ELETROBRÁS GROUP COMPANY
ELETROBRÁS GROUP COMPANY
CNPJ nº 23.274.194/0001-19
NOTES TO THE FINANCIAL STATEMENTS
As of JUNE 30, 2002 AND 2001
NOTE 1 - OPERATIONS
FURNAS - Centrais Elétricas S.A. is a closely held mixed-capital company, subsidiary of Centrais Elétricas Brasileiras S.A. - ELETROBRÁS. The Company's main activities include the generation, transmission, and sale of electric power. It operates in the Federal District and the states of São Paulo, Minas Gerais, Rio de Janeiro, Espírito Santo, Goiás, Mato Grosso, and Tocantins.
The Company's operations include 10 hydroelectric dams that have the capacity to generate 8,662 MW, and 2 thermoelectric plants with an installed capacity of 630 MW, or a total installed capacity of 9,292 MW.
In accordance with the terms of the partnership agreement originally signed with Companhia Energética Nacional to share the hydroelectric output of Serra da Mesa, the Company transferred its rights to 657 MW (51.53%) of the total installed capacity of 1,275 MW to SEMESA S.A. and kept the rights to the remaining 618 MW (48.47%), as well as the rights to the concession.
Under the terms of the contract between ELETRONORTE and PROMAN (Produtores Energéticos de Manso S.A.) for the formation of a Joint-venture to conclude and operate the hydroelectric output of the Manso multipurpose project in which FURNAS succeeded ELETRONORTE, 148 MW (69.81%) of the total installed capacity of 212 MW will be assigned to FURNAS and 64 MW (30.19%) to PROMAN.
Electric power is transmitted to concessionaire distributors in the Company's area of operations through an energy grid that comprises 31 sub-stations and approximately 18,083 Km of lines, of which 16,471 Km operate at alternating current voltages of between 138 kV and 750 kV and 1,612 Km operate under direct current at 600 kV.
In addition to the electricity generated by the Company, it also sold approximately 38,838 GWh (2001 - 35,561 GWh) of electric power purchased from third parties (ITAIPU and other companies) through supply contracts. Itaipu Binacional generated 69.28% of this total, (2001 - 77.17%).
Decree No. 1481 dated May 3, 1995 and Decree No. 1503 of May 25, 1995 which amended the former included the Company, together with other companies of the ELETROBRÁS System, in the National Privatization Program (PND) established by Law No. 8031 of April 12, 1990.
Article 5, Paragraph 3, of Law No. 9648/98 authorized the restructuring of FURNAS to prepare it for privatization, through spin-off, merger, incorporation, capital reduction, or the formation of wholly-owned subsidiaries, which would be authorized by the National Privatization Council (CND).
CND Resolution No. 35 dated December 19, 2001 approved the following corporate restructuring operations for the ELETROBRÁS System. The relevant sections of article 1 are highlighted below:
I - Spin-off of FURNAS (Centrais Elétricas S.A.), including the transfer of the portion of its assets related to the generation of electricity to a new corporation;
II - Spin-off of Centrais Elétricas Brasileiras S.A. (ELETROBRÁS), including the transfer of the portion of its assets related to the investment held in the power generating corporation to be formed, as mentioned in the previous item, and other related assets, rights, and liabilities to a new corporation; and
III - Merger of the power-generating corporation formed as described in item I into the corporation to be formed as defined in item II.
As the holding company of the companies to be restructured, ELETROBRÁS must take all necessary actions to implement the corporate restructuring with the support of the National Bank for Social and Economic Development (BNDES) by May 31, 2002.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Even though FURNAS is not subject to the regulations of the Brazilian Securities Commission (CVM), because it is a privately held corporation, the financial statements have been prepared in accordance with the aforementioned regulations and Brazilian corporate legislation, following the policy of the parent company, Centrais Elétricas Brasileiras S.A. (ELETROBRÁS), which is a publicly traded corporation.
Significant accounting policies adopted are as follows:
a) Current and long-term assets
• Money market investments represent amounts maintained in short-term fixed income funds; they are stated at cost plus accrued income to the balance sheet date. These investments are made with Banco do Brasil S.A in accordance with legal requirements;
• Materials in inventory are stated at average acquisition cost, which does not exceed market value;
• Indexed assets are adjusted to the balance sheet date; other assets are stated at cost, net of any provision for loss.
b) Permanent assets
• Amounts are stated at acquisition or construction cost and they are price-level restated up to December 31, 1995. Depreciation of property, plant, and equipment is calculated using the straight-line method and is partly charged to income for the year, and partly to work in progress, proportional to the use of assets;
• Construction in Progress includes financing charges on third-party financing and interest on the Company's equity, calculated in accordance with the specific criteria applicable to the sector up to 1998.
• In accordance with the provisions of General Instructions 35 and 36 of the Chart of Accounts for the Public Electricity Service, interest and other financing charges, as well as effects of inflation relating to financing obtained from third parties actually applied to construction in progress are recorded in this subgroup as cost. Interest on equity used to finance construction in progress was also recorded under construction in progress as established in specific legislation applicable to the Public Electricity Service.
c) Current and long-term liabilities
• These are stated at known or estimated amounts, including the related charges and indexation adjustments and foreign exchange differences incurred, when applicable.
d) Stockholders' equity
• Unrealized earnings appropriated to the reserve are reversed to retained earnings, at least in a proportion equivalent to disposals/write-offs, depreciation, and amortization of permanent assets;
• This account group also includes funds for capital increases from the parent company, ELETROBRÁS, so long as these amounts are irreversible.
e) Income
• Revenue and expenses for the year are determined on an accrual basis.
In compliance with Resolution 1 of the National Agency for Electric Energy (ANEEL), the Company began to keep its accounts in accordance with the new Chart of Accounts for the Public Electricity Service after January 1, 1998, separating costs and revenues according to the production or transmission activity involved, and by business unit.
Resolution No. 444 of the National Agency for Electric Energy dated October 26, 2001 introduced the Accounting Manual for the Public Electricity Service (MCSPEE) that must be used by electric utilities after January 1, 2002.
In compliance with Official Notification 91/2002 (SFF/ANEEL) of February 14, 2002 which supplements Official Notification 838/2000 (DR/ANEEL) of December 29, 2000 and which addresses the procedures and guidelines for closing the accounts of electric utilities, the Company has already adopted the rules included in the Accounting Manual for the Public Electricity Service (MCSPEE) for the most recent six-month period.
NOTE 3 - ACCOUNTS RECEIVABLE - ENERGY SOLD
a) Consumers, concessionaires, and authorized resellers
|In thousands of Brazilian reais |
|CURRENT AND LONG TERM |
|2002 |2001 |
|RESELLERS |FALLING DUE |OVERDUE |TOTAL |TOTAL |
| | |UP TO 90 DAYS |OVER 90 DAYS | | |
|SHORT-TERM ENERGY - MAE - Estimate |1,118,738 | - | - |1,118,738 | - |
|ELETROPAULO |426,658 |235,852 | - |662,510 |308,861 |
|CELG |55,800 |71,120 |342,057 |468,977 |150,104 |
|LIGHT |376,509 | - | - |376,509 |206,930 |
|CEMIG |276,709 |302 |2,963 |279,974 |242,033 |
|CEB |61,275 |33,537 |152,341 |247,153 |47,247 |
|CPFL |176,570 |15,248 | - |191,818 |122,387 |
|EBE |177,930 | - |258 |178,188 |296,626 |
|ELEKTRO |141,858 |8,366 |12,506 |162,730 |144,695 |
|CEMAT |36,434 |41,310 |78,654 |156,398 |19,105 |
|CERJ |131,766 | - | - |131,766 |73,211 |
|PIRATININGA |106,225 | - |10,371 |116,596 | - |
|ESCELSA |78,385 |5,023 | - |83,408 |48,747 |
|CESP |10,396 |8,804 |20,878 |40,078 |12,852 |
|PARANAPANEMA |12,108 | - |11 |12,119 |16,458 |
|CHESF |11,841 | - | - |11,841 |511 |
|CFLCL |9,107 | - | - |9,107 |3,503 |
|ELETROSUL |5,089 | - | - |5,089 |4,564 |
|TIETÊ |4,929 | - | - |4,929 |3,440 |
|COPEL |3,537 | - |296 |3,833 |3,226 |
|CELESC |2,618 | - |683 |3,301 |2,776 |
|ELETRONORTE |2,023 | - |633 |2,656 |1,970 |
|COELBA |2,189 | - | - |2,189 |1,814 |
|CELTINS |1,871 | - | - |1,871 |1,150 |
|CELP |1,759 | - | - |1,759 |1,661 |
|AES SUL |1,448 | - | - |1,448 |885 |
|COELCE |1,270 | - |113 |1,383 |1,154 |
|NIQUEL TOCANTINS |1,382 | - | - |1,382 | - |
|CEEE |1,233 | - |8 |1,241 |987 |
|CIEN |1,187 | - | - |1,187 | - |
|RGE |1,182 | - | - |1,182 |979 |
|CEAL |1,128 | - | - |1,128 |398 |
|CELPA |1,021 | - | - |1,021 |821 |
|OTHER | 6,090 | - | 300 | 6,390 |130,082 |
|TOTAL |3,248,265 |419,562 |622,072 |4,289,899 |1,849,177 |
The Company entered into a contract with ELETRONUCLEAR in July 2001 to act as the seller of electricity generated by the Angra plants. As a result, all the necessary measures have been taken to regularize the amounts of power defined in the initial contracts, including the respective billing of concessionaire distributors in the southeastern and mid-western regions retroactive to May 2000.
The most significant amounts more than 90 days past due owed by the companies, CELG, CEB, CEMAT, and ELEKTRO, are being renegotiated and a positive outcome is likely to be reached during 2002. Accordingly, the Company did not establish a provision for doubtful accounts.
On December 20, 2001, ANEEL introduced Official Notifications 1060/2001 (SFF/ANEEL) and 1061/2001 (SFF/ANEEL) which established that all transactions carried out through the Wholesale Energy Market (MAE) were to be recorded on an accrual basis and should, therefore, be recorded in the financial statements for 2001. MAE required that amounts related to the period from September 2000 to December 2001 be provisioned for accounting purposes. Accordingly, R$ 506,363 thousand was recorded under current assets and R$ 525,025 thousand was recorded under long-term receivables. Of this total, R$ 700,034 thousand relates to free market energy and should be reimbursed by the concessionaire responsible for distribution of electricity (see Notes 27 and 28).
Official Notifications 343/2002 and 616/2002 (SFF/ANEEL) required that the electricity sold via MAE in the first-half of 2002 be recorded in accordance with internal controls. FURNAS recorded the amount of R$ 87,350 thousand.
b) Financing of Energy Credits
| |In thousands of Brazilian reais |
| |2002 |2001 |
| |CURRENT |LONG-TERM |TOTAL |TOTAL |
| |DUE |COMING DUE |TOTAL | | | |
|CELG |- |
| |2002 |2001 |
| |CURRENT |LONG- |TOTAL |TOTAL |
| | |TERM | | |
|SERRA DA MESA | - |29,066 |29,066 |18,720 |
|ELETRONUCLEAR |23,894 |139,309 |163,203 |212,788 |
|TOTAL |23,894 |168,375 |192,269 |231,508 |
The financing terms for these loans are as follows:
ELETRONUCLEAR - Interest of 10% p.a. and management fee of 2% p.a., repayable in 14 semi-annual installments beginning December 30, 2000.
SERRA DA MESA - The Company has advanced R$ 1.35 per MWh based on December 1997 and R$ 1.83 per MHh as from January 2001 to SEMESA S.A based on electricity purchased. The advance is subject to price-level adjustments in accordance with changes in the IGPM and interest of 10% p.a. compounded monthly and repayable in 24 equal and successive monthly installments beginning in July 2008.
NOTE 5 - TAX CREDITS
The Company has recorded tax credits of R$ 187,057 thousand (2001 - R$ 241,040 thousand) in accordance with the Brazilian Securities Commission (CVM) Resolution 273 of August 20, 1998. Amounts comprise temporary differences, tax losses, and negative social contribution bases which may be used to offset future taxes, as follows:
| Temporary additions |In thousands of reais |
| |2002 |2001 |
|. Labor and civil contingencies - provision |137,700 |132,315 |
|. Discount on securitized bonds - ELET'S |25,109 |40,813 |
|. Interest on stockholders’ equity proposed to the OGM | |204,003 |
| |- | |
|. Programmed redundancy plan (net effect on income) |94,247 |40,124 |
|. Other provisions |10,335 |129,536 |
| |267,391 |546,791 |
|Tax loss |174,148 |99,396 |
|Negative social contribution base |584,527 |332,121 |
| |1,026,066 |978,308 |
| Tax credits | | |
| . Income tax on temporary additions |66,848 |136,961 |
| . Social contribution on temporary additions |24,065 |49,315 |
| . Income tax on tax losses |43,537 |24,873 |
| . Social contribution on negative base |52,607 |29,891 |
| |187,057 |241,040 |
NOTE 6 - CONCESSIONS TO BID
Under a Decree dated April 12, 1995 and in accordance with Law No. 8987 of February 13, 1995, the Federal Government cancelled public service concessions for the utilization of water resources because the corresponding construction had not been started or had been suspended.
In accordance with Law No. 8987/95, the Federal Government will reimburse amounts approved by the authorizing authority in relation to studies and projects, construction in progress, and interest charges on capital expenditures for construction in progress using funds from the new tenders. The cancelled concessions and related accrued costs recorded as long-term receivables are shown below:
|PROJECT |In thousands of reais |
| |2002 |2001 |
|Foz do Bezerra (feasibility) |14,086 |14,086 |
|Simplício (single fall) |- |101,684 |
|Peixe (feasibility) |- |7,019 |
|Other |860 | - |
|TOTAL |14,946 |122,789 |
The costs related to the AHE Simplício Single Fall project were set at R$ 11,049 thousand in ANEEL Invitation to Auction 004 of September 6, 2001 and included interest as foreseen in Article 2 of DNAEE Administrative Rule 40 of February 26, 1997 which amounted to R$ 6,188 thousand. The difference of R$ 89,055 thousand between the carrying value and the value approved in the bid process, as well as the costs related to the Peixe (feasibility) project in the amount of R$ 7,019 thousand were recognized under non-operating expenses as losses in the year.
The Company is still attempting to be reimbursed by the regulatory agency for the costs not included in the bid documents.
NOTE 7 - TAXES AND CONTRIBUTIONS RECOVERABLE
The following taxes are recorded as recoverable taxes and contributions:
|TAXES CARRY FORWARDS |In thousands of reais |
| |2002 |2001 |
|ICMS – Manso Multipurpose Project |28,280 |25,125 |
|Income tax |58,487 |31,934 |
|Social contribution |27,047 |8,238 |
|Income tax on net income |7,872 |7,872 |
| |121,686 |73,169 |
NOTE 8 - SUNDRY RECEIVABLES
The following credits are recorded under the item sundry receivables:
| |In thousands of reais |
| |2002 |2001 |
|Credits with electric power companies |35,065 |16,438 |
|Fundação Real Grandeza |42,712 |31,918 |
|Employees |28,808 |17,467 |
|Other debtors |14,045 |9,029 |
| |120,630 |74,852 |
These amounts mainly involve loan of employees, services provided, and voice channel services. Amounts related to Fundação Real Grandeza comprise labor claim settlements paid by FURNAS and for which FRG is jointly liable.
NOTE 9 - PROPERTY, PLANT, AND EQUIPMENT
| |Average annual |In thousands of reais |
| | depreciation rate (%) |2002 |2001 |
| | | | |
| |2002 |2001 | | |
|In service | | | | |
| | | | | |
|. Generation |2.3 |2.3 |7,465,662 |7,438,626 |
|. Transmission |3.1 |3.2 |9,828,454 |9,483,551 |
|. Administration |5.8 |6.8 | 129,891 | 127,693 |
| | | | | |
| | | |17,424,007 |17,049,870 |
|Accumulated depreciation and | | | | |
| amortization | | | | |
| | | | | |
|. Generation | | |(2,055,067) |(1,896,802) |
|. Transmission | | |(4,207,373) |(3,913,194) |
|. Administration | | | (61,824) | (56,763) |
| | | |(6,324,264) |(5,866,759) |
| | | | | |
|Property, plant & equipment in service, net | | |11,099,743 |11,183,111 |
| | | | | |
|Construction in progress | | | | |
| | | | | |
|. Generation | | |487,430 | 256,393 |
|. Transmission | | |906,569 | 589,000 |
|. Administration | | | 20,375 | 11,802 |
| | | | | |
|Total construction in progress | | |1,414,374 |857,195 |
| | | | | |
| |12,514,117 |12,040,306 |
Beginning January 1, 1998, the Company began to calculate and account for depreciation applying the rates established for each asset or installation and using the accounting balances recorded in the respective Registration Units (UC) as foreseen in National Agency for Electric Energy (ANEEL) Resolution 002 of December 24, 1997 and the instructions set forth in DNAEE Administrative Rule 815 of November 30, 1994. In accordance with National Agency for Electric Energy (ANEEL) Resolution 44 of March 17, 1999, the Company changed the annual depreciation rates set forth in ANEEL Resolution 002 dated December 24, 1997.
The main annual depreciation rates by macro activity are as follows:
| |Depreciation rate (%) |
| | |
|Generation | |
| | |
|Reservoirs, dams, and water mains |2.0 |
|Hydraulic turbine |2.5 |
|Water intake equipment |3.7 |
|Water intake structure |4.0 |
|General equipment |10.0 |
|Vehicles |20.0 |
| | |
|Transmission | |
| | |
|System structure |2.5 |
|Conductor system |2.5 |
|Reset equipment |4.3 |
|General equipment |10.0 |
|Vehicles |20.0 |
| | |
|Central Administration | |
| | |
|Rights, trademarks, and patents - amortizable |20.0 |
|Buildings |4.0 |
|Panel, control consoles, and cubicles |3.0 |
|General equipment |10.0 |
|Vehicles |20.0 |
In accordance with the provisions of General Instructions 35 and 36 of the Chart of Accounts for the Public Electricity Service, interest and other financing charges, and effects of inflation relating to financing obtained from third parties actually applied to construction in progress are recorded in this subgroup as cost. Interest on stockholders’ equity used to finance construction in progress was also recorded in construction in progress up to December 31, 1998, as established in the specific legislation applicable to the Public Electricity Service.
In accordance with articles 63 and 64 of Decree No. 41019 dated February 26, 1957, assets and installations used in production, transmission, and distribution, including sale of electric power, are bound to the provision of services and may not be withdrawn from service, sold, transferred, or given in mortgage without the prior express authorization of the Regulatory Agency. ANEEL Resolution 20/99 governs the release of assets from the respective Public Electric Power Service concessions, It authorizes the release of assets from the concession, so long as the revenue from the disposal is deposited in a blocked account for investment in the concession.
NOTE 10 - INSURANCE
The company's major operating assets are insured for a total R$ 7,507,342 thousand (except for vehicles which are insured at market value).
Insurance coverage is broken down by type of risk and expiration date as follows:
| |In thousands of reais |TERM |
|RISKS | | |
| |SUM INSURED |PREMIUM |FROM |TO |
|Special risks |7,217,465 |6,462 |Mar 30, 2001 |Jan 14, 2003 |
|Fire |23,475 |18 |Aug 31, 2001 |Sep 30, 2002 |
|Aviation |5,481 |56 |Jul 6, 2001 |July 6, 2002 |
|Miscellaneous Risks |761 |27 |July 14, 2001 |May 16, 2003 |
|Vehicles |446 |35 |Nov 7, 2001 |Jan 28, 2003 |
|Vehicles (*) | | 9 |Oct 31, 2001 |Oct 31, 2002 |
| |- | | | |
|Other insurance | 259,714 | 544 | | |
| |7,507,342 |7,151 | | |
(*) Sum Insured at market value
Special risks and fire - covers all FURNAS equipment and installations (power plants, substations, offices, warehouses, laboratories and cargo shipments) against fire, electrical damage, and explosion.
Aviation - coverage against damage to aircraft and for bodily injury and or property damage to third parties, whether on board or on the ground, including the crew and luggage.
Miscellaneous risks - coverage for equipment used in mobile operations (metering equipment, Scania H112 truck adapted as a mobile laboratory, Mercedes Benz UNIMOG 2150 truck and various cranes).
Vehicles - coverage against accident, fire, and theft.
Other insurance – personal injuries caused by vessels to third parties onboard or on land and the crew (DPEM); life and personal injury for employees when traveling on business to Angola (life); third party vehicle liability for personal injury and or material damages (RCF); life and personal accident, baggage, advance of bail, transport of corpses, and other coverage for trips by employees on business abroad (travel); accidents with transport vehicles affecting the goods carried and loading and unloading operations (domestic and international transport); performance bond used to guarantee the execution of works or services provided by third parties (guarantee).
NOTE 11 - CONCESSIONS AND AUTHORIZATIONS
The Company has the following concessions and authorizations from the regulatory agency for Public Electric Power Service which terminate on the following dates:
|Hydropower Plants |River |Nominal Installed |Maximum Capacity Achieved |Date of Concession |Date of Termination |
| | |Capacity (MW) |(MW) | | |
|Furnas |Grande |1,216 |1,312 |Jul 26, 1957 |Jul 26, 2037 |
|Estreito (Luiz Carlos Barreto) | | | |Jun 18, 1962 |Jul 08, 2016 |
| |Grande |1,050 |1,104 | | |
|Marimbondo |Grande |1,440 |1,488 |Mar 03, 1967 |Mar 08, 2017 |
|Porto Colômbia |Grande | 320 | 328 |Mar 11, 1967 & Aug 20,|Mar 17, 2017 |
| | | | |1968 | |
|Mascarenhas de Moraes |Grande | 476 | 478 |Oct 31, 1973 |Nov 01, 2003 |
|Funil |Paraíba do Sul | 216 | 222 | Jun 15, 1961 & Mar |Mar 14, 2017 |
| | | | |10, 1967 | |
|Itumbiara |Parnaíba |2,082 | 2,280 |Feb 26, 1970 |Feb 27, 2020 |
|Corumbá |Corumbá | 375 | 375 | Oct 5, 1981 & Nov |May 30, 2034 |
| | | | |29, 1984 | |
|Manso |Manso | 212 | 212 |Dec 18, 1987 |Feb 10, 2035 |
|Serra da Mesa |Tocantins |1,275 | 1,275 |May 06, 1981 |May 08, 2046 |
| | | | | | |
|Thermoelectric Plants |City |Nominal Installed |Maximum Capacity Achieved |Date of Concession |Date of Termination |
| | |Capacity (MW) |(MW) | | |
|Santa Cruz |R.Janeiro |600 |608 |Aug 22, 1963 & Mar 10,|Mar 14, 2017 |
| | | | |1967 | |
|Campos (Roberto Silveira) |Campos | 30 | 32 |Dec 30, 1960 & Jul 14,|Jul 28, 2027 |
| | | | |1977 | |
|São Gonçalo |S. Gonçalo |- |- |Jan 12, 1953 & Jul 14,|Jul 28, 2027 |
| | | | |1977 | |
NOTE 12 - SUPPLIERS
|CURRENT AND LONG-TERM LIABILITIES |
| |In thousands of reais |
| |2002 |2001 |
|Electric power suppliers |2,365,985 |1,497,931 |
|Electric power suppliers - MAE - estimate |81,670 | - |
|Deferred energy Itaipu | - |4,745 |
|Conventional fuels |13,663 |15,354 |
|Materials and services | 106,695 | 38,882 |
| |2,568,013 |1,556,912 |
| | | |
Electric power purchased primarily refers to electricity supplied by Itaipu Binacional and passed on to concessionaire distributors.
On December 20, 2001, ANEEL introduced Official Notifications 1060/2001 (SFF/ANEEL) and 1061/2001 (SFF/ANEEL) which established that all transactions carried out through the Wholesale Energy Market (MAE) were to be recorded on an accrual basis and should, therefore, be recorded in the financial statements for 2001. MAE required that amounts related to the period from September 2000 to December 2001 be provisioned for accounting purposes. Accordingly, the amount of R$ 315,217 thousand was recorded in connection with the purchase of electricity.
Official Notifications 343/2002 and 616/2002 (SFF/ANEEL) required that the electricity sold through MAE in the first-half of 2002 be recorded in accordance with internal controls. FURNAS recorded the amount of R$ 81,670 thousand.
NOTE 13 - LOANS AND FINANCING
The main information on foreign and local currency loans and financing is as follows:
| |In thousands of reais |
| |2002 |2001 |
| | | PRINCIPAL | | | PRINCIPAL | |
| |
| |Local currency |Foreign currency |
| |Current |Long-term |Current |Long-term |
|Balance as of June 30, 2000 |86,066 |407,073 |54,733 |618,994 |
| Inflow | | -| -|9,403 |
| |- | | | |
| Charges |51,890 | -|41,645 | -|
| Monetary and exchange variation |2,380 |13,646 |8,810 |83,712 |
| Transfers |60,754 |(60,754) |61,819 |(61,819) |
| Amortization |(111,712) | |(90,725) | -|
| | |- | | |
|Balance as of June 30, 2001 |89,378 |359,965 |76,282 |650,290 |
| Inflow |40,000 | | -|59,608 |
| | |- | | |
| Charges |49,712 | |45,029 | -|
| | |- | | |
| Monetary and exchange variation |1,875 |9,310 |30,257 |166,086 |
| Transfers |37,607 |(37,607) |88,916 |(88,916) |
| Amortization |(115,319) | |(116,077) | |
| | |- | |- |
|Balance as of June 30, 2002 |103,253 |331,668 |124,407 |787,068 |
Changes in exchange rates for the main currencies and indexes used in permanent asset financing during the first half of the year were as follows:
|US$ |22.58% |
|Sw.Fr |37.80% |
|Yen |34.34% |
|IGPM |3.48% |
The breakdown of the total foreign debt by currency is as follows:
|CURRENCY |2002 |2001 |
| |In thousands of |In thousands of |
| |$ |reais |
|2003 |20,190 |57,428 |
|2004 |41,563 |118,222 |
|2005 |43,271 |123,080 |
|2006 |45,153 |128,433 |
|2007 |37,789 |107,487 |
|2008 |18,754 |53,344 |
|After 2008 |186,592 |530,742 |
| |393,312 |1,118,736 |
Loans and financing are subject to fixed interest rates of from 6.0% to 12.0% p.a. for local currency, and fixed interest rates of from 3.00% to 8.88% p.a. and variable rates of from 1.90% to 8.97% for liabilities denominated in a foreign currency.
NOTE 14 - SUNDRY CREDITORS
| |In thousands of reais |
| |2002 |2001 |
|ELETROBRÁS |820,761 | - |
|ELETRONORTE – APM - Manso |245,765 |245,765 |
|Electric power concessionaires | |258,765 |
| |- | |
|Other creditors |130,346 |36,459 |
| |1,196,872 |540,989 |
a) ELETROBRÁS
The amount of R$ 819,783 thousand refers to the assignment of Itaipu credit rights and comprises invoices issued against FURNAS overdue and unpaid because of the default of distributors of electricity (see Note 3). Amounts have been transferred to ELETROBRÁS to settle overdue obligations with the parent company.
b) ELETRONORTE – APM - Manso
In accordance with National Privatization Council (CND) Resolution 002 of February 3, 1999 and as amended by Resolution 004 of March 30, 1999 and National Agency for Electric Energy (ANEEL) Instruction 235/99, the Manso Hydroelectric Complex owned by Centrais Elétricas do Norte do Brasil S.A. (ELETRONORTE) was transferred to FURNAS. The payment terms agreed upon by the parties were as follows:
• ELETRONORTE received a credit for the final installment of R$ 245,765 thousand upon the securitization of securities resulting from the Compensation Account (CRC) at par value, as proposed by the Ministry of Mines and Energy through Notification 208/MME sent to the Ministry of Finance on September 30, 1999. The proposed transaction involving these securities is still under analysis.
• Assumption of ELETRONORTE debts classified in liabilities as Loans and Financing - ELETROBRÁS in the amount of R$ 58,380 thousand (2002 – R$ 127,953 thousand) and Obligations linked to the concession Federal Government Participation - Ministry of the Environment (R$ 9,150 thousand).
c) Electric utilities
The amount of R$ 182,361 thousand refers to invoices issued against concessionaires by FURNAS from September 1999 to April 2000 for electricity that was not provided by Angra II Plant. This amount was reversed to net income for 2001 as a result of the Electric Power Purchase and Sale Agreement entered into with ELETRONUCLEAR which appointed the company as the seller of energy from Angra II (see note 3a).
NOTE 15 - TAXES AND SOCIAL CONTRIBUTIONS
a) Income tax
As foreseen in Law 9249/95 and amended by Laws 9430/96 and 9532/97, as well as Provisional Measure 2113-26 of December 27, 2000, subsequently replaced by Provisional Measure No. 2158-35 of August 24, 2001, corporate income tax is calculated based on annual taxable income.
In the first-half of 2002, the Company provisioned R$ 38,820 thousand. It also reversed the provision for deferred income tax in the amount of R$ 15,642 thousand and tax credits on temporary differences in the amount of R$ 15,238 thousand.
b) Social contribution
The social contribution on net income is based on net income adjusted in accordance with Law 9249/95 as amended by Laws No. 9430/96 and 9532/97, and Provisional Measure 2113-26 of December 27, 2000, subsequently replaced by Provisional Measure No. 2158-35 of August 24, 2001.
In the first-half of 2002, the Company established a provision for social contribution in the amount of R$ 8,347 thousand and reversed tax credits of R$ 5,487 thousand related to temporary differences.
The reconciliation of the taxes arrived at in accordance with nominal rates and the amount recorded as expenses for the first-half of 2002, plus the reversal of deferred income tax and tax credits calculated on temporary additions to the calculation bases for income tax and social contribution, are shown below:
| |In thousands of reais |
| | |Income tax |Social Contrib. |
| |Income before income tax, social contribution and profit sharing |300,278 |300,278 |
| |Total income tax and social contribution at | | |
| | 25% and 9% respectively |75,056 |27,025 |
| |Effect of temporary and permanent additions |32,624 |6,117 |
| |Effect of eliminations |(63,982) |(23,038) |
| |Subtotal |43,698 |10,104 |
| |Reversal of deferred income tax |(15,642) | - |
| |Reversal of tax credits |(15,238) |(5,487) |
| |Net effect on net income |12,818 |4,617 |
c) Inflationary gains
The credit balance resulting from the additional price-level restatement related to the difference between the inflation rates as measured by the IPC and the BTNF indices (Law No. 8200/91) which had not yet been taxed as of June 30, 2002 amounted to R$ 515,565 thousand. The taxation on this portion was deferred for income tax purposes until future realization. The total amount involved is R$ 113,227 thousand, of which R$ 97,585 thousand is long term.
d) Taxes and contributions payable:
| |In thousands of reais |
| | |2002 |2001 |
| | |CURRENT |L. TERM |CURRENT |L. TERM |
| | | | | | |
| | . Installment program for back taxes owed to the Federal Government (REFIS) |138,093 |575,364 |98,388 |687,094 |
| | | | | | |
| | . Income tax |217,199 | - |14,504 | - |
| | | | | | |
| | . Social contribution |83,414 | - |873 | - |
| | | | | | |
| | . Provision for deferred income tax |15,642 |97,585 |15,642 |128,870 |
| | | | | | |
| | . COFINS |70,582 | - |20,639 | - |
| | | | | | |
| | . PASEP |14,779 | - |4,587 | - |
| | | | | | |
| | . INSS |2,719 | - |4,226 | - |
| | | | | | |
| | . FGTS | 1,286 | - |2,297 | - |
| | | | | | |
| | . Other |832 | - |245 | - |
| | | | | | |
| | |544,546 |672,949 |161,401 |815,964 |
e) Installment Program for back taxes owed to the Federal Government (REFIS)
Provisional Measure No. 1923-1 ratified by Law No. 9964 of April 10, 2000 introduced the –REFIS Program.
Pursuant to the measure referred to and subsequent legislation, corporations owing back taxes and contributions due up to February 29, 2000 for which collection is the responsibility of the Federal Revenue Service and the National Institute for Social Security could choose to pay the consolidated debt in installments, subject to certain rules established by the REFIS Management Committee.
a) PASEP and COFINS
The Company submitted a formal request to enroll in the REFIS Program on March 1, 2000 to settle federal tax debts relating to PASEP and COFINS arising mainly from an unfavorable decision by the Federal Revenue Service with respect to a tax notification issued on April 30, 1999 covering taxable events from 1994 to 1998. The REFIS Management Committee is expected to approve the request in 2002.
The debt to be consolidated by the Federal Revenue Service as of June 30, 2002 is broken down as follows:
|Debts included in REFIS Program |In thousands of reais |
|Tax notification - PASEP/COFINS - principal |224,496 |
|Tax notification - PASEP/COFINS - fine |107,405 |
|Tax notification - PASEP/COFINS - arrears interest |177,490 |
|Debts from January 1999 to January 2000 - principal |138,040 |
|Debts from January 1999 to January 2000 - fine |23,549 |
|Debts from January 1999 to January 2000 - arrears interest |11,906 |
|Balance of approved installments (IRPJ and CSLL) |60,545 |
|Balance at the date enrollment requested (March 1, 2000) |743,431 |
|Indexation adjustment (TJLP) |151,718 |
|Payments made up to June 30, 2002 |(232,873) |
|Balance at June 30, 2002 |662,276 |
The present value of these debts is R$ 625,629 thousand, which will be settled based on a monthly payment equivalent to 1.2% of gross income. The assumptions used were as follows :
• Estimated gross revenue was calculated considering conventional sales of electricity as established in the initial contracts entered into with distributors in accordance with Law No. 9648/98 after authorization for negotiation in the market, which will occur at an annual 25% rate between 2003 and 2005; taking into consideration estimated rates for electric power purchase and sale operations under long-term bilateral agreements of around R$ 83.96 /MWh, which is equivalent to the normal amount in force in January 2001, readjusted using the IGP-M index for June 2002.
• Estimated revenue from electricity from Itaipu was calculated using the current rate of US$ 20.1988 per kW/month of demand.
• Permitted revenue from transmission takes into consideration the prices approved by the Regulatory Agency for 2002 and their increase over time, as well as projects under construction and the following macroeconomic assumptions:
• Macroeconomic assumptions consider a stable scenario for the Brazilian economy, annual inflation of 6.0%, and an initial exchange rate of R$ 2.84 to US$ 1.00 which devalues over time in line with domestic rates of inflation.
• The present value of the debt was derived by calculating the flow of payments readjusted using a Long-term Interest Rate (TJLP) of 10% p.a. and discounting this amount at the rate of 12% p.a. These rates are in line with the above-mentioned economic scenario.
The Company has not used tax losses and negative bases for social contribution to offset arrears interest and fines related to debts included in the REFIS Program up to the present date. The company has been paying all taxes and contributions regularly, as required by the REFIS Program.
b) ITR
The Company has withdrawn the lawsuits filed challenging the payment of this tax and assumed its obligation to comply with the Rural Land Tax (ITR) levy. The Company also requested to pay the debt, which was not included in the REFIS Program consolidation, in 60 monthly installments.
The balance of the installments as of June 30, 2002 is shown as follows:
|Debts included in the special installments - REFIS |In thousands of reais |
|ITR debts - principal |49,371 |
|ITR debts - fine |6,846 |
|ITR debts - arrears interest |24,397 |
|Balance at the date enrollment requested (March 1, 2000) |80,614 |
|Indexation adjustment (TJLP) |12,317 |
|Payments made up to June 30, 2002 |(41,750) |
|Balance at June 30, 2002 |51,181 |
The present value of ITR debts that will be settled in 60 monthly installments is R$ 49,896 thousand. The same macroeconomic assumptions, Long-term Interest Rate, and discount rate used to determine the present value of PASEP and COFINS debts were utilized to arrive at the present value for ITR.
As required by Decree 3431 of April 24, 2000 which regulates Law No. 9964/2000, the Company provided a list of permanent assets with a book value of R$ 104,007 thousand.
NOTE 16 - CONTINGENCIES
| |In thousands of reais |
| | |
|Contingencies | |
| |2002 |2001 |
| |Amount provisioned | |Amount provisioned | |
| | | | |Judicial |
| | | | |Deposits |
| | |
| |In the year |
| | |2002 |2001 |
| |Amortization |81,998 |81,998 |
| |Federal Government Participation |28,539 |28,539 |
| |Other | 2,003 | 2,003 |
| | |112,540 |112,540 |
The amortization balance refers to the "Reserves for Amortization" established up to 1971 in accordance with Federal Decree 41019/57 and which were invested in the expansion of the Public Electric Power Service up to the above year.
Due to their nature, these accounts do not represent actual financial obligations, and accordingly, they should not be included as liabilities to arrive at financial ratios.
NOTE 18 - STOCKHOLDERS' EQUITY
Stockholders´ equity totaled R$ 10,263,955 thousand as of June 30, 2002. This total can be broken down by class of share and major stockholder as follows:
|Number of shares in thousands |
|Stockholders | Common |
| | |2002 |2001 |
| |Capital reserves | | |
| |. Price-level restatement of property, plant, and equipment |102,885 |102,885 |
| |. Remuneration of construction in progress | | |
| | - own capital |2,181,449 |2,181,449 |
| |. Investment subsidies - CRC |2,982,389 |2,982,389 |
| |. Other | 752 | 752 |
| | |5,267,475 | 5,267,475 |
| |Revenue reserves | | |
| |. Statutory |218,065 |176,530 |
| |. Retained earnings |315,813 | - |
| |. Unrealized earnings |568,235 |594,897 |
| |. Other | 10,937 | 10,937 |
| | |1,113,050 |782,364 |
| |Retained earnings | | |
| |. Supplementary price-level restatement - Law 8200/91 |1,164,399 |1,164,399 |
| |. Transfer of special price-level restatement - balance |1,669,669 |1,669,669 |
| |. Insufficiency of actuarial reserves - Fundação Real Grandeza |(999,770) |(999,770) |
| |. Closing balances | 791,347 | 819,769 |
| | |2,625,645 |2,654,067 |
NOTE 19 - REMUNERATION OF STOCKHOLDERS
In accordance with Law No. 6404/76 and the Company's by-laws, a provision for the remuneration of stockholders in the amount of R$ 250,000 thousand was included in the Company's financial statements for 2001, as approved at the Extraordinary General Meeting –(EGM) held on February 1, 2002.
The resolution approved at the General Stockholders’ Meeting held on April 29, 2002 supplemented the remuneration of the stockholders for the 2001 financial year by R$ 250,000 thousand This compensation in the form of interest on stockholders’ equity totaled R$ 500,000 thousand.
NOTE 20 - CRC BALANCE - INCOME COMPENSATION ACCOUNT
The Company has outstanding CRC balances of R$ 562,605 thousand recorded in the off-balance sheet system (memorandum account). Should the Company wish to use these amounts, under current legislation it must first reduce balances by 25% (Law No. 8631/93, article 7, paragraph 5, as amended by Law No. 8724/93) before the remainder can be securitized after authorization by the Ministry of Finance. Of the net amount arrived after the reduction of 25% (R$ 421,954 thousand), R$ 245,765 thousand will be used to pay ELETRONORTE for the transfer of Manso Hydroelectric Power Plant assets (see Note 14). Government securities in the form of ELETs readjusted to June 30, 2002 are also recorded in Long-term receivables at a discount of 22.6% or a net amount of R$ 87,509 thousand (2001 - R$ 63,269 thousand).
NOTE 21 - ELECTRICITY SUPPLIED
| | |ELECTRIC POWER |
| | |2002 |2001 |
| | |MWh |In thousands of |MWh |In thousands of reais|
| | | |reais | | |
|Transfer from Itaipu |30,781,316 |2,430,578 |31,985,063 |2,146,052 |
|Supplies |33,400,269 |1,736,787 |30,973,647 |1,338,965 |
|Short-term energy - MAE estimate | - |87,350 | - | - |
|Industrial supply | | | | |
|(-) ICMS | | | | |
| |126,712 |6,352 |36,174 |2,834 |
| | - |(1,588) | - |(709) |
| | |64,308,297 |4,259,479 |62,994,884 |3,487,142 |
NOTE 22 - ELECTRICITY PURCHASED FOR RESALE
| | |ELECTRIC POWER |
| | |2002 |2001 |
| | |MWh |In thousands of |MWh |In thousands of |
| | | |reais | |reais |
|Transfer from Itaipu |30,781,316 |2,347,148 |31,985,063 |2,085,100 |
|Initial/bilateral contracts |10,714,577 |801,263 |8,347,372 |474,505 |
|Short-term energy - MAE - estimate | - |81,670 | - |177,246 |
| | |41,495,893 |3,230,081 |40,332,435 |2,736,851 |
NOTE 23 - FINANCIAL CHARGES AND INDEXATION EFFECTS
In accordance with General Instruction 36 of the Chart of Accounts for the Public Electricity Service and CVM Resolution 193 of July 11, 1996, the financial charges and effects of inflation on loans and financing of property, plant, and equipment were recognized in net income in 2001 as follows:
| |In thousands of reais |
| |SALES |GENERATION |TRANSMISSION |TOTAL |
|Financial charges |32 |27,174 |24,122 |51,328 |
|Net effect of indexation adjustments |- |15,484 |205,436 |220,920 |
NOTE 24 - SUPPLEMENTARY PENSION SCHEME
The Company is a sponsor of Real Grandeza - Fundação de Previdência e Assistência Social, a non-profit legal entity whose objective is to supplement the benefits of government social welfare programs. ELETRONUCLEAR also became a sponsor after the spin-off of nuclear activities in 1997.
The current scheme is a defined-benefit plan which uses a capitalization actuarial system. At the end of the first half of this year, the plan included 4,451 active members, 5,298 retirees, and 743 others receiving benefits.
According to Regulations for the Pension Plan, the Company’s regular contribution comprises a monthly payment equal to the contribution made by active participating employees, which is 2.4% for salaries equivalent to up to half the maximum Social Security contribution, 4.6% for salaries from half the maximum to the maximum Social Security contribution, and 13.0% for salaries above the maximum Social Security contribution, plus a separate payment equivalent to 5.09% of the total payroll.
Regular contributions to Real Grandeza appropriated during the first six months of the-year to establish actuarial reserves for future benefits amounted to R$ 12,353 thousand (2001 - R$ 13,503 thousand).
As required by Law No. 8020/90, a total amount of R$ 2,948 thousand (2001 - R$ 3,074 thousand) was appropriated in the first half to cover administrative expenses.
At the end of the first half of the year, the Sponsor did not have any overdue debts with Real Grandeza.
The new Funding Plan for the Real Grandeza Social Security Benefits Plan was approved on December 14, 2000 based on studies done by the institution's official Actuary (Serviços Técnicos de Estatística e Atuária Ltda. – STEA) which took into consideration Constitutional Amendment 20 dated December 15, 1998. An amortizing contribution equivalent to 14.022% of the total monthly payroll was established for the Sponsors; introduction of the same was postponed until 2002.
On December 14, 2000, the Company and Real Grandeza signed an "Instrument of Acknowledgement and Consolidation of Debts, Obligation to Pay, and Other Covenants" which involved the amount of R$ 619,743 thousand (base-date December 31, 1999). The consolidated balance of the Sponsor's obligations established in the Statute and Regulations of the social security program totaled R$ 688,106 thousand as of June 30, 2002 and will be paid in 144 monthly installments beginning in January 2001. This balance mainly relates to years of service prior of the participants which preceded their enrollment in the Real Grandeza plan. As a result of this agreement, Company management approved monthly advances from October 1999 to December 2000 in the total amount of R$ 117,603 thousand, readjusted to October 2001 (2000 - R$ 103,421 thousand).
Real Grandeza reimbursed R$ 60,000 thousand of the amount advanced to FURNAS and the remaining R$ 57,603 thousand, equivalent to R$ 45,405 thousand as of December 1999 was deducted from the last 13 installments of the agreement referred to above.
As required by technical notice NPC 26 issued by the Institute of Independent Auditors of Brazil (IBRACON) and approved by CVM Resolution 371 of December 13, 2000 which deals with Accounting for Benefits Granted to Employees, we present the results of the actuarial review carried out by an independent actuary as of December 31, 2001 below:
| |In thousands of reais |
|Fair value of plan assets |2,469,072 |
|Present value of actuarial liabilities |2,982,145 |
|Net assets (actuarial liability) |(513,073) |
Statement of Responsibility for Shortfall in Assets
| |In thousands of reais |
| |Total insufficiency |Sponsors |Participants |
|Specification | |Furnas |Others | |
|Adjustment of Prevailing Special Contributions to the new | | | | |
|Funding Plan - RC.001/226, approved by SPC on 12/14/00 | | | | |
| |435,049 |244,633 |33,359 |157,057 |
|Net deficit |78,024 |34,330 |4,682 |39,012 |
|Shortfall in Plan Assets |513,073 |278,963 |38,041 |196,069 |
Of the total shortfall in Assets (actuarial liability) calculated in accordance with CVM Resolution 371/2000, FURNAS is responsible for R$ 278,963 thousand, which was fully recognized in the 2001 financial statements.
|1. Actuarial Assumptions Used | |
| | |
|Mortality Table | |
|Mortality | |
|Fit: |UP-84 increased by 1 year |
|Disabilities: |IAPB-57 |
|Disability: |Àlvaro Vindas – 200% |
|Other charges: |STEA Experience |
| |Established as a ratio based on completed age (x) |
|1.2. Turnover: |((2.5/x)-0.04)*2*0.72 |
| | |
|1.3. Economic | |
|Present value discount rate for actuarial liabilities | |
| |6% p.a. |
|Estimated remuneration rate of plan assets | |
| |6% p.a. |
|Estimated rate of salary increases | |
| |2.5% p.a. |
In addition to ensuring the financial stability of the current plan, the proposal intended to establish the permanent equilibrium of the Real Grandeza Foundation which is being implemented also considers the creation of two new social welfare plans, namely a funded plan and a defined contribution plan. In December 2000, the regulations for the new plans were submitted to the Secretariat for Supplementary Pensions (SPC) for approval. After being adjusted to comply with the provisions of Complementary Laws 108 and 109 dated May 31, 2001, the funded plan was approved on April 6, 2001 and the defined contribution plan was approved by Official Notification 406/SPC/CGAJ on March 20, 2002,.
Migration to the new retirement plans was in progress at the end of the first half of the year. The Counsel of Trustees of Real Grandeza set June 1, 2002 as the official starting date for this process and the Secretariat for Supplementary Pensions established August 31, 2002 as the migration cut-off date.
NOTE 25 - FINANCIAL INSTRUMENTS
Given the Company's particular characteristics both with respect to its individual features and the electric energy sector in general, we note the significant volume of intercompany loans obtained directly from the parent company, Centrais Elétricas Brasileiras S.A. (ELETROBRÁS), to finance expansion projects and which should be marked to market.
All loans and financing raised from ELETROBRÁS bear interest of 10% p.a. In addition, ELETROBRÁS is only permitted by its statutes to make loans to "municipal, state, and federal concessionaires of public electricity services under its control". Accordingly, it determines the market rate (the opportunity cost of the Company's capital) taking into account the risk attributable to the activities of the sector (10% p.a.). Due to the special circumstances involved in the financing of expansion projects, the market value of these loans is equal to their book value.
The Company is not involved in operations with futures contracts, swaps, and other financial derivatives.
NOTE 26 - SALE OF POWER GENERATED BY ANGRA II PLANT
a) As required by ANEEL through Official Notifications 156/2001 (SFF/ANEEL) and 213/2001 (SFF/ANEEL) dated March 5 and March 20, 2001, respectively, a provision in the amount of R$ 129,536 thousand (Note 16) corresponding to the net operations related to the sale of power generated by Angra II was established upon closing of the financial statements for 2000, as follows:
|Credit associated with Angra II power |In thousands of reais |
| . From September 1999 to April 2000 |181,538 |
| . From May to December 2000 |195,215 |
| |376,753 |
|Debt associated with short-term market | |
| . From September 1999 to August 2000 - estimate – ASMAE | |
| (Official Letter No. 213/2001 - SFF/ANEEL, of March 20, 2001) | 414,280 |
| . From September to December 2000 - estimate - ASMAE | |
|(Official Letter No. 213/2001 - SFF/ANEEL, of March 20, 2001) |92,009 |
| |506,289 |
|Net provision recorded in 2000 |129,536 |
After intense negotiations to settle the situation in relation to the sale of power generated by Angra II through the Wholesale Energy Market (MAE) which involved the Ministry of Mines and Energy (MME), ANEEL, and ELETROBRÁS, FURNAS and ELETRONUCLEAR signed a Power Purchase and Sale Agreement in July 2001 that went into effect retroactively as of the date of the plant's commercial start-up. Accordingly, all existing debts of the company were recognized in the accounts as of the aforementioned date.
Under the same agreement, FURNAS undertook responsibility for settling short-term debts and credits of market agents that existed after July 1999 through individual arrangements.
The invoices relating to the Initial Contracts for Angra II power with the concessionaire distributors which had been suspended until that time were issued based on the agreements signed. Additionally, all existing liabilities associated with short-term energy were also settled.
b) The R$ 149 million in energy from ELETRONUCLEAR relating to the 2000 fiscal year and which was assigned to FURNAS by ANEEL Official Notification 12/2001 (SRG) was fully recorded in 2001 (R$ 99 million, net of income tax and social contribution). This electricity had been generated by the above-cited company and made available to the market beginning in September 1999, date of commercial start-up of the Angra II plant, but had not been provided for at that time.
NOTE 27 - RATIONING OF ELECTRICITY
Provisional Measure 2148-1 dated May 22, 2001 created and established the Energy Crisis Management Committee (GCE) to propose and implement emergency measures to regulate the level of demand for electric energy, due to the low water levels at hydroelectric reservoirs, especially in the southeastern, mid-western and northeastern regions.
The GCE’s Emergency Power Consumption Reduction Program established special rate systems limits for use and supply of electricity and took other measures necessary to reduce consumption.
The program’s primary restriction mandated a monthly reduction in consumption of 20% for residential, commercial, industrial, and service sector consumers in the period from June 2001 to February 2002.
The Company adopted billing rules based on the recommendation of the Brazilian Association of Major Power Generators (ABRAGE), reducing amounts established in the initial contracts with concessionaire distributors by 20% over the period from June to November 2001.
The GCE, represented by the Power Sector Model Revitalization Committee, coordinated the signing of the General Power Sector Agreement with Electricity Generators and Public Electricity Service Distributors, in order to attenuate the economic and financial effects caused by the rationing of electricity.
The agreement referred to above established the following conditions, among others:
• Supplementary billing of concessionaire distributors, considering 97.659% of the initial contracts retroactive to June 2001;
• Revenue recovery from industrial consumers through an extraordinary rate adjustment;
• Allocation of responsibility for free market energy costs during the rationing period to Distributors which were entitled to the portion valuated at the Wholesale Energy Market Price (PMAE) less R$ 49.26 per MWh, as well as to Generators which received a portion equivalent to R$ 49.26. Generators will also be responsible for the financial settlement of this energy supply at the PMAE price, which will be reimbursed by Distributors under an agreement to refund payments for free market energy applying an amount equivalent to PMAE less R$ 49.26.
The Agreement was legalized through the enactment of Provisional Measure 14 converted into Law 10438 dated April 26, 2002. The aforementioned provisional measure and GCE Resolution 91, both of which were introduced on December 21, 2001, and ANEEL Resolution 31 dated January 24, 2002 authorized the extraordinary rate adjustment.
ANEEL issued Resolution 72 which introduced the procedures to account for the effects arising from these measures on February 7, 2002.
The amounts informed by MAE and provisioned by FURNAS under this agreement for the rationing period from June 2001 to February 2002, are as follows:
| |In thousands of reais |
| |Jan/Feb 2002 |2001 |TOTAL |
|Sale of free market energy - spot market |58,150 | 139,026 |197,176 |
|Purchase of free market energy - spot market | - |(118,343) |(118,343) |
|Distributors’ right to reimbursement |29,200 | 700,034 |729,234 |
|Liability for reimbursement to the distributor | - |(565) |(565) |
|Rate compensation | - | 565 |565 |
|Tax effect, net |(31,803) |(265,270) |(297,073) |
|Rationing result, net |55,547 |455,447 |510,994 |
NOTE 28 - PURCHASE AND SALE OF ELECTRICITY IN THE SHORT-TERM MARKET
Purchases and sales of electricity made in the Wholesale Energy Market (MAE) from September 2000 to December 2001 were accrued on an estimated basis.
Short-term transactions relating to the period from September 1999 to August 2000 provided for in 2000 were permanently recorded in July 2001 based on data made available by MAE. In addition to the R$ 414,280 thousand in expenses previously posted, the amount of R$ 77,901 thousand was also recorded. In the specific case of FURNAS, these expenses were based on the provisions of the Electric Power Purchase and Sale Agreement entered into with ELETRONUCLEAR in July 2001, whereby FURNAS took responsibility for sale of the energy generated by the power plants, Angra I and Angra II.
Amounts related to the period from September through December 2000 were provided for by ASMAE. However, there was no financial effect, since they had already been accounted for, making settlements impossible. Accordingly, in addition to the R$ 92,009 thousand previously posted, expenses amounting to R$ 103,132 thousand were recorded in 2001.
With regard to accounting for energy purchase and sale transactions via the short-term market in 2001, ANEEL Official Notification 1060 dated December 20, 2001 which was sent to the Wholesale Energy Market Council (COMAE) and Official Notifications 1061-SFF/ANEEL dated December 20, 2001 and 154-SFF/ANEEL dated March 6, 2002 which were sent to the Electric Power Concessionaires established that all transactions carried out in the Wholesale Energy Market were to be recorded in the accrual period based on information provided by MAE.
As required by the official notifications, MAE sent statements with estimated amounts for use with accounting provisions on February 28, 2002. The total amount attributed to FURNAS was R$ 1,287,569 thousand, of which R$ 797,392 thousand related to the generator's right to reimbursement and R$ 490,176 thousand related to the provisions for 2001. This result was in line with estimates prepared by FURNAS and reflected the criteria agreed to under the Program for Emergency and Exceptional Support to Public Electricity Distributors, also known as the General Power Sector Agreement, entered into by generators and distributors of electricity and the Energy Crisis Management Committee (GCE).
MAE issued a communication to concessionaires on March 13, 2002 which announced the new amounts for accounting purposes that were the result of "minor adjustments made in order to provide more accurate figures", which, it should be mentioned, were not satisfactorily justified. Surprisingly, these "minor adjustments" represented a loss to FURNAS in the amount of R$ 376,257 thousand. The new amounts total R$ 911,312 thousand, R$ 699,469 thousand of which represent the generator's right to reimbursement and R$ 211,843 thousand relates to the provision for 2001.
Certain of the inconsistency of these amounts, FURNAS formally requested their immediate review seeking to have them better reflect the criteria and agreements in force; this fact was informed to ELETROBRÁS and ANEEL.
On March 20, 2002, ANEEL Official Notification 201/2002 (SFF/ANEEL) stipulated that electric power concessionaires should use the amounts informed by MAE on March 13, 2002 to establish provisions, since these amounts "essentially reflect the application of regulations and instructions established by ANEEL, market rules, and the interpretation of the General Power Sector Agreement signed in December 2001".
Because they understood that the amounts disclosed by MAE on March 13, 2002 had not been arrived at following the terms established in the General Power Sector Agreement, generators of electricity requested a meeting that was held on March 20, 2002 and which was attended by BNDES, ANEEL, MAE, and ABRAGE, represented, among others, by FURNAS. This meeting confirmed that ANEEL and the power generators had different interpretations as to the contents and spirit of the General Power Sector Agreement.
As a result of the meeting, MAE corroborated the existence of a difference in interpretation and informed concessionaires with respect to the new amounts for accounting purposes on March 21, 2002, adding a supplementary amount of R$ 272,728 thousand to the R$ 911,312 thousand previously informed.
This new amount informed in the third version for a preliminary provision arrived at a result very close to the amount calculated independently by the internal department responsible for this issue at FURNAS.
On March 22, 2002, ELETROBRÁS instructed FURNAS to "close the 2001 financial statements using the amount in the second Communication issued by MAE and approved by ANEEL in Official Notification 201/002 (SFF/ANEEL) dated March 20, 2002. It was also suggested that the third figure (R$ 272,728 thousand) should be mentioned in the Notes to the Financial Statements" following the instructions in FAX DFC-037/02-CIRC.
Compliance with ANEEL resolutions and instructions from its parent company following FAX DFC-037/02-CIRC and FAX PR-671/02 of March 26, 2002 resulted in a decrease in the net income of FURNAS from R$ 1,021,097 thousand to R$ 830,686 thousand.
Certain that the General Power Sector Agreement will be fully and faithfully complied with both in letter and essence, FURNAS considers itself a creditor of MAE in the additional amount of R$ 272,728 thousand. Accordingly, Company management understands that it is their responsibility to adopt all measures possible, both in the administrative and judicial spheres, to defend its stockholders' interests and to protect public property.
After the disclosure by MAE of the estimated amounts of electricity traded in the Wholesale Energy Market during the period from June 2001 to February 2002 that were to be used to establish provisions in the financial statements, it became evident that ABRAGE and ANEEL had differences of opinion with respect to the interpretation of the General Power Sector Agreement. The issue was submitted to ANEEL, which issued a pronouncement from the Director General dealing with the conditions that would be used by MAE to calculate free market energy in Official Notification 288 dated May 16, 2002. As noted, the conditions determined by ANEEL have not yet been totally satisfied, thus making the revision of the previous calculations necessary. The Company is awaiting a definition of amounts by MAE, in order to evaluate their impact on the financial statements.
ANEEL Circular Letter No. 343/2002 dated May 9,2002 established that parties could use their own calculations to close the first quarter amount for transactions carried out through MAE on an exceptional basis, so long as they were properly supported by documentation backing the figures". The same circular letter also established that "if it was not possible to calculate the figure in the manner defined in this letter, parties could resort to MAE, since it already had calculations for transactions in the market during the period from January to March of 2002 that were available upon request.
The agency issued Official Circular 616/2002 on June 27, 2002 which authorized the use of the same procedure for the second quarter of 2002, also on an exceptional basis.
Based on ANEEL Circular Letters 343/2002 and 616/2002, the Company established a provision for purchase and sale of electricity through MAE for the period from January to June 2002 using internal calculations and amounts which FURNAS believes correctly reflect the General Power Sector Agreement.
On July 4, 2002, companies in the electric energy sector signed legal instruments which consolidated implementation of the general agreement, including Amendments to the Initial Agreements, Agreement to Reimburse Free Market Energy, Purchase Agreement for Net Contractual Surpluses, and Declarations from Generators and Distributors of electricity.
Income and expenses recognized are as follows:
| |In thousands of reais |
| |Jan/Jun 2002 |2001 |TOTAL |
|SALES | | | |
|Freely-traded energy - generator's right to reimbursement |29,200 |700,034 |729,234 |
|Spot market |58,150 | 331,354 |389,504 |
|TOTAL |87,350 |1,031,388 |1,118,738 |
| | | | |
|PURCHASES | | | |
|Adjustment to amounts posted up to August 2000 | - |77,901 |77,901 |
|Adjustment to amounts posted from September to December 2000 | - |103,132 |103,132 |
|Freely-traded energy - Liability for reimbursement to the generator | - |565 |565 |
|Spot market |81,670 |119,511 |201,181 |
|TOTAL |81,670 |301,109 |382,779 |
| | | | |
|NET INCOME |5,680 |730,279 |735,959 |
DIMAS FABIANO TOLEDO
Director – Acting Chairman
MÁRCIO AUGUSTO VASCONCELOS NUNES CELSO FERREIRA
Director Director
DIMAS FABIANO TOLEDO HEITOR HERBERTO SALES
Director Director
PAULO ROBERTO QUEIROZ DE ALBUQUERQUE
Accounting and Control Manager
CRC - RJ 023.013/O-1 - Accountant
CPF - 265.630.887-91
JOSÉ LUIZ OLIVEIRA DE AGUIAR
Head of Accounting Department
CRC - RJ 026.157/O-5 - Accountant
CPF - 330.737.757-49
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(A free translation of the original in Portuguese)
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