered technology to be a basic and strategic input, and a factor adding value, through making business possible or optimization of internal processes in the search for best technological practices.

 

 

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In management of alternative energy sources, Cemig has invested in projects to use renewable energy sources, led by biomass, the Small Hydro Plants, solar energy, and wind generation. It has also invested in projects for rational use of energy, co-generation and “distributed generation” (geographically distributed at input points throughout the grid area), using various fuels such as hydrogen, natural gas, alcohol and bio diesel.

 

Cemig is always ahead in identification, development and application of new technologies for the electricity sector and use of alternative sources, ensuring it an outstanding position among electricity companies and reaffirming its commitment to its consumers and to sustainable development.

 

Strategic Management of Technology and Innovation.

 

To remain always in the vanguard of use, adaptation and development of the more advanced technologies appropriate to its production processes, Cemig uses the methodology of strategic technology management involving the development of partnerships with universities and research entities, prospecting technology and analysis of the development of technological scenarios, by setting up strategies, guidelines and actions of a technological nature for business operation, in co-ordination with the strategic technology management committee (CoGET).

 

The importance of technology as one of the pillars sustaining business strategy, the high volume of funds allocated annually to technological research and development, and the need for constant improvement of results arising from these initiatives led to the creation, in 2006, of the Strategic Technology Management Centre – CGET, a non-profit association with administrative and financial autonomy, and the signing in 2007 of working agreements for technical and scientific co-operation to support the development of R&D projects of Cemig companies.

 

Being aware of the important role played by development of the market in which it operates and the importance of partnerships and exchange projects, Cemig has sought to increase actions involving universities, research centers and companies interested in promoting and participating in development and consolidation of technological excellence in Minas Gerais.

 

Six technological partnerships technical-scientific co-operation working agreements were set up in 2007, among which we highlight the creation of the Business Management Excellence Centre in partnership with the Dom Cabral Foundation (FDC). Twelve other working agreements are in preparation, including a Letter of Intent for creation of the Agroenergy Excellence Centre, in partnership between Cemig and the Minas Gerais Farming Research Company (Epamig) and several universities in the Minas “Triangle” area, as well as a working agreement to create the Construction Materials Excellence Centre, in partnership with Minas Gerais Federal University (UFMG).

 

R&D Programs

 

Cemig has always stood out as a company dedicated to research and technological development, and has chosen, with this in mind, the priorities in selecting the projects that make up the Annual Technological Research and Development programs which are submitted for approval by the National Electricity Agency (Aneel).

 

62 new and ongoing R&D projects were in process in 2007. Among the 82 projects already concluded, the great majority have resulted in products being incorporated into the company’s daily routine: several methods in engineering, software, devices and equipment were developed and applied, helping to reduce operational costs, increase the reliability in security of Cemig’s systems and facilities, environmental control and development of alternative energy sources.

 

In 2007 Cemig had expenses of R$ 27 million on R&D, R$ 26 million with the National Scientific and Technological Development Fund (FNDCT) and R$ 22 million with the Energy Research Company (EPE).

 

Biomass

 

With the development of more efficient transformation technologies, lower levels of emissions of toxic gasses and greenhouse gasses, biomass has become a very promising energy alternative for the generation of electricity in some regions of the State.

 

 

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Cemig has sought to develop the use of biomass in circumstances varying from the Formoso Plant in the north of Minas Gerais, co-generation in the sugar/alcohol, paper and pulp and steel industries, to the present experiments on planting of energy forests, gasification of biomass, generators running on alcohol, and biodiesel.

 

An example of this effort is the co-generation project using gas from the charcoal-burning blast furnace in the 13 MW thermal plant belonging to the steel maker Vallourec Mannesmann. Cemig is working continuously to make biomass energy generation projects viable, being aware that this is an environmentally correct alternative, and one that is important for meeting the growing energy demand, with positive impacts for generation of employment and revenue in a decentralized manner.

 

Solar energy

 

Cemig’s pioneer work in solar energy, both in its photovoltaic and in its solar thermal versions, through use of flat collectors and solar concentrators, has helped to create new alternatives for the supply of energy and improvement of efficiency for some consumers in Minas Gerais State.

 

The installation of flat solar collectors and heat pumps for heating of water has also been fostered by Cemig, which sees these options as tools to reduce electricity consumption at peak times and also as an alternative source for lower-income housing projects.

 

In 2007 Cemig installed photovoltaic energy in 760 homes to comply with the Light for Everyone Program, and also 1,000 flat solar collectors for heating of water to replace electric showers in low-income homes and hospitals. Cemig continues to invest in R&D projects to purify the metallurgical silicon found in Minas Gerais, and development of low cost photovoltaic cells. Another of the company’s initiatives is research and experimentation in the use of thermal solar energy to produce electricity through solar thermal plants, using cylindrical-parabolic concentrators, and to heat water in a centralized manner, using flat solar collectors (District heating for low-income communities).

 

Wind energy

 

Cemig was the first Brazilian electricity concession holder to install a wind plant connected to the grid, the Experimental Wind Plant at Morro do Camelinho, paving the way for introduction of a wind power culture in the country. A survey was made of the wind potential of some promising sites in Minas Gerais, and in 2007, confidentiality agreements were signed with companies interested in assessing the installation of a wind farm in the north of the State. A research and development project for small wind generators was also begun.

 

Hydrogen and fuel cell energy

 

Hydrogen is a source of energy obtained from water, and from other energy sources such as biomass and fossil fuels, and is considered an energy source of the future. To explore this alternative Cemig has an experimental laboratory for production of hydrogen via electrolysis and from conversion of ethanol. The main challenges for making this energy source viable are reduction of production costs, storage and transport of this fuel. Hydrogen will be initially used as a fuel for tests in fuel cells, to supply internal demand and also as a chemical element for purification of silicon, to be used in the photovoltaic cell R&D project, which is in progress. Fuel cells are one of the new technologies for the generation of energy in a decentralized manner, with a strong potential for an impact on the electricity sector in the future.

 

Bio-diesel

 

Cemig sees bio-diesel as a sustainable energy alternative, a generator of employment and income, and a tool for social empowerment. It has been working, with other bodies of Minas Gerais State and research centers, for consolidation of the bio-diesel production technology in Minas Gerais, through identification of regional vocations for oil seed cultures, construction of a small pilot plant for experimental production of this fuel, and also putting in place of laboratory infrastructure in a research body of the state to qualify and certify this fuel, and thus contribute to its insertion into the Brazilian market.

 

The Biofuel Laboratory of CETEC was inaugurated in 2007, with capacity to produce 1,000 liters/day of bio-diesel. Use of the bio-diesel produced in the laboratory for electricity generation is expected to begin in 2008, on an experimental basis, in a motor-generator group and a micro-turbine

 

 

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The electric vehicle

 

This can be considered as trend for the coming years. In partnership with Itaipu Binacional and Fiat Automóveis, Cemig has begun a project for research and technical and economic feasibility study of the use of vehicles running on electricity. It intends to test prototypes of these vehicles in its fleet in 2008, to assess operational and maintenance targets, and the development of a Brazilian technology. With the intensive use of this technology, the intention is to make available one more alternative for Cemig companies for reducing the use of fossil fuels, and operation of a new electricity niche market.

 

SOCIAL RESPONSIBILITY

 

The conception of social responsibility on the part of companies is increasingly disseminated, associated with the notion of sustainability, aiming to reconcile the economic, environmental and social dimensions of business activity. Cemig seeks to operate within a vision of the future in its management related to these various dimensions.

 

Integrated social action

 

Our social responsibility strategy is publicly known and recognized through our Mission, Vision and Corporate Values. Our Corporate Guidelines are monitored by the Social Responsibility Committee, with representatives in all the Directors’ Departments of the company.

 

Our company has many projects aiming to improve living conditions for children, adolescents, adults and old people, and assistance to needy populations. One example is the Cemig Integrated Social Action (Asin) programs, with more than 1,100 employees registered as volunteers, helping to generate funds which are directed to sustainability of institutions, community associations, schools and old people’s homes.

 

There are 83 of these projects throughout the state, involving 10% of the company’s employees, and focusing on community action, education, environment and health, also receiving the support of external and international partners. Also involved are individual activities such as Children’s Day, Volunteers Day, Christmas and other initiatives which involve not only the institutions that are registered with, and the volunteers of Cemig’s Asin organization, but outsourced employees and partners from the municipalities. Cemig’s Asin Project can be seen on the site: http://www.cemig.com.br/institucional/balanco_social.asp.

 

Another concrete example of social action supported by the company is the AI6% (Creating Citizens) program, a partnership between AIC (the Cemig Inter-Management Association) and the Cemig Asin project, in place since 2001. The program aims to encourage employees and retirees of Cemig to re-allocate part of their payable income tax to the Infancy and Adolescents Funds (FIAs).

 

As evidence of how the Cemig Asin Project has developed, in 2001 we succeeded in allocating R$ 190,000 to 31 institutions in 16 municipalities, while in 2007 the program raised donations from Cemig employees totaling R$ 1,243,000, making it possible to help 137 institutions from 80 municipalities in Minas Gerais state.

 

Another recognition of Cemig’s social responsibility actions was its inclusion, since 2005, in the work group for the creation of the ISO 26,000 – Social Responsibility – Standard, on invitation by the ISO (International Organization for Standardization), the Ethos Institute and the Brazilian Technical Standards Association (ABNT). This is the first time that worldwide coordination of an ISO project has been led jointly by two countries, in this case Brazil and Sweden which makes our participation even more significant.

 

Cemig’s active participation and interaction in a high-level forum of discussion, influencing the international process of construction of the Standard through project activities is one more evidence of its pioneer nature.

 

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Value added

 

The Value Added Statement shows Cemig’s importance for society in general, with the creation of R$ 11,470 million in added value in 2007, compared to R$ 10,401 million in 2006 – an increase of 10.28%.

 

Value added, 2003 – 2007 (R$ ’000)

 

 

The distribution of the added value created by Cemig between the various segments can be seen in this chart, where the part retained by the government – 54% of the total in both of 2006 and 2007 – can be seen.

 

 

 

 Human resources

 

Since 2004 Cemig has been putting in place its Strategic Human Capital Management System, a model developed from the starting point of the company’s Vision and Mission. Its objective is to align strategic planning and the HR management model with the organizational strategy, incorporating a long-term vision and focusing on actions that add value to the business while favoring integrated management. Performance Management is the link between the “Cemig Strategy” and the various processes of HR management, ensuring that the strategic directives are applied in the company.

 

This aims to develop strategic competencies that lead to improvement in results, both financial and non-financial, through contracting of targets and individual development agreements, aligning the actions of individuals and teams with the organization’s guidelines.

 

With the implementation of the Performance Management model and a more strategic operation in the area of human resources, it has been possible to create a definitive link between the business strategy and the various processes of management of people, serving as a base for several initiatives and changes in the HR area, such as: reallocations and promotions based on performance, external competitions, the trainee program, internal mobility, various training and personal development programs, management of organizational atmosphere, etc.

 

 

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Training and development

 

The Cemig Leadership in Management Program, defined and mapped by the Dom Cabral Foundation jointly with the company, was held in 2007, to develop leadership competencies. This is a continuation of a permanent process that aims to ensure that Cemig has available to it people who are capable of leading the transformations of today and the future. For the whole year, managers and superintendents were trained in at least three of a total of 10 leadership competencies, aiming to reduce the gaps in the exercise of these competencies. The number of employee participations was 1,586, representing 14,092 hours of training.

 

Continuing the corporate objective of having and maintaining a workforce with development that is compatible to its needs, and consequently being trained, polished and specialized, in 2007 EFAP provided 11,323 participations in technical training to Cemig group employees, as well as 458 participations for employees of other companies. Total man-hours trained amounted to 507,590.

 

In November 2007 the Bureau Veritas Quality International (BVQI) recommended certification of 15 processes of our Professional Improvement and Training School (EFAP). The putting in place of the quality management system at AFAP is one of the challenges of strategic human resources planning, and it aims primarily to achieve continual improvement of its processes, focused on the quality of technical training offered to its internal and external clients.

 

Training in IT, administration, external training, post-graduate courses, language and other courses continued, to meet the company’s constant needs arising from the emergence of new technologies, equipment and work methods. Attendances in 2007 totaled 17,172, corresponding to 49.23 student training hours.

 

Management of organizational atmosphere

 

Aware that the achievement of high performance is intimately linked with a healthy and stimulating environment, Cemig seeks permanently to manage its internal environment. Within this context, one of the elements of the company’s vision is “to be one of the best companies to work in”.

 

In 2006, competing with more than 500 companies, Cemig was included in the list of the 150 Best Companies to Work In by Exame magazine’s Você S.A. Guide. In 2007 not only was it once again among the Guide’s list of the 150 best companies to work in, but it was considered the best in the special category of the largest companies – those with more than 10,000 employees.

 

Another tool used to manage satisfaction with the work environment is the Organizational Atmosphere Survey, held every two years with all employees. After the phase of diagnosis and analysis of results, the company carries out planning of actions for improvement, preparing a corporate action plan and individual action plans for the various superintendents’ and managers’ departments, and this is followed, finally, by a phase of monitoring of the performance of the improvement action plans. In the 2005-7 cycle there was a corporate plan made up of 21 improvement actions, and 95 individual area action plans, totaling 2,232 improvement actions. From the monitoring that was carried out, it was found that more than 80% of these actions were implemented.

 

Health, well-being and work safety

 

To disseminate the culture and ensure the desired levels of safety, health and well-being of our own employees, and also outsourced employees, Cemig continues its programs started in previous years, and maintains innovative initiatives implementing new projects aimed to ensure the health, safety and well-being of its employees.

 

Programs continued in the year include the Energia Vital quality of life program, the disabled inclusion program, vaccination and blood donor programs, seminars on preparation for retirement, among others.

 

In 2007 Cemig carried out various training programs in safety, highlighting those related to electricity, technical courses and recycling, with a total of 254,820 man-hours of training, as well as organization of workshops, meetings and other training sessions.

 

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Labor and union relations

 

Other the last four years Cemig has negotiated changes in its remuneration policy with the Unions, aiming to integrate the HR management processes with the company’s business strategy. A highlight is the certification under NBR Standard ISO 9001:2000 of our Labor Union Relations Department.

 

New people

 

Completing the replacement of staff levels begun in 2006, 242 new employees were hired in 2007 for positions of medium, technical, and higher levels, arising from approval in a public competition held in January 2006.

 

In October 2007, as part of Strategic Human Capital Management, the company created its Internal Mobility Procedure, which responds to demands from various areas of the company where vacancies occur. It aims to provide the maximum benefit to and make use of the company’s own employees, in accordance with the criteria in the Jobs and Remuneration Plan, and the provisions of law.

 

NUMBER OF EMPLOYEES (*)

Employees, by Company

 


( * ) Holding Company, Cemig Distribuição and Cemig Geração e Transmissão

 

Culture and society

 

Cemig maintains a profound involvement with the society of which it is a part. A central focus is sponsorship of cultural projects and incentive-related donations to initiatives for social empowerment and the improvement of quality of life.

 

In 2007 we invested approximately R$ 27.3 million in cultural and social actions, directly benefiting the population of more than 200 municipalities in Minas Gerais. Most of the cultural projects sponsored by Cemig are continuous, or take the form of maintenance of permanent cultural spaces, reinforcing the concept of sustainability, a decisive factor in the construction of the citizen’s identity and dignity.

 

We invest in university extension festivals in the largest academic centers of the state, because we believe they offer the possibility for reflection about the information acquired in the classroom – the advantages are gained by the population of the cities where they happen. We sponsor large and small museums, public libraries, music academies and theaters.

 

With the second year of our “Film it in Minas” program, we reaffirm the state’s vocation in the audiovisual arts. Thirty-four projects received funding, in a wide variety of categories, in 2007/2008. Prizes were given not only to full-length and short films, but also to experimental videos, documentaries, and projects in research and development and literature of the area. All of these projects used labor, logistics and locations in the state of Minas Gerais.

 

To provide its internal public with access to reading and the visual arts, Cemig maintains an art gallery at its head office, holding 11 exhibitions of artists from all the country – each year for the last 17 years – in a library that is also open to the public, with approximately 57,000 books. As well as this collection at the head office building, a traveling library visited another 12 administrative units of the company, serving new readers in the capital city, Belo Horizonte, and throughout the state.

 

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By ensuring that popular theater festivals take place, or taking the artistic expression of Minas Gerais outside Brazil, Cemig invests in the transforming force of culture, and reaps, together with a more mature society, comprehension of the best possible use of natural resources, respect for heritage and the common good.

 

Environment

 

Cemig has an Environmental Policy, published in 1990, containing 7 principles that orient activities and efforts related to the protection of the environment and sustainable development. These principles are translated into actions that seek to impress on the employees and partners increasing awareness of environmental issues.

 

Within its area of operation Cemig carries out various activities aiming to contribute to sustainable development. These include a school environmental education program, environmental reserves, programs for preservation of flora and fauna, in which programs related to fish are a highlight.

 

Through these actions Cemig seeks continual improvement in its social and environmental responsibility. Investments in the environment in the last four years have been more than R$ 300 million, as follows:

 

Environment

Implementation of new projects

(R$ million)

Environment

Operation and maintenance

(R$ million)

 

Environmental management system

 

The various departments of Cemig can apply for and receive certification under Cemig’s Environmental Management System (SGA), in accordance with ISO 14001/2004, or adopt an Internal Management System, named SGA Level 1, which was developed on the principles of Brazilian Standard NBR ISO 14001.

 

In 2007, the following have NBR ISO 14001/2004 certification: the Nova Ponte and Itutinga hydroelectric plants, the Galheiro Environmental Station, the management of the Western Region Plants, and the management office of the Generation Superintendent’s Department.

 

In 2007, the following were certified:

 

·                  Hydroelectric plants:

·                  São Simão, Miranda and Rosal (2,173 MW) certified under NBR ISO 14001:2004;

·                  Emborcação and Salto Grande certified at SGA Level 1 (1,296 MW).

 

·                  Transmission

·                  The management unit of the Transmission Maintenance and Operation unit of the Minas “Triangle” area was certified under SGA Level 1, NBR ISO 9001 and OHSAS 18001 – 2,121 km of transmission lines.

 

·                  The management of dam safety was certified under NBR ISO 14001:2004; ISO 9001:2000 and OHSAS 18001.

 

71



 

With the expansion of implementation of the Environment Management Systems, our total installed generation capacity with certification increased from 1,939 MW in 2006 to 5,408 MW in 2007, 83% of the total.

 

Sustainable development

 

In 2007 Cemig was selected by the DJSI World – (Dow Jones Sustainability World Index), as world leader in the “supersector” of Utilities – which includes all companies providing services in electricity, gas distribution, water and associated public utility services all over the world. This achievement also represents the 8th year running (2007-8) in which Cemig has been in the select list of companies of the DJSI World. Cemig has been part of this index since it was created in 1999, and is the only company in the Latin American electricity sector included in it. Its consecutive participation in the DJSI World throughout this period reflects its commitment to corporate sustainable development in its activities, including corporate governance practices, respect for the environment and the wellbeing of society, while effectively creating value for its stockholders.

 

Also, Cemig was selected for inclusion in the corporate sustainability index (ISE) of the São Paulo stock exchange (Bovespa) for the third time running. Cemig has been included in this index since it was created in 2005. The ISE reflects the return on a portfolio made up of shares of companies with recognized commitment to social responsibility and sustainability in the Brazilian corporate environment.

 

As well as the commitment to protection of the environment, we invest in programs for conservation and efficiency in energy use, and in research on new energy sources, such as solar and photovoltaic energy, wind energy, hydrogen fuel cell research and the use of natural gas.

 

Environmental licensing

 

Our Environmental Licensing Team aims to ensure that all the studies and reports produced are properly analyzed, and all requirements of the bodies responsible for environmental issues promptly complied with. Our studies and monitoring are carried out through contracting of specialists, which include consultancy companies, research centers and universities.

 

In 2007 Cemig obtained operational licenses for 8 transmission lines and renewal of the license of the Igarapava plant.

 

It also obtained exemption from license for two transmission lines and 202 substations.

 

Management of waste

 

Cemig seeks to provide the most appropriate possible application of the waste that it generates. In 2007, 320,875 fluorescent and public illumination lamps from the whole of its concession area were sent for recycling. Materials withdrawn from operation such as transformers, insulators, scrap, cables and wires are sent to the materials distribution centre, which is certified under the Cemig Environmental Management System, where they are separated for reuse or sale.

 

In 2007, 4,685 tons of materials and equipment were sold or recycled, 31% more than in 2006. These materials include porcelain insulating parts, scrap metal parts of meters, reactors, cables, wires and batteries. Also, Cemig itself regenerated and re-used 435,000 liters of insulating mineral oil withdrawn from electrical equipment. A further 41 tons of wastes impregnated with oil (gloves, cloths and sawdust), and 201 tons of insulating mineral oil inappropriate for use in electrical equipment, were co-processed.

 

72



 

 

Materials recycled or re-used, and wastes sent for processing –2004-2007, tons

 

The increase in the quantity of material recycled or re-used reflects the replacement of electric wire networks in recent years, and also development of Cemig’s abilities in management and selection and separation of materials. During the year, 4,108 tons of the total of 4,685 tons of materials were sold, providing revenue of R$ 11.2 million.

 

We have had a continuous campaign, since 2002, for selective waste collection at our head office building under the name “I Love Recycling”. In 2007, 107 Ton of recyclable material was collected, made up of 64 Ton of paper, 26 Ton of cardboard and 17 Ton of plastic. These were passed to an NGO, Asmare (the Belo Horizonte Association of Collectors of Paper, Cardboard And Reusable Materials.

 

Fish study programs

 

The Peixe Vivo (“Live Fish”) program was launched in 2007 (http://www.portalpeixevivo.com.br/), which aims to create and expand actions for preservation of the aquatic fauna in the river basins of Minas Gerais state where there are Cemig generation plants. This program is implementing channels of communication that allow involvement of the community. The program distributes informative material and organizes lectures, meetings and workshops with various sections of society participating.

 

To repopulate Cemig’s reservoirs and the rivers of Minas Gerais, maintaining biodiversity, we carried out 140 fish repopulation projects, at locations all over the state, with release of 808,000 minnows of various species native to the basins of the Grande, Paranaíba, São Francisco and Pardo Rivers. Some 10,000 people took part in these actions, including school pupils and representatives of various other sectors of society, in more than 70 municipalities of Minas Gerais state.

 

Fauna, flora and monitoring of water quality

 

The company’s Environmental Stations have more than 4,000 hectares of protected areas, used for carrying out studies on fauna and flora, environmental education activities and programmed visits. A total of 700kg of seeds were collected, of 120 native forest species, destined for Cemig’s cultivation beds and interchanged with other institutions.

 

We also produced 350,000 saplings of native species which were distributed to prefectures, NGOs and public bodies, and we planted 25 hectares of riverbank forests in partnership with rural producers.

 

In its Profauna program the Peti Environmental Station nurtured the following species of fauna: Wild Duck, Brazilian Teal, Solitary Tinamou, Cutia and Ultramarine Grosbeak, which were subsequently released in Cemig’s other Natural Heritage Reserves (RPPNs). A further 261 recovered and readapted animals, apprehended by the environmental police and by the environmental authority Ibama, were returned to the natural environment in the company’s conservation units – which are registered under Ibama’s Forest Animals Release Area (ASAS) project.

 

To control the quality of water of our reservoirs, we have a monitoring network covering eight basins (Grande, Paranaíba, Pardo, São Francisco, Doce, Paraíba do Sul, Itabapoana and Jequitinhonha) and 34 different sub-basins, comprising a total of 46 reservoirs and 247 water collection stations.

 

73



 

Urban trees

 

To achieve harmonious co-existence between distribution networks and urban trees, Cemig carries out directional pruning, and gives courses in tree pruning for various prefectures in Minas Gerais. Through theoretical presentations and practical demonstration, participants receive information on implementation and maintenance of urban trees and the tree species that are appropriate for urban areas, among others subjects.

 

In partnership with the Brazilian Urban Arborization Society (SBAU) and the International Society of Arboriculture (ISA), Cemig held the Seminar on handling of urban arborization in relation to electricity systems. This aimed to discuss and improve techniques for maintenance of trees that are close to electricity lines, based on exchange of information between professionals of the area, and also creation of closer relationships between prefectures and electricity concession holders.

 

Environment Week

 

On June 11 and 12, 2007 Cemig held its 2007 Environment Week, on the theme Sustainable Development and Global Warming. More than 4,000 pupils in primary education at the state and municipal 40 public schools of Belo Horizonte took part.

 

The choice of theme aimed to alert the public that the responsibility to combat global warming is not only in the hands of governments and international organizations, but is a task for all – aiming to increase awareness of global warming, and more aware citizens with a differentiated view of nature, the future and human beings.

 

Environmental education program

 

In partnership with the Biodiversitas Foundation, Cemig launched the second stage of its Terra da Gente (“Our Land”) environmental education program (http://www.cemig.com.br/meio_ambiente/terra_gente/index.htm). In this stage the program expects to reach 247,000 people, 774 schools, in 235 municipalities of the Campo das Vertentes region and the south of Minas Gerais.

 

“Terra da Gente” was created to promote environmental education for peoples in the 5th to 8th grades of basic education, and is supported by local universities wherever it is implemented. In this new phase the program has the support of the Federal University of Lavras (EUFLA) and the Federal University of São João Del Rei (UFSJ).

 

The Environmental Education Program that we run in our plants and environmental stations received visits from some 19,544 pupils from various schools throughout the state this year. During the visits, pupils receive information on generation of electricity and its relation to the environment, and messages about sustainable development and the need to conserve ecosystems.

 

Research and Development – Environment

 

Cemig has ongoing R&D projects in the environmental area, managed by Aneel, with universities and research institutions.

 

Using funds from Aneel, five R&D projects related to the environment are in progress in fish management, immunology and environmental aspects of operation of generation plants, transposition systems and water resources.

 

In 2006 the first transformer 100% insulated with vegetable oil was installed, in partnership with ABB. With the positive results of the first transformer, in 2007, two more units of equipment were put in place in Arrudas Boulevard, to serve the Green Line in Belo Horizonte – making it possible to disseminate this technology to other areas of the company’s operations. The main advantage of vegetable oil for the environment is that it is biodegradable.

 

74



 

Cemig and the Belo Horizonte Zoobotanical Foundation have renewed their contract for monitoring of the Lobo-Guará (the Brazilian wolf), for a sixth stage.

 

This project develops the research on the ecology of this fox (Chrysocyon brachyurus) using GPS satellite technology, from the Galheiro environmental station of Cemig in the municipality of Perdizes, Minas Gerais.

 

Recognition and awards

 

Cemig’s efforts in 2007 led to recognition and awards reflecting the excellence of its activities by various sectors of society, among which we highlight the following:

 

The Ponto Terra Environmental Award

 

Cemig was winner of the Ponto Terra – Minas 2007 environmental prize in the Companies category with its project Solar Water Heating in Residential Buildings. The award is organized by the Ponto Terra organization, and was given during the 7th Latin American Conference on Environment and Social Responsibility (Ecolatina 2007). This is a pioneer project in Brazil, a partnership between Cemig and the Minas Gerais state public housing company (CohabMG) and the state’s regional development and urban policy department (Sedru). The project was begun in 2002 and has so far benefited 1,671 families.

 

The Minas Gerais 2007 Environmental Prize:

 

Cemig’s Nova Ponte hydroelectric plant was one of the winners of the Minas Gerais 2007 environmental prize (PMGA), organized by the Brazilian Quality Union (UBQ) which highlighted innovative and differentiated environmental management practices. The plant is now certified by international environmental management, health and safety and quality standards.

 

The Minas Gerais Quality Control Groups Prize

 

Cemig was the champion participant in the 16th Minas Gerais Convention of Quality Control Groups (CCQs), and represented the state of Minas Gerais in the 13th Brazilian Nationwide Quality Control Groups Congress held in Gramado, in the state of Rio Grande de Sul. CCQ is a voluntary program where members of teams are trained in quality tools for solving problems. The company was represented by the Matrix Team with the “Oil vs. Oil” project, which presented an innovated solution to the problem of oil mist that contaminates electricity generators – the solution generated gains of R$ 14 million in each periodic maintenance cycle.

 

Social Responsibility Award

 

Two projects – Illuminating Lives and Public-spirited School Kit, developed by employees in the south of Minas working as volunteers, were finalists in the 4th Assis Chateaubriand Social Responsibility Awards. Illuminating Lives, a partnership between Cemig and the Prisoners’ Protection and Assistance Association (Apac) and Usiparts, was selected as one of the 10 best projects submitted and received the Assis Chateaubriand Social Responsibility Trophy. The Public-spirited School Kit project received a special mention for its selection as among the 20 projects of greatest social importance in the region.

 

Dow Jones

 

Cemig is the only Latin American company that has been selected by the Dow Jones Sustainability World Index (DJSI World) as the world leader in a sector of the economy worldwide, side-by-side with the giant companies of the US and Europe. In the 2007-8 index, Cemig was named the best company in the utilities “supersector” (which includes electricity, gas distribution, water/sewerage and other public utility services worldwide). The DJSI World index was created 8 years ago and has become a worldwide reference for investors and fund managers. Cemig has been included in every edition of the index since its creation.

 

Consumer Satisfaction Survey

 

In a survey by Brazilian Energy Regulator, Aneel, of more than 19,000 clients of 64 electricity concessions in Brazil, Cemig was chosen as the best electricity concession holder in the Southeast Region, among those with more than 400,000 consumers, in the IASC (Aneel Consumer Satisfaction Index) award for 2006.

 

75



 

ISE Corporate Sustainability Index

 

In 2007 Cemig was selected for the third time running for the São Paulo stock exchange ISE (Corporate Sustainability Index). The Company has been included in this index since its creation in 2005. Companies are assessed based on a questionnaire that reflects the company’s characteristics and its activities in the economic, environmental, social and corporate governance dimensions, and the nature of its products.

 

The ISE, after three years’ existence, is recognized as a benchmark for investors interested in shares listed on the Bovespa of companies that practice corporate sustainability. The index also seeks to encourage Brazilian companies to practice good management.

 

2007 Brazil Safety Award

 

Cemig received the Prêmio Proteção Brasil 2007 award in the “Best Safety Example in Electricity” category. This is the third year the prize has been awarded – it recognizes the efforts of companies, employees and executives to improve work health and safety conditions. The “case” we presented dealt with our process of providing flame-resistant clothing, one of Cemig’s research and development projects.

 

Accountants’ “Transparency Trophy”

 

For the fourth year running, Cemig won the Transparency Trophy, awarded by three accounting-related organizations in the Listed Companies category. 14 companies received awards: 10 listed and 4 unlisted. The prize has been given for the last 11 years by Anefac (the Brazilian Association of Finance, Administration and Accounting Executives), Fipecafi (the Accounting, Actuarial and Financial Research Institute Foundation) and the financial records institution Serasa.

 

“Brazil’s 150 Best Companies To Work In” – 2007 Exame Guia Você S.A. award

 

Cemig was chosen as the best of Brazil’s large companies surveyed by Exame magazine’s Você S.A. Guide’s survey “105 Best Companies for you to Work In, in 2007”. This is the second time in a row that Cemig has been included in the list of the best companies to work for – indicating the recognition given by our internal public to the success of the internal management practices that we have been putting in place.

 

Investor relations

 

Cemig received an honorable mention in three categories in the IR Magazine Brazil Awards for 2007: the “Grand Prix” for Best Investor Relations Program (Large Companies), Best Social-Environmental Sustainability; and Best Investment Analyst Community Meeting. The honorable mention is given to the five finalists of the award. Each year IR Magazine gives awards recognizing the best investor relations professionals and the best companies, in various categories, in accordance with an independent survey carried out by the Brazilian Economics Institute of the Getúlio Vargas Foundation (FGV).

 

FINAL REMARKS

 

Cemig’s management is grateful to Minas Gerais state Governor Dr. Aécio Neves da Cunha for the trust and support he has shown during the year, and also the other federal, state and municipal authorities, the communities served by the company, our stockholders and other investors, and, especially, the dedication of our highly qualified workforce.

 

76



 

CONSOLIDATED SOCIAL STATEMENT (unaudited information)

 

 

 

 

 

2007

 

 

 

 

 

2006

 

 

 

 

 

 

 

R$ ’000

 

 

 

 

 

R$ ’000

 

 

 

1 - Basis of calculations

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales revenue (NR) R$ ’000

 

 

 

10,245,914

 

 

 

 

 

8,466,642

 

 

 

Operating result (OR) R$ ’000

 

 

 

2,938,475

 

 

 

 

 

2,500,013

 

 

 

Gross payroll (GP) R$ ’000

 

 

 

995,456

 

 

 

 

 

893,475

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ ’000

 

% of GP

 

% of NR

 

R$ ’000

 

% of GP

 

% of NR

 

2 - Internal social indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

Food

 

69,116

 

6.94

 

0.67

 

70,027

 

7.84

 

0.83

 

Mandatory charges and payments based on payroll

 

250,884

 

25.20

 

2.45

 

235,734

 

26.38

 

2.78

 

Private pension plan

 

101,696

 

10.22

 

0.99

 

169,910

 

19.02

 

2.01

 

Health

 

30,683

 

3.08

 

0.30

 

28,812

 

3.22

 

0.34

 

Safety and medicine in the workplace

 

9,657

 

0.97

 

0.09

 

9,078

 

1.02

 

0.11

 

Education

 

1,158

 

0.12

 

0.01

 

1,081

 

0.12

 

0.01

 

Culture

 

112

 

0.01

 

 

 

 

 

Training and professional development

 

15,265

 

1.53

 

0.15

 

16,460

 

1.84

 

0.19

 

Provision of or assistance for day-care centers

 

1,651

 

0.17

 

0.02

 

1,608

 

0.18

 

0.02

 

Profit sharing

 

486,483

 

48.87

 

4.75

 

209,991

 

23.50

 

2.48

 

Other

 

12,032

 

1.21

 

0.12

 

11,073

 

1.24

 

0.13

 

Internal social indicators – Total

 

978,737

 

98.32

 

9.55

 

753.774

 

84.36

 

8.90

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ ’000

 

% of GP

 

% of NR

 

R$ ’000

 

% of GP

 

% of NR

 

3 - External social indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

Education

 

2,427

 

0.08

 

0.02

 

 

 

 

Culture

 

27,277

 

0.93

 

0.27

 

14,341

 

0.57

 

0.17

 

Other donations/subventions/ASIN project

 

15,295

 

0.52

 

0.15

 

21,134

 

0.85

 

0.25

 

Total contributions to society

 

44,999

 

1.53

 

0.44

 

35,475

 

1.42

 

0.42

 

Taxes (excluding payroll taxes)

 

5,426,622

 

184.67

 

52.96

 

5,658,967

 

226.36

 

66.84

 

External social indicators - Total

 

5,471,621

 

186.21

 

53.40

 

5,694,442

 

227.78

 

67.26

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R$ ’000

 

% of GP

 

% of NR

 

R$ ’000

 

% of GP

 

% of NR

 

4 - Environmental indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditure related to company operations

 

44,131

 

1.50

 

0.43

 

58,112

 

2.50

 

1.04

 

Investments in external projects or programs

 

 

 

 

 

 

 

In relation to setting of annual targets to minimize toxic waste and consumption during operations, and increasing the efficacy of use of natural resources, the company

 

x has no targets
o meets 0-50% of targets

o meets 51-75%
o meets 76-100%

x has no targets

o meets 0-50% of targets

o meets 51-75%

o meets 76-100%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5 - Workforce indicators

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of employees at end of period

 

 

 

 

 

10,818

 

 

 

 

 

10,658

 

Number of hirings during period

 

 

 

 

 

252

 

 

 

 

 

529

 

Number of outsourced employees

 

 

 

 

 

NA

 

 

 

 

 

NA

 

Number of interns

 

 

 

 

 

140

 

 

 

 

 

396

 

Number of employees over 45 years old

 

 

 

 

 

4,164

 

 

 

 

 

3,346

 

Number of women employed

 

 

 

 

 

1,469

 

 

 

 

 

1,454

 

% of supervisory positions held by women

 

 

 

 

 

6.81

 

 

 

 

 

7.7

 

Number of African-Brazilian employees

 

 

 

 

 

3,363

 

 

 

 

 

3,299

 

% of supervisory positions held by African-Brazilians

 

 

 

 

 

9.09

 

 

 

 

 

9.30

 

Number of employees with disabilities

 

 

 

 

 

53

 

 

 

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2007

 

Targets 2008

 

6 - Corporate citizenship

 

 

 

 

 

 

 

 

 

Ratio of highest to lowest compensation

 

 

 

 

 

17.80

 

 

 

 

 

NA

 

Total number of work accidents(4)

 

 

 

 

 

108

 

 

 

 

 

NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Who selects the social and environmental projects developed by the company?

 

o senior management

 

x senior management and functional managers

 

o all employees

 

o senior management

 

x senior management and functional managers

 

o all employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Who decides the company’s work environment health and safety standards?

 

o senior management and functional managers

 

x all employees

 

o All
+ CIPA

 

o senior management functional managers

 

x all employees

 

o All
+ CIPA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In relation to labor union freedom, the right to collective bargaining and/or internal employee representation, the company:

 

o doesn’t get involved

 

x follows ILO
rules

 

o encourages and follows ILO

 

o will not get involved

 

x will follow ILO rules

 

o will encourage and follow ILO

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The company pension plan covers:

 

o senior management

 

o senior management and functional managers

 

x all employees

 

o senior management

 

o senior management and functional managers

 

x all employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The profit-sharing program covers:

 

o senior management

 

o senior management and functional managers

 

x all employees

 

o senior management

 

o senior management and functional managers

 

x all employees

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In selection of suppliers, the standards of ethics and social and environmental responsibility adopted by the company:

 

o are not considered

 

o are suggested

 

x are required

 

o will not be considered

 

o will be suggested

 

x will be required

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In relation to volunteer work by employees, the company:

 

o doesn’t get involved

 

o supports

 

x organizes and encourages

 

o will not get involved

 

o will support

 

x will organize and encourage

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total number of consumer complaints and criticisms raised:

 

at Company

        NA

 

at Procon

         NA

 

in Court

        NA

 

at Company

          NA

 

at Procon

          NA

 

in Court

         NA

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

% of complaints and criticisms met or solved:

 

at Company

        NA%

 

at Procon

        NA%

 

in Court

        NA%

 

at Company

          NA%

 

at Procon

          NA%

 

in Court

        NA%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total added value distributable (R$ ’000)

 

In 2007:

 

11.470.199

 

 

 

In 2006:

 

10.401.477

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distribution of added value (DVA)

 

54.53% government

8.57% stockholders

 

15.30% employees 14.03% others

 

7.57% retained

 

54.41% government 13.35% stockholders

 

15.63% employees 13.37% others

 

3.24% retained

 

 

7 - Other information

 

 

I.

Of total funds deployed on the environment in 2006, approximately R$7.3mn refers to the social-environmental programs put in place during the constructions of new hydroelectric plants and transmission lines.

 

 

II.

Waste generated is quantified in accordance with corporate procedures for handling, transport, storage and disposal. These procedures are developing in the direction of setting of annual targets for waste reduction. We highlight the recycling of fluorescent lamps and public illumination throughout the company’s concession area, totaling 321,000 lamps in 2007. Also approx.436,000 liters of insulating oil from deactivated transformers were regenerated by Cemig itself and incorporated into the electrical system

 

 

III.

We quantify electricity and fuel consumption annually and do not have reduction targets.

 

 

IV.

4,685 tons of material and equipment – 31% more than in 2006 – was sold or recycled. The materials include porcelain insulators, scrap metal from meters, reactors, cables, wires and batteries

 


* Accounted in Investments related to production/operations.

 

77



 

CEMIG IN NUMBERS

 

(Consolidated data, unless otherwise indicated)

 

 

 

2003

 

2004

 

2005

 

2006

 

2007

 

Service

 

 

 

 

 

 

 

 

 

 

 

Number of consumers (thousands)

 

5,744

 

5,875

 

6,010

 

10,042

 

10,321

 

Number of employees

 

11,302

 

10,668

 

10,271

 

10,658

 

10,818

 

Number of consumers per employee

 

508

 

551

 

585

 

675

 

954

 

Number of locations served

 

5,415

 

5,415

 

5,415

 

5,415

 

5,415

 

Number of municipalities served

 

774

 

774

 

774

 

805

 

805

 

 

 

 

 

 

 

 

 

 

 

 

 

Market

 

 

 

 

 

 

 

 

 

 

 

Concession area (km2)

 

567,478

 

567,478

 

567,478

 

578,448

 

578,448

 

Own Generation (GWh) (1) 

 

27,025

 

26,922

 

30,411

 

32,187

 

33,130

 

Average supply tariffs – including ICMS (R$/MWh) (1) 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

356,95

 

416,26

 

474,23

 

487,52

 

505,73

 

Commercial

 

305,89

 

356,03

 

410,81

 

435,97

 

449,51

 

Industrial

 

132,39

 

154,38

 

124,41

 

128,04

 

136,93

 

Rural

 

186,42

 

214,42

 

249,13

 

265,27

 

270,65

 

DEC = Average hours of outages per year

 

10.74

 

10.93

 

12.21

 

13.03

 

13.14

 

FEC = Average number of outages per year

 

6.42

 

6.58

 

6.78

 

6.43

 

6.39

 

Average minutes of outages per month per consumer

 

54

 

55

 

61

 

65

 

66

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational

 

 

 

 

 

 

 

 

 

 

 

Plants in operation

 

48

 

52

 

54

 

61

 

62

 

Substations

 

427

 

 434

 

440

 

469

 

472

 

Transmission lines (km)

 

4,829

 

4,856

 

4,892

 

5,364

 

5,313

 

Sub-transmission lines (km)

 

16,185

 

16,086

 

16,040

 

16,788

 

16,676

 

Distribution lines (km)

 

 

 

 

 

 

 

 

 

 

 

Urbana

 

82,867

 

83,527

 

84,585

 

93,850

 

91,412

 

Rural

 

276,437

 

283,910

 

294,815

 

308,689

 

337,987

 

Installed generating capacity (MW)

 

5,771

 

5,949

 

6,113

 

6,692 

 

6,678 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial

 

 

 

 

 

 

 

 

 

 

 

Operational revenue – R$ million

 

7,968

 

9,748

 

11,703

 

13,431

 

15,790

 

Net operational revenue – R$ million

 

5,223

 

 6,611

 

7,313

 

8,467

 

10,246

 

Operating margin - %

 

22.99

 

 28.69

 

 33.68

 

30.11

 

32.16

 

Ebitda - R$million

 

1.771

 

 2.480

 

3.058

 

3.222

 

4.073

 

Net profit (loss) – R$ million

 

1.198

 

1.385

 

2.003

 

1.719

 

1.735

 

Net profit (loss) (Holding company)

 

2.46

 

2.84

 

4.12

 

3.53

 

3.57

 

Stockholders’ equity - R$ million

 

6.559

 

7.251

 

7.185

 

7.522

 

8.390

 

Stockholders’ equity per share (Holding company) (2)

 

13.48

 

14.91

 

14.77

 

15.46

 

17.25

 

Return on Stockholders’ equity - %

 

21.08

 

21.11

 

27.63

 

23.92

 

23.07

 

Debt / Stockholders’ equity - %

 

128.67

 

131.15

 

175.55

 

206.03

 

184.40

 

Current liquidity

 

0.73

 

0.86

 

0.91

 

1.11

 

1.32

 

General liquidity

 

0.74

 

 0.79

 

0.78

 

0.73

 

0.78

 

 


(1) After discounting of the losses attributed to generation (652 GWh) and internal consumption by the plants themselves.

(2) Calculated considering the quantity of stocks in December 31.2007.

 

 

78



 

MEMBERS OF CEMIG’S BOARDS

 

BOARD OF DIRECTORS

 

 

 

 

 

Members

 

Substitute members

 

 

 

Márcio Araújo de Lacerda

 

Francisco de Assis Soares

Djalma Bastos de Morais

 

Lauro Sérgio Vasconcelos David

Aécio Ferreira da Cunha

 

Eduardo Lery Vieira

Alexandre Heringer Lisboa

 

Franklin Moreira Gonçalves

Antônio Adriano Silva

 

Marco Antônio Rodrigues da Cunha

Francelino Pereira dos Santos

 

Luiz Antônio Athayde Vasconcelos

Maria Estela Kubitschek Lopes

 

Fernando Henrique Schuffner Neto

Wilson Nélio Brumer

 

Guilherme Horta Gonçalves Júnior

Wilton de Medeiros Daher

 

 

Carlos Augusto Leite Brandão

 

Eduardo Leite Hoffmann

Andréa Paula Fernandes Pansa

 

Maria Amália Delfim de Melo Coutrim

Evandro Veiga Negrão de Lima

 

Andréa Leandro Silva

José Augusto Pimentel Pessôa

 

Nohad Toufic Harati

Haroldo Guimarães Brasil

 

Antônio Renato do Nascimento

 

THE AUDIT BOARD

 

 

 

 

 

Members

 

Substitute members

 

 

 

Aristóteles Luiz Menezes Vasconcellos Drummond

 

Marcus Eolo de Lamounier Bicalho

Luiz Guaritá Neto

 

Ronald Gastão Andrade Reis

Luiz Otávio Nunes West

 

Leonardo Guimarães Pinto

Celene Carvalho de Jesus

 

Ari Barcelos da Silva

Thales de Souza Ramos Filho

 

Aliomar Silva Lima

 

EXECUTIVE BOARD

 

 

 

 

 

Name

 

Position

 

 

 

Djalma Bastos de Morais

 

Chief Executive Officer

José Carlos de Mattos

 

Chief New Business Development Officer

Luiz Fernando Rolla

 

Chief Officer for Finance. Investor Relations and Control of Holdings

Fernando Henrique Schüffner Neto

 

Chief Generation and Transmission Officer

José Maria de Macedo

 

Chief Distribution and Sales Officer

Marco Antonio Rodrigues da Cunha

 

Chief Corporate Management Officer

Bernardo Afonso Salomão de Alvarenga

 

Chief Trading Officer

 

INVESTOR RELATIONS

 

Investor Relations Office

Telephones: (31) 3506-5024 and 3506-5028Fax: (31) 3506-5025 and 3506-5026

 

Web / mail

Site: www.cemig.com.br
Email: ri@cemig.com.br

 

79



 

BALANCE SHEETS

 

DECEMBER 31. 2007 AND 2006

 

ASSETS

 

(R$ ’000)

 

 

 

Consolidated

 

Holding company

 

 

 

 

 

2006

 

 

 

2006

 

 

 

2007

 

Reclassified

 

2007

 

Reclassified

 

CURRENT

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (Note 5)

 

2.066.219

 

1.402.047

 

21.953

 

23.834

 

Consumers and Traders (Note 6)

 

2.025.124

 

2.074.983

 

 

 

Tariff recomposition and Portion “A” (Note 8)

 

450.817

 

355.599

 

 

 

Concession holders - power transportation

 

474.450

 

358.205

 

 

 

Taxes Subject to Offsetting (Note 11)

 

810.293

 

284.197

 

32.996

 

12.443

 

Anticipated expenses – CVA (Note 10)

 

519.699

 

459.898

 

 

 

Traders – transactions in Free Energy (Note 9)

 

31.426

 

123.056

 

 

 

Tax credits (Note 12)

 

489.757

 

125.790

 

92.975

 

24.047

 

Dividends receivable

 

 

 

1.383.893

 

1.152.772

 

Regulatory asset - PIS-Pasep/Cofins (Note 15)

 

57.593

 

107.959

 

 

 

Deferred Tariff Adjustment (Note 13)

 

463.491

 

791.231

 

 

 

Inventories

 

42.415

 

34.980

 

 

17

 

Other credits

 

290.726

 

276.655

 

9.831

 

6.921

 

TOTAL CURRENT ASSETS

 

7.722.010

 

6.394.600

 

1.541.648

 

1.220.034

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT

 

 

 

 

 

 

 

 

 

Long term assets

 

 

 

 

 

 

 

 

 

Accounts receivable from Minas Gerais state government
(Note 14)

 

1.763.277

 

1.726.293

 

 

 

Receivables fund – FIDC (Note 14)

 

 

 

772.891

 

744.502

 

Tariff recomposition and Portion “A” (Note 8)

 

721.529

 

979.008

 

 

 

Anticipated expenses – CVA (Note 10)

 

177.842

 

159.738

 

 

 

Tax credits (Note 12)

 

694.888

 

678.592

 

174.557

 

280.457

 

Traders – transactions in Free Energy (Note 9)

 

13.646

 

34.637

 

 

 

Taxes offsettable (Note 11)

 

365.101

 

601.091

 

259.626

 

289.024

 

Deposits linked to legal actions

 

271.915

 

254.905

 

92.843

 

82.923

 

Consumers and Traders (Note 6)

 

125.986

 

100.734

 

 

 

Regulatory asset – PIS. Pasep. Cofins (Note 15)

 

60.880

 

215.559

 

 

 

Deferred Tariff Adjustment (Note 13)

 

81.742

 

127.488

 

 

 

Other credits

 

38.427

 

24.793

 

7.834

 

4.632

 

NON-CURRENT ASSETS

 

4.315.233

 

4.902.838

 

1.307.751

 

1.401.538

 

 

 

 

 

 

 

 

 

 

 

Fixed Assets

 

 

 

 

 

 

 

 

 

Investments (Note 16)

 

1.070.854

 

998.875

 

7.068.513

 

6.838.844

 

Property, Plant and Equipment (Note 17)

 

10.563.200

 

10.335.426

 

1.986

 

1.701

 

Intangible (Note 17)

 

531.724

 

494.231

 

506

 

790

 

 

 

 

 

 

 

 

 

 

 

Deferred

 

63.482

 

82.746

 

 

 

TOTAL FIXED ASSETS

 

16.544.493

 

16.814.116

 

8.378.756

 

8.242.873

 

TOTAL ASSETS

 

24.266.503

 

23.208.716

 

9.920.404

 

9.462.907

 

 

The Explanatory Notes are an integral part of the financial statements.

 

80



 

BALANCE SHEETS

 

DECEMBER 31. 2007 AND 2006

 

LIABILITIES

 

(R$ ’000)

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

CURRENT

 

 

 

 

 

 

 

 

 

Suppliers (Note 18)

 

935.905

 

913.773

 

11.781

 

6.346

 

Regulatory charges (Note 21)

 

395.894

 

436.535

 

 

 

Profit shares (Note 33)

 

102.329

 

74.038

 

6.642

 

5.450

 

Taxes. charges and contributions (Note 19)

 

1.078.159

 

994.577

 

39.192

 

22.991

 

Interest on Equity. and dividends (Note 25)

 

881.457

 

1.373.828

 

881.457

 

1.373.828

 

Loans and financings (Note 20)

 

969.603

 

800.434

 

5.735

 

6.792

 

Debentures (Note 20)

 

50.638

 

33.514

 

 

 

Salaries and social contributions

 

236.285

 

185.017

 

9.168

 

7.672

 

Regulatory liabilities – CVA (Note 10)

 

549.133

 

328.143

 

 

 

Regulatory liabilities – revision of transmission revenue
(Note 23)

 

15.717

 

 

 

 

Post-employment obligations (Note 22)

 

107.061

 

139.113

 

4.362

 

5.933

 

Provision for losses on financial instruments (Note 36)

 

166.448

 

176.575

 

 

 

Debt to related parties

 

 

 

76.949

 

3.025

 

Other obligations

 

372.806

 

293.183

 

30.772

 

21.476

 

TOTAL-CURRENT

 

5.861.435

 

5.748.730

 

1.066.058

 

1.453.513

 

 

 

 

 

 

 

 

 

 

 

NON-CURRENT

 

 

 

 

 

 

 

 

 

Long term liabilities

 

 

 

 

 

 

 

 

 

Suppliers (Note 18)

 

340.792

 

271.928

 

 

 

Regulatory liabilities – CVA (Note 10)

 

196.140

 

119.907

 

 

 

Loans and financings (Note 20)

 

4.961.138

 

5.620.190

 

73.587

 

73.587

 

Debentures (Note 20)

 

1.657.655

 

1.194.799

 

 

30.009

 

Taxes. charges and contributions (Note 19)

 

319.140

 

449.521

 

85.179

 

96.851

 

Provisions for contingencies (Note 24)

 

634.786

 

534.980

 

254.197

 

229.714

 

Post-employment obligations (Note 22)

 

1.363.833

 

1.450.850

 

51.176

 

56.749

 

Other obligations

 

136.622

 

107.660

 

30

 

31

 

TOTAL NON-CURRENT

 

9.610.106

 

9.749.835

 

464.169

 

486.941

 

 

 

 

 

 

 

 

 

 

 

FUTURE EARNINGS (Note 16)

 

86.236

 

90.080

 

 

 

 

 

 

 

 

 

 

 

 

 

MINORITY INTEREST

 

318.549

 

97.618

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

Registered capital (Note 25)

 

2.432.307

 

1.621.538

 

2.432.307

 

1.621.538

 

Capital reserves (Note 25)

 

4.032.222

 

4.032.222

 

4.032.222

 

4.032.222

 

Profit reserves (Note 25)

 

1.898.525

 

1.841.570

 

1.898.525

 

1.841.570

 

Funds for capital increase

 

27.123

 

27.123

 

27.123

 

27.123

 

TOTAL STOCKHOLDERS’ EQUITY

 

8.390.177

 

7.522.453

 

8.390.177

 

7.522.453

 

TOTAL LIABILITIES

 

24.266.503

 

23.208.716

 

9.920.404

 

9.462.907

 

 

The Explanatory Notes are an integral part of the financial statements.

 

81



 

INCOME STATEMENTS

FOR THE YEARS ENDED DECEMBER 31 2007 AND 2006

 

(R$ ’000. except net profit per share)

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006
Reclassified

 

2007

 

2006
Reclassified

 

OPERATIONAL REVENUE

 

 

 

 

 

 

 

 

 

Gross revenue from supply of electricity (Note 26)

 

13.285.332

 

11.135.000

 

 

 

Revenue from use of the network – free consumers (Note 27)

 

1.945.930

 

1.789.471

 

 

 

Other operational revenues (Note 28)

 

558.269

 

506.900

 

40.738

 

1.457

 

 

 

15.789.531

 

13.431.371

 

40.738

 

1.457

 

DEDUCTIONS FROM OPERATIONAL REVENUE (Note 29)

 

(5.543.617

)

(4.964.729

)

(4.195

)

(81

)

NET OPERATIONAL REVENUE

 

10.245.914

 

8.466.642

 

36.543

 

1.376

 

 

 

 

 

 

 

 

 

 

 

OPERATIONAL COSTS

 

 

 

 

 

 

 

 

 

COST OF ELECTRICITY AND GAS (Note 30)

 

 

 

 

 

 

 

 

 

Electricity purchased for resale

 

(2.793.722

)

(2.112.673

)

 

 

Charges for the use of the basic transmission grid

 

(649.737

)

(663.851

)

 

 

Gas purchased for resale

 

(154.241

)

(157.732

)

 

 

 

 

(3.597.700

)

(2.934.256

)

 

 

COST OF OPERATION (Note 30)

 

 

 

 

 

 

 

 

 

Personnel and managers

 

(866.377

)

(992.765

)

 

 

Private pension plan entity

 

(110.354

)

(159.647

)

 

 

Materials

 

(89.930

)

(78.519

)

 

 

Raw materials and inputs for production

 

(58.409

)

(36.812

)

 

 

Outsourced services

 

(500.828

)

(411.318

)

 

 

Depreciation and amortization

 

(748.196

)

(626.926

)

 

 

Operational provisions

 

(49.914

)

(23.976

)

 

 

Financial compensation for use of water resources

 

(134.102

)

(138.955

)

 

 

Others

 

(168.285

)

(127.903

)

 

 

 

 

(2.726.395

)

(2.596.821

)

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL COST

 

(6.324.095

)

(5.531.077

)

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

3.921.819

 

2.935.565

 

36.543

 

1.376

 

 

 

 

 

 

 

 

 

 

 

OPERATIONAL EXPENSES (Note 30)

 

 

 

 

 

 

 

 

 

Selling expenses

 

(235.837

)

(152.719

)

 

 

General and administrative expenses

 

(319.886

)

(78.139

)

(74.071

)

17.472

 

Other operational revenue (expenses)

 

(71.516

)

(155.020

)

 

 

 

 

(627.239

)

(385.878

)

(74.071

)

17.472

 

 

 

 

 

 

 

 

 

 

 

Operational profit before equity income and financial revenues (expenses)

 

3.294.580

 

2.549.687

 

(37.528

)

18.848

 

 

 

 

 

1.911.530

 

1.594.595

 

Net financial revenue (expenses) (Note 31)

 

(356.105

)

(49.674

)

1.343

 

108.659

 

 

 

 

 

 

 

 

 

 

 

OPERATIONAL PROFIT

 

2.938.475

 

2.500.013

 

1.875.345

 

1.722.102

 

NON-OPERATIONAL RESULT (Note 32)

 

(10.356

)

(36.795

)

(11.043

)

(10.223

)

 

 

 

 

 

 

 

 

 

 

Profit before tax and profit sharing under the bylaws

 

2.928.119

 

2.463.218

 

1.864.302

 

1.711.879

 

 

 

 

 

 

 

 

 

 

 

Income tax and Social Contribution (Note 12)

 

(1.025.851

)

(599.300

)

(126.672

)

26.217

 

Deferred income tax and Social Contribution (Note 12)

 

403.546

 

71.704

 

10.107

 

(9.934

)

Profit shares of employees and managers (Note 33)

 

(454.885

)

(209.991

)

(12.288

)

(9.321

)

Profit before minority interest

 

1.850.929

 

1.725.631

 

1.735.449

 

1.718.841

 

 

 

 

 

 

 

 

 

 

 

MINORITY INTEREST

 

(115.480

)

(6.790

)

 

 

 

 

 

1.735.449

 

1.718.841

 

1.735.449

 

1.718.841

 

NET PROFIT PER SHARE – Reais

 

 

 

 

 

3.57

 

3.53

 

 

The Explanatory Notes are an integral part of the financial statements.

 

82



 

STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

FOR THE YEARS ENDED 31 DECEMBER 2007 AND 2006

 

(R$ ’000. except dividends and Interest on Equity per share)

 

 

 

Registered
capital

 

Capital
reserves

 

Profit
reserves

 

Earnings
reserve

 

Funds
allocated to
capital
increase

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT DECEMBER 31. 2005

 

1.621.538

 

4.032.222

 

1.503.972

 

 

27.123

 

7.184.855

 

 

 

 

 

538

 

 

 

538

 

Reversion of dividends

 

 

 

 

1.718.841

 

 

1.718.841

 

Net profit for the year

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of profit proposed to AGM:

 

 

 

85.942

 

(85.942

)

 

 

Legal Reserve

 

 

 

 

(169.067

)

 

(169.067

)

Interest on Equity (R$ 1.04 per share)

 

 

 

 

(715.714

)

 

(715.714

)

Complementary dividends (R$ 4.41 per share)

 

 

 

241.298

 

(241.298

)

 

 

Extraordinary dividends (R$ 3.07 per share)

 

 

 

 

(497.000

)

 

(497.000

)

Reserve under the Bylaws

 

 

 

9.820

 

(9.820

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES AT DECEMBER 31. 2006

 

1.621.538

 

4.032.222

 

1.841.570

 

 

27.123

 

7.522.453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital increase

 

810.769

 

 

(810.769

)

 

 

 

Net profit for the year

 

 

 

 

1.735.449

 

 

1.735.449

 

Allocation of profit proposed to AGM:

 

 

 

 

 

 

 

 

 

 

 

 

 

Legal Reserve

 

 

 

86.772

 

(86.772

)

 

 

Dividends (R$ 1.78 per share)

 

 

 

 

(867.725

)

 

(867.725

)

Retained profit

 

 

 

780.952

 

(780.952

)

 

 

BALANCES AT DECEMBER 31. 2006

 

2.432.307

 

4.032.222

 

1.898.525

 

 

27.123

 

8.390.177

 

 

The Explanatory Notes are an integral part of the financial statements.

 

 

83



 

STATEMENTS OF SOURCES AND USES OF FUNDS

 

YEARS ENDING DECEMBER 31. 2007 AND 2006
(R$ ’000)

 

 

 

Consolidated

 

Holding company

 

 

 

 

 

2006

 

 

 

2006

 

 

 

2007

 

Reclassified

 

2007

 

Reclassified

 

ORIGINS OF FUNDS

 

 

 

 

 

 

 

 

 

From operations

 

 

 

 

 

 

 

 

 

Net profit for the period

 

1.735.449

 

1.718.841

 

1.735.449

 

1.718.841

 

Expenses (revenue) not affecting working capital

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

778.144

 

672.257

 

701

 

694

 

Net disposal of fixed assets

 

30.084

 

21.596

 

 

4.182

 

Equity income from subsidiaries

 

 

 

(1.911.530

)

(1.594.595

)

Post-employment obligations

 

123.007

 

169.910

 

5.144

 

7.871

 

Long term interest and monetary variations

 

(468.159

)

(392.919

)

(62.013

)

(179.340

)

Deferred federal taxes

 

(403.546

)

(71.704

)

(10.107

)

(9.934

)

Provision for losses in recovering amounts for the Extraordinary Tariff Adjustment and Free Energy

 

174.832

 

86.154

 

26.594

 

29.217

 

Provision (reversal) for operational losses

 

117.406

 

(124.208

)

19.064

 

(142.565

)

Other

 

114.359

 

(27.582

)

13.136

 

19.978

 

Funds from operations

 

2.201.576

 

2.052.345

 

(1 83.562

)

(145.651

)

From third parties and stockholders

 

 

 

 

 

 

 

 

 

Financings obtained

 

1.055.910

 

2.265.902

 

 

30.000

 

Sales of stockholdings

 

49.234

 

 

 

 

Sale of interest in the FIDC

 

 

 

 

900.000

 

Receipt of units in the FIDC

 

 

 

7.267

 

26.611

 

Reversion of dividends

 

 

538

 

 

 

538

 

Dividends receivable from subsidiaries

 

 

 

1.675.779

 

1.480.255

 

Amortizations of accounts receivable from Minas Gerais state government

 

122.007

 

78.760

 

 

 

Special obligations

 

267.897

 

304.642

 

 

 

 

 

1.495.048

 

2.649.842

 

1.683.046

 

2.437.404

 

Other origins

 

 

 

 

 

 

 

 

 

Initial working capital of subsidiaries acquired

 

 

262.390

 

 

 

Reduction in long-term receivables

 

 

21.045

 

 

 

Transfer from Non-current to Current assets

 

 

 

 

 

 

 

 

 

Anticipated expenses – CVA

 

107.689

 

54.351

 

 

 

Regulatory assets PIS. Cofins

 

129.671

 

184.071

 

 

 

Tax credits

 

285.974

 

 

105.900

 

 

Taxes subject to offsetting

 

246.070

 

 

29.398

 

 

Extraordinary Tariff Adjustment

 

390.483

 

300.898

 

 

 

Deferred Tariff Adjustment

 

181.546

 

764.139

 

 

 

Traders – transactions in Free Energy

 

29.264

 

94.430

 

 

 

Other

 

138.399

 

86.732

 

3.854

 

15.723

 

 

 

1.509.096

 

1.768.056

 

139.152

 

15.723

 

TOTAL SOURCES

 

5.205.720

 

6.470.243

 

1.638.636

 

2.307.476

 

 

 

 

 

 

 

 

 

 

 

USES OF FUNDS

 

 

 

 

 

 

 

 

 

Taxes able to be offset

 

 

348.816

 

 

288.889

 

Increase in non-current assets

 

41 .776

 

 

 

 

Tax credits transferred from Current to Non-current assets

 

 

80.638

 

 

37.191

 

Deposits paid into court

 

17.068

 

120.428

 

9.920

 

 

Anticipated expenses – CVA – Transfer from Current to Non-current assets

 

 

50.697

 

 

 

Investments

 

108.933

 

552.681

 

7.055

 

569.574

 

In PP&E

 

1.392.868

 

1.469.762

 

702

 

 

In deferred

 

4.405

 

1.998

 

 

 

Interest on Equity and Dividends

 

867.725

 

1.381.781

 

867.725

 

1.381.781

 

Transfer from Non-current to Current liabilities

 

 

 

 

 

 

 

 

 

Loans and financings

 

1.178.950

 

430.217

 

30.246

 

 

Taxes and Social Contribution

 

64.032

 

346.753

 

 

 

Suppliers – Wholesale electricity

 

56.892

 

136.010

 

 

 

Post-employment obligations

 

194.328

 

220.073

 

10.717

 

8.899

 

Regulatory liabilities – CVA

 

 

34.683

 

 

 

Tax credits – transfer from Current assets to Non-current

 

58.757

 

20.689

 

 

 

Other

 

5.281

 

107.303

 

3.202

 

15.236

 

TOTAL USES

 

3.991.015

 

5.302.529

 

929.567

 

2.301.570

 

CHANGE IN NET WORKING CAPITAL

 

1.214.705

 

1.167.714

 

709.069

 

5.906

 

STATEMENT OF CHANGE IN NET WORKING CAPITAL

 

 

 

 

 

 

 

 

 

At end of period

 

 

 

 

 

 

 

 

 

Current assets

 

7.722.010

 

6.394.600

 

1.541.648

 

1.220.034

 

Current liabilities

 

(5.861.435

)

(5.748.730

)

(1.066.058

)

(1.453.51 3

)

 

 

1.860.575

 

645.870

 

475.590

 

(233.479

)

At start of period –

 

645.870

 

(521.844

)

(233.479

)

(239.385

)

CHANGE IN NETWORKING CAPITAL

 

1.214.705

 

1.167.714

 

709.069

 

5.906

 

 

The Explanatory Notes are an integral part of the financial statements.

 

84



 

EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS

 

AT DECEMBER 31. 2007 AND 2006

 

In R$ $ ’000. except where otherwise stated.

 

1) OPERATIONAL CONTEXT

 

Companhia Energética de Minas Gerais. “Cemig” or “the Holding company”. a listed corporation registered in the Brazilian Registry of Corporate Taxpayers (CPNJ) under number 17.155.730/0001-64. has been operating exclusively as a holding company since January 1. 2005. with stockholdings in companies controlled individually and jointly. the principal objectives of which are the construction and operation of systems for production. transformation. transmission. distribution and sale of electricity. and also activities in the various fields of energy. for the purpose of the respective commercial operation.

 

On December 31. 2007 Cemig had stockholdings in the following companies in operation (the information on markets served. and installed capacity. has not been reviewed by our external auditors):

 

                Cemig Geração e Transmissão S.A. (subsidiary. 100% stake): Registered with the CVM (Securities Commission): Generation and transmission of electricity. through 46 power plants. 43 being hydroelectric. one a wind power plant and two thermal plants. and their transmission lines. most of them part of the Brazilian national generation and transmission grid system. Cemig Geração e Transmissão S.A. has stockholdings in the following subsidiaries that are at development phase:

 

— Hidrelétrica Cachoeirão S.A. (jointly controlled. 49.00% stake): Production and sale of electricity as an independent power producer. through the Cachoeirão hydroelectric power plant located at Pocrane. in the State of Minas Gerais. The power plant is in the construction phase. with startup expected in September 2008. It has generation capacity of 27 MW.

 

— Guanhães Energia S.A. (jointly controlled – 49.00% stake): Production of sale and sale of electricity through building and commercial operation of the following Small Hydro Plants: Dores de Guanhães; Senhora do Porto; and Jacaré. located in the municipality of Dores de Guanhães; and Fortuna II. located in the municipality of Virginópolis. both in Minas Gerais State. The plants are in construction phase. with start of operation scheduled for 2009. and will have aggregate installed capacity of 44MW.

 

— Cemig Baguari Energia S.A. (subsidiary – 100 stake): Production and sale of electricity as an independent producer. Cemig Geração and Transmissão expects to transfer the assets from the Baguari Consortium to this subsidiary. Operational startup of this plant is scheduled for 2009.

 

— Madeira Energia S.A. – (jointly controlled – 10.00% stake): Implementation. construction. operation and commercial operation of the Santo Antônio hydroelectric plant in the Madeira River Basin. in the State of Rondônia. with power of 3.150 MW (information not audited) and commercial start up scheduled for 2012).

 

                Cemig Distribuição S.A. (subsidiary – 100% stake): Registered with the CVM (Securities Commission): Distribution of electricity through distribution networks and lines in approximately 97.00% of the Brazilian state of Minas Gerais.

 

                Rio Minas Energia Participações (“RME”) (jointly controlled – stake 25.00%: This is the company that holds 52.25% of the registered capital of Light S.A. (“Light”). the holding company that has 100% control of the distribution concession holder Light Serviços de Eletricidade S.A. with 3.9 million consumers in municipalities of the state of Rio de Janeiro. and the generating company Light Energia S.A. which has generating capacity of 855 MW.

 

                Sá Carvalho S.A. (subsidiary – 100.00% stake): Production and sale of electricity. as a holder of a concession for public electricity service. through the Sá Carvalho hydroelectric power plant.

 

85



 

                Usina Térmica Ipatinga S.A. (subsidiary – 100% stake): Production and sale. as an Independent Power Producer. of thermally produced electricity. through the Ipatinga thermal plant. located on the premises of Usiminas (Usinas Siderúrgicas de Minas Gerais S.A.).

 

                Companhia de Gás de Minas Gerais – Gasmig (“Gasmig”) (jointly controlled – 55.19% stake): Acquisition. transport and distribution of combustible gas or sub-products and derivatives. through concession for distribution of gas in the State of Minas Gerais. granted by the government of the State of Minas Gerais.

 

                Empresa de Infovias S.A. (“Infovias”) (subsidiary – 100.00% stake): Specialized services in the area of telecommunications. by means of an integrated system consisting of fiber optic cables. coaxial cables. electronic and associated equipment (multi-service network).

 

                Efficientia S.A. (subsidiary – 100.00% stake): Provides electricity efficiency and optimization services and energy solutions through studies and execution of projects. as well as providing services of operation and maintenance in energy supply facilities.

 

                Horizontes Energia S.A. (subsidiary – 100.00% stake): Production and sale of electricity. as an independent power producer. through the Machado Mineiro and Salto do Paraopeba hydroelectric power plants. in the State of Minas Gerais. and Salto do Voltão e Salto do Passo Velho. in the State of Santa Catarina.

 

                Central Termelétrica de Cogeração S.A.: (subsidiary – 100.00% stake): Production and sale of thermally generated electricity. as an independent power producer. through the construction and operation of the UTE Barreiro thermal generation plant. located on the premises of Vallourec & Mannesmann Tubes. in the State of Minas Gerais. The concession was transferred to UTE Barreiro S.A. in the first quarter of 2006.

 

                Rosal Energia S.A. (subsidiary – 100.00% stake): Production and sale of electricity. as a public electricity service concession holder. through the Rosal hydroelectric power plant located on the border between the States of Rio de Janeiro and Espírito Santo. Brazil.

 

                Central Hidrelétrica Pai Joaquim S.A. (subsidiary – 100.00% stake): Production and sale of electricity as an independent power producer. through the Pai Joaquim hydroelectric power plant. The concession was transferred to Cemig PCH S.A. in the first quarter of 2006.

 

                Cemig PCH S.A. (subsidiary – 100.00% stake): Production and sale of electricity as an independent power producer. through the Pai Joaquim hydroelectric power plant.

 

                Cemig Capim Branco Energia S.A. (subsidiary – 100.00% stake): Production and sale of electricity as an independent producer. through the Capim Branco I and II hydroelectric power plants. built through a consortium with private-sector partners.

 

                UTE Barreiro S.A (subsidiary – 100.00% stake): Production and sale of thermally generated electricity. as an independent producer. through the construction and operation of the UTE Barreiro thermal generation plant. located on the premises of Vallourec & Mannesmann Tubes. in the State of Minas Gerais.

 

                Companhia Transleste de Transmissão (jointly controlled – 25.00% stake): Operation of a 345kV transmission line connecting the substation located in Montes Claros to the substation of the Irapé hydroelectric power plant.

 

                Cemig Trading S.A. (subsidiary: 100.00% stake): Sale and intermediation of business transactions related to energy.

 

                Companhia Transudeste de Transmissão (jointly controlled – 24.00% stake): Construction. implementation. operation and maintenance of electricity transmission facilities of the national grid – the 345 kV Itutinga–Juiz de Fora transmission line.

 

86



 

                Companhia Transirapé de Transmissão (jointly controlled – 24.50% stake): Construction. implementation. operation and maintenance of electricity transmission facilities of the national grid – the 230kV Irapé–Araçuaí transmission line.

 

                Empresa Paraense de Transmissão de Energia S.A. (“ETEP”) (jointly controlled – stake of 18.19%): Holder of a public service electricity transmission concession for the 500kV transmission line originating at the Tucuruí Substation and ending at the Vila do Conde Substation in the State of Pará.

 

                Empresa Norte de Transmissão de Energia S.A. (“ENTE”) (jointly controlled – 18.35% stake): Holder of a public service electricity transmission concession. for two 500kV transmission lines. the first from the Tucuruí Substation to the Marabá Substation in the State of Pará. and the second from the Marabá Station to the Açailândia Substation in the State of Maranhão.

 

                Empresa Regional de Transmissão de Energia S.A. (“ERTE”) (jointly controlled – 18.35% holding): Holder of a public service electricity transmission concession. for the 230kV transmission line from the Vila do Conde Substation to the Santa Maria Substation in the State of Pará.

 

                Empresa Amazonense de Transmissão de Energia S.A. (“EATE”) (jointly controlled – 15.79% stake): Holder of the public service electricity transmission concession for the 500kV transmission lines between the sectionalizing Substations of Tucuruí. Marabá. Imperatriz. Presidente Dutra and Açailândia.

 

                Empresa Catarinense de Transmissão de Energia S.A. (“ECTE”) (jointly controlled. with 7.50% stake: Holder of the public service electricity transmission service concession. through the 525 kV transmission line from the Campos Novos Substation to the Blumenau Substation in the State of Santa Catarina.

 

Cemig also has stockholdings in the companies listed below. which on December 31. 2007 were at preoperational stage:

 

                Companhia de Transmissão Centroeste de Minas (jointly controlled – 51.00% stake): Construction. implementation. operation and maintenance of the electricity transmission facilities of the basic network of the national grid – the 345kV Furnas–Pimenta transmission line.

 

                Transchile Charrúa Transmisión S.A. – (“Transchile”) (jointly controlled – 49.00% stake): Implementation. operation and maintenance of the Charrúa–Nueva Temuco 220kV transmission line and two sections of transmission line at the Charrúa and Nueva Temuco substations. in the central region of Chile. The head office of Transchile is in Santiago. Chile.

 

                Focus Soluções Tecnológicas S.A. (“AXXIOM”) (jointly controlled – 49.00% stake): Formed in August 2007 to provide services of implementation and management of systems for electricity sector companies. Start of operations is scheduled for 2008.

 

Where Cemig exercises joint control it does so through stockholders’ agreements with the other stockholders of the investee company.

 

2) PRESENTATION OF THE FINANCIAL STATEMENTS AND PRINCIPAL ACCOUNTING PRACTICES

 

2.1) PRESENTATION OF THE FINANCIAL STATEMENTS

 

The financial statements of the holding company and the Consolidated Financial Statements were prepared in accordance with accounting practices adopted in Brazil. consisting of: the Corporate Law;; the rules of the Brazilian Securities Commission (CVM — Comissão de Valores Mobiliários); and the specific legislation applicable to electricity concession holders. put in place by the Brazilian regulator (Aneel – National Electricity Agency).

 

87



 

The financial statements were prepared according to accounting principles. methods and criteria that are uniform in relation to those adopted and disclosed in full at the closing of the last business year.

 

On December 28. 2006. Aneel published its Dispatch 3073 which changed rules of the Electricity Public Service Accounting Manual. coming into effect on January 1. 2007. ordering that the following consumer charges: the Energy Efficiency Program. the Energy Development Account (CDE). the Fuel Consumption Account (CCC). the National Scientific and Technological Development Fund (FNDCT). Expansion of the Energy System (EPE). and Research and Development be transferred from Operational Expenses to Deductions from Operational Revenue. with the corresponding reclassifications for the amounts presented in the 2006 business year.

 

As a result of inclusion in the Company’s Bylaws in 2007 of a provision for payment of profit shares to the employees and managers of the company. this profit share has begun to be posted as an amount reducing net profit before tax and profit shares. where in 2006 it was posted under Personnel Expenses.

 

Aiming to improve the information provided to the market. Cemig is presenting. as complementary information. in Appendices I. II and III. statements of cash flow. of added value and of income statements segregated by Company. All the information presented was obtained from the Company’s accounting records and those of its subsidiaries. Reclassifications have been made of certain information contained in the traditional income statement. with a view to being considered in the added value statement as distribution of added value generated.

 

The statements of cash flow were prepared in accordance with the criteria of FAS 95 – Statement of Cash Flows. with references made to the format of presentation. in the context of registry of the financial statements with the Securities and Exchange Commission (SEC).

 

Change in the Brazilian Corporate Law

 

On December 28. 2007. Law 11638/07 was passed. altering. repealing and creating new provisions in the Brazilian Corporate Law in the chapter relating to disclosure and preparation of financial statements. Among other aspects. this changes the criterion for recognition and valuation of certain assets and liabilities. These changes in accounting practices come into effect as from January 1. 2008.

 

The aim of these changes is to increase the transparency of financial statements of Brazilian companies and eliminate some regulatory barriers that were an obstacle to the process of convergence of these financial statements with international financial reporting standards (IFRS):

 

The main changes to the Law. coming into effect as from 2008. with the possibility of impacting the company’s financial statements. are as follows:

 

·                  Replacement of the Statement of Sources and Uses of Funds by the Cash Flow Statement;

 

·                  Inclusion of the Added Value Statement in the group of financial statements prepared. disclosed and which are to be approved by the Ordinary General Meeting of stockholders;

 

·                  A new possibility was created. further to that originally specified in the corporate law. of separation of trading reporting and tax reporting. by establishing the alternative for the company of adopting in its trading reporting. and not only in auxiliary books. the provisions of the Tax Law. provided that. immediately afterward. after the calculation of the taxable profit base amount. the necessary adjustments are made for the financial statements to be in harmony with the Corporate Law and the fundamental principles of accounting;

 

·                  Creation of two new subgroups of accounts: Intangible. in permanent assets. and Adjustments to valuations of assets and liabilities in Stockholders’ equity. The sub group of “Adjustments to Valuation of Assets and Liabilities” will essentially have the purpose of containing the counterpart of certain valuations of assets at market price. the valuation of certain financial instruments and. also. conversion adjustments as a result of FX variation on holdings in companies outside Brazil. still pending specific regulation by the CVM. (Securities Commission);

 

 

88



 

·                  New criteria for classification and valuation of investments and financial instruments. including derivatives. These financial instruments will be classified in three categories (held for trading. held until maturity and available for sale) and their valuation at cost plus return or at market value will be made as a function of their classification in one of these categories;

 

·                  Introduction of the concept of Adjustment to Present Value for long-term asset and liability transactions and for significant short-term transactions. still awaiting specific regulation by the CVM;

 

·                  In absorption. merger or split transactions (combination of companies). when carried out between non-related parties and linked to effective transfer of control. all the assets and liabilities of the absorbed. split or merged company must be identified. valued and accounted at market value;

 

·                  Elimination of the possibility of spontaneous revaluations of fixed assets being made.

 

As communicated to the market. the CVM intends. by the end of 2008. to complete its process of issue of regulations for the provisions of the corporate law that were altered and which need regulation. and will review all its normative acts that deal with accounting matters. so as to verify and eliminate any divergencies in relation to the specific alterations produced by the new law.

 

The Company’s management is in the process of assessing the effects that the alterations mentioned above will produce on its stockholders’ equity and profit for the year of 2008. and will also take into consideration the orientations and definitions to be issued by the regulatory bodies. At the present moment. management believes it is not possible to determine the effects of these alterations on the profit and stockholders’ equity for the business year ended December 31. 2007.

 

Reclassification of accounting balances

 

The effects arising from the changes in accounting classifications of certain transactions. as mentioned above. are as follows:

 

 

 

Consolidated

 

Original line

 

Net amounts

 

 

 

 

 

Operational costs – Cost of operation

 

 

 

Energy Efficiency Program - PEE

 

104,530

 

Energy Development Account CDE

 

333,983

 

CCC the Fuel Consumption Account

 

554,448

 

Research and development

 

38,521

 

National Scientific and Technological Development Fund

 

29,615

 

Energy system expansion research

 

15,031

 

 

 

1,076,128

 

 

 

 

Consolidated

 

Reclassified to

 

Net amounts

 

 

 

 

 

Deductions from operational revenue

 

 

 

Energy Efficiency Program - PEE

 

(104,530

)

Energy Development Account – CDE

 

(333,983

)

CCC – the Fuel Consumption Account

 

(554,448

)

Research and development

 

(38,521

)

National Scientific and Technological Development Fund

 

(29,615

)

Energy system expansion research

 

(15,031

)

 

 

(1,076,128

)

 

 

 

Subsidiary

 

Consolidated

 

Original line

 

Net amounts

 

Net amounts

 

 

 

 

 

 

 

Operational costs – Cost of operation

 

 

 

 

 

Personnel and managers

 

9,321

 

209,991

 

 

 

9,321

 

209,991

 

Current Assets

 

 

 

 

 

Other Credits

 

(445

)

(26,546

)

 

 

(445

)

(26,546

)

Current Liabilities

 

 

 

 

 

Other Obligations

 

(3,025

)

 

 

 

(3,025

)

 

 

 

 

Subsidiary

 

Consolidated

 

Reclassified to

 

Net amounts

 

Net amounts

 

 

 

 

 

 

 

Income statement

 

 

 

 

 

Employees’ profit shares

 

(9,321

)

(209,991

)

 

 

(9,321

)

(209,991

)

Current Assets

 

 

 

 

 

Cash and cash equivalents

 

445

 

26,546

 

 

 

445

 

26,546

 

Current Liabilities

 

 

 

 

 

Debt to related parties

 

3,025

 

 

 

 

3,025

 

 

 

89



 

2,2) Authorization for conclusion of the financial statements

 

On February 21, 2008, the Company’s Executive Board authorized conclusion of the Financial Statements for the year ended December 31, 2007, and consequent submission to the Board of Directors for approval,

 

2,3) Principal accounting practices

 

(a)  Accounting practices specific to the electricity sector

 

Management expenses: These are appropriated monthly to the cost of works in progress, by a sharing of up to 8% of the direct expenses on personnel and outsourced services, in proportion to the investments made,

 

Activities of subsidiary not linked to the public electricity service concession:  These refer basically to the Consortia for production and sale of electricity as Independent Power Producers, and the holding of the subsidiary is registered in Investments, as described in Explanatory Note 16, The balances of assets, liabilities, revenue and expenses relating to the transactions mentioned are controlled monthly through the specific financial records and statements prepared by the Consortia, in obedience to the rules of the Electricity Public Service Accounting Manual, issued by Aneel,

 

(b)  General accounting practices

 

· Cash and cash equivalents: This includes cash balances, deposits in banks, and financial investments with immediate liquidity, valued at cost, plus the returns accruing up to the date of the financial statements,

 

· Consumers and traders: The supply of electricity billed and not billed on the date of the financial statements is accounted by the accrual regime,

 

· Provision for doubtful credits: This is constituted in an amount considered sufficient to cover any losses on consumers and traders, The criteria for constitution of the provision are described in Explanatory Note 6,

 

· Inventories: These are valued at average acquisition cost, The materials in the inventory are classified in Current assets; the materials destined for works are classified in Fixed assets, and not depreciated,

 

· Non-controllable costs – CVA:  The differences between the sums of the non-controllable costs (also known as “Portion A”) used as a reference in the calculation of the tariff adjustment of Cemig Distribution and Light and the disbursements actually made are offset in the adjustment of future tariffs, and recorded in Assets or Liabilities, After the inclusion of the differences in the tariff adjustment, the expenses are transferred monthly to the income statement in proportion to reimbursement by receipt of amounts in payment of client invoices,

 

· Investments: Holdings in subsidiaries are valued by the equity method, and other permanent stockholdings are valued at acquisition cost, reduced by any provision for losses, where applicable,

 

Property, plant and equipment: The assets of property, plant and equipment are valued at the cost incurred on the date of their acquisition or formation, Those acquired or formed up to December 31, 1995 were subjected to monetary updating up to that date,

 

· Depreciation and amortization: These are calculated on the balance of Fixed assets in service and Investments in consortia, by the linear method, using the rates determined by Aneel for the assets related to electricity activities, and reflect the estimated useful life of the assets,

 

90



 

· Special obligations linked to the concession: These are posted at the value received from clients, shown as adjustments to Property, plant and equipment, These obligations are directly linked to the Public Electricity Service Concession and, in accordance with Aneel Normative Resolution 234 of October 31, 2006 and SFF/Aneel Circular Letter 1314/2007 of June 27, 2007, will be amortized as from the second periodic tariff review (March 2008) at a rate to be defined by Aneel corresponding to the average rate of assets in service,

 

· Other current and non-current assets and liabilities: Those subject to monetary updating by reason of legislation or contractual clauses are updated based on the indices specified therein, so as to reflect the updated amounts on the date of the financial statements, The others are presented at the values incurred on the date of formation, and in the case of assets reduced by provisions for losses, where applicable,

 

· Capitalization of interest charges on loans and financings: The interest and other financial charges incurred on financings linked to works in progress are appropriated to Fixed assets in progress and consortia during the period of construction,

 

· Post-employment obligations: The costs, contributions and actuarial liabilities related to supplementary pension plans and the other post-employment benefits are determined annually and recognized as obligations and posted based on a valuation carried out by independent actuaries, using the Projected Unit Credit Method to determine the present value of the obligations, in accordance with CVM Decision 371/00,

 

· Interest on Equity: The Interest on Equity paid in substitution of dividends, although registered in accounting terms as a financial expense, is presented in the financial statements as an amount reducing Stockholders’ equity, so as to reflect the essence of the transaction,

 

· Income tax and deferred Social Contribution: Provisions or credits are constituted on temporary additions, considering the rates in effect on these taxes, in accordance with CVM Decision 273 of August 20, 1998 and CVM Instruction 371 of June 27, 2002, and take into account the past profitability and the expectation of generation of future taxable profits based on a technical feasibility study,

 

· Future earnings: This refers to the discount ascertained by the subsidiary RME on the acquisition of Light S,A,, based on the expectation of future profitability of the company acquired, and amortization during the period of the concession (2026),

 

· Employees’ profit shares: These are provisioned in accordance with the collective labor agreement made with the unions representing the employees and are posted as amounts reducing Profit before tax and employee profit shares under the Bylaws, as a result of the inclusion of this procedure in the Company’s bylaws in 2007,

 

· Income statement: Revenues and expenses are recognized by the accrual method,

 

·    Net profit per thousand shares: This is calculated on the basis of the number of shares, excluding Shares held in Treasury, on the date of the financial statements,

 

91



 

· Use of estimates: The preparation of financial statements requires management to use estimates for the posting of certain transactions, which affect assets and liabilities, revenues and expenses of Cemig and of the subsidiaries, and also the disclosure of information on data of their financial statements, The final results of these transactions and information, when they are actually carried out in subsequent periods, may be different from these estimates, The Company revises the estimates and assumptions at least quarterly, except in relation to the Post-employment obligations, as specified in the note above, The main estimates related to the financial statements referred to the posting of the effects arising from the Rationing Program, the General Agreement for the Electricity Sector, transactions in the Electricity Sale Chamber (“CCEE”), the Provision for doubtful credits, Non-controllable costs – CVA, Accounts receivable from the Minas Gerais state government, Tax credits, Post-employment obligations, Depreciation, Provisions for contingencies, and Unbilled supply of electricity,

 

· Provisions: A provision is recognized in the balance sheet when the company has a legal obligation or an obligation constituted as a result of a past event, and it is probable that the funds will be required to settle it, Provisions are registered on the basis of the best estimates of the risk involved,

 

3) PRINCIPLES OF CONSOLIDATION

 

The financial statements of the subsidiaries and jointly controlled companies mentioned in Explanatory Note 1 were consolidated, The data of the controlled subsidiaries as a whole was consolidated based on the method of proportional consolidation, applicable to each component of the financial statements of the investees, All the subsidiaries, including those that are jointly controlled, follow accounting practices that are consistent with those of the holding company,

 

In the consolidation, the holdings of the holding company in the Stockholders’ equity of investee companies, and the significant balances of assets, liabilities, revenues and expenses arising from transactions effected between the companies, have been eliminated,

 

The portion relating to the minority holdings in Stockholders’ equity of the subsidiaries is shown separately in Liabilities,

 

The financial statements of Transchile, for the purpose of consolidation, are converted from Chilean accounting principles to Brazilian accounting principles, with Chilean pesos being converted to Reais at the exchange rate of the last day of the year,

 

It should be noted that starting in the third quarter of 2006, Cemig now partially consolidates the financial statements of RME and the transmission companies EPTE, ENTE, ERTE, EATE and ECTE, posting the results as equity income in the consolidated results as from August 1, 2006,

 

The dates of the financial statements of the investee companies used for calculation of equity income and consolidation coincide with those of the holding company,

 

92



 

4) – CONCESSIONS

 

CEMIG and its subsidiaries have the following concessions from Aneel:

 

 

 

 

 

Information not audited

 

 

 

Location

 

Installed
capacity, MW

 

Date of concession or
authorization

 

Expires

 

GENERATION

 

 

 

 

 

 

 

 

 

Hydroelectric plants-

 

 

 

 

 

 

 

 

 

São Simão

 

Rio Paranaíba

 

1,710,000

 

01/1965

 

01/2015

 

Emborcação

 

Rio Paranaíba

 

1,192,000

 

07/1975

 

07/2005

 

Nova Ponte

 

Rio Araguari

 

510,000

 

07/1975

 

07/2005

 

Jaguara

 

Rio Grande

 

424,000

 

08/1963

 

08/2013

 

Miranda

 

Rio Araguari

 

408,000

 

12/1986

 

12/2016

 

Três Marias

 

Rio São Francisco

 

396,000

 

04/1958

 

07/2015

 

Volta Grande

 

Rio Grande

 

380,000

 

02/1967

 

02/2017

 

Irapé

 

Rio Jequitinhonha

 

360,000

 

01/1999

 

02/2035

 

Aimorés

 

Rio Doce

 

161,700

 

07/2000

 

12/2035

 

Salto Grande

 

Rio Santo Antônio

 

102,000

 

10/1963

 

07/2015

 

Funil

 

Rio Grande

 

88,200

 

10/1964

 

12/2035

 

Queimado

 

Rio Preto

 

86,625

 

11/1997

 

01/2033

 

Itutinga

 

Rio Grande

 

52,000

 

01/1953

 

07/2015

 

Capim Branco I

 

Rio Araguari

 

50,526

 

08/2001

 

08/2036

 

Capim Branco II

 

Rio Araguari

 

44,210

 

08/2001

 

08/2036

 

Camargos

 

Rio Grande

 

46,000

 

08/1958

 

07/2015

 

Porto Estrela

 

Rio Santo Antônio

 

37,333

 

05/1997

 

07/2032

 

Igarapava

 

Rio Grande

 

30,450

 

05/1995

 

12/2028

 

Piau

 

Rio Piau / Pinho

 

18,012

 

10/1964

 

07/2015

 

Gafanhoto

 

Rio Pará

 

14,000

 

09/1953

 

07/2015

 

Sá Carvalho

 

Rio Piracicaba

 

78,000

 

12/1994

 

12/2024

 

Rosal

 

Itabapoana – RJ

 

55,000

 

04/1997

 

05/2032

 

Pai Joaquim

 

Rio Araguari

 

23,000

 

12/2005

 

04/2032

 

Others

 

Various

 

115,210

 

Various

 

Various

 

Light – Fontes Nova

 

Ribeirão dos Lajes

 

17,243

 

07/1996

 

06/2026

 

Light – Nilo Peçanha

 

Ribeirão dos Lajes

 

49,638

 

07/1996

 

06/2026

 

Light – Pereira Passos

 

Ribeirão dos Lajes

 

13,063

 

07/1996

 

06/2026

 

Light – Ilha dos Pombos

 

Rio Paraíba do Sul

 

23,904

 

07/1996

 

06/2026

 

Light – Santa Branca

 

Rio Paraíba do Sul

 

7,446

 

07/1996

 

06/2026

 

 

 

 

 

6,493,560

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Wind plant-

 

 

 

 

 

 

 

 

 

Morro do Camelinho

 

Gouveia – MG

 

1,000

 

03/2000

 

 

 

 

 

 

 

 

 

 

 

 

Thermal plants-

 

 

 

 

 

 

 

 

 

Igarapé

 

Juatuba – MG

 

131,000

 

01/2005

 

08/2024

 

Formoso

 

Formoso – MG

 

0,440

 

04/1999

 

 

Ipatinga

 

Ipatinga – MG

 

40,000

 

11/2000

 

12/2014

 

Barreiro

 

Belo Horizonte

 

11,398

 

02/2006

 

04/2023

 

 

 

 

 

182,838

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Works in progress

 

 

 

 

 

 

 

 

 

Baguari hydroelectric plant

 

Rio Doce

 

47,600

 

08/2006

 

08/2041

 

Cachoeirão Small Hydro Plant (PHC)

 

Rio Manhuaçu

 

13,230

 

07/2000

 

07/2030

 

Dores dos Guanhães PHC

 

Rio Guanhães

 

6,860

 

11/2002

 

11/2032

 

Fortuna II PHC

 

Rio Guanhães

 

4,410

 

12/2001

 

12/2031

 

Senhora do Porto PHC

 

Rio Guanhães

 

5,880

 

10/2002

 

10/2032

 

Jacaré PHC

 

Rio Guanhães

 

4,410

 

10/2002

 

10/2032

 

 

 

 

 

82,390

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TOTAL GENERATION

 

 

 

6,759,788

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TRANSMISSION

 

 

 

 

 

 

 

 

 

National grid

 

Minas Gerais

 

 

07/1997

 

07/2015

 

Substations

 

 

 

 

 

 

 

 

 

Itajubá – 3

 

Minas Gerais

 

 

10/2000

 

10/2030

 

Transmission lines

 

 

 

 

 

 

 

 

 

Transleste: Irapé – Montes Claros

 

Minas Gerais

 

 

02/2004

 

02/2034

 

Transudeste: Itutinga – Juiz de Fora

 

Minas Gerais

 

 

03/2005

 

03/2035

 

Transirapé: Irapé–Araçuaí

 

Minas Gerais

 

 

03/2005

 

03/2035

 

ETEP: Tucuruí–Vila do Conde

 

Pará

 

 

06/2001

 

06/2031

 

ENTE: Tucuruí–Marabá–Açailândia

 

Pará/Maranhão

 

 

12/2002

 

12/2032

 

ERTE: Vila do Conde–Santa Maria

 

Pará

 

 

12/2002

 

12/2032

 

EATE: Tucuruí–Presidente Dutra

 

Pará

 

 

06/2001

 

06/2031

 

ECTE: Campos Novos–Blumenau

 

Santa Catarina

 

 

11/2000

 

11/2030

 

 

 

 

 

 

 

 

 

 

 

Works in progress:

 

 

 

 

 

 

 

 

 

Transchile: Charrúa–Nova Temuco

 

Chile

 

 

04/2005

 

07/2028

 

Centroeste de Minas: Furnas–Pimenta

 

Minas Gerais

 

 

03/2005

 

03/2035

 

 

93



 

 

 

 

 

Information not audited

 

 

 

Location

 

Installed
capacity, MW

 

Date of concession or
authorization

 

Expires

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTION

 

 

 

 

 

 

 

 

 

North

 

Minas Gerais

 

 

04/1997

 

02/2016

 

South

 

Minas Gerais

 

 

04/1997

 

02/2016

 

East

 

Minas Gerais

 

 

04/1997

 

02/2016

 

West

 

Minas Gerais

 

 

04/1997

 

02/2016

 

Light

 

Rio de Janeiro

 

 

07/1996

 

06/2026

 

 

The installed capacities shown refer to Cemig’s stockholding interest in the subsidiaries and in consortia with the private sector, See further information in Explanatory Note 16,

 

RENEWAL OF CONCESSIONS OF ELECTRICITY GENERATION PLANTS

 

On June 14, 2007, the Mining and Energy Ministry (MME), by Ministerial Order MME 124/2007, renewed the period of concession for Cemig Geração e Transmissão for 20 years from the date of expiry for the following plants – Rio das Pedras, Poço Fundo, São Bernardo, Xicão, Luiz Dias, Emborcação, Nova Ponte and Santa Luzia – which have total installed capacity of 1,735 MW (unaudited information),

 

Extension of concessions will be put into effect by signature of the Amendment to Concession Contract 007/97 which will obey the rules and conditions established by the relevant legislation, and also those in Law 10848, of March 15, 2004, and its respective regulations, The proceedings are under analysis by the National Electricity Agency (Aneel) and signature of the Amendment will probably take place in the first half of 2008,

 

Payments for concessions

 

In obtaining the concessions for construction of some generation projects, the CEMIG Geração e Transmissão S,A, undertook to make payments to the concession-granting power, over the period of validity of the contract, as compensation for commercial operation, The information on the concessions, and the amounts to be paid, are as follows:

 

Project

 

Nominal value
on 31/12/07

 

Present value on
31/12/07

 

Period of amortization

 

Indexor

 

Porto Estrela (consortium)

 

292,393

 

75,387

 

08/2001 to 07/2032

 

IGP-M

 

Irapé

 

29,356

 

10,471

 

03/2006 to 02/2035

 

IGP-M

 

Capim Branco (consortium)

 

18,444

 

6,398

 

09/2007 to 08/2035

 

IGP-M

 

Queimado (consortium)

 

7,753

 

2,943

 

01/2004 to 12/2032

 

IGP-M

 

 

The portions paid to the concession-granting power for the Porto Estrela, Irapé, Capim Branco and Queimado plants in 2007 were respectively R$ 1,000, R$ 284, R$ 155 and R$ 97,

 

The present value of the concessions of Porto Estrela, Irapé, Capim Branco and Queimado was calculated at a rate of 10,00% per year and the present value of the portions to be paid in the 12 month period correspond to R$ 1,019, R $624, R$ 294 and R$ 97, (nominal value of R$ 1,070, R$ 657, R$ 308 and R$ 102), respectively,

 

The concessions to be paid to the concession-granting power provide for monthly portions with different values over time, For the purposes of accounting and recognition of costs, however, the company recognizes the expenses incurred in a counterpart entry in Non-current liabilities – Others, in a linear manner, based on the adjusted normal value, as previously indicated, in accordance with the accrual principle,

 

At the end of the concession, the residual value of the projects is to be reimbursed to the company by the concession-granting power,

 

94



 

5) CASH AND CASH EQUIVALENTS

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Bank accounts

 

443,490

 

134,324

 

5,739

 

1,847

 

Cash investments

 

 

 

 

 

 

 

 

 

Bank certificates of deposit

 

1,351,880

 

1,028,630

 

16,214

 

21,987

 

Treasury financial notes

 

97,101

 

67,174

 

 

 

National Treasury notes

 

105,869

 

141,527

 

 

 

Others

 

67,879

 

30,392

 

 

 

 

 

1,622,729

 

1,267,723

 

16,214

 

21,987

 

 

 

 

 

 

 

 

 

 

 

 

 

2,066,219

 

1,402,047

 

21,953

 

23,834

 

 

Cash investments consist of transactions carried out with Brazilian financial institutions, contracted on normal market conditions and under normal market rates, and are available to be used in the Company’s operations,

 

6) CONSUMERS AND TRADERS

 

Consolidated

 

 

 

Not yet due

 

Overdue up to 
90 days

 

Overdue more 
than 90 days

 

Total

 

Consumer category

 

2007

 

2007

 

2007

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

443,580

 

199,704

 

210,296

 

853,580

 

809,616

 

Industrial

 

321,968

 

58,049

 

274,192

 

654,209

 

673,544

 

Commercial, services and others

 

265,628

 

68,044

 

97,928

 

431,600

 

432,835

 

Rural

 

66,734

 

21,765

 

20,012

 

108,511

 

91,360

 

Public authorities

 

62,827

 

16,291

 

30,311

 

109,429

 

93,065

 

Public illumination

 

99,839

 

9,869

 

18,746

 

128,454

 

122,928

 

Public service

 

50,432

 

5,597

 

5,167

 

61,196

 

164,644

 

Sub-total – consumers

 

1,311,008

 

379,319

 

656,652

 

2,346,979

 

2,387,992

 

Supply to other concession holders

 

140,305

 

135

 

902

 

141,342

 

145,904

 

Provision for doubtful credits

 

 

 

(463,197

)

(463,197

)

(458,913

)

 

 

1,451,313

 

379,454

 

194,357

 

2,025,124

 

2,074,983

 

 

Holding company

 

 

 

Not yet due

 

Overdue up to
90 days

 

Overdue more 
than 90 days

 

Total

 

Consumer category

 

2007

 

2007

 

2007

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential

 

 

 

6,712

 

6,712

 

29,363

 

Industrial

 

 

 

38,315

 

38,315

 

42,044

 

Commercial, services and others

 

 

 

10,160

 

10,160

 

22,031

 

Rural

 

 

 

4,087

 

4,087

 

5,245

 

Public authorities

 

 

 

1,357

 

1,357

 

1,452

 

Public illumination

 

 

 

2,666

 

2,666

 

2,676

 

Public service

 

 

 

1,029

 

1,029

 

1,113

 

Sub-total – consumers

 

 

 

64,326

 

64,326

 

103,924

 

Provision for doubtful credits

 

 

 

(64,326

)

(64,326

)

(103,924

)

 

 

 

 

 

 

 

 

The provision for doubtful credits made is considered to be sufficient to cover any losses in the realization of these assets,

 

Receivables in the amount of R$ 44,469 are recorded in non-current assets (long-term receivables) at December 31, 2007 (R$50,357 at December 31, 2006), in relation to the renegotiation of receivables owed by Copasa (Minas Gerais Water Company) and the prefecture of Belo Horizonte, to be paid by September 2012 and March 2010, respectively,

 

 

95



 

Credits receivable from an industrial consumer in the amount of R$ 90,834, not paid due to an injunction that allowed this payment not to be made until final judgment of a legal action challenging the tariff increase during the Cruzado Economic Plan, by Ministerial Order 045/86, are recorded in the accounts, The Company expects this action to be concluded before the end of 2008, and expects the amounts referred to be received in full,

 

The breakdown of the provision for doubtful receivables, by consumer category, is as follows:

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Residential

 

174,226

 

159,599

 

6,713

 

29,363

 

Industrial

 

163,953

 

132,065

 

38,314

 

42,044

 

Commercial, services and others

 

74,932

 

86,335

 

10,160

 

22,031

 

Rural

 

12,595

 

12,922

 

4,087

 

5,245

 

Public authorities

 

20,538

 

17,848

 

1,357

 

1,452

 

Public illumination

 

13,235

 

13,990

 

2,666

 

2,676

 

Public service

 

3,718

 

36,154

 

1,029

 

1,113

 

 

 

463,197

 

458,913

 

64,326

 

103,924

 

 

Changes in the provision for doubtful receivables in 2007 were as follows:

 

 

 

Consolidated

 

Holding 
company

 

 

 

 

 

 

 

Balance on December 31, 2006

 

458,913

 

103,924

 

Constitution (reversal) of provision

 

143,190

 

(6,994

)

Deducted from accounts receivable

 

(138,906

)

(32,604

)

Balance on December 31, 2007

 

463,197

 

64,326

 

 

According to rules laid down by Aneel, the criteria for constitution of provisions are as follows: (i) for consumers with significant debts payable, an individual analysis is made of the balance, taking into account the history of default, negotiations in progress and the existence of real guarantees; (ii) for other consumers, the debts receivable and unpaid for more than 90 days from residential consumers, more than 180 days from commercial consumers and more than 360 days for the other consumer categories are provisioned in full,

 

7) REGULATORY ASSETS AND LIABILITIES

 

The General Agreement for the Electricity Sector, signed in 2001, and the new regulations governing the electricity sector, result in the constitution of several regulatory assets and liabilities, and also in deferral of federal taxes applicable to these assets and liabilities (which are settled as and when the assets and liabilities are received and/or paid), as shown here:

 

 

 

Consolidated

 

 

 

2007

 

2006

 

Assets

 

 

 

 

 

Extraordinary Tariff Recomposition and Portion “A” – Note 8

 

1,172,346

 

1,334,607

 

Traders – transactions in Free Energy during the rationing program – Note 9

 

45,072

 

157,693

 

Deferred tariff adjustment – Note 13

 

545,233

 

918,719

 

PIS, COFINS and PASEP taxes – Note 15

 

118,473

 

323,518

 

Anticipated expenses – CVA – Note 10

 

697,541

 

619,636

 

Revision of the Tariff for Use of the Distribution System - TUSD

 

3,089

 

 

Recovery of discounts on the TUSD

 

3,327

 

1,997

 

Low-income subsidy

 

116,361

 

30,987

 

 

 

2,701,442

 

3,387,157

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

Suppliers – passthrough to generators for purchase of Free Energy – Note 18

 

(342,370

)

(352,039

)

Purchase of energy during Rationing – Note 18

 

(51,600

)

(78,989

)

Review of transmission revenue – Note 23

 

(23,448

)

 

Amounts to be restituted in the tariff – CVA – Note 10

 

(745,273

)

(448,050

)

Revision of the distribution system – TUSD

 

(15,955

)

 

 

 

(1,178,646

)

(879,078

)

 

 

 

 

 

 

Taxes and contributions – deferred liabilities – Note 19

 

(625,712

)

(957,085

)

 

 

(1,804,358

)

(1,836,163

)

 

 

 

 

 

 

Total

 

897,084

 

1,550,994

 

 

96



 

 

8) THE EXTRAORDINARY TARIFF RECOMPOSITION, AND PORTION “A”

 

The Brazilian federal government, through the Electricity Emergency Chamber (GCE), signed an accord with the electricity distributors and generators in 2001, named “The General Agreement for the Electricity Sector”, which set criteria for ensuring the economic and financial equilibrium of the concession contracts and for “recomposition” of the extraordinary revenues and losses which occurred during the Rationing Program, through an Extraordinary Tariff Recomposition (“RTE”), given to compensate for the variation in non-manageable costs of Portion “A” taking place in the period from January 1 to October 25, 2001,

 

a) The Extraordinary Tariff Recomposition

 

Resolution 91 of the Emergency Electricity Council (GCE), of December 21, 2001 and Law 10438 of April 26, 2002, established the procedures for implementation of the Extraordinary Tariff Recomposition (RTE), coming into force on December 27, 2001, The tariff adjustments were set by Resolution 130 of the GCE, on April 30, 2002, as follows:

 

·                       Adjustment of 2,90% for consumers in the residential classes (excluding low-rental consumers), and the rural, public-illumination and industrial high-voltage consumer classes for whom the cost of electricity represents 18,00% or more of the average cost of production and which meets certain requirements related to load factor and electricity demand, specified in the Resolution,

 

·                       Increase of 7,90% for other consumers,

 

The RTE described above is being used to compensate the following items:

 

·                       Losses of invoiced sales revenue in the period from June 1, 2001 to February 28, 2002, corresponding to the difference between estimated revenue if the rationing program had not been put in place and the actual revenue while the program was in place, according to a formula published by Aneel, Calculation of this value did not take into account any losses from default by consumers,

 

·                       Passthrough to be made to the generators who bought energy in the MAE – which was succeeded in 2004 by the Electricity Sale Chamber (the “CCEE/MAE”), in the period from June 1, 2001 to February 28, 2002, with price in excess of R$ 49,26/MWh (“free energy”),

 

The recovery of the credits through the RTE, in accordance with Normative Resolution 45, of March 3, 2004, is carried out in the proportion of 64,29% and 35,71% for the credits relating to the losses of billing and free energy, respectively,

 

The RTE credits, relating to losses from rationing, are being updated by the variation in the Selic rate up to the month in which they are actually offset,

 

The RTE credits relating to free energy are updated by the Selic rate with the addition of 1,00% per annum of interest for the amounts to be passed through to the generators who obtained loans from the BNDES,

 

The ICMS tax applicable to the consolidated balance of the RTE, corresponding to the revenues to be invoiced, which is estimated at R$ 96,269 on December 31, 2007 (R$165,890 on December 31, 2006) is due only at the time of issuance of the respective electricity bill to consumers, The company operates as a mere passthrough agent of this tax between consumers and the state tax authority, and thus did not make any record of the said obligation in advance,

 

97



 

Provision for losses in realization

 

Cemig and its subsidiaries have prepared studies to ascertain whether the period stipulated by Aneel for recovery of the amounts homologated will be sufficient, The preparation of this study is based on certain assumptions, the most important being those referring to the projections for tariff increases, inflation rates, the Selic rate and the growth of the electricity market,

 

Based on this study, we estimated the provision for losses in the realization of the RTE amounts on 2007 December at R$ 452,633
(R$ 406,216 on 31 June, 2006),

 

b) Portion “A”

 

The items of Portion “A” are defined as being the sum of the differences, positive or negative, in the period January 1 to October 25, 2001, between the amounts of the non-manageable costs presented on the basis of the calculation for determination of the last annual tariff adjustment and the disbursements which effectively took place in the period,

 

Through Normative Resolution No, 1, of January 12, 2004, Aneel laid down that the values of the variations in the non-manageable items of Portion “A” would cease to be included in the limit period of validity of the RTE, and their recovery would begin immediately after the end of the period of validity of the RTE, using the same mechanisms of recovery, that is to say, the adjustment applied to the tariffs for compensation of the RTE values will remain in effect for compensation of the items of Portion “A”,

 

The Portion “A” credits are updated by the variation in the Selic rate up to the month in which they are actually offset,

 

c) Composition of the balances of the RTE and Portion “A”

 

The amounts to be received in relation to the RTE and Portion “A”, recorded in Assets, are:

 

 

 

Consolidated

 

 

 

2007

 

2006

 

 

 

Total

 

Total

 

CEMIG – Holding company

 

 

 

 

 

Losses from rationing

 

250,527

 

223,933

 

(-) Provision for losses in realization of the RTE

 

(250,527

)

(223,933

)

 

 

 

 

Cemig Distribuição S,A

 

 

 

 

 

Losses from rationing

 

127,806

 

299,069

 

Passthrough to be made to the generators

 

333,866

 

337,370

 

Portion A

 

707,422

 

632,388

 

(-) Provision for losses in realization of the RTE

 

(92,329

)

(90,044

)

 

 

1,076,765

 

1,178,783

 

RME – Light

 

 

 

 

 

Losses from rationing

 

79,876

 

101,507

 

Passthrough to be made to the generators

 

40,640

 

70,720

 

Portion A

 

84,842

 

75,836

 

(-) Provision for losses in realization of the RTE

 

(109,777

)

(92,239

)

 

 

95,581

 

155,824

 

Total of RTE and Portion “A”

 

1,172,346

 

1,334,607

 

Current assets

 

450,817

 

355,599

 

Non-current assets

 

721,529

 

979,008

 

 

98



 

The RTE amounts to be passed through to the generators refer to free energy, and are posted in Current assets and Non-current assets, in Suppliers, in the amounts of R$ 27,381 and R$ 314,989, (R$ 124,557 and R$ 227,482 on December 31, 2006) respectively,

 

9) TRADERS – TRANSACTIONS IN FREE ENERGY

 

The rights of the subsidiary Cemig Geração e Transmissão in relation to the transactions in free energy in the Electricity Trading Chamber (CCEE, formerly MAE) during the Rationing Program are as follows:

 

 

 

Consolidated

 

 

 

2007

 

2006

 

ASSETS

 

 

 

 

 

Amounts to be received from distributors

 

436,084

 

402,752

 

Provision for losses in realization

 

(391,012

)

(245,059

)

 

 

45,072

 

157,693

 

 

 

 

 

 

 

Current

 

31,426

 

123,056

 

Non-current

 

13,646

 

34,637

 

 

The amounts to be received refer to the difference between the prices paid by the Company in the transactions in energy on the CCEE/MAE, during the period when the Rationing Program was in force, and the amount of R$ 49,26/MWh, which is to be reimbursed through the amounts raised by means of the RTE, as defined in the General Accord for the Electricity Sector,

 

In accordance with Aneel Resolution 36 of January 29, 2003, the electricity distributors raise and passthrough the amounts obtained monthly by means of the RTE to the generators and distributors who have amounts to be received, among which the Company is included, since March 2003,

 

The rights of the subsidiary Cemig Geração e Transmissão are updated by the variation in the Selic rate plus 1,00% interest per year,

 

The conclusion of some court proceedings in progress, brought by market agents, in relation to the interpretation of the rules in force at the time of the realization of the transactions in the ambit of the CCEE/MAE, may result in changes in the amounts recorded,

 

Provision for losses in realization

 

The subsidiary Cemig Geração e Transmissão receives the amounts of the RTE from other distributors, who have a limit period, stipulated by Aneel, to raise the RTE from consumers and pass through the amounts owed to the company,

 

A study was carried out of the amounts of average passthroughs received by the distributors, to verify whether the period stipulated for the distributors to make the passthrough would be enough for recovery of the amounts homologated by Aneel, Based on this study, the provision for losses on realization of the free energy credits on December 31, 2007 was estimated at R$ 391,012 (R$ 245,059 on December 31, 2006), and this was registered as an amount reducing the respective asset,

 

In the second half of 2007 the Company reviewed the calculations of financial updating of the amounts receivable by the distributors based on the criteria supplied by Aneel, which resulted in an increase in the value of the asset, As a consequence, there was also an equivalent increase in the value of the provision for losses, These adjustments generated no net effect on the profit for the year,

 

99



 

10) ANTICIPATED EXPENSES AND REGULATORY LIABILITIES – CVA

 

The balance on the Account to Compensate for Variation of Portion “A” items (CVA) refers to the positive and negative variations between the estimate of Cemig’s non-manageable costs, used for deciding the tariff adjustment, and the payments actually made, The variations ascertained are compensated in the subsequent tariff adjustments,

 

The balance on the CVA is shown below:

 

 

 

Consolidated

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Cemig Distribuição

 

(35,092

)

143,204

 

RME – Light

 

(12,640

)

28,382

 

 

 

(47,732

)

171,586

 

 

 

 

 

 

 

Current assets

 

519,699

 

459,898

 

Non-current assets

 

177,842

 

159,738

 

Current liabilities

 

(549,133

)

(328,143

)

Non-current liabilities

 

(196,140

)

(119,907

)

Net amounts

 

(47,732

)

171,586

 

 

11) TAXES SUBJECT TO OFFSETTING

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

Current

 

 

 

 

 

 

 

 

 

ICMS recoverable

 

193,055

 

15,088

 

3,561

 

3,508

 

Income tax

 

314,245

 

144,350

 

 

7,325

 

Social Contribution

 

104,564

 

42,893

 

 

5

 

PASEP

 

35,782

 

5,877

 

4,571

 

13

 

COFINS

 

135,960

 

32,769

 

21,184

 

206

 

Others

 

26,687

 

43,220

 

3,680

 

1,386

 

 

 

810,293

 

284,197

 

32,996

 

12,443

 

Non-current

 

 

 

 

 

 

 

 

 

ICMS recoverable

 

84,774

 

312,434

 

367

 

367

 

Income tax

 

233,275

 

260,013

 

233,275

 

260,013

 

Social Contribution

 

25,984

 

28,644

 

25,984

 

28,644

 

Pasep and Cofins taxes

 

21,068

 

 

 

 

 

 

365,101

 

601,091

 

259,626

 

289,024

 

 

 

 

 

 

 

 

 

 

 

 

 

1,175,394

 

885,288

 

292,622

 

301,467

 

 

The amounts of the Pasep and Cofins taxes registered in the holding company refer to the constitution of assets recoverable corresponding to the difference of taxation of these contributions under the non-cumulative regime (9,25%) and the cumulative regime (3,65%) applied to revenues from transmission from the period February-December 2004, arising from contracts signed on dates prior to October 31, 2003 (pre-set price),

 

The balances of income tax and Social Contribution refer to tax credits in corporate income tax returns of previous years, and payments made in 2007, which will be offset in the Income Tax and Social Contribution payable in 2008,

 

The credits of ICMS recoverable, posted in Non-current assets, arise from acquisitions of fixed assets and are offset in 48 months, The company is in the process of adaptation to the new requirements for electronic information laid down by the government of the state of Minas Gerais, which will allow for the offsetting of the credits as from the first quarter of 2008,

 

100



 

12) TAX CREDITS

 

Deferred income tax and Social Contribution

 

Cemig and its subsidiaries have deferred income tax credits posted in Current assets and Non-current assets, constituted at the rate of 25,00% and deferred Social Contribution credits, at the rate of 9,00%, as follows:

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

Tax credits on temporary differences

 

 

 

 

 

 

 

 

 

Tax loss/negative base

 

283,859

 

367,944

 

81,712

 

108,152

 

Contingency provisions

 

190,426

 

163,185

 

76,326

 

73,668

 

Provisions for losses on realization of amounts receivable under the Extraordinary Tariff Recomposition and free energy

 

249,515

 

190,072

 

85,179

 

76,137

 

Post-employment obligations

 

54,132

 

49,279

 

1,101

 

2,423

 

Provision for doubtful receivables

 

185,015

 

166,697

 

21,871

 

35,334

 

Provision for Pasep/Cofins – Extraordinary Tariff Recomposition

 

19,315

 

58,524

 

 

7,455

 

Provision for non-recovery of tax credits - Light

 

(29,616

)

(239,472

)

 

 

Financial instruments

 

79,625

 

 

 

 

FX variation

 

66,924

 

 

 

 

Others

 

85,450

 

48,153

 

1,343

 

1,335

 

 

 

1,184,645

 

804,382

 

267,532

 

304,504

 

 

 

 

 

 

 

 

 

 

 

Current assets

 

489,757

 

125,790

 

92,975

 

24,047

 

Non-current assets

 

694,888

 

678,592

 

174,557

 

280,457

 

 

At its meeting on March 6, 2008, the Board of Directors approved the technical study prepared by the CFO’s department on the forecasts for future profitability adjusted to present value, which show capacity for realization of the deferred tax asset in a maximum period of 10 years, as defined in CVM Instruction 371, This study includes Cemig and its subsidiaries Cemig Generation and Transmission and Cemig Distribution, and was submitted to Cemig’s Audit Board for examination on March 6, 2008,

 

In accordance with the individual estimates of Cemig and its subsidiaries, future taxable profits enable the deferred tax asset existing on December 31, 2007 to be realized according to the following estimate:

 

 

 

Consolidated

 

Holding
company

 

 

 

 

 

 

 

2008

 

489,757

 

92,975

 

2009

 

194,453

 

41,404

 

2010

 

112,523

 

36,803

 

2011

 

119,130

 

34,329

 

2012

 

104,613

 

33,372

 

2013 to 2015

 

111,104

 

28,429

 

2016 and 2017

 

82,681

 

220

 

(-) Provision for losses on recovery of tax credits: RME/Light

 

(29,616

)

 

 

 

1,184,645

 

267,532

 

 

As well as the provision for non-recovery of tax credits of Light, on March 31, 2007 the holding company had tax credits not recognized in its financial statements, in the amount of R$ 444,269 (R$ 442,760 on December 31, 2006),

 

The credits not recognized refer basically to the effective loss arising from the assignment of the credits of accounts receivable from the state government to the Credit Receivables Fund in the first quarter of 2006 (as per Explanatory Note 14), As a result of this assignment the provision for losses on recovery of the amounts constituted in previous years became deductible for the purposes of income tax and Social Contribution, The portion not recognized in relation to this issue is R$ 437,509,

 

 

101



 

From the business year 2002 to 2006, Light did not recognize in its accounts new deferred tax credits on temporary differences and tax losses in accordance with CVM Instruction 371/02, because at that time it did not have taxable profit for at least three years of a minimum period of five years, Starting with the business year 2007, when the conditions of this CVM rule began to be met, Light began to recognize new deferred tax assets on the temporary differences and also accounted the tax credits accumulated since 2003, in the amount of R$ 212,812 (corresponding to 25,00% of the total, in accordance with the proportional consolidation made by the Company),

 

b) Reconciliation of the expense on income tax and Social Contribution:

 

The reconciliation of the nominal expense on income tax (rate 25%) and Social Contribution (rate 9%) with the actual expense shown in the Income Statement is as follows:

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

Profit before income tax and Social Contribution

 

2,928,119

 

2,463,218

 

1,864,302

 

1,711,879

 

Income tax and Social Contribution – nominal expense

 

(995,560

)

(837,494

)

(633,863

)

(582,039

)

Tax effects applicable to:

 

 

 

 

 

 

 

 

 

Provision (reversal) for loss on accounts receivable from the government of the State of Minas Gerais

 

 

142,577

 

 

142,577

 

Equity income from subsidiaries

 

 

 

523,110

 

401,894

 

Recognition of deferred assets

 

218,763

 

 

 

 

Employee profit shares

 

154,518

 

71,397

 

4,178

 

3,169

 

Interest on Equity

 

 

57,483

 

 

57,483

 

Non-deductible contributions and donations

 

(12,330

)

(9,179

)

(296

)

(233

)

Tax incentive amounts

 

24,178

 

16,305

 

 

 

Tax credits not recognized

 

(11,476

)

(11,413

)

(776

)

(130

)

Amortization of premium/goodwill

 

(7,686

)

 

(7,686

)

 

Others

 

7,288

 

42,728

 

(1,232

)

(6,438

)

Income tax and Social Contribution – effective expense

 

(622,305

)

(527,596

)

(116,565

)

16,283

 

 

13) DEFERRED TARIFF ADJUSTMENT

 

Aneel, through Homologating Resolution 71, which was published with backdated effect on April 4, 2004, defined the results of the periodic tariff revision of Cemig Distribuição,

 

The periodic tariff revision includes the repositioning of the electricity retail supply tariffs at a level compatible with the preservation of the economic-financial equilibrium of the concession contract, providing sufficient revenue to cover efficient operational costs and adequate remuneration of the investments,

 

The average adjustment applied to Cemig’s tariffs on April 8, 2003, on a provisional basis, was 31,53%, However, as described in the Resolution mentioned, the final tariff repositioning for Cemig should be 44,41%, The percentage difference of 12,88% was to be offset through an increase of R$ 301,334, at April 2003 values, in the tariff adjustments scheduled to take place in 2004 through 2007, cumulatively,

 

The last portion that should have been included in the tariff adjustment of April 8, 2007 was postponed to the year 2008,

 

The difference between the tariff repositioning to which Cemig Distribuição has the right and the tariff actually charged to consumers is recognized as a Regulatory Asset,

 

102



 

The amounts relating to the deferred tariff adjustment are updated in monetary terms by the IGP-M Index plus interest of 11,26% per year,

 

 

 

Consolidated

 

 

 

2007

 

2006

 

Deferred tariff adjustment – since April 8, 2003

 

949,612

 

949,612

 

Interest (defined by Aneel – 11,26% p,a,)

 

434,188

 

351,044

 

Monetary updating – IGP-M Inflation Index

 

189,763

 

137,107

 

(-) Amounts raised

 

(1,028,330

)

(519,044

)

 

 

545,233

 

918,719

 

 

 

 

 

 

 

Current assets

 

463,491

 

791,231

 

Non-current assets

 

81,742

 

127,488

 

 

Additionally, deferred taxes applicable to actual revenue were recognized, the balance of which on December 31 2007 was R$ 235,813

 

14) ACCOUNTS RECEIVABLE FROM MINAS GERAIS STATE GOVERNMENT AND RECEIVABLES FUND (“FIDC”)

 

The outstanding credit balance receivable on the CRC (Results Compensation) Account was passed to the State of Minas Gerais in 1995, under an agreement to assign that account (“the CRC Contract”), in accordance with Law 8724/93, for monthly amortization over 17 years starting on June 1, 1998, with annual interest of 6% plus inflation correction by the Ufir index,

 

On January 24, 2001 the First Amendment was signed, replacing the inflation indexation unit in the contract, which was the Ufir, with the IGP-DI, backdated to November 2000, due to the abolition of the Ufir in October 2000,

 

In October 2002 the Second and Third Amendments to the CRC Contract were signed, setting new conditions for amortization of the credits receivable from the State of Minas Gerais, The main clauses were: (i) the monetary updating by the IGP-DI inflation index; (ii) amortization of the two amendments by May 2015; (iii) interest rates at 6,00% and 12,00% for the Second and Third Amendments, respectively; and (iv) guarantee of full retention of the dividends owed to Minas Gerais state for settlement of the Third Amendment,

 

a) The Fourth Amendment to the CRC contract

 

As a result of the default in the receipt of the credits referred to in the Second and Third Amendments, the Fourth Amendment was signed with the aim of making possible the full receipt of the CRC through retention of dividends as and when the government of the state becomes entitled to them, This agreement was approved by the Extraordinary General Meeting of Stockholders completed on January 12, 2006,

 

The Fourth Amendment to the CRC contract had backdated effect on the outstanding balance existing on December 31, 2004, and consolidated the amounts receivable under the Second and Third Amendments, corresponding to R$ 2,941,599 on December 31, 2004,

 

As a result of the reconciliation made between Cemig and the State of the criteria for updating of the contract, since its signature, as established in the sole sub-paragraph of Clause 1 of the fourth amendment to the CRC contract, the balance payable will be reduced by R$ 102,131, arriving at the value of R$2,839,468, on base date December 31, 2004 which updated to December 31, 2007 is R$3,661,160,

 

The government of the state will amortize the debit in 61 consecutive half-yearly installments, becoming due by June 30 and December 31 of each year, over the period from June 2005 to June 2035 inclusive, The amounts of the portions for amortization of the principal, updated by the IGP-DI index, increase over the period, from R$ 28,828 for the 1st, and R$ 83,686 for the 61st – expressed in currency of December 31, 2007,

 

103



 

The amortization of the debt will primarily be effected by means of retention of 65,00% of the minimum obligatory dividends payable to the government of the State, If the amount is not sufficient to amortize the portion becoming due the retention may be of up to 65% of all and any amount of extraordinary dividends or Interest on Equity, These dividends retained are used to amortize the contract in the following order: (i) settlement of past due installments; (ii) settlement of an installment for the current half-year; (iii) anticipated settlement of up to 2 installments; and, (iv) amortization of the debtor balance,

 

On December 31, 2007 the installments of the contract becoming due on June 30 and December 31, 2008 had already been amortized,

 

The signature of the Fourth Amendment to the contract provides that, so as to ensure complete receipt of the credits, the provisions of Clause 11 of the Bylaws must be obeyed – they define certain targets to be met annually in conformity with the Strategic Plan, which must be complied with,

 

Target

 

Required Ratio

Debt/Ebitda

 

Less than 2 (1)

Debt/(Debt plus stockholders equity)

 

Less than or equal to 40,00% (2)

Capital expenditure and acquisition of assets

 

Less than or equal to 40,00% of Ebitda (3)

 


Ebitda = earnings before interest, taxes on profit, depreciation and amortization,

(1)             Less than 2,5 in certain situations specified in the Bylaws,

(2)             Less than equal to 50% in certain situations specified in the Bylaws,

(3)             For 2006 and 2007 the indices required are 65,00% and 55,00% respectively,

 

b) Transfer of the CRC credits to a Receivables Investment Fund (“FIDC”)

 

On January 27, 2006 Cemig transferred the CRC credits into a Receivables Investment Fund (“FIDC”), The amount of the FIDC was established by the administrator based on long-term financial projections for Cemig, estimating the dividends that will be retained for amortization of the outstanding debtor balance on the CRC contract, Based on these projections the FIDC was valued at a total of R$ 1,659,125, of which R$ 900,000 in senior units and R$ 759,125 in subordinated units,

 

The senior units were subscribed and acquired by financial institutions and will be amortized in 20 half-yearly installments, from June 2006, updated by the variation of the CDI + 1,7% of interest per year, guaranteed by Cemig,

 

The subordinated units were subscribed by Cemig and correspond to the difference between the total value of the FIDC and the value of the senior units,

 

The updating of the subordinated units corresponds to the difference between the valuation of the FIDC using a rate of 10,00% per year, and the increase in value of the senior units by the variation of the CDI plus interest of 1,70% per year,

 

The movement on the FIDC account in 2007 was as follows:

 

 

 

Consolidated
and Holding
company

 

 

 

 

 

Balance at December 31, 2006

 

1,726,293

 

Monetary updating on the senior units

 

123,335

 

Monetary updating on the subordinated units

 

35,656

 

Amortization of the senior units

 

(114,740

)

Amortization of the subordinated units

 

(7,267

)

Balance at December 31, 2007

 

1,763,277

 

 

 

 

 

Balance at December 31, 2007

 

 

 

- Senior units held by third parties

 

990,386

 

 

 

 

 

- Subordinated units held by Cemig

 

708,451

 

Dividends held by the Fund

 

64,440

 

 

 

772,891

 

 

 

 

 

TOTAL

 

1,763,277

 

 

104



 

Cemig made payments of dividends on December 28, 2007, which were used to amortize the senior and subordinated units, and operational expenses, of the FIDC, in the amount of R$ 62,252, R$ 899, and R$ 923 respectively, However, the amortization was made in fact on January 2, 2008,

 

The dividends and Interest on Equity proposed by the Executive Board to the Board of Directors, to be distributed to stockholders for the business year 2007, are posted in Current Liabilities, Of the dividends to be distributed, R$ 193,350 is payable to the Minas Gerais State Government, R$ 125,677 will be retained for repayment of part of the due receivables on the CRC, The remaining amount of R$67,673 is to be paid to the government of the State of Minas Gerais,

 

d) Consolidation criterion of the FIDC

 

Due to the guarantee offered by Cemig of settlement of the senior units in the event that the dividends due to the state government are not sufficient for amortization of the installments, the Consolidated Financial Statements present the balance of the FIDC registered in full in Cemig and the senior units are presented as a debt under loans and financings in short and long-term liabilities, Similarly, in the consolidation the monetary updating of the FIDC was recognized in full as a financial expense, and in counterpart the amount of the monetary updating of the senior units was registered as a cost of debt,

 

15) REGULATORY ASSET – PIS/PASEP AND COFINS

 

Federal Laws 10637 and 10833 changed the bases of application, and increased the rate, of the PIS/Pasep and Cofins taxes, As a result of these alterations there was an increase in PIS/Pasep expenses from December 2002 to March 2005 and in expenses on the Cofins tax from February 2004 to June 2005,

 

In view of the fact that this increase in the expense should be repaid to the company through tariffs, the credits were registered, in accordance with a criterion defined by Aneel, as a regulatory asset and there was a counterpart reduction in the expense on PIS/Pasep and Cofins taxes,

 

 

 

Consolidated

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Cemig Distribuição

 

116,127

 

298,510

 

Cemig Geração e Transmissão

 

826

 

 

RME – Light

 

1,520

 

25,008

 

 

 

118,473

 

323,518

 

 

 

 

 

 

 

Current assets

 

57,593

 

107,959

 

Long term assets

 

60,880

 

215,559

 

 

105



 

16) INVESTMENTS

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

In subsidiaries and jointly controlled companies

 

 

 

 

 

 

 

 

 

Cemig Geração e Transmissão

 

 

 

2,988,263

 

2,950,912

 

Cemig Distribuição

 

 

 

2,440,542

 

2,349,982

 

Rio Minas Energia Participações

 

 

 

265,557

 

212,015

 

Infovias

 

 

 

329,705

 

297,471

 

GASMIG

 

 

 

192,098

 

152,317

 

Rosal Energia

 

 

 

90,292

 

105,105

 

Sá Carvalho

 

 

 

94,078

 

92,876

 

Horizontes Energia

 

 

 

66,349

 

66,098

 

Usina Térmica Ipatinga

 

 

 

65,848

 

65,488

 

Cemig PCH

 

 

 

51,690

 

51,438

 

Cemig Capim Branco Energia

 

 

 

51,706

 

46,484

 

Companhia Transleste de Transmissão

 

 

 

13,943

 

14,610

 

UTE Barreiro

 

 

 

6,690

 

10,163

 

Companhia Transudeste de Transmissão

 

 

 

7,776

 

7,200

 

Central Hidrelétrica Pai Joaquim

 

 

 

477

 

192

 

Companhia Transirapé de Transmissão

 

 

 

5,767

 

5,473

 

Transchile

 

 

 

11,675

 

13,370

 

Efficientia

 

 

 

4,198

 

3,208

 

Central Termelétrica de Cogeração

 

 

 

334

 

1,609

 

Companhia de Transmissão Centroeste de Minas

 

 

 

6,703

 

6,662

 

Cemig Trading

 

 

 

154

 

253

 

Empresa Paraense de Transmissão de Energia-EPTE

 

 

 

14,362

 

14,942

 

Empresa Norte de Transmissão de Energia-ENTE

 

 

 

28,508

 

27,026

 

Empresa Regional de Transmissão de Energia-ERTE

 

 

 

6,266

 

6,019

 

Empresa Amazonense de Transmissão de Energia-EATE

 

 

 

46,445

 

51,252

 

Empresa Catarinense de Transmissão de Energia-ECTE

 

 

 

 

 

4,489

 

5,330

 

Focus Soluções Tecnológicas

 

 

 

235

 

 

 

 

 

 

6,794,150

 

6,557,495

 

 

 

 

 

 

 

 

 

 

 

In consortia

 

1,050,496

 

979,485

 

 

 

Goodwill on acquisition of the stake in Infovias

 

 

 

3,077

 

7,272

 

Goodwill on acquisition of the stake in Rosal Energia

 

 

 

38,680

 

31,597

 

Goodwill on acquisition of the stake in EPTE

 

 

 

26,297

 

27,420

 

Goodwill on acquisition of the stake in ENTE

 

 

 

38,984

 

40,549

 

Goodwill on acquisition of the stake in ERTE

 

 

 

8,927

 

9,286

 

Goodwill on acquisition of the stake in EATE

 

 

 

147,739

 

154,047

 

Goodwill on acquisition of the stake in ECTE

 

 

 

7,153

 

7,467

 

In other investments

 

20,358

 

19,390

 

3,506

 

3,711

 

 

 

1,070,854

 

998,875

 

274,363

 

281,349

 

 

 

1,070,854

 

998,875

 

7,068,513

 

6,838,844

 

 

106



 

a)              The main information on the investees is as follows:

 

 

 

 

 

BALANCE AT DECEMBER 31, 2007

 

January to December 2007

 

Controlled companies

 

Number of
shares

 

Cemig stake
%

 

Registered
capital

 

Stockholders’
equity

 

Dividends

 

Profit
(Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemig Geração e Transmissão

 

2,896,785,358

 

100,00

 

2,896,785

 

2,988,263

 

709,673

 

747,024

 

Cemig Distribuição

 

2,261,997,787

 

100,00

 

2,261,998

 

2,440,542

 

680,648

 

771,208

 

Infovias

 

331,066,000

 

100,00

 

300,083

 

329,705

 

26,801

 

56,422

 

Rosal Energia

 

86,944,467

 

100,00

 

86,944

 

90,292

 

18,008

 

18,956

 

Sá Carvalho

 

860,000,000

 

100,00

 

86,833

 

94,078

 

22,842

 

24,044

 

GASMIG

 

196,155,000

 

55,19

 

154,657

 

348,051

 

13,044

 

83,593

 

Horizontes Energia

 

64,257,563

 

100,00

 

64,258

 

66,349

 

4,748

 

8,184

 

Usina Térmica Ipatinga

 

64,174,281

 

100,00

 

64,174

 

65,848

 

6,840

 

7,200

 

Cemig PCH

 

50,952,000

 

100,00

 

50,953

 

51,690

 

15,296

 

14,742

 

Cemig Capim Branco Energia

 

45,528,000

 

100,00

 

45,528

 

51,706

 

38,163

 

39,166

 

Companhia Transleste de Transmissão

 

33,051,000

 

25,00

 

49,569

 

55,776

 

2,363

 

7,572

 

UTE Barreiro

 

11,918,000

 

100,00

 

11,918

 

6,690

 

 

(2,742

)

Companhia Transudeste de Transmissão

 

301,000

 

24,00

 

30,000

 

32,400

 

179

 

3,148

 

Central Hidrelétrica Pai Joaquim

 

1,000

 

100,00

 

1

 

477

 

 

12

 

Companhia Transirapé de Transmissão

 

1,000

 

24,50

 

22,340

 

23,540

 

 

1,200

 

Transchile

 

22,000

 

49,00

 

23,827

 

23,827

 

 

 

Efficientia

 

3,742,249

 

100,00

 

3,742

 

4,198

 

205

 

1,195

 

Central Termelétrica de Cogeração

 

1,000

 

100,00

 

1

 

334

 

 

334

 

Companhia de Transmissão Centroeste de Minas

 

50,000

 

51,00

 

51

 

13,143

 

 

 

Rio Minas Energia

 

12,000

 

25,00

 

709,310

 

1,062,224

 

94,228

 

591,113

 

Cemig Trading

 

160,000

 

100,00

 

160

 

154

 

51

 

(8

)

Empresa Paraense de Transmissão de Energia - ETEP

 

45,000,010

 

18,19

 

63,475

 

78,183

 

5,840

 

20,613

 

Empresa Norte de Transmissão de Energia - ENTE

 

100,840,000

 

18,35

 

109,907

 

155,355

 

(7,868

)

40,768

 

Empresa Regional de Transmissão de Energia - ERTE

 

23,400,000

 

18,35

 

23,400

 

34,146

 

1,542

 

9,749

 

Empresa Amazonense de Transmissão de Energia - EATE

 

180,000,010

 

15,79

 

250,009

 

289,561

 

25,227

 

90,469

 

Empresa Catarinense de Transmissão de Energia ECTE

 

42,095,000

 

7,50

 

42,095

 

59,844

 

2,213

 

18,274

 

Focus Soluções Tecnológicas

 

2,000

 

49,00

 

200

 

1,150

 

 

 

 

107



 

 

 

 

 

BALANCE AT DECEMBER 31, 2006

 

January to December 2006

 

Controlled companies

 

Number of
shares

 

Cemig stake
%

 

Registered
Capital

 

Stockholders’
equity

 

Dividends

 

Profit
(Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemig Geração e Transmissão

 

2,896,785,358

 

100,00

 

2,896,785

 

2,950,912

 

583,403

 

614,108

 

Cemig Distribuição

 

2,261,997,787

 

100,00

 

2,261,998

 

2,349,982

 

731,089

 

769,567

 

Infovias

 

331,066,000

 

100,00

 

331,066

 

247,514

 

 

23,405

 

Rosal Energia

 

86,944,467

 

100,00

 

86,945

 

105,105

 

30,630

 

18,239

 

Sá Carvalho

 

860,000,000

 

100,00

 

86,833

 

92,876

 

44,185

 

24,583

 

GASMIG

 

196,155,000

 

55,19

 

137,058

 

275,974

 

13,370

 

79,620

 

Horizontes Energia

 

64,257,563

 

100,00

 

64,258

 

66,098

 

16,384

 

11,809

 

Usina Térmica Ipatinga

 

64,174,281

 

100,00

 

64,174

 

65,488

 

13,378

 

6,818

 

Cemig PCH

 

50,952,000

 

100,00

 

50,952

 

51,438

 

9,232

 

9,718

 

Cemig Capim Branco Energia

 

45,528,000

 

100,00

 

45,528

 

46,484

 

18,171

 

19,127

 

Companhia Transleste de Transmissão

 

33,051,000

 

25,00

 

49,569

 

58,436

 

576

 

8,837

 

UTE Barreiro

 

11,918,000

 

100,00

 

11,918

 

10,163

 

 

(1,755

)

Companhia Transudeste de Transmissão

 

301,000

 

24,00

 

50,000

 

30,000

 

 

 

Central Hidrelétrica Pai Joaquim

 

1,000

 

100,00

 

1

 

192

 

5,503

 

180

 

Companhia Transirapé de Transmissão

 

1,000

 

24,50

 

22,340

 

22,340

 

 

 

Transchile

 

22,000

 

49,00

 

27,286

 

27,286

 

 

 

Efficientia

 

3,742,249

 

100,00

 

3,742

 

3,208

 

238

 

414

 

Central Termelétrica de Cogeração

 

1,000

 

100,00

 

1

 

1,609

 

2,794

 

1,602

 

Companhia de Transmissão Centroeste de Minas

 

50,000

 

51,00

 

51

 

13,063

 

 

 

Rio Minas Energia

 

12,000

 

25,00

 

709,310

 

848,056

 

 

138,746

 

Cemig Trading

 

10,000

 

100,00

 

160

 

253

 

 

93

 

Empresa Paraense de Transmissão de Energia - ETEP

 

45,000,010

 

17,51

 

58,751

 

85,335

 

 

19,489

 

Empresa Norte de Transmissão de Energia - ENTE

 

100,840,000

 

18,35

 

100,840

 

138,986

 

43,005

 

34,492

 

Empresa Regional de Transmissão de Energia - ERTE

 

23,400,000

 

18,35

 

23,400

 

30,702

 

7,485

 

8,848

 

Empresa Amazonense de Transmissão de Energia - EATE

 

180,000,010

 

14,94

 

232,328

 

343,147

 

 

84,368

 

Empresa Catarinense de Transmissão de Energia ECTE

 

42,095,000

 

7,50

 

42,095

 

64,783

 

22,028

 

26,486

 

 

 

108



 

The movement on investment in subsidiaries is as follows:

 

 

 

31,12,2006

 

Equity
income

 

Injection of
capital

 

Dividends
proposed

 

Others

 

31,12,2007

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemig Geração e Transmissão

 

2,950,912

 

747,024

 

 

(709,673

)

 

2,988,263

 

Cemig Distribuição

 

2,349,982

 

771,208

 

 

(680,648

)

 

2,440,542

 

Infovias

 

297,471

 

56,422

 

 

(26,801

)

2,613

 

329,705

 

Rosal Energia

 

105,105

 

18,956

 

 

(18,008

)

(15,761

)

90,292

 

Sá Carvalho

 

92,876

 

24,044

 

 

(22,842

)

 

94,078

 

GASMIG

 

152,317

 

46,137

 

9,713

 

(13,044

)

(3,025

)

192,098

 

Horizontes Energia

 

66,098

 

8,184

 

 

(4,748

)

(3,185

)

66,349

 

Usina Térmica Ipatinga

 

65,488

 

7,200

 

 

(6,840

)

 

65,848

 

Cemig PCH

 

51,438

 

14,742

 

 

(15,296

)

806

 

51,690

 

Cemig Capim Branco Energia

 

46,484

 

39,166

 

4,219

 

(38,163

)

 

51,706

 

Companhia Transleste de Transmissão

 

14,610

 

1,891

 

 

(2,363

)

(195

)

13,943

 

UTE Barreiro

 

10,163

 

(2,742

)

 

 

(731

)

6,690

 

Companhia Transudeste de Transmissão

 

7,200

 

757

 

 

(179

)

(2

)

7,776

 

Central Hidrelétrica Pai Joaquim

 

192

 

12

 

 

 

273

 

477

 

Companhia Transirapé de Transmissão

 

5,473

 

293

 

 

 

1

 

5,767

 

Transchile

 

13,370

 

 

 

 

(1,695

)

11,675

 

Efficientia

 

3,208

 

1,195

 

 

(205

)

 

4,198

 

Central Termelétrica de Cogeração

 

1,609

 

334

 

 

 

(1,609

)

334

 

Companhia de Transmissão Centroeste de Minas

 

6,662

 

 

41

 

 

 

6,703

 

Rio Minas Energia

 

212,015

 

147,779

 

 

(94,228

)

(9

)

265,557

 

Cemig Trading

 

253

 

(8

)

 

(51

)

(40

)

154

 

Empresa Paraense de Transmissão de Energia - ETEP

 

14,942

 

3,788

 

 

(5,840

)

1,472

 

14,362

 

Empresa Norte de Transmissão de Energia - ENTE

 

27,026

 

7,481

 

589

 

(7,868

)

1,280

 

28,508

 

Empresa Regional de Transmissão de Energia - ERTE

 

6,019

 

1,789

 

 

(1,542

)

 

6,266

 

Empresa Amazonense de Transmissão de Energia – EATE

 

51,252

 

14,509

 

2,992

 

(25,227

)

2,919

 

46,445

 

Empresa Catarinense de Transmissão de Energia - ECTE

 

5,330

 

1,369

 

 

(2,213

)

3

 

4,489

 

Focus Soluções Tecnológicas

 

 

 

235

 

 

 

235

 

 

 

6,557,495

 

1,911,530

 

17,789

 

(1,675,779

)

(16,885

)

6,794,150

 

 

109



 

The full balances of the subsidiaries that were consolidated proportionally in 2007 are as follows:

 

 

 

Gasmig

 

Transleste

 

Transirapé

 

Centroeste

 

Transudeste

 

Transchile

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

505,759

 

10,065

 

4,246

 

96

 

5,910

 

9,495

 

Non-current

 

186,388

 

118,911

 

69,317

 

13,090

 

82,123

 

78,736

 

Total fixed assets

 

692,147

 

128,976

 

73,563

 

13,186

 

88,033

 

88,231

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

344,059

 

11,524

 

9,553

 

43

 

11,738

 

64,404

 

Non-current

 

37

 

61,676

 

40,470

 

 

43,895

 

 

Stockholders’ equity

 

348,051

 

55,776

 

23,540

 

13,143

 

32,400

 

23,827

 

Total fixed assets

 

692,147

 

128,976

 

73,563

 

13,186

 

88,033

 

88,231

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue from sales

 

538,755

 

20,980

 

6,923

 

 

11,241

 

 

Deductions from gross revenue

 

(118,867

)

(1,500

)

(492

)

 

(797

)

 

Net sales revenue

 

419,888

 

19,480

 

6,431

 

 

10,444

 

 

Cost of sales

 

(279,459

)

 

 

 

 

 

Gross profit

 

140,429

 

19,480

 

6,431

 

 

10,444

 

 

General and administrative expenses

 

(47,495

)

(6,635

)

(2,123

)

 

(3,249

)

 

NET FINANCIAL REVENUE (EXPENSES)

 

20,258

 

(3,367

)

(2,299

)

 

(3,051

)

 

OPERATIONAL PROFIT

 

113,192

 

9,478

 

2,009

 

 

4,144

 

 

Income tax and Social Contribution

 

(29,599

)

(1,906

)

(809

)

 

(996

)

 

Net profit for the year

 

83,593

 

7,572

 

1,200

 

 

3,148

 

 

 

 

 

RME

 

ETEP

 

ENTE

 

ERTE

 

EATE

 

ECTE

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

2,920,232

 

38,152

 

36,594

 

6,851

 

189,649

 

21,495

 

Non-current

 

6,026,304

 

133,781

 

422,402

 

75,380

 

606,395

 

137,017

 

Total fixed assets

 

8,946,536

 

171,933

 

458,996

 

82,231

 

796,044

 

158,512

 

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Current

 

1,737,121

 

22,143

 

83,950

 

12,768

 

125,944

 

26,650

 

Non-current

 

6,147,191

 

71,607

 

219,691

 

35,317

 

380,539

 

72,018

 

Stockholders’ equity

 

1,062,224

 

78,183

 

155,355

 

34,146

 

289,561

 

59,844

 

Total fixed assets

 

8,946,536

 

171,933

 

458,996

 

82,231

 

796,044

 

158,512

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue from sales

 

8,156,915

 

51,055

 

114,019

 

20,272

 

219,980

 

49,549

 

Deductions from gross revenue

 

(3,145,987

)

(3,525

)

(8,134

)

(1,449

)

(15,137

)

(3,497

)

Net sales revenue

 

5,010,928

 

47,530

 

105,885

 

18,823

 

204,843

 

46,052

 

Cost of sales

 

(2,585,781

)

 

 

 

 

 

Gross profit

 

2,425,147

 

47,530

 

105,885

 

18,823

 

204,843

 

46,052

 

General and administrative expenses

 

(1,767,986

)

(9,916

)

(22,854

)

(4,770

)

(42,226

)

(7,656

)

NET FINANCIAL REVENUE (EXPENSES)

 

(209,013

)

(6,750

)

(22,851

)

(3,483

)

(28,346

)

(10,536

)

OPERATIONAL PROFIT

 

448,148

 

30,864

 

60,180

 

10,570

 

134,271

 

27,860

 

Income tax and Social Contribution

 

604,886

 

(10,251

)

(19,412

)

(821

)

(43,802

)

(9,586

)

Profit before minority interests

 

1,053,034

 

20,613

 

40,768

 

9,749

 

90,469

 

18,274

 

Minority interests

 

(461,921

)

 

 

 

 

 

Net profit for the year

 

591,113

 

20,613

 

40,768

 

9,749

 

90,469

 

18,274

 

 

b) Stockholding in Light

 

A discount was ascertained on the acquisition, corresponding to the difference between the amount paid by RME and the book value of the stake in the stockholders’ equity of Light, in the amount of R$ 364,961 (Cemig’s portion is 25,00%), This discount arises from the estimate of the results of future years as a function of the commercial operation of the electricity distribution and generation concessions and thus is being amortized from October 2006 to May 2026, the date of the termination of the distribution concession on a linear basis, In the consolidation the amount of the discount (R$ 86,236) is presented as Future earnings,

 

On May 16, 2007 the Brazilian Development Bank ("BNDES") converted 90% of its debentures into shares in Light S,A,, corresponding to 31,40% of the registered capital, This reduced the stake held by Rio Minas Energia Participações S,A, (“RME”) in Light S,A, 79,39% to 54,20%, and consequently the stake held by Cemig from 19,85% to 13,55%, Subsequently, on October 19, 2007, the BNDES exercised the right given by 72,727 warrants, which reduced RME's stake to 52,25%, and the stake held by Cemig to 13,06%,

 

110



 

c)     Acquisition of stake in electricity transmission companies

 

Premium/goodwill on acquisition of electricity companies: The goodwill on the acquisition of the companies Empresa Amazonense de Transmissão de Energia S,A, EATE, Empresa Paraense de Transmissão de Energia S,A, -ETEP, Empresa Norte de Transmissão de Energia S,A, -ENTE, Empresa Regional de Transmissão de Energia S,A,- ERTE and Empresa Catarinense de Transmissão de Energia S,A, - ECTE,, corresponding to the amount paid and the book value of the stake in the stockholders’ equity of the jointly controlled subsidiaries, arises from expectation of future earnings on the basis of the commercial operation of the transmission concessions, The amortization of the goodwill will take place over the remaining period of validity of the concessions (from August 2006 to 2030/2032), In the consolidated financial statements the value of the premium was included in PP&E – Intangible,

 

d)     Investments in Infovias

 

The goodwill on the acquisition of Infovias is attributable to the expectation of future profitability, calculated on the projected cash flow and is being amortized in a linear manner over the period from January 2005, to June 2012, In the consolidated statements the value of the goodwill was transferred to Deferred,

 

Sale of Way TV by Infovias

 

At an auction held on July 27, 2006 Way TV Belo Horizonte S,A,, an indirect subsidiary of Cemig (through its investment of 65,25% in Infovias) was sold in full (100% of the shares) to TNL PCS Participações S,A,, a subsidiary of Tele Norte Leste Participações S,A, Of the total sale price, R$ 103 million was payable to Infovias, The price represents a premium of 65% on the minimum auction price, and the sale was conditional upon approval by the Brazilian Telecoms Regulator, Anatel,

 

On October 23, 2007 Anatel approved the transaction, pending publication in the federal Official Gazette, after reconsidering a decision made on March 19, 2007, when it had refused approval for the transfer of stockholding control,

 

The profit of Infovias from this sale, in the amount of R$ 54,079,000 was recognized in the 4th quarter of 2007, when the approval was published in the federal Official Gazette,

 

Loan Contracts

 

On November 14, 2007 , Infovias and CEMIG signed a loan contract in the amount of R$89,957 thousand and with the financial charges is 101,5% of the variation of CDI, This contract was extinguished by CEMIG in January, 2008 through share reduction of the registered capital of Infovias,

 

111



 

e) Consortia

 

Cemig participates in consortia for electricity generation concessions, for which companies with an independent legal existence were not constituted to administer the object of the concession, the controls being maintained in the books of account of Cemig, of the specific portion equivalent to the investments made, as follows:

 

 

 

Stake in the
energy
generated

 

Average
annual
depreciation
rate
%

 

Consolidated
2007

 

Consolidated
2006

 

Subsidiary

 

 

 

 

 

 

 

 

 

In progress

 

 

 

 

 

 

 

 

 

Porto Estrela Plant

 

33,33

 

2,48

 

38,625

 

38,625

 

Igarapava Plant

 

14,50

 

2,58

 

55,554

 

55,554

 

Funil Plant

 

49,00

 

2,77

 

171,856

 

171,856

 

Queimado Plant

 

82,50

 

2,45

 

193,599

 

193,599

 

Aimorés Plant

 

49,00

 

2,50

 

512,946

 

512,946

 

Capim Branco I Plant

 

21,05

 

2,51

 

49,742

 

25,378

 

Accumulated depreciation

 

 

 

 

 

(85,268

)

(57,645

)

Total in operation

 

 

 

 

 

937,054

 

940,313

 

 

 

 

 

 

 

 

 

 

 

In progress

 

 

 

 

 

 

 

 

 

Queimado Plant

 

82,50

 

 

 

13,125

 

297

 

Funil Plant

 

49,00

 

 

 

9,531

 

9,041

 

Aimorés Plant

 

49,00

 

 

 

23,369

 

7,073

 

Baguari Plant

 

34,00

 

 

 

67,417

 

4,826

 

Capim Branco I and II Plant

 

21,05

 

 

 

 

17,935

 

Total under construction

 

 

 

 

 

113,442

 

39,172

 

 

 

 

 

 

 

 

 

 

 

Total consortia

 

 

 

 

 

1,050,496

 

979,485

 

 

The depreciation of the goods contained in the property, plant and equipment of the consortia is calculated by the linear method, based on rates established by Aneel,

 

The interests of the other members of the consortia in the energy generated by the projects are as follows:

 

In consortia

 

Other stockholders

 

Minority shares

 

 

 

 

 

 

 

Porto Estrela Plant

 

Companhia de Tecidos Norte de Minas Gerais – COTEMINAS

 

33,34

 

 

 

Companhia Vale do Rio Doce – CVRD

 

33,33

 

 

 

 

 

 

 

Igarapava Plant

 

Companhia Vale do Rio Doce – CVRD

 

38,15

 

 

 

Companhia Mineira de Metais – CMN

 

23,93

 

 

 

Companhia Siderúrgica Nacional – CSN

 

17,92

 

 

 

Mineração Morro Velho – MMV

 

5,50

 

 

 

 

 

 

 

Funil Plant

 

Companhia Vale do Rio Doce – CVRD

 

51,00

 

 

 

 

 

 

 

Queimado Plant

 

Companhia Energética de Brasília

 

17,50

 

 

 

 

 

 

 

Aimorés Plant

 

Companhia Vale do Rio Doce – CVRD

 

51,00

 

 

 

 

 

 

 

Capim Branco I and II Plant

 

Companhia Vale do Rio Doce – CVRD

 

48,43

 

 

 

Comercial e Agrícola Paineiras Ltda,

 

17,89

 

 

 

Companhia Mineira de Metais – CMN

 

12,63

 

 

 

 

 

 

 

Baguari Plant

 

Furnas Centrais Elétricas S,A,

 

15,00

 

 

 

Baguari I Geração de Energia Elétrica S,A,

 

51,00

 

 

112



 

17) ASSETS AND INTANGIBLE ASSETS

 

 

 

Consolidated

 

 

 

2007

 

2006

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Historic cost

 

depreciation

 

Net amounts

 

Net amounts

 

In progress

 

20,933,085

 

(8,816,314

)

12,116,771

 

11,118,138

 

- Distribution

 

10,846,123

 

(4,699,441

)

6,146,682

 

5,018,455

 

Intangible

 

93,719

 

(53,326

)

40,393

 

20,686

 

Land

 

32,646

 

 

32,646

 

31,044

 

Reservoirs, dams and water courses

 

304,280

 

(149,416

)

154,864

 

147,745

 

Machines and equipment

 

10,328,443

 

(4,450,617

)

5,877,826

 

4,799,443

 

Vehicles

 

65,422

 

(29,600

)

35,822

 

14,298

 

Furniture and utensils

 

21,613

 

(16,482

)

5,131

 

5,239

 

 

 

 

 

 

 

 

 

 

 

- Generation

 

7,298,823

 

(2,948,000

)

4,350,823

 

4,517,423

 

Intangible

 

86,821

 

(44,448

)

42,373

 

48,586

 

Land

 

202,333

 

 

202,333

 

219,858

 

Reservoirs, dams and water courses

 

3,890,828

 

(1,369,511

)

2,521,317

 

2,594,150

 

Reservoirs, dams and water courses

 

909,115

 

(345,623

)

563,492

 

631,347

 

Machines and equipment

 

2,203,146

 

(1,182,666

)

1,020,480

 

1,022,484

 

Vehicles

 

3,211

 

(2,809

)

402

 

523

 

Furniture and utensils

 

3,369

 

(2,943

)

426

 

475

 

 

 

 

 

 

 

 

 

 

 

- Transmission

 

1,833,289

 

(652,304

)

1,180,985

 

1,105,334

 

Intangible

 

239,930

 

(2,321

)

237,609

 

245,336

 

Land

 

2,226

 

 

2,226

 

2,973

 

Reservoirs, dams and water courses

 

103,817

 

(53,818

)

49,999

 

49,388

 

Machines and equipment

 

1,486,295

 

(595,516

)

890,779

 

807,410

 

Vehicles

 

301

 

(134

)

167

 

60

 

Furniture and utensils

 

720

 

(515

)

205

 

167

 

 

 

 

 

 

 

 

 

 

 

- Administration

 

550,072

 

(358,565

)

191,507

 

160,621

 

Intangible

 

145,293

 

(92,285

)

53,008

 

31,539

 

Land

 

3,662

 

 

3,662

 

3,995

 

Reservoirs, dams and water courses

 

77,190

 

(39,924

)

37,266

 

37,894

 

Machines and equipment

 

233,064

 

(159,003

)

74,061

 

68,941

 

Vehicles

 

44,268

 

(31,588

)

12,680

 

7,252

 

Furniture and utensils

 

46,595

 

(35,765

)

10,830

 

11,000

 

 

 

 

 

 

 

 

 

 

 

- Telecommunications

 

321,017

 

(134,657

)

186,360

 

251,764

 

Intangible

 

 

 

 

24,109

 

Land

 

70

 

 

70

 

70

 

Reservoirs, dams and water courses

 

55

 

(7

)

48

 

151

 

Machines and equipment

 

320,488

 

(134,390

)

186,098

 

227,052

 

Furniture and utensils

 

404

 

(260

)

144

 

382

 

 

 

 

 

 

 

 

 

 

 

- Gas

 

83,761

 

(23,347

)

60,414

 

64,541

 

Intangible

 

780

 

 

780

 

577

 

Land

 

42

 

 

42

 

42

 

Reservoirs, dams and water courses

 

2,198

 

(479

)

1,719

 

1,230

 

Machines and equipment

 

80,382

 

(22,727

)

57,655

 

62,455

 

Furniture and utensils

 

359

 

(141

)

218

 

237

 

 

 

113



 

 

 

Consolidated

 

 

 

2007

 

2006

 

 

 

Historic cost

 

Accumulated
depreciation

 

Net amounts

 

Net amounts

 

In progress

 

1,496,755

 

 

1,496,755

 

1,961,595

 

- Distribution

 

 

 

 

 

 

 

1,503,768

 

Intangible

 

39,019

 

 

39,019

 

46,100

 

Fixed assets

 

812,814

 

 

812,814

 

1,457,668

 

- Generation

 

 

 

 

 

 

 

116,281

 

Intangible

 

26,969

 

 

26,969

 

1,424

 

Fixed assets

 

257,703

 

 

257,703

 

114,857

 

- Transmission

 

 

 

 

 

 

 

163,733

 

Intangible

 

364

 

 

364

 

4,323

 

Fixed assets

 

106,785

 

 

106,785

 

159,410

 

- Administration

 

 

 

 

 

 

 

148,285

 

Intangible

 

91,208

 

 

91,208

 

71,551

 

Fixed assets

 

126,185

 

 

126,185

 

76,734

 

- Telecommunications

 

6,810

 

 

6,810

 

6,611

 

- Gas

 

28,898

 

 

28,898

 

22,917

 

Total fixed and intangible assets

 

22,429,840

 

(8,816,314

)

13,613,526

 

13,079,733

 

Special Obligations linked to the concession

 

(2,518,602

)

 

(2,518,602

)

(2,250,076

)

Net fixed and intangible assets

 

19,911,238

 

(8,816,314

)

11,094,924

 

10,829,657

 

 

Special Obligations refer basically to the contributions by consumers for execution of the undertakings necessary to comply with requests for retail supply of electricity, and any settlement of these obligations depends on the will of Aneel, at the termination of the distribution concessions, by reduction of the residual value of the fixed asset for the purposes of determining the amount which the Concession-granting Power will pay to the concession holder,

 

Under Aneel Resolution 234 of October 31, 2006, and Aneel Circular 1314/2007, of June 27, 2007, the balances of the “Special Obligations” linked to assets will now be amortized as from the second cycle of tariff reviews, which in the case of Cemig is from April 8, 2008, at a rate yet to be set by Aneel, corresponding to the average rate of the assets in service,

 

The amount of R$ 307,389 is recorded in Fixed assets in progress – Distribution on December 31, 2007 (R$930,639 on December 31, 2006), relating to the “Light for Everyone” program,

 

Under the Light for Everyone Program, approximately 180,000 consumers (unaudited information) were connected, mainly in rural areas, for a total cost, up to December 31, 2007, of R$ 1,598,709, The program is being carried out with funds from the federal and state governments, in the amounts, respectively, of R$ 593,302 and R$ 78,706, The remaining amount, R$ 726,701, will be financed with the Company’s own funds,

 

Some land sites and buildings of the subsidiaries which were given in guarantee in law suits involving tax, labor-law, civil and other disputes are recorded in Fixed assets – Administration, These were posted at the amount of R$ 10,207 on December 31, 2007, net of depreciation,

 

The average annual depreciation rates applied in the subsidiaries on December 31, 2007 are as follows:

 

Generation

 

 

 

Hydroelectric

 

2,47

%

Thermal

 

3,90

%

Transmission

 

3,03

%

Distribution (including the Associated Transmission System)

 

5,08

%

Administration and other

 

14,57

%

Telecommunications

 

8,34

%

Gas

 

5,31

%

 

114



 

18) SUPPLIERS

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

Current 

 

 

 

 

 

 

 

 

 

Wholesale supply and transport of electricity -

 

 

 

 

 

 

 

 

 

Eletrobrás – energy from Itaipu

 

230,620

 

224,052

 

 

 

Furnas

 

78,231

 

65,816

 

 

 

CCEE

 

81,756

 

 

 

 

Purchase of free energy during rationing

 

25,797

 

34,543

 

 

 

 

 

Passthrough to generators

 

27,381

 

124,557

 

 

 

Others

 

142,796

 

187,102

 

 

 

 

 

586,581

 

636,070

 

 

 

Materials and services

 

349,324

 

277,703

 

11,781

 

6,346

 

 

 

935,905

 

913,773

 

11,781

 

6,346

 

Non-current

 

 

 

 

 

 

 

 

 

Wholesale electricity supply -

 

 

 

 

 

 

 

 

 

Passthrough to generators

 

314,989

 

227,482

 

 

 

Purchase of free energy during rationing

 

25,803

 

44,446

 

 

 

 

 

340,792

 

271,928

 

 

 

 

Of the amounts owed to CCEE, a substantial part will be paid by September 2009, with inflation adjustment of the Selic plus 1,00% in interest per year The conclusion of some court proceedings in progress, brought by market agents, in relation to the interpretation of the rules in force at the time of the realization of the transactions in the ambit of the CCEE/MAE, may result in changes in the amounts recorded,

 

19) TAXES, CHARGES AND CONTRIBUTIONS

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

Current

 

 

 

 

 

 

 

 

 

Income tax

 

121,991

 

65,872

 

 

 

Social Contribution

 

47,974

 

25,250

 

 

 

ICMS

 

269,076

 

262,084

 

17,813

 

19,800

 

Cofins

 

92,880

 

74,395

 

15,436

 

2,279

 

Pasep

 

22,122

 

17,155

 

3,351

 

497

 

Social security system

 

21,637

 

17,110

 

1,358

 

-

 

Others

 

32,711

 

25,147

 

1,234

 

415

 

 

 

608,391

 

487,013

 

39,192

 

22,991

 

Deferred obligations

 

 

 

 

 

 

 

 

 

Income tax

 

303,540

 

299,152

 

 

 

Social Contribution

 

109,420

 

107,695

 

 

 

Cofins

 

46,674

 

82,752

 

 

 

Pasep

 

10,134

 

17,965

 

 

 

 

 

469,768

 

507,564

 

 

 

 

 

1,078,159

 

994,577

 

39,192

 

22,991

 

Non-current

 

 

 

 

 

 

 

 

 

Deferred obligations

 

 

 

 

 

 

 

 

 

Income tax

 

240,655

 

264,310

 

62,632

 

55,983

 

Social Contribution

 

65,747

 

94,500

 

22,547

 

20,154

 

COFINS

 

3,834

 

67,425

 

 

17,019

 

PASEP

 

 

12,522

 

 

3,695

 

Others

 

8,904

 

10,764

 

 

 

 

 

319,140

 

449,521

 

85,179

 

96,851

 

 

The net deferred obligations are related to the regulatory assets and liabilities and are owed to the extent that these assets and liabilities are received or paid, respectively,

 

115



 

20) LOANS, FINANCINGS AND DEBENTURES

 

 

 

 

 

 

 

 

 

Consolidated

 

 

 

Principal

 

 

 

BRAZILIAN

 

2007

 

2006

 

 

 

maturity

 

Annual cost (%)

 

CURRENCY

 

Current

 

Non-current

 

Total

 

Total

 

FINANCING SOURCES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FOREIGN CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ABN AMRO Bank – N, ( ) (3)

 

2013

 

6,00

 

US$

 

74

 

88,565

 

88,639

 

106,989

 

ABN AMRO Real S,A, (4)

 

2009

 

6,35

 

US$

 

13,263

 

12,842

 

26,105

 

47,101

 

Banco do Brasil -A - Banco do Brasil S,A, – various bonds (1)

 

2024

 

Various

 

US$

 

12,526

 

80,095

 

92,621

 

132,718

 

Banco do Brasil S,A, (5)

 

2009

 

3,90

 

JPY

 

47

 

61,436

 

61,483

 

69,678

 

Banco Paribas

 

2012

 

5,89

 

EURO

 

3,220

 

10,169

 

13,389

 

17,692

 

Banco Paribas

 

2010

 

Libor + 1,875

 

US$

 

21,388

 

30,855

 

52,243

 

63,114

 

KFW

 

2016

 

4,50

 

EURO

 

1,721

 

13,764

 

15,485

 

18,601

 

UNIBANCO (6)

 

2009

 

6,50

 

US$

 

115

 

8,256

 

8,371

 

153,434

 

UNIBANCO (7)

 

2009

 

5,50

 

US$

 

25

 

3,611

 

3,636

 

4,389

 

UNIBANCO (8)

 

2009

 

5,00

 

US$

 

66

 

15,202

 

15,268

 

18,428

 

MBK Furukawa Sistemas S,A, / UNIBANCO

 

2008

 

Libor + 5,45

 

US$

 

5,615

 

 

5,615

 

20,106

 

Brazilian Nacional (10)

 

2024

 

Libor + Spread

 

US$

 

4,632

 

30,886

 

35,518

 

48,769

 

Deutsche Bank (10)

 

2010

 

Libor + 4,35

 

US$

 

 

 

 

 

87,118

 

J, P, Morgan – Tranches A/B/C (10)

 

2012

 

Libor + 3,00

 

US$

 

 

 

 

 

200,931

 

Banco Inter-Americano del Desarrollo (13)

 

2026

 

6,34

 

US$

 

21,896

 

 

21,896

 

 

Others

 

2025

 

Various

 

Various

 

7,797

 

8,476

 

16,273

 

25,684

 

Debt in foreign currency

 

 

 

 

 

 

 

92,385

 

364,157

 

456,542

 

1,014,752

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BRAZILIAN CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banco Credit Suisse First Boston S,A,

 

2010

 

106,00 do CDI

 

R$

 

133

 

75,000

 

75,133

 

75,156

 

Banco do Brasil

 

2009

 

111,00 do CDI

 

R$

 

1,709

 

118,822

 

120,531

 

120,845

 

Banco do Brasil

 

2013

 

CDI + 1,70

 

R$

 

4,211

 

109,277

 

113,488

 

114,299

 

Banco do Brasil

 

2013

 

107,60 do CDI

 

R$

 

10,161

 

126,000

 

136,161

 

138,698

 

Banco do Brasil

 

2014

 

104,10 do CDI

 

R$

 

23,732

 

1,200,000

 

1,223,732

 

1,228,391

 

Banco Itaú – BBA

 

2008

 

IGP-M + 10,48

 

R$

 

179,846

 

 

179,846

 

174,148

 

Banco Itaú – BBA

 

2008

 

CDI + 2,00

 

R$

 

40,850

 

 

40,850

 

40,961

 

Banco Itaú – BBA

 

2014

 

CDI + 1,70

 

R$

 

14,033

 

304,338

 

318,371

 

317,035

 

HSBC Bank Brasil S,A

 

2008

 

CDI + 2,00

 

R$

 

61,275

 

 

61,275

 

61,442

 

Banco Votorantim S,A,

 

2010

 

113,50 do CDI

 

R$

 

2,709

 

54,372

 

57,081

 

57,736

 

Banco Votorantim S,A,

 

2013

 

CDI + 1,70

 

R$

 

5,237

 

101,316

 

106,553

 

107,619

 

Banco WESTLB do Brasil

 

2008

 

IGP-M + 10,48

 

R$

 

44,961

 

 

44,961

 

43,544

 

BNDES

 

2008

 

SELIC + 1,00

 

R$

 

25,820

 

 

25,820

 

169,827

 

Bradesco

 

2014

 

CDI + 1,70

 

R$

 

18,631

 

379,073

 

397,704

 

399,177

 

Debentures (12)

 

2009

 

CDI + 1,20

 

R$

 

6,402

 

349,556

 

355,958

 

357,071

 

Debentures (12)

 

2011

 

104 do CDI

 

R$

 

4,084

 

238,816

 

242,900

 

243,690

 

Debentures – Minas Gerais state govt, (12)

 

2030

 

IGP-M

 

R$

 

 

145,705

 

145,705

 

106,479

 

Debentures – Minas Gerais state govt, (2)

 

2031

 

IGP-M

 

R$

 

 

 

 

30,009

 

Debentures (12)

 

2014

 

IGP-M + 10,50

 

R$

 

16,452

 

278,217

 

294,669

 

273,659

 

Debentures (12)

 

2017

 

IPCA + 7,96

 

R$

 

1,220

 

400,719

 

401,939

 

 

ELETROBRÁS

 

2013

 

FINEL + 7,50 a 8,50

 

R$

 

19,219

 

59,665

 

78,884

 

94,823

 

ELETROBRÁS

 

2023

 

UFIR, RGR + 6,00 a 8,00

 

R$

 

47,046

 

290,576

 

337,622

 

213,038

 

Santander

 

2013

 

CDI + 1,70

 

R$

 

1,124

 

79,673

 

80,797

 

84,698

 

UNIBANCO

 

2009

 

CDI + 2,98

 

R$

 

2,514

 

104,095

 

106,609

 

106,972

 

UNIBANCO

 

2013

 

CDI + 1,70

 

R$

 

10,502

 

309,285

 

319,787

 

321,052

 

UNIBANCO (2)

 

2013

 

CDI + 1,70

 

R$

 

5,735

 

73,587

 

79,322

 

80,379

 

Caixa Econômica Federal

 

2008

 

101,50 do CDI

 

R$

 

200,425

 

 

200,425

 

 

Itaú and Bradesco (9)

 

2015

 

CDI + 1,70

 

R$

 

116,851

 

873,535

 

990,386

 

981,791

 

Banco de Desenvolvimento de Minas Gerais

 

2025

 

10,00

 

R$

 

699

 

10,315

 

11,014

 

11,590

 

BNDES – FINEM (10)

 

2014

 

TLJP + 4,30

 

R$

 

232

 

60,642

 

60,874

 

 

Debentures I and IV (10)

 

2010/2015

 

TJLP + 4,00

 

R$

 

4,310

 

7,142

 

11,452

 

217,405

 

Debentures V (10)

 

2014

 

CDI + 1,50

 

R$

 

18,170

 

237,500

 

255,670

 

 

BNDES – Margin recovery (10)

 

2007

 

SELIC + 1,00

 

R$

 

 

 

 

77,776

 

CCB Bradesco (10)

 

2017

 

CDI + 0,85

 

R$

 

2,662

 

112,500

 

115,162

 

 

Bradesco Tranche A/B (10)

 

2012

 

CDI + 2,00

 

R$

 

 

 

 

60,473

 

Banco Itaú Tranche A/B (10)

 

2012

 

CDI + 2,00

 

R$

 

 

 

 

26,031

 

Unibanco Tranche A/B (10)

 

2012

 

CDI + 2,00

 

R$

 

 

 

 

69,103

 

BNDES – Principal Subcredit A/B/C/D (11)

 

2014/2016

 

Various

 

R$

 

18,845

 

122,676

 

141,521

 

155,694

 

Others

 

2007/2017

 

Various

 

R$

 

18,056

 

32,234

 

50,290

 

73,574

 

Debt in Brazilian currency

 

 

 

 

 

 

 

927,856

 

6,254,636

 

7,182,492

 

6,634,185

 

Total, consolidated

 

 

 

 

 

 

 

1,020,241

 

6,618,793

 

7,639,034

 

7,648,937

 

 


(1)

Interest rates vary: 2,00 to 8,00% per year;

 

Six-month Libor plus spread of 0,81 to 0,88% per year;

(2)

Loans of the holding company;

(3) to (8)

“Swaps” for exchange of rates were contracted, The following are the rates for the loans and financings taking the swaps into account: (3) CDI + 1,50% p,a,; (4) CDI + 2,12% p,a,; (5) 111,00% of CDI; (6) CDI + 2,98% p,a,; (7) and (8) CDI + 3,01% p,a,;

(9)

Refers to the senior units of the credit rights funds, See Explanatory Note nº14

(10)

Loans, financings and debentures of RME (Light S,A,);

 

116



 

(11)

 

Consolidated loans and financings of the transmission companies acquired in August 2006,

(12)

 

Debentures not convertible into shares, unsecured, without preference, nominal, book-entry,

(13)

 

Financing of Transchile,

 

On December 2007, Cemig Distribuição concluded its second issue of non convertible debenture, issuing a single series of 40,000 non-convertible, unsecured debentures, with nominal unit value of R$ 10, totaling R$ 400,000, These have tenor of 120 months from the issue date, with interest paid annually and payment of the principal in three equal installments in December 2015, 2016 and 2017, The nominal value of the debentures will be updated by the variation of the IPCA inflation index, plus remuneration interest of 7,96% per year,

 

On December 21,2007, Cemig Geração e Transmissão concluded its second issue of Commercial Paper inthe amount of R$ 200 millions, with maturity of 180 days, The nominal value of the Comercial Papers will have interest of 101,5% of CDI, They don´t have guarantee of CEMIG,

 

The consolidated composition of loans, by currency and indexor, with the respective amortization is as follows:

 

 

 

2008

 

2009

 

2010

 

2011

 

2012

 

2013

 

2014

 

2015

 

2016 and
subsequent
years

 

Total

 

CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

US dollar

 

86,739

 

76,236

 

44,462

 

33,779

 

30,742

 

27,706

 

2,863

 

214

 

58,911

 

361,652

 

Euro

 

4,941

 

4,626

 

4,626

 

4,626

 

3,175

 

1,721

 

1,721

 

1,721

 

1,717

 

28,874

 

Yen

 

47

 

61,436

 

 

 

 

 

 

 

 

61,483

 

UMBNDES (**)

 

658

 

659

 

436

 

324

 

324

 

324

 

324

 

324

 

1,160

 

4,533

 

 

 

92,385

 

142,957

 

49,524

 

38,729

 

34,241

 

29,751

 

4,908

 

2,259

 

61,788

 

456,542

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Indexors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IPCA – Expanded Consumer Price Index

 

1,220

 

 

 

 

 

 

 

133,573

 

267,146

 

401,939

 

UFIR – Fiscal Reference Unit

 

48,363

 

42,663

 

36,948

 

36,734

 

33,260

 

28,601

 

28,547

 

28,547

 

57,061

 

340,724

 

Selic Rate (*)

 

25,820

 

 

 

 

 

 

 

 

 

25,820

 

Interbank CD rate - CDI

 

553,291

 

695,483

 

604,748

 

716,464

 

923,758

 

1,064,346

 

602,467

 

202,369

 

37,501

 

5,400,427

 

Eletrobrás Finel internal index

 

19,219

 

12,135

 

12,135

 

12,135

 

12,135

 

11,125

 

 

 

 

78,884

 

URTJ (**)

 

31,645

 

30,509

 

31,198

 

29,058

 

29,058

 

29,055

 

26,107

 

9,717

 

10,511

 

226,858

 

IGP-M – General Market Price Index

 

242,881

 

1,368

 

1,368

 

1,368

 

1,368

 

1,368

 

279,565

 

888

 

153,423

 

683,597

 

UMBNDES (***)

 

2,646

 

2,632

 

2,632

 

2,632

 

2,632

 

2,632

 

2,632

 

877

 

 

19,315

 

Others (IGP-DI, INPC and TR) (****)

 

2,771

 

206

 

206

 

206

 

309

 

309

 

675

 

246

 

 

4,928

 

 

 

927,856

 

784,996

 

689,235

 

798,597

 

1,002,520

 

1,137,436

 

939,993

 

376,217

 

525,642

 

7,182,492

 

 

 

1,020,241

 

927,953

 

738,759

 

837,326

 

1,036,761

 

1,167,187

 

944,901

 

378,476

 

587,430

 

7,639,034

 

 


(*)

Selic = Special Settlement and Custody System

(**)

URTJ = Interest Rate Reference Unit,

(***)

UMBNDES = BNDES Monetary Unit,

(****)

IGP-DI = General Price Index – Internal Availability

 

INPC = National Consumer price Indexmidor

 

TR = Reference Rate

 

The principal currencies and indexors used for monetary updating of the loans, financings and debenture had the following variations:

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

change in

 

Accumulated

 

 

 

Accumulated

 

Accumulated

 

CURRENCY

 

2007

 

change in 2006

 

Indexors

 

change in 2007

 

change in 2006

 

 

 

%

 

%

 

 

 

%

 

%

 

US dollar

 

(17,15

)

(8,66

)

IGP-M

 

7,75

 

3,83

 

Euro

 

(7,50

)

1,85

 

FINEL

 

1,51

 

0,76

 

Yen

 

(11,78

)

(9,47

)

CDI

 

11,82

 

15,03

 

 

 

 

 

 

 

SELIC

 

11,88

 

15,07

 

 

 

 

 

 

 

UMBNDES

 

(16,57

)

(8,52

)

 

117



 

The movement on loans, financings and debentures is as follows:

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of year

 

7,648,937

 

4,935,533

 

110,388

 

82,300

 

Initial balance – acquisition of subsidiaries

 

 

1,100,890

 

 

 

Loans and financings

 

1,855,910

 

3,465,902

 

 

30,000

 

Monetary and FX variation

 

66,286

 

100,718

 

237

 

9

 

Financial charges provisioned

 

737,180

 

753,486

 

10,186

 

12,664

 

Financial charges paid

 

(814,184

)

(781,052

)

(11,243

)

(14,585

)

Amortization of financings

 

(1,855,095

)

(1,926,540

)

(30,246

)

 

Balance at end of year

 

7,639,034

 

7,648,937

 

79,322

 

110,388

 

 

The consolidated totals of funds raised in 2007 are as follows:

 

 

 

Principal

 

 

 

Amount

 

Loans / financing sources

 

maturity

 

Annual cost

 

raised

 

 

 

 

 

 

 

 

 

BRAZILIAN CURRENCY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemig Distribuição

 

 

 

 

 

 

 

Citibank

 

2007

 

102,00% of CDI

 

200,000

 

Caixa Econômica Federal

 

2007

 

101,60% of CDI

 

400,000

 

Debentures

 

2017

 

IPCA + 7,96%

 

400,000

 

ELETROBRÁS

 

2018

 

6,00%

 

141,136

 

ELETROBRÁS

 

2009

 

6,50%

 

15,555

 

ELETROBRÁS

 

2013

 

6,50%

 

722

 

ELETROBRÁS

 

2011

 

6,50%

 

1,254

 

Finep

 

2010

 

10,00%

 

207

 

 

 

 

 

 

 

 

 

Cemig Geração e Transmissão

 

 

 

 

 

 

 

Caixa Econômica Federal

 

2008

 

101,50% of CDI

 

200,000

 

Debentures – Minas Gerais state government

 

2031

 

IGP-M

 

30,246

 

 

 

 

 

 

 

 

 

Affiliates and subsidiaries

 

 

 

 

 

 

 

Banco Bradesco S,A,

 

2014

 

CDI + 1,50%

 

83,990

 

Banco Itaú BBA S,A,

 

2014

 

CDI + 1,50%

 

53,332

 

Unibanco

 

2014

 

CDI + 1,50%

 

83,335

 

BNP Paribas

 

2014

 

CDI + 1,50%

 

10,000

 

Citibank

 

2014

 

CDI + 1,50%

 

20,000

 

Banco Bradesco S,A,

 

2017

 

CDI + 0,85%

 

112,500

 

Banco Bradesco S,A,

 

2014

 

TJLP + 4,30%

 

13,816

 

Caixa Econômica Federal

 

2014

 

TJLP + 4,30%

 

10,132

 

Banco Itaú BBA S,A,

 

2014

 

TJLP + 4,30%

 

9,156

 

Unibanco

 

2014

 

TJLP + 4,30%

 

9,156

 

Banco Santander S,A,

 

2014

 

TJLP + 4,30%

 

8,235

 

Banco Alfa de Investimento S,A,

 

2014

 

TJLP + 4,30%

 

5,527

 

Banco Safra S,A,

 

2014

 

TJLP + 4,30%

 

4,605

 

Banco de Desenvolvimento de Minas Gerais

 

2019

 

TJLP + 4,50%

 

1,292

 

Banco Santander

 

2019

 

TJLP + 4,00%

 

1,292

 

Brazilian Development Bank (BNDES)

 

2019

 

TJLP + 4,50%

 

1,349

 

Banco do Brasil S,A,

 

2020

 

TJLP + 2,55%

 

5,067

 

 

 

 

 

 

 

 

 

Foreign currency

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliates and subsidiaries

 

 

 

 

 

 

 

Banco de Desenvolvimento de Minas Gerais

 

2019

 

UMBNDES + 4,50%

 

276

 

Banco Santander

 

2019

 

UMBNDES + 4,00%

 

276

 

Brazilian Development Bank (BNDES)

 

2019

 

UMBNDES + 4,50%

 

287

 

Inter-American Development Bank

 

2026

 

6,34%

 

33,167

 

 

 

 

 

 

 

 

 

Total raised

 

 

 

 

 

1,855,910

 

 


(*) UMBNDES = BNDES Monetary Unit,

 

 

118



 

 

a) Restrictive covenant clauses

 

Cemig and its subsidiaries have loans and financings with restrictive covenant clauses, These were fully complied on December 31, 2007 and during the whole year of 2007,

 

The main covenants in existence on December 31, 2007 are as follows:

 

Subject of covenant

 

Index required

 

 

 

Debt / Ebitda

 

Less than or equal to 2,5

Debt / Ebitda

 

Less than or equal to 3,36

Net debt/Ebitda

 

Less than or equal to 3,25

Current debt/Ebitda

 

Less than or equal to 90%

Debt/Stockholders’ equity + debt

 

Less than or equal to 53%

Ebitda/Interest on debt

 

More than or equal to 2,8

Ebitda / Interest

 

More than or equal to 3,0

Ebitda/(Financial revenue (expenses)

 

More than or equal to 2,0

CAPITAL EXPENDITURE

 

Less than or equal to 60%

 

Net debt =

 

Total debt less (cash balance plus tradable securities)

Ebitda=

 

Ebitda = earnings before interest, taxes on profit, depreciation and amortization, In some contracts specific criteria are established for calculation of Ebitda, with some variations from this formula,

 

21) REGULATORY CHARGES

 

 

 

Consolidated

 

 

 

2007

 

2006

 

RGR – Global Reversion Reserve

 

25,529

 

11,285

 

CCC (fuel consumption) account

 

33,572

 

83,210

 

Energy Development Account – CDE

 

38,099

 

36,093

 

Eletrobrás – Compulsory loan

 

1,207

 

1,207

 

Aneel inspection charge

 

3,199

 

2,832

 

Energy efficiency

 

138,630

 

146,410

 

Research and development

 

114,573

 

85,798

 

Energy system expansion research

 

17,928

 

32,407

 

National Scientific and Technological Development Fund

 

36,100

 

39,477

 

Alternative Energy Program – Proinfa

 

1,851

 

1,351

 

 

 

410,688

 

440,070

 

 

Current liabilities

 

395,894

 

436,535

 

Non-current liabilities

 

14,794

 

3,535

 

 

22) POST-EMPLOYMENT OBLIGATIONS

 

a) The Forluz Pension Fund

 

Cemig is sponsor of the Forluminas Social Security Foundation – Forluz, a non-profit legal entity whose object is to provide its associates and participants and their dependents and beneficiaries with a financial income supplementing retirement and pension, in accordance with the private pension plan to which they are linked,

 

The actuarial obligations and assets of the plan on December 31, 2004 were segregated between Cemig, Cemig Geração e Transmissão and Cemig Distribuição on the basis of the allocation of the employees to each of these companies,

 

Cemig, Cemig Geração e Transmissão and Cemig Distribuição also maintain, independently of the plans made available by Forluz, payments of part of the life insurance premium for the retirees and contribute to a health plan and a dental plan for the employees, retirees and dependents, administered by Forluz,

 

 

119



 

Forluz makes the following supplementary pension benefit plans available to its participants:

 

Mixed Social Security Benefits Plan (“Plan B”): A defined-contribution plan in the phase of accumulation of funds, for retirement benefits for normal time of service and defined-benefit coverage for disability or death of the active participant, and also on receipt of benefits for time of contribution, The contributions of the Sponsor are equal to the basic monthly contributions of the participants, and this is the only plan open for joining by new participants,

 

The contribution of the Sponsors to this plan is 27,52% for the portion with defined benefit characteristics, relating to the coverage for invalidity or death for the active participant, and this is used for amortization of the defined obligation through an actuarial calculation, The remaining 72,48%, relating to the portion of the plan with defined-contribution characteristics, goes to the nominal accounts of the participants and is recognized in the income statement for the year by the cash method, under Personnel expenses,

 

Hence the obligations for payment of supplementary pension benefits under the Mixed Plan, with characteristics of defined contribution, and their respective assets, in the same amount of R$ 2,130,864, are not presented in this Explanatory Note,

 

Pension Benefits Balances Plan (“Plan A”): This includes all the active and assisted participants who opted to migrate from the previous Defined Benefit Plan, and are entitled to a proportional benefit by balances, In the case of the assets, this benefit was deferred to the retirement date,

 

Defined Benefit Plan: This is the benefit plan adopted by Forluz up to 1998, through which the average real salary of the last three years of activity of the employee in the Sponsor companies is complemented in relation to the amount of the Official Social Security benefit, After the process of migration that was carried out in June 2007, approved by the Private Pension Plans Secretariat (SPC), in which more than 80% of the participants migrated to Plans A and B, 51 participants remained in the defined benefit plan, Of these, seven are active employees, and 44 are retirees or pension holders,

 

Cemig, Cemig Geração e Transmissão and Cemig Distribuição also maintain, independently of the plans made available by Forluz, payments of part of the life insurance premium for the retirees and contribute to a health plan and a dental plan for the employees, retirees and dependents, administered by Forluz,

 

Amortization of actuarial obligations

 

Part of the consolidated actuarial obligation with post-employment benefits in the amount of R$ 1,062,998 of December 31, 2007 (R$ 1,317,424 on December 31, 2006) was recognized as an obligation payable by Cemig and its subsidiaries mentioned and is being amortized by June 2024, through monthly installments calculated by the system of constant installments (the so-called “Price” table), Part of the amounts is adjusted annually based on the actuarial indexor of the defined benefit plan (the index for salary adjustment of the employees of Cemig, Cemig Geração e Transmissão and Cemig Distribuição, excluding productivity); and for the Balances Plan, adjusted by the IPCA Index published by the IBGE (Brazilian Geography and Statistics Institute), plus 6% per year,

 

The technical surpluses that Forluz may present for a period of three consecutive years may be used for the reduction of part of the obligations payable recognized as provided for contractually,

 

The liabilities and the expenses recognized by Light in connection with the Supplementary Retirement Plan are adjusted in accordance with the terms of CVM Decision CVM 371 and the Opinion prepared by independent actuaries, The last actuarial valuation was effected in relation to the base date December 31, 2007,

 

The amounts recognized in the balance sheet at December 31, 2007, as they appear in the opinion prepared by an external actuary in conformity with CVM Decision 371, of December 13, 2000, are presented in the tables after Item b below,

 

 

120



 

b) The Braslight Pension Fund

 

Light, a subsidiary of RME, is the sponsor institution Fundação de Seguridade Social Braslight, a non-profit private pension plan entity whose purpose is to guarantee revenue to the employees of the company linked to the Foundation and to provide pension to their dependents,

 

Braslight was instituted in April 1974, and has three plans – A, B and C – put in place in 1975, 1984 and 1998 respectively, About 96% of the active participants of the other plans have migrated to plan C,

 

In plans A and B the benefits are of the defined benefit type, In plan C, which is of the mixed type, the programmable benefits (retirement not arising from invalidity and the respective reversal in pension), during the capitalization phase are of the defined contribution type, without any link to the INSS, and the risk benefits (illness assistance, retirement for invalidity and pension for death of an active participant, invalid and receiving illness assistance), as well as those of continued income, once granted, are of the defined benefit type,

 

On October 2, 2001, the Private Pension Plans Secretariat approved a contract for solution to the technical deficit and the refinancing of the reserve to be amortized relating to the pension plans of Braslight, which were recorded in full, this is being paid in 300 monthly installments, starting from July 2001, updated by the variation of the IGP-DI inflation index and interest of 6,00% per year, totaling R$ 891,915 at 31 December, 2007,

 

The liabilities and the expenses recognized by Light in connection with the Supplementary Retirement Plan are adjusted in accordance with the terms of CVM Decision CVM 371 and the Opinion prepared by independent actuaries, The last actuarial valuation was effected in relation to the base date December 31, 2007,

 

 

 

Consolidated

 

 

 

Pension plans and supplementary retirement
plans

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Health

 

 

 

Life

 

 

 

FORLUZ

 

BRASLIGHT

 

plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

 

 

Present value of actuarial obligations for rights payable

 

4,994,903

 

411,992

 

363,893

 

19,622

 

169,543

 

Present value of actuarial obligations for rights not yet due

 

793,854

 

101,692

 

141,501

 

6,670

 

198,458

 

Total obligations for post-employment benefits

 

5,788,757

 

513,684

 

505,394

 

26,292

 

368,001

 

Fair value of the Plan’s assets

 

(4,384,511

)

(263,422

)

(31,750

)

(1,365

)

 

Present value of uncovered obligations

 

1,404,246

 

250,262

 

473,644

 

24,927

 

368,001

 

Actuarial gains (losses) not recognized

 

(834,945

)

 

(155,734

)

15,194

 

39,957

 

Cost of past service not recognized

 

(74,896

)

 

(6,671

)

(26,429

)

(6,662

)

Net value in the balance sheet

 

494,405

 

250,262

 

311,239

 

13,692

 

401,296

 

 

 

121



 

 

 

Subsidiary

 

 

 

Pension plans and
supplementary
retirement plans

 

Health

 

 

 

Life

 

 

 

FORLUZ

 

Plan

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

Present value of actuarial obligations for rights payable

 

261,233

 

19,032

 

1,026

 

8,244

 

Present value of actuarial obligations for rights not yet due

 

53,661

 

6,162

 

328

 

10,379

 

Total obligations for post-employment benefits

 

314,894

 

25,194

 

1,354

 

18,623

 

Fair value of the Plan’s assets

 

(238,515

)

(1,583

)

(70

)

 

Present value of uncovered obligations

 

76,379

 

23,611

 

1,284

 

18,623

 

Actuarial gains (losses) not recognized

 

(49,595

)

(7,979

)

688

 

(1,830

)

Cost of past service not recognized

 

(3,685

)

(329

)

(1,301

)

(328

)

Net value in the balance sheet

 

23,099

 

15,303

 

671

 

16,465

 

 

The actuarial gains and losses not recognized that exceeded 10,00% of the total of obligations on post-employment benefits will be recognized in the income statement in approximately 11 years (the average future time of service of present active participants), from 2007, In this condition, the holding company will recognize actuarial losses of R$ 18,106 on the Benefit Plan and R$ 5,460 on the Health Plan, and actuarial gains of R$ 553 on the Dental Plan, in compliance with CVM Instruction 371,

 

The movement in the net liabilities has been as follows:

 

 

 

Consolidated

 

 

 

Pension plans and
supplementary retirement
plans

 

 

 

 

 

Life 

 

 

 

FORLUZ

 

BRASLIGHT

 

Health plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2006

 

686,173

 

244,771

 

278,934

 

9,296

 

370,789

 

Expense (revenue) recognized in the income statement

 

(1,264

)

21,310

 

57,509

 

6,508

 

38,944

 

Contributions paid

 

(190,504

)

(15,819

)

(25,204

)

(2,112

)

(8,437

)

BALANCE AT DECEMBER 31, 2007

 

494,405

 

250,262

 

311,239

 

13,692

 

401,296

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

88,665

 

18,396

 

 

 

 

Non-current liabilities

 

405,740

 

231,866

 

311,239

 

13,692

 

401,296

 

 

 

 

Subsidiary

 

 

 

Pension plans and
supplementary
retirement plans

 

Health

 

 

 

Life

 

 

 

FORLUZ

 

plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

BALANCE AT DECEMBER 31, 2006

 

32,339

 

13,724

 

457

 

16,162

 

Expense (revenue) recognized in the income statement

 

(62

)

2,829

 

320

 

2,057

 

Contributions paid

 

(9,178

)

(1,250

)

(106

)

(1,754

)

BALANCE AT DECEMBER 31, 2007

 

23,099

 

15,303

 

671

 

16,465

 

 

 

 

 

 

 

 

 

 

 

Current liabilities

 

4,362

 

 

 

 

Non-current liabilities

 

18,737

 

15,303

 

671

 

16,465

 

 

 

122



 

The amounts registered in current liabilities refer to the contributions to be made by Cemig in 2007 for amortization of the actuarial liabilities,

 

The amounts recognized in the income statement for 2007 are as follows:

 

 

 

Consolidated

 

 

 

Pension plans and

 

 

 

 

 

 

 

 

 

supplementary retirement

 

 

 

 

 

 

 

 

 

plans

 

 

 

 

 

Life

 

 

 

FORLUZ

 

BRASLIGHT

 

Health plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of current service

 

5,564

 

420

 

29,837

 

532

 

5,200

 

Interest on the actuarial obligation

 

545,732

 

48,525

 

47,184

 

2,914

 

35,129

 

Return expected on the Plan’s assets

 

(566,324

)

(27,611

)

(3,295

)

(123

)

 

Actuarial losses (gains) not recognized

 

 

 

 

7,730

 

908

 

(2,899

)

Cost of past service

 

13,870

 

 

 

1,517

 

2,556

 

1,514

 

Employee profit shares

 

(106

)

(24

)

(25,464

)

(279

)

 

Expense (revenue) in 2007

 

(1,264

)

21,310

 

57,509

 

6,508

 

38,944

 

 

 

 

Subsidiary

 

 

 

Pension plans and

 

 

 

 

 

 

 

 

 

supplementary

 

 

 

 

 

 

 

 

 

retirement plans

 

Health

 

 

 

Life

 

 

 

FORLUZ

 

plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

Cost of current service

 

274

 

1,468

 

26

 

256

 

Interest on the actuarial obligation

 

26,850

 

2,321

 

143

 

1,727

 

Return expected on the Plan’s assets

 

(27,863

)

(162

)

(6

)

 

Actuarial losses (gains) not recognized

 

 

380

 

45

 

 

Cost of past service

 

682

 

75

 

126

 

74

 

Employee profit shares

 

(5

)

(1,253

)

(14

)

 

Expense (revenue) in 2007

 

(62

)

2,829

 

320

 

2,057

 

 

The external actuary’s estimate for the expense to be recognized for the year of 2008 is as follows:

 

 

 

Consolidated

 

 

 

Pension plans and

 

 

 

 

 

 

 

 

 

supplementary retirement

 

 

 

 

 

 

 

 

 

plans

 

 

 

 

 

Life

 

 

 

FORLUZ

 

BRASLIGHT

 

Health plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of current service

 

5,413

 

420

 

38,803

 

226

 

5,877

 

Interest on the actuarial obligation

 

543,275

 

48,525

 

46,246

 

2,556

 

35,334

 

Return expected on the Plan’s assets

 

(481,194

)

(27,611

)

(3,669

)

(343

)

 

Actuarial losses (gains) not recognized

 

23,028

 

 

9,460

 

(1,131

)

(664

)

Cost of past service

 

13,870

 

 

1,517

 

2,556

 

1,514

 

Employee profit shares

 

(37

)

(24

)

(33,525

)

(1,236

)

 

Expense in 2008

 

104,355

 

21,310

 

58,832

 

2,628

 

42,061

 

 

 

123



 

 

 

Subsidiary

 

 

 

Pension plans and

 

 

 

 

 

 

 

 

 

supplementary

 

 

 

 

 

 

 

 

 

retirement plans

 

Health

 

 

 

Life

 

 

 

FORLUZ

 

plans

 

Dental plan

 

insurance

 

 

 

 

 

 

 

 

 

 

 

Cost of current service

 

267

 

1,947

 

11

 

269

 

Interest on the actuarial obligation

 

29,553

 

2,305

 

132

 

1,789

 

Return expected on the Plan’s assets

 

(26,177

)

(183

)

(18

)

 

Actuarial losses (gains) not recognized

 

1,628

 

491

 

(50

)

 

Cost of past service

 

682

 

75

 

126

 

74

 

Employee profit shares

 

(2

)

(1,671

)

(64

)

 

Expense in 2008

 

5,951

 

2,964

 

137

 

2,132

 

 

The principal actuarial assumptions on the date of the financial statements are as follows:

 

 

 

CEMIG and Other Subsidiaries

 

 

 

2007

 

2006

 

 

 

Real

 

Nominal

 

Real

 

Nominal

 

Annual rate for discount to present value of the actuarial obligation

 

5,50

%

9,72

%

6,00

%

11,30

%

Annual rate of return expected on the Plan’s assets

 

7,00

%

11,28

%

9,00

%

14,45

%

Annual long-term inflation rate

 

 

4,00

%

 

5,00

%

Index of annual estimate for future salary increases

 

2,00

%

6,08

%

2,00

%

7,10

%

Annual rate of real growth of the continued-income benefits

 

 

4,00

%

 

5,00

%

Biometric model for general mortality

 

AT – 83

 

AT – 83

 

Biometric model for accounts of disability

 

Light Medium

 

Light Medium

 

Biometric model for mortality of disabled

 

IAPB-57

 

IAPB-57

 

Annual expected turnover rate

 

2,00%

 

2,00%

 

 

 

 

2007 and 2006

 

 

 

BRASLIGHT

 

 

 

Real

 

Nominal

 

Annual rate for discount to present value of the actuarial obligation

 

6,00

%

10,59

%

Annual rate of return expected on the Plan’s assets

 

8,00

%

12,68

%

Annual long-term inflation rate

 

 

4,33

%

Index of annual estimate for future salary increases

 

0,60

%

4,96

%

Annual rate of real growth of the continued-income benefits

 

 

4,33

%

Biometric model for general mortality

 

AT – 83

 

Biometric model for accounts of disability

 

Light Forte

 

Biometric model for mortality of disabled

 

IAPB-57

 

Annual expected turnover rate

 

Based on age

 

 

23) REGULATORY LIABILITIES - REVIEW OF TRANSMISSION REVENUE

 

As a result of the publication of Homologation Resolution 496 of June 26, 2007 and Technical Note 046/2007 of June 5, 2007 by Aneel, there was a revision of the values of permitted annual revenues linked to the transmission facilities that are part of the national grid and other transmission facilities, for holders of public electricity transmission service concessions, which were backdated to July 1, 2005,  The result of the calculation is that the subsidiary Geração e Transmissão received excess revenue in the previous periods, giving rise to a liability of R$ 30,919, which will be amortized in two portions, the first in the 2007-2008 cycle and the second in the 2008-2009 cycle,  The balance not amortized at December 31, 2007 is R$ 23,448, of which R$ 15,717 is classified in current liabilities, and R$ 7,731 in non-current liabilities,

 

124



 

24) CONTINGENCIES FOR LEGAL PROCEEDINGS

 

Cemig and its subsidiaries are parties in court and administrative proceedings before various courts and government bodies, arising from the normal cause of business, involving tax, labor-law, civil and other issues,

 

Actions in which the company is creditor with success judged “probable”

 

Pasep and Cofins – widening of the calculation base

 

The holding company has legal proceedings challenging the widening of the calculation base over the Pasep and Cofins taxes on financial revenue and other non-operational revenues, in the period from 1999 to January 2004, through Law 9718 of November 27, 1998 and has a judgment in favor at the first instance, In the event that this action is won in the final instance (subject to no further appeal), and we would note that the Federal Supreme Court has ruled on several proceedings in favor of the taxpayer, the gain to be registered in the results of the year will be R$ 156,442, net of income tax and Social Contribution Tax,

 

Actions in which the company is debtor

 

For those contingencies whose negative outcomes are considered probable, the company and its subsidiaries have constituted provisions for losses,

 

Cemig’s management believes that any disbursements in excess of the amounts provisioned, when the respective processes are completed, if any, will not significantly affect the result of operations or the financial position of the holding company nor the consolidated result,

 

 

 

Consolidated

 

 

 

Net balance,
2006 (*)

 

Additions
(reversal)

 

Written off

 

Balance

 

Deposits
paid into
court

 

Balance on
2007

 

Labor-law contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Various

 

68,330

 

54,131

 

(4,282

)

118,179

 

(16,182

)

101,997

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Civil

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal damages

 

7,694

 

1,417

 

(928

)

8,183

 

 

8,183

 

Tariff increases

 

125,202

 

30,583

 

(60,690

)

95,095

 

(11,686

)

83,409

 

Others

 

107,964

 

24,621

 

(19,143

)

113,442

 

(8,940

)

104,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

FINSOCIAL

 

20,613

 

280

 

 

20,893

 

(1,615

)

19,278

 

PIS/COFINS

 

147,963

 

12,304

 

 

160,267

 

 

160,267

 

ICMS

 

20,898

 

(955

)

 

19,943

 

 

19,943

 

Taxes and contributions – demandabilities

 

 

 

 

 

 

46,842

 

 

 

 

suspended

 

40,090

 

6,752

 

 

 

 

 

 

 

46,842

 

Social Contribution

 

6,289

 

232

 

 

6,521

 

 

6,521

 

SOCIAL SECURITY SYSTEM

 

33,224

 

633

 

 

33,857

 

 

33,857

 

Others

 

2,524

 

11,974

 

 

14,498

 

(7,459

)

7,039

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

Aneel administrative proceedings

 

6,072

 

42,948

 

 

49,020

 

(6,072

)

42,948

 

Total

 

586,863

 

184,920

 

(85,043

)

686,740

 

(51,954

)

634,786

 

 


(*) Balance of contingencies without the effect of payments into court,

 

125



 

 

 

Subsidiary

 

 

 

Balance on
2006 (*)

 

Additions
(reversal)

 

Written off

 

Balance

 

Deposits
paid into
court

 

Balance on
2007

 

Labor-law contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

Various

 

31,933

 

40,862

 

 

72,795

 

(10,483

)

62,312

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Civil

 

 

 

 

 

 

 

 

 

 

 

 

 

Personal damages

 

7,694

 

 

(928

)

6,766

 

 

6,766

 

Tariff increases

 

104,253

 

(7,371

)

(27,037

)

69,845

 

(11,686

)

58,159

 

Others

 

61,523

 

 

(10,213

)

51,310

 

(3,140

)

48,170

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tax

 

 

 

 

 

 

 

 

 

 

 

 

 

Finsocial

 

20,613

 

280

 

 

20,893

 

(1,615

)

19,278

 

ICMS

 

1,800

 

391

 

 

2,191

 

 

2,191

 

Taxes and contributions – demandabilities

 

 

 

6,752

 

 

 

 

 

 

 

suspended

 

40,090

 

 

 

 

 

46,842

 

 

 

46,842

 

Social security system

 

870

 

97

 

 

967

 

 

967

 

Others

 

2,524

 

5,409

 

 

7,933

 

(5,030

)

2,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Regulatory

 

 

 

 

 

 

 

 

 

 

 

 

 

Aneel administrative proceedings

 

6,072

 

6,609

 

 

12,681

 

(6,072

)

6,609

 

Total

 

277,372

 

53,029

 

(38,178

)

292,223

 

(38,026

)

254,197

 

 


(*) Balance of contingencies without the effect of payments into court,

 

The details on the provisions constituted are as follows:

 

(a)          Labor-law contingencies

 

The complaints under the labor laws refer basically to disputes of overtime and additional amounts for dangerous work,

 

(b)         Civil disputes – tariff increase

 

Several industrial consumers filed actions against Cemig seeking reimbursement for the amounts paid as a result of the tariff increase during the federal government’s economic stabilization plan known as the “Cruzado Plan” in 1986, alleging that the said increase violated the control of prices instituted by that plan, Cemig estimates the amounts to be provisioned based on the disputed amounts billed and based on recent judicial decisions, The total value of the exposure of Cemig and its subsidiaries in this matter, 100% provisioned, is R$ 95,095,

 

(c)          PIS/Cofins

 

Light, controlled by RME, has challenged the changes made by Law 9718/98 in the system of calculation of the PIS and Cofins taxes, in relation to the expansion of the basis of calculation of those taxes and increase of the rate of Cofins from 2% to 3%,

 

The amounts not paid are provisioned and have been updated by the Selic rate, On November 9, 2005, the full panel of the Federal Supreme Court considered the widening of the base of the calculation of the Cofins tax unconstitutional, The same theory is applied to the PIS,

 

The amounts provisioned up to December 31, 2007 in the company are as follows:

 

·                  R$ 105,169 in relation to the widening of the calculation base, subject to the judgment in a similar action in which the Federal Supreme Court decides in favor of the taxpayers; and

·                  R$ 50,774 referring to the increase in the rate of Cofins from the rate of 2% to 3%, which has not yet been judged on the merits,

 

Light is awaiting judgment on the case of a resolution by the Senate, based on the Supreme Court decision that declared this law unconstitutional, which will make it possible to reverse the said provision, in relation to the portion related to expansion of the calculation base for PIS and Cofins,

 

126



 

The values given above correspond to 25% of the total, in accordance with the proportional consolidation as recorded,

 

(d)         ICMS

 

Since 1999, Light has suffered various inspections by the tax authority of Rio de Janeiro State in relation to the ICMS value added tax, charge by states, The infringement notices received so far and not paid are the subject of contestation in the administrative and legal spheres, Management, based on the opinion of its counsel and calculation of the amounts involved in the infringement notices, believes that only a part of this amounts represents “probable” risk of loss, and the amount of R$ 17,752 is provisioned,

 

(e)          Taxes and contributions – demandabilities suspended

 

The provision constituted of R$ 46,842 (R$ 40,090 on December 31, 2006) refers to the deduction in the calculation base for corporate income tax of the expense on the Social Contribution tax paid since 1998, Cemig has been awarded an injunction by the 8th Court of the Federal Judiciary, on April 17, 1998, allowing it not to pay this tax,

 

(f)            Social Security System

 

In December 1999 the National Social Security Institute) (INSS) issued infringement notices against Light for alleged subsidiary responsibility to withhold payments at source on services of contractors and the incidents of the social security contribution on employees’ profit shares,

 

Light challenged the legality of Law 7787/89 which increased the Social Security contribution percentage applying to payrolls, believing that it also changed the basis of calculations of Social Security contributions during the period July to September 1989, As a result of the provisional remedy given by the Court, the Company has offset the amounts payable for social security contribution,

 

The expectations of laws in the actions mentioned is deemed to be “probable”, and demands provisions for the actions brought by the INSS represent the amount of R$ 33,857 (R$ 33,224 on December 31, 2006),

 

(g)         Aneel administrative proceedings

 

On January 9, 2007, Aneel notified Cemig Distribuição S,A, that it considered certain criteria adopted by the company in calculation of the revenue from subvention for low-income consumers to be incorrect, questioning the criteria for identification of the consumers who should receive the benefit and also the calculation of the difference to be reimbursed by Eletrobrás, in the estimated amount of R$ 143,000, The Company has made a provision corresponding to the loss that it considers probable in this dispute, in the amount of R$ 36,339,

 

Cemig Geração e Transmissão was served an infringement notice by the Minas Gerais State Forests Institute (IEF), alleging that it omitted to take measures to protect the fish population, causing fish deaths, as a result of the flow and operation of the machinery of the Três Marias Hydroelectric Plant, The company prevented a defense and rates the risk of loss in this action as “probable” in the amount of R$ 5,454,

 

(h)         Others

 

This refers to various claims by people alleging damages, mainly due to accidents allegedly occurring as a result of the Company’s business, and damages as a result of power outages, The provision at December 31, 2007 represents the potential loss on these claims,

 

127



 

(i) Actions in which loss is considered possible or remote

 

Cemig and its subsidiaries are disputing in the courts other actions for which it considers the outcome of a loss in the action to be possible or remote, and the following are the details of the most important actions:

 

(i)    Income tax and Social Contribution on post-employment benefits

 

The federal tax authority, on October 11, 2001, issued a Notice of Infringement, in the updated amount of R$ 305,311 as a result of the use of tax credits which resulted in the rectification, for the reduction of taxes payable, of the income tax declarations for 1997, 1998 and 1999, The income tax returns were rectified as a result of the change in the method of accounting of the post-employment benefit liabilities, The additional post-employment benefits which resulted from the changes in the method of accounting were recognized in the tax years rectified, resulting in a tax loss and a negative basis for calculation of the Social Contribution,

 

Cemig presented an administrative appeal in the Finance Ministry Taxpayers’ Council, obtaining a favorable decision for the years of 1997 and 1998 and an adverse decision in relation to the year 1999, This adverse decision would result in a reduction of the negative basis for calculation of loss tax, registered as tax credits, in the historic amount of R$ 26,631, The tax credits were not reduced, and a provision for contingencies for any losses as a result of this decision was not made, since Cemig believes that it has solid legal argument and grounds for the procedures adopted for recovery of the said tax credits in the Courts, Thus, it considers the possibility of loss in this action to be remote,

 

The tax credits constituted, mentioned in the previous paragraph, were used by Cemig to offset federal taxes and contributions paid in the business years of 2002 and 2003, Due to this fact, Cemig had the compensation proceedings refused by the federal tax authority and would be exposed to an additional penalty, updated to December 31, 2007 of R$ 271,355, With the decision of the Taxpayers’ Council, mentioned above, Cemig considers that the refusal of this process of offsetting becomes null, Thus, no contingency provision was constituted to meet any losses, since Cemig believes that it has solid legal grounds for the procedures adopted and considers the likelihood of loss in this action to be remote,

 

(ii)   Tax on Inheritance and Donations (ITCMD)

 

The State of Minas Gerais sued the company for non-payment of the tax on inheritance and donation (ITCMD) in relation to the contributions of consumers the amount of which on December 31, 2007 was R$ 131,464, No provision was constituted for this dispute, since the Company believes it has arguments on the merit for defense against this claim, The expectation of loss attributed to this action is “remote”,

 

(iii)  Acts of the Regulatory Agency and the Federal Audit Board

 

Aneel filed an administrative action against Cemig stating that the company owes R$ 670,546 to the federal government as a result of an alleged error in the calculation of credits under the CRC (Results Compensation) Account, which were previously utilized to reduce the amounts owed to the federal government, On October 31, 2002 Aneel issued a final administrative decision against Cemig, On January 9, 2004 the National Treasury issued a claim against the Company for the amount of R$ 516,246, Cemig did not make the payment because it believes that it has arguments on the merit for defense in Course and, thus, has not constituted a provision for this action, The likelihood of loss in this action is considered “possible”,

 

On November 14, 2003, the Federal Audit Board began an administrative proceeding against Aneel to assess the criteria adopted by the agency in the Emergency Electricity Consumption Reduction Program, The Audit Board requested Cemig to provide certain information relating to its tariffs, which, according to the Federal Audit Board, had been incorrectly approved by Aneel,

 

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Additionally, the Federal Audit Court contested the index and X Factor used by Aneel in the tariff review of 2003, Cemig appealed in administrative proceedings before the Audit Court contested the decision,

 

The potential loss on these actions in the Audit Court is R$ 84,979, The Company has not posted any provision and rates the chance of loss on this action as “possible”,

 

(iv) Social Security and tax obligations – indemnity for the “Anuênio” and profit shares,

 

Cemig and its subsidiaries Cemig Geração e Transmissão and Cemig Distribuição paid an indemnity to the employees in 2006 in the amount of R$ 177,685, in exchange for the rights to future payments known as the “Anuênio” which would be incorporated into salaries, The company and its subsidiaries did not make the payments of income tax and social security contribution on this amount because it considered that these obligations are not applicable to amounts paid as indemnity, However, to avoid the risk of a future fine arising from a different interpretation by the federal tax authority and the National Social Security Institution, the company and its subsidiaries decided to file for orders of mandamus to allow payment into Court of the amount of any obligations, in the amount of R$ 121,835, posted in Deposits connected to legal actions, No provision was made for possible losses in this matter since the company and its subsidiaries classify the risk of loss in this action as “possible”,

 

In September 2006 Cemig was notified by the INSS as a result of the non-payment of the Social Security contribution on the amounts paid as profit shares in the period 2000 to 2004, representing the amount of R$101,452, The Company has appealed in administrative proceedings against the decision, No provision has been constituted for possible losses and Cemig believes it has arguments on the merit for defense, and the expectation of loss in this action is considered to be “possible”,

 

(V) ICMS

 

Since 2002 the company has received a subvention from Eletrobrás in relation to the discounts given to low-income consumers, The Minas Gerais state office of the Federal Tax Authority served an infringement notice on Cemig, relating to the period from 2002 to 2005, on the argument that the subvention should be subject to the ICMS tax, The potential for loss in this action is RR$102,644, not including the ICMS tax, which could be questioned by the Secretariat relating to period subsequent to the infringement notice, No provision was constituted for the result of this dispute, since the company believes the legal obligation is non-existent and that it has arguments on the merit for defense against this demand, The expectation of loss attributed to this action is “possible”,

 

Cemig was served an infringement notice, as a co-responsible party, in relation to sales of excess electricity by industrial consumers during the period of electricity rationing, in which the Minas Gerais State Tax Authority demanded payment of the ICMS tax on these transactions, in the amount of R$ 33,531, If the Company does have to pay the ICMS on these transactions, it can charge consumers the same amount to recover the amount of the tax plus any possible penalty charge, The expectation of loss in this action is classified as “possible”,

 

(vi) Civil claims - consumers

 

Several consumers and the Public Attorney of the State of Minas Gerais brought civil actions against Cemig contesting tariff increases applied in previous years, including: the tariff subsidies granted to low-income consumers, the extraordinary tariff recomposition and the inflation index used to increase the tariff for electricity in April 2003, and requesting twice of reimbursement on the amounts considered charge in error by the company, The company believes it has arguments on the merit for a legal defense and thus has not made a provision for these actions,

 

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The company is defendant in legal proceedings challenging the criteria for measurement of amounts to be charged in relation to the contribution of public illumination, in the total amount of R$ 525,579, The Company believes that it has arguments on the merit for defense in this dispute and as a result has not constituted provision for this action, The likelihood of loss in this action is considered “possible”,

 

In addition to the issues described above, Cemig and its subsidiaries are involved, as Plaintiff or Defendant, in other cases, of less importance, related to the normal course of their operations, The management believes that it has adequate defense for this litigation, and significant losses relating to these issues which might have an adverse effect on the company’s financial position or consolidated result of its operations are not expected,

 

25) STOCKHOLDER’S EQUITY AND REMUNERATION TO STOCKHOLDERS

 

(a) Registered capital

 

Cemig’s shares on December 31, 2007 have nominal value of R$ 5,00 per share and are owned as follows:

 

 

 

Number of shares on December 31, 2007

 

Shareholders

 

Common

 

%

 

Preferred

 

%

 

Total

 

%

 

State of Minas Gerais

 

108,348,914

 

51

 

 

 

108,348,914

 

22

 

Other entities of the state

 

28,657

 

 

5,329,764

 

2

 

5,358,421

 

1

 

Southern Electric Brasil

 

 

 

 

 

 

 

 

 

 

 

 

 

Participações Ltda

 

70,088,868

 

33

 

 

 

70,088,868

 

14

 

Others -

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazilian investors

 

19,663,422

 

9

 

82,310,555

 

30

 

101,973,977

 

21

 

Non-Brazilian investors

 

14,492,642

 

7

 

186,198,634

 

68

 

200,691,276

 

42

 

Total

 

212,622,503

 

100

 

273,838,953

 

100

 

486,461,456

 

100

 

 

 

 

Number of shares on December 31, 2006

 

Shareholders

 

Common

 

%

 

Preferred

 

%

 

Total

 

%

 

State of Minas Gerais

 

36,116,304,884

 

51

 

102

 

 

36,116,304,986

 

22

 

Other entities of the state

 

9,552,515

 

 

1,776,588,306

 

2

 

1,786,140,821

 

1

 

Southern Electric Brasil

 

 

 

 

 

 

 

 

 

 

 

 

 

Participações Ltda

 

23,362,956,173

 

33

 

 

 

23,362,956,173

 

14

 

Others -

 

 

 

 

 

 

 

 

 

 

 

 

 

Brazilian investors

 

6,834,237,214

 

10

 

26,090,932,914

 

29

 

32,925,170,128

 

21

 

Non-Brazilian investors

 

4,551,117,137

 

6

 

63,412,129,780

 

69

 

67,963,246,917

 

42

 

Total

 

70,874,167,923

 

100

 

91,279,651,102

 

100

 

162,153,819,025

 

100

 

 

Stockholders’ Agreement

 

In 1997 the Government of the State of Minas Gerais sold approximately 33% of the Company’s common shares to a group of investors led by Southern Electric Brasil Participações Ltda, (“Southern”), As part of this transaction the State of Minas Gerais and Southern signed a Stockholders’ Agreement which among other provisions contained the requirement for a qualified quorum in decisions on significant corporate actions, certain changes to Cemig’s bylaws, issuance of debentures and convertible securities, distribution of dividends other than those specified in the bylaws, and changes in the stockholding structure,

 

In September 1999 the government of the State of Minas Gerais brought an action for annulment, with a request for anticipatory remedy, against the stockholders’ agreement signed in 1997, The Minas Gerais State Appeal Court annulled that Stockholders’ Agreement in 2003, Appeals brought by Southern are before the Brazilian federal courts,

 

 

130



 

Increase in registered capital

 

The General Meeting of Stockholders on April 26, 2007 approved an increase in the registered capital through use of the Earnings reserve so as to comply with the terms of Article 199 of the Corporate Law, which limits the balance of reserves to the value of the company’s registered capital,

 

As a result, an increase in the registered capital of Cemig from R$ 1,621,538 to R$ 2,432,307 was approved, with issuance of new shares upon capitalization of R$ 810,769 of the balance of the retained earnings reserve, distributing to stockholders as a consequence a 50% stock bonus, in new shares, in the same type as that as held, and with a nominal unit value R$ 0,01,

 

Reverse split

 

The General Meeting also approved a reverse split of the Company’s shares, substituting each lot of 500 shares with nominal value R$ 0,01 by 1 share of nominal value R$ 5,00, which was effected on June 4, 2007,

 

(b) Reserves

 

The Capital Reserves and Profit Reserves are made up as follows:

 

 

 

Holding company

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Capital Reserves-

 

 

 

 

 

Remuneration on Fixed assets in progress – own capital

 

1,313,220

 

1,313,220

 

Donations and subventions for investments

 

2,650,898

 

2,650,898

 

Premium on issuance of shares

 

69,230

 

69,230

 

Monetary updating of the capital

 

6

 

6

 

Shares held in Treasury

 

(1,132

)

(1,132

)

 

 

4,032,222

 

4,032,222

 

 

 

 

 

 

 

Profit Reserves-

 

 

 

 

 

Reserve under the bylaws

 

1,001,865

 

432,749

 

Retained earnings

 

623,776

 

1,222,709

 

Reserve required by law

 

272,884

 

186,112

 

 

 

1,898,525

 

1,841,570

 

 

The Reserve for Remuneration of Works in Progress – Own Capital refers to the interest on the Company’s own capital used in the construction of assets and facilities, and is registered in Fixed Assets with a counterpart in Stockholders’ equity, Cemig decided to cease constituting this reserve, starting with the 1999 business year,

 

The Reserve for Donations and Subventions for Investments basically refers to the compensation by the federal government for the difference between the profitability obtained by Cemig up to March 1993 and the minimum return guaranteed by the legislation in effect at the time, The funds were used in amortization of various obligations payable to the federal government, and the remaining balance originated the CRC contract,

 

The Reserve under the Bylaws is for future payment of extraordinary dividends, in accordance with Article 28 of the bylaws,

 

The Profit Retention Reserves are profits not distributed to stockholders, basically due to the need for funds to apply in investments,

 

131



 

The shares held in Treasury refer to the passthrough by Finor of shares arising from funds applied in Cemig projects in the area covered by Sudene (the development agency for the Northeast) under tax incentive schemes,,

 

(c) Dividends

 

Of the net profit for the year, 50,00% must be used for distribution of the obligatory dividend to the Company’s stockholders,

 

The preferred shares have preference in the event of reimbursement of capital and participate in profits on the same conditions as the common shares, They have the right to a minimum annual dividend equal to the greater of: (a) 10% of their nominal value and (b) 3% of the portion of stockholders’ equity that they represent,

 

Under the bylaws, Cemig’s shares held by private individuals have the right to a minimum dividend of 6% per year on their nominal value in all years when Cemig does not obtain sufficient profits to pay dividends to its stockholders, This guarantee is given by the State of Minas Gerais by Article 9 of State Law 828 of December 14, 1951 and Article 1 of State Law 8796 of April 29, 1985,

 

The obligatory or extraordinary dividends declared shall be paid in 2 (two) equal installments, the first by 30 June and the second by 30 December of the year following the generation of the profit to which they refer, and the Executive Board shall decide the location and processes of payment, subject to these periods,

 

Extraordinary dividends

 

The Company may distribute extraordinary dividends up to the limit of available cash, as determined by the discretion by the Board of Directors, subject to the guidelines of the Company’s Long-term Strategic Plan, without damage of the obligatory dividends, in every two years, starting in 2005, or in less period if available cash,

 

The calculation of the dividends proposed for distribution to stockholders for 2007 and 2006 is as follows:

 

 

 

Holding company

 

 

 

2007

 

2006

 

Calculation of the minimum dividends for the preferred shares under the bylaws

 

 

 

 

 

 

 

 

 

 

 

Nominal value of preferred shares

 

1,369,195

 

912,797

 

Percentage on nominal value of preferred shares

 

10,00

%

10,00

%

Dividends in accordance with the 1st payment criterion

 

136,920

 

91,280

 

 

 

 

 

 

 

Stockholders’ equity

 

8,390,177

 

7,522,453

 

Proportion of stockholders’ equity represented by the preferred shares (net of shares in Treasury)

 

56,27

%

56,27

%

Value of preferred shares in terms of stockholders’ equity

 

4,721,153

 

4,232,884

 

Percentage applied to stockholders’ equity value of preferred shares

 

3,00

%

3,00

%

Dividends by the 2nd criteria

 

141,635

 

126,987

 

 

 

 

 

 

 

Minimum obligatory dividend for the preferred shares

 

141,635

 

126,987

 

 

 

 

 

 

 

Obligatory dividends

 

 

 

 

 

Net profit for the year

 

1,735,449

 

1,718,841

 

Obligatory dividend: 50,00% of net profit

 

867,725

 

859,421

 

 

132



 

 

 

Holding company

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Net dividends proposed-

 

 

 

 

 

Interest on Equity

 

 

169,067

 

Complementary dividends

 

867,725

 

715,714

 

Extraordinary dividends

 

 

497,000

 

 

 

867,725

 

1,381,781

 

(-) Income tax withheld at source on Interest on Equity

 

 

(16,923

)

Total

 

867,725

 

1,364,858

 

 

 

 

 

 

 

Total dividend for the preferred shares

 

488,269

 

777,528

 

Total dividend for the common shares

 

379,456

 

604,253

 

 

 

 

 

 

 

Dividend per thousand shares on December 31, 2006, and per unit share value on December 31, 2007, R$

 

 

 

 

 

Minimum dividends for the preferred shares under the bylaws

 

0,52

 

1,39

 

Obligatory dividend

 

1,78

 

5,30

 

Dividends proposed (net of income tax withheld at source)

 

1,78

 

8,42

 

 

The Company has used 5,00% of the net income for 2007 to Legal Reserve in the amount of R$86,772,

 

The following proposal for allocation of the remaining balance of Adjusted Net Profit will be made to the General Meeting of Stockholders to be held in April, 2008: R$ 569,116 to the Reserve under the Bylaws and R$ 211,836 to the Retained Profit Reserve,

 

The tax benefits arising from payment of Interest on Equity are R$ 169,067 and were R$ 57,483 in 2006, The Company did not pay Interest on Equity in 2007,

 

26) GROSS RETAIL SUPPLY OF ELECTRICITY

 

The position in retail supply of electricity, by type of consumer, is as follows:

 

 

 

Consolidated

 

 

 

(Not reviewed by independent auditors)

 

 

 

 

 

 

 

Number of consumers

 

MWh (*)

 

R$

 

 

 

2007 (*)

 

2006 (*)

 

2007

 

2006

 

2007

 

2006

 

Residential

 

8,764,157

 

8,560,153

 

8,648,603

 

7,429,818

 

4,373,896

 

3,622,178

 

Industrial

 

86,394

 

84,175

 

24,686,241

 

23,972,596

 

3,380,277

 

3,069,373

 

Commercial, services and others

 

830,818

 

820,946

 

5,549,409

 

4,439,154

 

2,494,502

 

1,935,339

 

Rural

 

565,169

 

505,707

 

2,212,485

 

1,942,306

 

598,812

 

515,233

 

Public authorities

 

61,234

 

58,225

 

968,177

 

724,720

 

386,545

 

290,415

 

Public illumination

 

2,661

 

2,696

 

1,212,251

 

1,127,685

 

309,487

 

285,806

 

Public service

 

9,050

 

8,841

 

1,325,462

 

1,117,660

 

368,974

 

296,162

 

Sub-total

 

10,319,483

 

10,040,743

 

44,602,628

 

40,753,939

 

11,912,493

 

10,014,506

 

Own consumption

 

1,256

 

1,124

 

52,941

 

37,160

 

 

 

Subvention for low-income consumers

 

 

 

 

 

126,112

 

134,763

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail supply not invoiced, net

 

 

 

 

 

11,332

 

76,799

 

 

 

10,320,739

 

10,041,867

 

44,655,569

 

40,791,099

 

12,049,937

 

10,226,068

 

Wholesale supply to other concession holders

 

93

 

44

 

13,235,965

 

11,472,158

 

1,209,731

 

708,867

 

Transactions in energy on the CCEE

 

 

 

 

 

 

 

25,664

 

200,065

 

Total

 

10,320,832

 

10,041,911

 

57,891,534

 

52,263,257

 

13,285,332

 

11,135,000

 

 


( * )The table of consumers includes 100% of the consumers of Light, subsidiary of RME,

The table of MWh includes 25,00% of the total MWh sold by Light,

( ** )Includes Contracts for Sale of Energy in the Regulated Environment (CCEAR) and “bilateral contracts” with other agents,

 

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Tariff adjustment

 

The tariffs of Cemig Distribution were increased by an average of 5,16% as from April 8, 2007, The adjustment is different for different consumer categories, As an example, residential consumers had an increase of 6,50% on their energy bills, while high-voltage consumers had an increase of 2,89%,

 

For the free consumers of Cemig Geração e Transmissão and other subsidiaries, individual contracts are signed indexed, principally, to the variation of the IGP-M inflation index and the US dollar exchange rate,

 

Low-income consumers

 

The federal government, through Eletrobrás (Centrais Elétricas Brasileiras) reimburses the distributors for the losses in revenue arising as a result of the criteria adopted as from 2002 for classification of consumers in the low-rental residential sub-category, in view of the lower tariff applied to their electricity bills,

 

The regulator, Aneel is reviewing the procedures for calculation by the Company of revenue for the subsidy for low-income consumers, As a result of this review, the amounts posted in 2007 were calculated on the basis of estimate, and their receipt for the period from February through December 2007 is pending,

 

27) REVENUE FOR USE OF THE NETWORK – FREE CONSUMERS

 

The TUSD revenue refers basically to the sale of electricity to free consumers with charging of a tariff for the use of the distribution network,

 

 

 

Consolidated

 

 

 

2007

 

2006

 

 

 

 

 

 

 

Tariff for Use of the Distribution Systems (TUSD)

 

1,313,499

 

1,201,854

 

Revenue from use of the basic network

 

537,415

 

485,598

 

Revenue from connection to the system

 

95,016

 

102,019

 

 

 

1,945,930

 

1,789,471

 

 

Under the concession contracts between Aneel and the transmission companies Transleste, Transudeste, ERTE, EATE, ENTE, ETEP and ECTE, the revenues to be earned in the final 15 years of the said contracts are 50,00% lower than those in the first 15 years of the concession, The company recognizes the revenues from these concessions in accordance with the said contracts,

 

28) OTHER OPERATIONAL REVENUES

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Retail supply of gas

 

297,353

 

298,039

 

 

 

Charged service

 

15,482

 

10,461

 

 

 

Telecommunications and cable TV service

 

75,593

 

121,010

 

 

 

Services provided

 

68,015

 

34,488

 

343

 

481

 

Rental and leasing

 

50,081

 

32,016

 

493

 

976

 

Others

 

51,745

 

10,886

 

39,902

 

 

 

 

558,269

 

506,900

 

40,738

 

1,457

 

 

134



 

29) DEDUCTIONS FROM OPERATIONAL REVENUE

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006
Reclassified

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

ICMS

 

3,017,522

 

2,515,830

 

4,182

 

 

COFINS

 

1,228,455

 

1,096,577

 

 

 

RGR – Global Reversion Reserve

 

144,922

 

29,938

 

 

 

PIS and Pasep

 

253,106

 

245,857

 

 

58

 

Energy Efficiency Program - PEE

 

28,972

 

104,530

 

 

 

Energy Development Account – CDE

 

390,803

 

333,983

 

 

 

Fuel Consumption Account (CCC)

 

406,864

 

554,448

 

 

 

Research and development – R&D

 

27,646

 

38,521

 

 

 

National Scientific and Technological Development Fund

 

26,258

 

29,615

 

 

 

Energy system expansion research

 

17,505

 

15,031

 

 

 

Others

 

1,564

 

399

 

13

 

23

 

 

 

5,543,617

 

4,964,729

 

4,195

 

81

 

 

Cemig pays ICMS applicable to the RTE and the Deferred Tariff Adjustment in conformity with the invoicing of amounts on the customer’s electricity bill,

 

The reduction in the values provisioned for RGR in 2006 is due to the adjustment in the provision for the business year of 2004, in the amount of R$ 65,760, as a result of the homologation of this expense by Aneel in a lower amount than was estimated by the company,

 

30) OPERATIONAL COSTS AND EXPENSES

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

OPERATIONAL COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel expenses

 

967,688

 

1,082,691

 

22,948

 

45,751

 

Personnel - managers and board members

 

519

 

5,503

 

 

3,929

 

Post-employment obligations

 

123,007

 

169,910

 

5,144

 

7,871

 

Materials

 

93,596

 

81,972

 

421

 

474

 

Raw materials and inputs for production

 

58,908

 

36,812

 

 

 

Outsourced services

 

619,665

 

503,993

 

10,730

 

18,032

 

Electricity purchased for resale

 

2,793,722

 

2,112,673

 

 

 

Depreciation and amortization

 

778,144

 

672,257

 

701

 

694

 

Financial compensation for use of water resources

 

137,349

 

138,955

 

 

 

Operational provisions (reversals)

 

290,598

 

52,062

 

30,085

 

(98,840

)

Charges for the use of the basic transmission grid

 

649,737

 

663,851

 

 

 

Gas purchased for resale

 

154,241

 

157,732

 

 

 

Other operational expenses, net

 

284,160

 

238,544

 

4,042

 

4,617

 

 

 

6,951,334

 

5,916,955

 

74,071

 

(17,472

)

 

135



 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

PERSONNEL EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Remuneration and salary-related charges and expenses

 

995,456

 

914,283

 

18,911

 

31,188

 

Supplementary pension contributions – defined contribution plan

 

34,274

 

32,288

 

1,487

 

2,039

 

Assistance benefits

 

116,640

 

120,516

 

2,550

 

3,757

 

 

 

1,146,370

 

1,067,087

 

22,948

 

36,984

 

(-) Personnel costs transferred to works in progress

 

(178,682

)

(162,081

)

 

 

 

 

967,688

 

905,006

 

22,948

 

36,984

 

Indemnity of the “Anuênio”

 

 

177,685

 

 

8,767

 

 

 

967,688

 

1,082,691

 

22,948

 

45,751

 

 

INDEMNITY OF THE “ANUÊNIO”

 

As mentioned in Note 24, in 2006 the company and its subsidiaries Cemig Geração e Transmissão and Cemig Distribuição presented a proposal to the employees for indemnity in exchange for their future right relating to incorporated annually into their salaries (referred to as the “anuênio”), The amount of the indemnity corresponds to the estimate of the future anuênios of the employees up to their completing 35 years’ contribution to the INSS, discounted to present value at a rate of 12,00% p,a,, with subsequent application of a variable percentage reduction factor set by the company and its subsidiaries, The period for employees to opt for acceptance was completed on June 30, 2006, and the payment of the indemnity, in the amount of R$ 177,685, was carried out in the period June through August 2006,

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

OUTSOURCED SERVICES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collection/meter reading/bill delivery agents

 

111,738

 

93,547

 

 

 

Communication

 

80,930

 

50,197

 

1,368

 

1,356

 

Maintenance and conservation of electricity facilities and equipment

 

108,464

 

83,999

 

30

 

38

 

Building conservation and cleaning

 

36,073

 

29,241

 

27

 

70

 

Contracted labor

 

19,029

 

27,476

 

165

 

6

 

Freight and airfares

 

8,609

 

8,510

 

1,302

 

1,709

 

Accommodation and meals

 

16,850

 

15,971

 

210

 

369

 

Security services

 

15,128

 

14,354

 

1

 

31

 

Consultancy

 

17,283

 

26,432

 

2,673

 

9,688

 

Maintenance and conservation of furniture and utensils

 

27,522

 

21,220

 

25

 

34

 

Maintenance and conservation of vehicles

 

19,113

 

16,307

 

191

 

50

 

Disconnection and reconnection

 

31,309

 

20,682

 

 

 

Others

 

127,617

 

96,057

 

4,738

 

4,681

 

 

 

619,665

 

503,993

 

10,730

 

18,032

 

 

 

 

Consolidated

 

 

 

2007

 

2006

 

ELECTRICITY PURCHASED FOR RESALE

 

 

 

 

 

 

 

 

 

 

 

From Itaipu Binacional

 

1,197,803

 

888,185

 

Short-term energy

 

119,981

 

76,317

 

Proinfa

 

65,015

 

40,643

 

Bilateral contracts

 

36,412

 

127,598

 

‘Initial Contracts’

 

350,067

 

42,063

 

Auction energy

 

996,809

 

869,997

 

Others

 

27,635

 

67,870

 

 

 

2,793,722

 

2,112,673

 

 

136



 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

OPERATIONAL PROVISIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension plan premiums

 

2,756

 

6,287

 

2,283

 

384

 

Provision (reversal) for credit of doubtful debts

 

143,190

 

128,618

 

(6,994

)

(12,233

)

Provision (reversal) for labor-law contingencies

 

54,131

 

(79,218

)

40,862

 

(77,238

)

Reversal of Aneel administrative proceedings

 

42,948

 

487

 

6,609

 

487

 

Provision (reversal) for legal contingencies – civil actions

 

(5,974

)

(19,304

)

(6,475

)

(19,304

)

Provision (reversal) for civil actions on tariff increases

 

30,583

 

(17,920

)

(7,371

)

(17,920

)

Others

 

22,964

 

33,112

 

1,171

 

26,984

 

 

 

290,598

 

52,062

 

30,085

 

(98,840

)

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

OTHER NET OPERATIONAL EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Leasings and rentals

 

34,102

 

33,565

 

604

 

951

 

Advertising

 

26,235

 

21,273

 

395

 

890

 

Own consumption of electricity

 

16,729

 

15,607

 

 

 

Subventions and donations

 

40,648

 

35,475

 

870

 

687

 

Aneel inspection charge

 

37,441

 

33,711

 

 

 

Payments for concessions

 

14,434

 

13,229

 

 

 

Taxes and charges (IPTU, IPVA and others)

 

38,996

 

29,230

 

160

 

49

 

Insurance

 

5,403

 

5,052

 

95

 

138

 

Contribution to the MAE

 

3,485

 

2,670

 

3

 

3

 

Others

 

66,687

 

48,732

 

1,915

 

1,899

 

 

 

284,160

 

238,544

 

4,042

 

4,617

 

 

31) NET FINANCIAL REVENUE (EXPENSES)

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

FINANCIAL REVENUES -

 

 

 

 

 

 

 

 

 

Revenue from cash investments

 

200,464

 

183,839

 

16,023

 

9,211

 

Arrears penalty payments on electricity bills

 

122,659

 

133,757

 

 

 

Interest and monetary variation on accounts receivable from the Minas Gerais state government

 

158,991

 

187,195

 

 

41,267

 

Provision (reversal) for loss on accounts receivable from the government of the State of Minas Gerais

 

 

99,186

 

 

99,187

 

Monetary variation of CVA

 

45,108

 

87,211

 

 

 

Monetary updating – General Agreement for the Electricity Sector

 

404,900

 

321,936

 

26,594

 

29,216

 

Monetary updating and interest – Deferred Tariff Adjustment

 

130,676

 

198,731

 

 

 

FX variations

 

119,828

 

89,861

 

 

109

 

Pasep and Cofins taxes on financial revenues

 

(64,880

)

(71,728

)

(36,945

)

(40,958

)

Gains on financial instruments

 

8,279

 

25,221

 

 

2,234

 

Gains on FIDC

 

 

 

35,656

 

10,988

 

Others

 

159,986

 

137,065

 

35,807

 

46,354

 

 

 

1,286,011

 

1,392,274

 

77,135

 

197,608

 

FINANCIAL EXPENSES -

 

 

 

 

 

 

 

 

 

Charges on loans and financings

 

(851,855

)

(867,923

)

(10,185

)

(12,664

)

Monetary variation – General Agreement for the Electricity Sector

 

(139,048

)

(75,168

)

 

 

Monetary variation of CVA

 

(36,661

)

(57,727

)

 

 

FX variations

 

(9,841

)

(3,408

)

(1,708

)

(40

)

Monetary variation – loans and financings

 

(26,343

)

(27,810

)

(237

)

(9

)

CPMF TAX

 

(66,780

)

(83,987

)

(5,536

)

(12,840

)

Provision for losses on recovery of Extraordinary Tariff Recomposition and free energy amounts – updating

 

(174,832

)

(86,154

)

(26,594

)

(29,217

)

Losses on financial instruments

 

(187,248

)

(116,833

)

 

 

Others

 

(149,508

)

(122,938

)

(31,532

)

(34,179

)

 

 

(1,642,116

)

(1,441,948

)

(75,792

)

(88,949

)

 

 

 

 

 

 

 

 

 

 

NET FINANCIAL REVENUE (EXPENSES)

 

(356,105

)

(49,674

)

1,343

 

108,659

 

 

 

137



 

The Pasep and Cofins expenses apply to financial revenues on regulatory assets and Interest on Equity,

 

The financial charges arising on loans and financings linked to works in the year of 2007, in the amount of R$ 8,822, were transferred to Fixed assets, No monetary updating or FX variation was capitalized in the period (in 2006 R$ 20,880 in financial charges, and R$ 3,870 in monetary and FX variations, was capitalized),

 

32) NON-OPERATIONAL REVENUE (EXPENSES)

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

Net loss on decommissioning and sale of assets

 

(19,968

)

(15,052

)

(69

)

(513

)

Forluz – current administration expense

 

(20,663

)

(13,504

)

(895

)

(798

)

Gain on sale of the holding in Way TV

 

54,079

 

 

 

 

Other net expenses

 

(23,804

)

(8,239

)

(10,079

)

(8,912

)

 

 

(10,356

)

(36,795

)

(11,043

)

(10,223

)

 

The gain on sale of the holding in Way TV is described in more detail in Explanatory Note 16,

 

33) EMPLOYEES’ PROFIT SHARES

 

In the years 2007 and 2006 the Company and its subsidiary Cemig Distribuição and Cemig Geração e Transmissão used a percentage of 3% of operational profit, adjusted for certain items specified by Aneel in the Annual Reporting Procedure (PAC) as the general criterion for payment of profit shares to employees, Additionally, in the collective agreements in November 2007 and 2006, extraordinary amounts of R$ 358,573 and R$ 139,198, respectively, were agreed with the employees’ unions, These additional amounts were paid within the same business year,

 

Under these agreements, the share in the profits of 2007 and 2006, including the contribution to the pension plan payable on these amounts, were R$ 486,483 and R$ 209,991, respectively,

 

138



 

34) RELATED PARTY TRANSACTIONS

 

The principal balances and transactions with related parties of Cemig and its subsidiaries are:

 

 

 

Consolidated

 

 

 

ASSETS

 

LIABILITIES

 

REVENUES

 

EXPENSES

 

COMPANIES

 

2007

 

2006

 

2007

 

2006

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemig Distribuição S,A,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Equity and dividends

 

674,408

 

670,712

 

 

 

149,809

 

181,963

 

 

 

Retail supply of electricity

 

 

14,744

 

13,491

 

 

 

77,585

 

(79,731

)

 

Others

 

127

 

1,378

 

2,463

 

1,125

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cemig Geração e Transmissão S,A,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest on Equity and dividends

 

564,780

 

379,054

 

 

 

188,118

 

229,880

 

 

 

Retail supply of electricity

 

22,277

 

 

 

14,744

 

79,731

 

 

 

77,585

 

Others

 

351

 

5,099

 

2,694

 

3,903

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Light S,A,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail supply of electricity

 

366

 

 

 

 

55,757

 

 

 

 

Electricity purchased for resale

 

 

 

163

 

 

 

 

(20,528

)

(22,459

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Minas Gerais state government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumers and traders

 

2,021

 

2,923

 

 

 

65,870

 

56,773

 

 

 

Taxes offsettable – ICMS – current

 

167,308

 

15,088

 

268,302

 

262,084

 

(2,535,715

)

(2,515,830

)

 

 

Accounts receivable from Minas Gerais
state gov,

 

1,763,277

 

1,726,293

 

 

 

123,335

 

140,454

 

 

 

Taxes offsettable - ICMS – non-current

 

57,901

 

312,434

 

 

 

 

 

 

 

Consumers and traders

 

36,795

 

36,546

 

 

 

 

 

 

 

Interest on Equity and dividends

 

 

 

125,677

 

307,894

 

 

 

 

(37,672

)

Debentures

 

 

 

146,705

 

106,479

 

 

 

(40,226

)

(3,736

)

Credit Receivables Fund

 

 

 

990,386

 

981,791

 

 

 

 

 

Financings – Minas Gerais Development Bank

 

 

 

18,392

 

31,986

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Forluz

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Post-employment obligations – current

 

 

 

88,665

 

139,113

 

 

 

(101,696

)

(169,910

)

Post-employment obligations – non current

 

 

 

1,131,967

 

1,421,315

 

 

 

 

 

Others

 

 

 

89,410

 

65,310

 

 

 

 

 

Personnel expenses

 

 

 

 

 

 

 

(34,274

)

(32,288

)

Current administration expense

 

 

 

 

 

 

 

(20,663

)

(13,504

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Others

 

4,785

 

635

 

75,045

 

 

 

 

 

 

Interest on Equity

 

141,391

 

103,006

 

 

 

 

 

 

 

 

See further information relating to the principal transactions in Explanatory Notes 6, 11, 14, 19, 20, 22, 24, 25, 29, 31, 32 and 38,

 

The balance under Consumers and traders relating to the Minas Gerais state government, in the amount of R$ 36,795 on December 31, 2007 in the short and long term, includes amounts receivable from Copasa, which were renegotiated for payment in 96 months (R$36,545 on December 31, 2006),

 

35) EXPOSURE AND MANAGEMENT OF RISKS

 

As a concession holder in the Brazilian electricity sector, Cemig and its subsidiaries operate in environments where factors such as stockholding restructurings, government regulations, evolution of technology, globalization and variations in the consumer market are risk factors,

 

Cemig has a Corporate Risk Management program, which seeks to provide understanding of any events that could cause a loss of value to stockholders, and structure the Company to operate proactively in relation to its risk environment,

 

The principal market risks that affect Cemig’s business are as follows:

 

a) Exchange rate risk

 

Cemig and its subsidiaries are exposed to the risk of increase in exchange rates, especially of the US dollar against the real, with significant impact on indebtedness, profit and cash flow, To reduce Cemig’s exposure to increases in the exchange rate, the Company had hedge transactions contracted, on December 31, 2007 in the amount of R$ 122,099, equivalent to US$68,932, and R$ 61,409 equivalent to ¥3,878,825 (Japanese Yen), in which variation in the US dollar and the Yen, plus a rate, were replaced by the variation in the CDI rate (see Explanatory Note 36),

 

139



 

The net exposure to exchange rates is as follows:

 

 

 

Consolidated

 

 

 

2007

 

2006

 

CEMIG’S FX EXPOSURE

 

 

 

 

 

 

 

 

 

 

 

US dollars (Note 20)

 

 

 

 

 

Loans and financings

 

361,652

 

906,634

 

(-) Contracted hedge and swap operations

 

(122,099

)

(233,187

)

 

 

239,553

 

673,447

 

Yen (Note 20)

 

 

 

 

 

Loans and financings

 

61,483

 

69,678

 

(-) Contracted hedge transactions

 

(61,409

)

(69,624

)

 

 

74

 

54

 

Other foreign currencies (Note 20)

 

 

 

 

 

Loans and financings

 

 

 

 

 

Euro

 

28,874

 

36,293

 

Others

 

4,533

 

2,147

 

 

 

33,407

 

38,440

 

Net exposure

 

273,034

 

711,941

 

 

Must be emphasis that the exposure showed above to exchange rates is reduced by the Company through contracts of sale of electric to free consumers, through Cemig Geração e Transmissão, index to the dollar variation,

 

b) Interest rate risk

 

Cemig and its subsidiaries are exposed to the risk of increase in international interest rates, affecting loans and financings in foreign currency with floating interest rates (principally Libor), in the amount of R$ 144,305 at December 31, 2007 (R$ 433,086 on December 31, 2006),

 

The risk of increase of Brazilian interest rates is partially reduced by assets that are also indexed to interest rates, as follows:

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

CEMIG’S EXPOSURE TO BRAZILIAN INTEREST RATES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Cash investments (Note 5)

 

1,622,729

 

1,267,723

 

16,214

 

21,987

 

Regulatory assets (Note 7)

 

1,914,959

 

2,111,936

 

 

 

 

 

3,537,688

 

3,379,659

 

16,214

 

21,987

 

Liabilities

 

 

 

 

 

 

 

 

 

Loans, financings and debentures (Note 20)

 

(5,426,247

)

(5,456,230

)

(79,322

)

(110,388

)

Regulatory liabilities (Note 7)

 

(1,139,243

)

(879,078

)

 

 

Contracted hedge and swap transactions (Note 35)

 

(183,508

)

(302,811

)

 

 

 

 

(6,748,998

)

(6,638,119

)

(79,322

)

(110,388

)

Liabilities in excess of assets

 

(3,211,310

)

(3,258,460

)

(63,108

)

(88,401

)

 

c) Credit risk

 

This risk arises from the possibility of Cemig or its subsidiaries incurring losses as a result of difficulty in receiving amounts billed to their clients, A substantial part of sales of energy is widely spread out among a large number of clients, which reduces the Company’s risk, The procedures for reduction of defaulting consist of issuance of warnings of maturity of receivables, telephone contact, and negotiations to result in receipt of receivables, After the possibilities for regularization of accounts in arrears have been exhausted, supply is suspended,

 

140



 

d) Risk of early maturity of debt

 

The Company and its subsidiaries have contracts for loans, financings and debentures, with the restrictive covenant clauses normally applicable to these types of operation, related to the meeting of economic and financial indices, cash flow and other indicators, Non-compliance with these clauses could result in early maturity of debt, The restrictive clauses were complied with in full on December 31, 2007, and throughout the whole of the 2007 business year,

 

e) Risk of non-renewal of concessions

 

The Company has concessions for commercial operation of generation, transmission and distribution services, and management expects that they will be renewed by Aneel and/or the Mining and Energy Ministry, If the Mining and Energy Ministry does not grant the applications for renewals of these concessions, or if it decides to renew them upon imposition of additional costs for the company (“concessions for consideration”), the present levels of activity and profitability could be altered,

 

36) FINANCIAL INSTRUMENTS

 

Cemig uses financial instruments, restricted to cash and cash equivalents, consumers and traders, amounts receivable from the Minas Gerais state government, loans and financings, and debentures, and the gains and losses obtained on the transactions are registered in full by the accrual method,

 

Cemig has operational policies and strategies aiming for liquidity, profitability and security, and also procedures for monitoring balances, and has operated with banks that meet the requirements for financial solidity and reliability, according to defined management criteria, The control policy consists of permanent monitoring of the rates contracted vis-à-vis those currently applied in the market,

 

a) Market value

 

The market values of cash assets and liabilities are determined based on available market information and appropriate valuation methods, The use of different market assumptions and/or methodologies from the estimates could cause figures to be different from the market estimate values,

 

The accounting balances of cash investments and accounts receivable from the Minas Gerais state government on December 31, 2007 and 2006 are equivalent to the market values, because they are recorded at realization value, The market values of loans and financings and swap transactions have been calculated by the present value of these financial instruments, using the interest rates practiced in the transactions with similar nature, tenor and risk, as shown below,

 

The market value of financial instruments is as follows:

 

 

 

2007

 

2006

 

 

 

Book value

 

Market
value

 

Book
value

 

Market
value

 

Assets

 

 

 

 

 

 

 

 

 

Cash Investments (Note 5)

 

1,622,729

 

1,622,729

 

1,267,723

 

1,267,723

 

Accounts Receivable From Minas Gerais State Government (Note 14)

 

1,763,277

 

1,763,277

 

1,726,293

 

1,726,293

 

 

 

3,386,006

 

3,386,006

 

2,994,016

 

2,994,016

 

Liabilities

 

 

 

 

 

 

 

 

 

Loans, Financings and Debentures (Note 20)

 

7,639,034

 

7,452,849

 

7,648,937

 

7,480,461

 

Contracted Hedge Transactions (Note 36)

 

166,448

 

184,389

 

176,575

 

187,160

 

 

 

7,805,482

 

7,637,238

 

7,825,512

 

7,667,621

 

 

141



 

b) Derivative instruments

 

The derivative instruments contracted by Cemig and its subsidiaries have the purpose of protecting their operations against the risks arising from foreign exchange variation and are not used for speculative purposes

 

On December 31, 2007, Cemig maintained instruments to swap financial results with financial institutions, to protect against possible oscillations in the exchange rate between the Brazilian Real and the US dollar in an amount equivalent to US$68,932 (R$ 122,099) and yen in the amount equivalent to ¥3,878,825 (US$34,669 – R$ 61,409),

 

The principal amounts of the transactions and derivatives are not posted in the balance sheet, since they refer to transactions which do not require cash payments, but only the gains or losses that actually occur, The net results realized on these transactions amounted to consolidated losses on 2007 and 2006, of R$178,969 and R$91,612, respectively, posted in Financial revenue (expenses),

 

The recognition of the net result not realized in operations with derivative instruments is carried out by the accrual method, which can generate differences when compared with the estimated market value of such instruments, This difference arises from the fact that market value includes recognition at present value of future gains or losses to be incurred on the transactions, in accordance with the expectation of the market at the moment at which the market value is ascertained,

 

The table below shows the derivative instruments contracted by the subsidiaries Cemig Geração e Transmissão and Cemig Distribuição Cemig, the gains (losses) not realized, registered, and the respective estimate of market value of these instruments December 31, 2007:

 

 

 

 

 

 

 

 

 

December 31, 2007

 

 

 

 

 

 

 

 

 

Unrealized loss

 

Receivable by
Cemig

 

Payable by
Cemig

 

Maturity
period

 

Principal
amount
contracted,
’000-

 

Book
value

 

Estimated
market
value

 

 

 

 

 

 

 

 

 

 

 

 

 

In Yen
+ rate
(3,90% p,a,)

 

R$
indexed to CDI (111,00% of CDI rate)

 

12 / 2009

 

¥

3,878,825

 

(39,828

)

(48,648

)

 

 

 

 

 

 

 

 

 

 

 

 

In US$
+ rate
(5,58% to 7,48% p,a)

 

R$ 
100% of CDI + rate (1,50% to 3,01% p,a,)

 

From
04 / 2008
to 06 / 2013

 

US$

68,932

 

(126,620

)

(135,741

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(166,448

)

(184,389

)

 

Additionally, the jointly controlled subsidiary Light uses swap transactions to reduce risks arising from FX variations, The non-realized net value of these transactions on December 31, 2007, is R$2,532 negative (R$7,797 on December 31, 2006),

 

142



 

37) INSURANCE

 

Cemig maintains insurance policies to cover damages to certain items of its assets, in accordance with orientation by specialists, as listed below, taking into account the nature and the degree of risk, for amounts considered sufficient to cover any significant losses related to its assets and responsibilities, The risk assumptions adopted, due to their nature, are not part of the scope of an audit of the financial statements, and consequently were not examined by the external auditors,

 

Assets

 

Cover

 

Dates of validity

 

Amount
Insured

 

Annual
Premium

 

CEMIG, Cemig Distribuição, Cemig Geração e Transmissão

 

 

 

 

 

 

 

 

 

Air insurance – aircraft

 

Hull

 

28/04/2007 a 28/04/2008

 

12,096

 

177

 

 

 

 

 

 

 

 

 

 

 

Stores, building facilities and Telecoms equipment

 

Fire

 

10/08/2007 to 10/08/2008

 

591,950

 

123

 

 

 

 

 

 

 

 

 

 

 

Operational risk – generators, rotors and power equipment

 

Total

 

05/05/2007 to 05/05/2008

 

1,619,778

 

2,929

 

 

 

 

 

 

 

 

 

 

 

Light

 

 

 

 

 

 

 

 

 

Operational risk

 

Total

 

31/10/2007 to 31/10/2008

 

1,802,298

 

1,109

 

General third party

 

Total

 

25/09/2007 to 25/09/2008

 

17,713

 

218

 

Directors and board members

 

Total

 

10/08/2007 to 10/08/2008

 

53,139

 

530

 

 

Cemig does not have insurance policies to cover accidents to third parties, and is not seeking proposals for this type of insurance, Additionally, Cemig has not sought proposals for and does not have current policies for, insurance against events that could affect its facilities, such as earthquakes, floods, systemic failures or the risk of interruption of business, and there have been no significant losses as a function of these risks,

 

38) CONTRACTUAL OBLIGATIONS

 

Cemig has contractual obligations and commitments that include amortization of loans and financings, contracts with contractors for the construction of new projects, purchase of electricity from Itaipu and other sources, as shown:

 

 

 

2008

 

2009

 

2010

 

2011

 

2012

 

2013

 

2014
and after

 

Total

 

LOANS, FINANCINGS AND DEBENTURES

 

1,020,241

 

927,953

 

738,759

 

837,326

 

1,036,761

 

1,167,187

 

1,910,807

 

7,639,034

 

Purchase of electricity from Itaipu (1)

 

1,207,152

 

924,161

 

995,821

 

1,030,571

 

1,054,379

 

448,960

 

 

5,661,044

 

Transport of electricity from Itaipu (1)

 

80,448

 

70,613

 

73,237

 

75,837

 

78,143

 

33,552

 

 

411,830

 

Baguari hydro plant

 

24,757

 

 

 

 

 

 

 

24,757

 

Aimorés hydro plant

 

20,052

 

 

 

 

 

 

 

20,052

 

Guanhães SPC

 

16,481

 

 

 

 

 

 

 

16,481

 

Commercial Management System

 

58,695

 

 

 

 

 

 

 

58,695

 

LT Charrúa

 

8,516

 

 

 

 

 

 

 

8,516

 

Furnas – Pimenta transmission line

 

15,729

 

 

 

 

 

 

 

15,729

 

Debt to Forluz pension plan

 

88,665

 

81,914

 

83,017

 

72,436

 

68,978

 

48,047

 

619,941

 

1,062,998

 

Purchase of electricity at auction

 

1,347,204

 

1,623,791

 

2,355,071

 

2,728,957

 

3,067,874

 

3,547,985

 

16,778,927

 

31,449,809

 

Payments for concessions

 

1,480

 

1,494

 

1,494

 

1,494

 

6,078

 

12,494

 

304,968

 

329,502

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

3,889,420

 

3,629,926

 

4,247,399

 

4,746,621

 

5,312,213

 

5,258,225

 

19,614,643

 

46,698,447

 

 


(1) Contract with Furnas, in US dollars, for purchase of electricity from Itaipu up to May 2013,

 

 

143



 

 

39) PERIODIC TARIFF REVIEW OF CEMIG DISTRIBUIÇÃO

 

Aneel Resolution 234 of October 31, 2006, set new concepts and guidelines related to the second cycle of Periodic Review of the electricity distributors,

 

The main changes are:

 

·                  “Special Obligations” will be amortized as from the next Tariff Review, with posting of credit in the income statement of the distributors for the year, using the average rate of the assets giving rise to them,

 

·                  The asset base to be used in the second Periodic Tariff Review will be the previous base, updated by the IGP-M inflation index, plus or minus new additions or write offs taking place in the period,

 

·                  Aneel will continue to use the Reference Company as comparison base when defining operational costs to be covered by tariffs,

 

Aneel is in the process of review of the tariffs for retail supply and the TUSD of Cemig Distribution, the 2nd cycle, corresponding to the period from 2008 to 2013, the public hearing being scheduled for March 5, 2008 and the new tariffs to come into effect from April 8, 2008, The average percent of adjustment provisionally disclosed by Aneel is for a reduction of the tariff by 9,72%, In deciding this amount, parameters of the 1st cycle which are also being adjusted were taken into account, such as indicators of productivity, value of the assets base to be remunerated and also the average cost of capital defined, This provisional percentage may yet be altered as a result of contributions made at the public hearing, and decision by Aneel on the effective value of the asset base to be used for remuneration of the 2nd cycle of tariff review,

 

144



 

40) FINANCIAL STATEMENTS SEPARATED BY COMPANY

For the Year Ended on December 31, 2007

 

 

 

HOLDING

 

CEMIG - GT

 

CEMIG - D

 

RME Light

 

ETEP,ENTE,
ERTE,EATE,ECTE

 

GASMIG

 

INFOVIAS

 

SÁ CARVALHO

 

ROSAL

 

OTHER

 

ELIMINATION

 

TOTAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

9,920,404

 

7,807,144

 

10,005,365

 

2,222,708

 

270,472

 

382,013

 

366,640

 

155,397

 

119,614

 

489,939

 

(7,473,193

)

24,266,503

 

Cash and cash equivalents

 

21,953

 

916,288

 

636,286

 

122,553

 

35,371

 

111,387

 

30,065

 

48,885

 

37,398

 

106,033

 

 

2,066,219

 

Accounts receivable

 

2,156,784

 

345,927

 

1,836,512

 

407,057

 

8,375

 

148,373

 

7,841

 

4,741

 

3,139

 

27,683

 

(557,595

)

4,388,837

 

Regulatory assets

 

 

45,898

 

2,423,558

 

109,209

 

 

 

 

 

 

 

 

2,578,665

 

Other assets

 

670,662

 

572,697

 

1,077,898

 

571,992

 

3,267

 

32,345

 

135,124

 

29,496

 

4,692

 

26,797

 

(121,448

)

3,003,522

 

Investments/PP&E/Deferred

 

7,071,005

 

5,926,334

 

4,031,111

 

1,011,897

 

223,459

 

89,908

 

193,610

 

72,275

 

74,385

 

329,426

 

(6,794,150

)

12,229,260

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

9,920,404

 

7,807,144

 

10,005,365

 

2,222,708

 

270,472

 

382,013

 

366,640

 

155,397

 

119,614

 

489,939

 

(7,473,193

)

24,266,503

 

Suppliers

 

11,781

 

262,116

 

883,381

 

122,110

 

633

 

31,068

 

6,535

 

5,223

 

3,920

 

20,138

 

(70,208

)

1,276,697

 

Loans, financings and debentures

 

79,322

 

3,111,647

 

2,752,083

 

487,984

 

144,303

 

 

5,615

 

 

 

67,694

 

990,386

 

7,639,034

 

Dividends and Interest on Equity

 

881,457

 

541,518

 

674,408

 

26,576

 

16,130

 

8,135

 

7,608

 

21,954

 

18,008

 

69,556

 

(1,383,893

)

881,457

 

Post-employment obligations

 

55,538

 

276,170

 

888,924

 

250,262

 

 

 

 

 

 

 

 

1,470,894

 

Other liabilities

 

502,129

 

627,430

 

2,366,027

 

665,434

 

9,336

 

150,712

 

17,177

 

34,142

 

7,394

 

39,006

 

(215,328

)

4,203,459

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future earnings

 

 

 

 

86,236

 

 

 

 

 

 

 

 

86,236

 

Minority interests

 

 

 

 

318,549

 

 

 

 

 

 

 

 

318,549

 

Stockholders’ equity

 

8,390,177

 

2,988,263

 

2,440,542

 

265,557

 

100,070

 

192,098

 

329,705

 

94,078

 

90,292

 

293,545

 

(6,794,150

)

8,390,177

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operational revenue

 

36,543

 

2,665,603

 

5,976,411

 

1,252,732

 

67,924

 

231,747

 

68,263

 

38,638

 

29,522

 

130,833

 

(252,302

)

10,245,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATIONAL COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel

 

(22,948

)

(228,090

)

(618,904

)

(71,691

)

(1,661

)

(11,334

)

(8,081

)

(973

)

(1,207

)

(3,318

)

 

(968,207

)

Post-employment obligations

 

(5,144

)

(22,982

)

(73,570

)

(21,311

)

 

 

 

 

 

 

 

(123,007

)

Materials

 

(421

)

(18,085

)

(69,361

)

(3,902

)

(264

)

(1,003

)

 

(213

)

(156

)

(191

)

 

(93,596

)

Raw materials

 

 

(58,409

)

 

 

 

 

(499

)

 

 

 

 

(58,908

)

Outsourced services

 

(10,730

)

(95,512

)

(395,541

)

(68,325

)

(3,699

)

(4,407

)

(15,836

)

(4,249

)

(2,570

)

(18,796

)

 

(619,665

)

Royalties for use of water resources

 

 

(129,828

)

(3,247

)

 

 

 

 

(1,298

)

(1,028

)

(1,948

)

 

(137,349

)

Electricity bought for resale

 

 

(75,448

)

(2,164,173

)

(646,445

)

 

 

 

(248

)

(740

)

(10,911

)

104,243

 

(2,793,722

)

Charges for use of the grid

 

 

(257,204

)

(446,838

)

(85,393

)

 

 

 

 

(3,303

)

(5,058

)

148,059

 

(649,737

)

Depreciation and amortization

 

(701

)

(223,486

)

(416,891

)

(82,219

)

(7,409

)

(4,344

)

(25,640

)

(2,508

)

(2,173

)

(12,773

)

 

(778,144

)

Operational provisions

 

(30,085

)

(6,011

)

(175,959

)

(74,698

)

 

(672

)

(21

)

 

 

(3,152

)

 

(290,598

)

Gas bought for resale

 

 

 

 

 

 

(154,241

)

 

 

 

 

 

(154,241

)

Other expenses, net

 

(4,042

)

(77,954

)

(161,625

)

(26,842

)

(1,196

)

(4,449

)

(5,445

)

(499

)

(311

)

(1,797

)

 

(284,160

)

 

 

(74,071

)

(1,193,009

)

(4,526,109

)

(1,080,826

)

(14,229

)

(180,450

)

(55,522

)

(9,988

)

(11,488

)

(57,944

)

252,302

 

(6,951,334

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational profit before equity income and Financial revenue (exp

 

(37,528

)

1,472,594

 

1,450,302

 

171,906

 

53,695

 

51,297

 

12,741

 

28,650

 

18,034

 

72,889

 

 

3,294,580

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial revenue (expenses)

 

1,343

 

(332,801

)

7,853

 

(52,252

)

(11,409

)

11,181

 

5,576

 

4,593

 

3,286

 

6,525

 

 

(356,105

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational profit (loss)

 

(36,185

)

1,139,793

 

1,458,155

 

119,654

 

42,286

 

62,478

 

18,317

 

33,243

 

21,320

 

79,414

 

 

2,938,475

 

Non-operational profit (loss)

 

(11,043

)

(2,522

)

(43,027

)

(7,616

)

(10

)

(4

)

54,155

 

 

 

(289

)

 

(10,356

)

Profit (loss) before income tax, Social Contribution and employee profit shares

 

(47,228

)

1,137,271

 

1,415,128

 

112,038

 

42,276

 

62,474

 

72,472

 

33,243

 

21,320

 

79,125

 

 

2,928,119

 

Deferred income tax and Social Contribution

 

(116,565

)

(280,271

)

(311,719

)

151,221

 

(13,340

)

(16,337

)

(15,630

)

(9,199

)

(2,364

)

(8,101

)

 

(622,305

)

Minority interests

 

 

 

 

(115,480

)

 

 

 

 

 

 

 

(115,480

)

Employee profit shares

 

(12,288

)

(109,976

)

(332,201

)

 

 

 

(420

)

 

 

 

 

(454,885

)

Net profit for the year

 

(176,081

)

747,024

 

771,208

 

147,779

 

28,936

 

46,137

 

56,422

 

24,044

 

18,956

 

71,024

 

 

1,735,449

 

 

145



 

For the Year Ended on December 31, 2006

 

 

 

HOLDING

 

CEMIG - GT

 

CEMIG - D

 

RME Light

 

ETEP,ENTE,ERTE,
EATE,ECTE,

 

GASMIG

 

INFOVIAS

 

SÁ CARVALHO

 

ROSAL

 

OTHER

 

ELIMINATION

 

TOTAL

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ASSETS

 

9,462,907

 

7,379,646

 

9,447,368

 

2,138,166

 

281,046

 

295,354

 

370,878

 

143,152

 

136,197

 

406,458

 

(6,852,456

)

23,208,716

 

Cash and cash equivalents

 

23,389

 

687,814

 

214,103

 

177,577

 

47,956

 

62,507

 

17,327

 

43,373

 

31,158

 

70,297

 

 

1,375,501

 

Accounts receivable

 

1,897,274

 

410,326

 

2,943,674

 

560,857

 

7,645

 

114,638

 

28,504

 

4,653

 

2,698

 

19,062

 

(271,453

)

5,717,878

 

Regulatory assets

 

 

34,637

 

1,808,483

 

53,390

 

 

 

 

 

 

 

 

1,896,510

 

Other assets

 

700,909

 

418,910

 

742,271

 

340,972

 

3,453

 

29,972

 

53,842

 

20,767

 

3,415

 

16,546

 

(23,508

)

2,307,549

 

Investments/PP&E/Deferred

 

6,841,335

 

5,827,959

 

3,738,837

 

1,005,370

 

221,992

 

88,237

 

271,205

 

74,359

 

98,926

 

300,553

 

(6,557,495

)

11,911,278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

9,462,907

 

7,379,646

 

9,447,368

 

2,138,166

 

281,046

 

295,354

 

370,878

 

143,152

 

136,197

 

406,458

 

(6,852,456

)

23,208,716

 

Suppliers

 

6,346

 

137,637

 

873,542

 

123,685

 

2,754

 

26,747

 

23,050

 

3,034

 

2,632

 

7,714

 

(21,440

)

1,185,701

 

Loans, financings and debentures

 

110,388

 

3,104,031

 

2,417,911

 

808,694

 

158,867

 

 

24,024

 

 

 

43,231

 

981,791

 

7,648,937

 

Dividends and Interest on Equity

 

1,373,828

 

379,054

 

670,712

 

 

 

8,537

 

6,272

 

 

 

22,272

 

17,327

 

48,598

 

(1,152,772

)

1,373,828

 

Post-employment obligations

 

62,682

 

304,684

 

977,825

 

244,772

 

 

 

 

 

 

 

 

1,589,963

 

Other liabilities

 

387,210

 

503,328

 

2,157,396

 

581,182

 

6,319

 

110,018

 

56,410

 

24,970

 

11,133

 

14,667

 

(152,497

)

3,700,136

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Future earnings

 

 

 

 

90,080

 

 

 

 

 

 

 

 

90,080

 

Minority interests

 

 

 

 

77,738

 

 

 

19,880

 

 

 

 

 

97,618

 

Stockholders’ equity

 

7,522,453

 

2,950,912

 

2,349,982

 

212,015

 

104,569

 

152,317

 

247,514

 

92,876

 

105,105

 

292,248

 

(6,507,538

)

7,522,453

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME STATEMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net operational revenue

 

1,376

 

2,242,933

 

5,419,054

 

524,562

 

30,657

 

232,305

 

104,694

 

37,038

 

29,408

 

87,087

 

(242,472

)

8,466,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATIONAL COSTS AND EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel

 

(49,680

)

(249,293

)

(733,944

)

(26,646

)

(456

)

(10,984

)

(12,839

)

(757

)

(1,530

)

(2,065

)

 

(1,088,194

)

Post-employment obligations

 

(7,871

)

(36,331

)

(115,793

)

(9,915

)

 

 

 

 

 

 

 

 

(169,910

)

Materials

 

(474

)

(17,555

)

(58,520

)

(2,070

)

(38

)

(555

)

(2,366

)

(187

)

(80

)

(127

)

 

(81,972

)

Raw materials

 

 

(36,812

)

 

 

 

 

 

 

 

 

 

(36,812

)

Outsourced services

 

(18,032

)

(88,674

)

(329,204

)

(26,292

)

(1,417

)

(5,366

)

(21,064

)

(3,058

)

(3,154

)

(7,732

)

 

(503,993

)

Royalties for use of water resources

 

 

(123,756

)

(11,581

)

 

 

 

 

 

(1,548

)

(1,230

)

(840

)

 

(138,955

)

Electricity bought for resale

 

 

 

 

(1,981,437

)

(227,981

)

 

 

 

(320

)

(454

)

(6,452

)

103,971

 

(2,112,673

)

Charges for use of the grid

 

 

(232,164

)

(515,224

)

(46,727

)

 

 

 

 

(2,986

)

(5,251

)

138,501

 

(663,851

)

Depreciation and amortization

 

(694

)

(207,924

)

(367,294

)

(33,418

)

(2,792

)

(3,507

)

(39,175

)

(2,508

)

(2,751

)

(12,194

)

 

(672,257

)

Operational provisions

 

98,840

 

(1,523

)

(108,834

)

(40,522

)

 

 

(23

)

 

 

 

 

(52,062

)

Gas bought for resale

 

 

 

 

 

 

(157,732

)

 

 

 

 

 

(157,732

)

Other expenses, net

 

(4,617

)

(70,226

)

(140,796

)

(11,450

)

(329

)

(3,242

)

(21,311

)

(520

)

(336

)

(931

)

15,214

 

(238,544

)

 

 

17,472

 

(1,064,258

)

(4,362,627

)

(425,021

)

(5,032

)

(181,386

)

(96,778

)

(8,898

)

(12,521

)

(35,592

)

257,686

 

(5,916,955

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational profit before equity income and Financial revenue (expenses)

 

18,848

 

1,178,675

 

1,056,427

 

99,541

 

25,625

 

50,919

 

7,916

 

28,140

 

16,887

 

51,495

 

15,214

 

2,549,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial revenue (expenses)

 

108,659

 

(319,103

)

188,955

 

(23,169

)

(5,944

)

6,407

 

(2,279

)

5,321

 

3,212

 

3,481

 

(15,214

(49,674

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational profit (loss)

 

127,507

 

859,572

 

1,245,382

 

76,372

 

19,681

 

57,326

 

5,637

 

33,461

 

20,099

 

54,976

 

 

2,500,013

 

Non-operational profit (loss)

 

(10,223

)

(2,292

)

(25,500

)

806

 

 

(398

)

812

 

 

 

 

 

(36,795

)

Profit (loss) before income tax, Social Contribution and employee profit shares

 

117,284

 

857,280

 

1,219,882

 

77,178

 

19,681

 

56,928

 

6,449

 

33,461

 

20,099

 

54,976

 

 

2,463,218

 

Deferred income tax and Social Contribution

 

16,283

 

(193,430

)

(299,883

)

(35,974

)

(3,832

)

(12,984

)

17,226

 

(8,756

)

(1,860

)

(4,386

)

 

(527,596

)

Minority interests

 

 

 

 

(6,520

)

 

 

(270

)

 

 

 

 

(6,790

)

Employee profit shares

 

(9,321

)

(49,742

)

(150,432

)

 

 

 

 

(122

)

 

(374

)

 

(209,991

)

Net profit for the year

 

124,246

 

614,108

 

769,567

 

34,684

 

15,849

 

43,944

 

23,405

 

24,583

 

18,239

 

50,216

 

 

1,718,841

 

 

146



 

(The original is signed by the following signatories)

 

Djalma Bastos de Morais

 

Luiz Fernando Rolla

 

Marco Antonio Rodrigues da Cunha

CEO

 

Chief Officer for Finance, Investor

 

Chief Corporate Management Officer

Vice-Chairman

 

Relations and Control of Holdings

 

 

 

 

 

 

 

Bernardo Afonso Salomão de Alvarenga

 

Fernando Henrique Schüffner Neto

 

José Maria de Macedo

Chief Trading Officer

 

Chief Generation and Transmission

 

Chief Distribution and Sales Officer

 

 

Officer

 

 

 

 

 

 

 

José Carlos de Matos

 

Pedro Carlos Hosken Vieira

 

Leonardo George de Magalhães

Chief New Business Development Officer

 

Controller

 

Accounting General Manager

 

 

 

 

Accountant – CRC-MG-53,140

 

147



 

APPENDIX I

 

STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2007 and 2006
(R$ ’000)

 

Statement in accordance with the criteria for disclosure set by FAS 95 – Statement of Cash Flows, since Cemig is registered with the SEC and also prepares financial statements in accordance with US GAAP,

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

FROM OPERATIONS

 

 

 

 

 

 

 

 

 

Net profit for the year

 

1,735,449

 

1,718,841

 

1,735,449

 

1,718,841

 

Expenses (revenue) not affecting cash

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

778,144

 

672,257

 

701

 

694

 

Net write-offs of PP&E

 

30,084

 

21,596

 

 

4,182

 

Equity income

 

 

 

(1,911,530

)

(1,594,595

)

Interest and monetary updating – non-current

 

(388,869

)

(392,919

)

(62,013

)

(179,340

)

Provision (reversal) for losses on recovery of Extraordinary Tariff

 

174,832

 

86,154

 

26,594

 

29,217

 

Recomposition

 

296,824

 

191,988

 

12,070

 

(142,566

)

Provision (reversal) for operational losses

 

 

 

 

 

 

 

 

 

Post-employment obligations

 

123,007

 

169,910

 

5,144

 

7,871

 

Provision for losses on accounts receivable from the Minas Gerais state government

 

 

19,978

 

 

19,978

 

Deferred federal taxes

 

(403,546

)

(71,704

)

(10,107

)

(9,934

)

Provision for losses on financial instruments

 

178,969

 

91,612

 

 

 

Minority interests

 

115,480

 

6,790

 

 

 

Others

 

(1,194

)

(120,461

)

20,130

 

82

 

 

 

2,639,180

 

2,394,042

 

(183,562

)

(145,570

)

(Increase) reduction in assets

 

 

 

 

 

 

 

 

 

Consumers and traders

 

(91,107

)

(630,646

)

 

 

Traders – transactions on the CCEE

 

120,894

 

194,856

 

 

 

Extraordinary Tariff Recomposition

 

301,779

 

257,171

 

 

 

Taxes offsettable

 

(296,146

)

(165,291

)

8,845

 

(85,513

)

Deferred tariff adjustment

 

509,286

 

294,353

 

 

 

Other current assets

 

155,172

 

97,903

 

(2,893

)

21,422

 

Anticipated expenses – CVA

 

77,342

 

126,119

 

 

 

Tax credits

 

(25,902

)

(27,354

)

36,972

 

(31,786

)

Transport of electricity

 

(104,466

)

(55,048

)

 

 

Payments into court

 

(17,068

)

(124,987

)

(9,920

)

4,299

 

Dividends received from subsidiaries

 

 

 

1,444,658

 

1,644,463

 

Amortization of accounts receivable from the Minas Gerais state government

 

122,007

 

78,760

 

 

 

Other non-current assets

 

(5,847

)

30,317

 

(3,202

)

29,856

 

 

 

745,944

 

76,153

 

1,474,460

 

1,582,741

 

Increase (reduction) of liabilities

 

 

 

 

 

 

 

 

 

Suppliers

 

(34,268

)

(124,738

)

5,435

 

(13,856

)

Taxes and Social Contribution

 

18,952

 

(74,435

)

20,055

 

(3,664

)

Salaries and obligatory payments on payroll

 

51,265

 

(634

)

1,496

 

(1,458

)

Regulatory charges

 

(29,655

)

74,393

 

 

 

Loans and financings

 

(54,243

)

8,553

 

(1,057

)

(1,921

)

Post-employment obligations

 

(245,219

)

(268,107

)

(12,288

)

(13,126

)

Anticipated expenses – CVA

 

174,416

 

46,360

 

 

 

Losses on financial instruments

 

(189,096

)

30,893

 

 

 

Other

 

135,252

 

22,605

 

84,412

 

4,807

 

 

 

(172,596

)

(285,110

)

98,053

 

(29,218

)

 

 

 

 

 

 

 

 

 

 

CASH FROM OPERATIONS

 

3,212,528

 

2,185,085

 

1,388,951

 

1,407,953

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

Financings obtained

 

1,055,910

 

2,265,902

 

 

30,000

 

Sale of participation in the FIDC

 

 

 

 

900,000

 

Receipt of units in the FIDC

 

 

 

7,267

 

26,611

 

Payments of loans and financings

 

(1,855,095

)

(1,926,540

)

(30,246

)

 

Short-term loans

 

800,000

 

1,200,000

 

 

 

Interest on dividends and Interest on Equity

 

(1,360,096

)

(2,071,666

)

(1,360,096

)

(2,071,666

)

 

 

(1,359,281

)

(532,304

)

(1,383,075

)

(1,115,055

)

TOTAL INFLOW OF FUNDS

 

1,853,247

 

1,652,781

 

5,876

 

292,898

 

 

 

 

 

 

 

 

 

 

 

INVESTMENTS

 

 

 

 

 

 

 

 

 

In fixed assets

 

(108,933

)

(552,681

)

(7,055

)

(569,574

)

In PP&E

 

(1,392,868

)

(1,469,762

)

(702

)

 

Special obligations – contributions by consumers

 

267,897

 

304,642

 

 

 

Sale of stockholding

 

49,234

 

 

 

 

In deferred

 

(4,405

)

(1,998

)

 

 

 

 

(1,189,075

)

(1,719,799

)

(7,757

)

(569,574

)

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH POSITION

 

664,172

 

(67,018

)

(1,881

)

(276,676

)

 

 

148



 

 

 

 

Consolidated

 

Holding company

 

 

 

2007

 

2006

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

CHANGES IN CASH POSITION

 

 

 

 

 

 

 

 

 

Start of period

 

1,402,047

 

1,344,135

 

23,834

 

300,510

 

Initial balance – Acquisition of subsidiaries

 

 

124,930

 

 

 

End of period

 

2,066,219

 

1,402,047

 

21,953

 

23,834

 

 

 

664,172

 

(67,018

)

(1,881

)

(276,676

)

PAYMENTS MADE IN THE YEAR

 

 

 

 

 

 

 

 

 

Interest on loans and financings

 

814,184

 

781,052

 

11,243

 

14,585

 

Income tax and Social Contribution

 

1,091,271

 

696,224

 

50,126

 

8,917

 

 

 

 

 

 

 

 

 

 

 

TRANSACTIONS NOT INVOLVING OUTFLOW OF CASH

 

 

 

 

 

 

 

 

 

Financial charges transferred to PP&E

 

8,822

 

24,750

 

 

 

Dividends offset with CRC credits

 

122,007

 

78,760

 

 

 

 

149



 

APPENDIX II

 

STATEMENTS OF ADDED VALUE

YEARS ENDED DECEMBER 31, 2007 AND 2006

(R$ ’000)

 

 

 

Consolidated

 

 

 

Holding company

 

 

 

 

 

2007

 

 

 

2006

 

 

 

2007

 

 

 

2006

 

 

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational revenues

 

15,789,531

 

 

 

13,431,731

 

 

 

40,738

 

 

 

1,457

 

 

 

Provision for doubtful receivables

 

(143,190

)

 

 

(128,618

)

 

 

6,994

 

 

 

12,233

 

 

 

Non-operational profit (loss)

 

(10,356

)

 

 

(36,795

)

 

 

(11,043

)

 

 

(10,223

)

 

 

 

 

15,635,985

 

 

 

13,266,318

 

 

 

36,689

 

 

 

3,467

 

 

 

INPUTS ACQUIRED FROM THIRD PARTIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electricity bought for resale

 

(2,793,722

)

 

 

(2,112,673

)

 

 

 

 

 

 

 

 

Charges for use of the Basic Grid

 

(649,737

)

 

 

(663,851

)

 

 

 

 

 

 

 

 

Outsourced services

 

(619,665

)

 

 

(503,993

)

 

 

(10,730

)

 

 

(18,032

)

 

 

Gas bought for resale

 

(154,241

)

 

 

(157,732

)

 

 

 

 

 

 

 

 

Materials

 

(93,596

)

 

 

(81,972

)

 

 

(421

)

 

 

(474

)

 

 

Raw materials

 

(58,908

)

 

 

(36,812

)

 

 

 

 

 

 

 

 

Other operational costs

 

(368,664

)

 

 

(99,553

)

 

 

(40,448

)

 

 

98,204

 

 

 

 

 

(4,738,533

)

 

 

(3,656,586

)

 

 

(51,599

)

 

 

79,698

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS VALUE ADDED

 

10,897,452

 

 

 

9,609,732

 

 

 

(14,910

)

 

 

83,165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RETENTIONS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

(778,144

)

 

 

(672,257

)

 

 

(701

)

 

 

(694

)

 

 

NET VALUE ADDED

 

10,119,308

 

 

 

8,937,475

 

 

 

(15,611

)

 

 

82,471

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADDED VALUE RECEIVED BY TRANSFER

 

 

 

 

 

 

 

 

 

1,911,530

 

 

 

1,594,595

 

 

 

Equity income from subsidiaries

 

1,350,891

 

 

 

1,464,002

 

 

 

114,080

 

 

 

223,352

 

 

 

Financial revenues

 

1,350,891

 

 

 

1,464,002

 

 

 

2,025,610

 

 

 

1,817,947

 

 

 

ADDED VALUE TO BE DISTRIBUTED

 

11,470,199

 

 

 

10,401,477

 

 

 

2,009,999

 

 

 

1,900,418

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTION OF ADDED VALUE

 

 

 

 

%

 

 

 

%

 

 

 

%

 

 

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel and obligatory payments on payroll

 

1,754,910

 

15

 

1,625,353

 

16

 

49,375

 

2

 

77,839

 

4

 

Taxes and contributions

 

6,254,922

 

54

 

5,658,967

 

54

 

154,315

 

8

 

26,678

 

1

 

Financial expenses and rentals

 

1,609,438

 

14

 

1,391,526

 

14

 

70,860

 

4

 

77,060

 

4

 

Dividends, and Interest on Equity

 

867,725

 

8

 

1,381,781

 

13

 

867,725

 

43

 

1,381,781

 

73

 

Minority interests

 

115,480

 

1

 

6,790

 

 

 

 

 

 

 

Retained earnings

 

867,724

 

8

 

337,060

 

3

 

867,724

 

43

 

337,060

 

18

 

 

 

11,470,199

 

100

 

10,401,477

 

100

 

2,009,999

 

100

 

1,900,418

 

100

 

 

150



 

APPENDIX III

 

INCOME STATEMENTS SEPARATED BY ACTIVITY
YEAR ENDING DECEMBER 31, 2007
(R$ ’000)

 

DESCRIÇÃO

 

Holding

 

Generation

 

Transmission

 

Distribution and
sales

 

Others

 

Elimination

 

Total

 

OPERATIONAL REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue from supply of electricity

 

 

3,086,293

 

 

10,312,757

 

12

 

(113,730

)

13,285,332

 

Revenue from use of the network

 

 

106,593

 

525,838

 

1,461,558

 

 

(148,059

)

1,945,930

 

Other operational revenues

 

40,738

 

42,864

 

9,789

 

87,721

 

383,910

 

(6,753

)

558,269

 

Gross revenue from sales and/or services

 

40,738

 

3,235,750

 

535,627

 

11,862,036

 

383,922

 

(268,542

)

15,789,531

 

DEDUCTIONS FROM OPERATIONAL REVENUE

 

(4,195

)

(649,391

)

(126,300

)

(4,685,586

)

(78,145

)

 

(5,543,617

)

NET OPERATIONAL REVENUE

 

36,543

 

2,586,359

 

409,327

 

7,176,450

 

305,777

 

(268,542

)

10,245,914

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF ELECTRICITY SERVICE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF ELECTRICITY AND GAS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electricity purchased for resale

 

 

(102,597

)

 

(2,811,398

)

(38

)

120,311

 

(2,793,722

)

Charges for the use of the basic transmission grid

 

 

(265,462

)

 

(532,334

)

 

148,059

 

(649,737

)

Gas purchased for resale

 

 

 

 

 

 

(154,241

)

 

(154,241

)

 

 

 

(368,059

)

 

(3,343,732

)

(154,279

)

268,370

 

(3,597,700

)

COST OF OPERATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel and managers

 

 

(131,674

)

(81,651

)

(653,052

)

 

 

(866,377

)

Private pension plan entity

 

 

(14,406

)

(8,070

)

(87,878

)

 

 

(110,354

)

Materials

 

 

(11,480

)

(6,817

)

(71,189

)

(444

)

 

(89,930

)

Raw materials and inputs for production of electricity

 

 

(58,409

)

 

 

 

 

(58,409

)

Outsourced services

 

 

(88,025

)

(26,415

)

(378,064

)

(8,427

)

103

 

(500,828

)

Depreciation and amortization

 

 

(206,680

)

(46,916

)

(464,842

)

(29,758

)

 

(748,196

)

Operational provisions

 

 

(7,716

)

277

 

(42,475

)

 

 

(49,914

)

Royalties for use of water resources

 

 

(134,102

)

 

 

 

 

(134,102

)

Others

 

 

(41,765

)

(16,366

)

(97,651

)

(12,572

)

69

 

(168,285

)

 

 

 

(694,257

)

(185,958

)

(1,795,151

)

(51,201

)

172

 

(2,726,395

)

TOTAL COST

 

 

(1,062,316

)

(185,958

)

(5,138,883

)

(205,480

)

268,542

 

(6,324,095

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

36,543

 

1,524,043

 

223,369

 

2,037,567

 

100,297

 

 

3,921,819

 

OPERATIONAL EXPENSES

 

 

 

 

 

 

 

 

 

Selling expenses

 

 

(8,017

)

 

(227,148

)

(672

)

 

(235,837

)

General and administrative expenses

 

(74,071

)

(41,199

)

(16,615

)

(186,132

)

(1,869

)

 

(319,886

)

Other operational revenue (expenses)

 

 

(10,219

)

(4,254

)

(24,552

)

(32,491

)

 

(71,516

)

 

 

(74,071

)

(59,436

)

(20,869

)

(437,831

)

(35,032

)

 

(627,239

)

Operational profit before equity income and financial revenues (expenses

 

(37,528

)

1,464,607

 

202,500

 

1,599,736

 

65,265

 

 

3,294,580

 

 

 

 

 

 

 

 

 

 

 

Financial revenue (expenses)

 

1,343

 

(341,303

)

(14,416

)

(18,724

)

16,995

 

 

(356,105

)

OPERATIONAL PROFIT (LOSS)

 

(36,185

)

1,123,304

 

188,084

 

1,581,012

 

82,260

 

 

2,938,475

 

NON-OPERATIONAL PROFIT (LOSS)

 

(11,043

)

676

 

(3,617

)

(50,523

)

54,151

 

 

(10,356

)

Profit (loss) before income tax, Social Contribution and electricity pr

 

(47,228

)

1,123,980

 

184,467

 

1,530,489

 

136,411

 

 

2,928,119

 

Income tax and Social Contribution

 

(116,565

)

(267,723

)

(45,274

)

(160,498

)

(32,245

)

 

(622,305

)

Employee profit shares

 

(12,288

)

(72,586

)

(37,390

)

(332,201

)

(420

)

 

(454,885

)

Minority interest

 

 

 

 

(115,480

)

 

 

(115,480

)

Net profit for the year

 

(176,081

)

783,671

 

101,803

 

922,310

 

103,746

 

 

1,735,449

 

 

151



 

INCOME STATEMENTS SEPARATED BY ACTIVITY
YEAR ENDING DECEMBER 31, 2006
(R$ ’000)

 

DESCRIÇÃO

 

Holding

 

Generation

 

Transmission

 

Distribution and
sales

 

Others

 

Elimination

 

Total

 

OPERATIONAL REVENUE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross revenue from supply of electricity

 

 

2,526,855

 

 

8,712,116

 

 

(103,971

)

11,135,000

 

Revenue from use of the network

 

 

56,195

 

611,056

 

1,260,721

 

 

(138,501

)

1,789,471

 

Other operational revenues

 

1,457

 

8,869

 

5,253

 

63,515

 

427,806

 

 

506,900

 

Gross revenue from sales and/or services

 

1,457

 

2,591,919

 

616,309

 

10,036,352

 

427,806

 

(242,472

)

13,431,371

 

DEDUCTIONS FROM OPERATIONAL REVENUE

 

(81

)

(551,614

)

(156,953

)

(4,169,167

)

(86,914

)

 

(4,964,729

)

NET OPERATIONAL REVENUE

 

1,376

 

2,040,304

 

459,356

 

5,867,186

 

340,892

 

(242,472

)

8,466,642

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF ELECTRICITY SERVICE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COST OF ELECTRICITY AND GAS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electricity purchased for resale

 

 

(10,546

)

 

(2,206,098

)

 

103,971

 

(2,112,673

)

Charges for the use of the basic transmission grid

 

 

(240,401

)

 

(561,951

)

 

138,501

 

(663,851

)

Gas purchased for resale

 

 

 

 

 

(157,732

)

 

(157,732

)

 

 

 

(250,947

)

 

(2,768,049

)

(157,732

)

242,472

 

(2,934,256

)

COST OF OPERATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Personnel and managers

 

 

(147,018

)

(87,585

)

(758,162

)

 

 

(992,765

)

Private pension plan entity

 

 

(24,746

)

(12,882

)

(122,019

)

 

 

(159,647

)

Materials

 

 

(12,090

)

(6,461

)

(59,968

)

 

 

(78,519

)

Raw materials and inputs for production of electricity

 

 

(36,812

)

 

 

 

 

(36,812

)

Outsourced services

 

 

(73,854

)

(20,877

)

(316,584

)

(3

)

 

(411,318

)

Depreciation and amortization

 

 

(190,033

)

(40,573

)

(396,319

)

(1

)

 

(626,926

)

Operational provisions

 

 

(185

)

(16

)

(23,775

)

 

 

(23,976

)

Royalties for use of water resources

 

 

(127,374

)

 

(11,581

)

 

 

(138,955

)

Others

 

 

(37,572

)

(10,487

)

(95,057

)

(1

)

15,214

 

(127,903

)

 

 

 

(649,685

)

(178,881

)

(1,783,464

)

(5

)

15,214

 

(2,596,821

)

TOTAL COST

 

 

(900,632

)

(178,881

)

(4,551,513

)

(157,737

)

257,686

 

(5,531,077

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GROSS PROFIT

 

1,376

 

1,139,672

 

280,475

 

1,315,673

 

183,155

 

15,214

 

2,935,565

 

OPERATIONAL EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling expenses

 

 

(22,290

)

 

(130,429

)

 

 

(152,719

)

General and administrative expenses

 

17,472

 

(31,722

)

(14,949

)

(46,199

)

(2,741

)

 

(78,139

)

Other operational revenue (expenses)

 

 

(9,195

)

(2,204

)

(22,759

)

(120,862

)

 

(155,020

)

 

 

17,472

 

(63,207

)

(17,153

)

(199,387

)

(123,603

)

 

(385,878

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operational profit before equity income and financial revenues (expenses)

 

18,848

 

1,076,465

 

263,322

 

1,116,286

 

59,552

 

15,214

 

2,549,687

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FINANCIAL REVENUE (EXPENSES)

 

108,659

 

(317,597

)

1,803

 

168,345

 

4,330

 

(15,214

)

(49,674

)

OPERATIONAL PROFIT (LOSS)

 

127,507

 

758,869

 

265,125

 

1,284,630

 

63,882

 

 

2,500,013

 

NON-OPERATIONAL PROFIT (LOSS)

 

(10,223

)

(769

)

(1,502

)

(24,715

)

414

 

 

(36,795

)

Profit (loss) before income tax, Social Contribution and electricity profit sh

 

117,284

 

758,100

 

263,623

 

1,259,915

 

64,296

 

 

2,463,218

 

Income tax and Social Contribution

 

16,283

 

(188,428

)

(25,325

)

(334,330

)

4,204

 

 

(527,596

)

Employee profit shares

 

(9,321

)

(30,984

)

(18,880

)

(150,432

)

(374

)

 

 

(209,991

)

Minority interest

 

 

(6,520

)

 

 

(270

)

 

(6,790

)

Net profit for the year

 

124,246

 

532,168

 

219,419

 

775,153

 

67,856

 

 

1,718,841

 

 

152



 

Independent auditors’ report

 

To

The Board of Directors and Shareholders

Companhia Energética de Minas Gerais – CEMIG

Belo Horizonte - MG

 

1.               We have examined the accompanying balance sheet of Companhia Energética de Minas Gerais – CEMIG and the consolidated balance sheet of the Company and its subsidiaries as of December 31, 2007, and the related statements of income, changes in shareholders’ equity and changes in financial position for the year then ended, which are the responsibility of its management. Our responsibility is to express an opinion on these financial statements. The financial statements of the jointly-controlled company and indirect controlled company, Rio Minas Energia Participações S.A. and Light S.A., respectively, as of and for the year ended December 31, 2007 were examined by other independent auditors. In the financial statements of Companhia Energética de Minas Gerais – CEMIG the participation on these companies are recognized by the equity method of accounting and represent investments in the amount of R$ 265.5 million, and its equity in the earnings of these investments, in the statement of income, amount to an income of R$ 147.7 million. The financial statements of these companies, with total assets of R$2,236.6 million as of December 31, 2007, are included in the consolidated financial statements. Our report, insofar as it relates to the amounts generated by these companies during the year, is based solely on the examination conducted by the independent auditors of Rio Minas Energia Participações S.A. and Light S.A.

 

2.               Our examination was conducted in accordance with auditing standards generally accepted in Brazil and included: (a) planning of the audit work, considering the materiality of the balances, the volume of transactions and the accounting systems and internal accounting controls of the Company and its subsidiaries; (b) verification, on a test basis, of the evidence and records which support the amounts and accounting information disclosed; and (c) evaluation of the most significant accounting policies and estimates adopted by Company management and its subsidiaries, as well as the presentation of the financial statements taken as a whole.

 

3.               In our opinion, based on our audit and on the audit reports of other independent auditors, the aforementioned financial statements present fairly, in all material respects, the financial position of Companhia Energética de Minas Gerais – CEMIG and the consolidated financial position of the Company and its subsidiaries as of December 31, 2007, and the results of its operations, changes in its shareholders’ equity and changes in its financial position for the year then ended, in conformity with accounting practices adopted in Brazil.

 

4.               Our examination was performed with the objective of expressing an opinion on the financial statements taken as a whole. The statements of cash flows, added value, and income statements separated by activity, presented in the appendix I, II and III, related to the year ended December 31, 2007 are supplementary to the aforementioned financial statements and have been included to facilitate additional analysis. This supplementary information was subject to the same audit procedures as applied to the aforementioned financial statements and, in our opinion, are presented fairly, in all material respects, in relation to the financial statements taken as a whole.

 

 

153



 

5.               As described in Notes 7, 8, 9 and 18 to the financial statements, Companhia Energética de Minas Gerais – CEMIG and its subsidiaries have assets and liabilities recorded in relation to transactions for the sale and purchase of energy and other transactions on the Electricity Trading Chamber (CCEE) (previously called “MAE”). These amounts were recorded on the basis of calculations prepared and published by the CCEE for transactions carried out to December 31, 2007, and may be changed as a result of decisions in current Court Proceedings brought by companies in the sector, in relation to the interpretation of the rules of the wholesale energy market.

 

6.               The financial statements of Companhia Energética de Minas Gerais – CEMIG and the supplementary information of cash flows, added value, and income statements separated by activity for the year ended December 31, 2006, presented for comparative purpose, were examined by other independent auditors, which expressed an unqualified opinion, dated February 28, 2007, and including an emphasis paragraph relating to the matter mentioned in paragraph 5, and relating to the change in the percentage of the tariff repositioning due to the final tariff review for Cemig Distribuição S.A. and related to the expiration of the electricity generation concessions held by the subsidiary Cemig Geração e Transmissão S.A. for the Emborcação, Nova Ponte, Pandeiros, Rio das Pedras, Poço Fundo, São Bernardo, Xicão, Luiz Dias and Santa Luzia hydroelectric plants. On June 14, 2007, the Mining and Energy Ministry (MME) renewed these concessions for a period of 20 years beginning on the date of maturity of each concession contract. The signing of the renewed concession contracts is expected during the first half of 2008.

 

 

March 6, 2008

 

 

KPMG Auditores Independentes

CRC SP014428/O-6-F-MG

 

 

Marco Túlio Fernandes Ferreira

Rosane Palharim

Accountant CRCMG058176/O-0

Accountant CRC 1SP220280/O-9-S-MG

 

154



 

 

ITEM 9

 

2007 Earnings Release

 

 

155



 

 

 

156



 

Cemig’s Chairman Márcio Araújo de Lacerda comments on the 2007 results: “Our 2007 results reflect the success of our Long-term Strategic Plan, guaranteeing Cemig leadership in the consolidation of the Brazilian electrical sector. The growth observed in all business areas benefited from the continuous expansion of the economy of Minas Gerais, as well as from the acquisitions made, which, together with a more efficient structure, allowed us to gain agility in an increasingly dynamic sector. Supplying over 10 million consumers and with a presence in 12 Brazilian states and in Chile, Cemig is already a world-class company, and its selection as leader of the public utilities “supersector” of the Dow Jones Sustainability index shows that it is able to grow and add value not only for our stockholders, but also for all those whom we serve – with social responsibility and respect for the environment. We reaffirm our commitment to investing for sure and planned profitability, and focus on the electricity sector, in the certain confidence that this is the correct strategy for adding value to the investments made by our stockholders.”

 

Cemig’s CEO, Dr Djalma Bastos de Morais, stated that “2007 was a record year. To comply with the targets contained in our Long-Term Strategic Plan, we have invested and grown in electricity generation, distribution and transmission. Last year we sold 57,892 GWh, a historic record for Cemig, with exports of energy to Argentina and Uruguay, demonstrating the company’s ability to seize market opportunities. Through a consortium, we won tenders for the construction of the Santo Antônio Generation Plant, allowing us to take part in the major projects of the electrical sector in a profitable manner. In addition, we initiated the construction of several small hydroelectric plants, and the Baguari hydroelectric generation plant and connected more than 220,000 new consumers, adding new transmission lines. We also concluded the process of renewal of concessions, for concessions totaling 1,735 MW that had expired. 2007 was a year to be remembered in Cemig’s history, but in order to be “Brazil’s Best Energy supplier” we pay special attention to our employees, as witnessed by the recent choice of Cemig as “Best Company to Work For” by Exame magazine”.

 

Chief Finance, Investor Relations and Holdings Officer Luiz Fernando Rolla highlighted that: “In 2007, our cash flow, measured by Ebitda, reached R$ 4 billion, while showing consistent growth in Ebitda margin – to almost 40% in 2007, with a positive impact from our operational efficiency and management centered on value creation for stockholders. These results are in line with our economic projections and our Long-term Strategic Plan, and reflect the correctness of our strategy of growing through acquisitions and projects, within the process of consolidation of the sector. This is proven by the acquisitions made in 2006, which have already added 10% to our consolidated result. The rigor and selectiveness of our investment

 

157



 

decision criteria, complying with the indicators to which we are committed in our By-laws, result in sustainable growth, with continuous improvement in our credit rating. By balancing investments and continually seeking operational and financial excellence while maintaining our long-term objectives, we ensure continuous growth in results for our stockholders.”

 

158



 

— Highlights of 2007

 

·                  Ebitda: R$ 4.1 billion, a 26.41% increase – a record.

 

·                  Sales reached 57.892 GWh % – a record.

 

·                  Exame magazine’s “Best company to work for” survey – first placed in the electricity sector.

 

·                  Winner of the tender for the Santo Antônio Plant through the MESA consortium – 3,150 MW.

 

·                  Dow Jones Sustainability Index: Elected world leader in the utilities “supersector” – and the only Latin American company included in the index

 

159



 

— Economic summary

 

 

 

Financial figures in R$ million

 

 

 

2007

 

2006

 

Change %

 

 

 

 

 

 

 

 

 

Energy sold (MWh)*

 

57,892

 

52,263

 

16.40

 

Gross revenue

 

15,790

 

13,432

 

17.56

 

Net revenue

 

10,246

 

8,467

 

21.01

 

Ebitda

 

4,073

 

3,222

 

26.41

 

Net profit

 

1,735

 

1,719

 

0.93

 

Earnings per share

 

3.57

 

3.52

 

0.93

 

Number of consumers*

 

10,320,832

 

10,041,911

 

2.78

 

 


* Includes figures of Light S.A.

 

160



 

— Cemig’s stock price performance

 

 

 

 

Bovespa

 

 

 

Ticker

 

2007

 

2006

 

 

 

 

 

 

 

CMIG 3

 

19.15

%

29.00

%

CMIG 4

 

(0.60

)%

22.50

%

IBOV

 

43.65

%

32.90

%

IEE

 

23.74

%

40.80

%

 

 

 

 

NYSE

 

 

 

Ticker

 

2007

 

2006

 

 

 

 

 

 

 

CIG

 

14.89

%

30.80

%

CIG.C

 

(4.15

)%

 

*

DJ IA

 

6.44

%

16.30

%

 


* ADRs representing Cemig’s common shares began to trade on the New York Stock Exchange in June 2007.

 

— The Brazilian economy

 

2007 was marked by the acceleration of growth in the Brazilian economy and a stable macroeconomic environment. GDP growth in the first nine months of 2007 amounted to 5.3% per year, while annual inflation, as measured by the IPCA, was 4.46%, practically in the middle of the target range established by the National Monetary Council (CMN).

 

Economic growth was driven by dynamic external and internal demand, with the latter due both to family consumption and to investment. Expansion of employment, the real increase in salaries, the reduction in interest rates and expansion of credit are among the principal factors which sustained the expansion of domestic demand.

 

At the same time, growth in domestic economic activity generated an increase in inflation during the final months of 2007. This factor, associated with the deteriorating outlook for the world economy as a result of the mortgage crisis in the United States, led the Brazilian Central Bank to interrupt the downward trend in interest rates from October 2007 onwards. The resulting Selic interbank interest rate at the end of the year was 11.25% per year.

 

The acceleration in the economy also led to higher growth in imports, reducing the trade surplus for 2007 to US$40 billion, 13.8% below the surplus for the previous year. The favorable situation attracted significant inflows of foreign capital to Brazil. As a consequence, the Brazilian real maintained its appreciating trend, ending the year at R$ 1.77 per dollar, despite purchases by the Brazilian Central Bank in the foreign exchange market, raising the country’s foreign reserves from US$ 85.9 billion at the end of 2006 to R$ 180.3 billion in December 2007.

 

In the area of fiscal policy, the primary surplus for the public sector reached 3.98% of GDP. This primary surplus, in addition to economic growth and the reduction in interest rates, allowed a reduction in net public sector debt as a percentage of GDP from 44.9% at the end of 2006 to 42.8% in December 2007.

 

161



 

— Water resources

 

Throughout 2007, due to persistent lack of rain in Brazil’s principal river basins, energy risk concerns increased, since the country depends almost exclusively on water reserves for energy generation.

 

The rainy season in Minas Gerais lasts from October until April. The 2007/2008 season began with little rain in Minas Gerais and a rainfall deficit in October, November and December. The rains only began after January 20, with significant rainfall in the regions of the Triângulo, West and Greater Belo Horizonte. In February rainfall was above the historic average in all regions of the state, reducing the deficit for the rainy season, which is currently around 25%.

 

With the increase in rainfall volume, the energy storage level for the Southeast region of Brazil rose from 40% in mid-January to 65% at the end of February. There was also an increase in storage in the North and Northeast regions, which rose from 30% to 45% and from 27% to 48% respectively. By a decision of the Monitoring Committee for the Electrical Sector, since the start of January, the thermal plants of the National Grid System are generating at maximum capacity. This chart shows that reservoir energy storage levels are currently below their values at the end of February 2007.

 

 

Brazilian Reservoir Levels %

 

Despite these lower levels than in the same period of last year, the federal government has ruled out the risk of energy shortages for 2008, and with the rain still forecast for the month of March, the water situation may be slightly more comfortable.

 

162



 

— Renewal of concessions

 

On June 14, 2007 the Mining and Energy Ministry (MME), by Ministerial Order MME 124/2007, renewed the period of concession for Cemig Geração e Transmissão for 20 years from the date of expiry for the following plants – Rio das Pedras, Poço Fundo, São Bernardo, Xicão, Luiz Dias, Emborcação, Nova Ponte and Santa Luzia – which have total installed capacity of 1,735 MW (unaudited information).

 

The extension of concessions will come into effect by signature of the Amendment to Concession Contract 007/97 – which will obey the rules and conditions established by the relevant legislation, and also those in Law 10848, of March 15, 2004, and its respective regulations. The proceedings are under analysis by the National Electricity Agency (Aneel) and we expect the Amendment to be signed in the first half of 2008.

 

— Gross Electricity Supply

 

Total sales in 2007 were 57,892 GWh, a record for Cemig. The 11% increase in consumption was basically due to growth in the economy of Minas Gerais, and also the market opportunities exploited by the company, such as sales to Argentina and Uruguay.

 

The chart below shows the composition of Cemig’s sales by company:

 

2007 Sales - Cemig Group (Share %)

 

 

The share of the consortium Minas Rio Energia, RME, the parent of the distributor Light, is worthy of mention, accounting for 11% of total sales. Cemig GT accounted for almost 55% of total sales, with a volume of 31,813 GWh.

 

Final consumers

 

The main impacts on 2007 revenues arose from the following factors:

 

·                  An increase of 8.69% in the average tariff, from R$ 245.73 (in 2006) to R$ 267.08 (in 2007),

 

163



 

mainly due to the adjustments in the tariffs of Cemig Distribuição on April 8, 2006 (full effect for the financial year 2007) and on April 8, 2007.

 

·                  An increase of 9.44% in the volume of energy invoiced

 

These charts show quarterly and annual changes in supply:

 

GWh invoiced – final consumers

 

 

 

 

As can be seen there is a continuous positive trend in volumes invoiced to final consumers. For the period 2003 to 2007, volume sales grew by almost 25%, with growth of close to 11% between 1Q2007 and 4Q2007.

 

164



 

— Revenue from supply

 

Supply to other concession holders

 

The volume of energy sold to other concession holders in 2007 was 13.236 GWh, compared to 11.472 GWh in 2006, corresponding to R$ 1.210 billion and R$ 709 million respectively. This notable increase was basically due to the startup of the Irapé plant in the second half of 2006, a greater volume of energy traded through bilateral contracts with resellers of electricity and higher prices negotiated for 2007 by Cemig Geração e Transmissão. Exports of energy to Argentina and Uruguay in 2007 are also worthy of note. The average sales tariff in 2007 was R$ 91.40/MWh, compared to R$ 61.79/MWh in 2006, an increase of 47.92%.

 

— Revenue from use of the network

 

Revenue from use of the network did not show significant growth in 2007, compared with 2006 (R$ 1.946 billion in 2007 and R$ 1.789 billion in 2006).

 

The most significant item under this heading was revenue from the Tariff for the Use of the Distribution System (TUSD), charged by Cemig Distribuição e Light to free consumers, which increased by 9.23% relative to 2006 (R$ 1.313 billion in 2007 compared to R$1.202 billion in 2006). This growth was principally due to the higher volume of energy transported in 2007 (19.535 GWh in 2007 compared to 17.521 GWh in 2006), a reflection of the growth in industrial production and the migration of clients from the captive market to the free negotiation environment during 2007.

 

In 2007, revenue from use of the basic grid was R$ 31 million lower, due to a revision of the permitted annual revenues to concession holders of the public electricity transmission service from new transmission facilities in the grid and the other transmission facilities, in compliance with Aneel decisions. Further explanations are in Explanatory Notes 23 and 27 to the Consolidated Financial Statements.

 

R$ million

 

2007

 

2006

 

Change %

 

TUSD

 

1,313

 

1,202

 

9.23

 

Revenue from the basic grid

 

537

 

486

 

10.49

 

Revenue from the connection system

 

95

 

102

 

-6.86

 

TOTAL

 

1,946

 

1,789

 

8.77

 

 

165



 

— Ebitda

 

Cemig’s cash flow for 2007, measured by Ebitda, reached R$ 4.0 billion, a 26.35% increase year-on-year, as a result of the excellent operational results achieved by the company, which together with the efficient management of acquisitions within our strategic planning, led to an Ebitda result in line with our projections.

 

Ebitda - R$ million

 

2007

 

2006

 

Change%

 

 

 

 

 

 

 

 

 

Net profit

 

1,735

 

1,719

 

0.93

 

 

 

 

 

 

 

 

 

+ Provision for current and deferred income tax and Social Contribution

 

623

 

527

 

18.03

 

+ Non-operational revenue (expenses)

 

10

 

37

 

(72.97

)

+ Financial revenue (expenses)

 

356

 

50

 

612.00

 

+ Amortization and depreciation

 

778

 

627

 

15.77

 

+ Employee profit share

 

455

 

210

 

116.67

 

+ Minority interests

 

116

 

7

 

1,542.86

 

= Ebitda

 

4,073

 

3,222

 

26.35

 

Non-recurring items (*)

 

 

 

 

 

 

 

+ Energy efficiency costs from previous financial years

 

 

85

 

 

+ “Anuênio”

 

 

178

 

 

+ CVA — recomposition of TUSD

 

 

93

 

 

+ Transmission revenue review — Resolution 496

 

31

 

 

 

- Reversal of provision for RGR

 

 

(66

)

 

- CVA Energy — adjustment defined by ANEEL

 

(29

)

 

 

 

 

 

 

 

 

 

= ADJUSTED Ebitda

 

4,075

 

3,512

 

15.97

 


(*) The non-recurring adjustments correspond to the Company’s interpretation of the events which it considers as extraordinary and unrelated to current operations.

 

Over the last 5 years, our cash flow generation increased by almost 127%, allowing us to pursue our investment and acquisition programs within the consolidation process of the Brazilian electrical sector.

 

— Net profit

 

In 2007, Cemig reported net profit of R$ 1.735 billion, compared to R$ 1.719 billion for 2006.

 

 

166



 

As presented in the table below, Cemig Geração e Transmissão and Cemig Distribuição made the main contributions to CEMIG’s net profit.

 

R$ million

 

2007

 

%

 

2006

 

%

 

Cemig — holding company

 

(176

)

(10.14

)

124

 

7.21

 

Cemig Distribuição S.A.

 

771

 

44.44

 

770

 

44.79

 

Cemig Geração e Transmissão S.A.

 

747

 

43.05

 

614

 

35.72

 

Rio Minas Energia.

 

148

 

8.53

 

44

 

2.56

 

Gasmig

 

46

 

2.65

 

35

 

2.04

 

TBE

 

29

 

1.67

 

16

 

0.93

 

Others

 

170

 

9.79

 

116

 

6.74

 

Consolidated net profit

 

1,735

 

100.00

 

1,719

 

100.00

 

 

— Sale of Way TV by Infovias

 

On October 23, 2007 Anatel approved the sale of Way TV Belo Horizonte S.A., reversing its own decision of March 19, 2007, when it had refused approval for the transfer of stockholding control.

 

At an auction held on July 27, 2006, 100% of the shares of Way TV Belo Horizonte S.A., an indirect subsidiary of Cemig (through Cemig’s investment of 65.25% in Infovias) were sold to TNL PCS Participações S.A., a subsidiary of Tele Norte Leste Participações S.A., for R$ 103 million, a premium of 65% on the minimum auction price, and the sale was conditional upon approval by the Brazilian Telecoms Regulator, Anatel.

 

The profit of Infovias from this sale, in the amount of R$ 54,079,000, was recognized in the 4th quarter of 2007, when the approval was published in the federal Official Gazette.

 

Capex

 

Capex for 2008 is projected at R$ 1.5 billion, 68.57% more than in 2007.

 

Most of this investment is concentrated in Cemig Distribuição, through programs such as “Cresce Minas” (Grow, Minas), which will allow us to meet the projected increase in the market and in demand in coming years.

 

 

167



 

BUSINESS

 

2005

 

2006

 

2007(1)

 

2008(2)

 

CEMIG Geração e Transmissão

 

417

 

157

 

315

 

334

 

Generation

 

397

 

99

 

281

 

210

 

Transmission — basic network

 

20

 

58

 

34

 

124

 

CEMIG Distribuição

 

691

 

1,229

 

601

 

1,184

 

Sub-transmission

 

26

 

83

 

67

 

393

 

Distribution

 

665

 

1,146

 

534

 

791

 

Expansion and strengthening of existing networks

 

276

 

217

 

310

 

381

 

Light for Everyone Program

 

291

 

884

 

124

 

276

 

Others

 

98

 

45

 

100

 

134

 

CEMIG holding company

 

58

 

558

 

10

 

43

 

Injections of capital

 

54

 

33

 

6

 

37

 

Others

 

4

 

1

 

4

 

6

 

RME capital injection 25% - acquisition of Light

 

 

175

 

 

 

Acquisition of TBE transmission companies

 

 

349

 

 

 

Total Investment Projects

 

1,166

 

1,944

 

926

 

1,561

 


(1)                     2005, 2006 and 2007: realized values.

 

(2)                     2008: estimated values, according to corporate planning for the 2007/2011 Cycle.

 

— Non-controllable costs

 

The differences between the sums of non-controllable costs (also referred to as “CVA”) used as a reference in the calculation of the tariff adjustment, and the disbursements actually made, are compensated in the subsequent tariff adjustments, and are recorded as assets or liabilities. Due to a change in Aneel’s model accounts, some items were transferred to Deductions from operational revenue. Further information on this point is provided in Explanatory Notes 2 and 8 to the Consolidated Financial Statements.

 

— Deductions from operational revenue

 

Deductions from operational revenue totaled R$ 5.544 billion in 2007, compared to R$ 4.965 billion in 2006, an increase of 11.66%. The following paragraphs describe the main changes in these deductions from revenue:

 

CCC — The Fuel Consumption Account

 

The CCC refers to the costs of operation of thermal plants of the Brazilian grid and isolated system, which are allocated between the holders of electricity concessions in a manner specified by Aneel Resolution. This is a non-controllable cost, and the amount recorded, in relation to electricity distribution services, corresponds to the amount actually passed through to the tariff. For the amount recorded in relation to transmission services, the Company acts merely as paying agent for the charge, since the CCC is charged to Free Consumers on their invoices for use of the grid and passed on to Eletrobrás.

 

168



 

The deduction from revenue relating to the CCC was R$ 407 million in 2007, compared to R$ 554 million in 2006, representing a reduction of 26.53%. This reduction was principally due to the retroactive billing in 2006 of the charge to a number of consumers, after the approval of the Contracts for Use of the Transmission System (CUST) by the System Operator (ONS).

 

CDE — Energy Development Account

 

This deduction from revenue was R$ 391 million in 2007, compared to R$ 334 million in 2006, an increase of 17.07%. These payments are set by an Aneel Resolution. This is a noncontrollable cost, and the amount recorded for electricity distribution services corresponds to the amount actually passed through to the tariff. For the amount recorded, relating to electricity transmission services, the company is only a payment agent for the charge, since the CDE for use of the basic grid is charged to Free Consumers on the invoice and passed through to Eletrobrás.

 

RGR — the Global Reversion Reserve

 

The deduction from revenue for RGR was R$ 145 million in 2007, compared to R$ 30 million in 2006. The change between the compared periods is due to the credit adjustment in 2006, relating to the provision for the financial year 2004 for the amount of R$ 66 million, as a result of the approval by Aneel of this expense for an amount less than that estimated by the Company, as well as to the increase in 2007 of the book value of the fixed assets in service which forms the basis for the calculation of this expense.

 

The other deductions from revenue are charges calculated directly as a percentage of sales revenue invoiced, so that their variations are directly proportional to the variation in revenue.

 

Operational costs and expenses

 

Operational costs and expenses (excluding financial revenue/expenses) in 2007 were R$ 6.952 billion, vs. R$ 5.917 billion in 2006, an increase of 17.49%. This result arises mainly from the variation in energy purchased for resale and operational provisions, partially compensated by the reduction in payroll expenses, which fell from R$ 1.088 billion in 2006 to R$ 968 million in 2007.

 

169



 

 

 

2007

 

2006

 

Change
%

 

Non-Controllable Costs

 

 

 

 

 

 

 

Electricity purchased for resale

 

2,794

 

2,113

 

32.23

 

Financial compensation for the use of water resources

 

137

 

139

 

(1.44

)

Charges for use of the basic transmission network

 

650

 

664

 

(2.11

)

 

 

3,581

 

2,916

 

22.81

 

Controllable Costs

 

 

 

 

 

 

 

Payroll

 

968

 

1,088

 

(11.03

)

Post-employment obligations

 

123

 

170

 

(27.65

)

Materials

 

94

 

82

 

14.63

 

Raw materials and inputs for energy generation

 

59

 

37

 

59.46

 

Third-party services

 

620

 

504

 

23.02

 

Operational provisions

 

291

 

52

 

459.62

 

Gas purchased for resale

 

154

 

158

 

(2.53

)

Depreciation and amortization

 

778

 

672

 

15.77

 

Other net expenses

 

284

 

238

 

19.33

 

 

 

3,371

 

3,001

 

12.33

 

Total

 

6,952

 

5,917

 

17.49

 

 

The principal changes in expenses are described below:

 

Payroll

 

Cemig’s payroll expenses for 2007 were R$ 968 million, compared to R$ 1.088 billion in 2006, a decrease of 11.03%. This result is principally due to the indemnity provision of R$ 178 million for future “anuênio” rights of employees, made in June 2006, partially compensated by the wage increases of 4.00% and 5.00%, granted to employees in November 2006 and 2007 respectively, and by the increase of 1.50% in the headcount of Cemig Holding, Cemig Geração e Transmissão and Cemig Distribuição, which rose from 10,658 employees in December 2006 to 10,818 in December 2007. See the composition of personnel expenses in Explanatory Note 30 to the Consolidated Financial Statements.

 

 

170



 

Employee profit shares

 

Employee profit-sharing amounted to R$ 455 million in 2007, 116% more than the amount paid in 2006.

 

This growth is the result of the negotiation within the context of the Collective Labor Agreement of 2007, in which both parties decided that future employees of the company would no longer be entitled to receive a bonus of 16.67% of base salary, granted to current employees. Cemig regards this cost item as an investment, since it aligns the company with best market practices.

 

The graph below shows that the value paid by way of profit-sharing between 2001 and 2007 lies in the interval between 3.43% and 6.97% of Ebitda, with an average of 4.97%, excluding the years of 2005 and 2007.

 

The figure was outside the historic average in 2005 and 2007 because in the collective agreements for those years Cemig negotiated, respectively, the withdrawal of the “anuênio” and of the bonus of 16.67% future employees.

 

The benefits deriving from these investments are important for making the company more efficient and for bringing it into line with current market practices.

 

 

171



 

 


(*) Obtained by profits per share divided by EBITDA.

 

Electricity purchased for resale

 

Expenditure on electricity purchased for resale in 2007 was R$ 2.794 billion, compared to R$ 2.113 billion in 2006, an increase of 32.23%. This is a non-controllable cost and the expense recognized in the Income Statement corresponds to the actual amount passed through to the tariff. For more information please see Explanatory Note 30 to the Consolidated Financial Statements.

 

Depreciation and amortization

 

The depreciation and amortization provision in 3Q07 was R$ 778 million, compared to R$ 672 million in 3Q06, an increase of 15.77%. This change is substantially due to investment in the Light for Everyone Investment Program, and the entry into operation of the Irapé plant during the second half of 2006. The consolidation of RME, which contributed to an increase of R$ 82 million in 2007 (R$ 33 million in 2006) should also be highlighted. The lower depreciation and amortization value of RME in 2006 is due to its consolidation from August 2006 onwards, contributing only 5 months of provision for the previous year.

 

 

172



 

Post-employment obligations

 

Post-employment obligation expenses for 2007 were R$ 123 million, compared to R$ 170 million in 2006, representing a reduction of 27.65%. These expenses basically represent the interest on the actuarial obligations of Cemig Distribuição, net of the expected returns from the plan’s assets, as estimated by an external actuary. The reduction in the expense arises from greater growth in the pension plan’s assets than in the obligations to the participants.

 

Charges for use of the transmission network

 

The expense on charges for use of the transmission network in 2007 was R$ 650 million, compared to R$ 664 million for 2006, a reduction of 2.11%. This expense refers to the charges payable by electricity distribution and generation agents for use of the facilities that form components of the basic network, as set by an Aneel Resolution. This is a non-controllable cost of distribution activity, and the expense recognized in the Income Statement corresponds to the amount actually passed through to the tariff.

 

— Financial revenue (expenses)

 

Net financial expense in 2007 was R$ 356 million, compared to an expense of R$ 50 million in 2006. The principal factors which impacting this item are described below:

 

Reversion of provision for losses in Accounts receivable of the state of Minas Gerais for an amount of R$ 99 million in 2006, as a function of the creation of a Credit Rights Fund (FIDC) and the signing of the 4th contractual amendment on debt renegotiation. For more information please see Explanatory Note 14 to the Consolidated Financial Statements.

 

·                             Monetary variation revenue from the General Electrical Sector Agreement for 2007 amounting to R$ 405 million, compared to R$ 322 million 2006, an increase of 25.77%. This change is principally due to the recording in the accounts during the second quarter of 2007 of R$ 100 million of financial revenue resulting from updating criteria defined by Aneel for assets relating to transactions with free energy during the rationing period. This procedure did not affect net financial revenue due to a corresponding increase in the provision for losses with free energy transactions (R$ 175 million in 2007 compared to R$ 86 million in 2006).

 

173



 

·                             Revenue from monetary variation and interest on the Deferred Tariff Adjustment in 2007 was R$ 131 million compared to R$ 199 million for 2006, 34.24% lower. This mainly reflects the reduction in assets between the two periods as a result of the receipt of the values in the electricity accounts. For more information please see Explanatory Note 13 to the Consolidated Financial Statements.

 

·                             Net gains on currency variations for 2007, amounting to R$ 110 million compared to net gains of R$ 86 million in 2006, basically derived from loans and financings in foreign currency. In 2007, the Brazilian real appreciated by 17.15% against the US dollar, compared to an appreciation of 8.66% in 2006.

 

There is a breakdown of financial revenues and expenses in Explanatory Note 31 to the Consolidated Financial Statements.

 

 

174



 

 

— Income tax and Social Contribution

 

In 2007, CEMIG’s expenses for income tax and social contribution amounted to R$ 622 million, on pre-tax profit of R$ 2.928 billion, a percentage of 21.24%. In 2006, the Company reported income tax and Social Contribution of R$ 527 million, on pre-tax profit of R$ 2.463 billion, or 21.40%. These effective rates are reconciled with the nominal rates in Explanatory Note 12 to the Consolidated Financial Statements.

 

Disclaimer

 

Some statements and assumptions contained in this release are forecasts based on the points of view and assumptions of management, and involve known and unknown risks and uncertainties. The actual results may be materially different from those expressed or implicit in such statements.

 

Contact:

 

Investor Relations

 

 

ri@cemig.com.br

 

 

Tel.+55-31-3506-5024

 

 

Fax+55-31-3506-5026

 

 

175



 

Chart I

Energy Sales (Consolidated)

 

 

 

N(er). of consumers

 

MWh

 

R$ thousand

 

 

 

YEAR

 

YEAR

 

YEAR

 

 

 

2007

 

2006

 

2007

 

2006

 

2007

 

2006

 

Residential

 

8,764,157

 

8,560,153

 

8,648,603

 

7,429,818

 

4,373,896

 

3,622,178

 

Industrial

 

86,394

 

84,175

 

24,686,241

 

23,972,596

 

3,380,277

 

3,069,373

 

Commercial

 

830,818

 

820,946

 

5,549,409

 

4,439,154

 

2,494,502

 

1,935,339

 

Rural

 

565,169

 

505,707

 

2,212,485

 

1,942,306

 

598,812

 

515,233

 

Others

 

72,945

 

69,762

 

3,505,890

 

2,970,065

 

1,065,006

 

872,383

 

Own Consumption

 

1,256

 

1,124

 

52,941

 

37,160

 

 

 

Low-Income Consumers Subsidy

 

 

 

 

 

 

 

 

 

126,112

 

 

 

Unbilled Supply, Net

 

 

 

 

 

11,332

 

76,799

 

Supply

 

93

 

44

 

13,235,965

 

11,472,158

 

1,209,731

 

708,867

 

Transactions on the CCEE

 

 

 

 

 

25,664

 

200,065

 

TOTAL

 

10,320,832

 

10,041,911

 

57,891,534

 

52,263,257

 

13,285,332

 

11,135,000

 

 

Chart II

 

Sales per Company

 

Cemig Distribution

 

2007 Sales

 

GWh

 

Industrial

 

4,830

 

Residencial

 

6,813

 

Rural

 

2,200

 

Commercial

 

4,078

 

Others

 

2,773

 

Sub Total

 

20,694

 

Wholesale Supply

 

 

Total

 

20,694

 

 

Independent Generation

 

2007 Sales

 

GWh

 

Horizontes

 

83

 

Ipatinga

 

346

 

Sá Carvalho

 

472

 

Barreiro

 

100

 

CEMIG PCH S.A

 

122

 

Rosal

 

262

 

Capim Branco

 

469

 

Total

 

1,854

 

 

Cemig Consolidade by Company

 

2007 Sales

 

GWh

 

Share

 

Cemig Distribution

 

20,694

 

36

%

Cemig GT

 

31,813

 

55

%

Wholesale Cemig group

 

(2,259

)

-4

%

Wholesale Light group

 

(336

)

-1

%

Idependent Generation

 

1,854

 

3

%

RME

 

6,126

 

11

%

Total

 

57,892

 

100

%

 

Cemig GT

 

2007 sales

 

GWh

 

Free Consumers

 

18,263

 

Wholesale supply

 

13,550

 

Wholesale supply Cemig Group

 

1,057

 

Wholesale supply bilateral contracts

 

12,493

 

Total

 

31,813

 

 

RME (25%)

 

2007 Sales

 

GWh

 

Industrial

 

503

 

Residencial

 

1,836

 

Rural

 

12

 

Wholesale Supply

 

1,549

 

Commercial

 

1,439

 

Others

 

787

 

Total

 

6,126

 

 

176



 

Chart III

 

Operating Revenues (consolidated)
Values in million of Reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Sales to end consumers

 

12,050

 

10,226

 

3,147

 

3,004

 

TUSD

 

1,314

 

1,202

 

246

 

201

 

Subtotal

 

13,364

 

11,428

 

3,393

 

3,205

 

Supply+ Transactions in the CCEE

 

1,236

 

909

 

353

 

217

 

Revenues from Trans. Network

 

632

 

588

 

167

 

130

 

Gas Supply

 

297

 

298

 

88

 

78

 

Others

 

261

 

209

 

21

 

60

 

Subtotal

 

15,790

 

13,432

 

4,022

 

3,690

 

Deductions

 

(5,544

)

(4,965

)

(1,395

)

(1,519

)

Net Revenues

 

10,246

 

8,467

 

2,627

 

2,171

 

 

Chart IV

 

Operating Expenses (consolidated)
Values in millions of reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Purchased Energy

 

2794

 

2113

 

844

 

507

 

Personnel/Administrators/Councillors

 

968

 

1088

 

172

 

180

 

Depreciation and Amortization

 

778

 

672

 

193

 

193

 

Charges for Use of Basic Transmission Network

 

650

 

664

 

49

 

43

 

Contracted Services

 

619

 

504

 

180

 

161

 

Forluz — Post-Retirement Employee Benefits

 

123

 

170

 

30

 

54

 

Materials

 

94

 

82

 

27

 

23

 

Royalties

 

137

 

139

 

35

 

45

 

Gas Purchased for Resale

 

154

 

158

 

53

 

39

 

Operating Provisions

 

291

 

52

 

80

 

-65

 

Other Expenses

 

343

 

275

 

87

 

64

 

Total

 

6,951

 

5,917

 

1,750

 

1,244

 

 

 

177



 

Chart V

 

Financial Result Breakdown

Values in millions of reais

 

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Financial Revenues

 

1,286

 

1,392

 

164

 

387

 

Income from Investments

 

200

 

184

 

57

 

31

 

Fines on Energy Accounts

 

123

 

134

 

30

 

27

 

CRC Contract/State (interest+ monetary variation)

 

159

 

286

 

41

 

158

 

Monetary variation of Extraordinary Tariff Recomposition and RTD

 

581

 

608

 

59

 

151

 

Exchange Rate Variations

 

120

 

90

 

2

 

1

 

Others (PIS/PASEP+ Derivatives+ FIDC Revenue)

 

103

 

90

 

-25

 

19

 

Financial Expenses

 

 

 

 

 

 

 

 

 

Charges on Loans and Financing

 

-852

 

-868

 

-201

 

-246

 

Monetary variation of Extraordinary Tariff Recomposition

 

-176

 

-133

 

-22

 

-31

 

Exchange Rate Variations

 

-10

 

-3

 

2

 

13

 

Monetary Variarion Liabilities - Loans and Financing

 

-26

 

-28

 

-2

 

-7

 

CPMF

 

-67

 

-84

 

-14

 

-21

 

Losses from Derivatives

 

-187

 

-117

 

-54

 

-32

 

Others+ Provision for Losses from Tariff Recomposition

 

-324

 

-209

 

-68

 

-74

 

Financial Result

 

(356

)

(50

)

(195

)

(11

)

 

 

178



 

Chart VI

 

Statement of Results (Consolidated)
Values in millions of reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Net Revenue

 

10,246

 

8,467

 

2,627

 

2,171

 

Operating Expenses

 

(6,951

)

(5,917

)

(1,750

)

(1,244

)

EBIT

 

3,295

 

2,550

 

877

 

927

 

EBITDA

 

4,073

 

3,222

 

1,070

 

1,120

 

Financial Result

 

(356

)

(50

)

(195

)

(11

)

Non-Operating Result

 

(10

)

(37

)

23

 

(24

)

Provision for Income Taxes, Social Cont & Deferred Income Tax

 

(623

)

(527

)

43

 

(71

)

Employee Participation

 

(455

)

(210

)

(455

)

(210

)

Minority Shareholders

 

(116

)

(7

)

(27

)

(5

)

Net Income

 

1,735

 

1,719

 

266

 

606

 

Net Margin

 

17

%

20

%

10

%

28

%

 

Chart VII

 

Statement of Results (Consolidated) - per Company
Values in millions of reais

 

 

 

Cemig H

 

Cemig D

 

Cemig GT

 

 

 

2007

 

2006

 

2007

 

2006

 

2007

 

2006

 

Net Revenue

 

10,246

 

8,467

 

5,976

 

5,419

 

2,666

 

2,243

 

Operating Expenses

 

(6,951

)

(5,917

)

(4,526

)

(4,363

)

(1,193

)

(1,064

)

EBIT

 

3,295

 

2,550

 

1,450

 

1,056

 

1,473

 

1,179

 

EBITDA

 

4,073

 

3,222

 

1,867

 

1,423

 

1,696

 

1,387

 

Financial Result

 

(356

)

(50

)

8

 

189

 

(333

)

(319

)

Non-Operating Result

 

(10

)

(37

)

(43

)

(25

)

(3

)

(2

)

Provision for Income Taxes, Social Cont & Deferred Income Tax

 

(623

)

(527

)

(312

)

(300

)

(280

)

(194

)

Employee Participation

 

(455

)

(210

)

(332

)

(150

)

(110

)

(50

)

Minority Shareholders

 

(116

)

(7

)

 

 

 

 

Net Income

 

1,735

 

1,719

 

771

 

770

 

747

 

614

 

 

 

 

 

179



 

Chart IX

 

Related party transactions
Values in millions of reais

 

 

 

State of Minas Gerais
Government

 

 

 

2007

 

2006

 

ASSETS

 

 

 

 

 

Current Assets

 

 

 

 

 

Customers and distributors

 

2

 

3

 

Tax Recoverable -

 

 

 

State VAT recoverable

 

167

 

15

 

Noncurrent assets

 

 

 

Accounts receivable from Minas Gerais State Government

 

1,763

 

1,726

 

Tax Recoverable -

 

58

 

312

 

VAT recoverable

 

 

 

Customers and distributors

 

37

 

37

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Current Liabilities

 

 

 

Taxes, fees and charges

 

 

 

VAT - ICMS payable

 

268

 

262

 

Interest on capital and Dividends

 

126

 

308

 

Debentures

 

147

 

106

 

Credit Receivables Fund (FDIC)

 

990

 

982

 

Financing

 

18

 

32

 

 

Chart X

 

Share Ownership

 

Number of shares as of December 31, 2007

 

Shareholders

 

Common

 

%

 

Preferred

 

%

 

Total

 

%

 

State of Minas Gerais

 

108,348,914

 

51

 

 

 

108,348,914

 

22

 

Southern Electric Brasil Part. Ltda.

 

70,088,868

 

33

 

 

 

70,088,868

 

14

 

Other:

 

 

 

 

 

 

 

Local

 

19,692,079

 

9

 

87,640,319

 

32

 

107,332,398

 

22

 

Foreigners

 

14,492,642

 

7

 

186,198,634

 

68

 

200,691,276

 

41

 

Total

 

212,622,503

 

100

 

273,838,953

 

100

 

486,461,456

 

100

 


*                            Southern Electric Brasil Participações Ltda

 

 

180



 

Chart XI

 

BALANCE SHEETS (CONSOLIDATED)
ASSETS

Values in millions of reais

 

 

 

2007

 

2006

 

CURRENT ASSETS

 

7,722

 

6,395

 

Cash and Cash Equivalents

 

2,066

 

1,402

 

Consumers and Distributors

 

2,025

 

2,075

 

Consumers — Rate Adjustment

 

451

 

356

 

Dealership - Energy Transportation

 

474

 

358

 

Dealers - Transactions on the MAE

 

31

 

123

 

Tax Recoverable

 

810

 

284

 

Materials and Supplies

 

42

 

35

 

Prepaid Expenses - CVA

 

520

 

460

 

Tax Credits

 

490

 

126

 

Regulatory Assets

 

58

 

108

 

Deferred Tariff Adjustment

 

464

 

791

 

Other

 

291

 

277

 

NONCURRENT ASSETS

 

4,315

 

4,903

 

Account Receivable from Minas Gerais State Government

 

1,763

 

1,726

 

Consumers — Rate Adjustment

 

721

 

979

 

Regulatory Assets

 

61

 

215

 

Prepaid Expenses - CVA

 

178

 

160

 

Tax Credits

 

695

 

679

 

Deferred Tariff Adjustment

 

 

 

Dealers - Transactions on the MAE

 

14

 

35

 

Recoverable Taxes

 

365

 

601

 

Escrow Account re: Lawsuits

 

272

 

255

 

Consumers and Distributors

 

126

 

101

 

Other Receivables

 

38

 

25

 

 

 

12,230

 

11,911

 

Investments

 

1,071

 

999

 

Property, Plant and Equipment

 

10,563

 

10,335

 

Intangible

 

532

 

494

 

Deferred Charges

 

64

 

83

 

TOTAL ASSETS

 

24,267

 

23,209

 

 

181



 

Chart XII

 

BALANCE SHEETS (CONSOLIDATED)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Values in millions of reais

 

 

 

2007

 

2006

 

CURRENT LIABILITIES

 

5,862

 

5,749

 

Suppliers

 

936

 

914

 

Taxes payable

 

1,078

 

995

 

Loan, Financing and Debentures

 

1,021

 

834

 

Payroll, related charges and employee participation

 

338

 

259

 

Interest on capital and dividends

 

881

 

1,374

 

Employee post-retirement benefits

 

107

 

139

 

Regulatory charges

 

396

 

436

 

Other Obligations - Provision for losses on financial instruments

 

540

 

470

 

Regulatory Liabilities - CVA and Revision Revenue Transmission

 

565

 

328

 

NON CURRENT LIABILITIES

 

9,610

 

9,750

 

Loan, Financing and Debentures

 

6,619

 

6,815

 

Employee post-retirement benefits

 

1,364

 

1,451

 

Suppliers

 

341

 

272

 

Taxes and social charges

 

319

 

449

 

Reserve for contingencies

 

635

 

535

 

Other

 

136

 

108

 

Prepaid expenses - CVA

 

196

 

120

 

Deferred income

 

86

 

90

 

PARTICIPATION IN ASSOCIATE COMPANIES

 

319

 

98

 

SHAREHOLDERS’ EQUITY

 

8,390

 

7,522

 

Registered Capital

 

2,432

 

1,621

 

Capital reserves

 

4,032

 

4,032

 

Income reserves

 

1,899

 

1,842

 

Funds for capital increase

 

27

 

27

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

24,267

 

23,209

 

 

 

182



 

Chart XIII

 

Income Statement (consolidated)
Values in million of Reais

 

 

 

2007

 

2006

 

Cash at start of period

 

1,402

 

1,344

 

Cash from operations

 

3369

 

2185

 

Net income

 

1,735

 

1,719

 

Depreciation and amortization

 

778

 

672

 

Suppliers

 

34

 

125

 

Other adjustments

 

822

 

(331

)

Financing activity

 

-1515

 

-533

 

Financing obtained

 

1,056

 

2,266

 

Payment of loans and financing

 

(1,855

)

(1,927

)

Loans and financing

 

800

 

1,200

 

Other

 

(1,516

)

(2,072

)

Investment activity

 

-1190

 

-1719

 

Investments outside the concession area

 

(109

)

(553

)

Investments in the concession area

 

(1,393

)

(1,472

)

Special obligations - consumer contributions

 

268

 

306

 

Other

 

44

 

125

 

Cash at the end of period

 

2,066

 

1,402

 

 

 

183



 

CEMIG GT — Tables I to III

 

Chart I

 

Operating Revenues (consolidated) - CEMIG GT
Values in million of Reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Sales to end consumers

 

1,663

 

1,457

 

449

 

382

 

Supply

 

1,120

 

870

 

275

 

221

 

Revenues from Trans. Network +

 

 

 

 

 

 

 

 

 

Transactions in the CCEE

 

550

 

576

 

144

 

139

 

Others

 

41

 

10

 

5

 

2

 

Subtotal

 

3,374

 

2,913

 

873

 

744

 

Deductions

 

(708

)

(670

)

(159

)

(169

)

Net Revenues

 

2,666

 

2,243

 

714

 

575

 

 

Chart II

 

Operating Expenses (consolidated) - CEMIG GT
Values in millions of reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Personnel/Administrators/Councillors

 

228

 

249

 

40

 

42

 

Depreciation and Amortization

 

223

 

208

 

56

 

62

 

Charges for Use of Basic Transmission Network

 

257

 

232

 

68

 

61

 

Contracted Services

 

96

 

89

 

32

 

28

 

Forluz — Post-Retirement Employee Benefits

 

23

 

36

 

6

 

10

 

Materials

 

18

 

18

 

7

 

7

 

Royalties

 

130

 

124

 

31

 

33

 

Operating Provisions

 

6

 

1

 

1

 

(2

)

Other Expenses

 

78

 

70

 

22

 

19

 

Purchased Energy for sale

 

76

 

 

62

 

 

Raw material for production

 

58

 

37

 

13

 

1

 

Total

 

1,193

 

1,064

 

338

 

261

 

 

 

 

184



 

Chart III

 

Statement of Results (Consolidated) - CEMIG GT
Values in millions of reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Net Revenue

 

2,666

 

2,243

 

714

 

575

 

Operating Expenses

 

(1,193

)

(1,064

)

(338

)

(261

)

EBIT

 

1,473

 

1,179

 

376

 

314

 

EBITDA

 

1,696

 

1,387

 

432

 

376

 

Financial Result

 

(333

)

(319

)

(106

)

(110

)

Non-Operating Result

 

(3

)

(2

)

(7

)

(1

)

Provision for Income Taxes, Social Cont & Deferred Income Tax

 

(280

)

(194

)

(32

)

(27

)

Employee Participation

 

(110

)

(50

)

(110

)

(50

)

Net Income

 

747

 

614

 

121

 

126

 

 

CEMIG D — Tables I to IV

 

CHART I

 

CEMIG D - MARKET (GWh)

 

 

 

CAPTIVE MARKET

 

TUSD

 

TOTAL ENERGY TRANSPORTED

 

1Q05

 

5,192

 

3,042

 

8,234

 

2Q05

 

5,048

 

3,923

 

8,971

 

3Q05

 

5,004

 

3,063

 

8,067

 

4Q05

 

5,065

 

4,119

 

9,184

 

1Q06

 

5,856

 

4,050

 

9,906

 

2Q06

 

5,986

 

4,207

 

10,193

 

3Q06

 

5,069

 

4,286

 

9,355

 

4Q06

 

5,059

 

4,194

 

9,253

 

1Q07

 

4,912

 

4,128

 

9,040

 

2Q07

 

5,267

 

4,438

 

9,705

 

3Q07

 

5,165

 

4,516

 

9,681

 

4Q07

 

5,350

 

4,457

 

9,807

 

 

 

185



 

Chart II

 

Operating Revenues (consolidated) - CEMIG D

Values in million of Reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Sales to end consumers

 

8,488

 

7,906

 

2,235

 

2,114

 

TUSD

 

1,321

 

1,261

 

365

 

282

 

Subtotal

 

9,809

 

9,167

 

2,600

 

2,396

 

Supply+ Transactions in the CCEE

 

23

 

60

 

7

 

30

 

Others

 

68

 

56

 

17

 

17

 

Subtotal

 

9,900

 

9,283

 

2,624

 

2,443

 

Deductions

 

(3,924

)

(3,864

)

(986

)

(1,124

)

Net Revenues

 

5,976

 

5,419

 

1,638

 

1,319

 

 

Chart III

 

Operating Expenses (consolidated) - CEMIG D

Values in millions of reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Purchased Energy

 

2,164

 

1,981

 

590

 

409

 

Personnel/Administrators/Councillors

 

619

 

734

 

106

 

104

 

Depreciation and Amortization

 

417

 

367

 

112

 

91

 

Charges for Use of Basic Transmission Network

 

447

 

515

 

109

 

93

 

Contracted Services

 

396

 

329

 

130

 

96

 

Forluz — Post-Retirement Employee Benefits

 

73

 

116

 

18

 

35

 

Materials

 

69

 

59

 

19

 

15

 

Operating Provisions

 

176

 

109

 

76

 

19

 

Other Expenses

 

165

 

153

 

46

 

51

 

Total

 

4,526

 

4,363

 

1,206

 

913

 

 

Chart IV

 

Statement of Results (Consolidated) - CEMIG D

Values in millions of reais

 

 

 

2007

 

2006

 

4th Q. 2007

 

4th Q. 2006

 

Net Revenue

 

5,976

 

5,419

 

1,638

 

1,319

 

Operating Expenses

 

(4,526

)

(4,363

)

(1,206

)

(913

)

EBIT

 

1,450

 

1,056

 

432

 

406

 

EBITDA

 

1,867

 

1,423

 

544

 

497

 

Financial Result

 

8

 

189

 

(13

)

43

 

Non-Operating Result

 

(43

)

(25

)

(17

)

(4

)

Provision for Income Taxes, Social Cont & Deferred Income Tax

 

(312

)

(300

)

(6

)

(78

)

Employee Participation

 

(332

)

(150

)

(332

)

(150

)

Net Income

 

771

 

770

 

64

 

217

 

 

 

186



 

 

ITEM 10

 

Notice to Shareholders, March 7, 2008

 

 

187



 

 

 

 

COMPANHIA ENERGÉTICA DE MINAS GERAIS — CEMIG
BRAZILIAN LISTED COMPANY
CNPJ 17.155.730/0001-64

 

NOTICE TO SHAREHOLDERS

 

We advise our shareholders that the documents referred to in article 133 of Law # 6,404 of December 15, 1976, relating to the year 2007, are available for consultation at the head offices of this Corporation located at Av. Barbacena, 1,200, Belo Horizonte.

 

 

Belo Horizonte, March 07, 2008

 

 

Luiz Fernando Rolla

Chief Officer for Finance, Investor Relations and Control of Holdings

 

 

188



 

SIGNATURES

 

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

 

 

 

COMPANHIA ENERGETICA DE MINAS GERAIS — CEMIG

 

 

 

 

 

 

 

 

 

By:

/s/ Luiz Fernando Rolla

 

 

Name:

Luiz Fernando Rolla

 

 

Title:

Chief Financial Officer and Investor Relations Officer

 

Date: March 14, 2008

 

189