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The Privatization plan for six Eletrobras distributors advances


Resolution of the PPI Council paves the way for the BNDES publication of the data room of six companies
Winners of the auction will have to make immediate investments, totaling R$ 2.4 billion. 
The Brazilian Investment Partnership Program Council (Conselho do Programa de Parcerias de Investimentos – CPPI) of the Presidency of the Republic, in today’s Diário Oficial, published Resolution No. 20, of November 8, 2017, which approves and defines the basic rules of the privatization process of six Eletrobras distributors from the North and Northeast regions. They are:
 • Boa Vista Energia S.A., of Roraima;
 • Centrais Elétricas de Rondônia (Ceron);
 • Companhia de Eletricidade do Acre (Eletroacre);
 • Companhia Energética de Alagoas (Ceal);
 • Companhia Energética do Piauí (Cepisa);
 • Amazonas Distribuidora de Energia S.A.
To prepare this Resolution, the PPI Council was based on studies led by the Brazilian Development Bank (BNDES) and developed by Mais Energia B Consortium (PwC Brasil, Strategy&, Siglasul and Loeser and Portela Advogados). In this article, the diagnosis, the economic-financial assessment, and the proposal for the selling model of the six distributors were developed. At the same time, Ceres Inteligência Financeira made an independent financial assessment, pursuant to Law No. 9,491/97 of the National Privatization Program (Plano Nacional de Desestatização – PND). 
The privatization process takes place under BNDES management and under the coordination of the Ministry of Mines and Energy (MME), pursuant to Decree No. 8,893, 2016. 
With the publication, BNDES is authorized to open the data room that has all the documentation and basic studies of the six distributors, prepared to subsidize possible investors. The opening of data rooms will take place in the next few days.
Eletrobras EGM will decide on the selling model
The selling model will be submitted for the appreciation of the Directors and of the Advisory Board of Eletrobras, which is expected to convene an Extraordinary General Meeting (EGM) for final deliberation. With the approval of the selling model, BNDES will continue conducting the latest stages of the privatization process (with the support of Mais Energia B Consortium), through public hearings, road shows and the auction itself. 
The public hearings will be held in the capitals of the states where the headquarters of the six distributors are located. In addition, the process will be sent for analysis by the Tribunal de Contas da União (TCU). After the approval, the public notice will be published with the date of the auction – expected to be held in the first quarter of 2018.
According to the proposal, the winners will be those who present the highest discount in relation to the additional transitional tariff granted by the Brazilian Electricity Regulatory Agency (Aneel) in the adjustments made between August and November this year. This will represent a direct benefit for consumers during the first five-year tariff review cycle of the additional tariff. If the proponents give up all the additional tariff (100%), the proposal presenting the largest bonus for the grant (to be paid to União) will win.
The six distributors were evaluated at the global value of R$ 10.2 billion, considering the new 30-year concession contract. However, the companies have net debts exceeding the values assessed, totaling R$ 20.8 billion.
In this scenario, the studies indicated the need for Eletrobras to make prior financial, contractual, and societal adjustments in the companies so the sale of the distributors’ shares were made at symbolic value. The figure of R$ 50 thousand was established as the symbolic value for the sale of each distributor.  
In the case of Amazonas, the vertical divestiture of the company will be required prior to the auction– i.e., the generation and transmission assets must be separated from the distribution company. 
Capital Injection – The selling model establishes that, in addition to giving up part or all of the additional transitional tariff, the winners must make a capital injection into the capital stock of the six distributors, in the amount of R$ 2.4 billion. This figure represents about 30% of the total of investments planned for the first five years of operation, in the total of R$ 7.8 billion. The goal is to guarantee part of the investment funds in the early years of concession and the appropriate service quality, in addition to providing a healthier capital structure to the companies.
Within six months after signing the agreement for purchase and sale of shares, Eletrobras may exercise the right to remain as a minority shareholder in the distributors, limited to the percentage of 30%, without any privilege management beyond that established by law.
The resolution of the PPI Council contains the general parameters for the participation of employees and retirees of the distributors in the privatization process, which will be detailed in the public notice.
Eletrobras will offer a number of shares equivalent to 10% of the shares held to employees and retirees. In the case of remaining shares, the winning group will be obliged to buy them. 
Employees who purchase shares will have an extra benefit: if they participate in the capital increase (which is mandatory for the winning bidder) with an investment of up to R$ 100 thousand, they will have the right to resell their shares to the new shareholder, after three years, with the value adjusted by the Selic rate, plus an additional premium of 10%. 


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