20-F 1 d350457d20f.htm FORM 20-F Form 20-F
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 20-F

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34129

 

 

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

(exact name of registrant as specified in its charter)

 

 

BRAZILIAN ELECTRIC POWER COMPANY

(translation of registrant’s name into English)

Federative Republic of Brazil

(jurisdiction of incorporation or organization)

Avenida Presidente Vargas, 409 – 9th floor, Edifício Herm. Stoltz – Centro, CEP 20071-003, Rio de Janeiro, RJ, Brazil

(address of principal executive offices)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares, evidenced by American Depositary Receipts, each representing one Common Share   New York Stock Exchange
Common Shares, no par value*   New York Stock Exchange
American Depositary Shares, evidenced by American Depositary Receipts, each representing one Class B Preferred Share   New York Stock Exchange
Preferred Shares, no par value*   New York Stock Exchange

 

* Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

 

 

The number of outstanding shares of each of the issuer’s classes of capital or common stock as of December 31, 2011 was:

 

1,087,050,297           Common Shares
146,920                     Class A Preferred Shares
265,436,883              Class B Preferred Shares

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ¨  Yes    x  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ¨  Yes    x  No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    x  Yes    ¨  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ¨    No  x

Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12-b-2 of the Exchange Act.

Large accelerated filer  x    Accelerated filer  ¨    Non accelerated filer  ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP  ¨    IFRS  x    Other  ¨

Indicate by check mark which financial statement item the registrant has elected to follow.    ¨  Item 17    x  Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.).    ¨  Yes    x  No

 

 

 


Table of Contents

CONTENTS

 

     Page  

ITEM 1. Identity of Directors, Senior Management and Advisers

     7   

ITEM 2. Offer Statistics and Expected Timetable

     7   

ITEM 3. Key Information

     7   

ITEM 4. Information on the Company

     22   

ITEM 4A. Unresolved Staff Comments

     66   

ITEM 5. Operating and Financial Review and Prospects

     66   

ITEM 6. Directors, Senior Management and Employees

     88   

ITEM 7. Major Shareholders and Related Party Transactions

     93   

ITEM 8. Financial Information

     94   

ITEM 9. The Offer and Listing

     99   

ITEM 10. Additional Information

     108   

ITEM 11. Quantitative and Qualitative Disclosures About Market risk

     123   

ITEM 12. Description of Securities Other than Equity Securities

     123   

ITEM 12.D. American Depositary Shares

     123   

ITEM 13. Defaults, Dividend arrearages and Delinquencies

     124   

ITEM 14. Material Modifications to the Rights of Security Holders and Use of Proceeds

     124   

ITEM 15. Controls and Procedures

     124   

ITEM 15T. Controls and Procedures

     127   

ITEM 16A. Audit Committee Financial Expert

     127   

ITEM 16B. Code of Ethics

     127   

ITEM 16C. Principal Accountant Fees and Services

     127   

ITEM 16D. Exemption from the Listing Standards for Audit Committees

     128   

ITEM 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     128   

ITEM 16F. Change in registrant’s certifying accountant

     128   

ITEM 16G. Corporate Governance

     128   

ITEM 17. Financial Statements

     128   

ITEM 18. Financial Statements

     128   

ITEM 19. Exhibits

     129   

 

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PRESENTATION OF FINANCIAL AND OTHER INFORMATION

In this annual report, unless otherwise indicated or the context otherwise requires, all references to “we,” “our,” “ours,” “us” or similar terms refer to Centrais Elétricas Brasileiras S.A. – Eletrobras and its consolidated subsidiaries.

We prepare our consolidated annual financial statements in compliance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements are the second Eletrobras financial statements to be prepared in compliance with IFRS. Until December 31, 2009, our consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). U.S. GAAP differs in certain respects from IFRS. When preparing our 2010 consolidated IFRS financial statements, management has amended certain accounting, valuation and consolidation methods in the U.S. GAAP financial statements to comply with IFRS. Reconciliations and descriptions of the effect of the transition from U.S. GAAP to IFRS are set out in Note 43 to the consolidated financial statements. We have also included a reconciliation of previous Brazilian GAAP to IFRS in Note 43 to our financial statements.

The last consolidated financial statements available under U.S. GAAP which were filed with the United States Securities and Exchange Commission were those for the year ended December 31, 2009.

Beginning in 2011, we adopted certain changes to the presentation of our financial statements in an effort to make the presentation of the financial statements of each company within our group more consistent. Accordingly, we added and deleted a limited number of line items in our balance sheet, income of statement and cash flow statement as of and for the years ended December 31, 2011 and 2010.

As a result of this change in presentation, for the year ended December 31, 2010, R$236 million of current assets were improperly classified as non-current assets. With respect to the income statement, for the year ended December 31, 2010, the subsidy of fuel account (“CCC”) was presented as an other operating expense, but it is now presented as other operating revenue, which resulted in a R$82 million decrease in operating expenses and a corresponding R$82 million increase in operating revenues. In our cash flow statement for the year ended December 31, 2010 and 2009, dividends received were originally classified as investing activities, and, due to the fact that we are a holding company, we now present them as operating activities. This resulted in a R$601 million decrease in investing activities in 2010 and a corresponding R$731 million increase in operating activities in 2009 as permitted by paragraph 14 of IAS 7. No conforming changes to our balance sheet or income statement as of and for the year ended December 31, 2009 were necessary with respect to this change in presentation.

In this annual report, the term “Brazil” refers to the Federative Republic of Brazil and the phrase “Brazilian Government” refers to the federal government of Brazil. The term “Central Bank” refers to the Central Bank. The terms “real” and “reais” and the symbol “R$” refer to the legal currency of Brazil. The terms “U.S. dollar” and “U.S. dollars” and the symbol “U.S.$” refer to the legal currency of the United States of America.

Certain figures in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures that precede them.

Terms contained within this annual report have the following meanings:

 

   

Eletrobras Amazonas Energia, or Amazonas Energia: Amazonas Energia S.A., a distribution company wholly owned by Eletrobras and operating in the State of Amazonas. Amazonas Energia was formed in 2008 as a result of the merger between Ceam and Manaus Energia S.A.;

 

   

ANDE: Administración Nacional de Electricidad;

 

   

ANEEL: Agência Nacional de Energia Elétrica, the Brazilian Electric Power Agency;

 

   

Average tariff or rate: total sales revenue divided by total MWh sold for each relevant period, including unbilled electricity. Total sales revenue, for the purpose of computing average tariff or rate, includes both gross billings before deducting VAT and other taxes and unbilled electricity sales upon which such taxes have not yet accrued;

 

   

Basic Network: interconnected transmission lines, dams, energy transformers and equipment with voltage equal to or higher than 230 kV, or installations with lower voltage as determined by ANEEL;

 

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BNDES: Banco Nacional de Desenvolvimento Econômico e Social, the Brazilian Development Bank;

 

   

Brazilian Corporate Law: Collectively, Law No. 6,404 of December 15, 1976, Law No. 9,457 of May 5, 1997 and Law No. 10,303 of October 31, 2001;

 

   

Capacity charge: the charge for purchases or sales based on contracted firm capacity whether or not consumed;

 

   

CCC Account: Conta de Consumo de Combustivel, or Fuel Consumption Account;

 

   

CCEAR: Contratos de Comercialização de Energia no Ambiente Regulado, contracts for the commercialization of energy in the Regulated Market;

 

   

CDE Account: Conta de Desenvolvimento Energetico, the energy development account;

 

   

Ceam: Eletrobras Amazonas Energia, a distribution company that used to operate in the State of Amazonas. In March 2008, Ceam merged with Manaus Energia S.A. The resulting entity is Amazonas Energia S.A.;

 

   

CGE: Câmara de Gestão da Crise de Energia Elétrica, the Brazilian Energy Crisis Management Committee;

 

   

Eletrobras CGTEE, or CGTEE: Companhia de Geração Térmica de Energia Elétrica, a generation subsidiary of Eletrobras;

 

   

CMN: Conselho Monetario Nacional, the highest authority responsible for Brazilian monetary and financial policy;

 

   

CNEN: Comissão Nacional de Energia Nuclear S.A., the Brazilian national commission for nuclear energy;

 

   

CNPE: Conselho Nacional de Política Energética, the advisory agency to the President of the Republic of Brazil for the formulation of policies and guidelines in the Energy sector;

 

   

Concessionaires or concessionaire companies: companies to which the Brazilian Government transfers rights to supply electrical energy services (generation, transmission, distribution) to a particular region in accordance with agreements entered into between the companies and the Brazilian Government pursuant to Law No. 8,987 (dated February 1995) and Law No. 9,074 (the Power Sector Law, dated July 7, 1995) (together, the “Concessions Laws”);

 

   

Distribution: the transfer of electricity from the transmission lines at grid supply points and its delivery to consumers through a distribution system. Electricity reaches consumers such as residential consumers, small industries, commercial properties and public utilities at a voltage of 220/127 volts;

 

   

Distributor: an entity supplying electrical energy to a group of customers by means of a distribution network;

 

   

DNAEE: Departamento National de Águas e Energia Elétrica, the Brazilian national department of water and electrical energy;

 

   

Electricity Regulatory Law: Law No. 10,848 (Lei do Novo Modelo do Setor Elétrico), enacted on March 15, 2004, and which regulates the operations of companies in the electricity industry;

 

   

Eletrobras Distribuição Alagoas, or Distribuição Alagoas: Companhia Energética de Alagoas, a distribution company operating in the State of Alagoas (Ceal);

 

   

Cepel: Centro de Pesquisas de Energia Elétrica, a research center of the Brazilian electric sector;

 

   

Eletrobras: Centrais Elétricas Brasileiras S.A. – Eletrobras;

 

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Eletrobras Chesf, or Chesf: Companhia Hidro Elétrica do São Francisco, a generation and transmission subsidiary of Eletrobras;

 

   

Eletrobras Distribuição Acre, or Distribuição Acre: Companhia de Eletricidade de Acre, a distribution company operating in the State of Acre (Eletroacre);

 

   

Eletrobras Distribuição Piauí, or Distribuição Piauí: Companhia Energética de Piauí, a distribution company operating in the State of Piauí (Cepisa);

 

   

Eletrobras Distribuição Rondônia, or Distribuição Rondônia: Centrais Elétricas de Rondônia, a distribution company operating in the State of Rondônia (Ceron);

 

   

Eletrobras Distribuição Roraima, or Distribuição Roraima, formally known as Boa Vista Energia S.A., a distribution company operating in the city of Boa Vista, in the State of Roraima;

 

   

Eletrobras Eletronorte, or Eletronorte: Centrais Elétricas do Norte do Brasil S.A., a generation and transmission subsidiary of Eletrobras;

 

   

Eletrobras Eletronuclear, or Eletronuclear: Eletrobras Termonuclear S.A., a generation subsidiary of Eletrobras;

 

   

Eletrobras Eletropar, or Eletropar: Eletrobras Participações S.A., a holding company subsidiary created to hold equity investments (formerly, Light Participações S.A. – LightPar);

 

   

Eletrobras Eletrosul, or Eletrosul: Eletrosul Centrais Elétricas S.A., a generation and transmission subsidiary of Eletrobras;

 

   

Eletrobras Furnas, or Furnas: Furnas Centrais Elétricas S.A., a generation and transmission subsidiary of Eletrobras;

 

   

Energy charge: the variable charge for purchases or sales based on actual electricity consumed;

 

   

Environmental Crimes Act: Law No. 9,605, dated February 12, 1998;

 

   

Final consumer (end user): a party who uses electricity for its own needs;

 

   

FND: Fundo National do Desestatização, the national privatization fund;

 

   

Free consumers: customers that were connected to the system after July 8, 1995 and have a contracted demand above 3 MW at any voltage level; or customers that were connected to the system prior to July 8, 1995 and have a contracted demand above 3 MW at voltage level higher than or equal to 69 kV;

 

   

Gigawatt ( GW): one billion watts;

 

   

Gigawatt hour ( GWh): one gigawatt of power supplied or demanded for one hour, or one billion watt hours;

 

   

High voltage: a class of nominal system voltages equal to or greater than 100,000 volts (100 kVs) and less than 230,000 volts (230 kVs);

 

   

Hydroelectric plant or hydroelectric facility or hydroelectric power unity (HPU): a generating unit that uses water power to drive the electric generator;

 

   

IGP-M: Indice Geral de Precos-Mercado, the Brazilian general market price index, similar to the retail price index;

 

   

INB: Indústrias Nucleares Brasileiras, a Brazilian Government-owned company responsible for processing uranium used as power to provide electricity at Angra I and Angra II Nuclear Plants;

 

   

Installed capacity: the level of electricity which can be delivered from a particular generating unit on a full-load continuous basis under specified conditions as designated by the manufacturer;

 

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Interconnected Power System: systems or networks for the transmission of energy, connected together by means of one or more links (lines and/or transformers);

 

   

Isolated system: generation facilities in the North of Brazil not connected to the national transmission grid;

 

   

Itaipu: Itaipu Binacional, the hydroelectric generation facility owned equally by Brazil and Paraguay;

 

   

Kilowatt (kW): 1,000 watts;

 

   

Kilowatt Hour (kWh): one kilowatt of power supplied or demanded for one hour;

 

   

Kilovolt (kV): one thousand volts;

 

   

Megawatt (MW): one million watts;

 

   

Megawatt hour (MWh): one megawatt of power supplied or demanded for one hour, or one million watt hours;

 

   

Mixed capital company: pursuant to Brazilian Law No. 6,404 of December 15, 1976, a company with public and private sector shareholders, but controlled by the public sector;

 

   

MME: Ministério de Minas e Energia, the Brazilian Ministry of Mines and Energy;

 

   

MRE: Mercado Regulado de Energia, the Brazilian Energy Regulated Market;

 

   

National Environmental Policy Act: Law No. 6,938, dated August 31, 1981;

 

   

Northeast region: the States of Alagoas, Bahia, Ceará, Maranhão, Paraíba, Pernambuco, Piauí, Rio Grande do Norte and Sergipe;

 

   

ONS: Operador Nacional do Sistema, the national system operator;

 

   

Power Sector Law: Law No. 9,074 of July 7, 1997;

 

   

Procel: Programa Nacional de Combate ao Desperdício de Energia Elétrica, the national electrical energy conservation program;

 

   

Proinfa: Programa de Incentivo as Fontes Alternativas de Energia, the program for incentives to develop alternative energy sources;

 

   

RGR Fund: Reserva Global de Reversão, a fund we administer, funded by consumers and providing compensation to all concessionaires for non-renewal or expropriation of their concessions used as source of funds for the expansion and improvement of the electrical energy sector;

 

   

Selic rate: an official overnight government rate applied to funds traded through the purchase and sale of public debt securities established by the special system for custody and settlement;

 

   

Small Hydroelectric Power Plants: power plants with capacity from 1 MW to 30 MW;

 

   

Substation: an assemblage of equipment which switches and/or changes or regulates the voltage of electricity in a transmission and distribution system;

 

   

TFSEE: Taxa de Fiscalização de Serviços de Energia Elétrica, the fee for the supervision of electricity energy services;

 

   

Thermoelectric plant or thermoelectric power unity (TPU): a generating unit which uses combustible fuel, such as coal, oil, diesel natural gas or other hydrocarbon as the source of energy to drive the electric generator;

 

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Transmission: the bulk transfer of electricity from generating facilities to the distribution system at load center station by means of the transmission grid (in lines with capacity between 69 kV and 525 kV);

 

   

TWh: Terawatt hour (1,000 Gigawatt hours);

 

   

UBP Fund: Fundo de Uso de Bem Publico, the public asset use fund;

 

   

U.S. GAAP: generally accepted accounting principles in the United States;

 

   

Volt (V): the basic unit of electric force analogous to water pressure in pounds per square inch; and

 

   

Watt: the basic unit of electrical power.

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This annual report includes certain forward-looking statements, including statements regarding our intent, belief or current expectations or those of our officers with respect to, among other things, our financing plans, trends affecting our financial condition or results of operations and the impact of future plans and strategies. These forward-looking statements are subject to risks, uncertainties and contingencies including, but not limited to, the following:

 

   

general economic, regulatory, political and business conditions in Brazil and abroad;

 

   

interest rate fluctuations, inflation and the value of the real in relation to the U.S. dollar;

 

   

changes in volumes and patterns of customer electricity usage;

 

   

competitive conditions in Brazil’s electricity generation, transmission and distribution markets;

 

   

the effects of competition;

 

   

our level of debt;

 

   

the likelihood that we will receive payment in connection with account receivables;

 

   

changes in rainfall and the water levels in the reservoirs used to run our hydroelectric power generation facilities;

 

   

our financing and capital expenditure plans;

 

   

our ability to serve our customers on a satisfactory basis;

 

   

existing and future governmental regulation as to electricity rates, electricity usage, competition in our concession area and other matters;

 

   

our ability to execute our business strategy, including our growth strategy;

 

   

adoption of measures by the granting authorities in connection with our concession agreements;

 

   

changes in other laws and regulations, including, among others, those affecting tax and environmental matters;

 

   

future actions that may be taken by the Brazilian Government, our controlling shareholder;

 

   

the outcome of our tax, civil and other legal proceedings; and

 

   

other risk factors as set forth under “Item 3.D, Risk Factors.”

The forward-looking statements referred to above also include information with respect to our capacity expansion projects that are in the planning and development stages. In addition to the above risks and uncertainties, our potential expansion projects involve engineering, construction, regulatory and other significant risks, which may:

 

   

delay or prevent successful completion of one or more projects;

 

   

increase the costs of projects; and

 

   

result in the failure of facilities to operate or generate income in accordance with our expectations.

The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar words are intended to identify forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements as a result of new information, future events or otherwise. In light of these risks and uncertainties, the forward-looking information, events and circumstances discussed in this annual report might not occur. Our actual results and performance could differ substantially from those anticipated in our forward-looking statements.

 

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PART I

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

ITEM 3. KEY INFORMATION

Background

The selected financial information presented herein should be read in conjunction with our financial statements and related notes, which appear elsewhere in this annual report.

The following paragraphs discuss some important features of the presentation of the selected financial information and our financial statements. These features should be considered when evaluating the selected financial information.

A. Selected Financial Data

Consolidated Balance Sheet Information

 

     As of December 31,  
     2011      2010      2009  
     (R$ thousands)  

Assets

        

Current

        

Cash and cash equivalents

     4,959,787         9,220,169         8,617,294   

Restricted cash

     3,034,638         2,058,218         1,341,719   

Marketable securities

     11,252,504         6,774,073         7,662,640   

Accounts Receivable

     4,352,024         3,779,930         3,102,079   

Financial asset of concession agreements

     2,017,949         1,723,522         1,570,376   

Loans and financings

     2,082,054         1,359,269         1,926,193   

Fuel consumption account – CCC

     1,184,936         1,428,256         877,833   

Investment remuneration

     197,863         178,604         78,726   

Taxes recoverable

     1,947,344         1,825,905         1,326,933   

Reimbursement rights

     3,083,157         1,704,239         221,519   

Warehouse (storeroom)

     358,724         378,637         350,470   

Stock of nuclear fuel

     388,663         297,972         324,634   

Prepaid expenses

     46,322         40,418         58,765   

Financial instruments

     195,536         283,220         227,540   

Other

     1,561,171         1,517,439         1,114,505   
  

 

 

    

 

 

    

 

 

 

Total current assets

     36,662,672         32,569,871         28,801,226   

Non-current

        

Long term assets

        

Reimbursement rights

     500,333         371,599         99,178   

Loans and financings

     7,651,336         8,300,171         9,839,828   

Accounts receivable

     1,478,994         1,706,292         1,431,080   

Marketable securities

     398,358         769,905         687,188   

Stock of nuclear fuel

     435,633         523,957         755,434   

Deferred tax assets

     5,774,286         4,338,682         4,493,223   

Judicial deposit

     2,316,324         1,750,678         1,521,317   

Fuel consumption account – CCC

     727,136         785,327         1,173,580   

Financial asset of concession of agreements

     46,149,379         40,643,712      

Financial instruments

     185,031         297,020         228,020   

Advances for future capital increase

     4,000         7,141      

Other

     701,763         1,165,529         666,967   
  

 

 

    

 

 

    

 

 

 
     66,322,573         60,660,013         59,996,755   

Investments

     4,570,959         4,724,647         5,288,107   

Property, plant and equipment

     53,214,861         46,682,498         41,597,605   

Intangible assets

     2,371,367         2,263,972         2,024,683   

Total non-current assets

     126,479,760         53,671,117         48,910,395   
  

 

 

    

 

 

    

 

 

 

Total assets

     163,142,432         146,901,001         137,708,376   
  

 

 

    

 

 

    

 

 

 

 

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     As of December 31,  
     2011     2010     2009  
           (R$ thousands)  

Liabilities and shareholders’ equity

      

Current

      

Borrowings

     4,005,326        1,868,465        1,115,274   

Debentures

     739,237        —          —     

Compulsory loan

     16,331        16,925        13,675   

Suppliers

     6,338,102        5,165,765        3,079,614   

Advances from clients

     413,041        341,462        63,400   

Taxes and social contributions

     1,032,521        1,102,672        963,365   

Fuel consumption account – CCC

     3,079,796        2,579,546        923,535   

Shareholders’ remuneration

     4,373,773        3,424,520        3,214,450   

National Treasury Credits

     109,050        92,770        76,036   

Estimated liabilities

     802,864        772,071        672,214   

Reimbursement Obligations

     1,955,966        759,214        857,001   

Complementary pension plans

     451,801        330,828        351,149   

Provision for contingencies

     240,190        257,580        252,708   

Regulatory fees

     901,692        584,240        589,433   

Leasing

     142,997        120,485        108,827   

Concessions payable

     35,233        25,098        —     

Derivative financial instruments

     269,718        237,209        40,050   

Personnel voluntary dismissal

     93,137        —          —     

Research and development

     274,722        219,538        240,684   

Profit sharing

     296,547        227,563        194,752   
  

 

 

   

 

 

   

 

 

 

Other

     552,765        243,560        513,680   
  

 

 

   

 

 

   

 

 

 

Total current liabilities

     26,124,809        18,369,511        13,269,847   

Non-current

      

Borrowings

     38,408,352        31,269,971        28,392,542   

National Treasury credits

     155,676        250,485        311,306   

Debentures

     279,410        710,536        —     

Advances from clients

     879,452        928,653        978,980   

Compulsory loan

     211,554        141,425        127,358   

Decommission obligations

     408,712        375,968        323,326   

Fuel consumption account – CCC

     954,013        785,327        1,344,380   

Provision for contingencies

     4,652,176        3,901,289        3,528,917   

Complementary pension plans

     2,256,132        2,066,702        1,992,012   

Reimbursement obligations

     1,475,262        1,091,271        435,548   

Leasing

     1,775,544        1,694,547        1,639,448   

Shareholders’ remuneration

     3,143,222        5,601,077        7,697,579   

Concessions payable

     1,234,426        1,089,726        761,131   

Advances for future capital increase

     148,695        5,173,856        4,712,825   

Derivative financial instruments

     197,965        303,331        228,020   

Personnel voluntary dismissal

     726,291        273,671        259,220   

Research and development

     370,714        284,820        261,909   

Taxes and social contributions

     1,902,522        1,217,649        1,273,890   

Other

     635,184        840,776        791,091   
  

 

 

   

 

 

   

 

 

 

Total non-current liabilities

     59,815,302        58,001,080        55,059,480   

Shareholders’ equity

      

Share capital

     31,305,331        26,156,567        26,156,567   

Capital reserves

     26,048,342        26,048,342        26,048,342   

Profit reserves

     18,571,011        17,329,661        15,663,924   

Asset valuation adjustment

     220,915        163,335        179,427   

Additional Proposed Dividend

     706,018        753,201        370,755   

Other comprehensive income

     (8,108     (146,992     827,491   

Non-controlling shareholders’ interest

     358,812        226,296        132,543   
  

 

 

   

 

 

   

 

 

 

Total shareholders’ equity

     77,202,321        70,530,410        69,379,050   

Total liabilities and shareholders’ equity

     163,142,432        146,901,001        137,708,376   
  

 

 

   

 

 

   

 

 

 

 

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Consolidated Income Statement

 

     For the year ended December 31,  
     2011     2010     2009  
           (R$ thousands)  

Net operating revenue

     29,532,744        26,832,085        23,140,905   

Operating expenses

      

Personnel, supplies and services

     7,670,716        7,370,713        6,486,218   

Profit sharing for employees and management

     317,035        296,270        284,534   

Electricity purchased for reselling

     3,386,289        4,315,084        3,581,396   

Fuel for electricity production

     162,673        252,502        756,285   

Use of the grid

     1,420,934        1,353,839        1,263,408   

Remuneration and reimbursement

     1,328,994        1,087,341        1,188,032   

Depreciation and amortization

     1,723,885        1,592,476        1,624,246   

Construction

     4,279,608        2,953,484        1,723,960   

Operating provisions

     2,848,749        2,497,262        2,140,406   

Itaipu’s income to offset

     655,290        441,057        669,675   

Donations and contributions

     289,964        261,006        237,978   

Other

     1,305,765        669,434        704,449   
  

 

 

   

 

 

   

 

 

 
     25,389,902        23,090,468        20,660,585   

Operating result before financial result

     4,142,842        3,741,617        2,480,320   

Financial result

      

Financial revenue

      

Revenue from interest, commissions and fees

     757,450        781,872        1,035,487   

Revenue from financial investments

     1,664,517        1,537,435        1,464,782   

Arrears surcharge on electricity

     359,208        393,987        228,145   

Monetary restatement

     652,949        616,141        356,023   

Exchange rate variation gain

     669,731        —          —     

Other financial revenues

     158,471        394,890        736,766   

Financial expenses

      

Debt charges

     (1,708,670     (1,675,821     (1,758,473

Leasing charges

     (350,861     (332,449     (213,470

Charges on shareholders’ resources

     (1,178,989     (1,298,647     (1,468,713

Exchange rate variation loss

     —          (431,497     (4,018,643

Other financial expenses

     (789,353     (350,033     —     
  

 

 

   

 

 

   
     234,453        (364,122     (3,638,097

Result/loss before participation in associates and other investments

     4,377,295        3,377,495        (1,157,777
  

 

 

   

 

 

   

 

 

 

Result of participation in associates and other investments

     482,785        669,755        1,571,032   
  

 

 

   

 

 

   

 

 

 

Income before income tax and social contribution

     4,860,080        4,047,250        413,255   
  

 

 

   

 

 

   

 

 

 

Income tax

     (796,252     (1,074,606     635,875   

Social contribution on net income

     (301,809     (419,659     201,010   
  

 

 

   

 

 

   

 

 

 

Net income for the year

     3,762,019        2,552,985        1,250,140   
  

 

 

   

 

 

   

 

 

 

Attributable to controlling shareholders

     3,732,565        2,247,913        911,467   

Attributable to non-controlling shareholders

     29,454        305,072        338,673   
  

 

 

   

 

 

   

 

 

 

Net earning per share

   R$ 2.78      R$ 2.25      R$ 1.10   
  

 

 

   

 

 

   

 

 

 

Brazilian Corporate Law and our by-laws provide that we must pay our shareholders mandatory dividends equal to at least 25% of our adjusted net income for the preceding fiscal year. In addition, our by-laws require us to give: (i) class “A” preferred shares a priority in the distribution of dividends, at 8% each year over the capital linked to those shares; and (ii) class “B” preferred shares that were issued on or after June 23, 1969 a priority in the distribution of dividends, at 6% each year over the capital linked to those shares. In addition, preferred shares must receive a dividend 10% over the dividend paid to the common shares.

 

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The following table sets out our declared dividends for the periods indicated:

 

     Year  
     2011(1)      2010(1)      2009(1)  
     (R$)  

Common Shares

     1.23         0.83         0.41   

Class A Preferred Shares

     2.17         2.17         2.17   

Class B Preferred Shares

     1.63         1.63         1.63   

 

(1) Interest on own capital.

The following table sets forth a summary of dividends/interest on own capital declared per share for the periods presented, both at the time declared and as adjusted for our 500:1 reverse stock split effected in 2007.

Dividend per Share

 

     Declared      Paid(2)  
     On 12/31/2007      Equivalent on 08/20/2007(1)      On 06/15/2008      Equivalent on 08/20/2007(1)  
     R$      U.S.$      R$      U.S.$      R$      U.S.$      R$      U.S.$  

Common

     0.40155520020         0.22670084130         0.40155520020         0.22670084130         0.41587767968         0.24648985282         0.41587767968         0.24648985282   

Preferred A

     2.01949731106         1.14012155539         2.01949731106         1.14012155539         2.09152777855         1.23964424997         2.09152777855         1.23964424997   

Preferred B

     1.51462298231         0.85509116599         1.51462298231         0.85509116599         1.56864583289         0.92973318687         1.56864583289         0.92973318687   

 

     Declared      Paid(2)  
     On 12/31/2008      Equivalent on 08/20/2007(1)      On 04/30/2009(3)      Equivalent on 08/20/2007(1)  
     R$      U.S.$      R$      U.S.$      R$      U.S.$      R$      U.S.$  

Common

     1.484883733         0.635380288         1.484883733         0.635380288         1.548692924         0.662684178         1.548692924         0.662684178   

Preferred A

     2.174044374         0.930271448         2.174044374         0.930271448         2.267468532         0.970247553         2.267468532         0.970247553   

Preferred B

     1.630533280         0.697703586         1.630533280         0.697703586         1.703562217         0.728952596         1.703562217         0.728952596   

 

     Declared      Paid      Declared      Paid  
     On 12/31/2009      On 05/18/2010      On 12/31/2010      On 06/29/2011  
     R$      U.S.$      R$      U.S.$      R$      U.S.$      R$      U.S.$  

Common

     0.4096631540         0.713305484         1.548692924         0.662684178         0.832245170         1.386686902         0.877358220         1.380084480   

Preferred A

     2.1740443750         3.785446066         2.267468532         0.970247553         2.174043683         3.622391585         2.291890859         3.605144321   

Preferred B

     1.6305332814         2.839084549         1.703562217         0.728952596         1.630533280         2.716794551         1.718918690         2.703859099   

 

     Declared(4)  
     On 12/31/2011  
     R$      U.S.$  

Common

     1.231779162         2.310571353   

Preferred A

     2.178256581         4.085973695   

Preferred B

     1.633692440         3.064480279   

 

(1) Adjusted to reflect the reverse stock split.
(2) Adjusted by Selic rate variation.
(3) General Stockholders Meeting.
(4) Expected to be paid in June 2012, pursuant to the Management Proposal filed with the CVM.

Exchange Controls and Foreign Exchange Rates

The Brazilian foreign exchange system allows the purchase and sale of foreign currency and the international transfer of reais by any person or legal entity, regardless of the amount, subject to certain regulatory procedures.

Since 1999, the Central Bank has allowed the real/U.S. dollar exchange rate to float freely, and since then, the real/U.S. dollar exchange rate has fluctuated considerably. Until early 2003, the value of the real declined relative to the U.S. dollar and then began to stabilize. The real appreciated against the U.S. dollar in 2004-2007. In 2008, as a result of the worsening of the global financial and economic crisis the real depreciated 31.9% against the U.S. dollar, and on December 31, 2008 the exchange rate of the real in relation to the U.S. dollar was R$2.34 per U.S.$1.00. In 2009, the real appreciated 25.5% against the U.S. dollar, due to improved economic conditions in Brazil. In 2010, the real appreciated 4.3% against the U.S. dollar. In 2011, the real depreciated 13.62% against the U.S. dollar. In the past, the Central Bank has intervened occasionally to control instability

 

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in foreign exchange rates. We cannot predict whether the Central Bank or the Brazilian Government will continue to allow the real to float freely or will intervene in the exchange rate market through a currency band system or otherwise. We cannot assure that the real will not depreciate substantially or continue to appreciate against the U.S. dollar in the near future.

The following table sets forth the period end, average, high and low selling rates published by the Central Bank expressed in reais per U.S.$ for the periods and dates indicated.

 

     Reais per U.S. Dollar  

Year Ended

   Period-end      Average(1)      Low      High  

December 31, 2007

     1.7713         1.9483         1.7325         2.1556   

December 31, 2008

     2.3370         1.8374         1.5593         2.5004   

December 31, 2009

     1.7412         1.9905         1.7024         2.4218   

December 31, 2010

     1.6662         1.7593         1.6554         1.8811   

December 31, 2011

     1.8758         1.6746         1.5345         1.9016   

 

(1) Represents the average of month-end rates beginning with December of the previous period through last month of period indicated.

The following table sets forth the period end, high and low commercial market/foreign exchange market selling rates published by the Central Bank expressed in reais per U.S.$ for the periods and dates indicated.

 

     Reais per U.S. Dollar  

Month

   Period-end      Average      Low      High  

November 2011

     1.8109         1.7905         1.7270         1.8937   

December 2011

     1.8758         1.8369         1.7830         1.8758   

January 2012

     1.7391         1.7897         1.7389         1.8683   

February 2012

     1.7092         1.7184         1.7024         1.7376   

March 2012

     1.8221         1.7953         1.7152         1.8267   

April 2012

     1.8918         1.8548         1.8256         1.8918   

May 2012 (through May 10, 2012)

     1.9581         1.9347         1.9149         1.9581   

Brazilian law provides that, whenever there is a serious imbalance in Brazil’s balance of payments or there are serious reasons to foresee a serious imbalance, temporary restrictions may be imposed on remittances of foreign capital abroad. We cannot assure you that such measures will not be taken by the Brazilian Government in the future. See “Item 3.D, Risk Factors – Risks Relating to Brazil.”

We currently maintain our financial books and records in reais. For ease of presentation, however, certain consolidated financial information contained in this annual report has been presented in U.S. dollars. See “Item 8, Financial Information.”

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

Risks Relating to our Company

Some of our concessions are due to expire in 2015 and renewal of these concessions is not guaranteed; if we are unable to renew those concessions our results of operations would be materially adversely affected.

We carry out our generation, transmission and distribution activities pursuant to concession agreements entered into with the Brazilian Government through ANEEL. These concessions range in duration from 20 to 35 years. Our concession agreements with the earliest expiration dates are due to expire in 2015 and have already been renewed once (see “Item 4.B, Business Overview – Generation – Concessions”), with the exception of our concession agreement for Corumbá I, which expires in November 2014 and has not been previously renewed. Our concession agreement for Itumbiara, which expires in February 2020, and Corumbá I have contractual provisions allowing renewal of the concession since they have not been previously renewed. On May 10, 2011, ANEEL dismissed our request for extension of the concession period for our Xingó plant, and as of December 31, 2011 there has been no update as to this request. Eletrobras Furnas requested the renewal for a period of twenty-nine years of Serra da Mesa three years ago in accordance with the

 

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timeframe established by law. ANEEL has completed its review of this process and has issued a recommendation to the MME in favor of the renewal of the Serra da Mesa concession. As of the date of this report, we were awaiting approval from the MME. In our generation business, concessions expiring in 2015 or before represent approximately 31% of our total installed capacity as of December 31, 2011, and 87% and 38% of the installed capacity of our subsidiaries Eletrobras Chesf and Eletrobras Furnas, respectively. For a further discussion of Eletrobras Chesf and Eletrobras Furnas, see “Item 4.C, Organizational Structure.” Presently, Law No. 10.848 of 2004 only permits concessions to be renewed once. However, we formed working groups in 2010, which are currently examining proposals to amend this law. If the law is not amended, we would be unable to renew certain concessions and would have to take part in auctions for these concessions again. If we are unable to renew any of our concessions and were unable to successfully bid for the concessions in any of the auctions for these concessions, we would lose the business derived from these concessions, which would adversely affect our financial condition and results of operations.

We are controlled by the Brazilian Government, the current policies and priorities of which directly affect our operations and may conflict with interests of our investors.

The Brazilian Government, as our controlling shareholder, has pursued (and may continue to pursue) some of its macroeconomic and social objectives through us using principally Brazilian Government funds, which we administer. These funds are the RGR Fund, the CCC Account and the CDE Account.

The Brazilian Government also has the power to appoint eight out of the 10 members of our Conselho de Administração (or Board of Directors) and, through them, a majority of the executive officers responsible for our day-to-day management. Additionally, the Brazilian Government currently holds the majority of our voting shares. Consequently, the Brazilian Government has the majority of votes at our shareholders’ meetings, which empowers it to approve most matters prescribed by law, including the following: (i) the partial or total sale of the shares of our subsidiaries; (ii) increase of our capital stock through a subscription of new shares; (iii) our dividend distribution policy, as long as it complies with the minimum dividend distribution regulated by law; (iv) issuances of securities in the domestic market and internationally; (v) corporate spin-offs and mergers; (vi) swaps of our shares or other securities; and (vii) the redemption of different classes of our shares, independent from approval by holders of the shares and classes that are subject to redemption. Our operations impact the commercial, industrial and social development promoted by the Brazilian Government. The Brazilian Government has in the past and may in the future require us to make investments, incur costs or engage in transactions (which may include, for example, requiring us to make acquisitions) that may not be consistent with our objective of maximizing our profits.

We are subject to rules limiting borrowing by public sector companies and may not be able to obtain sufficient funds to complete our proposed capital expenditure programs.

Our current budget anticipates capital expenditures of approximately R$13.3 billion in 2012. We cannot assure you that we will be able to finance our proposed capital expenditure programs from either our cash flow or external resources. Moreover, as a state controlled company, we are subject to certain rules limiting our indebtedness and investments and must submit our proposed annual budgets, including estimates of the amounts of our financing requirements and sources of our financing, to the Ministry of Planning, Budget and Management and the Brazilian Congress for approval. Thus, if our operations do not fall within the parameters and conditions established by such rules and the Brazilian Government, we may have difficulty in obtaining the necessary financing authorizations, which could create difficulties in raising funds. If we are unable to obtain such funds, our ability to invest in capital expenditures for expansion and maintenance may be adversely impacted, which would materially adversely affect the execution of our growth strategy, particularly large scale projects such as the construction of the new nuclear plant, Angra III, the development of the Belo Monte hydroelectric complex and the continuing construction of the Jirau and Santo Antônio hydroelectric plants.

We own a number of subsidiaries whose performance significantly influences our results.

We conduct our business mainly through our operating subsidiaries, including Eletrobras Eletronorte, Eletrobras CGTEE, Eletrobras Eletronuclear, Eletrobras Chesf, Eletrobras Furnas and Eletrobras Eletrosul and through Itaipu. Our ability to meet our financial obligations is therefore related in part to the cash flow and earnings of those subsidiaries and the distribution or other transfer of those earnings to us in the form of dividends, loans or other advances and payment. Some of our subsidiaries are, or may in the future be, subject to loan agreements that require that any indebtedness of these subsidiaries to us be subordinate to the indebtedness under those loan agreements. Our subsidiaries are separate legal entities. Any right we may have to receive assets of any subsidiary or other payments upon its liquidation or reorganization will be effectively subordinated to the claims

 

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of that subsidiary’s creditors (including tax authorities, trade creditors and lenders to such subsidiaries), except to the extent that we are a creditor of that subsidiary, in which case our claims would still be subordinated to any security interest in the assets of that subsidiary and indebtedness of that subsidiary senior to that held by us.

The amounts we receive from the Fuel Consumption Account may decrease.

The Brazilian Government introduced the Fuel Consumption Account, or CCC Account, in 1973. The purpose of the CCC Account is to generate financial reserves payable to distribution companies and some generation companies (all of which must make annual contributions to the CCC Account) to cover some of the costs of the operation of thermoelectric plants in the event of adverse hydrological conditions. Although the Brazilian Government has announced that the CCC Account is to be gradually phased out, we (together with other companies in our industry) continue to receive reimbursements from that account. In recent periods, the amounts we have received as reimbursements from the CCC Account have exceeded our contributions to that account. However, we cannot assure you that we will continue to receive reimbursements from the CCC Account (in amounts that exceed our contributions or at all), and any decrease in the amounts we receive may materially adversely affect our financial condition and results of operations.

If any of our assets were deemed assets dedicated to providing an essential public service, they would not be available for liquidation in the event of our bankruptcy and could not be subject to attachment to secure a judgment.

On February 9, 2005, the Brazilian Government enacted Law No. 11,101, or the New Bankruptcy Law. The New Bankruptcy Law, which came into effect on June 9, 2005, governs judicial recovery, extrajudicial recovery and liquidation proceedings and replaces the debt reorganization judicial proceeding known as concordata (reorganization) for judicial recovery and extrajudicial recovery. The New Bankruptcy Law provides that its provisions do not apply to government owned and mixed capital companies (such as Eletrobras). However, the Brazilian Federal Constitution establishes that mixed capital companies, such as Eletrobras, which operate a commercial business, will be subject to the legal regime applicable to private corporations in respect of civil, commercial, labor and tax matters. Accordingly it is unclear whether or not the provisions relating to judicial and extrajudicial recovery and liquidation proceedings of the New Bankruptcy Law would apply to us. For a further description about the New Bankruptcy Law, please see “Item 4.B, Business Overview – The Effects of the New Bankruptcy Law on Us.”

We believe that a substantial portion of our assets, including our generation assets, our transmission network and our limited distribution network, would be deemed by Brazilian courts to be related to providing an essential public service. Accordingly, these assets would not be available for liquidation in the event of our bankruptcy or available for attachment to secure a judgment. In either case, these assets would revert to the Brazilian Government pursuant to Brazilian law and the terms of our concession agreements. Although the Brazilian Government would in such circumstances be under an obligation to compensate us in respect of the reversion of these assets, we cannot assure you that the level of compensation received would be equal to the market value of the assets and, accordingly, our financial condition and results of operations may be affected.

We may be liable for damages, subject to further regulation and have difficulty obtaining financing if there is a nuclear accident involving our subsidiary Eletrobras Eletronuclear.

Our subsidiary Eletrobras Eletronuclear, as an operator of two nuclear power plants, is subject to strict liability under Brazilian law for damages in the event of a nuclear accident. The Vienna Convention on Civil Liability for Nuclear Accidents (or the Vienna Convention) became binding in Brazil in 1993. The Vienna Convention provides that an operator of a nuclear installation, such as Eletrobras Eletronuclear, in a jurisdiction which has adopted legislation implementing the Vienna Convention, will be strictly liable for damages in the event of a nuclear accident (except as covered by insurance). Eletrobras Eletronuclear is regulated by several federal and state agencies. As of December 31, 2011, Eletrobras Eletronuclear’s Angra I and Angra II plants were insured for an aggregate amount of U.S.$307 million in the event of a nuclear accident (see “Item 4.B, Business Overview – Generation – Nuclear Plants”). In addition to the liability for damages in the event of a nuclear accident, Eletrobras Eletronuclear has acquired insurance to cover operational risks due to potential equipment failure, in the amount of U.S.$426 million for each unit. We cannot assure that this coverage will be sufficient in the event of a nuclear accident. Accordingly, any nuclear accident may have a material adverse effect on our financial condition and results of operations.

The incident at the Fukushima Dai-ichi Nuclear Power Plant in Japan in March 2011 and Germany’s subsequent announcement in May 2011 that it will no longer rely on nuclear power by the year 2022 could lead to more

 

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stringent safety regulations of nuclear power plants and a trend toward reliance on non-nuclear power. If global public sentiment continues to favor tougher regulations for nuclear power or a trend towards non-nuclear power, our ability to finance and profitably expand our nuclear power operations could be materially adversely affected.

We do not have alternative supply sources for the key raw materials that our thermal and nuclear plants use.

Our thermal plants operate on coal and/or oil and our nuclear plants operate on processed uranium. In each case, we are entirely dependent on third parties for the provision of these raw materials. In the event that supplies of these raw materials become unavailable for any reason, we do not have alternative supply sources and, therefore, the ability of our thermal and/or nuclear plants, as applicable, to generate electricity would be materially adversely affected, which may materially adversely affect our financial condition and results of operations.

Our distribution companies operate under challenging market conditions and historically, in the aggregate, have incurred losses.

Our distribution activities are carried out in the northern and northeastern regions of Brazil, representing 8.36% of our consolidated net revenue as of December 31, 2011. The northern and northeastern regions of Brazil are the poorest regions in the country, and our distribution subsidiaries incur significant commercial losses due to illegal connections, as well as relatively high levels of default by consumers in those regions. Historically, in the aggregate, our distribution subsidiaries have incurred losses which have adversely affected our consolidated results of operations. In May 2008, we implemented a new management structure for our distribution activities. As a result, several measures have been taken in order to reduce commercial losses and to renegotiate debts due by consumers in default with our distribution subsidiaries. However, we cannot be certain that such measures will succeed, and that the losses suffered by our distribution subsidiaries will be substantially reduced. We also cannot be certain that the conditions in the market where theses subsidiaries operate will not deteriorate.

In addition, the tariffs we charge for sales of electricity to customers are determined by ANEEL pursuant to concession agreements and to Brazilian law, which establish mechanisms that permit adjustment periodically. ANEEL determines the level of any adjustment by analyzing the costs of each distribution company and their weighted average cost of capital, or WACC. The third tariff review cycle for energy distribution companies resulted in a WACC of 7.5%. Given that the macroeconomic indicators of Brazil have improved in the recent past, the new WACC could lead to lower energy costs while other costs remain stable. Therefore, our electrical power distribution subsidiaries may incur losses, and may continue to adversely affect our financial condition and results of our operations.

We may incur losses and spend time and money defending pending litigation and administrative proceedings.

We are currently a party to numerous legal proceedings relating to civil, administrative, environmental, labor and tax claims filed against us. These claims involve substantial amounts of money and other remedies. Several individual disputes account for a significant part of the total amount of claims against us. We have established provisions for all amounts in dispute that represent a probable loss in the view of our legal advisors and in relation to those disputes that are covered by laws, administrative decrees, decrees or court rulings that have proven to be unfavorable. As of December 31, 2011, we provisioned a total aggregate amount of approximately R$4,892 million in respect of our legal proceedings, of which R$374 million were related to tax claims, R$3,360 million were related to civil claims and R$854 million were related to labor claims. (See “Item 8.A, Consolidated Financial Statements and Other Information – Litigation”).

In the event that claims involving a material amount and for which we have no provisions were to be decided against us, or in the event that the losses estimated turn out to be significantly higher that the provisions made, the aggregate cost of unfavorable decisions could have a material adverse effect on our financial condition and results of operations. In addition, our management may be required to direct its time and attention to defending these claims, which could preclude them from focusing on our core business. Depending on the outcome, certain litigation could result in restrictions in our operations and have a material adverse effect on certain of our businesses.

Our insurance coverage may be insufficient to cover potential losses.

Our business is generally subject to a number of risks and hazards, including industrial accidents, labor disputes, unexpected geological conditions, changes in the regulatory environment, environmental hazards and weather and other natural phenomena. Additionally, we and our subsidiaries are liable to third parties for losses and damages caused by any failure to provide generation, transmission and distribution services.

 

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Our insurance covers only part of the losses that we may incur. We maintain insurance in amounts that we believe to be adequate to cover damages to our plants caused by fire, general third-party liability for accidents and operational risks. If we are unable to renew our insurance policies from time to time or losses or other liabilities occur that are not covered by insurance or that exceed our insurance limits, we could be subject to significant unexpected additional losses.

Judgment may not be enforceable against our directors or officers.

All of our directors and officers named in this annual report reside in Brazil. We, our directors and officers and our Fiscal Council members, have not agreed to accept service of process in the United States. Substantially all of our assets, as well as the assets of these persons, are located in Brazil. As a result, it may not be possible to effect service of process within the United States or other jurisdictions outside Brazil upon these persons, attach their assets, or enforce against them or us in United States courts, or the courts of other jurisdictions outside Brazil, judgments predicated upon the civil liability provisions of the securities laws of the United States or the laws of other jurisdictions.

We do not have an established history of preparing IFRS financial statements and we lack in-depth internal expertise on IFRS.

Historically, our financial statements have been prepared in accordance with accounting practices adopted in Brazil and in accordance with U.S. GAAP for the purposes of our Form 20-F filing, the accounting standards issued by the Instituto dos Auditores Independentes do Brasil (or Brazilian Institute of Independent Accountants) and the standards and procedures of the CVM. We do not have IFRS financial data for any period prior to the year ended December 31, 2009.

As a result, we currently lack in-depth internal expertise with IFRS. As of the date of this annual report, we use a third party consultancy firm to assist us in preparing IFRS financial statements. If we are unable to develop this expertise internally or through external hires, we may face challenges in certain areas such as making the assessments required by IFRS in consolidating the results of our operating subsidiaries. If we are unable to train, hire and retain the appropriate personnel, our ability to prepare IFRS financial statements in a consistent and timely manner might be jeopardized.

If we are unable to remedy the material weaknesses in our internal controls, the reliability of our financial reporting and the preparation of our financial statements may be materially adversely affected.

Pursuant to SEC regulations, our management, including our Chief Executive Officer and Chief Financial Officer, evaluate the effectiveness of our disclosure controls and procedures, including the effectiveness of our internal control over financial reporting. Our internal controls over financial reporting are designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. As a result of our management’s evaluation of the effectiveness of our disclosure, controls and procedures in 2011, our management determined that these controls and procedures were not effective due to material weaknesses in our internal controls over financial reporting. These material weaknesses included our lack of design and maintenance of effective operating controls over:

 

   

financial reporting based criteria established by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO, including: internal control deficiencies not remedied in a timely manner; lack of adequately defined responsibility with respect to our internal controls over financial reporting and the necessary lines of communication; lack of adequate performance of an assessment to ensure effectively defined and implemented controls to prevent and detect material misstatements to our financial statements; lack of adequate design and maintenance of effective information technology policies, including those related to segregation of duties, security and access (grant and monitor) to our financial application programs and data;

 

   

completeness and accuracy of period-end financial reporting, specifically relating to the recording of recurring and non-recurring journal entries;

 

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the completeness and accuracy of information regarding judicial deposits and lawsuits, including periodic reviews and updates of this information, including updates of expected losses for accrual purposes;

 

   

the completeness and accuracy and the review and monitoring of post-retirement benefit plans (pension plans) sponsored by us, including the failure to perform a detailed review of the actuarial assumptions, reconciliation between actuarial valuation reports and accounting records, as well as cash flows from contribution payments;

 

   

our accounting for property, plant and equipment, specifically, to ensure the completeness, accuracy and validation of these acquisitions;

 

   

the completeness, accuracy, validity and valuation of the purchase of and payments for goods and services due to changes related to the implementation of new software;

 

   

the completeness and accuracy of changes in transmission services accounts receivable associated with the adjustment factor related to the availability of the transmission lines not included in the fixed transmission revenue fee (Receita Annual Permitida);

 

   

the appropriate review and monitoring related to the preparation of our IFRS financial statements and disclosures, including lack of internal accounting staff with adequate knowledge of IFRS to supervise and review the accounting process; and

 

   

the accuracy over the identification of the amounts of repayments for subsidy related to the Fuel Consumption Account (CCC).

In response to these findings by our management, we have begun to implement steps to remedy each of these material weaknesses. In the event we are unable to remedy these material weaknesses, the reliability of our financial reporting and the preparation of our financial statements may be materially adversely affected, which may materially adversely affect our company and our reputation.

Risks Relating to Brazil

The Brazilian Government has exercised, and continues to exercise, significant influence over the Brazilian economy. Brazilian economic and political conditions have a direct impact on our business, financial condition, results of operations and prospects.

The Brazilian economy has been characterized by the significant involvement of the Brazilian Government, which often changes monetary, credit and other policies to influence Brazil’s economy. The Brazilian Government’s actions to control inflation and effect other policies have often involved wage and price controls, depreciation of the real, controls over remittances of funds abroad, intervention by the Central Bank to affect base interest rates and other measures. We have no control over, and cannot predict, what measures or policies the Brazilian Government may take in the future. Our business, financial condition, results of operations and prospects may be adversely affected by changes in Brazilian Government policies, as well as general factors including, without limitation:

 

   

Brazilian economic growth;

 

   

inflation;

 

   

interest rates;

 

   

variations in exchange rates;

 

   

exchange control policies;

 

   

liquidity of the domestic capital and lending markets;

 

   

fiscal policy and changes in tax laws; and

 

   

other political, diplomatic, social and economic policies or developments in or affecting Brazil.

 

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Changes in, or uncertainties regarding the implementation of, the policies listed above could contribute to economic uncertainty in Brazil, thereby increasing the volatility of the Brazilian securities market and the value of Brazilian securities traded abroad.

The stability of the Brazilian real is affected by its relationship with the U.S. dollar, inflation and Brazilian Government policy regarding exchange rates. Our business could be adversely affected by any recurrence of volatility affecting our foreign currency-linked receivables and obligations.

The Brazilian currency has experienced high degrees of volatility in the past. The Brazilian Government has implemented several economic plans, and has used a wide range of foreign currency control mechanisms, including sudden devaluation, small periodic devaluation during which the occurrence of the changes varied from daily to monthly, floating exchange market systems, exchange controls and parallel exchange market. From time to time, there was a significant degree of fluctuation between the U.S. dollar and the Brazilian real and other currencies. On December 31, 2011, the exchange rate between the real and the dollar was R$1.8758 to U.S.$1.00.

The real may not maintain its current value or the Brazilian Government may implement foreign currency control mechanisms. Any governmental interference with the exchange rate, or the implementation of exchange control mechanisms, could lead to a depreciation of the real, which could reduce the value of our receivables and make our foreign currency-linked obligations more expensive. Other than in respect of our revenues and receivables denominated in U.S. dollars, such devaluation could materially adversely affect our business, operations or prospects.

On December 31, 2011, approximately 44.3% of our consolidated indebtedness, which equals R$18,390 million as of such date, was denominated in foreign currencies, of which R$17,963 million (or approximately 42.4%) was denominated in U.S. dollars, and approximately R$9 billion (or approximately 48.9%) of such foreign indebtedness related to Itaipu indebtedness.

Inflation, and the Brazilian Government’s measures to curb inflation, may contribute significantly to economic uncertainty in Brazil and materially adversely impact our operating results.

Brazil has historically experienced high rates of inflation. Inflation and some of the Brazilian Government’s measures taken in an attempt to curb inflation have had significant negative effects on the Brazilian economy generally. Since the introduction of the real in 1994, Brazil’s rate of inflation has been substantially lower than in previous periods. However, inflationary pressures persist, and policies adopted to contain inflationary pressures and uncertainties regarding possible future governmental intervention have contributed to economic uncertainty.

Brazil may experience high levels of inflation in the future. Inflationary cost pressures may lead to further government intervention, including the introduction of policies that could adversely affect our business, financial condition, results of operations and prospects.

The market value of securities issued by Brazilian companies is influenced by the perception of risk in Brazil and by the risk of other emerging economies.

Adverse events in the Brazilian economy and in market conditions of other emerging markets, especially in Latin America, may adversely affect the market prices of securities issued by Brazilian companies. Even if economic conditions in these countries differ considerably from economic conditions prevailing in Brazil, investors’ reactions to events in those countries may have a negative effect on the market prices of securities of Brazilian issuers. Crisis in other emerging countries may reduce investor demand for securities of Brazilian issuers, including securities issued by us. This may negatively affect the market price of our shares. In addition, it may make it more difficult for us to access the international capital markets and to obtain financing on acceptable terms in the future.

The Brazilian economy is also affected by general global economic conditions, particularly those in the United States. For instance, the stock prices on BM&FBOVESPA have historically been vulnerable to interest rate fluctuations in the United States, as well as to fluctuation in the main U.S. stock indices.

These factors could affect the trading price of our common and preferred shares and ADSs and could make it more difficult for us to access capital markets and finance future operations.

 

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Risks Relating to the Brazilian Power Industry

We cannot predict whether the constitutionality of the Electricity Regulatory Law will be upheld; if it is not, we may face both uncertainty and costs in re-aligning our business.

In 2004, the Brazilian Government enacted the Electricity Regulatory Law, a far reaching piece of legislation that provides the framework for regulation of the electricity sector in Brazil. Among other changes, the new legislation (i) modifies the rules regarding the purchase and sale of electric power between generation companies and distribution companies; (ii) established new rules for the auction of generation companies; (iii) created the Electric Power Commercialization Chamber (“CCEE”) and new divisional bodies; and (iv) modified the responsibilities of the Energy and Mining Ministry and ANEEL. We have aligned our business within this framework. However, the constitutionality of the Electricity Regulatory Law is being challenged in the Brazilian Supreme Court. The Supreme Court has not yet issued a final ruling in this case although it recently agreed to deny a request to suspend the effectiveness of the Electricity Regulatory Law while the challenge is pending. If the Supreme Court were to hold that the Electricity Regulatory Law is unconstitutional, this would result in significant uncertainty in Brazil as to the appropriate regulatory framework for the electricity sector, which could materially adversely affect the operation of our business. Moreover, we have no way of predicting the terms of any alternative framework for the regulation of electricity in Brazil. We would likely face costs in re-aligning our business to meet the requirements of any such framework, which would materially adversely affect our financial condition and results of operations.

We could be penalized by ANEEL for failing to comply with the terms of our concession agreements and we may not recover the full value of our investment in the event that any of our concession agreements are terminated.

We carry out our generation, transmission and distribution activities in accordance with concession agreements we execute with the Brazilian Government through ANEEL. The length of such concessions varies from 20 to 35 years. ANEEL may impose penalties on us in the event that we fail to comply with any provision of our concession agreements. Depending on the extent of the non-compliance, these penalties could include substantial fines (in some cases up to two percent of our gross revenues in the fiscal year immediately preceding the assessment), restrictions on our operations, intervention or termination of the concession. For example, on May 22, 2010, our subsidiary Eletrobras Furnas received a R$53,700 fine from ANEEL, as a result of ANEEL determining that there were two malfunctions in the protection system of the Itaberá and Ivaiporã substations that led to power outages and disruption in generation on November 10, 2009. ANEEL may also terminate our concessions prior to their due date in the event that we fail to comply with their provisions, are declared bankrupt or are dissolved, or in the event that ANEEL determines that such termination would serve the public interest (see “Item 4.B, Business Overview – Generation – Concessions”).

As of December 31, 2011, we believe we were in compliance with all material terms of our concession agreements. However, we cannot assure you that we will not be penalized by ANEEL for a future breach of our concession agreements or that our concessions will not be terminated in the future. In the event that ANEEL were to terminate any of our concessions before their expiration date, the compensation we recover for the unamortized portion of our investment may not be sufficient for us to recover the full value of our investment and, accordingly, could have a material adverse affect on our financial condition and results of operations.

Our generation, transmission and distribution activities are regulated and supervised by the Brazilian Government. Our business could be adversely affected by any regulatory changes or by termination of the concessions prior to their expiration dates, and any indemnity payments for the early terminations may be less than the full amount of our investments.

According to Brazilian law, ANEEL has the authority to regulate and supervise the generation, transmission and distribution activities of electrical energy concessionaries, such as us and our subsidiaries, including in relation to investments, additional expenses, tariffs and the passing of costs to customers, among other matters. Regulatory changes in the electrical energy sector are hard to predict and may have a material adverse impact on our financial condition and results of operations.

Concessions may be terminated early through expropriation and/or forfeiture. Granting authorities may expropriate concessions in the interest of the public as expressly provided for by law, in which case granting authorities carry out the service during the concession period. A granting authority may declare the forfeiture of concessions after ANEEL or MME conduct an administrative procedure and declare that the concessionaire (a) did not provide proper service for more than 30 consecutive days and did not present any acceptable alternative

 

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to ANEEL or to ONS, or failed to comply with the applicable law or regulation; (b) lost the technical, financial or economic conditions necessary to provide the service properly; and/or (c) did not comply with the fines charged by the granting authority.

Penalties are set forth in ANEEL Resolution No. 63, of May 12, 2004, and include warnings, substantial fines (in certain cases up to 2.0% of the revenue for the fiscal year immediately preceding the evaluation), restrictions on the concessionaire’s operations, intervention or termination of the concession.

We may contest any expropriation or forfeiture and will be entitled to receive compensation for our investments in expropriated assets that have not been fully amortized or depreciated. However, the indemnity payments may not be sufficient to fully recover our investments, which could materially adversely affect our financial condition and results of operations.

We are subject to strict safety, health and environmental laws and regulations that may become more stringent in the future and may result in increased liabilities and increased capital expenditures.

Our operations are subject to comprehensive federal, state and local safety, health and environmental legislation as well as supervision by agencies of the Brazilian Government that are responsible for the implementation of such laws. Among other things, these laws require us to obtain environmental licenses for the construction of new facilities or the installation and operation of new equipment required for our business. The rules are complex and may change over time, making our ability to comply with the applicable requirements more difficult or even impossible, thereby precluding our continuing or future generation, transmission and distribution operations. For example, the Ministry of Environment required us to fulfill 33 steps related to health and safety and the environment in order to receive a permit for operation of our Madeira river project. We see increasing health and safety requirements as a trend in our industry. Moreover, private individuals, non-governmental organizations and the public have certain rights to commence legal proceedings to obtain injunctions to suspend or cancel the licensing process. In addition, Brazilian Government agencies could take enforcement action against us for any failure to comply with applicable laws. Such enforcement action could include, among other things, the imposition of fines, revocation of licenses and suspension of operations. Such failures may also result in criminal liability, irrespective of our strict liability to perform environmental remediation and to indemnify third parties for environmental damage. We cannot accurately predict the effect that compliance with enhanced environmental, health or safety regulations may have on our business. If we do not secure the appropriate permits, our growth strategy will be significantly adversely affected, which may materially adversely affect our results of operations and our financial condition.

Environmental regulations require us to perform environmental impact studies on future projects and obtain regulatory permits.

We must conduct environmental impact studies and obtain regulatory permits for our current and future projects. We cannot assure you that these environmental impact studies will be approved by the Brazilian Government, that public opposition will not result in delays or modifications to any proposed project or that laws or regulations will not change or be interpreted in a manner that could materially adversely affect our operations or plans for the projects in which we have an investment. We believe that concern for environmental protection is an increasing trend in our industry. Changes in environmental regulations, or changes in the policy of enforcement of existing environmental regulations, could materially adversely affect our results of operations and our financial condition by delaying the implementation of electricity projects, increasing the costs of expansion, or subjecting us to regulatory fines for non-compliance with environmental regulations.

We are affected by hydrological conditions and our results of operations could be affected.

Hydrological conditions could adversely affect our operations. For example, hydrological conditions that result in a low supply of electricity in Brazil could cause, among other things, the implementation of broad electricity conservation programs, including mandatory reductions in electricity generation or consumption. The most recent period of extremely low rainfall in a large portion of Brazil was in the years immediately prior to 2001, and as a result, the Brazilian Government instituted a program to reduce electricity consumption from June 1, 2001 to February 28, 2002. A recurrence of unfavorable hydrological conditions that result in a reduced supply of electricity to the Brazilian market could cause, among other things, the implementation of broad electricity conservation programs, including mandatory reductions in electricity consumption. It is possible that prolonged periods of rain scarcity could adversely affect our financial condition and the results of operations in the future. Our generation capacity could also be affected by events such as floods which might damage our installations. This may in turn materially adversely affect our financial condition and results of operations.

 

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Construction, expansion and operation of our electricity generation, transmission and distribution facilities and equipment involve significant risks that could lead to lost revenues or increased expenses.

The construction, expansion and operation of facilities and equipment for the generation, transmission and distribution of electricity involve many risks, including:

 

   

the inability to obtain required governmental permits and approvals;

 

   

the unavailability of equipment;

 

   

supply interruptions;

 

   

work stoppages;

 

   

labor unrest;

 

   

social unrest;

 

   

interruptions by weather and hydrological conditions;

 

   

unforeseen engineering and environmental problems;

 

   

increases in electricity losses, including technical and commercial losses;

 

   

construction and operational delays, or unanticipated cost overruns; and

 

   

the unavailability of adequate funding.

For example, we experienced work stoppages during the construction of our Jirau, Santo Antônio and Belo Monte hydroelectric plants. We do not have insurance coverage for some of these risks, particularly for those related to weather conditions. If we experience any of these or other unforeseen risks, we may not be able to generate, transmit and distribute electricity in amounts consistent with our projections, which may have a material adverse effect on our financial condition and results of operations.

We are strictly liable for any damages resulting from inadequate supply of electricity to distribution companies, and our contracted insurance policies may not fully cover such damages.

Under Brazilian law, we are strictly liable for direct and indirect damages resulting from the inadequate supply of electricity to distribution companies, such as abrupt interruptions or disturbances arising from the generation, distribution or transmission systems. Accordingly, we may be held liable for such damages even if we were not at fault. As a result of the inherent uncertainty involved in these matters, we do not maintain any provisions in relation to potential damage, and these interruptions or disturbances may not covered by our insurance policies or may exceed the coverage limits of such policies. Accordingly, if we are found liable to pay damages in a material amount, our financial condition and results of operations would be materially adversely affected to a greater degree than those claims where we have recorded provisions.

Risks Relating to our Shares and ADSs

If you hold our preferred shares, you will have extremely limited voting rights.

In accordance with the Brazilian Corporate Law and our by-laws, holders of the preferred shares, and, by extension, holders of the ADSs representing them, are not entitled to vote at our shareholders’ meetings, except in very limited circumstances. This means, among other things, that a preferred shareholder is not entitled to vote on corporate transactions, including mergers or consolidations with other companies. Our principal shareholder, who holds the majority of common shares with voting rights and controls us, is therefore able to approve corporate measures without the approval of holders of our preferred shares. Accordingly, an investment in our preferred shares is not suitable for you if voting rights are an important consideration in your investment decision.

Exercise of voting rights with respect to common and preferred shares involves additional procedural steps.

 

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When holders of common shares are entitled to vote, and in the limited circumstances where the holders of preferred shares are able to vote, holders may exercise voting rights with respect to the shares represented by ADSs only in accordance with the provisions of the deposit agreement relating to the ADSs. There are no provisions under Brazilian law or under our by-laws that limit ADS holders’ ability to exercise their voting rights through the depositary bank with respect to the underlying shares. However, there are practical limitations upon the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with such holders. For example, holders of our shares will receive notice directly from us and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Rather, in accordance with the deposit agreement, we will provide the notice to the depositary bank, which will in turn, as soon as practicable thereafter, mail to holders of ADSs the notice of such meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary bank how to vote their shares. Because of this extra procedural step involving the depositary bank, the process for exercising voting rights will take longer for ADS holders than for holders of shares. ADSs for which the depositary bank does not receive timely voting instructions will not be voted at any meeting.

If we issue new shares or our shareholders sell shares in the future, the market price of your ADSs may be reduced.

Sales of a substantial number of shares, or the belief that this may occur, could decrease the prevailing market price of our common and preferred shares and ADSs by diluting the shares’ value. If we issue new shares or our existing shareholders sell shares they hold, the market price of our common and preferred shares, and of the ADSs, may decrease significantly. Such issuances and sales also might make it more difficult for us to issue shares or ADSs in the future at a time and a price that we deem appropriate and for you to sell your securities at or above the price you paid for them.

Exchange controls and restrictions on remittances abroad may adversely affect holders of ADSs.

You may be adversely affected by the imposition of restrictions on the remittance to foreign investors of the proceeds of their investments in Brazil and the conversion of reais into foreign currencies. The Brazilian Government imposed remittance restrictions for approximately three months in late 1989 and early 1990. Restrictions like these would hinder or prevent the conversion of dividends, distributions or the proceeds from any sale of our shares, as the case may be, from reais into U.S. dollars and the remittance of the U.S. dollars abroad. We cannot assure you that the Brazilian Government will not take similar measures in the future.

Exchanging ADSs for the underlying shares may have unfavorable consequences.

As an ADS holder, you benefit from the electronic certificate of foreign capital registration obtained by the custodian for our preferred shares underlying the ADSs in Brazil, which permits the custodian to convert dividends and other distributions with respect to the preferred shares into non-Brazilian currency and remit the proceeds abroad. If you surrender your ADSs and withdraw preferred shares, you will be entitled to continue to rely on the custodian’s electronic certificate of foreign capital registration for only five business days from the date of withdrawal. Thereafter, upon the disposition of or distributions relating to the preferred shares unless you obtain your own electronic certificate of foreign capital registration or you qualify under Brazilian foreign investment regulations that entitle some foreign investors to buy and sell shares on Brazilian stock exchanges without obtaining separate electronic certificates of foreign capital registration you would not be able to remit abroad non-Brazilian currency. In addition, if you do not qualify under the foreign investment regulations you will generally be subject to less favorable tax treatment of dividends and distributions on, and the proceeds from any sale of, our preferred shares.

If you attempt to obtain your own electronic certificate of foreign capital registration, you may incur expenses or suffer delays in the application process, which could delay your ability to receive dividends or distributions relating to our preferred shares or the return of your capital in a timely manner. The depositary’s electronic certificate of foreign capital registration may also be adversely affected by future legislative changes.

You may receive reduced dividend payments if our net income does not reach certain levels.

Under Brazilian Corporate Law and our by-laws, we must pay our shareholders a mandatory distribution equal to at least 25% of our adjusted net income for the preceding fiscal year, with holders of preferred shares having priority of payment. Our by-laws require us to pay holders of our preferred shares annual dividends equal to the greater of 8% (in the case of our class “A” preferred shares (subscribed on June 23, 1969) and 6% (in the case of

 

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our class “B” preferred shares (subscribed on June 24, 1969), calculated by reference to the capital stock portion of each type and class of stock. The priority minimum dividend payable to holders of our preferred shares must be paid whenever there is a net profit or, in the event of losses in that year, whenever a reserve of profits is available. If our net income is negative or insufficient in a fiscal year, our management may recommend at the annual shareholders’ meeting in respect of that year that the payment of the mandatory dividend should not be made.

You may not be able to exercise preemptive rights with respect to the preferred or common shares.

You may not be able to exercise the preemptive rights relating to the preferred or common shares underlying your ADSs unless a registration statement under the United States Securities Act of 1933, as amended, (the “Securities Act”), is effective with respect to those rights or an exemption from the registration requirements of the Securities Act is available. We are not obligated to file a registration statement with respect to the shares relating to these preemptive rights, and we cannot assure you that we will file any such registration statement. Unless we file a registration statement or an exemption from registration applies, you may receive only the net proceeds from the sale of your preemptive rights by the depositary or, if the preemptive rights cannot be sold, they will be allowed to lapse and accordingly your ownership position relating to the preferred or common shares will be diluted.

Changes in Brazilian tax laws may have an adverse impact on the taxes applicable to a disposition of our shares or ADSs.

Law No. 10,833 of December 29, 2003 provides that the disposition of assets located in Brazil by a non-resident to either a Brazilian resident or a non-resident is subject to taxation in Brazil, regardless of whether the disposition occurs outside or within Brazil. This provision results in the imposition of income tax on the gains arising from a disposition of our common or preferred shares by a non-resident of Brazil to another non-resident of Brazil. There is no judicial guidance as to the application of Law No. 10,833 of December 29, 2003 and, accordingly, we are unable to predict whether Brazilian courts may decide that it applies to dispositions of our ADSs between non-residents of Brazil. However, in the event that the disposition of assets is interpreted to include a disposition of our ADSs, this tax law would accordingly result in the imposition of withholding taxes on the disposition of our ADSs by a non-resident of Brazil to another non-resident of Brazil.

Because any gain or loss recognized by a U.S. Holder (as defined in “Item 10.E, Taxation – Material United States Federal Income Tax Consequences”) will generally be treated as a U.S. source gain or loss unless such credit can be applied (subject to applicable limitations) against tax due on the other income treated as derived from foreign sources, such U.S. Holder would not be able to use the foreign tax credit arising from any Brazilian tax imposed on the disposition of our common or preferred shares or our ADSs.

ITEM 4. INFORMATION ON THE COMPANY

Overview

Directly and through our subsidiaries, we are involved in the generation, transmission and distribution of electricity in Brazil. As of December 31, 2011, we controlled approximately 35.6% of the installed power generating capacity within Brazil. Through our subsidiaries, we are also responsible for approximately 53.1% of the installed transmission capacity above 230 kV in Brazil. Our revenues derive mainly from:

 

   

the generation of electricity and its sale to electricity distribution companies and free consumers;

 

   

the transmission of electricity on behalf of other electricity concessionaires; and

 

   

the distribution of electricity to end consumers.

For the year ended December 31, 2011, we derived 64.7%, 26.3% and 8.4% of our net revenue from our electricity generation, transmission and distribution businesses, respectively. For the year ended December 31, 2011, our net revenues were R$29,533 million, compared to R$26,832 million for the year ended December 31, 2010.

 

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A. History and Development

General

We were established on June 11, 1962 as a mixed capital company with limited liability and unlimited duration. We are subject to Brazilian Corporate Law. Our executive offices are located at Avenida Presidente Vargas, 409, 13th Floor, Edifício Herm. Stolz, CEP 20071 003 Rio de Janeiro, RJ, Brazil. Our telephone number is +55 21 2514 6331. Our legal name is Centrais Elétricas Brasileiras S.A. – Eletrobras and our commercial name is Eletrobras.

Capital Expenditures

In the last five years, we have invested an average of R$4.8 billion per year in capital projects. Approximately 49% was invested in our generation segment, 33% in our transmission segment and the balance in our distribution segment and other investments.

Our core business is the generation, transmission and distribution of energy and we intend to invest heavily in these segments in the upcoming years.

Companies are now selected to construct new generation units and transmission lines by a tender process. It is, therefore, difficult to predict the precise amounts that we will invest in these segments going forward. We are, however, working to secure a significant number of new contracts either alone or as part of a consortium including the private sector.

According to the EPE 10 Year Plan, it is estimated that Brazil will have 142,202 km of transmission lines and 171,138 MW of installed generation capacity by 2020. These investments will represent approximately R$220 billion. As the current largest player in the market, we expect to participate in the majority of these new investments. In accordance with the EPE 10 Year Plan, we believe that over the next ten years we will invest an average of approximately R$22 billion per year. For these investments, we expect to use the funding derived from our net cash flow as well as from accessing national and international capital markets and through bank financing.

Our capital expenditures in 2011, 2010 and 2009 were R$6,775.2 million, R$5,279.4 million and R$5,190.3 million, respectively.

B. Business Overview

Strategy

Our main strategic objectives are to achieve sustained growth and profitability, while maintaining our position as a leader in the Brazilian electricity sector. In order to achieve these objectives, our main strategies are as follows:

 

   

Expand and improve efficiency in our generation, transmission and distribution businesses. Our business has historically been focused on both our core operations in the Brazilian generation, transmission and distribution markets and on our former role as lender to third parties, including historically to our subsidiaries. Since the advent of privatization in our industry, the opportunities to consolidate our role as lender have diminished because many of our former subsidiaries were privatized and we are no longer permitted to act as lender to those companies or any other third party. Accordingly, we have adopted a strategy of focusing on our core operations of generation, transmission and distribution. This strategy involves a particular focus on maximizing opportunities arising from the auction process, set out in the Electricity Regulatory Law, for the sale of electricity to distribution companies. By focusing on generation, transmission and distribution, we believe that we will be able to maximize profits by improving efficiency in our existing infrastructure and capitalizing on opportunities arising from new infrastructure such as new power units and transmission lines. Our Programa de Ações Estratégicas do Sistema Eletrobras (the “Strategic Action Program” or “PAE”) for 2009-2012 includes the strategic target of increasing generation capacity by 6,459 MW and increasing transmission lines to the Interconnected Power System by 10,386 km by 2012. In addition, we plan to invest R$7 billion in our transmission segment from 2011 until 2013.

 

   

Renewed strategy for distribution business. With respect to our distribution business, as part of the PAE, we adopted a renewed strategy in 2008 for the management of our distribution companies and are

 

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seeking to continue to improve their operational efficiency. In 2008, we reorganized the governance and management of our distribution companies (except Eletrobras Amazonas Energia) so that each company would have the same members in their respective boards of directors and the same CEO. Initially, the new administration focused on improving each company’s quality of service and increasing its total income. We standardized our processes and policies in order to make our distribution business more efficient and to centralize the purchase of material and services and negotiations with debtors. Although we have already made substantial progress in terms of efficiency, we intend to continue to improve our policies to further reduce any commercial and technical losses with a view to improving the financial position of these subsidiaries. We believe that we will be able to achieve our operational efficiency goals by 2014. For further information about our distribution companies, please see “Item 4.B, Business Overview – Distribution – Distribution Companies.”

 

   

We seek to maintain high corporate governance standards and to promote sustainability in order to enhance the value of our brand. Our shares are listed on the BM&FBOVESPA’s Level 1 segment and on the NYSE. As a result of these listings, we are required to comply with numerous regulations, and we believe that by complying with these regulations we will maintain high corporate governance standards. Our current corporate governance standards are included in the PAE, the audit and administration manuals, the internal regulations of the Board of Directors and Audit Committee and our by-laws. We believe that improving our corporate governance standards will help us to achieve growth, profitability and increased market share as a result of the positive effect these standards have for our brand, both domestically and internationally. As part of this strategy, we established controls and procedures required by the Sarbanes Oxley Act of 2002. For further discussion of our internal controls please see “Item 15—Controls and Procedures.” In addition, we are a signatory to the United Nations Global Compact, the world’s largest corporate responsibility initiative, and are a member of the BM&FBOVESPA’s ISE Corporate Sustainability Index. We are also aiming to obtain membership in the Dow Jones Sustainability Index. We believe that membership in both of these initiatives, and registration with organizations that are known to have governance standards that are among the most stringent in the world will enable us to significantly raise our global profile. In order to manage and promote all of these initiatives we have developed a ten-year Strategic Corporate Plan (Plano Corporativo Estratégico). We strive to continue to be a competitive company that emphasizes social and environmental responsibility and sustainability together with the development and quality of life for our employees. Our goal is to be the world leader in clean energy by 2020, while maintaining our competitive rates of return. In order to maintain our present market share, we are continuously focused on improving the performance of our investments, including the diversification of our portfolio of our equity investment portfolio, the restructuring of our subsidiaries and the expansion into international markets.

 

   

Selectively identify growth opportunities in certain international markets. In accordance with our PAE, we are conducting feasibility studies for investments in neighboring countries, including, Argentina, Colombia, Peru and Uruguay. Our strategic goal is to generate new energy that can be added to the Interconnected Power System and to integrate certain electrical power systems in the Americas. In order to achieve sustained growth, we believe that certain international electricity markets offer opportunities and we plan to selectively identify opportunities in these markets in the future. We may also identify and pursue growth opportunities outside of South America, including renewable energy projects.

Generation

Our principal activity is the generation of electricity. Net revenues (including financial revenues at the holding company level) from generation represented 64.7%, 68.6% and 69.2% of our total net revenues in the years ended December 31, 2011, 2010 and 2009 respectively. Including Itaipu, our power plants generated 35.5%, 44.7% and 51.6% of the total electricity generated in Brazil in 2011, 2010 and 2009, respectively.

Pursuant to Law No. 5,899, of July 5, 1973, and Decree 4,550, of December 27, 2002, Eletrobras must sell all energy produced by Itaipu to distribution companies in the Southern, Southeastern and Midwestern regions in Brazil (see “Item 5, Operating and Financial Review and Prospects – Electric Power Market – Itaipu”).

We had an installed capacity of 41,621 MW as of December 31, 2011, 41,360 MW as of December 31, 2010 (including the 350 MW capacity of Candiota III, which is in operation since January 3, 2011) and 39,453 MW as of December 31, 2009. The increase in capacity over these periods reflects continuous growth. Additionally, we have approximately 11,573 MW in planned projects throughout Brazil until 2015, which are currently under construction, and we have begun feasibility studies for an additional approximately 20,000 MW.

 

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The map below shows the geographic location of our generation assets as of December 31, 2011:

 

LOGO

Concessions

As of December 31, 2011, we operated under the following concessions/authorizations granted by ANEEL for our generation businesses:

 

Concessions/Authorizations

  

State

  

Type of Plant

   Installed
Capacity (MW)
     End of Concession/
Authorization
   Began Service
or expect to
begin

Eletrobras CGTEE

              

São Jerônimo

   Rio Grande do Sul    Thermal      20.00       July 7, 2015    April 1953

Presidente Médici

   Rio Grande do Sul    Thermal      446.00       July 7, 2015    January 1974

Nutepa

   Rio Grande do Sul    Thermal      24.00       July 7, 2015    February 1968

Candiota III

   Rio Grande do Sul    Thermal      350.00       January 2024    January 2011

 

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Concessions/Authorizations

  

State

  

Type of Plant

   Installed
Capacity (MW)
     End of Concession/
Authorization
   Began Service
or expect to
begin
 

Eletrobras Chesf

              

Funil(1)

   Bahia    Hydroelectric      30.00       July 7, 2015      March 1962   

Pedra(1)

   Bahia    Hydroelectric      20.00       July 7, 2015      April 1978   

Araras

   Ceará    Hydroelectric      4.00       July 7, 2015      February 1967   

Curemas

   Bahia    Hydroelectric      3.52       November 25, 2024      January 1957   

Paulo Afonso Complex and Moxotó (Apolônio Sales)

   Bahia    Hydroelectric      4,280.00       October 2, 2015      January 1955   

Sobradinho

   Bahia    Hydroelectric      1,050.30       February 9, 2022      April 1979   

Luiz Gonzaga

   Pernambuco    Hydroelectric      1,479.60       October 3, 2015      February 1988   

Boa Esperança

   Piauí/Maranhão    Hydroelectric      237.30       October 10, 2015      January 1970   

Xingó

   Sergipe/Alagoas    Hydroelectric      3,162.00       October 2, 2015      April 1994   

Piloto

   Bahia    Hydroelectric      2.00       July 7, 2015      February 1949   

Camaçari

   Bahia    Thermal      360.00       August 10, 2027      February 1979   

Dardanelos (9)

   Mato Grosso    Hydroelectric      261.00       July 2042      August 2011   

Eletrobras Eletronorte

              

Rio Acre

   Acre    Thermal      45.49       Indefinite      April 1994   

Rio Branco II

   Acre    Thermal      32.75       Indefinite      April 1981   

Rio Branco I

   Acre    Thermal      18.65       Indefinite      February 1998   

Electron (TG)

   Amazonas    Thermal      60.00       Indefinite      June 2005   

Santana

   Amapá    Thermal      178.00       Indefinite      January 1993   

Rio Madeira

   Rondônia    Thermal      119.35       Indefinite      April 1968   

Coaracy Nunes

   Amapá    Hydroelectric      76.95       July 8, 2015      October 1975   

Tucurui

   Pará    Hydroelectric      8,370.00       July 11, 2024      November 1984   

Samuel

   Rondônia    Hydroelectric      216.75       September 14, 2029      July 1989   

Curuá-Una(2)

   Pará    Hydroelectric      30.30       July 27, 2028      July 1977   

Senador Arnon Afonso Farias

   Roraima    Thermal      85.92       Indefinite      December 1990   

Serra do Navio(6)

   Amapá    Thermal      23.30       May 20, 2037      November 2008   

Dardanelos (9)

   Mato Grosso    Hydroelectric      261.00       July 2042      August 2011   

Eletrobras Eletronuclear(3)

              

Angra I

   Rio de Janeiro    Nuclear      640.00       Indefinite      January 1985   

Angra II

   Rio de Janeiro    Nuclear      1,350.00       Indefinite      September 2000   

Eletrobras Eletrosul

              

Cerro Chato I (10)

   Rio Grande do Sul    Wind      30.00       August 2045      November 2011   

Cerro Chato II (10)

   Rio Grande do Sul    Wind      30.00       August 2045      September 2011   

Cerro Chato III (10)

   Rio Grande do Sul    Wind      30.00       August 2045      May 2011   

Eletrobras Holding

              

Mangue Seco 2

   Rio Grande do Norte    Wind      26.00       July 2045      September 2011   

Eletrobras Furnas

              

Corumbá I

   Goiás    Hydroelectric      375.00       November 29, 2014      April 1997   

Serra da Mesa(4)

   Goiás    Hydroelectric      1,275.00       May 7, 2011      April 1998   

Eletrobras Furnas

   Minas Gerais    Hydroelectric      1,216.00       July 7, 2015      March 1963   

Itumbiara

   Minas Gerais/Goiás    Hydroelectric      2,082.00       February 26, 2020      February 1980   

Marimbondo

   São Paulo/Minas Gerais    Hydroelectric      1,440.00       March 7, 2017      April 1975   

Peixoto (Mascarenhas de Moraes)

   Minas Gerais    Hydroelectric      476.00       October 31, 2023      April 1973   

Porto Colômbia

   Minas Gerais    Hydroelectric      320.00       March 16, 2017      March 1956   

Manso

   Mato Grosso    Hydroelectric      212.00       February 9, 2035      October 2000   

Funil(1)

   Minas Gerais    Hydroelectric      216.00       July 7, 2015      April 1969   

Estreito

   São Paulo    Hydroelectric      1,050.00       July 7, 2015      January 1969   

Campos(5)

   Rio de Janeiro    Thermal      30.00       July 27, 2007      April 1968   

Santa Cruz

   Rio de Janeiro    Thermal      932.00       July 7, 2015      March 1967   

Peixe Angical(6)

   Tocantins    Hydroelectric      452.00       November 6, 2036      June 2006   

Baguari(6)

   Minas Gerais    Hydroelectric      140.00       August 2041      November 2009   

Retiro Baixo(6)

   Minas Gerais    Hydroelectric      82.00       August 2041      March 2010   

Foz do Chapecó(6)

   Rio Grande do Sul    Hydroelectric      855.00       November 2036      August 2010   

Serra do Facão(6)

   Goiás    Hydroelectric      212.60       November 2036      October 2010   

Itaipu(7)

              

Itaipu Binacional

   Paraná    Hydroelectric      14,000.00       Not applicable      —     

 

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Concessions/Authorizations

  

State

  

Type of Plant

   Installed
Capacity (MW)
     End of Concession/
Authorization
   Began Service
or expect to
begin
 

Eletrobras Amazonas Energia

              

Aparecida

   Amazonas    Thermal      251.50       Indefinite      February 1984   

Mauá

   Amazonas    Thermal      738.10       Indefinite      April 1973   

Balbina

   Amazonas    Hydroelectric      277.50       March 1, 2027      January 1989   

UT CO Cidade Nova

   Amazonas    Thermal      29.70       Indefinite      August 2008   

UT AS São José

   Amazonas    Thermal      73.40       Indefinite      February 2008   

UT FO Flores

   Amazonas    Thermal      124.70       Indefinite      August 2008   

UTE Iranduba

   Amazonas    Thermal      66.30       Indefinite      November 2010   

UTE Distrito

   Amazonas    Thermal      51.30       Indefinite      October 2010   

Electron (TG)

   Amazonas    Thermal      121.10       Indefinite      June 2005   

Others

   Amazonas    Thermal      439.00       Indefinite      —     

Under Construction Suitable Plants

              

Simplício

   Rio de Janeiro/Minas Gerais    Hydroelectric      333.70       August 2041      August 2011   

Batalha

   Minas Gerais/Goiás    Hydroelectric      52.50       August 2041      May 2012  

Passo São João

   Rio Grande do Sul    Hydroelectric      77.00       August 2041      January 2012   

São Domingos

   Mato Grosso do Sul    Hydroelectric      48.00       December 2037      February 2012   

Barra do Rio Chapéu

   Santa Catarina    Small Hydroelectric Central      15.00       December 2035      March 2012   

João Borges

   Santa Catarina    Small Hydroelectric Central      19.00       December 2035      March 2012   

Angra III

   Rio de Janeiro    Nuclear      1,405.00       Indefinite      December 2015   

Casa Nova

   Bahia    Wind      180.00       January 2045      January 2013   

Special Purpose Vehicle

              

Jirau

   Rondônia    Hydroelectric      3,750.00       August 2043      January 2013   

Santo Antônio

   Rondônia    Hydroelectric      3,150.00       June 2043      December 2011   

Mauá(8)

   Paraná    Hydroelectric      361.00       July 2042      January 2012   

Belo Monte

   Pará    Hydroelectric      11,233.00       August 2044      February 2015   

São Pedro do Lago

   Bahia    Wind      28.80       February 2046      January 2013   

Pedra Branca

   Bahia    Wind      28.80       February 2046      January 2013   

Sete Gameleiras

   Bahia    Wind      28.80       February 2046      January 2013   

Miassaba 3

   Rio Grande do Norte    Wind      50.40       August 2045      March 2012   

Teles Pires

   Mato Grosso/Pará    Hydroelectric      1,820.00       March 2045      January 2015   

Rei dos Ventos 1

   Rio Grande do Norte    Wind      48.6       December 2045      May 2011   

Rei dos Ventos 3

   Rio Grande do Norte    Wind      48.60       December 2045      November 2011   

Livramento Complex

   Rio Grande do Sul    Wind      78.00       April 2047      March 2013   

 

(1) Approval for the renovation of the environmental licences of both Funil and Pedra has been requested but the licences have not yet been granted. However, this does not affect the operations at either plant.
(2) This plant was transferred from Celpa to Eletrobras Eletronorte in December 2005 as payment for outstanding debts owed by Celpa to Eletrobras Eletronorte relating to sales of energy.
(3) The nuclear plants are authorized to operate for 40 years from the date on which they commenced operations. A few years prior to this due expiration date, each applicable nuclear energy company may request an extension of its respective permit from CNEN. In order to obtain an extension, CNEN may request the replacement of certain equipment. For example, in the case of Angra I, CNEN requested the replacement of a steam generator following our request to extend the permit by 20 years.
(4) Pending MME’s approval.
(5) This plant is not operational.
(6) Serra do Navio, Peixe Angical, Baguari, Retiro Baixo, Foz do Chapecó and Serra do Facão are special purpose entities in which we hold an ownership interest of 49.0%, 40.0%, 15.0%, 49.0%, 49.5% and 40.0%, respectively. Figures in this table refer to the total capacity of each plant.
(7) Itaipu does not operate pursuant to a concession but rather the Itaipu Treaty that expires in 2023. We own 50.0% of Itaipu Binacional.
(8) This plant is owned by the Cruzeiro do Sul Energetic Consortium, in which Eletrobras Eletrosul holds a 49.0% ownership interest.
(9) Our subsidiaries Eletrobras Eletronorte and Eletrobras Chesf both owned 24.0% of this unit. Figure in this table refers to the total capacity of the plant.
(10) Eletrosul has 90.0% of each plant.

Source: internal sources.

Types of Plants

Hydroelectric power plants accounted for 90.7% of our total power generated in 2011, compared to 91.0% in 2010 and 93.1% in 2009.

We also generate electricity through our thermal and nuclear plants. Thermal plants accounted for 2.9% of our total power generated in 2011, compared to 2.8% in 2010 and 1.6% in 2009. Nuclear plants accounted for 6.4% of our total power generated in 2011, compared to 6.3% in 2010 and 5.4% in 2009.

 

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The following table sets out the total amount of electricity generated in the periods indicated, measured in megawatt hours, broken down by type of plant:

 

     Year Ended December 31,  
     2011      2010(2)      2009  
     (MWh)  

Type of plant:

        

Hydroelectric(1)

     221.787.327         209,030,648         224,511,387   

Thermal

     7,013,394         6,369,683         3,809,229   

Nuclear

     15,644,251         14,543,807         12,975,088   
  

 

 

    

 

 

    

 

 

 

Total

     244.444.973         229,944,139         241,295,704   
  

 

 

    

 

 

    

 

 

 

 

(1) Including Itaipu.
(2) Does not consider energy generated by SPEs in which we hold equity interests.

Hydroelectric Plants

Hydroelectric plants are our most cost-efficient source of electricity, although efficiency is significantly dependent on meteorological factors, such as the level of rainfall. Based on our experience with both types of plants, we believe construction costs for hydroelectric plants are higher than for thermal plants; however, the average useful life of hydroelectric plants is longer. We use our hydro-powered plants to provide the bulk of our primary and back-up electricity generated during peak periods of high demand. During periods of rapid change in supply and demand, hydroelectric plants also provide greater production flexibility than our other forms of electric generation because we are able to instantly increase (or decrease) output from these sources, in contrast to thermal or nuclear facilities where there is a time lag while output is adjusted.

As of December 31, 2011, we owned and operated 27 hydroelectric plants; in addition, we hold a 50.0% interest in Itaipu, the other 50.0% of which is owned by a Paraguayan governmental entity and participations in the Peixe Angical (40.0%), Serra do Facão (49.5%), Retiro Baixo (49.0%), Foz do Chapecó (40.0%), Baguari (15.0%) and Dardanelos (49%) plants. Also, we have participation in the Serra Mesa (48.5%) and Manso (70.0%). The ONS is solely responsible for determining, in any year, how much electricity each of our plants should generate. As of December 31, 2011, the total installed capacity of our hydroelectric plants was 41.6MW (including 50.0% of Itaipu and our participations in the SPEs referred to above). The following tables set out information with respect to hydroelectric plants owned by us as of December 31, 2011 and for the year then ended:

 

     Installed(1)
Capacity
     Assured  Energy(2)      Began Service  
     (MW)  

Hydroelectric plants:

        

Curuá-Una(3)

     30.0         24.00         1977   

Peixoto (Mascarenhas de Morais)

     476.0         295.00         1973   

Curemas

     35.2         1.90         1957   

Paulo Afonso complex and Moxotó

     4,280.0         2,225.00         1957   

Funil (Eletrobras Chesf)

     30.0         14.73         1962   

Eletrobras Furnas

     1,216.0         598.00         1963   

Araras

     4.0         —           1967   

Funil (Eletrobras Furnas)

     216.0         121.00         1969   

Estreito

     1,050.0         495.00         1969   

Boa Esperança

     257.3         143.00         1970   

Porto Colômbia

     320.0         185.00         1973   

Coaracy Nunes(3)

     77.0         —           1975   

Marimbondo

     1,440.0         726.00         1975   

Pedra

     20.0         6.84         1978   

Sobradinho

     1,050.0         531.00         1979   

Luiz Gonzaga

     1,479.0         959.00         1979   

Itumbiara

     2,082.0         1,015.00         1980   

Tucurui complex

     8,370.0         4,238.00         1984   

Samuel(3)

     216.8         73.54         1989   

Balbina(3)

     277.5         —           1989   

Xingó

     3,162.0         2,139.00         1994   

Corumbá I

     375.0         209.00         1997   

Serra da Mesa(4)

     1,275.0         671.00         1998   

Manso(4)

     212.0         92.00         2000   

Peixe Angical(5)

     452.0         271.00         2006   

Piloto

     2.0         —           1949   

 

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     Installed(1)
Capacity
     Assured  Energy(2)      Began Service  
     (MW)  

Baguari(7)

     140.0         80.00         2009   

Retiro Baixo (8)

     82.0         38.50         2010   

Serra do Facão (9)

     212.6         182.40         2010   

Foz do Chapecó (10)

     855.0         432.00         2010   

Itaipu(6)

     14,000.0         8,577.00         1985   

Dardanelos(11)

     261.0         154.90         2011   

 

(1) The installed capacity of Itaipu is 14,000 MW. Itaipu is equally owned by Brazil and Paraguay.
(2) Assured energy is the maximum amount per year that each plant is permitted to sell in auctions/supply to the Interconnected Power System, an amount determined by ONS. Any energy produced in excess of assured energy is sold in the Free Market.
(3) The Balbina, Curuá-Una, Samuel and Coaracy Nunes plants are part of the isolated system and do not have an assured energy restriction.
(4) We own 48.46% of the Serra Mesa plant and 70.0% of the Manso plant. Figures in this table refer to the entire capacity/utilization of each plant.
(5) We own 40.0% of the Peixe Angical plant. Figures in this table refer to the entire capacity/utilization of the plant.
(6) We own 50.0% of the Itaipú plant. Figures in this table refer to the entire capacity/utilization of the plant.
(7) We own 15.0% of the Baguari plant. Figures in this table refer to the entire capacity/utilization of the plant.
(8) We own 49.0% of the Retiro Baixo plant. Figures in this table refer to the entire capacity/utilization of the plant.
(9) We own 49.5% of the Serra do Facão plant. Figures in this table refer to the entire capacity/utilization of the plant.
(10) We own 40.0% of the Foz do Chapecó plant. Figures in this table refer to the entire capacity/utilization of the plant.
(11) We own 49.0% of the Dardanelos plant.

The following table describes the energy generated by the hydroelectric plants owned by us, the assured energy and the actual operational utilization. We have converted the measurement of the assured energy to MWh so that we can compare it against the energy generated.

 

     Assured
Energy
     Generated
Energy(1)
     Actual
Operational
Utilization
 
     ( MWh)      (%)  

Hydroelectric plants:

        

Funil (Eletrobras Chesf)

     129,035         57,128         44.27   

Pedra

     59,918         10,638         17.75   

Araras

     0         0         0.00   

Curemas

     16,644         10,575         63.54   

Paulo Afonso complex and Moxotó

     19,491,000         16,785,017         86.12   

Sobradinho

     4,651,560         4,042,104         86.90   

Luiz Gonzaga

     8,400,840         7,744,147         92.18   

Boa Esperança

     1,252,680         1,325,618         105.82   

Xingó

     18,737,640         18,675,443         99.67   

Coaracy Nunes(2)

     —           557,801         0.00   

Tucurui complex

     37,254,090         41,022,761         110.12   

Samuel

     796,634         636,384         79.88   

Corumbá I

     1,830,840         2,001,827         109.34   

Curuá-Una(2)

     217,686         224,302         103.04   

Serra da Mesa(3)

     2,848,459         1,346,807         47.28   

Furnas

     5,238,480         5,861,889         111.90   

Itumbiara

     8,891,400         7,670,879         86.27   

Marimbondo

     6,359,760         7,631,117         119.99   

Peixoto (Mascarenhas de Morais)

     2,584,200         3,055,386         118.23   

Porto Colômbia

     1,620,600         2,005,059         123.72   

Manso(3)

     564,144         340,784         60.41   

Funil (Eletrobras Furnas)

     1,059,960         1,152,060         108.69   

Estreito

     4,336,200         4,443,108         102.47   

Balbina(2)

     —           1,362,488         —     
  

 

 

    

 

 

    

 

 

 

Total

     126,613,048         129,541,788         101.28 (4) 
  

 

 

    

 

 

    

 

 

 

 

(1) Excluding (i) Itaipu, which is owned equally by Brazil and Paraguay; and (ii) any energy generated through our participation in SPEs.
(2) The Balbina, and Coaracy Nunes plants are part of the isolated system and do not have an assured energy restriction.
(3) We own 48.46% of the Serra Mesa plant and 70.0% of the Manso plant. Figures in this table refer to the entire capacity/utilization of each plant.
(4) This percentage is based on the average operational utilization.

See “ – Concessions” for information on the hydroelectric power plants operated by Eletrobras Chesf, Eletrobras Eletronorte and Eletrobras Furnas.

 

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Hydroelectric utilities in Brazil are required to pay royalty fees to the Brazilian states and municipalities in which a plant is located or in which land may have been flooded by a plant’s reservoir for the use of hydrological resources. Fees are established independently by each state and/or municipality as applicable and are based on the amount of energy generated by each utility and are paid directly to the states and municipalities. Fees for the states and municipalities in which we operate were R$1,329 million in 2011, compared to R$1,087 million in 2010 and R$1,888 million in 2009. These fees are recorded as operating costs in our financial statements.

Our subsidiaries have acquired concessions for the construction of 10 new hydroelectric power plants. Information regarding these new plants is set out in the table below:

 

     Installed
Capacity
     Construction
began
   Service begins(1)
     (MW)            

New plants:

        

Barra do Rio Chapéu

     15.0       October 2008    July 2012

Mauá

     361.0       July 2008    July 2012

Batalha

     52.5       June 2008    May 2013

Simplício

     337.7       March 2007    May 2012

São Domingos

     48.0       August 2009    September 2012

Santo Antônio

     3,150.0       September 2008    May 2012

Jirau

     3,750.0       February 2009    January 2013

Belo Monte

     11,233.0       May 2011    February 2015

João Borges

     19.0       June 2010    December 2012

Teles Pires

     1,820.0       August 2011    April 2015

Passo São João

     77.1       November 2007    January 2012

 

(1) Estimated dates based on current timetable.

Simplício and Paulistas (Batalha) will be operated only by Eletrobras Furnas. Dardanelos will be operated by our subsidiaries Eletrobras Chesf and Eletrobras Eletronorte in association with partners (see “ – Lending and Financing Activities – Equity Participation”).

The other new plants will be operated solely by our subsidiary Eletrobras Eletrosul other than the Mauá plant, which will be jointly operated by our subsidiary Eletrobras Eletrosul and by Companhia Paranaense de Energia S.A. – Copel, a third party. We intend to finance these plants from cash flow from operations, and, if necessary, from financing obtained in the international capital markets and/or multilateral agencies.

On August 19, 2011, IBAMA granted Companhia Hidrelétrica Teles Pires an installation license for the construction of UHE Teles Pires on the Teles Pires River. The plant’s dam will be located between the States of Mato Grosso and Pará. Companhia Hidrelétrica Teles Pires is a SPE whose main shareholders are Neoenergia (50.1%), holding company of Grupo Neoenergia, Eletrobras Eletrosul (24.5%), Eletrobras Furnas (24.5%) and Odebrecht Participações e Investimentos (0.9%). These companies form the Teles Pires Energia Eficiente consortium.

Thermal Plants

As of December 31, 2011, we owned and operated 119 thermal plants. In addition, we hold a 49.0% interest in the Serra do Navio plant. Thermal plants include coal and oil power generation units. The total installed capacity of our thermal plants was 4,535 MW as of December 31, 2011, compared to 4,535 MW as of December 31, 2010 and 3,069 MW as of December 31, 2009.

The following table sets out information regarding our thermal plants as of December 31, 2011 and for the year ended:

 

     Installed
Capacity
     Generated
Energy(2)
     Assured
Energy(1)
 
     (MW)      (MWh)      (MWh)  

Thermal plants:

        

P. Médici (Candiota)

     446.00         478,731.0         2,203,140   

S. Jerônimo (Candiota)

     20.00         44,274.0         110,376   

Candiota III

     350.00         1,379,630.0         2,557,920   

Nutepa (Candiota)

     24.00         0.0         53,436   

Santa Cruz

     932.00         180,686.0         6,421,080   

Campos

     30.00         0.0         183,960   

 

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     Installed
Capacity
     Generated
Energy(2)
     Assured
Energy(1)
 
     (MW)      (MWh)      (MWh)  

Camaçari

     346.80         11,790.0         2,013,048   

Electron

     60.00         4,303.0         —     

Rio Madeira

     119.40         0.0         —     

Santana

     178.10         719,411.0         —     

RioBranco I

     18.60         0.0         —     

RioBranco II

     31.80         0.0         —     

Rio Acre

     45.49         34,464.0         —     

Mauá

     711.40         1,402,712.0         —     

Senador Arnon Farias de Mello

     85.92         0.0         —     

Aparecida

     251.50         536,331.0         —     

Cidade Nova

     20.00         106,840.0         —     

São José

     50.00         272,653.0         —     

Flores

     80.00         392,481.0         —     

Distrito

     40.00         169,040.0         —     

Iranduba

     50.00         138,651.0         —     

Others in the Isolated System

     597.10         1,141,398.0         —     
  

 

 

    

 

 

    

 

 

 

Total

     4,488.11         7,013,395.0         13,542,960   
  

 

 

    

 

 

    

 

 

 

 

(1) Assured Energy is only determined in respect of plants from the Interconnected Power System, but not the Isolated system. Most of our thermal plants are part of the Isolated system.
(2) Generated Energy does not include energy generated through our participations in SPEs.

In December 2005, our subsidiary Eletrobras CGTEE was granted authorization to begin construction on an extension of the Candiota thermal plant. This extension has increased the installed capacity of the Candiota thermal plant by 350 MW and will require an investment of approximately R$939 million. Construction on this extension began in July 2006 and commercial operation commenced in January 2011.

Each of our thermal plants operates on coal and/or oil. The fuel for the thermal plants is delivered by road, rail, pipeline or waterway, depending on the plant’s location.

Although we do not have alternatives if our sources of these raw materials become unavailable or uneconomical, we have spare capacity in our hydroelectric plants and we are increasing our investment in transmission lines, which when completed, will allow us to partially compensate for any disruption in supplies. We are not subject to price volatility with respect to these raw materials because the Brazilian Government and entities that the Brazilian Government controls regulate prices, which they set annually.

We seek to operate our thermal plants at a consistent, optimal level in order to provide a constant source of electricity production. Our thermal plants are significantly less efficient and have significantly shorter useful lives, than our hydroelectric plants. We incurred gross expenditure for fuel purchased for energy production of R$163 million for 2011, compared to R$253 million for 2010 and R$756 million for 2009, which are reimbursed to us from the CCC Account in accordance with Law No. 12,111. The amounts in 2009 are not comparable to the amounts in 2011 and 2010 due to the change in the presentation of certain line items as further described in “Presentation of Financial and Other Information.”

We have recovered a substantial portion of the thermal plants’ excess operating costs, which correspond to the difference between the cost of a thermal plant and the cost of a hydroelectric plant, through reimbursements pursuant to the CCC Account. The Brazilian Government created the CCC Account in 1973 for the purpose of building financial reserves to cover the costs of using fossil fuel thermal power plants, which are more expensive to operate than hydroelectric plants, in the Basic Network and the Interconnected Power System should a power shortage create a need for increased production of thermal power plants. Consumers through electricity distributors in Brazil are required to contribute annually to the CCC Account, which in effect serves as an insurance fund against an extraordinary situation, such as a rainfall shortage, which would require increased use of thermal plants. The aggregate amount of the annual required contribution is calculated on the basis of the current year’s cost of fuel estimates for all thermal plants. Each utility is then allocated a proportional contribution towards the aggregate amount based on such utility’s total electricity sales during the previous year. In 1993, the scope of the CCC Account was extended to include a portion of the costs of thermal electricity generation in isolated, non-integrated grids in remote areas of Brazil’s northern region.

Each of Eletrobras Furnas, Eletrobras Chesf, CGTEE and Eletrobras Eletronorte receives CCC Account reimbursement for its thermal plant fuel costs, thereby reducing the operating costs of each of their plants. We administer the CCC Account. Reimbursements from the CCC Account for the fuel costs of thermal plants

 

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connected to the Basic Network are being phased out in conjunction with the development of a competitive wholesale market. In the event of a complete phase out of the CCC Account, we will have to bear the entire operating costs of our thermal plants.

The following tables set forth information relating to the price paid and amount of fuel purchased for use in our thermal plants in the periods indicated:

 

     Year Ended December 31,  
     2011      2010      2009  
     (R$ thousands)  

Type of fuel

  

Coal

     95,719         68,435         68,445   

Light oil

     3,872,179         2,346,923         2,658,571   

Crude Oil

     30,529         38,329         21,434   

Gas

     30,549         2,160         3,483   

Uranium

     294,800         270,842         241,471   
  

 

 

    

 

 

    

 

 

 

Total

     4,323,776         2,726,689         2,993,405   
  

 

 

    

 

 

    

 

 

 

 

     Year Ended December 31,  
     2011      2010      2009  

Type of fuel

        

Coal (tons)

     1,957,566         1,142,228         1,227,931   

Light oil (litres)

     681,019,419         611,848,980         606,616,506   

Crude Oil (tons)

     25,879,055         28,865,267         24,512   

Gas (m3)

     46,446,077         2,155         4,134,612   

Uranium (Kg)

     263,345         293,669         286,073   

Nuclear Plants

Nuclear power plants represent a relatively costly source of electricity for us. The Brazilian Government, however, has a special interest in the continuing existence of nuclear power plants in Brazil and is required by law to maintain ownership and control over these plants. Accordingly, we expect to continue to own 99.8% of Eletrobras Eletronuclear.

Through Eletrobras Eletronuclear, we operate two nuclear power plants, Angra I, with an installed capacity of 640 MW, representing approximately 0.51% of our total installed capacity and Angra II, with 1,350 MW, representing approximately 1.08% of our total installed capacity (not considering Itaipu). In addition, Eletrobras Eletronuclear started the construction of a new nuclear plant, called Angra III, during the second half of 2009. The construction is estimated to take between 3 and 5.5 years. On March 5, 2009, IBAMA issued an installation license to Eletrobras Eletronuclear with a validity of 6 years and on March 9, 2009, CNEN issued a partial construction license to Eletrobras Eletronuclear. Once constructed, we estimate that Angra III will have an installed capacity of 1,405 MW and that the cost of its construction will be approximately R$10.5 billion.

The following table sets out information regarding our nuclear plants as of December 31, 2011 and for the year then ended:

 

     Installed
Capacity
     Generated
Energy
     Assured
Energy(1)
     Began Service(2)
     (MW)      (MWh)      (MWh)       

Nuclear plant:

           

Angra I

     640         4,263,041         3,215,000       January 1, 1985

Angra II

     1,350         10,280,767         9,706,000       September 1, 2000
  

 

 

    

 

 

    

 

 

    

Total

     1,990         14,543,808         12,921,000      
  

 

 

    

 

 

    

 

 

    

 

(1) For our nuclear plants, assured energy is not limited by ONS or any other regulatory body.
(2) Commercial operation in: Angra I – January 1985 and Angra II – September 2000.

The installed capacity of Angra I is 640 MW. We estimate that Angra I will be operating at 96.2% capacity in 2012 in line with industry standards. Accordingly, the assured energy of Angra I in 2012 will be 3,223,728 MWh/yr.

With respect to Angra II, its installed capacity is 1,350 MW (nominal power). We also estimate that Angra II will be operating at 85.7% capacity in 2012 in line with industry standards. Accordingly, the assured energy of Angra II will be 9,732,672 MWh/yr in 2012.

 

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Both Angra I and Angra II utilize uranium obtained pursuant to a contract with Indústrias Nucleares Brasileiras – INB, a Brazilian Government-owned company responsible for processing uranium used in nuclear plants. The fuel elements are shipped by truck to the nuclear plant and under the terms of the contract; Eletrobras Eletronuclear bears responsibility for the safe delivery of that fuel. To date, Eletrobras Eletronuclear (and the previous owner of Angra I – Eletrobras Furnas) has experienced no material difficulty in the transportation of fuel to Angra I and Angra II. In addition, low-level nuclear waste (such as filters and certain resins) is stored in specially designed containers in an interim storage site on the grounds of the plants. As is the case with many other countries, Brazil has not yet devised a permanent storage solution for nuclear waste. High-level nuclear waste (spent nuclear fuel) is stored in the fuel cells (compact storage racks in the fuel pool) of the plants. The liability relating to the decommissioning of nuclear power plants Angra I and Angra II commenced at the same time as the operations began at these two units in 1985 and 2000, respectively. The amount of this provision is supported by a technical report of a work group by Eletrobras Eletronuclear created in 2001. In relation to Angra I, the estimated decommissioning cost is U.S.$293 million and in relation to Angra II, the estimated decommissioning cost is U.S.$406 million. The economic useful life of the plants was estimated to be 40 years. Eletrobras Eletronuclear makes provisions for the estimated present value of the decommissioning costs related to Angra I and Angra II.

The electricity generated by Eletrobras Eletronuclear is sold to our subsidiary Eletrobras Furnas at a regulated price determined by ANEEL (Law No. 12,111 of December 9, 2009). This regulated price reflects Eletrobras Eletronuclear’s nuclear fuel acquisition and financial index correction (IPCA). However, in on-selling this electricity to distribution companies, Eletrobras Furnas is required to participate in the public auction process, in which other generation companies in a pool provide bids that reflect the maximum cost of electricity each is willing to supply and the distribution companies pay a price equal to an average of all these bids. As a result of this auction process, the price that Eletrobras Furnas sells in the auction is higher than that it paid to Eletrobras Eletronuclear for the corresponding electricity. Historically, however, the reverse has been true and we recorded consolidated losses in respect of electricity generated by Eletrobras Eletronuclear. We analyzed different measures to reduce these losses if this situation re-occurs, including replacing Eletrobras Furnas in the supply chain described above with Eletrobras itself, which is not required to sell electricity only pursuant to the auction process.

Sales of Electricity Generated

We sold approximately R$14,616 million of electricity generated (net of electricity purchased for resale and VAT and other taxes) in 2011, compared to R$14,573 million in 2010 and R$13,410 million in 2009. These sales are made only to distribution companies (which constitute the main sources of sales of electricity generated) or free consumers. We own certain distribution companies that operate in the northern and northeastern regions of Brazil and we sell a relatively small portion of the electricity we generate to these distribution companies, which does not give rise to revenues in our generation segment as discussed in “ – Distribution.”

We sell the electricity generated pursuant to both supply contracts with industrial end-users and to an auction process for sales to distribution companies. The following table sets forth, by type of sale, sales of electricity generated in the regions we served in the periods presented:

 

     Year Ended December 31,  
     2011      2010      2009  
     (R$
thousands)
     (MWh)      (R$
thousands)
     (MWh)      (R$
thousands)
     (MWh)  

Type of sale:

                 

Through auctions and initial contracts (energy charge)

     11,089,516         121,534,206         7,028,630         117,050,494         7,764,867         103,134,869   

Through free market agreements or bilateral contracts (energy charge)

     3,748,996         54,777 ,952         4,398,180         65,792,556         3,540,545         62,965,388   

Itaipu

     5,769,310         91,522,813         8,203,198         85,302,628         6,710,772         91,239,063   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     20,607,822         267,834,971         19,588,008         254,784,279         18,016,184         257,339,320   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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The table below shows a summary of the amount of electricity that we have sold through auction sales:

 

     Year Ended December 31,  
     2011      2010      2009  

Capacity Average (MW):

        

1st Auction

     11,003         11,003         11,003   

2nd Auction

     644         644         644   

3rd Auction

     —           —           —     

4th Auction

     396         396         396   

5th Auction

     180         180         180   
  

 

 

    

 

 

    

 

 

 

Total

     12,223         12,223         12,223   

Energy (MWh) per year

     107,073,480         107,073,480         107,073,480   

Average tariff (R$/MWh)

     64.77         64.77         64.77   

Estimated revenues (R$ thousands)

     6,935,149         6,935,149         6,935,149   

With respect to supply contracts, the amount that we receive from each sale is determined on the basis of a “capacity charge,” an “energy charge” (or, in some cases, both). A capacity charge is based on a guaranteed capacity amount specified in MW and is charged without regard to the amount of electricity actually delivered. The charge is for a fixed amount (and so is not dependent on the amount of electricity that is actually supplied). In contrast, an energy charge is based on the amount of electricity actually used by the recipient (and is expressed in MWh). Our purchases of Itaipu electricity, and our sales of Itaipu electricity to distributors, are paid for on the basis of a capacity charge (including a charge for transmission paid to Eletrobras Furnas). Our sales of electricity (through our subsidiaries Eletrobras Chesf and Eletrobras Eletronorte) to final consumers, especially to industrial customers, are billed on the basis of both a capacity charge and an energy charge. With respect to auction sales, as discussed in “The Brazilian Power Industry – Regulation under the Electricity Regulatory Law,” invitations to participate in auctions are prepared by ANEEL and, in the event that we are successful, we enter into sale and purchase contracts with the relevant distribution company for an amount of electricity that is proportionate to such company’s estimated demand over the contract period.

Transmission

Transmission of Electricity

Billings in our transmission segment are fixed by ANEEL, which sets a fixed billing each year. Net revenues (including financial revenues at the holding company level) from transmission represented 26.3% of our total net revenues in 2011, compared to 22.0% in 2010 and 19.9% in 2009. The electricity that we generate is transported through Brazil’s tension transmission network, with 53,923 km of transmission lines belonging to us above 230 kV as of December 31, 2011, compared to 53,790 km in 2010 and 53,148 km as of December 31, 2009. Including our partnerships with private companies in SPCs/Consortia we have approximately 59,336 km above 138 KV in operation as of December 31, 2011. For further information, see “ – Lending and Financing Activities – Equity Participation.” In Brazil, the majority of hydroelectric plants are located a considerable distance from the major load centers and therefore, in order to reach consumers, an extensive transmission system has been developed. Transmission is the bulk transfer of electricity, at very high voltages (from 230 kV to 750 kV), from the generation facilities to the distribution systems at the load centers by means of the transmission grid. There is one Interconnected Power System in Brazil that links the northern and northeastern regions to the south and southeast regions. Coordinating the transmission systems is necessary to optimize the investments and operating costs and to ensure reliability and adequate load supply conditions throughout the Interconnected Power System.

 

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The map below shows the geographic location of our transmission assets as of December 31, 2011:

 

LOGO

Transmission Concessions

As of December 31, 2011, our transmission operations were carried out pursuant to the following concessions granted by ANEEL (excluding transmission operations carried out through any SPEs):

 

     Total
length
     Voltage
Levels
     Average years
remaining of
concession
 
     (km)      (kV)         

Eletrobras Furnas

     19,419.0         69 – 750         4.15   

Eletrobras Chesf

     18,644.6         69 – 500         4.01   

Eletrobras Eletrosul

     10,006.1         69 – 500         4.76   

Eletrobras Eletronorte

     9,883.1         69 – 500         3.53   

Eletrobras Amazonas Energia

     600.8         69 – 230         Not applicable   

 

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Due to the development of the hydroelectric resources of the Amazon region, which requires the transmission of large amounts of energy, Brazil has developed the Interconnected Power System. A national transmission grid provides generators with access to customers in all regions. Eletrobras Furnas and Eletrobras Eletronorte built the first north-south transmission system linking the northern and southern regions of Brazil, which consists of approximately 1,250 km of 500 kV transmission lines and which began operation in 1998. A second north-south transmission system, the construction of which was funded by the private sector, began operation in 2004. The following table sets forth the length of transmission lines (in km) by subsidiary and by voltage as of December 31, 2011:

 

     750 kV      600 kV
(DC)(1)
     525/500
kV
     345 kV      230 kV      138 kV      132/
13.8kV
     Total  

Company:

                       

Eletrobras Chesf

     —           —           5,118.4         —           12,805.6         384.0         336.6         18,644.6   

Eletrobras Eletronorte(2)

     —           —           3,243.3         —           5,577.8         959.1         202.8         9,983.1   

Eletrobras Eletrosul

     —           —           2,945.5         —           5,150.6         1,841.3         68.7         10,006.1   

Eletrobras Furnas

     2,698.0         1,612.0         4,570.5         6,220.5         1,949.0         2,204.0         165         19,419.0   

Eletrobras Amazonas Energia

     —           —           —           —           364.9         —           235.9         600.8   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,698.0         1,612.0         15,877.2         6,220.5         25,847.9         5,388.4         1,009.0         58,653.6   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) DC means direct current.
(2) This table does not include transmission lines owned by SPEs in which we participate. Had such transmission lines been included, the total would be 60,345 km.

The following table sets forth, on a consolidated basis, the percentage of the total transmission grid above 230 kV in Brazil that we were responsible for as of December 31, 2011, considering our participations in SPEs:

 

     750 kV      600 kV
(DC)(1)
     525/500
kV
     400 kV      345 kV      230 kV      Total  

Entity:

                    

Eletrobras

     100.00         100.00         48.93         —           62.82         57.61         53.16   

Others

     0.00         0.00         51.07         100.00         37.18         42.39         46.84   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     100.00         100.00         100.00         100.00         100.00         100.00         100.00   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) DC means direct current.

Except in relation to a small portion of transmission lines of Eletrobras Eletronorte located in the isolated system, the transmission lines in the Interconnected Power System are totally integrated.

As of December 31, 2011, we owned approximately 53.2% of all transmission lines in Brazil (230 kV and above) and, as a result, received fees from companies that transmit electricity on these lines. Net operating revenues from transmission were R$7,779 million in 2011, compared to R$5,895 million in 2010 and R$4,607 million in 2009. As a generation company, we must also pay a tariff in respect of our transmission of electricity over those transmissions that we do not own. Taking into account all transmission lines in Brazil (230 kV and above), this means we pay a tariff in respect of 46.8% of all transmission lines in Brazil.

Losses of electricity in the transmission system of Eletrobras were, in 2011, approximately 2.23% of all electricity transmitted in the system.

We operate as part of an integrated and coordinated national electricity system for Brazil. The Concessions Law authorizes us to begin to charge fees for the use of our transmission system by other electricity companies.

Through Eletrobras Furnas, we charge a tariff (approximately R$4,003.45 per MW/month as of June 28, 2011) for the transmission of electricity generated by Itaipu and purchased for resale. The transmission charge for the power Itaipu generates is used to compensate Eletrobras Furnas, which owns the applicable transmission line, for making its transmission system available for the exclusive use of plant-connection installations. This system comprises the 750 kV Itaipu / Ivaiporã and the 600 kV DC Itaipu / Ibiúna transmission lines that are not part of the Basic Network.

 

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Expansion of Transmission Activities

Our main transmission companies took part in a planning initiative related to the expansion of the PAE 2009/2012 transmission network through the Regional Transmission Study Group (GET), which is responsible for such transmission expansion initiatives at a regional level. In addition, our transmission companies took part in the regional networks and plant integration studies.

PAE initiatives included, among others, studies on the integration of the Belo Monte hydroelectric plant, focusing on alternative means of transmission to allow for the distribution of electric power from the Belo Monte plant to the northern, northeastern and southeastern regions of Brazil.

Additionally, the government has recently announced a new project to install broadband throughout Brazil using existing transmission lines.

Distribution

Distribution of Electricity

Our distribution activities constitute a relatively small proportion of our overall operations. Net revenues (including financial revenues at holding company level), from distribution represented 8.3% of our total net revenues in 2011, compared to 10.9% in 2010 and 10.8% in 2009.

Distribution Companies

The following companies in our group undertake distribution activities pursuant to distribution concessions granted by ANEEL:

 

   

Eletrobras Eletronorte, which distributes power directly to industrial consumers through its wholly owned subsidiary known as Eletrobras Distribuição Roraima. Eletrobras Eletronorte’s distribution concession ends on July 7, 2015;

 

   

Eletrobras Amazonas Energia, which distributes electricity to the city of Manaus, in the State of Amazonas, pursuant to a concession that ends on July 7, 2015;

 

   

Eletrobras Distribuição Alagoas, which distributes electricity in the State of Alagoas pursuant to a concession that ends on July 12, 2015;

 

   

Eletrobras Distribuição Piauí, which distributes electricity in the State of Piauí pursuant to a concession that ends on July 12, 2015;

 

   

Eletrobras Distribuição Rondônia, which distributes electricity in the State of Rondônia pursuant to a concession that ends on July 12, 2015;

 

   

Eletrobras Distribuição Acre, which distributes electricity in the State of Acre pursuant to a concession that ends on July 12, 2015; and

 

   

Eletrobras Distribuição Roraima (formally known as Boa Vista Energia S.A.), which distributes electricity in the city of Boa Vista, the capital of the State of Roraima, pursuant to a concession that ends on July 7, 2015.

The table below indicates relevant operational numbers of our distribution companies as of December 31, 2011:

 

Company

   Number of
Consumers
     Number of
Municipalities
     Distribution
Lines (km)
     Substations  

Eletrobras Amazonas Energia

     750,727         62         18,967         49   

Eletrobras Distribuição Alagoas

     914,843         102         35,815         37   

Eletrobras Distribuição Piauí

     1,010,066         224         64,220         76   

Eletrobras Distribuição Rondônia

     512,949         52         46,000         50   

Eletrobras Distribuição Acre

     213,094         22         16,382         14   

Eletrobras Distribuição Roraima

     88,057         1         5,872         3   

 

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Each of Eletrobras Distribuição Alagoas, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia and Eletrobras Distribuição Acre was previously owned by the individual Brazilian state in which each respective company operated. Companhia Energética de Roraima, which is owned by the State of Roraima, transferred the assets and liabilities pertaining to the city of Boa Vista to a newly formed company to be controlled by Eletrobras Eletronorte, Eletrobras Distribuição Roraima. We first made equity investments in these companies in 1996 with the objective of improving their financial condition and preparing them for privatization. Eletrobras Amazonas Energia was created in 2008 as a result of the merger between Ceam and Manaus Energia S.A.; Ceam was also previously owned by the Brazilian state in which it operated and we also made an investment in Ceamin 1996 with the objective of improving its financial condition and preparing it for privatization.

Eletrobras Amazonas Energia, Eletrobras Distribuição Alagoas, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia, Eletrobras Distribuição Roraima and Eletrobras Distribuição Acre operate in particularly challenging market conditions – the North and Northeastern regions of Brazil are among the very poorest regions in the country. One of our principal continuing challenges in respect of these companies is reducing the amount of commercial losses (principally being the theft of electricity) and customer defaults that these companies suffer from. We are attempting to address these problems by developing mechanisms that make theft of electricity more difficult and by renegotiating debts that customers of these companies currently owe.

Management Structure for our Distribution Activities

In May of 2008 we introduced a new management structure for our distribution activities. Until May 2008, we managed our investment in Eletrobras Amazonas Energia, Eletrobras Distribuição Alagoas, Eletrobras Amazonas Energia, Eletrobras Distribuição Piauí, Eletrobras Distribuição Rondônia, Eletrobras Distribuição Roraima and Eletrobras Distribuição Acre through the Comitê Gestor das Empresas Federais de Distribuição (a management committee) which focused on, among other matters, proposing financial strategies and targets to improve the financial condition of these companies.

Pursuant to the new structure, this management committee no longer exists. The new structure involves one executive officer at the Eletrobras level, currently Mr. Marcos Aurélio Madureira da Silva, acting as chief executive officer of each of the companies involved in distribution. Each of the companies involved in distribution will then have the same chief financial officer, engineering director, commercial director and regulatory director, in each case appointed by the chief executive officer of these distribution companies.

Transmission and Distribution System

Our transmission and distribution network consists of overhead transmission lines and sub-stations with varying voltage ranges. The clients we serve through our distribution network are classified by voltage level. With respect to our distribution to state utilities and industrial companies, we distribute electricity at higher voltage levels (up to 750 kV), while we distribute to residential and certain commercial companies at lower voltage levels (either at 230 kV, 138 kV or 69 kV).

System Performance

The following table sets forth information concerning our electricity losses for our distribution companies, and the frequency and duration of electricity outages per customer per year for the periods indicated:

 

     Year Ended December 31,  
     2011     2010     2009  

Technical losses

     9.1     8.4     9.1

Commercial losses

     19.5     22.3     21.6

Total electricity losses

     28.6     31.1     30.7
  

 

 

   

 

 

   

 

 

 

Outages:

      

Frequency of outages per customer per year (number of outages)

     32.0        33.7        35.0   

Duration of outages per customer per year (in hours)

     36.5        37.8        37.2   

Average response time (in minutes)

     220.2        204.8        146.7   

Electricity Losses

We experience two types of electricity losses: technical losses and commercial losses. Technical losses are those that occur in the ordinary course of our distribution of electricity. Commercial losses are those that result from illegal connections, fraud or billing errors. Total electricity losses for our distribution business were 34.3%

 

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of energy generated and bought in the year ended December 31, 2011 compared to 31.1% of energy generated and bought in the year ended December 31, 2010 and 30.7% of energy generated and bought in the year ended December 31, 2009.

Reducing the level of commercial losses in the distribution companies presents a continuing challenge to us. Commercial losses at these companies have averaged approximately 30% of electricity generated and sold over recent periods. We are attempting to address these problems by developing mechanisms that make theft of electricity more difficult and by renegotiating debts that customers of these companies currently owe.

For example, we have invested in system that monitors the energy consumption by large clients through remote reading equipment. As a result, Eletrobras Amazonas Energia was able to recover R$3 million in 2011 after fining 16,500 properties, of which 3,000 had illegal connections. In 2011, we managed to recover R$455 million from defaulting customers of our distribution companies.

In 2011, our distribution companies experienced a reduction in losses. Particularly, Eletrobras Distribuição Alagoas and Eletrobras Distribuição Rondônia, reduced its losses by 1.5% and 11.3%, respectively. In February 2011, we entered into a loan agreement with the World Bank in the amount of U.S.$495 million. This money will be used in the “Eletrobras Distribution Rehabilitation Project” (the name given by the World Bank to our project “Projeto Energia +”), with the main objective of improving the quality of our services and improving the economic and financial condition of our distribution companies. This project is intended to reduce our losses and consequently to strengthen the operational revenues of our distribution companies.

The following table sets out information regarding total losses in our distribution segment recorded by each distribution company set forth below:

 

     Year Ended December 31,  
     2011      2010      2009  
     (percentages)  

Company:

        

Eletrobras Distribuição Alagoas

     29.95         31.45         31.34   

Eletrobras Distribuição Piauí

     33.03         33.51         35.47   

Eletrobras Distribuição Rondônia

     27.78         39.08         31.54   

Eletrobras Distribuição Acre

     23.42         24.08         26.20   

Eletrobras Amazonas Energia

     41.84         42.40         42.70   

Eletrobras Distribuição Roraima

     15.78         16.13         17.09   

Power Outages

With respect to the Interconnected Power System, we aim to respond to repair requests within one and a half to two and a half hours, depending on the scale and nature of the problem. Our average response time in the Interconnected Power System in 2011 was 3.91 hours. The following table sets forth our average response time, in hours, to repair requests in the Interconnected Power System:

 

     Year Ended December 31,  
     2011      2010  

Company:

     

Eletrobras Distribuição Alagoas

     2.22         2.18   

Eletrobras Distribuição Piauí

     5.60         3.97   
  

 

 

    

 

 

 

Average

     3.91         3.10   
  

 

 

    

 

 

 

With respect to distribution operations in the Isolated system, we aim to respond to repair requests within half an hour to two hours, depending on the scale and nature of the problem. Our average response time in the Isolated system in 2011 was 3.55 hours. The following table sets forth our average response time, in hours, to repair requests in the Isolated system:

 

     Year Ended December 31,  
     2011      2010  

Company:

     

Eletrobras Distribuição Acre

     4.91         6.84   

Eletrobras Distribuição Rondônia

     5.43         3.40   

Eletrobras Amazonas Energia

     2.41         2.71   

Eletrobras BoaVista Energia

     1.46         1.38   
  

 

 

    

 

 

 

Average

     3.55         3.58   
  

 

 

    

 

 

 

 

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Customers

The following table sets forth our total distribution of electricity in terms of MWh and gross revenues, by type of user, for the periods indicated:

 

     Year Ended December 31,  
     2011      2010      2009  
     (MWh)  

Distribution to:

        

State utilities

     1,872,815         1,358,030         1,337,877   

Industrial

     2,978,936         2,814,782         2,433,128   

Residential

     4,907,094         4,574,356         4,030,471   

Commercial

     2,871,517         2,662,126         2,387,589   

Other(1)

     949,814         1,373,239         1,236,566   
  

 

 

    

 

 

    

 

 

 

Total

     13,580,176         12,781,533         11,425,631   
  

 

 

    

 

 

    

 

 

 

 

(1) This figure includes distribution to rural customers and the government.

Tariffs

We classify our customers into two different groups, Group A and Group B, based on the voltage level at which we supply the electricity to our customers. Each customer is placed in a certain tariff level defined by law and based on its respective classification, although some volume-based discounts are available. Group B customers pay higher tariffs, compensating the aggregated costs in all sub-systems in which electricity flows to supply them. There are differentiated tariffs in Group B by types of customer (such as residential, commercial, rural and industrial). Customers in Group A pay lower tariffs, decreasing from A4 to Al, because they demand electricity at higher voltages, which requires a lower level of use of the energy distribution system. Tariffs we charge for sales of electricity to final customers are determined pursuant to our concession agreements and regulations established by ANEEL. These concession agreements and related regulations establish a cap on tariffs that provides for annual, periodic and extraordinary adjustments. For a discussion of the regulatory regime applicable to our tariffs and their adjustment, see “ – The Brazilian Power Industry.”

Group A customers receive electricity at 2.3 kV or higher. Tariffs for Group A customers are based on the voltage level at which electricity is supplied, and the time of year and the time of day electricity is supplied, although customers may opt for a differentiated tariff in peak periods. Tariffs for Group A customers are composed of two components: a “capacity charge” and an “energy charge.”

The capacity charge, expressed in reais per MW, is based on the higher of: (i) contracted firm capacity; or (ii) power capacity actually used. The energy charge, expressed in reais per MWh, is based on the amount of electricity actually consumed. Tariffs charged to Group A customers are lower than those for Group B customers because Group A customers consume electricity at higher voltage ranges, and therefore avoid the costs associated with lowering the electricity voltage as is required for consumption by our Group B customers.

Group B customers receive electricity at less than 2.3 kV (220V and 127V). Tariffs for Group B customers consist solely of an energy consumption charge and are based on the classification of the customer.

Billing Procedures

The procedure we use for billing and payment for electricity supplied to our customers is determined by customer category. Meter readings and invoicing take place on a monthly basis for low voltage consumers, with the exception of rural consumers whose meters are read in intervals varying from one to three months, as authorized by relevant regulation. Bills are prepared from meter readings or on the basis of estimated usage. Low voltage customers are billed within five business days after the invoice date. In case of nonpayment, a notification of nonpayment accompanied by the next month’s invoice is sent to the customer and a period of 15 days is provided to satisfy the amount owed to us. If payment is not received within three business days after the 15-day period, the customer’s electricity supply is suspended. High voltage customers are billed on a monthly basis with payment required within five business days after the invoice date. In the event of non-payment, a notice is sent to the customer two business days after the due date, giving a deadline of 15 days to make payment. If payment is not made within three business days after the notice, the customer is subject to discontinuation of service.

As of December 31, 2011, 2010 and 2009, customers in default represented an average of 18.5%, 15.7% and 13.6% (not including Eletrobras Distribuição Acre) of annual revenues, respectively. These default rates have generally remained stable over recent years and we do not expect to see material changes in these default rates in the foreseeable future.

 

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Purchase of Electricity for Distribution

We purchased 15,576 GWh of electricity for distribution in 2011, compared to 14,285 GWh in 2010 and 12,942 GWh in 2009. Our distribution companies purchase electricity in the public auction process from a pool of generation companies that provide bids setting out the maximum price at which they will supply electricity. After all bids are received, the average price of all bids is calculated and this is the price that we pay for the electricity. The purchase is made from all generation companies that provided bids.

Lending and Financing Activities

Loans Made by Us

Brazilian law allows us to only lend to our subsidiaries. Historically, Brazilian law allowed us to act as lender to our subsidiaries and to public energy utilities under our control. While certain of those subsidiaries are no longer in our group, the majority of our loans are to related parties. Prior to the privatization of the Brazilian electricity industry that began in 1996, this was a particularly widespread part of our operations because most companies in the industry were state-owned, allowing us to engage in lending activities to them. However, as the result of privatization, the number of companies to whom we may lend has diminished and lending is no longer a significant aspect of our business. The total amounts we recorded on our balance sheet: R$9.7 billion as of December 31, 2011, R$9.7 billion as of December 31, 2010 and R$11.8 billion as of December 31, 2009. Of this total amount, loans to Itaipu accounted for R$5.8 billion as of December 31, 2011, R$5.7 billion as of December 31, 2010 and R$6.5 billion as of December 31, 2009. The loans related to our distribution companies are as follows: R$3.8 billion as of December 31, 2011, R$4.0 billion as of December 31, 2010 and R$5.3 billion as of December 31, 2009.

Sources of Funds

We obtain funding for our lending activities from loans from financial institutions and offerings in the international capital markets. As of December 31, 2011, our consolidated long-term debt was R$38,408 million, compared to R$31,270 million as of December 31, 2010 and R$28,393 million as of December 31, 2009, with the majority of our foreign currency debt (approximately 40% over the three-year period) denominated in U.S. dollars. Further details of our borrowings are set out in “ – Liquidity and Capital Resources – Cash Flows.”

In addition, we utilize borrowings from the RGR Fund, which we administer, to on-lend to our subsidiaries and other electricity companies. As of December 31, 2011, December 31, 2110 and December 31, 2009, we incurred interest at 5.0% in respect of borrowings from the RGR Fund and charge an average administrative fee of up to 2.0% on funds which we on-lend to subsidiaries and other entities.

Equity Participation

We act as a minority participant in private sector generation and transmission companies and joint ventures. We are also authorized to issue guarantees for those companies in which we participate as an equity investor. We are constantly considering investments in a number of such companies, focusing primarily on those in line with our strategy of building on our core businesses of generation and transmission (see “Item 7.B, Related Party Transactions”).

The current participations that we have are in private sector generation and transmission companies and joint ventures. Participation is determined primarily on merit and profitability criteria based on our managerial controls.

The table below shows an estimate of the total percentage of our participation in transmission and generation companies as of December 31, 2011:

 

Special Purpose Company/Consortium

  

Object of investment

  

Eletrobras Participation

Transmission

     
Interligação Elétrica do Madeira S.A.    600 kV transmission line of 2,375 km    Eletrobras Chesf (24.5%)

 

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Special Purpose Company/Consortium

  

Object of investment

  

Eletrobras Participation

      Eletrobras Furnas (24.5%)
   Plus Rectifier and Inverter Station   
Norte Brasil Transmissora de Energia S.A.    600kV Transmission Line of 2,375 km:   

Eletrobras Eletronorte (24.5%)

Eletrobras Eletrosul (24.5%)

   SE Coletora – Araraquara 2, Porto Velho   
Estação Transmissora de Energia S.A.    500/±600 kV Conversion and Inversion Station 01    Eletrobras Eletronorte (100.0%)
Manaus Transmissora de Energia S.A.    500 kV Transmission Line of 587 km:   

Eletrobras Chesf (19.5%)

Eletrobras Eletronorte (30.0%)

   Oriximiná – Silves; 500 kV Transmission Line of 224 km and Subestations Itacoatiara e Cariri: Silves –Lechuga   
STN – Sistema de Transmissão Nordeste S.A.(2)    500 kV Transmission Line of 546 km:    Eletrobras Chesf (49.0%)
   Teresina-Sobral-Fortaleza   
Intesa – Integração de Energia S.A.(2)    500 kV Transmission Line of 695 km: Colinas-Miracema-Gurupí-Peixe Nova-Serra da Mesa 2   

Eletrobras Chesf (12.0%),

Eletrobras Eletronorte (37.0%)

Porto Velho Transmissora de Energia S.A.    230 kV transmission lines of 17 km: 500/230 kV SE Coletora Porto Velho    Eletrobras Eletrosul (100.0%)
Ártemis – Transmissora de Energia S.A.(2)    525 kV Transmission Line of 476 km: S. Santiago-Ivaporã-Cascavel    Eletrobras Eletrosul (100.0%)
Transenergia Renovável    230/138 kV Transmission Line of 635 km: Connects biomass plants and small hydroelectric plants to the Sistema Interligado Nacional (SIN)    Eletrobras Furnas (49.0%)
Brasnorte Transmissora de Energia S.A.(2)    230kV Transmission Lines of 402 km: Jauru-Juba-C2; LT Maggi-Nova Mutum    Eletrobras Eletronorte (49.7%)
RS Energia – Empresa de Transmissão de Energia do Rio Grande do Sul S.A.(2)    525 kV Transmission Line of 260 km: Campos Novos-Nova Santa Rita and 230 kV transmission line of 33 km SE Monte Claro – SE Garibaldi    Eletrobras Eletrosul (100.0%)
Companhia Transleste de Transmissão S.A.(2)    345 kV Transmission Line of 139 km: Montes Claros-Irapé    Eletrobras Furnas (24.0%)
Amazônia Eletronorte Transmissora de Energia S.A. – Aete(2)    230 kV Transmission Line of 193 km: Coxipó-Cuiabá-Rondonópolis and SE Seccionadora Cuiabá    Eletrobras Eletronorte (49.0%)
Etau – Empresa de Transmissão do Alto Uruguai(2) S.A.    240 kV Transmission Line of 187 km: Campos Novos-Barra Grande-Lagoa Vermelha-Santa Marta    Eletrobras Eletrosul (27.4%)
Uirapuru Transmissora de Energia S.A.(2)    525 kV Transmission Line of 122 km: Ivaiporã-Londrina    Eletrobras Eletrosul (100.0%)
Companhia Transudeste de Transmissão S.A.(2)    345 kV Transmission Line of 144 km: Itutinga-Juiz de Fora    Eletrobras Furnas (25.0%)
Companhia Transirapé de Transmissão S.A.(2)    345 kV Transmission Line of 61 km: Irapé-Araçuaí    Eletrobras Furnas (25.0%)
Companhia Centroeste de Minas S.A.    345 kV Transmission Line of 63 km: Eletrobras Furnas-Pimenta II    Eletrobras Furnas (49.0%)
Linha Verde Transmissora de Energia S.A.    230 kV Transmission Line of 987 km: Porto Velho -Jauru    Eletrobras Eletronorte (49.0%)
Rio Branco Transmissora de Energia S.A.    230 kV Transmission Line of 487 km: Porto Velho-Abunã-Rio Branco    Eletrobras Eletronorte (100.0%)
Transmissora Matogrossens de Energia S.A.    500 kV Transmission Line of 348 km: Jauru – Cuiabá and SE Jauru    Eletrobras Eletronorte (49.0%)
Transenergia São Paulo S.A.    Itatiba Substation, 500 kV    Eletrobras Furnas (49.0%)

 

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Special Purpose Company/Consortium

  

Object of investment

  

Eletrobras Participation

Transenergia Goiás S.A    230 kV Transmission Line of 188 km: Serra da Mesa-Niquelândia-Barro Alto    Eletrobras Furnas (49.0%)
Consórcio Goiás Transmissão    500 kV Transmission Line of 193 km: Rio Verde Norte –Trindade. and 230 kV Transmission Line of 66 km: Xavantes-Trindade-Carajás and SE Trindade    Eletrobras Furnas (49.0%)
Consórcio MGE Transmissão    500 kV Transmission Line of 248 km: Mesquita-Viana 2. and 345 kV transmission line of 10 km: Viana – Viana 2 and SE Viana 2    Eletrobras Furnas (49.0%)
TDG Transmissora Delmiro Gouveia SA    230 kV Transmission Line of 96 km: São Luiz II – São Luiz III and SE Pecém and SE Aquiraz II    Eletrobras Chesf (49.0%)
Interligação Elétrica Garanhus SA    500 kV Transmission Line of 653 km: Luiz Gonzaga – Garanhus, Garanhus – Campina Grande III and Garanhus – Pau Ferro and 230 kV transmission line of 13 km: Garanhus – Angelim I    Eletrobras Chesf (49.0%)
Transnorte Energia SA    500 kV Transmission Line of 715 km: Engenheiro Lechuga – Equador (RR) – Boa Vista e SEs    Eletrobras Eletronorte (49.0%)
Costa Oeste Transmissora de Energia SA    230 kV Transmission Line of 143 km Cascavel Oeste –Umuarama    Eletrobras Eletrosul (49.0%)
Marumbi Transmissora de Energia SA    525 kV Transmission Line of 28 km: Curitia – Curitia Leste    Eletrobras Eletrosul (20.0%)
Transmissora Sul Brasileira de Energia SA    525 kV Transmission Line of 495 km: Salto Santiago –Itá –Nova Santa Rita and 230 kV transmission line of 303 km: Nova Santa Rita –Camaquã –Quinta    Eletrobras Eletrosul (80.0%)
Consórcio Caldas Novas    SE Corumbá 345/138 kV – 2 x 75 MVA    Eletrobras Furnas (49.9%)
Generation      
Madeira Energia SA    HPU Santo Antonio with 3,150 MW    Eletrobras Furnas (39.0%)
Energia Sustentável do Brasil    HPU Jirau with 3300 MW   

Eletrobras Chesf (20.0%)

Eletrobras Eletrosul (20.0%)

Foz do Chapecó Energia S.A.    HPU Foz do Chapecó with 855 MW    Eletrobras Furnas (40.0%)
Enerpeixe S.A.(2)    HPU Peixe Angical with 452 MW    Eletrobras Furnas (40.0%)
Consórcio Energético Cruzeiro do Sul S.A.    HPU Mauá with 361 MW    Eletrobras Eletrosul (49.0%)
Serra de Facão S.A.    HPU Serra do Facão with 213 MW    Eletrobras Furnas (49.5%)
Energetica Águas da Pedra S.A.–EAPSA (Aripuanã; Água Das Pedras)    HPU Dardanelos with 261 MW   

Eletrobras Chesf (24.5%),

Eletrobras Eletronorte (24.5%)

Baguari I Geração de Energia Elétrica S.A.(2)    HPU Baguari with 140 MW    Eletrobras Furnas (15.0%)
Retiro Baixo Energética S.A.    HPU Retiro Baixo with 82 MW    Eletrobras Furnas (49.0%)
AMAPARI Energia S.A.(2)    TPU Serra do Navio and Small HPU Capivara with 53 MW    Eletrobras Eletronorte (49.0%)
Norte Energia S.A.    HPU Belo Monte with 11,233 MW   

Eletrobras Eletronorte (19.9%)

Eletrobras Chesf (15.0%)

Eletrobras Holding (15.0%)

Brasventos Eolo Geradora de Energia S.A.    Parque Eólico Rei doVentos I with 49 MW   

Eletrobras Furnas (24.5%)

Eletrobras Eletronorte (24.5%)

Rei dos Ventos 3 Geradora de Energia S.A.    Parque Eólico Rei dos Ventos 3 with 49 MW   

Eletrobras Furnas (24.5%)

Eletrobras Eletronorte (24.5%)

 

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Special Purpose Company/Consortium

  

Object of investment

  

Eletrobras Participation

Brasventos Miassaba 3 Geradora de Energia S.A.    Parque Eólico Miassaba 3 with 50 MW   

Eletrobras Furnas (24.5%)

Eletrobras Eletronorte (24.5%)

Companhia Hidrelétrica Teles Pires    HPU Teles Pires with 1,820 MW   

Eletrobras Eletrosul (24.5%)

Eletrobras Furnas (24.5%)

Cerro Chato I S.A.    Parque Eólico Coxilha Negra V with 30 MW    Eletrobras Eletrosul (90.0%)
Cerro Chato II S.A.    Parque Eólico Coxilha Negra VI with 30 MW    Eletrobras Eletrosul (90.0%)
Cerro Chato III S.A.    Parque Eólico Coxilha Negra VII with 30 MW    Eletrobras Eletrosul (90.0%)
Eólica Mangue Seco 2 Geradora e Comercializadora de Energia Elétrica    Eólica Mangue Seco 2 with 26 MW    Eletrobras Holding (49.0%)
Inambari Geração de Energia S.A.    UHE Inambari with 2,000 MW   

Eletrobras Furnas (19.6%)

Eletrobras Holding (29.4%)

Chuí Holding S.A.    Eólicas Chuí I a V with 98 MW and Eólicas Minuano I and II with 46 MW    Eletrobras Eletrosul (49.0%)
Livramento Holding S.A.    Eólicas Cerro Chato IV, V and VI, Ibirapuitã e Trindade with 78 MW    Eletrobras Eletrosul (49.0%)
Santa Vitória do Palmar Holding S.A.    Eólicas Verace I to X with 258 MW    Eletrobras Eletrosul (49.0%)
São Pedro do Lago S.A.    Eólica São Pedro do Lago with 30 MW    Eletrobras Chesf (49.0%)
Pedra Branca S.A.    Eólica Pedra Branca with 30 MW    Eletrobras Chesf (49.0%)
Sete Gameleiras S.A.    Eólica Sete Gameleiras with 30 MW    Eletrobras Chesf (49.0%)
Central Geradora Eólica Famosa I S.A.    Eólica Famosa I with 23 MW    Eletrobras Furnas (49.0%)
Central Geradora Eólica Pau –Brasil S.A.    Eólica Pau – Brasil with 15 MW    Eletrobras Furnas (49.0%)
Central Geradora Eólica Rosada S.A.    Eólica Rosada with 30 MW    Eletrobras Furnas (49.0%)
Central Geradora Eólica São Paulo    Eólica São Paulo with 18 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos I    Eólica Goiabeira with 19 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos II    Eólica Ubatuba with 13 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos III    Eólica Santa Catarina with 16 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos IV    Eólica Pitombeira with 27 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos V    Eólica São Januário with 19 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos VI    Eólica Nossa Senhora de Fátima with 29 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos VII    Eólica Jandaia with 29 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos VIII    Eólica São Clemente with 19 MW    Eletrobras Furnas (49.0%)
Enegia dos Ventos IX    Eólica Jandaia I with 19 MW    Eletrobras Furnas (49.0%)
Energia dos Ventos X    Eólica Horizonte with 14 MW    Eletrobras Furnas (49.0%)

Brazilian Government Programs

In addition to the Proinfa program created by the Brazilian Government in 2002 to create certain incentives for the development of alternative sources of energy (discussed more fully in “The Brazilian Power Industry – Proinfa”), we also participate in four additional Brazilian Government programs: