Approval of Auction for Cemig Power Plants

Today, August 8th, 2017, at its 29th Ordinary Meeting, the board of the National Electric Energy Agency (ANEEL) approved the publication of the bidding notice for the exploitation of the Jaguara, Miranda, São Simão and Volta Grande hydroelectric plants, which are currently operated by Cemig.

The auction is scheduled to take place on September 27th, 2017 and will be held at B3 – Brasil (merger of BM&FBOVESPA and CETIP). The plants will be auctioned under the regime of physical guarantee quotas, under the terms of Law No. 12.783/2013[1], for a period of 30 (thirty) years.

The Granting Authority expects to raise, with the auction, the minimum amount of BRL 11 billion as a bonus for the granting of these plants, which will be paid by the winners of the auction. This amount must be paid in cash upon the signing of the concession agreement.

The approval of the auction announcement takes place in the midst of an intense legal dispute between Cemig and the Federal Government. In the company’s view, the concession agreement in connection with the Jaguara, Miranda and São Simão plants (Concession Agreement No. 07/1997) guarantees the right to the renewal of the concessions of the plants for another twenty (20) years, outside the quota system[2]. The Granting Authority, in turn, maintains that the contract does not guarantee the right to renew the concessions, but only provided for the possibility of renewal, as long as it is in the interest of the public administration[3].

The Judiciary has not decided on the merits of the discussion yet, and today there is not any ruling preventing the auction, which was highlighted by ANEEL’s attorney’s office during the board meeting. On July, 2017 the Federal Supreme Court (STF) denied an injunction request presented by Cemig aiming to suspend the auction. The trial of the case is scheduled to occur on August, 22.

Within the Public Hearing No. 26/2017, initiated by ANEEL to discuss the bid announcement, Cemig requested the suspension of the auction or at least that the public notice (edital) contained certain terms assuring Cemig’s right to continue exploring the plants, should it wins the lawsuits.

The public notice provides that at least 70% of the physical guarantee of the plants shall be allocated to the Regulated Contracting Environment (ACR), with the remaining 30% being free for commercialization.

A bidder will be declared the winner if it offers the highest bonus amount for the grant, provided that the minimum values defined by the Granting Authority are met.

Finally, on August, 7th, 2017, the Ministry of Mines and Energy (MME) published Ordinance No. 291, whereby the ministry set the amount of BRL 1.02 billion to be paid to Cemig as compensation for assets not yet amortized from the Miranda and São Simão plants.

For further information about the contents of this memorandum, please contact the following Lawyers:

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Rosi Costa Barros
rosi.barros@nbfa.com.br
(11) 3007-8370

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Willian de Figueiredo Lins Junior
willian.lins@nbfa.com.br
(11) 3007-8370

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Luisa Tortolano Barreto
luisa.barreto@nbfa.com.br
(11) 3007-8370

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¹  In the quotas regime, all the electric power generated by the plants is allocated in quotas to the distributors, the generator being mainly remunerated by the Plant’s Operation & Maintenance, which considerably reduces the revenue previously perceived by the generators.

² Clause Four of Concession Agreement No. 07/1997 provides that: “The electric power generation concessions regulated by this Agreement have their final term established in their corresponding grants, as listed in EXHIBIT I, it being assured to those not yet extended on this date, the extension of their term, pursuant to art. 19 of Law No. 9,074/95.” (free translation into English)

³ The granting authority claims in the Precautionary Action No.3,980/DF that: “The regulatory clauses of the concession contract may undoubtedly be amended unilaterally by the Granting Authority, and, it being recognized by the doctrine that the term of the concession is of a regulatory nature. There is no vice in its amendment by the Administration, unilaterally. Therefore, there is no doubt that the subsequent legislative change immediately affects an ongoing contractual relationship, as it happened in the present case.” (free translation into English)he granting authority claims in the Precautionary Action No.3,980/DF that: “The regulatory clauses of the concession contract may undoubtedly be amended unilaterally by the Granting Authority, and, it being recognized by the doctrine that the term of the concession is of a regulatory nature. There is no vice in its amendment by the Administration, unilaterally. Therefore, there is no doubt that the subsequent legislative change immediately affects an ongoing contractual relationship, as it happened in the present case.” (free translation into English)

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The information included in this Newsletter is intended to provide the clients of our firm with general updates and does not constitute a legal opinion or professional advice in relation to any specific matter, present or future that our firm is or might be currently involved with. The English version of this Newsletter is a free translation from Portuguese.

2017 NBF|A Advogados. All rights reserved. The exploitation, reproduction, private or public distribution, total or partial modification are prohibited without prior written consent from NBF|A Advogados.