Cemar needs $ 89 mm investments

Maranhao state power company Cemar needs investment of 400 mm reais ($ 89 mm) over the next three years, according to a report prepared by Brazil's power regulator Aneel and presented to company staff.
The figure includes 200 mm reais of investments to improve the distribution network and another 200 mm reais to meet obligations with creditors, including banks and outsourced companies, according to Fernando Pereira, president of the local utility workers' union Stiu-MA.

Pereira was speaking after attending a presentation by Sindval Zaidan, who is running the company on behalf of Aneel. Aneel intervened in Cemar in August, after the controlling shareholder, US-based PPL Global, failed to reach an agreement with creditors to sell the company.
Cemar filed for bankruptcy and Aneel intervened to take the company over and sell it on. Aneel cannot sell the company because of legal injunctions filed by Stiu-MA and the federal public ministry, which oppose the sale.

A Cemar spokesperson said the company has not been informed of any new decisions and that as far as it is aware, Aneel is working to overturn the injunctions and continue with the sale. Cemar continues to finance its day-to-day operations from cash flow, the spokesperson added.
The federal government does not appear to have made up its mind about Cemar, Stiu-MA's Pereira said. Union members met with Luiz Pinguelli, president of federal power company Eletrobras, in the first week of February, Pereira said.

Pinguelli agreed to conduct a feasibility study of Cemar and would pass it on to the mines and energy ministry, which would ultimately decide the future of the company.
The union hopes to meet with MME minister Dilma Rousseff soon, Pereira said. The union is advocating a federal takeover of Cemar, Pereira said. It does not want to risk the "lottery" of a private partner again, as it has already failed once, he said, and the state governor Jose Reinaldo has ruled out taking over the company because the state government hasn't got the money, he explained.

A decision is needed urgently, as parts of Cemar's distribution network are already failing, with some areas going without power for periods of up to one week, Pereira said. These problems will snowball, affecting ever-larger parts of the grid, if the investments are not forthcoming, he said.
However, the federal government would not have to put all the cash up front, as the Aneel study shows that monthly payments of about 12 mm reais would be enough to meet investment needs and financial commitments, he said. Any deal would also need to extend the maturity of the 800 mm reais owed by Cemar, he added.

Meanwhile, in a written response to a recent article about Cemar, PPL Global operations vice president Paul A. Farr rejected assertions by the union that it had taken on debt without showing any improvements and that PPL had acted irresponsibly.
"When PPL acquired Cemar in June 2000, it inherited debt," Farr said. "Additional debt was incurred in order to make improvements in the electricity delivery system, as required by the Brazilian government in the concession contract. When it was in financial-economic equilibrium, Cemar fulfilled all of the obligations established in the concession contract.”
“The causes for Cemar's later dire financial condition were clearly beyond its control. Among them are drought, rationing, declining levels of electricity usage by customers, failure of the wholesale electricity market, and an inadequate tariff structure. Each of these factors substantially lowered the cash flows and revenues for Cemar.”

"Despite all of these problems, Cemar's management never failed to meet the requirements of the population of the state of Maranhao. In fact, the regulator Aneel recognized the operational and commercial improvements made by Cemar after privatisation in a report dated July 2002.”
"Also, it should be clarified that it was Aneel that determined that PPL should relinquish control of Cemar. After almost one year of unsuccessful negotiations with the government to restore Cemar's financial-economic equilibrium as guaranteed in the concession contract, PPL announced in July of 2002 its interest to sell the company. Since Aneel's intervention in August of 2002, PPL has been cooperating with the agency to find a new owner in the best interest of all parties," Farr said.