www.cemig.com.br Tel.:3506-3711 (31) 55 Brazil MG, Horizonte, Belo 30190-131 992 Postal Caixa 1200 Barbacena, Avenida Cemig – Gerais Minas de Energética Companhia Office: Head [email protected] TranslationEnglish: into archives Cemig Reis Rogério Lima Percio Imagens de Agência Nitro Martins Fernando Paccelli Eugênio CarreiroAntônio Photographs: Comunicação 18 design: Graphic Office Relations Investor Cemig coordination: Editorial (CE) Communications Corporate Cemig production: editorial Concept, CREDITS GOVERNO DEMINASGERAIS Cover photo:TheTronqueiras HydroelectricPlant.Photoonthe “seal”: TheSãoSimãoHydroelectricPlant.
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I U O A L Cemig inNumbers Debt Total debt / total capitalization total Total/ debt Number of employees of Number Number of substations of Number Number of power plants power of Number Operational Rural Industrial Commercial Residential (R$/MWh) ICMS including (R$/MWh) tax ICMS including tariff, retail Average (kWh/year) consumption residential Average Transmission(km) lines Installed capacity (MW) capacity Installed Rural Urban (km) lines Distribution Total debt – R$ million R$ Total– debt million R$ – currency foreign in Debt liquidity Current % – equity on Return R$ – company) (holding share per equity Stockholders’ million R$ – capitalization Market R$ – company) (holding shares per (loss) income Net million R$ – (loss) income Net % – margin Ebitda million R$ – Ebitda % – margin Operational million R$ – revenue operational Net million R$ – revenue Operational data) (consolidated Financial (GWh) Totalsold electricity Debt in local currency – R$ million R$ – currency local in Debt million R$ – equity Stockholders’ Municipalities served Municipalities served locations of Number employee per Consumers Subtransmission lines (km) lines Subtransmission (5) – Debt = Current liabilities + Non-current liabilities Non-current + liabilities Current = Debt – (5) Totalequity.Total– Stockholders’ = (4) + capitalization debt debentures. and financings Loans, = Debt – (3) gravity.of center at Generation – (2) 2006. since TBE, and Light Includes – (1) (‘000) consumers of Number Service Descriptions Concession area (km area Concession Market Dividends / Ebitda – % – Ebitda / Dividends % – income net / Dividends million R$ – paid Dividends Own generation (GWh) generation Own (5) / Stockholders’ equity – % – equity Stockholders’ /
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276,437 567,478 186.42 132.39 305.89 356.95 36,584 82,867 16,185 27,025 11,302 128.67 3,859 5,744 1,380 1,579 21.08 13.48 7,441 1,198 1,771 22.99 5,223 7,968 5,771 2,280 6,559 5,415 4,829 2003 0.37 0.73 2.46 427 508 774 320 48 34 18 27
283,910 567,478 214.42 154.38 356.03 416.26 37,897 83,527 16,086 26,922 10,668 131.15 4,218 5,875 1,351 1,099 21.11 14.91 9,951 1,385 2,480 32.22 6,434 9,748 5,949 3,119 7,251 5,415 4,856 2004 0.37 0.86 2.85 434 551 774 692 52 38 28 50 294,815 567,478 249.13 124.41 410.81 474.23 39,614 84,585 16,040 14,335 11,703 30,411 10,271 175.55 4,936 6,010 1,337 27.63 14.77 2,003 3,058 33.68 7,313 6,113 4,137 7,185 5,415 4,892 2,070 2005 0.41 0.91 4.12 440 799 585 774 103 54 42 68 308,689 578,448 10,042 265.27 128.04 435.97 487.52 52,263 93,850 16,788 16,040 13,431 32,187 14,867 206.03 7,649 1,313 1,015 23.92 15.46 1,719 3,222 30.12 8,467 6,692 6,634 7,522 5,415 5,364 1,382 2006 0.50 1.11 3.53 469 675 805 61 38 43 80 337,987 578,448 10,321 270.65 136.93 449.51 505.73 57,892 91,573 16,676 16,078 10,246 15,790 33,150 14,783 189.23 7,639 1,313 7,182 23.07 17.25 8,390 1,735 4,073 32.16 6,678 5,415 5,313 2007 0.48 1.32 3.57 472 457 698 805 868 62 40 21 50 www.cemig.com.br Tel.:3506-3711 (31) 55 Brazil MG, Horizonte, Belo 30190-131 992 Postal Caixa 1200 Barbacena, Avenida Cemig – Gerais Minas de Energética Companhia Office: Head [email protected] TranslationEnglish: into archives Cemig Reis Rogério Lima Percio Imagens de Agência Nitro Martins Fernando Paccelli Eugênio CarreiroAntônio Photographs: Comunicação 18 design: Graphic Office Relations Investor Cemig coordination: Editorial (CE) Communications Corporate Cemig production: editorial Concept, CREDITS GOVERNO DEMINASGERAIS Cover photo:TheTronqueiras HydroelectricPlant.Photoonthe “seal”: TheSãoSimãoHydroelectricPlant.
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I U O A L Cemig inNumbers Debt Total debt / total capitalization total Total/ debt Number of employees of Number Number of substations of Number plants power of Number Operational Rural Industrial Commercial Residential (R$/MWh) ICMS including (R$/MWh) tax ICMS including tariff, retail Average Average residential consumption (kWh/year) consumption residential Average Transmission(km) lines Distribution lines (km) lines Distribution Installed capacity (MW) capacity Installed Rural Urban Total debt – R$ million R$ Total– debt million R$ – currency foreign in Debt million R$ – currency local in Debt liquidity Current % – equity on Return R$ – company) (holding share per equity Stockholders’ million R$ – capitalization Market million R$ – equity Stockholders’ R$ – company) (holding shares per (loss) income Net million R$ – (loss) income Net % – margin Ebitda million R$ – Ebitda % – margin Operational million R$ – revenue operational Net Operational revenue – R$ million R$ – revenue Operational data) (consolidated Financial (GWh) Totalsold electricity Municipalities served Municipalities served locations of Number Consumers per employee per Consumers Subtransmission lines (km) lines Subtransmission Number of consumers (‘000) consumers of Number Service (5) – Debt = Current liabilities + Non-current liabilities Non-current + liabilities Current = Debt – (5) Totalequity.Total– Stockholders’ = (4) + capitalization debt debentures. and financings Loans, = Debt – (3) gravity.of center at Generation – (2) 2006. since TBE, and Light Includes – (1) Descriptions Concession area (km area Concession Market Dividends / Ebitda – % – Ebitda / Dividends % – income net / Dividends million R$ – paid Dividends Own generation (GWh) generation Own (5) / Stockholders’ equity – % – equity Stockholders’ /
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276,437 567,478 186.42 132.39 305.89 356.95 36,584 16,185 82,867 27,025 11,302 128.67 3,859 5,744 1,380 1,579 2,280 21.08 13.48 7,441 6,559 1,198 1,771 22.99 5,223 7,968 5,771 5,415 4,829 2003 0.37 0.73 2.46 427 508 774 320 48 34 18 27
283,910 567,478 214.42 154.38 356.03 416.26 37,897 16,086 83,527 26,922 10,668 131.15 4,218 5,875 1,351 1,099 3,119 21.11 14.91 9,951 7,251 1,385 2,480 32.22 6,434 9,748 5,949 5,415 4,856 2004 0.37 0.86 2.85 434 551 774 692 52 38 28 50 294,815 567,478 249.13 124.41 410.81 474.23 39,614 16,040 84,585 14,335 11,703 30,411 10,271 175.55 4,936 6,010 1,337 4,137 27.63 14.77 7,185 2,003 3,058 33.68 7,313 6,113 5,415 4,892 2,070 2005 0.41 0.91 4.12 440 799 585 774 103 54 42 68 308,689 578,448 10,042 265.27 128.04 435.97 487.52 52,263 16,788 93,850 16,040 13,431 32,187 14,867 206.03 7,649 1,313 1,015 6,634 23.92 15.46 7,522 1,719 3,222 30.12 8,467 6,692 5,415 5,364 1,382 2006 0.50 1.11 3.53 469 675 805 61 38 43 80 337,987 578,448 10,321 270.65 136.93 449.51 505.73 57,892 16,676 91,573 16,078 10,246 15,790 33,150 14,783 189.23 7,639 1,313 7,182 23.07 17.25 8,390 1,735 4,073 32.16 6,678 5,415 5,313 2007 0.48 1.32 3.57 472 457 698 805 868 62 40 21 50 www.cemig.com.br Tel.:3506-3711 (31) 55 Brazil MG, Horizonte, Belo 30190-131 992 Postal Caixa 1200 Barbacena, Avenida Cemig – Gerais Minas de Energética Companhia Office: Head [email protected] TranslationEnglish: into archives Cemig Reis Rogério Lima Percio Imagens de Agência Nitro Martins Fernando Paccelli Eugênio CarreiroAntônio Photographs: Comunicação 18 design: Graphic Office Relations Investor Cemig coordination: Editorial (CE) Communications Corporate Cemig production: editorial Concept, CREDITS GOVERNO DEMINASGERAIS Cover photo:TheTronqueiras HydroelectricPlant.Photoonthe “seal”: TheSãoSimãoHydroelectricPlant.
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I U O A L Cemig inNumbers Debt Total debt / total capitalization total Total/ debt Number of employees of Number Number of substations of Number Number of power plants power of Number Operational Rural Industrial Commercial Residential (R$/MWh) ICMS including (R$/MWh) tax ICMS including tariff, retail Average (kWh/year) consumption residential Average Transmission(km) lines Installed capacity (MW) capacity Installed Rural Urban (km) lines Distribution Total debt – R$ million R$ Total– debt million R$ – currency foreign in Debt million R$ – currency local in Debt liquidity Current % – equity on Return R$ – company) (holding share per equity Stockholders’ million R$ – capitalization Market million R$ – equity Stockholders’ R$ – company) (holding shares per (loss) income Net million R$ – (loss) income Net % – margin Ebitda million R$ – Ebitda % – margin Operational million R$ – revenue operational Net million R$ – revenue Operational data) (consolidated Financial (GWh) Totalsold electricity Municipalities served Municipalities served locations of Number employee per Consumers Subtransmission lines (km) lines Subtransmission (5) – Debt = Current liabilities + Non-current liabilities Non-current + liabilities Current = Debt – (5) Totalequity.Total– Stockholders’ = (4) + capitalization debt debentures. and financings Loans, = Debt – (3) gravity.of center at Generation – (2) 2006. since TBE, and Light Includes – (1) (‘000) consumers of Number Service Descriptions Concession area (km area Concession Market Dividends / Ebitda – % – Ebitda / Dividends % – income net / Dividends million R$ – paid Dividends Own generation (GWh) generation Own (5) / Stockholders’ equity – % – equity Stockholders’ /
2 (1) ) (1) (1) (1)
(3) (1) (1)
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276,437 567,478 186.42 132.39 305.89 356.95 36,584 82,867 16,185 27,025 11,302 128.67 3,859 5,744 1,380 1,579 2,280 21.08 13.48 7,441 6,559 1,198 1,771 22.99 5,223 7,968 5,771 5,415 4,829 2003 0.37 0.73 2.46 427 508 774 320 48 34 18 27
283,910 567,478 214.42 154.38 356.03 416.26 37,897 83,527 16,086 26,922 10,668 131.15 4,218 5,875 1,351 1,099 3,119 21.11 14.91 9,951 7,251 1,385 2,480 32.22 6,434 9,748 5,949 5,415 4,856 2004 0.37 0.86 2.85 434 551 774 692 52 38 28 50 294,815 567,478 249.13 124.41 410.81 474.23 39,614 84,585 16,040 14,335 11,703 30,411 10,271 175.55 4,936 6,010 1,337 4,137 27.63 14.77 7,185 2,003 3,058 33.68 7,313 6,113 5,415 4,892 2,070 2005 0.41 0.91 4.12 440 799 585 774 103 54 42 68 308,689 578,448 10,042 265.27 128.04 435.97 487.52 52,263 93,850 16,788 16,040 13,431 32,187 14,867 206.03 7,649 1,313 1,015 6,634 23.92 15.46 7,522 1,719 3,222 30.12 8,467 6,692 5,415 5,364 1,382 2006 0.50 1.11 3.53 469 675 805 61 38 80 43 337,987 578,448 10,321 270.65 136.93 449.51 505.73 57,892 91,573 16,676 16,078 10,246 15,790 33,150 14,783 189.23 7,639 1,313 7,182 23.07 17.25 8,390 1,735 4,073 32.16 6,678 5,415 5,313 2007 0.48 1.32 3.57 472 457 698 805 868 62 40 50 21 ebitda (R$ million) HIGHLIGHTS 4,073
number of consumers (thousands) aNnual sales of electricity (TWh) 3,222 3,058 10,321 10,042 57.9 2,480 52.2 1,771
39.6 5,875 6,010 37.9 5,744 36.6 2003 2004 2005 2006 2007
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 total debt (R$ million) Starting in 2006, these figures include 100% of the consumers of Light.
7,649 7,639
4,936
4,218 3,859
number of employees installed capacity (mw) 2003 2004 2005 2006 2007 14,867 14,783
11,302 DIVIDENDS (R$ million) 10,668 10,271 6,692 6,678 2,070 5,949 6,113 5,771
2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 1,382
Starting in 2006, these figures include 100% of the consumers of Light.
868
692
320
2003 2004 2005 2006 2007
Note: Figures for 2007 refer to dividends for the year to be proposed to the Ordinary Annual General Meeting to be held in 2008.
coNsumers per employee (productivity) market capitalization (R$ million) 16,040 16,078 14,335 net INCOME (R$ million) 698 2.500 120% 675 2,003 2.000 100% 9,951 1,719 1,735 585 103% 551 80% 1.500 1,385 508 7,441 1,198 80% 60% 1.000 50% 50% 40% 2003 2004 2005 2006 2007 2003 2004 2005 2006 2007 500 20% 27% - 0% 2003 2004 2005 2006 2007
Dividend payout, % Net income
CEMIG – 55 YEARS OF HISTORY. PRESENT IN THE PAST, PREPARED FOR THE FUTURE. “... Cemig began strong. It did not become strong, it started strong, on the first day. This is a very important point.” Camilo Penna, former Chairman of Cemig.
THE 1950s: A DREAM BECOMES… ENERGY.
Until Cemig was created, in 1952, the In a written note to his Public Works electricity system in Minas Gerais was fragmented and Highways Secretary, Governor Juscelino built mainly by numerous initiatives of the private Kubitschek refers to the “plans that I desire sector. From the moment it was created, Cemig to put into execution in the electricity sector”, operated as a consolidating entity, taking over and requests “that the measures be put in existing hydroelectric plants and building new place definitively”. A dream was on the way to ones, enabling the economy of the state of becoming … energy. Minas Gerais to expand, and quickly. Cemig was born up-to-the-minute, tuned to
Mário Bhering, Chairman of Cemig, and Juscelino Kubitschek – at that time The Salto Grande Hydroelectric Plant a candidate for the presidency of Brazil – at the inauguration of the Cajuru Dam.
the most advanced techniques and technologies, planned a plant in Rio de Janeiro state, but opted not only in production of electricity, but also in for Minas Gerais due to the state guaranteeing management of financial and human resources. to supply its demand for electricity (which, The first, major, mission, was to provide the at that time, was half of the state’s entire state of Minas with the energy necessary for it consumption). to develop. The first three hydroelectric plants built by Cemig began life as a huge factory, producing Cemig were inaugurated before the end of the hydroelectric generation plants. 1950s. The Tronqueiras Plant started operating Works on the Mannesmann steel company in January 1955, the Itutinga Plant one month were begun in May 1952. Mannesmann had later, and the Salto Grande Plant in 1956.
THE 1960s: CEMIG BECOMING A KNOWN NAME – IN BRAZIL AND WORLDWIDE.
In the 1960s, Cemig went into the business Canadian, American and Brazilian technical of transmission and distribution. Taking over experts – made a complete inventory and regional and municipal companies, it guaranteed assessment of the hydroelectric potential the structure to supply electricity with quality. of Minas Gerais over the years 1963-1966. As the large hydroelectric projects of the These studies revolutionized the focus of 1950s matured, in the 1960s Cemig had construction of electricity generation plants enough energy to be a decisive influence in the in Brazil, and defined the projects that would development of the whole of the state. guarantee the energy for the state’s future. The Canambra Consortium – a group of During the 60s, Cemig began to earn a
“It was a four-year task, in which the rivers were inspected from one extremity to the other, on horseback, on foot, by helicopter, by plane (...)”
Camilo Penna, former Chairman of Cemig. recognizable profile in both Brazil and the rest institution developed with the joint support of of the world. Another landmark was when the Cemig and Électricité de France, inaugurated its Professional Training School at Sete Lagoas, an own purpose-built headquarters.
The Três Marias Hydroelectric Plant The Canambra Study Group, in Cemig’s offices in Belo Horizonte
THE 1970s: A NEW CYCLE OF DEVELOPMENT.
From 1970 onward, Minas Gerais was going of residential consumers gave the market a more through a new cycle of development. And balanced profile. Cemig stood out as one of the principal factors In 1974, Cemig established the Production supporting this development. and Transmission Sales Office, in its Production In 1973, Cemig took over electricity and Transmission Department, to deal with and distribution in the region of the state’s capital city, meet the specific technical and commercial needs Belo Horizonte, absorbing Companhia Força e of large industrial companies in Minas Gerais Luz de Minas Gerais. The increase in the number – another landmark in its history, exemplifying “Cemig has various aspects established: generation, urban distribution, distribution in the countryside: it now needed also to give some major help in industrial development, and in modernization of farming.” Francisco Noronha, former Chairman of Cemig.
Cemig’s vocation to provide specialist and Simão, on the Paranaíba River, was inaugurated differentiated attention to this sector of the market. in 1978, with generating capacity of 2,700 MW. The economic growth of the 1970s called In the 1970s, Cemig’s capacity to transport for increasing quantities of energy – and Cemig energy also made a great leap forward: at the end resumed planning and construction of major of the decade it had 6,000 km of transmission generation plants. and subtransmission lines – linking Minas Its largest hydroelectric plant so far, São Gerais to… its future and growth.
The São Simão Hydroelectric Plant
The Emborcação Hydroelectric Plant
“The São Simão plant alone, at the time, was larger than the whole of the rest of Cemig.” Camilo Penna, former Chairman of Cemig. 1980s: THE CHALLENGE – TO BRING ENERGY TO ALL.
The Minas-Luz Program, begun in 1981 the work of the Industrial Coordination Group in a partnership between Cemig, the federal (NAI), the percentage of the equipment and electricity company Eletrobrás, and the Minas facilities at Emborcação that was manufactured Gerais state government, took on the mission in Brazil reached the very high level, for those of providing electricity to populations of low days, of 82%. income, in the countryside and in the peripheral In 1983, Cemig established its Ecological regions of the cities, including the favelas. Program Coordination Office, responsible for In 1982, Cemig’s second-largest hydroelectric the planning and development of a specific plant – by then, vital for the whole electricity policy for environmental protection. system of Brazil – was inaugurated: the At that time at Cemig began to research Emborcação plant, also on the Paranaíba River. a wide range of energy alternatives, including Together, the Emborcação and São Simão plants wind energy and solar energy, the use tripled Cemig’s generating capacity. And due to of biomass, and natural gas. Gasmig, the
The Arts and Skills Museum, Belo Horizonte, Minas Gerais
A troupial (Brazilian name sofrê, or corrupião) at Cemig’s Peti Environmental Station subsidiary dedicated to distribution of natural gas, was created in 1986. On September 18 of the same year, the company changed its name to Companhia Energética de Minas Gerais – reflecting the high concept of its mission, its social and economic importance, and the opening up of its involvement to multiple sources of energy. In distribution, at the end of the 1970s, Cemig already served 96% of the whole land area of the state (an area the size of France).
The library at Serra do Caraça, Minas Gerais
“Cemig gained body and strength as an electricity company, principally because it had the luck to be very well-structured in human terms.”
Lucas Lopes, Cemig’s first Board Chairman.
This decade began with one more challenge for Cemig: to be the pioneer in construction THE 1990s: of hydroelectric plants in partnership with the private sector. This gave rise to REAPING REWARDS; the Igarapava Hydroelectric Plant, in the RECOGNITION FOR Minas Gerais Triangle region, which started operating in 1998. THE WORK OF This was the decade in which the planet PRESERVATION. realized that there was a need to recycle, and in this decade Cemig was already able to reap the fruits, and recognition, of its work in environmental preservation. As well as the normal challenges that a company of its scale and responsibility has to recovery and expanded its number of to face each year, in 1999 Cemig had to consumers to almost five million, making overcome one more: the challenge of an 237,000 new connections – an annual economic crisis, which first took shape in record in its history until that time. Its outage January of that year. frequency, its lowest-ever, was another Cemig succeeded in finding the way important factor.
“Cemig should at all times include in its planning concern with nature, concern with the visual arts, and music, that is to say, a relationship to non-technical things.” Mário Bhering, former Chairman of Cemig.
The Nova Ponte Hydroelectric Plant The São Paulo Stock Exchange (Bovespa)
“Cemig is an interesting company: it is always in movement, generating not only electricity, but also ideas. There is a group that is always concerning itself with placing Cemig at the highest possible point in the Brazilian electricity sector.” Celso Mello Azevedo, former Chairman of Cemig. THE NEW MILLENNIUM: QUALITY BECOMES A CONSTANT FACTOR IN CEMIG’S WORK: IN THE ENERGY IT SUPPLIES, IN ITS RESPECT FOR THE ENVIRONMENT, IN ITS CORPORATE RELATIONSHIPS
In terms of creation of hydroelectric plants, invest in sustainable development: Cemig was 2000 was one of the most productive years in one of a very select group of Brazilian companies the Company’s history, with the Porto Estrela, included in the index. Queimado and Funil plants simultaneously under Cemig has made quality a constant factor construction. in its activities – in the electricity it supplies, in This was the first year of international its respect for the environment, in its business recognition of Cemig by the Dow Jones relationships. Cemig is proud of having become, Sustainability World Index, a group of indices in its 55-year history, a benchmark in the used to identify and monitor companies that electricity sector in terms of quality.
The New York Stock Exchange Belo Horizonte, Minas Gerais
The Ouro Preto 2 Substation at Ouro Preto, Minas Gerais POST- MILLENNIUM TIMELINE
2001 position under the new model for generation • Cemig overcomes the effects of the energy activities – resulting in total success, with a crisis that affected the whole of Brazil. portfolio of contracts in both the free and • Construction of new hydroelectric plants regulated markets under the new regulatory planned. structure. • Cemig’s shares trade for the first time on the 2005 New York Stock Exchange. • Cemig’s Consumer Satisfaction Index rises to 2002 more than 65%. • Cemig’s 50th anniversary. • Cemig is organized as a holding company, • 6 million consumers. with two wholly-owned subsidiaries: Cemig • Installed generating capacity: 5.7 million MW. Distribuição S.A. and Cemig Geração e 2003 Transmissão S.A. • Simultaneous construction of six new • Further recognizing its social actions in hydroelectric plants: to preempt further 2005, Cemig was once again included – for prospects of electricity rationing. the sixth year running, in the Dow Jones • Capital expenditure of more than R$ 2.5 Sustainability World Index. billion, adding almost 1,300 MW of power 2006 to the Brazilian electricity system. • 230,000 new consumer connections made in 2004 Minas Gerais. • A year of major corporate challenges • R$ 58 million invested in environmental for Cemig: not only the new regulatory preservation. environment, but – and principally – the • Cemig acquires 20% of the capital of Light, process of obligatory unbundling of its the electricity distributor that serves the city activities of distribution, generation and of Rio de Janeiro and other cities in Rio de transmission. Janeiro state. • In 2004, Cemig launched a major and • Cemig acquires part control of TBE consistent plan for long-term sustainable (Transmissoras Brasileiras de Eletricidade), growth: its Long-Term Strategic Plan, which which operates transmission lines in the North aims for a future market share such as will and South of Brazil. make Cemig one of the six largest companies • By the end of 2006, Cemig has a presence in the Brazilian electricity sector. in seven Brazilian states: Pará, Maranhão, • Cemig adopts an audacious commercial Espírito Santo, Rio de Janeiro, São Paulo, strategy, which places it in a leadership Santa Catarina and Rio Grande do Sul. 2007 A COMPANY PREPARED FOR THE FUTURE
Today Cemig is one of the largest corporate 31, 2007 was R$ 16 billion, the second largest groups in Brazilian electricity, managing a in the Brazilian electricity sector. Cemig is one portfolio of assets in the three basic segments of of Latin America’s largest utility companies and the electricity industry – generation, transmission in 2007 was again selected, for the eighth year and distribution, and holding significant interests running, for inclusion in the select Dow Jones in Light S.A., an electricity distributor in the state Sustainability World Index, this time classified of Rio de Janeiro, and other assets in electricity as the best company in sustainability in the transmission and generation, located in various overall utilities sector (the supersector including states of Brazil. Cemig also has investments in electricity, gas, water and other public services). distribution of natural gas, and data transmission, It continues to be the only electricity company and is building an electricity transmission in Latin America to be included in this index. line in Chile. It was also selected, for the third time running,
Cemig’s distribution company, Cemig for inclusion in the São Paulo Stock Exchange’s
Distribuição S.A., is Brazil’s largest electricity Corporate Sustainability Index (ISE) – recognition distribution concession holder by volume of from inside Brazil of the same qualities of energy transported and length of network, sustainability. and by number of consumers. It operates in Cemig’s shares are listed on the following electricity distribution in 805 municipalities securities exchanges:
(5,415 location centers), in the state of Minas • The São Paulo Stock Exchange (Bovespa)
Gerais, serving approximately 18 million – at Corporate Governance Level 1: people. Its concession area is 578,400 km², ° Preferred shares – CMIG4 larger than France. ° Common shares – CMIG3 Cemig’s generation company, Geração • New York Stock Exchange (NYSE) e Transmissão S.A., is one of Brazil’s – Level 2 ADRs largest electricity generation and transmission ° Preferred shares – CIG concession holders, and is the principal electricity ° Common shares – CIG.C generation and transmission company in • Latin American securities market
Minas Gerais. (Latibex), Madrid Cemig’s market capitalization on December ° Preferred shares – XCMIG Cemig’s market presence
PA MA
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MG MS ES
SP RJ
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CHILE
MINAS GERAIS: SANTA CATARINA: Distribution, transmission, generation Generation, sales and transmission and trading of electricity; distribution of electricity. of natural gas. RIO GRANDE DO SUL: PARÁ: Electricity sales. Electricity transmission. RONDÔNIA: MARANHÃO: Electricity generation (under construction). Electricity transmission. MATO GROSSO: ESPÍRITO SANTO: Electricity sales. Generation and sales of electricity. MATO GROSSO DO SUL: Electricity sales. RIO DE JANEIRO: Distribution, generation and GOIÁS: sales of electricity. Electricity sales. SÃO PAULO: CHILE: Electricity sales. Electricity transmission (under construction). Stockholding structure Cemig concluded a stockholding restructuring subsidiaries Cemig Distribuição S.A. and Cemig on December 30, 2004, in which all the Geração e Transmissão S.A. Since January 1, assets directly related to electricity generation, 2005, the Cemig holding company (Companhia transmission and distribution, and all the Energética de Minas Gerais S.A.) has operated rights and obligations associated with those solely and exclusively as a holding company. activities, were transferred to the wholly-owned
Cia. Energética de Minas Gerais – CEMIG
Cia. Rio Minas Energia Cemig Cemig Geração e Usina Térmica Cia. de Gás de Transleste de Participações S.A. Distribuição S.A. Transmissão S.A. Ipatinga S.A. Minas Gerais Transmissão S.A. 25% 100% 100% 100% 55.2% 25%
Consórcio da Cia. Light S.A. Usina Hidrelétrica Cemig PCH S.A. Transirapé de Efficientia S.A 52.25% de Aimorés 100% Transmissão S.A. 100% 49% 24.5%
Cia. Centroeste Light Serviços de Consórcio Horizontes Focus Soluções Light Energia S.A. Minas de Eletricidade S.A. AHE Funil Energia S.A. Tecnológicas 100% Transmissão S.A. 100% 49% 100% 49% 51%
Consórcio da Cia. Light Overseas Cemig Lightger Ltda. Usina Hidrelétrica Sá Carvalho S.A. Transudeste de Investments Ltd. Trading S.A. 100% de Igarapava 100% Transmissão S.A. 100% 100% 14.5% 24%
Transchile Centro de Gestão Consórcio LIR Energy Ltd. Lighthidro Ltda. Rosal Energia S.A. Charrúa Estratégica AHE Porto Estrela 100% 100% 100% Transmissión S.A. de Tecnologia 33.33% 49% 100%
Light Esco Empresa Itaocara Consórcio Usina Termelétrica Prestação de Catarinense de Empresa de Infovias Energia Ltda. AHE Queimado Barreiro S.A. Serviços Ltda. Transmissão de Ener- S.A. 100% 100% 82.5% 100% 100% gia S.A. 7.49%
Cemig Instituto Light de Hidrelétrica Empresa Regional Desenvolvimento Capim Branco de Transmissão Cachoeirão S.A. Energia S.A. Social e Urbano 49% de Energia S.A. 100% 100% 18.35%
Consórcio Empresa Paraense 40 Companies – 7 Consortia Guanhães Capim Branco Energia S.A. de Transmissão Energia de Energia S.A. 49% 21.5% Transmission companies VS 25% TS 18.19% Distribution companies Empresa Norte de Generation companies Madeira Energia S.A. Transmissão 10% de Energia S.A. Generation consortia 18.35% Financial operations
Non-profit Cemig Empresa Amazonense Baguari S.A. de Transmissão Gás distribution 100% de Energia S.A. VS 25% TS 15.80% Telecomunications Trading Consórcio Holding company AHE Baguari Position on December 31, 2007 34% Service VS = Voting stock TS = Total stock Note: Two companies – Central Hidrelétrica Pai Joaquim S.A. and Central Termelétrica de Cogeração S.A. – are not included as they are in the process of being wound up.
The state of Minas Gerais holds 22% of the total shares in the holding company Cemig (Companhia Energética de Minas Gerais S.A.), including 50.96% of the common shares, giving it stockholding control.
CEMIG: WORLD LEADER IN THE PUBLIC UTILITIES SECTOR OF THE DOW JONES SUSTAINABILITY WORLD INDEX, 2007-2008.
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2007 A A N U 2 | Relatório Anual Cemig 2007
The Três Marias Hydroelectric Plant Executive Board*
DJALMA BASTOS DE MORAIS CEO Also holds the position JOSÉ MARIA DE MACEDO of Vice-Chairman Chief Distribution and Sales Officer
BERNARDO AFONSO LUIZ FERNANDO ROLLA SALOMÃO DE ALVARENGA Chief Officer for Finance, Chief Trading Officer Investor Relations and Control of Holdings
FERNANDO HENRIQUE SCHÜFFNER NETO MARCO ANTONIO RODRIGUES DA CUNHA Chief Generation and Transmission Officer Chief Corporate Management Officer
JOSÉ CARLOS DE MATTOS Chief New Business Development Officer
The Board of Directors* fiscal council*
Chairman Sitting members Marcio Araujo de Lacerda Aristóteles Luiz Menezes Vasconcellos Drummond Luiz Guaritá Neto Vice-chairman Djalma Bastos de Morais Luiz Otávio Nunes West
Sitting members Celene Carvalho de Jesus Aécio Ferreira da Cunha Thales de Souza Ramos Filho Alexandre Heringer Lisboa
Antônio Adriano Silva Francelino Pereira dos Santos * On December 31, 2007 Maria Estela Kubitschek Lopes Wilson Nélio Brumer Wilton de Medeiros Daher Carlos Augusto Leite Brandão Andréa Paula Fernandes Pansa Evandro Veiga Negrão de Lima José Augusto Pimentel Pessôa Haroldo Guimarães Brasil
Cemig 2007 Annual Report | 4 | Relatório Anual Cemig 2007
Cemig’s head office building, Belo Horizonte, Minas Gerais CONTENTS
MESSAGE FROM MANAGEMENT 7 4 – CAPITAL MARKETS 60 A – Rights of Cemig Shares 61 1 – STRATEGY 14 B – Stockholding Structure 62 A – The Economic Context 15 C – Dividend Policy 62 B – Cemig’s Vision and Mission 16 D – Performance 63 C – Strategic Planning 16 E – Investor Relations 66 D – Intangible Assets 17 Valuing the Cemig brand 17 5 – THE ECONOMIC DIMENSION 70 Concessions 18 A – Economic and Financial Results 71 Intellectual property 19 Net operational revenue 72 Alternative energy sources 19 Operational costs and expenses 72 Technology, research and development 20 Ebitda (earnings before interest, tax, Rational use of energy 22 depreciation and amortization) 75 E – Capital Expenditure 22 Indicators 75 Generation 23 B – Cash Flow and Liquidity 77 Transmission 24 C – Distribution of Added Value 78 Distribution 25 D – Financing 79 Natural gas 27 E – Development of Our Market 81 Consulting and other services 28 Sales and Transport of Eletricity 82 Acquisitions 28 Consumers invoiced 84 Investment in Infovias and the sale of Way TV 29 F – Sources and Uses of Electricity 85
2 – CORPORATE GOVERNANCE 32 6 – ENVIRONMENTAL DIMENSION 88 A – Principal Practices 34 A – Sustainable Development 89 Stockholders’ meetings 34 B – Environmental Licensing 90 Board of Directors 34 C – Management of Waste 90 Executive Board 35 D – Environment Week 91 The Fiscal Council 36 E – Research and Development Projects 91 Statement of Ethical Principles and F – Fauna, Flora and Monitoring Code of Professional Conduct 37 of Water Quality 93 Auditors 38 Urban trees 95 The Sarbanes-Oxley Law 38 G – Environmental Education Program 96 B – Disclosure Policy 39 H – Saving Paper 97 C – Management of Corporate Risks 40 Functional structure 40 7 – THE SOCIAL DIMENSION 98 Challenges in corporate risk management 41 A – Development of Human Capital 99 D – Transactions with Related Parties 41 Remuneration and benefits 99 Attraction and retention of talents 100 3 – MANAGEMENT 46 B – Labor and Union Relations 101 A – Management Systems 47 C – Management of Organizational Atmosphere 101 Certified management systems 47 D – Training and Development 102 The Environmental Management System 47 Development of leaders 104 B – Wholesale Transactions in Electricity 48 E – Occupational Health, Well-Being and Safety 104 electricity Supply Quality F – Human Resources: Communication 107 indicator (DEC and FFC) 50 G – Standards for Suppliers 108 C – Consumer Relationship Management 51 H – Cemig and Society 110 The Ombudsman service 52 Cultural projects 112 Client Management System 53 The Consumer Council 53 Tariffs 53 8 – AWARDS AND RECOGNITION FOR CEMIG IN 2007 114 D – Management of Assets 54 E – Acquisition of Materials, and Logistics 55 Materials Logistics 55 CONTACT INFORMATION 118 Reverse logistics 55 F – Information Technology 56 G – Committees 57 GLOSSARY 119
Cemig 2007 Annual Report | Marcio Araujo de Lacerda Djalma Bastos de Morais Chairman of the Board CEO
6 | Relatório Anual Cemig 2007
Almenara, in the valley of the Jequitinhonha River, Minas Gerais After the first wave of consolidation in Brazil’s and commit a larger number of executives electricity sector, which we led with the acquisition to re-directing strategic initiatives to achieve of the energy distributor Light S.A. and of TBE, a the targets established in our Strategic Plan. group of companies operating five transmission We have created the Chief New Business lines, we began 2007 preparing to face greater Officer’s Department, and the Chief Trading competition due to the success achieved in 2006. Officer’s Department, aiming to give more
With the positive perception of the flexibility and competitiveness to the two investments that we made, the investor market segments that are most exposed to the to some extent woke up to the opportunities investor market and electricity trading. We for growth through acquisitions. As a result, believe that this new structure will enable the difficulty of acquiring good assets increased us to identify opportunities in both markets significantly, principally for us, who have faster, principally those related to acquisition specifically-established targets for returns to our of new assets, and capturing of the benefits stockholders, based on our Long-term Strategic arising from these acquisitions.
Plan, which are part of our strategy for ensuring At the same time, we continue to seek sustainability in the growth of our business. operational excellence in our assets – which
For us, the great challenge for 2008 is will also be submitted to a process of review to uphold our established position of to make them more efficient and economic. leadership in the process of consolidation For this process we will contract a consultancy of the Brazilian sector – and to achieve this company with international reputation, able it has been necessary to make some changes to bring us new practices that, jointly with our in the way we manage our Strategic Plan. present practices, will provide a reduction of
First we made some changes in our bylaws, costs, which will add not only great value for our aiming to make the decision process faster, stockholders, but also benefit to the consumers and to adapt the organizational structure served by our distribution company. better to the new competitive context. Continuing to implement our human capital
We restructured the process of strategic management policy, we are currently working on an planning to enable the structural changes to improved, definitive practice for the remuneration of be incorporated as soon as they are identified. our employees, linked to their performance. This will
This aspect will add a new dynamic in materialize the efficiency gains obtained by the review evaluation of the impacts caused by changes, of plans to increase productivity and profitability.
Cemig 2007 Annual Report | 7 Mariana, Minas Gerais – the state’s first capital city, in its historic gold-mining region
In 2007, we achieved net income of R$ 1.7 At this point, we would like to highlight billion, with cash flow, as measured by Ebitda, investments we have made that will provide totaling R$ 4.1 billion. The cash flow ensures we additional gains when they mature. In the have the funds necessary for our expansion. In last five years we have invested more than the period 2004–2007, we have exceeded the R$ 6.2 billion in our electricity generation, net icome target set in our Long-Term Strategic transmission and distribution activities. Plan by 2.9%. The Light S.A. for Everyone Program alone These results – in line with our forecasts – to provide universal access to public disclosed to the market – have placed our electricity service – has represented investment performance among the best in the Brazilian of R$ 1.6 billion over the last two years. electricity sector. Meanwhile, as our published The immediate material outcome of these reports show, all our indicators are in line with investments has been connection of 279,000 new the targets of our Plan, and with the limits consumers in 2007, making an enormous reduction specified in our bylaws – preserving one of in the number of people who live in the rural areas the pillars of our growth strategy, which is the of Minas Gerais without access to electricity. Company’s financial health. As well as the investments in distribution
8 | Annual Report Cemig 2007 The Irapé Hydroelectric Plant we have made accentuated investment in relationship with stockholders and investors, transmission and generation. One highlight is and have now further facilitated their access to our participation in the winning consortium at our securities with the launch of ADRs for our the auction for implementation of the Santo common (ON) shares on the New York stock Antônio Hydroelectric Plant, the first plant of the exchange, on June 12, 2007. In 2007, we also Madeira River complex. This auction took place made a reverse split, bringing the unit basis for in December 2007. The plant, with installed trading on the São Paulo stock exchange exactly capacity of 3,150 MW, and scheduled to start into line with that of the ADRs in New York operating in 2012, is expected to make a and the unit trading price on Madrid’s Latibex significant contribution to guaranteeing Brazil’s exchange. electricity supply in the next decade. A presence On average over the year, our shares had in the Amazon region is an essential element the second highest market capitalization in the in our strategy in generation, because that Brazilian electricity sector in 2007. Our market region holds 60% of Brazil’s potential for new capitalization at year-end was R$ 16 billion, hydroelectric generation projects. reflecting uncertainties in the credit market in We are continuously seeking to improve our the United States, the risks of the tariff review,
Cemig 2007 Annual Report | 9 and uncertainty on the return from the Santo and sustainable corporate practices, allied to Antonio project. For the latter, we reaffirm our our commitment to add value over the long secure confidence in the decision to invest, term, our stockholders will continue to have an because we are strongly confident that we will adequate return for their investments. obtain a return compatible with our investment This positioning has placed us, once again, policy. Unfortunately, due to the existence of among the world leading companies according a confidentiality agreement, it has not been to the Dow Jones Sustainability World Index. The possible to give the required transparency to the DJSI has also recognized us as the best listed investor market. As soon as the confidentiality company in the utilities sector, worldwide (the agreement permits, we will provide information supersector including electricity, gas, water and complementary to that published so far, and this other public utility services all over the world), in will enable everyone to deduce that our decision terms of sustainability. is in line with our investment policy. As well as international recognition – which We are confident that, through responsible once again reaffirms our status as a world-
10 | Annual Report Cemig 2007 The Miranda Hydroelectric Plant class company – we have been recognized by value, with solid fundamentals in its electricity our clients as “the Best Electricity Concession generation, transport and distribution businesses, in the Brazilian Southeast” (in the category of guided by permanent updating in accordance companies with more than 400,000 consumers), with the demands of the electricity sector, and by the IASC (Aneel Consumer Satisfaction Index) best corporate management practices. for 2006. Finally, we thank our stockholders for We are aware of the challenges of 2008, in their trust in our work, and especially our which the economic environment will be one of majority stockholder the state of Minas Gerais, considerable uncertainty and instability, led by represented by Governor Aécio Neves. We also the growing concern on Brazil’s ability to ensure thank our employees for their commitment and that it has enough supply of electricity in the dedication, and our clients, suppliers, and all coming years. In this scenario, Cemig presents those who have played a role in our successful itself as a leading company, investing with rigid 55-year history. financial discipline, which guarantees creation of The Management
Cemig 2007 Annual Report | 11 The
JUSCELINO KUBITSCHEK1950s – Governor of Minas Gerais, later President of Brazil: an “illuminated” son of Minas Was it a dream, in 1952, to provide Minas Gerais with up-to-the-minute electricity resources? The then Governor of Minas Gerais state, Juscelino Kubitschek, put in motion the first actions that made this dream a reality. He was a practical visionary – a man with his feet on the ground, but who could see far into the future – and he undertook a bold and ambitious plan, for a large-scale and wide-ranging program of modernization, diversification and expansion of industry in Minas Gerais state. And for this, Cemig was born.
Cemig Chairman Mário Bhering, with Juscelino Kubitschek, then candidate for President of Brazil Cemig, at its 55TH birthday: Brazil’s best energy
In 2007, Cemig completed 55 years of excellence, now positioned as one of the largest corporate groups in the Brazilian electricity sector, and comprising a solid group of 40 companies and 7 consortia. Today it generates, transmits, distributes and sells energy to 18 million people in Minas Gerais – and its energy is also sold, transmitted or generated in 12 other states of Brazil and in neighboring Chile.
Belo Horizonte, capital city of Minas Gerais 14 | Relatório Anual Cemig 2007
The São Simão Substation, at Santa Vitória, Minas Gerais increased in 2007, indicating that entrepreneurs’ A – THE ECONOMIC CONTEXT confidence in Brazil’s future remains solid.
2007 was undoubtedly a very favorable In the trade balance, exports have continued period for the Brazilian economy. GDP growth to rise – by as much as 15%, in the last year-on- was 5.4%, and inflation as measured by the year comparison of 12-month periods. Growth IPCA index was 4.46%, in line with the Central in the world economy has also enabled Brazilian Bank’s target of 4.5% p.a. exporters of manufactured goods to pass through We have no doubt that the level of capacity in part of the appreciation of the real to the prices industry will remain high – so that we also have of their products in US dollars, and at the same no doubt that utilization of factors is very high, time maintain reasonable volume growth. justifying the Central Bank’s conservative stance. Domestic absorption has grown much faster However, the concern on the slowdown in the than potential GDP. The appreciation of the real US economy made it impossible for interest rates has mitigated the impact of demand on tradable to be reduced further in 2007, and the basic goods, but can do little or nothing to prices interest rate closed the year at 11.25%. of non-tradables; hence we do not expect the Growth from 2006 was probably highest increasing pressure of demand to be attenuated in the retail sector of the economy, led by the in the short term. sectors that react to levels of credit and income, As a consequence of Brazil’s current moment such as furniture and household appliances, of economic expansion, consumption of fabrics and apparel, supermarkets, vehicles and electricity rose 5.4% from 2006 to 2007, to 377 construction materials. The expansion of credit TWh. Supply of energy now shows itself to be was partly the result of the reduction of interest a crucial factor in ensuring continuity for the rates, and lower levels of default suffered economic virtuous cycle. The federal government by the banks. has its Growth Acceleration Program (Programa In the labor market, the unemployment rate de Aceleração do Crescimento – PAC), in which fell very significantly, closing the year at 7.4%, its it has included various electricity generation and lowest in the series of statistics begun in 2002. transmission projects, with an outline plan for The reduction in unemployment is due to the capital expenditure of the order of R$ 79 billion strength in economic activity, which we expect by the year 2010. One of the projects in this to keep the rate below 8%. An important trend program is the Santo Antônio plant, part of the is that the number of people with employment complex on the Madeira River: construction and properly registered under the labor laws also operational contracts for this major project were
Cemig 2007 Annual Report | 15 The Taquaril Transmission Line, at Caeté, Minas Gerais
awarded by auction at the end of 2007. It will C – STRATEGIC PLANNING add 3,150 MW to the Brazilian electricity system.
Cemig has a 10% holding in the consortium that Cemig’s strategy obeys its Long-Term Strategic will build this plant. Plan for 2005-2035, which lays down the bases for Cemig’s strategic planning.
B – CEMIG’S VISION AND MISSION It focuses on expansion of our area of operation (in electricity and gas) throughout the whole of the territory of Brazil, subject to the limits laid down by Vision: regulation, and our first investments in projects in “Cemig will be other countries. Brazil’s best energy It also focuses on generation of value for our company” stockholders and the community that we serve, through a wide range of mutually supportive stances: our dividend policy (distribution of 50% of Mission: the net profit – paid in two six-monthly installments, “To operate in plus extraordinary dividends every two years if there the energy sector is free cash available), social and environmental with profitability, responsibility, profitability of our businesses, quality and social integrated management of risks, management of responsibility” the performance of our operational activities and management of human capital – recognized by
16 | Annual Report Cemig 2007 The Vespasiano Substation, Vespasiano, Minas Gerais our being included in five surveys among the “Best challenge, but also an indispensable condition for Companies to Work for”. achieving success in a sector that is increasingly Another important step currently in progress becoming consolidated. is improvement in our management of corporate strategy, using the Balanced Scorecard (BSC). In D – INTANGIBLE ASSETS 2006, the process of putting this tool in place focused strongly on translation of corporate strategy into Intangible assets, which among others operational terms, and our strategic business maps include brands, patents, public concessions, were updated and validated, and the corporate map access to and use of alternative energy constructed. In 2007, our efforts included deciding sources, research and development, and the targets and initiatives that will define the scope intellectual capital, are indeed singular assets, of corporate strategy. with unique characteristics that can enable The aim of all these initiatives is to make Cemig Cemig to differentiate from other companies, one of the best companies in the Brazilian electricity and achieve competitive advantages. We deal sector. To achieve this, we will continue to seek with one of our most vital intangible assets – opportunities that arise through acquisition of knowledge and human capital – in Chapter 7, existing assets, through opportunities to increase item A – Development of Human Capital. our competitiveness, through auctions for expansion Valuing the Cemig brand of generation and transmission and by constantly In a pioneer move in the electricity market, seeking operational efficiency. Cemig decided to have its brand valued, having Thus, for Cemig, growth becomes not only a in mind the strategic objectives of management
Cemig 2007 Annual Report | 17 and mitigation of risks. A panel of indicators for management practices; stake in and contribution the Cemig brand was created and integrated to development; image; the tariffs, or terms of into the Company’s BSC, and a complete internal contracts; technical support, and service; social- management process related to the brand was environmental responsibility; and association created. with the state. In relation to the vision of The force of Cemig’s brand can be seen stockholders, the figures for capital invested at in the relationship with clients, stockholders, present value were used, rather than those in the opinion formers (such as the specialized media, past or present financial statements (usually the environmentalists, NGOs, prefectures and reference in the financial and market approach). others), investors, and employees – that is to say, In the result, the value of the Cemig brand Cemig’s stakeholders. This has become clear in can be summarized, as follows, in two different surveys carried out with these publics as part of scenarios: the work of valuation of the brand. VALUATION OF THE CEMIG BRAND – EVA AND The calculation of the value of the Cemig RR METHODS (R$ million) 900 brand was carried out by the consultancy 880 890 company Brand Finance, using the method based 860 840 on economic use, in which an attempt is made 820 818 to value the future flow of profit generated by 800 796 792 780 the brand arising from the pact made with its 760 740 clients and other stakeholders. Expected future Stockholders‘ scenario Market/Financial statements
profits generated by the brand name are then Value of the brand based on EVA Value of the brand based on RR discounted to present value. (EVA=Economic Value Added; RR= Royalty Relief) A determination of the contribution of the Concessions brand to the business was made based on a Because Cemig operates in electricity quantitative survey with Cemig’s various publics, generation, transmission and distribution, after assessing what the various stakeholders its concessions to operate in these areas are perceive as value indicators or drivers. Concepts among its most valuable intangible assets. The used for valuing the performance of the Cemig periods of the concession contracts are as follows: brand were separated into the following • Distribution: Up to February 18, 2016, able to value indicators: the Company’s credibility, be extended for up to 20 years, on application, at trustworthiness and solidity; innovation and the discretion of the concession-granting power. technology; ethics and transparency; quality; • Transmission: Contract 006/97: Up to
18 | Annual Report Cemig 2007 Belo Horizonte, Minas Gerais
July 8, 2015, extendible for up to 20 years, on Office is part of its strategic management of application, at the discretion of the concession- technology. In 2007, the office worked on registry granting power. Other contracts: 30 years, and monitoring, with the INPI (National Industrial extendible for 30 years, on application, at the Property Institute), of 8 patents, 44 applications concession of the concession-granting power. for privilege on inventions, 60 brands, 21 • Generation: Concessions for the plants in computer programs, and rights of authorship operation have varying expiry dates. Those that in 35 works. Two new patent applications, 7 had not yet been extended when Contract brand registrations and 2 software registrations 007/97 was signed (in 1997) may be renewed for were filed with the INPI in the year. Eight more 20 years, under a guarantee given in that contract applications for privilege on inventions and 3 and by legislation. For the other plants the period registries of computer programs are currently in of concession is 35 years, extendible for 20 years feasibility studies in Cemig’s office. at the discretion of the concession-granting Alternative energy sources power. Exceptions are the Igarapava plant (which Cemig has invested in its projects to use has a concession for 30 years) and the Sá Carvalho renewable energy sources. The most important plant, which has a concession for 20 years. are biomass, the small hydro plants, solar energy, There is more information on concessions in and wind generation. It has also invested in Explanatory Note 4 to Cemig’s Financial Statements. projects for rational use of energy, co-generation Intellectual property and distributed generation (geographically The work of Cemig’s Brands and Patents distributed at input points throughout
Cemig 2007 Annual Report | 19 the local grid), using various fuels such as experimentation on the use of solar thermal hydrogen, natural gas, alcohol and biodiesel. energy to produce electricity in solar thermal Cemig is always ahead in identification, generation plants, using parabolic-cylinder development and application of new reflectors, and centralized water heating, using technologies for the electricity sector and use flat solar collectors (“district heating”) for of alternative energy sources. This ensures low-income communities. Cemig continues to have an outstanding Wind energy – Cemig was the first Brazilian position among electricity companies, and is a electricity concession holder to install a wind power continuing statement of its commitment to its plant connected to the electricity system: the consumers and to sustainable development. experimental wind plant at Morro do Camelinho. Solar energy – Cemig’s pioneer work in solar Hence it was Cemig that opened the way to energy, both in photovoltaic form and through introduction of a wind-power culture in Brazil. flat collectors and solar concentrating reflectors, Research was done in 2007 on the wind power has helped create new alternatives for supply potential of certain promising locations in Minas of energy, and for providing more efficient use Gerais, and confidentiality contracts have been of energy for many consumers in the state of signed with companies interested in assessing the Minas Gerais. feasibility of building a wind farm in the northern Cemig has fostered and encouraged part of the state. A research and development installation of water heating systems running on project for small-scale wind generators has also flat solar collectors or heat pumps – which it sees been begun. as tools to reduce consumption of electricity at There is more information on alternative peak times and as an alternative energy source energy sources in Cemig’s Report of Management for low-income housing developments. for 2007, under Technology. In 2007, Cemig installed photovoltaic energy Technology, research and development in 760 homes to comply with the Light S.A. for Priority in technological research and Everyone Program, and 1,000 flat solar collectors development has been given to projects in for water heating to substitute electric showers Cemig’s annual Technological Research and in low-income homes, and hospitals. It continues Development Program. Under Federal Law to invest in R&D projects for purification of 9991, these are submitted for approval to the metallurgical silicon found in Minas Gerais, and electricity regulator, Aneel. Of the R$ 30 million development of low-cost photovoltaic cells. planned for investment in R&D projects in 2007, Another of Cemig’s initiatives is research and only R$ 7 million has been spent so far, since
20 | Annual Report Cemig 2007 Cemig’s physical and chemical laboratories
Aneel approved the 2005-2006 projects only in Six technological partnerships – technical- December 2007, and projects for the 2006-2007 scientific co-operation working agreements – period have been postponed for execution were set up in 2007, among which we highlight in 2008. Approximately R$ 26 million have the creation of the Business Management been transferred to the electricity sector fund Excellence Center, in partnership with the Dom (CT-Energ) of the National Scientific and Cabral Foundation (FDC). Technological Development Fund (FNDCT), and Twelve other working agreements are in R$ 33 million to the Energy Research Company, EPE. preparation for various projects, including: Cemig had some 62 R&D new and continuing creation of the Agroenergy Excellence Centre – projects in progress in 2007. Of the 82 projects a partnership between Cemig, the Minas Gerais that have been completed so far, the great Farming Research Company (Epamig) and several majority have resulted in products incorporated universities in the Minas Triangle area, for which into the Company’s day-to-day activity: various a letter of intent has been signed, and creation of engineering methods, software, devices and the Construction Materials Excellence Centre, in equipment have been developed and applied, partnership with the Federal University of Minas helping to reduce operational costs, increase Gerais (UFMG). the reliability and security of Cemig’s systems For more information on technology and and facilities, help with environmental control, research and development, please see the and contribute to development of alternative item Technology in Cemig’s Report of energy sources. Management for 2007.
Cemig 2007 Annual Report | 21 Solar heating at a Cohab housing development, São Jão del-Rei, Minas Gerais
Rational use of energy • Training in energy efficiency – the Cemig in We share the view that the expansion of the Schools Program. electricity sector should give priority to programs • Sustainable Efficient Integration (IES) Project for conservation of energy, as the responsible – efficiency in the countryside. attitude to take for the planet. • The Minas Gerais Energy Management Development with a sustainable electricity Program (PGEE). sector will contribute to avoiding another period • Efficiency in lighting for the Exact of electricity rationing in Brazil, while minimizing Sciences Institute (Icex) of Minas Gerais Federal social/environmental conflicts in the development University. of Brazil’s energy supplies. This is a summary of Cemig’s main projects in E –CAPITAL EXPENDITURE this direction: • Energy efficiency actions in low-income Over the last five years, Cemig has invested communities – the Conviver Program. more than R$ 6.2 billion in its electricity generation, • Water heating with solar energy in Cohab transmission and distribution activities. low-income housing developments. Other activities, which have synergy with • Efficiency in public illumination, existing its main business, take Cemig’s brand into and planned. other sectors, including telecommunications • Efficiency in illumination and installation of and energy efficiency services. The aim of solar heating in public hospitals. these activities is always to increase the • Substitution of autoclaves (sterilization Company’s profitability, and strengthen its equipment) in hospitals. market position.
22 | Annual Report Cemig 2007 Cemig’s capital expenditure in 2007 totaled under the Light S.A. for Everyone Program. R$ 1,189 million, 30.87% less than in 2006 Cemig’s principal capital expenditures in (R$ 1,720 million). This mainly reflects the higher 2007 and 2006 (net of a sale of a stockholding volume of funds invested in distribution in 2006 interest) can be summed up as follows:
Capex (R$ mn) 2007 2006 Change, % Generation 279 206 35.44 Distribution 861 1,130 (23.81) Transmission 78 359 (78.27) Sale of Way TV (49) - - Other 22 25 (12.00) Total 1,189 1,720 (30.87)
Generation Cemig and its subsidiaries own 62 power total installed capacity of 6,678 MW. plants, of which 57 are hydroelectric, 4 are The main electricity projects under thermal and 1 is a wind power plant, with construction are:
POWER CEMIG STARTUP PROJECT STAKE PLANNED Baguari Plant 140 MW 34% 2nd half 2009
Cachoeirão PCH (Small Hydro Plant) 20 MW 49% 2nd half 2008 Dores de Guanhães, Senhora do Porto, Fortuna II and Jacaré PCHs 44 MW 49% 1st half 2009
A highlight in the year was Cemig’s Minas Gerais – an important alternative energy participation in the winning consortium at the source and a means of generating from sites auction for the Santo Antônio Hydroelectric Plant within the local network, contributing to on the Madeira River – in the Amazon region – development of regional markets in the state. in December 2007. This 3,150-MW plant will Consumers of the energy generated by be built in partnership with other companies. the PCHs will benefit also from tax and other Cemig Geração e Transmissão S.A. has a 10% benefits applicable to consumers of electricity stake in the consortium. Startup is scheduled for from renewable sources. Renewable-source the year 2012. generation projects are eligible under the Clean The Minas Small Hydro Plant (PCH) Program Development Mechanism (CDM) concept, The aim of the Minas PCH Program is to qualifying for carbon credits. increase Cemig’s generation capacity through The PCHs will be built and operated by special- the building of small hydro plants (PCHs) in purpose companies (SPC) in which investors –
Cemig 2007 Annual Report | 23 to be authorized by the regulator, Aneel, Cemig has 51% and Furnas 49%. The investment Cemig and investors until 49%. Sales will be is R$ 47.7 million, Cemig participating with under contracts signed between the SPC and R$ 24.3 million. Startup is planned for January 2009. consumers. • Construction of the Charrúa–Nueva As well as the projects that began construction Temuco transmission line in Chile: This is a in 2007, the Minas PCH program has 15 other double-circuit, 220 kV line with total length of PCHs registered – a total of 209.4 MW of installed 205 km, and two sections between the Charrúa capacity. Memoranda of understanding have and Nueva Temuco substations, in the Central been signed for projects comprising 68.5 MW of region of Chile. Cemig has a stake of 49%, and this total; projects for 64.9 MW are the subject Alusa 51%. They have formed the company of confidentiality agreements; and analysis of Transchile Charrúa Transmisión S.A. to build, documents has been completed for 76 MW. operate and maintain the line, with startup The sugar and alcohol sector: Under scheduled for January 2008. The project’s total the Minas Gerais Program to Stimulate budget is US$63.4 million, Cemig participating Development of the Sugar and Alcohol Sector, with US$31.1 million. On July 18, 2007, letters of intent are being signed between Transchile signed a 20-year financing agreement Cemig, various bodies of the state government, with the inter-American Development Bank for and sugar and alcohol mill companies that plan approximately US$ 51 million, to be invested in to build mills in Minas Gerais. building the transmission line, on July 18, 2007. Forty-five mills to be built in Minas Our main transmission projects that started Gerais have been identified, with potential operating in 2007 were: co-generation capacity of the order of • The 140-km, 345 kV Itutinga–Juiz de Fora 2,200 MW by 2015, and the potential to transmission line, being built by Companhia provide excess energy of 1,300 MW during Transudeste de Transmissão, in which Cemig the harvest, which usually takes place between has 24%, Alusa 41%, Furnas 25% and April and September, coinciding with the Orteng 10%. Total cost was R$ 68 million. period of drought in Brazil’s Southeast. • The 65-km, 230 kV Irapé–Araçuaí Transmission transmission line, and the Irapé and Araçuaí The main projects in progress are: substations, being built by Companhia Transirapé • The 75-km 345 kV Furnas–Pimenta de Transmissão, in which Cemig has 24.5%, transmission line, to be built by Companhia Alusa 41%, Furnas 24.5% and Orteng 10%. de Transmissão Centroeste de Minas, in which Total cost of works was R$ 59 million.
24 | Annual Report Cemig 2007 São Gabriel, Belo Horizonte, Minas Gerais
Distribution initially set for 2015, to 2008. In 2007, Cemig Distribuição S.A. invested Approximately 180,000 consumers – mainly the significant amount of R$ 734 million, mainly in the countryside – have been connected related to the Light S.A. for Everyone Program, under the program in Cemig’s concession and new network and distribution lines in the area. These connections cover a population Clarear and Campos de Luz programs. We now of approximately 840,000 people, and their have more than 10 million consumers (including total cost, up to December 31, 2007, has the clients of Light S.A.), and our distribution been R$ 1,599 million. Funds came from network is the largest in Latin America – a total the federal and state governments (R$ 593 length of approximately 420,000 km. million and R$ 79 million, respectively), and The Light S.A. for Everyone (Luz para the remaining R$ 927 million was financed Todos) program: Instituted by the federal from the Company’s own funds. government in 2003, this program brought Approximately 56,000km of networks, forward the target for “universalization” of corresponding to approximately 22% of the electricity service for consumer units in Brazil entire rural network built by Cemig in the with load of up to 50 KW at low voltage, state in its 55 years of existence, was built
Cemig 2007 Annual Report | 25 Praça da Estação, Belo Horizonte, Minas Gerais
between 2004 and 2007. while increasing safety conditions on public With the continuous increase in the highways. potential market arising from division of In 2007, projects for improvement and properties, building of new homes and expansion of public illumination were carried normal vegetative growth, it is estimated that out at some 52,000 illumination points, for there are still 92,000 new consumers to be investment of R$ 14 million, mainly in the benefited by the program throughout the metropolitan region of Belo Horizonte. state. As a result the program will continue The Fields of Light S.A. Program: This in 2008, assisted by subsidies still under program, with budgeted cost of R$ 6 million negotiation with Eletrobrás, which would in the first stage and R$ 18 million in the enable provision of new connections to be second stage, aims to encourage sport by accelerated. illuminating football fields in needy areas, Public illumination improvement – the through a working agreement between Reluz Program: This program aims to Cemig Distribuição S.A. and the Minas Gerais modernize public illumination systems by state government. Illumination of football introducing more efficient technology, reduce fields, by making it possible to practice consumption of electricity at peak times for sports at night, has markedly reduced the system and reduce operational costs, violence and crime in the surrounding areas.
26 | Annual Report Cemig 2007 In a survey by the Olhar research institute, Natural gas 92% of residents interviewed approved the Brazil consumed an average of 42 million illumination of the field in their community. m³/day of natural gas in 2007, led by In the first stage of the program, in the Southeastern region, which consumes 2004 and 2005, 156 football fields were two-thirds of this total. The most important illuminated, under a working agreement consumer, industry, consumed 59% of between Cemig Distribuição S.A. and the total volume, followed by the thermal Codemig (Minas Gerais Development electricity distribution industry with 26%, Company). In the second stage, which the automobile industry with 13% and other began in 2006, 332 fields have been sectors with 2%. illuminated so far, of a total of 410 planned Expansion of Gasmig’s network has made by the end of 2008. it possible to distribute natural gas to a higher The Cresce Minas Program: This four-year number of clients: 276 at the end of 2007 (169 program, over the period 2006–2010, for companies, 90 vehicle natural gas stations, planned investment of R$ 759 million, is to 2 thermal electricity plants, 7 compressed raise the capacity of the electricity system natural gas distribution bases and 8 clients to meet demand resulting from resumption consuming liquefied natural gas). The number of economic growth, and expansion of of clients served by Gasmig grew by 5.75% the markets associated with irrigation and from 2006 to 2007. There was a reduction of agribusiness, upholding and maintaining 13.47% in total sales by volume, arising mainly regulatory levels of service quality. from the reduction of consumption by the The program comprises works to thermal electricity power plants – a significant strengthen substations, lines and distribution 60.77%. This fall in output by the thermal networks in the state, totaling 687 km of plants did not significantly affect Gasmig’s distribution lines, 11 new substations and results, since there is a component in the tariffs 101 works of expansion of various existing charged to the thermoelectric generating substations. plants to remunerate the asset, independently This group of works will benefit of the consumption of gas. However, approximately 340 municipalities (41% considering only the market for conventional of the total in Minas Gerais), a population gas, the volume of gas sold increased 3.51%, of approximately 4.1 million, and some reflecting increased consumption, mainly by 1.1 million consumers throughout the state. industrial clients.
Cemig 2007 Annual Report | 27 Consulting and other services Concessões S.A., Pactual Energia Participações Axxiom Soluções Tecnológicas S.A. S.A., and Luce Brasil Fundo de Investimentos (originally named Focus Soluções Tecnológicas em Participações, each with 25%. In March S.A.) was formed by Cemig in partnership with 2006, RME acquired the 79.39% stake held by four partners – Concert Technologies S.A., EDF International S.A. in Light S.A., the holding Nansen S.A. Instrumentos de Precisão, Leme company controlling an electricity distributor Engenharia Ltda. and FIR Capital Partners in the state of Rio de Janeiro, which has 3.9 Ltda. – to provide technology and systems million consumers and approximately 6.8% solutions for operational management of of the total Brazilian market. The transfer of public utilities. It will offer: shares took place on August 10, 2006. • Integration of new solutions, developed On May 16, 2007, the Brazilian by it or by other companies, into existing Development Bank (BNDES) converted 90% systems. of its debentures into shares in Light S.A., • Development and implementation of corresponding to 31.40% of the registered specific solutions. capital. This reduced the stake held by RME • Hardware or consultancy contract in Light S.A. from 79.39% to 54.20% and services for integrated solutions. consequently the stake held by Cemig from • Development, supply and sale of the 19.85% to 13.55%. Subsequently, on October equipment, software and systems necessary 19, 2007, the BNDES exercised the right given for the solutions offered. by 72,727 warrants, which reduced RME’s Cemig owns 100% of another consulting stake to 52.25% and the stake held by Cemig company, Efficientia S.A., which provides to 13.06%. services to maximize electricity efficiency, There is more information on transactions optimize energy use and provide energy with related parties in Explanatory Note 16b solutions. Efficientia makes the necessary to the Financial Statements. studies, puts projects in place and provides Acquisition of holdings in electricity the services of operation and maintenance in transmission companies: In May 2006, electricity facilities. Cemig, in partnership with MDU Brasil Ltda. Acquisitions and Brascan Brasil S.A., acquired the interests Holding in Light S.A.: Rio Minas Energia of Schahin Holding S.A. in five companies Participações S.A. (RME), was formed by holding electricity transmission concessions. The Cemig in partnership with Andrade Gutierrez companies and these stakes are as follows:
28 | Annual Report Cemig 2007 Head office of Light S.A., in Rio de Janeiro.
Empresa Amazonense de Transmissão investment of 65.25% in Infovias) were sold by de Energia S.A. (EATE): 16.09% auction on July 27, 2006 to TNL PCS Participações Empresa Paranaense de Transmissão de S.A., a subsidiary of Tele Norte Leste Participações Energia S.A. (EPTE): 18.41% S.A., for a premium of 65% over the minimum Empresa Regional de Transmissão de auction sale price. The amount due to Infovias Energia S.A. (ERTE): 18.35% for its interest was R$ 103 million. Empresa Catarinense de Transmissão de Anatel, Brazil’s telecoms regulator, Energia S.A. (ECTE): 7.5% approved the transaction on October 23, Empresa Norte Transmissão de Energia 2007, subject to publication in the federal (ENTE): 18.35% Official Gazette, after reconsidering an earlier There is more information on the acquisition decision made on March 19, 2007, when of the Schahin holdings in Explanatory it had refused approval for the transfer of Notes 16c to the Financial Statements. stockholding control. The profit realized by Infovias from this sale, Investment in Infovias, and the sale of Way TV in the amount of R$ 54,079,000, was recognized
All shares of Way TV Belo Horizonte S.A., in the 4th quarter of 2007, when the approval an indirect subsidiary of Cemig (through its was published in the federal Official Gazette.
Cemig 2007 Annual Report | 29 ALWAYS ONE STEP AHEAD. In July 1962, Cemig inaugurated the Três Marias Hydroelectric Plant, its first large hydro plant, and one of the five largest in the world at the time. Its main feature was the world’s first multi-use reservoir: intended for navigation, irrigation, supply of water services and electricity generation – a group of new benefits for the whole of the valley of the São Francisco River. The 1960 s
The Três Marias Hydroelectric Plant THE CHALLENGE – THE EXTRA MILE
The Irapé Hydroelectric Plant – formerly named the President Juscelino Kubitschek Plant – was inaugurated in 2006, providing 360 MW from the waters of the Jequitinhonha River, between the municipalities of Berilo and Grão Mogol, in Minas Gerais.
The Irapé Hydroelectric Plant 32 | Relatório Anual Cemig 2007
Meeting of Cemig’s corporate governance committee Our corporate governance model is based on SOX Law: Our material procedures related to principles of transparency, equity and reporting, preparation of consolidated financial statements with clear definition of roles and responsibilities have been compliant with the requirements of in the Board of Directors and the Executive Section 404 of the Sarbanes-Oxley Law of the Board for formulation, approval and execution USA since the end of 2006. of policies, under guidelines for managing the Targets written into the bylaws: Our bylaws Company’s business. include explicit statements of the targets of Our aim is sustainable development, through our Long-Term Strategic Plan and our dividend balance between the economic, financial, policy. They also lay down obligatory limitations environmental and social aspects of our work, at to certain financial indicators: all times seeking to improve the relationship with • Consolidated debt not to exceed 2 our stockholders, clients, employees, the public times Ebitda (Earnings before interest, taxes, at large and other stakeholders. depreciation and amortization). On the São Paulo Stock Exchange the • Consolidated (Net debt) / (Net debt + listing of Cemig’s shares – preferred (CMIG4) Stockholders’ equity): maximum 40%. and common (CMIG3) – has been under that • Consolidated funds in Current assets not to exchange’s Corporate Governance Level 1 exceed 5% of Ebitda. qualification since 2001. This means a guarantee • Total allocation for capital expenditure in of the best possible reporting of information, each business year not to exceed 40% of Ebitda and that stockholdings should be as widely (exceptionally, this limit was 65% in 2006 and dispersed as possible. On the New York Stock 55% in 2007). Exchange, Cemig’s shares are represented by • New investments in distribution, generation American Depositary Receipts (ADRs) – for the and transmission must offer minimum real preferred (PN) shares, with ticker CIG, and for internal rates of return equal to or more than the common (ON) shares, with ticker CIG.C. As a those specified in the Company’s Long-Term result Cemig is subject to the regulations of the Strategic Plan, subject to any legal obligations. SEC (Securities and Exchange Commission) of • Expenses of Cemig Distribuição S.A. and the USA, and also the Listed Companies Manual any subsidiary operating in electricity distribution of the New York Stock Exchange. may not exceed the amounts used as bases for In Spain, our preferred shares have been listed tariff adjustments and reviews. on the Latibex of the Madrid stock exchange, In response to temporary needs, the Board under the ticker XCMIG, since 2002. of Directors may authorize numbers in excess of
Cemig 2007 Annual Report | 33 these standards, up to the following limits: common shares and 153 preferred shares, each
• Consolidated debt: maximum 2.5 times with nominal value of R$ 0.01, to adapt the
Ebitda. registered capital for the purposes of a reverse split.
• Consolidated (Net debt) / (Net debt + • A reverse split of each lot of 500 shares with
Stockholders’ equity): maximum 50%. nominal value R$ 0.01 into a single share with
• Consolidated funds in Current assets: nominal value R$ 5.00.
maximum 10% of Ebitda. • Change in the drafting of the head paragraph
The stockholders’ agreement signed in 1997 of Clause 4 of the bylaws, arising from the changes
between the government of Minas Gerais and in the registered capital and the reverse split of
Southern Electric Brasil Ltda. (SEB) has been shares.
suspended by the Judiciary. Appeals filed by SEB • Alteration of the bylaws to change the
are before the federal courts. name of the office of the Chief Planning, Projects
and Constructions Officer to the office of the
Chief New Business Development Officer, with its A – PRINCIPAL PRACTICES attributions unchanged, and to create the Chief
Stockholders’ Meetings Trading Officer’s Department, with description
The Ordinary and Extraordinary General of its attributions, consequently changing the
Meetings of Stockholders held jointly on April 26, content of the head paragraph of Clause 18 and
2007 elected sitting and substitute members of the sub-item VII of Clause 22, and including sub-item
Fiscal Council and approved: VIII in Clause 22.
• The report of management and financial Board Of Directors
statements for the year 2006. Meetings: Our Board of Directors met 25 times in
• Allocation of the net income for 2006, in the 2007 to discuss strategic planning, projects, acqui-
amount of R$ 1,718,841,000. sition of new assets, investments and other subjects.
• An increase of R$ 1,621,538,190.25 Members, election, period of office: The current
in the registered capital, to R$ 2,432,307,285.38, Board of Directors was elected on April 22, 2007,
with issuance of new shares, on capitalization of by the cumulative voting method, as specified by
R$ 810,769,095.13. Article 141 of Law 6404 of December 15, 1976
• Reduction of the registered capital as amended. Of the 14 present sitting members of
by R$ 5.38, from R$ 2,432,307,285.38 to Cemig’s Board of Directors, 8 were elected by the
R$ 2,432,307,280.00, on cancellation of 385 stockholder state of Minas Gerais, 5 by Southern
34 | Annual Report Cemig 2007 Electric Brasil Participações Ltda. (SEB) and 1 by • Audit and Risks Committee. the minority holders of preferred shares. Qualifications, remuneration: The Board
The periods of office of the present members of of Directors is made up of members with the Board of Directors expire at the Annual General experience in a wide range of specialist areas
Meeting of Stockholders to be held in 2009. (e.g. engineering, law, economics, etc.), and very
Principal responsibilities and attributions: wide experience in business management. Their
The Board of Directors has the following remuneration is 20% of the average paid to our responsibilities and attributions, as well as those Chief Officers, and does not include any share set by law: purchase options.
• Decision, before signing, on any contract There is more information on the composition signed between Cemig and any of Cemig’s of the Board of Directors, with résumés of its stockholders or their parent companies. members, on our site: www.cemig.com.br.
• Decision on any sale of goods, loans or Executive Board financings, pledge of the Company’s property, Meetings: The Executive Board meets weekly. plant or equipment, guarantees to third parties It held 60 meetings in 2007. or other legal acts or transactions with value Members, election, period of office: The of R$ 5 million or more. Executive Board is made up of eight
• Authorization of issue of securities in the members whose individual functions are set domestic or external market to raise funds. by the Company’s bylaws. They are elected
• Approval of the Strategic Plan and revisions by the Board of Directors for periods of of it, the Multi-year Strategic Implementation office of three years, and may be reelected.
Plan and revisions of it, and the Annual Budget. They may be dismissed at any time by the
Since 2006, the Board approved the creation Board of Directors. of committees of its members, to carry out prior Members are allowed to carry out non- discussion and analysis on matters to be decided remunerated roles in the management of by the Board, as follows: wholly‑owned subsidiaries and affiliates of
• Board of Directors’ Support Committee. Cemig, on decision by the Board of Directors
• Governance Committee. of those companies, and they are obligatorily
• Human Resources Committee. members, with the same positions, of the
• Strategy Committee. Boards of Directors of Cemig Geração e
• Finance Committee. Transmissão S.A. and Cemig Distribuição S.A.
Cemig 2007 Annual Report | 35 Control room of the Miranda Hydroelectric Plant.
The periods of office of the present Qualification and remuneration: The members directors expire at the first meeting of the of the Executive Board have experience and Board of Directors following the Ordinary qualifications in a wide range of specialist areas, General Meeting of Stockholders of 2009. including engineering, and very wide experience There is more information on the in management of business. Currently, three members of the Executive Board, including Chief Officers are former employees and one is résumés, on our site at www.cemig.com.br. an employee. Their remuneration is established Main responsibilities and attributions: annually by the Annual General Meeting of • Current management of the Company’s Stockholders. business, complying with the bylaws, the Strategic Fiscal Council Plan, the Multi-Year Strategic Implementation Meetings: The Audit Board met 12 times in 2007. Plan and the Annual Budget. Members, election, period of office: Our • Decision on any disposal of goods, loans Fiscal Council, of five sitting members and their or financings, pledge of any of the Company’s substitute members, is convened permanently. property, plant or equipment, guarantees to They are elected by the Ordinary Annual General third parties, or other legal acts or transactions Meeting of Stockholders, for periods of office of in amounts less than R$ 5 million. one year, and may be reelected.
36 | Annual Report Cemig 2007 • One member is elected by the holders of Statement of Ethical Principles and Code of Professional Conduct the preferred shares. The approval by Cemig’s Board of • One member is elected by holders of Directors in May 2004 of the Declaration of common shares not belonging to the controlling Ethical Principles and Code of Professional stockholder group, representing at least 10% of Conduct (www.cemig.infoinvest.com.br) was the registered capital. an important step in improving our internal • Three members are elected by the majority system of corporate governance and stockholder. increasing our transparency. The declaration The members of the Fiscal Council are listed is divided into 11 principles that reflect the on our website: www.cemig.com.br. ethical conduct and values that are part of Main responsibilities and attributions: our culture. As well as the attributions specified by Law Cemig’s Ethics Committee was created 6404 of December 15, 1976 as amended, in on August 12, 2004, to coordinate all relation to the Sarbanes-Oxley Law, to which we actions relating to management of the are subject due to our shares being registered Declaration of Ethical Principles and Code with the SEC (the Securities and Exchange of Professional Conduct. This includes Commission, the capital markets regulator of assessment and decision on any possible the United States), we opted for the exemption non-compliances with the document. allowed by Section 10-3A of the US Securities In December 2006, we created the
Act, regulated by SEC Release 82-1234, which Anonymous Information Channel, to be accepts the activity of the Audit Board as an used only by Cemig employees. It enables alternative to the Audit Committee specified the Ethics Committee to receive anonymous by the Sarbanes-Oxley Law. reports, via our intranet, of any irregular
Qualification and remuneration: The Audit practices contrary to the Company’s
Board is a multi-disciplinary body, made up of members interests, such as financial fraud, with various competencies (finances, law, business adulteration, falsification or suppression administration and others). Their remuneration is of financial, tax or accounting documents;
10% of the average paid to the Directors. misappropriation of goods or funds; receipt
Résumés and other information on the of undue advantages by managers and members of the Audit Board are available on our employees; irregular contracting, or other website: www.cemig.com.br. practices considered illegal.
Cemig 2007 Annual Report | 37 Auditors The Sarbanes-Oxley Law On August 2, 2007, Cemig advised the Cemig obtained certification of its internal market of its replacement of Deloitte Touche & controls for mitigation of risks involved Tohmatsu Auditores Independentes by KPMG in the preparation and disclosure of the Auditores Independentes as the Company’s financial statements, in accordance with an external auditors, as the result of a tender held opinion by the external auditors, Deloitte in accordance with Law 8666 of June 21, 1993, Touche Tohmatsu Auditores Independentes, and approved by the Board of Directors on April issued in accordance with Section 404 of 27, 2007, in accordance with Clause 17, sub- the Sarbanes-Oxley Law and the rules of the item (i), of the bylaws. This change of external Public Company Accounting Oversight Board auditor took place as a result of the policy of (PCAOB), which is a part of the annual 20-F rotation of auditors mandated by Article 31 report relating to the business year ending of CVM Instruction 308, of May 14, 1999 – December 31, 2006, filed with the US since Delloite Touche & Tohmatsu Auditores Securities and Exchange Commission (SEC) Independentes had provided the company on July 23, 2007. with auditing services since November 5, 2003. A link was established between the
38 | Annual Report Cemig 2007 The Neves substation, at Neves, Minas Gerais potentially significant controls and accounting in July 2002. Under this policy all managers records in the financial statements for 2007. are required to disclose any changes in their The design of the key processes used in investments in the Company’s shares. controls to mitigate risks associated with the The basic objectives of our policy are: preparation and disclosure of the financial • To meet the requirements of CVM statements for the year ended December 31, Instruction 358, of January 2002, which 2007 was validated with our new external creates rules on the responsibility of auditors, KPMG Auditores Independentes. employees in disclosure of information considered to be in the public interest. • To ensure that the general public has B – DISCLOSURE POLICY full access to all information disclosed by the Cemig’s policy for disclosure of information company. to the public is stated in its Manual for • To treat all subjects of interest to the Disclosure and Use of Information, and Policy general public and investors in a transparent for Trading in the Company’s Shares. The and clear manner, ensuring precision and Board of Directors approved this document quality of the information provided.
Cemig 2007 Annual Report | 39 assistance of external consultants, and based C – MANAGEMENT OF CORPORATE RISKS on four aspects: objectives, risks, internal Corporate risk management is a controls and alignment with company policy. management tool that is part of our Aiming to ensure completeness, corporate governance practices. To be more confidentiality of information and speed in the efficacious, and for its seamless inclusion process of periodic revision of the corporate in the Organization’s culture, we aim to risk matrix, Cemig uses the SGIR (Integrated align it with Cemig’s Strategic Planning Risk Management System) application, which Process, which sets the strategic objectives expresses the Orca methodology. Cemig of the Company’s business. Other instances gives employees access to information on of management involved with corporate the subject on its website, and this makes risk management include the Corporate possible dynamic and continuous monitoring Governance Committee, Compliance with the of the risks identified by managers. Sarbanes–Oxley Law, the Budget Prioritization Functional Structure Committee, Internal Auditing, the Energy The main feature in the functional Risks Management Committee and the structure is decentralized administration by Insurable Risks Committee and the Control the managers of risk, due to the corporate and Management Committee. and matrix nature of the function, with Cemig’s corporate risks management centralized monitoring by the Corporate Risks structure was put in place in 2003. The risks Management Department, which generates matrix was revised for the first time in 2004 material information with a systemic vision and a second time in 2005-2006, aiming and meets the demands of the Corporate Risk to identify changes in relation to the level Management Committee. The Committee of performance expected for each process. analyzes and sets priorities for the actions The result has been improvement in the ordered by the Board of Directors and the effectiveness of controls, commitment to Executive Board. implementation of the proposed mitigating Challenges In Corporate Risk Management action plans and, consequently, reduction of The main challenges still facing Cemig’s the impact, and the probability of occurrence, corporate risk management are: of innumerable risks. • Improvement of the method of Cemig uses the Orca methodology to calculation of the financial exposure measure risks. This was put in place with the represented by each risk, to maximize
40 | Annual Report Cemig 2007 The São João del-Rei 4 Substation, at São João del-Rei, Minas Gerais the possible degree of objectivity in D – TRANSACTIONS WITH RELATED PARTIES assessment by management, giving senior management greater security in taking Due to default in receipt of the decisions. This is expected to result in credits receivable under the Second and improved quality of information relating Third Amendments to the CRC (Results to the risk matrix, and ensure that the Compensation Account) contract, the Fourth guidelines arising from the Corporate Amendment to that contract was signed, to Risks Management Policy are complied enable Cemig to receive the amounts due to with. it by retaining amounts becoming payable • Creation of standard reports, to to the state government as Cemig’s majority meet the needs of the various levels of stockholder. This agreement was approved decision in the Company. by an Extraordinary General Meeting of More information about risk Stockholders on January 12, 2006. management can be found in Explanatory The effect of the Fourth Amendment to the Note 35 to the Financial Statements. CRC Contract was backdated to the balance
Cemig 2007 Annual Report | 41 outstanding on December 31, 2004, and R$ 2.8 billion, on base date December 31, consolidated the amounts receivable under 2004, which when updated to December 31, the Second and Third Amendments, which 2007 is R$ 3.6 billion. totaled R$ 2.9 billion on that date. Under the Fourth Amendment, the As a result of a reconciliation made between government of Minas Gerais is amortizing Cemig and the state of the criteria for updating the debit in 61 consecutive half-yearly of the contract since its original signature installments, becoming due by June 30 and date, as established in the sole sub-paragraph December 31 of each year, over the period of Clause 1 of the fourth amendment to the from June 2005 to June 2035. The portions CRC contract, and in accordance with the for amortization of the value of the principal, clauses of the Fifth Amendment, signed on updated by the IGP-DI Inflation Index, have September 12, 2007, the balance payable growing amounts: the first is R$ 29 million was reduced by R$ 102.131 million, to and the 61st is R$ 84 million – in currency
42 | Annual Report Cemig 2007 Maintenance on transmission lines, Pouso Alegre, Minas Gerais. values of December 31, 2004. (i) settlement of past due installments, The amortization of the debt will primarily (ii) settlement of an installment for the current be effected by means of retention of 65% of half-year, (iii) anticipated settlement of up to the minimum obligatory dividends becoming 2 installments and (iv) amortization of the payable, by Cemig, to the government of the debtor balance. state, as stockholder. If the amount is not On December 31, 2007, the installments sufficient to amortize the portion becoming of the contract becoming due on June 30 due, as from January 1, 2008, the retention and December 31, 2008 had already been may also be applied to up to 65% of any amortized. amount of extraordinary dividends or Interest There is more information on Transactions on Equity. with Related Parties in Explanatory Note 34 to These dividends retained are used to the Financial Statements. amortize the contract in the following order:
Cemig 2007 Annual Report | 43 STILL ONE STEP AHEAD The Volta Grande Hydroelectric Plant began operating in 1974. Its hydrobiology and fish culture station was opened in 1978, setting a new standard for investments in environmental preservation. The 1970s
The Volta Grande Hydroelectric Plant IN TUNE WITH THE ENVIRONMENT
Researchers and NGOs recognize Cemig’s Peti, Volta Grande, Galheiro, Jacob and the Taquaril Environmentally Protected Area, as benchmarks for studies on and protection of ecosystems.
The Peti Environmental Station The Ring Highway around Belo Horizonte, capital of Minas Gerais • SGS – Health and Safety Management A – MANAGEMENT SYSTEMS System based on OHSAS 18001.
Based on the corporate Long-Term Strategic The following have now received certification Plan, Cemig and its wholly-owned subsidiaries under one or more of these systems: express the Vision, Mission and strategic • Three management areas in the Trading guidelines of the Company in their processes Department. using the Balance Scoreboard (BSC) approach. • Thirteen management areas in the This tool enables Cemig to implement strategy Generation and Transmission Department. based on the inter-relating of objectives by • Ten management areas in the Corporate cause and effect and on setting them out in a Management Department. way that balances points of view (stakeholder In 2007, approximately 20,000 training hours groups). These are translated into indicators and were invested in training approximately 150 targets, using, for the operational aspect, the employees in the areas that put the management management systems based on the NBR ISO and systems in place in their processes and certified them. OHSAS standards. The management area responsible for the Certified management systems corporate coordination of the processes of External auditing services for certification, implementation, certification and maintenance and maintenance of certificates, continue to of Cemig’s management systems was itself be provided by the Bureau Veritas Certification certified under NBR ISO 9001:2000. certifying organization. In 2007, 69 external Another important certification – audits were carried out, 42% of them for system unprecedented among energy companies in maintenance, occupying 83 auditors, in a total Brazil – was certification of the management of 1,764 hours of external auditing. area responsible for legal actions in the CEO’s In 2007, continuing its program of corporate department. certifications, Cemig further expanded the The Environmental Management System number of management areas certified. The Departments of Cemig can apply for management systems used are: and receive certification under Cemig’s • SGQ – Quality Management System based Environmental Management System (SGA), on NBR ISO 9001:2000. in accordance with ISO 14001:2004. • SGA – Environmental Management System Alternatively, they can adopt an Internal based on NBR 14001:2004. Management System, called SGA Level 1, • SGA N1 – the Environmental Management which was developed on the principles of System referenced on NBR 14001:2004. Brazilian Standard NBR ISO 14001:2004.
Cemig 2007 Annual Report | 47 In 2007, Cemig maintained certification and Operation management unit for the Minas under NBR ISO 14001:2004 of the Nova Ponte Triangle region was certified under SGA Level 1, and Itutinga hydroelectric plants (562 MW), NBR ISO 9001:2001and OHSAS 18001. the Galheiro Environmental Station and the • Dam safety: The Dam Safety management management of the Western Region Plants unit was certified under NBR ISO 14001:2004, and maintained SGA Level 1 certification of the ISO 9001:2000 and OHSAS 18001. following plants and management areas: With the expansion of implementation • Generation: Four hydroelectric plants – of the Environmental Management System, Camargos, Três Marias, Volta Grande and Jaguara the total of our certified installed generation – and the Igarapé thermal plant (1,376 MW). capacity increased from 1,939 MW in 2006 to • Transmission: The Transmission Operation and 5,408 MW in 2007, or 83% of Cemig’s total Maintenance management unit, Eastern region, installed generation capacity. and the Transmission Operation and Maintenance All the areas of Cemig are obliged, whether management unit, Southeastern region. or not the Environmental Management System • Distribution: The Planning, Expansion, has been put in place, to meet a group of Operation and Maintenance management units minimum requirements established for control for the North, South and West subdivisions, and and protection of the environment, including the Commercial Relationship and Services units evaluation of their impacts and plans of action of Ipatinga, João Monlevade, Pouso Alegre, for correction of any issues identified.
Montes Claros, Divinópolis and Uberlândia. B – WHOLESALE TRANSACTIONS • Materials, logistics and services: Logistics IN ELECTRICITY and warehousing, and Quality of material and Through its subsidiaries Cemig Geração e suppliers – both also certified under NBR ISO Transmissão S.A. and Cemig Distribuição S.A., the 9001:2000 and OHSAS 18001. company took part in electricity auctions held by There were the following new certifications the Brazilian Electricity Regulator (Aneel), operated in 2007: by the Electricity Trading Chamber (CCEE) in 2007. • Hydroelectric plants: The São Simão, In the Regulated Market in 2007, Cemig took Miranda and Rosal (2,173 MW) plants part in: were certified under NBR ISO 14001:2004, • Two New Energy auctions (the A-3 and the the Emborcação and Salto Grande plants A-5 auctions). (1,296 MW) were certified at SGA Level 1. • The auction for alternative sources. • Transmission: The Transmission Maintenance • The sixth adjustment auction.
48 | Annual Report Cemig 2007 Installation of an automated meter, Belo Horizonte, Minas Gerais
In the A-5 auction, for supply starting in 2012, generation, in 15-year contracts for an average Cemig Geração e Transmissão S.A. negotiated price of R$ 134.67/MWh. 43 average MW, to be produced by its Funil In the alternative energy sources auction, for Hydroelectric Plant, for an average price of supply starting in January 2010, Cemig Distribuição R$ 125.90/MWh, in 30-year contracts. In the same S.A. bought 20.12 average MW on hydroelectric auction, Cemig Distribuição S.A. bought 126.34 supply, in 30-year contracts, for average price of average MW of thermal generation, in 15-year R$ 134.99/MWh; and 61.23 average MW (from contracts, for an average price of R$ 128.37/MWh. other generation sources) in 15-year contracts for Cemig Distribuição S.A. also bought 56.57 average average price of R$ 138.85/MWh. MW, for hydroelectric generation, in 30-year In the adjustment auction, for supply starting contracts, for an average price of R$ 129.14/MWh. January 2008, Cemig Geração e Transmissão S.A. In the A-3 auction, for supply starting January sold 60 average MW in one-year contracts for 2010, Cemig Geração e Transmissão S.A. did average price of R$ 139.04/MWh; and Cemig not trade any energy, but Cemig Distribuição Distribuição S.A. bought 3.5 average MW in a one- S.A. bought 431.17 average MW, for thermal year contract, at an average price of R$ 138.74/MWh.
VOLUME TRADED (average MW) AUCTIONS IN 2007 Empresa A-3 AS H A-3 AS OS A-3 H A-3 T A-5 H A-5 T A-1 Adjustment Cemig GT - - - - 43.00 - - 60.00 Cemig D 20.12 61.23 - 431.17 56.57 123.64 - 3.50
AVERAGE PRICE TRADED (R$/MWh) AUCTIONS IN 2007 Empresa A-3 AS H A-3 AS OS A-3 H A-3 T A-5 H A-5 T A-1 Adjustment Cemig GT - - - - 125.90 - - 139.04 Cemig D 134.99 138.85 - 134.67 129.14 128.37 - 138.74
KEY: H - Hydroelectric T - Thermal OS - Other sources AS - Alternative sources Cemig 2007 Annual Report | 49 Belo Horizonte, Minas Gerais
In the Free Market (ACL), Cemig Geração Electricity supply quality indicators (DEC and FEC) e Transmissão S.A. made short-and long-term contracts in public auctions in 2007 totaling Our supply quality indicators (DEC – average 32,321 GWh, of which 4,476 GWh was sold outage duration, and FEC – average outage to traders and 27,844 GWh to free consumers. frequency) remained within the standards Cemig Geração e Transmissão S.A. also made stipulated by the regulator. We emphasize one long-term electricity purchase contract for the significant reduction in the frequency of 3,879 GWh in a public auction. consumer outages in 2007:
INDICATOR ITEMS TARGET ACHIEVED Number of Average outage frequency per consumer outages/year 10.26 6.40
Average outage duration per consumer Hours/year 13.16 13.14
Overall, 52% of outages in 2007 The charts below show changes in were caused by external agents (natural the average indicators, for consumer phenomena and the environment), 14% outage time and number of consumer were programmed and 34% had internal outages. Of the total of these indicators, origins in the electricity systems. Among approximately 20% refer to programmed the main external causes, 26% were due outages for improvements in the quality to atmospheric discharge, 11% to contact of supply. Consumers are given advance between birds or animals and the network notice of these, thus causing less impact and 8% were due to contact with trees. on clients.
50 | Annual Report Cemig 2007 Average outage duration/consumer, in hours (DEC)
13.03 13.14 12.21 10.74 10.93
2003 2004 2005 2006 2007
Average number of outages per consumer per year (FEC)
6.78
6.58
6.43 6.42 6.40
2003 2004 2005 2006 2007
Fale com a Cemig: (Talk to Cemig): This is a C – CONSUMER RELATIONSHIP MANAGEMENT client call center providing free service, available Cemig has consolidated a group of 24/7. To increase ease of use, a new access Commercial Relationship Practices with its clients phone number – 116 – easy to remember and based principally on quality of its products and in accordance with the regulations of Anatel services, preservation of credibility with clients, (the Brazilian telecoms regulator) – was added stockholders and the public, and in the strength in August 2007. Contact can also be made of its brand and its effective participation in via the website www.cemig.com.br, or by social and economic development over the email - [email protected] or by fax, whole of its area of operation. The Company on 55 (31) 3506-7222. offers channels of relationship that enable Customer service branches: Cemig has 127 clients to carry out transactions, complain, make branches that receive an average of 400,000 calls suggestions and request services, efficiently and per month. A recent layout rearrangement made fast. The main channels available are: the facilities more up-to-date and comfortable.
Cemig 2007 Annual Report | 51 Simplified Customer Service Posts (PASs): The Cemig in the Square: The program These are a partnership between Cemig and serves the public through an office set up in municipal prefectures, in locations where the the central square of a city, where electricians, Company does not have visible representation service personnel and operational technicians structure. Employees of the prefectures are can answer questions and process or deal trained by Cemig agents to provide customer with requests for services. About 180 events service for the Company. There are currently are held each year, resulting in resolution of 90 PASs working, attending about 2,000 approximately 1,100 client issues per month. clients per month. The Virtual Branch: This gives clients more The Cemig Fácil: The program qualifies comfort and convenience by offering web commercial establishments (pharmacies, access to the services that are also provided video renters, corner bakeries) to expand the by the physical channels (branches) such as network of points for receiving payment of Fale com a Cemig, etc. The web address is: invoices and provision of other commercial www.agenciavirtual.cemig.com.br. Clients can services in areas that do not have Cemig request services and information on a simple representation. There is a total of 800 service and intuitive web page, providing minimal data points, receiving approximately one million themselves. It also has access for the visually accounts per month. challenged. In 2007, the virtual branch dealt The Cemig Postal service: These are with approximately 1,750 thousand client issues. prepaid mail forms available at Cemig Fácil The Ombudsman Service establishments, on which clients can request Cemig’s Ombudsman Department is a services. This is a specific channel for the more service channel that acts impartially to establish simplified commercial services: change of a link between the citizen and the Institution, ownership, alteration of client information, new seeking to improve services provided. It is an connections, complaints and suggestions. after-service channel, to be activated after The Mobile Branch: This is a trailer equipped the citizen has activated the existing primary to serve the customer – that since 2005 has channel, such as Fale com a Cemig (116) visited more than 100 municipalities in Minas and the service branches. It can be activated Gerais where Cemig does not yet have a on the site www.cemig.com.br/ouvidoria, physical representative structure. It deals with or by telephone on 55 (31) 3506-3838, about 250 client issues per month, using a or by letter posted to Av. Barbacena 1200, satellite connection. Ground Floor, 30190-131 or delivered to any
52 | Annual Report Cemig 2007 Cemig branch, addressed to the Ombudsman made up of six sitting members and six Department. substitute members, indicated by entities Client Management System representing consumer categories (residential, The project to implement the new client commercial, rural, industrial and public management system (SGC) – otherwise authorities) and consumer defense (the known as the Evolution Project – was begun Procon offices). in April 2006. It aims to replace some of the The main objective is to represent Company’s main information systems involved consumers’ interests to the concession- in the process of billing, collection, service, holding Company, and to the various types of accounting, field services, meter equipment consumer, within the principle of equity and management, issuance and printing of balance. The work of interaction and the close electricity tax invoices, and reports. relationship maintained with Cemig have On December 26, 2007, Cemig completed been of extreme importance in supporting the first stage of putting this system in any legal measures that become necessary. place, based on SAP technology, using The Council held six Ordinary meetings various systems: Customer Care & Service and three Extraordinary meetings in 2007, (CCS), Customer Relationship Management analyzing, proposing solutions for and (CRM) and Business Warehouse (BW). In monitoring issues related to supply of this phase, the SGC operates for clients of electricity, tariffs and services provided to all high and medium voltage throughout the categories of consumer. Company and for low voltage clients in one Tariffs municipality – Divinópolis. In the final stage Homologating Resolution 446, of April of implementation, expected in 2008, the 3, 2007, set the tariffs to be applied to system will operate for all Cemig’s low-voltage Cemig consumers from April 8, 2007 to clients – a total of approximately 6.3 million April 7, 2008, the date set for homologation individual account holders. of the tariffs for the next cycle. The 2007 The planned investment for technological adjustment applied at different levels to updating of this commercial information different consumer categories, in accordance system is R$ 178 million. with the variation in the items that comprise The Consumer Council the tariffs. This resulted in an average Cemig’s Consumer Council is a consulting increase of 6.5% in electricity bills for low- body, with no legal status, non-remunerated, voltage consumers, while for high-voltage
Cemig 2007 Annual Report | 53 consumers the increase was 2.89%. D – MANAGEMENT OF ASSETS Approximately 2.4 million of our residential consumers are classified as “low-income” and Cemig has been carrying out a broad-based receive a subsidy, depending on their monthly program of modernization and revitalization consumption of electricity. Those whose of some of its plants, with capital expenditure consumption is no more than 30 KWh/month approximately R$ 250 million in the period have a discount of 74%, those consuming up of 2002-2009. to 90 KWh/month pay 53% less than non- There are three major projects in progress: low-income consumers, and the discount for • Modernization of the Três Marias Plant those who consume up to 180 KWh/month (396MW), for investment of R$ 53 million, for is 34%. For consumers to be classified as completion in 2008, which includes technological low-income, they must have a single-phase updating of the various control systems and connection and must either have average refurbishment of its generating units, enabling monthly consumption up to 80 KWh, or automation of the whole facility. qualify under one of the government’s social • Modernization of the generating units programs. In Minas Gerais, all residential of the Jaguara Plant (424 MW) for investment consumers with consumption up to 90 KWh/ of R$ 60 million. This plant started operating in month are exempt from the ICMS value-added 1971, was totally modernized between 2004 tax charged by states. and 2007, and the current modernization project In July of 2007, the permitted revenue for includes technological updating of the regulation, the transmission industry was also adjusted, startup and protection systems, as well as partial upward, by 3.07%. This figure results from refurbishment of the generators. Modernization a calculation that took into account: (i) of the generating units has resulted in gains in accumulated 12-month inflation of 4.4% in operational reliability, more efficient physical the IGP-M Index; (ii) new works coming into and electrical protection and a better response operation, being added to the system; and (iii) to system oscillations. devolution of R$ 13,014,912.82, resulting in • General refurbishment of the four gene-rating a reduction of 24.58%, in the calculation of units of the Salto Grande Hydroelectric Plant (102 the tariff review on new assets (RBNI). MW). Investment is estimated at R$ 17 million, More information on the Extraordinary for conclusion in 2009, including refurbishment Tariff Recomposition (RTE) is in Explanatory of the generators and rotors, with significant Note 8 to the Financial Statements. gains in the plant’s efficiency and reliability.
54 | Annual Report Cemig 2007 E – ACQUISITION OF MATERIALS, The Materials and Suppliers Quality AND LOGISTICS Management Unit carried out 4,244 In 2007, Cemig’s Services Acquisition material quality inspections and 316 management unit carried out 887 new technical assessments of industrial and tenders for contracting of services and services suppliers, making it possible to renewed 663 contracts by amendment, for avoid installation in the electricity system of totals, respectively, of R$ 952 million and defective material that would have given rise R$ 508 million. The gain obtained by the to a cost of R$ 36 million – thus improving negotiations in contracting of services was Cemig’s outage indicators, and improving 6%, representing a saving of R$ 48 million. health and safety for the Company’s One significant gain was in contracting employees and outsourced operators in services and works for the distribution the activities of installation, operation and company for three years, for a total of maintenance of the electricity system. approximately R$ 429 million, a gain of 2% Materials Logistics over the price initially planned. The Materials Logistics and Management The Materials Planning and Acquisition Unit responded to growing demand in 2007 Management Unit made acquisitions, through for expansion of Cemig’s electricity system. new tenders, totaling R$ 403 million. Thanks At all times obeying tax and environmental to the optimization of its processes, it achieved legislation and adopting best practices in acquisition prices that in aggregate totaled logistics and quality, this unit managed R$ 52 million less than those budgeted by its and controlled material and equipment for internal clients – users in the Company. The operation, maintenance and expansion of the total gain on negotiations in acquisitions in Cemig Group’s system totaling value of R$ 780 2007 was R$ 11.48 million. These purchases million, and transported 87,000 tons of cargo included single phase and bi-phase meters, over an aggregate distance of 1.7 million computers, CA, CAA cables and insulated km, delivering materials, and upholding the cables on which the highest reductions of Company’s credibility in relation to internal prices were achieved, in negotiation. and external clients and its suppliers. At the beginning of 2007, the total value Reverse logistics of Cemig’s materials held in inventory was The Materials Logistics and Administration R$ 141 million. An improvement in management Management Unit has an important policy has reduced this by R$ 24 million. for management of the materials that return
Cemig 2007 Annual Report | 55 to the Cemig Group, based on reduction at F – INFORMATION TECHNOLOGY source, recycling, substitution of materials,
disposal of wastes, refurbishment and Our Information Tecnology (IT) governance
recovery. It has sought to align these reverse program continued, in its quest to align IT processes
logistics activities to provide for supply needs to the objectives of the Company’s business areas,
and ensure proper disposal in terms of the and comply with the requirements of the Sarbanes-
impact on the environment. Oxley Law – through effective management of risks
This policy has resulted in value added and of the results of telecoms and IT services.
to the Corporation of R$ 35 million, from We put in place the process of classification
re-integration of material (guarantee/ and treatment of Cemig’s information, which aims
selected/recovered) into the Company’s to give more value to our information and ensure
stock. This avoided a cost of R$ 24 million even more security for the information that is
and produced revenue from sale of most important to the Company. Approximately
unserviceable materials, vehicles and other 2,000 employees were trained in subjects relating
assets totaling R$ 11 million, at all times in to information security, and for the first time
compliance with the environmental and tax employees’ children were given awareness training
legislation and current internal corporate rules. in safe use of the Internet. We are currently carrying
56 | Annual Report Cemig 2007 The System Operation Center (COS) out a feasibility study for implementation of digital • The Strategic Technology Management certification in the Company. The agenda for this Committee – CGET. is: identifying the present situation, training of the • The Social and Corporate Responsibility project team, mapping of the needs, and definition Committee. of standards for implementation. • The Credit Committee.
There is more information on IT in the Report of • The Financial Risk Management Committee.
Management, under the item Technology. • The Water Resources Committee.
• The Energy Risks Management Committee G – COMMITTEES – CGRE.
In Cemig, the taking of strategic decisions is • The Corporate Governance Committee. supported by formal mechanisms of integration, • The Regulatory Affairs Committee. with defined attributes, formed by permanent • The Control and Management Committee. committees of employees and managers, with • The Environmental Adaptation Program periodic activities. At the end of 2007, Cemig Monitoring Committee. had 25 committees, including the following: • The Corporate Risks Management Committee.
• The Strategic Planning Committee – CPE. • The Information Security Committee.
• The Budget Priorities Committee – CPO. • The Long-term Financial Planning Committee.
Cemig 2007 Annual Report | 57 The 1980 s MORE THAN ENERGY: A COMPANY THAT GENERATES HOPES … At the end of the 1980s, Cemig began programs to expand electricity coverage to serve low-income populations in the countryside and on the peripheries of cities.
The Rural Electricity Program CEMIG ALSO GENERATES SOCIAL WELL-BEING
With the launch of the Light S.A. for Everyone Program, in 2003, in partnership with the Brazilian federal government, Cemig prepared to meet the audacious challenge of taking electricity to 100% of the rural locations of the state. While bringing energy to the countryside, Cemig brings with it modernization, comfort and new opportunities for development, for thousands of families that live in the state’s rural regions, near and far from city centers.
Altair and Aparecida – the couple who were the 30,000th consumer unit benefited by the Light S.A. for Everyone Program, in the countryside near São João del-Rei, Minas Gerais The “Big Board” of the São Paulo Stock Exchange Cemig’s first share listing was on the Stock the Bovespa. Our shares have been traded on the Exchange of the State of Minas Gerais, on October Madrid Stock Exchange (under the ticker XCMIG) 14, 1960. Its common (ON) and preferred (PN) since 2002. On the New York Stock Exchange, shares were listed on the São Paulo Stock Exchange Level 1 ADRs (ticker: CIG) representing our preferred (Bovespa) on January 14, 1972, with the symbols shares began trading in 1993 – these were upgraded CMIG3 (for the ON stock) and CMIG4 (for the PN to Level 2 in 2001. In June 2007, ADRs representing stock). Since October 2001, we have been part our common (ON) shares (ticker: CIG.C) were of the Level 1 Corporate Governance listing of launched on the New York Stock Exchange.
Cemig PN X Cemig ON X IBOVESPA (in original currency)
Cemig PN Cemig ON Ibovespa
1000%
800%
600%
400%
200%
0% JAN/03 JAN/04 JAN/05 JAN/06 JAN/07
At its Ordinary and Extraordinary General by the controlling stockholder. Meetings held on April 26, 2007, Cemig • The shares carry a vote for 13 members of approved a capital increase by incorporation the Board of Directors, and 4 members of the of earnings reserves, with a distribution of a Audit Board. stock bonus, and subsequently a reverse split • The majority stockholder has guaranteed a to result in more convenient unit values for minimum dividend of 6% per year for shares held share transactions. More information may be by individuals and issued up to August 5, 2004. found in Explanatory Note 25 to the Financial Preferred shares (par value R$ 5.00): Statements. • Preferred shares do not have tag-along rights. • Elect one member of the Board of Directors.
A – RIGHTS OF CEMIG SHARES • Elect one menber of the Fiscal Council. • They have preference in the event of Common shares (par value R$ 5.00): reimbursement of shares and they carry a • 80% tag-along right: The holder has the minimum annual dividend equal to the greater of: right, in the event of transfer of control of the 10% of their nominal value, or Company, to receive 80% of the price received 3% of their equivalent book value.
Cemig 2007 Annual Report | 61 • For shares issued up to August 5, 2004,
and currently held by individuals, the majority Total shares 42% stockholder legally guarantees a minimum dividend of 6% per year.
35% B – STOCKHOLDING STRUCTURE 23% The registered capital of the Cemig holding company (Cia. Energética de Minas Gerais) at State of Minas Gerais Non-Brazilian investors Brazilian investors the end of December 2007 was as follows: TYPE OF SHARE NUMBER OF SHARES At the end of 2007, our stockholders Common 212,622,503 included major Brazilian pension funds (e.g. Preferred 273,838,953 Total 486,461,456 Previ, Petros, Centrus, Funcef and Eletroceee), At the end of 2007, the Company’s free float non-Brazilian pension funds (e.g. United was made up of 104,238,882 common shares Nations Joint Staff Pension Fund, The State (49% of the common shares) and 268,301,163 of California Public Employees Retirement preferred shares (98% of the preferred shares). System) and major international financial institutions (e.g. Citibank NA New York, Abu Dhabi Investment Authority, Deutsche Bank Cemig (holding company): registered AG London, Credit Suisse First Boston). capital at the end of December 2007 Preferred shares C – DIVIDEND POLICY 30% Cemig, in its bylaws, has a formal legal
2% undertaking to distribute a minimum dividend of 50% of the net income for
68% each year. Additionally, starting in 2005, extraordinary dividends are distributed Common shares each two years, or more frequently, if cash availability permits.
42% The dividends are then paid in two 51% equal installments, by June 30 and December 30 of the year following the year they refer to. 7%
62 | Annual Report Cemig 2007 The Company’s increasing profitability R$ 497 million was an extraordinary and the dividend policy have resulted in a dividend. The dividend proposed for significant gain for stockholders as shown payment in 2008 is R$ 868 million, in the graphs below. Dividends paid in corresponding to 50% of the net income 2007 totaled R$ 1,382 million, of which for the year 2007.
CEMIG: DIVIDENDS PAID (R$ million)
897
497
1,173 885 868 692 320
2003 2004 2005 2006 2007
Ordinary Extraordinary
Cemig’s average dividend payout in system, which shows the excellent the last three years has been 78%, one remuneration enjoyed by stockholders of the largest in the Brazilian electricity with our dividend policy.
DIVIDENDS PAY-OUT (%)
103%
80%
50% 50%
27%
2003 2004 2005 2006 2007
There is more information on stockholder’s on January 1. Our market capitalization equity and remuneration to stockholders was relatively unchanged from last year, in Explanatory Note 25 to the Financial with a small change of 0.3%. Our market Statements. capitalization has increased by 116.2% over the last five years to R$ 16.08 billion D – PERFORMANCE in 2007 – a compound annual growth
In 2007, the price of our shares was rate of 21.24% over those five years. 1% lower at the end of the year than The present market capitalization values
Cemig 2007 Annual Report | 63 The launch of ADRs representing Cemig common (ON) shares on the New York Stock Exchange: June 2007.
64 | Annual Report Cemig 2007 the Company at a premium of 92% over December 31, 2007). book value (which was R$ 8.39 billion on
CEMIG SHARE PRICES AND MARKET INDICES (% change in 2007)
43.7%
19.0% 14.9%
6.4% 2.3% -1.0% -4.2%
PN (Preferred) ON (Common) Ibovespa CIG (ADR) CIG.C (ADR) Dow Jones XCMIG (Latibex)
Note: Stock price appreciation takes into account adjustment for corporate action.
ADR X DOW JONES
1000% 800% 600% 400% 200% 0% JAN/03 JAN/04 JAN/05 JAN/06 JAN/07
DOW JONES ADR PN ADR ON
CEMIG: MARKET CAPITALIZATION (R$ million)
16,040 16,078 14,335
9,951
7,441
2003 2004 2005 2006 2007
Cemig 2007 Annual Report | 65 The closing prices of our shares on the New York (NYSE) and Madrid (Latibex) at the stock exchange of São Paulo (Bovespa), end of 2006 and 2007 were as follows:
NAME TICKER CURRENCY/UNIT CLOSE OF 2007 CLOSE OF 2006 Cemig PN CMIG4 R$ 32.50 32.70 Cemig ON CMIG3 R$ 33.79 28.36 ADR PN CIG US$ 18.46 15.14 ADR ON CIG.C US$ 18.50 - Cemig PN (Latibex) XCMIG E euro 12.75 12.46
A total of R$ 13.9 billion in our preferred • We disclose market announcements shares was traded in 2007. This places widely on the Internet. CMIG4 as the fifteenth largest-volume • Every quarter we publish our Letter share, and the share with largest volume in to the Stockholder, in which we present results the electricity sector, on the São Paulo stock and highlight the most important facts. exchange. Total trading in our common • We hold conference calls and shares, CMIG3, was R$ 760 million. videoconferences. • We file market announcements, E – INVESTOR RELATIONS announcements to stockholders and Material In 2007, Cemig sought further to expand Announcements with the regulatory bodies its interaction with the capital markets and to of the capital markets in Brazil (the CVM) and increase the transparency of the relationship, outside Brazil (the SEC, of the USA). in accordance with the best corporate The quarterly and annual results were governance practices, bringing itself ever published by presentations transmitted via closer to stockholders, analysts and investors. video webcasts and teleconference, with For this we use the following means: simultaneous translation into English, the • Our Internet site is published in three Chairman of the Board of Directors, and the languages: Portuguese, English and Spanish. Executive Board, being present to answer • We hold meeting with investors in questions at the event. Brazil and worldwide, roadshows (visits with In 2007, Cemig was present, worldwide, presentations to investors) and one-on-one at 84 seminars, conferences and investor meetings. meetings; 10 congresses, 11 roadshows and • We participate in events, congresses numerous conference calls and videoconference and seminars for investors. calls with capital markets analysts and investors.
66 | Annual Report Cemig 2007 A Cemig strategic planning meeting
In our national and international events, we the ADRs for Cemig’s common (ON) shares. held more than 490 one-on-one meetings. The Cemig was the principal “personality” of the recognition of this work can be seen in the fact day – which meant that its flag was hoisted at that 19 national and international financial the entrance to the Stock Exchange building, institutions cover the performance of Cemig in there was a lunch with investors and analysts, their equity research. a formal welcome for Cemig’s Executive We also highlight our 12th Annual Cemig Board, the Development Secretary of Minas Meeting with the Association of Capital Gerais State, and Board Chairman Marcio Markets Analysts and Investment Professionals Araujo de Lacerda, a press conference and (Apimec) in the city of Tiradentes, in Minas the traditional closing bell ceremony. Gerais, which included a technical visit to During 2007, we were also able to focus the Itutinga Hydroelectric Plant, on the on financial education for individual investors, border between the counties of Itutinga and through participation in the Expo Money Nazareno in Minas Gerais. exhibition, in São Paulo and in Belo Horizonte, On June 12, 2007, the New York Stock Brazil; and at the World Money Show, in Orlando, Exchange held Cemig Day, for the launch of Florida, USA.
Cemig 2007 Annual Report | 67 The 1990 s A BRAZILIAN COMPANY RISING IN THE INTERNATIONAL MARKET In the ‘90s, Cemig began to expand its financial capital – and its shares were traded for the first time on the New York Stock Exchange. And in another example of Cemig pioneering, the Igarapava Plant was the first Brazilian hydroelectric generating plant built by a public company in partnership with the private sector.
The Igarapava Hydroelectric Plant EACH NEW CONQUEST: MOTIVATION FOR FURTHER GROWTH
In 2007, Cemig – with more than 100,000 shareholders, and trading in São Paulo, New York and Madrid – saw its market capitalization rise to be second-highest in the Brazilian electricity sector.
The São Paulo Stock Exchange (“Bovespa”) The Monte Sião Substation, in Minas Gerais million for 2007, slightly higher than the a – ECONOMIC AND FINANCIAL RESULTS net income of R$ 1,719 million reported
Cemig reported net income of R$ 1,735 for the previous year.
CONSOLIDATED INCOME STATEMENTS (R$ million) 2007 2006 Net revenue 10,246 8,467 Operational expenses (6,951) (5,917) Operational income 3,295 2,550 Ebitda 4,073 3,222 Financial revenue (expenses) (356) (50) Non-operational revenue (expenses) (10) (37) Provision for current and deferred income tax, and Social Contribution (623) (527) Employees’ profit shares (455) (210) Minority interest (116) (7) Net income 1,735 1,719
The amount of the employees’ profit profit shares as an investment, and the shares, R$ 455 million in 2007, 116% decision aligns Cemig with best market more than in 2006, reflects the 2007 practices. There is more information Collective Work Agreement, under on transactions with related parties which both sides agreed that future in Explanatory Notes 2 and 3 to the Cemig employees will no longer have Financial Statements. the right to a bonus of 16.67% over The largest contributions to Cemig’s their base salary, a benefit until then result come from Cemig Geração e granted to employees. Cemig thus sees Transmissão S.A. and Cemig Distribuição the amount expended this year in S.A., as can be seen in this table:
RESULTS BY COMPANY (R$ million) 2007 % 2006 % Cemig – holding company (176) (10.14) 124 7.21 Cemig Distribuição S.A. 771 44.44 770 44.79 Cemig Geração e Transmissão S.A. 747 43.05 614 35.72 Gasmig 46 2.65 44 2.56 Rio Minas Energia (Light S.A.) 148 8.53 35 2.04 Others 199 11.47 132 7.68 Consolidated net income 1,735 100.00 1,719 100.00
Cemig 2007 Annual Report | 71 Net Operational Revenue OPERATIONAL REVENUE (R$ million) 2007 2006 Change, % Gross revenue from retail supply of electricity 13,285 11,135 19.30 Revenue for use of the network – free consumers 1,946 1,789 8.78 Others 558 507 10.06 Total 15,789 13,431 17.56
Final consumers: The main impacts on 2007 on April 8, 2006 (the full-year effect of which
revenues arose from the following factors: took place in 2007) and April 8, 2007.
• The increase of 8.69% in the average tariff, • The 9.44% increase in the volume
from R$ 245.73/MWh (in 2006) to R$ 267.08/ of energy invoiced to final consumers –
MWh (in 2007), as a function, principally, of the comments on the variations are in the item
increases in the tariffs of Cemig Distribuição S.A. E – Development of Our Market.
Operational Costs And Expenses OPERATIONAL COSTS (R$ million)
2007 2006 Change, % Non-controllable costs Electricity purchased for resale 2,794 2,113 32.23 Financial compensation for use of water resources 137 139 (1.44) Charges for the use of the basic transmission grid 650 664 (2.11) 3,581 2,916 22.81 Controllable costs Personnel and managers 968 1,088 (11.03) Post-employment obligations 123 170 (27.65) Materials 93 82 13.41 Raw materials and inputs for production 59 37 59.46 Outsourced services 620 504 23.02 Operational provisions 291 52 459.62 Gas purchased for resale 154 158 (2.53) Depreciation and amortization 778 672 15.77 Other net expenses 284 238 19.33 3,370 3,001 12.30 Total operational costs and expenses 6,951 5,917 17.48
Operational costs and expenses (excluding reduction in the expense on personnel and
Financial revenue [expenses]) totaled managers, which was reduced from R$ 1.088
R$ 6.951 million in 2007, compared to million in 2006 to R$ 968 million in 2007.
R$ 5.917 million in 2006, an increase of Non-controllable costs: The differences
17.48%. This mainly reflects the change in the between the sums of non-controllable costs
amount of energy bought through for resale, used as a reference in the calculation of the
and operational provisions, partly offset by the tariff adjustment and the disbursements
72 | Annual Report Cemig 2007 actually made (also referred to as CVA) are Deductions from operational revenue: offset in the subsequent tariff adjustments, Deductions from operational revenues and are registered in Current assets and amounted to R$ 5,544 million in 2007,
Non-current assets. In compliance with a 11.66% more than in 2006 (R$ 4,965 change in Aneel’s accounting plan, some million). The principal changes in these items were transferred to Deductions from expenses are as follows: operational revenues. • The Fuel Consumption Account (CCC): This
The principal differences in expenses, relates to the operational costs of thermal between 2007 and 2006, are: plants in the Brazilian grid and isolated
• Electricity bought for resale: The expense systems, split among electricity concession on this account in 2007 was R$ 2,794 million, holders as specified by an Aneel resolution. which is 32.23% higher than the figure of This is a non-controllable cost. The amount
R$ 2,113 million for this account in 2006. posted for electricity distribution services
This is a non-controllable cost, with the corresponds to the amount actually passed expense recognized in the income statement through to the tariff. For the amount posted corresponding to the value effectively passed in relation to electricity transmission services through to the tariff. For more information the Company merely passes through the please see Explanatory Note 30 to the charge since the CCC is charged to free
Financial Statements. consumers on their invoice for the use of the
• Charges for use of the transmission grid, and passed on to Eletrobrás. network: The expense on charges for use The deduction from revenue for the CCC of the transmission network in 2007 was account was R$ 407 million in 2007, which
R$ 650 million, 2.11% lower than in 2006 compares to R$ 554 in 2006, a reduction of
(R$ 664 million). These charges are payable 26.53%, which mainly reflects the fact that in by distribution and generation agents for use 2006 there was a backdated charge relating of the facilities and components of the basic to some consumers, after homologation grid, and are set by Aneel resolution. This by the National System Operator (ONS) is a non-controllable cost in the distribution of contracts for use of the transmission activity, and the expense recognized in the system (CUSTs). income statement is equal to the amount • The Energy Development Account (CDE): passed through to the tariff. The deduction from revenue for the CDE
Cemig 2007 Annual Report | 73 account was R$ 391 million in 2007, 2007 totaled R$ 968 million, vs. R$ 1,088
compared to R$ 334 million in 2006 – million in 2006, a reduction of 11.03%.
an increase of 17.07%. The payments This mainly reflects the negotiated
are specified by an Aneel resolution. This indemnity paid to employees in June 2006,
is a non-controllable cost. The amount of R$ 178 million, for their future “anuênio”
posted for electricity distribution services entitlements, partially compensated by the
corresponds to the amount actually passed salary increases of 4% and 5% given to
through to the tariff. For the amount posted employees in November 2006 and 2007
in relation to electricity transmission services respectively, and by the 1.5% increase in
the Company merely passes through the the number of employees of Cemig Holding,
charge, since the CDE is charged to free Cemig Geração e Transmissão S.A. and Cemig
consumers on their invoices for the use of Distribuição S.A., from 10,658 on December
the grid, and passed onto Eletrobrás. 31, 2006 to 10,818 on December 31, 2007.
• Global Reversion Reserve (RGR): The There is a breakdown of personnel expenses
deduction from revenue for the RGR account in Explanatory Note 30 to the Consolidated
in 2007 was R$ 145 million, which compares Financial Statements.
with R$ 30 million in 2006. The change • Depreciation and amortization: Deductions
reflects a positive adjustment applied in from operational revenues totaled R$ 778
2006, of R$ 66 million, partially reversing million in 2007, compared to R$ 672 million
a provision made in 2004, due to Aneel in 2006, an increase of 15.77%. The variation
homologating that expense at an amount arises mainly from investments in the
lower than the Company had estimated for Light S.A. for Everyone Program, and the
the increase, in 2007, of the book value of startup of the Irapé Plant, in the second half
fixed assets in service, which is the basis for of 2006. Another factor is the consolidation
the calculation of that expense. of RME, contributing an expense of R$ 82
The other deductions from revenue are million in 2007 (vs. R$ 33 million in 2006)
for taxes calculated as a percentage of – the lower value reflecting the fact that
billing, and their variations thus substantially RME was consolidated for only five months
arise from the changes in revenue. (starting in August) in 2006.
Controllable costs: The principal changes in • Expenses on post-employment obligations
expenses are: were R$ 123 million in 2007 compared to
• Personnel expenses: Personnel expenses in R$ 170 million in 2006, a reduction of
74 | Annual Report Cemig 2007 27.65%. These expenses basically represent the total of its obligations to participants. interest on the actuarial liabilities of Cemig Ebitda (earnings before interest, tax, depreciation and amortization) Distribuição S.A. net of the expected return on the assets of the plan, as estimated by an Reflecting the above variations, Ebitda, external actuary. adjusted for non-recurring items, was a
The reduction in expense reflects greater significant 26.41% higher in 2007 than growth in the pension plan’s assets than in in 2006:
EBITDA (R$ million) 2007 2006 Var. % Net income 1,735 1,719 0.93 + Provision for current and deferred income tax and Social Contribution 623 527 18.22 + Non-operational revenue (expenses) 10 37 (72.97) + Financial revenues (expenses) 356 50 612.00 + Amortization and depreciation 778 672 15.77 + Employees’ profit shares 455 210 116.67 + Minorities 116 7 1,557.14 Ebitda 4,073 3,222 26.41
Non-recurring items (*) + Cost of Energy Efficiency programs from previous years - 85 - + Indemnity for the “anuênio” - 178 - + CVA recomposition – Tusd - 93 - + Revision of transmission revenue – Homologating Resolution 496 31 - - Reversal of provision for RGR - (66) - - CVA for Energy – adjustment set by Aneel (29) - - Adjusted Ebitda 4,075 3,512 16.03
(*) The non-recurring adjustments correspond to the Company’s interpretation on events that it deems to be extraordinary, not related to current operations.
Indicators plan, our Ebitda was within the range of
Cemig’s cash flow, measured by Ebitda, our published guidance. Cemig’s operational in 2007, at R$ 4 billion, was 26.41% more results have grown regularly over the last than in 2006. Reflecting excellent operational five years, with an increase of approximately results, allied to efficient management of 127% in cash flow, reflected in an upward acquisitions carried out within our strategic trend in Ebitda.
Cemig 2007 Annual Report | 75 Consolidated ebitda margin (%)
42 40 38 38
34
2003 2004 2005 2006 2007
EBITDA (R$ million) 4,073
3,222 3,058
2,480
1,771
2003 2004 2005 2006 2007
Highlights of our 2007 results: 16.03% higher than in 2006. • Net income of R$ 1,735 million, or • In the last five years, Cemig’s cash flow R$ 3.57 per share. has increased by almost 127%, paving the way • Ebitda of R$ 4,073 million, 26.41% for continuation of its programs for capital higher than in 2006. expenditure and acquisitions within the process • Adjusted Ebitda, at R$4,075 million, of consolidation of Brazil’s electricity sector.
EBITDA (R$ million) NET INCOME (R$ million)
4,073 4,075 3,512 3,222 1,878 1,851
1,719 1,735
EBITDA ADJUSTED EBITDA NET INCOME ADJUSTED NET INCOME
2006 2007 2006 2007
76 | Annual Report Cemig 2007 The Miranda Hydroeletric Plant
of loans and financings obtained in 2007 B – CASH FLOW AND LIQUIDITY (R$ 1,855 million in 2007 vs. R$ 3,466 million At the end of 2007, Cemig’s cash position in 2006) partially offset by lower distribution was R$ 2,066 million (vs. R$ 1,402 million in of dividends and Interest on Equity (R$ 1,360 2006), an increase of R$ 664 million. million in 2007, compared to R$ 2,072 Cash flow from operations was R$ 3,213 million in 2006). million, which compares with R$ 2,185 million The Company’s capital expenditure, in 2006. This increase in cash generated by at R$ 1,189 million in 2007, was 32% operations, of 47.05%, is mainly due to the lower than in 2006 (R$ 1,720 million). This higher value related to regulatory assets, and was principally due to the higher volume of the greater profit in 2007, adjusted by items funds invested in distribution in 2006, with not affecting cash. the launch of the Light S.A. for Everyone Financing activities resulted in cash outflow Program. of R$ 1,359 million in 2007, compared to There is more information in the Cash an outflow of R$ 532 million in 2006. The Flow Statements, Appendix I to the Financial significant variation reflects the lower volume Statements.
CEMIG LIQUIDITY INDICATORS 1.50 1.32 1.30 1.11 1.10 0.91 0.90 0.86 0.73 0.70
0.50
Current Liquidity 2003 2004 2005 2006 2007
Cemig 2007 Annual Report | 77 with the creation of R$ 11,470 million C – DISTRIBUTION OF VALUE ADDED in added value in 2007, compared The Value Added Statement shows to R$ 10,401 million in 2006 – an increase Cemig’s importance for society in general, of 10.28%.
value added, 2003–2007 (R$ million)
11,470 10,401
9,289
7,354
6,136
2003 2004 2005 2006 2007
The distribution of added value created attention to the part retained by the by Cemig between the various segments government – 54% of the total in both can be seen in this chart. We draw of 2006 and 2007.
2007 2006
Govemment 54% Govemment 54%
Other 1%
Amount retained 8% Amount retained 3%
Third Party 14% Third Party 14% Personnel 15% Personnel 16%
Stockholder 8% Stockholder 13%
78 | Annual Report Cemig 2007 R$ 200 million, with maturity in 180 days, D – FINANCING subject to interest on the principal at 102%
Cemig’s debt management policy is of the CDI rate, guaranteed by Cemig. focused on preserving credit quality. This These notes were settled with funds from concern translates into an express obligation the third Issue of Promissory Notes made by in the bylaws to maintain certain financial Cemig Distribuição S.A. on June 29, 2007 in indicators limited to numbers that denote the the amount of R$ 400 million, with tenor of Company’s financial health. 180 days, paying interest of 101.60% of the Cemig is a mixed private-sector/public- CDI rate, also guaranteed by Cemig. sector company, with the majority interest This short-term issue was refinanced by held by the state of Minas Gerais, and as such the second Public Issue of Unsecured Non- is subject to rules for containment of public Convertible Debentures (a single series), in sector borrowing, which limits its financing which 40,000 debentures of nominal unit alternatives. These limitations apply also to value R$ 10,000, issued on December 15, its subsidiaries that, indirectly, are also state- 2007, were subscribed and paid up for a controlled. total of R$ 400 million. These debentures Raising of funds from third parties in are indexed to the IPCA inflation index 2007 consisted mainly of transactions in the and return annual interest of 7.96% p.a. capital markets in the form of issues of short- The principal is to be repaid in three equal term notes (sometimes referred to locally as portions in December 2015, 2016 and 2017, commercial paper) and debentures, supported and interest is paid annually. by firm guarantees of placement of the Banco do Brasil Investimentos S.A. gave a securities from financial institutions. These firm guarantee of placement and subscribed transactions were to pay debt becoming due 46% of the issue. We highlight the total tenor and to rebuild cash for the debts paid over of ten years for these securities, which was the year. High liquidity in the markets favored considered notable in the current situation: a contracting of transactions on very favorable comparison with the remuneration on public conditions. securities of similar tenor and index (NTN-Bs) On January 2, 2007, Cemig Distribuição indicates that Cemig Distribuição S.A. raised S.A. made its second issue of short-term funds at a cost very close to a risk-free rate. notes (“Promissory Notes”, also within the The combination of tenor and cost of this issue local commercial paper nomenclature), of reflects investors’ confidence in the Company’s
Cemig 2007 Annual Report | 79 credit capacity and its potential for growth. line. This financing was obtained with an On December 21, 2007, Cemig Geração A/B loan structure, with participation by e Transmissão S.A. issued its second issue commercial banks. of Promissory Notes in the total amount of • On November 1, 2007, PCH Cachoeirão, R$ 200 million, maturing in 180 days, paying a subsidiary of Cemig Geração e Transmissão interest at 101.5% of the CDI rate. These S.A., building the Cachoeirão Power Plant notes had no guarantee from Cemig. in partnership with Santa Maria Energética Cemig Distribuição S.A. also raised S.A., signed a financing contract with financing of R$ 159 million from Eletrobrás Banco do Brasil for onlending of funds from for the Light S.A. for Everyone Program and the BNDES, for R$ 71.3 million with tenor the Reluz Project. of 11 years, to build the Cachoeirão Small Other highlights of 2007 are two project Hydro Plant, with capacity of 27 MW. financings transactions by subsidiaries of Use of the banking market to meet Cemig for specific investment projects in financing needs has helped, in recent years, transmission and generation: to increase the share represented by the • Transchile Charrúa Transmisión S.A. CDI rate in the profile of Cemig’s debt. signed a 20-year financing contract for With the issuance by Cemig Distribuição approximately US$ 51 million with the S.A. of debentures indexed to ICPA inflation Inter-American Development Bank on at the end of 2007, refinancing promissory July 18, 2007. These funds will be used notes indexed to the CDI, the resulting in construction of the 220-kV, 205-km breakdown of Cemig’s debt by indexor is Charrúa–Nueva Temuco transmission now as follows:
Breakdown of debt by indexor at December 2007
Other 1%
IPCA 5%
IGPM 9%
URTJ 3%
RGR/Finel 5% Yen 1%
US$ 5% CDI/Selic 71%
80 | Annual Report Cemig 2007 As shown in the next chart, the in the short term, mitigating the risk of debt amortization timetable now has a refinancing and eliminating any pressure on satisfactory profile, with average tenor of cash flow that could reduce availability of five years, meeting the Company’s policy funds for investment. directive of avoiding concentration of debt Another of Cemig’s guidelines on
Debt amortization timetable at December 2007 (R$ million)
1200 1,167 1,020 1,037 1000 928 945 837 800 739
588 600
400 378
200
0 2008 2009 2010 2011 2012 2013 2014 2015 2016 a 2031 reduction of the average cost of debt has national scale, an increase of five levels been achieved: at the end of 2007, the (“notches”). This reflects Moody’s view of average cost of debt (based on constant improvement in the Company’s corporate currency) was 7.94% p.a., a reflection governance and in its credit indicators on of the downward trend in interest rates a consolidated basis, reflecting Cemig’s in 2007 that was led by government strong cash flow, which Moody’s believes monetary policy. to be sustainable in the short term, and Our position of 6% of debt in foreign its improved profile and robust liquidity currency does not represent a material position. financial risk for the Company, since a good part of it is contractually protected E – DEVELOPMENT OF OUR MARKET by indexor swap transactions. There is also a natural protection provided by energy Cemig’s consolidated market consists sale contracts indexed to the US dollar. of the markets of the companies Cemig In March 2007, Moody’s Investors Service Distribuição S.A. and Cemig Geração e gave Cemig corporate rating of Ba2 on the Transmissão S.A. and of other subsidiary global scale, and Aa3.br on the Brazilian companies. Through the various
Cemig 2007 Annual Report | 81 São Pedro dos Clérigos church, Mariana, MG
companies in its group, Cemig operates Geração e Transmissão S.A. in all the sectors of the electricity The good performance of the Brazilian industry and, with a diversified portfolio, economy, sustained by the dynamism serves captive and free final clients, as of the domestic and external markets, well as trading energy with other agents associated with the sales strategies that operate in this market. adopted by Cemig in the free market After the strong migration of and the acquisition of Light S.A., in captive clients to the free contracting August 2006, through the RME (Rio Minas environment that took place in 2005, in Energia Participações S.A.) consortium, the following years some consumer units contributed to the growth of sales of opted for free acquisition of energy, but electricity (10.8%) in 2007. less frequently. In 2007, 12 consumers Sales and Transport of Electricity migrated from the captive to the free As shown, the volume of Cemig’s market, representing 0.8% of the energy sales increased from 2006 electricity supplied by Cemig Distribuição in all consumer classes. The sales of S.A. Four of these units contracted energy Light S.A., which are taken into account from sources benefiting from incentives, in proportion to Cemig’s stockholding in with subsidiaries of the Cemig Group, the RME consortium (25%), add 5,791 and one unit contracted with Cemig GWh to total consolidated sales in 2007.
82 | Annual Report Cemig 2007 ELECTRICITY INVOICED, BY CONSUMER CATEGORY – CONSOLIDATED
Discrimination Jan-Dec 2006 Jan-Dec 2007 Change MWh % MWh % %
Total(1) 52,263,258 100.0 57,891,535 100.0 10.8 Sales to final consumers 40,753,940 78.0 44,602,628 77.0 9.4 Residential 7,429,818 14.2 8,648,603 14.9 16.4 Industrial 23,955,747 45.8 24,686,241 42.6 3.0 Captive 5,051,948 9.7 5,333,234 9.2 5.6 Free 18,903,800 36.2 19,353,007 33.4 2.4 Commercial 4,456,002 8.5 5,549,409 9.6 24.5 Captive 4,439,154 8.5 5,517,331 9.5 24.3
Free 16,848 0.0 32,078 0.1 90.4 Rural 1,942,306 3.7 2,212,485 3.8 13.9 Other(2) 2,970,066 5.7 3,505,890 6.1 18.0
Own consumption 37,160 0.1 52,941 0.1 42.5 Wholesale sales 11,472,158 22.0 13,235,966 22.9 15.4 In Regulated Market (auction) 7,230,339 13.8 6,490,096 11.2 (10.2) In Free Market 4,241,819 8.1 6,745,870 11.7 59.0
(1) Comprises the sales by the subsidiaries Cemig Geração e Transmissão S.A., Cemig Distribuição S.A., RME (Light S.A.), Cemig PCH Horizontes, Ipatinga, Sá Carvalho, Barreiro and Rosal. (2) Includes: Public authorities, public illumination and public services.
Sales to final consumers totaled 44,603 was also a strong contribution from GWh, 9.4% more than in 2006, led by wholesale electricity sales, due to Cemig’s the residential, industrial and commercial intense activity in the free market, with consumer categories. Part of their growth sales to other traders and exports to was due to inclusion of the consumers of Argentina and Uruguay. The volume of Light S.A.: 1,836 GWh in the residential electricity traded in this segment of the category, 503 GWh industrial and 1,439 market increased by 51.5% from 2006, GWh commercial. while there was a reduction of 4.3% in Excluding the effects of the the regulated market, reflecting returns consolidation of Light S.A., Cemig’s sales made under the Surpluses and Deficits to final consumers totaled 40,045 GWh, Compensation Mechanism (MCSD). an increase of 3% over 2006, mainly This chart shows the development reflecting growth in residential, industrial, of our electricity market in the last five commercial and rural consumption. There years:
Cemig 2007 Annual Report | 83 CEMIG – TOTAL ANNUAL SALES OF ELECTRICITY, TWh 60.0 57.9 52.2
39.6 40.0 36.6 37.9
20.0
- 2003 2004 2005 2006 2007
The total of electricity transported by that took place in 2007. The electricity the distributors for the Cemig Group for transported by Light S.A., included as free clients and self-producers grew, as the proportionate consolidation in Cemig’s table below shows, reflecting the growth in results of the 25% stockholding in RME, industrial production and the migration of added 1,996 GWh to the consolidated clients from the captive to the free market total in 2007.
ELECTRICITY TRANSPORTED – BY CONSUMER CATEGORY 2006 2007 Change Discriminação MWh % MWh % % Total 17,520,789 100 19,535,284 100 11.5 Industrial 17,005,099 97.1 18,497,066 94.7 8.8 Other(1) 62,472 0.4 156,257 0.8 150.0 Distributors 453,218 2.6 881,961 4.5 94.6 (1) Includes the Commercial and Public Services categories.
In the concession area of Cemig Distribuição Consumers invoiced S.A., the volume of energy transported This table gives the number of consumers grew by 4.8%. billed in each consumption category:
CONSUMERS INVOICED, BY CATEGORY – CONSOLIDATED December 31, 2006 December 31, 2007 Change Class Unit % Unit % Unit % Total(1) 10,041,929 100.0 10,320,832 100.0 278,903 2.8 Residential 8,560,153 85.2 8,764,157 84.9 204,004 2.4 Industrial 84,185 0.8 86,394 0.8 2,209 2.6 Captive 84,048 0.8 86,246 0.8 2,198 2.6 Free 137 0.0 148 0.0 11 8.0 Commercial 820,950 8.2 830,818 8.0 9,868 1.2 Captive 820,946 8.2 830,814 8.0 9,868 1.2 Free 4 0.0 4 0.0 - - Rural 505,708 5.0 565,169 5.5 59,461 11.8 Other 69,762 0.7 72,945 0.7 3,183 4.6 Own consumption 1,124 0.0 1,256 0.0 132 11.7 Wholesale supply 47 0.0 93 0.0 46 97.9 (1) Includes the sales of the subsidiaries Cemig Geração e Transmissão S.A., Cemig Distribuição S.A., RME (Light S.A.), Cemig PCH Horizonte, Ipatinga, Sá Carvalho, Barreiro and Rosal.
84 | Annual Report Cemig 2007 In Cemig’s market alone (excluding the GWh, or 4% of the total of available electricity. consumers of Light S.A.), 6.4 million consumers Of this total, 70.5% was directed to final were invoiced in the year, 3.2% more than in consumers – 30.5% to the captive market 2006. This mainly reflects growth in the residential and 40.0% to the free market; 11.3% was and rural consumer groups, 2.4% and 12.0% transacted on the CCEE and under the MRE, and in the year respectively. The growth in the rural 9.9% was traded in the regulated market (sales consumer category resulted from connection of to distributors). new conventional consumers by the Light S.A. Our chart of Sources and Uses of Electricity for Everyone Program. shows that losses totaled 8.3% of the total of resources, or 5,628 GWh, made up of 5,259 GWh of losses in the local distribution network, F – SOURCES AND USES OF ELECTRICITY and 369 GWh of losses in the national grid. The The consolidated sum of energy produced and losses in 2007 were 3.5% higher than in 2006. bought by the Cemig Group in 2007 was 67.698 This arises from the following factors: GWh. Of this total 50.8% was generated by the • Significant expansion of the distribution Cemig Group itself, obligatory purchases from network to comply with the electricity distribution Itaipu and Proinfa totaled 18.3%, purchases in “universalization” programs. the regulated market (CCEAR contracts) totaled • Increase in the total load of Cemig’s 16.4%, and transactions in the CCEE and under distribution network. the MRE mechanism totaled 10.5%. Cemig also This chart shows the consolidated totals of had other revenues under bilateral contracts sources and uses of electricity handled by Cemig. and for service directly provided within the local It does not include information for the RME distribution network of approximately 2,709 consortium.
SOURCES AND USES OF ELECTRICITY – CEMIG, CONSOLIDATED TO DECEMBER 31, 2007
Sources (CCE) + LN Uses (CCEE) Sales of Cemig D 67,698 GWH 67,698 GWh 20,694 GWh
Sales of Cemig GT From within Cemig system 35,416 24,655 GWh Cemig GT 33,784 Self-producers 1,047 Self-producers‘ Affiliated companies 1,219 Total 990 GWh (-) losses in national grid (634) 62,070 GWh Sales of GT + D via CCEE Bought by Cemig 32,282 6,398 GWh From Itaipu 12,135 Sales to affiliates Under CCEAR contracts(2) 11,132 1,403 GWh Proinfa(4) 247 (3) Via MRE 1,789 Sles of GT under MRE (1) Via CCEE 5,317 Losses 1,245 GWh Other generators 1,122 LN(5) + NG(6) Co-generation 143 5,628 GWh Sales of GT to distributors Local distribution network GWh 398 6, 686 GWh (1) Electricity Trading Chamber (2) Sales contracts in the Regulated Environment (3) Energy Reallocation Mechanism (4) Program to Encourage Alternative Electricity (5) LN = Cemig‘s own local network (6) NG = National Grid
Cemig 2007 Annual Report | 85 The New Millennium A TIME TO REAP RESULTS; AND TO PROPOSE NEW CHALLENGES Cemig began the new millennium with the challenge of building six new hydroelectric generating plants to provide Minas Gerais with the energy it needs for growth.
The Irapé Hydroelectric Plant “BRAZIL’S BEST ENERGY SUPPLIER” ALSO RATED THE WORLD’S BEST
Cemig was included for the eighth year running in the Dow Jones Sustainability World Index (DJSI World) in 2008 – this time featuring as the leader in sustainability of the utilities sector worldwide.
The São Simão Hydroelectric Plant 000 Relatório de Sustentabilidade Cemig 2007
Ibitipoca State Park, Conceição de Ibitipoca, MG Cemig’s Environmental Policy, published Report, its Sustainability Report, media articles in 1990, contains seven principles that and publicity, distribution of booklets and reports orient activities and efforts related to the and the Environmental Education Program. protection of the environment and sustainable development. These principles are translated A – SUSTAINABLE DEVELOPMENT into actions that seek to inspire and fix, in the Company’s employees and partners, In 2007, Cemig was selected by the DJSI awareness of environmental issues. These World (Dow Jones Sustainability World Index) include the Environmental Education Program as world leader in the supersector of utilities in schools, the Environmental Reserves, and the – which includes all companies providing Programs for Preservation of Fauna and Flora. services in electricity, gas distribution, water More information on Cemig’s environmental and associated public utility services all over programs can be found on our web site, at the world. This is the eighth year running that www.cemig.com.br/meio_ambiente/meioambiente.asp. Cemig has been included in the select list of A total of R$ 7.3 million was spent in companies chosen for the DJSI World. Cemig environmental action related to the construction has been included in this Index since its creation of new works. A further R$ 36.8 million was in 1999. It is the only Latin American electricity spent in the operation and maintenance company in the Index, reflecting its commitment of facilities and carrying out of studies and to corporate sustainable development in its monitoring. Hence, the total invested by Cemig activities, including good corporate governance, in the environment in 2007 was R$ 44.1 million. respect for the environment and the well-being Of this, R$ 859,000 was invested in research of society and effective creation of value for projects related to the environment. stockholders. Aware of the importance of its relationship Also, Cemig was again selected for inclusion with society, Cemig participates in councils and in the corporate sustainability index (ISE) of committees on the environment and on water the São Paulo stock exchange (Bovespa). resources holds meetings with interested bodies The ISE is a portfolio of companies with and organizations, answers consultations received, recognized commitment to social responsibility and participates in seminars and congresses. It also and sustainability in the Brazilian corporate offers information on its environmental actions environment. Cemig has been included in this through several channels of communication, index since it was created in 2005 and has now including its site www.cemig.com.br, its Annual been selected three successive times for inclusion.
Cemig 2007 Annual Report | 89 As well as our commitment to protection • Renewal of operational license: Igarapava of the environment, we invest in programs for Hydroelectric Plant. conservation and efficiency in energy use, and • Corrective operational licenses: Salto do in research on new energy sources, such as solar Voltão Small Hydro Plant, Salto do Passo Velho and photovoltaic energy, wind energy, hydrogen Small Hydro Plant, Quarteirão 14 Materials fuel cell research and the use of natural gas. Distribution Center, Igarapé Advanced There is more information on alternative energy Distribution Center. sources in the Report of Management, in the item Technology and Alternative Energy Sources. C – MANAGEMENT OF WASTE
In 2007, Cemig sold or recycled 4,685 tons B – ENVIRONMENTAL LICENSING of materials and equipments, 31% more than Our Environmental Licensing Team aims to in 2006, including porcelain insulators, metallic ensure that all studies and reports produced scrap from meters and reactors, cables, wires are properly analyzed, and all demands and and batteries. requirements of the bodies responsible for Cemig itself regenerated and re-used 435,000 environmental issues promptly complied with. liters of insulating mineral oil withdrawn from Our studies and monitoring are carried out electrical equipment. A further 41 tons of through contracting of specialists, which include wastes impregnated with oil (gloves, cloths and consultancy companies, research centers and sawdust) and 201 tons of insulating mineral oil universities. inappropriate for use in electrical equipment In 2007, Cemig obtained the following were co-processed. environmental licenses: Fluorescent lamps and public lighting lamps • Operational licenses: from Cemig’s concession area are withdrawn Transmission lines: Transudeste – 345 kV, and sent for de-contamination. In 2007, a total Transirapé – 230 kV, Aimorés–Mascarenhas – of 320,875 fluorescent and public illumination 230 kV, Cambuí–Paraisópolis – 138 kV, Itajubá– lamps from the whole of the concession area Paraisópolis – 138 kV, Coromandel–Monte were sent for recycling. Carmelo – 138 kV, Uberaba 1–Uberlândia 6 – Materials withdrawn from operation such 138 kV. as transformers, insulators, scrap, cables and Road construction license: wires are sent to the Materials Distribution The Irapé Hydroelectric Plant access road. Center – which is certified under the Cemig
90 | Annual Report Cemig 2007 A lobo-guará, at the Belo Horizonte Zoobotanical Foundation, Minas Gerais
Environmental Management System – where The choice of theme aimed to alert the public they are separated for reuse or sale. to the fact that the responsibility for combating We have had a continuous campaign, since global warming is not only in the hands of 2002, for selective waste collection at our head government and international agencies, but office building under the name I Love Recycling. also task for all. By doing this the Company In 2007, approximately 107 tons of recyclable sought to help spread awareness on global material were collected – 64 tons of paper, 26 warming and make citizens more conscious, tons of cardboard and 17 tons of plastic. This taking a different view of nature, the future and was passed to the NGO Asmare (Belo Horizonte humankind. Association of Collectors of Paper, Cardboard and Reusable Materials). E – RESEARCH AND DEVELOPMENT PROJECTS
Cemig has ongoing R&D projects in the D – ENVIRONMENT WEEK environmental area, managed by Aneel, with On June 11–22, 2007, Cemig held its 2007 universities and research institutions. Environment Week, on the theme Sustainable Using funds from Aneel, five R&D projects Development and Global Warming. More than related to the environment are in progress in fish 4,000 pupils in primary education at 40 state management, immunology and environmental and municipal public schools of Belo Horizonte aspects of operation of generation plants, took part. transposition systems and water resources:
Cemig 2007 Annual Report | 91 • Development of methods and research at the Volta Grande Fish Culture Station. in the ecosystem, and in hydroelectric The following R&D projects were power plants, for control of the golden completed in 2007, with final reports and mussel. the respective scientific reports delivered: • Studies on the behavior of generator • Cultivation of native fish and reservoir groups in hydroelectric plants operating in zoning. different modes and their influence on the • Diversity of fish populations as a model fish population. for assessing construction of fishways, and • Research on the interactions between the impact of exotic fish in reservoirs. type of rainfall and outflow from drainage • Cyanobacteria and cyanotoxins in sub-basins to the Cemig Camargos reservoirs of Minas Gerais. Hydroelectric Reservoir. Following the positive results of the • Development of a technique to evaluate installation of the first transformer 100% swimming characteristics of Brazilian migratory insulated with vegetable oil – in operation fish populations. since 2006 – two more transformers have • Development of techniques for been installed in the Boulevard Arrudas reproduction and larva culture of siluriforms Project, to serve the Green Line in Belo
92 | Annual Report Cemig 2007 The São Francisco River, in Minas Gerais
Horizonte, and six more transformers for Perdizes, Minas Gerais. The plan also aerial networks have been installed in includes activities to publicize the project, Cemig’s Peti Environmental Station. This involvement of rural landowners, and experiment, in partnership with ABB, is environmental education. enabling dissemination of the technology to other areas of Cemig’s operations. The F – FAUNA, FLORA AND MONITORING main advantage of vegetable oil for the OF WATER QUALITY environment is that it is biodegradable. The Peixe Vivo (Live Fish) program – www. Cemig and the Belo Horizonte portalpeixevivo.com.br – launched in 2007, aims Zoobotanical Foundation have renewed to create and expand action for preservation of the their contract for monitoring of the lobo- aquatic fauna in the river basins of Minas Gerais guará (the Brazilian wolf), for a sixth state at locations of Cemig generation plants. The stage. This project researches the ecology program is creating channels of communication to of this species – Chrysocyon brachyurus involve the community: it distributes informative – using GPS satellite technology, from material and organizes lectures, meetings and a base at the Galheiro Environmental workshops, with various sections of society Station of Cemig in the municipality of participating.
Cemig 2007 Annual Report | 93 The Volta Grande Fish Station, at Jaú
To repopulate Cemig’s reservoirs and the rivers out studies on fauna and flora, environmental of Minas Gerais, maintaining biodiversity, we carried education activities and programmed visits. out 140 fish repopulation projects, at locations all Cemig has two forest nurseries, at its Itutinga and over the state, with release of 808,000 minnows of Volta Grande Environmental Stations. A total of various species native to the basins of the Grande, 700 kg of seeds were collected, of 120 native Paranaíba, São Francisco and Pardo rivers. Some forest species, destined for Cemig’s cultivation beds 10,000 people took part in these actions, including and interchange with other institutions. school pupils and representatives of various other We also produced 350,000 saplings of native sectors of society, in more than 70 municipalities of species which were distributed to prefectures, NGOs, Minas Gerais. public bodies and environmental institutions, and Cemig’s fish culture stations study techniques of we planted 25 hectares of riverbank forests, on the induced reproduction of native species, limnology banks of the Company’s reservoirs, in partnership and fishing biology, seeking to investigate changes with rural producers. in the sub-aquatic community arising from The Peti Station runs a fauna partnership with implementation of a hydroelectric plant. the Brazilian Environmental Authority, Ibama, and Cemig’s environmental stations have more than the Asas (Forest Animals Release Area) Program. 4,000 hectares of protected areas, used for carrying Animals apprehended by the Environmental Police
94 | Annual Report Cemig 2007 and by Ibama are received, helped to recover and Brissonii – the ultramarine grosbeak). A total of 261 reintroduced to nature. In 2007, animals of 458 animals were returned to nature during the year at species were received, including the arara-canindé the Company’s other environmental stations. (Ara ararauna – the blue-and-yellow macaw), the To control the quality of water in our reservoirs, bigodinho (Sporophila lineola – the lined seedeater), we have a monitoring network covering the basins the canário-chapinha (Sicalis flaveola pelzelni – the of 8 rivers (the Grande, Paranaíba, Pardo, São saffron yellow finch), the canário-da-terra (Sicalis Francisco, Doce, Paraíba do Sul, Itabapoana and flaveola brasiliensis – the saffron finch), the coleiro Jequitinhonha) and 34 sub-basins, comprising a (Sporophila caerulescens – the double-collared total of 46 reservoirs and 247 water collection seedeater), the curió (Oryzoborus angolensis – stations. We continue to monitor occurrence of the lesser seed finch), the irerê (Dendrocygna the golden mussel, an exotic mollusk species that viduata – the white-faced whistling duck), the has caused damage in other regions, mainly to jacu (Penelope ochrogaster – the chestnut-bellied industrial facilities, due to its high concentration in guan), the papa-capim (Sporophila caerulescens – tubes and services where water is present. Cemig is the double-collared seedeater), the pássaro-preto sponsoring a research project by the Minas Gerais (Gnorimopsar chopi – the chopi blackbird), the Technological Center Foundation (Cetec) to test a pato-do-mato (Cairina moschata – the muscovy new product to combat the golden mussel. duck), the pintassilgo (Carduelis carduelis – the Urban trees goldfinch), the sabiá-barranco (Turdus leucomelas For harmonious co-existence between – the pale-breasted thrush), the sabiá-laranjeira distribution networks and urban trees, Cemig (Turdus rufiventris – the rufous-bellied thrush), the carries out directional pruning, considered the sabiapoca (Turdus amaurochalinus – the creamy- most appropriate technique for use close to aerial bellied thrush), the tiziu (Volantinia jacarina – the distribution networks, and gives courses in tree blue-black grassquit), and the trinca-ferro (Saltator pruning for various prefectures in Minas Gerais. similis – the green-winged saltator). In 2007, approximately 400 people received As well as the animals received, the station this training, including Cemig’s own employees, hosted reproduction (the Profauna Project) of employees of contractors and municipal prefectures. animals of five other species: pato-selvagem (Anas Through theoretical presentations and practical sibilatrix – the chiloe wigeon), the cutia (Dasyprocta demonstration, participants receive information on aguti or agouti), the ananaí (Amazonetta brasiliensis implementation and maintenance of urban trees – the Brazilian teal), the macuco (Tinamus solitarius and the tree species that are appropriate for urban – the solitary tinamou) and the azulão (Passerina areas, among others subjects.
Cemig 2007 Annual Report | 95 A troupial (Icterus jamacaii/croconotus – sofrê or corrupião, in Portuguese) at the Peti Environmental Station
In partnership with the Brazilian Urban to reach 247,000 people, 774 schools, in 235 Arborization Society (SBAU) and the International municipalities of the Campo das Vertentes and the Society of Arboriculture (ISA), Cemig held the South region of Minas Gerais. Seminar on Handling of Urban Arborization in The Terra da Gente (Our Land) Program Relation to Electricity Systems. This aimed to was created in 2001 to promote environmental discuss and improve techniques for maintenance education for children in the 5th to 8th grades of of trees that are close to electricity lines, based on primary education. The first stage involved 115,000 exchange of information between professionals pupils and some 7,000 professors, totaling 3,400 of the area and creation of closer relationships groups in 313 schools of private-sector, federal, between prefectures and electricity concession state and municipal schools of the Minas Triangle holders. area and the upper Paranaíba region. Wherever the Terra da Gente Program is implemented, it has the support of local universities. G – ENVIRONMENTAL EDUCATION PROGRAM In this new phase it has the support of the Federal In partnership with the Biodiversitas Foundation, University of Lavras (UFLA) and the Federal University Cemig launched the second stage of its Terra da of São João del-Rei (UFSJ). Gente (Our Land) Environmental Education Program The teaching material of the Terra da Gente (www.cemig.com.br/meio_ambiente/terra_gente/ Program is made up of a Teacher’s Book, a Pupil’s index.htm). In this phase the program expects Book, a Literature Book and a video – these all
96 | Annual Report Cemig 2007 The Cipó River in the Cipó Mountains, Minas Gerais seek to develop teaching practices that stimulate H – SAVING PAPER collective work in the school, bringing together teachers and pupils in the process of construction In August 2006, we began our Corporate of awareness, leading to a global knowledge of Printing Project, to modernize our printing the terrestrial biomasses, focusing most intensely, facilities and make scanning, fax and however, on Our Land itself, that is to say the photocopying more available to employees in our biomass in the region where the students live. head office building, while providing an efficient The Environmental Education Program that we service of management, including replacement run in our plants a nd environmental stations received of consumption materials (toner, paper) and visits in 2007 from some 19,544 pupils, from various preventative and corrective maintenance. schools, throughout the state this year. During the We succeeded in reducing our document visits, pupils receive information on generation of production costs, modernizing our equipment, electricity and its relation to the environment, and putting in place control and management tools messages about sustainable development and the and achieving a high proportion of both-sides need to conserve ecosystems. printing (54.94%), representing a significant The Environmental Center of the Funil Plant environmental gain. This system also institutes was inaugurated in 2007. This is an initiative by the logistics for the return of all toner for proper the hydroelectric consortium formed by Cemig disposal by the supplier. and Vale.
Cemig 2007 Annual Report | 97 98 | Relatório Anual Cemig 2007
Acauã, in the Jequitinhonha River Valley, Minas Gerais The conception of corporate social responsibility, a survey by Época magazine. associated with the notion of sustainability, To align Cemig’s guidelines for human resources aiming to reconcile the economic, environmental policies and practices with its strategic planning, and social dimensions of business activity, is investment is made in implementation and increasingly a part of the consensus. Cemig seeks certification of quality management systems based to work always with the vision of the future on the ISO 9001:2000 management standard. in its management practices related to these With the implementation of the Performance aspects, and for this reason created the Senior Management model and a more strategic Management Unit for Environmental and Social operation in the area of human resources, it has Responsibility within its Corporate Sustainability been possible to create a definitive link between Department, in September 2007, linked to the the business strategy and the various processes Vice-presidency of the Company. of management of people, serving as a base for Our social responsibility strategy is publicly several initiatives and changes in the HR area, known and recognized through our Mission, such as: reallocations and promotions based on Vision and Corporate Values. Our Corporate performance, external competitions, the trainee Guidelines are monitored by the Social program, internal mobility, various training and Responsibility Committee, with representatives in personal development programs, management of all the Directors’ Departments of the Company. organizational atmosphere, etc. Remuneration and Benefits Cemig has a consolidated Jobs and A – DEVELOPMENT OF HUMAN CAPITAL Remuneration Plan (PCR), and keeps its Cemig was positively assessed by its employees remuneration policy permanently up to date in in 2007 in surveys that research the work relation to the market. It also has a program for environment – under headings that include a employees to share in profits and results, which work contentment index, quality of the working among other benefits includes the following: atmosphere and management of people. For the • Benefits offered directly by the Company: second year running Cemig was included among The Program for Support to Minors and the the “150 Best Companies to Work for” by the Disabled (for children of Cemig employees), Exame group magazine Você S/A, and was first- advance against salary on the 15th of the month, placed among companies with more than 10,000 cost assistance for training and education, day employees. It also had a leading position in the care center assistance and life insurance. “100 Best Companies to Work in” resulting from • Benefits administered by Cemig’s pensions
Cemig 2007 Annual Report | 99 institution Forluz: A private pension plan, health people who have the required competencies, plan and dental plan, loans to employees and as specified in job profiles. retirees and reimbursement for medical drugs. In 2007, there was some renewal of Attraction and Retention of Talents Cemig’s workforce: 252 people were hired Mobility, internal selection and external for posts of technical or higher-education recruitment all contribute to meeting the level. At the end of the year, the Cemig Company’s needs by providing it with the Group had 10,818 employees.
CEMIG: TOTAL NUMBER OF EMPLOYEES
11,302
10,668 10,658 10,818 10,271
2003 2004 2005 2006 2007
* Cemig Holding, Cemig Distribuição S.A. and Cemig Geração e Transmissão S.A.
CEMIG: NUMBER OF EMPLOYEES BY COMPANY, 2007
Holding company 225
Cemig Distribuição S.A. 8,317 Cemig Geração e Transmissão S.A. 2,276
100 | Annual Report Cemig 2007 related to union organization: the first allows B – LABOR AND UNION RELATIONS the unions access to the Company’s premises;
From Cemig’s Human Resources Policy and the second allows the unions also to hold Guidelines: “Cemig recognizes the union sector meetings on Cemig premises. bodies as legitimate representatives of its employees, and respects their activities. C – MANAGEMENT OF ORGANIZATIONAL ATMOSPHERE Cemig’s objective is to make possible, permanently, through ethical and transparent M aintaining a high-performance attitudes, a relationship channel with the environment has become a strategic need for employees and their representative bodies, organizations. Aware that the achievement seeking at all times to exhaust all the means of high performance is closely linked to a that are acceptable in business terms for healthy and stimulating environment, Cemig negotiated solutions.” seeks permanently to manage its internal Cemig has a Union Negotiation Committee, environment. But going further than this, which debates alternatives and seeks solutions Cemig has established one of the elements of with the union bodies. its Vision as “To be one of the best companies In December 2007, we concluded to work for”. negotiation of the annual collective Towards achieving this, it uses a range agreement for the period between November of instruments and tools to manage the 1, 2007 and October 31, 2008, after wide- organizational atmosphere. It seeks: ranging discussion of all the terms and • To identify and understand the aspects conditions with the unions that represent that have contributed to peoples’ satisfaction our employees. The agreement established with Cemig and those that have caused a 5% wage increase for all employees, on dissatisfaction. effective November 1, 2007. It also agreed • To identify the probable cultural an extraordinary distribution within the Profit differences and convergences existing Sharing Program, in the amount of 6.4 between the areas of the Company and find times the value of each employee’s monthly out ways to produce greater organizational remuneration, plus an individual amount of synergy. R$ 1,000.00 dated December 2007. In the • To promote intelligent management, first half of 2007, Cemig signed two collective including building and maintaining an agreements dealing exclusively with subjects environment that stimulates and engages
Cemig 2007 Annual Report | 101 people permanently to test and improve their employees, and to inform, answer questions, performance. and receive criticisms and suggestions. Every two years, Cemig holds an In 2007 14 meetings were held, and 1,800 organizational atmosphere survey, executed employees participated in the program. by external consultants, involving all the • Interactive HR: Receives questions, employees. This survey is one of the phases of criticisms, ideas and suggestions from employees the process of management of atmosphere, through Cemig’s intranet. In 2007 employees and seeks to measure the index of approval sent 1,225 questions. of the Company’s work environment. After • Client Satisfaction Survey: Held with the phase of diagnosis and analysis of results, the internal clients of HR (i.e. other Cemig the Company plans actions for improvement, management units), to assess their degree preparing a corporate action plan and individual of satisfaction with the services provided by action plans for the various superintendents’ HR, to support actions to improve the area. and managers’ departments. This is followed by a phase of monitoring of the performance D – TRAINING AND DEVELOPMENT of the improvement action plans. In the 2005–2007 cycle, there was a corporate plan Cemig’s performance assessment process of 21 improvement actions and 95 individual uses three parameters to generate a performance area action plans, totaling 2,232 improvement index for each person assessed: essential actions. From the monitoring that was carried competencies, corporate results achieved and an out, it was found that more than 80% of these index of the employee’s maturity. This procedure actions were implemented. The 2007–2009 ensures that the conditions necessary for cycle began in August 2007, with a new performance management are maintained, by survey. We are currently at the final phase of linking the training of employees to the results analyzing the results before presentation to obtained and to courses and training specified in the Chief Officers’ departments and senior their job descriptions. management areas. The third cycle of performance assessment Other important initiatives in atmosphere was held in December 2007. As in previous years, management in 2007 include: the results served as a basis for individual salary • The HR in the Field Program: Decentralized alterations, through both horizontal and vertical meetings by HR with employees in various cities career progression, as specified in the Specific of the state, to intensify the relationship with Collective Work Agreement for Implementation
102 | Annual Report Cemig 2007 Training of electricians at Efap (the Professional Improvement and Training School) at Sete Lagoas, Minas Gerais. of the Cemig Jobs and Remuneration Plan. system – Standard 0100 DGT 1A. In the first two years of performance In October 2007, Efap was certified under management, 3,893 employees (approximately the Quality Management System to ISO 35% of the workforce) have received individual 9001:2000, in recognition of its excellent service alterations of salary, either through horizontal with the scope of “developing and providing or vertical progression. technical training in professional education and In 2007, the Sete Lagoas Professional Training improvement, and supplying accommodation School (Efap) featured a training course in and meals to its clients while they are training NR10, in which 4,375 individual participations at Efap”. This certification covers 15 of Cemig’s took place, totaling 157,604 person-hours of internal processes. training, and a distance learning course that Training in IT, administration, external trained 424 employees in the Work Accidents training, postgraduate courses, language Prevention Course for members of the Internal and other courses continued, to meet the Committee for Accident Prevention (or Company’s constant needs arising from the Cipa). Also, 1,957 employees were trained in emergence of new technologies, equipment revalidation of compliance with the regulations and work methods. The total of individual for release of equipment in Cemig’s electricity participations in 2007 was 17,172, including
Cemig 2007 Annual Report | 103 the technical training: a total of 532,570 E – OCCUPATIONAL HEALTH, person-hours of training, with an average of WELL-BEING AND SAFETY 49.23 hours of training per employee – for a Cemig made very comprehensive efforts total cost of R$ 15.3 million. in 2007 to disseminate the culture of safety, Development of Leaders and ensure desired levels of safety, health Since 2006, Cemig has had a Program and well-being for both employees and for Development of Managers in partnership outsourced workers. The list of activities is with the Dom Cabral Foundation. It also has a long one: a Management Development Program, for • We created the intranet portal of our permanent education of employees that are Work Safety Engineering and Work (SESMT) responsible for the Company’s business in Senior service unit. Management-level units. • Competing for the 2007 Proteção Knowing that its managers are the key agents Brasil Health and Safety in the Workplace in management of people, Cemig introduced prize, Cemig won the Best Case Study a labor and union relations module into this award in Electricity Safety, with the project: program in 2007. This is now obligatory for "Implementation of work clothes in flame- all managers, aiming to align them with the resistant fabric, as defined by Labor Ministry Company’s concepts, and national trends, in Regulatory Rule nº 10 (NR-10)." these subjects – and also to raise their awareness • Cemig Distribuição S.A. participated in of the importance of their actions in preventing the Abradee (Brazilian Electricity Distributors’ labor and union conflicts. Association) survey to assess safety in the Cemig monitors the performance of whole Brazilian electricity sector by covering its leaders, and also their competencies, the population, contracted companies and using assessment instruments such as its own personnel. In the survey, Cemig performance management, atmosphere surveys, ranked first in safety as practiced in 2006. social-functional surveys, and BSC indicators • We created the Safety Moment, in and targets. which all employees are invited, on the In 2007, 752 employees of university level first Monday of each month, to reflect took part in the Succession Management on safety, health and well-being for at Program. Eighty-one were selected to participate least one hour, generating reports with in a program of training and development of the suggestions for continuous improvement of competencies necessary for a Cemig leader. the work environment. Over the year, we
104 | Annual Report Cemig 2007 Cemig’s Hydrogen Laboratory. received some 2,000 suggestions, which • We organized the 5th Cemig were submitted for measures to be taken by Electricians’ Rodeo. We held an external the areas involved. Accident Prevention Campaign with the • We issued and revised corporate Population (Cepap) in Minas Gerais. We took Instructions on health, safety and well- part in the 2nd National Safety Week for the being, restructuring all the forms on the Public, promoted by Abradee to orient the intranet to facilitate access and application. public on risks associated with electricity • We implemented and maintained the and how to prevent accidents. Health and Safety Management System • We held workshops, meetings and in higher management units, with 8 training, including partnerships with the certifications and 15 system maintenance audits. Minas Gerais Work Safety Engineering • Our Health Unit obtained ISO-9001:2000 Association (Ames) and the Corporate certification for the process of coordinating Management Committee (Coge) Foundation, and implementing the Program for Medical to complete, integrate and present best Control of Occupational Health (PCMSO) in safety, health and well-being practices, with Cemig – this is the first PCMSO certification a total of 37,000 person-hours of training. given in Brazil. • Employees were trained in activities
Cemig 2007 Annual Report | 105 related to electricity in the courses required questions on health and illness for the by the Labor Ministry’s NR-10 regulations, employee that can be taken deeper. in technical courses and recycling courses, • We revitalized the Energia Vital totaling 254,820 person-hours of training. Quality of Life Program, in its four sub- • eight hundred ninety-nine inspection programs: The Program to Stimulate Physical agents, responsible for verification of safety Activity (Prolongar), the Program to Prevent practice in the work of the operational teams Obesity (Repensar), the Program to Control of Cemig Distribuição S.A., were trained. Arterial Hypertension (Procohar), and the • We held lectures on safety, health and Stop-Smoking Program (Respirar). well-being for employees of our outsourced • We carried out a pilot project for the contractors, in a partnership with the Minas social inventory, to provide programmed Gerais Union of Employees in Electricity, individual assistance to electricians by our Gas, Hydroelectric, Sanitary and Telecom social assistants, aiming to reduce frequency Facilities (Sindimig). of accidents, absenteeism and the costs of • Existing health programs continued to work accidents. increase their scope in periodic examinations: • We held a medical-social orientation A program to prevent and combat course on maternity and infancy for dyslipidemias, diabetes and heart disease, “pregnant couples”. to prevent prostate cancer, to provide early • Lectures and personal interview detection of breast cancer and to prevent services were given in the Family and cancer of the intestine. Personal Budget Planning Program. • Campaigns for vaccination against • The program for the inclusion flu were held, immunizing some 7,000 of the disabled continued: Beyond employees. the legal requirements, Cemig has • Each employee’s epidemiological developed a program for inclusion profile was analyzed, in August 2007, and accessibility for the disabled. This using data from the periodic health work begins with a survey on the inventories held in one year, from July needs for provision of staff, and the 2006 to June 2007, which makes it careers available to receive disabled possible to systematize information about employees. the employee’s health, identify the most • The professional Re-Adaptation frequent occupational risks and raise Program continued, with employees whose
106 | Annual Report Cemig 2007 An ethanol converter, in the hydrogen laboratory, at the Igarapé Thermal Plant. work capacity had been reduced due to • S eminar on Preparation for accident resulting in a change of function. Retirement (PPA).
CEMIG‘S ACCIDENT RATES Nº. of accidents with injury per 200,00 hours worked 20 18 17.47 17.43 18.27 16 14.57 14 12.48 13.00 12 11.21 12.52 11.66 9.94 9.53 10 8.26 8 6.35 8.37 N º. of accidents 6 5.42 4 2 0 2003 2004 2005 2006 2007
Outsourced workers Whole workforce Cemig employees
*Includes accidents not causing days off work.
information and relationship with the F – HUMAN RESOURCES: COMMUNICATION employees. In line with its policy, Cemig has the • RH Informa: This provides general following direct channels of communication information on Management of People via with employees: the intranet. • Open Line to HR: A channel for Another important vehicle is the
Cemig 2007 Annual Report | 107 Informador Gerencial, used by the Union economic/financial qualification. Relations Department to publicize subjects Suppliers are assessed periodically, that are important to the employees. This based on objective parameters, previously instrument’s credibility makes it possible defined. For this purpose a specific Supplier for information to circulate rapidly and Performance Indicator (IDF) is used, in which efficiently, especially during negotiations of the parameters quality, supply, price, profile collective agreements. and service/guarantee are permanently re-assessed, managed and controlled by the G – STANDARDS FOR SUPPLIERS SAP/R3 corporate management software. Our relationship with suppliers and Other parameters included in consideration outsourced contractors is guided by the are: conformity with the scope of the work 10th Principle of our Declaration of Ethical contracted, client satisfaction, compliance Principles and Code of Professional Conduct, with targets, compliance with deadlines and and oriented by the basic principles of public requirements for quality, safety, environmental tenders in Brazil. quality, etc. For Cemig, acquisitions of goods and Suppliers are advised of the assessment services are governed by Federal Law 8666/93, criteria and their results, by the bodies and the Company’s internal rules. Suppliers are managing the contracts, ensuring transparency qualified based on technical assessment of their in the relationship, and giving suppliers the facilities and verification of conformity with chance to take corrective action and improve requirements in terms of quality, environment their products. and health and safety in the workplace. The system supporting the Cemig Internet In preparing and monitoring contracts we Procurement Portal was put in place in 2006, obey all the legal procedures, ensuring that as to speed up materials acquisition processes and well as alignment of the contractual clauses to contracting of services, as well as to modernize the current legislation, there are requirements to contact with suppliers. Using an auction system guarantee safety, hygiene and health at work, and electronic prices, it has been possible preservation of the environment and obedience to reduce costs, while making transparent to the Children’s Law. Corporate procedures and secure business transactions. Development ensure equity in the treatment of suppliers, of Cemig’s Procurement Portal, and digital setting requirements for legal qualification, certification for purchase documents, to full proof of tax regularity and technical and operational capacity has been an important
108 | Annual Report Cemig 2007 Integrated Safety Inspection Program, Juiz de Fora, Minas Gerais. initiative for Cemig, with emphasis on the management of quality, environment and supplier public. work health and safety. In October 2007, it The work to motivate suppliers to improve acquired certification, under the Integrated their management practices has been carried Management System, to the standards of out by the Management and Competitiveness ISO 9001:2000 Level I of the Environmental Forum (FGCOM) Program, begun in 2004 Management System (SGA), and ISO 18000, through a partnership between Cemig, the for all the processes of the senior management Minas Gerais Development Bank (BDMG) and area responsible for assessment, management the Minas Gerais Quality and Productivity Prize and development of suppliers. (PMQP) organization. In 2005 and 2006, Cemig In 2007, work began on putting in place and the Dom Cabral Foundation (FDC) also the Supplier Development Program, involving arranged lectures designed to orient suppliers industry organizations such as the Euvaldo Lodi how to subscribe to the Paex – Partners for Institute (IEL) and the Minas Gerais Industries’ Excellence – Program, which organizes training Federation (Fiemg). The aim of this effort is to for small and medium- sized companies. improve the quality of industrial facilities in Minas Cemig acts as anchor of the FGCOM project, Gerais and in Brazil, by joint improvement and aiming to be a benchmark for its suppliers in development of new products applicable to the
Cemig 2007 Annual Report | 109 The effects of the Luz para Todos Program, in the countryside near Juiz de Fora, Minas Gerais.
electricity system, with addition of technology, but also of the quality with which they are investment in productive capacity, improvement applied, aiming to reach the maximum number of management and competitiveness, and of people, with continuity and responsibility, possible partnerships. This program makes through formation of networks of operation possible the current implementation of the between various sectors of society and the system of Assured Quality Management with artistic and cultural community. those suppliers who have the best assessment We invest in university extension festivals in each year, ensuring execution of the planning in the largest academic centers of the state, of supply of material with quality, price, delivery because we believe they offer the possibility times, isonomy and transparency. for reflection about the information acquired in the classroom – the advantages are gained by the population of the cities where H – CEMIG AND SOCIETY they happen. We sponsor large and small In 2007, we invested approximately museums, public libraries, music academies R$ 44.9 million in cultural and social actions, and theaters. directly benefiting the population of more Cemig believes that as a company than 200 municipalities in Minas Gerais. For providing public services, its relationship Cemig, investing in social and cultural projects with the communities where it works is is not only a question of quantity of funds, not restricted to the stage of economic
110 | Annual Report Cemig 2007 development, but also related to the stage adolescents, adults and old people, and of social development. Concrete initiatives assistance to needy populations. An example such as the Campos de Luz and the Luz no is the series of Cemig Integrated Social Saber Program demonstrate in practice that Action (Asin) programs, with more than energy is an input necessary not only for 1,100 employees registered as volunteers, transformation of raw materials and goods, helping to generate funds that are directed but also for the quality of life and functioning to sustainability of institutions, community of common-use assets, such as schools, associations, schools and old people’s cultural centers and playing fields. homes. Cemig’s Asin Project can be seen at: One great example is the Conviver Project, www.cemig.com.br/institucional/balanco_social.asp. in which community relationship agents orient Another concrete example of social action clients with low purchasing power on what to supported by Cemig is the AI6% Program do to achieve efficient use of electricity. The (Developing Citizens), a partnership between aim is to promote access to, and best use of, Cemig’s Inter-Management Association (AIC) the services provided by Cemig Distribuição S.A. and the Asin/Cemig Project, put in place in 2001. in the low-income communities of Greater The program encourages Cemig employees Belo Horizonte and in the rest of the state, and retirees to pay part of their income tax increasing the number of families that use to Children’s and Adolescent’s Funds (FIAs). electricity on a regular, efficient and safe In 2007, 2,621 Cemig employees took part, basis, and with electricity bills compatible allocating R$ 1.2 million to 137 institutions in with their economic capacity. The scope 80 municipalities of Minas Gerais. of service of the project, in five years, is Another recognition of Cemig’s social 250,000 families in Greater Belo Horizonte responsibility actions was its inclusion, since and 50,000 families in the rest of the state. 2005, in the work group for the creation of the In its first two years (2007 and 2008) the ISO 26000 – Social Responsibility – Standard, project will serve 130,000 families for an on invitation by the ISO (International investment cost of R$ 35 million, distributed Organization for Standardization), the Ethos in commercial relationship action, donation Institute and the Brazilian Technical Standards of efficient equipment and implementation Association (ABNT). This is the first time that of new network and metering technologies. worldwide coordination of an ISO project Our Company has many projects aiming has been led jointly by two countries, in to improve living conditions for children, this case Brazil and Sweden, which makes
Cemig 2007 Annual Report | 111 our participation even more significant. In museums. Another eight were to be carried out by the two years of the project, expected to be universities, through their extension departments, concluded in 2009, all the objectives were and six others focus on promoting and stimulating exceeded: the participation and engagement reading by children, young people and adults. of the organizations involved resulted in a There were 11 international integrated arts major differential in terms of quality. festivals in Belo Horizonte and the rest of the Cultural Projects state, strengthening and broadening the network In 2007, Cemig sponsored 194 projects under of cultural interchange with groups from other the cultural incentive laws. Of these, 35 were states and other countries. proposed by entities of Minas Gerais outside With the third year of our Film it in Minas the capital, and a further 12 were developed program, we reaffirm the state’s vocation in by cultural groups on the peripheries of major the audiovisual arts. Thirty-four projects received cities. Eleven were concerned with preservation funding, in a wide variety of categories, in of heritage assets and five were to maintain 2007–2008. Prizes were given not only to
112 | Annual Report Cemig 2007 The Winter Festival at Ouro Preto, Minas Gerais full-length and short films, but also to experimental named by Unesco as a World Heritage City, and videos, documentaries and projects in research the Regional Museum of the North of Minas in and development and literature of the area. All of Montes Claros. these projects used labor, logistics and locations in To provide its internal public with access to the state of Minas Gerais. reading and the visual arts, Cemig maintains In 2007, the Palácio das Artes, Fundação an art gallery at its head office, holding 11 de Educação Artística, Museu Mineiro and the exhibitions of artists from all the country – each Museu de Artes e Ofícios (Arts and Skills Museum) year for the last 17 years – in a library that is also extended their partnerships with Cemig, which open to the public, with approximately 57,000 have been in place for periods ranging from four books. As well as this collection at the head office years to two and a half decades of sponsorship. building, a traveling library visited another 12 Also, funds injected by Cemig made possible new administrative units of the company, serving new permanent cultural spaces such as the Aleijadinho readers in the capital city, Belo Horizonte, and Museum, in the historic city of Ouro Preto, throughout the state.
Cemig 2007 Annual Report | 113 114 | Relatório Anual Cemig 2007
Transformer and Mobile Generator, Governador Valadares, Minas Gerais. Cemig received many awards and classifications received the Prêmio Proteção Brasil 2007 award in in indices that are important for society and the the Best Safety Example in Electricity category. This capital markets. Some of the more significant is the third year the prize has been awarded – it recognitions are set out below. recognizes the efforts of companies, employees DJSI World Index – Cemig is the only Latin and executives to improve work health and safety American company selected for the 2007-2008 conditions. The case we presented dealt with our Dow Jones Sustainability World Index (DJSI World) process of providing flame-resistant clothing, one as a world leader in an economic sector, worldwide, of Cemig’s research and development projects. side-by-side with the giant companies of the US and IR Magazine Brazil Awards – Cemig received Europe. In the 2007–2008 index, Cemig was named an honorable mention in three categories in the IR the best company in the utilities supersector (which Magazine Brazil Awards for 2007: the Grand Prix for includes electricity, gas distribution, water/sewerage Best Investor Relations Program (Large Companies), and other public utility services worldwide). Best Social-Environmental Sustainability and Best São Paulo ISE Index – In 2007, Cemig was Investment Analyst Community Meeting. The selected for the third time running for the São honorable mention is given to the five finalists of Paulo Stock Exchange’s ISE (Corporate Sustainability the award. Each year IR Magazine gives awards Index). Cemig has been in the index since it was recognizing the best investor relations professionals created in 2005. Companies are assessed using and the best companies, in various categories, in a questionnaire that reflects, as well as their accordance with an independent survey carried out standard business features, their activity in the by the Brazilian Economics Institute of the Getúlio economic, environmental and social dimensions, Vargas Foundation (FGV). including corporate governance and the nature of 150 Best Companies for You to Work for their products. – Cemig was chosen as the best among Brazil’s The 2006 Aneel Consumer Satisfaction large companies in the 150 Best Companies Index – In a survey published on July 4, 2007 for You to Work for, 2007 survey by the Exame by the Brazilian energy regulator, Aneel, of more magazine group’s Guia Você S/A Survey. This than 19,000 clients of 64 electricity concessions is the second time that Cemig has appeared in Brazil, Cemig was chosen as the best electricity in the list of the best companies to work for, concession holder in the Southeast region, among which indicates the recognition given by its those with more than 400,000 consumers. internal public to the success of its practices in The 2007 Proteção Brasil Prize – Cemig management of people.
Cemig 2007 Annual Report | 115 Assis Chateaubriand Social Responsibility Association – in the category Communication in Awards – Two projects – Illuminating Lives and Corporate Crises, for its handling of the invasion of Public-spirited School Kit – developed by employees Cemig’s head office building by the organization in the south of Minas working as volunteers MAB (People Affected by Dams). The case were finalists in the 4th Assis Chateaubriand study covered the actions of Cemig’s corporate Social Responsibility Awards. Illuminating Lives, communication during the whole invasion. a partnership between Cemig and the Prisoners’ The 2007 Ponto Terra Environmental Award Protection and Assistance Association (Apac) and – During the 7th Latin American Conference on Usiparts, was selected as one of the 10 best projects Environment and Social Responsibility (Ecolatina), submitted and received the Assis Chateaubriand for 2007, held in Belo Horizonte, Cemig received Social Responsibility Trophy. The Public-spirited the Ponto Terra Organization’s 2007 Environmental School Kit Project received a special mention for Award for Minas. This recognizes the best its selection as among the 20 projects of greatest environmental initiatives in Minas Gerais that social importance in the region. improve environmental quality and have positive The Aberje Award – Cemig was awarded first effects on the communities where they take place. place in the Aberje Minas 2006 Awards – given by The winning initiative in the Companies category Aberje, the Brazilian Corporate Communication was Cemig’s Solar Electricity Water Heating in
116 | Annual Report Cemig 2007 Awards received by Cemig
Low-income Housing Developments, begun in Institutional Investor Magazine Awards – 2002 in partnership with the Minas Gerais Public Cemig was a highlight in the survey by Institutional Housing Company (Cohab–MG), and the state’s Investor magazine: it was second-ranked among Regional Development Policy Department (Sedru). the Most Shareholder-Friendly Companies in the Accounting Transparency Trophy – For the electricity sector, and Cemig’s Chief Officer for fourth year running, Cemig won the Transparency Finance, Investor Relations and Control of Holdings Trophy, awarded by Anefac, Fipecafi, and Serasa was considered the Best CFO among all public – three accounting-related organizations – in the service companies including electricity. Listed Companies category. Fourteen companies Fiat Group Qualitas Prize – In November – 10 listed and 4 unlisted – received awards for 2007, Cemig received the Fiat Group Qualitas their accounting transparency practices in the last Award for the quality, availability, technology and year. The prize has been given for the last 11 years competitiveness of its electricity supply. This award is by Anefac (the Brazilian Association of Finance, a worldwide recognition of the best suppliers of the Administration and Accounting Executives), Fipecafi companies of the Fiat Group in 2006–2007, in terms (the Accounting, Actuarial and Financial Research of quality, service, price, technology, complexity and Institute Foundation) and the financial records supply of raw materials. The presentation ceremony institution Serasa. is held at Fiat’s world headquarters in Turin, Italy.
Cemig 2007 Annual Report | 117 Belo Horizonte, Minas Gerais, Brazil
CONTACT INFORMATION
Chief Officer for Finance, Investor Custodian Bank Relations and Control of Holdings: Banco Bradesco Luiz Fernando Rolla Departamento de Ações e Custódia Tel: 55 (31) 3506-4903 Fax: 55 (31) 3506-4969 Custódia Qualificada – Escrituração de Ativos Cidade de Deus, s/nº – Vila Yara – Prédio Cemig Investor Relations Office Amarelo Velho Agostinho Faria Cardoso, 06029-900 – Osasco, SP, Brazil Investor Relations Manager Av. Barbacena 1200, 5th Floor, B1 Wing Tel: 55 (11) 3684-9495 Santo Agostinho www.bradesco.com.br 30190-131 – Belo Horizonte, MG, Brazil Tel: 55 (31) 3506-5024 ADRs: Depositary Bank Fax: 55 (31) 3506-5025 Citibank NA E-mail: [email protected] Depositary Receipt Services www.cemig.infoinvest.com.br 388 Greenwich Street, 14th floor New York, NY 10013 Head office Tel : (1-212) 816-6545 Av. Barbacena 1200, Fax: (1-212) 816-6865 Santo Agostinho www.citi.com/adr 30190-131 – Belo Horizonte, MG, Brazil. Tel: 55 (31) 3506-3711 www.cemig.com.br
118 | Annual Report Cemig 2007 GLOSSARY
ADRs (American Depositary Receipts): Receipts for shares set them off against amounts owed by them to the federal of a company not based in the United States, issued by a government. bank and held by a US bank as custodian. CVA – The Account for Compensation for Variation in CCC – The Fossil Fuel Consumption Account: Created Portion A Items: This is a mechanism created to compensate to build financial reserves to cover the increase in costs the variations in amounts of non-controllable (Portion A) associated with greater use of thermal generating plants in costs that take place between the electricity distributors’ the event of drought – since the marginal operational costs annual tariff adjustments. If the CVA balance is negative on of thermal plants are higher than those of hydroelectric the date of the annual adjustment, it is passed through to plants. Each energy company is obliged to make an annual the tariff. If it is positive, the balance is used to offset the contribution to the CCC, calculated based on the estimates annual tariff adjustment. of the cost of fuel consumption likely to be necessary for the thermal plants to meet demand in the subsequent year. Debt Coverage Index: Ebitda divided by total financial expenses incurred in the period. Provides an indicator of a CDE – The Energy Development Account: This is a source company’s capacity to generate funds to pay interest on its of subsidy created to help make alternative sources of energy debt. (e.g. wind energy or biomass) competitive and to promote “universalization” of electricity services (i.e. extension of Ebitda (Earnings before interest, tax, depreciation and electricity services to every citizen and location in Brazil). It is amortization): A way of expressing a company’s operational funded from annual payments made by concession holders cashflow – gives a picture of how much a company is for the use of public assets, and from penalty payments generating cash from its principal business. imposed by Aneel. Ebitda Margin (Ebitda / Net operational revenue): Shows Center of gravity generation: Each sub-market has a what percentage of the operation’s revenue transforms geo-electric center, regarded as the virtual point of delivery of into cash, giving an idea of the business’s capacity to the electricity. Producers are deemed to deliver energy to the generate cash. system, and receive from it, at its center of gravity, and assume a portion of the losses between the point of generation and The Free Market (or ACL): Holders of generation the center of gravity. Consumers, analogously, are considered concessions, Independent Power Producers (IPPs), Self- to connect to the system at its center of gravity, assuming a generating companies, electricity traders, importers of portion of the losses between the center of gravity and the electricity and Free Consumers trade electricity freely in the point of consumption. Free Market.
Controllable Costs: These are costs that depend essentially Hedge: A mechanism by which holders of asset or liability on the efficacy of business management, such as personnel positions protect themselves from price fluctuations in, e.g., expenses, purchase of materials, outsourced services, and the commodities or FX markets. other expenses. Hydroelectric Power Plant (in Portuguese, UHE – “Usina CRC – The Results Compensation Account: Before 1993, Hidrelétrica”): Plant using mechanical energy of water to holders of electricity concessions in Brazil were guaranteed a run turbines generating electricity. minimum rate of return on investment in assets used in the provision of electricity services to clients. The tariffs charged Markets: see Free Market and Regulated Market for electricity were uniform throughout the country, and the profits generated by the more profitable concessions were Net margin ( Net income / Net operational revenue ): reallocated to the less profitable concessions, so that the This ratio shows at what percentage rate revenue transforms rate of return of all companies was equal to the national into profit, giving an idea of the profitability of the business. average. The deficits that the majority of the Brazilian electricity Non-controllable Costs: Also called Portion A costs: These concession holders suffered were accounted in the CRC costs do not depend on any decision by the concession- Account of each company. When the CRC Account holding company they include: The Fuel Consumption and the concept of guaranteed return were abolished, Account (CCC), the Global Reversion Reserve (RGR), the concession holders with positive balances were allowed to Electricity Services Inspection Charge (TFSEE), Royalties for
Cemig 2007 Annual Report | 119 Use of Water Resources (CFURH), electricity acquired from suffered by consumption units per month in a given group the Itaipu generating station for resale to consumers, Charges in a specified period. for Use of the Basic Grid, transport of energy generated by Itaipu, and Charges for Connection to the System. SAIFI (in Portuguese, FEC) – System Average Interruption Frequency Index: The average number of Outage indicators: see SAIDI and SAIFI. outages per consumption unit in a given group in a specified period. The Regulated Market (or ACR): Auctions in which distribution companies must buy the electricity that they Tariff adjustment: Updating of the electricity prices specified forecast they will need for their captive consumers. in the concession contract. The purpose under the Brazilian legal framework is “to preserve the economic and financial Regulatory Assets: See, for example, RTE, RTD, Controllable equilibrium” of the concession-holding company. costs, Non-controllable costs and CVA. Thermal Power Plant (in Portuguese, UTE – “Usina RGR – Global Reversion Reserve: This is an annual amount Térmica, or Term(o)-elétrica”): Plant in which chemical included in the costs of concession holders, to generate energy contained in fossil fuels is converted into electricity. funds for expansion and improvement of public electricity services. The amounts are paid monthly to Eletrobrás, which Total return to the stockholder: Sum of the returns to is responsible for administration of the funds. They will also the stockholder from dividends (dividend yield) and the be employed in the Procel program. percentage appreciation in the stock price.
RTD – The Deferred Tariff Adjustment: The regulator, TUSD – Tariff for Use of the Distribution System: This Aneel, decides the results of the periodic tariff review of is paid by generation companies and by free consumers for Cemig Distribuição S.A., which covers the repositioning the use of the distribution system of the concession holder of electricity retail supply tariffs at a level compatible with to which the generator or consumer is linked, and is revised “preservation of the economic-financial equilibrium of the annually in accordance with the inflation index and the concession contract”, providing sufficient revenue to cover investments made by the distributors in the previous year to efficient operational costs and adequately remunerate maintain and expand the network. The amount to be paid investments. The average adjustment applied to Cemig’s tariffs by the user linked to the distribution system is the product of on April 8, 2003, provisionally, was 31.53%, but the final the amount of energy in kW contracted with the distribution tariff repositioning for Cemig was 44.41%. The percentage concession holder for each link point, and a tariff in R$/kW, difference of 12.88% was to be compensated through an set by Aneel. increase in each of the tariff adjustments scheduled to take place in 2004 through 2007. The difference between the Volt: Measure of electrical potential at which electricity tariff repositioning to which Cemig Distribuição S.A. has supply is provided (e.g. high voltage, low voltage). the right and the tariff actually charged to consumers is recognized as a Regulatory Asset. Voltage: Electricity generated is taken on cables or through conducting bars to transformers, which raise its voltage to a RTE – The Extraordinary Tariff Recomposition: This level that are practical for its transport on transmission lines is a tariff adjustment granted in December 2001 to the to locations of consumption – where other transformers distributors and generators of the regions that were reduce its voltage again to levels at which it can be used by under rationing at that time. It was settled in the General consumers. An electrical device has its voltage for operation Agreement for the Electricity Sector, and resulted in an as one of its specifications. increase of 2.9% in the tariffs of residential consumers (with the exception of low-income consumers) and rural Watt (W): Unit of electrical power – the unit also used, consumers, and 7.9% for other consumers. The objective for example, in the home to specify the power required to of the adjustment was to restore the losses that distributors run an appliance. A kilowatt (kW) is one thousand watts; a and generators of electricity had suffered from the megawatt (MW) is a million watts; a gigawatt (GW) would reduction of consumption imposed by the government. be a billion watts. The duration of the adjustment varies in accordance with the time necessary for the recovery of the losses of each Watt-hour: Unit of work done (Wh). Multiples of it use concession holder. Greek prefixes: CeWh, MWh, GWh and TWh.
SAIDI (in Portuguese, DEC) – System Average Interruption Duration Index: The average time of outage
120 | Annual Report Cemig 2007