Centrais Electricas Brasileiras S.A.- Eletrobras
Annual Report 2007

Plain-text annual report

2007 Annual Report 2007Annual ReportMessage from the President Annual Report 2007 4 4 Message from the PresidentAnnual Report 2007 Eletrobrás finishes 2007 with great and renewed expectations. In another year of work, we reaffirmed our commitment with the country’s development, taking part in the creation of a new institutional model for the Brazilian energy industry, investing in conservation and eco- nomy of resources and in alternative energy sources. With our minds and eyes in the future, we build a present of significant achievements. As a whole, they provide us with the assurance that we are living a single historic moment. Maybe one of the most important one, since the creation of the company, in 1962. As essential investments for the Brazilian economy growth, we emphasize the conclusion of big generation and transmission works and the resume of structuring projects of the local interconnected system and of the isolated system. Itaipu gained an additional 1400 MW po- wer after the installation of the two last machines. Tucuruí plant is today one of the biggest hydroelectric plant in the world in operation, with a total of 8370 MW capacity after the conclusion of the second phase. In Candiota C, after 23 years of interruption, more than R$ 1 billion have been invested. In addition, it was granted authorization to resume the construc- tion of Angra 3 Nuclear Power Plant, suspended for more than 20 years, and new enterprises were created, such as the plants of Santo Antônio and Jirau, in Madeira river, with resources of approximately R$ 20 billion. These are some of the different actions that consolidate the basis of the future energy sector in Brazil. But the future is also made with energy rationalization and conservation and with the development of alternative sources. Accordingly, Eletrobrás played an important role in the federal government programs. The program to Foster Alternative Sources of Electric Po- wer (Proinfa) has implemented 144 enterprises, in a total of 3300 MW and private investments of approximately R$ 10 billion. National Program for Electric Power Conservation (Procel) and the National Program of Efficient Public Lighting (ReLuz) Foster actions aiming at energy conservation and saving. And nearly 10 million Brazilian started to have electricity thanks to the program called Luz para Todos, the biggest program of electric power services provided to rural areas in the world. We believe in a country that grows every day, propelled by currency stability, update and modernization of its industrial facilities, by the good results in the trade balance and by the special attention paid by the government of President Lula to strategic sectors. We believe in the prime role of the energy in this scenario. And we believe, mainly, that it is with knowled- ge, ideas and goals that we may build the future. To improve and strengthen them, Eletrobrás has invested nearly R$ 43 million in training, improvement and expansion of Cepel’s labora- tories and human resources. And it has implemented Unise, a corporate university, betting on the improvement of the individual skills of its professionals and of the company itself. And due to these facts, we hope for the best for the coming year. A certainty that may be reinforced after the approval of Provisional Measure 396, currently being voted by the Federal Senate. After being approved, it will cause changes in important aspects of Eletrobrás by-laws and its operating structure, enabling us to fly higher. Always guided by the energy of our most significant goals. José Antonio Muniz President of Eletrobrás 55 Index Annual Report 2007 1. Introduction .................................................................................................... 8 1.1 Company’s Profile ......................................................................................... 9 1.2 Eletrobrás System .......................................................................................10 1.3 Global Scenario ..........................................................................................11 1.4 Brazilian Scenario .......................................................................................13 1.5 Electricity Market .......................................................................................16 1.6 Evolution of Operating Data of Affiliates .........................................................18 1.7 International Activities ................................................................................19 1.8 Strategic Planning ......................................................................................21 2. Corporate and Financial Analysis ..................................................................... 22 2.1 Economic and Financial Performance ..............................................................23 2.2 Financial Indicators .....................................................................................25 2.3 Capital Structure and Indebtedness ................................................................27 2.4 Stockholders’ Remuneration ..........................................................................28 2.5 Primary Result ............................................................................................29 2.6 Corporate Risk Analysis ................................................................................30 2.7. Past-Due Debt – Renegotiation ...................................................................31 2.8. Compulsory Loan .......................................................................................33 3. Investors Relations and Financial Market ........................................................ 34 3.1. Rating ......................................................................................................35 3.2. Stockholding Basis .....................................................................................37 3.3. Corporate Governance Indicators ..................................................................38 3.4. Analysis of Ibovespa and Eletrobrás Shares ....................................................39 3.5. American Depositary Receipt (Adr) Program ...................................................40 3.6. Latibex (Latin American Stock Market in Madrid Stock Exchnage): ......................41 3.7. Eletrobrás Share Portfolio ............................................................................42 3.8. Funds Generated in the International Market ..................................................44 3.9 Independent Auditors ..................................................................................45 4. Energy Sale ................................................................................................... 46 4.1 Itaipu ......................................................................................................47 4.2 Proinfa .....................................................................................................48 4.3 Frontier Interconnections .............................................................................49 5. Investments .................................................................................................. 50 5.1 Companies and Projects ...............................................................................51 5.2 In Generation .............................................................................................53 5.3 In Transmission ..........................................................................................54 5.4 In Isolated Systems.....................................................................................55 6 IndexAnnual Report 2007 5.5 Expansion of Electric Power Offer of the Eletrobrás System ................................56 5.6 New Enterprises and Partnerships ..................................................................59 5.7 Ordinary Resources .....................................................................................60 5.8 Growth Acceleration Program (PAC) ................................................................61 6. Cepel Research and Development Activities .................................................... 62 7. Technologic And Industrial Development Program (PDTI) ................................ 64 8. Sectorial Funds .............................................................................................. 66 8.1 Global Reversion Reserve (RGR) .....................................................................67 8.2 Energy Development Account – CDE ...............................................................68 8.3 Fuel Consumption Account (CCC) ...................................................................69 8.4 Luz para Todos (Electricity for Everyone) ........................................................70 8.5 ReLuz........................................................................................................71 8.6 Procel .......................................................................................................72 9. Corporate Management ................................................................................... 74 9.1 Corporate Communication ............................................................................75 9.2 Human Resources ........................................................................................77 9.3 Administrative Actions ................................................................................78 9.4 Auditing ..................................................................................................79 9.5 Ombudsman ...............................................................................................80 10. Social Responsibility ..................................................................................... 82 11. Federal Distribution Companies ..................................................................... 84 12. Environment .................................................................................................. 86 13. Social and Environmental Related Information ................................................. 90 Financial Statements 2007 ................................................................................... 94 Attachment ....................................................................................................... 203 Board of Executive Directors ............................................................................... 220 Independent Auditors Report ............................................................................. 222 7 1. Introduction Annual Report 2007 Furnas – Overview of the Plant Mascarenhas de Moraes (Furnas Files) 8 1. IntroductionAnnual Report 2007 1.1 Company’s Profile 1.1 Company’s Profile Centrais Elétricas Brasileiras S/A – Eletrobrás is a public mixed-capital company controlled by the Federal Government, which holds 53.99% of common shares. It is the biggest holding of the energy industry in Latin America, and its shares are negotiated in the São Paulo Stock Exchange (Bovespa), in the Madrid Stock Exchange, in Spain, and in the over the counter market in the USA (American Depositary Receipts – ADR level 1). Eletrobrás’ purpose, since its creation in 1962, has been the conduction of studies, projects, construction, operation of energy producing plants and electricity transmission and distribution lines. The following energy generation, transmission and distribution companies are under Ele- trobrás’ control: Chesf, Furnas, Eletronorte, Eletronuclear, Eletrosul and CGTEE. The holding also controls Light Participações S.A. – Lightpar, in a joint system, Itaipu Binacional, pursuant to the International Treaty signed between Brazil and Paraguay. Also, it operates in energy distribution area by means of federal companies Eletroacre (Acre), Ceal (Alagoas), Ceam (Ama- zonas), Cepisa (Piauí) and Ceron (Rondônia), in addition to the distributors Manaus Energia and Boa Vista Energia S.A., fully subsidiaries of Eletronorte. Eletrobrás system, which comprises the controlled companies, counts with a production installed capacity of 39753 MW* _ 39.6% of the local total amount _, distributed among 30 hydroelectric plants, 15 thermoelectric plants and two nuclear power plant. Transmission lines reach 56789 kilometers, representing 63% of the Brazilian system. Eletrobrás group works in an integrated way, adopting policies and guidelines defined by Eletrobrás Board of Directors, which are operated by the High Council of Eletrobrás (Consise), consisting of the presidents of the holding and of the controlled companies. Research and Development activities consist of the major attributions of the Electric Power Research Center (“Centro de Pesquisas de Energia Elétrica - Cepel”), created 34 years ago, which is the greatest institution of this type in the South hemisphere. Eletrobrás is responsible for managing a portfolio of sectorial resources consisting of the Global Reversion Reserve (RGR), Energy Development Account (CDE), Public Assets Use (UBP) and Isolated System Fuel Consumption Account (CCC-Isol), which finances fossil fuels used in Isolated Systems located, in the great majority, in the Northern region of the country. RGR and CDE resources finance three federal government programs: Luz para Todos – uni- versalization of electricity access; the National Program of Efficient Public Lighting (ReLuz), and National Program for Electric Power Conservation (Procel). Such resources are also appli- cable to the financing of energy generation and transmission works financing. * Itaipu included (7.000 MW) 9 1.2 Eletrobrás System 1.2 Eletrobrás System Annual Report 2007 Operation area and total participation of Eletrobas in the capital of controlled companies – December/2007 Companies Transmission Lines (km) Installed capacity (MW) Eletronorte/Manaus Energia Chesf Eletronuclear Furnas CGTEE Eletrosul Itaipu TOTAL 10,448 18,468 --- 19,278 --- 9,145 --- 57,339 9,782 10,615 2,007 9,782 490 --- 7,000 39,753 10 Annual Report 2007 1.3 Global Scenario 1.3 Global Scenario The expected growth in global economy for 2007 by the United Nations Organization is of 3.4%. The principal economies present moderate expansion rates, mainly in view of the US real estate crisis which affected the financial markets worldwide in the last quarter of the year. The United States grew 2.2% in 2007, against the 3.8% registered in 2006. This was the lowest growth rate in the US economy in the past five years. The US commercial deficit de- creased by 6.2%, compared to the prior year, mainly by virtue of the US dollar devaluate in relation to other principal currencies. Despite the decreased in general deficit, there has been an increase of 10.2% regarding the trade with China, reaching US$ 256.3 billion a year. In Japan, against the analysts’ opinion, the economic growth exceeded the expected one. In 2007, the second biggest economy of the world grew 2.1%, although the estimation was of 1.5%. China, in its turn, obtained in 2007 the most significant economic growth of the past 13 years, and reached the rate of 11.4%. This is the fifth consecutive year in which the Chinese economy presented two-digit growth rate, confirming thus its position as the forth biggest economy of the world, just behind the United States, Japan and Germany. In Europe, preliminary data presented by Eurostat – European Union statistics agency – indicted that the economic activity of the continent increased 2.9%. Also according to the agency, unemployment rate reached 7.1%. By analyzing the principal European countries, we may note that the German economy growth in 2007 was of 2.5%, less than the 2.9% regis- tered in 2006, basically in view of the increase in exports and the expansion of investments. As estimated, the French economy grew 1.9% in 2007, against the 2.2% of the prior year. Spanish economy, on the other hand, grew 3.8%, one tenth less than in 2006. Eletrobrás – Illustration by Alexandre Wilson 11 Petroleum In 2007, the petroleum barrel price increased 57.21% compared to 2006. A performance similar to 2002, when the increase was of 57.26%. The strong demand for petroleum and fuels worldwide (principally in the USA, China and India) and the geopolitical tensions in the principal producing regions were the determining factors for the increase in commodity quo- tations. The price of intermediary petroleum in Texas (WTI, light) amounted to approximately US$ 100, an amount that had no longer been seen since 1983. Latin America GNP expansion in the region is expected by 5.6% in 2007, the same rate reached in 2006, according to the Latin American and Caribbean Economic Committee (Cepal). Argentina, for example, reached 8.6%, the fifth consecutive year with rates in excess of 8%. Also, following the petroleum price rises, Venezuela maintained its expansion rhythm and grew 8.5% against the 10.3% in 2006. According to Cepal report, in 2007, many of the principal characteristics of the current economic phase of the region identified in the past five years were maintained. Among the most important ones are: the surplus in current account (although in lower level), the im- provement in exchange terms, the primary fiscal surplus, the decreasing unemployment, the increase in international reserves and reduction of the external debt. The principal factors that contributed to the economic increase were: the increase in con- sumption and in capital investments. Direct Foreign Investment in Latin America ended the year with a balance of US$ 77 billion, an increase of 69% compared to 2006, with emphasis on Brazil with US$ 34.6 billion, followed by Mexico with US$ 16 billion. Annual Report 2007 12 Annual Report 2007 1.4 Brazilian Scenario 1.4 Brazilian Scenario The Brazilian GDP growth is estimated by 5.4%, according to official sources. The Brazilian industrial GDP increased 6% in 2007, according to IBGE, which is the best result since the 8.3% in 2004. The Trade Balance ended 2007 with a balance of US$ 40,039 billion. The result was 13.8 % less than the one registered in 2006, according to the Ministry of Development, Industry and Foreign Trade which attributed this reduction to the valuation of the local currency compared to US dollar and Euro. In 2007, exports totaled US$ 160,683 billion, registering an increase of 16.6% in relation to the prior year. Imports increased 32%, from US$ 91,351 billion, in 2006, to US$ 120,583 billion, in 2007. Basic products have registered the best exporting performance with US$ 51,59 billion, in 2007, representing an increase of 28.08%; sales of semi-manufactured pro- ducts increased 11.7%, reaching US$ 21,80 billion; and manufactured products, responsible for 52.3% of the total exported by the country in 2007, increased 11.9%, from US$ 75,02 billion, in 2006, to US$ 83,94 billion, in 2007. In the capital and financial account of the payments balance, the item portfolio invest- ments (public securities, shares, etc.) registered an increase of US$ 47,9 billion against the US$ 9,5 billion in 2006. Foreign investments in shares and fixed income securities significan- tly increased of 1.530% compared to the 240% of 2006, reaching, respectively R$ 26,2 billion and R$ 21,7 billion. During 2007, the entry of direct foreign investments amounted to US$ 34,6 billion, which represents an increase of 84,3% in relation to the prior year. According to Central Bank, this result represented a new record, exceeding the previous one, established in 2000, when US$ 32,7 billion in investments entered Brazil. However, in that year there was a significant entry of funds due to privatizations. International reserves increased US$ 94,5 billion, accumulating a record volume of US$ 180,3 billion, in 2007. Eletronuclear – Generator Rotor of the Nuclear Plant Angra 2 (Eletronuclear Files) 13 Annual Report 2007 Monetary policy and inflationary goals The monetary policy adopted by the federal government, through the Brazilian Central Bank (Bacen), had, as a guideline, the inflationary control, using the goals system. For 2007, the goal was established by 4.5% for the official index, the Wide Consumers Prices Index (“Ín- dice de Preços ao Consumidor Amplo – IPCA”), and there may be deviations of 2% for more or less, called upper and lower band, respectively. In view of the price behavior along the year, the Monetary policy Committee (Copom) followed a policy of interest rate reduction in 2007. The inflation measured by IPCA ended 2007 in 4.46%. With a weight of 21.44% in the index, the food and beverages group was the major responsible for the increase of 10.79% in 12 months. Non-food products, with weight of 78.56%, increased 2.83% in the accumulated of the year due to reduced variations in items such as fixed telephony (0.34%), electricity (-6.16%), real estate (1.76%), and other. The General Market Price Index (IGP-M) ended the year with an increase of 7.75% against the 3.14% in 2006. The said index is much sensitive to exchange variations, since 60% of its weigh refer to wholesale products, much more than those referenced in US dollar. Considering the devaluation of the US currency against Real, we may note that the exchange was not a de- termining factor for the noted increase. In a nutshell, (INCC – National Index of Construction Cost) increased 4.6% (civil construction), and its participation of 10% in the formation of the index; the IPC (consumer), which corresponds to 30%, registered an increase of 4.5%; and IPA (wholesale), increased 9.9%, contributing to 60% of the said index. Public Finances The primary surplus fostering policy continued in 2007. The Need of Public Sector Fi- nancing (“Necessidade de Financiamento do Setor Público – NFSP”), in the primary concept, ended 2007 with -3.98% of the GDP, exceeding the goal of -3.8%. The federal government was responsible for the greatest part of the tax effort, 4.11% of the GDP, followed by state gover- nments (0.48%) and public companies (0.48%). Nominal rates decreased from 6.86% of the GDP, in 2006, to 6.25%, in 2007, causing a reduction in nominal NFSP at the rate of 0.73%. The federal public debt increased by 7.8% compared to 2006, reaching R$ 1.334 trillion. Even though, it as below the goal estimated by the National Treasury which, due to the finan- cial crises (subprime) of the second semester, interrupted the launching of new papers. The in- crease of 12% of the DPMFi (internal debt) was responsible for the increase of the total public debt of the federal government, from R$ 1,093.5 trillion, in 2006, to R$ 1,224.9 trillion, in 2007. The external debt ended 2007 in R$ 108,88 billion, with a decrease of 24.1% in relation to 2006 (R$ 143.5 billion). Real valuation and the buyback program, in addition to the fact that the contractual debt and bonds due date exceeded the new emissions and the contracts were responsible for the reduction of this debt portion. 14 Annual Report 2007 The economic-political stabilization of the country has benefited the postponement of the public debt payment. Federal government considered positive the management of the public debt in 2007. In fact, the average maturity of papers was increased from 35 months in 2006, to 39 months in 2007, which contributed to a reduction in refinancing risk. Also, we may note the continuity of the reduction of Exchange indexed securities (12.7% and 8.2% for 2006 and 2007, respectively) and the Selic rate (33.4% in 2006 and 30.7% in 2007). Prefixed securities, jointly with those remunerated by price indexes have consolidated as the principal financing instruments of the federal government, from 51.8%, in 2006, to 59.2%, in 2007. São Paulo Stock Exchange Ibovespa index registered profitability of 43.65% in 2007, closing the year with 63.886 points. Market value of companies with shares listed at Bovespa reached R$ 2,477.6 billion in December 2007, an increase of 60.4% in relation to the prior year. Companies that integrate the Bovespa index portfolio and Brasil index (IbrX-100) are responsible for 71.2% and 75.9%, respectively, of the total capitalization value. Sectors with activities of greater market value in 2007 were: Financial institutions, with R$ 473,7 billion (19.1% of the total); Oil, Gas and Biofuel, with R$ 437,2 billion (17,6%); Mining, with R$ 291,7 billion (11.8%); and Electrici- ty, with R$ 182.0 billion (7.3%). This excellent performance was followed by the exceeding historical maximum values and also by the greatest financial volume in the Stock Exchange history. Foreign capital increase was, once again, the biggest responsible for the index valuation, comprising 34.5% of the total volume, below the 35.5% of 2006. Foreigners’ participation in public share offers was significant, including IPOs (initial public share offers), of 75.8%. Foreign funds flow to the Brazilian stock market amounted to R$ 45.2 billion, resulting in R$ 49.4 billion in acquisitions made by foreigners in public share offers and deficit in direct negotiation at Bovespa, which amounted to R$ 4,2 billion. Bovespa ended 2007 with 64 initial public stock offers, an increase of 146%, which re- presented a generation of R$ 55.5 billion against the R$ 30.4 billion of 2006. The factors res- ponsible for the exception performance of the stock Exchange may be attributed to the high international liquidity, the good performance of the productive sector, controlled inflation, decreasing interest and credit expansion. Another aspect that contributed to the boom of the Brazilian capital market was the increase of 108% in the number of individual investors, from 219.634 accounts in 2006, to 456.557, in 2007. Stock Exchange reached a daily business average of 152.872 – an increase of 74,7% in relation to 2006, while the total negotiated volume increased by 100,3%, rea- ching R$ 1,2 trillion. Accordingly, the daily average raised to R$ 4,9 billion, 101.1% in excess of the R$ 2,4 billion in 2006. 15 1.5 Electricity Market 1.5 Electricity Market Annual Report 2007 Electricity supply market in 2007 totalled 367.278 GWh, representing an increase of 4.9% in relation to the prior year (Table 1). Considering the market evolution per subsystems, it is important to note performance of the Isolated and Northeast subsystem, of which increase rates were of 6.1% and 6.3% respectively. However, in relation to the spatial distribution of electricity consumption, Southeast /Mid-West represented 59.3% of the Brazilian supply market, while Interconnected South, Northeast, North subsystems and Isolated systems amounted to 17.4%, 14.2%, 7% and 2.1%, respectively. By analyzing the market based on consumption class viewpoint, it is possible to identify the characteristics of electricity consumption of each one of the subsystems. While in the North and South the commercial class was the one that presented the highest increase rates (8.1% and 8.4%, respectively), in Isolated Systems and in Northeast, the performance of the industrial class was the most significant one (5.2% and 6.2%, respectively). In Southeast / Mid West, the greatest increase was noted in Commercial and Residential classes (6.1% and 5.2% respectively) (Table 2). Among the aspects that interfered during 2007 in the electricity market behavior in re- sidential consumption class, we may highlight the expansion of credit offer, the decrease in interest rate, stimulating the sales of electrical appliances, the good performance of civil construction and the expressive increase in the quantity of new residential connections, ari- sing from the program Luz para Todos. These aspects consisted of a favorable environment so that the growth of this consumption class could exceed the total market growth. On the other hand, the significant increase in the imported quantum in all use categories, mainly in durable consumption goods (increase of 54.4% in the accumulated January-October 2007, compa- red to the same period in the prior year), limited the increase of the consumption of the Industrial class (domestic demand met by an increasing portion of goods externally manufactured). In relation to Other Classes (a combination of public illumination, rural, public service, pu- blic power and own consumption), it is important to note the increase in rural consumption, mainly in view of the program Luz para Todos in the North and Northeaster and the greater use of irrigation. Supply Market* - Brazil 2003-2007 (GWh) Class 2003 2004 2005 2006 2007 [Table 1] Residential Industrial Commercial Other Classes Total 76,162 78,470 82,650 85,784 90,940 136,221 146,065 149,040 157,423 136,323 47,531 47,073 49,686 46,551 52,939 49,936 55,224 51,796 58,874 54,141 306,987 320,772 334,565 350,227 367,278 *Source: EPE - Captive Consumption + Free Consuption 16 Annual Report 2007 Furnas – Bateias Substation– Preventive Maintenance (Furnas/Clayton Duarte Files) [Table 2] Increase rates – Supply market (*) Consumption and Subsystem Classes 2006/2007 (%) Subsystem Residential Industrial Commercial Other Total Isolated Systems Interconnected North Interconnected Northeast Southeast/Mid West South Brazil 5.6 9.7 7.4 5.2 6.9 6.0 *Source: EPE /Captive Consumption + Free Consumption 5.2 4.0 6.2 2.9 4.6 3.7 6.0 8.1 6.5 6.1 8.4 6.6 7.9 7.6 4.6 5.1 1.8 4.5 6.1 5.3 6.3 4.3 5.2 4.9 17 1.6 Evolution of Operating Data of Affiliates 1.6 Evolution of Operating Data Of Affiliates Annual Report 2007 General information Installed capacity (MW)* Transmission lines (km) Own generation (GWh)** Energy sold (GWh)** Employees* Consolidated –Eletrobrás System 2003 35,398 55,512 207,842 233,615 21,685 2004 36,282 55,869 212,266 218,718 22,332 2005 37,056 56,443 218,955 221,087 23,076 2006 37,941 56,544 241,162 243,105 24,998 2007 39,735 56,789 233,112 239,998 26,177 *It includes 50% of Itaipu and the subsidiaries Eletronorte Manaus and Boa Vista Energia. Cepel – High Voltage Laboratory (Cepel/Milton Maurente Files) 18 Annual Report 2007 1.7 International Activities 1.7 International Activities In line with the policy to consolidate and expand its operations in the international energy sector, Eletrobrás participated, jointly with the Ministry of Foreign Affairs in understandings with entities from Latin America countries, with the purpose of meeting the three technical cooperation projects that should be signed in 2008. Two of them resulted at the request of Instituto Costarriquense de Eletricidade (ICE) and were sent to Furnas and Cepel, in view of the interest areas: maintenance of electric power plants and certification of laboratories, respectively. The third, resulting from a request of the Venezuelan CVG Edelca to Cepel, basically involves cooperation in technical and laboratorial training. In addition, the pursuit of business opportunity prospection of mutual interest in Africa - Angola and Namibia, jointly with Furnas continued. Supporting the Ministry of Mines and Energy, Eletrobrás also took part in negotiations related to inventory survey of area of the Uruguai river, on the frontier of Brazil and Argentina. Such survey is also supported by the International Treaty signed in 1982 between these both countries. With the purpose of fostering regional integration, Eletrobrás holder of the Chairmanship and the management of the Executive Secretariat of the Brazilian Committee of Energy Inte- gration (Bracier) and Regional Committee (Cier), took part in two international meetings held by the Committee, in Uruguay and in Colombia. In 2007, Bracier concluded the project “Diagnosis of energy efficiency situation in South America countries”, which purpose is to carry out a diagnosis of the energy efficiency situa- tion and seeking subsidies so that the 10 member countries of South America may have the opportunity to elaborate local incentive policies for the development of the matter. The re- sults showed many needs, opportunities and great potential in this region, but also concluded that the expertise developed in some countries, by means of their experience and competen- ces, enables the provisioning of solutions to meet energy integration and sustainability in the region. Outside the regional scenario, in 2007 Eletrobrás took part in an agreement to provide international consulting services to Três Gargantas plant, at the request of China Three Gorges Project Corporation – CTGPC to Itaipu. It was also visited by foreign delegations from Costa Rica, China, Equator, France, Russia, Poland, England, Korea, Zimbabwe, El Salvador, India and Nigeria. 19 1.8 Strategic Planning 1.8 Strategic Planning Annual Report 2007 Continuing the work developed in 2006, part of the Work Groups created for the develo- pment of the Action Plans – indispensable for meeting the Strategic Goals – concluded their works, resulting in Resolutions approved by the Board of Directors, as follows: Corporate Strategy No. 2 – Investments/ New Businesses • • • : Establishment of Physical and Financial Goals Agreements of Eletrobrás Action Plan1 with the federal government and with its affiliates and of Business and Social and Envi- ronmental Responsibility Guidelines for the affiliates. : Detailed studies for the elaboration of a proposal of the business types Action Plan2 of Eletrobras’ potential interest. Development of a work process for regular prospection of information in order to enable that the creation of business opportunity may have a proactive nature in the company. Development of institutional and financing modeling for each type of potential business, with the purpose of attracting new investments and new investors. Action Plan3 bras System and with its private partners: o : Proposal of the following guidelines for new partnership model at Eletro- Eletrobrás, jointly with the affiliates, in partner- Eletrobrás, of the participation of affiliates in all partnerships, pro- ’ participation by means of non-redeemable ordinary and preferred shares, Coordination, by viding synergy of the Eletrobras system’s results; Direct corporate participation by ships of the system; Eletrobrás enabling the continuation of the enterprise until the end of concession; Limitation of the participation of Eletrobrás System companies by 49% of the capital stock, in case of partnership, preferably with participation of the holding Eletro- brás; Sedimentation of the category of strategic partner of Eletrobrás system, and not only as an affiliate, which will be selected based on criteria such as risk x return profile and long-term view; Creation of Investment Committees of the affiliates, with representation at brás. o o o o o Eletro- 20 Annual Report 2007 Corporate Strategy No. 4 – Share portfolio • : Implementation of Share Portfolio Management Policy of Eletrobrás, with Action Plan1 its own methodology structuring and adoption of qualitative and quantitative indica- tors. Corporate Strategy No. 10 – Company’s Image : Structuring of an integrated communication policy involving Marketing, Action Plan1 Social Responsibility and Environment. Action Plan2 Action Plan3 : Definition of criteria for granting of sponsorships. : Development of an endomarketing program for Eletrobrás. Eletronuclear – Generator Pool of the Nuclear Plant Angra 2 (Eletronuclear Files) • • • 21 2. Corporate and Financial Analysis Annual Report 2007 Transmission Towers (Eletrobrás Files) 22 2. Corporate and Financial AnalysisAnnual Report 2007 2.1 Economic and Financial Performance 2.1 Economic and Financial Performance Eletrobrás ended 2007 with profit of R$ 1,547,9 million, equivalent to R$ 1.37 per lot of one thousand shares. In 2006, the company registered a profit of R$ 1,161.3 million, equiva- lent to R$ 1.03 per lot of one thousand shares, registering an increase of 33%. The performance of Real compared to other foreign currencies and the fact that Eletrobrás holds a relevant share of its receivables (net of liabilities) – R$ 15,197.0 million (US$ 8,579.6 million) – indexed to external currencies, with emphasis on US dollar, created a loss scenario for the company in 2007, which withheld its evolution. Along the 12 months of 2007, Eletrobrás registered Exchange losses in the amount of R$ 3,001.7 million. In the same period of the prior year, the company presented exchange losses in the amount of R$ 1,599.3 million, arising out of its financing and loans portfolio. In relation to the exchange variations arising out of internal price levels, in 2007, the company presented a gain of R$ 529,2 million, 60% higher than the one noted in 2006, when gains were registered in the amount of R$ 330,6 million. Despite the strong reduction in income, caused by exchange matters, however, the influ- ence of financial income resulting greatly from its financing and loans portfolio, enabled Eletrobrás to register expressive net gain of R$ 3,741.7 million, as a result of its investment program along many years and the low indebtedness level. In 2006, financing and loan port- folio granted generated a net gain of R$ 3.499,4 million. The income generated by the 21 companies in which Eletrobrás holds investments, which were assessed by equity method, positively impacted the company’s revenue of the year, when the company registered gains of R$ 1,883.3 million. This result was influenced by the surplus noted in the Complementary Pension Plan Foundations, sponsored by the companies of Eletro- brás system, in the amount of R$ 1,224.4 million, with emphasis to Fundação Real Grandeza, which, alone, contributed to a surplus of R$ 1,138.0 million. Electricity sale, despite the expressive revenue of approximately R$ 7.555,6 million, cor- responding to the sale of the energy generated by Itaipu Binacional and by the Incentive Program to Alternative Energy Sources (Proinfa), did not represent gains to the company, pursuant to Law No.10.438/02. In relation to the energy of Itaipu, Eletrobrás registered an equivalent to R$ 96 million, resulting from the development of electricity sale activity, in the period from January to De- cember 2007, corresponding to the surplus generated by the activity in the 12 months, to be transferred to consumers in future years, via tariff. The accumulated and recoverable deficit, arising out of electricity sale operations of Itaipu, at December 31, 2007 corresponds to R$ 179,5 million and is not a risk for the company’s investors, in view of the activity modeling established in the applicable law. Proinfa, which grants Eletrobrás the right to sell the energy produced in the following 20 years, generated in 2007 a surplus of R$ 250,4 million, carried out within the limits of the program, without impacting the stockholder’s profitability. Eletrobrás has also sought new businesses in the electricity generation and transmis- sion sectors in order to increment its share in the sector, increasing its resources generation 23 capacity, focusing on the expansion of its profitability and greater remuneration of its sto- ckholders. The company is listed at the Corporate Sustainability Index of Bovespa (ISE), which means that it is recognized in the market by its transparency and good corporate governance practices. Today, it is listed under Bovespa’s Level 1– Corporate Governance Levels. The concept of corporate sustainability is based on the triple bottom line principle, which grants the same weigh to environmental, social and financial indicators. The principle assumes that a project may be prejudiced by a big environmental liability or by labor practices not acceptable worldwide. Due to this reason, big international financial institutions attribute lower risk to companies that present such sustainability practices included in their business strategies. And having the Sustainability Index means that such companies have lower costs with international fund generation, either in the equity market or in the debt one. Big pension funds have great interest in sustainable companies. Accordingly, Eletrobrás has also adhered to the Global Covenant with a strategic position along with the biggest companies of the world, aligned by UNO in relation to Corporate Social Responsibility. Seeking a more sustainable and inclusive global economy, the Covenant esta- blishes 10 universal principles, involving human rights, labor rights, environmental protection and fighting corruption. The Global Covenant is related to big Socially Responsible Investment movements which address the corporate sustainability concept in a worldwide level. Thus, Ele- trobrás has worked seriously to show its investors its social-environmental actions, considered to be politically correct. In addition to such measures, the Company is bound to obtain its registration from Securities and Exchange Commission (SEC), of the United States, to comply with Sarbanes-Oxley Law. 01/01/06 a 31/12/06 01/01/07 a 31/12/07 IGPM index variation US$ variation 3.85% -8.66% 7.75% -17.15% Annual Report 2007 24 Annual Report 2007 2.2 Financial Indicators 2.2 Financial Indicators EBTIDA (R$ BILLION) 8,4 8,0 7,2 6,6 5,3 2003 2004 2005 2006 2007 45,0% 40,0% 35,0% 30,0% 25,0% 20,0% 15,0% 10,0% 2003 2004 2005 2006 2007 Operating margin (%) EBTIDA margin (%) Indebtedness (%) 1,80 1,60 1,40 1,20 1,00 0,80 0,60 25 2003 2004 2005 2006 2007 Current liquidity General liquidity Annual Report 2007 TOTAL REvENuE (RS BILLION) 22,6 23,4 22,5 22,6 27,6 2003 2004 2005 2006 2007 Cepel – Laboratory Tests under Pollution (Cepel/Milton Maurente Files) 26 Annual Report 2007 2.3 Capital Structure and Indebtedness 2.3 Capital Structure and Indebtedness 30.000.000 25.000.000 20.000.000 15.000.000 10.000.000 5.000.000 2003 2004 2005 2006 2007 Financings and loans payable Financings and loans receivable 140.000.000 120.000.000 100.000.000 80.000.000 60.000.000 40.000.000 20.000.000 - 2003 2004 2005 2006 2007 Financings and loans payable Other liabilities Stockholders’ equity 27 2.4 Stockholders’ Remuneration 2.4 Stockholders´Remuneration Annual Report 2007 DIvIDENDS - R$ MILLION 703 323 361 422 459 2003 2004 2005 2006 2007 Stockholders’ remuneration Interest on its own capital 1.800.000 1.600.000 1.400.000 1.200.000 1.000.000 800.000 600.000 400.000 200.000 - 2003 2004 2005 2006 2007 Proposed dividends Withheld dividends 28 Annual Report 2007 2.5 Primary Result 2.5 Primary Result The primary result goal of Eletrobrás system, for 2007, was of R$ 1,380 million, according to Decree No. 5.939, of October 19, 2006. Years 2007 2006 2005 2004 2003 Result Surplus Surplus Surplus Surplus Surplus R$ million 2,789.0 2,137.2 2,864.8 1,650.5 1,211.0 Centro de Operações do Sistema Eletrosul (Cose) (Eletrosul/Anísio Borges Files) 29 2.6 Corporate Risk Analysis 2.6 Corporate Risk Analysis Annual Report 2007 Since the creation of the Risks and Profitability Analysis Division Eletrobras has taken the first steps to adopt practices and tools for a systematic treatment of risks. Accordingly, it aims at meeting the fundamental premises of corporate governance and sustainability, improving the company’s image for different stakeholders and adding value to its operations. During 2007, two big projects started. The first one refers to the hedge program, with derivative instruments to mitigate the exchange risk of Eletrobrás, based on studies extending from May to July and meetings with financial institutions. In the second semester four Execu- tive Committee’ Resolutions and three Board of Director’s Deliberations were approved on the matter, defining the regulatory basis for the structuring of the operations. The beginning of negotiations is estimated for the first quarter of 2008. The program will reduce, substantially, the volatility in the company’s results, making them clearer and aligned with its operating development. The second project was the implementation of corporate risk management, firstly focused on the Financial Directory. The purpose was developing an analysis methodology and qualita- tive measuring, so as to consolidate the risk culture, passing through all decision making pro- cesses in the company. Different strategic areas were mapped, with emphasis on the impact of the activities on the volatility level of the estimated cash flow. The process resulted in the contracting of Ernst & Young consulting, already responsible for the adjustments to Sarbanes-Oxley Law. The consulting work will continue along the first semester of 2008 and will provide the company with a risk integrated management model that will enable it to identify, manage, and monitor the relevant exposures and opportunities with focus on strategic objectives of Eletrobrás. This model will also enable the integration of isolated practices existing in the company, such as the treatment of environmental, equity, operating issue and IT risks. 30 Annual Report 2007 2.7. Past-Due Debt – Renegotiation 2.7. Past–Due Debt – Renegotiation In the year of 2007, the main negotiations were made with affiliated and federal distribution companies with the purpose of solving the past-due debt, issue and, thus enabling the continui- ty of loans and financing receipt, as well as participation in energy auctions and authorized tariff readjustments. It also aimed at reducing the frustrations with Eletrobrás’ revenue and a better estimate of the entry of such receivables, with positive effects on its economic and financial statements, in which R$ 7,398.2 million were negotiated, as demonstrated below: Company Ceal Ceron Ceam Cepisa Manaus Energia Manaus Energia Chesf Chesf Lightpar Itaipu Furnas Eletronuclear Eletronuclear Renegotiated R$ million Conditions 44.0 55.0 37.0 73.2 68.0 61.2 52.8 38.0 15.3 2,965.2 105.3 74.5 156.5 Suspension of the principal from 01.01.2007 to 31.12.2007 of the agreements in force. Suspension of the principal and incorporation of interest from 01.01.2007 to 30.12.2007 of the ECF-1861/99 agreement, with changes in the interest and administration rates. Suspension of the principal and incorporation of the interest in the period from 01.01.2007 to 31.12.2007 of the agreements in force. Suspension of the principal and incorporation of the interest in the period from 01.01.2007 to 31.12.2007 of the agreements in force, except for ECF-2582/06 agreement. Suspension of the principal and incorporation of the interest in the period from 01.02.2007 to 31.12.2007 of the agreements in force, except for ECF-2301/03 and RES-0391/03 agree- ments, which will have interest incorporation, and the ECR-0237/86 agreement. Past due debt payable in installments related to the payment made by Eletrobrás, as guarantor with El Paso. Incorporation of administration fee between 01/01/07 and 30/11/07 and extension of the amortization to other three installments for ECF-1197/95 agreement. Resolution 043/07. Incorporation of administration fee between 01/01/07 and 30/11/07 and extension of the amortization period for additional three installments for the ECF-1197/95 agreement. Resolution 196/07. Liquidation of the past due debt of the RES-734/99 agreement, in cash and by means of accounting. Removal of the US inflation from financing agreements and adjustment of the debt bal- ances between Eletrobrás and the National Treasury. Extension of the grace period of ECF-2614/2007 agreement, transferring the single amortization to 30/01/2008. Suspension of the enforceability of principal from transfer agreement installments with maturity on 21/06/2007, transferring the payment to 21/12/2007. Refinancing of the principal installments of transfer agreements with maturity on 21/12/2007. Liquidation of the past-due amounts of RGR agreement. Transfer of the past-due and due amounts of the agreements to the account called Advances for Future Capital Increase. Refinancing of the past-due amounts of the Res-929/98 agreement. Refinancing of the past-due amounts of the agreements financed with RO and suspension of the payment of the principal from ECF-1714/98 agreement. Eletronorte 3,577.2 CEEE TOTAL 75.0 7,398.2 31 Annual Report 2007 Eletrobrás / Procel - Solar Simulator- PUC/MG (Eletrobrás Files) 32 Annual Report 2007 2.8. Compulsory Loan 2.8. Compulsory Loan In order to meet the requests from the stockholders provided from capitalization of compulsory loan credits, in 2007, Eletrobrás implemented in Banco Bradesco S.A. system, 13.016.222 preferred shares of “B” class. Eletrobrás sent the amount of R$ 15,713,762.78, re- lated to interest of compulsory loan credits restatement, to concessionaires of electric power distribution to be transferred to industrial consumers. CGTEE – Candiota III (CGTEE Files) Cepel - Detail of insulators (Cepel/Milton Maurente Files) 33 3. Investors Relations and Financial Market Annual Report 2007 Eletrobrás – Meeting of the Capital Stock Management Department (Eletrobrás / Jorge Coelho Files) 34 3. Investors Relations and Financial MarketAnnual Report 2007 3.1. Rating 3.1. Rating Risk classification of Eletrobrás’ debt papers is directly related to the risk classification obtained by the country, since the federal government is its majority stockholder. According to the agency Standard & Poor’s, the sovereign rating, in the global level, ended the year with BBB level for businesses in local currency and BB+ for foreign currency, reaching the invest- ment grade for businesses in local currency. In reality, the effect of this classification may be noted in the risk-country (difference between the interest rate paid by the Brazilian and US treasury securities). The highest amount reached occurred in November 26, (252 points), while the lowest, 137, was registered in June 18. The risk-country ended 2007 at 222 points, and the evolution along 2007 is illustrated as follows: EMBI + (2007) s t n i o P 280 260 240 220 200 180 160 140 120 35 Annual Report 2007 Eletrobrás bonds with maturity in 2015 ended the year with a BB+ rating for businesses in foreign currency, according to Standard & Poor’s classification. There has been a reduction in the yield of the debt papers issued by Eletrobrás, at 1.9% along 2007. The highest value recorded occurred in August 23, 7.1%, while the lowest, 5.8%, was noted in April 24. YIELD OF BONDS WITh MATuRITY IN 2015 Jan - Dec 2007 ) % ( 7,30 7,10 6,90 6,70 6,50 6,30 6,10 5,90 5,70 5,50 Night view of Itaipu (Itaipu Binacional Files) 36 Annual Report 2007 3.2. Stockholding Basis 3.2. stockholding Basis Stockholders União BNDESPAR FND FGP Outros TOTAL Nº. of shares at 31/12/2006 261.923.621.935 66.878.975.753 22.810.749.898 20.000.000.000 193.135.858.339 564.749.250.925 *Nº. Of shares at 31/12/2007 523.847.243 133.757.950 45.621.589 40.000.000 386.271.720 1.129.498.502 (*) Shares were grouped at the ratio of 500/1 in August /07. Number of stockholders – bookkeeping system: Type Common stockholders Preferred stockholders TOTAL 31/12/2006 31/12/2007 variation % 3.721 16.384 20.105 3.992 16.444 20.436 7.28 0.36 1.64 Number of non-resident stockholders: Type Common stockholders Preferred stockholders TOTAL Number of resident stockholders: Tipo Common stockholders Preferred stockholders TOTAL 31/12/2006 264 257 521 31/12/2006 3.457 15.235 18.692 31/12/2007 288 283 571 31/12/2007 3.704 16.161 19.865 variation % 9,09 10,11 9,59 variação % 7.14 6.07 6.27 CAPITAL STRuCTuRE – DECEMBER 2007: 37 3.3. Corporate Governance Indicators 3.3. Corporate Governance Indicators Annual Report 2007 Corporate Sustainability Index of Bovespa (ISE): Eletrobrás had its shares listed in the said index in December 2007, being one of those companies that have the best corporate sustainability practices based on the concept Triple Bottom Line. Currently, 43 shares issued by 34 companies of 14 economy sectors are listed at ISE Bovespa. Level 1 of Bovespa’s Corporate Governance: Eletrobrás continues working in order to increase its transparency. In September 29, it had listed on level 1 of Bovespa’s corporate governance. This adhesion is voluntary and the company, its controllers and administrators undertake the commitment to follow the listing regulation standards of Bovespa. The principal objectives are the improvement of information disclosure to the financial market (more trans- parency) and shareholding scattering. American Depositary Receipts (ADRs) Level 2: they are certificates issued by foreign banks that correspond to Brazilian company’s shares, since they may not be sold abroad. ADRs have three different levels of issuance, being level 3 the one that enables the launching of new shares. Currently, ADRs sold by Eletrobrás are under level 1 and are sold in over-the- counter market, that is, are not sold in stock exchange, and, accordingly, it is not possible to generate funds from such papers. The objective is introducing the company to the investor, preparing it for future funding. Eletrobrás has been concluding the adjustment of the financial statements to US-GAAP standard, the adjustments of actuarial part, the legal standards for the elaboration of Form 20-F, as well as the control mapping of Law Sarbanes Oxley Law (SOX), with the purpose of moving to Level 2. Accordingly, its shares will start to be traded in stock exchange, such as, the NYSE (New York Stock Exchange). Eletronuclear – Control Room of the Nuclear Plant Angra 2 (Eletronuclear Files) 38 Annual Report 2007 3.4. Analysis of Ibovespa and Eletrobrás Shares 3.4. Analysis of Ibovespa and Eletrobrás Shares Between December 2006 and December 2007, Ibovespa valuation was of 43.65%, while Common (Elet3) and preferred (Elet6) shares devalued by 6.32% and 4.18%, respectively. ELET 3, ELET6 AND IBOvESPA (DEC 2006 = 100) (2007) x e d n I - r e b m u N 150.00 140.00 130.00 120.00 110.00 100.00 90.00 80.00 Elet 3 Elet 6 Ibovespa 39 3.5. American Depositary Receipt (Adr) Program 3.5. American Depositary Receipt (Adr) Program Annual Report 2007 ADR Level I: Eletrobrás shares sold in New York over-the counter market, both Common (CAIFY) and preferred (CAIGY), were valued by 9.28% and 13.66%, respectively, in 2007. While real valued, compared to US dollar, 17.15%, ordinary shares valued 9.28% and preferred shares, 13.66%. MONThLY PERCENTAGE vARIATION (2007) 20.00% 10.00% 0.00% -10.00% -20.00% jan feb mar apr may jun jul aug sep oct nov dec Dólar GAIGY GAIFY CAIGY —Eletrobrás preferred shares (Lot of 500 shares): The ADRs of Eletrobrás pre- ferred shares presented the highest value on November 6, 2007, closing at US$ 15.30. The minimum value of such shares recorded in the year occurred in March 5, when the quotation reached US$ 9.65. In 2007, such paper closed the year quoted at US$ 12.90, with a valuation of 13.66%, compared to the closing at December 2006, which amounted to US$ 11.35. CAIFY — Eletrobrás Common shares (Lot of 500 shares): In 2007, the ADRs of Eletro- bras Common shares recorded maximum quotation of US$ 15.85, in November 6. The minimum value recorded was of US$ 9.90 in March 5. In 2007, this share ended the year quoted at US$ 12.95, with a valuation of 9.28% in relation to 2006, when it closed the year quoted at US$ 11.85. 40 Annual Report 2007 3.6 Latibex (Latin American Stock Market in Madrid Stock Exchnage): (Latin American Stock Market in Madrid Stock Exchnage): 3.6 Latibex Euro was devalued against the Real, at -7.50%, in 2007. Ordinary shares (Xelto) valued in the same period 1.66%, while preferred shares (Xeltb) valued 8.25%. MONThLY PERCENTAGE vARIATION - 2007 30.00% 20.00% 10.00% 0.00% -10.00% -20.00% jan feb mar apr may Euro jul jun Xelto aug Xeltb sep oct nov dec Xeltb: Preferred shares of Latibex program closed, at the end of 2007, at € 9.05. In 2006, such asset closed at € 8.36, which reflects a valuation of 8.25%. During 2007, the highest quotation was reached in July 2, when it reached € 11.29. The lowest one was noted in August 16, which was € 7.24. Xelto: Such asset, which represents the Common shares of Latibex program, in 2007 was valued by 1.66%, since in 2006, it closed at € 9.06 and in 2007, closed at € 9.21. Along 2007, the highest quotation was reached in June 21 (€ 11.30). The lowest was noted in August 17 (€ 6.50). 41 3.7. Eletrobrás Share Portfolio 3.7. Eletrobrás Share Portfolio Annual Report 2007 Eletrobrás has shares of publicly trade companies of the electric power sector, including companies of generation, transmission and distribution, in the amount of R$ 6,576.1 billion, at December 31, 2007. Of this amount, R$ 4,626.1 billion were offered as guarantee of diffe- rent law suits, great part of them involving claims against compulsory loans and obligations. Company Type CTEEP - PN CTEEP - ON Cesp - ON Cesp - PNA CEB - PNA CEB - PNB AES Tietê - ON AES Tietê - PN Copel - ON Celg - ON Celpe - PNA Celpe - PNB Celpe - ON Celpa - PNA Celpa - PNB Celpa - ON CEEE D - ON CEEE D - PNB CEEE GT - ON CEEE GT - PNB Emae - PN Cemat - ON Cemat - PN Coelce - PNA Coelce - PNB Cemar - PNA Cemar - PNB Cemar - ON CGEEP - PN Celesc - PNB Celesc - ON Total PN ON ON PNA PNA PNB ON PN ON ON PNA PNB ON PNA PNB ON ON PNB ON PNB PN ON PN PNA PNB PNA PNB ON PN PNB ON --- Quotation – R$ 38.70 35.36 35.30 33.01 41.97 39.39 79.00 66.50 29.50 26.20 29.00 29.23 24.59 16.50 14.61 14.89 7.49 16.00 5.70 5.70 12.34 10.00 9.30 21.50 21.69 0.00 0.28 0.15 39.00 42.50 53.78 --- Total value – R$ million 1,800.5 217.8 1.3 220.0 8.2 4.2 3.0 500.5 45.2 0.6 33.0 0.2 0.5 2.0 15.7 307.7 918.9 56.1 699.3 20.0 177.9 21.1 383.2 85.3 33.2 0.0 17.0 810.2 17.2 176.1 0.2 6,576.1 Blocked value – R$ million 1,543.8 130.8 0.0 212.0 8.2 4.2 1.0 474.2 0.0 0.0 23.8 0.0 0.0 1.4 15.7 0.0 799.6 56.1 608.6 20.0 177.9 9.4 383.2 85.3 33.2 0.0 0.0 0.0 10.8 26.9 0.0 4,626.1 42 Annual variation of Eletrobrás portfolio R$ million at 31/12/2006 R$ million at 31.12.2007 4.731,5 6.576.1 % 2006-2007 138,98% ELETROBRáS’ ShARES MARkET vALuE Annual Report 2007 Stock portfolio graph 43 3.8. Funds Generated in the International Market 3.8. Funds Generated in the International Market Annual Report 2007 After the negotiations started in prior years, in April 2007, financing agreements were signed between Eletrobrás and the banks China Development Bank – CDB and BNP Paribas, in the amount of US$ 430 million. The funds were intended to be used at CGTEE, by means of a transfer agreement with Eletrobrás and applied in the construction project of Phase C of the thermoelectric plant Candiota II. The financing started on June 5, 2006, after the signature of the Agreement for Improve- ment of Cooperation in Construction Infrastructure Implementation Area, signed in Beijing, between the Brazilian and Chinese governments, and corroborated by Legislative Decree No. 409. The Financing operation was approved by the Federal Senate, according to the terms of Resolution No. 34, on August 3, 2006, which guaranteed the contract by Eletrobrás of finan- cing with CDB and BNP Paribas banks. The operation was carried out in two parts: Part I, in the amount of US$ 281 million, with maturity of 15 years and Libor interest increased by 0.75% a.a.; and Part II, in the amount of US$ 149 million, with maturity of 8 years and Libor interest increased by 1.30% a.a. Along the year, negotiations were made to obtain loan from the German bank KfW, in the amount of € 37.5 million, to be transferred to Eletrosul. Such funds will be used to build a small power plant complex, named São Bernardo. Government authorizations are still pending for the performance of such operations. The year 2007 was marked by US financial market turbulence and the consequent credit restriction in international financial markets, while capital market was reduced in the number of issuances from emerging countries. In view of this scenario, Eletrobrás carried out no fund generation during 2007. In this year, negotiations were started to obtain the corresponding authorizations to con- duct a fund raising program of US$ 600 million for the next year, with the purpose of financing the projects listed in PAC and also the projects from companies of Eletrobrás system in gained at the auctions. 44 Annual Report 2007 3.9 Independent Auditors 3.9 Independent Auditors In compliance with CVM Instruction No. 381, of January 14, 2003, Eletrobrás informs that it has retained the independent auditors’ services of the firm BDO Trevisan Auditores Inde- pendentes, for a period of three years, counted from August 1, 2005, for the performance of auditing of the holding’s financial statements and consolidated information of the Eletrobrás System. Additionally, the Company has no other service agreement entered with the said com- pany, unless the one related to auditing services. The following table presents a list of the independent auditors of the companies of Eletro- brás System which, individually, also provided independent auditing services during 2007: Companies CGTEE Chesf Eletronorte Eletronuclear Eletrosul Furnas Itaipu Lightpar Firms Deloitte Touche Tohmatsu Boucinhas & Campos + SOTECONTI BDO Trevisan Auditores Independentes HLB Audilink e CIA. Horwath Tufani, Reis & Soares HLB Audilink e CIA. BDO Trevisan Auditores Independentes Russell Bedford Brasil Chesf Transmission Lines (Chesf Files) 45 4. Energy Sale Annual Report 2007 Itaipu – View of the plant spillway (Itaipu Binacional/ Caio Coronel Files) 46 4. Energy SaleAnnual Report 2007 4.1 Itaipu 4.1 Itaipu Law No. 10.438, of April 26, 2002, established that Eletrobrás would be the Energy Sales Agent of Itaipu. In this case, the company, in 2007, transferred to the concessionaires of the South, Southeast and Mid-West regions, 71,711,655 MWh of energy related to the con- tracted power, which corresponded to revenue of approximately US$ 3,3 billion. The energy supplied in excess of the one related to the contracted Power and acquired by Eletrobrás was of 11,040,795 MWh, corresponding to a revenue, with the Electric Power Sale Chamber, in the amount of R$ 210 million. The startup of the generating unit 18A added 700 MW to the plant, increasing its total capacity to 14,000 MW. Itaipu Binacional – Turbine Axis of one of the generator units (Itaipu Binacional/ Caio Coronel Files) 47 4.2 Proinfa 4.2 Proinfa Annual Report 2007 The Program for Incentive to Alternative Energy Sources (Proinfa) has the purpose of in- creasing the participation in electric power produced by enterprises based on Aeolian sources, Small Hydroelectric Power Plant (PCH) and Biomass, in the National Interconnected System (SIN). Accordingly, Proinfa contributes to diversify the country’s energy matrix, by using lo- cal energy resources and the creation of jobs, which enables it to be in line with the federal government’s development programs. As sale agent of energy and manager of Proinfa agreements, Eletrobrás certified, in 2007, the commercial startup of ten enterprises, being one aeolian, six small hydroelectric power plants (PCHs), and three bio-mass plants, adding 231.10 MW of power to the National Electric System. Total Proinfa enterprises operating up to 31/12/2007: Sources Small hydroelectric Power plans (PCH) Aeolian Biomass TOTAL Enterprises in operation Operated Power (MW) 6 1 3 10 136.00 10.20 84.90 231.10 Proinfa Energy Amounts and Costs – 2007 Eletrobrás elaborates, on a timely basis, the Annual Proinfa Plan (PAP), a document that summarizes the energy amounts and costs of the program for each year and, in September, it sends it to Aneel for approval. In September 2007, the amounts related to the period from January to August were computed and informed, as well as the estimates for the subsequent months until the end of the year. The chart below shows the amounts related to 2007 and in- cluded in PAP-2008. The energy amounts and costs expressed in the table refer to the portion of energy contracted from the enterprises. Source Biomass Aeolian Small hydroelectric Power plants (PCH) TOTAL PAP Nº. of enterprises 20 06 Energy (MWh) Annual cost (R$ million) 149,031.0 145,189.3 1,367,780 625,491 23 49 1,209,183 3,202,454 164,225.3 458,445.6 48 Annual Report 2007 4.3 Frontier Interconnections 4.3 Frontier Interconnections Interconnection with uruguay through frequency converting station of Rivera: Eletrobrás, through authorization granted by Aneel Resolution No. 043, of February 1, 2001, holds, on the Brazilian side, the exclusiveness of the right to use the facilities of the Frequency Converting Station for energy import or export. The converting station, which power is of 70 MW, interconnects Rivera, in Uruguay with the substation of Santana do Livra- mento, located in Rio Grande do Sul, in Brazil. During 2007, Eletrobrás, by means of an agreement with the state-owned company Admi- nistración Nacional de Usinas y Transmisiones Eléctricas (UTE), assigned the right to use the converting station facilities through refunding. The sale result of the converting station of Rivera in CCEE, in 2007, was positive in the amount of R$ 6.5 million. Interconnection with Argentina through frequency converting station of uruguaiana: Eletrobrás, by means of Aneel resolution No. 266, of July 13, 2001, was authorized to im- port and export electric power through the Frequency Converting Station of Uruguaiana, with capacity of 50 MW, that interconnects Paso de Los Libres, in Argentina, with the substation Uruguaiana 5, located in the State of Rio Grande do Sul, Brazil. In 2007, meetings involving Eletrobrás were made with the purpose of settling the debt of the Argentinean company Ebisa with Eletrosul and, thus, enabling the resume of interchanging operations through the converting station. Windmills of the plant registered with Proinfa (Eletrobrás/José Roberto Pinto Almeida Files) 49 5. Investments Annual Report 2007 Eletronorte – Hydroelectric View (Eletronorte Files) 50 5. InvestmentsAnnual Report 2007 5.1 Companies and Projects 5.1 Companies and Projects Eletrobrás System budget in 2007 for investments amounted to R$ 3.1 billion in gene- ration, transmission and distribution systems of electric Power, by the affiliates and federal companies of distribution, corresponding to 56.8% of the annual limit approved in the amount of R$ 5.5 billion, established by Law No. 11.625, of December 26, 2007. Accomplished in the year (B) Investment of Eletrobrás system in 2007 (In R$ million) Approved limit Law no. 11.625/07 (A) 130,015.7 1,200,000.0 504,579.2 802,642.9 720,000.0 507,471.7 560,243.2 30.0 20,600.0 8,113.6 822,539.4 307,586.4 524,603.2 572,919.2 298,464,9 142,763.4 4.6 18,043.6 Companies Eletrobrás Furnas Eletronuclear Chesf Eletronorte Eletrosul CGTEE Lightpar Cepel Total affiliated companies Manaus Boa Vista Ceron Eletroacre Ceam Cepisa Ceal Total federal distribution companies Total 4,445,582.7 325,500.0 17,973.2 186,651.5 70,000.0 101,000.0 190,000.0 128,450.0 1,019,574.6 5,465,157.3 Nature of Investments Approved by Law nº. 11.625/07 2,695,038.4 59,530.2 9,895.3 63,387.5 67,112.8 49,902.3 70,418.8 88,993.0 409,239.8 3,104,278.2 Performance Accumulated R$ million 1,284,272,7 1,287,926,1 331,847,3 20,211,3 18,043,6 161,977,2 2,541,598.8 1,872,063.7 582,048.1 104,538.7 20,600.0 344,308.0 5,465,157.3 3,104,278.2 Generation Transmission Distribution Environmental Quality Research Infraestructure Total 51 % (B/A) 6.2 68.5 61.0 65.4 79.6 58.8 25.5 15.3 87.6 60.6 18.3 55.1 34.0 95.9 49.4 37.1 69.3 40.1 56.8 In % 49.0 68.6 58.0 74.2 87.6 47.1 56.8 Some companies presented low results in its investments due to the following factors: holding Eletrobrás: • • • Delays in bidding processes for acquisition of computer, information and teleprocessing assets. Postponed to 2008 the costs with maintenance and adjustment of facilities, fur- niture, vehicles, machinery and equipment. Agreements with affiliates and/or partners were not concluded for feasibility studies, with the purpose of investing in electric power generation enterprises. Lawsuits have prevented the conclusion of the Inventory Studies and Feasibility Projects for Implementation of Generation and Transmission Systems in the Amazon Region. Affiliates and Federal Companies of Distribution: • • • • • • • • • Delay in the signature of the agreement ECV - 205/2006 and in the bidding process for construction and assembly of thermoelectric network (gas pipeline) to supply Indepen- dent Electric Power Producers, in Manaus (AM). Difficulties noted by the company in the bidding process. Problems related to environmental issues. Delays in construction, equipment delivery and service performance. Non-payment to Eletrobrás, preventing the receipt of funds. Luz para Todos, which represents part of the investment bud- In relation to the program get of federalized companies, factors such as: difficult access to certain places due to rainfalls, embargo of certain works by environmental bodies, and difficulties in bidding processes affected the meeting of the schedule. Delay in the installation of work fields for the construction of plans and transmission lines of the affiliates Furnas, Eletrosul and Chesf, caused by environmental licenses. Delay of the construction of Angra 3 to 2008 - Eletronuclear. Delay of the expansion of Candiota III Plant – CGTEE. Annual Report 2007 52 Annual Report 2007 5.2 In Generation 5.2 In Generation In 2007, the companies of Eletrobrás System worked, individually or in partnerships with private companies, to carry out the following enterprises: : Expansion of the plant continued, involving Thermoelectric Power Plant of Santa Cruz a unit of 200 MW in open cycle (Unit 6), with generation date postponed to February 2008. : Works stated in February 2007 continued. hydroelectric Power Plant of Retiro Baixo Commercial startup of the first generating unit is estimated by April 2009. Focus on the interest of 49% held by Furnas Centrais Elétricas S.A. in this enterprise. : Works started in January 2007 continued. hydroelectric Power Plant of Simplício Commercial startup of the first generating unit is estimated by June 2010. Interest of 100% held by Furnas. : Works started in May 2007 continued. Commer- hydroelectric Power Plant of Baguari cial startup of the first generating unit is estimated by September 2009. Focus on the interest of 15% held by Furnas Centrais Elétricas S.A. in this enterprise. : Authorization to resume the construction of the plant, through CNPE uTN Angra 3 resolution no. 003 of June 25, 2007, in order to obtain the Installation License (IL) up to April 2008, with the commercial startup of the generating unit of 1,350 MW in May 2014. : Work started in May 2007. Commercial hydroelectric Power Plant of Serra do Facão startup of the first generating unit is estimated by October 2010. Interest of 49.5% held by Furnas Centrais Elétricas S/A in this enterprise. : Work started in September 2007. Commercial hydroelectric Power Plant of Dardanelos startup of the first generating unit is estimated by December 2010. Interest held by Centrais Elétricas do Norte do Brasil S.A. (Eletronorte), with 24.5%, and by Companhia Hidro Elétrica do São Francisco (Chesf), with 24.5%. hydroelectric Power Plant of Itaipu units (9A and 18A) are operating. : Work started in January 2007. Commer- hydroelectric Power Plant of Foz do Chapecó cial startup of the first generating unit is estimated by August 2010. Interest of 40% held by Furnas Centrais Elétricas S.A. in the enterprise. : Work performed by contracted constructor, to be hydroelectric Power Plant of Mauá started in January 2008. Commercial startup of the first generating unit is estimated by December 2010. Interest of 49% held by Centrais Elétricas do Sul do Brasil S.A. (Eletro- sul) in the enterprise. : Work started in November 2007. hydroelectric Power Plant of Passo de São João Commercial startup of the first generating unit is estimated by December 2009. Eletrosul holds 100% of the interest. Thermoelectric Power Plant of Candiota III (Pres. Médici – Phase C) gress. Commercial startup of the first generating unit is estimated by December 2009. : Expansions of the plant are concluded, and two : Works in pro- • • • • • • • • • • • • 53 5.3 In Transmission 5.3 In Transmission Annual Report 2007 In 2007, 68.8% of the funds invested were sued in transmission (R$ 1,287.8 million), great part of it used in construction and expansion of substations. Among the actions are: • • • • • Expansion of Acre/Rondônia System o Continuity of the works at LTs 230 kV Ji-Paraná/Pimenta Bueno Circuit 1 and Pimenta Bueno/Vilhena; LT 138 kV Rio Branco/Epitaciolândia, LT 69 kV Rio Branco I/Sena Madureira Circuit 1. o Expansion of South Transmission System o Conclusion of new substations Atlântida and Gravataí and expansion of substations Campos Novos and Itajaí; Construction of LT 230 kV Atlântida 2/Osório 2 – CD; Construction of LT 230 kV Biguaçu/Palhoça – CD; Construction of LT 230 kV J. Lacerda A - Blumenau/Biguaçu; Continuity of the construction of LT 230 kV Desterro/Palhoça. o o o o Expansion of Northeast Transmission System o Expansions of substations Cauípe, Cotegipe, Irecê, Piripiri, Barreiras, Santo Antônio de Jesus, Picos and Juazeiro II; Construction of LT 230 kV Milagres/Tauá. o Expansions and improvements in the transmission System of the North and Northeast Regions, focusing on substations Marabá and São Luís. Expansions in the Transmission Systems RJ, ES, SP, MG, GO, MT and DF. It is important to note that the performance of the companies in the implementation of transmission projects was strongly affected by the delay in the granting of licenses by the environmental bodies, which caused a rescheduling of many enterprises to 2008, as follows: LT 230 kV Milagres/Coremas - C2;LT 345 kV Macaé/Campos – C3;LT 345 kV Tijuco Preto/Itapeti;LT 345 kV Itapeti/Northeast; LT 230 kV Ibicoara – Brumado;LT 230 kV Funil – Itapebi;LT 230 kV Picos – Tauá, and LT 230 kV Paraíso - Açu. 54 Annual Report 2007 5.4 In Isolated Systems 5.4 In Isolated Systems Eletrobrás, through the Operating Technical Group of the North Region (GTON), supports the planning, operation and maintenance activities of nearly 300 Isolated Systems. The ac- tions include the follow up of generation of the thermal plan and the fuel consumption, in addition to the operation with affiliated concessionaires with the purpose of investing in improvements in the services provided to the Northern Region. The Companies of Eletrobrás System that operate in the region (Isolated System), invested in 2007, R$ 304.7 million, as demonstrated in the chart below: Projects Generation Transmission Distribution Environmental Quality TOTAL Isolated system (In R$ million) Estimated Accomplished 273.8 297.6 125.3 0.1 696.8 48.6 191.1 65.0 0.0 304.7 Ratio % 9.29 64.23 51.86 0.00 43.73 Eletrobrás – Program Luz para Todos in Santa Cruz / Ceroc (Eletrobrás Files) 55 5.5 Expansion of Electric Power Offer of the Eletrobrás System Annual Report 2007 Expansion studies in the energy sector are fundamental for Eletrobrás’ strategic planning and may be used as a basis for decision making processes regarding investments, for granting of financings or interest holding in generation enterprises. In the Ten-Year Plan of Electric Power Expansion (PDEE) 2007-2016, elaborated by the Em- presa de Pesquisa Energética (EPE), Eletrobrás System played an important role in the studies of big hydroelectric projects, such as Belo Monte, Santo Antônio and Jirau, plants of Rio Teles Pires, among others. As well as in the participation of studies in the nuclear plant Angra 3 and charcoal in the South of the country, which have demonstrated an increasing relevance of those sources of energy and the importance that Eletrobrás System will certainly have in the feasibility of enterprises of such nature. As initial references for the analysis of the expansion of Eletrobrás System, the history of its participation in the country over the past five years and the current installed capacity of the country, per type of generation, are demonstrated as follows: Evolution of Eletrobrás System Participation X Brasil Brazil Installed capacity (MW)* Eletrobrás system Installed capacity (MW)* Installed capacity (% Brazil) Plants in operation ** 2003 83,807 35,398 42.2% 47 2004 90,679 36,282 40.0% 47 2005 92,866 37,056 39.9% 46 2006 96,295 2007 100,352 37,941 39.4% 46 39,735 39.6% 46 *Source: SFG Report of Aneel - 15/01/2008. Note: Eletrobras system’s installed capacity includes 50% of Itaipu plant. 56 5.5 Expansion of Electric PowerOffer of the Eletrobrás SystemAnnual Report 2007 Brasil – Installed capacity /2007 Type Hydroelectric plant - Hydroelectric Power Plant of** Thermoelectric plant - Thermoelectric Power Plant of Small hydroelectric plant - PCH Hydroelectric generating plant - CGH Thermonuclear plant - UTN Aeolian-Electric Generating Plant - EOL Photo-Voltaic Solar Generating Plant - SOL TOTAL Power (MW)* 74,937 21,229 1,820 112 2,007 247 0,02 100,353 *SOURCE: ANEEL – SFG – 15/01/2008/** WITH ITAIPU NACIONAL (7.000 MW) % 74.7 21.2 1.8 0.1 2.0 0.2 0.0 100.0 The medium term reference scenario of PDEE presents a GDP growth rate of 4.2% a year for the period between 2007 and 2016, which results in a growth rate of its own energy po- wer of 5.0% a year of the National Interconnected System. With the purpose of meeting such demand, it is estimated, on the offer side, an expansion of the installed capacity by 69% (13 GW) in thermoelectric and 41% (32 GW) in hydroelectric plants for the same period. The table below shows the planned plants that will benefit from direct investments of the System. It is important to mention that the System expansion also occurs indirectly by means of in- vestments in Specific Purpose Companies, involving 5.514 MW of installed capacity in plants already licensed. 57 Annual Report 2007 Company Eletrosul Furnas CGTEE Eletrobrás System – Plants to be started up * hydroelectric Passo São João Barra do Chapéu ** Itararé ** João Borges ** Pinheiro** São Domingos*** Simplício Batalha** Presidente Médici (Candiota III) Capacity (MW) 77 15 9 19 10 48 334 53 350 Estimated date 09/2009 11/2008 11/2008 12/2008 12/2008 No estimate 09/2009 06/2010 01/2010 * Source: Aneel site on 21/01/2008/** Delayed works. Source: SFG report of Aneel - 15/01/2008/*** Extremely delayed works. Source: SFG report of Aneel - 15/01/2008. The long-term reference scenario of the National Energy Plan (PNE) 2030, elaborated by EPE, indicates a population growth of 53 million people, which means a total of 239 million Brazilians in 2030. Considering this scenario, an average rate for economy growth of 4.1% was adopted. Thus, PNE 2030 assumed favorable premises for the expansion of hydroelectric energy offer, demonstrating a clear position in supporting the government in this type of generation. In strategic terms, this would stimulate the Eletrobrás System participation in the defense of the country’s natural vocation towards hydroelectricity. Furnas – Transmission Line Vitória / Ouro Preto 2 (Furnas / Alexandre Guzanche Files) 58 Annual Report 2007 5.6 New Enterprises and Partnerships 5.6 New Enterprises and Partnerships In 2007, the companies of Eletrobrás system took part in partnerships with private com- panies in the following enterprises: Principal participations in SPCs * Company Enterprises Chesf Eletronorte Eletrosul Furnas Eletronorte Hydroelectric Power Plant of Dardanelos Hydroelectric Power Plant of Dardanelos Hydroelectric Power Plant of Mauá Hydroelectric Power Plant of Santo Antônio** Hydroelectric Power Plant of Peixe Angical*** Hydroelectric Power Plant of Foz do Chapecó Hydroelectric Power Plant of Baguari Hydroelectric Power Plant of Retiro Baixo Hydroelectric Power Plant of Serra do Facão LT Juba/Jauru - 402 km Capacity (MW) 261 --- 361 3.150 Participation % 24.5 24.5 49.0 Estimated date Jan/2011 Jan/2011 Jan/2011 39.0 Jan/2012 452 855 140 82 213 230 kV 40.0 40.0 15.0 49.0 49.0 45.0 --- Aug/2010 Sep/2009 Apr/2009 Oct/2010 --- * Specific Purpose Company (SPC) - Source: Banco de Dados de Geração – BIG of Aneel – 22/01/08/** Source: EPE/*** The only one in operation. 59 5.7 Ordinary Resources 5.7 Ordinary Resources Annual Report 2007 The resources used in 2007 in federal distribution companies, in affiliates and in corporate interests were made as in the chart below, with emphasis on: Those used in Eletronorte: for liquidation of the past-due amounts of RGR agreements, transfer of past-due amounts and due amounts of RO agreements for Advances for Future Ca- pital Increase and refinancing of past-due amounts of Res-929/98 agreement. Those used in Furnas: short-term loans for investments in the implementation of UHEs Simplício and Batalha and modernization of UHEs Furnas, Luiz Carlos Barreto, Mascarenhas de Moraes, Porto Colômbia and Funil. Those used in Eletronuclear: coverage of non-programmed shutdowns of Angra 1 Nuclear Power Plant. Those used in Ceam: long-term loans to cover operating deficit. Investments For future capital increase: Eletronorte Loans/Financings: Federalized companies: Ceam Cepisa Manaus Energia Affiliates: Eletronuclear Eletronorte Eletrosul Furnas Itaipu Corporate interest CEEE-GT TOTAL Economic release * R$ million 1,213,232.7 Financial release R$ million --- Total R$ million 1,213,232.7 --- --- 62,170.0 177,538.6 1,980,178.5 83,730.4 99,802.1 17,609.2 247,458.9 12,000.0 --- --- --- 18,638.1 300,197.9 21,917.0 247,458.9 12,000.0 62,170.0 177,538.6 1,980,178.5 102,368.5 400,000.0 39,526.2 35,832.1 --- 3,670,093.6 600,211.9 35,832.1 4,270,305.5 *Economic release – It is the release without transfer of funds, which occurs through compensation between debits and credits. 60 Annual Report 2007 5.8 Growth Acceleration Program (PAC) 5.8 Growth Acceleration Program (PAC) Financial Release (R$ thousand) Company Eletrobrás Furnas Eletronuclear Chesf Eletronorte Eletrosul CGTEE Boa vista Ceron Eletroacre Cepisa Ceal TOTAL Estimated for 2007 9,450 955,015 50 54,207 570,717 332,610 413,237 5,770 83,205 45,695 110,087 80,064 2,660,107 Accomplished in 2007 173 745,083 0 80,875 746,864 160,751 88,615 710 49,568 53,844 31,630 61,918 2,020,032 Investments in generation: Studies and inventories They refer, mainly to the participation of the companies of Eletrobrás system in studies of in- ventories and feasibility of uses of hydrographic basis for the construction of new generation enter- prises. The following are the principal projects: Hydroelectric Power Plant of Belo Monte (11.181,3 MW); UHE of Jirau (3.300 MW); UHE of Mirador (80 MW); UHE of Maranhão Baixo (125 MW); UHE of Buriti Queimado (320 MW); UHE of Água Limpa (142 MW); UHE of Castelhano (64 MW); UHE of Estreito Parnaíba (56 MW); UHE of Uruçuí (134 MW); UHE of Ribeiro Gonçalves (113 MW); UHE of Cachoeira (63 MW); UHE of Pedra Branca (320 MW); UHE of Riacho Seco (240 MW); UHE of Novo Acordo (160 MW); UHE of Jurema (46 MW); UHE of Cachoeirão (64 MW); UHE of Toricoejo (76 MW); UHE of Torixoréu (408 MW); UHE of Marabá (2.160 MW); UHE of Tabajara (350 MW). Works under concession contracts UHE of Batalha (53,6 MW), UHE of Simplício (305,7 MW), UHE of Passo São João (71,1 MW), UTE of Candiota III – Phase C (350 MW), Angra 3 Nuclear Power Plan (1.350 MW). As a relevant fact in 2007, there was an auction for concession of UHE of Santo Antônio 3.150 MW, on December 10, 2007, of which winner was the consortium Madeira Energia, of which leader was Furnas Centrais Elétricas S.A., with interest of 39%, consisting of the Fundo Amazônia Energia (Banco Banif and Santander with 20%), Odebrecht Investimentos (17,6%), Construtora Andrade Gutierrez (12,4%), Companhia Energética de Minas Gerais – Cemig (10%) and by Construtora Norberto Odebrecht (1%). Works may start in 2008. UHE (Hydroelectric Power Plant) UTE (Thermoelectric Power Plant) 61 6. Cepel Research and Development Activities Annual Report 2007 Cepel - Laboratório de Alta Corrente, in Adrianópolis (Cepel/Milton Maurente Files) 62 6. Cepel Research and Development ActivitiesAnnual Report 2007 The beneficiaries of the activities performed by Centro de Pesquisas de Energia Elétrica (Cepel) are not only in the Eletrobrás system. Among them, there are the Ministries of Mines and Energy, of the Environment and Science and Technology, sectorial entities such as EPE, ONS, CCEE and Aneel, in addition to concessionaires and manufacturers. Cepel has developed studies and research that generate technology for transmission, ena- bling, for example, the increase in capacity, reduction of passage rates and better outline for line installation; equipment monitoring and diagnosis, with the purpose of optimizing invest- ments and safety in operations; conservation and efficient use of energy; and metallurgy and material such as superconductors. It also provides technical support to important government programs and projects, such as Luz para Todos, Proinfa, Procel and ReLuz, cooperating also with the elaboration of Energy Expansion Plans. With a complex of 30 laboratories – 20 of which located in its head Office at Cidade Uni- versitária, in Rio de Janeiro, and ten others, at Cepel Unit located in Adrianópolis, in the mu- nicipality of Nova Iguaçu (RJ) -, Cepel carries out surveys for conduction of research projects, type exams, investigation analysis and compliance for certification. Many of these laboratories are pioneers in Brazil and others do not have similar ones in the South America. In a partnership with Eletrobrás and Procel, the Center has equipped its energy efficiency laboratories, adjusting them to work in the granting of Procel label, in addition to providing technical information for certification of equipment as part of the Brazilian Labeling Program of Inmetro. During the years, the exams and technologic services carried out by Cepel have contributed for the improvement of the quality of electric equipment in the Brazilian industry and the technologic development of the sector, providing more reliability to the transmission and distribution systems and generating savings for electric power consumption. Cepel, in 2007, developed 102 corporate projects of R&D for the companies of Eletrobrás system, such as: Monitoring and Diagnosis of Equipment and Facilities (16); Conservation and Efficient Energy Use (13); Transmission Technology (10); Network Planning; Operation and Analysis (9); Scada/EMS - Sage Technologies (8); Metallurgy and Material (7); Distribu- ted Generation (7); Operation Planning (5); Generation Expansion Planning (4); Environment (4); Stochastic Hydrology and Hydrous Resources (3); Electric Measures and Loss Combat (3); Renewable Energies (3); Computer Techniques and Methodologies (3); Transmission System Expansion Planning (2); Local Automation and Disturbances Analysis (2); Financial Analysis of Projects and Tariffs (1); Reliability (1); Energy Quality (1). Eletrobrás chairs Cepel’s Board of Directors, assuring the necessary strategic guidelines for the Research Center operation. As guarantee for the financing of the Center’s research projects, Eletrobrás and its affiliates (Chesf, Eletronorte, Eletrosul and Furnas), provided, through annual contribution, funds for the budget of the year in the amount of R$ 109,9 million, with actual increase of 3,4%, com- pared to 2006. Other funds, provided from technologic projects and services of the Center con- tributed with other R$ 22,3 million, totalizing R$ 132,2 million, directly invested in 2007. 63 7. Technologic And Industrial Development Program (PDTI) Annual Report 2007 (Eletrobrás Files) 64 7. Technologic And Industrial Development Program (PDTI)Annual Report 2007 Research and Development – R&D Eletrobrás, in addition to the inversions and legal contributions, uses 0.5% of its capital stock, annually, in the Technologic Development Fund (FDT), being great part of it (from 60% to 70%) used in the Centro de Pesquisas de Energia Elétrica (Cepel). Also, its affiliated compa- nies’ contract in the Center the so-called Institutional Projects, basically intended for R&D. From 2000 to 2007, Eletrobrás system invested R$ 1.276,5 million, of which R$ 288,2 million only in 2007, in an estimated amount of R$ 353,5 million for 2008. Additionally, in 2007, R$ 50 million were collected to the Ministry of Science and Technology (MCT) and R$ 19,2 million to the Ministry of Mines and Energy (MME/EPE). Federal distribution companies contracted R$ 25 million in Research and Development in the period 2006-2007. The developed projects and studies with technologic innovation principally aimed at: avoiding electric power waste; reduction of operating costs; increase of reliability and safety of systems and facilities and development of alternative energy sources. Such measures carried out in Eletrobrás system are coordinated by the Research and Develop- ment Corporate Integration Committee (Cicop), related to the High Council of the Eletrobrás system (Consise) and coordinated by the Technology Director of Eletrobrás. National Industry Improvement and Supply and Logistics Policy Programs In the logistics area, in 2007, the principal activities below were developed: • Maintenance of the Material Classification of Eletrobrás system, responsible for stan- dardizing the material descriptions used in generation, transmission and distribution of electric power. Maintenance of Centro de Catalogação do Setor Elétrico (Cecase), responsible for registe- ring material, equipment and services orders of the public sector used in electric power generation, transmission and distribution. Logistic support to the purchase planning policies of Eletrobrás system, with the purpo- se of sectorial programming of the acquisitions of goods and services with suppliers. • • Rules and Quality: The principal activities in the quality area were the development of improvements in the Quality Management System (SGQ), with the purpose of maintaining the certification granted by BRTÜV, certifying entity registered by Inmetro, and the implementation in another area of the company. In relation to the project NBR 19000, on suppliers training, an assessment was made on the failures in the equipment provided to the affiliates, which enabled the develop- ment of quality auditing program in suppliers of bypass keys. In Technical Rules area, specific demands of the sector were met, as well as the elaboration, in the Associação Brasileira de Normas Técnicas (ABNT), by a secretary group of Eletrobrás, of Brazilian Rules for Aeolian Generation Turbines, based on IEC international rules. Also in relation to standardization, activities related to coordination were developed and performed by Eletrobrás, of Subcommittee of the Technical Committee TC 176- Quality, of the International Organization for Standardization (ISO), including the attendance in an international meeting held in Cairo. 65 8. Sectorial Funds Annual Report 2007 Eletrobrás – Program Luz para Todos in Rio Grande do Norte (Eletrobrás Files) 66 8. Sectorial FundsAnnual Report 2007 8.1 Global Reversion Reserve (RGR) 8.1 Global Reversion Reserve (RGR) As manager of the funds generated from RGR, as per the legislation in force, Eletrobrás invested in the financial year of 2007, the amount of R$ 847,5 million. The movement related to the receipt and withdrawals of such funds is represented as follows: Generation and use in 2007: Movement Receipts: Collection of installments Other Withdrawals: Financings Other Region North Northeast Mid-West South Southeast TOTAL Credit lines Program Luz Para Todos Reluz / Conservation Generation Transmission Distribution Modernization of thermal plants TOTAL Financing granted - R$ million 89,838.1 266,074.0 130,025.1 64,004.0 297,521.1 847,462.3 Financing granted R$ million 491,980.1 33,522.0 38,174.0 245,164.1 26,797.1 11,825.0 847,462.3 R$ million 1,845.2 472.1 847.5 47.0 % 10.6 31.4 15.3 7.6 35.1 100.0 % 58.1 4.0 4.5 28.8 3.2 1.4 100.0 67 8.2 Energy Development Account – CDE 8.2 Energy Development Account – CDE Annual Report 2007 To compensate electric power concessionaires for the reduction in the revenue provided from consumer services of Low Income Residential Subclass, an economic subvention was created at first with funds from RGR, and then, in 2004, from CDE. In 2007, the amount of R$ 3,366 million was granted from that source, being R$ 1,030 million for Low Income class, serving 51 electric power distribution concessionaires, and R$ 1,417 million for the program “Luz Para Todos”, as per the movement shown in the table below: Receipts and uses in 2007: Movement Receipts: CDE+uBP+ Aneel Penalties Collection of installments Other uses: Subvention Luz para Todos Subvention – Low Income Other In R$ million 2,537.1 161.1 1,416.8 1,030.3 655.4 Eletrobrás finances and installs Production Community Centers (CCP) for the generation of income in communities served by the program Luz para Todos (Eletrobrás / Jorge Coelho Files) With a budget provided by the Ministry of Mines and Energy (MME) in the amount of R$ 503 million, Eletrobrás transferred the amounts to the generating agents owners of the thermal electric plants that take part in the Energy Development Account (CDE), that use mineral coal from local origin. Eletrobrás – Program Reluz – Lighting of Cruz Vermelha Square – RJ (Eletrobrás/Ivson Alves Files) 68 Annual Report 2007 8.3 Fuel Consumption Account (CCC) 8.3 Fuel Consumption Account (CCC) The Isolated Systems Fuel Consumption Account (CCC-Isol) is a fund managed by Eletrobrás which aims at covering part of the expenses with acquisition of fuel used in electric power generation of thermal electric plants not integrated to the National Interconnected System (SIN). Great part of such plants is located in the Northern region of Brazil. CCC-Isol includes the payments for enterprises with sub-rogation of the Account’s benefits, covering great part of the costs in measures for current or future savings, as the replacement of petroleum by-products with other electric power generation sources. The coverage of costs is made through expenses refunding. The income that supports this coverage is provided from monthly collections made by the electric power distribution and transmission companies in the country. In 2007, the Annual Fuel Plan estimated an annual quota of R$ 2,871 billion to cover ex- penses of R$ 3,352 billion. The difference between the income and expense of R$ 481 million will be covered by a positive balance from the prior year. From said expenses, 96% were used to cover fuels and 4% for transfers to entrepreneurs subject to sub-rogation. The generation indicated by the Operating Technical Group of the North Region (GTON) to be met in 2007 was of 8.736.149 MWh, with consumption of 717 thousand tons of fuel oil, 224 thousand tons of PGE oil, 831 million liters of diesel oil and 537 million liters of light PTE oil. 69 8.4 Luz para Todos (Electricity for Everyone) 8.4 Luz para Todos (Electricity for Everyone) Annual Report 2007 In the period from 2004 to 2007, more than 7 million people were benefited in the Brazi- lian rural areas with electricity, by means of 1,435,935 connections of the program. Of this amount, 397,877 connections were made only in 2007. During the year, R$ 1.91 billion were released, being R$ 1.42 billion originated from the Energy Development Account (CDE) and R$ 0.49 billion from the Global Reserve Account (RGR). The Project Management System of the program Luz para Todos (Electricity for Everyone) registered 76.493 projects in a total of, since 2004, 192,821 proposals registered including: connections in the rural areas of 5,055 Brazilian municipalities; the construction of 246,596km electric networks of high and low tension; implementation of 2,551,329 posts; installation of 389,149 transformers; and installation of 1,943 photo-voltaic systems. In relation to the goals undertaken for 2007, 88.4% of the global goal of 450,000 con- nections was achieved, considering the commitments made by the providers with Eletrobrás and the state governments. Up to December 31, 1,058,874 connections were recorded, corres- ponding to 68.8 % of the total connections contracted between the providers and Eletrobrás. Until the same date, the amount disbursed to those providers was R$ 4.80 billion (funds from the Energy Development Account (CDE) and from the Global Reversion Reserve (RGR), from a total funds contracted of R$ 7.03 billion, that is, 68.2 % of the total contracted funds. The following table presents the amounts of the contracted and released funds up to De- cember 31, 2007, distributed per region. Region North Northeast Mid-West Southeast South Brazil Region Mid-West North Northeast South Southeast Total Accumulated amounts up to 31.12.2007 (R$ million) Contracted funds Released funds CDE 1,056.9 3,022.3 381.3 488.1 262.5 RGR 119.1 521.1 312.2 731.2 140.0 CDE+RGR 1,176.0 3,543.4 693.5 1,219.3 402.5 CDE 795.4 1,953.4 260.3 395.3 161.2 RGR 92.6 354.5 219.1 473.2 93.4 5,211.1 1,823.6 7,034.7 3,565.6 1,232.8 CDE+RGR 888.0 2,307.9 479.4 868.5 254.6 4,798.4 Nº. of contracted connections up to 31.12.2007 between the providers and Eletrobrás 112,442 213,100 824,903 97,552 290,563 1,538,560 70 The Reluz Program benefits cities all over the country (Eletrobrás Files) Annual Report 2007 8.5 ReLuz 8.5 ReLuz The National Program of Efficient Public Illumination – (Reluz) benefited 131 munici- palities in 2007, improving the efficiency of more than 166 thousand public illumination points and caused energy saving of approximately 66.7 thousand MWh/year and a reduction in demand of nearly 15.2 thousand kW. Also, nearly 1,065 new efficient points were installed. The total investment in 2007 amounted to R$ 50.2 million, and Eletrobrás financed R$ 37.6 million, originated from RGR. The allocation of the invested funds and the effective results, per region, as shown as follows: Region Funds – R$ million No. of points Demand reduction (kW) Mid-West --- --- --- North 0.4 425 ---* Northeast 1.0 5,387 644 South --- --- --- Southeast 48.8 162,239 14,594 TOTAL 50.2 168,051 15,238 *Quantity of points related to the implementation of the expansion of efficient public illumination and accordingly, with no demand reduction. 71 Annual Report 2007 8.6 Procel 8.6 Procel The National Program of Electric Energy Conservation (Procel) is a Federal Government program coordinated by the Ministry of Mines and Energy - MME, intended to stimulate the efficient use of electric energy in the country and to avoid its waste. In this program, Eletro- brás plays the role of Executive Secretariat, and is responsible for the planning and execution of the Program’s actions, providing technical and financial support. The benefits generated by Procel may be recorded both for the saved energy and for the investments avoided in the expansion of the sector, which are reversed into benefits to the population. In 2007, Procel, with investments of nearly R$ 52.6 million, including funds from the Global Reversion Reserve (RGR), developed projects that contributed to a energy saving which was preliminarily estimated in the amount of 3 thousand GWh. These results may be compared to the electric energy consumption of nearly 1.7 million of homes in one-year period, repre- senting a postponed investment for the electric sector of nearly R$ 2.35 billion, which may be allocated to priority government programs in other areas. The chart below shows the energy saving estimated in the period from 2001 to 2007. LEGEND: PROCEL – SAvED ENERGY – GWh/YEAR Procel Award contemplates academic papers and practical solutions aimed at energy saving (Eletrobrás / Jorge Coelho Files) 3500 3000 2500 2000 1500 1000 2001 2002 2003 2004 2005 2006 2007 Created in 1993, Procel label for Energy Saving has the purpose of informing consumers, on an annual basis, on more efficient electrical appliances and equipment in their categories. The granting of said label is a joint work performed by Eletrobrás/Procel and the Brazilian Labeling Program (Inmetro/PBE). Among the actions developed for Procel Label in 2007, emphasis is given to its granting to 2,341 models, distributed in 21 categories of equipment and electrical appliances, represen- ting an increase of 49% in relation to 2006. 2007 was also the first year in which Procel Label was granted to TV sets in stand-by, a category that included 38 equipments. 72 Annual Report 2007 Procel operates nationwide through sectorial programs in public building areas, environ- mental sanitation, municipal energy management, industry and buildings. The results from 2003 to 2007 are expressive: 718 big and medium industries are participants; 4,200 trained technicians in industry and 446 in sanitation; 120 water and sewage companies participating; 249 municipalities with implemented energy management; 37 laboratories installed with 210 scholarships distributed, in addition to 25 hospital units operating with more energy effi- ciency. 73 9. Corporate Management Annual Report 2007 Engineer Henrique Mello, one of the beacons of technical excellence in the company, lends his name to the auditorium at the Corporate University of the Eletrobrás System (Unise), opened in 2007. (Eletrobrás / Jorge Coelho Files) 74 9. Corporate ManagementAnnual Report 2007 9.1 Corporate Communication 9.1 Corporate Communication Press and Internal Communication Eletrobrás launched in 2007 the second Image Report in the press. In one-year period, the average readers exposed to the company’s name REACHED 44 million, based on data provided by Instituto Verificador de Circulação (IVC). The index of favorable exposure (ratio between favorable exposure and total exposures measured in centimeters per column) reached the average of 70.94% in 2007. The clipping – follow up of issues disclosed in the press – gathered 15,283 issues that di- rectly mentioned the name of Eletrobrás in 2007. Of this total, 2,828 issues were in the press (newspapers and magazines), 943 issues on news sites, 626 on the radio and 46 on TV. In relation to Internal Communication, press produced and disclosed in 2007 electronic news Notícias da Eletrobrás, Eletrobrás Magazine and Newspaper, in addition to the production and edition of Rádio Eletrobrás programs. Publicity In December 2007, Eletrobrás and Agência 3 signed a publicity service agreement. Ac- cordingly, the first institutional publicity campaign started to be developed, to be disclosed in 2008. The principal objective is disclosing Eletrobrás system and its participation in the country’s development, as well as the importance of energy to people’s lives. Sponsorships According to the Eletrobrás strategic planning objectives, a sponsorship policy was appro- ved by the Directors, considering the opportunity of fostering and disclosing the company’s transparent image. The policy criteria established by Eletrobrás include institutional and ma- rket interests, as a mixed-capital company, with the federal government’s purposes, by empha- sizing the valuation of culture, sports and technical production of the electric power sector. Eletrobrás sponsors projects in the following segments: • • • projects included in the Law for Cultural Incentive by the Ministry of Culture. Culture – – projects that do not depend on tax benefits, provided that Sports and para-sports they are aligned with policies provided by the Ministry of Sports, and in compliance with the technical and administrative criteria and selection defined by the company. projects developed by actions related to the promo- Social-environmental projects – tion and recovery of the threatened environment and species and fostering of sustai- nable development, with the purpose of obtaining improvements in life conditions of individuals and communities. 75 • – projects focusing on Eletrobrás interest areas, provided that they Other segments meet the technical and administrative criteria of evaluation and selection defined by the company. In the cultural area, in 2007, Eletrobrás sponsored Teatro Municipal do Rio de Janeiro for a ballet performance called The Nutcracker, by Tchaikovsky. In sports, the company sponsored the Brazilian male and female basketball teams, in addition to the Project Cuidando do Pre- sente com a Energia Necessária para ter Futuro (Taking care of the present with the necessary energy to have future), which consisted of preparation of Brazilian basketball players, male and female, on wheelchairs to take part in para-Pan-American games Rio 2007. Annual Report 2007 In the cultural area, in 2007, Eletrobrás sponsored the Nutbreaker Ballet, by Tchaikovsky, at Theatro Municipal. (Eletrobrás / Jorge Coelho Files) 76 Annual Report 2007 9.2 Human Resources 9.2 Human Resources Provided from public examinations carried out during 2005, in 2007, Eletrobrás integrated 124 new employees. For other vacancies and to create a reserve list, the company elaborated another public examination for many positions for graduation and high-schooling level. The first employees will be called in 2008, continuing the selective process. In 2007, as in the prior year, the following programs were carried out: Evaluation and Development Programs, Diet Reeducation, Ergonomic, Attention to Smoking, Women’s Health, Heart Health, Medicine, Trip and Energy & Movement, as well as the vaccination of its em- ployees against the flue (521 vaccines), against tetanus (160 vaccines) against hepatitis B (100 vaccines) and against hepatitis C (28 vaccines). Eletrobrás holding, in compliance with the guidelines of the Young Apprentice Program, signed a Technical Cooperation Agreement with the Ministry of Labor and Jobs and Senai, to contract 42 you ng people in compliance with the Young Apprentice Law. Eletrobrás was awarded with the prize “Empresa Parceira do Programa Primeiro Emprego” (Partner Company of the First Job Program) recognizing its actions to meet the demands for job opportunities in the market. Training and Development In 2007, 406 events were held to train the company’s technicians and managers, in addi- tion to participation in its principal business. From a total of 3951 participant employees, 3739 attended short-term training courses (curses, seminaries, congresses, lectures), 212 took part in long-term training courses (MBA, master, doctor degrees), 150 of the Foreign Language Program. The total investments in these training and development programs amounted to R$ 4,648.0 thousand and expense refunding for employees who attended graduation courses amounted to R$ 153.1 thousand. For better integration and improvement of its employees, Eletrobrás invested in 20 technical visits to the electric power sector facilities, last year, resulting in effective participation of 387 employees. To stimulate continuous learning and knowledge retention of the employees, the Corporate University of Eletrobrás System – Unise was expanded, with the implementation of TV Ele- trobrás, Unise Channel and the Auditorium Henrique Mello that enable the development and transmission of educational and informative contents, in addition to disclosing events and achievements of Eletrobrás System. 77 9.3 Administrative Actions 9.3 Administrative Actions Annual Report 2007 Among the principal activities developed in 2007 are: the creation of the Bidding and Agreements Area and of the Physical and Fiscal Receipt Area; development of the Project Escola de Contratações da Eletrobrás (Eletrobrás Contracting School); consolidation of the use of electronic auction for bidding processes; Meeting of Eletrobrás Managers; Workshop on Bidding and Agreements; Partial Outsourcing of the Fleet; and implementation of Automatic management system and Follow-up of Fleet Fuel Supply, with reduction of 51.43% of the ex- penses with fuel and 16.67% in the operating costs of the fleet in Rio de Janeiro, compared to 2006. In 2007, bidding process in the following areas were concluded: 13 contracts by invitation letter, in the amount of R$ 612.4 thousand; 23 auctions, being 10 in person, in a total of R$ 2.7 million and 13 electronic auctions in a total of R$ 1.1 million, in addition to price com- parison bidding process in the amount of R$ 58 thousand. Also, in 2007, it was created Eletrobrás Corporate Website with the modernization and better access facility to the company’s information on the Internet. The Data Center was reorganized with the purpose of increasing the security level of information technology faci- lities. Help-desk was outsourced to improve the quality of users’ service. It also adopted free software platform Linux in Adabas environment to reduce costs. Corporate University of the Eletrobrás System (Unise) promotes partnerships with several areas of the comapny for the qualification of employees. (Eletrobrás / Jorge Coelho Files) 78 Annual Report 2007 9.4 Auditing 9.4 Auditing Among the actions proposed by the Internal Auditing Plan are audits in all corporate administrative segments, management audit of federal distribution companies (Ceal, Cepisa, Eletroacre, Ceron and Ceam), and general audit in Lightpar and general audit in Fundação Eletrobrás de Seguridade Social – Eletros. To meet the requirements under Section 404 of Sabanes-Oxley law, Internal Audit was responsible for mapping and evaluation-identification and mitigation of risks in internal con- trols, in entity level, and of administrative, financial and budget processes of the companies of Eletrobrás System, of which principal focus was the testing of control effectiveness. Internal Audit area was also responsible for coordinating the Permanent Commission of Ethics of Eletrobrás (CEE) and leverage of the procedures with the other internal audits of the companies of Eletrobrás System. (Eletrobrás / Jorge Coelho Files) 79 9.5 Ombudsman 9.5 Ombudsman Annual Report 2007 Ombudsman was created in May 2005, with the purpose of establishing a permanent, agile, and efficient communication channel between high management of Eletrobrás, its employees and the society in general. Many activities were performed in 2007, such as: Internal Semi- nars of Ombudsman Management and Meeting of Ombudsmen of the Companies of Eletrobrás System. There was also the Gender Channel, in a partnership with the Social Responsibility Area, which purpose was receiving confidential comments, suggestions and/or complaints related to matters involving equal rights among sexes, as well as moral and sexual harassments, and a channel to receive complaints and information on possible irregularities on accounting en- tries, among others. In 2007, Ombudsman received 2444 requests, 72% of the demands were solved. The Ombudsman areas of Eletrobrás System are integrated with the purpose of ensuring the best service to internal and external clients of its companies. (Eletrobrás / Jorge Coelho Files) 80 Annual Report 2007 81 10. Social Responsibility Annual Report 2007 Eletrobrás supports projects for the development and improvement of quality of life in Quilombola communities. (Eletrobrás / Jorge Coelho Files) 82 10. Social ResponsibilityAnnual Report 2007 Eletrobrás Corporate Social Responsibility is inserted in the company’s management and is based on a set of values that guide its mission, vision, leadership model, management policies and mainly the Code of Ethics. The company’s responsibilities with its public and communities where it operates are included in RS Guidelines of Eletrobrás. In June 2006, Eletrobrás joined a group of nearly one thousand companies in many coun- tries and affirmed its adhesion to the principles of the Global Covenant. The commitment has the purpose of causing international corporate community leaderships to support the United Nations in fostering fundamental values in the environment, human and labor rights areas. By confirming its commitment with gender and citizenship issues, Eletrobrás was certified by the Pro-Equity of Gender Label (2006/2007), by the Special Secretariat of Women’s Policies (SPM), of the Presidency of the Republic, in view of the practices adopted in establishing equal opportunities between men and women in the company. Among such actions, which are implemented in partnership with different areas of the company and monitored by the Perma- nent Committee for Gender Issues, a significant one was the creation of a Gender Channel, in a partnership with the Ombudsman (PRO), which is a confidential communication channel at the disposal of all employees for comments and/or complaints on issues related to moral and sexual harassment, discrimination of any nature, in addition to inclusion of spouses of the same sex in benefits granted by the company. In relation to the society in general, Eletrobrás social responsibility may be noted in investments, supports and partnerships, with priority given to educational areas and pro- fessional trainings of youngsters and adults; generation of jobs and income and assistance to communities affected by the company’s projects. In 2007, the Social Responsibility De- partment (DAS) developed and applied jointly with the Organization Department (DAO), the Covenant Rule for the Social Responsibility Project (EAE-04), creating and establishing criteria for analysis and selection of projects that may be subject to the company’s sponsorship, which offers transparency in the social investment process. It is important to emphasize that in 2007 the partnership with the Universalization Pro- gram Management Department (DEP) was improved for a joint effort in the program of energy productive use, a complementary Project to the program Luz para Todos (Electricity for Everyo- ne), enabling the creation of new Production Community Centers (CCPs), with the purpose of fostering the economic and social development of the areas serviced by the rural electricity installation program of the federal government. 83 11. Federal Distribution Companies Annual Report 2007 PICTURE: (Light Poles and Transformers) Eletroacre and Boa Vista Energia were considered as the companies with the best performance in the control of losses. (Eletrobrás /Jorge Coelho Files) 84 11. Federal Distribution CompaniesAnnual Report 2007 Results of the Federal Distribution Companies: The companies continue to be monitored by the Corporate Management Follow-up Sys- tem (Siage). In 2007, notwithstanding the efforts made by Ceal, Cepisa, Ceron and Manaus Energia, those companies could not reach the electric power loss levels recognized by Aneel, and the goals established with Eletrobrás. In the case of Ceam, although it presents a des- cending curve of losses of electric power, it failed to reach the goal established by Eletrobrás. Eletroacre and Boa Vista Energia, which could reach the levels recognized by Aneel, are the companies with the best performance in fighting electric power losses. In relation to non-payments, Eletroacre was the only company to meet the goal establi- shed by Eletrobrás for billing x revenue in 2007. Works for the process of corporate restructuring of Companhia Energética do Amazonas (Ceam) and of Manaus Energia S.A., for integration of the electric power distribution activities of the two concessionaires in the State of Amazonas, were performed and are under conclusion. In 2007, Eletrobrás continued with the studies to change the corporate governance model adopted for the federal distribution companies, with the purpose of solving their financial- economic problems, as established by the Law that authorized Eletrobrás’ participation in such companies and that included them in the National Privatization Program (PND). Year Total consumers Consumers per employee Municipalities and places Connections made - Urban Connections made - Rural Technical/commercial losses (MWh) Market/MWh Required energy Acquired energy Energy sold Own generation PIEs generation Operating Plants in operation Substations Distribution grids (km) EBTIDA Ceal Ceam Cepisa Ceron Eletroacre Boa Vista Energia Manaus Energia 2003 2,376,727 4,091 564 264,751 28,171 4,184,498 2004 2,465,889 4,009 568 252,423 30,393 4,536,466 2005 2,574,481 3,893 571 270,821 44,165 4,911,157 2006 2,724,847 3,767 575 272,817 55,055 5,295,800 2007 2,868,792 3,594 579 300,403 50,803 5,890,317 12,920,541 13,049,676 8,734,020 2,390,790 3,027,938 13,750,228 13,995,821 9,151,253 2,284,871 3,513,281 14,812,196 15,012,012 9,885,817 2,634,849 3,655,726 15,677,112 15,829,582 10,363,848 2,583,651 4,071,591 16,868,794 16,907,959 10,976,100 2,459,186 4,818,924 136 225 86,125 15.20 (76.70) (33.30) 0.60 (3.50) (70.40) (58.60) 137 227 88,010 51.53 (71.18) (41.18) 19.97 0.92 (24.06) (48.10) 133 232 92,059 84.81 (67.57) (25.91) 10.18 25.87 (19.57) 73.06 139 235 105,396 42.28 (190.84) 4.40 15.25 18.93 (11.12) (134.05) 144 249 113,562 48.55 (348.77) 22.82 15.07 23.46 (13.75) (408.22) 85 12. Environment Annual Report 2007 Eletronuclear Files 86 12. EnvironemntAnnual Report 2007 The environmental dimension is inserted in corporate and government activities performed by Eletrobrás as support to the decision-making processes. The Environmental Policy of Ele- trobrás System, created in 2006, establishes that the social-environmental issues should be addressed in relation to the electric power enterprise of the companies that integrate them. The fundamental premises of its formulation are based on public policies guidelines related to the environment, hydro resources and social welfare as well as international agreements in which Brazil is a party, such as the Climate Convention, Agenda 21, and Kyoto Protocol, and the holding’s experience as issuer and manager of principles of social-environmental qualifi- cation of its activities. Accordingly, the companies of Eletrobrás System seek continuous internalization of the environmental dimension and its improvement, both in the execution of their own projects and in partnerships or in supporting to third parties. Environmental management actions are related to the company’s activities. In 2007, an important one was the environmental licensing of the Hydroelectric Unit of Belo Monte, the implementation of Proinfa, the management of isolated systems, financing operations of the system companies, generation of external funds and relationship with capital markets. By granting loans to projects, Eletrobrás carries out a previous environmental analysis of the same and follows up their execution in relation to environmental issues. In 2007, it coor- dinated the technical analysis of the environmental management project financed for Itaipu Binacional. The project had the purpose of expanding the environmental management princi- ples adopted in the Brazilian margin to the Paraguayan margin of the reservoir, assuring the compliance with minimum protection standards for well-springs, as required by the Brazilian and Paraguayan laws. In government project and programs management, Eletrobrás is the legal responsible for the environmental licensing of the Hydroelectric Unit of Belo Monte and coordinates the execution of environmental impact studies of the enterprise. In 2007, the revision and com- pletion works of the environmental studies interrupted by judicial decision were resumed. The environmental licensing process of the enterprise before Ibama was resumed and the Referen- ce Term was issued for the elaboration of the Environmental Impact Study. Eletrobrás, as manager of energy purchase and sale agreements signed for Proinfa, also performs, on a permanent nature, environmental monitoring activities of the 144 enterprises of the program, comprising the checking of conformity with the licensing processes and im- plementation of the environmental programs. In relation to the Isolated Systems Operation Program management, it carried out identifi- cation and analysis of the principal environmental issues related to the thermal Power plants and their neighborhood, by means of technical visits. In relation to studies on critical environmental matters, in partnership with universities and research centers, the following projects continued: Strategic Environmental Analysis for Generation Expansion Planning and Incorporation of the Environmental Dimension to the 87 Annual Report 2007 Transmission Planning, under development at Cepel; the Use of Microalgae in the Management of Emissions in Thermal Power Plants and Charcoal Plants under development at FURG. Arran- gements with the Ministry of Science and Technology were made to estimate the contribution of hydroelectric reservoirs for elaboration of the National Inventory of Greenhouse Effects. Also, a project was contracted with Cepel to support a corporate environmental mana- gement system. The Project IGS – Social-environmental indicators for the Corporate Sustai- nability Management of Eletrobrás system has the purposes of establishing a set of social- environmental performance indicators and implementing a database of related information, as a support for the evaluation and communication of improvement in social-environmental performance of the system’s Companies. Additionally, Eletrobrás has developed, jointly with the system’s companies, activities in the environmental area that may enable a coherent action, continuously improved, adjusted to the legislation in force and to the guidelines mutually agreed. Such actions aim at assuring the compliance with the Environmental Policy principles of Eletrobrás System and imple- menting a work agenda involving mutual interest issues, defined in a specific forum of the Environmental area of the companies of the system, the Environment Sub-committee (SCMA), coordinated by Eletrobrás. SCMA is organically related to the Operation, Planning, Engineering and Environment Committee (Copem) which, in its turn, is related to the Higher Committee of Eletrobrás system (Consise). SCMA operates as a technical and institutional space that provides greater interaction among the companies and defines the common guidelines for the treatment of social-environ- mental issues and the performance of procedures related to the necessary inter-institutional relationships. In 2007, SCMA activities included the inspection of the Report on Technical Aspects in the Development of Water-species in Reservoirs, of great importance for the ad- justment of this activity with the electric power generation, and the Inventory of Greenhouse Effects of Eletrobrás System – year base 2005, which will be updated and improved on an annual basis. Also, it maintained the follow up of Bills which are interesting to the sector, to safeguard and guide parliament advisors of the companies and to the MME. SCMA has a docu- ment services at Eletrobrás website and a channel dedicated to the environment demands at the address scma.secretariaexecutiva@eletrobras.com. In the System Sustainability Committee, Eletrobrás has coordinated integrated and syste- matic actions that include the diagnosis of the environmental management of the companies and implementation of improvements with the purpose of meeting its strategic objectives. 88 Annual Report 2007 Furnas – Detail of the planting of native seedlings in the garden at Marimbondo Plant (Furnas Files) Environmental Protection Strip, from Itaipu Reservoir (Itaipu Binacional/Caio Coronel Files) 89 13. Social and Environmental Related Information Annual Report 2007 Eletrobrás Social Responsibility Department team also promotes actions of appreciation of employees, such as the Celebration of the International Women’s Day (Eletrobrás / Jorge Coelho Files) 90 13. Social and Environmental Related InformationAnnual Report 2007 I -huMAN RESOuRCES 1.1 -Remuneration Gross Payroll - Employees - Directors Ratio between the highest and lowest remuneration: - Employees - Directors 1.2 -Benefits Granted Social costs Meals Transportation Private pension plan Health Safety and labor medicine Education / Nursery or Nursery Assistance Culture Professional training and development Profit sharing or results TOTAL 1.3 -Composição do corpo funcional N° of employees by the end of the year N° of hired employees N° of fired employees N°. of trainees at the end of the year N° of handicapped employees at the end of the year N° of outsourced service providers at the end of the year N° of employees per sex - Male - Female N° of employees per age: - Under 18 years old - From 18 to 35 years old - From 36 to 60 years old - Over 60 years old N° of employees per educational background: - Illiterate - Fundamental schooling - High schooling - Technical degree - Graduation degree - Post-graduation degree Percentage of employees in top positions, per sex: - Male - Female hOLDING CONSOLIDATED 2007 2006 2007 2006 86,869 85,232 1,637 41,971 40,283 1,688 2,156,580 2,141,200 15,380 1,829,833 1,814,096 15,737 16,05 1,00 14,07 1,00 - - - - 27,663 7,850 525 10,331 10,988 2,106 684 - 3,729 18,000 81,876 494,939 551,791 24,671 123,268 127,708 5,760 13,839 13,278 562 175,696 175,828 11,933 160.744 184,048 7,351 14,214 14,239 1383 15,471 22,187 487 2,060 3,075 - 49,145 54,464 2,602 17,000 204,502 224,013 71,749 1,370,631 1,253,878 934 25 67 272 4 - 638 296 - 224 678 32 - 22 177 0 402 333 0.76 0.24 975 138 68 258 4 20,351 1,667 415 2,104 368 19,098 1,279 580 2,030 350 - 1,878 2,081 671 304 - 243 703 29 - 26 189 0 440 320 0.76 0.24 16,591 3,760 - 4,573 15,049 729 - 2,334 3,331 6,060 6,347 2,279 15,637 3,461 - 3,846 14,772 480 21 2,269 2,941 6,511 5,216 2,140 - - - - 91 Annual Report 2007 1.4 - Labor contingencies and liabilities Number of labor suits filed against the entity Number of labor suits judged, with favorable decision Number of labor suits judged, with unfavorable deci- sion Total amount indemnities and penalties paid as decided by the judges II - INTERACTION BETWEEN ThE COMPANY AND ThE EXTERNAL ENvIRONMENT 2.1 - Relationship with the Community Total investments with: - Education - Culture - Health and infra-structure - Sports and leisure - Meals - Labor and income generation - Reallocation of families Other Total investments Taxes (less social costs) Financial compensation due to the use of hydrous resources Total - Relationship with the community 2.2 Interaction with Suppliers Social liability criteria used to select its suppliers III - INTERACTION WITh ThE ENvIRONMENT - Investments and costs with maintenance of operating processes to improve the environment; - Investments and costs with preservation and/or recovery of degraded environments; - Investments and costs with environmental education to employees, outsourced personnel, autonomous workers and managers of the entity; - Investments and costs with environmental education to community; - Investments and costs with other environmental projects; - Number of environmental, administrative and law suits filed against the company; - Total penalties and indemnities related to environmental issues, determined administratively and/or by judges; - Environmental liabilities and contingencies Total interaction with the environment hOLDING CONSOLIDATED 2007 2006 2007 2006 341 50 25 531 140 69 2,680 716 3,629 689 395 682 16,314 2,379 43,873 33,820 286 19,752 623 6,695 - 831 413 235 28,832 1,131,336 17,010 2,602 39,000 27,334 34,946 - 10,654 6,769 3,967 - 3,372 738 113,896 - 3,106 - 225,951 37.443 938,054 2,554,314 14,632 63,522 44,222 9,896 3,284 4,009 149,456 3,626 292,647 2,034,421 28,832 - 509,902 512,566 37.443 3,292,831 2,836,970 - - - - - - - - - - - 93,577 81,338 22,429 19,925 141 154 5,235 215,635 3,446 91,335 12 9 337,017 43 190,241 Iv - OThER INFORMATION Net income Operating income 9,439 1,401 7,0286 15,768,577 14,260,322 896,848 1.471 1,961,327 92 Financial Statements 2007 Eletronuclear – View of Central Nuclear Almirante Álvaro Alberto (Eletronuclear Files) Financial Statements 2007Annual Report 2007 95 Index Annual Report 2007 BALANCE SHEETS – ASSETS ................................................................................98 BALANCE SHEETS – LIABILITIES ........................................................................ 100 STATEMENT OF OPERATIONS .............................................................................. 102 STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY ............................................ 104 STATEMENT OF CHANGES IN FINANCIAL POSITION ................................................ 106 STATEMENT OF CASH FLOWS ............................................................................. 108 STATEMENT OF ADDED VALUE ........................................................................... 112 NOTE 1 – OPERATIONS ..................................................................................... 114 NOTE 2 – PUBLIC SERVICE CONCESSIONS ............................................................ 115 NOTE 3 – CORPORATE GOVERNANCE .................................................................... 116 NOTE 4 – RELATIONSHIP WITH INDEPENDENT AUDITORS ........................................ 116 NOTE 5 – PRESENTATION OF THE FINANCIAL STATEMENTS ...................................... 117 NOTE 6 – SUMMARY OF MAIN ACCOUNTING PRACTICES ......................................... 118 NOTE 7 – CONSOLIDATION PROCEDURES ............................................................. 123 NOTE 8 – CASH AND CASH EQUIVALENTS ............................................................. 127 NOTE 9 – CONSUMERS AND RESELLERS OF ELECTRICITY .......................................... 127 NOTE 10 – LOANS AND FINANCING GRANTED ....................................................... 129 NOTE 11 – RETURN ON INVESTMENTS ................................................................ 132 NOTE 12 – RESCHEDULED RECEIVABLES ............................................................... 133 NOTE 13 – MARKETABLE SECURITIES .................................................................. 137 NOTE 14 – TAX CREDITS AND DEFERRED TAX CREDITS ........................................... 140 NOTE 15 – REGULATORY ASSETS ........................................................................ 142 NOTE 16 – STUDIES AND PROJECTS .................................................................... 145 NOTE 17 – NUCLEAR FUEL INVENTORIES .............................................................. 146 NOTE 18 – ADVANCES FOR INCREASE IN PARENT COMPANY’S OWNERSHIP INTEREST .... 147 NOTE 19 – INVESTMENTS ................................................................................. 148 NOTE 20 – PROPERTY, PLANT AND EQUIPMENT ..................................................... 154 NOTE 21 – INTANGIBLE ASSETS ......................................................................... 156 NOTE 22 – LOANS AND FINANCING OBTAINED ...................................................... 156 NOTE 23 – RECEIVABLES INVESTMENT FUND ........................................................ 158 NOTE 24 – TRADE ACCOUNTS PAYABLE ................................................................ 159 NOTE 25 – REGULATORY FEES ............................................................................ 160 NOTE 26 – TAXES AND SOCIAL CONTRIBUTIONS .................................................... 160 NOTE 27 – ADVANCES FROM CONSUMERS ............................................................. 163 NOTE 28 – COMPULSORY LOAN .......................................................................... 165 NOTE 29 – STOCKHOLDERS’ COMPENSATION .......................................................... 166 NOTE 30 – PAYABLES TO THE BRAZILIAN FEDERAL TREASURY .................................. 168 NOTE 31 – COMPLEMENTARY PENSION FUNDS ....................................................... 168 NOTE 32 – CONTINGENT LIABILITIES .................................................................. 173 96 IndexAnnual Report 2007 NOTE 33 – OBLIGATIONS ASSUMED FOR THE RELEASE OF ASSETS ............................. 180 NOTE 34 – STOCKHOLDERS’ EQUITY .................................................................... 182 NOTE 35 – OPERATIONS WITH ELECTRICITY .......................................................... 185 NOTE 36 – DEDUCTIONS TO THE OPERATIONS WITH ELECTRICITY ............................. 185 NOTE 37 – OPERATING REVENUE – OWNERSHIP INTEREST ...................................... 186 NOTE 38 – PERSONNEL, MATERIAL AND SERVICES ................................................. 186 NOTE 39 – ENERGY PURCHASED FOR RESALE ........................................................ 187 NOTE 40 – OPERATING PROVISIONS .................................................................... 187 NOTE 41 – FINANCIAL INCOME (EXPENSES) ......................................................... 188 NOTE 42 – PROFIT SHARING ............................................................................ 188 NOTE 43 – BUSINESS SEGMENTS ........................................................................ 189 NOTE 44 – INSURANCE ..................................................................................... 189 NOTE 45 – AUCTIONS OF ELECTRICITY AND TRANSMISSION LINES ............................ 190 NOTE 46 – FINANCIAL INSTRUMENTS AND RISK MANAGEMENT ................................ 191 NOTE 47 – COMPENSATION OF EMPLOYEES AND MANAGEMENT ................................ 194 NOTE 48 – DISCRETIONARY RESIGNATION PROGRAM .............................................. 194 NOTE 49 – MANAGEMENT OF FEDERAL GOVERNMENTAL FUNDS ................................. 195 NOTE 50 – INFORMATION ON RELEVANT FACT ....................................................... 197 NOTE 51 – SUBSEQUENT EVENTS ....................................................................... 198 Attachment I – CONSUMERS AND RESELLERS ...................................................... 204 Attachment II – LOANS AND FINANCING GRANTED .............................................. 206 Attachment III – INVESTMENT IN CONSOLIDATED COMPANIES .............................. 208 Attachment IV – PROPERTY, PLANT AND EQUIPMENT - 2007 .................................. 210 Attachment IV-A – PROPERTY, PLANT AND EQUIPMENT - 2006 ............................... 212 Attachment V – LOANS AND FINANCING OBTAINED .............................................. 214 Attachment VI – INCOME (LOSS) PER SEGMENT .................................................... 216 Attachment VII – SUMMARIZED FINANCIAL STATEMENTS OF CONTROLLED COMPANIES 218 Attachment VIII – INITIALS USED IN THE FINANCIAL STATEMENTS .......................... 220 Board of Executive Directors ............................................................................ 222 Independent Auditors Report ........................................................................... 224 Decision of Board of Directors .......................................................................... 231 Opinion ........................................................................................................ 233 97 CENTRAIS ELÉTRICAS BRASILEIRAS S.A - ELETROBRáS BALANCE ShEETS FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) ASSETS CURRENT Cash and cash equivalents Consumers and resellers Loans and financing Fuel Consumption Account - CCC Return on investments Securities Rescheduled receivables Deferred tax credits Rights to reimbursement Sundry receivables Storeroom Prepaid expenses Other NONCURRENT LONG-TERM ASSETS Loans and financing Rescheduled receivables Marketable securities Nuclear fuel inventories Studies and projects Consumers and resellers Deferred tax credits Pledges and restricted deposits Fuel Consumption Account - CCC Rights to reimbursement Other Advances for increase in parent company’s ownership interest INVESTMENTS PROPERTY, PLANT AND EQUIPMENT INTANGIBLE ASSETS DEFERRED CHARGES TOTAL ASSETS Note C O M P A N Y C O N S O L I D A T E D 2007 2006 Reclassified 2007 2006 Reclassified 5.585.519 1.349.259 3.034.328 549.467 635.357 - 112.803 1.773.215 179.460 290.840 2.519 21 74.002 2.877.879 1.180.392 5.985.076 860.023 543.731 - 106.935 1.213.421 275.468 2.278 2.427 - 65.632 8.094.907 3.622.343 1.506.511 541.087 152.468 - 526.275 2.443.072 179.460 427.358 603.177 66.728 446.573 5.459.139 3.994.924 1.414.788 833.555 174.455 - 352.158 1.842.337 275.468 128.224 519.816 46.299 374.279 13.586.790 13.113.262 18.609.959 15.415.442 33.488.103 203.959 1.491.900 31.334.465 3.022.767 1.411.661 292.579 292.330 - - 1.351.862 177.336 500.512 590.025 66.426 - - - 790.359 140.034 474.052 46.527 13.405.369 1.920.766 1.495.242 657.188 312.122 26.178 397.113 500.512 590.025 287.840 13.052.790 4.735.269 1.414.136 594.169 308.011 589.223 367.179 474.052 - 376.636 2.515.443 1.959.457 38.162.702 37.512.195 22.107.798 23.870.922 18 1.824.255 700.085 4.027 80.383 39.986.957 38.212.280 22.111.825 23.951.305 43.062.138 42.304.993 28.807 55.558 5.891 30.822 57.410 1.242 43.152.394 96.726.141 42.394.467 93.720.009 5.183.898 74.157.189 469.810 45.995 79.856.892 120.578.676 4.565.745 77.695.285 412.538 45.136 82.718.704 122.085.451 8 9 10 11 12 14 10 12 13 17 16 14 19 20 21 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements Annual Report 2007 Note C O M P A N Y C O N S O L I D A T E D 2007 2006 Reclassified 2007 2006 Reclassified 8 9 10 11 12 14 10 12 13 17 16 14 5.585.519 1.349.259 3.034.328 549.467 635.357 - 112.803 1.773.215 179.460 290.840 2.519 21 74.002 13.586.790 33.488.103 203.959 1.491.900 - 292.579 - 1.351.862 177.336 500.512 590.025 66.426 38.162.702 2.877.879 1.180.392 5.985.076 860.023 543.731 - 106.935 1.213.421 275.468 2.278 2.427 - 65.632 13.113.262 31.334.465 3.022.767 1.411.661 - 292.330 - 790.359 140.034 474.052 - 46.527 37.512.195 8.094.907 3.622.343 1.506.511 541.087 152.468 - 526.275 2.443.072 179.460 427.358 603.177 66.728 446.573 18.609.959 13.405.369 1.920.766 1.495.242 657.188 312.122 26.178 2.515.443 397.113 500.512 590.025 287.840 22.107.798 5.459.139 3.994.924 1.414.788 833.555 174.455 - 352.158 1.842.337 275.468 128.224 519.816 46.299 374.279 15.415.442 13.052.790 4.735.269 1.414.136 594.169 308.011 589.223 1.959.457 367.179 474.052 - 376.636 23.870.922 18 1.824.255 700.085 4.027 80.383 39.986.957 38.212.280 22.111.825 23.951.305 19 20 21 43.062.138 28.807 55.558 5.891 43.152.394 96.726.141 42.304.993 30.822 57.410 1.242 42.394.467 93.720.009 5.183.898 74.157.189 469.810 45.995 79.856.892 120.578.676 4.565.745 77.695.285 412.538 45.136 82.718.704 122.085.451 ASSETS CURRENT Cash and cash equivalents Consumers and resellers Loans and financing Fuel Consumption Account - CCC Return on investments Securities Rescheduled receivables Deferred tax credits Rights to reimbursement Sundry receivables Storeroom Prepaid expenses Other NONCURRENT LONG-TERM ASSETS Loans and financing Rescheduled receivables Marketable securities Nuclear fuel inventories Studies and projects Consumers and resellers Deferred tax credits Pledges and restricted deposits Fuel Consumption Account - CCC Rights to reimbursement Other Advances for increase in parent company’s ownership interest INVESTMENTS PROPERTY, PLANT AND EQUIPMENT INTANGIBLE ASSETS DEFERRED CHARGES TOTAL ASSETS The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements 99 CENTRAIS ELÉTRICAS BRASILEIRAS S.A - ELETROBRáS BALANCE ShEETS FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) LIABILITIES AND STOCkhOLDERS’ EQuITY 2007 Note # 2006 Reclassified 2007 2006 Reclassified C O M P A N Y C O N S O L I D A T E D CURRENT Loans and financing Compulsory loan Trade accounts payable Advances from consumers Taxes and social contributions Fuel Consumption Account - CCC Stockholders’ compensation Payables to the Brazilian Federal Treasury Estimated obligations Reimbursement obligations Complementary pension plans Provisions for contingencies Research and development Fees as per regulations Other NONCURRENT Loans and financing Payables to the Brazilian Federal Treasury Trade accounts payable Global Reversion Reserve Quota - RGR Compulsory loan Taxes and social contributions Obligations assumed for the release of assets Advances from consumers Fuel Consumption Account - CCC Provisions for contingencies Complementary pension plans Reimbursement liabilities Other STOCKHOLDERS’ EQUITY Capital stock Capital reserves Revaluation surplus Revenue reserves Advances for future capital increase TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 22 28 24 27 26 29 30 31 32 25 22 30 28 26 33 27 32 31 34 139.430 96.709 1.269.365 202.250 1.092.560 515.418 881.002 58.150 78.274 444.225 169.968 111.106 1.159.921 102.387 918.483 836.878 566.043 51.123 7.282 193.811 1.576.872 726.989 2.007.461 459.808 6.769.011 202.375 6.171.300 23.870 647.844 500.512 1.214.528 474.052 1.298.389 - - - - - - - - - 0 - - - - - - - - - 1.429.199 96.709 2.291.929 237.441 1.823.838 515.418 902.915 58.150 426.267 444.225 183.512 1.029.109 343.010 514.897 706.088 726.989 - 6.769.011 202.375 1.625.530 451.017 1.056.761 1.143.258 2.042.787 798.623 875.777 0 553.669 1.990.178 111.106 1.976.903 134.909 1.448.655 836.878 590.756 51.123 294.877 193.810 338.355 893.299 287.460 591.290 455.724 459.808 268.332 6.171.300 23.870 2.150.748 356.604 942.330 1.036.531 2.147.921 1.992.061 342.996 - 97.372 33.648 4.811.031 273.208 4.390.210 11.002.707 10.195.323 12.981.322 17.819.926 85.810 68.291 11.951.874 11.494.011 29.227.119 33.809.799 24.235.829 25.907.304 208.109 25.800.369 76.151.611 3.811.625 79.963.236 96.726.141 24.235.829 25.907.304 230.538 24.054.259 74.427.930 3.407.858 77.835.788 93.720.009 24.235.829 25.907.304 208.109 25.800.369 76.151.611 3.811.625 79.963.236 24.235.829 25.907.304 230.538 24.054.259 74.427.930 3.407.858 77.835.788 120.578.676 122.085.451 Provision for stockholders’ deficit in investees 875.777 342.996 INTEREST OF NON-CONTROLLING STOCKHOLDERS - - 385.614 244.541 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. Annual Report 2007 C O M P A N Y C O N S O L I D A T E D LIABILITIES AND STOCkhOLDERS’ EQuITY 2007 Note # 2006 Reclassified 2007 2006 Reclassified CURRENT Loans and financing Compulsory loan Trade accounts payable Advances from consumers Taxes and social contributions Fuel Consumption Account - CCC Stockholders’ compensation Payables to the Brazilian Federal Treasury Estimated obligations Reimbursement obligations Complementary pension plans Provisions for contingencies Research and development Fees as per regulations Other NONCURRENT Loans and financing Payables to the Brazilian Federal Treasury Trade accounts payable Global Reversion Reserve Quota - RGR Compulsory loan Taxes and social contributions Obligations assumed for the release of assets Advances from consumers Fuel Consumption Account - CCC Provisions for contingencies Complementary pension plans Provision for stockholders’ deficit in investees Reimbursement liabilities Other INTEREST OF NON-CONTROLLING STOCKHOLDERS STOCKHOLDERS’ EQUITY Capital stock Capital reserves Revaluation surplus Revenue reserves Advances for future capital increase TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY 22 28 24 27 26 29 30 31 32 25 22 30 28 26 33 27 32 31 34 139.430 96.709 1.269.365 202.250 1.092.560 515.418 881.002 58.150 78.274 444.225 - - - - 33.648 4.811.031 1.576.872 726.989 - 6.769.011 202.375 - - - 500.512 1.214.528 - 875.777 0 85.810 11.951.874 169.968 111.106 1.159.921 102.387 918.483 836.878 566.043 51.123 7.282 193.811 - - - - 273.208 4.390.210 2.007.461 459.808 - 6.171.300 23.870 647.844 - - 474.052 1.298.389 - 342.996 - 68.291 11.494.011 1.429.199 96.709 2.291.929 237.441 1.823.838 515.418 902.915 58.150 426.267 444.225 183.512 1.029.109 343.010 514.897 706.088 11.002.707 12.981.322 726.989 - 6.769.011 202.375 1.625.530 451.017 1.056.761 1.143.258 2.042.787 798.623 875.777 0 553.669 29.227.119 1.990.178 111.106 1.976.903 134.909 1.448.655 836.878 590.756 51.123 294.877 193.810 338.355 893.299 287.460 591.290 455.724 10.195.323 17.819.926 459.808 268.332 6.171.300 23.870 2.150.748 356.604 942.330 1.036.531 2.147.921 1.992.061 342.996 - 97.372 33.809.799 - - 385.614 244.541 24.235.829 25.907.304 208.109 25.800.369 76.151.611 3.811.625 79.963.236 96.726.141 24.235.829 25.907.304 230.538 24.054.259 74.427.930 3.407.858 77.835.788 93.720.009 24.235.829 25.907.304 208.109 25.800.369 76.151.611 3.811.625 79.963.236 120.578.676 24.235.829 25.907.304 230.538 24.054.259 74.427.930 3.407.858 77.835.788 122.085.451 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. 101 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS STATEMENT OF OPERATIONS FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) OPERATING REvENuES Electricity sale and transmission Electric power Grant-in-Aid Interest on bills paid in arrears on electric power (-) Sectorial charges (-) State VAT (ICMS) Ownership interests Gains on reduction in liabilities Other revenues OPERATING EXPENSES Personnel, material and services Energy purchased for resale Fuel for electricity production PASEP and COFINS (taxes on sales) Electricity network use Financial compensation of water resources Depreciation and amortization Operating provisions Losses with assets ITAIPU’s income (loss) to be offset Donations and contributions Other COMPANY Note 2007 2006 Reclassified 35 36 36 37 15 38 39 40 15 7.555.634 - - - - 1.883.289 - - 9.438.923 318.370 7.152.195 - 86.947 - - 7.016 586.483 - - - 126.400 356.336 8.633.747 6.297.277 - - - - 988.561 - - 7.285.838 287.024 6.256.845 - 62.925 - - 5.947 114.934 - - - 140.743 182.588 7.051.006 OPERATING INCOME (LOSS) BEFORE FINANCIAL INCOME (EXPENSES) 805.176 234.832 548.079 2.712.786 1.497.734 3.260.865 4.571.928 FINANCIAL INCOME (EXPENSES) OPERATING INCOME NON-OPERATING INCOME (LOSS) INCOME (LOSS) BEFORE INCOME AND SOCIAL CONTRIBUTION TAXES, EMPLOYEES’ AND MANAGEMENT PROFIT SHARING AND MINORITY INTEREST Income tax Social contribution tax on net income INCOME (LOSS) BEFORE OWNERSHIP INTERESTS Profit sharing Minority interest NET INCOME (LOSS) FOR THE YEAR / PERIOD EARNINGS (LOSS) PER SHARE, NET The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. 41 595.844 1.235.774 1.744.426 (2.671.095) (1.058.606) (926.669) (2.706.039) 1.401.020 1.470.606 - - 1.401.020 1.470.606 146.976 17.861 (210.603) (81.685) 1.565.857 1.178.318 42 (18.000) - (17.000) - 1.547.857 1.161.318 R$1,37 R$1,03 CONSOLIDATED Quarters 4Q07 to 3Q07 4Q06 2007 6.610.382 17.096.219 5.700.192 23.706.601 21.011.354 - - (312.134) (128.645) 303.717 300.136 27.209 6.800.665 1.277.465 1.805.545 160.106 314.007 222.352 655.476 481.346 (84.273) - 599.822 319.968 55.501 445.271 0 - - (802.342) (310.065) 449.575 74.434 16.507.821 3.077.802 4.320.087 320.428 611.307 729.247 439.758 1.552.570 1.364.949 - 374.120 143.489 861.278 6.252.586 13.795.035 - - - (252.750) 85.599 (41.196) 431.621 5.923.466 1.170.609 1.479.321 41.921 348.301 146.924 323.626 507.644 (73.345) - 102.288 45.115 333.328 4.425.732 2006 Reclassified - - - (1.292.529) (465.555) 361.667 431.621 20.046.558 3.977.700 4.895.225 442.724 750.756 891.337 1.152.447 2.006.805 957.613 - (390.916) 196.904 594.035 15.474.630 - - (1.114.476) (438.710) 753.292 300.136 101.643 23.308.486 4.355.267 6.125.632 480.534 925.314 951.599 1.095.234 2.033.916 1.280.676 599.822 694.088 198.990 1.306.549 20.047.621 2.292.505 41.691 439.128 2.334.196 1.865.889 (18.032) (18.847) 5.819 (36.879) (17.964) 2.274.473 22.844 444.947 2.297.317 1.847.925 (354.303) (116.972) (59.006) (55.020) 8.473 7.032 (413.309) (171.992) (411.620) (151.373) 1.803.198 (91.182) 460.452 1.712.016 1.284.932 (159.926) (4.098) - (135) (138.469) 13.869 (159.926) (4.233) (138.468) 14.854 1.639.174 (91.317) 335.852 1.547.857 1.161.318 R$1,45 (R$0,08) R$0,30 R$1,37 R$1,03 Annual Report 2007 CONSOLIDATED Quarters 4Q07 to 3Q07 4Q06 2007 6.610.382 - - (312.134) (128.645) 303.717 300.136 27.209 6.800.665 1.277.465 1.805.545 160.106 314.007 222.352 655.476 481.346 (84.273) - 599.822 319.968 55.501 445.271 6.252.586 17.096.219 0 - (802.342) (310.065) 449.575 - 74.434 16.507.821 3.077.802 4.320.087 320.428 611.307 729.247 439.758 1.552.570 1.364.949 - 374.120 143.489 861.278 13.795.035 5.700.192 - - (252.750) 85.599 (41.196) - 431.621 5.923.466 1.170.609 1.479.321 41.921 348.301 146.924 323.626 507.644 (73.345) - 102.288 45.115 333.328 4.425.732 23.706.601 - - (1.114.476) (438.710) 753.292 300.136 101.643 23.308.486 4.355.267 6.125.632 480.534 925.314 951.599 1.095.234 2.033.916 1.280.676 599.822 694.088 198.990 1.306.549 20.047.621 2006 Reclassified 21.011.354 - - (1.292.529) (465.555) 361.667 - 431.621 20.046.558 3.977.700 4.895.225 442.724 750.756 891.337 1.152.447 2.006.805 957.613 - (390.916) 196.904 594.035 15.474.630 OPERATING INCOME (LOSS) BEFORE FINANCIAL INCOME (EXPENSES) 548.079 2.712.786 1.497.734 3.260.865 4.571.928 41 595.844 1.235.774 1.744.426 (2.671.095) (1.058.606) (926.669) (2.706.039) 2.292.505 41.691 439.128 2.334.196 1.865.889 (18.032) (18.847) 5.819 (36.879) (17.964) 2.274.473 22.844 444.947 2.297.317 1.847.925 (354.303) (116.972) (59.006) (55.020) 8.473 7.032 (413.309) (171.992) (411.620) (151.373) 1.803.198 (91.182) 460.452 1.712.016 1.284.932 (159.926) (4.098) - (135) (138.469) 13.869 (159.926) (4.233) (138.468) 14.854 1.639.174 (91.317) 335.852 1.547.857 1.161.318 R$1,45 (R$0,08) R$0,30 R$1,37 R$1,03 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. 103 OPERATING REvENuES Electricity sale and transmission Electric power Grant-in-Aid Interest on bills paid in arrears on electric power (-) Sectorial charges (-) State VAT (ICMS) Ownership interests Gains on reduction in liabilities Other revenues OPERATING EXPENSES Personnel, material and services Energy purchased for resale Fuel for electricity production PASEP and COFINS (taxes on sales) Electricity network use Financial compensation of water resources Depreciation and amortization Operating provisions Losses with assets ITAIPU’s income (loss) to be offset Donations and contributions Other FINANCIAL INCOME (EXPENSES) OPERATING INCOME NON-OPERATING INCOME (LOSS) PROFIT SHARING AND MINORITY INTEREST Income tax Social contribution tax on net income INCOME (LOSS) BEFORE OWNERSHIP INTERESTS Profit sharing Minority interest NET INCOME (LOSS) FOR THE YEAR / PERIOD EARNINGS (LOSS) PER SHARE, NET INCOME (LOSS) BEFORE INCOME AND SOCIAL CONTRIBUTION TAXES, EMPLOYEES’ AND MANAGEMENT COMPANY Note 2007 2006 Reclassified 7.555.634 6.297.277 35 36 36 37 15 38 39 40 15 - - - - - - - - - - - - - - - - - - - - - - - - 1.883.289 988.561 9.438.923 7.285.838 318.370 7.152.195 287.024 6.256.845 86.947 62.925 7.016 586.483 5.947 114.934 126.400 356.336 8.633.747 140.743 182.588 7.051.006 805.176 234.832 1.401.020 1.470.606 - - 1.401.020 1.470.606 146.976 17.861 (210.603) (81.685) 1.565.857 1.178.318 42 (18.000) - (17.000) - 1.547.857 1.161.318 R$1,37 R$1,03 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS STATEMENT OF ChANGES IN STOCkhOLDERS’ EQuITY FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) SuBSCRIBED AND PAID CAPITAL STOCK CAPITAL RESERVES REvALuATION RESERVE REVENUE RESERVES LEGAL RESERVE STATuTORY RESERVE RETAINED EARNINGS ACCuMuLATED EARNINGS DIvIDENDS NOT DISTRIBUTED ADvANCES FOR FuTuRE CAPITAL INCREASE T O T A L STOCkhOLDERS' EQUITY As of December 31, 2005 24.235.829 25.907.304 247.855 1.595.578 14.318.074 6.448.973 2.961.277 75.714.889 Financial charges – Decree 2.673/98 Realization of revaluation surplus Net income Application of income: Recognition of reserves Stockholders’ compensation - - - - - - - - - - - (17.317) - - - As of December 31, 2006 24.235.829 25.907.304 230.538 1.653.644 14.910.346 7.421.521 68.748 3.407.858 77.835.788 Capital increase A.G.E as of April 28, 2005 Reevaluation – associated companies Financial charges – Decree 2.673/98 Realization of revaluation surplus Net income Application of income: Recognition of reserves Stockholders’ compensation - - - - - - - - - - - - - - (22.429) - - - As of December 31, 2007 24.235.829 25.907.304 208.109 1.731.038 15.699.751 8.300.832 68.748 - 3.811.625 79.963.236 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. 972.548 446.581 1.419.129 58.066 592.272 68.748 - - - - - - - - - - - - - - - - - - 77.394 789.405 - - - - - - - - - - - - - - - - - - - - 17.317 1.161.317 (719.086) (459.548) - - - - - 22.429 1.547.857 (866.799) (703.487) - - - - - - - - - - - - - 1.161.317 (459.548) 1.547.857 (703.487) 879.311 403.767 1.283.078 Annual Report 2007 SuBSCRIBED AND PAID CAPITAL STOCK CAPITAL RESERVES REvALuATION RESERVE REVENUE RESERVES LEGAL RESERVE STATuTORY RESERVE DIvIDENDS NOT DISTRIBUTED RETAINED EARNINGS ACCuMuLATED EARNINGS ADvANCES FOR FuTuRE CAPITAL INCREASE T O T A L STOCkhOLDERS' EQUITY As of December 31, 2005 24.235.829 25.907.304 247.855 1.595.578 14.318.074 6.448.973 - - - - - - 972.548 - - - - - - 58.066 - 592.272 - - - 68.748 - - 2.961.277 75.714.889 - 17.317 1.161.317 (719.086) (459.548) 446.581 - - 1.419.129 - 1.161.317 - - - (459.548) As of December 31, 2006 24.235.829 25.907.304 230.538 1.653.644 14.910.346 7.421.521 68.748 - 3.407.858 77.835.788 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. 24.235.829 25.907.304 208.109 1.731.038 15.699.751 8.300.832 68.748 - 3.811.625 79.963.236 105 - - - - - - - - 77.394 - 789.405 - - 879.311 - - - - - - - - - - - - 22.429 1.547.857 (866.799) (703.487) - 403.767 - - - 1.283.078 1.547.857 - - - (703.487) Financial charges – Decree 2.673/98 Realization of revaluation surplus Net income Application of income: Recognition of reserves Stockholders’ compensation Capital increase A.G.E as of April 28, 2005 Reevaluation – associated companies Financial charges – Decree 2.673/98 Realization of revaluation surplus Net income Application of income: Recognition of reserves Stockholders’ compensation As of December 31, 2007 - - - - - - - - - - - - - - - - - - - - - - (17.317) (22.429) - - - - - - - - - CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS STATEMENT OF ChANGES IN FINANCIAL POSITION FOR ThE YEARS ENDED DECEMBER 31 2007 AND 2006 (In thousands of Brazilian reais) SOURCE OF FUNDS From operations - net income Noncash items: Depreciation and amortization Long-term monetary variation, net Adjustment to investments: Regulatory assets Long-term provisions Minority interest Financial charges on stockholders’ equity ITAIPU’s income (loss) to be offset Other From stockholders From third parties Financing obtained Global Reversion Reserve Quota and Compulsory Loan Amounts transferred from current to noncurrent liabilities Amounts transferred from noncurrent to current assets Realization and disposal of investment TOTAL SOURCE OF FUNDS APPLICATION OF FUNDS Acquisition of rights, property, plant and equipment and deferred expenses Loans and financing granted On interest in electric Power companies Interests held in other companies Amounts transferred from noncurrent to current Stockholders’ compensation Amounts transferred from current to noncurrent assets Statement of changes in working capital: Other TOTAL APPLICATION OF FUNDS Changes in working capital Current assets: At beginning of year At end of year Change Current liabilities: At beginning of year At end of year Change Changes in working capital C O M P A N Y C O N S O L I D A T E D 12/31/2007 12/31/2006 12/31/2007 12/31/2006 1.547.857 1.161.318 1.547.857 1.161.318 7.016 2.536.733 (1.455.947) (287.746) (938.109) 5.947 529.148 (575.696) (663.429) 1.283.075 1.419.127 416.887 3.109.766 433.880 2.310.295 - - - - - - - - - 875.571 28.010 3.309.303 742.787 4.955.671 8.065.437 8.013 3.413.978 - 1.213.233 772.109 703.486 1.850.465 51.449 8.012.733 1.105.965 149.742 2.666.759 607.051 4.529.517 6.839.812 17.877 1.007.681 - 21.235 911.634 459.548 2.227.931 23.171 4.669.077 2.033.916 3.066.185 (306.002) (287.746) (412.433) 4.233 1.283.075 (694.088) 121.636 6.356.633 - 904.022 875.571 57.136 3.980.084 901.515 6.718.328 13.074.961 3.194.193 1.295.055 - - 2.411.657 753.010 2.206.848 827.065 2.006.805 1.870.503 (73.467) - 337.200 (14.854) 1.419.131 (390.917) 178.290 6.494.009 - 648.794 1.105.965 270.459 2.481.870 687.507 5.194.595 11.688.604 3.153.722 1.380.006 - 64.333 3.198.336 555.622 1.608.900 275.549 10.687.828 10.236.468 52.704 2.170.735 2.387.133 1.452.136 13.113.262 13.586.788 473.526 10.236.414 13.113.264 2.876.850 15.415.442 18.609.959 3.194.517 12.697.332 15.415.441 2.718.109 4.390.209 4.811.030 420.821 52.704 3.684.093 4.390.209 706.116 2.170.734 10.195.323 11.002.707 807.384 2.387.133 8.929.351 10.195.324 1.265.973 1.452.136 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. SOURCE OF FUNDS From operations - net income Noncash items: Depreciation and amortization Long-term monetary variation, net Adjustment to investments: Regulatory assets Long-term provisions Minority interest Financial charges on stockholders’ equity ITAIPU’s income (loss) to be offset Other From stockholders From third parties Financing obtained Global Reversion Reserve Quota and Compulsory Loan Amounts transferred from current to noncurrent liabilities Amounts transferred from noncurrent to current assets Realization and disposal of investment TOTAL SOURCE OF FUNDS APPLICATION OF FUNDS Acquisition of rights, property, plant and equipment and deferred expenses Loans and financing granted On interest in electric Power companies Interests held in other companies Amounts transferred from noncurrent to current Stockholders’ compensation Amounts transferred from current to noncurrent assets Other TOTAL APPLICATION OF FUNDS Annual Report 2007 C O M P A N Y C O N S O L I D A T E D 12/31/2007 12/31/2006 12/31/2007 12/31/2006 1.547.857 1.161.318 1.547.857 1.161.318 7.016 2.536.733 (1.455.947) (287.746) (938.109) - 1.283.075 - 416.887 3.109.766 - - 875.571 28.010 3.309.303 742.787 4.955.671 8.065.437 8.013 3.413.978 - 1.213.233 772.109 703.486 1.850.465 51.449 8.012.733 5.947 529.148 (575.696) - (663.429) - 1.419.127 - 433.880 2.310.295 - - 1.105.965 149.742 2.666.759 607.051 4.529.517 6.839.812 17.877 1.007.681 - 21.235 911.634 459.548 2.227.931 23.171 4.669.077 2.033.916 3.066.185 (306.002) (287.746) (412.433) 4.233 1.283.075 (694.088) 121.636 6.356.633 - 904.022 875.571 57.136 3.980.084 901.515 6.718.328 13.074.961 3.194.193 1.295.055 - - 2.411.657 753.010 2.206.848 827.065 10.687.828 2.006.805 1.870.503 (73.467) - 337.200 (14.854) 1.419.131 (390.917) 178.290 6.494.009 - 648.794 1.105.965 270.459 2.481.870 687.507 5.194.595 11.688.604 3.153.722 1.380.006 - 64.333 3.198.336 555.622 1.608.900 275.549 10.236.468 Changes in working capital 52.704 2.170.735 2.387.133 1.452.136 Statement of changes in working capital: Current assets: At beginning of year At end of year Change Current liabilities: At beginning of year At end of year Change Changes in working capital 13.113.262 13.586.788 473.526 10.236.414 13.113.264 2.876.850 15.415.442 18.609.959 3.194.517 12.697.332 15.415.441 2.718.109 4.390.209 4.811.030 420.821 52.704 3.684.093 4.390.209 706.116 2.170.734 10.195.323 11.002.707 807.384 2.387.133 8.929.351 10.195.324 1.265.973 1.452.136 The accompanying notes and attachments I, II, III, IV, V, VI, VII and VIII are integral part of these financial statements. 107 CENTRAIS ELÉTRICAS BRASILEIRAS S.A - ELETROBRáS ADDITIONAL INFORMATION TO ThE FINANCIAL STATEMENTS STATEMENT OF CASh FLOWS FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) OPERATING ACTIVITIES Net income for the year Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization Long-term monetary variation, net Adjustment to investments Regulatory assets Long-term provisions Minority interest Financial charges on stockholders’ equity ITAIPU’s income (loss) to be offset Other Subtotal (Increase) decrease in operating assets Consumers and resellers Loans and financing - principal amount Loans and financing - charges Fuel Consumption Account - CCC Return on investments Marketable securities Rescheduled receivables Tax credits Rights to reimbursement Sundry receivables Storeroom Prepaid expenses Other Loans and financing Loans and financing - charges Compulsory loan Trade accounts payable Taxes and social contributions Fuel Consumption Account - CCC Stockholders’ compensation Estimated obligations Reimbursement obligations Advances from consumers Complementary pension plans Provisions for contingencies Research and development Fees as per regulations Other Funds provided by (used in) operating activities Payables to the Brazilian Federal Treasury: COMPANY CONSOLIDATED 12/31/2007 12/31/2006 12/31/2007 12/31/2006 1.547.857 1.161.318 1.547.857 1.161.318 7.016 2.536.733 (1.455.947) (287.746) (938.109) - - 1.283.075 1.419.127 416.887 3.109.766 433.880 2.310.295 5.947 529.148 (575.696) (663.429) - - - 184.724 (616.416) (944.339) (681.082) 154.518 237.010 (35.100) 19.847 188.481 (212) 79 - (28.841) (2.046) (55.168) (236.518) (150.961) 693.834 93.926 4.884 (26.439) - - - - - - 2.033.916 3.066.185 (306.002) (287.746) (412.433) 4.233 1.283.075 (694.088) 121.636 6.356.633 372.582 (106.616) 14.892 292.468 21.987 - (174.117) (600.735) 96.008 (299.134) (83.361) (20.429) (72.294) (558.748) (578.539) 17.559 (14.397) 315.026 375.183 (321.460) 312.159 7.027 131.390 250.415 102.532 (154.843) 135.810 55.550 (76.393) 250.364 807.382 2.006.805 1.870.503 (73.467) - 337.200 (14.854) 1.419.131 (390.917) 178.290 6.494.009 127.507 (251.283) (293.667) (670.728) (103.664) 237.349 43.257 (377.712) 188.481 264.379 (70.251) 9.975 13.359 (882.998) 390.445 (51.382) (55.168) (275.988) (159.487) 693.834 87.234 4.884 72.405 - 74.729 (52.643) 27.151 - 32.321 283.829 1.072.163 (168.865) 183.695 2.767.053 310.556 (91.626) - (5.868) (559.794) 96.008 (288.562) (92) - (26.902) (3.636) (14.397) 109.444 174.077 (321.460) 314.505 7.027 70.992 250.415 99.863 - - - - (239.106) 420.822 219.635 512.306 5.764.702 1.456.157 6.605.267 6.683.174 tobe continued... Increase (decrease) in operating liabilities (8.391) 126.047 2.234.114 (1.366.443) OPERATING ACTIVITIES Net income for the year Adjustments to reconcile net income to cash provided by operating activities Depreciation and amortization Long-term monetary variation, net Adjustment to investments Regulatory assets Long-term provisions Minority interest Financial charges on stockholders’ equity ITAIPU’s income (loss) to be offset Other Subtotal (Increase) decrease in operating assets Consumers and resellers Loans and financing - principal amount Loans and financing - charges Fuel Consumption Account - CCC Return on investments Marketable securities Rescheduled receivables Tax credits Rights to reimbursement Sundry receivables Storeroom Prepaid expenses Other Increase (decrease) in operating liabilities Loans and financing Loans and financing - charges Compulsory loan Trade accounts payable Taxes and social contributions Fuel Consumption Account - CCC Stockholders’ compensation Payables to the Brazilian Federal Treasury: Estimated obligations Reimbursement obligations Advances from consumers Complementary pension plans Provisions for contingencies Research and development Fees as per regulations Other Funds provided by (used in) operating activities Annual Report 2007 COMPANY CONSOLIDATED 12/31/2007 12/31/2006 12/31/2007 12/31/2006 1.547.857 1.161.318 1.547.857 1.161.318 7.016 2.536.733 (1.455.947) (287.746) (938.109) - 1.283.075 - 416.887 3.109.766 (168.865) 183.695 2.767.053 310.556 (91.626) - (5.868) (559.794) 96.008 (288.562) (92) - (8.391) 2.234.114 (26.902) (3.636) (14.397) 109.444 174.077 (321.460) 314.505 7.027 70.992 250.415 99.863 - - - - (239.106) 420.822 5.947 529.148 (575.696) - (663.429) - 1.419.127 - 433.880 2.310.295 184.724 (616.416) (944.339) (681.082) 154.518 237.010 (35.100) 19.847 188.481 (212) 79 - 126.047 (1.366.443) (28.841) (2.046) (55.168) (236.518) (150.961) 693.834 93.926 4.884 (26.439) - - - - - - 219.635 512.306 2.033.916 3.066.185 (306.002) (287.746) (412.433) 4.233 1.283.075 (694.088) 121.636 6.356.633 372.582 (106.616) 14.892 292.468 21.987 - (174.117) (600.735) 96.008 (299.134) (83.361) (20.429) (72.294) (558.748) (578.539) 17.559 (14.397) 315.026 375.183 (321.460) 312.159 7.027 131.390 250.415 102.532 (154.843) 135.810 55.550 (76.393) 250.364 807.382 2.006.805 1.870.503 (73.467) - 337.200 (14.854) 1.419.131 (390.917) 178.290 6.494.009 127.507 (251.283) (293.667) (670.728) (103.664) 237.349 43.257 (377.712) 188.481 264.379 (70.251) 9.975 13.359 (882.998) 390.445 (51.382) (55.168) (275.988) (159.487) 693.834 87.234 4.884 72.405 - 74.729 (52.643) 27.151 - 32.321 283.829 1.072.163 5.764.702 1.456.157 6.605.267 6.683.174 tobe continued... 109 CENTRAIS ELÉTRICAS BRASILEIRAS S.A - ELETROBRáS ADDITIONAL INFORMATION TO ThE FINANCIAL STATEMENTS STATEMENT OF CASh FLOWS FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) FINANCING ACTIVITIES Recursos recebidos de acionistas e partes relacionadas Long-term loans and financing obtained Long-term financing reclassified as current Stockholders’ compensation Loans and financing granted - disbursements Loans and financing granted - receipts Refinancing obtained (current liabilities reclassified as noncurrent) Compulsory loan and RGR Other Funds provided by (used in) financing activities INVESTMENT ACTIVITIES Acquisition of property, plant and equipment Investments Funds provided by (used in) investments COMPANY CONSOLIDATED 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ...Continued - - (772.109) (703.486) (3.413.978) 3.309.303 28.010 - - - - 904.022 648.794 (911.634) (459.548) (1.007.681) 2.666.759 149.742 (2.411.657) (753.010) (1.295.055) 3.980.084 57.136 (3.198.336) (555.622) (1.380.006) 2.481.870 270.459 875.571 16.640 1.105.965 (23.171) 875.571 (827.065) 1.105.965 (275.548) (2.510.514) (707.499) (1.676.822) (2.511.324) (8.013) (538.535) (17.877) 585.816 (3.194.193) (3.153.722) 901.515 623.175 (546.548) 567.939 (2.292.678) (2.530.547) Refinancing granted (current assets reclassified as long-term) (1.850.465) (2.227.931) (2.206.848) (1.608.900) Increase (decrease) in cash and cash equivalents 2.707.640 1.316.597 2.635.767 1.641.302 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2.877.879 5.585.519 2.707.640 1.561.282 2.877.879 1.316.597 5.459.139 8.094.907 2.635.768 3.817.837 5.459.139 1.641.302 Annual Report 2007 FINANCING ACTIVITIES Recursos recebidos de acionistas e partes relacionadas Long-term loans and financing obtained Long-term financing reclassified as current Stockholders’ compensation Loans and financing granted - disbursements Loans and financing granted - receipts Refinancing obtained (current liabilities reclassified as noncurrent) Refinancing granted (current assets reclassified as long-term) Compulsory loan and RGR Other Funds provided by (used in) financing activities INVESTMENT ACTIVITIES Acquisition of property, plant and equipment Investments Funds provided by (used in) investments COMPANY CONSOLIDATED 12/31/2007 12/31/2006 12/31/2007 12/31/2006 ...Continued - - (772.109) (703.486) (3.413.978) 3.309.303 28.010 (1.850.465) 875.571 16.640 - - (911.634) (459.548) (1.007.681) 2.666.759 149.742 (2.227.931) 1.105.965 (23.171) - 904.022 (2.411.657) (753.010) (1.295.055) 3.980.084 57.136 (2.206.848) 875.571 (827.065) - 648.794 (3.198.336) (555.622) (1.380.006) 2.481.870 270.459 (1.608.900) 1.105.965 (275.548) (2.510.514) (707.499) (1.676.822) (2.511.324) (8.013) (538.535) (17.877) 585.816 (3.194.193) 901.515 (3.153.722) 623.175 (546.548) 567.939 (2.292.678) (2.530.547) Increase (decrease) in cash and cash equivalents 2.707.640 1.316.597 2.635.767 1.641.302 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 2.877.879 5.585.519 2.707.640 1.561.282 2.877.879 1.316.597 5.459.139 8.094.907 2.635.768 3.817.837 5.459.139 1.641.302 111 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS ADDITIONAL INFORMATION TO ThE FINANCIAL STATEMENTS STATEMENT OF ADDED vALuE FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (In thousands of Brazilian reais) 1 - REVENUE (EXPENSES) Sales of goods, products, and services Non-operating revenues (expenses) Não operacionais 2 - INPUTS ACQUIRED FROM THIRD PARTIES Materials, services and others Sectorial charges Energy purchased for resale Fuel for electricity production 3 - GROSS ADDED VALUE 4 - DEDUCTIONS Operating provisions Depreciation, amortization and depletion 5 - NET ADDED VALUE PRODUCED BY THE COMPANY (730.739) -12,13% 6.757.868 57,19% (501.696) -9,58% 9.137.790 75,94% 6 - ADDED VALUE RECEIVED THROUGH TRANSFERENCE Ownership interests Financial income 7 - TOTAL ADDED VALUE TO DISTRIBUTE DISTRIBUTION OF ADDED VALUE PERSONNEL . Personnel, charges and management fees . Profit sharing of employees . Retirement and pension plans TAXES . Taxes and contributions FINANCIAL CHARGES AND RENT STOCKHOLDERS . Dividends and interest on equity capital . Interest of non-controlling stockholders . Retained earnings - - - - 2007 Distribution Distribution 2006 Distribution Distribution COMPANY % CONSOLIDATED % COMPANY % CONSOLIDATED % 7.555.634 125,47% 24.108.380 6.297.277 120,28% 21.442.976 7.555.634 0,00% 0,00% 125,47% - (36.879) 24.071.501 - 7.450 6.304.727 0,00% 0,14% 120,42% - (25.414) 21.417.562 (540.680) -8,98% (428.697) -8,19% (7.152.195) -118,77% (6.256.845) -119,51% (7.692.875) -127,75% (13.878.789) -117,44% (6.685.542) -127,69% - - - - (3.106.617) (910.266) (4.895.225) (442.724) (9.354.832) (6.158.147) (1.114.476) (6.125.632) (480.534) - - (137.240) -2,28% 10.192.713 86,25% (380.815) -7,27% 12.062.729 100,25% (586.483) (7.016) (593.499) -9,74% -0,12% -9,86% (1.400.928) (2.033.916) (3.434.844) -11,85% -17,21% -29,07% (114.934) (5.947) (120.881) -2,20% -0,11% -2,31% (918.134) (2.006.805) (2.924.939) -7,63% -16,68% -24,31% 178,20% 0,00% -0,21% 177,99% -25,82% -7,56% -40,68% -3,68% -77,74% 204,01% 0,00% -0,31% 203,70% -52,11% -9,43% -51,84% -4,07% 1.883.289 4.869.301 6.752.590 31,27% 80,86% 112,13% 753.292 4.306.208 5.059.500 6,37% 36,44% 42,81% 988.561 4.748.760 5.737.321 18,88% 90,70% 109,58% 361.667 2.533.469 2.895.136 3,01% 21,05% 24,06% 6.021.851 100,00% 11.817.368 100,00% 5.235.625 100,00% 12.032.927 100,00% 248.352 18.000 12.073 278.425 4,12% 0,30% 0,20% 4,62% 2.702.995 159.925 224.388 3.087.309 22,87% 1,35% 1,90% 26,13% 177.175 17.000 11.933 206.108 3,38% 0,32% 0,23% 3,94% 2.249.671 138.468 312.211 2.700.350 18,70% 1,15% 2,59% 22,44% (77.890) -1,29% 1.949.325 16,50% 511.459 9,77% 1.779.304 14,79% 4.273.459 70,97% 5.232.878 44,28% 3.512.987 67,10% 6.391.956 53,12% 703.486 844.371 1.547.857 11,68% 0,00% 14,02% 25,70% 703.486 (64.233) 908.603 1.547.856 5,95% -0,54% 7,69% 13,10% 459.548 - 701.769 1.161.317 8,78% 0,00% 13,40% 22,18% 459.548 14.854 686.915 1.161.317 3,82% 0,12% 5,71% 9,65% 6.021.851 100,00% 11.817.368 100,00% 5.235.625 100,00% 12.032.927 100,00% Annual Report 2007 COMPANY Distribution % CONSOLIDATED Distribution % COMPANY Distribution % CONSOLIDATED Distribution % 2007 2006 7.555.634 - - 7.555.634 (540.680) - (7.152.195) - (7.692.875) 125,47% 0,00% 0,00% 125,47% -8,98% - -118,77% - -127,75% 24.108.380 - (36.879) 24.071.501 (6.158.147) (1.114.476) (6.125.632) (480.534) (13.878.789) 204,01% 0,00% -0,31% 203,70% -52,11% -9,43% -51,84% -4,07% -117,44% 6.297.277 - 7.450 6.304.727 (428.697) - (6.256.845) - (6.685.542) 120,28% 0,00% 0,14% 120,42% -8,19% - -119,51% - -127,69% 21.442.976 - (25.414) 21.417.562 (3.106.617) (910.266) (4.895.225) (442.724) (9.354.832) 178,20% 0,00% -0,21% 177,99% -25,82% -7,56% -40,68% -3,68% -77,74% (137.240) -2,28% 10.192.713 86,25% (380.815) -7,27% 12.062.729 100,25% (586.483) (7.016) (593.499) -9,74% -0,12% -9,86% (1.400.928) (2.033.916) (3.434.844) -11,85% -17,21% -29,07% (114.934) (5.947) (120.881) -2,20% -0,11% -2,31% (918.134) (2.006.805) (2.924.939) -7,63% -16,68% -24,31% 5 - NET ADDED VALUE PRODUCED BY THE COMPANY (730.739) -12,13% 6.757.868 57,19% (501.696) -9,58% 9.137.790 75,94% 1.883.289 4.869.301 6.752.590 31,27% 80,86% 112,13% 753.292 4.306.208 5.059.500 6,37% 36,44% 42,81% 988.561 4.748.760 5.737.321 18,88% 90,70% 109,58% 361.667 2.533.469 2.895.136 3,01% 21,05% 24,06% 6.021.851 100,00% 11.817.368 100,00% 5.235.625 100,00% 12.032.927 100,00% 248.352 18.000 12.073 278.425 4,12% 0,30% 0,20% 4,62% 2.702.995 159.925 224.388 3.087.309 22,87% 1,35% 1,90% 26,13% 177.175 17.000 11.933 206.108 3,38% 0,32% 0,23% 3,94% 2.249.671 138.468 312.211 2.700.350 18,70% 1,15% 2,59% 22,44% (77.890) -1,29% 1.949.325 16,50% 511.459 9,77% 1.779.304 14,79% 4.273.459 70,97% 5.232.878 44,28% 3.512.987 67,10% 6.391.956 53,12% 703.486 844.371 1.547.857 11,68% 0,00% 14,02% 25,70% 703.486 (64.233) 908.603 1.547.856 5,95% -0,54% 7,69% 13,10% 459.548 - 701.769 1.161.317 8,78% 0,00% 13,40% 22,18% 459.548 14.854 686.915 1.161.317 3,82% 0,12% 5,71% 9,65% 6.021.851 100,00% 11.817.368 100,00% 5.235.625 100,00% 12.032.927 100,00% 113 1 - REVENUE (EXPENSES) Sales of goods, products, and services Non-operating revenues (expenses) Não operacionais 2 - INPUTS ACQUIRED FROM THIRD PARTIES Materials, services and others Sectorial charges Energy purchased for resale Fuel for electricity production 3 - GROSS ADDED VALUE 4 - DEDUCTIONS Operating provisions Depreciation, amortization and depletion 6 - ADDED VALUE RECEIVED THROUGH TRANSFERENCE Ownership interests Financial income 7 - TOTAL ADDED VALUE TO DISTRIBUTE DISTRIBUTION OF ADDED VALUE PERSONNEL . Personnel, charges and management fees . Profit sharing of employees . Retirement and pension plans TAXES . Taxes and contributions FINANCIAL CHARGES AND RENT STOCKHOLDERS . Dividends and interest on equity capital . Interest of non-controlling stockholders . Retained earnings CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS (A PUBLIC COMPANY) CNPJ (TIN) 00.001.180/0001-26 Annual Report 2007 NOTES TO ThE FINANCIAL STATEMENTS FOR ThE YEARS ENDED DECEMBER 31, 2007 AND 2006 (INDIVIDUAL AND CONSOLIDATED) NOTE 1 – OPERATIONS Eletrobrás is a public company headquartered in Brasília – DF, at Setor Comercial Norte, Quadra 4, Bloco B, 100, sala 203 – Asa Norte, with stocks listed at the stocks exchanges of São Paulo, Brazil, and Madrid, Spain. It has as business purpose to execute studies, projects, construction, and operation of electricity generating plants, transmission lines and energy distribution, as well as the execution of commercial transactions associated with those activities. It also has as purpose to cooperate with the Ministry of Mining and Energy in the formulation of the Brazilian power sector policies; and grant financing, and offer guarantees in Brazil and overseas; acquire debentures from the companies that work in the electric power public service and that are under its stock control; grant financing and give guarantees in Brazil or abroad in favor of technical-scientific research entities; promote and support research in the electric power sector associated with the activities of generation, transmission and distribution of electricity, as well as the performance of studies about the use of hydrographical basins for multiple purposes; contribute in the formation of the necessary technical personnel to the Brazilian electric sector, as well as the preparation of quali- fied workers through specific courses, in addition to assistance to Brazilian schools or granting of scholarships overseas and agreements with entities that cooperate in the formation of specialized technical personnel; cooperate at technical and administrative levels with the companies where it holds interests and with agencies of the Ministry of Mining and Energy. The Company is responsible for the management of federal government funds, represented by the Global Reversal Reserve Quota (RGR), the Electric Development Account (CDE), the Use of Public Assets (UBP), and the Fuel Consumption Account (CCC). They finance the following programs of the Federal Government: Universalization of the Access to Electricity (“Luz para Todos”), National Program for Efficient Public Lighting (Reluz), Incentive Program for Alterna- tive Sources of Electricity (Proinfa), National Program for Energy Conservation (Procel) and the acquisition of fossil fuels used in the isolated systems of electricity generation. The Company is the manager of Proinfa, a Federal program that aims to diversify the Bra- zilian energetic matrix and seek regional solutions by renewable energy sources based on the economic use of available input and applicable technology. Eletrobrás is entitled to purchase the power produced though it until 2026. Eletrobrás is the major stockholder of the companies Furnas Centrais Elétricas S.A. (Fur- nas), Centrais Elétricas do Norte do Brasil S.A. (Eletronorte), Companhia Hidro Elétrica do São Francisco (Chesf), Eletrosul Centrais Elétricas S.A., Eletrobrás Termonuclear S.A. (Eletronucle- ar) and of Companhia de Geração Térmica de Energia Elétrica (CGTEE). The main function of those controlled companies is the generation, transmission, and distribution of electricity. Eletrobrás is also the controlling company of Light Participações S.A. (Lightpar) and, is a jointly-owner of Itaipu Binacional, under the terms of the International Treaty signed by the Governments of Brazil and Paraguay. The Company is an indirect-owner of the companies Manaus Energia S.A. and Boa Vista Energia S.A., which are wholly-owned subsidiaries of Eletronorte and that generate and distri- bute electricity in the States of Amazonas and Roraima. 114 Annual Report 2007 The Company is also the agent responsible for the commercialization of the electric power generated by Itaipu Binacional and through Proinfa. NOTE 2 – PuBLIC SERvICE CONCESSIONS Eletrobrás, through its controlled companies, holds various public service electricity con- cessions, whose details, installed capacity, and maturities are listed below (See notes 20 and Attachment IV): I – Electricity Generation IN OPERATION UHE Furnas UHE Estreito UHE Marimbondo UHE Itumbiara UHE Serra da Mesa UHE Luiz Gonzaga UHE Xingó UHE Sobradinho UHE Tucuruí UHE Complexo Paulo Afonso UTE Santa Cruz Other generation concessions IN CONSTRuCTION UHE Simplício UHE Baguari UHE Batalha RIVER NAME Grande Grande Grande Paranaíba Tocantins São Francisco São Francisco São Francisco Tocantins São Francisco - - Paraíba do Sul Doce São Marcos CAPACITY IN MW MATURITY 1,216 1,050 1,440 2,082 1,275 1,479 3,162 1,050 8,370 3,879 766 2,552 306 140 53 28,820 07/2015 07/2015 03/2017 02/2020 05/2011 10/2015 10/2015 02/2022 07/2024 10/2015 07/2015 Até 2035 08/2041 08/2041 08/2041 The total installed capacity of the plants of Eletrobrás, including Itaipu Binacional and Eletronuclear, is about 38,000 MW. The electricity generation considers the following assumptions a) existence of periods, along the day and during the year, where there are higher or lower demands of power in the system, for which the plant or generation system was dimensioned; 115 Annual Report 2007 b) existence of periods where machines are removed from operation for execution of preventive or corrective maintenance, and the water availability of the river where it is located. c) The production of electricity of the plants is a responsibility of the Energy Operation Planning and Scheduling area (Planejamento e Programação da Operação Eletroener- gética), with planning and details that range from annual levels to daily schedules. It is currently prepared by the Electric Power National Operator (ONS), which defines the amounts and origin of the necessary generation to meet the Brazilian demand in an optimized manner, based on the water availability in the hydrographical basins and machines in operation, as well as the cost of generation and feasibility of transmission of that power through the interlinked system. II – Electric Power Transmission The transmission capacity of Eletrobrás is as follows: LINES IN kM SuBSTATIONS MATuRITY Furnas Eletronorte Chesf Eletrosul Other 19,278 9,840 18,468 9,145 655 57,386 46 55 83 36 - 220 07/2015 07/2015 06/2037 07/2015 07/2015 NOTE 3 – CORPORATE GOvERNANCE In September 2006, the Company went through a restructuring process to comply with the practices of Corporate Governance level I of Bovespa (São Paulo Stock Exchange). Conse- quently, the Company that had shares listed in the Ibovespa index, is now also listed in the Corporate Governance Index - IGC and Business Sustainability Index - ISE. NOTE 4 - RELATIONShIP WITh INDEPENDENT AuDITORS In compliance with the provisions of the Instruction 381 of the Brazilian Securities and Exchange Commission of January 14, 2003, Eletrobrás informs that it uses the independent au- diting services of the firm BDO Trevisan Auditores Independentes. The said firm was engaged for a three-year period, counted upon August 1, 2005, for execution of audit services of individual and consolidated financial statements of Eletrobrás, and the Company does not have any other service agreements with the mentioned firm that not the financial statement audit services. 116 Annual Report 2007 The independent auditors rendering individual audit services to the controlled companies of Eletrobrás are the following: Controlled Companies Independent Auditor CGTEE Chesf Eletronorte Eletronuclear Eletrosul Furnas Itaipu Lightpar Manaus Boa Vista Deloitte Touche Tohmatsu Boucinhas & Campos + SOTECONTI BDO Trevisan HLB Audilink e CIA Horwath Tufani, Reis & Soares HLB Audilink e CIA BDO Trevisan Russell Bedford Brasil HLB Audilink e CIA HLB Audilink e CIA NOTE 5 - PRESENTATION OF ThE FINANCIAL STATEMENTS The individual and consolidated financial statements of the Company are presented in accordan- ce with the accounting practices adopted in Brazil, and in consonance with the provisions of the Corporate Law, number 6,404/76, and regulations and complementary instructions of the Brazilian Securities and Exchange Commission (CVM), together with specific regulations of the Brazilian Elec- tric Power Agency - Aneel, and have been examined by independent auditors. With the objective of supplying additional information, the following statements are also presented: a) Statement of Cash Flows, prepared in accordance with the Accounting Standard and Procedure NPC 20 issued by Ibracon; b) Statement of Added Value, in accordance with the Decision of Federal Accounting Coun- cil CFC 1.010, of January 21, 2005, and c) A statement of disclosures about segments of an enterprise, according to the Inter- national Accounting Standard SFAS-131 issued by the Financial Accounting Standards Board. For a better understanding, we list in Attachment VIII the main acronyms used in these notes to the financial statements. 117 Annual Report 2007 NOTE 6 - SuMMARY OF MAIN ACCOuNTING PRACTICES The following accounting practices have been adopted in the preparation of the individual and consolidated financial statements: I - GENERAL A) CASH AND CASH EQUIVALENTS Stated at cost, they are represented by short-term financial investments, plus yield obtained until the closing date of the financial statements and do not exceed market value (See note 8); B) CONSUMERS ARE RESELLERS The balance of consumers and resellers (See Attachment I) is composed of recei- vables from the electricity sold to final consumers and concessionaires, including those stemming from the power traded at the Electricity Commercialization Cham- ber - CCEE, besides billed and unbilled supply, recorded under the accrual basis. They also include fines on late payment on the part of consumers, and concession and permission holders; C) LOANS AND FINANCING GRANTED Granted loans and financing and the respective charges recognized until the ba- lance sheet date are adjusted according to the monetary and exchange variation indexes established in the contracts (See Attachment II); D) ALLOWANCE FOR DOUBTFUL ACCOUNTS Provisions are recognized at amounts considered sufficient by the Company’s mana- gement to cover possible losses in the realization of receivables (See notes 9, 10, 13 and 15 and Attachments I and II); E) FUEL CONSUMPTION ACCOUNT (CCC) Under the terms of Law 8,631 of March 04, 1993, Eletrobrás manages the amounts paid by holders of public electric power service concessions to be credited against the Fuel Consumption Account (CCC), corresponding to the annual share of ex- penditure with fuels for electricity generation. The amounts recorded in current assets, with a corresponding entry to current liabilities, correspond to the funds available kept in a blocked bank account and to the shares unsettled by concession holders; F) PROPERTY, PLANT AND EQUIPMENT Property, plant, and equipment are demonstrated at cost, adjusted for inflation until December 31, 1995, in accordance with the Brazilian accounting practices. Depreciation is calculated under the straight-line method; G) INVESTMENTS Interests held in controlled companies and jointly-owned subsidiaries (See At- 118 Annual Report 2007 tachment III), as well as other investments in related parties with stockholding corresponding to or exceeding 20% of the total capital of investees are valued under the equity method, in compliance with the terms of the Brazilian Corporate Law and Instruction CVM 247/96. The balancing entry of the adjustment stemming from that valuation is computed in income (loss). Other investments are valuated at acquisition cost (See note 19); H) FINANCINGS AND LOANS OBTAINED Obtained loans and financing and the corresponding charges recognized until the balance sheet date are adjusted according to indexes established in the contracts and are demonstrated in Attachment V; I) GLOBAL REVERSION RESERVE QUOTA - RGR Drafts made by Eletrobrás in the account of RGR (See note 49) for concession of loans and financing to the concession holders are recorded as liabilities. Interest of 5% per annum is applied on such drafts, starting from the enactment of Law 8,631 in March 04, 1993; J) COMPULSORY LOAN It is recorded at principal amount, plus monetary variation, based on the IPCA-E index and interest of 6% per year (See note 28); L) INCOME TAX AND SOCIAL CONTRIBUTION TAX ON NET INCOME Corporate Income Tax - IRPJ is calculated under the annual taxable income, at the rate of 15% and surtax of 10% on taxable income, as defined by the prevailing tax law. Social Contribution Tax on Net Income - CSLL is calculated at the rate of 9% on adjusted income under the terms of the applicable law. In compliance with CVM Decision 273 of August 20, 1998, and CVM Instruction 371, of June 27, 2002, deferred tax assets and liabilities, calculated on temporary differences, and tax losses carryforwards are recorded in current and noncurrent assets and noncurrent liabilities (See notes 14 and 26); M) BENEFITS GRANTED TO EMPLOYEES Actuarial obligations related to pension, retirement, and medical assistance plans are accrued for according to procedures established by CVM Decision 371/2000. That is based on actuarial calculations prepared by independent actuaries in con- formity with the projected credit unit method, net of the assured assets of the plan, and costs referring to the increase at present value of the obligation, resul- ting from the service provided by the employee, which are recognized along the time of service of employees. The projected credit unit method considers each time of service based on a benefit 119 Annual Report 2007 unit, measured in the computation of the final obligation. Assumptions are also used, such as the estimated evolution of medical assistance costs, biometrics, and economic statistics, as well as historical information of incurred expenses and contributions of employees (See note 31); N) OTHER RIGHTS AND OBLIGATIONS Other assets are recorded at their actual cost values, adjusted when applicable by provisions to reflect their actual realizable values. They also include earnings and possible monetary and exchange variations incurred; liabilities are recorded at their known and estimated worth, plus monetary or exchange variations incurred. O) DETERMINATION OF RESULT OF OPERATIONS Revenue and expenses are determined under the accrual basis. II – SPECIFIC PRACTICES OF THE ELECTRIC SECTOR A) PROPERTY, PLANT AND EQUIPMENT IN USE Property, plant, and equipment are demonstrated at acquisition or construction cost, adjusted for inflation until December 31, 1995, in accordance with the ac- counting practices adopted in Brazil. Depreciation is calculated under the straight-line method. Annual depreciation rates are estimated in conformity with Instruction Aneel 44, as of March 17, 1999 (See note 20 and Attachments IV and IVa.); B) PROPERTY, PLANT AND EQUIPMENT IN CONSTRUCTION In accordance with the Accounting Manual for Electricity Utilities, interest and other financial charges (monetary and exchange variation), related to loans obtai- ned with third parties applied in constructions in progress, are recorded as part of construction costs. General management fees are recognized in property, plant, and equipment in construc- tion. The recognition of direct costs with personnel and third party services is allowed based on the criteria established by the Regulating Agency (See note 20 and Attach- ments IV and IVa); C) CONCESSION-LINKED OBLIGATIONS Obligations are recorded with a corresponding entry to the contributions received from the Federal Government and consumers, exclusively for investment in the electricity distribution grid. Obligation are recorded as reducers of property, plant and equipment, and at the end of concession, offset against the corresponding assets, including those acquired with the contributions received from the Gover- 120 Annual Report 2007 nment and from consumers. Public service concession periods are established by Aneel (See note 20 and Attachments IV and IVa); D) STOREROOM Storeroom materials, classified as current assets, are recorded at the average acqui- sition cost. Those destined to the construction of property, plant, and equipment are classified in noncurrent assets, at acquisition cost. Recognized amounts do not exceed replacement costs or realizable values; E) AMOUNTS STEMMING FROM THE GENERAL ELECTRIC SECTOR AGREEMENT In accordance with the provisions of Aneel Decision 72 of February 7, 2002, the amounts referring to the Extraordinary Tariff Adjustment (RTE) are presented in the account “Consumers and resellers,” as defined in Decision 91 of the Electricity Crisis Management Chamber - GCE, of December 21, 2001 and Law 10,438, of April 26, 2002 (See note 15); F) OBLIGATIONS ASSUMED FOR THE RELEASE OF ASSETS As established in the Accounting Manual for Electricity Utilities of Aneel, a provi- sion is recognized along the useful economic lives of thermonuclear plants with the purpose of recognizing the costs to be incurred with their technical-operatio- nal deactivation to the respective accrual period, at the end of their useful lives. The amounts recognized to the result of operations are based on annual quotas established in American dollars at the ratio of 1/40th of estimated expenditures, immediately recorded and translated according to the exchange rate of the end of the accrual month. Liabilities referring to the decommissioning of plants are adjusted according to the American dollar variation (See note 33); G) STOCKS OF NUCLEAR FUEL The uranium concentrate in stock, the corresponding services and the available nuclear fuel elements inside the reactor and in the so-called pool destined to the elements used, are recorded at acquisition cost. The consumption of the nuclear fuel elements is recognized to income (loss) of the year as they are used in the generation of power (See note 17), and H) SCHEDULED STOPS The costs incurred before and during scheduled stops are initially recorded in Cur- rent assets. After operations are resumed at the plant, the costs are taken to the result of operations in monthly quotas, until the beginning of the next scheduled stop. 121  III - SPECIFIC ACCOUNTING PRACTICES OF ITAIPU BINACIONAL In accounting for its operations, Itaipu Binacional follows accounting practices ge- nerally accepted in Brazil and Paraguay, with due regard for specific provisions of the International Treaty signed by the Brazilian and the Paraguayan governments on April 26, 1973, which regulates Itaipu Binacional. Below, the main provisions departing from accounting practices applicable in Brazil: a) b) c) Depreciation of facilities is not recorded, as the revenue is calculated based on charges on liabilities, not being included in the ”Cost of Electricity Service”, accor- ding to Attachment C to the Brazil-Paraguay International Treaty; Retained earnings are not part of the Stockholders’ Equity, being appropriated to “Results to be Offset” and reclassified to property, plant and equipment, and In determining the return on equity capital, the realized profits are not taken into consideration, but shown as operating expenses under “Income.” IV - CHANGES IN ACCOUNTING PRACTICES On December 28, 2007, Law No. 11,638/07 was enacted, which amended certain pro- visions of the Brazilian Corporate Law (No. 6,404/76), aiming to coordinate the ac- counting practices adopted in Brazil with International Financial Reporting Standards - IFRS. The main changes brought by the mentioned Law, which came into effect starting on January 1, 2008, are commented in note 51 and, thus, do not produce effects on these financial statements. Annual Report 2007 122 Annual Report 2007 NOTE 7 – CONSOLIDATION PROCEDuRES I - The Consolidated Financial statements have been prepared in accordance with the standards established by Instruction CVM 247 of March 27, 1996, and in- clude the figures of Eletrobrás and the ones of the following controlled compa- nies: ELETROBRáS’S INTERESTS 2007 and 2006 Direct Indirect Furnas Chesf Eletrosul Eletronorte Eletronuclear Itaipu Binacional (*) CGTEE Litghtpar Manaus Energia (**) Boa Vista Energia (**) 99.54% 99.45% 99.71% 98.66% 99.80% 50.00% 99.94% 81.61% - - - - - - - - - - 100% 100% (*) – Under joint control with ANDE (Paraguay) - (**) – Indirect interest through Eletronorte II - The Balance Sheets and the Statements of Operations for the years ended De- cember 31, 2007 and 2006 of consolidated companies are summarized in Atta- chment VII. III - We presented below the main consolidation practices adopted: a) b) c) d) elimination of the investors’ investments in the investees, with a corresponding entry to its interests in the respective stockholders’ equities; elimination of intercompany balances receivable and payable; elimination of intercompany revenues and expenses, and separate identification of the interests held by other stockholders in the equity and in results of the consolidated investees. In view of the non-existence of unrealized income in intercompany operations, the net income and shareholders’ equity of the controlling company is the same as the one consolidated. 123  IV - Consolidation procedures of the controlling company in relation to Itaipu Bina- cional a) b) c) d) The financial statements of Itaipu Binacional have been prepared in U.S. dollars and translated into reais at the exchange rate published by the Central Bank of Brazil on December 31, 2007 - US$ 1.00 : R$ 1.7713 (US$ 1.00 : R$ 2.1380 as of December 31, 2006); The income to offset of Itaipu Binacional was adjusted in the consolidated proper- ty, plant and equipment; The compensation on equity capital paid by Itaipu Binacional was recorded as income of the controlling company and eliminated in the consolidation, and All income generated by Itaipu Binacional in the account “Income to offset of Itaipu Binacional.” was eliminated in the consolidation. For analytical purposes, a summary of the consolidated balance sheet and statement of operations excluding the effects of Itaipu Binacional’s proportional consolidation is presented below. It is intended to show the influence of Itaipu Binacional’s financial statements in the consolidated financial statements of Eletrobrás. Given its specifici- ties, this information should by no means be construed as representing the consolida- ted financial statements of Eletrobrás. Annual Report 2007 124 Annual Report 2007 R$ thousand CONSOLIDATED BALANCE SHEET (for informative purposes only) 2007 EXCLuDING ITAIPu INCLuDING ITAIPu 3,583,564 1,529,363 13,398,228 18,511,155 20,656,088 8,592,882 29,248,970 5,272,463 57,105,933 62,378,396 3,622,343 1,506,511 13,481,105 18,609,959 13,405,369 8,706,456 22,111,825 5,183,898 74,672,994 79,856,892 ASSETS Current Consumers and resellers Loans and financing Other Noncurrent Long-term assets Loans and financing Other Investments Property, plant and equipment, deferred charges, and intangible assets Total assets 110,138,521 120,578,676 Liabilities and stockholders’ equity Current Loans and financing Trade accounts payable Other Noncurrent Loans and financing Other 753,886 2,853,120 6,842,368 10,449,374 3,761,572 15,578,725 19,340,297 1,429,199 2,291,929 7,281,579 11,002,707 12,981,322 16,245,797 29,227,119 Stockholders’ interest – ANDE 385,614 385,614 Stockholders’ equity Total liabilities and stockholders’ equity 79,963,236 80,348,850 110,138,521 79,963,236 80,348,850 120,578,676 125 Annual Report 2007 Operating revenues Electricity sale and transmission Deductions Other Operating expenses Energy purchased for resale Depreciation and amortization Itaipu’s income to be offset Other R$ thousand STATEMENT OF OPERATIONS (for informative purposes only) 2007 EXCLuDING ITAIPu INCLuDING ITAIPu 23,542,027 (1,553,186) 401,780 22,390,621 23,706,601 (1,553,186) 401,779 22,555,194 (9,144,679) (2,033,916) - (9,950,100) (21,128,695) (6,125,632) (2,033,916) (694,088) (11,193,985) (20,047,621) Operating income before financial Income 1,261,926 2,507,573 Financial income (expenses) 336,123 (926,669) Income from participating interests held 734,957 753,292 Operating income 2,333,006 2,334,196 Non-operating income (loss) Income before Corporate Income Tax (IRPJ) and Social Contribution Tax (CSLL) CSLL and IRPJ Income before interests held Profit sharing Minority interest Net income Earnings per share (35,689) 2,297,317 (36,879) 2,297,317 (585,301) (585,301) 1,712,016 (159,926) (4,233) 1,712,016 (159,926) (4,233) 1,547,857 1,547,857 R$ 1,37 R$ 1,37 126 Annual Report 2007 NOTE 8 - CASh AND CASh EQuIvALENTS Cash and cash equivalents are held at Banco do Brasil S.A., under the terms of specific legislation (Decree Law no. 1,290 of December 3, 1973) applying to mixed-capital companies under federal control, and amendments arising from the Brazilian Central Bank Resolution no. 2.917 of December 19, 2001, which determined new investment mechanisms for companies integrating indirect Federal Administration. Readily realizable short-term investments are part of off-the-market investment funds, the re- turn on which is calculated based on the Average Selic Rate (Central Bank Overnight rate). Total cash and cash equivalents as of December 31, 2007 is demonstrated below: Cash in hand and in banks Financial investments R$ thousand COMPANY 2007 32,374 5,553,145 5,585,519 2006 791 2,877,088 2,877,879 CONSOLIDADO 2007 238,828 7,856,079 8,094,907 2006 91,749 5,367,390 5,459,139 NOTE 9 - CONSuMERS AND RESELLERS OF ELECTRICITY I - The receivables relating to consumers and resellers are detailed in Attachment I to these notes and include the regulatory assets described in item I of note 15. II - Sale of the electricity generated by Itaipu Binacional Under Law 10,438 of April 26, 2002, Eletrobrás is responsible for the sale in Brazil of the electricity produced by Itaipu Binacional. In the year 2007, the equivalent to 82,753 GWh was distributed, with the tariff for electricity supplied (purchase) by Itaipu at US$ 22.20/kW and the tariff for energy transfer (sale) at US$ 23.75/kW. The results of the Itaipu Binacional’s electricity sales, under the terms of Decree 4,550, of December 27, 2002, observing the amendments introduced by Decree 6.265, of November 22, 2007, will be appropriated as follows (See item II, of note 15): a) b) if positive, to the Residential and Rural consumers of the National Interconnected Power System using up to 350 kWh, through apportionment ratably to the indivi- dual consumption and credit of bonuses in the electricity bills. if negative, it is included by Aneel in the calculation of the contracted power tariff in the year subsequent to the result formation. 127 Annual Report 2007 In the year 2007, the activity was positive by R$ 96,009 thousand, and the respec- tive obligations were included in the account “Rights to Reimbursement.” III – PROINFA Sales within the scope of Proinfa generated a positive net income in 2007 of R$250,414 thousand, not producing effects on Eletrobrás’s net income for the year. The net ba- lance of the activity is presented in current liabilities and corresponds to R$444,225 thousand (R$ 193,810 thousand on December 31, 2006), and is included under the caption “Refund Obligations.” IV – Electricity Commercialization Chamber - CCEE The amounts relating to operations performed in CCEE’s sphere of action are recorded based on the information given by CCEE itself. As a result of those operations in 2007, a net credit of R$ 106,830 thousand was ge- nerated for Eletrobrás and its controlled companies. Controlled company Furnas recorded R$ 293,560 thousand of credits relating to dis- tribution of energy by the former MAE in the period between September 2000 and September 2002. The respective financial settlements have been suspended due to preliminary orders granted in the course of legal actions filed by electricity distribu- tion concessionaires against Aneel and MAE, presently CCEE. Due to the uncertainty of realization, the Company keeps an Allowance for Doubtful Accounts, corresponding to the full amount of credit taken in the last quarter of 2007. In accordance with the rules established by the Market Agreement, the resolution of those disputes would imply a new recording, and the attendant settlement between the parties would occur without CCEE’s intervention. To this end, negotiations were initiated with the participation of Aneel, CCEE and the agents involved, in order to solve judicial disputes con- nected with the accounting process and liquidation, and enable negotiation of a solution for those actions. (See note 12 item c). V – Allowance for doubtful accounts The Company set up and maintains an allowance for doubtful accounts in accordance with rules established by Aneel, based on an analysis of the overdue receivables and past ex- perience with losses, at an amount deemed sufficient to cover possible losses on any such accounts. The balance as of December 31, 2007 corresponded to R$ 1,241,317 thousand (R$ 978,517 thousand on December 31, 2006), and had the following composition: 128 Annual Report 2007 RTE (Free Energy – loss of revenue and Portion A) Consumers and resellers Companhia de Eletricidade do Amapá (CEA) Other Short-term energy – CCEE R$ thousand CONSOLIDATED 2007 309,732 2006 351,988 413,302 224,723 638,025 293,560 1,241,317 298,285 328,244 626,529 - 978,517 The balance of allowance for doubtful accounts - RTE refers to the provisions set up to cover possible losses in the realization of assets recognized referring to loss of reve- nue, ‘Portion A’ and ‘Free Energy’ (See note 15). For taxation purposes, the excess of provision recorded, taking into account the provi- sions of Law 9,430/1996 is added to the Taxable Income for IRPJ - Corporate Income Tax - calculation purposes, and to the CSLL – Social Contribution Tax, too. NOTE 10 - LOANS AND FINANCING GRANTED Loans and financing receivable refer to Eletrobrás’ own resources, sectorial resources, ex- ternal funds from development international agencies, financial institutions, and the issuance of bonds in the international financial market (See Attachment II). All loans and financing are supported by contracts signed with sector companies. Most of these amounts are expected to be amortized in monthly installments over an average 10-year period, at an average of 8.99% p.a. interest rate, weighted by the debt balance. Loans and financing granted under foreign-currency-restatement clauses represent nearly 46% of the total loan portfolio, whereas those based on indexes representing domestic price levels account for 27% of the portfolio. I - Annual Adjustment Factor applied to the Contracts with Itaipu Binacional As disclosed in the explanatory note about subsequent events on the Financial Sta- tements for the year ended December 31, 2006, as well as in the significant notice published on January 19, 2007 by officials from the Ministries of Foreign Relations and the economic and energy area of Brazil and Paraguay, the Brazilian government made a commitment to take all necessary measures on an urgent basis, to suppress the annual adjustment factor applied to the financing contracts entered into between Itaipu Bina- cional and Eletrobrás, based on US Industrial Goods and Consumer Price rates. 129 Annual Report 2007 The elimination of the annual adjustment factor, in effect starting in the year 2007, was made through mechanisms regulated by Law 6,265 of November 22, 2007, which preserve the flow of funds to Eletrobrás under the terms of Law 11,480, of May 30, 2007, and which authorized the renegotiation of credits of Eletrobrás, and the ones of the Federal Government with Itaipu Binacional. Those measures affect the financing contracts granted to Itaipu, whose balance as of December 31, 2007 totaled R$ 14,671,171 thousand. The amounts referring to the annual adjustment factor already recognized were preserved and incorporated to the debit balances of the contracts between Eletrobrás and Itaipu Binacional. Therefore, starting in 2007, the so-called annual adjustment factor no longer is appli- cable on financing receivable from Itaipu Binacional (See Item II of note 15). II - Eletronorte’s Debt Restructuring With the purpose of reestablishing economic and financial balance and obtaining terms compatible with Eletronorte’s payment capacity, Eletrobrás’ Board of Directors, according to explanatory note about subsequent events on the Financial Statements for the year ended December 31, 2006, approved the settlement of that controlled company’s debt by converting part of the Eletronorte’s loans and financing debts into capital. Accordingly, the restructuring of Eletronorte’s financing contracts, corresponding to R$ 7,621,909 thousand, include the following terms: a) b) c) d) Settlement in kind of R$ 601,510 thousand related to overdue contracts granted using RGR funds and foreign currency onlendings; Resumption, by the controlled company, of the flow of payments starting in 2007, with a grace period of one year for principal installments for contracts granted using RGR funds, and with no grace period for foreign currency onlendings; Conversion of part of the outstanding balance of overdue and falling due fi- nancing contracts, granted using Eletrobrás own resources, into an advance for future increase in capital, at an amount of R$ 1,213,233 thousand, and Refinancing of past due installments, corresponding to R$ 1,950,476 thousand, with a grace period of one year to start repaying the principal. The other finan- cial terms originally agreed remain the same, such as maturity and charges. Loans and financing granted by Eletrobrás, including interest, commissions, and rates, are detailed in Attachment II, and already consider that negotiation. 130 Annual Report 2007 III – Receivables of AES-Eletropaulo – Lawsuit In 1989, Eletrobrás filed a collection action against Eletropaulo, aiming to receive credits from financing not settled at the respective maturities, according to criteria and conditions established in the contract clauses. A decision was rendered in April 1999, whereby Eletropaulo was condemned to pay the unsettled financed amount. Subsequently, a final and unappealable decision was rendered, meaning that Eletropaulo did not file any appeal against the lower court decision. Therefore, an action for the execution of the sentence establishing payment was filed by Eletrobrás at the 5th Civil Court of Rio de Janeiro. However, in January 1998, there was a partial spin-off of the assets of Eletropaulo, giving rise to three different companies - Empresa Metropolitana de Águas e Energia S.A. (Emae), Empresa Paulista de Transmissão de Energia S.A. (EPTE ) and Empresa Brasileira de Energia S.A. (EBE). Eletropaulo - Eletricidade de São Paulo S.A., had its name changed to Eletropaulo Metropolitana Eletricidade de São Paulo S.A. Eletropaulo challenged the legitimacy of the Partial Spin-off Agreement, which was dismissed and the continuation of the execution ordered. In December 2003, Eletro- paulo filed an interlocutory appeal, requesting the suspension of effects against the decision determining the execution. It was granted due to the understanding that Eletropaulo would not be legitimate to bear the execution, but CTEEP – Companhia de Transmissão de Energia Elétrica Paulista (the former EPTE), due to the effects of the mentioned partial spin-off agreement. Extraordinary and Special appeals were filed by Eletrobrás discussing the decision about the appeal of Eletropaulo, being granted in the sense that the execution should continue and that the defense of Eletropaulo should be challenged through motion to stay collection filed by the debtor and not through a plea of lack of ju- risdiction. Eletropaulo filed a motion for clarification of judgment, a special appeal according to specific court regulations and finally a request for resolution of conflict in decision. A final decision was rendered in November 2007, denying all the Appeals of Eletropaulo. After exhausting all possibility of success before the Superior Court of Justice - STJ, Eletropaulo presented an extraordinary appeal to the Supreme Federal Court - STF, which is about to be examined by one of the panel of judges. In view of that scenario, the management of Eletrobrás will go ahead with the exe- cution and, supported by the opinion of its legal advisors, considers the realization of the credit as practically certain. 131 As of December 31, 2007, such credits corresponded to a book value of R$ 372,748 thousand, considering the original clauses of the contract with Eletropaulo, which adjusted according to the indexes practiced by the justice, reach the amount of R$1,329,545 thousand. The Company’s management, in a conservative posture, did not record the adjustment portion based on criteria different from those agreed upon in the contracts, opting to wait for the execution. IV – Allowance for Doubtful Account The Company conservatively maintains a provision for doubtful accounts referring to the principal and debt service of several delinquent other companies in the amount of R$ 80,630 thousand (R$ 51,629 thousand on December 31, 2006). These allowances are deemed sufficient by the Company’s management to cover pos- sible losses on any such accounts, based on analyses of the portfolio. NOTE 11 - RETuRN ON INvESTMENTS This refers to dividends and interest on equity capital, net from Withholding Income Tax, arising from investments of permanent nature held by Eletrobrás and breakdowns as follows: Annual Report 2007 132 Annual Report 2007 Furnas Chesf Itaipu Binacional Eletrosul Eletronuclear Cemar CTEEP Other R$ thousand COMPANY CONSOLIDATED 2007 164,121 238,680 10,628 46,842 27,893 57,990 33,295 55,908 2006 92,160 198,249 17,615 62,956 7,103 56,281 81,097 28,270 2007 2006 - - - - - - - - - - 57,990 33,295 61,183 56,281 81,097 37,077 635,357 543,731 152,468 174,455 NOTE 12 – RESChEDuLED RECEIvABLES CURRENT CEB Celg AES-SUL Cemat Rollover of States’ debts Other NONCURRENT Assignment of receivables of Itaipu Celg CEB Rollover of States’ debts Other R$ thousand COMPANY 2007 2006 CONSOLIDATED 2007 2006 54,347 48,217 10,227 - - 12 112,803 45,289 48,499 12,288 844 - 15 106,935 91,834 72,392 10,227 25,034 188,867 137,921 526,275 71,479 64,513 12,288 28,864 155,127 19,887 352,158 - 2,679,043 - 2,679,043 175,636 - - 28,323 203,959 316,762 257,899 53,790 - 32,035 3,022,767 3,129,702 476,199 181,341 965,006 298,220 1,920,766 2,447,041 592,032 256,975 939,621 267,598 4,735,269 5,087,427 133 Annual Report 2007 The rescheduled receivables are formalized through agreements stipulating repayment of accumulated debt in installments and interest rates and monetary restatement, as well as the term for amortization of the principal and charges. The Company deems all these receivables recoverable, the following being worth mentioning: a) Receivables arising from Electricity passed on to CEB Eletrobrás has receivables from CEB arising from sale by Furnas of electricity generated by Itaipu Binacional, which have been subrogated since January 2003. In that year, these receivables were rescheduled due to default on the part of Distrito Federal-based CEB in the amount of R$ 163,892 thousand. Through the rescheduling, among other things, the repayment of overdue debt by the end of 2008 (i.e., in 60 months’ time) is stipulated, with SELIC-rate based restatement and collaterals, through direct transfer to Eletrobrás by the financial institution working for CEB of 4% of the latter’s gross monthly sales. The amount receivable as of December 31, 2007 was R$ 54,347 thousand (R$ 99,079 thousand on December 31, 2006). Furnas also rescheduled receivables from CEB, in the amount of R$ 191,129 thousand, referring to its own energy, payable in 144 monthly installments beginning in August 2003, each installment corresponding to 3% of its gross sales, with the possibility of automatic extension to the date of the final payment. The unpaid balance as of De- cember 31, 2207 in the amount of R$ 218,828 thousand (R$ 210,373 on December 31, 2006) is subject to restatement based on the variation of IGP-M, plus interest of 1% p.m. Part of these credit rights in the amount of R$ 162,000 thousand was assigned to the FIDC – Credit Rights Investment Fund – Furnas II (See note 23). b) Receivables arising from Electricity passed on to CEB CEB II - Through a private Instrument for Acknowledgment of Debt executed on June 1, 2006 between Furnas and CEB Distribuição, it was greed a new period for payment of the invoices falling due in the months of June to October 2006, whose payments should be originally made on the 5th, 15th and 25th days of the respective months. Those invoices were linked to the acquisition of electricity as determined by Contracts CCEAR’s 279 and 662/2004. The debt will be settled according to the following con- ditions: 1) Estimated amortization period of 24 months; 2) Adjustment of debit balance by the application of the average annual Selic rate on a pro rat basis, plus interest of 1.8% p.a.; 3) Until the settlement of the total debt, the parties agreed that the amounts that 134 Annual Report 2007 Furnas may have to pay to CEB Distribuição could be used to offset the debt until the debit balance limit; 4) The default in any other commitment undertaken with Furnas exceeding a period of 10 days during the term of the instrument, will imply in the immediate collection of the overdue portions, regardless of previous communication. 5) Overdue amounts (monetarily restated according to the variation of the IPCA index of the month preceding the default) should be added of the following: 1.a) fine of 2%, and 1.b) interest on late payment of 1% per month, on a pro rata basis. c) Receivables from electricity passed on to Celg In 2003, Eletrobrás rescheduled with Celg the receivables arising from Itaipu Binacional’s pass-on of energy to Celg and subrogated by Furnas to Eletrobrás, in the amount of R$ 392,021 thousand. The terms of the rescheduling establish the realization of those recei- vables by direct transfer by the financial institution who collects Celg’s bills, of 3.34% of the latter’s gross monthly sales. The period for the payment is 216 months from January 2004 on and with the debt balance subject to restatement based on the U.S. dollar va- riation against the real. The amount receivable as of December 31, 2007 corresponded to R$ 223,853 thousand (R$ 306,398 thousand on December 31, 2006), from which R$ 175,636 thousand was recorded under noncurrent assets (R$ 257,899 thousand on December 31, 2006). In a similar way, in December 2003 the controlled company Furnas rescheduled R$ 378,938 thousand, referring to own energy credits, payable in 216 months and subject to monthly restatement based on the IGP-M variation and bearing interest at 1% p.m. The monthly payment corresponds to 2.56% of Celg’s gross sales, with guarantee supported by a blocked bank account. The debt balance as of December 31, 2007, was R$ 324,738 thousand (R$ 350,147 thousand on December 31, 2006). Part of these credit rights in the amount of R$ 258,000 thousand was assigned to the FIDC – Credit Rights Investment Fund – Furnas II (See note 23). d) Receivables arising from sale in the CCEE’s sphere of action In August 2005, the controlled company Furnas rescheduled Cemig’s debt, in the amount of R$62,308 thousand, relating to free energy sold in the CCEE’s sphere of action in the period from September 2000 through September 2002, corresponding to the Emergency Power Saving Program period. The rescheduled receivable amounts to R$ 72,083 thousand, and will be repaid in 50 monthly installments restated based on the Selic rate plus interest at 1% p.a. 135 Annual Report 2007 e) Rollover of States’ debts In accordance with the Public Sector Financial Recovery Program implemented by Law No 8,727/93, Furnas entered into a receivables assignment agreement with the Federal Government in order to refinance Celg’s power purchase debt existing at that time, which have been paid in 240 monthly installments since April 1994. Receivables are restated by the IGP-M at 11% p.a., and amounted to R$ 527,027 thousand as of December 31, 2007, (R$ 506,623 thousand on December 31, 2006), from which R$ 438,455 thousand was recognized under noncurrent assets (R$ 432,617 thousand on December 31, 2006). Part of these credit rights corresponding to R$ 228,000 thousand was assigned to the FIDC – Credit Rights Investment Fund – Furnas II (See note 23). Also, the controlled company Eletrosul had receivables amounting to R$626,846 thou- sand as of December 31, 2007 (R$ 588,125 thousand on December 31, 2006), against the Federal Government, which are restated by the IGP-M, bearing interest of 12.68% p.a., arising from the assumption of the controlled company’s rights against the state- controlled electricity concessionaires, which have been realized since April 1994, in 240 monthly installments. In accordance with the legislation in force, should any receivable balance still remain after the 20-year period has elapsed, the repayment may be extended for another 10 years. Such hypothesis is foreseen, since the Federal Government only passes on the resources actually received from the States, which are legally limited to the commitment of the revenues. f) Assignment of receivables – FEDERAL TREASURY In 1998, Eletrobrás assigned to the Federal Government, part of its receivables from Itaipu Binacional, in the equivalent to US$ 10,756,524 thousand, or 65.47% of the total receivables from that jointly-controlled company, with the attendant settlement of debts in the same amount. As a consequence, a direct payment flow was set between Itaipu Binacional and the Fe- deral Treasury, in a compatible manner with maturities of medium- and long-term debts – “DMLP”, incurred by the Federal Government in that year. Given the need to adjust the said payment flow, the installments paid by Itaipu Binacional to the Federal Government do not actually keep the proportion to the receivables assigned. As a consequence, the Federal Government must receive, up to 2007, monthly amounts greater than their share in the receivables assigned. This condition will be reversed after 2008, when due to the repayment of a substantial part of said “DMLP”, the Federal Government will be then en- titled to smaller amounts than the 65.47%, in favor of Eletrobrás. Starting in 2016, the proportion will reach an equal balance. 136 Annual Report 2007 Consequently, Eletrobrás records the difference between receivables appropriated under the accrual basis and those actually received as noncurrent assets at the amount of R$ 2,965,275 thousand on December 31, 2007 (or US$ 1,674,068 thousand). As a result of the renegotiation of the receivables of Eletrobrás with Itaipu Binacional, executed under the provisions of Law 11,480 of May 30, 2007, such rights were incorpo- rated to the debit balances of financing contracts with Itaipu Binacional, respecting the payment flow projected. Amounts paid until then, recorded in the account “Rescheduled receivables” were transferred to the account Loans and Financing in Current and Noncur- rent Assets. The details about loans and financing granted by Eletrobrás, presented in Attachment II, already contemplate the effects of the addition of those receivables. NOTE 13 – MARkETABLE SECuRITIES NONCURRENT CFT-E1 NTN-P Partnership results Temporary investments Founders’ shares Other R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 194,405 126,395 313,145 202,228 652,575 3,152 164,707 117,533 298,206 175,308 652,575 3,332 194,405 129,737 313,145 202,228 652,575 3,152 164,707 119,979 298,206 175,308 652,575 3,361 1,491,900 1,411,661 1,495,242 1,414,136 a) b) CFT-E1 – These non-interest bearing government securities are subject to the Ge- neral Market Price Index (IGP-M) variation and mature in August 2012. Eletrobrás maintains a valuation allowance set up in previous years and adjusted based on discounts applied in Capital Market corresponding to R$ 91,761 thousand as of December 31, 2007 (R$ 100,949 thousand on December 31, 2006), and shown as a reduction of the corresponding asset. It is the Company’s intention to redeem the securities at maturity. NTN-P – These securities, received in payment during the investees’ privatization process, by the disposal of corporate investments according to the National Priva- tization Program (PND). They are remunerated based on the TR – Reference Rate 137 Annual Report 2007 c) d) published by the Central Bank of Brazil, bearing interest at 6% p.a. on the restated value as of the redemption date as from February 2012. It is the Company’s inten- tion to redeem the securities at maturity. Others - Refer to investment certificates of governmental grants destined for pro- jects executed by the controlled companies Chesf and Eletronorte, called Finor/ Finam. The Company keeps a provision for losses, set up based on the market value, corresponding to R$ 284,414 thousand (R$ 284,233 thousand on December 31, 2006) and shown as a reduction of the corresponding asset. Partnership Results – These refer to the revenues receivable on investments, under a partnership scheme (See note 19), with an average remuneration equivalent to the IGP-M variation plus interest varying from 12% to 13% p.a. on the capital contributed, as follows: R$ thousand COMPANY AND CONSOLIDATED 2007 60,839 48,181 50,459 122,131 31,535 313,145 2006 80,477 40,829 49,379 97,009 30,512 298,206 EATE Tangará Elejor Itiquira Other e) Temporary Investments - the Company owns ordinary shares of state energy con- cessionaires previously owned by several Brazilian states, which were acquired as a result of the PND. Those shares, which are included in the PND, are evaluated based on the book value of the above companies’ equity, in order to identify and measure possible losses on realization, and considering that they have no actual market value. The balance as of December 31, 2007, represented by advances for future capital increase, is shown net of R$ 3,109,103 thousand (R$ 3,066,709 thousand on De- cember 31, 2006) mostly corresponding to prior years’ accumulated provisions for losses, as shown below: 138 Annual Report 2007 Ceal Investment value R$ thousand COMPANY AND CONSOLIDATED 2007 604,169 2006 581,044 (-) Provision for losses (482,494) (499,615) Cepisa Investment value 121,675 857,680 81,429 837,629 (-) Provision for losses (857,680) (837,629) Ceron Investment value (-) Provision for losses Eletroacre Investment value (-) Provision for losses Ceam Investment value - 986,818 (986,818) - 165,514 (84,961) 80,553 697,150 - 985,024 (955,059) 29,965 161,403 (97,490) 63,913 676,916 (-) Provision for losses (697,150) (676,916) - - TOTAL Investment value 3,311,331 3,242,016 (-) Provision for losses (3,109,103) (3,066,709) 202,228 175,307 The companies Ceam, Cepisa, and Ceron present stockholders’ deficit in the amounts of R$ 657,508 thousand, R$ 177,819 thousand, and R$ 40,450 thousand, respec- tively. Eletrobrás has set up a provision to cover such deficit corresponding to R$ 875,777 thousand (R$ 342,996 thousand on December 31, 2006), considering the financial recovery commitments made under the PND. f) Founders’ Shares – These arise from restructuring of investment in Investco S.A., with annual earnings in the equivalent to 10% of said companies’ profits, payable together with dividends and redeemable by October 2032 through conversion in preferred shares of capital stock in the companies and values listed below: 139 Annual Report 2007 Paulista Lajeado Rede Lajeado EDP Lajeado CEB Lajeado R$ thousand COMPANY AND CONSOLIDATED 2007 49,975 266,798 184,577 151,225 652,575 2006 49,975 266,798 184,577 151,225 652,575 NOTE 14 - TAX CREDITS AND DEFERRED TAX CREDITS R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 TAX CREDITS CURRENT ASSETS Withholding Income Tax (IRRF) Prepaid IRPJ and CSLL Tax loss carryforwards Temporary IRPJ/CSLL differences Pasep/Cofins (sales taxes) to be offset Recoverable ICMS Other 1,386,390 383,218 - - 585,969 615,852 - - 1,442,669 396,286 19,423 407,585 765,807 695,676 - - 3,607 11,600 45,672 257,652 - - 1,773,215 - - 1,213,421 63,544 67,893 2,443,072 9,121 114,081 1,842,337 Of the above tax credits, R$ 763,721 thousand corresponding to IRPJ payables and R$ 280,669 thousand corresponding to CSLL (See note 26), will be offset upon filing of the Company’s Income Tax Return (DIPJ/2008). 140 Annual Report 2007 TAX CREDITS NONCURRENT Recoverable ICMS Deferred tax credits: Tax loss carryforwards Provision for interest on equity capital Temporary differences Provision for contingencies Allowance for doubtful accounts Provision for reduction to market value Other R$ thousand COMPANY 2007 2006 CONSOLIDATED 2007 2006 - - - - 939,193 961,679 50,895 87,495 239,185 156,246 239,185 156,246 - 457,407 - 457,407 83,549 469,115 - 457,407 67,155 45,744 69,527 45,744 127,899 130,962 130,049 130,962 460,216 1,351,862 1,351,862 - 790,359 790,359 533,930 1,576,250 2,515,443 119,924 997,778 1,959,457 Deferred tax credits refer to temporary differences in IRPJ and CSLL tax bases, and will be used as these differences are realized. Considering the Company’s profitability record and the expected taxable income genera- tion in next years, the recognition of those assets depends on the realization of the recorded deferred tax credits, identified with analyses of future trends, and based on technical studies about internal assumptions, economic, commercial, and tax future scenarios. Given the nature of tax credits, their realization is expected for the next five to eight ye- ars, when triggered by the taxable events. Unconstitutionality of PIS/Pasep and Cofins - The Supreme Court declared unconstitutional the section 1, art. 3 of Law 9,718/98, which expanded the PIS/Pasep and Cofins tax bases, and renewed the billing concept so it now encompasses all revenues earned by legal entities, regardless of the type of activity carried out and the accounting classification adopted. That provision had no legal supporting basis, which is why it was subsequently amended. 141 Annual Report 2007 Based on the CTN, Brazilian Tributary Code, the Eletrobrás System’s companies filed an appeal claiming for recognition of the right to, and actual reimbursement of the amount paid in excess, because the expansion of PIS/Pasep and Cofins tax bases is unconstitutional. To the date of completion of these financial statements, the claims had not been judged. The Eletrobrás System’s companies hold potential PIS/Pasep and Cofins credits waiting for a decision, and therefore, not recognized on these Financial Statements, given that the decision on the unconstitutionality of the matter only benefits the companies whose appeals have already been judged. NOTE 15 - REGuLATORY ASSETS I - General Agreement for the Electricity Sector In 2001, the Brazilian electricity sector was subjected to an Emergency Electricity Con- sumption Reduction Program, with the Federal Government forming the Electricity Cri- sis Management Chamber to manage demand adjustment programs, coordinate actions to increase energy supply, and implement emergency measures during the rationing period which lasted from June 1, 2001 to February 28, 2002. Under Law 10,438/2002, which put into practice the legal instruments for implementa- tion of the General Electric Sector Agreement due to the Reduction Program, Aneel was authorized to implement the RTE – Extraordinary Tariff Adjustment, with the objective of standing up to the financial impact on the Brazilian Interconnected Electric System, then under the effect of the said program. In that scenario, electricity generating companies recognized credits related to ‘free energy’, revenue loss and ‘Portion A’, realizable under the terms of the General Agree- ment for the Electricity Sector, through Extraordinary Tariff Adjustment (RTE) and col- lected from final consumers, with variable maturities defined by Aneel for the different distributors. In compliance with Circular Letter Aneel 2.409, of December 14, 2007, the Company recognized losses stemming from ‘free energy’ not billed by distributors within the period established in the regulations, corresponding to R$ 599,822 thousand. That is recorded in the account “Losses in the recovery of assets” in the group of operating expenses, which was fully accrued for until the fourth quarter of 2007. The corresponding obligations of the same type were written-off, at an amount of R$ 300,136 thousand, and recorded in the account “Gains on reduction in liabilities” in the group of operating revenues, also fully accrued for. The net effect of the loss with the ‘free energy’ was R$ 299,686 thousand. 142 Annual Report 2007 Existing provisions were reversed, not producing effects on result of operations in 2007. The net residual amounts deriving from the General Electric Sector Agreement which were recorded as regulatory assets can be seen under “Consumers and Resellers” (See Attachment I) as follows: RTE – Portion A, Free Energy and loss or revenue Balance as of December 31, 2006 (-) Losses (-) Realized amount Realizable balance as of December 31, 2007 Allowance for Doubtful Accounts Balance as of December 31, 2006 (+) Reversal (-) Recognition Balance as of December 31, 2007 R$ thousand CONSOLIDATED 1,113,667 (299,686) (287,279) 526,702 (351,988) 299,686 (257,430) (309,732) 216,970 Under the terms of the mentioned Circular Letter Aneel 2.409/2007, the realizable ba- lance corresponding to ‘free energy’, net of losses already recognized, is R$ 526,702 thousand (R$1,413,803 thousand on December 31, 2006) and will receive the same treatment in case it is not realized within the established periods, whose maturities will occur mostly until the year 2009. In accordance with the terms of the same Circular Letter of Aneel, and supported by studies the management prepared, the Company has set up an allowance for doubtful accounts of R$257,430 thousand in the fourth quarter of 2007. Therefore, the total allowance amounts to R$ 309,732 thousand (R$ 351,988 thousand on December 31, 2006), deemed sufficient to cover possible losses that may occur until the end of the realization period. The controlled company Furnas has assigned to the Credit Rights Investment Fund (FIDC) – Furnas I an amount of R$ 126,000 thousand (See note 23) related to RTE. 143 Annual Report 2007 II – Receivables from the commercialization of electricity generated at Itaipu Bina- cional As of May 30, 2007, Law 11,480 was enacted, which authorized Eletrobrás to negotiate the elimination of the adjustment factor from the financing contracts entered into with Itaipu Binacional and the assignment of credits with the National Treasury starting in 2007. Article 1 of the mentioned Law establishes that it is assured to Eletrobrás to keep the full flow or amounts received associated with the elimination of the adjustment factor from the financing contracts. Besides, Decree 6.265 of November 22, 2007 was also passed, with the objective of regulating the commercialization of electricity of Itaipu Binacional, defining the di- fferent rate to be applied to the energy transfer tariff, creating a regulatory asset, corresponding to an annual factor taken from financing to be annually included in the tariff for transfer of energy starting in 2008. Article 6 of the mentioned Law authorized Eletrobrás to include the difference refer- ring to the elimination of the annual adjustment factor to the energy transfer tariff of power from Itaipu Binacional, whose values should be annually defined through an Interministry ordinance of the Finance Ministry and Ministry of Mining and Energy. The energy transfer tariff in effect in 2008 includes an amount of R$ 65,196 thou- sand, (or US$36,807 thousand), and was approved by Interministry ordinance MME/ MF 318/2007. In relation to that, in 2007, the Company recognized a regulatory asset presented under the caption “Rights to reimbursement” in Noncurrent assets, arising from the commer- cialization of the electricity of Itaipu Binacional at an amount of R$ 590,025 thousand, (US$ 333,103 thousand), established by Interministry ordinance MME/MF 318/2007 of December 17, 2007. From that amount, R$ 302,279 thousand, (US$ 170,654 thousand), will be transferred to the National Treasury until 2023. Such amounts will be realized by means of inclusion to the energy transfer tariff, to be implemented until 2023. Therefore, the loss of financial revenue of Eletrobrás caused by the elimination of the adjustment factor from financing contracts executed with Itaipu Binacional was offset by its addition to the energy transfer tariff, not generating losses to the Company. The method for determination of the regulatory asset was defined by Interministry ordinance MME/MF 313/2007 of December 11, 2007 144 Annual Report 2007 NOTE 16 - STuDIES AND PROJECTS These mainly refer to costs incurred by the Company on feasibility studies focusing the use of hydrographical basins and transmission lines, for construction of new hydroelectric plants and transmission systems. Among these, the study of Rio Uruguay basin’s use, conducted in accordance with the Argentina-Brazil International Treaty for implementation of the Garabi Plant, is worth mentio- ning. The costs incurred thereon until December 31, 2007, at the amount of R$ 30,921 thou- sand (R$ 30,921 thousand - December 31, 2006), are deemed recoverable by the Company’s management. Studies and projects also comprise costs incurred from several other studies and projects aiming the use of hydrographical resources, specially the ones for the rivers Madeira and Xingu. According to Article 45 of Law no. 8,987/95, the transfer will be indemnified by the Grantor Federal Government with resources obtained on the bid for concessions to exploit these resources. We show below the amount of studies and projects costs, including those referring to the concessions to be bid for, net of the adjustment to reflect its probable realizable value: PROJECTS Inventory of Rio Uruguai basin Inventory of Rio Madeira basin Inventory of Baixo Araguaia – Tocantins basin Inventory of Rio Xingu basin Inventory of Rio Tapajós basin Inventory of Trombetas – Erepecuru basin Inventory of Médio Tocantins basin UHE Barra do Peixe UHE Belo Monte UHE Cachoeira Porteira UHE Serra Quebrada UHE Ji-Paraná Other studies TOTAL - PARENT COMPANY Foz do Rio Bezerra – feasibility study Other studies R$ thousand 2007 30,921 26,500 7,000 40,000 7,000 7,500 20,078 9,374 52,256 17,521 27,163 10,667 36,599 292,579 2006 30,921 26,500 7,000 40,000 7,000 7,500 20,078 9,374 52,256 17,521 27,163 10,667 36,350 292,330 14,086 5,457 14,086 1,595 TOTAL - CONSOLIDATED 312,122 308,011 145 Annual Report 2007 NOTE 17 – NuCLEAR FuEL INvENTORIES The nuclear fuel used in Angra 1 and Angra 2 plants comprises elements produced with metal alloys and uranium. In this initial stage, the uranium concentrate, and the services required for its production are classified as long-term assets, and recorded under Nuclear Fuel Inventories. After the production process is finished, the portion to be consumed during the following 12 months is classified as current assets. The monthly amortization in operational expenses is done proportionally, taking into ac- count the energy actually generated monthly, in comparison to the total energy calculated for each fuel element. Periodically, inventories and assessments of the nuclear fuel elements, which have been through the process of generation of electricity and are stored at the spent fuel pool, are performed. Nuclear fuel inventories, as of December 31, 2007, destined to the operation of UTNs An- gra 1 and Angra 2 were as follows: CURRENT Stockroom Nuclear fuel inventories NONCURRENT Nuclear fuel inventories Uranium concentrate Ready elements Storeroom material Services in progress - nuclear fuel R$ thousand CONSOLIDATED 2007 2006 42,990 243,325 286,315 47,018 217,684 264,702 71,301 77,442 194,633 101,808 242,615 226,992 148,639 657,188 943,503 187,927 594,169 858,871 146 NOTE 18 - ADvANCES FOR INCREASE IN PARENT COMPANY’S OWNERShIP INTEREST Eletrobrás records the amounts referring to advances for future capital increase of the following invested companies under Noncurrent assets: Controlled companies: Furnas Chesf Eletrosul Lightpar Eletronorte Eletronuclear R$ thousand COMPANY 2007 2006 CONSOLIDATED 2007 2006 31,154 294,397 94,576 62,285 1,337,552 264 1,820,228 31,154 294,397 114,599 62,285 117,030 236 619,701 - - - - - - - - - - - - - - Other investments 4,027 80,384 4,027 80,383 1,824,255 700,085 4,027 80,383 As a result of Eletronorte’s debt rescheduling (See note 10), part of its debt, corresponding to R$ 1,213,233 thousand was converted into advance for future capital increase, already considered in the above balance. Annual Report 2007 147 Annual Report 2007 NOTE 19 - INvESTMENTS Equity in earnings (loss) R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 a) Controlled companies (Attachment III) 39,344,716 38,672,726 - - b) Significant affiliated companies CEEE-D (a) (b) CEEE-GT (a) (b) Emae (a) (b) Cemat CTEEP (a) Cemar (a) Celpa Rede Lajeado CEB Lajeado EDP Lajeado (a) Paulista Lajeado(a) Acquisition cost Cesp Celesc AES Tietê Coelce CDSA Saelpa Other investments 18,951 105,234 252,219 455,384 3,156 74,348 294,127 363,157 18,951 105,234 252,219 455,384 3,156 74,348 294,127 363,157 1,393,534 1,321,554 1,393,534 1,321,554 169,790 379,584 218,445 61,233 102,957 23,380 154,261 438,695 212,599 60,513 101,738 23,380 169,790 379,584 218,445 61,233 102,957 23,380 154,261 438,695 212,599 60,513 101,738 23,380 3,180,711 3,047,528 3,180,711 3,047,528 269,680 28,242 23,047 15,329 11,801 11,272 177,340 536,711 269,680 28,242 23,047 15,329 11,801 11,272 225,368 584,739 269,680 28,242 23,047 15,329 11,801 11,272 1,643,816 2,003,187 269,680 28,242 23,047 15,329 11,801 11,272 1,158,846 1,518,217 43,062,138 42,304,993 5,183,898 4,565,745 148 Annual Report 2007 a) b) Financial statements audited by other independent auditors. Report of independent auditors related to the Financial Statements not available until the closing date of these Financial Statements. In evaluating investments in controlled and affiliated companies, the stockholders’ equity amounts as of December 31, 2007. The position of November 2007 was considered for affilia- ted companies CEEE-D and CEEE-GT. In accordance with statements for the year ended December 31, 2006, the National Priva- tization Council approved the corporate restructuring of Ceam and Manaus Energia through the taking over of Ceam by Manaus Energia. Eletrobrás is in charge of carrying out the restructu- ring not yet concluded until the closing of these financial statements. Several lawsuits against Eletrobrás are under way, at different stages of completion (See note 32), in guarantee of which the following assets were given, representing 5.30% of the total amount of proceedings: Ownership interest CTEEP Emae Cesp AES Tietê Coelce Duke Cemat CEB Celpa Celpe Celesc CEEE-D CEEE-GT Other investments R$ thousand Ownership interest 1,393,534 252,219 269,680 23,047 15,329 3,344 455,384 3,528 379,584 4,689 28,242 18,951 105,234 2,952,765 40,109,373 43,062,138 Percentage of blockade 82.61% 100.00% 95.82% 94.43% 100.00% 62.48% 97.30% 100.00% 5.31% 70.32% 15.24% 87.39% 87.39% - 5.30% R$ thousand Blocked invest- ment amount 1,151,198 252,219 258,407 21,763 15,329 2,089 443,089 3,528 20,156 3,297 4,304 16,561 91,964 2,283,904 - 2,283,904 Over the last few years Eletrobrás entered into partnerships in projects with private inves- tors in which Eletrobrás acts as minority stockholder, owning preferred shares. These enterpri- ses’ objective is to operate in the electricity generation and transmission areas. The invested amounts are classified as Noncurrent assets - Investments. 149 Annual Report 2007 Likewise, considering the needs of investment of the Electric Sector and in accordance with the Federal Government’s intention to obtain new resources under the conditions esta- blished by Law 10,438/2002, the Eletrobrás’ controlled companies participate as minority sto- ckholders in companies formed to exploit the electricity service concessions. These operations are classified as Acquisition Cost – Others. Guascor Itiquira EPTE Eate Tangara Elejor Enerpeixe STN Transleste Transirapé Artemis SC Energia Transudeste Centroeste de Minas Chapecoense RS Energia Uirapuru Etau Intesa Amazônia - Eate Energética Águas da Pedra Serra do Facão Other R$ thousand COMPANY 2006 3,300 41,339 8,781 48,782 24,822 65,068 - - - - - - - - - - - - - - CONSOLIDATED 2007 3,300 41,339 5,066 28,016 21,738 44,606 350,763 97,020 11,896 5,474 64,976 69,005 7,500 6,440 230,000 73,492 19,600 11,713 73,500 21,300 2006 3,300 41,339 8,781 48,782 24,822 65,068 350,763 97,020 11,896 5,474 64,976 51,352 7,500 6,440 - 18,060 19,600 13,198 63,700 21,300 2007 3,300 41,339 5,066 28,016 21,738 44,606 - - - - - - - - - - - - - - - - 74,240 - - - 144,065 - - 192,092 95,743 48,897 1,405,624 - 5,218 928,589 a) Enerpeixe - Refers to the 40% interest of Furnas in the capital stock of Enerpeixe S.A, which has as purpose the construction and operation of UHE Peixe Angical, located by the river Tocantins, whose generation capacity is 452 MW. It started operations in May 2006. b) Empresa Sistema de Transmissão Nordeste S.A (STN) was formed by Chesf and Alusa 150 Annual Report 2007 - Cia. Técnica de Engenharia Elétrica for exploitation of a 546 km, 500 kV transmission line concession in the region between Teresina (State of Piauí) Sobral and Fortaleza (State of Ce- ará), with projected annual revenue of R$ 77,900 thousand. Alusa holds 51% and Chesf 49% of the capital stock of STN. The enterprise was concluded in December 2005 and commercial operations began in January 2006. Chesf has agreements in relation to this jointly enterprise with STN for operation and maintenance of the transmission line, and earned in the year a revenue from services corresponding to R$ 1,775 thousand. c) Transleste - a company incorporated in 2003 with the objective of implanting and ex- ploiting for a period of 30 years a transmission line connecting Montes Claros and Irapé (both in the State of Minas Gerais), with a voltage of 345 kV, and 150 km of extension. The interest of the controlled company Furnas in that company corresponds to 24% of capital stock. d) Transirapé - A company incorporated in 2004, with the purpose of constructing, ope- rating, and maintaining the facilities of the electricity transmission line between Irapé and Araçuaí (both in the State of Minas Gerais), with a voltage of 230 kV and 65 km of extension. The interest that Furnas holds in that company corresponds to 24.5% of capital. e) Artemis Transmissora of Energia S.A. is a company whose objective is the exploitation of 525 kV transmission lines, connecting Salto Santiago and Ivaiporã and Ivaiporã and Cascavel D’Oeste, where the controlled company Eletrosul holds 46.5% of the shares. Operations began in October 2005. f) SC Energia - Empresa Transmissora de Energia Elétrica de Santa Catarina S.A., is a com- pany whose objective is the exploitation of a 375 Km, 525 kV transmission line, connecting Campos Novos with Blumenau (both in the State of Santa Catarina). Eletrosul holds 49% par- ticipating interests in its capital stock. Operations began in September 2006 (See note 51). g) Transudeste - a company incorporated in 2004, with the purpose of implanting and exploiting for a period of 30 years the transmission line connecting Itutinga with Juiz de Fora (both in the State of Minas Gerais), with a voltage of 345 kV, and 140 km of extension. The interest that Furnas holds in that company corresponds to 25% of capital. h) Centroeste de Minas - company incorporated in 2004 with the objective of implanting and exploiting for a period of 30 years the transmission line connecting Furnas and Pimenta (both in the State of Minas Gerais), with a voltage of 345 kV, and 75 km of extension. The interest that Furnas holds in that company corresponds to 49% of capital. i) Chapecoense Geração S.A. - it has as objective to build and exploit UHE Foz do Chapecó, located by river Uruguai. Furnas holds interest of 49.9% in the capital of the company that will manage the plant, with capacity of 885 MW, which will be operated by the consortium composed of CPFL, with 51%, Chapecoense, with 40%, and CEEE with 9% interest. Furnas will be responsible for the performance of engineering activities. The work started in January 2007, and the beginning of operations of the first machine is projected to 2010. j) RS Energia - Empresa de Transmissão de Energia do Rio Grande do Sul. Eletrosul has 49% interest in the shares representing the capital of RS Energia, while the companies Schahin 151 Annual Report 2007 Engenharia Ltda. hold 41% and Engevix Engenharia S.A. 10%., respectively. The Company was incorporated in 2005, for construction, operation and maintenance of the 525 kV transmission line connecting Campos Novos (State of Santa Catarina) and Nova Santa Rita (State of Rio Grande do Sul), with concession period of 30 years. The enterprise has a 273 km transmission line, 570 towers, and an estimated investment of approximately R$183,000 thousand, whose construction is projected to finished in 2008 (See note 51). l) Uirapuru Transmissora de Energia S.A. - Eletrosul holds 49% of shares of Uirapuru, and the company Cymi Holding S.A. holds the remaining 51%. Uirapuru was incorporated in 2004, for the construction, operation and maintenance of the 525 kV transmission line connecting Ivaiporã and Londrina (both in the State of Paraná), with a concession granted for 30 years. The enterprise has a 120 km transmission line, 265 towers, and an approximate investment of R$ 107,000 thousand. It was concluded in 2006. m) Etau – Empresa Transmissora do Alto Uruguai S.A. - Eletrosul holds 27.4% of the shares of the capital stock of Etau, and the companies Alcoa Alumínio S.A., Camargo Corrêa Cimentos S.A., DME Energética Ltda., and Companhia Estadual de Energia Elétrica – CEEE hold 42%, 10.6%, 10% and 10% respectively. Etau was incorporated for the construction, operation and maintenance of the 230 kV Transmission line connecting Campos Novos and Barra Grande (both in the State of Santa Catarina), and Lagoa Vermelha and Santa Marta (both in the State of Rio Grande do Sul), with a concession granted for 30 years. The enterprise comprises a 187 km transmission line, 411 towers, and investments of around R$ 116,000 thousand, which was concluded in 2005. n) Intesa - Integração Transmissora de Energia S.A. – Company incorporated for construc- tion, implantation, operation, and maintenance of a 500 kV Transmission line connecting Colina and Serra da Mesa 2, 3rd circuit, with a concession granted for 30 years. The capital of Intesa is distributed as follow: Chesf holds 12%, Fundo de Investimentos em Participações Brasil Energia – FIP, holds 48%, Eletronorte, holds 37% and Engevix Engenharia S.A. 3%. The beginning of operations is projected to 2008. o) Amazônia Eletronorte Transmissora de Energia S.A. – company incorporated for the construction, operation and maintenance of 2 transmission lines with capacity of 230 KV, connecting Coxipó and Cuiabá (both in the State of Mato Grosso), with an extension of 25 km and from Cuiabá to Rondonópolis (also in the State of Mato Grosso) with an extension of 168 km. It started is operations in September 2005. Eletronorte holds 49% of the capital stock of AETE. p) Energética Águas da Pedra S.A. - Investments amounting to R$ 31,800 thousand, where Chesf has 24.5% interest, together with Eletronorte that holds 24.5% and Neoenergia S.A. 51%. The mentioned company had as origin the Aripuanã Consortium, for contracting of energy from new enterprises, with subsequent grant of a concession within the Regulated 152 Annual Report 2007 Contracting Environment, for implantation of UHE Dardanelos, with a projected investment of R$ 760,800 thousand. The Plant will be implanted by river Aripuanã, located in the northern region of the State of Mato Grosso, with an assured capacity of 261 MW, and total energy of 154.9 average MW. The first machines are scheduled to start operations in 2011, and 147 ave- rage MW were sold for the period 2011 to 2041, within the 30 years-concession period. q) Serra do Facão - Consórcio de Empresas Associadas Serra do Facão (Gefac), was incorpo- rated with the objective of constructing and operating UHE Serra do Facão, with an installed capacity of 210 MW, located by the river São Marcos, in the municipalities of Catalão and Divinópolis, both in the state of Minas Gerais. The stockholding of Furnas in the mentioned consortium is 49%. The work started in March 2007 and the beginning of operations of the first machine is projected to May 2010. r) UHE Santo Antonio - On December 10, 2007, Consórcio Mesa S.A., incorporated by Furnas (39%), Odebrecht Investimentos (17.6%), Andrade Gutierrez Participações (12.4%), Cemig (10%), Fundos de Investimentos e Participações da Amazônia (20%) and Construtora Norberto Odebrecht (1%), was the winner in an auction held by Aneel of the concession to build and operate the construction project of UHE Santo Antônio, by the river Madeira, in the State of Rondônia. s) Eletronet – The controlled companies Furnas, Chesf, Eletrosul, and Eletronorte started operating the transmission of information signals, using part of their electricity transmission infrastructure, with intermediation of the controlled company Lightpar, in a joint venture with private companies, where it holds minority interest in the capital stock of Eletronet, a company formed specifically for rendering feasible the business of providing transmission for information signals and telecommunication services. Since September 2002 Lightpar assumed the management of Eletronet, due to default on part of capital contribution on the part of the majority stockholder AES Bandeirante Empreen- dimentos Ltda. in contributing with the value of monetary restatement referring to the fourth portion of capital stock. The administrative council of Eletronet, during an extraordinary meeting held on March 18, 2003 and concluded on March 27, 2003, decided to declare it bankrupted, as all possible other measures to reach a final solution had been exhausted. During the same meeting, an extraordinary meeting of stockholders was called for discussion of the matter. The declaration of bankruptcy was approved in the extraordinary meeting at Eletronet, held on April 24, 2003, which authorized the managers to take all applicable legal measures. On May 16, 2003, Eletronet, represented by its managing partners, requested the filing of the its statement of bankruptcy with the Judiciary, together with a preliminary request to continue in business. The 5th Business Bankruptcy Court declared the bankruptcy under the requested manner. In that condition, Eletronet continued its operations under the manage- 153 Annual Report 2007 ment of the Judiciary, and still has appeals filed with the Superior Court of Justice pending judgment. As of June 2007, Lightpar along with Bankrupt Eletronet was notified by Chesf, Eletro- norte, Eletrosul, and Furnas, called assignor companies, about the termination of the contract granting right of access and use of cables and infrastructure signed with Lightpar in June 1999 and its respective amendments. The referred contract allows the transfer to Eletronet, as well as the reimbursement of Lightpar of 50% of the cost incurred by the latter in the management of the communication structure. We point out, however, that such termination does not can- cel the rights of receiving the credits corresponding to the due reimbursements payable and collectible until December 31, 2006. Based on contract clauses, the assignor companies claim the following out of the court: a) to regain possession of the assets comprising the implemented infrastructure for the rendering of telecommunications services; b) the right to claim the optical cables; and c) determining the maintenance of the essential services to the national integrated elec- tricity transmission system, as well as the continuance of the services rendered by Eletronet employees. On the same date, the assignor companies filed an injunction at the 5th Business Lower Court of Rio de Janeiro about the issue mentioned above, which was granted, on January 14, 2008, and which still waits for the deposit in the checking account of Eletronet’s bankrupt estate of the amount of R$ 380,000 thousand, determined according to the report drawn up by an expert. In view of that decision, the assignor companies and LT Bandeirantes Empreendimentos Ltda (partner of Lightpar in Eletronet) and the bankrupt estate of Eletronet S.A. filed Inter- locutory appeal against interim decision. Neither an interim relief nor a stay of proceedings was granted in any of the cases. NOTE 20 – PROPERTY, PLANT AND EQuIPMENT The value of property, plant and equipment items, detailed in Attachment IV and IVa, is rectified taking into account obligations arising from the Public Electricity Service concession, which comprise amounts received from the Federal, State and the Municipal Governments and the consumers, as well as donations not committed to return to the donor. Settlement is due for the end of the respective concession. Property, plant and equipment breakdown as follows: 154 Participating interests of the Federal Government Amortization Consumers’ contributions Donations and grants for investment Other CONSOLIDATED R$ thousand 2007 406,688 81,998 27,826 71,147 36,452 624,111 2006 400,569 102,267 30,496 23,096 102,620 659,048 a) Federal Government’s Interest – this refers to resources received for use in priority electricity generation and transmission work. b) Amortization and reversals – these pertain to the “Amortization Reserves” set up until 1971, under the Federal Decree no. 41.019/57, which were used for expanding the Public Electricity Service until that year. c) Consumers’ contributions – these refer to resources received to enable conducting the necessary enterprises for meeting unforeseen electricity demand. d) Donations and subventions for investments purposes – this refers to the accounting of subventions and plain donations, that is, not conditioned in any return to the donator, received by the concessionary. Both are destined to investments in the Public Electri- city Service. According to Decree 41.019, of February 26, 1957, assets and facilities used in generation, transmission, distribution, and commercialization are linked to these activities, and accor- dingly, cannot be removed, disposed of, assigned or hypothecated without the Regulating Agency’s prior and express authorization. Annual Report 2007 155 Annual Report 2007 NOTE 21 - INTANGIBLE ASSETS DESCRIPTION COMPANY CONSOLIDATED 2007 2006 2007 2006 R$ thousand GENERATION In service (-) Reintegration in progress TRANSMISSION In service (-) Reintegration in progress ADMINISTRATION In service (-) Reintegration in progress - - - - - - - - - - - - - - - - 55,558 61,114 (5,556) - 57,410 61,114 (3,704) - 54,856 17,871 (4,224) 41,209 283,110 241,758 (2,436) 43,788 125,639 163,113 (53,595) 16,121 30,561 5,519 (186) 25,228 265,728 225,758 (1,959) 41,929 98,126 84,293 (18,671) 32,504 Other - - 6,205 18,123 55,558 57,410 469,810 412,538 NOTE 22 - LOANS AND FINANCING OBTAINED The breakdown of loans and financing obtained, including charges, whose funds are assigned to the investment program of Eletrobrás System, is presented in Attachment V (See note 46). I - Fund raising in foreign market a) Fund raising in progress – The Company’s Board of Directors, on a meeting held on July 31, 2007, has decided to authorize the raising of funds in the international market, amounting to up to US$ 600,000 thousand, to back the investments pro- jected for 2008. The fund raising program will be made by means of financial operations to be performed in pursuance with market conditions and the lowest possible cost for Eletrobrás. 156 Annual Report 2007 b) It has the purpose of financing the investments in Eletrobrás System, mainly in the areas of generation and transmission of electricity. Funds already raised - Until the closing date of these Financial Statements, the funds contracted in 2007 by Eletrobrás with the financial institutions China Deve- lopment Bank and BNP Paribás, corresponding to US$ 430,000 thousand, had not been used. Those funds are destined to the financing of UTE Candiota II, Phase C, whose execution is under the responsibility of controlled company CGTEE, under the following conditions: • it is executed under the Bilateral Agreement Brazil-China, under the Decision of the Federal Senate number 34; amortization in 16 years, in half-yearly installments; 4 years of grace period, and annual interest based on the Libor rate • • • II - Funds raised in the domestic market Other financing operations being contracted: a) b) with BNDES, corresponding to R$ 1,034,410 thousand and R$ 183,330 thousand, destined for the financing of projects in the controlled companies Furnas and Ele- trosul, respectively, under the following (projected) conditions: • amortization in 16 years, in half-yearly installments; • 2 years of grace period; • monthly interest based on the Long-Term Interest Rate (TJLP) + 1.91% p.a. with Banco da Amazônia - BASA, at the amount of R$ 193,330 thousand, that is destined for financing projects in the controlled company Furnas, under the follo- wing (projected) conditions: • • • amortization in 16 years, in half-yearly installments; 2 years of grace period, and monthly interest based on the Long-Term Interest Rate (TJLP) + 1.91% p.a. 157 Annual Report 2007 NOTE 23 - RECEIvABLES INvESTMENT FuND The controlled company Furnas performed receivables assignment transactions in the year 2005 in order to raise funds for its investment program. The main assignment conditions are as follows: a) FIDC Furnas I 1. 2. 3. 4. 5. 6. 7. Set up by its administrator, Banco Santander Brasil. The assignment to Fundo Furnas I was formalized through a Private Instrument of Receivables and Other Assets Assignment and Acquisition signed in September 2004. The discount rate is 1.38% p.a. The assignment flow is restated based on the annual Selic rate set by Central Bank of Brazil (Bacen) for the period from the assignment date to the last business day before the payment date. The controlled company Furnas remained as the collection agent. The assignment was performed under Furnas’ co-obligation to pay for the Receiva- bles, as provided under the Brazilian Civil Code. Assigned receivables: RECEIvABLES ASSIGNED RTE Financing - Cemat Energy - Proman Total assigned REALIZATION PERIOD 01/2007 a 01/2008 10/2004 a 03/2009 10/2004 a 12/2006 R$ thousand AMOuNT ASSIGNED 126,000 164,000 52,000 342,000 b) FIDC Furnas II 1. 2. 3. 4. 5. Jointly set up by Banco Santander Brasil and Bradesco, BB Banco de Investimento, Itaú BBA and Votorantim, under administration of BEM Distribuidora de Títulos e Valores Mobiliários Ltda. The assignment to Fundo Furnas II was formalized through a Private Instrument of Receivables and Other Assets Assignment and Acquisition signed in May 2005. The discount rate is 1.80% p.a. The assignment flow is restated based on the annual Selic rate set by Central Bank of Brazil (Bacen) for the period from the assignment date to the last business day before the payment date. The controlled company Furnas remained as the collection agent. 158 Annual Report 2007 6. 7. The assignment was performed under Furnas’ co-obligation to pay for the Receiva- bles, as provided under the Brazilian Civil Code. Assigned receivables: RECEIvABLES ASSIGNED REALIZATION PERIOD Créditos – Lei 8.727/93 Refinanciamento energia CEB Refinanciamento energia CELG Contratos diversos (*) Total cedido 06/2005 a 05/2010 06/2005 a 05/2010 06/2005 a 05/2010 06/2005 a 02/2008 R$ thousand AMOuNT ASSIGNED 228,000 162,000 258,000 255,050 903,050 (*) Refer to Eletronorte and Eletronuclear corresponding to the amounts of R$89,100 thousand and R$ 165,950 thousand respectively. The consolidated statements, under CVM Instruction no. 408/2004 and taken into ac- count the characteristics of the funds, consider the receivables as an integral part of assets, recorded under the original captions, and the FIDC’s assets amount reflected as long-term and short-term financing and loans (See Attachment V), whose total balance as of December 31 was R$583,715 thousand (R$1.020.605 thousand on December 31, 2006 ). See Attachment V. NOTE 24 – TRADE ACCOuNTS PAYABLE Includes, mainly, the energy purchased from Itaipu Binacional (See note 9), which breaks down as follows: R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 CURRENT Goods, material and services 51,805 83,754 1,068,073 989,076 Electricity network use - - 91,771 86,105 Energy purchased for resale 1,188,771 1,062,641 1,014,607 850,457 Short-term energy – CCEE 28,789 13,526 117,478 51,265 1,269,365 1,159,921 2,291,929 1,976,903 159 Annual Report 2007 NOTE 25 – REGuLATORY FEES CURRENT LIABILITIES Global Reversion Reserve Quota - RGR CCC/CDE Financial compensation of water resources Inspection feed - Aneel Proinfa NOTE 26 – TAXES AND SOCIAL CONTRIBuTIONS R$ thousand CONSOLIDATED 2007 2006 71,166 29,384 382,438 4,217 27,692 514,897 70,943 54,223 431,500 2,945 31,679 591,290 Income tax Current liabilities Noncurrent liabilities Contribuição Social Current liabilities Noncurrent liabilities Pasep and Cofins (taxes on sales) Current liabilities Noncurrent liabilities ICMS (State VAT) Current liabilities Noncurrent liabilities PAES (Tax Debt Refinancing Program) Current liabilities Noncurrent liabilities Other Current liabilities Noncurrent liabilities TOTAL Current liabilities Noncurrent liabilities R$ thousand COMPANY 2007 2006 CONSOLIDATED 2007 2006 763,721 - 627,745 497,827 1,014,943 381,949 742,411 679,539 280,669 - 258,316 150,017 318,900 138,756 282,496 216,688 28,234 - 27,357 - 136,368 - 102,933 15,958 - - - - - - - - 38,167 40,982 26,900 64,590 109,761 1,016,133 113,220 1,163,523 19,936 1,092,560 1,092,560 - 5,065 - 1,566,327 918,483 647,844 205,699 47,710 3,449,368 1,823,838 1,625,530 180,695 10,450 3,599,403 1,448,655 2,150,748 160 Annual Report 2007 Obligations referring to Corporate Income Tax (IRPJ) and Social Contribution Tax on Net Income (CSLL) regarding the year 2007, amounting to R$ 1,044,390 thousand, will be fully offset with existing tax credits (See note 14). a) Reconciliation of income and social contribution tax expense The reconciliation of IRPJ and CSLL amounts recorded as expenses in the years 2007 and 2006 o those calculated at nominal rates can be thus shown: COMPANY 2007 2006 IRPJ CSLL IRPJ CSLL Income (loss) before IRPJ and CSLL 1,401,020 1,401,020 1,470,606 1,470,606 Total IRPJ and CSLL calculated at the rates of 25% and 9%, respectively 350,255 126,092 367,652 132,355 Effects of add-back (deductions): Revenue from dividends (200,971) (72,349) (49,162) (17,698) Equity in loss (211,343) (76,083) (41,203) (14,833) Interest on equity capital (175,872) (63,314) (114,887) (41,359) Losses with investments Other add-backs (deductions) 143,794 (52,839) 51,766 16,027 133,164 47,939 (84,960) (24,719) Total IRPJ and CSLL expenses (146,976) (17,861) 210,603 81,685 b) Tax debt refinancing program - PAES In July 2004, Furnas opted for the Special Tax debt refinancing program (PAES), refi- nancing the amount of R$968,789 thousand referring to Pasep, Cofins, ITR, IRPJ and CSLL.. The amount to be paid to Federal Revenue Service (SRF) represents 1.5% of monthly sales, payable in up to 180 months and with the debit balance restated based on the Long-term Interest Rate (TJLP). 161 Annual Report 2007 The debt payable under PAES as of December 31, 2007 is as follows: Consolidated debt in 2003, included in PAES Monetary restatement up to Dec 31, 2005 Payments made up to Dec 31, 2005 PAES balance as of December 31, 2005 Monetary restatement in 2006 Payments made in 2006 PAES balance as of December 31, 2006 Monetary restatement in 2007 Payments made in 2007 PAES balance as of December 31, 2007 R$ thousand 968,789 248,654 (207,585) 1,009,858 79,356 (88,438) 1,000,776 60,848 (197,625) 863,999 The present value of the debt, to be settled at a monthly rate of 1.5% of gross revenue, limited to the remaining amount of installments, is R$ 756,975 thousand. The follo- wing assumptions were used in the estimation: 1. the revenue was projected based on the amount billed until December 2007, ad- justed by the annual average inflation rate, calculated at 4.5%. the present debt value was obtained by discounting the flow of payments adjus- ted by the Long-Term Interest Rate (TJLP) of 6% p.a. and discounted at the rate of 11% p.a. Those rates are compatible with the ones of the described economic scenario. 2. In the same way, in 2003 Eletronorte joined the PAES, in order to regularize debts with the Federal Revenue and INSS. This debt balance, as of December 31, 2007 is as follows: Consolidated debt in 2003, included in PAES Monetary restatement up to Dec 31, 2005 Payments made up to Dec 31, 2005 PAES balance as of December 31, 2005 Monetary restatement in 2006 Payments made in 2006 PAES balance as of December 31, 2006 Monetary restatement in 2007 Payments made in 2007 PAES balance as of December 31, 2007 R$ thousand 94,486 5,992 (8,859) 91,619 5,059 (62,251) 34,427 1,571 (4,191) 31,807 162 Annual Report 2007 Also in the same way, in August 2003, due to unfavorable decisions arising from the lawsuit involving Pasep and Cofins on revenue from Itaipu’s energy sales, judged by the 4th. Region Federal Regional Court, Eletrosul opted for paying this liability under the PAES through an installment plan, whose balance, as of December 31, 2007 was R$ 230,088 thousand (R$ 241,539 thousand on December 31, 2006). The debt payable under PAES as of December 31, 2007 is as follows: Consolidated debt in 2003, included in PAES Monetary restatement up to Dec 31, 2005 Payments made up to Dec 31, 2005 PAES balance as of December 31, 2005 Monetary restatement in 2006 Payments made in 2006 PAES balance as of December 31, 2006 Monetary restatement in 2007 Payments made in 2007 PAES balance as of December 31, 2007 NOTE 27 – ADvANCES FROM CONSuMERS R$ thousand 241,809 42,589 (36,637) 247,761 16,369 (22,591) 241,539 11,254 (22,705) 230,088 R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 - 202,250 202,250 - 102,387 102,387 35,191 202,250 237,441 32,522 102,387 134,909 - 202,250 - 102,387 1,056,761 1,294,202 942,330 1,077,239 CURRENT Albrás Proinfa NONCURRENT Albrás I - Albrás In 2004, the controlled company Eletronorte was the outbidder in the electricity auc- tion organized by Albrás for the sale of electricity to be supplied for a 20-year, equi- valent to 750 MW on average per month until December 2006 and 800 MW on average 163 Annual Report 2007 per month from January 2007 to December 2024. Albrás set a parameter for agreeing on a minimum price compatible with the UHE Tucuruí’s balanced tariff, plus a premium calculated based on the aluminum price in London’s commodities exchange. Under these conditions, Albrás made an energy purchase pre-offer, with a view to redu- cing the base price. The prepayment for this offer is constituted by energy credits for amortization over the supply period, in fixed monthly installments in medium MW, at the tariff ruling on the month of sale. The schedule for prepayment is as follows Year 2004 2005 2006 2007 Total Contracted disbursements Disbursements made R$ thousand 300,000 500,000 250,000 150,000 1,200,000 300,000 500,000 250,000 150,000 1,200,000 The corresponding liability presented the following position as of December 31, 2007: Year 2004 2005 2006 2007 Total Amounts received 300,000 500,000 250,000 150,000 1,200,000 R$ thousand Payments made (15,968) (29,201) (29,979) (32,900) (108,048) Balance 284,032 470,799 220,021 117,100 1,091,952 II - Proinfa Established by Law 10,438/2002 and its amendments, Proinfa’s purpose is the diversifi- cation of the Brazilian energetic matrix and the search for regional solutions based on renewable electricity sources, available input and the applicable technology, given the increased participation in electricity production from those sources. The program guarantees to Eletrobrás the purchase of the energy to be produced for a period of 20 years from 2006. This energy will be transferred to distribution conces- sionaires, free consumers and self-producers, excluding low-income consumers, in the proportion of its use. Distribution and transmission concessionaries pay Eletrobrás the annual value of the costing quota corresponding to the participation of captive and free consumers and 164 Annual Report 2007 self-producers connected to its electricity facilities in twelfth parts, in the month prior to the month when energy consumption is properly recognized. In addition to the regular payments of the current year quotas to Proinfa generators, distribution and transmission concessionaires advanced the payment of one twelfth of the annual quota, considering the total contracting of all projects carried out under Proinfa. Accordingly, as of December 31, 2007, the Company had an amount of R$ 202,250 thousand (R$ 102,387 thousand on December 31, 2006), which will be demanded as Proinfa develops and the corresponding electric power is supplied. NOTE 28 – COMPuLSORY LOAN The Compulsory Loan, instituted by Law 4,156/62 to fund the expansion of the Brazilian electricity sector, was extinguished by Law 7,181 of December 20, 1983, which established the end of the collection term for December 31, 1993. In the first phase of that compulsory loan, ended with enactment of Law 1,512/76, that levying reached several classes of energy consumers and taxpayers’ credits were represented by Bearer Bonds that Eletrobrás issued. In a second moment, after the enactment of the cited Law, the compulsory loan started being paid only by industries with monthly consumption exceeding 2,000 kWh and taxpayers’ credits no longer were represented by bearer bonds, which Eletrobrás simply started recognizing. The remaining credits of the Compulsory Loan, after the third conversion into capital, in April 2005, of the credits constituted from 1988 to 2004, are recorded as current and non- current liabilities maturing as from 2008 and continue to be remunerated at 6% p.a. plus monetary restatement based on the Extended Consumer Price Index (IPCA-E) variation. These funds amounted to R$ 299,084 thousand as of December 31, 2007, (R$ 134,976 thousand on December 31, 2006), of which R$ 202,375 thousand is recorded as noncurrent (R$ 23,870 thousand on December 31, 2006). The Bearer Bonds issued in the first phase of the compulsory loan, as decided by the Brazilian Securities and Exchange Commission (CVM), should not be confused with debentu- res. Besides, as provided by article 4, paragraph 11 of Law 4,156/62 and article 1 of Decree 20.910/32, they are unenforceable, a condition confirmed by Notice 344 of the Superior Court of Justice (STJ), which established that those bonds cannot be used as guarantee of execu- tions for not having liquidity and not being debentures. Therefore, the balance of the Compulsory Loan refers solely to the 1988 – 1994 period residual credits held by industrial consumers with consumption above 2,000 kWh, that is, the second phase of that compulsory loan, as well as to the unclaimed interest related to those credits, as follows: 165 Annual Report 2007 Credits received Interest payable R$ thousand COMPANY 2007 202,375 96,709 299,087 2006 23,870 111,106 134,976 NOTE 29 - STOCkhOLDERS’ COMPENSATION Under the Company’s by-laws, stockholders are entitled to a minimum compulsory dividend of 25% of net income, adjusted in accordance with the Brazilian corporate law, respecting the minimum remuneration of 8% of capital stock for the preferred class “A” shares and 6% for preferred class “B” shares. The table below demonstrates the adjusted net income and the value of the mandatory mi- nimum dividend, under the terms of Law 6,404/76, as well as, the total value of compensation proposed to stockholders, to be approved in a general ordinary meeting: Net income Legal reserve Adjusted net income Mandatory minimum dividend - 25% Compensation proposed to stockholders Common shares Class “A” preferred shares Class “B” preferred shares R$ thousand COMPANY 2007 2006 1,547,857 1,161,318 (77,393) (58,066) 1,470,464 1,103,252 367,616 275,813 363,416 119,479 297 339,773 703,486 297 339,773 459,549 166 Annual Report 2007 Proposed compensation per share in reais Common shares - 1.87% of capital (2006 – 0.61%) Class “A” preferred shares - 9.41% of capital (2006 – 9.41%) Class “B” preferred shares - 7.06% of capital (2006 – 7.06%) 2007 2006(*) 0.40 2.02 1.51 0.13 2.02 1.51 (*) Considers a reverse split of shares Therefore, Eletrobrás recorded an amount of R$ 703,486 thousand as compensation to stockholders and interest on equity capital referring to the year 2007, which was added to the minimum obligatory dividend in accordance with the statutory provisions. Under prevailing tax legislation, withholding income tax is levied at the rate of 15% on the remuneration proposed to stockholders as interest on equity capital. Stockholders’ compensation for the year 2007 corresponds to 47.84% of adjusted net income under the terms of Law 6,404/76 (2006 – 41.65%) and will be restated based on the Selic rate, established by the Brazilian Central Bank, according to the terms of Decree 2.673 of July 16, 1998 that regulates the payment on the part of federal state companies of dividends or interest on equity capital. The adjustment is applicable for the period starting on January 01, 2008 to the date where it is started the payment of the compensation. Such date will be decided during a general ordinary meet, where the financial statements will be analyzed and the proposed destination for income of the year established. There will be the levying of Withholding Income Tax at the rate of 20% on the portion referring to the monetary restatement according to SElic. In compliance with CVM Decision 207/96, and to meet tax standards, Eletrobrás accoun- ted for that interest against financial expenses, taking them to a specific account, opting to not present them in the statement of operations to not produce an effect on the income of the year, but only the effects recognized in the accounts of social contribution and income taxes. Under the decision of the 47th ordinary general meeting, held on April 30, 2007, the pay- ment of the compensation to stockholders related to the year 2006, in the form of dividends, started on June 15, 2007 for the stockholders registered as of May 2, 2007, paid as follows (before the reverse split of shares): Type /Class Common shares Class “A” preferred shares Class “B” preferred shares In reais / per thousand shares Gross value as of Dec. 31, 2006 0.33824150 3.43314543 Adjusted gross value as of Jun 15, 2007 0.27872570 4.26370961 2.57485907 3.19778221 167 Annual Report 2007 The balance of compensation to stockholders demonstrated in current liabilities contains a portion of R$ 177,516 thousand (R$ 106,494 thousand on December 31, 2006) regarding unclaimed compensation of the years 2004, 2005 and 2006. According to the terms of the Company’s by-laws, the period for payment of the unclaimed compensation referring to the year 2003 and preceding years is expired. NOTE 30 - PAYABLES TO ThE BRAZILIAN FEDERAL TREASuRY Acquisition of interests in CEEE-GT and CEEE-D Rights to Reimbursement (See note 15) Other R$ thousand COMPANY AND CONSOLIDATED CuRRENT 2007 2006 NONCuRRENT 2007 2006 50,439 41,660 386,888 405,855 - 7,711 58,150 - 9,463 51,123 302,279 37,822 726,989 - 53,953 459,808 NOTE 31 – COMPLEMENTARY PENSION FuNDS I – PARENT COMPANY Eletrobrás sponsors Eletros, a pension plan fund with its own equity segregated from that of the sponsor. The objective of Eletros is to manage a pension plan for supple- menting the retirement and pension benefits of the sponsor’s employees who enroll. Eletros manages two benefit plans sponsored by Eletrobrás, detailed as follows: 1. Defined benefit plan It supplements the actual average salary of recent working years in relation to the pension provided by the Brazilian social security system, and it finished the last three years with a technical surplus. This plan is closed for new participants since April 01, 2006. As of December 31, 2007, that such plan had 480 active partici- pants, 1,186 retired ones, and 261 pensioners. Eletros calculates the mathematical reserves of this plan using a capitalization actuarial system, which is reviewed annually. Eletrobrás makes monthly contributions jointly to participants, which are charged as administrative expenses. These amounted to R$ 10,331 thousand as of Decem- ber 31, 2007 (R$ 11,933 thousand on December 31, 2006). 168 Annual Report 2007 The contribution rates are as follows: 4,08% - up to half the maximum Social Security contribution; 8,16% - from half the maximum to the maximum Social Security contribution; 17,13% - from the maximum to three times as much the maximum social secu- rity contribution, and 24,48% - more than three times the maximum Social Security contribution, for participants subjected to previous regulations. In accordance with the technical pronouncement issued by Ibracon – Brazilian Institute of Independent Auditors and approved by CVM Resolution No. 371, of December 13, 2000, which establishes the method to be adopted by the sponsors in accounting for the benefits granted to employees, the management of Eletro- brás performs, on an annual basis, an actuarial revaluation of the benefit plan it sponsors and the required actuarial liability coverage, for which the Company is responsible, identified in the report prepared by an independent actuary based on the projected credit unit. The actuarial valuation executed as of December 31, 2007 demonstrated that the fair value of benefit plans exceeds the present value of actuarial obligations, as follows: Fair value of the assets of the plans (-) Present value of actuarial obligation Obligations with guarantee of minimum income Net assets R$ thousand COMPANY 2007 1,590,535 (1,493,373) 97,162 (33,565) 63,597 2006 1,402,208 (1,348,077) 54,131 (33,195) 20,936 Eletrobrás assures to pensioners of defined benefit plans of Eletros a minimum income of 90% of the initial adjusted global income (INSS + Eletros). Estimation of the expected cost for the defined benefit plan. Cost of current services Interest cost Return on investments Contributions expected from employees Estimated cost for 2008 169 R$ thousand COMPANY 5,647 122,600 (160,972) (2,696) (35,421) Annual Report 2007 Actuarial calculations involve projections of future actuarial assumptions, such as salaries, interest rates (nominal and effective), inflation, mortality, disability, and others. Actuarial results obtained from those assumptions cannot be analyzed without the previous knowledge of the scenario used in the evaluation. The economic actuarial assumptions used were established considering the long- term period projected for their maturity, and, thus, should be analyzed under that perspective. As a consequence, in the short-term period, they may be not neces- sarily realizable. For purposes of the actuarial revaluation made pursuant to CVM Decision No. 371/00, the following assumptions were used: a) ECONOMIC HYPOTHESES Discount rate Expected yield rate of assets Salary increase rate Vested benefits adjustment index Benefit’s capacity factor b) DEMOGRAPHIC HYPOTHESES Turnover rate Mortality table Disability table 9.72% (inflation + 5.5% p.a. of real inter- est) 10.76% p.a. (inflation + 6.5% p.a. of real interest) 7% p.a. (inflation + 2.86% p.a. of real increase) 4% p.a. (only inflation) 0.98 No turnover AT-2000 LIGHT-WEAK Mortality table of disabled people AT-83 2 – Defined contribution pension plan In 2006, participants of Eletros’ defined benefit plan started to be migrated to a new defined contribution pension plan sponsored by Eletrobrás. Part of those participants that have already migrated to the new plan opted to maintain their entitlement to a defined benefit partially or totally. The process mentioned here will continue until June 28, 2008. 170 Annual Report 2007 As of December 31, 2007, the plan had 142 active participants and 11 retired ones. The contribution rates for the defined contribution plan are as follows: 4,5% - 15% - up to 10 Plan Adjustable Units – URP for amounts higher than 10 Plan Adjustable Units - URP II – CONSOLIDATED Besides Eletros, which is sponsored by Eletrobrás, the controlled companies of Eletro- brás sponsor their own pension funds organized in a similar way, with the objective of supplementing their employees’ retirement and pension benefits through benefit and contribution plans. Below, a list of these funds: Sponsor Furnas Chesf Eletrosul Eletronorte, Manaus and Boa Vista Eletronuclear Itaipu CGTEE Pension fund Real Grandeza Fachesf Elos Previnorte Nucleos and Real Grandeza Fibra (Brazil) and CAJA (Paraguay) Eletroceee Contributions, which are charged to administrative expenses totaled R$ 222,646 thou- sand as of December 31, 2007 (R$ 310,864 thousand on December 31, 2006 ). In accordance with the plan’s regulations and Ibracon’s technical pronouncement ap- proved by CVM Deliberation no. 371/2000, the companies perform an actuarial evalu- ation of their obligations arising from supplementary benefits granted to employees, the need for coverage of which is reflected in the financial statements corresponding to R$ 982,135 thousand, thus divided: R$183,512 thousand under the current liability portion (R$ 338,355 thousand on December 31, 2006) and R$ 798,623 thousand as the noncurrent portion (R$1,992,061 thousand on December 31, 2006), under the caption Supplementary pension plans. In the year 2007, in accordance with the conditions established by decision CVM 371/2000, the results of the actuarial evaluations of the Complementary Pension Plans of Eletrobrás presented a surplus of R$ 1,224,384 thousand, recorded as a reducer of actuarial obligations, as follows: 171 Annual Report 2007 Balance as of Dec. 31, 2006 (-) actuarial adjustments – CVM 371/2000 (-) realization of debt contracts Balance as of Dec. 31, 2007 R$ thousand CONSOLIDATED 2,330,417 (1,224,384) (123,898) 982,135 The surplus in the defined benefit plans reduces the risk of a possible future actuarial liability for the Company. 172 Annual Report 2007 NOTE 32 - CONTINGENT LIABILITIES At the closing date of the financial statements, the Company had the following provisions for contingencies: R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 - - - - - - - - - - - - 377,155 331,311 13,575 4,615 677,599 620,487 118,241 47,249 (157,461) (110,363) 1,029,109 893,299 17,072 17,072 304,711 247,807 - - 127,384 157,548 1,328,244 1,328,244 1,872,640 1,868,764 CURRENT Labor Tax Civil Other (-) Escrow deposits NONCURRENT Labor Tax Civil (-) Escrow deposits (130,788) (46,927) (261,948) (126,198) 1,214,528 1,298,389 2,042,787 2,147,921 1,214,528 1,298,389 3,071,896 3,041,220 There are several lawsuits, mainly labor and civil suits, at different trial stages against Ele- trobrás and its controlled companies. According to resolution 489 from October 03, 2005, of the Brazilian Securities Commission (CVM), the Company’s management adopts the procedure of classifying the lawsuits against the Company according to the risk of loss, based on the opinion of its legal counselors, as follows: • • • For lawsuits for which an unfavorable outcome is considered as probable, provisions are set up; For lawsuits for which an unfavorable outcome is considered as possible, the related information is disclosed in Notes to the financial statements, and For lawsuits for which an unfavorable outcome is considered as remote, only the in- formation deemed relevant by management is disclosed in the Notes to the financial statements. Accordingly, provisions for the contingencies mentioned above have been set up. Accor- ding to the Company’s management and its legal counselors, those provisions, net of escrow 173 Annual Report 2007 deposits, are deemed sufficient to cover for losses from lawsuits of different nature. In the year, they developed as follows: R$ thousand COMPANY CONSOLIDATED 1,298,389 - - - - (83,861) - 1,214,528 3,041,220 335,829 (165,407) (25,629) 19,886 (139,824) 5,821 3,071,896 Balance as of Dec. 31, 2006 Provisions set up Reversal of provisions Payments Monetary restatement Escrow deposits Escrow deposits survey Balance as of Dec. 31, 2007 I - Lawsuits against the Company 1. Civil lawsuits 1.a) Parent Company: a) The Company’s provision for civil contingencies, in the amount of R$ 1,328,244 thousand (R$ 1,328,244 thousand on December 31, 2006), refers to Compul- sory Loan-related lawsuits, taken on behalf of Eletrobrás starting in 1978, with monetary restatement criteria different from those established in the specific Law. Those actions should not be confused with those filed claiming the redemption of the currently unenforceable Bearer Bonds issued in association with the compulsory loan. The proceedings accrued for challenged the calculation system of monetary restatement determined in the law that governs the compulsory loan, used for adjustment of the credits taken starting in 1978. Those credits have been fully paid by Eletrobrás through conversions into shares as defined in the 72nd, 82nd, and 142nd extraordinary meetings of Eletrobrás. There are 3,181 lawsuits under way at different stages, aiming at recognition of the right to receive full monetary restatement on the amounts paid as com- pulsory loan. Supported by their legal counselors’ opinion, Eletrobrás mana- gement estimated at eight to ten years, the average term for a final lawsuit settlement. Under this criterion, Eletrobrás management, based on its legal counselors’ 174 Annual Report 2007 opinion, evaluates that the risk of loss on the Compulsory Loan-related law- suits as possible. However, due to the substantial amounts involved, management, on a conser- vative basis and taking into account lower-court unfavorable decisions and the lack of judgment by the Higher Court of Justice on the merits of the cause, adopts the practice of setting up a provision for contingencies, which was made in prior years, to cover possible losses on unfavorable legal decisions. In this scenario, therefore, the Company’s management, due to the importance of the issue, decided to carefully consider matters affecting the company’s assets, in case something changes the course of the trials. Through this, the Company fulfills its duty to best protect the users of the Financial Statements, mainly regarding the assessment of its liabilities, and, consequently, of its stockholders’ equity, trying to avoid extremely optimist analyses in making decisions based on account information. Thus, the accumulated amount provisioned, corresponding to R$ 1,328,244 thousand, despite the classification of possible risk, is considered sufficient by the Company’s management and it is in conformity with the different stages of the lawsuits and their natures. It is not possible, at the current stage and circumstances, to get to a conclusion about the outcome of the proceedings, that may reach an approximate amount of R$3,000,000 thousand. Eletrobrás is the defendant in an action filed by Associação Brasileira dos Con- sumidores de Água e Energia Elétrica – Assobraee, in judgment at the 17th Federal Court in Brasília, where it is claimed the use of the market value of Eletrobrás’ shares as the issuance price of the stocks used for payment of com- pulsory loan credits, made through the book value. An amount of R$2,397,003 thousand was attributed to the action, which is classified as a remote loss according to the legal advisors. Eletrobrás is also a party to other lawsuits whose purpose is the redemption of the Bearer Bonds issued by the Company regarding the compulsory loan collec- ted between 1964 and 1976. Pursuant to the provisions of article 4, paragraph 11 of Law 4,156/62 and article 1 of Decree 20.910/32, the said obligations are unenforceable. The Company’s management, supported by its legal counselors, considers that the possibility of an unfavorable outcome on these ongoing lawsuits for Ele- trobrás is remote, considering that jurisprudence on the issue is unanimous on the statute of limitations period for the right to claim redemption of the obligations (See note 28). b) c) 175 Annual Report 2007 1.b) Controlled companies: a) b) c) d) Indemnity actions filed against Chesf by the Consortium formed by CBPO/Cons- tran/Mendes Júnior claiming for condemnation of the Company and payment of an additional financial compensation, due to the delayed payment of invoices under the Xingó Hydroelectric Power Plant construction contract. One of these actions filed in June 1999, referred to invoices issued as from April 1990, and the other, filed on May 2000, referred to invoices issued until then. The plain- tiffs’ general claims under these actions were restricted to the existence of an alleged right to financial compensation, the determination of the respective amounts being postponed to the end of the action. Currently, with the actions completed, the sentence is about to be given, and the risk involved is consi- dered as possible. Public civil actions against the controlled company Chesf involving R$100,000 thousand, claiming for financial compensation for alleged environmental da- mage to fishermen resulting from the construction of the Xingó Hydroelectric Power Plant. According to the opinion of Company’s legal counselors, the risk of an unfavorable outcome is possible, but the loss amount is not known. No provision has been set up for that suit. The controlled company Chesf also faces actions involving remote risk of loss in the legal counselors’ opinion. Worth mentioning is a collection action filed by the company Mendes Júnior, engaged for the UHE Itaparica construction, claiming for indemnification of alleged financial losses caused by the delayed payment of invoices on the part of the Chesf. Said collection action is based on the Declaratory Action found valid for the purposes of declaring the existence of a Mendes Júnior’s credit against Chesf, thus ensuring financial refunding. The controlled company Chesf has filed a civil lawsuit claiming for partial annulment of an amendment to the Xingó Hydroelectric Power Plant construction contract (Fac- tor K – Analytical price correction), signed with the Consortium formed by Companhia Brasileira de Projetos e Obras - CBPO, Constran S.A. - Construções e Comércio and Mendes Júnior Engenharia S.A., and reimbursement of approximately R$ 350,000 thousand. The lawsuit filed by the Company was considered groundless and the coun- terclaim filed by the defendant was deemed groundful by the 12th Civil Court of the Judicial District of Recife – State of Pernambuco. the special appeal and the bill of review brought by the Company awaited decision, and the related expert work had already been completed and the court records completed for the Judge’s examination. Based on their legal counselors’ opinion, the Management recorded under “Noncur- rent Liabilities” a provision of R$ 330,537 thousand for possible losses on that suit. 176 Annual Report 2007 Under this action, to be entitled to some sort of financial refunding, and in compliance with the decisions of the Pernambuco Court of Justice and the Superior Court, Mendes Júnior was required to prove that it raised funds spe- cifically for financing the UHE Itaparica works, because Chesf delayed to pay some invoices, and that the fund raising expenses were higher than the total additional payments made by Chesf As determined by the Pernambuco 12th Federal Court, an accounting expert work is under way, with the expert appointed by the Court, stating in reply to Chesf’s question that “based on an analysis of Mendes Junior’s accounting records, it is impossible to confirm that in the periods of delayed invoice pay- ment, it actually raised funds in the money market, specifically for funding the Itaparica works”. After delivering the expert appraisal report, the expert was questioned by the parties, their questions having not been analyzed by the Pernambuco 12th Federal Court. The court records have already been sent to the Federal Public Prosecution Service, the members of which declared that they are preparing their opinion on the action for subsequent presentation to the Court. Given the annulment of all actions taken at the State Court of Justice, and the strict instructions of the Federal Judge concerning the need for a new expert work, requiring thorough identification of own or externally-raised funds for actual investment in Itaparica works, it is impossible to estimate the amount involved in this litigation, not even on a tentative basis. Also, it should be taken into consideration that thus far, it has not been proved the existence of credit in favor of the plaintiff. According to the opinion of the Company’s legal advisors, such proceeding is rated as a remote possibility of loss for the Company. 2. Labor Lawsuits 2.a) Parent Company There are no individually significant labor contingencies involving the Company, and the mentioned actions have been rated by the Company’s legal counselors as possible losses. Still, the Company maintains a provision of R$ 17,072 thousand, totally set up in previous years, to cover possible losses on ongoing suits. 2.b) Controlled companies a) Several labor actions have been filed against Furnas, for which provisions have been set up, the most relevant referring to the change in the base date of rise in the compensation of Company’s engineers, involving R$ 71,500 thousand 177 Annual Report 2007 (R$64,686 thousand on December 31, 2006), of which R$ 5,674 thousand re- fers to employees transferred to Eletronuclear, due to the 1997 split. Also, the risk premium granted to the electricity sector’s employees subject to risk of electricity damage is a matter of concern, since in the Superior Labor Court’s opinion the increase should be calculated at a full rate, rather than on a pro- portionate basis as Furnas had been doing. The coverage for possible losses on these actions is estimated at R$ 58,156 thousand. b) The controlled company Furnas has accrued for an amount of R$ 38,921 thou- sand for complementation to the retirement pensions for equivalence with the earnings of active employees. c) d) The jointly-owned company Itaipu Binacional has recorded long-term provi- sions for several legal, civil and labor actions involving R$ 160,770 thousand (R$ 188,755 thousand on December 31, 2006) and R$ 208,759 thousand (R$ 176,569 thousand on December 31, 2006), respectively. Several civil, tax and labor suits have been filed against the controlled company Eletronorte. The company’s management evaluated the risks of contingency arising from these suits and, based on its legal counselors opinion, set up provisions totaling R$ 866,239 thousand, (R$ 793,819 thousand on December 31, 2006), thus divided: civil suits - R$ 667,006 thousand (R$ 604,718 thou- sand on December 31, 2006), labor suits - R$194,889 thousand (R$ 167,123 thousand on December 31, 2006) and others - R$ 4,344 thousand (R$ 21,978 thousand on December 31, 2006), net of respective escrow deposits, all dee- med sufficient to cover possible losses on lawsuits, which unfavorable outcome risk is considered as probable. II - Tax contingencies 1. Parent Company In 2003 the Federal Revenue Service issued a notice against Eletrobrás assessing Cofins’ deficiencies in the amount of R$ 281,702 thousand, which restated through December 31, 2007 totals the amount of R$ 514,219 thousand. The notice is about the deduction from that tax basis of the revenues earned from financing transactions for the acquisition of property, plant, and equipment per- formed with Itaipu Binacional. The Company’s management and legal counselors do not agree with this notice of defi- ciency, supported by the International Treaty signed between the governments of Brazil and Paraguay and subsequent related legislation, including Federal Revenue Service regu- lations on transactions conducted with and by Itaipu Binacional, including tax issues. 178 Annual Report 2007 Eletrobrás challenged the notice of deficiency and did not obtain a favorable deci- sion at the first administrative level, which confirmed the debt under discussion. An appeal was filed, which awaits decision by the Board of Tax Appeals, where the case is under review. Based on the opinion of its legal counselors, the Company’s management expects to obtain a favorable decision on the case, whose likelihood of unfavorable outco- me is considered remote, and for this reason no provision for contingencies was set up. 2. Controlled companies a) In May 2001, the controlled company Furnas received a notice issued by the Federal Revenue Service assessing deficiencies in social security contribution Fin- social, Cofins and Pasep (tax on sales), at the restated amount as of December 31, 2007 of R$ 1,098,900 thousand (R$ 1,068,958 thousand on December 31, 2006), due to deductions from related tax bases, especially of the revenues from the pass- on and transmission of Itaipu’s electricity for a ten-year period. These deficiencies are in addition to others assessed in 1999 for an inspection period of five fiscal years, in the amount of R$ 615,089 thousand, which were included in a tax debt refinancing program (Refis) in March 2000 and transferred in July 2003 to the Special Tax debt refinancing program (PAES), under amortization. FURNAS’ management challenged the notice of deficiency claiming the tax pro- cedure was incomplete and followed not in accordance with legal provisions, the inspection was performed more than once and for a period outside the statute of limitations period. In 2004, the Board of Tax Appeals granted the appeal filed by Furnas for the assessment of Finsocial deficiency. In 2005, a decision favorable to Furnas was rendered on the assessment of Pasep deficiency, due to the fact that the inspection exceeded the statute of limitations period established in five years. Regarding the assessment of Cofins deficiency, the appeal filed by Furnas has not yet been judged to date. The controlled company’s management, based on the opinion of its legal counse- lors, understands that tax actions exceed legal limits, and there is the possibility of a favorable outcome to Furnas. For this reason, no provisions for contingencies were set up. 179 Annual Report 2007 NOTE 33 – OBLIGATIONS ASSuMED FOR ThE RELEASE OF ASSETS The decommissioning of nuclear plants comprises a program of activities demanded by National Nuclear Safety Authority (Brazilian Commission of Nuclear Energy - Cnen) that allows to safely discontinue those nuclear facilities, with minimum impact to the environment. In the case of Brazilian thermonuclear plants (Angra 1 and Angra 2), the option chosen was the decommissioning program known as “SAFSTOR,” that comprises the plant dismantlement after a period of confinement of 15 years (quarantine). The calculation of the liabilities arising from the decommissioning program is based on prevailing Brazilian and International laws and regulations, the technology currently available to carry out such activities, and the costs specific to the place where the plants are located. According to article 16 of Law 10,308/2001, Eletronuclear is legally responsible for the initial deposits of waste arising from the activities of the decommissioning program of Angra 1 and Angra 2 and, accordingly, it bears the costs of such obligation. Under the provisions of Law 10,308/2001, CNEN is responsible for and bears the costs of implementing the inter- mediate and final deposits of waste. Therefore, such costs are not included in the calculation of the liabilities resulting from Angra plants’ write-off, though the costs for the storage of the waste are. Article 18 of the mentioned Law establishes that intermediate and final waste storage services will have their respective costs reimbursed to Cnen by the depositing parties, according to a table approved by the Deliberation Commission of Cnen to be in force starting on the first business day following the publication in the federal official gazette. With Angra 2 becoming operative, new studies on decommissioning costs were performed, taking as a reference estimates made in specific studies applicable to a set of 17 US plants and 10 European, Canadian and Japanese plants which are at different decommissioning stages, as well as criteria set by the US NRC – Nuclear Regulatory Commission. These criteria were used in studies of plants similar to the Brazilian ones, including a specific study conducted at the Krisko plant, which is considered as Angra’s 1 twin sister. Angra’s 1 and Angra’s 2 deactivation cost is estimated in US$ 197,816 and US$240,000, and the end of the plants’ useful life forecast for December 2014 and August 2030, respectively. Recently, the Company’s management reviewed and adjusted the values, besides defining parameters and regulations for setting up the necessary financial reserves to cover the decom- missioning of the plants. Therefore, the adjusted costs are US$ 307,000 thousand and US$ 426,000 thousand for Angra 1and Angra 2, respectively and the economic useful lives of the plants were adjusted to 40 years. As a result of that revaluation, total obligation changed from US$ 437,816 thousand to US$733,000 thousand, in complementation of the already recognized obligation of R$123,252 thousand, or US$ 69,583 thousand. The balance as of December 31, 2007 of the liabilities corresponding to the decommissio- ning of Angra I and II is R$ 451,017 thousand (R$ 356,604 thousand - December 31, 2006), as follows: 180 Annual Report 2007 Recorded liabilities uS$ thousandl 312.678 138.339 451.017 uS$ thousandl 176,225 78,100 254,325 Angra 1 Angra 2 CONSOLIDATED unrecorded liabilities uS$ thousandl 130,775 347,900 478,675 uS$ thousandl 231.111 616.235 847.346 Total uS$ thousandl 307,000 426,000 733,000 uS$ thousandl 543.789 754.574 1.298.363 The amounts presented in liabilities for decommissioning of nuclear plants were estimated and will be reviewed during the useful lives of the facilities, considering advances in techno- logy and in the way of recognizing the accumulated costs to be incurred with the technical- operational deactivation. Currently, there is no current specific legislation in Brazil dealing with the decommissio- ning of thermonuclear plants and, accordingly, the conditions for the decommissioning, the procedures to be implemented, amounts to be spent, and the measures to be taken in case such amounts are insufficient or in excess, are not established. Eletronuclear manages Low, Medium, and High radioactivity waste. Low Activity Waste comprises disposable materials used in the operation and maintenance of the nuclear plants. Medium Activity Waste is the water purification resin and filters of the process. The High Ac- tivity Waste is the fuel used. Accordingly, Eletronuclear has already built a Waste Management Center - CGR for the storage of low and medium activity wastes, located at the Central Almirante Álvaro Alberto in Angra dos Reis, in the State of Rio de Janeiro. For high activity waste, Eletronuclear has already built and operates 2 (two) initial depo- sits (spent fuel pool), inside the respective plants of Angra 1 and Angra 2. There is also the project of another storage pool for spent fuel elements, located outside the plants, which will increase the storage capacity of the Nuclear Center and allow it to store all the fuel used by Angra 1 and Angra 2 reactors, throughout the useful life of those units. Decommissioning costs include services referring to the removal, transportation, and final disposal of low and medium activity waste generated during the decommissioning program. They also include the removal and transportation of the fuel elements used to be stored where established by Cnen. These costs, however, do not include the services of intermediate and final storage of those fuel elements. These two costs are not considered because there are no procedures, technical regulations, and specific legislation for the long-term storage of used fuel elements. Besides, that used fuel might be recycled in the future through reprocessing techniques, as currently made in countries such as France and Japan. That might generate enough funds to pay for the costs of the final storage of the resulting high activity waste. Given the specific characteristics of operation and maintenance of nuclear plants, whene- 181 Annual Report 2007 ver changes happen in the estimated value of deactivation cost caused by new studies and advances in technology, decommissioning values should be adjusted to the new reality. NOTE 34 – STOCkhOLDERS’ EQuITY I - Capital stock The Company’s capital stock amounts to R$ 24,235,829 thousand and its shares have no nominal value. Preferred shares are non-voting and non-convertible to common, but take priority in capital reimbursement and dividend distribution at the rates of 8% p.a. for class “A” shares (subscribed prior to June 23, 1969) and 6% for class “B” shares (subscribed as from June 24, 1969), calculated ratably to the capital corresponding to each class of share. According to notice given on July 16, 2007 to Stockholders, the 147th Extraordinary General Meeting of the Company, which took place on that date, approved the reverse split of the totality of the shares comprising the Company’s capital stock according to article of Law no. 6,404/76 at the rate of 500 shares per each share of the same type. Capital stock was then represented by 1,129,498,502 book-entry shares with no par value, and the Company’s capital stock remained the same, which, as of December 31, 2007, was distributed according to major shareholders and types of shares as follows: NuMBER OF ShARES ORDINáRIAS PREFERRED ShARES TOTAL CAPITAL QuANTITY % Class A Class B % QuANTITY % STOCkhOLD- ERS Brazilian Federal Government 488,656,241 53.99 BNDESPAR 133,757,950 14.78 F N D 45,621,589 5.04 FGP 40,000,000 4.42 - - - - 35,191,002 15.69 523,847,243 46.38 - - - - - - 133,757,950 11.84 45,621,589 4.04 40,000,000 3.54 Other 196,987,747 21.77 146,920 189,137,053 84.31 386,271,720 34.20 905,023,527 100.00 146,920 224,328,055 100.00 1,129,498,502 100.00 Of the total 386,271,719 shares held by minority stockholders, 247,205,522 shares or 64% are owned by non-resident investors, 140,058,203 of which are common shares, 182 Annual Report 2007 27 preferred class “A” shares, and 107,147,292 are preferred class “B” shares. Of the shares owned by investors domiciled abroad, 82,507,374 common shares and 27,740,069 preferred class “B” shares are under custody, to support the ADR – Ameri- can Depositary Receipts - level I Program. Eletrobrás’ shares, through ADR level I, are negotiated at the rate of 1 ADR for each 500 hundred shares, and in Latin America’s Stock Market they are negotiated in Euros (Latibex) at the same rate of 500 shares. As of December 31, 2007, the book value per thousand shares was R$ 70.79 (R$68.91 on December 31, 2006, considering the reverse split of shares). Starting August 20, 2007, the shares representing the Company’s capital stock have been traded exclusively splitted and with nominal value per share in Brazilian reais. II - Capital Reserves Compensation for insufficient remuneration - CRC Goodwill on issuance of shares Special- Decree law 54,936/1964 Monetary restatement of opening balance – 1978 Monetary restatement of compulsory loan – 1987 Donations and subventions - Finor, Finam and others R$ thousand COMPANY AND CONSOLIDATED 2007 18,961,102 3,243,272 387,419 309,655 2,708,432 297,424 2006 18,961,102 3,243,272 387,419 309,655 2,708,432 297,424 25,907,304 25,907,304 The CRC capital reserve corresponds to Eletrobrás’ percent interest in any shortfalls in the return on investments in its controlled companies (Compensation account - CRC), accounted for upon the settlement of obligation of the Federal Treasury, in accordance with the former guaranteed return system prevailing in the Electricity Sector up to 1993. III - Revenue Reserves and Retained earnings Under the Company’s by-laws, 50% of net income should be appropriated to the invest- ment reserve and 1% to the reserve for studies and projects. Investments and Studies and Projects are limited, respectively, to 75% and 2% of the capital stock: 183 Annual Report 2007 Legal (art.193 – Law 6,404/76) Statutory (article 194 – Law 6,404/76): Studies and projects Investments Other Retained earnings (article 196 – Law 6,404/76) Special (article 202 – Law 6,404/76): Dividends not distributed R$ thousand COMPANY AND CONSOLIDATED 2007 1,731,038 2006 1,653,644 255,899 15,432,771 11,081 68,748 240,422 14,658,843 11,081 68,748 8,300,832 25,800,369 7,421,521 24,054,259 IV – Revaluation surplus These comprise the reserves of the relevant affiliates Celpa and Cemat, evaluated on the equity method, which revaluated its property, plant, and equipment items. V - Advances for future capital increase The advances of resources received from the controlling stockholder are classified under “Stockholders’ Equity” in accordance with the Brazilian Federal Treasury Accounting Coordination Department’s regulations (Execution Standard no. 20/1990). These ad- vances were granted for the following purposes: Acquisition of interest in the company CEEE Acquisition of interest in the company CGTEE Banabuí–Fortaleza transmission line UHE Xingó Transmission lines in the State of Bahia Federal Electrification Fund - Law 5,073/66 R$ thousand COMPANY AND CONSOLIDATED 2007 1,742,265 1,673,938 57,670 162,034 25,365 150,353 3,811,625 2006 1,571,393 1,482,931 51,561 144,869 22,677 134,427 3,407,858 184 NOTE 35 – OPERATIONS WITh ELECTRICITY Power sold to final consumers Power sold to concessionaires Transference of Energy from Itaipu Transmission Commercialization at CCEE – short-term energy Late payment charges on energy sold Other R$ thousand CONSOLIDATED 2007 7,091,009 8,384,910 3,781,161 3,380,463 1,066,798 2,260 - 23,706,601 2006 7,901,155 5,608,078 2,860,190 3,669,373 945,944 21,030 5,584 21,011,354 NOTE 36 – DEDuCTIONS TO ThE OPERATIONS WITh ELECTRICITY RGR CCC CDE Proinfa P&D ICMS (State VAT) R$ thousand CONSOLIDADO 2007 454,519 373,055 67,434 57,975 161,493 1,114,476 438,710 1,553,186 2006 418,870 394,462 62,489 37,242 379,466 1,292,529 465,555 1,758,084 Annual Report 2007 185 Annual Report 2007 NOTE 37 – OPERATING REvENuES - OWNERShIP INTEREST R$ thousand COMPANY CONSOLIDATED 2007 2006 2007 2006 Investments in controlled companies Equity in earnings (loss) 1,149,525 175,852 Interest on equity capital Yield on Itaipu capital Significant affiliated companies - 423,184 - - - - 39,325 42,623 1,188,850 641,662 39,325 39,325 42,623 42,623 Equity in earnings (loss) 411,725 111,119 411,725 111,119 411,725 111,119 411,725 111,119 Other investments Interest on equity capital 126,878 17,095 126,878 15,260 Dividends 88,004 139,626 88,004 139,626 Return on investments in partnerships 67,832 79,062 87,360 53,039 282,714 235,780 302,242 207,925 1,883,289 988,561 753,292 361,667 In 2007, from the income of participating interests held, corresponding to an amount of R$1,883,289 thousand, a portion of R$ 913,818 thousand (R$ 682,887 thousand on December 31, 2006), was realized upon the receiving of dividends and interest on equi- ty capital amounting to R$ 803,882 thousand and R$ 109,936 thousand, respectively (R$196,649 thousand and R$ 486,238 thousand on December 31, 2006). NOTE 38 – PERSONNEL, MATERIAL, AND SERvICES Personnel Materials Services R$ thousand COMPANY 2007 260,425 2,284 55,661 318,370 2006 189,108 2,871 95,045 287,024 CONSOLIDATED 2007 2,927,383 197,874 1,230,010 4,355,267 2006 2,561,881 241,616 1,174,203 3,977,700 186 Annual Report 2007 NOTE 39 – ENERGY PuRChASED FOR RESALE Supply of electricity Energy from Itaipu Commercialization at CCEE – short-term energy Other NOTE 40 – OPERATING PROvISIONS R$ thousand CONSOLIDATED 2007 1,672,567 3,320,526 1,108,673 23,866 6,125,632 2006 1,441,455 2,856,722 595,427 1,621 4,895,225 Contingencies Allowance for doubtful accounts - con- sumers and resellers Allowance for doubtful accounts - RTE Allowance for doubtful accounts - CCEE Allowance for Doubtful Accounts - loans and financing ICMS credits Provision for release of assets Temporary investments Stockholders’ deficit Loss in realization Other R$ thousand COMPANY 2007 - 2006 (3,127) - - - - - - CONSOLIDATED 2007 160,446 2006 158,017 6,408 213,872 (42,256) 351,988 293,560 - 62,977 (365,874) 62,977 (359,999) - - - - 127,709 171,736 73,447 39,840 532,781 288,415 532,781 288,415 42,394 244,242 42,394 244,242 (51,669) (48,722) (75,079) (51,480) 586,483 114,934 1,280,676 957,613 187 Annual Report 2007 NOTE 41 – FINANCIAL INCOME (EXPENSES) Financial income (expenses) Revenues from interest, commission and fees Debt charges Charges on stockholders’ funds Revenues from financial investments Other revenues (expenses) Outras receitas (despesas) Monetary and exchange restatements Monetary restatements, net Exchange restatement, net R$ thousand COMPANY CONSOLIDATED 12/31/2007 12/31/2006 12/31/2007 12/31/2006 4,188,934 3,937,621 2,090,688 1,709,150 (447,237) (438,203) (1,389,793) (1,347,442) (1,353,792) 537,453 142,913 3,068,272 (1,475,447) 340,012 140,522 2,504,505 (1,370,808) 867,825 1,347,696 1,545,608 (1,526,524) 692,473 131,847 (340,496) 529,245 (3,001,673) (2,472,428) 595,844 330,606 (1,599,337) (1,268,731) 1,235,774 92,184 (2,564,462) (2,472,278) (926,669) (954,741) (1,410,802) (2,365,543) (2,706,039) NOTE 42 – PROFIT ShARING Eletrobrás, and its controlled companies, adopt a profit sharing program applicable to all employees that has as objective to promote quality and better productivity levels and global results of the Company. The program is based on collective bargaining agreements with employees and unions, under the terms of the prevailing federal law, and is carried out through previous negotiation of goals and commitments. In 2007, Eletrobrás accrued for an amount of R$ 18,000 thousand (R$ 17,000 thousand on December 31, 2006) and R$ 159,926 thousand in the consolidated (R$ 138,468 thousand on December 31, 2006), referring to profit sharing of employees and management, observing Resolution 10, of May 30, 1995, of the Council for the Coordination and Control of Government Controlled companies - CCE. The payment of profit sharing will be discussed during an ordinary general meeting of stockholders, who will analyze the Financial Statements. 188 Annual Report 2007 NOTE 43 – BuSINESS SEGMENTS The information about operations per business segment of Eletrobrás is presented in At- tachment VI. It follows the management model, based on internal standards for evaluation of segment performance and decision-making about investments. The disclosure criteria are in accordance with what is provided by Aneel and recommenda- tions of the Brazilian Securities and Exchange Commission (CVM) and are supported by pro- nouncement SFAS 131 - Disclosures about Segments of an Enterprise and Related Information, contemplating the following business areas: GENERATION - construction and operation of hydroelectric, thermal and thermonuclear plants and other sources with the purpose of producing electricity to be supplied mainly in Brazil; TRANSMISSION - construction and operation of transmission lines, aiming the transfer of electricity between production centers and consumers. COMMERCIALIZATION - intermediation in electricity purchase and sale operations. DISTRIBuTION – construction and operation of electricity distribution systems in urban centers destined for final consumers. ADMINISTRATION - corporate bodies whose costs cannot be attributed to other areas, in particular those linked to financial management, interest holding and central management. The information per business segment was prepared under the assumption of acknow- ledgment of items under actual control and management of areas totally identified with that operational segment. NOTE 44 – INSuRANCE Main property, plant and equipment in use at Eletrobrás are insured in accordance with a coverage policy, taking into account the nature and degree of risk, at amounts considered sufficient to cover possible significant losses. Insurance composition is as follows: R$ thousand COMPANY AND CONSOLIDATED RISk Named perils Aircraft perils Various Amount Insured 17,660,464 16,578 635,574 18,312,616 Premium 57,238 459 2,781 60,478 Named perils - coverage for losses and material damages stemming from fire, lightning, explosion of any kind and electric damages in the facilities. Aircraft perils - coverage for losses incurred, refund of expenses and civil liability associa- ted with accidents with aircrafts. 189 Annual Report 2007 Various risks - coverage for portable equipment, local and international transportation, and others. NOTE 45 – AuCTION OF ELECTRICITY AND TRANSMISSION LINES I – Existing Energy Along 2007, the controlled company Eletronorte took part and was the outbidder in various auctions for sale of electricity to final consumers and resellers within the Free Contracting Environment (ACL). It negotiated very short-term contracts of 400.5 MW on average, in relation to an average availability of 610.08 MW, representing a performance of 65.65%. Total accumulated revenues in the year reached R$ 267,750 thousand, which represents 12.54% of the annual target of R$ 237,000 thousand, not considering the values accounted for and settled in relation to CCEE. II – New energy The Company, through the energy auctions held by Aneel for new enterprises, in com- pliance with the rules established by Law 10,848 of March 15, 2004 and regulated by Decree 5.163, of July 30, 2004, obtained authorization to build and operate the follo- wing described power plants and sell within the Regulated Contraction Environment (ACR) the respective energy that will be generated: a) b) UHE Santo Antonio - On December 10, 2007, Consórcio Mesa S.A., composed of the companies Furnas (39%), Odebrecht Investimentos (17.6%), Andrade Gutierrez Participações (12.4%), Cemig (10%), Fundos de Investimentos e Participações da Amazônia (20%) and Construtora Norberto Odebrecht (1%), was the outbidder in an auction organized by Aneel regarding the concession to build and operate the construction project of UHE Santo Antônio by the river Madeira in the State of Rondônia, with projected investments of R$ 12,200,000 thousand. The work is scheduled to start in December 2008, and the first and second generation units scheduled to begin operations in December 2012 and the last unit in June 2016. UHE São Domingos - a plant with installed capacity of 48MW, and sale of 36MW on average, at the price of R$ 128.73 MWh, for supply of energy in the period between January 2012 and December 2041. III – Transmission lines a) b) Consórcio Jauru, led by Eletronorte, was the outbidder in the auction 004/2007 held by Aneel, Lot “C”, aiming the granting of an electricity transmission public service concession, with allowed annual revenue of R$ 14,946 thousand. Still in the auction of Aneel 004/2007, Eletronorte was the individual outbidder of Lot “G” for construction and operation of the following enterprises: 190 Annual Report 2007 b.1) A transmission line between São Luis II and São Luis III, with 230 kV of vol- tage, and 36 Km of extension; b.2) Substation São Luis III, 230/69 kV, and allowed annual revenue of R$ 2,122 thousand. c) Transmission line Presidente Médici/Santa Cruz (State of Rio Grande do Sul), 230 kV of voltage, and 233 Km of extension. That transmission line will receive R$ 52,700 thousand in investments and should be concluded in 2009. NOTE 46 – FINANCIAL INSTRuMENTS AND RISk MANAGEMENT I – Management of funds Most of the financial investments of Eletrobrás are long-term loans and financing, in addition to the interests held in public service concessionaires, detailed in notes 10 and 19 and in attachments II and III. II - Financial Instruments Loans and financing granted are linked with financing in the domestic electric sector, where the most important operations are those with Itaipu Binacional and with the controlled companies Eletronorte and Chesf, restated according to an average rate of 8.99% p.a. (8.83 % p.a. on December 31, 2006). Financing is restricted to electricity public concessionaires and, therefore, defines the market rate (or cost of opportunity of the Company’s capital), taking into account the risk premium compatible with the activities of the sector. In case it is not possible to find other alternatives that not the own electric sector, the fair value of those loans corresponds to their book value. Loans and financing obtained with financial institutions are recorded in long-term ac- counts, in particular those obtained overseas and Federal Government Funds, such as the Global Reversion Reserve Quota (RGR) The funds raised are composed of contracted financing with international multilateral agencies - BID, BIRD, CAF - and it is not practicable to discount them at a rate diffe- rent from the one established in the Brazilian debt agreement. Other loans are obtained at international rates, which makes book value approximate fair value. The Compulsory Loan, abolished by Law 7,181 of December 20, 1993, had December 31, 1993 as limit period for payment. Now Eletrobrás manages the residual value of the compulsory loan collected, adjusting it according to the IPCA-E index and adding to it interest of 6% p.a., with a defined redemption period. Given the restrictions of those investments, the book balances are presented at fair value. 191 Annual Report 2007 Eletrobrás ended the year with 12 contracts recorded in liabilities, among which loans, financing and bonuses, that total R$ 1,716,302 thousand (R$ 2,177,429 thousand on December 31, 2006), as demonstrated below: Currency US dollar Yen Euro Total Corresponding value in uS$ thousand % 620,127 207,069 141,755 968,951 64.00 21.37 14.63 100.00 Corre- sponding value in R$ thousand 1,098,431 366,781 251,090 1,716,302 At the end of the year, the Company had executed 846 contracts in relations to loans and financing granted, corresponding to R$ 36,522,430 thousand (R$ 37,319,541 thousand on December 31, 2006), as follows: Currency US dollar IGP-M Real Yen Euro Total III - Risks Corresponding value in uS$ thousand % 8,894,873 5,480,114 5,590,876 225,010 428,125 20,618,998 43.14 26.58 27.12 1.09 2.08 100.00 Corre- sponding value in R$ thousand 15,755,489 9,706,925 9,903,118 398,561 758,337 36,522,430 a) Regulatory Risk The Company, through its controlled companies, holds concessions for exploitation of electricity generation and transmission services, whose maturities under the terms of the current law are demonstrated in note 2. In case those concessions are not renewed or are renewed at higher costs for the Company, the current levels of profitability and activity might be changed. b) Exchange Risk A significant part of the Company’s assets and of result of operations is affected by 192 Annual Report 2007 the exchange variation risk, in special the changes in the American dollar rate. As of December 31, 2007, the Company had credits stemming from financing granted in foreign currency at the amount of R$ 16,912,387 thousand, (US$ 9,548,007 thousand). By comparing the receivable in foreign currency with the debt of the Company, we observe a coverage of approximately 9.8 times. At the date of closing of these statements, Eletrobrás had not contracted any financial operations with the purpose of protecting the Company against the risk of exchange rate flotation. Nevertheless, the balance of receivables in foreign currency and the flow of its realization are sufficient for the Company to fulfill its obligations. c) Credit Risk Eletrobrás, through its controlled companies, is engaged in the markets of genera- tion and transmission of electricity, supported by contracts executed in a regulated contracting environment. Through bilateral contracts entered into with electricity distributors, the Company aimed to minimize its credit risks through collateral mechanisms involving receivables from customers. In transactions with industrial customers called ‘free consumers’, the credit risk is minimized through previous analysis of business conditions. d) Price Risk Until 2004, the prices of energy from the generation activity were set by Aneel. Starting in auction 001/2004 organized by that Regulating Agency, the generating plants began selling their electricity to a larger number of consumers, at prices defined by the market. The activity of transmission has prices defined by Aneel through the so-called Allowed Annual Revenue (RAP), deemed sufficient to cover operating costs and maintain the economic-financial balance of the concession. e) Market Risk A significant part of the electricity generated by the companies that Eletrobrás controls is sold through Contracts of Commercialization in a Regulated Contract Environment – (CCEAR’s), executed in view of the participation of its controlled companies in energy auctions held by Aneel. IV – Management of investments Eletrobrás performs the functions of a holding, investing in participating interests in six electricity generating and transmission companies - Furnas, Chesf, Eletronorte, 193 Annual Report 2007 Eletronuclear, Eletrosul and CGTEE, whose shares are not traded at stocks exchan- ges. Besides those majority interests, Eletrobrás holds 50% of the capital of Itaipu Binacional, where it is the jointly owner with the Paraguayan company ANDE and the stock control of Lightpar. The Company also has a temporary investment in the following federal energy distribution companies - Eletroacre, Ceam, Ceron, Ceal and Cepisa, which were acquired as a result of the National Privatization Program (PND). In addition, Eletrobrás holds significant minority interests in other eleven concession holders. As of December 31, 2007, Eletrobrás also had non-material investments, valued at cost, corresponding to R$ 536,710 thousand, of which R$ 378,320 thousand refers to public companies - energy public service concessionaires. Although those shares can be ne- gotiated at stock exchanges, their reduced volume of business do not characterize the existence of an active market, as defined by Instruction CVM 235/96, and their prices do not necessarily represent the values that would be obtained in a negotiation with a higher number of shares, demonstrating, therefore, the non-existence of reasonable conditions to establish market prices for those assets, and allow an appropriate com- parison with book values. NOTE 47 – COMPENSATION OF EMPLOYEES AND MANAGEMENT The lowest and highest compensation paid to employees, taking as basis the month of De- cember 2007, were R$ 1,571.79 and R$ 26,798.58 (including transfer additional) respectively, in accordance with the salary policy of Eletrobrás. The highest fees attributed to a manager, taking as basis the month of December 2007, corresponded to R$27,013.12. NOTE 48 – DISCRETIONARY RESIGNATION PROGRAM Eletrobrás implanted a Discretionary Resignation Program (PDVE), aiming a restructuring of its staff, open to all employees that fulfill the following conditions: a) b) Participants of the Defined Benefit Plan of Fundação Eletrobrás de Seguridade Social (Eletros) who were retired by the Federal Social Security Institute (INSS) and meet the requirements to obtain the complementary retirement benefit within twenty-four months after joining the PDVE; Participants of the Defined Contribution Plan of Eletros who satisfy the requirements to obtain the complementary retirement benefit within twenty-four months after joining the PDVE, and 194 Annual Report 2007 c) Non-participants of Eletros – who were retired by the Federal Social Security Institute (INSS) or that are in conditions to obtain retirement within twenty-four months after joining the PDVE, even if in a proportional manner, under the General Social Security Regime. After the end of the employment period with Eletrobrás, the Company no longer is respon- sible for any contributions to the Public Social Security or private pension plan. The incentive to the employee in relation to PDVE is made through payment of a com- plementary compensation, per year of service, plus the termination amounts payable for an unjustified dismissal, in accordance with the following criteria: a) b) fifty percent of a monthly compensation per complete year of work, limited to twenty- four years and to the amount corresponding to twelve times the highest salary of the Company; medical assistance during twelve months counted upon the dismissal date. The period to join PDVE ended on December 31, 2007, with the inclusion of 311 employe- es. 30 employees were dismissed in December 2007. The remaining dismissals will carried out in the following manner: a) b) 35 employees with dismissals scheduled to 2008; 246 employees with dismissals scheduled to 2009. The Company had accrued for an amount of R$ 66,500 thousand under the caption “Estimated obligations” at the reference date of December 31, 2007 to cover the expenses with the implantation of PDVE, realizable until December 2009 as employees are dismis- sed. NOTE 49 – MANAGEMENT OF FEDERAL GOvERNMENT FuNDS Eletrobrás is responsible for managing the Global reversion reserve quota (RGR), a fund created with a view to covering expenses incurred by the Federal Government with the pay- ment of indemnities referring to the reversal of public electricity concessions. RGR funds are invested in the Brazilian electricity sector financing, improvement of the service and financing the programs Procel, Reluz, Luz para Todos, and the Incentive Program for Alternative Sources of Electricity - Proinfa. The Global reversion reserve quota is funded by contributions from the concession holders of the public electricity service, which provide a quota for the reversal and expropriation of electricity services equivalent to up to 2.5% of the amount invested by concession and per- mission holders, limited to 3% of gross annual revenues. The value of the quota is computed as part of the service cost of those entities (See note 6.i). The concessionaires deposit their annual quotas for the Global reversion reserve in twelve equal parts, up to the last business day of each month, in a bank account created for this 195 Annual Report 2007 specific purpose. Eletrobrás manages the account in compliance with Law No. 5,655/71 and subsequent amendments. Accordingly, the RGR funds are used in specific investment projects, as follows: I – Financing provided to the concession and permission holders as well as to rural electri- fication cooperatives with a view to expanding electricity distribution services (especially in rural and low-income areas) and to developing an energy saving program; II – Investments in installations for power generation using renewable energy (wind, so- lar, biomass) as well as small hydroelectric power plants and thermoelectric power plants in association with small hydroelectric power plants; III – Specific investment projects for studies involving inventory and feasibility of poten- tial water resources; IV – Investments in the implementation of power generators up to 5,000 kW, intended exclusively for public services in communities using an isolated electricity system; V – Incentive Program for Alternative Sources of Electricity – Proinfa, created by Law No. 10,438 of April 26, 2002 and reviewed by Law No. 10,762 of November 11, 2003, the objective of which is to diversify the Brazilian energetic matrix and seek regional solutions through the use of renewable energy sources based on the economic use of available input and applicable technology. The goal is to increase the share of electricity produced through those sources by implementing 3,300 MW of capacity; VI – For the National Program for Efficient Public Lighting (Reluz) that aims at rendering efficient 5 million points of public lighting and installing one million more in Brazil. The pro- gram expects to cover up to 96% of the potential of energy saving of the national network of public lighting, currently consisting of 13 points of public lighting; VII – For the National Program for Energy Conservation (Procel), a federal government program implemented in December 1985 aimed at energy saving both in production and con- sumption, helping to improve the quality of products and services, reducing the environmental impact and encouraging job creation; VIII – For the Universalization of the Access to Electricity - Luz para Todos program, of the Ministry of Mining and Energy; IX – for the Ribeirinhas project, carried out in regions where communities are largely scattered and to which access is difficult due to the type of soil and the rainy season. Its basic assumption is the use of renewable natural resources existing in several places where electricity cannot be supplied by extending the transmission network. The Reserve is remunerated at 5% p.a., according to the funds used. The funds withdrawn as of December 31, 2007, to invest in the projects described above totaled R$ 6,769,011 thousand (R$ 6,171,300 thousand on December 31, 2006), recorded in the account of Global reversion reserve quota - RGR, in current and noncurrent liabilities. In 2007, the drafts to RGR, corresponded to R$ 847,462 thousand and the sums added to the fund amounted to R$ 517,575 thousand. 196 Annual Report 2007 Additionally, under the managerial responsibility of Eletrobrás is the Conta de Desenvolvi- mento Energético – CDE (Energetic Development Account), a federal fund aimed at promoting energy development from alternative sources in the areas assisted by the interlinked system, and financing the universalization of the public electric power service. The Fund is valid for 25 years, starting in 2004, and arises from payments for the use of public assets and fines charged by ANEEL to concessionaires, permit-holders and other entities authorized to explore the electricity service, whose financial operations do not affect the Company’s financial sta- tements. NOTE 50 – INFORMATION ON RELEvANT FACT I – Guarantees given by CGTEE In order to investigate the facts on the supposed guarantees given to Bank KfW Banken- gruppe amounting to R$ 408,766 thousand (EUR 156,700 thousand), which would have been issued on behalf of CGTEE in favor of private companies, the controlled company’s management started an investigation whose final report was approved by the Board of Directors at the meeting held on August 06, 2007. Among the conclusions of the Investigation, we highlight a) b) the assumed guarantees were constituted in violation to the Brazilian law and of statutory standards of CGTEE, involving strong indications of forgery of documents and signatures; and CGTEE does not have, and has never had, any business or contract relationships with the benefited companies. The Investigation Report was sent to pertinent authorities and institutions - Fede- ral Public Prosecution Office, Federal Police, Federal Audit Count, General Accounting Office, Ministry of Mining and Energy, Aneel, Commission of Mining and Energy of the House of Representatives. On June 22, 2007, CGTEE had already notified the Federal Police about the non-exis- tence of supposed guarantees given. In order to protect CGTEE and the public interest, the controlled company hired the law firm Pinheiro Neto Advogados and notified the Bank KfW out-of court on July 18, 2007, about the non-existence of those supposed guarantees given on that company’s behalf, filing a Declaratory Action of Document Falsification together with a Request for Submission of Documents with the Central Court of the District of Por- to Alegre on September 10, 2007. In time, other legal measures applicable will be evaluated. The Company’s management does not expect to incur losses on account of this issue. 197 Annual Report 2007 II – Bearer Bonds issued by Eletrobrás The Bearer bonds issued because of the compulsory loan do not constitute securities, are not negotiable at Stock Exchanges, do not have quotation and are unenforceable. Therefore, the management of Eletrobrás clarifies that the Company does not have outstanding debentures (See note 28). The issuance of those bonds was associated with a legal obligation and not with a business decision of Eletrobrás. In a similar way, the bondholders did not follow an action of will, but a legal obligation under the provision of Law 4,156/62. Therefore, the provisions of Law 6,404/76 are not applicable to those bonds or of ones addresses by Law 6,385/76. The Brazilian Securities and Exchange Commission (CVM), in the decision rendered to the administrative proceeding CVM RJ 2005/7230, filed by the holders of the mentio- ned bonds, stated that “the obligations issued by Eletrobrás in association with Law 4,156/62 cannot be considered securities.” CVM understood that there are no irregularities in the procedures Eletrobrás adop- ted in its financial statements in relation to the mentioned obligations or in the disclosure of the existing lawsuits claiming the redemption of those bonds (See note 30). Besides, the non-enforceability of the Bearer Bonds was reinforced by a recent decision of the Superior Court of Justice corroborating the understanding that those notes are not debentures and should not be used to guarantee executions. NOTE 51 – SuBSEQuENT EvENTS I – Conversion of Compulsory Loans into SharesOn January 24, 2008, the Company’s management council decided about the 4th conversion of the compulsory loan into nominative class B preferred shares representing the capital stock of Ele- trobrás, comprising all existing credits as of December 31, 2007, corresponding to R$ 202,375 thousand, taken after the 3rd conversion approved in the extra- ordinary meet of April 28, 2005. The issuance price of the stocks will take as basis the book value per share of Eletrobrás as of December 31, 2007, corresponding to R$ 70.79, under the terms of article 4 of Law 7181/83. Residual values not resulting in entire shares will be paid in kind, as establishes article 10 of Decree 81.668/78, plus the amounts received in the year referring 198 Annual Report 2007 to the preference in subscribing the shares of other stockholders, as establishes the instruction of CVM. The period for exercising the subscription right by the other stockholders will be set in accordance with article 171, paragraph 2 of Law 6.404/76, as well as the period for the delivery of the shares arising from the conversion. Those periods will 30 and 60 days, respectively, counted upon the extraordinary me- eting date. In addition, article 6 of Eletrobrás’ by-laws will be amended, which addresses the composition of the Capital Stock and Shares. II – Acquisition of interests in companies As disclosed in a Notice to the Market dated February 22, 2008, the management council of the controlled company Eletrosul decided during a meeting on February 20, 2008, to exercise Eletrosul’s right to purchase the 51% interests in the capital of the companies Empresa de Transmissão de Energia de Santa Catarina S.A. (SC Energia) and Empresa de Transmissão de Energia do Rio Grande do Sul (RS Energia), owned by Schahin Engenharia S.A. and Engevix Engenharia S.A. The enterprise totals 620 km of transmission lines, from which 360 km refers to SC Energia, connecting Campos Novos to Blumenau (both in the State of Santa Catarina) and 260 km to RS Energia, to be concluded in 2008, connecting Campos Novos (State of Santa Catarina) to Nova Santa Rita (State of Rio Grande do Sul). Those new transmission lines represent about 6.8% of the current extension of the lines of that controlled company, which totaled 9,145 km as of December 31, 2007. III - Amendments to Law 6,404/76 that regulates joint stock companies On December 28, 2007, the President of the Republic of Brazil enacted Law 11,638. It promoted amendments to and abolished certain provisions of Law 6,404/76, with the intention of coordinating the Brazilian accounting practices with the Internatio- nal Financial Reporting Standards (IFRS) for preparation and presentation of financial statements. We present below the main accounting changes or new requirements introduced to the Brazilian corporate law: 1. Financial Statements The Statement of Changes in Financial Position will be not longer used. Instead, it was introduced the Statement of Cash Flows and the Statement of Added Value for public companies. 199 Annual Report 2007 2. Bookkeeping The law previously determined that provisions of the tax law or special regulations should be recognized in subsidiary books. As a result of the changes, those records can be made in subsidiary books or in the main accounting books, provided that in the last case, the respective accounting records to prepare the financial statements are made. Public companies should observe the standards established by CVM and Internatio- nal Financial Reporting Standards (IFRS). Private companies can or not follow the standards issued by CVM for public companies. Adjustment entries made exclusively to coordinate the accounting standards with the statements and the numbers de- termined in them cannot be the basis of taxation nor have any tax effects. 3. Balance Sheet Permanent assets were divided into investments, property, plant and equipment, intangible assets and deferred charges, separating tangible and intangible assets. The structure of stockholders’ equity was changed, and the revaluation surplus and retained earnings eliminated. Shares held in treasury start taking part of stockhol- ders’ equity, and instead of a the account ‘revaluation surplus’, now ‘adjustments to equity valuation’ should be used. The existing balances in those reserves should be held until their realization or reversed until the accounting year where the law comes into effect. 4. Assets a) Rights that have as object physical assets destined to the maintenance of the activities of the company or used for that purpose should be recognized un- der property, plant, and equipment, including those stemming from operations where the benefits, risks, and control of those assets are transferred to the Company. Valuation of Investment in Affiliates and Controlled Companies Investments in affiliated companies, where the Company has significant in- fluence or holds 20% interest or more of voting capital, as well as the ones in controlled companies and in other companies that take part of a same group or are under a common control, should be valued under the equity method. b) The requirements of the new law are applicable to financial statements for the years ended after January 01, 2008. Thus, at this moment is not possible to determine the effects of the mentioned new regulations on the income (loss) and stockholders’ equity of Eletrobrás. 200 Annual Report 2007 c) Pre-operating expenses and restructuring expenditure leading to an increase in the income (loss) of more than one fiscal year and which are not reducers of costs or additions to the efficiency of operations, should be classified as deferred assets. d) The rights referring to non-physical assets for the maintenance of activities of the company or used for that purchase should be classified as intangible assets, including goodwill obtained. 5. Criteria for valuation of assets I - Financial instruments, including derivatives and receivables, classified in cur- rent assets or long-term assets should be valuated: a) at market value or equivalent value, when they refer to investments desti- ned to trading or available for sale; and b) at acquisition cost or issuance value, restated according to legal or contract provisions, and other investments, rights and receivables adjusted to the probable realizable value, when that is lower; II - at the cost incurred in acquisition, less the balance of the respective amorti- zation account in intangible assets; III – Assets from long-term operations will be adjusted at present value, and others adjusted if the value is material. 6. 7. 8. 9. Criteria for valuation of Liabilities Obligations, charges, and risks classified in the long-term liabilities will be adjus- ted at present value, and other liabilities adjusted when the value is material. Stockholders’ equity The premium received in the issuance of debentures was excluded from the caption stockholders’ equity, as well as donations and subventions for investment. Statement of Operations The statement of operations will include the portion referring to debentures, and profit sharing of employees and management, even the ones in the form of finan- cial instruments, and from institutions or assistance or pension funds of employe- es, not characterized as expense. Reserves and Retention of Income A tax incentive reserve was created. Donations and government grants for invest- ment will take part of income (loss) for the year, and as proposed by the manage- ment, a general meeting will decide the destine for the portion of net income from those incentives to form the mentioned reserve. 201 10. Limit for the income reserve The balance of reserves for contingencies, tax incentives and of income realizable can from now on exceed the amount of capital stock. José Antonio Muniz Lopes President Astrogildo Fraguglia Quental Finance Director and Director of Relations with Investors ubirajara Rocha Meira Director of Special Projects and Technical and Industrial Development valter Luiz Cardeal de Souza Engineering Director Miguel Colasuonno Administration Director João vicente Amato Torres Accountant CRC-RJ-057.991/O-S-DF Annual Report 2007 202 Annual Report 2007 Attachment Furnas – Chemical Analysis Laboratory in Goiânia – Fusion Machine (Furnas/Waimer Carvalho Files) 203 AttachmentCENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS CONSuMERS AND RESELLERS AS OF DECEMBER 31 (In thousands of Brazilian reais) Aes Eletropaulo Aes Sul Aes Tietê Ampla Ande EBE CEA CEB CEEE-D CEEE-Gt Celesc Celg Celpa Celpe Cemar Cemig Ceron Cepisa Cesp Coelce Coelba Copel CPFL Elektro Enersul Escelsa Light Piratininga RGE Commercialization at CCEE Regulatory assets Electricity network use PROINFA Consumers Other (-) Allowance for doubtful accounts COMPANY Current 2007 FALLING DuE OvERDuE uP TO 90 DAYS MORE ThAN 90 DAYS TOTAL 200.238 33.336 - 28.399 - 65.661 - 13.169 29.507 - 50.824 26.169 - - - 196.914 - - - - - 74.090 91.718 49.982 11.738 28.834 134.829 62.310 24.304 - - - 76.439 - 5.218 - 1.203.679 - - - - - - - - - - - 33.700 - - - - - - - - - - - - - - - - - - - - 4.145 - - - 37.845 - - - - - - - - - - - 93.706 - - - - - - - - - - - - - - - - - - - - 8.426 - 5.603 - 107.735 200.238 33.336 - 28.399 - 65.661 - 13.169 29.507 - 50.824 153.575 - - - 196.914 - - - - - 74.090 91.718 49.982 11.738 28.834 134.829 62.310 24.304 - - - 89.010 - 10.821 - 1.349.259 2006 TOTAL 194.261 32.392 - 36.781 - 63.757 - 14.930 36.827 56.405 29.033 - - - 191.100 - - - - - 71.874 89.044 48.504 11.385 27.988 130.889 60.534 23.630 - - - 51.622 - 9.436 - 1.180.392 CONSOLIDATED CuRRENT 2007 FALLING DuE OvERDuE uP TO MORE ThAN 90 90 DAYS DAYS TOTAL LONG-TERM 2007 2006 2006 TOTAL 290.496 52.031 690 66.548 38.779 90.474 9.973 31.004 43.993 3.432 59.016 60.378 38.484 47.465 24.511 279.535 21.835 19.186 2.267 30.794 65.096 160.921 118.581 99.840 18.473 49.075 218.058 1.208 30.373 89.887 446.644 124.169 76.439 286.806 226.028 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 290.496 52.031 690 66.548 38.779 90.474 423.275 41.205 43.993 3.432 59.016 187.784 38.513 47.465 24.511 279.535 21.835 19.186 2.267 30.794 65.096 160.921 118.581 99.840 18.473 49.075 218.111 1.208 30.373 383.448 448.361 134.620 89.010 708.018 507.073 27.395 385.907 10.201 33.700 93.706 29 53 293.561 1.012 9.792 8.426 346.609 271.223 705 659 4.145 74.603 9.822 283.032 37.441 14.272 59.560 - 80.602 307.911 27.549 25.314 16.787 63.866 50.009 52.193 45.130 42.330 271.914 23.091 130.281 - 25.848 57.833 112.563 107.370 77.442 13.406 42.142 208.420 60.534 34.820 378.313 571.743 90.925 51.622 630.005 628.203 3.222.489 151.029 248.825 3.622.343 - (1.171.694) (1.171.694) (627.547) 3.994.924 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 78.341 842.060 17.460 (69.623) 26.178 98.133 (350.970) 589.223 Aes Eletropaulo Aes Sul Aes Tietê Ampla Ande EBE CEA CEB CEEE-D CEEE-Gt Celesc Celg Celpa Celpe Cemar Cemig Ceron Cepisa Cesp Coelce Coelba Copel CPFL Elektro Enersul Escelsa Light Piratininga RGE Commercialization at CCEE Regulatory assets Electricity network use PROINFA Consumers Other (-) Allowance for doubtful accounts COMPANY Current 2007 FALLING DuE OvERDuE uP TO MORE ThAN 90 90 DAYS DAYS TOTAL 2006 TOTAL 200.238 33.336 194.261 32.392 28.399 36.781 65.661 63.757 13.169 29.507 50.824 153.575 14.930 36.827 56.405 29.033 196.914 191.100 74.090 91.718 49.982 11.738 28.834 134.829 62.310 24.304 71.874 89.044 48.504 11.385 27.988 130.889 60.534 23.630 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 33.700 93.706 200.238 33.336 28.399 65.661 13.169 29.507 50.824 26.169 196.914 74.090 91.718 49.982 11.738 28.834 134.829 62.310 24.304 - - - - - - - - - - - - - - - - 5.218 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 76.439 4.145 8.426 89.010 51.622 1.203.679 37.845 107.735 1.349.259 1.180.392 5.603 - 10.821 - 9.436 - Annual Report 2007 Attachment I CONSOLIDATED CuRRENT 2007 FALLING DuE OvERDuE uP TO 90 DAYS MORE ThAN 90 DAYS TOTAL 290.496 52.031 690 66.548 38.779 90.474 9.973 31.004 43.993 3.432 59.016 60.378 38.484 47.465 24.511 279.535 21.835 19.186 2.267 30.794 65.096 160.921 118.581 99.840 18.473 49.075 218.058 1.208 30.373 89.887 446.644 124.169 76.439 286.806 226.028 - 3.222.489 - - - - - - 27.395 - - - - 33.700 - - - - - - - - - - - - - - - - - - 705 659 4.145 74.603 9.822 - 151.029 - - - - - - 385.907 10.201 - - - 93.706 29 - - - - - - - - - - - - - 53 - - 293.561 1.012 9.792 8.426 346.609 271.223 (1.171.694) 248.825 290.496 52.031 690 66.548 38.779 90.474 423.275 41.205 43.993 3.432 59.016 187.784 38.513 47.465 24.511 279.535 21.835 19.186 2.267 30.794 65.096 160.921 118.581 99.840 18.473 49.075 218.111 1.208 30.373 383.448 448.361 134.620 89.010 708.018 507.073 (1.171.694) 3.622.343 2006 TOTAL 283.032 37.441 14.272 59.560 - 80.602 307.911 27.549 25.314 16.787 63.866 50.009 52.193 45.130 42.330 271.914 23.091 130.281 - 25.848 57.833 112.563 107.370 77.442 13.406 42.142 208.420 60.534 34.820 378.313 571.743 90.925 51.622 630.005 628.203 (627.547) 3.994.924 LONG-TERM 2007 2006 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 78.341 - - - 17.460 (69.623) 26.178 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 842.060 - - - 98.133 (350.970) 589.223 205 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS LOANS AND FINANCING GRANTED AS OF DECEMBER 31 (In thousands of Brazilian reais) 2007 2006 COMPANY CuRRENT ChARGES PRINCIPAL AMOuNT NON CuRRENT ChARGES PRINCIPAL AMOuNT NON 2007 CONSOLIDATED CuRRENT ChARGES PRINCIPAL AMOuNT NON CuRRENT ChARGES 2006 PRINCIPAL AMOuNT NON AvERAGE RATE vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CIRCuLANTE CuRRENT CONTROLLED COMPANIES AND JOINTLY-CON- TROLLED COMPANY Furnas Chesf Eletrosul Eletronorte Eletronuclear Lightpar Itaipu OTHER Cepisa Ceron Cemig Copel CEEE Duke Aes Tietê Aes Eletropaulo Tractbel Celpe Cemar Cesp Other (-) Allowance for doubtful accounts 8,86% 11,68% 7,54% 15,63% 12,35% 12,00% 7,07% 10,71% 11,44% 6,76% 8,39% 9,33% 10,00% 10,00% 9,85% 12,00% 6,02% 6,07% 9,32% - 4.779 43.047 261 117.671 6.023 - - 171.781 406 1.264 2.353 2.130 1.174 3.966 5.062 262.048 1.005 679 924 1.185 67.154 460.606 420.273 2.676 319.986 179.138 3.259 46.191 1.432.129 530.877 3.747.908 183.629 6.253.973 2.263.506 - 14.624.980 27.604.873 65.258 21.773 58.020 35.855 90.383 144.026 183.766 120.904 31.909 16.295 8.157 24.106 361.246 278.848 354.518 355.958 271.965 54.436 865.083 1.104.299 8.917 68.559 82.851 284.790 245.098 1.907.908 6,41% 11,74% 6,87% 12,03% 13,21% 12,00% 6,97% 11,10% 15,38% 6,76% 8,33% 9,33% 10,00% 10,00% 9,57% 12,00% 6,04% 7,97% 9,44% - 7.043 52.271 133 2.855.216 6.136 6.808 - 2.927.607 446 20.227 1.858 2.263 2.290 4.303 5.492 249.689 1.808 563 1.140 1.294 54.599 103.852 414.560 83.086 852.408 178.257 11.047 16.261 1.659.471 617.797 4.131.249 55.337 4.360.464 2.064.798 - 14.594.746 25.824.391 41.932 46.629 47.772 44.387 66.411 122.822 156.709 117.733 87.437 12.802 1.768 26.316 330.937 248.916 296.896 237.238 267.499 104.198 940.574 1.200.652 23.977 93.402 94.945 307.973 254.418 1.439.386 - (38.785) (41.845) - (24.180) (27.449) - (38.785) (41.845) (24.180) (27.449) - 310.565 1.119.853 5.883.230 321.792 1.076.206 5.510.074 310.577 1.172.838 6.092.879 325.469 1.081.188 5.755.417 - - - - - - 7,07% 10,71% 11,44% 6,76% 8,39% 9,33% 10,00% 10,00% 9,85% 12,00% 6,02% 6,07% 9,32% - - - - - - - - - - 406 1.264 2.353 5.062 1.174 3.966 5.062 262.048 1.005 679 924 1.185 64.234 - - - - - - - - - - - - 23.096 23.096 7.312.490 7.312.490 65.258 21.773 58.020 183.766 90.383 144.026 183.766 120.904 31.909 16.295 8.157 24.106 278.848 354.518 284.790 1.104.299 54.436 865.083 1.104.299 8.917 68.559 82.851 284.790 245.098 - - - - - - 6,97% 11,10% 15,38% 6,76% 8,33% 9,33% 10,00% 10,00% 9,57% 12,00% 6,04% 7,97% 9,44% - - - - - - - - - - 446 20.227 1.858 2.263 2.290 4.303 5.492 249.689 1.808 563 1.140 1.294 58.276 - - - - - - - - - - - - 8.131 8.131 7.297.373 7.297.373 41.932 46.629 47.772 44.387 66.411 122.822 156.709 117.733 87.437 12.802 1.768 26.316 248.916 296.896 237.238 267.499 104.198 940.574 1.200.652 23.977 93.402 94.945 307.973 254.418 266.320 1.356.391 335.919 1.684.729 T O T A L 482.346 2.551.982 33.488.103 3.249.399 2.735.677 31.334.465 310.577 1.195.934 13.405.369 325.469 1.089.319 13.052.790 The long-term portions granted out of ordinary and sectorial funds, including re-lending, are payable in variable installments, as shown below: COMPANY CONSOLIDATED 2009 3.334.182 1.334.681 2010 3.354.348 1.342.754 2011 3.182.315 1.273.888 2012 3.131.991 1.253.744 2013 3.051.026 1.221.333 After 2013 17.434.241 6.978.969 TOTAL 33.488.103 13.405.369 2007 2006 COMPANY CuRRENT ChARGES AvERAGE RATE PRINCIPAL AMOuNT NON CuRRENT ChARGES AvERAGE RATE PRINCIPAL AMOuNT NON CONTROLLED COMPANIES AND JOINTLY-CON- TROLLED COMPANY Furnas Chesf Eletrosul Eletronorte Eletronuclear Lightpar Itaipu OTHER Cepisa Ceron Cemig Copel CEEE Duke Tractbel Celpe Cemar Cesp Other Aes Tietê Aes Eletropaulo (-) Allowance for doubtful accounts 171.781 1.432.129 27.604.873 2.927.607 1.659.471 25.824.391 8,86% 11,68% 7,54% 15,63% 12,35% 12,00% 7,07% 10,71% 11,44% 6,76% 8,39% 9,33% 10,00% 10,00% 9,85% 12,00% 6,02% 6,07% 9,32% - - 4.779 43.047 261 117.671 6.023 - - 406 1.264 2.353 2.130 1.174 3.966 5.062 262.048 1.005 679 924 1.185 67.154 460.606 420.273 2.676 319.986 179.138 3.259 530.877 3.747.908 183.629 6.253.973 2.263.506 - 46.191 14.624.980 65.258 21.773 58.020 35.855 90.383 144.026 183.766 120.904 31.909 16.295 8.157 24.106 278.848 354.518 355.958 271.965 54.436 865.083 1.104.299 8.917 68.559 82.851 284.790 245.098 7.043 52.271 133 2.855.216 6.136 6.808 - 446 20.227 1.858 2.263 2.290 4.303 5.492 249.689 1.808 563 1.140 1.294 6,41% 11,74% 6,87% 12,03% 13,21% 12,00% 6,97% 11,10% 15,38% 6,76% 8,33% 9,33% 10,00% 10,00% 9,57% 12,00% 6,04% 7,97% 9,44% - - 103.852 414.560 83.086 852.408 178.257 11.047 16.261 617.797 4.131.249 55.337 4.360.464 2.064.798 - 14.594.746 41.932 46.629 47.772 44.387 66.411 122.822 156.709 117.733 87.437 12.802 1.768 26.316 248.916 296.896 237.238 267.499 104.198 940.574 1.200.652 23.977 93.402 94.945 307.973 254.418 361.246 1.907.908 54.599 330.937 1.439.386 vALuE CuRRENT CuRRENT vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CIRCuLANTE CuRRENT 2007 CONSOLIDATED CuRRENT ChARGES PRINCIPAL AMOuNT NON CuRRENT ChARGES 2006 PRINCIPAL AMOuNT NON Annual Report 2007 Attachment II - - - - - - 7,07% 10,71% 11,44% 6,76% 8,39% 9,33% 10,00% 10,00% 9,85% 12,00% 6,02% 6,07% 9,32% - - - - - - - - - 406 1.264 2.353 5.062 1.174 3.966 5.062 262.048 1.005 679 924 1.185 64.234 - - - - - - 23.096 23.096 65.258 21.773 58.020 183.766 90.383 144.026 183.766 120.904 31.909 16.295 8.157 24.106 266.320 - - - - - - 7.312.490 7.312.490 278.848 354.518 284.790 1.104.299 54.436 865.083 1.104.299 8.917 68.559 82.851 284.790 245.098 1.356.391 - - - - - - 6,97% 11,10% 15,38% 6,76% 8,33% 9,33% 10,00% 10,00% 9,57% 12,00% 6,04% 7,97% 9,44% - - - - - - - - - 446 20.227 1.858 2.263 2.290 4.303 5.492 249.689 1.808 563 1.140 1.294 58.276 - - - - - - 8.131 8.131 41.932 46.629 47.772 44.387 66.411 122.822 156.709 117.733 87.437 12.802 1.768 26.316 335.919 - - - - - - 7.297.373 7.297.373 248.916 296.896 237.238 267.499 104.198 940.574 1.200.652 23.977 93.402 94.945 307.973 254.418 1.684.729 (38.785) (41.845) (24.180) (27.449) - - (38.785) (41.845) - (24.180) (27.449) - 310.565 1.119.853 5.883.230 321.792 1.076.206 5.510.074 310.577 1.172.838 6.092.879 325.469 1.081.188 5.755.417 T O T A L 482.346 2.551.982 33.488.103 3.249.399 2.735.677 31.334.465 310.577 1.195.934 13.405.369 325.469 1.089.319 13.052.790 207 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS INvESTMENTS IN CONSOLIDATED COMPANIES AS OF DECEMBER 31 (In thousands of Brazilian reais) COMPANIES’ DATA FuRNAS (b) ChESF ELETROSuL ELETRONORTE ELETRONuCLEAR LIGhTPAR CGTEE ITAIPu (c) TOTAL Capital stock 3.194.000 1.696.306 279.072 2.843.235 3.295.768 113.790 868.721 177.130 Stockholders’ equity (a) 13.400.554 11.571.608 2.109.175 7.283.436 4.455.313 55.769 642.208 177.130 2007 2007 2006 Net income (loss) for the year ELETROBRÁS’S INTERESTS Number of shares – thousand share lot Common shares Preferred shares % of interest Subscribed and paid-in capital Voting CHANGES IN INVESTMENTS: Balances at beginning of year Equity accounting – income (loss) for the year Dividends Interest on equity capital Balances at end of year 676.524 652.630 196.940 (542.315) 117.668 16.097 (69.149) 50.618.949 14.088.233 99,54 99,82 40.478 1.002 99,45 100,00 42.582.421 - 68.736.323 - 9.611.945 2.687.056 99,71 99,71 98,66 98,66 99,80 99,92 12.692.991 11.097.604 1.953.343 7.720.886 4.357.407 796.567 649.040 196.556 (535.047) (164.121) (238.680) (46.841) - 117.335 (27.893) 13.325.437 11.507.964 2.103.058 7.185.839 4.446.849 45.181 641.823 88.565 39.344.716 - - - - - - - - - - - - - - - - - 50,00 50,00 106.900 38.672.726 38.503.522 (18.335) 1.149.525 599.035 - (477.535) (6.647) (423.184) 38.672.726 8.480.196 1.126.273 - 81,61 81,61 32.665 12.516 - - 99,94 99,94 710.930 (69.107) - COMPANIES’ DATA FuRNAS (b) ChESF ELETROSuL ELETRONORTE ELETRONuCLEAR LIGhTPAR CGTEE ITAIPu (c) TOTAL 2007 2007 2006 Annual Report 2007 Attachment III Capital stock 3.194.000 1.696.306 279.072 2.843.235 3.295.768 113.790 868.721 177.130 Stockholders’ equity (a) 13.400.554 11.571.608 2.109.175 7.283.436 4.455.313 55.769 642.208 177.130 676.524 652.630 196.940 (542.315) 117.668 16.097 (69.149) 8.480.196 - 1.126.273 - - - - Net income (loss) for the year ELETROBRÁS’S INTERESTS Number of shares – thousand share lot Common shares Preferred shares % of interest Subscribed and paid-in capital Voting CHANGES IN INVESTMENTS: Balances at beginning of year Equity accounting – income (loss) for the year Dividends Interest on equity capital Balances at end of year 50.618.949 14.088.233 99,54 99,82 40.478 1.002 99,45 100,00 42.582.421 68.736.323 - 99,71 99,71 - 98,66 98,66 12.692.991 11.097.604 1.953.343 7.720.886 4.357.407 796.567 649.040 196.556 (535.047) (164.121) (238.680) (46.841) - 9.611.945 2.687.056 99,80 99,92 117.335 (27.893) 81,61 81,61 32.665 12.516 - 99,94 99,94 50,00 50,00 710.930 (69.107) - 106.900 38.672.726 38.503.522 (18.335) 1.149.525 599.035 - (477.535) (6.647) (423.184) 38.672.726 - - - - - - - - - - - - - - 13.325.437 11.507.964 2.103.058 7.185.839 4.446.849 45.181 641.823 88.565 39.344.716 (a) Exclude Advances for Future Capital Raise (b) Adjusted Shareholder’s Equity (c) The participation of Eletrobrás, in accordance to the Law 72.707/73 is fixed and equals to US$ 50,000 thousand The analysis of the Financial Statements of Furnas, Eletrosul, Chesf, Eletronuclear, Lightpar and CGTEE were performed by other independent auditors. The analysis of Financial Statements of the controlled company Eletronorte and the joint- control Itaipu Binacional were performed by the same independent auditors of the con- troller. 209 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS PROPERTY, PLANT AND EQuIPMENT (In thousands of Brazilian reais) COMPANY Dez-07 ELETROBRAS CONTROLLED AND JOINT-CONTROLLED Dez-07 COMPANY AND SuBSIDIARIES TOGEThER Dez-07 FuRNAS ChESF ELETRONORTE ELETRONuCLEAR ELETROSuL ITAIPu CGTEE LIGhTPAR Generation In service Accumulated depreciation In progress Transmission In service Accumulated depreciation In progress Distribution/Commercialization In service Accumulated depreciation In progress Administration In service Accumulated depreciation In progress Concession-linked obligations (-) Amortization and reversals (-) Consumers’ contributions (-) Federal Government’s participation (-) Donations and grants for investment (-) Other - - - - - - - - - - - - - - - 53.704 (24.897) 28.807 - 28.807 28.807 - - - - - - 7.657.039 (2.879.918) 4.777.121 1.973.816 6.750.937 12.180.452 (5.981.580) 6.198.872 1.252.690 7.451.562 1.480 (502) 978 39 1.017 195.521 (83.559) 111.962 20.535 132.497 14.336.013 (81.998) - (28.539) (2.003) - (112.540) 17.143.404 (6.593.464) 10.549.940 169.207 10.719.147 6.936.848 (3.135.709) 3.801.139 1.175.238 4.976.377 - - - - - 895.235 (441.070) 454.165 131.056 585.221 16.280.745 - (3.344) (108.052) (43.865) (380) (155.641) 19.762.511 (7.698.655) 12.063.856 580.437 12.644.293 6.036.619 (1.860.924) 4.175.695 2.294.264 6.469.959 5.990.161 (2.716.878) 3.273.283 567.970 3.841.253 1.054.108 (478.420) 575.688 291.518 867.206 319.186 (185.563) 133.623 72.177 205.800 17.558.552 - (24.482) (266.480) (18.260) (36.072) (345.294) - - - - - - - - - - 13.137 (7.255) 5.882 4.170 10.052 6.480.011 - - (3.617) (204) - (3.821) - - - 93.768 93.768 2.914.876 (1.279.948) 1.634.928 280.638 1.915.566 - - - - - 44.586 (12.171) 32.415 1.986 34.401 2.043.735 - - - - (6.815) (6.815) 15.132.699 1.880.963 - (1.576.832) 304.131 176.578 480.709 15.132.699 207.234 15.339.933 1.090.279 1.090.279 1.090.279 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 746.544 746.544 390.305 1.136.849 17.567.061 8.418 (2.793) 5.625 - 5.625 486.334 171 (129) 42 - 42 42 CONSOLIDATED Dec-07 TOTAL 67.613.235 (20.609.793) 47.003.442 5.495.304 52.498.746 29.112.616 (13.114.115) 15.998.501 3.276.536 19.275.037 1.055.588 (478.922) 576.666 291.557 868.223 2.276.502 (757.437) 1.519.065 620.229 2.139.294 74.781.300 (81.998) (27.826) (406.688) (71.147) (36.452) (624.111) - - - - - - - - - - - - - - - - - - - - - TOTAL * In 2006, Intangible Assets were separated from the total balance of Property, plant and equipment 14.223.473 28.807 16.125.104 17.213.258 6.476.190 2.036.920 17.567.061 486.334 42 74.157.189 Annual average depreciation rate (%) Generation Transmission Distribution/Commercialization Administration 0,00% 0,00% 0,00% 7,95% 2,20% 3,00% 5,70% 9,30% 2,41% 2,97% 0,00% 6,57% 2,56% 2,76% 3,00% 15,00% 3,30% 0,00% 0,00% 10,00% 0,00% 3,19% 0,00% 7,51% 0,00% 0,00% 0,00% 0,00% 6,12% 0,00% 0,00% 12,50% 0,00% 0,00% 0,00% 0,00% COMPANY Dez-07 CONTROLLED AND JOINT-CONTROLLED Dez-07 COMPANY AND SuBSIDIARIES TOGEThER Dez-07 ELETROBRAS FuRNAS ChESF ELETRONORTE ELETRONuCLEAR ELETROSuL ITAIPu CGTEE LIGhTPAR - - - 93.768 93.768 15.132.699 - 15.132.699 207.234 15.339.933 1.880.963 (1.576.832) 304.131 176.578 480.709 2.914.876 (1.279.948) 1.634.928 280.638 1.915.566 1.090.279 - 1.090.279 - 1.090.279 - - - - - 44.586 (12.171) 32.415 1.986 34.401 2.043.735 - - - (6.815) - (6.815) - - - - - 746.544 - 746.544 390.305 1.136.849 17.567.061 - - - - - - - - - - - - - - - - 8.418 (2.793) 5.625 - 5.625 486.334 - - - - - - - - - - - - - - - - - - - - - 171 (129) 42 - 42 42 - - - - - - Annual Report 2007 Attachment Iv CONSOLIDATED Dec-07 TOTAL 67.613.235 (20.609.793) 47.003.442 5.495.304 52.498.746 29.112.616 (13.114.115) 15.998.501 3.276.536 19.275.037 1.055.588 (478.922) 576.666 291.557 868.223 2.276.502 (757.437) 1.519.065 620.229 2.139.294 74.781.300 (81.998) (27.826) (406.688) (71.147) (36.452) (624.111) * In 2006, Intangible Assets were separated from the total balance of Property, plant and equipment 28.807 14.223.473 16.125.104 17.213.258 6.476.190 2.036.920 17.567.061 486.334 42 74.157.189 0,00% 0,00% 0,00% 7,95% 2,20% 3,00% 5,70% 9,30% 2,41% 2,97% 0,00% 6,57% 2,56% 2,76% 3,00% 15,00% 3,30% 0,00% 0,00% 10,00% 0,00% 3,19% 0,00% 7,51% 0,00% 0,00% 0,00% 0,00% 6,12% 0,00% 0,00% 12,50% 0,00% 0,00% 0,00% 0,00% 211 - - - - - - - - - - - - - - - - - - - - - 53.704 (24.897) 28.807 - 28.807 28.807 7.657.039 (2.879.918) 4.777.121 1.973.816 6.750.937 12.180.452 (5.981.580) 6.198.872 1.252.690 7.451.562 1.480 (502) 978 39 1.017 195.521 (83.559) 111.962 20.535 132.497 (81.998) (28.539) (2.003) - - (112.540) 17.143.404 (6.593.464) 10.549.940 169.207 10.719.147 6.936.848 (3.135.709) 3.801.139 1.175.238 4.976.377 - - - - - 895.235 (441.070) 454.165 131.056 585.221 - (3.344) (108.052) (43.865) (380) (155.641) 19.762.511 (7.698.655) 12.063.856 580.437 12.644.293 5.990.161 (2.716.878) 3.273.283 567.970 3.841.253 1.054.108 (478.420) 575.688 291.518 867.206 319.186 (185.563) 133.623 72.177 205.800 - (24.482) (266.480) (18.260) (36.072) (345.294) 6.036.619 (1.860.924) 4.175.695 2.294.264 6.469.959 - - - - - - - - - - 13.137 (7.255) 5.882 4.170 10.052 - - - (3.617) (204) (3.821) 14.336.013 16.280.745 17.558.552 6.480.011 Accumulated depreciation Generation In service In progress Transmission In service In progress Accumulated depreciation Distribution/Commercialization In service Accumulated depreciation In progress Administration In service In progress Accumulated depreciation Concession-linked obligations (-) Amortization and reversals (-) Consumers’ contributions (-) Federal Government’s participation (-) Donations and grants for investment (-) Other TOTAL Annual average depreciation rate (%) Generation Transmission Distribution/Commercialization Administration CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS PROPERTY, PLANT AND EQuIPMENT (In thousands of Brazilian reais) Generation In service Accumulated depreciation In construction Transmission In service Accumulated depreciation In construction Distribution/Commercialization In service Accumulated depreciation In construction Administration In service Accumulated depreciation In construction COMPANY Dec-06 ELETROBRAS - - - - - - - - - - - - - - 50.710 (19.888) 30.822 - 30.822 CONTROLLED AND JOINT-CONTROLLED Dec-06 FuRNAS ChESF ELETRONORTE ELETRONuCLEAR ELETROSuL ITAIPu CGTEE LIGhTPAR COMPANY AND SuBSIDIARIES TOGEThER Dec-06 CONSOLIDATED Dec-06 TOTAL 7.645.283 (2.701.018) 4.944.265 1.570.447 6.514.712 11.777.672 (5.660.212) 6.117.460 1.394.882 7.512.342 1.361 (428) 933 113 1.046 174.194 (74.991) 99.203 30.539 129.742 16.919.707 (6.243.636) 10.676.071 225.602 10.901.673 6.566.634 (2.954.095) 3.612.539 1.318.712 4.931.251 - - - - - 803.293 (416.182) 387.111 173.689 560.800 15.261.051 (7.341.091) 7.919.960 4.496.633 12.416.593 5.754.556 (2.541.411) 3.213.145 545.168 3.758.313 1.004.272 (427.073) 577.199 242.114 819.313 307.080 (169.443) 137.637 53.780 191.417 6.020.507 (1.683.564) 4.336.943 1.999.010 6.335.953 - - - - - - - - - - 27.827 (18.000) 9.827 4.245 14.072 30.822 14.157.842 16.393.724 17.185.636 6.350.025 1.852.804 21.969.408 414.023 78.354.334 Concession-linked obligations (-) Amortization and reversals (-) Consumers’ contributions (-) Federal Government’s participation (-) Donations and grants for investment (-) Other - - - - - - (81.998) - (28.539) (2.003) - (112.540) (20.269) (6.048) (108.052) (20.839) - (155.208) - (24.448) (263.978) - (55.077) (343.503) - - - - (47.543) (47.543) 1.867.236 (1.532.705) 334.531 73.474 408.005 19.038.648 19.038.648 245.729 19.284.377 1.314.584 1.314.584 1.314.584 896.299 896.299 474.148 1.370.447 5.969 (2.119) 3.850 2.168 6.018 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 50 - 50 - 50 50 - - - - - - 66.752.432 (19.502.014) 47.250.418 8.642.879 55.893.297 28.133.606 (12.371.684) 15.761.922 3.540.607 19.302.529 1.005.633 (427.501) 578.132 242.227 820.359 2.307.190 (710.157) 1.597.033 741.116 2.338.149 (102.267) (30.496) (400.569) (23.096) (102.620) (659.048) - - - 31.984 31.984 2.720.160 (1.215.966) 1.504.194 281.845 1.786.039 - - - - - 41.768 (9.534) 32.234 2.547 34.781 - - - - (254) (254) 0,00% 3,19% 0,00% 7,51% Annual average depreciation rate (%) Generation Transmission Distribution/Commercialization Administration 0,00% 0,00% 0,00% 7,95% 2,20% 3,00% 9,00% 5,60% 2,47% 3,07% 0,00% 5,10% 3,02% 2,93% 2,78% 18,26% 3,30% 0,00% 0,00% 10,00% 0,00% 0,00% 0,00% 0,00% 6,17% 0,00% 0,00% 12,50% 0,00% 0,00% 0,00% 0,00% TOTAL * In 2006, Intangible Assets were separated from the total balance of Property, plant and equipment 16.842.133 6.302.482 1.852.550 21.969.408 414.023 50 77.695.286 16.238.516 14.045.302 30.822 COMPANY Dec-06 CONTROLLED AND JOINT-CONTROLLED Dec-06 COMPANY AND SuBSIDIARIES TOGEThER Dec-06 ELETROBRAS FuRNAS ChESF ELETRONORTE ELETRONuCLEAR ELETROSuL ITAIPu CGTEE LIGhTPAR - - - 31.984 31.984 2.720.160 (1.215.966) 1.504.194 281.845 1.786.039 - - - - - 41.768 (9.534) 32.234 2.547 34.781 19.038.648 19.038.648 245.729 19.284.377 1.314.584 - 1.314.584 - 1.314.584 - - - - - 1.867.236 (1.532.705) 334.531 73.474 408.005 - - - - - - - - - - 896.299 896.299 474.148 1.370.447 5.969 (2.119) 3.850 2.168 6.018 30.822 14.157.842 16.393.724 17.185.636 6.350.025 1.852.804 21.969.408 414.023 - - - (254) - (254) - - - - - - - - - - - - Annual Report 2007 Attachment Iv-A CONSOLIDATED Dec-06 TOTAL 66.752.432 (19.502.014) 47.250.418 8.642.879 55.893.297 28.133.606 (12.371.684) 15.761.922 3.540.607 19.302.529 1.005.633 (427.501) 578.132 242.227 820.359 2.307.190 (710.157) 1.597.033 741.116 2.338.149 78.354.334 (102.267) (30.496) (400.569) (23.096) (102.620) (659.048) - - - - - - - - - - - - - - - 50 - 50 - 50 50 - - - - - - * In 2006, Intangible Assets were separated from the total balance of Property, plant and equipment 30.822 14.045.302 16.238.516 16.842.133 6.302.482 1.852.550 21.969.408 414.023 50 77.695.286 0,00% 0,00% 0,00% 7,95% 2,20% 3,00% 9,00% 5,60% 2,47% 3,07% 0,00% 5,10% 3,02% 2,93% 2,78% 18,26% 3,30% 0,00% 0,00% 10,00% 0,00% 3,19% 0,00% 7,51% 0,00% 0,00% 0,00% 0,00% 6,17% 0,00% 0,00% 12,50% 0,00% 0,00% 0,00% 0,00% 213 - - - - - - - - - - - - - - - - - - - - 50.710 (19.888) 30.822 - 30.822 7.645.283 (2.701.018) 4.944.265 1.570.447 6.514.712 11.777.672 (5.660.212) 6.117.460 1.394.882 7.512.342 1.361 (428) 933 113 1.046 174.194 (74.991) 99.203 30.539 129.742 (81.998) (28.539) (2.003) - - 16.919.707 (6.243.636) 10.676.071 225.602 10.901.673 6.566.634 (2.954.095) 3.612.539 1.318.712 4.931.251 - - - - - 803.293 (416.182) 387.111 173.689 560.800 (20.269) (6.048) (108.052) (20.839) - (112.540) (155.208) 15.261.051 (7.341.091) 7.919.960 4.496.633 12.416.593 5.754.556 (2.541.411) 3.213.145 545.168 3.758.313 1.004.272 (427.073) 577.199 242.114 819.313 307.080 (169.443) 137.637 53.780 191.417 - - (24.448) (263.978) (55.077) (343.503) 6.020.507 (1.683.564) 4.336.943 1.999.010 6.335.953 - - - - - - - - - - - - - - 27.827 (18.000) 9.827 4.245 14.072 (47.543) (47.543) Generation In service Accumulated depreciation In construction Transmission In service In construction Accumulated depreciation Distribution/Commercialization In service Accumulated depreciation In construction Administration In service In construction Accumulated depreciation Concession-linked obligations (-) Amortization and reversals (-) Consumers’ contributions (-) Federal Government’s participation (-) Donations and grants for investment (-) Other TOTAL Annual average depreciation rate (%) Generation Transmission Distribution/Commercialization Administration CENTRAIS ELÉTRICAS BRASILEIRAS S.A. - ELETROBRáS LOANS AND FINANCING OBTAINED AS OF DECEMBER 31 (In thousands of Brazilian reais) IN FOREIGN CURRENCY Financial Institutions Inter-American Development Bank - IDB Corporación Andino de Fomento - CAF Kreditanstalt fur Wiederaufbau - KFW AMFORP & BEPCO Dresdner Bank Eximbank Other Bonus Bonus - Dresdner Bank Other National Treasury - Itaipu IN LOCAL CURRENCY Receivables Investment Fund (FIDC) Other 2007 2006 CONSOLIDATED ChARGES CuRRENT PRINCIPAL AMOuNT NON ChARGES CuRRENT PRINCIPAL AMOuNT NON AvERAGE RATE vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CuRRENT CuRRENT ChARGES CuRRENT AvERAGE RATE CONSOLIDATED 2007 PRINCIPAL AMOuNT NON ChARGES CuRRENT AvERAGE RATE 2006 PRINCIPAL AMOuNT NON vALuE CuRRENT CuRRENT vALuE CuRRENT CuRRENT 5,62% 8,06% 5,73% 6,50% 6,25% 2,15% 7,75% 4.578 1.934 199 - 266 1.721 366 9.064 4.052 4.052 - - 32.957 6.959 24.773 296 24.772 34.767 1.790 126.314 - - - - 313.091 184.089 100.540 303 100.539 330.291 16.629 1.045.482 531.390 531.390 - - 6,97% 7,94% 5,73% 6,50% 6,25% 2,15% 5,15% 7,75% 6.860 1.913 259 - 345 2.136 347 11.860 4.892 4.892 - - 49.074 8.399 26.783 607 26.783 39.410 2.160 153.216 - - - - 417.687 238.998 135.793 1.218 135.792 413.807 22.766 1.366.061 641.400 641.400 - - 5,62% 8,06% 5,73% 6,50% 6,25% 2,15% 7,75% 4.578 1.934 479 - 382 1.721 558 9.652 4.052 4.052 6.202 6.202 32.957 6.959 47.610 296 35.859 34.767 14.858 313.091 184.089 123.378 303 111.625 330.291 34.699 - - 531.390 531.390 667.338 667.338 9.179.553 9.179.553 6,97% 7,94% 5,73% 6,50% 6,25% 2,15% 7,75% 6.860 1.913 259 - 345 2.136 1.332 12.845 4.892 4.892 8.242 8.242 49.074 8.399 26.783 607 26.783 39.410 56.347 417.687 238.998 185.174 1.218 159.765 413.807 57.006 - - 641.400 641.400 546.469 546.469 13.751.786 13.751.786 173.306 1.097.476 207.403 1.473.655 13.116 126.314 1.576.872 16.752 153.216 2.007.461 19.906 840.644 10.808.419 25.979 753.872 15.866.841 - - - - - - - - - - - - - - - - - - - 32.162 32.162 306.419 230.068 536.487 277.296 1.895.607 2.172.903 - 8.530 8.530 534.272 667.525 1.201.797 486.333 1.466.752 1.953.085 13.116 126.314 1.576.872 - 16.752 153.216 2.007.461 52.068 1.377.131 12.981.322 34.509 1.955.669 17.819.926 a) The debt is guaranteed by the Federal Government and/or Eletrobrás. b) The total debt in foreign currency, including charges, amounts to R$ 1,716,302 thousand (Company), corresponding to US$ 968,951 thousand, and R$ 11,668,969 thousand (Consolidated), corresponding to US$ 6,587,799 thousand. The percentage distribution by currency is as follows: COMPANY CONSOLIDATED US$ 64% 91% EURO 15% 5% YEN 21% 4% c) Loans and financing incurred interest at the average rate of 7,03% p.a. in 2007 and 6.83% p.a. in 2006. d) The long-term portion of loans and financing denominated in thousands of US Dollars matures as follows: COMPANY CONSOLIDATED 2009 64.174 397.481 2010 106.441 444.844 2011 106.441 501.932 2012 106.441 633.921 2013 93.384 467.046 After 2013 413.353 4.883.473 TOTAL 890.234 7.328.697 Annual Report 2007 Attachment v ChARGES CuRRENT AvERAGE RATE CONSOLIDATED 2007 PRINCIPAL AMOuNT NON ChARGES CuRRENT AvERAGE RATE 2006 PRINCIPAL AMOuNT NON vALuE CuRRENT CuRRENT vALuE CuRRENT CuRRENT 2007 2006 CONSOLIDATED ChARGES CuRRENT PRINCIPAL AMOuNT NON ChARGES CuRRENT PRINCIPAL AMOuNT NON AvERAGE RATE vALuE CuRRENT CuRRENT AvERAGE RATE vALuE CuRRENT CuRRENT 5,62% 8,06% 5,73% 6,50% 6,25% 2,15% 7,75% 4.578 1.934 479 - 382 1.721 558 9.652 4.052 4.052 6.202 6.202 32.957 6.959 47.610 296 35.859 34.767 14.858 173.306 313.091 184.089 123.378 303 111.625 330.291 34.699 1.097.476 - - 531.390 531.390 667.338 667.338 9.179.553 9.179.553 6,97% 7,94% 5,73% 6,50% 6,25% 2,15% 7,75% 6.860 1.913 259 - 345 2.136 1.332 12.845 4.892 4.892 8.242 8.242 49.074 8.399 26.783 607 26.783 39.410 56.347 207.403 417.687 238.998 185.174 1.218 159.765 413.807 57.006 1.473.655 - - 641.400 641.400 546.469 546.469 13.751.786 13.751.786 13.116 126.314 1.576.872 16.752 153.216 2.007.461 19.906 840.644 10.808.419 25.979 753.872 15.866.841 13.116 126.314 1.576.872 - 16.752 153.216 2.007.461 52.068 1.377.131 12.981.322 34.509 1.955.669 17.819.926 - 32.162 32.162 306.419 230.068 536.487 277.296 1.895.607 2.172.903 - 8.530 8.530 534.272 667.525 1.201.797 486.333 1.466.752 1.953.085 IN FOREIGN CURRENCY Financial Institutions Inter-American Development Bank - IDB Corporación Andino de Fomento - CAF Kreditanstalt fur Wiederaufbau - KFW AMFORP & BEPCO Dresdner Bank Eximbank Other Bonus - Dresdner Bank Bonus Other National Treasury - Itaipu IN LOCAL CURRENCY Receivables Investment Fund (FIDC) Other 5,62% 8,06% 5,73% 6,50% 6,25% 2,15% 7,75% 4.578 1.934 199 - 266 1.721 366 9.064 4.052 4.052 - - - - - 32.957 6.959 24.773 296 24.772 34.767 1.790 313.091 184.089 100.540 303 100.539 330.291 16.629 6,97% 7,94% 5,73% 6,50% 6,25% 2,15% 5,15% 6.860 1.913 259 - 345 2.136 347 49.074 8.399 26.783 607 26.783 39.410 2.160 126.314 1.045.482 11.860 153.216 1.366.061 531.390 531.390 7,75% 4.892 4.892 417.687 238.998 135.793 1.218 135.792 413.807 22.766 641.400 641.400 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - a) The debt is guaranteed by the Federal Government and/or Eletrobrás. b) The total debt in foreign currency, including charges, amounts to R$ 1,716,302 thousand (Company), corresponding to US$ 968,951 thousand, and R$ 11,668,969 thousand (Consolidated), corresponding to US$ 6,587,799 thousand. The percentage distribution by currency is as follows: COMPANY CONSOLIDATED US$ 64% 91% EURO 15% 5% YEN 21% 4% c) Loans and financing incurred interest at the average rate of 7,03% p.a. in 2007 and 6.83% p.a. in 2006. d) The long-term portion of loans and financing denominated in thousands of US Dollars matures as follows: COMPANY CONSOLIDATED 2009 64.174 397.481 2010 106.441 444.844 2011 106.441 501.932 2012 106.441 633.921 2013 After 2013 413.353 TOTAL 890.234 4.883.473 7.328.697 93.384 467.046 215 CENTRAIS ELÉTRICAS BRASILEIRAS S.A - ELETROBRáS INCOME (LOSS) PER SEGMENT AS OF DECEMBER 31, 2007 (In thousands of Brazilian reais) INCOME (LOSS) PER SEGMENT GENERATION CONSOLIDATED TRANSMISSION DISTRIBuTION ADMINISTRATION TOTAL ITEMS ELIMINATED OPERATING REVENUES OPERATING EXPENSES TOTAL OPERATING REVENUES (EXPENSES) FINANCIAL INCOME (EXPENSES) 13.277.440 3.791.948 (7.809.716) (2.995.315) 5.467.724 (2.363.490) 796.633 593.741 OPERATING INCOME(LOSSES) 3.104.234 1.390.374 NON-OPERATING INCOME (LOSSES) (12.324) (23.564) INCOME (LOSSES) BEFORE INCOME AND SOCIAL CONTRI- BUTION TAX AND OWNERSHIP INTERESTS 3.091.910 1.366.810 Social contribution tax Income tax INCOME (LOSS) BEFORE OWNERSHIP INTERESTS Profit sharing Minority interest (201.276) (575.814) 2.314.820 (42.137) - (105.641) (309.535) 951.634 (98.695) - 2.893.331 - (4.699.472) - (1.806.141) - 195.782 - (1.610.359) - (485) - - (1.610.844) - 117.386 326.081 - (1.167.377) - (1.095) - 9.458.012 (6.112.245) 23.308.486 (8.742.570) 4.199.452 (20.047.621) 715.442 (1.912.793) 3.260.865 596.453 50.845 (926.669) 1.311.895 (1.861.948) 2.334.196 (506) (36.879) 1.311.389 (1.861.948) 2.297.317 - - - (4.232) (171.991) (413.310) (159.927) (4.232) - - - - - - - - - - - 17.540 145.958 (18.000) 1.474.887 (1.861.948) 1.712.016 NET INCOME (LOSS) FOR THE YEAR 2.272.683 852.939 (1.168.472) 1.456.887 (1.866.180) 1.547.857  INCOME (LOSS) PER SEGMENT GENERATION DISTRIBuTION CONSOLIDATED TRANSMISSION ADMINISTRATION ITEMS ELIMINATED TOTAL OPERATING REVENUES OPERATING EXPENSES 13.277.440 3.791.948 2.893.331 (7.809.716) (2.995.315) (4.699.472) TOTAL OPERATING REVENUES (EXPENSES) 5.467.724 796.633 (1.806.141) FINANCIAL INCOME (EXPENSES) (2.363.490) 593.741 195.782 OPERATING INCOME(LOSSES) 3.104.234 1.390.374 (1.610.359) NON-OPERATING INCOME (LOSSES) (12.324) (23.564) (485) INCOME (LOSSES) BEFORE INCOME AND SOCIAL CONTRI- BUTION TAX AND OWNERSHIP INTERESTS 3.091.910 1.366.810 (1.610.844) Social contribution tax Income tax (201.276) (575.814) (105.641) (309.535) INCOME (LOSS) BEFORE OWNERSHIP INTERESTS 2.314.820 951.634 (1.167.377) Profit sharing Minority interest (42.137) - (98.695) - - - - - - - - - - - - 117.386 326.081 (1.095) 9.458.012 - (8.742.570) - 715.442 - 596.453 - 1.311.895 - (506) - - 1.311.389 - 17.540 145.958 - 1.474.887 - (18.000) - (6.112.245) 23.308.486 4.199.452 (20.047.621) (1.912.793) 3.260.865 50.845 (926.669) (1.861.948) 2.334.196 - (36.879) (1.861.948) 2.297.317 - - (171.991) (413.310) (1.861.948) 1.712.016 (4.232) (159.927) (4.232) NET INCOME (LOSS) FOR THE YEAR 2.272.683 852.939 (1.168.472) 1.456.887 (1.866.180) 1.547.857 Annual Report 2007 Attachment vI 217 CENTRAIS ELÉTRICAS BRASILEIRAS S.A. ELETROBRáS SuMMARIZED FINANCIAL STATEMENTS OF CONTROLLED COMPANIES AS OF DECEMBER 31 (In thousands of Brazilian reais) BALANCE SHEET 2007 BALANCE SHEET 2006 ATIvO PASSIvO ATIvO Current Noncurrent TOTAL Current Noncurrent Stockhold- ers’ Equity TOTAL Current Noncurrent TOTAL Current Noncurrent PASSIvO Stockholders’ Equity TOTAL COMPANY AND SUBSIDIARIES TOGETHER FURNAS CHESF ELETROSUL ELETRONORTE MANAUS BOA VISTA ELETRONUCLEAR CGTEE LIGHTPAR ITAIPU COMPANY AND SUBSIDIARIES TOGETHER FURNAS CHESF ELETROSUL ELETRONORTE MANAUS BOA VISTA ELETRONUCLEAR CGTEE LIGHTPAR ITAIPU Other Property, plant and equipment, deferred charges, and intangible assets 1.870.702 1.789.042 488.855 2.143.497 274.121 53.909 729.988 184.785 97.209 1.530.658 2.266.530 14.426.075 18.563.307 415.335 16.263.627 18.468.004 3.401.232 2.038.700 873.677 1.308.261 17.274.411 20.726.169 2.469.358 1.590.753 85.105 186.007 7.894.648 6.485.044 723.775 527.777 190.901 42 4.437.118 31.047.697 37.015.473 604.484 46.993 679.616 11.213 93.650 2.618.257 1.769.686 420.269 2.513.896 613.890 40.589 526.944 74.988 72.846 2.513.342 13.431.708 18.563.307 4.832.314 11.866.004 18.468.004 2.203.751 3.401.232 8.617.406 20.726.169 2.469.358 612.396 186.007 100.264 7.894.648 4.455.577 723.775 642.208 118.054 190.901 177.130 37.015.473 777.212 9.594.867 1.243.072 45.154 2.912.127 6.579 1 2.378.875 34.459.468 Property, plant and Other equipment, deferred charges, and intangible assets 2.405.707 1.287.923 478.001 2.046.913 14.239.713 18.692.333 594.785 805.407 16.356.602 18.239.310 1.854.624 3.138.032 2.549.482 1.647.877 449.888 3.222.366 12.920.485 18.692.333 5.138.059 11.453.374 18.239.310 634.543 2.053.601 3.138.032 2.544.950 1.563.303 16.901.557 21.009.810 5.703.061 7.363.967 7.942.782 21.009.810 294.718 50.454 708.007 321.111 93.934 481.533 35.485 622.719 13.746 93.650 1.623.924 2.400.175 101.310 187.249 6.302.482 7.633.208 439.051 51 773.908 187.635 402.380 33.548 560.783 52.082 85.323 844.114 44.545 1.153.681 2.400.175 109.156 187.249 2.706.629 4.365.796 7.633.208 10.469 1 711.357 102.311 213.800 773.908 187.635 45.741.339 1.373.819 428.703 43.938.816 45.741.338 2.640.411 42.887.128 STATEMENT OF OPERATIONS 2007 STATEMENT OF OPERATIONS 2006 Net operat- ing Operating Service Revenue Expenses Revenue Financial Income (loss) Operating Income (loss) Non-oper- ating Income (loss) Income Tax and Soc. Con- trib. Tax Income (loss) for the Year Net operating Operating Service Financial Operating ating and Income (loss) Revenue Expenses Revenue Income (loss) Income (loss) Income (loss) for the Year Non-oper- Income Tax Soc. Contrib. Tax 549.145 5.105.173 (5.202.370) 3.980.753 (2.506.177) (338.301) 4.624.070 (4.426.515) 812.406 (1.293.406) (127.098) 108.652 1.271.697 (1.099.028) (219.864) (3.475) 5.967.576 (2.312.945) 131.122 19.089 (97.197) 1.474.576 210.844 197.555 (481.000) (18.446) 172.669 (88.742) 15.614 1.055.733 (486.608) 101.744 (688.650) (63.702) 9.371 (53.282) 19.358 609 3.654.631 (2.330.870) 958.536 987.968 312.588 (491.095) (544.702) (9.075) 119.387 (69.384) 16.223 1.323.761 (5.319) (6.125) (16.508) (7.466) 267 183 (507) 235 - (2.171) (276.693) (329.213) (99.140) (43.754) - - (1.212) - (126) - 676.524 652.630 196.940 (542.315) (544.435) (8.892) 117.668 (69.149) 16.097 1.321.590 5.219.183 (4.525.632) 693.551 3.265.709 (2.119.261) 1.146.448 539.268 (320.497) 3.743.587 (3.611.127) 218.771 132.460 886.469 (1.095.893) (209.424) 85.572 1.204.488 156.928 3.832 (101.941) (922.604) (196.218) (897) (16.369) 281.884 (39.290) 2.935 (296.892) (802.786) (5.882) (454.258) (37.919) 5.581 (251.520) 43.924 439 396.659 343.662 212.889 (321.798) (247.343) (10.788) 30.364 4.634 3.374 96.218 234.152 64.355 (10.230) (2.165) 1 (506) (837) - (128.673) (120.464) (67.789) (17.054) - - (1.811) (2.581) (571) 364.204 457.350 209.455 (349.082) (249.508) (10.787) 28.047 1.216 2.803 6.107.603 (2.408.842) 3.698.761 (4.478.555) (779.794) (2.038) - (781.832) BALANCE SHEET 2007 ATIvO Other Property, plant and equipment, deferred charges, and intangible assets PASSIvO Stockhold- ers’ Equity TOTAL 1.870.702 2.266.530 14.426.075 18.563.307 2.618.257 2.513.342 13.431.708 18.563.307 1.789.042 415.335 16.263.627 18.468.004 1.769.686 4.832.314 11.866.004 18.468.004 488.855 873.677 2.038.700 3.401.232 420.269 777.212 2.203.751 3.401.232 2.143.497 1.308.261 17.274.411 20.726.169 2.513.896 9.594.867 8.617.406 20.726.169 274.121 53.909 729.988 184.785 97.209 604.484 1.590.753 2.469.358 613.890 1.243.072 612.396 2.469.358 46.993 85.105 186.007 40.589 45.154 100.264 186.007 679.616 6.485.044 7.894.648 526.944 2.912.127 4.455.577 7.894.648 11.213 93.650 527.777 42 723.775 190.901 74.988 72.846 6.579 1 642.208 118.054 723.775 190.901 1.530.658 4.437.118 31.047.697 37.015.473 2.378.875 34.459.468 177.130 37.015.473 STATEMENT OF OPERATIONS 2007 Net operat- Non-oper- Income Tax Income Revenue Expenses Revenue Income (loss) Income (loss) Soc. Con- trib. Tax for the Year ating Income (loss) 5.105.173 (5.202.370) (97.197) 1.055.733 3.980.753 (2.506.177) 1.474.576 (486.608) 549.145 (338.301) 210.844 101.744 4.624.070 (4.426.515) 197.555 (688.650) 812.406 (1.293.406) (481.000) (63.702) 108.652 (127.098) (18.446) 9.371 1.271.697 (1.099.028) 172.669 (53.282) 131.122 (219.864) (88.742) 19.089 (3.475) 15.614 19.358 609 958.536 987.968 312.588 (491.095) (544.702) (9.075) 119.387 (69.384) 16.223 (5.319) (6.125) (16.508) (7.466) (276.693) (329.213) (99.140) (43.754) (507) (1.212) 267 183 235 - - - - (126) 676.524 652.630 196.940 (542.315) (544.435) (8.892) 117.668 (69.149) 16.097 5.967.576 (2.312.945) 3.654.631 (2.330.870) 1.323.761 (2.171) - 1.321.590 COMPANY AND SUBSIDIARIES TOGETHER FURNAS CHESF ELETROSUL ELETRONORTE MANAUS BOA VISTA ELETRONUCLEAR CGTEE LIGHTPAR ITAIPU FURNAS CHESF ELETROSUL ELETRONORTE MANAUS BOA VISTA ELETRONUCLEAR CGTEE LIGHTPAR ITAIPU COMPANY AND SUBSIDIARIES TOGETHER Annual Report 2007 Attachment vII Current Noncurrent TOTAL Current Noncurrent Current Noncurrent TOTAL Current Noncurrent Stockholders’ Equity TOTAL BALANCE SHEET 2006 ATIvO PASSIvO Other Property, plant and equipment, deferred charges, and intangible assets 2.405.707 1.287.923 478.001 2.544.950 294.718 50.454 708.007 321.111 93.934 1.373.819 2.046.913 594.785 805.407 1.563.303 481.533 35.485 622.719 13.746 93.650 428.703 14.239.713 16.356.602 1.854.624 16.901.557 1.623.924 101.310 6.302.482 439.051 51 43.938.816 18.692.333 18.239.310 3.138.032 21.009.810 2.400.175 187.249 7.633.208 773.908 187.635 45.741.338 2.549.482 1.647.877 449.888 5.703.061 402.380 33.548 560.783 52.082 85.323 2.640.411 3.222.366 5.138.059 634.543 7.363.967 844.114 44.545 2.706.629 10.469 1 42.887.128 12.920.485 11.453.374 2.053.601 7.942.782 1.153.681 109.156 4.365.796 711.357 102.311 213.800 18.692.333 18.239.310 3.138.032 21.009.810 2.400.175 187.249 7.633.208 773.908 187.635 45.741.339 STATEMENT OF OPERATIONS 2006 ing Operating Service Financial Operating and (loss) Net operating Operating Service Financial Operating Non-oper- ating Revenue Expenses Revenue Income (loss) Income (loss) Income (loss) Income Tax and Soc. Contrib. Tax Income (loss) for the Year 5.219.183 3.265.709 539.268 3.743.587 886.469 85.572 1.204.488 156.928 3.832 6.107.603 (4.525.632) (2.119.261) (320.497) (3.611.127) (1.095.893) (101.941) (922.604) (196.218) (897) (2.408.842) 693.551 1.146.448 218.771 132.460 (209.424) (16.369) 281.884 (39.290) 2.935 3.698.761 (296.892) (802.786) (5.882) (454.258) (37.919) 5.581 (251.520) 43.924 439 (4.478.555) 396.659 343.662 212.889 (321.798) (247.343) (10.788) 30.364 4.634 3.374 (779.794) 96.218 234.152 64.355 (10.230) (2.165) 1 (506) (837) - (2.038) (128.673) (120.464) (67.789) (17.054) - - (1.811) (2.581) (571) - 364.204 457.350 209.455 (349.082) (249.508) (10.787) 28.047 1.216 2.803 (781.832) 219 Initials used in the Financial Statements Annual Report 2007 ALBRÁS AES BANDEIRANTE AES ELETROPAULO AES SUL AES TIETÊ AMPLA ANDE ANEEL ARTEMIS BNDESPAR CAIUÁ CAJA CCEE CDSA CEA CEAL CEAM CEB CEB Lajeado CEEE - D CEEE - GT CELESC CELG CELPA CELPE CELTINS CEMAR CEMAT CEMIG CENTRO-OESTE DE MINAS CEPISA CERON CESP COELBA COELCE CJGE COPEL CPFL CTEEP DUKE EATE EBE Alumínio Brasileiro S.A. AES Bandeirante Empreendimentos Ltda. AES Eletropaulo Metropolitana de Eletricidade de São Paulo S.A. AES Sul Distribuidora Gaúcha de Energia S.A. AES Tietê S.A. Ampla Energia e Serviços S.A. Administración Nacional de Electricidad Brazilian Electricity Regulatory Agency Artemis Transmissora de Energia S.A. BNDES Participações S.A. Caja Paraguaya de Judicaciones y Pensiones del Personal de Itaipu Binacional Câmara de Comercialização de Energia Elétrica Centrais Elétricas Cachoeira Dourada S.A. Companhia de Eletricidade do Amapá Companhia Energética de Alagoas Companhia Energética do Amazonas Companhia Energética de Brasília CEB Lajeado S.A. Companhia Estadual de Distribuição de Energia Elétrica Companhia Estadual de Geração e Transmissão de Energia Elétrica Centrais Elétricas de Santa Catarina S.A. Centrais Elétricas de Goiás S.A. Centrais Elétricas do Pará S.A. Companhia Energética de Pernambuco Companhia Energética do Maranhão Centrais Elétricas Matogrossenses S.A. Centrais Elétricas de Minas Gerais S.A. Companhia de Transmissão Centro-Oeste de Minas Companhia Energética do Piauí Centrais Elétricas de Rondônia S.A. Companhia Energética de São Paulo Chapecoense Geração S.A. Comissão Nacional de Energia Nuclear Companhia Energética do Ceará Companhia Paranaense de Energia Companhia Paulista de Força e Luz Companhia de Transmissão de Energia Elétrica Paulista Duke Energy International, Geração Paranapanema S.A. Empresa Amazonense de Transmissão de Energia S.A. Empresa Bandeirante de Energia S.A. EDP – Lajeado Energia S.A. Centrais Elétricas do Rio Jordão S.A. 220 Annual Report 2007 Attachment vIII EDP Lajeado ELEJOR ELEKTRO ELOS ELETROS ELETROACRE ELETROCEEE ELETRONET EMAE ENERPEIXE ENERSUL ETEP ETAU ESCELSA FACHESF FGP FIBRA FND GRALHA AZUL GUASCOR IBRACON INB INVESTCO ITIQUIRA LIGHT MAE NUCLEOS NUCLEP PAULISTA LAJEADO PIRATININGA PREVINORTE REAL GRANDEZA REDE LAJEADO RGE RS ENERGIA SC ENERGIA STN TANGARÁ TRACTBEL TRANSIRAPÉ TRANSLESTE TRANSUDESTE UIRAPURU Elektro Eletricidade e Serviços S.A. Fundação ELETROSUL de Previdência e Assistência Social Fundação ELETROBRÁS de Seguridade Social Companhia de Eletricidade do Acre Fundação CEEE de Seguridade Social Eletronet S.A. Empresa Metropolitana de Águas e Energia S.A. Enerpeixe S.A. Empresa Energética do Mato Grosso do Sul Empresa Paraense de Transmissão de Energia S.A. Empresa de Transmissão do Alto Uruguai S.A. Espírito Santo Centrais Elétricas S.A. Fundação CHESF de Assistência e Seguridade Social Fundo Garantidor das Parcerias Público Privadas Fundação ITAIPU-BR de Previdência e Assistência Social Fundo Nacional de Desenvolvimento Guascor do Brasil Ltda. Instituto dos Auditores Independentes do Brasil Integração Transmissora de Energia S.A. Investco S.A. Itiquira Energética S.A. Light Serviços de Eletricidade S.A. Wholesale Electricity Market Nucleos Instituto de Seguridade Social Nuclebrás Equipamentos Pesados S.A. Paulista Lajeado Energia S.A. Companhia Piratininga de Força e Luz Previnorte – Fundação de Previdência Complementar Real Grandeza – Fundação de Previdência e Assistência Social Rede Lajeado Energia S.A. Rio Grande Energia Elétrica S.A. Empresa de Transmissão de Energia do Rio Grande do Sul Empresa de Transmissão de Energia de Santa Catarina S.A. Sistema de Transmissão Nordeste S.A. Tangará Energia S.A. Tractbel Energia S.A. Companhia Transirapé de Transmissão Companhia Transleste de Transmissão Companhia Transudeste de Transmissão Uirapuru Transmissora de Energia S.A. Companhia Transleste de Transmissão Companhia Transudeste de Transmissão Uirapuru Transmissora de Energia S.A. 221 Board of Executive Directors Annual Report 2007 Eletronorte - Trasmission Network – Tramoeste (Eletronorte Files) 222 Board of Executive DirectorsAnnual Report 2007 Eletrobrás’ Executive Board (EEB) is elected by the Board of Directors and is comprised of five members: the president, who must be a member of the Board, and four officers. The EEB works in compliance with the provisions set forth in the company’s By-Laws, and the guideli- nes of the Board of Directors. In December 2007, EEB was constituted as follows: Valter Luiz Cardeal de Souza President on Duty Aracilba Alves da Rocha Administration Officer Luiz Augusto Pereira de Andrade Figueira Finance and Investors’ Relations Valter Luiz Cardeal de Souza Engineering Officer Officer (Acting) João Ruy Castelo Branco de Castro Special Projects and Technological and Industrial Development Officer BOARD OF DIRECTORS President Nelson José Hubner Moreira Minister of Mines and Energy (Acting) Directors Ronaldo Schuck Secretary of Power Energy of the Ministry of Mines and Energy Miriam Aparecida Belchior Articulation and Monitoring Sub-Head – (SAM) – Head of Staff Luiz Soares Dulci State Minister Head of General Administrative Of- fice of the Presidency of the Republic Arlindo Magno de Oliveira Retired from Banco do Brasil Victor Branco de Holanda Strategic Management Officer MF/SE Wagner Bittencourt de Oliveira Infrastructure Area Officer/ Basic Inputs Area Of- ficer - BNDES AuDIT COMMITTEE Title holders Haílton Madureira de Almeida Representative to the Federative Union/Treasury Francisco Ivaldo Frota Federative Union Comptroller/MME Edison Freitas de Oliveira Federative Union Comptroller/MME Carlos César Meirelles Vieira Holder of Preferred Share Alternates Marcelo Kalume Reis Representative to the Federative Union/Treasury Danilo de Jesus Vieira Furtado Federative Union Controlling Shareholder/MME Jairez Elói de Sousa Paulista Federative Union Controlling Shareholder/MME Elson Espedito Panoeiro Holder of Preferred Shares 223 Independent Auditors Report Annual Report 2007 Cepel – View of the High Voltage Laboratory 2 (Cepel/Milton Maurente Files) 224 Parecer Auditores IdependentesAnnual Report 2007 To the Management and Shareholders Centrais Elétricas Brasileiras S.A. - Eletrobrás 1. 2. 3. 4. 5. We have examined the balance sheet of Centrais Elétricas Brasileiras S.A. – Ele- trobrás – individual and consolidated, dated December 31, 2007 and the related statements of income, of changes in stockholders’ equity and of changes in finan- cial position for the year then ended, all prepared under the responsibility of the management. Our responsibility is to express an opinion on these financial state- ments. As mentioned in Note 19, the investments in certain controlled companies and parent companies as of December 31, 2007 were evaluated on the equity me- thod based on financial statements examined by other independent auditors. Our opinion thereon, insofar as it relates to these investments and the revenue arising therefrom, in the amounts of R$ 33,759,973 thousand and R$ 2,010,440 thousand, respectively, is solely based on that other independent auditor’s opinion. Apart from what was mentioned on paragraph 3, our audit was conducted in accor- dance with Brazilian auditing standards and comprised: a) work planning taking into consideration the Company’s relevant balances, volume of transactions and ac- counting and internal control systems; b) examination, on a test basis, of evidence and records supporting the amounts and disclosures in the financial statements; and c) evaluation of the most significant accounting practices used, and estimates made by management as well as the presentation of the financial statements taken as a whole. So far, it was not presented the opinion of the independent auditors related to the financial statements of the year ended in December 31, 2007 of the relevant parent companies (NOTE 19) which investments were evaluated on the equity method. As a result, it was not possible, by means of additional procedures of auditing, to evaluate the compliance of these investments, as well as the equity in earnings income produced by them in the amount of R$ 376,404 thousand and R$ 4,774 thousand, respectively. In our opinion, based on our examinations and the other independent auditors’ opinions, apart from the effects that may arise from the omitted procedures of auditing mentioned on paragraph 3, the financial statements referred to in para- graph 1 present fairly, in all material respects, the financial position of Centrais Elétricas Brasileiras S,A. – Eletrobrás as of December 31, 2007, and the result of its operations, the changes in stockholders’ equity and the sources and applications of its resources correspondent to the year ended at that time, in accordance with accounting practices adopted in Brazil. We have examined the supplementary financial statements comprising the state- ments of cash flow and value-added, both individual and consolidated, presented for additional analysis purposes, though not required as part of the statutory finan- cial statements. This supplementary information statements were submitted to the same auditing procedures applied to the financial statements and, in our opinion, 225 Annual Report 2007 6. 7. 8. 9. are fairly presented in all material aspects, in relation to the financial statements referred in the first paragraph, taken as a whole. As mentioned in NOTE 32, the company registered in the “non-current liability” the amount of R$ 1,328,544 thousand related to provisions for civil contingencies for claim by some corporations on the right to receive the monetary correction in full on the amounts of Compulsory Loan collected to the advantage of Eletrobrás. Ba- sed on the opinion of its legal assistants who reveal uncertainty on the possibility of loss of the correspondent law suits (in 2003 the possibility of loss was classified as possibility of failure in the defense of the lawsuits in process), at the beginning of the care, in view of the confirmation of the unfavourable decisions in first pro- secution and of the inexistency of judgment in superior courts, the Management of the company maintained registered the provision for contingencies, mainly consti- tuted in previous years as a way of making a stand against fortuitous losses resul- ted from unfavourable judicial decisions. As a controversy issue, it is not possible at the current circumstances to come to any conclusion about the outcome of the issue as well as the fortuitous impacts on the financial statements. The company, aiming at the certification at U.S. – Security and Exchange Commis- sion – SEC, has been working in the process of development of its internal controls and its corporative governance to be in accordance with the Sarbanes Oxley Law (Section 404) and, consequently, to reduce the possibility of risks and frauds in its business in all its levels. The financial statements of Furnas – Centrais Elétricas S.A. for the year ended December 31, 2007, were examined by other independent auditors, whose opinion dated February 21, 2008 emphasized the balance of value added tax (ICMS) of R$ 44,067 thousand, registered by Furnas in the current asset, resulting from the Agreement of Commitment and Financial Cooperation between Eletronorte – Cen- trais Elétricas do Norte do Brasil S.A. and the Departamento de Estradas e Rodagem do Estado do Mato Grosso for work, implantation and pavement with asphalt of the road that accesses the “Aproveitamento Múltiplo de Manso”. All the work done was transferred to the Company in 1999 by the Resolution of Conselho Nacional de De- sestatização nº 02/1999, complemented by Resolution nº 04/1999. In June 13th, 2007 the “Termo da Ação de Conclusão Fiscal” in which is written that “The Gover- nment of Estado do Mato Grosso will reimburse Furnas for the value correspondent to the percentage of its participation”, enlightening that “After the conclusion of the service orders related to all companies, it will be possible to verify the value to be given back to Furnas, if the case”. Therefore, the liquidation of this credit still depends on the procedures resulted from actions of Finance Department of the State of Mato Grosso in relation to the definition of the value as well as the date of its execution. We examined the financial statements of Centrais Elétricas do Norte do Brasil S.A. – Eletronorte, for the year ended December 31, 2007 and we issued unqualified opinion, dated February 20, 2008, emphasizing the following: a) insufficiency of working capital and operational losses retained in the last years, in the subsidiary 226 Annual Report 2007 227 Manaus Energia S.A., depending on the amount of resources from its controller shareholder to guarantee that the operations go on. b) continuity in the business of the subsidiary Boa Vista S.A.; and c) Eletronorte sponsors, with its subsidiaries Manaus Energia S.A. and Boa Vista Energia S.A., the private social security entity called “Previnorte – Foundation of Complementary Private Social Security”. The mathematical/actuarial reserves were prepared by the independent actuary of the Foundation, based on the biometric table AT-49, with an amendment for 2 (two) years for the projection of the longevity of the participants and assisted people. Previnorte is promoting, gradually, the implementation of the table AT-83, as re- quested by the Resolution CGPC nº 18, as of March 28, 2006, which final term for the adoption of this table ends on December 31, 2008. Therefore, taking into account the current stage of this process as well a the due date for the adoption of the said table, fortuitous adjustments can be identified within the future financial statements resulting from the application of the NPC nº 26 from IBRACON – Insti- tute of Independent Auditors of Brazil. The financial statements of Companhia de Eletricidade do Acre – Eletroacre, for the year ended December 31, 2007 were examined by other independent auditors, whose unqualified opinion dated February 15, 2008 emphasized that the financial statements were prepared counting on the continuity in the business of the com- pany. Nevertheless, despite the income reached in the last two years, the company has been having accumulated losses through the years, supported by the controller shareholder, with resources bound for capital increase. Therefore, for the deve- lopment and continuity of the operations, the company has been implementing measures aiming at the economic-financial viability of the enterprise. The financial statements of CTEEP – Companhia de Transmissão de Energia Elétrica Paulista, for the year ended December 31, 2007 were examined by other indepen- dent auditors, whose unqualified opinion of January 30, 2008 emphasized the fact that, in accordance with de decision of 49th Jurisdiction of Work of São Paulo, from September 2005 on, the Foundation CESP began to issue the payroll of the supplementary pension plan’s beneficiaries ruled by Law 4,819/58, using funds onlended by the Company in the way it had been done until December 2003. In Janeuary 2006 the State of São Paulo Office of the General Attorney had the understanding that the State Government’s responsibility was restricted to the constitutional limits of the State determined for the payment of the retirement benefits. Since then, the Government of State began to stop some of the funds onlended to the Company. The Management of the Company, supported by its legal advisors, understands that the responsibility by the payments of benefits related to the issue is responsibility of the Government of State. As a result, no obligation whatsoever has been recorded in connection therewith. We examined the financial statements for the year ended December 31, 2006, pre- sented for comparative purposes, and we issued unqualified opinion dated March 26, 2007 containing similar emphasis to those described in paragraphs 5, 6, 7, 8c, 9, 10 and 11, besides the following: 10. 11. 12. Annual Report 2007 a) b) c) d) The financial statements of Furnas – Centrais Elétricas S.A. for the year ended De- cember 31, 2006, were examined by other independent auditors, whose opinion dated March, 2007, emphasized that the amount of R$ 293,560 thousand from energy sale transactions performed within the Electric Energy Commercialization Chamber – CCEE (formerly Wholesale Energy Market – MAE) sphere of activity in the period from September 2000 to September 2002, are still on the effect of temporary restricting judicial orders filed by companies of the electric sector in order to interrupt the payment. In 2007, due to the uncertainty of the financial accomplishment of the values to receive, Furnas constituted provisions for allo- wance for doubtful accounts, considering the integrality of these values. The financial statements of Eletrosul Centrais Elétricas S.A. for the year ended in December 31, 2006 were examined by other independent auditors, whose un- qualified opinion, dated February 14, 2007 emphasized the non homologation of the tariff review applicable to the tariffs from July 1, 2005. This homologa- tion occurred on July 02, 2007 promoting a reduction of the Annual Permitted Income – RAP of 1.36%, representing an adjustment of R$ 23,632 thousand which will be deduced from the monthly billings in 24 installments of R$ 985 thousand from July, 2007 on. The financial statements of Eletrobrás Termonuclear S.A. – Eletronuclear for the year ended December 31, 2006 were examined by other independent auditors, whose unqualified opinion, dated February 09, 2007 emphasized the inclusion of Angra 3 Project in the Program of Investments of the Federal Government, thus enabling operation expansion and recovery of resources already used in the current fixed assets. In 2007, National Council of Energetic Politics - CNPE by the Resolution nº 3/2007, dated July 25,2007, determined that Eletrobrás and Eletronuclear led the retake of the construction of Angra 3 nuclear plant considering the beginning of commercial operation in 2013. The financial statements of Companhia Estadual de Distribuição de Energia Elé- trica CEEE-D, for the year ended December 31, 2006 were examined by other independent auditors, whose unqualified opinion, dated February 26,2007, em- phasized the following aspects: a) In March 2, 2005, the Local Finance Depart- ment informed us that despite the group work has not been finished the electric energy account conciliation, which compounds part of the installment plan of debts of energy in the amount of R$ 49,885 thousand, the group work has alrea- dy informed the existence of unconformities. Therefore, before stating anything, it is a good strategy to wait for the work conclusion; and b) the company has been registering in long term asset the amount of R$ 15,889 thousand referring to the receivable reimbursement of the Revision of the Extraordinary Tariff and R$ 13,207 thousand referring to the Charges on the Service of System and in the long term liabilities the amount of R$40,607 thousand, relating to the transac- tions performed in the sphere of activity of Chamber of Electric Energy Commer- cialization – CCEE in prior years. 228 Annual Report 2007 e) f) g) h) The financial statements of Companhia Estadual de Geração e Transmissão de Energia Elétrica – CEEE-GT for the year ended December 31, 2006 were exami- ned by other independent auditors, whose unqualified opinion dated of Februa- ry 26, 2007 emphasized that the company registered in long term asset values receivable in the amount of R$ 52,108 thousand, referring to the receivable reimbursement from Review of the Extraordinary Tariff, and R$ 73,058 thou- sand of payables recorded as long term liabilities referring to prior years’ energy purchase and sale transactions performed in the CCEE’s sphere of activity. The financial statements of CTEEP - Companhia de Transmissão de Energia Elé- trica Paulista for the year ended December 31, 2006 were examined by other independent auditors, whose unqualified opinion dated February 1, 2007 em- phasized the adjustments of the Annual Permitted Income – RAP based on the variations of the Market Price Index – IGP-M for tariff cycles of July 2005 to June 2006 and from July 2006 to June 2007. In June 26, 2007, the first perio- dical tariff review was approved, reducing the Annual Permitted Income – RAP in 26.15%. The result of this reposition went into effect retroactively to July 1st, 2005. The financial statements of Empresa Metropolitana de Águas e Energia S.A. – EMAE for the year ended December 31, 2006 were examined by other indepen- dent auditors, whose unqualified opinion, dated of March 09, 2007 emphasized that the company is evaluating the economic and financial impact of changes in the new sectoral model and the recent experience with energy auctions on its businesses. In the Management’s opinion, besides the measures already taken to reduce costs and increase revenues, ultimately enhancing profitability and investments in the company’s generation complex, further measures cur- rently under discussion with the Grantor will be required. The financial statements of Centrais Elétricas de Rondônia S.A. – Ceron, for the year ended December 31, 2006 were examined by the independent auditors, whose unqualified opinion, dated of February 27, 2007emphasized that the financial statements were prepared taking into account the continuity of the company business. Nevertheless, the company has borne losses over the years, and accordingly has taken measures for attaining economic and financial ba- lance, ultimately being able to continue in business. In December 31, 2007, Eletrobrás registered provision for insufficiency of assets over liabilities in pro- portion to active participation in Ceron. Rio de Janeiro, March 14, 2008 Luiz Carlos de Carvalho Partner-Accountan CRC 1SP197193/O-6 “S” RJ BDO Trevisan Auditores Independentes CRC2SP013439/O-5“S” 229 Decisão do Conselho de Administração Annual Report 2007 230 Annual Report 2007 Decision of Board of Directors DECISION OF BOARD OF DIRECTORS The Board of Directors making use of its statutory attribution and in agreement with terms as established by joint stock company legislation has examined the Financial Statements as well as the opinion issued by Indepen- dent Auditors and the Opinion of Fiscal Council all related to the fiscal year ended as of December 31, 2007 and, deeming them fair and in order, decides to submit the issue to the deliberation of the General Ordinary Meeting of the company’s shareholders. Brasília, March 19, 2008 231 Parecer Annual Report 2007 232 Annual Report 2007 Opinion OPINION The Fiscal Council of Centrais Elétricas Brasileiras S.A.- Eletrobrás, within its legal and statutory attributions, took notice of the Administration Report and examined the Financial Statements referring to the year ended December 31, 2007, made up of Balance Sheet, Statements of Income, Changes in the Shareholders’ Equity, Sources and Applications of Funds, Cash Flow and Incremental Cash Flow, the Accompanying Notes to the Financial Statements and its Enclosures, besides the Independent Auditors’ Opinion as well as informed completely on the proposal relating to the destination of the results of the year. Considering the follow-up work that the Fiscal Council performed in respect to the company throughout the year, based on the analysis of the documen- tation presented, the information provided by the Accountant Department – DFC and the Opinion of BDO Auditores Independentes, that states that the Financial Statements fairly represent, in all its relevant aspects the sheet and financial position of Centrais Elétricas Brasileiras S.A on December 31, 2007, the Fiscal Council of Eletrobrás, emphasizing the understandings as stated in the paragraphs nº 6, 7, 8, 9, 10 and 11 of the independent auditors’ opinion, understands that the referred to Financial Statements are in condition to be submitted to the deliberation of the Shareholders General Ordinary Meeting of the Company. It is clear that the proposal of the Management of Eletrobrás in relation to the destination of the result of 2007 is supported by the current legal and societary dispositions. Brasília, March 19, 2008 233 

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