energy and natural resources think bric! · 4.3. current ownership structure of the power industry...

ENERGY AND NATURAL RESOURCES

Think BRIC!Key considerations for investors targeting the power sectorsof the world’s largest emerging economies

BRAZIL

ADVISORY


Contents 3

Foreword 4

Introduction & Methodology 5

Executive Summary 6

1. Brazil – Country in Figures 9

2. Population 10

3. Economy 12

4. Electricity Market 16

4.1. Electricity demand 17

4.2. Electricity supply 22

4.3. Current ownership structure of the power industry of Brazil 29

4.4. Main determining factors in the development 32of the electricity industry

5. Investment Opportunities 39

Acronyms 40

KPMG’s ENR Practice Overview 41

KPMG’s ”Think BRIC! Key considerations for investors targeting the power 45sectors of the world’s largest emerging economies“ publication series

Other KPMG Thought Leadership 46

Contents

3Contents

4 Foreword

Energy is a global industry, vital toeconomic development and as such hasstrong political and social implications.The world’s largest emergingeconomies, known in shorthand as theBRIC countries – Brazil, Russia, Indiaand China – are in the top 10 globalenergy consumers and are home to 40percent of the world’s population.

The strong correlation betweeneconomic growth, welfare and energyuse means that future demand levels,security of supply, energy mixes,production levels and general marketdynamics will increasingly move to thefore as key issues.

Electricity is by nature a uniqueproduct. It is indispensable and has nosubstitute. It is something we realizethe importance of only when weexperience a shortage. It is just enoughto recall the biggest blackout in U.S.history in 2003 which struck parts of theNortheast, Midwest and even Canada,knocking out power to millions ofAmericans.

This publication is a part of a series ofreports titled ”Think BRIC! Keyconsiderations for investors targetingthe power sectors of the world’s largestemerging economies: Brazil, Russia,India and China“ – aiming to highlightmajor trends and challenges shaping theevolution of these countries’ powersectors over the course of the nextdecade in light of the global economiccrisis.

In this publication we have attemptedto turn market data into meaningfulinformation and include top-levelexecutives’ perspectives on theevolution of the Brazilian power sectorfrom political, socio-economical,technical, environmental and legalaspects. They offer the scenariosthey consider adequate to meet thesupply-demand balance challenge inthe short-, middle-, and long term.

Major questions raised during thisresearch included how necessaryinvestments in generation, transmissionand distribution will be financed interms of state support, privatizationand foreign direct investments, howregulation will support emerging trendsand how global financial turmoil willaffect the pace of development.

I trust that the contents of this reportwill offer you deep insights into theseunique, emerging energy industry markets.


Foreword

Péter Kiss

Partner, KPMG Global Headof Power and Utilities

5Introduction & Methodology


This publication has been compiled byKPMG’s Global Power & UtilitiesKnowledge & Resource Center, basedin Budapest, Hungary as the Braziliancountry report of the ”Think BRIC!

– Key considerations for investors

targeting the power sectors of the

world’s largest emerging

economies“ publication series.

KPMG conducted comprehensiveresearch both on- and off-site inBrazil and our in-depth analysischaracterizes the development of the electricity industry.

This report is partly based on a surveyconducted by Ipsos, an independentinternational market research company,assigned by KPMG to interview keydecision makers of the Brazilian powersector. Based on these interviews,professional databases, evaluations andKPMG forecasts, KPMG’s Global Power& Utilities Knowledge and ResourceCenter compiled predictions for thedevelopment of the Brazilian powersector up to 2020.

During the survey period ofMarch–May 2009, Ipsos’ seniorqualitative researchers conductedsemi-structured personal interviews(based on a questionnaire preparedby KPMG) with top-level executivesconsidered to be key stakeholdersof the country’s power sector.The target groups of the interviewscomprised:

1. Major market participants:

key players of the electricity industrybearing a dominant market position(both state-owned and privately heldintegrated electricity companies,TSOs, electricity traders)

2. Regulatory authorities: competentministries, regulatory bodies

3. Financial institutions: domestic andinternational investment banks withdominant market share

4. WEC – World Energy Council

5. Technological suppliers,

equipment manufacturers

The sample consisted of 18 prominentexperts working throughout the powersector, and whom KPMG would like tothank again for the wealth of valuableinformation they shared for this report.

In Brazil, the following listed

companies and their representatives

contributed to our survey:

Introduction & Methodology

Segment Company

MajorMarketParticipants

1. Eletrobrás

2. Copel

3. CEMIG

4. Cesp

5. Light

RegulatoryAuthorities

6. ANEEL

7. Ministry of Minesand Energy

World EnergyCouncil

8. WEC

FinancialInstitutions

9. Itausa

10. Credit Suisse

11. Bradesco

12. ING Bank

13. Unicredit Bank

TechnologySuppliers

14. ABB Group

15. Mitsubishi

16. Siemens

17. General Electric

18. SchneiderElectric SA

6 Executive Summary


The Brazilian electricity market, thelargest in Latin America with a totalannual demand of some 425,000 GWh,appears set for steady and sustainableexpansion, supported by a combinationof both economic and populationgrowth along with governmentmeasures to increase the availabilityof electricity to the wider public.

And while the country’s heavy relianceon hydroelectric power will continue,opportunities for other generatingsystems, from gas and nuclear to windand solar energy, are already openingup and are likely to increase.

In addition, the country will requiresubstantial investment in transmissionand distribution, both for new facilitiesand refurbishment of existing equipment.

In total, the International Energy Agencyhas assessed the total investment needsof the sector to 2030 to be USD 252 billion(at 2005 prices), equivalent to USD 10billion per year.

As a result, Brazil will offer a widevariety of financial, technical, consultativeand training/educational opportunities toproviders in the coming decade.

Since the country has introducedstructural and legal reforms intendedto support a mixed economy over thepast ten years, along with specificmeasures to involve private capital inthe electricity sector, Brazil wouldappear to be rich in potential for bothdomestic and foreign providers.

However, the state still plays adominant role across the sector and thisstudy has also revealed that a numberof factors, including uncertainties in thetax system and the electricity regulationsystem, are causes for concern amongall energy investors. In addition, Brazilsuffers from a high rate of electricitytheft, which, together with longtransmission lines, push networklosses to over 15 percent, roughlytwice the global average.

In spite of these drawbacks,there is little doubt that overallthe opportunities are immense.Brazil’s population is expected toincrease from 192 million in 2008to 220 million by 2020, a jump of10 percent. Economic growth,currently stagnant due to the globalfinancial crisis, is forecast to pick upand expand by almost 5 percentannually after 2013. As a result,electricity demand is set to increaseby between 4.00 and 4.5 percentannually, resulting in total consumptionof between 710,000–785,000 GWh in2020, that is a jump of 67–85 percenton 2008 figures.

Since domestic production alreadyfalls short of total demand (importsmake up between 10–12 percentof consumption), it is clear Brazil willrequire substantial investment intogeneration facilities – this despitegovernment programs to encourageenergy saving and efforts to thwartelectricity theft.

To meet needs, Brazil is forecast toneed a total of 152GW installed capacityby 2020, compared to 93GW in 2006 –in other words an increase of 59GW,or 63 percent.

Brazil is blessed with a climate andtopography which send hydroelectricengineers giddy with delight; it has thelargest installed hydro-generationcapacity in the world, which provided astaggering 85 percent of electricityproduced last year. The remainderwas sourced from biomass, oil, coal,gas and nuclear facilities.

In the short term, three large hydroelectricplants have been approved, all in theAmazon region, with a total capacityof 33GW. However the government,having experienced an energy crisis in2001, brought on by an unexpecteddrought, is keen to diversify sources.

In addition, the environmental and socialcosts of large hydroelectric schemes(and the associated header reservoirs)are becoming contentious in Brazil.As a result, although hydroelectriccapacity will increase substantially inabsolute terms in the next decade, itsshare in electricity generated will fallto some 75 percent of the total.

Partly as a result of the environmentalproblems of large hydro-power schemes,a substantial proportion of the new hydrocapacity should comprise smaller projects,including ‘run of the river’ schemes, i.e.,without substantial header reservoirs.

Executive Summary

Executive Summary 7


Rapid expansion of such Small HydroPlants (SHPs) is predicted, fromthe current 2,7 GW total capacityto some 7 GW within five years,and ANEEL, the electricity regulator,is conducting a study to assess theimpact of installing up to 10 GWof SHP generating capacity.

However SHPs, lacking headerlakes, will be more susceptible tointerruptions in periods of extremerainfall fluctuations.

In addition, growth in run-of-the-riverschemes has been disappointing due totariff limitations resulting in excessivelylong payback periods.

In terms of alternative prime energysources, natural gas, which currentlyaccounts for 3.6 percent of generatedpower, is expected to play a greater role,possibly comprising up to 11 percent ofthe total by 2020 depending on politicalwill. New gas fields discovered byPetrobras in the southeast of thecountry are expected to contributeto this growth.

Brazil has two nuclear plants whichcurrently provide about 2.6 percentof total production. A third plant,Angra III, is expected to be completedin the southeast of the country,helping to lift the proportion ofnuclear-generated electricity toaround 5 percent in 2020.

The perception of nuclear power hasbecome more favourable in Brazil inrecent years, and the Ministry of Minesand Energy projects an increasing rolefor nuclear power. However, there areno public plans to expand nuclearfacilities at present, despite the countryholding the sixth largest uraniumdeposits worldwide.

Coal-fired power plants are expectedto double their share of the market(from 1.7 percent to 3.3 percent) by2020, while oil-fired plants will slip inthe rankings (from 3.1 to 2.7 percent).

Electricity sourced from biomass andwaste currently accounts for about4.1 percent of the total, much of thisbased on sugarcane bagasse, whichis produced in tandem with ethanol.Some market participants believethere is a good future for growth inthis segment, nonetheless biomassproduction will also struggle to holdonto its overall share of total production,with predictions that it will fall to 3.9percent within the decade.

Energy experts also agree that Braziloffers huge potential for wind turbinegeneration, with ‘abundant’ winds inthe northeast and south of the country,plus a long coastline. However,development depends on governmentpolicy, primarily the need for incentivesto invest in wind power, and

respondents to the survey appearless than optimistic regarding progress.Predictions are that wind generatedelectricity will comprise only 0.6 percentof the total by 2020.

Even though Brazil is a signatory to(and potential benefactor from) theKyoto Protocol of 2005, and thereare a number of energy saving projects,progress on the ground towards a lowercarbon economy appear limited.True, there have been initiatives,such as projects to replace electricboilers with solar water heaters,and some cities have modernizedstreet lighting with more efficientsodium vapour lamps, however thedesire to implement wide-rangingenergy saving projects appearslukewarm.

As one market observer put it;“It is cautious… I think that the stateis being sensible, but it is not doingmuch, and it will not do much in thenext few years.”

But even with an all out embrace ofenergy saving technology, the electricitymarket is set to expand, and despite theexpected relative decline in terms ofmarket share of some forms ofgeneration, it must be noted that inabsolute terms every generation modewill see an overall increase in capacity.

And although market players do notexpect any further moves to privatizethe state-owned power sector –dominated in particular by Electrobraswith 40 percent of total installedcapacity – much of the new investmentwill require private capital, with manyprojects comprising a 51 percent privatestake and the state (using the financialclout of BNDES, the BrazilianDevelopment Bank) the remaining49 percent.

Some observers see this form ofownership as an ideal model fordevelopment, providing stability intimes of uncertainty. “The state hasbeen fundamental [for progress];without it, and considering the creditcrisis, large projects would not havegotten off the ground in the past year,”one respondent stated.

Hand in hand with the expansion of thegenerating segment, the transmissionand distribution networks will alsorequire modernization and newcapacity. In both segments, earlierreforms have brought in private capital,with concessions for the constructionof 10,000 km of transmission linesgranted after the new regulatoryframework was introduced in 2004.

As a result, system reliability hasimproved, and according to one marketparticipant, this has been a verysuccessful means of introducinginvestment and gaining efficiency.

“The transmission models havebeen the most successful ones inthe country. They are similar to thegeneration model, in which one ispaid to manage an asset. The tendersthat have been conducted by ANEELand the government have been verysuccessful; we take part in themactively,” the participant said.

The reforms have also led to a majorityof the distribution companies (EDCs)being transferred to private operators,who have worked hard to introduceefficiency into the networks, whilecutting back on theft and other losses.

Much, however, remains to be done,certainly in the remaining state-owned EDCswhere, as one observer put it, “facilitiesare quite antiquated. It will be necessaryto modernize the grid and implant newtechnologies for metering and control.”

Even the privately run EDCs face furtherlarge investments to implementefficiency and reduce theft; projectsinclude replacing more analogue meterswith digital devices to identify moreaccurately any deviations in expectedload demands (an indication of theft ornetwork defects), new distribution lineslocated above main roads for bettersecurity, and replacing older cables withbetter armoured and lower impedancemodern designs.

Overall, it is clear that the electricitysector needs substantial capital andhuman investment in the next decade.As many survey respondents noted, aproper, transparent regulatory regime isfundamental to enable these develop -ments to proceed efficiently and effectively.

While the groundwork in termsof written legislation is in place,market participants have made

clear that this must be acted uponto attract private capital – even at thelevel of applying proper penaltiesfor electricity theft.

The report notes that the regulatormust include in its priorities an effortto maintain stable rules, enforceregulations, make impartialdecisions and set clear guidelines.More efforts are required to furtherreduce cross-subsidies, and to increasetariff parity between the private andpublic sectors – while, in the generatingsegment – the regulator needs todifferentiate between sources ofenergy in order to provide transparentand commercially viable returnson higher-cost power sources.

As the report puts it; “Currently alltypes of energy are subject to thesame auction, even if thoseenergy sources have extremelydifferentiated costs, e.g., windand hydro. … This discourages mostinvestors [from taking part in thehigher cost alternatives].”

There is also a need to draft a newstrategic energy plan which resolveslocal differences and lays out an overallnational scenario, the report notes.

With the right leadership the Brazilianelectricity sector will see “a periodof substantial development” withsuppliers having to make investmentsin all three segments, i.e., generation,transmission and distribution.

With demand set to rise regardless ofthe various restrictions, as one majormarket participant put it; “I think thatyou may conclude that there isoptimism in the sector, with growingneeds but also [with] an adequatemodel for its sustainability.”

8 Executive Summary


9Brazil – Country in Figures


1. Brazil – Country in Figures

BRASÍLIA�

Area 8.5 million km²

Government type Federal Republic

Capital Brasilia

Population (2009) 198.7 million(World rank: 6)

Population annualgrowth rate(2009 estimate)

1.19%

Source: KPMG, Economist Intelligence Unit

opulation growth is one of themain determining factors ofenergy demand in Brazil.

Although the share of the residentialsector in electricity consumption wasonly around 221 percent in 2008,population growth is decisive in respectto the domestic demand for goods andproducts; additionally, populationgrowth is crucial to industrial output anddomestic gross production. In the firstsection of this report, Brazil’s majordemographic trends and trajectoriesare presented to show the futureopportunities in the country’s economyand energy consumption.

Brazil is the most populous country inLatin America, as well as one of themost populous in the world, with a totalpopulation of nearly 192 million peoplein 2008.2

The growth rate of the population isconsidered to be high, amounting to1.43 percent per annum3 (CAGR,Compound Annual Growth Ratebetween the years 2000–2008), thesecond highest growth among theBRIC countries after India. Accordingly,the total population of Brazil is expectedto grow from the present 191 million4 toabove 220 million by 2020.

Brazil’s average population density islow due to the fact the majority of itsinhabitants live on or near the Atlanticcoast, and since the 1970’s, there hasbeen intensive migration from rural tourban areas, having currently reached anurban population ratio of 86 percent.5

According to historic tendencies,assumptions have been made for thisforecast. Examining the country’s

10 Population


2. Population

P

1 Source: International Energy Agency2 Source: Economist Intelligence Unit3 Source: Economist Intelligence Unit

4 Source: CIA – The World Factbook 20095 Source: CIA – The World Factbook 2009

11Population


Forecast

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ion)500

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� Brazil � North America

Figure 1: Population of Brazil (2000–2020)


demographic figures, since 1950 thepopulation has grown from 50 million tothe current 191 million with acontinuously decreasing rate of growthdue to both lower fertility and birthrates. Growth rate per annum wasabove 3 percent in the 60’s while it iscurrently around 1.4 percent. Thereforea 1.4 percent increase in this rate waspredicted until 2010, and 1.1 percentbetween 2010 and 2020.

In summary, one of the mainadvantages of the Brazilian economy isthe high availability of labor resources(currently 52 percent of the population)which is predicted to remain stable inthe coming decades as well.

12 Economy


n important relationship existsbetween the economy andelectricity consumption. Interest

in studying this relationship arises fromthe need to understand the complexlinks between the two. On the one hand,electricity use depends on technicaland economic factors. On the otherhand, electricity use supports advancesin technology and stimulates economicgrowth. Gross domestic product, asone of the most important economicindicators, correlates with electricity useand presumably will do so in the future.Ferguson ex al (2000) found a correlationbetween electricity use and welfare6 andnumerous studies imply a relationshipbetween the two. Our survey looks atthe main factors affecting economicgrowth to consider the implications andbring to light future prospects for theelectricity industry until 2020.

Brazil’s economy is among the 10largest economies in the world and thelargest in South America, with GDP(PPP) of USD 1 981 billion in 2008.7

Brazil’s economy is considered to befree market and export-oriented withthe services sector (66 percent) leadingthe way, followed by industry (28.5percent) and agriculture (5.5 percent).Industrial production in Brazil rangesfrom auto mobiles, steel andpetrochemicals to computers, aircraft,and consumer durables.

Brazil’s economy is considered to beamong the emerging markets and is oneof the main recipient of foreign directinvestment (FDI). Since structural reformswere first launched in the energy sector inthe 1990s, the share of foreign capital inenergy projects has increased rapidly.Nowadays FDI is still viewed favorably bya majority of the country’s political class.

Nonetheless, the economy has experiencedseveral periods of volatility in the past.By 2004, Brazil had accumulated USD 200billion of external debt.8 Financing this debtand controlling inflation has pushed updomestic interest rates, which peakedjust under 20 percent in 2005 – among

3. Economy

AFigure 2: Main economic indicators

GDP (PPP) USD 1 981.1billion (2008)

GDP realgrowth rate

5.2%(2008 est.)

GDP/capita(PPP)

USD 10 325(2008 est.)

GDPcompositionby sector

agriculture: 5.5%industry: 28.5%services: 66% (2008 est.)

Labor force 100.9 million(2008 est.)

Labor force byoccupation

agriculture: 20%industry: 14%services: 66%(2003 est.)

Unemploymentrate

8% (2008 est.)

Level ofelectricityprovision tohouseholds:

Total 97%(2005)

Industrialproductiongrowth rate

4.4%(2008 est.)


6 Source: Ferguson, R., Wilkinson, W., Hill, R.,2000. Electricity use and economicdevelopment. Energy Policy. 28, 923-934

7 Source: CIA – The World Factbook 20098 Source: World Energy Outlook - 2006

“BRIC represents the best regions for growthglobally. I think they will continue to be a drivingforce for growth… and investment as well…”- Major market participant -

the highest rates in the world. This hashad negative effects on the economy,especially on public and private investmentsincluding long-term energy projects.

The financial crisis has affected theeconomy as well as the currency(the real, “BRL”) and stock market(Bovespa). IBOVESPA, the stockmarket index, significantly lost41 percent of its value in 2008.9

In 2006, the government announceda package of economic reforms toreduce taxes and increase investment ininfrastructure. As a result, Brazil’seconomy is expected to be amongthe first to recover from the economicdownturn.

How do you see the attractiveness

of Brazil for foreign capital

investment during the course

of the next five years?

As an overall opinion Brazil’sattractiveness is considered to be high.

Besides being an enormous consumermarket, Brazil has addressed the country’smain problems over the past 10 years:

• institutional credibility

• legally binding contracts

• stability of the regulatory framework.

One drawback is that the transportationinfrastructure needs improvement,especially ports and highways, bothfor domestic and export markets.

Regarding the electricity sector, Brazil isthe country that has attracted the mostforeign investments in the last 10 years.

On the other hand, non-motivatingfactors for investment there include:

• the colossal tax burden, even on thelabor force, negatively impactinginvestments

• a sluggish legal system

• infrastructure issues, such as somesectors not keeping up with thecountry’s growth, and the existenceof major bottlenecks in railroads,highways, ports and airports thatmay seriously compromise logisticsin distribution.

13Economy


9 Source: CIA – The World Factbook 2009

“Brazil is the most stableof all the BRIC countries:we do not have the casteproblems as in India, northe problems Russia has– with a totally oil-basedeconomy. Despite socialinequality, domesticincome is lessconcentrated and betterdistributed than in China.”- Major market participant -

Nominal GDP

The nominal GDP of Brazil at purchasingpower parity (PPP) was USD 1,981billion in 2008.10The stable growth of theBrazilian economy is expected to slowas a result of the financial crisis.Nominal GDP is predicted to decreaseby approximately 1 percent between2008 and 2009 after a 5.76 percentCAGR between 2000 and 2008.All signs indicate that the country willstart recovering from the crisis after2009. Between 2009 and 2013, theCAGR of the nominal GDP is expectedto be roughly 5 percent (growing from3 percent to 6.2 percent annually in theperiod). After 2013, Brazil’s economy isforecasted to grow 4.9 percent annuallyfollowing a trend which began inpreceding years. As a result, thenominal GDP of Brazil is predictedto be USD 3,342 billion in 2020.

GDP per capita

GDP per capita was USD 10,325 in 2008which was less than one-third of theWestern European level (USD 34,420).11

Considering the high population growthrate, the growth of GDP per capita isabout 3.7 percent which is approximately1.6 percentage points lower than theaverage global growth rate in theexamined period (2000–2020).As a result, the GDP per capita of Brazilis forecasted to be USD 15,186 in 2020which will be 25 percent lower than theworld average (USD 19,466).

Energy economy

Brazil’s economy is supported by adynamically developing energy sector.The primary energy sources produced inthe country covered 80–90 percent ofthe domestic demand in the last years.This production is mainly supportedby the crude oil reserves, as well as bythe robust sugar cane based bioetanoloutput, which had a growth rate of27 percent in 2007 from the previous year.

On the other hand, the high rate ofutilization of the vast water reserves bylarge hydropower plants contributes tothe uniquely great share of renewables,which translates to more than40 percent in the primary energy mix.This results a fairly limited carbonproduction of 330–350 million tons CO2

vis-à-vis the global and BRIC emissions.

14 Economy


10 Source: Economist Intelligence Unit11 Source: Economist Intelligence Unit

(bill

ion

US

D)4 000

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)

ForecastPrimary axis

� Nominal GDP of Brazil (PPP)

Secondary axis� GDP per capita (Brazil)� GDP per capita (World)

Figure 3: Brazil: Nominal GDP (PPP), GDP per capita

Source: KPMG, EIU

Figure 4: Main energy indicatorsof Brazil, 2006 (million TOE)

Production 206.72

Import-Export 20.35

Dependency(Net Import/TPES)

9%

Total Primary EnergySupply (TPES)

224.13

Total Final Consumption(TFC)

202.89

Conversion Rate(TFC/TPES)

91%

CO2 emission(million tons)

332.42

Source: OECD/IEA Energy Balances ofNon-OECD Countries, MEM BalancoEnergético Nacional 2008

The demand for crude oil andpetroleum products continouslyexceeding the domestic productionwith a 2 million barrels per day refiningcapacity, despite of the increasedresource base and production ofPetrobras. Moreover the natural gassector imports yearly 10 billion cubicmeters of gas via pipeline fromBolivia. The electricity productionconsumed 12,4 percent of the naturalgas supply in 2007, while representingnearly 23 percent of the coal

consumption, the supply for which isapparently rather limited in terms ofsteam coal.

The main user of the total finalconsumption of more than 200 millionTOE is the industrial sector with morethan 80 million TOE in 2007. Householdswere still slightly ahead of the energysector in terms of final consumption in2007, each having about 10 percentshare, but given the latter’s greater paceof increase, this will be changed soon.

15Economy


Figure 6: Fossil resources of Brazil (2008)

Proved Reserves Production Consumption

Oil 12.6 billion barrel 1.9 million barrels per day 2.4 million barrels per day

Natural gas 330 billion cubic meters 14 billion cubic meters 25.2 billion cubic meters

Coal 7 billion tons 6.4 million tons 44 million tons

Source: Forbes

Figure 5: Forbes Global 2000 ranking of Brazilian companies (2009)

WorldRank

Company Industry Revenue(billion USD)

Profits(billion USD)

Assets(billion USD)

Market Value(billion USD)

25 Petrobras Oil & Gas Operations 92.08 14.12 120.68 110.97

74 Vale Mining 30.75 9.28 79.26 66.14

78 Banco Bradesco Banking 39.97 3.26 194.51 26.75

106 Banco do Brasil Banking 33.38 3.77 223.13 14.96

163 Itaúsa* Banking 39.41 1.16 265.22 13.56

215 Unibanco Group Banking 14.74 1.94 82.12 13.75

312 Eletrobrás Electric utilities 12.61 0.87 66.86 12.30

498 Metalurgica Gerdau Materials 22.82 1.65 25.99 2.79

535 CSN-Cia Siderurgica Materials 6.42 1.64 14.94 10.16

606 Tele Norte Leste Telecommunications 9.87 1.32 15.86 5.21

Source: Forbes*Itaúsa and Unibanco merged in the first quarter of 2009

16 Electricity Market


razil has the largest electricitymarket in South America.The country has one of the

largest capacities for water storage inthe world and is highly dependent onhydroelectricity generation. Thesefactors make for a high level ofinvestment but relatively low generationcosts compared to countries with amore diverse supply mix. However,dependence on hydro power makesBrazil especially vulnerable to powersupply shortages in drought years, aswas demonstrated by the 2001–2002energy crisis.

The power sector in Brazil wasessentially in the government’s handsuntil the early 1990’s. By the late 1980’s,the state-ownership model was on theverge of collapse. This situation was theresult of heavily subsidized tariffs and arevenue shortfall in the sector, which ledto a delay in the construction of severallarge hydro plants due to lack of fundsfor investment.

Consequently, reforms in the powersector were introduced in the 1990s. Afterthe power crisis of 2001, the Braziliangovern ment introduced a new regulatoryframework for investment. Concessionsfor the construction of over 10,000 km oftransmission lines12 were subsequentlyawarded and the reliability of theintegrated grid has improved. Electricitygeneration and distribution have alsobeen opened up to private capital.

In the framework of structural reformsin the energy sector the roles of theoperator and regulator that hadcoexisted in Eletrobrás earlier have beensuccessfully separated, and clear rules forall operators, including the governmententerprise, were established.

The Ministry of Mines and Energy (MME)bears the overall responsibility for policysetting in the electricity sector, whileANEEL (Agéncia Nacional de EnergiaEléctrica), which is linked to the Ministryof Mines and Energy, is the Brazilian

Electricity Regulatory Agency which wascreated in 1996. ANEEL’s function is toregulate and control the generation,transmission and distribution of power.The National Council for Energy Policies(CNPE) is an advisory unit to the MME incharge of approving supply criteria andstructural projects while the ElectricityIndustry Monitoring Committee (CMSE)monitors supply continuity and security.

The Operator of the National ElectricitySystem (ONS) is a non-profit privateentity created in 1998 that is responsiblefor the coordination and control of thegeneration and transmission installationsin the National Interconnected System(SIN). The ONS falls under ANEEL’sauthority and regulation.

While the liberalization of Brazil’selectricity sector has already begun,further steps are necessary to achievea stable and secure market, especiallythe participation of foreign anddomestic private capital.

4. ElectricityMarket

B

12 Source: International Energy Agency:World Energy Outlook – 2006

4.1. Electricity demand

Brazil possesses the largest

electricity market in South America,

with power consumption of

423,086 GWh in 2008 which

represents 2.65 percent of the total

electricity consumption of the world.

Electricity consumption

Brazil’s electricity consumption grew by2.99 percent annually between 2000and 2008.13The tendency is not expectedto change significantly until 2020 andbased on predictions, the annual electricityconsumption of the country should be

approximately 709,221 GWh in 2020. Thecompound annual growth rate of Brazilianelectricity consumption is 3.99 percent forthe entire 2000–2020 period, which is lowerthan the average of the other BRIC countries.As a result, Brazil is on a trajectory to becomethe smallest consumer of electricityamong the BRIC countries by 2020.

17Electricity Market


13 Source: Economist Intelligence Unit

(TW

h)

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� Electricity consumption

Secondary axis� Electricity consumption

per capita (Brazil)� Electricity consumption

per capita (World)

Figure 7: Electricity consumption, electricity consumption per capita

Source: KPMG, EIU

The per capita electricity consumptionof Brazil has shown stable growth in thepast eight years. The CAGR was 1.54percent between 2000 and 200814

which resulted in 2,194 kWh per capitaelectricity consumption in 2008 –roughly 14 percent lower than the globalaverage. As the economy and the socialwelfare of the Brazilian population aregrowing faster than the population itself,the per capita electricity consumption isexpected to be 3,222 kWh by 2020.

How would you characterize the

dynamics of household electricity

consumption during the course of

the next five years?

Electricity consumption growth in thehousehold sector has historically been1.5 –2 times that of the GDP.

Electricity consumption of theresidential sector in Brazil accounts forapproximately 21 percent of the totalelectrical energy consumption of thecountry. Per capita consumption inBrazil is around 2,330 kilowatts/hour,which is low. The growth rate is

forecasted to be 4–4.5 percent,which is lower than the 5–5.5 percentrate achieved in previous years.Per capita consumption is thusestimated to reach 2,800 to 3,000kilowatts/hour in five years’ time.

The sector offers good growth potentialwhich has not suffered significantly fromthe financial crisis. Even in the case ofsome decrease, fast recovery is expected.

Overall, the residential sector in Brazil isnot considered to be very sensitive torecessions. Even in moments of crisis,it is easier to cut expenses in otherareas than with electricity, which tendsto be the last thing on which peoplespend less.

“The impact is minor. People donot stop using home appliances,or watching TV; when they have anelectric hot water boiler, they do notstop taking hot showers… They cutdown on other things, like going outto dinner, travelling, and superfluousspending...”

- Major market participant -

According to the big Brazilian energycompanies a culture of a moreconscious energy use has arisen,but it will not have any effect in theshort term.

How would you evaluate the

progress of the rural electrification

program from political/institutional/

financial perspectives?

The Luz para Todos (“Light for All”)federal government program,15 which isspreading electric power both to urbanand rural areas to eradicate “electricalexclusion”, has made great progress.Consumers in interconnected areasalready have access to electric power.The initial completion deadline of 2010,when all program goals should be fullymet and 100 percent of all Brazilians areset to have access to electricity, hasbeen extended to 2012. By the end ofthe program, an estimated total of 1–1.5million consumers are to have receivedaccess.

Participation in Luz para Todos ismandatory for electricity distributors



14 Source: Economist Intelligence Unit15 A demonstration project; energy will be free for low-income consumers, and for residential consumers with consumption less than 80 kWh/month tariffs will be reduced.

The Program’s calculated cost is USD 7 billion. This sum will be achieved through a partnership of the federal government, state agencies and energy distributors. Thefederal government will designate USD 5.3 billion. The project is also supported by USAID funding. Source: http://projects.wri.org/ sd-pams-database/brazil/luz-para-todos

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200

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2005

200

6

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Figure 8: Electricity consumption by sector

Source: KPMG, EIU

and involves all the states. The programis considered very ambitious, withnumbers that do not reflect the technicaldifficulties faced by distributors.

Respondents are generally not aware ofwhat percentage of the program has beenimplemented. Some estimate that 60percent of the program has been achieved.

The total electricity consumption of thecountry can be divided into six majorsectors. Figure 8 shows the share ofeach sector in total power consumptionbased on the International EnergyAgency’s database and KPMG’sforecast.

In 2006, the energy sector accountedfor 3.74 percent of the total electricityconsumption of the country, which hadincreased from 3.17 percent in 2000.The industrial sector is the most significantconsumer of electricity in Brazil with183 440 GWh annual consumption,accounting for about 47 percent of totalconsumption in 2006. The transportationsector had a minor, 0.29–0.39 percentshare between 2000 and 2006. Althoughthe total consumption of the residentialsector increased from 84,610 GWh to85,820 GWh, the share of the sectordecreased in the period in question, from25.31 percent in 2000 to 22.01 percent in2006. The commercial and public servicessectors had almost the same share as theresidential sector of total consumption:22.64 percent in 2006. The consumptionof the agriculture, forestry and fishingsector increased from a 3.77 percentshare in 2000 to 4.21 percent in 2006.

It is assumed that the share of eachsector of the economy will not changesubstantially. Thus, in 2020, industrialelectricity consumption will have thebiggest share, followed by theresidential and service sectors.

Industrial sector

Besides the Brazilian commercialsector, industrial activities are providingan increasing share of GDP, reachingaround half of the commercial sector’scontribution while it employs only 14percent of the total labor force. Trendsshow an increase in the industry sectordue to the availability of natural resources.

How do you see the development of

power-intensive industrial activities

and its expected effect on electricity

consumption over the next five years?

In Brazil, power intensive industriesinclude:

• Raw-material processing (minerals,wood, petroleum), via steel mills,refineries, aluminum industries,pulp and paper companies, etc.

• Chemical product processing

The sector has a strong relation with theexternal market as a good portion of itsproduction is oriented towards export.For this reason, it was the sector most

affected by the economic crisis, therebycausing a decrease in its energydemand in the short-term.

The commodities sector is suffering astrong downturn, the prices ofcommodities have significantlydecreased on the global market,export volumes are decreasing and aquick return to previous levels is notexpected. Some big players in thecommodities sector have alreadyclosed facilities while other substantialenterprises have halted some largeprojects that were scheduled to becarried out this year.

Regarding electricity consumptionlevels, an initial decrease is to beexpected in 2009 in relation to 2008(estimated at around 10–15 percent),which could continue from one yearto 18 months, with a recovery likelyafter two years. If no additional crisisemerges, an acceleration of consumptiongrowth is expected in 2011 and 2012,as a result of a potential return toprevious consumption levels, in line withthe expected increase of commoditiesprices on the international market.



One positive consequence of the crisisis that if demand were to continue asbefore the crisis, the country would haveunlikely been able to meet energy demand.This halt will in some way allow Brazilto catch its breath and the supply sidemay expand without the pressure ofthe demand side.

Commercial sector

The commercial sector is the majorcontri butor to the Brazilian economy.This sector provides 66 percent ofproduction by employing the sameshare of the labor force.

What are the expectations for

development of the SME (small

and medium-sized enterprise)

and the commercial sectors and

its expected effect on electricity

consumption in the next five years?

Growth rates tend to be very similarand follow the fluctuations of the GDP.If the economy maintains the currentpace, the growth rate is expected tovary between 3.5 and 6 percent.

The commercial sector is considered bymost respondents as being responsible forthe most meaningful part of this growth.

The growth of electric energy consumptionin the commercial and service sectors willprobably grow in the next five years, after asharp decrease in 2009 and part of 2010.

The trade & retail sector impactsgrowth differently, depending on thespecific region of the country. Shoppingmalls are the largest consumers in thisrespect. In the southeast part of thecountry demand for power is alreadystrong, while in the north and northeastthere is still great potential for expansion.

Another relevant tendency is thefact that big retailers (for example,WalMart) are starting to createtheir own power generation projectswith solar panels or diesel and gasengines for intermittent use.

Especially among small and

medium-sized entrepreneurs

(SMEs), the pressure for costsavings tends to be increasinglystrong.

A major cost optimization effort isexpected to be undertaken, seekinggreater energy efficiency – purchaseand/or replacing of electronic consumergoods for energy saving models – andenergy savings via changes inconsumer behavior.

Agriculture

Brazilian agriculture is welldiversified, and the country is largelyself-sufficient in food production.Agriculture accounts for 5.5 percentof the country’s GDP, and employsabout one-fifth of the labor force inmore than 6 million agriculturalenterprises.

Agriculture in Brazil is expected to bemodernized, as in other developingcountries, which will result in increasedenergy consumption.

How do you see the development

of Brazil’s electricity consumption

in agriculture over the next five

years?



The use of electric power inagriculture has increased significantly.Consumption growth is forecasted tobe similar to that of the industrial sectorfor the next five years, with higherrates in regions where agricultureand livestock activities are expandingand modernizing.

The midwest region of the country isgrowing at 8 percent or more, which ishigher than the industrial consumptiongrowth rate. The irrigation needs of newcrops have lead to increased electricpower consumption.

The agro industry, however, isbecoming a provider of electricitythrough biomass and, on a smallerscale, of eolic and solar energy.

Power pricing

With the implementation of thereforms, the sector was divided intotwo different systems. Under theregulated system consumerspurchase electricity at the tariffsdefined by ANEEL from their localdistributor who, in turn, purchaseselectricity through public tenderregulated by ANEEL.

In the liberalized system, electricitis traded between generatingconcessionaires, independent energysuppliers, auto-producers and eligibleconsumers. Consumers are eligiblewith contracted annual capacityabove 3 MW.

As far as the price level is concerned,the average retail tariff rose from7.45 centavo/kWh (7.45 cent/kWh)in 1996 by 40 percent to 10.85centavo (6.01 cent, due to thedevaluation of the national currency)by 2000.

Further price developments, anddifferences due to the still existingcross-subsidization between theindividual consumer groups arereflected in the below table.

ANEEL tariff setting is based on theperformance of the individual regionaldistribution companies, so theend-user prices show significantdifferences, ranging from 19.7 to 41.4centavo/kWh for the residential usersin 2009. Accordingly, the averageprices differ in the various supplyregions, with the north of Brazil beinggenerally 15–20 percent moreexpensive than South.

It is worth noting, that the USD/BRLforeign exchange rate has a direct effecton the domestic prices, because of theUSD accounting of the imported hydroelectricity from Paraguay.



Figure 9: Electricity prices in Brazil

2006 2007 2008

ct/kWh BRL USD BRL USD BRL USD

Residential 29.49 13.40 29.36 15.45 28.20 15.67

Industrial 20.77 9.44 21.66 11.40 19.94 11.08

Commercial 27.42 12.46 27.31 14.37 27.12 15.07

Rural 17.63 8.01 17.47 9.19 17.89 9.94

Total average 25.08 11.40 25.29 13.31 24.23 13.46

Source: MME/DGSE, ANEEL, Deutsche Bank Research, KPMG calculations

4.2. Electricity supply

Electricity production in Brazil has

been growing substantially in the

last eight years to cover the country’s

increasing electricity demands.

The annual growth of consumption

was nearly 3 percent between 2000

and 2008, while the growth rate of

production was 3.6 percent annually

in the same period.

Brazilian power generation is highlydependent upon hydroelectricity, whichis not expected to change in the shortterm; however there is a need fordiversification of the generation mixto avoid further energy crises.

Installed capacity

Brazil’s installed capacity was 93.2 GWin 200616, and according to the NationalEnergy Strategy (Plano Nacional de Energia2030), the level of domestic capacitywill be expanded to 151.8 GW by 2020.

As already discussed, electricitydemand is constantly growing andis driving generation investments;furthermore the security of electricitysupply is required, therefore it is essentialto reach the forecasted figure. Accordingly,electricity generation is expected toreach 785 TWh in the year 2020.

Breakdown of electricityproduction

Brazil has the largest capacity forhydro power in the world and morethan 85 percent of its electricity wasgenerated in hydro power plants in2008. The remainder was generatedin plants fueled by coal, oil, natural gasand biomass or waste as well as innuclear power plants.

As Brazil is highly dependent onhydroelectricity generation, thecountry is especially vulnerable toprecipitation change and droughtaffecting hydroelectric generation,as was demonstrated by the energycrisis in 2001. At the same time,hydro based capacities reduce thecountry’s generation costs relativeto countries with more diversesupply mixes.

In order to meet a more diversifiedgeneration mix, the share of hydropower generation is predicted todecrease to around 75 percentby the year 2020.

How do you foresee the future

balance of power plant fuel

consumption? What changes do

you expect in the generation mix?

Forecasts for Brazil’s future energyoutlook envisage a highly favorablesituation for the country.

The country has great energy potentialin terms of hydro, renewables (SHPs,wind, biomass and solar) as well as forfossil fuels like natural gas, oil and coal.

Brazil continues to pursue hydroelectricenergy mainly generated by large hydroplants.

Excluding hydropower, other powersources are increasing their share inthe Brazilian energy matrix.

Thermal energy (oil and coal) currentlycomprises about 5 percent of Brazil’sgeneration mix. The development ofcoal power plants (with clean burningtechnology) may also increase their rolein generating power for the country.

“The flexibility of the type of energyis a factor. You have highly significanthydro resources and you cansupplement demand with aninvestment that is more flexible, whichallows you to stop production, stopspending. Thermal plants are flexible…”

- Survey participant -

It is easy to control production andobtain environmental approval forthermal power. Thermal powerplants play a complementary role inhydropower production, especiallyin the dry season. The initial deploymentcost of such a plant is low, but fuelcosts are high.

Natural gas currently accounts for2 to 3 percent and could reach5 percent or even 10 percent,depending on political will and onavailability. Investments made byPetrobras are supposed to generatea quantity of natural gas that mightallow for greater utilization of thissource, substituting thermal energy.


16 Source: International Energy Agency

Figure 10: Installed capacity (GW)

2000 68.2

2001 73.7

2002 76.2

2003 82.5

2004 86.5

2005 90.7

2006 93.2

2015 128.3

2020 151.8

CAGR (2000–2006) 5.34%

CAGR (2000–2020) 4.36%

Source: KPMG, IEA, EIU


“By 2012, natural gas will gain marketshare from the natural gas thatPetrobras is going to sell and from thethermal efficiency of combined cycles.These are the integrated cycles of gasturbines with steam turbines, withwhich one can reach 55 percentefficiency, recovering the heat fromthe gas turbines and generatingsteam.”


The new gas fields discovered byPetrobras in the Campos basin inthe southeast region of Brazil shouldincrease the share of combined cyclegas turbine (CCGT) power plants,as well as the more intensive use ofBolivian gas.

Renewable energy sources, like

biomass (sugarcane bagasse), wind,

and solar could comprise, in total, avolume of as much as 5–10 percent inthe long term.

What are the expectations for

the development of large-hydro

capacity for forthcoming decades?

There are still great prospects forhydro power development in Brazil.Due to social and environmentalproblems, however, the share of large hydro electric plants in theBrazilian energy matrix should shrink inthe mid-term, down to 75 percent by 2020.

The greatest promise for buildinghydropower plants is in the northernAmazon region. However, because ofthe need to flood rainforest areas andimpact Indian reservations, and dueto public opposition, it has been verydifficult to obtain environmentalapproval to build them.

� Coal, 3.3%� Oil, 2.7%� Natural gas, 10.9%� Nuclear, 4.0%� Hydro, 74.6%� Biomass and waste, 3.9%� Wind, 0.6%

� Coal, 1.7%� Oil, 3.1%� Natural gas, 3.6%� Nuclear, 2.6%� Hydro, 84.9%� Biomass and waste, 4.1%

2006Total: 419.3 TWh

2020Total: 785 TWh

Figure 11: Breakdown of electricity production

Source: KPMG, EIU

Electricity Market 23


At present, in line with global trends,these environmental requirements areincreasingly rigorous thus approval isbecoming increasingly difficult toacquire only to build a station, but alsoto operate it making the entire processoverally complex. To illustratethis problem, the share of largehydroelectric power plants was95 percent at the end of the 1980sand has declined to 85 percentdue to environmental restrictions.

Despite limitations, which are likely tochange the future outlook of the sector,“run-of-the-river” plants have beendeployed in the Amazons. Althoughthese hydroelectric plants are moreexpensive and generate less electricitybecause they do not have large reservoirs,they are environmentally acceptable.

“What has been going on?Due to environmental restrictions,Brazil’s new large hydroelectric plantsdo not have reservoirs like Itaipu,Furnas, Três Marias, Porto Primavera…all of these new projects arehydroelectric power plants, wherethe water passes through rather thanbeing kept in a reservoir, which doesnot exist. The generation of energy isproportional to the water that passesthrough. If no water goes through,no energy is generated. Therefore, intimes of drought, energy generationdrops. Twenty years ago, the reservoirswere enough for two or three years, buttoday it is only sufficient for nine months.”


In the short-term, there are three newapproved hydro plants in Brazil’snorthern region, which will account for60 percent of the growth in powergeneration capacity. Together, thesecan produce up to 33,000 MW.

In relation to mega hydroelectric projects,which involve thousands of megawatts,with the exception of those projects alreadyunderway – Santo Antonio, Jirau and BeloMonte – market players do not believe asignificant number of new projects willemerge for a number of reasons:

• The largest hydro potential lies in thenorthern region, which gives rise toan enormous distance between thegenerated energy and consumptioncenters, increasing costs andgenerating transmission losses.

• Serious environmental issues, contro -versies and wearisome tasks areinvolved, politically as well as financially.

• Complexity and a high volume ofresources is required, yet generation isstill almost completely under state control.

• Other energy sources are quickerand less complex to develop, withemphasis on biomass energy,SHPs (Small Hydroelectric Plants)(which already have a developedregulatory, financial and technologicalinfrastructure), and wind energy that,despite moving at a slow pace, at the

moment offers potential that iscontinuous, clean and bears muchroom for exploration.

“Take Rio Madeira, with two plants, to be developed by 2013. As of thisdate, you add Belo Monte and you haveseven more years, up to 2020.Then, the tendency is for bigprojects like these to be ruled out.This should create more spacefor SHPs…”


What are expectations for the

development of nuclear power

generation over the course of

the coming decades?

In Brazil, owing to its great dedication tohydroelectric, and to other feasiblealternatives such as sugarcane bagasse orbiogas, it is not yet possible to foresee ifnuclear power will play an important role.

The share of nuclear power in theBrazilian energy matrix is currentlyaround 2 percent, with two operatingplants. From a 10-year perspective, itshould reach 5 to 6 percent.



The Ministry of Mines and Energyis planning to generate 4–8,000megawatts of nuclear-generatedpower by the year 2030.

The way nuclear plants are perceivedin Brazil has changed greatly over recentyears, and they bear severaladvantages:

• NPPs (Nuclear Power Plant) are morecost-effective than thermal stations.

• NPPs supply clean energy, whichspeeds up environmental approval.

• Safety is increased due to newtechnologies (third and fourthgeneration reactors).

• They are costly to deploy butproduction costs are cheap as NPPsare not sensitive to fuel costs.

• The sixth largest uranium reserve inthe world is in Brazil and the countryis equipped with uranium enrichingtechnology.

What officially exists now is the intentto complete the Angra III plant andincorporate it into the supply network inthe southeast region. Angra III isincluded in all forecasts of the majorBrazilian energy organizations, such asEletrobrás, ANS and ANEEL, regardingboth power supply and consumption.

Besides Angra III, which has not beenconcluded yet, there are no public plansto expand the generation of nuclearpower in Brazil.

“The nuclear program takes nearlynine years for the first megawatt to bedelivered.”

- Major regulatory agency -

To what extent do you see further

development of the renewable

power generation segment (taking

into account the related incentive

schemes) in the next five years?

Increasing concerns over theenvironment should increase the shareof renewable power over the next fiveyears. The 1.3 percent share in theenergy matrix is likely to increase to 4percent by 2017.

The main sources of renewable powerin the country will be small hydroelectric

plants (SHPs), wind and biomass.

These are low generation plants incomparison to large hydroelectricpower plants and nuclear facilities.However, there is potential for manyalternative power stations, which willcontribute to energy supply in a novelway. There is a major incentive programfor the increasing use of smallhydroelectric plants (SHPs) and this kindof hydropower generation with lowerenvironmental impact has grown.

SHPs thus receive high priorityand, despite generating less energy,individually, their numbers aregrowing in Brazil, for several reasons:

• They are in line with the country’sinclination to pursue hydroelectric.

• There is a reliable financing structure,essentially that from BNDES (NationalEconomic and Social DevelopmentBank, which finances as much as 70percent of implantation), as well as forenvironmental licensing, construction,and selling of the energy that is generated.

• They have no significant environ -mental impact, do not require largecivil work projects and do not call forpersonnel changes.

• They are a source of highly stablegeneration.

• There are tariff advantages in production.

“They set a turbine with a generator inthe river, the water runs through itgenerating a small amount of production,but it is stable and continuous.”


However, growth has not reachedgovernment expectations, as tarifflimitations result in a very long paybackperiod, which makes capitalexpenditure unattractive for investors.

“This means that economic logic waslost in the process. Eletrobrás has anincentive program for alternative powersources. It has incentives for SHPs, andfor wind power plants, which areincluded in the same program. Howeverthere has not been much progress due tocost issues. For the next five years, theywill launch a new bid, which is scheduledfor this year. They will probably have tobetter remunerate investors...”




“It took five years to get environmental approval for the hydroelectric powerplants on the Madeira River. As far as I know, the Angra III was quickly approved.”- Major market participant -

Over a five-year span, SHPs are likelyto grow very fast. Their overall installedcapacity is 2,700 megawatts and shouldreach 7,000 megawatts in five years’time – more than the capacity ofthe Madeira River power station.ANEEL is conducting a study toassess the generation of 10,000megawatts via SHPs to be constructedin the future.

Brazil is the second largest alcoholproducer in the world, using its ownproduction technology. This sector islikely to continue growing in the comingyears. Biomass, especially sugarcanebagasse, has also been developingespecially, although prices floataccording to the prices of bothsugar and alcohol.

“Biomass energy comes from sugar cane,and the country has a great inclinationtoward sugar cane cultivation and ethanolproduction. Ethanol is a big hit in terms ofrecent discoveries and is a very interestingprocess, where you produce sugar,

ethanol, energy, and then steam…It is something that closes the cycle. It isa highly intelligent and natural process…”


Sugarcane bagasse is already usedinternally by alcohol factories as asource of power. The Government’sproposal is for these factories toproduce and sell the energy. All plantsthat were previously alcohol mills have thecapacity for the cogeneration of energy.

Good prospects exist for thedevelopment of wind power in thenortheast and in the south, where windis abundant, but at the present timewind generation is insignificant.

Currently, the State is continuing tostudy this alternative but still has notcome up with a scheme to offer windmill operators incentives that stimulatethe construction and purchase of thisenergy, whose generation is muchmore expensive than the others.

Tests have already been conducted inthose wind facilities in operation, in thenortheastern states and in the southernregion of Brazil, which indicate thatwind variability is above the meanaverage considered ideal for thecontinuance of these projects.

“All of these possibilities are linked togovernment policies, to the effectiveactions of the State and its execution inrelation to these programs. Overall, allsources should exhibit growth, but, ifwe are talking about stake holding, thatis highly linked to government policy.For example, wind power, which is thecraze of the moment; there is enormouswind power potential in Brazil, mainlyin the southern region, in SantaCatarina, in the northeast ... andwe have an extensive coastline,but whether this gets off the groundwill depend on the priority that theState gives to this issue.”


Biodiesel is another program that isgrowing but not as quickly as expected.It will continue to be a priority becauseit does not impact climate changenegatively, creates jobs and allowspeople to remain in rural areas.

In the next five years, there should beminute solar energy growth, perhapsincluding government subsidy for theinstallation of the first few units, alongthe same lines as for Proinfra.Still, the required technology makes itcostly and consequently unattractive.



Network losses

Brazil has one of the highest rates of networklosses in the world due to the long distancesthrough which power is transmitted anddistributed. Additionally, the country’s old andpoorly maintained distribution network issuffering from a high rate of theft.

Currently, network losses compared tothe level of power production are above15 percent which is nearly two timeshigher than the world average.

Large investments are expected in order toreduce network losses; private capital willbe involved as well to meet the objectives.In accordance with this, by the year 2020,the rate of distribution losses is expectedto be approximately 14.5 percent of thetotal electricity production of Brazil.

What kinds of network developments,

including metering, need to be taken

over the next five years to reduce

power outages and electricity losses

during transmission and distribution?

In Brazil, the main problem is not non-technical loss, but theft in distribution.Nearly 12 percent of all the powerproduced in Brazil is not paid forby consumers: that is, power theftaccounts for 12,000 megawatts,a major challenge for ANEEL.

In this respect, Brazil still faces a seriesof structural problems that make ashort-term solution to the problem oftheft difficult and which require a greatdeal of investment on the part ofdistribution companies.

Reducing power theft is one ofANEEL’s priorities for the forthcomingfive year period.

The costs of power theft – greater insome states, such as Maranhão and Riode Janeiro – have been passed on downto consumers. ANEEL is changing thissituation, working to encouragecompanies to manage fraud by investingin loss-reduction technology andmechanisms. ANEEL is working hard with

distributors to implement the referencecompany model and reduction targets:

“... non-compliant companieswill be penalized: that is, it is thestock holder that will pay the billand not consumers.”


Energy Suppliers clearly see thatthe regulator is setting controls andstimulating them to achieve higherefficiency levels. Respondents believethat the distribution sector has to beimproved, because losses in thetransmission sector are minimal.

The main actions recommendedinclude:

• Replacing analogue meters withdigital meters, which makes itpossible to remotely control andidentify deviations due to fraudand/or defects in the network.

• Changing the arrangement of wiresas a solution to prevent power theft.

• Using more modern cables that aremore resistant to the wear and tearcaused by weather conditions.

• Applying penalties for power theft.

All distribution companies haveinvested in these improvements that,despite their high cost, immediatelyresult in increased earnings.

“These allow you to monitorconsumption full-time. It is a strongtrend. It began in the states wherepower theft was greater, such asRio de Janeiro, Minas Geraisand São Paulo.”




“In the states of Mato Gross andTocantins, with a more efficientmanagement process they were able toreduce power theft. However, in Rio deJaneiro things are complicated, becausethere are many illegal connections, notonly in the slums but also in the city…”


As for companies, a few importantinitiatives have already beenimplemented, and should increase inthe next few years:

• Installing much higher posts, withtransmission lines above avenues toimpede access

• Installing shielding on meter boxes

• District electronic monitoringequipment, in order to cross checkwith meters

• The installation of meters in shantytowns, with incentives for residentslike identification and address, tofacilitate social inclusion and theacquisition of other benefits.

In relation to technical losses, thescenario varies widely from one regionto another and from one distributor toanother.

• At privatized distributors, manyimportant actions exist to avoidtechnical losses, like changingtransformers, substation controls,and joint consumer programs toteach awareness of efficient energyuse, which should continue orintensify within the next few years.

• At federal distributors, mainly in thenortheast, theft and low efficiency isa major problem.

• Regarding transmission, goodmaintenance will be suitable,because the distances are very largeand certain loss is inevitable, whiletechnology is relatively limited inreducing losses and runs up thecosts of investment.

• Furthermore, according toregulations public facilities,like hospitals, colleges, etc.do not pay for electricity.

Electricity import, export

Because the total consumptionof the country is currently higher thanthe total production reduced by thedistribution losses, Brazil must importelectricity, mainly from neighboringParaguay. Figure 13 shows the country’simport and export trends for electricitycompared to total electricity production.

Based on the data, Brazil importedapproximately 10–12 percent of thetotal supply between 2000 and 2006which fluctuated between 35,987 GWhand 43,346 GWh year to year.17

It is expected that domestic electricityproduction will increase in a mannerto nearly meet the demand andinvestments are planned to reducenetwork losses, therefore Brazil willrely on import sources less than it doescurrently. The forecasted level ofelectricity import in 2020 is around5–6 percent of domestic production.



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500

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40%

35%

30%

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� Electricity production

� Distribution losses

Secondary axis� Rate of distribution

losses (Brazil)� Rate of distribution

losses (World)

200

0

2001

2002

2003

200

4

2005

200

6

2007

2008

2009

2010

2011

2012

2013

2014

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2016

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2018

2019

2020

Figure 12: Electricity production and distribution losses

Source: KPMG, IEA

17 Source: International Energy Agency

4.3. Current ownershipstructure of the powerindustry of Brazil

Global know-how and best practicessupport the fact that decentralizationand privatization lead to marketliberalization and sustainabledevelopment. To allow these to happen,a supporting legislative background isrequired, which is one of the essentialconstraints of the development of acountry’s electricity system.

As governments are usually unableto maintain their power system in asatisfactory condition throughinvestments, the involvement of privatecapital is necessary to keep thetechnology stream flowing into thecountry. This also requires regulatorysupport from the state.

Ownership ofgeneration sector

State control still plays a major role inthe electricity sector, although theprivatization process was initiated

in the 1990s; however the processhas slowed down since the electricitycrisis in 2001.

Large government-controlledcompanies dominate the electricitysector: state-owned Eletrobrás holdsabout 40 percent of generation capacity,with state-companies CESP, Cemig andCopel controlling 8 percent, 7 percentand 5 percent of generation capacityrespectively. The most notableexception is Gerasul, in the south ofthe country, which is now operated byFrance’s GDF Suez.18

Investors were visibly reluctantdue to the lack of a sound regulatoryframework and due to the Government’sdecision in 2003. Based on this decision,the government increased regulatorycontrol through the Ministry of Minesand Energy, rather than transferringcontrol to the sector’s semi-autonomous regulator, the AgênciaNacional de Energia Elétrica, ANEEL.Investors are waiting for the clarificationof some regulatory issues, especiallya pricing mechanism in order toencourage private sector investments.

Organization of the transmission,distribution and trade sectors

The restructuring process took placethrough the privatization of distributioncompanies in the 1990’s; with theexception of some smaller state-ownedcompanies, transmission lines werealso partly auctioned.

Private capital is likely to play a key rolein the development of the transmissionand distribution infrastructure due to theweak financial status of the state-owned companies.

What sort of time frame do you expect

for the acceleration of the privatization

process in the electricity sector?

Changes in privatization guidelines willdepend on the political agenda chosenby the next Federal Administration tocome into power in 2010. However,there is a consensus amongstrespondents that, regardless of theoutcome of the next elections, there islittle prospect of any advance inprivatizing as this has disappeared fromthe political agenda for some time now.



18 Source: Economist Intelligence Unit

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50

0

Primary axis

� Electricity

import

Secondary axis� Electricity

production

2000 2001 2002 2003 2004 2005 2006

Figure 13: Electricity import, export and total electricity production

Source: KPMG, IEA

“I think we will not see a privatizationprocess, but rather an increasein private projects… It is very unlikelythat a state-owned company will undergoa privatizing process in the next five years.”


“I do not see any progress in this sense,and things are good enough the waythey are. The auctions are going well,they’re attracting foreign investments…And it cannot be said that all of the statecompanies are inefficient; on thecontrary, there are companies likeCemig, which are very efficient.”


Advancing the privatization of state-ownedassets is not likely, as private capital alreadyhas stakes in transmission, in distributionand in new ventures for generation.

According to a new standard whichhas been practiced since 2007,all of the new ventures in theelectricity sector are held by jointconsortiums (private capital pluspublic capital).

“I would say that, in the context ofthe funding shortage, the best thingto do today is to use private resourcesto ensure expansion, rather thanto privatize existing state-ownedcompanies.”


Distribution

Most of the sector has alreadybeen privatized. There is thepossibility that CESP will beprivatized, as previously announcedby the state government ofSão Paulo.

“Since the private sector has achievedgood results in the distribution sector, Ithink the most adequate model is topass this sector over to privatecompanies. In this case, I wouldconsider a five-year scope forprivatizing the distribution sector.”


Generation and transmission

The privatization model used for newpower facilities is believed to be theideal option – a partnership between thestate, holding 49 percent, and privatecapital, with 51 percent of totalinvestment.

For existing plants, the trend is that theGovernment will maintain its currentshare by not privatizing any of those.

What are the expectations for the

levels of public and private sector

investments going into the electricity

sector in the course of the next

five years?

A majority of the distribution sector isalready privatized. Opinions regardingthe future are divided into twoextremes: one group believes theremaining distributors will be privatized,while the other group thinks thesituation will remain the same.

Regarding the power generation sector,the privatization model used for the newpower plants is believed to be the idealoption – a partnership between thestate, with 49 percent, and privatecapital, with 51 percent of total investment.

Private capital in hydropower plants willprimarily be national capital, because ofthe high initial investment required andthe long payback period.



Foreign capital is likely to invest more inthermal power plants, which have lowerinitial costs, despite their high operatingcosts.

For the currently existing plants, thetrend is that the government willmaintain its current share by notprivatizing any of them.

Further supporting up the view that noacceleration of privatization is likely tooccur, it is worth highlighting the case ofCESP, which works under the São PauloState Government, and whose privatizationprocess was interrupted. It could betaken up again, but, outside of CESP, noadditional privatizations are on the horizon.

In the transmission sector, the splitbetween private and public capitalshould be similar. However, the shareof foreign capital should be higher in thissector because of its shorter paybackperiod on investment.

Investment needs

The International Energy Agency hasassessed the total investment needs ofthe sector to be USD 252 billion (2005prices) which is divided 50/50 betweenthe generation and transmissioninfrastructure of the power industry.Based on an IEA forecast, an estimatedUSD 10 billion per annum investment inthe sector is necessary.

Programa de Aceleração do Crescimento(PAC, “Growth Acceleration Program”),launched in 2007, highlighted a massiveneed for investments, however it shouldbe noted that in order to be able to attractthe required level of private capital, someregulatory issues should be clarified,like for example licensing procedures.

What are the top investment

priorities in the electricity sector

for the next five years?

Power generation requires veryhigh levels of investment, as it is avery capital-intensive sector anddemand is growing. According tostudies made by EPE (a powerresearch company) of the Ministryof Mines and Energy, Brazil willrequire 5 GWh per year, and tofulfill that need it will be necessaryto invest. The current focus ison expanding capacity atcompetitive cost.

The global credit crisis has createda challenge for financing generationprojects.

In transmission, it is necessaryto reinforce the system, to providea more robust, reliable system,and obtain transmission flexibility,meaning solving the challengesof taking energy generated infaraway locations to whereconsumers reside.

“In the transmission sector, thegovernment has already implementeda large interconnection program,because the system was notsufficiently interconnected in thepast… Now, expansion has becomethe purpose of system development…”


The existing investment scheme inthe transmission sector has been veryefficient in meeting expansion needsand should also be able to meet thefuture needs associated with newhydroelectric power plants in the northof the country. Since 2004, there havebeen one or two auctions annuallyfor transmission lines.

“Transmission models have been themost successful ones in the country.They are similar to the generationmodel, in which one is paid to managean asset. The tenders that havebeen conducted by ANEEL and he Government have been verysuccessful; we take part in themactively.”


Specific BNDES lines with wellcoordinated returns exist indistribution, but companies stillneed to establish more efficientmodels in terms of tariffs. At a majorityof the state owned distributioncompanies, base facilities are quiteantiquated, and it will be necessaryto modernize the grid and establishnew technologies for measuringand control. Private distributors(who make up the great majority)are in a better position, and havebeen investing in new equipmentand technologies.



Total: USD 252 billion

� Power generation 50%� Transmission and distribution 50%

Figure 14: Investment needs of theelectricity sector up to 2030

Source: IEA

Will the State be able to finance

investments in the electricity

sector over the next five years?

The government will continue to financethe expansion of the electricity sectorthrough BNDES which has gained greaterimportance in the face of the crisis.

“BNDES continues to play an essentialfinancing role in the sector, and oncethe guarantee fund is approved, whichwill be a substantial source of support,we will be on the right track for thecoming years.”


Currently, the Government providesfunding for distribution andtransmission areas, participating as aminority investor in all major projects.Its participation is very important as isits role is to promote developmentand define public policies.

“The State has been fundamental;without it, and considering the creditcrisis, these large projects would nothave gotten off the ground in the pastyear. It was the State, through BNDESand state companies, which managedto maintain the scheduled investments.Nowadays private capital is no longerable to raise capital alone and, if youdo not have a state company on board,you will not be able to operate.”


However, the Government is likely toparticipate less in the next five years,as large power plants will have a smallershare of total supply.

A public and private partnership systemshould be maintained in much the sameway. As of 2007 the standard has beenconcessions, offered in auctionsthrough mixed consortiums, with thepresence of state and private capital.

This standard has contributed tomaintaining the level of investmentsand to the efficiency of the system.

In the next five years, the role of theState will continue to be fundamental.BNDES has sufficient credit linesavailable (for long-term projects,long lines of credit are necessary),which are not available at banks.

“For example, BNDES has madean extraordinary line available tothe Madeira region, with 25 yearsof financing.”


4.4. Main determiningfactors in thedevelopment of theelectricity industry

The financial crisis has affected Brazil.Nevertheless, a slowing of the economyand in the growth of the electricitysector could be an advantage froma security of supply point of view.As electricity demand has been growingat a faster pace, with which supply couldnot keep up, for decades, the crisishas given time to Brazil to prepareits regulatory, financial and generalstructural conditions for anticipatedgrowth of both the economy andelectricity demand.

In general, Brazil is in a good positiondespite the fact that the global crisishas affected the country. Its course ofgrowth is expected to reach the samelevel as before the crisis within a shortperiod of time.

What are the expected effects of the

global financial turmoil on Brazil’s

electricity market in the next five years?



The country was in very good shapewhen the crisis broke out. The amountof its debt is low because times havebeen good. Therefore, growth rates arenot expected to drop significantly in anysector, except for a slight contractionin industry.

“The crisis hit us when we were in avery favorable position, enabling usto weather it without major problems.The only challenge is achieving growth.If the economy begins to grow again,we will have to build new power plantswhich will require financing.”


In the electricity sector specifically,the crisis has had the positive effectof delaying an emerging electricityshortage. The slight drop in demandshould mean more time to build and/orexpand power plants.

Unless there is a major credit crunch,which has not occurred until now, not allowing BNDES to continuefinancing projects, investments arebeing extended over the next fiveyears at lower financing costs, atrend which should also attract foreigninvestors already present in the countryor who are committed to investingin Brazil.

The greatest difficulty brought aboutby the crisis is maintaining the sector’sgrowth. The credit crunch hashindered the expansion of the networkand the construction of new powerplants.

BNDES has been a major player infinancing the sector’s expansion,but lack of foreign investment andprivate capital will delay thedevelopment of the sector.

"… In today’s economic environment,we will see companies that are notgoing to be able to make it through thisperiod. It is a matter of liquidity…So for the next five years, I believe thatwhoever survives this crisis will be in agood position.”


If Petrobras invests in a naturalgas program, it is likely to generatea boom of new investments,due to the country’s abundantnatural gas.

If Petrobras for some reason postponesinvestments, 2009 and 2010 willshow slow, creeping progress andgrowth in 2011 and 2012 will beaffected.

"Until now, what we have seen is morealong the lines of the first scenario.The crisis has had a strong impact,but Petrobras is signaling that it hasmoney for this year, and the Stateis providing firm backing to theirprogram."


Regulatory climate

The regulatory framework of theelectricity sector in Brazil is consideredto be the most developed among theBRIC countries. In order to achieve anefficient market, competition shouldbe open among the market participantsand Brazil is far ahead in regard toprivatization in the developing world.The remaining challenges of the energystrategy stabilizing the regulatory rules,hastening licensing issues and creatinga more reasonable pricing mechanism inorder to attract more investments intothe electricity infrastructure.

What are the top priorities of the

Regulatory Agency for the next

five years?

After many years, the role ofregulatory agencies has been clarified:they regulate, mediate and supervisethe sector. It is now fundamental notto create new regulation but to makewhat already exists useful, facilitatingthe correction and the applicationof those rules, to create secureconditions for those who want to invest.

“Rules have changed drastically in thelast few years, creating uncertainty forinvestors. This uncertainty increasesrisks and increased risks lead to highertariffs…”


The regulator’s main priorities forthe next five years include:

• Maintaining stable rules, as theyhave been the object of manychanges in recent years, increasinginvestment risks

• Enforcing current rules andregulations and supervise theobservance of contracts

• Making impartial and transparentdecisions and set clear guidelines,to ensure reasonable and attractiveyields for investors and stimulateparticipation from the private sector

• Increasing tariff parity betweenthe private and public sector

• Supervising distributors, readjusttariffs and put pressure ondistributors to benefit consumers,even to reach those who do nothave access to electricity



• Stimulating efficient energyprograms, giving incentives forthe generation of clean energy

• Making licensing processes easierfor generation projects

• Researching the new Brazilian powergrid, drafting a strategic energy planin advance, resolving localdifferences towards an overallnational scenario

• Regularly organizing and stimulatingacquisitions in regulated auctions.

In relation to auctions, the regulatorshould characterize them according tothe source of energy; currently all typesof energy are subject to the sameauction, even if those sources haveextremely differentiated costs like, forexample, hydro and wind do, somethingwhich discourages most investors.

Respondents indicated as another topissue concerning regulation the pricingand tariff structure setting of electricity.Policies should increase tariff paritybetween the private and public sectorsand should create mechanisms toreduce electric power costs andend-user prices.

What is the end-user electricity

tariff structure expected to be over

the course of the next five years?

Will the regulator be able and

committed to reducing subsidies

and cross-subsidies in the existing

end-user tariffs and gradually move

towards a cost-reflective tariff

regime in the next five years?

The tariff system is very complex inBrazil because of the high level of socialinequality, which the electric powertariff structure takes into account.

“The subsidy should continue. We arein a political phase of increasing socialinclusion. And inclusion is brought aboutthrough various things, one of which isaccess to basic infrastructure, whereone of the priorities is energy. So house -holds having electric lighting issomething the State supports…Lower tariffs can also contribute tosocial inclusion.”


In Brazil, the regulatory agency does notcreate subsidies or taxes, it only appliesthe law. According to ANEEL, there is acommitment to modernizing the tariffstructure, which is scheduled toundergo the reform process by theend of 2010.

Most respondents of the survey agreedwith the intentions of the regulatoryagency, which has gradually eliminatedcross-subsidies and is shifting towardscost-based tariffs:

• Subsidies for low-income and ruralpopulations should continue, but forother consumers, subsidies arecontinuously being removed.

• Some consider that this change willtake time to be completed becauseof the need to update technology –especially to replace analoguemeters with digital meters,making it possible to automateand differentiate tariffs fordifferent parts of the day.

• Tariffs tend to increase slightlybecause of taxes. Several resolutionsof the federal government haveyet to pass. One possibilitymentioned is the introduction of asubsidy to foster sectordevelopment lines, for example, inthe area of renewable energy (solar).

• According to a respondent, ANEEL’smain objective in this area is toeliminate subsidized thermal powergeneration (the cost of which isshared by all the distributors)and to find a balance with atariff that will not discourageinvestment.

• There is an intent to channel thefunds assigned to burning fuel oil,collected by the CCC account (fundsused to cover the costs of usingfossil fuels), towards investments inother forms of power generation toreduce tariffs in the future.

“A large number of cross-subsidieshave already been eliminated...even as a result of legal provisionsthat have been in place since 2002 andthat had deadlines set in 2007/2008…There are still some subsidies left forthe low-income consumer, for ruralelectrification. Those are still in place.But most of them have beeneliminated.”




“Things are beingchanged so that in fiveyears’ time the tariff willactually reflect powercosts overall. We haveeven noticed that pricingin tenders, which isdefined by EPE andANEEL, increasinglyreflects this….” - Major market participant -

Environmental concerns

Concerns over climate change,sustainable development andatmospheric pollutants have focusedthe international community’s attentionon possible measures to address thesethreats. One of the most importantinternational treaties was the KyotoProtocol19 which came into force in 2005.

Brazil has ratified the treaty as a“non-Annex I” country, meaning that ithas agreed on efforts for the reduction ofgreen house gas emissions (GHG) buthas not set emissions reduction targets.Brazil is one of the main beneficiaries ofthe project based emission reductionmechanism, namely the Clean Develop -ment Mechanism (CDM) of the Protocol.

CDM projects are investmentsexecuted in developing countries, partlyor entirely financed by developed countrieswhich are parties to the Protocol.

The overall logic behind this type ofinvestment is that developed countriesare able to achieve GHG emissionsreductions in a more cost effective way.

Examining the environmental situation inBrazil, GHG emissions are not an urgentissue yet since the generation mix ishighly dependent on hydropower.However, considering the situation in thelong term due to the increasing share offossil fuel reliant power plants, Brazil cannot avoid facing the problem of emissions.

What kinds of energy saving

technologies are expected to be

implemented over the next five

years? What level of support will

the state provide in this respect?

How will it influence consumption?

There are many projects being developedand implemented to increase efficiencyand savings in the use of electricity, butthe impact of such projects is still small.

High profile initiatives include:Companies operating in the energy sectormust invest 1 percent of their revenues inresearch and development projects, manyof which are targeted at increasingefficiency in electric power consumption.

The federal government, together withmunicipalities, Electrobrás and ANEEL,has several projects in place to increasethe efficiency of the population’s use ofelectricity:

• The federal government is sponsoringthe purchase of more economical lightbulbs to replace old ones.

• CEMIG has a project offeringincentives to replace electric boilerswith solar water heaters.

• Cities have replaced mercurylamps with sodium vapor modelsfor municipal lighting.

• Fiscal incentives for the productionof energy saving refrigerators, aswell as financing for consumers topurchase such items are alsoavailable.

According to the regulator the solutionto increasing efficiency is to reduceconsumption. To achieve this, energyefficiency programs are being planned:

• Electricity price structure toencourage consumers to reduceusage, especially for the industrialand power-intensive sectors, withprices varying according to level ofconsumption



19 The Kyoto Protocol is a set of rules to the United Nations Framework Convention on Climate Change (UNFCCC or FCCC), an international environmental treaty which wasproduced with the goal of achieving "stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interferencewith the climate system” The Kyoto Protocol establishes legally binding commitments for the reduction of four greenhouse gases (carbon dioxide, methane, nitrous oxide,sulphur hexafluoride), and two groups of gases (hydrofluorocarbons and perfluorocarbons) produced by ”Annex I“ (industrialized) nations, as well as general commitmentsfor all member countries. As of January 2009, 183 parties have ratified the protocol, which was initially to have been adopted for use on 11 December 1997 in Kyoto, Japanand which entered into force on 16 February 2005. Under Kyoto, industrialized countries agreed to reduce their collective GHG emissions by 5.2 percent compared to theyear 1990. National limitations range from 8 percent reductions for the European Union and some others to 7 percent for the United States, 6 percent for Japan, and 0percent for Russia. In the non-binding “Washington Declaration” agreed on 16 February 2007, Heads of governments from Canada, France, Germany, Italy, Japan, Russia,United Kingdom, the United States, Brazil, China, India, Mexico and South Africa agreed in principle on the outline of a successor to the Kyoto Protocol. They envisage aglobal cap-and-trade system that would apply to both industrialized nations and developing countries, and hoped that this would be in place by 2009.



• Replacing 1 million old refrigeratorsper year over the next 10 years,(including those of the middle class)with new energy-saving models(up to 45 percent energy savings)

• Educational campaigns on theconscious use of energy, emphasizingenergy savings during the monthswhen energy costs are higher

• Incentives for the production of energysaving technologies and equipment

• Research and development of lesspolluting and more efficient energy,such as projects to install solarpanels for heating water.

• PROCEL (National Program of ElectricPower Conservation)20 – federalenergy saving program, coordinatedby the Ministry of Mines and Energyand executed by Eletrobrás, whichhas become a popular brand in Brazil,visible on seals used to indicateenergy saving consumer goods.

“We want consumers to be able to reducetheir demand every time prices go up –and they only go up when thermal poweris used. If you reduce demand, you do notuse thermal, so you have low prices foreverybody. This is the price structure thatwe intend to implement for the industry…”


As for the next five years, respondentsbelieve in the continuance and growthof existing initiatives. Initiativespresently underway should also

continue at enterprises, mainly thosethat do not require large investments,like the use of waste to generate energyfor internal utilization, the quest toachieve greater energy efficiency withinbusinesses, or the reduction of losses.

“Perhaps in 2013 or 2014 we will beginto see investments in this direction, forenergy efficiency, as we call it. Perhapswithin a 10 year scope, this will representsavings, but not in the short term.”


What are the effects of health,climate change and environmentalissues/concerns on the current andplanned power generation portfolio?

The Brazilian energy matrix is 43.8percent clean, compared with anaverage of 13.6 percent in developedcountries and 8 percent in the UnitedStates. About 90 percent of electricpower is produced from renewablesources, wich is noteworthy.

Since 2005, the major challenge for theBrazilian electricity sector has been thedeployment of power generation plantsthat comply with national environmentalstandards. The requirements forreceiving environmental permitsare extremely rigorous, generatingdistortions in the Brazilian system whichfavors the construction of pollutingpower plants, creating the risk of adramatic increase in CO2 emissions.

“Today we have a strange situationin the country. It is much easier toget environ mental approval to build a

thermal power plant that runs on dieseloil or other oil fuels and producesgreenhouse gas emissions, than tobuild a hydroelectric power plant.”


This situation is changing, as societyis reflecting on how to prevent theBrazilian energy matrix from becomingfossil fuel dependent. Concessions forthe Jirau and Santo Antonio hydropowerplants in the Amazonia is a sign that thecountry is beginning to give priorityto the construction of less polluting,although less productive, power plants.

“Nowadays, the trend is to buildhydroelectric power plants with smallerreservoirs: a “smaller lake area”.This is a trend that should continue…”


Currently, the institutions financingprojects are banks that have signed the“Equator Principles”, a series of environ -mental rules that, if not fulfilled, impedefinancers from taking part in a project.

How strong is Brazil’s commitment

to fostering a carbon-sensitive

economy over the next five years?

Brazil is one of the countries which hassigned the Kyoto Protocol, demonstratingthe growing political commitment toenvironmental protection by reducinggreenhouse gas emissions. Thiscommitment is changing the profile ofthe supply side rendering it compliantwith environmental requirements.

20 National Electrical Energy Conservation Programme (PROCEL) Administrative Directive no. 1877. Policy to combat waste in the production and use of electricalenergy. Measures include: Consumption labelling to inform consumers, influence purchasing decisions and induce manufacturers to make efficient products;energy diagnostics/audits to assess energy use and efficiency; supporting R&D of efficient technologies/products; marketing to strengthen the PROCELtrademark; replacing incandescent lamps in public lighting with mercury vapour and high pressure sodium vapour lamps that consume 75 percent less energy;promoting efficient lighting and appliances in government and residential buildings; measures to reduce losses in electrical system; actions to reduce electricitydemand during peak hours; offering training courses, seminars, and conferences to industrial and commercial consumers, concession-holder staff and publicorganisations to combat energy waste. PROCEL also helps utilities obtain low-interest financing for major energy efficiency projects from a revolving loan fund.Source: http://projects.wri.org/sd-pams-database/brazil/national-electrical-energy-conservation-program-procel

However, most respondents believethat concrete actions to develop a lowcarbon economy would require a longperiod of implementation in Brazil andthey do not foresee significant stepsbeing taken in the next five years.

“It is still cautious… I think that theState is being sensible but it is not doingmuch, and it will not do much in thenext few years…”


This may be because the Brazilianpower grid is fundamentally clean andrenewable and, therefore, no officialcompromise on a low carbon emissionseconomy has been reached.

However some significant initiativeshave been achieved:

• Biomass power plants already sellpower and are eligible for carboncredits, attracting investments

• The transportation sector hasreplaced half of its fleet with biofuel vehicles

• Investors in the electricity sector aretrying to certify their projects to beable to sell carbon credits.

In relation to regulating carbon,according to respondents there is a lackof clear regulation that encourages suchpractices, not just in Brazil but globally,and the movement that already exists inthe country, in this sense, has beenspearheaded by foreign companies.

“The entire gas generation arising fromthe São João garbage landfill wasbought by a Dutch company, which istrading those credits in Europe!”


Key challenges

It can be stated that Brazil is in a stableposition in regard to its economy andelectricity market, though it is vital tomaintain its regulatory stability and tofurther improve its energy policy inorder to be able to keep up with theexpected demand growth. Based on theanalysis conducted, the most importantchallenges determining the long termdevelopment of the country areconnected to skills development,regulatory effectiveness, and theensuring of further investments.

Does Brazil have enough skilled and

available labor to lead and execute

the necessary investments into the

electricity sector in the next five

years?

Respondents do believe that Brazil isin a comfortable position regarding itslabor force for the electricity sector, asthere is enough availability and expertiseto meet demand in the coming years.

However, if the country had continued togrow as it did before the crisis, specializedlabor might have been lacking.

Skills and competencies are especially highin the hydroelectric sector. The country hasdeveloped the technology, which does notchange much, and higher educationalcourses are developing adequate laborresources. To back up this belief,respondents pointed out that all thecountry’s major projects have beenconducted by Brazilian constructors likeCamargo Corrêa and Odebrecht, not onlyin Brazil but abroad as well, with substantialhelp from Brazilian labor, in terms ofconstruction as well as in operations.

Considering that the experienced laborforce is getting older, companies have startedtraining younger employees in-house,which is a process that takes a few years.Investment in specialized education, andimportation of labor from other countries,however, are needed, especially for areaslike nuclear energy, where domesticexpertise is lacking, and therefore stillrelies on foreign labor and technology.

What are some possible approaches

for Brazil to fulfill the increasing

demand for equipment and technology

services of the electricity sector over

the next five years? How will suppliers

be able to serve this demand?





The next five years will be a periodof substantial development. Supplierswill have to make investments tomeet the demand in all three areas –generation, transmission anddistribution – paying particularattention to the following:

• In the power generation sector,installed capacity should be expandedand improved. Foreign suppliers willplay an important role in expanding theinstalled capacity of the industry,especially in supplying components fornon-hydropower facilities.

• Distribution will demand newtechnologies as well as measuring andcontrol equipment, which will be suppliedby national and foreign companies.

• The expansion of transmission lineswill also require components whichare currently supplied bymultinational companies establishedin Brazil, a situation that will continue.

“Demand growth in itself is a very goodincentive to fuel investments in thisarea. The electricity sector is growingsteadily, providing equipment andmaterial manufacturers a trend that iseasy to foresee. Therefore, the decision-making process is somewhat easier.”


Brazil supplies equipment to the entirehydropower generation sector. Thereare numerous suppliers established in Brazil.

“Itaipu has the largest turbines andgenerators in the world: 700 megawattseach, assembled in São Paulo.The turbine is manufactured by Voith andthe generator by Siemens. The Siemensgenerator factory in Brazil is much largerthan the one in Germany, and Voith’s

facility in Brazil is much larger than inSwitzerland.”


With respect to equipment for wind

power generation, the country doesnot yet have the required technologyand depends on foreign suppliers.

Some technology transfer has alsooccurred for nuclear power, as thereare factories in Brazil supplyingequipment. However Brazil, still relieson imported nuclear technology.

What are the highest profile issues

that will bear the most influence

upon the future of the electricity

sector? What factors will determine

the next five years of the sector?

During the course of the next five years,major developments in the power sectorwill be driven by the following issues:

• Evolution of economic growth,rebounding to the former level ofinvestments in the sector

• Meeting growing domestic energydemand (investments in generationand transmission)

• Availability of funds to carry out therequired expansion projects

• Development of sustainable ways ofexpanding the sector, driven byenvironmental and social issues

• Seeking regulatory stability viastandardization of concessions,increasing their attractiveness forprivate investors; auctions specific tothe type of energy

• Redefining tax loads and tariff policies.

“What will be important in the next five yearsis growth in demand. This will determinemajor energy sector decisions for the future.”


For Brazil’s regulatory agencies,the determining factor in thenext five years will be the ability toexpand supply in a timely manner.This will entail:

• Developing the sector in compliancewith environmental requirementsand ensuring a place for renewablepower in the energy matrix

• Encouraging a more rational use ofpower, by acting on the demand side

• Offering power at lower costs.

This requires action in the threesegments of the supply chain:

• Production, with cheaper powerplants

• Transportation, with increasedefficiency

• Distribution, implementing legal andtax changes to reduce labor chargesand taxes currently paid byconsumers.

Respondents believe that the globalcredit crunch has provided Brazil with anecessary breather, to better adjust andorganize its sector.

“I think that one can conclude that thereis optimism in the sector, which hasgrowing needs but also bears anadequate model for its sustainability.”


39Investment Opportunities


s previously described,Brazil’s electricity sectorbears enormous potential for

growth and business development,but accessing the opportunities requirestailor-made investment strategiesand careful planning processes.

This study aims to help both domesticand international investors in identifyingbusiness opportunities in the Brazilianpower sector throughout the assetlifecycle.

The main results of our assessment ofthe Brazilian power sector are outlinedin the following chart.

5. Investment Opportunities

A Macro-economic trends

• Electricity consumption is predicted to grow continuously over the next fiveyears despite the global crisis.

• The electricity sector is a top priority in the political agenda and in governmentprograms targeted at expanding the sector and eradicating exclusion fromaccess to electricity in the next 2–3 years.

• Regulatory instability exists in the electricity sector: compliance with rules isnot absolute, they change frequently and some issues have not beenaddressed through.

• A strong and growing domestic market, in all regions of the country.• Inflation is under control and prices are stable.

Investment characteristics

• Available credit from the National Economic and Social Development Bank(BNDES) to finance the electric power sector.

• Taxing mechanisms (resulting in reduced tariffs for the end-user) which shouldundergo changes soon and may negatively impact return on investment.

• Possibility of cross-subsidies being maintained over the next five years.• Good investment opportunities for private ventures in all the links of the

supply chain – power generation, transmission and distribution.• Opportunities in power generation, because of the deployment of SHPs, which

should increase more than the two times their installed capacity over the next fiveyears, besides the planned changes in regulation to favor return on investment.

• Prospects for distribution, because of investments in technology andmechanisms to reduce losses, such as remote metering and control systemsto identify power outages and defects in the network.

• Possibilities in transmission, because of new large hydro plants alreadyapproved and scheduled to begin operating within the next five years.

Market factors

• Obstacles and costs of the environmental approval process for electricitysector projects.

• A large volume of unexploited water resources in the country.• Specialized know-how and technology in the electricity sector, especially

regarding hydropower. However the alternative power sources sector (wind,nuclear power), which is still in a stage of infancy in Brazil, lacks specialized labor.

• Environmental legislation and resistance from civil society against certainelectricity projects.

• Intent to reduce cross-subsidies in the electricity sector.

40 Acronyms


ANEEL21 – Brazilian ElectricityRegulatory Agency

ANEEL was founded in 1996. It is aspecial regime agency linked to theMinistry of Mines and Energy and itsmission is to provide favorableconditions for the electricity market todevelop in a balanced environmentamongst varying interests, for thebenefit of society.

BRIC – Brazil, Russia, India and China

BNDES22 – National Economic andSocial Development Bank

The Brazilian Development Bank(BNDES) is a federal public companylinked to the Ministry of Development,Industry and Foreign Trade (MDIC). Itsgoal is to provide long-term financingaimed at enhancing Brazil’sdevelopment, and, therefore, improvingthe competitiveness of the Brazilianeconomy and the standard of living ofthe Brazilian population.

CAGR – Compound Annual Growth Rate

CEMIG – Companhia Energéticade Minas Gerais

Companhia Energética de Minas Gerais– CEMIG is one of the largest and mostimportant electric energy utilities in Brazildue to its strategic location, its technicalexpertise and its market. CEMIG’sconcession area extends throughoutnearly 96.7 percent of the State of MinasGerais, whose territory is situated in thesoutheastern region of Brazil

CESP – Companhia Energéticade Sao Paolo

CESP is the largest power generationcompany in São Paulo state in terms ofoutput volume, according to StateEnergy, Water Resources and SanitationDepartment figures for 2006, and thethird largest in Brazil, according toANEEL, the Brazilian ElectricityRegulatory Agency. CESP has sixhydroelectric plants, 57 generatingunits, an installed capacity of 7,456 MWand assured power of 3,916 MW (onaverage), representing 8 percent and 10percent of the national total, respectively.

CDM – Clean Development Mechanism

CNPE – The National Councilfor Energy Policies

CMSE – Electricity Industry MonitoringCommittee

COPEL23 – Companhia Paranaense deEnergia

Companhia Paranaense de Energia, thelargest company of the State of Paraná,was founded in 1954 with ownershipcontrol held by the State of Paraná. TheCompany went public in April 1994(Bovespa) and, in 1997, it was the firstcompany within the Brazilian electricitysector to be listed on the New YorkStock Exchange.

FDI – Foreign Direct Investment

GDP – Gross Domestic Product

GHG – Greenhouse Gas

IEA – International Energy Agency

ONS – Operador Nacional do SistemaEletrico /Operator of the NationalElectricity System

PPP – Purchasing Power Parity

SME – Small and Medium-sizedEnterprise

TOE – Ton of Oil Equivalent

UNFCCC – United Nations FrameworkConvention on Climate Change

WEC – World Energy Council

Acronyms

21 Source: http://www.aneel.gov.br/areaPerfil.cfm?idPerfil=9

22 Source: http://inter.bndes.gov.br/english/thecompany.asp

23 Source: http://www.copel.com/hpcopel/english/nivel2.jsp?endereco=%2Fhpcopel%2Fenglish%2Fpagcopel2.nsf%2Fdocs%2F87A2F4B44EE7EC82032574AD00596C10

41KPMG’s ENR Practice Overview


KPMG’s Global Energy and NaturalResources (ENR) practice is dedicated tohelping our firms’ clients tackle theissues affecting them in today’soperating environment. From globalsuper majors to next-generation leaders,KPMG member firms strive to tailor ourservice offerings to specific client needsand deliver the highest standards.

KPMG’s Global ENR practice isorganized through a global leadershipteam aligned with member firms’ ENRpractices. The global leadership teamfocuses on our strategic framework,reputation and performance, supported

by an executive group dedicated todriving their implementation, andmeasuring and communicating ourperformance. Our management teamfocuses on providing accountmanagement, proposals, marketing,knowledge management, andadministrative support to KPMG clientservice teams operating in the ENRindustries.

KPMG’s ENR professionals help ourmember firms’ clients address thecomplexities and challenges that affecttheir businesses by creating industrygroups that tackle different areas of the

global energy marketplace. The industrygroupings facilitate outstandingcoverage of this vast industry, which are:Oil & Gas, Power & Utilities, Mining &Forestry.

KPMG firms have Centers of Excellence(CoE) throughout the globe, dedicated tothe Oil & Gas, Power & Utilities, Mining,and Forestry sectors. These centers arestrategically located near major hubsof activity within the industry. CoEteams of experienced KPMG energyprofessionals provide high qualityadvisory services to clients based inthose specific areas.

Vancouver ••

• DenverPortland •

Phonenix • • Dallas Houston •

• Rio de JaneiroSao Paulo •

Santiago •

•• Moscow

•• Beijing

• Hong Kong

•• Melbourne• AdelaidePerth ••

Al Khobar •• Muscat

Paris •••Rotterdam

•� BudapestLondon • Essen

Johannesburg

• Oslo

•• Calgary

Key

• Oil and gas

• Forestry

• Power and

utilities

• Mining

Energy & Natural Resources Centers of Excellence

KPMG’s ENR Practice Overview

42 KPMG’s ENR Practice Overview


KPMG’s Global Power & Utilities Knowledgeand Resource Center – Budapest, Hungary

The Power & Utilities market has beendeveloping at an extremely rapid paceglobally in recent years. This fastdevelopment is characterized by largescale infrastructure projects thatrequire a global base of experience anda high level of specialized industryknowledge.

As a focal point of Power & Utilities,KPMG’s Global Power & UtilitiesKnowledge & Resource Center basedin Budapest, Hungary (Central andEastern Europe) consolidates globalknow-how and knowledge in a singlelocation and takes a hands-on approachto match client needs with KPMG’s

Centers of Excellence (CoE) across theglobe that are best suited to providingprofessional advice and support thataddresses clients’ strategic andtransactional activities.

Modelling

StrategicCommercialIntelligence

Commercial due diligence,market assessment feasibility

AuditAccounting /reporting issuesidentification

Transaction-related accountingstandards, understanding /interpretation (international)

Tax Tax due diligence Post transactionintegration

Taxefficientexit

-Creation of taxefficient dealstructures

BusinessPerformanceServices

Analysis in support ofcontract compliance anddispute resolution, analysisin support of renew /dispose decisions

Project management and change management support, operational due diligence support, organisational design/ restructuring, contract managementprocess design, performance metrics

Project management support,transaction impact analysis(stakeholders, etc.), organisationalimpact assessment, changemanagement, public sector andinfrastructure sector knowledge

RiskManagement

Risk analysis and assessment, retained risk / technical risk analysis, advice on risk-sharingissues, advice on valuing risk for inclusion inpricing mechanism options, regulatory /legislative compliance assessment

Information management /security assessment,privacy protection issuesadvice, risk mitigation /monitoring

Monitoring of majorprogrammes

ForensicUpfront corporate intelligence,counterparty integrity due diligence,conflict of interest management

Counterparty risk assessment(fraud / criminal risk)

Contract compliance andgovernance –royalty review

TransactionServices/Restructuring

Restructuring: On-going contractcompliance and performancemonitoring (covenants, financialmetrics / gain sharing, capex)

Initial financial / commercial /counterparty solvency duediligence

Detailed due diligence,investigation of negotiating issues

CorporateFinance

Strategy planning / support, financialmodelling / model integrity review(demand planning / financial forecasts),assess delivery options / funding / pricing/ risk sharing, develop procurement /transaction strategy, initial transactionvaluation support

Support vendor / partnerevaluation and selection process,finalise business case, supportdeveloping negotiating positions,support fulfilling closingconditions

Support to subsequent contractchanges, dispute resolution,annual investment valuation /review and refinancing

ProcurementInfra-

structureStrategy

TransactionStrategy

Implemen-tationPlan

Negotiateand Close

ImplementMonitor

and ControlRenew/Dispose

KPMG Services

PROGRAM MANAGEMENT

New Investments

43KPMG’s ENR Practice Overview


Throughout the globe, KPMG member firms provide clients withofferings in relation to the following services:

Modelling

PROGRAM MANAGEMENT

InformationRiskManagement

Systemsoptimisation,IT governance

Pre-deal strategyStrategicCommercialIntelligence

Commercial due diligence

AuditAccounting /reporting issuesidentification

Transaction-related accountingstandards, understanding /interpretation (international)

Creation of tax-efficientdeal structures

Tax Tax due diligence Post transactionintegration

BusinessPerformanceServices

Performance improvement /value realisation, mergerintegration, ongoingperformance monitoring,analysis in support of renew/ dispose decisions

Project management and changemanagement support, operationaldue diligence support, organisationaldesign / restructuring, contractmanagement process design,performance metrics

Project management support, transactionimpact analysis (stakeholders, etc.),organisational change management,public sector and infrastructure sectorknowledge

RiskManagement

Risk analysis and assessment, retained risk /technical risk analysis, advice on risk-sharing issues,advice on valuing risk for inclusion in pricingmechanism options, regulatory / legislativecompliance assessment

Information management /security assessment,privacy protection issuesadvice, risk mitigation /monitoring

Design of governance,compliance and controls

ForensicUpfront corporate intelligence,counterparty integrity due diligence,conflict of interest management

Counterparty riskassessment (fraud /criminal risk)

Contract compliance andgovernance – royalty review

TransactionServices /Restructuring

Initial financial / commercial /counterparty solvency due diligence

Detailed due diligence,investigation of negotiatingissues

Restructuring: ongoing contractcompliance and performancemonitoring (covenants, financialmetrics / gain sharing, capex)

CorporateFinance

Strategy planning / support,deal criteria / objectives,initial opportunityidentification / assessment,pre-deal evaluation, financialmodelling

Deal hypothesis, transactionstructuring, detailed financialmodelling / model integrity review,demand planning / financialforecasts, initial transactionvaluation, bid strategy, bidpreparation

Support bid analysis,investigate / model issues,incorporate risk analysis /mitigations, developnegotiating positions,fulfill closing conditions

Support forsubsequentcontract changes,dispute resolution,annual investmentvaluation / review

Enhance/Operate

Negotiateand Close

DueDiligence

Renew/Dispose

OpportunityIdentification/Assessment

AcquisitionStrategy

DealHypothesis/TransactionStructuring

BidPreparationAcquisitions

KPMG Services

44 KPMG’s ENR Practice Overview


Throughout the globe, KPMG member firms provide clients withofferings in relation to the following services:

45Think BRIC! Key considerations for investors targeting the power sectors of the world’s largest emerging economies

”Think BRIC! Key considerations for investors targeting the power sectors of the world’s largest emerging

economies“ publication series aim to highlight major trends and challenges shaping the evolution of the BRICs countries` powersectors over the course of the next decade in light of the global economic crisis. Perspectives of top-level executives andstakeholders of the BRICs power sector are included in these country reports which are based on a qualitative research andKPMG analyses.

KPMG’s ”Think BRIC! Key considerations for investors targeting the powersectors of the world’s largest emerging economies“ publication series

Brazil’s electricitysector bearsenormouspotential forgrowth andbusinessdevelopment, butaccessing theopportunities

requires tailor-made investmentstrategies and careful planningprocesses. This study aims to help bothdomestic and international investors inidentifying business opportunities in theBrazilian power sector throughout theasset lifecycle.

Think BRIC! Keyconsiderations forinvestors targetingthe power sectorsof the world’slargest emergingeconomies –Comparative

study

This KPMG report sizes the investmentneeds of the power sectors in Brazil,Russia, India and China; includinghistorical analyses from 2000–2008 andalso projected investment needs until2020 by assessing socio-economical,technical, environmental and legalaspects.

China investedsome USD83 billion in theelectricity sectorin 2008. Longerterm estimatespredict that Chinawill need to investUSD 2,765 billon

into the industry by 2030 to cope withits power demand – an estimated onequarter of the total global energy sectorinvestment within that period. How willsuch a gigantic sum be spent, and whatopportunities will it offer investors andsuppliers?

India’s populationaround 1.1 billionin 2009, isgrowing fast, andis expected tosurpass that ofChina soon after2020 – making itthe largest in the

world. To fuel its economic growth, whichis expected to be over 9 percent for mostof the next decade with electricity, totalgenerating capacity should jump by 90 GWto 241GW, with an increased emphasison nuclear, clean coal and renewables,including solar and small-hydro.

The Russian

market is one ofthe largest on theplanet. Scores ofpower plants feedalmost 1 milliongigawatt hours ofelectricity into avast grid that

comprises some 3.2 million kilometersof cables that stretches across 11 timezones. More recently, the globalfinancial crisis, along with the fall in theprice of oil, has hit Russia hard but theRussian electricity sector is still a targetfor foreign investments.

Authors and co-authors of the ”Think BRIC! Key considerations for investors targeting the power sectorsof the world’s largest emerging economies“ publication series:

Péter Kiss, Global Head of Power & Utilities, Attila Szepesi, Judit Pintér, Balázs Zambó and KPMG`s GlobalPower & Utilities Knowledge & Resource Center, Budapest, Hungary; IPSOS


China`s Energy Sector– A Clearer View

The following KPMG report shares ourobservations on key trends in each areaof the energy sector, from upstream oiland gas to power generation

To receive electronic copies or additional information about any of the documents belowplease contact your local KPMG firm. Alternatively, please visit the following web sites:

KPMG.com:

http://www.kpmg.com/Global/WhatWeDo/Industries/Energy/Pages/default.aspx

Other KPMG Thought Leadership

The Winds of Change

The Winds of Change is the 2009version of an annual publication whichdiscusses trends in M&A in theRenewable Energy Industry. Over200 executives were surveyed, andsupplementary interviews were carriedout by the Economist Intelligence Unit.

The Application of IFRS –Power and Utilities

The publication examines trends andchallenges in implementing true IFRSacross the Power and Utilities industryand is based on the reports of variouscompanies across a variety of countries.

Central and Eastern EuropeanNuclear Energy Outlook

A discussion of the nuclear energyindustry in Central and Eastern Europe,this document discusses both theregion as a whole and individual nations.

Bridging the GlobalInfrastructure Gap: Viewsfrom the Executive Suite

Global research commissioned byKPMG International and conducted incooperation with the EconomistIntelligence Unit

Indian Power Sector– Rising up the Curve

The Indian power sector is goingthrough an exciting growth phase-highGDP growth lead to increased demand,generation capacity, transmissionand distribution.

46 Other KPMG Thought Leadership



About the KPMGGlobal EnergyInstitute (GEI)The KPMG Global Energy Institutehas been established to provide anopen forum where industry financialexecutives can share knowledge,gain insights, and access thoughtleadership about key industry issuesand emerging trends.

Power a nd utilities financial, tax,risk, and legal executives will find theGEI—and its Web-based portal—tobe a valuable resource for insight onemerging trends.

To register for your complimentarymembership in the KPMG GlobalEnergy Institute, please visitwww.kpmgglobalenergyinstitute.com.

For more information aboutthe GEI, please e-mail us [email protected].

kpmg.com

The information contained herein is of a general nature and is not intended to address the circumstances of anyparticular individual or entity. Although we endeavour to provide accurate and timely information, there can be noguarantee that such information is accurate as of the date it is received or that it will continue to be accurate inthe future. No one should act on such information without appropriate professional advice after a thoroughexamination of the particular situation.

KPMG and the KPMG logo are registered trademarks of KPMG International, a Swiss cooperative.

© 2009 KPMG International. KPMG International is aSwiss cooperative. Member firms of the KPMGnetwork of independent firms are affiliated withKPMG International. KPMG International providesno client services. No member firm has anyauthority to obligate or bind KPMG International orany other member firm vis-à-vis third parties, nordoes KPMG International have any such authority toobligate or bind any member firm. KPMG and theKPMG logo are registered trademarks of KPMGInternational, a Swiss cooperative.All rights reserved.

Comments and questionsin relation to the Think BRIC!publications series and theircontent are welcome andshould be addressed to:

E-mail: [email protected]

Péter Kiss

Global Head of Power & Utilities KPMG’s Global Power & UtilitiesKnowledge and Resource Center

KPMG in HungaryTel: +36 70 333 1400E-mail: [email protected]

Media relations:

Judit Pintér

Business Development CoordinatorKPMG’s Global Power & UtilitiesKnowledge and Resource Center

KPMG in HungaryTel: +36 1 887 7118E-mail: [email protected]

Global ENR Contacts

Michiel Soeting

Global Chair Energy & Natural Resources

KPMG in the UKTel: +44 20 7694 3052E-mail: [email protected]

Pamela O`Leary

Global ExecutiveEnergy & Natural Resources

KPMG in the UKTel: +44 20 7311 8438E-mail: pamela.o`[email protected]

ENR and Power & UtilitiesContacts in Brazil

Tim Young

Partner

KPMG in BrazilTel: +55 21 3515-9403E-mail: [email protected]

Vania Andrade de Souza

Partner

KPMG in BrazilTel: +55 21 3515-9421E-mail: [email protected]

Pieter van Dijk

Partner

KPMG in BrazilTel: +55 (21) 3515-9444E-mail: [email protected]

Global Infrastructure ProjectsGroup Key Contacts

Dr. Timothy Stone

ChairmanGlobal Infrastructure Projects Group

KPMG in the UKTel: +44 20 7311 8244E-mail: [email protected]

Nick J. Chism

Global Head of InfrastructureGlobal Infrastructure Projects Group

KPMG in the UKTel: +44 20 73118603E-mail: [email protected]

Márcio J.S. Lutterbach

Partner

KPMG in BrazilTel: +55 11 3245 8311 E-mail: [email protected]

energy and natural resources think bric! · 4.3. current ownership structure of the power industry...

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