1 APINE’s view of Energy Policy 2007 – 2010

2 Who is Apine? u Founded on September 26, 1995 u 34 members representing more than 200,000 MW worldwide, 3 times total installed in Brazil u Composed of Independent Power Producers, Contractors, Suppliers, and Law Firms, Engineering Firms u Purpose: Represent its members to public and other institutions concerning electric power in Brazil u Today APINE represents –36,000 MW of the installed generating capacity –Nearly 37% of Brazil’s total capacity

3 Members of APINE

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6 u Attract Investments: Sector must be able to attract investments on a sustainable basis u Environment: Predictable period of time and costs in obtaining environmental permits u Planning of New Supply: Must be able to fulfill its role to attract private investors u Economic Prices: price of electricity should reflect real market conditions Overall View

7 u Efficiency: Efficient consumption and generation should be the goal of operations and planning. u Taxes and Fees: Reduce the burden of taxes and fees to make energy more affordable. u Governance and Management: Government owned companies should have governance compatible with free markets similar to that of private investors. Overall View

8 Requirements of Power Projects Finance Connection & TransmissionContracts Fuel Contract EPCContract Controller & Shareholders Concession EnvironmentalPermits Power Sales Contracts

9 u Institutional Structure (1) –Definition of the responsibilities and areas of action of the various organizations and sectorial agencies –Stronger and more independent regulatory agency –Corporate governance of government owned companies similar to private companies »Opening of capital of Eletrobras subsidiaries or eventual privatization »Prepare to enter New Market »Minority shareholder representation on the Board of Directors »Management contracts »Generation growth via special purpose companies or similar control structures –Transparency: participation of agents in the CNPE, CMSE, and EPE »Establishment of criteria »Access to information and data »Analysis of the results Proposals for a Better Environment

10 u Institutional Structure (2) –Opening of gas market: open access and secondary market –Independence of functions: de-verticalize Generation and Transmission –Integration of Planning: Generation including fuels, Transmission, Environment, Natural Resources, Energy Conservation, and Market –Renovation of concessions: equal treatment –Metering: unrestricted access to information needed by consumers and suppliers Proposals for a Better Environment

11 u Generation Growth (1) –Efficient and with economic rationality –Seek strategic diversification of energy matrix –Define project respecting supply of public and private capital –Correct the lack of equal treatment of onerous concessions (UBP) –Agility in granting permits and breadth well defined –Pass through of unpredictable costs (social-environmental, taxes, fees, laws –Conservation: stimulate substitution of electric water heating, particularly shower heaters –Re-evaluate contract terms (15 years with option to renew) –Eliminate the concept of a structural project Proposals for a Better Environment

12 u Generation Growth (2) –Improve TUST (transmission tariff) methodology –Assure predictability of TUST for current and future generators »Reduce cost to the consumer, allocating the resulting variations via the transmission tariff »Establish a transition period considering existing conditions »Consider impact of integrating isolated systems in the SIN »Consider that the actual 50/50 split of costs between generation and distribution could be altered –Assure that the consumer is served with the most competitive supply taking into account the appropriate transmission costs »Effectively apply impact of location Proposals for a Better Environment

13 u Environment –Plan for long term: evaluation of environmental strategy involving all affected parties –Short and medium term: integrated environmental evaluation (water basin/inventory) involving all parties –Consolidate specific legislation for those impacted, establishing obligations of the developer and the State related to those regions impacted by the enterprise –The Preliminary Permit should contain: »List of individuals impacted »Obligations of the developer in accordance with specific legislation –Define a specific procedure to release the developer from obligations in the case that a Construction Permit is not obtained for a reason not within the competency of the developer –Adequate inspection by the State Proposals for a Better Environment

14 u Power Sector Model –Unify form of contracting with criteria that enables diversification of supply with segmentation of fuel type –Re-analyze segmentation of new and existing supply contracting –Contract existing supply in advance –Stimulate generation supply for the open market and self- generation –Contract energy reserve –Strengthen the open market Proposals for a Better Environment

15 u Taxes –Don’t increase but decrease the tax burden on the Electrical Sector (50%) –Create fiscal incentives for growth of generation –Greater control and transparency in the use of resources collected for Research and Development –Maintain the Electrical Sector at the current level of social security contributions –Impede tax reforms that augment ICMS taxes Proposals for a Better Environment

16 u Stability of Laws and Regulations –Adopt government policies for the Electrical Sector that are consistent, clear, long-lasting, avoiding alterations labeled “New Model” while adjusting to current policy –Do not alter the economic-financial expectation considered by the investor at the time of planning its investment –Respect acquired rights, the act of perfect judgment, and judgment rendered Proposals for a Better Environment

17 u Integration of Energy Matrix in Latin America –Develop and adjust existing regulation for an integrated continental energy policy – with obligations and responsibilities defined in order to optimize energy resources (electricity, gas, coal, water, etc.) –Revision and improvement of a general strategy and basic concepts – energy corredor, exchange protocols, open access, and energy poles –Define gas pricing policy for generation of electricity –Open access for gas transportation and stimulation of secondary market (open market for gas consumer) Proposals for a Better Environment

18 Contacts ASSOCIAÇÃO BRASILEIRA DOS PRODUTORES INDEPENDENTES DE ENERGIA ELÉTRICA – APINE SHS Quadra 6, Ed. Business Center Tower - Brasil XXI, bl C - Sala 212 Brasília – DF CEP: Telefones: (61) / / / Fax: (61)