ANNUAL REPORT 2008 CEMIG IN NUMBERS
Description 2004 2005 2006 2007 2008 Service Number of consumers (‘000 ) (1) 5,875 6,010 10,042 10,321 10,531 Number of employees (1) 10,668 10,271 14,867 14,783 14,270 Consumers per employee 551 585 675 698 738 Number of locations served 5,415 5,415 5,415 5,415 5,415 Municipalities served (1) 774 774 805 805 805
Market Concession area (km2) (1) 567,478 567,478 578,448 578,448 578,448 Own generation (GWh) (2) 26,922 30,411 32,187 33,130 31,163 Total electricity sold (GWh) (1) 37,897 39,614 52,263 57,892 58,550 Average residential consumption (kWh/year) 1,351 1,337 1,313 1,313 1,327 Average retail tariff, including ICMS tax (R$/MWh) Residential 416.26 474.23 487.52 505.73 475.54 Commercial 356.03 410.81 435.97 449.51 429.47 Industrial 154.38 124.41 128.04 136.93 149.99 Rural 214.42 249.13 265.27 270.65 249.45
Operational Number of power plants (1) 52 54 61 62 63 Number of substations (1) 434 440 469 472 474 Transmission lines (km) (1) 4,856 4,892 5,364 5,313 5,755 Sub-transmission lines (km) (1) 16,086 16,040 16,788 16,676 16,810 Distribution lines (km) (1) Urban 83,527 84,585 93,850 91,412 92,929 Rural 283,910 294,815 308,689 337,987 349,819 Installed capacity (MW) (1) 5,949 6,113 6,692 6,678 6,691
Financial (consolidated data) Operational revenue – R$ million 9,748 11,703 13,431 15,790 16,488 Net operational revenue – R$ million 6,434 7,313 8,467 10,246 10,890 Operational margin – % 29.48 33.68 30.11 32.05 31.08 Ebitda – R$ million 2,480 3,058 3,222 4,062 4,099 Ebitda margin – % 38 42 38 40 38 Net income (loss) – R$ million 1,385 2,003 1,719 1,743 1,887 Net income (loss) per share (holding company) – R$ 2.85 4.12 3.53 3.51 3.80 Shareholders’ equity – R$ million 7,251 7,185 7,522 8,408 9,352 Market capitalization – R$ million 9,951 14,335 16,040 16,084 14,310 Shareholders’ equity per share (holding company) – R$ 14.91 14.77 15.46 17.28 18.84 Return on equity – % 21.11 27.63 23.92 23.20 22.44 Current liquidity 0.86 0.91 1.11 1.31 1.32 Debt in local currency – R$ million 3,119 4,137 6,634 7,068 6,798 Debt in foreign currency – R$ million 1,099 799 1,015 457 547 Total debt – R$ million (3) 4,218 4,936 7,649 7,525 7,345 Total debt / total capitalization (4) 0.37 0.41 0.50 0.50 0.44 Dividends paid – R$ million 692 2,070 1,382 868 944 Dividends / net income – % 50 103 80 50 50 Dividends / Ebitda – % 28 68 43 21 23
1 – Figures include Light and TBE, starting in 2006. 2 – Generation at center of gravity. 3 – Debt = Loans, financings and debentures. 4 – Total capitalization = Total debt + Shareholders’ equity. NUMBER OF CONSUMERS (THOUSANDS) (Starting in 2006, these figures include 100% of the consumers of Light and TBE) INSTALLED CAPACITY (MW)
10,531 10,042 10,321 6,692 6,678 6,691 5,949 6,113
5,875 6,010
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
ANNUAL SALES OF ELECTRICITY (TWh) MARKET CAPITALIZATION (R$ MILLION)
57.9 58.5 52.3 16,040 16,084 14,335 14,310 37.9 39.6 9,951
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
NUMBER OF EMPLOYEES (Starting in 2006, these figures include 100% of the employees of Light and TBE) EBITDA (R$ MILLION)
14,867 14,783 14,270 4,062 4,099 10,668 10,271 3,222 3,058 2,480
2004 2005 2006 2007 2008 2004 2005 2006 2007 2008 TOTAL DEBIT (R$ milLION)
7,649 7,525 7,345
4,936 4,218
2004 2005 2006 2007 2008
DIVIDENDS (R$ MILLION) (Figures for 2008 refer to dividends for the year to be proposed to the 2009 Annual General Meeting)
2,070
1,382
868 944 692
2004 2005 2006 2007 2008
NET income (R$ MILLION)
2,003 1,887 1,719 1,743 1,385
2004 2005 2006 2007 2008 Cemig – a new benchmark in the world economy. The company profile
Cemig: Brazil’s Best Energy Cemig Distribuição S.A. – “Cemig Distribution” The Cemig business group operates in electricity or “Cemig D” – is Brazil’s largest electricity generation, transmission and distribution, distribution concession holder, by volume of comprising 49 companies and 10 consortia, energy transported and by size of network, and controlled by a single holding company, with also in number of consumers. It works in 805 assets and businesses in various areas of Brazil. municipalities and 5,415 locations in Minas The securities of the holding company – Cemig Gerais, serving approximately 18 million people. – are listed on the stock exchanges of Brazil, Its concession area is 578,400 km², an area the US and Spain. As well as the companies it larger than the size of France. controls, Cemig has significant non-controlling 2 holdings in electricity distribution companies Cemig Geração e Transmissão S.A. – “Cemig (such as Light, of Rio de Janeiro), transmission Generation and Transmission” or “Cemig GT” companies, a natural gas distributor (Gasmig) – is one of Brazil’s largest holders of electricity and a data transmission enterprise (Infovias). generation and transmission concessions, the It is a member of the consortium of companies principal concession being the concession to building the giant Santo Antônio hydroelectric serve Cemig’s home state of Minas Gerais. Cemig 2008 complex on the Madeira River, in Rondônia, in Cemig and its subsidiaries have 63 generating the Amazon region, and of another consortium plants, of which 58 are hydroelectric, four building transmission lines between the Charrúa thermal and one is a wind plant, with aggregate and Nueva Temuco substations in Chile. installed capacity of 6,691 MW. Installed capacity: 6,691 MW
Transmission lines: 5,755 km
Distribution lines: 465,314 km
“Free Consumer” clients: 149
SHAREholders: 115,000 – in 46 countries
3
Cemig 2008
Generation Generation Transmission Transmission Distribution Cemig “Free Purchase Wind Wind generation Gas distribution (under construction) (under construction) Consumer” of energy generation (under construction) clients BRAZIL’S LARGEST INTEGRATED ELECTRICit y COMPANY
Cemig is considered to be a benchmark in the in emerging markets, in the index’s portfolio of Brazilian electricity sector, and also, both in 150 companies worldwide. Brazil and worldwide, a benchmark in terms of sustainability: Cemig is a listed Brazilian company with private DJSI World Index, Cemig was selected for the and public sector capital. Its stock market ninth year running for inclusion in the Dow Jones valuation has increased from R$ 10 billion to World Sustainability Index, and is the only Latin R$ 14 billion in the last five years. Its securities are American electricity company that has been in listed on the following exchanges: the index since it was created, in 1999. São Paulo Stock Exchange 4 The Corporate Sustainability Index (ISE), of the (Corporate governance Level 1) São Paulo Stock Exchange, has also included Preferred Shares – CMIG4 Cemig in its portfolio in every one of the four Common Shares – CMIG3 years since the index was created, in 2005. New York Stock Exchange (ADRs – Level 2) New The Global Dow Index – GDOW, Selected Cemig Preferred Shares – CIG 2008 for inclusion in the new Global Dow Index Common Shares – CIG.C (GDOW) in the year it was created (2008), Cemig is the only Latin American electricity Latibex Latin-American company in the index; and one of only three Stock Exchange of Madrid Brazilian companies, and only 10 companies Preferred Shares – XCMIG Electricity
Generation
Transmission
5
Distribution Cemig 2008
Free Consumers BUSINESS s t r u C t u r e
Rio Minas Energia Cemig Cemig Geração Usina Térmica Cia. Transleste de e Transmissão Cia. de Gás de Distribuição Ipatinga S.A. 100% Transmissão S.A. 25% Minas Gerais Participações S.A. 25% S.A. 100% S.A. 100% 55.2% Cemig PCH Cia. Transirapé de Light S.A. S.A. 100% Transmissão S.A. 24.5% Efficientia S.A. 52.1% 100% Horizontes Cia. de Cemig GT Axxiom Soluções Light Energia Consórcio Hidrelétrica Consórcio Energia S.A. 100% Transmissão 49% Cachoeirão S.A. da Usina Centroeste Tecnológicas 49% S.A. 100% PCH 49% Lajes Light energ. Hidrelétrica de Minas 51% 51% de Aimorés 49% Sá Carvalho S.A. 100% Cemig Trading Cia. Transudeste S.A. Cemig GT Guanhães Consórcio de Transmissão 100% Lightger Ltda. Consórcio S.A. 24% 100% PCH 49% Energia S.A. 49% AHE Funil 49% Rosal Energia Paracambi Lightger S.A. 100% Centro de Gestão 51% Transchile Estratégica Madeira Lighthidro Ltda. Consórcio da Usina Charrúa de Tecnologia 100% 100% Energia S.A. 10% Usina Hidrelétrica de Termelétrica Transmissión S.A. 49% Igarapava Cemig GT 14.5% Barreiro S.A. 100% Empresa Itaocara Consórcio Santo Antônio Empresa de Infovias Energia Ltda. 100% 49% Energia S.A. 100% Catarinense de S.A. 100% UHE Consórcio Central Itaocara ita. energ. Termelétrica Transmissão de 51% AHE Porto Energia S.A. 7.49% Hidrelétrica Estrela 33.33% de Cogeração Cemig Serviços S.A. 100% Pipoca S.A. 49% S.A. 100% Light Esco EBL Companhia Empresa Prestação de de Eficiência Consórcio Central Regional de Cemig AHE Transmissão de Serviços Ltda. 100% Energética S.A. 33% Hidrelétrica Baguari S.A. 100% Queimado 82.5% Pai Joaquim Energia S.A. 18.35% S.A. 100% Instituto Light de Empresa CV Baguari Paraense de Desenvolvimento Energia Cemig 25% STC – Sistema de Social e Urbano Transmissão 6 100% S.A. 69.39% Capim Branco Transmissão Energia S.A. 100% de Energia CT Catarinense S.A. 19.25% S.A. 80% Light Serviços LIR Energy Ltd. 100% Consórcio Consórcio de Eletricidade Capim Branco Lumitrans Ltda. UHE Baguari 34% Empresa Norte 100% Energia 21.5% de Transmissão Companhia de Energia S.A. de Energia 18.35% Elétrica 80%
Empresa Empresa Cemig GT Transmission companies Financial operations Trading CV Amazonense Brasileira de 49% Distribution companies Nonprofit Holding company de Transmissão 25% Transmissão Cemig Generation companies Gas distribution Services de Energia CT de Energia EATE S.A. 17.17% S.A. 2008 Generation consortia Telecommunications 51% 49 COMPANIES • 10 CONSORTIA At December, 2008 • VS = Voting Shares TS = Total Shares
The Cemig Group completed a process of Since January 1, 2005 Companhia Energética de business restructuring on December 30, 2004. Minas Gerais – Cemig (“Cemig”) has operated All the assets directly relating to electricity solely as a holding company. generation, transmission and distribution, with their associated rights and obligations, were The Brazilian State of Minas Gerais owns 22% of transferred to the wholly-owned subsidiaries the total stock of this holding company, including Cemig Distribuição S.A. (“Cemig D”) and Cemig 50.96% of the common shares, through which it Geração e Transmissão S.A. (“Cemig GT”). exercises control. Executive Board of BOARD* DIRECTORS*
CHAIRMAN
Sérgio Alair Barroso
VICE-CHAIRMAN
DJALMA BASTOS ARLINDO PORTO Djalma Bastos de Morais DE MORAIS NETO CEO Deputy CEO
CURRENT MEMBERS
Alexandre Heringer Lisboa
Antônio Adriano Silva
Eduardo Lery Vieira
Francelino Pereira dos Santos
Maria Estela Kubitschek Lopes
BERNARDO AFONSO Fernando henrique João Camilo Penna SALOMão de alvarenga schüffner neto Chief Trading Officer Chief Distribution and Sales Officer Wilton de Medeiros Daher (Preferred shares) Britaldo Pedrosa Soares (Southern) 7 Evandro Veiga Negrão de Lima (Southern)
Roberto Pinto Ferreira Mameri Abdenur (Southern)
André Araújo Filho (Southern)
Thomas Anthony Tribone (Southern)
Cemig 2008 josé carlos Luiz fernando de mattos rolla Chief New Business Development Chief Officer for Finance, Investor Officer and Chief Officer for the Relations and Control of Holdings Gas Division Fiscal Council CURRENT MEMBERS*
CURRENT MEMBERS
Aristóteles Luiz Menezes Vasconcellos Drummond
Benedito José Ferreira (Preferred shares)
Luiz Guaritá Neto
Luiz henrique marco antonio Thales de Souza Ramos Filho de castro carvalho rodrigues da cunha Chief Generation and Transmission Chief Corporate Management Luiz Otávio Nunes West (Southern) Officer Officer
* At March 31, 2009. Message from Strategy Corporate governance Management management 11
Economic context 15 Principal practices 32 Management Systems 43 General Meeting of Shareholders 32 Certification of Management Systems 43 Vision and mission 16 Board of Directors 33 Environmental Management Systems 44 16 Executive Board 35 Strategic Wholesale purchase 45 Planning 17 Fiscal Council 36 and sale of electricity 37 Intangible assets 17 Other Corporate Governance Practices Electricity supply quality 45 Value of the Brand 17 Statement of Ethical Principles 38 indicators (SAIDI and SAIFI) 18 Concessions and Code of Professional Conduct 19 Consumer relationship 46 Intellectual Property External Auditors 38 Alternative Energy Sources 19 management Sarbanes-Oxley Law and 38 Protection of Revenue – 46 Technology, Research and 21 Certification of Internal Controls Development Management of Commercial Losses Rational Use of Energy 21 Disclosure policy 40 Ombudsman 47 Client Management System 47 Management of corporate risk 40 Investments 23 Project to Modernize Metering 47 23 Generation Transactions with Related 41 Consumer Council 48 24 Transmission Parties Tariffs 48 Distribution 26 Natural Gas – Gasmig 28 Management of assets 50 Acquisition of services, 50 materials and logistics Materials Logistics 52 Reverse Logistics 52
Information technology 53 The environmental The social dimension Capital markets The economic dimension dimension
Rights held by shares 55 Economic and financial 61 Sustainable development 82 Development of human 91 analysis capital Cemig Common (“ON”) Shares 55 Environmental licensing 83 (nominal value: R$ 5 per share) Net Operational Revenue 62 Remuneration and Benefits 91 Cemig Preferred (“PN”) Shares 55 Deductions from Operational Revenue 62 Waste management 84 Attraction and Retention of Talents 92 (nominal value: R$ 5 per share) Operational Costs and Expenses 63 Environmental education 85 Labor and union relations 92 64 SHAREholding structure 56 Net Income and Ebitda (Earnings program and Before Interest, Tax, Depreciation environment week Organizational atmosphere 93 and Amortization) Dividend policy 56 management Research and 85 Cash flow and liquidity 65 Performance 57 development projects Training and development 94 Development and Leaderships 95 Investor relations 59 Distribution of added value 66 Fauna, flora and 86 monitoring of water Management of Succession 95 Funding 66 quality Fish Population Projects 87 Occupational health, 96 Development of our market 69 well-being and safety Electricity Sales 69 Urban Trees Management 88 Cemig’s Consolidated Market 73 Second Seminar 89 Human resources 97 on Urban Tree Management Communication The Market of Cemig Distribuição 74 The Market of Cemig Geração 75 Cemig and society 98 e Transmissão Cultural Projects 99 76 Electricity Transported Consumers Invoiced by Cemig D, GT, 77 Subsidiaries and Affiliates (except Light) Recognition – 103 awards in 2008 Total flows of electricity 78 G l o s s a r y 107
Message from management
There were two distinctly separate periods in In 2008 we carried out a review of our processes, 2008. identifying actions that will significantly reduce operational expenses. We expect to see these Until September, Brazil was growing vigorously, results materialize partially in 2009, and in full in and consumption of electricity accompanied 2010 after all the plans have been implemented. this growth. In the first three quarters of the year, the aggregate volume of electricity sold At the end of 2008 we had a consolidated cash by Cemig Distribuição (“Cemig D”) was 7.15% position of R$ 2.3 billion. Our debt is structured in higher year-on-year. In the macro context there a completely satisfactory manner, with the short- was an increase in interest rates as a result of term maturities, of R$ 1.3 billion, concentrated inflationary pressure, but in counterpart to this an primarily in the fourth quarter of 2009, when we excess of liquidity in the market made it possible imagine that the restrictions on lending will have 11 for companies to raise funds at attractive rates. been reduced. In any event, our generation of cash clearly allows our commitments to financial Starting in September, with the worsening been reduced. In any event, our generation of of the international financial stress and of cash clearly allows our commitments to financial macroeconomic conditions in the US and one year’s cash flow, that is to say, we have a Cemig 2008 Europe, there was a reduction in international comfortable liquidity position. credit, reflected in the economies of developing countries, which had negative effects through On our economic and financial performance, we reduction of demand and investment. can state that 2008 was a year of good results for Cemig. In spite of the tariff revision applied We are able to report that Cemig, in spite of to Cemig Distribuição, with a reduction of 12% being part of the environment affected by in revenue, in April 2008, Cemig reported net this restriction of credit and investment, has income of R$ 1.9 billion, and cash flow (measured succeeded and is succeeding in administering as Ebitda) of R$ 4.1 billion – respectively 8.1%, the effects of the crisis positively. and 0.6%, higher than in 2007. In spite of the international financial stress, As a preparation for the development of new Cemig maintains the intention, specified in its energy sources, we have created our Gas strategic planning, of being one of the companies Division, responsible for management of the taking part in the consolidation of the Brazilian activities of Gasmig, and for plans to prospect electricity sector, and also maintains its planned for gas, and oil, in the State of Minas Gerais and capex program for 2009. in Brazil’s Northeast – for possible development of a further source of supply for our distribution Our capital expenditure in 2008 was R$ 1.4 of gas in Minas Gerais, and expansion of the billion, a significant amount, most of which was possibilities for construction of thermal generation investment in expansion of distribution within plants, as an alternative to buying gas in the the State of Minas Gerais, and in construction wholesale market. of the Baguari and Cachoeirão generation plants. We announced acquisitions in 2008, The capital markets have shown their recognition but the disbursements for them will take place of Cemig’s financial health, and the sustainability only in 2009. of its corporate practices. In a year in which almost all Brazilian stock prices fell significantly We acquired an additional stake in the capital (the Bovespa Index fell 41% in the 12 months), of the transmission companies jointly referred the price of Cemig’s preferred shares rose 4.9%. 12 to as TBE – an investment of more than The price of Cemig’s common shares fell 20% in R$ 500 million, which will double the Company’s the year, but even so considerably outperformed stake in the capital of those transmission the rest of the Brazilian stock market. In another companies. highlight, Moody’s increased Cemig’s risk classification to a rating regarded as investment Cemig One other investment has a very important grade on the global scale, which attests to the 2008 strategic value: acquisition, for R$ 213 million, excellence of the Company’s credit quality. of three wind farms in the State of Ceará, on Brazil’s North Coast, which started operating There was further international recognition of in March 2009. Cemig was the first company the sustainability of Cemig’s operations, with to build a commercially generating wind its inclusion, for the ninth year running, in the plant in Brazil, the Morro do Camelinho, in DJSI World Index (the Dow Jones Sustainability Minas Gerais, and the Ceará acquisition World Index), which also gave Cemig a is the Company’s definitive entry into a new rating among the leaders of the utilities sector. generation market which can be considered Another important recognition was Cemig’s as a world trend for sustainable sources of inclusion among the select worldwide group of electricity over the coming years. companies in the Global Dow Index – launched A Cemig electrician inspecting a transmission line
in November 2008 in the US – an index of 150 restraint on credit and demand. As we write the companies from 25 countries considered to be depth and duration of the effects of this crisis leaders worldwide, that are either providing on Brazil are still unclear, but we believe that the impulse for the global economy today, or Cemig, with its diversified business portfolio, 13 are seen as likely to be playing this role in the and supported by its financial discipline and future. Cemig is one of only three companies responsible corporate practices, is positioned to included from Brazil. transform the difficulties of this turbulent period into opportunities, taking advantage of the
Recognition came also from our clients within absence of liquidity in the market to increase its Cemig 2008 Brazil. For the third year running Cemig was one program of investments in acquisitions. of the finalists in the Aneel Client Satisfaction Index (IASC): consumers interviewed in the survey again Finally, we thank our employees for their placed Cemig among the three best concession commitment, and their competence, factors holders with more than 400,000 consumers in that truly make Cemig’s electricity “Brazil’s best Brazil’s Southeast. energy”, and our shareholders for their trust and confidence – especially our majority shareholder, 2009 still offers many uncertainties both in represented by Minas Gerais State Governor Aécio the international economy and also in terms of Neves. It is their support for our growth strategy how the Brazilian economy will be affected by that positions Cemig as a leader in the process the worldwide macroeconomic stress, with its of consolidation of the Brazilian electricity sector. S t r at e g y Economic context
Over the year of 2008 we saw the international of consumption and investment – continues to situation deteriorate much more strongly than decline. The majority of the economists in the was envisaged at the end of 2007. On the one Brazilian financial market are expecting zero hand, the crisis in the US financial system, initially or near-zero GDP growth in 2009. restricted only to the sector of high-risk mortgages, set off enormous equity losses in a wide range The lower growth in the Brazilian economy has had of banking institutions in the US, and in Europe. its effect on the demand for electricity. Total electricity And in spite of rapid and intense intervention by consumption in 2008 was 3.8% higher than in monetary authorities worldwide, liquidity and risk 2007, at 392.8 TWh – led by growth in industrial 15 conditions in the financial markets still appear to consumption industry, of 2.4% – the significant fall be far from coming to an end. came only in December. In spite of the uncertain short-term outlook, which makes it more difficult to In spite of initial optimism on the capacity of decide parameters for planning electricity demand, STRATEGY Brazil’s economy to resist the effects of the the figures in the 10-Year Electricity Expansion Plan Cemig extremely adverse external environment, the (the “PDE”) for 2008-2017 estimate an addition 2008 trends developing this year in the domestic of approximately 54,000 megawatts (MW) in economy are volatile, and point to a slowdown Brazil’s installed generating capacity over that in economic activity. Even after the growth of period, with 36,000 km of new transmission lines 5.1% in 2008, the 3.6% year-on-year reduction to be added to the national grid, and investment in GDP in the last quarter gives a measure of of R$ 767 billion in the next 10 years. The Energy the impact of the international credit crisis on Research Company (EPE), which is responsible for Brazil. Industrial production was 17% lower the planning of Brazil’s electricity sector, revised its year-on-year in January 2009. The labor electricity consumption growth estimate for 2009 to market continues to contract, and confidence 1.2%, and to slightly over 4% on average for the – an important variable in determining levels four subsequent years. VISION for size, scale and total market share, while and MISSION beginning our first investments in international projects. Also, we seek to generate value for our Vision: “CEMIG WILL BE BRAZIL’S BEST shareholders and for society in general, through ELECTRICITY COMPANY”. our consistent dividend policy; through social and environmental responsibility; through profitability Mission: “TO OPERATE IN THE ELECTRICITY of our businesses; through integrated management
SECTOR WITH PROFITABILITY, QUALITY of risks; through positive performance of operational activities; and through management AND SOCIAL RESPONSIBILITY”. of human assets.
Another important advance is a recent improvement Strategic in the Company’s instruments for managing the Planning corporate strategy. In 2008 we consolidated the workings of our system for continuous management Cemig’s strategic planning is governed by its of strategic planning. Corporate strategy and 2005-2035 Long-term Strategic Plan. the company’s principal businesses (generation, 16 transmission and distribution) are monitored with The focus is on expanding Cemig’s area of a structured flow of meetings, which discuss the operation (in electricity and gas) throughout strategy maps and the objectives, indicators, the territory of Brazil, within the regulatory limit targets and initiatives that are planned to achieve STRATEGY
Cemig Substation of the Três Marias hydroelectric plant 2008 to constant improvement in our results. Another Value of the Brand strong point this year was the creation of the The ‘‘Cemig’’ brand has a strong presence Strategy Communication Plan – which aims to in the Brazilian electricity sector, due to the make Cemig’s strategy a familiar part of the daily company’s history. Soon after it was formed, information known to all its employees. in 1952, Cemig became a benchmark in the sector, initially for the construction of Três The dissemination of the corporate strategy Marias, Brazil’s first large-scale hydroelectric throughout the company is essential for the plant. Later, through its competent management employees to understand their contribution to the of building of new plants and establishment of Company’s main challenges, thus stimulating the urban and rural electricity grids and distribution involvement of all in delivery of the results. systems, Cemig developed, by 1985, into a full-scale electricity utility. The object of all action taken is to make Cemig a benchmark company, an outstanding highlight, In 2007 Cemig made a pioneer decision to assess of the Brazilian electricity sector, while at all the value of its brand – with the strategic objectives times seeking opportunities for acquisition of of management and mitigation of risk. A panel new assets, increase of competitiveness through of indicators for the Cemig brand was integrated the auctions for expansion of generation and into the Company’s Balanced Scorecard system, 17 transmission, and, always, operational efficiency. and also an internal process of management of
the brand. The success and strength of this brand – Cemig – can be seen in the relationship with Intangible clients, shareholders, opinion formers (specialized STRATEGY Assets Cemig media, environmentalists, NGOs, prefectures, 2008 The brand, concessions, intellectual property, and others), as well as investors and employees. alternative energy sources, technology, human resources, and research and development are all The value of the Cemig brand was calculated by part of the corporate strategy – these are among Brand Finance, using the economic use method, our “intangible assets”, most of them outside the which aimed to establish the future value of flow account books, which justify, in mature markets, of earnings generated by the brand, reflecting the frequently significant differences between the Company’s pact with its clients and other book value and market value. stakeholders. In this process, future profits generated by the brand are segregated into the profit attributed See the Social Dimension, item (a), for more information on Cemig’s policies and achievements in knowledge and human capital. to the two types of asset: tangible and intangible. The brand’s contribution to the business was of the concession-granting authority – are: evaluated based on a quantitative survey of Distribution – Up to February 18, 2016, able the company’s various publics, assessing the to be extended for up to 20 years; effect of the Cemig brand on the following value-creating factors: credibility, reliability and Transmission – Up to July 8, 2015 (Contract solidity, innovation and technology, ethics and No. 006/97), able to be extended for up to 20 transparency, quality, management practices, years, and 30 years (other contracts); development, image, tariff and contractual conditions, technical support and general Generation – Power plants currently in service, social-environmental responsibility, and operation have different concession periods. association with the state. Concessions that had not been renewed on the date of Cemig Generation Contract No.
In this context the value of the Cemig brand can 007/97 may be renewed for up to 20 years, be assessed from two points of view: that of the under guarantees established in that contract shareholders, and that of the financial statements and under the legislation. For all other plants, and the generation and transmission market: the period of concession is 35 years, able to be renewed, at the option of the concession-granting power, for a further 20 years. The Igarapava 18 Value of the Cemig brand (R$ million) – EVA Method and Sá Carvalho plants are exceptions, having contracts for 30 years, able to be renewed for 1,102 1,340 a further 20 years. Generation concessions 792 890 given after publication of Law 10848/2004 STRATEGY (the Baguari and Santo Antonio power plants) Cemig 2008 have periods of 35 years without the right to Market/Accounting Aspect Shareholder’s Aspect renewal.
Value of the Cemig brand, by EVA, 2007 Value of the Cemig brand, by EVA, 2008 EVA – Economic Value Added The Mining and Energy Ministry has created a technical work group to analyze and recommend Concessions criteria to be applied in renewals of generation, One of Cemig’s most valuable intangible assets transmission and distribution contracts becoming is its portfolio of concessions for commercial due in 2015 and later. Suggestions will be sent operation in generation, transmission and to the National Energy Policy Council, and will, distribution. The periods of its concession according to statements by participants in this contracts – which can be renewed by decision group, be oriented toward reduction in tariffs Inspection of the electricity network for consumers. Cemig expects that renewals of power, and also in projects for rational use of its concessions will be granted. electricity, co-generation, distributed generation (isolated generating plants throughout the For more information on concessions, please see Note distribution network), using innovative fuels 19 4 to the Financial Statements. including hydrogen, natural gas, alcohol and Intellectual Property biodiesel. In 2008 Cemig’s Brands and Patents Office had STRATEGY dealings with the Brazilian Intellectual Property Solar Energy – We have carried out pioneering Cemig Institute (INPA) in registration and accompaniment work in solar energy, using both photovoltaic 2008 of 9 patents, 44 requests for privilege on and thermal energy mechanisms. Systems for inventions, 54 brands and 21 computer programs. water heating with flat solar panels, and heat In 2008 two new patent applications were filed pumps, are also developed as tools for reducing with the INPA, one of them including application electricity consumption at peak times, and also for international protection. as an energy source for low-income public housing projects. Alternative Energy Sources Cemig has invested in projects to use renewable In 2006 and 2007 Cemig installed photovoltaic energy sources, especially biomass, small solar energy facilities in 1,667 homes to comply hydroelectric plants, solar energy and wind with the Light for Everyone Program. 20
Maintenance on a Cemig solar panel installation
In 2008, 250 of these systems were replaced housing authority Cohab and the Minas STRATEGY by new units. Four generators with potential for Gerais state government, under which 7,500 Cemig 2008 3 kWp were also installed, and linked to the grid, more flat solar collectors are to be installed one at PUC University of Minas Gerais, in Belo in 2009. We continue to invest in research Horizonte, and one at the Cemig Professional and development projects for purification Training School (EFAP), in Sete Lagoas, Minas of the metallurgical-grade silicon found in Gerais. In 2008 approximately 1,000 flat solar Minas Gerais, and development of low-cost collectors for water heating were installed to photovoltaic cells. Another initiative is research replace electric showers in low-income homes, and experimentation on solar thermal electric and four units were installed in hospitals. generation using cylindrical or parabolic concentrators; and for centralized water As part of this initiative, a working agreement heating using flat solar collectors (district was signed between Cemig, the public heating for low-rental communities). Wind Energy – Cemig was the first Brazilian In 2008 the Company made further important electricity company to install a wind plant partnerships and exchange arrangements with connected to the grid – the experimental wind universities, research centers and companies, station of Morro do Camelinho, installed in for joint development of projects ranging 1994. A full study of the wind generation from research into state-of-the-art technology potential of certain promising sites in the prototypes, through agreements for licensing of state of Minas Gerais has been carried out, the technologies developed, to establishment of and confidentiality agreements signed with centers of technological excellence in the state for companies interested in installation of a wind basic and applied research. farm in the north of the State. A research project was begun in 2008 to develop small scale Highlights of these initiatives include an agreement wind generators for mountainous regions, to to build four prototypes of electric vehicles, a serve remote locations. memorandum of intent to develop a business plan on the technology of unmanned aircraft, Small Hydro Plants (PCHs) – Cemig has been and an agreement of conditions for Nansen working vigorously on expanding the number of to pay royalties to Cemig for sale of its active mini-hydro plants through the Minas PCH (Small electricity meter. Hydro Plant) Program, to expand the volume of 21 distributed generation in Minas Gerais state. For more information on Strategic Management of Technology and Innovation, please see the Technology item in the There is more information on alternative electricity Report of Management for 2008, at Financial Statements. sources, including biomass, hydrogen and fuel cells, electric vehicles, and biodiesel, in the 2008 Report of Management, under Technology at Financial Statements. Rational Use of Energy STRATEGY Cemig has made increasing efforts in conservation Cemig 2008 Technology, Research and Development of energy, investing R$ 24 million in its Energy We have a very wide base of projects covering Efficiency Program in 2008. methods, software, devices and equipment necessary to the company’s operation, as well Most of the projects in this program are multi- as research into alternative energy sources. year initiatives, led by the following guidelines: There are currently 95 projects in progress, in development of projects in communities with which we invested R$ 7.23 million in 2008. low purchasing power, in non-profit hospital A further 200 projects are being approved by and educational organizations; and projects to the regulator, Aneel, with planned investment change the culture of waste of energy, through totaling R$ 32 million. educational programs. The Energy Efficiency Program: donation of autoclaves to hospitals
Projects put in place in 2008 include: The Sustainable Efficient Integration (IES) initiative Energy efficiency initiatives in low-rental for electricity efficiency in the countryside; communities, under the Conviver (“Living Together”) Project; Replacement of the irrigation systems in the Irrigation District of Jaíba, in the north of Minas 22 Solar water heating in housing developments in Gerais State, the target of which is to install partnership with the Minas Gerais State public 1,044 systems by 2010 – 89 of these were housing company, Cohab; replaced in 2008. The new irrigation systems are totally automated and more efficient, saving STRATEGY Increased efficiency in public illumination; up to 55% of the electricity, and 45%, of the Cemig 2008 water, previously used, thus reducing farmers’ Efficiency in illumination, and installation of solar expenses on both; heating in two hospitals and two philanthropic organizations; Public advice on the correct use of energy
Replacement of 27 autoclaves (sterilization at the 2008 Casa Cor decoration event in equipment) in 15 hospitals serving the public Minas Gerais, visited by more than 30,000 health network in Minas Gerais state; people;
Energy efficiency training in the “Cemig in the Participation in the State Electricity Management Schools” Program; Program (PGEE). investments
Cemig operates public service concessions in in 2007. The majority of these investments were electricity generation, transmission and distribution. Its in the Clarear, Cresce Minas and Luz para Todos non-concession activities include telecommunications, Programs. energy efficiency and other initiatives The table below shows a breakdown of these Cemig invested a total of R$ 1.4 billion in 2008, investments in both years, net of the result of a 14% more than its investment of R$ 1.2 billion sale of a shareholding:
Capex (R$ million) 2008 2007 Change %
GENERATION 206 279 (26.16)
Distribution 883 861 2.56
Transmission 105 78 34.62
Sale of Way TV - (49) -
Gas and Other 159 16 893.75 23
total 1,353 1,185 14.18 1.353
Generation STRATEGY
Cemig and its subsidiaries operate 63 with aggregate installed capacity of 6,691 MW. Cemig 2008 generating plants, of which 58 are hydroelectric, This table shows the principal generating projects that four are thermal and one is a wind power plant, started operating in 2008 or are under construction:
Project Power Cemig stake Investment by 2008 (R$ million) Startup planned
Baguari plant 140 MW 34% 140 2nd half 2009
Dores de Guanhães, Senhora 44 MW 49% 10 2nd half 2009 do Porto, Fortuna II and Jacaré PCHs
Cachoeirão “PCH” (Small Hydro Plant) 20 MW 49% 4 1st half 2010
Santo Antonio plant 3,150 MW 10% – 1st half 2012 The Minas Small Hydro Plant (PCH) Program their operational startup date – for a total In the city of Itajubá, Cemig has created its investment of R$ 213 million. Center of Excellence in Development of Small Hydro Plants (PCHs), working to expand the Completion of the transaction gives Cemig a 49% number of these plants in the state. The target holding in Central Eólica Praias de Parajuru (28.8 of the “Minas PCH Program” is to add 400 MW), in Beberibe, 110 km from Fortaleza; and MW of generating capacity in the state over the Central Eólica Praia do Morgado (28.8 MW) coming years. Six PCHs are under construction, and Central Eólica Volta do Rio (42.0 MW), in with total capacity of 91 MW, for investment Acaraú, 250 km from Fortaleza – with a total of R$ 380 million; and a further 20, with total of 99.6 MW of installed generation capacity. potential installed capacity of 304 MW, are at the engineering studies or structuring stage. Completion is subject to approval by the regulator, Aneel, by the Federal Savings Bank and by Acquisition of 49% Holding in Three Wind Eletrobrás. The monopolies authority, Cade, will Farms – On February 4, 2009, Cemig’s also be informed of the transaction. Board approved acquisition of a 49% holding in three wind farms controlled by Energimp Transmission S.A., on the coast of the northern Brazilian Cemig’s transmission network comprises 4,957 24 state of Ceará, with total potential of almost km of high-voltage transmission lines, 11,676 100 MW, approximately 90 days before structures and 37 substations, with a total of 94
The role of the Energy Efficiency Program in low-rental housing STRATEGY
Cemig 2008 Belo Horizonte, MG
transformers. A wide range of investment in 2008 2006, with monetary updating to the date of included the following: completion.
Increase of Cemig’s Shares in the TBE Companies Completion requires approval of the Regulator, 25 Cemig and Alupar Investimentos S.A., acquired, Aneel, the Brazilian Development Bank (BNDES), respectively, 95% and 5% of the shares which and other financing bodies. Brookfield (formerly Brascan Brasil) held in the voting STRATEGY stock of five transmission companies: Empresa Acquisition of 80% of Lumitrans and STC Cemig Amazonense de Transmissão de Energia S.A. – Cemig’s subsidiary EATE (Empresa Amazonense 2008 EATE (24.99%); Empresa Paraense de Transmissão de Transmissão de Energia S.A.) bought the 80% de Energia S.A. – ETEP (24.99%); Empresa Norte interest held by Alupar Investimento S.A. in two de Transmissão de Energia S.A. – ENTE (18.35%); transmission companies – Lumitrans (Lumitrans Empresa Regional de Transmissão de Energia Companhia Transmissora de Electricity) and STC S.A. – ERTE (18.35%); and Empresa Catarinense (Sistema de Transmissão Catarinense S.A.). de Transmissão de Energia S.A. – ECTE (7.49%). EATE Paid a Total of R$ 89.3 Million – R$ 32.5 For the shares to be acquired, Cemig will pay million for 80% of Lumitrans and R$ 56.8 million R$ 330.6 million, in currency of August 16, for 80% of STC. Investments in Transmission Lines – This chart was financed from Cemig’s own funds. A total shows the principal transmission line projects of 190,000 new connections were made for under construction: rural properties, benefiting a population of approximately 850,000 people. Cemig made new connections in 774 municipalities of its Project Cemig stake Investment Startup Line Km concession area, qualifying its efforts under up to 2008 planned the program as among those with the largest Furnas–Pimenta nd Transmission Line 51% 7 2 half 2009 75 geographical reach.
Charrúa–Nueva nd The first phase of the Light forE veryone program Temuco Transmission 49% 34 2 half 2009 205 Line was completed in May 2007. The bases for
EBTE Transmission st Stage II were agreed with the Mining and Line 49% 7 1 half 2010 775 Energy Ministry, and as with the first phase, the scale of the targets was adjusted.
Distribution For the second phase Cemig signed a financing Cemig D (Cemig Distribuição) invested a total of contract with Eletrobrás to provide service to 55,000 new beneficiaries, by the end of 2010, 26 R$ 718 million in 2008, mainly in distribution and transmission expansion projects and public for an estimated budget of R$ 491 million – service initiatives: 20,000 connections to be made by Cemig using projects and materials remaining from the first The “Light for Everyone” Program – phase, and 35,000 to be made under outsourced
STRATEGY This federal government program, instituted in full-project contracts. Cemig 2008 2003, aimed to bring forward the target of provision of electricity service to everyone in City Electrification – The Clarear Program Brazil from the previous target date of 2015, to The Clarear Program is a group of works 2008. This target was subsequently extended involving connection, extension, modification to 2010. and strengthening of the medium and low voltage distribution network, to maintain 100% For Cemig, the total cost of the program was coverage of urban areas. It served 188,070 R$ 1,676 million up to December 31, 2008, urban consumers in 2008, for investment of of which the federal government contributed R$ 87 million, with the installation of 9,467 R$ 702 million, Minas Gerais State R$ 79 distribution posts, and addition of 350-km of million, and the remaining R$ 895 million electricity distribution lines. Public illumination in Belo Horizonte
Improving public illumination – the ReLuz of sport and cultural activities – also providing Program – The National Efficient Public more peace of mind to residents, greater use Illumination Program (ReLuz) is a federal of existing spaces, and incidentally reduction of 27 government financing program for concession crime, and vandalism, and overall improvement holders to finance prefectures. In 2008, in quality of life through sport and culture. R$ 7 million was spent on replacing mercury vapor lamps with sodium vapor lamps at In 2008 the program completed illumination STRATEGY approximately 20,000 illumination points of 114 football fields, bringing the total Cemig in various projects in Belo Horizonte – with number of fields illuminated in its five years 2008 annual reduction of electricity consumption by to 602, improving the practice of sports in 3,000 MWh. 377 municipalities throughout the State. Total investment was R$ 24 million, R$ 13 million The “Fields of Light” (“Campos de Luz”) from Cemig and the rest from the Minas Gerais Program – In partnership with the Minas Gerais state government. government, Cemig concluded the “Fields of Light” Program in 2008 – this comprised The Cresce Minas Program – This initiative is works providing illumination and adaptation of to increase availability of electricity distribution equipment at amateur football fields, and also infrastructure to serve the growth of the market in needy communities, to stimulate the practice in the north of Minas Gerais State. Some R$ 120 million was invested in distribution lines municipalities – Andradas, Poços de Caldas and and substations, re-activation of the Igarapé 2 Caldas – for investment of R$ 149.3 million. substation in the Central Region, and conclusion of the Araçuaí 2 substation in the Eastern Region. Works began in August, scheduled for conclusion Improvements were also made at substations in in June 2009. Again Petrobras is constructing Juiz de Fora, Santos Dumont and Burnier, in the the city gate, in the municipality of Jacutinga, Mantiqueira Hills, the Liberdade substation in the and the line will take gas to the clients’ Southern region of the state; in three substations industrial plants. The Jacutinga gate will be fed in the Eastern Region – Itaguara, Pedra do by the Paulinia-Jacutinga gas pipeline, under Indaiá and Conceição Aparecida; and in the construction by Petrobras. Both companies Unaí and Gouveia substations in the northern have the works on schedule. region of the state. The tender process for building the second phase Natural Gas – Gasmig of the 280-km Vale do Aço (“Steel Valley”) 2008 was a very important year for Gasmig, with pipeline began in July. The first phase, of 56km, completion and/or start up of two major projects from the city gate at São Brás do Suaçuí to the to expand its gas pipeline distribution system. steel maker Gerdau Açominas, in Ouro Branco, has been operating since 2005, and the second In January construction began on the 37-km phase, divided into three stages, will serve clients 28 extension gas pipeline to serve the client Vale in Ouro Preto, João Monlevade, Ipatinga and (Cia. Vale do Rio Doce), for investment of Belo Oriente – for total planned investment of R$ 37 million – from the city gate connection R$ 686.4 million. to be installed by Petrobras on the Gasbel STRATEGY pipeline in the municipality of Brumadinho, to In October, the tender for this project was Cemig 2008 the company’s facilities in the municipality of cancelled, since the prices offered by bidders Nova Lima. Gasmig’s works were completed in were far above the guide price. December 2008, and Vale will begin operation of its plant with natural gas after completion The tender was re-initiated on November 11, of Petrobras’s city gate works, scheduled for 2008, and bidders’ new proposals presented in April 2009. December. Much of the material for the works – steel and high density polyethylene tubes with The tender proceedings for construction of the total value of R$ 142.9 million (included in the first phase of the gas distribution pipeline to the total investment) has already been tendered South of Minas were completed in the first half of for and acquired. Conclusion of the work is July. This 110-km project will serve clients in three scheduled for April 2010. New energy sources: filling the tank with Cemig’s natural gas in Minas Gerais, Brazil
Going Deeper Into Energy – Concessions to Basin of Bahia state; and four blocks – 104, Prospect and Develop Oil and Natural Gas 114, 120 and 127 – in Minas Gerais. With an eye to future stages of expansion of 29 gas distribution by Gasmig (supplies for the The other members of the consortium are: present expansion are already contracted and Orteng Equipamentos e Sistemas Ltda.; COMP guaranteed), and also use in natural-gas-fired Exploração e Produção de Petróleo e Gás thermoelectric generation plants, Cemig has made S.A.; SIPET, of the DELP Engenharia Mecânica STRATEGY successful bids for concessions for prospecting group; and Codemig (Minas Gerais Economic Cemig 2008 and exploration of natural gas. Development Company).
Cemig holds a 24.5% participation in consortia The total bid by these consortia, of R$ 37 million, includes a commitment to invest over the next formed to bid in the tenth round of auctions four to five years, and Cemig’s commitment is by Brazil’s National Oil Agency (ANP), for 24.5% of this total. concession contracts to explore, develop and produce oil and natural gas, winning six exploration blocks in the auction: block 603, in For more information on investments, the shareholding in Light, the acquisitions of holdings in transmission companies, the Potiguar Basin of the Brazilian state of Rio the investment in Infovias, and new acquisitions, please Grande do Norte; block 163, in the Recôncavo see Note 16 to the Financial Statements. CORPORATE GOVERNANCE
30 Cemig’s corporate governance model is based Cemig’s preferred shares (CMIG4) and its on the principles of transparency, equity and common shares (CMIG3) have been listed at accountability, with clear definition of the roles Corporate Governance Level 1 of the São Paulo and responsibilities of the Board of Directors and Stock Exchange since 2001. Because it has the Executive Board in formulation, approval and ADRs (American Depositary Receipts) listed on execution of policies and guidelines for conduct the New York Stock Exchange (CIG and CIG.C, of the company’s business, and of the role of the both Level 2 ADRs), Cemig is also subject to the Fiscal Council in inspecting the acts and accounts regulations of the United States Securities and of Management. Exchange Commission (SEC) and to the New York Stock Exchange Listed Companies Manual. Since Cemig seeks sustainable development through 2002, Cemig’s shares have also been listed on 31 balance between the economic, financial, the Latibex Exchange of Madrid (ticker XCMIG). environmental and social aspects of its enterprises, The timeline below indicates these stages in the aiming at all times to perfect the relationship increasing globalization of investment in Cemig’s with shareholders, clients, employees, other shares, and the accompanying advances in levels
stakeholders and society in general. of corporate governance. GOVERNANCE
Cemig 2008 First float on Level 2 ADRs First traded Level II ADRs Minas Gerais for PN shares on Madrid Lati- for ON shares Stock Exchange launched on NYSE bex exchange on NYSE October 14, September 18, –XCMIG – June12, 1960 2001 2002 2007
1952 1960 - 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
São Paulo Stock Bovespa creates Cemig NYSE sets new Exchange differentiated commits corporate (Bovespa) Corporate to Bovespa governance rules January 14, Governance Level I November 4, levels 1972 October 15, 2003 December, 2001 2000 A point of fundamental importance is that all our distribution, must be in line with tariff adjustments significant processes related to the consolidated and reviews. financial statements have been compliant with For more information on Cemig’s Bylaws, see Section 404 of the US Sarbanes-Oxley Law since http://ri.cemig.com.br, under Corporate Governance. the end of 2006.
The shareholders’ agreement signed in 1997 Our Bylaws have a significant differentiation between the State Government of Minas Gerais in that they including not only the targets of and Southern Electric Brasil Participações Ltda. the Long-Term Strategic Plan, and the mandatory requirements of the Dividend Policy, but also the (SEB), is currently suspended by the judiciary. following: Appeals filed by SEB are before the Federal Courts. Items of long-term interest to investors: In the dividend policy, a guaranteed minimum payment of 50% of net profit;
Extraordinary dividends in alternate years, when Principal Practices cash is available. General Meetings of Shareholders Limits guaranteeing stability: 32 Ordinary and extraordinary meetings held Capex limited to 40% of Ebitda; concurrently – took place on April 25, 2008, approving, among other matters: the Report Debt limited to twice the value of Ebitda, or 40% of Management and the Financial Statements of total capitalization (shareholders’ equity + for 2007; allocation of the net profit in the CORPORATE debt) – these limits can be expanded to 2.5 x amount of R$ 1,735,449,000; the decision on Cemig Ebitda or 50% of total capitalization in years of 2008 allocation of the difference between the amount acquisitions. capitalized and the amount corresponding to Provisions for security of returns: the payments for the first to eighth portions Investment permitted only in generation, of amortization of the principal of the CRC transmission, distribution and gas projects that account (the Results Compensation Account, offer rates of return compatible with the risk of settling credits owed by the government from each business, and higher than the level projected previous decades); approval of a capital increase in the Long-Term Strategic Plan, unless mandated of R$ 2,432,307,280.00 to R$ 2,481,507,565.00; otherwise by law; authorization for the Executive Board to effect a stock dividend, of 2.022782458 per cent, in Operational expenses and revenues of Cemig new shares (at the same type as those held and Distribution, and any subsidiary operating in with a nominal value of R$ 5.00) to holders of the registered capital of R$ 2,432,307,280.00 Further to the Annual General Meeting, three whose names are in the Nominal Share Extraordinary General Meetings of Shareholders Registry on the date of the General Meetings; were held in 2008. a change to Clause 4 of the Bylaws to reflect the capital increase; election of sitting and Board of Directors substitute members to the Fiscal Council, and Cemig’s Board of Directors is a committee setting of their remuneration; change in the decision unit, elected by the General Meeting composition of the Board of Directors; the of Shareholders. Its Chairmanship is currently setting of management’s remuneration; and exercised by Mr. Sérgio Alair Barroso, and the Vice- voting orientation to the representative of the Chairmanship by Mr. Djalma Bastos de Morais. company in the Shareholders’ Meetings of Cemig D and Cemig G also to be held on Meetings of the Board of Directors – The April 25, 2008. Board met 24 times in 2008, for purposes
The Board of Directors
33 GOVERNANCE
Cemig 2008 The Executive Board
including strategic planning, projects, acquisition shareholder or their parent companies; of new assets, investments, and other subjects. Decision on any sale of goods, loans or Members, Elections, Periods of Office financings, pledge of the company’s property, Cemig’s Board of Directors currently has 28 plant or equipment, or guarantees to third parties members, 14 elected to be sitting members and or other legal acts or transactions, with value of 14 as their substitutes. Eight of the present sitting R$ 5 million or more; members were elected by the shareholder the 34 State of Minas Gerais, five by the shareholder Authorization for issuance of securities in the Southern Electric Brasil Participações Ltda., and domestic or external market to raise funds; one by the minority holders of preferred shares, using the multiple voting system, as specified in Approval of the Strategic Plan and the Multi-year
CORPORATE Clause 141 of Law 6404 of December 15, 1976 Strategic Implementation Plan and revisions to
Cemig as amended. All members have a period of office them, and the Annual Budget; 2008 of three years, and may be re-elected. The period of office of the present members of the Board Since 2006 Cemig has had committees, made of Directors expires on the date of the Annual up of members of the Board of Directors, to carry General Meeting to be held in 2009. out prior discussion and analysis on matters to be decided by the Board, as follows: Main Responsibilities and Attributions The Board Support Committee; The Board of Directors has the following The Corporate Governance Committee; responsibilities and attributions, as well as The Human Resources Committee; those conferred on it by law: The Strategy Committee; Decision, before signing, on any contract The Financial Committee; to be entered into between Cemig and any The Audit and Risks Committee. The Board of Directors also has another of the Chief Officers, and does not include any 23 committees, two subcommittees and one share purchase options. commission, made up of executives from various For more information on the members of the Board of areas of the company who meet whenever called Directors, with résumés of its members, can be found on upon to provide support for taking of strategic our website: www.cemig.com.br. decisions by the Executive Board and the Board of Directors. The following are a few important Executive Board examples: the Budget Prioritization Committee, Meetings – Under the Bylaws the Executive Board which advises companies and business areas is required to meet at least twice each month, of the Group on decisions and management and may hold Extraordinary Meetings whenever of investment and other projects; the Credit called by the CEO or by two Chief Officers. 70 Committee, to establish and ensure compliance meetings were held in 2008 with the policies and guidelines on financial and trading procedures; the Energy Risks Members, Election and Period of Office Management Committee, to propose policies The Executive Board has eight members whose and procedures to minimize risks in contracting individual functions are established by the Bylaws. of purchase and sale of electricity; the Control They may be elected or dismissed at any time by and Management Committee, to promote the Board of Directors. Their period of office is three 35 discussion on the activities of the areas of control years, and they may be re-elected. Members may and management, being a forum for sharing of simultaneously hold other, non-remunerated posts best practices; the Strategic Planning Committee, in management of the subsidiaries and affiliates to implement guidelines for transactions that of Cemig, on decision by the Board of Directors, involve financial risk; and the Careers and and they obligatorily hold the corresponding GOVERNANCE Cemig Remuneration Plan and Maintenance Committee, positions on the Boards of Cemig D and Cemig 2008 which assesses, recommends, standardizes and GT. The period of office of the present Chief maintains the criteria and procedures of the Officers expires on the day of the Annual General Careers and Remuneration Plan. Meeting of 2009.
Résumés and further information on the members of the Qualifications and Remuneration – The members Executive Board can be found on our website, at: www. of the Board of Directors have experience and cemig.com.br. training in varied areas (administration, engineering, law, economics and other disciplines), with very The Main Responsibilities of the Executive Board wide experience in management of business. Current management of the company’s business, Their remuneration is on average 20% of that complying with the Bylaws, the Long-Term Strategic Plan, the Multi-year Strategic Implementation Plan Meetings – Under the Bylaws, the Fiscal and the Annual Budget; Council is required to hold ordinary meetings every two months, and extraordinary meetings Decision on any sale of goods, loans or whenever necessary. Ten meetings were held financings, pledge of the company’s property, in 2008. plant or equipment, or guarantees to third parties or other legal acts or transactions, with value of Members, Election, Period of Office – The less than R$ 5 million. Fiscal Council is a permanent body. Its members 36 are elected by the shareholders in Ordinary
Qualifications and Remuneration – The General Meeting, for a period of office of members of the Executive Board – have one year, and comply with the definitions of experience and qualification in a wide range independent members under international CORPORATE of areas, (many of them in engineering), and practices. There are five sitting members, and Cemig five substitute members – all of whom may be 2008 vast experience in business management. We currently have two Chief Officers who are former re-elected, as follows: employees, and two who are current employees. One elected by the holders of the preferred shares; Their remuneration is established annually by the Annual General Meeting of Shareholders. One elected by the holders of common shares outside of the controlling group and holding a
Fiscal Council minimum of 10% of the total capital; As constituted, our Fiscal Council meets the Three elected by the majority shareholder. requirements for exemption from establishment of a separate Audit Committee under the Securities The members of the Fiscal Council are listed on our Act and the Sarbanes-Oxley Law. website at: www.cemig.com.br. The Nova Ponte Hydroelectric Plant
Responsibilities of the Fiscal Council Qualification and Remuneration – The members As well as the attributions specified by the of the Fiscal Council are a multi-disciplinary group Brazilian Corporate Law (Law 6404 of December of people, coming from various specializations 15, 1976, as amended) in relation to the (including accounting, economics, and business requirements of the Sarbanes-Oxley Law, to management). Their remuneration is 10% of the which we are subject because we have shares average earned by the Chief Officers. registered with the SEC, we opted to exercise Information and résumés on the members of the Fiscal the exemption allowed by the US Exchange Act, Council are available on our site: www.cemig.com.br. 37 Rule 10-3A, regulated by SEC Release 82-1234, Other Corporate Governance Practices which accepts the action of the Fiscal Council As well as the more formal structure of corporate as an alternative to the Committee as defined governance practices described above, Cemig by US Law. also has the following continuous activities: GOVERNANCE
Holding of public meetings with analysts and Cemig The Fiscal Council also has the function of investors via video webcast; 2008 examining, at each monthly meeting, any accusations made by employees of the company Annual advance programming of the calendar that are submitted to the Ethics Committee. These of corporate events, such as meetings and are collected and classified into operational publication of results; and non-operational, through an electronic system available on the company’s intranet Monthly disclosure of trading in the company’s securities – the Anonymous Information Channel. The and derivatives by the controlling shareholders; Fiscal Council analyzes all non-operational accusations, and proposes action to be carried Maintenance of a free float of 76.67% of the out by the internal auditors. company’s shares; An Investor Relations website publishing company anonymous reports through the Anonymous documents, annual reports, documents filed with Reporting Channel available on the company’s the CVM, the corporate governance model and Intranet. These reports can deal with any type of information for capital market analysts. irregular practice contrary to the company’s interest, such as: financial fraud, changing or suppression Suggestions and recommendations can be sent to the of financial, tax or accounting documents; undue Board of Directors using the channels indicated on the Investor Relations site: http://ri.cemig.com.br. appropriation of goods or resources; receipt of undue advantage by managers or employees; Statement of Ethical Principles and irregular contracting; or other illegal practices. Code of Professional Conduct The Board of Directors’ approval, in May 2004, External Auditors of the Statement of Ethical Principles and Code of We adopt a system of five-year rotation for our Professional Conduct (http://ri.cemig.com.br), external independent auditors, complying with stating a list of 11 principles of ethical conduct an order by the CVM (Securities Commission). and value incorporated into Cemig’s company Our financial statements are currently audited culture, was an important step in perfecting by KPMG Auditores Independentes. Until the the company’s internal system of corporate first quarter of 2007, they were audited by government and increasing our overall corporate Deloitte Touche Tohmatsu. 38 transparency. The Sarbanes-Oxley Law and The Ethics Committee was created on August Certification of Internal Controls 12, 2004, to coordinate action related to the Cemig’s management, based on a risk analysis, Statement of Principles and Code of Ethical documents and tests the effectiveness of the controls CORPORATE at business process and entity level, including the Cemig Conduct, including assessment of and decision 2008 on any possible non-compliances with it. controls supported by information technology, obeying orientation of the SEC and based on Our process of selection and hiring of employees the criteria of the Public Company Accounting now includes a presentation on the Statement Oversight Board (PCAOB), the Committee of and Code, after which new employees sign a Sponsoring Organizations of the Treadway commitment to comply with its principles and Commission (Coso) and the Control Objectives standards of behavior. for Information and Related Technology (Cobit).
After the Ethics Channel was created in December As well as complying with the Sarbanes-Oxley 2006, to be used only by Cemig employees and Law, the activities relating to certification of workers, the Ethics Committee began to receive internal controls contribute to the efficacy of 39
Maintenance of public illumination the processes of risk management, control and under Section 404 of the Sarbanes-Oxley Law GOVERNANCE corporate governance, and are carried out and and the PCAOB rules, gave Certification of the Cemig monitored systematically and permanently. internal controls of the consolidated financial 2008 statements for the business year 2007. This is As well as complying with the Sarbanes-Oxley included in the annual report on Form 20-F filed Law, the activities relating to certification of with the US Securities and Exchange Commission internal controls contribute to the efficacy of (SEC) on June 30, 2008. the processes of risk management, control and corporate governance, and are carried out and For the 2008 certification, a connection was monitored systematically and permanently. established between the controls and the potentially material accounting items. The design An unqualified opinion by KPMG Auditores of the processes and key controls to ensure Independentes, dated June 27, 2008 and issued mitigation of risks associated with the preparation and disclosure of the financial statements for this improved. A choice was made in favor of an year was validated by an External Audit carried integrated approach with a wide-ranging focus, out by KPMG Auditores Independentes. in view of the multiple structure of processes (rather than organizational structure) involved, each suggesting an individual risk treatment for Disclosure each area of business, aligned with the Long-Term policy Strategic Plan and the company’s continuous strategic planning, managed in a decentralized In July 2002 the Board of Directors approved form by risk managers, and monitored, in the policy for disclosure of information to the a centralized form, by the Corporate Risk public, complying with the requirements of CVM Management Committee, supported by the Instruction 358 of January 2002, which governs Corporate Risk Management team. the responsibility of employees in disclosure of
information considered to be of public interest. Some key events of 2008: This document is available to all our employees Start of the third revision of the corporate risk on the company’s Intranet. matrix, with complete updating of the parameters established in the second revision, making Under this policy, among other obligations, possible scale gains and aggregation of the most 40 all managers must advise any changes in their significant threats, discussed as priority in the investments in the company’s shares. Cemig’s Corporate Risk Management Committee; policy has two basic objectives: To ensure full access for the general public to all Further improvement to the product “the risk factor
CORPORATE the information disclosed by the company; matrix from the point of view of stakeholders”, Cemig 2008 with refining of the description of the risk factors – To treat all subjects of interest to the general circumstances or events which may or may not give public and investors in a transparent and clear rise to risks for the corporation – associated with manner, ensuing accuracy and quality of the the most significant risks. The aim is to optimize information provided. management based on an understanding of what interested parties perceive as a strategic threat, and identification of risks so far not yet mapped Management of on the matrix; corporate risk
Corporate risk management at Cemig was first Consolidation of the routine of participation put in place in 2003 and has been continually in the company’s various management cycles, Cemig’s Irapé hydroelectric plant
41 providing input for the various decisions Transactions with to be submitted for approval to senior related parties management, with the holistic corporate vision provided by the analysis of corporate Cemig is creditor of an outstanding balance on the Results Compensation (CRC) Account GOVERNANCE risks as threats to the strategic corporate Cemig 2008 objectives. All these committees are involved: – initially owed by the federal government to Cemig under tariff balancing provisions the Energy Risks Management Committee; the in force until 1993. In an agreement with Financial Risks Management Committee; the Minas Gerais State, the credit was passed Budget Prioritization Committee; the Control to the State, and the State repays Cemig and Management Committee; the Strategic through deductions from its annual dividends Planning Committee; the Regulatory Matters receivable as majority shareholder. Committee; and the Information Safety Committee. For fuller information on the conditions of amortization, interest and monetary updating of the CRC account balance, Further information on risk management is in Explanatory and other transactions with related parties, please see Note 35 to the Financial Statements. Explanatory Notes 14 and 32 to the Financial Statements. MANAGEMENT Management systems
Cemig has a detailed and comprehensive System Manual and General Procedures, all the matrix of management systems designed to documents available on the SESMT portal on provide, and certify, continual improvement in Cemig’s Intranet, and external certification under quality, management, environmental activities, OHSAS 18001. health, safety and wellbeing. The principal systems are: Each senior management unit defines strategy for The Integrated Management System (SGQ and/or applications of the Systems in its area, defining SGA and/or SGS) – employing the Management the scope individually for each of its subsidiary System Manual and General Procedures); activity units. 43
The Quality Management System (SGQ – NBR Certification of Management Systems ISO 9001) – employing the Management System All the external audits of maintenance and Manual, General Procedures and external certification are carried out by a Certifying Body certification under NBR ISO 9001; recognized by the Brazilian National Standards MANAGEMENT Cemig Institute, Inmetro. In 2008 a total of 128 external 200826 The Environmental Management System (SGA – audits were carried out. Meetings are held NBR ISO 14001), employing the Management periodically with the Technical Board of the System Manual, General Procedures, and Certifying Body, seeking to achieve continuous external certification under NBR ISO 14001, and improvement in the management of the contract SGA Level 1 – Cemig’s internal standards system and in the auditor’s activities. based on NBR ISO 14001, with limitations to its requirements (indicated in the General Procedures); One of the procedures used, for maintenance of the management systems, is a schedule The Work Health and Safety Management System of periodic internal inspections, for which a (SGS – OHSAS 180010, using the Management company was contracted which carries out Cemig 44 2008 MANAGEMENT The Itutingahydroelectricplant were put in place. IS NBR ofrequirements the until principlesBrazilianof Standard NBRIS “CemigSGA”), which was developed based on the the Cemig adopting also Requirements, Adaptation Minimal the with complying on is possible impact,basedeachintensity accordance ofthe with in processes levels, various and on established activities of adaptation impact. environmental potentially cause could that area business each for environmental standardsbased for on compliance with requirementsthe legislation maintain We Environmental ManagementSystems are assessedand,whennecessary, re-trained. auditors external and internal the event, each After out. carried were type this of verifications 104 In2008, of certification. process in the are or certified been the have that of units management employees, Cemig with jointly audits, vrnetl aaeet ytm (the system Management Environmental O E 14001:2004 nvironmental nvironmental E nvironmental O 14001
In theIngeneration activity, the Logistics and Infrastructure, Material and and TechnologyInformation andothers. Material Resources,HumanServices,Telecommunications, Infrastructure, and Logistics Control,and Commercial ClientandRelationship, Management Transmission, 2008: Distribution, Various in certification this received units certification. management achieve to areas the all encourages Cemig generation, as well As kV, 63%havenowbeencertified. 230 above operating lines transmission our Of MW, 2007. 5,767 of from end the at increased MW, 5,407 of total a – System the Management under certified been now has capacity generation 2008, installed our in of 89% made recommendations the With Irapé HydroelectricPlant(360MW). the and region, that of plants maintaining the managing and operating, for responsible is it – 2008 in certification receivedUnit Management E astern Environmental P ower P lants Wholesale purchases and sale of electricity
Cemig took part in various auctions in both the In the Free Market, Cemig Generation and Free and Regulated Markets in 2008. Transmission sold approximately 115,770 GWh to free clients and electricity traders, and In the regulated market, in the A-3 auction, held on in counterpart to this acquired 161,180 GWh September 17, Cemig Distribution acquired 63.85 in auctions held by Cemig Generation and average MW for average price of R$ 128.42/MWh. Transmission and by other entities.
Electricity supply quality indicators (SAIDI and SAIFI)
The SAIDI (Duration) and SAIFI (Frequency) outage per consumer was within 3.0% of the target set by indicators in 2008 were, respectively, 13.65 (hours/ the regulator, Aneel. The SAIFI indicator of average year) and 6.53 (average number of outages/year). outage frequency per consumer was 33.5% better The SAIDI indicator for average outage duration than the Aneel target.
45 Indicator Units Target Achieved
SAIFI: Average outage frequency per consumer Number of outages/year 9.84 6.53
SAIDI: Average outage duration/consumer Hours/year 13.24 13.65 MANAGEMENT Cemig 200826 Cemig had 302,089 outages in the year, the network, 10%, and contact with trees, of which 87% were accidental and 13% 8%. The charts below show how Cemig’s programmed. Around 51% of the sustained SAIDI and SAIFI indicators have changed over outages arose from causes external to the years since 2004. Of these figures, the the system (natural and environmental approximately 13% of programmed outages phenomena), 36% were of internal origin were for improvement of supply, to keep (equipment, human failure, handling errors, the system in line with the quality standards etc.), and 13% were programmed. The most defined by the regulator, Aneel. Programmed common external causes were lightning, with outages are usually preceded by notice to 29%, contact between birds or animals and consumers to minimize inconvenience. Average outage duration/consumer, Hours/Year (SAIDI)
13.14 13.65 12.21 13.03 10.93
2004 2005 2006 2007 2008
Average outage frequency per consumer per Year (SAIFI)
6.78 6.58 6.43 6.39 6.53
2004 2005 2006 2007 2008
46 Consumer relationship management
We offer relationship channels that allow clients Square”) Program. These both take Cemig to the to make transactions, complain, offer suggestions client, mainly in small municipalities. The Mobile
MANAGEMENT and request services efficiently and fast. The Agency trailer visits multiple municipalities in Cemig 2008 main channels available are: the Fale com a some regions of the State, providing services Cemig (“Talk to Cemig”) service; Customer and advice to the population. The “Cemig in the service agencies, relationship agents, simplified Square” Program covers all the regions, taking service posts (PASs); consumer councils, the services, information and orientation to clients in a Ombudsman service, the Cemig Fácil service and personalized marquee tent. the Virtual Branch, available on the Cemig portal Protection of Revenue www.cemig.com.br. Management of Commercial Losses Cemig Distribuição is among the distributors Clients also have available to them, periodically, with the lowest indices of commercial losses in other relationship options in the Mobile Agency Brazil, though its indices have been increasing service and the Cemig na Praça (“Cemig in the in recent years. Cemig’s commercial losses are currently around electricity consumption metering equipment; 2.7% of the total of energy that enters the and issuance and printing of customer bills distribution system, which compares well with and management and administrative reports. the best electricity companies worldwide. The Brazilian average is around 6%. The SGC is based on the worldwide SAP technology, using the following configurable Results of identification and recovery of modules complying with Brazilian legislation commercial losses in 2008 totaled 169.6 GWh, and peculiarities of the local market – Customer 14% more than in 2007. This representing a Care & Service (CCS), Customer Relationship financial gain of R$ 109.6 million, to which Management (CRM) and Business Warehouse should be added approximately R$ 79.8 million (BW) – for all clients served at high, medium from avoided losses, or increase of consumption and low voltage. due to regularization of consumer units with unauthorized connections or correction of theft The system was put in place on schedule – in the of supply. planned 24 months – for investment of R$ 170 million, and participation by an average of 469 Ombudsman professionals including consultants, outsourced This is a customer service channel that acts contractors and Cemig’s own staff. 47 impartially, to establish a link between the citizen and the institution, in a quest to improve The SGC has already reaped good benefits: it the services provided. It is available after the is easier for users to operate, provides better primary means of requesting service have been conditions for customer service, and allows used – including the Speak to Cemig service tracking, control and processing of information MANAGEMENT Cemig on the free telephone line (dial 116) and the more easily and reliably – as well as allowing 200826 service branches. innumerable peripheral systems to be eliminated, reducing the total from 74 to 14, currently, and Client Management System processes to be integrated and operated more We have now completed putting in place of rationally. the Client Management System (“SGC”), which replaces the previous Consumer Information Project to Modernize Metering System. The new system provides a more This is a five-year program to install remote integrated and reliable means of processing and metering in all the medium-voltage consumer controlling billing, revenue, customer service, units, large-scale consumers using low voltage, accounting, field services, management of and distribution feeder systems. The plan includes a measurement control system for management of the electricity concession holders in their of remote metering, and replacement of 82,000 areas of concession. The resulting new tariffs multiphase meters that have been in use for more are homologated by the National Electricity than 20 years. Agency – Aneel – under Law 8987 of February 13, 1995. In 2008 Cemig underwent its The new system will monitor the energy consumed second Tariff Review cycle. These revisions, by clients, identify interruptions in supply, and under its concession contract, take place every also reduce consumer losses. Communication five years. devices to transmit data to the company’s Metering Control Center will be installed in Homologating Resolution 626/2008 established the chosen consumer units. The target is to new tariff levels for Cemig’s consumers for the have 85,000 clients served by the telemetering period April 8, 2008 to April 7, 2009. The system by 2012, covering 48% of the electricity decision reduced tariffs by 7.14%, resulting from consumed in Cemig’s market. The total planned a reduction of 18.09% under the Tariff Review, investment for this revitalization as a whole, by and an increase of 10.95% for the financial 2011, is R$ 36 million. components that are external to the periodic tariff review. The adjustment was different for the Consumer Council different categories of consumer, and resulted in 48 Cemig’s Consumer Council is a consultative a reduction on average, across all categories, body, not legally constituted, with six sitting of 12.24%. members and six substitute members, none of them remunerated, nominated by entities The effect on the electricity bills of low-voltage
MANAGEMENT representing classes of consumers and Procon, consumers was a reduction of 17.11%, while Cemig 2008 the public consumer defense service. for high-voltage consumers the reduction varied between 13.85% and 7.97%. The percentage The Council held six ordinary meetings and reduction of 7.14% was provisional, resulting two extraordinary meetings in 2008, receiving from approval of a new calculation method set information on issues related to electricity supply, by Resolution 388/2008. tariffs and services provided to all categories of consumers, analyzing the input and making proposals. In January 2009 Aneel held Public Consultation No. 004/2009, to hear public opinion on the Tariffs proposed figures for conclusion of the process. The purpose of the Tariff Review cycle is to On February 17, 2009 Cemig submitted its maintain the economic-financial equilibrium contributions for decision on the final result and 49
The Jaguara Hydroelectric Plant MANAGEMENT Cemig is awaiting the Regulator’s position. The result inflation index up to May, a total of 11.53%, 2008 of the consultation will affect the annual Tariff startup of commercial operation of new works, Adjustment of 2009. and return of R$ 14,514,944.19, for the second and last portion of the first Tariff Review for the On June 27, 2008 Aneel published the new, assets of New Facilities in the Grid (RBNI), which adjusted permitted transmission revenue for Cemig took place in 2007, and resulted in a reduction Generation and Transmission, by Homologating of 24.58% in the revenue from these assets. Resolution 670 of June 24, 2008, effective from July 1, 2008 to June 30, 2009. Cemig GT’s For more information on the various regulatory assets and liabilities arising from adjustment of tariffs in the total annual revenue was adjusted upward by past, please see Explanatory Note 8 to the Financial 8.09%, resulting from application of the IGP-M Statements. Management their facilities and verification of compliance with of Assets requirements for quality, environmental standards and work, health and safety. Cemig has been carrying out a wide-ranging
program to revitalize its plants, aiming to extend All the legal procedures are also followed in their useful life by an estimated 30 years. preparation and monitoring of contracts, to ensure that all contractual clauses are compliant The project includes technological updating of with legislation, and the requirements for safety, systems for regulation, activation and protection, hygiene and health in the workplace. and refurbishment of generators and rotors. As
well as establishing a new period of useful life In 2008 we held 2,540 tender processes for for generating plant, it aims to increase their acquisition of material and services, and renewed operational reliability, provide more efficient 807 contracts, via amendments, for a total physical and electrical protection, and give them purchase value of R$ 1,147 million. Negotiations a better response to oscillations in the system. by Cemig to obtain discounts in the prices offered made possible a saving of R$ 68 million Revitalization of the Jaguara plant has been (approximately 8%) in comparison to the original completed, and by 2011 the process is scheduled value budgeted. 50 to be concluded for four other plants: Três Marias, Volta Grande, São Simão and Salto Grande. In a pioneer initiative, together with the Minas The total investment budget for the process up to Gerais State Planning and Management 2011 is R$ 36 million. Department (Seplag), Cemig prepared two new
MANAGEMENT State Decrees, published in April 2008: one Cemig 2008 significantly altered the procedure for live-auction tenders, and the other regulated the Permanent acquisition of Prices Registry System. These changes are making services, materials and logistics the tender process faster, and also creating new alternatives for acquisition, mainly for emergency All our procurement of goods and services is purchases. We expect these innovations to reduce regulated by Federal Law 8666/93 – the law on the time taken on these processes by up to 50%. public sector competitions and tenders – and by our own internal rules. In intense work to develop suppliers, approximately 50 industrial plants underwent technical and Suppliers are qualified on technical evaluation of industrial evaluation and were added to those 51 Inspection of equipment at a Cemig transformer depot by a member of Cemig’s Quality Inspection Division considered qualified to participate in Cemig’s problems, including outages due to material tenders for acquisition of materials. failures – which not only can cause risk to the
employees’ and clients’ safety, but also attract MANAGEMENT Cemig This supplier development work involved penalties from regulatory bodies and energy 2008 approval of approximately 600 prototypes market inspections. of material, making possible the use of new alternatives for application in Cemig’s electricity We made a technical and scientific working system, the result of efforts made by the agreement with the Dom Cabral Foundation, company’s engineering management units. which is initially studying a strategy for “planning and management of the supply chain integrated Another important action, to eliminate the use of with the business areas”. This will cover the whole low-quality material in the company’s electricity process of planning of supplies from the strategic system, generated a saving of approximately aim through to its implementation, with the R$ 34.5 million, also avoiding operational objective of generating a joint body of knowledge 52
and practices in corporate management and scale activity – Inspired by an eco-efficiency technological development. mission statement: “Supply of goods and
MANAGEMENT services, at competitive prices, that satisfy Cemig 2008 Materials Logistics human needs and provide quality of life, while Figures give the scale of Cemig’s procurement for progressively reducing environmental impact materials to be used in maintenance, connection and consumption of funds over their lifecycle”. and expansion of the electricity system: 2,236,804 By reducing new acquisitions Cemig achieved vehicle-km driven; 133,400 tons of equipment a total saving – increased profit – of more than transported, worth R$ 816,912,543.61; and R$ 18 million in 2008. Cemig’s materials inventory at the end of 2008, valued at R$ 240,305,714.12. This Reverse Logistics added value of R$ 37.6 million in 2008, from recovery of material to Reverse Logistics the inventory, avoiding costs of R$ 27.9 million, Recovery of material and equipment is a large- and revenue from sale of out-of-date materials, Cemig’s Materials Distribution Center, in Belo Horizonte, Minas Gerais State 53 vehicles, scrap and other assets totaling business in relation to information safety, R$ 10,075,092.65. specifying projects to meet the business’s needs,
and ensuring compliance with the requirements MANAGEMENT Cemig of the Sarbanes-Oxley Law. 2008 information technology The IT services continuity plan aims to ensure In 2008 Cemig developed the second phase of continuity of business-critical processes in the its Corporate Information Safety Plan project, event of general unavailability of the IT services comprising specification of management for more than a tolerable period. This continuity processes, a strategic information safety plan, strategy has been decided, and will be put in and an IT services continuity plan. place in 2009.
The strategic information safety plan was For more information on IT, please see the Technology prepared on the basis of a diagnosis of the item in the Report of Management. Capital markets Cemig’s shares were first listed on the stock Directors and four members of the Fiscal exchange of the State of Minas Gerais, Brazil, Council; on October 14, 1960. On January 14, 1972 our common (“ON”) and preferred (“PN”) Guaranteed dividend: Shares issued up to shares were listed on the São Paulo Stock August 5, 2004 carry a guarantee, from the Exchange (“Bovespa”) with the tickers CMIG3 majority shareholder, of a minimum dividend of (for the ON) and CMIG4 (for the PN). Since 6% of their nominal value, per year. 2001, Cemig’s shares have been listed on the Bovespa at Corporate Governance Level 1. Cemig Preferred (“PN”) Shares (nominal value: R$ 5 per share): Do not carry a tag-long right; In 1993 Cemig launched Level 1 ADRs (Ticker:
CIG) for its preferred shares on the New York Stock Carry the right to elect one member of the Board Exchange – were upgraded to Level 2 in 2001 – of Directors; and in June 2007 launched ADRs for its common 55 shares (CIG.C). Our shares have also been traded Carry the right to elect one member of the Fiscal Council; on the Madrid Stock Exchange (Ticker: XCMIG) since 2002. Have preference in the event of reimbursement of shares; MARKETS
Cemig Receive a minimum annual dividend equal to the 200826 greater of: Rights 10% of their nominal value; held by shares 3% of the proportion of the value of shareholders’ Cemig Common (“ON”) Shares equity represented by the total of the preferred (nominal value: R$ 5 per share): shares. Tag-along right: In the event of a change of control, holders receive 80% of the value paid per share Shares issued up to August 5, 2004 and owned owned by the controlling shareholder; by private individuals carry a guarantee from the majority shareholder to pay a minimum annual Right to elect: 13 members of the Board of dividend of 6% of their nominal value, per year. sHAREholding Our shareholders, at the end of 2008, structure included major Brazilian pension funds (Previ, Petros, Centrus, Funcef and Eletroceee), On December 31, 2008 Cemig’s shares were international pension funds (including the held as follows: United Nations Joint Staff Pension Fund and the State of California Public Employees Type of Share Number of Shares Retirement System), and major international Common 216,924 thousand financial institutions (e.g. Citibank NA Preferred 279,378 thousand New York, Abu Dhabi Investment Authority, Deutsche Bank AG London, and Credit Suisse 496,302 thousand Total First Boston).
The free float on that date was 49.03% of the common shares and 98.14% of the preferred shares. dividend policy
2056 Cemig (holding company): registered capital at the end of December 2008 Our Bylaws require distribution of a minimum 2% 30% dividend of 50% of the net profit for the 43% previous23% year; the policy includes distribution 35% of extraordinary dividends every two years, or Preferred Shares gestão
CAPITAL more frequently, as and when availability of 51% Cemig cash permits. Cemig 2% 30% 2009200826 43%6% 23% 68% 42% 35% Dividends are paid in two equal installments: Common Shares by June 30 and by December 30 of the year 51% subsequent to the business year in which they 2% 30% 6% were earned. 43% 68%23% 42% 35%
Total Shares Dividends totaling R$ 868 million were paid 51% for 2007. The dividend proposed for 2008, Non-Brazilian Investors corresponding to 50% of net profit for the State of Minas Gerais 68% 6% 42% Brazilian Investors year, to be paid in 2009, is R$ 944 million. Dividends Paid (R$ million) Performance
1,173 944 897 885 868 Our market capitalization at the end of 2008 was 692 11% lower than at the end of 2007. On the other 497 hand it has grown at a compound average growth 2004 2005 2006 2007 2008 rate of 9% over the last five years. Ordinary Extraordinary
Market Capitalization (R$ million) In the last four years Cemig’s average dividend payout has been 71%, and average profit per share has been R$ 3.80 as shown below (historic 16,040 16,084 14,335 14,310 amounts, not updated): 9,951 Dividends Pay-out (%)
103%
80% 2004 2005 2006 2007 2008
50%50 50% 50% 57
Trading in our preferred shares totaled R$ 15.45 billion in 2008, with average daily volume of MARKETS 2004 2005 2006 2007 2008 approximately R$ 62 million – making Cemig Cemig one of the most traded shares on the São Paulo 200826
Net income per shares (R$) Stock Exchange (Bovespa).
4.12 3.80 3.53 3.51 In the uncertain environment of 2008 the 2.85 São Paulo Stock Exchange Bovespa Index fell by more than 40%, while the index of the electricity sector, the IEE, fell 11%. Cemig’s shares performed very well in this context: the preferred share (CMIG4) rose 5% in Reais in 2004 2005 2006 2007 2008 the year. cmig4 cmig3 cig cig.c ibov djia iee 2008 4.9% -19.9% -26.2% -44.6% -41.2% -33.8% -11.6%
This chart shows the changes in our stock prices over the last five years, compared to the Bovespa Index, and, below, a comparison of the prices of the ADRs for Cemig’s preferred shares (CIG) and common shares (CMIG3) compared to the variation in the São Paulo Stock Exchange Bovespa.
CEMIG PN x CEMIG ON x IBOVESPA (In original currency) 450% 400% 350% 300% 250% 200% CMIG4 150% CMIG3 100% 50% IBOV 0% -50% 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008
2058 CEMIG ADRs x DOW JONES INDEX (In original currency) 500% 400% CIG 300% CMIG3 200% 100%
gestão DJIA CAPITAL 0% -100% Cemig Cemig 12/31/2003 12/31/2004 12/31/2005 12/31/2006 12/31/2007 12/31/2008 2009200826
This table gives closing prices of our shares and their ADRs, on the São Paulo and New York Stock Exchanges, and the Madrid Latibex Exchange, on the last trading days of 2007 and 2008:
Name Ticker Currency Close of 2007 Close of 2008
cemig pn CMIG4 R$ 30.29 31.77
cemig on CMIG3 R$ 31.28 25.05
adr pn CIG US$ 18.46 13.63
adr on CIG.C US$ 18.50 10.25
cemig pn (latibex) XCMIG EURO 12.75 9.59 investor answer questions. Meetings were also held relations with capital market professionals and analysts of the regional Capital Markets Analysts and Cemig aims always to foster a transparent and Professionals’ Associations (Apimecs) of Belo harmonious relationship with its investors, as Horizonte, São Paulo, Rio de Janeiro, Porto expressed by its corporate governance practices, Alegre, Brasília and Fortaleza – these initiatives forging ever closer links with shareholders, were recognized by the Apimec Seal, which market analysts and investors. Efforts to this end attests to the company’s assiduity in meetings in 2008 included: with the market. Improvements to its website (presented in Portuguese, English and Spanish); Over the year, Cemig was present in Brazil and
Meetings with investors in Brazil and worldwide, worldwide at 88 seminars, conferences and in roadshows and one-on-one meetings; meetings with investors, 10 congresses and 11 roadshows, as well as holding telephone and Participation in events, conferences and seminars video conference calls with capital markets and for investors; investors. The events, in Brazil and worldwide, notched up a total of more than 520 one-on- 59 Quarterly publication of the “Letter to Shareholders” one meetings. in which we present results and key new information and developments; Cemig held its main annual meeting with
Apimec – the Brazil-wide Analysts and MARKETS
Telephone and video conference calls; th Investment Professionals Association, the 13 Cemig 200826 in an annual series, in the town of Araxá, Filing of communiqués, notices to shareholders in Minas Gerais, which included a technical and material announcements with the bodies visit to the Nova Ponte hydroelectric plant that regulate the capital markets in Brazil (the in Minas Gerais. CVM) and outside Brazil (the SEC).
All publications of quarterly and annual results We also participated in events to increase the were made with presentations on a live video financial knowledge of individual investors, webcast and conference call, with simultaneous with stands at Expo Money in São Paulo and translation into English, with the CEO and Belo Horizonte, and The World Money Show, in members of the Executive Board present to Orlando, USA. T h e e c o n o m i c dimension Economic and Financial analysis
Cemig’s consolidated net income in 2008 was partially offset by the operational costs and R$ 1,887 million, 8.3% more than its net income expenses 7.9% higher. of R$ 1,743 million in 2007. The Tariff Review of Cemig Distribution (Cemig This reflects net revenue 6.3% higher, and D) had a negative effect on final profit in 2008, significantly lower financial expenses (at R$ 94 due to its reduction of consumers’ tariffs by an million in 2008, vs. R$ 346 million in 2007), average of 12.08%, starting on April 8, 2008. 61
CONSOLIDATED INCOME STATEMENTS (R$ million)
2008 2007 % DIMENSION 6.3 Cemig NET REVENUE 10,246 10,890 200826
OPERATIONAL EXPENSES (6,962) (7,506) 7.8
OPERATIONAL EXPENSES OPERATIONAL INCOME 3,284 3,384 3.0
EBITDA 4,062 4,099 0.9
FINANCIAL RESULT (346) (94) (72.8)
PROVISION FOR CURRENT AND DEFERRED INCOME TAX AND SOCIAL CONTRIBUTION (626) (914) 46
EMPLOYEE´S PARTICIPATION (455) (370) (18.7)
MINORITY SHAREHOLDERS (115) (119) 3.5
NET INCOME 1,743 1,887 8.3 As shown by the table below, the largest Geração e Transmissão (Cemig GT) and Cemig contribution to Cemig’s results comes from Cemig Distribuição (Cemig D).
Results by company (R$ million) 2008 % 2007 %
CEMIG – holding company (189) (10.02) (175) (10.04)
Cemig Distribuição S.A. (“Cemig D”) 709 37.57 774 44.41
Cemig Geração e Transmissão S.A. (“Cemig GT”) 986 52.25 752 43.14
Gasmig 47 2.49 46 2.64 Rio Minas Energia (Light) 129 6.84 148 8.49
Other 205 10.86 198 11.36
Consolidated net income 1,887 100.00 1,743 100.00
1.745 1.745
Net Operational Revenue
Operational revenue (R$ million) 2008 2007 %
2062 Gross revenue from retail electricity sales 13,686 13,285 3.02
Revenue for use of the network – Free Consumers 2,150 1,946 10.48
Other 652 558 16.85
gestão Total 16,488 15,789 4.43 THE ECONOMIC CemigCemig 2009200826
The main factors in gross revenue from supply of Deductions from Operational Revenue electricity to final consumers were: Deductions from operational revenue in 2008 Volume of energy invoiced to final consumers were not significant different from 2007 – 6.4% higher; totaling R$ 5,598 million in 2008, vs. R$ 5,544 million in 2007. The principal changes were Average tariff 1.59% lower, at R$ 262.83/ in: the Fuel Consumption Account (CCC), the MWh in 2008, from R$ 267.08/MWh in Energy Development Account (CDE), and the 2007, reflecting the reduction in the tariffs of Global Reversion Reserve (RGR). Details on these Cemig Distribution from April 8, 2008, by the deductions from operational revenue are in the Tariff Review. Report of Management for 2008, under the item Deductions from operational revenue, and also in million in 2008, were 7.8% higher than in 2007 Explanatory Note 29 to the financial statements. (R$ 6,962 million). The increase, shown below, is mainly in Energy bought for resale, Personnel Operational Costs and Expenses expenses and Post-employment obligations – Operational costs and expenses (excluding partially offset by lower Operational provisions Financial revenue (expenses)), at R$ 7,506 and Depreciation and amortization.
OPERATIONAL COSTS AND EXPENSES (R$ million)
Non-controllable costs 2008 2007 variação (%)
Energy purchased for resale 2,960 2,794 5.9
Royalties for use of water resources 131 137 (4.4)
Charges for the use of the basic transmission grid 724 650 11.4 3,815 3,581 6.5
Controllable costs Personnel and managers 1,105 968 14.2 63
Post-employment obligations 264 123 114.6
Materials 105 93 12.9
Raw materials and inputs for production 70 59 18.6 DIMENSION Outsourced services 676 620 9.0 Cemig 26 Operational provisions 206 291 (29.2) 2008
Gas purchased for resale 229 154 48.7 Depreciation and amortization 715 778 (8.1)
Other expenses, net 321 295 8.8
3,698 3,381 9.2
7,506 6,962 7.8
The principal variations in the expenses on Electricity purchase for resale, Charges for use for the transmission network, Personnel, Depreciation and amortization, and Post-employment obligations can be seen in the Report of Management for 2008, under the item Operational costs and expenses and also in Explanatory Note 29 to the Financial Statements. Net Income and Ebitda (Earnings Cemig’s broad-based portfolio of businesses Before Interest, Tax, Depreciation and played an essential role in this result, since in Amortization) 2008 the tariff review reduced the cash flow in Cemig D. However, because of our efficient Cemig’s net income in 2008 was R$ 1,887 million, or management and our commercial strategy, R$ 3.80 per share (8% more than in 2007). Ebitda we reached the targets of our financial was R$ 4.1 billion, 0.8% higher than in 2007. projections.
Ebitda ( R$ million) 2008 2007 variação (%)
NET INCOME 1,887 1,743 8.3
+ Provision for current and deferred income tax and Social Contribution 914 625 46.2
+ Financial revenues (expenses) 94 346 (73.6)
+ Amortization and depreciation 715 778 (8.1)
+ Employees’ profit shares 370 455 (18.9)
+ Minority interests 119 115 3.5
2064 EBITDA 4,099 4,062 0.8
Non-recurring items (*)
+ The Voluntary Dismissal Program (PPD) 50 - -
- Tariff review – Net revenue (63) gestão - -
THE ECONOMIC + Tariff review – Operational expense 4 - - CemigCemig 2009200826 - + Review of transmission revenue – Homologation Resolution 496 31 - – Energy component of CVA – adjustment set by ANEEL - (29) -
ADJUSTED EBITDA 4,090 4,064 0.6
(*) The non-recurring adjustments correspond to the company’s interpretation on events which it deems to be extraordinary, not related to current operations.
Cash flow, measured as Ebitda, has constant growth in Ebitda margin, with the grown by 80.9% over the last five years, exception of 2008, when there was a small as the chart below shows. This growing reduction arising from the tariff review of operational performance contributed to Cemig Distribuição. The rotor of the Funil Hydroelectric Plant
EBITDA (R$ MILLION) Financing activities (outflow of R$ 1,397 million) 4,200 60% were not significantly different in 2008 from 3,600 50% 2007 (outflow of R$ 1,359 million). In 2008 3,000 40% the company obtained R$ 361 million in loans 2,400 30% and financings, which compares with R$ 1,856 1,800 20% million in 2007; meanwhile payments in 2008 1,200 10% 2,266 2,798 3,222 4,062 4,099 totaled R$ 893 million, compared to R$ 1,855 600 0% 2004 2005 2006 2007 2008 million in 2007. Another factor was the smaller 65 EBITDA EBITDA Margin distribution of dividends and interest on equity The Rotor of the Funil Hydroelectric Plant – totaling R$ 865 million in 2008, compared to R$ 1,360 million in 2007. cash flow Capital expenditure in 2008 totaled R$ 1,353 DIMENSION million, compared to R$ 1,185 million in 2007. Cemig and liquidity 200826 Both figures are mainly related to the Clarear, At the end of 2008 Cemig held a cash position CresceMinas and Luz para Todos (Light for of R$ 2,284 million (vs. R$ 2,066 million at the Everyone) Programs. Cemig Liquidity Indicators end of 2007), an increase of R$ 218 million. 1,4 1,3
Cash generated by operations was R$ 2,968 1,1 million, compared to R$ 3,208 million in 2007. 1 0,9 The 7.48% reduction basically represents a lower 0,8 volume of revenues receivable under regulatory 0,7 0,6 assets in 2008. 0,5 DISTRIBUTION FUNDING OF ADDED VALUE In 2008 Cemig D raised finance of R$ 100 The Value Added Statement shows Cemig’s million, on very attractive conditions, in a credit importance for society in general, with the line from Banco do Nordeste. Investments in creation of R$ 11,704 million in added value in distribution also had funding from Eletrobrás, 2008, compared to R$ 11,488 million in 2007. which financed Cemig D in the amount of R$ 76 million, net of system subsidy (CDE) payable to Eletrobrás, for financing of the Light for Everyone vALUE Added, 2004 – 2008 (R$ MIlLION) Program, the CresceMinas Program and the
11,488 11,704 ReLuz Project. 10,401 9,289 7,354 In Cemig GT, a highlight in 2008 was approval by the Brazilian Development Bank (BNDES) of a cash financing of R$ 122 million for the construction of the Baguari hydroelectric plant. 2004 2005 2006 2007 2008
In the last quarter of 2008 the subprime crisis 2066 The distribution of the added value created by that started in 2007 in the United States, and Cemig, in its various segments, can be seen in its consequences, placed great stress on the the next chart, clearly showing the proportion international financial markets, as credit was retained by the government – 59% of the total in contained worldwide, with investors migrating gestão 2008 and 58% in 2007. to US government securities. THE ECONOMIC CemigCemig 2009200826
20082008 20072007 14% 14%PERSONEL PERSONEL 12% 12%PERSONEL PERSONEL 7% SHAREHOLDERS7% SHAREHOLDERS 8% SHAREHOLDERS8% SHAREHOLDERS
59% GOVERNMENT59% GOVERNMENT 58% GOVERNMENT58% GOVERNMENT 10% 10%TRIRD TRIRD PART PART 14% 14%TRIRD TRIRD PART PART
8% AMOUNT8% AMOUNT RETEINED RETEINED 8% AMOUNT8% AMOUNT RETEINED RETEINED 1% MINORITY1% MINORITY INTEREST INTEREST 1% MINORITY1% MINORITY INTEREST INTEREST DÍVIDA ORIGINAL 6% 1%1% 6% 4% 70% CDI 5% 6% 1%
Although the Brazilian financial system has DÍVIDA DCOMebt EFEITOand the DE effeSWAPSct ofASSOCIADOS associated swap shown itself to be healthy, the commercial 3% 1% banks that work with Cemig sought to preserve 6% their liquidity, keeping their funds in cash, 4% giving priority to short-term transactions and 74% 5% CDI 6% Dollar being more selective in providing credit. TR 1% RGR/Finel Although Cemig is a company that has credit URTJ quality, the cost of bank transactions for the IGPM IPCA company increased, which is why Cemig, having Others sufficient funds in cash to meet current financial commitments, preferred not to carry out any new funding transactions. Our position of 7% of debt in foreign currency does not represent a material financial risk for the The accentuated appreciation of the Real company, since a good part of it is contractually against the dollar, which took place during the protected by indexor swap transactions. There financial crisis, caused no significant impact is also a natural protection provided by energy on Cemig’s results, due to its low exposure to sale contracts indexed to the US dollar. the dollar, as can be seen in this chart: 67 The high proportion of Cemig’s debt linked to the CDI rate (74%, including the effect of swap PRINCIPAL DEBT CRAWLERS transactions) arose from the movement to refinance debt starting in 2002, in which bank lending DIMENSION Main indexors of Cemig’s debt was used a great deal, taking advantage of the Cemig DÍVIDA ORIGINAL then existing liquidity, and the exception to the 200826 6% rules restraining lending to the public sector (the 1%1% 6% possibility of contracting funds with commercial 4% 70% banks for debt rollover). Not only was the debt CDI 5% maturity timetable lengthened, but Cemig also 6% benefited from the continuous reduction in the 1% Dollar Yen Selic rate, which continued until the beginning TR of 2008. RGR/Finel URTJ IGPM In spite of the increase in the Selic rate in 2008, IPCA Others the rate of reduction of Brazilian interest rates is
DÍVIDA COM EFEITO DE SWAPS ASSOCIADOS 3% 1% 6% 4% 74% 5% CDI 6% 1% expected to increase again in 2009, to combat to the levels laid down in the Bylaws, the effects of the international financial stress on reduction of the cost of debt, and preservation the Brazilian economy. of the company’s payment capacity, without pressures on cash flow that could suggest a Although using hedge transactions, and taking refinancing risk. into account the company’s financial risk management, Cemig’s management seeks to As a result of this, the debt amortization timetable manage the debt with focus on lengthening of is satisfactorily spread out, with an average tenor its maturity periods, limitation of indebtedness of 4.3 years, as the chart below shows:
Debt amortization timetable Position at December 2008 (R$ million)
1,280 1,224 1,091 1,035 834 885 2068
425 363 208 gestão 2009 2010 2011 2012 2013 2014 2015 2016 2017 a 2031 THE ECONOMIC CemigCemig 2009200826
Another of the company’s directive guidelines Rating for Cemig, Cemig D and Cemig GT from – reduction of the average cost of debt – has Ba2 to Baa3, and their Brazilian Scale Issuer Rating been complied with: at the end of the year the from Aa3.br to Aa1.br. By increasing the rating average cost of debt, at constant prices, was of Cemig to Baa3, which reflects a perception of 8.98% p.a. healthy profitability and strong cash flows, ensuring solid credit indicators and liquidity profile, Moody’s In December 2008 Moody’s Latin America places Cemig and its two subsidiaries at the level upgraded its Global Scale Local Currency Issuer of Investment Grade on the Global Scale. 69
A financial market trader’s panel accompanies values of Cemig’s securities DIMENSION In the information below, transactions between Development Cemig of our market these companies have been eliminated. Hence this 200826 market can be summarized as sales of electricity Cemig’s consolidated electricity market represents to captive and free consumer clients (both inside the sales of: Cemig Distribuição S.A. (Cemig and outside the state of Minas Gerais), and sales D); Cemig Geração e Transmissão S.A. (Cemig of electricity to other agents of the electricity sector. GT); the subsidiary and affiliated companies Horizontes, Ipatinga, Sá Carvalho, Barreiro, Cemig PCH, Rosal, and Cachoeirão; and the Electricity Sales RME/Light Consortium1. The charts below show volumes of electricity sold to final consumers and other agents of
1 Cemig owns 25% of the Rio Minas Energia S.A. (RME) Consortium, which holds 52.2% of the total the electricity sector, and number of consumers and voting stock of Light S.A. served. ELECTRICITY INVOICED BY CONSUMER CATEGORY – CONSOLIDATED Cemig and RME/Light
DISCRIMINATION 2008 (MWh) 2008 (%) 2007 (MWh) 2007 (%) CHANGE (%) TOTAL (1) 58,498,228 100.0 57,838,593 100.0 1.1
SALES TO FINAL CONSUMERS 47,461,062 89.8 44,602,628 84.4 6.4
RESIDENTIAL 9,010,893 17.1 8,648,603 16.4 4.2
INDUSTRIAL 26,680,999 50.5 24,686,241 46.7 8.1
CAPTIVE 6,031,419 11.4 5,333,234 10.1 13.1
FREE 20,649,580 39.1 19,353,007 36.6 6.7
COMMERCIAL 5,885,857 11.1 5,549,409 10.5 6.1
CAPTIVE 5,853,668 11.1 5,517,331 10.4 6.1
FREE 32,189 0.1 32,078 0.1 0.0
RURAL 2,308,135 4.4 2,212,485 4.2 4.3
OTHER (2) 3,575,178 6.8 3,505,890 6.6 2.0
OWN CONSUMPTION 51,835 0.1 52,941 0.1 (2.1)
2070 WHOLESALE SALES 11,037,166 20.9 13,235,965 25.1 (16.6) IN REGULATED MARKET (AUCTION) 7,290,667 13.8 6,490,096 12.3 12.3
IN FREE MARKET 3,746,498 7.1 6,745,870 12.8 (44.5)
(1) Comprises the sales of Cemig Geração e Transmissão, Cemig Distribuição, RME/Light, Cemig PCH, Horizontes, Ipatinga, Sá Carvalho, Barreiro and Rosal. (2) Includes sales to Public Authorities, Public gestão
dimensão Illumination, Public Service and Own Consumption. THE ECONOMIC CemigCemig 2009200826 CONSUMERS INVOICED BY CATEGORY – CONSOLIDATED CEMIG AND RME/LIGHT DECEMBER/2008 DECEMBER/2007 CHANGE (%) CLASSE UNIT (%) UNIT (%) ADDITION (%) TOTAL 10,529,745 19.9 10,319,576 19.5 210,169 2.0
RESIDENTIAL 9,024,639 17.1 8,764,157 16.6 260,482 3.0
INDUSTRIAL 86,653 0.2 86,394 0.2 259 0.3
CAPTIVE 86,508 0.2 86,246 0.2 262 0.3
FREE 145 0.0 148 0.0 -3 -2.0
COMMERCIAL 847,109 1.6 830,818 1.6 16,291 2.0
CAPTIVE 847,105 1.6 830,814 1.6 16,291 2.0
FREE 4 0.0 4 0.0 0 0.0
RURAL 493,856 0.9 565,169 1.1 -71,313 (12.6)
OTHER (1) 77,488 0.1 72,945 0.1 4,543 6.2
OWN CONSUMPTION 1,157 0.0 1,256 0.0 -99 (7.9)
WHOLESALE SALES 83 0.0 93 0.0 -10 (10.8)
OWN CONSUMPTION 71 0.0 71 0.0 0 0.0 71
WHOLESALE SALES 12 0.0 22 0.0 -10 (45.5)
(1) Includes: Public authorities, Public Illumination, Public Services and Own Consumption. DIMENSION
Cemig 200826 The Cuiabá substation at Caeté, Minas Gerais Transmission lines at the Neves substation
Electricity invoiced in sales to final consumers in The contribution of this segment to Cemig’s 2008 totaled 47,461 GWh, 6.4% more than in results deserves to be highlighted, since the 2007. In December, 10.5 million consumer units actions we took in commercial operations and were invoiced, of which 3.9 million were served strategy, taking opportunities to negotiate and
2072 by Light. contract new business in the Free Market, led us to a position of leadership in Brazil in this These figures for the market in 2008 hardly show respect. the evidence of the effects of the international
gestão financial crisis, due to the strong performance of The adverse reservoir water situation at the THE ECONOMIC CemigCemig the industrial and commercial sectors, resulting beginning of the year led to a reduction in sales 2009200826 from the strength of Brazil’s economy, both in the short-term market due to less availability domestically and externally, until October, and of secondary electricity2, thus increasing prices the growth in consumption of the residential in the spot market – which on the one hand consumer category. It was in October that the increased the use of flexibilities by free clients, effects of the financial crisis began to be felt, with and on the other hand led to reduced production a slowdown in industrial activity, principally – for by some industrial plants, with a distinct effect on Cemig – in mining, metals and the automobile the performance of the market, as explained in sector. The effects of this reduction in industrial more detail below. consumption thus show more strongly in the sector of Free Clients, whose contracts have a 2Secondary electricity: output generated in excess of the level of Assured Energy – resulting from take-or-pay clause that tends to protect revenue. good water reservoir conditions in the nationwide system. The table below shows the growth in the total Cemig’s Consolidated Market volume of Cemig’s consolidated market, plus Sales of electricity to final consumers and in that of RME/Light, in the last five years. the wholesale market in 2008 totaled 54,102 GWh, 2.4% more than in 2007, in spite of CEMIG – TOTAL ANNUAL SALES OF ELECTRICITY the impacts of the international financial crisis having begun to affect the market in October 2008. 57.9 58.5 52.2 39.6 37.9 Electricity invoiced to final consumers in 2008 totaled 42,940 GWh, 7.1% more than in 2004 2005 2006 2007 2008 2007.
ELECTRICITY INVOICED BY CONSUMER CATEGORY – CONSOLIDATED CEMIG
DISCRIMINATION 2008 MWh 2008 (%) 2007 (MWh) 2007 (%) CHANGE (%) TOTAL (1) 54,102,455 100.0 52,833,879 100.0 2.4
SALES TO FINAL CONSUMERS 42,939,935 81.3 40,078,821 75.9 7.1
RESIDENTIAL 7,163,793 13.6 6,812,662 12.9 5.2 73 CONVENTIONAL 5,263,888 10.0 5,051,448 9.6 4.2
LOW INCOME 1,899,905 3.6 1,761,214 3.3 7.9
INDUSTRIAL 26,212,267 49.6 24,183,469 45.8 8.4 DIMENSION CAPTIVE 5,562,687 10.5 4,830,462 9.1 15.2 Cemig 26 FREE 20,649,580 39.1 19,353,007 36.6 6.7 2008
COMMERCIAL 4,422,932 8.4 4,110,503 7.8 7.6
CAPTIVE 4,390,742 8.3 4,078,425 7.7 7.7
FREE 32,189 0.1 32,078 0.1 0.3
RURAL 2,295,897 4.3 2,200,198 4.2 4.3
OTHER (2) 2,845,046 5.4 2,771,989 5.2 2.6
WHOLESALE SALES 11,162,520 21.1 12,755,058 24.1 (12.5)
IN REGULATED MARKET (AUCTION) 7,650,983 14.5 6,483,318 12.3 18.0
IN FREE MARKET 3,511,537 6.6 6,271,740 11.9 (44.0)
(1) Excludes the market of Light. (2) Includes sales to Public Authorities, Public Illumination, Public Service and Own Consumption. Wholesale sales to electricity traders were the free market (CCEAR contracts) reflects the 44.0% lower, due to the corporate strategic start of electricity contracts beginning in 2008, decision to direct electricity to negotiations and also the sales made in the Adjustment with free clients. The 18.0% higher volume in Auction.
ELECTRICITY INVOICED BY CONSUMER CATEGORY – CEMIG DISTRIBUIÇÃO S.A.
DISCRIMINATION 2008 (MWh) 2008 (%) 2007 (MWh) 2007 (%) CHANGE (%) SALES TO FINAL CONSUMERS 22,258,165 100.0 20,693,736 100.0 7.6
RESIDENTIAL 7,163,793 32.2 6,812,662 32.9 5.2
CONVENTIONAL 5,263,888 23.6 5,051,448 24.4 4.2
LOW INCOME 1,899,905 8.5 1,761,214 8.5 7.9
INDUSTRIAL 5,562,687 25.0 4,830,462 23.3 15.2
COMMERCIAL 4,390,742 19.7 4,078,425 19.7 7.7
RURAL 2,295,897 10.3 2,200,198 10.6 4.3
OTHER (1) 2,845,046 12.8 2,771,989 13.4 2.6 2074 (1) Public Authorities, Public Illumination, Public Services and Own Consumption.
The Market of Cemig Distribuição growth in this category can be attributed to the Energy invoiced to the captive consumers of increase in the number of consumers invoiced, gestão
THE ECONOMIC Cemig Distribution in 2008 totaled 22,258 and the positive effect of the social and economic CemigCemig 2009200826 GWh, 7.6% more than in 2007. The table situation, up to October, as reflected by families’ above shows the total invoiced. Below are some behavior (improvement in the labor market, and details on the differences in growth between increase in total real wages, ease of access the main categories. to credit for individuals, and growth of retail sales, especially of home electrical appliances). Volume of electricity invoiced to consumers in the Residential category was 5.2% higher in Sales to captive consumers in the Industrial 2008, with the addition of 211,610 consumers. category, 25% of the total sales to the captive Average monthly metered consumption per market, were 5,563 GWh, 15.2% higher than consumer was 113.0 kWh/month, 2.1% in 2007. This market segment was influenced more than in 2007 (110.6 kWh/month). The by the growth of industrial activity in the state, Cemig’s large-scale consumers
which still showed a strong figure for the year in 2007. Within this sector, subsectors with 75 in spite of the reduction of activities starting in the highest growth were: retailers (9.2%), October. Manufacturing industry, 89.3% of the accommodation and food (5.6%), auxiliary total industrial market, grew 15.4% in 2008. services (3.7%), communications services The next highest growth was in mining, 7.4% of (9.9%), health services (7.4%), wholesalers DIMENSION the industrial category, which grew by 19.1%. (11.7%), community and social services (4.2%) Cemig 200826 and financial institutions (5.5%). The highest growth in manufacturing industry was in the following subsectors: food products Billing to the Rural consumer category grew by (12.3%), steel (10.0%), transport materials 4.3%, reflecting firm performance of farming (50.5%), chemicals (24.9%), non-ferrous metals in the state, evidenced by 14.8% growth in the (175.5%), and ferroalloys (13.4%), plastic contribution made by agribusiness to GDP in products (13.3%), communications materials the year. (11.8%) and oil and alcohol refining (25.7%). The Market of Cemig Sales to captive consumers in the Commercial Geração e Transmissão category, 19.7% of total sales to the captive The electricity market of Cemig Geração e market, were 4,391 GWh, 7.7% higher than Transmissão S.A. (Cemig GT) consists of sale of electricity to free clients, inside and outside of the market, and also due to ending of contracts the state, and sales of electricity to other agents at the end of 2007, and lower availability of of the electricity sector (distribution companies, electricity for short-term market sales in 2008. electricity traders, and other generating companies). The growth of 7% in sales to free industrial clients reflect Cemig’s strategic commercial decisions, Sales totaled 31,629 GWh, 0.6% less than the increase in the short-term price in the early in the previous year. The volume of electricity months of the year, which led some clients to sold to other agents in the electricity sector was make use of contractual flexibilities above the 10.8% lower, due to the company’s decision to nominal contracted amount, and the growth of redirect volumes of electricity to other segments industrial activity, up to October 2008.
ELECTRICITY INVOICED BY CONSUMER CATEGORY – CEMIG GERAÇÃO E TRANSMISSÃO S.A.
DISCRIMINATION 2008 (MWh) 2008 (%) 2007 (MWh) 2007 (%) CHANGE (%) CEMIG GT ELECTRICITY 31,629,168 100.0 31,812,785 100.0 (0.6) 2076 FREE CONSUMERS 19,547,359 61.8 18,262,805 57.4 7.0
INDUSTRIAL IN CONCESSION AREA 17,286,261 54.7 16,193,169 50.9 6.8
INDUSTRIAL OUT OF CONCESSION AREA 2,261,099 7.1 2,069,635 6.5 9.3 gestão WHOLESALE SALES 12,081,809 38.2 13,549,980 42.6 (10.8) THE ECONOMIC CemigCemig 2009200826 CCEAR CONTRACTS – CEMIG GROUP 1,182,089 3.7 1,056,522 3.3 11.9 CCEAR – OTHERS, AND “BILATERAL CONTRACTS” 10,899,720 34.5 12,493,459 39.3 (12.8)
Electricity Transported Factors in this reduction include: The total of electricity carried in the concession lower consumption by free industrial clients areas of Cemig Distribution and RME/Light, under starting in October 2008; and the high price contracts for access to the distribution network of electricity in the short-term market in the first with free clients and other concession holders, quarter, which led some electricity-intensive was 0.6% lower in 2008 than in 2007. industries to shut down or reduce production.
ELECTRICITY TRANSPORTED BY CONSUMER CATEGORY – CONSOLIDATED CEMIG AND RME/LIGHT 2008 (MWh) 2008 (%) 2007 (MWh) 2007 (%) CHANGE (%) TOTAL 19,416,962 100.0 19,543,786 100.0 (0.6)
INDUSTRIAL 18,426,280 94.9 18,500,531 94.7 (0.4)
COMMERCIAL 206,802 1.1 156,293 0.8 32.32
CONCESSION HOLDERS 783,879 4.0 886,962 4.5 (11.6)
Consumers Invoiced by Cemig D, as natural growth, there was some reclassification Cemig GT, Subsidiaries and Affiliated of consumers from the Rural residential consumer Companies (excluding Light) category. 10,000 new consumer units were In 2008, 6.6 million consumers were invoiced, connected under the Light for Everyone Program, 2.5% more than in 2007. The greatest growth bringing the total of new connections under the was in the Residential category, of 4.1%. As well Program since 2004 to 190,000.
The table below shows the number of consumers invoiced by consumer category:
77 CONSUMERS INVOICED BY CATEGORY – CONSOLIDATED CEMIG DECEMBER/2008 DECEMBER/2007 CHANGE CLASSE UNIT (%) UNIT (%) ADDITION (%) TOTAL (1) 6,602,213 12.5 6,440,259 12.2 161,954 2.5
RESIDENTIAL 5,400,214 10.2 5,188,604 9.8 211,610 4.1 DIMENSION Cemig INDUSTRIAL 74,489 0.1 73,600 0.1 889 1.2 200826
CAPTIVE 74,344 0.1 73,452 0.1 892 1.2
FREE 145 0.0 148 0.0 -3 (2.0)
COMMERCIAL 578,021 1.1 560,913 1.1 17,108 3.1
CAPTIVE 578,017 1.1 560,909 1.1 17,108 3.1
FREE 4 0.0 4 0.0 0 0.0
RURAL 482,952 0.9 554,269 1.0 -71,317 (12.9)
OTHER (2) 66,537 0.1 62,826 0.1 3,711 5.9
WHOLESALE SALES 46 0.0 47 0.0 -1 (2.1)
(1)Don´t include the market of Light. (2)Includes: Public Authorities, Public Illumination,46 Public Services and Own560,913 Consumption.
1.1%
560,909
1.1%
4
0.0%
554,269
1.0%
62,826
0.1%
47
0.0% The two charts below show the percentage distribution of consumers by consumption category. The chart on the right shows that the Low Rental Residential category comprises 45.4% of all residential consumers, and 37% of all consumers billed.
Consumers Invoiced by Consumer Category 2008 Residential Category
81.8%
18.2% 55% 45% 7.3% 8.8% 2,944,930 2,445,284
1.1% 1%
Residential Commercial Normal Home Industrial Rural Other Low-income Home
Total flows of Electricity 2078 Excluding the market of RME/Light the total Of this total amount of energy, 65.7% amount of electricity entering Cemig’s system was passed to final consumers: 32.6% to – the sum of energy produced and purchased, the captive market and 33.1% to the free
gestão in 2008 was 68,318 GWh. Of this total: market; 10.6% was transacted in the CCEE THE ECONOMIC CemigCemig generation by Cemig was 48.4%; mandatory trading chamber and under the MRE; and 2009200826 purchases from the Itaipu generating plant 11.8% was sold in the regulated market (to and the Proinfa alternative sources program distributors). were 13.8%; purchases in the regulated market (CCEAR contracts) were 18.2%; and Our “electricity balance sheet” – the chart of transactions in the CCEE wholesale market the total flows of energy entering and leaving and under the MRE were 16.3%. Cemig also Cemig’s system in the year – shows that a received a total of approximately 2,850 GWh total of 8.5% of all electricity received into the from long-established “bilateral” contracts system, equivalent to 5,790 GWh, is accounted and some other sources, representing 4.5% of as energy lost. Of this total, 5,411 GWh is lost the total entering the system, supplying loads in the local distribution network and 378 GWh directly linked to the distribution network. in the national grid. No new plant of Cemig Geração e Transmissão There was also a significant change in started commercial operation in 2008. Operation arrangements for the electricity sourced from of plants is coordinated by the National System the giant Itaipu bi-national power plant in Operator (ONS), and thus the amount of Cemig’s 2008. Aneel Resolution 218 of April 11, 2006 own generation is the result of strategic decisions updated the mandatory portions of output from by the ONS to supply the market of the whole Itaipu to be used by all Brazilian distributors national system. Due to the strategy of recovery in 2008. Cemig D’s quota was reduced from of levels of the system’s reservoirs, the physical 17.29% of the total volume of electricity made volume of output from the hydroelectric plants available by Itaipu to the Brazilian system in was reduced. 2007, to 13.59% in 2008.
In 2008 Cemig’s volume of sales of energy in The figure below shows the total of electricity the Regulated Market increased, with the start received and distributed by Cemig throughout dates of contracts made at the second Mining its consolidated market (excluding the market of and energy Ministry auction, held in 2005. RME/Light).
CEMIG – TOTAL ELECTRICITY RECEIVED, SOLD AND DISTRIBUTED IN 2008
TOTAL RESOURCES 68,318 GWh TOTAL RESOURCES 68,318 GWh 79
ELECTRICITY PRODUCED 33,541 SALES BY CEMIG D TO CAPTIVE MARKET 22,258 gWh
OWN GENERATION 31,769 SELF-PRODUCERS 1,062 SALES BY CEMIG GT TO FREE MARKET 22,609 GWh AFFILIATED COMPANIES 1,316 LOSSES IN NG 4 (606) DIMENSION TOTAL ENERGY ALLOCATION TO SELF-PRODUCERS 982 gWh Cemig 200826 BOUGHT ENERGY 34,777 62,528 gwh SALES BY HOLDING COMPANY IN CCEE (6) 6,850 gWh itaipu 9,021 ccear (1) 12,428 cceE (2) 8,860 SALES TO AFFILIATED COMPANIES (7) 1,392 gWh mre (3) 2,294 BILATERAL CONTRACTS 1,245 (8) 391 gWh RECEIVED IN LG (4) 394 LOSSES (NG+LG) SALES BY HOLDING COMPANY IN MRE proinfa (5) 386 CO-GENERATION 149 5,790 gwh SALES BY CEMIG GT TO DISTRIBUTORS (9) 8,046 gWh
(1) Electricity sale contracts in the regulated market (6) Settlement of short-term electricity contracts (2) Electricity Trading Chamber (7) “Bilateral Contracts” – for Sá Carvalho, Horizontes, Pai Joaquim, Rosal, Barreiro Termal Plant and Ipatinga (3) Electricity Reallocation Mechanism (8) MRE Sales – Cemig, Sá Carvalho, Rosal, Capim Branco and Igarapava consortium (4) NG – National Grid and LG – Cemig’s Local Grid (9) Sales in the regulated market (5) PROINFA – Alternative Energy Sources Program 80
the environmental dimension Cemig has an Environmental Policy, published in sustainable development. These include a school 1990, containing principles that orient activities environmental education program, environmental for protection of the environment and sustainable reserves, and programs for preservation of flora development. These principles are translated into and fauna, including programs related to fish. actions that seek to instill increasing awareness In 2008 Cemig allocated a total of R$ 70.5 of environmental issues in all employees and million in funding for the environment: R$ 28.3 operating partners. million to new projects under development, and
Within its area of operation Cemig carries R$ 42.2 million for operation and maintenance 81 out various activities aiming to contribute to of the company.
environment – implementation of new projects environment – operation and maintenance (R$ million) (R$ million) DIMENSION
Cemig 42.2 200826 121.8 36.8 24.1 19.9 61.3 38.1 28.3 20 7.3 2004 2005 2006 2007 2008 2004 2005 2006 2007 2008
Expenditure on new projects was higher in 2008 Baguari hydroelectric plant and the Cachoeirão than in 2007 mainly due to the works on the Small Hydro Plant. sustainable Paulo Stock Exchange (Bovespa) for the fourth development year running. Cemig has been included in this index since it was created in 2005. The ISE reflects In 2008 Cemig was selected, for the ninth the return on a portfolio made up of shares of year running, for inclusion in the select list companies with recognized commitment to social of companies in the DJSI World (Dow Jones responsibility and sustainability in the Brazilian Sustainability World) Index. Cemig has been corporate environment. part of this index since it was created in 1999, and is the only company in the Latin American Cemig contributes to sustainable development electricity sector included in the index. In these through investment in programs for conservation nine consecutive years of inclusion in the DJSI and efficiency in energy use, and in research World, Cemig was considered world leader in on new energy sources, such as solar and the electricity sector in the period 2005-6, and photovoltaic energy, wind energy, hydrogen fuel world leader in the utilities sector (including cell research, the use of natural gas, and electric providers of electricity, gas distribution, water automobiles. and other public utility services) in the 2007- 8 index. We also were included in the Gold In November 2008 Cemig received the Class category in the ranking of companies world’s first mobile substation totally insulated 2082 considered to be world leaders in sustainability with vegetable oil, with capacity for 15 MVA, in the periods 2007-8 and 2008-9. enough to serve a population of approximately 50,000. The aim of this equipment is to serve Also, Cemig was selected for inclusion in the emergencies and programmed maintenance gestão Corporate Sustainability Index (ISE) of the São in the conventional substations, speeding up THE ENVIRONMENTAL CemigCemig 2009200826 maintenance, and service to areas affected by are properly analyzed, and all requirements of the defective substation. the bodies responsible for environmental issues promptly complied with. In 2008 Cemig obtained In partnership with Itaipu Binacional and Fiat the corrective operational licenses for three Automóveis, Cemig has begun a research project Small Hydro Plants – Joasal (8.4 MW), Paciência for feasibility studies on vehicles to run solely on (4.1 MW) and Gafanhoto (14 MW), and the Eastern electricity. Fiat provided four Palio Weekend for Transmission System; and the operation license the project at the end of 2008. Cemig intends for the Cachoeirão Small Hydro Plant (28 MW), to test prototypes of these vehicles in its fleet to which started operating at the end of 2008. assess operational and maintenance aspects, aiming to develop a Brazilian technology. Construction continued in 2008 on the Baguari hydroelectric plant in the municipality of More information on alternative energy sources can Governador Valadares (in consortium with be found in the Report of Management, under the item Baguari I and Furnas). The environmental Technology and Alternative Energy Sources, and in Cemig’s Sustainability Report, under Alternative Energy action in progress on this project to comply Sources. with the Environmental Control Plan and its timetable includes monitoring of fauna, fish, water quality and social-economic factors, 83 environmental social communication programs, environmental licensing education, negotiation, social assistance, saving of germoplasm, production of saplings of native Our Environmental Licensing Team aims to trees, recording of natural heritage, archeological
ensure that all the studies and reports produced prospecting and redemption, saving of fauna, DIMENSION Cemig 200826
Fish cultivation and research at Cemig’s Volta Grande Environmental Station and other activities. The Operational License is Management System, where they are separated expected to be given in 2009. for reuse or sale
In 2008, 6,845 tons of materials and equipment were sold or recycled, 46% more than in 2007. waste The increase in the quantity of materials recycled management or reused reflects the evolution of management In 2008, Cemig sent for recycling 299,096 and techniques of the recycling selection process fluorescent and public illumination lamps, and over recent years. During the year, 6,483 tons 157,804 fluorescent lamps and 5.4 tons of of the total of 6,845 tons of materials were sold, broken lamps, from the whole of its concession providing revenue of R$ 10.1 million. area. Materials withdrawn from operation such as transformers, insulators, scrap, cables and Cemig itself regenerated and re-used 130,000 wires are sent to the materials distribution centre, liters of insulating mineral oil withdrawn from which is certified under the Cemig Environmental electrical equipment. A further 507 tons of
A marmoset (Callithríx jacchus) from the region of the Irapé Hydroelectric Plant, Minas Gerais state, Brazil 2084 gestão THE ENVIRONMENTAL CemigCemig 2009200826 wastes impregnated with oil (gloves, cloths and 40 state and municipal public schools of Belo sawdust), and 19 tons of insulating mineral oil Horizonte took part. inappropriate for use in electrical equipment, were co-processed. The Environmental Education Program that we run in our plants and environmental stations Cemig’s selective waste campaign at its largest received visits from some 18,127 pupils from facilities, in Greater Belo Horizonte, collected various schools throughout the state in the year. 109 tons of recyclable material – 63 tons of During the visits, pupils receive information on paper, 31 tons of cardboard and 15 tons of generation of electricity and its relation to the plastic – which were passed to the NGO Asmare environment, and messages about sustainable (the Belo Horizonte Association of Collectors of development and the need to conserve ecosystems. Paper, Cardboard and Recyclable Materials).
Research Environmental and Development projects Education Program Cemig has ongoing R&D projects in the And Environment Week environmental area, managed by Aneel, with 85 The theme of 2008 Environment Week was universities and research institutions. “International Earth Year and Energy Efficiency”. Cemig’s event was timed to align with the global Using funds from Aneel, five R&D projects calendar, emphasizing the concept of Earth as related to the environment are in progress in DIMENSION the vital source for living creatures’ daily needs, fish management, limnology and environmental Cemig for the foundations of society and of the global aspects of operation of operation of generation 200826 economies, a permanent alert to take care of plants and water resources. natural resources. The other part of Cemig’s Studies in progress under these projects include: message in Environment Week was Energy Establishing the correlation between the wetted Efficiency: the question of how to avoid waste of perimeter of a reservoir and abundance of electricity without giving up comfort – knowing how species in the river, with reduced leakage after to use the benefits that energy offers, in the right installation of aprons; measure, obeying the principles of sustainability. Increased knowledge of the behavior of The event was held on June 16-27, 2008 and migratory species in the reservoirs of the River more than 4,000 pupils in primary education at Grande basin; Assessment of the conditions and quality of for studies on fauna and flora, environmental aquatic biotic factors (bioindicators of benthic education activities and programmed visits. In macro-invertebrates); these areas, a total of 1,000kg of seeds was collected, of 120 native forest species, for use Study of the interference of the reservoir in the in Cemig’s cultivation beds and exchange with plankton community and the primary productivity other institutions. We also produced 390,000 of the Araguari River; saplings of native species which were distributed to NGOs and public bodies, and we planted Development of methods for re-vegetation in 48 hectares of riverbank forests in partnership the control of erosion in steep land barriers, with rural producers. with assessment and comparison of the existing techniques; In preservation of fauna, the Peti Environmental Station operates in partnership with the Brazilian Relationship of water level characteristics with Environmental Authority, Ibama, and the ASAS parameters of fish species, wealth, diversity and (Release of Forest Animals) Project to recover spatial distribution. and re-introduce animals apprehended by the Environmental Police and by Ibama. The station received 581 animals of 61 different species in 2086 2008. Also, through the Profauna Project, the fauna, flora environmental station bred animals of five other and monitoring of water quality species: the Irerê (Dendrocygna viduata – the The company’s Environmental Stations have more White-faced Whistling Duck), the Pato-selvagem gestão than 4,000 hectares of protected areas, used (Anas sibilatrix – the Chiloe Widgeon); the THE ENVIRONMENTAL CemigCemig 2009200826 Capybara (Hydrochaerus hydrochaeris); the program has a team of professionals in biology, Ananaí (Amazonetta brasiliensis – the Brazilian engineering and social communication. Teal), and the Mutum-do-sudeste (Crax blumenbachii – the Red-billed Curassow). The program systematically monitors fish populations downstream of the power plants, A total of 377 animals were returned to the wild, in programmed procedures assessing situations at the Company’s other environmental stations. that could present risk for fish. The information generated in this monitoring will provide improved Cemig regularly monitors the quality of water input for programming of the operations of the of its principal reservoirs, in a network covering power plants to enable them to be carried out eight river basins (of the Grande, Paranaíba, with less impact on fish. Pardo, São Francisco, Doce, Paraíba do Sul, Itabapoana and Jequitinhonha rivers), and one With the creation of the Volta Grande Fish in Santa Catarina (Uruguay), and 35 different Studies Center of Excellence in 2008, Cemig sub-basins, comprising a total of 52 reservoirs intends to invest in improvement and construction and 247 water collection stations. of the physical facilities of the Volta Grande Fish Culture Station, to carry out partnerships Fish Population Projects and working agreements with the universities 87 In 2007, Cemig launched the Peixe Vivo (“Fish for increased knowledge and improvement of Alive”) Program, with the commitment to practices in handling of fish in the central and increase efforts to find and put in place solutions lower parts of the basins of the Grande, Araguari to avoid or mitigate impacts on fish populations and Paranaíba Rivers. The Center aims to be a
and expand the fish preservation programs. The Brazilian benchmark in management of fish DIMENSION Cemig 200826
The 1,960-mile São Francisco River, which cuts through the whole of Central and Northeastern Brazil resources, developing and transferring technology native species suffer the least possible impact from in the area to other electricity concession holders human activity?”. and research centers. Various community and scientific events were As part of the Program, to repopulate Cemig’s organized: reservoirs and the rivers of Minas Gerais and Support for and organization of community boat maintain biodiversity, we carried out 114 fish expeditions in the São Francisco River; repopulations, at locations all over the state, with release of 700,000 minnows of various species Participation in the Minas Gerais Biodiversity native to the basins of the Grande, Jequitinhonha, Conference – with a stand for the Peixe Vivo Paranaíba, São Francisco and Pardo Rivers. program to publicize its work; School pupils and representatives of various other Participation in the Fórum das Águas; sectors of society took part in these actions, in 47 municipalities of Minas Gerais State. Participation in the third annual Brazilian seminar on the environment and social responsibility in Urban Trees Management the electricity sector; Cemig has researched alternative technologies for both protected and insulated distribution Participation in the Diálogos da Terra (“Earth networks to improve harmony between urban 2088 Dialogues”) event; trees and aerial distribution networks. Production of the Fisherman’s Guide; In March 1999 the Company adopted the
gestão Meetings on the problem of the Golden Mussel, Protected Distribution Network (RDP) as its
THE ENVIRONMENTAL at the Três Marias and São Simão plants. new minimum standard for urban areas, finally CemigCemig 2009200826 replacing the conventional uninsulated networks, A special edition of the magazine Ação and becoming the first Brazilian concession Ambiental (“Environmental Action”) with technical holder to adopt RDP as the minimum standard in co-ordination by a biologist of the Peixe Vivo urban areas. program, was launched in 2008 and distributed to the participants of the seminar “Situation and Cemig now has 5,750 km of protected and Strategies for Conservation of the Fish Species insulated networks in its primary system, of Minas Gerais” held by Cemig and the Minas 17.8% of the total of primary urban networks. Gerais Environmental Defense Association Of the secondary urban networks, 23,955 km (AMDA), with articles seeking to answer the are insulated networks, or 43.8% of the total question: “What needs to be done to ensure that secondary urban networks. 89
Urban trees – a subject of special study by Cemig
Cemig also carries out planned pruning, and the International Society of Arboriculture and gives courses in tree pruning to various (ISA), Cemig held the Second Seminar on DIMENSION Cemig prefectures in the state of Minas Gerais. urban tree management in relation to electricity 200826 Through theoretical presentations and practical systems in 2008. Brazilian and international demonstration, participants receive information specialists, and representatives of prefectures on implementation and maintenance of urban and electricity concession holders from all over trees and the tree species that are appropriate Brazil were at the event, which aimed to discuss for urban areas, among others subjects. and improve techniques for maintenance of trees that are close to electricity lines, Second Seminar based on exchange of information between on Urban Tree Management professionals of the area, and also creation of In partnership with other electricity companies, closer relationships between prefectures and the Brazilian Urban Arborization Society (SBAU) electricity concession holders. t h e s o c i a l dimension In our management practices we aim to University, and organizational atmosphere operate within a vision of the future that vitally management. includes the concept of social responsibility, harmonizing the economic, environmental and Remuneration and Benefits social dimensions. Our social responsibility Cemig has a consolidated Careers and strategy is publicly known and recognized Remuneration Plan (“PCR”), which it keeps through our Mission, Vision and Corporate Values. continually updated in relation to the market, and Our Corporate Guidelines are monitored by our a program for sharing in the Company’s profit Social Responsibility Committee, which have and economic results.
representatives from each of the Departments 91 headed by a Chief Officer. Under the Collective Work Agreement with the unions representing employees, the Performance Assessment process is also used, for individual salary increases and/or promotions. The third DIMENSION development cycle of performance assessment was carried of human capital Cemig out in December 2007, and the results of the 200826 t h e s o c i a l With the implementation of the performance assessments presented in 2008 served, as in dimension management model and a more strategic previous years, as a basis for changes in individual operation in Human Resources, it has been salaries, through both horizontal and vertical job possible, finally, to link the corporate strategy changes or promotions. to the various processes of management of people in the group. This has served as a basis The company provides various benefits, for various changes and initiatives, including: including the following: the program to support staff movements based on performance, internal minors, and disabled children of employees mobility and internal selection, various training requiring specialized treatment; advance against and development programs, the Corporate salary every two weeks, financial assistance for training and education (cost shared with Number of employees employees); assistance with cost of day care and (Cemig holding, Cemig DistribuIÇÃO and Cemig GeRAÇÃO E TransmissÃO) life insurance; a private pension plan; a health and dental plan (cost shared with employees); 10,668 10,271 10,658 10,818 10,422 loans to employees and pension recipients; and reimbursement of medical drugs.
Attraction and Retention of Talents 2004 2005 2006 2007 2008 It is undeniable that migration between different careers presents difficulties for both the company and employees. To minimize this difficulty, Cemig 225 CEMIG EMPLOYEES BY COMPANY has structured its Internal Mobility mechanism HOLDING for change of careers, which aims to adapt to the needs of the business to the interests and potential of individuals. Studies to analyze and 2,166 codify these movements were made in February CEMIG GERAÇÃO 8,031 2008, with a total of approximately 240 E TRANSMISSÃO CEMIG DISTRIBUIÇÃO placements. 2092
After the mobility process had been completed, cases for repositioning were analyzed in an
gestão Internal Selection process. Of the 106 positions labor and union
THE SOCIAL relations offered in the process, 101 were filled. CemigCemig 2009200826 Our permanent aim is to maintain a relationship In November 2008, Cemig’s Internal Selection channel with the employees and the bodies that process was one of the winners of the “Ser represent them, through ethical and transparent Humano” award given by the Minas Gerais attitudes, trying always, through negotiated section of the Brazilian Human Resources solutions, to exhaust all the means that are Association. The process was considered to acceptable in corporate terms (a guideline of be one of the best practices in management of the HR Policy). One of these means is the Union people. In 2008 no external competition was Negotiating Committee, which discusses solutions held for filling or renewing of positions in the with the union organizations. company. Cemig had 10,422 employees at the end of 2008. In December 2008 we completed the annual salary renegotiation agreement for the period to carry out their work, and other aspects that from November 1, 2008 to October 31, 2009, are fundamental in creating a stimulating and after wide-ranging discussion of all the terms and challenging environment. The survey is used as conditions with the union entities that represent an input for planning actions for improvement our employees. The resulting collective agreement throughout the company (Phase 2 in the established an increase of 7.26% for all salaries, illustration), with a Corporate Action Plan and from November 1, 2008. It also provided for an specific plans for each upper management unit. extraordinary additional distribution, under the In Phase 3, these actions are put into effect and program for sharing of profit and results, of 4.67 monitored, and their results disclosed to, and times the monthly remuneration of each employee, monitored by, all the employees, in bulletins and paid in December. electronic messages.
The specific agreement relating only to union Atmosphere Survey – Phases organization, allowing meetings of sector 24 Months unions inside the company’s premises, was renewed. PHASE 1 PHASE 2 PHASE 3
93
Organizational Diagnosis Planning of Implementation of the atmosphere management Improvement and Monitoring Organizational Actions of Actions As a tool for maintaining a high-performance Atmosphere relations DIMENSION environment, we use various instruments for Cemig management of the organizational climate. 200826
Every two years we carry out the Organizational Atmosphere Survey (Phase 1 in the illustration Cemig’s last Organizational Atmosphere Survey on the right), which is carried out by external was held in August 2007, with voluntary consultants. This assesses employees’ degree participation by 85% of the employees – an of engagement with the company and their extremely significant index compared to those of perception as to the company’s strategic the rest of the market. After the 2005 survey, there management and external reputation, the respect was an improvement in the level of approval, with which it treats its employees, the level of from 58% to 62% (on comparable questions). independence and training that they are given In 2008, after disclosure of the results to all the 2094
Chemistry Staff in Cemig’s Predictive Monitoring Center gestão THE SOCIAL Cemig Cemig employees, 111 workshops were held to put the 2009200826 Action Plans in place. In these, organized under Training AND development the organization of HR group, employees had the opportunity to construct the improvement All the employees, at their various levels, follow actions for their senior management units. a Training Plan associated with their careers, This is one way in which HR, aligned with its strategic orientations and the Business Plan. Each contribution panel on the Balanced Scorecard, management unit prepares a Training Needs strengthens its role as a consultant for the Survey, oriented by the career aims of employees management units – its clients – and contributes and the manager’s initiatives and expectations for to the efficiency of the workforce in Cemig’s businesses, acting as a partner, aligned to the each employee’s performance over the year. The corporate challenges and results. process of performance evaluation is also used for development and training of employees, based In 2008 EFAP managed 7,046 participations on the parameters of essential competencies, in technical training by employees of the Cemig corporate results achieved, and employees’ Group, as well as 398 participations in technical maturity, generating a performance index for each training by employees of other companies. The total figures for the year were: 330,410 individual one of those evaluated. training-hours, 314,015 for employees of the Cemig Group, and 16,395 for employees of other Individual development agreements are generated companies. from the feedback from the Performance Evaluation. In 2008, complying with them and with Development and Leaderships the annual training plan, employees participated in a total of 15,922 development interactions, The importance of a continuing program of including technical training, representing a total executive education is increasingly clear, and of 742,550 hours of training, and an average of as a result development of Cemig’s employees 71.25 hours of training per employee. includes the Amana Key program and the Celig (“Cemig Leadership in Management”)
We have a training and education cost program, carried out in partnership with the assistance program, which reimburses monthly Dom Cabral Foundation (FDC). These programs have been held since 2005, aiming to sustain fees of graduation or technical courses, and 95 also a postgraduate program, which aims various areas of strategic competencies. to raise the professional and technological training level of employees qualifying for In 2008, 28 Cemig managers took part in the Cemig’s University Level Plan, which is Amana Key program, 179 in the Celig program, DIMENSION adjusted to contribute to achievement of the and 73 higher management employees took Cemig corporate targets. part in the Celig Program for Successors, within 200826 the Succession Management Program, which In November 2008 the Veritas International aims to prepare people for possible promotion Quality Bureau (BVQI) maintained its certification to management positions. of Cemig’s professional training school (EFAP) under Brazilian standard NBR ISO 9001:2000, in Management of Succession the Quality Management System, under the scope We began our first cycle of succession defined as “to develop and provide technical and management in 2007 – the process of professional training and qualification, as well as planning for replacement of key positions in the providing accommodation and meals to its clients organization, through identification and creation while training at the school”. of conditions for preparation of potential people A Cemig electrician in training
2096 to take these positions, with the right profile for Occupational the competencies required. health well-being and safety
gestão It was decided, based on the possibilities of THE SOCIAL management positions becoming vacant by the Under its safety, health and well-being policy, CemigCemig 2009200826 end of 2009, to identify, among the 162 people Cemig took various actions in 2008 for best ranked by area of competence, a total of 81 ISO 9001:2000 certification of its medical potential successors, to remain in the process. assistance and environmental risk prevention areas, and intensified various courses: the The action planned includes the phase of health and well-being programs; courses and preparation of these 81 potential leaders, presentations on medical and social issues, and in a wide-ranging management training and preparation for retirement; and the Disabled development program. Three modules of Inclusion Program. Cemig has developed this program were completed in 2008, and a program for inclusion and access for the continuation, with further modules, is planned disabled which goes beyond compliance for 2009. with the law. Accident frequency rate eriousness index
Accident Frequency Rate = the number of work accidents per million hours worked in risk situations. Cemig employee Seriousness index = the time off work, in days, per million hours worked in risk situations. Outsourced workers Overall workforce = sum of the figures for Cemig’s own employees and outsourced operatives. Overall workforce
Human criticisms and also give ideas and suggestions resources Communication for improvement of HR processes, tools, policy and practices. 97
In the essential task of internal communication, RH Fácil is a tool that aims to provide HR helping to align the work of HR with the with instant access to all the personal, salary, company’s strategic planning, Cemig uses a
payment and other information that it needs, DIMENSION variety of means: independently, on the employees. Cemig 200826
The HR in the Field program – The entire HR The HR portal on the Intranet provides management team visits the various areas of information on specialized services in safety the company, to intensify the relationship with the employees, to provide information, answer engineering and work medicine, union relations, questions and receive criticisms and suggestions. the career and remuneration plan, atmosphere Five “plenary meetings”, with participation by a management and succession management. total of 600 employees, were held in 2008. For further information, HR distributes booklets giving full outline information on: benefits, the Interactive HR is a space created for employees Career and Remuneration Plan, and Performance to ask questions, seek information, make Management. cemig as the Fields of Light Programs – completed in and society December 2008, with the illumination of 602 sports fields, benefiting the practice of sport in In 2008, we invested R$ 45.5 million in cultural, 374 municipalities in Minas Gerais, and directly educational and social action and projects, helping to improve public safety – and the Luz directly benefiting the populations of more than no Saber (Light on Learning) program show, in 200 municipalities in Minas Gerais. For Cemig, practice, that electricity is a necessary input not investment in social, cultural and sporting projects only for transformation of raw materials and is not merely a question of quantity of funds, production of goods, but also for the quality of but of the quality with which they are applied, life and the functioning of equipment that is in aiming to reach the maximum number of people, common use by society, such as schools and in a continuous and responsible manner, through cultural and recreational centers. formation of networks of operation between various sectors of society, the artistic and cultural One good example is the Conviver (“Living community and the world of sport, which has Together”) project, which aims to give orientation become a means for social empowerment projects. on correct, efficient and safe use of electricity, also bringing electricity bills into line with the economic We continue to invest in the university extension capacity of users in low-income communities. 2098 festivals of the most important academic centers Actions are taken to increase energy efficiency, of the state of Minas Gerais, since we see them aiming to raise awareness and change habits, and as a possibility for reflection on the information lead to efficient use of equipment and conscious acquired in the classroom – and the wealth of consumption to avoid waste of electricity. As well gestão
THE SOCIAL this activity extends to the population of the cities as its awareness campaigns, the Conviver Project Cemig Cemig where they take place. has donated approximately 5,500 efficient 2009200826 refrigerators, more than 150,000 compact We also maintain our sponsorship of large and fluorescent lamps, and 4,000 heat exchangers small museums, public libraries, music academies for electric showers, for families of 19 low-income and theaters. communities in the greater Belo Horizonte region.
Since Cemig is a company providing public Cemig carries out many projects for the improvement services, the relationship with the communities of the living conditions of children, adolescents, where it operates is not restricted to the phase of adults and old people, and assistance to needy economic development, but also refers directly populations in the communities we serve. One to social development. Concrete initiatives, such example is the Cemig ASIN (“Integrated Social Action”) Program, which helps generate funds Citizens) Program, a partnership between the to sustain institutions, community associations, Cemig Inter-management Association (AIC) schools and old people’s homes in the communities and the Cemig ASIN Project, operating since where the company operates. It also carries 2001. The program aims to encourage Cemig out actions on special dates such as Children’s employees and retirees to allocate part of their Day, Volunteers’ Day and Christmas, involving income tax liability to Infancy and Adolescence Asin volunteers, and attracting involvement by Funds (FIAs). In 2008, 2,848 employees took outsourced employees and partner organizations part, allocating R$ 1.6 million to 147 institutions of the municipalities. In December 2008, Cemig’s and 88 municipalities of Minas Gerais. partnership in the Father Christmas in the Mail program mobilized not only employees but the Cultural Projects whole population of the state, through notices on Under the cultural incentive laws we sponsored electricity bills, which significantly increased the 133 projects, 48 of them with our own funds, final result of the project. under Article 26 of the Rouanet Culture Incentive law. Projects are selected jointly with the state’s Another concrete example of social action culture department, in the “Cemig Cultural” supported by Cemig is the AI6% (Creating Program. By this means Cemig makes contact
99 Donation of refrigerators by Cemig as part of the Conviver (“Living Together”) Project DIMENSION
Cemig 200826 10020
with demand in the interior of the state, small in 2007–8 in a very wide range of categories, groups that are starting, exciting contemporary and prizes awarded to feature-length and short
gestão art initiatives and several forms of culture which films, experimental videos, documentaries, THE SOCIAL are more complex to understand and for which research projects in development, and the CemigCemig 2009200826 private-sector sponsorship is normally scarce. literature of the area. In all these projects, the participants and logistics are all from within In 2008, there were 11 international integrated Minas Gerais, and the locations are also within arts festivals in Belo Horizonte and the interior the state. This is the only audiovisual program of Minas Gerais, which tends to strengthen and in Brazil that awards a prize for every one broaden the cultural exchange with groups from of the segments of the area, and guarantees other states, and other countries. finalization and distribution of the projects that it supports. The third annual Filme em Minas (“Film it in Minas”) program reaffirmed Cemig’s support for In 2008, the Palace of the Arts, the Artistic the audiovisual arts. 34 projects were supported Education Foundation, the Mineiro Museum, The Natural History Museum of the PUC University of Minas Gerais 101 the Galpão Group, the Arts and Skills Museum, this collection at the head office building, a and the Inhotim Cultural Centre extended traveling library visited other administrative their partnerships with Cemig, in some cases units of the company, serving new readers DIMENSION representing decades of continuous partnerships in the capital city, Belo Horizonte, and Cemig that are and have been necessary in providing throughout the state. 200826 access for the population to precious and important collections. In 2008, Cemig sponsored projects approved by the Ministry of Sport, which selects programs To provide its internal public with access to for children socially at risk, and Paralympics reading and the visual arts, Cemig maintains athletes. an art gallery at its head office, holding 11 exhibitions of artists from all the country Approximately R$ 4 million was allocated to – each year for the last 18 years – in a projects in Belo Horizonte and Uberlândia library that is also open to the public, with that aimed to serve thousands of children and approximately 56,000 books. As well as adolescents. R e c o g n i t i o n awards in 2008 Citizen Company than the average for companies in the same In February 2008 Cemig, was awarded the category, of 65.83, and the average for all of Belmiro Siqueira management prize for 2007, Brazil’s 64 concession holders, 62.62. in the “Citizen Company” category, by the Regional Management Council (CRA) of Minas The Dow Jones Sustainability Index Gerais. This recognizes professionals and Cemig was selected, for the ninth year running, companies that contribute to the growth of for inclusion in the DJSI World (the Dow Jones Management, as a science or a profession. Sustainability World Index), for 2008-9. It is still the only electricity company in Latin America that 103 The Global Dow has been included in this worldwide index since Cemig is one of the three Brazilian companies, its creation in 2000. and the only company in the electricity sector in Latin America, to be included in the select portfolio The ISE Corporate of the Global Dow Index, recently created by Sustainability Index Recognition Cemig Dow Jones. Cemig was selected for the fourth time running 200826 for inclusion in the ISE index of the São Paulo Iasc stock exchange. It has been in the index since its In the Iasc (Aneel Consumer Satisfaction creation, in 2005. Index) survey by the Brazilian energy regulator, Aneel, Cemig was rated among the three best Institutional Investor Magazine electricity concession holders in the category of Cemig was a highlight of the annual survey by companies with more than 400,000 consumers Institutional Investor, placed first in the Most in Brazil’s Southeastern Region. The survey Shareholder-Friendly Companies ranking in interviews consumers and calculates an index electricity; and Cemig’s Chief Officer for Finance, of satisfaction – Cemig scored 69.68, higher Investor Relations and Control of Holdings was 10420 gestão Recognition
CemigCemig 2009200826 rated the best CFO of all electricity and other Minas Gerais Environmental public service companies. Management Prize This prize was awarded to the Nova Ponte Annual Report – Honorable Mention hydroelectric plant, in recognition of Cemig’s Cemig’s annual report for 2007, published work on the environment and with communities in 2008, received an honorable mention in involved in its operation. the tenth Abrasca awards in the Strategy category, and was placed second among The “Ser Humano” Award listed companies with annual net revenue of This is an initiative of the Minas Gerais Section R$ 1 billion or more. of the Brazilian Human Resources Association 105
Awards won by Cemig in 2008. Recognition
Cemig 200826 (ABRH-MG). The award recognized Cemig’s “the Balancing Act Trophy” – by the Brazilian internal selection process, unprecedented in Financial Executives Institute of Minas Gerais (IBEF). the context of publicly-managed companies, providing employees with the possibility of Transparency Trophy professional growth. Cemig won the “Transparency Trophy”, given by the accounting organizations Anefac, Fipecafi The “Balancing Act” Trophy and Serasa, recognizing it as one of Brazil’s ten Cemig’s Chief Officer for Finance, Investor Relations most transparent companies, for the fifth year and Control of Holdings, Luiz Fernando Rolla, was running – reflecting the quality and clarity of its awarded the “O Equilibrista” prize – loosely translated, financial statements for the year 2007. Cemig’s São Simão Hydroelectric Plant
contact information
Chief Officer for Finance, Head Office Investor Relations Av. Barbacena 1200, and Control of Holdings Santo Agostinho. Luiz Fernando Rolla 30190-131 Belo Horizonte, MG, Brazil. Telephone: 55 (31) 3506-3711 Telephone: 55 (31) 3506-4903 www.cemig.com.br 10620 Fax: 55 (31) 3506-4969 Custodian Bank Investor Relations Banco Bradesco Superintendent Specialized Share Custody Department, gestão Agostinho Faria Cardoso Prédio Amarelo Velho, Cidade de Deus, s/nº, Cemig Cemig Vila Yara, 06029-900 Osasco, SP, Brazil 2009200826 Av. Barbacena 1200, Telephone: 55 (11) 3684-9495 5º Floor, B1 Wing, www.bradesco.com.br Santo Agostinho 30190-131 Belo Horizonte, MG, Brazil Depositary Bank for ADRs Citibank N.A. Telephone: 55 (31) 3506-5024 Depositary Receipt Services, 388 Greenwich Fax: 55 (31) 3506-5025 Street, 14th floor, New York 10013, NY, USA Telephone: (1-212) 816-6814 [email protected] Fax: (1-212) 816-6865 http://ri.cemig.com.br www.citi.com/adr GLOSSARY
ADRs (American Depositary Receipts) the concept of guaranteed return were abolished, concession holders with positive Receipts for shares of a company not based in the United States, issued by a bank balances were allowed to set them off against amounts owed by them to the and held by a US bank as custodian. federal government.
CCC – The Fossil Fuel Consumption Account CVA – The Account for Compensation for Variation in Portion A Items Created to build financial reserves to cover the increase in costs associated with This is a mechanism created to compensate the variations in amounts of non- greater use of thermal generating plants in the event of drought – since the controllable (Portion A) costs that take place between the electricity distributors’ marginal operational costs of thermal plants are higher than those of hydroelectric annual tariff adjustments. If the CVA balance is negative on the date of the annual plants. Each energy company is obliged to make an annual contribution to the adjustment, it is passed through to the tariff. If it is positive, the balance is used CCC, calculated based on the estimates of the cost of fuel consumption likely to be to offset the annual tariff adjustment. necessary for the thermal plants to meet demand in the subsequent year. Debt Coverage Index CDE – The Energy Development Account Ebitda divided by total financial expenses incurred in the period. Provides This is a source of subsidy created to help make alternative sources of energy an indicator of a company’s capacity to generate funds to pay interest on (e.g. wind energy or biomass) competitive and to promote “universalization” its debt. of electricity services (i.e. extension of electricity services to every citizen and location in Brazil). It is funded from annual payments made by concession holders Ebitda (Earnings Before Interest, Tax, Depreciation and Amortization) for the use of public assets, and from penalty payments imposed by Aneel. A way of expressing a company’s operational cashflow – gives a picture of how much a company is generating cash from its principal business. Center of gravity generation 107 Each sub-market has a geo-electric center, regarded as the virtual point of delivery Ebitda Margin (Ebitda / Net Operational Revenue) of the electricity. Producers are deemed to deliver energy to the system, and Shows what percentage of the operation’s revenue transforms into cash, receive from it, at its center of gravity, and assume a portion of the losses between giving an idea of the business’s capacity to generate cash. the point of generation and the center of gravity. Consumers, analogously, are considered to connect to the system at its center of gravity, assuming a portion of The Free Market (or ACL) the losses between the center of gravity and the point of consumption. Holders of generation concessions, Independent Power Producers (IPPs), Self-
generating companies, electricity traders, importers of electricity and Free Consumers Cemig Controllable Costs trade electricity freely in the Free Market. 200826 These are costs that depend essentially on the efficacy of business management, such as personnel expenses, purchase of materials, outsourced services, and other Hedge expenses. A mechanism by which holders of asset or liability positions protect themselves from price fluctuations in, e.g., the commodities or FX markets. CRC – The Results Compensation Account Before 1993, holders of electricity concessions in Brazil were guaranteed a Hydroelectric Power Plant (in Portuguese, UHE – “Usina Hidrelétrica”) minimum rate of return on investment in assets used in the provision of electricity Plant using mechanical energy of water to run turbines generating electricity. services to clients. The tariffs charged for electricity were uniform throughout the country, and the profits generated by the more profitable concessions were Markets reallocated to the less profitable concessions, so that the rate of return of all See Free Market and Regulated Market. companies was equal to the national average. Net Margin (Net income / Net operational revenue) The deficits that the majority of the Brazilian electricity concession holders suffered This ratio shows at what percentage rate revenue transforms into profit, giving were accounted in the CRC Account of each company. When the CRC Account and an idea of the profitability of the business. Non-controllable Costs SAIDI (in Portuguese, DEC) – System Average Interruption Duration Index Also called Portion A costs: these costs do not depend on any decision by The average time of outage suffered by consumption units per month in a given the concession-holding company they include: The Fuel Consumption Account group in a specified period. (CCC), the Global Reversion Reserve (RGR), the Electricity Services Inspection Charge (TFSEE), Royalties for Use of Water Resources (CFURH), electricity SAIFI (in Portuguese, FEC) – System Average Interruption Frequency Index acquired from the Itaipu generating station for resale to consumers, Charges for The average number of outages per consumption unit in a given group in a Use of the Basic Grid, transport of energy generated by Itaipu, and Charges for specified period. Connection to the System. Tariff Adjustment Outage Indicators Updating of the electricity prices specified in the concession contract. The purpose see SAIDI and SAIFI under the Brazilian legal framework is “to preserve the economic and financial equilibrium” of the concession-holding company. The Regulated Market (or ACR) Auctions in which distribution companies must buy the electricity that they forecast they Thermal Power Plant (in Portuguese, UTE will need for their captive consumers. “Usina Térmica, or Term(o)-elétrica”) Plant in which chemical energy contained in fossil fuels is converted into electricity. Regulatory Assets See, for example, RTE, RTD, Controllable Costs, Non-controllable Costs and CVA. Total Return to the Shareholder Sum of the returns to the shareholder from dividends (dividend yield) and the RGR – Global Reversion Reserve percentage appreciation in the stock price. This is an annual amount included in the costs of concession holders, to generate funds for expansion and improvement of public electricity services. The amounts TUSD – Tariff for Use of the Distribution System are paid monthly to Eletrobrás, which is responsible for administration of the This is paid by generation companies and by free consumers for the use of the funds. They will also be employed in the Procel Program. distribution system of the concession holder to which the generator or consumer 10820 is linked, and is revised annually in accordance with the inflation index and the RTD – The Deferred Tariff Adjustment investments made by the distributors in the previous year to maintain and expand The regulator, Aneel, decides the results of the periodic tariff review of Cemig the network. The amount to be paid by the user linked to the distribution system Distribuição S.A., which covers the repositioning of electricity retail supply is the product of the amount of energy in kW contracted with the distribution tariffs at a level compatible with “preservation of the economic-financial concession holder for each link point, and a tariff in R$/kW, set by Aneel. equilibrium of the concession contract”, providing sufficient revenue to cover
gestão efficient operational costs and adequately remunerate investments. The Volt average adjustment applied to Cemig’s tariffs on April 8, 2003, provisionally, Measure of electrical potential at which electricity supply is provided (e.g. high Cemig Cemig was 31.53%, but the final tariff repositioning for Cemig was 44.41%. The voltage, low voltage). 2009 200826 percentage difference of 12.88% was to be compensated through an increase in each of the tariff adjustments scheduled to take place in 2004 through 2007. Voltage The difference between the tariff repositioning to which Cemig Distribuição S.A. Electricity generated is taken on cables or through conducting bars to transformers, has the right and the tariff actually charged to consumers is recognized as a which raise its voltage to a level that are practical for its transport on transmission Regulatory Asset. lines to locations of consumption – where other transformers reduce its voltage again to levels at which it can be used by consumers. An electrical device has its RTE – The Extraordinary Tariff Recomposition voltage for operation as one of its specifications. This is a tariff adjustment granted in December 2001 to the distributors and generators of the regions that were under rationing at that time. It was settled Watt (W) in the General Agreement for the Electricity Sector, and resulted in an increase of Unit of electrical power – the unit also used, for example, in the home to specify 2.9% in the tariffs of residential consumers (with the exception of low-income the power required to run an appliance. A kilowatt (kW) is one thousand watts; a consumers) and rural consumers, and 7.9% for other consumers. The objective megawatt (MW) is a million watts; a gigawatt (GW) would be a billion watts. of the adjustment was to restore the losses that distributors and generators of electricity had suffered from the reduction of consumption imposed by the Watt-hour government. The duration of the adjustment varies in accordance with the time Unit of work done (Wh). Multiples of it use Greek prefixes: CeWh, MWh, necessary for the recovery of the losses of each concession holder. GWh and TWh. Concept, editorial production: editorial Concept, www.cemig.com.br Tel.: 55(31)3506-3711 30190-130 BeloHorizonte,MG–Brazil Caixa Postal992 Avenida Barbacena,N°1.200 COMPANHIA ENERGÉTICADEMINASGERAIS–CEMIG office: Head [email protected] English: into Translation ROGÉRIO REIS PERCIO LIMA NITRO AGÊNCIADEIMAGENS FERNANDO MARTINS EUGÊNIO PACCELLI ACERVO CEMIG ANTÔNIO CARREIRO Photographs: RACHEL KOPITCUNHA Reviser: LÉLIO LAURETTI Consultant: 18 COMUNICAÇÃO design: Graphic CEMIG INVESTORRELATIONS OFFICE coordination: Editorial CEMIG CORPORATE COMMUNICATIONS (CE) CREDITS
ANNUAL REPORT 2008 GOVERNO DE MINAS GERAIS