Companhia Energética de Minas Gerais S.A. CEMIG History

Address:

Av. Barbacena 1200
Belo Horizonte 30123-970
Brazil

Telephone: 55 31 3299 4900
Fax: 55 31 3299 3934

Public Company
Incorporated: 1952
Employees: 11,648
Sales: BRL 5.62 billion (2003)
Stock Exchanges: Sao Paulo
Ticker Symbol: CEMIG
NAIC: 221122 Electric Power Distribution

Company Perspectives:

Mission: To play a major role in the energy sector with a mindset geared towards profitability, quality and social responsibility. Vision: Cemig shall be the best energy utility in Brazil.

Key Dates:

1883:: Brazil's first hydroelectric plant, in Minas Gerais, is constructed.
1952:: Companhia Energética De Minas Gerais S.A. CEMIG (Cemig) is created in order to take over electricity power sector in Minas Gerais.
1986:: Cemig launches Gasmig, entering the natural gas transmission and distribution market.
1997:: Cemig goes public, with a listing on the Bolsa de Valores de Sao Paulo.
1999:: Company forms Infovias joint venture with AES Corp.
2002:: Cemig buys out AES stake in Infovias.
2003:: Cemig announces plan to split up its generation, transmission, and distribution operations into three separate companies.
2004:: Cemig plans to spend up to $1.75 billion before 2010 in order to expand generating capacity and to acquire power companies beyond Minas Gerais.

Company History:

Companhia Energética de Minas Gerais S.A. CEMIG (Cemig) is one of Brazil's largest electric power public utility companies, and the largest power producer and distributor in its home base of Minas Gerais, the second largest state in the country in terms of gross domestic product. Cemig operates 48 hydroelectric power plants, three thermoelectric power plants, and one aeolic power plant, for a total production capacity of more than 5,700 megawatts. The company has also begun construction on four more power plants, with the first expected to be completed in 2004. Cemig serves a region of more than 562,000 square kilometers--equivalent to the size of France--and a total population of 16 million customers, including a number of Brazil's largest industrial corporations. Cemig's 330,000-kilometer distribution network is the longest in South America and the fourth longest in the world. The company also operates a natural gas transmission and distribution subsidiary, GASMIG, and has been building its own telecommunications network through subsidiary Empresa de Infovias. Through Infovias, the company also holds a 66.41 percent stake in Belo Horizonte cable television and Internet services provider Way TV Belo Horizonte. Publicly listed Cemig nonetheless remains controlled at 51 percent by the Minas Gerais government. New federal regulations relating to the energy sector have forced Cemig to split up into individual companies for its power generation, transmission, and distribution operations, although Cemig as a holding company will retain control over these businesses. The company moved closer to launching this restructuring in 2004. In 2003, Cemig's net revenues topped BRL 5.6 billion, for a net income of BRL 1.2 billion. The company is one of only three Brazilian companies to be listed on the Dow Jones Sustainability and the DJSI World indexes.

Powering Brazilian Industrialization in the 1950s

Minas Gerais, with its rich mineral deposits, became a center of the Brazilian mining industry by the 19th century. The development of the first electrical power generation technologies offered the promise of increased production, and Minas Gerais became the first in Brazil to build an electrical power plant. That plant, serving the Diamantina mining operation, launched production in 1883. Several more power plants were built in Minas Gerais over the next decade; like the initial power plant, the new plants were hydroelectric plants, taking advantage of the abundant water resources in the state. Encouraged by new government legislation passed in 1891, Brazil saw a dramatic increase in the growth of its electric plants. Most of these new plants were small, meant to serve only a local area, and were often privately held, or owned by municipal governments. Although the earliest plants in Minas Gerais had been hydroelectrical plants, newer thermoelectric designs became prevalent throughout Brazil.

Power generation and other utilities and resources came under closer federal and state government control starting in the 1920s. By the end of World War II, the government moved to take full control of the utility sectors, establishing new state-owned companies. Until then, Brazil had remained relatively un-industrialized, in part because of the electricity sector's reliance on low-capacity plants. Much of the sector, including in Minas Gerais, depended on wood-burning plants for their electricity generation needs.

The Minas Gerais state government launched a new industrialization policy following World War II. In 1945, the government began studying the state's power generation capacity and its potential, and called for the establishment of a new government-controlled entity that would put into place its electricity generation and distribution policies. Although the government's policies were not immediately carried out, it outlined a transformation of the region's electrical generation capacity from a reliance on wood-burning plants to the development of a new generation of hydroelectric plants.

In 1952, under Governor Juscelino Kubitscheck, the state built the first of these new hydroelectric plants in Cafanhoto, which directly provided power to Minas Gerais's new Contagem Industrial District. The new plant was placed under the direction of a new company, state-owned Companhia Energética de Minas Gerais or Cemig. This first plant was quickly followed by the construction of plants in Salto Grande, Cajuru, Itutings and Piau, and, finally, Très Marias, one of the state's landmark engineering projects.

The company's initial power generation focus went toward serving the region's mining industry. In the 1960s, however, the company began targeting the industrial sector as well. In 1968, Cemig took a more active role in encouraging the growth of the region's industrial activities, forming the Institute of Industrial Development in Minas Gerais with the Bank of the Development of the States of Minas Gerais. In part due to Cemig's ability to ensure a strong power supply, the region succeeded in attracting such industrial heavyweights as Fiat, Mercedes Benz, Alcan, Alcoa, Açominas, and Usiminas. By the end of the century, Minas Gerais would emerge as Brazil's second wealthiest state.

Cemig also worked with the UN Development Program and the World Bank in order to identify new potential sites along the region's many river basins for additional hydroelectric plants. New plants were then built in Jaguara, Volta Grande, Sao Simao, Nova Ponte, and Emborcaçao. During this period, also, Cemig began acquiring many of the state's smaller electrical generation utilities, taking over their transmission and distribution facilities as well. By the end of the 1970s, Minas Gerais had emerged as the state's dominant electricity company, a position it was to maintain into the next century. Just 3 percent of the electrical power production in Minas Gerais remained in private hands or directly controlled by municipalities.

International Interests for the New Century

Cemig redrafted its bylaws in 1984, redefining itself as a power company--rather than an electricity company--in order to pursue an expansion into other power generation sectors. In 1986, the company took its first step in that direction, founding Gasmig. This utility then began building a natural gas distribution network.

During the period, the economic chaos in Brazil during the 1980s had led to a severe drop in the country's power generation investments, leaving many states, including Minas Gerais, with aging and increasingly decrepit distribution networks. At the same time, many of the country's government-owned utilities, which had enjoyed a long period of low-interest, government-backed loans, had developed into inefficient, money-losing operations.

The Brazilian government took steps to reverse the sector's difficulties in the early 1990s, passing new legislation in 1994 as a first step in the privatization and deregulation of the electricity generation sector. The new legislation installed stricter financing requirements, and led the way, in 1995, to the government announcement of its intention not only to privatize the industry, but also to break up the utilities' vertically integrated structure. Under this initiative, companies were expected to split up their operations into separate generation, transmission, and distribution components. As part of this development, the government also created a wholesale electricity market.

As Brazil's largest and one of the country's most efficient electricity companies, Cemig stood to benefit from the changes in the market. The company began preparations for the deregulation of the sector--which was also to permit it to extend beyond Minas Gerais itself. In the mid-1990s, the company launched an ambitious expansion program, which called for the company to spend some $3 billion in order to boost its generation capacity as well as expand its transmission and distribution network. The company's investment effort included the construction of two new hydroelectric plants, a 510 megawatt site in Nova Ponte and a 390 megawatt site at Miranda. The company also joined into a private sector consortium to build a third plant, the 210 megawatt Igarapava dam, with Cemig providing its technological expertise and its partners providing the funding for the project, marking one of the first times a Brazilian utility formed such a partnership with the private sector. As another part of its effort to make itself more competitive in the coming deregulated market, Cemig began trimming its payroll, shedding nearly 3,000 jobs by the middle of the decade.

Cemig was partially privatized in 1997, with its shares listed on the Sao Paulo exchange. Most of the shares sold off by the Minas Gerais government were placed with a consortium of companies, including Southern Energy Inc. and AES Corp. of the United States and Brazil's Opportunity Bank, which paid $1.1 billion for 33 percent of Cemig's shares. The Minas Gerais government nonetheless retained control of 51 percent of Cemig's stock.

The prospect of the deregulation of the energy market paved the way for the Minas Gerais government to pass new legislation in 1997 permitting Cemig to diversify into areas not related to its power operations. Nonetheless, Cemig stuck close to its expertise in transmission networks. In 1999, the company formed a joint venture with AES Forca e Empreendimentos Ltda, creating Infovias, a telecommunications, cable television, and Internet joint venture, which included the cable television and Internet services provider Way TV Belo Horizonte. In 2002, Cemig bought out AES's stake in Infovias, raising its own shareholding past 99 percent.

Telecommunications remained a minor part of Cemig's operations, however. Meanwhile, in the early 2000s, the company continued to expand its number of hydroelectric plants, invest- ing some BRL 2.8 billion ($798 million) between 1999 and 2002. During that period, the company built two hydroelectric plants at Funil and Porto Estrela, and began construction on four others in Queimado, Aimores, Irape, and Pai Joaquim. In February 2003, the company began construction on two additional power plants in Capim. Cemig also expanded its thermoelectric plant capacity--used primarily to supplement its hydroelectric generating capacity during drought periods, building a thermoelectric plant in Barreiro, and buying two more in Carvalkho and Ipatinga in 2002. In 2003, the company announced its plans to invest in expanding its Gasmig subsidiary transmission capacity, earmarking BRL 86 million ($29 million) to extend its network by 157 kilometers in the cities of Belo Horizonte and Vale do Aco.

New rules governing the Brazilian power sector led to Cemig's announcement at the end of 2003 that it would break itself up into separate generation, transmission, and distribution companies, which were nonetheless to remain part of Cemig's holdings. Cemig, eager to begin sales of its surplus power beyond the Minas Gerais region, quickly drafted its breakup plan, which was accepted by the Minas Gerais government in July 2004. At the same time, Cemig announced its intention to spend BRL 5 billion ($1.75 billion) through the end of the decade in order to expand its power generation capacity by more than 10 percent, as well as to enable the company to make acquisitions beyond Minas Gerais. With more than 50 years of experience as a leading electricity company, Cemig appeared a sure bet to become a national powerhouse in the new century.

Principal Subsidiaries: Cemig Capim Branco Energia S.A.; Cemig PCH S.A.; Cemig Trading S.A.; Central Hidrelétrica Pai Joaquim S.A. (49%); Central Termelétrica de Cogeraçao S.A. (49%); Companhia de Gás de Minas Gerais - GASMIG (95.17%); Efficientia S.A.; Empresa de Infovias S.A. (99.92%); Horizontes Energia S.A.; Sá Carvalho S.A.; USIMINAS; Usina Te rmelétrica Barreiro S.A.; Usina Térmica Ipatinga S.A.

Principal Competitors: Centrais Eletricas Brasileiras S.A.; Centrais Eletricas De Santa Catarina S.A.; ELETROBRAS; Eletricidade E Servicos S.A.; Eletropaulo Metropolitana Eletricidade de Sao Paulo S.A.; Companhia Forca E Luz Cataguazes Leopoldina; CPFL Geracao de Energia S.A.; Itaipu Binacional; LIGHT Servicos de Eletricidade S.A.

Companhia Energética de Minas Gerais S.A. CEMIG History

Company Perspectives:

Key Dates:

Company History:

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