Centrais Electricas Brasileiras S A American Depositary Shares (Each representing one Common Share)

Ladies and gentlemen, thank you for waiting. Welcome to Eletrobras Q2 earnings call. Let me introduce the Eletrobras team. Mr. Wilson Ferreira Jr., Eletrobras CEO. Ms. Elvira Presta, VP of Finance and Investors Relations. Mr. Hélio Wolff, VP of Strategy and Business Development, Mr. Rodrigo Limp, VP of Regulation and Institutional Relations, Mr. Renato Costa Santos Carrera, VP of Procurement and Services, and Mr. Marcelo de Siqueira Freitas from the Executive Legal Vice Presidency are here with us today. This earnings call is being recorded and it will be made available at the company's IR website, where you can also find the presentation in both languages. If you need simultaneous translation services, this has been made available. Just click on the globe icon at the bottom of the screen. When you click on the icon, choose your preferred language. If you're listening to the conference in English, you can mute the audio in Portuguese by clicking on Mute Original Audio. For the Q&A session, please press the Q&A icon also at the bottom of your screen. Your names will be stated and then you can ask your questions. A request to unmute your mic will be shown on the screen. If you don't want to speak into the mic, just write down no mic, please, and the operator will be reading your questions. Before proceeding, we'd like to clarify that any statements that may be made during the teleconference regarding the company's business outlook, projections, operation and financial goals are based on beliefs and assumptions of the Electrobras management, as well as information currently available to the company. These future considerations are not a guarantee of performance, because they involve risks and uncertainties, and they depend on circumstances that may or may not occur. Investors should understand that general economic conditions and other operational factors can influence the results expressed in these remarks. I'd like to turn the floor over to Mr. Wilson Ferreira, Eletrobras CEO. You may proceed now, sir. Thank you. I would like to welcome all of you. Can you please show the slides? I would like to welcome analysts, investors, thank you for attending our earnings call for the second quarter. Let me start. Please move on to the next slide, please. We'll have a summary of six segments. That's how we broke down the company's highlights. An overview of the number one managerial indicator, which is PMSO, operational performance, generation transmission, financial performance. Elvira will take over at this point in time, and then I'll come back for the investments and next steps segments. Let me start with the highlights for the quarter. Next slide, please. Next one, please. Another one. Yes. These are the highlights for Q2. First collections and operations in the financial front have been concluded, given the exposure we had to the US dollars. the hedging for the bonuses and yet another operation that accounts for almost 96% have been covered and we'll be completing that in the next quarter. There won't be any FX exposure from now on. Onto liability management operations. Let me start with the ones that have already been approved and implemented at Eletronart. 1.9 billion reals. The goal is the same, to lower costs and extend the profile. Costs are 2.2% above CDI. and we have been able to extend that debt profile. We'll be detailing that shortly. Elvira will be doing that. We paid R$ 1.2 billion in dividends and the average cost is CDI plus 2.5%. Amongst those operations, I would like to highlight that one on the right, R$ 680 million, the first credit note for exports. One of the important covenants is the TED contract with the commitment to sustainability. Our number one goal here is the clean energy percentage. We are at 97. Our commitment is to bring that down. We are at 97 and the original commitment was 96. So that's a very important highlight because we are now introducing our second voluntary separation program. We had 1,473 that have applied. 513 million reals will be saved. We'll be breaking that down for both the first VSP, early last year, and this second VSP. We have already concluded the application phase now in the second quarter. we believe it's important to share a couple of events for the second half of the year because they are really important to the company first liability management operations that are currently underway and we were able to announce them through a market note we had the fourth debentures issuing of 7 billion and 3.5 billion in Furnace, and the fourth issuing of debentures, 250 million at CGT Electrosu. All these operations aim at addressing the liability management strategy, always aiming at lowering costs and extending the debt profile. The second important action was the annual readjustment of RAP for 2023-2024. There is an annual resolution that increased our RAP by 30% with R$17.5 billion for the 2022-2023 cycle. We've also received authorization to be the trade agent of electric energy at CCEE This will be allowing us to use some of the tax credits we have for the trading activities. And we've also received the announcement of our restructuring for the unprecedented net zero for any energy company by 2030. That's going to be a pioneering effort. That's why we have a sales structuring of our process of all our assets related to thermal, both using gas and non-gas. We use coal, we have gas, thermal plants, and a combination of both. So these are the main highlights for the quarter, the second quarter of 2023. Onto the next slide, please. We have an overview of our PMSO, People, Materials, Services and Third Parties and Other. Next slide, please. The first PDV won the first voluntary termination or separation program. 1.2 billion is the expected savings on an annual basis with an 11-month payback. The first thing we can see on the top chart is that we expect expenses reaching 2,494 people. People are leaving the company at a slower pace than expected for a couple of reasons. Number one, we were very careful earlier this year. Let me remind you. We had those uncomfortable events as to the crumbling of a couple of towers and we decided to be extra careful so that we could better manage that situation at that point in time. But we expect to have new people coming in. They are, again, at a slower pace than expected and for that reason Our curve is the green is the best estimate we can get, not the blue one. That will entail less savings for the year. Our estimate was 790 million reais. Originally, it would be 890 million of savings. as of next year as a result of this activity alone will be bringing costs down by 1.2 billion a year the payback would be about 11 months there was that delay but we are focused on taking good care of the company especially its operations we believe that this 100 million can, of course, be offset by far by the credibility of our operations, because now we can be sure that we'll be reaping that result next year, as about 1.2 billion, as I said. The same assessment of the ESP number two that we introduced last year, Given the collective bargaining we had, our estimate was of about 1,475. The expectation was 1,574. We had 1,475, a little less than expected. Most of it have been terminated by July. On August 31st, over 500 employees have left the company. So this program is somewhat quick because some employees could not join our DSP number one. So that's why the process is now faster. Again, according to our board, we have been very conservative to maintain the company's operations and, of course, its credibility. to maintain that credibility intact despite these adjustments. This VSP has a cost of $513 million, savings of $688 million on an annualized pay, a better payback than that of first, about nine months. That, of course, is consistent with what we said before during the Electrobras day. we're reducing our personnel costs. That was 4.6 billion in 2022, and we expect to reach 2.6 billion, a reduction of almost 42% by 2026. And just to give you more color, these two voluntary separation programs with firing another 800 people, Our staff started out with 10,500. In Q2, we are at 8,432. We'll be reaching 7,727 by year's end. We knew professionals coming in the company throughout the country, and we expect to reach, in the second half of 24, 7,250. So as to this main activity to bring costs down, these two voluntary separation programs have already been implemented, and we are bringing costs down gradually. Onto the next slide. Other activities related to MSO. Our expectation, we had about 4.1 billion reals worth of costs. in MSO in 2022. We expected 200 million savings for the year. We're actually moving ahead. We're even moving that faster. We had additional savings of 100 million reals given the realization of the plan by June. We expected 1.9. So we exceeded our projections in 100 million reals. This is a whole set of activities. Number one is OBZ. But let me point out that the number one activity And the number one driver that brings costs down is to centralize our hiring process for all the companies. And then we can better estimate costs to have better services and materials synergies We can better manage inventories through that centralized purchasing, which would give us more bargaining power and centralization of contracts for both insurance and facilities. We brought costs down by over 40%. That's the first time we did that. So we're expecting additional results for 2024. And let me remind you that now, the second half, we're now starting the centralization of the four centralized or shared services in Recife. So, throughout the second half, we'll be concluding that centralization effort. We'll be able to then expand cost reductions throughout the year 2024 as a result of this centralization effort I mentioned. Our estimates are on the left. We are, of course, working to bring that number by 42%, starting at 41 billion, 4.1 rather, bringing that number down to 2.5 in 2026. So these are the two main actions, two managerial actions that will mobilize the entire management team. And we have been able to show very positive results up to now. Moving on. So these are the financial highlights of Q2. So these are very promising results. Net profit was up by 4%, reaching 9,246,000. For the second quarter, our EBITDA was reaching 6 billion 595 million results shows net profit 1 billion 619 million 16 increase when compared to last year at the bottom you have the adjusted numbers but let me point out the following in the reported number we have a very relevant effect which is the consolidation of saint antonio energia this operation occurred after the privatization in the third quarter, so we have effects bringing in 949 million, the additional 449 million of revenue through that consolidation. On top of that, we had a reduction of contractual results in IFFRs for transmission systems Let me remind you that this revenue is booked based on economic indicators. IPCA is the most important one. In the second half of last year with higher inflation rates, we had 3.18. It's almost half now for the second quarter. So that brings a reduction of 101 million. We had another 674 million for transmission revenue due to regulatory changes in the period. We had a reduction in recurring PMSO, excluding PMSO of Saeza. Despite that negative impact, we had more salary increases of 2.13% and with CT73 we did that last year, another 4.18%, another 15 million reals. We still have as a relevant for the quarter, a PMSO reduction of six or rather, an increase of 76 million for PMSO and SIS, and 332 million for costs and operational expenses. These two figures have been included to those numbers, and Elvira will be explaining that in further detail. The quarter was very positive as compulsory loans we reduced our remainder of over 2 billion Reals and about 1 billion 477 million because of settlements. So it was a very important quarter. On the other hand, privatization took place in June last year. Since then, we incurred privatization costs. They amount to 1.5 billion per quarter. and they are referring to amortization of CDEs and other funds, 397 million of amortization, and an additional 1.2 billion for those obligations I just mentioned. Of course, you have more revenue, so it's almost the cost of that transaction. It goes up as we move away from that stake when we compared quarter on quarter. Non-recurring highlights. We provisioned the second voluntary separation program, the second one introduced in July, so it includes 513 million reals. for coverage of costs of 1,475 applications that will take place throughout time. Over a third has already been completed in August alone. On the other hand, we had an increase of consulting services in the transformation office so that all these transformations receive the necessary support, not only on the technology front, but also in the quality of consulting services so that they could be implemented smoothly. These are a one-off, but 54 million for the quarter.

Now we can talk about our operating performance. This entails generation and transmission. We ended this quarter with these numbers. So we went beyond 43,000 megawatts, representing 22% of generation in Brazil. This is 20% of our installed capacity in Brazil, but actually 25% of the generation in this quarter. So 38,827 gigawatts hour is what we generated, which is important if we think about our economy. What is also very relevant is that we were able to generate that with 97% of clean energy sources. To your right, we see our PLD in each one of the submarkets. We see increases compared to last year, and this happens because of our costs with the voluntary dismissal plan. It also includes Itaipu. Below, we see the GSF curve. We see numbers for 2021, 2022 and 2023. Our GSF is important because we need to hedge for it in our operations. Next, we see information regarding costs and volumes for the trading of energy. This analysis is important. We basically have four products for sale in the free market. First, we have our quotas. We had a reduction in the volume or in the stakes of our company. And this happens because we are reducing our stake. This is something we are doing as we work on fundraising. But this 29% production represents only 7% of reduction in revenue from these products. Of course, this is also connected to inflation. This is something that we see for this quarter. So we go from 67.3 megawatt hour to 78. The second important product is the regulated market. So we see not only effects of its growth, but also the consolidation of Saisa. So our energy volume in the regulated market grew 78% because of this consolidation. And we saw 46% of growth in the average tariffs for this market. Usually for Saeza, we had lower tariffs compared to other plants in our Electrobras group. And we are still talking about a very relevant volume. around 3,800 gigawatts hour, 23.78 real. Now for the third project or product, which is very promising for the future of our company is the volume that we're trading in the free market. So this includes not only the reduction of stake, which we mentioned before, but the volume that we have for Saisa. We had a 14% reduction in volume and a 14% reduction in revenue from this market. So in this quarter, we had 198 real for this. As I was saying, it's around 14% of increase compared to the previous year. The volumes that are not traded here are settled at the CCEE. the lowest volume, as you can see in the chart. So the total energy that we saw this year, and this represents an increase of 8% year over year. When we see the total revenue for this company, we see a growth that is actually 23%, not 8%. We go from 5.2 billion real to 6.4 billion real. So if we look at the product, electricity sold by Eletrobras, that leads us to R$ 211 per megawatt hour. This is relevant. This is good performance in this quarter. It takes into account the capitalization process, which allows for increase in volume, but also better pricing for the products that Eletrobras is offering, both in the free and regulated markets. Now we have something that we'd like to clarify for analysts. It's an important disclaimer. This is how our company works. We have our resources for the second quarter. And as you may recall, we have a few clients under the So it would be possible for some of these clients to be decommissioned. In the third row, we see the volumes of decommissioning. We have a minimum term for the decommissioning period. So we go from 160 to 270. This is added to our resources and now this is going to be made available to the market and they will be sold according to the prices that the company can achieve. You can see the numbers here. We start with 9,571 and we get to 4,424 in 2027. So compared to the first quarter, we see growing numbers. This means that we're selling more quarter by quarter. We sold 8,875 gigawatts hour for 2023. And in this quarter, we sold another 9,571. So the variation or the fluctuation in sales is shown in green. Now, in blue at the bottom, we see information based not only on volume, which we see at the top, but also on hedging. This is why it is important for us to report on our GSF and our forecasts. We can't just be caught off guard with a higher GSF. This is why we have a very structured process. But in the first quarter for 2023, we had 18% or actually 11% of decommissioning. And for this quarter, we have only 6%. So from 11% to 6%. For every quarter, we have these products for sale up until 2027. And the volumes that are not sold in the second quarter are not as high as the ones that we had in the first quarter, which shows that we are getting to effective sales for every year for which products are available. We also have average contract prices of 206 real. We even get to 207 by 2027. So this is something we're monitoring weekly with my team so that we see the evolution of sales. We want to get to positive results, of course. We're also taking into account delinquency fees or delinquency rates. There's something else that we could have added here. The company ends up having a good perspective on the clients that we have. We already have 162 customers. These are different industries, different companies, so we're working hard on acquiring new clients. We're working on sales contracts for our subsidiaries, we're making products available, we have sub-markets for each of the subsidiaries, and we're working with the sales team so that we can better that. In the past, people would come to us, clients would come to us, but now we're going to customers and we're making an energy offering. based on our product portfolio. We even want to diversify our product portfolio. So I'm really happy with everything we're doing regarding energy trading. Now we can talk about transmission. One of the highlights is the 30% growth in transmission. Of course, we can think about inflation. We can think about IPCA at 479 million. We added more assets, 173. We had reinforcements and improvements, 123 million. We had minus 76 for other adjustments. And we had 3,320 with the new profile for RBSC. So, for the 2023-2024 cycle, we're going to see growth revenue of around 30% compared to 2022-2023. Please remember that Eletrobras has 73,000 kilometers that leads to a 38% stake in the Brazilian market. In the Electrobras Day, we talked about a CAPEX that has been approved of 174 big-scale endeavors, 5.9 billion until 2027. So as of 2027, this leads to 846, but 132 will be realized in 2023. Now, next, we have the financial performance. Ovira will be talking about this. She'll go into details regarding revenue and how we manage expenditures, EBITDA, and our net income. Thank you, Wilson. Good afternoon. So now we're going to talk about our balance. We always talk about this every quarter. So to your left, you see the IFRS information. As he was saying, we had a 59% increase in our EBITDA, 16% increase in our net income. And to your right still, in the same table, we see our recurring basis. So we see that the EBITDA was basically the same, but the net results were below our results year over year. Now, let me tell you why this is happening. In previous quarters, we would always, always show the recurring results, but we would exclude our provisions, especially for compulsory loans. Because in prior periods, before we started this work, this would increase provisions, therefore reducing results. If we use the same criteria, the reversals of these provisions, which are positive, are non-recurring. This is why our EBITDA is kept at the same level, but we have a reduction in our net income. We have a few highlights to your right. Wilson mentioned some of them. We had around 4% growth in revenue. This has to do with Santo Antonio Energia and its consolidation. This is the last quarter where we still have to explain the effects of Santo Antonio. As of the next quarter, Santo Antonio will have been at the same base as the previous year. So we will no longer need to explain these effects because in the second quarter of last year, Santo Antonio had not been consolidated yet. This is why we've been explaining these effects. It represented 1.1 billion. In the next slide, we're going to talk about IFRS compared to our regulatory perspective. For the PMSO, we had a very positive quarter with a reduction of 144 million. We're also excluding Santo Antonio, which adds 62 million. This is the fruit of our initiatives, not only with the voluntary dismissal program, but also other items in PMSO. This also has to do with collective bargaining agreements. For costs and operating expenses, Santo Antônio Energia adds revenue, but it also adds costs. So we see this impact of 332 million. For construction, we are building transmission lines. So we have expenditures for that. For depreciation and repayments, once again, we see the consolidation of Santo Antonio with 204 million. and we have the impact of concessions or grants which were renewed when we went private, so 193 million. For financial results, which we'll go into details later, if we have a comparison quarter over quarter, we have a 1.8 million reduction. This is mainly due to two things. First, Santo Antonio, as we consolidated, we have a financial expense related to interests, so 741 million. The biggest impact here is related to our obligations regarding the privatization of Eletrobras. We have to pay fees over our CDE. We also have our projects related to basins and to renewable sources for the decarbonization of the Amazon, the legal Amazon. And as we mentioned before, we were working with foreign exchange. We swapped to CDI because we don't have revenue in dollar. and we invested our cash in CDI. So this brought us a non-cash effect at 458 million real. Now, when it comes to changes in foreign exchange, we had positive results. In the previous period from last year, we didn't have protections. the dollar went up and we had negative results last year. So since this didn't happen now, when we compare it year over year, we get to these positive results related to foreign exchange rates. Now we can talk about our gross revenue. We had a 4% growth as previously said. I've already mentioned Santo Antonio, which is the green column related to generation. But with transmission to your right, it is important to say that with the IFRS, revenue gets updated. The balance of our assets gets updated according to the IPCA rate, meaning inflation. Since it changed, and it used to be over 3 last year, but it's over 1 this year, we had a reduction here, 1,134,000. This was mitigated by our changes in OEM, ONM, adding 408 million real, and also our construction assets, adding 338 million real. This is why we have minus 388 here, not 1.1 million, or 1.1 billion, actually. Also, this year, we're no longer responsible for our pro-sell, so we don't have the revenue that we had in the previous quarter, around 40 million real. But we had both costs and revenues related to this, and we're no longer responsible for our pro-sell.

We'll now see the breakdown of PMSO. On the left, top left, that's IFRS, and at the bottom, the recurring view with the adjustments. Two major adjustments, basically. Number one, the second PSP provision, 500 million that we have already mentioned. and the San Antonio consolidation effect in the IFRS view is 1% increase, but when we consider we did not have San Antonio Energia last year and the VSP2 provision is a one-off event in comparable basis, we had a 7% reduction as you can see on the bottom chart at 144 million reduction. And on the right, these are the highlights. And staff 134 million and 11% reduction, which is significant, especially when we consider that we do not have ASB increases of 12% last year and 4% for the year and new people that have been hired. As to services in blue, non-recurring has to do with the Transformation Office effort. And in others, we had legal cases as a result of the work conducted by the legal department. And there's another important activity, Wilson has mentioned that in the NSO strategy, which is centralizing the insurance hiring. so we have managed to reduce costs by 23 million. These are the highlights for AMSO. Now on to provisions. On the right, you see a summarized table, some provisions for the same period last year when compared to this year. In 22, we had 2.2 billion in provisions, a reversal of 1.7 billion. Last year, let me remind you that as far as compulsory loans was 242 million, this year almost 1.5 billion. For cases that are not compulsory, last year We were at 475 million, an increase, and this year a reversal of 184 million. This is one of the initiatives we mentioned during Eletrobras Day. Just like we have been negotiating compulsory contracts, our VP, Marcelo, is already heading that process for other cases to review risks, and we have been able to review that risk mitigation. That's why we had that positive impact on two investments. The second quarter of last year, we had to account the losses for San Antonio Energia. Already we have reversed that with the consolidation. And the PCRD Amazonas Energia last year. So these were the highlights. So, in the quarter we had 1.7 billion as positive effect, improving results by reversing our provisions. Let me break that down as far as the compulsory loans are concerned. Ever since we started that plan in Q3 of last year, on the right you can see the table of provision inventory for compulsory was almost 26 billion, 25.8 to be exact, and we're now at 22.1, that reduction amount for 3.7 billion for these quarters. In the current quarter, we had an inclusion of 1.4 billion, just like I explained in the previous slide. When we take into account other agreements or other settlements that have been negotiated, we're just waiting for the final ratification of those settlements. They haven't been booked in the quarter. We had an additional 1.7 billion. So we expect a reduction of... From 22 to about 20 billion. So for the year, it will amount to a 5.4 billion reduction, almost 20% reduction. In red, let me point that out. the monetary adjustment given our interest rates. As our inventory of provisions comes down, we also reduce the monetary impact for the quarter. And the last two highlights on your right, since our negotiation strategy involves all compulsory processes or cases they have against us, we reduce off-balance contingencies, that is 1.9 billion off-balance, and a release of 1.3 billion of connected cases, those that were used as guarantees So these are judicial deposits that amount to 1.3 billion reals. On to the EBITDA variation. In IFRS, we had a 59% increase, but we deal these reverses as non-recurring in adjusted basis. Our EBITDA was along the lines of the number we had last year. On to the next slide. This is a net profit assessment. Since we removed compulsory events as non-recurring, that's why our net profit is reduced, therefore. But let me point out a couple of things. The financial results, the column in red, 1.8 billion, this is impacted. It's on the right. So we have some important events. Number one, the privatization obligations. Regional funds, CDE amounting to 1.1 billion. And then we had the hedge issue. I tried to break that down. Let me remind you of what we did. We had two bonds. One is 500 million dollars maturing 2025 and another 759 million US for 2030. When we signed that operation in late May, FX was 5.54 and swapped that to CDI. So, the series is for 2025. It's now 97.4% of CDI and for the 2030 was CDI plus 1.7. So, these are the relevant information we would like to convey to you. So these are cheap debts when we compare to prices today. We wouldn't be able to leverage that loan at this cost. We're moving away from that foreign exchange risk because we're protected by CDI. And that effect of 467 million, which is a non-cash effect, is the result of the differences of these flows. Because once we concluded the operation, FX came down and our CDI was high. And for depreciation and amortization, another column in red, 400 million. and the number one reason behind it is due to the new concession contracts we have been depreciating ever since the privatization and again the consolidation of San Antonio Energia. Moving on to the end of my presentation, on to the next slide, this is the net debt adjusted EBITDA ratio according to our financial discipline. We have been able to maintain our two times indebtedness level, as you can see on the left. And on the right, you can see detailed information of our debt profile. 57 billion. Consolidated cash was 18.6 billion. Net debt is about 38 billion. Let me point out what I wrote at the bottom, on your right. According to our explanation notes, in late June, we converted 4.1 billion through AFAC and intercompany debentures. As of July, we'll be able to see the results of the fiscal savings of that operation. We expect 180 million savings for the year. Since this year we only have half of the year, we'll be achieving half of that amount. I have my final slide of investments and then I'll turn over the presentation to Wilson. So as we show every quarter, we show you the investment curve in blue. Investments by June amounting to 2.5 billion reals. And in green, the same period of last year, not including San Antonio allocations for the CAPEX was 1 billion reals. So we have this major increase. And on the right, two highlights. We have that impact of construction in Conchilla Negra, investments amounted to 279 million. And also here the SPS, we resumed Transnorte Energy, a very important project to connect Roraima, the state of Roraima. We had another or an extra 29 million of allocations there. So these are the highlights for the quarter. I'll turn it over back to Wilson. Thank you, Rivera. Let's move on to the next slide, please. Let me point out a couple of investments we made. And we announced that right after Eletro Barra's day. 17 billion reals in contracted investments for the period 23-27. 6.7 billion in transmission assets. We were talking about that these are assets for improvements that have been approved by ANIL, which have a guaranteed revenue. We also have for improvements a set of mills or plants operating in the quota system with an additional 4.6 billion reals there, 2.9 billion for infrastructure and environment. The first billion is related to environmental investments, a little over 500 million for the social environment programs that have already been commissioned or Santo Antonio, and 1.9 billion for infrastructure. These are optimization efforts of our costs that can be ranked as operational investments, but they're actually necessary investments through automation, robotization of a couple of processes, with intelligent networks, AI, 2.4 billion for generation assets with new sources of revenue that have been commissioned, Elvira mentioned, that's the wind process in Cochila Negra, and 0.7 billion in contracted M&As, Telespiris, Baguari, Retiro Baixo, Saeza, and Baguari Energia. These are assets we'll incur in cash outflow of 0.9 million reals. That's not all. We have The outlook for growth. We have additional firepower. These are alternative sources of growth. Number one is the transmission auctions. Several auctions that are scheduled for this year and next year, 35 billion in total. The company was very competitive, the only company that was present for every lot. This is an important growth avenue that is interesting for the company. We do have M&A operations. Not only for that, the reversal of cross ownership, we had that goal. And that has to go through that reversal, just like Nail Energia, but also M&A operations. We are considering renewable sources, transmission assets with the analysis of Elio's team and another 10 billion reals. addition of investments to improve transmission systems. We had 6 billion that have been approved in the previous slide and we have that potential given the age of assets, an additional 10 billion that would bring in an additional 1.2 billion reals of revenue. And ITO will be leading the effort, analyzing the quality of the asset in partnership with Varejao. We are, of course, focusing our efforts to submit that for a NILS approval. Every single investment will have to be subjected to that risk return assessment submitted by our committees and our board and everyone, of course, using the services of a rating company so that we can generate value from that asset because the rate of return has to be above that cost of capital on to the next steps this is our final message to you we're going through a transformation phase this is the third quarter i'm reporting My team has been working for almost a quarter together, but we're making a difference already. First one is the reverse of cross ownership strategy. Our goal is to reach 31 SPs. We had 74 earlier this year. We are at 68 now. And we're working towards that goal as early as the beginning of next year. A second effort, we are advancing compulsory loans negotiations. We have 400 million under negotiation. 1.7 billion have been commissioned. We had 22 billion of provisions. Early last year, we were at 26. By this effort alone, we'll be able to bring those numbers down by 20 billion. We'll be reducing or completing or eliminating the FX exposure, we are speeding up our tax strategy. We do have credits above 13 billion reals. So, there are several activities that have been shared since Eletrobras Day, almost about a billion in four years. It can be even more. We had a trading strategy. Once we have that trading company, we better structuring our sales teams. We also have a trading desk. We do have all the elements in place so that we can become a very good company in trading effort too. We are boosting the number of customers and people are coming to look for our products. And we're also developing new products so that we can become even more competitive in this new market. Of course, our focus is on PMSO savings. That's the number one asset that can be managed, that can deliver results on a short-term basis. A 990 million savings for this year alone. 39% has been realized already. Second half is even more heated, if I can put it that way. And Renato Carrera is leading this next activity. We have a whole set of real estate assets. They cost money, operational and maintenance, tax-related costs. So we have a team. looking at this issue so that we can bring an additional 450 million by next year. So these are some of the activities that are already beginning to show some results. Compulsory loans, among others, and I remain optimistic about these initiatives and we'll be able to deliver very good results in the next quarters. I just would like to conclude by Thank. For all the awards we have, and I speak on behalf of the board, the best CEO, the best CFO team, the best IR professionals. Paula, thank you very much for your effort. So this is yet another incentive to help us keep working harder and harder under Elvira's and myself leadership. Let's get started with the Q&A session.

So now we're going to start the Q&A session.

Please ask your questions at once.

Should you have a question, please send them to us through the Q&A button at the bottom bar. You'll call your name and you'll be able to ask your question live. That's when you'll see a prompt to turn your microphone on. If you prefer not to speak live, then at the end of your question, add a comment saying no microphone so that our operator can read it aloud. Our first question is from André Sampaio from Santander. Please go ahead, Mr. Sampaio.

Hi, good afternoon.

I have two questions. Let's start with Angra. We saw a number of articles this week regarding whether or not the government is moving ahead with this project. Could you please comment on your expectations regarding including this in the growth acceleration program? Now, let's say this project is not built. What would be the impact for Eletrobras? Thank you for your questions, André. Let me start answering regarding Angra. Of course, this is a part of our fundraising process. So we're always working on the assumption that since this project is important for Brazil, they will move ahead with it. This is what we expect to see. We've seen speculation. But just a while ago, I was seeing the opposite. I was seeing that, yes, this project will most likely be included in the growth acceleration program. So we have to wait and see, of course. But we need to remember that moving ahead with this project does not really depend on the growth acceleration program. Of course, we were waiting for the BNDES, the Brazilian Development Bank, to finish its studies, its research. And after they're done with their research, then they'll think about the continuity of this project. We are working on the assumption that they are going to move ahead with this project. This is our hypothesis, because this is the subject matter of this act. And we don't necessarily think that it needs to be a part of the growth acceleration program for them to move ahead with it. Now, regarding the option you mentioned, let me hand it over to Limp and to Helio, because they may have comments. Let's talk about your option, which is not ours. Thank you, Wilson. Well said. Indeed, the articles that we saw in the last couple of weeks were not even regarding whether or not Engraches will continue or not. They were talking about the growth acceleration program, and these things are not linked. So this is a part of this act. It is a part of the PPI, the CNPE, the privatization program, the separation program for electricity and nuclear, So right now, we are doing everything and we are seeing everything be done as intended. For example, they are finishing their research and they are working on the CNPE. Now, should they stop working on Angra? Electrobras, as a shareholder... In the case of financing, we are the guarantors of this debt, around R$ 6 billion. But we are not the main debtor. This responsibility goes to electronuclear, and it goes up to shareholders depending on the circumstances. In the case of their debt, we are providing the collateral for that. It's possible that we'd have to reimburse it. We do not believe that they're not going to move ahead with ANGRA 3. But should that happen, we'd definitely make an assessment of all potential impacts for Electrobras. But we do believe they're going to move ahead with it. All right, thank you. By the way, let me stress something. We've been working according to the privatization rules. According to these rules, not only do they talk about moving ahead with ANGRA 3, but they also talk about governance rules for electronuclear. their CFO, two board members, members from the Auditing Committee, members from Co-Angra, which is the committee responsible for overseeing Angra III works. All of them are aware of it. So we're close to them. And this has to do with the management of ElectroNuclear. Of course, they are taking into account everything that is in their best interest, both for the company and the shareholders. Yes, and here we have Mr. Elio Wolff and Ms. Camila Araujo, who are representing us. And Eletrobras really values this topic. We have two VPs working on it. All right, thank you. Thank you, André. Our next question is from Mr. Daniel Almeida from Butia Investimentos. Mr. Almeida, you'll be able to unmute now Hi, can you hear me? Yes, we can

Here's my question. Regarding your next issuances, what would the rate be?

Do you expect to reduce your capital cost? This is our goal. Not only do we want to make it longer, but also to reduce costs. What happened with ElectroNorti is something that teaches us, even though we need to think about the debt scenario that we have right now. Somebody else may have a comment like Yuvaira, and I think it is important to talk about What we're doing. Yes, unfortunately, Daniel, we can't convey any information about this because we cannot, legally speaking. We issued a material fact, but this is regulated by the Brazilian Securities Committee. And this is only the beginning of their proceedings, so we're unable to share any preliminary information. We need to wait for the Securities Commission to do their work, to do their job, and then we'll be able to talk about it. But this is regarding Eletronorte, as reported in June. Thank you. Thank you, Daniel.

Our next question is from Mr. Daniel Trubitsky from Safra. Please go ahead and unmute yourself.

Hello, everyone.

Good afternoon. Thank you for answering my question. I actually have two questions. First, I have a question regarding energy trading. We saw implicit prices for trading in 2023, and they were very high, R$179, which is above the spot price. And it's even above the price curves that you showed us. How did you get to these results? Could you please talk about the rationale behind your strategy? My second question is related to capital allocation. Wilson, you mentioned transmission auctions to be held soon. Now, if we think about direct currents and we have an auction for that in December, what kind of opportunity do we see there? What do you think about the competition? What would be your technology challenges to put this project together? Thank you, Daniel. So let's talk about trading first. When it comes to these implicit numbers, these are the result of a strategy that we actually deployed last year. Trading is something that requires planning. It requires a specific view. We have a strategy committee to work on that. They think about the evolution of demand and the potential scenarios that we may see in this system. Additionally, they also think about deliverables from assets with more or less flexibility vis-a-vis the electricity system. All these three factors have an impact on pricing. So if you look at these prices one year ago, You have a more favorable scenario, but the economy is not as dynamic, so you sell forward. This is what happened with Electrobras. So the first answer is to get to these prices, we actually designed this strategy last year and we sold forward. But as I was saying, we were successful. But it's important to highlight that this is not the only strategy to get to higher prices in the case of Eletrobras. Eletrobras is one of the few companies with energy volumes that could be traded not only in the short term, but also in the long term. We retain our rights over these volumes over 30 years. So we are one of the few companies who are able to do that, to offer different offerings to customers in the long term with different propositions regarding curves or flexibility. So with our volumes, we definitely have more flexibility to customize our supply to specific customers, which we believe is important. Number three, we changed our strategy compared to last year. We were basically operating based on generators and traders. But the open market right now is 10 to 12,000 customers. They are what we call the A group, the high voltage group, 32% of volumes. But this market will be expanded as of January of 2024 with over 100,000 customers becoming a part of it. So we are customizing this B2B market with all of its specificities. We have advisory services behind us. We are working with very smart people who are trying to prepare us so that we have the right tools in our trading table in order to create more value and offer offerings that stand out and add value to customers. So far, the numbers we have for this year, they are definitely the result of a strategy that we started deploying last year, which was really successful, as I was saying. We made a few improvements this year as well, especially when it comes to our sales team. They've been looking for customers instead of waiting to be approached. Regarding capital allocation, Elio Wolf is going to add something to this, but I'd like to say something about transmissions. We clearly see advantages because we are scattered all over the country. We have a structure in every state in the country, and that's a perk. We were a very large company in the past. There was too much. But now, oftentimes, we're able to purchase equipment at a bigger scale. we also see how important it is to look at our operation structure from up close. So if we have an asset in the Northeast, of course, people from Chesf is going to be on top of it because this is going to be a better utilization of this asset. It'll be easier for us to hire third parties at a better scale for this kind of operation through this kind of approach. So if you look at results from the previous auction, we were very competitive. And at the time, the team had been on it for under three months. I'm really hopeful that we'll keep on making progress here. I believe we'll be even more competitive in the next auction. Now, regarding direct currents, We could talk about a technology upgrade, and we'll need it in Brazil. And we're ready for it. We have partnerships with the state grid for Belo Monte, with ACETEP for the Madeira River. We are the operators of the direct current coming from Itaipu. So we need to increase the reliability of our system and to reduce losses. And this is the technology that will be used. Ilio may have something to add to it. So our team is looking for this kind of partnership so that we're very competitive.

I agree.

Let me add something. I think the last auction was just the beginning. We're working on it and we're studying, we're doing our research for December. In December, they're going to focus on a batch of around 18 to 19 billion. And there was a change recently, you may have seen it. Looking for better competitiveness. The regulator decided to have bids split into four sub-batches. We have the converter with the main batch and four sub-batches. Well, this bid is going to happen in December. As Wilson said, we've been talking to partnerships and suppliers. We have an ongoing conversation with them. We also have preliminary research trying to identify routes and the best paths. We're also trying to figure out the best structure as far as cabling goes. So we're getting ready for this auction, not only for the big batch split into four, but the other batches as well, batches two and three. So for December, we are proactively preparing ourselves to send our bids. Thank you, Elio. Next.

Nossa próxima pergunta vem do Sr. Henrique Peretti da JP Morgan.

Our next question is from Mr. Henrique Peretti from JP Morgan.

Aparecerá na tela.

Please go ahead and unmute.

Sr. Henrique, nesse momento uma solicitação para ativar o seu microfone... You see...

A request on your screen to unmute your mic. You can go ahead and ask your question.

Mr. Junqueira asks the next question.

Hello, can you hear me? Go ahead, you can ask your question. Thank you for taking my question. Let me talk about ANGRA 3. Part of the reason why this discussion comes up, and it's a recurring topic, the market is very fearful of this topic. If it is decommissioned, the company would be losing 10, 12, 14 billion reals. You hear that kind of comment left and right. I may be completely wrong, but I have the impression that is due to a communication problem. So once again, I would like to take this opportunity to ask your opinion. If there is a decommissioning happening, What is your take on those debt? Electro-nuclear would default to debts, 6 billion. That seems to be a very radical or extreme result. But could you explain how these costs would be broken down, how they were calculated, if it happens? Along the same lines, can the company provide any kind of guarantee or would Eletrobras would have to collect or increase its capital? Would the company have to do that too? We know it is mandatory in the case of the construction portion of the project. So I think it would be interesting so that we could all share the same opinion because that volatility is not helpful to anyone. I'm positive you are right. I would like to take this opportunity to clarify this issue. Despite the importance of this asset, so the basic scenario is that of continuity. But let me remind you of two things. The controller of the company is the Brazilian state. The MBPAR, they have an almost 70% of common stock. Eletrobras has a bigger stake of the capital. It has less than 40% of the common stock. Well, this company, when we operated it, it was a company that ran at a loss. It's no longer the case with Angra 1 and 2. The EBITDA is robust and positive, so it can cover for any adverse effects. We'll be able to clearly withstand all of those negative effects. And WIMPI and OVARA, you can also provide more detail about the financing. And according to the law, and based on the agreement we signed,

I was trying to unmute myself.

Well, on to the debt. 6 billion, Eletrobras is the guarantor of that debt. So if they cannot cover, Eletrobras can become sued. But legally speaking, we are entitled to look for compensation. from electro-nuclear if we are executed. As to the demobilization cost, there's no direct guarantee from Eletrobras. It's up to electro-nuclear. If electro-nuclear is not able to cover for that cost, that can reach shareholders, but not Eletrobras alone. That is also valid for the controller if you increase the capital. we would have to make an assessment, but that would involve the entire legislation of Eletrobras as a shareholder. I wouldn't be able to tell you whether Eletrobras would be forced to allocate resources there if it's not related to the construction part. But we have to take a deeper dive to better understand this topic. And there are no exact answers. You cannot quantify the impact in numbers. It's not a recipe. Given the current situation, we are the guarantors, but we can find compensation. All the other costs are electro-nuclear, but there's a direct guarantee, as you said. But if electro-nuclear is not able to do that, that can impact shareholders, not only electro-bus. But when you say impacting shareholders, would that mean the equity? Your equity at electro-nuclear would be worth less. If you increase capital to decommission, Would you have to follow the 36% rule or that's not the case? Well, we do not have that answer. We have to analyze the scenario because that's not the scenario we're working with. But we have to take a deeper analysis if that's the case. You cannot guarantee anything. You're not be purchasing equipment, the commissioning costs ex-debt, the company is not, we're not creditors, no. And that decision of decommissioning is not taken by Eletrobras. That would be the burden of those that make the decision. In such a case, this is going to be assessed by the controller as a controller itself. We'll be answering according to our participation. ElectroNuclear has a debt net EBITDA about three, three odd. But the entire debt is from ANGAR3. Yeah, the rest is net cash. It's a very solid company generating EBITDA. It's a three times budget. It's a company owned by the state. but you're talking about the state defaulting a debt, a state that would be a trillion worth of debt. It would default a debt? I think the stress is due to lack of information. That's not your base scenario, but I think it's worth further explaining it on a step-by-step basis so that everyone would speak the same language. You're right. You're right. We're working in that direction, Junqueira. The board will be addressing that issue. Thank you. That was my only question. Thank you. Thank you. Mr. Marcelo Sá, Itaú BBA, asks the next question. Thank you. Could you please elaborate on the capex? You break that down by segment, but out of this commission capex, what part of it does not generate revenue? It's 1.5 worth of revenue generation, but there was an additional capex that is non-recurring. But should we consider that 1.5 billion for maintenance purposes that wouldn't be generating revenue necessarily? And could you please elaborate on the capacity auction that is scheduled to be held in Q1 of next year? And competitors are not looking for a hydro only solution. So what's your take on this next auction? Are there any projects willing to take part? What would be the amount available? And what is your estimate as far as capacity hiring is concerned? I'll turn it over to Helio Wolff and then Limp can jump in to talk about CAPEX and the capacity auction. Over to you Helio. Hello Marcelo. The first block is related to revenue and I mean transmission.

The second block

The maintenance capex, and this should be regarded as recurring capex that is non-revenue generating. It's 1.5 or 0.75 billion in three years. So that's the maintenance recurring capex that will... This is the non-revenue generating, right? Yes, exactly. The 3 billion is a mix. Part of it should generate revenue from improvements and there's a part from modernizing equipment. And I think it's important to speed up that process of MSO. But this is a one-off event. As far as the environment is, most of it coming from Saeza, these obligations would be dwindling as years go by. These are non-revenue generating, but there's a progressive phasing out of that process. And there's Cochilia, Cochilia is a new asset, and then there's M&As. So, in essence, as far as modeling is concerned, 1.5 is non-recurring rather is recurring, not revenue generating. This is the best answer I can give you for your model and for the auction. Well, let me clarify one thing about campaigns. As you're showing, you said that non-recurring for generation, there's a little bit of improvements, but in 30 years, Would there be any leaps or modernization efforts that would be outside those 1.5 billion? Are there any surprises looking ahead? No, there are no relevant surprises further down the road. Well, if we detect any opportunities to modernize or maybe repower our units that could generate important revenue, of course, we'll take that into consideration. But we don't envision any of those surprises as we speak. On to the auctions. We have projects of renewable sources. As far as thermal plants, we are divesting from those operations. It's currently underway. There's a teaser in the marketplace about it. So we are divesting in those areas. But of course, we'll be addressing the capacity depending on how EPE We'll be looking for opportunities not only to sell energy, but also to come up with new projects to make that opportunity possible for the group to grow even further. But we have no volumes set aside specifically for the auction. We have to learn how the government will be defining that auction, the types of modalities, direct participation, whether it's a possibility, hybrid services. So these are possibilities we have to take into consideration so that we can define how we are going to be part of that auction. Thank you. Thank you. Yuri Goulart from Trulia Investments is asking the next question. Can you elaborate on your interest in the capacity auction for next year? That's the question we have just answered. I think he read Marcelo's mind. Would you like to say anything else, Limp? No, that's it. We have to better learn about the premises and how the rules will be detailed, just like the previous auction, only for thermal plants. That would be completely the opposite of our directions today. Thank you. We turn over the floor to Mr. Wilson Ferreira for his final remarks. Well, thank you for attending our Q2 earnings call. I'm very pleased, as well as the team is, as to the start of the realization of the results after the privatization process. Some benefits are evident. We're talking about more revenue from the free market This is the result of that decommissioning. And we have better benefits to extract once we have the trading company set in place. Last year, the company was reduced through a series of voluntary termination program. We have had two of these programs. hiring new people. Some people are leaving the company and we do have to have a mix in place that can provide more productivity and cost reductions and being more productive in the marketplace. We have a very experienced team as far as MSO head or led by Renato Carrera, He has a lot of experience, even abroad, but we've brought in several people from or to Renato's team to be able to better negotiate materials, third-party services, inventory. We have 95 warehouses. We have seven data centers. four shared services centers. So we have been working hard to optimize these assets. These are currently underway. And once again, we have advanced significantly our liability management strategies. We'll be able to show those results in the near future. We've done that at ElectroNord. So this is just the beginning. that effort we still have a lot of homework to do as far as tax and fiscal optimization that's our focus this is our priority and absolutely we not only have to operate efficiently and with safety but also remaining competitive and focusing our opportunities on transmission. I'd say it's a need for the country. That's exactly where we can contribute substantially and also generating value and being competitive. And our reversal across ownership especially taking opportunity of M&A opportunities in the marketplace. So I'm certain we are heading in the right direction. We've been here only for three quarters, but for the first time we have a clear vision of the entire team. I'd like to thank the entire team. I failed to mention the non-recurring of compulsory loans. and we have managed to evolve dramatically after six, seven months. An effort led by Paula and Marcelo Siqueira. I think there's important road ahead of us, but over 20% of provisions have been brought down in record times. We're gaining traction. Processes are better structured. There's no other company in the energy industry with our size, with our possibility to reduce costs and generate value, reducing financial costs and at the same time creating value to optimize our tax expenses and also have the possibility to grow. No other company can do that. It's a unique asset at a time. in which our target price is much bigger. The upside is very relevant. It's important to mention that. The team is committed to realize those possibilities and we'll be seeing those results coming in in the near future. Once again, thank you for attending our earnings call. I wish everyone a great day. This concludes Eletrobras earnings call. Thank you for attending. Have a good afternoon.