ISA analyzes the effects of the concession renewal of CTEEP in Brazil
- The possibility of the CTEEP 059 renewal was known from the moment of its award in 2006.
- ISA continues analyzing the effects that the methodology and variables involving the decision made by the Brazilian government will have on their businesses.
Following the decisions taken yesterday by the Brazilian government to reduce tariffs for residential users and for the industry, using as a mechanism the renewal of concessions in the electricity sector, ISA reaffirms that this announcement is not a new issue for the Company, taking into account that the concession of CTEEP 059 was scheduled until 2015 and that since the beginning one of the possibilities was a renovation scenario that could include changes in business conditions. In the analysis of this scenario ISA had always considered the possibility of a reduction in the remuneration to be received.
The Brazilian government’s decision includes the renewal of concessions and the interest of keeping the proposal of providing compensation for the non-amortized assets as it was stated in the contract, and a payment for the administration and operation of the concession in the future.
Regarding the form of how this renegotiation of concession 059 may affect ISA’s revenues, the Company is attentive to the precise terms of the renegotiation and continues performing analyses to assess the real impact of the methodology and variables involving this decision. ISA understands their importance to the financial market and its investors and the definitions that are being taken, however, the Company shall not make an official statement on the matter until it has all the information needed to quantify the business impact.
ISA, through its CTEEP affiliate, controls about 15% of total transmission revenues in Brazil and holds a 37.8% of the company’s total equity, in which also Eletrobras, the federal state-owned company, has a significant (35.2%). The financial and operating performance of the CTEEP 059 concession in Brazil, during the last six years, has shown excellent results and investments by USD $1,800 million*. In addition it is important to note that this award is the only one sheltered by the renewal definition process advanced by the Government and that in addition to this asset, ISA has been consolidating in this market, with a presence in 12 states, through three subsidiaries and four investments in Energy Transport: PINHEIROS, SERRA DO JAPI, IEMG, IENNE, IESUL, IEMADEIRA and IE GARANHUNS. These companies develop important projects such as the construction of the main transmission line in direct current now being developed in the world (about 2,000 km).
Finally, it is important to note that this in no way affects the service of ISA and its affiliates and subsidiaries in the countries where it operates.
The renegotiation of concessions in Brazil’s electricity sector covers a wide spectrum of Generation, Distribution and Transmission companies. In the transmission sector in which CTEEP operates, concessions reaching 85,000 kilometers of transmission lines of high voltage, of which CTEEP has about 18.842 circuit kilometers, will be renegotiated.
ISA reaffirms its commitment to deliver timely market-relevant information regarding the development of this process.
* Includes operational investments and in the Company from 2006 to 2012.