2. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
2
3. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
3
4. Eletropaulo’s Market Billed in GWh
3.400
3.200
3.000
2.800
2.600
2.400
2.200
2.000
st
r
ay
y
ne
l
ly
r
ch
o v er
ry
r
ri
be
be
be
ar
Se g u
Ju
Ap
ob
ua
M
ar
Ju
nu
em
em
em
Au
M
br
ct
Ja
pt
ec
O
Fe
D
N
1999 2000 2001 2002 2003
4
5. Consumption forecast for 2nd Half of 2003
Small holding growth
Residential class (aggregation of new consumers)
Maintenance of consumption average
Seasonal growth (Christmas), automation
Commercial class growth (air conditioning, electronic
systems, etc.), absence of holidays
Low economic activity
Industrial class
Water and sanitation (+)
Other
Public lighting (-)
5
7. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
7
8. Investments During
1st Half of 2003
Eletropaulo invested from 1998 to
2002 – R$1,438 million.
R$ 50 MM
17% 1st half of 2003 – R$ 88 million
R$ 38 MM were invested, accounting for an
increase of 3% compared to the
15%
20% same period in the prior year.
14%
Investments in 2003 are being
made in:
68% Grid Maintenance
66%
Connection of New Customers
Improvement in consumers’
service rendering
Total of Investments projected for
the year – R$ 206 million.
1st Q 03 2ndQ 03
Distribution Sub-transmission
Administrative
8
9. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
9
10. Tariff Reset Mechanism
Reset % = Required Revenue
Verified Revenue
Required
Revenue
Verified
Revenue
Parcel A
Parcel A
O&M
O&M
MWh
MWh
x
x
Tariff
Tariff Depreciation
Depreciation
Parcel B
x WACC
WACC
Base
Base
(Pre-Tax)
(Pre-Tax)
Rate
Rate
10
11. Reconstitution of Tariff Reset
Reconstitution of Tariff Reset – from 9.62% (NT 097/2003-Aneel – May 21/03) to 10.95%
(Final RT – June 30/03)
1. Macro Adjustment: dollar variation from R$ 3.10/US$
to R$ 2.87/US$ and IGP-m from 31.41% to 28.22%
Initial Proposal 9.62%
2. PMSO – Review of number of employees in the
(1) Macro Adjustment -2.68% reference company and increase in other expenses of
O&M, such as customer service rendering and
Initial Proposal after 6,94% technical services.
macro adjustment
3. PIS/COFINS - Increase in required revenue
(2) PMSO 0.48% 4. Energy – Amendment to IC with Cesp in the amount
(3) PIS and COFINS 0.21% of R$ 65.58/MWh, causing it not to use PMAE (R$
8.00/MWh) in its energy deficit. Also had its % of
(4) Energy 1.10% losses reviewed.
(5) Charges 1.75% 5. Charges – Major increases in basic grid, connection,
(6) Verified Revenue 0.60% and CUSD
(7) Other Revenues -0.14% 6. Verified Revenue – Reduce due to market review
RT Final Index 10.95% 7. Other revenues – Increase in revenue referring to
TUSD (which is subtracted from required revenue)
(8) Bubble 0.4% 8. Referring to costs incurred during rationing and future
expenses with financial collaterals for energy
Final Increase 11.35%
purchase. Valid only for one year.
11
12. Tariff Reset 2003
Index Composition: Main pending issues in TR:
Value R$ thousand
Participation in Parcel A
Energy Purcha se 3.314.595 Pending Issue Description
Initial 1.703.796
Bilateral 528.660
Rate Aneel considered a percentage of 90%
Itaipu 1.082.139 of the fix assets, adjusted by inflation –
Charges 1.255.479 Base subject to Public Hearing, with no
Basic Grid 501.952 definition of date.
Connection 177.847
Transportation Itaipu 59.582
CCC/CDE 396.108 FCESP Actuarial costs with FCESP are not being
Other 119.991 considered by ANEEL.
Total 4.570.074
Participation in Parcel B
Rate 894.835 PMSO Aneel considered personnel costs below
O&M 624.148 the market in Eletropaulo’s area.
PDD 29.437
Other 698.520
Total 2.246.940 Test Year Inconsistency in periods considered in
Total A+B 6.817.014 tariff calculation; leads to a lower tariff.
Other Revenues (-) (81.929)
Total Required Revenue 6.735.085
Verified Revenue 6.070.338
Revision Index 10,95% Aneel Level - 0,5% of Gross Revenue
Bubble 0,40% PDD
excluding ICMS. Far below the historical
Total Index 11,35% level of Eletropaulo, of 1.87% of Gross
Revenue.
12
13. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
13
14. Main Features of The New Model
Proposes two contractual environments that will work in parallel
Regulated Contractual Environment – “Pool” – public generation and distribution
concessionaires and IPPs that choose to work via “pool”
Free Contractual Environment – restricted to free consumers, traders, and IPPs
General Energy Contractual Model
Generation Transmission Distribution Consumption
Regulated Contractual Environment
IPP
IPP
IPP
IPP Free FC
Contractual FC
IPP
IPP Environment TR FC
FC
IPP: Independent Power Producer; TR: Trader; FC: Free Consumer
14
15. Main Features of the New Model
Planning will be centralized and mandatory with two main functions:
Define the amount of energy and the projects that shall be auctioned though the pool
Indicate the need for additional supply agreements and the safety margin for the operation of the system
ACEE will be responsible for managing trade relations between distribution and generation
concessionaires and will also carry out the wholesale energy market (MAE) activities as a
whole
The tariffs in the pool will be based on the average price between the “old” and “new” energy,
with a floor based on the average price of the existing bilateral contracts
Self-dealing will no longer be accepted
PPIs will be able to sell energy in the pool under long-term contracts using a sector index, yet
to be defined, and subject to periodic tariff resets
Free consumers
Consumers having contracted demand of 3,000 kW or more may opt to contract energy from a trader or
from an IPP
In case of expansion, the captive consumer may opt to contract the additional load in the condition of a
free consumer
The choice to become a free consumer or to return to the condition of captive consumer shall be made at
least 5 years in advance
15
16. Impacts of the New Model
Impacts of the New
Model on Eletropaulo
Distribution companies will have to contract 100% of their five-year
market forecast within the poll and will be subject to “undefined”
fines in case forecast does no materialize.
Will not be allowed to sell energy to free consumers.
PPAs in force and validated by ANEEL will be honored
PPA between Tiete and Eletropaulo
New Model fails to address possible losses in case of rationing
16
17. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
17
18. Earnings – 2Q2003 (R$ million)
1Q03 2Q03 Increase in consumption by
residential and industrial classes
Increase in billed days
NET REVENUE 1,409.1 1,495.2
1.495,2 6.1%
Allowances for contingencies;
OPERATIONAL EXPENSE (1,255.9) (1,377.1)
(1.377,1) 9.7% PDD;
Material for grid maintenance
Positive Impact:
EBITDA 153.2 184,1
184.1 20.2% Increase in net operational
revenue
Reduction in allowance for CVM
371
FINANCIAL REVENUE (13.9) 153,8
153.8 1,206%
(EXPENSE)* Positive Impact:
Exchange rate variation due to
appreciation of Real towards
Dollar (14.35%)
Reduction of the account Local
RESULT BEFORE 286%
70.5 272.2
272,2 Currency Monetary Variation due
TAXATION
to deflation of IGP-M in the
period of - 0.34%
Consumption increase
NET PROFIT (LOSS) 14.2 110.1 675% Appreciation of “Real”
(*) Values of Consolidated
18
19. EBITDA Adjustment
1st Half of 2002 1st Half of 2003
EBITDA
R$ 337.3 million
R$ 394.2 million EBITDA (with the effect of CVM 371)
Allowance for Actuarial Liability
with Fundação Cesp – CVM 371
R$ 0.00 R$ 215.7 million
EBITDA
(WITHOUT EFFECT OF
R$ 394.2 million
R$ 394.2 million EBITDA R$ 553.0 million
R$ 553.0 million ALLOWANCE FOR
CVM 371)
40.3% Growth
19
20. Fundação Cesp Accountability on Expenses with Personnel
1st Quarter 03 2st Quarter 03 1st Half 03
SPONSOR SPONSOR SPONSOR
2.8 mn 2.9 mn 5.7 mn
RESERVES TO BE RESERVES TO BE RESERVES TO BE
AMORTIZED AMORTIZED AMORTIZED
62.0 mn 65.2 mn 127.2 mn
CVM 371 CVM 371 CVM 371
123.6 mn 92.1 mn 215.7 mn
TOTAL ACCOUNTED TOTAL ACCOUNTED TOTAL ACCOUNTED
188,4 mn 160,2 mn 348,6 mn
20
21. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
21
22. Indebtedness in the 2nd quarter of 2003
In the 2nd quarter of 2003, Eletropaulo maintained 41% of its total
indebtedness in dollars
Eletropaulo still has limited access to hedge operations
Total hedge in July 2003 - US$ 120 million,
Hedge corresponds to 16.0% of consolidated indebtedness in dollars
Consolidated Debt – Mar/31/2003 Consolidated Debt - Jun/30/2003
(R$ 5.8 billion, (R$ 5.3 billion,
R$ 2.6 billion denominated in US$)* R$ 2.16 billion denominated in US$)*
45%
41%
R$ R$
59%
US$ US$
55%
Exchange rate Exchange rate
14.2% w/ 16.0% w/
exposure of 38% exposure of 34%
hedge hedge
(*) The values were converted by Ptax at the end of each month:
Mar/ 2003 – 3.353
Jun/ 2003 – 2.872
22
23. Indebtedness – Short-term x Long-term
Effective – June 2003 Accountable – June 2003
28%
47%
R$ 1,352 million
were reclassified
as short-term
53%
72%
Long-Term Short-term Short-term Long-term
The total accounted in the Short-term does not reflect the real maturity
schedule, once it includes some debts for non-compliance with contractual
provisions (financial covenants), cross-default, and payment default.
According to the maturity schedule, approximately 47% of the debt will be due
in the Short-term.
23
24. Maturity Schedule of Principal in 2003 (R$ million)
The company intends to maintain its strategy of accommodating the maturity of its
debt to its cash generation, through time extension of the due dates of its loans
220
220 Commercial Paper
Bank Loan
Deustche (US$ 49 million)
Bank 192
(US$ 60
171
171
million)
Sindicated
Loan
JP Morgan
(R$ 160
million)
63
58
35 37 37
9 10 10 10 10 10
1 2 4 4
July August September October November December
US$ R$ BNDES
Note: The maturity of principal of he debts in dollar as of Jun/30/2003 were converted by the exchange rate of such date (US$/R$ = 2.872)
24
25. Maturity Schedule of Principal in 2003 (R$ million)
Bank Loan
Syndicated Loan
JP Morgan (R$ 325
325 Itau
Syndicated Loan
158 million) and (US$100million)
Bank Boston
Working Capital (US$ 30 million)
(R$ 38 million) Syndicated Loan
JP Morgan (R$158 million)
Syndicated Loan
JP Morgan
(R$ 158 million) Syndicated Loan
228 Bank Boston
(US$ 30 million)
195
195 191
191
Syndicated Loan
Bank Boston
(US$ 30 million)
124
124
Debentures
106
106 R$ 39 million
86
86
50
39
39
31 31 32 32 33
20 20 15 15 15
11 11 11 8 11 12 12 12 12 12 13 13 13 13
0 0 0
jan/04 Feb/04 mar/04 Apr/04 May/04 jun/04 jul/04 Aug/04 Sep/04 Oct/04 nov/04 Dec/04
US$ R$ BNDES
Note: The maturity of principal of the debts in dollar as of Jun/30/2003 were converted by the exchange rate of such date (US$/R$ = 2.872)
25
26. Relevant Fact – August 14, 2003
On August 13, 2003, BankBoston formally notified Eletropaulo that
the total debt of US$305 million – obtained at the union belonging
to the bank – was being considered due in advance.
Possibility of negotiations is not over.
Eletropaulo will promote a process to re-structure its debts globally
at some private creditors.
The company still commits itself to keeping both its indicators and
services at adequate and satisfactory levels.
26
27. Indebtedness Status on Jun/30/2003
R$ 5,275 mn
21%
R$ 3,115 mn 29%
39% R$ 2,160 mn
51%
50%
61% 13%
36%
R$ US$ Total
With cross default Without cross default With Payment default
The loans that are not in payment default or cross-default are:
Law 7976/89 –US$
Order 96/93 – US$
Clube de Paris – US$
Law 4131 – US$
Fundação Cesp – R$
BBA – R$
Consumers – R$
27
28. Debt Renegotiation Process
Main Objectives:
Liquidity improvement through accommodation of debt amortization
schedule to the company’s cash generation
Mitigation of exchange rate risks – conversion of debts denominated in
Dollars to Reais
Contractual and financial equalization
Credit ratings improvement
Features of Renegotiation Process:
Paying interests during negotiations, but not the principal
Amount to be renegotiated at banks = US$ 800 million
Presenting proposal to creditors in September and finishing process until
the end of the year
28
29. I. Market
II. Investments
III. Tariff Reset
IV. New Model
V. Financial Indicators
VI. Indebtedness
VII. Conclusion
29
30. Eletropaulo
Eletropaulo is the major power distribution company in Latin America and its
clients account for the part of population having the highest purchasing
power in Brazil
Since its privatization in 1998 until 2002, Eletropaulo invested R$ 1,438
million, contributing to update and integrate its distribution grid and improve
the quality of services rendered to consumers
Rationing caused a loss of R$ 1,965 milion, partially compensated by the
Sector General Agreement, besides having created a change in consumers’
habits, which can be felt until today in the reduction of Eletropaulo’s
consumption level
At present, the company is developing new efforts to restructure its debts in
order to accommodate the amortization time schedule to its cash generation
and mitigate the exchange rate risks.
The regulatory scenario presents great challenge to Eletropaulo due to the
government’s need to reduce the inflationary and social impact of tariff resets
and to the uncertainties posed by the New Model proposal
A solid and feasible company, which has constantly tried to equate the
due dates of its loans with its cash generation and to mitigate the
outcomes of uncertainty in the regulatory scope
30
31. 2nd Quarter of 2003
Earnings Presentation
August, 2003
31
