Amended Annual and Transition Report (foreign Private Issuer) (20-f/a)

Date : 10/21/2016 @ 9:19PM
Source : Edgar (US Regulatory)
Stock : Centrais Electricas Brasileiras S A American Depositary Shares (Each Representing One Common Share) (EBR)
Quote : 8.96  0.0 (0.00%) @ 11:59AM

Amended Annual and Transition Report (foreign Private Issuer) (20-f/a)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Amendment No.1

 

 

FORM 20-F/A

 

 

 

¨ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

¨ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34129

 

 

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. –

ELETROBRAS

(exact name of registrant as specified in its charter)

 

 

BRAZILIAN ELECTRIC POWER COMPANY

(translation of registrant's name into English)

Federative Republic of Brazil

(jurisdiction of incorporation or organization)

Avenida Presidente Vargas, 409 – 9th floor, Edifício Herm. Stoltz – Centro, CEP 20071-003, Rio de Janeiro, RJ, Brazil

(address of principal executive offices)

 

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

American Depositary Shares, evidenced by American Depositary Receipts, each representing one Common Share   New York Stock Exchange
Common Shares, no par value*   New York Stock Exchange
American Depositary Shares, evidenced by American Depositary Receipts, each representing one Class B Preferred Share   New York Stock Exchange
Preferred Shares, no par value*   New York Stock Exchange

 

* Not for trading but only in connection with the registration of the American Depositary Shares pursuant to the requirements of the SEC.

Securities registered or to be registered pursuant to Section 12(g) of the Act: None.

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None.

 

 

The number of outstanding shares of each of the issuer's classes of capital or common stock as of December 31, 2015 was:

 

  1,087,050,297   Common Shares  
  146,920   Class A Preferred Shares  
  265,436,883   Class B Preferred Shares  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     ¨   Yes     x   No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     ¨   Yes     x   No

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days     x   Yes     ¨   No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ¨   Yes     x   No

Indicate by check mark whether the registrant is a large accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12-b-2 of the Exchange Act.

Large accelerated filer   x                 Accelerated filer   ¨                 Non accelerated filer   ¨

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   ¨

   IFRS   x      Other   ¨  

Indicate by check mark which financial statement item the registrant has elected to follow.      ¨   Item 17     x   Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b 2 of the Exchange Act.).      ¨   Yes     x   No

 

 

 


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Explanatory Note — Amendment

We are amending the annual report to include the 2015 financial statements of Energia Sustentável do Brasil Participações S.A. and Madeira Energia S.A. as they met the criteria set forth in Rule 3-09 or Regulation S-X in 2014. No further amendments have been made to the annual report other than including these financial statements.


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CONTENTS

 

         Page  

ITEM 17.

  Financial Statements      1   

ITEM 18.

  Financial Statements      1   

ITEM 19.

  Exhibits      2   


Table of Contents

PART III

ITEM 17. FINANCIAL STATEMENTS

See “Item 18, Financial Statements.”

ITEM 18. FINANCIAL STATEMENTS

In 2015, none of our affiliated entities was a significant subsidiary under Rule 3-09 of Regulation S-X. In 2014, Madeira Energia S.A. and Energia Sustentável do Brasil Participações S.A. constituted significant subsidiaries under Rule 3-09 of Regulation S-X and the financial statements for those entities as of December 31, 2014 and 2013 and for the year ended December 31, 2014, 2013 and 2012 were included in our annual report for 2014 on Form 20-F. Please see attached the financial statements for those entities as of December 31, 2015 and 2014 and for the years ended December 31, 2015, 2014 and 2013, as an amendment to the annual report for 2015 filed on October 11, 2016.

 

1


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ITEM 19. Exhibits

 

12.1

  Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

12.2

  Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

13.1

  Section 906 Certification of Chief Executive Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

13.2

  Section 906 Certification of Chief Financial Officer of Centrais Elétricas Brasileiras S.A. – Eletrobras.

 

2


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SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this amendment to its annual report on its behalf.

 

   

CENTRAIS ELÉTRICAS BRASILEIRAS S.A. –

ELETROBRAS

October 21, 2016     By:       /s/ Wilson Pinto Ferreira Junior                    
      Name: Wilson Pinto Ferreira Junior
      Title:   Chief Executive Officer
    By:   /s/ Armando Casado de Araújo                    
      Name: Armando Casado de Araújo
      Title:   Chief Financial and Investor Relations Officer

 

3


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CENTRAIS ELÉTRICAS BRASILEIRAS S.A. – ELETROBRAS

AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

Contents

 

ESBR Participações S.A.

  

Report of Independent Registered Public Accounting Firm of ESBR Participações S.A. for the year ended December 31, 2014

     F-2   

Consolidated balance sheets as of December 31, 2015 and 2014

     F-4   

Consolidated statements of profit and loss for the years ended December 2015, 2014 and 2013

     F-6   

Consolidated statements of comprehensive loss for the years ended December 31, 2015, 2014 and 2013

     F-7   

Consolidated statements of changes in equity for the years ended December 31, 2015, 2014 and 2013

     F-8   

Consolidated statements of cash flows for the years ended December  31, 2015, 2014 and 2013

     F-9   

Notes to the consolidated financial statements for the years ending December 31, 2015, 2014 and 2013

     F-11   

Madeira Energia S.A

  

Report of Independent Registered Public Accounting Firm of Madeira Energia S.A. as of and for the years ended December 31, 2015 and 2014

     F-87   

Consolidated balance sheets as of December 31, 2015 and 2014

     F-89   

Consolidated statements of operations for the years ended December 2015, 2014 and 2013

     F-90   

Consolidated statements of comprehensive income (loss) for the years ended December 31, 2015, 2014 and 2013

     F-91   

Consolidated statements of changes in equity for the years ended December 31, 2015, 2014 and 2013

     F-92   

Consolidated statements of cash flows for the years ended December  31, 2015, 2014 and 2013

     F-93   

Notes to the consolidated financial statements for the years ending December 31, 2015, 2014 and 2013

     F-95   

 

 

F-1


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REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders

ESBR Participações S.A.:

We have audited the accompanying consolidated balance sheet of ESBR Participações S.A. and subsidiary as of December 31, 2014, and the related consolidated statements of profit and loss, comprehensive loss, changes in equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ESBR Participações S.A. and subsidiary as of December 31, 2014, and the results of their operations and their cash flows for the year then ended, in conformity with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

The accompanying consolidated balance sheet of ESBR Participações S.A. and subsidiary as of December 31, 2015, and the related consolidated statements of profit and loss, comprehensive loss, changes in equity and cash flows for the years ended December 31, 2015 and 2013 were not audited, reviewed, or compiled by us and, accordingly, we do not express an opinion or any other form of assurance on them.

/s/ KPMG Auditores Independentes

October 10, 2016

 

F-2


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ESBR Participações

S.A. and Subsidiary

Consolidated Financial Statements at December 31, 2015 and 2014, and for each of the years in the three-year period ended December 31, 2015

Report of Independent Registered Public Accounting Firm as of and for the year ended December 31, 2014

 

F-3


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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2015 and 2014

(In thousands of Brazilian reais - R$)

 

ASSETS

   Note      12/31/2015      12/31/2014  
            (unaudited)         

CURRENT ASSETS

        

Cash and cash equivalents

     4         143.897         74.301   

Marketable Securities

     5         —           10.612   

Trade receivables

     6         380.951         151.127   

Inventories – Storeroom supplies

        2.678         139   

Prepaid expenses

     12         38.944         9.993   

Recoverable taxes

     7         326.630         233.686   

Other current assets

     9         15.470         26.803   
     

 

 

    

 

 

 

Total current assets

        908.570         506.661   
     

 

 

    

 

 

 

NONCURRENT ASSETS

        

Long-term assets:

        

Marketable Securities

     5         61.621         —     

Prepaid expenses

     12         163.432         38.227   

Recoverable taxes

     7         305.807         552.224   

Deferred taxes

     8         1.096.023         751.729   

Judicial deposits

     11         28.173         37.767   

Property, plant and equipment

     14         21.088.279         19.743.906   

Intangible assets

     15         597.279         594.838   
     

 

 

    

 

 

 

Total noncurrent assets

        23.340.614         21.718.691   
     

 

 

    

 

 

 
        

TOTAL ASSETS

        24.249.184         22.225.352   
     

 

 

    

 

 

 

(continued)

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED BALANCE SHEETS AS AT DECEMBER 31, 2015 and 2014

(In thousands of Brazilian reais - R$)

 

LIABILITIES AND EQUITY

   Note      12/31/2015     12/31/2014  
            (unaudited)        

CURRENT LIABILITIES

       

Suppliers

     16         107.927        205.055   

Financing

     20         301.413        308.607   

Payroll, related taxes and accruals

        4.974        4.189   

Taxes payable

     17         18.870        38.530   

Regulatory and sector charges

     24         750.915        31.709   

Public asset use payable

     21         12.484        10.757   

Provision for environmental costs

     22         125.951        107.403   

Provision for contingencies

     23         1.977        3.721   

Insurance payable

     12         67.291        869   

Other current liabilities

     25         30.211        8.614   
     

 

 

   

 

 

 

Total current liabilities

        1.422.013        719.454   
     

 

 

   

 

 

 

NONCURRENT LIABILITIES

       

Suppliers

     16         25.929        6.638   

Financing

     20         10.998.444        11.016.142   

Public asset use payable

     21         112.034        109.674   

Advance for future capital increase (AFCI)

     26         477.691        —     

Provision for environmental costs

     22         451.584        476.519   

Provision for contingencies

     23         3.739.543        2.628.513   

Research & development

     27         2.883        —     
     

 

 

   

 

 

 

Total noncurrent liabilities

        15.808.108        14.237.486   
     

 

 

   

 

 

 

TOTAL LIABILITIES

        17.230.121        14.956.940   
     

 

 

   

 

 

 

EQUITY

       

Capital

     28.1         9.131.711        8.681.711   

Accumulated losses

        (2.112.648     (1.413.299
     

 

 

   

 

 

 
        7.019.063        7.268.412   
     

 

 

   

 

 

 

TOTAL LIABILITIES AND EQUITY

        24.249.184        22.225.352   
     

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF PROFIT AND LOSS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013

(In thousands of Brazilian reais - R$)

 

     Note      12/31/2015     12/31/2014     12/31/2013  
            (unaudited)           (unaudited)  

NET OPERATING REVENUE

     29         2.412.946        732.639        147.005   

Costs on power sold

     30         (2.457.414     (2.239.445     (287.427
     

 

 

   

 

 

   

 

 

 

Provision for energy contingencies and EUST

        (897.698     (1.915.094     (157.519

Power grid charges

        (520.188     (171.640     (4.806

Depreciation and amortization

        (433.313     (122.601     (4.798

Costs of transactions at CCEE

        (304.675     —          —     

Provision GSF

        (204.930     —          —     

Public asset use

        (18.016     (2.429     (36

Personnel costs

        (3.868     (4.945     (76

Other operating expenses

        (74.726     (22.736     (327

GROSS LOSS

        (44.468     (1.506.806     (140.422
     

 

 

   

 

 

   

 

 

 

Other operating income/expenses, Net

        565        2.248        —     

GENERAL AND ADMINISTRATIVE EXPENSES

     30         (331.262     (132.883     (83.401
     

 

 

   

 

 

   

 

 

 

Personnel

        (31.935     (35.212     (29.615

Management

     19         (16.750     (11.470     (9.613

Administrative costs

        (282.577     (86.201     (44.173

FINANCE INCOME (COSTS)

     31         (672.570     (174.981     (4.607
     

 

 

   

 

 

   

 

 

 

Finance income

        13.446        6.961        3.369   

Finance costs

        (686.016     (181.942     (7.976

LOSS BEFORE INCOME TAX AND SOCIAL CONTRIBUTION

        (1.047.735     (1.812.422     (228.430
     

 

 

   

 

 

   

 

 

 

Current income tax and social contribution

        (187     (22.064     —     

Deferred income tax and social contribution

        348.573        637.759        77.767   

INCOME TAX AND SOCIAL CONTRIBUTION

     8         348.386        615.695        77.767   

LOSS FOR THE YEAR

        (699.349     (1.196.727     (150.663
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013

(In thousands of Brazilian reais - R$)

 

     12/31/2015     12/31/2014     12/31/2013  
     (unaudited)           (unaudited)  

COMPREHENSIVE LOSS FOR THE YEAR

      

Loss for the year

     (699.349     (1.196.727     (150.663

Other comprehensive income (loss)

      

Cash flow hedge , which is comprised of:

     —          —          (1.954 )  

Gains in cash flow hedge in the period

     —          —          5.635   

Transfers to hedged items - property, plant and equipment

     —          —          (7.589

TOTAL COMPREHENSIVE LOSS FOR THE YEAR

     (699.349     (1.196.727     (152.617
  

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013

(In thousands of Brazilian reais - R$)

 

     Note      Subscribed
capital
     Unpaid
capital
    Issued
capital
     Accumulated
losses
    Total  

BALANCES AS AT DECEMBER 31, 2013 (unaudited)

        7.431.711         (295.000     7.136.711         (216.572     6.920.139   

Capital subscription

        1.700.000         (1.700.000     —           —          —     

Capital contribution

        —           1.545.000        1.545.000         —          1.545.000   

Loss for the year

        —           —          —           (1.196.727     (1.196.727
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

BALANCES AS AT DECEMBER 31, 2014

        9.131.711         (450.000     8.681.711         (1.413.299     7.268.412   

Capital contribution (unaudited)

     28.1         —           450.000        450.000         —          450.000   

Loss for the year (unaudited)

        —           —          —           (699.349     (699.349

BALANCES AS AT DECEMBER 31, 2015 (unaudited)

        9.131.711         —          9.131.711         (2.112.648     7.019.063   
     

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARs ENDED DECEMBER 31, 2015, 2014 and 2013 (unaudited)

(In thousands of Brazilian reais - R$)

 

     Note      12/31/2015     12/31/2014     12/31/2013  
            (unaudited)           (unaudited)  

CASH FLOWS FROM OPERATING ACTIVITIES

         

Loss for the year

        (699.349     (1.196.727     (150.663

Adjustments to reconcile net loss for the year to net cash provided by (used in) operating activities:

         

Provision for contingencies

        958.935        1.924.398        29   

Recognition (reversal of) allowance for doubtful debts

     6         17.085        (5.249     —     

Deferred income tax and social contribution

     8         (348.573     (637.759     (77.702

Current income tax and social contribution

     8         187        22.064        —     

Inflation adjustment

        (2.986     3.045        (13.638

Inflation adjustment on environmental costs

        29.020        —          —     

Accrued interest

     20         587.919        164.688        —     

Depreciation and amortization

     14 and 15         452.793        129.684        7.210   

Write-off of property, plant and equipment and Intangible assets

     12 and 13         16.216        —          —     

Gain on sale of property, plant and equipment

        —          4.674        —     

Inflation adjustment on public asset use

        15.845        15.994        6.487   

Income from short-term investments

        2.770        —          —     

Attorneys’ fees and court costs

        8.757        —          —     

GSF

        204.930        —          —     

Adjustment to the advance for future capital increase

        20.691        —          —     

Costs of transactions at CCEE

        304.675        —          —     

Unrealized earnings on foreign restricted deposits

        —          —          12.779   

Other adjustments

        4.279        7.583        —     

Changes in:

         

Accounts receivables

     6         (246.909     (58.814     (87.064

Inventories

        (2.539     (139     —     

Prepaid expenses

     12         (154.156     (37.794     (4

Judicial deposit

        12.184        (5.173     —     

Other current assets

        11.333        (16.564     (9.080

Trade payables

        (115.381     (183.072     (17.917

Payroll, related taxes and accruals

        785        1.217        634   

Suppliers

     24         209.601        31.709        —     

Insurance payment

     12         66.422        (4.281     —     

Public asset use (UBP) payment

     21         (11.758     (10.931     (3.566

Payment of environmental costs

     22         (53.832     (65.297     —     

Recoverable taxes

        (75.642     13.530        —     

Taxes payable

        305.757        125.941        18.783   

Payment of success fees

     23         (864     —          —     

Other current liabilities

        15.722        1.975        (469

Recoverable taxes - (purchase of property, plant and equipment)

        (96.093     (186.161     (188.127

Net cash provided by operating activities

        1.437.824        38.541        (502.308
     

 

 

   

 

 

   

 

 

 

(continued)

 

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ESBR PARTICIPAÇÕES S.A.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2015, 2014 and 2013 (unaudited), CONTINUED

(In thousands of Brazilian reais - R$)

 

     Note      12/31/2015     12/31/2014     12/31/2013  
            (unaudited)           (unaudited)  

CASH FLOWS FROM INVESTING ACTIVITIES

         

Purchase of property, plant and equipment

        (1.241.388     (1.877.286     (2.548.400

Purchase of marketable Securities

     5         —          (10.612     —     

Proceeds from the sale of property, plant and equipment

        —          1.924        —     

Securities

     5         (53.779     (10.612     —     

Insurance payment

        —          (4.281     —     

Purchase of intangible assets

     15         (3.343     (2.188     (2.546

Net cash used in investing activities

        (1.298.510     (1.888.162     (2.550.946

CASH FLOWS FROM FINANCING ACTIVITIES

         

Capital contributions

     28.1         450.000        1.545.000        2.375.000   

Advance for future capital increase (AFCI)

     26         457.000        —          —     

Financing released

     20         160.000        700.000        668.000   

Financing paid (Principal)

     20         (244.491     (71.457     (61.224

Financing paid (interest)

     20         (892.421     (243.433     (208.247

Payment of commissions on borrowings

     20         194        (10.616     (5.758
     

 

 

   

 

 

   

 

 

 

Net cash provided (used by) by financing activities

        (69.718     1.919.494        2.767.771   

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

         

Cash and cash equivalents at the beginning of the year

     4         74.301        4.428        289.911   

Cash and cash equivalents at the end of the year

     4         143.897        74.301        4.428   
     

 

 

   

 

 

   

 

 

 

Changes in cash

        69.596        69.873        285.483   
     

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these financial statements.

 

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ESBR PARTICIPAÇÕES S.A.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015 (unaudited), 2014 and 2013 (unaudited)

(In thousands of Brazilian reais - R$, unless otherwise stated)

 

1. GENERAL INFORMATION

ESBR Participações S.A. (“ESBRP” or “Company” or “Parent”) is a closely-held company, headquartered and domiciled in the City of Rio de Janeiro - RJ, at Avenida Almirante Barroso, no 52 - Sala 2.802 (Parte). ESBRP is solely engaged in holding interest in Energia Sustentável do Brasil S.A (“Subsidiary” or “ESBR”), also a closely-held company, that holds the public asset use concession to operate Jirau hydroelectric power plant.

As at December 31, 2015, the Company’s controlling shareholders were GDF Suez Energy Latin América Participações Ltda, Mizha Energia Participações S.A. (Mitsui Group), Eletrosul Centrais Elétricas S.A. and Companhia Hidro Elétrica do São Francisco - Chesf.

The Company and its subsidiary recognized recurring losses and net working capital deficit primarily because of the recognition of the provision for contingencies related to the exemption claim and provision for EUST (see more information in Note 23) that adversely impacted the Company's profit or loss and financial condition up to this date.

However, due to the contribution obligations from the shareholders of ESBR Participações S.A. to the subsidiary, which are being performed and guaranteed, as well as the compliance with requirements set forth in the financing agreement entered into with the National Bank for Economic and Social Development (BNDES) and other ronlending banks, that are also binding upon the shareholders, up to the settlement of the contractual obligations or full startup of operation of the plant, to make contributions to the subsidiary whenever necessary so as to maintain the investments for the completion of operating assets, as mentioned in Note 20, the subsidiary has guaranteed through December 2017, according to the corporate guarantee agreement entered into by shareholders, its financial resources necessary for the completion of investments in UHE Jirau, as well as for working capital maintenance, until the subsidiary achieves levels of profitability and cash generation aligned with its original business plan.

1.1. Characteristics of Jirau Project

Jirau Project comprises the construction of a hydroelectric power plant located in Madeira river, City of Porto Velho, State of Rondônia, as well as the respective installation of the transmission line whose interest is restricted to the power plant. The initial basic project of UHE Jirau, called Auction A-5/2008, originally provided for a total of 44 generation units in the plant, with minimum installed capacity of average 3,300MW*, with physical energy guarantee (guaranteed energy) of average 1,975.3 MW* after the startup of operation of the last generation unit.

 

(*) information unaudited by independent auditors

 

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The physical guarantee of the original guaranteed power of the plant (average 1,975.3 MW*) was divided as follows:

 

    70% at the Regulated Contract Environment (“ACR”), at the price of R$71.37 per MWh, related to May 2008, adjusted at the month of anniversary of the tariff adjustment of each distribution company based on the extended national consumer price index (IPCA), disclosed by the Brazilian Institute of Geography and Statistics (IBGE). As at December 31, 2015, the adjusted price per MWh is R$114.94 (R$103,10 as at December 31, 2014); and

 

    30% allocated to the sale in the Free Contract Environment (“ACL”). In 2013 no power was sold in this environment. In January and February 2014, all volumes contracted were delivered to related parties. With respect to March, April and May 2014, no sale was made to related parties, being the power settled at the Electric Power Commercialization Chamber (CCEE).

From June to December 2014, the following assumption was adopted to measure the volume of power to be delivered to the related parties: on the Physical Guarantee of Generation Units in Operation the seasonality factor of the Energy Reallocation Mechanism (MRE), internal loss factor, basic grid loss factor, availability factor and physical guarantee allocation factor are applied; all factors are estimated. After application of the abovementioned factors, the allocated power is determined. Out of this amount, the amounts of Regulated Environment Electricity Sale Agreement (CCEARs) (sold to the ACR based on the preceding item) is deducted and the remaining is sold to the related parties proportionally to their equity interest. For 2015, between January and July, the subsidiary adopted this same delivery assumption, primarily due to the physical guarantee reductions arising from the application of the GSF (Generating Scaling Factor). Under the injunction of the GSF from Apine (explained below), the subsidiary started to deliver all volumes contracted with its shareholders, which occurred from August to December 2015. See more information on the agreements entered into with related parties in Note 18.

Under SPE/MME Administrative Rule 26, of August 1, 2011, the total volume of physical energy guarantee was defined at average 209.3 MW, related to the increase in the installed capacity of UHE Jirau (equivalent to nominal 450 MW), which was sold at the Auction for Purchase of Power Arising from New Generation Projects, called Auction A-3, as set forth in MME Administrative Rule 113, of February 1, 2011. Therefore, the basic plant expansion project had 50 generation units, and the new installed capacity is 3,750 MW and the new guaranteed energy is average 2,184.6 MW.

The additional physical guarantee of 209.3 MW* was fully sold at the ACR at the price of R$102.00 per MWh related to August 2011, annualy adjusted by the IPCA.Consequently, the effective price in 2015 was R$124.09 per MWh. The effective beginning of deliverof the power under the CCEARs of Auction A-3/2011 occurred in May 2015.

On November 10, 2015, MME Ordinance nº 337 was issued by the Strategic Planning and Development Office, which granted to the subsidiary an extraordinary review of the total physical guarantee of UHE Jirau determined at average 2,205.1 MW*.

 

(*) information unaudited by independent auditors

 

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Of the total additional physical guarantee of average 20.5 MW*, average 18 MW* was fully sold at the ACR, when the subsidiary participated in and was the winning bidder of Auction A-1 for 2015, where the CCEARs will be entered into with 22 distribution companies. Agreements became effective from January 1, 2016 and goes to December 31, 2018. The sales price was R$148.00 per MWh, as at December 2015.

The subsidiary reached the guaranteed energy on July 31, 2015, based on the startup of operation of the 33 rd generation unit.

 

(*) information unaudited by independent auditors

 

  1.1.2. Concession

On August 13, 2008, the Federal Official Gazette (DOU) published that the subsidiary entered into with the federal government (Concession Grantor) over a 35-year period, through the ANEEL, Concession Arrangement 002/08 - MME UHE Jirau, which regulates the operation by the subsidiary of the potential hydraulic energy located in Madeira river, City of Porto Velho, State of Rondônia, at the coordinates of 9º19’52’’ South latitude and 64°44’04’’ West longitude, called Jirau Hydroelectric Power Plant, with minimum installed capacity of 3,300 MW, as well as the respective hydroelectric power plant restricted interest transmission facilities.

On September 17, 2012, the first addendum to the abovementioned agreement was entered into to document the expansion of UHE Jirau and redefine the project implementation schedule.

Provisional Act 579, of September 11, 2012, which addresses power generation, transmission and distribution concessions and reduction of sector charges aiming at tariff control, was changed into Law 12783 and approved by the President of Republic on January 11, 2013.

Under Law 12783/13, power concessions granted before the enactment of Concession Act (Law 8987/95) that were not subject to bid can be renewed one single time over a period of up to 30 years, provided that concessionaires agree to receive compensation only by means of tariffs to cover operating and maintenance (O&M) expenses, charges, taxes and, where applicable, transmission and distribution costs. A few sector charges will be eliminated or reduced in case of renewal of the concession.

The subsidiary’s generation assets were not directly impacted by Law 12783/13 with respect to the renewal of concessions since they were obtained by means of bid processes conducted after the enactment of Law 8987/95.

 

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  1.1.3. Environmental matters

The environmental body responsible for the project is the Brazilian Environmental and Renewable Natural Resources Institute (IBAMA).

 

    Previous License (LP): confirms the environmental feasibility of the project after Environmental Impact Study analysis and conduction of public hearings at the region. LP 251/2007 was issued on July 9, 2007.

 

    Installation Licenses (LI): authorize the beginning of work after the description of social and environmental programs. These licenses are issued after approval of the Basic Environmental Project, which describes the programs to be implemented during all project stages, including the construction, reservoir filling and plant operation. The subsidiary obtained LI 563/2008 relating to the implementation of the Pioneer Construction Site on November 14, 2008. On June 3, 2009, IBAMA issued LI 621/2009;

 

    Operating License (LO): authorizes the filling of the reservoir, the startup of the plant’s operation and the generation of power after the implementation of the social and environmental programs and satisfaction of the conditions set out in the LI. On October 19, 2012, IBAMA issued LO 1.097/2012, effective for four years counted from the issuance date, which determines the continuity of the social and environmental programs set forth in the Basic Environmental Project (PBA). The 1 st amendment to the LO was issued on November 29, 2012, so as to contemplate the 50 UGs, and the 2 nd amendment was issued on July 19, 2013, including adjustments to condition 2.32, related to the environmental compensation of UHE Jirau.

The Company accounted for future environmental costs arising from the LI and LO licenses, by recognizing in its assets (see Notes 14 and 15) and liabilities the present value of the related obligations (see Note 22).

 

  1.1.4.  Business operation

The startup of operation and respective delivery of the power volumes of the Regulated Contracted Environment (“ACR”), set forth in the 2008 invitation to bid was scheduled to take place on January 1, 2013.

On February 1, 2013, the postponement of the startup of operations of UHE Jirau was approved at the meeting of Aneel’s board of directors; consequently, the postponement of the payment of transmission costs and charges, in addition to the postponement of the scheduled beginning of supply set forth in the regulated environment electricity sale agreements (CCEARs) and respective revenue, as follows:

 

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  a) The startup of operations on May 1, 2013 was approved which, according to estimates available at the time would be the date of the startup of operations of the Transmission Line 600KV Porto Velho - Araraquara, however, in case of proven need of generation units of UHE Jirau for the commissioning of the conversion company, the two first units should be available on March 1, 2013, which has not occurred;

 

  b) The administrative proceeding in progress must be sent to the State General Attorneys’ Office (PGE) for legal analysis of the exemption claim which, through Opinion 136/2013/PGEANEEL/ PGF/AGU, acknowledged the exemption claim that would enable the postponement of the activity startup schedule of UHE Jirau. PGE explained that the impact on the construction schedule should be determined by a technical expert;

On June 4, 2013, through Ordinance 1732, Aneel decided to (i) postpone the startup of operations of the generation units and the beginning of supply of power set forth in the CCEAR of UHE Jirau, so as to match these dates to the 30-day period before the startup of operations of the Porto Velho-Araraquara Transmission Line (LT), which was then scheduled to take place on July 1, 2013 and (ii) acknowledge the 52-day delay in the implementation schedule as e caused by act from the public authorities. The transmission line has not started to operate on July 1, 2013, as scheduled, but rather on November 29, 2013.

Additionally, the subsidiary filed a request for reconsideration with Aneel’s Executive Board on June 13, 2013, claiming, among other issues: (i) the recognition, in addition to the 52 days already recognized, of 187 days of exemption calim; (ii) that the startup of operation of UHE Jirau matches the expected date for startup of operation of transmission facilities (and not the 30 days before such date); and (iii) that the approved matching is not applicable to the total implementation schedule of UHE Jirau, subject to the generation machinery implementation intervals currently set out in the prevailing schedule.

On October 22, 2013, Aneel, through Ordinance 3588, partially and preliminarily granted the exemption claim application of 239 days, to be added to every startup date of the various generation units of the schedule contained in the Concession Arrangement.

Concurrently, the subsidiary filed with the 5 th Federal Court of the Judiciary District of Porto Velho a lawsuit so that the events at the construction site of UHE Jirau in 2011 and 2012 would be recognized as exemption claim.

Currently and, as a result of the abovementioned lawsuits/administrative proceedings, three decisions are currently effective, as follows: within the administrative scope, ANEEL Ordinance 3588/2013; and, judicial scope, the decisions dated September 18, 2013 (Evidence Precautionary Action) and October 17, 2013 (Primary Action).

 

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The court rulings above determine the non-application of penalties to the Company and its subsidiary due to delay in power generation, and abstention from (i) requiring the registration of the power volumes with the Power Commercialization Chamber (CCEE) arising from the project construction schedule, as well as (ii) transmission system use tariffs.

In November 2014, the expert report was attached to the court records of the Primary Action recognizing 535 days of delay in the schedule, arising from the events in 2011 and 2012, mitigating the risk of an unfavorable outcome for the Company. The report can still be challenged by Aneel.

For further details about the updates of exemption claim will be treated in explanatory note of subsequent events (note 33).

 

2. PRESENTATION OF FINANCIAL STATEMENTS

 

  2.1. Statement of compliance

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB"). Additionally, aspects of the specific Brazilian legislation issued by ANEEL, particularly regarding the structure of accounts and the way of recording events were considered, aiming at standardizing the practices with other companies of the electric sector.

The Company’s consolidated financial statements were approved by the Board of Directors on October 10, 2016.

 

  2.2. Basis of preparation

The Company and its subsidiary has incurred recurring losses, has an accumulated deficit and its current liabilities exceeds it current assets since it is currently in a transition process, from the preoperating to the operating stage. However, the Company’s capital structure contemplates additional capital contributions being made by the shareholders to the Company, as well as the additional financing agreement entered into with BNDES through December 31, 2012, as mentioned in Note 17. Consequently, these financial statements have been prepared on the basis thtat the Company will continue as a going concern.

The Company’s consolidated financial information has been prepared based on the historical cost, except for certain financial instruments, which are measured at their fair values, when prescribed.

 

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The main consolidation criteria are as follows:

 

  i. Elimination of intragroup asset and liability balances between the consolidated entities;

 

  ii. Elimination of the Parent's share in the subsidiary’s capital, reserves and retained earnings or accumulated losses; and

 

  iii. Elimination of income and expense balances arising from intercompany transactions between the consolidated entities.

Assets and liabilities are classified based on their liquidity and payment level as current when their realization or settlement is likely to occur within the next twelve months. Otherwise, assets and liabilities are stated as noncurrent. Monetary assets, liabilities and commitments denominated in foreign currencies were translated into Brazilian reais at the exchange rate prevailing at the balance sheet date.

At the end of each year, the Company verifies the carrying amounts of its or its subsidiary’s tangible and intangible assets to determine if there are any indication that these assets might be impaired. If there is such an indication, the recoverable amount of the asset is estimated and the carrying amount of tangible and intangible assets is written down so as to reflect the estimated recoverable amount, if necessary.

The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use. Impairment losses, if any, are immediately recognized in profit or loss.

In 2015 the Company’s management identified that (i) change in the estimated dates of startup of activities and reduction of the amounts set forth in the Regulated Environment Electricity Sale Agreements (CCEARs), (ii) the effects from the exemption claim brought by the Company before Aneel, (iii) the review of the construction budget and related impacts on the leverage of the project could constitute factors that would impact the amount of its property, plant and equipment items, thus the Company decided to test such assets for impairment.

The impairment test was conducted as at December 31, 2015, based on assumptions adopted by the Company on the projected cash flow from operating activities, internal discount rate, net debt and equity amount as at the impairment date.

The projected operating cash flow was based on the following assumptions: (i) the entire concession term, (ii) estimated startup date, (iii) estimated power balance, (iv) power volume and prices in the ACR and those projected for the ACL, in addition to the test power sales revenue, (v) costs and expenses on personnel, materials, outside services, sectorial charges, power purchase, transmission charges, taxes and other expenses and projected investments to be made between the test date up to the completion of works in UHE Jirau.

 

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The discount rate used to calculate the present value of the operating cash flow was the Company’s weighted average cost of capital (WACC) as at the test date. The WACC is calculated based on third-party capital cost (including the impact from the tax benefit of deductibility of such finance cost) and the own capital cost, the latter calculated based on the Capital Asset Pricing Model (CAPM) method.

The net debt amount considered in the test was based on the recordkeeping as at December 31, 2015, deducting cash and cash equivalents and securities - reserve account from financing amounts in current and noncurrent liabilities. The amount of the provision for exemption claim was also considered as at the test date.

Due to the test result, based on the aforementioned assumptions, the Company concluded that no impairment losses on assets should be recognized as at December 31, 2015.

These financial statements are presented in Brazilian reais, which is the Company’s functional currency and the amounts reported (texts and tables) are expressed in thousands of Brazilian reais, except if otherwise stated.

 

  2.3. Adoption of new accounting policies

New and revised standards and interpretations not yet effective on December 31, 2015:

Effective for annual periods beginning on or after January 1, 2016:

 

    IAS 16 and IAS 38 - amendments to clarify the accepted depreciation and amortization methods.

 

    IAS 27 – The standard was amended so as to include the accounting for investments in subsidiaries, joint ventures and associates under the equity method in the separate financial statements.

 

    IAS 1 – amendment to address the potential obstacles identified when exercising judgment upon preparation of the financial statements. Such amendment clarifies that the concept of materiality must be considered both for purposes of the information to be disclosed, either required or not, and upon organization of the explanatory notes and use of aggregation criteria.

Effective for annual periods beginning on or after July 1, 2016:

 

    2010-2014 annual improvement cycles: minor amendments to the existing pronouncements.

 

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Effective for annual periods beginning on or after January 1, 2018:

 

    IFRS 9 - Financial Instruments - new standard that introduces new requirements for the classification, measurement, impairment, hedge accounting and derecognition of financial assets and financial liabilities.

 

    IFRS 15 - Revenue from Contracts with Customers - defines five steps to be applied to contracts entered into with customers for purposes of revenue recognition and disclosure. It will supersede the standards currently effective on the matter (IAS 18 and IAS 11) and related interpretations (IFRIC 13, IFRIC 15 and IFRIC 18).

 

    IFRS 16 - Leases - At the meeting held on November 11, 2015, FASB decided that the effective date of adoption of the standard for closely-held companies will be annual periods beginning after December 15, 2019 and interim periods in the subsequent year. Early adoption would be permitted for all entities. The lease model proposed by FASB and IASB is in progress and the final version of the standard is being prepared.

The Company will adopt such standards when they become effective. The Company analyzed the impacts arising from such standards and no significant impact on its financial statements was identified.

 

3. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES

 

  a) Financial instruments

The Company and its subsidiary recognize the financial instruments in their financial statements when the entity becomes a party to the underlying instrument.

Financial assets and financial liabilities are initially measured at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, where applicable, after initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are immediately recognized in profit or loss.

Financial assets are classified into the following specific categories: financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets, and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined upon initial recognition. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

 

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As at December 31, 2015 and 2014, the Company’s financial assets are classified as loans and receivables.

Loans and receivables are represented by non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including cash and cash equivalents, securities, trade receivables, pledges and restricted deposits and due from related parties) are measured at amortized cost using the effective interest method, less any impairment losses.

Interest income is recognized by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

Financial liabilities are classified either as ‘financial liabilities at fair value through profit or loss’ or ‘other financial liabilities’.

As at December 31, 2015 and 2014, the Company's financial liabilities are classified as “Other financial liabilities”.

Other financial liabilities (including trade payables, borrowings, payables and UBP) are measured at amortized cost using the effective interest method.

The effective interest method is used to calculate the amortized cost of a financial liability and allocate its interest expense to the related period. The effective interest rate is the rate that exactly discounts estimated future cash flows (including fees and points paid or received that are an integral part of the effective interest rate, transaction costs, and other premiums or discounts) over the expected life of the financial liability or, where appropriate, over a shorter period, for the initial recognition of the net carrying amount.

 

  b) Cash and cash equivalents

Cash and cash equivalents are maintained to meet short-term cash commitments and are comprised of cash, demand deposits and highly liquid short-term investments, without significant risk of change in fair value.

 

  c) Marketable Securities

Securities – reserve account are intended to collateralize the financing entered into with BNDES and other onlending banks.

 

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  d) Accounts receivables

Accounts receivables include the power sales amounts billed, including the sale of purchased power, when applicable.

Accounts receivables are initially recorded at the sales amount and subsequently at amortized cost, less the allowance for doubtful debts, when applicable.

The allowance for doubtful debts is recognized considering Management’s estimate of loss based on the parameters recommended by ANEEL, taking into account the information monthly determined by the Power Commercialization Chamber (CCEE), to the extent that they reflect Company’s best estimate of the loss.

 

  e) Due from related parties

Due from related parties correspond to amounts receivables for the supply of power in the normal course of the Company’s activities.

As at December 31, 2015, the Company does not expect any loss on due from related parties.

 

  f) Prepaid expenses

Represented by assets arising from payments which provision of services will occur in a subsequent period and that will not be reimbursed and/or received in cash, nor represent physically existing assets. Prepaid expenses are stated at the effective contractual amounts, less amortization incurred through the balance sheet date. During the construction of UHE Jirau, amortization of insurance premiums related to the plant’s construction is accounted for as a balancing item to property, plant and equipment.

 

  g) Recoverable taxes

Refer to tax credits relating to prepaid taxes levied on the acquisition of property, plant and equipment items, accounted for upon the occurrence of a taxable event. Such taxes are adjusted for inflation as prescribed by tax laws, when applicable.

 

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  h) Income Taxes

 

  h.1) Current taxes

The provision for income tax and social contribution (Income Taxes) is based on the taxable income for the period. Taxable income differs from the profit disclosed in the statement of profit or loss because it excludes income or expenses taxable or deductible in other periods, as well as permanently nontaxable or nondeductible items. The provision for income tax and social contribution is calculated by the Company based on the statutory rates prevailing at the balance sheet date.

 

  h.2) Deferred taxes

Deferred income tax and social contribution (“deferred taxes”) are recognized on temporary differences at the end of each reporting period distributed between asset and liability. The offset balances recognized in the financial statements and the corresponding tax basis used to determine taxable income, including tax losses, when applicable. Deferred tax liabilities are usually recognized on all temporary taxable differences and deferred tax assets are recognized on all temporary deductible differences, only when it is probable that the Company will report future taxable income in an amount sufficient to allow the utilization of these temporary deductible differences.

Deferred tax liabilities are recognized on temporary taxable differences, except when the Company is able to control the reversal of temporary differences and it is probable that such reversal will not take place in the foreseeable future in relation to an investee. Deferred tax assets arising from temporary deductible differences are recognized only if it is probable that there will be sufficient taxable income against which temporary differences can be utilized and it is probable that their reversal will take place in the foreseeable future.

Deferred tax assets are reviewed at the end of each reporting period and, when it is no longer probable that future taxable income will be available to allow the recovery of all or part of the assets, the asset balance is adjusted for the expected recoverable amount.

Deferred tax assets and liabilities are measured at the tax rates applicable for the period in which the liability is expected to be settled or the asset realized, based on the tax rates set forth in the tax law prevailing at the end of each reporting period, or when new legislation has been substantially approved. Deferred tax assets and liabilities are measured to reflect the tax implication that would arise from the way in which the Company expects, at the end of each reporting period, to recover or settle the carrying amount of these assets and liabilities.

 

  h.3) Current and deferred income tax and social contribution

Current and deferred income tax and social contribution are recognized in profit or loss as expenses or income, except when they correspond to items recognized in ‘Other comprehensive income’, or directly in equity, in which case current and deferred taxes are also recognized in ‘Other comprehensive income’ or directly in equity, respectively.

 

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  i) Judicial deposits

Judicial deposits are initially recorded at the amount deposited in financial institution as determined by a court, plus income earned (managed basic rate (TR) + interest from 3% to 6% p.a.) up to the balance sheet date, which are recognized as finance income.

 

  j) Property, plant and equipment and intangible assets (except UBP)

Property, plant and equipment items are stated at acquisition or construction cost, including unapportioned expenses on payroll and related taxes, social and environmental costs, insurance premium amortization and interest on borrowings, all directly related to the construction of UHE Jirau, less depreciation and impairment losses, when applicable.

Once a year or in the event of occurrence of any fact that requires analysis, the Company verifies the carrying amounts of its tangible and intangible assets to determine if there are any indications that these assets might be impaired. If there is such an indication, the recoverable amount of the asset is estimated and the carrying amount of tangible and intangible assets is written down so as to reflect the estimated recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use. Impairment losses, if any, are immediately recognized in profit or loss. The Company did not recognize any impairment loss in the financial statements for the year ended December 31, 2015 or prior periods.

 

  j.1) Depreciation and amortization

Depreciation is calculated on a straight-line basis based on the annual rates determined by Aneel – which are adopted by companies operating in the Brazilian power sector and represent the estimated useful life of the assets – limited to the plant concession or authorization term, when applicable, based on the book balances recorded in the measurement units comprising these projects. The average annual depreciation rates of the Company’s assets are stated in Note 14.

During the mixed plant implementation and operation stage (since the power generation units started to operate over various months), such proportional method is applied to the installed power of each generation unit in operation. The Company’s management understands that such method is the method that best reflects the relation between depreciation expenses and the use of assets.

Software amortization is recognized on a straight-line basis, based on the estimated useful life of the assets. The estimated useful life and amortization method are reviewed at the end of each reporting period, and the effect of any changes in estimates is accounted for on a prospective basis.

UBP costs are amortized proportionally to the number of machinery in operation, based on rates that are compatible with the concession term. Software costs are amortized at the rate of 20% p.a.

LO costs are amortized based on the percentage of machiney that started to operate over the concession term.

 

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  j.2) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets that take substantial period of time to get ready for their intended use or sale, are capitalized as part of the cost of such assets through the date they are ready for their intended use or sale.

Income on investments earned on the short-term investment of funds of specific borrowings not yet spent on the qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other borrowing costs are recognized in profit or loss for the period in which they are incurred.

 

  k) Key sources of estimation uncertainty

The preparation of financial statements requires Company’s management to adopt estimates and judgment to account for certain transactions that affect its assets, liabilities, income and expenses, and the disclosure of information on its financial statements.

To make these estimates and related assumptions, Management uses the best information available on the balance sheet date, as well as past and/or current events, also considering assumptions on future events considered as reasonable under the circumstances. Accordingly, actual results may differ from those estimates.

Therefore, the financial statements include estimates mainly related to: (i) useful life of property, plant and equipment, which is based on studies made by ANEEL; (ii) provisions for risks; (iii) definition of discount rates used to calculate the present value of assets and liabilities; (iv) determination of the impairment of assets; (v) recovery of deferred taxes; (vi) estimated amounts relating to the provision for environmental costs relating to the compensatory measures described in the LI and LO issued by the IBAMA and (vii) disclosure of financial instruments.

The estimates and accounting judgments are revised continuously and such revisions are recognized in the period in which the revisions are made and in any future periods affected.

 

  l) Public asset use (“UBP”)

The Company accounted for the UBP in intangible assets and liabilities at present value on the execution date of the concession arrangement of UHE Jirau (August 13, 2008), which determined that the subsidiary should pay as UBP during the entire concession period the annual original amount on the contract date of R$7,873.

The UBP payments is annually adjusted by ANEEL and based on the Extended National Consumer Price Index (IPCA) issued by the Brazilian Institute of Geography and Statistics (IBGE).

After initial recording, the UBP balances are monthly adjusted based on the rate that reflects the weighted average cost of capital of the Jirau Project upon the acquisition of concession.

 

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Upon startup of activities, the UBP installments in the amount of R$892 (beginning August 2013 up to July 2014), R$950 (beginning August 2014 up to July 2015) and R$1,040 (beginning August 2015 up to July 2016) also started to be paid. Accordingly, finance charges on the UBP liability in intangible assets will no longer be capitalized but the capitalized balance will rather be amortized, proportional to the number of machinery that started to operate limited to the concession term. The adjustment of the related liability at present value is recognized as finance costs.

 

  m) Sector charges

Sector charges are accounted for as costs on the accrual basis.

 

  n) Technological Research & Development (R&D) Program

Under Law 9991, of July 24, 2000, article 24 of Law 10438, of April 26, 2002, and article 12 of Law 10848, of March 15, 2004, the companies authorized to independently produce power, among other provisions, must annually invest the percentage rate of 1% of their net operating revenue in the Technological Research & Development Program of the Power Sector (R&D Program), based on the regulations established by ANEEL.

 

  o) Financial compensation for the use of water resources

The financial compensation, introduced by article 20, § 1 of the 1988 Federal Constitution, and regulated by Law 7990/1989, corresponds to the indemnity payable to the Brazilian states, the Distrito Federal and the municipalities, as well as direct federal administration bodies, in consideration for the exploration of water resources for power generation purposes. ANEEL Resolution 67, of February 22, 2001 determines that the amount to be monthly paid must correspond to 6.75% of the power produced in the month multiplied by the Adjusted Reference Rate (TAR), set by ANEEL, to be paid by the power concessionaires to the states, the Distrito Federal and the municipalities where power production facilities are located, or whose areas were taken by the water of the respective reservoirs, and direct federal administration bodies. This compensation is accounted for as costs in profit or loss for the year.

 

  p) Provision for environmental costs

The subsidiary accounted for at present value the costs on environmental programs. The amounts were recorded in intangible assets (those arising from the operating stage) and in property, plant and equipment (those arising from the implementation stage) and their balancing items are recorded in liabilities. The programs address compensatory measures arising from the implementation and operation of UHE Jirau in Madeira river; the LI and LO were issued by IBAMA.

The nominal amounts of the subsidiary’s future environmental costs were discounted to present value based on the subsidiary’s weighted average cost of capital. The costs on the programs were projected based on agreements contracted and estimated.

 

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Upon startup of activities, the adjustment to the provision for environmental costs is recognized in liabilities, based on the rate used to calculate present value adopted to account for the provision.

 

  q) Suppliers

Suppliers comprise amounts payable based on invoices received and percentage-of completion of construction work, or based on estimates, in the lack of a relevant documentation.

 

  r) Provision for contingencies

Provisions are recongized considering the opinion of in-house, outside legal counsel and the Company’s management assessment that there is a present obligation (legal or constructive) as a result of a past event, it is probable (more likely than not) there will be an outflow of resources that embodies economic benefits to settle the referred obligation and a reliable estimate of the amount to settle obligation can be made.

 

  s) Borrowings and financing

Borrowings and financing are initially recognized at fair value, less borrowings costs, and are subsequently measured at amortized cost using the effective interest method.

 

  t) Adjustment to present value

The assets and liabilities arising on long-term transactions are discounted to present value based on market interest rates prevailing on the transaction date.

 

  u) Profit or loss

The amount of consolidated profit or loss is basically represented by operating income, costs and expenses, administrative costs and finance income and finance costs not directly attributable to the construction of UHE Jirau. Such amounts are accounted for on accrual basis.

 

  v) Revenue, costs and expenses

Revenue comprises the fair value of the consideration received or receivable for the sale of power in the normal course of the Company’s activities. Revenue is stated net of taxes, returns, rebates and discounts.

 

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Power sales revenue is recognized when (i) it is probable that the economic benefits associated with the transactions will flow to the subsidiary; (ii) the revenue amount can be reliably measured; (iii) the risks and rewards from the sale were transferred to the buyer; (iv) the costs incurred or to be incurred related to the transaction can be reliably measured; and (v) the subsidiary no longer holds the control over and responsibility for the power sold.

The accounting made by the Company follows the accrual basis.

Costs are basically comprised of: provision for energy contingencies (liability exclusion and provision for transmission system use fee (EUST)), power grid charges, depreciation and amortization, provision for GSF (Generating Scaling Factor), costs on transactions at CCEE, financial compensation for the use of water resources (CFURH), personnel costs, electric power service inspection fee (TFSEE), amortization of UBP and other operating costs.

Expenses comprise mainly personnel and management expenses, finance costs, insurance, contingencies (labor and tax), expenses on outside services, ISSQN tax assessment notice, fine and other expenses on social compensation, expenses on materials, allowance for doubtful debts, depreciation and amortization and other administrative expenses.

 

  w) Statements of cash flows

The Company classifies in the statements of cash flows the interest paid as financing activities since it understands that the interest paid corresponds to borrowing costs.

 

4. CASH AND CASH EQUIVALENTS

 

     12/31/2015      12/31/2014  
     (unaudited)         

Cash and banks

     191         492   

Short-term investments

     143.706         73.809   
  

 

 

    

 

 

 

Total

     143.897         74.301   
  

 

 

    

 

 

 

Short-term investments are made with prime financial institutions, based on the risk rating assigned by the main risk rating agencies. Short-term investments are highly liquid, subject to floating rates and yield interest based on a percentage of the interbank deposit (CDI) rate set upon contracting, are readily convertible into a known cash amount, without significant risk of change in value; Short-term investments yield interest between 100.3% and 100.10% of the CDI as at December 31, 2015 (99% to 101.5% of the CDI as at December 31, 2014).

 

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Additionally, cash and cash equivalents are held to meet short-term cash requirements rather than for investment or other purposes.

 

5. MARKETABLE SECURITIES

 

     12/31/2015      12/31/2014  
     (unaudited)         

Investments in repurchase agreements

     61.621         10.612   

Current

     —           10.612   

Non-current

     61.621         —     

Marketable securities are held to collateralize the financing entered into with BNDES and other onleding banks (Note 18) and refer to the debt service reserve account and insurance account. Investments are made in federal bonds yielding interest of 94.55% of the CDI on average (94% of the CDI rate as at December 31, 2014).

 

6. ACCOUNTS RECEIVABLES

Accounts receivables are initially recorded at the sales amount and subsequently at amortized cost, less the allowance for doubtful debts. Such allowance is currently recognized based on the apportionment of default in the power sector. Such apportionment is made on a monthly basis between the agents with credit balance in the month, on the amount of the surplus financial settlement or exposure at the Power Commercialization Chamber (CCEE).

 

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Pursuant to CCEARs, revenues are monthly billed based on the contracted power output (in MWh) and the contracted sales price (price annually adjusted for inflation on the anniversary date of each distribution company). Revenues are monthly billed through the issuance of the invoice.

 

     12/31/2015      12/31/2014  
     (unaudited)         

Energy sale - ACR – distribution companies

     178.685         82.807   

Energy sale - ACL – related parties

     115.845         44.868   

Energy test sale - CCEE

     104.430         24.376   

Allowance for doubtful debts

     (18.009      (924
  

 

 

    

 

 

 

Total

     380.951         151.127   
  

 

 

    

 

 

 

Aging list of accounts receivables:

 

     12/31/2015      12/31/2014  
     (unaudited)         

0 to 30 days

     104.430         44.868   

30 to 60 days

     178.685         82.807   

60 to 90 days

     115.845         24.376   
  

 

 

    

 

 

 

Total

     398.960         152.051   

 

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Changes in the allowance for doubtful debts are as follows:

 

     12/31/2015     12/31/2014  
     (unaudited)        

Opening balance

     (924     (6.173

Bad debt expense

     (18.009 )*      (924

Reversal

     924        6.173   
  

 

 

   

 

 

 

Closing balance

     (18.009     (924

 

* The increase in the allowance derived from receivables not settled by doubtful agents at the CCEE.

Aging list of trade receivables included in the allowance for doubtful debts:

 

     12/31/2015      12/31/2014  
     (unaudited)         

Over 120 days

     18.009         924   

 

7. RECOVERABLE TAXES

Current

 

     12/31/2015      12/31/2014  
     (unaudited)         

Tax on revenue (COFINS)

     200.984         186.359   

Monthly prepaid income tax and social contribution

     66.801         —     

Tax on revenue (PIS)

     43.634         40.957   

Withholding income tax (IRRF)

     11.835         4.065   

Withholding CSLL

     3.258         —     

Withholding COFINS

     —           2.299   

Service tax (ISSQN)

     —           —     
  

 

 

    

 

 

 

Social security tax (INSS)

     —           —     
  

 

 

    

 

 

 

State VAT (ICMS)

     —           —     
  

 

 

    

 

 

 

Other recoverable taxes

     118         6   
  

 

 

    

 

 

 

Total

     326.630         233.686   
  

 

 

    

 

 

 

 

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Noncurrent

 

     12/31/2015      12/31/2014  
     (unaudited)         

Tax on revenue (COFINS)

     260.201         453.337   

Tax on revenue (PIS)

     45.606         98.887   
  

 

 

    

 

 

 

Total

     305.807         552.224   
  

 

 

    

 

 

 

IRRF amounts refer to withholding taxes upon the redemption of short-term investments and are offset against federal taxes.

Recoverable PIS and COFINS balances are generated upon the acquisition of services and property, plant and equipment items (mainly civil construction-related), for the implementation of the power plant. After startup of operations of the plant, resulting in increase in ESBR’s revenues, such taxes were subsequently offset upon filing of the Digital Tax Recordkeeping - EFD Contribution (public system of digital taxation control) with the Brazilian Federal Revenue Service.

Consequently, such fact has consummated its right to offset such amounts against any tax managed by the Brazilian Federal Revenue Service, thus offsetting the contributions to PIS and COFINS, as well as other taxes beginning December 2014. The credits generated in 2015 were processed through the Public Digital Recordkeeping System (SPED) in 2015.

 

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Variation in the period is as follows:

 

     12/31/2014      Addition
Credits generated
     Transfer
short-term
    Offsets     12/31/2015  
            (unaudited)      (unaudited)     (unaudited)     (unaudited)  

Current

            

PIS

     40.957         —           69.998        (67.321     43.634   

COFINS

     186.359         —           272.512        (257.887     200.984   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     227.316         —           342.510        (325.208     244.618   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Noncurrent

            

PIS

     98.887         16.717         (69.998     —          45.606   

COFINS

     453.337         79.376         (272.512     —          260.201   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     552.224         96.093         (342.510     —          305.807   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total

     779.540         96.093         —          (325.208     550.425   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

8. DEFERRED TAXES

 

  a) The subsidiary’s deferred taxes are broken down as follows:

 

Nature

   12/31/2015     12/31/2014     12/31/2013  
     (unaudited)           (unaudited)  

(i) Tax loss and preoperating expenses

     200.095        127.910        176.606   

(ii) Temporary differences *

     3.023.501        2.083.057        158.599   

Total

     3.223.596        2.210.967        335.205   

Combined income tax and social contribution rate

     34     34     34
  

 

 

   

 

 

   

 

 

 

Total

     1.096.023        751.729        113.970   
  

 

 

   

 

 

   

 

 

 

 

(*) Basically comprise the allowance for doubtful debts and provision for risks.

 

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Such assets will be used as from the date the subsidiary recognizes profit, which is expected to take place in 2021. As from such date, the subsidiary is expected to amortize all accumulated credits within no more than 11 years.

The subsidiary estimates the utilization of the deferred tax asset based on projected future revenue. Accordingly, the variance between years is due to factors that are inherent in the subsidiary’s operation and, in 2016 and 2017 taxable profits are expected to decrease, due to some aspects, such as: i) full recognition in profit or loss of depreciation expenses, based on the activity startup schedule; ii) full recognition in profit or loss of financing charge expenses, based on the activity startup schedule; and iii) change in the revenue mix with higher share of the ACR, under the regulated contractual environment.

 

  b) Reconciliation of tax expenses with statutory tax rates:

 

     12/31/2015     12/31/2014     12/31/2013  
     (unaudited)           (unaudited)  

Pretax income

     (1.047.735     (1.812.422     (228.430

Statutory tax rate

     34 %     34 %     34 %
  

 

 

   

 

 

   

 

 

 

Taxes at statutory rates

     356.230       616.223       77.667   

Permanent differences

     (7.844     (528     100   
  

 

 

   

 

 

   

 

 

 

Income tax and social contribution in profit or loss for the period

     348.386       615.695       (77.767
  

 

 

   

 

 

   

 

 

 

Breakdown of taxes in profit or loss:

      

Current

     (187     (22.064     —    

Deferred

     348.573       637.759       77.767  
  

 

 

   

 

 

   

 

 

 

Total tax in profit or loss

     348.386       615.695       (77.767 )
  

 

 

   

 

 

   

 

 

 

Effective rate

     33 %     34 %     34

 

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9. OTHER CURRENT ASSETS

 

     12/31/2015      12/31/2014  
     (unaudited)         

Power concessionaires

     —           —     

Advances to suppliers

     9.037         3.806   

R&D projects

     5.941         5.193   

Salary prepayment - vacation

     300         250   

Disposal of assets and rights

     165         486   

Advances of travel expenses

     27         416   

Master Control GSC (*)

     —           16.652   
  

 

 

    

 

 

 

Total

     15.470         26.803   
  

 

 

    

 

 

 

 

(*) The amount relating to the Master control GSC of R$16,652 was fully received in 2015. This amount received from ANEEL was related to costs incurred with the implementation of Generation Station Coordinator (GSC0 at the generation unit of UHE Jirau. The GSC is a system designed to control the generation volume of UHEs Jirau and Santo Antônio.

 

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10. JUDICIAL DEPOSITS

 

     12/31/2015      12/31/2014  
     (unaudited)         

Tax

     25.383         23.495   

Labor

     1.482         2.445   

Civil

     1.308         11.827   
  

 

 

    

 

 

 

Total

     28.173         37.767   
  

 

 

    

 

 

 

Such deposits refer to amounts related to ongoing lawsuits at judicial level (Note 23).

 

11. PREPAID EXPENSES

 

  12.1. Insurance

 

     12/31/2015 (unaudited)  
     Assets      Liabilities  

Risk

   Premium
amount
     Amount
amortized
     Balance
to be
amortized
     Balance
payable
 

Civil liability (a)

     1.067         935         132         —     

Engineering (b)

     103.291         73.133         30.158         67.291   

Compliance with the concession arrangement (c)

     16.427         14.332         2.095         —     

Property damages upon equipment transportation (d)

     834         398         436         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     121.619         88.798         32.821         67.291   
  

 

 

    

 

 

    

 

 

    

 

 

 

Renegotiation of the GSF (Generating Scaling Factor) – hydrological risk premium (f)

           169.548         —     

Other prepaid expenses

           7         —     

Subtotal

           169.555         —     
        

 

 

    

 

 

 

Total

           202.376         67.291   
        

 

 

    

 

 

 

Current

           38.944         67.291   

Noncurrent

           163.432         —     
        

 

 

    

 

 

 

Total

           202.376         67.291   
        

 

 

    

 

 

 

 

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     12/31/2014  
     Assets      Liabilities  

Risk

   Premium
amount
     Amount
amortized
     Balance
to be
amortized
     Balance
payable
 

Civil liability (a)

     1.067         326         741         —     

Engineering (b)

     90.054         83.411         6.643         869   

Compliance with the concession arrangement (c)

     16.427         12.401         4.026         —     

Property damages upon equipment transportation (d)

     42         17         25         —     

Delivery of power acquired in auction (A-3) (e)

     951         893         58         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Subtotal

     108.541         97.048         11.493         869   
  

 

 

    

 

 

    

 

 

    

 

 

 

Unrecognized insurance endorsement - risks: engineering, operating and loss of profits

           36.000         —     

Warranty insurance

           413         —     

Operating permit fee

           314         —     
        

 

 

    

 

 

 

Subtotal

           36.727         —     
        

 

 

    

 

 

 

Total

           48.220         869   
        

 

 

    

 

 

 

Current

           9.993         869   

Noncurrent

           38.227         —     
        

 

 

    

 

 

 

Total

           48.220         869   
        

 

 

    

 

 

 

The Company and its subsidiary take all insurance necessary to comply with the legislation, BNDES financing contractual obligations and concession-related obligations, by transferring to insurance companies the risks below related to the plant’s construction and operation project:

 

  (a) General civil liability – works and operation

This insurance covers the damages caused to third parties, general civil liability related to the plant’s construction work and operation. It aims at indemnifying the insured in connection with any sums for which it is legally responsible for paying in relation to death, bodily injury, interference, transgression or disturbance, during the effective period arising from or relating to the project/business. This insurance is effective through March 20, 2016.

 

  (b) Operating and loss of profits and business discontinuance risks

 

    Engineering, operating and business discontinuance risks (initial insurance policy)

 

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Covers property damages arising from accidents in facilities and assembling activities, manufacturer’s risk, extended maintenance and operating and business discontinuance risks. The amounts at risk and respective maximum indemnity limits were determined as follows:

 

Type of insurance

   Amount
at risk
     Maximum
indemnity limit
     Insurance term considering
endorsement

Installation and assembly risk plus one year of extended maintenance

     7.337.814         800.000       02/13/2009 to 06/20/2014
(06/20/2015 - for extended
maintenance)

Operational risks

     7.337.814        
 
1,000,000
(Combined)
  
  
   02/13/2009 to 06/20/2014

Business discontinuance risk

     2.454.493          02/13/2009 to 06/20/2014

 

    Engineering, operational and loss of profits (endorsement of the initial policy)

Covers all installation and assembling risks, test claim, commissioning and extended maintenance and all operational risks. The policy is effective between January 1, 2012 and March 20, 2016.

 

Type of insurance

   Amount
at risk
     Maximum
indemnity limit
     Insurance term considering
endorsement

Installation and assembly risk plus one year of extended maintenance

     13.823.538         800.000       01/01/2012 to 03/20/2016

(03/20/2017 - for extended
maintenance)

Operational risks

     13.823.538        

 

1.000.000

(Combined)

  

  

   01/01/2012 to 03/20/2016

Business discontinuance risk

     2.454.493          01/01/2012 to 03/20/2016

 

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    Insurance payable

Arbitration proceeding whose filing was requested by Sul América Cia. Nacional de Seguros, Allianz Seguros S.A., Companhia de Seguros Aliança do Brasil, Mapfre Vera Cruz Seguradora S.A, Itaú Seguros S.A. and Zurich Minas Brasil Seguros S.A. related to the extension of coverage of two insurance policies. The proceeding was settled on December 22, 2015, a court ruling was handed down determining the amount of the additional premium of R$103,291. For this reason, and taking into account the amount already deposited in escrow by the subsidiary of R$36,000, the subsidiary was sentenced to pay, withinb a period of thirty days, the amount of R$67,291, in addition to the reimbursement of the costs in the amount of R$580 and attorneys’ fees in the amount of R$8,177, incurred by plaintiffs, the last two amounts being accounted for in “Other current liabilities” (Note 25).

 

  (c) Performance bond of the concession agreement of Auction 05/08

The subsidiary took insurance to guarantee compliance with the concession arrangement. This insurance secures the indemnity, up to the amount of the warrant set in the policy, for the loses arisin from the default of the obligations assumed by the borrower (subsidiary) under a construction, service provision or supply agreement entered into among it and the insured (ANEEL) and covered by the policy. This insurance is effective through January 30, 2017.

 

  (d) International transportation (import)

This insurance was taken by the subsidiary for property damages occurred during the transportation of imported equipment, including the substation coming from Korea and the generation units (turbines) coming from China. There is also a projection to cover any delay in the startup of activities, arising from a damage or loss caused to any cargo, only for the six first generation units (turbines). The validity of such insurance was renewed and cover risks through December 31, 2015 and was renewed again through December 31, 2015.

 

  (e) Warranty of delivery of power acquired in Auction A-3

The subsidiary took insurance for performance guarantee on the delivery of power (additional coverage) from Auction
A-3.

 

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This insurance secures the indemnity, up to the amount of the warrant set in the policy, for the loses arisin from the default or service provision agreement entered into among entered into among it and the insured (ANEEL) and covered by the policy, excluding any loss arising from other insurance line, such as civil liability and business discontinuance. The expected loss will be converted into claim, upon notification, by the insured (ANEEL) to the insurer, of the completion of the administrative proceedings that confirm the default of the borrowe (subsidiary). This insurance is effective through November 30, 2016.

 

    Partial release of the performance bond - UHE Jirau (Case 48500.004505/2008-02)

Under Official Letter 398/2015-SCG/ANEEL, of March 31, 2015, since UHE Jirau attained the “Beginning of operation of the generation unit that comprises 50% of the total capacity of the plant”, according to Memorandum nº 82/2015-SFG/ANEEL, of March 27, 2015, ANEEL informed that the respective performance bond was already partially released in the amount corresponding to 85% of its original amount, pursuant to item 12.5.1 of the invitation to bid of Auction 05/08.

Accordingly, the total amount of the effective bonds was reduced, through the substitution or endorsement of policy (s), to the total amount corresponding to R$97,500 and must e delivered to Banco Bradesco S.A. – Department of Shares and Custody.

 

  (f) For the GSF (Generating Scaling Factor), see Note 24 - item a.

 

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12. PROPERTY, PLANT AND EQUIPMENT

As at December 31, 2015, the subsidiary owns 37 generation units in operation (20 generation units as at December 31, 2014), as follows:

 

Sequence

     Generation
unit
     ANEEL
Order
     Startup of
activities
     Sequence      Generation
unit
     ANEEL
Order
     Startup of
activities
 
          29         3.087         09/06/2013         20ª         35         4.849         12/18/2014   
          40         349         02/12/2014         21ª         09         25         01/08/2015   
          30         374         02/19/2014         22ª         10         233         02/03/2015   
          01         410         02/22/2014         23ª         14         266         02/06/2015   
          02         514         03/08/2014         24ª         12         520         03/04/2015   
          39         514         03/08/2014         25ª         13         520         03/04/2015   
          31         1.271         04/24/2014         26ª         28         520         03/04/2015   
          03         1.310         04/26/2014         27ª         15         1234         04/28/2015   
          04         1.737         06/03/2014         28ª         27         1408         05/08/2015   
  10ª         32         2.412         07/10/2014         29ª         26         1630         05/21/2015   
  11ª         05         2.861         07/29/2014         30ª         24         1881         06/11/2015   
  12ª         38         3.618         09/04/2014         31ª         25         1947         06/17/2015   
  13ª         07         3.772         09/18/2014         32ª         23         2074         06/25/2015   
  14ª         06         4.092         10/09/2014         33ª         22         2.469         07/31/2015   
  15ª         33         4.213         10/23/2014         34ª         21         2.989         09/04/2015   
  16ª         08         4.260         10/30/2014         35ª         16         3.357         10/01/2015   
  17ª         34         4.335         11/06/2014         36ª         11         3516         10/21/2015   
  18ª         37         4.549         11/25/2014         37ª         20         3.995         12/11/2015   
  19ª         36         4.720         12/06/2014               

 

  a) Breakdown

 

     12/31/2015 (unaudited)  
     Adjusted cost      Accumulated
depreciation
     Net
amount
 

In service

        

Generation

        

Reservoir, dams and water mains

     3.658.321         (128.361      3.529.960   

Buildings - constructions and improvements

     4.042.028         (149.390      3.892.638   

Machinery and equipment

     6.045.258         (233.865      5.811.393   

Furniture and fixtures

     2.132         (136      1.996   

Vehicles

     1.499         (226      1.273   

Environmental costs

     110.940         (12.717      98.223   

Land

     4.830         —           4.830   

 

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Table of Contents
     12/31/2015 (unaudited)  
     Adjusted cost      Accumulated
depreciation
     Net
amount
 

Connection system:

        

Machinery and equipment

     469.561         (23.275      446.286   

Buildings - constructions and improvements

     2.228         (208      2.020   

Management:

        

Machinery and equipment

     2.453         (336      2.117   

Vehicles

     683         (402      281   

Buildings - constructions and improvements

     83.101         (14.527      68.574   

Furniture and fixtures

     204         (5      199   
  

 

 

    

 

 

    

 

 

 

Subtotal

     14.423.238         (563.448      13.859.790   
  

 

 

    

 

 

    

 

 

 

In progress

        

Rights of way

     94         —           94   

Reservoirs, dams and water mains

     897.101         —           897.101   

Machinery and equipment

     1.967.538         —           1.967.538   

Environmental costs

     59.419         —           59.419   

Furniture and fixtures - Equipment in general

     1.294         —           1.294   

Advances to suppliers

     169.460         —           169.460   

Other construction costs

     157.769         —           157.769   

Construction works

     3.252.952         —           3.252.952   

Other property, plant and equipment

     22.410         —           22.410   

Property, plant and equipment to allocate

     700.452         —           700.452   
  

 

 

    

 

 

    

 

 

 

Subtotal

     7.228.489         —           7.228.489   
  

 

 

    

 

 

    

 

 

 

Total

     21.651.727         (563.448      21.088.279   
  

 

 

    

 

 

    

 

 

 

 

     12/31/2014  
     Adjusted cost      Accumulated
depreciation
     Net amount  

In service

        

Generation

        

Reservoir, dams and water mains

     1.415.662         (25.732      1.389.930   

Buildings - constructions and improvements

     2.038.397         (37.088      2.001.309   

Machinery and equipment

     2.206.545         (42.928      2.163.617   

Furniture and fixtures

     892         (20      872   

Vehicles

     356         (12      344   

Environmental costs

     143.922         (9.276      134.646   

Connection system

        

Machinery and equipment

     284.088         (9.818      274.270   

Buildings - constructions and improvements

     2.228         (119      2.109   

 

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Table of Contents
     12/31/2014  
     Adjusted cost      Accumulated
depreciation
     Net amount  

Management

        

Machinery and equipment

     527         (93      434   

Vehicles

     683         (304      379   

Buildings - constructions and improvements

     14         —           14   

Furniture and fixtures

     4         —           4   
  

 

 

    

 

 

    

 

 

 

Subtotal

     6.093.318         (125.390      5.967.928   

In progress

        

Land

     106.752         —           106.752   

Reservoirs, dams and water mains

     1.947.119         —           1.947.119   

Machinery and equipment

     2.750.435         —           2.750.435   

Environmental costs

     21.918         —           21.918   

Furniture and fixtures - Equipment in general

     1.218         —           1.218   

Advances to suppliers

     1.000.629         —           1.000.629   

Other construction costs

     2.763.861         —           2.763.861   

Construction works

     4.469.801         —           4.469.801   

Other property, plant and equipment

     165.009         —           165.009   

Property, plant and equipment to allocate

     549.236         —           549.236   
  

 

 

    

 

 

    

 

 

 

Subtotal

     13.775.978         —           13.775.978   
  

 

 

    

 

 

    

 

 

 

Total PP&E

     19.869.296         (125.390      19.743.906   
  

 

 

    

 

 

    

 

 

 

Capitalization of interest to property, plant and equipment amounts to R$2,604,182 as of December 31, 2014 ((R$2,015,722 as of December 31, 2013 (unaudited) ).

 

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Table of Contents
  b) The table below shows the variation in property, plant and equipment from January 1 to December 31, 2015 (unaudited):

 

     Reservoir,
dams and
water mains
    Buildings -
constructions
and
improvements
    Machinery
and
equipment
    Vehicles     Furniture
and
fixtures
    Environmental
costs
    Land      Construction
in progress
    Total  

Balance as at 12/31/2014

     1.389.930        2.003.432        2.438.321        723        876        134.646        —           13.775.978        19.743.906   

Inflows

     —          —          11.827        871        1.440        —          —           1.779.916        1.794.054   

Transfers

     2.242.659        2.086.718        4.015.403        355        —          (32.982     4.830         (8.316.983     —     

Write-offs

     —          —          (1.120     (83     —          —          —           (14.941     (16.144

Inflation adjustment

     —          —          —          —          —          —          —           4.519        4.519   

Depreciation

     (102.629     (126.918     (204.635     (312     (121     (3.441     —           —          (438.056
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance as at 12/31/2015

     3.529.960        3.963.232        6.259.796        1.554        2.195        98.223        4.830         7.228.489        21.088.279   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

  c) The table below shows the variation in property, plant and equipment from January 1 to December 31, 2014:

 

     Reservoir,
dams and
water mains
    Buildings -
constructions
and
improvements
    Machinery
and
equipment
    Vehicles     Furniture
and
fixtures
    Environmental
costs
    Construction
in progress
    Total  

Balance as at 12/31/2013

     76.576        126.257        217.205        477        —          210.554        16.574.025        17.205.094   

Inflows

     —          14        5.051        356        896        —          2.710.166        2.716.483   

Transfers

     1.338.227        1.912.946        2.272.961        —          —          —          (5.524.134     —     

Write-offs

     —          —          (6.598     —          —          (66.632     —          (73.230

Inflation adjustment

     —          —          —          —          —          —          15.921        15.921   

Depreciation

     (24.873     (35.785     (50.298     (110     (20     (9.276     —          (120.362
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance as at 12/31/2014

     1.389.930        2.003.432        2.438.321        723        876        134.646        13.775.978        19.743.906   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) The amount derives from the installation license (L.I.) relating to provisions for environmental costs on environmental licenses and plant operating licenses. The provisions for environmental costs were adjusted based on the annual amounts of environmental programs, from 2015 to 2043. The table below shows the changes in property, plant and equipment from January 1 to December 31, 2013 (unaudited):

 

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Table of Contents
     Reservoir,
dams and
water mains
    Buildings -
constructions
and
improvements
    Machinery
and
equipment
    Vehicles     Environmental
costs
     Construction
in progress
    Total  

Balance as of December 31, 2012

     —          —          —          —          —           13.511.435        13.511.435   

Inflows

     —          —          382        —          210.554         3.487.752        3.698.688   

Transfers

     77.436        127.680        219.364        682        —           (425.162     —     

Write-offs

     —          —          —          —          —           —          —     

Depreciation

     (860     (1.423     (2.541     (205     —           —          (5.029
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance as of December 31, 2013

     76.576        126.257        217.205        477        210.554         16.574.025        17.205.094   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

  d) Depreciation rates and estimated useful life

 

     Depreciation
(% p.a.)
     Useful life
average (years)
 

Reservoir, dams and water mains

     3,45         29   

Buildings - constructions and improvements

     3,45         29   

Machinery and equipment (other)

     3,57         28   

Furniture and fixtures

     6,25         16   

Vehicles

     14,29         7   

 

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The subsidiary uses the depreciation rates determined by ANEEL, limited to the concession term.

 

13. INTANGIBLE ASSETS

The Company conducted a detailed analysis of the costs and terms of the programs relating to the implementation stage, as well as those arising from the operating license that will be effective through the end of the concession term, that is, during the operating stage. The costs on the implementation stage relating to the decommissioning and Damaged Area Recovery Program (PRAD) were also calculated.

Variation in intangible assets from January 1 to December 31, 2015 (unaudited) is as follows:

 

     UBP      Software      Operating
license
     Total  

Balance as at 12/31/2014

     110.877         4.523         479.438         594.838   

Additions

     —           3.343         —           3.343   

Write-offs

     —           (72      —           (72

Inflation adjustment

     —           —           13.907         13.907   

Amortization

     (3.868      (794      (10.075      (14.737
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2015 (unaudited)

     107.009         7.000         483.270         597.279   
  

 

 

    

 

 

    

 

 

    

 

 

 

Changes in intangible assets from January 1 to December 31, 2014 is as follows:

 

     UBP      Software      Operating
license
     Total  

Balance as at 12/31/2013 (unaudited)

     117.151         3.027         245.756         365.934   

Additions

     —           2.188         215.545      217.733   

Inflation adjustment

     —           —           20.493         20.493   

Amortization

     (6.274      (692      (2.356      (9.322
  

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2014

     110.877         4.523         479.438         594.838   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

(*) The additions in the operating license (L.O.) refer to provision for environmental costs and plant’s operating licenses. The provision for environmental costs was adjusted based on the annual amounts of the environmental programs, from 2015 to 2043.

 

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Table of Contents
  a) Amortization rates and estimated useful life

UBP costs are amortized over the concession term, which began in September 2013, the month of startup of operation of the first machinery up to 2043, end of the concession term.

LO costs are amortized proportionally to the number of machinery in operation based on rates compartible with the concession term. Software costs are amortized at the rate of 20% p.a.

 

14. TAXES PAYABLE

On May 13, 2014, Law 12973 was enacted to:

 

  i. Amend the federal tax law that addresses the Corporate Income Tax (IRPJ), the Social Contribution on Net Income (CSLL), the Social Integration Program Tax on Revenue (PIS/PASEP), and the Social Security Funding Tax on Revenue (COFINS).

 

  ii. Revoked the Transitional Tax Regime (RTT), introduced by Law 11941, of May 27, 2009.

 

  iii. Provide for the taxation of the earnings of legal entities domiciled in Brazil, with respect to the earnings from foreign subsidiaries and associates and the earnings received by an individual resident in Brazil through a controlled foreign legal entity.

 

  iv. Provides for other measures.

 

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The provisions of said law came into effect in calendar year 2015 and it is being adopted by the subsidiary where applicable. There were no significant impacts arising from the enactment of the new law.

 

     12/31/2015      12/31/2014  
     (unaudited)         

ISSQN - Tax assessment

     16.117         14.941   

Related taxes

     2.435         13.804   

Economic Intervention Contribution (CIDE)

     —           —     

IRRF PF/PJ

     —           1.743   

State VAT (ICMS)

     131         137   

ISSQN

     —           2.547   

Current income tax and social contribution

     187         3.435   

Withholding social contribution

     —           1.923   

Total

     18.870         38.530   
  

 

 

    

 

 

 

 

15. RELATED PARTIES

 

  15.1. GDF Suez Group

The subsidiary is a party to an agreement entered into with Leme Engenharia Ltda., a GDF Suez Group company.

The purpose of the agreement is the: (a) preparation of the basic project of UHE Jirau and its consolidated basic project; (b) technical advisory services to assist the subsidiary with the preparation of asset supply and service provision agreements entered into with UHE Jirau; and (c) engineering and technical advisory services for the implementation of UHE Jirau. The total contractual amount, including the related addenda, is R$303,423 (R$290,819 as at December 31, 2014). Beginning April 2008, the amounts set out in the agreement are adjusted upward or downward on an annual basis based on the IPCA. Of the total adjusted contractual amount, R$336,766 was realized through December 2015 (R$302,870 up to the end of 2014). As at December 31, 2015, the remaining adjusted contractual amount with Leme Engenharia Ltda. is R$13,291 (R$36,417 as at December 31, 2014). The contractor’s engineering activities will be performed during the construction works, until their completion.

The subsidiary is also a party to an agreement entered into with Tractebel Engineering, under the name of Coyne Et Belier. The purpose of the agreement is the provision of consulting services for control and monitoring of manufacturing and delivery of turbines. The total contractual amount, including the related addenda, is €10,378 thousand (€9,838 thousand as at December 31, 2014). Of such amount, €10,378 thousand, corresponding to R$46,025 was realized through December 31, 2015 (€9,465 thousand corresponding to R$25,916 through the end of 2014). As at December 31, 2015, there was no remaining balance in the agreement (as at December 31, 2014, there was no balance, since the addendum was entered into in January 2015).

 

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The balances relating to the abovementioned related parties, which were already realized and pending payment, are accounted for as “Trade payables” in Note 16, which totals the amount of R$3,119 as at December 31, 2015 (R$5.220 as at December 31, 2014).

 

  15.2. Receivables from power sale revenue - ACL

Under the financing agreement entered into with BNDES (Note 20), the subsidiary entered into with the Company’s shareholders power sale agreements determining that, if the subsidiary failed to sell its power targeted to the ACL, the Company’s shareolders would acquire such power proportionally to their interests in the capital of ESBR Participações S.A. at a specific price agreed upon among the parties, annual adjusted based on the IPCA.

Below is the description of intragroup power sale transactions (Note 29). In 2015 the subsidiary conducted power sale transactions with the Company’s related parties (Note 6). There were no such transactins in 2013 (unaudited):

 

     12/31/2015      12/31/2014  
     (unaudited)         

Geramamoré Participações e Comercializadora de Energia Ltda. (GDF Suez group company)

     62.656         26.920   

Companhia Hidro Elétrica do São Francisco - Chesf

     20.887         8.974   

Eletrosul Centrais Elétricas S.A.

     20.887         8.974   
  

 

 

    

 

 

 
     104.430         44.868   
  

 

 

    

 

 

 

 

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Table of Contents

Revenue from related parties:

In 2015 and 2014, the subsidiary conducted the following power sale transactions with the Company’s related parties (Note 25). There were no such transactins in 2013 (unaudited):

 

     12/31/2015      12/31/2014  
     (unaudited)         

Geramamoré Participações e Comercializadora de Energia Ltda. (GDF Suez group company)

     640.639         89.712   

Companhia Hidro Elétrica do São Francisco - Chesf

     213.544         30.301   

Eletrosul Centrais Elétricas S.A.

     213.544         29.904   
  

 

 

    

 

 

 
     1.067.727         149.917   
  

 

 

    

 

 

 

 

  15.3. Sales to related parties of Eletrobras Group - ACR

As mentioned in Note 1, 70% of the guaranteed energy of UHE Jirau in the 2008 Auction amd 100% of the guaranteed energy of the expansion of UHE Jirau was sold in the Regulated Contracting Environment (ACR), at the adjusted price of R$110.17 per MWh for A-5 (2008) and R$124.09 for A-3 (2011).

The power volumes sold to Eletrobras Group companies and the revenue recognized are as follows:

2008 A-5 Auction

 

Eletrobras subsidiary

   (in MWh)
2015
(unaudited)
     (in thousands
of Brazilian
reais) - 2015
     (in MWh)
2014
     (in thousands
of Brazilian
reais) - 2014
 

Companhia Energética de Alagoas - Ceal

     156.684,06         16.354         84.325,28         8.239   

Companhia Energética do Piauí - Cepisa

     74.720,55         7.799         24.205,91         2.365   

Centrais Elétricas de Rondônia S.A. - Ceron

     247.516,33         25.477         85.325,53         8.229   

Companhia de Eletricidade do Acre - Eletroacre

     89.892,65         9.253         25.415,59         2.451   

Manaus Energia S.A.

     461.117,10         47.944         204.645,19         19.913   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1.029.930,69         106.827         423.917,50         41.197   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

2011 A-3 Auction

 

Eletrobras subsidiary

   (in MWh)
2015
     (in thousands of
Brazilian reais) -
2015
 

Manaus Energia S.A.

     111.343,38         13.817   
  

 

 

    

 

 

 

 

  15.4. Cost of power with related parties

Of the total balance payable to transmission companies in the amount of R$9,146 recorded in “Trade payables” (Note 16), R$1,066 refers to Chesf. As at December 31, 2015, the Company did not have any balance payable to Eletrosul (R$108 as at December 31, 2014).

The costs on the power sold related to the transmission companies related to sector charges on the use of the transmission system of UHE Jirau, in the total amount of R$520,188, which is recorded in “Charges for the use of the power grid” (Note 30), R$34,372 (R$8,676 as at December 31, 2014) refers to Chesf and R$36,361 (R$10,252 as at December 31, 2014) refers to Eletrosul.

 

16. MANAGEMENT COMPENSATION

 

  16.1. Compensation and benefits

Below is the cost of compensation and benefits:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Profit or loss

        

Compensation

     11.356         10.687         8.977   

Charges

     2.376         31         —     

Benefits

     3.018         752         636   
  

 

 

    

 

 

    

 

 

 

Total profit or loss

     16.750         11.470         9.613   
  

 

 

    

 

 

    

 

 

 

 

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Table of Contents
     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Property, plant and equipment – Accumulated amounts

        

Compensation

     14.786         12.622         16.265   

Charges

     7.609         6.786         —     

Benefits

     1.566         1.255         1.028   
  

 

 

    

 

 

    

 

 

 

Total PP&E

     23.961         20.663         17.293   
  

 

 

    

 

 

    

 

 

 

Management compensation and benefits included in property, plant and equipment in 2015 corresponds to R$3,298 - unaudited (R$3,370 as at December 31, 2014).

 

  16.2. Defined contribution plans

A defined contribution plan is a postemployment benefit plan whereby an entity pays fixed contributions to a separate entity (pension fund) and will not have any legal or constructive obligation to pay additional amounts. Contribution to defined contribution pension plans are recognized as management and employee benefit expenses in profit or loss for the years during which services are provided by management and employees.

 

     12/31/2015      12/31/2014  
     (unaudited)         

Profit or loss:

     

Pension plan - management

     260         238   

Pension plan - employees

     638         719   

 

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17. FINANCING

 

            Annual                     
                         12/31/2015     12/31/2014  
     Currency      charges     Maturity      (unaudited)        

BNDES

   R$           TJLP+2.25     January/2035         5.665.961        5.679.389   

Banco do Brasil

   R$           TJLP+2.65     January/2035         1.613.231        1.615.306   

Caixa Econômica Federal

   R$           TJLP+2.65     January/2035         1.613.231        1.615.306   

Bradesco BBI

   R$           TJLP+2.65     January/2035         1.161.535        1.163.029   

Itaú BBA

   R$           TJLP+2.65     January/2035         1.088.928        1.090.329   

Banco do Nordeste do Brasil

   R$           TJLP+2.65     January/2035         239.897        244.323   
          

 

 

   

 

 

 

Subtotal

             11.382.783        11.407.682   

Borrowing costs

             (82.926     (82.933
          

 

 

   

 

 

 

Total

             11.299.857        11.324.749   
          

 

 

   

 

 

 

Principal and charges

             306.017        313.225   

(-) Borrowing costs

             (4.604     (4.618
          

 

 

   

 

 

 

Total current

             301.413        308.607   
          

 

 

   

 

 

 

Principal and charges

             11.076.766        11.094.457   

(-) Borrowing costs

             (78.322     (78.315
          

 

 

   

 

 

 

Total noncurrent

             10.998.444        11.016.142   
          

 

 

   

 

 

 

Total current and noncurrent

             11.299.857        11.324.749   
          

 

 

   

 

 

 

On June 29, 2009, the subsidiary entered into a financing agreement with the BNDES, in the amount of R$7,220,000.

 

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On September 14, 2012, the subsidiary entered into the supplementary credit agreement to support investments for the expansion of UHE Jirau, in the amount of R$2,325,000, totaling R$9,545,000 as financing.

The financing is divided in two tranches:

 

  (a) Direct financing with BNDES, in the amount of R$4,797,500; and

 

  (b) Financing as onlending, through a pool of banks, comprised of Banco do Brasil, Caixa Econômica Federal, Banco do Nordeste do Brasil, Bradesco and Itaú BBA, in the amount of R$4,747,500.

Collaterals offered are:

 

  (a) Pledge of subsidiary’s shares : the Company carries out a first-priority pledge of all Subsidiary’s shares, both current and future, as well as its rights, on behalf of lenders;

 

  (b) Collateral assignment of rights arising form the concession and receivables : the subsidiary itself assigns these rights on behalf of lenders;

 

  (c) Pledge of dividends and interest on capital : the Parent GDF Suez Energy Latin America Participações Ltda., pledges on, second-priority basis, the total dividends and interest on capital, both current and future, arising from its dequity interest in Tractebel Energia S.A. Such collateral will expire upon full settlement of the financing;

 

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  (d) Collateral assignment of project agreements and performance bonds : the subsidiary itself assigns material project agreements of UHE Jirau, as well as related performance bonds, to lenders. It enables lenders to assume the construction work of UHE Jirau in case of default by the subsidiary; and

 

  (e) Collateral assignment of rights arising from the support agreement and supporting deficit account: the Company assigns the receivables arising from its ownership arising from the shareholders’ support agreement. This agreement determines that the Company’s shareholders shall contribute to such company, upon subscription and payment of capital, funds in the case of occurrence of events that may give rise to fund insufficiency for implementation of Jirau Project.

Shareholders GDF Suez Energy Latin America Participações Ltda., Companhia Hidro Elétrica do São Francisco (Chesf), Eletrosul Centrais Elétricas S.A.(Eletrosul) and Mizha Energia Participações S.A. (Mitsui group) are held liable, until the end of settlement of the obligations to lenders, proportionally to their equity interests, for the full performance thereof or until the full operation of the project, which is scheduled to take place in 2016.

BNDES, through Notice 233/2014 - BNDES AIE/DEENE, postponed the debt service reserve account establishment date from August 15, 2014 to August 15, 2015, through the posting of a bank guarantee.

On November 21, 2014, pursuant to addendum 5 to the credit facility agreement for financing through onlending of funds from BNDES nº 21/00398X, the subsidiary received authorization to establish a debt service reserve account through the bank letter of guarantee and/or deposit in financial resources.

On August 14, 2015, BNDES, through letter 248/2015 - BNDES AIE/DEENE, approved the extension for the full satisfaction in cash of the debt service reserve account from August 15, 2015 to October 15, 2015. Consequently, on October 15, 2015, through letter 308/2015 - BNDES AIE/DEENE, BNDES has again approved the change in the date of satisfaction of the debt service reserve account from Octoner 15, 2015 to August 15, 2016. Beginning November 15, 2015 up to July 15, 2016, the subsidiary is required to deposit in the reserve account, on a monthly basis, the minimum amount of R$20,000.

Accordingly, as at December 31, 2015, the subsidiary had a guarantee, in the amount of R$224,682, issued by Banco Safra S.A and an additional amount of R$61,621 (R$10,612 as at December 31, 2014), invested in federal government bonds yielding interest of 94.55% of the average Interbank Deposit (CDI) rate. Such investment correspond to 21.52% of the total breakdown between the letter of guarantee and reserve account. Note that this amount is classified as “Securities – reserve account” (Note 5).

The financing agreement also determine that, if the subsidiary fails to sell its power allocated to the ACL, the Company’s shareholders would acquire such power proportionally to their interests in the Company’s capital at a given price agreed upon among the parties, which fact was consummated; the power sale agreements (allocated to the ACL) entered into shareholders GDF Suez (through Geramamoré Participações e Comercializadora de Energia Ltda.), Eletrosul Centrais Elétricas S.A. and Companhia Hidro Elétrica do São Francisco—Chesf are effective. The other shareholder Mizha Energia Participações S.A. (Mitsui group) did not enter into any power purchase agreement (allocated to the ACL), and its portion was allocated to GDF Suez. The amounts receivable and revenue recognized relating to such transactions are described in Note 18.2.

 

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Pursuant to the abovementioned agreement, the subsidiary must maintain a capitalization ratio (equity/total assets) equal to or above 20% up to December 31, 2016 and equal to or above 25% in the subsequent period. As at December 31, 2015, the subsidiary has a capitalization ratio (equity/total assets) of 28.6% (32.7% as at December 31, 2014).

During the financing repayment period, the subsidiary must maintain the debt service coverage ratio (ICSD) of at least 1.2, pursuant to clause 15 of the aforementioned agreement. Such ratio is calculated based on the Earnings Before Interest, Taxes, Depreciation and Amortization - EBITDA/debt service ratio (repayment of principal + interest payment), based on information reported in the financial statements audited by firms registered with the Brazilian Securities and Exchange Commission (CVM), on annual basis. Accordingly, such ratio will only be determined as at December 31, 2015.

As at December 30, 2014 and 2015, the subsidiary obtained from the National Bank for Economic and Social Development (BNDES) and other onlending banks, the waiver not to meet the ICSD in 2014 and 2015.

 

    Releases in 2015

The tenth, eleventh and twelveth release of funds within the scope of the financing agreement through onlending 21/00794-2 (direct supplementary financing agreement), whose withdrawals occurred in February, June and November 2015, respetively, were allocated to tranche H and totaled R$160,000.

The variation in financing from January 1 to December 31, 2015 (unaudited) was as follows:

 

     Current      Noncurrent      Total  

Balance as of December 31, 2014

     308.607         11.016.142         11.324.749   
  

 

 

    

 

 

    

 

 

 

Inflows

     —           160.000         160.000   

Transfers

     1.129.704         (1.129.704      —     

Payment (interest)

     (892.421      —           (892.421

Payment (principal)

     (244.491      —           (244.491

Interest in profit or loss

     —           587.919         587.919   

Capitalized interest

     —           363.907         363.907   

Commissions

     14         180         194   
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     301.413         10.998.444         11.299.857   
  

 

 

    

 

 

    

 

 

 

 

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Below is the financing repayment schedule as at December 31, 2015, including borrowing costs (unaudited):

 

2016

     306.017   

2017

     293.343   

2018

     321.170   

2019

     351.638   

2020

     385.007   

2021-2035

     9.725.608   
  

 

 

 

Subtotal

     11.382.783   

Borrowing costs

     (82.926
  

 

 

 

Total

     11.299.857   
  

 

 

 

 

18. PUBLIC ASSET USE PAYABLE (“UBP”)

Upon startup of operation of the first generation unit, the subsidiary is required to reimburse the federal government for the UBP in the annual adjusted amount of R$12,484 (R$10,757 as at December 31, 2014), paid in 12 monthly installments of R$1,040, annually adjusted in August based on the IPCA fluctuation (inflation). The costs on UBP will be due up to the end of the concession arrangement of UHE Jirau, on August 12, 2043.

Financial charges on the UBP liability will no longer be capitalized but the capitalized balance will rather be amortized. The adjustment at present value of the related liability is recognized as finance costs.

The changes in the public asset use balance from January 1 to December 31, 2015 (unaudited) were as follows:

 

     Current      Noncurrent      Total  

Balance as of December 31, 2014

     10.757         109.674         120.431   
  

 

 

    

 

 

    

 

 

 

Inflation adjustment

     —           15.845         15.845   

Transfers

     13.485         (13.485      —     

Repayment of principal

     (11.758      —           (11.758
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     12.484         112.034         124.518   
  

 

 

    

 

 

    

 

 

 

 

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The changes in the public asset use balance from January 1 to December 31, 2014 were as follows:

 

     Current      Noncurrent      Total  

Balance as at 12/31/2013 (unaudited)

     10.699         104.669         115.368   

Inflation adjustment

     —           15.994         15.994   

Transfers

     10.989         (10.989      —     

Repayment of principal

     (10.931      —           (10.931
  

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2014

     10.757         109.674         120.431   
  

 

 

    

 

 

    

 

 

 

 

19. PROVISION FOR ENVIRONMENTAL COSTS

In order to satisfy this provision, the Company accounted for at present value the costs on environmental programs; the amounts were recorded in property, plant and equipment (those arising from the implementation stage) and in intangible assets (those arising from the operating stage) and their balancing items are recorded in liabilities.

The variation in the use of the provision for environmental costs from January 1 to December 31, 2015 (unaudited) was as follows:

 

     Current      Noncurrent      Total  

Balance as of December 31, 2014

     107.403         476.519         583.922   
  

 

 

    

 

 

    

 

 

 

Inflation adjustment

     —           47.445         47.445   

Transfers

     72.380         (72.380      —     

Repayment of principal

     (53.832      —           (53.832
  

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     125.951         451.584         577.535   
  

 

 

    

 

 

    

 

 

 

 

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20. PROVISION FOR CONTINGENCIES

 

     Note      12/31/2015      12/31/2014  
            (unaudited)         

Current

        

Labor

     23.1.1         1.977         3.721   

Total current

        1.977         3.721   
     

 

 

    

 

 

 

Noncurrent:

        

Tax - ISSQN - success fee

        —           864   

Tax - ICMS

     23.1.2         769.551         555.355   

Liability exclusion

     23.1.3         2.555.291         1.933.330   

Provision for EUST

     23.1.4         414.701         138.964   
     

 

 

    

 

 

 

Total noncurrent

        3.739.543         2.628.513   
     

 

 

    

 

 

 

Total

        3.741.520         2.632.234   
     

 

 

    

 

 

 

Below is the changes in the provision for risks from January 1 to December 31, 2015 (unaudited):

 

     Tax     Labor    

Exemption

claim

     Provision
for EUST
     Total  

Balance as 12/31/2014

     556.219        3.721        1.933.330         138.964         2.632.234  

Recognitions

     113.303        1.901        362.481         248.857         726.542  

Payments

     (864     —          —           —           (864

Reversals

     —          (3.703     —           —           (3.703

Inflation adjustment

     100.893       58       259.480        26.880        387.311  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Balance as of December 31, 2015

     769.551        1.977        2.555.291         414.701         3.741.520  
  

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

 

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20.1.1. State VAT (ICMS)

In accordance with Article 6 of the Rondônia State Decree 8321/1998, as supported by Arrangement 55/93, those operations listed in Attachment I thereto would be exempt from ICMS. Article 74 of such Attachment establishes that the import and interstate receipt of new goods having no similar locally-made counterparts in Rondônia State and intended to be part of a manufacturing unit’s property, plant and equipment are exempt from ICMS.

In accordance with article 74 of Attachment I, the subsidiary claimed the exemption of the ICMS rate differential levied on the purchase of domestic equipment, as well as exemption from ICMS on the purchase of imported pieces of equipment.

On April 26, 2011, Rondônia State issued Decree 15858, which annulled item 74, table 1, of Attachment 1 to Decree 8321/1998 on a retrospective basis, since no ICMS Agreement had been approved at the National Council of Finance Policy (CONFAZ) level that would permit the granting of such tax benefit.

However, such decree was fully judged as unconstitutional by the Court of Justice of the State of Rondônia, in a Direct Unconstitutionality Action brought by the Industry Association of the State of Rondônia on April 7, 2014 determining the unconstitutionality of all provisions set out in Decree 15858/11, consequently recovering the benefit set out in item 74 of table 1 of the Appendix 1 to Decree 8321/98. On October 28, 2014, the last appeal filed by the State of Rondônia was denied, ultimately upholding the decision handed down on April 7, 2014. Such decision was made final and unappealable and the lawsuit was dismissed.

Concurrently with the abovementioned lawsuit, and due to the uncertainty caused by the inconsistency of the applicable regulatory standards, on September 27, 2012, the subsidiary filed a Declaratory Action, with a plea for injunction, so as to obtain the confirmation of application of the ICMS exemption benefit set forth in item 74 of table 1 of the Exhibit I to Decree 8321/98.

On July 23, 2013, the Advanced Relief was approved (subsequently ratified on January 8, 2014), so as to suspend the collection of the ICMS-related tax credit calculated in a period prior to April 27, 2011, arising from the annulment of the exemption of property, plant and equipment items without any similar measure in the State, while the injunction granted within the scope of ADI 0009603-94.2012.8.22.0000 remained valid (brought by FIERO).

Notwithstanding the history of favorable decisions in summary cognizance and in the merit with respect to the ADI brought by FIERO, on August 6, 2014, a decision determining the invalidity of the Declaratory Action brought by the subsidiary was published, based on the allegation that the decree of the executive branch that grants the ICMS exemption cannot be considered as the legal instrument for such granting, since the exemption could only be created through a law and supported by an agreement with CONFAZ.

In light of such decision, the subsidiary filed an appeal, which was fully received with double effect, alleging, among others: (i) the contradictory behavior of the State and impossibility of the State benefiting from the challenge of an act issued by itself and applied to the case in caption with

 

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respect to the subsidiary; and (ii) need to balance the effects of the recognition of unconstitutionality in light of the good faith and the principle of legal relief, defending that the Decree’s recognized illegality must be effective as from the date it is declared within the legal scope. The decision handed down on August 6, 2014 is currently suspended and pending decision with respect to the appeal in caption.

The subsidiary accounts for the ICMS in ‘Provision for tax risks’, totaling R$769,551 as at December 31, 2015 (R$555,355 as at December 31, 2014), of which R$553,416 (R$360,206 as at December 31, 2014) relating to the tax rate difference - DIFAL and R$216,135 (R$195,147 as at December 31, 2014) to the ICMS on imports.

20.1.2 Exemption claim

The provision for exemption claim contingency, in the amount of R$2,555,291, (R$1,933,330 as at December 31, 2014) derives mainly from the precarious nature of the effective injunction, as previously mentioned in Note 12.2. If the injunction is suspended upon the handing down of a decision unfavorable to the subsidiary, CCEE will account for again power purchase and sale transactions in the period and the subsidiary will be required to settle such obligation.

In this case, an additional volume of power under the regulated environment electricity sale agreements (CCEARs) must be delivered. The past months will be accounted for again: the additional amounts of each month will be settled at the spot price, PLD, of the respective month. On the other hand, the new accounting for and additional delivery of volume from the past months will entail a bilateral billing of the amounts to the distribution companies, at the prices of each agreement.

The provision amount was based on (i) monthly power volumes accounted for again at the Electric Power Commercialization Chamber (CCCE), at the difference settlement price (PLD) used in each month and the regulated environment electricity sale agreements (CCEARs), as well as (ii) the amount of settlement of the exposure for the period in question, for which no power purchase was made through a bilateral agreement. No payment of penalties due to exposure as a result of the subsidiary’s consent was considered during the injunction period.

For further information regarding the liabilities exemption claim, please see explanatory note 33.

 

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20.1.3 Provision for transmission system use fee (EUST)

The provision for operational contingency, in the amount of R$414,701 (R$138,964 as at December 31, 2014), derives from the accounting for the EUSTs contracted and not used due to delays in the transmission lines necessary for the delivery of power generated by UHE Jirau. The accounting for such amounts is suspended a sa result of the lower court decisions handed down, as mentioned in Note 23.1.3. If the court ruling is suspended or reversed upon the handing down of a decision unfavorable to the subsidiary, the National Electric System Operator (ONS) must charge the monthly EUST amounts from the generation units in operation relating to the months contracted and not used, subject to the matching of the EUST payment as from the startup of operations of the LT Porto Velho-Araraquara C.1 (Bipolo I).

 

  20.2. Lawsuits classified for which no provision is recognized

 

     31/12/2015      31/12/2014  
     (unaudited)         

Civil, criminal and administrative

     209.802         183.440   

Labor

     31.113         15.398   

Tax

     20.587         18.134   
  

 

 

    

 

 

 

Total

     261.502         216.972   
  

 

 

    

 

 

 

There are 81 lawsuits and administrative proceedings of civil and tax nature (77 as of December 31, 2014 for which no provisions have been recognized and are estimate to have a total assessed as possible loss exposure of R$209,802 (R$183,440 as of December 31, 2014) related to civil, criminal and administrative lawsuits and R$ 20,587 related to tax suits (R$18,134 as of December 31, 2014), totaling R$ 230m389 (R$201,574 as at December 31, 2014) . Of this total, R$41.7 million (R$36 million as at December 31, 2014) is related to administrative proceedings, which also rely on a final decision-making level at the judiciary branch No provisions have been recognized for any of these lawsuits, legal proceding and claims because management believes, in consultation with the Company’s legal counsel, they do not currently result in present obligations (legal or constructive) of the Company as a result of past events.

 

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21. REGULATORY AND SECTOR CHARGES

 

     12/31/2015      12/31/2014  

Description

   (unaudited)         

GSF (Generating Scaling Factor) (a)

     374.478         —     

Concessionaires and assignees (b)

     304.675         —     

EUST – power plant (a)

     63.768         27.610   

Use of water resources (CFRH) (b)

     7.994         4.033   

ANEEL inspection fee (TFSEE) (c)

     —           15   

Other

     —           51   
  

 

 

    

 

 

 
     750.915         31.709   
  

 

 

    

 

 

 

 

  (a) GSF - Generating scaling factor:

The Brazilian Association of Independent Power Producers (Apine), in the name of its members, including the subsidiary, filed a lawsuit against ANEEL claiming ANEEL to determine CCEE to conduct the re-recording, since January, of the power volumes allocated to the hydroelectric power plants of their members, making sure that each one monthly reaches:

 

  (i) Power volume corresponding to 100% of the physical guarantee level of its hydroelectric power plants comprising the MRE; or, alternatively;

 

  (ii) Power volume corresponding to 95% (noventa e cinco por cento) of the physical guarantee level of its hydroelectric power plants comprising the MRE; or, alternatively;

 

  (iii) Power volume corresponding the total generation of MRE had there not been (iii.a) advance of physical guarantee of the structuring projects , (iii.b) thermal power generation outside the economic scope, (iii.c) generation of reserve power and (iii.d) power import.

It also requests items (i), (ii) or (iii), mentioned above to be guaranteed in advance until the final and unappealable decision on the lawsuit.

In summary, Apine, in th ename of associate members, seeks the suspension of recording of the costs incurred by hydroelectric generation companies, arising from the application of the GSF—Generation Scaling Factor, since the problems in the hydroelectric generation sector in the current scenario arises both from structural and conjunctural factors.

 

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The GSF represents an index that expresses the ratio between the sum of the total power produced by the hydroelectric power plans comprising the Power Rellocation Mehcanism (MRE) and the sum of the physical guarantees of the plants. Between 2005 and 2012, the annual GSF of the MRE remained on average above 100%, not encumbetring the hydroelectric power generation companies. Beginning 2013, this scenario was reversed, and seriously aggravated in 2014, when it was below 100% during the year, which fact was repeated in 2015. The GSF below 100% required the generation companies to adjust their physical guarantee within the scope of the MRE, which was below the volume of their power sale agreements and which required generation companies to acquire the missing power at free market price.

On July 1, 2015, Court Ruling 2015-A (“Injunction”) was handed down so that ANEEL, until the judgment of the lawsuit refered to above, abstain from applying the GSF factor on the Physical Guarantee of the companies represented by APINE for purposes of recording within the scope of the CCEE. The injunction is valid as from the operations relating to may 2015. The total adjustment to the accounting for the transactions of the subsidiary at the CCEE as a result of the injunctions from the GSF for the period between May and November 2015 is R$367,361, which will be paid through settlement at CCEE.

Since 2014, the generation companies of the MRE were subject to the reduction of the hydroelectric power generation in the system and subsequent impact on their physical guarantee due to the growth of the GSF. These losses are only due to the water availality conditions of the system, but also to a questionable management of such resource. Accoddingly, the generation companies of the MRE sought a war to be reimbursed for such losses, firstly through administrative method and, subsequrntly, through legal method.

The various injunctions resulted in the interruption of the short-term market. Law 13.203/2015 introduced a proposal for the renegotiation of the hydrological risk, both at the ACR and ACL, for all hydraulic generation companies in the MRE. Such law was regulated by Regulatory Instruction 684/2015, which introduced 25 renegotiation options at the ACR and 1 option at the ACL.

Generation companies that joined the renegotiation mus cancel ongoing lawsuits (abovementioned injunctions) and advance, as a way to maintain the financial balance of the market, the risk premium negotiated due to the GSF reimbursed in 2015.

On January 15, 2016, the subsidiary sent hydrological risk renegotiation proposals to Aneel, one for CCEARS A-5 / 2008 and another for CCEARS A-3 / 2011 where the subsidiary will be entitled to reimbursement in the amount of R$183,556 related to the GSF expense in 2015. The product selected by the subsidiary was SP090. To this end, the subsidiary must pay a risk premium related to 2015 in the amount of R$14,008. Accordingly, the subsidiary recorded a prepaid expense during 2015 of R$169,548.

 

  (b) Concessionaires and assignees – Amount related to the balance of power monthly determined by CCEE.

 

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  (c) Refers to the provision for the EUST of the plant, based on the Transmission System Use Agreement entered into with ONS to use the basic grid transmission facilities. Resolution 267/07 established the methodology and guidelines for the adoption of fixed tariffs over the first ten years of operation by the plants participating in the the new power auctions. Resolution 559/13 determined that, at the end of the first ten years of fixed tariffs, the Transmission System Use Tariff (TUST) will be calculated as the TUST average amount projected for the next ten years, including the information on the basic grid expansion in the ten-year plan for the current year. The new tariff will be effective for the next ten tariff cycles.

 

  (d) The Water Resource Use Financial Compensation (CFRH) was introduced by the Federal Constitution of 1988 and refers to a percentage paid by the power generation concessionaires for the use of the water resources. ANEEL manages the collection and distribution of the resources among the beneficiaries: states, municipalities and direct federal administration bodies.

 

  (e) The ANEEL Inspection Fee (TFSEE) is the annual rate established by ANEEL (Decree 2410/97) equivalent to 0.4% of the economic benefit accrued by the company in the development of power services and facilities. The TFSE is calculated according to the following formula: TFSEE = 0.4% x PInstx (annual average of installed capacity—in KW and BE (economic benefit for independent producers which, in 2014, was R$470.63/installed KW). The amount is divided in twelve installments and paid on a monthly basis up to the 15 th day of the subsequent month to the National Treasury.

 

22. OTHER CURRENT LIABILITIES

 

  22.1. Other current liabilities are broken down as follows:

 

     12/31/2015      12/31/2014  
     (unaudited)         

R&D

     12.304         4.313   

Attorneys’ fees and court costs

     8.757         —     

Payables - banks

     8.500         —     

Costs on environmental monitoring

     492         1.715   

Lease

     158         432   

Payables – distribution companies

     —           2.154   
  

 

 

    

 

 

 

Total

     30.211         8.614   
  

 

 

    

 

 

 

 

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23. ADVANCE FOR FUTURE CAPITAL INCREASE

 

     12/31/2015      12/31/2014  
     (unaudited)         

Advance for future capital increase (AFCI)

     457.000         —     

Inflation adjustment—AFCI

     20.691         —     
  

 

 

    

 

 

 

Total

     477.691         —     
  

 

 

    

 

 

 

As approved at the meetings of the Board of Directors, held on June 2, June 24, July 30, August 14 and November 26, 2015, the partial capital contribution schedules relating to June, July, August, September and December 2015, were approved, whose funds were transferred by the shareholders of ESBR Participações, as advance for future capital increase.

From June 15 to December 31, 2015, advances for future capital increase were made by the shareholders of ESBR Participações, in the total amount of R$457,000. The Company adjusted for inflation the advances for future capital increase based on the CDI rate, the total inflation adjustment amount being R$20,691 through December 31, 2015 (unaudited), as follows:

 

     12/31/2015 (unaudited)  
     GDF Suez      Mizha      Chesf      Eletrosul      Total  

Balance as at 12/31/2014

     —           —           —           —           —     

Recognitions

     210.400         105.200         105.200         36.200         457.000   

Inflation adjustment

     9.550         4.538         4.775         1.828         20.691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Balance as at 12/31/2015

     219.950         109.738         109.975         38.028         477.691   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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24. RESEARCH & DEVELOPMENT

 

     12/31/2015      12/31/2014  
     (unaudited)         

Research & development

     2.883         —     
  

 

 

    

 

 

 

The balance of Research & Development in noncurrent liabilities refers to the completion of the Project R.O.S.A – Robot for Operations in Flooded Stoplogs – which is pending appraisal and approval by ANEEL to be included in fixed assets.

 

25. EQUITY

 

  25.1. Capital

The Company is authorized to increase its capital up to the limit of R$12,000,000, as approved by the Board of Directors, regardless of any amendment to the bylaws. The Company’s subscribed and pain-in capital amounts to R$9,131,711, divided into 9,131,711,000 book-entry common shares, without par value (R$8,681,711, represented by 8,681,711,000 common shares as at December 31, 2014).

ESBR Participações S.A.’s equity interest is held as follows:

 

     Equity interest (%)  

GDF Suez Energy Latin América Participações Ltda.

     40,0   

Mizha Energia Participações S.A.

     20,0   

Eletrosul Centrais Elétricas S.A.

     20,0   

Companhia Hidro Elétrica do São Francisco - Chesf

     20,0   
  

 

 

 

Total

     100,0   
  

 

 

 

 

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In order to comply with the capitalization ratio, referred to in Note 20, and finance the UHE Jirau’s construction work, shareholders contributed R$450,000 to the Company’s capital from January 1 to December 31, 2015. Pursuant to Note 13, the Company contributed the same amount to its subsidiary.

 

  25.2. Shareholders’ committments

According to the obligations set forth in clause five of the Company’s Shareholders’ Agreement, the shareholders agree, proportionally to their equity interest, to subscribe and pay the capital according to the Capital Contribution Schedule.

In the event any shareholder fails to contribute to the Company the subscribed capital, the other shareholders, after five business days from such noncompliance, will be entitled to, proportionally to their equity interest (excluding the defaulting shareholder’s equity interest): (i) comtribute such portion of the capital; (ii) acquire the shares already paid; and/or (iii) acquire the shares not paid.

The Company’s shareholders agree to not sell their shares, except if approved by the other shareholders.

The Company’s shareholders agree to, within two years after the startup of operations of the UHE Jirau’s last generation unit, adopt all measures to obtain the Company’s registration as a publicly-held company with the Brazilian Securities and Exchange Commission (CVM) to trade shares at the Novo Mercado segment of the São Paulo Stock Exchange.

 

26. NET OPERATING REVENUE

Upon delivery of the power volume under the CCEARs, the subsidiary started to recognize operating revenue. The volume delivered under the CCEARs accounted for 70% of the physical guarantee of the generation units in operation, as set forth in the injunction (referred to in Note 23).

In addition to the revenue arising from delivery under the CCEARs, the subsidiary recorded revenue from the delivery under purchase and sale agreements entered into with related parties (Note 18.2) and from the settlement of the CCEE power surplus.

The subsidiary’s reconciliation between gross and net sales revenues is broken down below.

 

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Charges in the periods:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Gross operating revenue:

     2.686.672         816.069         163.649   
  

 

 

    

 

 

    

 

 

 

Power supply - ACR - power distribution companies

     1.177.098         411.359         13.757   

Power supply - ACL – related parties

     1.067.727         149.917         —     

Transactions under the CCEE

     356.673         254.793         149.892   

Bilateral agreements - ACL

     85.174         —           —     

Deductions from operating revenue:

     (273.726      (83.430      (16.644
  

 

 

    

 

 

    

 

 

 

COFINS

     (204.187      (62.490      (12.455

PIS

     (44.330      (13.567      (2.704

Investments - R&D

     (24.140      (7.373      (1.485
        

 

 

 

Annulment of power sale

     (1.069      —           —     

Net operating revenue

     2.412.946         732.639         147.005   
  

 

 

    

 

 

    

 

 

 

 

27. BREAKDOWN OF OPERATING COSTS BY NATURE

In order to record the costs on the power sold, i.e., the costs directly related to power generation, the subsidiary adopted as cost recognition method the number of generation units in operation and, as at December 31, 2015, the subsidiary had 37 generation units in operation (20 generation units as at December 31, 2014), while for costs related to commercial matters, the subsidiary considered 100% of them.

 

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At at December 31, 2015, the operating costs are broken down as follows:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Cost on power sold:

        

Provision for power contingency and EUST (Note 21)

     897.698         1.915.094         157.519   

Power grid charges

     520.188         171.640         4.806   

Depreciation and amortization

     433.313         122.601         4.798   

Costs of transactions at CCEE

     304.675         —           —     

GSF (Generating Scaling Factor)

     204.930         —           —     

Financial compensation for the use of water resources (CFURH)

     66.329         17.460         —     

Personnel costs

     18.016         4.945         76   

Power Service Inspection Fee (TFSEE)

     5.047         187         —     

UBP amortization

     3.868         2.429         36   

Purchased power

     —           —           119.865   

Other operating expenses

     3.350         5.089         327   
  

 

 

    

 

 

    

 

 

 

Total

     2.457.414         2.239.445         287.427   
  

 

 

    

 

 

    

 

 

 

 

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General and administrative expenses are broken down as follows:

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Personnel

     31.935         35.212         29.615   

Management

     16.750         11.470         9.613   

Insurance

     73.595         4         —     

Contingencies – labor and tax

     61.237         3.186         —     

Outside Services

     56.222         40.504         20.447   

ISSQN tax assessment notice, fine and other expenses on social compensation

     18.875         1.511         —     

Allowance for doubtful debts

     17.085         924         6.173   

Depreciation and amortization

     15.612         809         413   

Building upkeep and conservation

     8.747         2.012         —     

Materials

     5.547         7.670         1.065   

Rents

     5.463         1.508         1.508   

Equipment maintenance and conservation

     5.214         4.849         1.526   

Travel

     3.224         3.525         3.847   

Contributions

     2.082         48         8   

Taxes

     1.548         6.622         114   

Sector contributions

     1.669         540         43   

Vehicles

     1.398         3.093         2.325   

UBP

     —           3.845         —     

Other

     5.059         5.551         6.704   
  

 

 

    

 

 

    

 

 

 

Total

     331.262         132.883         83.401   
  

 

 

    

 

 

    

Classified as:

        

Personnel

     31.935         35.212         29.615   

Management (Note 17)

     16.750         11.470         9.613   

Administrative costs

     282.577         86.201         44.173   
  

 

 

    

 

 

    

 

 

 

Total

     331.262         132.883         83.401   
  

 

 

    

 

 

    

 

 

 

 

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28. FINANCE INCOME (COSTS)

 

     12/31/2015      12/31/2014      12/31/2013  
     (unaudited)             (unaudited)  

Finance income

        

Inflation adjustment - AFCI

     —           —           —     

Income on short-term investments

     10.439         3.874         1.199   

Inflation adjustment

     2.590         1.718         1.326   

Selic adjustment

     417         1.369         828   

Other finance income

     —           —           16   
  

 

 

    

 

 

    

 

 

 

Total

     13.446         6.961         3.369   
  

 

 

    

 

 

    

 

 

 

Finance costs

        

Debt charges

     (587.919      (164.688      (4.076

Inflation adjustment on environmental costs (APV)

     (29.020      —           —     

Inflation adjustment - AFCI

     (20.691      —           —     

Use of public asset

     (15.845      (15.994      (1.747

Other finance costs

     (32.541      (1.260      (2.153
  

 

 

    

 

 

    

 

 

 

Total

     (686.016      (181.942      (7.976
  

 

 

    

 

 

    

 

 

 

Finance income (costs)

     (672.570      (174.981      (4.607
  

 

 

    

 

 

    

 

 

 

 

29. FINANCIAL INSTRUMENTS