cemig: growth and prospects brazil day november 2003

A Melhor Energia do Brasil.

Cemig: Growth and Prospects

Brazil Day

November 2003

All figures comply with BRGAAP

2A Melhor Energia do Brasil.

Disclaimer

• Certain statements contained in this presentation are “Forward-Looking Statements” within the meaning of the US Securities Laws, and are thus prospective and subject to risks and uncertainties. “Forward-Looking Statements” are matters that are not historical facts and are beyond our control. For a discussion of risks and uncertainties as they relate to us, please refer to our 2002 Form 20F, and in particular Item 3 under “Key information - Risk Factors”.



Key Issues

• Fundamentals• Strategic overview

– Growth and value creation

– Regulatory Review

• Projects



Regulated Business Assets are the Major Part of CEMIG

Sá C arvalho

Ipatinga

H orizontes

U TE B arreiro

C em ig PC H

N on-regulatedInvestm ent

R $ 294 m illion

Pow er P lants

Transm ission G rid

D istribution N etw ork

Public Service

PPER $ 8.081 m illion

Pow er P lants under C onsortiaInvestm ent

R $ 755 m illion

Electric Energy

Investm entR $ 101 m illion

Natural GasDistribution

Investm entR $ 250 m illion

Telecommunication Efficientia

Cemig owns:• 100% of the electric energy business• 95% stake in Gasmig and• 99% stake in Infovias

Fundamentals



Contribution by Business to value creation

Businesses Net Income

EBITDA

Cemig 797 1,188

Gasmig 18 25

Sá Carvalho 9 20

Ipatinga 2 7

Infovias (10) (2)

Efficientia (1) (1.3)

Horizontes Energia (1) 0.4

Total 813 1,238

Values in R$ million

9 months of 2003

1.622.39

3.04

0.21

2.61 3.01

-6.18

5.01

Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Sep-03

Earnings per share

Fundamentals



Cemig Has a Low-risk Business Structure

Cost-efficient generating assets97% hydropower plant parkSupply 6 % of the total client demandHigh service continuityLowest operating cost in the industrySixth-largest generating capacity in Brazil

Installed Capacity: 5,771 MW, 7.01% market shareEffective capacity: 3,332 MWTransformer capacity: 6,240 MVA

Sizeable transmission gridCovers 100% of Minas Gerais

Installed transformer capacity: 15,163 MVA

Transmission grid length: 4,856 km

Fundamentals



Cemig Has a Low-risk Business Structure

Monopoly in Natural Gas Distribution in State of Minas Gerais

414 million thousand m3 natural gas volume sold in 2002

157 industrial clients served

Distribution network : 161.8 Km

Fundamentals

Largest electricity distribution market share

Supplies 96% of electricity in MG5.7 million client baseSales represent 12.3% of country’s total electricity consumptionDistribution network length

Subtransmission: 16,207 kmUrban and rural distribution grid: 355,674 km



Drivers of Value Creation at CEMIG

Drivers 1st Quarter 2nd Quarter Year to date

Operating Income (R$ million) 123 431 816

Retail Sale Revenue Growth (%) (55) 29 32

Free Cash Flow (R$ million) 278 197 292

WACC ( %) 14 14 14

Market Capitalization (R$ million) 3,671 3,901 4,771

EBITDA Margin (%) 24 28 31

Customer Satisfaction Index (%) 71.1 71.1 71.1

Sales to Final Consumer as % of Total Sales 91.1 91.1 91.1

Electricity Distribution Market Share (%) 12.15 12.15 12.15

Fundamentals



A Profitable Quarter

Year to date 3rd Q. 2nd Q. 1st Q. Year to date 3rd Q. Year

Net Revenue 4,056 1,513 1,455 1,088 3,821 1,539 5,119

Operating Expenses (3,240) (1,127) (1,148) (965) (3,407) (1,490) (4,593)

EBIT 816 386 307 123 414 49 525

EBITDA 1,238 527 448 263 822 187 1,076

Financial Result 501 70 273 158 (757) (450) (616)

Non-Operating Result (24) (12) (3) (9) (21) (7) (27)

Extraordinary Loss - - - - (1,045) - (1,045)

Income Tax, Social Contribution and Deferred Income Tax (480) (166) (193) (121) 126 149 (71)

Interest on Capital Reversal - - - - 122 2 220

Minoritary Interest - - - - 10 1 12

Net Income 813 278 384 151 (1,151) (256) (1,002)

Statement of Income - Consolidated

Values in million of Reais

20022003

Fundamentals



Retail Revenues Increased by 30%

31.5% tariff readjustment as of April 8, 2003 Charge for Emergency Capacity 0.8% increase in the volume of energy sold

Year to date 3rd Q. 2nd Q. 1st Q. Year to date 3rd Q. Year

Retail Sales 5,217 1,903 1,860 1,454 3,943 1,400 5,458

Extraordinary Revenues - - - - 269 8 275

Wholesale 50 20 26 4 489 439 534

Transmission Grid Revenue 191 68 65 58 134 54 185

Others 272 114 90 68 170 67 300 Deductions (1,674) (593) (585) (496) (1,184) (428) (1,633)

Net Revenues 4,056 1,512 1,456 1,088 3,821 1,540 5,119

2003 2002

Fundamentals



Consolidated Retail Sales as of September 30, 2003

Category 2003/2002 %

Retail 0.8

Residential 4.0

Industrial (1.5)

Commercial 4.1

Others 5.5

26,724 GWh

61%18%

9%5% 7%

R$ 5,217 millions

33%

14%

5%9%

39%

Industrial

Residential

Commercial

Rural

Others

Fundamentals



Rationing still impacts sales

• Total quarterly retail sales up 0,8% YoY

• Weak residential consumption :

– Down 0.3% 3Q03 over 3Q02

– Down 2.3% 3Q03 over 2Q02

• YoY quarterly industrial consumption down 0.7% due to clients with power projects.

7,800

8,000

8,200

8,400

8,600

8,800

9,000

9,200

Gw

h

1st Qtr 2rd Qtr 3rd Qtr

Quarterly Retail Sales

1,400

1,450

1,500

1,550

1,600

1,650

1,700

Gw

h1st Qtr 2nd Qtr 3rd Qtr

Quarterly Residential Consumption

4,9005,0005,1005,2005,3005,4005,5005,6005,700

Gw

h

1st Qtr 2nd Qtr 3rd Qtr

Quarterly IndustrialConsumption

2002 2003

26,000

26,500

27,000

Gwh

9 months

Retail Sales

2002 2003

Fundamentals



Nine Month Operating Expenses down 5% Labor expenses : 19% increase year over year• 11.45% salary readjustment in November 2002 • Increase in employee profit sharing• 0,29 % increase in the average number of employees

Year to date 3rd Q. 2nd Q. 1st Q.

Year to date 3rd Q. Year

Energy Purchased 1,037 356 389 292 1,455 793 1,733

Labor 501 162 178 161 420 144 591

Depreciation and amortization 422 141 141 140 408 138 551

Fuel Consumption Quota 220 62 65 93 252 92 345

Energy Development Account 78 41 37 - - - -

Transmission Grid Charges 248 91 80 77 220 78 298

Outsourced Services 222 83 74 65 180 68 265 Forluz – Employee post-retirement benefits 36 12 17 7 162 54 145

Other Expenses 476 179 167 130 310 123 665

Total 3,240 1,127 1,148 965 3,407 1,490 4,593

Operating Expenses (consolidated)

Values in million of Reais

2003 2002

Expense for energy purchased decreased by 28,75% • Reduction in expenses related to energy transactions on the MAE • Energy purchased from Itaipu up 19%

Post-retirement obligations : 78% reduction YoY • higher profitability in pension fund assets.

Fundamentals



Strong cash flowNine-month EBITDA of R$ 1.238 million

Nine-month EBITDA margin up to 31%

Growing operating income : 97% up from R$ 816 million

Low leverageDebt-to-equity ratio is 34 %

Debt maturityShort term (12 monts): R$ 981 million

Long term: R$ 2.479 million

Cemig Has Extremely Solid Fundamentals

Values in millions of Reais

Fundamentals

TOTAL SHORT TERM LONG TERM

FOREIGN CURRENCY DEBT 1,393,463 595,284 798,179

CEMIG 1,492,879 669,328 823,551 OTHERS 95,382 21,089 74,293 ROLLOVER SINKING FUNDS (194,798) (95,133) (99,665)

DOMESTIC CURRENCY DEBT 1,572,989 306,516 1,266,473

CEMIG 1,567,334 304,477 1,262,857 OTHERS 5,655 2,039 3,616

SUBTOTAL 2,966,452 901,800 2,064,652

BNDES 493,748 79,537 414,211

TOTAL CEMIG 3,460,200 981,337 2,478,863

DEBT CEMIG CONSOLIDATED



Outstanding Debt

R$ million 9/30/03 9/30/02

. Domestic 2,067 1,290

. Foreign 1,393 2,098

US$ Million 477 539

Outstanding Debt

R$ million 9/30/03 9/30/02

. Domestic 2,067 1,290

. Foreign 1,393 2,098

US$ Million 477 539 1.2

38

822

3.4

60

3.3

88

0

1.000

2.000

3.000

4.000

5.000

6.000

1998 1999 2000 2001 2002 3rd Q. 03 3rd Q02

R$ M

I

EBITDA Debt Net Revenue

The goals of the restructuring plan are to:• Reduce FX debt• Extend the term of the local debt• Hedge short-term FX debt

Ratios are within historical levels:Sept/03 Dec/03

Net Debt/EBITDA: 2.1 1.7EBITDA/Interest: 4.0 4.9

Outstanding Debt as of September 30, 2003

Fundamentals



Addressing Cash Flow ManagementLiquidity is a concern:

– Short-term loans• Maturing debt rollover• Short-term hedge transactions

– BNDES CVA-related loan still pending– Tight cash flow management– Curb expenditures

Description 3rd Q03 3rd Q02Operating Activities

Net Income (Loss) 813,163 (1,150,905)Depreciation and Amortization 421,766 408,388Extraordinary Revenue for Rationing Loss - (268,913)Energy Purchased on MAE (21,318) (464,976)Energy Purchased on Spot Market - 65,242Net Asset Disposal 52,741 16,205Equity Income - -Long-term Interest and Monetary Variation (594,133) 282,742Defered Income Tax and Contribution 97,739 (245,448)Loss Provision 106,132 91,010CRC Loss Provision - 1,045,325Post-employment Obligations 35,630 162,748Others (769) (10,951)Total 910,951 (69,533)

Changes in Current Assets (116,026) (465,260)Changes in Current Liabilities (208,179) 1,177,169Cash Provided by Operating Activities 586,746 642,376

Fundamentals

Description 3rd Q03 3rd Q02Financing Activities 281,369 (208,300)

Proceeds of New Debt 903,938 287,290Debt Repayment (622,678) (287,949)Advanced Sales - (42,596)Special Obligations - 11,526Dividends and Interest on Equity 109 (176,571)

Total Cash Available 868,115 434,076Investment Activities (698,270) (723,947)

Investments (167,489) (293,392)PP&E (592,478) (528,509)

Consumer funds 61,932 113,141 Increase in deferred charges (235) (15,187)

Net change in cash 169,845 (289,871)

At the beginning of the period 122,975 705,844 At end of the period 292,820 415,973



Key Issues




• Projects



Keys to our Success

• Unchanged business focus• Low-risk business model• Pursue financial strength• Careful evaluation of non-regulated business

opportunities• Highest standards of Corporate Governance and

integrity

Strategic overview



Strategic Directives

• Portfolio analyses– Reviewing business plans

• Internal business value• Size business to market reality

– Careful business opportunity evaluation

• Target setting– Streamline operations– Reduce WACC– Focus on total shareholder value

• Business organization– Improve core competency

• Strengthen relationships with customers

• Corporate Governance best practices– Focus on shareholders’ long-term

interest– New dividend policy

• Higher dividend yield

• Performance management– Performance monitoring– Evaluation of business enablers

• Training program• Technology

– Balanced scorecard

Key strategy: deliver sustainable growth and add value to current shareholder investment through:

Strategic overview



Corporate Governance as a Cultural Value

Understand market perceptionTransparencyScrutinyComprehensive IR programGuidance

Broaden the investor baseSocial responsibility

Pursuit of environmentally sound projectsUniversality of service for the concession territoryAffordable rates

Dividend policy which meets shareholder interestContinual scanning for global class practices

Board membership14 members

6 members meet independence criteriaPN share holders appointed one member

Highly educated members in various fieldsPoliticsEconomyBusinessAccountingElectricityResearch and Development

Strengthened relationship with different tiers of government

Strategic overview



Related Party Transactions

Arms length relationship with the majority shareholderFace problems directly

Seek viable solutions for CRC receivables

• Repay dividend-backed contract – Total amount: R$ 874 million

– overdue in 2003: R$ 109 million

• Negotiate the accrued contract with Minas Gerais State Government and the Federal Government

– Total amount: R$ 1,467 million

– overdue in 2003: R$ 140 million

• Address tax charges

Strategic overview



CEMIG has Adopted a Cooperative Approach

Key aspects :

• Creation of a “Virtual Pool” – Execution of capacity auctions

– Coordination of distributors’ power purchase agreement

• Vertical separation of the distribution business

• Federal Government-driven long-term planning – Long-term generating capacity growth forecast

• Bidding process for new power plants based on lower price

• Roles of free customer and independent power producer lose substance

Summary of the proposal disclosed by the Federal Government

Strategic overview

The major objectives are to :• ensure a sustainable growth for the generating capacity• rate affordability



Proposed Regulatory Framework

Generation DistributionBenefits

– Long-term contracts– Lowest revenue bid-based concession auction– Capacity auctions– No operating risks– Higher capacity reserve

– No competition for free consumers– Guarantee of energy cost pass-through

Threats

– Price review every 5 years– New inflation adjustment index – Poor credit quality of the distributors– Penalties on poor asset operation– Concession expiration– Wholesale energy pricing

– No self dealing – Penalties on poor demand forecast– Higher price for electricity purchased– Guarantees pledged on energy contracts– Delinquency risk taken by distributors

Strategic overview



8.1

0.3

2.00.65.2

3.9

1.1

9.2

Market Cap MarketPerception

ExpensesAdjust -

ANEEL UtilityBenchmark

WholesalePrice Upside

Market ShareGrowth

Market CapBeforeWACC

WACC Cuton 1%

2006Estimated

Market cap

Strategic Actions to Meet Shareholders’ Long-term Interest

3,93,9

1,21,2

• Better Governance

• ANEEL Regulation Compliance

• Dividend / CRC

•Improved Ratios See disclaimer

Strategic overview



2003 Retail Sale Forecast

Values in GWh 2002 2001 2000

Category Cemig Sá Carvalho Ipatinga Out of MG Total

. Residential 6,625 6,625 6,360 6,475 7,576 . Industrial 20,366 482 315 522 21,685 21,906 21,351 22,219 . Commercial 3,372 3,372 3,283 3,269 3,584 . Rural 1,814 1,814 1,705 1,572 1,676 . Others 2,519 2,519 2,380 2,281 2,486Total 34,636 482 315 522 36,015 35,634 34,948 37,541

2003( estimated)

Growth RateCategory 2003 2002 2001

. Residential 4.20% -1.80% -14.50%

. I ndustrial -1.00% 2.60% -3.90%

. Commercial 2.70% 0.40% -8.80%

. Rural 6.40% 8.40% -6.20%

Total 1.10% 2.00% -16.90%

2003 estimated sales show impact of industrial clients’ self supply power projects

Strategic overview



31.5%

2.5%

13.5%18.0%

8.0%

11.0%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

2003 2004 2005 2006 2007 20080.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Best case Scenario Most likely Scenario

Worst case Scenario Rate Readjustment

Average yearly consumption growth ranging from 1% to 3% causes expressive impacts on the Company’s results.

Prices as of June 2003

Additional rate recovery of 10%Deferred CVA and rate revision in 2008

EBITDAR$ million

Rate increase %

Scenario for CEMIG’s EBITDA from 2003 to 2008

Strategic overview

See disclaimer



Key Issues




• Projects



4-year Plan Amounts to R$ 3.4 BillionValues in millions of reaisValues in millions of reais

Capital Expenditure

Expand generating capacity over the next 3 years by 10% to replace electricity purchase contract expiring in the same period.

Connect another 200,000 new clients per yearAchieve 100% penetration in rural areas in 3 years

Improve transmission grid reliabilityReduce outages in number and duration

Reduce energy losses

In all cases, return must be greater than WACC

Projects

See disclaimer

Revised

Power Projects 448 286 388 340 225 274

Transmission 76 63 85 74 104 98

Subtransmission 79 41 38 69 67 62

Distribution 256 166 240 273 275 282

Other Facilities 35 19 38 49 45 42

SUBTOTAL 894 575 789 805 716 758

Non-eletric Facilities 189 46 71 60 0 0

Customers/Subsidies 68 42 56 46 59 62

TOTAL 1,151 663 916 911 775 820

20032004

ItensEstimated

2002 2005 20063rd Q03



Generation Capacity Expansion

Plant Category Installed Effective Cemig Start-up Capacity Capacity % Date

MW MWQueimado Hydro 105 58.0 82.5 Out/03Funil Hydro 180 89.0 49 Dez/02Aimorés Hydro 330 172.0 49 Set/04Irapé Hydro 360 206.3 100 Ago/05Capim Branco I Hydro 240 155.0 21.0526 Jan/06Capim Branco II Hydro 210 131.0 21.0526 Dez/06Pai Joaquim Hydro 23 13.91 48.5 Dez/03Barreiro Thermal 12.9 11.5 48.5 Out/03Sulminas Thermal 500 460 ND Dez/05Ipatinga Thermal 99.5 91.5 ND Dez/05Igarapé II Thermal 219.2 201.7 100 Dez/05

Projects



MSMS

RIO DE JANEIRORIO DE JANEIRO

DABOLÍVIA

LEGEND:LEGEND:

Exisitng pipeline

Pipeline network to be built

Pipeline to be built

Existing pipeline network

SÃO PAULOSÃO PAULO

MINAS GERAISMINAS GERAIS

ESPÍRITOESPÍRITO SANTOSANTO

PARA RIOGRANDE DO SUL

CAMPOS

SÃO PAULO

GUARAREMA

RIBEIRÃO PRETO

ATIBAIA

UTE Ibirité720MW

UTE Sulminas500 MW

VESPASIANO

UTE Juiz de Fora103 MW

BETIM

BELO HORIZONTE

SANTA LUZIA UBERABA

SETE LAGOAS

UBERLÂNDIA

JUIZ DE FORA

OURO BRANCO

VARGINHA

TRÊS CORAÇÕES

POUSO ALEGRE

IBIRITÉCONTAGEM

ARAXÁ

BARBACENA

PARAGOIÁS / BRASÍLIA

CAMPINAS

ARARAQUARA

POÇOS DE CALDAS

SÃO CARLOS

ARAGUARI

GOIÁSGOIÁS

IPATINGA

OURO PRETO

JOÃO MONLEVADE

SÃO BRÁS DO SUAÇUÍ

BELO ORIENTE

ITAÚNA DIVINÓPOLIS

GASMIG Expansion Plan

UTE Igarapé325 MW

Capex: R$ 303 MM

Distribution Network : 898 kmEstimated Volume : 14,1 MM m³/day

Projects



• BOVESPA Level I: CMIG3 and CMIG4BOVESPA Level I: CMIG3 and CMIG4• NYSE Level II ADR: CIGNYSE Level II ADR: CIG• Latibex: XCMIGLatibex: XCMIG• Dow Jones Sustainability Index 2000, 2001 and 2002Dow Jones Sustainability Index 2000, 2001 and 2002

Committed to the Best Practices of Corporate Governance

Best Corporate Governancein Latin America for Electric Utilities

cemig: growth and prospects brazil day november 2003

Documents

share fundamentals

cemig cemig

infovias fundamentals

effective capacity

emergency capacity

natural gas distribution

largest generating capacity

mw transformer capacity