Companhia Energética
de Minas Gerais (‘Cemig’, ‘Parent company’, or ‘the Company’) is a listed corporation registered
in the Brazilian Registry of Corporate Taxpayers (CNPJ) under number 17.155.730/0001-64, with shares traded on the São Paulo
stock exchange (‘B3’) at Corporate Governance Level 1; on the New York Stock Exchange (‘NYSE’); and on
the stock exchange of Madrid (‘Latibex’). Domiciled in Brazil, with head office in Belo Horizonte, Minas Gerais State,
it operates exclusively as a holding company, with interests in subsidiaries or jointly controlled entities, whose objects are:
construction and operation of systems for generation, transformation, transmission, distribution and sale of energy, and also activities
in the various fields of energy, for the purpose of commercial operation.
Based on the facts and circumstances
at this date, management has assessed the Company’s capacity to continue operating normally and believes firmly that its
operations have the capacity to generate funds to enable the continuation of its business in the future. In addition, Management
is not aware of any material uncertainties that could generate significant doubts about its ability to continue operating. Therefore,
this interim financial information has been prepared on a going concern basis.
On January 13, 2020, the Company
concluded acquisition of the equity interest of 49% of the share capital held by Eletrobras in Centroeste, resulting in its now
holding 100% of that investee. The acquisition, which resulted in the Company obtaining control, based on the provisions of accounting
standard IFRS 10/CPC 36 – Consolidated Financial Standard, is the result of exercise of the right of first refusal for acquisition
of the shareholding offered in Eletrobras Auction 01/2018, Lot P, held on September 27, 2018, and confirmed on January 15, 2019.
The effects of business combination
in this interim financial information are present in Note 15.
On March 11, 2020, the World
Health Organization characterized Covid-19 as a pandemic, reinforcing the restrictive measures recommendations to prevent the virus
dissemination worldwide. These measures are based, mainly, on social distancing, which have been causing major negative impact
on entities, affecting their production process, interrupting their supply chains, causing workforce shortages and closing of stores
and facilities. The economies around the world are developing measures to handle the economic crisis, especially by their central
banks and fiscal authorities, but the economic downturn and its effects are not yet accurately measurable.
Several measures were implemented
by the Brazilian government, specifically aimed at energy sector, which include:
On May 18, 2020, in order
to cope with the public calamity caused by the Covid-19 pandemic, the Decree n. 10,350/20 authorized the creation of “Covid
account, to support the energy distribution sector, which is the basis of the energy sector financial flow, aimed to either cover
the distribution agents revenue/cash flow deficit or to anticipate their revenues, related to (i) over-contracted purchases due
to market retraction, (ii) “CVA” sector assets (iii) maintaining the neutrality of regulatory charges, (iv) compensation
for the delay in applying tariff adjustments until June 30, 2020 and (v) anticipation of “parcel B” revenues as determined
by Aneel regulation.
On June 23, 2020, the regulator
issued the Normative Resolution n. 885/2020, which set out the criteria and procedures to manage the “Covid-account”,
as well as regulated the use of the CDE regulatory charge. Under this Resolution, the amount transferred to each distribution agent
will be converted as a tariff negative financial component until the tariff processes of 2020, updated by Selic rate, ensuring
the neutrality.
Cemig D joined the financial
compensation mechanism under the Covid-account (‘Conta-Covid’), in order to boost its cash flow enabling it to meet
its financial obligations, in spite of the collection reduction resulting of the economic crises. On July 9, 2020, the regulator
informed the total amount from the “Covid-account” to be received by Cemig D, in installments, which is $1,404,175.
The first installment was received on July 31, 2020 and the remaining, in the amount of R$217,785, will be received in 6 installments,
from August of 2020 to January, 2021.
There are some rules applied
to distribution agents entitled to the Covid-account resources, such as (i) relinquishing any intention to reduce or end the purchase
of energy from generators because of a reduction in the sales caused by the pandemic crises, until December 2020; (ii) in the event
of default on payments, limiting their dividend payments to the legal minimum of 25% of net income and (iii) renounce the right
to complain in court or arbitral tribunals on the conditions, procedures or obligations determined in legal and regulatory provisions
on Covid-account. Notwithstanding, the right to request an extraordinary tariff review is fully preserved.
Due to the statements of renunciations
established in the Acceptance Document under the Normative Resolution 885/2020, on July 3, 2020 Cemig D’s Shareholders Extraordinary
General Meeting approved alteration to its by-laws, to include §4 on Clause 33 limiting the distribution of mandatory dividend
or interest on equity to the legal minimum, exceptionally for the cases and conditions that the regulator may demand, by rule or
by contract, in order to mitigate a situation of financial imbalance caused by any fact or event attributable to a third party,
or overriding government rulings, or expressly recognized force majeure.
On March 23, 2020, the Company
established the Coronavirus Crisis Management Committee (‘Comitê Diretor de Gestão da Crise do Coronavírus’)
to ensure its readiness to making decisions because of the fast-changing situation, which became more widespread, complex and systemic.
Also, in line with recommendations
to maintain social-distancing measures, the Company has implemented an operational contingency plan and several precautionary measures
to keep its employees healthy and safe, including: security and health technicians contacting operational staff on a daily basis;
interacting daily with subcontractors Social Service department to monitor the evolution of suspicious cases; changing the schedule
to prevent gatherings; restricting national and international travel; suspending technical visits and events at Company’s
facilities; using remote means of communication; adopting work-from-home policies for a substantial number of employees, providing
face masks for employees in external service or in service into its facilities, and requiring outsourcings providers to put the
same procedures in place. In addition, the Company has suspended in-store assistance to the general public temporarily.
The Company maintain the communication
with its customers on virtual channels and essential assistance in customers’ facilities, ensuring the appropriate energy
supply.
The
Company also adopted the follow measures in order to contribute with society, which are assessed continuously:
The Company is working diligently
to mitigate the crisis impacts on its liquidity, implementing the following measures, among others:
Considering the significant
restrictions on business and social interaction during the Covid-19 pandemic in combination with the latest movements in exchange
and interest rates, the Company estimates that the resulting economic contraction might have a negative effect on its liquidity,
but the overall impact of the Covid-19 outbreak on its financial position and performance is still difficult to be accurately
measured at this point.
In such a scenario, the significant
intervention in the local market policies and the initiatives to reduce the transmission of Covid-19 are likely to cause a reduction
in energy consumption and consequently in revenue from sale of energy, as well as an increase in expected credit losses.
As of June 30, 2020, from
the observation of the pandemic’s immediate economic effects, the Company assessed the assumptions used for calculating fair
value and recoverable amount of certain financial and non-financial assets, as follows:
The impacts of the Covid-19
pandemic published in this interim financial information are based on the Company’s best estimates. The Company estimates
that the effects of the pandemic may temporarily affect its liquidity in 2020, however, significant long-term effects are not expected.
Based on the market projections and on the crisis measurable effects, the Company has observed the following effects in 2020:
The interim financial information
has been prepared in accordance with IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards
Board (IASB), Technical Pronouncement 21 (R1) (‘CPC21’), which applies to interim financial information, and the rules
issued by the Brazilian Securities Commission (Comissão de Valores Mobiliários, or CVM), applicable to preparation
of Quarterly Information (Informações Trimestrais, or ITR).
This interim financial information
has been prepared according to principles, practices and criteria consistent with those adopted in the preparation of the financial
statements on December 31, 2019.
Thus, this interim financial
information should be read in conjunction with the said financial statements, approved by the Company’s management on March
19, 2020.
Management certifies that
all the material information in the interim financial information is being disclosed herein, and is the same information used by
management in its administration of the Company.
The Company's Board of Directors
authorized the issuance of this Interim financial information on August 14, 2020.
The Notes to the 2019 financial
statements that have not been included in this consolidated interim financial information because they had no material changes,
and/or were not applicable to the interim financial information, are as follows:
The dates of Interim financial
information of the subsidiaries, used for consolidation, and of the jointly-controlled entities and affiliates, used for calculation
of their equity method contribution, coincide with those of the Company. Accounting practices are applied uniformly and are the
same as those used by the parent company.
The Company uses the criteria
of full consolidation. The direct equity investments of Cemig, included in the consolidation, are the following:
*Cemig generate
energy from hydroelectric plants that have the capacity of 5MW or less, and thus under Law 9074/95, these are dispensed from concession,
permission or authorization, and do not have a final concession date.
Note 30 gives the exposure
of the Company and its subsidiaries to interest rate risks and a sensitivity analysis of their effects on financial assets and
liabilities.
Note 29 and 30 shows the classification of these
securities and cash investments in securities of related parties.
The exposure of the Company and its subsidiaries
to credit risk related to Customers and traders is given in Note 30.
The provision for doubtful
receivables is considered sufficient to cover any potential losses in the realization of accounts receivable, and the breakdown
by type of customers is as follows:
The changes in the provision
for doubtful receivables in the period is as follows:
On May 8, 2019 the Regional
Federal Appeal Court of the First Region gave final judgment – against which there is no appeal – on the Ordinary Action,
deciding in favor of Cemig, Cemig D and Cemig GT, and recognizing their right to exclude the ICMS amounts from the calculation
basis of PIS/Pasep and Cofins taxes, backdated as from five years prior to the action initial filing– that is, from July
2003.
Thus, the PIS/Pasep and Cofins
credits recorded correspondthe amount of these taxes over ICMS paid in the period of July 2003 to May 2019.
Final court judgment has also
been given, against which there is no further appeal, in favor of the similar actions filed by Cemig’s wholly-owned subsidiaries
Sá Carvalho, Cemig Geração Distribuída (former UTE Ipatinga S.A.), Cemig Geração Poço
Fundo S.A. (previously denominated UTE Barreiro S.A.) and Horizontes Energia S.A..
The Company has two ways to
recover the tax credit: (i) offsetting of the amount receivable against amounts payable of PIS/Pasep and Cofins taxes, monthly,
within the five-year period specified by the relevant law of limitation; or (ii) receipt of specific credit instruments ‘precatórios’
from the federal government.
In Cemig D and Cemig GT, the
credits will be offset, to accelerate recovery. For the Company itself, priority will be given to receipt of the credits through
precatório letters of credit, since the Company does not make enough monthly payments of PIS/Pasep and Cofins taxes
to enable offsetting.
The Company is recovering
Cemig GT and Cemig D tax credits by offsetting the amount receivable against amounts of federal taxes payable on a monthly basis,
starting in May, 2020, within the five-year period specified by the relevant law of limitation.
In this context, the Company
transferred to current assets the credits for which the expectation of offsetting does not exceed a period of 12 months: R$ 357,334
for the PIS/Pasep taxes, and R$ 1,645,903 for the Cofins tax.
Based on the opinion of its
legal advisers, the Company believes that a portion of the credits to be received by Cemig D should be reimbursed to its customers,
considering a maximum period for calculation of the reimbursement of 10 years. Thus, Cemig D has constituted a liability corresponding
to the total amount of the tax credits comprising the period of the last 10 years, from June 2009 to May 2019, net of PIS/Pasep
and Cofins taxes over monetary updating, presented in Note 20. Cemig D awaits the regulator’a conclusion about the mechanisms
and criteria for the reimbursement to its customers.
The accounting effects relating
to the recognition of the PIS/Pasep and Cofins taxes credits, including their monetary updating by the Selic rate, were recognized
in the income statement in 2019, at net amount, updated to December 31, 2019, of R$1,965,116. Of this amount, R$1,427,786 and R$1,549,663
were recognized as operational revenue and financial revenue (net of PIS/Pasep and Cofins taxes), respectively. In addition, the
amount of R$1,012,333 was recorded as IRPJ and CSLL.
These credits and the reimbursement
to customers are updated by the Selic rate until offsetting of the amount receivable against amounts payable or until reimbursement
to customers. On June 30, 2020, the net effect in the consolidated and individual finance income is R$27,092 and R$3,489, respectively,
more details see note 28.
The ICMS (VAT) credits that
are reported in non-current assets arise mainly from acquisitions of property, plant and equipment, and intangible assets, and
can be offset against taxes payable in the next 48 months. The transfer to non-current is made in accordance with management's
best estimate of the amounts which will likely be realized after December 2020.
Credits of PIS/Pasep and Cofins
generated by the acquisition of machinery and equipment can be offset immediately.
The balances of income
tax and social contribution tax refer to tax credits in the corporate income tax returns of previous years and to advance payments
which will be offset against federal taxes eventually payable.
The balances of income tax
and social contribution tax posted in non-current assets arise from advanced payments required by tax law and withholding taxes,
which the expectation of offsetting is greater than 12 months.
The balances of income tax
and Social Contribution tax recorded in current liabilities refer mainly to the taxes owed by the subsidiaries which report by
the Real Profit method and have opted to make monthly payments based on estimated revenue, and also by the subsidiaries that have
opted for the Presumed Profit method, in which payments are made quarterly.
The Company and its subsidiaries
have deferred taxed assets and liabilities from unused tax loss carryforwards, negative base for the Social Contribution tax, and
deductible temporary differences, at the statutory rates applicable to each legal entity in Brazil of 25% (for Income tax) and
9% (for the Social Contribution tax), as follows:
The changes in deferred income
tax and social contribution tax were as follows:
This table reconciles the
statutory income tax (rate 25%) and social contribution tax (rate 9%) with the current income tax expense in the Statement of income:
The Company has accounts receivable
from the State of Minas Gerais, arising from return of an administrative deposit made for a dispute on the rate of inflation and
other adjustment to be applied to an advance for future capital increase (‘AFAC’), made in prior years, which was the
subject of a debt recognition agreement. The agreement provided for payment by the Minas Gerais State in 12 consecutive monthly
installments, each updated by the IGP–M index up to the date of actual payment, the first to become due on November 10, 2017.
The agreement states that, in the event of arrears or default by the State in payment of the agreed consecutive monthly installments,
Cemig is authorized to retain dividends or Interest on Equity distributable to the State in proportion to the State’s equity
interest, for as long as the arrears and/or default continues.
Considering the provision
referred to in the previous paragraph, the Company withheld an amount of R$147,798 in 2019, corresponding to the dividends that
would have been payable to Minas Gerais State on that year. The balance receivable on June 30, 2020, R$120,258 (R$115,202 on December,
31, 2019), was classified as Non-current asset, as a result of the delays in installments past due since January 2018.
Due to the garantees mentioned
above, which the Company intends to remain executing in the event of non-receipt of the amount agreed in the debt recognition agreement,
there is no expectation of losses in the realization of these receivables.
On February 13, 2020, the
escrow deposits in the action challenging the constitutionality of inclusion of ICMS value added tax within the taxable amount
for calculation of PIS/Pasep and Cofins taxes were released for an amount of R$1,382,571, of which R$1,186,402 and R$196,169 were
released to Cemig D and Cemig GT, respectively. The escrow deposits from the others wholly-owned subsidiaries will be claimed in
their judicial action challenging the matter as they reach the final judgement.
Subsidies on tariffs charged
to users of distribution services – TUSD and EUST (Charges for Use of the Transmission System) are reimbursed to distributors
through the funds from the Energy Development Account (CDE).
On June 30, 2020, the amount
recognized as subsidies revenues was R$570,607 (R$251,647 on December 31, 2019). Of such amounts, the Company has a receivable
of R$89,048 (R$96,776 on December 31, 2019) in current assets, being R$85,543 (R$93,673 on December 31, 2019) held by Cemig D and
R$3,505 (R$3,103 on December 31, 2019) held by Cemig GT.
The changes in concession financial assets related
to infrastructure are as follows:
The energy and gas
distribution concession contracts are within the scope of IFRIC 12 / ICPC 01. The financial assets under these contracts refer
to the investments made in infrastructure that will paid by grantor at the end of the concession period and they are measured at
fair value through profit or loss, in accordance with regulation of the energy segment and concession contracts executed by Cemig
and its subsidiaries and the granting authorities.
On April 20, 2016, the Mining
and Energy Ministry (MME) issued its Ministerial Order 120, which set the amounts ratified by Aneel through its Dispatches, relating
to the facilities of the National Grid not yet amortized nor depreciated nor yet reimbursed by the concession-granting power, related
to the concession contracts renewed under Law 12,783/2013. These became a component of the Regulatory Remuneration Base of the
energy transmission concession holders, as from the 2017 tariff-setting process. These regulations determined the amounts receivable
as Permitted Annual Revenue (Receita Anual Permitida - RAP) of the amounts relating to the National Grid.
Based on the regulations of
Aneel and the Mining and Energy Ministry, in particular MME Ministerial Order 120/2016 and Aneel Resolution 762/2017, the portion
of the Company’s receivable rights for which only the passage of time is required before their payment is governed by IFRS
09 / CPC 48 (financial asset).
Thus, the portion not yet
paid, since the extension of the concessions, for the period January 1, 2013 to June 30, 2017, to be received over a period of
eight years, considered as a Financial Component, is classified as a Financial asset, since it no longer involves the construction
of infrastructure assets, and represents exclusively the portions not paid in the period 2013 to 2017, updated by the regulatory
cost of capital of the transmission sector.
The classification of this portion as a financial
asset is based on the non-existence of assets linked to the financial component of the National Grid, for which a performance obligation
is required for its receipt. In this context, the Company has the unconditional right to the receivable, specified in Article 15
of Law 12,783/2013 and also in the regulations of Aneel, requiring, basically, only the passage of time for receipt of the amounts
payable. The financial asset recognized is classified as measured at amortized cost, in the terms of IFRS 09 / CPC 48, since its
remuneration is based on the regulatory cost of capital, previously set by Aneel through its Resolution 762/2017 and is maintained
in a business model whose objective is the receipt of contractual cash flows, constituting payment of principal and interest on
the principal yet unpaid.
In relation to the facilities
of the National Grid linked to the Company’s concession contract, Aneel ratified, through its Dispatch 2,181, on august,
16, 2016, homologated the amount of R$892,050, in December, 2012, for the portion of the residual value of assets to be paid to
the Company. This amount was recorded as a financial asset, with specific maturity and interest rate, in accordance with its characteristics.
The amount of the indemnity
receivable, updated to June 30, 2020, of R$1,265,445 (R$1,280,652 on December 31, 2019) is classified as a financial asset, at
amortized cost, in accordance with IFRS 9, as follows:
An amount of R$785,488 (R$832,915
on December 31, 2019), corresponding to remuneration and depreciation not paid since the extension of the concessions, until the
tariff adjustment of 2017, which will be inflation adjusted using the IPCA (Expanded National Customer Price) index and remunerated
at the weighted average cost of capital of the transmission segment as defined by the regulator for the periodic tariff review,
to be paid over a period of eight years through the RAP, since July of 2017.
On June 30, 2020 Aneel approved
the periodic reset of Annual Revenue Permitted (ARAP) by Ratification Resolution n. 2,712/2020, resulting in an adjustment of R$ 10,183
in the financial component of RAP, mainly arising from the retrospective alteration as from July 1, 2018, of the transmission sector
Weighted Average Cost of Capital. For more information on the RAP periodic reset , please see Note 14 to the financial statements.
On April 10, 2017, a preliminary
injunction was granted to the Brazilian Large Free Customers’ Association (Associação Brasileira de Grandes
Consumidores Livres), the Brazilian Auto Glass Industry Technical Association (Associação Técnica Brasileira
das Indústrias Automáticas de Vidro) and the Brazilian Ferro-alloys and Silicon Metal Producers’ Association
(Associação Brasileira dos Produtores de Ferroligas e de Silicio Metálico) in their legal action against
the regulator and the Federal Government requesting suspension of the effects on their tariffs of remuneration at cost of equity
of portions of “National Grid” assets not yet paid from 2013 to 2017 owned to the agents that accepted the terms of
Law 12,783/13.
In June 2020, due to revocation
of the majority of the injunctions, and in compliance with the Execution Opinions issued by the Federal Public Attorneys’
Office to Aneel, the effects caused by the reversal of these injunctions were calculated, for inclusion of the cost of equity in
the transmission revenue starting with the 2020-21 cycle, considering all retrospective effects, including those arising from the
assumptions adopted in the 2018 RAP periodic reset. At this moment Aneel provisionally ratified only the inclusion of the cost
of equity updated by IPCA index of the period between the 2017-18 and 2019-20 tariff cycles, considering the need for deeper examination
of the legal conditions for analysis of the Company’s appeal, which require the inclusion of the wacc remuneration for the
periods in which it was suspended, in the average amount of R$86,042.
Cemig GT believes that the
treatment given to this component, which includes updating by the IPCA inflation index, plus the regulatory weighted average cost
of capital, of the period from June 2017 to June 2020, appropriately reflects the regulations issued by the grantor authority.
Company has no expectation of loss in relation to realization of these amounts.
The difference due the incorporation
of the cost of equity remuneration, arising from the amounts actually paid and the amounts due between the 2017-18 and 2019-20
cycles, will be incorporated into the RAP through Adjustment Parcels, over three cycles. The total value for this parameter to
be received in the 2020-21 cycle, which includes accrual in the current cycle, in the amount of R$ 65,945, totals approximately
R$131,075.
As from August 2013, with
the extinction of the concession for various plants operated by Cemig GT under Concession Contract 007/1997, the subsidiary has
a right to receive an amount corresponding to the residual value of the infrastructure assets, as specified in the concession contract.
These balances are recognized in financial assets, at fair value through profit or loss, and totaled R$816,202 on June 30, 2020
and December 31, 2019.
As specified by the regulator
(Aneel) in Normative Resolution 615/2014, the valuation reports that support the amounts in relation to the residual value of the
plants, previously operated by Cemig GT, that were included in Lot D and for the Volta Grande plant have been submitted
to the regulator. The Company does not expect any losses in the realization of these amounts.
On June, 30 2020, investments
made after the Jaguara, São Simão and Miranda plants came into operation, in the amounts of R$174,203, R$2,711 and
R$22,546, respectively, are recorded as concession financial assets, and the determination of the final amounts to be paid to the
Company is in a process of discussion with Aneel (the regulator). Management of the subsidiary Cemig GT does not expect losses
in realization of these amounts.
In 2019, Plubic Hearing 003/2019
was opened to obtain inputs on improvement of the regulation of criteria and procedures for calculation of investments in revertible
assets, not yet amortized or not depreciated, of generation concessions (whether extended or not), under Law 12,783/2013. Technical
Note 096/2019 was published on September 30, 2019. However the Normative Resolution has not yet been voted on by the Council of
Aneel.
The concession grant fee paid
for a 30-year concession contracts Nº. 08 to 16/2016, related to 18 hydroelectric plants of Auction 12/2015, won by Cemig
GT, was an amount of R$2,216,353. The amount of the concession fee was recognized as a financial asset measured at amortized cost,
as Cemig GT has an unconditional right to receive the amount paid, updated by the IPCA Index and remuneratory interest (the total
amount of which is equal to the internal rate of return on the project), during the period of the concession.
Of the energy produced by these plants, 70% is
sold in the Regulated Market (ACR) and 30% in the Free Market (ACL).
The Amendment that extended
concession period of Cemig D guarantees that, in the event of termination of the concession contract, for any reason, the remaining
balances (assets and liabilities) of any shortfall in payment or reimbursement through the tariff must also be paid by the grantor.
The balances on (i) the CVA (Compensation for Variation of Parcel A items) Account, (ii) the account for Neutrality
of Sector Charges, and (iii) Other financial components in the tariff calculation, refer to the positive and negative differences
between the estimate of the Company’s non-manageable costs and the payments actually made. The variations are subject to
monetary adjustment using the Selic rate and considered in the subsequent tariff adjustments.
The balance of these sector
financial assets and liabilities, which are presented at net value, in assets or liabilities, in accordance with the tariff adjustments
that have been authorized or are to be ratified, are as follows:
From January to June 2020,
funds passed through by the Flag Account totaled R$62,771 (R$83,115 from January to June 2019), and were recognized as a partial
realization of CVA receivables constituted.
On June 25, 2020, the regulator
(Aneel) approved the Annual Adjustment for Cemig D, effective as of May 28, 2020, providing an average increase for customers of
4.27%, whereas 0.84% corresponded to Cemig D’s manageable costs (Portion B) and the remaining portion, of 3.43%, has zero
economic effect, not affecting profitability, since it represents direct pass-through, within the tariff, relating to the following
itens: (i) increase of 5.30% in non-manageable (‘Parcel A’) costs – mainly purchase of energy supply, regulatory
charges and transmission charges; (ii) ) increase of 6.71% in the financial components of the current process, led by the CVA currently
being processed, which had an effect of 5.47%; and (iii) 8.58% was withdrawn from the financial components of the prior process.
Although the adjustment is
effective from May 28, 2020 to May 27 2021, its application was suspended until June 30, 2020, maintaining the previous tariffs
during the suspension period. Additionally, the Cemig D’s right to receive R$ 63,147, for non-collection of additional
tariff revenue in the period, was recognized. This amount was part of the total limit set for the Covid-account funding established
for Cemig D under Normative Resolution 885/2020. For more information on the Covid-account, see Note 1(c) to this interim financial
statements.
Administrative appeals were
filed with Aneel, contesting the ratification of the annual tariff increase of 4.27% to Cemig D, and requesting its annulment,
with the restitution to Cemig D’s customers of the amounts of the escrow deposits released as a result of the Supreme Court
judgment, in the form that creates overall precedent, which determined the exclusion of ICMS tax amounts from the basis for calculation
of PIS/ Pasep and Cofins taxes payable.. The current administrative appeals request a creation of a negative financial component
in the calculation of Cemig D’s annual tariff adjustment.
Aneel has given Cemig D the
right of reply, and, based on internal assessments and those of its legal advisers, as well as the exceptional economic scenario
caused by the Covid-19 pandemic, Cemig D, on August 5, 2020, has submitted to Aneel a proposal for a the restitution to its customers
of a total amount of R$ 714 million – corresponding to part of the escrow deposits released by the court due to Cemig’s
success in the Claim.
Cemig’s decision represents
an anticipation of the effects, and treatment in terms of regulations of the Supreme Court’s decision that determined the
exclusion of ICMS tax amounts from the basis for calculation of PIS/ Pasep and Cofins taxes. These regulations will be applied
equally to all energy distribution concessions through an Aneel normative ruling, which will be issued after conclusion of Public
Consultation 005/2020 – during which there will be discussion on the merits, and in which Cemig will be able to take part
in a wide-ranging discussion on the subject. The portion of the credits that Cemig D proposes to refund to its customers are recorded
as a liability, as presented in note 20.
Cemig D’s proposal will
also be subjected to ANEEL’s analysis and deliberation.
The amount of additions in
the period ended June 30, 2020 includes R$22,626 under the heading Capitalized borrowing costs, as presented in Note 22.
The
Company has not identified any evidence of impairment of the others contract assets, with definite expected useful life. The Company
doesn’t have any contract asset with indefinite useful life.
The concession
infrastructure assets still under construction are recognized initially as contract assets, measured at amortized cost, including
borrowing costs. When the asset start operations, the construction performance obligation is concluded, and the assets are split
into financial assets and intangible assets.
On June 30, 2020, Aneel ratified
the results of the Periodic Tariff Reset through Ratifying Resolution 2,712/2020, setting the revaluation of the Permitted Annual
Revenue (RAP) to be applied from July 1, 2018. The result of the RAP Periodic Reset was a net increase of 9.13%, comprising: (i)
–10.25%, arising from revaluation of the assets created by reinforcements and improvements (incremental basis); (ii) 0.51%
for the assets reincorporated into the Remuneration Base; and (iii) 37.89% for the review of the financial component of RAP and
change of the weighted average Regulatory Cost of Capital (WACC).
The right to the consideration
linked to these assets depends on the availability of the network, since they were reincorporated into the Remuneration Base by
the renewal of the concession contract, under Law 12,783/2013, and will be received for the remaining period of their useful life,
whilst the services of operation and maintenance are rendered.
Thus, the asset is recognized,
under IFRS 15 / CPC 47, as a contract asset, representing the performance concluded prior to the right to receipt of the consideration,
which will take place during the utilization of the infrastructure built, for the period of its useful life, in accordance with
Aneel Resolution 762/2017, concomitantly with the provision of services of operation and maintenance, which are necessary for availability
of the network.
As a result of the Tariff
PeriodicReset, the economic portion of RAP was remeasured in accordance with the applicable regulatory rules, resulting in an addition
of R$220,943 to the Cemig GT’s income for the period ended June 30, 2020.
The remaining balance of the
indemnity for transmission, due to acceptance of the terms of Law 12,783/13, and the adjustments arising from periodic reset of
RAP (RTP), of R$505,564 at June 30, 2020 (R$347,691 at December 31, 2019) was incorporated into the Assets Remuneration Base and
is being recovered through the Annual Permitted Revenue (RAP).
The assets arising from reinforcements
and improvements related to the period from January 2013 to January 2018 were remeasured using the Aneel Reference Price Bank,
in accordance with the regulatory requirement due to the Periodic Reset of RAP ratified by Aneel on June 30, 2020. The remeasurement
of this Remuneration Base resulted in an increase of R$ 198,714 in the Company’s income.
The construction of infrastructure
grants to the operator a right to receive consideration due to performance obligations represented by the construction, which is
not unconditional until the satisfaction of performance obligations related to the operation and maintenance of the transmission
lines. The revenue and costs related to construction of these assets are recognized in the statement of income as expenditures
incurred.
The Company’s investees
that are not consolidated are jointly-controlled entities, with the exception of the interests in the Light, classified as assets
held for sale, Madeira Energia (‘Santo Antônio’ power plant), UFV Janaúba Geração
de Energia Elétrica Distribuída and Ativas Data Center.
On December 31, 2019, the
investee Usina Hidrelétrica Itaocara had negative shareholders’ equity. Thus, after reducing the accounting value
of its interest to zero, the Company recognized the loss to the extent that it assumed contractual obligations with the subsidiary
and the other shareholders, which on June 30, 2020 is R$22,153 (R$21,810 on December 31, 2019).
For the second quarter of
2020, management considered that there was some indication, due to the economic shock of the Covid-19 pandemic (Note 1C), of potential
decline in value of assets, as referred to in IAS 36 / CPC 01 – Impairments. Considering, however, the pandemic’s
effects on the economic context, and the fact that the long-term expectation of realization of the assets underwent no change,
management of the Company and its subsidiaries concluded that the reported assets net carrying amount is recoverable, and thus
that there was no need to recognize any impairment loss in the Company nor its subsidiaries as a result of the current economic
scenario.
Additionally, in relation
to the above, the Company’s management has assessed the risk threatening all its investments ability to continue as a going
concern, taking substantially into consideration: the economic-financial clauses of Cemig D; the guarantee of revenues of the transmission
companies; the protection against force majeure reduction in regulated generation contracts; and all the legal measures
that have been applied by the federal government and by Aneel – and has concluded that the Company and its subsidiaries’
ability to continue as going concern is secure.
In the process of allocate
the purchase price for of the acquisition of the jointly-controlled subsidiaries and affiliates, a valuation was made for the intangible
assets relating to the right to operate the infrastructure. This asset is presented together with the acquisition cost of the investments
in the previous table. These assets will be amortized over the remaining period of the concessions on a straight-line basis.
The rights of authorization
to generate wind energy granted to Parajuru and Volta do Rio, valued at R$56,965 (R$60,072 on December 31, 2019) and R$55,050 (R$66,606
on December 31, 2019), respectively, are included in the financial statements of the subsidiary Cemig GT and of the Company, respectively,
and in accordance with Technical Interpretation ICPC 09, the investments and are classified in the consolidated balance sheet under
Intangibles. These concession assets are amortized by the straight-line method, during the period of the concession. For further
information see note 17.
The Company has direct and indirect equity interests
in the following investees:
MESA is
the parent company of Santo Antônio Energia S.A (‘SAESA’), whose objects are operation and maintenance of the
Santo Antônio Hydroelectric Plant and its transmission system, on the Madeira River, and all activities necessary
for operation of the plant and its transmission system. Between the shareholders include Furnas, Odebrecht Energia, SAAG and the
Company.
On June 30, 2020 the investee
MESA reported a loss of R$548,082 (R$454,708 on June 30, 2019) and current liabilities in excess of current assets by R$187,926
(R$427,060 on December 31, 2019). Hydroelectric plants project finances structurally present negative net working capital in the
first years of operation, because they are built using high levels of financial leverage. On the other hand, they have firm long-term
contracts for energy supply as support and guarantee of payment of their debts. To balance the situation of negative working capital,
in addition to its long-term sale contracts that ensure regularity in its operational cash flow, MESA benefits from its debt reprofiling,
which adjusted its debt repayments flow to its cash generation capacity, so that the investee does not depend on additional investment
from the shareholders.
In 2014, Cemig GT and SAAG
Investimentos S.A. (SAAG), a vehicle through which Cemig GT holds an indirect equity interest in MESA, opened arbitration proceedings,
in the Market Arbitration Chamber, challenging the following: (a) the adjustment for impairment carried out by the Executive Board
of MESA, in the amount of R$678 million, relating to certain credits owed to Mesa by CCSA, based on absence of quantification of
the amounts supposedly owed, and absence of prior approval by the Board of Directors, as required by the by laws and Shareholders’
Agreement of MESA; and also on the existence of credits owed to MESA by CCSA, for an amount greater than the claims; and (b) against
the adjustment for impairment carried out by the Executive Board of MESA, in the amount of R$678,551, relating to certain credits
owed to Mesa by CCSA, on the grounds that those credits are owed in their totality by express provision of contract.
The arbitration judgment recognized
the right of Cemig GT and SAAG in full and ordered the annulment of the acts being impugned. As a consequence of this decision,
MESA reversed the impairment, and posted a provision for receivables in the amount of R$ 678,551 in its financial statements
as of December 31, 2017. On June 30, 2020, the investee confirmed its assets recoverability expectation and maintained the provision
for receivables in the amount of R$678,551.
To
resolve the question of the liability of the CCSA consortium to reimburse the costs of re-establishment of the collateral and use
of the contractual limiting factor, the affiliated company opened arbitration proceedings with the International Chamber of Commerce
(ICC) against CCSA, which are in progress. This process is confidential under the Arbitration Regulations of the ICC.
Cemig GT and SAAG Investimentos
S.A. applied to the judiciary for provisional remedy prior to the arbitration proceeding, to suspend the effects of the capital
increase approved by an Extraordinary General Meeting of Shareholders of Mesa held on August 28, 2018. This process is confidential
under the Arbitration Regulations of the Market Arbitration Chamber.
The investee Renova, currently
in court-supervised reorganization, has been reporting recurring losses and presenting negative net working capital, net equity
(uncovered liabilities), and negative gross margin throughout the year ended June 30, 2020.
However,
in view of the investee’s equity deficit, Cemig GT reduced the carrying value of its equity interests in Renova, at December
31, 2018, to zero and no further losses have been recognized, considering the non-existence of any legal or constructive obligations
to the investee.
Additionally, the Cemig GT
recorded, in June 30, 2019, an impairment of the receivables with the jointly-controlled entity related to energy purchase and
sale agreements and terms of debt recognition for total outstanding balance, in the amount of R$688 million.
On October 16, 2019, the second
State of São Paulo Bankruptcy and Court-Supervised Reorganization Court granted court-supervised reorganization petition
applied by Renova, and by the other companies of the group (‘the Renova Group’), and determined, among other measures,
the following: (i) Appointment of an independent company to act as judicial administrator.; (ii) Suspension of actions and executions
against the companies of the Renova Group for 180 days, under Article 6 of Law 11,101/2005; (iii) Presentation of accounts by the
30th of each month, while the court-supervised reorganization proceedings continue, on penalty of the controlling shareholders
of the companies of the Renova Group being removed, and replaced by administrator, under Article 52, IV, of Law 11,101/2005; (iv)
Dispensation of presentation of certificates of absence of debt so that the companies of the Renova Group can exercise their activities;
and (v) Order to publish a tender, in the terms of §1 of Article 52 of Law 11,101/2005, with 15 days for presentation of qualifications
and/or divergences of credits in relation to the court-supervised reorganization.
On December 17, 2019, Renova
filed its court-supervised reorganization plan and on July 7, 2020, in order to set a court-supervised reorganization structure
that best meets the interests of creditors and companies in reorganization, Renova filed two new court supervised reorganization
plans. The first plan relates exclusively to the companies of Phase A of the Alto Sertão III Project, bound to the loan
originally obtained from the BNDES, and the second plan relates to the investee and the other companies in court-supervised reorganization
of the Renova Group, both of them are in progress in the second Bankruptcy and Court-supervised reorganization Court of the legal
district of São Paulo State. The court-supervised reorganization plan is in discussion, which is subjected to enhancements
and changes until the General Meeting of Creditors, scheduled to be held in September 2020. Up to the date, the possible effects
of this jointly controlled subsidiary court-supervised reorganization plan on its accounting balances have not been measured.
In this context, Renova signed
with the Company Debtor in Possession (DIP) loan agreements in the total amount of R$36,500. The funds of these loans were authorized
by the second State of São Paulo Bankruptcy and Court-supervised Reorganization Court. They are guaranteed by a fiduciary
assignment of shares in a company owning assets of a wind power project owned by Renova, and they also have priority of receipt
in the court-supervised reorganization process. Additionally, Cemig GT made an Advance for Future Capital Increase to Renova, of
R$5,000, on October 25, 2019.
On May 2, 2020, the Bankruptcy
and Court-supervised Reorganization Court issued a decision ordering that the DIP loan, in the total amount of R$ 36,500 million,
with asset guarantee, already constituted and registered, would be subscribed as a capital increase in Renova. Company has filed
a Motion for Clarification, which was denied by the judge. A procedural appeal is now in progress against the first instance judge’s
decision, which was suspended by the Appeal Court on receiving this appeal. The Company’s legal advisors have classified
the chances of loss as ‘possible’. Due to the uncertainties on the financial situation of the investee, the Company
recognized impairment loss for the total of its credits against Renova, of R$ 37,361, in the second semester of 2020.
On March 20, 2020, the Board
of Directors of Renova approved acceptance of a binding offer made by ARC Capital Ltda. (‘ARC’), jointly with G5 Administradora
de Recursos Ltda (‘G5’), and XP Vista Asset Management Ltda. (‘XP’) for financing to conclude the works
of Phase A of the Alto Sertão III Wind Farm Complex, and to fund the current operational expenses of Renova. The
offer final conditions for agreement are still under negotiation.
Considering the non-existence
of any legal or constructive obligations to the investee, the Company has concluded that the granted of court-supervised reorganization
filed by Renova does not have any additional impact in its interim financial information.
Amazônia Energia and
Aliança Norte are shareholders of Norte Energia S.A. (‘NESA’), which holds the concession to operate the Belo
Monte Hydroelectric Plant. Through the jointly-controlled entities referred to above, Cemig GT owns an indirect equity interest
in NESA of 11.69%.
On June 30, 2020 NESA had
negative net working capital of R$1,763,409 and will spend further amounts on projects specified in its concession contract, even
after conclusion of the construction and full operation of the Belo Monte Hydroelectric Plant. According to the estimates and projections,
the situation of negative net working capital, and the future demands for investments in the hydroelectric plant, will be supported
by revenues from future operations and/or raising of bank financings.
On September 21, 2015, NESA
was awarded a preliminary injunction ordering the regulator to ‘abstain, until hearing of the application for an injunction
made in the original case, from applying to Appellant any penalties or sanctions in relation to the Belo Monte Hydroelectric Plant
not starting operations on the date established in the original timetable for the project, including those specified in an the
regulator (Aneel) Normative Resolution 595/2013 and in the Concession Contract for the Belo Monte Hydroelectric Plant’. The
legal advisers of NESA have classified the probability of loss as ‘possible’ and estimated the potential loss on June
30, 2020 to approximately R$2,047,000 (R$1,962,000 on December 31, 2019).
On January 13, 2020, Centroeste
became a wholly own subsidiary of the Company through the acquisition of the remaining equity interest of 49% held by Eletrobras.
The acquisition, which resulted in the Company obtaining control, is the result of exercise of the right of first refusal for acquisition
of the shareholding offered in Eletrobras Auction 01/2018, Lot P, held on September 27, 2018, and confirmed on January 15, 2019.
Centroeste operates in construction,
operation and maintenance of the transmission facilities of the Furnas-Pimenta transmission line – part of the national
grid.
The consideration paid for
the acquisition is R$44,775, resulting from the price in the Tender Announcement, adjusted by the accumulated variation of the
Selic rate up to the date of conclusion of the transaction, less all dividends and/or Interest on Equity paid or declared by Centroeste
in favor of Eletrobras in the period.
The Company applied the acquisition
method to account for the business combination and measured provisional the identifiable assets and liabilities assumed at their
acquisition-date fair value, in accordance with IFRS 3/CPC 15. During the measurement period, the Company
might retrospectively adjust
the provisional amounts recognized at the acquisition date to reflect new information obtained about facts and circumstances that
existed as of the acquisition date and, if known, would have affected the measurement of the amounts recognized as of that date.
The measurement period is the one that follows the acquisition date, in which the provisional amounts recognized in a business
combination can be adjusted and shall not exceed one year from the acquisition date.
The preliminary fair value
of the net assets acquired and the remeasurement of the previously held interest, which impacts were recognized in 2020, are as
follows:
The fair value of interest
acquired in relation to cash consideration is as follows:
The preliminary fair value
of the assets and liabilities acquired at the acquisition date, is as follows:
Regarding the adjustments
mentioned above, the total amounts recognized in profit or loss in 2020 arising from the acquisition of Centroeste’s equity
interest of 49% is as follows:
The above mentioned effects
are presented in the operating segment of transmission.
Investigations and other legal
measures are in progress since 2015, conducted by the Federal Public Attorneys’ Office, which involve other shareholders
of NESA and certain executives of those other shareholders. In this context, the Federal Public Attorneys have started investigations
on irregularities involving contractors and suppliers of NESA and of its other shareholders, which are still in progress. At present,
it is not possible to determine the outcome of these investigations, and their possible consequences. These might at some time
in the future affect the investee. In addition, based on the results of the independent internal investigation conducted by NESA
and its other shareholders, an infrastructure write-down of the R$183,000 was already recorded at NESA, and reflected in the Cemig
GT consolidated financial statements through the equity pick effect in 2015.
The company’s management,
based on its knowledge of the matters described above and on the independent procedure carried out, believes that the conclusions
presented in the report of the independent investigation are adequate and appropriate; as a result no adjustment has been made
in the interim financial information. The effects of any future alterations in the existing scenario will be reflected appropriately
in the Company’s interim financial information.
Investigations and other legal
measures are in progress, conducted by the Federal Public Attorneys’ Office, which involve other indirect shareholders of
MESA and certain executives of those other indirect shareholders. In this context, the Federal Public Attorneys have started investigations
searching for irregularities involving contractors and suppliers of MESA and of its other shareholders. In response to allegations
of possible illegal activities, the investee and its other shareholders started an independent internal investigation.
The independent internal investigation,
concluded in February 2019, in the absence of any future developments such as any leniency agreements by third parties that may
come to be signed or collaboration undertakings that may be signed by third parties with the Brazilian authorities, found no objective
evidence enabling it to be affirmed that there were any supposed undue payments by MESA (SAESA) that should be considered for possible
accounting write-off, pass-through or increase of costs to compensate undue advantages and/or linking of MESA with the acts of
its suppliers, in the terms of the witness accusations and/or cooperation statements that have been made public.
The company’s management,
based on its knowledge of the matters described above and on the independent procedures carried out, believes that the conclusions
presented in the report of the independent investigation are adequate and appropriate; as a result no adjustment has been made
in the interim financial information. The effects of any future alterations in the existing scenario will be reflected appropriately
in the Company’s interim financial information.
Since 2017 Renova is part
of a formal investigation by the Civil Police of Minas Gerais State and other public authorities related to certain capital injections
made by some of its controlling shareholders, including Cemig GT and capital injections made by Renova in certain projects under
development in previous years.
On April 11, 2019, within
the ‘Operação Descarte’ scope, the Brazilian Federal Police commenced the ‘Operation E o Vento
Levou’ as part of the ‘Lava Jato’ Investigation, and executed a search and seizure warrant issued
by a Federal Court of São Paulo at Renova’s head office in São Paulo, based on allegations and indications
of misappropriation of funds harmful to the interests of Cemig. Based on the allegations being investigated, these events are alleged
to have taken place before 2015. On July 25, 2019, the second phase of the operation occurred.
The ‘Operation E o Vento
Levou’ and the police investigation of the Minas Gerais State Civil Police have not yet been concluded. Thus, there is a
possibility that material information may be revealed in the future. If a criminal action is filed against agents who could have
damaged Renova, Renova intends to act as auxiliary
to the prosecution in any criminal proceedings, and subsequently sue for civil reparation of the damages suffered.
Due to these third party investigations,
the governance bodies of Renova have requested opening of an internal investigation, conducted by an independent company with the
support of an external law firm, the scope of which comprises assessment of the existence of irregularities, including noncompliance
with: the Brazilian legislation related to acts of corruption and money laundering; Renova’s Code of Ethics; and its integrity
policies. Additionally, a Monitoring Committee was established in Renova which, jointly with the Audit Committee, accompanied this
investigation. The internal investigation was concluded on February 20, 2020, and no concrete evidences of acts of corruption or
diversion of funds to political campaigns were identified.
However, the independent investigators
identified irregularities in the conducting of business and agreement of contracts by Renova, including: (i) payments without evidence
of the consideration of services, in the total amount of approximately R$40 million; (ii) payments not in accordance with
the company’s internal policies and best governance practices, in the total amount of approximately R$137 million; and (iii)
deficiencies in the internal controls of the investee.
As a result of the analysis
of the above mentioned values, Renova concluded that R$35 million relates to effective assets and therefore no impairment is necessary.
The remaining amount of R$142 million was already impaired in previous years, producing no impact on the financial statements for
the year ended December 31, 2019 and on the interim financial information for the period ended June 30, 2020.
In response to the irregularities
found, and based on the recommendations of the Monitoring Committee and legal advisers, the Board of Directors of Renova decided
to take all the steps necessary to preserve the rights of the investee, continue with the measures to obtain reimbursement of the
losses caused, and strengthen the company’s internal controls.
Since the investment at Renova
is fully impaired at June 30, 2020, and since no contractual or constructive obligations in relation to the investee have been
assumed by the Company, it is not expected that effects resulting from the court-supervised reorganization process, or the investigations,
or the operational activities of this investee can significantly impact the Company’s interim financial information, even
if eventually not yet recorded by Renova.
In addition to the cases above,
there are investigations being conducted by the Public Attorneys’ Office of the State of Minas Gerais (‘MPMG’)
and by the Civil Police of the State of Minas Gerais (‘PCMG’), which aim to investigate possible irregularities in
the investments made by Cemig GT in Guanhães Energia and also in MESA. Additionally, on April 11, 2019 agents of the Brazilian
Federal Police were in the Company’s head office in
Belo Horizonte to execute a search and seizure
warrant issued by a São Paulo Federal Court in connection with the ‘Operation
E o Vento Levou’, as described above.
These proceedings are being
investigated through the analysis of documents demanded by the respective authorities, and by hearing of witnesses.
Taking into account the investigations
that are being conducted at the Company and at certain investees, as described above, the governance bodies of the Company have
authorized contracting a specialized company to analyze the internal procedures related to these investments, as well as the factors
that led the Company to be assessed by federal tax authority for not paying withholding income tax in the acquisition of Light’s
interest from Enlighted (see Note 24). This independent investigation was subject to oversight of an independent investigation
committee whose creation was approved by our Board of Directors.
On July 29, 2019, Company
signed a tooling agreement with the Securities and Exchange Commission (SEC) and US Department of Justice (DOJ). Cemig has complied
with the requests and intends to continue contributing to the SEC and the DOJ.
The Company’s internal
investigation was completed and the corresponding report was issued on May 8, 2020. Considering the results of the internal investigations,
no objective evidence was identified to affirm that there were illegal acts on the investments made by Company that were subject
to the investigation, therefore, there was no impact in the interim financial information ended June 30, 2020 nor in its prior
years financial statements.
Due to the completion of the
investigations for which the Special Investigating Committee was constituted, from the delivery of the final report by the specialized
company, the governance bodies of the Company decided to extinguish that Committee. If there are any future needs resulting from
developments in this matter, the Committee can be reinstated.
The Company will evaluate
any changes in the future scenario and eventual impacts that could affect the Financial Statements, when applicable. The Company
will collaborate with the relevant authorities and their analysis related to the investigations in progress.
The Company and its subsidiaries
have not identified any evidence of impairment of its Property, plant and equipment assets. The generation concession contracts
provide that at the end of each concession the grantor must determine the amount to be reimbursed to the Company – with the
exception of the concession contracts related to Lot D of Auction 12/2015 and those from the independent energy producers supported
by the Decree 1,996/2003. Management believes that the indemnity of these assets will be greater than the amount of their historic
cost, after depreciation over their useful lives.
The residual value of the
assets is the residual balance of the assets at the end of the concession contract which will be transferred to the grantor at
the end of the concession contract and for which Cemig GT is entitled to receive in cash. For contracts under which Cemig does
not have a right to receive such amounts or there is uncertainty related to collection of the amounts, such as in the case of thermal
generation and hydroelectric generation as an independent power producer, no residual value is recognized, and the depreciation
rates are adjusted so that all the assets are depreciated within the concession term.
The portion
of the distribution infrastructure that will be fully used up during the concession is recorded in Intangible assets. Assets linked
to the infrastructure of the concession that are still under construction are posted initially as contract assets, as detailed
in Note 14.
The intangible asset easements,
onerous concessions, assets of concession, and others, are amortized by the straight-line method taking into account the consumption
pattern of these rights. The amount of additions on June 30, 2020 includes capitalized borrowing costs, which represents a reversal
of R$111, as presented in Note 22.
The main amortization rates,
which take into account the useful life that management expects for the asset, reflect the expected pattern of their consumption
and are revised annually by Management.
Under the regulations of the
energy segment, property, plant and equipment used in the distribution concession are linked to these services, and cannot be withdrawn,
disposed of, assigned or provided in guarantee without the prior express authorization of the Regulator.
The rights of authorization
to generate wind power granted to Parajuru and Volta do Rio, valued at R$56,965 (R$60,072 on December 31, 2019) and R$55,050 (R$66,606
on December 31, 2019), respectively, are included in the individual balance sheet of the subsidiary Cemig GT as investment and
are classified as intangibles in the consolidated balance sheet of the Company, in accordance with Technical Interpretation ICPC
09. In addition, the rights of authorization of gas distribution granted to Gasmig, in the amount of R$419,131 (R$426,760 on December
31, 2019), are classified as intangible assets in the Company’s consolidated balance sheet and are recognized as investments
in its individual balance sheet, as Note 15, in accordance with Technical Interpretation ICPC 09. These rights of authorization
of wind power generation and gas distribution are amortized by the straight-line method, during the period of the concession.
On December 31, 2019, the
Company recognized an impairment loss for the intangible asset related to the right of authorization for wind power generation
granted to the subsidiary Volta do Rio, in the amount of R$21,684, recorded in “Other expenses” in the income statement.
The test of impairment of intangible assets, relating to the authorization for wind power generation granted to Volta do Rio, arises
from non-achievement of the operational performance expected in 2019 for the wind generation assets of the subsidiary.
On June 30, 2020, due to continuing
operational performance lower than expectations, an impairment test was carried out on the intangible assets related to the authorization
for wind generation of the Volta do Rio plant, resulting in the recognition of an impairment of R$ 8,459, recognized in ‘Other
expenses’ in the statement of income.
The Value in Use of the assets
was calculated based on the projection of future expected cash flows for the operation of the assets of the subsidiary, brought
to present value by the weighted average cost of capital defined for the company’s activity, using the Firm Cash Flow (FCFF)
methodology.
The Company
and its subsidiaries recognized a right of use and a lease liability, according the IFRS 16 / CPC 06 (R2) – Leases, for
the following contracts which contain a lease:
The Company
and its subsidiaries have elected to use the recognition exemptions for lease contracts that, at the commencement date, have a
lease term of 12 months or less and do not contain a purchase option (short-term leases), and lease contracts for which the underlying
asset is of low value (low-value assets). Thus, these leasing agreements are recognized as an expense in the income statement on
the straight-line basis, over the period of the leasing. Their effects on net income from January to June 2020 were immaterial.
The discount rates were obtained
by reference to the Company’s incremental borrowing rate, based on the debts contracted by the Company and through quotations
with potential financial institutions.
The right-of-use
assets were valued at cost, corresponding to the amount of the initial measurement of the lease liabilities, and amortized on the
straight-line basis over the shorter of the lease term and the estimated useful lives of the assets.
The potential right to recovery
of PIS/Pasep and Cofins taxes embedded in the leasing consideration, according to the periods specified for payment, is as follows:
The Company, in full compliance
with CPC 06 (R2) in statement and restatement of its lease liability and for Right of Use, used the technique of discounted cash
flow, without considering projected future inflation in the flows to be discounted, as per the prohibition imposed by CPC 06 (R2).
This prohibition could generate material distortions in the information to be provided, given the present reality of long-term
interest rates in the Brazilian economic environment. The Company has evaluated these effects and concluded that they are immaterial
for its interim financial information.
The cash flows of the contracts
containing a lease are, in their majority, updated by the IPCA inflation index on an annual basis. Below is an analysis of maturity
of lease contracts:
Due to Covid-19 pandemic,
the Company joined the government programs that granted deferral of taxes payments, substantially related to the last quarter,
which will be made by the end of the year.
The amounts of PIS/Pasep and
Cofins taxes to be reimbursed to customers refer to the credits to be received by Cemig D following the inclusion of the ICMS value
added tax within the taxable amount for calculation of those taxes. According note 8 (a), the Company recognized, in 2019, its
right to offsetting of amounts unduly paid for the 10 years prior to the action being filed, with monetary updating by the Selic
rate, due to the final judgment – against which there is no appeal – on the Ordinary Action, in favor of the Company.
Cemig D has constituted a
liability corresponding to the credits to be reimbursed to its customers, which comprises the period of the last 10 years, from
June 2009 to May 2019, net of PIS/Pasep and Cofins taxes over monetary updating.
The amounts will be reimbursed
to customers as from the date when the tax credits are in fact offset and the mechanisms and criteria for the reimbursement will
be discussed with Aneel.
As stated in Note 13.5, on
August 5, 2020, Cemig D has submitted to Aneel a proposal for bringing forward Cemig D’s already-planned restitution to its
customers of a total amount of R$714,339 million – corresponding to part of the funds released by the courts due to Cemig’s
success in the claim. Cemig D’s decision represents an anticipation of the effects, and treatment in terms of regulations
of the Supreme Court’s decision that determined the exclusion of ICMS tax amounts from the basis for calculation of PIS/
Pasep and Cofins taxes. These regulations will be applied equally to all energy distribution concessions through an Aneel normative
ruling, which will be issued after conclusion of Public Consultation 005/2020 – during which there will be discussion on
the merits, and in which Cemig will be able to take part in a wide-ranging discussion on the subject.
The debentures issued by the
subsidiaries are non-convertible; there are no agreements for renegotiation, nor debentures held in treasury.
There are early maturity clauses
for cross-default in the event of non-payment by Cemig GT or by the Company, of any pecuniary obligation with individual or aggregate
value greater than R$50 million.
The composition of loans,
financing and debentures, by currency and index, with the respective amortization, is as follows:
|
Consolidated
|
2020
|
2021
|
2022
|
2023
|
2024
|
2025
|
2026
|
Total
|
|
Currency
|
|
|
|
|
|
|
|
|
|
US
dollar
|
64,387
|
-
|
-
|
-
|
8,224,622
|
-
|
-
|
8,289,009
|
|
Total,
currency denominated
|
64,387
|
-
|
-
|
-
|
8,224,622
|
-
|
-
|
8,289,009
|
|
Index
|
|
|
|
|
|
|
|
|
|
IPCA
(1)
|
61,912
|
885,936
|
591,283
|
238,444
|
238,444
|
1,000,747
|
762,302
|
3,779,068
|
|
UFIR/RGR
(2)
|
4,847
|
3,410
|
3,265
|
2,377
|
-
|
-
|
-
|
13,899
|
|
CDI
(3)
|
1,325,791
|
895,395
|
569,535
|
560,000
|
270,000
|
-
|
-
|
3,620,721
|
|
URTJ/TJLP
(4)
|
198,349
|
24,607
|
23,496
|
1,176
|
-
|
-
|
-
|
247,628
|
|
Total
by index
|
1,590,899
|
1,809,348
|
1,187,579
|
801,997
|
508,444
|
1,000,747
|
762,302
|
7,661,316
|
|
(-)
Transaction costs
|
(9,617)
|
(6,826)
|
(158)
|
(130)
|
(17,331)
|
(3,131)
|
(2,999)
|
(40,192)
|
|
(±)Interest
paid in advance
|
-
|
-
|
-
|
-
|
(27,742)
|
-
|
-
|
(27,742)
|
|
(-)
Discount
|
-
|
-
|
-
|
-
|
-
|
(9,981)
|
(9,981)
|
(19,962)
|
|
Overall
total
|
1,645,669
|
1,802,522
|
1,187,421
|
801,867
|
8,687,993
|
987,635
|
749,322
|
15,862,429
|
|
Parent Company
|
2020
|
2021
|
Total
|
|
Indexers
|
|
|
|
|
CDI
(3)
|
12,231
|
37,240
|
49,471
|
|
Total,
governed by indexers
|
12,231
|
37,240
|
49,471
|
|
(-)
Transaction costs
|
-
|
(173)
|
(173)
|
|
Overall
total
|
12,231
|
37,067
|
49,298
|
(1) Expanded National Customer
Price (IPCA) Index.
(2) Fiscal Reference Unit (Ufir
/ RGR).
(3) CDI: Interbank Rate for
Certificates of Deposit.
(4) Interest rate reference
unit (URTJ) / Long-Term Interest Rate (TJLP)
The principal currencies
and index used for monetary updating of loans and financings had the following variations:
|
Currency
|
Accumulated change in Jun. 30, 2020, %
|
Accumulated change in Jun. 30, 2019, %
|
Indexer
|
Accumulated change in Jun. 30, 2020, %
|
Accumulated change in Jun. 30, 2019, %
|
|
US dollar
|
35.86
|
(1.10)
|
IPCA
|
0.10
|
2.22
|
|
|
|
|
CDI
|
1.76
|
3.10
|
|
|
|
|
TJLP
|
(11.31)
|
(10.32)
|
|
Currency
|
Accumulated change in Apr. to Jun. 30, 2020, %
|
Accumulated change in Apr. to Jun. 30, 2019, %
|
Indexer
|
Accumulated change in Apr. to Jun. 30, 2020, %
|
Accumulated change in Apr. to Jun. 30, 2019, %
|
|
US dollar
|
5.33
|
(1.66)
|
IPCA
|
(0.43)
|
1.46
|
|
|
|
|
CDI
|
0.74
|
1.54
|
|
|
|
|
TJLP
|
(2.95)
|
(10.95)
|
146
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
The changes in loans, financing
and debentures are as follows:
|
|
Consolidated
|
Parent Company
|
|
Balances
at December 31, 2018
|
14,771,828
|
45,081
|
|
Monetary
variation
|
82,711
|
-
|
|
Exchange
rate variation
|
(70,470)
|
-
|
|
Financial
charges provisioned
|
628,774
|
1,542
|
|
Amortization
of transaction cost
|
13,948
|
81
|
|
Financial
charges paid
|
(706,605)
|
-
|
|
Amortization
of financing
|
(849,821)
|
-
|
|
Subtotal
|
13,870,365
|
46,704
|
|
(-)
FIC Pampulha - Marketable securities of subsidiary companies
|
6,024
|
-
|
|
Balances
at June 30, 2019
|
13,876,389
|
46,704
|
|
|
|
|
|
Balances
at December 31, 2019
|
14,776,031
|
48,252
|
|
Loans
arising from business combination (1)
|
10,447
|
-
|
|
Initial
balance for consolidation purposes
|
14,786,478
|
48,252
|
|
Monetary
variation
|
35,978
|
-
|
|
Exchange
rate variation
|
2,162,364
|
-
|
|
Financial
charges provisioned
|
605,621
|
942
|
|
Amortization
of transaction cost
|
7,101
|
104
|
|
Financial
charges paid (2)
|
(681,701)
|
-
|
|
Amortization
of financing
|
(1,042,496)
|
-
|
|
Reclassification
to “Other obligations” (3)
|
(5,938)
|
-
|
|
Subtotal
|
15,867,407
|
49,298
|
|
(-)
FIC Pampulha - Marketable securities of subsidiary companies
|
(4,978)
|
-
|
|
Balances
at June 30, 2020
|
15,862,429
|
49,298
|
|
|
(1)
|
Loans arising from business combinations due to the acquisition of the remaining equity interest in Companhia Centroeste de Minas.
|
|
|
(2)
|
Withholding income tax on remittance of interest on Eurobonds, in the amount of R$65,668, was offset against PIS/Pasep and Cofins credits.
|
|
|
(3)
|
Reclassification to Cemig D’s customers (CMM and Serra da Fortaleza).
|
Borrowing
costs, capitalized
Costs of loans directly related
to acquisition, construction or production of an asset which necessarily requires a significant time to be concluded for the purpose
of use or sale are capitalized as part of the cost of the corresponding asset. All other costs of loans are recorded as finance
costs in the period in which they are incurred. Costs of loans include interest and other costs incurred by the Company in relation
to the loan.
The subsidiaries Cemig D and
Gasmig transferred to intangible assets and to concession contract assets the costs of loans and financing linked to construction
in progress, as follows:
|
|
Jun. 30, 2020
|
Jun. 30, 2019
|
|
Costs of loans and financing
|
605,621
|
628,774
|
|
Financing costs on intangible assets and contract assets (1)
|
(22,515)
|
(22,822)
|
|
Net
effect in Profit or loss
|
583,106
|
605,952
|
|
|
(1)
|
The average capitalization rate p.a. in 2020 was 4.28% (6.79% in 2019).
|
The amounts of the capitalized
borrowing costs have been excluded from the statement of cash flows, in the additions to cash flow of investment activities, as
they do not represent an outflow of cash for acquisition of the related asset.
147
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Restrictive
covenants
The Company has contracts
with financial covenants as follows:
|
Title - Security
|
Covenant
|
Ratio required – Issuer
|
Ratio required
Cemig (guarantor)
|
Compliance required
|
|
7th Debentures Issue
Cemig GT (1)
|
Net debt
/
(Ebitda + Dividends received)
|
The following or less:
3.0 in 2020
2.5 in 2021
|
The following or less:
3.0 in 2020
2.5 in 2021
|
Half-yearly and annual
|
|
Eurobonds
Cemig GT (2)
|
Net debt
/
Ebitda adjusted for the Covenant
|
The following or less:
4.5 on June 30, 2020
3.0 on Dec. 31, 2020
3.0 on June 30, 2021
2.5 on/after Dec. 31, 2021
|
The following or less:
3.5 on June 30, 2020
3.0 on Dec. 31, 2020
3.0 on June 30, 2021
3.0 on/after Dec. 31, 2021
|
Half-yearly and annual
|
|
7th Debentures Issue
Cemig D
|
Net debt
/
Ebitda adjusted
|
The following or less:
3.5 on June 30, 2020
|
The following or less:
3.5 on June 30, 2020
3.0 on December 31, 2020
|
Half-yearly and annual
|
|
Debentures
GASMIG (3)
|
Overall indebtedness (Total
liabilities/Total assets)
|
Less than 0.6
|
-
|
Annual
|
|
Ebitda / Debt servicing
|
1.3 or more
|
-
|
Annual
|
|
Ebitda / Net finance income (expenses)
|
2.5 or more
|
-
|
Annual
|
|
Net debt / Ebitda
|
The following or less than 4.0
on Dec, 31.2019
The following or less than 2.5
on Dec, 31.2020
|
-
|
Annual
|
|
Financing Caixa Econômica
Federal
Parajuru and Volta do Rio (4)
|
Debt servicing coverage index
Equity / Total liabilities
Share capital subscribed in
investee / Total investments made in the project financed
|
1.20 or more
20.61% or more (Parajuru)
20.63% or more (Volta do Rio)
20.61% or more (Parajuru)
20.63% or more (Volta do Rio)
|
-
-
-
|
Annual (during amortization)
Always
Always
|
|
Financing BNDES
Centroeste (5)
|
Fund-raising index
Equity / Total liabilities
|
-
|
0.3 or more
|
Annual
|
|
|
|
|
|
|
|
|
(1)
|
7th Issue of Debentures by Cemig GT, as of December 31, 2016, of R$2,240 million.
|
|
|
(2)
|
In the event of a possible breach of the financial covenants, interest will automatically be increased by 2% p.a. during the period in which they remain exceeded. There is also an obligation to comply with a ‘maintenance’ covenants – that the consolidated debt, shall have a guarantee for debt of 1.75x Ebitda (2.0 as of December 31, 2017); and a ‘damage’ covenant, requiring real guarantee for debt at Cemig GT of 1.5x Ebitda.
|
|
|
(3)
|
If Gasmig does not achieve the required covenants, it must, within 120 days from the date of notice in writing from BNDES or BNDESPar, constitute guarantees acceptable by the debenture holders for the total amount of the debt, subject to the rules of the National Monetary Council (CMN), unless the required ratios are restored within that period. Certain contractually specified situations can cause early maturity of other debts (cross-default).
|
|
|
(4)
|
The financing contracts with Caixa Econômica Federal for the Praias de Parajuru and Volta do Rio wind power plants have financial covenants with compliance relating to early maturity of the debt remaining balance. Compliance with the debt servicing coverage index is considered to be demandable only annually and during the period of amortization, which begins in July 2020.
|
|
|
(5)
|
The financial covenant at the BNDES loan contract of the subsidiary Centroeste includes the former shareholder, Centrais Elétricas Brasileiras S.A. – Eletrobrás. The event of a breach of the financial covenant, demands the constitution of real guarantees, which must be accepted by BNDES, in the amount of 130% of the loans or debt.
|
148
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
The covenants remain in compliance
as of June 30, 2020, with the exception non-compliance with the non-financial covenant of the loan contracts with the CEF of the
subsidiaries Central Eólica Praias de Parajuru and Central Eólica Volta do Rio. Thus, exclusively to comply with
the requirement of item 69 of CPC 26 (R1), the Company reclassified R$57,550 to current liabilities, referring to the loans of
those subsidiaries, which were originally classified in non-current liabilities. Additionally, the Company assessed the possible
consequences arising from this matter in their other contracts for loans, financings and debentures, and concluded that no further
adjustments were necessary.
The information on the derivative
financial instruments (swaps) contracted to hedge the debt servicing of the Eurobonds (principal, in foreign currency, plus interest),
and the Company’s exposure to interest rate risks, are disclosed in Note 30.
22.
REGULATORY CHARGES
|
|
Consolidated
|
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Liabilities
|
|
|
|
Global
Reversion Reserve (RGR)
|
36,638
|
30,494
|
|
Energy
Development Account (CDE)
|
86,721
|
58,327
|
|
Regulator
inspection fee – ANEEL
|
2,631
|
2,620
|
|
Energy
Efficiency Program
|
272,926
|
254,595
|
|
Research
and development (R&D)
|
212,324
|
199,385
|
|
Energy
System Expansion Research
|
2,749
|
3,206
|
|
National
Scientific and Technological Development Fund
|
5,445
|
6,325
|
|
Proinfa
– Alternative Energy Program
|
6,434
|
8,353
|
|
Royalties
for use of water resources
|
7,394
|
9,767
|
|
Emergency
capacity charge
|
26,325
|
26,325
|
|
Others
|
4,685
|
4,640
|
|
|
664,272
|
604,037
|
|
|
|
|
|
Current
liabilities
|
377,372
|
456,771
|
|
Non-current
liabilities
|
286,900
|
147,266
|
23.
POST-EMPLOYMENT OBLIGATIONS
Changes in net liabilities were as follows:
|
Consolidated
|
Pension plans and retirement supplement plans
|
Health plan
|
Dental plan
|
Life insurance
|
Total
|
|
Net
liabilities at December 31, 2018
|
2,169,610
|
2,343,799
|
47,552
|
427,383
|
4,988,344
|
|
Expense
recognized in Statement of income
|
98,345
|
111,173
|
2,278
|
20,481
|
232,277
|
|
Contributions
paid
|
(96,622)
|
(59,788)
|
(1,313)
|
(5,314)
|
(163,037)
|
|
Net
liabilities at June 30, 2019
|
2,171,333
|
2,395,184
|
48,517
|
442,550
|
5,057,584
|
|
|
|
|
|
|
|
|
Net
liabilities at December 31, 2019
|
2,972,136
|
3,102,178
|
60,504
|
573,876
|
6,708,694
|
|
Expense
recognized in Statement of income
|
102,892
|
118,030
|
2,362
|
22,192
|
245,476
|
|
Contributions
paid
|
(57,739)
|
(65,616)
|
(3,908)
|
(2,321)
|
(129,584)
|
|
Net
liabilities at June 30, 2020
|
3,017,289
|
3,154,592
|
58,958
|
593,747
|
6,824,586
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun.
30, 2020
|
Dec.
31, 2019
|
|
Current
liabilities
|
|
|
|
311,265
|
287,538
|
|
Non-current
liabilities
|
|
|
|
6,513,321
|
6,421,156
|
149
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
Parent Company
|
Pension plans and retirement supplement plans
|
Health plan
|
Dental plan
|
Life insurance
|
Total
|
|
Net
liabilities at December 31, 2018
|
357,354
|
132,188
|
3,198
|
16,711
|
509,451
|
|
Expense
recognized in Statement of income
|
16,293
|
6,128
|
152
|
825
|
23,398
|
|
Contributions
paid
|
(4,752)
|
(4,220)
|
(84)
|
(212)
|
(9,268)
|
|
Net
liabilities at June 30, 2019
|
368,895
|
134,096
|
3,266
|
17,324
|
523,581
|
|
|
|
|
|
|
|
|
Net
liabilities at December 31, 2019
|
503,792
|
183,781
|
4,837
|
21,098
|
713,508
|
|
Expense
recognized in Statement of income
|
17,397
|
6,688
|
180
|
790
|
25,055
|
|
Contributions
paid
|
(2,841)
|
(4,382)
|
(89)
|
(157)
|
(7,469)
|
|
Net
liabilities at June 30, 2020
|
518,348
|
186,087
|
4,928
|
21,731
|
731,094
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun.
30, 2020
|
Dec.
31, 2019
|
|
Current
liabilities
|
|
|
|
25,418
|
23,747
|
|
Non-current
liabilities
|
|
|
|
705,676
|
689,761
|
Amounts recorded as current
liabilities refer to contributions to be made by Cemig and its subsidiaries in the next 12 months for the amortization of the actuarial
liabilities.
The amounts reported as ‘Expense
recognized in the Statement of income’ refer to the costs of post-employment obligations, totaling R$223,727 (R$198,699 on
June 30, 2019), plus the finance expenses and monetary updating on the debt with Forluz, in the amounts of R$21,749 (R$33,578 on
June 30, 2019).
Debt with the pension fund
(Forluz)
The Company has recognized
an obligation for past actuarial deficits relating to the pension fund in the amount of R$551,778 on June 30, 2020 (R$566,381 on
December 31, 2018). This amount has been recognized as an obligation payable by Cemig and its subsidiaries, and will be amortized
until June of 2024, through monthly installments calculated by the system of constant installments (known as the ‘Price’
table), and adjusted by the IPCA (Expanded National Customer Price) inflation index (published by the Brazilian Geography and Statistics
Institute – IBGE) plus 6% per year. The Company is required to pay this debt even if Forluz has a surplus, thus, the Company
maintain recorded the debt in full, and record the effects of monetary updating and interest in finance income (expenses) in the
Statement of income.
Agreement to cover the deficit on Forluz Pension
Plan ‘A’
Forluz and the sponsors Cemig,
Cemig GT and Cemig D have signed a Debt Assumption Instrument to cover the deficit of Plan A for the years of 2015, 2016 and 2017.
On June 30, 2020 the total amount payable by Cemig as a result of the Plan A deficit is R$536,853 (R$550,151 on December, 31, 2019,
as a result of the Plan A deficits of 2015, 2016 and 2017). The contracts were entered into in May 2017, March 2018 and April 2019,
for the deficits, respectively, of 2015, 2016 and 2017. The monthly amortizations, calculated by the constant installments system
(Price Table), will be paid up to 2031 for the 2015 and 2016 deficits, in the amount R$ R$360,239, and up to 2033 for the 2017
deficit, in the amount R$ R$176,614. Remuneratory interest applicable to the outstanding balance is 6% p.a., plus the effect of
the IPCA. If the plan reaches actuarial surplus before the full period
150
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
of amortization of the debt, also Company will
not be required to pay the remaining installments and the contract will be extinguished.
24.
PROVISIONS
Company and its subsidiaries
are involved in certain legal and administrative proceedings at various courts and government bodies, arising in the normal course
of business, regarding employment-law, civil, tax, environmental and regulatory matters, and other issues.
Actions in which the Company
and its subsidiaries are defendant
Company recorded provisions for contingencies in
relation to the legal actions in which, based on the assessment of the Company’s management and its legal advisors, the chances
of loss are assessed as ‘probable’ (i.e. an outflow of funds to settle the obligation will be necessary), as follows:
|
|
Consolidated
|
|
Dec. 31, 2019
|
Additions
|
Reversals
|
Settled/ Reversal (1)
|
Provisions arising from business combination (2)
|
Jun. 30, 2020
|
|
Labor
|
497,320
|
59,009
|
(28,321)
|
(55,162)
|
-
|
472,846
|
|
Civil
|
|
|
|
|
|
|
|
Customer
relations
|
18,314
|
9,573
|
(861)
|
(9,124)
|
-
|
17,902
|
|
Other
civil actions
|
17,767
|
13,978
|
-
|
(3,050)
|
-
|
28,695
|
|
|
36,081
|
23,551
|
(861)
|
(12,174)
|
-
|
46,597
|
|
Tax
|
1,260,441
|
24,439
|
-
|
(39,220)
|
-
|
1,245,660
|
|
Regulatory
|
36,789
|
345
|
(481)
|
(11)
|
-
|
36,642
|
|
Others
|
57,433
|
4,884
|
(1,097)
|
(1,140)
|
3,131
|
63,211
|
|
Total
|
1,888,064
|
112,228
|
(30,760)
|
(107,707)
|
3,131
|
1,864,956
|
|
|
(1)
|
This includes the amount of R$ 38,740, corresponding to the reversal of the contingency provisions relating to ICMS credits, recognized as recoverable taxes, due to a final judgment, against which there is no further appeal, in favor of the subsidiary Gasmig, on June 9, 2020.
|
|
|
(2)
|
On January 13, 2020, the Company obtained the Centroeste control, which is consolidated as of this interim financial information. More details see note 15.
|
|
|
Consolidated
|
|
Dec. 31, 2018
|
Additions
|
Reversals
|
Settled
|
Jun. 30, 2019
|
|
Labor
|
456,889
|
142,730
|
(36,172)
|
(49,740)
|
513,707
|
|
Civil
|
|
|
|
|
|
|
Customer
relations
|
18,876
|
7,558
|
(2,394)
|
(7,483)
|
16,557
|
|
Other
civil actions
|
29,011
|
8,964
|
(13,052)
|
(8,955)
|
15,968
|
|
|
47,887
|
16,522
|
(15,446)
|
(16,438)
|
32,525
|
|
Tax
|
51,894
|
21,524
|
(2,214)
|
(21,520)
|
49,684
|
|
Regulatory
|
36,691
|
1,941
|
(989)
|
(1,029)
|
36,614
|
|
Others
|
47,310
|
9,895
|
(1,302)
|
(632)
|
55,271
|
|
Total
|
640,671
|
192,612
|
(56,123)
|
(89,359)
|
687,801
|
|
|
Parent Company
|
|
Dec. 31, 2019
|
Additions
|
Reversals
|
Settled
|
Jun. 30, 2020
|
|
Labor
|
42,178
|
10,357
|
(4,217)
|
(10,350)
|
37,968
|
|
Civil
|
|
|
|
|
|
|
Customer
relations
|
547
|
407
|
-
|
(201)
|
753
|
|
Other
civil actions
|
1,256
|
1,595
|
-
|
(212)
|
2,639
|
|
|
1,803
|
2,002
|
-
|
(413)
|
3,392
|
|
Tax
|
161,413
|
3,510
|
-
|
(169)
|
164,754
|
|
Regulatory
|
17,211
|
3
|
(84)
|
(3)
|
17,127
|
|
Others
|
822
|
54
|
-
|
(18)
|
858
|
|
Total
|
223,427
|
15,926
|
(4,301)
|
(10,953)
|
224,099
|
151
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|
|
Parent Company
|
|
Dec. 31, 2018
|
Additions
|
Reversals
|
Settled
|
Jun. 30, 2019
|
|
Labor
|
32,807
|
15,853
|
-
|
(4,213)
|
44,447
|
|
Civil
|
|
|
|
|
|
|
Customer
relations
|
931
|
149
|
(405)
|
(149)
|
526
|
|
Other
civil actions
|
759
|
1
|
(255)
|
(1)
|
504
|
|
|
1,690
|
150
|
(660)
|
(150)
|
1,030
|
|
Tax
|
11,269
|
21,486
|
(1,218)
|
(21,486)
|
10,051
|
|
Regulatory
|
17,180
|
607
|
-
|
-
|
17,787
|
|
Others
|
1,258
|
49
|
(605)
|
-
|
702
|
|
Total
|
64,204
|
38,145
|
(2,483)
|
(25,849)
|
74,017
|
The Company and its subsiadiaries’
management, in view of the extended period and the Brazilian judiciary, tax and regulatory systems, believes that it is not practical
to provide information that would be useful to the users of these interim financial information in relation to the timing of any
cash outflows, or any possibility of reimbursements.
The Company and its subsidiaries’
believes that any disbursements in excess of the amounts provisioned, when the respective claims are completed, will not significantly
affect the Company and its subsidiaries’ result of operations or financial position.
The details on the
main provisions and contingent liabilities are provided below, with the best estimation of expected future disbursements for these
contingencies:
Provisions, made for legal
actions in which the chances of loss have been assessed as ‘probable’ and contingent liabilities, for actions in which
the chances of loss are assessed as ‘possible’
Labor claims
Company and its subsidiaries
are involved in various legal claims filed by its employees and by employees of service providing companies. Most of these claims
relate to overtime and additional pay, severance payments, various benefits, salary adjustments and the effects of such items on
a supplementary retirement plan. In addition to these actions, there are others relating to outsourcing of labor, complementary
additions to or re-calculation of retirement pension payments by Forluz, and salary adjustments.
The aggregate amount of the
contingency is approximately R$1,676,250 (R$1,668,684 at December 31, 2019), of which R$462,432 (R$487,101 at December 31, 2019)
has been recorded – the amount estimated as probably necessary for settlement of these disputes.
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Alteration of the monetary updating index of
employment-law cases
The Higher Employment-Law
Appeal Court (Tribunal Superior do Trabalho, or TST), considering a position adopted by the Federal Supreme Court (Supremo
Tribunal Federal, STF) in two actions on constitutionality that dealt with the index for monetary updating of federal debts,
decided on August 4, 2015 that employment-law debts in actions not yet decided that discuss debts subsequent to June 30, 2009 should
be updated based on the variation of the IPCA-E (Expanded National Customer Price Index), rather than of the TR reference interest
rate. On October 16, 2015 the STF gave an interim injunction suspending the effects of the TST decision, on the grounds that general
repercussion of constitutional matters should be adjudicated exclusively by the STF.
In a joint judgment published
on November 1, 2018, the TST decided that the IPCA-E should be adopted as the index for inflation adjustment of employment-law
debts for cases filed from March 25, 2015 to November 10, 2017, and the TR would continue to be used for the other periods. The
estimated amount of the contingency is R$107,120 (R$106,484 at December 31, 2019), of which R$10,414 (R$10,219 at December 31,
2019) has been provisioned upon assessment by the Company of the effects of the decision of the Regional Employment-Law Appeal
Court of the third region (TRT3) in May 2019, on the subject of the joint judgment published by the TST, in the cases for which
the chances of loss have been classified as ‘probable’ and which are at execution phase. No additional provision has
been made, since the Company, based on the assessment by its legal advisers, has assessed the chances of loss in the action as
‘possible’, as a result of the decision by the Federal Supreme Court, and of there being no established case law, nor
analysis by legal writers, on the subject, after the injunction given by the Federal Supreme Court.
Customers claims
Company and its subsidiaries
are involved in various civil actions relating to indemnity for moral injury and for material damages, arising, principally, from
allegations of irregularity in measurement of consumption, and claims of undue charging, in the normal course of business, totaling
R$116,244 (R$67,771 at December 31, 2019), of which R$17,902 (R$18,314 at December 31, 2019) has been recorded – this being
the probable estimate for funds needed to settle these disputes.
Other civil proceedings
Company and its subsidiaries
are involved in various civil actions claiming indemnity for moral and material damages, among others, arising from incidents occurred
in the normal course of business, in the amount of R$314,904 (R$299,921 at December 31, 2019), of which R$28,695 (R$17,767 at December
31, 2019) has been recorded – the amount estimated as probably necessary for settlement of these disputes.
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Tax
Company and its subsidiaries
are involved in numerous administrative and judicial claims actions relating to taxes, including, among other matters, subjects
relating to the Urban Property Tax (Imposto sobre a Propriedade Territorial Urbana, or IPTU); the Rural Property Tax (ITR);
the Tax on Donations and Legacies (ITCD); the Social Integration Program (Programa de Integração Social, or
PIS); the Contribution to Finance Social Security (Contribuição para o Financiamento da Seguridade Social,
or Cofins); Corporate Income tax (Imposto de Renda Pessoa Jurídica, or IRPJ); the Social Contribution (Contribuição
Social sobre o Lucro Líquido, or CSLL); and motions to tax enforcement. The aggregate amount of this contingency is
approximately R$155,539 (R$203,872 at December 31, 2019), of which R$6,589 (R$42,999 at December 31, 2019) has been recorded –
the amount estimated as probably necessary for settlement of these disputes.
In addition to the issues
above the Company and its subsidiaries are involved in various proceedings on the applicability of the IPTU Urban Land Tax to real
estate properties that are in use for providing public services. The aggregate amount of the contingency is approximately R$79,388
(R$78,883 on December 31, 2019). Of this total, R$3,824 has been recognized (R$4,002 on December 31, 2019) – this being the
amount estimated as probably necessary for settlement of these disputes. The company has been successful in its efforts to have
its IPTU tax liability suspended, winning judgments in favor in some cases – this being the principal factor in the reduction
of the total value of the contingency.
Social Security contributions
on profit sharing payments
The Brazilian tax authority
(Receita Federal) has filed administrative and court proceedings against the Company, relating to social security contributions
on the payment of profit shares to its employees over the period 1999 to 2016, alleging that the Company did not comply with the
requirements of Law 10,101/2000 on the argument that it did not previously establish clear and objective rules for the distribution
of these amounts. In August 2019, the Regional Federal Court of the First Region published a decision against the Company on this
issue. As a result the Company, based on the opinion of its legal advisers, reassessed the chances of loss from ‘possible’
to ‘probable’ for some portions paid as profit-sharing amounts, maintaining the classification of the chance of loss
as 'possible' for the other portions, since it believes that it has arguments on the merit for defense and/or because it believes
that the amounts questioned are already within the period of limitation.
The amount of the contingencies
is approximately R$1,477,080 (R$1,450,963 on December 31, 2019), of which R$1,235,247 (R$1,213,440 on December 31, 2019) has been
provisioned, this being the estimate, on June 30, 2020, of the probable amount of funds to settle these disputes.
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Regulatory
Company and its subsidiaries
are involved in numerous administrative and judicial proceedings, challenging, principally: (i) tariff charges in invoices for
use of the distribution system by a self-producer; (ii) alleged violation of targets for continuity indicators in retail supply
of energy; and (iii) the tariff increase made during the federal government’s economic stabilization plan referred to as
the ‘Cruzado Plan’, in 1986. The aggregate amount of the contingency is approximately R$297,380 (R$280,293 at December
31, 2019), of which R$36,642 (R$36,789 at December 31, 2019) has been recorded as provision – the amount estimated as probably
necessary for settlement of these disputes.
Other legal actions in the normal course
of business
Breach of contract – Power line pathways
and accesses cleaning services contract
Company and its subsidiaries
are involved in disputes alleging losses suffered as a result of supposed breaches of contract at the time of provision of services
of cleaning of power line pathways and firebreaks. The amount recorded is R$42,935 (R$40,762 on December 31, 2019), this being
estimated as the likely amount of funds necessary to settle this dispute.
‘Luz Para Todos’
Program
The Company is a party in
disputes alleging losses suffered by third parties as a result of supposed breach of contract at the time of implementation of
part of the rural electrification program known as the ‘Luz Para Todos’. The estimated amount of the contingency
is approximately R$336,482 (R$321,567 on December 31, 2019). Of this total, R$4,184 has been provisioned – the amount estimated
as probably necessary for settlement of these disputes.
Other legal proceedings
Company and its subsidiaries
are involved as plaintiff or defendant, in other less significant claims, related to the normal
course of their operations including: environmental matters; provision of cleaning service in power line pathways and firebreaks,
removal of residents from risk areas; and indemnities for rescission of contracts, on a lesser scale, related to the normal course
of its operations, with an estimated total amount of R$498,685 (R$498,852 at December,
31, 2019), of which R$16,092 (R$12,669 at December, 31, 2019), the
amount estimated as probably necessary for settlement of these disputes.
Contingent liabilities
– whose loss are assessed as ‘possible’
Taxes and contributions
Company and its subsidiaries
are involved in numerous administrative and judicial proceedings in relation to taxes. Below are details of the main claims:
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Indemnity of employees’ future benefit
(the ‘Anuênio’)
In 2006 the Company and its
subsidiaries paid an indemnity to its employees, totaling R$177,686, in exchange for rights to future payments (referred to as
the Anuênio) for time of service, which would otherwise be incorporated, in the future, into salaries. The Company
and its subsidiaries did not pay income tax and Social Security contributions on this amount because it considered that those obligations
are not applicable to amounts paid as an indemnity. However, to avoid the risk of a future fine, the Company obtained an injection,
which permitted to make an escrow deposit of R$121,834, which updated now represents the amount of R$284,386 (R$282,071 at December
31, 2019). The updated amount of the contingency is R$292,673 (R$289,086 on December 31, 2019) and, based on the arguments above,
management has classified the chance of loss as ‘possible’.
Social Security contributions
The Brazilian
federal tax authority (Secretaria da Receita Federal) has filed administrative proceedings related to various matters: employee
profit sharing; the Workers’ Food Program (Programa de Alimentação do Trabalhador, or PAT); education
benefit; food benefit; Special Additional Retirement payment; overtime payments; hazardous
occupation payments; matters related to Sest/Senat (transport workers’ support programs); and fines for non-compliance with
accessory obligations. The Company have presented defenses and await judgment. The amount of the contingency is approximately R$114,072
(R$112,311 on December 31, 2019). Management has classified the chance of loss as ‘possible’, also taking into account
assessment of the chance of loss in the judicial sphere, (the claims mentioned are in the administrative sphere), based on the
evaluation of the claims and the related case law.
Non-homologation of offsetting of tax credit
The federal tax authority
did not ratify the Company and its subsidiaries’ declared offsetting, in Corporate income tax returns, of carry-forwards
and undue or excess payment of federal taxes – IRPJ, CSLL, PIS/Pasep and Cofins – identified by official tax deposit
receipts (‘DARFs’ and ‘DCTFs’). The Company and its subsidiaries’ are contesting the non-homologation
of the amounts offset. The amount of the contingency is R$159,909 (R$160,277 on December 31, 2019), and the chance of loss was
classified as ‘possible’, since the relevant requirements of the National Tax Code (CTN) have been complied with.
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Income tax withheld on
capital gain in a shareholding transaction
The federal tax authority
issued a tax assessment against Cemig as a jointly responsible party with its jointly-controlled entity Parati S.A. Participações
em Ativos de Energia Elétrica (Parati), relating to withholding income tax (Imposto de Renda Retido na Fonte, or
IRRF) allegedly applicable to returns paid by reason of a capital gain in a shareholding transaction relating to the purchase by
Parati, and sale, by Enlighted, at July 7, 2011, of 100.00% of the equity interests in Luce LLC (a company with head office in
Delaware, USA), holder of 75.00% of the shares in the Luce Brasil equity investment fund (FIP Luce), which was indirect holder,
through Luce Empreendimentos e Participações S.A., of approximately 13.03% of the total and voting shares of Light
S.A. (Light). The amount of the contingency is approximately R$232,636 (R$229,906 on December 31, 2019), and the loss has been
assessed as ‘possible’.
The Social Contribution
tax on net income (CSLL)
The federal tax authority
issued a tax assessment against the Company for the years of 2012 and 2013, alleging undue non-addition, or deduction, of amounts
relating to the following items in calculating the Social Contribution tax on net income: (i) taxes with liability suspended; (ii)
donations and sponsorship (Law 8,313/91); and (iii) fines for various alleged infringements. The amount of this contingency is
R$414,113 (R$400,075 on December 31, 2019). The Company has classified the chances of loss as ‘possible’, in accordance
with the analysis of the case law on the subject.
ICMS (local state value
added tax)
From December 2019 at March
2020, the Tax Authority of Minas Gerais State issued an infringement notice against the subsidiary Gasmig, in the amount of R$55,204,
relating to reduction of the calculation base of ICMS tax in the sale of natural gas to its customers over the full month of December
2014, alleging a divergence between the form of calculation used by Gasmig and the opinion of that tax authority.
The claim comprises: principal
of R$17,047; penalty payments of R$27,465; and interest of R$10,692. Considering that the State of Minas Gerais, over a period
of more than 25 years, has never made any allegations against the methodology of calculation by the Company, the managers, together
with their legal advisers, believe that there is a defense under Article 100, III of the National Tax Code, which removes claims
for penalties and interest; and that the contingency for loss related to these amounts is ‘remote’. In relation to
the argument on the difference between the amount of ICMS tax calculated by Gasmig and the new interpretation by the state tax
authority, the probability of loss was considered ‘possible’. On June 30, 2020 the amount of the contingency for the
period relating to the rules on expiry by limitation of time is R$98,763.
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Regulatory matters
Public Lighting Contribution
(CIP)
Cemig and Cemig D are defendants
in several public civil claims (class actions) requesting nullity of the clause in the Electricity Supply Contracts for public
illumination signed between the Company and the various municipalities of its concession area, and restitution by the Company of
the difference representing the amounts charged in the last 20 years, in the event that the courts recognize that these amounts
were unduly charged. The actions are grounded on a supposed error by Cemig in the estimation of the period of time that was used
in calculation of the consumption of energy for public illumination, funded by the Public Lighting Contribution (Contribuição
para Iluminação Pública, or CIP).
The Company and its subsidiary
believe there are arguments of merit for defense in these claims, since the charge at present made is grounded on Aneel Normative
Resolution 456/2000. As a result it has not constituted a provision for this action, the amount of which is estimated at R$993,543
(R$959,269 at December 31, 2019). The Company has assessed the chances of loss in this action as ‘possible’, due to
the Customer Defense Code (Código de Defesa do Consumidor, or CDC) not being applicable, because the matter is governed
by the specific regulation of the energy sector, and because Cemig complied with Aneel Resolutions 414 and 456, which deal with
the subject.
Accounting of energy sale
transactions in the Power Trading Chamber (CCEE)
In a claim dating from August
2002, AES Sul Distribuidora challenged in the court the criteria for accounting of energy sale transactions in the wholesale energy
market (Mercado Atacadista de Energia, or MAE) (predecessor of the present Power Exchange Chamber – Câmara
de Comercialização de Energia Elétrica, or CCEE), during the period of rationing. It obtained a favorable
interim judgment on February 2006, which ordered the regulator (Aneel), working with the CCEE, to comply with the claim by AES
Sul and recalculate the settlement of the transactions during the rationing period, not considering the regulator (Aneel) Dispatch
288 of 2002.
This should take effect in
the CCEE as from November 2008, resulting in an additional disbursement for Cemig GT, related to the expense on purchase of energy
in the spot market on the CCEE, in the approximate amount of R$357,167 (R$343,469 at December 31, 2019). On November 9, 2008 Cemig
GT obtained an interim decision in the Regional Federal Appeal Court (Tribunal Regional Federal, or TRF) suspending the
obligatory nature of the requirement to pay into court the amount that would have been owed under the Special Financial Settlement
made by the CCEE. Cemig GT has classified the chance of loss as ‘possible’, since this action deals with the General
Agreement for the Energy Sector, in which the Company has the full documentation to support its arguments.
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Tariff increases
Exclusion of customers
classified as low-income
The Federal Public Attorneys’
Office filed a class action against the Company and the regulator (Aneel), to avoid exclusion of customers from classification
in the Low-income residential tariff sub-category, requesting an order for Cemig D to pay twice the amount paid in excess
by customers. A decision was given in favor of the plaintiffs, but the Company and the regulator (Aneel) have filed an interlocutory
appeal and await judgment. The amount of the contingency is approximately R$339,275 (R$326,719 on December 31, 2019). Cemig D has
classified the chances of loss as ‘possible’ due to other favorable decisions on this matter.
Environmental claims
Impact arising from construction
of power plants
The Public Attorneys of Minas
Gerais State, together with an association and individuals, have brought class actions requiring Cemig GT to invest, since 1997,
at least 0.5% of the annual gross operating revenue of the Emborcação, Pissarrão, Funil, Volta Grande,
Poquim, Paraúna, Miranda, Nova Ponte, Rio de Pedras and Peti plants in environmental protection and preservation
of the water tables of the counties where these power plants are located, and proportional indemnity for allegedly irrecoverable
environmental damage caused, arising from omission to comply with Minas Gerais State Law 12,503/1997. Cemig GT has filed appeals
to the Higher Appeal Court (STJ) and the Federal Supreme Court (STF). Based on the opinions of its legal advisers, Cemig GT believes
that this is a matter involving legislation at infra-constitutional level (there is a Federal Law with an analogous object) and
thus a constitutional matter, on the issue of whether the state law is constitutional or not, so that the final decision is one
for the national Higher Appeal Court (STJ) and the Federal Supreme Court (STF). No provision has been made, since based on the
opinion of its legal advisers management has classified the chance of loss as ‘possible’. The amount of the contingency
is R$173,020 (R$165,299 at December 31, 2019).
The Public Attorneys’
Office of Minas Gerais State has filed class actions requiring the formation of a Permanent Preservation Area (APP) around the
reservoir of the Capim Branco hydroelectric plant, suspension of the effects of the environmental licenses, and recovery
of alleged environmental damage. Based on the opinion of its legal advisers in relation to the changes that have been made in the
new Forest Code and in the case law on this subject, Cemig GT has classified the chance of loss in this dispute as ‘possible’.
The estimated value of the contingency is R$99,027 (R$95,215 on December 31, 2019).
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
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Other contingent liabilities
Early settlement of the
CRC (Earnings Compensation) Account
The Company is involved in
an administrative proceeding at the Audit Court of the State of Minas Gerais which challenges: (i) a difference of amounts relating
to the discount offered by Cemig for early repayment of the credit owed to Cemig by the State under the Receivables Assignment
Contract in relation to the CRC Account (Conta de Resultados a Compensar, or Earnings Compensation Account) – this
payment was completed in the first quarter of 2013; and also (ii) possible undue financial burden on the State after the signature
of the Amendments that aimed to re-establish the economic and financial balance of the Contract. The amount of the contingency
is approximately R$431,377 (R$425,927 at December 31, 2019), and, based on the Opinion of the Public Attorneys’ Office of
the Audit Board of the State of Minas Gerais (Tribunal de Contas), the Company believes that it has met the legal requirements.
Thus, it has assessed the chances of loss as ‘possible’, since it believes that the adjustment was made in faithful
obedience to the legislation applicable to the case.
Contractual imbalance
Cemig D is party in other
disputes arising from alleged non-compliance with contracts in the normal course of business, for an estimated total of R$155,451
(R$148,904 on December 31, 2019). Cemig D has classified the chance of loss as ‘possible’, after analysis of the case
law on this subject.
25.
EQUITY AND REMUNERATION TO SHAREHOLDERS
As of June 30, 2020 and December
31, 2019, the Company’s issued and share capital is R$7,293,763, represented by 487,614,213 common shares and 971,138,388
preferred shares, both of them with nominal value of R$5.00 (five Reais).
|
|
Number of shares
|
|
|
Jun.
30, 2020
|
Jun.
30, 2019
|
|
Common
shares already paid up
|
487,614,213
|
487,614,213
|
|
Shares
in treasury
|
(69)
|
(69)
|
|
|
487,614,144
|
487,614,144
|
|
|
|
|
|
Preferred
shares already paid up
|
971,138,388
|
971,138,388
|
|
Shares
in treasury
|
(560,649)
|
(560,649)
|
|
|
970,577,739
|
970,577,739
|
|
Total
|
1,458,191,883
|
1,458,191,883
|
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Basic and diluted
earnings per share
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Net
income for the period (A)
|
986,691
|
2,911,850
|
1,043,806
|
2,114,774
|
|
Total
number of shares (B)
|
1,458,191,883
|
1,458,191,883
|
1,458,191,883
|
1,458,191,883
|
|
|
|
|
|
|
|
Basic
and diluted earnings (loss) per share (A/B) (R$)
|
0.68
|
2.00
|
0.72
|
1.45
|
The purchase and sale options
of investments described in Note 30 could potentially dilute basic profit (loss) per share in the future; however, they have not
caused dilution of earnings per share in the periods presented here.
Annual General Meeting (AGM)
The Annual General Meeting,
held on July 31, 2020 approved the Board of Directors’ proposal for allocation of net income for 2019 as presented in the
Company’s financial statements for 2019, which included a proposal for increase of the registered share capital from R$7,293,763
to R$7,593,763, as per Article 199 of the Brazilian Corporate Law, as the profit reserves, with the exclusion of the Tax Incentive
reserves, exceed the registered share capital by R$536,646.
The increase in the share
capital by issuance of 60,000,000 new shares, comprises 20,056,076 common shares and 39,943,924 preferred shares, by capitalization
of R$300,000 from Earnings Reserve, with distribution to shareholders, as a result, of new shares totaling 4.11%, of the number
of shares held, of the same type, each with nominal value of R$5.00. The beneficiaries of the stock bonus will be those shareholders
who held shares on July 31, 2020 for shares traded on the São Paulo stock Exchange (‘B3’).
On June 18, 2020, in the view
of the uncertainty and volatility caused by the Covid-19 pandemic, the Board of Directors approved the postponement of payment
to shareholders of the first installment of interest on equity, which were approved on December 18, 2019, in the amount of R$200,000,
from until June 30, 2020 to until December 30, 2020, maintaining unchanged all other conditions of this distribution of interest
on equity. The Management has concluded that it would be prudent to postpone the date of this payment, as a preventive measure,
to provide the Company with an additional reserve of cash to meet any needs that might arise in this period.
Revenues are measured at the
fair value of the consideration received or to be received and are recognized on a monthly basis as and when: (i) Rights and obligations
of the contract with the customer are identified; (ii) the performance obligation of the contract is identified; (iii) the price
for each transaction has been determined; (iv) the transaction
161
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
price has been allocated to the performance
obligations defined in the contract; and (v) the performance obligations have been complied.
|
|
Consolidated
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Revenue from supply of energy(a)
|
12,687,452
|
12,929,154
|
|
Revenue from use of the electricity distribution systems (TUSD) (b)
|
1,399,108
|
1,265,719
|
|
CVA, and Other financial components (c)
|
81,652
|
80,241
|
|
Transmission revenue
|
|
|
|
Transmission concession revenue (d)
|
423,101
|
242,743
|
|
Transmission construction revenue (e)
|
74,044
|
82,989
|
|
Transmission indemnity revenue (f)
|
316,218
|
90,420
|
|
Distribution construction revenue (e)
|
609,632
|
382,236
|
|
Adjustment to expectation of cash flow from indemnifiable financial assets of distribution concession (g)
|
(955)
|
8,967
|
|
Revenue on financial updating of the Concession Grant Fee (h)
|
146,412
|
176,151
|
|
Sale transaction in CCEE (i)
|
31,598
|
397,437
|
|
Mechanism for the sale of surplus
|
104,814
|
-
|
|
Supply of gas
|
962,887
|
1,131,233
|
|
Fine for violation of service continuity indicator
|
(29,117)
|
(35,510)
|
|
Recovery of PIS/Pasep and Cofins taxes credits over ICMS (note 8)
|
-
|
1,438,563
|
|
Other operating revenues (j)
|
886,612
|
837,584
|
|
Deductions on revenue (k)
|
(5,699,829)
|
(6,097,956)
|
|
Net
operating revenue
|
11,993,629
|
12,929,971
|
|
|
Consolidated
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Revenue from supply of energy(a)
|
5,920,014
|
6,327,737
|
|
Revenue from use of the electricity distribution systems (TUSD) (b)
|
674,737
|
635,675
|
|
CVA, and Other financial components (c)
|
136,254
|
(40,109)
|
|
Transmission revenue
|
|
|
|
Transmission concession revenue (d)
|
299,832
|
125,564
|
|
Transmission construction revenue (e)
|
26,846
|
54,902
|
|
Transmission indemnity revenue (f)
|
259,680
|
57,921
|
|
Distribution construction revenue (e)
|
346,559
|
211,205
|
|
Adjustment to expectation of cash flow from indemnifiable financial assets of distribution concession (g)
|
(1,679)
|
2,927
|
|
Revenue on financial updating of the Concession Grant Fee (h)
|
46,520
|
95,363
|
|
Sale transaction in CCEE (i)
|
7,074
|
144,821
|
|
Mechanism for the sale of surplus
|
41,514
|
-
|
|
Supply of gas
|
403,227
|
534,955
|
|
Fine for violation of service continuity indicator
|
(11,918)
|
(12,685)
|
|
Recovery of PIS/Pasep and Cofins taxes credits over ICMS (note 8)
|
-
|
1,438,563
|
|
Other operating revenues (j)
|
473,143
|
396,386
|
|
Deductions on revenue (k)
|
(2,687,389)
|
(2,956,432)
|
|
Net
operating revenue
|
5,934,414
|
7,016,793
|
|
|
a)
|
Revenue from energy supply
|
These items are recognized
upon delivery of supply, and the revenue is recorded as and when billed, based on the tariff approved by the regulator for each
class of customer or in effect in the market. Unbilled supply of energy, from the period between the last billing and the end of
each month, is estimated based on the supply contracted. For the distribution concession contract, the unbilled supply is estimated
based on the volume of energy delivered but not yet billed.
162
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
This table shows energy supply
by type of customer:
|
|
MWh (1)
|
R$
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Residential
|
5,442,910
|
5,291,676
|
4,866,632
|
4,665,228
|
|
Industrial
|
6,583,436
|
7,819,238
|
1,981,349
|
2,295,328
|
|
Commercial,
services and others
|
4,594,310
|
4,654,040
|
2,577,247
|
2,619,879
|
|
Rural
|
1,671,865
|
1,775,702
|
984,629
|
917,625
|
|
Public
authorities
|
386,015
|
455,643
|
279,249
|
311,737
|
|
Public
lighting
|
664,656
|
685,933
|
295,455
|
291,353
|
|
Public
services
|
675,124
|
679,065
|
356,523
|
333,397
|
|
Subtotal
|
20,018,316
|
21,361,297
|
11,341,084
|
11,434,547
|
|
Own
consumption
|
17,376
|
17,230
|
-
|
-
|
|
Unbilled
revenue
|
-
|
-
|
(257,626)
|
54,907
|
|
|
20,035,692
|
21,378,527
|
11,083,458
|
11,489,454
|
|
Wholesale
supply to other concession holders (2)
|
6,626,096
|
5,499,766
|
1,588,364
|
1,458,670
|
|
Wholesale
supply unbilled, net
|
-
|
-
|
15,630
|
(18,970)
|
|
Total
|
26,661,788
|
26,878,293
|
12,687,452
|
12,929,154
|
|
|
|
|
|
|
|
|
MWh (1)
|
R$
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Residential
|
2,657,910
|
2,547,878
|
2,307,578
|
2,206,790
|
|
Industrial
|
3,105,644
|
3,947,233
|
934,197
|
1,154,786
|
|
Commercial,
services and others
|
2,085,089
|
2,374,683
|
1,136,848
|
1,280,841
|
|
Rural
|
896,651
|
915,078
|
511,810
|
460,746
|
|
Public
authorities
|
169,009
|
231,943
|
121,381
|
158,145
|
|
Public
lighting
|
325,162
|
333,969
|
142,679
|
140,508
|
|
Public
services
|
339,650
|
339,954
|
177,860
|
165,901
|
|
Subtotal
|
9,579,115
|
10,690,738
|
5,332,353
|
5,567,717
|
|
Own
consumption
|
7,970
|
7,247
|
-
|
-
|
|
Unbilled
revenue
|
-
|
-
|
(104,793)
|
80,721
|
|
|
9,587,085
|
10,697,985
|
5,227,560
|
5,648,438
|
|
Wholesale
supply to other concession holders (2)
|
3,401,541
|
2,422,273
|
726,004
|
641,532
|
|
Wholesale
supply unbilled, net
|
-
|
-
|
(33,550)
|
37,767
|
|
Total
|
12,988,626
|
13,120,258
|
5,920,014
|
6,327,737
|
|
|
|
|
|
|
|
|
(1)
|
Data not reviewed by external auditors.
|
|
|
(2)
|
Includes a CCEAR (Regulated Market Sales Contract), ‘bilateral contracts’ with other agents, and the revenues from management of generation assets (GAG) for the 18 hydroelectric plants of Lot D of Auction no 12/2015.
|
|
|
b)
|
Revenue from Use of the Distribution System (the TUSD charge)
|
These are recognized upon
the distribution infrastructure become available to customers, and the fair value of the consideration is calculated according
to the TUSD tariff of those customers, set by the regulator. The total amount of energy transported, in MWh, is as follows:
|
|
MWh (1)
|
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Industrial
|
8,750,291
|
8,844,838
|
|
Commercial
|
608,096
|
646,291
|
|
Rural
|
14,274
|
5,682
|
|
Concessionaires
|
144,465
|
165,230
|
|
Total
|
9,517,126
|
9,662,041
|
|
|
(1)
|
Data not reviewed by external auditors
|
163
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
MWh (1)
|
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Industrial
|
4,247,588
|
4,455,679
|
|
Commercial
|
259,661
|
315,065
|
|
Rural
|
7,045
|
2,670
|
|
Concessionaires
|
72,652
|
86,206
|
|
Total
|
4,586,946
|
4,859,620
|
|
|
(1)
|
Data not reviewed by external auditors.
|
|
|
c)
|
The CVA account and Other financial components
|
The results from variations
in (i) the CVA account (Parcel A Costs Variation Compensation Account), and in (ii) Other financial components in
calculation of tariffs, refer to the positive and negative differences between the estimated non-manageable costs of the subsidiary
Cemig D and the cost actually incurred. The amounts recognized arise from balances recorded in the current year, homologated or
to be homologated in tariff adjustment processes. For more information please see Note 13.
|
|
d)
|
Transmission concession revenue
|
Transmission revenue comprises
the amount received from agents of the energy sector for operation and maintenance of transmission lines of the national grid,
in the form of the Permitted Annual Revenue (Receita Anual Permitida, or RAP), plus an adjustment for expectation of cash
flow arising from the variation in the fair value of the Remuneration Assets Base, in the amout of R$3,145 in the period of January
at June 2020 (R$7,834 in the period of January at June 2019).
In addition, as a consequence
of the Tariff Periodic Reset, the Remuneration Base was remeasured resulting in an increase of R$198,714 in the Company’s
income. For more information, see note 14.
The Company is subject to
the pecuniary penalty named Variable Portion (Parcela Variável, or PV) which is applied by the Concession-granting Power
as a result of any unavailabilities or operational restrictions on facilities that are part of the National Grid. This penalty
is recognized as a reduction of revenue from operation and maintenance of the transmission network in the period in which it occurs.
The effects of the Variable Portion in transmission revenue were R$5,537 on June 30, 2020 (R$5,254 on June 30, 2019).
Construction revenue corresponds
to the performance obligation to build the transmission and distribution infrastructure during the construction phase. Considering
that constructions and improvements are substantially executed through outsourced parties; and that all construction revenues is
related to the construction of the infrastructure of the energy distribution and transmission services, Company’s management
concluded that construction contract revenue has zero profit margin.
|
|
f)
|
Transmission indemnity revenue
|
Corresponded to updating,
by the IPCA index, of the balance of transmission indemnity receivable. For further information, please see Note 13 and 14.
164
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
As a result of the Tariff
Periodic Reset, the Company recognized a positive adjustment of R$231,126 in its income statemtent, of which R$10,183 corresponds
to the portion classified as a financial asset, and R$220,943 corresponds to the assets reincorporated into the assets remuneration
base. For further information, please see Note 13 and 14.
|
|
g)
|
Adjustment to expected cash flow from financial assets on residual value of infrastructure asses of distribution concessions
|
Income from the Regulatory
Remuneration Asset Base.
|
|
h)
|
Revenue on financial updating of the Concession Grant Fee
|
Represents the inflation adjustment
using the IPCA inflation index, plus interest, on the Concession Grant Fee for the concession awarded as Lot D of Auction 12/2015.
See Note 13.
|
|
i)
|
Energy transactions on the CCEE (Power Trading Chamber)
|
The revenue from transactions
made through the Power Trading Chamber (Câmara de Comercialização de Energia Elétrica, or CCEE)
is the monthly positive net balance of settlements of transactions for purchase and sale of energy in the Spot Market, through
the CCEE, for which the consideration corresponds to the product of energy sold at the Spot Price.
The revenue from the mechanism
for the sale of energy surplus refers to the sale of power surpluses by distributor agents. In the case of sale of the amount of
energy related to the regulatory limit or involuntary exposure, a portion of the gain may be passed through to the customer tariffs
in the tariff adjustments.
|
|
j)
|
Other operating revenues
|
|
|
Consolidated
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Charged
service
|
5,221
|
8,382
|
|
Services
rendered
|
70,117
|
89,826
|
|
Subsidies
(1)
|
730,649
|
606,920
|
|
Rental
and leasing
|
80,563
|
65,196
|
|
Reimbursement
for decontracted supply
|
-
|
64,640
|
|
Other
|
62
|
2,620
|
|
|
886,612
|
837,584
|
|
|
Consolidated
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Charged
service
|
1,466
|
4,026
|
|
Services
rendered
|
35,669
|
38,263
|
|
Subsidies
(1)
|
395,305
|
315,406
|
|
Rental
and leasing
|
40,808
|
35,729
|
|
Reimbursement
for decontracted supply
|
-
|
2,064
|
|
Other
|
(105)
|
898
|
|
|
473,143
|
396,386
|
|
|
(1)
|
Revenue recognized for the tariff subsidies applied to users of transmission and distribution services, including Low-income subsidy, reimbursed by Eletrobras.
|
165
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
Consolidated
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Taxes
on revenue
|
|
|
|
ICMS
|
3,010,684
|
3,052,745
|
|
COFINS
|
1,035,447
|
1,264,259
|
|
PIS/Pasep
|
225,026
|
275,635
|
|
Others
|
3,363
|
4,131
|
|
|
4,274,520
|
4,596,770
|
|
Charges
to the customer
|
|
|
|
Global
Reversion Reserve (RGR)
|
7,951
|
8,737
|
|
Energy
Efficiency Program (PEE)
|
33,444
|
32,590
|
|
Energy
Development Account (CDE)
|
1,217,865
|
1,331,366
|
|
Research
and Development (R&D)
|
20,276
|
20,639
|
|
National
Scientific and Technological Development Fund (FNDCT)
|
20,276
|
20,639
|
|
Energy
System Expansion Research (EPE of MME)
|
10,138
|
10,319
|
|
Customer
charges – Proinfa alternative sources program
|
17,739
|
26,329
|
|
Energy
services inspection fee
|
15,413
|
14,172
|
|
Royalties
for use of water resources
|
22,551
|
16,512
|
|
Customer
charges – the ‘Flag Tariff’ system
|
59,656
|
19,868
|
|
Others
|
-
|
15
|
|
|
1,425,309
|
1,501,186
|
|
|
5,699,829
|
6,097,956
|
|
|
Consolidated
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Taxes
on revenue
|
|
|
|
ICMS
|
1,408,778
|
1,472,166
|
|
COFINS
|
490,591
|
595,004
|
|
PIS/Pasep
|
106,509
|
129,177
|
|
Others
|
1,605
|
1,876
|
|
|
2,007,483
|
2,198,223
|
|
Charges
to the customer
|
|
|
|
Global
Reversion Reserve (RGR)
|
4,002
|
4,185
|
|
Energy
Efficiency Program (PEE)
|
16,539
|
15,707
|
|
Energy
Development Account (CDE)
|
608,155
|
679,017
|
|
Research
and Development (R&D)
|
8,998
|
9,528
|
|
National
Scientific and Technological Development Fund (FNDCT)
|
8,998
|
9,528
|
|
Energy
System Expansion Research (EPE of MME)
|
4,499
|
4,764
|
|
Customer
charges – Proinfa alternative sources program
|
10,023
|
13,024
|
|
Energy
services inspection fee
|
7,706
|
7,230
|
|
Royalties
for use of water resources
|
10,913
|
6,513
|
|
Customer
charges – the ‘Flag Tariff’ system
|
73
|
8,712
|
|
Others
|
-
|
1
|
|
|
679,906
|
758,209
|
|
|
2,687,389
|
2,956,432
|
166
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
27.
OPERATING COSTS AND EXPENSES
|
|
Consolidated
|
Parent Company
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Personnel
(a)
|
650,789
|
677,072
|
11,112
|
18,369
|
|
Employees’
and managers’ profit sharing
|
33,280
|
174,515
|
6,032
|
11,207
|
|
Post-employment
benefits – Note 23
|
223,727
|
198,699
|
23,985
|
21,746
|
|
Materials
|
34,766
|
40,256
|
100
|
94
|
|
Outsourced
services (b)
|
601,690
|
585,969
|
15,793
|
11,359
|
|
Energy
bought for resale (c)
|
5,569,733
|
5,120,200
|
-
|
-
|
|
Depreciation
and amortization (1)
|
488,449
|
479,299
|
1,552
|
2,398
|
|
Operating
provisions (reversals) and adjustments for operating losses (d)
|
356,729
|
978,379
|
48,986
|
35,845
|
|
Charges
for use of the national grid
|
622,453
|
701,171
|
-
|
-
|
|
Gas
bought for resale
|
543,303
|
725,162
|
-
|
-
|
|
Construction
costs (e)
|
683,676
|
465,225
|
-
|
-
|
|
Other
operating expenses, net (f)
|
138,456
|
93,854
|
5,542
|
4,507
|
|
|
9,947,051
|
10,239,801
|
113,102
|
105,525
|
|
|
Consolidated
|
Parent Company
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Personnel
(a)
|
339,183
|
312,031
|
4,916
|
4,756
|
|
Employees’
and managers’ profit sharing
|
7,440
|
108,478
|
2,792
|
6,720
|
|
Post-employment
benefits
|
118,322
|
97,790
|
12,310
|
10,796
|
|
Materials
|
16,141
|
19,766
|
73
|
88
|
|
Outsourced
services (b)
|
302,609
|
302,241
|
8,488
|
6,051
|
|
Energy
bought for resale (c)
|
2,755,238
|
2,526,019
|
-
|
-
|
|
Depreciation
and amortization (1)
|
245,697
|
248,403
|
776
|
(541)
|
|
Operating
provisions (reversals) and adjustments for operating losses (d)
|
197,613
|
869,373
|
47,144
|
17,832
|
|
Charges
for use of the national grid
|
257,441
|
367,375
|
-
|
-
|
|
Gas
bought for resale
|
231,378
|
330,180
|
-
|
-
|
|
Construction
costs (e)
|
373,405
|
266,107
|
-
|
-
|
|
Other
operating expenses, net (f)
|
84,321
|
41,922
|
1,642
|
3,587
|
|
|
4,928,788
|
5,489,685
|
78,141
|
49,289
|
|
|
(1)
|
Net of PIS/Pasep and Cofins taxes applicable to amortization of the Right of Use, in the amount of R$1,080 in the consolidated statements and R$71 in the Parent company statements.
|
2020 Programmed Voluntary
Retirement Plan (‘PDVP’)
On April 2020, the Company
approved the Programmed Voluntary Retirement Plan for 2020 (‘the 2020 PDVP’). Those eligible – any employees
who had worked with the Company for 25 years or more by December 31, 2020 – are able to join from May 4 to 22, 2020. The
program will pay the standard legal payments for severance, 50% of the period of notice, an amount equal to 20% of the Base Value
of the employee’s FGTS fund, an additional premium equal to 50% of the period of notice plus 20% of the Base Value of the
employee’s FGTS fund, as well as the other payments under the legislation. The total of R$58,850 has been recorded as expense
related to this program, corresponding to acceptance by 396 employees. In March, 2019, has been appropriated as expense, including
severance payments, a total of R$21,491 (155 employees).
167
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
Consolidated
|
Parent Company
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Meter reading and bill delivery
|
65,168
|
64,334
|
-
|
-
|
|
Communication
|
33,043
|
34,458
|
239
|
1,696
|
|
Maintenance and conservation of electrical facilities and equipment
|
229,996
|
198,413
|
9
|
6
|
|
Building conservation and cleaning
|
52,229
|
53,860
|
77
|
166
|
|
Contracted labor
|
5,086
|
6,240
|
18
|
-
|
|
Freight and airfares
|
1,420
|
3,289
|
275
|
634
|
|
Accommodation and meals
|
4,614
|
6,528
|
72
|
77
|
|
Security services
|
8,753
|
8,202
|
-
|
-
|
|
Consultant
|
18,088
|
9,510
|
11,800
|
4,219
|
|
Maintenance and conservation of furniture and utensils
|
2,716
|
2,310
|
15
|
-
|
|
Information technology
|
24,932
|
23,899
|
586
|
606
|
|
Maintenance and conservation of vehicles
|
1,265
|
1,233
|
-
|
-
|
|
Disconnection and reconnection
|
15,278
|
34,542
|
-
|
-
|
|
Environmental services
|
4,529
|
6,290
|
-
|
-
|
|
Legal services
|
9,857
|
11,490
|
591
|
727
|
|
Costs (recovery of costs) of proceedings
|
1,014
|
176
|
70
|
82
|
|
Tree pruning
|
24,336
|
21,331
|
-
|
-
|
|
Cleaning of power line pathways
|
33,933
|
28,802
|
-
|
-
|
|
Copying and legal publications
|
10,159
|
9,713
|
247
|
124
|
|
Inspection of customer units
|
12,618
|
5,223
|
-
|
-
|
|
Other expenses
|
42,656
|
56,126
|
1,794
|
3,022
|
|
|
601,690
|
585,969
|
15,793
|
11,359
|
|
|
Consolidated
|
Parent Company
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Meter reading and bill delivery
|
33,118
|
32,291
|
-
|
-
|
|
Communication
|
12,726
|
14,167
|
157
|
244
|
|
Maintenance and conservation of electrical facilities and equipment
|
113,872
|
97,879
|
5
|
3
|
|
Building conservation and cleaning
|
25,178
|
27,342
|
34
|
53
|
|
Contracted labor
|
1,452
|
2,567
|
9
|
-
|
|
Freight and airfares
|
253
|
1,915
|
49
|
352
|
|
Accommodation and meals
|
1,493
|
3,556
|
30
|
51
|
|
Security services
|
4,223
|
4,194
|
-
|
-
|
|
Consultant
|
10,517
|
6,117
|
6,572
|
2,935
|
|
Maintenance and conservation of furniture and utensils
|
1,404
|
1,395
|
-
|
(1)
|
|
Information technology
|
11,056
|
16,667
|
292
|
454
|
|
Maintenance and conservation of vehicles
|
585
|
693
|
-
|
-
|
|
Disconnection and reconnection
|
4,049
|
16,996
|
-
|
-
|
|
Environmental services
|
2,144
|
2,883
|
-
|
-
|
|
Legal services
|
6,081
|
5,069
|
443
|
283
|
|
Costs (recovery of costs) of proceedings
|
574
|
592
|
18
|
82
|
|
Tree pruning
|
15,308
|
13,079
|
-
|
-
|
|
Cleaning of power line pathways
|
19,161
|
15,090
|
-
|
-
|
|
Copying and legal publications
|
5,556
|
5,230
|
240
|
141
|
|
Inspection of customer units
|
8,829
|
3,134
|
-
|
-
|
|
Other expenses
|
25,030
|
31,385
|
639
|
1,454
|
|
|
302,609
|
302,241
|
8,488
|
6,051
|
168
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
c)
|
Energy purchased for resale
|
|
|
Consolidated
|
|
Jan to Jun 2020
|
Jan to Jun 2020
|
|
Supply from Itaipu Binacional
|
952,413
|
694,177
|
|
Physical guarantee quota contracts
|
379,450
|
364,358
|
|
Quotas for Angra I and II nuclear plants
|
151,484
|
134,586
|
|
Spot market
|
633,003
|
762,267
|
|
Proinfa Program
|
155,866
|
190,617
|
|
‘Bilateral’ contracts
|
163,392
|
151,479
|
|
Energy acquired in Regulated Market auctions
|
1,567,953
|
1,395,566
|
|
Energy acquired in the Free Market
|
1,743,809
|
1,838,169
|
|
Distributed generation (‘Geração distribuída’)
|
327,796
|
82,858
|
|
PIS/Pasep and Cofins credits
|
(505,433)
|
(493,877)
|
|
|
5,569,733
|
5,120,200
|
|
|
Consolidated
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Supply from Itaipu Binacional
|
524,601
|
361,021
|
|
Physical guarantee quota contracts
|
189,617
|
185,427
|
|
Quotas for Angra I and II nuclear plants
|
75,742
|
67,293
|
|
Spot market
|
251,066
|
278,055
|
|
Proinfa Program
|
77,933
|
95,309
|
|
‘Bilateral’ contracts
|
84,216
|
78,883
|
|
Energy acquired in Regulated Market auctions
|
748,514
|
684,774
|
|
Energy acquired in the Free Market
|
900,703
|
973,506
|
|
Distributed generation (‘Geração distribuída’)
|
154,315
|
44,892
|
|
PIS/Pasep and Cofins credits
|
(251,469)
|
(243,141)
|
|
|
2,755,238
|
2,526,019
|
|
|
d)
|
Operating provision (reversals)
|
|
|
Consolidated
|
Parent Company
|
|
Jan to Jun 2020
|
Jan to Jun 2020
|
Jan to Jun/2020
|
Jan to Jun/2019
|
|
Estimated
losses on doubtful accounts receivables (Note 7)
|
215,100
|
126,978
|
-
|
-
|
|
Estimated
losses on other accounts receivables (1)
|
-
|
4,935
|
-
|
183
|
|
Estimated
losses on doubtful accounts receivable from related (3) (note 29)
|
37,361
|
688,031
|
37,361
|
-
|
|
|
|
|
|
|
|
Contingency
provisions (reversals) (Note 24) (2)
|
|
|
|
|
|
Labor
claims
|
30,688
|
106,558
|
6,140
|
15,853
|
|
Civil
|
22,690
|
1,076
|
2,002
|
(510)
|
|
Tax
|
24,439
|
19,310
|
3,510
|
20,268
|
|
Regulatory
|
(136)
|
952
|
(81)
|
607
|
|
Other
|
3,787
|
8,593
|
54
|
(556)
|
|
|
81,468
|
136,489
|
11,625
|
35,662
|
|
|
333,929
|
956,433
|
48,986
|
35,845
|
|
Adjustment
for losses
|
|
|
|
|
|
Put
option – SAAG (Note 30)
|
22,800
|
21,946
|
-
|
-
|
|
|
22,800
|
21,946
|
-
|
-
|
|
|
356,729
|
978,379
|
48,986
|
35,845
|
169
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
Consolidated
|
Parent Company
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Estimated
losses on doubtful accounts receivables (Note 7)
|
115,360
|
47,627
|
-
|
-
|
|
Estimated
losses on other accounts receivables (1)
|
-
|
4,752
|
-
|
-
|
|
Estimated
losses on doubtful accounts receivable from related (3) (note 29)
|
37,361
|
688,031
|
37,361
|
-
|
|
|
|
|
|
|
|
Contingency
provisions (reversals) (Note 24) (2)
|
|
|
|
|
|
Labor
claims
|
23,375
|
105,122
|
7,986
|
13,136
|
|
Civil
|
6,379
|
3,571
|
1,235
|
(64)
|
|
Tax
|
12,005
|
4,384
|
1,237
|
4,833
|
|
Regulatory
|
(373)
|
276
|
(702)
|
(108)
|
|
Other
|
1,518
|
4,672
|
27
|
35
|
|
|
42,904
|
118,025
|
9,783
|
17,832
|
|
|
195,625
|
858,435
|
47,144
|
17,832
|
|
Adjustment
for losses
|
|
|
|
|
|
Put
option – SAAG (Note 30)
|
1,988
|
10,938
|
-
|
-
|
|
|
1,988
|
10,938
|
-
|
-
|
|
|
197,613
|
869,373
|
47,144
|
17,832
|
|
|
(1)
|
The estimated losses on other accounts receivable are presented in the consolidated Statement of income as operating expenses.
|
|
|
(2)
|
The provisions for contingencies of the Parent company are presented in the consolidated profit and loss account for the year as operating expenses.
|
|
|
(3)
|
Estimated losses on amounts receivable from Renova, as a result of the assessment of credit risk.
|
|
|
Consolidated
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Personnel and managers
|
40,445
|
30,398
|
|
Materials
|
337,298
|
228,763
|
|
Outsourced services
|
239,960
|
155,365
|
|
Others
|
65,973
|
50,699
|
|
|
683,676
|
465,225
|
|
|
Consolidated
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Personnel and managers
|
23,522
|
16,946
|
|
Materials
|
180,348
|
141,304
|
|
Outsourced services
|
139,977
|
80,071
|
|
Others
|
29,558
|
27,786
|
|
|
373,405
|
266,107
|
|
|
f)
|
Other operating expenses (revenues), net
|
|
|
Consolidated
|
Parent Company
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Leasing and rentals (1)
|
5,234
|
1,783
|
427
|
1,273
|
|
Advertising
|
2,877
|
1,961
|
31
|
66
|
|
Own consumption of energy
|
10,750
|
8,105
|
-
|
-
|
|
Subsidies and donations
|
3,317
|
4,584
|
-
|
-
|
|
Onerous concession
|
1,387
|
1,287
|
-
|
-
|
|
Insurance
|
12,004
|
4,541
|
1,411
|
824
|
|
CCEE annual charge
|
2,974
|
3,078
|
1
|
1
|
|
Net loss (gain) on deactivation and disposal of assets
|
11,969
|
12,386
|
157
|
-
|
|
Forluz – Administrative running cost
|
14,856
|
14,024
|
731
|
688
|
|
Collection agents
|
42,393
|
42,356
|
-
|
-
|
|
Taxes and charges
|
6,223
|
7,568
|
729
|
511
|
|
Other expenses (revenues)
|
24,472
|
(7,819)
|
2,055
|
1,144
|
|
|
138,456
|
93,854
|
5,542
|
4,507
|
170
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
Consolidated
|
Parent Company
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
Leasing and rentals (1)
|
3,124
|
1,270
|
206
|
2,312
|
|
Advertising
|
1,662
|
224
|
31
|
28
|
|
Own consumption of energy
|
5,539
|
1,816
|
-
|
-
|
|
Subsidies and donations
|
1,645
|
1,673
|
-
|
-
|
|
Onerous concession
|
707
|
659
|
-
|
-
|
|
Insurance
|
5,943
|
2,418
|
726
|
424
|
|
CCEE annual charge
|
1,500
|
1,441
|
1
|
1
|
|
Net loss (gain) on deactivation and disposal of assets
|
5,536
|
4,887
|
157
|
-
|
|
Forluz – Administrative running cost
|
7,552
|
7,312
|
371
|
359
|
|
Collection agents
|
20,395
|
21,398
|
-
|
-
|
|
Taxes and charges
|
1,442
|
2,899
|
112
|
172
|
|
Other expenses (revenues)
|
29,276
|
(4,075)
|
38
|
291
|
|
|
84,321
|
41,922
|
1,642
|
3,587
|
|
|
(1)
|
Related to remaining leasing arrangements and rentals that do not qualify for recognition under IFRS 16 as well as short-term leases and leases for which the underlying asset is of low value.
|
|
|
28.
|
FINANCE INCOME AND EXPENSES
|
|
|
Consolidated
|
Parent Company
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
FINANCE
INCOME
|
|
|
|
|
|
Income
from financial investments
|
39,590
|
50,868
|
2,122
|
1,888
|
|
Interest
on sale of energy
|
176,823
|
182,451
|
-
|
-
|
|
Foreign
exchange variations – loans and financings (note 21)
|
-
|
70,470
|
-
|
-
|
|
Monetary
variations
|
8,729
|
12,873
|
1
|
1
|
|
Monetary
variations – CVA (Note 13)
|
25,688
|
53,046
|
-
|
-
|
|
Monetary
updating of escrow deposits
|
54,042
|
19,906
|
10,172
|
6,474
|
|
PIS/Pasep
and Cofins charged on finance income (1)
|
(15,812)
|
(50,752)
|
(2,036)
|
(5,343)
|
|
Gains
on financial instruments –swap (Note 30)
|
1,800,960
|
613,394
|
-
|
-
|
|
Borrowing
costs paid by related parties
|
3,483
|
45,979
|
803
|
-
|
|
Monetary
updating on PIS/Pasep and Cofins taxes credits over ICMS (note 8)
|
27,092
|
1,553,112
|
3,489
|
300,831
|
|
Others
|
32,218
|
71,641
|
842
|
1,263
|
|
|
2,152,813
|
2,622,988
|
15,393
|
305,114
|
|
FINANCE
EXPENSES
|
|
|
|
|
|
Charges
on loans and financings (Note 21)
|
(583,106)
|
(605,952)
|
(942)
|
(1,542)
|
|
Cost
of debt – amortization of transaction cost (Note 21)
|
(7,101)
|
(13,948)
|
(104)
|
(81)
|
|
Foreign
exchange variations - loans and financing (Note 21)
|
(2,162,364)
|
-
|
-
|
-
|
|
Foreign
exchange variations – Itaipu
|
(66,466)
|
(3,132)
|
-
|
-
|
|
Monetary
updating – loans and financings (Note 21)
|
(35,978)
|
(82,711)
|
-
|
-
|
|
Monetary
updating – onerous concessions
|
(1,782)
|
(1,776)
|
-
|
-
|
|
Charges
and monetary updating on post-employment obligations (Note 23)
|
(21,749)
|
(33,578)
|
(1,070)
|
(1,652)
|
|
Leasing
– Inflation adjustment (Note 18)
|
(13,737)
|
(18,332)
|
(153)
|
(286)
|
|
Others
|
(22,593)
|
(56,532)
|
(3)
|
(14,890)
|
|
|
(2,914,876)
|
(815,961)
|
(2,272)
|
(18,451)
|
|
NET
FINANCE INCOME (EXPENSES)
|
(762,063)
|
1,807,027
|
13,121
|
286,663
|
171
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
Consolidated
|
Parent Company
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Apr to Jun 2020
|
Apr to Jun 2019
|
|
FINANCE
INCOME
|
|
|
|
|
|
Income
from financial investments
|
21,424
|
25,836
|
749
|
411
|
|
Interest
on sale of energy
|
84,751
|
95,933
|
-
|
-
|
|
Foreign
exchange variations – loans and financings (note 21)
|
-
|
70,470
|
-
|
-
|
|
Monetary
variations
|
5,079
|
7,888
|
1
|
-
|
|
Monetary
variations – CVA
|
14,045
|
32,140
|
-
|
-
|
|
Monetary
updating of escrow deposits
|
37,682
|
13,219
|
4,476
|
5,942
|
|
PIS/Pasep
and Cofins charged on finance income (1)
|
(7,018)
|
(41,487)
|
(1,582)
|
(5,196)
|
|
Gains
on financial instruments –swap
|
486,720
|
461,083
|
-
|
-
|
|
Borrowing
costs paid by related parties
|
3,075
|
23,315
|
395
|
-
|
|
Monetary
updating on PIS/Pasep and Cofins taxes credits over ICMS (note 8)
|
12,243
|
1,553,112
|
1,580
|
300,831
|
|
Others
|
12,077
|
30,961
|
474
|
120
|
|
|
670,078
|
2,272,470
|
6,093
|
302,108
|
|
FINANCE
EXPENSES
|
|
|
|
|
|
Charges
on loans and financings
|
(271,806)
|
(302,540)
|
(400)
|
(783)
|
|
Cost
of debt – amortization of transaction cost
|
(3,556)
|
(7,015)
|
(53)
|
(42)
|
|
Foreign
exchange variations - loans and financing
|
(405,828)
|
32,980
|
-
|
-
|
|
Foreign
exchange variations – Itaipu
|
(32,457)
|
(3,132)
|
-
|
-
|
|
Monetary
updating – loans and financings
|
32,467
|
(38,703)
|
-
|
-
|
|
Monetary
updating – onerous concessions
|
(1,091)
|
(895)
|
-
|
-
|
|
Charges
and monetary updating on post-employment obligations
|
(4,416)
|
(18,349)
|
(217)
|
(903)
|
|
Leasing
– Inflation adjustment
|
(6,738)
|
(8,992)
|
(74)
|
106
|
|
Others
|
(11,970)
|
(17,237)
|
-
|
(7,164)
|
|
|
(705,395)
|
(363,883)
|
(744)
|
(8,786)
|
|
NET
FINANCE INCOME (EXPENSES)
|
(35,317)
|
1,908,587
|
5,349
|
293,322
|
|
|
(1)
|
The PIS/Pasep and Cofins expenses apply to Interest on Equity.
|
|
|
29.
|
RELATED PARTY TRANSACTIONS
|
Cemig’s main balances
and transactions with related parties and its jointly-controlled entities are as follows:
|
COMPANY
|
ASSETS
|
LIABILITIES
|
REVENUE
|
EXPENSES
|
|
Jun. 30, 2020
|
Dec. 31, 2019
|
Jun. 30, 2020
|
Dec. 31, 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Jan to Jun 2020
|
Jan to Jun 2019
|
|
Shareholder
|
|
|
|
|
|
|
|
|
|
Minas Gerais State Government
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Customers and traders (1)
|
379,027
|
345,929
|
-
|
-
|
70,851
|
80,131
|
-
|
-
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Accounts Receivable – AFAC (2)
|
120,258
|
115,202
|
-
|
-
|
5,056
|
10,749
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Jointly-controlled entity
|
|
|
|
|
|
|
|
|
|
Aliança Geração
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
-
|
-
|
15,048
|
13,622
|
19,872
|
19,569
|
(82,633)
|
(78,109)
|
|
Provision of services (4)
|
324
|
626
|
-
|
-
|
2,420
|
4,943
|
-
|
-
|
|
Interest on Equity, and dividends
|
-
|
103,033
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Contingency (5)
|
-
|
-
|
32,088
|
32,088
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Baguari Energia
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
-
|
-
|
893
|
924
|
-
|
-
|
(4,172)
|
(5,393)
|
|
Provision of services (4)
|
211
|
-
|
-
|
-
|
559
|
466
|
-
|
-
|
|
Interest on Equity, and dividends
|
10,640
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Madeira Energia
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
2,174
|
5,745
|
112,340
|
57,860
|
13,014
|
33,087
|
(548,860)
|
(331,510)
|
|
|
|
|
|
|
|
|
|
|
|
Norte Energia
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
2,445
|
-
|
24,352
|
24,459
|
13,859
|
9,199
|
(108,885)
|
(103,837)
|
|
Advance for future power supply (6)
|
20,150
|
40,081
|
-
|
-
|
-
|
-
|
(19,931)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Lightger
|
|
|
|
|
|
|
|
|
172
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
-
|
-
|
2,154
|
1,541
|
-
|
-
|
(11,599)
|
(9,178)
|
|
Interest on Equity, and dividends
|
1,729
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Hidrelétrica Pipoca
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
-
|
-
|
1,816
|
1,387
|
-
|
-
|
(11,599)
|
(9,178)
|
|
Interest on Equity, and dividends
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Retiro Baixo
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
-
|
-
|
142
|
567
|
2,519
|
-
|
(2,103)
|
(2,556)
|
|
Interest on Equity, and dividends
|
6,474
|
6,474
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Hidrelétrica Cachoeirão
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Interest on Equity, and dividends
|
7,349
|
2,536
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Renova
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Accounts Receivable (7)
|
-
|
-
|
-
|
-
|
-
|
93,708
|
-
|
688,031
|
|
Loans from related parties (8)
|
-
|
16,559
|
-
|
6,418
|
(803)
|
-
|
(37,361)
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Light
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
336
|
312
|
153
|
1,311
|
31,425
|
30,860
|
(904)
|
(2,974)
|
|
Interest on Equity, and dividends
|
71,206
|
72,737
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
TAESA
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Transactions with energy (3)
|
-
|
-
|
6,030
|
8,523
|
-
|
-
|
(45,323)
|
(48,869)
|
|
Provision of services (4)
|
174
|
170
|
-
|
-
|
295
|
299
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Hidrelétrica Itaocara
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Adjustment for losses (9)
|
-
|
-
|
22,153
|
21,809
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Axxiom
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Provision of services (10)
|
-
|
-
|
1,337
|
3,306
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Other related parties
|
|
|
|
|
|
|
|
|
|
FIC Pampulha
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
500,496
|
36,434
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Marketable securities
|
2,536,682
|
742,561
|
-
|
-
|
15,794
|
10,186
|
-
|
-
|
|
(-) Marketable securities issued by subsidiary companies (note 21)
|
(8,009)
|
(3,031)
|
-
|
-
|
-
|
-
|
-
|
-
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
194,405
|
1,825
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
FORLUZ
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Post-employment obligations (11)
|
-
|
-
|
167,067
|
144,828
|
-
|
-
|
(102,892)
|
(98,346)
|
|
Supplementary pension contributions – Defined contribution plan (12)
|
-
|
-
|
-
|
-
|
-
|
-
|
(36,285)
|
(38,764)
|
|
Administrative running costs (13)
|
-
|
-
|
-
|
-
|
-
|
-
|
(14,855)
|
(14,024)
|
|
Operating leasing (14)
|
2,508
|
178,504
|
865
|
35,458
|
-
|
-
|
(885)
|
(27,672)
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Post-employment obligations (11)
|
-
|
-
|
2,850,222
|
2,827,308
|
-
|
-
|
-
|
-
|
|
Operating leasing (14)
|
-
|
-
|
1,787
|
149,415
|
-
|
-
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
Cemig Saúde
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
|
|
|
Health Plan and Dental Plan (15)
|
-
|
-
|
147,631
|
140,830
|
-
|
-
|
(120,392)
|
(113,451)
|
|
Non-current
|
|
|
|
|
|
|
|
|
|
Health Plan and Dental Plan (15)
|
-
|
-
|
3,065,919
|
3,021,852
|
-
|
-
|
-
|
-
|
The main conditions and characteristics
of interest with reference to the related party transactions are:
|
|
(1)
|
Refers to sale of energy supply to the Minas Gerais State government. The price of the supply is set by the regulator (Aneel) through a Resolution relating to the annual tariff adjustment of Cemig D. In 2017 the government of Minas Gerais State signed a debt recognition agreement with Cemig D for payment of debits relating to the supply of power due and unpaid, in the amount of R$113,032, up to November 2019. Twenty installments were unpaid at June 30, 2020. These receivables have guarantee in the form of Cemig’s right to retain dividends and Interest on Equity otherwise payable to the State (in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. The amount of the Public Lighting Contribution relating to the debt recognition agreement at June 30, 2020 is R$246,104.
|
|
|
(2)
|
This refers to the recalculation of the inflation adjustment of amounts relating to the Advance against Future Capital Increase (AFAC), which were returned to the State of Minas Gerais. These receivables have guarantee in the form of Cemig’s right to retain dividends and Interest on Equity otherwise payable to the State
(in proportion to the State’s equity interest in the Company), for as long as any payments are overdue or in default. For
further information, see Note 10.
|
173
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
(3)
|
The transactions in sale and purchase of energy between generators and distributors take place through auctions in the Regulated Market, and are organized by the federal government. In the Free Market, transactions are made through auctions or through direct contracting, under the applicable legislation. Transactions for transport of energy, on the other hand, are carried out by transmission companies and arise from the centralized operation of the National Grid, executed by the National System Operator (ONS).
|
|
|
(4)
|
Refers to a contract to provide plant operation and maintenance services.
|
|
|
(5)
|
This refers to the aggregate amounts of legal actions realized and legal actions provisioned arising from the agreement made between Aliança Geração, Vale S.A. and Cemig. The action is provisioned in the amount of R$98 million, of which Cemig’s portion is R$32 million.
|
|
|
(6)
|
Refers to advance payments for energy supply made in 2019 to Norte Energia, established by auction and by contract registered with the CCEE (Wholesale Trading Exchange). Norte Energia will deliver contracted supply until December 31, 2020, starting on January 01, 2020. Until June 30, 2020, the amount corresponding to energy supplied is R$19,931 and the remaining amount of the advanced payments is R$20,150. There is no financial updating of the contract.
|
|
|
(7)
|
As mentioned in Note 15(b), in June 2019, due to the uncertainties related to continuity of Renova, an estimated loss on realization of the receivables was recorded for the full value of the balance, R$688 million.
|
|
|
(8)
|
On November 25, 2019, December 27, 2019 and January 27, 2020 DIP loan contracts under court-supervised reorganization proceedings, referred to as ‘DIP’, ‘DIP 2’ and ‘DIP 3’, were entered into between the Company and the investee Renova Energia S.A., which is in court-supervised reorganization, in the amounts of R$10 million, R$6.5 million and R$20 million, respectively. The contracts specify interest equal to 100% of the accumulated variation in the DI rate, plus an annual spread, applied pro rata die (on 252-business-days basis), of 1.083% for the DIP contract, 2.5% for the DIP2 contract and 1.5% for the DIP3, up to the date of respective full payment. The Company recognized an impairment loss for the receivables from Renova, of its total carrying amount of R$37,361, in the second semester of 2020. For further information, see note 15 (c).
|
|
|
(9)
|
A liability was recognized corresponding to the Company’s interest in the share capital of Hidrelétrica Itaocara, due to its negative equity (see Note 15).
|
|
|
(10)
|
This refers to a contract for development of management software between Cemig D and Axxiom Soluções Tecnológicas S.A., instituted in Aneel Dispatch 2657/2017;
|
|
|
(11)
|
The contracts of Forluz are updated by the Expanded Customer Price Index (Índice Nacional de Preços ao Consumidor Amplo, or IPCA) calculated by the Brazilian Geography and Statistics Institute (IBGE) plus interest of 6% p.a. and will be amortized up to the business year of 2031 (see Note 23).
|
|
|
(12)
|
The Company’s contributions to the pension fund for the employees participating in the Mixed Plan, and calculated on the monthly remuneration, in accordance with the regulations of the Fund.
|
|
|
(13)
|
Funds for annual current administrative costs of the Pension Fund in accordance with the specific legislation of the sector. The amounts are estimated as a percentage of the Company’s payroll.
|
|
|
(14)
|
Rental of the Company’s administrative head offices, in effect up to November 2020 (able to be extended every five years, up to 2035) and August 2024 (able to be extended every five years, up to 2034), with annual inflation adjustment by the IPCA index and price reviewed every 60 months. Aiming at costs reduction, in November 2019, Cemig returned the Aureliano Chaves building to Forluz. Cemig is still negotiating with Forluz the returning of the remaining leased floors of Aureliano Chaves building, aiming at balancing the headquarters leasing costs to Cemig’s budgeting.
|
|
|
(15)
|
Post-employment obligations relating to the employees’ health and dental plan (see Note 23).
|
Dividends receivable
|
Dividends
receivable
|
Consolidated
|
Parent
Company
|
|
Jun.
30, 2020
|
Dec.
31, 2019
|
Jun.
30, 2020
|
Dec.
31, 2019
|
|
Cemig
GT
|
-
|
-
|
781,769
|
781,769
|
|
Cemig
D
|
-
|
-
|
352,287
|
822,183
|
|
Gasmig
|
-
|
-
|
104,146
|
46,578
|
|
Centroeste
|
-
|
-
|
8,744
|
-
|
|
Light
|
71,206
|
72,737
|
71,206
|
72,737
|
|
Aliança
Geração
|
-
|
103,033
|
-
|
-
|
|
Others
(1)
|
26,192
|
10,228
|
2,411
|
3,628
|
|
|
97,398
|
185,998
|
1,320,563
|
1,726,895
|
|
|
(1)
|
The subsidiaries grouped in ‘Others’ are identified in the table above under “Interest on Equity, and Dividends”.
|
174
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Guarantees on loans, financing and debentures
Cemig has provided guarantees
on loans, financing and debentures of the following related parties – not consolidated in the interim financial information
because they relate to jointly-controlled entities or affiliated companies:
|
Related party
|
Relationship
|
Type
|
Objective
|
Jun. 30, 2020
|
Maturity
|
|
Norte Energia (NESA) (1)
|
Affiliated
|
Surety
|
Financing
|
2,536,909
|
2042
|
|
Light (2)
|
Affiliated
|
Counter-guarantee
|
Financing
|
683,615
|
2042
|
|
Santo Antônio Energia S.A.
|
Jointly-controlled entity
|
Surety
|
Debentures
|
434,075
|
2037
|
|
Santo Antônio Energia S.A.
|
Jointly-controlled entity
|
Guarantee
|
Financing
|
961,491
|
2034
|
|
|
|
|
|
4,616,090
|
|
|
|
(1)
|
Related to execution of guarantees of the Norte Energia financing.
|
|
|
(2)
|
Corporate guarantee given by Cemig to Saesa.
|
At June 30, 2020, Management
believes that there is no need to recognize any provisions in the Company’s interim financial information for the purpose
of meeting any obligations arising under these sureties and guarantees.
Cash
investments in FIC Pampulha – the investment fund of Cemig and its subsidiaries and affiliates
Cemig and its subsidiaries
and affiliates invest part of their financial resources in an investment fund which has the characteristics of fixed income and
obeys the Company’s cash investment policy. The amounts invested by the fund at June 30, 2020 are reported in Marketable
securities in current or non-current assets, or presented after deduction of the account line Debentures in Current or Non-current
liabilities.
The funds applied are allocated
only in public and private fixed income securities, subject only to credit risk, with various maturity periods, obeying the unit
holders’ cash flow needs.
Remuneration of key management
personnel
The total costs of key personnel,
comprising the Executive Board, the Fiscal Council, the Audit Committee and the Board of Directors, are within the limits approved
at a General Shareholders’ Meeting, and the effects on the income statements of the in period ended June 30, 2020 and 2019,
are as follows:
|
|
Jun. 30, 2020
|
Jun. 30, 2019
|
|
Remuneration
|
12,449
|
14,253
|
|
Profit sharing (reversal)
|
2,672
|
5,078
|
|
Assistance benefits
|
578
|
965
|
|
Total
|
15,699
|
20,296
|
175
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
30.
|
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
|
|
|
a)
|
Financial instruments classification and fair value
|
The main financial instruments,
classified in accordance with the accounting principles adopted by the Company, are as follows:
|
|
Level
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Balance
|
Fair value
|
Balance
|
Fair value
|
|
Financial assets
|
|
|
|
|
|
|
Amortized cost (1)
|
|
|
|
|
|
|
Marketable securities – Cash investments
|
2
|
603,106
|
603,106
|
102,109
|
102,109
|
|
Customers and Traders; Concession holders (transmission service)
|
2
|
4,247,485
|
4,247,485
|
4,600,605
|
4,600,605
|
|
Restricted cash
|
2
|
15,750
|
15,750
|
12,337
|
12,337
|
|
Accounts receivable from the State of Minas Gerais (AFAC)
|
2
|
120,258
|
120,258
|
115,202
|
115,202
|
|
Concession financial assets – CVA (Parcel ‘A’ Costs Variation Compensation) Account and Other financial components
|
3
|
926,183
|
926,183
|
881,614
|
881,614
|
|
Reimbursement of tariff subsidies
|
2
|
89,048
|
89,048
|
96,776
|
96,776
|
|
Low-income subsidy
|
2
|
37,915
|
37,915
|
29,582
|
29,582
|
|
Escrow deposits
|
2
|
1,170,254
|
1,170,254
|
2,540,239
|
2,540,239
|
|
Concession grant fee – Generation concessions
|
3
|
2,482,994
|
2,482,994
|
2,468,216
|
2,468,216
|
|
Reimbursements receivable – Transmission
|
|
1,265,445
|
1,265,445
|
1,280,652
|
1,280,652
|
|
|
|
10,958,438
|
10,958,438
|
12,127,332
|
12,127,332
|
|
Fair
value through profit or loss
|
|
|
|
|
|
|
Cash
equivalents – Cash investments
|
|
858,740
|
858,740
|
326,352
|
326,352
|
|
Marketable
securities
|
|
|
|
|
|
|
Bank
certificates of deposit
|
2
|
-
|
-
|
267
|
267
|
|
Treasury
Financial Notes (LFTs)
|
1
|
638,350
|
638,350
|
94,184
|
94,184
|
|
Financial
Notes – Banks
|
2
|
1,492,464
|
1,492,464
|
557,018
|
557,018
|
|
Debentures
|
2
|
-
|
-
|
103
|
103
|
|
|
|
2,989,554
|
2,989,554
|
977,924
|
977,924
|
|
|
|
|
|
|
|
|
Derivative
financial instruments (Swaps)
|
3
|
3,281,491
|
3,281,491
|
1,690,944
|
1,690,944
|
|
Derivative
financial instruments (Ativas and Sonda Put options)
|
3
|
2,678
|
2,678
|
2,614
|
2,614
|
|
Concession
financial assets – Distribution infrastructure
|
3
|
506,094
|
506,094
|
483,374
|
483,374
|
|
Reimbursements
receivable – Generation
|
3
|
816,202
|
816,202
|
816,202
|
816,202
|
|
|
|
7,596,019
|
7,596,019
|
3,971,058
|
3,971,058
|
|
|
|
18,554,457
|
18,554,457
|
16,098,390
|
16,098,390
|
|
Financial
liabilities
|
|
|
|
|
|
|
Amortized
cost (1)
|
|
|
|
|
|
|
Loans,
financing and debentures
|
2
|
(15,862,429)
|
(15,862,429)
|
(14,776,031)
|
(14,776,031)
|
|
Debt
with pension fund (Forluz)
|
2
|
(551,778)
|
(551,778)
|
(566,381)
|
(566,381)
|
|
Deficit
of pension fund (Forluz)
|
2
|
(536,853)
|
(536,853)
|
(550,151)
|
(550,151)
|
|
Concessions
payable
|
3
|
(20,205)
|
(20,205)
|
(19,692)
|
(19,692)
|
|
Suppliers
|
2
|
(1,945,496)
|
(1,945,496)
|
(2,079,891)
|
(2,079,891)
|
|
Leasing
transactions
|
2
|
(256,251)
|
(256,251)
|
(287,747)
|
(287,747)
|
|
|
|
(19,173,012)
|
(19,173,012)
|
(18,279,893)
|
(18,279,893)
|
|
Fair
value through profit or loss
|
|
|
|
|
|
|
Derivative
financial instruments (SAAG put options)
|
3
|
(505,641)
|
(505,641)
|
(482,841)
|
(482,841)
|
|
|
|
(505,641)
|
(505,641)
|
(482,841)
|
(482,841)
|
|
|
|
(19,678,653)
|
(19,678,653)
|
(18,762,734)
|
(18,762,734)
|
|
|
(1)
|
On June 30, 2020 and December 31, 2019, the book values of financial instruments reflect their fair values.
|
At initial recognition the
Company measures its financial assets and liabilities at fair value and classifies them according to the accounting standards currently
in effect. Fair value is a measurement based on assumptions that market participants would use in pricing an asset or liability.
The Company uses the following classification to its financial instruments:
176
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
§
|
Level 1 – Active market – Quoted prices: A financial instrument is considered to be quoted in an active market if the prices quoted are promptly and regularly made available by an exchange or organized over-the-counter market, by operators, by brokers or by a market association, by entities whose purpose is to publish prices, or by regulatory agencies, and if those prices represent regular arm’s length market transactions made without any preference.
|
|
|
§
|
Level 2 – No active market – Valuation technique: For an instrument that does not have an active market, fair value should be found by using a method of valuation/pricing. Criteria such as data on the current fair value of another instrument that is substantially similar, or discounted cash flow analysis or option pricing models, may be used provided that all the material variables are based on observable market data. The objective of the valuation technique is to establish what would be the transaction price on the measurement date in an arm’s-length transaction motivated by business model.
|
|
|
§
|
Level 3 – No active market – No observable inputs: The fair value of investments in securities for which there are no prices quoted on an active market, and/or of derivatives linked to them which are to be settled by delivery of unquoted securities. Fair value is determined based on generally accepted valuation techniques, such as on discounted cash flow analysis or other valuation techniques such as, for example, New Replacement Value (Valor novo de reposição, or VNR).
|
For assets and liabilities
that are recognized at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in
the hierarchy by re-assessing categorization.
Fair value calculation
of financial positions
Distribution infrastructure
concession financial assets: These are measured at New Replacement Value (Valor novo de reposição, or
VNR), according to criteria established by the Concession-granting power (‘Grantor’), based on fair value of the concession
assets in service and which will be revertible at the end of the concession, and on the weighted average cost of capital (WACC)
defined by the Grantor, which reflects the concession holder’s return on the operations of the concession. The VNR and the
WACC are public information disclosed by the Grantor and by Cemig respectively. Changes in concession financial assets are disclosed
in Note 13.
Indemnifiable receivable
– generation: measured at New Replacement Value (VNR), as per criteria set by regulations of the grantor power, based
on the fair value of the assets to be indemnify at the end of the concession.
Marketable securities:
Fair value of marketable securities is determined taking into consideration the market prices of the investment, or market information
that makes such calculation possible, considering future interest rates and exchange of investments to similar securities. The
market value of the security is deemed to be its maturity value discounted to present value by the discount rate obtained from
the market yield curve.
177
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Put options: The Company
adopted the Black-Scholes-Merton method for measuring fair value of the SAAG and Sonda options. The fair value of these options
was calculated on the basis of the estimated exercise price on the day of exercise of the option, less the fair value of the underlying
shares, also estimated for the date of exercise, brought to present value at the reporting date.
Swaps: Fair value was
calculated based on the market value of the security at its maturity adjusted to present value by the discount rate from the market
yield curve.
Other financial liabilities:
Fair value of its loans, financing and debentures were determined using 133.40% of the CDI rate – based on its most recent
funding. For the loans, financing, debentures and debt renegotiated with Forluz, with annual rates between IPCA + 4.10% to 8.07%
and CDI + 0.19% to 1.10%, Company believes that their carrying amount is approximated to their fair value.
|
|
b)
|
Derivative financial instruments
|
Put options
Company holds options to sell
certain securities (put options) for which it has calculated the fair value based on the Black and Scholes Merton (BSM)
model, considering the following assumptions: exercise price of the option; closing price of the underlying asset as of June 30,
2020; risk-free interest rate; volatility of the price of the underlying asset; and the time to maturity of the option.
Analytically, calculation
of the exercise price of the options, the risk-free interest rate and the time to maturity is primarily deterministic, so that
the main divergence in the put options takes place in the measurement of the closing price and the volatility of the underlying
asset.
On June 30, 2020 and December
31, 2019, the options values were as follows:
|
Consolidated
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Put
option – SAAG
|
505,641
|
482,841
|
|
Put
/ call options – Ativas and Sonda
|
(2,678)
|
(2,614)
|
|
|
502,963
|
480,227
|
Put option – SAAG
Option contracts were signed
between Cemig GT and the private pension entities that participate in the investment structure of SAAG (comprising FIP Melbourne,
Parma Participações S.A. and FIP Malbec, jointly, ‘the Investment Structure’), giving those entities
the right to sell units in the Funds that comprise the Investment Structure, at the option of the Funds, in the 84th
(eighty-fourth) month from June 2014. The exercise price of the Put Options will correspond to the amount invested by each private
pension plan in the Investment Structure, updated pro rata temporis by the Expanded National Customer Price
178
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
(IPCA) index published by the IBGE, plus interest
at 7% per year, less such dividends and Interest on Equity as shall have been paid by SAAG to the pension plan entities. This option
was considered to be a derivative instrument, accounted at fair value through profit and loss.
For measurement of
the fair value of SAAG put options Cemig GT uses the Black-Scholes-Merton (‘BCM’) model. The assumption was made that
the future expenditures of FIP Malbec and FIP Melbourne are insignificant, so that the options are valued as if they hold direct
equity interests at Mesa. However, neither SAAG nor Mesa have its share traded on a securities exchange, so that some assumptions
are necessary for calculation of the price of the asset and its volatility for application of the BSM model. The closing price
of the share of Mesa on June 30, 2020 is ascertained based on free cash flow (FCFE), expressed by equity pick-up of the indirect
interests held by the FIPs. Volatility, in turn, is measured as an average of historic volatility (based on the hypothesis that
the series of the difference of continuously capitalized returns follows a normal distribution) of comparable companies in the
energy generation sector that are traded at Bovespa.
Based on the analysis performed,
a liability of R$505,641 was recorded in the Company’s interim financial information (R$482,841 on December 31, 2019), for
the difference between the exercise price and the estimated fair value of the assets.
The changes in the value of the options
are as follows:
|
|
Consolidated
|
|
Balance
at December 31, 2018
|
419,148
|
|
Adjustment
to fair value
|
21,946
|
|
Balance
at June 30, 2019
|
441,094
|
|
|
|
|
Balance
at December 31, 2019
|
482,841
|
|
Adjustment
to fair value
|
22,800
|
|
Balance
at June 30, 2020
|
505,641
|
Cemig GT performed the sensitivity
analysis of the exercise price of the option, varying the risk-free interest rate and the volatility, keeping the other variables
of the model unchanged. In this context, scenarios for the risk-free interest rate at -0.89% to 3.11% p.a., and for volatility
between 0.08 and 0.68 p.a., were used, resulting in estimates of minimum and maximum price for the put option of R$494,765 and
R$516,740, respectively.
This option can potentially
dilute basic earnings per share in the future; however, they have not caused dilution of earnings per share in the years presented.
Sonda options
As part of the shareholding
restructuring, CemigTelecom and Sonda signed a Purchase Option Agreement (issued by Cemig Telecom) and a Sale Option Agreement
(issued by Sonda). With the merger of Cemig Telecom into Cemig, on March 31, 2018, the option contract became an agreement between
Cemig and Sonda.
179
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
This resulted in Cemig simultaneously
having a right (put option) and an obligation (call option). The exercise price of the put option will be equivalent to fifteen
times the adjusted net income of Ativas in the year prior to the exercise date, multiplied by the percentage of equity interest
held. The exercise price of the call option will be equivalent to seventeen times the adjusted net income of Ativas in the business
year prior to the exercise date, multiplied by the percentage of equity interest held. Both options, if exercised, result in the
sale of the shares in Ativas currently owned by the Company, and the exercise of one of the options results in nullity of the other.
The options may be exercised as from January 1, 2021.
The put and call options in
Ativas (‘the Ativas Options’) were measured at fair value and posted at their net value, i.e. the difference between
the fair values of the two options on the reporting date of the interim financial information for June 30, 2020. The net value
of the Ativas Options may be an asset or a liability of the Company.
The measurement has been made
using the Black-Scholes-Merton (BSM) model. In the calculation of the fair value of the Ativas Options based on the BSM model,
the following variables are taken into account: closing price of the underlying asset on June 30, 2020; the risk-free interest
rate; the volatility of the price of the underlying asset; the time to maturity of the option; and the exercise prices on the exercise
date.
The valuation base
date is June 30, 2020, the same date as the closing of the Company’s interim financial information, and the methodology used
to calculate the fair value of the company is discounted cash flow (DCF) based on the value of the shares transaction of Ativas
by Sonda, occurred on October 19, 2016. The calculation of the risk-free interest rate was based on yields of National Treasury
Bills. Maturity was calculated assuming exercise date of March 31, 2021.
Considering that the exercise
prices of the options are contingent upon the future financial results of Ativas, the estimated exercise prices on the maturity
date was based on statistical analyses and information of comparable listed companies.
Swap transactions
Considering that part of the
loans and financings of the Company’s subsidiaries is denominated in foreign currency, the companies use derivative financial
instruments (swaps) to protect the servicing associated with these debts (principal plus interest).
The derivative financial instruments
contracted have the purpose of protecting the operations against the risks arising from foreign exchange variation and are not
used for speculative purposes.
The notional amount of derivative
transactions are not presented in the statement of financial position, since they refer to transactions that do not require cash
as only the gains or losses actually incurred are recorded. The net result of those transactions on June 30, 2020 was a positive
adjustment of R$1,800,960 (positive adjustment of R$613,394 on June 30, 2019), which was posted in finance income (expenses).
180
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
The counterparties of the
derivative transactions are the banks Bradesco, Itaú, Goldman Sachs and BTG Pactual and Cemig is guarantor of the derivative
financial instruments contracted by Cemig GT.
This table presents the derivative
instruments contracted by Cemig GT as of June 30, 2020 and December 31, 2019.
|
Assets (1)
|
Liability (1)
|
Maturity period
|
Trade market
|
Notional amount (2)
|
Unrealized gain / loss
|
Unrealized gain / loss
|
|
Carrying amount
Jun. 30, 2020
|
Fair value
Jun. 30, 2020
|
Carrying amount
Dec. 31, 2019
|
Fair value
Dec. 31, 2019
|
|
US$
exchange variation +
Rate
(9.25% p.y.)
|
Local
currency + R$ 150.49% of CDI
|
Interest:
Half-yearly
Principal:
Dec.
2024
|
Over
the counter
|
US$1,000,000
|
1,774,001
|
2,330,216
|
813,535
|
1,235,102
|
|
US$
exchange variation +
Rate
(9.25% p.y.)
|
Local
currency + R$125.52% of CDI
|
Interest:
Half-yearly
Principal:
Dec.
2024
|
Over
the counter
|
US$500,000
|
588,717
|
951,275
|
108,532
|
455,842
|
|
|
2,362,718
|
3,281,491
|
922,067
|
1,690,944
|
|
Current
Assets
|
|
589,555
|
|
234,766
|
|
Non-current
Assets
|
|
2,691,936
|
|
1,456,178
|
|
|
1)
|
For the US$1 billion Eurobond issued on December 2017: (i) for the principal, a call spread was contracted, with floor at R$3.25/US$ and ceiling at R$5.00/US$; and (ii) a swap was contracted for the total interest, for a coupon of 9.25% p.a. at an average rate equivalent to 150.49% of the CDI. For the additional US$500 million issuance of the same Eurobond issued on July 2018: (1) a call spread was contracted for the principal, with floor at R$3.85/US$ and ceiling at R$5.00/US$; and (2) a swap was contracted for the interest, resulting in a coupon of 9.25% p.a., with an average rate equivalent to 125.52% of the CDI rate.
|
In accordance with market
practice, Cemig GT uses a mark-to-market method to measure its derivatives financial instruments for its Eurobonds. The principal
indicators for measuring the fair value of the swap are the B3 future market curves for the DI rate and the dollar. The Black &
Scholes model is used to price the call spread, and one of parameters of which is the volatility of the dollar, measured on the
basis of its historic record over 2 years.
The fair value at June 30,
2020 was R$3,281,491 (R$1,690,944 on December 31, 2019), which would be the reference if Cemig GT would liquidate the financial
instrument on that date, but the swap contracts protect the Company’s cash flow up to the maturity of the bonds in 2024 and
they have carrying value of R$2,362,718 at June 30, 2020 (R$922,066 on December 31, 2019).
Cemig GT is exposed to market
risk due to having contracted this hedge, the principal potential impact being a change in future interest rates and/or the future
exchange rates. Based on the futures curves for interest rates and dollar, Cemig GT prepare a sensitivity analyses and estimates
that in a probable scenario its results would be affected by the swap and call spread at the end of the period in the amount of
R$1,736,780 for the option (call spread), partially compensated by R$1,375,980 for the swap – comprising a total of R$3,112,759.
181
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Cemig GT has measured the
effects on its net income of reduction of the estimated fair value for the ‘probable’ scenario, analyzing sensitivity
for the risks of interest rates, exchange rates and volatility changes, by 25% and 50%, as follows:
|
Parent company and Consolidated
|
Base scenario Jun. 30, 2020
|
‘Probable’
scenario:
|
‘Possible’ scenario
exchange rate depreciation and interest rate increase 25%
|
‘Remote’ scenario:
exchange rate depreciation
and interest rate increase 50%
|
|
|
|
|
Swap
(asset)
|
7,356,512
|
6,942,340
|
6,044,964
|
5,188,489
|
|
|
Swap
(liability)
|
(5,658,748)
|
(5,566,361)
|
(5,652,379)
|
(5,734,539)
|
|
|
Option
/ Call spread
|
1,583,727
|
1,736,780
|
1,098,137
|
396,154
|
|
|
Derivative
hedge instrument
|
3,281,491
|
3,112,759
|
1,490,722
|
(149,896)
|
|
The same methods of measuring
marked to market of the derivative financial instruments described above were applied to the estimation of fair value.
|
|
c)
|
Financial risk management
|
Corporate risk management
is a management tool that is part of the Company’s corporate governance practices, and is aligned with the process of planning,
which sets the Company’s strategic business objectives.
The Company monitor
the financial risk of transactions that could negatively affect the Company’s liquidity or profitability, recommending hedge
protection strategies to minimize the Company’s exposure to foreign exchange rate risk, interest rate risk, and inflation
risks, which are effective, in alignment with the Company’s business strategy.
The main risks to which the
Company is exposed are as follows:
Exchange rate risk
Cemig and its subsidiaries
are exposed to the risk of appreciation in exchange rates, with effect on loans and financing, suppliers, and cash flow. The net
exposure to exchange rates is as follows:
|
Exposure to exchange rates
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Foreign currency
|
R$
|
Foreign currency
|
R$
|
|
US
dollar
|
|
|
|
|
|
Loans
and financing (Note 21)
|
(1,513,698)
|
(8,289,009)
|
(1,515,814)
|
(6,109,793)
|
|
Suppliers
(Itaipu Binacional)
|
(31,770)
|
(173,973)
|
(60,229)
|
(242,766)
|
|
|
(1,545,468)
|
(8,462,982)
|
(1,576,043)
|
(6,352,559)
|
|
Net
liabilities exposed
|
|
(8,462,982)
|
|
(6,352,559)
|
Sensitivity analysis
Based on information from
its financial consultants, the Company estimates that in a probable scenario the variation of the exchange rates of foreign currencies
in relation to the Real at June 30, 2021 will be an depreciation of the dollar by 8.69% to R$5.00. The Company has prepared a
sensitivity analysis of the effects on the Company’s net income arising from depreciation of the Real exchange rate by 25%,
and by 50%, in relation to this ‘probable’ scenario.
182
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
Risk: foreign exchange rate exposure
|
Base Scenario
|
‘Probable’ scenario
US$=R$5.00
|
‘Possible’ scenario
US$= R$6.25
|
‘Remote’ scenario
US$=R$7.50
|
|
US
dollar
|
|
|
|
|
|
Loans
and financings
|
(8,289,009)
|
(7,568,489)
|
(9,460,611)
|
(11,352,733)
|
|
Suppliers
(Itaipu Binacional)
|
(173,973)
|
(158,850)
|
(198,563)
|
(238,276)
|
|
|
(8,462,982)
|
(7,727,339)
|
(9,659,174)
|
(11,591,009)
|
|
|
|
|
|
|
|
Net
liabilities exposed
|
(8,462,982)
|
(7,727,339)
|
(9,659,174)
|
(11,591,009)
|
|
Net
effect of exchange rate fluctuation
|
-
|
735,643
|
(1,196,192)
|
(3,128,027)
|
Company has entered into swap
operations to replace the exposure to the US dollar fluctuation with exposure to fluctuation in the CDI Rate, as described in more
detail in the item ‘Swap Transactions’ in this note.
Interest rate risk
The Company is exposed to
the risk of decrease in Brazilian domestic interest rates. This exposure occurs as a result of net assets indexed to variation
in interest rates, as follows:
|
Risk: Exposure to domestic interest rate changes
|
Consolidated
|
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Assets
|
|
|
|
Cash
equivalents – Cash investments (Note 5) – CDI
|
858,740
|
326,352
|
|
Marketable
securities (Note 6) – CDI / SELIC
|
2,733,920
|
753,681
|
|
Restricted
cash – CDI
|
15,750
|
12,337
|
|
CVA
and in tariffs (Note 13) – SELIC
|
926,183
|
881,614
|
|
|
4,534,593
|
1,973,984
|
|
Liabilities
|
|
|
|
Loans,
financing and debentures (Note 21) – CDI
|
(3,620,721)
|
(3,771,549)
|
|
Loans,
financing and debentures (Note 21) – TJLP
|
(247,628)
|
(243,430)
|
|
|
(3,868,349)
|
(4,014,979)
|
|
Net
liabilities exposed
|
666,244
|
(2,040,995)
|
Sensitivity analysis
In relation to the most significant
interest rate risk, Company estimates that, in a probable scenario, at June 30, 2021 Selic and TJLP rates will be 2.00% and 4.61%,
respectively. The Company has made a sensitivity analysis of the effects on its net income arising from increases in rates of 25%
and 50% in relation to the ‘probable’ scenario. Fluctuation in the CDI rate accompanies the fluctuation of Selic rate.
Risk: Decrease in Brazilian interest rates
|
Jun. 30, 2020
|
Jun. 30, 2021
|
|
Book value
|
‘Probable’ scenario
Selic 2.00%
TJLP 4.61%
|
‘Possible’ scenario
Selic 1.50%
TJLP 3.46%
|
‘Remote’ scenario
Selic 1.00%
TJLP 2.31%
|
|
Assets
|
|
|
|
|
|
Cash
equivalents (Note 5)
|
858,740
|
875,915
|
871,621
|
867,327
|
|
Marketable
securities (Note 6)
|
2,733,920
|
2,788,598
|
2,774,929
|
2,761,259
|
|
Restricted
cash
|
15,750
|
16,065
|
15,986
|
15,908
|
|
CVA
and Other financial components – SELIC
|
926,183
|
944,707
|
940,076
|
935,445
|
|
|
4,534,593
|
4,625,285
|
4,602,612
|
4,579,939
|
|
Liabilities
|
|
|
|
|
|
Loans
and financing (Note 21) – CDI
|
(3,620,721)
|
(3,693,135)
|
(3,675,032)
|
(3,656,928)
|
|
Loans
and financing (Note 21) – TJLP
|
(247,628)
|
(259,044)
|
(256,196)
|
(253,348)
|
|
|
(3,868,349)
|
(3,952,179)
|
(3,931,228)
|
(3,910,276)
|
|
|
|
|
|
|
|
Net
assets exposed
|
666,244
|
673,106
|
671,384
|
669,663
|
|
Net
effect of fluctuation in interest rates
|
|
6,862
|
5,140
|
3,419
|
183
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Increase in inflation risk
The Company and its subsidiaries
are exposed to risk of increase in inflation, due to their having more liabilities than assets indexed to the variation of inflation
indicators, as follows:
|
Exposure to increase in inflation
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Assets
|
|
|
|
Concession
financial assets related to Distribution infrastructure - IPCA (1)
|
481,371
|
459.711
|
|
Concession
financial assets related to Gas distribution infrastructure – IGP-M (1)
|
24,723
|
23.663
|
|
Receivable
from Minas Gerais state government (AFAC) – IGPM (Note 10 and 29)
|
120,258
|
115,202
|
|
Receivable
for residual value – Transmission – IPCA (Note 13)
|
1,265,445
|
1,280,652
|
|
Concession
Grant Fee – IPCA (Note 13)
|
2,482,994
|
2,468,216
|
|
|
4,374,791
|
4,347,444
|
|
|
|
|
|
Liabilities
|
|
|
|
Loans,
financing and debentures – IPCA and IGP-DI (Note 21)
|
(3,779,068)
|
(4,729,928)
|
|
Debt
with pension fund (Forluz) – IPCA
|
(551,778)
|
(566,381)
|
|
Deficit
of pension plan (Forluz) – IPCA
|
(536,853)
|
(550,151)
|
|
|
(4,867,699)
|
(5,846,460)
|
|
Net
assets (liabilities) exposed
|
(492,908)
|
(1,499,016)
|
|
|
(1)
|
Portion of the concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the regulator (Aneel) after the 4rd tariff review cycle.
|
Sensitivity analysis
In relation to the most significant
risk of reduction in inflation index, reflecting the consideration that the Company has more assets than liabilities indexed to
inflation indices, the Company estimates that, in a probable scenario, at June 30, 2021 the IPCA inflation index will be 3.00%
and the IGPM inflation index will be 2.37%. The Company has prepared a sensitivity analysis of the effects on its net income arising
from a reduction in inflation of 25% and 50% in relation to the ‘probable’ scenario.
|
Risk: increase in inflation
|
Jun. 30, 2020
|
Jun. 30, 2021
|
|
Amount
Book value
|
‘Probable’ scenario
IPCA 3.00%
IGPM 3.91%
|
‘Possible’ scenario
(25%)
IPCA 3.75%
IGPM 4.89%
|
‘Remote’ scenario
(50%)
IPCA 4.50%
IGPM 5.87%
|
|
Assets
|
|
|
|
|
|
Concession
financial assets related to Distribution infrastructure – IPCA (1)
|
481,371
|
495,812
|
499,422
|
503,033
|
|
Concession
financial assets related to Gas distribution infrastructure – IGP-M
|
24,723
|
25,690
|
25,932
|
26,174
|
|
Accounts
receivable from Minas Gerais state government (AFAC) – IGPM index (Note 29)
|
120,258
|
124,960
|
126,139
|
127,317
|
|
Receivable
for residual value – Transmission – IPCA (Note 13)
|
1,265,445
|
1,303,408
|
1,312,899
|
1,322,390
|
|
Concession
Grant Fee – IPCA (Note 13)
|
2,482,994
|
2,557,484
|
2,576,106
|
2,594,729
|
|
|
4,374,791
|
4,507,354
|
4,540,498
|
4,573,643
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Loans,
financing and debentures – IPCA and IGP-DI
|
(3,779,068)
|
(3,892,440)
|
(3,920,783)
|
(3,949,126)
|
|
Debt
agreed with pension fund (Forluz) – IPCA
|
(551,778)
|
(568,331)
|
(572,470)
|
(576,608)
|
|
Deficit
of pension plan (Forluz)
|
(536,853)
|
(552,959)
|
(556,985)
|
(561,011)
|
|
|
(4,867,699)
|
(5,013,730)
|
(5,050,238)
|
(5,086,745)
|
|
Net
liability exposed
|
(492,908)
|
(506,376)
|
(509,740)
|
(513,102)
|
|
Net
effect of fluctuation in IPCA and IGP–M indices
|
|
(13,468)
|
(16,832)
|
(20,194)
|
|
|
(1)
|
Portion of the Concession financial assets relating to the Regulatory Remuneration Base of Assets ratified by the regulator (Aneel) after the 4rd tariff review cycle.
|
184
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Liquidity risk
Cemig has sufficient cash
flow to cover the cash needs related to its operating activities.
The Company manages liquidity
risk with a group of methods, procedures and instruments that are coherent with the complexity of the business, and applied in
permanent control of the financial processes, to guarantee appropriate risk management.
Cemig manages liquidity risk
by permanently monitoring its cash flow in a budget-oriented manner. Balances are projected monthly, for each one of the companies,
over a period of 12 months, and daily liquidity is projected over 180 days.
Short-term investments must
comply with investing principles established in the Company’s Cash Investment Policy. These include applying its resources
in private credit investment funds, without market risk, and investment of the remainder directly in bank CDs or repo contracts
which earn interest at the CDI rate.
In managing cash investments,
the Company seeks to obtain profitability through a rigid analysis of financial institutions’ credit risk, applying operational
limits for each bank, based on assessments that take into account their ratings, exposures and balance sheet. It also seeks greater
returns on investments by strategically investing in securities with longer investment maturities, while bearing in mind the Company’s
minimum liquidity control requirements.
Any reduction in the Company’s
ratings could result in a reduction of its ability to obtain new financing and could also make refinancing of debts not yet due
more difficult or more costly. In this situation, any financing or refinancing of the Company’s debt could have higher interest
rates or might require compliance with more onerous covenants, which could additionally cause restrictions to the operations of
the business.
The flow of payments of the
Company’s obligation to suppliers, debts with the pension fund, loans, financing and debentures, at floating and fixed rates,
including future interest up to contractual maturity dates, is as follows:
|
Consolidated
|
Up
to 1 month
|
1
to 3 months
|
3
months to 1 year
|
1
to 5 years
|
Over
5 years
|
Total
|
|
Financial
instruments at (interest rates):
|
|
|
|
|
|
|
|
-
loating rates
|
|
|
|
|
|
|
|
Loans,
financing and debentures
|
109,861
|
1,082,284
|
2,812,022
|
13,146,941
|
805,411
|
17,956,519
|
|
Onerous
concessions
|
234
|
462
|
2,021
|
9,060
|
12,515
|
24,292
|
|
Debt
with pension plan (Forluz) (Note 23)
|
12,011
|
24,060
|
110,017
|
467,676
|
-
|
613,764
|
|
Deficit
of the pension plan (FORLUZ) (Note 23)
|
5,358
|
10,741
|
124,523
|
210,000
|
578,226
|
928,848
|
|
|
127,464
|
1,117,547
|
3,048,583
|
13,833,677
|
1,396,152
|
19,523,423
|
|
-
Fixed rate
|
|
|
|
|
|
|
|
Suppliers
|
1,936,386
|
8,032
|
930
|
-
|
148
|
1,945,496
|
|
|
2,063,850
|
1,125,579
|
3,049,513
|
13,833,677
|
1,396,300
|
21,468,919
|
185
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Parent Company
|
Up to 1 month
|
1 to 3 months
|
3 months to 1 year
|
1 to 5 years
|
Over 5 years
|
Total
|
|
Financial
instruments at (interest rates):
|
|
|
|
|
|
|
|
-
Floating rates
|
|
|
|
|
|
|
|
Loans,
financing and debentures
|
-
|
-
|
50,138
|
-
|
-
|
50,138
|
|
Debt
with pension plan (Forluz) (Note 23)
|
591
|
1,184
|
5,413
|
23,010
|
-
|
30,198
|
|
Deficit
of the pension plan (FORLUZ) (Note 23)
|
264
|
528
|
6,127
|
10,332
|
28,449
|
45,700
|
|
|
855
|
1,712
|
61,678
|
33,342
|
28,449
|
126,036
|
|
-
Fixed rate
|
|
|
|
|
|
|
|
Suppliers
|
1,786
|
-
|
-
|
-
|
-
|
1,786
|
|
|
2,641
|
1,712
|
61,678
|
33,342
|
28,449
|
127,822
|
Credit risk
The distribution concession
contract requires levels of service on a very wide basis within the concession area, and disconnection of supply of defaulting
customers is permitted. Additionally, the Company uses numerous tools of communication and collection to avoid increase in default.
These include: telephone contact, emails, text messages, collection letters, posting of customers with credit protection companies,
and collection through the courts.
The risk arising from the
possibility of Cemig and its subsidiaries incurring losses as a result of difficulty in receiving amounts billed to its customers
is considered to be low. The credit risk is also reduced by the extremely wide customers’ base.
The allowance for doubtful
accounts receivable recorded on June 30, 2020, considered to be adequate in relation to the credits in arrears receivable by the
Company, was R$888,024.
Cemig and its subsidiaries
manage the counterparty risk of losses resulting from insolvency of financial institutions based on an internal policy, has been
in effect since 2004.
This Policy assesses and scales
the credit risks of the institutions, the liquidity risk, systemic risk related to macroeconomic and regulatory conditions, the
market risk of the investment portfolio and the Treasury operational risk.
All investments are made in
financial securities that have fixed-income characteristics, always indexed to the CDI rate. The Company does not carry out any
transactions that would bring volatility risk into its financial statements.
As a management instrument,
Cemig and its subsidiaries divide the investment of its funds into direct purchases of securities (own portfolio) and investment
funds. The investment funds invest the funds exclusively in fixed income products, having companies of the Group as the only unit
holders. They obey the same policy adopted in the investments for the Company’s directly-held own portfolio.
The minimum requirements for
concession of credit to financial institutions are centered on three items:
|
|
1.
|
Rating by three risk rating agencies.
|
|
|
2.
|
Equity greater than R$400 million.
|
|
|
3.
|
Basel ratio one percentage point above the minimum set by the Brazilian Central Bank.
|
186
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Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Banks that exceed these thresholds
are classified in three groups, in accordance with its equity amount, plus a specific segment comprising those whose credit risk
is associated only with federal government. The credit limits are determined based on this classification, as follows:
|
Group
|
Equity
|
Limit per bank
(% of equity)1
|
|
Federal Risk (FR)
|
-
|
10%
|
|
A1
|
Over R$ 3.5 billion
|
Between 6% and 9%
|
|
A2
|
Between R$1.0 billion and R$3.5 billion
|
Between 5% and 8%
|
|
A3
|
Between R$400 million and R$1.0 billion
|
Between 0% and 7%
|
1The percentage
assigned to each bank depends on individual assessment of indicators, e.g. liquidity, and quality of the credit portfolio.
Cemig also sets two concentration limits:
|
|
1.
|
No bank may have more than 30% of the Group’s portfolio.
|
|
|
2.
|
“Federal Risk” and “A1” banks may have more than 50% of the portfolio of any individual company.
|
COVID-19 Pandemic –
Risks and uncertainties related to Cemig’s business
The Company’s assessment
concerning the risks and potential impacts of Covid-19 are disclosed in Note 1.1..
Risk of over-contracting and under-contracting
of energy supply
Sale or purchase of energy
supply in the spot market to cover a positive or negative exposure of supply contracted, to serve the captive market of Cemig D,
is an inherent risk to the energy distribution business. The regulatory agent limits for 100% pass-through to customers the exposure
to the spot market, valued at the difference between the distributor’s average purchase price and the spot price (PLD) is
105% of the distributor’s contracted supply. Any exposure that can be proved to have arisen from factors outside the distributor’s
control (‘involuntary exposure’) may also be passed through in full to customers. Company’s management is continually
monitories its contracts for purchase of energy supply to mitigate the risk of exposure to the spot market.
On April 07, 2020, Aneel expanded
the limit of total amount of energy that can be declared by energy distributors in the process of the mechanism for the sale of
surplus (‘Mecanismo de Venda de Excedentes’ - MVE), during 2020, from 15% to 30%, for the purpose of facilitating contractual
reductions, considering the scenario caused by Covid-19 pandemic.
187
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Risk of continuity of the concession
The risk to continuity of
the distribution concession arises from the new terms included in the extension of Cemig D’s concession for 30 years from
January 1, 2016, as specified by Law 12,783/13. The extension introduced changes to the present contract, conditional upon compliance
by the distributor with new criteria for quality, and for economic and financial sustainability.
The extension is conditional
on compliance with indicators contained in the contract itself, which aim to guarantee quality of the service provided and economic
and financial sustainability of the company. These are determinant for actual continuation of the concession in the first five
years of the contract, since non-compliance with them in two consecutive years, or in the fifth year, results in cancellation of
the concession.
Additionally, as from 2021,
non-compliance with the quality criteria for three consecutive years, or the minimum parameters for economic/financial sustainability
for two consecutive years, results in opening of proceedings for termination of the concession.
Due to the inspection carried
out by Aneel, the indicators of efficiency criteria regarding service continuity were recalculated for the period from January
2016 to May 2019, resulting in a non-compliance of the annual global limit for the indicator DEC (Customer Unit Average Outage
Duration) for the periods of 2016 and 2017. Once the DEC calculated for the period of 2019 also exceeded the regulatory global
limit, the prohibition on declaration of dividends and interest on equity, provided in Article 2º of Aneel Normative Resolution
747/2016, was applied, limiting the amount of dividend and interest on equity, isolated or jointly, to 25% of net income, less
the amounts allocated to the legal reserve and the Contingency Reserve. It is important to note that the internal indicators (DECi
and FECi) for maintaining the distribution concession were complied with in all periods.
The efficiency criteria for
continuity of supply and for economic and for financial management, required to maintain the distribution concession, were met
in the period ended June 30, 2020.
Hydrological risk
The greater part of the energy
sold by the Company’s subsidiaries is generated by hydroelectric plants. A prolonged period of drought can result in lower
water volumes in the reservoirs of these plants, which can lead to an increase in the cost of acquisition of energy, due to replacement
by thermoelectric generation, or reduction of revenues due to reduction in consumption caused by implementation of wide-ranging
programs for saving of energy. Prolongation of the generation of energy using the thermal plants could pressure costs of acquisition
of supply for the distributors, causing a greater need for cash, and could result in future increases in tariffs.
188
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Risk of debt early maturity
The Company’s subsidiaries
have loan contracts with restrictive covenants normally applicable to this type of transaction, related to compliance with a financial
index. Non-compliance with these covenants could result in earlier maturity of debts.
On June, 30, 2020, the Company
was compliant with all the covenants for financial index requiring half-yearly and annual compliance, except for non-compliance
with the non-financial covenant of the loan contracts with the CEF of the subsidiaries Central Eólica Praias de Parajuru
and Central Eólica Volta do Rio. More details in Note 21.
Capital management
This table shows comparisons
of the Company’s net liabilities and its equity:
|
|
Consolidated
|
Parent company
|
|
Jun. 30, 2020
|
Dec. 31, 2019
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Total
liabilities
|
35,658,078
|
34,036,187
|
1,794,749
|
1,865,610
|
|
(–)
Cash and cash equivalents
|
(971,314)
|
(535,757)
|
(32,278)
|
(64,356)
|
|
(–)
Marketable securities
|
(2,529,359)
|
(740,339)
|
(106,679)
|
(185,211)
|
|
Net
liabilities
|
32,157,405
|
32,760,091
|
1,655,792
|
1,616,043
|
|
|
|
|
|
|
|
Total
equity
|
16,877,062
|
15,890,865
|
16,872,604
|
15,886,615
|
|
Net
liabilities / equity
|
1.91
|
2.06
|
0.10
|
0.10
|
The operating segments of
the Company reflect their management and their organizational structure, used to monitoring its results. They are aligned with
the regulatory framework of the Brazilian energy industry.
The Company also operates
in the gas market, through its subsidiary Gasmig, and in other businesses with less impact on the results of its operations. These
segments are reflected in the Company’s management, organizational structure, and monitoring of results.
The tables below show segment
information for June 30, 2020 and 2019:
INFORMATION BY SEGMENT FOR THE PERIOD OF SIX MONTHS ENDED JUNE 30, 2020
|
|
DESCRIPTION
|
ENERGY
|
GAS
|
OTHER
|
ELIMINATIONS
|
TOTAL
|
|
GENERATION
|
TRANSMISSION
|
DISTRIBUTION
|
|
SEGMENT
ASSETS
|
16,485,518
|
4,790,258
|
25,818,455
|
2,800,120
|
3,437,851
|
(797,062)
|
52,535,140
|
|
INVESTMENTS
IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES
|
4,110,936
|
1,314,968
|
-
|
-
|
29,276
|
-
|
5,455,180
|
|
INVESTMENTS
IN AFFILIATES CLASSIFIED AS HELD FOR SALE
|
-
|
-
|
1,124,088
|
-
|
-
|
-
|
1,124,088
|
|
ADDITIONS
TO THE SEGMENT
|
64,372
|
118,819
|
581,746
|
27,887
|
2
|
-
|
792,826
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
NET
REVENUE
|
2,994,897
|
747,480
|
7,555,731
|
798,779
|
51,437
|
(154,695)
|
11,993,629
|
|
COST
OF ENERGY AND GAS
|
|
|
|
|
|
|
|
|
Energy
bought for resale
|
(1,785,145)
|
-
|
(3,822,279)
|
-
|
-
|
37,691
|
(5,569,733)
|
|
Charges
for use of the national grid
|
(98,288)
|
(95)
|
(638,051)
|
-
|
-
|
113,981
|
(622,453)
|
|
Gas
bought for resale
|
-
|
-
|
-
|
(543,303)
|
-
|
-
|
(543,303)
|
|
Total
|
(1,883,433)
|
(95)
|
(4,460,330)
|
(543,303)
|
-
|
151,672
|
(6,735,489)
|
189
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
|
|
|
|
|
|
|
|
OPERATING COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Personnel
|
(96,653)
|
(58,803)
|
(451,411)
|
(29,125)
|
(14,797)
|
-
|
(650,789)
|
|
Employees’ and managers’ profit sharing
|
(5,048)
|
(2,989)
|
(19,211)
|
-
|
(6,032)
|
-
|
(33,280)
|
|
Post-employment obligations
|
(25,746)
|
(22,233)
|
(151,763)
|
-
|
(23,985)
|
-
|
(223,727)
|
|
Materials
|
(4,305)
|
(1,882)
|
(27,904)
|
(548)
|
(132)
|
5
|
(34,766)
|
|
Outsourced services
|
(50,365)
|
(20,164)
|
(506,300)
|
(10,596)
|
(17,283)
|
3,018
|
(601,690)
|
|
Depreciation and amortization
|
(101,627)
|
(3,141)
|
(329,133)
|
(52,961)
|
(1,587)
|
-
|
(488,449)
|
|
Operating provisions (reversals)
|
(37,305)
|
(17,967)
|
(250,678)
|
(1,791)
|
(48,988)
|
-
|
(356,729)
|
|
Construction costs
|
-
|
(74,044)
|
(581,744)
|
(27,888)
|
-
|
-
|
(683,676)
|
|
Other
operating expenses, net
|
(34,066)
|
(6,503)
|
(80,978)
|
(5,003)
|
(11,906)
|
-
|
(138,456)
|
|
Total
cost of operation
|
(355,115)
|
(207,726)
|
(2,399,122)
|
(127,912)
|
(124,710)
|
3,023
|
(3,211,562)
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
(2,238,548)
|
(207,821)
|
(6,859,452)
|
(671,215)
|
(124,710)
|
154,695
|
(9,947,051)
|
|
|
|
|
|
|
|
|
|
|
Fair
value of business combination
|
-
|
51,736
|
-
|
-
|
-
|
-
|
51,736
|
|
Impairment
(reversals) of assets held for sale
|
-
|
-
|
(134,023)
|
-
|
-
|
-
|
(134,023)
|
|
Equity
in earnings of unconsolidated investees, net
|
(3,246)
|
167,556
|
-
|
-
|
166
|
-
|
164,476
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME BEFORE FINANCE INCOME (EXPENSES)
|
753,103
|
758,951
|
562,256
|
127,564
|
(73,107)
|
-
|
2,128,767
|
|
Finance
income
|
1,677,876
|
176,616
|
246,095
|
34,136
|
18,090
|
-
|
2,152,813
|
|
Finance
expenses
|
(2,418,076)
|
(262,154)
|
(221,440)
|
(10,919)
|
(2,287)
|
-
|
(2,914,876)
|
|
INCOME
BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAXES
|
12,903
|
673,413
|
586,911
|
150,781
|
(57,304)
|
-
|
1,366,704
|
|
Income
tax and social contribution tax
|
(4,963)
|
(144,018)
|
(241,544)
|
(45,651)
|
56,620
|
-
|
(379,556)
|
|
NET
INCOME (LOSS) FOR THE PERIOD
|
7,940
|
529,395
|
345,367
|
105,130
|
(684)
|
-
|
987,148
|
|
|
|
|
|
|
|
|
|
|
Equity
holders of the parent
|
7,940
|
529,395
|
345,367
|
104,673
|
(684)
|
-
|
986,691
|
|
Non-controlling
interests
|
-
|
-
|
-
|
457
|
-
|
-
|
457
|
|
|
7,940
|
529,395
|
345,367
|
105,130
|
(684)
|
-
|
987,148
|
190
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
INFORMATION BY SEGMENT FOR THE PERIOD OF SIX MONTHS ENDED JUNE 30, 2019
|
|
DESCRIPTION
|
ENERGY
|
GAS
|
OTHER
|
ELIMINATIONS
|
TOTAL
|
|
GENERATION
|
TRANSMISSION
|
DISTRIBUTION
|
|
SEGMENT ASSETS (1)
|
14,748,832
|
4,112,858
|
25,616,174
|
2,688,670
|
3,887,602
|
(1,127,084)
|
49,927,052
|
|
INVESTMENTS IN SUBSIDIARIES AND JOINTLY-CONTROLLED ENTITIES (1)
|
4,133,104
|
1,237,177
|
-
|
-
|
29,110
|
-
|
5,399,391
|
|
INVESTMENTS IN AFFILIATES CLASSIFIED AS HELD FOR SALE (1)
|
-
|
-
|
1,258,111
|
-
|
-
|
-
|
1,258,111
|
|
ADDITIONS TO THE SEGMENT
|
36,374
|
82,989
|
363,167
|
19,397
|
-
|
-
|
501,927
|
|
|
|
|
|
|
|
|
|
|
CONTINUING
OPERATIONS
|
|
|
|
|
|
|
|
|
NET
REVENUE
|
3,804,889
|
329,457
|
7,785,779
|
902,123
|
254,645
|
(146,922)
|
12,929,971
|
|
COST
OF ENERGY AND GAS
|
|
|
|
|
|
|
|
|
Energy
bought for resale
|
(1,699,161)
|
-
|
(3,455,727)
|
-
|
-
|
34,688
|
(5,120,200)
|
|
Charges
for use of the national grid
|
(92,252)
|
-
|
(713,263)
|
-
|
-
|
104,344
|
(701,171)
|
|
Gas
bought for resale
|
-
|
-
|
-
|
(725,162)
|
-
|
-
|
(725,162)
|
|
Total
|
(1,791,413)
|
-
|
(4,168,990)
|
(725,162)
|
-
|
139,032
|
(6,546,533)
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
|
|
|
|
|
|
|
|
Personnel
|
(108,721)
|
(60,092)
|
(463,651)
|
(23,130)
|
(21,478)
|
-
|
(677,072)
|
|
Employees’
and managers’ profit sharing
|
(24,743)
|
(17,588)
|
(120,976)
|
-
|
(11,208)
|
-
|
(174,515)
|
|
Post-employment
obligations
|
(24,447)
|
(18,184)
|
(134,323)
|
-
|
(21,745)
|
-
|
(198,699)
|
|
Materials
|
(8,022)
|
(2,135)
|
(29,102)
|
(907)
|
(103)
|
13
|
(40,256)
|
|
Outsourced
services
|
(58,556)
|
(20,422)
|
(486,762)
|
(9,265)
|
(13,823)
|
2,859
|
(585,969)
|
|
Depreciation
and amortization
|
(111,236)
|
(2,699)
|
(325,019)
|
(37,921)
|
(2,424)
|
-
|
(479,299)
|
|
Operating
provisions (reversals)
|
(733,237)
|
(9,781)
|
(194,748)
|
(1,520)
|
(39,093)
|
-
|
(978,379)
|
|
Construction
costs
|
-
|
(82,989)
|
(363,167)
|
(19,069)
|
-
|
-
|
(465,225)
|
|
Other
operating expenses, net
|
(10,615)
|
(7,550)
|
(81,049)
|
(4,582)
|
4,924
|
5,018
|
(93,854)
|
|
Total
cost of operation
|
(1,079,577)
|
(221,440)
|
(2,198,797)
|
(96,394)
|
(104,950)
|
7,890
|
(3,693,268)
|
|
|
|
|
|
|
|
|
|
|
OPERATING
COSTS AND EXPENSES
|
(2,870,990)
|
(221,440)
|
(6,367,787)
|
(821,556)
|
(104,950)
|
146,922
|
(10,239,801)
|
|
|
|
|
|
|
|
|
|
|
Equity
in earnings of unconsolidated investees, net
|
3,347
|
100,567
|
-
|
-
|
(414)
|
-
|
103,500
|
|
|
|
|
|
|
|
|
|
|
OPERATING
INCOME BEFORE FINANCE INCOME (EXPENSES)
|
937,246
|
208,584
|
1,417,992
|
80,567
|
149,281
|
-
|
2,793,670
|
|
Finance
income
|
946,898
|
65,550
|
1,250,669
|
50,880
|
308,991
|
-
|
2,622,988
|
|
Finance
expenses
|
(409,417)
|
(45,928)
|
(329,796)
|
(12,320)
|
(18,500)
|
-
|
(815,961)
|
|
INCOME
BEFORE INCOME TAX AND SOCIAL CONTRIBUTION TAXES
|
1,474,727
|
228,206
|
2,338,865
|
119,127
|
439,772
|
-
|
4,600,697
|
|
Income
tax and social contribution tax
|
(680,745)
|
(59,037)
|
(771,698)
|
(39,593)
|
(137,399)
|
-
|
(1,688,472)
|
|
NET
INCOME (LOSS) FOR THE PERIOD
|
793,982
|
169,169
|
1,567,167
|
79,534
|
302,373
|
-
|
2,912,225
|
|
|
|
|
|
|
|
|
|
|
Equity
holders of the parent
|
793,982
|
169,169
|
1,567,167
|
79,159
|
302,373
|
-
|
2,911,850
|
|
Non-controlling
interests (note 25)
|
-
|
-
|
-
|
375
|
-
|
-
|
375
|
|
|
793,982
|
169,169
|
1,567,167
|
79,534
|
302,373
|
-
|
2,912,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Balance at December 31, 2019.
|
The following is a breakdown
of the revenue of the Company by activity:
191
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
Jan to Jun 2020
|
ENERGY
|
GAS
|
OTHER
|
ELIMINATIONS
|
TOTAL
|
|
GENERATION
|
TRANSMISSION
|
DISTRIBUTION
|
|
Revenue
from supply of energy
|
3,440,383
|
-
|
9,286,600
|
-
|
-
|
(39,531)
|
12,687,452
|
|
Revenue
from Use of Distribution Systems (the TUSD charge)
|
-
|
-
|
1,410,801
|
-
|
-
|
(11,693)
|
1,399,108
|
|
CVA
and Other financial components in tariff adjustment
|
-
|
-
|
81,652
|
-
|
-
|
-
|
81,652
|
|
Transmission
concession revenue
|
-
|
525,379
|
-
|
-
|
-
|
(102,278)
|
423,101
|
|
Transmission
construction revenue
|
-
|
74,044
|
-
|
-
|
-
|
-
|
74,044
|
|
Reimbursement
revenue – Transmission
|
-
|
316,218
|
-
|
-
|
-
|
-
|
316,218
|
|
Distribution
construction revenue
|
-
|
-
|
581,744
|
27,888
|
-
|
-
|
609,632
|
|
Adjustment
to expectation of cash flow from Financial assets of distribution concession to be indemnified
|
-
|
-
|
(955)
|
-
|
-
|
-
|
(955)
|
|
Gain
on inflation updating of Concession Grant Fee
|
146,412
|
-
|
-
|
-
|
-
|
-
|
146,412
|
|
Sale
transaction in CCEE (i)
|
31,598
|
-
|
-
|
-
|
1
|
(1)
|
31,598
|
|
Mechanism
for the sale of surplus
|
-
|
-
|
104,814
|
-
|
-
|
-
|
104,814
|
|
Supply
of gas
|
-
|
-
|
-
|
962,892
|
-
|
(5)
|
962,887
|
|
Fine
for violation of continuity indicator
|
-
|
-
|
(29,117)
|
-
|
-
|
-
|
(29,117)
|
|
Other
operating revenues
|
3,471
|
16,001
|
812,854
|
10
|
55,463
|
(1,187)
|
886,612
|
|
Sector
/ Regulatory charges reported as Deductions from revenue
|
(626,967)
|
(184,162)
|
(4,692,662)
|
(192,011)
|
(4,027)
|
-
|
(5,699,829)
|
|
Net
operating revenue
|
2,994,897
|
747,480
|
7,555,731
|
798,779
|
51,437
|
(154,695)
|
11,993,629
|
|
Jan to Jun 2019
|
ENERGY
|
GAS
|
OTHER
|
ELIMINATIONS
|
TOTAL
|
|
GENERATION
|
TRANSMISSION
|
DISTRIBUTION
|
|
Revenue
from supply of energy
|
3,423,710
|
-
|
9,542,996
|
-
|
-
|
(37,552)
|
12,929,154
|
|
Revenue
from Use of Distribution Systems (the TUSD charge)
|
-
|
-
|
1,276,741
|
-
|
-
|
(11,022)
|
1,265,719
|
|
CVA
and Other financial components in tariff adjustment
|
-
|
-
|
80,241
|
-
|
-
|
-
|
80,241
|
|
Transmission
concession revenue
|
-
|
336,060
|
-
|
-
|
-
|
(93,317)
|
242,743
|
|
Transmission
construction revenue
|
-
|
82,989
|
-
|
-
|
-
|
-
|
82,989
|
|
Reimbursement
revenue – Transmission
|
-
|
90,420
|
-
|
-
|
-
|
-
|
90,420
|
|
Distribution
construction revenue
|
-
|
-
|
363,167
|
19,069
|
-
|
-
|
382,236
|
|
Adjustment
to expectation of cash flow from Financial assets of distribution concession to be indemnified
|
-
|
-
|
8,967
|
-
|
-
|
-
|
8,967
|
|
Gain
on inflation updating of Concession Grant Fee
|
176,151
|
-
|
-
|
-
|
-
|
-
|
176,151
|
|
Transactions
in energy on the CCEE
|
404,037
|
-
|
(6,601)
|
-
|
1
|
-
|
397,437
|
|
Supply
of gas
|
-
|
-
|
-
|
1,131,248
|
-
|
(15)
|
1,131,233
|
|
Fine
for violation of continuity indicator
|
-
|
-
|
(35,510)
|
-
|
-
|
-
|
(35,510)
|
|
PIS/Pasep
and Cofins taxes credits over ICMS
|
424,636
|
-
|
830,333
|
-
|
183,594
|
-
|
1,438,563
|
|
Other
operating revenues
|
75,435
|
12,998
|
677,012
|
34
|
77,121
|
(5,016)
|
837,584
|
|
Sector
/ Regulatory charges reported as Deductions from revenue
|
(699,080)
|
(193,010)
|
(4,951,567)
|
(248,228)
|
(6,071)
|
-
|
(6,097,956)
|
|
Net
operating revenue
|
3,804,889
|
329,457
|
7,785,779
|
902,123
|
254,645
|
(146,922)
|
12,929,971
|
For further details of operating revenue, see Note
26.
192
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
32.
|
ASSETS AND LIABILITIES CLASSIFIED AS HELD FOR SALE AND DISCONTINUED OPERATIONS
|
On June 30, 2020 and December
31, 2019 assets and liabilities classified as held for sale, and the results of discontinued operations, were as follows:
|
Consolidated and Parent company – Statements of financial position
|
Jun. 30, 2020
|
Dec. 31, 2019
|
|
Assets
held for sale – investment in an affiliate
|
1,124,088
|
1,258,111
|
|
Consolidated and Parent company – Statements of income
|
Jun. 30, 2020
|
Jun. 30, 2019
|
|
Loss for write-down of non-current assets held for sale arising from continuing operations, before taxes
|
(134,023)
|
-
|
|
Deferred taxes arising from non-current assets held for sale, recognized in continuing operations
|
45,568
|
-
|
|
Loss
after taxes
|
(88,455)
|
-
|
Disposal of interest in
and control of Light
On November 27, 2018, the
Board of Directors of the Company decided, in the context of Cemig’s disinvestment program, to maintain as a priority for
2019 the firm commitment to sale of the shares in Light S.A. owned by Cemig, on conditions that are compatible with the market
and also in accordance with the interests of shareholders.
Additionally, the Company
has concluded that its investment in Light now meets the criteria of CPC 31 – Non-current assets held for sale and discontinued
operations; and that its sale in the near future is highly probable. The Company has also evaluated the effects on the investments
held in the companies LightGer, Axxiom, Guanhães and UHE Itaocara, which are jointly controlled by the Company and by Light.
On July 17, 2019, together
with the public offering of shares by Light, the Company sold 33,333,333 shares that it held in that investee, at the price per
share of R$18.75, in the total amount of R$625,000.
Additionally, with completion
of the public offering of shares by Light, the Company’s equity interest in the total capital of this investee was reduced
from 49.99% to 22.58%, corresponding to 68.621.263 shares of a total of 303.934.060, this limited its right of voting in meetings
of shareholders, and consequently its ability to direct material activities of the investee.
Thus, as from
that date, with the alteration of the equity interest in Light, the Company ceased to have the power ensuring it control over that
investee. In these circumstances, the Company wrote down the values of assets and liabilities of its former subsidiary, and recognized,
at fair value, its remaining equity interest as an investment in an affiliate or jointly-controlled entity, in accordance with
IFRS 10 / CPC 36 (R3) – Consolidated financial statements.
193
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Since the Company maintains
its firm commitment to dispose of the remaining equity interest in Light, the investment in that company continues to be classified
in Assets held for sale, in accordance with CPC 31 / IFRS 5 – Non-current assets held for sale, and discontinued
operations, at its fair value, subtracting the cost of sale. The difference between the book value of the remaining equity
interest and its fair value was recognized in the net income for the period from discontinuing operations.
The Company also wrote down,
on the date of the sale of the control, the assets and liabilities of the former subsidiaries Itaocara, Guanhães, LightGer
and Axxiom, and recognized its remaining equity interest in these investees at fair value as investments in jointly-controlled
subsidiaries, valued by the equity method. These investments, which are jointly controlled with Light, were not classified under
Held for sale and Discontinued operations, since the company does not have the intention of selling these interests. For more information,
see Note 15.
The restatement of the remaining
equity interest in Light at fair value used the sale price of the shares on the date of the loss of control (Level 1 in the fair
value hierarchy), of R$18.75 per share, less the estimated costs for the sale estimated at R$28,538.
Maintenance of the interest
in Light as an asset held for sale
In 2019, Management has not
completed the process of disinvestment of the entire investment in Light due to external factors, beyond its control and to unfavorable
market conditions.
Company’s management
continues to have a firm commitment to dispose of the remaining equity interest in Light and estimates that conclusion of the process
in 2020 is highly probable. Considering that it is an investment in an affiliate, it was classified as an asset held for sale,
but no longer as a discontinued operation, in accordance with the provisions established in CPC 31/IFRS 5 – Non-current
assets held for sale, and discontinued operations.
On March 31, 2020, the market
conditions have deteriorated as a result of Covid-19 situation and the Company reduced the carrying amount of the asset to its
market value less estimated costs to sell, resulted in the recognition of an impairment loss of R$609 million in profit or loss
from continuing operations.
On
June 30, 2020, with the partial recovery in the stock market, the Company remeasured the fair value of the shares held, using the
closing price on that date, of R$ 16.58, less estimated cost to sell, based on the most likely disposal process in the current
scenario, of 1.2% on the total negotiated. The impairment of the asset held for sale, accumulated until June 30, 2020, recognized
in the net income from continuing operations, totals R$ 134 million, corresponding to the difference between the fair values of
Light interest, as valued at December 31, 2019 and June 30, 2020, less cost to sell. Thus, the recovery in the market price of
the investee in the second quarter of 2020 resulted in a reversal of R$ 475 million in the impairment constituted in the first
quarter of 2020.
194
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
The equity value of the interest
held by Cemig in Light is R$1,506,620 (R$1,406,857 on December 31, 2019), corresponding to the Company’s shareholding of
22.58% in Light total equity of R$6,672,366 (R$6,230,544 on December 31, 2019).
33.
NON-CASH TRANSACTIONS
On the period ended June 30,
2020 and 2019, the Company had the following transactions not involving cash, which are not reflected in the Cash flow statement:
|
|
§
|
Capitalized financial costs of R$22,515 on June 30, 2020 (R$22,822 on June 30, 2019);
|
|
|
§
|
Except for the cash arising from the business combination, in the amount of R$27,110, and the payment of R$44,775, the acquisition of the Centroeste’s remaining equity interest did not generate effects in the Company’s cash flow;
|
|
|
§
|
Except for the cash arising from the merger of the subsidiaries RME and LUCE, in April 24, 2019, amounting R$ 22,444, this transaction did not generate effects in the Company’s cash flow.
|
34.
SUBSEQUENT EVENTS
Offsetting of receivables
from the State of Minas Gerais against ICMS tax payable
On July 31, 2020, Cemig D
filed an application to the tax authority of State of Minas Gerais to offset debts for energy consumption and service owed by the
Direct and indirect administrations of Minas Gerais State, using amounts of ICMS tax payable, under Article 3 of State of Minas
Gerais Decree 47,908/2020, which regulated State Law 47,891/2020.
The main criteria applying
to offsetting of these debts, under that Decree, are:
|
|
§
|
Offsetting in at least 12 installments. The maximum value of installments is limited to the number of months counted from the month following the request granting, until December, 2022;
|
|
|
§
|
Relinquishing by the creditor of the financial updating (arreas interest, fines, updating of the amounts of the installments, and legal fees, if any);
|
|
|
§
|
Offsetting starts from the first month after acceptance of the request.
|
Debts from the State of Minas
Gerais that qualify for offsetting are those past due at June 30, 2019, which amount approximately R$ 240 million. The Company’s
expects to begin the offsetting in the third quarter of 2020, after acceptance of its request
195
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
CONSOLIDATED
RESULTS
(Figures in R$ ’000
unless otherwise indicated)
Net income for the period
From January to June 2020,
Cemig reports profit of R$986,691, compared to a profit of R$2,912,225 in the same period in 2019. This variation in Company’s
income was due, mainly, to the recognition, in the same period of 2019, of PIS/Pasep and Cofins taxes credits over ICMS, in the
amount of R$1,984,069 (see note n. 8), which was partially offset by the recognition of an impairment loss for receivables from
Renova, in the amount of R$688,031 (see note n. 27).
For the first semester of
2020, we highlight the recognition of (i) the positive adjustments of Periodic Reset of Permitted Annual Revenue in the amount
of R$283,694 (net of taxes), (ii) an impairment loss of R$88,455 (net of taxes) related to the Light equity interest classified
as asset held for sale, and (iii) the negative result arising from the debt in foreign currency (Eurobonds) and its corresponding
hedge instrument, which was R$242,213 (net of taxes). The main variations in revenues, costs, expenses and financial items are
described in the following pages.
Ebitda (Earnings before
interest, tax, depreciation and amortization)
Cemig’s consolidated
adjusted Ebtida, with the removal of non-recurrent items, reduced in 8.54% in 1H20 compared to 1H19, whereas the adjusted Ebtida
margin decreased from 21.95% to 19.95%. Consolidated Ebtida, measured according to CVM Instruction 527, decreased 20.04% % in 1H20
compared to 1H19, whereas the Ebtida margin was 25.31% in 1H19 and 22.63% in 1H20.
|
Ebitda – R$ ’000
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Var %
|
|
Net
income for the period
|
987,148
|
2,912,225
|
(66.10)
|
|
+
Income tax and Social Contribution tax
|
379,556
|
1,688,472
|
(77.52)
|
|
+
Net financial revenue (expenses)
|
762,063
|
(1,807,027)
|
(142.17)
|
|
+
Depreciation and amortization
|
488,449
|
479,299
|
1.91
|
|
=
Ebitda according to “CVM Instruction 527” (1)
|
2,617,216
|
3,272,969
|
(20.04)
|
|
Non-recurrent
items
|
|
|
|
|
+
Non-controlling interests
|
(457)
|
(375)
|
21.87
|
|
+
PIS/Pasep and Cofins over ICMS
|
-
|
(1,438,563)
|
(100.00)
|
|
+
Impairment loss – Receivables from Renova
|
37,361
|
688,031
|
(94.57)
|
|
+
Impairment (reversals) of assets held for sale (note 32)
|
134,023
|
-
|
-
|
|
+
Result of business combination (note 15)
|
(51,736)
|
-
|
-
|
|
+
RTP adjustments
|
(429,840)
|
-
|
-
|
|
Ebitda
Adjusted (2)
|
2,306,567
|
2,522,062
|
(8.54)
|
|
|
(1)
|
Ebitda is a non-accounting measure prepared by the Company, reconciled with the consolidated Interim financial information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net income adjusted by the effects of net financial revenue (expenses), Depreciation and amortization, and Income tax and social contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for net income or operational profit, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.
|
|
|
(2)
|
The Company adjusts the EBTIDA measured according to CVM Instruction 527 removing non-current items, which, because of their nature, do not contribute towards information on the potential of future cash generation, since they are extraordinary items.
|
196
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
The lower adjusted Ebtida
in 1H20 than in 1H19 mainly reflects the increase of 3.84% in the adjusted operational costs, partially offset by the 0.63% rise
in adjusted net revenue. The consolidated LAJIDA, on the other hand, reduced mostly because of the recognition of revenue
with PIS/Pasep and Cofins taxes credits, in an amount of R$1,438,563, in 1H19.
The main items in revenue in the period:
Revenue from supply of
energy
Revenue from sales of energy
in 1H20 were R$12,687,452 and R$12,929,154 in 1H19, a decrease of 1.87%.
Final customers
Total revenue from energy
sold to final customers in the 1H20 was R$11,083,458 – or 3.53% lower compared to 1H19 (R$11,489,454).
The main factors in this revenue
were:
|
|
§
|
The annual tariff adjustment for Cemig D, effective May 28, 2019 (full effect in 2020) resulting in an average increase in customer tariffs of 8.73%; and
|
|
|
§
|
Volume of energy invoiced to captive and free industrial clients 15.8% lower in 1H20 than in 1H19, mainly due to the measures to contain the Covid-19 pandemic.
|
197
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Cemig’s energy market
The total for sales in Cemig’s
consolidated energy market comprises sales to: (i) Captive customers in Cemig’s concession area in the State of Minas Gerais;
(ii) Free Customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação
Livre, or ACL); (iii) other agents of the energy sector – traders, generators and independent power producers, also in
the Free Market; (iv) Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and
(v) the Power Trading Exchange (Câmara de Comercialização de Energia
Elétrica – CCEE), eliminating transactions between companies of the Cemig Group.
This table details Cemig’s market and the
changes in sales of energy by customer category, comparing the period of 1H20 to 1H19:
Revenue from supply
of energy
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Charge %
|
|
|
MWh
(2)
|
R$
|
Average price billed (R$/MWh)
(1)
|
MWh
(2)
|
R$
|
Average price billed (R$/MWh)
(1)
|
MWh
|
R$
|
|
Residential
|
5,442,910
|
4,866,632
|
894.12
|
5,291,676
|
4,665,228
|
881.62
|
2.86
|
4.32
|
|
Industrial
|
6,583,436
|
1,981,349
|
300.96
|
7,819,238
|
2,295,328
|
293.55
|
(15.80)
|
(13.68)
|
|
Commercial,
services and others
|
4,594,310
|
2,577,247
|
560.96
|
4,654,040
|
2,619,879
|
562.93
|
(1.28)
|
(1.63)
|
|
Rural
|
1,671,865
|
984,629
|
588.94
|
1,775,702
|
917,625
|
516.77
|
(5.85)
|
7.30
|
|
Public
authorities
|
386,015
|
279,249
|
723.42
|
455,643
|
311,737
|
684.17
|
(15.28)
|
(10.42)
|
|
Public
lighting
|
664,656
|
295,455
|
444.52
|
685,933
|
291,353
|
424.75
|
(3.10)
|
1.41
|
|
Public
services
|
675,124
|
356,523
|
528.09
|
679,065
|
333,397
|
490.96
|
(0.58)
|
6.94
|
|
Subtotal
|
20,018,316
|
11,341,084
|
566.54
|
21,361,297
|
11,434,547
|
535.29
|
(6.29)
|
(0.82)
|
|
Own
consumption
|
17,376
|
-
|
-
|
17,230
|
-
|
-
|
0.85
|
-
|
|
Unbilled
retail supply, net
|
-
|
(257,626)
|
-
|
-
|
54,907
|
-
|
-
|
(569.20)
|
|
|
20,035,692
|
11,083,458
|
553.19
|
21,378,527
|
11,489,454
|
537.43
|
(6.28)
|
(3.53)
|
|
Wholesale
supply to other concession holders (3)
|
6,626,096
|
1,588,364
|
239.71
|
5,499,766
|
1,458,670
|
265.22
|
20.48
|
8.89
|
|
Wholesale
supply not yet invoiced, net
|
-
|
15,630
|
-
|
-
|
(18,970)
|
-
|
-
|
182.39
|
|
Total
|
26,661,788
|
12,687,452
|
475.87
|
26,878,293
|
12,929,154
|
479.69
|
(0.81)
|
(1.87)
|
|
|
(1)
|
The calculation of the average price does not include revenue from supply not yet billed.
|
|
|
(2)
|
Data not audited by external auditors. .
|
|
|
(3)
|
Includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.
|
The volume of energy sold
to the industrial sector decreased 15.80% compared to 1H19, due, mainly, to the Covid-19 pandemic restrictive measures. The following
factors also contributed significantly:
|
|
§
|
Residential consumption 2.86% higher YoY in 1H20, mainly reflecting the increase of 1.8% in the number of customers.
|
|
|
§
|
Decrease of 5.85% in the volume of energy sold to the rural customer category compared to 1H19, mainly due to the higher rainfall in 1Q20 than 1Q19, which reduced consumption for irrigation.
|
198
|
Av. Barbacena 1200 Santo Agostinho 30190-131 Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
|
§
|
Supply to other concession holders 20.48% higher YoY, due to the higher volume of sales to traders in the early months of 2020, due to the lower consumption by clients due to the economic activity contraction resulting from the pandemic – partially offset by sales in the Regulated Market 1.5% lower YoY, due to differences in the seasonalization profile of the distributors.
|
Revenue from Use of Distribution
Systems (the TUSD charge)
This is revenue from charging
Free Customers the Tariff for Use of the Distribution System (TUSD), on the volume of energy distributed. In 1H20, this was R$1,399,108,
compared to R$1,265,719 in 1H19 - an increase of 10.54%. This difference mainly arises from the Company’s annual tariff adjustment,
in effect from May 28, 2019 (full effect in 2020), which was an increase of 15.47% for free clients, partially offset by volume
of energy transported in 1H20 1.26% lower than in 1H19.
|
|
MWh
|
|
Jan to Jun 2020
|
Jan to Jun 2019
|
Var %
|
|
Industrial
|
8,750,291
|
8,844,838
|
(1.07)
|
|
Commercial
|
608,096
|
646,291
|
(5.91)
|
|
Rural
|
14,274
|
5,682
|
151.20
|
|
Concessionaires
|
144,465
|
165,230
|
(12.57)
|
|
Total
|
9,517,126
|
9,662,041
|
(1.50)
|
CVA and Other financial
components in tariff adjustments
These items are the recognition
of the difference between actual non-controllable costs (in which the contribution to the CDE – the Energy Development Account
and energy bought for resale, are significant components) and the costs that were used in calculating rates charged to customers.
The amount of this difference is passed through to customers in the next tariff adjustment of Cemig D (the distribution company),
represented a gain of R$81,652 in 1H20, whereas in 1H19 it produced a revenue gain of R$80,241.
Additions to the CVA account
were higher in In 1H20 compared to 1H19, mainly due to (i) higher costs of energy from Itaipu, as a result of the increase in the
dollar exchange rate, and (ii) the effects of overcontracting, resulting from the reduction of consumption in the context of the
Covid-19 pandemic. These effects on revenue were offset by the passthrough of excess funds in the Energy Reserve Account (CONER)
in 1H20 and by the tariff adjustment of 2019, which was significantly higher than the amount awarded in the previous year.
For further details, see Note 13.
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Transmission concession revenue
Cemig GT’s transmission
revenue comprises the sum of the revenues of all the transmission assets. The concession contracts establish the Permitted Annual
Revenue (Receita Anual Permitida, or RAP) for the assets of the existing system, updated annually based on the variation in the
IPCA inflation index. Whenever there is an upgrade or adaptation to an existing asset, made under specific authorization from Aneel,
an addition is made to the RAP.
This revenue was 74.30% higher
in 1H20 compared to 1H19, being R$423,101 and R$242,743 respectively. The higher figure arises, mainly, from the periodic reset
of RAP, ratified by Aneel in June 30, 2020, resulting in an adjustment of R$198,714. More details see note 14.
Additionally, these revenues
were impacted by the increase in annual RAP, in July 2019 – this includes the effects of inflation and also new revenues
resulting from investments authorized. They also include an adjustment to expectation of cash flow from financial assets, arising
from change in the fair value of the Regulatory Remuneration Base of Assets (BRR).
Transmission reimbursement revenue
As specified in the sector
regulations, the Company reports in each period the amount of the inflation/monetary adjustment applicable to the amount of indemnity
receivable, based on the IPCA inflation index, which has a two-month delay, and the average regulatory cost of capital.
The revenue from reimbursements
of transmission assets in 1H20 was R$316,218, – or 249.72% higher than in 1H19 (R$90,420). This higher figure mainly reflects
the upward adjustment to the economic portion of the indemnity base, as a result of the Periodic Reset of RAP, which was remeasured
in accordance with the applicable regulatory rules, resulting in an increase of R$ 231,126 in the Company’s income at
June 30, 2020. More details see note 14.
At the beginning of the tariff
cycle, which occurs in July of each year, the amounts received, plus the adjustment made for the cycle, corresponding to the amortization
of the debtor balance up to the end of the period, are excluded from the remuneration base, reducing the amounts of the monetary
updating and the remuneration on the remaining balance. The amounts of the reimbursements are being received through RAP, since
July 2017, over a period of 8 years.
For more details see Notes
13 and 14.
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Revenue from transactions
in the Power Trading Exchange (CCEE)
Revenue from transactions
in energy on the CCEE in 1H20 was R$31,598, or 92.05% lower than in 1H19, which was R$397,437. This reduction is primarily due
to the deficit position on the CCEE assumed by Cemig GT in 1H20, compared to 1H19, due to: (i) lower allocation of its own generation;
(ii) lower GSFs; and (iii) higher sales through spot-market bilateral contracts. On the other hand, in 1Q19 Cemig had a high excess
of supply to be sold on the CCEE, arising from higher allocation of its own output, associated with higher GSFs and a lower volume
of bilateral sales. Additionally, there was a reduction of 37.51% in the average spot price (PLD), which was R$ 131.68/MWh
in 1H20, compared to R$ 210.73/MWh in 1H19.
The revenue from the mechanism
for the sale of energy surplus (MVE) were R$ 104,814 in 1H20, relating to offers of supply made at the end of 2019 by Cemig
D. The MVE enables distributors to sell excesses of supply and, for sales related to amounts of the regulatory limit or involuntary
exposure, enables part of the benefit gained to be passed through to the customers tariffs in the tariff adjustments.
Revenue from supply of
gas
Cemig reports revenue from
supply of gas totaling R$962,887 in 1H20, compared to R$1,131,233 in 1H19 – a decrease of 14.88%. This basically reflects
the reduction in the price of gas, which was passed through to customers – since the volume of gas sold was in fact 20% lower
(at 433,273 m³ in the first half of 2020, vs. 537,346 m³ in same period of 2019), – under the influence, mainly,
of the thermoelectric power generation and industrial sector, in which consumption was 45% and 13% lower, respectively. The effect
of lower volume of gas sold was partially offset by the increase from application of the IGP-M inflation index to distribution
costs, which occurs annually in February: the resulting increases were: 6.74% in 2019, and 7.81% in 2020, beyond Tariff Adjustment.
Construction revenue
Infrastructure construction
revenue in 1H20 was R$683,676, or 46.96% higher compared to 1H19 (R$465,225).This variation is mainly due to the execution of a
larger proportion of the Investment Plan budget in assets related to distribution concession infrastructure, especially those related
to the medium- and low- voltage and sub-transmission networks. For the assets related to transmission infrastructure the difference
arises mainly arises from the suspension of three implementation contracts, halting their financial realization – they will
be re-tendered – and also the reductions resulting from the Covid-19 pandemic.
This revenue is fully offset
by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the
period.
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PIS/Pasep and Cofins taxes
credits over ICMS
The credits of PIS/Pasep and
Cofins taxes (previously erroneously charged to include the amounts of ICMS taxes paid or due), totaling R$1,438,563, resulted
from the success in the Company’s legal action questioning the inclusion of ICMS tax in these amounts, and is backdated to
July 2003. For more information please see Note 8.
Other operating revenues
The other operating
revenues line for the Company and its subsidiaries in first half of 2020 totaled R$886,612, compared to R$837,584 in the same period
of 2019 – 5.85% higher YoY. See Note 26 for a breakdown of other operating revenues.
Taxes and regulatory
charges reported as Deductions from revenue
The taxes and charges that
are recorded as deductions from operating revenue totaled R$5,699,829 from January to June 2020, or 6.53% less than the same period
in 2019 (R$6,097,956).
The Energy Development
Account – CDE
The amounts of payments to
the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession
indemnities (reimbursements of costs of assets), tariff subsidies, and the subsidy for balanced tariff reduction, the low-income-customer
subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). Charges for the CDE in 1H20 were R$1,217,865, compared
to R$1,331,366 in 1H19 – 8.53% lower YoY, due, primarily, to the Regulated Market Account (ACR), in August, 2019.
This is a non-manageable cost: the difference between
the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff
adjustment.
Customer
charges – the ’Flag’ Tariff system
The ‘Flag’ Tariff
bands are activated as a result of low levels of water in the system’s reservoirs – tariffs are temporarily increased
due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when
scarcity is more intense. Activation of the flag tariffs generates an impact on billing in the subsequent month.
Customer
charges were, from January to June, 2020, at R$59,656, than the same period in 2019 (R$19,868) – or 200,26% higher year-on-year.
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The
difference reflects the application of the ‘yellow’ tariff flag in December 2019 (affecting the billing of January
2020), and January 2020. There were no flag tariffs activated in the other months of 1H20. For comparison, in 1H19 the yellow flag
was activated only in May (influencing billing in June 2019) and there was no activation of flags in the other months. Additionally,
the increase also reflects re-invoicing in 2020 of invoices from previous periods.
Other taxes and charges
on revenue
The deductions and charges
with the most significant impact on revenue are mainly taxes, calculated as a percentage of sales revenue. Thus their variations
are, substantially, in proportion to the variations in revenue.
Operating costs and
expenses (excluding financial income/expenses)
Operating costs and expenses
from January to June 2020 totaled R$9,947,051, or 2.86% less than the same period in 2019 (R$10,239,801). For more on the components
of Operating costs and expenses see Note 27.
The following paragraphs comment
on the main variations:
Employee profit sharing
The expense on employees’
and managers’ profit sharing was R$650,789 in 1H20, compared to R$677,072 in 1H19, 3.88% lower
YoY. This arises mainly from the following factors:
|
|
§
|
The average number of employees was 4.87% lower in 1H20, at 5,467, compared to 5,747 in 1H19, parcially offset by the events described bellow.
|
|
|
§
|
Recognition, in 1H20, of a cost of R$58,850 on voluntary retirement plans, compared to R$21,495 in 1H19.
|
|
|
§
|
Salary increase of 2.55% under the Collective Work Agreement, as from November 2019.
|
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Energy purchased for
resale
This expense was R$5,569,733
in 1H20, or 8.78% higher year-on-year, compared to R$5,120,200 in 1H19. This arises mainly from the following items:
|
|
§
|
Expense
on supply from Itaipu was 37.20% higher, at R$952,413 in 1H20, compared to R$694,177 in 1H19. The difference is mainly due to
the increase of 29.79% in the average dollar quotation in 1H20 compared to 1H19 (R$5.01 and R$3.86, respectively), which has contributed
to the rise in dollar energy price per KW (US$28.41/KW in 1H20 and US$27.71/KW in 1H19);
|
|
|
§
|
Expenses on supply acquired through physical guarantee quota contracts 4.14% higher, at R$379,450 in 1H20, compared to R$364,358 in 1H19. This is mainly due to the average price per MWh being 6.52% higher year-on-year in 1H20 (at R$108.62, compared to R$ 101.97 in 1H19).
|
|
|
§
|
Expenses on supply acquired at auction 12.35% higher: R$1,567,953 in 1H20, compared to R$1,395,566 in 1H19. This increase reflects volume of energy acquired.
|
|
|
§
|
Higher expenses on distributed generation (‘geração distribuída’): R$327,796 in 2H20, compared to R$82,858 in 1H19. This reflects the higher number of generation units installed (49,339 in June 2020, compared to 17,906 in June 2019); and the higher volume of energy injected into the grid (426,761 MWh in 1H20, compared to 179,833 MWh in 1H19).
|
|
|
§
|
The expense on purchase of supply at
the spot price was lower in 1H20, at R$ 633,003, than in 1H19 (R$ 762,267). The result expressed for spot-price supply
is the net balance between revenues and expenses of transactions on the Power Trading Chamber (CCEE). The lower figure is mainly
due to the average spot price (PLD) being 37.51% lower, at R$ 131.68/MWh in 1H20, compared to R$ 210.73/MWh in 1H19,
and also the position assumed by Cemig D in 1H20, which was a creditor due to the lower consumption caused by the pandemic, contrasting
with the position assumed in 1H19.
|
This is a non-manageable cost: the difference
between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent
tariff adjustment. For more details please see Note 27.
Charges for use of the transmission network
Charges for use of the transmission
network in 1H20 totaled R$622,453, a lower of 11.23% compared to 1H19 (R$701,171).
These charges are payable
by energy distribution and generation agents for use of the facilities that are components of the national grid. The amounts to
be paid are set by a Resolution from the Regulator (Aneel).
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The lower figure is due to
the adjustment for the national grid – which was negative – being brought forward from July to April 2020, to financially
support distributors agents during the Covid-19 pandemic, generating discounts in April, May and June 2020.
This is a non-manageable cost
in the distribution activity: the difference between the amounts used as a reference for calculation of tariffs and the costs actually
incurred is compensated for in the subsequent tariff adjustment.
Operating provisions
Operating provisions in 1H20
totaled R$356,729, or 63.54% less than 1H19 (R$978,379). This arises mainly from the following factors:
|
|
§
|
Recognition, in 1H19, of an estimated loss on realization of the receivables from Renova, in the amount of R$688,031, compared to R$37,361 in 1H20.
|
|
|
§
|
Net additional provisions for third-party liability legal actions were higher – at R$22,690, in 1H20, compared to 1H19, of R$1,076. The difference mainly arises from provisions made for legal actions for third party liability, claiming payment of indemnity for pain and suffering, and material and aesthetic damage, caused by accidents involving the electricity network.
|
|
|
§
|
Losses expected on doubtful receivables from clients 69.40% higher, at R$215,100 in 1H20, compared to R$126,978 in 1H19. This difference mainly reflects an exponential increase in default by clients in the Public Authorities category, and also, worsening of performance in the Residential and Industrial category, because the Covid-19 pandemic.
|
|
|
§
|
provisions for employment-law legal actions amounting R$106,558 in 1H19, compared to provisions of R$30,688 in 1H20. The difference was recognized for application of the IPCA-E inflation index instead of the TR reference rate in monetary adjustment for employment-law legal actions dealing with debts arising from March 25, 2015 to November 10, 2017. These are at the advanced execution phase and now have chances of loss assessed as ‘probable’. For further information, see Note 24.
|
Construction cost
Infrastructure construction
costs in 1H20 totaled R$683,676, or 46.96% more than 1H19 (R$465,225). This line records the Company’s investment in assets
of the concession in the period, and is fully offset by the line Construction revenue, in the same amount.
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Gas bought for resale
In 1H20, the Company recorded
an expense of R$543,303 on acquisition of gas, 25.08% less than its comparable expense of R$725,162 in 1H19. This is basically
due to volume of gas sold 20% lower (at 433,273 m³ in 1H20, compared to 537,346 m³ in 1H19), – under the influence,
mainly, of the thermoelectric power generation and industrial sector, in which consumption was 45% and 13% lower in 1H20, respectively.
The effect of lower volume of gas sold was partially offset by the increase from application of the IGP-M inflation index to distribution
costs, which occurs annually in February: the resulting increases were: 6.74% in 2019, and 7.81% in 2020, beyond Tariff Adjustment.
Post-employment obligations
The Company’s post-retirement
obligations in 1H20 is R$223,727 and R$198,699 in 1H2019. This is mainly the result of higher in the discount rate used in the
actuarial calculation – which increased the amount of the actuarial liabilities, and consequently the scale of the expense
reported.
Asset held for sale impairment
The Company recognized an
impairment loss related to its equity interest in Light, classified as asset held for sale, in the amount of R$134,023. The market
conditions have deteriorated as a result of Covid-19 situation and, in such circumstances, the fair value of equity interest in
Light decreased significantly. For further information, see Note 32.
Share of profit (loss)
of associates and joint ventures, net
The result of equity method
valuation of interests in non-consolidated investees was a gain of R$164,476 in 1H20, an increase of 58.91% compared to 1H19, as
a result, mainly, of the increase of 71.47% in the investee TAESA’s result, which was R$97,719 in 1H19 and R$167,556 in 1H20.
In Addition, the loss of the associate Madeira decreased 56.97%, from (R$70,882) in 1H19 to (R$45,156) in 1H20.
The breakdown of the
results from the investees recognized under this line is given in detail in Note 15.
Net financial revenue
(expenses)
Cemig reports net financial
expenses from January to June, 2020 of R$762,063, compared to the same period in 2019 (R$1,807,027). The main factors are:
|
|
§
|
Recognition of financial updating of PIS/Pasep and Cofins taxes credits in 1H19, in the amount of R$1,553,112 (see note 8).
|
|
|
§
|
Net negative effect of R$ 366,990 in 1H20 in the Eurobonds transaction and its corresponding hedge instrument – compared to a net gain of R$ 677,297 in 1H19.
|
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The difference mainly reflects (i)
the dollar appreciated by 35.86% against the Real in the 1H20, compared to appreciation of 1.10% in 1H19. This resulted in negative
effects on the principal of the Eurobond debt in both periods: R$2,167,950 in 1H20, vs. R$63,904 in 1H19; (ii) Variation in the
fair value of the financial instrument contracted to hedge the risks of the Eurobond lower than the depreciation of the exchange
rate, at March 31, 2020, in contrast to the positive effect at March 31, 2019. In 1H20 the variation in the fair value of the hedge
instrument resulted in a gain of R$1,800,960, compared to R$613,394 in 1H19. The
higher figure was the result of the dollar future curve moving upward, resulting in both the call spread and the asset becoming
more valuable; and also due to the curve for the future DI interest rate (the liability side of the transaction) moving downward,
and contributing to an increase in fair value.
For a breakdown of financial revenues and expenses
please see Note 28.
Income tax and social
contribution tax
In 1H20, the expense on income
and the Social Contribution taxes totaled R$379,556, on pre-tax profit of R$1,366,704, an effective rate of 27.77%. In 1H19, the
expense on income and the Social Contribution taxes was R$1,688,472, on pre-tax profit of R$4,600,697 an effective rate of 36.70%.
These effective rates are
reconciled with the nominal tax rates in Note 9(c).
Results for the quarter
In 2Q20, Cemig reports profit
of R$1,043,994, compared a profit of R$2,114,986 in 2Q19. The negative year-on-year comparison in the Company’s net profit
is mainly due to the recognition in 2Q19 of non-recurring recovery of PIS/Pasep and Cofins taxes credits over ICMS tax, totaling
(net of tax) R$ 1,984,069 – resulted from the success in the Company’s and its subsidiaries legal, subject to
no further appeal – partially offset by the write-down of R$ 688,031 for doubtful credits receivable from the investee
Renova (see Note 27).
The net income of 1H20 was
also significantly impacted by the recognition of the positive adjustment arising from the periodic reset of RAP in the amount
of R$283,694 (net of taxes) and by the partial reversal, in the amount of R$313,590 (net of taxes), and the impairment of R$ 402,046
(net of taxes) recorded in 1Q20 for the value of the investment in Light, classified as held for sale.
There was also a positive
net gain of R$ 486,720 in Net financial revenue (expenses) from the net effect of FX variation on the Eurobond debt in foreign
currency and its corresponding hedge transaction. See more information in Notes 21 and 30.
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The following
items describe the main variations between the two periods in revenues, costs, expenses and financial items.
Ebitda (Earnings before
interest, tax, depreciation and amortization)
Cemig’s consolidated
adjusted EBTIDA, with the removal of non-recurrent items reduced in 11.30% in 2Q20 compared to 2Q19, whereas the adjusted Ebtida
margin decreased from 19.02% to 17.10%. Consolidated Ebtida, measured according to CVM Instruction 527, decreased 0.15% % in 2Q20
compared to the same period last year, whereas the Ebtida margin was 25.82% in 2Q19 and 32.86% in 2Q20.
|
Ebitda – R$ ’000
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Var %
|
|
Net
income for the period
|
1,043,994
|
2,114,986
|
(50.64)
|
|
+
Income tax and Social Contribution tax
|
483,986
|
1,356,983
|
(64.33)
|
|
+
Net financial revenue (expenses)
|
35,317
|
(1,908,587)
|
(101.85)
|
|
+
Depreciation and amortization
|
245,697
|
248,403
|
(1.09)
|
|
=
Ebitda according to “CVM Instruction 527” (1)
|
1,808,994
|
1,811,785
|
(0.15)
|
|
Non-recurrent
items
|
|
|
|
|
+
Non-controlling interests
|
(188)
|
(212)
|
(11.32)
|
|
+
PIS/Pasep and Cofins over ICMS
|
-
|
(1,438,563)
|
(100.00)
|
|
+
Impairment loss – Receivables from Renova
|
37,361
|
688,031
|
(94.57)
|
|
+
Impairment (reversals) of assets held for sale (note 32)
|
(475,137)
|
-
|
-
|
|
+
RTP adjustments
|
(429,840)
|
-
|
-
|
|
Ebitda
Adjusted (2)
|
941,190
|
1,061,041
|
(11.30)
|
|
|
(1)
|
Ebitda is a non-accounting measure prepared by the Company, reconciled with the consolidated Interim financial information in accordance with CVM Circular SNC/SEP 1/2007 and CVM Instruction 527 of October 4, 2012. It comprises Net income adjusted by the effects of net financial revenue (expenses), Depreciation and amortization, and Income tax and social contribution tax. Ebitda is not a measure recognized by Brazilian GAAP nor by IFRS; it does not have a standard meaning; and it may be non-comparable with measures with similar titles provided by other companies. Cemig publishes Ebitda because it uses it to measure its own performance. Ebitda should not be considered in isolation or as a substitution for net income or operational profit, nor as an indicator of operational performance or cash flow, nor to measure liquidity nor the capacity for payment of debt.
|
|
|
(2)
|
The Company adjusts the EBTIDA measured according to CVM Instruction 527 removing non-current items, which, because of their nature, do not contribute towards information on the potential of future cash generation, since they are extraordinary items.
|
The lower adjusted Ebtida
in 2Q20, 2020 than 2Q19 mainly adjusted net revenue 1.32% lower, and adjusted operational costs 2.03% higher. The consolidated
Ebtida, on the other hand, reduced mostly because of the recognition in 2Q19 of the gain of PIS/Pasep and Cofins taxes credits
over ICMS in the amount R$1,438,563 – partially offset by (i) recognition in 2Q20 of a gain of R$429,840 resulting from the
periodic reset of RAP, and (ii) the reversal of impairment of Light, classified as held for sale, in the amount of R$475,137.
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The main items in revenue in the period:
Revenue from supply of
energy
Revenue from sales of energy
in 2Q20 were R$5,920,014, compared to R$6,327,737 in 2Q19 – a decrease of 6.44%.
Final customers
Total revenue from energy
sold to final customers in 2Q20 was R$5,332,353 – or 4.23% lower than 2Q19 (R$5,567,717), because the annual tariff adjustment
for Cemig D, effective May 28, 2019 (full effect in 2020) resulting in an average increase in customer tariffs of 8.73%.
Cemig’s energy market
The total for sales in Cemig’s
consolidated energy market comprises sales to: (i) Captive customers in Cemig’s concession area in the State of Minas Gerais;
(ii) Free Customers in both the State of Minas Gerais and other States of Brazil, in the Free Market (Ambiente de Contratação
Livre, or ACL); (iii) other agents of the energy sector – traders, generators and independent power producers, also in
the Free Market; (iv) Distributors, in the Regulated Market (Ambiente de Contratação Regulada, or ACR); and
(v) the Power Trading Exchange (Câmara de Comercialização de Energia
Elétrica – CCEE), eliminating transactions between companies of the Cemig Group.
This table details Cemig’s market and the
changes in sales of energy by customer category, comparing 2Q20 to 2Q19:
Revenue from supply
of energy
|
|
Apr to Jun 2020
|
Apr to Jun 2019
|
Charge %
|
|
|
MWh
(2)
|
R$
|
Average price billed (R$/MWh)
(1)
|
MWh
(2)
|
R$
|
Average price billed (R$/MWh)
(1)
|
MWh
|
R$
|
|
Residential
|
2,657,910
|
2,307,578
|
868.19
|
2,547,878
|
2,206,790
|
866.13
|
4.32
|
4.57
|
|
Industrial
|
3,105,644
|
934,197
|
300.81
|
3,947,233
|
1,154,786
|
292.56
|
(21.32)
|
(19.10)
|
|
Commercial,
services and others
|
2,085,089
|
1,136,848
|
545.23
|
2,374,683
|
1,280,841
|
539.37
|
(12.20)
|
(11.24)
|
|
Rural
|
896,651
|
511,810
|
570.80
|
915,078
|
460,746
|
503.50
|
(2.01)
|
11.08
|
|
Public
authorities
|
169,009
|
121,381
|
718.19
|
231,943
|
158,145
|
681.83
|
(27.13)
|
(23.25)
|
|
Public
lighting
|
325,162
|
142,679
|
438.79
|
333,969
|
140,508
|
420.72
|
(2.64)
|
1.55
|
|
Public
services
|
339,650
|
177,860
|
523.66
|
339,954
|
165,901
|
488.01
|
(0.09)
|
7.21
|
|
Subtotal
|
9,579,115
|
5,332,353
|
556.66
|
10,690,738
|
5,567,717
|
520.8
|
(10.40)
|
(4.23)
|
|
Own
consumption
|
7,970
|
-
|
-
|
7,247
|
-
|
-
|
9.98
|
-
|
|
Unbilled
retail supply, net
|
-
|
(104,793)
|
-
|
-
|
80,721
|
-
|
-
|
(229.82)
|
|
|
9,587,085
|
5,227,560
|
545.27
|
10,697,985
|
5,648,438
|
527.99
|
(10.38)
|
(7.45)
|
|
Wholesale
supply to other concession holders (3)
|
3,401,541
|
726,004
|
213.43
|
2,422,273
|
641,532
|
264.85
|
40.43
|
13.17
|
|
Wholesale
supply not yet invoiced, net
|
-
|
(33,550)
|
-
|
-
|
37,767
|
-
|
-
|
(188.83)
|
|
Total
|
12,988,626
|
5,920,014
|
466.44
|
13,120,258
|
6,327,737
|
473.26
|
(1.00)
|
(6.44)
|
|
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(1)
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The calculation of the average price does not include revenue from supply not yet billed.
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|
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(2)
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Data not audited by external auditors. .
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|
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(3)
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Includes Regulated Market Energy Sale Contracts (CCEARs) and ‘bilateral contracts’ with other agents.
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The variations are primarily
due to the following events:
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Volume of energy sold to industrial clients 21.32% lower, and to commercial clients 12.20% lower, mainly due to the Covid-19 restrictive measures, under which non-essential commercial facilities were closed, industrial companies were shut down for part of the period, in-person school classes were canceled, and public bodies with in-loco activities were reduced or shut down.
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§
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Increase of 4.32% in the volume of energy sold to the residential category, related to the addition in the number of customers.
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Revenue from Use of Distribution
Systems (the TUSD charge)
This is revenue from charging
Free Customers the Tariff for Use of the Distribution System (TUSD), on the volume of energy distributed. In 2Q20, this was R$674,737,
compared to R$635,675 in the same period 2019 - increase of 6.14%. This difference mainly arises from the Company’s annual
tariff adjustment, in effect from May 28, 2019 (full effect in 2020), which was an increase of 15.47% for free clients, partially
offset by volume of energy transported in 1H20 5.61% lower than in 1H19.
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|
MWh
|
|
Apr to Jun 2020
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Apr to Jun2019
|
Var %
|
|
Industrial
|
4,247,588
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4,455,679
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(4.67)
|
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Commercial
|
259,661
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315,065
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(17.58)
|
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Rural
|
7,045
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2,670
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163.87
|
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Concessionaires
|
72,652
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86,206
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(15.72)
|
|
Total
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4,586,946
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4,859,620
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(5.61)
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CVA and Other financial
components in tariff adjustments
These items are the recognition
of the difference between actual non-controllable costs (in which the contribution to the CDE – the Energy Development Account
and energy bought for resale, are significant components) and the costs that were used in calculating rates charged to customers.
The amount of this difference is passed through to customers in the next tariff adjustment of Cemig D (the distribution company),
represented a gain of R$136,254 in 2Q20, whereas in the same period in 2019 it produced a revenue gain of R$40,109.
This variation is due, primarily,
to the high amount of revenue recognized in 2Q20 mainly because of the increase in the Itaipu energy cost, caused by the rise in
the dollar exchange rate compared to 2Q19, and due to the overcontracting effects resulting from the energy consuption reduction,
leading to a increment in the Company net financial asset. These effects on revenue were offset by the passthrough of excess funds
in the Energy Reserve Account (CONER), determined by the Aneel Order (‘Despacho’) n. 986/2020
For further details, see Note 13.
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Transmission concession revenue
Cemig GT’s transmission
revenue comprises the sum of the revenues of all the transmission assets. The concession contracts establish the Permitted Annual
Revenue (Receita Anual Permitida, or RAP) for the assets of the existing system, updated annually based on the variation in the
IPCA inflation index. Whenever there is an upgrade or adaptation to an existing asset, made under specific authorization from Aneel,
an addition is made to the RAP.
This revenue was R$299,832
in 2Q20, compared to 2Q19 (R$125,564) – or 138.79% higher year-on-year. The higher figure arises from the reameasurement
of the base of remuneration arising from the periodic reset of RAP, ratified by Aneel in June 30, 2020, resulting in an adjustment
of R$198,714. More details see note 14.
Additionally, these revenues
were impacted by the increase in annual RAP, in July 2019 – this includes the effects of inflation and also new revenues
resulting from investments authorized. They also include an adjustment to expectation of cash flow from financial assets, arising
from change in the fair value of the Regulatory Remuneration Base of Assets (BRR).
Transmission reimbursement revenue
As specified in the sector
regulations, the Company reports in each period the amount of the inflation/monetary adjustment applicable to the amount of indemnity
receivable, based on the IPCA inflation index, which has a two-month delay, and the average regulatory cost of capital.
The revenue from reimbursements
of transmission assets in 2Q20 was R$259,680 – or 348.33% higher than the same period in 2019 (R$57,921). This higher figure
mainly reflects the upward adjustment to the economic portion of the indemnity base, as a result of the Periodic Reset of RAP,
which was remeasured in accordance with the applicable regulatory rules, resulting in an increase of R$ 231,126 in the Company’s
income at June 30, 2020. More details see note 14.
At the beginning of the tariff
cycle, which occurs in July of each year, the amounts received, plus the adjustment made for the cycle, corresponding to the amortization
of the debtor balance up to the end of the period, are excluded from the remuneration base, reducing the amounts of the monetary
updating and the remuneration on the remaining balance. The amounts of the reimbursements are being received through RAP, since
July 2017, over a period of 8 years.
For more details see Note
13 – Financial assets of the concession.
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Revenue from transactions
in the Power Trading Exchange (CCEE)
Revenue from transactions
in energy on the CCEE in 2Q20 was R$7,074, or 95.12% lower than the same period in 2019, which was R$144,821. This reduction is
principally due to the deficit position on the CCEE assumed by Cemig GT in the first quarter of 2020, when compared to the same
period 2019, due to: (i) lower allocation of its own generation; (ii) lower GSFs; and (iii) higher sales through spot-market bilateral
contracts. On the other hand, in first quarter of 2019 Cemig had a high excess of supply to be sold on the CCEE, arising from higher
allocation of its own output, associated with higher GSFs and a lower volume of bilateral sales.
The revenue from the mechanism
for the sale of energy surplus (MVE) were R$41,514 in 2Q20, relating to offers of supply made at the end of 2019 by Cemig D. The
MVE enables distributors to sell excesses of supply and, for sales related to amounts of the regulatory limit or involuntary exposure,
enables part of the benefit gained to be passed through to the customers tariffs in the tariff adjustments.
Revenue from supply of
gas
Cemig reports revenue from
supply of gas totaling R$403,227 in 2Q20, compared to R$534,955 in the same period in 2019 – 24.62% lower YoY. This basically
reflects the reduction in the price of gas, which was passed through to customers – since the volume of gas sold was in fact
17.55% lower (at 183,138 m³ in the second quarter of 2020, vs. 222,106m³ in same period of 2019), – under the influence,
mainly, of the industrial sector, in which consumption was 21.75% lower in the second quarter of 2020. The effect of lower volume
of gas sold was partially offset by the increase from application of the IGP-M inflation index to distribution costs, which occurs
annually in February: the resulting increases were: 6.74% in 2019, and 7.81% in 2020, beyond Tariff Adjustment.
Construction revenue
Infrastructure construction
revenue in 2Q20 was R$373,405, or 40.32% more than the same period in 2019 (R$266,107). This variation is mainly due to the major
capital expenditure in 2Q20.
This revenue is fully offset
by Construction costs, of the same amount, and corresponds to the Company’s investments in assets of the concession in the
period.
PIS/Pasep and Cofins taxes
credits over ICMS
The credits of PIS/Pasep and
Cofins taxes (previously erroneously charged to include the amounts of ICMS taxes paid or due), totaling R$1,438,563, resulted
from the success in the Company’s legal action questioning the inclusion of ICMS tax in these amounts, and is backdated to
July 2003. For more information please see Note 8.
Other operating revenues
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The other operating
revenues line for the Company and its subsidiaries in 2Q20 totaled R$473,142, compared to R$396,386 in the same period of 2019
– 19.36% lower YoY. See Note 26 for a breakdown of other operating revenues.
Taxes and regulatory
charges reported as Deductions from revenue
The taxes and charges that
are recorded as deductions from operating revenue totaled R$2,687,389 in 2Q20, or 9.10% less than the same period in 2019 (R$2,956,432).
The Energy Development
Account – CDE
The amounts of payments to
the Energy Development Account (CDE) are decided by an Aneel Resolution. The purpose of the CDE is to cover costs of concession
indemnities (reimbursements of costs of assets), tariff subsidies, and the subsidy for balanced tariff reduction, the low-income-customer
subsidy, the coal consumption subsidy, and the Fuels Consumption Account (CCC). Charges for the CDE in 2Q20 were R$608,155, compared
to R$679,017 in the same period in 2019 – 10.44% lower YoY, primarily, due to the Regulated Market Account (ACR), in August,
2019.
This is a non-manageable cost: the difference between
the amounts used as a reference for setting of tariffs and the costs actually incurred is compensated for in the subsequent tariff
adjustment.
Customer
charges – the ’Flag’ Tariff system
The ‘Flag’ Tariff
bands are activated as a result of low levels of water in the system’s reservoirs – tariffs are temporarily increased
due to scarcity of rain. The ‘Red’ band has two levels – Level 1 and Level 2. Level 2 comes into effect when
scarcity is more intense. Activation of the flag tariffs generates an impact on billing in the subsequent month.
Customer
charges were, in 2Q20, at R$73, than the same period in 2019 (R$8,712) – or 99.16% lower year-on-year.
The variation is mostly because
there were no flag tariffs activated in the 2Q20. In comparison, in the 2Q19, the yellow flag was activated in May (influencing
billing in June 2019).
Other taxes and charges
on revenue
The deductions and charges
with the most significant impact on revenue are mainly taxes, calculated as a percentage of sales revenue. Thus their variations
are, substantially, in proportion to the variations in revenue.
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Operating costs and
expenses (excluding financial income/expenses)
Operating costs and expenses
in 2Q20 totaled R$4,928,788, or 10.22% less than the same period in 2019 (R$5,489,685). For more on the components of Operating
costs and expenses see Note 27.
The following paragraphs comment
on the main variations:
Employee profit sharing
The expense on employees’
and managers’ profit sharing was R$339,183 in 2Q20, compared to R$312,031 in the same period in 2019, 8.70%
higher YoY. This arises mainly from the recognition, in the second quarter of 2020, of a cost of R$58,850 on voluntary retirement
plans and salary increase of 2.55% under the Collective Work Agreement, as from November 2019.
Energy purchased for
resale
This expense in 2Q20 was R$2,755,238,
or 9.07% higher year-on-year, compared to R$2,526,019 in the same period in 2019. This arises mainly from the following items:
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|
§
|
Expense on supply from Itaipu was 45.31%
higher, at R$524,601 in the second quarter of 2020, compared to R$361,021 in the same period of 2019. The difference is mainly
due to the increase of 37.76% in the average dollar quotation in the second quarter of 2020 compared to the same period last year
(R$3.92 and R$5.40, respectively), which has contributed to the rise in dollar energy price per KW (US$28.41/KW in the year of
2020 and US$27.71/KW in 2019);
|
|
|
§
|
Expenses on supply acquired through physical guarantee quota contracts 2.26% higher, at R$189,617 in 2Q20, compared to R$185,427 in the same period of 2019. This is mainly due to the average price per MWh being 7.2% higher year-on-year in 2Q20 (at R$109.36, compared to R$101.93 in 2Q19);
|
|
|
§
|
Expenses on supply acquired at auction 9.31% higher: R$748,514 in 2Q20, compared to R$684,774 in the same period of 2019. This increase reflects volume of energy acquired approximately 10% higher year-on-year, added to the effect of upward adjustment in power purchasing agreements in the Regulated Market (CCEARs) taking place at the moment of the distributors’ tariff adjustment.
|
|
|
§
|
Higher expenses on distributed generation (‘geração distribuída’): R$154,315 in 2Q20, compared to R$44,892 in 2Q19. This reflects the higher number of generation units installed and the higher volume of energy injected into the grid (232,076 MWh in 2Q20, compared to 95,965 MWh in 2Q19).
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§
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Lower expense on purchase of supply
in the spot market, R$251,066 in 2Q20 compared to R$278,055 in the same period of 2019. The
result expressed for spot-price supply is the net balance between revenues and expenses of transactions on the Power Trading Chamber
(CCEE). The lower figure is mainly due to the average spot price (PLD) being 42.55% lower, at R$75.47/MWh in 2Q20 compared to
R$131.37/MWh in 2Q19, and also the position assumed by Cemig D in 2Q20, which was a creditor due to the lower consumption caused
by the Covid-19 pandemic, contrasting with the position assumed in 2Q19. This effect was partially offset by the increase in the
Cemig GT consolidated expenses on purchase of supply in the spot market, mostly because of the deficit assumed in CCEE in 2Q20.
|
This is a non-manageable cost: the difference
between the amounts used as a reference for calculation of tariffs and the costs actually incurred is compensated for in the subsequent
tariff adjustment. For more details please see Note 27.
Charges for use of the transmission network
Charges for use of the transmission
network in 2Q20 totaled R$257,441, a lower of 29.92% compared with the same period in 2019 (R$367,375).
These charges are payable
by energy distribution and generation agents for use of the facilities that are components of the national grid. The amounts to
be paid are set by a Resolution from the Regulator (Aneel).
This is a non-manageable cost
in the distribution activity: the difference between the amounts used as a reference for calculation of tariffs and the costs actually
incurred is compensated for in the subsequent tariff adjustment.
Operating provisions
Operating provisions in 2Q20
totaled R$197,613, or 77.27% less than the same period in 2019 (R$869,373). This arises mainly from the following factors:
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|
§
|
Recognition, in the 2Q19, of an estimated loss on realization of the receivables from Renova, in the amount of R$688,031, compared to R$37,361 in 2Q20.
|
|
|
§
|
Losses expected on doubtful receivables from customers 142.22% higher, at R$115,360 in 2Q20, compared to R$47,627 in 2Q19. This difference mainly reflects an exponential increase in default by clients in the Public Authorities category, and also, worsening of performance in the Residential and Industrial category, because the Covid-19 pandemic.
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Provisions for employment-law legal actions amounting R$105,122 in 2Q2019, compared to provisions of R$23,375 in 2Q20. The difference was recognized for application of the IPCA-E inflation index instead of the TR reference rate in monetary adjustment for employment-law legal actions dealing with debts arising from March 25, 2015 to November 10, 2017. These are at the advanced execution phase and now have chances of loss assessed as ‘probable’. For further information, see Note 24.
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Construction cost
Infrastructure construction
costs in 2Q20 totaled R$373,405, or 40.32% higher than 2Q19 (R$266,107). This line records the Company’s investment in assets
of the concession in the period, and is fully offset by the line Construction revenue, in the same amount.
Gas bought for resale
In 2Q20, the Company recorded
an expense of R$231,378 on acquisition of gas, 29.92% less than its comparable expense of R$330,180 in the same period in 2019.
This is basically due to volume of gas sold 14.61% lower (at 185,852m³ in the second quarter of 2020, compared to 217,646m³
in the same period of 2019).
Post-employment obligations
The Company’s post-retirement
obligations in 2Q20 is R$118,322 and R$97,790 in 2019. This is mainly the result of higher in the discount rate used in the actuarial
calculation – which increased the amount of the actuarial liabilities, and consequently the scale of the expense reported.
Asset held for sale impairment
The market conditions have
deteriorated as a result of Covid-19 situation and, in such circumstances, the fair value of equity interest in Light decreased
significantly. The Company recognized an impairment loss related to its equity interest in Light, classified as asset held for
sale, in the amount of R$609,160 in 1Q20, which was reversed in 2Q20 due to the shares price recovery, resulting in a positive
effect of R$475,137 on net income for 2Q20. For further information, see Note 32.
Share of profit (loss)
of associates and joint ventures, net
The result of equity method
valuation of interests in non-consolidated investees was a gain of R$82,534 in 2Q20, an increase of 127.52% compared to the same
period of 2019, as a result, mainly, of the increase of 39.39% in the investee TAESA’s result, which was R$64,858 in the
second quarter of 2019 and R$90,404 in same period of 2020.
The breakdown of the
results from the investees recognized under this line is given in detail in Note 15.
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Net financial revenue
(expenses)
Cemig reports net financial
expenses in 2Q20 of R$35,317, compared to net financial income of R$1,908,587 in the same period in 2019. The main factors are:
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|
§
|
Recognition of the financial updating of PIS/Pasep and Cofins taxes credits over ICMS in the amount of R$1,553,112 in 2Q19 (see note n. 8).
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|
|
§
|
The dollar appreciated by 5.33% against the Real in the 2Q20, compared to appreciation of (1.66%) in 2Q19. This resulted in negative effects on the principal of the Eurobond debt in both periods: R$415,950 in 2Q20, vs. R$96,750 in 2Q19.
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|
|
§
|
In 2Q20, the variation in the fair value of the hedge instrument resulted in a gain of R$486,720, which was partially offset by the positive effect of R$70,770. In 2Q19, the variation in the fair value of the hedge instrument resulted in a gain of R$461,083, plus the positive debt exchange rate variation of R$96,750, which was partially offset by the positive effect of R$557,833. The higher figure was the result of the dollar future curve moving upward, resulting in both the call spread and the asset becoming more valuable; and also due to the curve for the future DI interest rate (the liability side of the transaction) moving downward.
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For a breakdown of financial revenues and expenses
please see Note 28.
Income tax and social
contribution tax
In 2Q20, the expense on income
and the Social Contribution taxes totaled R$483,986, on pre-tax profit of R$1,474,802, an effective rate of 31.67%. In the same
period in 2019, the expense on income and the Social Contribution taxes was R$1,356,983, on pre-tax profit of R$3,471,969 an effective
rate of 39.08%.
These effective rates are
reconciled with the nominal tax rates in Note 9(c).
OTHER INFORMATION
THAT THE COMPANY BELIEVES TO BE MATERIAL
Board of Directors
Meetings
The Board of Directors met
11 times up to June 30, 2020, to discuss strategic planning, projects, acquisition of new assets, various investments, and other
subjects.
Membership, election and
period of office
The present period of office
began with the EGM on June 11, 2018, with election by the multiple voting system.
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The periods of office of the
present members of the Board of Directors expire at the Annual General Meeting of Shareholders to be held in 2020.
Principal responsibilities
and duties:
Under the by-laws, the Board
of Directors has the following responsibilities and duties, as well as those conferred on it by law:
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§
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Decision on any sale of assets, loans or financings, charge on the company’s property, plant or equipment, guarantees to third parties, or other legal acts or transactions, with value equal to 1% or more of the Company’s total Shareholders’ equity.
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§
|
Authorization for issuance of securities in the domestic or external market to raise funds;
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|
|
§
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Approval of the Long-term Strategy and the Multi-year Business Plan, and alterations and revisions to them, and the Annual Budget.
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Qualification and remuneration
The Board of Directors of
the Company comprises 9 (nine) sitting members and the same number of substitute members. One is the Chair, and another Deputy
Chair. The members of the Board of Directors are elected for concurrent periods of office of 2 (two) years, and may be dismissed
at any time, by the General Meeting of Shareholders. Re-election for a maximum of 3 (three) consecutive periods of office is permitted,
subject to any requirements and prohibitions in applicable legislation and regulations.
A list with the names of the
members of the Board of Directors and their résumés is on our website at: http://ri.cemig.com.br.
The Audit Committee
The Audit Committee is an
independent, consultative body, permanently established, with its own budget allocation. Its objective is to provide advice and
assistance to the Board of Directors, to which it reports. It also has the responsibility for such other activities as are attributed
to it by legislation.
The Audit Committee has four
members, the majority of them independent, nominated and elected by the Board of Directors in the first meeting after the Annual
General Meeting for periods of office of three years, not to run concurrently. One re-election is permitted.
Under the by-laws, the Audit
Committee of Cemig has the following duties, among others:
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§
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to supervise the activities of the external auditors, evaluating their independence, the quality of the services provided and the appropriateness of such services to the Company’s needs;
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§
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to supervise activities in the areas of internal control, internal audit and preparation of the financial statements;
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§
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to evaluate and monitor, jointly with the management and the Internal Audit Unit, the appropriateness of the transactions with related parties.
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Executive Board
The Executive Board has 7
(seven) members, whose individual functions are set by the Company’s bylaws. They are elected by the Board of Directors,
for a period of office of two years, subject to the applicable requirements of law and regulation, and may be re-elected up to
three times.
Members are allowed simultaneously
also to hold non-remunerated positions in the management of wholly-owned subsidiaries, subsidiaries or affiliates of Cemig, upon
decision by the Board of Directors. They are also, obligatorily under the by-laws, members, with the same positions, of the Boards
of Directors of Cemig GT (Generation and Transmission) and Cemig D (Distribution). The period of office of the present Chief Officers
expires at the first meeting of the Board of Directors held after the Annual General Meeting of 2020.
The members of the Executive
Board and their résumés are on our website: http://ri.cemig.com.br.
The members of the Executive
Board (the Company’s Chief Officers) have individual responsibilities set by the Board of Directors and the by-laws. These
include:
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§
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Current management of the Company’s business, subject to compliance with the Long-term Strategy, the Multi-year Business Plan, and the Annual Budget, prepared and approved in accordance with these by-laws.
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§
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Authorization of the Company’s capital expenditure projects, signing of agreements or other legal transactions, contracting of loans and financings, and creation of any obligation in the name of the Company, based on an approved Annual Budget, which individually or in aggregate have values less than 1% (one per cent) of the Company’s Shareholders’ equity, including injection of capital into wholly-owned or other subsidiaries, affiliated companies, and the consortia in which the Company participates.
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§
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The Executive Board meets, ordinarily, at least two times per month; and, extraordinarily, whenever called by the Chief Executive Officer or by two Executive Officers with at least two days’ prior notice in writing or by email or other digital medium, such notice not being required if all the Executive Officers are present. The decisions of the Executive Board are taken by vote of the majority of its
members, and in the event of a tie the Chief Executive Officer shall have a casting vote.
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Audit
Board
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§
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The Audit Board held seven meetings through the first half 2020.
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Membership,
election and period of office
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§
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We have a permanent Audit Board, made up of five sitting members and their respective substitute members. They are elected by the Annual General Meeting of Shareholders, for periods of office of two years.
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§
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Nominations to the Audit Board must obey the following:
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a)
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The following two groups of shareholders each have the right to elect one member, in separate votes, in accordance with the applicable legislation: (i) the minority holders of common shares; and (ii) the holders of preferred shares.
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b)
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The majority of the members must be elected by the Company’s controlling shareholder; at least one must be a public employee, with a permanent employment link to the Public Administration.
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§
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The members of the Audit Board are listed on our website: http://ri.cemig.com.br.
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Under the by-laws, the Audit
Board has the duties and competencies set by the applicable legislation and, to the extent that they do not conflict with Brazilian
legislation, those required by the laws of the countries in which the Company’s shares are listed and traded.
Qualification and remuneration
The global or individual compensation
of the members of the Audit Board is set by the General Meeting of Shareholders which elects it, in accordance with the applicable
legislation.
Résumé information
on its members is on our website: http://ri.cemig.com.br.
Corporate risk management
and internal controls
As a part of Cemig’s
corporate governance practices, corporate risk management overall objective is to build and maintain a structure capable of providing
material information to senior management to support making of decisions, creating and protecting the company’s value. The
process of risk management enables the risk of the business’s objectives to be managed effectively, making it possible to
influence and align strategy and performance in all the areas of the company.
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Since 2016 Cemig’s corporate
risk management activity is subordinated to the office of the CEO. In 2019, a separate senior management unit, Compliance, Corporate
Risks and Internal Controls, was created, bringing the processes of risk management and internal controls together under a single
administration. This change underlines the intention to increase the synergy between these processes, and the independence from
other processes – so as to supply senior management with independent information for decision-making, preserving the value
of the company.
Thus, in 2019, the Executive
Board and the Board of Directors approved the ‘Top Risks’ corporate risk matrix, for the years 2019/2020, which comprehends
business such as Generation, Transmission, Distribution, Trading, Distributed Generation (‘Geração Distribuída’),
Holding as well as ordinary business risks.
These risks, related to execution
of strategy and scenarios, and also risks of conflicts of interest, fraud and corruption are under responsibility of the Chief
Officers and they are monitored and reported periodically to the Management.
Each Chief Officer’s
Department has responsibility for monitoring and managing the Company’s exposure to these risks as they relate to execution
of strategy and scenarios, and also risks of conflicts of interest, fraud and corruption. The Chief Officers report on this monitoring
periodically to senior management.
In 2019, the Company hired
an expert consulting firm to support the review of internal control and risk matrix as well as to monitor periodically the execution
and sufficiency of controls, analysis of failure/weakness and to support the remediation plans development and execution.
The matrix of internal controls
is also revised and approved annually. The Risk Management and Internal Controls Unit tests and monitors the controls design. The
internal audit, in its turn, monitors independently the internal control practices by testing control effectiveness. The conclusion
of this assessment is reported periodically to the Board of Directors, the Audit Board, and the Audit Committee.
The internal controls provide
reasonable assurance that errors and frauds that might cause an impact on the performance are detected and prevented, aimed at:
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Operational effectiveness and efficiency
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Reliable financial reporting
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§
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Compliance with laws, regulations and policies.
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The controls linked to mitigation
of risks associated with preparation and publication of the financial statements are a part of Cemig’s Risks and Internal
Controls Matrix. The financial statements are issued in accordance with Section 404 of the Sarbanes-Oxley Law and the rules of
the US Public Company Accounting Oversight Board (PCAOB), included as part of the annual 20-F Report filed with the US Securities
and Exchange Commission (SEC). Cemig obtained the first certification of its internal controls for the business year of 2006, filed
with the US Securities and Exchange Commission (SEC) on July 23, 2007.
Statement of Ethical
Principles and Code of Professional Conduct
On May 11, 2004 Cemig’s
Board of Directors approved the Statement of Ethical Principles and Code of Professional Conduct, which aims to orient and discipline
everyone acting in the name of, or interacting with, Cemig, to ensure ethical behavior at all times, and always in accordance with
the law and regulations. The code can be seen at http://ri.cemig.com.br. It was updated in 2018 and in 2019 to comply with the
laws n. 12,486/2013 and n. 13,303/2016. Annually, the Company provide training on Statement of Ethical Principles and Code of Professional
Conduct for all its employees.
The Ethics Committee
This was created on August
12, 2004, and is responsible for coordinating action in relation to management (interpretation, publicizing, application and updating)
of the Statement of Ethical Principles and Code of Professional Conduct, including assessment of and decision on any possible non-compliances
with Cemig’s Code of Ethics.
The Committee has eight sitting
members. It may be contacted through our Ethics Channel – the anonymous reporting channel on the corporate Intranet, or by
email, internal or external letter or by an exclusive phone line – these means of communication are widely publicized internally
to all staff. These channels enable both reports of adverse activity and also consultations. Reports may result in opening of proceedings
to assess any non-compliances with Cemig’s Statement of Ethical Principles and Code of Professional Conduct.
The Ethics Channel
Cemig installed this means
of communication, available on the internal corporate Intranet, in December 2006.
Through it the Ethics Committee
can receive anonymous reports or accusations that can enable Cemig to detect irregular practices that are contrary to its interest,
such as: financial fraud, including adulteration, falsification or suppression of financial, tax or accounting documents; misappropriation
of goods or funds; receipt of undue advantages by managers or employees; irregular contracting; and other practices considered
to be illegal.
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It is one more step in improving
Cemig’s transparency, compliance with legislation, and alignment with best corporate governance practices. It improves the
management of internal controls and dissemination of the ethical culture to Cemig’s employees in the cause of optimum compliance
by our business.
Anti-fraud Policy
In
its business and activities, Cemig does not accept the practice and concealment of acts of fraud or corruption in all its forms.
Suspicions and allegations of such acts are rigorously assessed and where proven, apply disciplinary procedures set out in the
internal rules of the Company, as well as lawsuits and criminal charges, when applicable.
Thus,
in 2012, Cemig consolidated its Anti-Fraud Policy is applicable to all members of the Board of Directors and Fiscal Officers, employees
and contractors. The policy underscores the Company's commitment to the Global Compact principles on the subject, particularly
the principle of number ten, which deals with combating corruption in all its forms, including extortion and bribery.
SHAREHOLDING POSITION OF
HOLDERS OF
MORE THAN 5% OF THE VOTING
STOCK ON JUNE 30, 2020
|
|
COMMON SHARES
|
%
|
PREFERRED SHARES
|
%
|
TOTAL SHARES
|
%
|
|
Estado de Minas Gerais
|
248,516,953
|
50.96
|
11,323
|
-
|
248,528,276
|
17.04
|
|
FIA Dinâmica Energia S/A
|
48,772,500
|
10.00
|
49,914,344
|
5.14
|
102,394,844
|
7.02
|
|
BNDESPAR
|
54,342,992
|
11.14
|
26,220,938
|
2.70
|
80,563,930
|
5.52
|
CONSOLIDATED SHAREHOLDING
POSITION OF
THE CONTROLLING SHAREHOLDERS
AND MANAGERS, AND FREE FLOAT,
ON JUNE 30, 2020
|
|
January to June 2020
|
|
ON
|
PN
|
|
Controlling
shareholder
|
248,516,953
|
11,323
|
|
Board
of Directors
|
-
|
16,600
|
|
Executive
Board
|
1
|
10,400
|
|
Shares
in Treasury
|
69
|
560,649
|
|
Free
float
|
239,097,190
|
970,539,416
|
|
TOTAL
|
487,614,213
|
971,138,388
|
Investor Relations
In 2019 we expanded Cemig’s
exposure to the Brazilian and global capital markets, through strategic actions intended to enable investors and shareholders to
make a correct valuation of our businesses and our prospects for growth and addition of value.
We maintain a constant and
proactive flow of communication with Cemig’s investor market, continually reinforcing our credibility, seeking to increase
investors’ interest in the Company’s shares, and to ensure their satisfaction with our shares as an investment.
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Our results are published
through presentations transmitted via video webcast and telephone conference calls, with simultaneous translation in English, always
with members of the Executive Board present, developing a relationship that is increasingly transparent and in keeping with best
corporate government practices.
To serve our shareholders
– who are spread over more than 40 countries – and to facilitate optimum coverage of investors, Cemig has been present
in and outside Brazil at a very large number of events, including seminars, conferences, investor meetings, congresses, roadshows,
and events such as Money Shows; as well as holding phone and video conference calls with analysts, investors and others interested
in the capital markets.
At the end of May 2019, we
held our 24rd Annual Meeting with the Capital Markets, in Belo Horizonte, Minas Gerais – where market professionals had the
opportunity to interact with the Company’s directors and principal executives.
Corporate governance
Our corporate governance model
is based on principles of transparency, equity and accountability, focusing on clear definition of the roles and responsibilities
of the Board of Directors and the Executive Board in the formulation, approval and execution of policies and guidelines for managing
the Company’s business.
We seek sustainable development
of the Company through balance between the economic, financial, environmental and social aspects of our enterprises, aiming always
to improve the relationship with shareholders, customers, and employees, the public at large and other stakeholders.
Cemig’s preferred and
common shares (tickers: CMIG4 and CMIG3 respectively) have been listed at Corporate Governance Level 1 on the São Paulo
Stock Exchange since 2001. This classification represents a guarantee to our shareholders of optimum reporting of information,
and also that shareholdings are relatively widely dispersed. Because Cemig has ADRs (American Depositary Receipts) listed on the
New York Stock Exchange, representing its preferred (PN) shares (ticker CIG) and common (ON) shares (ticker CIG.C), it is also
subject to the regulations of the US Securities and Exchange Commission (SEC) and the New York Stock Exchange Listed Company Manual.
Our preferred shares have also been listed on the Latibex of the Madrid stock exchange (with ticker XCMIG) since 2002.
In June 11, 2018 an Extraordinary
Meeting of Shareholders approved alterations to the Company’s bylaws, to maintain best corporate governance practices, and
adapt to Law 13,303/2016 (also known as the State Companies Law).
The improvements now formally
incorporated in the by-laws include:
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§
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Reduction of the number of members of the Board of Directors from 15 to 9, in line with the IBGC Best Corporate Governance Practices Code, and the Corporate Sustainability Evaluation Manual of the Dow Jones Sustainability Index.
|
|
|
§
|
Creation of the Audit Committee (Comitê de Auditoria). The Audit Board (Conselho Fiscal) remains in existence.
|
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§
|
The Policy on Eligibility and Evaluation for nomination of a member of the Board of Directors and/or the Executive Board in subsidiary and affiliated companies.
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§
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The Related Party Transactions Policy.
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|
§
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Formal designation for the Board of Directors to ensure implementation of and supervision of the Company’s systems of risks and internal controls.
|
|
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§
|
Optional power for the Executive Board to expand the technical committees (on which members are career employees), with autonomy to make decisions in specific subjects.
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§
|
The CEO now to be responsible for directing compliance and corporate risk management activities.
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|
|
§
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Greater emphasis on the Company’s control functions: internal audit, compliance, and corporate risk management.
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|
§
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Adoption of an arbitration chamber for resolution of any disputes between the Company, its shareholders, managers, and/or members of the Audit Board.
|
* * * * * * * * * *
* *
(The original is signed
by the following signatories)
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Reynaldo Passanezi Filho
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Dimas Costa
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Leonardo George de Magalhães
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Chief Executive Officer
|
Chief Trading Officer
|
Chief Finance and Investor Relations
Officer cumulatively with charge of Controller
CRC-MG 53,140
|
|
|
|
|
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Ronaldo Gomes de Abreu
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|
Rafael Falcão Noda
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|
Chief Distribution Officer
|
|
Chief Officer Cemigpar
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Paulo Mota Henriques
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Eduardo Soares
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Chief Generation and Transmission Officer
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Chief Regulation and Legal
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|
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Carolina Luiza F. A. C. de Senna
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|
|
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Financial Accounting and Equity
Interests Manager
Accountant – CRC-MG 77,839
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Table of Contents
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Edifício Phelps Offices Towers
Rua Antônio de Albuquerque, 156
11º andar - Savassi
30112-010 - Belo Horizonte - MG - Brasil
Tel: +55 31 3232-2100
Fax: +55 31 3232-2106
ey.com.br
|
A free translation from Portuguese into English
of Independent Auditor’s Review Report on Quarterly Information prepared in Brazilian currency in accordance with accounting
practices adopted in Brazil and International Financial Reporting Standards (IFRS), issued by International Accounting Standards
Board – IASB
Independent Auditor’s Review Report
on Quarterly Information - ITR
To the Shareholders and Management of
Companhia Energética
de Minas Gerais - CEMIGBelo Horizonte - MG
Introduction
We have reviewed the accompanying individual
and consolidated interim financial information, contained in the Quarterly Information Form (ITR) of Companhia Energética
de Minas Gerais - CEMIG (the “Company”), for the quarter ended June 30, 2020, comprising the statements of financial
position as at June 30, 2020, and the related statements of profit or loss, of comprehensive income for the three and six month
periods then ended, and of changes in equity and cash flows for the six-month period then ended, including the explanatory notes.
Management is responsible for preparation of
the individual and consolidated interim financial information in accordance with Accounting Pronouncement NBC TG 21 – Interim
Financial Reporting and IAS 34 – Interim Financial Reporting, issued by the International Accounting Standards Board (IASB),
as well as for the fair presentation of this information in conformity with the rules issued by the Brazilian Securities and Exchange
Commission (CVM) applicable to the preparation of the Quarterly Information Form (ITR). Our responsibility is to express a conclusion
on this interim financial information based on our review.
Scope of review
We conducted our review in accordance with Brazilian
and international standards on review engagements (NBC TR 2410 and ISRE 2410 - Review of Interim Financial Information performed
by the Independent Auditor of the Entity, respectively). A review of interim financial information consists of making inquiries,
primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review
is substantially less in scope than an audit conducted in accordance with auditing standards and consequently does not enable us
to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we
do not express an audit opinion.
Conclusion on the individual and consolidated
interim financial information
Based on our review, nothing has come to our
attention that causes us to believe that the accompanying individual and consolidated interim financial information included in
the quarterly information referred to above are not prepared, in all material respects, in accordance with NBC TG 21 and IAS 34,
applicable to the preparation of Quarterly Information Form (ITR), and presented consistently with the rules issued by the Brazilian
Securities and Exchange Commission (CVM).
Emphasis of matters
Risks related to compliance with laws and
regulations
As mentioned in Note 15 to the individual and
consolidated interim financial information, currently investigations and other legal measures are being conducted by public authorities
in connection with the Company and certain investees regarding certain expenditures and their allocations, which involve and also
include some of its other shareholders and certain executives of the Company and of these other shareholders. The governance bodies
of the Company have authorized engaging a specialized company to analyze the internal procedures related to these certain investments
and to ascertain such claims. The internal and independent investigation was completed, and the corresponding report was delivered
on May 8, 2020, with the conclusion that no evidence has been identified to support the preliminarily investigated allegations.
Thus far, it is not possible to predict future developments arising from investigations conducted by public authorities, or their
possible impact on the interim financial information of the Company and its subsidiaries. Our conclusion is not modified in respect
of this matter.
Risk regarding the ability of jointly-controlled
entity Renova Energia S.A. to continue as a going concern
As disclosed in Note 15 to the individual and
consolidated interim financial information, on December 17, 2019, under the terms of Law No. 11101/05, the jointly-controlled
entity Renova Energia S.A. and some of its subsidiaries filed its first court-supervised reorganization plan, and on July 7,2020
two others reorganization plans were filed. The reorganization plan of the jointly-controlled entity is still in progress on the
second State of São Paulo Bankruptcy and Court-Supervised Reorganization Court. The jointly-controlled entity shall submit
the court-supervised reorganization plan to the General Meeting of Creditors approval in accordance with the terms and conditions
established by the referred Law. The jointly-controlled entity is in the process of discussing such plan and up to the present
date has not measured the possible effects on its accounting balances. In addition, the jointly-controlled entity has incurred
recurring losses and, as at June 30, 2020, has negative net working capital, equity deficit and negative gross margin. These events
or conditions indicate the existence of relevant uncertainty that may raise significant doubt about the ability of this jointly-controlled
entity to continue as a going concern. Our conclusion is not modified in respect of this matter.
Other matters
Statements of value added
The above mentioned quarterly information include
the individual and consolidated statements of value added (SVA) for the six-month period ended June 30, 2020, prepared under Company’s
Management responsibility and presented as supplementary information by IAS 34. These statements have been subjected to review
procedures performed together with the review of the quarterly information with the objective to conclude whether they are reconciled
to the interim financial information and the accounting records, as applicable, and if its format and content are in accordance
with the criteria set forth by NBC TG 09 – Statement of Value Added. Based on our review, nothing has come to our attention
that causes us to believe that they were not prepared, in all material respects, consistently with the overall individual and consolidated
interim financial information.
Belo Horizonte (MG), August 14, 2020.
ERNST & YOUNG
Auditores Independentes S.S.
CRC-2SP015199/O-6
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Shirley Nara S. Silva
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|
Accountant CRC-1BA022650/O-0
|
4.
Minutes of the Ordinary and Extraordinary General Meetings of Stockholders Held On July 31, 2020.
COMPANHIA ENERGÉTICA DE
MINAS GERAIS
CEMIG
CNPJ 17.155.730/0001-64 – NIRE
31300040127
MINUTES
OF THE
ORDINARY AND EXTRAORDINARY
GENERAL MEETINGS OF STOCKHOLDERS
HELD ON
JULY 31, 2020
Date, time and place:
July 31, 2020, at 11 a.m., held
exclusively online in accordance with CVM Normative Instruction 622/2020.
Convocation and publication:
The Meeting was regularly called
by publication of the convocation announcement on July 1, 2 and 3, 2020, in the publication Minas Gerais, on pages 19, 61
and 18 respectively, and in O Tempo on page 20. The Report of Management and the financial statements for 2019, and the
related complementary documents, were widely published by the press, and placed at the disposal of stockholders on April 24, 2020,
in Minas Gerais, on pages 16 to 56 of ‘Caderno 1’, and in O Tempo on pages 2 to 42 in the Financial
Reports section (‘Caderno Balanço’). The summary statement of votes by Remote Voting Form was published
to the market on July 29 and 30, 2020, and will be at the disposal of stockholders for them to examine.
Attendance, quorum:
Stockholders representing 76.73%
of the voting stock were present. The following were also present: Leonardo George de Magalhães, Chief Finance and Investor
Relations Officer; Eduardo Soares, Chief Counsel and Chief Officer for Regulation; Cláudio Morais Machado, member of the
Audit Board; Pedro Carlos de Mello, member of the Audit Committee; and Bruno Costa Oliveira, for Ernst & Young Auditores Independentes
S/S.
Meeting committee:
The meeting was chaired by Mr.
Antônio Carlos Vélez Braga. He invited me, Carlos Henrique Cordeiro Finholdt, to be Secretary of the
meeting. The meeting having been opened, stockholders unanimously approved issuance of these minutes in summary form. Stockholders
had the right to present statements of vote, and/or statements of protest or dissidence, it being required that these be numbered
and authenticated by the Meeting Committee, and filed at the Company’s head office.
230
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
Agenda of the Meeting:
Decisions on the following:
|
|
1.
|
Approval of the Report of Management and the Financial Statements for the year ended December 31, 2019, accompanied by the related complementary documents.
|
|
|
2.
|
Allocation of the net profit for the business year 2019, of R$ 3,127,398,000, and realization of the Equity Revaluation reserve, of R$ 24,812,000.
|
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3.
|
Election of the members of the Board of Directors and the Audit Board, due to completion of their period of office.
|
|
|
4.
|
Decision on the annual global remuneration of the Managers, the members of the Audit Board, and the Audit Committee.
|
|
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5.
|
Increase in the share capital by creation of new shares and consequent alteration and consolidation of the by-laws.
|
Reading of documents and receipt
of votes:
Reading of the documents related to the matters
on the agenda of the meeting was dispensed with, unanimously, since their content was entirely known to the stockholders.
Decisions:
|
|
1
|
Approval, by majority, as per the final voting summary attached, of the Report of Management and the Financial Statements for the year ended December 31, 2019, and the related complementary documents.
|
|
|
2
|
Allocation of the net profit for 2019, of R$ 3,127,398,000, and realization of the Equity Revaluation Reserve in the amount of R$ 24,812,000, as follows:
|
|
|
I)
|
R$ 764,181,000 as minimum obligatory dividend, to be paid to the Company’s stockholders, as to: R$ 400,000,000 in the form of Interest on Equity (‘JCP’), to be paid by in two equal installments, to stockholders on the Company’s Nominal Share Register on December 23, 2019; and R$ 364,181,000 in the form of dividends, to be paid by December 30, 2020, to stockholders whose names were on the Company’s Nominal Share Registry on the date of this Meeting.
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|
(II)
|
R$ 834,603,000 to be allocated to the Future Earnings reserve, considering that the aggregate positive profits in non-consolidated investees are positive, but not yet financially realized;
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(III)
|
R$ 1,535,170 to be held in Stockholders’ equity in the Retained Earnings reserve, to ensure funding for the Company’s planned consolidated investments for 2020, in accordance with a capital budget; and
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|
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(IV)
|
R$ 18,256,000 to be held in Stockholders’ equity in the Tax Incentives reserve, for tax incentive gains obtained in 2019 as a result of profits realized in the region of Sudene.
|
The following members of the Board
of Directors and the Audit Board, nominated by the stockholders, were elected with period of office of two years, i.e. up to the
AGM to be held in 2022 – with a separate vote moved by the stockholder BNDES Participações S.A. (BNDESPar),
which will be filed by the Company:
231
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
3.1 Board
of Directors:
|
|
(I)
|
A separate vote was held, in which votes representing 337,631,121 shares, attributed by the representative of the holders of preferred shares, elected:
|
|
|
|
José João Abdalla Filho
|
– Brazilian, unmarried, economist, domiciled in Rio de Janeiro, RJ, at Av. Presidente Vargas 463, 13th floor, Centro, CEP 20071-908, bearer of Identity Card 1.439.471, SSP/SP, and CPF 245730788-00.
|
|
|
(II)
|
By adoption of the multiple vote, on nominations by the majority stockholder, as per Official Notices SEDE/SECAD 54/2020, of June 8, 2020, and SEDE/CHEFEGAB 280/2020, of July 14, 2020:
|
with 49,871,640
votes in favor:
|
|
|
Márcio Luiz Simões Utsch
|
– Brazilian, widower, graduate in law, domiciled in São Paulo, SP, at Rua Lourenço de Almeida 487, Apto 71, Vila Nova Conceição, CEP 04508-000, bearer of Identity Card M1.167.351 SSP/MG, and CPF 220418776-34;
|
with 51,179,937
votes in favor:
|
|
|
Antônio Rodrigues dos Santos e Junqueira
|
– Brazilian, married, company manager, domiciled in São Paulo, SP, at Rua Amauri, 255, 5th floor, Itaim, CEP 01424-000, Identity Card 07405196-2 DIC/RJ and CPF 093966667-77;
|
with 51,211,215
votes in favor:
|
|
|
Cledorvino Belini
|
– Brazilian, married, company manager, domiciled in Nova Lima, Minas Gerais at Av. Alpina 16, Condomínio Vila Alpina, CEP 34007-294, Identity Card M6.539.933 SSP/MG, and CPF 116050068-15;
|
with 51,165,129
votes in favor:
|
|
|
José Reinaldo Magalhães
|
– Brazilian, married, economist, domiciled in Rio de Janeiro, RJ, at Rua Nascimento Silva 224, Apto 301, Ipanema, CEP 22421-024, bearer of Identity Card M-607363 SSP/MG and CPF 227177906-59;
|
with
51,315,297 votes in favor:
|
|
|
Afonso Henriques Moreira Santos
|
– Brazilian, married, electrical engineer, domiciled at Itajubá, Minas Gerais, at Rua Cel. Joaquim Francisco 341, Varginha, CEP 37501-052, bearer of Identity Card MG737.136 SSP/MG and CPF 271628506-34;
|
|
|
(III)
|
Election, by adoption of the multiple vote system, on nomination by the stockholder Fundo de Investimentos em Ações Dinâmica Energia (FIA Dinâmica),
|
with 54,582,820
votes in favor:
|
|
|
Marcelo Gasparino da Silva
|
– Brazilian, married, lawyer, domiciled in Florianópolis, Santa Catarina, at Rua Esteves Júnior 605, Bloco A, Apto 1411, Centro, CEP 88015-130, Identity Card 2302967 SSP/SC, and CPF 807383469-34;
|
|
|
(IV)
|
Election, by adoption of the multiple vote system, on nomination by the stockholder BNDES Participações S.A. (BNDESPar),
|
with 56,117,360
votes in favor:
|
|
|
Paulo César de Souza e Silva
|
– Brazilian, company manager, domiciled in São Paulo, SP, at Rua Dr. Renato Paes de Barros 296, Itaim Bibi, CEP 04530-906, bearer of Identity Card 3.962.200 SSP/SP and CPF 032220118-77.
|
The Board
of Directors is thus now constituted as follows:
|
Márcio Luiz Simões Utsch
|
nominated by the majority stockholder
|
|
Antônio Rodrigues dos Santos e Junqueira
|
nominated by the majority stockholder
|
|
Cledorvino Belini
|
nominated by the majority stockholder
|
|
José Reinaldo Magalhães
|
nominated by the majority stockholder
|
|
Afonso Henriques Moreira Santos
|
nominated by the majority stockholder
|
|
José João Abdalla Filho
|
nominated by a preferred stockholder
|
|
Marcelo Gasparino da Silva
|
nominated by the minority stockholders
|
|
Paulo Cesar de Souza e Silva
|
nominated by the minority stockholders
|
|
Marco Aurélio Dumont Porto
|
representative of the employees
|
232
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
3.2 The
Audit Board:
|
|
(I)
|
A separate vote was held, in which votes representing 411,235,594 shares, attributed by the representative of the holders of preferred shares, elected, as a sitting member:
|
|
|
|
Michele da Silva Gonsales Torres
|
– Brazilian, married, lawyer, domiciled in São Paulo, SP, at Rua Sabará 402/ 42, Higienópolis, CEP 01239-010, Identity Card 33347425-9 SSP/SP and CPF 324731878-00,
|
and as
her substitute member
|
|
|
Ronaldo Dias
|
– Brazilian, married, accountant, domiciled in Rio de Janeiro, RJ, at Rua Maxwell 452/704, Vila Isabel, CEP 20541-125, bearer of Identity Card 2201087-0 IFP/RJ, and CPF 221285307-68.
|
|
|
(II)
|
By the separate vote procedure, representatives of the minority holders of common shares,
|
with votes
representing 116,901,292 common shares elected, as sitting member:
|
|
|
Cláudio Morais Machado
|
– Brazilian, married, accountant, domiciled in Porto Alegre, Santa Catarina, at Rua Gen. Rondon 411, Casa, Tristeza, CEP 91900-120, Identity Card 9002545292 SSP/RS, and CPF 070068530-87,
|
and as
his substitute member
|
|
|
Carlos Roberto de Albuquerque Sá
|
– Brazilian, divorced, economist and accountant, domiciled in São Paulo, SP, at Alameda Jauaperi 755, Apto 132, Moema, CEP 04523-013, Identity Card 8842-0 CRE/RJ, and CPF 212107217-91.
|
|
|
(III)
|
On nominations by the majority stockholder, as per Official Notices SEDE/SECAD 54/2020, of June 8, 2020, and SEDE/CHEFEGAB 280/2020, of July 14, 2020:
|
with 91,664,452
votes in favor, as sitting member:
|
|
|
Gustavo de Oliveira Barbosa
|
– Brazilian, married, accountant, domiciled in Rio de Janeiro, RJ, at Rua Prudente de Morais 985, Apto 701, Ipanema, CEP 22420-041, Identity Card M3050541 SSP/MG and CPF 494126476-20,
|
and as
his substitute member
|
|
|
Germano Luiz Gomes Vieira
|
– Brazilian, lawyer, domiciled in Belo Horizonte, Minas Gerais at Rua Vereador Washington Walfrido 116, Buritis 123/301, CEP 30575-170, Identity Card M9274.686 SSP/MG and CPF 051529976-65;
|
with 91,652,743
votes in favor, as sitting member:
|
|
|
Marco Aurélio de Barcelos Silva
|
– Brazilian, single, lawyer, domiciled in Belo Horizonte, MG, at Rua Dom Rodrigo 161, Apto 603, Indaiá, CEP 31270-165, Identity Card MG10.545.332 SSP/MG and CPF 013543946-90, and as his alternate member
|
and
as his substitute member
|
|
|
Carlos Eduardo Amaral Pereira da Silva
|
– Brazilian, married, doctor, domiciled in Juiz de Fora, Minas Gerais, at Rua Senador Salgado Filho 510, Apto 1102, Bom Pastor, CEP 36021-660, bearer of Identity Card M6649324 SSP, SSP/MG, and CPF 898977736-49;
|
with 91,681,177
votes in favor, as sitting member:
|
|
|
Elizabeth Jucá e Mello Jacometti
|
– Brazilian, economist, domiciled in Juiz de Fora, Minas Gerais, at Rua São Sebastião 1035, Apto 601, Centro, CEP 36015-410, Identity Card MG1.406.836 PC/MG, and CPF 454965956-49,
|
and
as her substitute member
|
|
|
Fernando Passalio de Avelar
|
– Brazilian, married, company manager, domiciled in Belo Horizonte, MG, at R. Desembargador Leão Starling 420, Ouro Preto, CEP 31310-370, Identity Card 01.056443/D CRA/MG, and CPF 027397026-71.
|
The Audit Board is thus now constituted as
follows:
|
SITTING MEMBERS
|
|
Gustavo de Oliveira Barbosa
|
nominated by majority stockholder
|
|
Marco Aurélio de Barcelos Silva
|
nominated by majority stockholder
|
|
Elizabeth Jucá e Mello Jacometti
|
nominated by majority stockholder
|
|
Michele da Silva Gonsales Torres
|
nominated by holders of preferred shares
|
|
Cláudio Morais Machado
|
nominated by minority stockholder
|
|
SUBSTITUTE MEMBERS
|
|
Germano Luiz Gomes Vieira
|
majority stockholder
|
|
Carlos Eduardo Pereira da Silva
|
majority stockholder
|
|
Fernando Passalio de Avelar
|
majority stockholder
|
|
Ronaldo Dias
|
holders of preferred shares
|
|
Carlos Roberto de Albuquerque Sá
|
minority stockholders
|
233
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
All the elected members had been
previously analyzed by the governance bodies, including by the Audit Committee. They declared in advance that they are not the
subject of any prohibition on exercise of commercial activity, that they comply with the legal requirements and are not subject
to any of the prohibitions described in Law 6404/1976, Law 13303/2016, or any of the other applicable rules or regulations. They
further made a solemn commitment to become aware of, obey and comply with the principles, ethical values and rules established
by the Code of Professional Conduct of Cemig, and the Code of Ethical Conduct of Government Workers and Senior Administration of
the State of Minas Gerais.
|
|
4
|
Approval, by majority, as per the final voting record, attached hereto, and a separate vote moved by the stockholder BNDES Participações S.A. (BNDESPar), which will be filed by the Company, of the proposal for remuneration of the Managers – comprising the Board of Directors, the Executive Board, and the members of the Audit Board and the Audit Committee – of a global annual amount of up to R$ 23,259,187.88 (twenty three million two hundred fifty nine thousand one hundred eighty seven Reais and eighty eight centavos), with no alteration to the individual amounts currently in effect.
|
|
|
5
|
Approval, by majority, of:
|
|
|
(I)
|
Increase in the share capital
|
|
|
from
|
R$ 7,293,763,005
|
(seven billion two hundred ninety three million seven hundred sixty three thousand five Reais)
|
|
|
to
|
R$ 7,593,763,005
|
(seven billion five hundred ninety three million seven hundred sixty three thousand five Reais),
|
|
|
by issuance of
|
sixty million
|
new shares,
|
|
|
comprising
|
20,056,076
|
(twenty million fifty six thousand seventy six)
|
nominal
common shares
|
|
and
|
39,943,924
|
(thirty nine million nine hundred forty three thousand nine hundred twenty four)
|
nominal
preferred shares,
|
|
all with par value of
|
R$ 5.00
|
(five Reais),
|
|
|
by capitalization of
|
R$ 300,000,000
|
(three hundred million Reais)
|
from the
Retained Earnings reserve,
thus distributing
to stockholders new shares
|
|
in the proportion of
|
4.113103206%
|
of the same type as they hold, each with
|
|
|
nominal (par) value
|
R$ 5.00
|
(five Reais).
|
|
|
(II)
|
Redrafting of the head paragraph of Clause 4 of the by-laws as follows, with consolidation of the bylaws to include this change, in the form presented in Appendix 1 to these minutes:
|
“
Clause 4 The share capital of the Company is R$ 7,593,763,005.00 (seven billion five hundred ninety
three million seven hundred sixty three thousand and five Reais), represented by:
|
|
a)
|
507,670,289 (five hundred seven million six hundred seventy thousand two hundred eighty nine) nominal common shares each with nominal value of R$ 5.00 (five Reais); and
|
|
|
b)
|
1,011,082,312 (one billion eleven million eighty two thousand three hundred twelve) nominal preferred shares each with nominal value of R$ 5.00 (five Reais).”
|
|
|
(III)
|
The following measures to be taken by the Executive Board in relation to the issue of new shares:
|
|
|
a)
|
attribute an issue of new shares in the proportion of 4.113103206% to and of the same type as those held, to the holders of the current share capital of R$ 7,293,763,005 whose names are on the Company’s Nominal Share Registry on the date of this Meeting;
|
234
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
b)
|
establish that all the shares resulting from the said capital increase shall have the same rights as the corresponding existing shares, excluding any corporate action payments decided or to be decided;
|
|
|
c)
|
sell, on the stock exchange, the whole numbers of nominal shares resulting from the sum of remaining fractions arising from the issue of new shares; and
|
|
|
d)
|
Distribute the net proceeds of the sale of the fractions to stockholders on the same date as payment of dividends or interest on Equity for the 2019 business year.
|
Closing:
The meeting being opened to the floor, and
since no-one wished to make any statements, these minutes were written, read, approved unanimously, and signed by me, Carlos Henrique
Cordeiro Finholdt, Secretary of the Meeting, and by Carlos Velez, as specified in the applicable legislation.
|
Secretary of the Meeting
|
Carlos Henrique Cordeiro Finholdt
|
|
|
Chair of the Meeting
|
Antônio Carlos Vélez Braga
|
|
|
For the Executive Board:
|
Leonardo George Magalhães,
Eduardo Soares
|
|
|
For the Audit Board:
|
Cláudio Morais Machado
|
|
|
For the Audit Committee:
|
Pedro Carlos de Mello,
Roberto Tommasetti
|
|
|
For Ernst & Young Auditores Independentes S/S.
|
Bruno Costa Oliveira
|
|
|
For the stockholder Romário Fernando da Silva:
|
Virginia Kirchmeyer Vieira
|
|
|
For the stockholder State of Minas Gerais
|
Rafael Rezende Faria
|
|
|
For the stockholder BNDES Participações S.A. – BNDESPar
|
Thiago Tadeu da Silva Costa
|
|
|
For the
stockholders:
|
|
|
|
Fundo de Investimento de Ações Dinâmica Energia -Fia Dinâmica;
|
|
|
|
Luiz
Barsi Filho;
Stichting
Juridich Eigenaar Actiam Beleggingsfondsen;
The
New Zealand Guardian Trust Company Limited in its Capacity as Trustee of the BNZ Wholesale International Equities (Index) Fund;
Phoenix
Umbrella Fund-Phoenix GBaR Fund;
HSBC
ETFS Public Limited Company;
Conti
International;
Global
Multi-Factor Equity Fund;
Citibank
N.A.;
|
Daniel Alves Ferreira
|
|
Nuveen ESG Emerging Markets Equity ETF
|
|
|
|
|
|
|
|
|
Stockholders:
|
Alexandre Eustáquio Sydney Horta
|
Alexandre de Queiroz Rodriguez
|
|
|
|
Alexandre Nunes da Cunha
|
Ana Ribeiro
|
|
|
|
André Luiz Fernandes
|
Bruno Benedeti Teixeira de Freitas
|
|
|
|
Caroline Sousa Franco
|
Eneida Claussen
|
|
|
|
Felippe Marques
|
Francisco Antônio Ferreira de Almeida
|
|
|
|
Inácio Tarciso Kugik
|
Jhonald Hernandez
|
|
|
|
João Filipe Gomes Pinto
|
Jonizio Pina
|
|
|
|
Joubert Marinho do Nascimento
|
Juliano Klug
|
|
|
|
Marcio Luiz Barbosa
|
Paulo Augusto Raymundo Pereira
|
|
|
|
Paulo Ervilha Paleta
|
Raphael Silveira Amaro
|
|
|
|
Regina Andrade
|
Rebeca Rossi Brasileiro
|
|
|
|
|
|
|
|
235
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
Rogério Henrique Costa Matos
|
Roberto do Prado Júnior
|
|
|
Valter Palmeira
|
|
|
|
|
|
|
236
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
COMPANHIA ENERGÉTICA DE MINAS GERAIS
– CEMIG
BY-LAWS
CHAPTER I
Name, constitution, objects, head office and duration
|
Clause 1
|
Companhia Energética de Minas Gerais – Cemig, constituted on May 22, 1952 as a corporation with mixed private and public sector stockholdings, is governed by these by-laws and by the applicable legislation, and its objects are:
|
|
|
–
|
to build, operate and make commercial use of systems for generation, transmission, distribution and sale of electricity, and related services;
|
|
|
–
|
to operate in the various fields of energy, from whatever source, with a view to economic and commercial operation;
|
|
|
–
|
to provide consultancy services within its field of operation to companies in and outside Brazil; and
|
|
|
–
|
to carry out activities directly or indirectly related to its objects, including development and commercial operation of telecommunication and information systems, technological research and development, and innovation.
|
|
|
§1
|
The activities specified in this Clause may be exercised directly by Cemig or, as intermediary, by companies constituted by it or in which it may hold a majority or minority stockholding interest, upon decision by the Board of Directors, under State Laws 828 of December 14, 1951, 8655 of September 18, 1984, 15290 of August 4, 2004 and 18695 of January 5, 2010.
|
|
|
§2
|
No subsidiary of Cemig, wholly-owned or otherwise, may take any action or make any decision which might affect the condition of the State of Minas Gerais as controlling stockholder of the Company, in the terms of the Constitution of the State of Minas Gerais and the legislation from time to time in force.
|
|
|
§3
|
Since the Company’s securities are traded on the special listing section known as Corporate Governance Level 1 on the São Paulo stock exchange (B3 S.A. – Brasil, Bolsa, Balcão), the Company, its stockholders, managers and members of the Audit Board are subject to the provisions of the Level 1 Corporate Governance Regulations of the B3 (under this or any name attributed to it in future).
|
|
Clause 2
|
The Company shall have its head office and management in Belo Horizonte, capital city of the State of Minas Gerais, Brazil, and may open offices, representations or any other establishments in or outside Brazil, upon authorization by the Executive Board.
|
|
Clause 3
|
The Company shall have indeterminate duration.
|
237
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER II
Share capital
|
Clause 4
|
The share capital of the Company is R$ 7,593,763,005.00 (seven billion five hundred ninety three million seven hundred sixty three thousand and five Reais), represented by:
|
|
|
a)
|
507,670,289 (five hundred seven million six hundred seventy thousand two hundred eighty nine) nominal common shares each with nominal value of R$ 5.00 (five Reais); and
|
|
|
b)
|
1,011,082,312 (one billion eleven million eighty two thousand three hundred twelve) nominal preferred shares each with nominal value of R$ 5.00 (five Reais).
|
|
|
§1
|
The right to vote is reserved exclusively for the common shares; each common share has the right to one vote in decisions of the General Meeting of Stockholders.
|
|
Clause 5
|
The preferred shares have right of preference in the event of reimbursement of shares and shall have the right to a minimum annual dividend of the greater of the following amounts:
|
|
|
a)
|
10% (ten percent) of their nominal value;
|
|
|
b)
|
3% (three percent) of the value of the stockholders’ equity corresponding to the shares.
|
|
Clause 6
|
The common shares and the preferred shares have equal rights to distribution of bonuses and stock dividends.
|
|
Clause 7
|
In business years in which the Company does not make enough profit to pay dividends to its stockholders, the State of Minas Gerais guarantees to the shares that were issued by the Company on or before August 5, 2004 and held by individual persons a minimum dividend of 6% (six percent) per year, under Clause 4 of State Law 15290/2004.
|
|
Clause 8
|
The State of Minas Gerais shall at all times obligatorily be the owner of the majority of the shares carrying the right to vote, and all its capital shall be subscribed in accordance with the legislation from time to time in force. Capital subscribed by other parties, whether individuals or legal entities, shall be paid in as specified by the General Meeting of Stockholders which decides on the subject.
|
|
|
§1
|
The Executive Board may, in order to obey a decision by a General Meeting of Stockholders, suspend the services of transfer and registry of shares, subject to the applicable legislation.
|
|
|
§2
|
Stockholders have the right of preference in subscription of increases in the share capital, and in issue of the Company’s securities, in accordance with the applicable legislation. There shall, however, be no right of preference when the increase in share capital is paid with resources arising from tax incentive systems, subject to the terms of §1 of Article 172 of Law 6404 of December 15, 1976, as amended.
|
|
Clause 9
|
The Company’s share capital may be increased by an amount equal to up to 10% (ten percent) of the share capital set in the by-laws, without need for change in the by-laws and upon decision by the Board of Directors, having previously heard statement of opinion by the Audit Board.
|
|
|
§1
|
As well as the other conditions relating to the issuance of new shares, the Board of Directors shall be the competent body for deciding the number of shares to be issued, the issue price, and the period and terms for paying up of shares subscribed.
|
238
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER III
The General Meeting of Stockholders
|
Clause 10
|
The General Meeting of Stockholders shall be held, ordinarily, within the first 4 (four) months of the year, for the purposes specified by law, and extraordinarily whenever necessary, and shall be called with minimum advance notice of 15 (fifteen) days, and the relevant provisions of law shall be obeyed in its convocation, opening and decisions.
|
|
|
§1
|
In the event that a provision of law or regulations alters this minimum period for convocation, that alteration shall prevail.
|
|
|
§2
|
Stockholders may be represented in General Meetings of Stockholders in the manner specified in Article 126 of Law 6404/1976, as amended, by showing at the time of the meeting, or by previously depositing at the Company’s head office, proof of ownership of the shares, issued by the depositary financial institution, accompanied by the identity document of, and a power of attorney granting specific powers to, the proxy.
|
|
Clause 11
|
Ordinary or Extraordinary General Meetings of Stockholders shall be chaired by a stockholder elected, by the Meeting, from among those present, and said stockholder shall choose one or more secretaries.
|
CHAPTER IV
Management
|
Clause 12
|
The Company shall be managed by the Board of Directors and the Executive Board.
|
|
|
§1
|
The structure and composition of the Board of Directors and the Executive Board shall be identical in the wholly-owned subsidiaries Cemig Distribuição S.A and Cemig Geração e Transmissão S.A., with occasional exceptions if approved by the Board of Directors.
|
|
|
§2
|
Where it is the competency of the Company to fill appointments to positions on the Board of Directors and/or Executive Board of the Company’s subsidiary or affiliated companies, the Company shall make nominations in accordance with criteria, and a policy, of eligibility and assessment approved by the Board of Directors.
|
|
|
§3
|
Where it is the competency of the Company to nominate candidates for positions on the Support Committees to the Boards of Directors of the subsidiaries and affiliated companies, these positions shall be filled in accordance with specific regulations, to be approved by the Boards of Directors of the respective subsidiaries or affiliated companies.
|
|
|
§4
|
In management of the Company, of the wholly-owned subsidiaries Cemig Distribuição S.A. and Cemig Geração e Transmissão S.A., and of the other subsidiaries or affiliates, and of the consortia in which any of them have direct or indirect holdings, the Board of Directors and the Executive Board shall obey the provisions of the Company’s Long-term Strategy.
|
|
|
§5
|
The Long-term Strategy shall contain grounds, targets, goals and results to be pursued and achieved in the long term by the Company, reflecting its dividend policy, and must obey the commitments and requirements specified in §7 of Clause 12 of these by-laws.
|
|
|
§6
|
The Company’s Multi-year Business Plan shall reflect the assumptions and premises of the Long-term Strategy, and shall contain the targets for 5 (five) years, including the Annual Budget.
|
|
|
§7
|
The Long-term Strategy, the Multi-year Business Plan and the Annual Budget shall be revised annually by the Executive Board and submitted no later than the last ordinary meeting of the Board of Directors of the prior year, for decision, in accordance with the applicable legislation.
|
239
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
§8
|
The Executive Board shall obey and comply with targets and limits established by the Board of Directors, especially in relation to indebtedness, liquidity, rates of return, investment and regulatory compliance.
|
|
|
§9
|
In companies in which the Company has an interest, whether controlling or otherwise, practices of governance and control must be adopted that are in proportion to the importance, materiality and the risks of the business.
|
|
|
§10
|
The Long-term Strategy, the Multi-year Business Plan and the Annual Budget shall be reflected in all plans, projections, activities, strategies, investments and expenses of the Company and its wholly-owned or other subsidiaries, affiliated companies or consortia in which it directly or indirectly holds an interest.
|
|
|
§11
|
The global or individual amount of the compensation of the Board of Directors, the Executive Board and the Audit Committee shall be set by the General Meeting of Stockholders, in accordance with the applicable legislation. Payment of any type of percentage or other participation in the profits of the Company to any member of the Audit Committee or the Board of Directors is forbidden, with the exception of the Board member representing the employees.
|
|
|
§12
|
For the purpose of improving the Company, every year the managers and the members of the committees shall undergo individual and collective performance evaluation, with the following minimal requirements:
|
|
|
a)
|
report on acts of management, as to lawfulness and efficacy of administrative action;
|
|
|
b)
|
contribution to the profit for the period; and
|
|
|
c)
|
achievement of the objectives established in the Multi-year Business Plan and compliance with the Long-term Strategy and the Annual Budget.
|
|
|
§13
|
The managers of the Company may not be sworn in unless they have agreed to and signed the applicable legal and regulatory commitments and documents. In the practice of their responsibilities they shall obey the requirements, prohibitions and obligations specified in the applicable legislation and regulations.
|
Section I
The Board of Directors
|
Clause 13
|
The Board of Directors of the Company comprises 9 (nine) members, of which one shall be the Chair, and another the Deputy Chair.
|
|
|
§1
|
The members of the Board of Directors shall be elected for concurrent periods of office of 2 (two) years by the General Meeting of Stockholders, and may be dismissed at any time by a General Meeting of Stockholders. Re-election, after the initial period of office, is permitted for a maximum of 3 (three) consecutive periods of office, subject to the requirements and prohibitions established in the applicable law and regulations.
|
|
|
§2
|
The following rules apply to the composition of the Board of Directors:
|
|
|
(a)
|
The following two groups of stockholders each have the right to elect one member, in separate votes, in accordance with the applicable law:
|
|
|
(i)
|
the minority holders of common shares; and
|
|
|
(ii)
|
the holders of preferred shares.
|
|
|
(b)
|
If there is a decision for the minority stockholders to exercise their option to use the multiple vote mechanism, under Article 141 of Law 6404/1976, at least 25% (twenty five per cent) of the members must be independent, or at least one of them.
|
|
|
(c)
|
The employees have the right to elect one member, subject to the terms of Federal Law 12353 of December 28, 2010, as applicable.
|
240
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
(d)
|
In any event, the majority of the members shall be elected by the controlling stockholder of the Company.
|
|
|
§3
|
For election and for actions taken in office, the member of the Board of Directors representing the employees is subject to all the criteria, requirements, impediments and prohibitions specified in Law 6404/1976, Law 13303 of June 30, 2016, and regulations made under those laws.
|
|
|
§4
|
Without prejudice to the impediments and prohibitions specified in these by-laws, the member of the Board of Directors representing the employees shall not take part in debate and decisions on subjects that involve union relationships, remuneration, and/or benefits, including matters relating to private pension plans and/or other assistance plans, and/or in any other situation in which a conflict of interest is characterized.
|
|
|
§5
|
The Boards of Directors of the wholly-owned subsidiaries Cemig Distribuição S.A. and Cemig Geração e Transmissão S.A. shall be made up of the same members elected to the Board of Directors of the Company, for periods running concurrently, from start to termination, with their membership of the Board of Directors of Cemig, being remunerated for only one of these positions.
|
|
|
§6
|
The posts of Chair of the Board of Directors and Chief Executive Officer of the Company may not be held by the same person.
|
|
|
§7
|
The members of the Board of Directors may have other remunerated activities, provided that there is no incompatibility of working time/hours and/or conflict of interests.
|
|
|
§8
|
The Board of Directors may confer delegation of powers to the Executive Board for approval and signature of legal transactions related to the ordinary acts of management, including sale of electricity.
|
|
Clause 14
|
In the event of a vacancy on the Board of Directors, the first subsequent General Meeting of Stockholders shall elect a new member, for the period of office that remained to the previous member.
|
|
|
§1
|
In this event, if the previous Board member was elected by a minority, the new member shall be elected by the same minority. The same rule shall be obeyed for the member representing the employees.
|
|
Clause 15
|
The Board of Directors shall meet ordinarily, in accordance with its Internal Regulations, at least once a month, to analyze the results of the Company and its wholly-owned and other subsidiaries and affiliated companies, and to decide on other matters included on the agenda. It shall also meet extraordinarily, on convocation by its Chair, or by its Deputy Chair, or by one-third of its members, or when requested by the Executive Board.
|
|
|
§1
|
Meetings of the Board of Directors shall be called by its Chair or Deputy Chair, with at least 10 (ten) days’ prior notice in writing or by email, containing the agenda. Convocation is not necessary when all the members of the Board of Directors, or their substitute members, are present. The Chair may call meetings of the Board of Directors on the basis of urgency without their being subject to this period of notice, provided that the other members of the Board are advised of the convocation.
|
|
|
§2
|
Decisions of the Board of Directors shall be taken by the majority of the votes of the Board Members present, and in the event of a tie the Chairman shall have the casting vote.
|
|
Clause 16
|
The Chair of the Board of Directors has the competency to grant leave to the Board’s members, and the other members of the Board have the competency to grant leave to the Chair.
|
|
Clause 17
|
The Chair and Vice-Chair of the Board of Directors shall be chosen by the members of that Board, at the first meeting of the Board of Directors that takes place after the election of its members, and the Vice-Chair shall take the place of the Chair when the Chair is absent or impeded from exercising the function.
|
241
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Clause
|
18 The following are functions of the Board of Directors:
|
|
|
a)
|
to set the general orientation of the Company’s business;
|
|
|
b)
|
to elect, dismiss and evaluate the Executive Officers of the Company, in accordance with the applicable legislation, subject to these by-laws;
|
|
|
c)
|
to approve the policy on transactions with related parties;
|
|
|
d)
|
to decide, upon proposal by the Executive Board, on disposal of, or placement of a charge upon, any of the Company’s property, plant or equipment, and on the Company giving any guarantee to any third party, of which the individual value is equal to 1% (one per cent) or more of the Company’s stockholders’ equity;
|
|
|
e)
|
to decide, upon proposal by the Executive Board, on the Company’s investment projects, signing of contracts and other legal transactions, contracting of loans or financings, or the constitution of any obligations in the name of the Company, which individually or jointly have value equal to 1% (one per cent) or more of the Company’s stockholders’ equity, including injections of capital into wholly-owned or other subsidiaries, or affiliated companies, or consortia in which the Company participates;
|
|
|
f)
|
to call the General Meeting of Stockholders;
|
|
|
g)
|
to monitor and inspect the management by the Executive Board: the Board of Directors may, at any time, examine the books and papers of the Company, and request information on contracts entered into or in the process of being entered into, and on any other administrative facts or acts which it deems to be of interest to it;
|
|
|
h)
|
to give a prior opinion on the report of management and the accounts of the Executive Board of the Company;
|
|
|
i)
|
to choose and to dismiss the Company’s auditors, from among companies with international reputation that are authorized by the Securities Commission (CVM) to audit listed companies, subject to statement of position by the Audit Committee;
|
|
|
j)
|
to authorize, upon proposal by the Executive Board, opening of administrative tender proceedings, or proceedings for dispensation or non-requirement of tender, or of non-applicability of the duty to tender, and the corresponding contractings, when the amount is equal to 1% (one percent) or more of the Company’s stockholders’ equity, or more than R$ 100,000,000.00 (one hundred million Reais), as adjusted annually by the IPCA Inflation Index, if that index is positive;
|
|
|
k)
|
upon proposal by the Executive Board, to authorize filing of legal actions, or administrative proceedings, or entering into court or out-of-court settlements, for amounts equal to 1% (one per cent) or more of the stockholders’ equity of Cemig;
|
|
|
l)
|
to authorize the issuance of securities in the Brazilian or external market, for raising of funding in the form of non-convertible debentures, promissory notes, commercial paper and/or other instruments;
|
|
|
m)
|
to approve the Long-term Strategy, the Multi-year Business Plan and the Annual Budget, and alterations and revisions to them;
|
|
|
n)
|
annually, to set the directives and establish the limits, including financial limits, for spending on personnel, including concession of benefits and collective employment agreements, subject to the competency of the General Meeting of Stockholders, and compliance with the Annual Budget;
|
242
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
o)
|
to authorize the exercise of the right of preference and rights under stockholders’ agreements or voting agreements in wholly-owned or other subsidiaries, affiliated companies and the consortia in which the Company participates, except in the cases of the wholly-owned subsidiaries Cemig Distribuição S.A. and Cemig Geração e Transmissão S.A., for which the General Meeting of Stockholders has the competency for decision;
|
|
|
p)
|
to approve participation in the share capital of, or constitution of, or winding up of, any companies, undertakings or consortia;
|
|
|
q)
|
to approve, in accordance with its Internal Regulations, the institution of committees supporting the Board of Directors – the opinions or decisions of which are not a necessary condition for decision on the matters being considered by the Board of Directors;
|
|
|
r)
|
to monitor and inspect the activities of internal auditing;
|
|
|
s)
|
to discuss, approve and monitor decisions that involve corporate governance practices, relationship with interested parties, policy on management of people, or the code of conduct;
|
|
|
t)
|
to ensure implementation of, and to supervise, the systems for management of risks and internal controls established for the prevention and mitigation of the principal risks to which the Company is exposed, including the risks related to safety and security of accounting and financial information and the occurrence of corruption or fraud;
|
|
|
u)
|
to establish an information disclosure policy to mitigate the risk of contradiction between the various areas and the managers of the Company;
|
|
|
v)
|
to make statement on any increase in number of the Company’s employees, concession of benefits and/or advantages, or revision of a salaries and careers plan, including alteration in the amount paid for commissioned posts or free appointments, and compensation of Chief Officers;
|
|
|
w)
|
to appoint, and to dismiss, in both cases with grounds, the head of the Internal Audit Unit, from among the Company’ career employees;
|
|
|
x)
|
to elect the members of the Audit Committee, at the first meeting held after the Annual General Meeting, and to dismiss them, at any time, upon vote given with grounds by absolute majority of the members of the Board of Directors;
|
|
|
y)
|
to arrange for analysis, every year, of the success in meeting targets and results in execution of the Multi-year Business Plan and the Long-term Strategy, and to publish its conclusions and state them to the Legislative Assembly and Audit Court of Minas Gerais State; and
|
|
|
z)
|
to approve the complementary policies, including the policy on holdings, in accordance with the terms of these by-laws.
|
|
|
§1
|
The financial limits relating to decisions by the Board of Directors that correspond to a percentage of the stockholders’ equity of Cemig shall be automatically adopted when the financial statements of each year are approved.
|
243
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
Section II
The Executive Board
|
Clause 19
|
The Executive Board shall comprise seven Executive Officers, resident in Brazil, who may be stockholders, elected by the Board of Directors for a period of two years, subject to the requirements of the applicable legislation and regulations. After the initial period of office, a maximum of three re-elections for consecutive periods of office is permitted.
|
|
|
§1
|
The Executive Officers shall remain in their posts until their duly elected successors take office.
|
|
|
§2
|
The Executive Officers shall exercise their positions as full-time occupations in service of the Company. They may at the same time exercise non-remunerated positions in the management of the Company’s wholly-owned or other subsidiaries, or affiliated companies, at the option of the Board of Directors. They shall, however, obligatorily hold and exercise the corresponding positions in the wholly-owned subsidiaries Cemig Distribuição S.A. and Cemig Geração e Transmissão S.A.
|
|
|
§3
|
Those members of the Executive Board who are not employees, or those with employment contracts suspended, shall have the right to annual paid leave of not more than 30 (thirty) days, non-cumulative, receiving an additional one-third of their current monthly remuneration.
|
|
Clause 20
|
In the event of any of the other members of the Executive Board being absent, or on leave, or their seat being vacant, or in the event of impediment of their position, or resignation, that Board may, on approval by the majority of its members, attribute the temporary exercise of the related functions to another member of the Executive Board.
|
|
|
§1
|
A member of the Executive Board elected in this way shall hold the position for the remainder of the period of office of the Executive Officer who is substituted.
|
|
Clause 21
|
The Executive Board shall meet, ordinarily, at least two times per month; and, extraordinarily, whenever called by the Chief Executive Officer or by two Executive Officers with at least two days’ prior notice in writing or by email or other digital medium, such notice not being required if all the Executive Officers are present. The decisions of the Executive Board are taken by vote of the majority of its members, and in the event of a tie the Chief Executive Officer shall have a casting vote.
|
|
Clause 22
|
The Executive Board is responsible for current management of the Company’s business, subject to obedience to the Long-term Strategy, the Multi-year Business Plan, and the Annual Budget, prepared and approved in accordance with these by-laws.
|
|
|
§1
|
The Multi-year Business Plan shall comprise plans and projections for a period of five business years, and must be updated at least once a year. It shall deal in detail with the following subjects, among others:
|
|
|
a)
|
the Company’s strategies and actions, including any project related to its corporate objects;
|
|
|
b)
|
new investments and business opportunities, including those of the Company’s wholly-owned and other subsidiaries, and affiliated companies, and of the consortia in which they participate;
|
|
|
c)
|
the amounts to be invested, or amounts in any other way to be originated, from the Company’s own funds or funds of third parties; and
|
|
|
d)
|
the rates of return and profits to be obtained or generated by the Company.
|
|
|
§2
|
The Annual Budget shall reflect the Company’s Multi-year Business Plan and, consequently, the Long-Term Strategy, and must give details of operational revenue and expenses, costs and capital expenditure, cash flow, the amount to be allocated to the payment of dividends, investments of cash from the Company’s own funds or from funds of third parties, and any other data that the Executive Board considers to be necessary.
|
244
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
§3
|
The Long-term Strategy, the Multi-year Business Plan, and the Annual Budget shall be:
|
|
|
a)
|
prepared under coordination by the Chief Executive Officer, with participation of all the Chief Officers;
|
|
|
b)
|
prepared and updated annually, by the end of each business year, to take effect in the following business year;
|
|
|
c)
|
submitted to examination by the Executive Board and, subsequently, to approval by the Board of Directors.
|
|
|
§4
|
The following matters shall require a decision by the Executive Board:
|
|
|
a)
|
approval of the plan of organization of the Company and issuance of the corresponding rules, and any changes to them;
|
|
|
b)
|
examination, and submission to the Board of Directors, for approval, of the Long-term Strategy and the Multi-year Business Plan, and revisions of them, including timetables, amount and allocation of the capital expenditure specified therein;
|
|
|
c)
|
examination, and submission to the Board of Directors, for approval, of the Annual Budget, which must reflect the Multi-year Business Plan at the time in force, and revisions of it;
|
|
|
d)
|
decision on reallocation of investments or expenditure specified in the Annual Budget which amount, individually or in aggregate, in a single financial year, to less than 1% (one per cent) of the stockholders’ equity of Cemig, with consequent adaptation of the targets approved, obeying the Multi-year Business Plan, the Long-term Strategy and the Annual Budget;
|
|
|
e)
|
approval of disposal of, or placement of a charge upon, any of the Company’s property, plant or equipment, and/or giving of guarantees to third parties, in amounts less than 1% (one per cent) of the Company’s stockholders’ equity;
|
|
|
f)
|
authorization of the Company’s capital expenditure projects, signing of agreements or other legal transactions, contracting of loans and financings, or creation of any obligation in the name of the Company, based on the Annual Budget approved, which individually or in aggregate have value less than 1% (one per cent) of the Company’s Stockholders’ equity, including injection of capital into wholly-owned or other subsidiaries, affiliated companies, and the consortia in which it participates;
|
|
|
g)
|
authorization to open administrative tender proceedings, and proceedings for dispensation from or non-requirement of tender, and contracts, for amounts of up to 1% (one per cent) of the stockholders’ equity of Cemig, limited to R$ 100,000,000.00 (one hundred million Reais), adjusted annually by the IPCA (expanded Consumer Price) index, if it is positive;
|
|
|
h)
|
authorization to file legal actions and administrative proceedings, and to enter into Court or out-of-court settlements, for amounts less than 1% (one per cent) of the Company’s stockholders’ equity;
|
|
|
i)
|
approval of the nominations of employees to hold management posts in the Company, upon proposal by the Chief Officer responsible, subject to the provisions of Sub-clause ‘h’ of Sub-item I of Clause 23;
|
|
|
j)
|
authorization of expenditure on personnel expenses and collective employment instruments, subject to the competency of the General Meeting of Stockholders, directives and limits approved by the Board of Directors, and the Annual Budget;
|
|
|
k)
|
examination of and decision on the contracting of external consultants, when requested by any of the Directorates, subject to the provisions of Clause 18, Sub-clause ‘j’, and Clause 22, §4, Sub-clause ‘g’;
|
245
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
l)
|
formulation, for decision by the Board of Directors or the General Meeting of Stockholders, of policies complementary to these by-laws, including the policy on holdings in other companies; and
|
|
|
m)
|
approval of nominations for positions on the Boards of Directors, Audit Boards and Executive Boards of wholly-owned and other subsidiaries, affiliated companies and the consortia in which the company participates.
|
|
|
§5
|
Actions necessary for the regular functioning of the Company, signature of contracts, and other legal transactions shall be carried out by the Chief Executive Officer jointly with one Executive Officer, or by two Executive Officers, or by a person holding a duly constituted power of attorney.
|
|
|
§6
|
Powers of attorney must be granted by the Chief Executive Officer, jointly with one Executive Officer, except for the power described in Sub-clause ‘c’ of Sub-item I of Clause 23, for which only the signature of the Chief Executive Officer is required.
|
|
|
§7
|
Subject to the provisions of these by-laws the Executive Board may delegate powers to approve and sign legal transactions relating to matters in the remit of the bodies pertaining to each Directorate, in relation to ordinary acts of management, including sale of electricity.
|
|
|
§8
|
The financial limits for decision by the Executive Board that correspond to a percentage of the stockholders’ equity of the Company shall be adopted automatically upon approval of the financial statements of each year.
|
|
|
§9
|
Within the limits of its competencies and areas of autonomy, the Executive Board may, by formal act, attribute limits of autonomy to lower levels, upon composition of technical committees with decision capacity in specific subjects.
|
|
Clause 23
|
Subject to the provisions in the preceding Clauses and good corporate governance practices, it shall be the duty of each member of the Executive Board to comply with these by-laws, the decisions of the General Meeting of Stockholders and of the Board of Directors, and the Internal Regulations and decisions of the Executive Board, and to cause others to comply with them. The duties of the Offices of the members of the Executive Board include the following:
|
|
|
I
|
The Office of the Chief Executive Officer (CEO):
|
|
|
a)
|
to coordinate and manage the work of the Company, and all the strategic and institutional activities of the affiliated companies and subsidiaries, and of the consortia in which the Company participates;
|
|
|
b)
|
to coordinate preparation, consolidation and implementation of the Company’s Long-term Strategy and Multi-year Business Plan, and those of the affiliated and subsidiary companies: in the latter case jointly with the Chief Officer responsible, and in both cases with participation of the other Chief Officers;
|
|
|
c)
|
to represent the Company in the Courts, on the plaintiff or defendant side;
|
|
|
d)
|
to sign, jointly with one Chief Officer, documents which bind the Company;
|
|
|
e)
|
to present the annual report on the Company’s business to the Board of Directors and to the Ordinary General Meeting of Stockholders;
|
|
|
f)
|
to hire and dismiss employees of the Company;
|
|
|
g)
|
to be responsible for the activities of Strategic Planning, Compliance and Corporate Risk Management;
|
|
|
h)
|
jointly with the Chief Officer responsible, to propose to the Executive Board nominations for management positions in the Company;
|
246
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
i)
|
to propose the nominations for positions of management and on the Audit Boards of the wholly-owned and other subsidiaries, the affiliated companies and of the consortia in which the Company participates, and on the statutory bodies of Fundação Forluminas de Seguridade Social (Forluz) and Cemig Saúde, after consultation of the Chief Officer responsible.
|
|
|
j)
|
to coordinate the policy and actions adopted in management of people in the Company and in its wholly-owned and other subsidiaries.
|
|
|
k)
|
to coordinate and administer processes and activities related to communication and institutional relations, externally and internally, in the area related to the Company and its wholly-owned and other subsidiaries.
|
|
|
l)
|
to plan the activities relating to supply of materials and services, infrastructure, information technology, telecommunications and transactional services, and to arrange for them to be put into effect.
|
|
|
II
|
The Finance and Investor Relations Directorate:
|
To manage the processes and
activities relating to finance and relations with investors.
|
|
III
|
The Regulations and Chief Counsel’s Directorate:
|
To manage the processes and
activities relating to the regulation of the Brazilian electricity industry and related regulated sectors, in both the domestic
and external contexts, and to plan, coordinate and manage the legal activities of the Company and its wholly-owned and other subsidiaries,
including the Corporate Executive Office and governance.
|
|
IV
|
The Distribution Directorate:
|
To manage the processes and
activities of distribution of electricity, and sales, in the Regulated Market.
|
|
V
|
The Generation and Transmission Directorate:
|
To manage the processes and
activities of generation and transmission of electricity.
|
|
VI
|
The Trading Directorate:
|
To manage the processes and
activities related to trading and sale of electricity, transactions for use of the electricity system, market planning, and trading
relationships, in the Free Market;
|
|
VII
|
The CemigPar Directorate:
|
Subject to compliance with the
Policy on Holdings, to manage the processes and activities relating to monitoring of management of: the Company’s wholly-owned
subsidiaries other than Cemig GT and Cemig D; other subsidiaries, and affiliated companies; and negotiation and implementation
of partnerships, consortia, associations and special-purpose companies.
|
|
§1
|
In relation to the affiliated companies, the Executive Officers shall at all times act in obedience to the related by-laws or articles of association and/or stockholders’ agreements.
|
|
|
§2
|
The competencies given to these Directorates under this Clause to enter into contracts and other legal transactions, and to constitute any obligation in the name of the Company, do not exclude the competency of the Executive Board and of the Board of Directors, as the case may be, nor the need to obey the provisions in these by-laws in relation to financial limits and to prior obtaining of authorizations from the management bodies, as applicable.
|
247
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
§3
|
As well as exercise of the duties set for them in these by-laws, each Directorate should seek cooperation, assistance and support from the other Directorates in the areas of their respective competencies, aiming for success in achieving the Company’s greater objectives and interests.
|
|
|
§4
|
Each Directorate, within the area of its activity, shall take the actions necessary for compliance with and effective implementation of the work safety policies approved by the Company.
|
|
|
§5
|
The individual duties of each Directorate are set specifically in the Internal Regulations of the Executive Board. They include the following:
|
|
|
a)
|
to propose to the Executive Board, for approval or submission to the Board of Directors or the General Meeting of Stockholders, approval of legal transactions affecting the Directorate’s area of activity;
|
|
|
b)
|
to propose, implement and manage the work safety policies within the scope of the Directorate’s activities;
|
|
|
c)
|
to disclose, at least annually, to the Executive Board, the reports on performance related to the activities that the Directorate coordinates and monitors; and
|
|
|
d)
|
to represent the Company in relations with the market, and with the bodies, associations and other related entities of the electricity sector, including those of regulation and inspection.
|
Section III
The Audit Committee
|
Clause 24
|
The Audit Committee is an independent, consultative, permanent body, with its own budget allocation. Its objective is to provide advice and support to the Board of Directors, to which it reports. It also has the responsibility of other activities attributed to it by legislation.
|
|
|
§1
|
The Audit Committee has four members, the majority of them independent, nominated and elected by the Board of Directors at its first meeting after the Annual General Meeting, for periods of office of three years, not to run concurrently. One re-election is permitted.
|
|
|
§2
|
Exceptionally, in the first election of the members of the Audit Committee, one member shall be elected for a period of office of two years.
|
|
|
§3
|
The minutes of the meetings of the Audit Committee, which shall be held every two months, must be disclosed, except when the Board of Directors considers that disclosure might put legitimate interest at risk, and in this case only its summary shall be disclosed.
|
|
|
§4
|
The restriction in §3 may not be used in opposition to the control and/or inspection bodies to which the Company and its wholly-owned and other subsidiaries are subject – these bodies shall have total and unrestricted access to the content of the minutes of the Audit Committee, under the obligation of secrecy and confidentiality.
|
|
|
§5
|
The internal control over the Company entrusted to the Office of the General Inspectorate (‘Controladoria Geral’) of Minas Gerais State shall be of a subsidiary nature, and shall be subject to the principles of motivation, reasonableness, appropriateness and proportionality, and must be exercised in compatibility with the duties of the Internal Audit Unit and the Audit Committee.
|
|
|
§6
|
Members of the Board of Directors who are also members of the Audit Committee shall receive only the remuneration of the latter.
|
248
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
Clause 25
|
The Audit Committee may exercise its duties and responsibilities in relation to such wholly-owned and other subsidiaries of the Company as adopt the structure of sharing of a common Audit Committee.
|
|
Clause 26
|
The following are attributions and duties of the Audit Committee:
|
|
|
a)
|
to state opinion on contracting, and dismissal, of external auditors;
|
|
|
b)
|
to supervise the activities of the external auditors, assessing their independence, the quality of the services provided, and the appropriateness of such services to the Company’s needs;
|
|
|
c)
|
to supervise the activities in the areas of internal control, internal audit and preparation of the financial statements;
|
|
|
d)
|
to monitor the quality and integrity of the internal control mechanisms, the financial statements and the information and measurements disclosed by the Company;
|
|
|
e)
|
to evaluate and monitor the Company’s exposures to risk – it may requisition, among other matters, detailed information on policies and procedures relating to compensation of the management, utilization of assets, and expenditures made in the name of the Company;
|
|
|
f)
|
to evaluate and monitor, jointly with management and the Internal Audit Unit, the appropriateness of transactions with related parties;
|
|
|
g)
|
to prepare an annual report with information on its activities, results, conclusions and recommendations, reporting any significant divergence between management, external auditors and the Audit Committee in relation to the financial statements;
|
|
|
h)
|
to assess the reasonableness of the parameters on which actuarial calculations are based, and the actuarial result of the benefit plans maintained by the pension fund, when the Company is sponsor of a closed private pension plan entity;
|
|
|
i)
|
to give opinion, in order to assist the stockholders in their appointment of managers, members of the Board of Directors’ support committees, and members of the Audit Board, on compliance with the requirements of, and absence of prohibitions for, the related elections; and
|
|
|
j)
|
to verify compliance in the process of evaluation of managers, members of the Board of Directors’ support committees, and members of the Audit Board.
|
|
|
§1
|
If an eligibility and assessment committee is created, the competencies described in sub-clauses ‘i’ and ‘j’ of this Clause shall be transferred to that body.
|
|
Clause 27
|
The Audit Committee has operational autonomy to conduct or order consultations, evaluations and investigations within the scope of its activities, including contracting and use of independent external specialists.
|
|
|
§1
|
The Audit Committee must have means for receiving accusations, including those of a confidential nature, internal and external to the Company, on subjects related to its area of duties.
|
249
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER V
Control Areas
|
Clause 28
|
The following are Control Areas: Internal Audit, Compliance, and Corporate Risk Management.
|
|
|
§1
|
The Control Areas operate with independence, and have the prerogative of reporting directly to the Board of Directors, as applicable, in accordance with the applicable legislation.
|
|
Clause 29
|
The Internal Audit Unit is linked to the Board of Directors, with a view to preparation of the financial statements, and is responsible for assessing:
|
|
|
a)
|
the appropriateness of the internal controls, and the effectiveness of risk management and of the governance process; and
|
|
|
b)
|
the reliability of the process of collection, measurement, classification, accumulation, recording and disclosure of events and transactions.
|
|
Clause 30
|
The Compliance Management Unit operates as part of, and reports to, the Office of the CEO, and is responsible for:
|
|
|
a)
|
managing the Company’s compliance program, with prevention and detection of, and response to, any failings in compliance with internal or external rules and/or inappropriate conduct; and
|
|
|
b)
|
coordinating and defining the methodology to be used in the management of internal controls.
|
|
|
§1
|
The person responsible for the Compliance Management Unit shall report directly to the Board of Directors in any situation in which it is suspected that the Chief Executive Officer is involved in irregularities, or when the CEO omits to act on his obligation to adopt necessary measures in relation to a situation reported to him.
|
|
Clause 31
|
The Corporate Risk Management Unit operates as part of, and reports to, the Office of the CEO; is led by a Statutory Director; and is responsible for:
|
|
|
a)
|
coordinating and mapping the management of the portfolio of corporate risks;
|
|
|
b)
|
supporting the other areas of the Company in adoption of the decisions on the corporate risks policy and adoption of the risk appetite parameters decided by the Board of Directors; and
|
|
|
c)
|
deciding the methodology to be used in corporate risk management; and supporting the other areas in its implementation.
|
|
|
§1
|
The Risk Management Unit shall periodically send reports to the Audit Committee containing its indications and recommendations.
|
CHAPTER VI
The Audit Board
|
Clause 32
|
The Audit Board is constituted permanently, and has five sitting members, each having a substitute member. These are elected by the General Meeting of Stockholders for a period of office of two years.
|
|
|
§1
|
The following rules govern nomination of members of the Audit Board:
|
|
|
a)
|
The following two groups of stockholders each have the right to elect one member, in separate votes, in accordance with the applicable legislation:
|
|
|
(i)
|
the minority holders of common shares, and
|
|
|
(ii)
|
the holders of preferred shares.
|
250
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
|
|
b)
|
The majority of the members must be elected by the Company’s controlling stockholder; at least one must be a public employee, with a permanent employment link to the Public Administration.
|
|
|
§2
|
The Audit Board shall elect its Chair from among its members, and the Chair shall call, and conduct, the meetings.
|
|
|
§3
|
Where it is the competency of the Company to fill appointments to positions on the Audit Boards of the Company’s subsidiaries and/or affiliated companies, the Company shall make nominations in accordance with criteria and a policy of eligibility and assessment approved by the Board of Directors.
|
|
Clause 33
|
In the event of resignation, death or impediment, a member of the Audit Board shall be replaced by his or her respective substitute member, until the new member is elected, by the General Meeting of Stockholders, and such member shall be chosen by the same party that appointed the member substituted.
|
|
Clause 34
|
The Audit Board shall have the duties and competencies set by the applicable legislation and, to the extent that they do not conflict with Brazilian legislation, those required by the laws of the countries in which the Company’s shares are listed and traded, including the following:
|
|
|
a)
|
to monitor and inspect, through any one of its members, the acts of the managers and to verify compliance with their duties under the law and the by-laws;
|
|
|
b)
|
to give opinion on the annual report of management, and to include in such opinion any such complementary information that it deems to be necessary or useful to the decision of the General Meeting of Stockholders;
|
|
|
c)
|
to give opinion on any proposals made by the bodies of management to be submitted to the General Meeting of Stockholders or the Board of Directors, as the case may be, in relation to any change in the share capital, issuance of debentures or warrants, investment plans and/or capital budgets, distribution of dividends, transformation, absorption, merger or split;
|
|
|
d)
|
to report, through the person of any of its members, to the management bodies and, if these do not take the measures necessary for the protection of the Company’s interests, to the General Meeting of Stockholders, any errors, frauds or crimes that they discover, and suggest measures that will be useful to the Company;
|
|
|
e)
|
to call the Annual General Meeting of Stockholders, if the management bodies delay its convocation by more than one month, and to call an Extraordinary General Meeting of Stockholders whenever there are serious or urgent reasons, and include on the agenda of such Meetings whatever matters they consider to be necessary;
|
|
|
f)
|
to analyze, at least quarterly, the trial balance and other financial statements prepared periodically by the Company;
|
|
|
g)
|
to examine the financial statements for the business year and to give opinion on them; and
|
|
|
h)
|
to carry out these functions during liquidation, having in mind the special provisions that regulate that procedure.
|
|
Clause 35
|
The global or individual compensation of the members of the Audit Board shall be set by the General Meeting of Stockholders which elects it, in accordance with the applicable legislation.
|
251
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER VII
The business year
|
Clause 36
|
The business year shall coincide with the calendar year, closing on December 31, when the financial statements shall be prepared, in accordance with the applicable legislation. Financial statements may be prepared for periods of six months or interim statements for shorter periods.
|
|
Clause 37
|
Before any sharing of the profit, there shall be deducted from the profit for the business year, in this order: retained losses, the provision for income tax, the Social Contribution tax on Net Profit, and then, successively, employees’ and managers’ profit shares.
|
|
|
§1
|
The net profit ascertained in each business year shall be allocated as follows:
|
|
|
a)
|
5% (five per cent) to the legal reserve, up to the maximum limit specified by law;
|
|
|
b)
|
50% (fifty per cent) distributed as mandatory dividend to the stockholders of the Company, subject to the other terms of these by-laws and the applicable legislation; and
|
|
|
c)
|
the balance, after the retention specified in a capital expenditure and/or investment budget prepared by the Company’s management, in compliance with the Company’s Long-Term Strategic Plan and the dividend policy contained therein and duly approved, shall be applied in the constitution of a profit reserve for the purpose of distribution of extraordinary dividends, in accordance with Clause 39 of these by-laws, up to the maximum limit specified by Clause 199 of Law 6404/1976.
|
|
Clause 38
|
The dividends shall be distributed in the following order:
|
|
|
a)
|
the minimum annual dividend guaranteed to the preferred shares;
|
|
|
b)
|
the dividend for the common shares, up to a percentage equal to that guaranteed to the preferred shares.
|
|
|
§1
|
Once the dividends specified in Sub-clauses ‘a’ and ‘b’ of the head paragraph of this clause have been distributed, the preferred shares shall have equality of rights with the common shares in any distribution of additional dividends.
|
|
|
§2
|
The Board of Directors may declare interim dividends, in the form of interest on equity, to be paid from retained earnings, profit reserves or profits ascertained in six-monthly or interim financial statements.
|
|
|
§3
|
The amounts paid or credited as Interest on Equity, in accordance with the relevant legislation, shall be imputed as on account of the amounts of the mandatory dividend or of the dividend payable under the by-laws to the preferred shares, being for all purposes of law a part of the amount of the dividends distributed by the Company.
|
|
Clause 39
|
Without prejudice to the mandatory dividend, every two years, or more frequently if the Company’s availability of cash so permits, the Company shall use the profit reserve specified in Sub-clause ‘c’ of Clause 37 of these by-laws for the distribution of extraordinary dividends, up to the limit of cash available, as determined by the Board of Directors, in obedience to the Company’s Long-Term Strategic Plan and the Dividend Policy contained therein.
|
|
Clause 40
|
The dividends declared, mandatory or extraordinary, shall be paid in two equal installments, the first by June 30 and the second by December 30 of each year, and the Executive Board shall decide the location and processes of payment, subject to these periods.
|
|
|
§1
|
Dividends not claimed within three years from the date on which they are placed at the disposal of the stockholder shall revert to the benefit of the Company.
|
|
Clause 41
|
The employees have the right to a share in the profits or results of the Company, upon criteria authorized by the Executive Board based on the guidelines approved by the Board of Directors and limits established by the General Meeting of Stockholders, in accordance with the applicable legislation.
|
252
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER VIII
Liability of the managers
|
Clause 42
|
Members of the Company’s management are accountable to the Company and to third parties for the actions which they take in the exercise of their functions, in the terms of the applicable law and regulations and these by-laws.
|
|
Clause 43
|
The Company will provide defense in Court and/or administrative proceedings, on the plaintiff or defendant side, for members and former members of the Board of Directors, the Audit Board, the Executive Board and the Audit Committee, during or after their periods of office, occasioned by events or acts related to the exercise of their specific functions.
|
|
|
§1
|
This guarantee also extends to employees who legally carry out actions by delegation or under orders from members of the Company’s management.
|
|
|
§2
|
Upon decision of the Board of Directors, the Company shall contract third-party liability insurance to cover expenses of legal actions, fees of counsel and indemnities arising from legal or administrative actions referred to in the head paragraph of this Clause.
|
|
|
§3
|
Contracting of insurance may also cover defense of the insured parties in other spheres, provided that the acts in question do not show implication of illegality or abuse of power.
|
|
|
§4
|
If funding of procedural expenses, fees of counsel and/or other expenses is less expensive than contracting of insurance or making of insurance claims, the Company may alternatively contract a specialized external office for defense in relation to the acts being impugned.
|
|
|
§5
|
Any member of the Board of Directors or the Audit Board, or any Chief Officer or employee against whom final judgment, subject to no further appeal, is given, must reimburse the Company all the costs, expenses and losses caused to it.
|
|
|
§6
|
The Company shall issue a Comfort Letter to the members of the Board of Directors, the Audit Board, the Executive Board and the Audit Committee covering acts made in good faith, subject to the provisions of law.
|
CHAPTER IX
Resolution of disputes
|
Clause 44
|
The Company, its stockholders, managers and members of the Audit Board undertake to resolve through arbitration, preceded by mediation, before the Market Arbitration Chamber (CAM) of the B3 or the FGV Mediation and Arbitration Chamber, all and any dispute or controversy that may arise between them related to or arising from, in particular, the application, validity, efficacy, interpretation or violation of the provisions contained in the applicable legislation and regulations, the by-laws, any stockholders’ agreements filed at the head office, the rules issued by the Brazilian Securities Commission (CVM), or the other rules applicable to the functioning of the capital markets in general, as well as those contained in the Level 1 Regulations of the B3.
|
|
|
§1
|
Without prejudice to the validity of this arbitration clause, application for urgency measures, before the arbitration tribunal has been constituted, should be remitted to the Judiciary, through the courts of the legal distinct of Belo Horizonte, Minas Gerais.
|
253
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER X
General provisions
|
Clause 45
|
Admission to the permanent staff of employees of the Company shall be by approval in a public competition.
|
|
|
§1
|
The employees are subject to the applicable employment law and the internal regulations of the Company.
|
|
Clause 46
|
In contracts entered into, and other legal transactions, between the Company and its related parties, including the State of Minas Gerais and Cemig, the Company’s policy on transactions with related parties shall be obeyed.
|
|
Clause 47
|
References to the term ‘applicable legislation’ in these by-laws shall include reference to the regulatory rules, subject to the prevalence of Law over rules of an infra-legal nature.
|
|
Clause 48
|
Financial covenants currently in effect for the Company must obligatorily be mentioned in the Company’s policy on dividends and indebtedness, which must be approved by the General Meeting of Stockholders.
|
|
Clause 49
|
Policies complementary to these by-laws, required by the applicable legislation, shall be approved by the Board of Directors upon proposal by the Executive Board.
|
|
Clause 50
|
Upon being sworn in, and annually, management, members of the Audit Board and members of the Audit Committee, including the representatives of employees and minorities, must take part in specific training made available by the Company on the following subjects:
|
|
|
a)
|
corporate law and the capital markets;
|
|
|
b)
|
disclosure of information;
|
|
|
e)
|
Federal Law 12846 of August 1, 2013; f) tenders and contracts; and
|
|
|
g)
|
other subjects related to the Company’s activities.
|
|
|
§1
|
Those who have not participated in annual training made available by the Company in the last two years are prohibited from being re-appointed to their positions.
|
|
Clause 51
|
For the purposes of the provisions of Article 17, §2, IV and Article 22, §1, V of Law 13303/2016 and Article 26, IX of State Decree 47154 of February 20, 2017, any contracting of Cemig or any of its wholly-owned subsidiaries for activities carried out under natural monopoly, in the role of consumer, is not considered to be an activity preventing appointment as managers, nor as independent managers.
|
254
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
CHAPTER XI
Transitory provisions
|
Clause 52
|
The rules relating to the members of the Board of Directors, the Executive Board, the Audit Board and the Audit Committee specified in these by-laws shall be applied as from the first periods of office beginning after the change in these by-laws, reflecting the adaptation specified by Law 13303/2016 and State Decree 47154/2017.
|
|
|
§1
|
Exceptionally, the first period of office of the members of the Board of Directors, the Executive Board and the Audit Board shall begin with the election held immediately after the approval of these by-laws, ending at the Annual General meeting of 2020.
|
|
|
§2
|
The interregnum period between the Annual General Meeting held on April 30, 2018 and the election immediately after the approval of these by-laws shall not be considered as a new period of office for the purposes of Clause 13, §2, Clause 19, and Clause 32 of these by-laws.
|
|
Clause 53
|
Until the representative of the employees on the Board of Directors is chosen in accordance with sub-clause ‘c’ of §3, and §4, of Clause 13 of these by-laws, an employee who complies with the specific requirements shall be designated, and the unions representing the various groups of employees shall be advised of the designation.
|
|
Clause 54
|
Until the specific decisions by the Board of Directors take place, the internal processes, organizational structure, names and terms used in the Company on the date of approval of these by-laws shall remain operative.
|
|
Clause 55
|
Any cases of omission in these by-laws shall be resolved by the General Meeting of Stockholders, subject to the applicable legislation.
|
255
(Minutes of the Ordinary and Extraordinary General Meetings of Stockholders held on July 31, 2020)
This text is a translation, provided for information only. The original text in Portuguese is the legally valid version.
5.
Notice to Stockholders Dated July 31, 2020: (1) Dividends declared by AGM of July 31; (2) Capital increase with issue of 4.1%
in new shares.
COMPANHIA ENERGÉTICA DE MINAS GERAIS
- CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
NOTICE TO STOCKHOLDERS
(1) Dividends
declared by AGM of July 31;
(2) Capital
increase with issue of 4.1% in new shares
Cemig advises its stockholders
that the Ordinary (Annual) and Extraordinary General Meetings of Stockholders (‘AGM/EGM’) held on July 31, 2020
decided the following:
|
|
a)
|
Of the net profit for 2019, in the amount of R$ 3,127,398,000:
|
R$ 764,181,000 is allocated as minimum
mandatory dividend, payable to the Company’s stockholders, as follows:
|
|
ü
|
R$ 400,000,000 in the form of Interest on Equity (‘JCP’), corresponding to R$ 0.27431232108 per share, subject to withholding of income tax at source at the rate of 15% (except for stockholders exempt from such retention under current legislation), to be paid by December 30, 2020, in a single payment, to stockholders on the Company’s Nominal Share Register on December 23, 2019.
|
·
The shares began trading ‘ex–’ these rights on December 26, 2019.
|
|
ü
|
R$ 364,181,000 in the form of dividends for the 2019 business year, corresponding to R$ 0.24974833850 per share, to be paid by December 30, 2020, in a single payment, to stockholders whose names were on the Company’s Nominal Share Registry on the date on which the AGM and EGM were held, namely July 31, 2020.
|
·
The shares trade ‘ex–’ these rights on August 3, 2020.
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
|
|
2.
|
CAPITAL INCREASE WITH ISSUES OF NEW SHARES:
|
|
|
a)
|
Increase in the share capital, from R$ 7,293,763,000 to R$ 7,593,763,000, by issuance of 60,000,000 (sixty million) new shares, comprising 20,056,076 common shares and 39,943,924 preferred shares, by capitalization of R$ 300,000,000 from the Earnings Reserve, with distribution to stockholders, as a result, of new shares totaling 4.113103206% of the number of shares held, of the same type, each with nominal value of R$ 5.00.
|
|
|
b)
|
For shares traded on the São Paulo stock exchange (‘B3’), the beneficiaries of the stock bonus will be those stockholders who held shares on July 31, 2020.
|
·
The shares trade ‘ex–’ these rights on August 3, 2020.
|
|
c)
|
The new shares issued will be credited on August 5, 2020, and will not have the right to dividends declared for the 2019 business year.
|
|
|
d)
|
For the purposes of §1º of Article 25 of Normative Instruction 25/2001, issued by the Brazilian tax authority (Secretaria da Receita Federal), the attributed unit cost of acquisition of the bonus shares is R$ 5.00.
|
|
|
e)
|
As per Normative Instruction 168/91 issued by the CVM (Brazilian Securities Commission), the aggregate proceeds in Reais from the sale of the fractions of shares resulting from calculation of numbers of new shares will be paid to the holders of those fractions together with the single payment of dividends for the 2019 business year.
|
For stockholders whose shares are not
held for custody by CBLC and whose registration details are not up to date, we recommend visiting any branch of Banco Itaú
Unibanco S.A. (the institution which administers Cemig’s Nominal Share Registry System), with their identification documents,
for the necessary updating.
Belo Horizonte, July 31, 2020
Leonardo George de Magalhães
Chief Finance and Investor Relations Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
6.
Market Notice Dated August 5, 2020: Following success in court action, Cemig D files proposal for early return of ICMS tax to
customers.
COMPANHIA ENERGÉTICA DE MINAS GERAIS
–
CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
MARKET
NOTICE
Following success in court action,
Cemig D files proposal for early return of
ICMS tax to customers
Cemig (Companhia Energética
de Minas Gerais – listed and traded on the exchanges of São Paulo, New York and Madrid), hereby informs
the CVM (Brazilian Securities Commission), the São Paulo stock exchange (B3) and the market in general as follows:
Administrative appeals
have been filed with Brazil’s electricity regulator, Aneel (National Electricity Agency), contesting Aneel’s award
of an annual tariff increase of 4.27% to Cemig’s wholly-owned distribution subsidiary Cemig D, in effect from May 28, 2020.
The appeals request
annulment of the tariff increase, and restitution to Cemig D’s customers of the amounts of the escrow deposits repaid by
the Courts to Cemig D on February 13, 2020.
This repayment of escrow
deposits is the result of the Supreme Court judgment in favor of Cemig D, against which there is no further appeal, in Cemig D’s
legal action (‘the Action’) against the tax authority, which requested – and won – a ruling that amounts
of the ICMS tax paid or to be paid by Cemig D must be excluded from the base amount for calculation of PIS, Pasep and Cofins tax
payable by Cemig D.
The current administrative
appeals request creation of a negative financial component in the calculation of Cemig D’s annual tariff adjustment.
Aneel has given Cemig
D the right of reply, and, based on internal assessments and those of its legal advisers, Cemig D has today submitted to Aneel
a proposal for bringing forward Cemig D’s already-planned restitution to its customers of a total amount of R$ 714.4
million – corresponding to part of the funds released by the courts due to Cemig’s success in the Action.
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
This proposal by Cemig
D takes into consideration the wholly exceptional context caused by the Covid-19 pandemic, and Cemig’s responsibility to
carry out its social function and its duties to the community in which it operates, the rights and interests of which it is obliged
loyally to respect and serve (under Article 16, §1 of Law 6404/76).
Cemig D’s proposal
is also an important contribution to keeping tariffs at reasonable levels, at a moment when all economic agents are seeking measures
that can reduce the impacts of the pandemic.
Cemig’s offer
is also an anticipation of the effects, and treatment in terms of regulations – which are yet to be defined in detail by
the tax authorities and Aneel – of the Supreme Court’s decision in the Action. These regulatory decisions will be applied
equally to all electricity distribution concessions through an Aneel Normative Ruling, which will be issued after conclusion of
Public Consultation 005/2020 – during which there will be discussion on the merits, and in which Cemig will be able to take
part in a wide-ranging discussion on the subject.
Cemig emphasizes that
the portion of the credits that it proposes to repay to its customers has already been posted as a liability in its financial statements.
Thus, in the event
that Aneel, in its decision on the administrative appeals mentioned above, accepts Cemig D’s proposal, the decision reported
in this notice will not cause any impact on Cemig’s profit or financial results.
Cemig also notes that
the Council of Aneel will also carry out its own analysis and decision on the proposal.
Belo Horizonte, August 5, 2020.
Leonardo George de Magalhães
Chief Finance and Investor Relations
Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
7.
Market Notice Dated September 1, 2020: Resignation of member of the Board of Directors.
COMPANHIA ENERGÉTICA DE MINAS
GERAIS –
CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
MARKET
NOTICE
Resignation of member of the Board of Directors
Cemig (Compamia Energetical de Minas
Gerais, listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358/2002 as amended, and Article
151 of Law 6404 of December 15, 1976 as amended, hereby informs the public as follows:
On September 1, 2020 Cemig received a letter
of resignation from Mr. Antônio Rodrigues dos Santos e Junqueira, a member of the Board of Directors who had been nominated
by the majority stockholder.
As from September 1, 2020 the Board of Directors
is now as follows:
|
BOARD OF DIRECTORS
|
|
MEMBERS
|
|
Márcio Luiz Simões Utsch – Chair
|
(Nominated by the majority stockholder)
|
|
Seat vacant
|
(Nomination of the majority stockholder)
|
|
Cledorvino Belini
|
(Nominated by the majority stockholder)
|
|
José Reinaldo Magalhães
|
(Nominated by the majority stockholder)
|
|
Afonso Henriques Moreira Santos
|
(Nominated by the majority stockholder)
|
|
José João Abdalla Filho
|
(Nominated by the preferred stockholders)
|
|
Marcelo Gasparino da Silva
|
(Nominated by minority stockholders)
|
|
Paulo Cesar de Souza e Silva
|
(Nominated by minority stockholders)
|
|
Marco Aurélio Dumont Porto
|
(Representative of the employees)
|
The Company offers its sincere thanks to Mr.
Antônio Rodrigues dos Santos e Junqueira for his service on the Board.
Belo Horizonte, September 1, 2020.
Leonardo George de Magalhães
Chief Finance and Investor Relations Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
8.
Market Announcement Dated September 8, 2020: BlackRock notifies significant holding in Cemig PN.
COMPANHIA ENERGÉTICA DE MINAS
GERAIS –
CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
MARKET
ANNOUNCEMENT
BlackRock notifies significant holding in
Cemig PN
Cemig (Companhia Energética
de Minas Gerais – listed and traded in São Paulo, New York and Madrid), in accordance with Article 12 of CVM Instruction
358 of Jan. 3, 2002 as amended, hereby informs the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange
(B3), market and the public as follows:
Cemig has received the following notice from
BlackRock, Inc. (‘BlackRock’):
|
|
1.
|
In the name of certain of its clients, BlackRock, Inc. (‘BlackRock’), as investment manager, hereby reports its acquisition of preferred shares in Cia. Energética de Minas Gerais – CEMIG (‘the Company’), as follows:
|
On
September 1, 2020 its aggregate holdings were:
|
|
–
|
94,888,261 preferred shares, and 58,801,709 American Depositary Receipts (‘ADRs’) for preferred shares, totaling 153,689,970 preferred shares, representing approximately 15.20% of the total of the preferred shares issued by the Company, and
|
|
|
–
|
2,320,928 derivative financial instruments referenced to preferred shares with financial settlement, representing approximately 0.23% of the total of the preferred shares issued by the Company.
|
( Continued
) >
Av. Barbacena 1200 Santo Agostinho 30190131
Belo Horizonte, Minas Gerais Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
|
|
2.
|
To comply with Article 12 of Brazilian Securities Commission (‘CVM’) Instruction 358 of January 3, 2002 as amended, BlackRock hereby requests the Chief Investor Relations Officer of Cemig to publish the following information to the CVM and the other competent bodies:
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|
|
(i)
|
BlackRock has head office registered at 55 East 52nd Street, New York 10022-002, NY, United States of America.
|
|
|
(ii)
|
As specified above, the equity interests held by BlackRock now total, in aggregate,
|
94,888,261
preferred shares, and 58,801,709 ADRs representing preferred shares, comprising a total of 153,689,970 preferred shares, representing
approximately 15.20% of the total of the preferred shares issued by the Company, and
2,320,928
derivative financial instruments referenced to preferred shares with financial settlement, representing approximately 0.23% of
the total of the preferred shares issued by the Company.
|
|
(iii)
|
The objective of the stockholding interests referred to above is strictly investment, there being no intention to alter the stockholding control or administrative structure of the Company.
|
|
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(iv)
|
BlackRock has not entered into any contracts or agreements regulating exercise of the right to vote or the purchase or sale of securities issued by the Company.
|
|
|
3.
|
Please do not hesitate to contact us for any additional information or comment that you may feel to be necessary on this matter.”
|
Belo Horizonte, September 8, 2020.
Leonardo George de Magalhães
Chief Finance and Investor Relations Officer
Av. Barbacena 1200 Santo Agostinho 30190131
Belo Horizonte, Minas Gerais Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
9.
Material Announcement Dated September 10, 2020: Gasmig completes R$ 850 million debenture issue.
COMPANHIA ENERGÉTICA DE MINAS
GERAIS –CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
MATERIAL ANNOUNCEMENT
Gasmig completes R$ 850 million debenture
issue
Cemig (Companhia Energética
de Minas Gerais, listed in São Paulo, New York and Madrid), in compliance with CVM Instruction 358 of January 3, 2002
as amended, hereby reports to the Brazilian Securities Commission (CVM), the São Paulo Stock Exchange (B3) and the
market in general as follows:
On today’s date Cemig’s
subsidiary Companhia de Gás De Minas Gerais – Gasmig (“Gasmig”), which is in the process of obtaining
registry with the CVM for category B listing, concluded its Eighth Issue of Non-convertible Debentures, in the amount of
·
R$ 850,000,000.00 (eight hundred fifty million Reais),
in a single series, with maturity
at 11 years, monetary updating by the IPCA inflation index, and remuneratory interest of 5.27% (five point two seven per cent)
per year, on the 252 (two hundred fifty two) business days basis.
The debentures were issued under
Article 2 of Law 12431, of June 24, 2011, as amended, Decree 8874 of October 11, 2016, and Mining and Energy Ministry (MME) Order
252 of June 17, 2019 as amended, since the project qualifies as priority for the MME under Ministerial Order 6 of April 15, 2020.
As specified in the Issue Instrument
(“the Deed of the 8th Issue of Non-convertible Debentures by Companhia de Gás de Minas Gerais – Gasmig, Unsecured,
in a Single Series, for Public Distribution with Restricted Placement Efforts”), signed on August 26, 2020 and duly registered
with the Minas Gerais Commercial Board under number 7985285 on August 28, 2020, as amended on September 4, 2020, and the applicable
regulations, the whole of the net proceeds from the issue was allocated to the obligatory early redemption by Gasmig, on today’s
date, of the First Issue of Commercial Promissory Notes, in a Single Series, with nominal unit value of R$ 1,000,000.00 (one
million Reais), comprising a total of R$ 850,000,000.00 (eight hundred fifty million Reais) on their issue date.
Belo Horizonte, September 10, 2020.
Leonardo George de Magalhães
Chief Finance and Investor Relations Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
10.
Market Notice Dated September 17, 2020: Moody’s upgrades Cemig’s ratings, maintains outlook positive.
COMPANHIA ENERGÉTICA DE MINAS
GERAIS –
CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
MARKET
NOTICE
Moody’s upgrades Cemig’s ratings,
maintains outlook positive
Cemig (Companhia Energética
de Minas Gerais – listed and traded on the exchanges of São Paulo, New York and Madrid), hereby informs
the Brazilian Securities Commission (CVM), the São Paulo stock exchange (B3) and the market in general as follows:
|
|
1)
|
The risk rating agency Moody’s América Latina (‘Moody’s’) has upgraded its ratings for Cemig and its wholly-owned subsidiaries Cemig Distribuição S.A. (‘Cemig D’) and Cemig Geração e Transmissão S.A. (‘Cemig GT’):
|
|
|
-
|
on the global scale: from B1 to Ba3;
|
|
|
-
|
and from on the Brazilian scale: from Baa1.br to A1.br.
|
Moody’s maintains its
outlook positive for all three companies.
These increases of one ‘notch’
on the global scale and 3 notches on the Brazilian scale reflect Moodys’ perception of an overall improvement in Cemig’s
liquidity profile, with effective strategies for reduction of costs and leverage.
|
|
2)
|
On July 10, 2020, Standard & Poor’s revised its outlook for Cemig and its wholly-owned subsidiaries to positive, also reflecting stronger metrics of credit and liquidity.
|
Cemig
believes the changes made by these rating agencies are a recognition of its efforts to improve its credit quality, and reiterates
its commitment to improving its liquidity and capital structure through lengthening of its debt profile, strategic management of
liabilities, and reduction of its cost of capital.
Belo Horizonte, September 17, 2020
Leonardo George de Magalhães
Chief Finance and Investor Relations Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
11.
Convocation Dated September 18, 2020: Extraordinary General Meeting of Stockholders (EGM).
COMPANHIA ENERGÉTICA DE MINAS GERAIS
– CEMIG
LISTED COMPANY
CNPJ 17.155.730/0001-64 – NIRE 31300040127
EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS
(EGM)
CONVOCATION
Stockholders are hereby called to an Extraordinary
General Meeting (EGM) of Companhia Energética de Minas Gerais – Cemig, to be held on October 19, 2020
at 2 p.m., exclusively by digital media, at the Company’s head office, in Belo Horizonte, Minas Gerais, Brazil, through the
electronic platform Zoom, which will enable stockholders to take part and vote, provided they send the Remote Voting Form,
to decide on the following matters:
|
|
I
|
– Approval and authorization of signature of the Protocol of Absorption and Justification, with Cemig Geração Distribuída S.A – Cemig GD, to specify the terms and conditions that will govern the absorption of Cemig GD by Cemig;
|
|
|
|
– authorization for absorption of Cemig GD by Cemig; and subsequently, the consequent extinction of the absorbed company; and
|
|
|
|
– ratification, under and for the purposes of Article 8 of Law 6404/1976, of the appointment of the three expert analysts to provide a valuation of the Stockholders’ equity of Cemig GD, made in accordance with Law 6404/1976.
|
|
|
II
|
Election of one member of the Audit Board of the Company, since the member elected was not sworn in within the legally required period.
|
Any stockholder who wishes to do so may exercise
the right to vote using the remote voting system, in accordance with CVM Instruction 481/2009, by sending the corresponding Remote
Voting Statement Form (Boletim de Voto à Distância, or BVD), through the stockholder’s custodian institution
or mandated bank by October 9, 2020, or directly to the Company by email at: ri@cemig.com.br, by October 9, 2020.
Any stockholder who wishes to be represented
by proxy at the said General Meeting of Stockholders should obey the precepts of Article 126 of Law 6406 of 1976, and Paragraph
2 of Clause 10 of the Company’s by-laws, by sending to the email address ri@cemig.com.br, by email, preferably by October
14, 2020, proofs of ownership of the shares, issued by a depositary financial institution, and a power of attorney with specific
powers.
Belo Horizonte, September 18, 2020
Márcio Luiz Simões Utsch
Chair of the Board of Directors
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation,
provided for information only. The original text in Portuguese is the legally valid version.
12.
Proposal by the Board of Directores to the Extraordinary General Meeting of Stockholders to be held on October 19, 2020, Dated
September 18, 2020.
PROPOSAL
BY THE BOARD OF DIRECTORS
TO THE
EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS
TO BE HELD ON
OCTOBER 19, 2020
Dear Stockholders:
The Board of Directors of Companhia Energética
de Minas Gerais – Cemig submits the following proposals to the Extraordinary General Meeting of Stockholders:
|
|
I
|
– Approval and authorization of signature of the Protocol of Absorption and Justification, with Cemig Geração Distribuída S.A . – Cemig GD, to specify the terms and conditions that will govern the absorption of Cemig GD by Cemig;
|
|
|
–
|
authorization for absorption of Cemig GD by Cemig; and subsequently, extinction of the absorbed company; and
|
|
|
–
|
ratification of the appointment of the following three expert analysts:
|
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Andréa de Lourdes Pereira
|
– Brazilian, married, accountant, holder of Identity Card M- 4.591.486, CPF 646.074.296-00, and CRC/MG 67.602;
|
|
Leonardo Felipe Mesquita
|
– Brazilian, married, accountant, holder of Identity Card 7.113.448, CPF 027.614.426- 01, and CRC/MG 85.260; and
|
|
Mário Lúcio Braga
|
– Brazilian, married, accountant, holder of Identity Card MG- 3.632.149, CPF 469.088.896- 53, and CRC/MG 47.822,
|
to provide a valuation,
under and for the purposes of Article 8 of Law 6404/1976, of the Stockholders’ equity of Cemig GD; and approval of the Valuation
Opinion valuing the stockholders’ equity of Cemig GD, carried out in accordance with Law 6404/1976.
|
|
II
|
Election of one member of the Audit Board of the Company, since Mr. Marco Aurélio de Barcelos Silva, who had been nominated by the majority stockholder and elected at the Annual General Meeting held on July 31, 2020, has not been sworn in within the legally-required period.
|
As can be seen, the objective of these proposals
is to meet the legitimate interests of the stockholders and of the Company, and for this reason it is the hope of the Board of
Directors that it will be approved.
Belo Horizonte, September 18, 2020
Márcio Luiz Simões Utsch
Chair of the Board of Directors
APPENDICES:
|
|
I
|
Protocol of Absorption and Justification of Absorption
|
|
|
II
|
Approval of the Valuation Opinion valuing the Stockholders’ Equity of Cemig Geração Distribuída S.A – Cemig GD
|
|
|
III
|
Opinion of the Audit Board
|
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
13.
Notice to Stockholders Dated September 22, 2020: Interest on Equity: R$ 120 million on account of 2020 dividend.
COMPANHIA ENERGÉTICA DE MINAS
GERAIS - CEMIG
CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64
NOTICE TO STOCKHOLDERS
Interest
on Equity: R$ 120 million on account of 2020 dividend
We hereby notify stockholders that the
Executive Board has decided to declare payment of Interest on Equity in the amount of R$ 120,000,000 (one hundred
twenty million Reais), corresponding to R$ 0.07904259285 per share, on account of the minimum obligatory dividend for
the 2020 business year.
Income tax at 15% will be deducted at
source, unless the stockholder is exempt under the current legislation.
For shares traded on the São
Paulo stock exchange (‘B3’), this benefit will be paid to stockholders of record on September 25, 2020, in two
equal installments, by June 30, 2021 and December 30, 2021. The shares will trade ‘ex–’ these rights
on September 28, 2020.
Stockholders whose shares are not held
in custody by CBLC and whose registration details are not up to date should visit any branch of Banco Itaú Unibanco S.A.
(the Institution which administers Cemig’s Nominal Share Registry System), with their personal identification documents,
for the necessary updating.
Belo Horizonte, September 22, 2020
Leonardo George de Magalhães
Chief Finance and Investor Relations Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
14.
Market Notice Dated September 25, 2020: Banco Clássico reports 16% holding of common shares.
COMPANHIA ENERGÉTICA DE MINAS
GERAIS –
CEMIG
LISTED
COMPANY – CNPJ 17.155.730/0001-64 – NIRE 31300040127
MARKET
NOTICE
Banco Clássico reports 16% holding
of common shares
In accordance with Article 12 of
CVM Instruction 358 of Jan. 3, 2002 as amended, Cemig (Companhia Energética de Minas Gerais – listed
and traded in São Paulo, New York and Madrid), hereby reports to the Brazilian Securities Commission (CVM), the São
Paulo Stock Exchange (B3) and the market as follows:
Cemig has received the following
notice from Banco Clássico S.A.:
|
|
“
|
In compliance with Article 12 of CVM Instruction 358 of January 3, 2002, we notify you that, as a result of transactions in the session of the São Paulo Stock Exchange on September 23, 2020, Banco Clássico S.A., through its exclusive fund FIA Dinâmica Energia, acquired:
|
|
5,471,800
|
|
common shares in Companhia Energética de Minas Gerais – CEMIG, for aggregate value of
|
|
R$ 59,837,618.24
|
|
(fifty nine million eight hundred thirty seven thousand six hundred eighteen Reais twenty four centavos).
|
This acquisition brings
the interest in Companhia Energética de Minas Gerais – CEMIG held by FIA Dinâmica Energia to:
|
81,605,977
|
|
common (ON) shares,
|
|
comprising 16.07%
|
|
of the total common shares issued by Cemig;
|
|
and 51,967,372
|
|
preferred (PN) shares,
|
|
comprising 5.14%
|
|
of the total preferred shares issued by Cemig;
|
|
thus comprising 8.79%
|
|
of the total shares issued by Cemig.
|
Also in compliance
with the above Instruction, Banco Clássico S.A. states that the aim of this transaction is to diversify the investments
of FIA Dinâmica Energia in electricity, while seeking to direct part of the Bank's investments to Brazil’s infrastructure
sector.
Complementing
this information, we attach the Bank’s complete details, in accordance with Sub-items I and III of Article 12 of CVM Instruction
358 of January 3, 2002. ”
Belo Horizonte, September 25, 2020
Leonardo George de Magalhães
Chief Finance and Investor Relations
Officer
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation, provided
for information only. The original text in Portuguese is the legally valid version.
15.
Convocation Dated October 9, 2020: Extraordinary General Meeting of Stockholders.
COMPANHIA ENERGÉTICA DE MINAS GERAIS
CEMIG
CNPJ 17.155.730/0001-64 – NIRE 31300040127
EXTRAORDINARY GENERAL MEETING OF STOCKHOLDERS
CONVOCATION
Stockholders are hereby called to an Extraordinary
General Meeting of Stockholders to be held on November 9, 2020, at 2 p.m., exclusively online, at the Company’s head
office, in Belo Horizonte, Minas Gerais, Brazil, through the Zoom digital platform, which will enable stockholders to take
part and vote, provided they send the Remote Voting Form, to decide on:
|
|
–
|
Election of one alternate member of the Audit Board, following the resignation of a member.
|
Any stockholder who wishes
to do so may exercise the right to vote using the remote voting system, in accordance with CVM Instruction 481/2009, by sending
the corresponding Remote Voting Form (Boletim de Voto à Distância, or BVD), through the stockholder’s
custodian agent or mandated bank by October 28, 2020, or directly to the Company by email at: ri@cemig.com.br, by October 28, 2020.
Any stockholder who wishes
to be represented by proxy at the said General Meeting of Stockholders should obey the precepts of Article 126 of Law 6406 of 1976,
and Paragraph 2 of Clause 10 of the Company’s by-laws, by sending to the email address ri@cemig.com.br, by email, preferably
by November 5, 2020, proofs of ownership of the shares, issued by a depositary financial institution, and a power of attorney with
specific powers.
Belo Horizonte, October 9, 2020
Márcio Luiz Simões Utsch
Chair of the Board of Directors
Av. Barbacena 1200 Santo Agostinho 30190-131
Belo Horizonte, MG Brazil Tel.: +55 31 3506-5024 Fax +55 31 3506-5025
This text is a translation,
provided for information only. The original text in Portuguese is the legally valid version.